The basics
Medical billing and medical coding
Medical billing is the process of turning the care a provider delivers into payment from insurers and patients. It is closely tied to medical coding but is not the same job. Coding translates the provider’s documentation into standard codes; billing uses those codes to build claims, sends them, follows them until they are paid and collects what the patient owes.
| Aspect | Medical coding | Medical billing |
|---|---|---|
| Starts from | The provider’s documentation | Coded charges and patient and insurance data |
| Code sets | ICD-10-CM diagnoses, CPT and HCPCS Level II procedures and supplies, modifiers | Claim formats, payer IDs, remittance adjustment codes (CARC and RARC) |
| Main output | Accurate, supported codes | Paid claims and collected patient balances |
| Main risk | Codes not supported by documentation | Rejections, denials, missed deadlines and unpaid balances |
In small practices one person often does both. As volume grows they usually separate, because each needs different expertise. Our medical coding and medical billing pages describe each in more detail.
The process
The medical billing process, step by step
- Registration and insurance captureThe front desk records the patient’s demographics, the insurance policy and the person responsible for the bill, and checks whether there is more than one plan.
- Eligibility and benefitsCoverage is verified electronically before the visit, including copay, deductible and whether the provider is in network.
- Prior authorizationServices that need payer approval are authorized before they are performed, and the authorization number is recorded. See prior authorization.
- Documentation and codingThe provider documents the visit; diagnoses, procedures and modifiers are coded from that documentation.
- Charge entry and claim creationCoded services are priced from the practice’s fee schedule and assembled into a claim.
- Scrubbing and submissionThe claim is checked against coding and payer rules, then sent electronically, usually through a clearinghouse. Rejected claims come back for correction.
- Adjudication and remittanceThe payer processes the claim and returns an electronic remittance advice showing what was paid, adjusted or denied, and why.
- Payment postingPayments and adjustments are posted to the patient account, and any remaining patient responsibility is identified.
- Denials and follow-upDenied claims are corrected or appealed; claims with no response are followed up.
- Patient billingRemaining balances are billed to the patient with a clear statement and easy ways to pay.
Steps 1 to 3 happen before the visit and prevent a large share of later denials. That is why billing performance depends on the front desk as much as the billing team — see revenue cycle management.
Claims and transactions
Claim forms and electronic transactions
Under HIPAA, most claims and related transactions between providers and health plans use standard electronic formats (ASC X12). The paper forms still exist and mirror the electronic data.
| Transaction | What it does |
|---|---|
| 837P (paper: CMS-1500) | Professional claim — physicians, other practitioners, and Medicare-billing ambulatory surgery centers |
| 837I (paper: UB-04) | Institutional claim — hospitals, skilled nursing and other facilities |
| 270 / 271 | Eligibility and benefits inquiry and response |
| 276 / 277 | Claim status inquiry and response |
| 277CA | Claim acknowledgment — whether a claim was accepted for processing or rejected |
| 278 | Prior authorization request and response |
| 835 | Electronic remittance advice — payment and adjustment details |
A clearinghouse sits between the practice and many payers: it checks claims for format errors, routes them to the right payer and returns acknowledgments and remittances.
Who pays
Payer types and why they differ
- Medicare: federal program processed by regional Medicare Administrative Contractors, with national rules plus local coverage determinations.
- Medicaid: run by each state, often through managed care plans, so rules and enrollment differ by state and plan.
- Medicare Advantage and commercial plans: private plans with their own contracts, policies, authorization lists and filing limits.
- Workers’ compensation and auto insurance: claims tied to an injury, with their own forms, fee schedules and claim numbers, set largely by state law.
- Patients: deductibles, copays and coinsurance, plus self-pay patients, who are entitled to a good faith estimate of expected charges under the No Surprises Act.
Deadlines
Timely filing and appeal deadlines
Every payer sets a deadline for submitting claims. For Medicare, claims must be filed within 12 months of the date of service. Commercial and Medicaid deadlines are set by contract or state rules and are often much shorter. Appeals have their own deadlines — for a Medicare redetermination, 120 days from the initial determination. Claims that are rejected and never corrected, or followed up too late, can miss these deadlines and become unrecoverable, which is why aging reports are worked in deadline order.
Keep proof of submission. Clearinghouse acceptance reports and payer acknowledgments are the evidence you need if a payer says a claim was filed late.
Measuring performance
Measures that show whether billing is working
| Measure | How it is calculated | What it tells you |
|---|---|---|
| Days in A/R | Total A/R ÷ average daily gross charges | How long, on average, it takes to collect |
| A/R over 90 days | Share of A/R older than 90 days | How much is at risk of becoming uncollectable |
| Clean claim rate | Claims accepted on first submission ÷ claims submitted | How well claims are prepared |
| Denial rate | Claims denied ÷ claims processed | How often payers refuse payment, and why (by reason) |
| Net collection rate | Payments ÷ (charges − contractual adjustments) | How much of what you are owed you actually collect |
Definitions vary between organizations, so the most useful comparison is with your own history using the same calculation each month. To bring these measures down, see reducing claim denials and reducing days in A/R.
Compliance
Compliance basics
Billing involves protected health information, so practices and their billing partners must follow HIPAA, including a Business Associate Agreement with any outside company that handles that information. Claims must be supported by documentation: billing for services not documented or not provided can create liability under the federal False Claims Act and state laws. Payer rules and code sets change every year, so billing processes need regular review rather than one-time setup.