Medical billing, a payment process in the United States healthcare system, is the process of reviewing a patient's medical records and using information about their diagnoses and procedures to determine which services are billable and to whom they are billed.

This bill is called a claim. Because the U.S. has a mix of government-sponsored and private healthcare, health insurance companies—otherwise known as payors—are the primary entity to which claims are billed for physician reimbursement. The process begins when a physician documents a patient's visit, including the diagnoses, treatments, and prescribed medications or recommended procedures. This information is translated into standardized codes through medical coding, using the appropriate coding systems such as ICD-10-CM and Current Procedural Terminology (CPT). A medical biller then takes the coded information, combined with the patient's insurance details, and forms a claim that is submitted to the payors. Claims that are denied or underpaid may require follow-up, appeals, or adjustments by the medical billing department. Training programs, ranging from certificates to associate degrees, are offered at many community colleges, and advanced roles may require cross-training in medical coding, auditing, or healthcare information management.

Medical billing practices vary across states and healthcare settings, influenced by federal regulations, state laws, and payor-specific requirements. Despite these variations, the fundamental goal remains consistent: to streamline the financial transactions between physicians and payors, ensuring access to care and financial sustainability for physicians.

History

In 18th-century England, physicians were not legally permitted to charge fees for their services or take legal action to collect payments. Instead, patients would offer honoraria, which were voluntary payments inspired by what was believed to be a Roman custom. This honorarium rule applied only to non-surgeon physicians. Meanwhile, surgery was treated as a public calling, allowing courts to cap surgeons' fees to reasonable amounts. The honorarium rule for non-surgeon physicians and the public calling status for surgeons highlighted the unique, non-commercial constraints on medical professionals at the time. Instead, physicians could use standard contract and commercial law to set and collect fees. Eventually, changing economic conditions and the introduction of health insurance in the mid-20th century ushered an end to the sliding scale. Health insurance became a conduit for billing, and it standardized fees by negotiating fee schedules, eliminating additional charges, and restricting discounts that the sliding scale offered. RCM encompasses the entire revenue collection process for a healthcare facility, beginning with the design of the RCM workflow. This cycle can take anywhere from a few days to several months, often requiring multiple interactions before achieving resolution. The relationship between healthcare providers and insurance companies resembles that of a vendor and subcontractor: healthcare providers contract with insurers to deliver services to covered patients.

Step 1: Patient registration

CPT codes: Created by the American Medical Association (AMA), Current Procedural Terminology (CPT) codes correspond to the procedures or treatments performed by the healthcare provider. These codes are essential for accurately billing and receiving reimbursement.

For every patient encounter, providers must record both ICD codes to identify the diagnosis and CPT codes to document the treatment. Given the vast number of codes—approximately 70,000 for ICD and over 10,000 for CPT—using advanced medical billing software is recommended to streamline the coding process, reduce errors, and ensure compliance with current standards.

These steps set the stage for efficient claims submission and payment, forming the backbone of the billing cycle.

Step 4: Creating the superbill A response to an eligibility request is returned by the payor through a direct electronic connection, or more commonly their website. This is called an X12-271 Health Care Eligibility & Benefit Response transaction. Most practice management/EM software will automate this transmission, hiding the process from the user.

This first transaction for a claim for services is known technically as X12-837 or ANSI-837. This contains a large amount of data regarding the provider interaction, as well as reference information about the practice and the patient. Following that submission, the payor will respond with an X12-997, simply acknowledging that the claim's submission was received and that it was accepted for further processing. When the claim(s) are actually adjudicated by the payor, the payor will ultimately respond with a X12-835 transaction, which shows the line-items of the claim that will be paid or denied; if paid, the amount; and if denied, the reason.

Payment

In order to be clear on the payment of a medical billing claim, the health care provider or medical biller must have complete knowledge of different insurance plans that insurance companies are offering, and the laws and regulations that preside over them. Large insurance companies can have up to 15 different plans contracted with one provider. When providers agree to accept an insurance company's plan, the contractual agreement includes many details, including fee schedules which dictate what the insurance company will pay the provider for covered procedures, and other rules such as timely filing guidelines.

Providers typically charge more for services than what has been negotiated by the physician and the insurance company, so the expected payment from the insurance company for services is reduced. The amount that is paid by the insurance is known as an allowed amount. For example, although a psychiatrist may charge $80.00 for a medication management session, the insurance may only allow $50.00, and so a $30.00 reduction (known as a provider write-off or contractual adjustment) would be assessed. After payment has been made, a provider will typically receive an Explanation of Benefits (EOB) or Electronic Remittance Advice (ERA) along with the payment from the insurance company that outlines these transactions.

The insurance payment is further reduced if the patient has a copay, deductible, or a coinsurance. If the patient in the previous example had a $5.00 copay, the physician would be paid $45.00 by the insurance company. The physician is then responsible for collecting the out-of-pocket expense from the patient. If the patient had a $500.00 deductible, the contracted amount of $50.00 would not be paid by the insurance company. Instead, this amount would be the patient's responsibility to pay, and subsequent charges would also be the patient's responsibility, until his or her expenses totaled $500.00. At that point, the deductible is met, and the insurance would issue payment for future services.

A coinsurance is a percentage of the allowed amount that the patient must pay. It is most often applied to surgical and/or diagnostic procedures. Using the above example, a coinsurance of 20% would have the patient owing $10.00 and the insurance company owing $40.00.

Steps have been taken in recent years to make the billing process clearer for patients. The Healthcare Financial Management Association (HFMA) has a Patient-Friendly Billing project to help healthcare providers create more informative and simpler bills for patients. Additionally, as the consumer-driven health movement gains momentum, payors and providers are exploring new ways to integrate patients into the billing process in a clearer, more straightforward manner.

Medical billing services

alt=Infographic showing how healthcare data flows within the billing process|thumb|Infographic showing how healthcare data flows within the billing process

Some providers outsource their medical billing to third parties, known as medical billing companies, which provide medical billing services. One goal of these entities is to reduce the amount of paperwork for medical staff and to increase efficiency, providing the practice with the ability to grow. The billing services which can be outsourced include regular invoicing, insurance verification, collections assistance, referral coordination, and reimbursement tracking.

Practices have achieved cost savings through group purchasing organizations (GPO).

See also

  • Denial management
  • Electronic medical record
  • Healthcare Common Procedure Coding System
  • International Classification of Diseases (ICD codes)
  • Medically Unlikely Edit
  • National Uniform Billing Committee

References

  • Medical Records and Health Information Technicians Career information at the U.S. Bureau of Labor Statistics