Medical billing is the administrative mechanism healthcare providers use to receive payment for services delivered to patients. This structured process translates clinical care into a standardized financial transaction. It functions as the bridge between medical delivery and financial reimbursement from insurance companies and patients. The system ensures providers are compensated accurately and efficiently.
Documentation and Medical Coding
The billing process begins immediately after a patient encounter with thorough clinical documentation by the healthcare provider. Every service performed and treatment plan decided must be meticulously recorded in the patient’s health record. These detailed notes serve as the foundational evidence for the necessity and appropriateness of the care provided.
This documentation is then passed to specialized medical coders who convert the patient’s visit into universally recognized alphanumeric codes. They utilize the Current Procedural Terminology (CPT) code set to describe the specific services and procedures performed. The International Classification of Diseases, Tenth Revision (ICD-10), is simultaneously applied to classify the patient’s diagnosis, symptoms, and reasons for the encounter.
Accurate assignment of both CPT and ICD-10 codes is fundamental because they justify the claim for payment. A CPT code for a service must be paired with an ICD-10 code explaining why that visit was medically appropriate. If the codes are mismatched or incorrectly applied, the financial claim will be rejected outright by the payer.
Claim Submission and Insurance Adjudication
Once the services and diagnoses are translated into CPT and ICD-10 codes, the information is compiled onto the standardized electronic CMS-1500 form. This form is the official request for payment submitted by the provider to the patient’s insurance company. Many providers route the claim through a third-party clearinghouse.
The clearinghouse acts as an intermediary, scrubbing the claim for common errors and ensuring the data format meets the payer’s specific requirements. This step reduces the likelihood of immediate rejections. The claim is then electronically transmitted to the payer.
Upon receipt, the insurance company begins the internal review process called adjudication. The payer evaluates the claim against several criteria, including confirming the patient’s eligibility and coverage on the date of service. They also assess the medical necessity of the procedures and determine if the services fall under any policy limitations.
Adjudication involves applying the provider’s contractual agreement to establish the “allowed amount” for each service. This is the maximum amount the payer will agree to pay the provider. Based on the contract and the patient’s policy, the payer calculates the portion they will cover and the remaining balance shifted to the patient.
Determining Patient Financial Responsibility
The adjudication process determines how much of the allowed amount the patient must personally cover. This responsibility is defined by cost-sharing terms outlined in the patient’s insurance policy:
Cost-Sharing Terms
The deductible is a set amount the patient must pay out-of-pocket each policy year before the insurance company begins to pay for covered services.
A copayment is a fixed dollar amount due for specific services, typically paid after the deductible is met.
Coinsurance represents a percentage of the allowed amount that the patient is responsible for after the deductible has been satisfied.
The patient receives an Explanation of Benefits (EOB) from their insurance company detailing the outcome of the claim adjudication. The EOB is not a bill; it is a comprehensive statement explaining the services billed, the allowed amount, how much the insurance paid, and the amount the patient is responsible for based on their policy terms. Patients should review the EOB to verify that the billed services match the care received.
After the payer sends the EOB and payment to the provider, the billing department generates the final patient statement or bill. This statement reflects the patient responsibility amount calculated on the EOB, accounting for any copayments already collected. The final bill is the formal request for the patient to pay their remaining balance.
Handling Denials and Appeals
Despite diligent coding and submission, a claim may be rejected by the payer, resulting in a denial. A denial occurs when the insurance company refuses to pay for a service, often citing reasons such as a lack of prior authorization or that the procedure is a non-covered service. Technical errors, like submitting the claim after the timely filing limit, can also result in a denial.
When a denial is issued, the patient or the provider receives a denial letter detailing the specific reason for non-payment. Understanding this reason is the first step in resolving the issue, as some denials are administrative and easily corrected, while others require a formal challenge. The denial letter outlines the steps and timelines for initiating an appeal.
The appeals process typically begins with an internal appeal, where the provider or patient submits a request for reconsideration directly to the insurance company. This usually includes additional documentation or a letter of medical necessity to support the claim. If the internal appeal is unsuccessful, the patient may pursue an external appeal.
An external appeal involves an independent third party, often a state-level entity, reviewing the case to determine if the insurance company’s decision was medically sound. Patients should act quickly upon receiving a denial, as most appeals processes have strict deadlines for submission.