Talk Like a Medical Biller - Mastering Medical Billing Terminology

Understanding medical billing terminology is essential for everyone involved in healthcare, including providers, payers, and billers.
But often, this terminology is filled with acronyms and jargon that seem designed to confuse. In fact, it can feel like you’re eavesdropping on a conversation in a foreign language.
To combat this feeling, consider this article your Rosetta Stone, translating the difficult language of medical billing into plain English.
In this article, we break down key commonly used terms and create a go-to guide to help you confidently communicate and achieve smoother billing operations.
Key Takeaways:
- Why understanding medical billing terminology matters in healthcare
- Top billing codes explained
- Key claims lifecycle, billing software, and workflow terms to know
- Billing compliance guidelines your team should follow
Why Understanding Medical Billing Terminology Matters
Clear and accurate communication is crucial for revenue cycle management (RCM). Understanding medical billing terminology confirms that everyone—providers, billers, and payers —is on the same page, minimizing errors and maximizing efficiency.
It also ensures claims are processed quickly and accurately, optimizing your revenue stream. For example, consider the delicate balance between front-end billing and back-end billing.
From patient registration and insurance verification (front-end) to claim submission and payment posting (back-end), the entire billing cycle in healthcare relies on consistent use and understanding of key terms.
Misunderstanding even a single term can lead to claim denials, payment delays, and frustrated patients, and these outcomes are proving to be very costly.
According to Med Tech Intelligence, data entry mistakes, outdated coding practices, and duplicated charges collectively cost Americans $210 billion annually, contributing to $68 billion in unnecessary healthcare expenses.
Core Medical Billing Code Sets Explained
One of the biggest hurdles in mastering medical billing terminology is understanding the various code sets. Let’s break down the most important ones:
CPT Codes
CPT stands for Current Procedural Terminology. It’s published and maintained by the American Medical Association (AMA). CPT codes are used to describe medical, surgical, and diagnostic procedures and services provided to patients. They act as standardized language for describing what a provider did during a patient encounter.
Common examples in outpatient settings include codes for office visits, vaccinations, and routine procedures such as EKGs. For example, codes 99202 and 99212 are for an otherwise healthy patient with cough and congestion due to the common cold.
ICD-10 Codes
ICD-10 stands for International Classification of Diseases, 10th Revision. These codes tell the payer why the patient needs the service.
The role of diagnosis codes, also known as ICD-10 codes, in billing is to describe a patient’s diagnosis, condition, or symptoms. They’re essential for demonstrating medical necessity and securing claim approval. If the diagnosis doesn’t support the service, the claim will likely be denied.
Common pitfalls with ICD-10 codes include:
- Using outdated codes
- Selecting codes that don’t accurately reflect the patient’s condition
- Failing to link the correct diagnosis code to the corresponding procedure code
HCPCS Codes
HCPCS stands for Healthcare Common Procedure Coding System, directed by the Centers for Medicare and Medicaid Services (CMS). This code set is used to report procedures, services, and supplies not covered by CPT codes.
HCPCS codes are used when a CPT code doesn’t adequately describe a service or product. They are divided into two levels:
- Level I codes: These are CPT codes.
- Level II codes: These codes represent products, supplies, and services not included in CPT. This often includes durable medical equipment, drugs administered outside of a physician’s office (e.g., chemotherapy drugs), and ambulance services.
Modifier Codes
Modifier codes are two-digit codes added to CPT or HCPCS codes to provide additional information about the service or procedure.
Modifiers explain how a service is performed. They are required in specific circumstances, such as when a service is partially reduced or when multiple providers perform it.
Incorrectly coded modifiers or the absence of modifier codes will significantly impact reimbursement and cause claim delays. For example, a modifier might indicate a more elaborate procedure or a service performed in a specific setting, and without it, the insurer may pay a lower rate.
Key Terms in the Claims Lifecycle
Navigating the billing cycle in your practice requires understanding several key terms related to the claims process. Let’s take a look:
Clean Claim vs. Denied Claim
A clean claim is a claim that is submitted without errors and can be processed and paid promptly. On the other hand, a denied claim in healthcare occurs when an insurance company refuses to pay for a medical service that has already been provided.
Top reasons for a denied claim include incomplete or inaccurate information, lack of medical necessity, coding errors, and failure to obtain prior authorization. Denials aren’t just a practice headache; they are costly.
Insurance denials are on the rise, particularly for services with increasingly higher costs. An analysis found that the average denial was linked to charges of at least $14,000. To avoid claim denials in your practice, consider these strategies:
- Verify all information
- Ensure accurate coding
- Provide ongoing staff training on coding, billing, documentation, and payer requirements
- Leverage automated tools for tasks like claim submission, eligibility verification, and follow up on pending claims
- Adhere to payer-specific guidelines
- Use claim scrubbing software to identify and correct errors before claims are submitted
Rejection vs. Denial
A rejected claim is returned to the provider because it contains errors or is incomplete. It hasn’t even been processed. A denied claim, on the other hand, has been processed, but the payer has refused to pay it.
How do you handle each process? When a claim is rejected, correct the errors and resubmit it. When a claim is denied, determine the reason for the denial and either resubmit the claim with corrected information or file an appeal.
Prior Authorization
Prior authorization is a requirement from the payer that certain services or medications be pre-approved before they are provided to the patient.
Failing to obtain prior authorization when required can result in claim denial and non-payment. Even if the service is medically necessary, failure to obtain prior authorization will result in a delay in medical claims processing.
Superbill Definition
A superbill definition refers to a detailed, itemized document, similar to a receipt or invoice, used by providers, particularly smaller practices, as the primary source for billing.
A superbill contains vital information, including patient demographics, provider information, the date of service, ICD-10 codes for diagnosis, CPT codes for services provided, total charges, and a breakdown of fees.
For patients, a superbill is essential for submitting insurance claims and potentially receiving reimbursement for out-of-network services. Especially in circumstances like Medicare, an itemized bill is crucial for patients in the rare case that they need to file a claim for services.
For providers, a complete and accurate superbill is critical for generating clean claims, reducing errors, and ensuring accurate billing.
Patient-facing Terminology Every Biller Should Know
Medical billers aren’t just dealing with codes and payers; they also interact with patients. Here’s some patient-facing medical billing terminology you need to know:
Explanation of Benefits (EOB) vs. Remittance Advice (RA)
An Explanation of Benefits (EOB) is a statement sent by the insurance company to the patient, detailing which services were covered, the amount the insurance paid, and what the patient is responsible for.
A Remittance Advice (RA), also known as an Electronic Remittance Advice (ERA), is a statement sent by the insurance company to the provider, detailing how a claim was paid or denied.
The EOB tells the patient what their insurance covered. The RA informs the healthcare provider of the amount the insurance company has paid and the reason for the payment.
Co-pay vs. Co-insurance vs. Deductible
- Co-pay: A fixed amount the patient pays for a specific service (e.g., $20 for a general practitioner (GP) visit).
- Co-insurance: A percentage of the cost of a service that the patient pays (e.g., 20% of the cost of surgery).
- Deductible: The amount the patient must pay out-of-pocket before their insurance starts paying.
These terms affect patient responsibility by determining how much they owe for their healthcare services. A clear understanding of these terms is essential for accurate patient billing and avoiding confusion.
Out-of-Pocket Costs and Balance Billing
Out-of-pocket maximums define the most a patient must pay in a year before their insurance pays 100% of the allowed amounts. Balance billing occurs when a provider bills a patient for the difference between their usual charge and the amount the insurance company allows.
Balance billing is restricted in some instances, particularly for Medicare patients and those with specific types of insurance plans. For example, balance billing may be prohibited for in-network services in Medicare Advantage plans, but this depends on the specific plan’s contract with the provider. Billing teams must understand these limits and HIPAA compliance to avoid penalties.
Behind the Scenes: Billing Software and Workflow Terms
Modern medical billing relies heavily on specialized software. Here are some key terms related to these systems:
Charge Entry and Payment Posting
During charge entry, the billing staff enters the charges for services rendered into the billing system. These charges are based on the CPT codes, ICD-10 codes, and other relevant information from the patient’s encounter.
Timely and accurate payment posting is critical for maintaining accurate accounts receivable and ensuring that payments are correctly allocated.
Claim Scrubbing
Claim scrubbing is the process of reviewing claims for errors and inconsistencies before they are submitted to the payer.
Claim scrubbing uses tools and rules engines in modern billing software to identify potential issues and ensure that claims are clean and accurate. This helps reduce claim denials and improve revenue cycle performance. Automation plays a key role in this process.
Electronic Data Interchange (EDI)
Electronic Data Interchange (EDI) is the electronic exchange of business documents, such as claims and remittance advice, between trading partners (e.g., providers and payers).
EDI streamlines medical claims processing by eliminating the need for paper-based transactions. This speeds up payment and reduces administrative costs.
Audit Trail and HIPAA Compliance
An audit trail is a record of all actions taken on a claim, including who made the changes and when they were made. Maintaining an audit trail is crucial for ensuring HIPAA compliance and maintaining the integrity of the billing process.
Billing platforms must have robust security measures in place to protect patient data and comply with HIPAA regulations. For example, the cloud-based, integrated electronic health record (EHR) DrChrono offers security features including:
- Encryption
- Access controls with audit trails
- Two-factor authentication
Patient Scheduling and Billing Integration
Integrated patient scheduling and billing systems streamline the entire billing cycle in healthcare. Integration improves billing accuracy, reduces errors, and enhances the patient experience by providing a seamless and efficient process.
For example, DrChrono is an integrated EMR, patient engagement, and billing all-in-one platform, whether you are on your iPhone, iPad, or web. Benefits include:
- Saving time. Patients can book, reschedule, or cancel appointments through a HIPAA-compliant online portal.
- Reducing no-shows through automated appointment reminders.
- Real-time insurance eligibility check feature saves hours of back-and-forth communication with insurance companies.
- Simplifying payment workflow with automated patient statements and payment acceptance features.
- Improving clean claim rates by eliminating multiple data entries and human errors. Just enter patient information once and automatically pass data to billing.
Billing Compliance Guidelines Every Team Should Follow
Compliance is paramount in medical billing. It prevents audits, protects patients, and keeps your practice thriving. Failing to follow billing compliance guidelines can result in:
- Hefty fines
- Exclusion from government healthcare programs
- Legal action
Violations can include submitting fraudulent claims, billing for services not provided, and failing to comply with HIPAA regulations. HIPAA violation fines vary based on the severity and nature of the violation, ranging from $100 to $1.5 million per violation.
Medical teams must stay current on regulatory changes to avoid these penalties and ensure they are adhering to the most up-to-date billing guidelines. Some useful guidelines to follow include:
- Payers update their policies and guidelines on an annual basis. Stay current on these guidelines to avoid audits.
- Develop and maintain written policies for your staff outlining compliant billing practices, claims submission processes, and procedures for addressing errors and violations.
- Provide ongoing training to all relevant staff on compliance regulations, coding standards, and ethical billing practices.
- Ensure claims are submitted correctly and that payments are received appropriately. Invest in a HIPAA-compliant, integrated EHR to maintain billing accuracy.
Build Confidence by Speaking the Language of Billing
Mastering medical billing terminology can seem daunting but knowing how to speak this language will pay dividends in efficiency, accuracy, and financial stability for your practice.
Fluency in billing terminology leads to fewer errors, faster claim processing, and better revenue outcomes in medical practices.
Here’s a quick cheat sheet of essential medical billing terms to keep handy:
- CPT Codes: Describe what service was provided (procedures, services)
- ICD-10 Codes: Explain why the service was needed (diagnoses)
- HCPCS Codes: Cover supplies, equipment, and services not in CPT
- Modifier Codes: Provide extra details about how a service was performed
- Clean Claim: A claim submitted without errors, ready for payment
- Denied Claim: A claim that the payer refuses to pay
- Superbill: A detailed receipt of services used for billing
- EOB (Explanation of Benefits): Sent to the patient, explaining what the insurance covered
- RA (Remittance Advice): Sent to the provider detailing claim payment
- Co-pay: Fixed fee patient pays
- Co-insurance: Percentage patient pays
- Deductible: Amount patient pays before insurance kicks in
- Charge Entry: Entering service charges into the billing system
- Claim Scrubbing: Reviewing claims for errors before submission
- EDI (Electronic Data Interchange): Exchanging documents electronically
We encourage you to revisit these billing definitions regularly and bookmark this article as a valuable reference guide. Speak the language of billing, and watch your practice thrive!
Medical billing is often complicated, and having the experts in your corner can be a big help. Let us be that expert; schedule a demo of DrChrono today!
Frequently Asked Questions
Why is it so important to understand medical billing terminology? Understanding billing terms helps reduce errors, speeds up claims processing, improves communication, and ultimately enables practices to get paid accurately and efficiently.
What are CPT codes used for?
CPT codes describe the medical, surgical, and diagnostic procedures a provider performs.
What’s the purpose of ICD-10 codes?
ICD-10 codes explain why a patient needed a service by describing their diagnosis or symptoms.
What’s the difference between a rejected claim and a denied claim?
A rejected claim has errors and is returned to the provider before processing, while a denied claim has been processed but the payer won’t pay.
What’s the difference between an EOB and an RA?
An EOB (Explanation of Benefits) is sent to the patient, explaining what their insurance has covered, while an RA (Remittance Advice) is sent to the provider, detailing the claim payment.
What is claim scrubbing and how does it help?
Claim scrubbing is reviewing claims for errors before submission, reducing denials.
What are some of the potential consequences of non-compliance in medical billing?
Failing to follow compliance guidelines can result in substantial fines, exclusion from programs, and legal action.
How can medical billing teams ensure they stay up-to-date on all relevant regulations?
Medical teams should pay attention to changes with payers, CMS, and coding associations.