Medical billing glossary

A

Accounts receivable (A/R) · A/R

Money billed and not yet collected. In a practice this is mostly claims sitting with payers plus balances owed by patients. A/R is tracked in ageing buckets because collection probability falls sharply the longer a balance goes unpaid, and a large concentration past 90 days usually signals a follow-up failure rather than a payer problem. Related service

Adjudication

The payer’s process of deciding what to do with a submitted claim: whether it is valid, whether the service is covered, what the allowed amount is, and how much the plan will pay. Adjudication ends in a payment, a partial payment or a denial, communicated through a remittance advice. Related service

Advance Beneficiary Notice (ABN) · ABN

A written notice given to a Medicare patient before a service that Medicare is likely to consider not medically necessary. It explains why, gives an estimated cost, and lets the patient decide whether to proceed. Without a valid ABN on file the practice generally cannot bill the patient for a denied service.

Ageing

The practice of grouping unpaid balances by how long they have been outstanding — typically 0–30, 31–60, 61–90, 91–120 and over 120 days. An ageing report is a work queue: claims closest to a filing or appeal deadline need attention before older claims with no remaining rights. Related service

Allowed amount

The maximum a payer will recognise for a service under its contract with the provider. It is not the amount billed and not necessarily the amount paid: the allowed amount is split between the plan’s payment and the patient’s deductible, copay or coinsurance. The difference from the billed charge is a contractual adjustment.

Appeal

A formal request that a payer reconsider a denial. Appeals have levels, deadlines and evidence requirements that vary by payer, and a denial that is not appealed inside its window is generally final. Most denials are appealable; the constraint in a small practice is time, not merit. Related service

Assignment of benefits · AOB

A patient’s written authorisation for their insurer to pay the provider directly rather than reimbursing the patient. Without it the payment can be sent to the patient, and recovering it becomes a collection problem rather than a billing one.

B

Bundling

A payer treating one service as included in the payment for another, so it is not separately payable. Bundling is driven largely by NCCI edits. Where services were genuinely distinct, a correct distinct-service modifier and supporting documentation can unbundle them; where they were not, the answer is different coding. Related service

C

CAQH

A shared credentialing database that most commercial payers pull provider information from. A provider maintains one profile and re-attests to it every 120 days. If the profile lapses or a stored document expires, credentialing applications stall and directory listings can drop without any notification. Related service

CARC

Claim Adjustment Reason Code. The code on a remittance advice explaining why a payment differs from the amount billed. CARCs are the vocabulary of denial management: CO-50 means medical necessity, CO-97 means bundled, CO-197 means missing authorisation. Working denials by CARC category is what reveals root causes. Related service

Charge capture

Recording every billable service that was actually performed. Charge capture failure is invisible revenue loss: the work happened, the patient was seen, and no charge was ever created. Reconciling charges against the appointment schedule is the standard control. Related service

Clean claim

A claim with all required information, correctly coded, that a payer can process without needing anything further. The first-pass clean claim rate — the share of claims paid on first submission — is one of the strongest predictors of how fast a practice gets paid. Related service

Clearinghouse

An intermediary that receives claims from providers, checks them against format and payer-specific rules, and forwards them to payers electronically. Claims rejected at the clearinghouse never reach the payer, which means they are not denials and do not appear on a remittance — they have to be monitored separately. Related service

CMS-1500

The standard paper claim form for professional services billed by physicians and other individual providers. Its electronic equivalent is the 837P transaction. Facility claims use the UB-04 form instead.

Coinsurance

The share of the allowed amount a patient pays after their deductible is met, expressed as a percentage — commonly 20%. Distinct from a copay, which is a fixed amount. Coinsurance is calculated on the allowed amount, not the billed charge, which is why patients frequently misestimate what they will owe. Related service

Contractual adjustment

The difference between what a provider bills and the allowed amount under the payer contract, written off as a condition of participation. It is not bad debt and is not billable to the patient. Watching contractual adjustments against expected rates is how underpayments are detected.

Coordination of benefits · COB

The rules determining which plan pays first when a patient has more than one. The primary payer is billed first and its remittance is submitted with the secondary claim. Getting the order wrong produces a CO-22 denial, which is usually a registration problem rather than a billing one. Related service

Copay

A fixed amount a patient pays for a service, set by their plan and typically collected at the time of the visit. Copays vary by service type — a specialist visit and a primary care visit often differ — which is why eligibility verification should return the copay for the specific service being provided. Related service

CPT

Current Procedural Terminology, the code set maintained by the American Medical Association that describes procedures and services performed. CPT codes update annually, effective 1 January. Together with ICD-10 diagnosis codes they establish what was done and why. Related service

Credentialing

The process of verifying a provider’s qualifications and enrolling them with a payer so their services can be billed. It covers primary source verification, payer applications, contracting and ongoing revalidation. Typically 60 to 180 days, and revenue cannot be billed to a payer before the effective date. Related service

D

Days in A/R

Total accounts receivable divided by average daily charges — the average number of days it takes to collect a billed dollar. Benchmarks put a well-run practice at 30 to 40 days. Read it alongside the percentage of A/R over 90 days, because an average conceals a distribution. Related service

Deductible

The amount a patient must pay out of pocket in a plan year before the plan begins paying. Deductibles reset annually, which is why January produces a spike in patient responsibility and in eligibility-related surprises. High-deductible plans have shifted a large share of practice revenue onto patients. Related service

Denial

A payer decision not to pay a claim, or to pay less than expected, communicated with a CARC code on the remittance advice. A denial is distinct from a rejection: a denied claim was processed and refused, while a rejected claim never entered adjudication. Denials are appealable; rejections are corrected and resubmitted. Related service

DRG

Diagnosis Related Group, a classification used to set a fixed inpatient payment based on diagnosis, procedures and patient characteristics rather than on individual services. Relevant to hospital billing rather than to outpatient practices, but it appears in payer correspondence and contracts.

E

E/M coding · E/M

Evaluation and management coding — the codes describing office visits and other non-procedural encounters. Levels are selected on medical decision making or total time on the date of service. For primary care and other cognitive specialties, E/M accuracy is the single largest determinant of revenue. Related service

Electronic remittance advice (ERA) · ERA

The electronic version of an explanation of payment, sent by the payer to the provider. An ERA carries the allowed amount, the payment, adjustments and any CARC and RARC codes, and it is what payment posting reconciles against expected reimbursement. Related service

Eligibility

Whether a patient’s coverage is active and what it covers on a given date of service. Verifying eligibility before the encounter — including deductible status, copay, plan limitations and network status for the specific provider — prevents the most avoidable category of denial there is. Related service

EOB

Explanation of Benefits. The statement a payer sends to the patient describing what was billed, what the plan allowed, what it paid and what the patient owes. It is not a bill, though patients frequently read it as one, which generates a large share of patient billing enquiries. Related service

Explanation of payment · EOP

The provider-facing counterpart of an EOB, describing how a claim was adjudicated and what is being paid. Used interchangeably with remittance advice by many payers.

F

Fee schedule

The list of amounts a payer will allow for each procedure code under a specific contract. Reviewing a fee schedule before signing a payer contract is the single highest-leverage piece of contracting work available to a practice, because the rate then applies to every claim for the life of the agreement. Related service

First-pass rate

The percentage of claims paid on first submission without rework. Top performers reach 98 to 99%. Every claim that fails first pass adds cost to rework and typically two to three weeks to payment, which makes first-pass rate the metric with the most leverage over days in A/R. Related service

G

Global period

A window following a procedure — commonly 0, 10 or 90 days — during which related follow-up care is included in the original payment and not separately billable. Unrelated care inside the window is billable but requires the correct modifier, and practices that do not track global periods lose money in both directions. Related service

Gross collection rate

Payments received divided by gross charges. Because gross charges are set by the practice rather than by contract, this ratio says more about the fee schedule than about collection performance. Net collection rate is the more useful measure.

H

HCPCS

Healthcare Common Procedure Coding System. Level I is CPT; Level II covers products, supplies, drugs and services not in CPT — J-codes for drugs, L-codes for orthotics, Q-codes for certain products. Level II updates annually with quarterly interim releases. Related service

HIPAA

The Health Insurance Portability and Accountability Act, which sets standards for protecting health information. A billing company handling claims on a practice’s behalf is a business associate, and a Business Associate Agreement must be in place before any protected health information changes hands. Related service

I

ICD-10-CM

The diagnosis code set used in the United States, describing why a service was performed. It rewards specificity: unspecified codes increasingly trigger denials or fail medical necessity policies. ICD-10 updates annually, effective 1 October. Related service

In-network

A provider who has a contract with a payer, agreeing to its fee schedule and terms. In-network status is provider-specific and location-specific, not practice-wide — a common source of surprise denials when a new provider has not completed enrolment. Related service

L

LCD

Local Coverage Determination. A Medicare Administrative Contractor’s policy stating when a service is considered reasonable and necessary in its jurisdiction, usually including a list of covered diagnosis codes. LCDs are the reference point for most CO-50 medical necessity denials and appeals. Related service

M

Medical necessity

Whether a service is appropriate for the patient’s condition under the payer’s coverage policy. It is a coverage determination rather than a clinical judgement, decided against published criteria — which is why a medically appropriate service can still be denied, and why the appeal argues the policy rather than the medicine. Related service

Modifier

A two-character code appended to a procedure code to convey additional information: that a service was bilateral, distinct from another, performed by a different provider, or accompanied by a separate evaluation. Modifiers change payment, and incorrect use is one of the most common and most audited billing errors. Related service

MUE

Medically Unlikely Edit. The maximum units of a procedure code that would normally be reported for one patient on one date of service. Exceeding an MUE produces a unit denial, which in multi-level procedures usually means the base-plus-add-on structure was not used correctly. Related service

N

NCCI edits · NCCI

National Correct Coding Initiative edits — published pairs of codes that should not normally be reported together. Each pair carries an indicator showing whether a modifier may override it. Screening claims against NCCI before submission prevents most bundling denials. Related service

NCD

National Coverage Determination. A nationwide Medicare policy stating whether a service is covered. Where an NCD exists it applies across all jurisdictions, unlike an LCD, which applies only within a contractor’s region.

Net collection rate

Payments received divided by the allowed amount, after contractual adjustments. It answers the question that matters: of the money you were actually entitled to collect, how much did you collect. Benchmarks put good performance above 95%. Related service

NPI

National Provider Identifier. A ten-digit identifier required for all HIPAA-covered transactions. Type 1 identifies an individual provider, Type 2 identifies an organisation. Inconsistencies between the NPI record and a payer enrolment application are a frequent cause of returned applications. Related service

O

Out-of-network

A provider without a contract with the patient’s payer. Out-of-network claims are paid at different rates or not at all, patient cost-sharing is higher, and balances are substantially harder to collect. For facilities in particular this is where the largest unresolved balances accumulate.

P

Patient responsibility

The portion of the allowed amount a patient owes — deductible, copay and coinsurance combined. It has grown substantially with high-deductible plans, and it collects considerably worse than insurance balances, which makes point-of-service collection and clear statements a revenue issue rather than an administrative one. Related service

PECOS

The Provider Enrollment, Chain and Ownership System — Medicare’s enrolment system. Initial enrolment, changes of information and the five-year revalidation cycle all run through it. A missed revalidation can invalidate claims retroactively. Related service

Place of service · POS

A code identifying where a service was delivered — office, urgent care facility, telehealth, hospital outpatient. Payment often varies by place of service, and a mismatch between the place of service and the code billed is a common and easily prevented denial.

Posting

Recording payments, adjustments and denials against the corresponding claims. Posting is not clerical: reconciling each payment against the contracted rate is how underpayments are found, and posting a short payment without checking it is one of the quietest ways a practice loses money. Related service

Prior authorization

A payer’s requirement that a service be approved before it is delivered. Requirements vary by payer, plan and procedure and change without notice. A missing authorisation produces a CO-197 denial that is difficult to overturn and, under many contracts, cannot be billed to the patient either. Related service

Provider enrollment

The payer-facing half of credentialing — registering a verified provider with a specific plan so their claims can be adjudicated. A provider can be fully credentialed and still unable to bill a given payer until enrolment with that payer is effective. Related service

R

RARC

Remittance Advice Remark Code. A supplementary code that explains a CARC in more detail. When a claim denies with a vague CO-16 for missing information, the RARC is what tells you which information was missing. Related service

RCM

Revenue cycle management — the complete financial lifecycle of a patient encounter, from scheduling and eligibility through coding, submission, payment, denials and patient balances. Broader than billing, which covers claim submission and follow-up only. Related service

Referral

A requirement under some plans, particularly HMOs, that a patient obtain their primary care provider’s authorisation before seeing a specialist. Distinct from prior authorisation: a referral concerns who the patient may see, an authorisation concerns what may be done. Related service

Rejection

A claim returned before adjudication, usually by the clearinghouse or the payer’s front-end system, because of a format or data error. Rejections are not denials, do not appear on a remittance, and must be monitored separately — an unmonitored rejection queue is a common source of aged A/R. Related service

Remittance advice

The payer’s explanation of how claims were processed and what is being paid, delivered electronically as an ERA or on paper. It carries the allowed amount, the payment, adjustments and the CARC and RARC codes that drive denial management. Related service

Revalidation

Periodic re-verification of a provider’s enrolment by a payer. Medicare revalidates on a five-year cycle; commercial re-credentialing is typically every three years. A lapse can suspend billing privileges and, in some circumstances, invalidate claims already submitted. Related service

RVU

Relative Value Unit. A measure of the resources a service consumes, split into work, practice expense and malpractice components. RVUs underlie Medicare payment and many commercial fee schedules, and they are widely used internally to measure provider productivity.

S

Scrubbing

Checking a claim against coding rules, payer-specific requirements and edits before submission. Scrubbing is where NCCI edits, MUE limits and coverage policies are applied, and it is the single most effective place to improve first-pass rate. Related service

Superbill

An itemised form listing the services provided at an encounter, used as the source for coding and billing. Coding from a superbill alone captures less than coding from full documentation, because the note frequently supports more than the form records. Related service

T

Taxonomy code

A code identifying a provider’s specialty and practice type, used in enrolment and on claims. A taxonomy code that does not match the payer’s record for the provider can cause claims to deny even when the provider is correctly enrolled. Related service

Timely filing

The deadline by which a claim must reach the payer, measured from the date of service and varying by payer and contract. Claims filed late deny with CO-29 and are rarely recoverable, which is why unworked A/R is an active loss rather than a passive one. Related service

U

UB-04

The standard claim form for facility services — hospitals, ambulatory surgery centers and other institutional providers. Its electronic equivalent is the 837I transaction. Professional services use the CMS-1500 instead. Related service

Underpayment

A payment lower than the contracted rate for a service. Underpayments are invisible unless payments are reconciled against the fee schedule at posting, and because each one is individually small they are frequently absorbed rather than recovered. Related service

Upcoding

Billing a higher-level or higher-paying code than the documentation supports. It creates audit and repayment exposure. The mirror error, undercoding, is more common in independent practices and quietly reduces revenue on every encounter — both are documentation problems. Related service

W

Write-off

Removing a balance from accounts receivable as uncollectable. Contractual write-offs are required by payer agreements; bad-debt write-offs are a decision. A write-off should carry a stated reason, because a queue of unexplained write-offs hides a process failure somewhere upstream. Related service