The total amount of money owed to a healthcare provider for services that have been rendered but not yet collected from insurance payers or patients.
Accounts receivable (A/R) is categorized by age (0-30, 31-60, 61-90, 91-120, and 120+ days) and by payer type (insurance vs. patient). Industry benchmarks suggest total A/R should not exceed 2-3 months of average charges. A/R over 120 days has less than a 10% collection probability and may need to be written off.
Example: A practice has $500,000 in total A/R: $250,000 in the 0-30 day bucket, $120,000 in 31-60, $70,000 in 61-90, $35,000 in 91-120, and $25,000 over 120 days. The aging report shows the practice needs to focus on working the older buckets.
Why It Matters: A/R management directly impacts cash flow and practice financial health. High A/R indicates billing inefficiencies, slow follow-up, or payer issues. Monitoring A/R trends helps identify systemic problems in the revenue cycle.
Category: Revenue Cycle
Adjudication
The process by which an insurance company reviews and determines payment for a submitted healthcare claim based on the policy terms, benefits, and coverage rules.
During adjudication, the payer verifies member eligibility, checks for duplicate claims, validates coding, applies medical policies and coverage rules, coordinates benefits with other insurers if applicable, calculates the allowed amount, and determines the patient's financial responsibility. The process can take anywhere from a few seconds (auto-adjudication) to 30+ days for complex claims.
Example: A surgical claim is submitted and goes through adjudication. The payer confirms the patient was eligible on the date of service, verifies the prior authorization, checks that the diagnosis supports the procedure, applies the contracted rate, and issues payment within 15 days.
Why It Matters: Understanding the adjudication process helps billing professionals anticipate potential issues, submit cleaner claims, and effectively appeal denied claims. Approximately 80-90% of claims are auto-adjudicated, with the remainder requiring manual review.
Category: Claims
Aging Report
A financial report that categorizes accounts receivable by the length of time charges have been outstanding, typically in 30-day increments.
Aging reports are organized by bucket: 0-30 days, 31-60 days, 61-90 days, 91-120 days, and 120+ days. They can be sorted by payer, provider, date of service, or balance amount. A healthy practice should have at least 50% of A/R in the 0-30 day bucket. Claims aging beyond 90 days have significantly reduced collection probability.
Why It Matters: Aging reports are the primary tool for managing accounts receivable and prioritizing follow-up efforts. They help identify problematic payers, billing delays, and collection issues before they become uncollectible.
Category: Revenue Cycle
Allowed Amount
The maximum amount an insurance company will pay for a covered healthcare service, as determined by the provider's contract with the payer.
The allowed amount (also called the eligible amount, negotiated rate, or contracted rate) is the basis for calculating both the insurer's payment and the patient's cost-sharing. If a provider charges $200 but the allowed amount is $150, the $50 difference is a contractual adjustment that cannot be billed to the patient for in-network services.
Example: A lab test is billed at $100. The allowed amount per the insurance contract is $65. The insurance pays $52 (80% of $65), the patient owes $13 (20% coinsurance), and $35 is written off as a contractual adjustment.
Why It Matters: Understanding allowed amounts is essential for accurate financial forecasting, patient billing, and contract negotiations. Practices should regularly compare allowed amounts across payers to identify underpayment and negotiate better rates.
Category: Insurance
Bundling
The practice of grouping multiple medical procedures or services under a single CPT code for billing purposes, as determined by CCI edits and payer policies.
The National Correct Coding Initiative (NCCI) edits define code pairs that should not be billed together because one procedure is considered integral to another. Bundling can be column 1/column 2 (one code is a component of another) or mutually exclusive (two codes that should not be reported together). Modifier usage may allow separate billing when procedures are truly distinct.
Example: A surgeon performs an appendectomy and also removes the appendix stump — the stump removal is bundled into the appendectomy code and cannot be billed separately. However, if a distinctly separate procedure is performed, modifier -59 may allow separate billing.
Why It Matters: Understanding bundling rules prevents improper billing that can trigger audits and recoupment. Conversely, knowing when procedures can be legitimately unbundled ensures practices receive full reimbursement for distinct services.
Category: Coding
CPT Code
Current Procedural Terminology — a standardized coding system maintained by the AMA used to describe medical, surgical, and diagnostic services and procedures.
CPT codes are five-digit numeric codes organized into three categories: Category I (procedures and services), Category II (performance measures), and Category III (emerging technology). They are updated annually and are required for billing Medicare, Medicaid, and most commercial insurance carriers.
Example: CPT 99213 represents an established patient office visit with low medical decision-making complexity, typically a 20-30 minute appointment for a straightforward condition.
Why It Matters: Correct CPT coding directly impacts reimbursement. Using the wrong code can result in underpayment, overpayment (which triggers audits), or claim denials. CPT codes are also used for benchmarking and analyzing practice productivity.
Category: Coding
Charge Entry
The process of entering billable services, procedures, and their associated codes into the practice management or billing system for claim generation.
Charge entry involves translating the clinical encounter documentation (superbill, operative report, progress note) into billable charges with correct CPT codes, ICD-10 codes, modifiers, units, dates of service, and rendering provider information. Accurate charge entry is the bridge between clinical services and revenue generation.
Example: After a physician completes an office visit, the charge entry specialist enters CPT 99214 with ICD-10 codes E11.9 and I10, links the rendering provider, verifies the place of service code, and ensures the charges are ready for claim submission.
Why It Matters: Errors in charge entry directly cause claim denials and payment delays. Missed charges represent lost revenue. A charge entry accuracy rate of 98%+ is the industry standard, and even small error rates can significantly impact revenue.
Category: Billing Basics
Clean Claim
A claim that is submitted to an insurance payer without any errors, omissions, or deficiencies and can be processed without additional information.
A clean claim contains all required data elements including correct patient demographics, valid insurance information, appropriate CPT and ICD-10 codes, proper modifiers, referring provider information (when required), and timely filing. Industry benchmarks target a clean claim rate of 95% or higher.
Example: A practice submits a claim with verified patient eligibility, correct NPI numbers, matching CPT and ICD-10 code pairs that demonstrate medical necessity, and all required fields completed. The payer processes it without requesting additional information.
Why It Matters: Clean claims are paid faster and reduce administrative costs. Each rejected or denied claim costs $25-$117 to rework. Maintaining a high clean claim rate is one of the most important metrics in revenue cycle management.
Category: Claims
Clearinghouse
A third-party intermediary that receives electronic claims from healthcare providers, scrubs them for errors, reformats them to payer specifications, and transmits them to the appropriate insurance companies.
Clearinghouses act as a central hub between providers and payers, translating claims into the standardized ANSI X12 837 format. They perform real-time edits checking for missing information, invalid codes, and formatting errors before forwarding claims. Major clearinghouses include Availity, Change Healthcare, Trizetto, and Office Ally.
Example: A practice submits 200 claims daily through their clearinghouse. The clearinghouse scrubs each claim, flags 15 with errors for correction, and transmits the remaining 185 to the respective payers within 24 hours.
Why It Matters: Clearinghouses significantly reduce claim rejections by catching errors before submission. They also simplify the billing process by providing a single connection point to multiple payers and offering real-time eligibility verification and claim status inquiries.
Category: Revenue Cycle
Coinsurance
The percentage of costs for a covered healthcare service that the patient pays after meeting their deductible.
Coinsurance is expressed as a percentage split between the insurance plan and the patient (e.g., 80/20 means the plan pays 80% and the patient pays 20%). Coinsurance applies to the allowed amount, not the billed charge. Once the out-of-pocket maximum is reached, the plan typically covers 100% of covered services.
Example: After meeting a $1,500 deductible, a patient with 80/20 coinsurance has a $1,000 procedure. The insurance pays $800 (80% of the allowed amount) and the patient pays $200 (20%).
Why It Matters: Accurately calculating coinsurance amounts is essential for patient billing and financial transparency. Miscalculating coinsurance leads to incorrect patient statements and collection difficulties.
Category: Insurance
Coordination of Benefits
The process used to determine the order in which multiple insurance plans pay claims when a patient is covered by more than one health insurance policy.
COB rules determine which plan is primary (pays first) and which is secondary (pays second). Common rules include: the subscriber's own plan is primary over a spouse's plan; for dependent children, the birthday rule applies (the parent whose birthday falls first in the calendar year has the primary plan). Medicare has specific coordination rules as a secondary payer.
Example: A patient is covered by her employer's plan (primary) and her husband's plan (secondary). A $500 claim is submitted to the primary plan first, which pays $350. The remaining $150 is then submitted to the secondary plan, which pays $120 based on its allowed amount.
Why It Matters: Proper coordination of benefits prevents duplicate payments, ensures maximum reimbursement, and avoids claim denials. Billing the wrong plan as primary causes delays and requires reworking claims, adding administrative cost.
Category: Insurance
Copay
A fixed dollar amount that a patient pays at the time of service for a covered healthcare visit or prescription, as defined by their insurance plan.
Copayments are predetermined flat fees that vary by service type (e.g., $25 for primary care, $50 for specialists, $250 for emergency room visits). Unlike coinsurance, copays do not change based on the total cost of the service. Copays are typically collected at the time of the visit and may or may not count toward the deductible depending on the plan.
Example: A patient's insurance plan requires a $30 copay for specialist visits. Regardless of whether the visit costs $150 or $350, the patient pays $30 at check-in, and the insurance handles the remainder according to the contracted rate.
Why It Matters: Collecting copays at the time of service is essential for practice cash flow. Failure to collect copays can violate insurance contracts and create compliance issues, particularly with government payers.
Category: Insurance
Credentialing
The process of verifying a healthcare provider's qualifications, experience, licensure, and professional standing to participate in insurance networks and deliver patient care.
Credentialing involves primary source verification of education, training, board certification, malpractice history, DEA registration, state licenses, work history, and references. The process typically takes 90-180 days and must be completed before a provider can bill insurance. Re-credentialing occurs every 2-3 years.
Example: A new physician joining a practice must complete credentialing with Medicare, Medicaid, and all commercial payers. This includes submitting CAQH applications, providing license verification, and completing each payer's individual enrollment forms.
Why It Matters: Without proper credentialing, providers cannot bill insurance for services, resulting in lost revenue. Delays in credentialing mean new providers cannot generate billable income. Maintaining current credentials prevents disruption in reimbursement.
Category: Compliance
Deductible
The amount a patient must pay out-of-pocket for covered healthcare services before the insurance plan begins to pay.
Deductibles reset annually (typically January 1 for calendar-year plans) and vary by plan. High-deductible health plans (HDHPs) may have deductibles of $1,500-$7,000 or more for individuals. Some services like preventive care may be covered before the deductible is met. Family plans often have both individual and family deductible amounts.
Example: A patient has a $2,000 annual deductible. Their first office visit costs $200, which they pay entirely out-of-pocket. After accumulating $2,000 in covered expenses, their insurance begins paying its portion of subsequent claims.
Why It Matters: Understanding deductible status is critical for patient collections and financial counseling. Practices that verify deductible status before appointments can set proper payment expectations and reduce accounts receivable.
Category: Insurance
Denied Claim
A claim that has been received and processed by an insurance payer but has been determined to be unpayable due to specific reasons such as coding errors, lack of medical necessity, or policy exclusions.
Denied claims differ from rejected claims — rejections occur before processing due to missing or invalid data, while denials occur after adjudication. Common denial reasons include duplicate claims, non-covered services, authorization issues, timely filing violations, and coordination of benefits problems. Denials can be appealed within the payer's specified timeframe.
Example: A claim for an MRI is denied because prior authorization was not obtained before the service was performed. The denial code indicates 'Authorization Required' and the practice must decide whether to appeal or bill the patient.
Why It Matters: Denied claims represent lost revenue if not effectively managed. The average denial rate across the industry is 5-10%, and approximately 65% of denied claims are never reworked. An effective denial management program can recover significant revenue.
Category: Claims
EHR/EMR
Electronic Health Record / Electronic Medical Record — digital systems for maintaining patient health information, clinical documentation, and practice management functions.
While often used interchangeably, EMRs are digital versions of paper charts within a single practice, while EHRs are designed to share information across healthcare organizations. Modern EHR systems integrate clinical documentation, order entry, e-prescribing, lab results, and billing functions. Common EHR systems include Epic, Cerner, athenahealth, and eClinicalWorks.
Example: A physician uses their EHR to document a patient visit, select appropriate diagnosis and procedure codes, generate a superbill, and electronically transmit the claim to the billing department — all within a single integrated system.
Why It Matters: EHR integration with billing workflows reduces coding errors, improves charge capture, and streamlines the revenue cycle. Proper EHR configuration ensures that clinical documentation supports the level of service billed, reducing audit risk.
Category: Billing Basics
EOB
Explanation of Benefits — a document sent by an insurance company to the policyholder explaining what medical treatments or services were paid for on their behalf.
An EOB is not a bill but rather a statement that details how a claim was processed. It shows the billed amount, allowed amount, what the insurance paid, and what the patient owes. EOBs are generated after a claim is adjudicated and help patients and providers understand the financial outcome of a healthcare encounter.
Example: A patient visits a cardiologist for a consultation billed at $250. The EOB shows the allowed amount is $180, the insurance paid $144 (80%), and the patient owes $36 (20% coinsurance).
Why It Matters: EOBs are essential for verifying that claims were processed correctly, identifying billing errors, and understanding patient financial responsibility. They also serve as documentation for appeals if a claim is denied or underpaid.
Category: Insurance
ERA
Electronic Remittance Advice — the electronic version of an Explanation of Benefits (EOB) sent from a payer to a provider detailing claim payment information.
ERAs use the ANSI X12 835 transaction format and contain detailed information about each claim including payment amounts, adjustment reasons, patient responsibility, and denial codes. ERAs can be automatically imported into practice management systems for auto-posting, dramatically reducing manual payment posting time.
Example: A practice receives an ERA from Blue Cross showing payment for 50 claims totaling $12,500. The ERA is auto-posted to their billing system, with each claim's payment, adjustments, and patient balances recorded automatically.
Why It Matters: ERAs streamline payment posting, reduce errors from manual entry, accelerate the revenue cycle, and provide detailed information for denial management. Practices that use ERA auto-posting can process payments 75% faster than manual methods.
Category: Revenue Cycle
Fee Schedule
A comprehensive list of fees used by a healthcare provider or insurance company that establishes the maximum allowable reimbursement for each medical service or procedure.
Fee schedules can be provider-based (the practice's charge master) or payer-based (the contracted or allowed amounts). Medicare uses the Medicare Physician Fee Schedule (MPFS) based on the Resource-Based Relative Value Scale (RBRVS). Commercial payers often negotiate rates as a percentage of Medicare rates. Fee schedules should be reviewed and updated annually.
Example: A practice's fee schedule lists CPT 99214 at $185, while Medicare's allowed amount is $110 and Blue Cross's contracted rate is $132. The practice always bills the higher amount and accepts the contracted adjustment.
Why It Matters: Setting fees too low means leaving money on the table, while setting them appropriately ensures maximum reimbursement from all payers. Fee schedules should be at minimum 200-300% of the Medicare rate to avoid underpayment from commercial carriers.
Category: Billing Basics
HIPAA
Health Insurance Portability and Accountability Act — federal legislation that establishes standards for protecting sensitive patient health information and regulating electronic healthcare transactions.
HIPAA consists of multiple rules: the Privacy Rule (protects PHI), the Security Rule (safeguards electronic PHI), the Breach Notification Rule (requires reporting of data breaches), and the Transaction Rule (standardizes electronic healthcare transactions). HIPAA applies to covered entities (providers, plans, clearinghouses) and their business associates.
Example: A billing company must implement physical, technical, and administrative safeguards to protect patient data, including encrypted email communications, access controls, audit trails, and staff training on privacy policies.
Why It Matters: HIPAA violations can result in civil penalties ranging from $100 to $50,000 per violation (up to $1.5 million annually per category) and criminal penalties including fines up to $250,000 and imprisonment. Compliance is non-negotiable for any entity handling PHI.
Category: Compliance
ICD-10
International Classification of Diseases, 10th Revision — a standardized system of alphanumeric codes used to classify diagnoses, symptoms, and procedures.
ICD-10-CM (Clinical Modification) is used for diagnosis coding in the United States and contains over 70,000 codes. Each code provides specificity regarding the condition, anatomical site, severity, and other clinical details. ICD-10-PCS (Procedure Coding System) is used for inpatient procedure coding.
Example: ICD-10 code E11.65 represents Type 2 diabetes mellitus with hyperglycemia, providing specificity about both the type of diabetes and the associated complication.
Why It Matters: Accurate ICD-10 coding establishes medical necessity for services rendered. Without proper diagnosis codes linked to procedure codes, claims will be denied. ICD-10 codes also drive population health analytics and quality reporting.
Category: Coding
Modifier
A two-character code appended to a CPT or HCPCS code to provide additional information about the service performed without changing the code's definition.
Modifiers communicate specific circumstances about a procedure, such as whether it was performed on the left or right side of the body, whether it was a reduced service, or whether multiple procedures were performed during the same session. Common modifiers include -25 (significant, separately identifiable E/M service), -59 (distinct procedural service), and -26 (professional component).
Example: A physician performs a skin biopsy during the same visit as a comprehensive evaluation. The E/M code is appended with modifier -25 to indicate it was a significant, separately identifiable service from the biopsy procedure.
Why It Matters: Proper modifier usage prevents claim denials and ensures appropriate reimbursement. Incorrect or missing modifiers can lead to bundling edits, payment reductions, or audit flags.
Category: Coding
NPI
National Provider Identifier — a unique 10-digit identification number issued by CMS to healthcare providers for use in standard healthcare transactions.
There are two types of NPIs: Type 1 for individual providers (physicians, nurse practitioners, therapists) and Type 2 for organizational providers (hospitals, group practices, laboratories). NPIs replaced previous provider identifiers (UPIN, Medicare PIN) in 2007 and are required on all HIPAA standard transactions including claims, eligibility inquiries, and referrals.
Example: Dr. Smith has an individual NPI (Type 1) of 1234567890, and her group practice has an organizational NPI (Type 2) of 0987654321. Both numbers appear on claims submitted under her practice.
Why It Matters: Invalid or missing NPI numbers cause immediate claim rejections. Providers must ensure their NPI is linked to all payer enrollments and that both individual and group NPIs are correctly configured in their billing system.
Category: Compliance
Patient Statement
A document sent to patients showing their account balance, including charges for services rendered, insurance payments received, adjustments applied, and the remaining amount owed.
Patient statements should be clear, easy to understand, and include the date of service, description of services, amounts billed, insurance payments, adjustments, and the total patient balance. Best practices include sending statements promptly after insurance adjudication, offering online payment options, and providing a clear call-to-action with payment deadlines.
Example: A patient receives a statement showing a $250 office visit charge, $175 insurance payment, $50 contractual adjustment, and a $25 patient balance due within 30 days. The statement includes an online payment link and phone number for billing questions.
Why It Matters: Clear, timely patient statements improve collection rates and patient satisfaction. Studies show that sending statements within 10 days of adjudication increases the likelihood of payment by 30%. Multiple payment options further improve collections.
Category: Billing Basics
Payment Posting
The process of recording payments received from insurance companies and patients against the corresponding charges in the billing system.
Payment posting includes recording the payment amount, applying contractual adjustments, posting patient responsibility (copay, coinsurance, deductible), and identifying any discrepancies between expected and actual payment. Electronic remittance advice (ERA) enables automated payment posting, while paper checks and patient payments may require manual entry.
Example: An ERA shows a payment of $5,200 for 30 claims. The payment poster records each payment against the correct claim, posts contractual adjustments totaling $1,800, and transfers patient responsibility of $650 to the patient balance for billing.
Why It Matters: Accurate and timely payment posting ensures correct patient balances, enables effective follow-up on underpayments, and maintains clean accounts receivable. Delays in posting lead to inaccurate aging reports and missed follow-up opportunities.
Category: Revenue Cycle
Prior Authorization
A requirement by a health insurance plan that a provider must obtain approval before performing a specific service or prescribing a medication for coverage to apply.
Prior authorization (also called pre-authorization or pre-certification) is a utilization management process where the insurer evaluates whether a proposed treatment meets their criteria for medical necessity and coverage. The process typically involves submitting clinical documentation and may take 1-15 business days depending on urgency.
Example: Before scheduling an MRI of the lumbar spine, the provider's office must submit a prior authorization request to the patient's insurance, including clinical notes documenting failed conservative treatment and ongoing symptoms.
Why It Matters: Failing to obtain required prior authorization results in claim denials, leaving the patient or practice financially responsible. Managing prior authorizations efficiently is critical to revenue cycle performance and patient satisfaction.
Category: Insurance
Revenue Cycle Management
The financial process that healthcare facilities use to track patient care episodes from registration and appointment scheduling through the final payment of a balance.
RCM encompasses all administrative and clinical functions that contribute to the capture, management, and collection of patient service revenue. Key components include patient scheduling, insurance verification, charge capture, coding, claim submission, payment posting, denial management, and patient collections. Effective RCM integrates front-end, mid-cycle, and back-end processes.
Example: A complete RCM cycle: Patient schedules appointment → Eligibility verified → Services rendered → Charges captured → Claims coded and submitted → Payment received and posted → Patient balance billed → Collections follow-up on aging accounts.
Why It Matters: Efficient RCM maximizes revenue, minimizes claim denials, accelerates cash flow, and ensures compliance. Healthcare organizations typically collect only 70-80% of what they bill, and optimized RCM can significantly improve this rate.
Category: Revenue Cycle
Superbill
A detailed invoice or receipt used by healthcare providers that lists services rendered, diagnosis codes, and procedure codes for billing purposes.
A superbill is a pre-printed or electronic form customized for a specific practice that includes commonly used CPT codes, ICD-10 codes, and provider information. It serves as the primary source document for creating insurance claims and is completed by the provider at the time of service.
Example: A family medicine physician completes a superbill after a patient visit, checking off CPT code 99214 (established patient, moderate complexity) and ICD-10 code J06.9 (acute upper respiratory infection).
Why It Matters: Accurate superbills are the foundation of proper billing. Errors on superbills lead to claim denials, delayed payments, and potential compliance issues. They ensure that all services are captured and coded correctly.
Category: Billing Basics
Upcoding
The fraudulent practice of billing for a more expensive service or procedure than was actually performed, resulting in higher reimbursement than warranted.
Upcoding can involve using a higher-level E/M code than supported by documentation, billing for a more complex procedure than performed, or misrepresenting the diagnosis to justify a higher-paying service. It is considered a form of healthcare fraud and is actively monitored by payers, the OIG (Office of Inspector General), and CMS through data analytics and audit programs.
Example: A physician routinely bills 99215 (high complexity visit) for straightforward follow-up appointments that should be coded as 99213 or 99214. An audit reveals the documentation does not support the level billed, resulting in recoupment and potential penalties.
Why It Matters: Upcoding exposes providers to severe consequences including recoupment of overpayments, civil monetary penalties up to $50,000 per false claim, treble damages under the False Claims Act, exclusion from federal programs, and criminal prosecution.
Category: Compliance
Write-Off
An amount removed from the accounts receivable that the provider agrees not to collect, either as a contractual adjustment with an insurance company or as an uncollectible patient balance.
There are two primary types of write-offs: contractual write-offs (the difference between billed charges and the allowed amount, which are expected and normal) and bad debt write-offs (uncollectible patient balances after reasonable collection efforts). Write-offs should be carefully categorized and monitored to distinguish between necessary contractual adjustments and preventable revenue losses.
Example: A provider bills $300 for a service. The allowed amount is $200. The contractual write-off is $100. The insurance pays $160, and the patient owes $40. If the patient never pays the $40 after collection efforts, it becomes a bad debt write-off.
Why It Matters: Excessive write-offs beyond contractual adjustments indicate problems with collections, coding, or payer contracts. Tracking write-off categories helps identify revenue leakage and opportunities for improvement.