Medical billing is the work of turning a patient visit into a claim, sending that claim to the patient's health plan, and following it until the practice has collected what it is owed from the plan and the patient. It starts before the visit, with registration and an insurance check, and ends when the account balance is zero. Medical coding (assigning diagnosis and procedure codes from the clinical record) feeds the claim, but it is a separate skill.
The details depend on the payer. Medicare, each state Medicaid program and each commercial plan set their own filing limits, authorization lists and coverage policies. The steps below describe the common shape of the process. Where a specific rule is quoted, it is Medicare's or Medicaid's, and it is cited at the end.
How does medical billing work, step by step?
1. Registration
The front desk records the patient's demographics, the insurance card details, the subscriber (the policyholder, if that isn't the patient) and any other coverage. Mistakes here come back later. Medicare, for example, returns a claim with missing or invalid required information as "unprocessable": it isn't denied, it has no appeal rights, and it has to be corrected and sent again.
2. Eligibility, benefits and authorization
Before the visit, the practice confirms that coverage is active for the date of service, which plan pays first if the patient has more than one (coordination of benefits), what the patient is likely to owe, and whether the service needs prior authorization or a referral. The electronic eligibility inquiry and response (the X12 270/271) is one of the standard transactions adopted under HIPAA.
Patients who aren't using insurance also have rights here. Under federal rules, an uninsured or self-pay patient who schedules care at least 3 business days ahead, or asks for one, is generally entitled to a good faith estimate of expected charges.
3. Documentation and coding
The clinician documents the visit. A coder, or the clinician, then assigns codes from three code sets:
- ICD-10-CM for diagnoses and conditions.
- CPT (HCPCS Level I) for procedures and services performed by physicians and other clinicians. The AMA's CPT Editorial Panel maintains it.
- HCPCS Level II for products, supplies and services that CPT doesn't cover, such as ambulance services and durable medical equipment.
The codes have to match what the record supports: no higher, no lower. Both code sets change on a schedule. New ICD-10-CM codes take effect each October 1, and CMS has also published April 1 updates in some years. For how the two main code sets differ, see CPT vs ICD-10 codes.
4. Charge entry
The coded services are entered into the practice management system with units, the place of service, the rendering and billing providers, and modifiers where the documentation supports them. Comparing the day's schedule with the day's charges is the simplest way to catch a visit that was never billed.
5. Claim review and submission
Before a claim goes out, a "scrubber" (claim-editing software) checks it for missing fields, invalid codes, code pairs that CMS's National Correct Coding Initiative (NCCI) edits flag, and units of service above NCCI's medically unlikely edit (MUE) limits. Most professional claims are sent electronically as the X12 837. The CMS-1500 form is its paper equivalent.
Every payer has a filing deadline. Medicare's is generally 1 calendar year after the date of service. Federal Medicaid rules require claims within 12 months, and state programs publish their own limits. Commercial limits are set by each plan's contract.
6. Adjudication and status follow-up
The payer decides the claim: it pays it, denies it, or asks for more information. The practice tracks the status of each claim (electronically through the X12 276/277) rather than waiting. Medicare must pay or deny a clean claim within 30 days of receipt. It also may not pay one before a short waiting period: 13 days after receipt for an electronic claim, or 26 for paper. Commercial timelines depend on the contract and on state law.
7. Payment posting
The payer sends a remittance advice. The electronic version is the X12 835, and a patient-facing version is often called an explanation of benefits (EOB). It lists what was allowed, what was paid and each adjustment. Every adjustment carries a group code (for example, CO for contractual obligation or PR for patient responsibility) and a claim adjustment reason code (CARC) that explains it. Posting each line and checking the payment against the contracted rate is how underpayments get noticed.
8. Denials and appeals
Each denial is worked by its reason code. Some are fixed and resubmitted. Others are appealed. Appeals have deadlines too: a Medicare redetermination must be requested within 120 days of receiving the initial decision. The guide to why insurance claims get denied covers the common reasons and how to prevent them.
9. Patient balances
Once the plan has paid, the patient's share (deductible, coinsurance or copay) is billed on a statement the patient can understand. Collecting known amounts at the visit reduces the number of statements that have to be sent at all.
10. Reporting
Denials grouped by reason, accounts receivable (A/R) by age, and payer turnaround times show where the process is slowing down. The medical billing KPIs guide explains which measures to track.
What is the difference between medical billing and medical coding?
| Medical coding | Medical billing | |
|---|---|---|
| Starts from | The clinical documentation | The coded encounter and the patient's coverage |
| Main output | Diagnosis and procedure codes | A claim, then payment, posting and follow-up |
| Key knowledge | Code set guidelines, documentation rules | Payer rules, deadlines, remittance codes, appeals |
In a small practice, one person may do both. In larger practices they are usually separate roles, and coders often review the clinical side of denials.
Where do claims most often stall?
- Front-end data. Wrong subscriber details, inactive coverage or the wrong primary payer produce rejections and denials that have nothing to do with the care provided.
- Authorizations. A service that needed prior authorization and didn't get one is usually denied however well it was documented.
- Documentation that doesn't support the codes. A mismatch in either direction is an error. Undercoding leaves earned payment uncollected, and overcoding creates an overpayment the practice has to return.
- Late filing. A claim held back for a missing detail can drift past the payer's deadline.
- Unworked denials and unchecked payments. A denial nobody reads, or an underpayment nobody compares with the contract, simply stays unpaid.
The guide to common medical billing mistakes looks at these from the practice's side. For what a payer means by a claim that can be paid first time, see what a clean claim is.
Should billing be done in-house or outsourced?
Either can work. In-house billing keeps control close to the clinicians but depends on hiring and keeping trained staff. Outsourcing brings a team that works claims every day, in exchange for managing a vendor and sharing patient data under a business associate agreement. The guide to outsourcing medical billing vs. in-house sets out the trade-offs.
If you'd like a second opinion on how claims move through your practice, Highview's medical billing team can start with a free call, and the free revenue audit explains what a review of your data involves.
Sources
- CMS, Medicare Claims Processing Manual, Chapter 1: §70 (time limits for filing), §80.2 (clean claims), §80.2.1.1–80.2.1.2 (payment ceiling and floor), §80.3.1 (unprocessable claims).
- eCFR, 42 CFR 424.44: Medicare time limits for filing claims.
- eCFR, 42 CFR 447.45: Medicaid timely claims payment.
- eCFR, 42 CFR 401.305: reporting and returning Medicare overpayments.
- eCFR, 42 CFR 405.942: time frame for a Medicare redetermination request.
- eCFR, 45 CFR Part 162: HIPAA standard transactions (claims, eligibility, claim status, remittance).
- CMS, Healthcare Common Procedure Coding System (HCPCS): Level I (CPT) and Level II.
- AMA, CPT overview and code approval.
- CMS, ICD-10 codes: ICD-10-CM effective dates.
- CMS, National Correct Coding Initiative edits.
- X12, Claim Adjustment Reason Codes and group codes.
- CMS, Good faith estimates.