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LifeLines/Blog/Billing

Medical Billing Glossary: 40 Terms Every Practice Should Know

Medical billing terms explained in plain English: 40 words every practice uses, from adjudication and CARC codes to timely filing and write-offs, A to Z.

Glossary·7 min read·

Dictionary page

The short answer

  1. 01Plain-English definitions of the billing terms a practice meets every day
  2. 02Each term notes where it shows up in the work
  3. 03Payer rules behind the terms change yearly, so check current guidance before acting

These medical billing terms are the words a practice meets every day between the front desk and a paid claim. Each one is defined in plain English, in alphabetical order, with a note on where it shows up in the work. Payer rules behind many of these terms differ by payer, plan and state and change every year, so check your contracts and the current CMS guidance before you act on one.

Medical billing terms A to B

Accounts receivable (A/R)

Money owed to the practice for services already given, by payers and by patients. A/R is usually reported by age, from the date the claim was sent, so old balances stand out and get worked first.

Adjudication

The payer's processing of a claim: checking it against the patient's coverage, benefits, contract and policies, then deciding what to pay, what to deny and what the patient owes.

Allowed amount

The most a payer will pay for a covered service under the plan or contract, counting both the payer's share and the patient's share. It is often less than the practice's charge.

Appeal

A formal request for a payer to review a denial it made. Each payer sets its own levels and deadlines, and Medicare has a multi-level appeal process with a deadline for each level.

Balance billing

Billing the patient for the difference between the charge and the allowed amount. An in-network contract generally forbids it, and federal and state rules limit it in some out-of-network cases.

Bundling

Paying two or more services as one. CMS publishes the National Correct Coding Initiative edits for Medicare, and commercial payers apply their own bundling rules.

Medical billing terms starting with C

CARC (claim adjustment reason code)

The code on a remittance that explains why a line was paid differently from what was billed. It is read together with a group code and often a RARC.

Claim status inquiry (276/277)

The HIPAA standard electronic transaction for asking a payer where a claim stands. The 276 is the question and the 277 is the payer's answer.

Clean claim

A claim with no errors or missing information that the payer can process without asking for anything more.

Clearinghouse

A service that checks claims for errors, converts them to the format each payer expects, sends them on, and returns acknowledgments, rejections and remittances to the practice.

CMS-1500

The standard paper claim form for professional services. Its electronic equivalent is the 837P.

Coinsurance

The patient's share of the allowed amount, as a portion of it, owed after the deductible is met.

Coordination of benefits (COB)

The rules that decide which plan pays first when a patient has more than one. The primary plan pays first, and the secondary plan considers what is left.

Copay

A fixed amount the patient pays for a type of service, such as an office visit, set by the plan.

Corrected claim

A claim sent to replace one the payer already processed, to fix an error. Payers set how it is marked; Medicare handles many clerical errors through a reopening instead.

CPT code

A five-character code for a medical procedure or service. The AMA owns the CPT code set and updates it every year.

Medical billing terms D to E

Date of service

The date the service was given. Coverage, code validity and filing deadlines are all judged against it.

Deductible

The amount the patient pays for covered services in a plan year before the plan starts to share the cost.

Denial

A claim, or a line on it, that the payer processed and decided not to pay. It is worked with a corrected claim, a reconsideration or an appeal.

Electronic claim (837P and 837I)

The HIPAA standard electronic claim. The 837P carries professional claims, and the 837I carries institutional claims, such as hospital claims.

Eligibility inquiry (270/271)

The HIPAA standard electronic eligibility check. The 270 asks the payer about a patient's coverage, and the 271 answers with coverage status and benefit details. Our insurance eligibility verification checklist lists what to confirm in it.

EOB (explanation of benefits)

A statement, usually on paper, that shows how a payer processed a claim: what was billed, allowed, paid and left to the patient. Patients receive one too.

ERA (electronic remittance advice)

The electronic version of the payment explanation, sent as the 835 transaction. It lets a practice post payments and adjustments to claims without typing them.

Medical billing terms G to M

Group code

The two-letter code on a remittance that says who owns an adjusted amount: CO (contractual obligation), PR (patient responsibility), OA (other adjustment) or PI (payer initiated reduction).

HCPCS

The Healthcare Common Procedure Coding System. Level I is CPT. Level II, maintained by CMS, covers supplies, equipment and services that CPT does not.

ICD-10-CM

The diagnosis code set used on claims in the United States. A code must be billable, meaning as specific as the code set allows. It is updated every October 1, and sometimes in April.

MAC (Medicare Administrative Contractor)

A private contractor that processes Medicare Part A and Part B claims for a region, answers provider questions, and handles the first level of Medicare appeals.

Medical necessity

The test of whether a service was reasonable and needed for the patient's condition, shown by the diagnosis and the documentation. A claim that fails it is denied.

Medicare Advantage

Medicare coverage offered through private plans approved by Medicare (Part C). Claims for a Medicare Advantage patient generally go to the plan, not to Original Medicare.

Modifier

A two-character code added to a procedure code to give more detail, such as a separate service on the same day. It must be supported by the documentation.

Medical billing terms N to P

NPI (National Provider Identifier)

The 10-digit identifier every provider and provider organization uses on claims. Type 1 is for individuals and Type 2 is for organizations.

Out-of-pocket maximum

The most a patient pays for covered in-network services in a plan year. Once it is met, the plan pays the full allowed amount for covered in-network services for the rest of that year.

Payer ID

The identifier a clearinghouse uses to route a claim or an eligibility check to the right payer. A wrong payer ID sends the claim to the wrong place or gets it rejected.

Place of service code

The two-digit code on a professional claim that says where the service happened, such as 11 for an office. It can change what is paid.

Prior authorization

Approval a payer requires before certain services are given. Without it, the claim for that service is likely to be denied.

Medical billing terms R to W

RARC (remittance advice remark code)

A code on a remittance that adds detail to a CARC, such as which information was missing or what the payer needs.

Rejection

A claim that failed edits before processing, at the clearinghouse or the payer's front end. It has nothing to appeal: you fix it and send it again as a new claim.

Superbill

An itemized list of the services and codes for a visit, used to build the claim or given to a patient who files with their own plan.

Timely filing limit

The deadline for a claim to reach the payer, counted from the date of service. It varies by payer and contract; Medicare's is generally 12 months from the date of service.

Write-off

An amount removed from what is owed, such as a contractual adjustment or a balance the practice decides not to collect. It should always carry a reason.

Frequently asked questions

What is the difference between an EOB and an ERA?

They carry the same information about how a claim was processed. An EOB is usually a paper statement, and patients receive one too. An ERA is the electronic 835 file a practice uses to post payments.

What is the difference between a rejection and a denial?

A rejection failed edits before the payer processed the claim, so you fix and resend it. A denial was processed and not paid, so you correct it, ask for reconsideration or appeal. Our guide to claim rejection vs denial covers each next step.

Which billing terms matter most for denials?

CARC, RARC and the group code, because together they say why a line was not paid and who owns the balance. Our guide to common claim denial reasons shows how to read them.

Sources

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