Healthcare Billing & RCM Glossary

The HIPAA-standard electronic transaction for submitting healthcare claims. The 837P is used for professional claims (CMS-1500 equivalent), and the 837I is used for institutional claims (UB-04 equivalent). Most claims are submitted as 837 transactions.

A patient's insurance status indicating that their policy is currently in effect and claims for services will be considered for payment. Active coverage must be verified before every encounter, as coverage can change or terminate at any time.

The process by which a payer reviews a claim, determines coverage eligibility, applies contractual adjustments, calculates patient responsibility, and issues payment or denial. Adjudication is the payer's decision-making process for each claim.

The maximum amount a payer will pay for a covered healthcare service. In-network providers have agreed to accept this amount as full payment (plus patient cost-sharing). Also called the "allowable," "eligible amount," or "negotiated rate."

Ambulatory Payment Classification. CMS's outpatient hospital payment system that groups outpatient services into payment categories based on clinical similarity and resource use. APCs form the basis of the Outpatient Prospective Payment System (OPPS).

A formal request to a payer to reconsider a denied claim. Appeals must be submitted within the payer's specified timeframe (typically 90–180 days from denial) and include supporting documentation such as medical records, clinical notes, and a letter of medical necessity.

A report categorizing outstanding accounts receivable by age — typically 0–30, 31–60, 61–90, 91–120, and 120+ days. AR aging identifies old claims that need follow-up and is a critical revenue cycle management tool.

A unique reference number issued by a payer when prior authorization is approved. The authorization number must be included on the claim (Box 23 of the CMS-1500) for services that require prior authorization. Without it, the claim may be denied as CO-197.

The post-service portion of the revenue cycle, including coding, charge entry, claim submission, payment posting, denial management, appeals, and collections. Back-end processes focus on revenue capture and recovery.

Patient balances that are determined to be uncollectible after reasonable collection efforts. Bad debt is written off and may be sent to a collection agency. Rising bad debt is often linked to high-deductible health plans.

When a provider bills a patient for the difference between billed charges and the amount paid by the insurance plan. In-network providers cannot balance bill. Some states protect patients from surprise balance billing in emergencies.

A deeper dive than eligibility verification that identifies specific plan benefits, including covered services, copay amounts, coinsurance rates, deductible status, and out-of-pocket maximums. Benefits verification is essential for accurate patient estimates.

The amount a provider charges for a healthcare service before any adjustments are applied. Billed charges are listed on the chargemaster and appear on claims as the submitted amount. They are almost always higher than the allowed amount.

When a payer combines multiple procedure codes billed separately into a single, less expensive code for payment. Bundling often occurs due to NCCI edits that prevent separate payment for services considered components of a more comprehensive procedure.

Claim Adjustment Reason Code. A standardized code used by payers on remittance advice to explain why a claim was adjusted — why the payment differs from the billed amount. CARCs appear alongside RARC codes to communicate payment decisions.

The process of recording billable services, supplies, and procedures provided to a patient during an encounter. Charge capture feeds into claim generation. Missed charges mean lost revenue; incorrect charges mean denied claims.

The number of days between the date of service and the date the charge is entered and submitted as a claim. High charge lag reduces days available for timely filing and slows cash flow. Best practice: under 3 days.

A comprehensive list of all items and services a hospital can bill for, with their associated billed charges. The chargemaster is maintained by the facility and updated periodically. It feeds billed charges into claims.

Healthcare services provided to patients who cannot pay due to financial hardship, typically at reduced or no cost. Charity care write-offs are based on documented financial need and are distinct from bad debt.

A formal request for payment submitted by a healthcare provider to an insurance company for services rendered to a patient. Claims are submitted electronically (837 format) or on paper (CMS-1500 or UB-04) and contain patient, provider, service, and diagnosis information.

A claim that has no defects, improprieties, or need for additional information. A clean claim is processable without the payer requesting additional information from the provider. Most payers have contractual obligations to process clean claims within a defined timeframe.

The percentage of claims that pass through the payer's adjudication process without rework, correction, or appeal. High-performing billing operations target 95%+ clean claim rates. Below 90% indicates systemic issues.

A third-party intermediary that receives claims from providers, checks them for formatting and common errors (claim scrubbing), and forwards them to the appropriate payer. Clearinghouses also receive ERA files from payers and route them back to providers.

The standard paper claim form used by healthcare professionals to bill insurance companies for services. It contains patient information, provider details, diagnosis codes, procedure codes, and charges. The electronic equivalent is the 837P transaction.

The process of connecting each procedure code on a claim to the appropriate diagnosis code(s) that justify it. Code linking tells the payer why each specific procedure was performed. Incorrect linking is a common cause of medical necessity denials (CO-50).

The percentage of costs a patient pays for a covered service after meeting the deductible. For example, if a plan has 20% coinsurance and the allowed amount is $500, the patient pays $100. Coinsurance is patient responsibility.

Health insurance provided by private companies rather than government programs. Commercial insurers include Blue Cross Blue Shield, Aetna, Cigna, UnitedHealthcare, Humana, and others. Each has its own plans, networks, and fee schedules.

A utilization review process that occurs while a patient is receiving care, typically in a hospital setting. The payer reviews the patient's progress to determine if continued stay or treatment is medically necessary. Also called continued stay review.

The difference between a provider's billed charges and the allowed amount per the provider's contract with the payer. This amount is written off and cannot be billed to the patient. Represented by CARC CO-45 on remittance advice.

A dollar amount set annually by CMS that is multiplied by the total RVUs of a CPT code to determine the Medicare payment rate. The conversion factor is updated each year and is the same for all services. It is the "price per RVU."

A process used when a patient is covered by more than one health insurance plan to determine the order in which payers pay claims and prevent duplicate payment. The primary payer pays first; the secondary pays some or all of the remaining balance.

A fixed dollar amount a patient pays for a covered healthcare service at the time of service. The amount varies by plan and type of service. Copays are patient financial responsibility and should be collected at the time of the visit.

A resubmitted claim that has been corrected to address errors identified by the payer or clearinghouse. Corrected claims use frequency type 7 (replacement) and should reference the original claim number. They are different from appeals.

A period during which a patient does not have active insurance coverage. This can occur between jobs, during plan transitions, or when premiums are not paid. Claims for services during a coverage gap are denied or become patient responsibility.

Current Procedural Terminology. A coding system maintained by the American Medical Association that describes medical procedures and services. CPT codes are 5 digits and appear on claims as the procedure performed. They determine what the provider is paid.

Days in Accounts Receivable. The average number of days it takes to collect payment on a claim. Calculated as total AR divided by average daily charges. A lower number is better. Industry benchmark: 30–45 days for most practices.

The amount a patient must pay out-of-pocket for covered healthcare services before the insurance plan starts paying. Deductibles reset annually. Amounts owed toward the deductible are patient responsibility.

A payer decision not to reimburse a provider for all or part of a submitted claim. Denials are categorized as hard (cannot be appealed) or soft (can be resolved through correction, resubmission, or appeal). Denials consume staff time and delay revenue.

Proactive identification and elimination of denial root causes before claims are submitted. Prevention includes eligibility verification, prior authorization management, coding accuracy, and claim scrubbing. Up to 90% of denials are preventable.

The percentage of submitted claims that are denied by payers. Calculated as denied claims divided by total submitted claims. Industry average is 5–8%; best practice target is below 5%. High denial rates indicate process issues.

A family member covered under another person's insurance policy, such as a spouse or child. Dependents are not the policy subscriber but have coverage under the subscriber's plan. Dependent information must be linked correctly on claims.

A code from the ICD-10-CM system that identifies the patient's condition, illness, or reason for the encounter. Diagnosis codes justify the medical necessity of procedures performed. Each procedure code on a claim must be linked to at least one diagnosis code.

When a payer reduces the level of service billed to a lower-level code, resulting in lower reimbursement. Downcoding often occurs with E/M codes when the payer determines the documentation does not support the billed level.

Diagnosis-Related Group. A patient classification system used by Medicare and other payers to group inpatient hospital stays by diagnosis and procedure, assigning a fixed payment for each group. DRGs form the basis of the Inpatient Prospective Payment System (IPPS).

Evaluation and Management coding. CPT codes (99202–99215) used to bill office visits and other encounters. E/M levels are determined by either the 2021 AMA MDM guidelines (Medical Decision Making) or time. Correct E/M level selection is a common source of denials.

The process of confirming a patient's insurance coverage is active and identifying plan details before services are rendered. Eligibility verification checks active/inactive status, plan type, copay, deductible, and COB. It is the first line of denial prevention.

Explanation of Benefits. A document sent by a health insurance plan to covered individuals explaining what medical treatments and/or services were paid for on their behalf. The EOB shows billed amounts, allowed amounts, payer payments, and patient responsibility.

Electronic Remittance Advice. The electronic version of an explanation of benefits sent from payers to providers. ERAs contain detailed payment information for multiple claims in ANSI X12 835 format, enabling automated payment posting.

A complete listing of fees or maximum allowable amounts set by a payer for each service code. In-network providers have agreed to accept fee schedule rates as full payment. Fee schedules vary by payer and may be updated annually.

The percentage of claims paid on first submission without any rework, correction, or appeal. Also called first-pass yield. This is a key indicator of front-end and coding quality. Target: 90%+.

The patient-facing portion of the revenue cycle, including scheduling, registration, eligibility verification, prior authorization, and patient estimate generation. Front-end errors are a leading cause of claim denials.

A code on the remittance advice that categorizes who is financially responsible for an adjustment. The four group codes are CO (Contractual Obligation), PR (Patient Responsibility), OA (Other Adjustment), and PI (Payer Initiated).

The person responsible for paying a patient's medical bills. The guarantor may be the patient themselves, a parent, a spouse, or a legal guardian. The guarantor is the party billed for patient responsibility amounts.

A denial that cannot be appealed or overturned through the standard appeals process. Hard denials typically result in a write-off. Examples include timely filing deadline violations and non-covered services.

Healthcare Common Procedure Coding System. A coding system used by CMS for services not covered by CPT codes, including durable medical equipment, injectable drugs, and certain services. HCPCS Level II codes start with a letter followed by 4 digits.

High Deductible Health Plan. A health insurance plan with lower premiums and higher deductibles than traditional plans. HDHPs are often paired with Health Savings Accounts (HSAs). Patients pay more out-of-pocket before insurance kicks in.

Health Maintenance Organization. A type of managed care plan that requires members to use in-network providers and obtain referrals from a primary care physician before seeing specialists. Out-of-network services are typically not covered except in emergencies.

Health Savings Account. A tax-advantaged savings account paired with a High Deductible Health Plan (HDHP). Funds can be used for qualified medical expenses and roll over year to year. Both employers and employees can contribute.

International Classification of Diseases, 10th Revision. A coding system used to classify diseases, injuries, and health conditions. ICD-10 codes are 3–7 characters long and appear on claims as the diagnosis. They justify why a service was performed.

Providers who have contracted with a health plan to provide services at negotiated rates. In-network providers have agreed to accept the allowed amount as full payment and cannot balance bill patients for the contractual adjustment.

A type of health insurance that contracts with providers to form a network, with the goal of managing cost, quality, and access. Managed care plans (HMO, PPO, POS) typically require network providers and may require referrals or prior authorization.

A joint federal and state program that provides health coverage to eligible low-income individuals, families, pregnant women, elderly, and people with disabilities. Medicaid eligibility and benefits vary by state. Providers must verify state-specific Medicaid coverage.

The process of translating healthcare diagnoses, procedures, services, and equipment into universal medical alphanumeric codes (ICD-10, CPT, HCPCS). Medical coding is essential for claim submission, reimbursement, and data analysis.

Healthcare services or supplies needed to diagnose or treat an illness, injury, condition, disease, or its symptoms, and that meet accepted standards of medicine. Payers require services to meet medical necessity criteria to be covered. Denials for medical necessity use CARC CO-50.

The federal health insurance program for people 65 or older, certain younger people with disabilities, and people with End-Stage Renal Disease. Medicare has Parts A (hospital), B (medical), C (Medicare Advantage), and D (prescription drugs).

A two-character code appended to a CPT or HCPCS code to indicate that a service was altered in some way without changing its definition. Common modifiers include -25 (significant separate E/M on same day as procedure) and -59 (distinct procedural service).

National Correct Coding Initiative Edits. Procedures established by CMS to prevent improper payment when incorrect code combinations are reported. NCCI edits identify procedure code pairs that should not be billed together unless a modifier (typically -59) indicates distinct services.

The percentage of collectible revenue actually collected, after contractual adjustments. Calculated as (payments / (charges - contractual adjustments)) × 100. Best practice target: 96%+. Low rates indicate collection problems.

National Provider Identifier. A unique 10-digit identification number issued by CMS to all covered healthcare providers. NPIs are required on HIPAA standard transactions, including claims. Individual providers have Type 1 NPIs; organizations use Type 2 NPIs.

Providers who have not contracted with a health plan. Out-of-network services generally result in higher patient cost-sharing and may result in balance billing, where the provider bills the patient for the difference between billed charges and the payer's payment.

The most a patient pays for covered healthcare services in a plan year. After this limit is reached, the insurance plan pays 100% of covered services. Copays, coinsurance, and deductible payments typically count toward this limit.

The portion of a healthcare bill that the patient must pay, including deductibles, copayments, coinsurance, and non-covered services. Patient responsibility is calculated during claim adjudication and appears on the EOB.

The process of recording payments received from payers and patients in the billing system. Payment posting involves matching ERA/EOB data to claims, posting contractual adjustments, and identifying denials or short payments for follow-up.

A conversation between the requesting provider and the payer's medical director to discuss a denied prior authorization. Peer-to-peer reviews are an opportunity to provide additional clinical justification and potentially overturn a denial before formal appeal.

A two-digit code on the claim identifying where the service was performed (e.g., 11 for office, 21 for inpatient hospital, 22 for outpatient hospital). Place of service affects reimbursement rates and coverage rules.

The date on which a patient's insurance coverage begins. Services provided before the effective date are not covered. The plan effective date must be verified during eligibility checks, especially for new patients or patients who recently changed plans.

The person who owns the insurance policy. The policyholder may also be called the subscriber or insured. The policyholder is responsible for premium payments and may add dependents to their plan.

Preferred Provider Organization. A type of managed care plan that offers a network of preferred providers but also covers out-of-network services at a higher cost-sharing rate. PPOs typically do not require referrals to see specialists.

A process similar to prior authorization where a payer reviews and approves certain services before they are performed. Pre-certification is often used for inpatient admissions, surgeries, and high-cost procedures. The terms pre-certification and prior authorization are sometimes used interchangeably.

A health condition that existed before a patient's insurance coverage began. Under the Affordable Care Act, insurers cannot deny coverage or charge more for pre-existing conditions. However, some grandfathered plans may still have exclusions.

The insurance plan that pays first on a claim when a patient has multiple coverage sources. The primary payer processes the claim, applies contractual adjustments, and determines patient responsibility before any secondary payer is billed.

Approval from a health insurance plan required before a patient receives certain services, medications, or procedures. Without prior authorization where required, payers may deny claims as CO-197. Abbreviated as PA or pre-auth.

A code (CPT or HCPCS) that identifies the medical service, procedure, or supply provided to a patient. Procedure codes determine what the provider is paid. Each procedure code must be linked to at least one diagnosis code on the claim.

Remittance Advice Remark Code. A code used on remittance advice to provide additional explanation for claim adjustments alongside CARC codes. RARCs offer more specific context, such as identifying which field is missing or what additional documentation is required.

Resource-Based Relative Value Scale. The methodology used by Medicare to determine physician reimbursement. Assigns relative value units (RVUs) based on physician work, practice expense, and malpractice cost, multiplied by a conversion factor set annually by CMS.

An informal level of appeal where the provider asks the payer to review a denial without a formal appeal. Reconsideration is typically the first step before filing a formal appeal. Not all payers offer this option.

A written authorization from a primary care physician (PCP) for a patient to see a specialist or receive specific services. Referrals are typically required by HMO plans. Without a referral, the specialist visit may not be covered.

A claim that is returned by the clearinghouse or payer before adjudication because it contains formatting errors, missing required fields, or invalid data. Rejections are not denials — the claim was never processed. Rejections must be corrected and resubmitted.

A document from a payer explaining how claims were adjudicated — including payment amounts, contractual adjustments, patient responsibility, and denial reasons. The electronic version is an ERA (835 transaction); the paper version is an EOB.

A prior authorization obtained after a service has already been provided, typically due to an emergency or administrative oversight. Retro-auth success rates vary by payer and are generally low. It is the primary recovery path for CO-197 denials.

A three-digit code used on UB-04 (institutional) claims to categorize services by department or type (e.g., 0110 for room and board, 0250 for pharmacy, 0450 for emergency room). Revenue codes help payers understand the facility charges.

All administrative and clinical functions that contribute to the capture, management, and collection of patient service revenue. The revenue cycle spans patient scheduling through final payment and denial resolution.

The process of identifying the underlying cause of denial patterns. Root cause analysis goes beyond fixing individual denials to addressing the systemic process failure that generated them — preventing future denials of the same type.

Relative Value Unit. A numeric value assigned to each CPT code that represents the relative effort and cost of providing a service. RVUs have three components: physician work, practice expense, and malpractice. RVUs × conversion factor = Medicare payment.

The insurance plan that pays after the primary payer has adjudicated the claim. The secondary payer may cover some or all of the remaining patient responsibility. Claims must be submitted to the primary first, then to the secondary with the primary EOB.

A denial that can be resolved through correction, additional documentation, or appeal. Soft denials are recoverable if the provider takes action within the payer's appeal timeframe. Most denials are soft denials.

The individual who holds the insurance policy. The subscriber may be the patient or the patient's family member (e.g., spouse or parent). The subscriber's information appears on the claim, and the subscriber ID is used for identification.

The date on which a patient's insurance coverage ends. Services provided after the termination date are not covered and result in CO-27 denials. Termination dates must be checked during eligibility verification for every encounter.

The deadline by which a claim must be submitted to a payer to be eligible for payment. Timely filing limits vary by payer and contract — typically 90 to 365 days from the date of service. Claims submitted after the deadline result in CO-29 denials.

The standard paper claim form used by hospitals and institutional facilities to bill insurance companies for inpatient and outpatient services. The electronic equivalent is the 837I transaction. The UB-04 contains revenue codes, condition codes, and occurrence codes.

The fraudulent practice of billing a higher-level service code than was actually performed, resulting in higher reimbursement. Upcoding is illegal under the False Claims Act and can result in significant penalties, fines, and exclusion from federal programs.

A process used by health plans to evaluate the medical necessity and appropriateness of healthcare services. Utilization review can be prospective (before service), concurrent (during service), or retrospective (after service).

The portion of billed charges that is not collectible — due to contractual adjustment, denial that cannot be appealed, charity care, or bad debt. Write-offs reduce net revenue and should be tracked carefully.