What is Medical Billing and How Does it Work?

Posted by: Alok Prasad

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What is Medical Billing?

Medical billing is the process of submitting and following up on claims with health insurance companies to receive payment for services provided by a healthcare provider. It involves creating a detailed invoice of services rendered and sending it to insurance companies for reimbursement, as well as handling any denials or appeals. Medical_Billing

Many claims that are denied due to including missing or incorrect data, duplicate or late submissions, improper or outdated CPT or ICD-10 codes, lack of documentation or prior authorization, and other reasons can be corrected and appealed. The goal is to ensure that the healthcare provider is reimbursed for the services they have provided to a patient.


Though medical billing procedures in the past used to be done using paper-based methods and handwritten or typewriter-drafted documents, the emergence of multiple technologies in the healthcare industry has transitioned it to an electronic process. This has resulted in savings of time and money and reduced human and administrative errors.




Medical Billing Processes

The process of medical billing includes multiple steps, all of which play an important part in ensuring a physician practice receives the revenue it is owed. If any one of these steps are missed or done incorrectly, it can negatively affect the practice’s revenue cycle.

1. Patient Registration

This step entails establishing financial responsibility for a patient visit and includes functions such as check-in and insurance eligibility and verification. A medical biller uses this information to collect any necessary co-payment and figure out which services the patient’s insurance plan covers.

2. Coding of Diagnosis, Procedures and Modifiers

After patient check-out, a medical biller is responsible for translating the report from the visit into diagnosis and procedure codes. He or she then performs charge validation and creates a superbill, which is an itemized form that details services provided to a patient and submitted to a payer for reimbursement.

3. Claim Generation and Submission

After a medical biller creates a claim, reviews the codes used on it, and confirms it meets payer and HIPAA compliance standards, it is sent electronically to the insurance company for payment. The payer performs claim adjudication to evaluate each claim and accepts, rejects, or denies it before sending a report back to the provider. Any outstanding charges are billed to the patient for whom the claim was made.

4. Collection of Patient Payment

It is the responsibility of a medical biller to generate a statement for patients who have an outstanding balance with the practice. The statement often is in the form of a detailed explanation of benefits (EOB). If a patient doesn’t pay his or her bill in a timely manner, the medical biller typically initiates a collection process.


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Challenges in Medical Billing

Healthcare providers that fail to streamline their medical billing process jeopardize the financial sustainability of their practice. By focusing on combating common challenges in the process, however, they can increase their reimbursement and optimize their revenue cycle. Key obstacles in medical billing include:

1. Denials

Claim denial occurs when a claim is processed and then repudiated by a payer. Denials fall under five primary categories: soft, hard, preventable, clinical, and administrative. Most denied claims are preventable, and more than half of them are re-submittable once corrected.

2. Accuracy

Some healthcare providers continue to manually perform their denial management process, often resulting in increased human errors and reduced transparency. Even the smallest amount of inaccurate or incomplete patient information can result in a claim being denied

3. Patient Eligibility

Probably the number one source for denied claims is patient eligibility, meaning the service submitted for payment isn’t included in the insurance plan under which it’s being billed. Front-office staff must ensure they verify a patient’s health insurance status and coverage.

4. Lack of Automation

Manual claim processes are usually extremely time-consuming and increase the turnaround for claims. Healthcare providers that lack automation in their medical billing process miss out on the capability for advanced claims reporting and customized decision support.

5. Lack of Technology

Without technology to effectively prioritize, manage, and channel claims, physician practices are unlikely to be able to streamline their denial management and obtain revenue they’re owed by patients and payers. Even if a practice’s staff members are knowledgeable about the process, not having the applicable technology to administer claims makes it difficult to manage them efficiently


Physician practices have had to deal with additional challenges the past few months due to the COVID-19 pandemic. Even with the Coronavirus Aid, Relief, and Economic Security (CARES) Act and updated billing guidance from the Centers for Medicare & Medicaid Services (CMS) healthcare professional services declined 68% in utilization and 48% in revenue compared to the same time period last year.

Patient visits are still approximately one-third lower than they were before the new coronavirus hit the United States, and many practices are trying different options to accrue extra revenue, including implementing telemedicine initiatives and adding other service lines to their offerings. Through streamlined medical billing, these healthcare providers can ensure their revenue cycle runs smoothly during both decreases in patient visits and backlogs of appointments.

Evolution of Medical Billing

Though medical billing procedures in the past used to be done using paper-based methods and handwritten or typewriter-drafted documents, the emergence of multiple technologies in the healthcare industry has transitioned it to an electronic process. This has resulted in savings of time and money and reduced human and administrative errors.

Another transformation in medical billing is a change in focus to revenue cycle management (RCM). Very much unlike medical billing, RCM includes a variety of additional services, including reporting and analysis of the financial pipeline and patient financial services. It consists of all the necessary tasks required to get a bill through, not only filling out and filing the paperwork.

Other events and issues that have affected the medical billing industry include:

1. Electronic health/medical records (EHRs/EMRs)

All healthcare providers are federally mandated to use this technology. The utilization of digital records helps physician practices comply with the strict documentation rules of the Affordable Care Act (ACA) and centralize and improve access to a patient’s medical history.

2. Switch from ICD-9 to ICD-10

This move in 2015 was designed to include codes optimized for electronic usage and streamline communication with insurance companies. ICD-10 consists of more than 70,000 procedure codes and 69,000 diagnosis codes, compared to about 3,800 procedure codes and roughly 14,000 diagnosis codes found in ICD-9.

3. The HITECH Act

Passed by Congress in 2009 to financially reward physician practices and other healthcare providers that adopted more efficient computerized means of operating, the HITECH Act spurred the use of technology such as EHRs, computer-assisted coding (CAC), artificial intelligence (AI)/machine learning, encoders, and cloud-based systems. With these technologies, medical coders transcribe information about a patient visit into an electronic code that can be easily stored in a hospital’s patient database and later interpreted by health insurance companies for reimbursement of healthcare services. Such solutions also enable physician practice staff to improve quality of care and efficiency, reduce paperwork, and accomplish more in less time. AI-based CAC systems help medical billers identify mistakes, fix codes, improve documentation, avoid duplicate charges, and assist coders with real-time feedback to improve their coding process. 

4. Outsourced medical billing

With in-house medical billing, the practice staff is responsible for all aspects of revenue cycle management and submit claims for reimbursement, set charges, collect patient fees, and manage the accounts receivable. With outsourced medical billing, a medical billing service performs those tasks and usually takes a percentage of a practice's collections as payment. Outsourcing medical billing allows physician practices to allocate more employee resources to other aspects of the practice, achieve better payment rates and faster cash flow, and increase compliance with healthcare regulations.

5. Growing importance of patient collections

The shift from fee-for-service to value-based care has resulted in higher health insurance deductibles for some patients. In fact, patient costs, including out-of-pocket maximums and deductibles, have increased 30% over the past four years and 230% in the previous 10 years. Therefore, providers have had to adjust their collection strategies, including collecting payment before procedures, revising payment agreements, and promoting price transparency. Following are a few statistics that show why patient collections can be challenging for physician practices:


The Future of Medical Billing


Technology will most likely continue to shape the process of medical billing. Many consumers have become accustomed to quick service and easily-accessible information, and solutions that precipitate that streamlined patient experience will presumably increase patient engagement. Two key technologies that are on track to play a big role in the future of medical billing are:

1. Computer-assisted coding (CAC)

CAC has been shown to lower coding time by 22% without reducing accuracy and will probably continue to be used by physician practices in an attempt to increase productivity and reduce claim backlogs. For practices, it can prompt identification of gaps in clinical documentation and faster medical billing.

2. Blockchain:

The use of blockchain is prevalent in many industries, including healthcare. Implementing blockchain data storage in EHRs could offer enhanced privacy protections, easier and more efficient information exchange, increased patient control of personal data. Similarly, integrating EHR and practice management software can achieve advantages, including more efficient office staff time, better reimbursement, more patient-centric care, and accurate reporting.


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Topics: Medical Billing, Provider/Physician, Consultant, Practice Manager

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