Medical Billing

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Medical billing


Medical billing is the process of collecting fees for medical services. A medical bill is called a claim.


The purpose of medical billing is to ensure that the provider receives fair payment for services rendered. Payment should reflect the services performed and should be received in a timely manner.


There are laws regarding medical billing procedures. Staff members involved in collecting fees must be aware of these regulations.

Some of these laws are:

  • The Fair Debt Collection Act. This federal law dictates how and when to collect a debt. It protects patients and consumers from unlawful threats.
  • The Health Insurance Portability and Accountability Act of 1996 (HIPAA) contains an administrative portion that increases the efficiency of data exchange for healthcare financial transactions and protects the privacy of electronic data transmission. This protection is especially important for confidential patient records. Violators are subject to financial penalties.


Medical billing may be handled directly by the physician and his or her staff, or it may be administered by a third party. The third party is an independent contractor or company that specializes in handling medical billing.

Physician fees

A physician sets fees for his or her services. There are some important concepts in fee-setting. One is usual, reasonable, and customary (UCR). Usual fees represent the fair value of a service; customary rates are similar to those of other physicians; and reasonable rates meet the criteria for the other two factors.

Another method used in setting fees is the Resource-Based Relative Value Scale (RBRVS), which examines the relative value of a service and relates it to geographic peculiarities. This method considers the time and skills needed to perform a service, intensity of the service, office (overhead) expenses, and the malpractice insurance premiums that the physician pays. The geographic differences allow for consideration of health care cost variations around the nation.

It is recommended that fees be discussed with the patient in advance of treatment. Often, the medical office personnel are called upon to do this. If any co-payments are due, they are collected at the time of service.

Fees may be adjusted for certain payors, such as managed care companies (HMOs, PPOs, etc.). In these cases, physicians and managed care companies negotiate fees for various services. Sometimes certain patients receive discounts. This practice may be enforced when the patient works in the health care field.

Basic bookkeeping

There are a few systems that help physician office staffs keep records. A day sheet is a record of all transactions that occurred in one day. This information is placed into a board called a pegboard. Each patient's card, called a ledger card, is also inserted into the peg board. It contains a record of his or her charges, credits, and payments. This legal document should be held as long as the patient's medical record. The information, including patient's name, diagnosis, treatments, charges, payments, and credits, are entered into a pre-printed bill called a superbill.

The medical claim

When a service such as an office visit is complete, the staff begins preparing the claim or sends the patient information to a third party for billing. A physician's office will send out a claim if that physician accepts assignment of benefits. To accept assignment of benefits, the physician must receive the patient's signature allowing his or her office to receive payment directly from the insurance company.

Claim preparation begins with proper coding. Medical procedures and diagnoses have codes. The Current Procedural Terminology (CPT), developed in 1966 by the American Medical Association, lists medical procedures and corresponding codes. Each medical procedure has a code that is listed in a CPT manual. The book is divided into sections so that similar procedures appear in the same area.

The major sections of the CPT book are:

  • evaluation/management
  • anesthesia
  • surgery
  • radiology
  • pathology and laboratory
  • medicine

In addition to procedure codes, there are codes for diagnoses, called ICD-9 codes. This practice was established in 1983 when Medicare began using diagnosis-related groups (DRGs). An ICD-9 book lists each diagnosis within the DRGs. Each DRG corresponds to a fee.

Coding must be accurate because it determines reimbursement.

Health plans issue identification numbers to providers. This number is placed on claim forms so that payors can quickly and accurately identify providers.

The medical claim also contains important information, such as:

  • provider name, address, telephone number, and ID number
  • name of insurance plan and group number
  • ID number of insurance holder
  • patient's name, date of birth
  • insured person's name, date of birth
  • patient's address and telephone number
  • insured person's address and telephone number
  • relationship between patient and insured person
  • other health insurance the patient may have
  • patient's medical condition, and whether it was related to a job automobile accident, or other type of accident
  • other information, such as the patient's history of related illness, may need to appear on the claim

The use of computer software allows medical offices to submit claims electronically. This method shortens the time between filing the claim and reimbursement.


Medical bills may be paid by the patient or by third party payors, such as private insurance company, a managed care company, or a government insurance program such as Medicare. Often, the patient pays for a portion of the care (co-payment or deductible), and an insurance or managed care company is billed for the remaining fees. In some cases, patients may ask to pay their portion over time, and credit may be extended to them. The medical office may charge interest as long as the patient has been informed. This practice is called truth-in-lending. Credit laws vary by state.

Payment received from an insurance or managed care company contains a document called the explanation of benefits (EOB). This statement explains what was paid and what services were not covered and is sent to the provider and the patient. A service may not be covered if a patient has not met his or her yearly deductible. In this case, the provider bills the patient for his or her fee. It is common to bill patients once a month.

When a payment arrives, it is important to endorse it right away. This can be done with a rubber stamp that contains the name of the provider and the bank account number. Endorsing is a form of protection because only the provider who endorsed it can cash the check in the event it is lost or stolen. The provider should have a deposit procedure.


Complications impact bill collection. Accurate coding, standard office procedures, and good communication within a provider group minimize complications.

Overdue payments

In some cases, a patient may not pay his or her bill within a month or by the claim's due date. A document called an aging schedule lists overdue accounts. The information includes the patient's name, amount due, payments received, and comments. An account is aged beginning with the billing date rather than the date the procedure was performed. Eighty percent of fees should be collected within a month of billing. If this number falls to 50% or less, collection procedures should be examined.

A patient must be reminded of an overdue bill. This can be done with a written notice, phone call, or during the next office visit.


Adjustment —Changes to a standard fee. Changes may be made because of managed care agreements or other discounts.

Aging schedule —A list of overdue medical accounts calculated from date of original bill to current date.

Claim —Medical bill.

Diagnostic related groups (DRGs) —Diagnosis categories that are used when doing physician or hospital billing. Each diagnosis is placed into the appropriate category.

Managed care —A type of health plan with a network of providers and pre-arranged fee schedule. Examples include a health maintenance organization (HMO) or preferred provider organization (PPO).

Payor —One who pays a medical claim. A third party payor is an entity other than the patient, such as the insurance company.

Provider —Health team professional or entity (hospital) that offers care.

Denied claims

If the insurance or managed care company's EOB indicates that the claim is denied, it is important to determine why this happened. The claim should be double-checked to determine if an error has occurred. If the patient is not entitled to coverage, he or she is billed when the monthly billings are sent out.


Medicare has the right to audit a physician's office and examine its billing practices. Errors in claims are checked to determine the presence of fraudulent practices. A medical office must not bill for services that were not performed and must not inaccurately code a service to receive a higher level of payment. These practices are examples of fraud.

Health care professionals who report fraud are called whistle-blowers. The Federal Claims Act protects and reward these individuals when they report Medicare fraud. States also have anti-fraud regulations.

Collecting fees after a patient's death

If a patient has died, the physician may collect fees from his or her estate. Since death is followed by a period of grief, it is recommended that the physician's office wait before sending a final statement to the patient's next of kin as indicated on the chart.

Health care team roles

Clear communication within a provider group helps ensure that claims are properly coded, patients are informed of fees, and fair reimbursement is billed and received. The physician must be questioned if there is any doubt that a service was performed or if the diagnosis is not clear.

The team involved in billing includes the physician, office manager, nurse, receptionist, medical assistant, and insurance clerk, with these billing-related duties:

  • Performs billable service: physician, nurse, medical assistant.
  • Explains fees/billing: physician, receptionist, nurse, medical assistant, insurance clerk.
  • Prepares day sheet, ledger, superbill: nurse, medical assistant, insurance clerk.
  • Files (sends out) claim: insurance clerk.
  • Reminds patient of overdue payment: receptionist, nurse, medical assistant, insurance clerk.
  • Communicates with insurance companies: receptionist, medical assistant, nurse, insurance clerk.



Hosley, Julie B., Shirley A. Jones, Elizabeth A. Molle-Matthews. Lippincott's Textbook for Medical Assistants. Philadelphia: Lippincott-Raven Publishers, 1997.

Jones, Marleeta K. St. Anthony's ICD-9 CM Code Book, Volumes 1,2,3. Reston, VA: St. Anthony's Publishing, 1997.


American Medical Association. 515 N. State Street, Chicago, IL 60610. (312) 464-5000. <>.

Health Care Financing Association. 7500 Security Boulevard, Baltimore, MD 21244. (410) 786-3000. <>.


Goldsmith, Connie. "Blowing the Whistle: Laws protect nurses who report healthcare fraud." NurseWeek (May 18,2000): <>.

Rhonda Cloos, R.N.

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Medical Billing

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Medical Billing