Medical Billing Terms Explained: A Complete Guide for Healthcare Providers

Medical billing is filled with specialized terms and acronyms that can be confusing for both new and experienced healthcare professionals. Understanding these key concepts is essential for accurate claims submission, faster reimbursements, and efficient revenue cycle management. This guide breaks down the most important medical billing terms in clear, straightforward language to help you navigate the complexities of healthcare billing with confidence.

1. Explanation of Benefits (EOB)

An Explanation of Benefits (EOB) is a document from an insurance company that explains how a claim was processed. It shows the services billed, the amount covered by insurance, any adjustments, and the patient’s financial responsibility (copays, deductibles, or coinsurance). While an EOB is not a bill, it helps patients and providers track payments and denials.

2. Advance Beneficiary Notice of Non-Coverage (ABN)

An Advance Beneficiary Notice of Non-Coverage (ABN) is a waiver given to Medicare patients when a service may not be covered. It informs them that they could be responsible for payment if Medicare denies the claim. Without a signed ABN, providers cannot bill the patient if Medicare refuses payment.

3. Entity Code

An entity code identifies the type of healthcare provider or facility submitting a claim. Common codes include 1 for individual physicians, 2 for hospitals, and 11 for independent labs. These codes ensure claims are routed correctly to insurance payers.

4. Assignment of Benefits (AOB)

Assignment of Benefits (AOB) is a patient’s authorization allowing their insurance company to pay the provider directly rather than reimbursing the patient. Most providers require AOB to streamline payments and avoid chasing patient reimbursements.

5. Itemized Bill

An itemized bill provides a detailed breakdown of all services rendered, including procedure codes (CPT), diagnosis codes (ICD-10), dates of service, and individual charges. Patients, attorneys, or secondary insurers may request this for verification or dispute resolution.

6. Claim Denial

A denial occurs when an insurance payer refuses to reimburse a claim. Common reasons include missing information, incorrect coding, expired timely filing limits, or lack of medical necessity. Effective denial management involves identifying the issue, correcting errors, and resubmitting claims promptly.

7. Electronic Remittance Advice (ERA)

An Electronic Remittance Advice (ERA) is the digital version of an EOB, providing detailed payment information from insurers. ERAs automate payment posting, reduce manual entry errors, and speed up reconciliation compared to paper-based explanations.

8. Coordination of Benefits (COB)

Coordination of Benefits (COB) determines which insurance plan pays first when a patient has multiple policies (e.g., primary and secondary insurance). The primary insurer processes the claim first, and the secondary insurer covers remaining eligible costs.

9. Independent Practice Association (IPA)

An Independent Practice Association (IPA) is a network of healthcare providers who contract with insurers as a group to negotiate better reimbursement rates. Providers in an IPA must follow specific billing and coding guidelines set by the association.

10. Superbill

A superbill is a detailed receipt given to patients after a visit, listing diagnoses, procedures (with CPT codes), provider information, and fees. It’s used for out-of-network billing, patient reimbursement requests, or self-pay billing.

11. Clearinghouse

A clearinghouse acts as an intermediary between healthcare providers and insurance companies, reviewing claims for errors before submission. Clearinghouses reduce rejections by flagging missing or incorrect information upfront.

12. Clean Claim

A clean claim is one that meets all payer requirements and has no errors, ensuring faster processing and payment. Clean claims typically include accurate patient information, valid codes, and proper documentation.

13. National Drug Code (NDC)

The National Drug Code (NDC) is a unique identifier required when billing for medications. This 11-digit code helps track specific drugs and dosages for accurate billing and reimbursement.

14. National Provider Identifier (NPI)

A National Provider Identifier (NPI) is a 10-digit number that identifies healthcare providers in claims. Type 1 NPIs are for individual providers, while Type 2 NPIs are for organizations. All electronic claims require an NPI for processing.

15. Sequestration

Sequestration refers to mandatory Medicare payment reductions (currently 2%) due to federal budget cuts. Providers receive slightly less reimbursement for Medicare services as a result.

16. Standard Claim Forms

The CMS-1500 form is used for physician billing, while the UB-04 form is for institutional claims. These standardized forms include patient information, service details, and provider identifiers required for claim processing.