Medical Billing Process Step by Step

The 10 steps in the medical billing process

To stay on top of the medical billing cycle, you need to establish consistent workflows for your claims and reimbursement processes. To do that, follow these 10 steps.

1. Register the patient.

As we explain in our best medical billing tips article, your front office staff will ask a series of questions about the patient’s demographics, health insurance information and other key background data whenever a new patient calls for a first appointment. Collecting all this data is the first step of the medical billing process for all healthcare providers. 

After you’ve done this the first time, you shouldn’t need to do it again. However, when you do hear from them in the future, make sure your front office team confirms their most recent records. This way, you can easily fix outdated contact and insurance information.

2. Verify the patient’s insurance.

Insurance verification can be quite simple. After collecting the patient’s insurance information, contact the patient’s insurer to confirm the data.

Typically, a patient’s insurance card will include a phone number that you can call to verify the data. When you reach an insurance representative, ask them if the patient’s coverage is valid and what benefits they receive. Inquire about deductibles, copays, coverage and benefits so that you know how much to collect from the patient. 

In some cases, a patient’s insurance plan won’t entirely cover your services. If the patient has secondary insurance, you should contact the secondary insurer to see whether they’ll pick up the remainder of the bill. Otherwise, you’ll need to alert the patient to their financial responsibility, ideally before their appointment. This way, they can cancel if your costs are beyond their budget.

3. Record notes diligently during your patient encounter.

You’ll need to take notes during or immediately after the patient’s visit for medical coding. Jot down the treatments, diagnoses, prescriptions and services you provide clearly. Ideally, you’ll store this information in your electronic medical record (EMR) system. This information plays a critical role in ensuring all aspects of a patient visit are billed correctly. 

“Depending on the codes being billed, there are several requirements associated with those codes,” Dr. Vikram Bakhru, president and CEO of Single Thread Health, told business.com. “For example, in some cases we’re looking at the severity of the visit, the acuity of the patient’s needs. Some codes may be a quick encounter and there’s a timebased allotment to indicate severity …Your note should reflect all of those elements, whether it’s strictly time or whether it’s also a qualitative assessment of the severity of the visit.”

4. Send your encounter notes to your medical billing team.

Once you’ve completed your encounter notes, convert them to a formal medical script to make sure other people can read your notes.

If you’ve voice-recorded any of your notes without using voice-to-text tools, you’ll need to transcribe them before sending them to your medical billing team. Chances are you won’t have the time to do this yourself, so you might delegate the work to your front office staff. Alternatively, you can outsource this work to a medical transcription service. 

If you handle all your billing in-house, you’ll send your medical script to your front office staff. If you outsource your medical billing, you’ll typically send your script to your third-party billing service.  

5. Convert your medical script to ICD-10 and Current Procedural Terminology (CPT) codes.

Eventually, your medical scripts will find their way to medical coders. These experts translate your treatments, diagnoses, prescriptions and other key information into standardized ICD-10 and CPT codes. Insurers then use these codes to assess quickly whether they’ll reimburse your services based on the patient’s health plan. These codes will eventually go into a medical claim alongside your charges and the patient’s demographic information. 

Some practices hire in-house coders to work full time on claims coding. Others outsource their medical coding needs to third-party medical billing services. This process can differ depending on practice size, according to Bakhru. For instance, a large practice might have a more formal coding review. “If you’re in a very small private practice, then there may not be that layer of having a coder go through your chart and call out areas of opportunity to make sure that you maximize correctness of information,” he said. “When you maximize correctness of information, [that] can lead to better reimbursement for the work that was performed.” 

The choice to have an in-house coder on staff often requires a cost-benefit analysis. Medical billing and coding are quite time-consuming and error-prone, but the percentage of your collections you’ll pay for outsourced billing can be high. 

6. Add charges to your medical claims.

Although medical services are standardized through codes, the fees aren’t standardized. You’ll need to enter your charges in your claims when generating invoices. For example, if you charge $300 for primary care visits, you’ll list $300 alongside the CPT code for primary care visits in your claims.

If your patient is responsible for covering any part of your services, you must indicate the amount the insurer will cover alongside your charges. This way, payers know how much to deduct from their reimbursements so you don’t get paid twice for the same service.

7. Scrub and file your claims.

Given all the codes and numbers that go into claims, errors are frequent. With claim scrubbers on your side, you can catch most, if not all, of these errors before you file your claims. Once your claims are scrubbed, it’s time to submit your patients’ medical insurance claims.

If your patients are on Medicare or Medicaid, you can typically file your claims directly with these government payers. If you have strong relationships with one to three payers, you may find direct filing easier. In all other cases, going through a clearinghouse is best. These third-party organizations will take your scrubbed claims and reformat them for the appropriate payer. This way, you won’t face rejected claims because you submitted a claim in one payer’s format to another payer.

8. Keep an eye on payer adjudication.

Once the payer receives your claim, the adjudication process begins. Through this process, the payer decides how much, if any, of the claim you’ll be reimbursed for and whether your claim will be approved, rejected or denied. In many cases, Bakhru explained, this process happens automatically without any initial human review. 

“In this country, [about] anywhere between 65 and 90 percent of claims, depending on the exact insurance company and the rules that they have in their various claim systems, are auto adjudicated,” he said. “… If everything looks great on the claim electronically, that’s when you see the fastest payment, typically.”

Rejections often result from errors in coding rather than a payer’s decision not to reimburse you. Your rejections will often come with instructions on how to rectify your errors. With these instructions, you can refile your claims quickly and (hopefully) be reimbursed.

Of course, even if your claims are squeaky clean, insurers can deny them. In this case, your billing team should review the payer’s decision, which will often be detailed, for potential inaccuracies. If you spot any errors, you can begin the appeals process, although it can be costly and lengthy. 

Instead, if you see that your claim is denied because the insurer doesn’t cover your services, you have two options. You can alert the patient to the denial and indicate that they now owe you the nonreimbursed amount. Alternatively, if the patient has secondary insurance, you can submit a claim for the noncovered costs to their secondary plan.

9. Send patient statements.

If your claim submission results in a nonzero balance for a patient who doesn’t have secondary insurance, you must send the patient a statement detailing their charges. You should also send an explanation of benefits detailing what the patient does and doesn’t get with their insurance plan. This way, they know why they still owe you money despite having insurance. 

Alongside your patient statements, you should send payment instructions and due dates. You can also include information on how the patient can appeal the claim denial if they feel so inclined. Often, medical practices or their outsourced billing teams manage denials, but the patient may still want to file appeals on their own.

10. Pursue payment.

If your claim was approved, you’ll pursue payer reimbursement. Keep in mind that much time can pass between claims approval and reimbursement. Keeping tabs on your accounts receivable properly will help you know which claims have gone too long without being paid. You should follow up on these claims until you receive payment.

For denied claims, payment responsibility lies with the patient. Your medical billing team should follow up with the patient until they pay. In the rare event that the patient continues not to pay, you may want to consider sending the patient to a debt collection agency.

Sending a patient to collections should be a last resort. Healthcare is often expensive, so try to sympathize with the patient. A long-term monthly payment plan that puts the patient’s debts within their budget can be a good option and may help you gain a reputation for good customer relationship management with your patients. You’ll get paid regularly in small amounts instead of not at all and your patient will be more likely to return. 

Types of medical billing

In addition to the many nuances surrounding billing codes, it’s important for practices to be familiar with the different categories of medical billing, and how they fit into the overall billing process. Medical billing types include:

• Professional billing: This type of billing applies to individual physicians and providers. You’ll typically use the CMS-1500 claim form to bill for medical services. 
• Institutional billing: Larger operations, such as hospitals and nursing homes, where multiple providers are involved in a patient’s care, fall under this category. You’ll usually file institutional-based claims with the UB-04 claim form. 
• Front-end billing: This term refers to the front-end processes that take place before and during claim submission, such as registering the patient and verifying their insurance. 
• Back-end billing: After a claim is submitted, back-end billing involves the follow-up work required, such as payment posting and collections. The more detailed and accurate information is recorded during front-end billing, the smoother the back-end billing process will be. 
• Open-system billing: When multiple providers are involved in a patient’s care, open billing allows organizations to freely share data about the care a patient is receiving.
• Closed-system billing: In this case, most commonly used with HMO insurance plans, patient information may only be shared through a specified network of providers.
• Isolated-system billing: This category restricts patient data sharing even further, with access granted to specific individuals. In some rare cases, the patient themselves may record information via a patient health records (PHR) system. 

Medical billing mistakes to avoid

Even if your practice uses one of the best medical billing services, all medical billing claims are vulnerable to human error. Here are the most common medical billing mistakes to watch out for:

1. Incomplete claims

Claims that are missing information are at risk of denial. This may be an initial diagnosis that doesn’t get specific enough or a claim is missing documentation. It can also depend on what’s required by a patient’s insurance — for instance, if a referral or prior authorization is needed. In some cases, physicians might simply overlook an important detail related to a chronic or ongoing condition. Bakhru offered an example: 

“You might have a patient who went through a right knee amputation and you’re prescribing a prosthetic for that patient,” he said. “Perhaps [the patient] switched insurance and they don’t have that continuity of diagnosis code from year to year. You have to revalidate that the leg was still amputated. Yes, it didn’t change over the new year, but as a physician, you still have to validate and revalidate those types of diagnosis codes so that your claims aren’t rejected.” 

2. Inaccurate claims

Incorrectly recording information is one of the top reasons for claim rejection — and it can happen more often than you might think to practices who are sure everything was accurately coded. In many cases, Bakhru emphasized, the right level of detail may not have been properly captured, particularly in more complex cases. 

“Maybe there’s a technicality of the wrong rate billed, or the wrong site of service code used or the wrong code for that particular disease,” Bakhru explained. “I think what’s often forgotten are the modifier codes and being able to achieve the additional increments of reimbursement by including the right level of coding.”

3. Late claims

Depending on the insurance provider, practices are required to file claims within a specific time period. This window can range from 90 days from the date of service to up to one year after a patient visit or procedure. Claims submitted after this deadline are at risk of immediate rejection. It’s vital for practices to be clear on the deadlines set by each insurance provider to avoid denials and ensure timely payment. 

4. Duplicate claims

Claims may also be rejected if your practice accidentally bills twice for the same service. Human error is often the culprit behind this common billing mistake, especially for procedures that a practice performs multiple times every day. In some cases, a claim may only appear to be a duplicate, such as when a patient receives the same service from a different practice on the same date. In these instances, correct modifier codes are key to properly categorizing separately performed services. 

5. Outdated claims submission process

In many cases, claim denials are the result of outdated submission processes or systems. This is particularly challenging for smaller practices that don’t have the means to update their technology. “For a very small solo or one or two provider group [where] that [process] isn’t automated, they might still be doing things in a very fragmented way,” Bakhru said. “The insurance rules are changing and the requirements to process claims are changing and it’s very next to impossible to keep up with.” 

While outdated technology and a lack of automation can create billing headaches, practices that don’t have the means to upgrade aren’t completely out of luck. “I actually think the biggest area of opportunity is coding education for billing providers,” Bakhru said. “You really want to make sure that you’ve got subject matter experts who understand the different codes, the different requirements [and] applications of those codes to different clinical scenarios. You could have the fanciest software, but if you don’t have people who understand coding, [the medical billing process] can break down.”

Max Freedman and Mark Fairlie contributed to the reporting and writing in this article.