The Medical Billing Process Explained

The medical billing process makes sure that all parties in health care - doctor, patient, and insurance company - are paid and credited properly. In other words, the process makes sure that the doctor gets paid, either by the insurance company or by the patient.

Sounds simple! But it's really a complicated process. Everyone involved must fulfill important responsibilities in order for the doctor to get paid. If you're considering a career in medical billing or coding, you'll need to become extremely familiar with the components of this process.

Medical Billing Basics

Medical Billing Basics
Want to quickly get to grips with the fundamentals of medical billing? We recommend the ebook The Basics of Medical Billing, a complete guide to the industry written by a mother/daughter team of successful medical billers. Learn more about it here.


Patients who receive any kind of healthcare are billed for the services they receive. If the patient has medical insurance, then the way they are billed depends on the type of insurance coverage they carry.

The 1st step of the billing process involves determining the patient's insurance coverage and billing insurance for the patient's healthcare services.

Medical providers bill insurance companies directly for the services rendered to the patient. Unlike traditional bills, however, these bills are in the form of insurance claims.

These are standardized forms which the provider's office must complete with the patient's identifying information, insurance information, and special codes used to identify medical procedures and diagnoses, as well as the charges for the provider's services.

Understanding the components of a health care claim is one of the most important parts of the medical billing process.

If you take an educational course in medical billing, it will likely focus on learning the correct ways to determine medical diagnosis and procedure codes, and how to correctly bill for them on claims.

Medical claims include all supplies, exams, laboratory services, and other procedures that the doctor or other medical personnel supplies or performs as part of a patient's health care services.

Insurance companies reimburse health care providers for procedure codes, which indicate the services and procedures that were performed.

These are considered part of the patient's covered benefits, and the insurance pays the medical provider directly. If the patient doesn't have medical insurance, the health care provider bills the patient directly and the patient will have to pay for the services.


Diagnosis Codes

Explanation of the medical billing process

Another important part of medical insurance claims are diagnosis codes.

These tell the insurance company why the patient was seen in the office, and prove to the insurance that the medical services were really necessary.

If the diagnosis code doesn't verify that the procedure was a necessary service, then insurance will not pay for the claim.

In short, diagnosis and procedure codes tell the insurance company what the patient's diagnosis was and service the provider rendered. The insurance company reviews these codes and pays the provider.

A medical biller or coder's understanding of diagnosis and procedure codes will be an important part of being able to perform your job duties effectively and responsibly.

The 2 main texts used to report these codes are the ICD-9 (International Classification of Diseases, 9th Revision), which describe the patient's diagnosis, and CPT (Current Procedural Terminology) code books, which describe the procedures performed by the provider.

Understanding these codes is vital for billing and coding insurance claims.

All of the codes and charges are billed on a claim form, which depends on the provider's specialty.

There are 3 main claim forms:

  1. UB-04, which is used only in the inpatient hospital setting
  2. UB-92, used by dental offices (see: dental billing)
  3. and the CMS-1500, which is used to bill all other medical claims, including outpatient hospital and office charges.

All of the claim forms include:

  • patient demographic information
  • insurance information
  • diagnosis and procedure codes
  • itemized charges for each procedure.

The insurance company processes these claims for payment of the patient's services. This is called the claims adjudication process.

Besides coding, insurance and patient payments also need to be credited to the patient's individual charges.

Many times, patients are required to make copayments at the time of service. This means that the patient pays a specified amount to the provider before services are rendered. The insurance company then reduces their payment to the provider by the copayment amount.


After you've constructed and sent claims, medical billers have to monitor and follow up with the claims to make sure they are paid in full by the insurance company. Usually, any remaining balance is billed to the patient, unless an appeal needs to be sent.

Following up on claims and patient balances and making sure all charges are reconciled to a zero balance is the last step of the medical billing process. Unfortunately for some accounts, the last step is sending patient balances to outside collections agencies.

Understanding the basics of the medical billing process is really the first step in understanding how medical providers get paid for their services. No matter what healthcare setting you work in, this process remains the same. You may end up performing one (or all!) of the steps within it as part of your daily duties.

To learn more about medical billing, we recommend you now look at the medical coding process.

Or click to learn about billing and coding jobs.

This article offers a bird's-eye perspective on the entire medical billing industry.

We also recommend the ebook The Basics of Medical Billing for getting a good grasp of the industry.




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