Medical Billing Process Step-by-Step Comprehensive Guide

The medical billing cycle plays an important role in maintaining the financial health of healthcare organizations. It ensures healthcare providers are timely and accurately reimbursed for the services they provide to patients. The entire revenue cycle involves a series of well-defined steps, from patient registration to payment collection, to streamline the financial operations of a healthcare practice. Understanding each step is crucial to ensuring steady and predictable cash flow and minimizing claim denials. 

Whether you’re an independent practice, a large healthcare institute, a physician, or a mental health professional, you must know the medical billing process and all its ins and outs to make sure you’re getting properly reimbursed for your hard work. In this guide, we’ll outline the basic process of medical billing, break down each step in detail, and explain the correct order to help you manage billing effectively. Additionally, we will also highlight best practices and common challenges that professionals face throughout the medical billing process. 

What is the Medical Billing Process? 

The medical billing process involves translating healthcare services into a format that insurance companies or other payers can process for reimbursement. It begins with patient registration and insurance verification, followed by medical coding, where diagnoses and procedures are assigned standardized codes. These codes are then used to create a claim, which is submitted to the insurance company for processing. 

The insurer reviews the claim, determines payment amounts, and sends an Explanation of Benefits (EOB). If the insurance doesn’t cover the full amount, the patient is billed for the remaining balance. Once payment is collected from either the insurance or the patient, the account is closed, and any disputes are addressed. Efficient medical billing ensures timely payments and reduces errors, requiring attention to detail and compliance with regulations.

From Start to Finish: 10 Steps to Success in Medical Billing

Efficient medical billing is key to the financial health of any practice. By following these steps practices can reduce claim rejections, minimize claim delays, improve revenue cycle, and streamline your overall administrative workload. Whether you’re new to billing or looking to refine your processes, these 10 steps will help you to improve your billing efficiency. 

Step 1: Patient Registration

The patient registration process is the first step and most crucial step in the healthcare revenue cycle management (RCM) process. It involves collecting essential information related to patients like previous medical records and demographics, when they first seek healthcare services at a healthcare facility. This information is then used by healthcare providers, insurance companies, and billing departments to ensure accurate and efficient billing. 

Steps in the Patient Registration Process 

• Accurate Patient Information: The accuracy of the information collected at the time of registration is important for avoiding billing issues later in the process. The healthcare provider must ensure the patient’s name, date of birth, address, and insurance coverage details for specific services with ID number. This step is crucial to prevent identity theft, insurance fraud, and billing errors. 
• Medical History and Allergies: Patient registration gathers essential details for previous medical records and pre-existing allergies. This information is vital for healthcare providers to deliver safe and effective care, as it helps them identify any pre-existing conditions, allergies, or medications that could influence the current patient’s treatment plan.
• Updating Insurance Details: Ensure the patient insurance coverage policy is active, and verify the details like the type of insurance plan, policyholder, and insurance company. Additionally, this helps healthcare providers to get know about the patient’s financial responsibilities as well like, copayments, deductibles, and coverage limitations to avoid any delays in reimbursement.
• Consent and HIPAA Authorization: Patients must consent to share their health and personal information. They also need to understand how this information will be used and protected under HIPAA patient data laws and regulations.
• Clear Communication: Patient registration serves as an opportunity for healthcare providers to share important information with patients. This may involve explaining insurance coverage, financial obligations, privacy policies and obtaining required consent. Clear and effective communication during this process helps establish trust and ensures patients are fully informed about their healthcare experience.
• Medical Record Creation: After all required information is gathered, a unique medical record or patient identifier is generated. This record acts as a central repository for all relevant medical and administrative details related to the patient. It contains clinical notes, test results, treatment plans, and other essential documentation throughout the patient’s healthcare journey.

Step 2: Prior Authorization

Prior authorization or pre-authorization is the process where doctors or medical providers are required to obtain approval from the insurance company before certain services, medications, or treatments are provided. Insurance companies use prior authorization (precertification, pre-approval, predetermination) to determine if the specific service or procedure will be fully-covered or whether it will be paid partially by them. This is a must step for the providers to get approval from insurers for which their clients have subscribed before any treatment plan starts. 

When is Prior Authorization Required?

To following healthcare services and items, prior authorization is required: 

Services / Items	Reason Prior Authorization is Required
Specialist Visits / Out-of-Network Care	Required when a patient is referred to a specialist or receives care from a provider outside of the insurance network.
Non-Emergency Surgeries / Procedures	Planned medical procedures and surgeries often need advance approval to confirm medical necessity and coverage.
High-Cost Medications	Expensive prescription drugs, especially brand-name or specialty medications, usually require prior authorization.
Advanced Imaging Tests	Tests like MRI, CT scans, and PET scans often need insurer approval before being scheduled.
Durable Medical Equipment (DME)	Items such as wheelchairs, oxygen supplies, or CPAP machines generally need prior authorization.
Therapies or Rehabilitation Services	Physical therapy, occupational therapy, or speech therapy beyond a certain number of visits may require prior approval.
Home Health Services	In-home nursing care, therapy, or medical equipment for home use typically requires insurer review.
Mental Health and Substance Abuse Services	Some plans require PA for inpatient or intensive outpatient mental health or addiction treatment services.
Experimental or Investigational Treatments	New or non-standard treatments may need approval to determine if they’re covered under the plan.
Long-Term Care Services	Nursing home or assisted living care might require detailed documentation and authorization

Is Prior Authorization Required in an Emergency Situation?

No, prior authorization is not required for emergency care. However, coverage for urgent medical expenses is still subject to the terms and conditions of your health insurance plan.

Process for Obtaining Prior Authorization

It is always important to remember that prior authorization varies depending on the insurance company, so it’s best to learn about their guidelines and needs. Here are some following steps you can keep in mind to request prior authorization:

• Check Patient Eligibility:The provider must reach out to the insurance company to ensure if the patient is eligible for the proposed medical treatment or medicine, while providing all the necessary documents. 

FYI: Verification helps care providers determine coverage and eligibility and assess the following:What the patient’s policy benefits areWhether the patient has accumulated co-pay, deductible, or out-of-pocket expensesWhether the patient’s insurance provider requires pre-authorization

• Complete Insurance Form: Most insurance companies have some specific forms that must need to be filled out and submitted as a part of the process. You can find these forms through insurance companies’ websites or by contacting them directly. Usually, they asked for the patient information, details related to the requested procedure or medicine, and some other clinical data or lab reports. 
• Submit a PA Request: Once the form is complete, it must be submitted to the insurance providers with all the attached required documents and medical reports. One can submit the form through an online platform, by fax, or by Email. 
• Check Status and Follow-up: After submitting a prior authorization request, it’s crucial to keep a follow-up for the status. Depending on the workload and request form, the insurance company PA’s decision can sometimes take a few days to several weeks also. 

Challenges in Prior Authorization

Following are some common challenges in the prior authorization process that healthcare providers often face:

• Ever-changing Payer Rules: Frequent updates to payer rules and regulations can disrupt the overall prior authorization process, leading to request delays and denials. 
• Workload and Burnout: With increased prior authorization requests in particular make it difficult for insurer staff to keep up with on time. 
• Delays in Authorization: Insurers may take time to process the request, which can cause delays in treatment procedures or medicine.
• Denials: Some prior authorization requests are denied, requiring additional clinical documentation or changes to the treatment plan.

Tip: How to Speed-up the Prior Authorization Process? Provide correct, up-to-date, and complete patient information.Keep a master list for the required documentation.Stay up to date with changes in healthcare insurance by subscribing to their newsletters. Stay advancely informed about all the changes that may affect your process. Utilize integrated billing software to smooth down the process with accuracy and time-saving. Request a turnaround time from the companies, so you can plan better, reduce frustration, and save time. Maintain transparency and keep a clear communication channel to avoid any misunderstanding and ensure a smooth prior authorization process.

Step 3: Charge Entry

Charge entry or charge capture is the process of entering all the medical services, medication, tools, and procedures performed on a patient while ensuring that the correct medical codes are used. Minor errors and small mistakes like missing any code entity, additional modifiers, and repetitive errors while preparing and submitting claims can affect the practice financially and cause problems for the payer and patient. This requires a thorough understanding of the medical code system as follows:

• CPT Codes (Current Procedural Terminology) are a standardized set of codes used by healthcare providers and payers to document and report medical services, routine check-ups, surgical procedures, and diagnostic tests. 
• ICD Codes (International Classification of Diseases) are used to classify and code diseases, conditions, and other health-related problems. 
• HCPCS Codes (Healthcare Common Procedure Coding System) is a set of codes used primarily for medical services and supplies not covered under the CPT code system, such as durable medical equipment (like wheelchairs, crutches, prosthetics), ambulance services, and certain drugs and medical-surgical supplies. 

What is the Process of Charge Entry in Medical Billing? 

The charge entry process makes sure physicians and doctors receive accurate and timely payments from payers. Attention to each procedure and diagnosis must be assigned an appropriate code based on the service provided. All charges must be entered precisely, with attention to these details:

• Date of service (DOS) 
• Place of service (POS)
• Rendering provider details
• Date of admission
• Prior or pre-authorization details
• Diagnosis and procedure codes and number of units provided
• Modifiers 

By following a series of steps, healthcare organizations can ensure that charges are properly recorded and submitted for reimbursement. 

Common Errors in Charge Entry

As it is an important process, errors still occur. So, it’s important to be aware of common errors during the process, and it’s better to prevent them. Some common errors are as follows:

• Incorrect or Missing Codes: Misassigned or incomplete codes can lead to denials or delays.
• Incomplete Documentation: Lack of proper documentation can lead to inaccuracies during charge entry.
• Failure to Capture all Charges: Healthcare organizations may lose revenue and face financial instability by failing to capture all billable services due to oversight or lack of awareness.

Step 4: Claim Submission:

Claim submission is the process where the completed claim form, which includes all charges and patient service details, is sent to the insurance company or payers for payment consideration. It contains all the detailed information about the patient seeking medical treatment by a healthcare provider to ensure accurate reimbursement. Moreover, it’s an important step in medical billing, as it helps healthcare providers to receive timely payment for their services. Accurate claim submissions are important because:

• Ensures timely reimbursement for providers to get paid faster for the services they deliver.
• Proper claim submission minimizes the risk of denied or rejected claims while protecting the provider’s revenue. 
• Accurate claim submissions reduce errors, ensuring compliance with payer guidelines and reducing audit risks.
• Consistent and correct claim submission supports steady revenue and financial stability for healthcare practices.
• Incomplete or late submissions can delay payments; clean claims submission speeds up processing.
• Fewer rejections mean fewer follow-ups and appeals, saving staff time and resources.
• High clean claim rates (claims approved on the first submission) are a key performance indicator ineffective medical billing.

Claim Submission Workflow

The following are key steps that every medical biller should follow to ensure accuracy in claim submission:

What Information Does a Claim File Contain?

The claim must be correctly completed, typically using a CMS-1500 (for professional services) or UB-04 (for hospital or facility services) form. A medical claims file contains detailed information about each patient and their healthcare encounter. Additionally, the file is divided into two main sections: the claim header and the claim detail.

• Claim Header:

This section provides a summary of key information, including the patient’s personal details (such as date of birth, gender, and zip code), the National Provider Identifier (NPI) for both the attending physician and the service facility, and the primary diagnosis code. It also includes details like any inpatient procedures performed, the diagnosis-related group (DRG), the patient’s insurance provider, and the total charge for the claim.

• Claim Detail:

The claim detail outlines additional diagnoses or procedures provided during an inpatient stay. Each individual service record includes the date of service, the procedure code, the related diagnosis code, the National Drug Code (NDC), if applicable, the attending physician’s NPI, and the charge for that specific service.

Types of Claim Submissions

Claim submission can be broadly categorized into the following types, each having distinct advantages and disadvantages:

Type of Claim Submission	Description	Advantages	Disadvantages
Electronic Claim Submissions	Claims are submitted digitally through secure platforms, enabling faster communication between healthcare providers and insurance companies.	Faster processing timesReduced risk of human errorsImproved efficiency in claims managementFaster reimbursement for providersAutomated systems reduce administrative workloadLower administrative cost	Requires technology infrastructureMay not be available for all types of claims or providers
Paper Claim Submissions	Physical forms and supporting documents are filled out and mailed to insurance companies for processing.	Available when electronic submission is not possibleCan serve as a backup method if electronic systems are unavailable	Slower processing timesMore prone to human errorIncreased administrative workloadDelays in reimbursementHigher administrative cost
Direct Data Entry (DDE) Submission	A process where healthcare providers enter claim data directly into the insurer’s system via a secure web portal or FISS, bypassing paper or batch processing methods.	Faster claim submissionReduces paper handlingReal-time validation checks for errorsImmediate feedback on claim status or errors	Requires internet accessMay require specific software or system compatibilityLimited to specific insurers or payers

Tools for Claim Submission:

Medical claims are complex and vary depending on the type of service, provider, payer, and patient. To manage this complexity and ensure accurate, timely reimbursement, healthcare providers rely on a variety of tools, such as:

1- EDI (Electronic Data Interchange)

• Allows healthcare providers to submit claims directly to payers through a secure network or platform.

• Reduces manual data entry human errors and speeds up the reimbursement process.
• Supports various healthcare transactions, including eligibility checks, claim status inquiries, and remittance advice.

2- Clearinghouses

• Act as intermediaries between healthcare providers and insurance payers.
• Scrub claims for formatting or coding errors before submission to reduce rejections.
• Provide reports and real-time feedback on claim status.
• Help manage multiple payers through a single platform.

3- Practice Management Software (PMS)

• Used to schedule appointments, manage patient records, and create claims.
• Integrates with EHR systems for accurate documentation and coding.
• Automates the claim creation and submission process.
• Tracks claim statuses and rejections, improving workflow efficiency.

4- Electronic Health Records (EHR) Systems

• Provide clinical documentation needed to support claim submission.
• Ensure CPT, ICD-10, and HCPCS codes are accurate and tied to patient visits.
• Some EHRs have built-in billing modules or integrate directly with billing platforms.

5- Claim Scrubbing Tools

• Analyze claims for coding accuracy and policy compliance before submission.
• Identify missing modifiers, incorrect codes, or documentation issues.
• Increase the clean claim rate and reduce denials.

6- Insurance Portals (Direct Payer Portals)

• Many insurance companies offer direct online portals for claim submission.
• Useful for small practices or providers with fewer payers.
• Allows for direct communication, tracking, and uploading of supporting documents.

7- Audit & Reporting Tools

• Provide insight into claim acceptance rates, denial trends, and payment patterns.
• Help identify recurring issues in the submission process.
• Useful for compliance, internal QA, and process improvement.

8- Real-Time Eligibility Verification Tools

• Check a patient’s insurance coverage and benefits before services are rendered.
• Prevents claim denials due to inactive policies or non-covered services.
• Often integrated with PMS or EHR systems.

Challenges in Claim Submission

Some of the common challenges while submitting any claim that may affect your practice are as follows:

• Claim Denials and Rejections: Errors in coding, missing information, or policy violations can lead to claim denials or rejections from payers.
•  Incomplete or Inaccurate Documentation: Missing patient details, incorrect CPT/ICD codes, or lack of supporting medical documentation can delay or prevent reimbursement.
• Frequent Changes in Payer Policies:  Insurance companies regularly update their billing rules and coverage guidelines, making it difficult to stay compliant.
• Delayed Submissions: Failing to submit claims within the payer’s timeframe can result in non-payment or reduced reimbursement.
• Complex Billing Requirements:  Each payer may have unique rules regarding how claims should be formatted or submitted, requiring careful attention.
• Eligibility Verification Issues: Submitting claims for patients with inactive or out-of-network insurance leads to denials and revenue loss.
• Lack of Integration Between Systems: Poor coordination between EHR, billing software, and clearinghouses can result in data mismatches or technical errors.
• Manual Processes and Human Errors: Entering data manually increases the chances of typos, missed fields, and incorrect coding.
• Difficulty in Tracking Claim Status:  Without proper tracking tools, it’s hard to monitor claim progress, identify delays, or follow up on unpaid claims.

To overcome the challenges in claim submission, healthcare providers should adopt a combination of technology, training, and streamlined workflows. Implementing integrated systems like EHR, PMS helps ensure accurate coding and documentation while reducing manual errors and continuously improving the submission process for faster, more accurate reimbursements.

Step 5: Claim Adjudication Process

Claim adjudication is the process by which the insurer reviews a claim to determine how much they will pay based on the patient’s benefits and coverage. During this process, the payer determines whether to approve the claim in full, issue a partial payment, or deny it entirely. If additional information is required, the claim may be rejected and placed in a ‘pending’ status until resolved.

Through the adjudication process insurance companies evaluate the validity, accuracy, and eligibility of submitted claims based on the rules and regulations. During this process, payers carefully review the documentation provided by healthcare providers, to assess the type of services rendered, coverage limits, and applicable deductibles. Additionally, claims adjudication can be a time consuming process, and often take several weeks to complete. This evaluation process also contributes to significant delays in reimbursement, claim denials, corrections, and resubmissions.

Why is Adjudication Necessary?

Claims adjudication plays an important role in ensuring that healthcare claims are accurate, legitimate, and medically necessary. As healthcare billing the cost of a medical service or procedure is influenced by multiple factors such as provider’s qualifications, the clinical reasoning behind the chosen treatment, and the specific terms outlined in the patient’s insurance policy.

So basically, adjudication helps evaluate these variables to determine the appropriate reimbursement amount. It protects practices against insurance fraud, promotes fair payment, and ensures that insurance payouts align with the policy holder’s coverage and medical necessity.

Steps in the Adjudication Process

Following are some steps in adjudication, that must be follow: 

Most Common Challenges in Adjudication

Reducing claim denials is one of the most effective strategies to shorten your revenue cycle. Below are some common reasons for claims being rejected during adjudication process: 

• Missing or Incorrect Information

To prevent errors, invest in automated billing tools that pre-populate basic claim fields and flag any missing or incorrect information before submission.

• Payer Deems the Service Medically Unnecessary

Disagreements between the payer and physician can occur regarding what constitutes necessary treatment. Healthcare providers can strengthen their claims by maintaining detailed records in the patient’s EHR and attaching supporting documentation when submitting claims.

• Procedure Not Covered by Payer

Ensure that the patient’s insurance information is accurate in your system. Automated tools can compare proposed treatments with the patient’s insurance coverage to avoid submitting claims for non-covered services.

• Out of Network Provider

Inform patients beforehand if your practice is outside their insurance network to avoid confusion and potential claim denials.

• Duplicate Claims for the same Procedure

This often results from coding errors. Ensure proper coding, especially when multiple procedures occur in a single visit or a short period. Automated billing tools can help minimize these mistakes.

• Payment Adjustment for a Prior Service

Payment adjustments can occur if the insurer determines that the benefit for a treatment was already paid in a previous claim. It’s important to track previous claims and payments to avoid confusion.

• Claim exceeded the Timely Filing Limit

Timely submission is critical in medical billing. Automating the billing process ensures claims are submitted before deadlines, reducing the risk of late filings and denials.

Step 6: Patient Billing and Statement

Patient billing involves creating and sending bills to patients for any remaining balance after insurance has paid its portion. As it is an important component of healthcare financial management, providing a clear summary of the medical services rendered, associated charges, payments received, insurance adjustments, and the remaining balance owed by the patient.

After healthcare services are provided, the billing department generates a statement that typically includes the date of service, description of procedures or treatments, the total cost, any insurance payments or denials, co-pays, deductibles, and the amount the patient is responsible for. These statements help patients understand what they are being charged for and facilitate timely payment. Accurate and transparent billing not only ensures compliance with healthcare regulations but also enhances patient trust and satisfaction by minimizing confusion and potential disputes over charges.

What Should be Included in Patient Billing?

A patient-friendly billing statement should contain the following key components to ensure clarity and transparency:

• Practice Information: Include the name of the medical practice, its address, phone number, and other contact details. Also, list the name of the healthcare provider who delivered the services.
• Patient Information: Accurately add the patient’s full name, address, date of birth, and any other relevant identifying details.
• Detailed Service Breakdown: List all the healthcare services provided with their corresponding dates and medical codes. This helps patients understand exactly what they’re being billed for.
• Itemized Charges: Provide a clear breakdown of costs for each service, including any applicable deductibles, co-pays, or co-insurance amounts.
• Payment Instructions: Clearly state the total amount due and the payment deadline. Include step-by-step instructions for how to pay, and provide a phone number or email for any billing-related questions or support.

Steps to Follow in Patient Billing and Statement

From verifying insurance to sending out clear, accurate statements, each step ensures timely payments and fewer billing issues. Some steps to follow in patient and statement are: 

• Preparing the Statement: Include all charges, insurance payments, adjustments, and patient responsibility (co-pays, co-insurance, or deductible).
• Sending the Bill: After that statements are sent to the patient via mail or patient portal, depending on patient preferences and available systems.
• Inquiries and Customer Service: Staff may field questions from patients about their bills, helping them understand the charges and resolve any disputes or concerns.
• Payment Collection: Accept and process payments made by the patient through various channels (online, by phone, in person, mail).
• Follow-Up and Collections: If a balance remains unpaid after a certain time, follow-up reminders are sent. Additionally, accounts may be turned over to collections based on the healthcare provider’s policies.
• Account Reconciliation and Reporting: Regular audits and reconciliations ensure all payments are accounted for accurately and help generate reports for financial management and compliance.

Step 7: Payment Posting

Payment posting is the step where payments made by insurance providers, patients, third parties, or any government programs (like Medicare and Medicaid) are recorded in the billing system. It involves the process of correctly identifying received payments, aligning them with the patient accounts, and updating the financial records accordingly. A well-organized payment posting improves practice’s overall performance, increases revenue, minimizes inconvenience, and improves overall patient satisfaction. 

Step-by-Step Payment Posting Process

• Receiving Payment Information: The process begins by collecting payment information from insurance companies and patients, including Explanation of Benefits (EOBs) and Electronic Remittance Advices (ERAs). This information must be reviewed carefully to confirm that payments correspond to submitted claims in a timely manner.
• Reviewing the Details: At this point, each payment is checked to ensure that the amount paid, denial codes (if any), and covered services match the original claim. It’s important to verify whether the payment is full, partial, or denied. Additionally, discrepancies, such as underpayments or missing services, are identified for follow-up.
• Resolve discrepancies: Billing specialists investigate claim denials, short payments, or coordination of benefits issues. They contact insurance providers or patients when necessary to resolve payment discrepancies. Corrections, resubmissions, or appeals are filed to ensure proper reimbursement.
• Reconciling Accounts: After that, payments recorded in the billing software are reconciled with bank deposits and insurance remittances. The final step is to ensure all payments are accounted for and correctly posted to patient accounts. Any inconsistencies are addressed to maintain accurate financial and patient records.

Methods of Payment Posting

Depending on a patient’s financial situation and the extent of their insurance coverage, payment posting in medical billing is typically carried out in one of two ways:

Manual Posting	Auto Posting
Payment details are entered manually by administrative staff.	Payments are posted automatically using billing software.
More time-consuming and prone to delays and human errors like typos.	Faster, more efficient, and reduces the risk of manual errors.
Offers more control, preferred by smaller or solo practices.	Less manual control, but more streamlined and scalable with advanced reporting features.
Common in smaller clinics or solo practices.	Widely used by larger practices and billing companies.
Minimal reliance on technology; manual systems in place.	Relies heavily on cloud-based integrated software solutions and ERA files.
May slow down cash flow due to posting delays.	Promotes steady and timely cash flow.

Benefits of Payment Posting in Medical Billing:

• Allows timely posting and reconciliation of both EOBs and ERAs.
• Facilitates processing of adjustments and write-offs in accordance with contractual agreements with payers.
• Helps identify issues such as non-covered services, claim denials, missing prior authorizations, and collection concerns for prompt resolution.
• Supports effective denial management by quickly spotting rejected claims, enabling timely rework and resubmission.
• Enables the correct application of patient copays and transfers any remaining balances to the patient’s account for follow-up.
• Integrates with patient payment plans and collection agency workflows to streamline outstanding balance recovery.
• Enhances the overall efficiency and effectiveness of the revenue cycle management process.

Common Issues with Payment Posting

Even with efficient systems and processes in place, challenges in payment posting can still arise. Some of the most frequent issues include:

• Misapplied Payments: Payments may be incorrectly posted to the wrong patient account or service date, leading to billing discrepancies and time-consuming corrections.
• Duplicate Payments: Entering the same payment more than once can disrupt financial accuracy and result in unnecessary reconciliation efforts.
• Denied Claims: When claim denials aren’t promptly addressed, it can result in lost revenue. A significant number of denied claims are never resubmitted, leading to avoidable financial losses.
• Incorrect Adjustments: Errors in applying write-offs or adjustments can misrepresent the financial health of the practice and create inaccurate financial reports.

Step 8: Denial Management

Denial management is the process of dealing with claims that have been denied by insurance companies. Denials in healthcare can be full or partial and are categorized as either hard (irreversible) or soft (appealable). This process focuses not only on correcting current denials but also on preventing future ones by analyzing root causes and implementing corrective strategies. Denial management is most effective when handled by an experienced medical billing team or uses AI-powered tools to automate tracking, prioritization, appeals, and prevention workflows.

Types of Denials in Medical Billing

Not all claim denials are created equal; they generally fall into two primary categories with some other sub-categories as follows:

• Soft Denials: These are temporary and typically correctable issues, such as missing information, coding errors, or documentation gaps. Once addressed, the claim can be resubmitted for payment.
• Hard Denials: These are final rejections that lead to a loss of revenue and cannot be appealed or corrected. Common causes include services rendered outside of coverage dates or claims submitted after the filing deadline.
• Preventable Denial: A hard denial caused by avoidable errors, such as incorrect coding, modifiers, or insurance eligibility issues.  
• Clinical Denial: A denial in which a claim is not paid due to medical necessity.
• Administrative Denial: A soft denial in which a healthcare organization is informed by the payer side why the claim was denied. 

Understanding the difference between soft and hard denials allows billing teams to prioritize effectively, streamline resolution efforts, and reduce delays in reimbursement.

Medical Claim Denials Common Reasons

• Missing Information: The claims are denied due to incomplete or missing required patient data. Always double check to ensure all patient, provider, and service details are correctly filled in.
• Lack of Authorization: The procedure or service was performed without prior approval from the payer. Prior authorization is often mandatory for specific treatments and surgical procedures.
• Patient Eligibility: The patient was not eligible for coverage on the date of service. This could be due to lapsed insurance or coverage restrictions.
• Medical Necessity: The payer deemed the service not medically necessary based on their rules and guidelines. Make sure to attach all the supporting documentation that may be needed for justification.
• Duplicate Claim or Service: The claim was already submitted and processed for the same service and date. Avoid resubmissions unless correcting an error.
• Limit for Filing Expired: The claim was filed after the payer’s submission deadline. Timely filing limits vary by payer and plan.
• Service not covered by Payer: The insurance plan does not cover the service provided. Review the patient’s benefits or consider alternate billing options.

Steps in Denial Management

1. Identifying Denied Claims
   • Review Explanation of Benefits (EOB) and Electronic Remittance Advice (ERA) reports.
   • Categorize the denials (e.g., eligibility issues, coding errors, missing documentation).
2. Analyzing Denial Reasons
   • Determine the root cause of the denial.
   • Use denial codes to understand payer-specific guidelines.
   • Group and track recurring denial trends for improvement.
3. Prioritizing Denials
   • Prioritize high-value or time-sensitive denials.
   • Focus on denials nearing the timely filing limit.
4. Correcting and Resubmitting Claims
   • Make necessary corrections such as updating patient information, adding documentation, or modifying procedure codes.
   • Resubmit claims electronically or manually, depending on payer requirements.
5. Appealing Denials
   • Prepare appeal letters with supporting medical records and documents.
   • Follow payer-specific appeal procedures and timelines.
6. Tracking and Monitoring Appeals
   • Keep detailed records of appealed claims.
   • Monitor the status and outcomes of appeals for resolution or further action.
7. Preventive Measures
   • Conduct regular training for staff on coding and billing accuracy.
   • Update internal processes based on denial trends.
   • Use software or tools to flag potential errors before claim submission.
8. Reporting and Analytics
   • Generate reports on denial rates, types, and resolution timelines.
   • Share insights with leadership and revenue cycle teams to drive process improvement.
9. Communication with Payers and Patient
   • Engage with insurance companies for clarification on denials.
   • Establish strong payer relationships for smoother resolution processes.
   • Inform patients about claim denials if necessary.
   • Assist with understanding their insurance responsibilities or gathering required documents.

Step 9: Appeal Process

The appeal process allows providers to challenge a denied claim and request a review for reconsideration. This process is used when a healthcare provider disagrees with a payer’s decision to withhold payment due to reasons like coding error, misinformation, medical necessity, and lack of additional documentation. 

An appeal is then prepared, which includes a written letter explaining why the claim should be reconsidered, along with any supporting medical records or corrected information. This appeal is submitted to the insurance company, either as a first-level (internal) or second-level (external) review. The ultimate goal is to have the insurer review the case again and approve or adjust the payment. It’s important to submit appeals within the insurer’s deadline and follow up regularly to track the status of the review.

5 Steps in the Appeal Process

• Review the Denial Notice: Understand why the claim was denied and note important deadlines and appeal instructions for the resubmission process.
• Gather Supporting Documents: Collect medical records, billing statements, letters of medical necessity, and any other relevant evidence that may be required by the insurance company.
• Contact the Insurance Provider: Clarify the reason for denial and confirm any details or corrections that may help your case before submitting a new appeal.
• Write and Submit the Appeal Letter: Clearly explain why the denial should be overturned, include supporting documents, and submit everything by the deadline.
• Follow Up and Monitor the Appeal: Confirm receipt of your appeal, track the review process, and be ready to respond or escalate if needed.
• Await a Decision: The insurance company typically has a set timeframe (30-60 days) to review and respond to an appeal. Monitor the status and be prepared to follow up.

Step 10: Payment Reconciliation

In medical billing, payment reconciliation is an essential step in the revenue cycle management process that ensures accurate tracking of payments received from insurance companies and patients. Payment reconciliation involves entering the details of payments such as the amount paid, date of payment, payer information, and adjustments into the healthcare provider’s billing system. These payments may come through Electronic Remittance Advice (ERA) or Explanation of Benefits (EOB), and are matched to the corresponding patient accounts and claims. 

Adjustments like contractual write-offs, co-pays, and deductibles are also recorded during this process. Reconciliation follows by verifying that all posted payments align with actual deposits reflected in the bank account and remittance reports. This step helps identify discrepancies such as denials, short payments, or misapplied funds, allowing billing teams to correct errors promptly. Accurate payment posting and reconciliation are crucial in medical billing as they directly impact cash flow, reduce claim rework, and ensure the financial health of the healthcare practice.

Accurate Payment Posting Process:

• Verify Payment Amounts: Confirm that payments align with what was agreed upon in the contract.
• Reconcile Payments Regularly: Perform regular reconciliations to catch discrepancies early.
• Track Denials and Underpayments: Monitor and document any claim denials or underpayments to address issues promptly and follow up for corrections or appeals.
• Apply Adjustments Accurately: Ensure all contractual adjustments, write-offs, and discounts are posted correctly to reflect true account balances.
• Utilize ERA/EOB Reports Efficiently: Use Electronic Remittance Advice (ERA) or Explanation of Benefits (EOB) to match payments to claims and streamline the posting process.
• Maintain Clear Documentation: Keep detailed records of all payment transactions, communications, and reconciliations to support audits and resolve disputes quickly.

Final Thoughts 

The medical billing process is a complex workflow involving numerous steps, each of which plays an important role in ensuring that healthcare providers receive timely and accurate reimbursement for their services. By following the best practices and overcoming the challenges described in this guide, medical billers can streamline the process, reduce claim denials, and improve revenue cycle management.

Alternatively, you can outsource your medical billing services to a trusted provider like Nexus io. Outsourcing can help ensure accuracy, improve efficiency, and reduce administrative burdens on your in-house staff. In the end, delivering a smooth and transparent billing experience not only enhances revenue cycle performance but also improves your relationship with patients.