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Updated Feb 12, 2024

What Are Medical Claims?

Your practice must submit medical claim documents to get paid. Here is everything you need to know about processing this paperwork.

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Max Freedman, Business Operations Insider and Senior Analyst
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This guide was reviewed by a Business News Daily editor to ensure it provides comprehensive and accurate information to aid your buying decision.

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Most medical practitioners know far too well that the time between patient encounters and payment can be lengthy. This gap isn’t always the patient’s fault. Insurers are often responsible for this delay. That’s because payers must verify whether your services fall under their coverage. Medical claims streamline this process.

What are medical claims?

An industry standard for collections, a claim is a key medical billing document that a medical practice like yours submits to a health insurance company, also known as a payer. Medical claims comprise codes, primarily Current Procedural Terminology (CPT) codes, which describe the medical services you provided the patient. These services include procedures, exams, diagnoses, prescriptions and medical supplies, transportation and devices.

How do medical claims work?

After a patient encounter, your practice must convert the services you provided into CPT codes. These codes standardize the commonly administered services listed above. Without them, medical claims would often comprise lengthy practitioner descriptions of administered services that would introduce inconsistencies. Instead, with CPT codes, payers immediately know which services you provided and can determine whether the patient is covered.

Medical claims should also include your practice’s charges for each coded service. CPT codes have no impact on what you can and can’t charge for your services ― that decision is entirely yours to make. The ultimate question becomes whether the patient’s benefits will result in the payer entirely reimbursing you or deferring some ― or all ― of the payment to the patient.

FYIDid you know
Although CPT codes standardize services, they have no impact on what you can charge for them.

Do medical claims differ for value-based practices?

If you provide value-based care, you may have additional concerns surrounding medical claims. This payment model deviates from the standard fee-for-service model in that it prioritizes the quality of patient encounters over their quantity. The length of time patients stay at inpatient facilities, including 30-day admissions, can affect your reimbursements. Longer stays and more frequent admissions may indicate lower-quality care and could affect what payers cover.

What happens after you create claims?

Once you create claims, it’s best to run them through claim scrubbers to detect errors. Without this error detection, you could submit improper claims that result in payer rejections that require a resubmission. Resending a claim creates more work for your administrative staff and delays your reimbursements, thus hindering your revenue and cash flow.

Most claim scrubbers are automatic tools that third-party medical billing services provide. They’re often part of clearinghouses, where claims go for finalization between when you submit them and when payers receive the bill. Technically, you can have your admin handle claim scrubbing, but the complexity of CPT codes makes automation more reliable.

What is included in a medical claim file?

A medical claim file comprises a claim header and a claim detail. Together, these sections describe the patient’s medical background and how you treated the patient. We’ll break down each section below.

Claim header

The header of your claim is your overview. This includes the reason for the patient’s visit and their primary diagnosis. For medical claims purposes, the patient’s primary diagnosis is the condition that requires the most attention and services.

The claim header includes the following information:

  • Basic patient information: Medical claims should include the patient’s full legal name, date of birth, address and gender.
  • Your National Provider Identifier (NPI): Think of your NPI as your practice’s Social Security number and your medical claims as your tax returns. You can’t get your refund without your Social Security number, and you can’t get reimbursements without your NPI.
  • All CPT codes pertaining to primary services provided: Do your best to include the correct codes but remember that your claim scrubber will catch most errors.
  • The payer’s name: This way, you don’t submit medical claims to the wrong insurer, which would delay proper reimbursement.
  • Your charges: If you don’t include your charges, payers only know which services you provided, not how much you’re owed for them.
  • Inpatient procedure details: This detail is the only optional inclusion in a medical claim. You’ll only need to include this part in your header if you performed inpatient procedures during your encounter.

Claim detail

The detail section of your claim pertains to secondary diagnoses. These diagnoses arise as you treat the primary diagnosis but require less attention and fewer services. You’ll describe a secondary diagnosis using five items that are also included in the claim header: date of service, CPTs, diagnosis-related groups (DRGs), your NPI and your charges.

The claim detail should also include National Drug Codes (NDCs), which are unique to this section. As the name suggests, they indicate any medications or other drugs you prescribed during the encounter.

How to create a medical claim

The claims process is lengthy ― it starts before you even see patients ― but it’s far from impossible. Just follow these steps to navigate it.

1. Register patients before their appointments.

Before all appointments, you should have patients provide their insurance information and basic personal details. Choosing the right medical software can streamline this task and allow patients to submit their information before they even arrive at your practice.

Give yourself several months to fully implement your electronic health records system, which is a major component of your medical software platform. Larger practices may need up to a year for full implementation, although cloud-based platforms may require only a few weeks of setup.

1. Conduct a verification of benefits (VOB).

With your patient’s insurance information now handy, you should verify whether their plan covers your services. To do so, log in to the insurer’s provider portal and conduct all necessary checks. Alternatively, call the provider; the agent you speak with can determine whether the payer will cover your services or if the patient will have out-of-pocket expenses.

VOBs are also necessary for calculating patient copays. These copays can help maintain your cash flow as you await full payer reimbursement. You can also use VOBs to check whether your patient must preauthorize your services with their insurer before visiting you. This arrangement is common with health maintenance organization (HMO) plans, which typically require that patients obtain insurer approval before seeing specialists.

2. After patient visits, code your services.

Following patient encounters, give your front office staff or third-party medical biller access to your patient charts. These charts can be used to fill your medical claims with the appropriate CPT codes. Depending on the services you provide, you may also need to include DRG codes and NDCs. Other codes you may need to include are International Classification of Diseases, 10th Revision, and Healthcare Common Procedure Coding System codes.

Did You Know?Did you know
You’ll use Form HCFA 1500 to create and submit properly coded and formatted medical claims.

4. Add your charges.

Whether it’s an administrative assistant or third-party medical biller who’s converting your services to codes, they should provide a charge for each code. As mentioned earlier, these charges can be whatever you please as long as they fall within industry standards. For example, just because a competitor practice charges $10 for CPT code 95004 (allergy testing) doesn’t mean you can’t charge $5 or even $15.

5. Scrub your claims.

After adding all your codes and charges, run your claim through a scrubber. This way, you catch as many errors as possible. Claim scrubbing often goes hand in hand with clearinghouse review, through which your claims will be adjusted to reflect the payer’s desired format. However, if you’re submitting claims to Medicare or Medicaid, you’ll often skip the clearinghouse and go straight to the payer.

6. Await the payer’s decision.

Through a process commonly known as adjudication, the payer determines whether to accept, reject or deny your claim. If your claim is accepted, then the adjudication process also involves determining the amount of your reimbursement. Note that reimbursement isn’t always 100 percent ― the payer may only pay part of what’s owed and defer the remainder to the patient.

In some cases, the claims are rejected or denied. Rejections, although frustrating, are often relatively easy to solve ― resubmit your claim with all errors fixed. Payment may eventually follow.

Denials are tougher to address. They may reflect a lack of patient preauthorization that can’t be retroactively fixed or they may indicate insufficient patient coverage. In either case, the patient can file an appeal with their insurer. The appeals process can be lengthy and your payment will be delayed ― if approved at all ― until the process ends.

7. Bill your patient for the remaining amount.

If your payer won’t cover all your services, you should bill the patient for the remainder. Ideally, your patient will pay before your next visit. If not, you can attempt to collect payment at this visit. Meanwhile, if pursuing payment from patients sounds exhausting or tedious, you can always turn to third-party medical billing companies.

The best medical billing software to help with medical claims

Not every practice has the capacity to provide services, create claims and pursue payment from the appropriate parties. Such practices often benefit tremendously from outsourcing these tasks to medical billing companies, which specialize in these services. 

Medical billing companies often integrate their software with your own medical software to pull your key patient and encounter data into medical claims automatically. Then, they scrub these claims and file them with your payers and they also conduct your VOBs before patient encounters. Furthermore, they handle all follow-up on rejected or denied claims, saving you a major burden when it comes to managing your cash flow.

Among our picks for the best medical billing services, we find that the below companies manage medical claims especially well.

  • CareCloud: This medical billing service scrubs your claims for errors before submitting them to payers electronically or via paper. It will also follow up on all your rejected and denied claims, as well as those still awaiting the payer’s verdict. Check out our CareCloud medical billing review to learn more about this service.
  • DrChrono: With DrChrono, your claims are accepted on their first submission approximately 96 percent of the time. DrChrono will also analyze, not just follow up on, your denied claims to power smarter future claims submissions. Learn more via our DrChrono medical billing review.
  • athenahealth: It’s easy to see how many unpaid claims are due to your practice when you implement this medical billing service. You can also get some of your rejected or denied claims managed when you use athenahealth. Read our athenahealth medical billing review to explore what else this service offers.
  • AdvancedMD: This medical billing company promises follow-ups on your denied claims within 14 days. It also handles the entire claim submission process after your in-house team has coded your claims. Dive deep into this service’s features via our AdvancedMD medical billing review.
  • Tebra: The software interface you’ll use to track the claims Tebra handles for you ranks among the most intuitive we’ve seen in medical billing. You can use this software to monitor your third-party billing team’s progress toward filing your claims in real time. Read our Tebra medical billing review to learn all about this highly user-friendly service.

Ready, set, submit

In-house billing teams can submit medical claims with relative ease but, typically, it’s smarter to outsource this task to a third party. Either way, the process is pretty straightforward once you get the hang of it. Sure, your payers might take some time to reimburse you no matter who files your claims. But once you’ve mastered claims creation and submission ― and that’ll happen sooner than later ― steady cash flow is all the more likely.

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Max Freedman, Business Operations Insider and Senior Analyst
Max Freedman has spent nearly a decade providing entrepreneurs and business operators with actionable advice they can use to launch and grow their businesses. Max has direct experience helping run a small business, performs hands-on reviews and has real-world experience with the categories he covers, such as accounting software and digital payroll solutions, as well as leading small business lenders and employee retirement providers. Max has written hundreds of articles for Business News Daily on a range of valuable topics, including small business funding, time and attendance, marketing and human resources.
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