Hospital Billing & Insurance Terms

Understanding a Hospital Bill

We have compiled an extensive list of commonly used terms in hospital billing.  Some of the terms are very basic while others warrant a longer explanation.  Underlined terms offer more details by clicking on them.

Account Number — Also known as a visit number.  This is a reference number assigned to each patient for a specific hospital visit.

Actual Charge — Also referred to as gross charges.  The actual charge refers to the amount of money charged to a patient for services or supplies.  The actual charge which appears on a hospital or doctor bill is usually much higher than the amount insurance companies cover.  The remaining balance may or may not be due by the patient.  See adjustments or contractual adjustments to learn more.

Adjustments or Contractual Adjustment — This refers to the portion of a bill which is not charged.  A healthcare facility can choose not to charge a patient the remaining balance on a bill after insurance has been paid.  The reason a facility may remove remaining charges is because of billing agreements they have with insurance companies.

Admitting Diagnosis — This is the initial medical reason for the patient’s condition which is most always documented.

Advance Beneficiary Notice (ABN) — This applies to traditional Medicare patients only.  An advance beneficiary notice is a form, signed by a patient, which is given before services are performed.  It explains that some services may not be covered by Medicare.  A patient then has the choice to decide whether to have the treatment, knowing they will be responsible for payment.

Advance Directive — An advance directive is a written document that explains how a patient wants to be treated medically if they lose the ability to make their own decisions.  Someone is usually appointed to make decisions on their behalf, and is known as an agent.  An advance directive is also known as: advance healthcare directive, living will, personal directive or advance decision.

Ambulatory Care — In short, outpatient services.  Ambulatory care refers to healthcare treatments or consultations delivered on an outpatient basis.  Outpatient is defined as a patient’s stay at a hospital or clinic that does not involve an overnight stay.  Services are performed in a single day.

Ancillary Services— As opposed to ambulatory care, ancillary services are performed in a hospital or other health facility.  This is inpatient versus outpatient.

APC (Ambulatory Payment Classification) — This refers to the government’s payment system for outpatient services performed through the Medicare program.  The Medicare payment system known as APC groups together similar outpatient services and procedures so all hospitals can be reimbursed the same amount.  APC’s only apply to hospitals.  Doctors are reimbursed in other ways such as CPT’s.

Appeal — A patient has the right to object and challenge a decision by a health plan not to pay for medical services.  This process is known as an appeal.

Applied to Deductible — This represents the portion of a hospital bill that the insurance company requires a patient to pay for themselves.

Assignment or Assignment of Benefits — In many cases, a doctor or hospital agrees to bill insurance before collecting money from a patient.  An assignments of benefits is the document a patients signs that allows their insurance to reimburse the medical provider directly.  Patients are usually responsible for the remainder of the balance not covered by insurance.

Authorization Number — Also known as a certification number or prior-authorization number.  This number is given when a treatment has been approved by insurance.  A health insurance plan, medical group or hospital may require an authorization number prior to performing services.

Balance — Each hospital bill lists an amount outstanding.  The bill will explain who is responsible for the balance, whether a patient, insurance company or both.

Beneficiary — A beneficially is someone covered under an insurance plan or insurance policy.

Benefit — This is the amount that insurance pays for medical services on behalf of a patient.

Billed Charges — This terms refers to the total charges that are sent to patients and insurance companies prior to any discounts.

Benefit  — A benefit is the amount a patient’s insurance company pays for medical services provided.

Billing Statement — Each hospital bill has a printed summary and is commonly referred to as the billing statement.

Birthday Rule — This rule was created to determine which insurance to use for a child when both parents have health insurance coverage.  The parent who has the earlier birthday in a calendar year is the primary plan for dependent children. The birthday rule does not take into account years of birth, only the month and day of parent’s birthday.  When parents are divorced or separated and there is more than one health plan covering the child, there are procedures outlined to determine which plan to use.

Capitation — A payment arrangement by an insurance company to a healthcare provider for medical services.  Capitation usually pays providers a set amount for each person enrolled, regardless of whether they seek care.

Centers for Medicare and Medicaid (CMS) — The name of the federal agency that operates the Medicare program and works with states to manage the Medicaid program.

Certificate of Coverage — Required by state law, a certificate of coverage explains the healthcare coverage under the contract issued by an employer.

Charity Care — A term that refers to free or reduced-fee health care for patients who have financial hardship.

Charge Itemization — A charge itemization is a list of all items, medications, room charges and procedures.  An amount for these services, owed by a patient or insurance company, may not be listed.

Claim — This is the form submitted to an insurance company for payment of benefits.

Clinic — The area in a hospital or separate facility that provides medical care to regularly scheduled or walk-in patients for non-emergency care.

COBRA (Consolidated Omnibus Budget Reconciliation Act) — Employers are required by law to allow a beneficiary to remain covered under the employer’s group health plan after they lose their job.  The time period that COBRA is offered varies and the beneficiary may have to pay for part or all of the premium.

Coding — Also known as coding of claims.  This is the way healthcare services and supplies are classified and defined into a set of predetermined numbers/codes for the purpose of billing.

Co-Insurance — This is the part of the bill that patients have to pay after insurance pays its portion.

Co-Insurance Days — This term refers to Medicare coverage from day 61 to day 90 of a continuous hospital stay.  A patient is responsible for paying for a portion of those days.  After the 90th day, the patient enters their lifetime reserve days.

Collection Agency — Healthcare facilities use collection agencies to help collect money from patients for unpaid bills.

Contractual Adjustment (C/A) — This is the amount of money that the carrier agrees to accept as a participating provider with your insurance carrier.

Coordinated Coverage — Coordinated coverage is the process of integrating benefits payable under more than one health insurance. An example would be Medicare in addition to a retirees health benefits.  Some patients may pay some deductible or co-pay.

Coordination of Benefits (COB) — This is the method used for determining which insurance company is primarily responsible for payment when a patient is covered under more than one insurance plan.  Coordination of benefits is the determination of which insurance pays: primary, secondary or tertiary.

Co-payment or Co-pay — This is the fixed amount that a patient is responsible for out-of-pocket.  Co-pays are often associated with emergency room visits, office visits and prescriptions.

Covered Charge — Also known as covered services.  These are any charges deemed to be allowable and payable by an insurance carrier, either to the patient or healthcare provider.

Covered Days — Simply the days of a hospital stay that an insurance company pays for in part or in full.

CPT Codes — See Procedure Codes.

Date of Service(DOS) — These are the dates that medical services are provided to a patient.

Deductible (DED) — A deductible is the amount of money a patient owes before an insurance company starts to pay.  A deductible is usually required to be paid by the patient each year.  In some cases the period for payment can be based on the anniversary date of a patient’s coverage.

Denial — When an insurance company decides not to pay for part of all of a medical bill, it’s called a denial.  The decision could be made based on a lack of medical necessity or pre-admission approval/certification, terminated coverage or other reasons.  Denied amounts may be charged to the patient.  See also Appeal.

Diagnosis Code — This is a code used for billing that describes a patient’s illness.

Disallowed Amount — A disallowed amount is the difference between a hospital charge and the amount an insurance company approves.  In some cases the patient is required to pay this difference.

Diagnosis-Related Groups (DRGs) — This is the payment system used to classify patients on the basis of diagnosis.  Known as the DRG system, it categorizes payments into groups based on the principal diagnosis, type of surgical procedure, complications and other indicators.

Duplicate Coverage Inquiry — A duplicate coverage inquiry refers to a request to an insurance company by another insurance company to find out whether a patient has other coverage.  For more, see Coordinated Coverage.

Durable Medical Equipment (DME) — This refers to any medical equipment that can be used multiple times and is ordered by a doctor for use at home.  Examples of durable medical equipment include: hospital beds, wheelchairs and oxygen equipment.

EKG/ECG — These are names for the equipment or medical procedure used to measure how the heart works.

Eligibility Verification — This is the way hospitals determine whether a patient has insurance coverage for the services they will provide.

Enrollee — A person covered by health insurance.

Explanation of Benefits (EOB/EOMB) — Insurance companies send this statement to patients after receiving medical services.  It lists the services provided, amount billed and any insurance payments.  An explanation of benefits normally includes any payment due from the patient, such as co-insurance, deductibles and co-pays.

Fee Schedule — Private healthcare plans and the government use a fee schedule to list all of the fees paid to doctors or providers on a fee-for-service basis.

Fiscal Intermediary (FI) — A fiscal intermediary is a private company that has a contractual relationship with Medicare to process claims.

Group Name — The name of the group or insurance plan that insures the patient.  In most cases this is the employer.

Group Number — This is the number given by insurance companies to distinguish the group under which a patient is insured.  The group number is listed on the insurance card.

Guarantor — A guarantor is the individual responsible for paying patient’s bill.  Patient statements are addressed to this person.  For individuals under 18, a parent or legal guardian/trustee is the guarantor.

HCFA/CMS 1500 — The billing form used by doctors to file insurance claims for medical services.

HCPCS codes – HCFA Common Procedural Coding System — The coding system used to describe outpatient services.  HCPCS codes include CPT codes and other codes.

Healthcare Provider — For example, a physician, hospital or lab.  A healthcare provider is any person or organization that provides medical services.

Health Insurance — The term used for any coverage that provides for the payment of medical services from the result of sickness or injury.  It includes insurance for losses from an accident, medical expenses, disability or accidental death or dismemberment.

Health Insurance Portability and Accountability Act (HIPAA) — This is the federal law that governs standards for the security and privacy of patients’ health information.

Home Health Agency — This is an agency that offers medical care to patient’s in their homes.

Hospice — An organization that provides inpatient, outpatient, and home healthcare services for terminally-ill patients.

HMO (Health Maintenance Organization)  — An insurance plan that pays for healthcare services provided by a specific group of hospitals and doctors.  Inside an HFO, patients must be referred to specialists by their primary care physician.

Individual Coverage — Coverage for individuals can be purchased as a supplement to group health insurance or as sole coverage.

Ineligible Expense — This term refers to a charge that is not covered by insurance.  This ineligible expense may be billed to the patient if the healthcare provider is under contract with the patient’s insurance organization.

Inpatient (IP) — Inpatient refers to a patient who stays overnight in the hospital.

In-network provider  — A hospital or physician that is part of an insurance plan’s approved providers of healthcare services.

Itemized Bill — Charges for hospital services appear on an itemized bill.  The gross charge for each item will usually be much higher than what a patient and insurance company is expected to pay.

International Classification of Diseases (ICD-9-CM) — ICD is a coding system used to describe a patient’s diagnosis and procedures performed to treat them.

Lifetime Reserve Days — A Medicare patient has a lifetime reserve of 60 days of inpatient services they can receive after they receive more than 90 days of inpatient services in a benefit period.  These reserve days can only be used once in a lifetime.  The patient in turn must pay a daily co-insurance for each reserve day used.

Limit of Allowance — Also known as a contractual allowance.  This is the difference between what a patient’s insurance approves and your healthcare provider charges for a procedure.  Patients are not billed for this difference in amount if the provider is under contract to accept an approved amount from the insurance company.  An adjustment is made on a patient’s account which in turn decreases the balance.

Long Term Care — This term refers to medical care received in a nursing home.

Managed Care  — An insurance plan that requires patients to use specific hospitals and doctors with which the plan has contracted.

Medicaid — This insurance plan is funded by the federal government and state agencies.  Medicaid provides healthcare benefits to low-income individuals who have limited or no insurance.

Medically Necessary — Services or supplies that are required to properly treat or diagnose a specific medical condition

Medicare — Primarily for individuals age 65 and older, Medicare is a Federal program that offers health insurance.  Some people under age 65 who have disabilities or end-stage renal disease (ESRD) are also covered.  Medicare is divided into three parts, Part A, Part B and Part D.  For more details see below.

Medicare + Choice — Also known as M+C.  This program gives Medicare patients the option of enrolling in a variety of private plans including health maintenance organization’s (HMO), preferred provider organizations (PPO), provider-sponsored organizations (PSO), private fee-for-service (PFFS) plans and medical savings accounts (MSA) with high deductible plans.  Patients receive these medical services without additional out-of-pocket costs.

Medicare Number — Every Medicare patient receives a number for tracking and billing purposes and can be found on the Medicare card.

Medicare Part A — Medicare coverage that helps pay for inpatient hospital, home health, hospice and skilled nursing facilities.

Medicare Part B — Medicare coverage that helps pay for physician services, medical supplies and other outpatient services not paid for by Medicare Part A.

Medicare Part D — Medicare coverage that helps pay for the costs of prescription drugs.

Medicare Summary Notice (MSN) — Also known as an Explanation of Medicare Benefits (EOMB).  See Explanation of Benefits.

Medicare Supplement Policy (Medsupp) — Also known as Medigap and Medicare Wrap.  This is supplemental insurance that helps patients cover expenses not covered by Medicare.  Under Medsupp, the insurer will pay for deductibles and co-pays for Part A and B.

Medicare Supplement – A supplemental private insurance policy to help cover the patient’s liability after benefits are paid by Medicare.

Medigap —  Also know as Medicare Supplement Insurance.  Medigap is additional insurance purchased by Medicare beneficiaries to cover co-payments, coinsurance, deductibles and services not paid for the Medicare Part A or B.

MCARE Non-Covered Drug — See Self-Administered Drug.

Network — When working under a contract with a health plan, doctors and hospitals are referred to as in network.

Non-Covered Services — Also referred to as non-covered charges and non-covered amount.  These are costs incurred by the patient for a service that is not covered by health insurance.  Non-covered charges are specifically excluded by insurance.

Non-Participating Physician — Also known as non-participating provider.  These terms refer to groups of doctors, hospitals or pharmacies that are not under contract with any particular health plan.  For medical services performed by non-participating providers, patients are billed directly and responsible for payment in full.  See also Out-of-Network Provider.

Observation — Doctors and hospitals use observation to determine whether a patient needs inpatient care, outpatient care or whether they can recover at home.  Observation may involve an overnight hospital stay.

Out-of-Network (OON) — Also known as out-of-network services.  OON are services rendered by a provider who does not have a contractual agreement with a patient’s health insurance plan.  If a patient wants to receive care from an out-of-network provider they will likely be responsible for higher deductibles, co-pays and co-insurance.

Out-of-Pocket Costs — These are costs not covered by insurance and the responsibility of the patient, including deductibles and co-pays.

Outpatient (OP) — When a patient does not need to stay overnight they are referred to as outpatients.  Common outpatients services include lab tests, x-rays and same-day surgeries.

Over-the-Counter (OTC) Drug — Any drugs that can be purchased at a pharmacy or drug store without a doctor’s prescription.

Par — When a hospital agrees to accept an insurance company’s payment as payment in full.  This payment is excluding any amounts considered the patient’s responsibility, such as deductibles, co-pays and non-covered services.

Participating Provider  — When a hospital or physician agrees to accept your insurance plan’s payment as payment in full, they are referred to as participating providers.  The agreement to accept payment for covered medical expenses is separate from the patient’s liability for deductibles and co-pays.

Patient Liability — Separate from the portion covered by insurance, patient liability is the amount a patient must by out-of-pocket.  Patient liability includes deductibles and co-pays.

Patient Type — Patients are classified based on the type of services they receive from hospitals.  Examples of patient types are: outpatient, inpatient and emergency.

Per Diem-Per Day — This term refers to charge or payment methods for medical care based on a set rate per day.

Physician Participation — When physicians agree to accept payment from insurance companies in full it is referred to as physician participation.  The patient’s bill is sent directly to the insurance company.  Deductibles and co-pays are the responsibility of the patient.

Place of service — Simply the facility where service is performed.

Point-Of-Service Plan (POS) — Also known as a tiered plan.  A point-of-service plan is health coverage that allows patients to choose to receive medical services from participating or non-participating providers.  There are also different benefit levels in POS plans.

Policyholder — Also called a subscriber or guarantor.  A policyholder is the name of the person who took out or purchased an insurance policy.

Policy Number — This is the number that insurance companies assign to a patient to identify the contract for coverage.

Pre-Admission Approval/Pre-Authorization/Pre-Certification — These three terms all refer to the same thing, an agreement by insurance companies to pay for medical services.  Hospitals and physicians require this approval before patients receive non-emergency services.  If patients do not get this approval, there are often penalties to the patience since services may not be covered by insurance.

Pre-Existing Condition — Also known as pre-existing condition exclusion.  It refers to the practice by some health insurance companies to deny coverage to patients who for a certain period of time for medical conditions that existed before coverage begins.  Pre-existing condition exclusions will be listed in an insurance company’s certificate of coverage.

Preferred Provider Organization (PPO) — Some healthcare providers offer discounted charges which are negotiated with an insurance plan.   These plans offer benefits and lower costs to patients for services performed by preferred providers.  A patient can also choose under a PPO to receive treatment outside the network, however they will incurring a larger deductible or out-of-pocket maximum.

Premium — A premium is the amount paid for an insurance policy.  Premiums are often paid off in monthly installments.

Prepayment — In some cases, money is paid prior to receiving medical services.

Prevailing Charge — In a specific region of the country, physicians have a prevailing charge for services which are performed frequently.

Primary Care Network (PCN) — When a group of primary care physicians join together it is called a primary care network.  These physicians agree to share the risk of providing medical care to their patients covered by a given health plan.

Primary Care Physician (PCP) — A primary care physician provides a wide range of general care and refers patients to specialists when necessary.  Most HMO, EPO and POS plans require that members choose a primary care physician.  PCP’s are normally focused on internal medicine, family or general practice as well as pediatrics.

Primary insurance — The insurance plan responsible for paying a patient’s bill first.  If a patient has other insurance, it is referred to as secondary and tertiary insurance.  Deductibles and co-pays apply before insurance coverage.

Private Room and Board — These are hospital rooms designed for only one patient.  Private room and board is more expensive than semi-private rooms which are shared by two patients.  Patients may be asked to pay the extra expense for a private room if it is not deemed medically necessary.

Procedure Codes/CPT Codes — Medical services and surgical procedures are described using this coding system. The Current Procedural Terminology (CPT) is maintained by the American Medical Association.  CPT codes describe medical, surgical and diagnostic services.

Reasonable and Customary (R&C) — These are commonly charged or prevailing fees for health services and vary by region of the country.

Referral — A referral is permission given by a primary care doctor for a patient to see a specialist.  HMO plans typically require referrals from a primary care physician to see specialists.

Release of Information — Patients sign this statement that allows physicians and hospitals to release medical records in order that insurance companies can pay their medical bills.

Revenue Codes — Charges listed on hospital bills are categorized using revenue codes.

Same-Day Surgery — This refers to outpatient surgery, a procedure performed without a patient needing to stay overnight.  See Outpatient (OP).

Secondary Insurance — After a patient’s primary insurance covers eligible expenses, a secondary insurance would consider the unpaid portion of the bill.  Expenses are considered after deductibles and co-pays.

Secondary Payer — The insurer that pays second on a medical claim is known as a secondary payer.

Self-Administered Drug — These are drugs that do not require help from a doctor or nurse.  Self-administered drugs include a wide range of medicines, ointments, inhalers, insulin and any item that can be taken at home.

Self-Insured Plan — Also known as self-funded plan.  A self-insured plan is when a group assumes responsibility for medical expenses, as opposed to an insurance company.  The group that assume responsibility is usually an employer.  These plans are often administered by independent third parties.  See Third Party Administrators (TPA).

Skilled Nursing Facility (SNF) — These facilities treat patents in need of rehab or other medical care that does not need to be performed in a hospital.  A skilled nursing facility can be a free-standing part of a hospital or a completely separate facility.

Source of Admission — How a patient was admitted to the hospital is referred to as a source of admission.  Examples are: physician referral, hospital transfer and emergency room visit.

Specialist — A doctor who specializes in treating specific body parts and medical conditions or certain age groups.  An example of a specialist is a cardiologist, which is a doctor who only treats heart problems.

Subscriber — Also known as a policyholder or guarantor.  A subscriber is the person who purchased the insurance.

Supplemental Insurance — Patients can purchase a supplement to their insurance to fill gaps in coverage.  Supplemental insurance refers to this private health insurance coverage.

Swing Bed — A swing bed refers to a bed for a patient who receives skilled nursing care in a non-skilled nursing facility.  See Skilled Nursing Facility (SNF).

Tertiary Insurance — Some patients have several different insurance plans, however there is an order to how they cover expenses.  First, primary and secondary insurance covers eligible expenses.  Then, a tertiary insurance is billed third for any expenses not covered.  Deductibles and co-pays often apply before insurance coverage.  Also known as third party coverage.

Third Party Administrator (TPA) — An third party organization that manages and processes insurance claims and group benefits for self-insured companies or groups.

TRICARE — TRICARE, usually found in all caps, is the healthcare program that serves active and retired military personnel and their families.  TRICARE is also known as CHAMPUS.

UB-04 Form — Also known as the Form CMS-1450.  The UB-04 form is used by hospitals to bill insurance companies.

UB-92 Form — This used to be the main form used for filing medical insurance claims by healthcare institutions.  As of 2007, it has been replaced by UB-04.

Units or Units of Service — This is simply the number items purchased for a patient or services performed.  An example of a Unit of Service is pints of blood or days in the hospital.

Usual, Customary and Reasonable (UCR) — In short, this is a fancy name for a fee for a medical procedure or service.  This fee is a non-discounted rate or a “retail rate”.  UCR rates were developed to prevent unscrupulous physicians or healthcare providers from charging high fees, above the norm in the industry.  UCR rates vary based on geographic area and are determined through a consensus of what other hospitals, physicians and labs charge.

Utilization Review (UR) — Once a service has been provided to a patient, UR is the formal assessment of the medical necessity, efficiency and appropriateness of that service.

Worker’s Compensation — Also known as workers comp.  Worker’s Compensation is a type of health insurance which is given to employees by their employers to cover on the job injuries.  It offers wage replacement and medical benefits in exchange for the worker giving up their rights to sue their employer for negligence.  Workers comp is offered in addition to regular medical coverage.