Whether you are evaluating a new billing company, reviewing your monthly reports, or trying to understand why a claim was denied, this glossary provides clear, practical definitions of the terms you will encounter most often. Terms are organized by category for easy reference. For a deeper dive into any topic, follow the related guide links throughout.
Claims & Coding Terms
CPT Code
Current Procedural Terminology code. A standardized 5-digit code maintained by the American Medical Association that describes a medical, surgical, or diagnostic service. CPT codes are required on all claims submitted to commercial payers and Medicare.
Related: ICD-10 Code, Modifier
ICD-10 Code
International Classification of Diseases, 10th Revision code. A standardized diagnosis code that describes the medical condition or reason for a patient's visit. Required on all claims to establish medical necessity for the services billed.
Related: CPT Code
Modifier
A two-digit code appended to a CPT code to indicate that a service was altered in some way without changing its definition. Common modifiers include -25 (significant, separately identifiable E&M service), -59 (distinct procedural service), and telehealth modifiers like -95 and -GT.
Related: CPT Code, NCCI
Clean Claim
A claim that is accepted by the payer on the first submission without requiring correction or additional information. A clean claim rate above 95% is the industry standard for well-managed billing operations.
Related: First-Pass Acceptance Rate
Clearinghouse
An intermediary company that receives electronic claims, checks them for formatting errors, and transmits them to payers. Also distributes Electronic Remittance Advice (ERA) files from payers back to providers.
Related: ERA, EDI
NCCI Edit
National Correct Coding Initiative edit. CMS-maintained rules that prevent improper payment of CPT code combinations that should not be billed together. Violations result in bundling denials.
Related: Modifier, CPT Code
Payer & Contract Terms
Allowed Amount
The maximum amount a payer will reimburse for a specific service under a provider's contract. The difference between the billed charge and the allowed amount is a contractual write-off that cannot be billed to the patient.
Related: Contractual Adjustment, Fee Schedule
Fee Schedule
A list of maximum reimbursement rates a payer will pay for each CPT code. Providers negotiate fee schedules when credentialing with payers. Medicare's fee schedule is publicly available; commercial payer schedules are confidential.
Related: Allowed Amount, Credentialing
Prior Authorization
Advance approval from a payer that a specific service is medically necessary and will be covered. Required for many procedures, specialty referrals, and ongoing therapy services. Failure to obtain required authorization is one of the most common causes of claim denials.
Related: Precertification, Medical Necessity
Coordination of Benefits (COB)
The process of determining which payer pays first (primary) and which pays second (secondary) when a patient has coverage under more than one insurance plan. Proper COB prevents overpayment and ensures correct billing to each payer.
Related: Primary Payer, Secondary Payer
Capitation
A payment model in which a payer pays a provider a fixed monthly amount per enrolled patient, regardless of the number or type of services provided. Common in HMO plans. Under capitation, the provider bears the financial risk of high utilization.
Related: Fee-for-Service
Revenue Cycle Metrics
Days in AR
Accounts Receivable days. A measure of how long it takes, on average, to collect payment after a service is rendered. Calculated as (Total AR ÷ Average Daily Charges). Industry benchmark for a healthy practice is 30–35 days.
Related: Net Collection Rate, AR Aging
Net Collection Rate
The percentage of allowed amounts actually collected, after contractual adjustments. Calculated as (Payments ÷ (Charges − Contractual Adjustments)). A rate above 95% is considered good; above 98% is excellent.
Related: Days in AR, Gross Collection Rate
First-Pass Acceptance Rate
The percentage of claims accepted by the payer on the first submission without rejection or denial. A rate above 95% is the industry standard. Low first-pass rates indicate systemic problems with claim quality or eligibility verification.
Related: Clean Claim, Denial Rate
AR Aging
A report that categorizes outstanding accounts receivable by the length of time a balance has been unpaid (0–30 days, 31–60 days, 61–90 days, 90+ days). AR aging over 90 days should represent less than 10–15% of total AR in a healthy practice.
Related: Days in AR
Write-Off
An amount removed from accounts receivable that is not expected to be collected. Write-offs fall into two categories: contractual write-offs (required by payer contracts) and bad debt write-offs (uncollectible patient balances). Only bad debt write-offs represent true revenue loss.
Related: Contractual Adjustment, Net Collection Rate
Patient Responsibility Terms
Deductible
The amount a patient must pay out-of-pocket for covered services before their insurance begins to pay. Deductibles reset annually. High-deductible health plans (HDHPs) have become increasingly common, making patient collections a larger share of practice revenue.
Related: Copay, Coinsurance
Copay
A fixed dollar amount a patient pays for a covered service at the time of the visit (e.g., $30 per office visit). Copays are collected at check-in and do not count toward the deductible in most plans.
Related: Deductible, Coinsurance
Coinsurance
The percentage of the allowed amount a patient pays after meeting their deductible. For example, with 20% coinsurance, the patient pays 20% and the payer pays 80% of the allowed amount. Coinsurance is billed after the claim is processed.
Related: Deductible, Copay
Out-of-Pocket Maximum
The maximum amount a patient is required to pay in a plan year for covered services. Once the out-of-pocket maximum is reached, the payer covers 100% of allowed amounts for covered services for the remainder of the year.
Related: Deductible, Coinsurance
Compliance & Regulatory Terms
HIPAA
Health Insurance Portability and Accountability Act. Federal law that establishes privacy and security standards for protected health information (PHI). All billing companies that handle PHI must sign a Business Associate Agreement (BAA) with your practice.
Related: BAA, PHI
Business Associate Agreement (BAA)
A contract required by HIPAA between a covered entity (your practice) and any vendor that handles PHI on your behalf. Your billing company, clearinghouse, and practice management software vendor must all have signed BAAs with your practice.
Related: HIPAA
Fraud, Waste, and Abuse (FWA)
A category of improper billing practices. Fraud involves intentional misrepresentation; waste involves overutilization without intent; abuse involves practices inconsistent with sound billing standards. All three can result in significant financial penalties and exclusion from federal programs.
Related: OIG, Compliance Program
Timely Filing
The deadline by which a claim must be submitted to a payer after the date of service. Deadlines vary by payer (typically 90 days to 1 year). Missing the timely filing deadline results in a non-appealable denial.
Related: Clean Claim
Put These Terms to Work
Now that you understand the vocabulary, use it to evaluate billing companies more rigorously. Our 25-question checklist uses these terms to help you ask the right questions during vendor selection. Our EOB guide shows you how adjustment codes and remittance advice work in practice.
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