This document outlines the 10 steps of the medical billing cycle: 1) preregistering patients, 2) establishing financial responsibility, 3) checking patients in, 4) checking patients out and documenting diagnoses and procedures, 5) reviewing coding for compliance, 6) checking billing compliance, 7) preparing and transmitting insurance claims, 8) monitoring payer adjudication of claims, 9) generating patient statements, and 10) following up on payments and handling collections. It also defines key terms related to medical billing and coding.

1. CHAPTER
© 2011 The McGraw-Hill Companies, Inc. All rights reserved.
1
The Medical Billing
Cycle

2. © 2011 The McGraw-Hill Companies, Inc. All rights reserved.
Learning Outcomes
When you finish this chapter, you will be able to:
1.1 Identify four types of information collected during
preregistration.
1.2 Compare fee-for-service and managed care health
plans, and describe three types of managed care
approaches.
1.3 Discuss the activities completed during patient
check-in.
1.4 Discuss the information contained on an encounter
form at check-out.
1.5 Explain the importance of medical necessity.
1-2

3. © 2011 The McGraw-Hill Companies, Inc. All rights reserved.
Learning Outcomes (Continued)
When you finish this chapter, you will be able to:
1.6 Explain why billing compliance is important.
1.7 Describe the information required on an insurance
claim.
1.8 List the information contained on a remittance
advice.
1.9 Explain the role of patient statements in
reimbursement.
1.10 List the reports created to monitor a practice’s
accounts receivable.
1-3

4. © 2011 The McGraw-Hill Companies, Inc. All rights reserved.
Key Terms
• accounting cycle
• accounts receivable
(A/R)
• adjudication
• capitation
• coding
• coinsurance
• consumer-driven health
plan (CDHP)
• copayment
• deductible
• diagnosis
1-4
• diagnosis code
• documentation
• electronic health records
(EHRs)
• encounter form
• explanation of benefits
(EOB)
• fee-for-service
• health maintenance
organization (HMO)
• health plan
• managed care

5. © 2011 The McGraw-Hill Companies, Inc. All rights reserved.
Key Terms (Continued)
• medical coder
• medical necessity
• medical record
• modifier
• patient information form
• payer
• policyholder
• practice management
program (PMP)
• preferred provider
organization (PPO)
• premium
1-5
• procedure
• procedure code
• remittance advice (RA)
• statement

6. © 2011 The McGraw-Hill Companies, Inc. All rights reserved.
1.1 Step 1: Preregister Patients 1-6
• Patient information gathered via phone or
Internet before visit:
– Name
– Contact information
– Reason for the visit
– Whether patient is new to practice

7. © 2011 The McGraw-Hill Companies, Inc. All rights reserved.
1.2 Step 2: Establish Financial
Responsibility for Visit
1-7
• Many patients have medical insurance, which is
an agreement between a policyholder and a
health plan
• To secure medical insurance, policyholders pay
premiums to payers, which are health plans
such as government plans and private insurance

8. © 2011 The McGraw-Hill Companies, Inc. All rights reserved.
1.2 Step 2: Establish Financial
Responsibility for Visit (Continued)
1-8
• Fee-for-Service Health Plans
– Policyholders are repaid for medical costs
– Requires payment of coinsurance
– Usually a deductible must be paid before benefits
begin
• Managed Care Health Plans
– Managed care organizations control both financing
and delivery of health care
– Have contracts with both patients and providers

9. © 2011 The McGraw-Hill Companies, Inc. All rights reserved.
1.2 Step 2: Establish Financial
Responsibility for Visit (Continued)
1-9
• Types of managed care health plans
– Preferred provider organization (PPO): provider
network for plan members; discounted fees
– Health maintenance organization (HMO): pays
fixed amounts called capitation payments to
contracted providers; patients must pay a small fixed
fee called a copayment per visit
– Consumer-driven health plan (CDHP): combines a
health plan with a high deductible with a
policyholder's savings account

10. © 2011 The McGraw-Hill Companies, Inc. All rights reserved.
1.3 Step 3: Check In Patients 1-10
• Patients complete the patient information form
that contains personal, employment, and
medical insurance information
• Patient identity is verified
• Time-of-service payments due before treatment
are collected

11. © 2011 The McGraw-Hill Companies, Inc. All rights reserved.
1.4 Step 4: Check Out Patients 1-11
• Every time a patient is treated by a health care
provider, a record, known as documentation, is
made of the encounter
• This chronological medical record, or chart,
includes information that the patient provides

12. © 2011 The McGraw-Hill Companies, Inc. All rights reserved.
1.4 Step 4: Check Out Patients
(Continued)
1-12
• Diagnoses and Procedures
– A diagnosis is the physician’s opinion of the nature of
the patient’s illness or injury
– Procedures are the services performed
– Coding is the process of translating a description of a
diagnosis or procedure into a standardized code
• A patient’s diagnosis is communicated to a health plan as a
diagnosis code
• A procedure code stands for a particular service, treatment,
or test
• A modifier is a two-digit character that is appended to a CPT
code to report special circumstances

13. © 2011 The McGraw-Hill Companies, Inc. All rights reserved.
1.4 Step 4: Check Out Patients
(Continued)
1-13
• The diagnosis and procedure codes are
recorded on an encounter form, also known as
a superbill
• A practice management program (PMP) is a
software program that automates the
administrative and financial tasks required to run
a medical practice

14. © 2011 The McGraw-Hill Companies, Inc. All rights reserved.
1.5 Step 5: Review Coding Compliance 1-14
• A physician, medical coder, or medical
insurance specialist assigns codes
• The documented diagnosis and medical
services should be logically connected, so that
the medical necessity of the charges is clear to
the insurance company
– Medical necessity is treatment by a physician for the
purpose of preventing, diagnosing, or treating an
illness, injury, or its symptoms in an appropriate
manner

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1.6 Step 6: Check Billing Compliance 1-15
• Each charge, or fee, for a visit is represented by
a specific procedure code
• The provider’s fees for services are listed on the
medical practice’s fee schedule
• Medical billers use their knowledge to analyze
what can be billed on health care claims

16. © 2011 The McGraw-Hill Companies, Inc. All rights reserved.
1.7 Step 7: Prepare and Transmit Claims 1-16
• Medical practices produce insurance claims to
receive payment
• PMPs generate health care claims for electronic
transmittal

17. © 2011 The McGraw-Hill Companies, Inc. All rights reserved.
1.8 Step 8: Monitor Payer Adjudication 1-17
• When a claim is received by a payer, it is
reviewed following a process known as
adjudication—a series of steps designed to
judge whether it should be paid
• The document explaining the results of the
adjudication process is called a remittance
advice (RA) or explanation of benefits (EOB)

18. © 2011 The McGraw-Hill Companies, Inc. All rights reserved.
1.9 Step 9: Generate Patient Statements 1-18
• A statement lists all services performed, along
with the charges for each service
• Statements list the amount paid by the health
plan and the remaining balance that is the
responsibility of the patient

19. © 2011 The McGraw-Hill Companies, Inc. All rights reserved.
1.10 Step 10: Follow Up Patient
Payments and Handle Collections
1-19
• The accounting cycle is the flow of financial
transactions in a business
• PMPs are used to track accounts receivable
(AR)—monies that are coming into the practice
• PMPs are also used to create day sheets,
monthly reports, and outstanding balances
reports