Glossary of Billing Terms

This glossary has been created to help you better understand terms commonly used in the billing process. Terms are listed alphabetically.


Account number - number the patient's visit (account) is assigned by the hospital for documentation and billing purposes.

Adjustment/contractual adjustment - the portion of the bill that the hospital has agreed not to charge the beneficiary because of billing agreements they have with the beneficiary's insurance company. Also referred to as a discount.

Admitting diagnosis - the medical reason the patient was admitted to the hospital.

Advance Beneficiary Notice (ABN) - a notice the hospital gives the patient before they receive services when Medicare is not expected to pay for some or all of the services. The notice allows the patient to decide whether to have the services since they will be responsible for payment if Medicare denies the charges. ABNs apply to patients with traditional Medicare only. They do not apply to patients with Medicare+Choice coverage.

Advance directive - a written document, such as a living will or durable power of attorney, that expresses how the patient wants medical decisions to be made if they permanently lose the ability to make decisions for themselves.

Ambulatory care - outpatient services.

APC (Ambulatory Payment Classification) - a Medicare system for grouping and classifying similar outpatient services and procedures for purposes of payment.

Appeal - a process by which the patient, their doctor, or the hospital can object to the insurance company's decision not to pay for care.

Applied to deductible - portion of the bill the insurance company requires the beneficiary to pay the hospital. See also deductible.

Assignment of benefits - a process under which insurance pays its share of charges directly to the hospital, doctor, or supplier rather than the beneficiary. See also benefit.

Authorization number - a reference number provided when service has been approved by insurance. Also called a certification number or prior-authorization number. See also pre-admission approval/certification.


Beneficiary - the person who is covered by (i.e., eligible for or receiving benefits from) an insurance policy or plan.

Beneficiary/patient liability - the amount beneficiaries must pay out-of-pocket for medical services, including co-payments, co-insurance, and deductibles. This amount is in addition to the amount paid by insurance

Benefit - the amount insurance pays for medical services.


Centers for Medicare and Medicaid (CMS) - the federal agency that runs the Medicare program and works with states to run the Medicaid program.

Certificate of Coverage (COC) - a description of the benefits included in an insurance company's plan. The certificate of coverage is required by state laws and describes the coverage provided under the contract issued to the employer.

Charity care - Free or reduced-fee care for patients who have financial hardship.

Children's Health Insurance Program (CHIP) - a federal program jointly funded by states and the federal government that provides medical insurance coverage for children not covered by state Medicaid-funded programs.

Claim - the bill the hospital sends to the insurance company on behalf of the patient.

Clinic - an area in a hospital or separate building that treats regularly scheduled or walk-in patients for non-emergency care.

Coding of claims - a process through which diagnoses and procedures from the patient's medical record are translated into numbers (codes). These numbers are then billed to the insurance company so their computers can process the patient's claim for payment.

Co-insurance - a cost-sharing provision of an insurance plan that requires the beneficiary to pay a percentage of the charges out-of-pocket. Beneficiaries may owe co-insurance in addition to a deductible.

Co-insurance days - Medicare coverage from day 61 to day 90 of continuous inpatient hospitalization. The patient is responsible for paying for part of those days. After the 90th day, the patient enters their lifetime reserve days.

Collection agency - a business that contracts with the hospital to collect money from guarantors for unpaid bills.

Consolidated Omnibus Budget Reconciliation Act (COBRA) - a federal law that, among other provisions, requires employers with 20 or more eligible employees to offer continued health insurance coverage under their group plan to terminated employees and their dependents. Typically, COBRA makes continued coverage available for up to 18 or 36 months. COBRA enrollees may be required to pay 100 percent of the premium plus an administrative fee.

Coordination of Benefits (COB) - an agreement that determines which insurance company is primarily responsible for payment when a patient is covered under more than one insurance plan.

Co-pay - a cost-sharing provision of an insurance plan that requires the beneficiary to pay a fixed dollar amount for services out-of-pocket.

Covered days - days of the hospital stay that insurance pays for in full or in part.


Date of service (DOS) - time period during which services were provided.

Deductible -a cost-sharing provision of an insurance plan that requires the beneficiary to pay a specified amount of charges out-of-pocket before insurance begins to cover any care. This amount must typically be paid (met) each year. See also beneficiary/patient liability.

Denial - a decision by insurance not to pay for care the hospital provided to the patient. Insurance may deny part or all of a claim based on a lack of medical necessity or pre-admission approval/certification, terminated coverage, or other reasons. Denied amounts may be charged to the guarantor. See also appeal.

Diagnosis code - a billing code that describes the patient's illness.

Diagnosis-Related Groups (DRGs) - a system of classifying inpatient admissions on the basis of diagnosis for purposes of paying hospitals. The DRG system classifies admissions into groups based on the principal diagnosis, type of surgical procedure, presence or absence of complications, and other relevant indicators.

Duplicate Coverage Inquiry (DCI) - a request by an insurance company to another insurance company to determine whether other coverage exists. See also coordination of benefits.

Durable Medical Equipment (DME) - re-usable medical equipment ordered by a doctor for use at home.


EEG - Equipment or medical procedure that measures electricity in the brain.

EKG/ECG - Equipment or medical procedure that measures how the heart works.

Eligibility verification - a process through which hospitals determine whether the patient has insurance coverage for the services they will provide.

Employee Retirement Income Security Act of 1974 (ERISA) - this law governs self-insured plans and makes them exempt from many state regulations that govern other insurance plans. ERISA mandates financial standards and other requirements for group insurance plans.

Explanation of Benefits (EOB/EOMB) - the statement sent by the insurance company to the beneficiary listing the services rendered, amount billed, and any insurance payments. This statement normally includes any amount due from the beneficiary, such as co-insurance, deductibles, and co-payments.


Fiscal Intermediary (FI) - a private company that contracts with Medicare to process Medicare claims.


Guarantor - the individual who either accepts or is legally obligated to take financial responsibility for the hospital bill. The guarantor may or may not be the patient.


HCFA 1500 - a billing form used by doctors and some hospitals to file insurance claims for medical services.

HCPCS codes - HCFA Common Procedural Coding System. A coding system used to describe outpatient services and equipment provided to the patient. HCPCS codes include CPT codes in addition to other codes.

Health Insurance Portability and Accountability Act (HIPAA) - a federal law that, among other regulations, mandates standards for the security and privacy of patients' health information.

Health Maintenance Organization (HMO) - an insurance plan that pays for services provided by a specific group of participating providers (doctors and hospitals), at least some of who are a risk for the expense of those services.

Home health agency - an agency that provides medical care to patients in their homes.

Hospice - a group that offers inpatient, outpatient, and home health care for terminally ill patients.


Inpatient (IP) - patients who stay overnight in the hospital.

Insured group name - name of the group or insurance plan that insures the patient (usually an employer).

Insured group number - a number the insurance company uses to identify the group under which the beneficiary is insured.

International Classification of Diseases, 9th Edition (Clinical Modification) (ICD-9-CM) - a coding system used to describe the patient's diseases and/or conditions and the procedures performed to treat them.


Lifetime reserve days - under Medicare, a beneficiary has a lifetime reserve of 60 days of inpatient services they can use after they use more than 90 inpatient days in a benefit period. The beneficiary must pay a daily co-insurance for each lifetime reserve day used. As their name implies, lifetime reserve days can only be used once during a beneficiary's life.

Long-term care - care received in a nursing home.


MCARE non-covered drug - see self-administered drug.

Medicaid - a state insurance plan, funded by federal and state resources, for low-income people who have limited or no insurance.

Medically necessary - refers to services or supplies that are required to properly diagnose and/or treat a specific medical condition. Services or supplies that are not deemed medically necessary by insurance may be denied.

Medicare - a federal health insurance program for people age 65 and older. Medicare covers some people under age 65 who have disabilities or end-stage renal disease (ESRD).

Medicare number - a number assigned to every Medicare beneficiary. This number can be found on the beneficiary's Medicare card.

Medicare Part A - usually referred to as hospital insurance, this type of Medicare coverage helps pay for inpatient hospital, home health, hospice, and skilled nursing facility services.

Medicare Part B - this type of Medicare coverage helps pay for physician services, medical supplies, and other outpatient services not paid for by Medicare Part A.

Medicare Summary Notice (MSN) - also called an Explanation of Medicare Benefits (EOMB). See explanation of benefits.

Medicare+Choice - an alternative to traditional Medicare insurance in the form of a Medicare managed care plan or a Medicare-approved fee-for-service plan offered by a private company.

Medigap insurance - additional insurance purchased by Medicare beneficiaries to cover co-payments, co-insurance,deductibles, and services not paid for by Medicare Part A or B. Also known as Medicare supplement insurance.


Network - a group of doctors, hospitals, and other health care providers that have an agreement with an insurance plan to provide services to its beneficiaries.

Non-covered charges - charges for services denied or excluded by insurance. The beneficiary may be billed for these charges. Also called not covered amount.

Non-participating provider (non-par) - a doctor, hospital, or other health care provider that is not part of an insurance plan's network. Also known as out-of-network provider.


Observation - type of service used by doctors and hospitals to decide whether the patient needs inpatient hospital care or whether they can recover at home or in an outpatient area. Observation is usually charged by the hour and may include an overnight hospital stay.

Out of Network (OON) services - services obtained from a non-participating provider. Typically, coverage requires payment of a higher deductible, co-payment, and/or co-insurance than for services from a participating provider.

Out-of-Pocket (OOP) - the portion of payments for services due from the beneficiary, including co-payments, co-insurance, and deductible.

Outpatient (OP) - a patient who does not need to stay overnight in a hospital. Outpatient services include lab tests, X-rays, and some surgeries.

Over-the-Counter (OTC) drug - drugs that do not require a prescription and are purchased at a pharmacy or drug store.


Participating provider - a doctor, hospital, or other health care provider that is part of an insurance plan's network. As such, they agree to accept insurance payment for covered services as payment in full, minus any applicable beneficiary/patient liability.

Patient type - a classification of patients based on the type of services they receive from the hospital, such as outpatient, inpatient, observation, etc.

Per diem - per day. Usually describes charge or payment methods based on a set rate per day of care.

Point-of-Service (POS) plan - an insurance plan that allows the beneficiary to choose doctors and hospitals without having to first get a referral from their primary care doctor. These plans frequently have different benefit levels associated with the use of preferred providers.

Policy number - a number that the insurance company assigns the beneficiary to identify the contract through which they are eligible for coverage.

Pre-admission approval/certification - an agreement by insurance to pay for medical services. Doctors and hospitals ask the insurance company for this approval before providing services. Failure to obtain this approval often results in a penalty to the beneficiary since the resulting services may be deemed non-covered by insurance.

Pre-existing condition - any medical condition that has been diagnosed or treated within a specified period immediately preceding the beneficiary's effective date of coverage. Pre-existing conditions may not be covered for a specified time period as defined in the insurance company's certificate of coverage.

Preferred Provider Organization (PPO) - an insurance plan that establishes contracts with providers of medical care for discounted charges. Providers under such contracts are referred to as a preferred provider. Usually, the plan provides significantly better benefits and lower costs to the beneficiary for services received from preferred providers.

Premium - the amount paid, often in monthly installments, for an insurance policy.

Prepayment - money paid before receiving medical care.

Primary Care Physician (PCP) - a doctor whose practice is devoted to internal medicine, family/general practice, pediatrics, or obstetrics/gynecology.

Primary insurance - the insurance responsible for paying the claim first. If a patient is covered by other insurance, it is referred to as the secondary insurance. See also coordination of benefits.

Private room and board - a hospital room furnished for and occupied by only one patient. These rooms may be more expensive than semi-private rooms that are furnished for and/or occupied by two patients. The beneficiary may have to pay the price difference for a private room out-of-pocket if the room is not medical necessary.

Procedure/CPT code - a coding system used to describe outpatient services provided to the patient.

Psychiatric/psychological treatments - nursing care and other services for emotionally disturbed patients, including patients admitted for inpatient care and those admitted for outpatient services.


Referral - approval needed for care beyond that provided by a primary care physician or hospital. For example, HMOs usually require referrals from a primary care physician to see specialists.

Release of information - A signed statement from patients or guarantors that allows doctors and hospitals to release medical information so that insurance companies can pay claims. See also coding of claims.

Revenue code - a billing code used to classify charges based on the type of service, supply, or procedure provided.


Same-day surgery - outpatient surgery.

Secondary insurance - extra insurance that may pay some charges not paid by primary insurance. Whether payment is made depends on the beneficiary's insurance benefits, coverage, and coordination of benefits.

Self-administered drug - For patients that are not admitted as an inpatient, these are drugs that do not require doctors or nurses to help the patient take them. Since Medicare will not pay for these drugs when they are taken in the hospital on an outpatient basis-even if a doctor or nurse helps them take the drugs-patients are charged for them. Self-administered drugs may include ointments, inhalers, insulin, or any other medicine the patient may normally take at home.

Self-insured plan - an insurance plan where financial risk for medical expenses is assumed by the group (usually an employer) rather than an insurance company. Self-insured plans are often administered by TPAs. Also known as self-funded plan.

Skilled Nursing Facility (SNF) - a facility, either free-standing or part of a hospital, that accepts patients seeking rehabilitation and medical care that is less intense than that received in a hospital.

Source of admission - the way a patient was admitted to the hospital, such as from a physician referral, a transfer from another hospital, an emergency room visit, etc.

Specialist - a doctor who specializes in treating certain body parts, specific medical conditions, or certain age groups. For example, cardiologists only treat patients with heart problems.

Sub-acute care - a comprehensive inpatient program for patients with a serious illness, injury, or disease who do not require intensive (acute care) hospital services. A range of services may be considered sub-acute, including infusion therapy, respiratory care, cardiac services, wound care, and rehabilitation services.

Swing bed - bed for a patient who receives skilled nursing care in a non-skilled nursing facility.


Third Party Administrator (TPA) - an independent company (third party) that administers group benefits, processes claims, and performs other administrative tasks for a self-insured company or group but does not assume any financial risk for the insurance plan's performance.

TRICARE - Insurance for active and retired military personnel, their families, and other dependents. Formerly known as CHAMPUS.


UB-92 - a billing form used by hospitals to file insurance claims for medical services.

Units of service - measure of quantity for medical services, such as the number of hospital days, pints of blood, etc.

Usual, Customary, or Reasonable (UCR) - the amount insurers believe to be the common or prevailing charges for services provided in a region or community.

Utilization Review (UR) - a formal assessment (or the hospital staff who conduct the assessment) of the medical necessity, efficiency and/or appropriateness of services and treatment plans for a patient on a prospective, concurrent, or retrospective basis.