This medical billing glossary defines 70 terms US practices use every day, from the codes on an 835 remittance to the metrics that show whether the revenue cycle is working. Each entry runs one or two sentences, grouped by the part of the claim it touches, with the terms people mix up explained side by side.
How to use this medical billing glossary
A glossary is useful only when its definitions match the ones the payer is using. Every entry here was checked against a primary or authoritative source: the CMS glossary and CMS billing pages, the X12 code lists for remittance wording, the Code of Federal Regulations for filing and enrollment rules, and the HFMA MAP Keys for revenue cycle metrics.
Terms are grouped by where they appear in the life of a claim. One table covers the claim and its codes, another covers the 835 remittance, and a third handles the pairs that get confused, such as CARC and RARC or a denial and a rejection. The remaining tables cover metrics, patient responsibility, enrollment and audit work.
Where a term has a regulatory or standards definition, that wording is used here. Where sources disagree on a benchmark, this glossary gives the range and names the source instead of choosing one number.
Claims, coding and the words on the form
A claim is a coded request for payment. Three separate code systems feed it, and a payer reads them together. The diagnosis establishes why the service was necessary, the procedure states what was done, and any supply or drug code covers what was used. Coding and billing are two jobs in one cycle, and medical coding is the translation step that makes the rest possible.
| Term | What it means | Why it matters |
|---|---|---|
| Claim | A request for payment a provider sends a payer for services furnished to a patient. | The unit every denial, metric and appeal is built on. |
| Clean claim | A claim that passes every edit with no manual intervention, so the payer can adjudicate it on the first pass. | It is the numerator of clean claim rate. |
| CMS-1500 | The uniform paper form for professional claims, the physician and outpatient twin of the electronic 837P. | Procedure, modifier and diagnosis data sit in the service lines. |
| UB-04 | The uniform paper form for institutional claims from hospitals, skilled nursing facilities and home health. | Revenue codes and the type of bill live here. |
| CPT | Current Procedural Terminology, the AMA-owned code set for the service or procedure performed, updated each January 1. | The code a fee schedule is priced against. |
| ICD-10-CM | The diagnosis code set maintained by CMS and the CDC, updated each October 1. | It states why the service was medically necessary. |
| HCPCS Level II | CMS-maintained codes for drugs, supplies and equipment that CPT does not cover, such as J-codes for injectables. | Missing one holds up the whole claim. |
| Modifier | A two-character suffix on a procedure code that reports a circumstance changing how the service should be paid. | It is the difference between a paid claim and a bundling denial. |
| Place of service (POS) | A two-digit CMS code stating the setting where the service was furnished, such as 11 for an office or 21 for an inpatient hospital. | The wrong setting can change the allowed amount. |
| Evaluation and management (E/M) | The CPT category for office and hospital visits, coded by level of medical decision making or by time. | These are the most audited codes in a physician practice. |
| Medical necessity | Whether a service is reasonable and necessary to diagnose or treat illness. | It is the standard behind every coverage denial. |
| National Coverage Determination (NCD) | A CMS coverage rule that applies nationwide. | It binds every Medicare contractor. |
| Local Coverage Determination (LCD) | A coverage rule a Medicare Administrative Contractor sets for its own jurisdiction. | A service covered in one state may be denied in another. |
| National Correct Coding Initiative (NCCI) | The CMS program whose procedure-to-procedure edits name code pairs that should not be reported together. | It is the source of most bundling denials. |
| Medically Unlikely Edit (MUE) | An NCCI units-of-service edit capping how many units of a code are plausibly correct on one date. | It catches unit errors before payment. |
| Charge capture | The process of recording every billable service and supply so it reaches the claim. | Revenue that never gets captured cannot be billed. |
If the provider did not document it, the coder cannot code it. That single rule explains a large share of medical necessity denials, because the payer reads the claim, not the chart.
Reading an 835: group codes, CARC and RARC
Every adjustment on an 835 carries a group code that assigns financial responsibility, a CARC that gives the reason, and often a RARC that adds the detail. The group code decides whether the money is written off or billed to the patient, so it is the first thing to read.
| Group code | Official name | Who absorbs the amount |
|---|---|---|
| CO | Contractual Obligation | The provider. It is a write-off and cannot be billed to the patient. |
| PR | Patient Responsibility | The patient. Deductible, coinsurance or copayment. |
| OA | Other Adjustment | Neither party. Used when no other group applies. |
| PI | Payor Initiated Reduction | The payer, under its own policy rather than the contract. |
The group code and the reason code are separate decisions. X12 defines the number; the payer applies the prefix when the claim adjudicates. The same reason can therefore arrive as CO on one remittance and PR on another.
Denial work starts when the remittance posts, so denial management is a workflow and a calendar, not a monthly report.
| Term | What it means | Why it matters |
|---|---|---|
| 835 | The X12 transaction a payer sends to explain how each claim and line was paid, adjusted or denied. | It is the electronic remittance advice that drives posting. |
| Electronic remittance advice (ERA) | The 835 in electronic form, posted into the billing system without manual keying. | Faster posting and fewer transposition errors. |
| Explanation of benefits (EOB) | The member-facing notice a plan sends the patient showing what was billed, allowed, paid and left to the patient. | Patients call about the EOB, not the 835. |
| Electronic funds transfer (EFT) | The bank deposit carrying the money the 835 describes. | The trace number ties the deposit to the remittance. |
| Claim Adjustment Reason Code (CARC) | The X12 code giving the high-level reason a line or claim was adjusted or denied. | It is the code you work first. |
| Remittance Advice Remark Code (RARC) | The X12 code that adds detail a CARC cannot carry, or conveys processing information as an alert. | It often names the exact field to fix. |
| Denial | A payer adjudicated the claim and made a negative payment decision. | It produces a CARC and, usually, an appeal right. |
| Rejection | The claim never reached adjudication because a clearinghouse or payer edit caught a format or data problem. | Correct it and resubmit; there is nothing to appeal. |
| Downcoding | A payer pays a lower-level or lower-paying code than was billed without changing the service. | It is a silent revenue loss that rarely shows as a denial. |
| Underpayment | A payer paid less than the contracted or allowed amount for the service billed. | Detecting it needs the contract loaded into the system. |
Terms that get confused, and the difference
These pairs cause more billing errors than any others, because the words sound interchangeable and the work they require is not. Each row states the distinction that changes what your team does next.
| The pair | What separates them | What it changes |
|---|---|---|
| CARC vs RARC | A CARC states the reason for the financial adjustment and is worked first; a RARC adds detail or carries a processing alert. | Read both before touching the claim. |
| Denial vs rejection | A rejection fails before adjudication; a denial is a decision made after it. | A rejection is corrected and resubmitted; a denial is appealed. |
| Clean claim rate vs first-pass acceptance | Clean claim rate counts claims clearing all edits with no human touch; first-pass acceptance counts claims the payer actually paid on first submission. | The gap between them is where revenue leaks. |
| Days in A/R vs A/R aging | Days in A/R rolls the whole receivable into one number; A/R aging splits it into buckets by age. | A healthy average can hide an aged tail. |
| Credentialing vs payer enrollment | Credentialing verifies that a clinician is qualified; payer enrollment adds them to a payer under a tax ID and contract. | A credentialed clinician can still be unable to bill. |
| Revalidation vs recredentialing | Revalidation is a government payer re-confirming an enrollment record, generally every five years; recredentialing is a commercial plan re-verifying a provider, commonly every three years. | They run on separate clocks with separate deadlines. |
| Deductible vs coinsurance vs copayment | A deductible is paid before the plan pays; coinsurance is a percentage of the allowed amount; a copayment is a flat amount per service. | They stack in that order on the patient statement. |
| Allowed amount vs billed charge | The billed charge is what the practice asked for; the allowed amount is the most the plan will pay. | On a contracted claim the difference is a write-off. |
| Hard denial vs soft denial | A hard denial is a final refusal needing an appeal; a soft denial asks for more information before the payer decides. | A soft denial is fixed with documentation, not an appeal. |
| Coordination of benefits vs Medicare Secondary Payer | COB is the general rule deciding which plan pays first; MSP is the Medicare version of that rule. | Both are answered before the claim goes out. |
Revenue cycle metrics, formulas and benchmarks
A metric is comparable only when its formula is fixed. Two practices can both report a 95% clean claim rate while measuring different things, one at the clearinghouse and one at the payer. The formula in the middle column is the one to hold constant. For a closer look at the first metric, see the days in A/R benchmark.
| Metric | How it is calculated | Benchmark or reading |
|---|---|---|
| Days in A/R | Total accounts receivable divided by average daily charges, usually over a trailing 90 days. | 30 to 40 days is the common target; above 50 signals a problem. |
| A/R aging | The share of the receivable balance in each age bucket, commonly 0 to 30, 31 to 60, 61 to 90 and 90 plus days. | Keep the over-90 bucket below about 10% of total A/R. |
| Clean claim rate | Claims that pass all edits with no manual intervention divided by total claims submitted. | Commonly cited target is 95% or higher; HFMA defines the metric, not the threshold. |
| First-pass acceptance rate | Claims paid on first submission divided by total claims submitted. | About 90% or higher is healthy. |
| Denial rate | Denied claims divided by total claims submitted. | Under 5% is strong; 10% or more is high. |
| Net collection rate | Payments received divided by allowed charges after contractual adjustments. | 95% is the floor; 97% to 99% is optimal. |
| Gross collection rate | Payments received divided by gross charges billed. | Useful only against a stable fee schedule. |
| Charge lag | Days between the date of service and the date the charge is entered. | Every day of lag adds a day to A/R. |
| Cost to collect | Total revenue cycle cost divided by total cash collected. | It climbs when denials and rework climb. |
| Bad debt | Uncollectible patient balances written off after collection efforts. | Keep it under about 3% of net patient service revenue. |
Eligibility, benefits and patient responsibility
Patient responsibility is a defined number, not a guess. It is built from the allowed amount, the deductible, the coinsurance and the copayment, and it moves when any of them moves. Most eligibility problems are caught by eligibility verification run before the visit, not after the first denial.
| Term | What it means | Why it matters |
|---|---|---|
| Eligibility verification | Confirming coverage is active on the date of service and what it covers, often through a 270/271 exchange. | It prevents the cheapest denials to avoid. |
| 270/271 | The X12 eligibility inquiry and the payer response listing coverage status, benefits, copays and accumulators. | It answers membership, not whether a service is covered. |
| Prior authorization | A payer’s advance approval that a specific service is covered before it is furnished. | Missing it is a leading cause of denials. |
| Referral | A plan requirement that a primary care provider authorize a specialist visit before it happens. | It is separate from prior authorization. |
| Allowed amount | The maximum a plan will pay for a covered service. | The patient’s cost sharing is built on it. |
| Contractual adjustment | The difference between the billed charge and the allowed amount on a contracted claim. | It is a write-off, not a denial to appeal. |
| Balance billing | Billing a patient for the gap between the charge and the allowed amount. | A contracted provider generally cannot do it. |
| Coordination of benefits (COB) | The rules that decide which plan pays first when a patient has more than one. | The wrong order sends the claim back unpaid. |
| Medicare Secondary Payer (MSP) | The rule that makes Medicare the secondary payer when another plan or program pays first. | It governs Medicare claims with other coverage. |
| Advance Beneficiary Notice (ABN) | The CMS-R-131 notice given to an Original Medicare patient before a service Medicare is expected to deny. | Without a valid ABN the practice absorbs the loss. |
Enrollment, credentialing and payer setup
A clinician can be fully credentialed and still unable to bill a payer. Credentialing verifies qualifications; enrollment adds the clinician to a specific payer under a tax ID and contract. The two run on different tracks with different deadlines, so medical credentialing is a calendar, not a form.
| Term | What it means | Why it matters |
|---|---|---|
| Credentialing | The verification a health plan runs before it lets a clinician treat its members, covering licensure, education, board status and sanctions history. | A credentialed clinician still may not be able to bill. |
| Payer enrollment | Adding a credentialed clinician to a payer’s network under a tax ID and group, with a participating agreement. | Enrollment is per payer and per contract. |
| Revalidation | A government payer’s periodic re-confirmation of an existing enrollment record. | Medicare requires it every five years under 42 CFR 424.515. |
| Recredentialing | A commercial plan re-verifying a provider it already credentialed. | It commonly runs on a three-year cycle. |
| CAQH | The shared provider data profile payers pull from during credentialing. | A current profile is not the same as being enrolled. |
| PECOS | The CMS system where Medicare enrollment, revalidation and reassignment are transacted. | It is the record Medicare pays against. |
| National Provider Identifier (NPI) | The 10-digit identifier every HIPAA-covered provider uses. | Type 1 is an individual; Type 2 is an organization. |
| Tax identification number (TIN) | The number a claim is billed under, an employer ID or a Social Security number. | It must match the payer enrollment record. |
| Taxonomy code | The code stating a provider’s specialty and classification. | A mismatch causes enrollment and claim edits. |
| Fee schedule | The list of allowed amounts a payer will pay for each code under the contract. | It is the number underwriting every allowed amount. |
| Effective date | The date a provider may begin billing a payer. | It is often earlier than the approval date. |
Audits, appeals and compliance terms
Medicare appeals run through five levels, each with its own reviewer and deadline, and two of them carry a dollar threshold. Audit work runs in parallel, from education-focused reviews to post-payment recovery. Miss a documentation deadline and a reviewable claim becomes a denial.
| Term | What it means | Why it matters |
|---|---|---|
| Timely filing | The deadline to get a claim to the payer. | Medicare allows one calendar year from the date of service under 42 CFR 424.44. |
| Redetermination | The first level of a Medicare appeal, reviewed by the Medicare Administrative Contractor that processed the claim. | There is no dollar threshold at this level. |
| Reconsideration | The second Medicare appeal level, handled by an independent Qualified Independent Contractor. | It is the last easy chance to add evidence. |
| Administrative Law Judge (ALJ) hearing | The third Medicare appeal level, at the Office of Medicare Hearings and Appeals. | A minimum amount in controversy applies. |
| Medicare Appeals Council | The fourth level, part of the HHS Departmental Appeals Board. | It reviews the record rather than rehearing the case. |
| Judicial review | The fifth and final level, a federal district court action. | A higher amount in controversy applies. |
| Recovery Audit Contractor (RAC) | A contingency-fee contractor that reviews paid claims for improper payments, both overpayments and underpayments. | Its work is post-payment. |
| Targeted Probe and Educate (TPE) | A MAC review pairing a sample of claims with one-on-one education across limited rounds. | Repeated errors escalate to further review. |
| Additional Documentation Request (ADR) | A contractor’s request for the records supporting a claim. | No response by the deadline means a denial. |
| Overpayment | A payment a provider was not entitled to keep. | Medicare expects it returned. |
| Recoupment | Recovery of an overpayment by withholding it from future payments. | It shows up as a provider-level adjustment. |
| Extrapolation | Applying a sample error rate across a larger population of claims to calculate a recovery. | One bad sample can multiply into a large demand. |
| Protected health information (PHI) | Individually identifiable health information protected under HIPAA. | Every claim and remittance contains it. |
Questions practices ask us about this
What is the difference between a CARC and a RARC?
A CARC, or claim adjustment reason code, states the high-level reason a claim or line was adjusted or denied, and it is the code you work first. A RARC, or remittance advice remark code, adds the specific detail a CARC cannot carry, or conveys processing information as an alert. Read both before you touch the claim, because the remark code often names the exact field to fix.
Is a denied claim the same as a rejected claim?
No. A rejected claim failed before adjudication, usually because a clearinghouse or payer edit caught a format or data problem, so it was never considered for payment. A denied claim was processed and then refused on a coverage, coding or authorization ground. A rejection is corrected and resubmitted as a new claim. A denial is appealed as a decision.
What does clean claim rate actually measure?
Clean claim rate is the share of claims that pass all edits with no manual intervention, divided by total claims submitted. The HFMA MAP Keys define it that way, and 95% is the target. It is not the same as first-pass acceptance, which measures claims the payer actually paid on first submission. A claim can be clean and still be denied downstream for a coverage reason no edit catches.
How is days in A/R different from A/R aging?
Days in A/R is one number: total accounts receivable divided by average daily charges, usually over a trailing 90 days. A/R aging splits that same balance into buckets by age, such as 0 to 30, 31 to 60, 61 to 90 and over 90 days. The average can look healthy while a large aged tail sits unworked, so the two are read together.
What is the difference between credentialing and payer enrollment?
Credentialing is the verification a health plan runs before it lets a clinician treat its members, covering licensure, education, board status and sanctions history. Payer enrollment adds that credentialed clinician to a specific payer under a tax identification number and group, with a participating agreement. A clinician can be fully credentialed and still unable to bill until enrollment is complete.
How long does a practice have to file a Medicare claim?
One calendar year from the date of service, under 42 CFR 424.44. The claim must reach the correct Medicare Administrative Contractor inside that window; Medicare counts the receipt date, not the date you submitted or the postmark. A claim denied for late filing is not an initial determination, so it has no appeal rights. Only a reopening request can help, and only when a listed exception applies.
What is an allowed amount in medical billing?
The allowed amount is the maximum a plan will pay for a covered service. It is almost always lower than the practice’s billed charge. On a contracted claim the difference between the charge and the allowed amount is a contractual adjustment, written off rather than billed to the patient. The patient’s deductible, coinsurance and copayment are all calculated from the allowed amount.
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Book a free billing review- CMS, Glossary of terms and acronyms. cms.gov/glossary
- CMS, Health insurance terms you should know (allowed amount, balance billing, EOB). cms.gov/medical-bill-rights/help/guides/health-insurance-terms
- CMS, Health Care Payment and Remittance Advice (group codes, CARC, RARC, ERA, EFT). cms.gov/medicare/coding-billing/electronic-billing/health-care-payment-remittance-advice
- X12, Claim Adjustment Reason Codes (current list). x12.org/codes/claim-adjustment-reason-codes
- X12, Remittance Advice Remark Codes (current list). x12.org/codes/remittance-advice-remark-codes
- eCFR, 42 CFR 424.44, Time limits for filing claims. ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-424/subpart-D/section-424.44
- eCFR, 42 CFR 424.515, Periodic revalidation of Medicare enrollment information. ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-424/subpart-P/section-424.515
- CMS, National Correct Coding Initiative (NCCI). cms.gov/national-correct-coding-initiative-ncci
- HFMA, MAP Keys (clean claim rate and revenue cycle KPI definitions). hfma.org/data-and-insights/map-initiative/map-keys
- CMS, Place of Service Codes. cms.gov/medicare/coding-billing/place-of-service-codes
- CMS, Coordination of Benefits. cms.gov/medicare/coordination-benefits-recovery/overview/coordination-benefits
- CMS, Medicare Secondary Payer. cms.gov/medicare/coordination-benefits-recovery/overview/secondary-payer
- CMS, Advance Beneficiary Notice of Noncoverage (ABN), form CMS-R-131. cms.gov/medicare/forms-notices/beneficiary-notices-initiative/ffs-abn
- CMS, First level appeal: redetermination by a Medicare contractor. cms.gov/medicare/appeals-grievances/fee-for-service/first-level-appeal-redetermination-medicare-contractor
- CMS, National Provider Identifier (NPI) overview. cms.gov/priorities/key-initiatives/burden-reduction/administrative-simplification/unique-identifiers/npis
- AAPC, Understand the difference between claim denials versus rejection. aapc.com/codes/coding-newsletters/my-cardiology-coding-alert/reader-questions-understand-difference-between-claim-denials-versus-rejection-175069-article
