Lesson 2

Introduction to
Medical
Medical Terminology:
Insurance 101
Word Parts

 Step 1 Learning Objectives for Lesson 2

‰‰ When you have completed the instruction in this lesson, you will be trained to do
the following:
³³ Define medical billing terms common to the healthcare profession.

³³ Discuss the importance of preauthorization.

³³ Describe the resources used by a medical coding and billing specialist.

³³ Explain what a medical bill is and how it is used for reimbursement.

³³ Discuss the importance of being accurate and thorough.

Step 2 Lesson Preview

‰‰ Liz is a receptionist for Dr. Grant. She is great at making appointments
and keeping track of patients. Yesterday, Dr. Grant’s coding and
billing specialist was out sick, and the doctor asked Liz to check on
some information for him. He asked her to verify the diagnosis and
procedure codes in a patient’s medical record. Then he asked if any of
the patients had paid their copayments and if their deductibles had
been met yet.

While the doctor was speaking English, this all sounded like another
language. Liz didn’t have a clue about any of the items Dr. Grant
had asked about. Finally, she gave up and asked Dr. Grant to wait
until the next day when the coding and billing specialist returned.
Medical coding and
In this lesson, we’ll study the language of the insurance world. You
billing specialists may
will find out about the reimbursement process and different types of
verify codes from a
reimbursement methods. Then we’ll briefly discuss preauthorization.
patient’s medical record.
Next, we’ll examine some of the resources used by the medical coding
and billing specialist. After explaining the basics of diagnostic and
procedural coding, we’ll discuss the life cycle of a medical bill and the
importance of accuracy. So let’s get started!

0205502LB01A-02-13
Medical Coding and Billing Specialist

Step 3 Insurance Terminology

‰‰ Insurance refers to a contract between an
insurance company, also called the carrier or
insurer, and an individual or group, which is
also call the insured. Medical insurance,
also called health insurance or health
coverage, is a contract between an insurance
company or carrier and the insured for medical
benefits. This contract, or policy, states that
in the case of certain injuries or illnesses, the
insurance carrier will pay some or all of the
medical bills of the insured. In exchange for
this coverage, the insurance carrier collects Insurance is a contract between an
payments from the insured. These payments insurance company and the insured.
are called premiums. Premiums are paid in
advance, either monthly, quarterly, semi-annually or annually, depending on the
contract between the carrier and the insured. When an insurance carrier pays for
medical treatment based on a policy, it is paying benefits.

The insurance carrier collects premiums from many people and only has to pay
benefits to relatively few. That is how insurance companies make money and are
able to provide services. Every insurance company requires an itemized list of
diagnoses, procedures, pharmaceuticals and other materials before it pays benefits.
Every procedure has its own code, and insurance companies use these codes to
help determine benefits. Different insurance companies and plans all have their
own forms and specific requirements. This is where you, as a medical coding and
billing specialist, enter the picture. When you’ve completed this course, you can code
and prepare claims for providers in the form necessary to meet the standards of
insurance companies and government agencies.

Medical providers offer their services in return for payment. Reimbursement

is a healthcare term that refers to the compensation or repayment for healthcare
services. Reimbursement is the process of paying a provider back for services he
already performed or provided. In health care, patients may walk out of a clinic
without paying a large portion of the medical bill. Providers must seek to be paid
back for the services that they have already provided,
which is the reimbursement process. There is a
hierarchy to this process.

The first-party payer is the patient, or the person

responsible for the person’s health bill. In some cases,
this may be a guarantor. A guarantor is someone
who is responsible for an account because the patient
is, for example, a minor. The guarantor is liable for
any amounts that have not been paid to the provider, A guarantor is responsible
whether the insurance company makes partial payment for the account because the
or declines to pay. patient is a minor.

2-2 0205502LB01A-02-13
 Medical Insurance 101

The second-party payer is the physician, clinic or hospital. This group is often known
as the providers because they provide the health care. An organization other than
the patient (first-party) or healthcare provider (second-party) involved in the financing
of personal health services is known as the third-party payer. Therefore, when you
submit a claim to an insurance company for payment on a service, you are billing a
third-party payer.

Before moving on, let’s review some common, related terms used in medical insurance.

Claim Form
The claim form is the document that is completed and submitted to an insurance
carrier to request reimbursement for services rendered. The most common insurance
forms are the CMS-1500 and the UB-04. We’ll look at the history and format of these
forms later in this lesson.

Allowable Charge
The allowable charge is the maximum amount an insurance carrier will pay for a
specific service.

Deductible
The amount of money an individual must pay before insurance benefits begin is
called the deductible. Usually a policy will not pay the first $250, $500 or $1,000
of medical charges and then will pay a percentage of everything above that amount
every year.

Any amount that is “applied to deductible” is an allowable charge that is subtracted

from the total deductible amount. The insurance carrier does not pay any money on
“applied to deductible” charges.

For example, imagine that Toby has a medical policy that has a $250 deductible and,
after the deductible is paid, 80 percent coverage. So far this year, Toby has spent
$200 of his own money on medical care, and that medical care has been defined
as covered under his insurance policy. For the insurance company to begin to pay
80 percent of Toby’s covered medical care costs, he must still pay out $50 more for
covered charges. After he has met the $250 deductible, Toby’s medical insurance
benefits will begin, and the carrier will pay 80 percent of each claim submitted for
covered charges for the rest of the year.

0205502LB01A-02-13 2-3
Medical Coding and Billing Specialist

Copayment
A copayment is a flat amount of money paid by the patient. Many policies have
a copayment for prescription drugs or office visits to a doctor. That means every
time a person has a prescription filled or visits the doctor, it costs her no more
than her copayment; however, she must pay that copayment every time she has a
prescription filled or goes to the doctor. Some policies require copayments even after
the deductible has been met. Other policies have no deductible, but a copayment is
required every time any type of medical care is received. Copayments are usually
paid immediately at the time of service.

Now that you have a better understanding of these insurance terms, let’s turn our
attention to preauthorization.

Explanation of Benefits
After you have submitted a claim to an insurance carrier and it is processed, the
physician will receive an explanation of benefits (EOB). The EOB may include
payment for one patient or several patients. Always check each patient’s name,
dates of service, procedures billed for and the amounts billed, the amount allowed,
deductibles, copayment amounts and the amount paid on each individual claim.

The physician bills the patient for amounts applied to the patient’s deductible, any
copayment amounts and noncovered procedures, depending on the contract. Often,
a service benefit contract stipulates a maximum charge per service. The insurance
company will disallow the difference if a doctor submits a claim for an amount that
exceeds that maximum charge.

2-4 0205502LB01A-02-13
 Medical Insurance 101

EXPLANATION OF BENEFITS

THIS IS NOT A BILL

BLUE CROSS OF COLORADO

Date: 04/10/XX If you have any questions regarding this

notice, please write or call our Customer
Service Department at:
Policy: STEEL RECYCLING
MEMBER SERVICE
P.O. BOX 1234
ANYTOWN, CO 80000
(612) 936-1234 OR 1-800-936-1234
TDD (612) 936-1234 OR 1-800-936-1234

STEVE MAC
1823 KERRY COURT
YOURTOWN, CO 80000

Patient: FRAN MAC

Number: 605000508

Explanation of Payments:
Total
Provider/Type of Date of Service Billed Disallowed Copay/ Reimbursement
Claim Number Service From – Through Charges Amount Deductible CoIns Amount
Douglas Smart MD* *
66355912 99212 0317XX-0317XX 50.00 6.48 9 20.00 23.52
66355912 84550 0317XX-0317XX 33.00 9.00 9 24.00
Totals 83.00 15.48 20.00 47.52

Payment has been made to: Amount Deductible and out of pocket expenses for
03/17/XX-03/17/XX
Copayment $20.00
Non-covered amount $15.48

Front Range Family Care 47.52 Total Patient Responsibility $20.00

* Message 9: This amount is above the maximum allowable reimbursement for this procedure.

Sample EOB for Fran Mac. Notice that the insurance company disallowed $15.48.

0205502LB01A-02-13 2-5
Medical Coding and Billing Specialist

Step 4 Preauthorization
‰‰ John has to go into the hospital. He knows it. His doctor knows it. According to his
insurance policy, John must make sure his insurance company knows it as well. If he
doesn’t notify his insurance company before he enters the hospital, the company will
reduce or deny his benefits. In addition to hospitalization, many insurance companies
require notification before surgery or certain tests are performed. This process of
notifying an insurance company before hospitalization, surgery or tests is called
preauthorization. The insured must call the insurance company (or the company’s
designated agent, which is sometimes a third-party oversight company) and explain
what is planned and why. A third-party oversight company might be contracted with
the insurance company to review all hospitalizations and surgeries and certain other
tests and procedures to make sure these procedures are medically necessary.

The preauthorization requirement helps reduce

fraud by enabling the insurance company to review
a patient’s case history before major costs occur.
Usually the insurance company approves the
procedures, but the company might call the doctor
handling the case to discuss the procedures.

The insurance company might extend or reduce

the proposed hospital stay. For example, if
John’s doctor wanted him to stay in the hospital
for four days after knee surgery, the insurance
company might only authorize three days. This
authorization is based on an average stay for that The preauthorization allows the insurance
particular procedure. If no complications from company to review a patient’s case history
the surgery arise and John stays four days, the before major costs occur.
insurance company would pay for only three days.
John becomes responsible for the fourth.

In many cases, preauthorization is required even in the event of an emergency.

When a patient is admitted to a hospital because of an accident or other emergency,
the insurance company requires someone to notify the insurance company within 24
hours of hospitalization. Although the insurance company may deny a claim because
preauthorization was not received, usually the company simply reduces the amount
it will pay for that claim.

Visitation Limits
In this case, visitation limits doesn’t refer to how many visitors a patient can have.
It refers to the visits to a specialist. Visitation limits set the number of visits to
specialists that a patient may make, or the number of special treatments a patient may
have, such as five physical therapy sessions. Insurance companies set visitation limits.

Now that you’re aware of the lingo of the medical coding and billing field, let’s apply
what you’ve learned in the following Practice Exercise.

2-6 0205502LB01A-02-13
 Medical Insurance 101

 Step 5 Practice Exercise 2-1

‰‰ Select the best answer from the choices provided.

1. _____ is a contract between an individual or group and an insurance company.

a. Insurance
b. Coverage
c. Deductible
d. A premium

2. The payments from the insured person or group that are collected by
the carrier are known as _____.
a. deductibles
b. schedules of benefits
c. premiums
d. benefits

3. The second-party payer is the _____.

a. patient
b. guarantor
c. physician
d. insurance

4. The amount of money an individual must pay before insurance benefits

begin is called the _____.
a. deductible
b. copayment
c. premium
d. benefits

5. The process of notifying an insurance company before hospitalization,

surgery or tests is called ______.
a. preadmission screening
b. preauthorization
c. postoperative notification
d. preoperative testing notice

0205502LB01A-02-13 2-7
Medical Coding and Billing Specialist

³³Step 6 Review Practice Exercise 2-1

‰‰ Check your answers with the Answer Key at the back of this book. Correct any
mistakes you may have made.

Step 7 Tools of the Trade

‰‰ There are many resources available to help you succeed as a medical coding and
billing specialist. Now, discuss the forms you’ll use in billing and the manuals you’ll
use to obtain the accurate codes.

2-8 0205502LB01A-02-13
 Medical Insurance 101

CMS-1500
The CMS-1500 is the standard claim form used to request payment for services
rendered by the healthcare provider, usually used by physician offices and
government programs. The National Uniform Claim Committee (NUCC) is
responsible for the design and maintenance of the CMS-1500 form.
CMS 1500 BLANK FORM

1500
HEALTH INSURANCE CLAIM FORM
APPROVED BY NATIONAL UNIFORM CLAIM COMMITTEE 08/05
PICA PICA
1. MEDICARE MEDICAID TRICARE CHAMPVA GROUP FECA OTHER 1a. INSURED’S I.D. NUMBER (For Program in Item 1)
CHAMPUS HEALTH PLAN BLK LUNG
(Medicare #) (Medicaid#) (Sponsor’s SSN) (Member ID #) (SSN or ID) (SSN) (ID)

2. PATIENT’S NAME (Last Name, First Name, Middle Initial) 3. PATIENT’S BIRTH DATE SEX 4. INSURED’S NAME (Last Name, First Name, Middle Initial)
M F
5. PATIENT’S ADDRESS (No., Street) 6. PATIENT RELATIONSHIP TO INSURED 7. INSURED’S ADDRESS (No., Street)
Self Spouse Child Other

CITY STATE 8. PATIENT STATUS CITY STATE

Single Married Other

ZIP CODE TELEPHONE (Include Area Code) ZIP CODE TELEPHONE (Include Area Code)
Full-Time Part-Time
Employed
Student Student
9. OTHER INSURED’S NAME (Last Name, First Name, Middle Initial) 10. IS PATIENT’S CONDITION RELATED TO: 11. INSURED’S POLICY GROUP OR FECA NUMBER

a. OTHER INSURED’S POLICY OR GROUP NUMBER a. EMPLOYMENT? (Current or Previous) a. INSURED’S DATE OF BIRTH SEX
MM DD YY

YES NO M F
b. OTHER INSURED’S DATE OF BIRTH SEX b. AUTO ACCIDENT? Place (State)
b. EMPLOYER’S NAME OR SCHOOL NAME
MM DD YY
M F YES NO
c. EMPLOYER’S NAME OR SCHOOL NAME c. OTHER ACCIDENT? c. INSURANCE PLAN NAME OR PROGRAM NAME
YES NO
d. INSURANCE PLAN NAME OR PROGRAM NAME 10d. RESERVED FOR LOCAL USE d. IS THERE ANOTHER HEALTH BENEFIT PLAN?
YES NO If yes, return to and complete item 9 a-d.

READ BACK OF FORM BEFORE COMPLETING & SIGNING THIS FORM. 13. INSURED’S OR AUTHORIZED PERSON’S SIGNATURE
12. PATIENT’S OR AUTHORIZED PERSON’S SIGNATURE. I authorize the release of any medical or other information necessary I authorize payment of medical benefits to the undersigned physician or
to process this claim. I also request payment of government benefits either to myself or to the party who accepts assignment below. supplier for services described below.

SIGNED DATE SIGNED

14. DATE OF CURRENT 15. IF PATIENT HAS HAD SAME OR SIMILAR ILLNESS, 16. DATES PATIENT UNABLE TO WORK IN CURRENT OCCUPATION
MM DD ILLNESS (First symptom) OR
YY GIVE FIRST DATE MM DD YY MM DD YY MM DD YY
INJURY (Accident) OR
PREGNANCY (LMP) FROM TO
17. NAME OF REFERRING PROVIDER OR OTHER SOURCE 18. HOSPITALIZATION DATES RELATED TO CURRENT SERVICES
17a.
MM DD YY MM DD YY
17b. NPI FROM TO
19. RESERVED FOR LOCAL USE 20. OUTSIDE LAB? $ CHARGES
YES NO
21. DIAGNOSIS OR NATURE OF ILLNESS OR INJURY (Relate Items 1, 2, 3, or 4 to Item 24E by Line.) 22. MEDICAID RESUBMISSION

1. . 3. . CODE ORIGINAL REF. NO.

23. PRIOR AUTHORIZATION NUMBER

2. . 4. .
24. A. DATE(S) OF SERVICE B. C. D. PROCEDURES, SERVICES, OR SUPPLIES E. F. G. H. I. J.
From To PLACE OF (Explain Unusual Circumstances) DIAGNOSIS DAYS OR EPSDT ID. RENDERING
MM DD YY MM DD YY SERVICE EMG CPT/HCPCS MODIFIER POINTER $ CHARGES UNITS FAMILY QUAL. PROVIDER ID. #
1.

NPI
2.

NPI
3.

NPI
4.

NPI
5.

NPI
6.

NPI
25. FEDERAL TAX I.D. NUMBER SSN EIN 26. PATIENT’S ACCOUNT NO. 27. ACCEPT ASSIGNMENT? 28. TOTAL CHARGE 29. AMOUNT PAID 30. BALANCE DUE
YES NO $ $ $
31. SIGNATURE OF PHYSICIAN OR SUPPLIER 32. SERVICE FACILITY LOCATION INFORMATION 33. BILLING PROVIDER INFO & PH #
INCLUDING DEGREES OR CREDENTIALS
(I certify that the statements on the reverse
apply to this bill and are made a part thereof.

a. b. a. b.
SIGNED DATE

0205502LB01A-02-13 2-9
Medical Coding and Billing Specialist

UB-04
The UB-04, also known as the CMS-1450, is the uniform claim form used in
hospitals and other inpatient settings. The National Uniform Billing Committee
(NUBC) is responsible for the design and printing of the UB-04 form.

1 2 3a PAT. 4 TYPE
CNTL # OF BILL
b. MED.
REC. #
6 STATEMENT COVERS PERIOD 7
5 FED. TAX NO.
FROM THROUGH

8 PATIENT NAME a 9 PATIENT ADDRESS a

b b c d e

10 BIRTHDATE 11 SEX ADMISSION CONDITION CODES 29 ACDT 30

12 DATE 13 HR 14 TYPE 15 SRC 16 DHR 17 STAT 18 19 20 21 22 23 24 25 26 27 28 STATE

31 OCCURRENCE 32 OCCURRENCE 33 OCCURRENCE 34 OCCURRENCE 35 OCCURRENCE SPAN 36 OCCURRENCE SPAN 37

CODE DATE CODE DATE CODE DATE CODE DATE CODE FROM THROUGH CODE FROM THROUGH
a a

b b

38 39 VALUE CODES 40 VALUE CODES 41 VALUE CODES

CODE AMOUNT CODE AMOUNT CODE AMOUNT
a
b
c
d
42 REV. CD. 43 DESCRIPTION 44 HCPCS / RATE / HIPPS CODE 45 SERV. DATE 46 SERV. UNITS 47 TOTAL CHARGES 48 NON-COVERED CHARGES 49

1 1

2 2

3 3

4 4

5 5

6 6

7 7

8 8

9 9

10 10

11 11

12 12

13 13

14 14

15 15

16 16

17 17

18 18

19 19

20 20

21 21

22 22

23
PAGE OF CREATION DATE TOTALS 23

52 REL. 53 ASG.
50 PAYER NAME 51 HEALTH PLAN ID 54 PRIOR PAYMENTS 55 EST. AMOUNT DUE 56 NPI
INFO BEN.

A 57 A

B OTHER B

C PRV ID C

58 INSURED’S NAME 59 P. REL 60 INSURED’S UNIQUE ID 61 GROUP NAME 62 INSURANCE GROUP NO.

A A

B B

C C

63 TREATMENT AUTHORIZATION CODES 64 DOCUMENT CONTROL NUMBER 65 EMPLOYER NAME

A A

B B

C C

66
DX 67 A B C D E F G H 68

I J K L M N O P Q
69 ADMIT

74
DX
70 PATIENT
REASON DX
PRINCIPAL PROCEDURE a.
a
OTHER PROCEDURE
b b.
c 71 PPS
CODE
OTHER PROCEDURE 75
72
ECI a b c 73

76 ATTENDING NPI QUAL

CODE DATE CODE DATE CODE DATE
LAST FIRST
c. OTHER PROCEDURE d. OTHER PROCEDURE e. OTHER PROCEDURE QUAL
CODE DATE CODE DATE CODE DATE 77 OPERATING NPI

LAST FIRST
81CC
80 REMARKS 78 OTHER NPI QUAL
a
b LAST FIRST

c 79 OTHER NPI QUAL

d LAST FIRST
UB-04 CMS-1450 APPROVED OMB NO. 0938-0997 THE CERTIFICATIONS ON THE REVERSE APPLY TO THIS BILL AND ARE MADE A PART HEREOF.
NUBC
™ National Uniform
Billing Committee

2-10 0205502LB01A-02-13
 FORM 80

1500
Medical Insurance 101
CIGNA
PO BOX 3490
HEALTH INSURANCE CLAIM FORM
CHICAGO IL 60671
APPROVED BY NATIONAL UNIFORM CLAIM COMMITTEE 08/05

PICA

As a medical coding and billing specialist,

1. MEDICARE
you’llCHAMPUS
MEDICAID
completeCHAMPVA
TRICARE
CMS-1500
GROUP
and FECA
HEALTH PLAN UB-04
BLK LUNG
OTHER 1a. INSURED’S I.D. NUMBER

forms and submit them to insurance companies for payment.3.You’ll

(Medicare #)

2. PATIENT’S NAME (Last Name, First Name, Middle Initial)

(Medicaid#)
learn more about
PATIENT’S BIRTH DATE
(Sponsor’s SSN)

SEX
(Member ID #) (SSN or ID) (SSN) (ID)

4. INSURED’S NAME (Last Name, First

these forms soon. M F

5. PATIENT’S ADDRESS (No., Street) 6. PATIENT RELATIONSHIP TO INSURED 7. INSURED’S ADDRESS (No., Street)
Self Spouse Child Other

CITY STATE 8.PATIENT STATUS CITY

Diagnostic Codes ZIP CODE TELEPHONE (Include Area Code)

Single Married

Full-Time
Other

Part-Time
ZIP CODE TELE
Employed
Student Student

Now that you were introduced to the different types of claim 10.
9. OTHER INSURED’S NAME (Last Name, First Name, Middle Initial)
forms, let’s take a
IS PATIENT’S CONDITION RELATED TO: 11. INSURED’S POLICY GROUP OR FE

moment to discuss medical codes and how they apply to insurance. After a patient’s
a. OTHER INSURED’S POLICY OR GROUP NUMBER a. EMPLOYMENT? (Current or Previous) a. INSURED’S DATE OF BIRTH

office visit, tests and other procedures, a OF

claim formSEXis completed. These forms Place (State)
YES NO
b. OTHER INSURED’S DATE BIRTH b. AUTO ACCIDENT? b. EMPLOYER’S NAME OR SCHOOL N

require special codes—diagnostic codes and procedure

c. EMPLOYER’S NAME OR SCHOOL NAME
M F
codes. c.When you
YES
OTHER ACCIDENT?
writeNOa code c. INSURANCE PLAN NAME OR PROG
on an insurance form, a bill or a patient’s chart, you are “coding thatYESentry.” NO
d. INSURANCE PLAN NAME OR PROGRAM NAME 10d. RESERVED FOR LOCAL USE d. IS THERE ANOTHER HEALTH BENE

When you look at the CMS-1500, you canREAD see that there are many fields
THIS FORM.to be filled.
YES NO If y

BACK OF FORM BEFORE COMPLETING & SIGNING 13. INSURED’S OR AUTHORIZED PER

One of the most important fields is Field 21 Diagnosis or Nature of Illness or Injury.
12. PATIENT’S OR AUTHORIZED PERSON’S SIGNATURE. I authorize the release of any medical or other information necessary I authorize payment of medical bene
to process this claim. I also request payment of government benefits either to myself or to the party who accepts assignment below. supplier for services described below

In this field, you must enterSIGNED

some crucial information—the diagnosticDATE code. SIGNED

14. DATE OF CURRENT ILLNESS (First symptom) OR 15. IF PATIENT HAS HAD SAME OR SIMILAR ILLNESS, 16. DATES PATIENT UNABLE TO WORK I
INJURY (Accident) OR GIVE FIRST DATE

Field 21 is filled in with PREGNANCY (LMP)

17. NAME OF REFERRING PROVIDER OR OTHER SOURCE
17a.
FROM TO
18. HOSPITALIZATION DATES RELATED

crucial information— 17b. NPI FROM TO

the doctor’s diagnosis. 19. RESERVED FOR LOCAL USE 20. OUTSIDE LAB?
YES NO
$

Here, the code listed 21. DIAGNOSIS OR NATURE OF ILLNESS OR INJURY (Relate Items 1, 2, 3, or 4 to Item 24E by Line.) 22. MEDICAID RESUBMISSION

represents the diagnosis of 1. 428 . 0 3. . CODE O

23. PRIOR AUTHORIZATION NUMBER

2. . 4. .
congestive heart failure. 24. A. DATE(S) OF SERVICE B. C. D. PROCEDURES, SERVICES, OR SUPPLIES E. F. G. H.
DIAGNOSI
FROM TO PLACE OF (Explain Unusual Circumstances) S DAYS EPSDT

MM DD YY MM DD YY EMG CPT/HCPCS MODIFIER POINTER $CHARGES UNITS FAMILY

Diagnostic codes are numbers that identify the physician’s opinion about what is
SERVICE

1.

wrong with the patient. This2.is the physician’s diagnosis. These codes are not random
numbers; they are based on a system called the International Classification of Diseases
or ICD. These diagnostic codes
3. are listed in the ICD-9-CM manual. It is your accurate
and complete coding that ensures maximum reimbursement to the provider and
provides meaningful statistics to assist our nation with its health needs.
4.

5.

The codes and patient data then are transferred from the patient’s chart to a claim
form and sent to the insurance6.
carrier for reimbursement to the provider based
on the diagnoses and procedures involved. The types,
25. FEDERAL TAX I.D. NUMBER SSN
frequency
EIN
of treatments
26. PATIENT’S ACCOUNT NO.
and
27. ACCEPT ASSIGNMENT? 28. TOTAL CHARGE 29. AMOUN

diagnoses gathered from the patient information provide the statistics necessary to NO YES $ $

depict health care in this country. The government andon insurance companies use
31. SIGNATURE OF PHYSICIAN OR SUPPLIER INCLUDING 33. BILLING PROVIDER INFO & PH #
DEGREES OR CREDENTIALS (I certify that the statements the 32. SERVICE FACILITY LOCATION INFORMATION
reverse apply to this bill and are made a part thereof.)

these statistics to establish guidelines to develop the rates of reimbursement paid to

medical practices in the future.
SIGNED DATE a. b. a. b.

As you can see, it’s the analysis of diagnostic codes that determines whether
insurance carriers will provide coverage for a particular procedure or service. Now
you have a bit of an idea as to how your new role affects insurance reimbursement.
Without your coding skills, providers would not get reimbursed for their services.
This is one reason why the medical coding and billing specialist’s role is important!
We will cover diagnostic coding concepts later in the course. Now, let’s look at
procedure coding.

0205502LB01A-02-13 2-11
Medical Coding and Billing Specialist

Procedure Codes
Like diagnoses, procedures have a numerical language as well. The language of
procedure codes is found in either the Current Procedural Terminology (CPT) or the
Healthcare Common Procedure Coding System (HCPCS)—pronounced “Hick-Picks.”
If you look at the portion of the CMS-1500 that follows, you will see Field 24D
Procedures, Services or Supplies. You will record CPT and/or HCPCS codes, along
with appropriate modifiers in this field.

Procedures and modifiers are listed in Field 24D. The procedure codes given here indicate that
an established patient made an office visit and was given an influenza immunization.
FORM 3

24. A. DATE(S) OF SERVICE B. C. D. PROCEDURES, SERVICES, OR SUPPLIES E. F. G. H. I. J.

FROM TO PLACE OF (Explain Unusual Circumstances) DIAGNOSIS DAYS EPSDT ID. RENDERING
MM DD YY MM DD YY SERVICE EMG CPT/HCPCS MODIFIER POINTER $CHARGES UNITS FAMILY QUAL. PROVIDER ID. #
1.

99212 NPI
2.

90658 NPI
3.

90460 NPI
4.

NPI
5.

NPI
6.

NPI

You might be called upon to double check records as they come through your coding
service. Usually double checking means checking to be sure the diagnosis matches
the procedures. Insurance companies check the procedures to make sure they are
consistent with the diagnosis. If they aren’t consistent, reimbursement from the
insurance company may be delayed, denied or reduced.

Most procedures the doctor performs will have a code. You will enter the correct code in
the correct column of the CMS-1500. We’ll show you exactly how to find this code later.
For now, all you need to know are the fields that codes go in on the CMS-1500 form.

Now, let’s look at how you’ll use these tools to create a medical bill.

Step 8 Life Cycle of a Medical Bill

‰‰ Imagine you are a patient at a doctor’s office. This is the first time you’ve been to
this particular doctor. When you check in with the front desk, the office manager
hands you a questionnaire to complete. This form asks for your name, address,
telephone number, medical history and insurance information. After you complete
the form, you give it back to the receptionist. With this process, you’ve just started
the medical bill’s life cycle.

2-12 0205502LB01A-02-13
 Medical Insurance 101

When your examination is complete, the doctor may use an encounter form to
document your visit. An encounter form, also known as a superbill, is a template
of commonly used codes in the specific practice that serves as a communication
device between the physician and the coding and billing specialist. In addition, the
physician dictates the details of each visit to substantiate the charges. A medical bill
gets created once the diagnosis and procedure codes have been applied to the service.
Let’s look at the details involved in the billing process.

Processing the Bill

Once the medical bill exists, it goes through several steps on its way to being paid. A
patient and provider handle bills for medical care in one of three common ways:

1. The insurance company might require the patient to pay the entire bill at the
time of service, before the patient leaves the provider’s facility. Then the patient
submits a claim to the insurance company for reimbursement.
OR
2. The patient might pay a copayment before leaving. Then the provider submits a
claim to the patient’s insurance company for the remainder of the bill.
OR
3. The patient might pay nothing at the time of the visit to the provider. Following
the patient’s visit, the provider submits a claim to the patient’s insurance
company for the bill. The provider is reimbursed by the insurance company for
the charges the patient’s insurance policy covers. The doctor’s office then sends a
bill to the patient for the remaining costs that the insurance doesn’t cover.
Processing the bill is slightly different depending on the manner in which the
patient pays—either before or after the insurance company pays.

If, as the patient, you have to pay the entire bill on

the day of your treatment, then, generally, it is up
to you to send the bill to your insurance company.
The provider is not obligated to submit claims to
an insurance company unless it has a contract with
that company or the federal government requires
it. However, the provider often submits claims as a
courtesy to the patient. The insurance company then
reimburses you, the patient, for any covered charges.
For example, if your bill is $100 and the insurance
pays 80 percent, you receive an $80 reimbursement. You’ll process bills differently depending
The difference between paying at the time of service on how the patient pays.
and the provider billing your insurance company
is that when you pay at the time of service, the
insurance company pays you directly.

0205502LB01A-02-13 2-13
Medical Coding and Billing Specialist

If the provider bills your insurance company first, then usually you leave the
office without paying any of the bill or only a copayment. The insurance company
receives the doctor’s request for payment and pays the covered amount, which varies
according to your policy. Then, after the provider receives the insurance payment,
her office bills you, the patient, for any balance due. For example, if your bill was
$100 and your insurance policy covered 80 percent of the bill, the provider would
receive $80 from the insurance company and bill you the remaining $20.

Medical Bill Owed: $100

Patient pays entire bill at Patient pays flat-rate Doctor’s office

time of service copayment bills insurance

Patient sends bill to Doctor’s office bills Insurance pays doctor for
insurance company insurance company for covered charges
remaining amount

Insurance company Doctor’s office bills patient

Insurance company
reimburses patient for for remaining charges
reimburses doctor for
covered charges
covered charges

A big part of the medical coding and billing specialist’s role is to submit insurance
claims—the bills to insurance companies that request payment in accordance with the
appropriate insurance policies. This course will give you the knowledge to be accurate
and thorough—two essential qualities of a good medical coding and billing specialist.

Step 9 Accurate and Thorough

‰‰ When the correct codes are applied and the claims are accurately completed,
payments come quickly, and the providers are happy.

As a medical coding and billing specialist, you might double-check bills as they
come through your office or service. Usually, this means checking to be sure that
the diagnosis matches the procedure and that all the patient’s information (such
as name, address and identification number) is correct. When you check this
information, you help to ensure timely payments and, most importantly, appropriate
payment amounts. Medical coding and billing specialists can increase doctors’
collections by as much as 10 to 15 percent! That’s why medical coding and billing
specialists play such an important role in the healthcare industry.

2-14 0205502LB01A-02-13
 Medical Insurance 101

When bills include mistakes, they may delay payments a month or more, delay
processing and cost the provider in denied claims, resubmission costs and reduced
payments. Providers need accurate medical coding and billing specialists—like
you—which is one of the great aspects of this career. Medical coding and billing
specialists enjoy job security because people will always need doctors, and doctors
will always need to code and file claims for their services. The demand for healthcare
services is greater every year, and the ever-increasing number of patients, insurance
claims and hospital admissions means more work for you!

 Step 10 Practice Exercise 2-2

‰‰ Select the best answer from the choices provided.

1. When an insurance company pays for medical services, it _____ either

the insured or the provider.
a. gerrymanders
b. processes
c. collects from
d. reimburses

2. The medical coding and billing specialist is responsible for _____.

a. transcribing the doctor’s notes
b. coding and submitting insurance claim forms
c. examining patients
d. scheduling patients

3. A form used by some doctors that contains the most common

procedures performed by that doctor is called a(n) _____.
a. account-easing document
b. easy-accounting bill
c. encounter form
d. claim form

4. A patient may simply make a copayment for a visit and then the _____.
a. provider bills the insurance company for the remainder of the bill
b. provider considers the remainder of the bill uncollectible
c. patient sends a bill to the insurance company
d. provider sends out a full bill to the patient in 10 days’ time

0205502LB01A-02-13 2-15
Medical Coding and Billing Specialist

5. An error on the claim form may _____ reimbursement.

a. delay
b. not impact
c. speed up
d. improve

6. When you write a code on an insurance form, you are ______ that entry.
a. deleting
b. coding
c. highlighting
d. eliminating

7. Diagnosis codes are contained in the ______ manual.

a. CPT
b. Diagnostic Code Listing (DCL)
c. ICD-9-CM
d. HCPCS

³³Step 11 Review Practice Exercise 2-2

‰‰ Check your answers with the Answer Key at the back of this book. Correct any
mistakes you may have made.

2-16 0205502LB01A-02-13
 Medical Insurance 101

Step 12 Lesson Summary

‰‰ You now have a foundation to stand on in the world of insurance and coding.
Insurance is very important in the medical field. Insurance companies have many
regulations, including preauthorization requirements. It’s essential that you keep
up to date with these procedures and requirements. Lesson 2 introduced you to some
insurance terminology, such as copayment and deductibles. You also got an overview
of the billing process, and caught a glimpse of two common claim forms, the CMS-1500
and UB-04. You also learned about diagnostic and procedure codes, which learn about
further in later lessons. Keep in mind that this lesson was a brief overview of how
insurance and the coding and billing process work. As we move through this course,
you will see the important role you’ll play as the medical coding and billing specialist.

In the next lesson, you’ll get a taste of private and group healthcare programs. But
first, complete the following Quiz.

* Step 13 Mail-in Quiz 2

‰‰ Follow the steps to complete the Quiz.

a. Be sure you’ve mastered the instruction and the Practice Exercises that this
Quiz covers.
b. Mark your answers on your Quiz. Remember to check your answers with the
lesson content.
c. When you’ve finished, transfer your answers to the Scanner Answer Sheet
included. Use only blue or black ink on your Scanner Answer Sheet.
d. Important! Please fill in all information requested on your Scanner Answer
Sheet or when submitting your Quiz online.
e. Submit your answers to the school via mail, e-mail, fax or, to receive your grade
­immediately, submit your answers online at www.uscareerinstitute.edu.

0205502LB01A-02-13 2-17
Medical Coding and Billing Specialist

Mail-in Quiz 2
Each item is worth 5 points.
Match the term with its definition.

1. _____ Provider a. An amount of money an individual must pay before

insurance benefits kick in
2. _____ Deductible b. The compensation or repayment for healthcare services
c. A flat amount of money paid by the patient every time a
3. _____ Copayment medical service is performed
d. A person or organization that provides medical services
4. _____ Reimbursement

Select the best answer from the choices provided.

5. When an insurance carrier pays for medical treatment based on a

policy, it is paying _____.
a. premiums
b. a copayment
c. benefits
d. deductibles

6. Typically, the explanation of benefits contains _____.

a. nothing of interest to a coding and billing specialist
b. the doctor’s contact numbers
c. payment for one or more patients
d. a privacy policy

7. Some providers use a(n) _____, which is a form that contains the most
common procedures performed by that provider.
a. account-easing document
b. easy-accounting bill
c. encounter form
d. claim form

8. When an insurance company pays for medical services, it _____ the

appropriate party (either the insured or the provider).
a. gerrymanders
b. processes
c. collects from
d. reimburses

2-18 0205502LB01A-02-13
 Medical Insurance 101

9. If an insurance company pays 80 percent of a claim of $100, the patient

is responsible for _____ percent of the bill.
a. 20
b. 10
c. 80
d. 100

10. The most commonly used insurance form is called the _____.
a. CMS-1500
b. CMS-1000
c. Common Carrier Insurance Form (CCIF)
d. Primary Carrier Claim Form (PCCF)

11. Paying someone for services already performed is _____.

a. claims processing
b. completing an encounter
c. reimbursement
d. always an insurance company’s responsibility

12. If preauthorization is required, but the insurance company is not

notified, the insurance company ________.
a. bills the doctor for the cost of the extra paperwork involved
b. might reduce reimbursement
c. pays more
d. any of the above

13. If an insurance company authorizes a hospital stay of five days and the
patient stays seven days (not due to any medical necessity), then the _______.
a. patient must pay for the extra two days
b. hospital allows the patient to stay for free for the extra two days
c. insurance carrier pays for the extra two days
d. insurance agent must pay a penalty

14. ______ are numbers based on the diagnoses made and procedures performed.
a. Codes
b. Checks
c. HMOs
d. Terms

0205502LB01A-02-13 2-19
Medical Coding and Billing Specialist

15. The diagnosis code is entered in field _________ of the CMS-1500.

a. 24D
b. 1
c. 21
d. It is not entered on the CMS form.

16. Codes that identify the physician’s opinion about what’s wrong with a
patient are called ______ codes.
a. procedure
b. diagnosis
c. HCPCS
d. Medicare

17. The procedure code is entered in field _________ of the CMS-1500.

a. 24D
b. 1
c. 21
d. It is not entered on the CMS form.

18. ICD stands for _________.

a. International Coding Decimals
b. International Coding Disorders
c. International Classification of Diseases
d. Internal Classification of Disorders

19. HCPCS stands for ________.

a. Honorary Coding Procedures Common System
b. Healthcare Common Procedure Coding System
c. Health Care Primary Coding System
d. Hired Care Primary Coding System

20. CPT stands for ________.

a. Colorado Procedure Tests
b. Corporate Procedure Terminology
c. Current Primary Tests
d. Current Procedural Terminology

2-20 0205502LB01A-02-13
 Medical Insurance 101

Congratulations!
You have completed Lesson 2.

Nice!
Progress
Winning
Triumph

Determ
ination
!

Do not wait to receive the results of your Quiz

before you move on.

0205502LB01A-02-13 2-21