What every billing acronym in this glossary points to
Most billing terms originate from one of five authorities. CMS publishes the rules for Medicare and Medicaid (CMS-1500, NCD, LCD, MSP, ABN). X12 publishes the EDI transaction standards (837, 835, 270/271, 277CA). The AMA owns CPT codes; the WHO owns ICD-10-CM (CMS maintains the U.S. clinical modification). NUCC owns the paper CMS-1500 and the taxonomy code set. AAPC and AHIMA certify the coders. If you can attribute a term to its issuing authority you can usually predict where the rule lives.
- CMS issues Medicare/Medicaid rules and forms
- X12 issues EDI transaction standards (837/835/270/271)
- AMA owns CPT, NUCC owns the CMS-1500 form layout
- ICD-10-CM is maintained jointly by CMS and NCHS
Medical Billing Glossary: The Terms That Run the Revenue Cycle
By MedPrecision Editorial Team · Published
Medical billing carries more acronyms than almost any administrative field in U.S. healthcare. A single denial letter can mention CARC 16, RARC N657, COB-29, and an ABN — four acronyms describing four separate things. This glossary defines the 60 core terms a billing manager, biller, or coder will encounter weekly, grouped by function and traced back to their source authority (CMS, X12, AMA CPT, AAPC, NUCC).
Claim Submission Terms
An 837P is the X12 EDI transaction for a professional (physician) claim, and 837I is the institutional version used by hospitals; both replace the older paper forms. The CMS-1500 is the paper professional claim form maintained by the National Uniform Claim Committee (NUCC), used by physicians and other non-institutional providers. The UB-04 (CMS-1450) is the institutional paper equivalent for hospitals and facilities. A clearinghouse is an intermediary that scrubs and routes electronic claims between providers and payers; it returns a 277CA (Claim Acknowledgment) showing accepted and rejected claims. A claim that fails clearinghouse edits never reaches the payer and is called a rejection — distinct from a denial, which is a payer-side decision after a claim is accepted into adjudication.
Adjudication and Payment Terms
An ERA (Electronic Remittance Advice) is the X12 835 transaction sent by the payer detailing how claims were adjudicated; an EOB (Explanation of Benefits) is the patient-facing version of the same information and is mailed separately. EFT (Electronic Funds Transfer) is the actual payment, governed by NACHA rules; payers must match EFT and ERA via the Trace/Reassociation Number (TRN). Allowed amount is the contracted rate the payer agreed to pay; write-off is the difference between billed charges and allowed amount; patient responsibility is the portion (deductible, coinsurance, copay) the patient owes after payer adjudication. A take-back or recoupment is the payer's recovery of an earlier overpayment, usually offset against a future remittance.
Denial and Adjustment Codes
CARC (Claim Adjustment Reason Code) is the X12-maintained code on the 835 explaining why a payer adjusted a claim — examples include CARC 16 (claim lacks information), CARC 50 (non-covered services because not medically necessary), CARC 97 (service is bundled into another procedure), CARC 197 (precertification absent). RARC (Remittance Advice Remark Code) provides additional detail and starts with N or M (e.g., N657 — this should be billed with the appropriate code for these services). Group Codes prefix the CARC and indicate financial responsibility: CO (Contractual Obligation, provider write-off), PR (Patient Responsibility), OA (Other Adjustment), PI (Payer Initiated). The X12 code lists are updated three times yearly and published on the WPC (Washington Publishing Company) site.
Coverage and Eligibility Terms
A 270 transaction is the eligibility inquiry sent to a payer; the 271 is the response showing active coverage, copay, deductible, and benefit details. Coordination of Benefits (COB) is the rule set determining which payer pays first when a patient has more than one plan; the secondary payer pays only after the primary EOB is received. MSP (Medicare Secondary Payer) is the federal statute (42 U.S.C. § 1395y(b)) requiring Medicare to pay second when a working-age beneficiary has employer group coverage, when there is a workers' comp or no-fault claim, or in the first 30 months of ESRD. ABN (Advance Beneficiary Notice of Noncoverage, form CMS-R-131) is the form a provider gives a Medicare patient before delivering a service Medicare may deny — without a valid ABN the provider cannot bill the patient. AOB (Assignment of Benefits) is the patient's authorization for the payer to send payment directly to the provider.
Coding Terms
CPT (Current Procedural Terminology) is the AMA-owned code set describing physician procedures and services; codes are organized into Category I (procedures, 5 digits numeric), Category II (performance measures, ending in F), and Category III (emerging technology, ending in T). HCPCS Level II is the CMS-maintained code set for non-physician services and supplies (e.g., J-codes for drugs, E-codes for DME, A-codes for ambulance). ICD-10-CM is the diagnosis code set (Clinical Modification of WHO ICD-10), maintained jointly by CMS and the National Center for Health Statistics; ICD-10-PCS is the inpatient procedure code set used only on UB-04 claims. Modifiers are two-character suffixes (numeric or alphanumeric) appended to CPT/HCPCS codes to indicate a circumstance — examples include modifier 25 (significant separately identifiable E/M on the same day as a procedure), modifier 59 (distinct procedural service), and modifier 26 (professional component).
Patient Account and Compliance Terms
PHI (Protected Health Information) is the HIPAA-defined category of identifiable health data subject to the Privacy Rule (45 CFR Part 164). A BAA (Business Associate Agreement) is the contract required between a covered entity and any vendor handling PHI on its behalf, including billing companies and clearinghouses. NPI (National Provider Identifier) is the 10-digit HIPAA standard provider identifier issued by NPPES; Type 1 is for individuals, Type 2 for organizations. TIN (Taxpayer Identification Number) is the IRS identifier — for solo providers usually their SSN, for groups the EIN. Place of Service (POS) codes describe where the service was rendered (POS 11 = office, POS 22 = on-campus outpatient hospital, POS 23 = ER, POS 02 = telehealth other than home, POS 10 = telehealth in home).
Revenue Cycle KPI Terms
Days in A/R is total accounts receivable divided by average daily charges; MGMA's 2024 Cost and Revenue Survey reports a median of 35 days for better-performing practices. Net Collection Rate (NCR) is payments collected divided by allowed amount net of contractual adjustments — the HFMA-published target is 95% or higher. Gross Collection Rate (GCR) is payments divided by gross charges and is heavily influenced by fee schedule and payer mix; it is not directly comparable across practices. First-Pass Resolution Rate (FPRR) is claims paid without rework as a share of total claims; HFMA's MAP Keys define a target of 90%+. Clean Claim Rate (CCR) is claims accepted at the clearinghouse on first submission; industry benchmarks place 95% as standard, with top-quartile groups at 97-98%.
Coverage Determination and Policy Terms
An NCD (National Coverage Determination) is a CMS Medicare policy applicable nationwide stating whether and under what circumstances Medicare covers a service. An LCD (Local Coverage Determination) is a Medicare Administrative Contractor (MAC) policy applicable only in that contractor's jurisdiction (e.g., CGS, Noridian, Palmetto GBA). LCDs include coverage criteria and ICD-10 codes that support medical necessity. A prior authorization (PA) is a payer's pre-service approval requirement; without an approved PA on file before service, the resulting claim is denied with CARC 197 and is generally not appealable to the patient under most contracts. Medical necessity is the AMA-defined standard that a service is appropriate, evidence-based, and not experimental, and it is the most common adjudication standard for CARC 50 denials.
Common Questions
Common questions about medical billing glossary: 60 core terms explained.
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Get a Free Billing Audit arrow_forwardWhat is the difference between a denial and a rejection in medical billing?
A rejection happens at the clearinghouse or payer pre-adjudication stage when a claim fails a structural or eligibility edit — wrong NPI, invalid procedure code, member ID not found. The claim never enters the payer's adjudication system, so it is not on the patient's record and must be corrected and resubmitted as an original claim. A denial happens after the payer has accepted the claim into adjudication and made a coverage decision — for example, no prior authorization (CARC 197), not medically necessary (CARC 50), or duplicate (CARC 18). A denial generates an 835 ERA with a CARC code and triggers appeal rights under the payer contract or, for Medicare, the five-level appeal process defined at 42 CFR 405.904.
What is the difference between an ERA and an EOB?
An ERA (Electronic Remittance Advice) is the X12 835 transaction the payer sends to the provider electronically; it carries claim-level and line-level adjudication detail with CARC and RARC codes and reconciles via the TRN (trace number) to the EFT payment. An EOB (Explanation of Benefits) is the patient-facing paper or web statement explaining the same adjudication in plain language — what was billed, what the plan paid, and what the patient owes. They contain the same financial outcome but serve different audiences. CMS requires Medicare to send an ERA to providers who have enrolled in EFT under the HIPAA EFT/ERA operating rules issued in 2014, which also require payers to deliver the ERA within three business days of the EFT.
What does Group Code CO mean on a remittance advice?
Group Code CO (Contractual Obligation) on an X12 835 remittance indicates the adjustment is the provider's responsibility under the payer contract and cannot be billed to the patient. The most common CO adjustment is the contractual write-off — the difference between billed charges and the contracted allowed amount. Other Group Codes carry different meaning. PR (Patient Responsibility) shifts the amount to the patient (deductible, coinsurance, copay). OA (Other Adjustment) covers situations like primary payer paid in full or COB-related adjustments. PI (Payer Initiated Reduction) is used when the payer reduces payment for reasons not covered by contract — relatively rare. Group Codes are maintained by X12 and the full list is published on the Washington Publishing Company website at x12.org.
What is an ABN and when is it required?
An ABN (Advance Beneficiary Notice of Noncoverage), CMS form CMS-R-131, is the notice a provider gives a Medicare Fee-for-Service patient when the provider believes Medicare may not pay for an upcoming service because it is not medically necessary, is experimental, or exceeds frequency limits. The ABN must be delivered before the service, must specify the service and the reason for expected denial, and must allow the patient to choose to receive or decline the service. Without a valid ABN on file, the provider cannot bill the patient if Medicare denies the claim — the entire amount becomes a write-off. CMS publishes detailed ABN instructions in Chapter 30 of the Medicare Claims Processing Manual.
What is the difference between CPT and HCPCS Level II codes?
CPT (Current Procedural Terminology) is owned and maintained by the American Medical Association and describes procedures and services performed by physicians and qualified health professionals — Category I codes are 5-digit numeric (99213, 27447), Category II are performance tracking codes ending in F, and Category III are emerging technology codes ending in T. HCPCS Level II is maintained by CMS and covers items not in CPT — primarily drugs (J-codes such as J3490 unclassified injectable), durable medical equipment (E-codes), supplies (A-codes), ambulance services, and some procedures. Both code sets are updated annually with CPT changes effective January 1 and HCPCS Level II updated quarterly. Together they form the procedure code universe required on the 837P claim.
What does NCD versus LCD mean for billing?
An NCD (National Coverage Determination) is a CMS-issued Medicare coverage policy that applies nationwide and binds all Medicare Administrative Contractors. NCDs are published in the Medicare Coverage Database and through CMS Manual System Pub 100-03. An LCD (Local Coverage Determination) is issued by a MAC such as CGS, Noridian, Palmetto GBA, or NGS, and applies only in that contractor's jurisdiction. LCDs typically include the specific ICD-10 codes that support medical necessity for a procedure — billing a CPT code without a supporting ICD-10 listed in the LCD is the most common cause of CARC 50 denials. Providers should check the MCD for both NCDs and the LCD covering their jurisdiction before billing services with frequency or diagnosis restrictions.
What is the TRN and why does it matter?
The TRN (Reassociation Trace Number) is the X12 element on both the 835 ERA and the corresponding EFT NACHA CCD+ entry that lets a provider match a payment in their bank account to the remittance detail received from the payer. The HIPAA EFT and ERA operating rules issued by CAQH CORE in 2014 require payers to populate the TRN identically on both transactions and require banks to forward the TRN through to the provider's bank statement. Without TRN reassociation, a payment posting team must manually match dollar amounts and check numbers — a process that introduces posting errors and slows reconciliation. Most modern practice management systems automate TRN matching during 835 import, which is why providers should always enroll in EFT and ERA together.
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