Is the claim complete and correct?
Right patient, payer, provider, codes, charges, dates and authorization.
A clean claim passes every edit the first time and needs no manual touch.
Claims and the Claim Lifecycle
A claim is the provider's bill to a payer, and the revenue cycle is everything that has to go right for it to be paid in full, once, on time. This tutorial follows a claim from the encounter through coding, scrubbing, submission, adjudication, remittance, the patient balance, denials and appeals, secondary payers, and the metrics that tell you whether the cycle is healthy.
What did the payer decide?
Paid, adjusted, denied, or pended, line by line, with reason codes.
The remittance explains every dollar of difference between billed and paid.
Who still owes what?
Secondary payer, patient, or an appeal; then zero balance.
A claim is finished only when the account balance is zero and documented.
The big picture
Revenue cycle management (RCM) is the set of administrative and clinical functions that capture, manage and collect payment for patient care. The claim is its central artifact. Everything upstream exists to make the claim correct; everything downstream exists to turn it into cash.
The cycle is usually drawn as three segments. The front end (scheduling, registration, eligibility, authorization, estimates) decides whether the claim can be paid at all. The middle (documentation, charge capture, coding, CDI) decides what the claim says. The back end (claim submission, payment posting, denial management, patient billing, A/R follow-up) decides whether and when the money arrives. Problems migrate downstream: a registration error costs a few seconds to fix at the desk and several weeks to fix as a denial.
The lifecycle at a glance
- 1
Encounter and documentation Day 0
The clinician documents what was done and why. The note is the evidence for every code that follows.
- 2
Charge capture and coding Day 0–4
Services become CPT/HCPCS and ICD-10-CM codes with charges from the chargemaster or fee schedule. The gap between discharge and final bill is the DNFB (discharged not final billed) window.
- 3
Claim creation and scrubbing Day 2–5
The billing system builds an 837 and runs it through edits (practice management, clearinghouse, payer-specific). Failures go to a work queue; clean claims go out.
- 4
Submission and acknowledgment Day 3–5
The clearinghouse returns a 999 (syntax) and the payer a 277CA (accepted or rejected into adjudication). A rejected claim was never "received" for timely filing.
- 5
Adjudication Day 5–35
The payer checks eligibility, benefits, authorization, coding edits, medical necessity and pricing, then pays, denies or pends each line.
- 6
Remittance and posting Day 14–45
An 835 (or paper EOB) explains the decision; the payment arrives by EFT or check. Posting applies payments and adjustments and sets the next responsible party.
- 7
Secondary claims, patient statements, denials Day 20–120
Balances move to the next payer or the patient. Denials are corrected or appealed within the payer's deadlines.
- 8
Zero balance Goal: under 45 days
The account closes when payments and documented adjustments equal charges. Anything else sits in accounts receivable (A/R) and ages.
Why it matters in numbers
Initial denials
11.8%
Share of claims initially denied in 2024 across more than 2,100 hospitals in Kodiak's data, rising each year. For inpatient commercial claims in 2025 the initial rate was 21%; the final denial rate after rework was about 3%.
Rework cost
$25 to $118 per claim
Industry estimates of the staff cost to work a denied claim, from physician practices to hospitals. Most denials are eventually paid, which means most denials were avoidable.
Patient share
34% collected
Providers collected 34.5% of what insured patients owed out of pocket in 2024, down from 37.6% the year before, as deductibles and coinsurance keep shifting cost to patients.
Anatomy of a claim
There are two claim formats, and which one you use depends on who is billing, not on where the patient was treated.
Professional
CMS-1500 / 837P
Physicians, non-physician practitioners, therapists, ambulance, DME suppliers, labs and freestanding facilities billing professional services. Paper form CMS-1500 (02/12); electronic 837P, version 005010X222A1. Priced on fee schedules (RVUs for Medicare).
Institutional
UB-04 / 837I
Hospitals, SNFs, home health, hospice, ASCs in some states, and other facilities billing the facility component. Paper form UB-04 (CMS-1450); electronic 837I, version 005010X223A2. Uses revenue codes, type of bill, DRGs and APCs.
The fields that matter most
| Data | CMS-1500 | UB-04 | 837 location | Why it denies |
|---|---|---|---|---|
| Patient and subscriber identity | Boxes 2–7, 1a | FL 8–11, 58–60 | Loops 2010BA / 2010CA, NM1 and DMG | Name, DOB or member ID not matching the payer's file (CARC 31, 140) |
| Payer | Box 1, 11c | FL 50 | Loop 2010BB NM1*PR | Wrong payer ID or plan; claim sent to the carrier instead of the delegated vendor |
| Diagnoses | Box 21 (up to 12) | FL 67, 69–72 | Loop 2300 HI (ABK principal, ABF others) | Invalid or non-specific code, not supporting the procedure (CARC 11, 50) |
| Procedures and services | Box 24D, with modifiers | FL 42–47 revenue codes, HCPCS, units, charges | Loop 2400 SV1 (P) / SV2 (I) | Bundling (NCCI), unit limits (MUE), modifier missing (CARC 4, 97, 236) |
| Dates and place of service | Box 24A–B | FL 6, 45; type of bill FL 4 | DTP*472; CLM05 facility code | Date outside eligibility or auth window; POS inconsistent with code (CARC 5, 58) |
| Rendering, billing, referring providers | Boxes 17, 24J, 31, 33 | FL 76–79 | Loops 2010AA, 2310A–D, NM1 with NPI (XX) | NPI not enrolled or not credentialed with the payer (CARC 16 with N290) |
| Authorization / referral | Box 23 | FL 63 | Loop 2300 REF*G1 / REF*9F | Missing or mismatched (CARC 197, 198, 15) |
| Charges, prior payments | Boxes 28–29 | FL 47, 54 | CLM02 total; loop 2320/2330 for other payers | Secondary claim without primary adjudication detail (CARC 22, 23) |
| Claim frequency | Box 22 (resubmission code) | FL 4, third digit | CLM05-3: 1 original, 7 replacement, 8 void | Resending as original instead of corrected creates a duplicate (CARC 18) |
The code sets
- ICD-10-CM
- Diagnoses, updated every October 1 (and April 1 for limited changes). The FY 2027 update effective October 1, 2026 adds 238 codes, revises 4 and deletes 21. A deleted code on a claim after the switchover is rejected.
- ICD-10-PCS
- Inpatient hospital procedures, used by facilities for DRG assignment. Not used on professional claims.
- CPT
- Professional procedures and services, maintained by the AMA and updated each January 1. Category II codes track quality; Category III codes cover emerging technology.
- HCPCS Level II
- Supplies, drugs (J codes), DME, ambulance and services not in CPT. Updated quarterly by CMS.
- Modifiers
- Two characters that change the meaning of a code: 25 (separate E/M), 59 and X{EPSU} (distinct service), 26/TC (professional/technical), RT/LT, 50 (bilateral), GA/GX/GY/GZ (Medicare liability), 95/GT (telehealth), KX (requirements met).
- Revenue codes
- Four-digit UB-04 codes that classify facility charges by department or service type (0450 emergency, 0360 operating room, 0250 pharmacy). Paired with HCPCS where required.
- NDC
- National Drug Code, 11 digits, required with J codes by Medicaid and many commercial payers for drug rebates and pricing.
- POS codes
- Two-digit place of service: 11 office, 19/22 outpatient hospital (off/on campus), 21 inpatient, 23 ED, 24 ASC, 02/10 telehealth. Drives the site-of-service payment differential.
Before the claim: charges, coding and documentation
The claim can only be as good as the record behind it. Three processes turn clinical work into billable data: charge capture, coding, and clinical documentation improvement.
Charge capture
Every service gets a charge
Charges come from the EHR order, a charge ticket, or the surgical and pharmacy systems. Missed charges are silent revenue loss; late charges after the claim went out mean a corrected claim. Reconcile schedules to charges daily.
Chargemaster (CDM)
The facility price list
Each line: description, CPT/HCPCS, revenue code, price. Hospitals must post it in machine-readable form under the price transparency rule. Outdated CDM codes are a recurring source of rejections every January.
Fee schedule
The professional price list
Practices bill from a fee schedule, usually set as a multiple of Medicare's. Contracted allowables are what the payer will actually recognize; the difference is the contractual adjustment.
Coding
- Professional coding assigns CPT, HCPCS and ICD-10-CM from the note. E/M levels follow the 2021 and 2023 guidelines: medical decision making or total time, not history and exam bullets.
- Facility coding assigns ICD-10-CM and ICD-10-PCS and drives the MS-DRG (inpatient) or the APC through HCPCS (outpatient). The principal diagnosis and any CC/MCC secondary diagnoses determine DRG weight.
- Compliance. Code what is documented, to the highest specificity, and nothing more. Upcoding and unbundling expose the organization to the False Claims Act; undercoding leaves revenue unclaimed and distorts quality data.
- Edits before billing. NCCI procedure-to-procedure (PTP) pairs and medically unlikely edits (MUEs) apply to Medicare and most Medicaid and commercial payers. Run them in the coding stage, not after the denial.
Clinical documentation improvement (CDI)
What CDI does
Nurses and coders review documentation concurrently, query the physician when a diagnosis is implied but not stated (acute vs. chronic, specificity, severity, present on admission), and close gaps before coding. The result is an accurate severity picture, correct DRG, and fewer medical necessity denials.
Query rules
A compliant query is non-leading, offers clinically reasonable options including "unable to determine," and does not mention reimbursement. The response must be documented in the record, not just in the query tool.
Time to bill
- DNFB
- Discharged not final billed: encounters waiting on coding, documentation or charges. Measured in days of revenue; a common target is under 3 to 5 days.
- DNFC
- Discharged not final coded: the coding-only slice of DNFB.
- Bill hold
- A deliberate delay (often 3 to 5 days) to let late charges post before the claim is built. Longer holds reduce corrected claims but add A/R days.
- Lag days
- Date of service to claim submission. Every lag day is a day of float the organization gives the payer for free.
Scrubbing, submission and timely filing
Between the billing system and the payer sit several layers of edits and two acknowledgments. Understanding them tells you where a claim is, and whether the payer has it at all.
- 1
Practice management / billing system edits
Required fields, valid codes for the date of service, NPI format, modifier logic, payer-specific rules you have configured. Claims that fail land in a work queue before anything leaves the building.
- 2
Clearinghouse scrubber
HIPAA compliance, payer connectivity, and thousands of payer-specific edits learned from rejections. Returns a 999 (implementation acknowledgment) for syntax and a 277CA (claim acknowledgment) saying whether each claim was accepted for adjudication or rejected with a reason (STC codes).
- 3
Payer front-end edits
Member found, provider enrolled, duplicate check, code validity. Failures here come back as a 277CA rejection or an early denial. Medicare's front end is the Common Edits and Enhancements Module (CEM) and the MAC's own edits.
- 4
Adjudication
Only accepted claims reach it. A rejected claim does not exist for the payer, which is why rejections must be worked daily: the timely filing clock keeps running.
Rejection vs. denial
A rejection happens before adjudication (999 or 277CA): fix and resend as a new claim. A denial happens in adjudication and comes on the 835: fix and send a corrected claim (frequency 7) or appeal. Resending a denied claim as an original creates a duplicate denial (CARC 18) and wastes a cycle.
Proof of timely filing
Keep the 277CA showing the payer accepted the claim, with the date. A clearinghouse report alone is often not accepted as proof. Timely filing denials (CARC 29) are overturned only with evidence the payer received the claim within the limit.
Timely filing limits
| Payer | Limit | Measured from | Notes |
|---|---|---|---|
| Medicare (Parts A and B) | 12 months | Date of service (through date for inpatient) | Exceptions: administrative error, retroactive entitlement, retroactive MA disenrollment |
| Medicare Advantage | Contract; often 90 days to 1 year | Date of service | Non-contracted providers: usually the plan's standard |
| Medicaid | State rule; commonly 90 days to 12 months | Date of service | Some states measure from the Medicare EOB date for crossover claims |
| Commercial | Contract; 90 to 180 days typical, up to 1 year | Date of service | ERISA plans may set their own; secondary claims often measured from the primary EOB |
| TRICARE | 1 year | Date of service or discharge | |
| Corrected claims and appeals | Separate clocks | Denial or remittance date | Corrected claims often 60 to 180 days from the original remittance; appeals per the payer and chapter 09 |
Timely filing and appeal deadline calculatorA model of common limits. Your contract and the payer's provider manual govern.
Reading an 837 professional claim
Billing staff rarely see the raw 837, but when a claim rejects for a reason the scrubber cannot explain, the file is the truth. Below is a simplified, fictional 837P for an office visit and a lumbar MRI. Select any line to see what it carries.
Sample 837P · Jordan Doe · office visit and MRI
Envelope and functional group segments (ISA, GS, GE, IEA) and some required loops are omitted for readability. Version 005010X222A1.
Loops you will hear about
| Loop | Contents |
|---|---|
1000A / 1000B | Submitter and receiver (your billing system or clearinghouse, and the payer) |
2000A / 2010AA | Billing provider: name, NPI, tax ID, address (must be a street address, not a PO box) |
2000B / 2010BA / 2010BB | Subscriber and the payer |
2000C / 2010CA | Patient, only when the patient is not the subscriber |
2300 | Claim: CLM, dates, authorization REF, diagnoses HI, claim-level notes |
2310A–E | Referring, rendering, service facility and supervising providers |
2320 / 2330 | Other subscriber and other payer: COB data for secondary claims, including the primary's CAS adjustments and AMT paid |
2400 | Service lines: SV1, DTP*472, line-level REF, drug NDC (LIN/CTP) |
2430 | Line-level adjudication by prior payers |
Adjudication: what the payer does with the claim
Adjudication is automated for most claims and takes seconds; the ones that pend for a human can take weeks. Knowing the order of checks tells you which denial to expect and what the payer looked at.
- 1
Member and eligibility
Is this a member, on this plan, on the date of service? Denials: CARC 31 (patient cannot be identified), 27 and 26 (coverage terminated or not yet effective), 140 (patient/insured ID mismatch).
- 2
Provider
Is the billing and rendering provider enrolled, credentialed and in network? Denials: CARC 16 with N290/N257, 38 (services not provided by network provider), 242.
- 3
Duplicate and timely filing
Same member, provider, date, code and charge as a paid claim: CARC 18. Received after the limit: CARC 29.
- 4
Benefits and authorization
Is the service covered under the plan? Is a referral or auth on file? Denials: CARC 96 (non-covered), 197/198 (precert), 50 (not medically necessary), 243 (not authorized by network/PCP).
- 5
Coding edits
NCCI bundling (CARC 97), MUE units (CARC 151), modifier validity (CARC 4), diagnosis-to-procedure (CARC 11), age and gender edits (CARC 6, 7), global surgery period (CARC 97 with N525).
- 6
Pricing
The allowed amount from the contract or fee schedule: Medicare physician fee schedule, MS-DRG, APC, per diem, percentage of charges, case rate. Contractual adjustment (CARC 45) = billed minus allowed.
- 7
Cost sharing and COB
Deductible (CARC 1), coinsurance (2), copay (3) applied to the allowed amount; other-payer logic if the plan believes it is secondary (CARC 22).
- 8
Pay, deny or pend
Pends go to medical review (records request: CARC 16 with N479 or RARC M127) or to a clinical reviewer. Payment and the 835 follow prompt-pay rules.
Prompt-pay rules
Medicare pays clean electronic claims no earlier than day 14 (payment floor) and owes interest if not paid by day 30; paper claims have a 29-day floor. State prompt-pay laws for fully insured plans range from 30 to 45 days for clean claims, with interest penalties. ERISA self-funded plans have no state prompt-pay deadline, only the plan's own terms.
Pricing surprises
Multiple procedure reduction (50% on the second surgical procedure), bilateral rules, assistant surgeon percentages, site-of-service differentials and the sequestration reduction (2% on Medicare payments) all show up as adjustments that are correct, not denials. Learn to recognize them before "appealing" a correctly priced claim.
Remittance, reason codes and posting
The 835 electronic remittance advice (ERA) is the payer's accounting of each claim: what was billed, allowed, paid, adjusted and why. Posting it correctly is what makes every downstream number (denial rate, patient balance, A/R) true.
How the 835 is organized
- BPR and TRN
- The payment: amount, method (ACH, check, non-payment), effective date, and the trace number that matches the EFT. Reconcile every 835 to a bank deposit.
- CLP
- One per claim: your patient control number, claim status (1 processed as primary, 2 as secondary, 4 denied, 22 reversal of prior payment), billed, paid, patient responsibility, and the payer's claim number (ICN).
- CAS
- Adjustments, each with a group code, reason code and amount. The sum of billed minus all CAS amounts must equal paid.
- SVC and line-level CAS
- Service-line detail: the billed code, the paid code (if the payer changed it), billed and paid amounts, units, and line adjustments.
- PLB
- Provider-level adjustments: recoupments, interest, offsets and takebacks that are not tied to a single claim. The reason many 835s do not add up until PLB is applied.
- LQ and RARC
- Remark codes that narrow the reason (N-codes, M-codes, MA-codes), such as N290 (missing rendering NPI) or M127 (missing patient medical record).
Group codes: who absorbs the adjustment
CO · Contractual obligation
The provider writes it off under the contract: the difference between charge and allowed, bundling, non-covered under contract, timely filing. Never bill the patient.
PR · Patient responsibility
Deductible, coinsurance, copay, and non-covered services the patient agreed to pay. Transfers to the patient balance (or to the secondary payer).
OA · Other adjustment
Neither party is liable in the usual sense: duplicate payments, COB where another payer is responsible, informational adjustments (OA-23 for the prior payer's impact).
PI · Payer-initiated reduction
Payer reductions that are not contractual and not patient liability, such as a penalty the payer imposes. Rare; review each one.
Remittance mathEnter the adjudication. The tool writes the CAS segments and splits the balance between write-off, patient and the next payer.
Posting rules that keep the books honest
Posting discipline
- Post from the 835, not from the check. Auto-posting applies payments and adjustments line by line and routes exceptions (denials, zero pays, takebacks) to work queues.
- Separate contractual from non-contractual adjustments. CO-45 is expected; CO-97, CO-50 and CO-197 are denials and belong in the denial inventory, even though they are also "adjustments."
- Never auto-write-off a denial. Small-balance and denial write-offs need a reason code, an owner, and a threshold policy.
- Reconcile PLB entries (recoupments, interest, offsets) to the accounts they belong to; unapplied cash and unexplained offsets distort both A/R and the denial rate.
- Balance every remittance to the deposit before closing the batch.
The patient balance
Patient responsibility is now the second-largest payer for many providers and the hardest to collect. The lifecycle does not end at the remittance; it ends when the patient's share is resolved.
Before the visit
Estimate and collect
Use the 271 accumulators and the contracted rate to estimate the patient's share, and collect copays and known deductible amounts at check-in. Collection rates fall sharply once the patient leaves.
After the remittance
Statement
Send a clear statement promptly after the final payer adjudicates: what was billed, what insurance paid and adjusted, what the patient owes, and how to pay or ask questions. Most organizations run a 3-statement cycle over 90 to 120 days before collections.
Protections
No Surprises Act and good faith estimates
Uninsured and self-pay patients must get a good faith estimate; a bill $400 or more above it can be disputed. Balance billing is barred for emergency care and for out-of-network care at in-network facilities, with payment resolved between provider and plan.
Financial assistance
501(r) and charity care
Nonprofit hospitals must have a written financial assistance policy, screen before extraordinary collection actions, and limit charges to eligible patients. Presumptive charity screening reduces bad debt and improves the patient experience.
What you cannot bill the patient
- CO adjustments of any kind, including timely filing and bundling denials.
- Medicare deductibles and coinsurance for Qualified Medicare Beneficiaries (QMB).
- Medicare non-covered services without a valid ABN (modifier GA) signed before the service.
- Amounts above the in-network allowed amount, or out-of-network amounts protected by the No Surprises Act.
Denials, corrected claims and appeals
Denial management is where most of the recoverable revenue in a revenue cycle lives. The work is classification: which denials are fixed by a corrected claim, which need an appeal, which are correct, and which are preventable upstream.
Classify first
Technical
Corrected claim
Wrong or missing data: ID, NPI, modifier, units, diagnosis pointer, POS, auth number. Send a replacement claim (frequency 7 with the payer's original claim number in REF*F8) within the corrected-claim window.
Clinical
Appeal
Medical necessity, level of care, experimental, inpatient vs observation. Needs records, the payer's policy, and a letter that maps the record to the criteria. Peer-to-peer where offered.
Correct denial
Write off, and prevent
Non-covered under the contract, true timely filing failures, true duplicates. Code the write-off by root cause so the front end can fix the process.
Medicare's five appeal levels
| Level | Who decides | File within | Decision due | Minimum amount (2026) |
|---|---|---|---|---|
| 1. Redetermination | The MAC | 120 days from the remittance | 60 days | None |
| 2. Reconsideration | Qualified Independent Contractor (QIC) | 180 days from the redetermination | 60 days | None |
| 3. ALJ hearing | Office of Medicare Hearings and Appeals | 60 days from the reconsideration | 90 days (often longer) | $200 |
| 4. Medicare Appeals Council | Departmental Appeals Board | 60 days from the ALJ decision | 90 days | None |
| 5. Federal district court | US District Court | 60 days from the Council decision | Court schedule | $1,960 |
Medicare Advantage uses a different path: plan reconsideration (60 days to file; 30 days standard or 72 hours expedited for pre-service, 60 days for payment), automatic forwarding to the Independent Review Entity if upheld, then ALJ and above with the same thresholds.
Commercial and Medicaid appeals
- Internal appeal
- One or two levels under the plan's provider manual; typical filing windows 60 to 180 days from the denial; decisions in 30 to 60 days. State law may set shorter clocks for fully insured plans.
- External review
- Independent review organization for adverse benefit determinations under the ACA and state law. Usually the patient's right; providers often file with an appointment of representative.
- Provider dispute
- Payment disputes (underpayments, contract interpretation) follow the contract's dispute resolution clause and may go to arbitration rather than the member appeal path.
- Medicaid
- MCO internal appeal, then the state fair hearing. Fee-for-service Medicaid appeals go to the state agency.
The denial inventory
Work denials like a production line
- Categorize by CARC/RARC and root cause (registration, eligibility, authorization, coding, medical necessity, payer error) so prevention has an address.
- Prioritize by dollars and deadline. Appeal windows expire; sort the queue by days-to-deadline and balance, not by arrival.
- Template every appeal by payer and reason, with the policy citation slots filled in.
- Track overturn rates by payer and reason; low overturn rates on a category mean the denial is correct and the fix is upstream.
- Feed it back. A weekly review with registration, coding and clinical leaders turns denials into process changes.
Secondary claims and coordination of benefits
When a patient has more than one plan, the primary adjudicates first and the secondary needs to see exactly what the primary did. The secondary claim is the primary claim plus the primary's answer.
Electronic secondary (837 COB)
Loops 2320, 2330 and 2430
Carry the primary payer's identity, the amount paid (AMT*D), and the primary's CAS adjustments at claim or line level. The secondary recalculates its own benefit from this data; missing or inconsistent COB data triggers CARC 22 or 23.
Crossover
Medicare to Medigap and Medicaid
Medicare forwards paid claims automatically to supplemental plans on file (the 835 shows the crossover with CLP status 19 to 21 and an MA18 remark). Do not bill the supplemental separately until you confirm the crossover did not happen.
Medicare Secondary Payer (MSP)
When Medicare is not primary
Working-aged with employer coverage (20+ employees), disability with large group coverage (100+), ESRD during the 30-month coordination period, workers' compensation, no-fault and liability. Bill the primary first; Medicare's secondary claim carries the MSP type code and the primary payment.
Common failures
Why secondaries stall
Secondary billed before the primary 835 posts; primary's adjustments not passed through; wrong COB order (see the Eligibility, VOB and COB tutorial); secondary timely filing measured from the primary EOB date and missed.
How a secondary pays
The method depends on the secondary's COB rule: standard (pays up to its normal benefit on the remaining balance), non-duplication (pays only what it would have paid minus what the primary paid, often nothing), or for Medicare as secondary, the lowest of several statutory calculations. The remittance math tool above shows how the balance moves to a secondary when one is on file.
KPIs and A/R management
A handful of ratios describe the health of the whole cycle. Measure them monthly, by payer, and trend them; one month's number says little, the slope says everything.
RCM KPI calculatorEnter a month of activity. Benchmarks are common industry targets (HFMA MAP Keys and MGMA ranges), not contractual standards.
The metrics, defined
- Days in A/R
- Total A/R ÷ average daily charges (gross charges over 90 days ÷ 90). Target: under 40 to 50 days overall, lower for professional billing. Exclude credit balances when you can.
- A/R over 90 days
- Share of A/R older than 90 days. Target: under 15 to 20%. Older A/R is less collectible every month it ages.
- Clean claim rate
- Claims accepted on first submission with no manual edits ÷ claims submitted. Target: 95% or better.
- First-pass resolution rate
- Claims paid (or correctly closed) on first adjudication ÷ claims submitted. The stronger cousin of clean claim rate; target 90%+.
- Initial denial rate
- Claims (or dollars) denied ÷ claims submitted. Target: under 5%; industry average is above 10%.
- Net collection rate
- Payments ÷ (charges − contractual adjustments), ideally on a matched cohort of claims. Target: 95% to 99%. Measures how much of the collectible money you actually collected.
- Cost to collect
- RCM operating cost ÷ cash collected. Typical range 2% to 4%; lower is not always better if denials rise.
- Denial overturn rate
- Denied dollars recovered ÷ denied dollars appealed. High rates justify the appeal effort; low rates point to correct denials and upstream fixes.
- Bad debt and charity
- Uncollectible patient balances written off, separated into those the patient could not pay (charity) and would not pay (bad debt).
Working the A/R
Aging buckets
0–30, 31–60, 61–90, 91–120, 120+. Work the oldest first only when deadlines allow; otherwise work by expected value: balance × probability of collection.
No-response follow-up
Claim status inquiries (276/277) at day 14 for electronic claims and day 30 for paper. A claim with no 277CA and no 835 after 30 days is probably lost.
Credit balances
Overpayments must be refunded (Medicare: within 60 days of identification under the 60-day rule). They also inflate A/R if netted against debits; report them separately.
Rules and regulations
HIPAA transactions and code sets
45 CFR Part 162
Standardizes the 837, 835, 270/271, 276/277, 278 and the code sets (ICD-10, CPT, HCPCS, NDC). Payers must accept the standard transactions; the CMS 2026 and 2027 interoperability rules add FHIR APIs on top. The Administrative Simplification Compliance Act (ASCA) requires Medicare claims to be electronic except for small providers and specific exceptions.
Medicare claims rules
Timely filing, payment floor, appeals
Claims must be received within 12 months of the date of service. Clean electronic claims are paid no earlier than day 14 and accrue interest after day 30. Five appeal levels with 2026 amount-in-controversy thresholds of $200 (ALJ) and $1,960 (federal court). Overpayments must be reported and returned within 60 days of identification.
False Claims Act and program integrity
31 USC 3729
Knowingly submitting a false claim (upcoding, billing for services not rendered, unbundling, retaining identified overpayments) carries treble damages and per-claim penalties. Compliance programs, coding audits and the 60-day rule exist because of it. Medicare's RACs, UPICs, TPE reviews and the SMRC audit paid claims after the fact.
No Surprises Act
Patient protections and the IDR
Bans balance billing for emergency services and out-of-network care at in-network facilities, requires good faith estimates for self-pay patients with a dispute process for bills $400 or more above the estimate, and sends provider-payer payment disputes to independent dispute resolution. Advanced EOBs for insured patients remain unimplemented as of 2026.
Price transparency
Hospital and plan rules
Hospitals must post machine-readable standard charges and shoppable services; plans must publish in-network rates and offer cost estimator tools. CMS enforcement and penalties for hospitals increased from 2024.
State prompt-pay and ERISA
Who must pay how fast
State laws require fully insured plans to pay clean claims within 30 to 45 days with interest; self-funded ERISA plans are exempt from state law and follow the plan's terms and 29 CFR 2560.503-1 for benefit claims and appeals.
501(r) and FDCPA
Patient billing conduct
Nonprofit hospitals must have financial assistance policies and wait 120 days before extraordinary collection actions. Third-party collectors are bound by the Fair Debt Collection Practices Act; medical debt reporting to credit bureaus has been limited by the bureaus and by several states.
Sources
- First Coast Service Options: amount in controversy thresholds for 2026
- Kodiak Solutions: initial denial rates continued to rise in 2024
- Employer Coverage: insurance denial rates increased in 2025 (Kodiak data)
- Physicians Practice: FY 2027 ICD-10-CM update
- CMS: Interoperability and Prior Authorization final rule (CMS-0057-F)
Glossary
Knowledge check
Eight questions drawn from the chapters above. Pick an answer to see the explanation.
Score: 0 / 8
For training and reference. This page summarizes general rules and does not replace payer contracts, plan documents, CMS manuals, state law or legal advice. Example names, IDs, claim numbers and payers are fictional.
Figures checked October 15, 2026.