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Medical Billing Glossary for Billing Companies

Q: How current is this glossary?

Last reviewed 2026-05-17. Definitions are sourced from [X12 code lists](https://x12.org/codes), [CMS electronic billing guidance](https://www.cms.gov/medicare/coding-billing/electronic-billing), and [HHS HIPAA for Professionals](https://www.hhs.gov/hipaa/for-professionals/index.html). HIPAA Security Rule §164.312 references the technical safeguards subsection in 45 CFR Part 164.

Medical billing glossary for ERA, 835, 277CA, CARC, RARC, COB, denials, appeals, and underpayments in billing-company workflows.

By Andrew · Founder, Medi·Last reviewed May 18, 2026·17 min read

Short answer

This glossary defines the medical billing terms that come up most often in billing-company operations: X12 transactions (837, 835, 270, 271, 276, 277, 277CA, 278, 999), payment and denial codes (CARC, RARC, group codes, PLB), workflow concepts (eligibility, COB, underpayment, recoupment, write-off, parallel run), and compliance terms (BAA, PHI, HIPAA Security Rule). Definitions are sourced from X12, CMS, and HHS. Each term includes a one-sentence operational note for billing-company context.

X12 transaction set

Definitions for the EDI transactions used in everyday billing workflows. Maintained by X12, the standards body that publishes the HIPAA-mandated transaction formats.

Transaction	Plain English	Operational context
270	Health Care Eligibility Benefit Inquiry	The request a billing system sends to a payer to check whether a patient has active coverage and what their benefits look like
271	Health Care Eligibility Benefit Response	The payer's response to the 270; should carry active status plus copay, deductible remaining, coinsurance, plan name, and EB segment details
276	Health Care Claim Status Request	A follow-up request asking the payer for the current status of a previously submitted claim
277	Health Care Claim Status Response	The payer's response to the 276 with current status (paid, pending, denied, finalized)
277CA	Health Care Claim Acknowledgment	A pre-adjudication acknowledgment from the clearinghouse or payer indicating whether the submitted claim was accepted into adjudication or rejected before it got there
278	Health Care Services Review (authorization request and response)	The transaction set for requesting and receiving payer authorization decisions
834	Benefit Enrollment and Maintenance	Group enrollment data sent from employers and sponsors to payers; less common in billing-company workflows but adjacent
835	Health Care Claim Payment and Advice (ERA)	The electronic remittance advice; carries claim payment, adjustment, denial, and patient-responsibility detail with CARC and RARC codes
837	Health Care Claim	The claim submission itself; 837P for professional, 837I for institutional, 837D for dental
999	Functional Acknowledgment	A technical acknowledgment that the EDI envelope was received and parsed; distinct from 277CA acceptance

Code systems

Definitions for the standardized codes that travel inside the X12 transactions and determine how claims, adjustments, and denials are routed.

Term	Plain English	Operational context
CARC	Claim Adjustment Reason Code	The standardized code on the 835 that explains why a payer adjusted, reduced, or denied a claim line. Maintained by X12
RARC	Remittance Advice Remark Code	The code paired with CARCs to add detail about what specifically caused the adjustment
Group Code	The two-letter code that determines responsibility: CO (contractual), PR (patient responsibility), OA (other), PI (payer initiated)	Decides whether the next action is appeal, patient bill, or contractual write-off. The most common workflow mistake is treating PR codes as appealable
CPT	Current Procedural Terminology	The AMA-maintained code set for procedures and services
ICD-10	International Classification of Diseases, 10th revision	The diagnosis code set; ICD-10-CM for diagnoses, ICD-10-PCS for inpatient procedures
HCPCS	Healthcare Common Procedure Coding System	CMS-maintained code set including HCPCS Level II for products, supplies, and services not in CPT
NCCI	National Correct Coding Initiative	CMS edit pairs that flag procedure combinations as bundled or not separately reportable. Drives many CO-97 denials
NPI	National Provider Identifier	The unique ten-digit identifier for healthcare providers
Payer ID	The clearinghouse identifier for routing transactions to a specific payer	Different from the payer's tax ID; used in EDI routing

Common modifiers

Modifiers are two-character suffixes appended to CPT or HCPCS codes that signal special circumstances affecting the procedure or payment. The wrong modifier (or a missing one) is one of the most common denial drivers in commercial billing.

Modifier	Plain English	Operational context
25	Significant, separately identifiable E&M service on the same day as a procedure	Required to bill an E&M alongside a same-day minor procedure; CO-97 bundling denials often resolve with modifier 25 when documentation supports it
26	Professional component	The physician interpretation portion of a service that has both technical and professional components (often imaging)
50	Bilateral procedure	One procedure performed on both sides; affects unit count and payment
51	Multiple procedures	Used to identify second through later procedures on the same day; payer-specific application
59	Distinct procedural service	Used to indicate a procedure or service was independent from other services performed on the same day; one of the most common unbundling modifiers
76	Repeat procedure by the same physician	Same provider repeats a procedure on the same day
77	Repeat procedure by another physician	Different provider repeats a procedure on the same day
78	Unplanned return to the operating room	Same provider, related procedure during the global period
79	Unrelated procedure during the postoperative period	Same provider, unrelated procedure during another procedure's global period
AA	Anesthesia personally performed by the anesthesiologist	Anesthesia billing modifier; full payment
QK	Medical direction by an anesthesiologist of 2 to 4 concurrent procedures	Anesthesia medical direction modifier; reduced payment per case
QY	Medical direction of one CRNA by an anesthesiologist	Anesthesia medical direction modifier
QX	CRNA service with medical direction	Anesthesia modifier
QZ	CRNA service without medical direction	Anesthesia modifier; full CRNA payment
QS	Monitored Anesthesia Care	Modifier signaling MAC; informational
AT	Active chiropractic treatment	Required on chiropractic manipulation codes for Medicare to recognize active treatment vs maintenance
KX	Therapy threshold exception	Used to attest that PT/OT/SLP services above the annual threshold are medically necessary
GP	Service delivered under outpatient PT plan of care	Required PT modifier on therapy codes
GO	Service delivered under outpatient OT plan of care	Required OT modifier on therapy codes
GN	Service delivered under outpatient SLP plan of care	Required speech-language pathology modifier
Q7	One Class A finding	Medicare routine foot care class finding modifier
Q8	Two Class B findings	Medicare routine foot care class finding modifier
Q9	One Class B and two Class C findings	Medicare routine foot care class finding modifier
RT	Right side	Anatomic modifier; required by some payers when relevant
LT	Left side	Anatomic modifier; required by some payers when relevant

Place of service codes

Two-digit codes on the CMS-1500 (or 837P) that identify where the service was performed. Affects payment rates because facility services pay differently than office services for the same code.

POS	Setting	Operational context
11	Office	Most common for outpatient professional services
12	Home	Patient's home; used for house calls and home health
21	Inpatient Hospital	Affects payment substantially; site differentials apply
22	On-Campus Outpatient Hospital	Hospital outpatient setting on the main campus
23	Emergency Room	Emergency department services
24	Ambulatory Surgical Center	Outpatient surgery setting
31	Skilled Nursing Facility	SNF inpatient services
32	Nursing Facility	Custodial nursing facility
50	Federally Qualified Health Center	FQHC; special payment rules
53	Community Mental Health Center	Behavioral health facility
81	Independent Laboratory	Lab services performed outside a physician office
02	Telehealth (other than home)	Telehealth from a non-home location
10	Telehealth provided in patient's home	Telehealth POS effective January 2022; payer-specific rules apply

Workflow concepts

Term	Plain English	Operational context
Eligibility verification	Confirming the patient has active coverage at the time of service	Useful eligibility responses include benefits detail (copay, deductible remaining, coinsurance), not just active/inactive. See the eligibility, COB, and insurance discovery guide
COB	Coordination of Benefits	The rules and workflow for determining which payer is primary, secondary, or tertiary when a patient has multiple coverages. CMS publishes COB guidance for Medicare specifically
Insurance discovery	Searching for active coverage when the patient does not present a card or when prior coverage may have lapsed	Often handled via third-party network queries
MSP	Medicare Secondary Payer	The rules determining when Medicare is the secondary payer to another coverage (group health plan, workers comp, no-fault auto, etc.)
ERA posting	The workflow for reviewing the 835 and applying payment, adjustment, denial, and patient-responsibility information to the correct claim	See the ERA posting guide for the operational pattern
BPR	Beginning of Provider Reimbursement segment of the 835	Carries the total payment amount; the BPR footer should reconcile to the sum of claim-level payments minus PLB adjustments
PLB	Provider-Level Adjustment segment of the 835	Carries adjustments at the provider level rather than the claim level: recoupments (WO), forwarding balances (FB), interest (IR), levies (L6), advance payments (AP)
Recoupment	A payer-initiated recovery of a previously paid amount	Appears in the PLB segment as a negative balance forward; needs to be applied to the originally-paid claim, not treated as an unrelated negative
Denial	A payer's post-adjudication decision not to pay (or to pay less than expected)	Distinct from rejection. Carries CARC and RARC context on the 835. See the denial management workflow guide
Rejection	A pre-adjudication failure that prevents the claim from entering the payer's adjudication system	Reported on 277CA; usually fixable and resubmittable. The 277CA acknowledgment guide covers this in depth
Appeal	A formal request asking the payer to reconsider an adjudicated decision	Requires documentation, deadline tracking (Medicare gives 120 days, most commercial payers 60-180), and a packet structured to the CARC category
Underpayment	A payment lower than the contracted rate, after CARC-level contractual adjustments are accounted for	Distinct from a denial. See the underpayment detection guide
Write-off	A decision to remove an amount from accounts receivable	Can be contractual (adjustment per payer contract), bad-debt (uncollectible patient balance), or policy (small-balance write-off)
Aging bucket	A range of days since the claim or balance was created	Standard buckets are 0-30, 31-60, 61-90, 91-120, and over 120. Aging signals which work is at greatest risk of becoming uncollectible
A/R	Accounts Receivable	The total dollars owed on unpaid or partially paid claims and patient balances
Net collection rate	The percentage of contractually allowed amounts that the billing company actually collects	A primary efficacy metric for billing companies; industry benchmarks often cite 95 percent and higher for healthy operations
First-pass acceptance	The percentage of claims that the clearinghouse and payer accept on first submission without requiring correction	Industry benchmark is around 95 percent for managed billing services

Money flow concepts

Term	Plain English	Operational context
Allowed amount	The maximum the payer will pay for a service under the contract	Often less than billed amount; the difference is the contractual write-off
Paid amount	What the payer actually paid, after deductible, coinsurance, copay, and adjustments	Reported on the 835
Patient responsibility	The portion the patient owes after the payer's adjudication	Includes deductible (PR-1), coinsurance (PR-2), and copay (PR-3); should route to patient statement workflow, not the appeal queue
Unapplied cash	Payment received that has not been allocated to a specific claim	Sits on the patient or payer ledger until matched; should not stay unapplied for long
EOB	Explanation of Benefits	The paper or PDF equivalent of an ERA; still used where electronic remittance is not in place
Capitation	A payment model where the payer pays a fixed amount per member per month regardless of services rendered	Common in some managed care arrangements; creates a different accounting flow than fee-for-service
Fee schedule	The contracted prices a payer pays for each procedure	Loaded into the billing system to detect underpayments against contract

Payer types and plan terms

Term	Plain English	Operational context
HMO	Health Maintenance Organization	Restricted network; PCP referral typically required; lower premiums, narrower access
PPO	Preferred Provider Organization	In/out-of-network tiers; no referral required; broader access
EPO	Exclusive Provider Organization	In-network only (no out-of-network coverage except emergencies); no referral required
POS plan	Point of Service	HMO-PPO hybrid; in-network preferred, out-of-network allowed at higher cost
HDHP	High-Deductible Health Plan	High deductible paired with HSA eligibility
MA	Medicare Advantage	Privatized Medicare administered by commercial payers; rapidly growing denial source per Experian 2025
CHIP	Children's Health Insurance Program	State-administered program for children
TPA	Third-Party Administrator	Administers a self-funded employer's health plan; billing companies see TPAs as payer-like entities
Self-funded plan	Employer-funded plan	Employer takes the risk; usually administered by a TPA or insurer; subject to ERISA, not state insurance law
MSP	Medicare Secondary Payer	Rules determining when Medicare pays secondary to another coverage
COB	Coordination of Benefits	Primary/secondary/tertiary payer determination when patient has multiple coverages
Crossover claim	Medicare-Medicaid crossover	Medicare automatically forwards claim to Medicaid as secondary in many states
Capitation	Per-member-per-month payment	Payer pays a flat amount per member regardless of services; creates different accounting flow
Risk adjustment	Payer adjustment for member health status	Affects MA payments; HCC coding drives risk scores
Out-of-network	Not contracted with the payer	Surprise billing and No Surprises Act compliance apply

A/R and performance metrics

Metric	Plain English	Operational context
Days in A/R	Total A/R divided by average daily charges	Industry benchmark is 30–40 days for healthy practices; over 50 days signals workflow problems
Gross collection rate	Total payments divided by total charges	Includes contractual write-offs; less useful than net collection rate
Net collection rate	Total payments divided by allowed amount	Industry benchmark 95–98 percent for healthy operations; under 90 percent is a red flag
Clean claim rate	Percentage of claims paid on first submission without correction	Industry standard around 95 percent for managed billing services
First-pass acceptance rate	Percentage of claims accepted at the clearinghouse on first submission	Tracked separately from clean claim rate
Denial rate (initial)	Percentage of submitted claims initially denied	MGMA reports average 11.8 percent for 2024
Denial rate (final)	Percentage of claims ultimately written off due to denial	Should be much lower than initial rate; gap measures appeal effectiveness
Cost-to-collect	Total billing operation cost divided by collections	Industry range 4–8 percent depending on scale and specialty
Charge lag	Days between date of service and claim submission	Goal under 3 days; over 7 days signals workflow problems
Aging bucket distribution	Breakdown of A/R by age (0-30, 31-60, 61-90, 91-120, 120+)	Money in older buckets is harder to collect; 120+ A/R is typically a write-off candidate
Bad debt rate	Percentage of accounts written off as uncollectible	Patient-balance specific metric

Advanced coding concepts

Term	Plain English	Operational context
DRG	Diagnosis-Related Group	Inpatient bundled payment; assigns each admission to a group with a fixed payment
APC	Ambulatory Payment Classification	Outpatient hospital prospective payment system
HCC	Hierarchical Condition Category	Risk-adjustment coding system; affects Medicare Advantage payments
NDC	National Drug Code	Pharmaceutical identifier; required on Medicaid and many commercial drug claims
RVU	Relative Value Unit	Building block of Medicare physician payment; combines work, practice expense, and malpractice components
Conversion factor	Dollar value per RVU	Set annually by CMS; CY2026 is $33.4009 base, $33.5675 for qualifying APMs
MPPR	Multiple Procedure Payment Reduction	Reduces payment for the second and subsequent procedures on same day; load-bearing for therapy billing
NCCI	National Correct Coding Initiative	CMS edit pairs that flag bundled procedure combinations; drives many CO-97 denials
LCD	Local Coverage Determination	Medicare Administrative Contractor coverage policy for specific services
NCD	National Coverage Determination	National-level Medicare coverage policy
Modifier 25 documentation	Required documentation for E&M with procedure	Must show the E&M was "significant" and "separately identifiable" beyond routine pre-procedure assessment

Compliance and security

Term	Plain English	Operational context
HIPAA	Health Insurance Portability and Accountability Act of 1996	The federal law establishing patient privacy and security requirements. HHS HIPAA for Professionals is the authoritative source
PHI	Protected Health Information	Patient-identifiable health data subject to HIPAA controls
ePHI	Electronic PHI	PHI in electronic form, subject to HIPAA Security Rule technical safeguards
BAA	Business Associate Agreement	A contract required between a covered entity and any business associate that processes PHI on its behalf. Required before any PHI workflow goes live
HIPAA Security Rule	The administrative, physical, and technical safeguard requirements for ePHI	Technical safeguards are at §164.312
§164.312(a)	Access controls	Unique user identification, emergency access, automatic logoff, encryption
§164.312(b)	Audit controls	Mechanisms to record and examine activity in systems containing PHI; drives audit log retention requirements
§164.312(c)	Integrity controls	Mechanisms to verify ePHI is not improperly altered or destroyed
§164.312(d)	Person or entity authentication	Verifying the user is who they claim to be
§164.312(e)	Transmission security	Encryption of ePHI in transit
Minimum necessary	The standard that limits PHI access to what is required for the role	Drives practice-scoped and role-scoped permissions in billing-company software

Compliance and security context for 2026

The 2026 HIPAA Security Rule update changed encryption from "addressable" to "required" for all ePHI, including data processed by AI systems. Business associates now have documented obligations covering the design, training, evaluation, and use of predictive decision support interventions (DSI). See the AI medical billing reality guide for the full breakdown.

How these terms connect in a real workflow

A claim moves through this sequence in shorthand: the practice submits a 270 for eligibility verification; the payer returns a 271 with active coverage and benefits detail. The biller submits an 837 claim. The clearinghouse returns a 999 confirming the EDI envelope was parsed, then a 277CA confirming the claim was accepted into adjudication (or rejected, which sends the biller back to fix and resubmit). The payer adjudicates and sends back an 835 ERA with payment, CARC and RARC adjustment codes, and patient responsibility detail. The poster reviews the ERA, applies clean lines automatically, and routes exceptions (write-off variance over tolerance, recoupment, PLB adjustment, secondary not posted) to a review queue. Denied lines route to the denial workflow, where the biller triages by CARC group code and decides whether to appeal, correct and resubmit, contractually adjust, or bill the patient.

Every term in this glossary connects to one of those steps. Billing-company software should make the connections visible without requiring the biller to memorize transaction codes or chase context across screens.

Frequently asked questions

What is the difference between a CARC and a RARC?

A CARC (Claim Adjustment Reason Code) explains the category of an adjustment ("why was this adjusted"). A RARC (Remittance Advice Remark Code) adds specifics ("what additional information caused the adjustment"). Both come from X12 and travel together on the 835.

What is the difference between 277CA and 277?

The 277CA is a pre-adjudication acknowledgment indicating whether the claim was accepted into the payer's adjudication system. The 277 (without the CA) is a status response to a 276 claim-status inquiry after adjudication. Both come from the same transaction set family but serve different workflow stages.

What is the difference between rejection and denial?

A rejection happens before adjudication, reported on 277CA. The claim never entered the payer's adjudication system. Usually fixable by correcting and resubmitting. A denial happens after adjudication, reported on the 835. The payer evaluated the claim and decided not to pay (or to pay less). Usually requires appeal, contractual adjustment, or patient billing decision.

What does PR-1 mean?

Patient Responsibility code 1, which is the patient's deductible. It is not a denial in the appeal sense; it is an amount to collect from the patient. Route to patient statement workflow, not the appeal queue.

Is a glossary enough to evaluate billing software?

No. A glossary helps you speak precisely about workflows. Evaluating software still requires testing the workflows your team actually performs every week, against your real client mix and payer set. See the billing-company software evaluation guide for the full evaluation framework.

How current is this glossary?

Last reviewed 2026-05-17. Definitions are sourced from X12 code lists, CMS electronic billing guidance, and HHS HIPAA for Professionals. HIPAA Security Rule §164.312 references the technical safeguards subsection in 45 CFR Part 164.

References

These public sources provide background for standards, terminology, or competitor context discussed on this page.

CMS Health Care Payment and Remittance AdviceCenters for Medicare and Medicaid Services
Stedi 277CA claim acknowledgmentsStedi
CMS Health Plan Eligibility Benefit Inquiry and ResponseCenters for Medicare and Medicaid Services
CMS Coordination of BenefitsCenters for Medicare and Medicaid Services
X12 external code listsX12
CMS Physician Fee ScheduleCenters for Medicare and Medicaid Services