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Rev cycle 101 – Healthcare revenue cycle terminology: Denial prevention glossary

Rev cycle 101 – Healthcare revenue cycle terminology: Denial prevention glossary

In the healthcare revenue cycle, acronyms are common — and also critical. Whether you’re in charge of denial prevention or billing services or working appeals, you need to be able to quickly grasp healthcare revenue cycle terminology.

Scroll through the glossary below or click on a term to jump to a concise definition of each commonly used term.

Healthcare revenue cycle terminology: Denials 101

Healthcare denials terminology

Allowed amount

The maximum amount a plan will pay for a covered healthcare service. May also be called:

  • Eligible expense
  • Payment allowance
  • Negotiated rate


An appeal is a formal request for a third-party payer or insurance carrier to review a decision that denies a benefit or payment. Can be submitted by the patient or the provider.

Balance billing

A provider’s billing of a covered person directly for charges above the amount reimbursed by the health plan. This may or may not be allowed, depending upon the contractual arrangements between the parties.

Billing fee schedule

A listing of what the provider or practice charges for each service. In facility billing, this is referred to as “chargemaster.”

Birthday rule

Used to determine primary insurance when a dependent has medical insurance coverage by two insurers.

  • The insurance for the parent whose birthday is earlier in the year than the other will be listed as the primary insurance.
  • If both insurers’ birthdays are on the same day, the insurance plan that provided coverage the longest will be primary.

Bundled service

Services that have been grouped together during a certain timeframe for payment purposes. This is common when one procedure always requires another. Any codes in the same bundle cannot be billed or reimbursed separately.


A payment arrangement for healthcare-service providers that pays a set amount for each enrollee during a period whether that person seeks care or not.

Centers for Medicare & Medicaid Services (CMS)

U.S. federal agency that administers the nation’s major healthcare programs.

Partners with state governments to oversee programs including:

  • Medicare
  • Medicaid
  • Children’s Health Insurance Program (CHIP)
  • State and federal health insurance marketplaces

Claim adjustment group codes

Codes that are internal to the X12 standard and generally assign responsibility for the adjustment amounts. The format is always two alpha characters:

  • CO: Contractual obligation
  • PR: Patient responsibility

Claim adjustment reason code (CARC)

Explains why a claim or service line was paid differently (adjusted) than it was billed.

  • Assigned by a national Code Maintenance Committee under X12
  • CARCs never change; they can be deactivated, but a new number will be created with a new description
Remittance advice remark code (RARC)

RARCs provide two things:

  1. Additional explanation for a CARC and/or
  2. Information about remittance processing

Claim denial

A denial is a payer’s decision to not pay for services rendered to a patient. Denials happen after a claim is processed and reviewed.

WHY DENIAL MANAGEMENT FAILS 4 top reasons for denials

Claim rejection

Claims that do not meet the basic eligibility, format, or completion requirements. Rejected claims are not considered “received” until they are resubmitted as new, corrected, complete claims. Rejected claims differ from denials because denials happen after a claim is processed while rejections happen before.

Coordination of benefits (COB)

A provision in most health plans that allows families with two separately insured wage earners to receive up to 100% coverage for medical services. COB rules determine which plan is primary for you, your spouse, and your dependent children.


The process of reviewing a practitioner’s academic, clinical, and professional ability as demonstrated in the past to determine if criteria for clinical privileges are met.

Current procedural terminology (CPT) codes

Uniform language used by healthcare professionals to code medical services and procedures. The goal is to streamline reporting and increase accuracy.

Durable Medical Equipment (DME)

Durable medical equipment is any medical equipment used in the home to aid in a better quality of living. It includes items such as beds, oxygen, pumps, wheelchairs, canes, etc.

Durable Medical Equipment Medicare Administrative Contractor (DME MAC)

A private insurance company that has a contract with Medicare to process DME.

Diagnosis (DX) code

A combination of letters and/or numbers used to classify diseases based on a wide variety of signs, symptoms, abnormal findings, complaints, social circumstances, and external causes of injury or disease. Diagnosis codes are derived from the International Classification of Diseases (ICD) coding system.

Electronic Data Interchange (EDI)

The electronic interchange of business information using a standardized format. This process allows one company to send information to another electronically rather than using paper.

EDI enrollment

The process to request eligibility and participation to complete EDI transactions with insurance companies.

Explanation of benefits (EOB)

Electronic remittance advice (ERA)

An explanation from a health plan to a provider about a claim payment. It explains how a health plan has adjusted claim charges based on factors like:

An ERA is just a digital version of a paper EOB.

Health Insurance Portability and Accountability Act (HIPAA)

Enacted to improve the efficiency and effectiveness of the nation’s healthcare system. The law created national:

  • Standards for electronic healthcare transactions
  • Identifiers for providers, health plans, and employers
  • Requirements for the privacy and security of a patient’s protected health information

Health Maintenance Organization (HMO)

A type of health insurance plan that usually limits coverage to care from doctors who work for or contract with the HMO.

Healthcare Common Procedure Coding System (HCPCS)

A collection of codes that represents procedures, supplies, products, and services provided to patients.

Internal Control Number (ICN)

Unique tracking number assigned by insurance payer to a submitted medical claim for billing.

Incident to

Billing “incident to” services allows non-physician providers (NPP) to report services as if they were performed by a physician.

Local coverage determination (LCD)

Decision made by Medicare Administrative Contractor (MAC) on whether or not to cover a particular service on a MAC-wide basis.

Managed care plan

A type of health insurance that provides care for members at reduced costs using contracts with healthcare providers and medical facilities, which make up the plan’s network.

Medically unlikely edit (MUE)

The maximum units of service that a provider would report under most circumstances for a single beneficiary on a single date of service for a HCPCS or CPT. Not all HCPCS/CPT codes have an MUE.

Medicare Physician Fee Schedule (MPFS)

Used by CMS to reimburse physician services. The MPFS is funded by Part B and is composed of resource costs associated with physician work, practice expense, and professional liability insurance.

Multiple procedure payment reduction (MPPR)

When multiple procedures are performed by the same physician or healthcare professional on the same date of service during the same patient encounter, they may be subject to multiple-procedure reduction in payments for secondary and subsequent procedures.

National Correct Coding Initiative (NCCI) + CCI edits

Run by CMS, NCCI maintains correct coding methodologies and reduces improper coding to ensure proper payment of Medicare Part B and Medicaid claims. Correct Coding Initiative edits — CCI edits — fall under this initiative.

National Provider Identifier (NPI)

Unique identification number assigned to covered healthcare providers, plans, and clearinghouses. Used to simplify administrative and financial transactions under HIPAA.

Payer enrollment

Process by which a provider joins a health insurance plan’s network. The process includes:

  • Requesting participation in a payer network
  • Completing credentialing requirements
  • Submitting documents to the payer
  • Signing a contract

Practice management (PM) system

A practice management system (sometimes PMS) is software that helps healthcare practices with billing and administrative tasks.

Prior authorization (PA)

Decision by a health insurer or plan that a service, treatment plan, prescription drug, or durable medical equipment is medically necessary. May be required before a patient receives certain services, except in an emergency. Even so, prior authorization isn’t a promise that a health insurance or plan will cover the cost.

Prior authorization may also be called:
  • Preauthorization
  • Prior approval
  • Precertification

Revenue Cycle 101 Prior authorizations + referrals a comprehensive RCM guide Waystar

Provider network consultant (PNC)

Liaison between insurance company and contracted healthcare providers.


A written order from a primary care physician (PCP) for a patient to see a specialist or get certain medical services. In many HMOs, patients must get a referral before receiving care from anyone except a PCP. If a patient doesn’t get a referral first, the plan may not pay for services.

Relative value units (RVUs)

Measure of value used in the Medicare reimbursement formula for physician services.

Retro authorization

A process whereby the insurance company reviews a service that’s already been performed to determine if it was:

  1. Covered under the patient’s insurance policy, and
  2. Medically necessary.

Service type code (STC)

Codes that identify business groupings for healthcare services or benefits.

Skilled nursing facility (SNF)

Post-hospital care that includes services such as wound care, the administration of medications, tube feedings, etc. Can be part of nursing homes or hospitals.


A financial strategy used when an individual’s income is too high to qualify for Medicaid. To be accepted into the program, some of the individual’s income must be “spent down” on medical bills to ensure his or her income is low enough to qualify.

Timely filing limit

The timeframe within which a claim must be submitted to a payer. Different payers have different timely filing limits


A standards organization chartered by the American National Standards Institute. X12 develops and maintains the electronic data interchange (EDI) that drives business processes globally.

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