Professional Billing VS Hospital Billing

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1. What is Professional Billing?
  • Professional Billing (PB) is the billing of services provided by a physician or other healthcare professional.
  • It mainly represents the provider's professional service.
  • Professional billing can include services such as:
    • Evaluation & Management (E/M) services
    • Office visits and consultations
    • Professional procedures
    • Physician interpretation of certain diagnostic services
  • Example: Suppose a patient visits a hospital and sees a cardiologist. The cardiologist examines the patient and performs an ECG. The cardiologist's services will be billed through Professional Billing.
  • A cardiologist provides an office visit, so an E&M code will be billed for Professional Billing.

2. What is Hospital Billing?
  • Hospital Billing (HB) is used to bill for the services and resources provided by a hospital or facility.
  • It is also commonly called Institutional Billing or Facility Billing.
  • Hospital billing can include services such as:
    • Room charges
    • Nursing services
    • Operating room
    • Laboratory
    • Radiology
    • Medical supplies
    • Drugs
    • Medical equipment
    • Facility services
  • Example: The same patient visits the hospital for an ECG.
  • There can be two separate bills:
    • Professional Billing: The cardiologist's professional service.
    • Hospital Billing: The hospital's facility, equipment, supplies, and other applicable resources used to provide the service.

3. Claim Form Used in Professional Billing vs Hospital Billing
  • Professional Billing: 
    • Professional services are commonly billed using the CMS-1500 claim form for paper claims.
    • The electronic equivalent is generally the 837P (837 Professional) transaction.
  • Hospital Billing:
    • Hospital and other institutional services are commonly billed using the UB-04 (CMS-1450) claim form for paper claims.
    • The electronic equivalent is generally the 837I (837 Institutional) transaction.

4. POS vs Revenue Code
  • Professional Billing: 
    • Professional claims use Place of Service codes to identify where the professional service was provided.
    • Example: A physician provides a service in an outpatient hospital → the professional claim may report POS 22.
  • Hospital Billing:
    • Hospital claims use Revenue Codes to identify the type of hospital service or department associated with the charge.
    • Example: A hospital claim may contain revenue codes associated with, Room and board, Emergency room, Laboratory, Radiology, Operating room, Pharmacy, Medical supplies, etc.

5. Professional Fee, DRG & APC – Reimbursement Methodologies
  • Professional Fee – Professional Billing
    • Professional services are generally reimbursed using a professional fee methodology.
    • The physician or other healthcare professional reports the services performed using applicable: CPT codes, HCPCS codes, Modifiers, Diagnosis codes, Place of Service
    • The payer then determines the professional reimbursement based on the applicable fee schedule or other payment methodology.
  • DRG – Mainly for Inpatient Hospital Billing
    • DRG (Diagnosis-Related Group) is mainly used for inpatient hospital reimbursement under Medicare's inpatient prospective payment system and other payment arrangements that use DRGs.
    • The patient's inpatient stay is grouped into a DRG based on factors such as: Diagnosis, Procedures, Complications and comorbidities, Other patient and stay-related information
    • The hospital is generally reimbursed based on the applicable DRG rather than simply adding up every individual hospital charge.
  • APC – Mainly for Hospital Outpatient Billing
    • APC (Ambulatory Payment Classification) is used for certain hospital outpatient services, particularly under Medicare's Outpatient Prospective Payment System (OPPS).
    • Hospital outpatient services are grouped into APCs based on the services provided.

6. CPT vs ICD-10-PCS
  • Professional Billing: 
    • In Professional Billing, CPT codes are used to report the services and procedures performed by the physician or other healthcare professional.
    • For example, if a surgeon performs a procedure, the surgeon reports the professional service using the appropriate CPT code.
  • Hospital Billing:
    • Hospital Billing can also use CPT codes, especially when the hospital provides outpatient services.
    • For example, a patient comes to the hospital for an outpatient procedure. The hospital may report an applicable CPT/HCPCS code to identify the service provided by the facility.
    • However, when the patient is admitted as an inpatient, the hospital uses ICD-10-PCS to report the procedures performed during the inpatient stay.

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Hospital Billing Quiz – UB-04 (CMS-1450)

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Observation vs Inpatient Status and the Two-Midnight Rule

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Observation Status and Inpatient Status are two important concepts in hospital billing. Although patients under both statuses may stay in a hospital room and receive similar care, they are billed differently. Understanding the distinction helps ensure accurate billing and reimbursement.

In general, a patient who stays in the hospital for more than 24 hours is often considered an inpatient. While this is true in many cases, but it is not always the case.

In hospital billing, patient status depends on the physician's admission decision and medical necessity, not solely on the duration of the stay. Therefore, a patient may stay in a hospital bed, receive treatment, and even spend one or more nights in the hospital, but still be classified as an Observation Patient rather than an Inpatient.

What is Observation Status?
  • Observation Status is considered an outpatient service. It is used when physicians need more time to monitor the patient, perform tests, and decide whether the patient should be admitted to the hospital or discharged.
  • Common examples include:
    • Chest pain
    • Dizziness
    • Mild dehydration
    • Shortness of breath
  • A patient under observation may stay overnight, but that does not automatically mean the patient is an inpatient.

What is Inpatient Status?
  • Inpatient Status means the physician has formally admitted the patient to the hospital because the condition requires ongoing treatment and a higher level of care.
  • Common examples include:
    • Sepsis
    • Pneumonia
    • Heart attack
    • Stroke
    • Major surgery

Understanding the Two-Midnight Rule:
  • A simple guideline used by Medicare is the Two-Midnight Rule.
    • If the physician expects the patient will need hospital care for less than two midnights, the patient is usually placed under Observation Status.
    • If the physician expects the patient will require care spanning two midnights or more, the patient is generally admitted as an Inpatient.
  • Example:
    • A patient arrives in the Emergency Department with chest pain.
    • The physician orders tests and expects the patient to stay overnight for monitoring. Since the expected stay is less than two midnights, the patient is usually placed under Observation Status.
    • However, if the tests reveal severe pneumonia and the physician expects several days of treatment, the patient is admitted as an Inpatient.

Important Note:
  • The Two-Midnight Rule is only a guideline.
  • Medical necessity always comes first.
  • A patient can stay longer than two midnights and still remain under observation in certain situations. Likewise, a patient may be admitted as an inpatient before two midnights if the condition is serious enough.

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Hospital Billing Quiz

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Modifier & Billing Terminology Quiz

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Attrition / Attendance / Absenteeism Calculator

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AR Team Metrics Calculator



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CPT Timeframes & Frequency Rules Quiz

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CPT Guidelines Quiz

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Medicare AWV (Annual Wellness Visit) & Preventive Services Billing Guidelines

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Annual Wellness Visits: G0402, G0438 & G0439


G0402 – Initial Preventive Physical Examination (IPPE):

  • This code must be billed within the first 12 months of Medicare Part B enrollment.
  • It can be billed only once in a lifetime.
  • It cannot be billed after the first 12 months of Part B coverage.
  • If G0402 has already been billed within the first 12 months of Medicare Part B enrollment, any subsequent wellness visit during the same 12-month period cannot be billed as another preventive wellness visit. In such cases, appropriate office visit CPT codes (99212–99215) may be billed if medically necessary.

G0438 – Initial Annual Wellness Visit:
  • This code must be billed after the first 12 months of Medicare Part B enrollment.
  • It can be billed once in a lifetime.
  • It cannot be billed within the first 12 months of Part B coverage.
  • If G0438 has already been billed, any subsequent wellness visit within the next 12-month eligibility period cannot be billed as another Annual Wellness Visit. In such cases, appropriate office visit CPT codes (99212–99215) may be billed if medically necessary.
  • After completion of 12 months from G0438, the next eligible wellness visit should be billed using G0439.

G0439 – Subsequent Annual Wellness Visit:
  • This code must be billed at least 12 months after G0438.
  • It can be billed once every 12 months thereafter.
  • If G0439 has already been billed, any subsequent wellness visit within the next 12-month eligibility period cannot be billed as another Annual Wellness Visit. In such cases, appropriate office visit CPT codes (99212–99215) may be billed if medically necessary.

Preventive Services CPT Codes: 99381 – 99397

Routine preventive physical exam CPT codes (99381–99397) are typically not covered by Medicare. Instead, Medicare covers:
  • G0402 – Welcome to Medicare Visit (IPPE)
  • G0438 – Initial Annual Wellness Visit
  • G0439 – Subsequent Annual Wellness Visit
  • Problem-oriented office visits (99212–99215) when medically necessary
Note: Medicare uses the “11 full months rule,” meaning the next Annual Wellness Visit (AWV) is eligible after 11 full months have passed from the previous AWV date, not exactly 365 days. For example, if the last AWV date is January 10, 2025 then the next eligible AWV date will be December 1, 2025.

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Days in AR Calculator

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This tool calculates the number of days it takes to receive payment for services.

Please use data from a specific and consistent time period to ensure accurate calculation. For example, if you are using 3 months of data, enter the Total Billed Charges and Total Accounts Receivable for that same period, and set the Number of Days to 90. The Number of Days should vary depending on the time period used for the data.

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Understanding Negative Claim Balance in Account Receivable

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  • In Account Receivable (AR), accurate posting is critical to ensure the claim balance reflects the correct financial position. Even a small error in posting can move the account into a credit (negative balance) or debit (positive balance). Let’s understand this with a simple example.
  • Suppose a claim is submitted for $100.00 and it is processed by insurance and allowed & paid for $20.00 then it should be posted as follows.
    • Allowed - $20.00
    • Paid - $20.00
    • Coinsurance - $0.00
    • Deductible - $0.00
    • Copayment - $0.00
    • Adjustment - $80.00
    • Calculation: $100.00 (Charge Amount) – $20.00 (Paid Amount) – $80.00 (Adjustment Amount) = $0.00
  • With the above posting, the balance amount will become zero. However, if there is any incorrect posting in the adjustment or payment amount, the account may move into either a credit or debit balance. Let's understand this with the following scenarios.
  • Scenario 1: In the above posting example, if the adjustment is incorrectly posted as $90.00 then the claim balance will move into a credit of (-$10.00).
    • Calculation: $100.00 (Charge Amount) – $20.00 (Paid Amount) – $90.00 (Adjustment Amount) = -$10.00 (Credit Balance)
  • Scenario 2: In the above posting example, if adjustment is incorrectly posted as $75.00 then the claim balance will move into a debit of ($5.00).
    • Calculation: $100.00 (Charge Amount) – $20.00 (Paid Amount) – $75.00 (Adjustment Amount) = $5.00 (Debit Balance)
  • If you find any account in credit then always check whether the posting is done correctly or not.
  • The claim may not be always in credit due to incorrect posting. Below are other possible reasons.
  • Duplicate Insurance Payment:
    • The insurance company may accidentally pay the claim twice. In such cases, it is important to verify whether the claim was actually paid twice or if the payment was posted twice in error. If the insurance company truly issued two payments then it is required to send refund back to the insurance carrier.
    • To issue a refund to the insurance company, it is necessary to contact the insurance representative to confirm the appropriate method and address for sending the refund. Sometimes, a refund request is already sent by the insurance and the request includes all the detailed instructions on how and where the refund should be submitted.
  • Excess Patient Payment:
    • Sometimes, a patient may pay more than their actual responsibility, which can also result in a credit balance. In such cases, The excess amount may be applied to other outstanding claims with pending patient responsibility.
    • If no other claims with outstanding balance exists then the amount may be refunded to the patient or can be adjusted with the patient resp of future claims.
  • All of the above activities are typically handled by the Credit Balance (CB) team when a claim balance is in credit. However, in the absence of a CB team, these responsibilities fall under the Account Receivable (AR) team.

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Appeal Process

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  • A claim requires an appeal when it has been processed and denied by the payer and the issue cannot be corrected by simply resubmitting or correcting the claim.
  • The appeals process typically consists of two stages:
            1 - Reconsideration (first-level appeal)
            2 - Appeal (second-level appeal)
  • A second-level appeal should be submitted if the reconsideration (first-level appeal) is upheld.
  • There are 3 modes for submitting an appeal: fax, mail or portal. It is important to confirm the accepted submission modes with the insurance representative and you should give priority to fax and portal modes if it is acceptable as it takes less time to receive by payer.
  • Reconsideration and appeal has a time limit and it is different based on the insurance. So, it needs to be confirmed and submitted within the time limit.
  • When submitting an appeal for any denial, it is necessary to prepare a package that includes at least two documents.
            1 - General Letter or Insurance-Specific Appeal Letter
            2 - Supporting Documents
  • General Letter or Insurance-Specific Appeal Letter:
    • Many insurance companies have specific appeal letters that must be completed and submitted when filing an appeal. The first-level and second-level appeal letters may differ, so it is important to contact the insurance representative to confirm the requirements for both reconsideration and appeal letters. Sometimes, these information are also available on their portal.
    • An appeal letter generally includes the following sections:
      • Patient Information
      • Provider Information
      • Insurance & Claim Information
      • Reason for Submitting Appeal
    • If the insurance company does not provide a specific appeal letter or form, you will need to create a general appeal letter that includes all of the above information.
    • Below is the example of general appeal letter. You may modify the wording as needed or get client approval before using it.


  • Supporting Documents: These should include all supporting documents that strengthen your appeal. They will be reviewed by the insurance company and may help overturn the original decision.
    • Below are the denials and the corresponding supporting documents that can be attached when submitting an appeal.
      • TFL Denial: It requires POTF (Proof of Timely Filing) to be submitted. POTF can be any documents that prove the submission of claim within the timely filing limit of the insurance. The documents must include submission date and below documents can be used as POTF.
        • Clearinghouse Submission Report
        • Payer Acknowledgement / Acceptance Report
        • EDI Acceptance Screenshot
      • Medical Records Required or Insufficient Document Denial: This denial requires submission of the documents that can support the denial CPT.

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    Interview Questions - Part II

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    Waiver Of Liability

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    A waiver of liability can protect either the patient or the healthcare provider from financial risk, depending on who signs it, what it's intended for, and whether it’s initiated by the provider or the insurance company. There are two main types of waiver of liability commonly used in medical billing:

    1. Patient-Signed Waiver of Liability
    2. Provider-Signed Waiver of Liability

    1. Patient-Signed Waiver of Liability:
    • This waiver is similar to an Advance Beneficiary Notice (ABN) but is used for non-Medicare payers.
    • It is a written agreement provided by the healthcare provider to inform the patient that they may be financially responsible if the insurance denies the claim.
    • By signing this waiver, the patient acknowledges and agrees to pay for the service in the event of a denial.

    2. Provider-Signed Waiver of Liability:
    • This is a written agreement initiated by the insurance company and the provider must sign to confirm that the patient will not be billed for the service if the claim is denied.
    • Insurance companies typically request this waiver when the provider submits a final appeal for a denied claim.
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    Hospital Billing Codes

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    Revenue Codes: 
    • These codes describe the type & the location of the service.
    • For example: 0450 - Emergency Room General Services, 0300 – Laboratory General Services, etc.
    • These are 4 digis codes.
    • It is used in locator 42 on UB-04 form.

    Condition Codes:
    • These codes describe specific circumstances or situations of patient's care.
    • For example: 02 - Condition is employment related, 17 - Patient is homeless, etc.
    • These are 2 digits codes.
    • It is used in locators 18-28 on UB-04 form.

    Occurrence Codes:
    • These codes describe specific dates & events that occurred during patient treatment.
    • For example: 01 - Auto Accident Date, 02 - Date of illness or injury, etc.
    • These are 2 digits codes.
    • It is used in locators 31-34 on UB-04 form.

    Occurrence Span Codes:
    • These codes describe the span of the particular service or events provided to the patient.
    • For example: 77 - Hospital stay start date, 78 - Hospital stay end date, etc.
    • These are 2 digits codes.
    • It is used in locators 35-36 on UB-04 form.

    Value Codes:
    • These codes provide additional monetary information related to a patient's care or services.
    • For example: 01 - Patient's age, 18 - Number of covered days, etc.
    • These are 2 digits codes.
    • It is used in locators 39-41 on UB-04 form. 

    TOB (Type Of Bill):
    • TOB helps payers to quickly identify the claim type for processing and reimbursement.
    • These are 4 digits codes and each digit has a specific reason which is very important while submission.
    • 1st digit: It is always 0.
    • 2nd digit: Indicates type of facility. Examples - Hospital, RHC, SNF etc.
    • 3rd digit: Type of care. Examples - Inpatient, outpatient etc.
    • 4th digit: Indicates claim frequency. Examples - Original, adjustment etc.
    • It is used in locator 4 on UB-04 form.

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    How to work on Medicare denial - 22, 24 & 109

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    When working on these denials, it may create confusion sometimes because when you check eligibility on the Medicare portal or Medicare IVR, you find 2 options - MCO/HMO & MSP and it may be possible that the insurance is available in both tabs then it is difficult to find the correct primary insurance to bill the claim. This post will help to resolve the confusion. Please go through the complete post to have a clear understanding.

    1. Denial 24 (Covered under managed care plan) & 109 (Not covered by this payer):

    Scenario 1: On these denials, you need to refer to the MCO/HMO tab and the insurance available under this tab will be the primary insurance. After updating this insurance as primary, you do not need to keep the Medicare insurance as a secondary payer because the MCO/HMO plan pays on behalf of Medicare.

    Scenario 2: On denial 109, there is another possibility that you will not find any insurance under the MCO/HMO tab. In that case, there may be a possibility of the patient enrolled in Railroad Medicare then you will need to submit the claim to Railroad Medicare (Palmetto Railroad) with the same policy ID.

    2. Denial 22 (Other Payer Primary):

    Scenario 1: On this denial, you need to refer to the MSP tab and the insurance available under this tab will be the primary insurance. Once you find the primary insurance information then update it as primary insurance and keep Medicare insurance as a secondary payer. Note: Whenever you are making Medicare as secondary, always update the MSP code. Please visit the below link to learn more about the MSP code,

    https://www.arlearningonline.com/2020/01/msp-medicare-secondary-payer.html

    Scenario 2: There is another possibility that you will not find any insurance under the MSP tab. In that case, you can resubmit the claim to Medicare.

    Scenario 3: You may find multiple insurances in the MSP tab, in that case under each insurance name, you will find the MSP code of the insurance. This MSP code will help to identify insurance types. 

    MSP Codes:
    12 - Commercial insurance with health coverage for beneficiary with age 65 or above
     13 - Commercial insurance with Health coverage for End-Stage Renal Disease beneficiary
     14 - Auto Insurance
     15 - Worker Compensation
     41 - Black Lung Insurance
     43 - Commercial insurance with health coverage for beneficiary under age 65
     47 - Liability Insurance

    Example - You find 2 insurances under the MSP tab with MSP code 12 (Commercial insurance) & 14 (Auto insurance). In that case, you will need to identify the service whether it is related to health coverage or Auto injury. If it is related to health coverage then you will need to make primary insurance to an insurance that has MSP code as 12 and keep Medicare as secondary with MSP code 12. In the same way, if the service is Auto related injury then you will need to make Auto insurance as primary which is mentioned with MSP code 14 and Medicare as secondary with MSP code 14.

    3. Other Possible Scenarios:

    Sometimes, while checking the eligibility you can find a scenario where insurance is available in both MCO/HMO & MSP tabs. In that case, identifying the correct primary and secondary insurance is a little bit tricky. The below examples will help to identify the correct primary and secondary insurance.

    Example 1 - There is an insurance in the MSP tab with MSP code 43 (Commercial insurance) and another insurance is under the MCO/HMO tab.

    In such a scenario, you can make the insurance as primary which is available under the MSP tab and keep the insurance on secondary position which is available under the MCO/HMO tab. (No need to update the MSP code, it is needed when the original Medicare is updated as secondary)

    Example 2 - There is an insurance in the MSP tab with MSP code 15 (Worker Compensation) and another insurance is under the MCO/HMO tab.   

    In such a scenario, you need to identify whether a service is related to a work-related injury or not. If it is not then you do not need to bill the claim to WC, you can directly make the MCO/HMO plan as primary insurance. Do not need to keep Medicare as secondary and submit the claim to the MCO/HMO plan.

    If the service is related to work-related injury then you can make WC as primary and keep the MCO/HMO plan as secondary and submit the claim to worker comp. (No need to update the MSP code, it is needed when the original Medicare is updated as secondary)
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    Interview Questions - Part I

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