I’m a big fan of those “how it’s made” videos. It’s way too easy for me to get sucked into a YouTube black hole and spend hours learning about the art of building a guitar from scratch or how my dream car is pieced together. As I fell down the YouTube rabbit hole again the other night, it got me thinking: how are physical therapy reimbursements dispersed? What happens after a claim leaves the billing software? To that end, here are the medical billing process steps in a nutshell:

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1. The therapist performs a service, completes the documentation, and sends it to the biller.

It all starts with one or more services. Once the therapist sees a patient, he or she completes the documentation for that visit and sends the information to the biller. If your billing software integrates with your EMR, this process is a whole lot simpler and leaves less room for user error. Then, with the billing information in hand, the biller fills out the claim form, entering different codes for different services provided. There are a few different types of claim forms, but the ones used for outpatient physical therapy are:

  • CMS 1500 claim form (paper or electronic),
  • EDI file (electronic only), and
  • UB-04 billing (although this form is becoming less common).

Once the form is complete—and it the biller knows it’s clean—he or she will ship it off for payment.

2. The biller ships off the claim for adjudication.

Once a claim leaves the billing software, it’s transmitted to the clearinghouse. A newbie biller might wonder what the heck a clearinghouse even does. Can’t the claim just go directly to the insurance payer? In the old days, that was exactly the process. However, electronic medical records have created the need for clearinghouses, which basically vet the thousands of claims healthcare providers ship out every day and make sure they’re sent to the right place with the right information.

As this white paper from the California Orthopaedic Association explains, clearinghouses also prevent additional healthcare spending by cutting down the time it takes for billers to format claims per HIPAA and payer requirements.

If the claim is missing any vital demographic information, the clearinghouse sends it back to the provider. This is called a rejection, and it’s different from a denial. Rejections usually result from errors during the intake process, and providers can usually rectify them by adding the missing information and resending the claim. (Conversely, denials come from the payer and often result from leaving out required modifiers, using the wrong codes, or billing for non-covered services. You can usually contest these through a formalized process.)

Note: Clearinghouses require users to set up an account. But some RCM platforms (like WebPT Billing) have their own accounts so clinics don’t have to do this. When choosing a clearinghouse, providers should verify that the clearinghouse can transmit claims to the payers they’re contracted with.

3. The clearinghouse sends the claim to the payer.

Once the clearinghouse has scrubbed the claim (i.e., verified the accuracy of the information on the claim), the claim is transmitted to the insurance company and reviewed by an auditor. The clearinghouse must have an established, secure connection with the payer in order to comply with HIPAA laws. (HIPAA is also the reason providers can’t just send claims via email.) Some insurances require EDI enrollment in order to accept electronic claims. In addition to being credentialed with the payer, the provider must establish a relationship with the payer (i.e., decide between an in-network—or “contracted”—relationship or an out-of-network one). This decision will affect the reimbursement rates the insurance pays the clinic.

4. The payer sends payment and an Explanation of Benefits (EOB).

As the payer processes the claim, the clearinghouse will keep the clinic updated on its progress. Once the payer has determined the level of reimbursement due to the provider, it will send the reimbursement amount to the clinic via either direct deposit or check. The payer will also send an Explanation of Benefits (EOB) to both the provider and the patient. An EOB communicates:

  • which patient the provider is receiving payment for,
  • which dates of service the payment applies to,
  • which specific service codes the payer is reimbursing,
  • how much the insurance is actually paying the clinic,
  • any adjustments the clinic must write off,
  • how much the patient has to pay, and
  • reasons why the insurance decided all this (via remark codes).

If you enrolled in ERAs instead of paper EOBs, the payer will ship an Electronic Remittance Advice (ERA) to the clearinghouse, and the clearinghouse will then transmit it to the provider. This is simply an electronic version of an EOB. It’s also important to note that receiving an EOB or ERA does not equal payment. Your EOB and ERA will arrive separately from your reimbursement.

5. The clinic records the payment and bills the patient for the remaining balance.

Once the clinic receives payment, it must

  • ensure that payment is reflected in the accounting system, and
  • decide what to do about any remaining balances.

At this point, the clinic may bill the patient for the remaining balance. However, it’s crucial that the clinic adheres to any balance billing laws in its state.


So, there you have it: the step-by-step overview of how claims become payments. Got any other billing questions? Drop us a line in the comment section below!

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