Overview
A healthcare claim represents a request for payment from a provider (physician, hospital, lab, pharmacy, or other supplier) to a payer (insurance plan or government program). The claim documents what service was rendered, to whom, by whom, why (diagnosis), and at what cost. Proper coding and submission are essential for timely payment and compliance with program rules.
This reference explains the forms, code sets, standards, and workflows that govern claims in Medicare, Medicaid, Medicare Advantage, and the Marketplace. The process is heavily regulated and standardized — deviations can result in denials, delays, or overpayment recapture.
Claim Forms & Submission Methods
Professional Claims (CMS-1500)
The CMS-1500 form is the standard paper claim used for office-based physician services, outpatient surgery, diagnostics, and other professional services. Though paper claims are rare now, the CMS-1500 structure remains the basis for electronic professional claims. It captures:
- Patient demographics and insurance information
- Provider and billing provider details (NPI, taxonomy code)
- Service dates, place of service (POS), and procedure codes (CPT/HCPCS)
- Diagnosis codes (ICD-10-CM) and condition indicators
- Modifiers (describing circumstances that affect coding or reimbursement)
- Charges and units of service
Institutional Claims (UB-04 & 837I)
The UB-04 (or CMS-1450) is the paper claim form for hospital inpatient and outpatient, skilled nursing facility (SNF), and rehabilitation services. The electronic version is the 837I (Institutional) transaction. Key fields include:
- Admission and discharge dates
- Admission and discharge status (e.g., routine, transfer, home care)
- Revenue codes (for each department or service line)
- Condition codes, occurrence codes, and value codes
- Diagnosis codes (ICD-10-CM) and procedure codes (ICD-10-PCS)
- Charges organized by revenue center
Dental & Pharmacy Claims
Dental claims use CDT (Code on Dental Procedures and Nomenclature) codes and often follow a streamlined format. Pharmacy claims are typically submitted electronically in real-time via POS (Point of Sale) systems at the pharmacy register, using National Drug Codes (NDC). These flows are separate from the professional and institutional pathways.
Code Sets & Their Purpose
| Code Set | What It Is | Used For |
|---|---|---|
| ICD-10-CM | International Classification of Diseases, 10th Revision, Clinical Modification. Approximately 70,000 diagnosis codes. | Documenting the patient's conditions, symptoms, and reason for visit. Required on all claims. Primary diagnosis linked to medical necessity. Secondary diagnoses explain comorbidities or complications. |
| CPT | Current Procedural Terminology (owned by AMA). ~10,000 codes for procedures, services, and consultations in office/outpatient settings. | Professional claims. Describes what service was performed. Revised annually (January). |
| HCPCS Level II | Healthcare Common Procedure Coding System. ~3,000 alphanumeric codes (prefix letters J, E, G, K, etc.) for durable medical equipment, supplies, and services not in CPT. | Professional claims. Covers DME (wheelchairs, oxygen), orthotics, certain drugs, and services CMS deems non-standard. |
| ICD-10-PCS | ICD-10 Procedure Coding System. ~72,000 procedure codes used only in institutional (inpatient) settings. | Institutional claims only. Describes inpatient procedures and surgeries performed during a hospital stay. |
| Revenue Codes | Four-digit codes (e.g., 0100 = room and board; 0340 = physical therapy) used on institutional claims to organize charges by service line. | Required on UB-04/837I claims. Group charges and allow focused review and pricing. |
| NDC (National Drug Code) | 11-digit identifier for each drug formulation, strength, and package size. | Pharmacy claims and medication lists on institutional/professional claims when drugs are billed as supplies or administered services (e.g., infusion center). |
| Place of Service (POS) | Two-digit codes indicating where the service was rendered (e.g., 11 = office, 21 = inpatient hospital, 57 = ambulatory surgery center). | Professional claims. Affects coding rules, billing permissions, and reimbursement rates. |
| Modifiers | Alphabetic or numeric suffixes appended to procedure codes (e.g., -25 = separate service; -59 = distinct service; -RT = right side; -LT = left side). | Professional claims. Clarify circumstances that change bundling, billing rules, or reimbursement (e.g., an exam and procedure performed on the same day). |
Electronic Transactions & Standards
Most claims today are submitted electronically via clearinghouses, using standard transaction formats set by HIPAA and CMS:
Claim & Payment Transactions
- 837-P (Professional) — Electronic version of the CMS-1500. Includes diagnosis, procedure, modifier, and charge data.
- 837-I (Institutional) — Electronic version of the UB-04. Includes revenue codes, condition codes, and inpatient-specific fields.
- 837-D (Dental) — For dental and orthodontic claims.
- 835 (ERA – Electronic Remittance Advice) — The payer's response; shows what was allowed, paid, denied, or appealed for each claim line. Ties to an EOB (Explanation of Benefits).
Eligibility & Status Transactions
- 270/271 — Real-time eligibility inquiry (270) and response (271). Used before or at the time of service to verify patient coverage, copays, deductibles, and out-of-pocket status.
- 276/277 — Claim status inquiry (276) and response (277). Used to track a pending claim's adjudication progress.
Clearinghouses
A clearinghouse is a vendor that receives claims from providers, validates them for CMS and payer-specific rules, translates them into standard HIPAA formats, and routes them to the correct payer. Clearinghouses also deliver remittances back to providers. They ensure claims meet technical standards before reaching the payer, reducing rejections for formatting errors.
The Lifecycle of a Clean Claim
- Verification & Pre-Authorization — Provider checks patient eligibility (270/271) and submits prior authorization requests where required. This step confirms the service is covered and establishes medical necessity. See Providers & Billing and Health-Plan Operations for details.
- Service Delivery & Documentation — Provider delivers the service and documents it in the medical record, capturing the diagnosis (why), procedure (what), date, time, provider, and place of service.
- Coding — Medical coder translates the documentation into ICD-10-CM (diagnosis) and CPT/HCPCS (procedure) codes, applies modifiers if needed, and assigns a place of service and billing provider.
- Claim Assembly & Validation — Billing system assembles the 837-P or 837-I, runs internal checks (diagnoses linked to procedures, modifiers appropriate, charges reasonable), and submits to clearinghouse or direct to payer.
- Clearinghouse Validation — Clearinghouse checks for HIPAA compliance, required fields, and payer-specific edits. Rejects invalid claims or passes valid ones to the payer.
- Payer Adjudication — Payer's system checks eligibility at time of service, applies the patient's benefit plan, verifies prior authorization compliance, checks for duplicates or fraud signals, and determines the allowed amount. Rules vary by program (Medicare, Medicaid, MA, Marketplace).
- Payment & Remittance — Payer either pays the provider (check or EFT), denies the claim, or requests more information. The remittance (835/ERA) is sent to the provider and clearinghouse.
- Posting & Accounts Receivable — Provider's billing staff post the payment to the patient's account, recognize revenue, and update aging reports.
- Patient Billing — Provider bills the patient for any remaining balance (copay, coinsurance, deductible, or non-covered services).
Common Denial Reasons
Claims are denied or reduced for many reasons. Common patterns include:
- Eligibility — Patient was not enrolled on the date of service, or coverage was suspended for non-payment.
- Missing Prior Authorization — Service required pre-approval, which was not obtained or had expired.
- Coding Error — Diagnosis code does not support the procedure (lack of medical necessity), or procedure code is incorrectly linked to place of service.
- Timely Filing Violation — Claim was submitted after the deadline (typically 180 days for Medicare; state Medicaid programs vary).
- Duplicate Claim — A claim for the same service date and code was already paid or is pending.
- Coordination of Benefits (COB) — Patient has another insurance; the primary payer's response was not properly accounted for.
- Non-Covered Service — The service is excluded under the patient's plan or not a covered benefit under the program.
- Provider Network Status — Provider was not in-network at time of service, or network contract had terminated.
- Missing or Invalid Information — Required fields (NPI, place of service, modifier, or patient ID) were incomplete or invalid.
Denied claims can often be appealed, especially if the denial is based on medical policy or documentation. See Appeals Timelines for the process and timeframes.
Connection to Prior Authorization & Member Appeals
Claims don't exist in isolation. Prior authorization (pre-approval of a service before it's provided) is often required, and the claim must reference the authorization number to avoid denials. If a claim is denied, the patient has the right to appeal. Coverage determinations can be appealed on grounds of medical policy disagreement, incorrect payment, or incorrect eligibility determination — the process and timeframes vary by program.
For more on these relationships, see:
- Providers & Billing — Prior authorization process and requirements
- Health-Plan Operations — How plans review and pay claims
- Appeals Timelines — Member and provider appeal rights and deadlines
- Risk Adjustment — How diagnosis coding affects plan payment and quality metrics
Key Takeaways
- Claims are structured, standardized documents that travel through a defined workflow from provider to clearinghouse to payer to payment.
- Accuracy in coding (ICD-10-CM, CPT, HCPCS, modifiers) and completeness of required fields are critical to avoiding denials and delays.
- Electronic submission via HIPAA-standard formats (837-P, 837-I, 835) ensures consistency and enables automated adjudication.
- Prior authorization, eligibility verification, and appeals are interconnected with the claims process.
- Payers apply program-specific rules (Medicare, Medicaid, MA, Marketplace) during adjudication; one claim format does not mean one decision rule.