Medical Billing: Fewer Errors, Faster Payment

Medical billing is the work of turning care into payment. Every visit, test and procedure must be coded, sent to the right payer, checked and paid. When any step goes wrong, money is delayed, denied or paid in error. For hospitals and clinics, billing quality decides cash flow. For patients, it decides whether the bill they receive is right.

How a claim moves

1. Registration: the patient's details and insurance are recorded.
2. Eligibility check: the provider confirms what the plan covers.
3. Coding: diagnoses and services are turned into standard codes.
4. Claim submission: the claim is sent, usually electronically.
5. Payer review: the payer checks rules, coverage and documentation.
6. Payment and posting: money arrives with a remittance explaining any changes.
7. Follow-up: denials are corrected and appealed; the patient is billed for their share.

The size of the error problem

The US Medicare programme measures billing errors every year through its Comprehensive Error Rate Testing (CERT) programme, which reviews a random sample of claims [2]. In fiscal year 2024, CMS reported a Medicare fee-for-service improper payment rate of 7.66%, or about $31.70 billion [1]. The FY2025 report showed the rate falling to 6.55%, about $28.83 billion [2].

An improper payment is not the same as fraud. Most are payments that could not be confirmed as correct, often because records were missing or did not support the service billed. Some are underpayments. The fix is usually better documentation and coding, not stronger penalties.

Where errors cluster

Office visit codes, known as evaluation and management (E/M) codes, are among the most common services billed. CMS reported an improper payment rate of 10.3% for E/M services, about $3.9 billion [1]. Choosing the right visit level depends on medical decision-making or time, and documentation often falls short.

Common causes of denied or wrong claims

• Wrong or missing patient or insurance details.
• Services not covered, or prior authorization not obtained.
• Codes that do not match the diagnosis or the notes.
• Duplicate claims.
• Late submission after the payer's filing deadline.
• Missing signatures or orders in the medical record.

The cost of manual work

Each manual phone call, fax or portal check adds staff time. The CAQH Index, which tracks administrative transactions in US healthcare, estimates that about $20 billion a year could still be saved by moving remaining manual transactions to electronic ones [3][4]. Prior authorization is the least automated step. Only about 40% of prior authorizations were fully electronic in the 2024 Index [3].

How automation helps

• Real-time eligibility checks before the visit reduce coverage denials.
• Claim scrubbers catch coding and format errors before submission.
• Computer-assisted coding suggests codes from clinical notes for a coder to confirm.
• Denial analytics show which payers and services cause the most rework.
• Electronic remittance and payment speed up posting and cut paper.
• Clear patient statements and online payment improve collection of the patient share.

New rules on prior authorization

In January 2024, CMS finalised a rule that requires many payers in Medicare Advantage, Medicaid and the federal marketplace to answer urgent prior authorization requests within 72 hours and standard requests within 7 days, starting in 2026. Payers must also give a specific reason for denials and build electronic prior authorization interfaces [5]. These changes should reduce one of the biggest sources of billing delays.

In-house or outsourced?

Some practices run billing with their own staff. Others outsource to billing companies, usually paid a share of collections. Outsourcing can bring expertise and technology to small practices. In-house teams keep closer control and patient contact. Many organisations mix the two, outsourcing only coding or denial follow-up.

Key numbers at a glance

• Medicare improper payments: 7.66% ($31.70 billion) in FY2024.
• FY2025 rate: 6.55% ($28.83 billion).
• E/M services: 10.3% improper, about $3.9 billion.
• About $20 billion a year in savings if manual transactions go electronic.
• Only about 40% of prior authorizations fully electronic.

Questions for practice and hospital leaders

• What is our first-pass claim acceptance rate?
• Which five denial reasons cost us the most?
• Do we check eligibility before every visit?
• Does our documentation support the visit levels we bill?
• Are we ready for the 2026 prior authorization rules?

Go deeper

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In short

Most billing errors come from missing details and weak documentation. Checking eligibility early, coding from good notes and automating checks before submission prevent most of them.

What this means

Billing errors are common, measurable and mostly fixable. Clean data at registration, good documentation and automated checks remove most avoidable denials. New prior authorization rules and wider electronic transactions will keep pushing billing toward faster, cleaner payment.

Where to read more

All figures in this article come from public sources listed below. For more detail, start with the CMS improper payments fact sheet, the CMS CERT page and the CAQH Index. Each is free to read online. If anything here raises a question about your own health, take this article to your doctor or pharmacist and talk it through together. Buyers, investors and policy makers can also use these sources to check claims in sales materials and compare options on the same public evidence. Where public sources disagree or update their figures, we note the year of each number so readers can see how the picture changes over time.

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Topics: Health IT and data · Hospital · Digital health

Sources

1. CMS fact sheet: Fiscal Year 2024 improper payments
2. CMS: Comprehensive Error Rate Testing (CERT)
3. AJMC: CAQH Index finds $20 billion in cost savings opportunities
4. CAQH news release: New CAQH Index reveals $20B savings opportunity
5. CMS fact sheet: Interoperability and Prior Authorization Final Rule (CMS-0057-F)

Banner image: Onesimus Ustonson 1772 invoice and receipt by Onesimus Ustonson, Public domain, via Wikimedia Commons.