Medical Billing

# What are the Two Most Common Types of Medical Billing?

- January 23, 2025
- Posted by Brian Bertrand

20 Jan

Medical facilities do not implement a single medical billing system for all transactions. There are many types of medical billing systems available, and failure to pay attention to the proper utilization of those systems can lead to a lot of revenues being left behind. Medical billing can be considered to be one of the fundamental services of the healthcare industry that enables human and financial resource compensation without compromising integrity.

Medical billing is an integral part of the healthcare sector; it ensures that providers are paid for services and that money is transparent. Within this field, there are two types of billing, which include professional billing and institutional billing. Moreover, several billing systems are used in healthcare organizations depending on their necessities. It is now necessary to discuss these facets in detail.

Different kinds of systems have different types and functions but they all help healthcare professionals and patients. This is why, oftentimes, physicians can’t pinpoint a certain time for specific healthcare billing transactions. In this post, we look into the two main kinds of medical billing, how and who uses them. So read on as we explore the two kinds of medical billing and how they work!

## Types of billing Systems in healthcare

Medical billing comes in two categories: professional and institutional. But before you get started with a medical billing and coding career, you should be familiar with the healthcare billing types professional billing and institutional billing.

### Institutional billing vs professional billing

Each medical practice employs professional billing, and when a person focuses on professional billing services, it is crucial to comprehend coding and billing systems. An institutional biller deals with billing claims that are developed for the work carried out in clinics, nursing facilities, hospitals and many more.

#### Professional Billing

Professional billing is the billing process of private doctor’s practices. These billing experts typically need to know both billing and coding. It is the billing of medical services or treatments that clinicians or physicians provide to health insurance patients. Professional medical billing is physician billing. The medical office encompasses the administrative functions of medical practice, including:

- Patient visits
- Arranging consultations
- Registration and verifications
- Money collections
- And other services such as medical billing.

Professional billing is, in general, a mandatory procedure that sets the standards for most administrative tasks related to healthcare procedures, and these are:

- Appointment scheduling
- Front office greeting patients
- Payment processing
- Registration and verifications

There needs to be reliable evidence for these because highly specific in-patient and out-patient care is invoiced through the patient’s insurance plan.

#### Institutional Billing

Inpatient billing requires hospital, clinic, rehab, and nursing home billing for institutional billers. That includes outpatient and inpatient supplies, lab services, radiology services, etc. Institutional claims involves the billing of inpatient and outpatient treatment provided by health care organizations like hospitals, it is called institutional billing.

Furthermore, the institutional claims account focuses on professional nursing. In addition to that, institutional claims cover services such as:

- Laboratory testing
- Health products
- Equipment
- Radiology, and more.

## What Forms Does Professional Billing Use?

For professional billing, charges are on a CMS-1500 form. Providers and physicians bill claims using this paper form. Workers fill out most of these claims on paper but electronically is fast becoming the norm.

If the insurer, such as Medicaid and Medicare, is submitting claims electronically, it will use a form different than CMS-1500. This is the electronic version of this form, called 837-P (the P represents the professional version). Institutional billing utilizes UB-04 for paper forms, which is the standard red ink on white paper forms. For electronic forms, there is 837-I, and the “I” is the institutional format.

## Types of billing Systems in healthcare

Medical billing categories are the classifications for healthcare services used for billing and reimbursement. These types are needed for claims submission, insurance reconciliation, and healthcare regulations. Following are the three main types of medical billing: Open, closed, and isolated. These are the three kinds of billings in the healthcare sector, and each of these integrations with the medical practices vary based on the medical practice requirements. As such, this post will highlight the importance of these systems to practice management.

### Closed System:

A closed medical billing system entails using digital systems to maintain records for only one practice. One of the most popular online tools is Electronic Medical Records (EMRs). It is used to store all a patient’s information starting from diagnosis, care, and instructions. It is an electronic paper chart for medical purposes. This can be applied only in practice.

You must adopt another strategy like outsourcing the revenue cycle. Only a remote healthcare facility with fewer doctors will benefit from this configuration.

### Open System:

The open system is primarily a cooperative design. This medical billing system makes information accessible to everyone (providers, patients, chief stakeholders, insurance payers, medical billing teams, and third-party vendors). Because all data is stored in the Electronic Health Records (EHR) and can be edited by several doctors. Moreover, it is built in a way that data is secure from unauthorized users.

The open medical billing system is in widespread usage today, as it’s convenient. It’s also worked in the interest of the healthcare provider, especially those who are looking to outsource their revenue cycle.

### Isolated System:

The separate medical billing system is owned and controlled by the patient, who writes down the information at his leisure. The medical billing system involves special software instruments that help the patient to perform the procedure. It’s Patient Health Records (PHR). The patients will fill in the blanks here themselves. Open communication and transmission means that they have the freedom to use any software programs they require. The PHR will never replace the existing statutory system of EMRs and EHRs. It’s only for the patient’s own personal way of keeping records.

## Medical Billing Classifications

Within the larger set of medical coding categories, there are various sub-categories for specific functions. Diagnose codes, for example, refer to disease and symptom codes used by health care providers, and procedural codes refer to surgeries or treatments. Understanding the type of category a medical coding system belongs to can make you more knowledgeable about what it does and what it’s used for. Here’s a quick overview of some classification systems used in the medical billing and coding world.

### – ICD-11

ICD-11 is the most recent update to the International Classification of Diseases (ICD) and will replace ICD-10 as the universal code for diagnostic diagnoses. From diseases to symptoms, ICD-11 was introduced in January 2022 to accurately diagnose all conditions. It also reclassifies the category of some diseases, increases the scope of sexual health diagnoses, and introduces new categories for the immune system and sleep-wake disorders, among other diagnoses.

### – ICD-10-CM

ICD-10-CM is the clinical modification (CM) of the previous version of the ICD, ICD-10. This version of the ICD is intended for use in a clinical context and includes a modifier that allows for details that will be reported in the US. ICD-10-CM is also different than the ICD-10 codes in terms of granularity. ICD-10-CM medical codes are much more specific and particularly useful in clinical and outpatient use because they help us understand the severity of a disease or condition.

### – ICD-10-PCS

ICD-10-PCS is the procedural version of the ICD-10. In contrast to the ICD-10-CM (which was designed to describe disease and conditions more comprehensively), the ICD-10-PCS is a medical code for procedures and devices that are intended for inpatient environments.

### – CPT

CPT stands for Current Procedural Terminology and is utilized to communicate diagnostic, surgical and medical findings to the appropriate stakeholders. CPT is a procedural medical coding system, meaning it represents what doctors and other healthcare professionals do to treat their patients. It is designed to share such processes in a consistent fashion for administrative and statistical purposes.

### – HCPCS Level II

CPT drives the Healthcare Common Procedure Coding System Level II (HCPCS). It uses HCPCS codes to identify non-physician services outside the scope of CPT coverage, such as ambulances, drugs, and prostheses.

### – Revenue Codes

Represents the hospital department or service area in a healthcare facility. 4-digit numbers (e.g. 0450 for Emergency Rooms). It is printed on UB-04 claim forms for reimbursement.

## Conclusion

Job responsibilities will vary from employer to employer, but for institutional billing employees, it will likely be limited to billing and/or collections. Professional coders perform Medical Coding in each medical institution. This is because coding for institutional services may differ from professional coding billing, which usually requires a coder’s attention. Medical billing systems embrace the world industry with more or less strengths and weaknesses.

Understanding billing types in healthcare of the billing system to practice according to the need rather than on record keeping. When you have decided on the billing system for your practice, you can proceed to decide whether to retain the existing software or get a new one. The professional and institutional billing and claims are different concerning the revenue share or the increasing revenue reimbursements. However, professional vs institutional is a critical segment when it comes to preventing fraudulent actions or claim denial. The billers have to make certain that none of the professional or institutional claims are left undocumented. In addition, the biller must also know the existing medical billing and coding issues that may exist.

## FAQS

### 1. What is the biggest difference between institutional and professional billing?

The largest difference between professional and institutional billing is that professional billing restricts what a physician or physician group can provide. Institutional claims and billing, meanwhile, cover all administrative and intervention costs associated with a patient’s hospitalization.

### 2. What is ICD?

ICD means International Classification of Diseases. International comparability thus is supported in the collection, classification, processing, and presentation of stats.

### 3. What services fall under professional billing?

Professional billing covers both inpatient and outpatient work that is performed by a physician. These services are paid for upon verification and are covered by the patient’s insurance plans.

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