Understanding your Medical Bill

Understanding your Medical Bill

Medical billing in the United States can seem like a highly convoluted process. According to a 2016 public opinion survey conducted by Copatient, around 72% of American consumers are confused by their medical bills, and 94% of consumers have received a medical bill they considered to be “too expensive.” Even when covered by insurance or Medicare, you may find unexpected balances due to odd procedural codes, a slew of medical jargon, and insurance adjustments.

This guide will help you, as a patient, navigate the medical billing process from the moment you contact a healthcare provider about an appointment until after you receive your bill in the mail. We discuss how healthcare providers determine costs and negotiate charges with your insurance provider. In this article, we’ll be understanding your Medical Bill together. 


Fees might seem arbitrary when you ask for cost estimates from your insurer or when you receive a bill after your appointment. However, several elements factor into how hospitals, physicians’ offices, and other institutions calculate the cost of health services. If possible, contact your insurer to get cost estimates for multiple healthcare providers in your area. You may discover fees vary quite a bit for the same services.

Here are the considerations medical offices and hospitals make as they negotiate with insurance companies about the costs that appear on your bill:

  • Facility capacity: Hospital capacity growth is a factor that the National Institute for Health Care Management (NIHCM) Foundation watches closely. The number of beds in a hospital can dramatically influence what hospitals charge under a fee-for-service (FFS) system. As hospitals add more beds, they have a more significant opportunity to provide specific medical services. As the NIHCM notes, “Higher system capacity can lead to competition among suppliers and downward pressure on prices.”
  • Supply and demand: How readily available are the services you need? Are there multiple high-capacity hospitals or physicians’ offices in your area that can provide this service, or do you have access to a limited number of specialists? Dr. Robert Stonebraker explains in his open source book, The Joy of Economics, “Firms facing little or no competitive pressure are free to raise prices well above the true cost of service. Monopoly power drives up prices in medical care, just as it would it in retailing and restaurants.”
  • Hospital reputation: A hospital’s reputation has a ripple effect on how many patients use a facility, influencing demand and cost. However, the Agency for Healthcare Research and Quality warns consumers that “Clinical quality scores contributed little to hospital choice compared with a hospital’s reputation.” This can drive business and influence service costs, but you shouldn’t rely on perceived reputation to indicate performance and quality.
  • Charge Description Master (CDM) lists: This resource is a master list of service costs and billing identifier codes that medical billing professionals use during the claims process. Health offices calculate how much to bill insurance companies and patients. Each hospital maintains its chargemaster list. The American Health Information Management Association (AHIMA) recommends that CDM supports the prices by chargemaster committees that oversee responsibilities like “reviewing all charge dollar amounts for appropriateness by the payer.”

Medical billing and coding professionals are working behind the scenes from when you schedule an appointment until you receive a bill. Most patients aren’t familiar with the negotiations that occur between insurance companies and healthcare providers. Understanding the back and forth can take some of the mystery out of the insurance and billing processes.


  1. You contact a healthcare provider. Pre-register and provide essential information to the office, such as identification and insurance information. You schedule an appointment.
    • It is essential to ask the healthcare provider about the services and supplies you’ll receive. If you are not clear on upcoming charges or what insurance will cover for the appointment, then be sure to ask for the procedure codes.
    • Next, contact your insurance company to find out if your plan covers these services. If so, get an estimate of how much the services cost with your health insurance.
    • If the cost is not manageable, ask your insurer if other healthcare providers in your area provide the same service for less.
  1. The healthcare provider contacts your insurance company to verify:
    • Preauthorization: Some insurance companies require prior authorization before they cover a medical service or medication. The insurance company collects further information regarding your appointment and medical records before determining whether the services and drugs are covered.
    • Co-Pay: The healthcare provider’s office also determines how much the patient must pay out-of-pocket for this visit.
  1. On the day of the appointment, you complete any additional registration paperwork, supplying your insurance card, a valid ID, policyholder name, and your insurance group number. This registration process helps healthcare providers:
    • Update your medical records electronically; pre-existing conditions can factor into coverage decisions.
    • Provide you with privacy policy information
    • Gain your consent to perform specific procedures
    • Inform you of care liability and risks
    • Inform you of patient financial responsibilities
    • Determine your advanced directive preferences, which will give healthcare providers clear instructions if you are unable to speak for yourself
  1. After services are received, medical coders identify all services, prescriptions, and supplies received during your appointment and update your records with the corresponding service codes.
  2. The healthcare provider creates an insurance claim using these codes. They then submit an 837 file to your insurance, the standard file format set by the Health Insurance Portability and Accountability Act (HIPAA), allowing your healthcare provider to communicate securely with your insurance.
  3. A claims processor, who works for your insurance provider, reviews the insurance claim and verifies that the treatments you’ve received fall under your coverage benefits. (At this point, the insurance claims processor may contact you or your healthcare provider for additional information regarding the services and supplies you received.) The insurance claims processor decides whether the claim is valid and then accepts or rejects it.
  4. The insurance claims processor contacts your healthcare provider with the status decision. If the claim is valid, insurance reimburses your healthcare provider by paying for some or all of the services. If rejected, the claims processor provides the billing office with a detailed description of why the services are not covered.
  5. Your healthcare provider bills you for the remaining balance.

NOTE: If you are 65 or older, you are entitled to federal health benefits through Medicare. This social insurance program differs significantly from private health insurance providers when it comes to billing. Rather than negotiating prices with a healthcare provider like private health insurers, Medicare publishes set fees for services. If you enroll in Medicare Part B, your healthcare provider consults the Medicare Physician Fee Schedule (MPFS) to determine the fixed price for the services you received.