How Medical Billing Actually Works (And Where Errors Happen)
If you've ever looked at a medical bill and felt completely lost, you're not alone. The healthcare billing system is incredibly complex—so much so that even people who work in healthcare sometimes struggle to understand it.
You shouldn't need a medical degree to figure out what you're being charged for. But the reality is that medical billing involves multiple parties, complicated codes, and plenty of room for things to go wrong. And when errors happen, patients end up paying the price.
The Medical Billing Journey: What Happens Behind the Scenes
When you visit a doctor or hospital, here's what typically happens with your bill:
Step 1: You Receive Care
Your doctor or healthcare provider documents everything they do during your visit—tests, procedures, consultations, medications. Every single service gets recorded.
Step 2: Medical Coding
A medical coder translates everything your doctor did into specific codes. These aren't simple descriptions—they're highly detailed alphanumeric codes from systems like CPT (Current Procedural Terminology) and ICD (International Classification of Diseases).
This is where things can easily go wrong. If the coder selects the wrong code, even by one digit, your insurance might reject the claim or you might be charged for something you didn't receive.
Step 3: Claim Submission
The healthcare provider's billing department submits a claim to your insurance company. This claim includes all those codes, plus information about your insurance coverage and what services were provided.
Step 4: Insurance Review
Your insurance company reviews the claim to determine what they'll pay. They check whether the service was "medically necessary," whether you met your deductible, and whether your provider is in-network.
According to federal data, health insurers process over five billion payment claims annually. About 850 million of those claims are denied, based on research from the nonprofit organization KFF.
Step 5: Patient Billing
After insurance pays their portion (or denies the claim), the provider bills you for the remaining balance. This might be your copay, your deductible, or the full amount if insurance denied coverage.
Common Places Where Errors Happen
Research shows that between 50% and 80% of medical bills contain errors. Here's where they typically occur:
Wrong Codes
Medical coding is complicated. There are thousands of codes, and they're constantly being updated. A single-digit mistake can mean the difference between an approved claim and a denial.
Duplicate Charges
You might be billed twice for the same service or test. This often happens when records aren't properly coordinated between departments.
Upcoding
Sometimes providers—intentionally or accidentally—use a code for a more expensive service than what was actually provided. For example, billing for a comprehensive exam when you only had a basic consultation.
Out-of-Network Surprise Bills
You might receive care from an out-of-network provider at an in-network facility without knowing it. Until recently, this could result in massive unexpected bills. The No Surprises Act now offers some protection against these situations.
Administrative Errors
Simple mistakes like typing in the wrong insurance ID number or billing date can cause your claim to be rejected.
Why This Matters to You
Every error in the billing process can cost you money. When claims are denied or coded incorrectly, you might end up paying for services that should have been covered by insurance.
Beyond the financial impact, billing errors create stress and confusion during what's often already a difficult time. Many people simply pay their bills without questioning them because the process of fighting errors seems overwhelming.
What You Can Do
Understanding how medical billing works is your first line of defense. When you know what's supposed to happen, you can spot when something goes wrong.
Here are some immediate steps you can take:
- Always request an itemized bill (not just a summary statement)
- Compare your bill to your Explanation of Benefits (EOB) from insurance
- Look for duplicate charges or services you don't recognize
- Check that the dates of service match when you actually received care
- Verify that your insurance information was entered correctly
Getting Help When You Need It
Reviewing medical bills takes time and attention to detail—two things that are in short supply when you or a loved one is dealing with health issues. Some families find it helpful to use claim monitoring services that automatically check for billing errors and coding mistakes.
Tools like HealthLock can scan your medical claims and alert you to potential problems before they become bigger issues. These services work in the background, so you don't have to become a billing expert yourself.
The Bottom Line
Medical billing is designed to be complicated. Multiple parties, complex codes, and constant rule changes create countless opportunities for errors to slip through.
You have the right to understand what you're being charged for and to question bills that don't look right. The more you understand about how the system works, the better equipped you'll be to catch errors and protect yourself from paying for mistakes that aren't yours.
Simplify Claims Monitoring
Understanding medical billing is complex, but protecting yourself doesn't have to be. HealthLock automatically scans your claims for errors, overcharges, and suspicious activity so you don't have to become a billing expert. HealthLock's members have saved over $243 million by catching billing errors, denied claims, and fraud before they became major problems.
Disclaimer: We're not medical billing experts or attorneys—we're patients and caregivers sharing resources to help you navigate a broken system. This information is for educational purposes only and should not be considered medical or legal advice.
Affiliate Disclosure: This site may contain links to services like HealthLock that help monitor medical claims and billing. We may earn a commission if you sign up through our links, at no extra cost to you. We only recommend services we believe can genuinely help.