What Is Remittance Advice in Medical Billing?

Remittance advice (RA) serves as a communication document exchanged between insurance companies, or payers, and healthcare providers. It details how submitted medical claims were processed and the corresponding payment or denial status. This document plays a role in the medical billing cycle by providing a record of payments and any adjustments made, ensuring transparency in financial transactions between providers and payers.

Understanding Remittance Advice

Remittance advice clarifies the financial outcome of submitted claims, detailing payment or denial for healthcare services. It is not a bill to the patient, but an explanation of how the insurance payer processed a claim. Insurance payers, including commercial companies and government programs like Medicare and Medicaid, generate these documents. Healthcare providers and medical billing companies receive RAs to reconcile accounts and track claim status.

Key Information Found on Remittance Advice

Remittance advice documents detail claim adjudication. Each RA includes patient and subscriber information, such as name and identification number. Provider information, including name and address, is also present. Service dates specify when medical services were rendered.

For each service, the RA lists the CPT (Current Procedural Terminology) or HCPCS (Healthcare Common Procedure Coding System) codes and associated diagnosis codes, describing the procedures performed and the patient’s condition. The document also shows the billed amount, the allowed amount (the maximum amount the payer will reimburse for a service), and the actual paid amount. Additionally, it details any deductibles, co-pays, and co-insurance that were applied, representing the patient’s financial responsibility.

Remittance advice includes several key details:
Adjustment codes (Claim Adjustment Reason Codes – CARCs, and Remittance Advice Remark Codes – RARCs) explain differences between billed and paid amounts, such as contractual adjustments or non-covered services.
Denial codes and specific reasons for denial, if a claim or portion is denied.
Patient responsibility, which is the amount the patient owes after insurance processing.
A claim number or internal reference number, enabling providers to match the RA to the original claim.

Electronic and Paper Formats

Remittance advice is primarily delivered in two formats: Electronic Remittance Advice (ERA) and Explanation of Benefits (EOB). An ERA is an electronic file sent directly from the payer to the healthcare provider, typically in a standardized electronic format such as the HIPAA 835 transaction set. This electronic format allows for automated processing and integration with practice management systems. ERAs offer advantages such as faster processing, improved security, and reduced manual errors compared to paper documents.

Conversely, an Explanation of Benefits (EOB) is usually a paper document mailed to the patient, detailing the medical services received, the amount billed, what the insurance paid, and any remaining patient responsibility. While primarily for patients, providers may also receive a version of the EOB, which serves as their paper remittance advice. Although ERAs are increasingly prevalent due to their efficiency, paper EOBs continue to be used, especially for patient communication regarding their financial obligations. The main distinction lies in their recipient and purpose: ERAs are for providers to streamline payment posting, while EOBs inform patients about their benefits.

Using Remittance Advice for Payment Posting

Healthcare providers and their billing teams use remittance advice to systematically reconcile patient accounts and manage their revenue cycle. The initial step involves matching the received remittance advice to the original claim submitted to the insurance company. This ensures that the payment or denial corresponds to a specific service provided.

Next, payments are posted to the correct patient accounts within the practice management software. This involves accurately recording the paid amount for each service line. Patient balances are then adjusted based on the information provided in the RA, accounting for deductibles, co-pays, co-insurance, and any contractual adjustments. This ensures the patient’s financial ledger reflects the true outstanding balance.

The remittance advice also helps identify claims that were denied or partially paid. Billing teams analyze the adjustment and denial codes provided on the RA to understand the reasons for non-payment or reduced payment. This information is then used for follow-up actions, such as re-billing claims with corrected information, appealing denied claims, or initiating patient collection processes for their portion of the balance. Modern practice management software can automate the posting of ERAs, significantly streamlining this process by directly importing the electronic data and applying payments and adjustments, which reduces manual data entry and potential errors.