Everything you need to know about the types of medical billing

What are the main types of medical billing?

The main types of medical billing run on three systems: closed, open, and isolated, and each one fits a different size and setup of healthcare practice.

• Closed systems keep data inside one practice, so they suit small clinics.
• Open systems share data across providers, which makes them more flexible.
• Isolated systems work as stand-alone tools for a single provider type.

Medical billing has gained more attention in recent years. The demands of healthcare now overburden many hospitals. Meanwhile, health insurance companies are slow to pay, and that causes problems for everyone in the industry.

Billing can be tedious and time-consuming. However, clearly implementing procedures and processes to curb excessive charges helps eliminate bad debts. With so much to track, you need someone who can handle this for you. As a result, outsourcing becomes an attractive option.

This article covers medical billing, its types, common services, and the benefits of outsourcing it.

What is medical billing?

Medical billing is the process of submitting a claim to an insurance company for payment. The claim lists all services performed by the healthcare professional. It also includes details about the patient.

This is a complex practice. In fact, it needs real knowledge of the many insurance plans and how to file claims for reimbursement. Billing staff make sure claims go out on time and stay accurate. In addition, they keep claims in line with rules set by payers and third-party groups.

This practice has been around since the start of health care. However, it has grown more complex as medical practices have evolved.

According to Grand View Research, the global medical billing outsourcing market was valued at USD 14.90 billion in 2024. Furthermore, it is projected to reach USD 44.30 billion by 2033, at a compound annual growth rate (CAGR) of about 13%.

Today’s practices are larger, more specialized, and more complex. So they need extra staff who focus on medical billing. Many now turn to healthcare BPO providers to fill that gap.

How outsourcing medical billing works

Outsourcing medical billing is a popular option for small institutions. Many lack the resources or the expertise to handle billing on their own.

Typically, outsourced billing companies work with insurance firms. Those firms give them forms and detailed reports on the claims they submit for clients. When a facility outsources all types of medical billing tasks, it hands the work to a team of industry experts.

This is a great way to manage the practice’s billing functions. It helps most when no in-house staff member can take on the task.

3 main types of medical billing systems

Medical billing systems track and process patient payments. Basically, there are several types of systems, and each one has its own features and benefits. So here are the three main types of medical billing systems.

Closed medical billing systems

Closed systems are the most common type of medical billing system in use today. These systems do not allow changes or additions once installed. Because of this, the data inside them stays static and does not change over time.

With this type, staff simply input data into the software and print the invoice. As a result, small practices and solo physicians often use closed systems. They manage their own billing, collections, and accounts receivable this way. Still, the main drawback is clear. It does not allow data sharing between providers or patients.

Open medical billing systems

This type allows changes and updates over time as needed. So it is more flexible. However, it needs more upkeep from the company that installs it.

Open systems let healthcare facilities accept claims from out-of-network providers. Claims go out electronically through an HMO or PPO network. In addition, the third-party administrator (TPA) steps in only a little. This setup also lets institutions link with other software, so everything stays tracked and documented.

Isolated medical billing systems

Isolated systems suit many small hospitals and clinics. They serve one type of patient at a time, such as a pediatric clinic. In this kind of system, all patients are treated the same. Insurance coverage or ability to pay does not change the process.

These are stand-alone software programs. Each one handles only one type of insurance and one type of provider. For example, a single hospital or doctor’s office may use one. They do not connect with other systems. So the information must be entered by hand into other tools for analysis. As a result, it is hard to keep the data current. Accurate medical coding becomes even harder to maintain across separate tools.

Common types of medical billing services

Medical billing services help facilities run their operations. They bring tools, technology, and expertise for efficient claims management.

Practices can outsource these tasks to third-party firms that focus on this work. As a result, they save both money and time. The common types of medical billing services include the following.

Claims submission

This is the process of sending a claim to an insurer or government agency. It must go out within a set time frame for reimbursement. Firms can outsource claims submission to an outside agency. However, some keep the staff in-house to handle it directly.

Claims scrubbing and verification

This service reviews submitted claims for errors before they go out. It also checks whether the patient has met the deductible first. When a claim comes back from an insurer, it often contains errors. Those errors must be fixed before payment.

For example, claims may have missing dates, wrong amounts, or other problems. As a result, both scrubbing and verification matter a lot. They keep relationships with insurers healthy.

Claims appeals and denials

Claims appeals happen when an insurer denies coverage for a service or treatment. A doctor or other provider had already given that care. Meanwhile, claims denials can stem from wrong coding on a claim form. They can also occur when a policy did not cover the patient.

The appeals process can be complex. However, some billing services provide templates and clear steps. So patients can appeal claims themselves.

Account receivables (A/R) Follow-Up

Account receivables are the money owed by patients who have not paid. They still owe for services from their physician or provider.

Outsourcing this type of medical billing helps institutions follow up. Staff reach patients who have outstanding balances on their accounts. These services often include calls or mail. They remind patients about unpaid bills until payment is made.

Payment posting

The first step in billing is to check whether the patient has already paid. Then the medical practitioner receives payment from insurers, agencies, or other payers. Those funds go into their bank accounts.

This service also keeps payments on schedule. So funds arrive at the practice on time.

Revenue cycle management

Revenue cycle management (RCM) is an umbrella term. It covers all activities involved in collecting payments. Payment collection covers insured patients and self-pay patients alike. To learn more, see our guide to revenue cycle management and how it works.

RCM includes tasks such as coding, billing, and reimbursement follow-up. Each claim from a physician’s office runs through this cycle. This service also helps prevent rejected claims. For example, it catches missing information early. As a result, practices manage collections and finish billing cycles without hiccups.

Why should you outsource these types of medical billing?

Many practices consider outsourcing when they face a high volume of bills. So here are a few reasons to outsource these types of medical billing.

Fewer billing errors and ensure compliance

Each patient visit or procedure needs a lot of documentation. So simple mistakes are easy to make when entering data into the system.

In fact, Becker’s Hospital Review has reported that roughly 80% of medical bills contain errors. These mistakes can lead to wrong charges. They can also delay or deny payments. However, outsourcing cuts these errors. It puts a dedicated, expert team in charge of payment processes.

Reduced costs

Want to save money and cut expenses? Then outsourcing these types of medical billing is a good move. The provider handles the full process. This includes sending bills, collecting payments, filing claims, and running audits. As a result, your team can focus on the business while you save money over time. A medical billing virtual assistant can cover much of this work at a lower cost.

Increased control and transparency

Medical billing is a key part of running a practice. You need to know how much money comes in each month. That way, you can manage your finances well.

With an outsourced solution, you get real-time data on all payments and transactions. So you can track the business at all times. In addition, outsourcing gives you full control over how finances are processed.

Improved cash flow and revenue

Outsourced medical billing companies are efficient. They give clients a fast turnaround on filing claims. For many small businesses, cash flow is hard to manage. They lack the resources or the skill to handle it alone.

So an outsourced solution helps. It brings best practices for managing cash flow. As a result, the business can focus on its core work. With these advantages in place, you can improve efficiency and lift your bottom line.

Frequently asked questions about the types of medical billing

What are the three main types of medical billing systems?

The three main types are closed, open, and isolated systems. Closed systems stay inside one practice. Open systems share data across providers. Isolated systems run as stand-alone tools for a single provider type.

What is the difference between medical billing and medical coding?

Coding turns a diagnosis or treatment into standard codes. Billing then uses those codes to file claims and collect payment. So coding comes first, and billing follows. Both work together in the revenue cycle.

Is outsourcing medical billing worth it for small practices?

Yes, it often helps small practices. Many lack the staff or tools to bill well. An outside team cuts errors and speeds up claims. As a result, cash flow improves and costs drop.

What does a medical billing service actually do?

A billing service submits claims and scrubs them for errors. It also handles appeals, denials, and payment posting. In addition, it follows up on unpaid balances. Many providers also manage the full revenue cycle.

Key takeaways

• The three types of medical billing systems are closed, open, and isolated.
• Each system fits a different practice size and workflow.
• Common billing services include claims submission, scrubbing, appeals, and A/R follow-up.
• Outsourcing cuts billing errors, lowers costs, and improves cash flow.
• The medical billing outsourcing market keeps growing fast worldwide.