What Is a Third-Party Payer and Why It Matters
When a patient goes to a doctor, someone has to pay for that visit. Most of the time, that person is not the patient. Instead, another organization steps in and pays the bill. This organization is called a third-party payer.
The word “third-party” comes from how many people are involved. The patient is the first party. The doctor or hospital is the second party. The payer is the third party because they are not the one getting the care or giving the care. They are just handling the money.
This setup is how medical billing works in the United States. Providers send their bills to the payer, not directly to the patient. The payer looks at the bill, decides how much they will pay, and sends that payment to the provider. If there is any amount left over, the patient pays that part.
For billing professionals, understanding the third-party payer is the most important part of the job. Every claim submitted, every form filled out, and every phone call made is connected to a payer in some way. If a billing team does not understand how payers work, claims will be denied, payments will be delayed, and the practice will lose money.
Third-party payers include private insurance companies, government health programs, employer health plans, and managed care organizations. Each one has its own rules. Each one pays differently. Each one has a different process for reviewing and approving claims. This is why billing is not a simple job. It requires knowing the rules for every payer connected to every patient.
| Party | What They Do |
| Patient (First Party) | Goes to the doctor and receives care |
| Provider (Second Party) | Gives the care and sends the bill |
| Payer (Third Party) | Reviews the bill and pays the approved amount |
| Patient (Shared Role) | Pays any remaining balance after the payer pays |
The Different Types of Third-Party Payers
There are several types of third-party payers. Each type serves a different group of people and follows different rules. Billing teams need to understand what type of payer they are dealing with before they submit a claim, because the process changes depending on the payer.
Private Commercial Insurance Companies
Private insurance companies are businesses that sell health coverage to people and employers. Some of the most well-known names include Aetna, Cigna, Humana, UnitedHealthcare, and Blue Cross Blue Shield. These companies collect monthly premium payments from members and use that money to pay medical claims.
When a provider signs a contract with a private insurance company, they agree to accept a specific payment rate for each service. The insurance company decides how much each service is worth. The provider cannot charge more than that agreed amount to the patient.
Government Health Programs
The government runs several health programs that act as third-party payers. Medicare is a federal program that covers people who are 65 years old or older. It also covers some younger people who have certain disabilities. Medicaid is a program for people with low incomes. It is run by each state with help from the federal government, so the rules can be different depending on which state the patient lives in. CHIP, which stands for the Children’s Health Insurance Program, covers children in families that earn too much to qualify for Medicaid but still cannot afford private insurance. Tricare covers people who serve in the military and their family members.
Self-Funded Employer Plans
Some large companies pay their employees’ medical bills directly from their own money instead of buying traditional insurance. They hire another company, called a third-party administrator or TPA, to handle the paperwork and process the claims. These plans follow federal rules under a law called ERISA. This means state insurance laws do not apply to them, which can make billing more complicated.
Managed Care Organizations
Managed care organizations are health plans that manage both the delivery of care and the payment for it. Health Maintenance Organizations, called HMOs, require patients to use only specific doctors and get referrals before seeing a specialist. Preferred Provider Organizations, called PPOs, give patients more freedom to choose their doctors but still have a network of preferred providers. Exclusive Provider Organizations, called EPOs, require patients to stay in-network except in emergencies.
| Payer Type | Who It Covers | Key Feature |
| Commercial Insurance | Individuals and employer groups | Negotiated fee schedules |
| Medicare | Seniors 65+ and some disabled individuals | Federal standardized payment system |
| Medicaid | Low-income individuals and families | State-run, varies by state |
| CHIP | Children in moderate-income families | Federally funded, state-managed |
| Tricare | Military members and their families | Department of Defense rules |
| Self-Funded Employer Plans | Employees of large companies | ERISA-governed, TPA-processed |
| HMO | Plan members using in-network doctors | Referrals required |
| PPO | Plan members with flexible provider choice | More options, higher patient costs out-of-network |
| EPO | Plan members in-network only | No out-of-network coverage except emergencies |
How Third-Party Payers Decide How Much to Pay
Third-party payers do not just pay whatever a provider charges. Every payer has a system for deciding how much a service is worth. The amount they agree to pay is called the allowed amount. Providers accept this amount as full payment for that service when they are in-network with the payer.
Medicare uses a payment system called the Resource-Based Relative Value Scale, also known as RBRVS. Under this system, every medical service gets a number called a Relative Value Unit, or RVU. This number reflects how much work the service takes, how much it costs to run the practice, and how much malpractice insurance is needed. Medicare then multiplies the RVU by a set conversion factor to calculate the payment amount. This conversion factor is a dollar number that Medicare updates each year.
Commercial insurance companies often use Medicare rates as a starting point. They may agree to pay 110% or 130% of Medicare rates for certain services, or they may pay only 85% of Medicare rates. This is all part of the contract negotiation between the insurance company and the provider.
Medicaid pays less than Medicare in most states. Reimbursement rates are set by each state, which is why providers in some states refuse to accept Medicaid patients. The payment is simply too low to cover their costs.
For hospital stays, many payers use a system called Diagnosis-Related Groups, or DRGs. Instead of paying for each test, each procedure, and each day separately, the payer pays one single bundled amount based on the patient’s diagnosis. If the hospital treats the patient for less than that amount, the hospital keeps the difference. If the treatment costs more, the hospital has to absorb that extra cost.
Some managed care plans use a system called capitation. The payer gives the provider a fixed amount of money each month for each patient assigned to them. That payment covers all the care the patient needs during that month, regardless of how many times they visit. This shifts financial risk from the payer to the provider.
| Payment Model | Simple Explanation | Who Uses It |
| Fee-for-Service | Payment for each individual service | Commercial payers, Medicare Part B |
| RBRVS | RVUs multiplied by a dollar conversion factor | Medicare physician services |
| DRG Bundled Payment | One payment for the full hospital stay | Medicare Part A, many commercial payers |
| Capitation | Fixed monthly payment per patient | HMOs and some managed care contracts |
| Per Diem | Fixed daily rate for hospital care | Some commercial and Medicaid plans |
| Value-Based Payment | Payment tied to quality outcomes | Medicare programs, some commercial payers |
The Contract Between Payers and Providers
When a provider wants to work with a specific payer and receive payment for seeing that payer’s members, they must sign a contract. This contract is a formal written agreement that covers everything about how the financial relationship will work. Without a signed contract, the provider is considered out-of-network, and the payment situation becomes much harder.
The contract includes a fee schedule. This is a list of every medical service the provider can perform, matched with the exact dollar amount the payer will pay for each one. The provider agrees to accept these amounts and cannot bill the patient for any difference between their normal charge and the payer’s allowed amount. This price difference is written off as a contractual adjustment.
For example, if a provider charges $250 for an office visit but the payer’s allowed amount is $160, the provider writes off $90 as a contractual adjustment. The patient may still owe a portion based on their plan, such as a copay or coinsurance, but the provider cannot charge them the full $90 difference. This protection for patients is one of the reasons payer contracts matter so much.
Contracts also outline several other important rules that billing teams must follow every day:
- Timely filing limits tell the billing team how many days they have to submit a claim after the date of service. Missing this deadline means the claim will be denied and the revenue is lost.
- Appeal rights explain what the provider can do if a claim is denied and how many levels of appeal are available.
- Clean claim standards describe exactly what must be on a claim for it to be considered complete and ready for processing.
- Payment timelines tell the provider how many days the payer has to send payment after receiving a clean claim.
- Credentialing requirements explain which providers in the practice are approved to bill under the contract and what qualifications they must have.
Every payer has a different contract with different terms. A billing team working with ten different payers is managing ten different sets of rules. This is why organized, detailed processes are so important in medical billing.
How Claims Move Through the Payer System
After a patient visit, the billing team creates a claim. This claim is a detailed document that describes what services were provided, when they were provided, who provided them, and what diagnosis the patient had. The claim is written in a standardized format using medical codes. Then it is sent to the third-party payer.
Most claims are sent electronically. The standard electronic format for professional claims is called the 837P. For hospital claims, it is called the 837I. Before these claims reach the payer, they usually go through a clearinghouse first.
A clearinghouse is a company that acts as a middleman between the provider and the payer. It checks the claim for basic formatting mistakes, missing information, and obvious errors. If there are problems, the clearinghouse sends the claim back to the biller with a list of what needs to be fixed. This step helps reduce the number of claims that get rejected by the payer.
Once the claim passes through the clearinghouse, it reaches the payer and enters a process called adjudication. Adjudication is mostly automated. The payer’s computer system checks the claim against a large set of rules. It looks at whether the patient was covered on the date of service. It checks whether the provider is in-network. It reviews whether the service is covered under the patient’s specific plan. It checks whether the codes are valid and match each other correctly.
After adjudication, the payer sends back a document called a Remittance Advice. For electronic payments, this is called an ERA, or Electronic Remittance Advice. For paper checks, it comes as an Explanation of Benefits, or EOB. This document shows the biller exactly what happened with the claim. It shows what was charged, what was allowed, what was paid, what the patient owes, and why any part of the payment was adjusted or denied.
| Step | What Happens |
| Claim Preparation | Biller creates the claim with correct codes and complete patient information |
| Clearinghouse Submission | Claim is sent electronically and checked for formatting errors |
| Payer Receipt | Payer receives the clean claim and begins processing |
| Adjudication | Automated system checks coverage, codes, and contract rules |
| Payment Decision | Payer approves, reduces, or denies payment |
| Remittance Sent | Provider receives ERA or EOB showing all payment details |
| Payment Posting | Billing team records payment in the practice management system |
How Payers Decide if a Service Is Medically Necessary
Third-party payers do not pay for every service a provider performs. They only pay for services that they consider medically necessary. This means the service must be appropriate and needed to diagnose or treat the patient’s condition based on accepted medical standards.
Each payer has written policies that define what is medically necessary for specific diagnoses and procedures. Medicare calls these Local Coverage Determinations, or LCDs. Commercial payers call them coverage policies or medical policies. These documents list which diagnosis codes support payment for a given procedure. If the diagnosis code on the claim does not match what the payer’s policy says is acceptable, the claim will be denied for lack of medical necessity.
This is why the connection between diagnosis codes and procedure codes is so important. The diagnosis code tells the payer why the service was done. The procedure code tells the payer what service was done. Both codes must make sense together. If they do not, the payer will not pay.
For example, if a provider bills a chest X-ray and the diagnosis code is for a sprained ankle, the payer will see no connection between the diagnosis and the service. That claim will be denied. But if the diagnosis code is for cough or chest pain, the payer can see a clear reason for ordering a chest X-ray.
Providers can appeal medical necessity denials by sending clinical notes and records that support why the service was done. But the better approach is to make sure the coding is correct before the claim is ever submitted.
| Scenario | What the Payer Does |
| Diagnosis clearly supports the procedure | Approves and pays the claim |
| Diagnosis does not relate to the procedure | Denies for lack of medical necessity |
| Service is listed as non-covered by the payer | Denies regardless of diagnosis |
| Service exceeds allowed frequency | Denies for exceeding the allowed number of visits or tests |
| Provider submits supporting clinical notes on appeal | May reverse the denial after reviewing the records |
How Payer Fee Schedules Affect Practice Income
A fee schedule is a list of services with a specific dollar amount assigned to each one. Every payer has its own fee schedule. When a provider is in-network with a payer, that fee schedule controls how much the provider gets paid for each service.
The same service can pay very differently from one payer to another. An office visit might pay $110 from one commercial insurance company and only $72 from Medicaid. A lab test that pays $45 from Medicare might pay $60 from a different commercial payer. These differences add up very quickly across hundreds or thousands of claims.
This is why billing teams and practice managers pay close attention to their payer mix. The payer mix is the combination of different payers that cover a practice’s patients. A practice that sees many patients with high-paying commercial insurance will typically bring in more revenue than a practice that sees mostly Medicaid patients, even if they see the same number of patients each day.
Providers have the ability to negotiate their fee schedules with commercial payers when their contracts come up for renewal. Even a small increase in the allowed amount for common services can result in a large increase in annual revenue. For example, if a provider sees 30 patients a day and negotiates a $10 increase per visit from one commercial payer, that adds up to thousands of extra dollars each month.
Fee schedules also determine what the patient owes. After the payer pays its share of the allowed amount, the patient pays the rest. That patient portion might be a fixed copay, a percentage of the allowed amount called coinsurance, or the remaining balance of their deductible. All of these calculations start with the allowed amount in the fee schedule.
| Procedure Code | Provider Charge | Payer A Allowed | Payer B Allowed | Payer C Allowed |
| 99213 (Standard Office Visit) | $160 | $105 | $118 | $82 |
| 93000 (Electrocardiogram) | $80 | $45 | $58 | $33 |
| 85025 (Complete Blood Count) | $55 | $30 | $40 | $22 |
| 99396 (Preventive Adult Visit) | $220 | $140 | $162 | $108 |
| 71046 (Chest X-ray) | $130 | $72 | $88 | $55 |
Coordinating Benefits When a Patient Has Two Insurance Plans
Some patients have more than one insurance plan. A person might be covered by their own employer’s plan and also by their spouse’s employer plan. A child might be covered by both parents if each parent has separate insurance through their own job. When this happens, two payers share responsibility for paying the bill. This process is called coordination of benefits, often shortened to COB.
The first thing the billing team must do is figure out which payer is primary and which is secondary. The primary payer is always billed first. They review the claim and pay their portion based on their own rules. Then the billing team sends a second claim to the secondary payer. The secondary payer reviews what the primary payer paid and then decides how much more they will contribute.
The secondary payer does not simply pay everything that is left over. They have their own rules for calculating their share. In many cases, the patient ends up with very little or nothing left to pay when both payers have processed the claim. But this depends on the specific plans involved.
There are established rules for deciding which payer is primary. For children, most payers use what is called the birthday rule. The parent whose birthday comes first in the calendar year has the primary plan for the child. The other parent’s plan becomes secondary. For adults who are covered by two plans, the plan through the person’s own job is usually primary. The plan through a spouse or another person’s job is secondary.
Medicare has its own specific rules about what happens when a Medicare patient also has other coverage. When a Medicare patient is still working and has an employer group plan, the employer plan pays first and Medicare pays second. When a Medicare patient has a Medicaid plan, Medicare always pays first and Medicaid covers whatever is left. Getting this order wrong can lead to denied claims and serious compliance problems.
| Patient Situation | Primary Payer | Secondary Payer |
| Covered by own job and spouse’s job | Own employer plan | Spouse’s employer plan |
| Child with two parents having separate plans | Parent with the earliest birthday in the year | Other parent’s plan |
| Medicare patient still working with employer insurance | Employer group plan | Medicare |
| Medicare patient with a Medigap supplement plan | Medicare | Medigap supplement plan |
| Medicare patient who also has Medicaid | Medicare | Medicaid |
| Work injury with regular health insurance | Workers’ compensation plan | Regular health insurance |
Credentialing and Enrollment With Each Payer
Before a provider can bill a third-party payer and receive payment, they must complete a process called credentialing. Credentialing is how the payer checks that the provider is qualified, licensed, and approved to treat patients and submit claims under that payer’s plan.
During credentialing, the provider submits a detailed application to the payer. This application includes their medical degree information, training history, license numbers, malpractice insurance details, work history, and any record of disciplinary actions. The payer then verifies all of this information directly with the sources, such as medical boards and training programs.
This process takes a long time. Depending on the payer, credentialing can take anywhere from 60 to 180 days. During that time, the provider cannot bill that payer. If patients are seen before the credentialing process is complete, those claims may be denied. Depending on the payer, it may not be possible to recover that money afterward because some payers do not allow retroactive billing.
Enrollment is a separate step that often happens at the same time as credentialing. Enrollment means getting the provider set up in the payer’s billing system. This allows electronic claims to be submitted correctly and payments to be deposited into the right account. Without enrollment, the payer cannot process claims from that provider even if credentialing is complete.
Billing teams usually manage credentialing as part of their regular responsibilities. They track expiration dates for medical licenses, DEA registration numbers, and malpractice insurance policies. Payers check these details when they re-credential providers on a regular schedule. If anything expires or lapses, the payer may suspend the provider from their network, which stops payments immediately.
How Payers Handle Denied Claims and Appeals
A denied claim is a claim that the payer has refused to pay. Denials happen for many different reasons. Some denials happen because of small mistakes that are easy to fix. Others happen because the service is genuinely not covered under the patient’s plan. Either way, a denial does not always mean the payment is permanently lost.
Third-party payers are required to give providers a reason for every denial. This reason comes in the form of a code on the remittance advice called a Claim Adjustment Reason Code, or CARC. There are hundreds of these codes, and each one explains a specific reason why the payment was reduced or denied. Billing teams who understand these codes can respond quickly and correctly.
When a claim is denied for a fixable reason, the biller corrects the problem and resubmits the claim. For example, a claim denied because of a missing modifier can be corrected and sent back to the payer. A claim denied because of an invalid procedure code can be reviewed and corrected with the right code.
When a claim is denied for a more serious reason, such as medical necessity, the biller must write a formal appeal. An appeal is a written request asking the payer to look at the denial decision again. A good appeal includes a copy of the original claim, a copy of the denial notice, clinical documentation from the patient’s records, and a written letter explaining why the denial is wrong.
Most commercial payers allow two rounds of appeals. The first is called a first-level appeal. If that is denied, the provider can submit a second-level appeal. Some contracts allow for a third step called an external review, where a neutral third party that is not connected to either the payer or the provider makes the final decision.
Time limits apply to appeals just as they do to original claims. Most payers give providers between 60 and 180 days from the date of the denial to submit an appeal. Missing this window closes the door on recovering that payment permanently.
| Denial Reason | Best Response |
| Missing or wrong modifier | Correct the modifier and resubmit |
| Service not covered by the plan | Check the patient’s plan details and bill the patient if allowed |
| Filed after the timely filing deadline | Appeal with proof the claim was sent on time |
| Duplicate claim submitted | Check original claim status and avoid resubmitting paid claims |
| Provider not in the payer’s system | Fix enrollment records and resubmit with corrected information |
| Medical necessity denied | Write a formal appeal with supporting clinical notes |
| Patient not covered on date of service | Verify eligibility and determine if the patient owes the full bill |
How Remittance Advice Documents Work in Billing
Every time a third-party payer sends a payment to a provider, they also send a document that explains exactly how that payment was calculated. This document is called a Remittance Advice. When it comes electronically, it is called an Electronic Remittance Advice, or ERA. When it comes on paper with a check, it is called an Explanation of Benefits, or EOB.
The remittance advice is one of the most important documents in the billing process. It is not just a payment receipt. It is a detailed breakdown that tells the billing team everything that happened with every claim included in that payment.
For each claim on the remittance, the document shows the original charge the provider submitted, the allowed amount the payer approved, the amount the payer is paying, the amount the patient still owes, and codes that explain any reductions or denials. The billing team uses this information to post the payment into the practice management system accurately.
Posting a payment means recording the information from the remittance advice into the billing software so that every patient account is updated correctly. If an account shows the wrong balance because a payment was posted incorrectly, the patient may get a bill for money they do not owe, or the practice may fail to collect money that is actually owed.
The codes on the remittance advice are called Claim Adjustment Reason Codes and Remittance Advice Remark Codes. Claim Adjustment Reason Codes explain why the payment is different from the original charge. Remittance Advice Remark Codes give additional detail.
Together, these codes tell the full story of what the payer did with the claim.
Most billing software today can import ERA files automatically and post basic payments without manual data entry. But someone still needs to review the exceptions, handle denials, and look for patterns that might point to a recurring problem.
| Part of Remittance Advice | What It Shows |
| Billed Amount | The original charge submitted by the provider |
| Allowed Amount | The amount the payer agrees is acceptable under the contract |
| Payer Paid Amount | The portion the payer is sending in this payment |
| Patient Responsibility | What the patient still owes after the payer pays |
| Adjustment Code | The reason for any difference between billed and allowed |
| Denial Code | The reason a specific claim was not paid |
How Payer Mix Shapes the Financial Health of a Practice
The term payer mix refers to the combination of different insurance types that cover a practice’s patients. If most patients have Medicare, the practice has a Medicare-heavy payer mix. If most patients have commercial insurance, the payer mix leans commercial. The specific combination of payers in a practice has a direct impact on how much money the practice brings in each month.
Different payers pay different rates for the same services. Commercial insurance generally pays the most. Medicare pays moderately. Medicaid usually pays the least. Workers’ compensation and Tricare fall somewhere in between depending on the state and the specific contract.
Payer mix also affects how quickly a practice gets paid. Some payers process clean claims and send payment within two weeks. Others take 30, 45, or even 60 days. When a large share of a practice’s claims are with slow payers, the practice may have trouble paying its own bills on time even if the overall revenue looks acceptable on paper.
Practice managers and billing directors use payer mix analysis to make business decisions. They might decide to stop accepting a certain payer if the reimbursement rate is too low to cover costs. They might negotiate harder with a commercial payer during contract renewal if that
payer makes up a large share of their volume. They might look at which payer generates the most denials and focus extra training or resources on getting those claims right the first time.
| Payer Type | Typical Payment Speed | General Reimbursement Level |
| Commercial Insurance (In-Network) | 14 to 30 days | High |
| Medicare | 14 to 28 days | Moderate |
| Medicaid | 30 to 60 days | Low |
| Tricare | 20 to 30 days | Moderate |
| Workers’ Compensation | 30 to 90 days | Varies by state |
| Self-Funded Employer Plans | 21 to 45 days | Moderate to High |
Payer Audits and Billing Compliance
Third-party payers do not only review claims before paying them. They also go back and review claims that have already been paid. This process is called an audit. Audits happen after the fact, and they can result in the payer asking the provider to return money that was already paid. This is called recoupment.
Medicare uses organizations called Recovery Audit Contractors, known as RACs, to find payments that were made incorrectly. RACs are paid based on the amount of money they recover for Medicare, so they are very motivated to find errors. Commercial payers have their own internal audit teams that do similar work.
Auditors look for specific patterns that suggest billing errors or fraud. Upcoding means billing for a higher level of service than was actually provided. For example, billing a complex office visit code when the visit was actually short and simple. Unbundling means billing separately for services that should be billed together under one combined code. Billing for services that are not adequately documented in the clinical record is another common audit target.
When a payer initiates an audit, the provider must pull together all the records for the claims being reviewed. The payer looks at whether the documentation supports what was billed. If it does not, the payer demands repayment. Providers can appeal audit findings, but the process is time-consuming and expensive.
The most reliable protection against audits is accurate billing combined with thorough and complete clinical documentation. When every code on a claim is supported by clear notes in the patient’s chart, there is little for an auditor to question. Billing teams that work closely with
clinicians to maintain this connection between the chart and the claim are in a much stronger position.
| Common Audit Target | What It Means | How to Prevent It |
| Upcoding | Billing a higher service level than what was done | Code based on actual documentation, not assumptions |
| Unbundling | Billing separately for services that belong together | Use correct bundled codes and check payer bundling rules |
| No documentation | Billing for a service with no supporting chart notes | Never bill without complete clinical documentation |
| Incorrect diagnosis coding | Using a diagnosis that does not match the service | Review diagnosis codes carefully before submitting |
| Excessive frequency | Billing for more services than the patient’s condition warrants | Follow payer frequency limits for each type of service |
Payer Portals and Technology in the Billing Process
Most major third-party payers now offer online portals. These are websites or secure systems that providers and billing teams can log into to manage their claims and get information. Payer portals have become an everyday tool in billing because they save time and give access to information that used to require long phone calls to the payer.
Through a payer portal, billing staff can check whether a patient is currently covered and what their plan includes. They can look up the status of a claim to see if it is still being processed, has been paid, or has been denied. They can download remittance advice documents and see payment histories. Some portals allow billing teams to submit corrected claims or formal appeals directly online. Providers can also use portals to access fee schedules, coverage policies, and credentialing status.
Being able to check claim status online in real time is one of the biggest time-savers in modern billing. In the past, billing teams had to call the payer, wait on hold, and speak to a representative just to find out whether a claim had been received. Now, they can check within seconds.
Different payers have different portal systems. Some are easy to use. Others are slow, confusing, or limited in what they can show. Large practices may have staff logging into five, ten, or more separate payer portals as part of their daily routine. Managing login credentials, portal access, and the specific features of each portal is its own layer of work.
Payer portal technology keeps improving. More payers are offering real-time eligibility checks that allow billing teams to verify a patient’s insurance in seconds before the appointment even starts. Some payers are also moving toward real-time claim adjudication, where a claim is reviewed and a payment decision is made almost immediately after submission. This shortens the payment cycle significantly but also leaves less room for errors to go unnoticed before the claim is processed.
Where Third-Party Payer Billing Is Heading
The way third-party payers are involved in medical billing is changing. The changes happening right now will shape how billing works for years to come. Understanding these changes helps billing professionals prepare instead of being caught off guard.
One of the biggest changes is the shift from fee-for-service payment to value-based payment. Traditional fee-for-service pays providers for each service they perform. Value-based models pay providers based on how well their patients do, not just on how many services were provided. Medicare has been moving in this direction for years through programs like MIPS, which stands for the Merit-Based Incentive Payment System. Commercial payers are following the same path.
Value-based billing requires providers to track and report quality measures alongside their regular claims. The payer looks at things like how well a provider manages patients with diabetes, how often patients end up back in the hospital after being discharged, and how satisfied patients are with their care. Providers who perform well can earn bonus payments. Those who perform poorly may see their reimbursements reduced.
Artificial intelligence is also becoming a bigger part of how payers process claims. Payers are using AI systems to review claims faster and catch patterns that suggest errors or fraud. These systems are getting better at spotting problems that human reviewers might miss. Billing teams need to be more precise than ever because the systems reviewing their claims are smarter and more detailed than they used to be.
Price transparency rules are also changing how billing works. Federal regulations now require hospitals and payers to publish pricing information so that patients can see costs in advance. As patients gain access to this information, they expect clearer, more accurate estimates before they receive care. Billing teams are increasingly responsible for generating these estimates and communicating costs upfront.
Telehealth coverage expanded significantly in recent years and is now a permanent part of many payer policies. Billing for telehealth services comes with its own set of codes, modifiers, and rules that vary by payer. Staying current with telehealth billing requirements is now a regular part of the billing team’s job.
| Ongoing Change | What It Means for Billing Teams |
| Value-Based Payment Models | Quality data must be reported alongside claims |
| AI in Claims Adjudication | Claims are reviewed faster and with more precision |
| Price Transparency Requirements | Providers must give patients cost estimates in advance |
| Real-Time Claim Processing | Faster payments but tighter error tolerance |
| Expanded Telehealth Coverage | New codes and payer-specific rules must be followed |
| Increased Audit Activity | Documentation must be thorough and accurate at all times |
Third-party payers are not going away. They are at the center of how healthcare is paid for in this country, and that is not going to change any time soon. What will change is how they pay, what they require from providers, and how technology connects the two sides of the transaction. Billing professionals who stay informed and keep their skills current will always be in a strong position to get claims paid correctly and keep practices financially healthy.
