How Medical Billing Services Get Paid: A Step-by-Step Guide
How medical billing services get paid is simpler than most practice owners expect. The insurance company pays your practice for the sessions it finalizes. At the end of each month, your billing service builds a paysheet from the payment records (the EOBs and ERAs), lists every finalized session, and sends its invoice with that list. This guide walks through each step for psychotherapists and psychiatrists.
What does “finalized” mean in mental health billing?
Finalized is the last status of a date of service (DOS), meaning one session or visit. A session is finalized when the insurance company has completely processed the claim and decided how it pays. Nothing is left open: the allowed amount, the patient’s share and the insurance payment are all set.
A claim that is still pending, rejected, or in appeal is not finalized yet. Our denied and rejected claims follow-up work keeps those moving until they reach a final status.
How an insurance company processes a claim
The payer checks the claim against the patient’s insurance policy. That check decides three things: the allowed rate for each service code, what the patient owes, and what the insurance company pays. The patient’s share comes from the plan’s copayment, deductible and coinsurance.
- Copayment: a flat amount per visit.
- Deductible: the amount the patient pays before the plan starts paying.
- Coinsurance: a percentage of the allowed amount that the patient pays after the deductible.
Checking these before the first session prevents surprises later. That is the job of insurance verification and eligibility checks.
Billed rate vs. allowed rate: a CPT code example
Billed rate, allowed rate and adjustment: plain definitions
- Billed rate (also called the billed charge): the fee a provider lists for a service on the claim form, before any adjustment.
- Allowed rate (also called the allowed amount): the most a payer will recognize for a covered service.
- Adjustment (also called the contractual adjustment): the part of the billed rate a participating provider writes off because it is above the allowed rate. It cannot be collected from the patient.
In plain math, billed rate minus allowed rate equals the adjustment. The allowed rate is then split between the patient’s share and the insurance payment.
The numbers below are round examples only. They are not a fee schedule, a payer rate or an MCM South rate.
Option #1: Patient $30 copayment (copay)
| Example | Billed | Allowed | Adjustment | Patient owes | Insurance pays |
|---|---|---|---|---|---|
| 90837 psychotherapy, 60 min · $30 copay | $200 | $130 | $70 | $30 | $100 |
| 99213 established visit · $30 copay | $150 | $90 | $60 | $30 | $60 |
Option #2: Patient has not met their deductible
The patient pays 100% of the allowed rate until the deductible is met, so insurance pays $0.
| Example | Billed | Allowed | Adjustment | Patient owes | Insurance pays |
|---|---|---|---|---|---|
| 90837 psychotherapy, 60 min | $200 | $130 | $70 | $130 | $0 |
| 99213 established visit | $150 | $90 | $60 | $90 | $0 |
Option #3: Patient has met their deductible and now pays 30% coinsurance
The patient pays 30% of the allowed rate. Insurance reimburses the remaining amount.
| Example | Billed | Allowed | Adjustment | Patient owes | Insurance pays |
|---|---|---|---|---|---|
| 90837 psychotherapy, 60 min | $200 | $130 | $70 | $39 | $91 |
| 99213 established visit | $150 | $90 | $60 | $27 | $63 |
All claims are finalized. These are round numbers for illustration only, not a fee schedule, payer rate or MCM South rate. Plans differ, so verify each one.
If the deductible is not met, the whole allowed amount can become the patient’s responsibility, and insurance pays $0 on a finalized claim. Rules differ by plan and by state, so verify each plan.
For psychiatrists: prescribers usually bill an evaluation and management (E/M) code such as 99213 and may add a psychotherapy add-on code (for example 90833) when it applies. See our E/M code guide. Each line is allowed and paid on its own.
EOB and ERA: how the payment is itemized
Every step in how medical billing services get paid starts with these two documents.
An explanation of benefits (EOB) is the payer’s paper or portal statement of how it processed a claim. An electronic remittance advice (ERA, also called the 835) is the electronic version a billing service can post. Both itemize each claim against the billed rate and show the allowed amount, adjustments, patient responsibility and payment.
The Centers for Medicare & Medicaid Services (CMS) explains that remittance advice carries final claim adjudication and payment information. It uses claim adjustment reason codes (CARCs) and remittance advice remark codes (RARCs) to explain adjustments, and group codes to assign who is responsible (CO for the provider side, PR for the patient). Source: CMS, page updated 9/10/2024, checked 10/3/2026.
The HIPAA transaction standards that CMS lists as adopted name ASC X12N 835 Version 5010 as the electronic remittance advice (ERA) standard. Source: CMS, page last modified 3/16/2026, checked 10/3/2026.
How medical billing services get paid, step by step
Because the paysheet and the invoice arrive together, you can match what insurance paid against what you owe the billing service. How the fee is set is part of your billing agreement, so ask for it in writing before you sign.
What to check on your paysheet each month
Knowing how medical billing services get paid also tells you what to review. Use this short list.
- Every session you saw is listed or accounted for.
- The allowed amount matches your contract or plan terms.
- Patient responsibility is correct for the copay, deductible or coinsurance.
- Unfinalized sessions have a reason and a next step. See secondary claims billing when another payer is still owed.
- Terms you do not recognize are in our reimbursement terms glossary and claims processing glossary.
How medical billing services get paid: the quick answer
A medical billing service is paid by the practice, not by the insurance company. The insurance company pays the practice for finalized claims. At month-end the billing service sends a paysheet of finalized sessions and its invoice, as set out in the agreement with the practice.
Frequently asked questions
What is the difference between an EOB and an ERA?
An EOB is the payer’s statement of how a claim was processed, often on paper or in a portal. An ERA is the electronic version of the same information, and a billing service can post it directly.
What does finalized mean on a claim?
Finalized means the insurance company has finished processing the date of service. The allowed amount, patient responsibility and insurance payment are all decided.
Is the billed rate the same as the allowed rate?
No. The billed rate is the fee on the claim. The allowed rate is the amount the plan recognizes. The gap is a contractual adjustment for in-network claims.
Do psychiatrists and psychotherapists see the same payment process?
The process is the same. The codes differ: psychotherapists often bill codes like 90837, and psychiatrists bill E/M codes with possible add-ons.
Where do I ask about fees?
Request a free consultation or quote. We explain how your billing is handled and what the monthly paysheet and invoice look like.
Ready to see how this works for your practice?
Now you know how medical billing services get paid, and what a clear monthly paysheet looks like.
MCM South Medical Billing Service, LLC bills for psychotherapists and psychiatrists, solo and group practices. Read about our mental health billing services, then get a free quote. Related: who we serve and the CPT and E/M code guide.