Institutional Billing vs Professional Billing: What’s the Difference?

Understanding the nuances between institutional and professional billing ensures accurate healthcare financial management and compliance.

Institutional Billing vs Professional Billing

Medical billing processes ensure that healthcare providers and facilities receive payment for their services.

As the healthcare industry continues to evolve, understanding the key differences between professional and institutional billing has become increasingly important. Though they share the same overarching goal, professional and institutional billing function quite differently in practice.

Institutional Billing vs Professional Billing. Institutional billing is for services in hospitals or clinics, while professional billing is for healthcare providers. Institutional billing pays for facility expenses, while professional billing covers healthcare provider fees.

This article explains different billing types and why accuracy is essential for revenue management.

We’ll explore common challenges, best practices, and future trends for billing professionals to understand. If you work in healthcare or need help with medical bills, read on for a detailed explanation.

Medical Billing Basics

Before we discuss professional and institutional billing, let’s quickly go over some basics of medical billing.

Definition of Medical Billing

Medical billing is a procedure by which medical professionals submit claims to insurance providers in order to be paid for services rendered, says AAPC.

The process includes collecting patient information. Additionally, coding diagnoses and procedures is part of the procedure. Verifying insurance is also necessary.

Submitting claims is another step in the process. It is critical to follow up on underpaid claims. Lastly, appealing rejected claims is also part of the process.

Critical Components of Medical Billing

While specific processes may vary, all medical billing relies on a few key components:

Patient Information

Accurate patient information is crucial for medical billing. It includes the patient’s name, birth date, address, insurance details, and more.

Diagnosis and Procedure Codes

Doctors use specific codes to record diagnoses and treatments in medical documents. Insurance companies receive this coding data alongside claims.

Insurance Verification

The billing team needs to check if the patient’s insurance covers the services they provide. It is to determine the patient’s financial responsibility.

  1. Institutional Billing

Institutional billing is for healthcare places like hospitals, clinics, nursing homes, surgery centers, and similar entities. It includes services provided throughout a hospitalization or medical facility aftercare visit.

Key Features

Institutional billing primarily involves:

Hospitals, Clinics, and Healthcare Facilities

Clinical staff members can provide services individually, but the focus of institutional billing revolves around a hospital, clinic, or facility.

Services Covered Under Institutional Billing

Institutional billing includes hospital services. These services can range from admissions to treatments. They also cover room fees, medicines, and supplies. Additionally, institutional billing covers outpatient and emergency care provided by a facility.

Billing Process

Institutional billing typically follows these steps:

UB-04 forms

The National Uniform Billing Committee explains how to record institutional services on UB claim forms. Nearly all institutional providers use the UB-04 form.

Revenue Codes

The billing process marks services and items for patients with codes to categorize charges for billing.

Coding Systems

While there can be some crossover, institutional billing mainly utilizes:

HCPCS (Healthcare Common Procedure Coding System)

HCPCS codes cover medical services, supplies, and equipment used in hospitals or outpatient care. There are approximately 75,000 HCPCS codes.

DRG (Diagnosis-Related Group)

DRG codes categorize inpatient hospital visits. The hospital gives patients a code based on their diagnosis, procedures, complications, and clinical data. There are over 500 DRG groupings.

Feature Institutional Billing Professional Billing
Billing Entities
Healthcare facilities (hospitals, clinics)
Individual practitioners
Types of Services
Inpatient, emergency, hospital-based outpatient, and other facility services
Outpatient and ambulatory services
Specialized Procedures
Cardiac catheterizations, endoscopies, surgeries, therapy services, complex imaging
Routine outpatient consults, exams, and minor procedures
Coding Systems
HCPCS (Healthcare Common Procedure Coding System)
CPT (Current Procedural Terminology)
DRGs (Diagnosis-Related Groups)
ICD-10 (International Classification of Diseases, 10th Revision)
Reimbursement Rates
Case rates, DRGs, daily charges, bundled payments, or other combined payment schemes
Fee-for-Service with CPT codes
Impact on Revenue Generation
Typically higher revenue due to expensive facility-based care
Generally lower revenue due to less expensive outpatient care

  1. Professional Billing

Doctors, nurses, therapists, chiropractors, and other medical staff use professional billing for their services. It includes medical services given outside of hospitals, like private practices or home health care.

Key Features

Professional billing has two defining features:

Physicians and Individual Healthcare Providers

Private healthcare providers use professional billing instead of hospitals or extensive care facilities. It includes doctors, nurses, therapists, home health aides, and similar personnel.

Types of Services Covered

Professional billing includes services provided outside the hospital. The services may consist of office visits, consultations, preventive care, x-rays, home health, physical therapy, and specialized procedures.

Billing Process

The billing process relies on medical coding and usually follows these steps.

Encounter Forms

Medical staff use forms like the Superbill or Encounter Sheet to record patient visits. These forms gather essential information such as demographics, services, and diagnosis details.


The billing process takes the information from the form and puts it into the Superbill. The Superbill contains all the necessary data for billing.

Coding Systems

Professional billing primarily utilizes two medical coding systems:

CPT (Current Procedural Terminology)

CPT codes specify medical services and procedures performed by clinical staff. There are around 0,000 CPT codes used to report outpatient procedures.

ICD-10 (International Classification of Diseases, 10th Edition)

ICD-10 codes provide information about illness diagnoses. There are over 70,000 ICD-10 diagnosis codes used to report patient conditions.

Differences Between Institutional Billing vs Professional Billing

Professional and institutional billing in healthcare have essential differences within the same ecosystem. These include,

Billing Entities

As described above, the submitting provider varies significantly between billing types:

Individual practitioners vs. healthcare facilities

Professional billing comes from a clinical provider, while institutional billing comes from a hospital or clinic.

Types of Services

Billing types also differ based on the nature of services provided:

Outpatient vs. inpatient services

Professional billing focuses on outpatient and ambulatory services. Institutional billing encompasses inpatient, emergency, hospital-based outpatient, and other facility services.

Specialized procedures

Institutional policies bill many speciality medical services such as cardiac catheterizations, endoscopies, surgeries, therapy services, and complex imaging. Professional billing typically handles routine outpatient consults, exams, and minor procedures.

Coding Systems

Professional and institutional billing rely on very distinct coding methodologies:


Professional billing leans heavily on CPT (Current Procedural Terminology), whereas institutional billing utilizes HCPCS (Healthcare Common Procedure Coding System).

ICD-10 vs. DRG

Likewise, ICD-10 (International Classification of Diseases, 10th Revision) is integral to professional billing, while DRGs (Diagnosis-Related Groups) broadly fall under institutional billing.

Reimbursement Rates

Payment models also differ between billing types:

Fee-for-Service vs. Bundled Payments

Professional billing generally operates on a fee-for-service model with costs defined by CPT codes. Institutional invoicing frequently employs case rates, DRGs, daily charges, or other combined payment schemes.

Impact on Revenue Generation

Because facility-based care is expensive, institutional billing usually brings in more money for providers.

Importance of Accurate Billing

Accurate billing is crucial for financial transparency and trust between service providers and consumers. Precise billing demonstrates ethical business practices and helps to keep clients happy.

  1. Impact on Revenue Cycle Management

Accurate billing directly affects providers’ revenue cycle success by:

Cash flow management

Errors can cause rejected claims, delaying payment and impeding cash flow for doctors and healthcare systems. Medical billing allows the smooth flow of cash management to maintain a smooth practice.

Reduction of claim denials

Precise billing helps avoid unnecessary claim rejections and preventable write-offs that diminish revenues.

  1. Compliance with Regulations

Appropriate billing protocols also help uphold legal standards:

HIPAA (Health Insurance Portability and Accountability Act)

Accurate coding and protected health information handling must comply with HIPAA mandates.

Coding Standards and Guidelines

Billing must follow changing payer policies, coding rules, payment schedules, and state/federal regulations.

Related, Benefits of Outsourcing medical billing for healthcare

Challenges and Best Practices in Medical Billing

While critical, accurate professional and institutional billing is undoubtedly not easy. There are specific challenges that a professional may encounter,

1. Common Challenges in Professional Billing

Billing teams face challenges like staff shortages, payer changes, coding complexity, claim denials, and patient responsibility.

2. Common Challenges in Institutional Billing

Institutional challenges include confusion over revenue codes, complicated software, Medicare denials, resource limitations, and system consolidation issues.

Best Practices for Overcoming Billing Challenges

The best practices for overcoming billing challenges involve a comprehensive approach. It combines professional billing services, advanced technology, improved front-end processes, and prioritized payer relationships.

By implementing these strategies, healthcare organizations can optimize their billing operations, minimize errors and denials, and ultimately improve their financial performance.

Future Trends in Medical Billing

The field of medical billing is evolving alongside healthcare. New technologies, changing healthcare policies, and complex medical procedures are shaping the future of medical billing.

  1. Technological Advancements

New technology will significantly improve billing departments by introducing advancements that revolutionize their operations. Automation is a primary sector where innovation will have a considerable impact. 

Billing procedures can be simplified and improved using advanced software and systems, resulting in them becoming more effective. People can now do tasks automatically, saving time and reducing mistakes instead of doing them by hand.

  1. Integration of Artificial Intelligence

AI, or artificial intelligence, helps billing teams by providing valuable assistance in different parts of their work. AI algorithms analyze data to find errors in billing records, ensuring accurate recording and billing of transactions.

Furthermore, AI can significantly contribute to boosting revenue for billing teams. AI can use data mining, machine learning, and analytics to find patterns in client behavior. It assists billing teams in improving pricing strategies and identifying opportunities to sell more products.

  1. Regulatory Changes Impacting Billing Practices

Payer policies change how insurance companies pay for healthcare services. These policies can include modifications in coverage, payment rates, and documentation requirements, among others. As payer policies evolve, healthcare providers must stay updated and adapt their billing practices accordingly to ensure proper reimbursement.

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Professional and institutional billing have different protocols, but both aim to get payment for patient care services. From submitting entities to medical coding to reimbursement models and more, many vital differences define these realms.

Appreciating these nuances is critical for hospitals and practices alike. Ultimately, billing accuracy and the proper functioning of related revenue cycle activities are imperative for organizational solvency across the care continuum. As reform continues reshaping American healthcare, billing will remain pivotal to practitioner and system-wide fiscal stability.

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