Understanding EOBs and Remittance Advice: A Guide for Therapists

Every therapist who accepts insurance knows the routine: you submit a claim, wait for processing, and eventually receive a document explaining what happened to your payment. But understanding what those documents actually mean? That is where many practitioners struggle. Whether you receive a paper Explanation of Benefits (EOB) or an electronic remittance advice (ERA), knowing how to read and interpret these documents is essential for maintaining healthy cash flow and catching costly errors before they impact your practice.

This guide breaks down everything you need to know about EOBs and remittance advice, from basic terminology to advanced reconciliation strategies that will help you identify underpayments and resolve discrepancies quickly.

72 hrs

Average EOB Processing Time

15-20%

Claims With Adjustment Errors

7-10%

Underpayment Rate Industry Avg

$15K+

Annual Loss From Unreconciled Claims

What Is an Explanation of Benefits (EOB)?

An Explanation of Benefits, commonly called an EOB, is a document sent by an insurance company after processing a claim. Despite its name, an EOB is not a bill. Instead, it serves as a detailed statement explaining how the insurance company processed your claim, what they paid, what adjustments were made, and what portion (if any) the patient owes.

For therapists, EOBs arrive either by mail (paper EOBs) or through payer portals. Each EOB corresponds to one or more claims you submitted and provides a line-by-line breakdown of how payment was calculated. Understanding this breakdown is critical because it reveals whether you were paid correctly, underpaid, or denied altogether.

Key Information Found on Every EOB

While EOB formats vary by payer, most contain these essential elements:

Patient Information: Name, member ID, group number, and date of service
Provider Information: Your name, NPI, and tax ID as the rendering provider
Claim Number: A unique identifier for tracking and reference purposes
Service Details: CPT codes, dates of service, and number of units billed
Billed Amount: The amount you originally charged for each service
Allowed Amount: The maximum the payer will pay based on your contract
Adjustment Amounts: The difference between billed and allowed amounts
Payment Amount: What the insurance company actually paid
Patient Responsibility: Copays, coinsurance, and deductible amounts owed by the patient
Reason Codes: Codes explaining any adjustments or denials

What Is Remittance Advice (ERA/835)?

Electronic Remittance Advice (ERA), also known as the 835 transaction, is the electronic version of an EOB. The "835" refers to the HIPAA standard transaction format used for electronic healthcare payment and remittance information. While an EOB is designed to be human-readable, an ERA is formatted for electronic processing and can be automatically imported into your practice management software.

ERAs contain the same information as paper EOBs but offer significant advantages for efficiency and accuracy. When your billing software receives an ERA, it can automatically post payments, apply adjustments, and flag discrepancies, saving hours of manual data entry each week.

Benefits of Receiving ERAs

Automatic payment posting reduces manual entry errors
Faster reconciliation with real-time data availability
Easier identification of underpayments through software alerts
Better record-keeping with electronic archives
Reduced paper handling and storage costs
Integration with accounting software for streamlined bookkeeping

EOB vs. ERA: Paper vs. Electronic Comparison

Understanding the differences between paper EOBs and electronic ERAs helps you decide which format works best for your practice. While both contain identical payment information, how you receive and process that information differs significantly.

Paper EOB

1. Delivered by mail, typically 7-14 days after claim processing
2. Requires manual data entry for payment posting
3. Human-readable format, easy to review visually
4. Physical storage requirements for record-keeping
5. Higher risk of data entry errors during posting
6. Time-consuming reconciliation process

Electronic ERA (835)

1. Available electronically within 24-72 hours of processing
2. Automatic payment posting through practice software
3. Machine-readable format with standardized data structure
4. Digital storage with easy search and retrieval
5. Minimal manual entry reduces error rates significantly
6. Automated reconciliation with exception flagging

Key EOB Components Explained

To effectively review an EOB, you need to understand each component and how they relate to your expected payment. Let us walk through the most critical elements that require your attention.

Billed Amount vs. Allowed Amount

The billed amount is what you charged for the service. The allowed amount is the maximum the insurance company will pay based on your contracted rate. The difference between these two figures is typically written off as a contractual adjustment. For example, if you bill $150 for a 90837 (individual psychotherapy, 53+ minutes) but your contracted rate is $120, the $30 difference is the contractual adjustment you agreed to accept when you joined the network.

Adjustments and Write-offs

Adjustments appear on EOBs for various reasons. Contractual adjustments (the difference between billed and allowed amounts) are expected. However, other adjustments require scrutiny. If you see adjustments for reasons like "service not covered" or "exceeds benefit maximum," you need to investigate whether these are legitimate or appealable.

Payment Amount

The payment amount is what the insurance company actually sent to you (or the patient, if payment was misdirected). This should equal the allowed amount minus any patient responsibility (copay, coinsurance, deductible). If the math does not add up, you have found a discrepancy worth investigating.

Patient Responsibility

This section breaks down what the patient owes. It typically includes copay amounts (fixed fees per visit), coinsurance (percentage of allowed amount), and deductible amounts (patient pays until annual deductible is met). Understanding this section helps you accurately bill patients and explain their financial responsibility.

Common Adjustment and Reason Codes

Adjustment codes, also called Claim Adjustment Reason Codes (CARCs), explain why a payment differs from the billed amount. Remittance Advice Remark Codes (RARCs) provide additional context. Learning the most common codes saves time when reviewing EOBs and helps you identify actionable issues quickly.

Frequently Encountered Adjustment Codes

CO-45: Charge exceeds fee schedule/maximum allowable. This is a standard contractual adjustment.

CO-4: The procedure code is inconsistent with the modifier used or missing a required modifier.

PR-1: Deductible amount. Patient responsibility for unmet deductible.

PR-2: Coinsurance amount. Patient pays their percentage share.

PR-3: Copay amount. Fixed patient payment per visit.

CO-97: The benefit for this service is included in the payment for another service. Common with add-on codes.

CO-16: Claim lacks information needed for adjudication. Missing or invalid data on original claim.

CO-29: The time limit for filing has expired. Claim submitted past timely filing deadline.

Denial Codes That Require Action

CO-18: Duplicate claim. Check if original claim was paid or if this is truly a duplicate submission.

CO-50: Non-covered service. Review medical necessity documentation and consider appeal.

CO-96: Non-covered charge. Service not covered under patient plan. Verify benefits and notify patient.

CO-197: Prior authorization required but not obtained. Appeal with clinical documentation if retroactive auth possible.

CO-B7: Provider not on file. Credentialing issue that needs immediate attention.

Identifying Underpayments

Underpayments occur more frequently than most therapists realize. Studies suggest that 7-10% of claims are underpaid, and without careful review, this revenue simply disappears. Here is how to spot underpayments on your EOBs and ERAs.

Signs of Potential Underpayment

Payment is less than your contracted rate for the CPT code
Unexpected adjustment codes that reduce payment beyond contractual adjustments
Payment calculated using wrong fee schedule or wrong plan type
Units of service reduced from what was billed
Add-on codes bundled when they should be paid separately
Out-of-network rates applied when you are in-network
Wrong place of service code used in calculation

Creating an Underpayment Review Process

Establish a systematic approach to catching underpayments. Keep a fee schedule reference for each payer you work with. When payments arrive, compare the allowed amount to your contracted rate. Flag any discrepancy greater than $1 for review. Over time, you will learn which payers have consistent issues and can prioritize your review efforts accordingly.

EOB Review Checklist

☐ Verify patient name and date of service match your records
☐ Confirm CPT codes billed match codes processed
☐ Compare allowed amount to your contracted rate
☐ Check that units paid match units billed
☐ Review all adjustment codes for appropriateness
☐ Verify patient responsibility calculation is accurate
☐ Confirm payment amount equals allowed minus patient responsibility
☐ Document any discrepancies for follow-up

Understanding Patient Responsibility Sections

The patient responsibility section of an EOB tells you exactly what to bill the patient after insurance processing. This is not optional revenue; it is money you are contractually obligated to attempt to collect. Understanding and accurately communicating patient responsibility improves collections and patient satisfaction.

Types of Patient Responsibility

Copay: A fixed amount the patient pays per visit, defined by their plan. Copays are typically collected at the time of service but appear on EOBs to confirm the amount.

Coinsurance: A percentage of the allowed amount the patient must pay. For example, with 20% coinsurance on a $120 allowed amount, the patient owes $24. Coinsurance typically applies after the deductible is met.

Deductible: The amount a patient must pay before insurance begins covering services. If a patient has not met their deductible, you may receive $0 from insurance, with the full allowed amount shifted to patient responsibility.

Communicating with Patients About Their Responsibility

Use the EOB as your documentation when billing patients. You can provide a copy of the EOB or reference the specific amounts when sending patient statements. This transparency builds trust and reduces billing disputes. Patients who understand that their insurance company determined these amounts are more likely to pay promptly.

The Reconciliation Process

Reconciliation is the process of matching payments received to claims submitted, ensuring every dollar is accounted for correctly. Without regular reconciliation, money falls through the cracks, underpayments go unnoticed, and your accounts receivable becomes unreliable.

Steps for Effective Reconciliation

Step 1: Match Payments to Claims. When you receive a payment (check or EFT), match it to the corresponding EOB or ERA. Verify the payment amount matches what the remittance document indicates.

Step 2: Post Payments Accurately. Enter (or auto-post via ERA) payments to the correct patient accounts and dates of service. Apply adjustments as indicated on the remittance.

Step 3: Review for Discrepancies. Compare posted amounts to expected amounts based on your fee schedule. Flag anything that does not match for investigation.

Step 4: Bill Patient Responsibility. Generate patient statements for any amounts shifted to patient responsibility. Send these promptly while the service is still fresh in the patient's memory.

Step 5: Follow Up on Outstanding Items. Track unpaid claims, underpayments, and denials. Create a system for timely follow-up to prevent missed filing deadlines.

Reconciliation Best Practices

Reconcile at least weekly, ideally within 48 hours of receiving payments
Keep a log of discrepancies and their resolutions for pattern identification
Set up ERA enrollment with all payers for faster, more accurate posting
Use practice management software that flags payment variances automatically
Maintain organized records of all remittance documents for audit purposes

Disputing Incorrect Payments

When you identify an underpayment or incorrect denial, you have the right to dispute it. The process varies by payer, but following a systematic approach increases your success rate and helps you recover revenue that is rightfully yours.

Steps to Dispute an Incorrect Payment

1. Gather Documentation. Collect the original claim, the EOB or ERA showing the incorrect payment, your contract fee schedule, and any supporting clinical documentation.

2. Identify the Issue. Clearly define what is wrong. Is it an underpayment based on your contracted rate? An incorrect denial? A processing error? Be specific.

3. Contact the Payer. Call the provider services line. Document the date, time, representative name, and reference number. Explain the discrepancy clearly and ask for correction.

4. Submit Written Appeal if Needed. If phone resolution fails, submit a formal written appeal. Include the claim number, patient information, specific discrepancy, and supporting documentation. Reference your contract terms when applicable.

5. Track and Follow Up. Log your dispute with expected resolution date. Follow up if you do not receive a response within the stated timeframe. Escalate to supervisor levels if initial attempts fail.

Tips for Successful Payment Disputes

✓ Reference specific contract language when disputing contracted rates
✓ Keep copies of all correspondence and document phone calls
✓ Know the payer's appeal timeframes and deadlines
✓ Be persistent but professional in all communications
✓ Escalate to your state insurance commissioner if legitimate disputes are ignored

Setting Up ERA Enrollment

If you are still receiving paper EOBs, transitioning to electronic remittance advice can dramatically improve your efficiency. ERA enrollment is typically free and can be completed through your clearinghouse or directly with payers.

ERA Enrollment Process

Through Your Clearinghouse: Most clearinghouses offer ERA enrollment as part of their service. Contact them with your provider information, and they will facilitate enrollment with your payers. This is often the simplest approach as they handle the technical setup.

Direct Payer Enrollment: Some payers require direct enrollment through their provider portals. This typically involves completing an ERA enrollment form, providing your practice management system information, and signing an agreement.

EFT Pairing: For maximum efficiency, pair ERA enrollment with Electronic Funds Transfer (EFT) enrollment. This way, you receive both the payment and the remittance advice electronically, and they can be matched automatically.

Frequently Asked Questions

What is the difference between an EOB and a bill?

An EOB is an explanation of how your claim was processed, not a request for payment. It shows what insurance paid, what adjustments were made, and what the patient owes. A bill is a request for payment from either the provider (you) to the patient, or in some cases, a balance bill if services were out of network.

How long should I keep EOBs and ERAs?

Maintain records for at least seven years, as this covers most audit and legal requirements. Some states require longer retention periods, so check your state regulations. Electronic storage of ERAs makes long-term retention manageable and searchable.

Why does my payment not match my contracted rate?

Several reasons could explain this discrepancy. Patient responsibility (copay, coinsurance, deductible) reduces what insurance pays. The wrong fee schedule might have been applied. There could be adjustments for medical necessity, authorization issues, or coding errors. Always investigate discrepancies to determine if an appeal is warranted.

What should I do if I receive a denial on my EOB?

First, review the denial reason code to understand why the claim was denied. Common reasons include missing information, authorization issues, or coverage limitations. Correct any errors and resubmit if appropriate, or file a formal appeal with supporting documentation if you believe the denial was incorrect.

Can patients access their EOBs?

Yes, insurance companies send EOBs to both providers and patients (or the subscriber, if different). Patients can also access their EOBs through their insurance company's member portal. This is helpful when patients question their responsibility, as they can see the same information you have.

How do I handle EOBs that show $0 payment?

A $0 payment typically means either the full amount was applied to patient responsibility (deductible not met), the claim was denied, or there was an error. Check the adjustment codes to understand the reason. If the amount went to deductible, bill the patient. If denied, investigate and appeal if appropriate.

What is the timely filing limit for disputing underpayments?

Timely filing limits for disputes and appeals vary by payer and state, typically ranging from 60 days to one year from the date of the EOB. Check your payer contracts for specific deadlines. Some states have laws requiring minimum appeal timeframes. Document the date you received each EOB to track your deadlines accurately.

Key Takeaways

✓ EOBs and ERAs contain the same payment information but differ in format and delivery method, with ERAs enabling automated processing
✓ Understanding adjustment codes (CARCs and RARCs) is essential for identifying legitimate adjustments versus errors requiring follow-up
✓ Approximately 7-10% of claims are underpaid, making regular EOB review critical for protecting practice revenue
✓ Compare every payment to your contracted rates and investigate discrepancies promptly before appeal deadlines pass
✓ Enrolling in ERA and EFT streamlines reconciliation, reduces errors, and speeds up your revenue cycle
✓ Document all payment disputes thoroughly and know each payer's appeal timeframes to protect your right to correct payment

Mastering EOBs and remittance advice is not about becoming a billing expert overnight. It is about developing consistent habits that catch errors, recover lost revenue, and keep your practice financially healthy. Start by implementing a weekly reconciliation routine, learn the most common adjustment codes, and do not hesitate to dispute payments that do not match your contracted rates. The time you invest in understanding these documents pays dividends in recovered revenue and reduced billing stress.