What is Entity Code in Medical Billing

Medical billing can be a complex maze of data, regulations, and electronic formats. Whether you're a seasoned billing specialist or just starting in the healthcare industry, it's essential to grasp the tools and identifiers used in claims processing. Among them, Entity Codes are foundational but often misunderstood.

This blog unpacks everything you need to know about entity codes in medical billing—what they are, where they’re used, how they work, and why they’re so important to the revenue cycle.

What is an Entity Code?

An Entity Code is a two-character identifier used in Electronic Data Interchange (EDI) transactions, specifically in formats like the 837 Professional and Institutional claims. These codes define the role or function of individuals or organizations involved in the transaction—such as the billing provider, referring provider, patient, or insurance company.

In essence, Entity Codes are used to specify “who is who” in a medical claim.

The Role of Entity Codes in the Billing Workflow

Every time a healthcare provider submits an electronic claim, the data needs to be structured in a universally understood format. EDI formats are governed by HIPAA and use various “loops” and “segments” to separate and identify data. Entity codes appear in the NM1 (Name) segments to define the role of each party in that claim.

Here’s what this means in practical terms:

• If the patient is not the policyholder, both will be referenced in the claim with different entity codes.

• If the referring physician is different from the rendering provider, entity codes differentiate their roles.

Common Entity Codes in Medical Billing

Here’s a breakdown of commonly used entity codes and what they represent:

Entity Code Role Where It Appears

85 Billing Provider Who is billing for the service

82 Rendering Provider Who performed the service

DN Referring Provider Who referred the patient

77 Service Location Where the service took place

IL Insured or Subscriber The policyholder for insurance

QC Patient The person receiving the service

PR Payer Insurance company

41 Submitter Entity submitting the claim

40 Receiver Clearing house or payer receiving the claim

Real Example: Interpreting an 837P Segment

Below is a sample segment from an 837P (Professional Claim):

NM1*85*2*ABC FAMILY CLINIC*****XX*1234567890~

Let’s break it down:

• NM1 — Name Segment

• 85 — Entity Code (Billing Provider)

• 2 — Organization (vs 1 for individual)

• ABC FAMILY CLINIC — Name of the provider

• XX — NPI (National Provider Identifier)

• 1234567890 — NPI number

Each NM1 loop in an EDI file uses different entity codes like 82, DN, IL, etc., to specify the party’s role.

Why Are Entity Codes Important?

Accurate Claims Submission

Correct entity codes ensure clarity about each individual or organization involved. For example, if a claim is submitted under the wrong provider code, it might be denied or sent back for correction.

HIPAA Compliance

Since entity codes are part of HIPAA's required transaction standards, they must be correctly used in all EDI files exchanged between providers and payers.

Faster Reimbursement

Proper use of entity codes reduces errors and delays, leading to quicker claim approval and payment.

Simplifies Auditing & Reporting

Having clearly defined entities makes internal audits and payer audits much easier to navigate and validate.

Common Issues with Entity Codes

While entity codes are standardized, they can still cause issues if not used properly. Here are some frequent problems:

• Incorrect role assignment – For example, marking a rendering provider (82) as a billing provider (85) may cause payment issues.

• Omitting required codes – Some claims are rejected because the payer expected a referring provider (DN) but didn’t receive that information.

• Confusing subscriber (IL) and patient (QC) – Especially in dependent relationships like a child under a parent’s insurance.

• Mismatch with NPI registry – If the NPI associated with an entity code doesn’t match the role (individual vs organization), the claim may bounce back.

Use Case Scenario

Let’s take a typical outpatient visit:

Patient: John Doe
Insurance Holder: Mary Doe (John’s mother)
Clinic: ABC Pediatrics
Physician: Dr. Green
Referring Provider: Dr. Brown

Here’s how the entity codes would break down:

• QC – John Doe (Patient)

• IL – Mary Doe (Insured)

• 85 – ABC Pediatrics (Billing Provider)

• 82 – Dr. Green (Rendering Provider)

• DN – Dr. Brown (Referring Provider)

Each person or organization is tagged with their proper code, ensuring the payer knows who did what.

Pro Tips for Billers and Coders

• Use billing software with built-in validation – Most modern platforms will alert you to missing or invalid entity codes.

• Cross-check with payer requirements – Some payers have unique interpretations of certain codes.

• Train your staff regularly – Keeping up with changes in the 837 formats and entity definitions can prevent future issues.

• Keep NPI info updated – Ensure your NPI registry reflects the correct taxonomy and role type.

Conclusion

Entity codes may seem like a small detail in the medical billing process, but they play a huge role in ensuring data accuracy, claim acceptance, and compliance. They act like the "name tags" in an EDI conversation, ensuring each piece of data is attached to the correct party in the transaction.