What Is an Entity Code in Medical Billing?

Every healthcare provider who bills insurance needs proper identification in the system. Without the right codes, claims get rejected, payments get delayed, and revenue suffers. The entity code in medical billing is one of the most critical identifiers you’ll use.

But what exactly is an entity code? How is it different from other billing identifiers? And which one do you need for your practice? Here are the answers to all your questions about entity codes, National Provider Identifiers (NPIs), and how they impact your billing success.

What Is an Entity Code in Medical Billing?

An entity code in medical billing is a unique identifier that identifies who is providing or billing for healthcare services. These codes connect providers, organizations, and facilities to their claims and payments.

The most important entity code is the National Provider Identifier (NPI). The NPI is a unique 10-digit number required by HIPAA for all healthcare providers who transmit information electronically.

Why are Entity Codes are Important?

Entity codes serve several critical functions in medical billing:

• Accurate payment: Insurance companies use entity codes to pay the right provider or organization.
• Claims processing: Payers identify who performed the service and who should receive payment.
• Fraud prevention: Unique identifiers help detect duplicate billing and fraudulent claims.
• Provider tracking: Entity codes link all services to specific providers for quality monitoring.

Before NPIs existed, providers had different identification numbers for each insurance company. A doctor might have 10+ different ID numbers across Medicare, Medicaid, and private insurers. This created confusion, delays, and errors. The NPI standardized provider identification across all healthcare systems.

The Two Types of Entity Codes: NPI Type 1 and Type 2

There are two categories of NPIs: Type 1 for individuals and Type 2 for organizations. Understanding which medical billing entity code you need depends on your practice structure.

NPI Type 1: Individual Provider Entity Code

Type 1 NPIs are assigned to individual healthcare providers. This includes doctors, nurses, therapists, dentists, and any other individuals who provide medical services.

Who needs a Type 1 NPI:

• Solo practitioners
• Physicians working in hospitals
• Therapists providing individual services
• Any healthcare professional who bills under their own name

Key features of Type 1 NPIs:

• Tied to you personally, not your employer or practice location
• Stays with you throughout your career
• Doesn’t change when you switch jobs or move states
• You can have only one Type 1 NPI

Your Type 1 NPI is like your Social Security number for healthcare billing. It follows you wherever you go. A physical therapist who works at three different clinics uses the same Type 1 NPI at all locations.

NPI Type 2: Organization Entity Code

Type 2 NPIs are assigned to healthcare organizations, group practices, hospitals, clinics, and corporations.

Who needs a Type 2 NPI:

• Group medical practices
• Hospitals and health systems
• Nursing homes and skilled nursing facilities
• Clinics with multiple providers
• Incorporated solo practices
• Home health agencies

Even if you’re a solo practitioner who incorporated your practice, you may need both types of NPIs. You’d have a Type 1 for yourself as the individual provider and a Type 2 for your professional corporation.

How Entity Codes Work on Insurance Claims

Understanding how the entity code in medical billing appears on claims helps you avoid common billing mistakes.

The CMS-1500 Claim Form

On the standard CMS-1500 claim form used for professional services:

• Box 24J (Rendering Provider): Shows the Type 1 NPI of the individual who performed the service.
• Box 33a (Billing Provider): Shows either a Type 1 NPI (solo practitioner) or Type 2 NPI (organization).

In many situations, both NPIs appear on the same claim. The Type 1 NPI identifies the provider of the service. The Type 2 NPI identifies the organization that’s billing and should receive payment.

Real-World Example

Dr. Sarah Chen works at City Medical Group. She sees a patient for a routine check-up.

On the claim:

• Box 24J shows Dr. Chen’s Type 1 NPI (identifying her as the rendering provider)
• Box 33a shows City Medical Group’s Type 2 NPI (identifying the billing organization)

The insurance company knows Dr. Chen provided the service, but they send payment to City Medical Group because that’s the billing entity.

Taxonomy Codes: The Other Important Entity Identifier

Along with your NPI, you need a taxonomy code. Taxonomy codes are unique 10-character codes that identify your specialty and classification.

What Taxonomy Codes Do

While your NPI identifies who you are, your taxonomy code identifies what you do. It tells insurance companies your medical specialty.

Examples of taxonomy codes:

• Family Medicine: 207Q00000X
• Podiatry: 213E00000X
• Physical Therapist: 225100000X
• Single Specialty Group Practice: 193400000X
• Multi-Specialty Group Practice: 193200000X

Why You Need Both NPI and Taxonomy Code

You must include a taxonomy code when applying for an NPI. Medicare and many private insurers also require taxonomy codes on claims.

Taxonomy codes help payers:

• Determine network adequacy (do they have enough specialists?)
• Process claims accurately based on specialty.
• Apply correct reimbursement rates
• Track provider types for quality programs

You can have multiple taxonomy codes on your NPI record if you practice in multiple specialties. However, you must designate one as your primary code.

How to Get Your Entity Code (NPI Number)

Getting your entity code in medical billing is straightforward and free. Never pay someone to obtain your NPI; it’s a free government service.

Applying for an NPI Online

The fastest way to get an NPI is through the National Plan and Provider Enumeration System (NPPES) website.

What you’ll need:

• Social Security Number (Type 1) or EIN (Type 2)
• Practice address and contact information
• State license number
• Taxonomy code(s) for your specialty
• Contact person information

The process:

1. Go to the NPPES website
2. Select “Individual” (Type 1) or “Organization” (Type 2)
3. Fill out the application with your information
4. Select your taxonomy code(s) from the list
5. Review and submit

You’ll receive your NPI via email within a few hours to 5 business days. Mailed paper applications can take up to 20 days.

Applying by Mail

You can also request a paper application:

By phone: 1-800-465-3203
By email: customerservice@npienumerator.com
By mail: NPI Enumerator, P.O. Box 6059, Fargo, ND 58108-6059

Paper applications take longer to process, so online submission is recommended.

Do You Need Both Type 1 and Type 2?

This depends on your practice structure:

• Solo practitioner billing under your name: Type 1 only
• Solo incorporated practice: Both Type 1 and Type 2
• Employee of a group practice: Type 1 (the group has Type 2)
• Group practice owner: Both Type 1 and Type 2

If you own a professional corporation, even as the only doctor, you need both. Claims submitted under your corporation’s name and Tax ID require the Type 2 NPI.

Common Entity Code Billing Mistakes

Errors with the entity code in medical billing are a leading cause of claim denials. Here are the most frequent problems and how to avoid them.

Using the Wrong NPI Type

• The mistake: A solo incorporated physician uses only their Type 1 NPI when billing under the corporation’s name and EIN.
• The fix: When billing under your corporation’s name, use the Type 2 NPI in box 33a. You can still list your Type 1 NPI as the rendering provider if required.

Mismatched NPI and Tax ID

• The mistake: Using your Type 1 NPI with the organization’s Tax ID, or vice versa.
• The fix: Your NPI must match your Tax ID. If billing under your Social Security Number, use Type 1. If billing under an EIN, use Type 2.

Insurance companies cross-reference NPIs with Tax IDs. Mismatches cause automatic rejections.

Missing or Incorrect Taxonomy Code

• The mistake: Not including a taxonomy code on claims when required, or using a generic code instead of your specific specialty.
• The fix: Always include the taxonomy code that matches your specialty and services. Update your NPPES record if your taxonomy codes change.

Not Updating Your NPI Information

• The mistake: Moving your practice or changing your contact information without updating your NPPES record.
• The fix: You must update your NPI information within 30 days of any changes. Log in to NPPES to update your address, taxonomy codes, or contact person.

Outdated information can cause claim denials or misdirected correspondence.

Entity Codes and Credentialing

Your entity code in medical billing is essential for credentialing with insurance companies.

What Is Credentialing?

Credentialing is the process of obtaining approval from insurance companies to be in their provider networks. You can’t bill most insurers until you’re credentialed.

The credentialing application requires:

• Your NPI number(s)
• Taxonomy code(s)
• State license verification
• Malpractice insurance information
• Education and training verification
• Work history

Type 2 NPIs Speed Up Group Credentialing

One major advantage of Type 2 NPIs is the ability to group-credential. When a practice has a Type 2 NPI, all providers can be credentialed together under the organization.

This is much faster than credentialing each provider individually. Once the group is credentialed, new providers joining the practice can bill immediately under the group’s credentials while their individual credentialing is processed.

Checking and Verifying NPIs

You can look up any provider’s NPI using the free NPI Registry at npiregistry.cms.hhs.gov.

Why Verify NPIs?

• Before billing, verify that the NPI matches the provider who performed the service.
• For referrals: Ensure referring provider NPIs are correct on claims.
• Quality control: Regularly audit your claims to catch NPI errors before submission.

The NPI Registry shows:

• Provider name and credentials
• Practice location
• Taxonomy codes
• NPI type (1 or 2)
• When the NPI was issued

This public database is available 24/7 and free to use.

Keeping Your Entity Code Information Current

Your NPI is permanent, but the information linked to it can change. You must update your NPPES record within 30 days of any changes.

What to Update

• Practice address changes: New office locations or mailing addresses
• Taxonomy code changes: New specialties or certifications
• Contact person updates: Change in authorized official
• Name changes: Legal name changes due to marriage, etc.

How to Update Your NPI Record

1. Go to nppes.cms.hhs.gov
2. Log in with your User ID and password
3. Select the NPI you want to update
4. Make your changes
5. Save and submit

Most changes are processed immediately. Your NPI number itself never changes; only the associated information updates.

Get Expert Billing Support for Your Practice

Medical billing can be complicated, from entity and taxonomy codes to claim submission and denials. At Tennessee Medical Billing, we handle every part of your revenue cycle so you can focus on patients. We help practices get credentialed, submit accurate claims, manage denials, stay compliant, and maximize collections. Our team ensures claims are correct the first time, reducing errors and stress. Let us handle billing while you provide excellent care.

Frequently Asked Questions

1. Do I need a new NPI if I move to a different state?

No, your NPI stays the same even if you move or change practices. You just need to update your address in the NPPES system within 30 days.

1. Can I have more than one Type 1 NPI?

No, each provider can only have one Type 1 NPI. You can use multiple taxonomy codes on that NPI if you practice in different specialties.

1. How much does it cost to get an NPI?

Nothing, NPIs are completely free through the NPPES system. Avoid sites that charge fees, as the government application costs nothing.

1. What’s the difference between an entity code and a procedure code?

Entity codes show who is providing or billing for a service, while procedure codes show what service was done. Diagnosis codes explain why the service was needed.

1. Does having an NPI mean I’m credentialed with insurance companies?

No, an NPI only identifies you as a provider. You must credential separately with each insurance company to join their network.