In the medical field what do they mean by the payment was applied to the deductible?

Deductible means the amount of Covered Expense you must pay for Covered Services before certain benefits are available to you under this Combined Evidence of Coverage and Disclosure Form. Your annual Deductible is stated in the Part entitled ?MAXIMUM LIFETIME BENEFITS, ANNUAL DEDUCTIBLE, CO PAYMENTS AND ANNUAL OUT-OF-POCKET MAXIMUM.

If your deductible has not been paid, the insurance company has the right to withhold the deductible amount first and then pay out the difference.