How Does Medical Coding Work?

by | Published on Apr 3, 2023 | Medical Coding, Medical Billing

How Does Medical Coding Work
Share this:

Medical coding is a crucial step in any medical practice’s insurance billing process. Medical codes help the insurance companies identify what kinds of services or treatments were given during any type of doctor visit. Medical coders report a patient’s condition, the physician’s diagnosis, prescriptions, and procedures performed using a set of medical codes that comprise an important part of the medical claim.

Medical coding involves extracting billable information from the medical record and clinical documentation, while medical billing involves using those codes to create insurance claims and bills for patients. The medical billing process starts with patient registration and ends when the provider receives payment for all services delivered to patients.

Medical Coding Process

The medical coding process involves 4 key steps such as –

  • Retrieving patient information including nursing documentation, physicians’ documentation, and patient demographic sheets
  • Entering details such as place of service, physician’s name, and any price modifiers
  • Assigning the right codes – CPT codes, HCPCS, ICD codes, DRG codes, HCC as well as modifiers
  • Rechecking to see if the right codes have been assigned and performing several rounds of audits for spotting up-coding or down-coding mistakes

The types of code sets used for coding purposes are:

CPT – An integral part of the billing process, CPT codes describe tests, surgeries, evaluations, as well as other medical procedures performed by a healthcare provider on a patient. Published by the American Medical Association, there are approximately 10,000 CPT codes currently in use.

Various types of CPT codes are there – ranging from Category I – III. Category I describes most of the procedures performed by healthcare providers in inpatient and outpatient offices and hospitals. Category II codes are supplemental tracking codes used primarily for performance management and Category III codes are temporary codes that describe emerging and experimental technologies, services, and procedures. Appropriate modifiers should also be used to describe unusual circumstances or to provide additional information regarding a test or procedure.

ICD – ICD codes are used to classify and code all diagnoses. The tenth Edition of diagnosis codes, ICD-10-CM codes are used in conjunction with CPT (procedural) codes to record the services rendered by a provider to a patient and are documented in the medical record, and then reported to a payer for reimbursement. They are used for documentation in clinical and outpatient settings in the U.S.

At the same time, Procedure Coding System (ICD-10-PCS) refers to procedural codes that track various health interventions taken by medical professionals. These codes are used only for inpatient, hospital settings in the U.S. While the ICD-10-CM has 68,000 codes, ICD-10-PCS has 87,000 codes.

CDT – Maintained by the ADA Code Maintenance Committee (CMC), CDT is a set of procedural codes for oral health and adjunctive services that are provided in dentistry. The CDT codes are categorized by type of service such as diagnostic, preventive, restorative, endodontics, periodontics and more.

HCPCS – Identical to CPT, HCPCS codes are developed by the Centers for Medicare and Medicaid (CMS). The code set is divided into two main subsystems, Level I and Level II.

Level I is identical to CPT, though technically those codes, when used to bill Medicare or Medicaid, are HCPCS codes.

Level II HCPCS codes are designed to represent non-physician services such as ambulance rides, wheelchairs, walkers, other durable medical equipment, and other medical services that don’t fit readily into Level I.

HCC – Hierarchical condition category (HCC) codes highlight patient complexity and provides a picture of the whole patient. HCC relies on ICD-10 coding to assign risk scores to patients. Each HCC is mapped to an ICD-10 code.

The two important aspects of HCC coding for risk adjustment coding professionals are analyzing health record documentation to identify reportable conditions, and accurately assigning ICD-10-CM codes to these conditions. Certain disease registries that correlate with HCC conditions include arthritis, depression and chronic kidney disease (CKD).

Coding for Medicare Part B

Medicare has different programs such as Parts A, B, C and D that help cover specific services. Each of these parts provides a different type of coverage with different billing requirements and different limitations. Among these, Medicare Part B covers physician services, outpatient care and other medical services that are not covered under Part A that provides coverage for inpatient hospital care, skilled nursing facility care, home health care and hospice care. Medicare Part B coding provided by a medical billing company involves coding for two types of services.

  • Medically necessary services, or services and supplies essential to treat a patient’s medical condition. Holistic/naturopathic treatments are not covered.
  • Preventive services, which include healthcare services necessary for preventing illness rather than treating it.

Covered services that are medically necessary include lab and pathology services such as urinalyses and blood tests; glaucoma tests once per year, preventive services that will help prevent, manage/diagnose a medical condition, colorectal cancer screenings, diabetic supplies and screenings, and cardiovascular screenings. Some other preventive services covered by Medicare Part B include preventive shots including the flu shot during the flu season, and 3 Hepatitis B shots if the patient is considered at risk; hearing exams; mammograms; dialysis; pap tests and pelvic exams; mental healthcare; occupational therapy; physical therapy; prosthetic devices, and transplant devices.

All parts of Medicare, including Medicare Part B are governed by the CMS (Centers for Medicare and Medicaid Services) and every type of healthcare service reimbursable under Part B is subject to many rules, regulations, and guidelines such as CMS’ National Correct coding Initiative (NCCI). The CMS developed the National Correct Coding Initiative (NCCI) to promote national correct coding methodologies and to control improper coding leading to inappropriate payment in Part B claims.

Medical coders involved in Part B coding must know the specific rules and regulations that they must follow to ensure appropriate reimbursement for the physician.

Creating claims is where medical billing and coding intersect to form the backbone of the healthcare revenue cycle. To assign the correct codes, medical coders should have a good understanding of medical terminology, procedure description, and diagnosis. They should also be up-to-date with the changing billing and coding guidelines. Professional medical billing companies provide regular training for their billing and coding staff to ensure they follow the latest CMS and AMA guidelines on billing and coding.

Natalie Tornese

Holding a CPC certification from the American Academy of Professional Coders (AAPC), Natalie is a seasoned professional actively managing medical billing, medical coding, verification, and authorization services at OSI.

More from This Author