Medical Coding–Minimum Patients Need to Know

Medical coding is at the heart of the business and practice of medicine in the United States. Standardized medical coding is used in the United States for the efficient transfer of health information from healthcare industry businesses to third-party payers and government public health officials to facilitate bill processing and to extract public health information that benefits all (i.e., for data mining). For Americans who do not work in the healthcare industry, medical coding is totally unknown because both healthcare providers and health insurance companies do not wish to share this information with patients. Medical coding is never brought to the attention of healthcare customers (patients) even though it defines the amount of every healthcare bill, something that, we, as patients do not receive unless we ask for it.

Medical coding contains a list of all procedures done to the patient and shows the diagnoses used to justify the “medically necessary” procedures done.  My private insurance company’s Explanation of Benefits (EOB) never lists any medical codes but will tell me them over the phone if I ask.  I am surprised that our government  does not require that this information be shared with patients on all EOBs since patients are the only ones who can verify what was and wasn’t done to them (perhaps finding errors in the process).   In addition, because many doctors are not good at communicating with their patients, the diagnostic codes would help patients know what their precise diagnosis is.

Medical coding is used to summarize every possible encounter between a paid healthcare professional and a patient and even differentiates whether the encounter is in the office, in the hospital, in other health facilities, in the home, over the telephone, by email, and more.  In the United States, medical codes fall into two categories:  patient-centered (based on diagnoses) and doctor-centered (based on services provided).  As shown in the figure below, the doctor’s notes of one outpatient healthcare encounter can be standardized into two simple medical codes—one a diagnosis code and the other a procedure code.  The diagnosis and procedure codes combined tell the story of what happened at the healthcare business encounter. Unlike diagnosis codes, which have been maintained in one way or another for the last three hundred years, procedure codes are much newer.

medical coding example

In the U.S. healthcare system, where healthcare services are most often billed per service provided (fee-for-service payment model) rather than on an hourly, capitated, or bundled payment rate, the medical diagnostic and procedural codes are used as the basis for payment of all healthcare services and products provided.

More than One Set of Medical Codes

In the United States, there are three sets of medical coding sets extensively used for paid healthcare encounters.  They include the following:

  1.  International Classification of Diseases (ICD) is the medical code set that is used to track diagnoses, identify diseases, signs and symptoms, abnormal findings, complaints, external causes of injury or diseases, and causes of death.  This code set contains about 16,000 unique codes and was originally created by the World Health Organization (WHO) to track statistics about the causes of death. This medical code set is in its tenth edition (ICD-10).  In  U.S., the international code set has been subdivided into two groups and enlarged into the ICD-10 Clinical Modification (ICD-10-CM) and the  ICD-10 Procedure Coding System (ICD-10-PCS). The ICD-10-CM contains over 68,000 codes and the  ICD-10-PCS contains over 80,000 procedure codes.  In the United States, the ICD-10-PCS codes are only used for inpatient hospital care.
  2. Current Procedural Terminology (CPT®) is a U.S. standard for medical coding all services provided by medical doctors under the fee-for-service reimbursement model.  Specific CPT® codes have been added over the years for use by qualified nonphysician professionals to report some of their services.   CPT® medical coding is written, maintained, and copyrighted by medical doctors at the American Medical Association (AMA).  Copyrighted means that the AMA tightly controls who can access the CPT® list and is paid annual royalties ($72 million in 2010).  CPT® codes (99,000+ in number) have five digits (with modifiers).  Widespread use of CPT® medical codes occurred in 1983, when the Center for Medicare and Medicaid Services (CMS) adopted the CPT® system and mandated that they be used for all Medicare and Medicaid coding. Private insurance plans followed CMS in their use.
  3. Healthcare Common Procedure Coding System (HCPCS). This procedure code set must be used  for Medicare and Medicaid beneficiary care.  It is essentially the CPT® medical coding system with additional codes for procedures not included in the AMA’s CPT® set (many nonphysician healthcare professional services as well as various medical products and supplies).  This code set was developed by the Center for Medicare and Medicaid (CMS) for greater control over reimbursed procedures.

Some of the “big picture” differences between the three medical coding sets are identified in the table below.

medical coding differences

Our government (CMS) pretty much decides who uses what system of medical codes under what conditions.  The ICD-10-CM medical coding system is used in all U.S. healthcare settings that must follow HIPAA rules because it is the only one of the three medical coding sets given above that is patient-centered and identifies a patient’s diagnosis.  The other two medical coding sets (CPT® and HCPCS) are primarily designed to make sure healthcare businesses are paid (processing of bills) for “medically necessary” services and products and to make sure that payers are not overcharged and fraudulently billed.

For political reasons, CMS championed the use of the AMA’s CPT® procedure codes (over ICD‐10‐PCS) in all healthcare settings except by hospital employees treating patients classified as inpatients. If a private practice doctor provides services to a patient in the hospital, he must bill using CPT® (or CPT® equivalent HCPCS medical coding) even though the patient is in the hospital. In other words, the approved billing process is doctor (healthcare business)-centered and not patient-centered. Under the fee-for-service payment model, the medical coding system does not take into account the quality of care a patient receives just the quantity of care.  Because of CMS’s influence on the healthcare  industry, the CPT®  coding set is the standard procedural code today.

Medical Code Set Uses

Medical coding is used primarily for two reasons:

 1. Bill Processing.   In the billing process, the healthcare service provider’s notes (see the  figure above) are converted to medical coding by a professional medical coder and put into a claim (bill) for evaluation by a third-party payer (insurance company).

medical coding process for claimsIn the claims process (as shown in the figure above), the third party payer scrutinizes the bill for over-treatment, over-testing, and other practices aimed at maximizing reimbursement.  Each “medically necessary” procedure or service represented by a CPT® (or ICD or HCPCS) code must be matched to an appropriate diagnosis (ICD) code.  The diagnosis codes tells the payer “why” a service was performed.  Every procedure or service on a claim is paid based on the fee associated with the code.  If the procedures or services are not deemed “medically necessary”, then the claim for payment is denied.  Otherwise the bill is paid.

In the entire medical coding process above, the patient is only a name on an insurance plan. The patient is not consulted to make sure that the services on the claim form were actually performed nor is the quality of the service evaluated. While supporting documentation may be requested by the payer, payment usually only requires successful matching of diagnosis and procedure codes.

2.  Health data mining—information from medical coding can be used by federal and state governments for many public health reasons and for keeping of statistics on death.  These include various patient-centered health initiatives (e.g., planning for under-served health care areas), setting health policy (e.g., designing new payment models), to identify patient population needs and trends (e.g., educating and funding programs to teach Americans how to better manage chronic diseases like hypertension and type 2 diabetes), to measure the quality, safety, and efficacy of care, and to prevent healthcare fraud and abuse.   The government monitors the incidence and prevalence of diseases.  If the Center for Disease Control and Prevention (CDC) wants to analyze the prevalence of viral pneumonia, for example, they can look up use of the appropriate ICD-10-CM medical code (J12.9) and act accordingly for the good of public health.

Medical Coding Summary For Patients

While the use of medical coding is intentionally kept behind-the- scenes by all members of HICUP (BB Brigade acronym for those who are engaged in the business of health care in the USA), patients need to have a basic understanding so they may help control out-of-control health spending in the U.S.  High healthcare costs are often attributed to the fact that patients are shielded from the true costs of health care because they pay too little in cost-share.  Perhaps high healthcare costs can also be attributable to keeping patients from valuable information contained within medical coding. Who is better to verify what procedures were actually done on the patient than the patient himself?   Sharing health information like medical codes with patients would greatly help to reconnect patients to the true costs of health care.

In addition, medical coding contains valuable diagnosis information that, if known to the patient, could help improve doctor-patient communication.

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