The Business of Medicine

Coding as a Profession

Every time a patient receives healthcare, a comprehensive record is maintained which includes observations, interventions (medical or surgical), diagnostic tests and studies, as well as treatment outcomes. Coding is defined as the process of translating this written or dictated medical record into a series of numeric and alphanumeric codes. These codes are crucial for various purposes such as:

Serving as a common language which simplifies data collection (for example, to track disease).
Evaluating the quality of care provided.
Determining costs and ensuring reimbursements.

The proper assignment of codes is influenced by the content of the medical record (known as documentation) and the specific rules that apply to the respective code set at that moment. The rules for coding can change depending on the payer involved, whether it be a self-payer or health insurance provider.

Coding can be performed by either a physician or a medical coder. When the physician codes, a coder may act as an auditor, verifying that the documentation corresponds with the codes assigned by the physician. In some instances, coders receive the medical record to assign codes based on the documented notes.

If the medical record is not accurate or complete, the coding process will not yield correct codes. Therefore, coders must ensure the medical record is thorough and accurate and maintain regular communication with physicians and other healthcare professionals to clarify diagnoses or gather additional patient information.

Types of Coding

Outpatient Coding:
  - Focuses on physician professional services and outpatient facility coding.
  - Coders in outpatient settings will primarily work with CPT (Current Procedural Terminology), HCPCS Level II (Healthcare Common Procedure Coding System), and ICD-10-CM (International Classification of Diseases, 10th Revision, Clinical Modification) codes.
  - Typical settings include physician offices, outpatient clinics, and facility outpatient departments.
  - Outpatient facility coders also interact with Ambulatory Payment Classifications (APCs).
Hospital Inpatient Coding:
- Requires a different skill set, focusing on ICD-10-CM and ICD-10-PCS (Procedure Coding System).
- Coders assign medical severity diagnosis-related groups (MS-DRGs) in inpatient settings.
Risk Adjustment Coding:
  - Emphasizes diagnosis coding, specifically with the ICD-10-CM code set.
  - Risk adjustment diagnoses are collected from claims data and medical record documentation across various settings.
  - Risk adjustment coders may work for health plans, providers, or other healthcare entities.

Regardless of the setting in which coding takes place, coders need to stay updated on coding updates and insurance payment policies, which can change as often as quarterly. Continuing education is essential for coders to remain effective in their roles.

The Hierarchy of Providers

Healthcare facilities employ a range of medical providers, including both physicians and non-physician providers (NPPs). NPPs, often referred to as mid-level providers or physician extenders, include physician assistants (PAs) and nurse practitioners (NPs). Key points include:

NPPs typically receive lower reimbursement rates than physicians and require supervision from licensed physicians.
Education and allowed procedures vary by provider type and state, necessitating awareness of state health board regulations regarding the scope of practice for various provider levels.

The Different Types of Payers

While some patients cover their medical costs independently, most utilize some form of insurance. Two primary categories of insurers exist:

Commercial Insurers:
- Private insurance carriers that provide plans that may include group or individual coverage for hospitalization, basic, and major medical needs.
- Examples include Blue Cross Blue Shield, typically operating state-based.
Government Insurers:
   - The most notable government program is Medicare, a federal health insurance initiative managed by CMS (Centers for Medicare & Medicaid Services). This program caters to specific demographics including:
     - Individuals over age 65.
     - Blind or disabled individuals.
     - Patients with ESRD (end-stage renal disease).
   - Medicare comprises several parts:
     - Part A: Covers inpatient hospital care, skilled nursing facilities, hospice care, and home healthcare.
     - Part B: Addresses medically necessary outpatient services, physician services, and certain preventive measures, requiring premium payments along with deductible and co-insurance costs.
     - Part C: Known as Medicare Advantage, integrating elements of Part A, Part B, and sometimes Part D, with varying cost structures.
     - Part D: A drug program that offers coverage provided by private companies certified by Medicare.

Medicaid is another essential program providing health insurance assistance primarily for low-income groups, notably children and pregnant women. Medicaid is state-operated but must align with federal guidelines.

Understanding RBRVS

The Resource-Based Relative Value Scale (RBRVS) standardizes Medicare payments for physician services by breaking down resource costs into three components:

Physician Work: Accounts for approximately 52% of a service's relative value, measured based on:
   - Time taken to perform the service.
   - Technical skill and effort required.
   - Mental effort and decision-making involved.
   - Stress from potential patient risk.
Practice Expense: Constitutes about 44% of total relative value; these values change based on service location (e.g., costs in a hospital versus a private practice).
Professional Liability Insurance: Contributes roughly 4% to the total relative value of a service.

A sample excerpt from the 2025 National Medicare Physician Fee Schedule demonstrates the breakdown of relative values assigned to various CPT and HCPCS codes, indicating work and practice expense relative values along with the total relative value unit (RVU).

Example:

Code: 99214 (Office/outpatient visit est.)

Work RVU: 1.92
Non-Facility PE RVU: 1.80
Facility MP PE RVU: 0.83
Total RVU: 3.87

Please refer to the CMS website for the most-recently published Physician Fee Schedule information, as updates for the following year (2026) may not be available immediately following publication.

Medical Necessity

The term "medical necessity" assesses whether a particular procedure or service is appropriate given the circumstances of the patient's condition. Generally, a medically necessary service is defined as the least invasive procedure that warrants effective treatment for the patient's health issue. CMS has established policies concerning what is considered medically necessary based on regulations outlined in Title XVIII, $1862(a)(1) of the Social Security Act.

Physicians are required to bill only for services that meet Medicare's standard of "reasonable and necessary" for patient diagnosis and treatment. National Coverage Determinations (NCDs) elaborate on when Medicare will cover specific services or items, while each Medicare Administrative Contractor (MAC) translates these national policies into regional guidance called Local Coverage Determinations (LCDs).

Key Aspects:

LCDs are constrained to their respective regions and make determinations based on the absence of an NCD.
Commercial payers may have distinct medical policies diverging from Medicare guidelines based on private contracts with providers.

Advance Beneficiary Notification (ABN)

The ABN is an important standardized form that informs patients regarding the potential denial of Medicare for specific services or procedures. This form is crucial as it:

Protects the financial interests of providers by creating a mandated documentation trail prior to billing the patient once coverage is denied.
Requires that the patient be given a preliminary cost estimate for the intended service.
Must adhere to the stipulation that cost estimates be reasonably accurate—within $100 or 25% of the expected expenses, whichever is greater.

The ABN, officially called Revised ABN CMS-R-131, can be downloaded from the CMS website, and providers must present it to patients before potentially non-covered services. Non-Medicare payers may not recognize the ABN, and contracts may contain terms that restrict billing beyond co-pays or deductibles.

The Need for Privacy and Security

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) establishes federal protection for patients' protected health information (PHI). Under HIPAA, covered entities which include hospitals, clinics, insurers, and more, must ensure compliance with regulations to protect patient information and maintain privacy. Specific components of HIPAA outline:

The Minimum Necessary Requirement obliges covered entities to limit sharing of PHI to only what is required for a particular purpose. Exceptions include treatment disclosures, individual requests, and other specific authorizations.

HITECH and Its Impact on HIPAA

The Health Information Technology for Economic and Clinical Health (HITECH) Act, integrated within the American Recovery and Reinvestment Act of 2009, enhances HIPAA's framework particularly concerning the electronic transmission of health information. Key provisions include:

Patient audit requests for disclosures of their health information.
Notice requirements in the event of unauthorized disclosures of health data.

Fraud and Abuse

The Office of Inspector General (OIG) is charged with scrutinizing the efficiency and economic operation of federal programs, including investigating healthcare fraud. Fraud is described as knowingly submitting claims for unprovided services or higher reimbursement than warranted, with recent legislative changes to eliminate the intent requirement for defining fraud.

Abuse refers to services billed in error that should not be reimbursed by Medicare.

Statutory Definition (18 U.S.C. § 1347): Explains penalties for healthcare fraud, which includes lengthy imprisonment and fines based on the nature of the fraudulent activity. Intent does not have to be proven in allegations of fraud.

Need for Compliance Rules and Audits

All healthcare providers should establish and adhere to a compliance plan, which serves as a set of documented instructions for coding, claims submission, and error correction processes. Benefits of a compliance plan may include:

Increased accuracy in claims processing.
Reduced billing errors.
Enhanced documentation and coding accuracy.
Mitigated risks associated with self-referrals and anti-kickback violations.

Implementing a compliance program signifies to both employees and governing bodies a commitment to high ethical standards. Guidance for establishing a physician practice compliance program can be found on the Office of Inspector General's (OIG) website, including details about the OIG Work Plan, which identifies focus areas for audits and scrutiny in healthcare settings based on submitted claims.

What AAPC Will Do for You

The American Academy of Professional Coders (AAPC) was established in 1988, aiming to enhance education and professional certification for medical coders. It has since expanded its focus beyond outpatient coding into diverse arenas including regulatory compliance, coding audits, inpatient hospital coding, and practice management, with a member base exceeding 300,000 globally. Key offerings include:

Training and certifications in all code sets, emphasizing compliance and documentation.
Diverse opportunities for education and networking through over 500 local chapters.

AAPC Code of Ethics

Members of AAPC must adhere to standards of professional behavior, reflecting integrity, respect, commitment, competence, fairness, and responsibility. Non-demonstration of these ethical principles may result in consequences, including loss of AAPC membership and credentials.

Chapter Review Questions

Which part of Medicare should be billed for pain medication provided to a chemotherapy patient in an oncologist's office?
   - A. Part A
   - B. Part B
   - C. Part C
   - D. Part D
Define medical coding.
   - A. Reporting services on a CMS-1500
   - B. Translating medical documentation into codes
   - C. Programming an EHR
   - D. Creating a 5010 electronic file for transmission
Which is NOT a covered entity under HIPAA?
   - A. Medicare
   - B. Workers' compensation
   - C. Dentists
   - D. Pharmacies
Which falls under commercial payers?
   - A. Medicare
   - B. Medicaid
   - C. Blue Cross Blue Shield
   - D. All of the above are commercial payers
When should an ABN be signed?
   - A. When a service is considered medically necessary by Medicare.
   - B. When a service is not expected to be covered by Medicare.
   - C. Routinely for any services given to a Medicare patient.
   - D. After a service is denied and the patient should be billed.
The amount stated on an ABN should be within how much of the cost to the patient?
   - A. $250 of cost
   - B. $100 or 25% of cost
   - C. $10 or 10% of cost
   - D. $100 or 10% of cost
An entity that processes nonstandard health information into a standard format is considered what?
   - A. Billing Company
   - B. Electronic Health Record Vendor
   - C. Clearinghouse
   - D. Practice Management Vendor
What does PHI stand for?
   - A. Personal History Information
   - B. Problem with History of Infection
   - C. Partial Health Interaction
   - D. Protected Health Information
What does intentional billing of services not provided denote?
   - A. Deceptive Billing
   - B. Fraud
   - C. Abuse
   - D. Common practice
What document from the OIG should a provider review for special scrutiny in the upcoming year?
    - A. Compliance Program Guidance
    - B. Safe Harbor Regulations
    - C. Red Flag Rules
    - D. OIG Work Plan