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Why Medical Coding Must Be Accurate

Medical coding is a major factor in obtaining insurance reimbursement as well as maintaining patient records. Coding claims accurately lets the insurance payer know the illness or injury of the patient and the method of treatment.

Medical claims adjudication is the process used by insurers to examine the coding and decide whether a procedure will be reimbursed, denied, or reduced. If there is an error in the coding, it can result in the claim being denied. The diagnosis or procedure billed may not be covered by the insurance program, or it may only be partially covered, even though it was pre-authorized

As a result, the provider may not be paid fully for the service provided, or the patient may be unexpectedly responsible for paying for the services out of pocket.

Hazards of Overcoding and Undercoding

There can also be legal and financial consequences for inaccurate medical coding. Overcoding is reporting codes in a manner that results in a higher payment by the insurer. This can be considered to be fraud and lead to prosecution, with legal and financial penalties.

The opposite problem is undercoding, not including codes for all of the procedures performed or coding them for procedures that are reimbursed at a lower rate. This results in lost revenue for the provider.

The most basic information required for coding claims are ICD (International Classification of Diseases) codes otherwise known as diagnosis codes.

Diagnosis and Procedure Codes

Diagnosis codes are used to describe the diagnosis, symptom, condition, problem or complaint associated with the treatment of a patient. Diagnosis should be coded to the highest level of specificity for the visit.

Generally, ICD codes are used along with HCPCS (Healthcare Common Procedure Coding System) codes. HCPCS codes are defined in three levels.

  • Level I CPT (Current Procedural Terminology) codes are made up of 5 digit numbers and managed by the American Medical Association (AMA). CPT codes are used to identify medical services and procedures ordered by physicians or other licensed professionals.

  • Level II HCPCS are alpha-numeric codes consisting of one alphabetical letter followed by four numbers and are managed by The Centers for Medicare and Medicaid Services (CMS). These codes identify non-physician services such as ambulance services, durable medical equipment, and pharmacy.

  • Level III codes are alphanumeric codes W, X, Y, or Z followed by a four digit numeric code. Otherwise known as local codes, these codes are used as a miscellaneous code when there is no level I or level II code to identify it.

The most complex codes are DRG's (Diagnosis Related Groups). DRGs are a combination of:

  1. Diagnosis

  2. Procedures

  3. Complications

  4. Symptoms

  5. Pre-existing Conditions

  6. Age and Gender

DRGs are only used to code inpatient claims. Many insurers pay according to the DRG, therefore, the accuracy of all components is essential to proper claim reimbursement.

An accurate claim is dependent upon multiple components. Staying up-to-date on annual coding changes, following standard coding guidelines and keeping detailed patient records are simple ways to make sure medical claims are accurate.


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