Basics of Medical Coding in Healthcare

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Medical coding is an integral part of medical billing and communications among healthcare providers and insurers. Learn the basics of what it means and how these codes are used.

What Is Medical Coding?

Medical coding is a system of number and letter labels that are unique for each diagnosis, symptom or symptom set, and cause of death in human beings. Additionally, codes are used for standard communication of supplies and procedures used in the treatment of human conditions. Accurate medical coding is important for billing and in tracking statistics for disease and medical treatment.

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

Medical coding can involve one or more of the following types of codes: ICD codes, CPT codes, HCPCS codes, DRG codes, and modifiers. All of these coding sets are important for communication and billing purposes. Not only is coding important in a medical practice, but it is also imperative because commercial payers such as insurance companies, Medicare and Medicaid will not pay a claim if is it not properly submitted with acceptable codes.

ICD Codes

The International Statistical Classification of Diseases or ICD codes is one system of codes. These are specific to classifications of diagnoses, symptoms, and causes of death in humans. The World Health Organization creates, copyrights, and oversees these classifications and they are standard and thereby recognizable by every medical facility and practitioner worldwide. In the United States the National Center for Health Statistics, which is a part of the Centers for Medicare and Medicaid Services manages any amendments to the ICD codes alongside the WHO.


The HCPCS (Healthcare Common Procedure Coding System) levels I and II is another coding system. Level I is comprised of CPT codes, and Level II includes alphanumeric codes which are used to identify products, supplies, and services not included in the CPT codes when used outside a physician's office.

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 alphanumeric 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.

Modifiers: Some HCPCS codes required the use of modifiers. They consist of two digit number, two letters or alphanumeric characters. HCPCS code modifiers provide additional information about the service or procedure performed. Modifiers are used to identify the area of the body where a procedure was performed, multiple procedures in the same session, or indicate a procedure was started but discontinued.

CPT Codes

CPT codes are Common Procedural Codes and were developed and trademarked by the American Medical Association in 1966. These are a system of five-character alphanumeric codes that describe in a standardized method of medical, surgical, and diagnostic services.

DRG Codes

DRG codes, diagnosis-related grouping codes, 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.

How Medical Coding is Used

These coding sets are important for communication and billing purposes. Not only is coding important in a medical practice, but it is also financially critical for medical providers because commercial payers such as insurance companies, Medicare and Medicaid will not pay a claim if is it not properly submitted with acceptable codes.

Additionally, diagnosis codes are used to analyze disease patterns in societies and for national and regional health and death statistics. Member countries of The World Health Organization can then benefit from needed resources to combat widespread health issues, to educate the populace on prevention and treatment, and to ensure the future health and well-being for their citizens.

Education in Medical Coding

Many colleges and trade schools offer classes, certifications, even Associate of Applied Science degrees in medical billing and coding. These are in-depth courses or degree plans that educate students on medical terminology, proper coding and billing techniques, proper office procedures, and an abundance of related coursework. Some of these are accredited and some are not, so each potential student should do their homework before choosing a learning program.

The importance of initial education and continuing education in a clinic or doctor’s office cannot be overstated. Staying abreast of the changes in coding and billing practices, as well as governing regulations is essential in this fast-paced digital system in which we all work and live.

Coding and Billing

Coding and billing are often mentioned together because these are two facets of the medical office that are closely linked to one another. The staff member(s) who complete your medical coding and billing should work closely together to ensure accurate and prompt payment of all medical claims and correct and complete medical records.

Resources such as up to date code books listing the various codes or current software for coding or billing are imperative to the billing and coding staff in order to ensure accurate filing to insurance companies or Medicare and Medicaid, and prompt payment from these entities, as well as accurate diagnosis and medical records. In addition to the initial filing of patient claims, the coder and or biller may be responsible for following up on denied claims by auditing the patient’s chart, re-filing the claim, appealing the claim, or taking other steps to ensure the accuracy of the claim.

Given that medical and billing staff are responsible for the accuracy of medical records in accordance with state and federal regulations as well, the importance of competent billers and coders cannot be overstressed. A successful medical facility must have well trained, organized, and proficient medical billers and medical coders.

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