Medical Coding 101: What Medicare Beneficiaries Need to Know

In this article...
  • Medical codes describe your diagnoses and any services you receive. They also affect how Medicare pays for your care, as well as the costs you may be required to pay. Learn more about these codes and why they’re important.

If you’ve ever looked at one of your medical bills, you might have noticed one or more numeric or alpha-numeric codes next to the date of service. You might also notice these codes on your Explanation of Benefits or your hospital discharge summary.

While you may be tempted to overlook this information, these codes are actually a critical part of your health record because they provide valuable insight into your health condition(s), the service(s) you receive, and any amounts you owe to your provider.

What Are Medical Codes?

Medical codes represent a whole host of information about your health: Diagnoses, treatment, medications, medical devices and more. Essentially, these codes translate complex information in your medical record into easily digestible data that payers and others can use to determine costs, identify risk and engage you to improve your health.

Your provider assigns certain types of medical codes each time they see you. They also include these codes on your insurance claim to let Medicare and/or your Medicare Advantage plan know the reason for your visit and what they did to treat you.

If you have Medicare, your doctor is paid for each service they provide. If you have Medicare Advantage (also called Medicare Part C), your doctor is paid a per member per month fee for taking care of you. Medical codes drive payments in both scenarios.

Likewise, if you need to stay in the hospital, medical codes also determine the cost of your care. Your hospital is paid a fixed rate (known as a diagnosis-related group or DRG) that’s driven, in part, by the medical codes assigned on your claim.

What Are Some Types of Medical Codes?

Although there are various types of medical codes, the two main ones are diagnosis codes and procedure codes.

For diagnoses, providers report ICD-10-CM diagnosis codes. ICD stands for the International Classification of Diseases. This disease classification is published and updated by the World Health Organization. The “10” refers to the version/edition of codes being used. The United States uses a clinical modification (CM) of these codes, which is why they’re known as ICD-10-CM codes.

For procedures, providers report CPT codes. CPT stands for current procedural terminology. This classification system is developed and updated by the American Medical Association (AMA). These codes describe every type of outpatient service (i.e., tests, surgeries, evaluations and other medical procedures) a healthcare provider could render. If you have an inpatient procedure, your provider will assign an ICD-10-PCS code. PCS stands for procedure coding system.

In some cases, Medicare, Medicaid and other third-party payers may require your provider to submit HCPCS codes. HCPCS stands for Healthcare Common Procedure Coding System. There are two levels of HCPCS codes. HCPCS Level I codes are based on CPT codes, copyrighted by the AMA, and used for services and procedures typically provided by physicians. HCPCS Level II codes typically denote medical equipment, supplies and ambulance services.

All medical codes are highly specific and describe a significant amount of information in a single code. Anyone assigning these codes to your medical record and billing them on your behalf must follow official coding guidelines published by the AMA, the Centers for Medicare & Medicaid Services (CMS) and the National Center for Health Statistics. They must also abide by payer-specific policies. Most importantly, they must ensure there is documentation in your medical record to justify reporting them.

Why Are Medical Codes Important?

There are many reasons. First, medical codes ensure that your doctor is paid appropriately for the services they provide to you.

Second, medical codes drive how much you owe. Each CPT code and DRG has a dollar amount associated with it. This amount is used to determine your Medicare co-insurance.

Third, medical codes help your doctors easily identify your health risks. The coded data succinctly tells the story of your health status and complexity. It’s important for your doctors to capture all medical codes that are relevant to your health and treatment so your story is told completely and accurately.

Fourth, medical codes help doctors mitigate risk across entire patient populations (known as population health management). For example, your doctor can run reports in their practice management system to easily identify all patients with a diagnosis code for “uncontrolled diabetes” and educate them about the benefits of chronic care management.

The same is true for patients with a diagnosis code of “uncontrolled hypertension.” These patients may be good candidates for remote patient monitoring. Your health insurance may also perform similar outreach and education based on your medical codes. The goal of population health management is to lower overall healthcare costs and improve outcomes.

Finally, coded data supports public health initiatives. It enables statistical analysis of diseases and treatments as well as easier observance and tracking of epidemics or pandemic events, including COVID-19.

How Can I Use Medical Codes?

You can use medical codes to better understand your diagnoses and the services your doctor provides, to double-check your bills, to understand coverage, or to find the most affordable care.

For example, if you see a medical code for a procedure you didn’t have, you can dispute the bill so you aren’t liable for payment. If you know the HCPCS code for a procedure you’re going to have, you can call Medicare to make sure that procedure is a covered service.

You can also use that code to shop around for the most affordable provider. As of January 1, 2021, hospitals must make all of their prices available to the public thanks to a new federal rule that promotes hospital price transparency.

About the Author

Lisa Eramo is an independent health care writer whose work appears in the Journal of the American Health Information Management Association, Healthcare Financial Management Association, For The Record Magazine, Medical Economics, Medscape and more.

Lisa studied creative writing at Hamilton College and obtained a master’s degree in journalism from Northeastern University. She is a member of the American Health Information Management Association, American Academy of Professional Coders, Society of Professional Journalists, Association of Health Care Journalists and the American Society of Journalists and Authors.

Lisa currently resides in Cranston, Rhode Island with her wife and two-year-old twin boys.

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