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Key Elements of Reimbursement Coding

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Vol. 9 •Issue 9 • Page 49
Key Elements of Reimbursement Coding

A Guide for Nurse Practitioners

By William Mazzocco

The training and education of NPs and other health professionals is directed toward attaining clinical competency–not to the financial mechanics of providing health care. The federal Balanced Budget Act (BBA) of 1997 submerged NPs into the nuts and bolts of these mechanical issues, however, when it provided for direct Medicare reimbursement to NPs in all settings. This article focuses on common reimbursement issues and explains why accurate coding is so vital to your practice (Table 1).


The single most important component of reimbursement is the requirement for accurate documentation of what the clinician sees and does. This is the only method that insurers can use to determine what was done and how much they should pay. Billing documentation is an outgrowth of standard medical documentation, and it uses terminology that is common to all health professions. Insurance carriers place this documentation into a standard format to determine the level of care and thereby determine the appropriate level of reimbursement.

Thorough and accurate billing documentation is especially important in today's combative medicolegal environment. Always use objective terms to describe objective findings, and use terms that would be understood by any health care provider. Describe only what you can see, measure or record.

Fraud and Abuse

The same law that expanded Medicare coverage also included funding to create an aggressive investigative mechanism to reduce fraud and abuse within the health care system. The reason for this is simple: Medicare was going broke. Each year, millions of dollars are lost to criminal fraud and abusive billing practices. While many of these billing errors are unintentional, the federal government considers the money just as ill-spent as if fraud were committed.

The biggest areas of documentation risk are evaluation and management codes (E&M) and procedure codes, and codes delineating the place of service. "Clinic" is an overused term in health care. Specific criteria determine what is part of the hospital and what constitutes a true outpatient clinic. This distinction takes on particular importance when you attempt to bill "incident-to" services. These services can only be provided in a non-hospital (an office or true outpatient clinic) setting. There is no such thing as incident-to billing for inpatient services.

Every health care office must have a copy of current Medicare guidelines. These guidelines are written in common English, so don't be intimidated. If you want more specific guidance, consult your Medicare carrier, the insurance provider who acts as the local administrator of the Medicare program.

Vocabulary and Concepts

The world of reimbursement has a language unto itself. Rather than giving you standard definitions from a government publication, here I provide clinical definitions of these essential health care components:

Medicare program: federal health care insurance program that represents the lynchpin of all federal entitlement programs and is used as the model for most private insurance programs.

The Centers for Medicare and Medicaid Services (CMS) (formerly the Health Care Financing Administration or HCFA): the federal agency that administers Medicare through local carriers.

Carriers: local insurance companies that administer the Medicare program in their respective states and cities. Historically, Blue Cross and Blue Shield plans have been designated as carriers. Carriers exercise wide latitude in their interpretation of CMS guidelines, and this is a constant source of contention between the insurers and the providers.

Medicare Part A: provides reimbursement to hospitals and institutions. Fraud and abuse problems can arise if services are billed inadvertently under both Medicare Part A and B.

Medicare Part B: reimburses providers for professional services and supplies. Nurse practitioners, physicians, physician assistants, clinical nurse specialists and other designated providers are covered under this section of Medicare.

HCFA Common Procedures Coding System: A standardized alpha-numeric coding system to report professional services, procedures and medical supplies. This allows CMS to convert text into a billing code and then assign fees. There are three levels of HCPCS: Level I Codes, Level II National Codes and HCPCS Level III Local Codes.

Level I Codes: Physician's Current Procedural Terminology Codes (CPT-4) are published by the American Medical Association and are used to report medical and surgical procedures as well as detail the E&M codes. These five-digit numeric codes can be expanded by using alpha or numeric modifiers. Example: 11040 is debridement: skin, partial thickness. Example: 11040 76 is a repeat procedure by the same surgeon.

Level II National Codes: These codes are an expansion of the Level I codes. In a wound clinic, for example, these codes are used for reporting charges for supplies, materials and drugs. Example: A6154 alginate dressing, wound cover, pad size 16 square inches or less (each dressing).

HCPCS Level III Local Codes: The final level consists of five-digit alpha-numeric codes that are preceded by the letter W, X, Y or Z. These codes allow the local Medicare carrier to identify items that are endemic to that area. Example: W9005 office is for follow-up on an emergency department visit.

Evaluation and Management Codes: These codes are contained in the CPT-4 manual and describe the professional component of a service. This is the portion of service in which you use your training to evaluate, take a history and examine the patient. You make a diagnosis and recommend treatment. E&M codes cover a wide range of services. A number of factors are taken into consideration to determine which level of service is assigned. These are numbered from 99201 through 99456 and are divided by service.

Incident-to Billing: When a physician sees a patient, she will generate a bill for a service (E&M code) or a procedure, and it will be billed under her personal provider identification number (PIN). This means the physician examined or performed the procedure herself. However, an archaic method still exists whereby employees such as nurse practitioners, nurses and even medical assistants could bill under this physician's provider number as long as certain specific criteria were met. Prior to the BBA of 1997, many NPs used this method to receive 100% reimbursement for seeing patients. Private insurance providers may have no guidelines for this billing method, but Medicare is very specific. Its guidelines are as follows:

The physician must be physically in the office when the service is provided. This does not mean on a different floor or any other semantic representation. She must be in the office suite proper.

To bill incident-to, all new patients or established patients with new problems must be seen and treated by the physician first. Subsequent visits do not require the patient to be seen by the physician, but the follow-up visits are billed under the physician's provider number. Rule number 1 remains in effect. The presence of a physician on site is not required if the nurse practitioner bills under her PIN number, however.

Incident-to billing cannot be filed for inpatient billing (hospital rounds). Incident-to services can only be performed in the physician's office, a freestanding clinic or, in special instances, in the patient's home.

ICD-9 Codes: All treatment options stem from the single or multiple diagnoses assigned to the patient. Likewise, all reimbursement is contingent on the diagnosis codes corresponding to the various CPT-4 codes. These two sets of codes must coincide. You cannot bill for full-thickness debridement of a foot ulcer (11040) and assign an ICD-9 code like 881.2 (complicated open wound of wrist) (Table 2).

Key Elements of Coding

Coding is like any other skill. It takes time and repetition to become comfortable with it. No one will expect you to know all the intricacies of reimbursement, but you must become familiar with the basics (Table 3). Here are some very simple precepts to keep in mind whenever you see a patient or start to assign a level of service.

1. What is the main reason the patient is being seen today?

2. What am I attempting to code for?

a. Diagnoses (ICD-9)

b. Procedure or evaluation and management (CPT-4)

c. Supplies (HCFA Level II codes)

Only include the diagnosis codes for active problems that directly affect what you are treating.

The ICD-9 codes must be carried out to their maximum specificity and must correspond to the anatomical portion described in the text of the CPT-4 code. For example, 707 is chronic ulcer of the skin and 707.1 is chronic ulcer of the lower limbs, except decubitus ulcer. And 730 is the code for osteomyelitis, periositis and infections involving bone, while 730.1 is the code for chronic osteomyelitis and 730.17 is the code for chronic osteomyelitis of the ankle and foot.

Codes are required to achieve conciseness. Don't think that adding extraneous codes will increase your level of reimbursement. Remember, your documentation must support all these referenced codes as active problems. Only use the codes that are most descriptive of the primary problem or problems. Include secondary codes only if they directly affect the primary problem.

The usual patient flow of a wound clinic is much more relaxed than a typical medical or surgical practice. Since many patients undergo minor procedures, the average patient stay in such a clinic will be longer than in an office setting. Take advantage of that extra time to ensure your coding is as complete as possible. Experience has shown that the level of reimbursement rises proportionally to the amount of time the patient, provider and bill stay together. It also follows that solid knowledge of coding increases reimbursement rates and decreases claims rejections. Make sure your bill is as "clean" (free from clerical errors) as possible. Repeat billing costs time and money, so do it right the first time.

Supplemental V and E Codes

The V codes (V01 through V83) document situations that are not caused by illness or injury. A good example of this is a postoperative patient who presents to a wound clinic after an amputation. He will still have many of his other previous diagnoses (diabetes [250] or chronic renal failure [585]), and these factors may affect his ability to heal.

The E codes (E800 through E999) document external causes of injury and even exposure to poisons. These supplemental codes can help amplify some of the diagnosis codes provided. It helps the insurer understand more about what caused the condition and why a particular level or frequency of care is necessary.

CPT-4 Level I Coding

Medicare carriers and CMS itself regularly forward updates on additions and deletions to the CPT-4 manual throughout the year. These should be kept in a separate file and reviewed regularly by all parties involved.

The manual of CPT-4 codes includes all medical and surgical procedure codes now in use. It also contains a list of appropriate modifiers that can be used to amplify or explain the normal five-digit procedure code assigned to the patient's charge sheet. These are often referred to as a patient encounter form or a "superbill." This manual also details the various E&M codes used by a clinician when she documents the professional service provided.

The codes contained in the CPT-4 manual are made up of five-digit numbers that can be modified by additional two-digit numeric or letter codes. The manual is separated into three main sections, E&M codes, surgery codes and medicine codes. Subsections deal with areas such as radiology, anesthesia, pathology and laboratory codes. The section numbers are as follows: evaluation and management, 99201 to 99499; anesthesiology, 00100 to 01999 and 99100 to 99140; surgery, 10040 to 69979; radiology, 70010 to 79999; pathology and laboratory, 80002 to 89399; medicine, 90701 to 99199. These subsections are further broken down into other subsections that correspond to the various surgical specialties.

The Superbill

All billing information must be placed into some format prior to being submitted for payment, and this format is often known as the superbill. Only the clinician should assign the level-of-service code, since her face-to-face interaction with the patient forms the basis for E&M codes. All procedure codes assigned must be verified with the clinician. List all appropriate ICD-9 codes to maximum specificity.

Document everything you do, if not by transcription then by some other means of computer recording. Keep the patient, the clinician and the superbill together for as long as possible. Be sure that the clerks know what the clinical personnel are doing and visa versa.

Although a superbill with the most common diagnoses and procedures can be an enormous help, it is not a substitute for coding manuals.

Evaluation and Management Codes

E&M codes have traditionally been difficult to understand, but they are the sole means of documenting the level of service you provided. The method of documentation required has been controversial since its inception, and a new E&M code format was developed in 1998. Clinicians have the option of using the old or new coding methodology. The examples cited in this article represent the most recent edition. Whichever method is used, the chart documentation must stand up to the scrutiny of an onsite audit.

E&M levels are determined by using the following components:

1. History

2. Examination

3. Medical decision-making

(1 through 3 are considered most important and are the key components in determining service level)

4. Counseling

5. Coordination of care

6. Nature of presenting problem

(4 through 6 are considered of secondary importance)

7. Time

(7 is considered the least important)

Nurse practitioners perform these tasks every day. The only difference now is that you are being asked to document them. The history contains all the elements that you learned in school: chief complaint (CC), history of present illness (HPI), review of systems (ROS), and past family and social history (PFSH). You learned that the CC was a one-sentence description of why the patient came to see you. The HPI included the standard eight elements you memorized in school (location, quality, severity, duration, timing, context, modifying factors and associated signs and symptoms), and the ROS and PFSH also are the same. Remember, the PFSH need only list those components that are pertinent to the CC or HPI.

Documentation of the Examination

The levels of E&M codes are based on four types of examination. This is really the only truly new concept you have to learn. If you look closely, you will notice how much the terminology is repeated. The new E&M codes even allow for medical or surgical specialists to focus the exam to their specialty (see the actual CPT book for a complete listing).

I believe the general multi-system exam (GMSE) is easier to document than the various specialty exams. If you become competent with this format, you can function in any clinical situation. The GMSE and the specialty exam level of service are determined by the number of "bullets" performed by you. This point seems to produce the most confusion. The items listed in the organ systems are as follows: cardiovascular, ENT, eyes, GU male and female, hematologic/lymphatic/immunologic, musculoskeletal, neurologic, psychiatric, respiratory and skin. Let's see how they relate :

1. Problem-focused: a limited examination of the affected body area or organ system. GMSE: one to five bullets in one or more organ systems or body areas.

2. Expanded problem-focused: as above, plus any other symptomatic or related body area or organ system. GMSE must include at least six bullets in one or more organ systems or body areas.

3. Detailed: an extended examination of the affected body area or organ system and any other symptomatic or related body area or organ system. GMSE must include at least six organ systems or body areas and each system must have at least two bullets per system or 12 elements.

4. Comprehensive: a general multisystem examination or complete examination of a single organ system and other (as above). GMSE should include at least nine organ systems with at least two bullets per system or 18 bullets.

Secondary E&M Code Descriptors

The secondary E&M code descriptors–counseling, coordination of care–nature of the presenting problem and time, are rather straightforward and routinely performed. The only areas here that are confusing are the definitions imposed by CMS to help document the level of complexity used in medical decision-making. This is broken down into number of diagnoses or management options, amount or complexity of data to be reviewed, and risk of significant complications, morbidity or mortality.

The last two elements are codified into a decision table. Item 2 (complexity) is broken down into straightforward, low complexity, moderate complexity and high complexity. To qualify for a specific level of service, at least two of the three elements in the table must be met or exceeded. This table need not be memorized. Rather, it should be available for rapid reference on a desk or in a personal digital assistant. The same should be done with the table of risk used with item 3.

The final component, time, takes care of itself if you perform the necessary tasks listed. It only becomes a problem when the appointment sheet reflects too much double booking, which suggests fraud and abuse. No 5-minute visit can be billed as comprehensive.

NPs may encounter problems with local carrier idiosyncrasies when it comes to coding. Time and experience will determine which codes (if any) remain physician-only codes. The lion's share of codes used will be from the office and outpatient services category, and this is where you should focus your efforts. v


• Balanced Budget Act of 1997, Public Law 105-33.

• Medicare Part B Reference Manual. City and state of publisher: Xact Medicare Services; 1997.

• Physicians Current Procedure Terminology, CPT 98 Standard Edition. Chicago: American Medical Association; 1997.

William Mazzocco is a billing and coding consultant with Medical Administrative Support Services in Altoona, Pa.


Thanks so much, just what I needed. A great first attempt with this web site. Are you considering submitting for publishing? Lots of folks out there without this specific knowledge.

Kathy Lewis,  ANP/GNPNovember 16, 2012
Reading, MA


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