A Comprehensive Guide to Understanding Medical Coding Systems

Introduction

Over time, the government has implemented specific regulations aimed at improving the healthcare industry. One of these regulations is the medical coding and classification system, which is followed by providers and insurance companies to streamline the processing of care service claims. Medical coding systems assign specific codes to diagnoses and necessary resources, facilitating clarity and accuracy in documentation.

In any healthcare setting, billing and coding simplify payment and reimbursement workflows, ensuring a smooth exchange of bills and funds between healthcare providers, insurance companies, and patients. Notably, nearly 94% of healthcare providers today are open to investing in medical coding system software.

At OSP, a U.S.-based client approached us seeking a digital trading platform for accounts receivable (A/R) management. They faced challenges, including high claim denials and ineffective medical coding and verification. After understanding their requirements and concerns, we crafted a solution that delivered:

• Higher ROI – Our software achieved 95% accuracy in predicting claim approvals.
• Precise validation of ICD and CPT codes – The system enhanced coding and verification processes, ensuring claims were processed smoothly.
• Improved A/R flow – The client’s purchasing power in A/R increased, along with their overall savings.

What is Medical Coding and Why is it Important?

Medical coding is the process of assigning standardized codes to medical diagnoses, procedures, services provided, and equipment used. These codes are used by insurance companies, healthcare providers, and government agencies to document, bill, and manage reimbursement for medical services, as well as for statistical analysis in healthcare settings.

The main purpose of medical coding is to provide a consistent and accurate classification of medical services and procedures, which ensures appropriate reimbursement from patients, insurance companies, and government healthcare programs like Medicare and Medicaid.

Additionally, medical coding offers several key benefits:

• Facilitating data exchange and improving communication among healthcare professionals, such as doctors, nurses, and administrators.
• Enabling tracking and analysis of health outcomes, costs, trends, and more.
• Supporting accurate billing and reimbursement for medical services, reducing errors and fraud.
• Contributing to research and innovation in medicine, health policy, and public health.

What Types of Medical Coding are Used?

Different types of medical coding systems are utilized across various healthcare settings, each serving specific purposes. These codes are essential for assigning charges to medical services provided. The three most common types of medical coding are ICD, CPT, and HCPCS.

International Classification of Diseases (ICD)
The ICD is a global standard used to classify diseases, symptoms, injuries, and causes of death. ICD-10, the 10th version, includes expanded codes and classifications for updated conditions and diagnoses. Developed by the World Health Organization (WHO), ICD codes are adopted by governments worldwide.

Current Procedural Terminology (CPT)
CPT codes are widely used in healthcare settings today, particularly for documenting medical procedures performed in a provider’s office. These codes describe medical services and procedures carried out by physicians and other health professionals. Maintained by the American Medical Association (AMA), CPT codes are updated annually. They are divided into three categories—Category I, Category II, and Category III—are five digits in length, and can be numeric or alphanumeric, used primarily for reimbursement and billing.

Healthcare Common Procedural Coding System (HCPCS)
Based on CPT codes, the HCPCS system is maintained by the Centers for Medicare & Medicaid Services (CMS), which oversees any additions, revisions, and deletions to the national alphanumeric codes. HCPCS codes are used primarily for billing Medicare and Medicaid programs and consist of two levels:

• Level I (CPT codes)
• Level II (national alphanumeric codes)

HCPCS codes cover medical supplies, equipment, drugs, and non-physician services, playing a critical role in healthcare billing and reimbursement.

What is the Medical Coding Process?

Medical coding is a dynamic and intricate process requiring specialized knowledge and skills. Medical coders utilize standardized coding systems to translate medical information into easily understood and processable codes. To perform their role effectively, they must be well-versed in medical terminology, physiology, anatomy, pharmacology, and pathology. They must also understand and accurately apply the rules and guidelines of various coding systems.

The typical steps in the medical coding process include:

1. Reviewing patient documentation and records from healthcare providers.
2. Identifying the relevant diagnoses, procedures, medications, and supplies related to the patient’s condition and treatment.
3. Assigning standardized codes to each diagnosis, procedure, medication, and supply.
4. Verifying the completeness and accuracy of the codes and resolving any discrepancies.
5. Entering the codes into a database or specialized software program.
6. Double-checking the codes and submitting the data to insurance companies or other entities for billing or reporting purposes.

Types of Medical Coding

In healthcare software development, medical coding software must adhere to specific classifications. While many vendors offer ready-made medical coding and billing systems, choosing a custom healthcare software solution for medical coding can be a more strategic option. Medical coding systems are generally built around the following main types of coding:

ICD-10
ICD-10, or the International Classification of Diseases, 10th Edition, launched in 2015 as an update to the previous edition, introducing more codes and classifications for various health conditions. This system is widely inclusive, covering even advanced telehealth services. ICD-10 operates under two systems: ICD-10-Clinical Modification (ICD-10-CM) for diagnosis coding and ICD-10-Procedure Coding System (ICD-10-PCS) for hospital procedures. ICD-10-PCS assigns specific codes to hospital inpatient procedures in patient engagement and integrated health solutions, making ICD-10 one of the most popular medical coding systems used today.

SNOMED
SNOMED, or Systematized Nomenclature of Medicine, differs from ICD-10 by allowing medical professionals to compare and analyze health issues globally. While ICD-10 is used mainly for tracking medicines and hospital procedures, SNOMED serves as a reference terminology with over 31,000 active concepts. This coding system enables healthcare providers to identify patterns and predict potential health risks across patient populations. Additionally, SNOMED can be used in charitable projects by organizations affiliated with it.

CPT
Current Procedural Terminology (CPT) codes are similar in function to ICD-10 codes and are widely used in medical settings. CPT includes three categories of codes: five-digit codes for specific procedures or services, alphanumeric codes for quality tracking, and provisional codes for new procedures or services, such as remote patient monitoring. These categories make CPT codes well-suited for documenting and billing new healthcare solutions.

HCPCS Level II
The Healthcare Common Procedural Coding System (HCPCS), based on CPT, includes both clinical services provided by physicians and non-clinical services, such as pharmacy services, ambulance calls, and more.

How To Implement Medical Coding Systems?

Implementing a custom medical coding solution in your practice requires strategic planning, resource management, and continuous monitoring. Here are some steps to guide you toward a successful implementation:

Step 1: Assess Practice Needs
Begin by evaluating the specific needs and requirements of your practice, such as size, specialties, and patient volume. This assessment will help you decide on the most suitable approach for coding—whether outsourced, in-house, or a mix of both.

Step 2: Identify Necessary Coding Resources
Regardless of the approach, ensure you have the essential coding resources in place. These may include certified coders, coding manuals and software, coding guidelines, electronic health record (EHR) systems, and any additional resources to support accurate and efficient coding.

Step 3: Implement an EHR System
Transitioning to an electronic health record (EHR) system can streamline the coding process significantly. EHR systems enhance accuracy and efficiency by providing easy access to standardized code sets, patient records, and integrated coding software, reducing errors and improving patient care coordination and data exchange.

Step 4: Develop Coding Workflows
Creating standardized coding workflows promotes efficiency and consistency. Define guidelines for code assignment, claim submission, documentation review, and denied-claim follow-ups. Assign clear roles and responsibilities, and establish a quality assurance process to catch and address compliance issues or coding errors early.

Step 5: Monitor Compliance and Performance
Ensure compliance with regulatory standards, such as HIPAA, and regularly monitor the performance of your coding team. Conduct internal audits to identify coding errors, potential risks, and patterns of inaccuracy, enabling timely corrective actions and improved compliance.

Step 6: Stay Informed on Coding Updates
Medical coding guidelines frequently change, so staying informed about updates is essential. Participate in coding webinars, subscribe to coding newsletters, and connect with coding professionals to stay current and adapt quickly to new standards.

Step 7: Provide Ongoing Staff Training
Medical coding is a specialized field requiring continuous training. Regular training sessions for physicians, coders, billers, and other related staff will ensure that everyone stays up-to-date on the latest coding guidelines and regulations, reducing the risk of errors and claim denials.

Key Features of Medical Coding Systems

Medical billing and coding are complicated processes. But with medical coding and billing software, the processes turn simple and claims approval rates increase over time. If you’re planning to invest in clinical coding systems in healthcare, you need to ensure that the software includes some key features:

Code Selection
There are numerous medical coding software options available, including customized solutions. The key function of this software is to ensure accurate code selection. Entering the wrong code can result in significant financial losses for the provider. Medical coding software should seamlessly facilitate code selection from systems like CPT, ICD, or HCPCS. Additionally, integrating automated healthcare solutions can further streamline the coding process, improving efficiency and accuracy.

Editing
A recent study reveals that 16% of claim rejections stem from unaddressed queries. Coding errors, lack of verification, and missing information are common causes for denials. To avoid these issues, it’s crucial to proofread and double-check codes and compliance details. However, medical coding software eliminates much of the manual review process by incorporating editing features, helping coders minimize errors and reduce the likelihood of rejections.

User-Friendly Interface
Automated medical coding software should offer an intuitive, user-friendly interface that allows coding professionals to easily navigate and access key functions, features, and tools. Clear workflows, well-organized menu structures, and logically arranged layouts contribute to a smoother user experience, enabling coders to work more efficiently and accurately.

Challenges in Implementing Medical Coding Systems

While the demand for quality software is quite high, some healthcare organizations have limited resources. The development and implementation of medical coding systems often encounter some real-time challenges. Some of these challenges are-