Chapter 2 Billing and Coding for Health ServicesLEARNING OBJEC.docx

Chapter 2 Billing and Coding for Health Services
LEARNING OBJECTIVES
After studying this chapter, you should be able to do the
following:
· 1. Describe the revenue cycle for healthcare firms.
· 2. Understand the role of coding information in healthcare
organizations in claim generation.
· 3. Define the basic characteristics of charge masters.
· 4. Define the two major bill types used in healthcare firms.
· 5. Appreciate the role of claims editing in the bill submission
process.
REAL-WORLD SCENARIO
Riley Ilene, the Chief Financial Officer of Campbell Hospital,
was concerned by the reduction in revenue during the last 3
months. The revenue reduction was most pronounced in the
outpatient arena and represented a 15% reduction from prior-
year levels. Loss of this revenue had eroded Campbell’s already
thin operating margins, and the hospital was now operating with
losses.
Riley’s first thought was that volume may be down from prior-
year levels. She asked her controller, Michael Dean, to report
on comparative volumes for last year and this year. Michael’s
report showed that total numbers of outpatient visits were
actually above last year. Furthermore, the increases in volumes
appeared relatively uniform across all product line groupings.
Riley then directed Michael to review “Revenue and Usage”
summaries for the current year and last year. A revenue and
usage summary would show the quantity of items billed by
charge code and payer. The summaries would also break out the
volumes by inpatient and outpatient areas.
After reviewing these data Michael reported back to Riley with
some startling news. Volumes for several procedures in the
hospital’s “charge master” were well below prior-year levels.

Specifically, the numbers of drug administration codes that are
reported when an injectable or infusible drug is administered
were well below prior-year levels. This was surprising because
the number of injectable and infusible drugs had actually
increased.
Riley Ilene thought she had discovered the problem and
reported back to her CEO, Meredith Lynn. Meredith, however,
asked Riley whether this could have caused the revenue
reduction. Meredith believed that a heavy percentage of the
hospital’s payment was related to either case payment for
inpatients or APC (ambulatory patient classification) groups for
outpatients. Meredith believed that these bundled payments
would not be impacted by a failure to document the drug
administration procedures.
Riley said that this was a good point and she would do some
additional research and report back to Meredith. Riley found
that Medicare provides separate payment for the drug
administration procedure when performed in outpatient visits.
The average loss for the undocumented procedure codes
appeared to average about $130 per occurrence. Riley also
found that many of their commercial payers paid on a discount
from billed charge basis. Failure to report these procedures for
these payers would result in lost revenue. The only remaining
task was to discover why charges for drug administration
procedures for outpatient procedures were not being recorded.
LEARNING OBJECTIVE 1
Describe the revenue cycle for healthcare firms.
Healthcare firms are for the most part business-oriented
organizations. Their ultimate financial survival depends on a
consistent and recurring flow of funds from the services they
provide to patients. Without an adequate stream of revenue
these firms would be forced to cease operations. In this regard,
healthcare firms are similar to most business entities that sell
products or services in our economy. Figure 2–1 depicts the
stages involved in the revenue cycle for a healthcare firm. The
critical stages in the revenue cycle for healthcare firms are the

provision and documentation of services to the patient, the
generation of charges for those services, the preparation of a
bill or claim, the submission of the bill or claim to the
respective payer, and the collection of payment.
Figure 2-1 Revenue Cycle
A simple review of the six stages of the revenue cycle in Figure
2–1 hides the significant degree of complexity involved in
revenue generation for healthcare providers. No other industry
in our nation’s economy experiences the same level of billing
complexity that most healthcare firms face. Part of this
complexity is related to the nature and importance of the
services provided. Regulation is also a factor that further
complicates documentation and billing for healthcare services.
Finally, the existence of different payment methods and rates
for multiple payers further complicates the revenue cycle for
most healthcare firms. Payment complexity is addressed
in Chapter 3.
Understand the role of coding information in healthcare
organizations in claim generation.
GENERATING HEALTHCARE CLAIMS
Figure 2–2 provides more detail to the steps and processes
involved in the actual generation of a health-care bill or claim.
The process and steps mirror those in Figure 2–1 except
additional detail unique to health-care firms is included. The
process often begins with the collection of information about
the patient before the delivery of services in the patient
registration function. Information about the patient, including
address, date of birth, and insurance data, is collected to
facilitate bill preparation after services are provided. Once
services have been provided, data from that encounter(s) flow
into two areas: medical documentation and charge capture.
Figure 2-2 Detailed Revenue Cycle
Although the primary purpose of the data accumulated in the

medical record may be related to clinical decision making, a
substantial proportion of the information may also be linked to
billing. For example, the assignment of diagnosis and procedure
codes within the medical record by physicians plays a key role
in diagnosis-related group (DRG) assignment. Many healthcare
payers provide payment for inpatient care based on DRG
assignment. Data in the medical record are also the primary
source for documenting the provision of services. For example,
if a patient’s bill listed a series of drugs used by the patient but
the medical record did not show those drugs as being used, the
claim would not be supported. The primary linkage between the
claim and the medical record is related to the documentation of
specific services provided and their reporting in a series of
clinical codes. We explore the categories of coding and their
importance to billing shortly.
Data from the provision of services also flow directly to billing
through the capture of charges. The posting of charges to a
patient’s account is usually accomplished through the issuance
and collection of “charge slips” in a manual mode or through
direct order entry or bar code readers in an automated system.
The critical link here is the firm’s price list, often referred to as
its “charge master” or charge description master (CdM). The
CDM is simply a list of all items for which the firm has
established specific prices. In a hospital setting it is not unusual
to find more than 20,000 items on its charge master.
Information from the medical record and the charge master then
flow into the actual claim. For most healthcare firms there are
two basic categories of claims: the Uniform Bill 2004 (UB-04)
and the Centers for Medicare & Medicaid Services (CMS) 1500.
The UB-04 is the claim form used for most hospitals to report
claims for both inpatient and outpatient services. The CMS-
1500 is used primarily for physician and professional claims.
Appendix 2–A provides samples of these two claim forms.
The final step before actual claim submission is claims editing.
Although this step may not be performed by all healthcare
firms, it is a critical step for many. In this editing process

several key areas are reviewed. First, does the claim have
enough information to trigger payment by the patient’s payer?
For example, perhaps the claim is missing the patient’s social
security number or healthcare plan identification number.
Second, does the claim meet logical standards and is it
complete? For example, a claim may have a charge for
laboratory panel but no charge for a blood draw to collect the
sample. Editing is critical to accurate and timely payment by
third-party payers.
REGISTRATION
In most cases a patient or their representative provides a basic
set of information regarding the patient before the actual
delivery of services. In a physician’s office this may be done
just before medical service performance. For an elective
hospital inpatient admission, it may be done a week or more
before admission. A number of clinical and financial sets of
information are collected at this point. From the financial
perspective, three activities are especially important in the
billing and collection process.
Perhaps the most important activity is insuranceverification. If
the patient has indicated they have third-party insurance
coverage, it is important to have this coverage verified from the
payer. The patient may also have secondary coverage from
another health plan. Verification of that coverage is also critical
to accurate and timely billing. The critical piece of information
to collect from the patient in this regard is their health plan
identification number, which may sometimes be their social
security number. Queries to the health plan before service can
validate the type of coverage provided by the health plan and
the eligibility of the patient for the scheduled service. In
today’s current environment insurance verification is often done
online. Sometimes prior approval for elective services is
required by the health plan before a claim can be submitted.
This prior verification is often referred to as precertification.
Information regarding coverage for large governmental
programs such as Medicare and Medicaid is not often needed

because the benefit structure is standardized. It is important,
however, to verify the existence of current coverage.
The second activity in registration is often related to the
computation of copayment or deductible provisions that may be
applicable for the patient. Once insurance coverage has been
determined, it is usually possible to calculate the required
amount that may still be due from the patient. For example, a
Medicare patient without supplemental coverage may report to a
hospital for a scheduled computed tomography. It is possible for
the registration staff to calculate the amount of copayment due
by the patient. The registration staff can then advise the patient
regarding the amount of payment due and try to make
arrangements for payment at the point of service.
The third activity in this registration process relates to financial
counseling. Patients who have no coverage may be eligible for
some discount through the healthcare firm’s charity care policy.
Any residual that may still be due can be discussed with the
patient, and financing may be arranged before the point of
service. It is also possible that an uninsured patient may be
eligible for some governmental programs, especially Medicaid.
Staff at the healthcare firm can advise the patient regarding
eligibility and help them to complete the necessary documents
required for coverage.
MEDICAL RECORD AND CODING
Information regarding the services provided to the patient is
recorded in the patient’s medical record. Critical pieces of
information contained in that record are used in the billing
process and are communicated to the payers to trigger payment.
The Health Insurance Portability and Accountability Act
(HIPAA) of 1996 designated two specific coding systems to be
used in reporting to both public and private payers:
· 1. International Classification of Diseases, 9th
revision, Clinical Modification (ICD-9-CM)
· 2. Healthcare Common Procedure Coding System (HCPCS)
HIPAA requires that two categories of information be reported
to payers: diagnosis codes and procedure codes. The iCd-9-

CM has sets of codes that provide information for both
diagnoses and procedures. A 10th revision to ICD is scheduled
to be adopted in the United States in 2013.
The HCPCS provides information in the procedure area but does
not provide information regarding diagnoses. HIPAA therefore
requires that ICD-9 codes be used for diagnosis reporting for all
healthcare providers, including hospitals and physicians. ICD-9
procedure codes are required for procedure reporting for
hospital inpatients, whereas HCPCS codes are used for
procedure reporting by hospitals for outpatient services and also
by physicians (Table 2–1).
Table 2-1 HIPAA-Designated Coding
Inpatient
Outpatient
Provider
Diagnosis
Procedure
Diagnosis
Procedure
Physician
ICD–9–CM
CPT
ICD–9–CM
CPT
Facility
ICD–9–CM
ICD–9–CM
ICD–9–CM
HCPCS (CPT and HCPCS Level II)
ICD-9 diagnosis codes are composed of three digits that may be
followed by a decimal point with two additional digits. For
example, all ICD-9 codes that start with 428 refer to the
primary diagnosis of heart failure. Additional digits after 428

further specify the patient’s exact condition. For example, 428.1
refers to left heart failure. Table 2–2 provides a listing of the
top 10 inpatient diagnoses reported by Medicare in Fiscal Year
2008.
Table 2-2 2008 Public Data: Primary Diagnosis Frequency
Dx1
Definition
Frequency
% of Total
486
Pneumonia, Organism Unspecified
430,535
3.7%
414.01
Coronary Atherosclerosis of Native Coronary Artery
365,228
3.2%
428.0
Congestive Heart Failure
338,746
2.9%
491.21
Obstructive Chronic Bronchitis, With Acute Exacerbation
285,152
2.5%
038.9
Unspecified Septicemia
264,325
2.3%
599.0
Urinary Tract Infection, Site Not Specified
240,731
2.1%
584.9
Acute Renal Failure, Unspecified
226,539

2.0%
427.31
Atrial Fibrillation
220,171
1.9%
410.71
Subendocardial Infarction, Initial Episode of Care
213,917
1.9%
715.36
Osteoarthrosis, Localized, Not Specified Whether Primary or
Secondary, Involving Lower Leg.
191,866
1.7%
Sourc:e Cleverley & Associates, 2010
ICD-9 procedure codes are used to report hospital inpatient
procedures. These codes may be up to four digits in length, with
a decimal point following the first two digits. For example, a
code with 37 as the first two digits would refer to procedures on
the heart and pericardium. A code of 37.23 would refer to a
combined right and left heart cardiac catheterization. Table 2–
3 shows a listing of the top 10 inpatient ICD-9 procedure codes
reported by Medicare in Fiscal Year 2008.
Table 2-3 2008 Public Data: Primary Procedure Frequency
Px1
Definition
Frequency
% of Total
9904
Packed Cell Transfusion
333,161
4.8%
00.66
PTCA or Coronary Athererectomy
298,464
4.3%

81.54
Total Knee Replacement
278,443
4.0%
38.93
Venous Cath NEC
265,661
3.8%
39.95
Hemodialysis
230,754
3.3%
45.16
EGD With Closed Biopsy
201,288
2.9%
37.22
Left Heart Cardiac Cath
200,616
2.9%
88.72
Dx Ultrasound-Heart
129,105
1.9%
96.71
Cont Mech Vent < 96 Hrs
125,010
1.8%
81.51
Total Hip Replacement
119,074
1.7%
Source: Cleverley & Associates, 2010.
ICD-9 diagnosis and procedure codes are very important in the
assignment of a DRG. DRG payment is widely used by many
payers, especially Medicare. Coding therefore has a critical link

to provider payment. Table 2–4 provides a list of the top 10
DRGs reported by Medicare in Fiscal Year 2008.
Table 2-4 2008 Public Data: DRG Frequency
DRG
Definition
Frequency
% of Total
470
Major joint replacement or reattachment of lower extremity w/o
MCC
422,105
3.6%
871
Septicemia w/o MV 96+ hours w MCC
275,846
2.4%
392
Esophagitis, gastroenteritis, and miscellaneous digestive
disorders w/o MCC
251,442
2.2%
291
Heart failure and shock w MCC
217,600
1.9%
194
Simple pneumonia and pleurisy w CC
217,319
1.9%
292
Heart failure and shock w CC
209,590
1.8%
313
Chest pain
197,140

1.7%
690
Kidney and urinary tract infections w/o MCC
196,011
1.7%
641
Nutritional and miscellaneous metabolic disorders w/o MCC
188,261
1.6%
312
Syncope and collapse
170,386
1.5%
HCPCS codes are used for reporting procedures by physicians
for both inpatient and outpatient procedures. HCPCS codes are
also used by facilities for reporting outpatient procedures;
however, they use ICD-9 procedure codes for reporting
inpatient procedures. There are two tiers used in HCPCS
coding, Level I and Level II. Level I codes are referred to as
current procedure terminology (CPT) codes that have been
developed and maintained by the American Medical
Association. Level I and CPT are used interchangeably to
describe these sets of codes. Six main categories of CPT codes
are currently used:
· • Evaluation & Management (99201 to 99499)
· • Anesthesia (01000 to 01999)
· • Surgery (10021 to 69979)
· • Radiology (70010 to 79999)
· • Pathology and Laboratory (80047 to 89398)
· • Medicine (90281 to 99607)
The five-digit CPT code may also contain a “modifier” that is a
two-digit numeric or alphanumeric code that may provide
additional information essential to process a claim. For
example, modifier 91 is used to indicate that a laboratory
procedure was repeated. Table 2–5 provides a list of the top 10

hospital outpatient CPT codes reported to Medicare in Fiscal
Year 2008.
Table 2-5 2008 Public Data: CPT Frequency
CPT
Definition
Frequency
% of Total
36415
Drawing blood
35,458,489
8.0%
85025
Automated hemogram
21,717,488
4.9%
80053
Comprehensive metabolic panel
15,692,752
3.6%
97110
Therapeutic exercises
15,422,938
3.5%
85610
Prothrombin time
15,334,616
3.5%
80048
Metabolic panel total Calcium
11,164,798
2.5%
80061
Lipid panel
9,324,755
2.1%
93005

Electrocardiogram, tracing
7,542,177
1.7%
84443
Assay thyroid-stimulating hormone
6,807,786
1.5%
71020
Chest x-ray
5,295,099
1.2%
Level II HCPCS codes were developed by CMS to report
services, supplies, or procedures that were not groups within the
Level II HCPCS codes: permanent and temporary. Permanent
codes are five-digit codes that begin with an alpha
character. Table 2–6 provides a list of the top 10 Level II
permanent HCPCS codes reported to Medicare in Fiscal Year
2008 for hospital outpatients.
Table 2-6 2008 Public Data: Level II (Permanent) Frequency
Level II (Permanent)
Definition
Frequency
% of Total
J0878
Daptomycin injection
21,888,295
9.9%
J0881
Darbepoetin alfa, injection, non-ESRD, 1 mcg
12,766,223
5.8%
J1756
Iron sucrose injection
11,503,369
5.2%

J9263
Oxaliplatin injection, 0.5 mg
8,718,047
3.9%
J2405
Ondansetron HCl injection, 1 mg
8,008,488
3.6%
A0425
Ground mileage
7,929,252
3.6%
A9579
Gadolinium-based MR contrast NOS, 1 ml
7,389,759
3.3%
J2250
Injection midazolam hydrochloride
7,370,339
3.3%
J0583
Bivalirudin
6,486,356
2.9%
J0885
Epoetin alfa, non-ESRD, injection, 1,000 units
6,391,367
2.9%
Level II temporary HCPCS codes are used to meet a temporary
need for a new code. These codes are also five-digit codes that
begin with an alpha character. These codes can exist for a long
time, but they may be replaced with a permanent code.Table 2–
7 provides a list of the top 10 Level II temporary HCPCS codes
reported to Medicare in Fiscal Year 2008 for hospital
outpatients.

Table 2-7 2008 Public Data: Level II (Temporary) Frequency
Level II (Temporary)
Definition
Frequency
% of Total
Q9967
LOCM 300–399 mg/ml iodine, 1 ml
45,516,823
54.2%
G0378
Hospital observation per
16,595,696
19.7%
Q9966
4,208,007
5.0%
Q9965
2,692,423
3.2%
G0202
Screening mammography
1,902,534
2.3%
Q9963
HOCM 350–399 mg/ml iodine, 1 ml
1,803,358
2.1%
Q9958
HOCM <=149 mg/ml iodine, 1 ml
1,166,681
1.4%
G0283
Electrical stimulation other than wound
1,145,531

1.4%
G0103
PSA screening
1,018,693
1.2%
G0008
Administer influenza virus vaccine
776,491
0.9%
HCPCS/CPT codes have a significant effect on provider
payment for both facilities and physicians. CPT codes are often
linked to fee schedules for many physicians by a large number
of payers, which makes coding by medical groups especially
critical. CPT and Level II HCPCS codes are also used by
Medicare to define payment for many hospital outpatient
services in the ambulatory patient classification (APC) system.
Define the basic characteristics of charge masters.
CHARGE ENTRY AND CHARGE MASTER
Performing actual medical services is the lifeblood of a
healthcare firm’s revenue cycle. Without the provision of
services there is no revenue, but it is imperative that charges for
those services are captured. A service that is performed but not
billed does not produce revenue. The three greatest concerns in
billing are:
· • Capture of charges for services performed
· • Incorrect billing
· • Billing late charges
Charge capture is usually accomplished in one of two ways. For
a number of providers actual paper documents or charge slips
are used to identify services performed.
These charge slips are then posted to a patient’s account in a
batch-processing mode by data processing or the business
office. Alternatively, an order entry system could be used that
may involve direct entry of charges to the patient’s account

through a computer terminal. Scanning of bar codes may also be
used.
Sometimes healthcare firms may use a “charge explosion”
system to better organize charge entry for selective services.
For example, a specific type of surgery may routinely require a
standardized set of supplies. Rather than entering all these
supplies, one code may be used that then explodes into the list
of supply codes used for that surgery.
The key link between charge capture and the billing process is
the “charge code” that is reflected in the order entry system or
the charge slips and also represented on the firm’s charge
master (also known as CDM). There is a unique charge code for
each service procedure, supply item, or drug in the CDM. For
hospitals, some charge masters can have up to 100,000 items.
Every charge master usually has the following six common
elements:
· • Charge code
· • Item description
· • Department number
· • Charge/price
· • Revenue code
· • CPT/HCPCS code
Table 2–8 provides a sample of selected codes in a hospital’s
charge master. The first column in the charge master is the
charge code or item code for the specific service or product to
be billed. The second column provides a short description of the
specific item code. For example, item code 33023001 is “Daily
Care Fourth North.” The third column is the department
number and may reference a specific department within the firm
that might also relate to their accounting system or general
ledger. The fourth column is the current price or standard price
for the service or product. In some cases there may be multiple
prices for a given code. For example, a hospital might price a
laboratory procedure at one rate for inpatient care and at
another for outpatient care. These differences may reflect
differences in cost or competitive price pressure. Competition

for outpatient laboratory procedures may be intense, and the
hospital may believe that it must discount its price if it wants to
maintain its market share for outpatient laboratory services.
Table 2-8 Partial Chargemaster File
Item Code
Item Description
Dept Num
Standard Price ($)
Revenue Code
HCPCS
3023001
DAILY CARE FOURTH NORTH
13030
665.50
111
3120000
DAILY CARE ICU
13120
1,172.50
200
4156159
MINERAL OIL 30ML
13190
11.50
250
4400206
SINGLE TOWEL
14430
2.25
270
4440302
HEP C ANTIBODIES-0288

14440
53.50
300
86803
4470220
HAND XRAY-0183
14470
102.50
320
73130
4472538
C/T PELVIS W & W/O ENHANCEMENT
14302
1,069.75
350
72194
4416000
LASIK SURGERY—PER EYE
13190
2,105.25
360
66999
4416013
O.R. MINOR CHARGE—0.5 HOUR
13190
556.75
360
4416014
O.R. MINOR CHARGE—1 HOUR
13190
770.75
360
4416015
O.R. MINOR CHARGE—1.5 HOURS

13190
983.00
360
4416016
O.R. MINOR CHARGE—2 HOURS
13190
1,197.25
360
4416017
O.R. MINOR CHARGE—2.5 HOURS
13190
1,409.25
360
4416018
O.R. MINOR CHARGE—3 HOURS
13190
1,622.25
360
4520013
ANESTHESIA MINOR—0.5 HOUR
14520
110.25
370
4520014
ANESTHESIA MINOR—1 HOUR
14520
151.25
370
4520015
ANESTHESIA MINOR—1.5 HOURS

14520
192.75
370
4520016
ANESTHESIA MINOR—2 HOURS
14520
233.00
370
4520017
ANESTHESIA MINOR—2.5 HOURS
14520
274.75
370
4520018
ANESTHESIA MINOR—3 HOURS
14520
317.00
370
3167020
BLOOD TRANSFUSION
13160
303.25
391
36430
4532057
MASSAGE, 8 MINS
14532
21.00
420
97124
3050717
EVALUATION—OT

13050
130.00
430
97003
3160001
EMERG DEPT OBSERVATION 0–3HRS
13160
241.25
450
99218
3160002
13160
406.00
450
99218
3160003
13160
492.00
450
99219
3160004
EMERG DEPT OBSERV. OVER 12 HRS
13160
592.75
450
99220
4465350
OUTPAT VISIT LEVEL 1 (NEW)
14465
78.50
510
99201
4465351

14465
92.25
510
99202
4465352
14465
112.50
510
99203
4465353
14465
159.75
510
99204
4465354
14465
$209.00
510
99205
The fifth column is the revenue code. Revenue codes are a
required field in any hospital claim that is submitted on a UB-
04. The current categories used have been mandated by CMS,
and the current list is presented in Table 2–9. The last column
included in many charge masters is the field for the HCPCS
code. In our sample charge master not all entries have an
HCPCS code. For example, the first two entries that relate to
room and board charges do not have an HCPCS code. Also
notice that surgery and anesthesia do not have an HCPCS code.
Most hospitals bill for a great majority of their surgeries on a
time/level basis. Someone from Health Information Management
assigns a CPT code or an ICD-9 procedure code to the
procedure at a later point in time before billing. Where an
HCPCS code is present in the charge master, less time is

required in coding claims at the back end, but care needs to be
taken that appropriate charge codes are used at charge entry.
Table 2-9 Revenue Code Categories
Accommodation Revenue Codes
010X
All-Inclusive Rate
011X
R&B–Private (Medical or General)
012X
R&B–Semiprivate (2 Beds) (Medical or General)
013X
Semiprivate (3 and 4 Beds)
014X
Private (Deluxe)
015X
R&B–Ward (Medical or General)
016X
Other R&B
017X
Nursery
018X
LOA
019X
Subacute Care
020X
Intensive Care
021X
Coronary Care
Ancillary Services Revenue Codes
022X
Special Charges
023X
Incremental Nursing Care Rate
024X

All-Inclusive Ancillary
025X
Pharmacy (See also 063X, an extension of 025X)
026X
IV Therapy
027X
Medical/Surgical Supplies and Devices (See also 062X, an
extension of 027X)
028X
Oncology
029X
DME (Other than Renal)
030X
Laboratory
031X
Laboratory Pathological
032X
Radiology–Diagnostic
033X
Radiology–Therapeutic and/or Chemotherapy Administration
034X
Nuclear Medicine
035X
Computed Tomographic TCPScans
036X
Operating Room Services
037X
Anesthesia
038X
Blood
039X
Blood and Blood Component Administration, Processing and
Storage
040X
Other Imaging Services
041X

Respiratory Services
042X
Physical Therapy
043X
Occupational Therapy
044X
Speech-Language Pathology
045X
Emergency Room
046X
Pulmonary Function
047X
Audiology
048X
Cardiology
049X
Ambulatory Surgical Care
050X
Outpatient Services
051X
Clinic
052X
Freestanding Clinic
053X
Osteopathic Services
054X
Ambulance
055X
Skilled Nursing
056X
Medical Social Services
057X
Home Health—Home Health Aide
058X
Home Health—Other Visits
059X

Home Health—Units of Service
060X
Oxygen (Home Health)
061X
Magnetic Resonance Technology (MRT)
062X
Medical/Surgical Supplies (Extension of 027X)
063X
Pharmacy—Extension of 025X
064X
Home IV Therapy Services
065X
Hospice Service
066X
Respite Care
067X
Outpatient Special Residence Charges
068X
Trauma Response
069X
Not Assigned
070X
Cast Room
071X
Recovery Room
072X
Labor Room/Delivery
073X
EKG/ECG (Electrocardiogram)
074X
EEG (Electroencephalogram)
075X
Gastrointestinal Services
076X
Treatment or Observation Room
077X

Preventive Care Services
078X
Telemedicine
079X
Extra-Corporeal Shock Wave Therapy
080X
Inpatient Renal Dialysis
081X
Acquisition of Body Components
082X
Hemodialysis—Outpatient or Home
083X
Peritoneal Dialysis—Outpatient or Horne
084X
CAPD—Outpatient or Home
085X
CCPD—Outpatient or Home
086X
Reserved for Dialysis (National Assignment)
087X
Reserved for Dialysis (State Assignment)
088X
Miscellaneous Dialysis
089X
Reserved for National Assignment
090X
Behavioral Health Treatments/Services (See also 091X, an
extension of 090X)
091X
Behavioral Health Treatments/Services—Extension of 090X
092X
Other Diagnostic Services
093X
Medical Rehabilitation Day Program
094X
Other Therapeutic Services

095X
Other Therapeutic Services—Extension of 094X
096X
Professional Fees (See also 097X and 098X)
097X
Professional Fees (Extension of 096X)
098X
Professional Fees (Extension of 096X and 097X)
099X
Patient Convenience Items
100X
Behavioral Health Accommodations
101X–209X
210X
Alternative Therapy Services
211X–300X
310X
Adult Care
311X–999X
Direct coding of HCPCS codes into the charge master is
referred to as static coding or “hard coding.” When codes are
left off the charge master and entered later by Health
Information Management personnel, the process is referred to
as dynamic coding or “soft coding.” Many ancillary procedures
such as laboratory or radiology procedures can be coded
statically; that is, HCPCS codes can be placed in the charge
master. In contrast, many surgery codes are dynamically coded
and Health Information Management staff will assign the
appropriate HCPCS code after the procedure.
Define the two major bill types used in healthcare firms.
BILLING AND CLAIMS PREPARATION
For most healthcare providers medical claims fall into one of

two types: CMS-1500 and CMS-1450 (UB-04). The CMS-1500
form is used by noninstitutional providers and suppliers to
submit claims to Medicare and many other payers. The HCFA-
1450 or UB-04 is used by institutional providers to submit
claims to Medicare and most other payers. Sample copies of
both a CMS-1500 and a UB-04 are shown in Appendix 2–A.
Most claims in today’s environment are submitted in an
electronic format. Usually, claims are submitted directly to the
payer or indirectly to a “clearinghouse” where the claims are
grouped and then sent to the appropriate payer. The HIPAA
administrative simplification provisions direct the Secretary of
Health and Human Services to adopt standards for
administrative transactions, code sets, and identifiers as well as
standards for protecting the security and privacy of health data.
After October 16, 2003, all providers who were not small
providers (institutional organizations with fewer than 25 full-
time employees or physicians with fewer than 10 full-time
employees) had to send all claims electronically in the HIPAA
format.
The electronic format required under HIPAA is 837I for the UB-
04 and 837P for the CMS-1500. These formats specify both the
nature of data exchange and the required data fields. There have
been a few additional data elements included in the 837I and
837P protocols that were not in the current CMS-1500 and UB-
04 claim forms.
Two primary payment grouping algorithms are DRGs and APCs,
both of which are used by Medicare for hospital payment and
also many commercial payers. Both DRGs and APCs are
assigned based on data in the UB-04. A DRG is often assigned
depending on values found in the UB-04 for ICD-9 procedure
codes and ICD-9 diagnosis codes. Surgical procedures require
an ICD-9 procedure code and may also require an ICD-9
diagnosis code. A medical DRG requires one or more ICD-9
diagnosis codes. Note that in the UB-04 form in Appendix 2–A
there are spaces allowed for a principal diagnosis code and up
to eight additional diagnosis codes. There is also a field for the

principal procedure, and up to five additional procedures may
be coded. Many diagnosis and procedure codes may group to
more than one DRG. A complete review of the DRG title is
necessary to understand the correct DRG assignment. To
illustrate this concept, let’s examine the following related
DRGs:

Chapter 2 Billing and Coding for Health ServicesLEARNING OBJEC.docx

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