(Not So) SECRET ways to decode insurance claims

April 1, 1998

Pharmaceutical Representative

A manged care update.

According to Maryland and Texas Medicare B carriers, more than 50% of all rejected or denied reimbursement claims are the result of incorrect use of diagnosis codes, procedure codes or billing units. This can be the cause of real frustration for your customers, who deal with dozens of insurance claims everyday. It can also affect how often your customers write prescriptions for your product. If you understand basic coding terminology and uses, you'll be better equipped to understand your customers' reimbursement issues. You'll also be able to help them resolve these issues quickly.

Your customers use several coding systems on a daily basis to consistently bill insurance companies for services provided to patients. They are: Health Care Financing Administration Common Procedure Coding System, National Drug Codes and Diagnosis Codes.

HCPCS codes

HCPCS (commonly pronounced "hick-picks") is the acronym for the Health Care Financing Administration Common Procedure Coding System.

The Health Care Financing Administration (sometimes abbreviated to HCFA) developed the HCPCS system in 1983 so that providers have a uniform and consistent method to bill for services, procedures and supplies. Today, it's the coding system used by most payers.

Providers use three levels of HCPCS codes to bill payers for their services.

Level I HCPCS: The American Medical Association created the Current Procedural Terminology - or CPT - coding system in 1966, when the Health Care Financing Administration initiated the Medicare and Medicaid programs.

Each year, effective Jan. 1, the American Medical Association updates the CPT codes with new code and description changes.

CPT codes are national five-digit codes with descriptive terms, or nomenclature, for reporting physician services. They are grouped into six sections, or ranges, that address specific types of service. One range includes evaluation and management codes, which are used to bill office visits, hospital visits and consultations. The remaining codes describe specific procedures, such as surgeries, lab tests and vaccinations.

Within each section, there are several categories of codes for different body parts, services or diagnoses.

Level II HCPCS: Level II codes were developed to report medical services and supplies not included in the CPT-coding system. These national codes are jointly maintained by the Health Care Financing Administration, the Blue Cross Blue Shield Association and the Health Insurance Association of America.

These codes begin with a letter, A through V, and are followed by 4 digits. They are grouped by type of service or supply.

Most Level II codes are used to report durable medical equipment, such as wheelchairs, oxygen equipment or drug pumps. The Health Care Financing Administration updates the Level II codes annually on the first of each year.

Most injectable drugs have also been assigned HCPCS level II codes. They begin with either the letter Q, which indicates a temporary code, or J which indicates a permanent code.

Each Level II code has a description, which specifies the service or product and defines the billing unit. These descriptions can be found in various coding manuals published by the American Medical Association, MediCode and other organizations.

For example, J2820 is the code for 50 mcg of an injection of Leukine® (sargramostim). J2820 is the code and 50 mcg is one billing unit. If a provider uses 500 mcg of Leukine, they need to bill for 10 units (10 x 50 mcg = 500 mcg). In order to receive appropriate reimbursement, it's important to bill the accurate number of units.

Level III HCPCS: Every Medicare carrier assigns and maintains their own Level III codes. Level III codes are always local. The codes begin with the letters W, X, Y or Z and are followed by 4 digits. Because the national Medicare physician fee schedule was developed in 1992, HCFA has reduced the number of local codes allowed, and they are relatively rare now.

Why are some products assigned local Level III codes instead of national ones? A product has to be on the market for several months before it can be assigned a national code. There may be a time, therefore, when payers have to process a high volume of claims for a new product that has not been assigned a national code. To facilitate the processing of these claims, payers assign a local Level III code - such as an X-code for an injectable drug - to the service or product. They then list the codes in newsletters and distribute the newsletters to their providers.

If payers don't receive a high volume of claims for a new product or service, they may not bother to assign it a Level III code. Because local codes override Level I and Level II codes, providers should be up to date on local codes assigned by the payers whom they bill.

National Drug Codes

The Food and Drug Administration assigns National Drug Codes to all drugs approved for marketing by the FDA. These codes, commonly referred to as NDC codes, have 11 digits. The first five digits identify the manufacturer, the next 4 digits identify the product and the last 2 digits indicate the size of the product.

Some payers require NDC codes to identify drugs billed by physicians offices. Most often, NDC codes are used for drugs billed by hospitals and pharmacists.

For example, Immunex manufactures one 500 mcg vial of Leukine® Liquid. Its NDC number is 58406-050-14. The code breaks down like this: Immunex is identified by 58406, Leukine® Liquid is identified by 050 and the 500 mcg vial is identified by 14.

Diagnosis codes

ICD-9-CM is the acronym for the International Classification of Diseases, 9th revision, Clinical Modification manual. Payers and providers frequently call this manual the ICD-9 manual.

These codes are used by providers and billers to report patient diagnoses in the medical record and to establish medical necessity with the payers. ICD-9 codes are updated annually by the Public Health Service with changes effective October 1 of each year.

ICD-9 codes are either 3, 4 or 5 digits. Examples of ICD-9 codes include:

185 Prostate Cancer

714.0 Rheumatoid Arthritis

402.01 Hypertension with Congestive Heart Failure

When using diagnosis codes, providers should always make sure they are coding the most specific digit listed in the ICD-9-CM manual. Although there can be decimals in the codes, it is important not to delete or add digits after the decimal. Making either error will result in a claim denial. Diagnoses listed on the claim form should reflect the patient's condition on the date of service being billed.

Why are the codes so important?

Many payers have developed medical necessity and coverage guidelines for services and products, including drugs. The guidelines usually include specific coding requirements, such as HCPCS codes, CPT codes and diagnosis codes.

These guidelines must be followed in order for your customers to obtain appropriate reimbursement. Payers often publish their medical necessity and coverage guidelines in local provider bulletins. Incorrectly coded products or services are not reimbursable.

Your customers can also use the various codes to estimate inventory and supply needs, or determine their costs for a particular service. For example, they can track the amount of a particular drug used to treat a specific diagnosis, or calculate the cost to treat a particular diagnosis.

When you visit your customers, don't forget to ask the billing office if they're having any reimbursement problems with your products. If they are, there's a good chance they are making simple billing errors you may be able to help correct. PR