Medical Codes for Beginners

Medical codes provide the foundation for recording medical information; they provide common vocabulary used by all participants in the healthcare space.

We’ll be focusing on codes in the context of medical billing. Still, codes also play a role in a clinical setting, a topic for another post.

You can find many examples of healthcare claims on our website. Go to the demo version of our Claim Insight product and select any claim to view its codes and all the other details.

A healthcare claim always contains codes documenting diagnosis and so-called “services,” which usually refers to medical procedures. A claim can also contain codes for administered drugs, medical equipment, and other related items.

For example, we can use the code 73562 for an X-ray of a knee, which means:

Radiologic examination, knee; 3 views

Note how specific is 73562. It’s an X-ray of a knee with three views. The code will be different for a different type of X-ray or for an X-ray of a different body part.

If you’re curious, you can find all the knee X-ray-related codes using our code lookup tool. Select “Procedure” in the drop-down, and type “knee X ray”.

All codes are standardized and predefined. If a provider wants to perform some “custom” X-ray and there is no code for it, they will not be able to bill for this service.

These predefined lists of codes (code sets) are created and maintained by various organizations, mostly government-based. In the US, Centers for Medicare & Medicaid Services (CMS) maintains several critical code sets.

Where Does It Hurt: Diagnosis Codes

A claim from a medical provider must contain a “diagnosis code,” a.k.a. “ICD-10.”

A diagnosis in the claim’s context is more of a “problem statement” and not necessarily a medical conclusion identifying a disease or a root cause of the problem. It is a way for providers to explain why they performed medical procedures for this patient.

For example, a patient may come to see an orthopedic specialist with a complaint about knee pain. This may necessitate further tests, such as an X-ray.

The doctor’s office could use “M25.561, Pain in right knee” diagnosis code on their claim.

The diagnosis code set is called International Statistical Classification of Diseases and Related Health Problems (ICD).

Countries can have their flavors of ICD. In the US, this flavor is called ICD-10-CM, and it is managed by the CMS.

The number “10” points to the major version of the ICD code set; this is the current version used in the US, and it replaced version “9” in 2015.

The latest version of ICD is actually ICD-11, it went into effect in January 2022, but it is not in use in the US at the time of this writing.

ICD codes are widely used in medicine and healthcare outside healthcare claims. These codes provide the foundation for healthcare analytics, e.g., analysis of the prevalence of certain diseases or medical conditions (so-called morbidity) almost always relies on ICD codes.

Time to Act: Service (Procedure) Codes

Procedure codes specify what was done to address a medical problem. Each code indicates a “service” performed by a medical provider, and there is usually a charge associated with the code. Hence, the “fee-for-service” moniker is used to characterize the healthcare model in the US.

E.g., 73562 with the appropriate charge will be listed on a claim resulting from the visit to the orthopedic specialist.

Most likely, this will not be the only code on that claim. A provider will also include a code for an initial evaluation (so-called “Evaluation and Management” (E/M) code), such as 99212.

Coding rules could be quite complex. There are extensive guidelines on what codes should be used in what context. For example, here are the guidelines specifically on the usage of the E/M codes for orthopedics.

Procedure codes consist of several code sets governed by different organizations.

The most important one is called Current Procedural Terminology (CPT), and it is maintained by the American Medical Association (AMA).

The second biggest “contributor” to procedure codes is Healthcare Common Procedure Coding System (HCPCS) Level II maintained by CMS. The CPT code set is considered Level I.

HCPCS Level II complements CPT, and it is typically used in conjunction with CPT on the same claim. HCPCS Level II primarily encodes drugs, supplies, equipment, and various non-physician services. CPT (HCPCS Level I) deals with procedures performed by physicians.

For example, a provider can use “96372 Therapeutic, prophylactic, or diagnostic injection (specify substance or drug); subcutaneous or intramuscular” (Level I) and then “J3301 Injection, triamcinolone acetonide, not otherwise specified, 10 mg” (Level II) on the same claim.

You can view a complete claim example with these codes here (make sure to select the “Service Lines” tab to view procedures codes).

You can also navigate to our code lookup tool, select “Procedure,” and enter “HCPCS” in the search field to view all Level II procedures.

Note that in order to use CPT, it must be licensed from AMA. This is unlike most other code sets, such as ICD-10-CM and HCPCS Level II, that can be used freely without restrictions.

Another code set that is used to specify medical procedures is ICD-10-PCS. It contains codes specifically for hospital inpatient healthcare settings, mostly related to surgical procedures, e.g., “001U079 Bypass Spinal Canal to Fallopian Tube with Autologous Tissue Substitute, Open Approach”. This code set uses special conventions to encode body parts, the approach, the device, etc. Even though this code set is also maintained by CMS, it is completely separate and distinct from HCPCS Level II.

Yet another specialized code set is Code on Dental Procedures and Nomenclature (CDT) owned by ADA. It is used almost exclusively for so-called “dental” claims, represented by the 837D transaction.

A Bitter Pill to Swallow: NDC (drug) Codes

All drugs in the US are identified and reported using a unique, three-segment number called the National Drug Code (NDC). The three segments of the NDC identify the labeler (manufacturer), the product, and the commercial package size.

For example, one of the NDC codes for Tylenol is “50580-344-01”, which translates to “EXTRA STRENGTH TYLENOL COLD PLUS FLU MULTI-ACTION DAY (acetaminophen, pseudoephedrine hydrochloride, and dextromethorphan hydrobromide) tablet, film coated”.

You can search for an NDC code using our lookup tool, for example, you can see all the NDC product code variations for Tylenol here.

NDC codes are usually provided on medical claims in conjunction with the appropriate medical procedure, such as “J” or “S” procedure codes. Here is an example of a home infusion claim where NDC codes are used to provide details of drugs that were used during this treatment.

NDC codes are also widely used in the world of pharmacy claims. Pharmacy claims use a somewhat different format from claims from medical providers. We will cover this type of claim in a future post.

The Rest of the World

There are several other code sets used in medical claims.

Specifically, institutional claims (claims from hospitals) use so-called “revenue codes” to bill for their services. These codes essentially define where the service was provided, e.g., an emergency room, a private room, an intensive care unit and so on.

You can see all revenue codes here.

There are several other institutional code sets, such as occurrence codes, facility type (or place of service for professional claims) codes, and several others. You can find a complete list of institutional code sets here.

All these code sets are managed by National Uniform Billing Committee (NUBC) and copyrighted by the American Hospital Association.

In Conclusion

This post only scratches the surface of the topic of medical coding. Most of the coding’s complexity stems from numerous rules around the proper use of various codes and their combinations.

You can actually see some of these rules in our code lookup tool. For example, if you search for edit:gender you will see gender-specific procedures. The rules (a.k.a. “edits”) for each particular procedure or diagnosis can be seen in the code details popup.

If you’re in healthcare IT, managing all the different code sets and keeping them up to date could be challenging. Each code set is released in its own format, and the release frequency and release dates could be completely different.

Please sign up for new posts below if you want to learn more about medical codes, code set releases, and their file formats.

If you’d like to look “under the hood” to see how codes are specified using X12 EDI, please refer to this example.