What Is Medical Coding?

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Medical Coding; HCPCS; ICD-10-CM; ICD-10-PCS

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The medical coding systems currently used in the United States are ICD-10-CM/PCS and HCPCS (Level I CPT codes and Level II National Codes). These coding systems serve an important function for physician reimbursement, hospital payments, quality review, benchmarking measurement and the collection of general medical statistical data. Read more about each of these medical coding systems and their purposes below.  

What is HCPCS Medical Coding?

The Healthcare Common Procedure Coding System (HCPCS) is produced by the Centers for Medicare and Medicaid Services (CMS) and is used to report hospital outpatient procedures and physician services. The HCPCS code set is used by physicians, other health care professionals, and insurance programs.

HCPCS has two subsystems, Level I and Level II. Level I comprises Current Procedural Terminology® codes (HCPT), and it is maintained by the American Medical Association (AMA). It is a numeric coding system consisting of 5 numeric digits, and they are primarily used to identify medical services and procedures furnished by physicians and other health care professionals. They are often referred to as the CPT-4 codes.  

Level II codes consist of a letter followed by four numeric digits, and they identify products, supplies, and services not included in CPT, such as:

  • Ambulance services  
  • Durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) when used outside a physician’s office  

The HCPCS code set is updated annually.  

What is ICD-10-CM and ICD-10-PCS Medical Coding?

“ICD” stands for International Classification of Diseases, and the “10” represents the edition. There are two classifications: Clinical Modifications (CM) and the Procedure Coding System (PCS). Let’s start with the system that only contains diagnosis codes, ICD-10-CM. It was released by the World Health Organization in 1993 and was later modified by the leadership of the National Center for Health Statistics (NCHS) for use in the United States. ICD-10-CM was officially implemented in the United States in 2015. Finally, ICD-10-CM is a closed classification system: it provides one and only one place to classify each condition.

The other ICD-10 classification system is the Procedure Coding System, or ICD-10-PCS. ICD-10-PCS is not part of the World Health Organization’s classification. It was developed by 3M under contract to CMS and was officially implemented in the United States in 2015. ICD-10-PCS is used by hospitals to report inpatient procedures; it is not used in other health care settings. Like ICD-10-CM, ICD-10-PCS is a closed classification system providing one and only one place to classify each procedure. ICD-10-PCS is divided into 17 sections relating to the general type of procedure.  

The use of ICD-10-CM and ICD-10-PCS applies to all "Covered Entities," that is health plans, health care clearinghouses and health care providers, that transmit electronic health information in connection with the Health Insurance Portability and Accountability Act (HIPAA) transaction standards.

Both ICD-10-CM and ICD-10-PCS are updated annually.