ICD-10-CM: Data and Billing Basics
Medical Billing and the Reimbursement System
The U.S. federal government Title XVIII of the Social Security Act implemented the Medicare program in 1966. This program provides insurance coverage for older people and those who are disabled. Various prospective payment systems (PPSs) have also been established, allowing for payment of services based on a predetermined amount. Furthermore, commercial insurance coverage follows similar guidelines and rules as Medicare.
The CMS-1500 form is used for billing physician services provided in an outpatient setting. Medicare Part B services are reported using this form. Diagnosis codes are reported in filed location 21 on this form. These codes are linked to service/procedure codes, which are derived using the Current Procedural Terminology (CPT) and Healthcare Common Procedure Coding System (HCPCS). Procedure/service codes are reported in lines 1 through 6 of field location 24D.
The CMS-1450 form is used for submitting healthcare facility claims. Medicare Part A services are reported using this form. The ICD-10-CM diagnosis code for the admitting diagnosis is placed in the field location 69, and the main diagnosis code is placed in field location 67, with 67A through 67Q used for additional diagnoses. The ICD-10-PCS procedure code for the main procedure is reported in field location 74, and additional procedure codes are reported on filed locations 74A through 74E.
Inpatient Prospective Payment System
Each prospective payment system has its own way of using codes for reimbursement purposes. The CMS website is an excellent website for coders. Also, Medicare Conditions of Participation (CoPs) and Conditions for Coverage (CfCs) both provide standards that healthcare providers must meet in order to receive reimbursement for Medicare.
The inpatient prospective payment system (IPPS) is used for acute care hospital admissions. The payment rate is fixed based on the Medicare Severity-Diagnosis Related Groups (MS-DRGs), which identify the set payment amount based on the average cost of specified groupings of procedures and diagnoses. Each MS-DRG is associated with a standardized payment amount, which is based on the average resources used in the treatment of Medicare patients for those particular diagnoses and procedures.
The IPPS payment has two parts: the labor-related share and the non-labor share. The labor-related share is adjusted to the wage index of the facility's location to account for variation in labor costs. The calculated base payment rate is multiplied by the MS-DRG relative weight, accounting for the variance in the case mix of patients.
Uniform Hospital Discharge Data Set (UHDDS)
The Uniform Hospital Discharge Data Set (UHDDS) is a standard data set adopted by the federal government for collection of data for Medicare and Medicaid. Coders sometimes need to report some of the elements of UHDDS when they code. These elements enable coders to describe the patient, as well as the circumstances.
Date of birth
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Race and ethnicity
Type of admission
Principal and other diagnoses
Qualifier for other diagnoses
External cause-of-injury code
Birth weight of neonate
Procedures and dates
Disposition of the patient
Patient's expected source of payment
Outpatient Prospective Payment System
Outpatient Prospective Payment System (OPPS)
With the outpatient prospective payment system (OPPS), CPT and HCPCS codes are used to justify medical necessity. All hospital outpatient services are classified as ambulatory payment classifications (APCs), and each code for procedures or services is assigned an associated APC. A payment rate is assigned to each APC, and diagnoses are reported using the ICD-10-CM codes.
Other Prospective Payment Systems
The Resource-Based Relative Value Scale (RBRVS) physician fee schedule was implemented by Medicare in 1992. This payment system uses a relative value for physician services and is based on commonly used resources for each level of service. Associated with CPT codes are the values of work expense, practice expense, and professional liability insurance expense, which are calculated to determine payment.
The Home Health Prospective Payment System (HH PPS) was implemented by Medicare in 2000. It consists of various base payments, which are adjusted for care needs and patient health condition. HHPPS payments are given for each 60-day period of care. Also, the Outcome and Assessment Information Set (OASIS) instrument is used to document an assessment of the patient. The data from this assessment are used to determine the case-mix adjustment relative to standard payment. For patient classification related to clinical presentation, service utilization, and functional factors, there are 80 case-mix groups, which are referred to as Home Health Resource Groups (HHRGs).
Long-Term Care Hospital
Long-term care hospital prospective payment system (LTCH PPS) went into effect in 2002. This system is a diagnosis-related group patient classification system, which reflects variations in patient resources and costs. Long-term care diagnostic-related groups (LTC-DRGs) are the same DRGs used for IPPS with adjustments related to resources necessary to treat patients who are in long-term facilities. Payment adjustments are made based on area wage modifications, DRG weights, geographic classification, outliers, updates, and share adjustment.
Skilled Nursing Facilities
In 1998, the PPS for Medicare skilled nursing facility (SNF) services became effective. SNF PPS uses standard rates with adjustments for geographic location and case-mix. Resource utilization groups (RUGs) are associated with skilled nursing and therapy services. The SNF PPS data reflects the residents' functional capabilities.
Inpatient Rehabilitation Facilities
Inpatient rehabilitation facilities (IRFs) are reimbursed under the inpatient rehabilitation facility prospective payment system (IRF PPS). This system incorporates information from a patient assessment instrument and classifies patients based on their anticipated resource needs and clinical characteristics. Each IRF PPS group has a separate payment, adjusted for facility and case level.
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