How a health care service becomes a billing code, ctd.

A medical service will not get reimbursed by a public program or private insurer without a proper billing code. Where do these billing codes come from?

In a prior post, I wrote about Current Procedural Terminology (CPT) billing codes—which correspond to physician services—and the American Medical Association (AMA) committee that governs them. In it, I mentioned that Medicare’s Healthcare Common Procedure Coding System (HCPCS) is based in part on CPT codes. In particular level I HCPCS codes are CPT codes.

But there are level II and level III HCPCS codes too. What are they and where do they come from? Let’s dispense with the easy part first. Level III codes were discontinued at the end of 2003 and had corresponded to “specific programs and jurisdictions” of Medicaid programs, Medicare contractors, and private insurers. Since they don’t exist anymore, let’s move on.

Level II HCPCS codes are for non-physician services, including drugs, devices, medical supplies, ambulance services, and the like. Since these are not CPT codes, and the AMA governs CPT codes, who is in charge of level II HCPCS codes?

Apart from dental codes (managed by the American Dental Association), drug codes (NDCs), and temporary miscellaneous codes (used for immediate billing before formal codes are established), the Centers for Medicare and Medicaid Services (CMS) convenes a HCPCS Workgroup to establish and manage the definitions of level II codes. The workgroup’s membership includes representatives from “major components of CMS” and “consultants from pertinent Federal agencies.” In addition, meetings include participation from private insurance sector representatives, the Pricing, Data Analysis, and Coding (PDAC) contractor, and Medicaid.

The workgroup adds permanent level II codes under the following criteria: If the product is a drug, it must have FDA approval. If the product is not a drug, it must have been on the market for three months. In either case, the product must have three percent or more of the “outpatient use for that type of product in the national market.” This justifies the need for temporary, miscellaneous codes. Those are how products are billed and reimbursed before they are ready for permanent codes, during which time they can establish three months of market use and build up toward three percent of market share in their classes.

HCPCS Workgroup meetings are open to the public. It and the AMA’s CPT Editorial Panel govern nearly all medical procedure and product billing codes (excluding dental and drugs). In principle, just because something has a code doesn’t mean it’s covered by a public program (like Medicare) or a private insurer. I am unaware of an analysis that measures what proportion of permanent codes are reimbursable by, say, Medicare, but I’d love to know the answer. My guess: >95%.


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