Cracking the Code

Jul 16

The Magic of Medical Coding: Claims and Codes

Imagine going out for dinner, ordering a steak, and a few weeks later getting a confusing bill that charges everything separately for the server, utensils, napkin, chair, and “grill use fee”.

Welcome to healthcare.

Navigating within it can literally feel like speaking in code…spoiler alert, IT IS CODE….Medical Coding, to be precise.

In today’s post, we’re diving deeper into a foundational piece of this puzzle: The coded language behind medical billing.

We’ll break down the essential components that keep things running smoothly (or not so smoothly, depending on the day).

By the end of this post, you’ll feel more comfortable understanding the vocabulary and the process, and you'll feel way more confident navigating the healthcare system for yourself, as a caregiver, or if you’re working within it.

The Business of Healthcare: More Than Just Doctor Visits

In most industries, the person buying something (you) and the person selling it (the vendor) can have a direct exchange. You pick and purchase the item, you pay the price, and boom, it’s done. Simple right?

But when it comes to healthcare, it doesn’t work that way; it’s not so simple.

Imagine you go to the doctor for stomach pain. The doctor examines you, runs some tests, provides a diagnosis, and creates a treatment plan. But instead of handing over the payment right there to the doctor and going on your way, there is a Plot Twist! The insurance company steps in, and suddenly, you’re faced with a whole new set of questions.

What will the insurance company cover?

Why didn’t the insurance pay for everything?

What do I really owe?

Why am I getting different documents from the doctor's office and the insurance company?

This third-party involvement introduces another layer of complexity, creating a system of forms, codes, and rules that can leave us scratching our heads.

Why is it so complicated?

Let’s go back to the restaurant analogy and ordering dinner at a restaurant. It isn’t just about the meal you choose, but also about the details that come with it.

Let’s break it down.

All I Wanted Was To Order Dinner

Imagine you are at a restaurant, ordering dinner. You order the “Steak Dinner” (or a beyond steak if that’s your preference 🙂). You specify the cut of meat, how you want it cooked, and whether you want mashed potatoes, fries, or a baked potato on the side. Each decision affects the price of your meal. A ribeye steak typically costs more than a sirloin, and mashed potatoes may be less expensive than fries. Each item, including your drinks, appetizers, and extras, is listed on your bill.

Now, consider healthcare in this way. Every test, treatment, blood draw, physical examination, and other similar procedures are listed as items and must be recorded and submitted to the insurance company for payment to the doctor.

How does your healthcare visit become a final bill with all the details listed? That magic happens through a process called “medical coding” (and medical billing).

Just as every item on a restaurant menu is listed, a code is assigned to each service. The code could refer to a doctor’s visit (e.g., annual exam), an X-ray, a blood test, heart monitoring, or a prescription. It is like the “menu” for your healthcare visit, although it is a bit more complicated and involves some more details, but we will get to that later.

A Short Explanation of Medical Coding

Here is what is important to understand: this system of assigning codes was not designed with the patient experience in mind. The goal wasn’t to make bills easier to read or more precise; it was meant to describe what care was delivered, why, where, by whom, and when. The intention is a system to standardize and have a specific way to report and track things such as:

Billing: Ensuring healthcare providers are paid for their services
Research: Allowing for tracking of disease trends, outcomes, and treatments
Public Health Tracking: Helping to monitor and respond to health trends, like pandemics or chronic conditions

The codes are a central part of the healthcare system and are important. Still, they were not intended to be “patient-friendly,” meaning the codes are designed for tracking and reimbursement, not for making patient bills easier to understand.

Claims and Codes: Breaking It Down

In a previous post, we defined the key players of Patient, Provider, and Payer. Let’s recap that here briefly.

Patient YOU. The person receiving care.
Provider: The person or the place providing your care. This could be a doctor, a hospital, a clinic, or a laboratory.
Payer: The insurance company that is paying for the medical care.

Now, let’s discuss some new concepts and build on the patient, provider, and payer relationships, including claims and codes.

When a patient seeks medical care from a provider, those services are then “coded”. This is the practice of translating the actions of the doctor (e.g., examination, tests) that are documented in the medical notes into the standard “codes” that have been assigned. This information is sent to the payer for reimbursement via a form called the “claim”.

Let’s define these terms in more detail: claims, claim types, code types, and how they relate to the payer.

Claim

When your provider sends the invoice to your insurance company, it becomes a claim.

What It Means: The invoice for the services provided. (Sent to the insurance company)

Simply Put: It is the bill for everything that the provider did, including the physical examination, tests, and procedures. This is the itemized restaurant receipt, but with fewer fries and more doctors.

Also called: The claim is sometimes referred to as an encounter or episode in a system or by another term, depending on the specific system used to record, track, and submit the claim to the insurance company.

Professional vs. Facility

These are the two main types of claims submitted to insurance, based on where and how the services were provided.

What It Means:

Professional: Services performed by a physician (doctor, nurse)
Facility: The place where the care was provided (e.g., hospitals, laboratory)

Simply Put: If you were to have an outpatient surgery, you may receive two bills.

One for the doctor who did the surgery (professional fee)
One for the operating room and equipment used (facility fees).

It’s like being charged separately for the chef and the kitchen.

Also called:

CMS-1500 (or HCFA): For professional claims
CMS-1450 (or UB): For facility claims

(We’ll dig into these formats more in a future post.)

Procedure Code - The What

Every service you receive, from a flu shot to an X-ray, gets a code that describes what was done. That’s a procedure code.

What It Really Means: The treatments or tests that the provider performs. (What was done?)

Simply Put: This is the “code” assigned to describe what was done. Every test, procedure, blood draw, and other item has a code.

Also Called: There are main sets of procedure codes that are used. These are the formal terms for the “codes” (e.g., CPT, HCPCS).

CPT (Current Procedural Terminology) is the primary set of codes used for medical services, including office visits, surgeries, and diagnostic tests.
HCPCS (sounds like Hick-Picks): Healthcare Common Procedure Coding System, which includes CPT codes and also covers services like medications and medical supplies.

Examples:

The procedure code 99214 is the CPT code for an office visit for a patient.

The procedure code E0100 is the HCPCS code for a Walker with fixed wheels or no wheels.

These codes are updated annually or more often if needed (e.g., during the COVID-19 pandemic, new codes were added)

Diagnosis Code - The Why

Alongside the "what," your provider also has to share the "why" , the reason for your visit. That’s where diagnosis codes come in.

What It Really Means: This explains why something is done behind the procedure or treatment. This is a code for the patient's problem (injury, symptom, disease). (Why was the procedure done?)

Simply Put: It’s the reason behind the visit: what problem the doctor was addressing.

Also Called: ICD codes (International Classification of Diseases): These codes are used worldwide to document diseases, injuries, and conditions. They help justify why a provider took certain actions.

These codes are updated every year (or more often during events like the COVID-19 pandemic)

Example: The diagnosis code Z00.00 is a routine general medical examination.

Think of it like this:

The procedure code 99214 tells the payer, “the patient had a detailed office visit.”

The procedure code E0100 means “we gave them a walker.”

The diagnosis code Z00.00 says “this visit was just a routine check-up”.

These codes work together to tell the payer what happened and why. It is also documented in the patient's medical record.

These codes all add up to the final cost that the insurance company needs to review and pay.

Why It’s Important for You to Understand These Terms

Understanding the difference between a diagnosis code and a procedure code won’t make your next bill disappear, but it might give you information and confidence to ask the right questions or spot something that may need to be fixed.

Connecting the Dots

Now, let’s work on connecting the dots and see how this applies to you in the real world. Imagine receiving a bill from your doctor and being confused about the terms on it, such as 'claim,' 'provider,' 'payer,' ‘diagnosis, ’ and 'procedure.' Knowing these terms provides you with the tools to understand what was done, why it was done, and whether the results appear accurate and reliable. For example, perhaps you have a charge for a test that seems unfamiliar to you, and you can ask questions and obtain more information.

This puts you in the driver’s seat, allowing you to make more informed decisions about your healthcare and your bills.

Next time, we’ll examine the claim cycle in more detail and the post-visit claim process (it’s an adventure!).

Thanks for reading,

Bonnie

💡 If this topic sparked questions or curiosity, I recently hosted a live webinar on this very subject: Speaking the Same Language in Healthcare.

If you missed it and would like the recording and handout, just send me a note at bcoburn@coviewconsulting.com, or message me on Substack or LinkedIn, I’m happy to share!

Note from the Author: This series is not a prep course for medical coding exams. It’s designed to help cross-functional teams in the healthcare industry work together more effectively. The skills you'll learn will also empower you to be a more confident advocate for yourself and your loved ones in your personal healthcare matters.

Bonnie Coburn