The Fundamentals of Medical Billing and Coding

The Fundamentals of Medical Billing and Coding

Medical billing and coding are the backbones of the healthcare revenue cycle, ensuring payers and patients reimburse providers for services rendered.

Medical billing and coding translate a patient encounter into the languages used for claims submission and reimbursement.

Billing and coding are separate processes, but both are crucial to receiving payment for healthcare services.

Medical coding involves extracting billable information from the medical record and clinical documentation, while medical billing uses those codes to create insurance claims and bills for patients. Thus, making claims is where medical billing and coding intersect to form the backbone of the healthcare revenue cycle.

The process starts with patient registration and ends when the provider receives full payment for all services delivered to patients.

The medical billing and coding cycle can take anywhere from a few days to several months, depending on the complexity of services rendered, management of any claim denials, and how organizations collect a patient’s financial responsibility.

Ensuring provider organizations understand the fundamentals of medical billing and coding can help providers and other staff operate a smooth revenue cycle and recoup all of the reimbursement allowable for delivering quality care.


Medical coding starts with a patient encounter in a physician’s office, hospital, or other care delivery location. When a patient encounter occurs, providers detail the visit or service in the patient’s medical record and explain why they furnished specific services, items, or procedures.

Accurate and complete clinical documentation during the patient encounter is critical for medical billing and coding, AHIMA explains. The golden rule of healthcare billing and coding departments is, “Do not code it or bill for it if it’s not documented in the medical record.”

Providers use clinical documentation to justify reimbursements to payers when a conflict with a claim arises. If a service is not sufficiently documented in the medical record by providers or their staff, the organization could face a claim denial and potentially a write-off.

Providers could also be subject to a healthcare fraud or liability investigation if they attempt to bill payers and patients for services incorrectly documented in the medical record or missing from the patient’s data altogether.

Once a provider discharges a patient from a hospital or leaves the office, a professional medical coder reviews and analyzes clinical documentation to connect services with billing codes related to a diagnosis, procedure, charge, and professional or facility code.

Several types of code sets are used for different purposes during this process, including:


Diagnosis codes are crucial to describe a patient’s condition or injury and social determinants of health and other patient characteristics. The industry uses the International Statistical Classification of Diseases and Related Health Problems, Tenth Revision (ICD-10) to capture diagnosis codes for billing purposes.

The ICD-10 code set has two components: the ICD-10-CM (clinical modification) codes for diagnostic coding and the ICD-10-PCS (procedure coding system) for inpatient procedures performed in the hospital.

There are more than 70,000 unique identifiers in the ICD-10-CM code set alone. The ICD coding system is maintained by the World Health Organization and is used internationally in modified formats.

CMS transitioned the industry to the ICD-10 system in 2015. The codes indicate a patient’s condition or injury, where an injury or symptom is located, and if the visit is related to an initial or subsequent encounter.

These codes support medical billing by explaining why patients sought medical services and the severity of their condition or injury.


Procedure codes complement diagnosis codes by indicating what providers did during an encounter. The two central procedure coding systems are the Current Procedural Terminology (CPT) codes and the Healthcare Common Procedure Coding System (HCPCS).

The American Medical Association (AMA) maintains the CPT coding system, which describes the services rendered to a patient during an encounter with private payers. They work with the ICD-10 codes to round out what happened and why.

The AMA publishes CPT coding guidelines each year to support medical coders with coding-specific procedures and services.

Medical coders should be aware that CPT codes have modifiers that describe the services in greater specificity. For example, CPT modifiers indicate if providers performed multiple procedures, why service was medically necessary, and where on the patient the procedure occurred.

Using CPT modifiers ensures that providers are correctly reimbursed for all services provided.

While private payers tend to use CPT codes, CMS and some third-party payers require providers to submit claims with HCPCS codes. In addition, the Health Information Portability and Accountability Act (HIPAA) requires HCPCS codes, which build on the CPT coding system.

HCPCS and CPT codes overlap, but HCPCS codes can describe non-physician services, such as ambulance rides, durable medical equipment use, and prescription drug use. CPT codes do not indicate the type of items used during an encounter.

The HSPCS also has its modifiers, although many modifiers are the same as those used by the CPT coding system.


Medical coders also translate the medical record into professional and facility codes, when applicable, explains the AAPC, formerly known as the American Academy of Professional Coders.

Professional codes capture physician and other clinical services delivered and connect the services with a code for billing. These codes stem from the documentation in a patient’s medical record.

On the other hand, facility codes are used by hospitals to account for the cost and overhead of providing healthcare services. These codes capture the charges for using space, equipment, supplies, prescription drugs, and other technical components of care.

Hospitals can also include professional codes on claims when a provider employed by the hospital performs clinical services. But the facility cannot use a professional code if a provider is not under an employment contract and uses the hospital’s space and supplies.

A best practice for hospitals is to integrate professional and facility coding. For example, the University of California (UC) San Diego Health recently implemented single-path coding, bringing experienced and facility coders into one platform.

“Regardless of what EHR you’re using, typically there’s a line of demarcation, firewall, or separation between ‘profee’ and facility,” explained Cassi Birnbaum, MS, RHIA, CPHQ, FAHIMA, the academic health system’s System-Wide Director of Revenue Integrity and Health Information Management.

“There are ways in our EHR to push codes from professional billing to facility billing through the charge router, but it’s not the easiest or the most straightforward process, and there are many potential points of failure.”

With professional and facility coders working in silos, Birnbaum saw duplicative efforts and decreased coding productivity.

She decided to integrate the departments using a standard coding platform. Since incorporating professional and facility coding, US San Diego Health has seen its clean claim rate increase and coding productivity skyrocket, with colonoscopy coding down from 12 minutes to less than five minutes.

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