Development of Diagnosis Coding

The basis of our current diagnostic coding system originates from a method of tracking mortality devised by John Graunt in 17th century England. Although others subsequently attempted to classify diseases systematically during the following century, William Farr, the first medical statistician of the General Register Office of England and Wales, is credited with the creation of a uniform classification system that permitted changes associated with advances in medicine.

The Farr classification system was evaluated annually until the first International Statistical Congress asked Farr and colleague Marc d’Espine to develop an international classification in 1853. Although the compromise method adopted by the Congress was never universally accepted, the system proposed by Farr served as the basis for the International List of Causes of Death. Subsequently, the International Statistical Institute (ISI) asked a committee chaired by Jacques Bertillon to develop a classification system that represented a combination of English, German, and Swiss classification schemes, based on the organization recommended previously by Farr. The system, entitled the Bertillon Classification of Causes of Death, was adopted by the ISI, along with a plan to revise the classification each decade.

However, it was not until the sixth revision during the International Health Conference in 1946 that a classification of causes of morbidity was also included. This conference is credited with the development of international cooperation in health statistics, linking national statistical institutions with the World Health Organization (WHO). The current classification, entitled the International Classification of Diseases-ninth revision-Clinical Modification (ICD-9-CM), represents the efforts of the WHO in 1975.¹ Modifications included the creation of fourth and fifth digits to allow two additional levels of subclassification to the previous three-digit system, as well as an independent four-digit system to classify the histopathology of neoplasms. This internationally used classification scheme provides a uniform method for tracking morbidity data and preparing claims for reimbursement.

Although primarily used for diagnostic coding, ICD-9-CM also contains codes assigned to procedures and complications.² More than 8000 diagnostic codes, covering the entire scope of clinical diseases, represent the most commonly used subset by physicians. The first section, including codes from 001.0 to 999.9, is divided into 17 classifications of diseases and injuries, including infectious and parasitic diseases; neoplasms; diseases defined by body systems; congenital anomalies; symptoms, signs, and ill-defined conditions; and injuries and poisonings. The second section, consisting of codes from V01.0 to V82.9, describes the reasons for a patient visit other than disease or injury. V codes may be used when reporting preventive medical treatments, physical examination, postoperative follow-up examinations, physical therapy, radiographs, and laboratory tests.

Guidelines implemented by the Centers for Medicare and Medicaid Services (CMS) require association of each service provided with an ICD-9-CM code, starting with the primary diagnosis.² The chosen diagnostic code should be of the highest degree of specificity, utilizing fourth and fifth digits when applicable. Additional secondary and tertiary diagnoses should also be included if relevant to the service provided. Although coexisting conditions affecting the patient’s treatment should also be included, diagnoses that are no longer applicable (as the patient’s circumstances change) should be eliminated. Services provided for reasons other than disease or injury, such as well-baby office visits, should be identified with the appropriate V code.

Because the diagnostic codes are linked to the physician service, a system exists to track the costs of managing illnesses. Third-party insurance companies, particularly managed care organizations, have utilized this association to monitor the costs attributable to individual physicians in treating patients for specific diseases. To maintain control of expenditures, some insurance companies have utilized this information to determine whether or not to renew contracts with physicians whose costs exceed those of the average practitioner. Consequently, the accurate and careful use of diagnostic coding has become essential to the successful physician’s practice.

Diagnostic codes have also been critical in the CMS physician quality reporting initiative (PQRI). Also known as pay for performance, the PQRI and its various iterations stem from Congressional pressure to focus on value-based purchasing and rewarding quality. This initiative has included a number of activities that a physician should perform under certain circumstances. Participation in the CMS program offers the opportunity for the physician to receive a bonus payment based on a percentage of the total payments received from CMS for all patients over the reporting period. For spinal surgeons, administration of preoperative intravenous antibiotics and the method of providing deep vein thrombosis prophylaxis in the postoperative period are two measures that can be reported for participation in the program.

However, limitations are associated with the application of ICD-9-CM. Although used to form databases for research and to guide public policy, diagnostic coding was never designed for billing purposes. In addition, ICD-9-CM offers no capacity to designate sidedness (e.g., is the intervertebral disc displacement left-sided or right-sided?) and no manner to designate acuity or severity (e.g., life-threatening vs. minimally symptomatic spinal cord compression). Despite its many deficiencies, ICD-9-CM is in use because it was available at a crucial time in the organization of health care, and its acceptance is sufficiently universal to guarantee its perpetuation. In fact, ICD-9-CM diagnostic coding has become increasingly important because it signifies the reason a service was rendered, a test was ordered, or a procedure was performed.

The WHO planned to replace ICD-9-CM with ICD-10-CM by 1998.³ However, although ICD-10-CM has been drafted and implemented in many regions, application in the United States has been delayed. Unlike ICD-9-CM, ICD-10-CM contains only diagnosis and no procedural codes. Some of the differences include a vastly increased number of categories of codes (2033 as compared to 855 in ICD-9-CM); a different format (a six-digit alphanumeric system with the letter at the beginning and the decimal point in the middle [e.g., C50.333]); and more specificity of some codes, sometimes including severity rating and/or sidedness. Costs associated with the retooling of computers and educating staff about this new system have been the main reasons cited for the delayed implementation. The potential for a greater degree of specificity places an additional burden on documentation, which must be examined to ensure that it is comprehensive enough to assign a code. CMS has published an ICD-10-CM implementation date of October 1, 2013. However, there is an earlier mandate for electronic health-care transaction software to be updated to Version 5010, which will accommodate the alphanumeric reporting in ICD-10-CM, beginning on January 1, 2012. In fact, CMS began accepting transactions submitted with either the older Version 4010 or Version 5010 software on January 1, 2011. Failure to update electronic systems by January 1, 2012, may significantly delay reimbursement claims and require customer service inquiries for resolution, since Version 4010 submissions will no longer be accepted after that date.

Because ICD-10-CM contains no procedural codes, CMS contracted with Minnesota Mining and Manufacturing (3M) to develop a system of procedural coding to be titled International Classification of Diseases—tenth revision—Procedure Coding System (ICD-10-PCS). This seven-character alphanumeric code system bears no resemblance to the Current Procedural Terminology (CPT) system used by the American Medical Association (AMA) (and described in the next section). In addition, the two are distinctly different, and the software used to run ICD-10-CM will not interface with ICD-10-PCS. A specific date for the implementation of this system, if any, has not been determined. However, the existence of this system worries some physicians because of the potential for CMS to implement the system without physician involvement. Nonetheless, CMS currently maintains that procedural coding systems are not being changed alongside the institution of ICD-10-CM diagnostic coding.

Development of Procedure and Supply Coding

To standardize the description of physician services as well as develop a method for compiling actuarial data, the AMA developed a list of descriptive terms and associated numerical codes for reporting medical services, which was published in 1966 as Current Procedural Terminology. This first edition predominantly described surgical procedures, with only limited reference to medical or radiologic procedures. The second edition, published 4 years later, included an expanded description of medical services, as well as a five-digit coding system.

Two additional revisions to CPT were compiled later that decade. The fourth edition was completed in 1977 and contained substantial revisions to include improvements in medical technology. Although one of the intended applications of CPT was to facilitate communication between physicians and insurance agencies, CMS did not adopt CPT as part of their Common Procedure Coding System (HCPCS Level I) until 1983. Subsequently, CMS has mandated the use of this system to report services for payment under Part B of the Medicare program. Three years later, CMS also required Medicaid agencies to use the method. Given the growing interest in greater specificity of both diagnostic and procedural coding, the AMA has been working extensively on developing a significant revision to the current edition,⁴ whose framework has been in place for 25 years. Efforts have included improving granularity by eliminating codes that include “and/or” and “with/without” language so that physicians can more precisely code the work that was done. The fifth edition is currently in use and is updated annually.

The CPT system undergoes annual revision under the direction of the CPT Editorial Panel. A 16-member physician panel meets quarterly and is made up predominantly of 11 physicians appointed by the AMA. The 11 AMA panelists serve 4-year terms. Four of the seats rotate among specialists to allow a multidisciplinary influence. The other members of the panel include the co-chair of the Health Care Professionals Advisory Committee (HCPAC), a representative from CMS, and appointees from the Blue Cross and Blue Shield Association, the Health Insurance Association of America, and the American Hospital Association. AMA staff assists the CPT Editorial Panel with input from the CPT Advisory Committee, which is made up predominantly of physicians selected by national medical specialty societies. The HCPAC was created by the Editorial Panel to facilitate participation of allied health professionals and limited license practitioners to participate in the process.

Currently, three main categories of codes are contained within CPT. For inclusion as a Category I code, the CPT Editorial Panel requires that the service or procedure be performed in multiple locations by many health care providers, that there are publications describing the safety and efficacy of the procedure, and that implanted devices, if integral to the procedure, have approval of the Food and Drug Administration. Two main groupings are found within Category I codes. The first group is the Evaluation and Management (E&M) codes, which describe services performed in broad subcategories, which are then further divided into two or more types of E&M service. For example, there are two types of office visits—new patient and established patient visits—and two types of hospital visits—initial patient and subsequent patient visits. The second group is Surgical Procedures, which is subclassified according to organ system so that, generally, the five-digit codes associated with a given organ system are in the same numbering sequences. With regard to spine surgery, the majority of the arthrodesis, bone graft harvest, and instrumentation codes are in the 20000 series of codes, and the decompressive procedures, such as laminectomy and discectomy, are in the 63000 series. Category II codes include descriptors for reporting performance in the PQRI. Finally, the listing of Category III codes contains temporary codes for emerging technologies that do not satisfy the CPT Editorial Panel requirements for Category I designation.

Although codes contained in CPT describe the procedures and services provided by physicians to patients, another national coding system was developed to describe nonphysician services, as well as supplies.⁵ For example, ambulance transportation and dental services, as well as various durable medical equipment and prosthetic devices, are described by this system. These represent Level II HCPCS codes and are published and maintained by CMS. In contrast to the five-digit numeric codes of CPT, these are alphanumeric codes containing an initial letter (between A and V but excluding S) followed by four numbers. Moreover, modifiers can also append these codes, but are comprised of either two letters (-AA to -VP) or alphanumeric symbols.

Finally, a third level of codes exists and is maintained by local Medicare carriers. These Level III codes describe new procedures and supplies not accounted for by the other two sets of national codes. Similar to the Level II codes, these are also alphanumeric codes containing an initial letter (from W to Z as well as S) followed by four numbers. Although local Medicare carriers create these codes, prior approval by CMS is required before implementation is permitted. Occasionally, one may encounter service or supply descriptions in two or all three coding levels.

Although these diagnostic and procedural coding systems provide a method for describing the encounter between the patient and the physician, this information must be communicated to the insurer for the physician to receive payment for the services provided. An understanding of information flow is necessary before applying coding rules to reimbursement. The process of describing physician work involves a continuous flow of information, beginning with the patient-physician encounter and ending with the submission of a bill to the patient or insurance carrier.

The patient–physician encounter is the period during which data is gathered regarding the patient’s clinical condition and a diagnosis and/or treatment is rendered. It is important to note that unless the data gathered during this encounter are documented in written form, legal authorities and insurance carriers do not consider the encounter to have taken place. This requirement for written documentation is critical, because deficient documentation is the most common reason for later assignment of a code that overrepresents the amount of work performed (i.e., upcoding), and is the most common reason for denied claims.

This documented encounter is then coded based on the type and amount of physician work performed. This may reflect work related to seeing patients in the outpatient setting or work performed in the operating room. These service codes are then linked to the specific diagnostic codes that prompted the service. A billing sheet is then constructed with the diagnostic and procedural codes along with the physician charges and is mailed or sent electronically to the insurance carrier. In the case of Medicare or Medicaid patients, this claim is submitted on an HCFA 1500 form. (The Health Care Financing Administration [HCFA] was the immediate predecessor to CMS.)

Development of the Resource-Based Relative Value System

Once the insurer receives the documentation of services, the payer must determine the reimbursement to the physician for the services provided. A fee-for-service payment method based on customary, prevailing, and reasonable (CPR) charges was the cornerstone of third-party reimbursement until the 1980s. Because physician payment schedules were the basis for determining reimbursement, there was little motivation for understanding the coding systems used to track services. However, the alarming growth of health care expenditures attracted attention from both government and private insurers.

By the mid-1980s, total health care expenditures had reached $540 billion, representing an 11% share of the gross national product. In fact, proportional spending had more than doubled from the 5.6% share paid in 1965.⁶ Moreover, reimbursement for physician services by Medicare grew at a 15% compound rate between 1975 and 1987, nearly twice the 7.9% growth rate of the gross national product.⁷ Finally, observations of utilization of physician services suggested that excessive and unnecessary procedures further contributed to escalating costs.^8,9

The impetus to revise the Medicare payment system arose from the rapidly increasing expenditures for payment of physician and hospital services by CMS. Efforts to control costs of physician services followed implementation in 1983 of a prospective pricing system (PPS) for hospital services reflected in Medicare Part A. Because hospital services accounted for more than two thirds of Medicare expenditures, cost-containment efforts were naturally directed at hospitals first. A diagnosis-related group (DRG) payment was developed for approximately 500 diseases based on the national average cost of hospital care for that particular illness. This method assumed that, over time, the cost for providing care for patients with a range of illness severity would equal the calculated DRG payment. Additional payments were also authorized to account for unusually severe illnesses requiring prolonged hospital stays. Because the payment was identical regardless of the hospital cost, the PPS provided a strong incentive for hospitals to improve cost efficiency. As a result, the annual growth of Medicare expenditures was reduced by more than half between 1975 and 1990.

Several factors, including dissatisfaction with the original payment scheme, growing Part B Medicare expenditures, and a reasonable proposal for a new method, influenced the decision to develop an alternative method of physician payment. The original method for determining the physician payment schedule was based on CPR charges. This resembled the usual, customary, and reasonable (UCR) charge system utilized by private insurers to pay for physicians’ services based on their actual fees. However, the wide variation in the amount Medicare paid for physician services both among physician specialties and among geographic regions caused dissatisfaction within the medical profession.¹⁰ Additional dissatisfaction grew among physicians because of the increasing disparity between the lower valuation of patient evaluation services and procedural services.

Consideration was given toward developing a DRG system similar to that developed for hospital payments under Medicare Part A.¹¹ Another option was to create a managed care or capitation model of payment. Finally, a proposal was offered for replacing the CPR method with a payment schedule based on a relative value scale (RVS). Only the CPR and the payment schedule represented fee-for-service methods. Many physicians voiced concern that a DRG or capitated system would threaten clinical judgment in patient care decisions. Moreover, the AMA opposed policies that precluded physicians from charging patients the difference between their fee and the Medicare payment (i.e., balance billing). Because the courts supported Congressional legislation to limit physicians’ fees, development of an RVS seemed to provide the best alternative to the CPR method.

The concept of an RVS was not new. In fact, the California Medical Association developed an RVS in 1956 that was regularly updated for nearly 2 decades. However, it was based on a median of charges reported by California Blue Shield in 1969, and thereby still represented a CPR charge methodology. Nonetheless, physicians used this method to determine fee schedules, and government and private insurers alike used the system to establish payment rates. Subsequently, concerns raised by the Federal Trade Commission regarding the possibility of antitrust violations led the California Medical Association to discontinue updating the charge data collected.

Rather than continuing pursuit of a charge-based RVS, as supported by most surgical subspecialty societies, a resource-based RVS (RBRVS) was considered in which physician services were ranked based on the relative costs incurred in providing them. Most nonprocedural specialty societies believed that wide variations among fees for services and geographic variations failed to adequately reflect costs incurred to provide the services. As a result, the AMA chose to support an RVS based on resource costs, provided that the payment system reflected geographic variations in practice costs and did not prevent physicians from balance billing. Although the AMA submitted a proposal to CMS for development of a new RVS, continued antitrust concerns precluded direct physician involvement in their development. Consequently, the AMA accepted a proposal submitted by the Harvard University School of Public Health to perform a national study of RBRVS for physician services.

On July 1, 1986, the Consolidated Omnibus Budget Reconciliation Act mandated that the U.S. Department of Health and Human Services develop an RBRVS to be submitted to Congress. In addition, the law created the Physician Payment Review Commission (PPRC) to study a variety of additional options for Medicare payment reform, including changing CPR, capitation, and physician DRG.¹² The PPRC recommended development of a payment schedule linked to an RBRVS.¹³

Concurrently, the Harvard study commenced in December 1985 with funding from CMS. The principal investigators, William Hsiao, PhD, and Peter Braun, MD, had previously encountered limited success in a 1979 pilot study that attempted to rank 27 physician services from 5 specialties.¹⁴ Five years later, a follow-up study demonstrated more consistent results after estimates of work alone without the addition of complexity were considered. The first phase of the national study supported by CMS developed an RBRVS for 12 physician specialties. In addition, independent funding was obtained for study of 6 additional specialties. Not only were specialty-specific scales developed, but a method for creating cross-specialty links also allowed integration of a single cross-specialty RBRVS. The Omnibus Budget Reconciliation Act of 1986 provided a 2-year extension for submission of RBRVS to Congress and mandated inclusion of 15 additional specialties during the second phase of the study.^15–18

Although the AMA adopted the results of the Harvard study in principle, they also recommended that the new Medicare payment system include geographic differences in practice costs and professional liability, as well as calling for a transition period to prevent disruptive changes between the CPR and RBRVS systems. The PPRC likewise endorsed the study and supported the AMA recommendations. However, the commission diverged from the AMA on two recommendations. Despite opposition to balance billing, the commission recommended placing limits on balance billing. In addition, expenditure targets for Medicare spending were also recommended. Because RBRVS was still a variation of a fee-for-service payment system, PPRC believed that cost containment could only be achieved with expenditure targets.

In December 1989, Congress enacted the Omnibus Budget Reconciliation Act (OBRA 89), which mandated a Medicare payment schedule based on the RBRVS from the Harvard study with inclusion of physician work, practice expense, and professional liability costs. Geographic adjustments to all three components were included in a method for the calculation of the relative value unit (RVU) of a physician’s service under the RBRVS system:

where MFS = Medicare Fee Schedule; RVU = relative value unit; GPCI = geographic practice cost index; w = work; pe = practice expense; pli = professional liability insurance; and CF = conversion factor.

The conversion factor for the calculated RVU was based on keeping the overall Medicare expenditure the same as the cost using the CPR system. A process was created to annually adjust the conversion factor, maintaining a “budget-neutral” value, which limited increases in expenditures to $20 million annually. Additional reductions in limits on balance billing were included.

A 5-year transition to the RBRVS Medicare payment system was to begin on January 1, 1992. Despite more than 7 years of investigation in the Harvard study, RVUs had not been assigned to all services listed in CPT by this date. At the direction of CMS, regional carrier medical directors assigned RVUs to the remaining codes until the third phase of the study was completed. The final comprehensive RBRVS for physician services was published in the November 25, 1992, Federal Register.

After implementation of the RBRVS fee schedule by CMS for payments by Medicare, additional health insurers have gradually implemented an RVS as well. Although RBRVS is the method most commonly used, an alternative RVS called St. Anthony’s is also used in certain regions. This privately maintained system, formerly known as McGraw-Hill, utilizes RVUs based on the time, risk, and complexity of the physician service. In contrast, the RBRVS uses physician work, practice expense, and malpractice expense as the components for determining the relative value of a particular physician service. The physician work component comprises approximately 54% of the total relative value of the service, whereas practice expense comprises 41%. In addition, a geographic practice cost index is incorporated to adjust for geographic differences. Consequently, conversion factors between RBRVS and St. Anthony’s RVS are different.

To coordinate changes in CPT with assignment of RVU by CMS, the AMA/Specialty Relative Value Update Committee (RUC) was created in 1991.¹⁹ Of the 28 members, 23 are appointed by major national medical specialty societies. The other five panelists include the RUC chair, the co-chair of HCPAC, and members of the AMA, American Osteopathic Association, and CPT Editorial Panel. An RUC Advisory Committee composed of members appointed by 94 specialty societies develop and recommend physician relative work values (wRVU) for new codes to the RUC. Specialty society representatives are responsible for compiling physician survey data to determine the time spent in performing the medical service and ranking the service relative to existing services. In general, procedures are valued by determining, from survey information (RUC survey), the sum of the component time, the intensity, and the risk of performing the procedure. wRVU is added to the practice expense and to the professional liability expense to form the total relative value for the specific procedure. Primarily, only the wRVU is presented to CMS for approval. For the most part, CMS has been supportive of the RUC valuations for procedures, but CMS has authority to disapprove RUC recommendations. Nonetheless, CMS has a historic acceptance rate of more than 90% of the recommendations made by the RUC.

However, the Balanced Budget Act of 1997 requires a budget neutrality adjustment. Because the development of new CPT codes requires subsequent valuation, the new RVU assigned must come from previously valued codes to maintain budget neutrality. Typically, values are maintained within a family of codes, such as the musculoskeletal or neurosurgical sections of the CPT manual. Consequently, there is some disincentive to making significant changes in codes. Some allowance for new technology exists to account for innovations in medical care, thereby creating an opportunity for growth within a family of codes. The methods of maintaining budget neutrality have included reductions in practice expense as well as changes in the conversion factor. Beginning in 1996, CMS decided that annual budget neutrality adjustments would be made to the physician fee schedule conversion factor (Fig. 207-1).

FIGURE 207-1 Variation in Medicare’s surgical conversion factor over the past decade.

Although work valuations were resource-based, practice expense was based on the AMA’s Socioeconomic Monitoring System (SMS) 1989 Core Survey of a representative sample of 4000 physicians in 34 specialties. However, practice costs, including office rent, wages of nonphysician personnel, equipment, and supplies, were measured overall rather than specific to a given service. Moreover, practice expenses varied among specialties, representing 52.2% of family physicians’ practice costs but only 38.9% of neurosurgeons’ costs. The method enacted by OBRA 89 involved multiplying the specialty-specific practice expense factor by the average Medicare payment of the service in 1991. Similarly, professional liability was calculated based on the proportion of cost multiplied by the Medicare payment. The average neurosurgical professional liability component of practice cost was 7.6%, compared with a 3.9% proportion for the family physician. If the service was provided by more than one specialty, a weighted average of surveyed costs was utilized.

The Omnibus Budget Reconciliation Act of 1993 (OBRA 93) mandated reductions in the practice expense of “overvalued” services. Over a 3-year period the practice expense was reduced annually by 25% of the amount that the value exceeded the wRVU until it was no greater than 128% of the work component. However, concerns over the nonresource-based OBRA 89 method of calculating practice expense as well as a 1994 Social Security Act amendment mandating resource-based practice expense calculations prompted CMS to contract with Abt Associates to perform a national study of physician’s practice expense. Fifteen Clinical Practice Expert Panels (CPEPs) were formed from nominations by medical associations to develop a list of direct cost components of a selected group of reference codes. In addition, a national mail survey of 5000 practices was performed to obtain a sample of practice costs and service mix to validate the CPEP estimates. However, poor response rates from physicians led CMS to abandon efforts at obtaining actual survey data. To meet the deadline of January 1998 set by Congress, CMS planned to implement new practice expense values based on CPEP data. Lack of validation of the CPEP data with actual practice expense information, as well as failures to account for actual differences in practice cost among all specialties, prompted the AMA to urge Congress to extend the deadline for implementation of new practice expense values. As a result, Congress not only delayed implementation until 1999, but also directed the General Accounting Office (GAO) to review HCFA’s methodology and make recommendations for a valid resource-based model. The GAO report supported the concerns raised by the AMA.

Beginning in January 1999, CMS initiated a transition to a resource-based practice expense valuation that differs based on the site of the service. If a medical service can be performed either in an office or a hospital, then both a nonfacility and facility practice expense value were assigned. Whereas locations assigned nonfacility practice expense include physician offices and independent imaging or laboratory centers, facility practice expense is attributed to hospitals, surgical centers, and nursing homes. The method for estimating practice costs is based on the AMA’s SMS data. Because the SMS data came from small sample sizes with sufficient variability to introduce sampling bias, there continues to be concern regarding this methodology.

More recently, these concerns prompted the AMA to update the practice expense data previously collected by the SMS survey. Although CMS had permitted submission of updated specialty practice expense data, the collection and reporting requirements were quite extensive, precluding all but a few professional medical associations from taking on the expense of performing such a survey themselves. Once the AMA took the lead on the project to update the decades-old practice expense data, specialty societies were invited to participate with a comparatively smaller contribution to the cost of the project. The process took several years to complete but provided CMS with a contemporary update of practice expense data from most specialties in medicine.

Additional Impact of Legislative Changes on Coding and Reimbursement

Three recent acts of the U.S. Congress—the Kennedy-Kassebaum Health Insurance Portability and Accountability Act of 1996 (HIPAA), the Balanced Budget Act of 1997 (BBA), and the Patient Protection and Affordable Care Act of 2010 (PPACA)—have created major changes in the practice of U.S. physicians. HIPAA changed the U.S. government’s fraud and abuse regulations by increasing civil monetary damages from $2000 to $10,000, by applying fraud and abuse laws to the private as well as the public sector, by permitting confiscation of personal property for health care fraud convictions, and by changing health care frauds from misdemeanors to federal felonies with mandatory prison sentences. Surgeons are liable for fraud and abuse violations in the documentation, coding, and billing tasks of their practice. Compliance plans and programs are aimed at satisfying the Office of the Inspector General’s (OIG) requirements for the constant surveillance of these responsibilities.

The overall purpose of the BBA of 1997 was to erase the federal budget deficit, but as a part of the Act, federal regulators were enabled to more aggressively attack health care fraud and abuse, especially as it relates to the Anti-Kickback Statute. Before implementation of the BBA, the OIG had to pursue anti-kickback cases through the Department of Justice, because these cases were considered criminal matters. The BBA allowed the OIG to pursue anti-kickback violations for civil monetary penalties, thereby lowering the standard of proof and obviating the need to go through the Department of Justice. In addition, the BBA requires CMS to account for health care expenditures and to reimburse health care providers based on documented physician work. CMS is now “required” to reimburse physicians for in-office practice expenses based on actual, rather than “assumed,” office expenses. In a brief time, these legislative acts served to change the face of the practice of medicine in the United States and pushed to the forefront the demand for precise coding and documentation by physicians and other health care providers.

Some methods for preventing fraudulent billing of services have been automated by CMS. Despite the growing number of codes to describe medical services, the work included in many codes overlapped. The process of unbundling, which involves description of a larger procedure with several codes that contain overlapping work, resulted in significant increases in health care expenditures. On January 1, 1996, Medicare initiated the Correct Coding Initiative (CCI) to reduce unbundling and inappropriate reporting of CPT codes.²⁰ CMS contracted with Administar Federal, an Indiana Medicare carrier, to create and maintain a computer program to be used nationally. Despite the $700,000 development cost, Medicare reported savings in excess of $700 million since the program’s inception. Version 5.1 of the CCI, released on April 1, 1999, contained an estimated 120,000 coding edits.¹⁴ Most of the edits represented payment policies in which a comprehensive code would be paid while the component code would be disallowed, whereas a small percentage of edits identified mutually exclusive codes, which would not be performed concurrently. Continued quarterly updates of the CCI have been more recently created and maintained by Correct Coding Solutions.

The PPACA was signed into law on March 23, 2010. This controversial law still faces constitutional challenges in two states and requires several years before full implementation if it remains unmodified, but the impact of the law on the health care payment system is already being noticed. Although most of the media attention has focused on the insurance mandates, provisions that may have an impact on the health care payment system included the creation of a Patient-Centered Outcomes Research Institute to undertake comparative effectiveness research. There will be ever-increasing pressure on clinicians not only to demonstrate the effectiveness of a given treatment, but also to compare the effectiveness and value of one treatment compared with others. This research is likely to influence coverage decisions by CMS and third-party insurers alike. These changes have also stimulated interest in accountable care organizations. Demonstration projects supported by CMS are underway to determine whether improved outcomes with cost savings can be achieved when multiple physicians and the hospital receive a bundled payment for managing a particular health issue (e.g., total hip arthroplasty). Finally, the PPACA creates an Independent Payment Advisory Board (IPAB), a 15-member group appointed by the president and requiring senate confirmation. The IPAB would be responsible for reducing the rate of growth of the Medicare program without affecting coverage or quality. If the Chief Actuary of CMS projects spending above a target growth rate, this board is required to develop a proposal to reduce per capita spending. If Congress disagrees with the recommendations but cannot otherwise identify budgetary offsets, the recommendations of the IPAB will be implemented by CMS. Significant concerns have been raised regarding the disproportionate influence a small group may have on determining CMS coverage policies in the future.

Nomenclature

Coding requires translation of diagnostic and procedural terms to a system that can be classified and manipulated more easily than standard language. Therefore, coding can be no more accurate than the terms being translated. An international committee of anatomists, the Federative Committee on Anatomic Terminology, has undertaken the arduous task of updating an exhaustive list of anatomic terms.²¹ Although this provides standards for acceptable terms and their spelling, it does not provide definitions or include pathology.

In the field of spine care, it has been well documented that some of the most basic diagnostic terms (e.g., herniated disc and degenerated disc) are not precisely defined and are commonly misunderstood in communications among physicians, patients, insurers, and those who may influence public policy on matters important to spine care. A task force of the North American Spine Society (NASS) recommended preferred terminology for disc pathology and definitions of terms related to disc disorders.²² These efforts were expanded by a joint task force of the NASS, the American Society of Neuroradiologists, and the American Society of Spinal Radiologists.²³ Their work does not include attention to disorders of the vertebral canals (i.e., stenosis), disorders of the dorsal elements, or procedures.

Research Applications

For physicians trying to do meaningful clinical research, especially when relying on methods that require retrospective retrieval of information or analysis of previously published findings on a subject, the potential for errors introduced by nonstandardized nomenclature and faulty or incomplete coding systems is obvious. The problems may be compounded further but become less obvious when the separation of those applying the data from those who collected the data increases, such as when data are pooled to guide social policy or administrative decisions.

Information based on the hospital or outpatient patient experience may be abstracted from patients’ medical records to form administrative databases, which have been used in attempts to describe many aspects of the delivery and utilization of health care.²⁴ A variety of conclusions have been drawn from the research performed using administrative databases. These conclusions can have significant and important implications for patients, providers, and society at large, to the extent that such data inform participants in current health care policy debates.²⁵

Although ICD-9-CM data can be used to create outpatient databases, the most common use of ICD-9-CM is for the coding of inpatient hospital admissions. The processing of the inpatient medical record information into ICD-9-CM-coded language follows a typical sequence. First, hospital medical records personnel abstract clinical information in the hospital medical record and discharge summary. The data identified include diagnostic, procedural, and complication data. This information is then converted into ICD-9-CM code form. Also abstracted are patient demographic data, such as age, gender, length of stay, and discharge status. With this patient demographic data and ICD-9-CM codes, a discharge abstract is constructed. Pooling of discharge abstracts has been referred to as the formation of administrative databases. Administrative databases contain regional discharge abstracts. At the state level, discharge abstracts are received from every hospital within the state. At the federal level, CMS receives nationwide discharge abstracts relating to Medicare patients.²⁶ These data are then available for analysis and research questions.

Several studies have been performed to evaluate the accuracy of the information contained within these databases, as their usefulness relates directly to the quality of the data contained within them.^27,28 The limitations of these databases are many, including nonstandardized nomenclature for labeling diagnoses and procedures, inherent deficiencies of the ICD-9-CM system, limitations of the coders assigning the codes, institutional differences in coding practices, incomplete data, and inaccurate data.

Summary

A comprehensive description of the nuances of required coding practices and rules is beyond the scope of this chapter. However, it should be clear based on the foregoing discussion that the practicing physician/surgeon should have a comprehensive understanding of fraud and abuse legislation, anti-kickback legislation, AMA CPT coding rules, and compliance plans and programs. Legislative issues and rules change on a regular basis, so the process of maintaining competence requires at least yearly updates. The easiest and most efficient way to stay informed is via specialty society coding education courses. NASS and AANS are two societies that regularly offer coding courses that are relevant to the spine surgeon’s practice. Both societies’ courses offer detailed lectures on coding, reimbursement, and compliance issues. These courses should form the foundation of every spine surgeon’s practice management education.