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Coding Systems and CMS Reimbursement Methods

1. In healthcare, coding is essential for accurate billing and reimbursement. According to Green (2024), there are four major coding systems:

• ICD-10-CM is used to report diagnoses across all care settings.
• ICD-10-PCS is used only for hospital inpatient procedures, offering detailed codes for surgeries and treatments.
• CPT codes are used to report medical procedures and services by physicians in outpatient and office settings.
• HCPCS Level II includes codes for services and products not covered by CPT, such as ambulance rides and durable medical equipment.

2. CMS (Centers for Medicare & Medicaid Services) reimburses care differently based on where it's provided:

• Hospital Inpatient Services are reimbursed using Diagnosis-Related Groups (DRGs). Hospitals receive a set payment based on a patient's diagnosis and expected resource use, which encourages efficiency (Green, 2024).
• Hospital Outpatient Services use Ambulatory Payment Classifications (APCs). Payments are grouped by type of service and resource use.
• Physician Services follow the Resource-Based Relative Value Scale (RBRVS). Each service is assigned a value based on the physician's work, practice expense, and malpractice cost, then adjusted by location and converted into a payment amount (Green, 2024).

A Medicare nonPAR (non-participating) physician is one who does not accept Medicare's full allowed amount. These providers are reimbursed at 95% of the Medicare fee schedule and may bill patients up to 115% of that amount. Unlike PAR physicians who agree to accept assignment on all Medicare claims, nonPAR physicians have more billing flexibility but may create higher out-of-pocket costs for patients (Bielas, 2021).

Understanding coding systems and reimbursement models is essential for anyone working in medical billing and health administration. It ensures accurate claim processing, proper payment, and compliance with federal regulations.