medical coding 1 unit 8 exam

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Text Readings

Comprehensive Health Insurance: Billing, Coding, and Reimbursement, Chapter 9

Additional Readings

Required Readings

Supplemental Readings

Supplemental Videos

Lecture Notes


Patient Protection and Affordable Care Act

On March 23, 2010, the Patient Protection and Affordable Care Act (PPACA) was enacted. Part of the PPACA requires healthcare organizations to implement compliance programs, including documentation and coding audits, as a way to ensure high-quality care and serve as legal documentation of services provided.

Audits can be performed internally by specially trained and designated employees or audits can be performed externally by outside organizations that specialize in health care audits.

Types of Audits

Organizations benefit from audits because they can enable them to ensure correct reimbursement, identify errors that need to be corrected, and make sure that their office is compliant with codes and insurance plan requirements.

There are three types of audits that can be performed within an organization:

  • Internal—performing the audit within your office
  • External—hiring an outside company to perform the review
  • Accreditation—reviews performed for providers who have managed care contracts

When performing an internal audit, it’s important to develop and understand auditing tools to help you better understand what’s happening in your organization and how to make changes.

Steps to Completing an Internal Audit

  • Randomly select records for the time period being studied.
  • Follow the same guidelines as professional auditors, like the E/M documentation guidelines.
  • Share the results with the key people in your office (office manager, physician, etc.).
  • Put a plan in place to correct the errors.

E/M Services and Audits

To ensure that everyone is coding correctly and in a uniform way, the AMA created the Documentation Guidelines for Evaluation and Management Services. This document provides the current E/M codes and offers guidelines that will ensure correct coding and accurate reimbursement. The CMS offers the Medicare Learning Network (MLN) Educational Web Guides Documentation Guidelines for Evaluation and Management (E/M) Services Web page that offers healthcare professionals E/M services information and resources that can be viewed and downloaded. The MLN is a free educational resource that provides articles, downloadable forms and documents, courses, and more for healthcare professionals. Visit and navigate around the site to gain a better understanding of the offerings. Visit to see an example of an E/M assessment auditing worksheet.


Medical necessity is defined as services or products that a healthcare provider provides to patients for diagnosing or treating a condition, illness, or injury. It’s important to understand medical necessity because it determines (1) whether how patients are being treated is appropriate and (2) whether the services or procedures are reimbursable. According to the CMS, all services reported to Medicare must demonstrate medical necessity through the use of ICD-10-CM diagnostic coding carried to the highest level of specificity for the date of service.

According to Medicare, “no Medicare payment shall be made for items or services that are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.” It may seem confusing, so to ensure that services being paid for by Medicare are medically necessary, the CMS created the National Coverage Determinations, or NCDs, which are simply a way to determine whether a service is covered under Medicare. On the CMS website, the Medicare Coverage Database (MCD) contains all NCDs for reference.

Visit the MCD and navigate around to gain a better understanding on how the MCD helps with NCDs:

If providers expect to treat a Medicare fee-for-service patient with a service or procedure that they anticipate being denied for reimbursement, they must provide the patient with an ABN, or Advanced Beneficiary Notice of Noncoverage. According to the CMS, providers must issue an ABN when

  • Medicare may not pay for a procedure or service
  • Medicare usually covers the item or service
  • Medicare may not consider the treatment or service medically reasonable and necessary

Visit page 12 at to see an example of an ABN form.

Providers who don’t provide the ABN to the appropriate patients can’t bill Medicare or the patient for the services. This makes the physician office liable for the fees.

Medical Necessity for E/M Codes

As your textbook discusses, E/M service medical necessity is based on the frequency of service and the intensity of service. According to the CMS, the medical necessity of an E/M service is based on the following service attributes:

  • The number, acuity, severity, and/or duration of problems addressed through the history, physical, and medical decision making
  • The context of the encounter among all other services previously rendered for the same problem
  • The complexity of documented comorbidities that clearly influenced the physician’s work
  • The physical scope of the problems (i.e., the number of physical systems affected)

Coding and billing professionals play important roles in ensuring that medical necessity is documented, coded, and billed appropriately. It’s important to always code with “Was this medically necessary?” in the back of your mind to help keep claim denials for a minimum. For example, if the coding and billing professional notices that the documentation of a social history or review of systems is incomplete, he or she can take the opportunity to get clarification from the physician and get documentation of the missing elements before assigning the E/M code. Having a take-charge mentality will go a long way in ensuring medical necessity and preventing denial of claims and reimbursement. According to the CMS, “The burden of proof for medical necessity of the service is that of the provider. Claims will be denied as not medically reasonable and necessary when the person who renders the service fails to document the medical necessity of the service.”

Be sure to review Table 9.1 in your textbook to see the different elements required for each type of history.


Medical necessity is often confused with medical decision making, or MDM. Whereas medical necessity refers to the services or products that any healthcare provider would prudently provide to his or her patients, medical decision making is considering factors to establish a specific diagnosis or treatment plan. Think of it this way: Medical necessity is the performance of the required key components for diagnosing or treating a patient; that is, it’s the “why” behind the decision. Medical decision making is the outcome of the visit, the diagnosis and resulting treatment plan, or the work being provided during a provider’s evaluation and management.

Medical decision making is based on consideration of the number of diagnosis and/or how to manage them and the amount of complexity that goes into the management of the problem (i.e., testing, review of documentation, and more). Be sure to review Table 9.5 in your textbook to help you understand each of the elements for the different levels of decision making.


As we’ve been discussing throughout this course, how codes are reported and billed plays an important role in how providers are reimbursed. The coding of E/M codes is no different, so it’s important to understand correct coding and how to avoid common errors when coding E/M services.

Keep the following in mind when coding E/M services:

  • Don’t code with insufficient or incomplete documentation. Ask the physician or provider to clarify or provide complete documentation.
  • Don’t allow a bill to go through if one physician provided services but it’s being billed by another.
  • Make sure that consultation requests are clearly documented.
  • Don’t bill follow-up care as a consultant if primary care has been transferred to the consultant.
  • Be sure that the documentation supports the medical necessity for the frequency of the visit.

Coding errors can result in underpayment, claim denials, or even audits, so correct coding and documentation should be a priority for providers.

As you’ve learned, the two levels of HCPCS coding play an important role in health care and represent unique coding systems that serve different purposes. Level I is made up of CPT codes, and Level II is made up of national codes. Both code levels allow for modifiers that further define the code for accuracy. In some cases, reporting the incorrect HCPCS codes can be considered fraud and may result in substantial fines for the provider’s office. The Federal Civil False Claims Act prohibits submitting a fraudulent claim, and HIPAA’s Healthcare Fraud and Abuse Control Program was put in place to help uncover fraudulent practices.

One of the ways to ensure that your office isn’t accidentally submitting fraudulent claims is to perform regular audits. Medical coding auditing is the process of reviewing documentation, codes, and bills on a regular basis to ensure that rules and regulations are being followed, as well as identify processes that need to be improved. Additionally, it’s important to understand the difference between medical necessity and medical decision making to help the physician provide the appropriate information needed for optimal reimbursement.