The Key to Coding for Managed Care:

The Key to Coding for Managed Care:

The Key to Coding for Managed Care:



Special to ADVANCE

One of the fastest growing segments of health care today is the managed care marketplace. It seems that hardly a day goes by without hearing news regarding a merger, acquisition, joint venture or some other form of alliance occurring within this volatile segment of our industry. As quickly as new partnerships are formed, established relationships seem to be breaking up—change is all around us.

To better understand the concept of managed care, consider the following scenario.


If you have purchased a new appliance recently, such as a television or dishwasher, you have probably been offered the option of also purchasing a maintenance/service contract. The seller of this contract, usually an unrelated third party, will pay for the repair and maintenance of your appliance for a specified number of years for a flat, one-time, up-front fee.

When you encounter a problem with your appliance, you phone the contract seller and they will direct you to a specific repair site. It is important to note that the seller of this contract does not necessarily perform the actual repairs on your equipment themselves. Often times they subcontract this out to another company using a negotiated fee structure.

The profit earned by the contract seller is simply the difference between the fees they collect minus what they pay out in repairs and overhead over the course of time.

The repair histories of a particular product line and brand name are key factors used by the contract seller to establish a contract price.

As mentioned previously, many service contract sellers do not do the actual repairs. Therefore, in addition to properly setting the price and terms of the service contract, the service provider must also successfully subcontract this work out to someone else at a low enough rate to ensure a profit.

These sub-contracting arrangements can vary greatly as well. Repair shops that enter into these negotiated contracts must be careful that they have a firm handle on their costs, expenses and cash flow to ensure a profit. The margins in these arrangements are very thin, so it doesn’t take too many surprises or “gotchas” to turn a sweet deal into a sour one.


This is all very interesting, but how do appliance service contracts relate to your hospital and to your responsibilities as a medical records professional? That’s an excellent question, and the answer is: A whole lot!

If this all sounds pretty complicated, the bad news is that these arrangements are usually a lot more complex than the above examples appear to be. Furthermore, the most obvious complexity is that unlike appliances, we are talking about human lives, families and their futures.

The importance of complete and accurate coding cannot be emphasized enough under managed care. Managed care companies are investing large amounts of capital in sophisticated modeling systems to establish the “repair history” of their insured. They need this information to properly establish the rates they must charge their clients and the fees they will be willing to pay their subcontractors (your facility) for services performed.

As an example, a few years ago I worked on a project for a unit of a large, nationally recognized insurance firm. This firm wanted to analyze their claims history over a two-year period to see the comparison between what they were billed by various hospitals for services as compared to what Medicare would have paid using their diagnosis-related group (DRG) based payment system.

We were shocked to find that nearly 25 percent of the cases processed would not pass basic Medicare Coding Edits (MCEs). Even more shocking was that the vast majority of these problem cases failed MCEs because they had one or more invalid ICD-9-CM codes.

Analysis showed that the problem was the result of coders cutting corners to save coding time. Most of the codes were invalid because they had become subdivided. For example, in many claims diabetes mellitus was being coded as 250, even though it had been subdivided for at least 10 years. This problem had not surfaced in the past because the insurance company really never had the tools to edit claims for coding accuracy. However, once the software tools and procedures were in place to reject claims with invalid data for discharge date, coders were required to take the extra time necessary to code the 4th and 5th digits.

The MCEs provide rudimentary edit checks in 17 broad categories, such as: Invalid ICD-9-CM Code for discharge date, E-Code as Principal Diagnosis (PDX), ICD-9-CM Code being inappropriate for the gender or age of the patient, PDX not considered a valid reason for inpatient admission, etc.

More sophisticated coding edits have recently been developed to detect more subtle coding inconsistencies, which may indicate more serious underlying problems. For example, there may be a manifestation such as 362.01, Background Diabetic Retinopathy, coded as a secondary diagnosis, but the underlying disease of 250.5x, Diabetes Mellitus, is missing from the claim form. This may be a coding oversight or an indication that Retinopathy is mis-coded.

Another similar example is coding 320.7, Meningitis in Other Bacterial Diseases Classified Elsewhere, without coding the underlying disease of 088.81, Lyme Disease.

The use of combination codes not only affects coding quality, but can also affect reimbursement accuracy as well. Consider the case where a patient has both 496, Chronic Airway Obstruction (COPD), and 493.90, Asthma w/o Status Asthma. If a chart is coded in this manner, the resulting Medicare DRG is 088, Chronic Obstructive Pulmonary Disease, with a DRG Weight of .9846.

In this particular example, the principal (and only) diagnosis should be 493.90, Asthma w/o Status Asthma, which is a combination code including COPD. The resulting Medicare DRG is 097, Bronchitis and Asthma, with a DRG Weight of .6035, which results in a 39 percent lower (but correct) reimbursement.

In looking at large volumes of actual patient data, I have observed various patterns and trends that can be very revealing. For example, in cases involving DRG 487, Other Multiple Significant Trauma, the patient is slightly more likely to be female (55 percent vs. 45 percent). The two most common Other Traumas for females are: 867.0, Bladder/Uretha Injury—Closed (10 percent) and 820.20, Trochanteric Fracture NOS—Closed (9 percent). For males these Other Traumas are: 86.70, Bladder/Uretha Injury—Closed (9 percent) and 861.21, Lung Contusion—Closed (7 percent). It is interesting to note that for females the lung contusion only occurs in 2 percent of these cases.

In the next couple of years, as managed care claims processing systems mature and become more sophisticated, cases that fall outside of pre-established patterns, such as the lung contusion example above, can be automatically pulled for review and/or additional documentation. The results of these reviews will be used to further refine the processing logic and the negotiation process, which will have a direct financial impact on your facility.

Another trend we have seen over the past two years has been a dramatic increase in the requirement of coding equivalent CPT-4 procedure codes in addition to ICD-9-CM procedure codes for inpatient cases. Because CPT-4 is more descriptive and precise in general, more sophisticated analysis can be accomplished by managed care using historical CPT-4 data.

The problem for most acute care coders is that they have not historically been required to code CPT-4 procedures, and the structure and organization of CPT-4 is very different from ICD-9-CM. Since only 20 percent of the CPT-4 codes have a one-to-one ICD-9-CM equivalent, translation from CPT-4 to ICD-9-CM is difficult and complex in more than half of the CPT-4 procedures valid today. These complex translations are very time consuming and really challenge the coding process.

How can medical records and coding professionals cope with the enormous quantity of annual coding changes and the forthcoming complexities of coding for managed care?

The real requirement is improving coding efficiency and accuracy without increasing the time necessary to code a chart. For many facilities, this translates into purchasing additional tools to help automate and streamline the coding process. A grouper and a coding book are no longer sufficient today.

If you are classically trained and comfortable with ICD-9-CM, then consider an encoder that functions like an electronic coding book. By that, I mean the ideal encoder for you would be structured according to Volumes 1, 2 and 3 of the ICD-9-CM coding system, including the Alpha Index, Tables, Excludes, Code Also’s, etc. In five to 10 keystrokes you should be able to accomplish what usually takes 10 to 20 seconds of flipping through the pages of a coding book.

With the increasing requirement for coding CPT-4 codes on inpatients, an automated crosswalk is a necessity. With this tool, you code ICD-9-CM procedures as usual and with the push of a button are presented with a screen of CPT-4 equivalents from which you select the appropriate CPT-4 code based upon additional details in the patient’s chart. A bi-directional crosswalk, which allows you to code in either direction, from ICD-9-CM to CPT-4 and from CPT-4 to ICD-9-CM, offers even greater flexibility.

An electronic library of coding references is a tremendous asset and timesaver. Instead of reaching for paper volumes and flipping through several tables of contents looking for a particular reference, the electronic library gives you the ability to search based upon a key word, such as pneumonia. The more sophisticated systems automatically build the search criteria using the ICD-9-CM/CPT-4 codes in the chart currently being coded. A select few contain complete American Hospital Association (AHA) Coding Clinic text, in addition to simple volume and page number references. Best of all, by using an electronic reference like this, you will expand your knowledge base while becoming more productive.

Sophisticated coding edits are a must for correct and complete coding and improving coding efficiency. To be truly effective, these edits need to be more than simple generic lists of codes and notes. They must take into account various patient demographic data, such as age and sex, as well as the other diagnoses and procedures in the patient’s chart. These additional factors reduce the number of false alerts, so the coder can focus on what is really important in the patient’s chart.

The real key to coding for managed care is to act now. The tools necessary to improve coding efficiency and accuracy are available today. Many are very sophisticated and affordable, even for the tightest of budgets. For a minimal investment, the paybacks in terms of labor and quality are tremendous.

* About the author: Brad Sweet is the director of product development at IRP Systems Inc., in Woburn, MA.

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