US healthcare · Mid-cycle revenue cycle

Medical Coding, Charge Capture and CDI

Between the encounter and the claim sits the mid-cycle: every service has to be captured as a charge, every diagnosis and procedure translated into a code, and every code supported by what the clinician wrote. This tutorial covers the code sets and their 2026 and FY 2027 updates, E/M leveling, modifiers and global periods, NCCI edits, MS-DRG and APC grouping, chargemaster governance, charge reconciliation, clinical documentation integrity, audits, and the compliance rules that decide whether a correctly priced claim is also a lawful one.

CaptureCharges

Did every service become a charge?

Orders, procedures, drugs, supplies and time, reconciled daily against the schedule and the record.

A service that never becomes a charge never becomes a claim. Nobody denies it; it simply vanishes.

CodeICD-10 · CPT · HCPCS

Does the code say what the record says?

Specificity, sequencing, modifiers, units and edits, under the official guidelines in force on the date of service.

The code set changes every January and October. The record decides the code, not the reimbursement.

SupportCDI · audit

Will it survive review?

Clinical indicators, a compliant query, legible authorship and a defensible level or DRG.

Payers, RACs and the OIG read the same chart. Documentation integrity is cheaper than an appeal.

14 chapters4 interactive toolsFigures verified Oct 2026

Chapter 01

The big picture

Medical coding translates what happened to a patient into standardized codes that payers can price. Charge capture makes sure every billable service reaches the claim. Clinical documentation integrity (CDI) makes sure the record supports the codes. Together they are the mid-cycle: the stretch between the clinical encounter and the claim where most of the revenue is either earned or quietly lost.

The front end (scheduling, registration, eligibility, authorization) decides whether a claim can be paid. The back end (submission, posting, denials, collections) decides whether it gets paid. The mid-cycle decides how much it is worth and whether that amount is defensible. A missed CC on an inpatient stay, an E/M visit leveled one step too low, an infusion billed for one hour instead of three, or a modifier 25 applied without a separately identifiable service: each is small on its own, repeated thousands of times a year, and invisible on the remittance because the claim paid.

The same work is also the main compliance exposure in healthcare billing. Upcoding, unbundling and cloned documentation are the core of False Claims Act cases, Medicare audit programs and payer clinical validation denials. The coder, the CDI specialist and the charge analyst are therefore doing two jobs at once: capturing everything the organization legitimately earned, and nothing it did not.

Why it matters in numbers

Code sets

74,879 · 79,256 · 418

Billable ICD-10-CM diagnosis codes and total ICD-10-PCS procedure codes in the FY 2027 sets effective October 1, 2026, and the number of changes in CPT 2026 (288 new, 84 deleted, 46 revised). The vocabulary a coder works in changes twice a year.

Improper payments

6.55% · $28.83 billion

Medicare fee-for-service improper payment rate and amount for FY 2025 (CMS). Medicare Advantage: 6.09%, $23.67 billion. Medicaid: 6.12%, $37.39 billion. Most errors are documentation that does not support the service billed, not fraud, which is exactly the gap CDI and coding audits exist to close.

Rate pressure

+2.3% · +2.6% · +3.26%

FY 2027 inpatient (IPPS) operating update, CY 2026 hospital outpatient (OPPS) update, and the CY 2026 physician conversion factor change for non-APM clinicians ($33.40). With rate growth this thin, the accuracy of what is coded is the main lever an organization controls.

Who is involved

Treating clinician: Owns the documentation. Only the provider can establish a diagnosis, choose a procedure, or answer a query. Codes are assigned from what the clinician wrote and signed, not from what the coder believes was done.
Coder (inpatient, outpatient, professional): Assigns ICD-10-CM, ICD-10-PCS, CPT and HCPCS codes from the record under the official guidelines, applies modifiers, resolves edits, and queries when the record is unclear. Credentials: CCS, CCS-P, CPC, COC, CIC, RHIT, RHIA and specialty credentials.
CDI specialist: Usually a nurse or experienced coder who reviews records concurrently, identifies documentation gaps (missing specificity, acuity, cause-and-effect, clinical validity) and sends compliant queries. Credentials: CCDS, CDIP, CCDS-O.
Charge capture and chargemaster teams: Maintain the charge description master (CDM), map orders and procedures to charge codes, reconcile departmental charges daily, and chase late or missing charges. Often sit in revenue integrity.
Coding auditor and compliance: Sample claims prebill or retrospectively, score accuracy, educate, and manage external audits (RAC, TPE, OIG, payer). Compliance owns the policies on queries, cloning, split/shared visits and overpayment refunds.
Physician advisor: A physician who escalates unanswered queries, supports clinical validation, handles peer-to-peer and educates peers on documentation. The bridge between CDI and the medical staff.
Payer, MAC and auditors: Adjudicate against NCCI edits, coverage policy and their own clinical criteria; audit after payment under RAC, TPE, UPIC, CERT and OIG programs; issue clinical validation and DRG downgrade denials.

What goes wrong

Undercoding and missed charges

Specificity not captured (unspecified heart failure, no laterality), CC/MCC never documented, infusion hours and drug units under-reported, supplies and observation hours never charged. Paid claims hide it; only an audit or a reconciliation finds it.

Overcoding and unbundling

E/M levels not supported by MDM, modifier 25 or 59 used to bypass edits without a distinct service, components billed alongside a comprehensive code, DRGs driven by a diagnosis the record does not clinically support. These become denials, recoupments and, at scale, False Claims Act cases.

Lag and rework

Discharged-not-final-billed (DNFB) days climb when documentation is late, queries sit unanswered and charges post after the claim drops. Late charges mean corrected claims, and corrected claims mean a second chance at denial.

Chapter 02

The code sets and their 2026–27 updates

HIPAA names the code sets every covered entity must use on standard transactions: ICD-10-CM for diagnoses, ICD-10-PCS for hospital inpatient procedures, CPT and HCPCS Level II for services, supplies and drugs, CDT for dental and NDC for drugs on pharmacy claims. Each has its own owner, structure and update calendar.

Code set	Owner	Used for	Structure	Update cycle	2026–27 status
ICD-10-CM	CDC National Center for Health Statistics (NCHS), with CMS	Diagnoses in every setting; reason for visit; POA reporting	3 to 7 characters; first character alpha; decimal after the third; placeholder X; 7th character for episode of care	October 1 each year (April 1 updates possible)	FY 2027 effective Oct 1, 2026: 238 new entries (190 billable codes, 48 headers), 4 revised, 21 deleted; 74,879 billable codes
ICD-10-PCS	CMS	Procedures on hospital inpatient claims (UB-04 / 837I)	7 alphanumeric characters, no I or O; each position has a meaning (section, body system, root operation, body part, approach, device, qualifier)	October 1 each year; April 1 for new technology	FY 2027 effective Oct 1, 2026: 101 new, 38 deleted; 79,256 codes
CPT (HCPCS Level I)	American Medical Association	Physician and outpatient services and procedures on professional and facility claims	5 digits (Category I); 4 digits + F (Category II performance measures); 4 digits + T (Category III emerging technology); 4 digits + U (PLA lab tests)	January 1 each year; Category III and PLA codes also mid-year	CPT 2026 effective Jan 1, 2026: 418 changes (288 new, 84 deleted, 46 revised); remote monitoring, AI-assisted services, hearing devices, lower-extremity revascularization overhaul
HCPCS Level II	CMS	Drugs, supplies, DME, ambulance, and CMS-specific services not in CPT	1 letter + 4 digits (A0021–V5364); J codes drugs, A and E supplies and DME, G temporary CMS procedures, L orthotics and prosthetics, Q and K temporary, C OPPS pass-through, S and T payer-specific	Quarterly (Jan, Apr, Jul, Oct)	Quarterly files continue; 2026 adds Advanced Primary Care Management add-on G codes and new skin substitute policy codes
Modifiers	AMA (CPT, two digits) and CMS (HCPCS, two letters or letter + digit)	Alter the meaning of a code without changing its definition	Up to four per line on the 837; the pricing modifier first	With the parent code sets	See Chapter 05
Revenue codes	National Uniform Billing Committee (NUBC)	Classify facility charges by department or service on the UB-04 (FL 42)	4 digits (0001–0999, leading zero); for example 0450 emergency, 0636 drugs requiring detail coding, 0762 observation	Periodic	Stable
NDC	FDA	Drug identification on pharmacy claims and, increasingly, on medical claims for J codes (Medicaid, 340B, many commercial plans)	10 digits in 3 segments, reported as 11 digits (5-4-2) on claims	Continuous	Stable; payer NDC requirements keep growing

Where each code lands on the claim

Professional · CMS-1500 / 837P

Diagnoses in box 21, services in box 24

Up to 12 ICD-10-CM codes (loop 2300 HI, ABK for the first and ABF for the rest). Each service line (loop 2400 SV1) carries one CPT or HCPCS code, up to four modifiers, units, charge, place of service and a diagnosis pointer (up to four of the 12). No ICD-10-PCS on professional claims; surgeons code CPT.

Institutional · UB-04 / 837I

Principal diagnosis FL 67, procedures FL 74, revenue codes FL 42

Principal and up to 24 other diagnoses with POA indicators (HI with ABK, ABF), admitting diagnosis (ABJ), reason for visit (APR) and external causes (ABN). Inpatient procedures in ICD-10-PCS (BBR, BBQ). Outpatient facility lines carry a revenue code plus CPT or HCPCS, units and charge. The type of bill (FL 4) tells the payer which rules to apply.

The conventions that trip people up

Date of service vs date of discharge: Outpatient and professional claims use the code set in force on the date of service. Inpatient claims use the set in force on the date of discharge. A stay that spans October 1 is coded entirely with the new fiscal year's codes.
No grace period: Neither CMS nor the AMA offers a transition window. A deleted code on a claim after the effective date is an invalid code rejection (CARC 16 with remark M76 or N56 territory), not a denial you can appeal.
Official guidelines are binding: HIPAA adopts the ICD-10-CM and ICD-10-PCS Official Guidelines for Coding and Reporting as part of the code set. They are not advice; they are the standard. CPT's own guidelines and parenthetical notes carry the same weight for CPT, and AHA Coding Clinic and AMA CPT Assistant are the recognized interpretive sources.
Payer policy is a layer, not a replacement: Medicare's NCCI edits, LCD diagnosis lists, and commercial payer reimbursement policies decide payment. They never change what the correct code is. Code to the record, then price to the policy.
Encoders and computer-assisted coding: Tools suggest codes and apply edits; the coder remains responsible. Autonomous coding is live for narrow, well-documented encounter types (radiology, pathology, some ED and E/M), with human review of the rest and of everything the model flags as uncertain.

Two calendars to manage

January 1: CPT and HCPCS annual changes, the new NCCI Policy Manual, the physician fee schedule and OPPS rates. October 1: ICD-10-CM and ICD-10-PCS, the MS-DRG grouper, the IPPS rates and the quarterly NCCI and HCPCS files. April 1 and July 1: quarterly HCPCS, NCCI and MUE files, and occasional mid-year ICD-10 codes. Each date needs a chargemaster update, encoder update, scrubber edit refresh and coder education before the first claim of the period goes out.

Chapter 03

Diagnosis and inpatient procedure coding

ICD-10-CM codes carry the why of a claim: medical necessity, risk adjustment, quality measures and, on inpatient claims, the principal diagnosis that drives the DRG. ICD-10-PCS codes carry the what was done for hospital inpatient stays. Both are governed by official guidelines that a coder is expected to know, not look up.

Anatomy of an ICD-10-CM code

Character 1Letter: chapter (S = injuries)
Characters 2–3Category: S72 fracture of femur
Characters 4–6Etiology, site, severity, laterality: .001 unspecified part of neck of right femur
Character 7Extension: A initial encounter for closed fracture
Placeholder XFills empty positions when a 7th character is required (T36.0X1A)

The guideline conventions you apply every day

Convention	Rule	Example
Highest specificity	Code to the full number of characters available. A 3- or 4-character code is valid only if no further subdivision exists.	I50.9 (heart failure, unspecified) is valid but tells a payer nothing; I50.23 (acute on chronic systolic) is what the record usually supports.
Excludes1	"Not coded here": the two conditions cannot be coded together, unless the two are unrelated to each other.	E10 (type 1 diabetes) Excludes1 E11 (type 2). Pick one.
Excludes2	"Not included here": the excluded condition is not part of this code, but a patient can have both, so both may be coded.	J04 (acute laryngitis) Excludes2 J37.0 (chronic laryngitis).
Code first / use additional code	Sequencing instructions for etiology and manifestation pairs. The manifestation code (often in italics in the tabular) is never principal.	E11.22 type 2 diabetes with diabetic CKD, then N18.32 (CKD stage 3b).
"With"	The index term "with" presumes a causal relationship between the two conditions unless the record says they are unrelated.	Diabetes "with" CKD, neuropathy or gastroparesis is linked automatically; hypertension "with" heart failure (I11.0) likewise.
NEC vs NOS	NEC (not elsewhere classified): the record is specific but no code exists, use the "other specified" code. NOS (not otherwise specified): the record is not specific, use the "unspecified" code.	"Other specified" .8 codes vs "unspecified" .9 codes.
Uncertain diagnoses	Inpatient: "probable," "suspected," "likely," "rule out" at discharge are coded as if established. Outpatient and professional: code the signs and symptoms instead, never the uncertain diagnosis.	Inpatient "probable pneumonia" = J18.9. Office "rule out pneumonia" = R05.9 cough, R50.9 fever.
Laterality and 7th characters	Right (1), left (2), bilateral (3), unspecified (0 or 9) where the category provides it. Injury extensions: A initial (active treatment), D subsequent (healing), S sequela. Fractures add B, C and G to Q for open fractures and healing status.	Many FY 2027 additions are laterality splits (plantar fasciitis M67.A-, osteomyelitis). Unspecified laterality is a growing denial trigger.
Signs and symptoms	Not coded when integral to a confirmed diagnosis; coded when not routinely associated with it or when no diagnosis is established.	Chest pain is not coded with an NSTEMI; chest pain is coded when the workup is negative.
Z codes and SDOH	Reasons for encounter, status, history and social determinants (Z55–Z65). Any clinician or social worker's documentation may support SDOH codes.	Z59.0- homelessness; from FY 2027 these drop from CC to non-CC status in MS-DRGs but still matter for quality and risk programs.
Provider's statement governs	Guideline I.A.19: a code is assigned from the provider's statement that a condition exists. Code assignment is not based on the clinical criteria the provider used. Clinical validity questions are raised by query, not by the coder omitting the code.	Sepsis documented without meeting a payer's criteria is still coded; the organization should query if indicators are absent.

Principal and secondary diagnoses (inpatient)

Principal diagnosis: UHDDS: "the condition established after study to be chiefly responsible for occasioning the admission of the patient to the hospital for care." After study means the discharge diagnosis, not the admitting one. Two or more conditions equally meeting the definition: either may be sequenced first unless the circumstances of admission, therapy provided or the tabular direct otherwise.
Secondary diagnoses (other diagnoses): Conditions that affect the stay: they required clinical evaluation, therapeutic treatment, diagnostic procedures, an extended length of stay, or increased nursing care or monitoring. Chronic conditions that meet this test are reported; incidental findings and resolved history are not.
Present on admission (POA): Y (present), N (not present), U (documentation insufficient), W (clinically undetermined), 1 or blank (exempt). A hospital-acquired condition coded N can remove a CC/MCC from the DRG and feeds the HAC program. The POA value is as important as the code.
Admitting diagnosis and reason for visit: The condition on the admission order (FL 69) and, for outpatient facility claims, the patient's reason for visit (FL 70). Neither determines payment, but a reason for visit that conflicts with the final diagnosis invites review.

Worked example (fictional)

Jordan Doe (member NWH123456789, Northwind Health Plan) is admitted by Dr. Ana Rivera with shortness of breath. After study: acute on chronic systolic heart failure, hypertension, type 2 diabetes with stage 3b CKD, and acute kidney injury. Codes: I11.0 hypertensive heart disease with heart failure (the "with" convention links hypertension and heart failure) sequenced first, then I50.23, E11.22, N18.32, N17.9. Why not I50.23 as principal? Because the tabular at I11.0 says "use additional code to identify type of heart failure," and the guideline sequences the hypertensive heart disease code first. The DRG is still heart failure and shock (291–293) because I11.0 groups there, and N17.9 supplies a CC.

ICD-10-PCS in one table

Every PCS code has seven characters, each chosen from a table. In the Medical and Surgical section (first character 0) the positions mean the following. The root operation is the decision that matters most: it is chosen from the objective of the procedure, not its name.

Position	Meaning	Example: 0DTJ4ZZ (laparoscopic appendectomy)
1	Section (0 Medical and Surgical, 3 Administration, B Imaging, X New Technology, and others)	0 Medical and Surgical
2	Body system	D Gastrointestinal system
3	Root operation (31 in the Medical and Surgical section: Resection, Excision, Bypass, Replacement, Drainage, Insertion, Fusion, and so on)	T Resection (cutting out all of a body part)
4	Body part	J Appendix
5	Approach (0 open, 3 percutaneous, 4 percutaneous endoscopic, 7 via natural or artificial opening, 8 via opening endoscopic, F via opening with percutaneous endoscopic assistance, X external)	4 Percutaneous endoscopic
6	Device left in place (Z none, or a drainage, monitoring, synthetic substitute, autologous tissue substitute and similar values)	Z No device
7	Qualifier (diagnostic, type of bypass destination, and others)	Z No qualifier

Excision vs Resection

Excision (B) cuts out a portion of a body part; Resection (T) cuts out all of it, as defined by the PCS body part values. A right hemicolectomy is a Resection of the ascending colon, not an Excision of the large intestine.

Multiple procedures

Code each distinct root operation on a distinct body part. A laparoscopic procedure converted to open is coded twice under guideline B3.2d: a percutaneous endoscopic Inspection of the body part, plus the open root operation that was completed. Add ICD-10-CM Z53.31 to report the conversion. A procedure stopped before the objective was reached is coded to the root operation actually performed (B3.3).

FY 2027 highlights

101 new codes: valve leaflet body parts, custom interbody fusion devices, an active pleural drainage device, high-dose immune globulin, and 50 codes across 13 new technology tables for computer-aided guidance and navigation. All 38 deletions are retired new-technology codes.

Specificity that moves money and quality

Acuity: acute, chronic, acute on chronic Heart failure, respiratory failure, kidney disease. Acuity is often the line between non-CC, CC and MCC.
Type: systolic, diastolic, combined; type 1 or 2; viral or bacterial Unspecified types drive payer "unspecified code" denials and HCC under-capture.
Severity and stage: CKD stage, pressure injury stage, malnutrition severity, asthma severity
Laterality and site: right, left, bilateral; specific bone, joint, vessel or lobe
Cause and effect: "due to," "secondary to," "with" Diabetic complications, drug-induced conditions, sepsis due to a named infection.
Episode of care and encounter: initial, subsequent, sequela; 7th character present where required
POA status for every inpatient diagnosis Especially hospital-acquired conditions, pressure injuries and infections.
Social determinants, status and history Z codes when documented and relevant

Chapter 04

E/M leveling: medical decision making or time

Evaluation and management (E/M) codes are the most frequently billed services in medicine and the most frequently audited. Since the 2021 office visit overhaul and its 2023 extension to hospital, nursing facility, home and emergency visits, the level is chosen by one of two methods: the level of medical decision making (MDM), or the total time the physician or qualified health professional spent on the date of the encounter. History and exam are still documented as medically appropriate, but they no longer determine the level.

The code families as of 2026

Family	Codes	Leveled by	Time thresholds (minutes, must be met or exceeded)	Notes
Office or outpatient, new	99202–99205	MDM or total time	15 · 30 · 45 · 60	99201 deleted in 2021. New = not seen by the same group and specialty in 3 years.
Office or outpatient, established	99211–99215	MDM or total time (99211 has neither)	— · 10 · 20 · 30 · 40	99211 is a staff visit under supervision; it cannot be reported with 96372 for Medicare (NCCI).
Prolonged, office	+99417 (CPT) · G2212 (Medicare)	Time only, with 99205 or 99215	99417 from 75 (new) / 55 (established); G2212 from 89 / 69	Each unit is 15 minutes. Medicare counts from the top of the level 5 range; CPT from the minimum. Do not report both.
Hospital inpatient or observation, initial	99221–99223	MDM or total time	40 · 55 · 75	Observation codes 99218–99220 and 99224–99226 were deleted in 2023; inpatient codes now cover both.
Hospital, subsequent	99231–99233	MDM or total time	25 · 35 · 50	Medicare requires modifier AI on the admitting physician's initial visit.
Same-day admit and discharge	99234–99236	MDM or total time	45 · 70 · 85	Patient must be present 8 hours or more for Medicare; otherwise report only the initial visit.
Hospital discharge	99238 · 99239	Time only	30 or less · more than 30	Includes the final exam, instructions and paperwork on the discharge date.
Prolonged, inpatient	+99418 (CPT) · G0316 (Medicare)	Time only	99418 from 90 (initial) / 65 (subsequent); Medicare's G0316 thresholds are published in the CMS E/M table and differ from CPT	Check the current MLN E/M guide before reporting; the two rule sets disagree.
Emergency department	99281–99285	MDM only	No time component	99281 no longer requires a physician. Facility ED levels use the hospital's own resource-based criteria, not MDM.
Nursing facility	99304–99306 · 99307–99310 · 99315–99316	MDM or total time	25 · 35 · 50 / 10 · 20 · 30 · 45 / 30 or less · more than 30	99318 deleted in 2023.
Home or residence	99341–99345 · 99347–99350	MDM or total time	15 · 30 · 60 · 75 / 20 · 30 · 40 · 60	99343 deleted; domiciliary codes merged in 2023.
Complexity add-on	G2211	Relationship, not level	No time	Medicare add-on for longitudinal care in office visits since 2024; not payable with modifier 25 except with certain preventive services.

The MDM table, decoded

MDM has three elements. The level is set by two of the three. Rank each element, drop the highest, and the middle one is your level.

Level (code)	Problems addressed	Data reviewed and analyzed	Risk of complications, morbidity or mortality
Straightforward (99202 / 99212 / 99221 / 99231)	1 self-limited or minor problem	Minimal or none	Minimal (rest, gargles, bandages)
Low (99203 / 99213 / 99221 / 99231)	2 or more self-limited problems; or 1 stable chronic illness; or 1 acute uncomplicated illness or injury; or (hospital) 1 stable acute illness; or 1 acute uncomplicated illness requiring hospital care	Limited, 1 of 2 categories: (1) any 2 of: review of external notes from each unique source, review of each unique test result, ordering of each unique test; or (2) assessment requiring an independent historian	Low (over-the-counter drugs, minor surgery without risk factors, PT or OT, IV fluids without additives)
Moderate (99204 / 99214 / 99222 / 99232)	1 or more chronic illnesses with exacerbation, progression or side effects of treatment; or 2 or more stable chronic illnesses; or 1 undiagnosed new problem with uncertain prognosis; or 1 acute illness with systemic symptoms; or 1 acute complicated injury	Moderate, 1 of 3 categories: (1) any 3 of: external notes, unique test results, unique tests ordered, independent historian; or (2) independent interpretation of a test performed by another physician; or (3) discussion of management or test interpretation with an external physician or appropriate source	Moderate (prescription drug management; decision for minor surgery with risk factors; decision for major surgery without risk factors; diagnosis or treatment significantly limited by social determinants of health)
High (99205 / 99215 / 99223 / 99233)	1 or more chronic illnesses with severe exacerbation, progression or side effects; or 1 acute or chronic illness or injury that poses a threat to life or bodily function	Extensive, 2 of the same 3 categories	High (drug therapy requiring intensive monitoring for toxicity; decision for elective major surgery with risk factors; emergency major surgery; decision regarding hospitalization or escalation of hospital-level care; decision not to resuscitate or to de-escalate because of poor prognosis; parenteral controlled substances)

E/M level helperA teaching model of the 2021/2023 CPT rules. Pick the MDM elements the note supports, enter total time if it was documented, and compare the two methods.

Visit family

Problems addressed

Data reviewed and analyzed

Risk of management

Total time on the date (minutes, 0 if not documented)

Prolonged service rule

Counting time correctly

Counts

Physician or QHP time on the date of the encounter

Preparing to see the patient (reviewing tests, prior notes)
Obtaining or reviewing a separately obtained history
Examination and evaluation
Counseling and educating the patient, family or caregiver
Ordering medications, tests or procedures
Referring and communicating with other professionals (when not separately reported)
Documenting in the record
Independently interpreting results and communicating them
Care coordination (when not separately reported)

Does not count

Excluded from total time

Clinical staff time (MA rooming, nurse teaching)
Time on a separately reported service (the procedure, the ECG interpretation, care management codes)
Travel
Teaching time that is general and not limited to the patient
Time on a different calendar date (the note finished the next morning does not count for office visits)
Two physicians' overlapping time counted twice (split/shared visits sum distinct time only)

What auditors look for

Level 4 and 5 clustering. A provider whose distribution sits far from the specialty's benchmark gets a probe. The CMS Comparative Billing Report and commercial payer analytics both flag it.
Problems "addressed" vs problems listed. A chronic condition copied into the assessment with no management note was not addressed. Each problem needs evaluation or a management decision in that visit.
Prescription drug management means a decision about a drug: start, stop, continue with rationale, adjust. A medication list is not management.
Time statements must be the total for the date and attributable to the provider. "Spent 45 minutes" with a note that reads like 10 is a problem; so is a template time stamp on every visit.
Cloning. Identical exam and MDM text across visits and patients is the fastest way to lose an audit even when each level might have been defensible.

Split/shared, incident-to and teaching physician

Split (or shared) visit: A facility-setting E/M performed jointly by a physician and a non-physician practitioner in the same group. Medicare pays it under whoever performed the substantive portion: more than half of the total time, or the MDM. Report modifier FS. Not allowed in the office setting, where incident-to rules apply instead.
Incident-to: Office services by auxiliary staff or an NPP billed under the physician's NPI at 100% of the fee schedule when the physician established the plan of care, is directly supervising (in the office suite), and the visit is not a new problem. New patients and new problems cannot be incident-to.
Teaching physician: Medicare pays for a resident's service when the teaching physician was present for the key portion (modifier GC) or, under the primary care exception for lower-level visits, immediately available (GE). The teaching physician's own note must say what they did; "seen and agree" is not enough.
Telehealth: Place of service 02 (not home) or 10 (home) with modifier 95 for audio-video; modifier 93 or FQ for audio-only where allowed. CY 2026 permanently removed Medicare frequency limits on subsequent hospital and nursing facility telehealth visits and kept virtual direct supervision via real-time audio-video.

Chapter 05

Modifiers and global surgical periods

A modifier tells the payer that something about the service was different from the code's plain definition: it was bilateral, reduced, repeated, distinct from another service, performed during another procedure's global period, or only one component of it. Used correctly, modifiers make claims pay that would otherwise bundle. Used to bypass edits without the facts to support them, they are the single most common billing compliance finding.

Global surgical packages

Every CPT surgical code carries a Medicare global period indicator in the fee schedule. It defines which related services are included in the surgical payment and therefore not separately billable. Most commercial payers follow the same indicators.

Indicator	Meaning	Included in the package	Billable separately
`000`	Minor procedure, no postoperative days	The procedure and the related E/M on the same day	A significant, separately identifiable E/M the same day (modifier 25)
`010`	Minor procedure, 10-day global	Day of surgery plus 10 postoperative days of related care	Unrelated E/M (24), unrelated or staged procedures (79, 58), complications requiring return to the OR (78)
`090`	Major surgery, 90-day global	The day before surgery, the day of, and 90 postoperative days: preoperative visits after the decision for surgery, intraoperative services, routine postoperative care, complications not requiring the OR	The E/M where the decision for surgery was made (57), unrelated E/M (24), return to OR (78), unrelated procedures (79), staged procedures (58), critical care unrelated to the surgery
`XXX`	Global concept does not apply	E/M, most medicine and radiology codes	Normal rules; NCCI still applies
`YYY`	Carrier-priced, MAC sets the global period	Unlisted procedures	Per the MAC
`ZZZ`	Add-on code, inherits the primary's global	Follows the primary procedure	Follows the primary procedure
`MMM`	Maternity global	Antepartum, delivery and postpartum care in one code (59400, 59510)	Unrelated problems, high-risk services outside the package

Modifier chooserPick what happened. The tool names the modifier, what the record must show, and how NCCI and the global package treat it.

The modifier reference

Modifier	Name	Use when	Payment effect (Medicare)	Watch for
E/M and global period
`24`	Unrelated E/M during postoperative period	Same physician or group, within a 10- or 90-day global, for a problem unrelated to the surgery	Paid separately	Diagnosis must differ from the surgical one; "wound check" is related
`25`	Significant, separately identifiable E/M same day as a procedure	A 000- or 010-global procedure plus an E/M that goes beyond the usual pre- and post-work of the procedure	Paid separately; NCCI pairs with indicator 1 bypass	Most audited modifier. The E/M note must stand on its own; a different diagnosis is not required but helps
`27`	Multiple outpatient hospital E/M encounters, same date	Facility claims only	Allows a second facility visit line	Not for professional claims
`57`	Decision for surgery	E/M on the day before or the day of a 090-global procedure where the decision was made	Removes the E/M from the global	Use 25, not 57, for minor (000/010) procedures
Procedures in relation to other procedures
`51`	Multiple procedures	Additional procedures, same session, same provider, not add-on or 51-exempt codes	Multiple procedure reduction (100% / 50%); Medicare applies it automatically	Many payers want it; Medicare ignores it. Never on add-on codes
`58`	Staged or related procedure during the global	Planned prospectively, more extensive than the original, or therapy after a diagnostic procedure	Paid in full; new global begins	Not for complications
`59`	Distinct procedural service	Different session, site or organ system, separate incision, separate lesion or injury, when no more specific modifier applies	Bypasses NCCI indicator 1 edits	Medicare prefers XE, XS, XP, XU. Second most audited modifier
`XE · XS · XP · XU`	Separate encounter · structure · practitioner · unusual non-overlapping service	In place of 59 when one of them describes the situation	Same as 59	Do not combine X modifiers with 59 on one line
`76 · 77`	Repeat procedure, same physician · other physician	Same code repeated on the same day (not the same session)	Paid; prevents duplicate denial	Not for repeat labs (91) or multiple units
`78`	Unplanned return to the OR, related, during global	Complication that needs the operating or procedure room	Intraoperative portion only (about 70–80%); global does not restart	Bedside treatment of a complication is not billable to Medicare
`79`	Unrelated procedure during the global	Different problem; often the other side or another organ	Paid in full; new global begins	Diagnosis must support "unrelated"
How the service was performed
`22`	Increased procedural services	Substantially greater work than usual, documented in the operative report	Manual review; typically 20–30% more if approved	Needs a statement of why and how much longer
`26 · TC`	Professional · technical component	Diagnostic tests with both components (imaging, ECG, pathology) when one party performs only one	Splits the fee schedule amount	Global (no modifier) only when the same entity does both
`50`	Bilateral procedure	Same procedure both sides, same session, code is not inherently bilateral	150% of the fee schedule (indicator 1); check the bilateral indicator	Some payers want RT/LT on two lines instead
`52 · 53`	Reduced services · discontinued (physician)	Partially reduced at the physician's discretion · stopped for the patient's well-being after anesthesia	Manual pricing, reduced	Facilities use 73 (before anesthesia) and 74 (after)
`62 · 66 · 80 · 81 · 82 · AS`	Co-surgeons · team · assistant surgeon · minimum assistant · assistant when no resident · NPP assistant	Per the fee schedule's co-surgeon and assistant indicators	62: 62.5% each; 80/82: 16%; AS: 85% of 16%	Indicator 0 or 1 codes need documentation of necessity
`91`	Repeat clinical laboratory test	Same test, same day, to obtain subsequent results (serial glucose, troponin)	Paid per repeat	Not for rerun or confirmatory tests
`95 · 93 · FQ`	Telehealth audio-video · audio-only · audio-only behavioral health	With the place of service the payer requires	Fee schedule facility or non-facility rate per policy	GT is retired for most payers
Medicare liability and policy modifiers (HCPCS)
`GA · GX · GY · GZ`	ABN on file · voluntary ABN · statutorily excluded · no ABN, expected denial	Services likely to be denied as not reasonable and necessary (GA/GZ) or never covered (GY/GX)	GA shifts liability to the patient; GZ makes it a provider write-off	See the Patient Access tutorial for ABN rules
`KX`	Requirements in the policy have been met	Therapy over the annual threshold; DMEPOS documentation; other LCD attestations	Allows payment above a threshold	Attestation is auditable; the record must support it
`JW · JZ`	Drug amount discarded · no amount discarded	Single-dose containers under Part B; one of the two is required	JW line paid for wastage	Missing JZ is an automatic return since 2023
`PO · PN`	Excepted · non-excepted off-campus provider-based department	Facility outpatient claims from off-campus locations	PN pays at the PFS-equivalent rate; from 2026 drug administration at PO sites is paid at 40% of the APC	Site-neutral policy expands each year
`FS · GC · GE · AI · Q5 · Q6`	Split/shared · teaching physician present · primary care exception · principal physician of record · reciprocal billing · fee-for-time (locum)	As named	Informational or pricing per policy	Covered in the E/M section and the Credentialing tutorial
`RT · LT · FA–F9 · TA–T9 · E1–E4 · LC · LD · RC · LM · RI`	Anatomic modifiers: side, fingers, toes, eyelids, coronary arteries	When the code is site-specific and more than one site is treated	Prevents duplicate and NCCI denials	Preferred over 59 when they describe the distinction

Order of modifiers on a line

Pricing modifiers first (26, TC, 50, 52, 53, 62, 80, AS), then payment-affecting modifiers (25, 57, 58, 59, 78, 79, XE–XU), then informational modifiers (RT, LT, GC, 95, JZ). Payers read the first position for pricing; a 26 in position three can be ignored by an adjudication system.

Medicare multiple procedure logic

Medicare ranks surgical procedures by fee schedule amount and pays 100% for the first and 50% for the second through fifth (more by report). Diagnostic imaging, therapy and some endoscopy families have their own multiple procedure payment reductions (MPPR). Endoscopies in the same family pay the highest in full and the others at the difference from the base endoscopy.

Chapter 06

NCCI edits: procedure-to-procedure and medically unlikely edits

The National Correct Coding Initiative is CMS's automated enforcement of correct coding. It has three parts: procedure-to-procedure (PTP) edits that stop two codes from paying together, medically unlikely edits (MUEs) that cap units per code per day, and add-on code edits that require the primary code. Medicare Part B claims pass through all three; Medicaid runs a parallel NCCI, and most commercial payers license the edits or build equivalents.

Since 1996

PTP edits

Column one / column two pairs. If both are billed for the same patient, same provider, same date, the column two code denies unless the edit allows a modifier and one is reported. Published quarterly in practitioner and hospital outpatient versions; the current file is 2026 Q4 (v323r0), effective October 1, 2026.

Since 2007

MUEs

The maximum units of a HCPCS/CPT code that would be reported for one patient on one date under most circumstances. Separate practitioner, outpatient hospital and DME supplier tables; the Q4 2026 tables were posted September 1, 2026. Some values are confidential and never published.

Annual

The NCCI Policy Manual

Thirteen chapters of coding policy, updated each January 1, that explain the edits and go further than them: standards of practice, what is integral to a procedure, and when a modifier is appropriate. Auditors cite it; so should your appeals.

Reading an edit

Field	Values	What it means for the claim
Column one code	The comprehensive or primary code	Pays
Column two code	The component or mutually exclusive code	Denied when billed with column one on the same date, unless bypassed
Modifier indicator	`0` not allowed · `1` allowed · `9` edit deleted (ignore)	0: no modifier makes column two payable. 1: an NCCI-associated modifier (24, 25, 27, 57, 58, 59, 78, 79, 91, XE, XS, XP, XU, and anatomic modifiers) makes it payable when the facts support it.
Effective and deletion dates	Quarter the edit started or ended	Use the version in force on the date of service
PTP edit rationale	Standards of medical practice; CPT manual instruction; mutually exclusive procedures; more extensive procedure; sequential procedure; anesthesia included; HCPCS/CPT separate procedure definition; misuse of column two with column one	Tells you what argument an appeal would need
MUE adjudication indicator (MAI)	`1` claim line edit · `2` date of service edit, policy · `3` date of service edit, clinical	MAI 1: units are tested per line, so separate lines with an appropriate modifier can each pay up to the MUE. MAI 2: an absolute limit based on statute, anatomy or CPT definition; units above it never pay and appeals fail. MAI 3: a clinical limit summed across all lines for the date; units above it deny but can be appealed with documentation of medical necessity.

NCCI edit and MUE checkerA sample table modeled on common edits. Indicators and MUE values here are illustrative; the quarterly CMS files govern.

First code billed

Second code billed

Modifier on the second code

Units of the second code

The record documents a separate site, session, lesion or a significant separately identifiable service

How edits show up on the remittance

CO-97 with N19 or M15 (PTP)

"The benefit for this service is included in the payment for another service." N19 adds "procedure code incidental to primary procedure"; M15 "separately billed services have been bundled." Check the edit, the indicator and the record before deciding between a corrected claim with a modifier, an appeal, or a write-off.

CO-151 or CO-119 with N362 (MUE)

"Payment adjusted because the payer deems the information submitted does not support this many services" or "benefit maximum reached." N362 says the units exceed the acceptable maximum. For MAI 3, appeal with the record; for MAI 1, rebill on separate lines with the right modifier; for MAI 2, the excess is not payable.

A modifier is a statement of fact

Appending 59 or 25 because the scrubber says the line will deny is not a coding decision; it is a false statement on a federal claim if the record does not support it. The right workflow is: edit fires, coder reads the record, modifier is added only when the NCCI Policy Manual's conditions are met, and a note or the operative report would show an auditor the same facts. Scrubbers that auto-append bypass modifiers are a compliance risk, not a productivity tool.

Chapter 07

Inpatient grouping: MS-DRGs

Medicare pays acute inpatient stays by case: one amount per discharge, determined by the Medicare Severity Diagnosis-Related Group (MS-DRG) the stay falls into. The grouper reads the principal diagnosis, the procedures, the secondary diagnoses and a few demographics, and returns a DRG with a relative weight. The hospital's payment is that weight multiplied by its adjusted base rate. Every documentation improvement in this chapter works by changing an input to that calculation.

How the grouper decides

1
Pre-MDC check Procedures
Transplants, ECMO, tracheostomy with long ventilation and a few other resource-intensive procedures group directly to pre-MDC DRGs (001–017) regardless of the principal diagnosis.
2
Principal diagnosis places the case in an MDC 25 body-system groups
Major diagnostic categories follow organ systems (MDC 05 circulatory, 04 respiratory, 06 digestive). A wrong principal diagnosis moves the case to the wrong MDC and the wrong DRG family entirely.
3
Surgical or medical partition OR procedure?
If an ICD-10-PCS code on the claim is designated an operating room procedure, the case goes to the surgical side of the MDC, ranked by surgical hierarchy. Otherwise it groups by the principal diagnosis to a medical DRG.
4
Severity: MCC, CC or neither Secondary diagnoses
Each secondary diagnosis is checked against the CC and MCC lists, then against the CC exclusion list for the principal diagnosis (a CC too closely related to the principal does not count). One MCC anywhere on the claim yields the "with MCC" DRG; otherwise one CC yields "with CC." POA indicator N for a hospital-acquired condition can remove the CC/MCC.
5
Other variables Edge cases
Discharge status (transfers, hospice), age, sex and length of stay matter for a few DRGs and for the transfer payment policy. Newborns and some obstetric groups have their own logic.
6
Payment Weight × rate + add-ons
Relative weight × (labor share × wage index + non-labor share) of the standardized amount, plus indirect medical education, disproportionate share, uncompensated care, new technology add-on and outlier payments where they apply. Capital is paid on a parallel per-case formula.

DRG severity impact illustratorRelative weights below are illustrative and rounded to resemble recent values; they are not FY 2027 Table 5. The base rate defaults to the approximate FY 2027 national operating standardized amount before wage adjustment.

Principal diagnosis family (base DRG)

Highest-severity secondary diagnosis documented

Operating base rate $ (standardized amount)

Wage index

Terms the finance team will use

Relative weight: The DRG's cost relative to the average Medicare case (1.0000). Recalibrated every October from the prior years' claims and cost reports; FY 2027 weights use FY 2025 MedPAR and FY 2024 cost reports, with a permanent 10% cap on any one DRG's weight reduction.
Case mix index (CMI): The average relative weight of a hospital's discharges. CMI rises when sicker patients are admitted, when more surgery is done, and when documentation captures severity that was already there. CDI programs are measured on the last of these, usually as CC/MCC capture rate rather than CMI alone.
Standardized amount and wage index: The national operating base rate (about $6,849 for FY 2027 at the full update, split into labor and non-labor shares) adjusted for the hospital's wage index. The labor share is 66% where the wage index exceeds 1.0 and 62% where it does not.
Outliers: Cases whose costs exceed the DRG payment plus the fixed-loss threshold ($49,346 for FY 2027, up from $40,397) receive 80% of the excess. Accurate charge capture matters here: outlier eligibility is computed from charges times the cost-to-charge ratio.
Transfer policy: Discharges to another acute hospital, and for designated DRGs to post-acute care, are paid per diem up to the full DRG when the length of stay is short. Discharge status code accuracy is a frequent audit target.
APR-DRG: 3M's all-patient refined DRGs, used by many Medicaid programs and commercial payers. Four severity of illness (SOI) and risk of mortality (ROM) subclasses per base DRG instead of Medicare's three levels, so more secondary diagnoses move payment.
Two-midnight rule and admission order: An inpatient DRG requires a valid inpatient order and an expectation of care spanning two midnights (or an inpatient-only procedure). Without them the stay is outpatient observation, paid under OPPS. Utilization review, not coding, owns this, but coding feels the result.

FY 2027 grouper changes (version 44, discharges from October 1, 2026)

New and restructured DRGs

210–211 pacemaker revision or device replacement (replacing 258–262)
361–362 other circulatory O.R. procedures (replacing 264)
523–525 extensive or complex spinal fusion except cervical
731–733 uterine and adnexa procedures for malignancy (replacing 736–741)
403–404 hip or knee procedures with periprosthetic joint infection
Deleted: 466–468 and 485–487

Severity list changes

Ten homelessness and housing-instability codes (Z59.00–Z59.02, Z59.10–Z59.12, Z59.19, Z59.811–Z59.819) move from CC to non-CC. Proposed additions and deletions elsewhere on the CC/MCC lists were finalized; check Table 6I and 6J before building queries around a specific code. P01.7, P03.0, R53.2, E40–E43 and O63.0 keep their current levels.

Rates and policy

Operating update 2.3% (3.2% market basket less 0.9 points productivity); outlier threshold $49,346; capital rate $540.03. CMS restored 2.9588 of the 3.9 points of the documentation and coding adjustment and maintains it cannot restore the remainder; that question is in litigation. The TEAM bundled payment model runs 2026–2030 for CABG, joint replacement, bowel surgery, hip fracture and spinal fusion episodes.

Severity is captured, not created

The legitimate work of CDI is finding conditions that were treated and documented incompletely: the "AKI" in the nephrology consult that never reached the discharge summary, the malnutrition the dietitian assessed that the physician did not confirm, the respiratory failure implied by the vent settings. A query that produces a diagnosis the clinical picture does not support produces a DRG the payer will downgrade in a clinical validation review, and a pattern of them produces a False Claims Act case. The question is always "what does this patient have?", never "what would move the DRG?"

Chapter 08

Outpatient facility coding, APCs, and professional vs facility

One hospital outpatient encounter usually produces two claims: the facility's UB-04 for the room, staff, supplies and equipment, and the physician's CMS-1500 for the professional work. They share diagnosis codes and most CPT codes, but they are priced by different systems, edited by different NCCI files, and coded by different teams with different rules about what is "separately reportable."

Professional vs facility: the same visit, two claims

Dimension	Professional (CMS-1500 / 837P)	Facility (UB-04 / 837I)
What is being paid	The clinician's work, practice expense and malpractice (RVUs × conversion factor under the Medicare PFS; $33.40 non-APM, $33.57 APM in CY 2026)	The hospital's resources: nursing, room, equipment, supplies, drugs (APCs under OPPS; per diem, case rate or percent of charges under contracts)
Who codes	Professional coders, often in the practice or a physician billing office; increasingly the physician via the EHR with coder review	Outpatient facility coders in HIM for surgery, ED and complex visits; the chargemaster for hard-coded items
E/M level	MDM or time per CPT	The hospital's own written facility leveling criteria based on resource intensity (number of nursing interventions, procedures, monitoring); Medicare uses G0463 for all clinic visits
Procedure codes	CPT and HCPCS with professional modifiers (25, 59, 26)	CPT and HCPCS with facility modifiers (27, 73, 74, PO, PN, CA, FB) and revenue codes
Diagnostic tests	Modifier 26 (interpretation) or global if the physician owns the equipment	The technical component, no modifier (or TC on some payers)
Drugs and supplies	Only in the office setting (J codes, A codes incident-to)	Always: revenue code 0250–0259, 0636 with HCPCS and units; NDC where required; JW/JZ
Place of service	POS 19 or 22 (off- or on-campus outpatient hospital) pays the lower facility rate; POS 11 (office) pays the higher non-facility rate	Type of bill 13X; revenue codes identify the department
Edits	NCCI practitioner PTP and MUE tables; PFS indicators (global, bilateral, multiple procedure, assistant)	NCCI hospital outpatient tables; the OPPS Integrated Outpatient Code Editor (I/OCE) applies status indicators, packaging and the inpatient-only list

OPPS and the APC system

The Outpatient Prospective Payment System groups HCPCS codes into ambulatory payment classifications (APCs). Each APC has a relative weight and a national payment rate (CY 2026 update: 2.6%, from a 3.3% market basket less 0.7 points productivity). Unlike MS-DRGs, one claim can produce several APC payments, and many lines produce none because their cost is packaged into a primary service. The status indicator on each HCPCS code tells you which.

Status indicator	Meaning	Payment
`J1`	Comprehensive APC (C-APC) primary service	One payment for the whole claim; nearly everything else on it packages, including drugs, supplies and most other procedures
`J2`	Observation C-APC (8011) when criteria are met (G0378 8+ hours, with a qualifying visit)	One comprehensive payment
`S`	Significant procedure, not discounted	Separate APC payment at 100%
`T`	Significant procedure, multiple procedure reduction applies	Highest paid in full, others at 50%
`V`	Clinic or emergency department visit	Separate APC (G0463 clinic; 99281–99285 ED levels)
`N`	Packaged	No separate payment; cost is in the primary service
`Q1 · Q2 · Q3 · Q4`	Conditionally packaged (with a visit; with a T procedure; into a composite; lab when no other service)	Separate only when the condition is not met
`K` · `G`	Separately payable drug or biological · pass-through drug	ASP + 6% generally (340B: ASP + 6% with the 2026 remedy offset of 0.5%)
`A`	Paid under another fee schedule (therapy, lab, DME, ambulance)	Fee schedule amount
`C`	Inpatient-only procedure	Not payable under OPPS; the whole claim is returned
`E1` · `E2`	Not covered by Medicare · not paid when submitted on an outpatient claim	No payment

Inpatient-only list is being phased out

The CY 2026 OPPS rule begins a three-year elimination (2026 through 2029) of the inpatient-only list, 285 mostly musculoskeletal codes, and adds 560 services to the ASC covered list. Procedures removed are exempt from two-midnight medical review audits for a period. Facility coders and UR teams need the current list on every claim.

Site-neutral drug administration

From 2026, drug administration services at excepted off-campus provider-based departments (modifier PO) are paid at 40% of the APC rate, the PFS-equivalent rate. Rural sole community hospitals are exempt. Expect further site-neutral expansion.

Price transparency is a coding issue

The hospital machine-readable file must carry payer-specific negotiated charges by code. From 2026, algorithm- and percentage-based prices must show 10th, median and 90th percentile allowed amounts, and a senior official must attest. A chargemaster that is wrong is now public.

Where outpatient facility coding goes wrong

Infusion and injection hierarchy: Facilities report chemotherapy over therapeutic over hydration, one initial code per encounter (96413, 96365, 96360), with additional hours (96415, 96366, 96361) requiring documented start and stop times. Missing stop times mean the additional hours cannot be billed. This is the most common charge capture loss in infusion centers.
Observation hours: G0378 units are hours from the observation order to discharge, less carve-outs for procedures with active monitoring. Fewer than 8 hours means no comprehensive observation payment. Many hospitals under-report because the order time is not captured.
ED facility level: 99281–99285 on the facility claim follow the hospital's leveling guidelines, which must be written, consistently applied, and based on facility resources. A facility level that tracks the physician's level is a red flag.
Drugs: units and waste: The HCPCS unit is not the vial: J1100 is per 1 mg, J9035 per 10 mg. Units must match the dose administered; JW reports the discarded amount of a single-dose vial, JZ attests no waste. Unit errors are the second most common MUE denial.
Surgical supplies and implants: Most supplies are packaged (revenue codes 0270–0272). Implants with pass-through status (C codes) pay separately and need the device code plus the procedure. Missing device codes on C-APC claims are returned by the I/OCE.
Laboratory: Lab is paid under the Clinical Laboratory Fee Schedule unless packaged (Q4). Panels (80048, 80053) must be billed as the panel when all components were done; billing components separately is unbundling and an NCCI indicator 0 edit.
Modifier 25 on facility visits: A facility E/M visit on the same claim as a procedure with status S or T needs modifier 25 or it packages. The facility criteria for a "separately identifiable" visit are the hospital's own, but auditors apply the same logic as for physicians.

Fictional example: a single outpatient encounter, two claims

Jordan Doe sees Dr. Rivera in Riverside Medical Group's hospital-based clinic (POS 22) for a knee injection with ultrasound guidance after an evaluation of a new, separate shoulder complaint. Professional claim: 99213-25 (shoulder problem, low MDM), 20611 (large joint injection with ultrasound guidance, which includes the imaging; 20610 + 76942 would be an indicator 0 edit), J3301 × 4 units (triamcinolone 40 mg at 10 mg per unit) if the practice supplied the drug, otherwise no drug line. Facility claim: G0463-25 for the clinic visit, 20611 under revenue code 0510 or 0361, J3301 × 4 under 0636 with the NDC, and the supply packaged. The facility claim is paid under APCs; the professional claim at the facility rate because POS 22 tells Medicare the hospital bore the overhead.

Chapter 09

The chargemaster and charge capture

The charge description master (CDM, or chargemaster) is the catalog of everything a facility can bill: every room, procedure, drug, supply, test and visit, each with a charge code, a description, a CPT or HCPCS code where one applies, a revenue code, a price and a general ledger account. Charge capture is the process of making sure every service rendered posts a line from that catalog to the right account before the claim drops. A perfect coder cannot fix a charge that was never entered.

Anatomy of a chargemaster line

Charge code (CDM number)Internal key, e.g. 4501220
DescriptionInfusion, therapeutic, addl hour
CPT / HCPCS96366
Revenue code0260 IV therapy
Modifier (if hard-coded)e.g. TC on an imaging line
Price$412.00
GL account and departmentCost center 7120, revenue account 4100
Units and multiplier rulesPer hour; max per day
FlagsActive, statistical only, pro-fee split, payer exceptions

Hard-coded vs soft-coded

Hard-coded (CDM-driven)

The charge carries the code

Lab tests, radiology, pharmacy, supplies, room and board, infusion hours, ED facility levels in many hospitals. The clinician or department enters a charge (or an order triggers one) and the CPT/HCPCS comes with it. Accuracy depends on the CDM being right and the department entering the right charge and units. Nobody reviews the code on each claim.

Soft-coded (HIM-driven)

The coder assigns the code from the record

Surgical procedures, ED and clinic professional services, complex outpatient procedures, all inpatient diagnoses and PCS procedures. The charge may be a generic "OR time" or "procedure" line; the coder adds the CPT or PCS code after reading the operative report. Accuracy depends on documentation and coder skill. Reviewed on every claim.

The hard/soft boundary is where duplicates and gaps live

If the cardiology department hard-codes an echo (93306) and the coder also assigns it from the report, the claim carries two lines and an MUE or duplicate denial. If each side believes the other codes it, it is billed by nobody. Every CDM line should state which team owns the code, and the claim scrubber should flag the CPT codes that appear from both sources.

Chargemaster governance

Practice	Cadence	Why
Code set maintenance: deleted, new and revised CPT/HCPCS mapped before the effective date	January 1 and each quarter (HCPCS); October 1 for ICD-10 cross-walks in the encoder	Invalid codes reject on the front end of every payer; late updates stall the entire department's claims
Revenue code and CPT pairing review against the NUBC manual and the OPPS addenda	Annually and when a line is added	Mismatched pairs (a drug HCPCS under a supply revenue code) return from the I/OCE
Pricing review: defensible, consistent across departments, aligned to cost and market; one price for one service	Annually, with the budget	Price transparency files make the CDM public; payers with percent-of-charge contracts are paid from it; the No Surprises Act and state fair pricing laws compare it
Change control: a request, an owner, an approval (revenue integrity plus compliance), an effective date, a test claim	Every change	Uncontrolled edits are how a line gets a wrong code for three years
Dormant line review: lines with no volume in 12 months retired or confirmed	Annually	Dormant lines hide outdated codes and prices that reappear when a department reactivates them
Department walk-throughs: what is done vs what is on the CDM vs what is charged	Rolling, each department every 1 to 2 years	New procedures and supplies arrive without CDM lines; old charges outlive the equipment
Payer-specific exceptions documented (codes a payer wants on a different line, NDC requirements, revenue code preferences)	As contracts change	The scrubber, not the CDM, should apply them, so the CDM stays one source of truth

The charge capture cycle

1
Order or documentation creates the trigger Point of service
Orders in the EHR, medication administration records, procedure logs, supply scans, nursing flowsheets and timed documentation (infusion start and stop, observation order time) are the raw material. Charge capture is best when it is a by-product of clinical documentation, not a separate task.
2
Charge posts to the account Same day
Automatically from the order (lab, radiology, pharmacy), from a charge-on-documentation rule (infusion hours from MAR times), or manually from a charge sheet or encounter form. Manual entry is where most misses start.
3
Daily departmental reconciliation Next business day
Each department compares what happened (schedule, procedure log, MAR, completed orders) with what posted. Missing, duplicate and wrong-unit charges are corrected while the staff still remember the case.
4
Coding and edits Before the claim
HIM assigns soft codes; the scrubber applies NCCI, MUE, revenue code, modifier and payer edits; charge review queues catch combinations such as a drug with no administration code or a procedure with no supply.
5
Bill hold and final bill Typically 3 to 5 days after discharge
The account waits a set number of days for late charges, then drops. Charges arriving after the drop require a corrected claim (frequency code 7) or, past the payer's correction window, are lost.
6
Retrospective charge audit Monthly and by trigger
Sampled or rules-based review of paid claims against the record to find systematic leakage (missed infusion hours, unbilled observation, supplies without charges) and systematic overcharging (duplicate lines, wrong units).

Where charges go missing

Time-based services

Infusion and hydration additional hours, observation hours, critical care time, anesthesia time, prolonged services. The service was given; the stop time was not written. No time, no charge.

Drugs and supplies

Units not matching the HCPCS descriptor, waste not reported with JW, implants without device codes, take-home drugs charged as inpatient, high-cost supplies scanned to the wrong patient. Pharmacy and supply chain charge files need a crosswalk review every quarter.

Bedside and ancillary procedures

Wound debridement, central lines, lumbar punctures, ECGs, point-of-care tests, respiratory treatments, physical therapy units. Done by many hands, documented in flowsheets, charged by nobody.

Encounter forms and superbills

Physician practices still lose charges on paper or in templates with pre-checked codes. Reconcile the schedule to the billed visits daily: every arrived patient should have a charge or a documented reason for none.

Orders without results and results without orders

Tests performed without a signed order are unbillable for Medicare; orders never performed should not be charged. Both show up as mismatches between the order log and the charge log.

Interface failures

Charges stuck in an interface queue between a departmental system (lab, radiology, cath lab) and the billing system. Monitor the queue daily and count the stuck messages as a KPI.

Charge capture KPIs

Measure	Definition	Common target (organization-set, not regulatory)
Charge lag	Days from date of service to charge posting, by department	Within the bill-hold period; many organizations aim for 1 to 3 days
Late charge percentage	Charges posted after final bill as a share of total charges	Low single digits; trending down
DNFB (discharged not final billed)	Dollars and days of accounts discharged but not billed, by hold reason (coding, documentation, charges, query)	Often measured in days of average daily revenue; the lower the better, with the reason mix watched more closely than the total
Unbilled A/R over bill-hold	Accounts past the bill-hold date still not dropped	Worked daily; aged over 14 days escalated
Charge reconciliation completion	Share of departments completing daily reconciliation	100%, with sign-off
Charge audit variance	Net dollars found (missed less overcharged) per audited account	Trending to zero as root causes are fixed; a large positive number is a process failure, not a success
Claim edit rate by charge cause	Scrubber edits attributable to CDM or charge entry (invalid code, revenue code mismatch, missing units)	Each root cause owned and closed

Chapter 10

CDI, queries, audits and compliance

Clinical documentation integrity (CDI) programs review the record while the patient is still in the bed, or before the professional claim drops, and ask clinicians to clarify what is incomplete, ambiguous, conflicting or clinically unsupported. The output is a query. The rules for what a query may say are the difference between a program that captures real severity and one that manufactures it.

What CDI looks for

Specificity

Type, acuity, stage, laterality

"CHF" with an echo showing an ejection fraction of 25% and IV diuresis: is it acute, chronic or acute on chronic systolic heart failure? "Anemia" with transfusion: due to acute blood loss? "Renal insufficiency" with creatinine doubled: acute kidney injury?

Cause and effect

Linking conditions

Encephalopathy due to what? Pneumonia due to which organism (cultures positive)? Is the hyponatremia a complication of the diuretic? Without the link the code is less specific and a CC or MCC may be lost or unsupported.

Clinical validity

Does the diagnosis match the picture?

Sepsis documented with no organ dysfunction and normal lactate; acute respiratory failure with room-air saturation of 97%; severe malnutrition in a patient with a normal BMI and no dietitian assessment. These invite clinical validation denials; a query asks the provider to confirm, clarify or rule out.

Conflicts

Who said what

The attending writes "pneumonia," the pulmonologist writes "aspiration pneumonitis," the discharge summary says "respiratory infection." Only the attending can resolve it, and only a query can ask.

POA and HACs

Was it there on admission?

Pressure injuries, catheter infections, falls with injury. If the record does not say whether the condition was present on admission, the POA indicator is U, and U is treated as N for payment.

Procedures

What was actually done

Excisional vs non-excisional debridement (a DRG-level difference), approach, device left in place, the number of vessels, whether a biopsy was taken. Operative reports written for surgeons, not coders, omit what the PCS table requires.

Compliant query practice

The ACDIS/AHIMA Guidelines for Achieving a Compliant Query Practice (2022 update, with an October 2023 addendum on denials) is the recognized industry standard. Every query, whether from CDI, a coder, a physician advisor or software, must meet it.

A compliant query

States the clinical indicators from this record that prompted it (labs, vitals, imaging, treatment, consult notes)
Asks an open question or offers multiple reasonable options, including "other" and "unable to determine" (or "clinically undetermined")
Is written so the provider can disagree without consequence
Uses a yes/no format only to confirm a diagnosis already documented elsewhere (pathology, a consultant), to establish POA, to resolve conflicting documentation, or to confirm a cause-and-effect link; never to introduce a new diagnosis
Is answered in the medical record (a note, an addendum, or a query form that is part of the legal record) and retained per policy
Is tracked: who asked, when, response time, outcome, and whether it was escalated

A leading or non-compliant query

Suggests a single diagnosis or the "expected" answer
Mentions reimbursement, DRG, CC/MCC, quality scores or "this would increase severity"
Offers options that are not clinically reasonable given the indicators, or omits the indicators
Uses yes/no to ask about a condition nobody documented
Is sent by someone pressuring for a specific answer, or repeated until the answer changes
Is answered verbally with no record entry, or the query itself is deleted after the response

A compliant query, fictional

Clinical indicators: Creatinine 1.1 mg/dL at admission (baseline 0.9 per 2025 labs), 2.4 on hospital day 2, 1.6 on day 4 after IV fluids; nephrology consult day 2 documents "ATN vs prerenal"; urine output recorded below 0.5 mL/kg/h for 14 hours on day 2. Question: Based on your clinical judgment, can the renal findings be further specified? Options: acute kidney injury (specify type if known); acute tubular necrosis; chronic kidney disease (specify stage); other (please specify); unable to determine. Not in the query: that AKI is a CC, that ATN is an MCC, or what the DRG would become.

The CDI program, measured

Measure	Definition	Reading it
Review rate	Share of eligible admissions reviewed concurrently	Coverage of the payer mix and service lines that matter; many programs review Medicare and MA inpatients first, then expand to all payers and to outpatient
Query rate	Queries per 100 reviewed records	Too low: gaps are not being found. Too high: documentation education is failing, or queries are unnecessary
Response rate and time	Share of queries answered; hours to response	Unanswered queries delay bills and are an escalation trigger for the physician advisor
Agreement rate	Share of answered queries where the provider documented a diagnosis that changed the coding	Very high agreement with high query volume suggests leading queries; very low suggests poor clinical indicators
CC/MCC capture rate	Share of discharges in a base DRG grouping to the CC or MCC level, compared with peer benchmarks	A change in capture should be explainable by real changes in case mix or documentation
Query impact	DRG shifts, SOI/ROM changes, HCC captures, quality measure exclusions attributable to queries	Report it, but never pay CDI staff or physicians on it; incentive tied to DRG shifts is an enforcement red flag
Clinical validation denial rate	Payer DRG downgrades and denials for diagnoses not clinically supported, as a share of inpatient claims	Rising rates mean the program is capturing diagnoses the chart cannot defend, or the payer is applying criteria the contract does not allow

Coding audits and accuracy

Prebill vs retrospective: Prebill review stops errors before the claim at the cost of DNFB days; usually targeted (high-weight DRGs, specific codes, new coders). Retrospective audits sample paid claims and find systematic patterns at the cost of corrected claims and refunds.
What is scored: Inpatient: principal diagnosis, secondary diagnoses, procedures, POA, discharge status, and the resulting DRG (DRG accuracy is the headline). Outpatient and professional: CPT/HCPCS, E/M level, modifiers, units, diagnoses and diagnosis pointers. Score at the code level and at the claim or DRG level; both matter.
Accuracy targets: 95% is the figure most organizations cite as the minimum acceptable accuracy for DRG assignment and code-level accuracy, with higher internal goals. It is an industry convention, not a regulation; what matters legally is that errors are found, corrected and refunded where they produced overpayments.
Sampling: Random samples by coder (commonly 5 to 10 records per coder per quarter, more for new staff), plus focused samples on risk areas: modifier 25 and 59, high-level E/M, sepsis, malnutrition, respiratory failure, excisional debridement, one-day stays, and anything on the current OIG Work Plan.
Coder productivity: Measured in records per hour by record type, with accuracy as a gate: productivity above target with accuracy below target is a problem, not an achievement. Typical expectations vary widely with the EHR, encoder and case mix; set them from the organization's own time studies and review them when technology changes.
External audits you will meet: CERT (Medicare's error rate sample), RAC (post-payment, contingency-paid, DRG validation and coding), TPE (MAC probe with education, up to three rounds), UPIC (fraud investigation), OIG audits of specific risk areas, Medicare Advantage RADV for HCCs, and commercial payer DRG validation and clinical validation reviews. See the Denials, Appeals and Audits tutorial.

Compliance risk areas in coding

Risk	What it looks like	How it is found	Control
Upcoding	E/M levels above what MDM or time supports; DRGs with unsupported MCCs; facility ED levels inflated by criteria	Level distribution analytics, CERT and RAC samples, whistleblowers (most FCA cases start inside)	Audit by provider, education, no compensation tied to coded level
Unbundling	Components billed with the comprehensive code; panels split; modifier 59/XU to bypass indicator 1 edits without a distinct service	NCCI edit bypass rates, modifier 59 and 25 utilization reports, payer data mining	Scrubber cannot auto-append modifiers; coder review of every bypass
Cloning and copy-forward	Identical notes across dates; exam findings that contradict the current visit; templates documenting work not done	Text similarity analytics; auditors reading three consecutive notes	EHR copy-forward policy, attestation of review, audit of templated notes
Medical necessity	Diagnosis codes chosen to meet an LCD rather than reflecting the record; tests without a documented order and indication	Diagnosis frequency outliers; ADRs	Code from the record; ABN process for likely-denied services
Incident-to and split/shared	NPP services billed under the physician with no supervision or no substantive portion; new problems billed incident-to	Schedules vs billing NPI; OIG reviews	Policy, FS modifier, supervision logs
Signature and authentication	Unsigned orders and notes; signatures added after the audit request; scribes without attestation	Every documentation request	Signature policy per the Medicare Program Integrity Manual; timely authentication
Leading queries	Queries that name the diagnosis or its payment effect; agreement rates near 100%	Payer and OIG review of query templates; discovery in litigation	Template review by compliance, query audit, no CDI incentives tied to DRG
Overpayments retained	Audit findings fixed prospectively but not refunded; the 6-year lookback ignored	Self-disclosure reviews, qui tam suits	60-day rule process: identify, quantify, refund, document

The 60-day rule applies to coding errors

Under the Affordable Care Act and 42 CFR 401.305, a Medicare or Medicaid overpayment must be reported and returned within 60 days of being identified, with a six-year lookback. An internal coding audit that finds a pattern of unsupported MCCs or modifier 25 visits has identified an overpayment. Since the CY 2025 clarification, "identified" means the organization knowingly received or retained an overpayment, and the organization has up to 180 days for a good-faith investigation to quantify it before the 60-day clock runs. Fixing the process going forward while keeping the money is the fact pattern in reverse false claims cases.

Chapter 11

Rules and regulations

Coding rules come from four sources that stack: the HIPAA code set standards and their official guidelines, Medicare's payment regulations and manuals, the fraud and abuse statutes that make a wrong code a legal problem, and payer contracts. The first two say what is correct; the third says what happens when it is not; the fourth adds the payer's own layer.

Federal · HIPAA code sets

45 CFR 162.1000–162.1011, Administrative Simplification code set standards

Adopts ICD-10-CM (diagnoses, all settings), ICD-10-PCS (inpatient hospital procedures), CPT and HCPCS Level II (physician and other services, supplies, drugs), CDT (dental) and NDC (drugs) as the only code sets permitted on standard transactions, and adopts each set's official guidelines as part of the standard. A covered entity must use the code set valid on the date of service (or discharge, for inpatient). This is why there is no grace period and why the ICD-10-CM Official Guidelines are enforceable, not advisory.

Federal · Medicare inpatient

42 CFR Part 412, Social Security Act 1886(d); FY 2027 IPPS final rule

Establishes the MS-DRG system, the annual recalibration, the CC/MCC lists, present-on-admission reporting and the Hospital-Acquired Condition payment provisions (SSA 1886(d)(4)(D)), outliers, transfers and the documentation and coding adjustment. The FY 2027 rule (published August 4, 2026, effective October 1, 2026) sets a 2.3% operating update, a $49,346 outlier threshold, grouper version 44 and the TEAM model refinements. The UHDDS definitions of principal and other diagnoses are incorporated through the official guidelines.

Federal · Medicare outpatient and physician

42 CFR Part 419 (OPPS) and Part 414 (physician fee schedule); CY 2026 rules

OPPS: APC grouping, status indicators, packaging, the inpatient-only list, provider-based department rules (42 CFR 413.65) and site-neutral payment. CY 2026 adds the three-year IPO phase-out, 40% APC payment for drug administration at excepted off-campus departments, and the 0.5% 340B remedy offset. PFS: RVUs, the conversion factors ($33.40 and $33.57 for 2026), global surgery indicators, the 2.5% efficiency adjustment to work RVUs for non-time-based services, telehealth policy, and the split/shared, incident-to (42 CFR 410.26) and teaching physician (42 CFR 415.172) billing rules.

Federal · NCCI and medical review

NCCI Policy Manual for Medicare Services; Medicare Claims Processing Manual (Pub. 100-04) and Program Integrity Manual (Pub. 100-08)

NCCI edits are CMS policy applied to all Part B claims under the statutory authority to pay only for reasonable and necessary services correctly coded (SSA 1862(a)(1)(A)). Chapter 12 of the Claims Processing Manual sets physician billing rules (E/M, global surgery, modifiers, incident-to); Chapter 3 of the Program Integrity Manual sets medical review and signature requirements. Medicaid NCCI is required by the Affordable Care Act section 6507.

Federal · False Claims Act

31 USC 3729–3733

Liability for knowingly presenting, or causing to be presented, a false claim, or knowingly retaining an overpayment (the reverse false claim provision). "Knowingly" includes deliberate ignorance and reckless disregard, which is how a pattern of unsupported codes with no audit program becomes a knowing violation. Treble damages plus a per-claim penalty of $14,308 to $28,619 (the 2025 inflation adjustment; no 2026 adjustment was made because the October 2025 CPI data was not published). Qui tam relators, often coders, CDI staff or compliance officers, file most cases.

Federal · Overpayments

SSA 1128J(d); 42 CFR 401.301–401.305 (Medicare Parts A and B 60-day rule)

Report and return identified overpayments within 60 days, with a six-year lookback. Effective January 1, 2025, an overpayment is "identified" when the person knowingly receives or retains it (the FCA knowledge standard), and the 60-day deadline is suspended for up to 180 days while a timely, good-faith investigation quantifies it. Coding audit findings are the classic trigger. Disclosure routes: refund to the MAC, the OIG Self-Disclosure Protocol, or the CMS Self-Referral Disclosure Protocol for Stark issues.

Federal · Conditions of participation and records

42 CFR 482.24 (hospital medical record services); 42 CFR 424.5 (basic conditions of payment)

Records must be accurate, promptly completed, authenticated by the responsible practitioner, and retained at least five years (longer under state law). Payment requires sufficient information to determine that the service was furnished and the amount due, which is the regulatory basis for "insufficient documentation" denials. Query responses and addenda are part of the legal record and must be dated and signed as such.

Industry standards

ICD-10-CM and ICD-10-PCS Official Guidelines; AHA Coding Clinic; AMA CPT guidelines and CPT Assistant; ACDIS/AHIMA query brief; AHIMA Standards of Ethical Coding

The guidelines are binding through HIPAA. Coding Clinic and CPT Assistant are the recognized interpretive authorities that payers, auditors and courts cite. The ACDIS/AHIMA Guidelines for Achieving a Compliant Query Practice (2022, with the 2023 addendum) and AHIMA's Standards of Ethical Coding define compliant query and coding conduct; organizations adopt them by policy so they become auditable internal standards.

Federal · OIG compliance guidance

OIG General Compliance Program Guidance (November 2023) and the hospital and physician practice compliance program guidances

The seven elements of an effective program (written policies, compliance officer and committee, training, communication lines, auditing and monitoring, enforcement and discipline, response and prevention) applied to coding: coding and documentation audits, no compensation tied to coded severity, query policy, and a process for refunding overpayments. The annual OIG Work Plan names the coding targets of the year (inpatient DRGs with high severity, E/M, telehealth, skin substitutes, remote monitoring, Medicare Advantage diagnosis coding).

Federal · Price transparency and No Surprises Act

45 CFR Part 180 (hospital price transparency); Public Health Service Act 2799B (No Surprises Act, good faith estimates)

The machine-readable file and shoppable services display expose the chargemaster and negotiated rates by code; the 2026 OPPS rule adds percentile disclosures for algorithmic prices, senior-official attestation, and enforcement from April 1, 2026. Good faith estimates for self-pay patients depend on expected codes being right before the service. Both make the CDM a public document with legal consequences.

State and payer

State Medicaid coding and billing manuals; commercial reimbursement policies; contracts

Medicaid programs set their own modifier rules, NDC requirements and (often) APR-DRG grouping. Commercial payers publish reimbursement policies for modifier 25, 59, multiple procedure reductions, bilateral logic and facility E/M that may differ from Medicare. Contracts define the DRG version, the grouper date, clinical validation rights and DRG downgrade appeal timelines. None of them changes the correct code; all of them change the payment and the edit.

Chapter 12

Key numbers 2026–27

Item	Figure	Context
Code sets
ICD-10-CM FY 2027 (effective Oct 1, 2026)	238 new · 4 revised · 21 deleted	190 new billable codes, 48 new headers; 74,879 billable codes in total
ICD-10-PCS FY 2027	101 new · 38 deleted	79,256 codes; 50 of the new codes in 13 new technology tables
CPT 2026 (effective Jan 1, 2026)	418 changes	288 new, 84 deleted, 46 revised; 46 new lower-extremity revascularization codes; remote monitoring from 2 days
NCCI PTP file in force	2026 Q4 (v323r0)	Effective Oct 1, 2026; next update Jan 1, 2027 with the new Policy Manual
MS-DRG grouper	Version 44	Discharges from Oct 1, 2026
Medicare payment updates
IPPS operating update FY 2027	+2.3%	3.2% market basket less 0.9 points productivity; about $2.9 billion total growth
IPPS fixed-loss outlier threshold	$49,346	Up from $40,397 in FY 2026
IPPS labor-related share	66% / 62%	Wage index above 1.0 / at or below 1.0
OPPS update CY 2026	+2.6%	3.3% market basket less 0.7 points productivity
PFS conversion factor CY 2026	$33.40 / $33.57	Non-APM (+3.26%) / qualifying APM (+3.77%); includes a one-year 2.5% statutory increase
PFS efficiency adjustment	−2.5%	Work RVUs of non-time-based services; E/M and other time-based codes exempt
Inpatient-only list phase-out	285 codes, 2026–2029	560 services added to the ASC covered list
Drug administration at excepted off-campus PBDs	40% of APC	Modifier PO; rural SCHs exempt
E/M time thresholds (minutes, CPT 2026)
Office, new 99202–99205	15 · 30 · 45 · 60	Prolonged 99417 from 75; Medicare G2212 from 89
Office, established 99212–99215	10 · 20 · 30 · 40	Prolonged 99417 from 55; Medicare G2212 from 69
Hospital initial 99221–99223 / subsequent 99231–99233	40 · 55 · 75 / 25 · 35 · 50	Discharge 99238 up to 30, 99239 over 30
Accuracy and integrity
Medicare FFS improper payment rate FY 2025	6.55% · $28.83 billion	Down from 7.66%; Part C 6.09%, Part D 4.00%, Medicaid 6.12%, CHIP 7.05%
Coding accuracy target (industry convention)	95%	DRG and code-level; organization-set, not regulatory
False Claims Act penalty per claim	$14,308–$28,619	Plus treble damages; 2025 adjustment carried into 2026
Overpayment report-and-return window	60 days · 6-year lookback	Up to 180 days of good-faith investigation before the clock runs (from 2025)
Dates ahead
CPT 2027, HCPCS annual update, NCCI Policy Manual 2027, CY 2027 PFS and OPPS rates	Jan 1, 2027	Chargemaster and encoder update window: November–December 2026
Quarterly HCPCS, NCCI PTP and MUE files	Jan 1 · Apr 1 · Jul 1 · Oct 1	Posted roughly a month ahead
ICD-10-CM/PCS FY 2028, MS-DRG v45, FY 2028 IPPS	Oct 1, 2027	Proposed rule expected April 2027
TEAM model	Jan 1, 2026 – Dec 31, 2030	Five surgical episodes; spinal fusion DRGs 523–525 added for FY 2027

What is changing

In effect Oct 1, 2026

FY 2027 ICD-10 and MS-DRG v44

238 diagnosis entries and 101 procedure codes, new pacemaker, spinal fusion, gynecologic oncology and periprosthetic infection DRGs, homelessness Z codes no longer CCs, and the Q4 NCCI files. Encoders, CDMs and CDI query templates should already reflect them.

Coming Jan 1, 2027

CPT 2027 and the CY 2027 rules

The next CPT edition, the 2027 NCCI Policy Manual, new PFS conversion factors (the 2026 one-year 2.5% increase expires unless Congress acts) and further OPPS site-neutral and IPO list changes. Watch the CY 2027 PFS and OPPS final rules, due in early November 2026.

Under pressure

Clinical validation and AI review

Payers increasingly deny or downgrade DRGs on clinical criteria rather than coding rules, and use automated review to do it at scale. Programs need clinical validation queries, physician advisor escalation, and contract language on which criteria apply and how downgrades are appealed.

Sources

Chapter 13

Glossary

Chapter 14

Knowledge check

Eight questions drawn from the chapters above. Pick an answer to see the explanation.

Score: 0 / 8

For training and reference. This page summarizes general rules and does not replace the official coding guidelines, CPT, payer contracts, CMS manuals, state law or legal advice. Example names, IDs, codes assigned to fictional patients, DRG weights in the illustrator and NCCI sample values are illustrative. Riverside Medical Group, Northwind Health Plan, Jordan Doe and Dr. Ana Rivera are fictional.

Figures checked October 15, 2026.