Want to get paid? Here’s why you should understand healthcare reimbursement

By Naveed Saleh, MD, MS
Published December 15, 2021

Key Takeaways

As you know, billing patients and then getting paid by insurers is no willy-nilly process. It is standardized with the use of Current Procedural Terminology (CPT) codes. CPT codes are a lingua franca that permits practicing physicians to code for medical services/procedures in a fashion that streamlines reporting, maximizes precision, facilitates claim processing, and formulates the basis of medical care review.

According to the AMA, these codes are used for more than just reporting procedures/services to federal and private payers for remuneration. With healthcare continuously changing, CPT codes remain a constant. Without them, members of private practices, group practices, hospital practices, and more, wouldn’t get remunerated for their hard work.

But, have you ever really sat down and pondered this important bureaucratic measure? Or, how about the other aspects of billing and reimbursement that put money in your pocket? Here’s a closer look at how reimbursement by payers plays out. 


CPT codes have been around for more than 50 years. In 1966, the AMA formulated CPT codes to standardize the reporting of medical, surgical, and diagnostic services/procedures used in inpatient and outpatient contexts. Each CPT code reflects a written description of the procedure/service and is devoid of subjectivity.

CPT codes are made up of five characters that are mostly numerals but some have a fifth alpha character tacked on the end including F, T, or U. For instance, 33275 represents “transcatheter removal of a permanent leadless pacemaker, right ventricular,” whereas 0079U refers to “comparative DNA analysis using multiple selected single-nucleotide polymorphisms (SNPs), urine and buccal DNA, for specimen identity verification.”

The CPT code set is routinely updated and revised by the CPT Editorial Panel, which obtains input from clinical and industry experts to mirror the state of clinical practice and the newest technology. These efforts enhance the delivery of healthcare.

The CPT Editorial Panel is appointed by the AMA Board of Trustees and is an independent group of expert volunteers from diverse healthcare backgrounds. The aim of this impartial group is to make sure that code changes are subjected to evidence-based reviews and reflect established criteria. They meet three times a year to look over applications for new codes or revisions of existing ones, and visitors can attend their meetings.

This panel is advised by CPT Advisors, who are groups of doctors nominated by the national specialty societies, which are represented in AMA governance. The CPT Advisors guide procedure coding and nomenclature and suggest revisions to the code set. They work with industry stakeholders when facilitating change and educating the constituents they represent on the use of CPT codes.

CPT categories

The AMA organizes CPT codes into three categories: 

  • CPT Category I is the largest corpus of codes and represents the most commonly reported services/procedures.

  • CPT Category II covers supplemental tracking codes. These are used to facilitate performance management.

  • CPT Category III includes temporary codes used for emerging/experimental procedures.

CPT also covers “unlisted codes” that are not specified elsewhere.

Other code sets

As described by the American Academy of Professional Coders (AAPC), CPT codes are one of four primary code sets. The other three include the following:

  • Healthcare Common Procedural Coding System (HCPCS) Level II, which reports, services, procedures, supplies, drugs, and equipment

  • ICD-10-CM, which reports diagnoses for inpatient/outpatient healthcare providers

  • ICD-10-PCS, which reports inpatient procedures at hospitals

Of note, HCPCS Level II codes are Level II of the CPT codes and were established by the AMA in coordination with CMS in 1980 to develop a classification system for medical supplies, equipment, and other supplies or services that were not a part of the CPT. Although initially used only by Medicare, other payers found these HCPCS Level II codes useful and started employing them. Examples include codes for prostheses, nutrition therapy, and durable medical equipment.

Here is a full list of CPT/HCPCS codes provided by CMS.

Medical necessity

To code (and receive reimbursement) successfully, the patient’s diagnosis must justify the procedure or service rendered. In addition to the CPT code, an ICD-10-CM code must be tendered that indicates the patient’s diagnosis to the most specific extent feasible. In essence, the ICD-10-CM code, which specifies diagnosis, lays the foundation for the CPT code, which specifies the procedure or service.

For instance, if the patient comes into the office and complains of cough, the diagnosis, which is represented by the CPT code, may be upper respiratory infection with a lung exam performed by the provider, which is represented by the ICD-10-CM code.

What insurers pay

The majority of physicians participate in various insurance panels to serve a wide base of patients, many of whom qualify for coverage via the Affordable Care Act. It’s the uncommon physician who can forego insurance payment, and set their own prices, with the expectation that patients will fully pay out of pocket.

Physicians can tender claims to payers via a clearinghouse that checks claims for potential errors. When there is an error, the clearinghouse rejects the claim, and the provider tenders a new or “clean claim.”

Physicians are typically paid on the basis of a specific payer contract or fee schedule. This whole process is pretty standard, with each service or procedure linked to a payment rate based on work needed for the task. The rate also considers practice/malpractice expenses and is called a fee-for-service model. The more services that the doctor does, the greater the pay. Although Medicare has geographic rates of reimbursement that are locked, the physician may negotiate healthcare reimbursement rates with commercial contracts.

Nowadays, reimbursement is increasingly shifting toward value-based models. In these models, hospitals and doctors are paid based on quality of care and patient outcomes, as well as the physician’s ability to mitigate costs. Higher reimbursement rates accompany high-quality, low-cost care sized up with provider and colleagues’ benchmark data.

Claims can be rejected by payers, as detailed by the blog Continuum, which is a bespoke publication disseminated by CareCloud, a company in the healthcare IT space.

“After a claim passes successfully through the clearinghouse, a payer reviews the claim and either adjudicates fully towards the allowable amount or rejects all or a portion of the claim,” per the blog. “Payers communicate healthcare reimbursement rejections to providers using remittance advice codes that include brief explanations. Providers must review these codes to determine whether and how they can correct and resubmit the claim or bill the patient.

One reason for rejecting reimbursement could be that certain services should not be billed during the same visit. Other reasons include lack of necessity or unacceptable timeframe of related procedures, as well as noncoverage.

Finally, audits after pay, audits can occur. To clear an audit, the provider must offer supporting documentation. Audits can result in the provider owing money to the payer.

Bottom line

The lion’s share of physicians rely on payers including insurance companies. Whether in private practice or employed by a hospital, coding and reimbursement are pretty standard. It behooves any physician to understand the process better.  

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