Coding for Innovation

July 8, 2011

Martin J. Citardi, MD
Professor & Chair


Otorhinolaryngologists, like other physicians, consider innovation to be a core driver in improving the health of patients, since innovation offers the promise of new therapeutic alternatives.   In the ideal world, innovation improves patient outcomes (and access) at lower cost, and physicians can evaluate each innovation without bias.  In reality, the US healthcare system, which has a reputation for rapidly embracing new technology,  is characterized by dysfunction in how it promotes, evaluates and adopts innovations:

  • The current reimbursement model impacts the adoption of innovative therapies so that each innovation may or may not be evaluated purely on its own merit.
  • New therapies may not represent true advances.  Real innovation, which is not the same thing as a new invention, is characterized by the introduction of a novel device or process that is better than what currently exists, is economically viable and has widespread appeal.
  • The regulatory process may directly influence the development of new therapies, as the innovators (and their financial backers) seek to develop a viable business model to support new ventures.
  • Both real and potential conflicts of interest abound among all stakeholders, including the government and professional associations.

Practicing surgeons, who employ new technology, often are frustrated by a reimbursement system that appears hostile to the introduction of new technology; this, of course, is further reflection of the dysfunctional state of American healthcare.   In particular, surgeons will quickly point to the limitations of the American Medical Association’s Current Procedural Terminology (CPT) system, the foundation for reporting physician work for reimbursement, to demonstrate a critical obstacle.  Unfortunately, this characterization of CPT is incomplete.  While CPT is imperfect, it does offer pathways for introducing, evaluating and valuing new procedures and technology.

CPT codes are divided into 3 categories.  Category I codes are the primary codes that are used for reporting accepted procedures and services, while category II codes are tracking codes for the measurement of process improvement.  Category III codes are temporary codes explicitly designed for new and emerging technology.

Surgeons have 3 options for coding a procedure that is not explicitly covered by category I CPT codes:

  • Use an existing code (with or without a modifier)
  • Use a category I unlisted procedure code
  • Use a category III code

How does the surgeon choose the optimal selection?    The quick answer is that the first option is not the best choice.

CPT principles should guide the process:

Select the name of the procedure or service that accurately identifies the service performed. Do not select a CPT code that merely approximates the service provided.  If no such specific code exists, then report the service using the appropriate unlisted procedure or service code.   (from AMA Code Manager, 2011 Q-2 update)

Furthermore, CPT principles prohibit the application of a category I for an open procedure to the corresponding “endoscopic” procedure.  This is an important concept, since many recent surgical interventions have included the application of endoscopic approaches for procedures that otherwise require incisions and “open” surgery.

Thus, the traditional surgeon preference for selecting an existing code is simply incorrect.  The appropriate code will always be the category I unlisted procedure code—or a category III CPT code (if such a code exists).

Inappropriate usage of the category I code may be considered a fraudulent billing practice, even if the surgeon’s intent is to simply report work that he or she has been performed.  Certainly, selection of the category I CPT code merely because it is more likely to be reimbursed is simply wrong.   Furthermore, such inaccurate coding distorts code utilization reporting, which is an important part of the valuation process maintained by Center for Medicare Services (CMS).

The pathway for the development of a new code for new technology has the following milestones:

  • The use of an unlisted procedure code usage is first step.  If there is sufficient interest, a category III code may be developed through the AMA process for code development.
  • After it is introduced, the category III code tracks volume.
  • For practicing physicians, the category III codes may or may not be reimbursed.
  • Each category III code has a finite life span of 5 years.  In theory, a category III code may be renewed for an additional 5 years, but this has never happened.
  • A category III code may be promoted to a category I code through the AMA review process.  When a category I code is created, it is assigned a valuation (i.e., relative value units or RVUs).
  • Individual third party payors will develop reimbursement policies for each CPT code.  Often, these policies will reflect CMS policies, but this is not necessarily true.

Surgeons need to understand the key characteristics for category I unlisted procedure codes:

  • These codes are not intended to report so-called “experimental” surgery or technology.
  • Each unlisted procedure code does not have an evaluation; the surgeon must develop a unique valuation for this work, based on consistent principles.  Commonly, surgeons will value an unlisted procedure by looking for a combination of similar procedures with established valuations.  For this reason, reimbursement for unlisted procedure codes is often problematic; direct communications with payers are required.
  • Because the unlisted procedure code is not specific, it is impossible to track utilization.
  • If sufficient interest exists, a category III code may be introduced.

Similarly, surgeons should be familiar with the features of category III codes:

  • Category III codes are not developed for reporting experimental surgery.
  • Each category III code has no formal valuation.  When using a category III code, a surgeon must develop a valuation in a process that is analogous to what is done for an unlisted procedure code.
  • Category III codes facilitate utilization tracking.
  • A category III code may be promoted to category I status.  When this happens the total resources assigned to code family increases.  (In contrast, when a new category I code is developed directly, the resources assigned to the code family are not increased, and as a result, the new code partially dilutes the valuations of the pre-existing codes in that code family.)

Skeptics will quickly point out the pitfalls in following the CPT system’s approach for incorporating innovation, and they will have many valid points.  But, these arguments are not a rationale for ignoring CPT’s ground rules.  Over the long run, consistent application of CPT principles will help ensure an equitable and transparent approach for reporting physician work.