Top Audit Finding: Discrepancies in Secondary Diagnosis Assignment on Outpatient and Pro-Fee Claims

There is no need to worry about coding for HCCs or risk adjustment, writes the author. Just follow the coding guidelines.

Confusion abounds regarding the application of Section IV ICD-10-CM Coding Guidelines. And while hospital outpatient coders may be more programmed to code additional diagnoses, physician pro-fee coders may just be getting their feet wet.

Coding hospital outpatient and provider claims goes beyond Medicare Part B reimbursement and medical necessity. Failure to capture all codes according to the guidelines can impact hierarchical condition categories (HCCs) used by Medicare Advantage (Part C). With more and more focus on HCCs and meeting medical necessity, the coding guidelines are often forgotten.

Most hospital outpatient coders are accustomed to assigning all applicable additional diagnoses according to the guidelines. On the hospital side we’ve always pushed guideline coding, but medical necessity has muddied the waters. Many hospital coders are now being asked to add all codes that meet medical necessity for a procedure or service, even if coding them defies the guidelines.

Many pro-fee coders are accustomed to assigning diagnosis codes to match CPT® codes and meet medical necessity. For example, if a physician intends to perform an in-office EKG there should be a diagnosis code that supports the procedure. Coders must map the ICD-10-CM code to the CPT code. But with HCCs, physicians are seeing the benefit of coding everything that impacts patient care to identify HCC conditions. This increases the complexity of caring for the patient and potentially increases the physician’s reimbursement.

Medical necessity coding issues aside, the key to pro-fee and hospital outpatient coding lies in following the coding guidelines.

Section IV. Diagnostic Coding and Reporting Guidelines for Outpatient Services

How are these guidelines different from Sections II and III guidelines for hospital inpatients? In Sections II and III we use definitions from the Uniform Hospital Discharge Data Set (UHDDS) collected and recorded on all hospital inpatients, but those definitions do not apply outside the hospital inpatient setting.

The UHDDS definition of “principal diagnosis” does not apply to hospital outpatient or physician coding. That means section II guidelines do not apply to the pro-fee setting, even when coding for physician services provided to a hospital inpatient. Section IV guidelines apply to physicians, regardless of the setting in which the physician provides care.

Another big change between coding for hospital inpatient and hospital outpatient/pro-fee settings is the coding of uncertain diagnoses. Inconclusive diagnoses such as “probable,” “suspected,” or “rule out” cannot be reported in the hospital outpatient and pro-fee settings.

First-listed Diagnosis

In the hospital outpatient and pro-fee settings, the term “first-listed diagnosis” is used in lieu of “principal diagnosis.” According to ICD-10-CM coding guidelines, “Diagnoses are often not established at the time of initial encounter/visit. It may take two or more visits before the diagnosis is confirmed.” The guidelines provide more information about selecting the first-listed diagnosis when the reason for the encounter is surgery, observation, or diagnostic services. Coding for diagnostic services in the physician and the hospital outpatient setting has led to more questions because that is often where medical necessity interferes with the guidelines.

Given the complexity of this area, Coding Clinic for ICD-10-CM/PCS offers some excellent articles with specific examples about selecting first-listed diagnosis for diagnostic services. However, most physician offices don’t have access to Coding Clinic and it is not part of most provider-based encoding programs. This is unfortunate, because the responses typically state exactly how the physician should code a particular claim.

The Medical Necessity Mess

Coders are often instructed to code all signs and symptoms associated with a definitive condition in order to meet medical necessity.

This issue is often seen in audits as a type of diagnosis overcoding. For example, the record may reflect coding for pneumonia and chest pain. Because chest pain is commonly associated with pneumonia, it should not be coded separately. According to the guideline, you would code only the definitive condition, which is the pneumonia. Likewise, you would not code shortness of breath in addition to COPD. You would not code back pain separately from degenerative disk disease. But there are times when reviewing the payer policy allows for reporting a medically necessary diagnosis while maintaining the integrity of the coding guidelines.


The patient presented to the ED with chest pain. His EKG was abnormal, so he was sent for a cardiac stress test. The stress test was normal, and he was given a diagnosis of chest pain due to gastroesophageal reflux disease (GERD). Review of the Medicare local coverage determination (LCD) lists two possible diagnoses as meeting medical necessity for the stress test:

R07.1-R07.9 Chest pain on breathing – Chest pain, unspecified

R94.31 Abnormal electrocardiogram [ECG] [EKG]

The problem is, Code K21.9 for GERD does not meet medical necessity for a cardiac stress test. We’ve observed efforts to meet medical necessity where the coder has coded K21.9 for GERD and added a code for chest pain as well as a code for abnormal EKG. In the example, we can cover medical necessity and follow the coding guidelines by coding GERD and “abnormal EKG.” Since the physician said the chest pain was due to GERD and this is a common symptom associated with GERD, adding a diagnosis of chest pain goes against the coding guidelines. But the patient also had an abnormal EKG, which shows medical necessity for performing the test, and since it is not integral to GERD, we can follow coding guidelines and meet medical necessity by coding K21.9 and R94.31.

Here are four issues associated with coding signs and symptoms to meet medical necessity:

  • Medical necessity policy conflicts with the ICD-10-CM Official Guidelines for Coding and Reporting.
  • Coders are not trained to consult payer policies to see if the diagnoses coded are covered for medical necessity. Rather than following the guidelines, coders arbitrarily add codes for signs and symptoms for reimbursement purposes.
  • Coders often lack training and/or coding productivity standards fail to account for review of payer policies before billing. Increased demand for productivity often allows insufficient time for proper coding.
  • Hospitals are not using the Reason for Visit (RSV) fields on the UB-04 to list medically necessary signs and symptoms that are not coded as final diagnoses.

Consider the following suggestions to help ensure accurate determination and coding of medical necessity:

  • Review payer policies before billing. Coders are on the front end of billing process. If a billing issue is related to coding and medical necessity, then it should be the coder’s responsibility to review these policies.
  • On the facility side, ensure outpatient coders are familiar with policies for covering ancillary services such as laboratory tests and radiology and know how to use the RSV fields. Ensure that the RSV fields map appropriately to the UB-04 and that the payer is acknowledging them.
  • Make sure coders understand LCDs and know how to apply them.
  • Review denials on the back end to analyze services denied due to medical necessity issues, but keep in mind that incorrectly coded claims aren’t always rejected. Just because a claim is paid doesn’t mean it is coded correctly. Denials management is only one piece of managing correct diagnostic coding, not a standalone solution.
  • Conduct audits to determine if coders are following coding guidelines and if overcoding to meet medical necessity is an issue.
  • Provide ongoing education and training for coding staff. I recommend annual review of the ICD-10-CM coding guidelines. Sometimes we forget the basics as we get submerged in the minutiae of difficult coding areas.

And what about capturing those HCCs? Capturing HCCs comes with following the guidelines. If the coding guidelines are followed for all cases, codes are reported consistently while meeting HCC, and often medical necessity requirements as well. There is no need to worry about coding for HCCs or risk adjustment. Just follow the coding guidelines!

Listen to Kristi Pollard report on this story live on Monitor Monday, March 12, 10 a.m. EST., click here to register.

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Kristi Pollard, RHIT, CCS, CPC, CIRCC, AHIMA-Approved ICD-10-CM/PCS Trainer

An AHIMA-Approved ICD-10-CM/PCS Trainer, Kristi is Director of Coding Quality and Education for Haugen Consulting Group. With more than 25 years of industry experience, she’s responsible for the development and presentation of coding education, as well as assisting with facility inpatient and outpatient coding audits. Kristi possesses an extensive background in coding education and consulting and is a national speaker and published writer.

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