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The Medical Reimbursement Alphabet


Medical billing is complex, but whether you outsource this process or take a more hands-on approach, familiarity with the factors that go into reimbursement is necessary.


Understanding medical billing has not traditionally been part of the medical school curriculum.

Doctors provide patient care services that are reimbursed within a system that requires a good deal of business know-how to master. If you work in private practice, you have to learn the billing aspects yourself, or outsource these essentials. If you are employed and salaried, learning these specifics is something you can choose to opt out of, leaving some of the details to your employer — but most doctors, nurse practitioners (NPs) and physician assistants (PAs) understandably want to grasp the system by which payment is calculated.

Billing fees for medical care are partially determined based on a formal classification system, regulated by the government and private insurance payers, and also partially influenced by the free market environment. The resulting billing structure can make the process of requesting compensation for health care services feel like one of the most complicated procedures of any well-established business in the world.

Several important terms that are coupled with the standardized portion of the cost of health care include International Statistical Classification of Diseases and Health Problems (ICD), Current Procedural Terminology (CPT) and Relative Value Unit (RVU).


The ICD is a classification of disease that was initially designed in the late 1800’s and early 1900’s to statistically track diseases. It has been revised approximately every 10 years, with the most recent revision, ICD-10 in 2015 by the World Health Organization (WHO). The U.S. version of this international system contains at least 68,000 different codes sub classifying disease, medical conditions and details of a patient’s clinical history, social history and physical examination findings.

Medicare mandates the use of ICD codes for payment, and insurance companies require ICD codes as well. Yet these codes do not describe the service provided or determine compensation. The ICD code establishes a medical condition that serves to justify the service performed.


The CPT code categorizes the service provided to the patient. The American Medical Association (AMA) publishes a CPT manual, which is used to precisely classify health services, including clinical evaluation and management as well as procedures such as surgery. Current ICD codes and CPT codes must be submitted on medical bills to justify the medical service and to describe the service provided. Yet, while ICD codes and CPT codes for a specific patient’s condition and medical service are meant to be uniform, they do not directly translate into a fixed dollar value for compensation consistent among either patients or health care providers.


RVUs are used by Medicare to determine payment for medical services and procedures. Medicare establishes RVUs based on a calculation that incorporates physician work, practice cost and malpractice cost, each with a regional adjustment, the Geographic Practice Cost Index (GPCI). Private insurers may or may not formally use RVU, but often, physicians and hospital systems use RVUs as benchmarks when negotiating contracts for reimbursement, comparing physician productivity, calculating salaries and allocating revenue.


The electronic medical record (EMR), which is rapidly replacing physical patient charts, has not formally been tied to reimbursement by law, but many hospital systems and payers are relying on or even requiring information entered into the EMR to track patient conditions, verify services and justify payment.

Medical billing is complex. Whether you completely outsource this process or take a more hands-on approach, some familiarity with the factors that go into your reimbursement is necessary as you think about your workflow and the viability and profitability of your practice.

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