For the most part, payment for medical services in the United States in 2006 is tightly connected to the procedure or procedures performed. In addition, those who pay for the bulk of medical services, insurers such as Medicare, Medicaid, United Healthcare, Aetna, and others, require that the patient has a medical condition that justifies performing the procedure. To meet these medical necessity requirements, physicians must not only tell the payer what was done by reporting a procedure code but must also provide the reason by reporting a diagnosis code. In a later chapter we will discuss medical necessity policies, but first let us explore the structure of medical codes.

Medical codes consist of two elements, a unique identifier and a text descriptor. The identifier is a unique but arbitrary sequence of characters, which may be limited in length (e.g., five characters) and character composition (e.g., digits in the first four characters and digits or capital letters in the last character). The text descriptor provides an unambiguous and discrete exposition of the characteristics covered by the code. For purposes of submitting claims, the identifier is exactly equivalent to the text descriptor; therefore, your billing office or billing service only needs to submit the code identifier(s) to get the payment process started. The text descriptor, which is often very long, can remain happily in your computer or coding reference book and not waste bandwidth or paper.