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HCPCS Level II Codes

The regulations that CMS published on August 17, 2000 to implement the HIPAA requirement for standardized coding systems established the HCPCS level II codes as the standardized coding system for describing and identifying health care equipment and supplies in health care transactions that are not identified by the HCPCS level I, CPT-4 codes. The HCPCS level II coding system was selected as the standardized coding system because of its wide acceptance among both public and private insurers. Public and private insurers are required to be in compliance with the provision of the August 2000 regulation by October 1, 2002. The purpose of this part of this notice is to provide a description of level II of the HCPCS.

The HCPCS level II is a comprehensive and standardized coding system that describes classifications of like products that are medical in nature by category for the purpose of efficient claims processing. For each HCPCS code, there is a descriptive terminology that identifies a category of like items. These codes are used primarily for billing purposes. For example, suppliers use HCPCS level II codes to identify on claim forms the items for which they are billing a private or public health insurer.

HCPCS is a system for identifying items and services. It is not a methodology or system for making coverage or payment determinations, and the existence of a code does not, of itself, determine coverage or noncoverage for an item or service. While these codes are used for billing purposes, decisions regarding the addition, deletion, or modification of HCPCS codes are made independent of the process for making determinations regarding coverage and payment.

Currently, there are national HCPCS codes representing over 4,000 separate categories of like items or services that encompass millions of products from different manufacturers. In submitting claims, suppliers are required to use one of these codes to identify the items they are billing. The descriptor that is assigned to a code represents the official definition of the items and services that can be billed using that code. To avoid any appearance of endorsement of a particular product through HCPCS, the descriptors that are used to identify codes do not refer to specific products. For this reason, brand or trade names are not used to describe the products represented by a code.

In summary, the HCPCS level II coding system has the following characteristics:

  • This system ensures uniform reporting on claims forms of items or services that are medical in nature. Such a standardized coding system is needed by public and private insurance programs to ensure the uniform reporting of services on claims forms by suppliers and for meaningful data collection.
  • The descriptors of the codes identify like items or services rather than specific products or brand/trade names.
  • The coding system is not a methodology for making coverage or payment determinations. Each payer makes determinations on coverage and payment outside this coding process.

Types of HCPCS Level II Codes

There are several types of HCPCS level II codes depending on the purpose for the codes and who is responsible for establishing and maintaining them.

Permanent National Codes

National permanent HCPCS level II codes are maintained by the HCPCS National Panel. The National Panel is comprised of representatives from AHIP, BCBSA, and CMS. The Panel is responsible for making decisions about additions, revisions, and deletions to the permanent national alpha-numeric codes. Decisions regarding changes to the national permanent codes are only made by unanimous consent of all three parties. Since HCPCS is a national coding system, none of the parties, including CMS, can make unilateral decisions regarding permanent level II national codes. These codes are for the use of all private and public health insurers.

The permanent national codes serve the important function of providing a standardized coding system that is managed jointly by private and public insurers. It supplies a predictable set of uniform codes that provides a stable environment for claims submission and processing.

Dental Codes

The dental codes are a separate category of national codes. The Current Dental Terminology (CDT) is a publication copyrighted by the American Dental Association (ADA) that lists codes for billing for dental procedures and supplies. The CDT4 is included in HCPCS level II. Decisions regarding the modification, deletion, or addition of CDT codes are made by the ADA and not the National Panel.

As the Department of Health and Human Services has an agreement with the AMA pertaining to the use of the Current Procedural Terminology (CPT-4) codes for physician services, it also has an agreement with the ADA to include CDT4 as a set of HCPCS level II codes for use in billing for dental services.

Miscellaneous Codes

National codes also include "miscellaneous/not otherwise classified" codes. These codes are used when a supplier is submitting a bill for an item or service and there is no existing national code that adequately describes the item or service being billed. The importance of miscellaneous codes is that they allow suppliers to begin billing immediately for a service or item as soon as it is allowed to be marketed by the Food and Drug Administration (FDA) even though there is no distinct code that describes the service or item. A miscellaneous code can be used during the period of time a request for a new code is being considered under the HCPCS review process. The use of miscellaneous codes also helps us to avoid the inefficiency of assigning distinct codes for items or services that are rarely furnished or for which we expect to receive few claims.

Because of miscellaneous codes, the absence of a specific code for a distinct category of products does not affect a supplier's ability to submit claims to private or public insurers. Claims with miscellaneous codes are manually reviewed, the item or service being billed must be clearly described, and pricing information must be provided along with documentation to explain why the item or service is needed by the beneficiary.

Ordinarily, before using a miscellaneous code on a claim form, a supplier should check with the contractor that will receive the payment claim to determine whether there is a specific code that should be used rather than a miscellaneous code. However, in the case of claims that are to be submitted to one of the four durable medical equipment regional carriers (DMERCs), suppliers that have coding questions should check with the statistical analysis durable medical equipment carrier (SADMERC). The SADMERC is responsible for providing suppliers and manufacturers with assistance in determining which HCPCS code should be used because it best describes a given DMEPOS item.

If no current code exists that describes the product category to which the item belongs, the SADMERC will instruct the supplier to submit claims using a "miscellaneous/not otherwise classified" code. In those cases in which a supplier or manufacturer has been advised to use a miscellaneous code because there is no existing code that describes a given product, and the supplier or manufacturer believes that the code is needed, it should submit a request to modify the HCPCS in accordance with the established process. The process for requesting a modification to the HCPCS level II codes is explained below.

Temporary National Codes

The CMS and the other members of the National Panel maintain their own series of codes that are independent of the permanent national codes. These codes are called temporary codes. Permanent national codes are only updated once a year on January 1. Temporary codes allow insurers the flexibility to establish codes that are needed before the next January 1 annual update for permanent national codes or until consensus can be achieved on a permanent national code. Approximately 35 percent of the level II HCPCS codes are temporary codes.

The National Panel has set aside certain sections of the HCPCS to allow National Panel members to develop temporary codes. However, decisions regarding the number and type of temporary codes and how they are used are not made by the National Panel but are made independently by each National Panel member. Temporary codes are for the purpose of meeting, within a short time frame, the operational needs of a particular insurer that are not addressed by an already existing national code. This means that if, before the next scheduled annual update for permanent codes, a member of the National Panel needs a code in order to meet specific operating needs that pertain to its particular programs, it may establish a national temporary code. In the case of Medicare, decisions regarding temporary codes are made by the HCPCS workgroup, which is an internal CMS workgroup. For example, Medicare may need additional codes before the next scheduled annual HCPCS update to implement newly issued coverage policies or legislative requirements. Although we establish temporary codes to meet our specific operational needs, the temporary codes we establish can be used by other insurers.

The National Panel may decide to replace temporary codes with permanent codes. However, if permanent codes are not established, temporary codes could remain as "temporary" codes indefinitely. Whenever a permanent code is established by the National Panel to replace a temporary code, the temporary code is deleted and cross-referenced to the new permanent code.

Types of temporary HCPCS codes:
  • The C codes were established to permit implementation of section 201 of the Balanced Budget Refinement Act of 1999. The C codes identify items that may qualify for "pass through" payments under the hospital outpatient prospective payment system (HOPPS). These codes are used exclusively for the HOPPS purposes and are only valid for Medicare on claims submitted by hospital outpatient departments.
  • The G codes are used to identify professional health care procedures and services that would otherwise be coded in CPT-4 but for which there are no CPT-4 codes.
  • The Q codes are used to identify services that would not be given a CPT-4 codes, such as drugs, biologicals, and other types of medical equipment or services, and which are not identified by national level II codes but for which codes are needed for claims processing purposes.
  • The K codes were established for use by the DMERCs. The K codes are established for use by the DMERCs when the currently existing permanent national codes do not include the codes needed to implement a DMERC medical review policy. For example, codes other than the permanent national codes may be needed by the DMERCs to identify certain product categories and supplies necessary for establishing appropriate regional medical review coverage policies.
  • The S codes are used by the BCBSA and the AHIP to report drugs, services, and supplies for which there are no national codes but for which codes are needed by the private sector to implement policies, programs, or claims processing. They are for the purpose of meeting the particular needs of the private sector. These codes are also used by the Medicaid program, but they are not payable by Medicare.
  • The H codes are used by those State Medicaid agencies that are mandated by State law to establish separate codes for identifying mental health services such as alcohol and drug treatment services.
  • The T codes are designated for use by Medicaid State agencies to establish codes for items for which there are no permanent national codes and for which codes are necessary to administer the Medicaid program (T codes are not used by Medicare but can be used by private insurers).
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