Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
M  N
EDICARE S  ATIONAL 
C C I
ORRECT  ODING  NITIATIVE 
INSPECTOR GENERAL 
SEPTEMBER 2003 
OEI-03-02-00770  Office of Inspector General

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as amended, is to protect the integrity of the Department of Health and Human Services 
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health care community, and issues fraud alerts and other industry guidance.  E X E C U T I V E   S U M M A R Y

OBJECTIVE 
To determine the extent to which Medicare paid for services that 
should have been denied in 2001 based on the National Correct 
Coding Initiative. 
BACKGROUND 
The Centers for Medicare & Medicaid Services (CMS) 
administers the Medicare program which provides coverage of 
reasonable and necessary health care services for the elderly 
and disabled. CMS contracts with carriers nationwide to 
process most Medicare Part B claims, which include those for 
physician, radiology, and laboratory services. Medicare paid 
$69 billion for Part B services in 2001. 
In January 1996, CMS implemented the National Correct 
Coding Initiative (CCI). This initiative was developed to 
promote correct coding of health care services by providers and 
to prevent Medicare payment for improperly coded services. 
CCI consists of automated edits provided to the carriers to 
evaluate claim submissions when a provider bills more than one 
service for the same beneficiary on the same date of service. 
CMS provides the carriers with two CCI edit files each quarter 
along with instructions on when to apply them to their claims 
processing systems. CCI edit files contain pairs of Healthcare 
Common Procedure Coding System codes (i.e., code pairs) which 
generally should not be billed together by a provider for the 
same beneficiary on the same date of service. One CCI file 
contains code pairs called comprehensive/component edits which 
prevent payment for services which are components of a more 
comprehensive procedure. When comprehensive and component 
codes are billed together, Medicare pays for the comprehensive 
code but not the component code. The second CCI file contains 
code pairs called mutually exclusive edits which prevent 
payment for services which cannot reasonably be performed 
together. When mutually exclusive codes are billed together, 
Medicare generally pays for the least costly code. Under certain 
circumstances, a provider may include a modifier which would 
allow both services in a comprehensive/component code pair or a 
mutually exclusive code pair to be paid. 
OEI-03-02-00770  MEDICARES NATIONAL CORRECT CODING INITIATIVE  i  E X E C U T I V E   S U M M A R Y  
We matched CCI edits for the fourth quarter of 2001 against 
100 percent of 2001 Part B data from CMSs National Claims 
History file to determine if services targeted by CCI edits were 
paid by Medicare. We also determined if any modifiers used 
were among those modifiers that could be used to bypass CCI 
edits. We calculated the number and percent of services that 
should have been denied based on CCI edits and the total 
Medicare payments associated with those services. As a case 
study, we requested information from one Medicare carrier on a 
sample of 100 services that should have been denied based on 
CCI edits to determine why the services were paid. 
FINDINGS 
We found that, overall, the Medicare carriers applied CCI edits. 
These edits prevented payment for 98 percent of services that 
should have been denied when a provider billed more than one 
service for the same beneficiary on the same date of service. Of 
the 2 percent of services that met the criteria for denial based on 
CCI edits, our analysis indicated that 70 percent of these 
services may have been paid appropriately if they involved 
adjusted payments. In these cases, the two services involving 
the CCI code pair were billed to the Medicare program on 
different days. Therefore, payments for both services may have 
been correct if payment for the second service was adjusted to 
account for the payment of the earlier service. Of a sample of 
100 services sent to one carrier, we found that nearly two-thirds 
were paid appropriately due to such adjustments. 
Nearly all of the services targeted by the National Correct 
Coding Initiative edits were paid appropriately in 2001.  In 
2001, Medicare paid for 17.3 million services involving CCI code 
pairs billed by a provider for the same beneficiary on the same 
date of service. Of these services, 278,701 (1.6 percent) met the 
criteria for denial based on CCI edits but were paid by Medicare. 
These services represented $15.1 million in Medicare payments, 
or 1 percent of the $1.3 billion paid for services involving CCI 
code pairs billed by a provider for the same beneficiary on the 
same date of service. 
However, 70 percent of the paid services that met the criteria for 
denial based on CCI edits may have been paid correctly due to 
adjustments. In these cases, the two services involving the CCI 
OEI-03-02-00770  MEDICARES NATIONAL CORRECT CODING INITIATIVE  ii  E X E C U T I V E   S U M M A R Y  
code pairs were billed to the Medicare program on different 
days. Therefore, payments for both services may have been 
correct if payment for the second service was adjusted to account 
for the payment of the earlier service. Only a manual review of 
claims history data could determine if the services were paid 
appropriately due to adjustments. Results from a sample of 
100 questionable services sent to one carrier for review showed 
that this was the reason nearly two-thirds of the services were 
paid. The remaining one-third of the sample services were paid 
primarily due to a system error. 
CONCLUSION 
The automated National Correct Coding Initiative appears to 
effectively prevent Medicare payments for nearly all services 
that meet the criteria for denial based on the CCI edits. 
Medicare carriers are processing their claims with CCI edits and 
the edits prevented payment for at least 98 percent of the 
targeted services. 
We provided CMS with our data on the small percentage of 
services that met the criteria for denial based on CCI edits. In 
the future, CMS may want to replicate our analysis to determine 
whether services continue to be paid in accordance with CCI 
edits. 
OEI-03-02-00770  MEDICARES NATIONAL CORRECT CODING INITIATIVE  iii  T A B L E   O F   C O N T E N T S

EXECUTIVE SUMMARY ..................................................................i

INTRODUCTION ........................................................................... 1

FINDINGS 
Services targeted by CCI paid appropriately.................................6 
CONCLUSION.............................................................................. 9

ACKNOWLEDGMENTS ................................................................ 10

OEI-03-02-00770  MEDICARES NATIONAL CORRECT CODING INITIATIVE  iv
 I N T R O D U C T I O N

OBJECTIVE 
To determine the extent to which Medicare paid for services that 
should have been denied in 2001 based on the National Correct 
Coding Initiative. 
BACKGROUND 
The Medicare program provides coverage of reasonable and 
necessary health care services for the elderly and disabled. The 
program is administered by the Centers for Medicare & 
Medicaid Services (CMS). CMS contracts with carriers 
nationwide to process most Medicare Part B claims, which 
include physician, radiology, and laboratory services. Medicare 
paid $69 billion for Part B services in 2001. 
Medicare providers use the Healthcare Common Procedure 
Coding System (HCPCS) to bill for services provided to Medicare 
beneficiaries. The HCPCS consists of three levels of codes. 
Level I codes are those from the American Medical Associations 
Current Procedural Terminology (CPT) Manual used for 
reporting services performed by health care providers. Level II 
codes are alpha-numeric codes for medical services and supplies 
not included in the CPT Manual.  Level III codes are local 
carrier codes used to describe new procedures that do not yet 
have a Level I or II code. 
National Correct Coding Initiative 
In January 1996, CMS implemented the Na tional Correct 
Coding Initiative (CCI). This initiative was developed to 
promote correct coding by providers and to prevent Medicare 
payment for improperly coded services. CCI consists of 
automated edits provided to the carriers to evaluate claim 
submissions when a provider bills more than one service for the 
same beneficiary on the same date of service. CCI edits include 
Level I and Level II HCPCS codes. The edits are updated 
quarterly based on changes in the CPT Manual, current 
standards of medical and surgical practice, input from specialty 
societies, and analysis of current coding practice. CMS works 
with Reliance Safeguard Systems and AdminaStar Federal to 
propose and maintain CCI edits with input from national 
medical societies, carriers, and providers. CMS contracts with 
OEI-03-02-00770  MEDICARES NATIONAL CORRECT CODING INITIATIVE  1  I N T R O D U C T I O N  
the National Technical Information Service, within the 
Department of Commerce, to produce the National Correct 
Coding Policy Manual for Part B Carriers for purchase by 
providers. This manual is also distributed to carriers through 
CMSs regional offices. 
National Correct Coding Initiative Edits 
CCI edit files contain pairs of HCPCS codes (i.e., code pairs) 
which generally should not be billed together by a provider for 
the same beneficiary on the same date of service. CMS provides 
the carriers with two CCI edit files each quarter along with 
instructions on when to apply them to their claims processing 
systems. In the fourth quarter of 2001, CCI edit files contained 
199,942 code pairs. 
One CCI file contains code pairs called comprehensive/ 
component edits which prevent payment for services that are 
components of a more comprehensive procedure. In the fourth 
quarter of 2001, this file contained 186,353 comprehensive/ 
component code pairs. When comprehensive and component 
codes are billed together, Medicare pays for the comprehensive 
code but not the component code. For example, if an infusion 
procedure is performed, the placement of the catheter should not 
be billed separately. In this example, the placement of the 
catheter is considered a component of the infusion procedure. 
According to the CCI edit, if a provider bills for both of these 
services for the same beneficiary and date of service, only the 
comprehensive code for the infusion procedure will be paid. 
The second CCI file contains code pairs called mutually 
exclusive edits which prevent payment for services that cannot 
reasonably be performed together. In the fourth quarter of 
2001, this file contained 13,589 mutually exclusive code pairs. 
When mutually exclusive codes are billed together, Medicare 
generally pays for the least costly code. For example, a certain 
anesthesia procedure can be performed either with a pump 
oxygenator or without a pump oxygenator, but not both. If a 
provider bills for both of these services for the same beneficiary 
and date of service, only the procedure performed without the 
pump oxygenator will be paid. 
OEI-03-02-00770  MEDICARES NATIONAL CORRECT CODING INITIATIVE  2  I N T R O D U C T I O N  
Modifiers 
Under certain circumstances, a provider may include a modifier 
which would allow both services in a comprehensive/component 
code pair or a mutually exclusive code pair to be paid. A 
modifier is a two-digit code that further describes the service 
performed. For example, if two procedures in a code pair were 
performed at different times on the same day, a modifier could 
be appended to one of the codes to indicate that it was a 
separate service. Each of the CCI code pairs has a modifier 
indicator that determines whether a modifier can be used. A 
modifier indicator of 1 specifies that a modifier may be used to 
bypass the CCI edit for that code pair. A modifier indicator of 
0 specifies that a modifier may not be used with that code pair 
to bypass the CCI edit. A modifier indicator of 9 specifies that 
the edit was retroactively deleted and is no longer in use. Only 
35 modifiers may be used to bypass CCI edits. 
METHODOLOGY 
National Correct Coding Initiative Edits 
We obtained CMSs mainframe data files containing CCI edits 
for the fourth quarter of 2001. The fourth quarter CCI edit 
update includes all prior additions and deletions of code pairs 
through the end of 2001. Since we were reviewing 2001 data, we 
removed all CCI edits with deletion dates prior to 2001 as well 
as CCI edits that were retroactively deleted during 2001. This 
left 123,316 CCI code pairs for our review. CCI edits are 
arranged so that the second code in a code pair is the code that 
should be denied. 
Medicare Part B Claims Data 
We matched CCI edits against 100 percent of 2001 Part B 
claims data from CMSs National Claims History file, which 
included over 1 billion claim lines. We will refer to claim lines 
as services throughout this report. From this file, we identified 
services that involved active CCI code pairs billed by a provider 
for the same beneficiary on the same date of service. To 
determine if any of these services should have been denied 
based on CCI edits, we compared the date of the service with an 
edits effective and deleted dates. This enabled us to determine 
whether the edit was in place on the date the services were 
OEI-03-02-00770  MEDICARES NATIONAL CORRECT CODING INITIATIVE  3  I N T R O D U C T I O N  
performed. We identified 17.3 million services that involved 
active CCI code pairs billed by a provider for the same 
beneficiary on the same date of service. Medicare paid 
$1.3 billion for these services in 2001. 
Modifiers and Modifier Indicators 
Since we used the CCI edit update from the fourth quarter of 
2001, we also obtained the modifier indicator change lists for 
each quarter of 2001 and the first 2 quarters of 2002. This was 
necessary because when a change is made to a modifier 
indicator only, the effective date of the edit remains the same. 
Since a modifier indicator for a code pair could have changed 
over the year, we used these lists to determine if a modifier was 
permitted or not permitted when the claims were processed. 
For code pairs that may be billed with a modifier, we evaluated 
whether any modifiers included with those code pairs were 
among the 35 modifiers that may be used to bypass CCI edits. If 
an appropriate modifier was included with these code pairs, 
payment for both services would be permitted. We did not 
request documentation to verify whether the two separate 
services, indicated by the modifier, were actually performed. 
Payments that Met the Criteria for Denial Based on CCI Edits 
Payment for the second code in a CCI code pair met the criteria 
for denial, based on the automated CCI edits, in the following 
circumstances: 
o	  The code pair did not permit a modifier, regardless of 
whether a modifier was included. 
o	  The code pair permitted a modifier, but the modifier used 
was not one of the 35 modifiers that may be used to 
bypass CCI edits. 
o	  The code pair permitted a modifier, but a modifier was 
not included. 
We calculated the number and percent of services that should 
have been denied based on CCI edits and the total Medicare 
payments associated with those services. We also reviewed this 
data to determine whether payments were made by particular 
carriers or for particular code pairs. 
OEI-03-02-00770  MEDICARES NATIONAL CORRECT CODING INITIATIVE  4  I N T R O D U C T I O N  
Carrier Case Study 
We requested information from one Medicare carrier to 
determine if there were reasons why some services were paid 
when they should have been denied based on the automated CCI 
edits. For this carrier, we randomly selected 100 services that 
we had determined should not have been paid based on CCI 
edits. We asked the carrier to explain why the services were 
paid and to submit documentation to support payment of each of 
the services. 
OEI-03-02-00770  MEDICARES NATIONAL CORRECT CODING INITIATIVE  5  F I N D I N G S

We matched the National Correct Coding Initiative (CCI) edits 
for 2001 against 100 percent of 2001 Part B claims. Medicare 
carriers are required to apply these edits to the Part B services 
they process for payment. CCI edits promote correct coding by 
providers and prevent Medicare payments for improperly coded 
services. We found that, overall, the carriers applied these 
edits. The edits prevented payment for 98 percent of services 
that should have been denied when billed by a provider for the 
same beneficiary on the same date of service. Less than 2 
percent of services targeted by CCI edits were paid by Medicare 
in 2001. These services represented $15.1 million in Medicare 
payments. Our analysis indicated that 70 percent of these 
services may have been paid correctly due to adjustments made 
to the payment for one of the services. We submitted a sample 
of 100 services that met the criteria for denial to one carrier for 
review. The carrier reported that adjustments were made to the 
payments for nearly two-thirds of the services in our sample so 
that these services were paid correctly. 
FINDINGS 
In 2001, Medicare paid for
Nearly all of the services targeted by 
17.3 million services 
the National Correct Coding Initiative 
involving CCI code pairs 
edits were paid appropriately in 2001. 
billed by a provider for the 
same beneficiary on the same 
date of service. Of these services, nearly 17 million were 
processed and paid appropriately. We found 278,701 services 
(1.6 percent) that met the criteria for denial based on CCI edits 
but were still paid by Medicare. These services represented 
$15.1 million in Medicare payments, or 1 percent of the 
$1.3 billion paid for services involving CCI code pairs billed by a 
provider for the same beneficiary on the same date of service. 
However, our data indicated that 70 percent of the 278,701 paid 
services targeted by CCI edits may have been paid correctly. 
Both services in these CCI code pairs were billed to the 
Medicare program on different days. In these instances, both 
payments may have been correct if the second payment was 
adjusted to account for the first. For example, if the component 
code in a code pair was billed and paid and then the 
comprehensive code was billed later, the comprehensive code 
OEI-03-02-00770  MEDICARES NATIONAL CORRECT CODING INITIATIVE  6  F I N D I N G S  
may have been paid appropriately if the payment was adjusted 
to take into account the payment already made for the 
component code. To further illustrate, if the component code 
was billed and $20 was paid for it, and later the comprehensive 
code was billed, both payments would be appropriate if the 
payment for the comprehensive code was reduced by the $20 
paid for the component code. Our analysis identified the second 
code in these code pairs as services that should have been 
denied when we matched CCI edits against Part B claims data 
because both services were paid. Only a manual review of 
claims history data could confirm that they were paid 
appropriately due to adjustments. 
We analyzed the services that met the criteria for denial based 
on CCI edits to identify any common characteristics among 
these services. Of the services that met the criteria for denial 
based on CCI edits, 33 percent were paid with a modifier that 
may not be used to bypass CCI edits. Also, while some CCI code 
pairs were paid more frequently than others, no individual code 
pair represented a considerable portion of the questionable 
services. The code pair that bypassed CCI edits most 
frequently, which was made up of two radiology codes, 
represented 3 percent of services and less than 1 percent of 
payments that should have been denied. All the Medicare 
carriers made some payments for services that should have been 
denied based on CCI edits. Of these services, none of the 
carriers paid a percentage that was substantially higher than 
the percentage of services involving CCI edit pairs that they 
processed overall. 
Results of a Case Study of One Carrier 
To determine why some questionable services were paid, we sent 
a random sample of 100 services that we determined should 
have been denied based on the automated CCI edits to one 
carrier. We asked the carrier to explain the reason the services 
were paid. We found that, of the 100 services that we sent to 
the carrier, 69 were paid or denied correctly. Sixty-four services 
were paid correctly since the second code in the CCI code pair 
was billed and paid before the first code. In these cases, the 
carrier reported that they either requested a refund of the 
payment for the second code or reduced the amount paid for the 
first code. 
OEI-03-02-00770  MEDICARES NATIONAL CORRECT CODING INITIATIVE  7  F I N D I N G S  
The carriers data showed that an additional five services that 
we determined were paid incorrectly, were in fact denied. These 
services may have been adjusted after CMSs data for 2001 was 
finalized, as all but one of these services were initially processed 
late in 2001 or early 2002. Since our data only included 
adjustments made through June 2002, a later adjustment which 
denied the claim may not have appeared in our data. 
Approximately one-third of the sample services were paid by the 
carrier, but should have been denied. Twenty-seven services 
were paid due to a system error. For these 27 services, the 
carrier paid for both services in a CCI code pair when a modifier 
was used even though a modifier was not permitted with the 
code pair according to the CCI. The carrier reported that they 
plan to contact CMS and take any corrective actions necessary. 
Another four services were paid incorrectly due to human error. 
The carrier had manually reviewed these services and made 
erroneous payments based on these manual reviews. 
OEI-03-02-00770  MEDICARES NATIONAL CORRECT CODING INITIATIVE  8  C O N C L U S I O N

CONCLUSION 
The automated National Correct Coding Initiative appears to 
effectively prevent Medicare payments for nearly all services 
that meet the criteria for denial based on the CCI edits. 
Medicare carriers are processing their claims with CCI edits and 
the edits prevented payment for at least 98 percent of the 
targeted services. 
We provided CMS with our data on the small percentage of 
services that met the criteria for denial based on CCI edits. In 
the future, CMS may want to replicate our analysis to determine 
whether services continue to be paid in accordance with CCI 
edits. 
OEI-03-02-00770  MEDICARES NATIONAL CORRECT CODING INITIATIVE  9  A C K N O W L E D G M E N T S

This report was prepared under the direction of Robert A. Vito, 
Regional Inspector General for Evaluation and Inspections in 
the Philadelphia Regional Office and Linda M. Ragone, Deputy 
Regional Inspector General. Other principal Office of 
Evaluation and Inspections staff who contributed include: 
Tara Bernabe, Team Leader

Nancy J. Molyneaux, Program Analyst

Cortney Hayflinger, Program Analyst

Stephanie London, Program Specialist

Tricia Davis, Director, Medicare and Medicaid Branch

Technical Assistance 
Scott Horning, Program Analyst

Barbara Tedesco, Mathematical Statistician 

For information or copies of this report, please contact

the Office of Inspector Generals

Public Affairs office at (202) 619-1343.

Reports are also available on the World Wide Web at our home page address: 
http://www.oig.hhs.gov/ 
OEI-03-02-00770  MEDICARES NATIONAL CORRECT CODING INITIATIVE  10