Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

INSPECTOR GENERAL 

SEPTEMBER 2003 

OEI-03-02-00770 

MEDICARE’S NATIONAL 

CORRECT CODING INITIATIVE 
Office of Inspector General

http://oig.hhs.gov 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, 

as amended, is to protect the integrity of the Department of Health and Human Services 

(HHS) programs, as well as the health and welfare of beneficiaries served by those 

programs. This statutory mission is carried out through a nationwide network of audits, 

investigations, and inspections conducted by the following operating components: 

Office of Audit Services 

The OIG's Office of Audit Services (OAS) provides all auditing services for HHS, either by 

conducting audits with its own audit resources or by overseeing audit work done by others. 

Audits examine the performance of HHS programs and/or its grantees and contractors 

in carrying out their respective responsibilities and are intended to provide independent 

assessments of HHS programs and operations in order to reduce waste, abuse, and 

mismanagement and to promote economy and efficiency throughout the department. 

Office of Evaluation and Inspections 

The OIG's Office of Evaluation and Inspections (OEI) conducts short-term management 

and program evaluations (called inspections) that focus on issues of concern to the 

department, the Congress, and the public. The findings and recommendations contained 

in the inspections reports generate rapid, accurate, and up-to-date information on the 

efficiency, vulnerability, and effectiveness of departmental programs. 

Office of Investigations 

The OIG's Office of Investigations (OI) conducts criminal, civil, and administrative 

investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries 

and of unjust enrichment by providers. The investigative efforts of OI lead to criminal 

convictions, administrative sanctions, or civil monetary penalties. The OI also oversees 

State Medicaid fraud control units, which investigate and prosecute fraud and patient 

abuse in the Medicaid program. 

Office of Counsel to the Inspector General 

The Office of Counsel to the Inspector General (OCIG) provides general legal services to 

OIG, rendering advice and opinions on HHS programs and operations and providing all 

legal support in OIG's internal operations. The OCIG imposes program exclusions and 

civil monetary penalties on health care providers and litigates those actions within the 

department. The OCIG also represents OIG in the global settlement of cases arising 

under the Civil False Claims Act, develops and monitors corporate integrity agreements, 

develops model compliance plans, renders advisory opinions on OIG sanctions to the 

health care community, and issues fraud alerts and other industry guidance. 
EXECUTIVE SUMMARY

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 MEDICARE ’S NATIONAL C ORRECT C ODING I NITIATIVE i 
EXECUTIVE SUMMARY 

We matched CCI edits for the fourth quarter of 2001 against 

100 percent of 2001 Part B data from CMS’s 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 MEDICARE ’S NATIONAL C ORRECT C ODING I NITIATIVE ii 
EXECUTIVE SUMMARY 

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 MEDICARE ’S NATIONAL C ORRECT C ODING I NITIATIVE iii 
TABLE OF CONTENTS

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

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

FINDINGS 

Services targeted by CCI paid appropriately.................................6 

CONCLUSION.............................................................................. 9

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

OEI - 03 - 02 - 00770 MEDICARE ’S NATIONAL C ORRECT C ODING I NITIATIVE iv
INTRODUCTION

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 Association’s 

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 MEDICARE ’S NATIONAL C ORRECT C ODING I NITIATIVE 1 
INTRODUCTION 

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 

CMS’s 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 MEDICARE ’S NATIONAL C ORRECT C ODING I NITIATIVE 2 
INTRODUCTION 

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 CMS’s 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 CMS’s 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 

edit’s 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 MEDICARE ’S NATIONAL C ORRECT C ODING I NITIATIVE 3 
INTRODUCTION 

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 MEDICARE ’S NATIONAL C ORRECT C ODING I NITIATIVE 4 
INTRODUCTION 

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 MEDICARE ’S NATIONAL C ORRECT C ODING I NITIATIVE 5 
FINDINGS

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 MEDICARE ’S NATIONAL C ORRECT C ODING I NITIATIVE 6 
FINDINGS 

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 MEDICARE ’S NATIONAL C ORRECT C ODING I NITIATIVE 7 
FINDINGS 

The carrier’s data showed that an additional five services that 

we determined were paid incorrectly, were in fact denied. These 

services may have been adjusted after CMS’s 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. 

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CONCLUSION

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 MEDICARE ’S NATIONAL C ORRECT C ODING I NITIATIVE 9 
ACKNOWLEDGMENTS

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 General’s

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 MEDICARE ’S NATIONAL C ORRECT C ODING I NITIATIVE 10