Medical coding basics for beginners

How is an ICD-10-CM code built?

ICD-10-CM codes have three to seven characters. The first character is always a letter; the first three characters form the category, and characters after the decimal add detail such as cause, site, severity and laterality. Some injury codes need a seventh character to show the encounter type.

Later visits for the same healing fracture would use the seventh character D (subsequent encounter, routine healing) instead of A. Learning these rules is far more useful than memorizing codes.

What do CPT codes look like?

CPT Category I codes are five digits and are grouped by section: evaluation and management (for example 99213 for an established patient office visit with low medical decision making), anaesthesia, surgery (for example 29881 for a knee arthroscopy with meniscectomy in one compartment), radiology, pathology and laboratory, and medicine. Two-character modifiers such as -RT (right side) or -25 (significant, separately identifiable E/M service) add information that affects payment.

What is HCPCS Level II?

HCPCS Level II codes start with a letter followed by four digits and cover items that CPT does not, such as injectable drugs (the J codes), durable medical equipment (E codes), ambulance services (A codes) and some Medicare-specific services (G codes). CMS maintains this code set and updates it quarterly.

What is ICD-10-PCS?

ICD-10-PCS is used only for procedures during US hospital inpatient stays. Every code has exactly seven characters, each with a defined meaning such as body system, root operation, body part, approach and device. Inpatient coders build codes character by character from tables, which is why inpatient coding is a more advanced specialty.

How does one visit become a claim?

1. The physician documents the visit in the electronic health record.
2. The coder reads the record and assigns ICD-10-CM, CPT and HCPCS codes supported by that documentation.
3. Software and the coder check the codes against edits such as CMS's National Correct Coding Initiative (NCCI).
4. The billing team submits the claim on a CMS-1500 (professional) or UB-04 (facility) form.
5. The payer checks medical necessity and coverage, then pays, reduces or denies the claim.

Which rules govern coding?

Coders follow the ICD-10-CM Official Guidelines for Coding and Reporting (updated with each fiscal year code set; FY2027 takes effect on October 1, 2026), CPT guidelines published by the AMA, CMS manuals and coverage policies, NCCI edits and each payer's rules. HIPAA governs how patient information is protected. Coding more than the record supports, known as upcoding, can create liability under the False Claims Act, and the HHS Office of Inspector General audits providers and health plans for it.

Where should a beginner start?

Start with medical terminology and anatomy, then learn ICD-10-CM conventions before CPT. See our training program for the full sequence, or read how coding applies to risk adjustment, one of the fastest-growing specialties.

Frequently asked questions