Dermatology coding essentials part 1: Pearls, pitfalls, and best practices

By Faith C. M. McNicholas, RHIT, CPC, CPCD, PCS, CDC, Senior Manager, Coding & Reimbursement, April 1, 2026

Academy coding staff address important coding topics each month in DermWorld Coding Consult. Read more Derm Coding Consult articles.

Your ability to deliver excellent patient care requires strong coding and documentation skills — an essential part of modern medical practice.

The following information is ideal for those aiming to achieve success in dermatology coding, including dermatologists and their staff who work on documentation, coding, and billing.

In this series of Dermatology Coding Essentials articles, which will appear in DermWorld every other month, we will:

1. Review the structure and format of CPT^® codes.

2. Identify the key codes most used to report services and procedures performed by dermatologists and non-physician clinicians.

3. Provide practical guidance on navigating the CPT manual (and its more than 22,000 dermatology-related diagnosis codes) to most accurately reflect your patient encounters and services provided.

4. Review coding resources to help you recognize key coding elements and evolving documentation requirements in 2026 and beyond.

With time, you will confidently be able to identify and navigate dermatology-specific CPT, ICD-10-CM, and Healthcare Common Procedure Coding System (HCPCS) codes and their guidelines, and apply best practices to overcome common coding challenges, support claim payment and optimal reimbursement, foster collaboration in your office, and minimize denials and audit risks.

Getting to know ICD-10-CM

The International Classification of Diseases (ICD) is the standard classification for epidemiological and clinical use that is copyrighted and developed by the World Health Organization (WHO).

The United States is currently in the 10th revision of this classification system, which, in addition to providing the reason for the service or procedure, is used to classify morbidity data for indexing health records, basic health statistics, medical care review, and ambulatory and other health care programs.

The ICD-10-CM is an adaptation of the ICD, which includes clinical modifications used in the United States, and is overseen and managed by the Centers for Disease Control and Prevention and the National Committee on Vital Health Statistics (CDC/NCVHS).

These codes provide information on medical necessity as to “why” the service is being performed. While ICD-10-CM codes do not have a dollar value assigned to them, selecting and reporting the correct diagnosis code allows the payer to determine if the service or procedure reported meets medical necessity and specific payment criteria for the patient’s policy and supports payment of the claim. As such, the ICD-10-CM code should uphold the reason for reporting each specific CPT code.

When assigning diagnosis codes, one must first document the primary reason for the encounter in the medical record. In some cases, the first listed code may be a symptom or sign until the final diagnosis has been established.

Any additional code(s) to describe coexisting conditions that are addressed during the encounter must be listed as secondary code(s) on the claim form. This includes any conditions that are evaluated, assessed, or treated during the encounter or require continuous monitoring. Any underlying conditions that affect or may impact patient care, treatment, or management must also be documented when addressed during the encounter.

Do not report conditions that were previously treated and no longer exist, with the exception of the history codes. History codes, such as the history of malignant skin lesion codes, may be reported as an additional code if the historical condition or family history has an impact on current care or treatment.

The key to appropriate reporting of ICD-10-CM diagnosis codes lies in recognizing and understanding the structure of the code manual and its coding conventions and applying the coding guidelines when and where required.

Key points:

• ICD-10-CM codes provide information on medical necessity as to “why” the service is being performed.

• Payers determine if the service/procedure provided meets required criteria/medical necessity for the diagnosis a determines payment.

• Document the primary reason for the encounter in the medical record first.

ICD-10-CM code structure and process

The ICD-10 coding manual structure includes both general and chapter coding conventions and guidelines. Incorporated at the beginning of each chapter and within the alphabetic index and tabular list of the manual, the general rules provide governance for the use of certain codes within the classification.

Most practice management software now includes these coding conventions and guidelines that assist the user in properly locating and correctly appending the diagnosis codes while adhering to the instructional notes in each section.

ICD-10-CM code structure

Diagnosis codes always begin with an alpha character and are alphanumeric. A complete code may consist of three to seven characters. The first three characters (e.g., C44, Other and unspecified malignant neoplasm of skin) designate the chapter and category of the diagnosis.

The next three characters designate the subcategory and subclassification of the condition or disease (e.g., C44.112, Basal cell carcinoma of skin of right eyelid, including canthus). These characters provide greater specificity about the diagnosis, such as etiology, anatomic site, severity, or other vital clinical details.

Note: A diagnosis code is not valid if it has not been coded to the full extent of the characters available in the category. This includes any applicable seventh characters. Submitting incomplete or truncated diagnosis codes will result in claim denials.

Some diagnosis codes are site-agnostic and the codes for these conditions are specific to the type of condition. Therefore, reporting these codes requires specific information to be included in the documentation.

Example:

L57.0 - Actinic keratosis
L82.x - Seborrheic keratosis (further defined by type of keratosis)
L70.x - Acne (further defined by type of acne)

Some diagnosis codes, although not all, are site- and laterality-specific codes (e.g., C43.111 Malignant melanoma of right upper eyelid, including canthus).

Some codes include a bilateral choice (e.g., H02.413, Mechanical ptosis of bilateral eyelids). If the condition affects both the right and left sides but there is no bilateral code choice, report two codes, one for each side (e.g., H02.831 Dermatochalasis of right upper eyelid and H02.834 Dermatochalasis of left upper eyelid), if this was the cause of the mechanical ptosis.

The unspecified code choice, as it pertains to laterality, is reported when the documentation does not indicate the laterality of the condition. Even if a code does not include laterality in the code, the code will still be anatomically site-specific.

When different anatomic sites are affected by the same condition, report a code that indicates the multiple sites. For example, a burn of the right shoulder and upper arm would be coded using the multiple site code choice (e.g., T22.391X, Burn of third degree of multiple sites of right shoulder and upper limb, except wrist and hand), and not the individual codes for each site.

Other ICD-10-CM coding conventions

ICD-10-CM also contains several coding conventions that guide code selection.

Code also - Report two codes to fully describe condition

"See" and "See also" - Report two codes to fully describe condition

Brackets, colons, and parenthesis - Used to enclose synonyms, alternative wording, explantory phrases, identify manifestations, supplemental words, and incomplete terms

"And" - Represents "and/or"

"With" - Interpreted as "associated with" or "due to"

For example, when the “code also” convention is present in the tabular section, it provides instructions that two codes may be required to fully describe a condition. However, the sequencing of the codes may depend on the severity or the reason for the encounter.

Example:

Z51.81 - Encounter for therapeutic drug level monitoring.
Code also any long-term (current) drug therapy (Z79.-).

Certain conditions have both an underlying etiology and multiple body system manifestations due to the underlying etiology. For such conditions, the ICD-10-CM has a coding convention that requires the underlying condition to be sequenced first, if applicable, followed by the manifestation.

Wherever such a combination exists, there is a “use additional code” note at the etiology code, and a “code first” note at the manifestation code. These instructional notes indicate the proper sequencing order of the codes, etiology, followed by manifestation.

Example:

L43.2 - Lichenoid drug reaction.
Use additional code for adverse effect, if applicable, to identify drug (T36-T50 with fifth or sixth character 5).

L14 - Bullous disorders in diseases classified elsewhere.
Code first underlying disease.

In most cases, the manifestation codes will have in the code title, “in diseases classified elsewhere.” Codes with this title are a component of the etiology/manifestation convention. Typically, the code title indicates that it is a manifestation code.

“In diseases classified elsewhere” codes are not permitted to be used as first-listed or principal diagnosis codes. They must be used based on the sequencing rules and in conjunction with an underlying condition code and must be listed following the “Code first” and “Use additional code” notes, as required in the classification for certain codes that are not part of an etiology/manifestation combination.

Example:

L45 - Papulosquamous disorders in diseases classified elsewhere.
Code first underlying disease

M32.0 - Drug-induced systemic lupus erythematosus.
Use additional code for adverse effect, if applicable, to identify drug (T36-T50 with fifth or sixth character 5.

Terms found by the main term in the index, such as “see” and “see also,” indicate that another term in the index should be referenced before settling on a final code selection.

Meaning of punctuation in the code descriptor

It is important to understand the punctuation meaning to properly assign the correct codes.

For example, brackets [ ] are used to enclose synonyms, alternative wording, or explanatory phrases, or sometimes, to identify manifestation codes. Colons [:] are used after an incomplete term, which needs one or more of the terms that follow it to assign the code to the category. Parentheses [( )] are used to enclose supplemental words that do not affect code selection.

It’s important to review every word in a code selection, understanding that the word “and” can mean either “and” or “or” within the description of the code.

The word “with” should be interpreted to mean “associated with” or “due to” when it appears in a code title, the alphabetic index, or an instructional note in the tabular list. The classification presumes a causal relationship between the two conditions linked by these terms in the alphabetic index or tabular list.

These conditions should be coded as related even in the absence of clinician documentation explicitly linking them, unless the documentation clearly states the conditions are unrelated. For conditions not specifically linked by these relational terms in the classification, clinician documentation must link the conditions to code them as related.

Inclusion and exclusion notes

ICD-10-CM has two additional means of providing further information about a code or category: the “includes” and “excludes” notes.

The “includes note” appears immediately under a three-character code title to further define or give examples of the terms included under the code category. The inclusion terms are not necessarily exhaustive. Additional terms are listed in the alphabetic index and can also be assigned to a code.

Example:

D23 - Other benign neoplasms of skin
Includes:
benign neoplasm of hair follicles
benign neoplasm of sebaceous glands
benign neoplasm of sweat glands

An “Excludes1” note indicates that the code excluded should never be used at the same time as the code above the excludes1 note. An excludes1 note is used when two conditions cannot occur together, such as a congenital form versus an acquired form of the same condition. If the diagnosis falls under the excludes1 note, the ICD-10-CM will direct you to a different section for a more accurate code.

Example:

D18 - Hemangioma and lymphangioma, any site
Excludes1:
blue or pigmented nevus (D22.-)
vascular nevus (Q82.5)

D23 - Other benign neoplasms of skin
Excludes1:
benign lipomatous neoplasms of skin (D17.0-D17.3)

An “Excludes2” note indicates that the condition is excluded or not a part of the condition it is excluded from, but that if documented as present, codes for both conditions can be reported together.

Example:

D23 - Other benign neoplasms of skin
Excludes2:
melanocytic nevi (D22.-)

A “not otherwise specified” or “NOS” - designated code is reported when the documentation of the condition lacks an element of detail that is included in the description of the code and leads to an unspecified code choice. Usually, the use of these codes may result in claim denials due to a lack of specificity.

The code is usually identified by a 4th or 6th character, 9 or 5th character 0. For example, L24.9 would be reported when the documentation of the irritant contact dermatitis does not include the causal agent.

“Not elsewhere classified” (NEC) is used when a specific code is not available for the condition documented and typically lacks specificity to describe the condition. The use of an NEC code may lead to an ‘Other specified’ code choice — usually identified by a 4th or 6th character, 8 or 5th character, 9.

Example:

L98.4 - Non-pressure chronic ulcer of skin,
not elsewhere classified
Chronic ulcer of skin NOS
Tropical ulcer NOS
Ulcer of skin NOS

L98.418 - Non-pressure chronic ulcer of buttock with other specified severity

As always, there are exceptions to the NEC NOS character placement rule, as shown with code C44.329, which identifies squamous cell carcinoma of other parts of the face.

As noted earlier in this article, knowing and understanding the many ICD-10-CM conventions and guidelines that govern the selection and reporting of diagnosis codes is essential to supporting the medical necessity of the services you provide.

As we continue to discuss pearls, pitfalls, and best practices in dermatology coding, keep in mind that most of the services and procedures performed in a dermatology setting will be on the skin and will be reported with a CPT code from the integumentary system section. Some will be reported from the evaluation and management section, as well as the medicine sections of the CPT coding manual.

However, if the procedure extends beyond deep fascia, muscle, tendons, nerves, blood vessels, and other structures, consideration can be made to code from the musculoskeletal chapter or any other chapter in order to appropriately report the most accurate procedural code to reflect the level of service performed.

Dermatologists and non-physician clinicians should document the encounter to its highest specificity so that the coding staff can decipher and append the appropriate diagnosis and CPT code(s) from the documentation provided. It is important to review the documentation carefully to ensure the information is adequate in reporting the appropriate level of service.

In the next article in this series, we will take your dermatology coding expertise to the next level! The article will help you:

• Master the codes: Confidently navigate dermatology-specific CPT surgical procedure codes.

• Bridge the gap: Seamlessly link CPT and ICD-10-CM dermatologic procedures.

• Solve coding challenges: Apply coding guidelines to support code selection that is supported by proper documentation.

This content was created with the particular needs of early-career dermatologists in mind. See the rest of our Career Launch resources for young physicians.

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