Excision and biopsy of soft tissue tumors: Coding, payment, and site-of-service considerations

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

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Accurate coding and understanding of payment implications are essential when reporting the excision and/or biopsy of soft tissue tumors. These procedures vary in complexity depending on the depth of tissue involved and the anatomic location. Proper coding ensures compliance with coding guidance, appropriate reimbursement for the service rendered, and consistency across dermatology practices based on the site of service.

This article reviews key considerations related to the payment differentials in the Medicare Physician Fee Schedule (MPFS) due to the site-of-service and the CPT^® coding framework for excision of soft tissue tumors, with a focus on implications for services performed by dermatologists.

The AMA Current Procedural Terminology (CPT) coding guidelines define excision of subcutaneous soft connective tissue tumors (including simple or intermediate repair) as the simple or marginal resection of tumors confined to the subcutaneous tissue, located below the skin but above the deep fascia. These tumors are typically benign and are removed without excising a significant amount of surrounding normal tissue.

Code selection is based on both the anatomic location and the size of the tumor. The size is determined by measuring the greatest diameter of the tumor plus the narrowest margin required for complete excision, as judged by the dermatologist. This measurement should be made at the time of excision.

Margins represent the smallest amount of surrounding tissue necessary to achieve adequate resection and are based on the dermatologist’s clinical judgment.

When the procedure involves appreciable vessel exploration and/or neuroplasty, these services should be reported separately. Likewise, if extensive undermining or other closure techniques are required to close the resulting defect, a complex repair may be reported in addition to the excision. However, dissection or elevation of tissue planes necessary to permit tumor resection is included in the excision and should not be reported separately.

The guidelines further define the excision of fascial or subfascial soft tissue tumors (including simple or intermediate repair) as the removal of tumors located within or beneath the deep fascia but not involving the bone. These tumors are typically benign and may be intramuscular, requiring resection without significant removal of surrounding normal tissue. For digital sites (fingers or toes), subfascial tumors are defined as those involving the tendons, tendon sheaths, or joints. Tumors that merely abut, but do not invade, these structures are classified as subcutaneous soft tissue tumors.

Understanding facility and non-facility payment rates

Under the MPFS, services and procedures have separate reimbursement rates depending on where the service is performed, specifically, whether the procedure occurs in a facility (such as a hospital or ambulatory surgery center (ASC)) or a non-facility setting (typically a physician’s office).

CMS publishes both rates in the MPFS database. The applicable rate is determined by the Place of Service (POS) code on the claim, reflecting where the patient received face-to-face care. In general:

• POS 11 = Office (non-facility)

• POS 22, 24, etc. = Facility settings (hospital outpatient or ASC)

The POS code determines whether the facility or non-facility rate applies. By reviewing the MPFS database, dermatologists can determine if a particular procedure is payable in the office and, if so, at what rate.

Facility vs. non-facility rate: Understanding the impact

If a procedure is permitted in the office (non-facility) but is designated by CMS as “rarely or never performed in the non-facility setting,” payment will default to the facility rate. This rate excludes the practice expense (PE) component of the RVU calculation. The PE represents the costs of staff, equipment, and supplies because CMS assumes these costs are incurred by the facility. As a result, the payment to the physician is typically lower when the procedure is reimbursed at the facility rate in the office setting. When procedures are performed in hospitals or ASCs, those costs are included in the facility’s payment, not the physician’s payment.

Practice expenses include:

• Surgical instruments and supplies

• Clinical staff time

• Office overhead (space, utilities, equipment)

Private payer variability and prior authorization

While local Medicare Administrative Contractors (MACs) may allow certain soft tissue excisions in the office, private insurance payers may have their own restrictions. Some payers require prior authorization, while others consider these services inappropriate for the office setting. Although it is not guaranteed, obtaining prior authorization helps reduce the risk of claim denial.

Detailed medical documentation is especially important for appeals and surviving payer audits. It is worth mentioning that appeals are generally more successful when prior authorization is secured and medical documentation supports medical necessity for the service rendered.

When appealing denials, the rationale should emphasize that although CMS designates the service as “rarely or never performed” in an office, in this specific case, it was clinically appropriate and medically necessary to perform in that setting.

Documentation essentials

Soft tissue tumor excisions differ from cutaneous lesion excisions, which are categorized by benign or malignant pathology and skin location. For compliant reporting and successful reimbursement, soft tissue excision coding relies primarily on the medical record documentation clearly reflecting the following:

• The anatomic site of the lesion — e.g., trunk, arm, leg

• The depth of excision — subcutaneous, fascial, or subfascial

• The size and margin of the excised tumor — recorded as the largest dimension of the tumor plus the margin required for complete removal

• Type of closure — simple, intermediate, or complex, noting any additional procedures such as flap or graft repair

• Pathologic evaluation — if performed, to confirm diagnosis and extent

For example:

• Subcutaneous excision, trunk, 3.5 cm → CPT 21555

• Subfascial excision, arm, 4.0 cm → CPT 24071 or 24073, depending on size range

Site-of-service eligibility: Verifying office reimbursement

To determine if a soft tissue excision is payable in the office setting, use the MPFS Search Tool.

In the search results, review the Non-Facility NA Indicator:

• “Not applicable” or “rarely/never performed” = not reimbursable in an office (POS 11)

• Payment defaults to the facility rate or may be denied outright

Appealing non-facility denials

Strong documentation and prior authorization significantly improve the likelihood of overturning denials. When claims for soft tissue excisions performed in the office are denied:

• Review the payer’s reason for denial and confirm whether it aligns with CMS site-of-service guidance.

• Document why the office was the medically appropriate setting (e.g., procedure urgency, patient comorbidities, or absence of facility access).

• Include the operative and pathology notes to support clinical appropriateness.

• Reference CMS guidance acknowledging that while “rarely or never performed” in-office, individual cases may warrant exceptions.

Practical considerations for dermatologists

Dermatologists routinely perform excisions of benign subcutaneous lesions (e.g., lipomas, cysts). However, deeper or larger soft tissue tumors may not be reimbursed when performed in a non-facility setting.

Before scheduling such cases in the office, follow these steps to reduce the risk of claim denials and ensure proper compliance with payer expectations:

1. Confirm payer policy regarding site-of-service.

2. Obtain prior authorization when required.

3. Document medical necessity for office-based performance.

4. Maintain detailed operative notes to support coding accuracy.

Common dermatology-related CPT codes for soft tissue excision

Biopsies (excisional)

Note: Code selection depends on the anatomic location, size (in cm), and depth of excision. Always refer to current CPT guidelines for code-specific descriptors and documentation requirements.

In conclusion, excision of soft tissue tumors is a nuanced coding area that requires careful attention to anatomic depth, tumor size, and site-of-service considerations. For dermatologists, these distinctions directly affect coding accuracy, payment eligibility, and compliance with payer policies. By referencing the MPFS database, obtaining prior authorization when appropriate, and maintaining detailed documentation, dermatology practices can ensure accurate reporting and appropriate reimbursement for these procedures.

The AAD encourages members to review payer policies regularly and use CMS’s public MPFS database to verify whether a given soft tissue excision is reimbursable in the office or facility setting.

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