Becky is mostly to the points.
"Sebaceous (keratinous) cyst is a slow-growing, benign cyst that contains follicular, keratinous, and sebaceous material. The sebaceous cyst is firm, globular, movable, and non-tender. These cysts seldom cause discomfort unless the cyst ruptures or becomes infected. Ranging in size, sebaceous cysts are usually found on the scalp, face, ears, and genitals. They are formed when the release of sebum from the sebaceous glands in the skin is blocked. Unless they become infected and painful or large, sebaceous cysts do not require medical attention or treatment, and usually go away on their own. Infected cysts can be incised and drained, or the entire cyst may be surgically removed."
So based on this - the size (from tiny to large) or whether infected and suppurative (so much to make an incision and drainage but still the capsule have to be excised from the base to avoid recurrence) or just excision and surgically remove enmass with its capsule (and repair with simple repair,) the code could be assigned appropriately.
What I am trying to say is Sebaceous Cysts merits to Incision & drainage10040,10060,10061, or Excision codes 1142x series, or rarely to Destruction code of the genital section, depending on the criteria and the type of procedure the Physician performed and documented. Payment depends upon the career.
By and large, excision is the one mostly performed procedure because of its nature and its expectant ltreatment modality of excising the thick capsule enmass with out breaking or rupturing the cyst , the code assignment goes for EXCISION ( even if it is infected the tendency for a surgeon is to remove it encapsulated, though accidental rupture can occur during the procedure)
Unless the physician performs destruction of the labial (Seb) cyst by any destructive methods ( though he could opt to do it), the destructive code of 565xx would not be opted.
The chances to change to CA(cancer) is very rare , and until it is proved so, it can be safely considered to be benign lesions, one reason being its benign chronicity