The Department of Defense Birth and Infant Health Research (BIHR) program leverages medical encounter data to conduct birth defect surveillance among infants born to military families. Omphalocele is a major abdominal wall defect with an annual prevalence of ~2 per 10,000 births in BIHR data, but an unexpected increase was observed during 2017-2019, reaching 6.4 per 10,000 births in 2018. To investigate this transient increase in prevalence, this study aimed to validate the omphalocele case algorithm among infants born 2016-2021. Omphalocele cases were identified by ICD-10 code Q79.2 (exomphalos) on one inpatient or two outpatient infant encounter records and validated using parental and infant electronic health records. Characteristics of true and false positive cases were assessed using bivariate analyses and compared over time. Of 638,905 live births from 2016 to 2021, 230 met the ICD-10 case definition for omphalocele; 138 (60.0%) cases were eligible for validation, of which 68 (49.3%) were true positives. The geometric mean time from birth to first ICD-10 omphalocele diagnosis was 1.1 (standard error [SE] 0.1) days for true positives and 11.9 (SE 3.1) days for false positives. Among the 70 false positives, 36 (51.4%) were cases of confirmed umbilical hernia; rates of umbilical hernia and delayed omphalocele diagnoses (>30 days after birth) were elevated among false positives during 2017-2019. Higher misuse of ICD-10 code Q79.2 during 2017-2019 likely influenced the associated increase in omphalocele prevalence. Timing of diagnosis should be considered for omphalocele case definitions using medical encounter data.