The current payer trend in downcoding

E/M downcoding occurs when a payer reduces the level of an evaluation and management code below what the provider billed, then pays the lower rate. For office-based practices, E/M downcoding is a silent loss of revenue. It is hard for practices to assess the loss of practice revenue because it takes the form of an adjustment. Calculation of the loss is difficult because the adjustments may take the form of a code change requiring review of the claim and the EOB to see what was paid, or a payment adjustment requiring review of the allowed amount on the EOB and comparing it to the contract rate.

E/M services are the bread and butter of office-based physician practices.  Downcoding of E/M services represents a form of payer cost containment, either intended to delay payment, increase the costs of collection of A/R, or cause lost revenue. Given that a high percentage of appeals are successful, it is hard to see downcoding as anything other than a financial strategy by payers to reduce payment for E/M services.

This article identifies two strategies for addressing downcoding of E/M services: how to create a strategy for expediting appeals of downcoded claims, and second, preventative measures a practice can implement to avoid downcoding through provider education– training physicians to improve clinical documentation of the E/M elements.

What prompted payer downcoding policies?

Cost containment point. The improvement of technology.

Payers can cut costs to adjust claims without medical review by using AI-generated algorithms. While CMS recognizes E/M services are bound by medical necessity requirements and should be adjusted downward if the service does not warrant the level of medical decision making coded; payer downcoding practices have been criticized by the AMA as adjusting E/M codes by proxy, using the final diagnosis to evaluate E/M medical decision making, contrary to the 2021 E/M CPT guidelines.

Post 2021 E/M shifts. The rise in legitimate Level 4-5 codes after the 2021 E/M updates.

The 2021 E/M changes recognized that the final diagnosis for a condition does not, in and of itself, determine the complexity of medical decision-making or the risk of complication or morbidity. The CPT guidance relating to the 2021 E/M changes recognized that presenting symptoms may drive medical decision-making, even though the ultimate diagnosis is not highly morbid. This guidance has led to the rise of legitimate Level 4 and 5 E/M claims and downcoding of correctly coded claims. The AMA believes that many current payer downcoding practices do not accurately reflect the updated E/M guidelines and inappropriately use diagnosis codes as a proxy for the level of care provided.

AI algorithms make analysis of patterns in data simple, using peer comparison algorithms.

Payers can flag providers who code above peer averages even when justified. However, the MAC and commercial payers may misassign a provider to the wrong specialty.  A dermatologist may be categorized as a family practice physician. A provider with a subspecialty, cardiology, may be identified by his specialty, internal medicine. Incorrect or nonspecific identification of a provider’s specialty can make their billing patterns look like outliers, when, if considered correctly, they are consistent with the subspecialty. It has been shown that, when corrected, providers’ billing has not been flagged.

How do Cigna, Aetna, Humana, and UnitedHealthcare downcode E/M claims?

Cigna uses peer comparison algorithms to identify providers who have a consistent pattern of billing Level 4 and 5 E/M codes. Unlike other payers using AI downcoding, Aetna relies heavily on retrospective audits to claw back funds. Providers face post-payment record requests and recoupment if documentation fails to support the billed complexity. A pattern of failed post-payment reviews could lead to a provider’s inclusion in a one-year prepayment review.  Providers can request early removal by successfully appealing and overturning a high threshold (75%) of downcoded claims over a 5-6 month period.

Other payers, Humana and UHC perform AI automated reviews, and their adjustment of E/M services takes the form of changing the code to the lower level of medical decision making.

How do you identify downcoded claims without AI tools?

Both AI used by hospitals and other healthcare organizations, as well as methods used by physician practices, have a blind spot. They are unable to develop effective strategies for combating the loss of revenue because they do not address the root cause of non-appealable claims—poor clinical documentation.

While AI automation used by healthcare institutions is fast, AI cannot train providers to improve their clinical documentation or coders to code accurately; both of which are preventative measures that in the long run would help providers avoid downcoding or support an appeal of downcoded claims. While AI reduces the delay in receipt of revenue, it does not address lost revenue due to non-appealable claims, where the downcoding was justified resulting from poor clinical documentation.

Small and medium-size practices lacking AI tools must find another approach. This article offers an approach for moving forward.

Because analyzing EOBs against claims to determine if there have been code changes, or analyzing allowed amounts against contract rates, is unrealistic, independent practices need an approach that takes them to the heart of the analysis in less time. Providers should run reports that tell them the claim adjustment or remark code, and filter claims by specific adjustment codes. The four adjustment codes below are used in the downcoding of claims. Isolating claims with these codes should be the first step in a practice’s analysis. If a practice  cannot run this type of report, they should request their software company to provide a customized report.

The following adjustment codes may indicate that a claim has been downcoded:

• CO150 combined with RARC N115 indicates that the payer deems the information submitted does not support the level of service billed (i.e., the service was not medically necessary or was billed higher than the medical decision-making level, based on the documentation provided). The CARC justifies the reduction in payment based on its determination that the claim was supported by inadequate documentation. Remark code N115 may be added—indicating that the payer found the documentation failed to meet medical necessity requirements and does not meet the coverage requirements outlined in the LCD or payer policy.

• M85 is a remark code that indicates the E/M code was inappropriate, based on a review by the payer of its claim line processing.

• N610 Alert: That remark code states the payer payment has been based on the appropriate level of care (i.e., the information submitted does not support the level of billed complexity of service). N610 indicates the claim has been downcoded; i.e., that the CPT coding is inconsistent with the payer’s historical or internal guidelines.

• CARC 186 indicates a level of care change adjustment. The payer has determined that the services provided did not match the patient’s status.

Official definitions for all adjustment and remark codes are maintained by X12 in the Claim Adjustment Reason Codes list.

Steps for handling and seeking payment for underpayments

• Determine the percentage of claims adjusted with the specific CARC and RARC codes and compare that percentage to the total billed charges. Then prioritize how the practice will approach filing appeals. The practice should submit an appeal or request for reconsideration, with the supporting documentation, to demonstrate that the level of medical decision making was warranted.
• Look for patterns in downcoding of claims.  Track patterns in claims to identify payer behavior, specifically identifying whether claims are downcoded only sporadically, or whether a certain payer downcodes your claims consistently.
• Monitor billing patterns of physicians within its practice using retrospective audits. Recognize that the payer is identifying patterns as part of its downcoding effort. Given that fact, the practice should monitor and identify patterns within the practice—use retrospective audits to identify providers with high rates of adjustments on E/M codes; and track patterns by payer. Finally, take preventative steps by training physicians on documentation requirements.
• Train providers on the elements of E/M coding so that the adequacy of documentation can be demonstrated in appeals of downcoded claims. Coders should check their provider’s E/M documentation and determine whether it supports the appropriate E/M level.
• Create templates for appeals and attach the encounter note. The practice should have a form letter prepared to use as part of appeals to standardize and expedite the appeal process.
• As part of the practice’s appeal of specific payer claims, review the payer’s policies and point out violations of their policies, or of the 2021 E/M coding changes.
• Appeal all downcoded claims because a high success rate on appeals may lead to fewer automated adjustments in the future.

Should an appeal of downcoded claims be necessary, payer policies will dictate next steps. Practices will be required to submit the supporting documentation and either submit a specific form, or write a letter detailing the reason for the appeal.

Generally, an appeal letter will include:

• The relevant claim number and remittance advice

• Specification of the line item you are appealing

• The expected amount, the amount received, and the billed and adjusted code

• Any contract provisions that may be violated

• Detailed explanation of the reason for appeal

• Supporting clinical documentation

The AMA has created templates of appeal letters that providers should use in their appeal of downcoded claims and medical necessity appeals. The AMA templates are a free resource that practices can use to standardize their appeal process.

Conclusion

Practices must be active on two fronts: appealing downcoding of correctly coded claims and monitoring coding errors and incomplete clinical documentation through retrospective audits to identify the root cause of downcoding or determine the basis for nonappealable downcoded claims. Physicians should be trained on the documentation required to meet the required E/M elements. The process of building a standardized process for appealing downcoding of correctly coded claims is not easy, but through the methods outlined, practices can reduce the amount of work required in the effort.