August 25, 2022

DRG Downgrades: Prevent and Dispute Payer Revisions

Commercial and public payers are estimated to deny about one in every ten submitted claims, costing health systems up to 2% of net patient revenue (Advisory Board, 2017). But DRG downgrades are likely costing your hospital as much (if not more) than the medical necessity denials from insurers. They have successfully decreased appropriate hospital payments using coding and clinical validation audits.

Inappropriate downgrades impact more than hospital reimbursement. Disputing them taps clinical and administrative resources and takes away from patient care. And most importantly – downgrades can provide inaccurate medical tracking information, impacting public health policies in the future.

You can combat DRG downgrades by identifying which codes are susceptible, determining why the downgrades occur in your hospital, educating your team about prevention, and successfully disputing those you do receive.

Where and Why Downgrades Happen

All payers – Medicare Fee-for-Service, Advantage, and other commercial plans – are conducting patient chart audits, looking at charts that will have the most significant financial impact. Charts most susceptible to audits and revisions include those with:

  • Higher-weighted DRGs such as sepsis or gram-negative pneumonia, which payers can potentially drop down to a much lower-weighted DRG grouping
  • Secondary diagnosis listing only one complication or comorbidity (CC), or major complication or comorbidity (MCC), which the payer can downgrade to a lower-weighted DRG within the same grouping
  • Areas where your hospital is an outlier according to the Program for Evaluating Payment Patterns Electronic Report (PEPPER)

The payer is looking for gaps in clinical validation and discrepancies in the documentation. They examine whether the beneficiary’s diagnosis, procedural information, and discharge status – as coded on the claim – match the attending physician’s description and the information in the beneficiary’s medical record.

To avoid downgrades, the diagnoses – especially the principal diagnosis – and the procedures in the claim must be fully supported in the medical record and coded according to accepted coding and disease-specific sequencing rules.

Prevent Downgrades through Tracking, Education, and Collaboration

The key to preventing DRG revisions is tracking the specific reasons to detect patterns by diagnosis, health plan, and the guidelines they follow. Then you can address the root causes with collaborative strategies for education, process improvement, and contract negotiation.

Education and collaboration with your teams should be prioritized, developed, and supported by data to address the specific diagnostic and procedural issues that often cause audits and downgrades in your hospital. Provide detailed information about the reasons for DRG downgrades to your:

  • Frontline team, including hospitalists and clinical document integrity (CDI) specialists, to help them improve their documentation for the clinical validation
  • Coding team to help them improve the assignment of the principal diagnosis and when a condition meets the definition of a secondary diagnosis
  • Contracting team to address these issues during the next round of payor contract negotiations

Watch for the top diagnoses that are vulnerable to DRG revisions due to clinical validation or coding issues:

  • Sepsis
  • Gram-negative pneumonia
  • Acute respiratory failure
  • Encephalopathy
  • Severe malnutrition

For these and other diagnoses, it is important to teach your hospitalists how to specifically document and accurately paint the picture of their patient’s condition. Clear and complete documentation enables coders to translate their notes into the ICD10 codes that are in alignment.

A highly focused and efficient technique is for the CDI specialist to attend monthly physician staff meetings to explain where inappropriate DRG downgrades occur and deliver information concerning these diagnoses to prevent similar downgrades going forward. Many hospitals further reinforce this with specific diagnosis tip cards summarizing symptoms with the associated ICD10 codes and CC/MCC statuses for appropriately and accurately documenting how sick their patient is.

Win DRG Downgrade Appeals

Despite best efforts, some DRG downgrades will inevitably occur. Complex issues around payer contracts and coding policies are part of our reality. Technology plays a part, too. Payer algorithms can quickly identify DRGs faster and at a higher rate than ever, increasing the risk of inappropriate downgrades (Modern Healthcare, 2019).

It is financially responsible to challenge DRG revisions. For example, overturning the downgrade of a sepsis diagnosis to a localized infection can recover between $3,000 and $7,000 per claim.

To successfully dispute DRG downgrades, develop a set of dispute letter templates that specifically address the most common reasons for revisions and access recognized coding clinics, guidelines, and other sources to support that diagnosis.

Effective dispute letters should be outlined in four paragraphs:

  1. Concisely summarize the specific diagnosis and treatment that is being downgraded.
  2. Correct inaccuracies in the insurer’s downgrade, and make a strong, consistent case for your appropriate definition of symptoms, diagnosis, and treatment.
  3. List the standard clinical validation criteria for the diagnosis and clearly define the criteria the patient specifically met.
  4. State that the diagnosis was clearly present and treated appropriately; it would be inappropriate to code the chart without that diagnosis.

Even if a downgrade stands, what you learn will improve your appeal strategy and provide feedback to share with your team. Strengthening clinical documentation is essential to ensure your hospital’s financial health. It also protects your patients from the consequences of inappropriate DRG downgrades that fail to reflect the severity of their illness and the value of the expertise, resources, and efforts your team invested in caring for them.

To learn more about how to avoid and appeal DRG downgrades, view our webinar, Combat DRG Downgrades to Improve Financial Stability, HERE.

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