Updated on: October 14, 2019

Government and Private Insurer DRG Audits – Don’t (Necessarily) Believe the Denial!

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Original story posted on: October 11, 2019

EDITOR’S NOTE: This is the first in a two-part series of articles highlighting detailed examples of two challenged denials that followed third-party healthcare audits.

I shouldn’t be surprised. 

I have been reviewing denials by insurance companies since the late 1980s. I’ve seen the same things over and over again, such as slow pay, delayed pay, or no pay. They all relate to what legal experts describe as “bad faith.” Some examples of this are the following:

  • Unwarranted denial of coverage
  • Failure to communicate pertinent information to the claimant
  • Failure to conduct a reasonable investigation of the claim
  • Refusal to pay the claim without investigating
  • Failure to deny or pay the claim within a reasonable period of time
  • Failure to confirm or deny coverage within a reasonable period of time
  • Failure to attempt to come to a fair and reasonable settlement when liability is clear
  • Offering substantially less money to settle than the true value of the claim
  • Failure to promptly provide a reasonable explanation for denial of a claim
  • Failure to enter into any negotiations for settlement of the claim
  • Failure to respond to a time-limit demand
  • Failure to disclose policy limits

Of course, law firms take on such cases when they believe that millions of dollars are on the line and all parties stand to recoup value for their time and efforts. But what about smaller claims from healthcare providers? What about claims amounting to a matter of a few thousand dollars? Individual and corporate attorneys will not bite on things like this unless you have hundreds of such claims, which they would evaluate, and only if they believe the matter represents a viable win in a court of law. 

But wait, it gets worse!

Technological advancements have brought payors into the high-tech realm, with algorithms that can data-mine code sets for potential fraud and abuse, errors and medical necessity issues, and increasing denials within an organization.

The criteria for receiving reimbursement continue to evolve, and they have become more and more complex over time. Healthcare providers simply submitted claims in the past. Now there is scrubbing software, which reviews drug codes, coverage issues, code set combinations, and coding sequence criteria, not to mention possible payor requirements from the federal government.

Another area commonly overlooked is the actual payor contracts, which may have data within them that can make the difference in reimbursement. Often, people in the trenches are totally unaware of this information, and the contracts are rarely reviewed and/or renegotiated.

Impact of Poor Documentation

You are probably keenly aware of the need for good documentation to receive reimbursement. While this key detail was unheard of many years ago, in relation to reimbursement, it is almost always the focus of audit reviews today. I don’t plan to beat this horse much more, but simply note several trends currently emerging in relation to this topic.

CDI Strategies published an article on acids.org in July of this year that highlights documentation needs. The article referenced the closure of Hahnemann University Hospital in Philadelphia, in September 2019. It stated that the organization was hemorrhaging cash: between $3-5 million per month. One of the reasons cited by the CEO was the lack of clinical documentation training for physicians, which resulted in downgrades and denials from insurers.

The intersection of the Electronic Health Record (EHR)


The advent of the EHR was thought to be the holy grail of healthcare, marking a new age of connectivity, interoperability, and access to information for all that would usher in healthcare nirvana. But like all software/hardware solutions, bugs, bug fixes, updates, and upgrades are always on the horizon. Ease of use, user interface (UI) struggles, and proper use of products continue to haunt the industry, like a scary movie on Halloween. When you consider these ongoing problematic issues, you will likely agree:

  • Cloning
  • Copying and pasting
  • Data breaches
  • Templates that need to be updated

Obviously, the above is a shortlist. There are probably another 10 or more items that could be added. But these and others are contributing factors to why our denials continue to increase, and why our documentation may be perceived as insufficient.

Should I Believe the Payor’s Denial?

In the hospital setting, we see multiple insurance denials on a weekly basis. Teams of people route them to various departments for analysis and review. I have staff members who review the APC and/or DRG, along with coding criteria, to determine if we have properly fulfilled our duties as coders and to support the appeals process for the organization. My staff and I agree on one thing at the very beginning, and that is: don’t believe the denial! Here’s why:

Improper Use of Coding Guidelines

In many auditing scenarios reviewed with coding staff, I’ve often heard competing arguments and received a trite response similar to “we’ll have to agree to disagree” or “coding is subjective,” “it’s not all black and white,” etc. These statements might have minimal workplace merit, yet actual emotional merit, due to the perceived confrontational nature of audits. The truth is, in a majority of examples, we are following guidelines that are well-defined and longstanding principles based upon anatomy, which is unchanging – and all in relation to healthcare provision, the tenets of which are well-known. Our organization finds that the individuals working for payors in their denial departments will commonly reference and utilize coding guidelines, but in an improper way. Consider the example below:

  • Insurance Denial – Example No. 1
    • The provider assigned J90 (Pleural effusion, not elsewhere classified) as a secondary diagnosis. Upon review of the documentation provided, code J90 was not supported. Review of the medical records revealed that the patient had moderate pleural effusion; however, it was not addressed during admission. There was no diagnostic workup, and therapeutic management was directed to the patient’s pleural effusion. Per the guidelines referenced below, for reporting purposes, the definition of “other diagnoses” is interpreted as additional conditions that affect patient care in terms of requiring clinical evaluation, therapeutic treatment, diagnostic procedures, extended length of hospital stay, or increased nursing care and/or monitoring. The UHDDS item No. 11-b defines other diagnoses as “all conditions that coexist at the time of admission, that develop subsequently, or that affect the treatment received and/or the length of stay.” In accordance with this being referenced and physician documentation provided, code J90 has been removed.
    • This results in a change in DRG from 809 to 810.
    • Reference: ICD-10-CM Official Coding Guidelines, Section III, Reporting Additional Diagnoses.

There are several things to notice about what the payor said in its denial:

  • “Review of the medical records reveals…”
  • “The patient has moderate pleural effusion…”
  • “There was no diagnostic workup…”
  • “There was no … therapeutic management directed to the patient’s pleural effusion.”
  • “Per the guidelines listed below…”
  • “The UHDDS item No. 11-b defines other diagnoses as…”

This example denial crosses the boundaries of being both coding-related and clinical in nature. However, it is incorrect on all fronts, as you will see in our organization’s response:

  • Coding Response:
    • Disagree with Denial
      • J90 Pleural effusion documented in chest X-ray on 7/23/18 by a radiologist, stating that it was new in comparison with the previous X-ray on 7/21/18.
      • CT Scan on 7/24/18 noted moderate pericardial pleural effusion.
      • A progress note dated 7/24/18 by Dr_ DO note right pleural effusion as a diagnosis.
      • A progress note dated 7/25/18 by Dr._ MD stated moderate pleural effusion and right pericardial effusion as diagnoses.
      • A separate progress note dated 7/25/2018 by __ DO stated cough as a diagnosis and Tessalon Pearls were ordered PRN, will continue to monitor.
      • Discharge summary dated 7/28/18 stated that chest X-ray showed small right pleural effusion, which has developed since the previous exam of 7/21/2018.
      • Chest CT was performed, which showed moderate right pleural effusion, minimal pericardial effusion.
  • Reference: FY 2019 ICD-10-CM Guidelines, I.A.19 Code Assignment and Clinical Criteria:
  • I.A.19. Code Assignment and Clinical Criteria:
  • “The assignment of a diagnosis code is based on the provider’s diagnostic statement that the condition exists. The provider’s statement that the patient has a particular condition is sufficient. Code assignment is not based on clinical criteria used by the provider to establish the diagnosis.”
  • Reference: ICD-10-CM/PCS Coding Clinic, Fourth Quarter ICD-10 2016 Pages: 147-149 Effective with discharges: Oct. 1, 2016
  • “Coding must be based on provider documentation. This guideline is not a new concept, although it had not been explicitly included in the official coding guidelines until now. Coding Clinic and the official coding guidelines have always stated that code assignments should be based on provider documentation. As has been repeatedly stated in Coding Clinic over the years, diagnosing a patient’s condition is solely the responsibility of the provider. Only the physician, or other qualified healthcare practitioners legally accountable for establishing the patient’s diagnosis, can “diagnose” the patient. As also stated in Coding Clinic in the past, clinical information published in Coding Clinic does not constitute clinical criteria for establishing a diagnosis, substitute for the provider’s clinical judgment, or eliminate the need for provider documentation regarding the clinical significance of a patient’s medical condition.
  • The guideline noted addresses coding, not clinical validation. It is appropriate for facilities to ensure that documentation is complete, accurate, and appropriately reflects the patient’s clinical conditions. Although ultimately related to the accuracy of the coding, clinical validation is a separate function from the coding process and clinical skill. The distinction is described in the Centers for Medicare & Medicaid (CMS) definition of clinical validation from the Recovery Audit Contractors Scope of Work document and cited in the AHIMA (American Health Information Management Association) Practice Brief Clinical Validation: The Next Level of CDI, published in the August issue of JAHIMA: “Clinical validation is an additional process that may be performed along with DRG validation. Clinical validation involves a clinical review of the case to see whether or not the patient truly possesses the conditions that were documented in the medical record. Clinical validation is performed by a clinician (RN, CMD, or therapist). Clinical validation is beyond the scope of DRG (coding) validation, and the skills of a certified coder. This type of review can only be performed by a clinician or may be performed by a clinician with approved coding credentials.”
  • While physicians may use a particular clinical definition or set of clinical criteria to establish a diagnosis, the code is based on his/her documentation, not on a particular clinical definition or criteria. In other words, regardless of whether a physician uses the new clinical criteria for sepsis, the old criteria, his personal clinical judgment, or something else to decide a patient has sepsis (and document it as such), the code for sepsis is the same; as long as sepsis is documented, regardless of how the diagnosis was arrived at, the code for sepsis can be assigned. Coders should not be disregarding physician documentation and deciding on their own, based on clinical criteria, abnormal test results, etc., whether or not a condition should be coded. For example, if the physician documents sepsis and the coder assigns the code for sepsis, and a clinical validation reviewer later disagrees with the physician’s diagnosis, that is a clinical issue, but it is not a coding error. By the same token, coders shouldn’t be coding sepsis in the absence of physician documentation because they believe the patient meets sepsis clinical criteria. A facility or a payor may require that a physician use a particular clinical definition or set of criteria when establishing a diagnosis, but that is a clinical issue outside the coding system.
  • To summarize the above-referenced information, the content in Guideline I.A.19 is not a new concept. The guideline reaffirms the longstanding principle that coding should be ultimately based on the provider’s documentation. Furthermore, coders should not exclude coding a reportable diagnosis that is documented by a provider based solely on the coder’s interpretation of clinical indicators, or a perceived lack thereof. Only the physician, or other qualified healthcare practitioners legally accountable for establishing the patient’s diagnosis, can ‘diagnose’ the patient.”
  • Result – Appeal won, saving hospital clients approximately $3,000 on the claim.

Stay tuned for the next article in this series, in which I will review an example of a denial associated with a 73-year-old female with syncope following a fall.

Lamon Willis, CPCO, CPC-1, COC, CPC, AHIMA-Approved ICD-10-CM/PCS Trainer

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