How do hospitals avoid DRG validation downgrades?

What is a DRG validation downgrade?

A DRG validation downgrade happens when a reviewer re-codes an inpatient stay from the medical record and ends up with a lower-paying MS-DRG than the one you billed. Most often the reviewer removes a secondary diagnosis that created the higher tier, so the payment drops one step.

Three kinds of reviewer do this. A Medicare Recovery Audit Contractor has an approved complex review topic for inpatient hospital MS-DRG coding validation, which reads the record. Quality improvement organizations are required by 42 CFR 476.71(a)(4) to determine, "Through DRG validation, the validity of diagnostic and procedural information supplied by the hospital." Commercial payers do it too, under their contracts and policies, so read your payer agreements.

Reviews also move payment up. In fiscal year 2022 the CMS RAC report shows $464.74 million in overpayments collected and $41.94 million in underpayments restored, so a record that supports a higher DRG can be corrected upward.

Where do downgrades usually come from?

Most come from a secondary diagnosis that the record does not support, because that diagnosis set the CC or MCC tier. A CC or MCC is a secondary diagnosis on CMS's complication and comorbidity lists; adding one can move a case into a higher-weighted MS-DRG, as in how MS-DRGs set inpatient payment.

• An MCC that the record shows as something milder. In the MS-DRG definitions, E43, unspecified severe protein-calorie malnutrition, is an MCC, while E44.0, moderate protein-calorie malnutrition, is a CC.
• A condition coded from a finding, not a diagnosis. An abnormal lab or imaging result is not coded unless the provider says it is clinically significant.
• A principal diagnosis that is not the reason for admission. The principal diagnosis is the condition established after study to be chiefly responsible for the admission.
• A procedure code that the operative note does not support.

What did OIG find when it audited one of these diagnoses?

The OIG audited severe malnutrition codes E41 and E43, both MCCs, and found most claims were wrong. Of 200 sampled claims, hospitals billed correctly on 27. For 164 the errors caused net overpayments of $914,128, and OIG estimated hospital overpayments of $1 billion for fiscal years 2016 and 2017.

The cause was documentation. OIG says hospitals "provided medical record documentation that did not contain evidence that the malnutrition was severe or that it had an effect on patient care." In one example the nutritionist and physician recorded non-severe malnutrition while the claim carried the severe code. The lesson is not about one diagnosis. Every MCC on a claim should be traceable to the physician's wording, the clinical findings and the treatment given.

What do the coding rules say a diagnosis needs?

The ICD-10-CM Official Guidelines set two tests: the provider's diagnostic statement and the effect on the stay. Section I.A.19 says "The assignment of a diagnosis code is based on the provider's diagnostic statement that the condition exists," and that code assignment "is not based on clinical criteria used by the provider to establish the diagnosis. If there is conflicting medical record documentation, query the provider."

Section III adds that other diagnoses are reported when they are clinically significant, meaning they require clinical evaluation, therapeutic treatment, diagnostic procedures, extended length of stay or increased nursing care and monitoring. OIG's report repeats the same test. A diagnosis in the physician's note with no evaluation, treatment or monitoring invites a downgrade.

The two tests work together. The physician's statement is what the coder codes, and the record's clinical findings and treatment are what a reviewer checks the statement against. A query is the tool that closes the gap between them.

How do you protect the DRG before the claim is billed?

1. Sort the high-tier DRGs. List the cases billed with an MCC or CC on the secondary diagnosis list and review them first.
2. Trace each MCC and CC to the record. Find the provider's statement, the findings that support it and the treatment, monitoring or evaluation it caused.
3. Query conflicts. When the notes disagree or a finding has no diagnosis, ask the provider using a non-leading query. Do not add a diagnosis from a lab value alone.
4. Check the principal diagnosis and sequence against the reason for admission in the record.
5. Match procedure codes to the operative or procedure note.
6. Record the decision and reason in the account, so a later discussion can show it.

The formula of weight times rate is simplified here; the full payment steps are in the MS-DRG rule page.

What do you do when a reviewer downgrades a DRG?

Use the discussion period and send the coder's reasoning. In a RAC review, the RAC statement of work says that for a DRG coding validation discussion "it would be most appropriate for a certified coder to lead the discussion on behalf of the RAC with the support of the RAC CMD," so put your own certified coder on your side and send the guideline citations with the record pages. The steps and dates are in how to respond to a RAC audit and appeal findings.

If you disagree after the findings, redetermination must be filed within 120 calendar days of receiving the notice. If you agree the claim was wrong, the 60-day overpayment rule applies: under 42 CFR 401.305(b)(1), an overpayment must be reported and returned by the later of 60 days after it was identified or the date any corresponding cost report is due.

How Nucleus Align handles DRG validation risk

Our hospital and facility billing team prepares institutional UB-04 claims with revenue-code validation, submission, payment reconciliation and denial management for inpatient, outpatient and emergency care. For hospitalist billing and hospital clients we pair that with the checks in hospital billing audit readiness. Book a call to review a set of high-tier DRG cases, or return to the blog.