DRG Downgrades by Commercial Payers: Documentation Defense Tactics

In the current climate of cost containment, commercial payers are increasingly downgrading MS-DRGs after claims are submitted, not disputing the need for inpatient care, but questioning the clinical support for CCs (complications or comorbidities) and MCCs (major complications or comorbidities). These downgrades reduce reimbursement, often occur quietly, without formal denial letters, and can slip past traditional appeal processes unless hospitals are actively monitoring payment shifts.

Commonly Targeted Diagnoses

Some of the most frequently downgraded diagnoses include:

• Acute kidney injury (N17.9);
• Severe malnutrition (E43);
• Encephalopathy (G93.40);
• Sepsis (A41.9); and
• Acute respiratory failure (J96.00).

While these diagnoses may be clinically appropriate, they are often flagged as unsupported due to lack of specificity, insufficient correlation to lab or clinical findings, or vague provider documentation.

Strengthening Documentation

The best defense is precise, clinically valid, and consistent provider documentation. This includes the following:

• Clinical validation: Explain the diagnosis with supporting evidence such as labs, imaging, response to treatment, etc.;

• Specificity: Use terms like “acute,” “chronic,” or “exacerbated” when applicable;

• Consistency: Ensure the diagnosis appears in physician notes, nursing documentation, and the discharge summary; and

• Present on Admission (POA): Clearly document acute conditions as POA when applicable.

Audit Preparation

Hospitals should take a proactive stance by undertaking the following:

• Creating downgrade tracking systems by payer, diagnosis, and provider;

• Analyzing appeal outcomes to target education and template responses;

• Engaging multidisciplinary teams, including clinical documentation integrity (CDI), health information management (HIM), compliance, and physicians to strengthen documentation practices; and
  
  
• Using real-time alerts to flag commonly targeted diagnoses during coding or CDI reviews.

Payer Engagement

Sometimes payers apply internal, non-public criteria that go beyond accepted guidelines. HIM professionals must push back through well-written appeals, peer-to-peer discussions, and by involving their compliance or legal departments when necessary. Advocacy through national organizations is also key to broader reform.

Conclusion

DRG downgrades represent a growing threat to revenue integrity. By bolstering clinical documentation, tracking payer behavior, and responding assertively, HIM leaders can protect both accurate reimbursement and the integrity of the medical record.

Programming note: Listen live today when Angela Comfort cohosts Talk Ten Tuesday with Chuck Buck, 10 am Eastern.