Winter 2025 Issue

Documentation Dilemmas: Stepped-Up Audits Driving Denials
By Elizabeth S. Goar
For The Record
Vol. 37 No. 1 P. 30

A 100% increase in clinical documentation audits was a leading contributor to a surge in denials by Medicare and commercial payers in 2024, primarily due to insufficient documentation to support claims. As a result, final denial dollars jumped across professional (34%), hospital outpatient (84%), and hospital inpatient (148%), numbers that were driven by a 122% increase in commercial payers’ requests for information denials.

“Payers are scrutinizing high-cost procedures and drugs for overpayments. They are asking for information related to medical necessity, preauthorization, and patient treatment. According to MDaudit data from 2021 to 2024, clinical denials are on the rise by 51% [and] clinical documentation is one major driver of these denials,” says Ritesh Ramesh, CEO of MDaudit, of the findings in the MDaudit 2024 Benchmark Report.1

The report analyzed real-world data representing the first three quarters of 2024 collected from a network of more than 650,000 providers and over 2,200 facilities. The report encompasses insights from more than $8 billion in audited professional and hospital claims, and more than $150 billion in denials by commercial and government payers. The annual analysis pulls back the curtain on audit and denial trends impacting health care billing compliance, coding, and revenue integrity going into 2025, as well as the role of clinical documentation and actions being taken by provider organizations to mitigate the impact of those trends.

Documentation Integrity a Factor
Missing details on patient diagnoses and specificity on treatment paths were among the main clinical documentation issues behind the 51% increase in clinical denials over the three-year period, according to MDaudit data. Ramesh notes 2024 documentation-related denials on the professional fee side centered primarily on overbilling of higher-level E&M and other diagnosis codes when documentation was insufficient to support the charges.

“On the hospital outpatient side, it’s on high-cost procedures like heart, spine, knee, kidney, and high-cost cancer drugs,” he adds. “On the inpatient side, there has been immense scrutiny on observation care for patients being admitted for inpatient stays with no supporting documentation.”

The report also found that Medicare and commercial payers denied more claim dollars in 2024 due to a lack of information submitted for the service and for medical necessity. The average denied amount per claim increased by 4.2% to 6.9% across professional and hospital outpatient and inpatient settings. This was led by Medicare Part A inpatient denials, which increased by nearly 30%, and commercial payers professional claim denials were also up 30%.

Further, 58% of professional billing audits conducted by provider organizations failed due to “diagnosis documented but not billed,” while 37% of hospital billing audits failed due to “secondary diagnosis documented not billed.”

Ramesh points to provider organizations’ overreliance on clinical documentation improvement (CDI) tools without sufficient human oversight as one of the underlying issues related to documentation challenges.

“Documentation must be completed according to rules laid out by payer policy, and there needs to be a strong CDI integrity program,” he says. However, “Many providers use powerful CDI technologies but don’t staff strong governance and integrity teams around the technology to connect their billing, coding, and denial trends with documentation. Incentives should be provided for compliance and positive payment outcomes.”

A surge in hierarchical condition category (HCC) and Medicare Risk Adjustment Data Validation (RADV) audits, each of which increased by 72% over 2023 levels, revealed yet another area where clinical documentation issues impacted financial outcomes. These audits led to a 51% increase in total denial amounts for Medicare Advantage plans in 2024.

“HCC cases are paid by payers based on patient acuity and value of care. Documentation must absolutely support all the patient’s conditions before treatment. In many denials, payers question whether an additional diagnosis code was added to inflate payments. There were widespread reports of Medicare Advantage plans adding fraudulent diagnoses to collect payments from Medicare. Government payers are clamping down on this trend,” Ramesh says.

The high risk of overpayments identified by HCC and RADV audits are fueling even more audits focused on identifying instances of overcoding as CMS continues efforts to expose fraud and abuse. In all, CMS expects to recover an estimated $4.7 billion in overpayments from Medicare Advantage plans alone by 2032.2

These stepped-up audits intensify the need for providers to focus on CDI efforts to ensure they come out on the right side of CMS’s scrutiny.

Mitigating Risk and Damage
To improve the health of their profit margins in a hostile revenue environment, Ramesh says health care organizations should take immediate steps to transform RCM by emphasizing continuous monitoring of financial risk and CDI to support coding and billing compliance and integrity.

In its report, MDaudit notes that healthy margins are enabled primarily by high-value outpatient services, including elective surgeries and some inpatient services. By identifying those with the highest impact, health care organizations can “ensure that their CDI, billing, coding, and RCM programs are tightly coupled to implement a ‘closed feedback loop’ from the backend to the mid-cycle to drive efficiencies.”

Provider organizations should also strive to understand trends around payer behavior, patient demographics served by their payers, and what it means to their bottom line, which allows for more appropriate resource allocation. For example, Medicare is heavily scrutinizing inpatient services due to the complexity of care associated with its beneficiary population, while commercial payers are focused on professional claims due to increased office and emergency department visits.

MDaudit expects that federal and commercial payers will continue scrutinizing claims for medical necessity, including labs, specialty drugs, medical implants, and high-cost treatments. As such, the report recommends that providers tighten their CDI programs to integrate with their billing and coding programs.

Finally, technology will play a critical role in shoring up CDI to achieve a healthy bottom line. This includes automating coding operations and increasing utilization of artificial intelligence (AI)-powered systems that highlight errors at scale while keeping humans in the loop for governance and quality assurance.

“Use data-driven strategies by investing in analytics, AI, and automation,” Ramesh adds. “Unless you measure something and establish a baseline, you can never improve anything in the organization.

“Stay two steps ahead of the payers by understanding trends around services you bill and how the payers respond to your submissions proactively,” he adds. “Many health care organizations still leverage traditional denial management methodologies that are reactive and lack data depth and real-time insights to drive outcomes. Transforming this to be more proactive and predictive is critical to reducing denials.”

— Elizabeth S. Goar is a freelance health care writer in Benton, Wisconsin.

 

References
1. 2024 Benchmark Report. MDaudit website. https://www.mdaudit.com/resource/report/2024-benchmark-report/. Published 2024.

2. Centers for Medicare & Medicaid Services, Department of Health and Human Services. Medicare and Medicaid programs; policy and technical changes to the Medicare Advantage, Medicare, and Medicaid. Fed Regist. 2023;88(19):5192-5210. https://www.federalregister.gov/documents/2023/02/01/2023-01942/medicare-and-medicaid-programs-policy-and-technical-changes-to-the-medicare-advantage-medicare

 

Other key findings in the MDaudit 2024 Benchmark Report include the following:
• Coding-related denials rose by 125%, and inpatient medical necessity denials
increased by 140%.

• The average denied amount increased across all care settings, led by hospital inpatient-related denial (~200%).

• “At risk” dollars increased five-fold, up from $2.6 million in 2023 to $11.2 million in 2024.

• External audit volume doubled in 2024 over 2023, leading to an increase in average denied amount per claim across professional (~4%), hospital outpatient (~5%), and hospital inpatient (~7%) settings.

• On average, more than 25% of providers failed internal audits across both professional (33%) and hospital (23%) care settings.

• The top overcoded CPT/HCPCS codes in 2024 were 99214 (Office O/P Est Mod 30 Min) for professional billings and 27130 (TOTAL HIP ARTHROPLASTY) for hospital billings.

• The top undercoded CPT/HCPCS codes in 2024 were 99213 (Office O/P Est Low 20 Min) for professional billings and G0463 (HOS OP CLIN VISIT ASSESS & MGMT PT) for hospital billings.

• The top codes denied in 2024 were the following:

- Principal diagnosis codes – Z00.00 (Encounter for General Adult Medical Exam W/O Abnormal Findings) for professional, Z51.11 (Encounter for Antineoplastic Chemotherapy) for hospital outpatient, and A41.9 (Sepsis, Unspecified Organism) for inpatient billings;

- E&M codes – 99214 (Office O/P Est Mod 30 Min) for professional, 99285 (Emergency Department Visit High Mdm) for hospital outpatient, and 99499 (Unlisted E&M Service) for inpatient billings;

- CPT/HCPCS codes – G0378 (Hospital Observation Service Per Hour) for hospital outpatient and 97810 (Acupuncture W/O Stimulus 15 Min) for inpatient billings;

- DRG code – 871 (Septicemia or Severe Sepsis Without Mv >96 Hours With Mcc); and

- HCC codes – 142 (Specified Heart Arrhythmias) for hospital outpatient and 2 (Septicemia, Sepsis, Systemic Inflammatory Response Syndrome/Shock) for inpatient billings.

— ESG