ICD-10 Denials and Payment: Understanding the Relationship

October 3, 2017 10:36 am

Meet medical necessity on the front end to reduce denials.

What is the current state of denials that result from ICD-10 coding errors and the appeals management process?

Answer: Every denial has a direct financial impact on healthcare organizations’ bottom lines. Whether due to coding errors, failed medical necessity, mis-keyed charges, or incorrect insurance data, everyone involved in the revenue cycle plays a role in reducing errors and denials. And even if denials are not valid, valuable staff resources are spent addressing them.

Since ICD-10 implementation, coding denial rates have not changed significantly for inpatient claims. The majority of inpatient denials still are focused on sepsis, chronic obstructive pulmonary disease (COPD), malnutrition, respiratory failure, and acute renal failure. Denials for these target diagnoses will continue, and more diagnoses likely will be added as ICD-10 data becomes more widely available.

On the outpatient side, health plan, Medicare, and Medicaid denials are on the rise. Failed medical necessity is a common culprit for outpatient claims. Coders need to be sure to code outpatient encounters more comprehensively as payers have become selective in pinpointing connections between medical treatment and medical necessity. If medical necessity is not met on the front end, the risk of denials climbs.

Whether struggling with inpatient or outpatient coding denials, the strategy is the same: Reduce errors to prevent denials from occurring in the first place.

4 Preventive Measures

Best practices to reduce ICD-10 denial rates include coding audits, physician education, clinical documentation improvement (CDI), and facility-wide collaboration. While these strategies are similar to those in ICD-9, the added granularity of ICD-10 creates another layer of complexity, so it’s important to revisit the basics.

Internal coding audits. Internal auditing as part of routine workflows depends on many factors, including case mix index and denial trends. How often should audits be conducted? The answer: As often as time, resources, and priority allow. If error-rate and denial patterns are high, make audits a priority. Quarterly internal reviews should be performed quarterly to keep ahead of any developing error patterns.

On the inpatient side, audit systems are typically used for second-level reviews of at-risk categories (e.g., hospital-acquired conditions, patient-safety indicators) and targeted DRGs. These claims usually are flagged for pre-bill reviews by coding managers or high-level coders. The same applies to other reporting factors for value-based purchasing or quality indicators.

Concurrent auditing and pre-bill audits to ensure accurate documentation and coding on the front end has shown to be a successful means of managing and reducing denials. Going to the source and identifying risk factors is key in preventing denials.

Physician education. Physicians may not be aware of the level of documentation detail needed to accurately reflect patients’ medical conditions. CDI teams should aid them in complete and consistent documentation. Physicians have a stake in documentation as well: Inaccurate quality scores, low performance grades, and improper reporting under MACRA are three physician-specific consequences of poor documentation.

A CDI program is instrumental in working with physicians and coding staff to reduce denials. CDI specialists have clinical knowledge and established rapport with physicians. This relationship helps physicians in understanding the need for accurate and complete documentation so coders are better able to accurately code a record. The CDI-coder-physician partnership also allows for a holistic conversation among stakeholders to improve understanding of new ICD-10 nuances.

Collaboration. With ICD-10 and the move to value-based reimbursement, working within departmental silos has become woefully inadequate. Preventing denials requires a team effort. Everyone needs to be on board to do what it takes to ensure mitigation of negative financial impact.

Communication and education are essential. For example, audit findings should be shared with all concerned areas to identify process improvements that help prevent denials. A continuous emphasis on education ensures errors are not repeated.

The Reality of Appeals

The number of denial appeals is often based on organizations’ available resources. Regardless of the number of appeals, related information should be forwarded to specific people with the authority and experience to adequately address any concerns.

Here are several key points to consider when appealing ICD-10 coding denials:

  • Have established processes in place.
  • Provide payers with exact documentation to answer their questions.
  • Ensure that staff who are appealing records have the skills necessary to prepare comprehensive and well-supported responses.

Trends and Actions

Five nationwide trends have emerged related to preventing ICD-10 denials and managing appeals. These trends can be addressed by taking the following actions.

Strengthen your team. Build a team of coders, CDI specialists, and clinicians to work together on the denial process. Use their collective experience to clarify payer issues and define the underlying causes of denials within your organization.

Confound them with knowledge. Don’t just tell payers you don’t agree. Provide overviews and paint complete pictures of patient care. Cite areas in records where supporting information is documented.

Beware of inappropriate surgical PCS codes. Each character in a seven-digit ICD-10 PCS code represents an opportunity for error. Why? Each of these characters describes a portion of the procedure. Recently, we identified several PCS coding concerns where the final code falls into a surgery DRG when in fact the patient did not have surgery. This coding error can be due to the differences between ICD-10 and ICD-9.

Monitor guideline revisions. Certain codes have undergone significant changes in coding conventions and linkages, which can change the DRG and payment levels. Examples include the automatic linkage of diabetes with many other conditions and the new guidelines for sequencing pneumonia and COPD. These diagnoses likely will be future targets for auditors. Include these diagnoses in your second-level reviews over the next several months to ensure correct reporting before submitting claims. In addition, watch for code updates.

Review the current OIG work plan. The Office of Inspector (OIG) work plan provides advance knowledge of what recovery audit contractors and other third-party auditors may be targeting. Review and be knowledgeable about the current year’s OIG plan. Use the opportunity to take preemptive measures to make your claims audit proof and identify educational needs.

Reducing claim denials results in increased payments and staff time and resources. Proactive, established processes to prevent denials and better manage appeals minimizes citation risks while promoting optimal payment and compliance.


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