Fear & Loathing In Coding

March 15, 2001
Pamela Moore, PhD

Downcoding makes physicians lose money. Here's how to avoid it.


Physicians are throwing their money away. On purpose.

Freaked out by the mere thought of a federal audit - and the threat of stiff fines and possible jail time - physicians across the country are consistently billing Medicare (and other payers) for a lower level of service than they actually provided.

“When physicians hear about [audits and prosecutions] ... it triggers them to bill low. They take what they think is the safe route,” explains Mary LeGrand, consultant for St. Louis-based Karen Zupko and Associates.

In other words, afraid of being accused of reporting the wrong Current Procedural Terminology (CPT) code, physicians consciously “undercode,” or “downcode,” just to play it safe. But downcoding isn’t safe. Worse, it is costing practices a ton of money.

New evidence shows how drastically provider angst has impacted coding - and physician revenue - over the past five years.

Huge financial impact

The fear factor in physician billing first emerged in 1995 with the launch of Operation Restore Trust, the Health Care Financing Administration’s (HCFA) pilot program in fraud prevention. By 1997, nearly every provider in the country was expecting federal investigators to knock on his or her door at any minute - and the situation hasn’t gotten much better.

Last November, U.S. Attorney General Janet Reno reported that $840 million of the almost $1.5 billion the Department of Justice (DOJ) collected in civil penalties under the False Claims Act in fiscal year 2000 derived from settlements involving healthcare fraud. According to an end-of-year report from the DOJ, federal prosecutors filed 371 criminal indictments in healthcare scam cases in 1999 - a 16 percent increase over the previous year; 396 defendants were convicted that year of criminal activity (that is, activity usually resulting in jail time, not “just” fines).

The heat is still on, and physicians are responding. Although few care to admit personally to improper coding, the trends are clear. Todd Welter, president of R.T. Welter & Associates, a consulting group in Denver, reports that, when he lectures on coding, physicians regularly come up afterward and privately say, “I always pick a lower level of service on purpose because I don’t want to get in trouble.”

Douglas Henley, MD, who practiced as a family physician for 20 years, thinks “all physicians downcode, feeling that that is a safe harbor.”

Data gathered by the Medicare Payment Advisory Commission (MedPAC) supports the rumors. Coding patterns have shifted dramatically - from higher-level codes to lower-level ones. From 1993 to 1997, for example, the annual change in coding intensity for new-patient office visits was 0.4 percent - that is, the number of new-patient visits billed grew slightly each year. However, from 1997 to 1998 - when physician awareness and hysteria over anti-fraud efforts were at an all-time high - coding for new-patient office visits dropped an unprecedented 1.8 percent.

MedPAC’s understated report to Congress summarizes, “Part of the response to fraud and abuse policies has been less aggressive billing by healthcare providers.”

And it provides another example: According to testimony by the Central Billing Office (CBO), hospitalized patients with respiratory infections are generally assigned to one of two diagnosis-related groups: respiratory infection or simple pneumonia. Medicare payments for the former averaged $7,400 in 1998; payments for the latter averaged $4,900.

From 1997 to 1998, not surprisingly, the number of cases assigned to the high-paying respiratory infection diagnosis fell by 43,000. The cases of simple pneumonia rose by 42,000. The result? This single change saved Medicare (and cost hospitals) about $100 million in 1998 alone.

No big deal?


Undercoding can have a significant impact on individual physicians and group practices, too. A study by Karen Zupko & Associates illustrates the consequences of undercoding by comparing the billing of a 99212 instead of a 99213 - a pretty common thing to do. (The difference between 99212 and 99213 represents the extent of a medical exam. A 99213 is used for an “expanded” exam, one in which at least one system is examined fairly thoroughly - the physician must review at least six elements of the system - and that demands at least some medical decision making. For a 99212, no medical decision making is required and only one to five elements need be reviewed.)

A 99212 is, generally, a $29 payment, while the 99213 runs about $55. That’s only a $26 difference. No big deal, right?

But if you downcode to the 99212 two times a week, it costs about $2,496 per year (assuming a 48-week year). For a three-physician practice, that hacks a $7,488 chunk out of the group’s bottom line.

Astoundingly, neither the CBO nor anyone else really knows if a change like that represents more accurate coding or less accurate coding - the industry generally measures what procedures have been done according to what procedures have been billed. Still, it’s pretty clear that at least some of the change is not about accuracy, but about physician fear of prosecution and ignorance about coding regulations.

Henley, executive vice president of the American Academy of Family Physicians, estimates that family physicians, who are most likely to be familiar with coding regulations, lose 10 percent to 30 percent of their total revenue through incorrect coding.

“That’s a big number, when most family practices generate $400,000 to $500,000 gross charges,” he notes.

“Physicians are leaving a lot of money on the table,” agrees Michael LaFond, a lawyer with Sulloway & Hollis in Concord, N.H., who specializes in compliance.

Even minor instances of downcoding add up fast, and that’s OK if the codes represent accurate billing. But if they reflect cowardice or lack of knowledge about coding regulations, that’s a problem.

Not any safer

Not only does downcoding create a negative financial impact, it’s also not really any safer, as far as federal regulations are concerned, than overcharging. Technically, submitting an inaccurate bill is submitting an inaccurate bill: It is a false claim whether it’s false because it is too high or too low.

Of course, HCFA, busy as it is, is unlikely to come after a provider for undercharging. However, the agency does consider downcoding an “incentive for more frequent patient care,” comments Nancy Reading, clinical analyst at the American Academy of Professional Coders. Patients who pay less per visit are more likely to schedule excessive visits - and to send their friends to the provider who charges them so little. HCFA doesn’t much relish the thought.

Downcoding also potentially signals HCFA about irregularities in your practice. HCFA uses profiling to identify groups for audits; if your coding is significantly different from others in your state and specialty - whether it’s lower or higher - you’ll stand out.

“[Downcoding] puts physicians at risk because they are profiling differently than their peers,” LeGrand explains.

“Some of these guys are standing on the roof with fireworks screaming, ‘Come and audit me!’ but they think they are playing it safe,” echoes Welter.

HCFA knows that a physician who downcodes is probably unsure of her understanding of coding regulations. In that case, it’s likely she has upcoded more than once, too.


A recent survey of the coding and documentation habits of 84 family practices, published in the January 2000 issue of the Archives of Family Medicine, supports that premise. According to the survey, physicians upcoded 19 percent of the time and downcoded 21 percent of the time. That means that about 40 percent of the CPT codes used opened the practices to allegations of fraud. Worse, only 57 percent of all the CPT codes used corresponded appropriately to the documentation for the visit.

Such errors carry serious consequences. Penalties for submitting a false claim can produce fines up to triple the amount claimed but not less than $5,000 for each claim filed. Criminal penalties also may be considered if prosecutors think the case shows willful misrepresentation.

In other words, downcoding is no safe harbor.

The only other option for physicians, then, is to face the cold world of coding head on, to seek where they are coding poorly and learn to do it better.

Smooth out the curves

Luckily, a growing number of physicians are fearlessly coding correctly, determined to make what they deserve. One of the best ways to find out if you are throwing too much money away to downcoding, and learn how to improve your coding patterns, is to keep track of coding data. Run a CPT code frequency report for each physician in your group; most practice-management software systems can easily do it for you. Get data on how many new patient, established patient, and consult visits each physician billed, and at what level. Then look for aberrant data.

If mapped out in a bar graph, for example, patient visit levels should look like a bell curve, with a low level of 99201s (problem-focused exams) building to lots of 99203s (detailed exams) then ebbing again in the 99205s (comprehensive exams), says Welter. If, however, physicians are playing it safe, the graph will spike up in the middle, with, say, 78 percent of codes at 99203.

“[Then] it’s not a bell curve, it’s a mountain,” as Welter describes it.

You can also use the data to follow HCFA’s example and benchmark your coding patterns against those of your peers. Compare one physician in a group to another in the same group. Or, step up and compare each physician, or the practice as a whole, to national or state data in your specialty, LeGrand suggests. HCFA publishes national frequency data by specialty on its Web site (www.hcfa.gov/stats/resource.htm). Look for the link to 1999 Procedure Code Utilization by Specialty.

If your frequency is out of sync with national norms, it does not necessarily mean you are coding wrong, LeGrand points out.

“A practice is most like itself,” she says, meaning that a rural clinic will necessarily have different code data than a clinic in the inner city. In other words, the purpose of the benchmarking exercise is “not to say, ‘Oh, national data says I need 47 percent level three, new patient visits. I’d better match that,’” LeGrand says. “That coding may not be appropriate.”

Rather, the goal is to locate where you are out of whack with national norms and then find out why. Is it undercoding or good coding that reflects the peculiarities of your practice?

Remember, too, that 1999 national data, or even 1998 data, will reflect existing patterns of downcoding. If you put bad data in - that is, if physicians are downcoding - you’ll get bad data out.

“In two or three years, people who are coding correctly will appear to be upcoding,” Welter warns.

LeGrand thinks the data already is skewed, and she thus encourages clients to use benchmarks only as a launching pad for a more intensive review. National data also will be more accurate than state data, she adds, because within the broader population more physicians are likely to be upcoding or coding accurately, balancing out those who undercode.


Still, look for aberrancies as a signal to examine the corresponding charts. If the documentation supports the code used, fine. If, however, codes are low simply because a physician is afraid to code for all the work he has actually done or doesn’t know how to document his work, the group is losing money for no good reason.

So what do you do?

This kind of data analysis has an uncanny ability to motivate physicians to do better with coding. But where to start?

Think of selecting an Evaluation and Management (E&M) code like building a wedding cake, Welter suggests, and work on one layer at a time. There are three “cake” layers: the history, the exam, and the medical decision making. Of those, only the first two layers are at all confusing to most physicians and are the areas responsible for much of the money lost to undercoding. Following is some advice on how to get the most credit possible for your work on medical histories and exams.

The easiest way to take a medical history is to ask a new patient to fill out a standard history form. Include questions about all major systems. If you prefer, use a nurse or physician assistant to ask the patient the relevant questions, as long as they are answered. Returning patients do not need to fill out a new history every time they visit the office - though plenty of physicians chew up time, money, and patient patience by asking for a new form each visit anyway.

To get credit for taking the history for an established patient, all you need to do (according to HCFA regulations) is review the existing record and update it to reflect any changes. Documentation for this can be as easy as writing something like, “Health history from December 7, 1999, reviewed; agree with findings,” LeGrand confirms.

Document, document, document

Just as history-taking can be simplified, so too can the process of documenting your exam work. According to HCFA rules, documentation is the only way to prove that you have billed correctly for a service. If you didn’t write it down, it didn’t happen, at least as far as HCFA is concerned.

Welter reports seeing charts with plenty of ink but all the wrong information. The goal isn’t to write a lot, but to note having done the things that allow you to code at the level you have, he says.

As most physicians know, you determine E&M coding levels according to the number of systems reviewed and the number of items addressed within each system in the exam. To code a 99214 (a detailed exam for an established patient), for example, a physician must review at least two items from six systems, or at least 12 items in two systems. To document for a 99214, then, show that you met those criteria. Everything else is excessive.

“If you learn the system, [documentation] actually is less work,” Welter insists.

Many physicians, of course, hate the idea of practicing medicine by checking off bullet points.

“It has nothing to do with good patient care,” Welter agrees, “but you still have to do it. It’s a game, but legitimately so. You don’t want to take advantage of the system.”

Welter adds that he sees lots of physicians miss the “freebies” - that is, exam elements they do by rote but don’t give themselves credit for. For example, one of the exam elements for eyes is inspection of lids. Physicians routinely look a patient in the eyes searching for signs of illness; in fact, they do it so routinely they may not really recognize it as part of an exam, and therefore don’t record their action.

Of course, it only counts if it’s relevant to the matter at hand, LeGrand cautions. A patient complaining about pain in her left foot does not benefit from examination of her eyelids. But LeGrand agrees that physicians generally don’t give themselves enough credit.


Especially, she notes, they tend to forget to document normal findings.

“They are so focused on illness, that they forget ... that an examination can be medically necessary even if the findings are normal.”

LeGrand suggests one way to improve documentation is to follow a template listing all systems and elements of the exam.

“Build an infrastructure, a tool, that helps you get credit for what you are doing,” she urges. “It takes about two months of pain to get it down,” but by then most physicians understand the expectations and don’t have to dictate from a form for the rest of their lives, she promises.

“I am not in favor of a tool where we have normal or abnormal [checkboxes next to each system], but no one ever writes anything,” LeGrand adds. Templates should function as a customizable guide to documentation and dictation, she warns, not as a replacement for them.

Regardless of how they train themselves to do it, physicians should try to dictate in a way that supports current coding, not the old-fashioned subjective, objective, assessment, plan (SOAP) protocol.

“SOAP was great in the ,70s,” LeGrand laughs, but physicians who use it now are dating themselves - and putting themselves at risk. If audited, they may not have the documentation they need to support their coding patterns.

Take the time, get it right

Above all, physician coding compliance will improve if physicians take the time to understand how the coding system works.

“If they just take the time to read [the rules] and to implement it, they’d be more comfortable coding at the appropriate level,” Henley says. “They should use the documentation regs as a safe harbor. That’s not upcoding, that’s coding properly.”

“Doctors go to courses all the time,” Welter notes. “Spend a few bucks and learn how to code, and you’ll be a happy camper; you’ll make more money and sleep better at night.”

And don’t worry too much about the cost of a good class: “A good, solid investment in learning how to bill correctly ... is less expensive than leaving money on the table or being pursued for a false claim,” LaFond points out.

No matter the price, physicians do need to know enough to do their own coding, LeGrand insists, and should not depend on billing staff or nurses. A nurse can guess what a physician does during an exam, but she may not be with him at the time of service.

“Physicians are their own best coding advocates,” she states. “It’s much easier to teach [physicians] coding than to teach their staff medicine.”

If her clients elect to use a non-physician coder to do chart audits or instruction, LeGrand encourages them to choose someone who understands their specialty and keeps up with changes - whether that person is someone on the existing staff who gets educated or an outside consultant.


“Professional coder or not, if they are not keeping up with the nuances for your specialty, there is no use to either one of them,” she says.

However they make it happen, it’s becoming increasingly clear that physicians need to code accurately and to the highest level possible. In tight economic times, physician groups can’t lose money simply because they’d rather not take the time to improve coding compliance.

Nightmares about being audited are justified - but downcoding is not a solution. Correct coding is the best - and only - medicine.

Pamela L. Moore senior editor, practice management, with Physicians Practice, can be reached at pmoore@physicianspractice.com.

This article originally appeared in the March/April 2001 issue of Physicians Practice.