We often hear about overcoding practices, whether due to improper documentation, lack of awareness, or even attempts to inflate reimbursements. But what about the opposite issue—undercoding?
While overcoding tends to get the most attention, undercoding often goes unnoticed. Many times, facilities don’t even realize they’re leaving money on the table.
Undercoding happens when services aren’t fully reflected in the codes submitted, leading to missed revenue, inaccurate data, and potential compliance issues. The real cost of undercoding isn’t just in lost reimbursements; it impacts everything from operational efficiency to patient care.
Recent studies show that undercoding occurs in 33% to 45% of outpatient visits, with some physicians losing as much as $100,000 annually due to underreporting services. So, how can you prevent it from becoming a significant problem?
In this post, we’ll explore how to identify and prevent undercoding, ensuring that you capture the full value of the care it provides while maintaining accuracy and compliance.
What Is Undercoding?
Undercoding in healthcare occurs when the medical codes—CPT (Current Procedural Terminology) or HCPCS (Healthcare Common Procedure Coding System)—submitted for services don’t fully reflect the scope of care provided to a patient. It happens when coders either fail to abstract all relevant codes from the medical record or use codes that underrepresent the complexity of the care delivered.
For example, a physician may perform a comprehensive evaluation and management (E/M) service but code it as a routine check-up, resulting in undercoding. The impact of undercoding is twofold: missed revenue and skewed claims data. Since the codes don’t reflect the full extent of care provided, the healthcare provider may not receive the appropriate reimbursement for the services rendered.
While undercoding might seem like a safer alternative to overcoding, it ultimately distorts the true picture of the care provided. By not capturing all the services performed, such as diagnostic procedures, ancillary services, or treatment modalities, undercoding leads to underpaid claims and missed opportunities to optimize revenue cycle management.
Causes of Undercoding in Healthcare
Undercoding in healthcare happens when the submitted codes don’t fully capture the scope of services provided to the patient. While this can occur unintentionally due to various factors, it often stems from gaps in documentation, outdated knowledge, or a conservative approach to coding.
Although many healthcare providers may not realize they’re undercoding, a recent study found that undercoding and overcoding both occurred in 45% of outpatient visits, highlighting the widespread nature of the issue. Below are the key causes behind undercoding:
- Incomplete Documentation: Incomplete or insufficient documentation is a major cause of undercoding. When healthcare providers fail to document all services performed during a patient visit, the coder may not have the necessary information to assign the correct codes.
- Lack of Training and Awareness: Coders and healthcare providers may be unaware of the most up-to-date coding guidelines and code sets. Without regular training on updated ICD-10 and CPT guidelines, coders and healthcare providers may apply outdated codes or overlook new ones, leading to undercoding and missed revenue opportunities.
- Conservative Coding Approach: Some healthcare providers intentionally adopt a conservative coding approach to avoid overcoding and audits. However, undercoding in this manner results in lower reimbursements and misrepresents the scope of care delivered.
- Overlooked Codes, Modifiers, and Complexity: Certain procedures require specific codes and modifiers to accurately reflect the service provided, including complications or comorbidities (CC/MCC). Failing to account for these elements leads to undercoding and missed reimbursement for complex services.
- Oversight and Coding Errors: Coders may overlook important details, such as code specificity or necessary CC/MCC application, when assigning codes. These oversights impact reimbursement by inaccurately reflecting the patient’s care complexity.
- Time Constraints and Misinterpretation: In fast-paced healthcare settings, time pressures can lead to rushed coding or misinterpretation of procedures, resulting in undercoding. Healthcare providers may inaccurately assign simpler codes, failing to capture the full extent of services rendered.
- Undercoding as a Misguided Strategy: Some healthcare providers mistakenly believe that undercoding is an effective strategy to avoid audits or reduce patient costs. However, this approach is flawed. While it may reduce the risk of overcoding, undercoding increases the risk of fraud, noncompliance, and revenue loss.
According to a report by AAPC, undercoding should not be used as an audit-avoidance strategy. It increases the likelihood of underreporting services, which can be considered fraud, especially when services are deliberately undercoded to reduce costs.
Situations More Prone to Undercoding
Undercoding tends to be more likely in certain situations, including the following:
- Longer patient visits, where more detailed care and documentation are required.
- Visits where the percentage of time spent planning treatment is lower.
- When the visit leads to a referral, the service’s complexity is underreported.
- For pediatric patients, where the documentation may not fully reflect the complexity of care required.
In these scenarios, healthcare providers must be extra diligent in ensuring that all services are accurately coded to reflect the true scope of care delivered.
Challenges and Risks of Undercoding
While undercoding might seem like a safer option to avoid overcoding or potential audits, undercoding introduces its own set of challenges and risks, which can affect both revenue and compliance for healthcare providers. Below are the key risks associated with undercoding:
- Missed Revenue and Financial Loss: Undercoding directly leads to missed revenue. Healthcare providers who undercode for services leave money on the table by not receiving the full reimbursement for the care provided. Studies have shown that undercoding can cost tens of thousands of dollars annually, with Medicare alone reporting a $236 million loss in 2008 due to this issue.
- Skewed Claims Data and Resource Allocation: Undercoding distorts claims data, failing to reflect the complexity of the care provided accurately. This leads to false utilization patterns that affect healthcare statistics, resource allocation, and future planning. Misleading claims data can disrupt hospital planning, impact healthcare delivery, and skew performance metrics.
- Increased Compliance and Legal Risks: While undercoding may be seen as a strategy to avoid audits, it increases compliance risks. Misrepresenting services through undercoding can lead to violations of the Anti-Kickback Statute and the False Claims Act. Providers who undercode, intentionally or unintentionally, risk legal penalties and civil lawsuits. Failing to accurately report services can be perceived as fraudulent billing, further compounding legal issues.
- Audit Scrutiny: Healthcare organizations that consistently undercode may be flagged for audit scrutiny. Auditors scrutinize inconsistent coding patterns and can investigate providers for failing to report services accurately. This can result in costly audits, with the provider having to justify their coding decisions, leading to fines or repayments.
- Inaccurate Reimbursement for Complex Services: Undercoding is particularly damaging for complex services. For example, certain procedures that require multiple codes or modifiers are often undercoded due to missed details in the documentation. By omitting necessary codes, healthcare providers can risk underpayment for critical or specialized services, ultimately reducing the reimbursement for complex treatments.
- Misrepresentation of Patient Care: Undercoding results in the misrepresentation of patient care, leading to an inaccurate reflection of the services rendered. When codes fail to capture the full scope of care, it can impact quality reporting, performance metrics, and patients’ true level of care. This misrepresentation can also distort healthcare quality metrics, affecting hospital rankings and patient satisfaction.
- Increased Volume of Incorrectly Paid Claims: Undercoding increases the number of incorrectly paid claims—those that are paid at a lower level than appropriate. When healthcare providers underreport the complexity of services, it results in undervalued claims, reducing the funds the healthcare facility should receive for those services. This creates financial strain on the healthcare facility and can make it harder to operate effectively.
- Patient Financial Impact: While undercoding may reduce patients’ out-of-pocket costs in the short term, it can cause long-term financial complications. Misleading bills can create confusion about actual patient responsibilities and lead to discrepancies in patient care costs. Providers should be careful when undercoding, as it may result in misleading patient financial obligations.
The risks of undercoding can result in lost revenue, compliance violations, and inaccurate patient care data. With Promantra’s comprehensive Revenue Cycle Management services, we help mitigate these risks by ensuring accurate coding and efficient billing processes.
Our RPA-powered solutions reduce human error, increase reimbursement rates, and minimize legal risks, helping healthcare providers maintain compliance and optimize financial outcomes.
Also Read: The Consequences of Incorrect Medical Coding
How to Identify Undercoding?
Identifying undercoding in healthcare is crucial to ensure proper reimbursement and maintain compliance with coding standards. The following methods help healthcare practices uncover undercoding effectively:
1. Analyze Utilization Data
The first step in identifying undercoding is by analyzing utilization data. This data can provide insights into where undercoding might occur by comparing your healthcare organization with industry norms.
- Benchmarking Tools: Use tools to compare your healthcare organization’s performance with industry standards. For example, you could compare the number of services your facility bills versus similar organizations.
- Medicare Part B Data: Use Medicare’s Part B utilization data to analyze how frequently your healthcare organization bills specific procedures compared to other providers.
- Comparative Billing Reports: These reports provide a comprehensive view of your billing practices compared to others, helping you spot undecoded services or procedures.
2. Conduct Regular Audits
Regular audits are essential for identifying undercoding. These audits should be routine and thorough, involving both internal and external checks to ensure the coding reflects the services provided.
- Internal Reviews: Routine audits within the organization ensure that coding standards are consistently met. Regularly reviewing a random selection of claims can help identify common issues without bias.
- Third-Party Audits: Engaging with external auditors brings a fresh perspective and ensures compliance with industry regulations, potentially identifying undercoding issues that internal teams might overlook.
- Random Sampling: Regularly reviewing a random selection of claims ensures that audits are unbiased and provide a comprehensive picture of your billing practices.
3. Examine Billing Patterns
Review billing patterns regularly to spot undercoding. Focus on high-risk areas like E/M service coding, where underreporting is common. For example, a comprehensive consultation may be undercoded as a routine check-up. By comparing the documented services to billed codes, discrepancies can be flagged, revealing undercoding.
4. Look for Missed Services or Procedures
Check for missed services or procedures that were performed but not coded. This often happens in preventive services, care coordination, or when multiple services are involved in one visit. Ensure all services performed are documented and coded, as missing services lead to undercoding and lost revenue.
5. Compare Data with Industry Standards
Comparing your billing practices with industry benchmarks helps identify potential undercoding. If your organization’s data consistently uses lower-level codes for complex procedures, it could indicate undercoding.
- Specialty-Specific Data: Review data specific to your specialty to ensure your facility appropriately codes for the complexity of the cases handled.
- Peer Comparison: Compare your healthcare organization’s claims with those of peers in the same specialty to ensure you’re not underreporting services.
6. Identify Misinterpretations of Code Complexity
Undercoding often results from misinterpreting the complexity of services provided. For example, providers might opt for a lower-level code when unsure if a higher-level code applies. Ensure that clinical documentation matches the complexity of the service to avoid downcoding.
7. Spot Documentation Gaps
Ensure comprehensive documentation that reflects all aspects of patient care. Missing details, like the severity of a condition or omitted tests, often lead to undercoding. Regular reviews of patient records help ensure that all services provided are accurately reflected in the codes.
Identifying undercoding involves systematic audits, data analysis, and careful review of documentation and billing patterns. Once undercoding is determined, an auditor or consultant can develop a custom coding quality improvement plan to address these issues, streamline billing practices, and ensure proper reimbursement moving forward.
Promantra offers advanced auditing solutions with a focus on identifying undercoding early. Using cutting-edge automation tools and expert insights, we ensure your facility remains compliant and every service is properly documented, helping you capture all potential revenue and avoid billing mistakes.
How to Prevent Undercoding?
Undercoding is a costly mistake that can leave revenue on the table, impact proper reimbursement, and skew clinical data. Healthcare organizations can proactively address undercoding by following proven strategies, ensuring that all services are accurately captured and billed. Below are essential practices to prevent undercoding and optimize the revenue cycle.
1. Establish Internal Procedures for Bill Review and Audits
To prevent undercoding, healthcare organizations must establish robust internal procedures for reviewing bills before submission to insurers. This ensures that all services performed during a patient visit are accurately documented and coded, capturing the full scope of care provided.
2. Staff Training and Education
Investing in continuous staff training is key to preventing undercoding. Coders and billers must stay updated on the latest coding practices, including annual updates to ICD-10, CPT, and HCPCS codes.
By offering training programs for coding and billing staff, healthcare facilities can equip their teams with the knowledge to avoid errors and ensure that the proper codes are used. Additionally, healthcare providers should be educated on the importance of thorough documentation, ensuring that no service or treatment is overlooked.
3. Hire Certified Coders and Professionals
Hiring certified medical coders ensures that the team has the expertise to capture the complexity of services provided accurately. Certified professionals understand the nuances of the coding system and are well-equipped to prevent undercoding. If hiring full-time coders is not feasible, healthcare organizations can consider working with contractors or outsourcing coding services to maintain accuracy and compliance.
4. Use Accurate Coding Tools
Utilizing electronic coding tools and lookup software can significantly reduce undercoding. These tools help identify the correct codes for procedures, including when modifiers are necessary, and can also flag bundled services.
With these systems in place, coders can select the correct codes, thereby minimizing errors and maximizing reimbursement opportunities.
5. Stay Updated with Coding Guidelines
Coding guidelines frequently change, and failure to stay updated with the latest coding practices can lead to undercoding. Healthcare organizations should prioritize staying informed about new coding revisions, deletions, and updates.
6. Exercise Caution with EHR Systems
While Electronic Health Records (EHR) systems can simplify documentation, improper use can result in undercoding. Physicians may be tempted to cut and paste data from previous patient visits, leading to inaccurate coding.
Healthcare providers should ensure that their EHR system is used properly and that it supports accurate reporting of services provided. Additionally, they should avoid relying solely on system-generated codes, as these can sometimes be inaccurate if the documentation does not reflect the full scope of the visit.
7. Maintain Consistency Across Patient Billing
Consistency in coding practices is essential to prevent undercoding. Some healthcare facilities mistakenly use different codes for insured and uninsured patients, which can lead to incorrect coding. Healthcare providers should ensure that they use uniform coding standards across all patient types and consistently reflect the complexity of the care provided.
8. Utilize Risk-Based and Retrospective Audits
Leveraging automation and AI for retrospective audits helps healthcare organizations identify undercoding issues quickly. Automated audits can analyze past claims for discrepancies and highlight undercoded services. By conducting retrospective audits, organizations can catch undercoding early and take steps to improve their coding practices moving forward.
Right Coding for Compliance: Tips and Best Practices
Accurate coding is essential not only for appropriate reimbursement but also for ensuring compliance with healthcare regulations. Implementing the following best practices helps avoid legal risks, ensures financial stability, and contributes to better patient care:
- Accurate Documentation for All Services: Ensure comprehensive documentation of all services provided, including the chief complaint, history of present illness, physical examination, assessment, and care plan.
- Adhere to Coding Guidelines: Stay updated with the latest coding guidelines (ICD-10, CPT, HCPCS) to avoid submitting outdated codes that may result in non-compliance or incorrect reimbursements.
- Avoid Unbundling: Use bundled codes for procedures performed together to prevent overcharging and misrepresenting the services provided.
- Proper Modifier Use: Always apply the appropriate modifiers to give additional context to services rendered, ensuring the complexity of care is accurately reflected.
- Evaluate Service Level Appropriateness: Ensure that the selected E&M service level corresponds to the complexity documented in the patient’s record. Avoid overcoding for routine services.
- Ensure Accurate Patient Type Classification: Correctly classify patients as new or established when selecting E&M codes to avoid potential compliance issues.
- Foster a Compliance Culture: Create an organizational culture that prioritizes compliance and accurate coding, ensuring all staff understand its importance.
By following these practices, healthcare providers can mitigate compliance risks, improve billing accuracy, and strengthen revenue cycle integrity.
Summing Up
Undercoding is a hidden challenge that can lead to significant financial losses, compliance risks, and misrepresentation of patient care. By identifying the causes and taking proactive steps like regular audits, staff training, and using the right tools, healthcare organizations can prevent undercoding and improve their revenue cycle management.
With the right strategies in place, you can optimize reimbursements, maintain compliance, and provide better patient care.
Promantra’s RPA-powered Revenue Cycle Management services help healthcare providers prevent undercoding and optimize reimbursements. Our automated solutions reduce errors, ensure compliance, and streamline billing processes, allowing you to focus on patient care while boosting your financial performance.
Contact Promantra today, and let us help you unlock your organization’s full potential!
