Lucinda Fletcher professional photo

Lucinda Fletcher, BS, RHIA, CCS

Manager, Consulting Delivery

Most health care payers have a third-party vendor performing diagnosis-related group (DRG) validation audits on their behalf. This is mainly because the process of DRG audits is highly specialized and complex, requiring auditors trained extensively to review medical records for coding-related criteria and validating the clinical support associated with a diagnosis. The problem is that while most payers trust their vendor to do the right thing, it’s shocking how many don’t get it right. 

Are we picking a side in payment integrity?

There are two distinct sides in the realm of payment integrity: The service providers who bill and are focused on maximizing revenue, and the payers who pay and are focused on controlling improper payments. While it seems like the two are inherently at odds with one another, many other factors play into this tug-of-war.

For example, hospitals (service providers) are incentivized to increase revenue. They do this by hiring billing firms to identify areas of opportunity for revenue maximization. Sometimes these firms are paid based on the additional revenue they find.

Payers also are expected to identify and recover improper payments to keep costs under control. Sometimes payers are not equipped to handle the difficulties associated with ensuring they are identifying and recovering improper payments. They often utilize third-party vendors specializing in identifying and recovering these improper claims.

The regulatory landscape also plays a role, adding another layer of complexity, and many suggest that reimbursement patterns are part of the problem. For example, the case mix index is a measure used by the Centers for Medicare and Medicaid Services (CMS) to determine hospital reimbursement rates for Medicare and Medicaid beneficiaries. The higher the case mix index, the higher the reimbursement, incentivizing hospitals to bill as if patients are sicker than they are.

It begs the question:  Are all payers equipped to handle this?

What are DRG validation audits, and why are they important? 

A DRG is how health payers categorize hospital costs and determine how much to pay for a hospital stay. DRG auditing is when an auditor evaluates a medical record to determine whether the corresponding claim submitted for payment was coded correctly.

Payers need DRG validation audits to ensure the claims submitted for payment reflect the actual severity of illness for a patient to pay the claim correctly. It also adds a higher level of credibility to your payment integrity process and the statistical data used by state and federal governments such as CMS and private insurance carriers to ensure the correct case mix index is calculated.

In the health care industry, it is common knowledge that 3-10 percent of payments are deemed improper due to fraud, waste, or abuse.  When you consider that DRG validation audits tend to target less than 5 percent of the overall inpatient population, statistically speaking, most of the recovery dollars fall into this bucket, you can understand why this is a critical component of ensuring appropriate claim payments.

To do it right, you must elevate your standard.

DRG validation audits, done right, require a few key ingredients:

  1. Top-tier subject matter expertise: DRG validation auditors should be trained extensively to review medical records for coding-related criteria and validate the clinical support associated with a diagnosis.

  2. Cross-training for team cohesion: DRG validation auditors should be cross-trained to identify clinical criteria. Clinical validation auditors should be cross-trained to identify potential coding errors while performing clinical reviews.
  3. Coordination: Ensuring that multiple teams fully understand their responsibilities, teams can work together seamlessly to provide a full spectrum of clinical and coding audits.
  4. The Right Partner: The best DRG validation partner is one who is incentivized to add more value than just recoveries to your bottom line.

What to expect from your payment integrity vendor.

Most payers use a third-party vendor to perform DRG validation audits. Often, these vendors are paid a percentage of what is recovered from an audit where improper payments have been identified. Opinions about incentivizing vendors for recoveries vary, but if a vendor is paid based only on recoveries, does that mean they shouldn’t help you stop the bleeding? The answer is no; recoveries should not be the only way your vendor adds value to your organization - you should expect more.

How does your process stack up?

If you are interested in your DRG validation process stacks up, consider the following:

Does your vendor/team:

  • Consistently identify new audit concepts and collaborate with you to evaluate your claims?
  • Thoroughly include both coding and clinical significance during the audit process?
  • Minimize abrasion by working with providers to gather the needed information for audits?
  • Integrate with the provider EMR?
  • Catch when a provider adjusts the claim / submits a new claim to meet the criteria after an audit sample has been requested?
  • Communicate with and educate the provider once audit results are ready?
  • Willing to suggest policy changes to ensure the claim is paid the first time accurately, regardless of how they are paid?

If you answered “no” to any of these questions, it might be time to re-evaluate your DRG validation process or vendor. 

At CGI, our mission is to apply extensive coding, claims and clinical expertise to recover lost dollars and help you improve internal policies to prevent future improper payments. That’s why our clients have the highest appeal uphold rates of all vendors and more edits derived every year for higher recovery opportunities.

Learn more about our expertise.

About this author

Lucinda Fletcher professional photo

Lucinda Fletcher, BS, RHIA, CCS

Manager, Consulting Delivery

Lucinda’s work is centered on payment integrity in the healthcare industry. She has worked in the healthcare industry for 25 years and has in-depth knowledge of coding and reimbursement issues for acute care hospitals. She has held different positions since being employed at ...