What is Downcoding in Medical Billing?

When working in the Medical field, one of the biggest challenges is understanding the Medical Billing Terminology associated with each part of the process.

One confusing term often used by insurance providers is ‘downcoding’.

Downcoding occurs when an insurance company finds there is insufficient evidence on a claim to prove that a provider performed the coded medical services. The insurance company reduces or removes these codes.

Downcoding also typically reduces the cost of a claim.

According to a 2005 study by Katie Klein for Pacfic University, it was shown that improper coding occurs greater than 55% of the time in a typical day.

These coding errors lead to financial losses of between $227.00 and $332.00 per day.

In 2008, Medicare reported that medical practices lost up to $236 million due to downcoding.

How Downcoding in Medical Billing Works

Medical coders assign specific codes, called CPT codes (an acronym for Current Procedural Terminology), that communicate information about a service or procedure that has been performed by the healthcare provider.

If the code that is documented is at a lower level of complexity or cost than what is documented, it is called downcoding. (The reverse process, of using a code at a  higher level of complexity is called ‘upcoding’ and can have serious implications for fraud).

The challenge for physicians is that they may receive no notice of the downcoding decision. Instead, the physician simply receives lower reimbursement rom the insurance providor.

Occasionally the explanation of benefits (EOB) form might include an explanation such as “level of service (or procedure) has been adjusted”.

Typically the only way to detect that downcoding occurred is to be familiar with the fee schedule and compare that to the amount received on the EOB form.

This is why regular checking of EOB against procedures performed is crucial to accurate billing and receiving optimal reimbursement.