December 1, 2016

It’s a compliance risk, and it deprives your physicians of proper payment.

“Overcoding,” or reporting procedures and services not supported by the actual work performed (as described in provider documentation), is improper coding, and it’s a compliance risk. “Undercoding” — or failing to report the full extent of provided procedures or services — is an equally unsound practice.

“Defensive” Undercoding Is Indefensible

Some providers and staff have taken to undercoding as a defensive strategy, in hopes of warding off denials, audits, or accusations of fraud. The thinking is, “If I under-report the amount of work performed, I can’t be accused of trying to receive payments in bad faith.”

For example, many payers examine billing patterns for evaluation and management (E/M) codes to identify providers who bill a greater-than-average number of high-level E/M services. Providers who undercode do so because they either are unsure of the correct code or hope that, by doing so, they can “fly under the radar.” What providers may not understand is that undercoding can make a provider an outlier, just as easily as overcoding.

Undercoding creates substantial patient care, compliance, and financial liabilities. Novitas, a Medicare contractor in Delaware, Maryland, New Jersey, Pennsylvania, and Washington, D.C., noted on its website (“Over coding? Under coding? RIGHT coding”) an increased trend of undercoding, and enumerated its problems:

  • Undercoding leaves money on the table, driving down provider reimbursement:

… under coding impacts your practice revenue. You are not being appropriately paid for the level of service you provide to your patients. Correcting under coded claims can mean costly appeals.

  • Undercoding increases the number of improperly paid claims:

The goal of CMS and Novitas is to pay claims that meet Medicare’s requirements and pay them at the proper level of service. When there is an underpayment due to under coding, we did not pay the claim correctly and it is counted as an improper payment error…. Under coding errors can statistically impact calculated error rates in the tens of millions of dollars [emphasis in the original].

  • Undercoding impacts patients negatively, and skews the data that Medicare and other payers use to calculate payments, going forward:

Under coding misrepresents the true level [of] care that is provided to Medicare beneficiaries. These statistics are used to calculate future Medicare payments and track trends in healthcare delivery. 

  • Undercoding may increase your risk of an audit:

Patterns of under coding may be viewed as aberrant and open your practice up to audits and reviews. 

In short, Novitas says, “It’s important to code the level service that is supported by your documentation.”

Undercoding Is Improper Coding (or Worse)

Here’s something else: Undercoding — just like overcoding — can create false claims liability.

There are two types of undercoding that can create liability for the provider:

  • Failing to report services performed at the encounter; and
  • Under-reporting the level of service provided.

A Centers for Medicare & Medicaid Services (CMS) Medicare Learning Network article, entitled “Medicare Fraud and Abuse: Prevention, Detection, and Reporting,” defines fraud:

In general … as making false statements or representations of material facts to obtain some benefit or payment for which no entitlement would otherwise exist. These acts may be committed either for the person’s own benefit or for the benefit of some other party. In other words, fraud includes the obtaining of something of value through misrepresentation or concealment of material facts.

Undercoding Type 1: Failing to Report Performed Services

Deliberately undercoding by not reporting components of the performed service (i.e., services that do not fall under applicable bundling reimbursement rules) is “making a false statement” about the provided services, and is a “misrepresentation” of the facts. When the unreported code(s) affect the payer’s decision to pay the claim (or the decision whether to conduct additional review), the omission is a material misrepresentation that can lead to potential False Claims allegations.

Example: Assume a provider sees a patient and performs three services: A, B, and C. Assume also that the applicable bundling rule establishes that service C is a component of service B, and that service B is a component of service A. Assume no exclusionary modifiers are appropriate or justified. If all three services were reported, only Service A would be paid. Knowing this, the provider omits the billing for Service B. The provider, therefore, reports Service A and Service C. Not knowing that Service B was provided, the payer allows payment for both services.

In this example, the omission was the misrepresentation that induced the payer to approve the additional (but not entitled) reimbursement. If the payer had been apprised of all the facts, they would have paid less money. This is the type of misrepresentation that can create false claims liability. At a minimum, misrepresentation by omission certainly fits within the CMS definition of abuse, which is simply “misusing codes on a claim.”

Under the False Claims Act, a physician may be held liable for “submit[ing] claims to Medicare for medical services he or she knows were not provided.” Undercoding by omission is the inverse of this type of false claim. With omissions, it’s not that the provider is billing for work that he or she didn’t do; it’s that the provider is not billing for all of the work performed in an attempt to gain disallowed reimbursement. For example, getting paid for an E/M associated with a cosmetic procedure that isn’t covered. By not billing a cosmetic procedure, the payer will likely pay the E/M where they otherwise wouldn’t. False claims liability potentially arises as a result of such an omission where a complete and accurate representation of the service would have resulted in a different (and lower) payment amount, or would have negatively influenced the carrier’s determination to pay the claim, at all. In essence, the omission (by undercoding) is the material misrepresentation that creates potential false claims liability.

When a payer can also substantiate that the omission represented a “deliberate ignorance or reckless disregard of the truth related to the claim,” both the materiality and intent elements necessary to prove fraudulent conduct are satisfied.

There’s also the Criminal Health Care Fraud Statute, which makes it a crime “to obtain (by means of false or fraudulent pretenses, representations, or promises) any of the money or property owned by, or under the custody or control of, any health care benefit program.” Here again, undercoding by omitting information that might influence the payment determination may be perceived as “false or fraudulent representations” of the services provided.

Undercoding Type 2: Under-reporting Level of Service

The more obvious form of undercoding is reporting a lower level of service than was provided and represented. This commonly occurs with E/M services, as well as other procedures. In such cases, providers must consider the anti-kickback statute to the extent that undercoding diminishes the patient’s obligation for payment, and such a reduction is considered “remuneration” that is intended to influence the patient’s decision to receive the service.

Example: An established patient whose deductible is not met presents to the physician for an E/M service. Assume that the work and associated documentation demonstrate the physician performed a level 4 service. Concerned about the cost to the patient, the provider reports a level 2 service, instead. The value of the “discount” is remuneration to the patient. Since it can be shown that one purpose of the remuneration was to influence the patient’s selection of the provider or decision to receive the healthcare service, the anti-kickback statute would be implicated.

These examples show that undercoding isn’t a recommended defensive strategy; it’s a misrepresentation of services. Undercoding establishes inaccurate utilization patterns, which may, at a minimum, flag a physician as an outlier and make him or her a target for an audit.

Fight Undercoding with Internal Audits

Periodic, internal audits of your coding, billing, and documentation is the best way to detect and eliminate improper coding, whether it’s due to upcoding, downcoding, or other compliance risks. The goal of an audit is to ensure documentation is a correct reflection of the work done and the necessity for that work. An internal audit should evaluate compliance with payer reimbursement guidelines compared to your documentation content to ensure all procedures, services, supplies, and diagnoses are identified, appropriately billed, and supported at the level they are billed. Medical documentation should be clear (to the auditor) and legible.

Internal audit results must be shared with providers and the coding and billing staff. Be sure appropriate education is completed and compliance policies and procedures are updated to prevent future errors. Providers should consider using an external auditor, periodically, to validate the effectiveness of the internal audit program.

Providers should strive to report all work performed (while following bundling rules), the necessity for that work, and (when relevant) the correct level of service. Doing so is what Novitas calls “right coding.” Right coding should always result in the right payment, and when providers receive the right payment, there is no compliance risk. As Novitas rightly concludes, “When you practice right coding, coding the level of service supported by your documentation, we all win — you, your patients and the Medicare program.”


Novitas, “Over coding? Under coding? RIGHT coding!” (www.novitas-solutions.com/)

Medicare Learning Network, “Medicare Fraud & Abuse: Prevention, Detection, and Reporting.”