Coding Corner: Undercoding isn’t a solution, it’s a potential compliance liability

November 01, 2016
Area(s) of Interest: Payor Issues and Reimbursement Practice Management 

CPR’s “Coding Corner” focuses on coding, compliance and documentation issues relating specifically to physician billing. This month’s tip comes from Michael D. Miscoe, President-Elect of the AAPC National Advisory Board, and G. John Verhovshek, the managing editor for AAPC, a training and credentialing association for the business side of health care.   

Undercoding—failing to report the full extent of the procedures or services provided—is sometimes used as a defensive strategy to thwart audits or fraud accusations. The thinking is, “If I under-report the services provided, I can’t be accused of trying to receive payments in bad faith.” But undercoding is a poor strategy, as Novitas, the Medicare contractor for Delaware, Maryland, New Jersey, Pennsylvania and Washington, D.C., recently outlined


  • Undercoding hurts provider reimbursement:

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


  • Undercoding increases improperly paid claims:


When there is an underpayment due to undercoding, we did not pay the claim correctly and it is counted as an improper payment error…. Undercoding errors can statistically impact calculated error rates in the tens of millions of dollars [emphasis in the original].


  • Undercoding misrepresents the care provided (which may hurt patients), and skews the data payors use to calculate payments, going forward:


Undercoding misrepresents the true level care that is provided to Medicare beneficiaries. These statistics are used to calculate future Medicare payments and track trends in health care delivery.


  • Undercoding increases your risk of audit:

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


For all of these reasons, “It’s important to code the level service that is supported by your documentation….”


How undercoding creates false claims liability


Undercoding, like overcoding (reporting more work than was performed or medically necessary), can create compliance liability. Undercoding can take two forms: Failing to report services performed at the encounter, and underreporting the level of service provided. Both are problematic.


Under the False Claims Act, a physician may be held liable for “submit[ting] claims to Medicare for medical services he or she knows were not provided.” Undercoding by omission is the inverse of this. Rather than billing for work that he didn’t do, the provider doesn’t bill for all of the work performed, in an attempt to gain reimbursement to which he isn’t entitled. False claims liability potentially arises where a complete and accurate representation of the service would have resulted in a different payment, or would have negatively influenced the carrier’s determination to pay.


For instance, a provider sees a patient and performs three services: A, B and C. Assume 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 modifier are appropriate. If all three services were reported, only Service A would be paid. Knowing this, the provider doesn’t bill Service B, but does report services A and C. Not knowing that Service B was provided, the payor allows payment for both services. Had the payor been apprised of all the facts, it would have paid less money.


This type of misrepresentation can create false claims liability. At a minimum, misrepresentation by omission fits within the Centers for Medicare and Medicaid Services definition of abuse, “misusing codes on a claim.” Where a payor can 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 would be satisfied.


The Criminal Health Care Fraud Statute also 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.” Undercoding by omitting information that might influence the payment determination may be perceived as “false or fraudulent representations” of the services provided.


When reporting a lower-level service than actually was performed, providers must consider the anti-kickback statute: to the extent that the undercoding diminishes the patient’s obligation for payment, such a reduction is considered “remuneration.”


For example, an established patient presents for an evaluation and management service. The work and associated documentation demonstrate that the physician performed a level 4 service. Concerned about the cost to the patient, the provider instead reports a level 2 service. The value of the “discount” is remuneration to the patient. To the extent that it can be shown that one purpose of the remuneration was to induce or influence the patient’s selection of the provider, or the decision to receive the health care service, the anti-kickback statute would be implicated.


All providers should strive to report the entirety of the work performed (notwithstanding bundling rules), the necessity for that work and (where relevant) the correct level of service. Doing so is what Novitas calls “right coding.” Right coding should always result in the right payment. Where 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.” 



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