Managing DRG Denials
Please share if your CDI team reviews all DRG denials or if your system has criteria that need to be met before addressing a DRG denial. Our CDI team currently reviews each DRG denial. We are considering placing parameters on this work prior to allocating CDI resources for review. Wondering if there are CDI teams that let some denials go based on set parameters such as not meeting a certain dollar threshold. Any details regarding strategies that your system's CDI team has in place for determining resources to allocate to DRG denials review would be greatly appreciated. Thank you in advance for any information shared.
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Hi Elaine,
I have a member of my team that reviews all Clinical Validation denials; this is all she does. When we have time we will review all. If we have more audits than we can get too we triage off those that are requesting recoupment of <$1k. We have also decided not to appeal Sepsis audits if payor is using Sep-3 and is not Medicare or Medicare Advantage, and the pt. does not meet Sep-3. If Medicare or MA we appeal as Medicare does not use Sep-3.
Hi Elaine our hospital actions all denials in-house. It is a multidisciplinary approach and data/findings are reported through weekly steering meetings. Business office takes care of technical denials, coding-DRG Validations (incorrect ICD 10 CM/PCS code). I oversee CDI and Denials team, so we take care of clinical denials (medical necessity) and clinical validations (DRG downgrade due to principal diagnosis, CC/MCC/SOI clinical validity, denials d/t UHDDS not meeting criteria, etc.) We do not have a dollar threshold, and fight all denials. We take denials all the way to ALJ level, and report unjust denials to CMS/DMHC (California). As far as resources, for one hospital we have 2 FTEs working both clinical validations and Clinical appeals, but it will depend on the volume of denials coming. Our expectation is 60-90 min per 1st level appeal, 30-45 min for 2nd/3rd/4th levels..
Earlier this year, our institution transitioned from having the leadership team and external auditors manage denials and appeals to establishing a dedicated Clinical Coding Denials Department. This new department now oversees all DRG and clinical validation denials.
The process to build the team required several months—first to obtain approval for the positions (thankfully not as lengthy as other university-level hiring processes), then for our director to conduct interviews and finalize the selection. Our team is now composed of a CDI/RN and a highly skilled coding specialist who brings extensive experience as a nurse, RHIT, CDI professional, coder, and auditor. Her breadth of expertise has been invaluable.
Our department reviews every single denial. If there is any clinical or coding basis to challenge the auditor’s determination, we pursue it. We firmly believe in defending our institution’s documentation and coding whenever justified.
I recall attending a webinar—though I can’t place the exact source—where it was stated that auditing companies often focus on providers who do not routinely appeal denials. Auditors are tasked with identifying a certain number of denials per set volume of claims, and if they see that an institution only contests high-dollar cases (or does not appeal consistently), they are more likely to target that provider with repetitive audits to overwhelm the system. At an ACDIS presentation, it was noted that denials initially generated billions in revenue for auditors, but as healthcare organizations have become more proactive in fighting and preventing denials, profits have sharply declined. As a result, auditors are increasingly turning to payer-specific criteria and selectively combining outdated or inconsistent standards.
For example:
- Some payers, such as UnitedHealthcare, have applied hybrid definitions of AKI by combining KDIGO and AKIN criteria, despite KDIGO being the accepted industry standard (developed from RIFLE/AKIN) and adopted by CMS.
- In other cases, payers still reference the Framingham criteria—now over 25 years old—for validating acute CHF, rather than recognizing more contemporary, evidence-based guidelines.
Audits & Denials: Financial Impact
To put this in perspective, several published studies and case reports highlight the substantial financial implications of denials and appeals:
1. Aggregate Trends (2024):
- A benchmark study by MDaudit found that external audit volume more than doubled from 2023 to 2024.
- “At-risk” dollars increased fivefold, reaching $11.2 million in potential financial exposure.
- Coding-related denial rates jumped 125%+, especially in inpatient and professional services (MedLearn Publishing).
2. Revenue Recovery Potential:
- Accurate coding opportunities translate to approximately $4,901 per DRG, $3,922 per diagnosis, and $1,980 per drug unit (MedLearn Publishing).
3. DRG Validation Case Study:
- R1 RCM reported that one hospital system recovered $3.2 million in reimbursements in its first year of implementing a structured DRG validation program.
4. Per-Claim Value of Appeals:
- Sound Physicians noted that overturning a single DRG downgrade—such as restoring sepsis after an attempted downgrade to localized infection—can yield $3,000–$7,000 per claim.
5. Clinical Validation Denials:
- While aggregate recovery figures are harder to capture, Blue & Co. reports that these denials can significantly erode reimbursement, making CDI-driven prevention and appeals critical.
Bottom Line:
Auditing and denial management programs directly impact millions of dollars in provider revenue. Effective appeals not only protect reimbursement but also deter auditors from disproportionately targeting organizations. Each overturned denial can represent thousands of dollars recovered, and structured denial management can result in multi-million-dollar returns annually.
At UChicago Medicine, our Clinical Coding Denials Specialists are not held to strict productivity quotas, as appeals vary in complexity and require tailored effort. In addition to writing appeals, our responsibilities extend to provider education, internal auditing, meetings, and collaborating with coding auditors to provide clinical validation support. For second- and third-level appeals, we sometimes engage physicians for formal statements, which adds to the timeline but strengthens our cases.
We utilize MDaudit to manage cases and ensure all appeal deadlines are met. While the department is still in the developmental phase, the work is both rigorous and rewarding. Many days I find myself working beyond standard hours, though I am fortunate to report to a leader who emphasizes work-life balance and encourages us not to overextend.
Shannon
Shannon.DiSilvestro@uchicagomedicine.org