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Using payment amounts to measure coding quality may also be more in line with the chief financial officer’s (CFO) language of linking coding quality to dollars.



Transitioning from Coding to Data State


In transitioning from the role of coding manager to data manager, and from a “coding state” to a “data state,” it is important for health information management (HIM) professionals to unleash the bonds of the infamous 95 percent coding accuracy goal that has long plagued them and move to a financial means of accessing coding accuracy.  After all, doesn’t coding quality directly impact reimbursement?


The data manager of the future, as compared to the current-day coding manager, must have a thorough understanding of how external or regulatory organizations measure coding quality, particularly in relationship to payment. Medicare contractors perform medical review to ensure that coded and billed items or services are covered and are reasonable and necessary. The comprehensive error rate testing (CERT) contractor conducts medical reviews to measure inpatient hospital payment error rates.


CMS Contractor Reports


Let’s look at CMS or CMS contractor reports and the common denominator among all programs.


  • CERT: A national paid claims error rate (PCER) goal for the Medicare fee-for-service program is calculated and adjusted over time. The November 2009 national PCER goal for all Medicare FFS providers was 3.7 percent of which the hospital coding component totaled 0.6 percent PCER. Overpayments, underpayments and error rates are published annually.
  • RAC: The RAC Program’s mission is to reduce Medicare improper payments through the efficient detection and collection of overpayments, the identification of underpayments and the implementation of actions that will prevent future improper payments.
  • Medicare Administrative Contractors (MACs) and Fiscal Intermediaries (FIs): Their goals are to determine that appropriate payments are made and prevent or reduce improper payments.
  • CMS dashboard: This tool provides statistical views of the inpatient prospective payment system (IPPS) data as it relates to claims payment and volume
  • The Program for Evaluating Payment Patterns Electronic Report (PEPPER) provides hospital-specific data for Medicare severity diagnosis-related groups (MS-DRGs) and discharges at high risk for payment errors.


In the above, the common denominator is “payment.” What is the common denominator of your coding quality program’s measure?  What is the numerator? As summarized above, the focus is on “overpayments,” “underpayments” or, to sum it up, on “improper payments,” all of which result in a Payment Error Rate or PCER.


How does this compare to the role of the coding manager in the current “coding state” and the role of the data manager in the future “data state?” Let’s take a look.


Coding State


The metric of choice typically applied by coding professionals is coding or MS-DRG accuracy. For coding accuracy, the denominator is total number of codes while for MS-DRG accuracy it’s the total number of charts. Where some coding managers evaluate all aspects of coding, such as the capture rate of the CC and secondary diagnosis, others may evaluate only those items that affect DRG assignment.  In either case, the numerator, the total number of correct codes, results in an accuracy score. The goal typically is 95 percent accuracy and the goal has remained static over the years. See the case example below:


  • 72.1 percent MS-DRG accuracy = 31 MS-DRGs correctly assigned/43 total cases
  • 76.7 percent principal diagnosis accuracy = 33 principal diagnosis codes correctly assigned/43 total principal diagnosis codes
  • 76.2 percent MCC accuracy = 32 MCCs correctly assigned/42 total MCCs
  • 89 percent CC accuracy = 73 CCs correctly assigned/82 total CCs
  • 90.0 percent overall coding accuracy = 289 correct diagnosis codes/321 total diagnosis codes
  • 93.8 percent procedure coding accuracy = 15 correctly assigned/16 total procedure codes

Data State


The HIM and data manager is concerned with coding quality and its relationship to appropriate payment. The metric of choice for measuring improper payment consistent with CMS and its contractors is the PCER. Audits are performed on “paid” claims. The PCER formula is defined as improper payment (the total of underpayments plus overpayments) divided by the Medicare net payments (subtract co-insurance, deductibles, or reductions). The revised MS-DRG must have the co-insurances, deductibles or reductions subtracted off the revised payment to total the improper payments.


The PCER provides a meaningful measure that is understood in financial terms. Refer to the following example.


  • 13.4 percent paid claims error rate (due to coding for the same 43 cases) = $60,746 ($53,987 plus $6,760) improper payments due to coding / $452,604 total payments. The 13.4 percent can be broken down as follows into the sum of its parts by reason:
    • 5.4 percent paid claims error rate due to principal = $24,453 ($20,736 plus $3,717) improper payments due to principal diagnosis coding / $452,604 total payments
    • 2.0 percent paid claims error rate due to MCC = $8,895 ($5,852 plus $3,043) improper payment due to MCC diagnosis coding / $452,604 total payments
    • 0.3 percent paid claims error rate due to CC = $1,688 ($938 plus $750) improper payment due to CC diagnosis coding / $452,604 total payments
    • 5.7 percent paid claims error rate due to procedure = $25,710 ($25,710 plus $0.00) improper payment due to procedure coding / $452,604 total payments


The error rate impacting payment is a more meaningful metric of choice to the CFO, compliance committee, RAC team, the HIM director and data manager (previously known as the coding manager). In the above example, 13.4 percent is less than desirable. This amounts to $13,400 lost in reimbursement for every $100,000 in payment received.  This finding causes the data manager to investigate root cause followed by sustainable corrective action.


The transition from “code state” to “data state” tasks coding managers to incorporate payment error rates in their review of coding quality.  By focusing on error rates that impact payment, the HIM director, data manager, and coding staff can begin to understand the correlation between coding and payment. Coding departments and/or coders are no longer measured by the iniquitous 95 percent but can begin to understand the impact that coding has on the bottom line.


They begin to speak the same language as the CFO and regulatory agencies.


About the Authors

Carol Spencer, RHIA, CCS, CHDA is a senior healthcare consultant with Medical Learning, Inc. (MedLearn®) in St. Paul, Minn. MedLearn is a nationally recognized expert in healthcare compliance and reimbursement. Founded in 1991, MedLearn delivers actionable answers that equip healthcare organizations with coding, chargemaster, reimbursement management and RAC solutions.


Jill Sell-Kruse, RHIA, CCS, is currently the coding manager at Memorial Health System in Colorado Springs, Colorado. She has over 30 years of experience in Health Information Management, 20 of which involved coding, coding education, coding compliance, and coding management.  Jill received her Bachelor’s in Health Records Administration from the University of Pittsburgh.

Contact the Authors





The third and final installment appears on Friday, July 30, 2010 and proposes measuring productivity in relationship to unbilled charges.


To read Part I, please click here.  To read Part III, please click here.




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