A proven approach to preventing E/M over-coding without increasing provider abrasion

Evaluation and Management (E/M) services are the backbone of most physician practices, comprising up to 40% of office-based claim payments for physician services in the United States, also known as professional claims. Based on both objective and subjective criteria to determine the complexity of the visit, a provider chooses the appropriate level for each code—and the higher the level, the greater the reimbursement. 

It’s no surprise, then, that E/M claims comprise a significant payment integrity challenge for payers. The problem also extends to emergency room (ER) facility E/M claims. A Cotiviti analysis across commercial, Medicare, and Medicaid clients demonstrates a significant rise in the highest levels of billing, Level 4 and 5) claims, submitted in the last five years and a corresponding decrease in lower-level claims. Given this increase, there is a major likelihood of over-coding and inflated costs that can be difficult to recover.

However, finding an approach to reduce this over-coding while minimizing provider abrasion is particularly difficult. For example, automatically denying or downcoding higher-level E/M claims from all providers without use of peer analytics and guideline-driven justification can lead to major pushback. Recovering overpaid E/M claims after the fact also raises the potential for abrasion while increasing administrative burden.

Therefore, the optimal approach is to analyze and act upon only those E/M claims with the highest potential for being inappropriately coded before payment occurs. By using an approach that combines machine learning and advanced analytics with expert nurse coder review, payers can pay even the most complex E/M claims promptly and appropriately while minimizing the potential for provider pushback. 

The scope of the problem

The Centers for Medicare & Medicaid Services (CMS) defines upcoding as “when a provider assigns an inaccurate billing code to a medical procedure or treatment to increase reimbursement.” One example the agency gives is when a physician provides a follow-up office visit or inpatient consultation but bills a higher-level E/M code as though they had performed a new patient visit or consultation. 

In its last major study on the topic, CMS concluded that E/M services were 50% more likely to be paid erroneously than other Medicare part B services. In total, the agency found 55% of claims for E/M services billed that year were either incorrectly coded or lacking documentation, resulting in $6.7 billion in inappropriate payments. Years later, E/M over-coding is still a significant billing issue that has been trending up over time, as evidenced by Cotiviti data.

When it comes to selecting the appropriate level of an E/M service, CMS’s guidance to providers is clear: “Medical necessity of a service is the overarching criterion for payment in addition to the individual requirements of a CPT code. It would not be medically necessary or appropriate to bill a higher level of evaluation and management service when a lower level of service is warranted. The volume of documentation should not be the primary influence upon which a specific level of service is billed.”

Further compounding this problem, CMS and the American Medical Association completed landmark changes to E/M office visit documentation and coding that took effect January 1, 2021. This change offers far greater flexibility to office-based physicians to choose their claim level by eliminating history and physical examination as elements for code selection and instead allowing them to base the level on either time or medical decision-making.

For professional office E/M claims, Cotiviti’s own analysis of more than 45 payers, including nine of the 10 largest plans in the nation, demonstrates overpayments occur approximately 25% of the time on average, with some outlier providers over-coding E/M claims 50% or more of the time. These over-coded claims amount to millions of dollars of overpayments annually for health plans. A recent analysis demonstrated that a health plan client with nearly 5 million members would prevent more than $19 million in inappropriate payments annually by addressing professional E/M over-coding from providers deviating from average coding 50% or more of the time. A smaller plan with 1.2 million members would reduce overpayments by $5.5 million annually.

The problem continues to grow

These over-code rates correlate with high-level professional E/M claim increase trends revealed by Cotiviti’s analysis of paid claims over the past five years, with a 24% increase in the frequency of Level 4 professional office claims occurring from 2020 to 2024 as the frequency of Level 3 professional claims decreased by more than 12% over the same time period (Figure 1).

Cotiviti has observed a more profound change in emergency room (ER) claims for both physician and facility components, with a significant increase in Level 5, which is not seen for office visits. While professional E/M claims are coded based on medical decision making, ER facility claims tend to be much more complex because they consider hospital resources used such as imaging studies, lab tests, and ancillary services. An analysis of Cotiviti claim data found that Level 4 and 5 facility ER E/M claims rose by more than 14% from 2020 to 2024 while Level 1, 2, and 3 claims decreased by 7% (Figure 2). 

Meanwhile, physician ER Level 4 E/M claims rose by more than 36% in frequency from 2020 to 2024, while Level 3 claims decreased by 44% over the same time period (Figure 3). 

Between both office and facility E/M over-coding, payers could be at risk of losing tens of millions of dollars per year. Indeed, one national payer has saved 2.14% on its total E/M claim spend between 2020 and 2024 across its commercial, Medicare, and Medicaid lines of business by tackling E/M over-coding, with a minimal adjustment rate of 2%. Given the high volume of E/M claims, even less than one percent adds up fast. Savings per edit for professional claims range from $45 to $70 depending on the line of business, while savings per edit for ER facility claims range from $130 to $260.

A targeted prepay solution

Payers have been trying to deploy a balanced approach to preventing E/M claim overpayments for many years. No provider or ER would respond well to having their E/M claims outright denied, and a one-size-fits-all approach of reviewing high-level claims inevitably leads to significant abrasion. Robust provider education and transparency around appropriate coding practices is warranted and often helps but offers no guarantee that physicians will comply. Payers must find a better way to manage this problem. 

The ideal tactic for office claims, then, is to start by identifying potential outliers, using analytics to determine which providers are billing the highest percentages of Level 4 and 5 claims within your provider network as compared to peers, normalizing for different levels of medical decision-making complexity. Some plans might opt for an incremental approach wherein they only look at providers who appear to be over-coding at least 50% of their claims, for example, then lower that threshold over time. 

When a submitted claim is found to be over-coded, plans can pay the claim at a lower level rather than deny it. Recommending lower E/M levels on claims has proven to be successful in preventing overpayments without causing significant provider abrasion. For Cotiviti's clients, only around 2% of these recommendations are disputed or resubmitted. 

This prepay claim review phase does not require medical record review, since it evaluates diagnostic codes and contextual claims data to identify outlier providers and over-coded claims. Doing so lessens administrative burden for both payers and providers and avoids delays in payment. By reserving medical record review for the disputes process, this approach ensures timely reimbursement for the majority of claims while still allowing providers the opportunity to submit supporting documentation when needed. 

This methodology adheres to national coding guidelines and CMS documentation standards. Cotiviti also offers experienced nurse coder reviews of E/M claims. For plans opting for this option, the expert review causes no delay to claim payment or extra burden for the billing providers in question.

For more complex ER facility E/M claims, algorithm flexibility may be required to modify the models for certain resources like X-rays, lab results, and EKGs—as well as including the ER visit outcome in the decision, such as admission to observation or inpatient hospital. To avoid more potential abrasion from ER providers, only level 4 and 5 claims are typically reviewed. 

Tackling postpay exceptions

Due to internal policies or legal issues in their specific states, some payers don’t have the ability to pay E/M codes at a lower level. This leaves them with two options: simply deny any payment of over-coded claims or pursue postpay overpayment corrections. 

Traditionally, postpay approaches have required pulling the patient’s medical record, a potentially cumbersome and expensive endeavor that significantly lengthens the amount of time required to correct the overpayment. However, for E/M claims, this generally can be accomplished by applying advanced analytics to the information already available on the member’s claim and claim history, such as diagnosis and procedure codes, significantly decreasing administrative expense.

Forging the path ahead

As value-based care continues to gain ground, payers and providers are increasingly working together to reduce wasteful spending and eliminate low-value care to provide better outcomes for their members or patients and their own organizations. By taking an approach that starts with the correct presumption that the vast majority of providers are acting in good faith while correcting the behavior of outliers—before payment occurs—payers can achieve more accurate claim payments without increasing provider abrasion.

For more information on Cotiviti’s professional and facility E/M over-coding solution, delivered via our prepay Payment Policy Management and Coding Validation solutions, schedule a conversation with our experts.