Coding + Clinical Validation = Doing the right thing!

Payers, both commercial and governmental, are increasingly using clinical validation audits to deny payments if a diagnosis is not fully supported, even if a doctor documented it.

Why isn’t provider documentation alone enough?

Coding guidelines tell coding professionals to assign a diagnosis code based on the provider’s statement that a condition exists. But those are coding guidelines; clinical validation is a separate federal regulatory requirement. It requires a clinical review of the record to confirm that the documented condition is supported and must be completed before the claim is submitted.

Clinically invalid diagnoses can result in serious consequences—improper DRG reimbursement, increased denials, unnecessary appeals, and greater risk of regulatory audits. Under the False Claims Act, submitting false or inflated claims—including those that increase the DRG—may lead to civil liability and financial penalties for the hospital.

How did this become a problem?

CDI programs were created to close a gap: physician documentation often did not reflect the clinically supported severity of illness. Because codes drive inpatient DRG reimbursement and downstream quality measures, CDI focused on aligning documentation with the clinical findings in the medical record. More recently, the trend has reversed—documented diagnoses and assigned codes are sometimes not supported by the clinical evidence in the chart.

These clinical validation concerns are reflected in recent federal audits. For example, a 2020 OIG audit reported that hospitals overbilled Medicare by about $1 billion for severe malnutrition, noting that “Hospitals used severe malnutrition diagnosis codes when they should have used codes for other forms of malnutrition or no malnutrition diagnosis code at all.” In these cases, the diagnosis was documented but not clinically valid—meaning it was not supported by the clinical evidence in the medical record.

The Department of Justice has brought several recent False Claims Act cases against healthcare organizations for submitting invalid HCC diagnosis codes for Medicare Advantage patients. According to the allegations, the unsupported diagnoses were used to make patients appear sicker in order to increase payments. These cases have resulted in substantial penalties for hospitals as well as payers, often reaching hundreds of millions of dollars.

An upcoming OIG study will review 2023 Medicare claims to identify patterns in inpatient sepsis billing and how sepsis rates vary across hospitals. The OIG has raised concerns that some hospitals are applying a broader sepsis clinical definition (e.g., SIRS criteria) because doing so can increase reimbursement.

We can no longer rely on the argument that coding simply reflects provider documentation when the diagnosis lacks clinical support. Coding and CDI must proactively ensure diagnoses are both documented and supported by the medical record.

Health care organizations should implement clear policies and procedures that assign responsibility for clinical validation reviews and specify how clinical validity will be evaluated during coding and before claim submission to ensure compliance.

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