Your PEPPER report is an excellent (and free) source of data into areas of potential coding risk and specifically to provide guidance on where to focus your hospital’s auditing and monitoring efforts.  It is always better to know if you have a potential problem so that corrective action can be taken before the auditors come knocking.

What is the PEPPER Report?

PEPPER is an acronym for Program for Evaluating Payment Patterns Electronic Report. It is a report that provides provider-specific traditional Medicare data statistics for discharges or services at risk for improper payments. PEPPER is developed and distributed quarterly by TMF Health Quality Institute under contract with CMS.

PEPPER should be used as a guide to identify possible payment errors that includes both over-coding and under-coding, as well as medical necessity issues.  CMS audit contractors may focus on similar target areas as those included in PEPPER.

Each PEPPER contains hospital-specific statistics for the most recent 12 federal fiscal quarters for each target area that may indicate a risk for improper payments.

Understanding Outliers

Outliers are findings that differ significantly from what most organizations are reporting.  Because they lie ‘outside’ the normal bell curve of findings, outliers can be used to identify organizations that may be over-coding or under-coding their cases.

PEPPER flags outliers as the 80th percentile and 20th percentile of all hospitals nationally, jurisdiction (MAC/FI), and state. Each quarter, all the target areas are listed on the “Compare” worksheet with the numerator (“Number of target discharges”) and the numerator and denominator ratio (expressed as “Percent”) along with comparative national, jurisdictional, and state percentiles.

If the ratio (“Percent”) is a jurisdictional outlier it is flagged as follows:

Example of Outliers

Let’s look at an example for two of the PEPPER target areas: Medical DRGs with CC or MCC and Surgical DRGs with CC or MCC:

For the hospital in this example, the percent of all medical DRGs that include an CC or MCC is 60.2%. For Surgical DRGs, 63.8% of the surgical DRGs have a CC or MCC.  How do we know if these percents are low or high? Good or bad? 

The percentiles help with this by providing a comparison of the hospital’s rate to all hospitals nationwide and by jurisdiction and state.

For Medical DRGs with CC or MCC, compared to all hospitals nationally, the hospital’s 60.2% for medical DRGs is in the 50th percentile (rounded from 50.3). 

What that means is 50% of all hospitals have a higher Medical DRGs with CC or MCC rate than this hospital’s rate, which would be considered average.  Because the 50th percentile is not in the 20^th or 80^th percentile, it is not noted in green or red.

This hospital’s Surgical DRGs with CC or MCC rate however is 63.8% and is reported in red.  When compared to all hospitals nationally, this hospital’s rate is in the 83rd percentile nationally. That means that 83% of all hospitals have a lower Surgical DRGs with CC or MCC rate than this hospital. Because it is above 80^th percentile, it is noted in red.

PEPPER percentiles at or above the 80th percentile (high outlier) for any target area may indicate that the hospital is at a higher risk for improper Medicare payments, i.e., over-coding. The greater the percentile value, particularly the national and/or jurisdiction percentile, the greater the consideration should be given to that target area.

Get our CDI Pocket Guide® for more information regarding accurate coding and documentation of PEPPER target areas.    

Using the PEPPER Report

So how should this hospital in our example identify if there is possibly “over-coding” of MCC/CCs for their surgical cases?  Included in the target stats above is the total number of target discharges that have an MCC or CC (numerator).  In addition to these statistics, PEPPER also provides a detailed listing of these 150 discharges.  By reviewing these 150 cases or a statistically valid percentage of these cases, the hospital can determine if there truly is a risk of over-coding, or this percentage is accurate and supported for their hospital. If over-coding (or under-coding) issues are found, corrective action can be taken.  

The HIM department should become familiar with and routinely review their quarterly PEPPER report to help identify opportunities for improvement and guide their audit and compliance activities. If you haven’t been provided with this report, contact your hospital’s quality department who can download PEPPER from the PEPPER resources portal.  

Note: There has been a temporary pause in distributing PEPPERs through the fall of 2024 as CMS works to improve and update the program and reporting system.  While your organization’s older PEPPER reports can be used to identify general areas of concern, up-to-date findings are not now available.