Downcoding can significantly impact your organization’s revenue and patient care. Read on for a deep dive into downcoding and why autonomous medical coding is a solution to ensure accuracy.
Downcoding occurs when a medical service is assigned a less comprehensive or lower-paying code than actually warranted. It’s the opposite of upcoding, which inflates claims and nets higher reimbursement (1).
Downcoding can cause significant revenue losses for health systems, hurting the bottom line, increasing administrative costs, and compromising compliance. Discover some of the common causes and how to avoid them below.
Beyond understanding what downcoding is, it’s vital to consider why it happens. The most common cause is poor clinical documentation (1). If there isn’t adequate evidence to support a higher-level billing evaluation and management (E/M) code, a lower-level code may be assigned. In some cases, insufficient documentation can result in a reimbursement claim being denied completely.
In other instances, a payer may automatically downcode a claim that its systems deem too high. While it’s possible to appeal in such cases, comprehensive documentation is needed for a successful reversal, and the process itself can be a significant administrative burden (2).
Defensive billing can also cause downcoding, as providers intentionally downcode to reduce the risk of denials or audits. While such conservative billing practices may seem like a safer path, they cost the healthcare organization money (3).
Downcoding in medical billing ultimately leads to reduced reimbursement. By some estimates, the practice can cost revenue losses of 5% to 15% (2). Others estimate even more significant losses, in some cases up to 30% annually (4).
In addition to lost revenue, downcoding also increases administrative burdens. Appealing downcoding is time-consuming and resource-intensive, requiring staff to gather extensive documentation, write detailed appeal letters, and track claims. Ultimately, the cost of appealing may not be worth the potential recovery.
Even more concerning are the compliance risks downcoding creates. Both provider-initiated and payer-initiated downcoding violate National Correct Coding Initiative (NCCI) guidelines (5). A lack of compliance can lead to costly audits, fines, and other penalties, such as losing access to Medicare and Medicaid payer programs.
Perhaps most critically, downcoding can have a harmful trickle-down effect on patient care. Lost revenue means less money to invest in staffing and technology, potentially creating a negative impact on patient outcomes (2).
While downcoding occurs when a medical service is assigned a less comprehensive or lower-paying code than warranted, upcoding occurs when a more robust, higher-paying code is assigned to a service than what was actually provided. Such fraudulent inflation is a serious compliance violation that can lead to audits, financial penalties, and legal claims. For example, intentional upcoding for payments through Medicare or Medicaid can result in fines up to three times the program’s loss, plus a flat-rate penalty of $11,000 per claim.
When comparing upcoding vs. downcoding, it may seem that downcoding is less egregious, but it likewise distorts patient data, interfering with appropriate resource utilization and patient care. The solution is to code every encounter at the highest level of supported specificity, based on complete documentation.
Preventing downcoding and ensuring medical coding accuracy are in the interests of health systems and patients alike. Here are three strategies organizations can implement to protect against revenue loss while ensuring medical coding accuracy and compliance:
Clinical documentation improvement (CDI) is the process of reviewing medical record documentation, ensuring it is complete and accurate. CDI specialists may have both clinical and medical billing experience (6). Implementing a CDI program is one of the most effective ways to ensure that documentation supports the complexity of care provided.
Regular internal audits are another positive step toward reducing the risk of downcoding. By conducting periodic reviews, organizations can identify patterns of undercoding before they become systematic. This further encourages the identification of documentation gaps in real time, allowing for prompt appeals. External organizations can be brought in to run audits (5).
It’s important that staff are educated on appropriate billing codes and how to use them. Having the right systems and processes in place is useless if they aren’t adopted correctly. Ongoing education should cover current E/M guidelines as well as medical decision-making (MDM) requirements. As of 2025, MDM is the primary coding criterion for correct E/M code selection. Training should additionally cover thresholds and documentation best practices.
The right technology can further reduce the risk of downcoding in medical billing. Nym’s autonomous medical coding engine improves coding efficiency, boosts revenue capture, and reduces administrative burden.
While manual coding requires time-consuming document reviews and is prone to human error, autonomous medical coding is efficient and applies consistent, objective criteria across all cases. It can also avoid the subconscious bias inherent in human coding, ensuring every encounter is coded at the appropriate level.
While coding guideline updates can challenge solutions that require lengthy retraining, Nym’s engine is continuously updated to reflect the latest CPT (Current Procedural Terminology) and ICD-10-PCS (International Classification of Diseases, Tenth Revision, Procedure Coding System) codes. This reduces the lag time from when codes are updated to when they’re fully adopted in practice.
While industry solutions vary widely in their transparency and auditability, Nym’s engine, powered by proprietary Clinical Language Understanding (CLU) technology, produces fully traceable audit trails for each patient encounter, including supporting documentation for each assigned code. This makes it faster and easier to run internal audits and, if necessary, to appeal instances of payer downcoding or denials.
Downcoding is a serious problem for health systems, adding administrative burdens, creating compliance risks, and reducing revenue. Over time, it can make it more difficult for healthcare organizations to sustain financially and potentially detract from the quality of patient care. CDI programs, internal audits, and staff training can help reduce the risk of downcoding, as can autonomous medical coding solutions like Nym.
By taking a multifaceted approach to reduce the risk of downcoding, health systems help promote effective revenue cycle management (RCM). They can reclaim lost revenue, improve data accuracy, and ensure they’re fairly compensated for the complexity of care they deliver.
The end goal is to support coding at the highest level of supported specificity, protecting the bottom line and the future of patient care.
Learn how Nym’s autonomous medical coding engine can help your organization code with confidence. Request a demo today.
What is downcoding in medical billing?
Downcoding occurs when a medical service is assigned a less comprehensive or lower-paying code than the documentation supports. This can happen due to incomplete clinical documentation, defensive billing practices, or automatic payer adjustments.
What is the difference between upcoding and downcoding?
Downcoding assigns a lower-level code than warranted, resulting in reduced reimbursement. Upcoding assigns a higher-level code than the service provided, which constitutes fraud. Both distort patient data and carry compliance risks.
How can autonomous medical coding help prevent downcoding?
Autonomous medical coding solutions apply consistent, objective criteria across all encounters, eliminating the subconscious bias and human error that contribute to downcoding. They also stay continuously updated with the latest coding guidelines, reducing lag time between updates and adoption.