5 Tips for Healthcare Providers to Better Prevent DRG Downgrades

The clinical downgrading of diagnosis-related groups (DRG), or DRG downgrades, has become an extremely problematic issue for healthcare providers over the past decade. Overall, denials related to DRGs are increasing; downgrading target DRGs without even requesting documentation can also happen. One healthcare system, for example, found that DRG downgrades have increased from an average of 250 per month to a maximum of 3,000 per month. 

These downgrades can be extremely costly. First, this situation can make it difficult for a hospital or health system to provide consistently affordable, quality healthcare that prioritizes patient care. Secondly, in many cases, the difference between the original billed amount and the downgraded diagnosis ranges from thousands of dollars to tens of thousands of dollars in reimbursement. Plus, administrative costs for these cases typically skyrockets.

Our goal is to streamline processes and connect payers and providers to help ensure appropriate reimbursement. We understand that preventing DRG downgrades is likely a major priority for your hospital. Below are five tips you can use to decrease DRG downgrades. 

1. Review Your Contracts

Review the agreements you have in place with each payer to see exactly what criteria have been set around DRG downgrades. Some things to identify: 

  • Is there a specified timetable for sending these downgrades? 
  • Are there limits regarding the number of charts they are allowed to request? 
  • For what timeframe can those charts be requested? 

You may find that you’re receiving DRG downgrades from payers that could be outside the boundaries of your contractual agreements. This can occur due to any number of reasons, but our recommendation is to focus on open communication between your organization and the payer. Having a detailed understanding of your contract and educating your internal denial management team on the contract’s nuances are great ways to streamline the process and address any contract-specific issues with each payer. 

2. Track Everything 

As a company that specializes in using data to ensure appropriate reimbursement, we believe in tracking most everything. One of the easiest and best steps to avoid DRG downgrades is by better understanding what’s getting downgraded in the first place. Are there specific MCCs or CCs that are getting downgraded at a higher rate than others? Perhaps there is something being overlooked in the initial charts that can better be highlighted or addressed. You might simply need to provide additional documentation to the payer whenever dealing with a specific diagnosis, or provide additional education to your internal team regarding coding based on the physician’s complete documentation – ensuring you are coding to the highest level of specificity and acuity, and other similar tasks. 

You should also carefully track from which payers your downgrades are originating. If you’re receiving a disproportionate number from a specific payer, it’s something you can and should address directly. Ask what you should be doing to avoid future DRG downgrades.

3. Review and Prioritize Downgrades

Implement a strategic review of downgrades to streamline or establish a process that maximizes reimbursements. One approach is to examine your top 5, 10, or 20 volume-based DRGs and compare them to the CMS changes list. Monitor trends and patterns of inappropriate denials or lower-than-expected DRG payments. 

Noting your deadlines, while an obvious tip, also helps effectively contest and prioritize downgrades. Timely filing, particularly on those appeals that are on a tight deadline, is a required step to effectively contest downgrades. Prioritize appeals accordingly and have a documented process to ensure they’re always submitted on-time. 

4. Carefully Craft a Compelling Appeal

Once you’ve decided to appeal, make sure your appeal letter has the most pertinent and concrete information first. Be strategic in your approach: tie the appeal to guidelines and contracts and work to bring the focus back to medical necessity. Lead off clearly with a strong summary detailing the clinical merit of the original diagnosis. This ensures that the reviewer has all the information needed to make an informed decision, even if your letter only receives a cursory scan. Feel free to reference our appeal letter templates with specific denial reasons, which have resulted in an overturn rate greater than 91%. 

5. Use Data-Driven Reporting

Data in robust, drilldown dashboard report format that unites claims and denials data for an accurate, real-time visualization of your trends can be a revenue-changing tool, including when dealing with reducing DRG downgrades. Our Optics dashboard solution provides drilldown capabilities, accessible in real time, that detail:

  • Targeted codes,
  • DRGs targeted by specific payers,
  • downcoding by specific payers,
  • appeal successes by payer, place of service, or code assigned.


This level of data, transparency, and technology allows you to apply best practices from experienced data and denial management teams. To leverage the power of Optics for your hospital or health system, schedule a consultation with our team and see how it can transform your data into intelligent dashboards. 

Reducing and handling DRG downgrades can be a difficult process. Building a strategy based on comprehensive data will create a more efficient appeals process plus likely improve reimbursements. By following the five tips outlined above, you should have fewer DRG downgrades and be better prepared to efficiently move forward with those that slip through the cracks.