Common Coding Challenges Hospitals Face and How to Fix Them

Managing revenue and profitability has become increasingly difficult for hospitals, leading many to take drastic cost-cutting measures. However, there are other, less painful options, including reevaluating and revamping medical coding processes.

Many factors can impact the health of a hospital’s bottom line, and coding quality is one of them. Poor coding integrity can lead to inaccurate reimbursement, increasing denials and takebacks, and even penalties.

How to Know if You Have Coding Quality Issues

42% of Denials are caused by coding issues

One of the most apparent indications that a hospital has coding issues is denied claims. Payers have become more strategic in their claims review, using increasingly sophisticated technologies to flag potential claim issues.1 Today, around 11% of all claims are denied, although some providers are seeing them as high as 30%.”2,3 Since 42% of denials are caused by coding issues, making improvements here can bring substantial improvements in reimbursement.

In addition to denied claims, poor coding can cause several other revenue challenges. These include:

  • An increasing number of underpayments or overpayments
  • Growing payer audits for certain code combinations
  • Stagnant or decreasing per-visit revenue
  • Payer takebacks
  • Growing coding backlogs
  • Poor performance or high turnover in coding staff
some of the most significant coding challenges

One of the top issues leading to poor quality coding is the ongoing changes to payer requirements. Having inexperienced coders or high turnover on the coding team can exacerbate the challenge; getting a good handle on payer requirements can take years. Just staying on top of timely filing deadlines is difficult, and timely filing denials are some of the hardest to overturn.

There are nearly 11,000 CPT codes. In 2023, 225 new codes were added, 75 were deleted, and another 93 were revised.4 According to the AAPC, every section of the coding guidelines was changed except for anesthesia. “The most significant changes are to the evaluation and management (E/M), percutaneous pulmonary artery revascularization, hernia repairs, lab and pathology, and COVID-19 vaccination codes.” There are also new appendices for taxonomy and artificial intelligence and “synchronous real-time interactive audio-only telemedicine services.” To say coding is complex is an understatement.

According to the American Medical Association, some of the top coding errors include unbundling, upcoding, incorrect appending of modifiers, overuse of modifier 22, not including documentation for unlisted codes, and not referencing National Correct Coding Initiative (NCCI) edits for multiple code reporting.5

Illegible provider handwriting or confusing provider notes in the EMR. Coders who have worked with a provider for many years may come to understand various abbreviations or often-used terms. Still, even then, best practices would deem a quick conversation with the provider to confirm. But for many coders, approaching a busy provider to ask for clarification can be uncomfortable, especially for new coders. Even those with a good rapport with the provider can find it challenging to catch them. Yet, guessing what the provider meant generally ends up as extra work in the long run.

Often, providers do not fully appreciate the importance of coding to the hospital’s financial health. They likely don’t realize its impact on the coding team when they leave poor-quality notes, either handwritten or in the EMR. They also may not realize how vital note accuracy is in determining the appropriate coding for risk-adjusted payment models. Poor provider coding education can lead to an increase in payer audits and penalties. In one case, an audit by the Office of Inspector General found that $54.4 million had been overpaid to providers due to incorrect coding.6

Benchmarks and Best Practices

Since a large portion of denials is due to poor coding, hospitals with high-quality coding typically have an optimal clean claims rate of 98% at a minimum.7 There are other industry benchmarks besides the clean claims rate that hospitals can use to determine the health of their coding. These industry benchmarks include:

  • Complete/timeliness of charge capture: 3 – 5 days after the date of service8
  • Average coding turnaround time: 0 – 5 days
  • Initial denial rate: <5%9
  • Bad debt rate: <5%10
  • Reimbursement (DRG) accuracy: 95%+11
  • Coding accuracy: 95%+12

Knowing When It’s Time to Outsource

Many hospitals, especially those facing labor challenges and high turnover, have decided to outsource their coding function—and with good reason. Coding outsourcers can access a larger pool of on-shore and off-shore certified coding professionals. They also invest heavily in training to ensure results such as fewer errors, lower denial rates, and faster and more accurate reimbursement. The right outsourcers also focus on developing high regulatory and payer expertise. Often, they will meet with a client’s most problematic payers to identify issues and help improve the payer-provider relationship.

In addition, coding outsourcers have made extensive investments in automation technology that helps improve quality and streamline processes. The result is greater efficiencies and lower costs, which they then pass to their clients as added value. Finally, coding outsourcers can have greater resources and expertise in coding audits. Hence, they  proactively identify potential issues, as well as help hospitals prepare for the possibility of an audit. It takes much time and effort to be removed from a payer’s audit list. The best approach is to avoid getting on the list in the first place.

One health system in the southeast realized significant improvements by outsourcing its coding function, including:


increase in average monthly collection*


decrease in A/R days


Reduction in coding turnaround time**


In collections from implementing 17 new quality measures***

from $2M (2016) to $4.1M (2022)
from 15 days to 3 days
via NCQA healthcare effectiveness data and information set

Next Steps

Medical coding is unlikely to get easier any time soon. Hospitals experiencing an increase in denials, payer takebacks, coding backlogs, a decrease in per-visit revenue, or suboptimal revenue performance may want to consider outsourcing all or a portion of their coding function.


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