Defend Against Sepsis Denials: A Root Cause Analysis for DRG Downgrades
- Adi Tantravahi
- Jun 20
- 7 min read
Updated: 2 days ago
The Sepsis Denial Crisis in Hospital Revenue Cycles
Sepsis-related DRG downgrades are among the most financially damaging and preventable forms of revenue leakage hospitals face. When payers retrospectively challenge sepsis diagnoses and downgrade them to simple infections or pneumonia, the financial hit is immediate: $3,000 to $7,000 lost per case, and over $15,000 for more complex claims. But the impact goes deeper. These downgrades reduce your Case Mix Index (CMI), lowering future reimbursement and skewing your hospital’s reported acuity.
Recent industry data reveals that DRG 871 (Septicemia or Severe Sepsis without MV >96 hours with MCC) was Medicare’s most-billed DRG in 2019, totaling 581,000 stays and $7.4 billion in payments. This high volume has made it a prime target for payer scrutiny, with Medicare Advantage claim denials increasing by 55.7% between 2022 and 2023. But these national statistics only tell part of the story.
At Cofactor, we've conducted extensive analysis across our hospital partners' actual denial data, processing thousands of complex denials to understand not just the scale of the problem, but its root causes. Our proprietary analysis reveals a striking concentration: 62% of all DRG downgrades we process are DRG 871, with another 8% being DRG 720 (Other Infections and Parasitic Diseases with MCC/CC). Finding that 70% of preventable revenue loss that we process concentrates in sepsis-related cases transforms a seemingly overwhelming challenge into a focused opportunity. In this guide, we will cover the patterns we’ve identified across multiple health systems and translate them into actionable strategies that any hospital can implement. Fixing sepsis documentation can become a turnkey solution to prevent the majority of these losses before they occur.
Understanding the Problem: From Clinical Reality to Financial Impact
DRG 871 represents cases where patients have sepsis with major complications but don't require extended mechanical ventilation. DRG 720 captures other severe infections with systemic impact. Both are high-weight DRGs that payers aggressively target for downgrades to lower-acuity codes such as UTI (DRG 689) or pneumonia (DRG 193), which can reduce reimbursement by thousands of dollars per case.
The financial damage extends beyond individual claims. Repeated downgrades lower your Case Mix Index (CMI), signaling to regulators that your hospital serves a less complex patient population. This cascades into reduced prospective payments, skewed quality metrics, and diminished negotiating power with payers—a vicious cycle that compounds over time.
The core challenge stems from a growing disconnect between clinical decision-making and payer expectations. Physicians diagnose sepsis based on clinical judgment, including patient deterioration, suspected infection, and signs of organ dysfunction. In contrast, payers increasingly require strict adherence to structured criteria such as Sepsis-3, which depends on documented increases in SOFA scores of two points or more. This means if SOFA scores or organ dysfunction labs aren’t explicitly charted, payers will reject the diagnosis, even when the case clearly meets the definition of sepsis. Programs from UnitedHealthcare, Optum, and other major insurers now review these DRGs aggressively, turning a common and appropriate diagnosis into one of the highest-risk billing categories in inpatient care.
Cofactor’s Root Cause Analysis: What the Data Reveals
Cofactor’s comprehensive analysis system reviews the full denial lifecycle from denial letters to medical records and appeals to identify the underlying drivers of revenue loss. Across thousands of DRG 871 and DRG 720 cases, we’ve identified five recurring failure points:
1. Overreliance on Narrative Impressions
Clinicians often document “sepsis” or “respiratory failure” in free text without structured data or scoring to back it up. Payers dismiss these notes as subjective.
2. Missing Objective Data
The absence of required objective data, including labs, vitals, and flowsheets, leaves high-acuity codes vulnerable to challenge, as payers demand quantifiable evidence rather than clinical assessment.
3. Coders Assigning Without Querying
CDI and coding teams often assign high-weight DRG codes for sepsis, respiratory failure, and AKI without querying for missing documentation elements, creating a false sense of security that crumbles under audit.
4. Lack of Familiarity with Payer Criteria
Both clinicians and coders frequently lack awareness of payer-specific medical necessity criteria, particularly Sepsis-3 requirements and DRG audit rules, operating in a knowledge vacuum that guarantees future denials.
5. No Pre-Bill Review
Hospitals often lack a pre-bill huddle or standardized review for high-risk DRGs, so preventable documentation gaps proceed unchecked to billing.
Key Denial Reasons: Breaking Down the Evidence Gap
Sepsis (A41.9/R65.20) – Unsupported Medical Necessity
What’s Missing: SOFA or qSOFA scores, Lactate trends, Platelet count, bilirubin, creatinine, Glasgow Coma Scale (GCS), P/F ratio, or respiratory involvement data
Why It’s Denied:
Payers reject the sepsis diagnosis when organ dysfunction is not clearly documented. Even when clinical signs are present, missing trending data (like rising lactate) or neurological scores (such as GCS) leave the case vulnerable. Most critically, the lack of trending data showing progression allows payers to recharacterize acute deterioration as chronic baseline conditions.
Acute Respiratory Failure (J96.x) – Disallowed
What’s Missing: ABG/VBG values, FiO₂, PEEP, SpO₂ < 91% or PaO₂ < 60 mm Hg, P/F ratio, Documentation of acute onset vs. chronic baseline
Why It’s Denied:
When respiratory failure lacks gas exchange data or ventilator settings, payers refuse to acknowledge respiratory compromise regardless of clinical presentation. The missing documentation creates plausible deniability for payers to downgrade severe respiratory distress to simple shortness of breath. The failure to clearly indicate acute onset versus chronic baseline allows payers to recharacterize new respiratory failure as longstanding COPD.
Acute Kidney Injury (N17.x) – Unvalidated
What’s Missing: Baseline creatinine, Post-resuscitation labs, Urine output in mL/kg/hr, KDIGO staging criteria
Why It’s Denied:
AKI denials exploit documentation gaps that make acute deterioration appear chronic. Without a documented baseline creatinine or urine output trends, payers argue that kidney dysfunction was either chronic or nonspecific. The absence of KDIGO staging criteria allows payers to dismiss even severe AKI as simple dehydration or chronic kidney disease.
Other Common Deficiencies
Unsupported organism-specific pneumonia codes without culture results invite automatic downgrades to unspecified pneumonia.
Malnutrition diagnoses lacking weight/BMI metrics or ASPEN criteria get dismissed as subjective assessments.
Missing structured severity scores like CURB-65 for pneumonia or RIFLE for AKI eliminate standardized evidence of severity.
The Top 4 Root Causes:
Our analysis uncovered critical systemic failures that perpetuate documentation deficiencies:
1. EMR Limitations
Most EMRs lack basic safeguards needed to capture payer-required elements.
No mandatory fields or alerts for sepsis bundles means clinicians may omit key data unknowingly.
Severity scoring tools like SOFA or qSOFA are not integrated, so these critical metrics go unrecorded.
Systems do not prompt ABG orders when documenting respiratory failure, weakening the clinical evidence.
Urine output and fluid balance are hidden in nursing flowsheets instead of being reflected in physician notes.
2. Payer Policy Disconnect
Clinical teams operate without visibility into the documentation rules payers use to audit them.
Payer audit criteria (like those from UnitedHealthcare or Optum) are not built into clinical workflows.
Physicians chart based on clinical standards, but payers judge based on documentation requirements they never see.
Contract-specific documentation expectations are not shared with frontline teams, even when negotiated upstream.
This creates a system where well-meaning documentation fails to meet reimbursement standards.
3. Process Gaps
Denial prevention is reactive rather than proactive in most organizations.
There are no pre-bill huddles to review high-risk DRGs before claims are submitted.
Over-reliance on retrospective audits turns quality assurance into damage control.
CDI teams lack standard query templates, leading to inconsistent documentation improvement.
Cases with known documentation gaps are often billed without intervention, ensuring future denials.
4. Training Deficits
Documentation standards evolve quickly, but training often lags behind.
Teams rarely receive role-specific training on updated coding or medical necessity rules.
Clinicians do not get feedback on their denied cases, making it difficult to learn from mistakes.
Successful appeal strategies are not shared broadly, forcing teams to solve the same issues repeatedly.
Without continuous education, documentation habits remain outdated even as payer audits intensify.
Your Action Plan: From Analysis to Implementation
Based on our findings, here's your comprehensive implementation framework:
Technology and Tools:
Build integrated EMR order sets that auto-calculate SOFA/qSOFA and require entry of key labs (creatinine, bilirubin, platelets, ABG)
Deploy respiratory failure prompts that tie mechanical ventilation orders to mandatory ABG/FiO₂/PEEP/SpO₂ documentation
Implement smart phrases for KDIGO AKI staging and malnutrition criteria that capture baseline labs, urine output, and weight trends
Create real-time dashboards showing documentation completion rates for high-risk DRGs
Process Enhancement:
Institute formal pre-bill reviews for high-risk DRGs involving clinicians, coders, and CDI specialists—not just retrospective audits
Embed mandatory checklists for sepsis, respiratory failure, AKI, and malnutrition before claim sign-off
Standardize query protocols with templated requests for missing objective data
Education and Training:
Launch quarterly, role-specific training:
Clinicians: Sepsis-3 operationalization, score documentation, ordering necessary labs/ABGs/flowsheets
Coders/CDI: Official ICD-10 guidelines, payer-specific thresholds, query best practices, audit case studies
Registration/Billing: DRG triggers at admission, ensuring orders for high-acuity workups
Distribute concise pocket guides summarizing major payer DRG audit criteria
Incorporate denial trend dashboards to track documentation failures and measure improvement
Monitoring and Accountability:
Develop KPIs: Query closure rates, sepsis documentation completeness scores, DRG appeal success rates
Assign departmental ownership for high-risk DRG performance and denial remediation
Conduct periodic audits with executive-level reporting to quality and finance committees
Track ROI on documentation improvement initiatives monthly
The Director's Roadmap: Leading Sustainable Change
As an RCM Director, your success depends on translating these insights into organizational action. Start by quantifying the opportunity: if 70% of your downgrades are sepsis-related at $5,000 average loss, even 100 annual downgrades represent $350,000 in direct losses before considering CMI impact.
Building Executive Buy-In: Present a data-driven business case showing:
Current sepsis downgrade volume and financial impact
Projected 50% reduction achievable within 6 months
Required investment in technology and resources
Expected ROI within the first year
Creating Your Coalition: Form a Sepsis Documentation Excellence Team, including:
Hospitalist champion (clinical credibility and peer influence)
CDI manager (process expertise and query management)
IT analyst (EMR optimization and reporting)
Finance representative (ROI tracking and executive updates)
Quality leader (connecting documentation to outcomes)
Implementation Strategy:
Start with the highest-volume unit (typically ICU or medical floors)
Run a 30-day pilot focusing on DRG 871 cases only
Measure baseline denial rate and documentation completion
Implement EMR changes and education simultaneously
Track weekly progress with public scorecards
Expand successful interventions hospital-wide
Turn Your Denials into a Competitive Advantage
Payers have systematized their audit process—it’s time hospitals systematize their defense. Cofactor’s data proves that sepsis-related downgrades are not inevitable. They’re the predictable result of misaligned workflows and documentation gaps that you can fix.
The data is clear: 70% of your DRG downgrade risk concentrates in sepsis-related denials. This concentration represents both your greatest vulnerability and your biggest opportunity.
Your next steps:
Run a report on DRG 871 and 720 denials from last quarter
Calculate total losses and CMI impact
Present this data to your CMO and CIO
Select one unit for pilot implementation within 30 days
Let Cofactor help you move from denial reaction to documentation precision.
Ready to transform your hospital's revenue integrity and financial performance?
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