In the high-stakes environment of acute care, hospitals are under substantial scrutiny from payors and regulators regarding clinical decisions, services rendered, and dollars billed. As hospitals navigate tighter margins, evolving payor expectations, and increasing regulatory oversight, improving clinical documentation has emerged as a financial and strategic imperative.
Hospitals that fail to maintain accurate, timely, and complete documentation face a variety of risks. For example:
- Differences between clinical documentation and payor language can lead to increased denials: physicians often document based on clinical judgment and peer communication, which may lack the detailed description of medical necessity that payors require for reimbursement.
- Undercoding and vague documentation can delay reimbursements, increase audit risks, and reduce Diagnosis-Related Group (DRG)-based payments.
- Operational costs may rise due to rework and staff burnout.
Clinical documentation improvements that contribute to even modest reductions in denials can help providers recover significant revenue and reduce operational costs related to appeals and staff time.
In this article, we explore how acute care organizations can elevate documentation practices to help drive compliance, secure reimbursement, reduce denials, and meet the demands of a complex healthcare ecosystem.
Compliance: Aligning With CMS Standards
CMS continues to emphasize documentation integrity as a condition of payment for healthcare services. Key compliance requirements include:
- Streamlined Prior Authorization Documentation: Under the CMS Interoperability and Prior Authorization final rule, certain clinicians and hospitals will be required to electronically submit prior authorization requests using standardized documentation formats starting in calendar year 2027. This mandate is part of a broader effort to enhance interoperability, reduce administrative burden, and improve patient access to timely care through the use of Fast Healthcare Interoperability Resources (FHIR) Application Programming Interfaces (APIs) for prior authorization processes.
- Medical Necessity: Documentation must clearly justify the level of care billed. Vague or incomplete notes can result in payment denials or recoupments.
- Signature Requirements: All orders and progress notes must be signed, dated, and legible. Missing or illegible signatures are grounds for denial.
- Service Validation: Records must demonstrate that services billed were actually provided and medically necessary.
- Specificity: Diagnoses must be supported by clinical indicators. Generic terms like “infection” or “pain” without further detail fail to meet CMS standards.
CMS has simplified some documentation requirements, but the burden remains on providers to support each claim with sufficient, authentic, and timely documentation.
Reimbursement Accuracy: Documentation as a Revenue Driver
In acute care, documentation directly influences DRG assignment, severity of illness (SOI), and risk of mortality (ROM)—all of which impact reimbursement. When documentation fails to capture the full clinical picture, hospitals risk underpayment, audit exposure, and revenue leakage. Specific reimbursement risks related to documentation include:
- Undercoding: Missing comorbidities or complications can result in lower-weighted DRGs.
- Overcoding: Unsupported diagnoses may trigger audits and repayment demands.
- Medical Necessity Denials: Payors require detailed justification for inpatient admissions and high-cost procedures. Lack of specificity may lead to denials.
- Appeal Failures: Without robust documentation, appeals may lack the clinical evidence needed to overturn denials.
Hospitals need to bridge the gap between clinical language and coding terminology. This requires collaboration between physicians, coders, and clinical documentation integrity (CDI) teams to maintain documentation that reflects the complexity of care delivered.
Clinical Denial Prevention & Management: A Proactive Approach
In acute care settings, claim denials can lead to substantial financial losses, operational inefficiencies, and interruptions in patient care. When margins are tight and patient volumes are high, hospitals must adopt a proactive, data-driven, enterprisewide strategy to prevent and resolve denials. Disruptions in care can manifest as delayed treatments due to authorization issues, postponed diagnostic tests while coverage is verified, premature discharges when reimbursement is uncertain, and fragmented transitions between care settings. These gaps may not only compromise clinical outcomes but also increase readmission risk, patient dissatisfaction, and overall cost of care.
Common denial triggers include incomplete documentation, lack of medical necessity, authorization errors, and coding mismatches. Addressing these requires a multipronged strategy that includes:
- Front-End Defense: Accurate patient demographic insurance information, registration, and eligibility verification are critical to reducing initial denials.
- Clinical Documentation Integrity: CDI professionals help physicians provide documentation that is specific, clinically validated, and supports medical necessity.
- Multidisciplinary Denial Review Teams: Cross-functional teams analyze denial trends, perform root cause analysis, and implement targeted interventions.
- Strategic Appeals: Fact-based appeals supported by clinical evidence and peer reviews are essential for high-value denials.
- Education & Feedback Loops: Physicians benefit from specialty-specific training, performance feedback, and recognition programs.
- Payor Intelligence Systems: Monitoring payor behavior helps hospitals adapt documentation practices to evolving requirements.
- Standardized Documentation Templates: Templates help improve compliance and efficiency by guiding providers to include essential elements while preserving clinical nuance. Templates should be specialty-specific, integrated with electronic health records, and regularly updated based on denial trends and regulatory changes.
How Forvis Mazars Can Help
Elevating clinical documentation practices can help hospitals improve operational performance, financial discipline, and regulatory excellence, supporting the delivery of high-quality care and better health outcomes in the communities they serve. Our performance improvement team can help hospital leaders build a documentation-driven culture by strengthening CDI programs, leveraging technology, aligning practices with payor expectations, and embedding documentation quality into performance metrics. If you have questions or would like assistance with your approach to clinical documentation, please reach out to our professionals today.
Clinical Documentation Excellence Webinar Series
Our three-part, CPE-eligible webinar series dives deeper into documentation strategies related to compliance, reimbursement, and denials.