Physicians across the United States are reporting a growing trend where health insurance companies automatically reduce payments for patient visits, a practice known as “downcoding.” This process involves insurers unilaterally downgrading medical claims to lower-paying service levels, often without reviewing individual patient records, leading to significant financial and administrative burdens for medical practices.
The practice, which insurers sometimes call “adjusting,” is reportedly being used by major companies including Aetna, Anthem, Humana, and Cigna. Doctors argue these automated reductions force them to spend hours on appeals or risk substantial revenue loss, potentially impacting patient care and the viability of small, independent practices.
Key Takeaways
- What is Downcoding: Health insurers automatically lower the reimbursement level of a doctor's claim without reviewing the specific details of the patient visit.
- Financial Impact: Small practices report losing thousands of dollars annually, with a single claim being reduced by amounts like $45, which accumulates over time.
- Major Insurers Involved: Aetna, Anthem Blue Cross and Blue Shield, Humana, and Molina Healthcare have been identified by doctors as using this practice. Cigna announced similar plans.
- Administrative Burden: Doctors must engage in a time-consuming appeals process for each downcoded claim, increasing operational costs and staff workload.
- Patient Care Concerns: Physicians warn that reduced revenue could force them to see more patients in less time, drop certain insurance plans, or sell their practices, ultimately limiting patient access to care.
The Financial Strain on Medical Practices
For independent physicians, the financial consequences of downcoding are immediate and significant. Dr. Terry Wagner, a family doctor in Hudson, Ohio, first noticed the issue when his office manager identified a pattern of underpayments from Aetna on more complex patient visits.
A typical “level four” office visit, which might reimburse around $170, was being paid as a “level three” visit for about $125. “That $45 difference might not seem like much, but when it’s happening on dozens of claims, and to a physician-owned practice like Wagner’s, the damage mounts,” he explained. His office estimated a loss of over $3,000 in the first six months of the year due to this practice.
Other physicians report even greater losses. Dr. Sarah Jensen, a dermatologist in Missouri, stated that Anthem began downcoding her claims nearly two years ago, resulting in a loss of almost $14,000. Through persistent appeals, she has managed to recover just over one-third of that amount.
“You almost lose that wherewithal to fight,” Dr. Jensen said, describing the tedious process of appealing each claim individually. “I mean, it’s kind of their goal I would imagine.”
How Medical Billing Codes Work
When a doctor sees a patient, they submit a claim to the insurance company using standardized codes. These include a diagnosis code (what's wrong with the patient) and a service level code (indicating the complexity of the visit). The service level is determined by factors like the time spent with the patient or the complexity of medical decision-making. Downcoding occurs when an insurer decides, often via an algorithm, that the service level code submitted by the doctor is too high and pays for a lower, less complex level of care.
Insurers Defend Practice as a Cost-Control Measure
Insurance companies and their representatives frame downcoding as a necessary tool to manage healthcare costs and prevent improper billing. They often justify the practice by identifying physicians whose billing patterns are higher than their peers, labeling them as “outliers.”
Aetna spokesperson David Whitrap stated the insurer has an “obligation to monitor for appropriate coding on behalf of our clients and members” and to “safeguard against fraud, waste, and abuse.” He added that evaluating higher-level codes helps ensure billing aligns with national guidelines and that the policy affects “only 3% of providers.”
Similarly, a spokesperson for AHIP, a health insurance trade association, said that identifying “outlier practices” is part of the industry's effort to “advance quality and affordability.” Cigna Healthcare, which planned to implement a downcoding policy, noted that it would affect approximately 1% of its provider network and that all providers have the right to appeal.
A Glimpse into Insurer Savings
A 2024 marketing flyer for Aetna's “Claim and Code Review Program” highlighted the financial benefits for employers. It advertised an average cost reduction of 6.4% for employer health plans, which translated to $1.6 million in savings for a company with 4,000 members.
The “Guilty Until Proven Innocent” Approach
The American Medical Association (AMA) has strongly criticized automatic downcoding, arguing it lacks clinical logic and places an unfair burden on physicians. Dr. Bobby Mukkamala, president of the AMA, described the practice as a “game” designed to boost insurer profits at the expense of patient care.
“It’s going to worsen our patient care, but it’s going to improve their bottom line,” Mukkamala said. “And that’s the wrong calculus to use to improve health care in this country.”
The AMA's position is that automatically reducing payments without reviewing a patient's chart, medical history, or the specific actions taken during a visit is unjust. The organization argues that a simple diagnosis code doesn't capture the full complexity of a patient's situation.
“‘Guilty until proven innocent’ infers that we’re in a court, right? That I’m to have my chance to say, ‘This is why I did what I did.’ But when this isn’t announced and this is something that happens in the background, this is a conviction before there’s even a court trial,” Mukkamala stated.
According to the AMA, it sent letters to Blue Cross Blue Shield, Cigna, and AHIP in March to address downcoding practices but received no replies. A similar letter was sent to Aetna in July 2024 regarding its “unjustified, blunt payment reduction tool.”
Administrative Burdens and Patient Access
For small medical practices, the fight against downcoding is not just financial but also administrative. Staff must dedicate significant time to identifying underpayments, compiling medical records, and filing appeals for each individual claim.
Cheryl Crowder, who manages billing for a group of physicians in rural southeast Ohio, said her team has been dealing with repeated downcoding from two insurers for over a year. “We have to copy records, and do claim audits and provide that information to them,” she explained. “We’re paying people overtime to do this work.”
Kelly Sutton, a practice manager in Van Wert, Ohio, estimates her team spends about four hours a week on appeals alone. She described the difficulty of getting clear answers from insurers as “like breaking down Fort Knox.”
This mounting pressure is forcing doctors to consider difficult choices. Dr. Adrienne Hollander, a rheumatologist in New Jersey, said her practice had to stop accepting UnitedHealthcare three years ago over different reimbursement issues. She worries downcoding may force similar decisions.
“If we can’t fix this or renegotiate our contracts, then we stop taking insurers,” Hollander said. “The problem is that that is not good for patients, because there’s not a ton of rheumatologists.” This sentiment is echoed by Dr. Jensen, who is now considering selling her private practice to a private equity firm. “It’s like death by a thousand cuts,” she concluded.
Legislative Efforts and the Future of Private Practice
Lawmakers are beginning to take notice of the issue. This year, two states passed legislation focused on increasing transparency around downcoding. However, more aggressive bills aimed at banning the practice have stalled in states like Ohio and New Jersey.
To support legislative action, the AMA has developed a template bill for states interested in regulating or prohibiting automatic downcoding. Medical professionals worry that without such protections, the trend will only accelerate as more insurers adopt the cost-saving measure.
The ongoing financial and administrative pressures are contributing to a decline in the number of physicians in private practice. Many are choosing to join larger hospital systems or sell to corporate entities to gain more leverage in negotiations with insurers. This shift could have long-term consequences for the U.S. healthcare landscape, potentially reducing patient choice and access to community-based doctors.
