Downcoding is Back From the Dead: Insurers Resurrected a Scheme to Pay Doctors Less That the Courts Banned

Two decades after a massive lawsuit forced insurers to kill the practice, Big Insurance is back to automatically downgrading doctors’ claims — this time under the guise of fighting “waste and abuse."

Nilsa Cruz, the patient advocate at the Milwaukee Rheumatology Center, has won national awards for fighting Big Insurance practices that hamper care – frequently taking her cases to the state capitol in Madison. But for Cruz, a recent move by the insurance giant Cigna that aims to boost profits by nickel-and-diming physicians on office visits was personal.

“I just terminated Cigna,” Cruz said in a recent interview, after the insurer implemented a new policy known as “downcoding” that automatically pays certain doctors and their clinics less money for a patient visit than the health care providers had billed. “You know why? Because I don’t want to have to deal with these shenanigans with them.” And she said she’s looking at ending the rheumatology clinic’s contract with Aetna over similar payment issues.

The new downcoding policies are a no-win situation for both physicians and their patients. If doctors keep submitting claims at the lower reimbursement rate imposed by the insurance companies, their office might see a drop of as much as $45 for a visit, which adds up quickly over multiple visits and will surely squeeze smaller clinics. But if busy facilities like the Milwaukee Rheumatology Center instead drop the insurer, some patients will scramble for care – which could mean a wait of months for a new-patient appointment, and a gap in critical treatments.

Nilsa Cruz, patient advocate at the Milwaukee Rheumatology Center.

To maintain profit margins acceptable to shareholders (Cigna alone made $7.7 billion in profits last year), Big Insurance is stepping up its use of a variety of tools – rejecting or delaying claims requiring prior authorization, dropping clinics where patients require costly new drugs or treatments from their networks, and now this new assault on reimbursements.

The resurrection of a buried practice

The new push by private insurers to downcode patient-visit claims and reduce reimbursements can be couched in acronyms and numerals. Technically, what’s at issue is evaluation and management (E/M) codes 99204-99205, 99214-99215, and 99244-99245. In reality the controversy cuts to the core of what many doctors do and how they get paid for it.

Three years ago, the American Medical Association – responding to complaints from its members – unveiled some major changes to the codes that are used in billing for patient care. Among them was the addition of a series of evaluation and management codes meant to reflect how much time a physician spends during a visit, and the complexity of the examination and any tests that are performed. Often, ruling out a significant disease or injury can take as much time and effort as correctly diagnosing one.

Increasingly, the insurance companies tasked with paying these new claims insisted that the higher payouts caused profits to diminish slightly in recent quarters.

For example, UnitedHealth Group, the nation’s biggest private health insurer, said in its July conference call that what it calls “aggressive” coding practices by physicians are one of the key reasons the firm faces a challenging economic environment in 2025, with what they claim is $6.5 billion in higher costs. UnitedHealthcare CEO Tim Noel said the firm is now focused on “identifying waste and abuse in outlier coding and billing practices.”

But it’s the rivals of UnitedHealthcare – most notably Cigna and Aetna – that have taken the most aggressive actions in challenging the AMA-endorsed coding practices. In recent months, numerous doctors complained that Aetna was not even disputing some claims but just automatically paying them at a lower rate, using codes based on the patient’s diagnosis and not the complexity of the visit.

One family practice physician in the small town of Hudson, Ohio – Dr. Terry Wagner – told NBC News that some of his claims submitted to Aetna as a “level 4” office visit, which could have meant a reimbursement of $170, were paid instead at the rate for a “level 3” visit, or $125. That’s a more than 26% pay cut. Wagner told NBC the automatic reductions felt “blatantly disrespectful.”

Now, rival insurer Cigna is formalizing the practice, announcing that as of Oct. 1 certain “level 4” and “level 5”-coded claims from practices that have a history of higher billing will be knocked down automatically to a lower level. The Connecticut-based firm argued – citing a report from the inspector general of the Centers for Medicare & Medicaid Services about overbilling – that the downcoding is a necessary response to apparent patterns of abuse. Other insurers, including Anthem Blue Cross Blue Shield, Humana and Molina Healthcare, say they are “adjusting” – downward, of course – certain types of office-visit claims.

“Upcoding” when it profits them — “downcoding” when doctors deserve to be paid

The truth is that Big Insurance plays both ends of the coding game. In the case of increasingly lucrative Medicare Advantage plans, through which the insurers offer sometimes enhanced benefits in a partnership with the federal government, these same companies have been accused of “upcoding” to tap into more taxpayer dollars.

Recently, I wrote about how thinly disguised front groups for the insurance industry are spending tens of millions of dollars to lobby against legislation on Capitol Hill called the No UPCODE Act. The bill is aimed at halting a long-running pattern of abuse by insurers filing Medicare claims to the federal government that make patients appear sicker than they really are. This is capitalism run amok – “upcoding” when that practice brings in higher revenue for Big Insurance, and now “downcoding” when doctors want them to pay up.

Dr. Madelaine Feldman, a New Orleans rheumatologist who is past president of the Coalition of State Rheumatology Organizations, said her office began noticing several years ago that UnitedHealth was downcoding some of the claims they were submitting. And here’s the bind many physicians face with downcoding: The office manager “just said, let’s just start giving them what they want,” Feldman recounted. It made little business sense to appeal the downcoding “because what would happen is they would deny the charge and then it would delay getting paid.”

Madelaine A. Feldman, MD, FACR, New Orleans rheumatologist.

So now, more and more insurers have jumped on the downcoding bandwagon. Feldman said it takes little or no account of the actual work that doctors do to keep their patients healthy. She noted that when she sees a long-term arthritis patient reporting new conditions – say, nausea – it’s necessary to run a battery of tests to understand whether that’s a side effect from their medication, a new ailment, or something else. But when that patient’s final diagnosis remains the same, the insurance companies are downcoding the visit.

Déjà vu

To longtime health care advocates like Cruz and Feldman, the new downcoding fight is a case of deja vu. In the early 2000s, insurance companies were also accused of unfair downcoding. Ultimately, some 900,000 physicians joined a class-action suit that accused major managed-care plans of arbitrarily knocking down claims or delaying payments. In 2004 and shortly after, most of the firms – including Cigna and Aetna – negotiated multi-million-dollar settlements and agreed to halt the practice.

I was still a Cigna vice president when that lawsuit was filed and was in the courtroom in Miami when Federal District Judge Federico Moreno approved a $140 million settlement between Cigna and the doctors who had sued the company. Cigna also had to agree to invest $400 million to change its billing systems and to donate $15 million to a foundation focused on “the improvement of public health.”

With the new downcoding war under way, the Coalition of State Rheumatology Organizations recently fired off a letter to the U.S. District Court in Miami, where the 2004 settlement was reached, accusing Cigna’s new policy of violating at least the spirit of the accord, which expired earlier this decade. The missive stated, “it replicates the very conduct that led to the 2004 settlement.”

The resurrected tactic drives home the point that while the downcoding takes advantage of physicians and health care advocates, their options are limited. While it’s possible to appeal the lower payments by submitting more documentation to justify the initial, higher-level claim, giant corporations like Cigna and Aetna seem to be banking on the likelihood that most doctors lack the time or staff to fight back against multiple cases.