Tennessee medical providers are raising concerns about a health insurance billing practice known as ‘downcoding,’ which they say reduces reimbursements, increases administrative costs and places additional financial pressure on hospitals and medical practices.

Downcoding occurs when an insurance company reclassifies a medical service to a lower billing level than the provider originally submitted, resulting in reduced payment. Health care advocates argue that some insurers make these adjustments automatically, without reviewing the patient’s medical records or the complexity of the care provided.

Legislation aimed at restricting the practice failed to advance in the Tennessee General Assembly earlier this year. Senate Bill 2155 sought to establish limits on insurer downcoding practices and protect providers from certain reimbursement reductions. The measure failed in the Senate Commerce and Labor Committee in April.

Gina Leary, owner of Medical Services Management, said insurers frequently reduce billing levels for services performed by mid-level medical providers, including physician assistants.

“What they’ll do is they’ll come back on an explanation of benefits or remittance advice, and they’ll downcode it from a level four to a level three visit without even seeing the records,” Leary said. “They automatically do that to the physician assistants.”

Leary said the practice creates additional administrative work because medical offices must submit documentation and appeal reimbursement decisions to recover payments they believe are owed.

She also expressed concern about UnitedHealthcare requiring office notes and X-ray records before processing certain claims, adding another layer of paperwork for providers.

The American Medical Association has opposed blanket or automated downcoding policies, arguing that reimbursement decisions should reflect the medical necessity and complexity of services provided.

Leary said Medicare also conducts chart audits to determine whether medical services were billed appropriately. However, she argued that reimbursement reductions and billing adjustments can leave hospitals absorbing losses of $30 to $50 per patient.

Although providers can challenge reduced payments, the appeals process can take weeks or months, creating cash-flow problems for medical practices already facing rising operating expenses.

“More than 90% of our claims are actually being paid. We’re getting additional monies later,” Leary said. “So I do the reconsideration form, I send in the medical records, then a month or two later, they’re sending me that money.”

Leary identified Blue Cross Blue Shield and Humana among insurers using downcoding practices.

BlueCross BlueShield of Tennessee has defended its coding review program, saying it focuses on providers whose billing patterns differ significantly from those of their peers. The insurer said it evaluates higher-level office visits using claims information and patient histories and allows providers to appeal decisions by submitting supporting medical records.

The dispute highlights growing tensions between health insurers and medical providers over reimbursement practices, administrative requirements and the financial sustainability of delivering care.

For Tennessee hospitals and physician practices, particularly those operating with limited financial resources, providers warn that delayed or reduced reimbursements can make it more difficult to maintain services and meet patient needs.