The Hidden Cost of DRG Downgrades in ASCs

Ambulatory Surgery Centers (ASCs) face a growing challenge: payer-driven Diagnosis-Related Group (DRG) downgrades. When payers downgrade a DRG, they reduce reimbursement by placing claims in lower-paying categories, even when legitimate care was provided.

Liliana Lehmann, President of Axis HealthCare Partners, notes, “Although most initially denied claims are paid, the administrative time and cost involved are appalling and hurt the cash flow of the center” (Becker’s ASC Review, 2025). Such payment delays and denials tightly squeeze ASC operating budgets, where margins are already thin.

ASCs report that underpayment caused by these downgrades not only results in lost revenue but "creates major operational and financial strain” as insurers “deploy a growing arsenal of strategies to delay, deny or reduce reimbursements” (Becker’s ASC Review, 2025). This has transformed payer disputes from isolated problems into systemic revenue challenges.

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Why Payers Downgrade ASC Claims

Payers employ multiple tactics:

• Clinical validation audits: These audits rely solely on reviewing documentation and can retroactively question physician diagnoses. “A payer reviewer who never examined the patient might determine the sepsis diagnosis wasn’t ‘clinically valid’ based on their interpretation,” explains a strategic report by Aspirion (2025). This often leads to reductions in reimbursement.
• Coding disputes: Payers challenge whether complications and comorbidities are properly coded or supported by documentation.
• Aggressive auditing policies: As noted by R1 RCM (2025), “Payers’ complexity in reviewing and downgrading DRGs is increasing, making proactive monitoring essential.”

Additionally, CMS’s updated ASC payment rates for 2025 provide some relief but also require “revenue forecasts [that] should account for... the risk of reduction for missed reporting” (Transcure, 2025), underscoring the precarious balance ASCs face.

The Real Cost of Downgrades for ASCs

The financial consequences are immediate and severe:

“Each downgrade directly impacts a healthcare organization’s bottom line, creating revenue shortfalls and necessitating resource-intensive appeal processes” (Aspirion, 2025).

Downgrading cases - for example, a procedure accompanied by major complications - can cost thousands of dollars per claim. But the impact goes beyond lost revenue:

• Staff spend hours on rework and appeals.
• Surgeons and clinicians get involved in time-consuming chart reviews.
• Payment delays disrupt cash flow vital to daily operations.

Liliana Lehmann stresses, “The required documentation may be a medical record, which usually was already submitted by the provider who rendered the services,” highlighting the frustration many ASCs experience when valid claims are questioned (Becker’s ASC Review, 2025).

Proven Strategies to Fight DRG Downgrades

ASCs that actively tackle DRG downgrade risks can protect vital revenue streams by focusing on:

1. Improving Documentation and CDI
   Complete, detailed physician and clinical documentation is critical. It reduces opportunities for denials and supports robust appeals.
2. Standardizing Appeal Workflows
   Establishing templates, clear timelines, and escalation procedures increases the chances of reclaiming revenue lost to denials.
3. Harnessing Data Analytics
   Tracking downgrade and denial patterns by payer, procedure, and DRG allows ASCs to identify systemic risks and prioritize appeal workloads. This insight is also vital for stronger payer negotiations.
4. Training Surgeons and Clinicians
   Education focused on documenting high-risk conditions like sepsis and infections strengthens claim integrity before submission, reducing dispute risks.
5. Persisting Beyond Initial Denials
   Many ASCs stop at the first denial, but “multiple levels of appeal, including external reviews, frequently deliver results” (Aspirion, 2025). Consistent follow-up improves recovery.

What High-Performing ASCs Do Differently

Leading ASCs adopt a proactive approach:

• They assign dedicated denial management teams to focus exclusively on payer disputes.
• Real-time dashboards track denials, appeals, and financial impacts comprehensively.
• There is close collaboration between coding, clinical staff, and administration to ensure aligned revenue management (Becker’s ASC Review, 2025).

This proactive stance turns a typically reactive process into a strategic advantage.

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Moving Forward: Building Resilience in ASC Revenue Cycles

DRG downgrades will remain a challenge, but ASCs have proven strategies to combat the revenue drain. By strengthening documentation, systematizing appeal workflows, leveraging analytics, and educating clinicians, ASCs can recover rightful reimbursements.

Shifting from reacting to payer denials toward prevention builds stronger margins and a more predictable revenue cycle. Ultimately, this resilience supports the ASCs’ ability to focus on delivering high-quality patient care without unnecessary financial distractions.

References 

Becker’s ASC Review. (2025). Inside the tactics payers use to deny ASC reimbursements. Retrieved from https://www.beckersasc.com/asc-coding-billing-and-collections/inside-the-tactics-payers-use-to-deny-asc-reimbursements/

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R1 RCM. (2025). Key Trends in 2025: Payer Behavior and DRG Downgrades. Retrieved from https://www.r1rcm.com/resource-library/key-trends-in-2025-payer-behavior-and-drg-downgrades/

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Aspirion. (2025). DRG Downgrades: How Providers Can Protect Rightful Revenue. Retrieved from https://www.aspirion.com/when-payers-second-guess-doctors-strategic-steps-to-overcome-the-drg-downgrade-crisis/

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Transcure. (2025). Ambulatory Surgery Billing: 2025 Medicare & CMS Policy Updates. Retrieved from https://transcure.net/ambulatory-surgery-billing-updates/