What Your PEPPER Outliers Are Really Telling You About Coding

PEPPER reports help U.S. hospitals identify outlier patterns in Medicare billing and utilization by comparing claims data to similar facilities nationwide. While PEPPER findings often trigger compliance concerns, outlier status alone does not indicate improper billing or coding risk. Coding accuracy, principal diagnosis selection, POA indicators, and documentation consistency all play a critical role in how hospital data is reflected in PEPPER results. This article explains what PEPPER outliers are really telling you about coding and outlines practical strategies healthcare organizations can use to interpret PEPPER data, reduce compliance risk, and ensure their claims accurately represent the care provided.

PEPPER reports are designed to identify outlier patterns in Medicare claims data by comparing your organization’s billing and utilization trends to similar hospitals nationwide. While PEPPER findings often raise red flags for compliance teams, outliers themselves are not proof of improper billing or risk. In many cases, they are simply signals that warrant closer review.

Because PEPPER focuses on diagnosis-related groups, principal diagnosis selection, and utilization patterns, coding accuracy and documentation integrity play a critical role in how your data is reflected. Inconsistent or incomplete coding can unintentionally position an organization as an outlier—without accurately representing the care provided.

Here are five proven strategies to help your coding team interpret PEPPER outliers and respond effectively.

1. Understand What PEPPER Outliers Actually Represent

PEPPER does not identify errors. It highlights statistical variation compared to peer hospitals. An outlier may reflect legitimate clinical differences, service-line specialization, or patient population complexity—but it may also indicate inconsistent code assignment or documentation gaps.

• Strategy: Before reacting, validate whether the outlier is driven by clinical reality or coding variation. Review DRG definitions, principal diagnosis selection, and secondary diagnosis capture for the affected target areas.

2. Focus on High-Risk DRGs and Diagnoses

Many PEPPER target areas are closely tied to coding judgment, including medical necessity, short stays, sepsis, respiratory failure, and major complications.

• Strategy: Conduct targeted audits of PEPPER-flagged DRGs and diagnoses. Look for trends such as inconsistent principal diagnosis selection, underreported comorbidities, or variations in how similar cases are coded across coders or departments.

3. Validate POA and Complication Coding

Present-on-admission indicators and complication codes are especially sensitive in PEPPER analysis. Incorrect POA assignment or overreporting of complications can quickly shift utilization patterns and trigger outlier status.

• Strategy: Ensure POA indicators are assigned based on clear clinical documentation and not defaulted. Reinforce education around what qualifies as a reportable complication versus an expected outcome of care.

4. Align Coding and CDI on PEPPER-Sensitive Areas

Coding accuracy depends heavily on documentation quality. PEPPER outliers often reflect documentation ambiguity rather than intent.

• Strategy: Establish shared reviews between coding and CDI teams for PEPPER-prone diagnoses. Joint case reviews promote alignment on principal diagnosis selection, clinical indicators, and documentation support—reducing variability and strengthening defensibility.

5. Use PEPPER Data to Drive Ongoing Improvement

PEPPER is most effective when used proactively rather than reactively. One-time reviews address individual cases, but trend analysis reveals systemic issues.

• Strategy: Track PEPPER target areas over time using internal dashboards or audit tools. Monitor movement toward or away from outlier thresholds and address patterns through focused education before external scrutiny increases.

Final Thoughts

PEPPER outliers are not inherently negative—but they are meaningful. They highlight where coding practices, documentation, and utilization patterns deserve closer attention. By approaching PEPPER data with context, consistency, and collaboration, organizations can reduce unnecessary compliance risk and ensure their data accurately reflects the care provided.

Need help reviewing PEPPER target areas or identifying coding-driven outlier trends? Health Information Associates offers targeted reviews and coding support services to help organizations gain clarity and confidence in their data. Contact us for more information.

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The information contained in this coding advice is valid at the time of posting. Viewers are encouraged to research subsequent official guidance in the areas associated with the topic as they can change rapidly.