The Program for Evaluating Payment Patterns Electronic Report (PEPPER) has been around for years, but I am not convinced that clinical documentation integrity (CDI) programs are taking full advantage of what it can tell us.
At a recent Road Show presentation, Dr. Ronald Hirsch discussed PEPPER and shared several practical examples that made me think differently about how CDI leaders could use this data. One point particularly resonated with me: being an outlier is not a diagnosis, but a signal.
That distinction matters. PEPPER is designed to help hospitals identify potential overpayments and underpayments, and guide auditing and monitoring activities. Importantly, PEPPER itself does not determine whether a payment error has occurred.
If your organization is high on a PEPPER measure, that does not automatically mean you have a compliance problem. If you are low, that does not automatically mean you are performing well. For CDI, the better question is: why are we different?
Look Beyond the Outlier
Before reacting to a percentile, we need to understand exactly what the measure represents. What is in the numerator? What is in the denominator? What cases are excluded? And how many actual patients are driving the result?
The current Short-Term Acute Care PEPPER compares hospitals with the nation, their Medicare Administrative Contractor (MAC) jurisdiction, and their state. A result at or above the 80th percentile is considered a high outlier. For coding-focused target areas, a result at or below the 20th percentile is considered a low outlier. PEPPER also makes an important point that is sometimes overlooked: it does not use formal statistical significance testing to determine outlier status.
That means context matters.
Materiality matters too. PEPPER encourages hospitals to consider both the number of target discharges and associated payments when deciding where to focus review efforts. An extreme percentile involving relatively few patients may deserve a different priority than another measure involving significantly greater volume and reimbursement.
CDI should also look in both directions. A high rate may represent a coding or documentation vulnerability, but it may also reflect legitimate patient complexity or accurate severity capture. Conversely, a low rate is not always something to celebrate. It may suggest that documentation or coding opportunities are being missed.
The goal is not to make every PEPPER measure average, but to understand what is creating the variation.
Turn the Number Back into Patients
This is where I think CDI can bring the greatest value.
Once you identify a meaningful PEPPER measure reading, work with coding, analytics, compliance, finance, and/or your electronic health record (EHR) reporting team to identify the patients contributing to it.
Instead of saying, “we are in the 85th percentile,” we should be able to say, “these are the patients behind that number, and this is what we found when we reviewed them.”
Then look at those records through a CDI lens. Was the diagnosis clinically supported? Was the documentation sufficiently specific? Was there an appropriate query opportunity? Was a query issued? Did the provider response affect final coding? Are specific providers, diagnoses, or service lines driving the pattern?
Dr. Hirsch used pneumonia and respiratory infections as a practical example during his presentation. Consider a hospital that appears to have few respiratory infections while physicians document only “pneumonia” in patients receiving broader antimicrobial therapy, such as vancomycin. Treatment alone does not establish a diagnosis, and CDI should never infer a diagnosis simply because a particular medication was ordered. But the treatment may be one clue that prompts us to ask whether the documented clinical story fully reflects the physician’s thinking.
What does the imaging show? What do the cultures show? What risk factors are present? What diagnoses are being considered? Does the documentation accurately communicate that thought process? All of these are questions worth asking.
The current PEPPER guidance supports this type of review. For respiratory infections and simple pneumonia, a high outlier may suggest reviewing cases for possible over-coding, while a low coding-focused outlier may justify examining related Diagnosis-Related Groups (DRGs) for possible under-coding. The guidance also reminds hospitals that pneumonia is a physician diagnosis, and should not be coded solely from laboratory or radiologic findings.
The objective is not to turn simple pneumonia into a higher-weighted diagnosis, but rather to ensure that the documented story accurately reflects the clinical story.
The same principle applies to sepsis. PEPPER’s septicemia target area includes MS-DRGs 870–872, and compares them with specified pneumonia, ventilator-support, and kidney and urinary tract infection DRGs. If your septicemia rate is high, review whether the diagnoses are supported and consistently documented. If it is low, examine related populations and determine whether clinically appropriate diagnoses or query opportunities may have been missed.
PEPPER is not telling us whether an individual patient should or should not have a diagnosis.
It is telling us where to look.
Connect PEPPER to CDI, UR, and Denials
PEPPER becomes even more valuable when we stop looking at it in isolation.
Take a meaningful PEPPER finding and compare it with your denial data. Are diagnoses contributing to an outlier also appearing in clinical validation denials or DRG downgrades? Are certain providers or service lines repeatedly represented? Is the payer finding the same vulnerability your internal review identified?
The Single CC/MCC target area is a good example. These are cases in which one qualifying CC or MCC may be responsible for assignment to the higher-weighted MS-DRG. CDI should want to know whether that diagnosis is clinically supported, whether the documentation clearly supports it, whether it resulted from a query, and whether payers are targeting the same diagnosis.
PEPPER also takes us beyond coding. Short inpatient stays bring utilization review (UR), physician advisors, and medical necessity into the conversation.
CMS currently defines a short hospital stay for patient status review as one lasting fewer than two midnights after inpatient admission. MACs assumed responsibility for these reviews on Sept. 1, 2025, and conduct them through the Targeted Probe and Educate (TPE) process.
The question should not be, “the patient stayed one day, so was the admission wrong?”
Instead, ask what was reasonably expected when the inpatient decision was made. Was medically necessary hospital care expected to span at least two midnights? If not, did the record support the practitioner’s judgment that inpatient care was nevertheless necessary based on complex medical factors? The Centers for Medicare & Medicaid Services (CMS) identifies factors including comorbidities, severity of signs and symptoms, current medical needs, and risk of an adverse event.
CMS also notes that stays under 24 hours would rarely qualify for a case-by-case exception to the Two-Midnight benchmark, and may be prioritized for review. That does not mean every stay under 24 hours is inappropriate, but merely that those cases deserve attention.
This is where CDI, UR, physician advisors, coding, compliance, and denials teams should be looking at the same data, instead of working in separate silos.
Don’t Wait for the Next PEPPER
Perhaps the biggest opportunity is to stop treating PEPPER as something we periodically receive and start using it as a model for internal surveillance.
Once you understand the methodology behind a meaningful measure, consider building a PEPPER-style internal metric. Track it over time, and where useful, stratify it by provider, service line, diagnosis, MS-DRG, payer, query activity, and denial outcome.
There is an important caveat: PEPPER specifications can change. Internal measures should be validated against the current specifications, rather than built once and forgotten.
And remember that ST PEPPER excludes claims submitted to Medicare Advantage (MA) plans. As Dr. Hirsch pointed out during his presentation, physicians generally do not change their documentation habits simply because the patient’s insurance card changes. If PEPPER identifies a meaningful documentation pattern in traditional Medicare patients, test whether that same pattern appears in your MA and commercial populations. Do not assume it does; let the data answer the question.
Imagine connecting:
PEPPER finding → internal trend → contributing patients → CDI findings → query activity → denials → financial impact.
We have now moved from retrospective benchmarking to proactive surveillance.
That is the opportunity I see for CDI.
Find your PEPPER. Choose one meaningful measure. Understand the numerator and denominator. Identify the patients behind the number and review their records. Then connect what you find to CDI, coding, UR, clinical validation, and payer denials.
Finally, ask the question that really matters:
Is this a documentation opportunity, a compliance vulnerability, a medical-necessity issue, a denial risk, or simply an appropriately and organically different patient population?
PEPPER can tell us.
And CDI can help the organization understand why – and what to do about it.
References
- Centers for Medicare & Medicaid Services. Short-Term Acute Care Program for Evaluating Payment Patterns Electronic Report (ST PEPPER) User Guide: Q1 FY 2026 Release. June 2026. PEPPER.
https://pepper.cbrpepper.org/resources/home/ST-PEPPER-UG-Q1-FY-2026.pdf - Hirsch R. Road Show presentation, 2026. PEPPER, respiratory infections, septicemia, utilization, medical necessity, and Medicare payment-pattern discussion. See also: Hirsch R. The PEPPER Returns – Risk and Opportunity at Your Fingertips. MedLearn Media. March 19, 2026.
https://medlearn.com/racmonitor/product/the-pepper-returns-risk-and-opportunity-at-your-fingertips/ - Centers for Medicare & Medicaid Services. Hospital Patient Status Review Frequently Asked Questions. Updated March 4, 2026.
https://www.cms.gov/data-research/monitoring-programs/medicare-fee-service-compliance-programs/medical-review-education/inpatient-hospital-reviews-faqs - Centers for Medicare & Medicaid Services. Medicare Program Integrity Manual, Chapter 6: Medicare Contractor Medical Review Guidelines for Specific Services. CMS Publication 100-08.
https://www.cms.gov/regulations-and-guidance/guidance/manuals/downloads/pim83c06.pdf
