Knowledge Base Article

Background

 

What is PEPPER: “PEPPER is an electronic data report that contains a single hospital’s claims data statistics for Medicare Severity Diagnosis Related Groups (MS DRGs) and discharges at risk for improper payment due to billing, coding, and/or admission necessity issues… PEPPER does not identify the presence of payment errors, but it can be used as a guide for auditing and monitoring efforts. A hospital can use PEPPER to compare its claims data over time to identify potential areas of concern, including significant changes in billing practices; possible over- or under-coding; and changes in length of stay.” ¹

 

PEPPER Target Areas: “In general, the target areas are constructed as ratios and expressed as percents; the numerator represents discharge that have been identified as problematic, and the denominator represents discharges of a larger comparison group.” ¹

 

Program Paused: On February 8, 2024, CMS temporarily paused PEPPER to "improve and update the program reporting system."

 

Program Resumption Key Takeaways

 

August 2025: A notice on the PEPPER website indicated “The site is currently testing with select PEPPER recipients and PEPPER Portal access is limited to these users. Thank you for your patience and please check back soon for updates on full availability.” Index Analytics (IA), and its partners Integrity Management Services, Inc. and GovCon Growth Solutions were listed in a limited release PEPPER User’s Guide as being under contract with CMS to develop and distribute the PEPPER.

 

December 10, 2025: A PEPPER Short-Term Acute Care User’s Guide was released.

 

What’s New in December 2025 PEPPER Short-Term Acute Care User’s Guide

As compared to the 36^th Edition of the User’s Guide, the same Target Area’s continue to be active for FY 2025. However, two Target Areas were impacted due to changes to the Percutaneous Cardiovascular Procedures DRGs effective October 1, 2023.

 

Target Area: Surgical Complication and Comorbidity (CC) Major Complication and Comorbidity (MCC) modification as of Quarter 1 (Q1) of Fiscal Year (FY) 2024 (Q1FY2024)

 

DRGs 246 and 248 were removed and replaced with the following two new DRGs effective October 1, 2023:

DRG 321: Percutaneous cardiovascular procedures with intraluminal device with MCC or 4+ Arteries/Intraluminal Devices, and

DRG 322: Percutaneous cardiovascular procedures with intraluminal device without MCC.

 

Target Area: Percutaneous Cardiovascular Procedures modification as of Q1FY 2024

DRGs 246, 247, 248, and 249 were removed and replaced with the above 2 new DRGs listed above (321 and 322).

 

PEPPER User’s Guide Suggested Intervention for Outliers

 

While there are no new Target Areas, I want to call your attention to the Target Area Respiratory Infection. If you are a high outlier, Table 3 of the User’s Guide lists the following suggestions:

• This could indicate potential coding or billing errors related to over-coding for DRGs 177 or 178.
• Review a sample of medical records for these DRGs to determine whether coding errors exist.
• To ensure documentation supports the principal diagnosis, hospitals may generate data profiles to identify cases with the following principal diagnosis codes:
  • International Classification of Diseases, Tenth Revision, Clinical Modifications (ICD-10-CM) code J69.0 (pneumonitis due to inhalation of food or vomit)
  • ICD-10-CM code J15.69 (Pneumonia due to other Gram-negative bacteria)
  • ICD-10-CM code J15.8 (pneumonia due to other specified bacteria)

   

  The User’s Guide does not include information regarding COVID-19. Specifically, when the COVID-19 ICD-10-CM code U07.1 is the principal diagnosis, a claim will group to the DRG group 177,178, and 179. Analysis of RealTime Medicare Data (RTMD) Medicare Fee-for-Service paid claims data tells us that in the first three quarters of the CMS FY 2025 (October 1, 2024 – June 30, 2025):

• Nationwide, DRGs 177 and 178 represented 34.97% of all volume for the six Respiratory Infections Target Area denominator DRGs (see Table 1), and
• ICD-10-CM diagnosis code U07.1 represented 41.95% of all volume for DRGs 177 and 178 (see Tables 2 and 3).

 

If you are a high outlier for this Target Area, a first step may be to identify the percentage of your claims where ICD-10-CM code U07.1 was the principal diagnosis.

 

Next Steps

CMS is hosting a webinar on January 6, 2026 from 1-2PM ET to provide guidance on recent changes made to PEPPER, review reports and provide a Q&A session. You will find a link to register for this webinar in the December 18, 2025 edition of the CMS MLN Connects Newsletter. ² Also, Palmetto GBA has posted an article about the relaunch of PEPPER that includes information about accessing PEPPER and download reports. ³

 

Appendix A: RTMD Medicare FFS Paid Claims Data for Dates of Service October 1, 2024 to June 30, 2025 ⁴

Table 1: Nationwide Claims Volume All DRGs in Respiratory Infections Target Area Denominator
DRG and Description	Volume	% of Volume
177-RESPIRATORY INFECTIONS AND INFLAMMATIONS WITH MCC	89,508	28.25%
178-RESPIRATORY INFECTIONS AND INFLAMMATIONS WITH CC	21,299	6.72%
179-RESPIRATORY INFECTIONS AND INFLAMMATIONS WITHOUT CC/MCC	3,688	1.16%
193-SIMPLE PNEUMONIA AND PLEURISY WITH MCC	140,825	44.45%
194-SIMPLE PNEUMONIA AND PLEURISY WITH CC	51,734	16.33%
195-SIMPLE PNEUMONIA AND PLEURISY WITHOUT CC/MCC	9,764	3.08%
Grand Total	316,818	100.00%

 

Key Takeaway: Collectively, nationwide claims for Q1, Q2, and Q3 of FY 2025, DRGs 177 and 178 represented 34.97% of all volume for the six DRGs included in the Respiratory Target Area Denominator.

 

Table 2: DRG 177 Claims with COVID-19 Principal Diagnosis
DRG 177-RESPIRATORY INFECTIONS AND INFLAMMATIONS WITH MCC	Volume	% of Volume
U07.1-COVID-19	37,367	41.75%
Grand Total all DRG 177 claims	89,508	100.00%

 

Table 3: DRG 178 Claims with COVID-19 Principal Diagnosis
DRG 178-RESPIRATORY INFECTIONS AND INFLAMMATIONS WITH CC	Volume	% of Volume
U07.1-COVID-19	9,116	42.80%
Grand Total all DRG 178 claims	21,299	100.00%

 

Key Takeaway: COVID-19 was the top principal by volume for DRGs 177 and 178.

 

References

¹ Short-term Acute Care Hospitals December 2025 PEPPER User’s Guide accessed 12/16/2025 from https://pepper.cbrpepper.org/training-short-term-acute-care.html

 

² December 18, 2025 edition of CMS’ MLN Connects Newsletter accessed 12/18/2025 at https://www.cms.gov/training-education/medicare-learning-network/newsletter/mln-connects-newsletter-december-18-2025#_Toc216870501

 

³ Palmetto GBA Article: Relaunch of PEPPER for Short-Term Acute Care Hospitals: Published 12/19/2025 at https://palmettogba.com/jja/did/yw9jbpng4k#ls

 

⁴ RealTime Medicare Data (RTMD): https://www.rtmd.org