Beyond the Byline: Upcoding could explain why hospitals are increasingly billing for the most complex treatment

Modern Healthcare rules and regulations reporter Mike Brady and hospital operations reporter Alex Kacik discuss the latest data suggesting that patients aren’t sicker, contrary to hospitals’ billing practices.

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Music Credit: Coffee by Cambo

Michael Brady: Hello, and welcome back to Modern Healthcare's Beyond the Byline, where we offer behind-the-scenes look into our reporting. I'm your host, Michael Brady. And I write about rules and regulations for Modern Healthcare. I'm talking with our usual host, Alex Kacik, about his latest story on upcoding. So Alex, you reported on an inspector general report that found that hospitals are increasingly billing Medicare for the most complex treatment, even though data indicate that patients aren't getting any sicker. What did you make of the findings?

Alex Kacik: Hey Mike, so the OIG's data resembles other research that I've been reporting on for a couple of years now, and I thought those similarities were interesting. So the government watchdog agency found that the severity of stays that they're billing Medicare for is getting higher while the lower severity stays are getting lower. So that essentially means that you come in with a condition, maybe a respiratory condition, and you have one other major complication that could be like sepsis or another serious condition. And that will bump up reimbursement by sometimes $3,000 around that range, depending on what they're billing at. But they tried to determine what's driving that increase in the severity of coding. The OIG and other agencies have tried to determine whether patients are actually sicker or that the coding protocols are just getting more sophisticated, and hospitals are investing more in these teams that are trying to optimize a reimbursement.

And they looked at length of stay because if the patients are sicker, that implies they're staying longer, but the OIG found the opposite, that the length of stay for the most complex cases is decreasing. And then if that's the case, you have taxpayer dollars to the Medicare program that could be funding these inappropriate billing schemes. And as for the scope of it, they looked at Medicare Part A claims and Medicare paid hospitals approximately $14.5 billion for stays that lasted a relatively short amount of time from their conclusions from 2014 to 2019. And that's almost $5 billion more than it would've paid if those cases had been billed at the next lower severity level. It's interesting because you have two sides of this. You have the hospitals are saying we've undercoded for years and this is a reflection of patient acuity rising. While you have some of these watchdog agencies saying that this is improper and they're just trying to get more bang for their buck.

Michael Brady: And so how did OIG make its case? The watchdog group offered an example with a hospital that billed Medicare for heart failure and shock with a major complication though the average length of stay for those types of cases is four days, it lasted only two. If Medicare was billed for only a minor complication, the payment would have been closer to $6,200 instead of $9,100.

Alex Kacik: Yeah. So they looked at these secondary diagnoses. And like I said, like sepsis can be one major complication. There are other issues that can bump up the severity levels. And they had offered one example where a hospital submitted a diagnosis for pneumonia and 24 secondary diagnoses, 23 of which were either minor complications or not complications at all. And so there's almost a $3,000 difference as you noted between the highest severity and next lowest severity codes. So they found that 54% of the bills of the most complex treatment reached that level because of only one major complication. So typically, you would expect more major complications for this type of severity code. And the fact that the secondary ones, in this case, were either minor or not complications at all. And they can submit up to two dozen secondary complications when they hit that mark. Yeah. They said that these types of cases are most vulnerable to upcoding.

Michael Brady: And so what have hospitals said about this? What's their reasoning for why this is going on?

Alex Kacik: So you have hospitals who are saying that patients are getting sicker and we haven't had a sophisticated way to note that, document that, and be reimbursed for patients who are coming in with more complicating conditions. And for the record, the American Hospital Association didn't have a formal reply to this data, but I reported on a similar study from the Massachusetts Health Policy Commission and found a similar correlation between coding severity and length of stay. And the State Hospital Association told me that the expansion of the electronic health records, implementation of ICD 10 coding system has allowed healthcare providers to more accurately and granularly capture patient acuity and previously under-reported conditions. So ever since that, I've been trying to look around at this issue and talk to folks about this. Those who are defending the hospitals say that they've undercoded for years and the rise of coding severity is natural as the population ages.

And they also say that length of stay isn't a proper measure of acuity because technology like the Hospital Association was saying, technology has gotten better and so folks are getting out of the hospital quicker, no matter how sick they were. But folks on the other side of this are saying that the higher severity coding is a product of the EHR, not a patient's being sicker. You just have a couple extra clicks and reimbursement can increase by thousands of dollars. As for the Hospital Association's argument, upcoding practices precede the advent of EHRs in the emphasis on trying to get folks into outpatient settings. Prior to the EHR, many charts were handwritten and weren't documented well. So that resulted in presumptive coding that was based on service provider without regard for documentation, but either way, there seems to be some sort of legal gray area here. And after the story, a healthcare economist was looking into this issue and we're trying to find some data together. So I'm curious to see where that goes.

Michael Brady: One of the things you mentioned is the improvement in medical technology and how that could contribute to a shorter length of stay. But I'm wondering, a lot of health systems haven't really adopted electronic health records until relatively recently, especially physician practices, especially after the ACA. Has a medical technology improved that much over that period? Or do you think it's sort of, that's actually lagged behind the adoption of EHRs?

Alex Kacik: Yeah. I mean, that's a good question. It's hard to pinpoint how advances in technology have translated to operations and how that transition is unfolded. And we know length of stay on average is decreasing in most cases, and that probably can be attributed to streamlining operations, adopting best practices as the technology gets more sophisticated. And their know how on treating more advanced diseases, providers can attack them better. But it's hard to say whether this phenomenon is happening because of the EHR and whether or not the medical technology has advanced that much to account for these changes in billing practices. But definitely some of these whistleblower cases may shine more light here through the discovery process.

Michael Brady: And so you mentioned the Baylor Scott and White case from last year that seemed to justify hospital's recent billing practices. And a federal court said that the health system's alleged upcoding scheme was consistent with the government's own encouragement of hospitals to use the billing codes, to get as much reimbursement as possible for Medicare. How do you think that could influence fraudulent practices?

Alex Kacik: So that case on its own seems to give hospitals a bit more flexibility. Like I said, it'll probably take other cases to further delineate that line between coding optimization and fraudulent billing practices. But in the Baylor case, the whistleblower said that, there was a particular physician who was telling other doctors to use secondary codes to increase reimbursement, but also to capture the severity of the patients that were coming in. And the secondary codes, this is what the OIG report was really getting at. He said that that can be an area where if you only see one that's a major complication that could be more vulnerable to improper billing practices.

The judge said there was nothing to indicate that the physicians suggesting to others to offer secondary codes that wasn't justified. But the judge quoted an old CMS regulation that stated that the agency does not believe there's anything inappropriate, unethical, or otherwise wrong with hospitals taking full advantage of coding opportunities to maximize Medicare payment that is supported by documentation in the medical record. And I think that latter part is the most important and what sources have been telling me. If they have the documentation to prove that, and I don't think the OIG gets into the medical record as much because Medicare only gets these codes. So it doesn't typically come with the documentation to support them. Once they dive deep into the medical records to suss out whether or not they'd had the documents to prove that patients were actually sicker, then that'll be a good indicator.

Michael Brady: Well, simply regulators have become more vigilant regarding potential upcoding schemes in hospital setting and insurers inflating risk scores for Medicare advantage treatments. Can you talk about that a little bit?

Alex Kacik: Yeah. This has been on the radar as you've reported, Mike, on MedPAC, the Medicare Payment Advisory Commission and the OIG, this isn't their first report on it. But throughout the 2000s, they've been saying that Medicare advantage program in particular can lend itself to some inflated risk adjustment scoring. And then OIG has been warning folks about the evaluation and management services that are also vulnerable there. We've seen a few big cases here. In 2019, Sutter agreed to pay $30 million to settle allegations that they inflated diagnosis codes for Medicare advantage beneficiaries. Prime Healthcare, in 2018, paid $65 million to also resolve upcoding allegations.

Emergency services had been another area of concern. There was a Medicare audit in 2012 that found that emergency departments in Texas and Oklahoma overbuild for about $45 of every $100 paid for ED services because coding was higher than reasonable and necessary to adequately care for patients needs. Envision also agreed to pay about $30 million in 2017, their subsidiary EmCare, to resolve claims that they had admitted patients to the hospital when they should have either been under observation or gone to an outpatient facility. So it seems to be that there's growing evidence and some precedent here to try to further figure out on what the difference is between proper coding and optimization versus fraud.

Michael Brady: Is there any evidence that these enforcements actions, in terms of fining providers for sort of this fraudulent type of up-coding that it actually deters them from doing so? Or is it more of a cost of doing business?

Alex Kacik: I mean, just looking at these past settlements that I went through, Sutter paying $30 million to settle allegations. They're the most dominant system in Northern California. That's a blip in the radar. They're going through other issues with antitrust allegations that may get them to change some of their practices. But to your point, Mike, I think, yeah, some of this definitely is seen as a cost of doing business as it doesn't seem like the repercussions are enough to change behavior on a certain level. I'm sure it's hard to, I don't want to over-generalize there either, but in some cases, I'm sure it could be a deterrent, but for these bigger systems, at least those financial penalties don't amount to a whole lot.

Michael Brady: So what did the OIG recommend to prevent upcoding?

Alex Kacik: So they recommended to CMS that they do targeted reviews through the medical record of the highest severity stays and the hospitals that frequently bill for them because they found variation in billing practices. Some hospitals were more prone to bill more for more complex treatment, particularly when they only list one major complication. So they're saying, "Focus on those, do a targeted audit of that and see what you get." CMS said, "Well, I don't think we're going to do that yet." They rejected it. And they said that there needs to be a bit more conclusive evidence, linking billing changes and upcoding, although it said, the agency said that it would share the findings with its contractors and keep an eye out for red flags.

Michael Brady: All right. Well, thanks Alex, for taking the time to chat today. I really appreciate it. I think we've all learned a lot about upcoding. Look forward to seeing more of your reporting.

Alex Kacik: Hey Mike, thanks so much. I appreciate it.

Michael Brady: Thank you all for listening. If you'd like to subscribe and support our work and the detailed data analysis that goes into the kind of business reporting that Modern Healthcare does, there's a link in the show notes. You can also subscribe to Beyond the Byline wherever you get your podcasts. You should stay connected with our work and follow myself, Alex, and Modern Healthcare on Twitter and LinkedIn. We appreciate your support.