Medicine & Health

Upcoding continues to inflate reimbursement, industry overseers say

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Massachusetts hospitals continue to bill insurers for more complex care even though data indicate that patients aren’t sicker, mirroring a nationwide trend, according to a new report.

Hospitals coded about 2 in 5 patients at the highest severity levels—severity levels three and four—in 2020, up from about 1 in 4 patients in 2013, according to the Massachusetts Health Policy Commission’s Market Oversight and Transparency Committee report issued Wednesday, which excluded COVID-19 hospitalizations. But there hasn’t been a corresponding increase in the prevalence of chronic disease, age or life expectancy that would explain that increase, data from the Center for Health Information and Analysis show.

“We’ve done a number of analyses to see if there are any population-wide factors that could be explaining the risk score growth, and there really aren’t,” David Auerbach, senior director of research and cost rends at the Massachusetts Health Policy Commission, said during the market oversight meeting Wednesday, noting that the aging population only explains about 0.5% of the 11.7% risk score increase from 2013 to 2018. There has been no change in life expectancy or the overall burden of chronic disease, he added.

“To put that 12% into context, that is as if suddenly almost a million Massachusetts residents showed up tomorrow with something as horrible as cerebral palsy,” Auerbach said. “There’s no way that’s reflecting the actual increase in the health status of the state’s population. We’ve documented before that this is really about coding behavior.”

Previous HPC reports have shown similar spikes in coding severity without increases in length of stay or intensive care volumes, suggesting that hospitals are upcoding. There’s a similar trend among Medicare beneficiaries, according to a February report from HHS’ Office of Inspector General.

The number of inpatient stays billed at the highest severity codes increased nearly 20% from 2014 to 2019 while the average length of stay decreased for those cases, the OIG’s analysis of Medicare Part A claims revealed. Seemingly unjustified coding severity increases cost taxpayers nearly $5 billion over that span, the government watchdog estimated.

Higher risk scores have allowed Massachusetts hospitals and payers to skirt oversight, HPC commissioners said as they push for stronger enforcement mechanisms. For instance, two-thirds of 71 unadjusted payer-provider contracts over one year exceeded Massachusetts’ cost growth benchmark. But after adjusting for acuity, only 17% triggered a referral to the Health Policy Commission.

“I wonder whether we could learn more by digging in a little bit about the consultants being used by both providers and plans to increase their codes,” asked Stuart Altman, chairman of the HPC.

Hospitals claim that they have “under-coded” for years and the recent increase in coding severity reflects patients’ acuity and complexity more accurately. In response to a previous HPC report, the Massachusetts Hospital Association said that the expansion of electronic health records and the implementation of ICD-10 has allowed healthcare providers to “more accurately and granularly capture patient acuity and previously under-reported conditions.”

Hospitals have been hiring more revenue cycle management specialists and coding experts.

One large Massachusetts health system has been hiring more administrative staff to work on “accurate” coding strategies, an executive told David Seltz, executive director of the HPC, a few years ago.

“He said that the (return on investment) for continuously hiring (more administrative staff) didn’t have an endpoint—the more you hired, the more revenue you could generate,” Seltz said. “His analysis was that there was no peak.”

The legal system has generally given some slack to providers when it comes to “coding optimization” versus fraud. Baylor Scott & White won a False Claims Act case in 2019, when a federal court ruled that the health system’s alleged upcoding scheme was consistent with the government’s own “encouragement” of hospitals to use the billing codes to glean as much reimbursement as possible from Medicare.

The court cited a CMS regulation that stated that the agency “does not believe there is 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.”

As for Massachusetts, the commission will continue to hone guidelines that seek to hold the highest-cost providers and payers more accountable as state health expenditures continue to exceed its cost growth benchmark. The HPC aims to bolster its performance improvement process to rein in repeat offenders and constrain excessive hospital price increase.

More states are implementing cost growth benchmarks and will likely continue to follow Massachusetts’s example.

The commission’s performance improvement process carries a maximum penalty of $500,000. But that is relatively low given that a single provider’s commercially insured patients may have spending growth over one year that exceeds the benchmark by 10s of millions of dollars, said Katherine Mills, senior director for the HPC’s Market Oversight and Transparency Committee.

Commercial spending per hospital stay in Massachusetts is growing more than twice as fast as it is in Medicare. That is largely due to price increases, not a change in utilization, commissioners said.

“The (performance improvement process) is not really designed to address one of biggest drivers of healthcare spending in the state—provider prices,” Mills said. “That is why we think it’s important to couple improvements to the benchmark accountability process with efforts to specifically address provider pricing, both to reduce spending growth in the state but also to address longstanding disparities in provider price variation.”


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