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OIG: Hospitals are upcoding severity levels for Medicare patients

Stays at the highest severity level are vulnerable to inappropriate billing practices, OIG says.

Jeff Lagasse, Associate Editor

Inpatient hospital stays have become more expensive to the Medicare program. It's a trend that began even before the COVID-19 pandemic.

A new report from the Department of Health and Human Services' Office of the Inspector General uncovered a possible reason: Many hospitals are increasingly billing for inpatient stays at the highest severity level, which is also the most expensive.

In an analysis of Medicare Part A claims from 2014 to 2019, the OIG found that the priciest stays – those involving a serious medical complication – rose about 20%, with the price gap between the highest and lowest Medicare Severity Diagnosis Related Group for an illness like pneumonia settling at $4,175 vs. $8,505. That's more than double over the five-year period.

Ultimately, this accounted for nearly half of all Medicare spending on inpatient hospital stays. The number of stays billed at each of the other severity levels decreased. 

At the same time, the average length of stay decreased for stays at the highest severity level, while the average length of all stays remained largely the same. 

The problem, according to OIG, is that stays at the highest severity level are vulnerable to inappropriate billing practices such as upcoding, the practice of billing at a level higher than is warranted. 

Specifically, nearly a third of these stays lasted a particularly short amount of time. More than half of the stays that were billed at the highest severity level had only one diagnosis qualifying them for payment at that level. Hospitals also varied significantly in their billing of these stays.

WHAT'S THE IMPACT?

Hospitals billed Medicare for 8.7 million inpatient hospital stays in FY 2019. About 40% of them – 3.5 million stays – were billed at the highest severity level. These are generally stays for which the hospital bills for at least one major complication.

Medicare spent $109.8 billion for inpatient hospital stays in FY 2019. Nearly half of that amount, $54.6 billion, was for stays billed at the highest severity level. Medicare paid an average of $15,500 per stay billed at the highest severity level.

Medicare payments for stays at the highest severity level increased steadily in each of the six years examined. The increases amounted to more than $10 billion, or 24%. Overall, Medicare payments for inpatient hospital stays increased by 8% during the same time period. 

The increase in the number of stays billed at the highest severity level would ordinarily imply that beneficiaries were sicker overall. But the decrease in average length of stay potentially undermines that idea since it's inconsistent with sicker beneficiaries. Length of stay generally has a positive relationship to severity of stay; sicker beneficiaries stay in the hospital longer. 

On top of that, the average length of all stay remained largely the same from 2014 to 2019, which suggests that beneficiaries in general were not sicker in FY 2019 than they had been in past years. 

Given the decrease in the average length of stay at the highest severity level and the indication that beneficiaries in general were not sicker, the increase in stays billed at the highest severity level likely was driven by changes in hospital billing practices rather than by changes in the beneficiary population, according to the OIG. 

This is significant, because Medicare pays hospitals for each inpatient stay based on the assigned MS-DRG, not on the amount of time the beneficiary spends in the hospital. 

Almost 30% of stays billed at the highest severity level, almost a million of them, lasted a particularly short amount of time. Specifically, they were more than 20% shorter than the mean length of stay for the assigned MS-DRG. 

Shorter stays are not inherently problematic, but the number of these stays raises questions about the accuracy and appropriateness of the complications billed by the hospital. Although the complications billed suggest sicker beneficiaries, the shorter lengths of stay point to beneficiaries who are less sick. That suggests potential upcoding on the part of hospitals. 

Collectively, Medicare paid hospitals about $14.5 billion for stays that lasted an especially short amount of time. That's $4.9 billion more than it would have paid if these stays had been billed at the next lower severity level, meaning Medicare potentially overpaid hospitals by a significant amount if even a fraction of these stays were billed inappropriately.

THE LARGER TREND

OIG recommends a number of actions. The Centers for Medicare and Medicaid Services, it said, should conduct targeted reviews of MS-DRGs and hospital stays that are vulnerable to upcoding and the hospitals that frequently bill for them.

Specifically, CMS should target stays at the highest severity level with certain characteristics, such as those that are particularly short or that have only one major complication. 

CMS should also consider conducting more in-depth reviews of the medical record that look for inconsistencies in diagnoses that call into question the appropriateness of the coding.

In addition to using the results of the reviews to recoup overpayments, CMS should use them to educate hospitals about appropriate billing, modify coding policies and consider whether further steps should be taken to disincentivize inappropriate billing, the OIG said.
 

Twitter: @JELagasse
Email the writer: jeff.lagasse@himssmedia.com