Hospital Upcoding Behind Increase in Inpatient Spending in MA

Higher prices and hospital upcoding drove the nearly 11 percent increase in commercial inpatient spending in Massachusetts, according to a new preliminary report from the Health Policy Commission (HCP).

The state’s healthcare watchdog reported at their September 11 public meeting that commercial inpatient spending grew significantly from 2013 to 2018 despite an almost 13 percent decrease in volume.

Diving deeper into the trend, HCP researchers found that inpatient spending growth was caused by both increasing prices for a hospital stay, which rose 5.2 percent during the period, and increasing acuity of inpatient stays.

The preliminary findings from the report set to officially publish next year supports research that has shown hospital price increases are behind greater healthcare spending. For example, UnitedHealth Group recently found that hospital inpatient prices rose 19 percent from 2013 to 2017, while prices for the same services set by physicians increased just ten percent. A Health Affairs study published earlier this year also found that hospital prices increased significantly faster than physician prices for both inpatient and outpatient care from 2007 to 2014.

But the researchers in Massachusetts were more preoccupied with the notion that hospitals are increasing the acuity of their stays to maximize reimbursement.

HCP found that the average patient risk score for the state’s commercially insured individuals increased by 11.3 percent during the period, which is the equivalent of an additional 413,000 commercially insured Massachusetts residents having diabetes with complications or 888,000 having cerebral palsy, HCP reported.

The rate of Massachusetts residents getting sicker is not possible, said Don Berwick, MD, a commissioner at the hearing and former CMS Administrator.

If patients were getting sicker, the data would show other indicators of clinical severity emerging. But HCP data did not show that. Among commercially insured patients with chronic obstructive pulmonary disorder (COPD), for example, intensive care unit and cardiac care unit days decreased seven percent from 2013 to 2017 while length of stay stayed the same despite a 20 percent increase in diagnosis-related group (DRG) weight.

The data indicates that hospitals are maximizing coding rather than seeing sicker patients, David Auerbach, director for research and cost trends at HCP, said at the meeting.

“This is a known phenomenon,” he explained. “People refer to revenue cycle management and case mix improvement. This is something hospitals are doing. There are industries and consultants who have formed to take advantage of these higher payments and higher severity levels.”

EHR systems also give hospitals the capability to maximize coding to earn higher payments, Auerbach stated. The systems can mine patient medical records to identify diagnoses and code those to maximize reimbursement, he explained.

Hospitals admit to maximizing coding. Auerbach cited a job posting from an unnamed Massachusetts hospital for a clinical document improvement specialist. The hospital sought a registered nurse to “…identify…diagnoses including conditions qualifying as…major complications that impact severity of illness and quality measures” and other “…areas of opportunity.”

One hospital CEO also told HCP behind closed doors that, “It’s far easier to increase margin by increasing coding than by reducing costs.” A newly hired CEO of a large health system also said, “Though I’d love to work on care delivery reforms and population health, my initial focus has to be entirely on coding maximization.”

Hospital upcoding benefits the bottom line. In Massachusetts, Medicaid reimbursement for a hospital stay involving a patient with COPD coded at the highest severity level was $16,500 in 2017, almost $12,000 more than a stay coded at the lowest severity level and over $8,800 more than the next level down, HCP reported.

But the trend spells trouble for the healthcare industry at large, the commissioners agreed.

Increased coding intensity adds costs for patients and payers, the preliminary report showed. For example, Massachusetts incurred about $280 million more in inpatient Medicare costs and up to $300 million more in inpatient commercial costs in 2017 due to increases in inpatient acuity, HCP reported.

The ability of some hospitals to use their EHR systems to maximize coding can also exacerbate disparities in financial well-being among hospitals, HCP stated. Some hospitals have more resources to invest in this activity compared to others and if payers end up reducing their base rates in response, the hospitals that are not maximizing coding will be left behind, Auberach explained.

The Massachusetts Hospital Association said in a statement on its website that the information presented by HCP last week is preliminary and doesn’t address other factors that might have impacted acuity during the period, such as the introduction of ICD-10 coding, which went into effect in 2015 to improve the ability to document severity of illness.

“The expansion of electronic health records and adoption of ICD-10 has enabled healthcare providers to more accurately capture patient acuity and previously under-reported conditions,” the association stated. “When coupled with policy-driven efforts to move lower-acuity patients to outpatient settings, and the effect of the aging population, it is likely this preliminary reporting simply reflects the results of improved reporting and data. However, where appropriate, we will always work collaboratively with the HPC on improvements to better serve patients.”