Hospital Costs and Coding

As risk-adjusted payments have proliferated, so have the incentives for providers and health plans to maximize coding of patient diseases to increase reimbursement.   Reports presented to the Massachusetts Health Policy Commission give some insight into this behavior and its effects.   (Mass. Report)    Several of the slides deal with the decline of community hospitals in Massachusetts and the rise of consolidated mega-systems, which of course has led inevitably to much higher prices.  The share of volume in the top 5 hospital systems in the state increased by 18% from 2010 to 2017, while the share of independent community hospitals declined by 16%.  The large systems are acquiring physician practices, which directs even more volume to their high-priced facilities.  The large systems use their market power to force commercial payers to use their hospitals, which causes revenue declines and financial stress at community hospitals.  Another trend identified in the report is increased reported patient acuity, which means that at least according to the diagnoses codes the hospitals are submitting, the patients they are treating are sicker.  As the report indicates, this is largely due to revenue maximization efforts by the hospitals, not to real changes in patient condition or needs.  The hospitals are finding lots of money to spend on hiring people to upcode, but can’t seem to find funds to do real quality improvement.

Since 2013, hospital spending in Massachusetts increased by 11% even while volume declined by 13%.  You can do the math to figure out how abusive price increases have been.  But it is not just raw price increases, the hospitals are also profiting from risk-adjusted payments that are jacked up by upcoding of patient acuity.  Commercial risk scores rose 3% a year on average, but some plans have much higher increases, like Harvard Pilgrim at almost 5%.  Gee, people in Massachusetts sure are getting a lot sicker really fast.  Risk score growth accounts for almost three-fourths of all spending growth.  This upcoding is pervasive in the large health systems, with ones like the supposedly prestigious Partners one having the highest acuity increases.  The report includes several anecdotes from those in the hospital industry acknowledging the effort they put toward upcoding (and lets don’t even try to dignify it by calling it appropriate coding).  At the same time risk scores are rising, other measures of actual clinical need show no change.  So, no, people aren’t sicker.  These practices also heighten the gap between the large systems, which can “invest” in these upcoding efforts, and the community hospitals which can’t.  What is occurring here is outright fraud–portraying people as having greater medical needs than they really do.  Lets hope the Massachusett’s policymakers have the courage to take strong steps to address what is occurring in the state–imposing substantial financial penalties on these upcoding hospitals and greatly adjusting their reimbursement downwards, while providing enhanced payments to the lower-priced community hospitals.  And other states should assume that the same abuses are occurring there.