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Clinical Laboratories and Pathology Groups

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OIG Report Indicates Fraudulent Upcoding at Hospitals is More Prevalent than Expected, Recommends More CMS Oversight and Auditing of Medicare Spending

Oddly, as upcoding severity levels have risen, reported higher-severity inpatient hospital stays have dropped, OIG reported

Medicare upcoding fraud is a growing problem for the federal Centers for Medicare and Medicaid Services (CMS). Now, a report from the US Department of Health and Human Services (HHS) Office of Inspector General (OIG) suggests that the practice is increasingly occurring for high-severity inpatient hospital stays that account for the most expensive part of US healthcare.

The OIG’s report, titled, “Trend Toward More Expensive Inpatient Hospital Stays in Medicare Emerged Before COVID-19 and Warrants Further Scrutiny,” indicates that hospitals are increasingly billing inpatient stays at the highest severity level.

“The [COVID-19] pandemic has placed unprecedented stress on the country’s healthcare system, making it more important than ever to ensure that Medicare dollars are spent appropriately,” the OIG report states. 

The OIG website notes, “Medicare pays for many physician services using Evaluation and Management (commonly referred to as “E/M”) codes. New patient visits generally require more time than follow-up visits for established patients, and therefore E/M codes for new patients command higher reimbursement rates than E/M codes for established patients.”

The OIG describes one type of upcoding as “… an instance when [providers] provide a follow-up office visit or follow-up inpatient consultation, but bill using a higher-level E/M code as if [they] had provided a comprehensive new patient office visit or an initial inpatient consultation.

“Another example of upcoding related to E/M codes is misuse of Modifier 25,” the OIG continued. “Modifier 25 allows additional payment for a separate E/M service rendered on the same day as a procedure. Upcoding occurs if a provider uses Modifier 25 to claim payment for an E/M service when the patient care rendered was not significant, was not separately identifiable, and was not above and beyond the care usually associated with the procedure.”

How OIG Conducted the Study of Hospital Coding Practices

To perform its research, the OIG analyzed Medicare Part A claims for hospital stays for the six-year period from fiscal year (FY) 2014 through FY 2019. The OIG identified trends in billing and payments for inpatient hospital stays at the highest severity levels, as determined by the Medicare Severity Diagnosis Related Group (MS-DRG).

The OIG investigation revealed that the number of hospital stays billed at the highest severity level increased almost 20% between 2014 and 2019, while the number of stays billed at other severity levels decreased. These expenditures accounted for nearly half of all Medicare spending on inpatient hospital stays, the OIG reported.

OIG report graphic with fraudulent codes to determine payment
According to the OIG report, “Medicare pays hospitals more for beneficiaries in MS-DRGs with higher severity levels because they are typically more costly to treat.” The graphic above taken from the OIG report illustrates “how the presence of complications can affect Medicare payment for three beneficiaries with the same principal diagnosis.” (Graphic copyright: Federal Office of Inspector General Department of Health and Human Services.)

As Severity Levels Went Up, Inpatient Length of Stays Went Down

Interestingly, the average length of inpatient stays at the highest severity level decreased, and the average length of hospital stays overall remained largely the same, decreasing by just 0.1 days. In addition, the total number of inpatient hospital stays decreased by 5%.

The OIG report noted that “the increase in the number of stays billed at the highest severity level implies that beneficiaries were sicker overall. However, the decrease in the average length of stays at the highest severity level potentially undermines that idea because it is not consistent with sicker beneficiaries. Length of stay generally has a positive relationship to severity of stay; sicker beneficiaries stay in the hospital longer.”

The OIG confirmed that in FY 2019, Medicare spent $109.8 billion for 8.7 million hospital stays. Approximately 3.5 million (or 40%) of those stays were billed at the highest severity level, as determined by the MS-DRG. In addition, nearly half of the $109.8 billion spent, or $54.6 billion, was for stays billed at the highest severity level and Medicare paid an average of $15,500 per stay at that level. 

The OIG report states that “stays at the highest severity level are vulnerable to inappropriate billing practices, such as upcoding—the practice of billing at a level that is higher than warranted. Specifically, nearly a third of these stays lasted a particularly short amount of time and over half of the stays billed at the highest severity level had only one diagnosis qualifying them for payment at that level. Further, hospitals varied significantly in their billing of these stays, with some billing much differently than most.” 

The OIG study also found that over half of the inpatient stays billed at the highest severity level achieved that level due to only one diagnosis. According to the OIG, the severity of an inpatient stay depends on a patient’s secondary diagnosis and it only takes one secondary diagnosis to propel a patient into the highest severity level. The OIG determined that if the diagnosis was inaccurate or inappropriate, higher payments would not be warranted. 

OIG Recommends CMS Conduct Targeted Reviews

The report found that the most frequently billed MS-DRG in FY 2019 was septicemia or severe sepsis and that hospitals billed for 581,000 of these stays, for which Medicare paid $7.4 billion. In addition, kidney and urinary tract infections, pneumonia, and renal failure were among the most common conditions to have a complication that led to a high severity classification. 

In its report, the OIG recommended more oversight from CMS to ensure that Medicare dollars are spent appropriately. The OIG also suggests that CMS conduct targeted reviews of MS-DRGs and hospital stays that are vulnerable to upcoding, as well as the hospitals that frequently bill them. 

Clinical Laboratories Are Forewarned

Medicare audits continue to be more detailed and rigorous and all healthcare providers—including clinical laboratories and anatomic pathology groups—should be prepared to present all necessary documentation to support claims if and when they are audited. 

Improvements in software, machine learning, and artificial intelligence (AI) give Medicare officials and the OIG powerful tools to spot questionable provider billing. This includes medical laboratories whose billing patterns could arouse suspicions and trigger audits.

Upcoding is a long-standing problem for the Medicare program. What is changing is that federal officials now have better tools and resources to use in identifying patterns of upcoding that fall outside accepted parameters.

—JP Schlingman

Related Information:

OIG: Hospital Stays Getting More Expensive for Medicare, Raising Upcoding Concerns

Hospitals Likely Upcoding Severity Levels for Medicare Patients, OIG Says

More Hospitals Billing at Highest Severity Level; HHS Suggests Targeted Reviews

Trend Toward More Expensive Inpatient Hospital Stays in Medicare Emerged Before COVID-19 and Warrants Further Scrutiny

OIG Report Warns of Increased Hospital Upcoding

Hospitals Beware: New OIG Report Suggests Rampant Inpatient Upcoding

Hospitals Overbilled Medicare $1B by Upcoding Claims, Inspector General Finds