Healthcare Matters

Add “upcoding” to the long list of perverse incentives created by fee-for-service medicine that are undermining efforts at controlling health care costs in this country. The latest example came to light this week in a front page New York Times exposé of billing practices at HCA, the Florida-based chain of 163 for-profit hospitals. In 2008, the company introduced a new coding and billing system that over a two year period tripled the share of emergency room visits that received the two highest reimbursement rates paid by Medicare.

In other words, almost overnight, people visiting its emergency rooms got a lot sicker. Numerous government reports and whistleblower lawsuits refer to the practice as upcoding. In 2000 HCA paid $840 million – at the time the largest payment for alleged fraud in U.S. history – to settle claims it had overcharged Medicare for upcoding pneumonia patients.While the story focused on one highly visible chain – HCA was founded by relatives of former Senator Bill Frist of Tennessee, was once run by Florida Governor Rick Scott and is currently partly owned by Bain Capital, Mitt Romney’s former firm – the data in the story suggest HCA was hardly alone. Over those same two years, which coincided with an economic slump that curtailed rapid growth in health care spending, the percentage of emergency room patients receiving Medicare’s top two billing codes went from 58 percent to 74 percent – just two percentage points less than at HCA.

A company spokesman told The Times HCA was aware that it might be putting too many patients in the higher paying categories. So it adjusted its coding to, as the paper put it, “bring the company in line with the national average.”

Upcoding in HCA’s emergency rooms appears typical of what takes place in many corners of U.S. medicine whenever final fees depend billable services after a diagnosis. Since a more serious diagnosis allows hospitals and other providers to deploy a greater number of more costly services, the system creates a powerful incentive for providers, especially those that operate as for-profit businesses, to shift patients into those sicker categories. “This is another example of how the way we pay for medical care is very vulnerable to profit maximization by providers,” said Paul Ginsburg, president of the Center for Studying Health System Change. “It’s a fee-for-service issue.”