Hospitals Under Scrutiny For Billing Practices That Cost Medicare $11 Billion

Below, a guest-post from Naomi Freundlich. This post originally appeared earlier this week, on Reforming Health , Naomi’s new  blog. (Many Health Beat readers will remember Naomi as Health Beat’s associate editor back when we were both working for The Century Foundation.)  

If you or a loved one has been to the emergency room lately you might want to request an itemized bill. The highest charge will likely be for what is known in billing parlance as “evaluation and management” services. These services include taking a patient history, performing an initial exam and directing treatment. How much the hospital charges will depend on an all-important choice of billing code—there are a range of codes that coincide with factors like the severity of the problem, underlying health issues of the patient and in some cases, time spent managing this care.

Why take a close look at these charges? According to a new investigative report from teh center for Public Integrity  providers have been increasing their use of billing codes that correspond with care for the most seriously ill or injured patients, adding $11 billion or more to the fees they receive from Medicare over the last decade.

According to the CPI report; “Use of the top two most expensive codes for emergency room care nationwide nearly doubled, from 25 percent to 45 percent of all claims, during the time period examined. In many cases, these claims were not for treating patients with life-threatening injuries. Instead, the claims the Center analyzed included only patients who were sent home from the emergency room without being admitted to the hospital. Often, they were treated for seemingly minor injuries and complaints.”
A similar analysis by the  New York Times  that looked at Medicare data from the American Hospital Directory found that “[h]ospitals received $1 billion more in Medicare reimbursements in 2010 than they did five years earlier, at least in part by changing the billing codes they assign to patients in emergency rooms.” These codes refer to what are called “evaluation and management services” and are separate from physician fees and charges for specific tests and treatments.

What is causing this steady rise in hospital Medicare costs? It depends on whom you talk to. Providers insist that they are seeing a greater influx of sicker patients in the ER requiring a higher intensity of care, and also that the new electronic health records and billing systems allow them to provide a more accurate record of all the care provided for these complicated patients. In other words, in the past, hand-written records routinely underestimated the quantity and cost of care provided for many ER patients.

Both the CPI investigation and the Times analysis suggest far different drivers of rising ER costs, including the notion that some providers are “gaming” the system by charging for more extensive and costly services than are actually delivered. Called “upcoding,” the practice involves increased use of billing codes that represent evaluation and management fees usually reserved for the most complicated cases. Combine that with what CPI sees as “lax government oversight, confusion about proper billing standards, and widespread payment errors that have plagued Medicare for more than a decade” and you’ve got a serious problem.

The Times analysis points to more widespread use of electronic health records as facilitating “upcoding” and subsequent cost increases. “Some of these programs can automatically generate detailed patient histories, or allow doctors to cut and paste the same examination findings for multiple patients — a practice called cloning — with the click of a button or the swipe of a finger on an iPad, making it appear that the physicians conducted more thorough exams than, perhaps, they did,” according to the Times.

In fact, data reveals that hospitals receiving federal incentives for putting electronic records systems in place had a  47% increase in the number of ER claims coded at the highest levels. Meanwhile, hospitals that didn’t get these federal incentives (and therefore were assumed to not have full systems in place) saw an average 32% rise in claims assigned the more costly billing codes.

This may seem counterintuitive; the government and IT groups have encouraged hospitals and physician practices to adopt EHRs to better coordinate care, improve quality, avoid duplicative testing and, ultimately, save money. These are undoubtedly important benefits and no one (beyond a few disgruntled traditionalists, perhaps) is suggesting that hospitals or doctors return to hand-written notes and paper billing systems. What the Times and others are suggesting is that without proper oversight from CMS, some providers will abuse the system, billing Medicare for more diagnoses and higher levels of emergency care to increase profits. As Donald Berwick, former head of the Centers for Medicare and Medicaid Services (CMS) told CPI, hospitals are “learning how to play the game.”

When questioned about the steady increase in ER costs,  a spokesperson for the Centers for Medicare and Medicaid Services (CMS) told a Center reporter that the fees “may reflect more accurate coding by hospitals and physicians rather than upcoding. Indeed, the agency said its advisory panel, which is made up of physicians, hospital administrators and other hospital financial staff, told CMS that the rise in billing is a result of hospitals getting better at capturing their costs.”

On Monday, the Obama Administration had a different response. In light of the recent media investigations, Kathleen Sebelius and Eric Holder sent a strongly-worded letter  to the CEOs of the five major hospital trade associations, alerting them to the repercussions of “gaming” the Medicare system by “‘cloning’ of medical records in order to inflate what providers get paid” and “using electronic health records to facilitate ‘upcoding’ of the intensity of care or severity of patients’ condition as a means to profit.” The administration will not turn a blind eye to health care fraud of any kind, the letter warned, with law enforcement agencies investigating and prosecuting these kinds of fraudulent practices; “False documentation of care is not just bad patient care; it’s illegal.” Finally, the letter added, “CMS will consider future payment reductions as warranted” if inappropriate increases in “coding intensity” are uncovered.

This pointed missive, along with the surge in media attention to the otherwise arcane world of billing codes, has provoked a response from at least two of the hospital trade groups. The CEOs of the Association of Academic Health Centers and the American Hospital Association sent letters to HHS and the Department of Justice agreeing that fraud and abuse “should not be tolerated.” But both groups pointed out that hospital groups have being asking CMS since 2001 to establish an independent panel to develop and implement national guidelines for evaluation and management codes used in emergency rooms and outpatient clinics. Without this national standard, most hospitals have developed their own guidelines for payment codes used to bill for these kinds of services. The task has become more complicated, they say, since the advent of EHR systems.

AHA President Rich Umbdenstock wrote  that CMS payment rules “are highly complex and the complexity is increasing.” He continues; “We have made numerous requests to [CMS] to develop national guidelines for the reporting of hospital emergency department (ED) and clinic visits. This is a request that the AHA has made to CMS 11 times (starting in 2001) since the outpatient prospective payment system (OPPS) was first implemented.”

The hospital groups also complain about the intensive crackdown on fraud by CMS contractors who stand to keep a portion of what they collect from hospital billing errors. Umbdenstock added: , “No one questions the need for auditors to identify billing mistakes, but the flood of new auditing programs, such as Recovery Audit Contractors, [Medicare Administrative Contractors] and others, is drowning hospitals with a deluge of redundant audits, unmanageable medical record requests and inappropriate payment denials.”

I get what they are saying; it’s hard to practice medicine when you are buried in requests for data and records. And yet I think everyone will agree that the rapid rise in costs associated with this nebulous area of “evaluation and management” is a real problem for Medicare—and also for private insurers and consumers. Clearly there is a compelling need for standardized, national billing codes for ER and clinical services of this kind. But putting the blame on EHRs or an undocumented influx of sicker patients into hospital emergency rooms are unconvincing excuses for “upcoding” and other abuses of the system. Until now, these kinds of practices have become too easy and perhaps too tempting to avoid.

So yes, confusion, complexity and lax oversight may be contributing to rising hospital and outpatient costs. But in the end, providers must be held accountable for those who are gaming the system and siphoning billions of dollars from an already over-stressed healthcare system.




5 thoughts on “Hospitals Under Scrutiny For Billing Practices That Cost Medicare $11 Billion

  1. This is an excellent post on ‘code creep’, which has been ramping up our health care costs for years and little understood outside the industry itself.

    Consultants make millions showing health care providers how to manipulate the various fee schedules

    The most extreme solution to this practice would be global budgets, where providers get a lump sum every years no matters what their case mix turns out to be.
    This seems to work just fine for fire departments all over the world.

    That would be incredibly difficult to implement in a country as varied and large as America. What Germany used to do for hospitals was to arrive at a single per diem rate, based on an overall budget. I am not sure if they still do that.

    My impression is that health systems in other nations deal better with code creep than we do. I would be curious to any opinions on:

    whether that is true;
    if so, do they have simpler schedules’
    is there tighter enforcement?
    are their providers more honest?

  2. All health care agents are as honest or dishonest everywhere. The incentive models explicit or implicitly embedded in health care systems promote different behaviors, prevent more or less effectively the control and punishment of corruption and this all result in a cost and outcome that are the quality metrics of the health care systems.

    The most important health care agents are the government, the payers, the care giving institutions, the medical industry, the lawyers the health care professionals and the users. The health care systems provide an ecosystem for them to interact with the purpose of promoting health at the best cost through a set of more or less complex and effective incentives. 

    The master Michael Porter has produced great literature on this key subject. I refer you to his classic work “Redefining Health Care”. I cannot add anything to it. 

    If you fill a table of cost of health care as a % of GDP and life expectancy across the geographies that are interesting for the comparison, not long ago the US was close to double in cost to the next country and the life expectancy was at the level of Mexico, well down the ranking. The incentive model is clearly toxic, long ago. It has created during long years a monumental cost structure that nourishes a toxic competition of the core agents for the shrinking profit and it promotes the growth of corrupt attitudes like the one described in this article and calls for a creeping bureaucracy that ads only cost to fight the fraud. 

    You can write an article like this about the shameful corrupt attitude of every health care agent in the US. You have a monstrous job ahead to treat the illness of your health model. I wish you luck, less ideology and more practicality, less politics and more sense of duty with the health of the citizens.

    But people are the same everywhere as far as honesty is concerned. In my experience, most honest, a few dishonest, and we pay all for them. 

  3. Bob,
    It is true that there are courses, computer programs and internal practices that encourage “code creep” in medical billing. The system is extremely complex and clearly open to “gaming” or outright fraud. Global payments are going to become more common as more providers join accountable care organizations (ACOs) and become responsible for treating patients in a way that is no longer skewed toward more care=more profit. Hopefully, the coding system will be reformed to better reflect payment models that are not dependent on fee-for-service.
    As to “code creep” in other countries, both Maggie and I have not had much luck finding an answer to your question. Perhaps someone else has some insight into this issue?

    Dr. Azpilicueta,
    I agree that our incentive-driven healthcare industry makes it all too easy for many different players to overtreat, over-diagnose and overcharge for their services. You are also correct that despite the fact that the U.S. spends more on healthcare per capita than any other country in the world, we rank rather low on certain key measures of population health. These are troubling issues the nation is struggling with and which the Affordable Care Act is designed to help alleviate. Despite these enormous challenges, there are ways of fixing the medical billing problems I wrote about; they include national standards for coding, better oversight by hospitals and government regulators and penalties for providers who continue to “game” the system.

  4. The post by Naomi Freundlich hosted by Maggie Mahar’s Health Beat makes shocking reading. Code Creep! Who knew? Not me. Who is protecting patients from their doctors and hospitals? “Innocence is part of the crime,” James Baldwin once said in his classic letter, Fire Next Time, to his nephew half a century ago about those who allow themselves to be unaware of racism. In my case it’s health. I’ve not (yet) had to be hospitalized for illness, only for birthing babies and those were long ago. It is depressing and disgusting to learn that code creep happens and far from clear how and by whom it will be stopped. I hope other replies will bring some enlightenment on this nasty but all too believable situation in the health world.

  5. Gertrude–

    “Innocence is part of the crime”–Yes, as Baldwin suggested, we are all part of the crime insofar as we overlook (or don’t want to believe) that we are victims of a health system that we desperately want to trust.

    I do believe that, under the Affordable Care Act, Medicare will be cracking down on “Code Creep”– because it must (Medicare cannot afford 8% increases on health care bills each year) and because the legislation gives the dept. of Health and Human Services (HHS) new powers to control spending. More than 100 sentences in the legislation begin:
    “The Secretary of HHS may . . .” These sentences give her
    the power to do things without needing permission from
    Congress. This means that she can do things that lobbyists would not like–which would include banning “code creep”