Academic journal article Research in Healthcare Financial Management

Restraining Medicare Abuse: The Case of Upcoding

Academic journal article Research in Healthcare Financial Management

Restraining Medicare Abuse: The Case of Upcoding

Article excerpt

ABSTRACT

Many believe that some hospitals engage in upcoding, an act in which hospitals classify patients into a diagnosis related group (DRG) that yields higher reimbursement from Medicare than the DRG that is justified by patients' medical records. For example, hospitals are reimbursed more than twice as much for DRG 79 (respiratory infections & inflammations) than DRG 80 (pneumonia without complications). In part to combat this phenomenon, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) was passed and several enforcement actions soon followed. This paper investigates three issues arising from HIPAA regulation and enforcement. First, we investigate the effectiveness of HIPAA and the ensuing enforcement actions in combating upcoding. Second, we investigate the causes of upcoding by examining the hospital characteristics associated with upcoding. Finally, we investigate the determinants of the reduction in upcoding after HIPAA. Our results provide institutional information important to policy makers and regulatory officials in crafting future policy around the accountability of medical facilities and the prevention and detection of healthcare fraud.

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Many believe that some hospitals engage in upcoding, an act in which hospitals classify patients into a diagnosis related group (DRG) that yields a higher reimbursement from Medicare than the DRG that is justified by patients' medical records. For example, hospitals are reimbursed more than twice as much for DRG 79 (respiratory infections & inflammations) than DRG 80 (pneumonia without complications). In addition to DRG 80, other DRGs likely to be upcoded to DRG 79 include DRG 89 (pneumonia with complications) and DRG 90 (pneumonia without complications). See Silverman and Skinner (2004) for a thorough discussion of upcoding related to DRG 79. In part to combat this phenomenon, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) was passed and several enforcement actions soon followed. This paper investigates three issues arising from HIPAA regulation and enforcement. First, we investigate the effectiveness of HIPAA and the ensuing enforcement actions in combating upcoding. Second, we investigate the causes of upcoding by examining the hospital characteristics associated with upcoding. Finally, we investigate the determinants of the reduction in upcoding after HIPAA.

The present study extends prior research on upcoding by focusing on the effectiveness of the federal government's enforcement initiatives against upcoding: specifically, the effect of the passage of HIPAA along with related regulatory initiatives. This paper will look at the incidence of upcoding over a number of years (1993-2001), allowing investigation of trends across hospitals and over time. Silverman and Skinner (2004) investigated upcoding over a number of years (1989-1998) as affected by hospital ownership. However, the purpose of their study was not to investigate the effectiveness of HIPAA or the enforcement actions. Additionally, by focusing in the present study on several specific DRGs subject to enforcement actions and contrasting them with DRGs not the target of regulatory initiatives during the same time period, the effect of the government's enforcement efforts may be separated from other factors (such as publicity and lawsuits). We also extend Silverman and Skinner's (2004) findings that hospital ownership affects upcoding by examining other hospital characteristics associated with upcoding. Finally, we examine the hospital characteristics associated with the reduction in upcoding after HIPAA.

With respect to whether HIPAA and the enforcement actions were effective, we find that (1) upcoding was a growing problem prior to the passage of HIPAA, (2) upcoding was significantly reduced after the passage of HIPAA, and (3) the enforcement actions seem to have been effective in curbing upcoding. …

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