Evidence of Upcoding in Pay-for-Performance Programs

Abstract

Recent Medicare legislation has been directed at improving patient care quality by financially penalizing providers for hospital-acquired infections (HAIs). However, Medicare cannot directly monitor HAI rates, and instead relies on providers accurately self-reporting HAIs in claims data to correctly assess penalties. Consequently, the incentives for providers to improve service quality may disappear if providers upcode, i.e. mis-report HAIs (possibly unintentionally) in a manner that increases reimbursement or avoids financial penalties. Identifying upcoding in claims data is challenging due to unobservable confounders such as patient risk. Our approach leverages state-level variations in adverse event reporting regulations and instrumental variable techniques to discover contradictions in HAI and present-on-admission (POA) infection reporting rates that are strongly suggestive of upcoding. We conservatively estimate that over 10,000 out of nearly 60,000 annual reimbursed claims for POA infections (18.5%) were upcoded HAIs, resulting in an added cost burden of $200 million to Medicare. Our findings suggest that self-reported quality metrics are unreliable and thus, recent legislation may result in unintended consequences. In particular, contrary to widely-held beliefs, increasing financial penalties may not reduce HAI incidence and may even exacerbate the problem. We make several policy recommendations based on our results, including a new measure for targeted HAI auditing and suggestions for effective adverse event reporting systems.

Association Between Medicare Policy Reforms and Changes in Hospitalized Medicare Beneficiaries' Severity of Illness

“…To fairly assess hospital performance, CMS should identify better strategies to capture patients’ true underlying severity of illness, including more intensive efforts to audit secondary diagnoses coded by hospitals. 33 It should also consider the complex interactions among multiple contemporaneous policies, as some may be unintentionally countervailing.…”

Empirical Research in Healthcare Operations: Past Research, Present Understanding, and Future Opportunities

“…For example, Staats et al (2016) examine a well-understood clinical practicehand hygiene-and find that providers often systematically deviate from best practices. Relatedly, lack of observability can also lead to providers misreporting incidences of hospital-acquired infections, in order to improve their reimbursements (Bastani et al 2019).…”

Law, Technology and Patient Safety

“…Bastani et al employ a clever identification strategy to measure the prevalence of upcoding in Medicare claims reporting. 111 They define "upcoding" as "the practice of biasing claims reports towards higher-paying diagno-ses, rather than taking steps to reduce the true rate of [hospital acquired conditions]," a category of adverse events defined by Medicare. Bastani et al find evidence that, in Medicare billing data, physicians classify infections acquired in the hospital as present-uponadmission to avoid taking a hit on reimbursement from Medicare for medical care necessary to treat an adverse event.…”