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

September 26, 2012

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 the 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 wrote, “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.


From → Health care, Medicare

  1. “Between 2001 and 2008, hospitals across the country dramatically increased their Medicare billing for emergency room care, adding more than $1 billion to the cost of the program to taxpayers, a Center investigation has found.”

    Hm!?? Between 2001 and 2008? According to government documents back in 2001, the Bush administration, through Thomas A. Scully, then administrator of CMS, wanted to ease regulatory requirements on nursing homes, reducing the frequency of inspections and lessening or eliminating some penalties (meaning deregulation).

    The administration wanted to move away from adversarial enforcement toward a more collaborative one. But the Center’s latest investigation found that the surge in billing also reflects lax government oversight that have plagued Medicare for more than a decade.

    See where I’m going with this?

    • Yes Greg, I see exactly where you’re going. For all those who scream about government intrusion into healthcare this is a good practical lesson. Ease up on regulation, let hospitals define how they bill for ER codes and other evaluation and management services and watch as confusion sets in and opportunists “game” the system. Meanwhile AHA says they’ve been asking CMS for over a decade to implement a national standard.

      Sent from my iPad

  2. Hospitals and hospital-owned clinics are the cause of health care being so expensive. In 2005 I showed the government that I could keep people healthy and well and save millions of dollars. What did I get as a thank you? Charges of fraud. A…nd yet these clinics and hospitals that clone visits and charge higher levels than actually performed get away with it. The government isn’t interested in saving money, just going after doctors that don’t conform. I’ll bet nothing comes of the information in this article.

  3. New Sheriff in the White House!

    Medicare Fraud Round-Ups Organized for ‘Impact’

  4. The ER charges are just a small fraction of the upcoding and volume expansion that plagues the US health care system. I would love to hear solutions being discussed — not just in think tanks in Washington. Here is a solution: everybody has to belong to an ACO (with lots of providers and hospitals) then just pay the ACO a flat yearly fee per person enrolled. In that way the incentive is to provide care efficiently and cut the paperwork — the hospitals and ERs become big areas of overhead expense rather than cash cows. The winners would be patients and the primary care doctors who can keep patients healthy. What is your solution?

    • I proposed a solution similar to this to the government during the George Bush era. I showed that it worked in my own office. I offered to take care of Medicare/Medicaid patients in my office for $1500 per year, and keep them healthy and out of the hospital. I was an independent physician. Instead of seeing the value of my program, because I am an alternative medicine physician and had a unique program for my patients (which I didn’t charge for, however), I was charged with Medicare/Medicaid fraud. But I still stick to what I proved. The system we have now pays to do unnecessary testing. Doctors owned by hospital clinics run the costs up unnecessarily because that is their job. The loyalty is to the boss, not to the patient.

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