Creeping Fraud

Uwe Reinhardt may be right to doubt, based on his own experience as a board member of both for-profit and non-profit hospitals, “that any hospital board or any hospital executive in the country would even dream of knowingly defrauding the United States government.”  But that’s not how Medicare and Medicaid billing fraud and overpayment generally happens.  Rather, as the the massive Columbia/HCA fraud of the 1990s illustrates, the role of hospital boards and executives in cultivating fraud is more likely to be the application of relentless and unrealistic pressure to increase profits, combined with lax oversight and indifference to how results are achieved.  Under these conditions, fraud (and its systematic rationalization) is something that grows organically within a company.

Nor are such dynamics a thing of the past.  Take, for example, the practice of “upcoding” — a form of diagnosis inflation in which procedures and patients are systematically assigned higher standardized Medicare reimbursement codes than they really warrant.  To give an example that figured prominently in the HCA fraud, a hospital can double its reimbursement for a simple pneumonia patient by classifying the patient’s condition as a complicated respiratory infection.  Silverman and Skinner (2004) identified a starkly greater incidence of such upcoding among for-profit hospitals compared to non-profits during the heyday of upcoding in the 1990s.  And the Center for Budget and Policy Priorities cites Centers for Medicare and Medicaid Services findings that upcoding persisted in the last decade:

In reviewing data from 2000-2003, CMS found an increase in patients being categorized as needing higher levels of care, but did not find a corresponding change in patients’ underlying health status or in the average amount of home health care resources used to treat them. CMS concluded that some of the changes in how patients were categorized likely reflected upcoding. Further analyses revealed that since 2000, the observed case mix — an indicator of the characteristics of the beneficiaries being served by home health agencies, such as age, gender, and health status — increased by roughly 13 percent. However, more than 90 percent of this increase was a result of changes in documentation and coding practices rather than changes in patients’ medical needs.

In light of these findings, its easy to see how measures designed to maximize legitimate reimbursements can drift into systematic overcharging without any conscious decision by management or directors to cross the line.  The internal controls that Reinhardt decries as burdensome and unnecessary cost centers are in fact a necessary immune system in economic organisms that are metabolically inclined toward fraud.  While these costs (and those of Senator Coburn’s absurd secret inspector corps that the President has sadly embraced) can’t reasonably be avoided in the existing fee-for-service Medicare regime, perhaps further progress toward outcome-based reimbursement in the direction set by the Senate health care bill can move us in that direction.

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