Price hikes, upcoding drive Massachusetts inpatient spending

Alex Kacik  September 12, 2019

Commercial inpatient healthcare spending has increased in Massachusetts despite declining volumes, reinforcing other analyses that determined price increases are driving spending growth, a new report from the Massachusetts Health Policy Commission found.

Commercial inpatient spending across the commonwealth grew 10.7% from 2013 to 2018, while volume decreased by 12.8%, according to the commission. That was primarily due to higher prices and patient acuity, although the HPC revealed that patients may have not actually been sicker.

The average commercially insured patient risk score surged 11.3% from 2013 to 2017, which is equivalent to an additional 413,000 patients with diabetes or 888,000 individuals with cerebral palsy. Theoretically, intensive care unit and cardiac care unit volumes as well as length of stay should increase, but that wasn't the case, HPC data show.

As the code severity for chronic obstructive pulmonary disease increased by 20%, the ICU and CCU volumes declined by 7% and length of stay remained flat, suggesting that hospitals are maximizing coding rather than treating sicker patients.

"This is a known phenomenon," said David Auerbach, senior director of research and cost trends at the commission. "There are industries and consultants who have formed to take advantage of these higher payments and higher severity levels."

Administrators leverage electronic health record systems to mine patient clinical history to increase the number and complexity of diagnoses coded to maximize reimbursement, he added.

Auerbach cited anecdotal evidence observed in closed-door meetings where executives would say: "It's far easier to increase margin by increasing coding than by reducing costs" and "The ROI from hiring more billers and coders shows no signs of diminishing."

A newly hired CEO of a large health system said, "Though I'd love to work on care delivery reforms and population health, my initial focus has to be entirely on coding maximization."

One commissioner called the findings "sobering."

"How can we put a stop to this?" asked Dr. Donald Berwick, HPC commissioner and the former head of the CMS. "I mean this is hurting the commonwealth in terms of total medical expenditures being hidden, except in our benchmark, and it is not good."

Hospitals, which are the drivers of overall healthcare spending, financially benefit when patients are coded as higher-acuity. Medicaid payments to hospitals nearly quadruple from $4,584 in the lowest-severity code of COPD compared to $16,500 for the highest-severity.

Severity 1 and 2 COPD discharges across all payers declined from 2013 to 2017—severity 1 by 50% and severity 2 by 35%. Meanwhile, more acute discharges ballooned—severity 3 by 43% and severity 4 by 300%, the HPC found.

Increases in inpatient acuity over that span resulted in around $280 million in additional Medicare costs for the state of Massachusetts. That trend inflated commercial costs up to $300 million in 2017 alone, according to the commission.

This results in a bigger gap between the financially stable hospitals that can invest in their EHR and coding staff versus less-stable hospitals, which could ultimately spur consolidation.

It could also skew data. To the extent that risk scores reflect coding efforts rather than true patient acuity, risk adjusted performance metrics like readmission rates, health-status adjusted total medical expenditures, mortality or other quality measures are misleading, the commission said.

Also, clinicians may be redirected from patient care toward coding, which can increase burnout. Important clinical information may be masked by additional or no-longer-relevant diagnoses added to records, merely for billing purposes.

"Sometimes EHRs get filled up with everything under the sun, and it's hard for patients to find the relevant thing right now versus all of the other stuff they have to sift through," Auerbach said.

Researchers also explored the impacts of concentration, noting that volumes at lower-cost community hospital declined as health systems combined.

Commercial inpatient volume at community hospitals declined 24% from 2010 to 2017, according to HPC data. Over that span, about half of patients whose closest hospital was a community hospital traveled to a non-community hospital for scheduled, nonmaternity, community-appropriate care.

Meanwhile, the top five systems in the state saw their volume increase 18 percentage points as the share of volume in independent community hospitals decreased 16 percentage points.

"Part of the rationale for consolidation is that a system can better coordinate care and shift patients to the most appropriate setting," said Sasha Hayes-Rusnov, senior manager of the HPC market oversight team, adding that theoretically should translate to lower academic medical center volumes and higher community hospital utilization. "But the data suggests that many patients are continuing to bypass local community options even for community-appropriate services."

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