Increase in more expensive hospital stay draws government scrutiny

A review by the Office of the Inspector General found that hospitals increasingly billed for inpatient stays at the highest severity level from 2014 to 2019, and recommended that CMS conduct targeted reviews to check for unnecessary upcoding.

The OIG found that the number of stays at the highest severity level increased almost 20 percent during the time reviewed, ultimately accounting for nearly half of all Medicare spending on inpatient hospital stays. The number of stays billed at each of the other severity levels decreased. The average length of stay decreased for stays at the highest severity level, while the average length of all stays remained largely the same.

Hospitals varied significantly in their billing of these stays, with some billing much differently than most. The increase in the number of stays billed at the highest severity level implies that beneficiaries were sicker overall. However, the decrease in the average length of stays at the highest severity level potentially undermines that idea because it is not consistent with sicker beneficiaries. Length of stay generally has a positive relationship to severity of stay; sicker beneficiaries stay in the hospital longer. Given the decrease in the average length of stays at the highest severity level and the indication that beneficiaries in general were not sicker, the increase in stays billed at the highest severity level likely was driven by changes in hospital billing practices rather than by changes in the beneficiary population.

According to OIG, shorter stays are not inherently problematic, but the number of these stays raises questions about the accuracy and appropriateness of the complications billed by the hospital. Although the complications billed suggest sicker beneficiaries, the shorter lengths of stay point to beneficiaries who are less sick. For this reason, these stays suggest potential upcoding. Medicare potentially overpaid hospitals by a significant amount if even a small fraction of these stays were billed inappropriately.

The OIG recommends that CMS should target stays at the highest severity level with certain characteristics, such as those that are particularly short or that have only one major complication. CMS should also focus on MS-DRGs that have a high proportion of stays with these characteristics and on the hospitals that frequently bill them. CMS’s Recovery Audit Contractors currently conduct coding validation reviews that incorporate some of these targeting strategies. However, stays billed at the highest severity level continue to increase and OIG says more must be done.