Upcoding: Evidence from Medicare on Squishy Risk Adjustment

81 Pages Posted: 2 Jun 2015 Last revised: 19 Apr 2018

Michael Geruso

University of Texas at Austin; National Bureau of Economic Research (NBER)

Timothy J. Layton

Harvard Medical School - Department of Health Care Policy; National Bureau of Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: April 8, 2018

Abstract

In most US health insurance markets, plans face strong incentives to "upcode" the patient diagnoses they report to the regulator, as these affect the risk-adjusted payments plans receive. We show that enrollees in private Medicare plans generate 6% to 16% higher diagnosis-based risk scores than they would under fee-for-service Medicare, where diagnoses do not affect most provider payments. Our estimates imply upcoding generates billions in excess public spending and significant distortions to firm and consumer behavior. We show that coding intensity increases with vertical integration, suggesting a principal-agent problem faced by insurers, who desire more intense coding from the providers with whom they contract.

Keywords: upcoding, risk adjustment, capitation, health insurance, Medicare Advantage, vertical integration

JEL Classification: H42, H51, I1, I13, I18

Suggested Citation

Geruso, Michael and Layton, Timothy J., Upcoding: Evidence from Medicare on Squishy Risk Adjustment (April 8, 2018). Available at SSRN: https://ssrn.com/abstract=2612913 or http://dx.doi.org/10.2139/ssrn.2612913

Michael Geruso (Contact Author)

University of Texas at Austin ( email )

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Timothy J. Layton

Harvard Medical School - Department of Health Care Policy ( email )

180 Longwood Ave
Boston, MA 02115
United States

National Bureau of Economic Research ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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