Upcoding: Evidence from Medicare on Squishy Risk Adjustment
81 Pages Posted: 2 Jun 2015 Last revised: 19 Apr 2018
Date Written: April 8, 2018
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: Suggested Citation