Evidence of Upcoding in Pay-for-Performance Programs

41 Pages Posted: 14 Jul 2015 Last revised: 6 Nov 2017

See all articles by Hamsa Bastani

Hamsa Bastani

University of Pennsylvania - The Wharton School

Joel Goh

Harvard Business School

Mohsen Bayati

Stanford Graduate School of Business

Date Written: July 13, 2015

Abstract

Recent Medicare legislation seeks to improve patient care quality by financially penalizing providers for hospital-acquired infections (HAIs). However, Medicare cannot directly monitor HAI rates, and instead relies on providers accurately self-reporting HAIs in claims to correctly assess penalties. Consequently, the incentives for providers to improve service quality may disappear if providers \emph{upcode}, i.e., mis-report HAIs (possibly unintentionally) in a manner that increases reimbursement or avoids financial penalties. Identifying upcoding in claims data is challenging due to unobservable confounders (e.g., patient risk). We leverage state-level variations in adverse event reporting regulations and instrumental variables to discover contradictions in HAI and present-on-admission (POA) infection reporting rates that are strongly suggestive of upcoding. We conservatively estimate that 10,000 out of 60,000 annual reimbursed claims for POA infections (18.5%) were upcoded HAIs, costing Medicare $200 million. Our findings suggest that self-reported quality metrics are unreliable and thus, recent legislation may result in unintended consequences.

Keywords: Medicare, pay-for-performance, upcoding, asymmetric information, quality control and detection, hospital-acquired infections, strategic behavior

JEL Classification: I18, I11, H51

Suggested Citation

Bastani, Hamsa and Goh, Joel and Bayati, Mohsen, Evidence of Upcoding in Pay-for-Performance Programs (July 13, 2015). Stanford University Graduate School of Business Research Paper No. 15-43. Available at SSRN: https://ssrn.com/abstract=2630454 or http://dx.doi.org/10.2139/ssrn.2630454

Hamsa Bastani (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Joel Goh

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Mohsen Bayati

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

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