Post #802: Medicare Diagnosis Related Groups (DRGs) meet the lunatic fringe.

This post is about the claim that hospitals are over-reporting a diagnosis of COVID-19 for financial gain.  They aren’t.

But the lunatic fringe (and certain Senators, apparently) have to make this claim, in order to support the equally nonsensical claim that there have been just a few thousand COVID-19 deaths in the US (addressed here in Post #793).  For the simple reason that if you admit that we’re closing in on 400,000 hospitalizations for COVID-19, it’s hard to claim just a few thousand deaths.  And so, they need a reason to claim that the hospitalizations aren’t really COVID-19 hospitalizations.

And, frankly, you have to be willfully stupid to believe that claim about deaths, because you have to ignore all the rest of the evidence in front of you.  The high death tolls in foreign countries.  The uptick in total US deaths.  The critical shortages of ICU beds, respirators, and PPE reported in many areas.  And so on.   

But what I find fascinating about the hospital claim is that it is such carefully crafted propaganda.  All good propaganda has a grain of truth.  And that’s the case in this story being told about COVID-19 and hospitalizations. 

If you’ve seen this conspiracy story, you’ve read the claim that hospitals are paid more if they report a diagnosis of COVID-19.  And that’s true.  That’s the kernel of truth in this bit of propaganda.

What they won’t tell you is that Medicare has paid all acute hospital discharges that way since 1982.  Payment has depended on the diagnoses reported for the patient.  Report some particular diagnosis, and get paid more.  That’s the core of how Medicare has paid hospitals for the past 40 years. Medicare included a system of add-on payments, within that basic framework, about three decades ago.  And there’s a list of about 17,000 diagnoses that trigger higher payment (.pdf) when warranted by the underlying cost data, termed “complications and comorbidities”.

And with the addition of COVID-19, there’s now about 17,001, so to speak.  (That’s not strictly speaking true, but that’s minor technicality).  The bottom line is that the add-on payment for COVID-19 is completely consistent with business-as-usual for Medicare.  Medicare had to implement it on-the-fly (before they had claims data available from which to estimate the cost impact of a COVID-19 diagnosis), so they took a reasonable guess as to how much COVID-19 adds to the cost of a discharge.  But that’s also well within business-as-usual, and the same is routinely done for (e.g.) adjustments for new technologies whose costs are not yet fully reflected in Medicare claims data.

So what happened, with COVID-19 and Medicare payment, was just normal Medicare business.  Which was then grossly misinterpreted by people who don’t know anything about Medicare hospital reimbursement. 

And those same people clearly don’t know anything about the people who run the Medicare program, either.  Because the Medicare program is run by a bunch of tough S.O.B.s, particularly when it comes to handing out money.  And I say that with the utmost respect.  They are nobody’s fools.

If you want some basic background on how Medicare pays for acute inpatient care, you can find any number of excellent background pieces.  I’ll point you toward one maintained by my former employer, the Medicare Payment Advisory Commission, downloadable at this link (.pdf).

But for now, I’m just going to point you to one simple fact:  For a hospital to claim that COVID-19 add-on payment now, the patient has to have a positive COVID-19 test, and that has to be documented in the medical record.  When (not if) Medicare audits each hospital, if they find claims where Medicare paid the add-on, but the COVID-19 positive lab test result was not documented, they’ll slap the hospital’s wrist, and they’ll automatically take the money back.

The only other thing to know is that most other payers follow Medicare’s lead, for hospital reimbursement.  And the Federal government has, I believe, guaranteed that hospitals will be paid at least Medicare rates for all COVID-19 cases.  So this Medicare payment policy has impact far beyond the Medicare program.

Here’s the most recent Medicare guidance on this (.pdf).  I’ll quote the relevant passage, and be done.  Emphasis mine.  Medicare would have been auditing these claims all along.   But now payment recoupment is automatic if the positive COVID-19 test result isn’t documented in the medical record.

To address potential Medicare program integrity risks, effective with admissions occurring on or after September 1, 2020, claims eligible for the 20 percent increase in the MS-DRG weighting factor will also be required to have a positive COVID-19 laboratory test documented in the patient’s medical record. Positive tests must be demonstrated using only the results of viral testing (i.e., molecular or antigen), consistent with CDC guidelines.  ...  CMS may conduct post-payment medical review to confirm the presence of a positive COVID-19 laboratory test and, if no such test is contained in the medical record, the additional payment resulting from the 20 percent increase in the MS-DRG relative weight will be recouped.

Outlier payment offset.  OK, I lied about being done.  Here’s a tiny little extras-for-experts, for those of you who really understand hospital reimbursement.  Bottom line, hospitals aren’t going to collect that full add-on payment anyway.  It’s going to be partially offset by a reduction in Medicare “outlier payments” for these cases.  When the estimated cost of a case exceeds payment by about $25,000 (i.e., once the hospital has taken a $25K loss on a case), Medicare begins picking up 80% of the cost of the case.  For the COVID-19 cases that are expensive, and end up as outliers, sure, the hospitals will collect an extra 20% on the DRG rate.  And then they’ll give four-fifths of that right back, in the form of reduced outlier payment.  As I said, tough S.O.B.s.  And nobody’s fools.