Hospitals grab at least $1 billion in extra fees for emergency room visits

Center probe suggests facilities have taken advantage of government’s failure to set billing standards

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Our 21-month 'Cracking the Codes' investigation documented for the first time how some medical professionals have billed Medicare at sharply higher rates than their peers and collected billions of dollars of questionable fees as a result. 

Judging by their bills, it would appear that elderly patients treated in the emergency room at Baylor Medical Center in Irving, Texas, are among the sickest in the country — far sicker than patients at most other hospitals.

In 2008, the hospital billed Medicare for the two most expensive levels of care for eight of every 10 patients it treated and released from its emergency room — almost twice the national average, according to a Center for Public Integrity analysis. Among those claims, 64 percent of the total were for the most expensive level of care.

But the charges may have more to do with billing practices than sicker patients. A Baylor representative conceded hospital billing for emergency room care “did not align with industry trends,” but said that the hospital since 2009 has reined in its charges.

The Texas hospital’s billing pattern is far from unique. Between 2001 and 2008, hospitals across the country dramatically increased their Medicare billing for emergency room care, adding more than $1 billion to the cost of the program to taxpayers, a Center investigation has found. The fees are based on a system of billing codes — so-called evaluation and management codes — that makes higher payments for treatments that require more time and resources.

Use of the top two most expensive codes for emergency room care nationwide nearly doubled, from 25 percent to 45 percent of all claims, during the time period examined. In many cases, these claims were not for treating patients with life-threatening injuries. Instead, the claims the Center analyzed included only patients who were sent home from the emergency room without being admitted to the hospital. Often, they were treated for seemingly minor injuries and complaints.

While taxpayers footed most of the bill, the charges also hit elderly patients in the pocketbook, increasing the amount of their 20-percent co-payments for emergency room care.

Hospitals and federal officials say the rise has likely been caused by an increase in sicker patients seeking care in emergency rooms, more accurate billing on the part of hospitals, and an increasing number of options for patients who aren’t as sick — options that include retail-based clinics and urgent care facilities. But the Center’s investigation found that the surge in billing also reflects lax government oversight, confusion about proper billing standards, and widespread payment errors that have plagued Medicare for more than a decade. And the data suggest that some hospitals are working the billing system — and its flaws — to maximize payments.

Dr. Donald Berwick, the immediate past administrator of the Centers for Medicare and Medicaid Services (CMS), which administers the Medicare program, said a small portion of the billing increase is likely caused by outright fraud, but in the majority of cases hospitals are legally boosting profits by targeting the vulnerabilities of Medicare’s payment system. “They are learning how to play the game,” Berwick said about the hospitals.

Hospital industry insiders say it’s no secret that hospitals are pushing the limits to bill higher-priced Medicare codes, a practice known as upcoding. “There is such financial pressure to upcode,” said Barbara Vandegrift, a health care consultant at Tennessee-based Quorum Health Resources. “It’s ‘wait until we get caught and we’ll fight it at that point.’ ”

Few hospitals, however, are being scrutinized. Medicare officials are aware of the rising expense of emergency room billing for evaluation and management services, but the agency has downplayed the problem and done little to verify the accuracy of hospital emergency room charges. Instead, it has given hospitals a free hand to set their own billing policies, with little agency guidance and even less auditing.

Medicare lacks rules for hospital ER billing

Since 2000, hospitals have chosen among five codes to bill Medicare and other insurers for evaluating emergency room patients and coordinating their treatment. This hospital “facility fee,” which can add millions of dollars to the hospital’s bottom line in the course of a year, ranges from $50 to $324, depending on which code is chosen for any given case. It comes on top of physician charges.

The system dates back to a change in federal law requiring hospitals be paid a set fee for services, rather than a blanket payment based on the cost of providing care, which was meant to save the program money. Yet instead of developing specialized billing codes just for hospitals, CMS since 2000 has required hospitals to file claims using a set of codes developed and licensed for physician billing by the American Medical Association — so-called Current Procedural Terminology, or CPT, codes. The lack of specific hospital codes, or guidelines for how hospitals should use physician codes, has left the system open to broad interpretation by hospitals.

“All the hospitals looked at each other and said, ‘OK, how are we going to do this?’ To make a long story very short, we still have no guidelines,” said Duane Abbey, a hospital billing consultant in California.

Medicare administrators acknowledge as much. Since 2000, CMS has repeatedly announced plans to develop new hospital evaluation and management codes, or at least provide national guidelines for hospital billing. But the agency has failed to deliver. Instead, CMS requires hospitals to develop their own guidelines for billing those codes designed for doctors. Some follow strict internal policies, Abbey and other hospitals billing consultants said, while others wildly inflate charges, regularly change their billing criteria, and sometimes fail to follow even their own lax internal policies.

“The whole issue of the E and M levels for the emergency department … is an absolute mess,” Abbey said.

Chasing dollars

Left to develop their own billing rules, hospitals have flocked to higher paying emergency room codes. Leatrice Ford, an independent consultant in Louisville, Ky., who uses Medicare claims data to advise hospitals on their emergency room billing, said it’s well known in the industry that many hospitals inflate their charges. But Ford said it’s a tough sell for a consultant to convince hospitals their billing is too high. “In my experience hospitals are reluctant to give up their overpayments,” Ford said.  The reason, she said, is that Medicare and the contractors it employs to administer payments are not checking.

“I have never once seen or heard of anyone being audited or called on the carpet for their distribution of E and M codes,” Ford said. “That’s a standard audit for physician practices, but I’ve never seen a hospital get in trouble for it.”

In 2008, more than 500 hospitals of the more than 2,400 in the database billed the two most expensive codes for more than 60 percent of patients. More than 100 billed the two most expensive codes for at least 70 percent of patients.

Some — like Baylor Medical Center in Irving — were even higher. In 2007, Yuma Regional Medical Center, a 369-bed nonprofit hospital in southwestern Arizona, billed the top two most expensive codes for eight of every 10 Medicare emergency room patients. Billing at the hospital made Yuma, Arizona, the nation’s regional leader for the percentage of billing of the top two levels of E and M codes, far higher than metropolitan areas like New York City and Chicago.

Yuma’s CEO Pat Walz, however, said the charges are accurate. When the Center first asked about the claims, Walz said elderly winter visitors have driven up the hospital’s number of serious emergency room cases. Yuma claims data reviewed by the Center for Public Integrity, however, suggest the average age of the hospital’s emergency room patients remained steady from 2001 to 2008 at around 77 years old.

Walz also conceded that the installation of Medhost, an electronic emergency department information system, was likely one of the most significant drivers of the hospital’s push toward more expensive codes. Before Medhost, nurses and doctors wrote patient notes by hand, Walz said. Computerized charting captured much more of the work they actually performed, which he said resulted in higher E and M levels.

But Walz said the electronic system is not overcharging Medicare. Rather, it is simply helping the hospital make money from care that once fell through the cracks. “If you look at any industry — as it goes from human to electronic input, the same thing is going to happen,” Walz said.

Walz said Medhost has paid for itself through increased billing, but he said the decision to install it was not financial. “We did it to improve the quality of patient care,” he said. Medhost did not respond to requests for comment.

CMS: hospital billing increase “slight”

The Centers for Medicare and Medicaid Services has so far downplayed the spike of hospital billing. In 2011 comments published in the Federal Register, CMS said it noticed a “slight shift” toward hospital billing of more expensive evaluation and management codes. The agency said it also noticed that emergency room charges for the higher-level visits “seem to be trending upward year over year.”

Presented with the Center’s analysis, which shows a far more dramatic shift toward expensive codes, CMS declined interview requests. But in written responses to questions, the agency’s press office said the trend is only “notable” over several years. Considered year to year, as the agency said it examined the data, the higher level codes increase at no more than 2 percent.

Further, the agency wrote that the trend may reflect more accurate coding by hospitals and physicians rather than upcoding. Indeed, the agency said its advisory panel, which is made up of physicians, hospital administrators and other hospital financial staff, told CMS that the rise in billing is a result of hospitals getting better at capturing their costs.

“They would argue that the costs were inadequately reflected in our data several years ago,” the agency wrote, “so the increases we are seeing now are bringing the payment system to where it should have been all along.”

Dr. Scott Manaker, a professor of medicine at the University of Pennsylvania Perelman School of Medicine, a member of the panel, said there are a number of possible causes for the rise in high-level billing, including more accurate hospital coding. Manaker said he doubts upcoding is the major cause, but said it’s impossible for the panel to determine without examining individual patient charts and hospital billing records, which it has not done.

Another panel member said hospital emergency room billing has not been a critical issue during meetings. “In my four years in the panel there has not been a lot of discussion of E and M leveling on the facility side,” said Judith Kelly, director of health information management at Unity Health System in Rochester, N.Y. To address the issue, Kelly said CMS should issue hospital-specific billing codes or guidelines for emergency care. “When there is ambiguity, there are problems,” she said.

In response to questions, CMS said some hospitals have been audited. But the agency said the process of auditing and seeking reimbursement of overpayment is “expensive and time consuming relative to the potential return that will be realized on individual claims for relatively low cost services.”

But some question whether CMS contractors — who help administer Medicare payments — can effectively audit hospital billing. Without national billing guidelines, said Abbey, the hospital auditor, it would be difficult for CMS contractors to determine who is cheating the system. Indeed, he said they would need first to ask each hospital for a copy of its internal billing guidelines. “They should have one of their famous committees developing guidelines right now,” Abbey said. “My sense is they aren’t, but they should be.”

A never-ending quest for billing guidelines

During the 12 years that CMS has allowed hospitals to set their own billing policies for E and M codes, a host of organizations have proposed national guidelines. So far, none of them have made the cut.

In 2002, the American Hospital Association (AHA) and the American Health Information Management Association, an association representing health information management professionals, formed an expert panel to develop guidelines for hospital emergency room billing at the urging of CMS. In 2003, the groups submitted detailed recommendations for a billing system that measured hospital emergency room care. The recommendations went nowhere. “It just died a slow death,” said William Briggs, a nurse who represented the Emergency Nurses Association on the expert panel.

CMS has called the AHA proposal the “most appropriate and well-developed guidelines” available. Yet the agency has not required hospitals to follow them. Not long after the AHA proposed the guidelines, a CMS-funded outside study found a number of problems with the guidelines.

A separate small-scale study, however, suggested the guidelines save money. In 2009, the Ohio-based company Permedion, which reviews medical claims for state and federal agencies, found that 37 percent of a sample of Ohio Medicaid emergency room claims should have been coded at lower levels, based on the AHA guidelines. The remainder were in agreement with the guidelines.

The AHA remains one of the loudest voices pushing for guidelines, but it is discouraged over the long delay. “We keep asking them to issue national guidelines,” said Nelly Leon-Chisen, the association’s director of coding and classification. “We do it every year and they don’t do anything about it.”

By 2007, though, it appears CMS had effectively given up on releasing new guidelines. The effort “was proving more challenging than we initially thought,” the agency wrote in the Federal Register.

Industry insiders say there are a number of reasons why the agency never established guidelines. Some suggested a working set of rules that accurately reflects costs for all hospitals may be impossible to develop. Others say CMS is reticent to sign off on an outside group’s system, as it has with the American Medical Association, which licenses the use of the CPT codes it owns and administers.

In written responses to questions submitted by the Center, CMS said “it seems unlikely that one set of straightforward national guidelines could apply to the reporting of visits in all hospitals and specialty clinics.” It also said the agency believes that “as a whole, hospitals have worked diligently and carefully to develop and implement their own internal guidelines that reflect the scope and type of services they provide.”

Asked about the hospital shift toward billing more expensive codes, Roslyne Schulman, the hospital association’s director of policy development, said she was unaware billing had risen at the rate revealed by the Center’s data analysis, and could only speculate on the reasons without comparing billing to patient charts. Asked if hospitals were simply billing for levels of care they did not provide, Schulman said, “I would hope that would not be an issue.”

Hospitals say patients are “sicker and older”

In 2008, Sentara Virginia Beach General Hospital, a 276-bed hospital a few miles from the Atlantic Ocean, billed the top two emergency room codes for 80 percent of all patients, up from about 29 percent in 2001. Hospital spokeswoman Amy Sandoval said the hospital since 2001 has used the electronic charge system Optum Lynx to determine evaluation and management billing levels.

In a written response to questions about the hospital’s billing, Sandoval said Optum reviewed the hospital’s billing and found it within acceptable limits. Sandoval said “possible” reasons for the high level of billing include an older and sicker patient population, the intensive resources required to treat psychiatric patients before transfer, and a trend of less sick patients seeking care outside of emergency rooms to avoid long waits and high co-pays. The hospital, she added, is a level III trauma center, located within a mile of seven assisted-living centers and nursing homes.

Representatives from small-town hospitals and major urban trauma centers generally offered the same justification for their rising charges. These explanations could be accurate for individual hospitals, but they are not borne out in the national Medicare billing data analyzed by the Center. The average age of emergency room patients in data examined by the Center was 77 and remained constant from 2001 to 2008. The total number of emergency room claims rose 31 percent during that time, however, as compared to a less than 10 percent increase in Medicare beneficiaries, which suggests urgent care clinics have not sapped overall business levels.

Some of the rise could be accounted for by emergency room care advances. In the eight years from 2001 to 2008, advances in medical care allowed emergency rooms to treat patients without later admitting them to the hospital. Since the Medicare data the Center for Public Integrity examined includes only treat-and-release patients, these sicker patients would be included in the data more often in 2008 than in 2001. But some experts strongly doubt this accounts for the extent of the rapid rise.

Moreover, the ten most common “primary diagnoses” — the chief complaints for why patients seek care in emergency rooms — remained unchanged during the time period of the data reviewed by the Center. Although those top diagnoses including dangerous symptoms like chest pain and loss of consciousness, the list also included seemingly minor complaints like lower-back discomfort, urinary tract infections and limb pain.

But while the most common diagnoses remained constant, billing of the most expensive codes surged. Take the case of emergency room headaches. From 2001 to 2008, hospital billing of the top two evaluation and management codes for headache patients more than doubled to 43 percent. The number of tests and procedures doctors performed on headache patients also rose. In 2001, hospital emergency rooms billed an average of six revenue codes (which represent areas of the hospital where costs occur, including imaging, labs, and supplies) for headache patients, according to Medicare billing data. In 2008, they billed an average of nine.

In addition to changes in standards of care over those eight years, hospitals say they simply are seeing sicker Medicare patients than in the past. But some disagree.

Berwick, the former CMS head, said patients haven’t changed. What’s changed is the aggressiveness of how hospitals bill. “They are smart,” Berwick said. “If you create a payment system in which there is a premium for increasing the number of things you do or the recording of what you do, well, that’s what you’ll get.”

Dr. Stephen Pitts, an emergency physician and associate professor in the Emory University School of Medicine, examined data from the Centers for Disease Control and Prevention’s National Hospital Ambulatory Medical Care Survey, a well-established nationally representative survey of emergency department visits. Pitts found that between 2001 and 2008 emergency patients did not appear to be getting sicker.

“It’s total nonsense,” Pitts said of hospital claims that sicker patients have led to higher charges.

Emergency physician billing also rises

A more likely cause, Pitts said, is the pressure hospitals put on emergency room physicians to bill every patient at the highest rates possible. Emergency room salaries at many hospitals are tied in part to how much profit doctors generate per patient, Pitts said. From the business side, this makes sense. “If you don’t bill maximally, your ER is going to die,” Pitts said. But from a patient perspective, it means doctors perform more tests and procedures than they did in the past, which increases the costs of care.

Although hospital facility charges are separate from physician charges, billing and coding experts say the two are linked. And like hospital charges, emergency room physician charges for evaluation and management services are soaring. In 2008, emergency room physicians billed the most expensive code for 44 percent of patients, up from 27 percent in 2001, according to Center analysis of Medicare claims data.

The cost associated with this rise is substantial. In 2010, the top level physical evaluation and management code for emergency care cost the program nearly $1.6 billion, up 21 percent form 2008.

Unlike hospital billing, CMS requires that physicians follow American Medical Association criteria for billing emergency room evaluation and management services. The top level code 99285, for example, requires doctors to perform a comprehensive medical history, a comprehensive exam and engage in highly complex medical decision making.

Yet a number of probes have found physicians are over-billing the top-level code. A 2012 probe of physician billing of 99285 in Iowa, Kansas, Missouri, and Nebraska found an error rate of almost 50 percent. The probe, performed by Medicare contractor Wisconsin Physicians Service Insurance Corporation, found that physician documentation did not support the 99285 level.

David McKenzie, the reimbursement director of the American College of Emergency Physicians, said upcoding is not to blame for the rise in physician charges. Emergency room doctors are simply getting better at documenting their work, and Medicare patients in general are getting sicker, McKenzie said. In addition, nurse practitioners and physician assistants are treating less sick patients who in the past would have been treated by doctors, which is skewing their numbers.

Evaluation and management of health care in seniors takes time, McKenzie said. “A broken leg in a 17-year-old football player is not the same as a broken leg in an 88-year-old diabetic.”

CMS says rise unlikely caused by upcoding

In written comments, CMS said upcoding is unlikely to account for the rapid rise in hospital emergency room billing since the trend appears “to be consistent across hospitals and physicians.” But billing at some hospitals is rising much faster than at others. Asked if the agency is monitoring hospitals, like Baylor Medical Center in Irving, Texas, with rates that were nearly twice the national average, CMS said it is inappropriate for the agency to discuss audits involving specific hospitals.

But Baylor Irving’s president, Cindy Schamp, said CMS never questioned the hospital’s 2008 evaluation and management code billing. In 2009, Schamp said, the hospital instituted new billing rules that led to fewer claims for the top two codes. She said the change was voluntary.

Asked if the hospital returned Medicare overpayments, Schamp said it has not. “To date, we have not made any payments back to Medicare,” Schamp wrote in response to questions. “However, continuing to work to do the right thing, we feel it is appropriate to review."

Four months later, a Baylor spokeswoman said the review was complete. “We looked at a sample set of (emergency room) charges made at Baylor Irving during that time period to see if they were accurate in the context of the billing guidelines at that time,” Nikki Mitchell wrote. “That is the appropriate way to review charges.  In the review, no overcharges were found.”