Out in the farmland of Ohio, far from sophisticated 1,000-bed teaching hospitals, hospital administrators say they are caring for the sickest elderly patients. It defied logic, experts told us. They were right. The rural hospitals aren't treating the most serious cases, but they are trying to make it look that way on paper to get higher Medicare reimbursements.
Using four years of Medicare reimbursement data compiled by a private company, we found that in our state for-profit hospitals — without exception small in size and located in suburban or rural areas — received larger Medicare reimbursements than other hospitals. They claimed more often that their elderly patients suffered from an illness with complications.
In Ohio, this defies logic. It means that small hospitals such as 52-bed Knox Community Hospital in the rich farmland of southwestern Ohio are treating sicker patients than the large, teaching hospitals in Cincinnati, Columbus and Cleveland. Health care experts told us that the opposite was true: Big-city hospitals treated the sickest, usually poorest, patients.
"No one who is sober would dispute that," Frank Sloan, a researcher at Duke University told us. "It's like disputing the Earth is round."
Complication claims
But we did come across a few administrators — mostly from hospitals owned or managed by Quorum Health Group, Ohio's most powerful for-profit player — who argued the illogical. That's not surprising — our analysis of Medicare reimbursements for 1994 through 1997 found that Quorum's hospitals, on average, claimed that 89 percent of their elderly patients suffered from an illness with complications. For large teaching hospitals, the average was 81 percent.
In Ohio, Quorum's rate of claiming illnesses with complications was considerably higher than even the rate of Columbia HCA/Healthcare Corp., whose deftness in the art of "upcoding," the practice of making patients sicker on paper than they were in the hospital, has caught the attention of federal investigators and was the subject of a revealing and exhaustive investigative project by The New York Times. (See Josh Barbanel's cover story in the May 1998 issue of Uplink.)
To understand how this works, you need to understand that Medicare pays hospitals a fixed dollar amount for treating the elderly based on the illness, known as a Diagnostic Related Group (DRG) in Medicare-speak. Some DRGs are related to one another, one being a more complex (and more expensive) case of the other, such as "simple pneumonia" and "respiratory infection with complications." Respiratory infection is the higher reimbursed DRG here. Not surprisingly, we found the number of reported respiratory infections on the rise in Ohio.
Let's now make this more confusing. Each DRG, in addition to being part of a hierarchy of related illnesses, is part of a pair. DRG pairs are the exact same illnesses, but one has complications and the other doesn't, such as "simple pneumonia" and "simple pneumonia with complications." It should come as no surprise that Medicare pays more for treating the latter.
DRG analysis
The New York Times investigation centered on true upcoding, where Columbia claimed reimbursement for treating a more complex DRG. Our stories focused on an offshoot of upcoding, where hospitals claimed high rates of treating an illness with complications.
Our stories, published in October, took about three weeks to complete and could be easily duplicated in any state in the nation. The analysis included about one million admissions in 170 Ohio hospitals.
It was pretty simple, really. We found a Louisville, Ky.-based company that combines information from two U.S. Department of Health and Human Services data files — the Medicare Cost Reports and Medicare Provider and Analysis and Review File (MedPar). The company, Data Advantage, (502) 587-9500, sold us the data for about $200.
The data file we received contained hospital-level records by DRG. For each DRG, the records showed the number of elderly patients treated, the average amount the hospital was reimbursed and its bed size, among other things.
We then examined each of the several hundred DRG pairs and calculated how often hospitals claimed their patients suffered an illness with complications rather than without.
Next, we grouped hospitals together based on their size (small, medium and large) and who operates them (for-profits or non-profits).
We found that size mattered little in how often hospitals claimed complications. Ownership, however, was a big deal. Because the records included the average amount hospitals received for each DRG, we also estimated how much tax money would have been saved if the small, for-profit hospitals had received reimbursement for patients no sicker than patients in their urban, non-profit counterparts. The figure was a whopping $22 million for the four-year period.
Dave Davis can be reached by e-mail at ddavis@plaind.com