Upcoding: Evidence from Medicare on Squishy Risk Adjustment
NBER Working Paper No. 21222
Issued in May 2015, Revised in April 2018
NBER Program(s):Aging, Health Care, Health Economics, Public Economics
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.
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Document Object Identifier (DOI): 10.3386/w21222
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