Hospitals Settle Pneumonia Upcoding Claims

legal briefs

Hospitals Settle Pneumonia Upcoding Claims

ROI Warrants Reasonable Charges

Alan C. Horowitz, Esq., RN, RRT

The federal government has redoubled its Alan Horowitz efforts aimed at ferreting out fraud and abuse from health care. This is evidenced by the growing number of cases filed by the U.S. Attorney’s Office acting on behalf of the Office of Inspector General (OIG). Most cases involve allegations that the federal False Claims Act (FCA) was violated.

Although there may be both criminal and civil penalties for FCA violations, OIG generally prosecutes those cases involving civil penalties because they are substantially easier to prosecute and extract a settlement from a hospital. The FCA is triggered when allegations exist that Medicare or money no black (falling) Medicaid payments were improperly made.

Examples of FCA violations include items such as upcoding or DRG creep, billing for services not rendered and billing for services not reimbursable and those that lack medical necessity. Recently, two Pennsylvania hospitals entered settlement agreements with the government for alleged DRG pneumonia upcoding for $1,120,000 and $534,448, respectively. The government relied on patient medical records to make its case.

Providers rely on the indexing of medical records based on the ICD-9-CM for Medi-care Part B beneficiaries when seeking reimbursement for services or procedures. As the government noted, “The ICD-9 code selected for a particular inpatient dictates the appropriate DRG selection to be utilized in billing the Medicare Program.”

When hospitals submit claims for Medi-care reimbursement, the payments are typically billed based on the beneficiary’s “principal diagnosis.” It is incumbent upon the hospital to submit accurate bil-ling and coding information. In the two Pennsylvania cases, the government al-leged that each of the hospitals violated the FCA by improperly submitting Medicare claims for a more complex pneumonia. The government asserted that the claims were improper due to a code for “other specified capitol dome (solid) bacteria” when the respective medical records did not support that principle diagnosis. Specifically, the principal diagnosis code of 482.89 was submitted by both hospitals over a several year period.

The ICD-9 codes for viral and pneumococcal pneumonia are 480 and 481, respectively. Alternatively, ICD-9 codes 482.0 through 482.83 cover “bacterial pneumonia other than viral or pneumococcal pneumonia.” Each type of bacterial pneumonia has a separate diagnostic code. The ICD-9 code, 482.89, is used only when a patient suffers from a form of bacterial pneumonia, specifically identified, but not having a corresponding ICD-9 code. When the ICD-9 code 482.89 is used, the corresponding DRG is 79. If a strain of bacterial pneumonia listed in the ICD-9 codes 480 through 487 is identified, the corresponding DRG is 89.

The government noted that the national reimbursement rate averaged for DRG 79 in 1994 was $6,712.09. On the other hand, during that same time period, the national average reimbursement rate for DRG 89 was $4,291.55. The difference between DRG 79 and DRG 89 in 1994 was $2,420.54. As a result of the alleged improper submission of claims with a DRG of 79 rather than 89, the government alleged the hospitals received payments that they were not entitled to. Both hospitals denied any wrongdoing, although both settled with the government.

The government also noted that one of the hospitals listed ICD-9 code 482.89 and billed Medicare based on DRG 79 in almost 35 percent of its pneumonia cases. This was compared with a national average during the time frame at issue of 2.4 percent. Causing a false record or statement to obtain payment by Medicare is a clear FCA violation. That is, according to the government, exactly what happened. Ultimately, the medical records would either support or fail to support the DRG 79 claims.

In addition to the monetary settlement each hospital entered into with the OIG, there were other conditions. For example, as part of the negotiated settlement agreement, each hospital had to appoint a corporate compliance officer and implement a corporate integrity program. A corporate compliance program is proactively initiated by a hospital before a government investigation. In the event of an investigation that reveals an FCA violation, the government will impose a far more onerous corporate integrity program.

In addition to appointing a corporate compliance officer and adopting a corporate integrity program, each hospital had to agree to provide training and education consisting of “at least two hours of training to each and every employee of the hospital with responsibility for the provision, documentation or billing of inpatient services.” Additionally, employees involved in “the assignment of diagnosis or procedure codes for billing Medicare, Medicaid programs shall receive at least five hours of training. The training must advise employees that failure to comply with the law and hospital policies regarding billing will result in disciplinary action.”

As further evidence of how serious the OIG is regarding pneumonia upcoding, it has included in its Fiscal Year 1999 Work Plan a statement regarding the Pneumonia Upcoding Project. The entire Work Plan may be obtained from OIG via the Internet at *

Alan C. Horowitz is an attorney and a senior risk management analyst for ECRI, a health care technology research institute located in Plymouth Meeting, PA.

About The Author