Anticipating Intensified RAC Scrutiny Targeting Hospital Upcoding: Three Steps to Ensure Your Organization is Prepared

by Cari A. Greenwood, RHIA, CCS, CPC, CICA

The Office of Inspector General (OIG) recently issued a report on the findings of a study they conducted on trends in billing for inpatient hospital stays for Medicare beneficiaries from FY 2014 through FY 2019. The report, “Trend Toward More Expensive Inpatient Hospital Stays in Medicare Emerged Before COVID-19 and Warrants Further Scrutiny” includes OIG’s stated reason for the study: “…In fiscal year (FY) 2019-prior to the COVID-19 pandemic-Medicare spent $109.8 billion for 8.7 million inpatient hospital stays. Trends in inpatient hospitalizations from FY 2014 through FY 2019 provide important lessons for improving the accuracy of inpatient hospital billing.”

The OIG’s Findings
The OIG’s study revealed the following:

  • Hospitals increasingly billed for inpatient stays at the highest MS-DRG level—the most expensive level—from FY 2014 through FY 2019, with the number of stays at the highest severity level increasing almost 20 percent from FY 2014 through FY 2019
  • The average length of stay decreased for stays at the highest MS-DRG level, while the average length of all stays remained largely the same
  • Nearly a third of these stays lasted a particularly short amount of time
  • Over half of the stays billed at the highest severity level had only one diagnosis qualifying them for payment at that level.
  • Hospitals varied significantly in their billing of these stays, with some billing much differently than most.

OIG Recommendation
Based on its finding the OIG recommended to CMS that they conduct targeted reviews of MS-DRGs and stays that are vulnerable to upcoding, as well as the hospitals that frequently bill for them.

CMS Response
In response, CMS stated that based on several factors, including the absence of medical record reviews, they do not concur with the OIG’s recommendation. However, CMS intends to share the OIG’s findings with the RACs for consideration in updating of their review strategies and will continue to monitor for potential upcoding as part of their comprehensive program integrity strategy. CMS will continue to educate health care providers on appropriate Medicare billing through various education channels.

What does this mean for hospitals?
Although CMS is not following the OIG’s recommendation for targeted reviews, they have indicated that watching for upcoding will remain an element of maintaining program integrity through the mechanisms of the RAC program. This means inpatient stays billed with the highest level MS-DRGs will likely be another item to be monitored on the RACs radar.

What can you do to ensure your organization is prepared for potential scrutiny? We have three suggestions:

1. Understand the problem
Before you can identify if upcoding is occurring for the inpatient stays being coded for your facility, you have to know what upcoding means in the inpatient setting. Upcoding occurs when a hospital’s billing is based on coding that does not appropriately reflect the patient’s condition. Upcoding occurs because diagnoses or procedures that increase the weight of the MS-DRG were inappropriately added or miscoded. Indications that this may be happening include:

  • Stays billed with the highest level MS-DRG whose length of stay is shorter than the mean length of stay for the given MS-DRG. This may point to the patient being less sick than the coding signifies.
  • Stays billed at the highest level MS-DRG base on the presence of just a single diagnosis code. This could mean that the stay was assigned an inappropriately high MS-DRG level.

2. Identify areas of vulnerability
Once you know what upcoding looks like, the next step in preparing for potential reviews is to know which high level MS-DRGs are the focus for review as possible sources of upcoding. The findings of the study conducted by the OIG were based on review of nine high level MS-DRGs as shown in this table.

Identifying your organization’s areas of vulnerability in regard to billing for stays with these MS-DRGs is accomplished by conducting an audit of previous stays with the following in mind:

  • Was the correct principal diagnosis and procedure selected?
  • Should all secondary diagnoses assigned a code be reported?
  • Were all ICD-10-CM and -PCS codes assigned accurately?
  • Were all ICD-10-CM and -PCS codes assigned according to Official Coding Guidelines and/or advice?
  • Does the documentation in the medical record support the assigned codes?
  • Was there documentation in the record that required clarification but was not addressed through physician query?
  • If queries were issued, were they compliant?
  • Were query responses properly applied and documented?

3. Create an education plan
In keeping with Medicare’s response to the OIG, it is clear that education is an effective strategy to combat inappropriate coding and billing practices such as upcoding.

Establishing an education plan that leads to coders who are comprehensively trained and current in their skills will go a long way towards ensuring that the coding your billing is based on is defensible. The target areas for education will vary from facility to facility, but generally a good foundation is a solid understanding of

  • Application of ICD-10-CM guidelines for principal diagnosis/procedure selection.
  • What conditions may appropriately be reported as secondary diagnoses.
  • Application of ICD-10-CM guidelines that direct sequencing.
  • Application of ICD-10-CM guidelines and/or conventions that direct the assignment of more than a one code to report a single condition.
  • Accurate selection of ICD-10-CM/PCS codes.
  • The need to query for clarification.
  • How to issue a compliant query.

Staying on top of the direction distributed by sources of official coding advice, such as that afforded by AHA Coding Clinic, is another key component of a strong coder education plan.

Taking a proactive stance on compliance by identifying coding practices that introduce errors and then providing remediation through targeted education is an effective way to protect your organization against inappropriate billing of high level MS-DRGs and associated take-backs of reimbursement that come as a result of inappropriate billing being uncovered by RAC audits.


ICD-10-CM/PCS Guidelines Package
Correct understanding and application of ICD-10-CM/PCS guidelines are essential to anyone concerned with accurate, complete, and defensible coding of diagnoses and inpatient procedures. Learn how to correctly apply ICD-10-CM and ICD-10-PCS guidelines with the Libman Education ICD-10-CM/PCS Guidelines Package. Learn more here.

About the Author

Libman Education
Libman Education Inc. is a leading provider of training for the health care workforce offering self-paced and instructor-led online courses designed and developed by leading industry experts in Health Information Management (HIM) and Medical Record Coding. Our courses are specifically designed to improve individual skills and increase the efficiencies and competencies of health care providers and institutions. At Libman Education, we understand the needs and challenges of a well-trained workforce and offer the right-mix of online education to ensure that the health care professionals are prepared to meet the challenges of the changing workplace.

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