A Taste of Our System’s Coding Complexity (Hospital Version)

I work as an inpatient internal medicine physician, usually referred to as a hospitalist. People sometimes hear about how complex billing and coding are in our system, so today I’d like to give a taste of my experience with this.

Before I explain this, I should be clear that any provider’s goal with billing is to bill honestly to the highest amount they can for the necessary work they’ve done. Not billing for something that we are legally allowed to bill for is leaving money on the table and unnecessarily lowers our income. So keep in mind that, when I talk about billing the maximum possible, this is an honest and appropriate goal that is very different than taking advantage of the system or committing some kind of fraud.

Each day when I see a patient, I am expected to write a daily progress note. Originally, these were strictly for communication with other caregivers so everyone would know what’s going on with the patient and nurses would know what needed to happen for patients. Then EMRs came along, the primary motivation behind them being that it would streamline the process of sending bill to insurers. Helping with the clinical care of patients was a secondary purpose. I’m not sure whether the data-capturing ability of EMRs allowed coding policies to become more detailed/specific/complex, but it sure seems that way, as you will see.

When a patient is in the hospital, the hospital charges a bill and each doctor who sees the patient charges a bill. This week, I’ll focus on the hospital side.

Hospital contracts with insurers are mostly based on DRGs, which stands for “diagnosis-related groups.” Essentially, the hospital sends to the insurer a list of the diagnoses that were treated during the hospitalization, and then, based on that list, the patient is assigned to a certain DRG, and the hospital gets paid the standard amount for that DRG. There are a bunch of little adjustments here and there for location, hospital type, etc., but that’s the essence of it.

As a hospitalist, I am usually the primary doctor over a patient’s hospitalization, so making sure all the right diagnoses are listed in the patient’s chart is super important if I want the hospital to get paid for the work we did. It would be nice if there were just a few different DRGs, but there aren’t. There are 1,000 arcane rules that make a big difference in which DRG the patient ends up getting assigned to, which means trainings about how to add the right DRGs take up a significant percentage of hospitalist meetings (as opposed to trainings on how to be better doctors!). They give us pamphlets full of suggestions on how to correctly add problems to the patient’s problem list. Here’s part of a single page of one of these multi-page pamphlets:

When I am working in the EMR, we also have some built-in software through which coders somewhere who are reviewing every single patient’s chart will send me messages (“coding queries”) with suggestions about which additional problems to add or how to make diagnoses more specific to get the patient lumped into a higher-paying DRG. It’s implemented very well, but it definitely disrupts my workflow.

Another issue is that sometimes these DRGs use old diagnostic rules. For example, anytime someone has at least two of the following–high heart rate, fever, high white blood cell count, high respiratory rate–there is a sepsis alert that tries to get me to add that to the problem list (and make sure you specify what the source is, which organ system is involved, and how severe it is!). The problem is, that’s the old definition of sepsis that has been proven to be less useful than newer definitions. So sometimes my clinical judgment says a patient doesn’t have sepsis, but I have to remember the old definition to make sure I add it to the problem list where that definition fits.

And don’t worry–if I forget to add something and the patient gets discharged, those coders can always track me down and have me sign forms that go into the patient’s chart stating there were other problems that were not added but that we took care of in the hospital.

All of this results in many patients having problem lists in excess of 30 items. It’s completely overwhelming! These lists are automatically inserted into every note I write and form the template for writing my problem-based assessment and plan, which means my assessment and plan looks incredibly long and interferes with communicating to other caregivers what’s important and what’s actually going on with the patient.

Not only is the list burdensome because of its length, but also the names of these problems are often less useful. If I wanted to, I could take the time to go and manually change them in the patient’s chart before generating my daily progress note, but then it’s that much extra administrative time I’m taking. And, if I manually change the problem name, now the name is different than the underlying problem code’s name, which may mean I or a colleague who takes over the patient’s care will not notice if the problem code becomes inaccurate or not specific enough, causing further confusion and messages from coders.

Oh, also this all supposes that the patient is sick enough to be considered an “inpatient” when they are here. If they aren’t sick enough (based on a whole different set of criteria), then they are only here under “observation,” and DRGs don’t apply, so the patient is billed for each individual service done.

So, that’s just a taste of the hospital side of billing. Next week, I’ll give you a taste of how provider billing works.

The Two Steps to Fixing Healthcare

shoe prints
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I focus mostly on aligning financial incentives to fix the healthcare system. But what about QI and implementation science–how do those fit with my interest in aligning incentives?

If you’ve ever been to an Institute for Healthcare Improvement conference, you have seen thousands of passionate individuals finding ways to improve healthcare, both from the provider level and the insurer level. I have sat through so many presentations by these innovators explaining their impressive improvements, and, in addition to being impressed at their work, I am almost always thinking, “They are working at odds with their financial incentives!” In other words, their QI efforts–were it not for them almost always being supported by grant funds–would be costing their organization a lot more money than the organization would ever make from those improvements.

Now, to be clear, making more money is not the main purpose of QI projects! They are improving patients’ lives, and that’s where the focus should be. But do you ever wonder why so many of those successful improvements don’t spread like wildfire through the country’s healthcare organizations?

The reason is because, while all good healthcare administrators truly want to improve the value their organization delivers to patients, they cannot be expected to add such costs to their balance sheet. There are too many uncertainties about reimbursement and government policy changes to take risks like that! And if they go bankrupt, they’re not doing patients any good.

An example from my residency clinic is having social workers full time in the clinic. We cared for many of the vulnerable populations of our city, and those social workers made a huge difference in many of our patients’ lives. But, were it not for grant money to pay those social workers, they would have been costing the clinic quite a bit of money (their salaries) without bringing any extra money in. This is one of thousands of examples in healthcare of what I refer to as “value improvements at the expense of profitability.”

Now, what if our healthcare system were designed in a way that, any time a provider or insurer improves value, they end up making more money as a result of it? What would happen to all those successful QI projects? They would disseminate like crazy. That is my goal.

This is why I think my work to align financial incentives in healthcare is actually the most important work the QI crowd could ask for right now. It’s Step 1 of fixing the healthcare system. And then they get to do Step 2 by responding to those good incentives by innovating in ways that improve the lives of the people they serve.

Evaluating Sanders’s Medicare for All Act of 2019, Part 7 (Conclusion)

Part 1 reviewed Title 1, which states that basically everyone will be covered and can receive care from pretty much any provider. Part 2 reviewed Title 2, which states that insurance benefits will be comprehensive without any regular out-of-pocket expenditures. Part 3 reviewed Titles 3 and 4, which lay down some provider standards and also some expectations regarding data reporting. Part 4 reviewed Titles 5 and 6, which establish some quality standards and a national health budget, plus it gives an updated process for how fee schedules will be made. Part 5 reviewed Titles 7, 8, and 9, which are primarily nuts and bolts of where tax money will be placed, some clarifying statements, and a lot of conforming  amendments. Part 6 reviewed Titles 10 and 11, which describe the transition plan and give a few definitions.

Now that we’ve spent all this time reading the bill and summarizing all 11 titles of it, let’s do some analysis.

First, here is a summary of the key points from Parts 1-6 that give the overall description of the style of M4A that this bill would create:

  • Coverage is universal–it will probably include everyone who is legally in U.S.
  • The government will have a monopoly on the essential benefits–meaning no duplicate coverage can be sold
  • Benefits will be comprehensive, including long-term care, vision, and dental, and states will have the freedom to add even more benefits
  • There will be no cost sharing requirements (including premiums, copays, coinsurance, etc.) except for $200 max annual cost for choosing brand name medications when generic alternatives are available
  • All providers who meet federal and state minimum requirements will be in network
  • Participating providers will be required to report outcomes and quality information in a standardized way
  • A national provider fee schedule will set prices nationwide (subject to a cost-of-living multiplier), and the making and updating of this fee schedule will be required to include MedPAC
  • A national health budget will be created annually, and my guess is that this will be used as a multiplier to reduce all prices across the board if that budget is exceeded
  • Drug prices will be negotiated annually

Remember that, of the three main issues everyone is trying to solve in healthcare systems (usually referred to as “cost, quality, and access”), the access piece is the simplest to understand. It’s conceptually easy to grasp how a government program could achieve universal coverage. This M4A bill is a prime example–just change Medicare eligibility criteria to include everyone in the country.

The most difficult of the three problems to crack is cost. Sure, a government can reduce prices to unilaterally lower cost (and when I say cost, really I mean total healthcare spending), but that would not change the actual cost of the inputs that go into delivering care to patients–it just means providers are getting paid less. And with average provider profits being less than 10%, that means that approach can only lower prices by a maximum of less than 10%. And with continued demographic changes and new medical innovations as they are, total healthcare spending will continue to go up and up even if we force profits down to zero.

You see the problem? Administratively lowering prices to control spending is not a winning or sustainable formula.

What we need is to find some way to get providers to innovate in ways that actually reduce the costs of delivering care. And to motivate providers to risk innovating like this, they need financial incentives. If they could be assured their value-improving innovation would somehow lead to greater profits, they would be willing to try. And if it succeeds, their competitors would also try the same thing.

What I’m saying is that if we could structure our healthcare system in a way that makes it clear to providers that they will increase their profitability if they find a way to deliver better value (usually this means equivalent quality at a lower price), then the incentives will be properly aligned for long-term reductions in total healthcare spending.

This isn’t something government can do directly–it’s not like CMS can say, “All providers do this specific thing differently and, voila, your cost of delivering care to your patients will decrease.” No, this is something that government can only create the incentives for and then watch how providers respond. It’s galling not to be able to control such an important thing directly. But this is the most important issue for all healthcare systems that no existing system has seemed to solve. This M4A bill we’ve been examining is no different.

What’s the solution? I’ve already spent many words explaining my Healthcare Incentives Framework, which shows in detail how to create those incentives for providers (and, if applicable, insurers). I won’t rehash all of it here. But I will summarize it by saying that if we can ensure that providers will win increased market share and profit when they raise their value relative to competitors, they will have a profit motivate to innovate in value-improving ways. That’s an important point.

How do we get market share to flow to higher-value providers? Patients have to be able to identify and then choose those higher-value providers! This is what they want to anyway. But how do we accomplish that?

It requires patients to have three things: (1) multiple provider options, (2) knowledge of the quality and price of each of those options beforehand, and (3) some incentive to actually be willing to consider price when choosing between providers.

That third requirement is not as intuitive. What I mean is that, if someone will pay the same price regardless of which option they choose, don’t you think they will ignore price and simply choose the highest-value option every time? Yes. But if they can choose a slightly lower-quality option and save hundreds or thousands of dollars, now they start considering price. The principle is this: patients must pay more if they choose a more expensive provider and pay less if they choose a less expensive provider. This is what will cause them to consider price as well, and it is what will assure providers that, if they find a way to lower their costs of delivering care and decide to lower their price, they will win more market share and increased profits.

Can we tweak this bill to enable all of that? Of course.

First, I commend the drafters for including a requirement to report standardized quality and outcomes data. Only with those data can you compare the relative quality of the different provider options. The Secretary just needs to make sure that the quality and outcome metrics they use are the ones most relevant to patients trying to choose between multiple provider options.

Next, we need to get patients to know prices beforehand. But just having access to the individual prices of the 30 different things that are included in a care episode isn’t enough. It needs to be a single price (known as a “bundled price”) that covers all the services involved in that care episode. This bundled price could be something like a surgery, or it could be a 60-minute diagnostic appointment, or it could even be a year’s worth of managing a chronic condition.

The challenge, here, is that all prices would be the same, so prices would become irrelevant and only quality would be considered. My recommendation is that this bill allows providers to offer to charge Medicare a lower price than the listed price, and then Medicare would have to share some of those savings with the patients who choose those cheaper providers. This could come in the form of cash rebates, although it might encourage people to find ailments for which they can choose cheaper providers and make some money off Medicare. I would rather it be money that is put toward reducing future expenses of some sort. If, for example, everyone had to at least pay an income-dependent nominal premium every year, the shared savings money from Medicare could go to reducing their future premiums. This may be too indirect/time lagged to provide sufficient immediate motivation to actually consider choosing a lower-cost provider, but I’m guessing that would be the most palatable way (in the minds of the sponsors of the bill) to achieve this.

Remember how this idea of getting patients to pay less if they choose a less-expensive provider fits into the big picture. If patients are motivated to choose providers based on quality and price, they will be choosing based on which is the highest value to them (because value is quality/price), and the incentives for providers to innovate to improve value relative to competitors will be in place.

I would also like to see a Medicare website (and accompanying app) that lists all providers in the region, their quality and outcomes data, and their prices. This would make it easier for people to choose providers based on quality and price.

Of course, there will always be healthcare services for which this kind of deliberate selection is impossible, either because the patient’s symptoms are too ambiguous to know even what they need, or because time or emotional capacity is limited. And many patients will not be able to integrate all these different pieces of information to make a rational decision. But even without 100% perfect decisions all the time, it will create a strong enough incentive for value-improving innovation that the cost of healthcare will go down and the quality will go up. And even for services that are not amenable to this kind of value-based decision, the value-improving innovations from other services will likely bleed into them as well.

So, I guess the Medicare for All Act of 2019 didn’t need as many changes as I expected when I was reading through it. A few simple yet substantial changes are all that it needs to make it truly transformative–not just from a coverage perspective, but also from a cost and quality perspective.

This bill is dead, but I’m confident another single-payer system bill will be proposed in the next few years, and I hope it includes the changes detailed here so that it will not create yet another healthcare system in the world that achieves universal coverage but at the expense of creating barriers to solving the cost and quality problems.

Evaluating Sanders’s Medicare for All Act of 2019, Part 6

Part 1 reviewed Title 1, which states that basically everyone will be covered and can receive care from pretty much any provider. Part 2 reviewed Title 2, which states that insurance benefits will be comprehensive without any regular out-of-pocket expenditures. Part 3 reviewed Titles 3 and 4, which lay down some provider standards and also some expectations regarding data reporting. Part 4 reviewed Titles 5 and 6, which establish some quality standards and a national health budget, plus it gives an updated process for how fee schedules will be made. Part 5 reviewed Titles 7, 8, and 9, which are primarily nuts and bolts of where tax money will be placed, some clarifying statements, and a lot of conforming  amendments.

Let’s look at the last two titles of this bill today.

Title 10

Title 10 is a huge chunk of this act. It describes how we’ll get from here (current healthcare system) to there (M4A). I’m more interested in the description of the final destination titles 1-9 have given rather than how we get there. After all, the transition time, no matter how it’s managed, will be disruptive and time-limited, and then it will be over. This doesn’t mean I want to completely ignore it. But it does mean I will not get mired down in all the details.

There are 3 subtitles that make up Title 10:

  • Subtitle A lowers the Medicare age and establishes a “Medicare Transition Plan.”
  • Subtitle B makes a number of reforms to Medicare to get us closer to the end goal, such as decreasing out-of-pocket limits for Parts A, B, and D, and eliminating Parts A and B deductibles, plus adding dental, vision, and hearing aid coverage to Part B.
  • Subtitle C provides some protections to maintain continuity of care during this transition time.

Subtitle A is the meat of the transition plan, so let’s talk about that just a little more.

First, it creates what I will call a “young Medicare” plan. The ages of eligibility are phased in over a few years, but it’s lowering the age of Medicare to 35. Coverage and cost sharing requirements are the same, but the premium is calculated differently for this young Medicare group from 35 to 64 years old. Enrollees will pay a monthly premium of 1/12 of “the average, annual per capita amount for benefits and administrative expenses.” So, from how this reads, everyone in this young Medicare plan is lumped into the same risk pool, and they all pay the average expected cost. This means there are no age rating bands.

Since there will still be private insurers offering all their plans for the under-65 crowd, this is essentially a public option. It will be offered on the insurance exchanges alongside private insurance plans, and it will be eligible for cost-sharing subsidies just like any other plan on the exchanges. And based on the lack of age rating bands, it will probably be an amazing deal for the 64-year-olds and a bad deal for the 35-year-olds. This is a situation ripe for a “death spiral,” but that won’t matter too much because this is a time-limited thing anyway.

Next, Subtitle A creates a “Medicare transition plan.” This is a health insurance plan that is also a public option like young Medicare, but it’s more ACA style. It will be sold on the exchanges, and it will adhere to all the requirements that other plans sold on the exchanges follow: anyone can enroll, premiums will be determined by age and tobacco status, and premium assistance and cost-sharing subsidies will all apply. The huge advantage this plan has over private plans being sold on the exchanges is that it piggybacks off the Medicare network of providers and Medicare fee schedule, so I expect it will be a market killer as long as premiums are competitive (and they should be based on how much lower their provider rates will be).

With the combination of lowering the Medicare age substantially and also adding an ACA-style public option that will take a large share of the market, most people will end up on public health insurance of some form.

Title 11

This simply updates the resource limits for Supplemental Social Security Income eligibility and then provides a few definitions.


There we have it! Reading a healthcare bill can be pretty dry stuff, but now we have all the important details and can start looking at this bill as a whole to give some final evaluative and prescriptive commentary.

Continue to Part 7 (Conclusion).

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