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» How Common Are Medical Billing Errors?

September 25, 2020

Healthcare Spending, Self-Funding

Medical bills in the U.S. can run 5, 6, and even 7-figures in certain instances.

With that much money on the line, medical bills generated by providers and hospitals should be fairly accurate, right?

Think again.

Upwards of 80% of Medical Bills Contain Errors

According to Pat Palmer, CEO and founder of Medical Billing Advocates of America, his organization finds errors on three out of four medical bills they review.

While patients are frequently overcharged, hospitals and providers are very good about never undercharging. It’s unreasonable to review each and every claim submitted, given the sheer volume of them, and looking at claims alone isn’t likely to be effective at reducing waste and errors.

One cause behind the frequency of medical billing errors is the complex billing system we have in the U.S. healthcare system.

One of the most common and pervasive billing errors is upcoding. Let’s look at it in more detail.

Upcoding and Diagnosis-Related Groups

A diagnosis-related group (DRG) is a manner of classifying patients into clinically-similar groups. This standardizes hospital and physician payments and the intention is for providers to streamline care and reduce cost of treatment for a given clinical issue or diagnosis. It’s most common with Medicare reimbursement, but versions of it exist for other payers in the healthcare system, such as fully-insured and self-funded groups.

Some DRG coding errors are clerical and a result of oversight. Other times, errors are due to upcoding, which is done to increase the reimbursement to the provider or hospital.

Since a more severe condition will require more resources, it makes sense that a provider should be paid more for treating that patient. But the variation in payments depending on severity result in a stunning proportion of patients being coded with sever conditions.

Hospitals employ specialized coding specialists to ostensibly make sure it gets paid appropriately for the care it delivers. But in practice, they work to make the hospital as much as possible based on the codes available. So if a coder indicates heart failure instead of acute systolic heart failure with a slightly different ICD-9 code, the provider can charge thousands of dollars more.

Coding for Inpatient vs Outpatient Care

In general, inpatient care is more expensive than outpatient care, which earns the provider a higher reimbursement rate. Billing errors may incorrectly code outpatient care as inpatient, driving up the cost of a medical bill.

Post-Hospital Skilled Nursing Facilities (SNFs)

Since the HHS and DOJ recovered approximately $47 million in 2018 due to skilled nursing fraudulent billing, skilled nursing facilities or SNFs have been under greater scrutiny.

A pernicious issue with our healthcare system is volume-based payment, rather than outcome-based payment models. Fee-for-service, the basis for PPO plans, incentivizes more care, not better outcomes. This isn’t always a problem, but it does underline many cases of overspending in our healthcare system.

SNF reimbursements are partially determined by the number of visits by a patient. This creates an incentive to recommend and bill for more visits than medically-necessary.

One group estimates up to 25 percent of SNF claims result in overcharges, totaling 15 percent of the net paid amount.

Addressing Medical Billing Issues

If a group is fully-insured, it has little ability to know or address medical billing issues. The fully-insured group’s main area of concern is if employees are asked to pay more for a claim than they should based on errors.

For a self-funded group, billing errors and overcharges are an opportunity for plan savings.

A good third-party administrator can review claims as they come in to identify cost savings and recover costs if paid inappropriately. Medical coding errors are an unfortunate feature of the U.S. healthcare system but with claims and record review, an organization can reduce overspending and total healthcare costs.

If you’d like to know more about how comprehensive claims auditing can save your group money, schedule time with one of our benefits consultants for a complimentary consultation.



Posted by in Healthcare Spending, Self-Funding