Medicare, Hospitals at Odds Over Payment for Sicker Patients

For example, between 2000 and 2008 age-adjusted death rates for heart disease and cancer fell by 28 percent and 12 percent, respectively. Survival rates for heart attack patients have improved by about 70% in that timeframe thanks to pharmaceutical and technological advances.

However, the success comes at a cost. Average inpatient Medicare spending per patient increased from $10,336 in 1999 to $14,009 in 2006, according to data cited by AHA.

Steinberg says the federal government has already taken back billions of dollars from hospitals "because what we call sicker patients they're calling a change in the documentation and coding. We are at the point where we are saying ‘you need to stop. You've taken more than you should have taken. You need to refine your methodology to better assess the impact of rising patient acuity.'"

The government is challenging its own data comes as hospitals are already contending with sweeping changes in the way healthcare delivery is compensated. The shift away from fee-for-service payments and towards capitations and bundled payments has many hospitals "straddling two very different environments," Steinberg says.

"There is this one-foot-on-the-boat-and-one-foot-on-the-dock feeling that many hospitals have now. Many of them may have different payment arrangements."