Medicare, Hospitals at Odds Over Payment for Sicker Patients

A patient classification system that was installed in 2008 to better measure the severity of illnesses and payment accuracy for Medicare beneficiaries shows that hospitals are successfully contending with a more complex and costlier caseload, the American Hospital Association reports. 

And now that the federal government's Medicare Severity-adjusted Diagnostic Related Groups data makes that clear, AHA officials say, the federal government doesn't want to pay for the results.

The Medicare ranks include about 48 million people, with 10,000 Baby Boomers becoming eligible each day. An AHA Trend Watch cites data sources showing that four out of five Medicare beneficiaries suffer from chronic disease and two-thirds of them have two or more chronic diseases.

For example, the prevalence of obesity among Medicare beneficiaries has doubled since 1987. In 2009-10 38% of seniors were obese. Diabetes among seniors has increased from 18% in 2002 to nearly 27% in 2010.

"Chronic disease is rising among Medicare patients," says Caroline Steinberg, vice president for trends analysis at AHA. "It is not at all surprising that the new patient classification system that they developed to better account for the resources used by sicker patients is picking up more resource use and resulting in a higher case mix and leading to higher Medicare payments because of this."

The problem, Steinberg says, is that the Centers for Medicare & Medicaid Services "doesn't want to pay more for the rising severity that has been uncovered by their new, more accurate payment system."

"This is an issue that we have been going back and forth with CMS on for at least five years," she says. "They developed a payment system to better capture the severity of illness and it is working as far as we can tell. But now they are going back and saying ‘Gee we don't want to pay more because this system is picking up more and sicker patients. We want to pay you as if you were under the old system.'"

The data shows that even as Medicare patients contend with more and more chronic illnesses, they are also living longer thanks to effective medical care. In 2009 American life expectancy was 78.2 years, an increase of 1.8%, or 17 months, since 2000.

It is projected that the number of Medicare beneficiaries will more than double over the next 40 years. By 2020, the over age 85 population will reach 6.6 million people, up from 5.5 million in 2010, AHA says.

"The technology has allowed people to live longer with a whole host of chronic diseases which a generation before they might have died from," Steinberg says. "It improves quality of life, but that makes healthcare more expensive."

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."