Beyond Upcoding: Bundling and Eligibility Issues Exacerbate CC/MCC Audit Risks

Beyond Upcoding: Bundling and Eligibility Issues Exacerbate CC/MCC Audit Risks

By Peter J. Butler

A report issued in early 2021 by the US Department of Health and Human Services (HHS) Office of the Inspector General (OIG) raised a number of red flags that should be informing hospital and health system audit strategy for the foreseeable future. Covering fiscal year (FY) 2014 through FY2019, the OIG analysis points to a notable rise in costly inpatient hospital stays—many coded at the highest severity level.

The report, which cautioned its findings were based only on an analysis of claims data and not the medical record review necessary to determine appropriateness, found that the number of stays at the highest severity level increased almost 20 percent during the time frame examined and decreased for each of the other severity levels.

Clinical documentation integrity efforts resulted in enhanced and meaningful clinical documentation that demonstrated the medical necessity of services rendered and, in turn, more accurate coding. This also led to an increase in higher severity coding due to greater confidence with supporting documentation.

An internal review of Hayes data pulled from a cohort of hospital claims (representing approximately 42 million claims) indicates the problem goes beyond possible upcoding to include issues with bundling and inconsistent insurance policies and behavior that includes coverage and eligibility.

Regardless of the underlying problem, compliance professionals must prepare for an uptick in targeted billing reviews by the Centers for Medicare and Medicaid Services (CMS) focused on hospital stays that are vulnerable to upcoding. It’s a predictable path, and in today’s lean climate, financial executives need to minimize risk that could lead to noncompliance and future loss of revenue.

Costly Inpatient Stays: A Deeper Look

The OIG report found that inpatient stays coded at the highest severity level increased 20 percent over the five-year period, representing about $29 billion—nearly half—in Medicare spending alone. In particular, MS-DRG 871, Septicemia or Severe Sepsis without MV 96 hours with MCC, was highlighted as problematic for FY2019.

The analysis uncovered multiple data points that would suggest problematic upcoding. First, short lengths of stay across almost one-third of the high-severity claims raise questions about the seriousness of conditions. In addition, more than half of the high-severity claims had only one qualifying diagnosis, of which kidney and urinary tract infections, pneumonia, chronic obstructive pulmonary disease, and renal failure accounted for the largest share. In all, the “one qualifying diagnosis” characteristic resulted in $10 billion more than Medicare would have otherwise paid without a major complication.

While there is certainly evidence to suggest problematic upcoding existed pre-pandemic, a Hayes analysis of 2020 data reveals that more recent problems also stem from bundling, coding, and coverage/eligibility issues—nearly one-third of denials and approximately $23 billion in charges. Most of the bundling-related denials were associated with hospital outpatient services for Medicare Part A and Part B.

Improving the Outlook

The heightened scrutiny on higher-severity coding makes now the ideal time for compliance teams to implement processes and technologies that will aid in identifying at-risk cases to correct issues, prospectively, before they leave the facility. It is also an opportune time to enhance retrospective audit plans to include an analysis of denials data to identify and address root causes of these issues.

A holistic approach to revenue integrity can help healthcare organizations get out in front of potential issues. The best approaches draw on the power of technology-enabled processes to address front-end and back-end auditing strategies and contain risk associated with upcoding as well as bundling and eligibility issues. Hospital and health systems that take one or both of the following actions will lay the groundwork for a more compliant future that ensures accurate capture of all monies owed:

  1. Leverage advanced AI tools for front- and back-end auditing. Prospective auditing practices speak to the ability to identify problems before a claim is ever submitted. When supported by augmented intelligence (AI) and natural language search (NLS) capabilities, healthcare organizations can rapidly comb through claims to detect anomalies—an effort that is often a nonstarter for resource-strapped systems attempting to identify issues via manual processes. More specifically, these tools can be outfitted with customized algorithms that automatically flag high-dollar claims or conditions such as sepsis coded at the highest severity level for audit and review.

In similar fashion, AI and NLS can be used in tandem with analytics to retrospectively mine thousands upon thousands of claims lines across denials to uncover problematic trends for process improvement. These insights draw attention to the root cause of denials and help revenue integrity teams educate and tweak processes to mitigate future risk.

  1. Prioritize auditing practices associated with bundling and insurance coverage and eligibility policies. The conventional view, as it pertains to upcoding, presently is that it’s a “coding” problem. Yet internal data from Hayes suggests that bundling and insurance eligibility are also culprits. Bundling, which is the process of linking medical services together under one code, is a common practice in today’s billing departments. While it can create efficiencies and improve patient care, it is also fraught with potential for error.
Holistic Revenue Integrity

As healthcare organizations navigate an era characterized by some of the tightest operational margins in recent history, revenue integrity teams are under tremendous pressure to capture all reimbursement in a compliant fashion. Inaccurate capture of revenue helps no organization in the long term if they are penalized for noncompliance.

Organizations should be conducting internal auditing and record reviews for these high-risk MS-DRGs to get ahead of any issues and prepare for forthcoming audits. Organizations must have coding compliance policies and conduct quality audits on a regular basis.

Now more than ever, internal compliance—which includes coding and billing practices and processes—is vital to help identify issues prior to claims going out the door. The wise C-suite is one that prioritizes a holistic approach to revenue integrity and equips billing and compliance departments with the tools needed to rapidly identify issues both prospectively and retrospectively.


Peter J. Butler ( is president and CEO of Hayes.

Leave a comment

Send a Comment

Your email address will not be published. Required fields are marked *