Working Paper: NBER ID: w21222
Authors: Michael Geruso; Timothy Layton
Abstract: In most US health insurance markets, plans face strong incentives to “upcode” the patient diagnoses they report to the regulator, as these affect the risk-adjusted payments plans receive. We show that enrollees in private Medicare plans generate 6% to 16% higher diagnosis-based risk scores than they would under fee-for-service Medicare, where diagnoses do not affect most provider payments. Our estimates imply upcoding generates billions in excess public spending and significant distortions to firm and consumer behavior. We show that coding intensity increases with vertical integration, suggesting a principal-agent problem faced by insurers, who desire more intense coding from the providers with whom they contract.
Keywords: Medicare; Upcoding; Risk Adjustment; Health Economics
JEL Codes: H42; H51; I1; I13; I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Medicare Advantage penetration (I11) | reported risk scores (C46) |
| Medicare Advantage enrollment (I13) | risk scores (C52) |
| vertical integration (L22) | coding intensity (C89) |
| coding practices (C88) | consumer choices (D10) |
| coding practices (C88) | government subsidies (H20) |
| MA enrollment (I18) | coding intensity differential (C69) |