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Do hospitals respond to changing incentive structures? Evidence from Medicare’s 2007 DRG restructuring

Amanda Cook () and Susan Averett

Journal of Health Economics, 2020, vol. 73, issue C

Abstract: In 2007, the Centers for Medicare and Medicaid restructured the diagnosis related group (DRG) system by expanding the number of categories within a DRG to account for complications present within certain conditions. This change allows for differential reimbursement depending on the severity of the case. We examine whether this change incentivized hospitals to upcode patients as sicker to increase their reimbursements. Using the National Inpatient Survey data from HCUP from 2005 to 2010 and three methods to detect the presence of upcoding, our most conservative estimate is an additional three percent of reimbursement is attributable to upcoding. We find evidence of upcoding in government, non-profit, and for-profit hospitals. We find spillover effects of upcoding impacting not only Medicare payers, but also private insurance companies as well.

Keywords: Upcoding; Hospital reimbursement; Health care financing; Health insurance; Diagnosis related group (search for similar items in EconPapers)
JEL-codes: H51 I13 I18 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jhecon:v:73:y:2020:i:c:s0167629618309330

DOI: 10.1016/j.jhealeco.2020.102319

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Journal of Health Economics is currently edited by J. P. Newhouse, A. J. Culyer, R. Frank, K. Claxton and T. McGuire

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