Upcoding: Evidence from Medicare on Squishy Risk Adjustment

Michael Geruso, Timothy Layton

NBER Working Paper No. 21222
Issued in May 2015, Revised in April 2018
NBER Program(s):Economics of Aging, Health Care, Health Economics, Public Economics

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.

A non-technical summary of this paper is available in the September 2015 NBER Digest.  You can sign up to receive the NBER Digest by email.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w21222

Published: Michael Geruso & Timothy Layton, 2020. "Upcoding: Evidence from Medicare on Squishy Risk Adjustment," Journal of Political Economy, vol 128(3), pages 984-1026.