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Actuary: PPACA drags insurers into diagnosis code war

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Health insurers have traditionally been suspicious of doctors, hospitals and other care providers that have taken an aggressive approach to describing the severity of patients’ diagnoses. 

Now, however, the Patient Protection and Affordable Care Act of 2010 (PPACA) may be giving health insurers a financial incentive to persuade providers to code diagnoses as aggressively as the facts permit.

Corey Berger, a consulting actuary in the Atlanta office of Milliman, talks about how the PPACA commercial health insurance risk-adjustment system might affect carrier diagnosis coding preferences in a new commentary.

PPACA opponents continue to fight to block implementation of part or all of the law.

Berger has assumed in his analysis that the PPACA health insurance law and risk-adjustment program changes will take effect roughly as written.

One major section of PPACA calls for the U.S. Department of Health and Human Services (HHS) to work with state regulators to create two temporary risk-adjustment programs and a permanent risk-adjustment program. Each program would transfer cash from insurers with relatively healthy enrollees and relatively low claims to insurers with sicker, more expensive enrollees.

Because of those cash transfer programs, “if a carrier does not ensure that it is at least average in its efforts to submit diagnosis codes, it will likely end up owing money to those plans that do invest in the technology and staff to measure, validate, and submit the data to HHS,” Berger wrote in the commentary.

In the PPACA system, Berger said, submitting accurate and complete diagnosis information to HHS could be as important to financial success as pricing coverage accurately and managing claims costs.

The shift in carrier thinking will be similar to what the carriers that run Medicare Advantage plans went through in 2004, Berger said.

HHS officials have indicated in proposed regulations that they will measure plan enrollee risk by using “hierarchical condition categories” to assign risk levels to the enrollees’ conditions, Berger said.

To run that system, HHS needs for carriers to give it specific condition diagnosis codes, rather than more general condition diagnosis codes.

Instead of getting an ICD-9 diagnostic code of 250, for diabetes mellitus, HHS would want to get a diagnostic code with at least two digits after the decimal place, such as 250.01, for diabetes mellitus without mention of complication, Type I, or 250.10, for diabetes with ketoacidosis, Type II.

One complicating factor is that many insurers have been paying carriers based on the codes for the medical procedures provided, rather than diagnosis codes. Providers that get paid based on procedure codes have little incentive to provide complete diagnostic code information, Berger said.

HHS will protect itself against the possibility of upcoding — providers portraying patients as being sicker than they really are — by putting samples of a carrier’s enrollees through two rounds of audits. HHS then will calculate a diagnostic code error rate.

Eventually, Berger said, HHS would use the error rate to adjust a carrier’s risk score and the amount of risk-adjustment cash it gets or must pay out.

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