Interviews with hospitals facing a tsunami of diagnosis-related group (DRG) downgrades reveal that auditors are engaging in an alleged pattern of abuse and intimidation resembling the type of scams usually prosecuted under the Racketeer Influenced and Corrupt Organizations (RICO) Act. Under the relevant federal statute, “racketeering activity” has a very broad meaning and includes “any act …involving …robbery (or) extortion.”

Here are some of the facts; you can judge for yourself.

Unilateral Re-Diagnosis of Patients 

It is very common for auditors to re-diagnose a patient even though they never even see the patient. The result of this usually is a substantial cut in the revenue paid to the hospital.

For example, in one recent case a patient was admitted from the emergency department (ED) with arrhythmia. In the ED, the chest X-ray (CXR) was abnormal. Because the patient had a slight fever, antibiotics were given for mild pneumonia. The patient then was admitted to cardiology to determine the cause of recurrent arrhythmias. 

An external pacemaker was put in place during admission. The hospital billed DRG-308 (cardiac arrhythmia with major complication). The principal diagnosis reported by the hospital was arrhythmia with pneumonia secondary. This amounted to an $18,000 payment.

The auditor said it would pay for treatment of the pneumonia, but that the cardio problem was merely “incidental.” The auditing company changed the principal diagnosis to pneumonia, which changed the DRG to 195 (simple pneumonia, which is only a $7,000 payment). This all made for a loss of $11,000 for the hospital.  

The hospital appealed. It pointed out that the heart condition was so bad, it required installation of an external pacemaker, plus several cardiology consultations and IV medication to treat the arrhythmia. The auditing company then changed the diagnosis again. The principal diagnosis of arrhythmia was accepted, so the hospital received payment for code DRG-308 (arrhythmia without a major complication). This was only a $7,500 payment to the hospital. The auditor had removed the pneumonia diagnosis, claiming that the original diagnosis “was not clinically supported.” This was the same pneumonia that in the first round had been approved. When asked to explain, the auditor didn’t answer.

In another case, a patient had streptococcus pharyngitis and also sepsis. Sepsis is a “life-threatening organ dysfunction caused by a dysregulated host response to infection,” per an entry in the journal of the American Medical Association (AMA). It is a very dangerous condition and can lead to death. It also frequently occurs in conjunction with other conditions. The patient presented five of the AMA diagnostic criteria for sepsis (e.g., fever, tachycardia, etc.), even though the AMA requires only two be present for a sepsis diagnosis. The auditor wrote that although “the patient presented symptoms that warranted consideration of sepsis,” it was not there, and only the pharyngitis would be paid for. Of course, sepsis is more expensive to treat.

The auditors seem to roam from one area to another in their targeting. According to one interviewee, “sepsis is the current flavor of the month.” 

In another case, a hospital was treating a functional quadriplegic who had dementia. In particular, the patient was treated so as to avoid Stage 4 decubitus (bed sores and ulcers). The auditor said that the decubitus was “clinically insignificant,” so the hospital would not be paid. In addition, the patient was not considered to be a “real” quadriplegic.

What is the hospital to do in such a situation? If it relies on the AMA diagnostic criteria used as a standard by the Centers for Medicare & Medicaid Services (CMS), and consequently, the diagnosis is valid, then how can the auditor simply ignore it? To put it another way, if the hospital and coders are unable to rely on the AMA diagnostic criteria, then what are they supposed to do? 

These examples show the general pattern in play. If the patient is treated for more than two major problems, the auditor will always ignore the more expensive DRG and pay for only the cheaper DRG. 

Cheap Tricks to Cheat the Hospital

One of the most alarming practices by the auditors is the continued use of a number of cheap tricks. For example, appeals have a cutoff time of 30 days from the date of the demand letter from the auditor, but letters routinely are mailed as much as a week or more after the letter date, usually leaving the provider with only a few days to appeal. 

In some cases, auditors refuse to use trackable mail, and fully one-third of appeals are lost because the provider never even receives the demand letter. This is an astounding figure, and it represents enormous monetary losses to hospitals (and very big profits to the auditors). 

Some auditors also refuse to accept any electronic records, leaving the provider hospitals with a requirement to send physical copies of all the documentation by certified mail. 

Unlike most correspondence, the time of submission of an appeal is counted from when the documentation is received, not when it is mailed. There is no “mailbox rule” for these appeals. This abhorrent practice tends to take another week out of the 30-day time window for appeals. 

No Transparency

When auditors are asked to explain their rationale, they often refuse to provide one. When asked about the credentials of the person(s) making the decisions, the auditors often point out that they are not required to provide this information. When shown how a claim meets the criteria set forth by the American Hospital Association, the auditor often simply says it disagrees. 

How much money is seized? 

We asked for specific examples of DRG downgrading to get a picture of the amounts of money involved. In the pharyngitis/sepsis case, the billing was $23,000 and this was downgraded to $3,000. In the cardio case, the billing of $53,000 was downgraded to $35,000.

Administrative Cost to the Hospital 

To give an example of the costs involved, we spoke with one 600-bed hospital facility. Since the wave of DRG downgrading started, it has been forced to hire two RNs who possess American Health Information Management Association (AHIMA) certification in coding, one physician advisor, and two certified coding specialists acting as consultants, plus administrative support, just to keep up. 

No Due Process 

Some of the most egregious abuse takes place in cases in which state Medicaid services are sub-contracted to a private insurance company. In these cases, there frequently is no appeal possible at all. Or if there is, then it is limited to a one-level appeal (to be reviewed by the same company). Most contractors have no external appeals processes at all. What this really means is that the auditor can simply remove money from payment to the hospital, and there is no due process to review to see if it is justified. 

From a legal standpoint, this is insanity. It is un-American, and it goes against every concept of due process known in our legal system.

Application of RICO

It perhaps would be a stretch to apply RICO to what is happening with DRG downgrades. But let’s ask a simple question: Do you know of any other legal process in the United States through which an organization can simply take more than $50,000 from a party with no due process, no explanation, and no serious review? And if that is happening, then how would it be characterized? The reality is that the auditors are in a position where they can act this way because there are no constraints on them. They can simply take the money from the hospital, but without any clear explanation, and with no meaningful medical analysis. How would you characterize this? 

Should RICO apply? I don’t know. You be the judge. 

About the Author 

Edward M. Roche is the founder of Barraclough NY LLC, a litigation support firm that helps healthcare providers fight against statistical extrapolations. Prior to joining the California Bar, Dr. Roche served as the chief research officer of the Research Board (Gartner Group) and chief scientist of the Concours Group, both leading IT consulting and research organizations.

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EDITOR’S NOTE: RACmonitor will be conducting a State of the Industry DRG Auditing Survey on Tuesday, Oct. 11.

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