Category Archives: RICO

DRG Down-Grades



PART IV – DRG Downgrading: Is it auditing or racketeering?

Edward M. Roche, Ph.D., J.D.
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.

Interviews with hospitals facing a tsunami of DRG downgrades reveal that auditors are engaging in a pattern of abuse and intimidation that resembles the type of scams usually prosecuted by the Racketeer Influenced and Corrupt Organizations Act (RICO). Here are some of the facts; you judge for yourself.

Unilateral Re-Diagnosis of Patients

It is very common the the auditor to re-diagnose a patient. The result of this usually is a substantial cut in the revenue paid to the hospital.

For example, in one case a patient had pneumonia plus a cardio problem. The auditor said that it would pay for treatment of the pneumonia, but that the cardio problem was merely “incidental”. When the hospital pointed out that the heart condition was so bad it required installation of a pacemaker, the auditor then said it would pay for the cardio treatment, but that the pneumonia was incidental, and thus would receive no payment. This was the same pneumonia that in the first round had been approved. When asked to explain, the auditor didn’t answer.

In one case, the patient had streptococcus pharyngitis and also sepsis. Sepsis is a “life-threatening organ dysfunction caused by a dysregulated host response to infection.” (*) It is a very dangerous condition that can lead to death, and frequently occurs in conjunction with other conditions. The patient presented five (5) of the American Medical Association (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.

(*) See Singer, M. et al., The Third International Consensus Definitions for Sepsis and Septic Shock (Sepsis-3) , J. of the Am. Med. Assoc., (2016) 315(8):801-10, doi:10.1001/jama.2016.0287. (Soon a new criteria “Sepsis-3” will replace the current criteria “Sepsis-2”.)

What is the hospital to do?  If they rely on the AMA diagnostic criteria which is used by CMS, and these criteria are followed, and consequently the diagnosis is valid, then how can the auditor simply ignore it? To put it another way, of the hospital and coders are unable to rely on the AMA diagnostic criteria, then what are they supposed to do?

In another case, the 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.

“Flavor of the Month”

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

These examples show the general pattern. 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 must alarming practices by the auditors is the continued use of a number of cheap tricks. For example, appeals have a cut-off 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.

The auditor refuses to use trackable mail, and fully one-third of appeals are lost because the provider never even receives the demand letter.

The auditor refuses to accept any electronic records, leaving the provider hospital 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. This tends to take another week out of the 30-day time window for an appeal.

No Transparency

When the auditor is asked to explain their opinion, they refuse. When asked about the credentials of the person(s) making the decision, the auditors 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 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 dollars. In the cardio case, the billing of $53,000 was downgraded to $35,000 dollars.

Administrative Cost to the Hospital

To give an example of the costs involved, we spoke with one hospital that is a 600 bed facility. Since the wave of DRG downgrading started, it has been forced to hire two RN who possess 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 where state medicaid services are sub-contracted to a private insurance company. In these cases, there frequently is not appeal possible at all. Or if there is, then is is limited to a one-level appeal (to be reviewed by the same company). Most contracts have not external appeals process 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 goes against every concept of due process known in our legal system.

Application of RICO

Under 18 U.S. Code § 1961(1) “racketeering activity” has a very broad meaning and includes “any act . . . involving . . .  robbery [or] extortion.” It perhaps would be a stretch to apply RICO to what is happening with DRG downgrades. But lets ask a simple question: Do you know of any other legal process in the United States where an organization can simply take more than $50,000 dollars 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?