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Making money from Medicare


  • A doctor is supposed to write on your medical chart what is wrong with you when you come into a hospital. This is the case for all patients, but it is particularly important in determining taxpayer reimbursement for Medicare patients, typically older than 65.
  • Medicare is funded by the federal government based on its yearly caseloads. In 2010, the program spent about $516 billion, according to the Centers for Medicare & Medicaid Services. Hospital payments are based on how sick each patient is; serious complications qualify for additional bonus payments.
  • The Medicare system is designed to reward hospitals that treat the sickest patients. But it also can lead to something called “upcoding,” in which hospitals embellish the medical chart in order to earn more money. Upcoding is illegal.
  • Major upcoding cases occurred in 2006, resulting in a $46 million settlement involving Tenet Healthcare Corp., and in 2000, when Columbia/HCA agreed to a $403 million settlement for upcoding fraud.
  • Prime Healthcare Services, which operates 14 hospitals in California and one in Texas, has been more aggressive than other hospitals in California in claiming treatment of rare and unusual ailments. The chain has used this strategy to help turn around struggling hospitals. 
  • Some former employees at Prime, the largest for-profit hospital chain in California, have said in legal testimony that they were encouraged, even pressured, to make changes to optimize the reimbursements. 
  • Payments are based on a patient’s primary diagnosis, which is the condition that prompted the hospital stay, and any secondary conditions. Take, for example, a patient with pneumonia. A hospital could be paid $7,000 for treating the routine ailment. But if the rare condition encephalopathy – which causes the brain to swell, among other things – is added to the diagnosis, it can result in $7,000 in additional payments to the hospital per patient. 
  • Some of the red flags for possible upcoding can be found in state and federal data, where aggressive billing patterns can be recognized. In the case of Prime, the chain has reported treating a variety of ailments and conditions, including encephalopathy, that bring in higher reimbursement from Medicare. Prime reported the condition among Medicare patients at rates five times higher than other hospitals in California.


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