The health-care law makes a big bet: Tethering providers’ salaries to the quality of care they provide will improve outcomes. That’s the whole idea behind Accountable Care Organizations, where doctors have financial incentives to provide quality care for lower costs.
Steffie Woodhandler, Daniel Ariely and David Himmelstein have an editorial (that goes with an accompanying article) outlining all the reasons that pay-for-performance may not work in health care. Chief among them is the problem of “up-coding.”
Doctors tend to get paid more to handle the care of more complex patients. That creates an incentive to describe their patients’ medical needs as more challenging then they actually are:
Intensive coding — that is, embellishing diagnoses to maximise payment under per case or risk adjusted capitation schemes — also makes patients seem sicker on paper, and hence boosts risk adjusted quality scores. Under US Medicare’s DRG (diagnosis related groups) hospital payment system, recoding a diagnosis as “aspiration pneumonia with acute or chronic systolic heart failure” rather than simply “pneumonia with chronic heart failure” triples the payment and increases the risk score. Such “upcoding” is endemic among private health maintenance organisations that contract with Medicare for risk adjusted capitation payments, as well as among hospitals.
It’s worth pointing out that this happens a fair amount already. There are full conferences that doctors can attend to learn how to maximize their earnings by using the right medical codes. Marketplace’s Gregory Warner went to one and found a doctor who increased his earnings by 70 percent, just by changing the codes he used.
The concern from these authors is that a pay-for-performance model does not really guard against this any better than the current system. Doctors get a higher lump-sum payment for dealing with the more complex payments — creating an incentive to, at least on paper, make the medical needs look as intense as they possibly can.