Physicians are throwing their money away. On purpose.

Freaked out by the mere thought of a federal audit — and the threat of stiff fines and possible jail time — physicians across the country are consistently billing Medicare (and other payers) for a lower level of service than they actually provided.

“When physicians hear about [audits and prosecutions] ... it triggers them to bill low. They take what they think is the safe route,” explains Mary LeGrand, consultant for St. Louis-based Karen Zupko and Associates.

In other words, afraid of being accused of reporting the wrong Current Procedural Terminology (CPT) code, physicians consciously “undercode,” or “downcode,” just to play it safe. But downcoding isn’t safe. Worse, it is costing practices a ton of money.

New evidence shows how drastically provider angst has impacted coding — and physician revenue — over the past five years.

Huge financial impact

The fear factor in physician billing first emerged in 1995 with the launch of Operation Restore Trust, the Health Care Financing Administration’s (HCFA) pilot program in fraud prevention. By 1997, nearly every provider in the country was expecting federal investigators to knock on his or her door at any minute — and the situation hasn’t gotten much better.

Last November, U.S. Attorney General Janet Reno reported that $840 million of the almost $1.5 billion the Department of Justice (DOJ) collected in civil penalties under the False Claims Act in fiscal year 2000 derived from settlements involving healthcare fraud. According to an end-of-year report from the DOJ, federal prosecutors filed 371 criminal indictments in healthcare scam cases in 1999 — a 16 percent increase over the previous year; 396 defendants were convicted that year of criminal activity (that is, activity usually resulting in jail time, not “just” fines).

The heat is still on, and physicians are responding. Although few care to admit personally to improper coding, the trends are clear. Todd Welter, president of R.T. Welter & Associates, a consulting group in Denver, reports that, when he lectures on coding, physicians regularly come up afterward and privately say, “I always pick a lower level of service on purpose because I don’t want to get in trouble.”

Douglas Henley, MD, who practiced as a family physician for 20 years, thinks “all physicians downcode, feeling that that is a safe harbor.”

Data gathered by the Medicare Payment Advisory Commission (MedPAC) supports the rumors. Coding patterns have shifted dramatically — from higher-level codes to lower-level ones. From 1993 to 1997, for example, the annual change in coding intensity for new-patient office visits was 0.4 percent — that is, the number of new-patient visits billed grew slightly each year. However, from 1997 to 1998 — when physician awareness and hysteria over anti-fraud efforts were at an all-time high — coding for new-patient office visits dropped an unprecedented 1.8 percent.

MedPAC’s understated report to Congress summarizes, “Part of the response to fraud and abuse policies has been less aggressive billing by healthcare providers.”

And it provides another example: According to testimony by the Central Billing Office (CBO), hospitalized patients with respiratory infections are generally assigned to one of two diagnosis-related groups: respiratory infection or simple pneumonia. Medicare payments for the former averaged $7,400 in 1998; payments for the latter averaged $4,900.

From 1997 to 1998, not surprisingly, the number of cases assigned to the high-paying respiratory infection diagnosis fell by 43,000. The cases of simple pneumonia rose by 42,000. The result? This single change saved Medicare (and cost hospitals) about $100 million in 1998 alone.

No big deal?