Hospital DRG Upcoding: When One Diagnosis Sets the Price

Hospital DRG upcoding turns an unsupported diagnosis into a higher price for the whole stay, without another hospital day or another procedure. For the coder, clinical documentation specialist or physician, the question is which diagnosis changed the payment and how it survived the chart review.

What Is Upcoding in Healthcare?

Upcoding in healthcare means billing for a more expensive diagnosis or level of care than the patient’s record supports. In inpatient hospital billing fraud, the diagnosis can raise the payment for the entire admission.

Hospital fraud can start with the admission decision or the codes on the bill. Hospital admission fraud concerns whether inpatient care was needed; emergency department facility upcoding concerns the billed level of an outpatient visit.

For Medicare Part A inpatient care, a DRG sets the payment category from the stay’s diagnoses and procedures, which makes the diagnosis a price-setting input under Medicare’s inpatient payment system.

Medicare Severity Diagnosis Related Groups, or MS-DRGs, often divide a base group into tiers. CC means a complication or comorbidity. MCC means a major complication or comorbidity. Medicare pays more for the higher tier because those patients typically cost more to treat. Hospitals can report up to 24 secondary diagnoses, but generally the most complicated qualifying diagnosis determines the severity of the whole stay.

The Inspector General’s February 2021 report gives a pneumonia example with 24 secondary diagnoses. Only one was a major complication. That diagnosis put the stay in the highest severity tier, with a payment of $8,500. The report says the hospital would have received approximately $2,800 less at the lower tier if that diagnosis had been billed inappropriately.

The other diagnoses could all be correctly coded and still leave that higher payment resting on the unsupported one. The payment turns on the decisive diagnosis, not the length of the diagnosis list.

Resequencing substitutes a secondary diagnosis for the correctly coded principal diagnosis. Other routes to upcoding include marking selected diagnoses as present on admission when they were not, or billing separately for services already bundled into the DRG.

Do Coders Send Queries That Change the DRG?

Coders and clinical documentation specialists can use queries to bring a diagnosis into the record and change the DRG. The clinical record must support the diagnosis that the physician supplies. The query and the physician’s response can explain how that diagnosis reached the claim.

Pressure to raise the case mix index can enter that sequence through a dashboard comparing physicians, an education program focused on high-paying diagnoses, or a vendor paid a share of the revenue increase. The business behind DRG creep is easy to recognize: more reported severity means more reimbursement. The hospital’s revenue goal can reach the person choosing the words in the patient’s chart.

An instruction to use a diagnosis regardless of the patient’s condition puts payment ahead of the patient. An objection, an internal audit finding and the decision to keep billing can connect the revenue target to individual claims. The query explains how the diagnosis arrived. Management’s response can explain why it stayed.

Examples of Upcoding in Healthcare

In a February 2016 audit of Promise Hospital of Ascension, in Louisiana, the Inspector General found all 62 reviewed kwashiorkor claims incorrectly coded. The hospital should have used codes for other forms of malnutrition or no malnutrition at all. Correcting four claims left the DRG and payment unchanged. Errors in the remaining 58 claims produced overpayments, and OIG recommended a $465,079 refund.

The distinction matters to an insider: the unsupported diagnosis and the diagnosis that raised payment have to be connected.

Severe malnutrition upcoding was the subject of a July 2020 audit that estimated $1 billion in Medicare overpayments for fiscal 2016 and 2017. It examined claims carrying E41 or E43, both major-complication codes, selected because removing the severe-malnutrition code changed the DRG. Reviewers then tested the claims against medical and coding evidence.

Hospitals billed 173 of 200 sampled claims incorrectly. The chart review answered what a coding dashboard could not: what should this particular patient’s claim have paid?

What the National Severity Pattern Shows

The Inspector General’s severity report found that highest-severity stays rose 19 percent from fiscal 2014 to 2019 while total inpatient stays fell 5 percent. The average length of those highest-severity stays also fell. Hospitals were reporting more stays in the most expensive tier while those patients spent less time there.

In fiscal 2019, a single diagnosis put 54 percent of highest-severity stays into that tier. OIG also identified unusually short stays as a reason for closer review, including stays for heart failure and shock, and renal failure. Septicemia or severe sepsis with a major complication, MS-DRG 871, was the most frequently billed group. These patterns identify where chart review should concentrate.

The national report analyzed paid claims. The malnutrition audit examined medical records. OIG called for targeted reviews of vulnerable DRGs, stays and hospitals, and the Centers for Medicare & Medicaid Services declined that recommendation. For an insider, the missing piece is the chart behind the severity code.

RAND’s 2024 report, Methodologies to Measure Upcoding in Provider Settings, reviewed 39 studies of upcoding. Only three compared coding intensity with a gold standard such as medical records. RAND found that aggregate studies can identify policy effects and differences among providers, while claim-level judgments require more precise evidence. A health care insider can supply the connection between the hospital’s numbers and the decisions behind them.

Prime and Oroville Settled Admission and Coding Allegations

Prime Healthcare and its chief executive agreed to pay $65 million in 2018 to settle admission and upcoding allegations. The Justice Department alleged that Prime falsified diagnosis information, including complications and comorbidities, to increase Medicare reimbursement from 2006 through 2014. The admission allegations concerned 14 California hospitals billing inpatient care for patients who needed less costly outpatient care. A director of performance improvement brought the whistleblower case, and the government joined it.

Oroville Hospital agreed to a $10.25 million settlement in December 2024 that included allegedly false systemic inflammatory response syndrome codes on Medicare and Medicaid claims. The codes allegedly increased reimbursement. The same settlement covered allegedly unnecessary admissions and hospital kickbacks through bonuses tied to how many patients physicians admitted. A whistleblower brought the case.

The alleged pressure reached different decisions: whether to admit the patient and how sick to describe the patient afterward. Someone who sees the admission incentives and the coding instructions may understand a pattern that a reviewer looking at either one alone would miss.

How to Detect Upcoding?

Detecting DRG upcoding means comparing the clinical evidence with the diagnosis, the assigned DRG and the payment, then tracing the instruction or decision behind the mismatch. Coding, clinical and resource-use reviews answer different parts of that question. An audit trail shows what changed between the original codes, the billed codes and any later correction.

The Journal of AHIMA made the software limit plain in 1999:

The article calls for chart review, correction, coder education, an audit trail and comparisons with coding patterns over time and at other hospitals. Its insistence on keeping original, billed and later code versions is particularly useful. The final bill can conceal the history that explains it.

The Inspector General’s 1998 test of upcoding-detection software had already exposed the same practical problem. Some hospitals the software identified as high upcoders had few or no upcoded cases when reviewers examined the records. Reviewing the chart does the work the flag only starts.

For a coder, the decisive record may be the code change and its stated reason. For a physician or documentation specialist, it may be the query and the clinical objection. For a revenue-cycle analyst, it may be the coding target beside the claims it produced. What management did after a warning connects those records to a case about knowingly false billing.

Medicare pays the excess, with taxpayers behind it. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

When the Diagnosis Was Chosen for the Money

If you have watched an unsupported diagnosis survive a clinical objection and reach the bill, speak with our whistleblower experts about who kept it there. We put the query history and the pressure behind those diagnoses at the center of your hospital upcoding case. We stay with you throughout it and bring in whistleblower lawyers with experience in hospital coding and Medicare billing.