Current diagnostic coding practices in medical claims encourage organizations to shift resources toward better documentation rather than toward better delivery of care, according to a recent article published in the New England Journal of Medicine.

Bruce E. Landon, MD, MBA, professor of healthcare policy at Harvard Medical School, Boston, Massachusetts, and Robert E. Mechanic, MBA, senior fellow at the Heller School of Social Policy and Management at Brandeis University, Waltham, Massachusetts, note that to prevent “cream skimming,” or enrolling only the healthiest patients, the Centers for Medicare and Medicaid Services reimburse health plans participating in Medicare Advantage at higher rates for enrolling patients with multiple conditions and more complex diagnoses. As a result, in recent years, diagnostic coding has become increasingly important as capitated and risk-based payment systems employ these codes to adjust payments made to health plans and providers.

To maximize reimbursements, healthcare organizations have focused on capturing all relevant diagnoses for patients. Nurses or outside firms are used to document missing or erroneous codes to increase capitated payments, and electronic health record systems also help organizations capture codes more successfully. This current system may increase disparities between well-financed and less affluent healthcare systems and provide greater incentive for consolidation, which will increase healthcare costs without improving care.

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Improving financial results by changing care patterns or reducing costs is difficult. In contrast, increasing code intensity is relatively easy and provides quick financial rewards. Yet, eliminating risk adjustment would encourage cream skimming. The authors suggest either using a completely different system for adjusting payment — for example, relying on global ratings of health by surveying subgroups of enrollees in Medicare Advantage plans — or limiting annual risk score-based variation in provider budgets. Ultimately, the core goal of healthcare reform should be to increase the value of care.

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Landon BE, Mechanic RE. The paradox of coding – policy concerns raised by risk-based provider contracts. N Engl J Med. 2017;377(13):1211-1213.