Uncovering Systemic Corruption in the ER: An Empirical Analysis of Motor Vehicle-Related Hospital Bills and their Impact on Insurance Companies

Transcription

1 Uncovering Systemic Corruption in the ER: An Empirical Analysis of Motor Vehicle-Related Hospital Bills and their Impact on Insurance Companies DRAFT Eileen Lee Advisor: Professor Alain Kornhauser Submitted in partial fulfillment of the requirements for the degree of Bachelor of Science in Engineering Department of Operations Research and Financial Engineering Princeton University June 2014

2 I hereby declare that I am the sole author of this thesis. I authorize Princeton University to lend this thesis to other institutions or individuals for the purpose of scholarly research. Eileen Lee I further authorize Princeton University to reproduce this thesis by photocopying or by other means, in total or in part, at the request of other institutions or individuals for the purpose of scholarly research. Eileen Lee

3 Abstract With the advent of automated and assisted vehicle technology, the prospect of significantly decreasing motor vehicle accidents is imminent. However, accidents resulting in emergency room visits provide revenue for hospitals by charging automobile insurance companies for services to treat injured individuals. Statistical methods are used to investigate discrepancies in charges associated with motor vehicle accident injuries among different payers including: automobile insurance providers, Medicare, Medicaid, self-pay, and others. Charges for treatment of similar injuries with different causes are also evaluated. Results from 2011 data for New Jersey show that patients admitted to the emergency room (ER) after falling or being struck have significantly less expensive medical bills than patients that enter the ER from a motor vehicle accident. Differences in services for treating patients show hospital bias toward automobile insurers who provide generous reimbursements in New Jersey. ii

4 Acknowledgements I would first like to thank my advisor, Professor Kornhauser, for his guidance throughout this process. His ability to answer my incessant questions were truly appreciated, and his humorous comments always made me laugh. This thesis would not have been possible without his support. I would also like to acknowledge Christine O Brien for her assistance in providing a better understanding of automobile insurance coverage and its relationship with hospital care. Without her insight, I would not have been able to fully understand the complexities of these interactions. Our conversation and exchanges inspired my thesis to take on new directions. I would also like to thank my friends for all their constant encouragement, especially in the last few weeks. Finally, I would like to thank my family who supports me in everything I do. I cannot imagine how I could have made it here without them. A special thank you goes to my sister, Jenny, for her contributions during the editing process. iii

5 iv To my loving mother, father, and sister.

6 Contents v

7 List of Tables vi

8 List of Figures vii

9 Chapter 1 Introduction 1.1 Motivation In 2009, there were nearly eleven million motor vehicle accidents (MVA) in the United States, resulting in approximately 36,000 deaths (?). As technology continues to provide safer vehicles on the road, a question remains about the impact these vehicles will have on society. While vehicle manufacturers and policy makers who support safety advancements are motivated to reduce the number of MVA that are so prevalent today, the costs associated with medical care also provide revenue for hospitals treating these patients. With MVA among the leading causes of death in the United States and millions of drivers treated in emergency rooms, medical care expenses are quite significant. Though hospitals are often seen as beneficial institutions that heal injuries and cure diseases, they also represent businesses. As the only business entity that does not provide any prices associated with their services until after the services are performed, hospitals can charge patients inexorably large rates that vary from person to person. With no market pressures to adjust pricing, hospitals have extreme power in requesting unnecessary tests and adding services to increase the bill for patients they know can afford it. Typically in a stressful environment in which people are willing to do anything to help a loved one recover, society is forced to pay such demanding costs. 1

10 CHAPTER 1. INTRODUCTION However, these costs are not typically paid completely out-of-pocket from patients. Rather, insurance companies cover a majority, if not all, of the bill. Since hospitals are aware of limited funding with public insurance programs, it may be advantageous for hospitals to target other payers when possible to maximize their reimbursements. In the case of MVA in New Jersey, automobile insurance companies are the primary responsible party for paying medical expenses associated with accident-related injuries. Distortion of charges and fraudulent behavior is possible amongst hospital administration to maximize revenue. With nearly 300,000 accidents occurring in New Jersey each year, the potential for revenue generating patines is high (?). This thesis evaluates the hypothesized discrepancy in hospital charges related to motor vehicle accident injuries in the state of New Jersey. It uncovers disparities that may occur between payers, particularly looking at the difference in charges between automobile insurance companies and other providers. It also evaluates different causes of the same injuries to understand if automobile insured patients are being overcharge for treatment relative to other patients. As safe driving technology continues to advance, significant reductions in accidents are anticipated. Will hospitals who experience less emergency room patients from MVA be impacted financially in the future? 1.2 Automobile Insurance in New Jersey Automobile insurance liability falls into three different categories: tort, no-fault, and choice. Tort liability states that the at-fault driver is responsible for economic and noneconomic damages inflicted on others, while no-fault allows damages from an accident to be covered by each party s own insurance (?). The choice option allows drivers to decide between tort or no-fault insurance plans. New Jersey is among three states (along with Kentucky and Pennsylvania) that follows a choice car insurance model. The choice system allows drivers to choose between "insurance that puts no limitations on their right to sue for noneconomic damages and a no-fault plan that has a verbal threshold (?). This verbal threshold allows drivers to sue for noneconomic losses only in strictly stipulated circumstances. The default option for drivers who do not specify their preference 2

11 CHAPTER 1. INTRODUCTION is the no-fault coverage, and New Jersey s insurance practices make it effectively a no-fault state. The no-fault system was initially designed to lower legal costs from lawsuits determining liability for certain damages after an accident to ensure all parties involved were reimbursed (?). Since legislation in 1999 tightened the verbal threshold of reasons to sue, savings between $400 and $800 a year have resulted from fewer lawsuit fees and cost-reducing medical treatment regimes (?). Automobile insurance is required for all drivers in New Jersey, and there are several policy options that affect the amount of coverage received. The standard policy includes: bodily injury liability, property damage liability, personal injury protection (PIP), and collision and comprehensive coverage (?). Liability involves claims from accidents that the insured party causes, while collision and comprehensive coverage includes other damages to the insured party s vehicle. Bodily injury insurance and PIP insurance are mandatory portions of the policy. Most relevant is PIP coverage that pays for any injury-related treatment associated with an automobile accident Personal Injury Protection (PIP) Personal Injury Protection is included in all car insurance policies in New Jersey and covers medical expenses associated with an accident. The motivation behind this coverage began in the late 1960 s when automobile lawsuits were used to determine whether medical care of MVA victims should be provided at all (?). It was then decided that all medical bills should be paid upfront by auto insurers, and this coverage became known as PIP. It includes two parts: 1. Medical expense coverage: Cost of treatment from hospitals, doctors, and other medical providers and any medical equipment necessary 2. Reimbursements for other expenses such as lost wages and damages Though NJ drivers are required to purchase medical coverage, the second portion of coverage for reimbursing other expenses is optional. Prior to recent amendments to the policy, PIP provided unlimited medical benefits (?). This meant that PIP paid for 100 percent of medical expenses as a part of automobile insurance coverage. Any services and corresponding charges from hospitals or 3

12 CHAPTER 1. INTRODUCTION other health care providers as a result of an accident were covered, resulting in unlimited potential for excessive treatment and procedures to increase patients bills. This unlimited coverage encouraged providers to maximize their profits because of the unregulated benefits they could receive from medical reimbursements, causing high insurance premiums. Figure 1.1: PIP Costs for Different Auto Insurance Options As seen in the figure, states with no-fault automobile coverage similar to that in New Jersey, have higher PIP costs per vehicle than other options. Between 1980 and 2006, the no-fault PIP policy resulted in an additional $300 in costs compared to states with a mandatory add-on policy, meaning that drivers purchased PIP coverage in addition to the tort liability system (?). Though on a downward decline in recent years, efforts are still being made to decrease costs because reducing PIP coverage costs would help to lower premiums for those insured. Today, New Jersey has a PIP limit defaulted to $250,000 (?). This coverage still includes benefits for all medical expenses related to injuries sustained from the accident along with rehabilitative series and lost income. While an overwhelming majority of drivers have this maximum amount in their insurance plan, there are now lower premium options that reduce coverage from $250,000 to as low as $15,000 (?). It is also possible to place a health insurance provider as the primary payer to further reduce premiums. However, this option is only utilized by approximately 2 to 3 percent 4

13 CHAPTER 1. INTRODUCTION of the population. If medical bills exceed the limit of PIP, additional claims are automatically sent to secondary payers such as the injured party s health insurance or other source of reimbursement including Medicare, Medicaid, or charity care from hospitals. CPT* Hospital Outpatient Department Hospital Outpatient Department HCPCS DESCRIPTION Fees North Fees South INJECTION INTO SKIN LESIONS ADDED SKIN LESIONS INJECTION THERAPY FOR CONTOUR DEFECTS THERAPY FOR CONTOUR DEFECTS INSERT TISSUE EXPANDER(S) 6, , INSERT DRUG IMPLANT DEVICE REMOVE DRUG IMPLANT DEVICE REPAIR SUPERFICIAL WOUND(S) REPAIR SUPERFICIAL WOUND(S) REPAIR SUPERFICIAL WOUND(S) Figure 1.2: Sample of Fee Schedule for PIP Coverage in NJ On January 4, 2013, to combat abuse of the PIP system, fee schedules for certain health care providers treating automobile-related injuries went into effect. These documents list the dollar amount that PIP will reimburse hospitals for a particular service performed on a patient. The schedules include one for Physicians and Ambulatory Surgical Centers (ASC), Dental-associated expenses, and Hospital Outpatient Surgical Facilities (HOSF). The HOSF fee schedule relates particularly to outpatient facilities, such as emergency departments. As seen in??, a hospital outpatient department located in northern New Jersey would receive $247.20, for example, to perform an "injection into skin lesions" (?). Charges not on the fee schedule are paid at the usual, customary, and reasonable (UCR) rates. These UCR rates are the aggregated average amounts that insurance providers are willing to pay for a specific service, and they are often determined by geographic region. With the implementation of the fee schedule, it is anticipated that more reasonable charges will be made from hospitals, particularly in the emergency department where many motor vehicle accident patients are admitted. However, limitations to the fee schedules exist. Currently there is no reimbursement schedule for patients who enter the emergency room and are then admitted to the hospital. Once admitted, the only PIP regulation that limits reimbursements is the standard $250,000 maximum for any treatment associated with injuries sustained from a motor vehicle 5

14 CHAPTER 1. INTRODUCTION accident. 1.3 Hospital Billing Policies Hospital charges represent approximately 31 percent of total national health care expenditure in the United States, the largest single segment among the different types of services (?). Charges associated with hospitals are additional fees beyond physician and clinical services, prescription drugs, and other professional health services The Chargemaster To generate a dollar amount for a specific service provided, each hospital in the United States has its own "chargemaster". This extensive list includes the hospital s prices for every procedure performed and every supply item used to complete them. These chargemasters are updated at least once a year with no structured method to their changes. Because no regulation stipulates a unified approach to pricing, hospitals make ad hoc updates without any constraints. Patients typically see their detailed medical bills with prices listed from the chargemaster. New Jersey hospitals are not required to share their price lists, making the billing process opaque to patients until services are already performed. Hospitals receive approximately 30 percent of net revenues from Medicare, 17 percent from Medicaid, and 33 percent from private insurance (?). Medicare and Medicaid have fee schedules similar to that of the one instituted by PIP to curb costs of reimbursements to hospitals. Payment rates for private health insurers are typically discounted, and these lower prices are negotiated between hospitals and health insurance companies individually. However, automobile insurance companies do not have negotiating powers as significant as that of health insurers. Uninsured patients are even worse off and are often billed the full charges represented on the inflated hospital chargemasters. 6

15 CHAPTER 1. INTRODUCTION Figure 1.3: Sample Charges for Treatment at Bayonne Hospital Center Without regulation for uniform pricing, charges associated with treatment vary significantly between states, regions, and hospitals.?? displays the average charges for the most expensive hospital in the United States, Bayonne Hospital Center, located in northern New Jersey (?). This notoriously high charging hospital has medical bills for treatment of bloodstream infection and congestive heart failure that are significantly higher than the state and national averages. Compared to the average amount that Medicare providers actually pay for these charges, which is less than 10 percent of the amount billed, the chargemaster billing amounts are quite substantially inflated. The billing system of hospitals continues to be unknown and extremely variable for a majority of the population Emergency Room Visits Every visit to the emergency room is categorized under one of five billing codes based on the varying levels of severity and resources required for hospital care. Level 1 code is for minor incidences, while Level 5 code is for more severe problems such as a broken bone. This tiered fee structure is an additional "facility fee" beyond physician fees and charges for medicine and treatment. The payments associated with the different billing codes typically range from $50 to $324, though chargemasters have inflated prices of greater than $2,000 for a Level 5 visit according to the data sets analyzed for the study. 7

16 CHAPTER 1. INTRODUCTION One particular issue with the current billing system is the potential for "upcoding". Because there are not specific guidelines for the level of severity associated with differing billing codes, hospitals can push the limits to bill higher priced-codes for their patients. In fact, hospitals are required to develop their own guidelines for billing codes rather than use a national standard. According to a study performed by the Center for Public Integrity, more than 500 hospitals of the 2,400 in the database billed the two most expensive codes for more than 60 percent of their patients (?). Despite these high charges, hospitals defend their billing procedures and say the increase is a result of sicker patients entering the emergency room and more accurate billing due to the use of electronic medical records (?). However, many experts do not support the claim that patients are becoming sicker. From 2001 to 2008, the ten most common diagnoses were unchanged, but an increase in billing of the most expensive codes were still recorded. Government provided insurance programs, particularly Medicare and Medicaid, have been concerned with the uncertainty of ER billing because of limited funding available. Recently in July 2013, the Centers for Medicare and Medicaid Services (CMS) began seeking potential methods to contain costs, though the new proposal is still in preliminary stages. Rather than continue the tiered billing codes, CMS officials suggest a single flat rate (?). However, this flat rate proposal has resulted in criticisms from hospitals and medical billing experts who state that hospitals who treat patients with minor injuries would gain a significant amount of money, while others that treat more complex conditions in the ER would be at a loss (?). The motivation behind this new policy is to prevent any incentives to increase charges in the emergency room. Along with "upcoding", CMS plans to "remove any incentives hospitals may have to provide medically unnecessary services or expend additional, unnecessary resources to achieve a higher level of visit payment" (?). In an investigative study performed by the Center for Public Integrity, the results showed an increase of more than $1 billion in emergency room facility fees over the last ten years. CMS has also proposed other changes such as bundling rates for several outpatient medical procedures. This would combine drugs, biologics, and tests to reduce the number of individually paid services. However, this change is currently meeting fierce opposition as 8

17 CHAPTER 1. INTRODUCTION specialists stated that bundling payments would make any costly bioengineered products impossible to supply without a loss (?). The current billing process within hospital emergency rooms clearly remains a contentious topic making it difficult to implement changes that are amenable to both hospitals seeking to recover their costs and regulators hoping to decrease expenditures. 9

18 Chapter 2 Literature Review 2.1 Costs Associated with Motor Vehicle-Related Injuries Motor vehicle accidents pose significant costs to the United States. As a proportion of gross national product (GNP), these costs contribute to approximately percent of GNP (?). In 2005, Naumann et al. found that medical costs associated with motor vehicle-related injuries accounted for nearly $100 billion, placing an economic and social burden on the United States (?). The total economic burden of all accidents in 2000 was $230.6 billion for the United States economy. Approximately 75 percent of these costs were not paid by individuals directly involved in these accidents, but rather by society through insurance premiums, taxes, and travel delays. The study also found that the two highest risk groups, young drivers and motorcyclists, contributed to over a third of the economic costs associated with injury and death. Conservative estimates made in the study suggest that each U.S. licensed driver pays almost $500 for medical costs and productivity losses associated with preventable injuries and death from motor vehicle-related accidents. A large portion of medical expenses come from emergency department visits immediately after the accident. Hospitals, therefore, determine the charges that pertain to injuries, which directly contribute to the costs associated with MVA. In considering the expenses related to injuries, payers play a significant role. Typically, hospital fees and claims are paid by various parties includ- 10

19 CHAPTER 2. LITERATURE REVIEW ing: Medicare, Medicaid, private insurance, self-pay, worker s compensation, and others. Within private insurance, health maintenance organizations (HMO) such as Blue Cross Blue Shield, UnitedHealthcare, Aetna, or automobile insurance companies when related to motor vehicle accidents, are typically the primary payers. 2.2 Hospital Costs and Car Insurance Claims In recent years, automobile insurance companies have been experiencing an increase in auto injury claim costs. According to a study from the Insurance Research Council (IRC), hospitals have shifted their costs toward automobile insurance companies due to low reimbursements from public health insurance programs such as Medicare and Medicaid. From IRC estimates, liability claims for Bodily Injury (BI) have resulted in an estimated excess of $1.2 billion in hospital charges (?). This increase in claims costs has resulted in higher scrutiny of hospital bills to negotiate them prior to payment among automobile insurers. To determine excess costs, the IRC used data from more than 42,000 auto injury claims, which involved twenty-two insurers. These insurers represented 58 percent of the private passenger auto insurance market in the United States in After analyzing the data, the IRC developed a statistical model of average hospital charges for auto injury claims in the 38 states that participated in the study. The basis for comparison were the claims from Maryland. In the 1970s, Maryland began regulating hospital reimbursement rates, minimizing the potential for hospitals to shift their costs to auto insurers. In all cases, the average hospital charges in Maryland were lower than other states. The study also found that key predictors of high hospital charges included the percentage of the state s population without health insurance and the percentage of the population covered by Medicaid. The shift in cost burden from public insurance programs to private payers like automobile insurance companies poses an interesting question about the future relationship between payers and hospitals. 11

20 CHAPTER 2. LITERATURE REVIEW Insurance fraud is also a possibility when car accidents occur. As seen in the research, over $1 billion of additional costs are now incurred by auto insurance companies. It is unclear if these additional costs are solely a shift in costs from public insurers or if additional charges are also being made. Currently, detection is difficult. However, preliminary research such as the IRC study helps to uncover possibilities in cost manipulation and the excess burdens on private insurers. Among all states, New Jersey in particular is ranked first for the highest average expenditures for automobile insurance. In 2010, the average cost per person per year was $1, (?). This estimate assumed that all insured vehicles have liability insurance, but not necessarily collision or comprehensive coverage. Though this value shows the amount that consumers pay, the burden of coverage on insurance companies is much larger. The average auto liability claim for BI is $14,653 and the average PIP claim as of 2012 is similar at $14,207 (??). 2.3 Rate Regulatory Reforms in Automobile Insurance Markets This study investigates several states including New Jersey that introduced insurance rate regulation reforms to determine their impact on insurance markets. These reforms reduced the amount of rate regulation by decreasing government oversight. Because automobile insurance markets experience a fair amount of price and product competition, these markets were expected to continue functioning "efficiently and fairly" without regulation (?). The study led to "positive developments" in the automobile insurance market without increasing insurance prices or reducing availability and quality of service. 12

21 CHAPTER 2. LITERATURE REVIEW Figure 2.1: Growth in Premiums in NJ as Presented in IRC Report?? shows the average growth rate of premiums before and after reform in New Jersey compared to the National and Mid-Atlantic rates. It is evident that premium expenditures were on the rise. However, the rate decreased post-reform without sacrificing quality of service. This study shows that the auto insurance market is taking strides in the right direction to minimize cost burdens on drivers. Combining reforms and monitoring of health care provider costs can help to improve the inefficiencies of the market. The study demonstrates that further regulation of the automobile insurance market is not necessary because of competitive environment. However, it does not consider the limitations of the market s relationship with hospitals and health care providers that do not experience such competition. Since the cost of auto insurance premiums are linked to medical expenses, further investigation is necessary to see how health care charges impact costs. This thesis makes strides to address this concern. 13

22 Chapter 3 Data Source 3.1 Healthcare Cost and Utilization Project The data source is from the Healthcare Cost and Utilization Project (HCUP), which includes the largest collection of national and state-specific longitudinal hospital care data in the United States. HCUP is developed through a Federal-State-Industry partnership sponsored by the Agency for Healthcare Research and Quality (AHRQ). Particularly of interest is the data associated with emergency department visits in New Jersey, which is included in two databases: State Emergency Department Database (SEDD) and State Inpatient Database (SID). The SEDD captures discharge information for all emergency department visits that do not result in admission into the hospital. These cases only include treat-and-release, or outpatient, visits. To obtain a comprehensive understanding of all visits associated with MVA, the SID is used for records of patients who were admitted to the hospital after being treated in the emergency department. SID patients are, therefore, inpatients. Community and non-community hospitals are included in both databases. Community hospitals represent nonfederal, short-term, general, and other specialty hospitals. They do not include hospital units of institutions. Examples of community hospitals include academic medical centers and specialty hospitals such as obstetrics, orthopedic, and pediatric hospitals. Non-community hos- 14

23 CHAPTER 3. DATA SOURCE pitals include Federal hospitals (ex. Veterans Affairs, Department of Defense), long-term hospitals, treatment facilities, and hospital units within institutions such as prisons (?). All diagnoses in the United States are coded using the International Classification of Diseases, 9th Revision, Clinical Modification (ICD-9-CM). In HCUP, a Clinical Classifications Software (CSS) is used to categorize the ICD-9-CM codes. In order to determine services performed on patients, the Current Procedural Terminology (CPT) code is used. CPT codes are determined by the American Medical Association and describe the medical, surgical, and diagnostic services performed by a medical practitioner. These codes are used by insurers to determine the amount of reimbursement. The use of CPT codes provide a uniform method for analysis. According to a statistical brief released from AHRQ, the most common injuries and procedures associated with MVA throughout the United States in 2006 were investigated. Most frequent injuries include sprains and contusions, which contributed to 78.2 percent of total injuries, as seen in?? (?). Figure 3.1: Most Common Injuries in MVA-Related ED Visits, 2006 The brief also lists the most popular procedures in the emergency room for motor vehicle-related injuries in 2006, which include primarily diagnostic procedures to evaluate the cause of injury, shown in??. 15

24 CHAPTER 3. DATA SOURCE Figure 3.2: Top 10 Procedures in MVA-Related ED Visits, 2006 While these lists show an overview of all MVA occurring in the United States, this thesis focuses on data for the state of New Jersey on the most recently available data in Similar analysis determining the most common injuries and procedures are found. Comparisons between injuries caused by motor vehicle accidents and other factors are also considered. Injury causes that are particularly relevant include: injury from falling and injury from being struck. These two causes result in emergency room visits from injuries most similar to those involved in motor vehicle accidents. Data is separated depending on treat-and-release (outpatients) and admitted (inpatients), who are covered under both databases Data Analysis Tools Data was provided in ASCII format on a CD. To analyze the large set of data, SAS was used to initially load and sort the data. Once this was done, the data was converted to be used in another statistical software, R. In R, the data was manipulated to narrow down important elements relevant in the study and perform analyses. Testing was performed with New Jersey data from a combination of SEDD and SID for the 2011 year. 16

25 CHAPTER 3. DATA SOURCE SEDD The State Emergency Department Database includes all outpatients that visit the emergency room and are released after treatment. The database contains all patients, regardless of payer and includes three different files: a core file, charge file, and diagnosis file. These files are used in combination to extract different information about patients. The core file contains 2,994,439 entries and 393 data elements. It includes the majority of data pertaining to each patient uniquely identified by a key. Basic information about patients such as their age, sex, hospital location, and procedures performed are provided on a high level. The charges file includes every service performed during the 2,994,493 patient visits: a total of 22,349,613 charges. This file includes line item, detailed information about each service along with revenue centers associated with them. Prices billed for these services are also available. These charges are linked to the core patient file using the key. The diagnosis file includes information about diagnoses and injuries associated with patients SID The State Inpatient Database includes all emergency room visits that result in an admission to the hospital. For New Jersey, there are again three relevant files pertaining to the data: a core file, charge file, and diagnosis file. Though inpatient visits account for the majority of revenues in hospitals, there are significantly less inpatient records compared to that of outpatients in New Jersey. The core file contains 1,069,663 patient records and 428 elements. Because these patients have longer hospital stays, the number of charges they accumulate are quite large. There are 18,786,614 charges associated with these visits, nearly the same number of charges as the SEDD with less than half the number of patient discharges Data Dictionary The data dictionary is extensive for both databases but show commonality in the elements per patient. Some data elements include: specific demographic information about the patient, line item 17