U.S. Department of Health and Human Services 
Office of Inspector General 
 
Data Brief 
 
February 2021, OEI-02-18-00380 
Trend Toward More Expensive Inpatient Hospital Stays in Medicare Emerged 
Before COVID-19 and Warrants Further Scrutiny  
Why OIG Did This Review 
Key Takeaways 
Hospitals have long been essential providers in our healthcare system.  
  Hospitals increasingly billed for inpatient  Medicare payments reflect their importance: nearly one-fifth of all 
stays at the highest severity levelthe most 
Medicare payments are for inpatient hospitalizations.  In fiscal year 
expensive levelfrom FY 2014 through 
(FY) 2019prior to the COVID-19 pandemicMedicare spent 
FY 2019.   
$109.8 billion for 8.7 million inpatient hospital stays.  Trends in 
  There are indications that these stays are  inpatient hospitalizations from FY 2014 through FY 2019 provide 
vulnerable to inappropriate billing 
important lessons for improving the accuracy of inpatient hospital 
practices, such as upcoding. 
billing.  From this information, stakeholders can gain a better 
  We recommend that CMS conduct targeted  understanding of how hospitals bill Medicare and of vulnerabilities that 
reviews of MS-DRGs and stays that are  Medicare should address.  The pandemic has placed unprecedented 
vulnerable to upcoding, as well as the 
stress on the countrys health care system, making it more important 
hospitals that frequently bill for them. 
than ever to ensure that Medicare dollars are spent appropriately. 
How OIG Did This Review 
We analyzed paid Medicare Part A claims for inpatient hospital stays from FY 2014 through FY 2019.  We identified 
trends in hospital billing and Medicare payments for stays at the highest severity level.  Severity levels are determined 
by the Medicare Severity Diagnosis Related Group (MS-DRG). 
What OIG Found 
Hospitals are increasingly billing for inpatient stays at the highest severity level, which is the most expensive one.  The 
number of stays at the highest severity level increased almost 20 percent from FY 2014 through FY 2019, ultimately 
accounting for nearly half of all Medicare spending on inpatient hospital stays.  The number of stays billed at each of 
the other severity levels decreased.  At the same time, the average length of stay decreased for stays at the highest 
severity level, while the average length of all stays remained largely the same.   
Stays at the highest severity level are vulnerable to inappropriate billing practices, such as upcodingthe practice of 
billing at a level that is higher than warranted.  Specifically, nearly a third of these stays lasted a particularly short 
amount of time and over half of the stays billed at the highest severity level had only one diagnosis qualifying them 
for payment at that level.  Further, hospitals varied significantly in their billing of these stays, with some billing much 
differently than most.  
What OIG Recommends 
Oversight is essential to ensuring that Medicare dollars are spent appropriately.  Inpatient hospital billing in the years 
leading up to the pandemic indicates that some stays at the highest severity level could be susceptible to 
inappropriate billing.  Accordingly, we recommend that the Centers for Medicare & Medicaid Services (CMS) conduct 
targeted reviews of MS-DRGs and stays that are vulnerable to upcoding, as well as the hospitals that frequently bill 
them.  CMS did not concur but acknowledged that there is more work to be done to determine conclusively which 
changes in billing are attributable to upcoding.  We also think more work needs to be done; therefore, we continue 
to recommend that CMS conduct targeted reviews to identify stays involving upcoding and hospitals with patterns of 
upcoding. 
  
        Primer on Billing for Medicare Inpatient Hospital Stays 
Prospectively Set Rates 
  For inpatient stays, Medicare pays hospitals rates that are set prospectively (i.e., in advance).  For 
each stay, the hospital determines the beneficiarys diagnoses and procedures.  These are used to 
classify the stay into a Medicare Severity Diagnosis Related Group (MS-DRG).  Medicare pays a 
different amount for each MS-DRG.   
  The set rate for each MS-DRG reflects the average resources used to care for a beneficiary in that 
MS-DRG.  Medicare pays the rate regardless of how many days the beneficiary stays in the hospital.1 
  The intent of this system is to encourage hospitals to treat beneficiaries efficiently and effectively 
without unnecessary services or delays in care. 
 Medicare Severity Diagnosis Related Groups 
  Each MS-DRG is associated with a base Diagnosis Related Group (DRG).  Base DRGs indicate the 
primary reasonoften based on the principal diagnosisa beneficiary requires a hospital stay.  
Most base DRGs are further divided into two or three MS-DRGs that reflect the severity level of the 
stay.  For FY 2019, there were 335 base DRGs split into a total of 761 MS-DRGs. 
  The severity levels account for whether a beneficiary has any secondary diagnoses that are 
considered complications.  Hospitals can submit up to 24 secondary diagnoses per stay and 
generally, the secondary diagnosis that is considered the most complicated determines the severity 
level of the entire stay.  The severity levels are as follows: 
 
o  High: At least one secondary diagnosis that is considered a major complication.2 
o  Medium: At least one secondary diagnosis that is considered a minor complication.3  
o  Low: No secondary diagnosis that is considered a complication. 
o  Other: Some MS-DRGs are not divided by severity level. 
  Examples of diagnoses considered to be major complications include acute respiratory failure and 
sepsis.  Examples of diagnoses considered to be minor complications include asthma with (acute) 
exacerbation and Lyme disease.  Examples of diagnoses that are not considered to be complications 
include essential hypertension and general anemia. 
  Medicare pays hospitals more for beneficiaries in MS-DRGs with higher severity levels because they 
are typically more costly to treat.  See the following example of how the presence of complications 
can affect Medicare payment for three beneficiaries with the same principal diagnosis: 
Beneficiaries with a  depending on whether the 
  get assigned to one of  which determines 
principal diagnosis  secondary diagnoses are 
  three pneumonia MS-DRGs,   payment. 
  of pneumonia,  considered complications,    
  MS-DRG 193  $8,505 
  with a major complication  
  MS-DRG 194  $5,691 
with a minor complication 
without complications  MS-DRG 195  $4,175 
_____________________________________________________________________________________________________________________________ 
1 Note that certain stays, such as those subject to the transfer policy or qualifying for outlier payments, may have their 
payment amounts altered, but the MS-DRG and its associated payment rate remain the same. 
2 CMS refers to these as major complications or comorbidities or MCCs. 
3 CMS refers to these as complications or comorbidities or CCs. 
Background | 2  
   
RESULTS 
 
Stays billed at the highest severity level accounted for nearly 
half of Medicares total spending for all inpatient hospital stays 
in FY 2019 
Hospitals billed Medicare for 8.7 million inpatient 
hospital stays in FY 2019.  About 40 percent of  The most frequently billed MS-DRG in 
them3.5 million stayswere billed at the highest  FY 2019 was septicemia or severe 
severity level.  These are generally stays for which  sepsis with a major complication  
the hospital bills at least one major complication.4  (MS-DRG 871).*  Hospitals billed for 
581,000 of these stays, for which 
Medicare spent $109.8 billion for inpatient hospital  Medicare paid $7.4 billion. 
stays in FY 2019, and nearly half of that  
$54.6 billionwas for stays billed at the highest  *See Appendix A for the full titles of the 
MS-DRGs referred to in this report. 
severity level.  Medicare paid an average of 
$15,500 per stay billed at the highest severity level.   
Exhibit 1: Nearly half of the $109.8 billion that Medicare spent on 
inpatient hospital stays in FY 2019 was for stays at the highest severity 
level. 
c
Medium, 18.1%
High, 49.7%
Low, 21.5%
Other, 10.7%
 
Source: OIG analysis of CMS data, 2020. 
_____________________________________________________________________________________________________________________________ 
4 For some MS-DRGs at the highest severity level, hospitals may bill for at least one minor complication or major complication.  
For others, hospitals may bill for at least one complication or specifics related to a surgical procedure.  See the methodology 
for more information about how we analyzed stays in these MS-DRGs.   
Data Brief: Trend Toward More Expensive Inpatient Hospital Stays in Medicare Emerged 
Before COVID-19 and Warrants Further Scrutiny  OEI-02-18-00380  Results | 3  Stays billed at the highest severity level increased substantially 
in both number and cost, while stays billed at lower severity 
levels decreased 
The number of stays billed at the highest severity level has increased over the last 
several years.  From FY 2014 through FY 2019, it increased almost 20 percent.  The 
number of stays billed at each of the other severity levels decreased during the same 
period.  Total inpatient stays decreased by 5 percent. 
Exhibit 2: The number of stays at the highest severity level increased while 
stays at each of the other severity levels decreased from FY 2014 through 
FY 2019. 
 4,000,000
High, +19%
Low, -22%
Medium, -12%
 2,000,000
Other, -10%
 -
FY14 FY15 FY16 FY17 FY18 FY19
  
Source: OIG analysis of CMS data, 2020 
Similarly, Medicare payments for stays at the highest severity level increased steadily 
every year.  Over the 6 years, the increases amounted to more than $10 billion, 
or 24 percent.  Overall, Medicare payments for inpatient hospital stays increased 
by 8 percent during the same time period. 
At the same time, the average length of stays at the highest 
severity level decreased, while the average length of all stays 
remained largely the same 
The average length of stays billed at the highest severity level decreased half a day
from 6.9 to 6.4 daysfrom FY 2014 through FY 2019.  Stays billed at the other 
severity levels also decreased in length, but by shorter amounts of time.  The average 
length of all stays remained largely the same, decreasing by 0.1 days.   
 
Data Brief: Trend Toward More Expensive Inpatient Hospital Stays in Medicare Emerged 
Before COVID-19 and Warrants Further Scrutiny  OEI-02-18-00380  Results | 4  Exhibit 3: Average length of stays at the highest severity level 
decreased by half a day from FY 2014 through FY 2019, while 
the average length of all stays remained largely the same. 
Severity  Average  Average  Change* 
Level  Length of Stay,  Length of Stay,  (in Days) 
FY 2014  FY 2019 
(in Days)  (in Days) 
High  6.9  6.4  -0.5 
Medium  4.7  4.3  -0.4 
Low  3.3  3.0  -0.3 
Other  6.5  6.1  -0.3 
     All stays  5.1  4.9  -0.1 
* Because of rounding, the number in the Change column may not equal the difference 
between the numbers in the FY 2019 and FY 2014 columns. 
Source: OIG analysis of CMS data, 2020. 
The increase in the number of stays billed at the highest severity level implies that 
beneficiaries were sicker overall.  However, the decrease in the average length of stays 
at the highest severity level potentially undermines that idea because it is not 
consistent with sicker beneficiaries.  Length of stay generally has a positive 
relationship to severity of stay; sicker beneficiaries stay in the hospital longer.   
In addition, the average length of all stays remained largely the same from FY 2014 
through FY 2019, which suggests that there were not significant changes in the 
beneficiary population overall (i.e., that beneficiaries in general were not sicker in 
FY 2019 than they had been in past years).  Given the decrease in the average length 
of stays at the highest severity level and the indication that beneficiaries in general 
were not sicker, the increase in stays billed at the highest severity level likely was 
driven by changes in hospital billing practices rather than by changes in the 
beneficiary population.   
Almost 30 percent of stays billed at the highest severity level 
lasted a particularly short amount of time 
Medicare pays hospitals for each inpatient stay based on the assigned MS-DRG, not 
on the amount of time the beneficiary spends in the hospital.   
Almost 30 percent of stays billed at the highest severity levelalmost a million of 
themlasted a particularly short amount of time.  That is, they were more 
than 20 percent shorter than the mean length of stay for the assigned MS-DRG.  
Shorter stays are not inherently problematic, but the number of these stays raises 
questions about the accuracy and appropriateness of the complications billed by the 
hospital.  Although the complications billed suggest sicker beneficiaries, the shorter 
lengths of stay point to beneficiaries who are less sick.  For this reason, these stays 
Data Brief: Trend Toward More Expensive Inpatient Hospital Stays in Medicare Emerged 
Before COVID-19 and Warrants Further Scrutiny  OEI-02-18-00380  Results | 5  suggest potential upcoding.  (See text box on 
Upcoding occurs when a hospital bills Medicare  upcoding.)  It is important to note that we excluded 
for codes that are not appropriate for the  from this analysis certain stays that could be 
beneficiarys condition.  It can take different  expected to be shorter, such as stays during which 
forms, such as adding or miscoding diagnoses.   the beneficiary died. 
Upcoding can result in an MS-DRG that has a 
Collectively, Medicare paid hospitals approximately 
higher severity level and therefore a higher 
$14.5 billion for stays that lasted a particularly short 
payment.  Indications that this may be 
amount of time.  That is $4.9 billion more than it 
happening include:   
would have paid if these stays had been billed at the 
  Stays at the highest severity level that last  next lower severity level.  Medicare potentially 
a shorter amount of time than the mean  overpaid hospitals by a significant amount if even a 
length of stay for the given MS-DRG.  This  small fraction of these stays were billed 
may point to the beneficiarys being less  inappropriately.  
sick than the coding signifies.   
Certain high-severity MS-DRGs are more likely than 
  Stays that reach the highest severity level 
others to have stays that lasted a particularly short 
because of just one diagnosis.  This could 
amount of time.  For example, about a third of stays 
mean that the stay was assigned an 
for heart failure and shock (MS-DRG 291), pneumonia 
inappropriately high severity level. 
(MS-DRG 193), and renal failure (MS-DRG 682) had 
comparatively short lengths of stay. 
Example of a Stay That Is Particularly Short 
The following example illustrates the concern with stays that are particularly short. 
 
An inpatient stay was assigned to MS-DRG 291 for heart failure and shock with 
major complication.  Though the mean length of stay for MS-DRG 291 is 4 days, 
this stay lasted 2 days50 percent shorter than the mean.  The hospital was paid 
$9,100 for this stay, the average payment for this MS-DRG. 
 
If this stay had been billed to the next lower severity level, it would have been 
assigned to the MS-DRG for heart failure and shock with minor complication 
(MS-DRG 292).  The hospital would have received approximately $2,900 less. 
   
Over half of the stays billed at the highest severity level reached 
that level because of only one diagnosis 
Over half of the stays billed at the highest severity level in FY 201954 percent
reached that level because of just one diagnosis.  A hospital can submit up 
to 24 secondary diagnoses for each stay.5  Medicare considers each secondary 
diagnosis to be a major complication, a minor complication, or not a complication.  
Generally, the secondary diagnosis that is considered the most complicated 
determines the severity level of the entire stay.  
_____________________________________________________________________________________________________________________________ 
5 Stays billed at the highest severity level in FY 2019 had an average of 18 secondary diagnoses submitted per stay.   
Data Brief: Trend Toward More Expensive Inpatient Hospital Stays in Medicare Emerged 
Before COVID-19 and Warrants Further Scrutiny  OEI-02-18-00380  Results | 6  Stays that reach the highest severity level because of one diagnosis are particularly 
vulnerable to upcoding.  Previous OIG work has found that inappropriate billing of a 
single major complication can lead to significant Medicare overpayments.6  In 
addition, CMS states that a high amount of stays with a single major complication 
could indicate over-coding (i.e., upcoding) of the complications.7     
In total, nearly 2 million stays had just 1 diagnosisi.e., 1 major complicationthat 
qualified the stay for the highest severity level.  The rest of the submitted diagnoses 
for these stays were considered to be either minor complications or not 
complications.  This means that the highest severity level of each of these staysand 
the higher payment associated with that severity levelwas determined entirely by a 
single diagnosis.  If that diagnosis were not accurate or appropriate, the higher 
payment would not be warranted.   
Collectively, Medicare paid hospitals $26.8 billion for stays that reached the highest 
severity level with only one diagnosis that was considered a major complication.  This 
is approximately $10 billion more than Medicare would have paid if these stays had 
been billed without the single major complication.  It is possible that Medicare 
overpaid hospitals by a significant amount if even a small fraction of these stays were 
billed inappropriately. 
Certain high-severity MS-DRGs are more likely than others to have stays billed with 
just one major complication.  For example, more than 80 percent of stays for kidney 
and urinary tract infections (MS-DRG 689) had just one major complication.  
Nearly 70 percent of stays for pneumonia (MS-DRG 193), chronic obstructive 
pulmonary disease (MS-DRG 190), and renal failure (MS-DRG 682) also had just one 
major complication. 
Example of a Stay with One Major Complication 
The following example illustrates the concern with stays with one major complication.   
 
For an inpatient stay, the hospital submitted a principal diagnosis of pneumonia and 
24 secondary diagnoses, 23 of which were either minor complications or not 
complications at all.  Based on just one secondary diagnosis that was considered a 
major complication, the stay was assigned to the pneumonia base DRGs highest 
severity MS-DRG (i.e., MS-DRG 193).  The hospital was paid $8,500 for this stay. 
 
If that single diagnosis was not billed appropriately, the stay should have been 
assigned to the lower severity level MS-DRG for pneumonia with minor complication 
(MS-DRG 194).  The hospital would have received approximately $2,800 less. 
 
_____________________________________________________________________________________________________________________________ 
6 OIG, Hospitals Overbilled Medicare $1 Billion By Incorrectly Assigning Severe Malnutrition Diagnosis Codes to Inpatient Hospital 
Claims (A-03-17-00010), July 2020. 
7 CMS, Short-Term Acute Care Program for Evaluating Payment Patterns Electronic Report, Users Guide Twenty-Ninth Edition, 
p. 17.  Accessed at https://pepper.cbrpepper.org/Portals/0/Documents/PEPPER/ST/STPEPPERUsersGuide-Edition29-508.pdf on 
August 26, 2020. 
Data Brief: Trend Toward More Expensive Inpatient Hospital Stays in Medicare Emerged 
Before COVID-19 and Warrants Further Scrutiny  OEI-02-18-00380  Results | 7  Hospitals varied significantly in their billing of stays at the 
highest severity level, with some billing far differently than most 
Hospitals varied significantly in their billing of stays at the highest severity level in 
FY 2019.8  Some variation is to be expected given the different populations of 
beneficiaries that hospitals treat.  However, the amount of variation and the 
differences seen in some hospitals are further indications that stays with certain 
characteristics are vulnerable to inappropriate billing practices, such as upcoding.   
First, hospitals vary in the percentage of their claims billed at the highest severity 
level.  As indicated above, 40 percent of all inpatient stays were billed at the highest 
severity level.  However, for most hospitals this percentage ranged 
from 13 to 52 percent.  Further, 5 percent of hospitals billed between 52 and 
79 percent of their stays at the highest severity level.  
Second, some hospitals had larger percentages of their stays at the highest severity 
level with a short length of stay.  As indicated above, almost 30 percent of stays at the 
highest severity level were particularly short.  However, among most hospitals, this 
ranged from 19 to 54 percent.  Further, 5 percent of hospitals billed between 54 and 
100 percent of their stays at the highest severity level with a comparatively short 
length of stay. 
Finally, hospitals also vary in their percentage of stays at the highest severity level 
with only one major complication.  As indicated above, 54 percent of stays at the 
highest severity level had just one major complication.  However, for most hospitals 
this ranged from 46 to 80 percent.  Further, for 5 percent of hospitals, 80 to 
100 percent of their stays at the highest severity level were billed with only one major 
complication.  
Exhibit 4:  Hospitals varied significantly on three measures of 
billing stays at the highest severity level, with some billing far 
differently than most. 
       Range of most hospitals         National average  Hospitals in the top 5 percent
52% 79%
At the highest severity level
54% 100%
At the highest severity level that are particularly short
80% 100%
At the highest severity level with one major complication
0% 20% 40% 60% 80% 100%
Percentage of stays
Source: OIG analysis of CMS data, 2020.
 
_____________________________________________________________________________________________________________________________ 
8 We included all hospitals with 50 or more stays in FY 2019 in this analysis. 
Data Brief: Trend Toward More Expensive Inpatient Hospital Stays in Medicare Emerged 
Before COVID-19 and Warrants Further Scrutiny  OEI-02-18-00380  Results | 8   
RECOMMENDATION 
 
 
In FY 2019, Medicare paid hospitals $109.8 billion for 8.7 million inpatient stays.  
These numbers reflect an 8-percent increase in total payments and a 5-percent 
decrease in total stays from FY 2014.  Hospitals are increasingly billing for stays at the 
highest severity level, which is the most expensive one.  In fact, stays at the highest 
severity level increased almost 20 percent over those 6 years to account for nearly half 
of all Medicare spending on inpatient hospital stays.  Stays billed at each of the other 
severity levels decreased. 
As we look more closely at stays at the highest severity level, we see indications that 
these stays are vulnerable to inappropriate billing practices, such as upcoding.  
Specifically: nearly a third of these stays lasted a particularly short amount of time and 
over half of them had only one diagnosis qualifying them for payment at the highest 
severity level.  Further, hospitals varied significantly in their billing of these stays, with 
some billing far differently than most.  For example, 5 percent of hospitals billed 
between 80 and 100 percent of their stays at the highest severity level with only one 
major complication. 
The COVID-19 pandemic has placed a financial strain on the countrys health care 
system, making it more important than ever to ensure that Medicare dollars are spent 
appropriately.  Oversight is essential, particularly for inpatient hospital stays, which 
account for a significant share of Medicare spending.  Inpatient hospital billing in the 
years prior to the pandemic indicate that, going forward, attention should be paid to 
billing of stays at the highest severity level.    
We recommend that CMS:  
Conduct targeted reviews of MS-DRGs and stays that are 
vulnerable to upcoding, as well as the hospitals that frequently 
bill for them  
CMS should conduct targeted reviews of MS-DRGs and hospital stays that are 
vulnerable to upcodingi.e., those that are billed at the highest severity leveland 
the hospitals that frequently bill for them.  Specifically, CMS should target stays at the 
highest severity level with certain characteristics, such as those that are particularly 
short or that have only one major complication.  CMS should also focus on MS-DRGs 
that have a high proportion of stays with these characteristics and on the hospitals 
that frequently bill them.  CMSs Recovery Audit Contractors currently conduct coding 
validation reviews that incorporate some of these targeting strategies.  However, stays 
billed at the highest severity level continue to increase and more must be done.  For 
example, other contractorssuch as the Supplemental Medical Review Contractor
could be involved or additional targeting or analysis could be done, including the 
Data Brief: Trend Toward More Expensive Inpatient Hospital Stays in Medicare Emerged 
Before COVID-19 and Warrants Further Scrutiny  OEI-02-18-00380  Recommendation | 9  analysis we conducted in this report.  CMS should also consider conducting more in-
depth reviews of the medical record that look for inconsistencies in the diagnoses 
that call into question the appropriateness of the coding.  In addition to using the 
results of the reviews to recoup overpayments, CMS should use them to educate 
hospitals about appropriate billing, modify coding policies, and consider whether 
further steps should be taken to disincentivize inappropriate billing.
Data Brief: Trend Toward More Expensive Inpatient Hospital Stays in Medicare Emerged 
Before COVID-19 and Warrants Further Scrutiny  OEI-02-18-00380  Recommendation | 10  AGENCY COMMENTS AND OIG RESPONSE 
 
CMS did not concur with our recommendation for it to conduct targeted reviews of 
MS-DRGs and stays that are vulnerable to upcoding, as well as the hospitals that 
frequently bill for them.  CMS stated that there is more work to be done to determine 
conclusively which changes in billing are attributable to upcoding.  CMS also said that 
it would share our findings with its Recovery Audit Contractors for their consideration 
in updating their strategies for reviewing MS-DRGs.  In addition, CMS stated that it 
will continue its monitoring for potential upcoding as part of its program integrity 
strategy and continue to educate providers about appropriate Medicare billing. 
We also think that more work needs to be done to determine conclusively which stays 
at the highest MS-DRG levels involved upcoding and which hospitals have patterns of 
upcodingthese are the types of targeted reviews that OIG recommends that CMS 
conduct.  We appreciate the steps that CMS has previously takenand has pledged 
to continue takingas part of its program integrity strategy to monitor for potential 
upcoding and to educate providers.  However, CMSs program integrity strategy was 
in place at the time that these concerning trends emerged, signaling that CMS should 
strengthen its approach. 
As such, we continue to recommend that CMS conduct targeted reviews of MS-DRGs 
and hospital stays that are vulnerable to upcodingi.e., those that are billed at the 
highest severity leveland the hospitals that frequently bill for them.   
See Appendix B for the full text of CMSs comments. 
Data Brief: Trend Toward More Expensive Inpatient Hospital Stays in Medicare 
Emerged Before COVID-19 and Warrants Further Scrutiny  OEI-02-18-00380  Agency Comments and OIG Response | 11   
METHODOLOGY 
 
 
Data source 
We based this study on an analysis of paid Medicare Part A claims from the National 
Claims History file with dates of service in FY 2014 through FY 2019.  We excluded 
claims from hospitals that were not paid under the Inpatient Prospective Payment 
System (IPPS), such as long-term care hospitals, critical access hospitals, and hospitals 
in Maryland. 
Analysis of stays and payments by severity level 
We first determined the total number of inpatient hospital stays in FY 2019 and the 
change from FY 2014.9  We also calculated total Medicare payments in FY 2019, as 
well as the change from FY 2014.   
Next, we determined the number of stays that were billed at the highest severity level 
and each of the other levels.  To do this, we used information in each MS-DRG 
description regarding the MCC (major complication or comorbidity) and CC 
(complication or comorbidity) classification to identify the severity level of each 
MS-DRG.10  We then calculated the number and percentage of stays by severity level 
in each FY, as well as the change from FY 2014 through FY 2019.  We did the same for 
Medicare payments.   
In addition, we calculated the average length of stay overall and by severity level in 
FY 2014 and FY 2019 and determined the difference between the 2 fiscal years.11  
Analysis of stays at the highest severity level with a particularly 
short length of stay 
We determined the number and percentage of stays at the highest severity level that 
had a short length.  We used information published by CMS to identify the geometric 
mean length of stay for each MS-DRG.12  We then used this information to identify 
_____________________________________________________________________________________________________________________________ 
9 For the purposes of this report, we considered each hospital claim to be a hospital stay. 
10 Base DRGs may be split into two or three MS-DRGs.  We considered a MS-DRG to have a low severity level when the 
description included w/o CC/MCC, a medium severity level when the description included w/CC, and a high severity 
level when the description included w/MCC.  Base DRGs with a two-way split received severity levels of low and high. Base 
DRGs with no split were not assigned a severity level.  See CMS, FYs 2014-2019 IPPS final rules, Table 5.  For more on MCCs 
and CCs, see the Primer on page 2. 
11 We used the claim admission date and claim through date to calculate the length of each stay. 
12 CMS, FY 2019 IPPS Final Rule, Table 5.  Geometric means are calculated differently from arithmetic means and are less 
sensitive to outliers.  
Data Brief: Trend Toward More Expensive Inpatient Hospital Stays in Medicare Emerged 
Before COVID-19 and Warrants Further Scrutiny  OEI-02-18-00380  Methodology | 12  stays that were particularly short compared to the average.  We defined a particularly 
short stay as one where the length is more than 20 percent shorter than the 
geometric mean length of stay for the applicable MS-DRG.  We excluded from this 
analysis all stays that could be expected to be relatively shorti.e., those with 
discharge codes indicating that the beneficiary died, was transferred to another 
acute-care facility, left against medical advice, or elected hospice care; and those with 
admission source codes indicating that the beneficiary transferred from another 
acute-care hospital.   
We summed the Medicare payment associated with each short stay to determine 
total Medicare payments for these stays.  We then estimated how much Medicare 
would have paid for these stays if each had instead been assigned to the same base 
MS-DRG, but at the next lower severity level.  To do this, we first calculated the 
average Medicare payment for each MS-DRG.  We then used this average Medicare 
payment for the MS-DRG at the next lower severity level for each short stay.  We 
calculated the difference between the actual payment and the average payment for 
the MS-DRG at the next lower severity level.  We summed these amounts to estimate 
how much more Medicare paid for these stays at the highest severity level.  We note 
that if a stay was inappropriately billed, the appropriate MS-DRG may or may not be 
the one at the next lower severity level. 
Finally, we determined whether high-severity stays with short lengths of stay were 
concentrated in certain MS-DRGs. To do this, we calculated the number and 
percentage of stays within each high-severity MS-DRG that had a short length of stay.   
Analysis of stays at the highest severity level with only one major 
complication 
We used tables published annually by CMS to identify whether each diagnosis 
submitted for each inpatient stay was a major complication, a minor complication, or 
not a complication.13  We used this information to calculate the number and 
percentage of stays at the highest severity level that had exactly one major 
complication; i.e., one diagnosis qualifying the stay for payment at that severity 
level.14,15 
_____________________________________________________________________________________________________________________________ 
13 We used Tables 6I, 6J, and 6K published in CMSs FY 2019 IPPS final rule, as well as the present on admission indicators and 
information on hospital-acquired conditions.  See https://www.cms.gov/Medicare/Medicare-Fee-for-Service-
Payment/HospitalAcqCond/icd10_hacs. 
14 Some MS-DRGs are structured so that a stay with a minor complication is assigned to the same MS-DRG as a stay with a 
major complication.  We accounted for this in our calculations; i.e., for stays in these MS-DRGs, we identified those that had 
exactly one minor or major complication.    
15 We note that several surgical MS-DRGs are assigned a severity level based on the presence of complications or specifics 
related to the surgical procedure (e.g., MS-DRG 129, major head and neck procedures with CC/MCC or major device).  We did 
not account for the latter; less than 3 percent of the stays at the highest severity level with exactly one major complication are 
potentially affected.   
Data Brief: Trend Toward More Expensive Inpatient Hospital Stays in Medicare Emerged 
Before COVID-19 and Warrants Further Scrutiny  OEI-02-18-00380  Methodology | 13  We summed the Medicare payments associated with each stay that had exactly one 
major complication to determine total Medicare payments for these stays.  We used 
the same method as for the short stays to estimate what Medicare would have paid 
for these stays if the single major complication were not appropriate and they had 
instead been billed at the next lower severity level.  We calculated the difference 
between the actual payments and the estimated payments. 
We then determined whether high-severity stays with one major complication were 
concentrated in certain MS-DRGs.  To do this, for each high-severity MS-DRG we 
calculated the number and percentage of stays within each high-severity MS-DRG 
that had exactly one qualifying diagnosis.   
We also calculated the average number of diagnoses per stay at the highest severity 
level. 
Analysis of hospital billing for stays at the highest severity level 
For each hospital with at least 50 stays in FY 2019, we analyzed billing for stays at the 
highest severity level.  To do this, we calculated the (1) percentage of stays at the 
highest severity level, (2) percentage of stays at the highest severity level that were 
particularly short, and (3) percentage of stays at the highest severity level with exactly 
one major complication. 
We then calculated the distribution of hospitals based on these indicators.  The 
ranges presented in the report reflect the percentages associated with hospitals at 
the 5th and 95th percentiles among all hospitals.   
Limitations 
This study is based on analysis of claims data; we did not conduct medical record 
reviews.  Such reviews would be necessary to determine whether individual stays were 
inappropriately billed.   
Many factors may affect hospital billing.  We took steps to understand the impact of 
these other factors where possible.  For example, CMS updates the MS-DRGs each 
year.  We found that 731 of the 761 MS-DRGs in FY 2019 were unchanged from 
FY 2014 and the changes that did occur affected the severity level of a relatively small 
percentage of stays.  Other factors we considered include: the transition to ICD-10, 
the 2-midnight policy, shifts of surgical procedures to the outpatient setting, increases 
in efficiencies of care, and advancements in technology.16  None fully account for the 
trends described in the report.  For example, the fact that the average length of all 
_____________________________________________________________________________________________________________________________ 
16 The transition to ICD-10 occurred in FY 2016.  ICD-10 greatly increased the number of diagnosis codes as compared to the 
previous version, ICD-9, and was expected to improve coding accuracy.  The 2-midnight policy was enacted in FY 2014 and 
established that inpatient payment is generally appropriate if physicians expect beneficiaries care to last at least 2 midnights; 
otherwise, outpatient payment would generally be appropriate.  Previous OIG work showed that under this policy, billing for 
inpatient staysparticularly those with a short length of staydecreased.  OIG, Vulnerabilities Remain Under Medicares         
2-Midnight Hospital Policy (OEI-02-15-00020), December 2016.   
Data Brief: Trend Toward More Expensive Inpatient Hospital Stays in Medicare Emerged 
Before COVID-19 and Warrants Further Scrutiny  OEI-02-18-00380  Methodology | 14  hospital stays largely remained the same undermines the idea that efficiencies of care 
or advancements in technology are driving factors.  In addition, the billing trends 
described in this report began before the transition to ICD-10 in FY 2016 and 
continued well after, refuting that as a significant factor as well.   
Standards 
We conducted this study in accordance with the Quality Standards for Inspection and 
Evaluation issued by the Council of the Inspectors General on Integrity and Efficiency. 
Data Brief: Trend Toward More Expensive Inpatient Hospital Stays in Medicare Emerged 
Before COVID-19 and Warrants Further Scrutiny  OEI-02-18-00380  Methodology | 15  APPENDIX A 
MS-DRG Titles 
MS-DRG Title
190  Chronic obstructive pulmonary disease with MCC 
193  Simple pneumonia and pleurisy with MCC 
194  Simple pneumonia and pleurisy with CC 
195  Simple pneumonia and pleurisy without CC/MCC 
291  Heart failure and shock with MCC 
292  Heart failure and shock with CC 
682  Renal failure with MCC 
689  Kidney and urinary tract infections with MCC 
Septicemia or severe sepsis without mechanical 
871 
ventilation >96 hours with MCC 
Source: CMS, FY 2019 IPPS Final Rule, Table 5. 
Data Brief: Trend Toward More Expensive Inpatient Hospital Stays in Medicare Emerged 
Before COVID-19 and Warrants Further Scrutiny  OEI-02-18-00380  Appendix A | 16  AGENCY COMMENTS
DATE:  January 11, 2021 
TO:  Suzanne Murrin 
Deputy Inspector General for Evaluation and Inspections 
Office of the Inspector General 
FROM:  Seema Verma 
Administrator 
Centers for Medicare & Medicaid Services 
SUBJECT:  Office of Inspector General (OIG) Draft Data Brief: Trend Toward More 
Expensive Inpatient Hospital Stays in Medicare Emerged Before COVID-19 and 
Warrants Further Scrutiny (OEI-02-18-00380) 
The Centers for Medicare & Medicaid Services (CMS) appreciates the opportunity to review and 
comment on the Office of Inspector Generals (OIG) draft report. CMS recognizes the 
importance of providing Medicare beneficiaries with access to medically necessary services and, 
at the same time, protecting the Medicare Trust Funds from improper payments through program 
integrity initiatives that minimize provider burden.  
CMS uses a robust program integrity strategy to reduce and prevent Medicare improper 
payments, including automated system edits within the claims processing system and 
prepayment and postpayment medical reviews. CMS also uses the Fraud Prevention System to 
analyze Medicare fee-for-service claims using sophisticated algorithms to target investigative 
resources, generate alerts for suspect claims or providers and suppliers, and provide information 
to facilitate and support investigations of the most egregious, suspect, or aberrant activity. CMS 
uses the Fraud Prevention System information to prevent and address improper payments using a 
variety of administrative tools and actions, including claims denials, payment suspensions, 
Medicare billing privilege revocations, and law enforcement referrals. In an effort to identify and 
prevent Medicare abuse, CMS implemented several Fraud Prevention System models that 
identify inpatient hospital billing providers engaging in potential Diagnosis Related Group 
(DRG) upcoding, which is when a provider assigns an inaccurate billing code for a medical 
diagnosis, procedure or treatment that is not supported by medical record documentation to 
increase payment.
Additionally, CMS has taken action to prevent improper Medicare payments by educating health 
care providers on proper billing. CMS educates health care providers on appropriate Medicare 
billing through various channels including the Medicare Learning Network (MLN), weekly 
electronic newsletters, and quarterly compliance newsletters. For example, in February 2019, 
CMS issued an MLN Booklet dedicated to Medicare Fraud and Abuse, which included a section 
dedicated to Upcoding and Accurate Coding and Billing.1 
1 https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-
MLN/MLNProducts/Downloads/Fraud-Abuse-MLN4649244.pdf  
Data Brief: Trend Toward More Expensive Inpatient Hospital Stays in Medicare Emerged 
Before COVID-19 and Warrants Further Scrutiny  OEI-02-18-00380                             Appendix B | 17 As part of CMSs program integrity efforts, Recovery Audit Contractors (RACs) review claims 
on a post-payment basis to detect and correct past improper payments as part of the Medicare 
Fee-for-Service (FFS) Recovery Audit Program.2 The national Recovery Audit Program seeks to 
identify and correct Medicare improper payments through the efficient detection and collection 
of overpayments made on claims of health care services provided to Medicare beneficiaries and 
the identification of underpayments to providers, so that CMS can implement actions that will 
prevent future improper payments. The Medicare FFS RACs have conducted Medicare Severity 
DRG (MS-DRG) validation reviews since inception of the RAC Program. The RACs are paid on 
a contingency fee basis and their contingency fee is a percentage of the improper payment 
recovered from, or reimbursed to, providers. RACs are thereby incentivized to conduct targeted 
reviews of higher paying MS-DRGs, such as those the OIG identifies as being billed at the 
highest severity level. Additionally, per the RACs' institutional risk-based Additional 
Documentation Request (ADR) limit methodology, providers with higher denial rates will have 
higher ADR limits, allowing the RACs to conduct further reviews of those providers.3 The RACs 
are also required to refer any findings of suspected fraud, which would include intentional 
egregious upcoding, to the Unified Program Integrity Contractor (UPIC) for further audit 
activities.4  
CMS regularly monitors for potential upcoding as part of our comprehensive program integrity 
strategy and takes action when needed. As discussed above, CMS continues to have RACs 
conduct MS-DRG assignment validation as part of their DRG validation process to verify that 
the code as reported on the hospital claim is supported by the documentation contained in the 
beneficiarys medical record. This process includes reviewing principal and secondary 
diagnoses, as well as any procedures performed during the hospitalization. CMS also publishes 
improper payment rate data yearly as part of the Comprehensive Error Rate Testing program.5 
As part of these reports, CMS publishes the types of services with upcoding errors and the 
corresponding improper payment rates. CMS has seen a decrease in the improper payment rates 
for upcoding errors in the Part A hospital inpatient prospective payment system (IPPS) services 
over the past several years, with the 2020 improper payment rate for upcoding errors in the Part 
A hospital IPPS reported as 0.2 percent.6 
CMS appreciates OIGs efforts in assessing inpatient hospital billing to determine whether 
upcoding is occurring, but believes there is more work to be done to conclusively determine if 
the increase in stays at the highest severity level and the decrease in stays at other severity levels, 
as well as changes in average length of stay, can be attributed to upcoding. Hospitals vary by 
geographic location, bed size, teaching status and ownership; therefore, detailed data regarding 
the specific type of hospital analyzed and the associated results is needed to determine how the 
billing trends are affected by these factors. For example, some hospitals provide more lines of 
specialty services and therefore are more equipped to treat high acuity cases. These hospitals 
typically have a higher proportion of inpatient admissions for patients with a complication or 
comorbidity or major complication or comorbidity than other hospitals, due not to upcoding, but 
rather to the types of specialty services available. 
2 https://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/Medicare-FFS-Compliance-
Programs/Recovery-Audit-Program 
3 https://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/Medicare-FFS-Compliance-
Programs/Recovery-Audit-Program/Downloads/Additional-Documentation-Request-Limits-.pdf  
4 https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/pim83c09.pdf  
5 https://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/Improper-Payment-
Measurement-Programs/CERT  
6 https://www.cms.gov/restricted-access-vbdlvcertreportsdl/2020-medicare-fee-service-supplemental-improper-
payment-data 
Data Brief: Trend Toward More Expensive Inpatient Hospital Stays in Medicare Emerged 
Before COVID-19 and Warrants Further Scrutiny  OEI-02-18-00380                Appendix B | 18 Additionally, the OIG found that the average length of stay decreased from fiscal year (FY) 2014 
to FY 2019 for all severity levels (high, medium, low, other), with the average length of stay at 
the highest severity level decreasing by half a day. Without conducting targeted medical review, 
it is unclear whether the trend could be explained by other factors such as increases in 
efficiencies of care, advancements in technology, the transition to the International Statistical 
Classification of Diseases and Related Health Problems, Tenth Revision, Clinical Modification 
(ICD-10-CM), or other changes during this period. These factors are important to consider when 
analyzing billing trends. For instance, patterns of care for conditions such as neoplasms, 
orthopedics and structural heart disease, have recently transformed due to advancements in 
biomedicine, resulting in improved clinical outcomes for patients. These advancements in 
biomedicine have been accompanied by further advancements in medical coding practices and 
the 2015 implementation of ICD-10-CM. Improvements to coding software have promoted 
coding sophistication in recent years to accommodate the new diagnosis classification introduced 
by ICD-10-CM, and led to the nationwide expansion of clinical documentation specialists that 
utilize medical record documentation review to ensure that all relevant conditions throughout the 
patients hospitalization are accurately captured in medical records. CMS remains committed to 
supporting significant advancements in biomedicine that are changing healthcare delivery for the 
better, as new technologies can increase efficiency in healthcare by promoting cost-effective care 
and improving outcomes.  
OIGs recommendation and CMS's response are below. 
OIG Recommendation 
Conduct targeted reviews of MS-DRGs and stays that are vulnerable to upcoding, as well as the 
hospitals that frequently bill them. 
CMS Response 
CMS does not concur with this recommendation. CMS appreciates OIGs efforts in assessing 
inpatient hospital billing to determine whether upcoding is occurring, However, as stated above, in 
the absence of medical record reviews conducted by the OIG, CMS believes there is more work to 
be done to conclusively determine if the increase in stays at the highest severity level and the 
decrease in stays at other severity levels, as well as changes in average length of stay, can be 
attributed to upcoding. As OIG noted, CMSs Recovery Audit Contractors (RACs) currently 
conduct MS-DRG validation reviews that incorporate some of OIGs targeting strategies. CMS will 
share OIGs findings with the RACs, who conduct similar reviews, for their consideration in 
updating their review strategies. CMS will continue to monitor for potential upcoding as part of our 
comprehensive program integrity strategy and, if needed, take action in a manner that minimizes 
provider burden. CMS will also continue to educate health care providers on appropriate Medicare 
billing through various channels including the Medicare Learning Network (MLN), weekly 
electronic newsletters, and quarterly compliance newsletters. 
Data Brief: Trend Toward More Expensive Inpatient Hospital Stays in Medicare Emerged 
Before COVID-19 and Warrants Further Scrutiny  OEI-02-18-00380                         Appendix B | 19  
 ACKNOWLEDGMENTS AND CONTACT 
 
Acknowledgments 
Rachel Bryan and Jenell Clarke-Whyte served as team leaders for this study.  Others in 
the Office of Evaluation and Inspections who conducted the study include 
Hannah Morgan and Aaron Plotke.  Office of Evaluation and Inspections staff who 
provided support include Joe Chiarenzelli, Kevin Farber, and Christine Moritz.  
This report was prepared under the direction of Jodi Nudelman, Regional Inspector 
General for Evaluation and Inspections in the New York regional office, and 
Nancy Harrison and Meridith Seife, Deputy Regional Inspectors General. 
Contact 
To obtain additional information concerning this report, contact the Office of Public 
Affairs at Public.Affairs@oig.hhs.gov.  OIG reports and other information can be found 
on the OIG website at oig.hhs.gov. 
Office of Inspector General 
U.S. Department of Health and Human Services 
330 Independence Avenue, SW 
Washington, DC 20201 
Data Brief: Trend Toward More Expensive Inpatient Hospital Stays in Medicare Emerged 
Before COVID-19 and Warrants Further Scrutiny  OEI-02-18-00380  Acknowledgments and Contact | 20