Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

JUNE GIBBS BROWN 

Inspector General 

MARCH 1999 

OEI-03-98-00370 

Medicare Payments for Septicemia 
OFFICE OF INSPECTOR GENERAL 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, is to 

protect the integrity of the Department of Health and Human Services programs as well as the 

health and welfare of beneficiaries served by them. This statutory mission is carried out through a 

nationwide program of audits, investigations, inspections, sanctions, and fraud alerts. The 

Inspector General informs the Secretary of program and management problems and recommends 

legislative, regulatory, and operational approaches to correct them. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) is one of several components of the Office of 

Inspector General. It conducts short-term management and program evaluations (called 

inspections) that focus on issues of concern to the Department, the Congress, and the public. The 

inspection reports provide findings and recommendations on the efficiency, vulnerability, and 

effectiveness of departmental programs. 

OEI's Philadelphia office prepared this report under the direction of Robert A. Vito, Regional 

Inspector General, and Linda M. Ragone, Deputy Regional Inspector General. Principal OEI 

staff included: 

REGION HEADQUARTERS 

David Graf, Project Leader Tricia Davis, Program Specialist 

Mark Krushat, Research and Special Projects 

To obtain copies of this report, please call the Philadelphia Regional Office at (800) 531-9562. 

Reports are also available on the World Wide Web at our home page address: 

http://www.dhhs.gov/progorg/oei 
EXECUTIVE SUMMARY

PURPOSE 

To identify hospitals with atypically high billing patterns for patients with septicemia (DRG 416). 

BACKGROUND 

Under Medicare’s PPS reimbursement formula, the payment a hospital receives is based upon the 

individual hospital’s payment rate and the weight of the DRG to which a case is assigned. A 

DRG’s weight represents the average resources needed for cases in that classification relative to 

the average resources needed for cases in all DRGs. The higher the relative weight, the greater 

the reimbursement. 

DRG 416 represents septicemia (blood poisoning). Generally, the DRG payment for septicemia is 

dependent on the principal diagnosis code. Twenty-four diagnosis codes can result in a discharge 

grouping of DRG 416. This code typically triggers a higher Medicare reimbursement compared 

to other diagnostic codes with similar symptoms. DRG 320, kidney and urinary tract infections, is 

one such code. 

The Health Care Financing Administration (HCFA) contracts with two Clinical Data Abstraction 

Centers to collect clinical data from hospital medical records. A part of the Abstraction Center’s 

responsibility is the validation of a national random sample of claims from all Medicare inpatient 

hospital discharges. The results of the 1996 validation effort showed that approximately 13 

percent of the sample DRG 416 discharges should have been coded to a lower weighted DRG. 

HCFA estimated that the total overpayment attributable to incorrect DRG 416 classifications was 

$48,930,882. 

Our office recently conducted DRG validation work on a sample of 2,622 Medicare inpatient 

hospital discharges from 1996. The results of this validation showed that approximately 20 

percent of the sample DRG 416 discharges were improperly coded. 

We analyzed the Medicare Provider Analysis and Review file, for fiscal years 1993 to 1996, to 

identify hospitals with atypically high billings for DRG 416. 

FINDINGS 

A small number of hospitals have atypically high Medicare billings for DRG 416. 

A relatively small number of hospitals had abnormally high DRG 416 discharges compared to 

national figures. For 120 hospitals (out of 4,701) identified in our review, DRG 416 discharges 

increased from 4,583 in 1993 to 13,450 in 1996 -- an almost three-fold increase. Nationally, 

DRG 416 discharges increased from 167,900 in 1993 to 220,441 in 1996. 

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The proportion of DRG 416 discharges to total discharges increased by a factor of almost 3, from 

1.57 percent in 1993 to 4.33 percent in 1996. Nationally, this same proportion increased from 

1.51 percent in 1993 to 1.88 percent in 1996. 

Previous DRG validation reviews showed that a substantial number of improperly coded DRG 

416 discharges should have been coded as DRG 320. For the 120 hospitals, DRG 320 discharges 

decreased from 6,330 in 1993 to 4,792 in 1996. Nationally, DRG 320 discharges increased from 

172,659 in 1993 to 177,042 in 1996. 

The inappropriate billing of DRG 416 could have a major financial impact. 

From the previous DRG validation work performed by our office, we found an average per 

discharge difference of $2,254 between DRG 416 and the DRG we believe should have been 

coded. For the 120 hospitals, the number of DRG 416 discharges exceeded national norms by 

approximately 7,345 cases. Using the $2,254 per discharge difference from our previous work, 

we estimate that potential overpayments could be as high as $16.6 million. 

The true upcoding error rate can only be determined by undertaking a detailed claims review at 

each hospital. Therefore, the potential overpayments at each hospital will vary according to 

applicable coding error rates. 

RECOMMENDATION 

We recommend that HCFA institute a system to identify hospitals with atypically high billings for 

DRGs identified by the Clinical Data Abstraction Centers as having a high potential for being 

upcoded. Once the hospitals have been identified, a review of the discharges should be made. 

We have referred the 120 hospitals that we have identified as having atypically high growth in 

DRG 416 discharges to our Office of Investigations. 

AGENCY COMMENTS 

The HCFA concurred with our recommendation. The HCFA stated that under the Peer Review 

Organization (PRO) contracts that will take effect between August 1999 and February 2000, 

PROs will conduct a Payment Error Prevention Program for inpatient hospital care. Under this 

approach, HCFA will conduct an independent ongoing surveillance of inpatient payment error 

rates, both nationally and on a state-by-state basis. The HCFA will also conduct analyses of 

discharge patterns and provide the results to the PROs. The PROs will conduct additional 

analyses of discharge patterns and take steps to reduce or eliminate erroneous billing. The full 

text of HCFA’s comments is provided in Appendix C. 

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TABLE OF CONTENTS

PAGE

EXECUTIVE SUMMARY ................................................... i

INTRODUCTION .......................................................... 1

FINDINGS ................................................................ 5

Atypically high billings at a small number of hospitals ........................... 5

Potential financial impact ................................................ 7

RECOMMENDATION ..................................................... 8

APPENDICES

A: Clinical Data Abstraction Centers’ 1996 Validation Work for DRG 416 .............. A-1

B: Office of Inspector General’s Validation Work for DRG 416 ...................... B-1

C: Health Care Financing Administration Comments ............................... C-1
INTRODUCTION

PURPOSE 

To identify hospitals with atypically high billing patterns for patients with septicemia (DRG 416). 

BACKGROUND 

In 1983, the Congress enacted a PPS, under which Medicare pays a fixed, predetermined amount 

for inpatient hospital services for each patient. Payment for a case is determined by taking a 

hospital’s individually determined base payment rate and multiplying it by the weight of the DRG 

to which the case is assigned. A DRG’s weight represents the average resources needed for cases 

in that classification relative to the average resources needed for cases in all DRGs. Certain 

hospitals, such as psychiatric and long-term, are excluded from the PPS system. 

Claims Processing 

Cases are classified into DRGs for payment under the PPS based on the principal diagnosis, up to 

eight additional diagnoses, and up to six procedures performed during the stay, as well as age, 

sex, and discharge status of the patient. Hospitals use codes from the International Classification 

of Diseases, Ninth Edition, Clinical Modification (ICD-9-CM) to report diagnosis and procedure 

information. (HCFA Final Rule, Federal Register, August 30, 1996) 

When a patient is discharged, the physician will summarize information on a discharge face sheet 

which includes the principal diagnosis, defined as the condition which caused the patient’s 

admission, secondary or coexisting diagnoses, and procedures. A coder, trained in medical 

classification, will use the information to assign the most appropriate ICD-9-CM code. The 

hospital coder will review the entire medical record as part of the coding process. 

A hospital receives payment for treating a Medicare patient by preparing a claim and forwarding it 

to the Medicare fiscal intermediary. The intermediary enters the information into its claims system 

and puts it through a series of automated screens. These screens, called the Medicare Code 

Editor, identify cases that need further review before being classified into a DRG. 

Cases are classified by the GROUPER software program into the appropriate DRG. This 

program classifies each case into a DRG based on diagnosis, procedure code, and demographic 

information. It is used both to classify current cases in order to determine payment and to classify 

past cases for purposes of measuring relative hospital resource consumption. The Medicare 

Provider Analysis and Review File contains all records for Medicare hospital inpatient discharges. 

The data in this file are used to adjust the DRG weights and to assess possible DRG classification 

changes. 

Hospital reimbursement is calculated by multiplying the “relative weight” of each DRG category 

by a standardized amount, as modified by certain hospital-specific factors. Reimbursement will 

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increase as the relative weight increases. Significant financial implications can result from 

hospital mis-assignment of the ICD-9-CM categories or erroneous assignment of patient 

diagnoses. 

DRG 416 

The hospital stays of patients over the age of 17 whose principal diagnosis relates to septicemia, 

are coded as DRG 416. DRG 416 contains the ICD-9-CM codes indicating septicemias such as 

streptococcal septicemia, anaerobic septicemia, and pseudomonas septicemia. There are 24 ICD9-CM codes that can lead to a coding of DRG 416. 

Septicemia (blood poisoning) can result from bacteria infecting the bloodstream in various ways. 

It is a very serious infection which can rapidly lead to septic shock and death. Symptoms of 

septicemia include fever, chills, and nausea. 

DRG 320 

DRG 320, kidney and urinary tract infections, will result from any one of 67 principal diagnoses. 

These diagnoses include conditions such as urinary tract infection (not otherwise specified) and 

pyeloureteritis cystica. 

DRG 320 is an example of a code to which DRG 416 can be mis-classified. It can have symptoms 

similar to DRG 416, however, diagnostic testing through a urine analysis or culture should 

differentiate the two codes. 

The mis-classification of DRG 320 to DRG 416 can have significant financial implications. The 

1996 relative weight of DRG 416 is 1.4770 whereas the relative weight of DRG 320 is .9320. 

Therefore, mis-classifying a DRG 320 discharge as DRG 416 will result in an overpayment of 

approximately $2,000 per discharge. 

DRG Validation Efforts 

HCFA 

Through the Medicare Peer Review Organizations (PROs), HCFA contracts with two Clinical 

Data Abstraction Centers to collect clinical data from hospital medical records. The PROs use 

this data in carrying out clinical quality improvement projects. 

The PROs are groups of practicing physicians and other health care professionals contracted by 

HCFA to oversee the care given to Medicare patients. They are located in each State and US 

territory and decide whether care given to Medicare patients is reasonable, necessary, and 

provided in the most appropriate setting. Each PRO is required to subcontract with the 

Abstraction Centers for DRG validation work. 

A part of the Abstraction Center’s responsibility is DRG validation. The 1996 validation effort 

consisted of a nationally representative random sample of 20,152 claims from all Medicare 

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inpatient hospital discharges. There were 369 DRG 416 discharges in the sample. The sample 

results disclosed that approximately 14 percent (53) of the sample DRG 416 discharges were 

improperly coded. Most (49 out of 53) of the erroneously coded discharges resulted in 

overpayments to hospitals. The total estimated overpayment attributable to DRG 416 discharges 

for 1996 was $48,930,882. 

The 49 discharges resulting in overpayments to the facility were found to belong to 20 other 

DRGs. The most prevalent was DRG 320 which accounted for 20 of the upcoded discharges (41 

percent). The next most prevalent were DRG 089 (Simple Pneumonia & Pleurisy Age > 17 W 

CC [with complications and comorbidities]) at 8 percent and DRG 296 (Nutritional and Misc. 

Metabolic Disorders Age > 17 W CC) at 6 percent. A complete listing of the appropriate DRG 

codes can be found in Appendix A. 

The Abstraction Centers’ validation effort provides HCFA with an overall assessment of DRG 

coding and identifies potential problem DRGs. However, a thorough analysis of the more 

problematic DRGs at the level of individual hospitals is not done. 

Office of Inspector General (OIG) 

Our office, in a study entitled, Using Software to Detect Upcoding of Hospital Bills (OEI-01-97-

00010, August 1998), performed DRG validation work on a sample of 2,622 Medicare inpatient 

hospital discharges. Eighty-four of 2,622 sample discharges were for DRG 416. The results of 

this validation showed that approximately 20 percent (17) of the sample DRG 416 discharges 

were improperly coded. All 17 erroneously coded discharges resulted in overpayments to the 

hospitals. 

The erroneously coded DRG 416 discharges should have been coded to 12 other DRGs. Twentyfour percent (4 of 17) of the erroneously coded discharges should have been coded to DRG 320. 

DRG 089 (Simple Pneumonia & Pleurisy Age > 17 W CC) and DRG 182 (Esophagitis, Gastroent 

& Misc. Digest Disorders Age > 17 W CC) were next at 12 percent each. A complete listing of 

the appropriate DRG codes can be found in Appendix B. 

A comparison of the tables in Appendices A and B show that seven of the DRGs are in both 

tables (these DRGs are bolded in each table). These seven DRGs account for 69 percent of the 

erroneous records in HCFA’s Abstraction Centers data and 66 percent of the erroneous records in 

the OIG’s data. 

METHODOLOGY 

We used data from the Medicare Provider Analysis and Review (MedPAR) file to identify the 

number of discharges in DRG 416 for fiscal years 1993 to 1996. We determined the increase in 

the proportion of DRG 416 discharges to total discharges from 1993 to 1996 nationally and for 

each hospital identified in the MedPAR file. 

We then identified those hospitals where more than 3 percent of their discharges were due to 

DRG 416 and the proportion of DRG 416 discharges to total discharges increased more than 100 

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percent from 1993 to 1996. From these hospitals, we selected those with 50 or more discharges 

in DRG 416 in 1996. We excluded those hospitals currently under investigation by the OIG. 

For the hospitals selected, we compiled a table of DRG 416 and DRG 320 discharges from 1993 

to 1996. We used this information to determine the billing patterns for DRG 416 and DRG 320 

discharges over the four year period. We also used this information to look at DRG 416 

increases, at each hospital, both from 1993 to 1996 and from year to year within that time period. 

To calculate the amount of the potential overpayment of DRG 416 in the identified hospitals, we 

first determined the national adjusted operating standardized amount by adding the labor and nonlabor columns in table 1A of the September 1, 1995 Federal Register. Using this standardized 

amount as a basis, we determined monetary differences between the billed and appropriate DRG 

from results of our validation work. We calculated potential overpayments by multiplying the 

applicable differences by estimates of total erroneous claims. 

This inspection was conducted in accordance with the Quality Standards for Inspections issued 

by the President’s Council on Integrity and Efficiency. 

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FINDINGS

A SMALL NUMBER OF HOSPITALS HAVE ATYPICALLY HIGH MEDICARE 

BILLINGS FOR DRG 416. 

A relatively small number of hospitals had abnormally high DRG 416 discharges compared to 

national figures. For 120 hospitals (out of 4,701), that met our selection criteria as stated in the 

methodology, DRG 416 discharges increased by a factor of almost 3, from 4,583 in 1993 to 

13,450 in 1996. This represents an average increase of 43 percent a year. Nationally, DRG 416 

discharges increased from 167,900 in 1993 to 220,441 in 1996, with an average increase of 9 

percent a year. 

This atypical pattern is also shown by the significant difference in proportions of DRG 416 

discharges to total discharges between the 120 hospitals and all hospitals. As illustrated in the 

chart below, for the 120 hospitals, the proportion of DRG 416 discharges to total discharges 

increased from 1.57 percent in 1993 to 4.33 percent in 1996. This represents an almost three-fold 

increase, with an average increase of 40 percent a year. For all hospitals, this same proportion 

increased from 1.51 percent in 1993 to 1.88 percent in 1996, with an average increase of 8 

percent a year. 

Proportion of DRG 416 Discharges to Total Discharges 

1993 to 1996 

5.00% 

4.50% 

4.00% 

3.50% 

3.00% 

2.50% 

2.00% 

1.50% 

1.00% 

0.50% 

0.00% 

1993 1994 1995 1996 

DRG 416 to Total 1.57% 2.17% 3.08% 4.33% 

(120 Hospitals) 

DRG 416 to Total 1.51% 1.60% 1.73% 1.88% 

(All Hospitals) 

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For the 120 hospitals, the proportion of 1996 DRG 416 discharges to total discharges increased 

by a factor ranging from 2 to 19 times 1993 figures. Specifically, for eight hospitals, the 

proportion of DRG 416 discharges to total discharges increased by a factor of more than six. In 

26 hospitals, this proportion increased by a factor ranging between 4 and 6. And in the remaining 

86 hospitals, this proportion increased by a factor of 2 to 3 times 1993 numbers. 

There were some hospitals that exhibited unusually high increases in DRG 416 discharges from 

1993 to 1996. For instance, one hospital’s DRG 416 discharges increased from 13 (out of 989 

total discharges) in 1993 to 113 (out of 1,324 total discharges) in 1996 -- an almost nine-fold 

increase. Another hospital’s DRG 416 discharges increased from 31 (out of 1,802 total 

discharges) in 1993 to 113 (out of 1,921 total discharges) in 1994 -- an almost four-fold increase. 

The 120 hospitals are located in 30 States. Of the 120 hospitals, 61 are concentrated in 6 States. 

California is the top State with 15 hospitals, Texas is next with 14, and Georgia is third with 12. 

The remaining States contain hospitals numbering in the range from one to seven. 

DRG validation reviews previously conducted showed that a substantial number of the improperly 

coded DRG 416 discharges should have been coded to DRG 320. For the 120 hospitals, DRG 

320 discharges decreased from 6,330 in 1993 to 4,792 in 1996. Nationally, DRG 320 discharges 

increased from 172,659 in 1993 to 177,042 in 1996. The chart below illustrates the billing pattern 

of increasing DRG 416 discharges and decreasing DRG 320 discharges for the 120 hospitals, 

from 1993 to 1996. 

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6 
THE QUESTIONABLE BILLING OF DRG 416 COULD HAVE A MAJOR FINANCIAL 

IMPACT. 

From the previous DRG validation work performed by our office, we found an average per 

discharge difference of $2,254 between DRG 416 and the DRG we believe should have been 

coded. For the 120 hospitals, the number of DRG 416 discharges exceeded national norms by 

approximately 7,345 cases. Using the $2,254 per discharge difference from our previous work, 

we estimate that potential overpayments could be as high as $16.6 million. 

The true upcoding error rate can only be determined by undertaking a detailed claims review at 

each hospital. Therefore, the potential overpayments at each hospital will vary according to 

applicable coding error rates. 

Proportion of DRG 416 and DRG 320 Discharges 

to Total Discharges 

1993 to 1996 

5.00% 

4.50% 

4.00% 

3.50% 

3.00% 

2.50% 

2.00% 

1.50% 

1.00% 

0.50% 

0.00% 

DRG 416 to Total 

(120 Hospitals) 

DRG 320 to Total 

(120 Hospitals) 

1993 1994 1995 1996 

1.57% 2.17% 3.08% 4.33% 

2.17% 2.17% 1.88% 1.54% 

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7 
RECOMMENDATION

We recommend that HCFA institute a system to identify hospitals with atypically high billings for 

DRGs identified by the Clinical Data Abstraction Centers as having a high potential for being 

upcoded. 

At the present time, HCFA uses the results of the Abstraction Centers DRG validation efforts to 

monitor the Prospective Payment System nationwide. Although the results have not been 

published, we believe the information contained in this effort can be of great help to HCFA staff. 

An analysis of this information can point out which DRGs have a high potential for upcoding. 

The next step would be to follow an analysis such as we have presented here. By reviewing the 

coding patterns of the individual hospitals over time, HCFA could identify facilities that may have 

a high potential for upcoding. It is of course understood that only a record review by trained 

professionals will be able to determine if upcoding has, in fact, occurred. The method we are 

suggesting here provides a technique to effectively focus the limited resources that HCFA can 

bring to bear on the problem. 

We have referred the 120 hospitals that we have identified as having atypically high growth in 

DRG 416 discharges to our Office of Investigations. 

AGENCY COMMENTS 

The HCFA concurred with our recommendation. The HCFA stated that under the Peer Review 

Organization (PRO) contracts that will take effect between August 1999 and February 2000, 

PROs will conduct a Payment Error Prevention Program for inpatient hospital care. Under this 

approach, HCFA will conduct an independent ongoing surveillance of inpatient payment error 

rates, both nationally and on a state-by-state basis. The HCFA will also conduct analyses of 

discharge patterns and provide the results to the PROs. The PROs will conduct additional 

analyses of discharge patterns and take steps to reduce or eliminate erroneous billing. The full 

text of HCFA’s comments is provided in Appendix C. 

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APPENDIX A 

CLINICAL DATA ABSTRACTION CENTERS’ 1996 

VALIDATION WORK FOR DRG 416 

This table shows the appropriate diagnosis related groups (DRGs) for 49 upcoded DRG 416 

discharges. The upcoding was found by the 1996 Clinical Data Abstraction Centers’ DRG 

validation work for DRG 416 (Septicemia Age > 17). 

Percent 

Hospital DRG Upcoding of 

DRG Weight Description Frequency Total 

320 0.9320 Kidney & Urinary Tract Infections Age > 17 W CC 2 20 41% 

089 1.1211 Simple Pneumonia & Pleurisy Age > 17 W CC 4 8% 

296 0.9166 Nutritional & Misc. Metabolic Disorders Age > 17 W 3 6% 

CC 

144 1.0689 Other Circulatory System Diagnoses W CC 2 4% 

207 1.0287 Disorders of the Biliary Tract W CC 2 4% 

277 0.8703 Cellulitis Age > 17 W CC 2 4% 

321 0.6104 Kidney & Urinary Tract Infections Age > 17 W/O CC 2 4% 

395 0.8359 Red Blood Cell Disorders Age > 17 2 4% 

087 1.3589 Pulmonary Edema & Respiratory Failure 1 2% 

127 1.0302 Heart Failure & Shock 1 2% 

138 0.8049 Cardiac Arryhthmia & Conduction Disorders W CC 1 2% 

141 0.7149 Syncope & Collapse W CC 1 2% 

174 0.9880 G.I. Hemorrhage W CC 1 2% 

180 0.9240 G.I. Obstruction W CC 1 2% 

204 1.2020 Disorders of Pancreas Except Malignancy 1 2% 

242 1.1295 Septic Arthritis 1 2% 

316 1.2996 Renal Failure 1 2% 

331 1.0122 Other Kidney & Urinary Tract Diagnoses Age > 17 W CC 1 2% 

419 0.9223 Fever of Unknown Origin Age > 17 W CC 1 2% 

420 0.6258 Fever of Unknown Origin Age > 17 W/O CC 1 2% 

1 The total for this column will not equal 100 percent due to rounding. 

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1 
2 W CC represents with complications and comorbidities. 

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APPENDIX B

OFFICE OF INSPECTOR GENERAL’S 

VALIDATION WORK FOR DRG 416 

This table shows the appropriate diagnosis related groups (DRGs) for 17 erroneous DRG 416 

discharges. The errors were found by the Office of Inspector General’s validation work for DRG 

416 (Septicemia Age > 17). 

Percent 

Hospital DRG Upcoding of 

DRG Weight Description Frequency Total 

320 0.9320 Kidney & Urinary Tract Infections Age > 17 W CC 2 4 24% 

089 1.1211 Simple Pneumonia & Pleurisy Age > 17 W CC 2 12% 

182 0.7794 Esophagitis, Gastroent & Misc. Digest Disorders Age > 17 2 12% 

W CC 

073 0.7730 Other Ear, Nose, Mouth & Throat Diagnoses Age > 17 1 6% 

180 0.9240 G.I. Obstruction W CC 1 6% 

207 1.0287 Disorders of the Biliary Tract W CC 1 6% 

272 1.0208 Major Skin Disorders W CC 1 6% 

277 0.8703 Cellulitis Age > 17 W CC 1 6% 

294 0.7579 Diabetes Age > 35 1 6% 

296 0.9166 Nutritional & Misc. Metabolic Disorders Age > 17 W CC 1 6% 

297 0.5353 Nutritional & Misc. Metabolic Disorders Age > 17 W/O CC 1 6% 

321 0.6104 Kidney & Urinary Tract Infections Age > 17 W/O CC 1 6% 

1 The total for this column will not equal 100 percent due to rounding. 

2 W CC represents with complications and comorbidities. 

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1 
APPENDIX C

HEALTH CARE FINANCING ADMINISTRATION COMMENTS

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