Upcoding in a national health service: The evidence from Portugal

For many years, evidence from the USA has pointed out to the existence of upcoding in management practices. Upcoding is defined as classifying patients in diagnosis-related groups codes associated with larger payments. The incentive for upcoding is not restricted to private providers of care. Conceptually, any patient classification system that is used for payment purposes may be vulnerable to this sort of strategic behaviour by providers. We document here that upcoding occurs in a National Health Service where public hospitals have their payment (budget) tied to the classification of treatment episodes. Using diagnosis-related groups data from Portugal, we found that the practice of upcoding has been used in the hospitals in a way leading to larger budgets (age of patients plays a key role). The effect is quantitatively small.