News Alert: OIG Slams CMS for 100% Error Rate and Nearly $100 Million in Overpayments

In a scathing report issued today, U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) reported that the Centers for Medicare and Medicaid Services (CMS) overpaid hospitals over $51,000,000 which resulted in inappropriate beneficiary liabilities of over $14,000,000 and estimated that CMS likely paid out nearly $100,000,000 in the last decade.

These overpayments were found when the OIG audited the payment of outpatient claims paid to acute care hospitals for services provided to patients who were inpatients at a long term acute care hospital (LTCH), an inpatient psychiatric hospital (IPF), an inpatient rehabilitation hospital (IRF), or a critical access hospital.

When a patient is an inpatient at one hospital and receives a service at a second facility, the payment for that service is the responsibility of the inpatient hospital. For example, if a patient at an IRF needs a magnetic resonance imaging (MRI) test and the IRF sends the patient to the acute care hospital for that MRI, the acute care hospital is required to bill the IRF for the technical component of the MRI rather than submitting a claim to Medicare. The IRF then adds the MRI charge to its claim when it bills for the inpatient stay. This also would apply if the patient in an LTCH was found to have a hernia and was sent to the acute care hospital for hernia repair, even if the patient spent a night at the acute care hospital as part of their routine recovery.

As pointed out by the OIG, there are edits in the common working file (CWF) which are supposed to prevent such payments. If the inpatient hospital submits their claim for an inpatient stay prior to the acute care hospital submitting the claim for the service they provided, the CWF should reject the claim from the acute care hospital. If the acute care hospital submits their claim first, the CWF should detect the overlapping claim once the inpatient facility submits their claim and initiate an overpayment request. But it appears these did not work as planned.

While this amount seems large, it is probably an underestimation of the extent of overpayments made on overlapping claims. The OIG chose to audit only outpatient part B payments made to acute care hospitals. The OIG said they limited the audit by not including payments to facilities other than acute care hospitals.

With the proliferation of free-standing ambulatory surgery centers and free-standing imaging centers, some of these inpatients may have received services at these facilities which then billed CMS directly. Likewise, previous audits of part B payments made to acute care hospitals for services provided to patients in a part A skilled nursing facility stay have shown hundreds of millions of dollars of overpayments.   The OIG also addressed only patients who were inpatients at LTCH, IRF, IPF and CAH and not at another acute care hospital, even though transfers for procedures or specialty evaluation with transfer back is common.

In today’s report, the OIG said they also did not look for any inpatient part A payments made to acute care hospitals which overlapped with an inpatient admission at an LTCH, IRF, IPF or CAH. When an inpatient is sent from one hospital to another for a specific service, the determination of the correct status for that patient is often confusing.  If the surgery is an inpatient only procedure, the acute care hospital would most likely obtain an inpatient order and bill Medicare with an inpatient part A claim, even if the patient returns to the sending hospital. If the procedure is not inpatient only, the physician and utilization review staff may use the two-midnight rule to determine status. In that case, a patient could be admitted as inpatient at the acute care hospital. In both these cases if the patient returned to the sending hospital within the allotted timeframe under the CMS interrupted stay guidelines, there would be a claim overlap.

On the other hand, it does not appear that the OIG made any effort to look and see if the services provided at the acute care hospital and billed were also on the claim submitted by the inpatient hospital for payment. If not, that would markedly affect their financial conclusions. In other words, if an inpatient at an IRF was transferred to an acute care hospital and underwent a surgery and then returned to the IRF, the correct billing scenario would mean the IRF would bill as if they performed the surgery. Those added costs may have increased the payment to the IRF which would have paid the acute care hospital. That means the OIG overpayment estimation is likely overstated but it is impossible to know by how much.

It is clear that CMS is at fault for having faulty CWF edits but what responsibility do hospitals take for this? Theoretically there should be hard-wired processes in place so that the sending hospital alerts the receiving hospital that the patient is currently in an inpatient stay and to bill them for services and not submit a claim to CMS, and the acute care hospital finance staff should be aware that the care received by a patient coming from another hospital who is inpatient at the other hospital should be billed to that hospital and not to CMS, but the reality is that it is much easier said than done.

Finally, it should be noted that the OIG recommends CMS recoup these improper payments to hospitals and instruct the hospitals to refund any patient payments. But the OIG does not state whether acute care hospitals which provided the service would then be permitted to seek payment from the inpatient hospital and if the inpatient hospital would now be allowed to issue a corrected claim, adding those services and potentially receiving additional payment. I suspect that the answer will be no, the one-year timely filing limit applies to all providers and although CMS can recoup payment for a seemingly unlimited period of time, the acute care hospitals will now never get paid for the $51-million of medically necessary care they provided these inpatients.