OIG Audit Discovers $51.6 M in Overpayments to Acute-Care Hospitals

The Office of the Inspector General of the Department of Health and Human Services (OIG) issued a report last month regarding inappropriate payments made to acute-care hospitals for outpatient services provided to Medicare beneficiaries who were inpatients of other facilities. OIG’s findings highlight the need to diligently review claims before submitting them to Medicare.

In a typical case, a beneficiary who is an inpatient of a facility (e.g., a psychiatric facility) and requires additional medical services not available at that facility is transported to an acute-care hospital for outpatient services. OIG found that, from January 1, 2013 to August 31, 2016, Medicare improperly paid acute-care hospitals $51.6 million for outpatient services rendered to beneficiaries who were inpatients of the following facilities: long-term-care hospitals (LTCHs), inpatient rehabilitation facilities (IRFs), inpatient psychiatric facilities (IPFs) and critical access hospitals (CAHs). In addition, OIG discovered that during this audit period, the acute-care hospitals improperly collected $14.4 million in unnecessary and improper deductibles and coinsurance for such outpatient services rendered to Medicare beneficiaries who were then inpatients of other facilities. Subsequently, OIG issued its report and outlined its recommendations.

Generally under federal law, acute-care hospitals are paid through the Inpatient Prospective Payment System for services rendered to Medicare beneficiaries for short-term inpatient care or through Medicare Part B for outpatient services. However, when acute-care hospitals render outpatient services to Medicare beneficiaries who are inpatients of LTCHs, IRFs, IPFs and CAHs, the acute-care hospitals are not permitted to bill Medicare directly for these services. Instead, the law requires that “all items and non-physician services provided [by an acute-care hospital in an outpatient setting] during [the] Part A inpatient stay must be provided directly by the inpatient hospital or under [an] [arrangement] with another provider and [be] billed to Medicare by the inpatient hospital through its Part A claim.”^[1] As such, acute-care hospitals are not permitted to submit these claims directly to Medicare, and instead must seek reimbursement from the inpatient facilities.

To facilitate this reimbursement process the acute-care hospitals are required to enter into contractual or other types of arrangements with the facilities, which set forth how the acute-care hospitals will be reimbursed for outpatient services rendered to such inpatient beneficiaries. Moreover, the inpatient facilities must include the claims for reimbursement from the acute-care hospitals for outpatient services on its inpatient claims submitted to Medicare.

Due to a combination of factors, acute-care hospitals have not been following proper procedure and have been billing Medicare directly for these outpatient services. OIG found that its Medicare contractors did not effectively educate inpatient facilities and acute-care hospitals about their responsibilities with respect to such billing and reimbursement. OIG also found that when the claims were submitted to the Centers for Medicare and Medicaid Services (CMS) the post-payment and prepayment system edits, which were designed to prevent or detect the overpayments, were not working properly and, as a result, the edits could not detect or prevent these types of overpayments, allowing the acute-care hospitals to successfully bill for such outpatient services.

In an effort to address these issues, OIG has made a number of recommendations to CMS:

1. Direct Medicare contractors to recover the $51.6 million in overpayments to the acute-care hospitals;

2. Instruct the acute-care hospitals to refund the improperly collected $14.4 million in deductible and coinsurance amounts;

3. Identify and recover all improper payments that occurred after the audit period; and

4. Update the post-payment and prepayment edits in the CMS billing system.

^[1] U.S. Dept. of Health and Hum. Serv., Office of Inspector General, Medicare Inappropriately Paid Acute-Care Hospitals for Outpatient Services They Provided to Beneficiaries Who Were Inpatients of Other Facilities, A-09-16-02026, September 2017.