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Medicare Continues To Pay Twice for Nonphysician Outpatient Services Provided Shortly Before or During and Inpatient Stay

Based on our sample results, we estimated that Medicare contractors made approximately $6.4 million in overpayments to hospital outpatient providers during calendar years 2008 and 2009 for services provided to beneficiaries within 3 days prior to the date of admission for, on the date of admission for, or during (excluding date of discharge) inpatient prospective payment system (IPPS) stays. These overpayments occurred because provider controls failed to prevent or detect incorrect billing, providers were unaware that beneficiaries were inpatients at other facilities, and providers were unaware of or did not understand Medicare requirements. In addition, (1) Medicare contractors were not aware of incoming Common Working File (CWF) alerts because CMS did not notify them it had changed the location of this information on the trailer record, (2) existing CWF edits did not prevent or detect certain incorrect payments, and (3) Medicare contractors incorrectly overrode Fiscal Intermediary Standard System (FISS) edits or took no action to recover or offset overpayments when they received CWF alerts.

Under the IPPS, hospitals are paid a predetermined amount per discharge for inpatient hospital services furnished to Medicare beneficiaries. The amount represents the total Medicare payment for the inpatient operating costs associated with a beneficiary's hospital stay. Medicare contractors use the FISS to process inpatient and outpatient claims submitted by the hospitals in their designated jurisdictions. After being processed through the FISS, and prior to payment, all Medicare contractor claims are sent to CMS's CWF system for verification, validation, and payment authorization. Prior Office of Inspector General reviews identified significant overpayments to IPPS hospitals for nonphysician services furnished shortly before or during inpatient stays.

We recommended that CMS (1) instruct its Medicare contractors to: (a) recover the $340,073 in identified overpayments, to the extent allowed under the law, for the 61 incorrectly billed services; (b) work with the Office of Inspector General to resolve the remaining 148,175 services with potential overpayments estimated at approximately $6.1 million and recover overpayments to the extent allowed under the law; (c) take action to reject claims or recoup overpayments when identified by edits; and (d) remind hospitals of the importance of adequate controls to prevent incorrect billing for services; (2) communicate with Medicare contractors about changes to the CWF; (3) modify existing edits to prevent payments for ambulance services provided during inpatient stays; and (4) modify existing edits to prevent payments that are already included in the basic prospective payment rate for nonphysician outpatient services furnished to beneficiaries after the beneficiaries have exhausted their Part A benefits. CMS concurred in part with our first recommendation, concurred with our next four recommendations, did not concur with our recommendation to modify existing edits to prevent payments for ambulance services provided during inpatient stays as it was stated in the report, and concurred with our final recommendation.