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Medicare Could Save Millions by Strengthening Billing Requirements for Canceled Elective Surgeries

On the basis of our sample results, we estimated that Medicare made $38.2 million in Part A inpatient hospital payments in calendar years 2009 and 2010 for short-stay, canceled elective surgery admissions that were not reasonable and necessary. For 80 of the 100 claims in our sample, Medicare made payments totaling $346,000 for hospital inpatient claims involving canceled elective surgeries when a clinical condition did not exist on admission or a new condition did not emerge after admission that required inpatient care. Therefore, these inpatient claims did not satisfy Medicare's requirements that the admissions be reasonable and necessary. For the remaining 20 claims in our sample, payments met Federal requirements because a clinical condition existed or a new condition emerged that required inpatient medical care.

When an elective surgery is canceled, hospitals may bill Medicare Part B for services related to the incorrectly billed Medicare Part A admission. We were unable to determine the effect that billing Medicare Part B had on the total overpayment amount because these services had not been billed or adjudicated before the end of our fieldwork. Any rebilling would reduce our $38.2 million estimate.

These payments occurred because (1) the hospitals were unclear about the Medicare requirements for billing canceled inpatient surgeries; (2) CMS billing requirements are too restrictive, particularly with regard to changing a beneficiary's status from inpatient to outpatient after discharge; and (3) hospitals did not always have adequate utilization review controls to confirm whether admissions were reasonable and necessary after elective surgeries had been canceled.

We recommended that CMS (1) adjust the 80 sampled claims representing overpayments of $346,000 to the extent allowed under the law; (2) strengthen guidance to better explain the Medicare rule that a clinical condition requiring inpatient care must exist for hospitals to bill for Part A prospective payments for elective surgeries that were canceled, which could result in savings totaling $38.2 million over a 2-year period (but hospital Part B rebilling would reduce this estimate); (3) work with the Office of the Inspector General to resolve the remaining 10,915 nonsampled claims and recover overpayments to the extent feasible and allowed under the law; and (4) instruct Medicare administrative contractors to emphasize to hospitals the need for stronger utilization review controls for claims that include admissions for elective surgeries that did not occur. CMS generally agreed with our recommendations.