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Department of Health and Human Services

Office of Inspector General -- AUDIT

"Review of the Alabama Medicaid Agency's Reimbursement for Clinical Laboratory Services Under the Medicaid Program," (A-04-95-01108)

December 1, 1995

Complete Text of Report is available in PDF format (1 mb). Copies can also be obtained by contacting the Office of Public Affairs at 202-619-1343.


This report presents the results of our review of the Alabama Medicaid Agency's (State agency) reimbursement for clinical laboratory services under the Medicaid program. The objective of our review was to determine the adequacy of procedures and controls over the processing of Medicaid payments to providers for clinical laboratory tests. Our review was limited to clinical laboratory services involving chemistry and hematology tests.

Our review disclosed that the State agency was reimbursing providers for laboratory services that were not properly grouped together (bundled into a panel) or were duplicated for payment purposes. Specifically, we found that the State agency does not have adequate edits in place to prevent the payment of unbundled or duplicated claims for certain laboratory services.

We randomly selected 100 instances involving claims with potential payment errors from a sample population of Calendar Years (CY) 1993 and 1994 paid claims file valued at $2,537,432. We found that 85 of the 100 sampled items were overpaid. Each instance represents a potential payment error in which the State agency paid a provider for clinical laboratory tests (on behalf of the same recipient on the same date of service) on an individual test basis instead of as part of a group, or were duplicative of each other. Projecting the results of our statistical sample over the population using standard statistical methods, we estimate that the State agency overpaid providers $1,142,337 (Federal share $813,458) for chemistry and hematology tests. At the 90 percent confidence level, the precision of this estimate is plus or minus 14.86 percent.

We are recommending that the State agency (1) install edits to detect and prevent payments for unbundled services and billings which contain duplicative tests, (2) recover overpayments for clinical laboratory services identified in this review, and (3) make adjustments for the Federal share of the amounts recovered by the State agency on its Quarterly Report of Expenditures to the Health Care Financing Administration (HCFA).

Based on our audit, we estimate that $1,142,337 (Federal share $813,458) should be recovered for CY 1993 and 1994. In addition, if the State agency implements our recommendations, we estimate that approximately $580,000 (Federal share $400,000) could be saved annually or about $2.9 million (Federal share $2 million) over a 5-year period.

We received a written response to our draft report from the State agency dated July 21, 1995. The State agency officials concurred with our first recommendation and stated that they were in the process of developing additional claims payment edits which they expect to have in place by October 1, 1995.

In response to our second and third recommendation, State agency officials requested that the report be modified to eliminate the recommendation that the State agency recover overpayments identified in the review. Instead, State agency officials requested a re-review be conducted in the future to confirm that the edits enacted had the desired effect.