Department of Health and Human Services

Office of Inspector General -- AUDIT

"Clinical Laboratory Services Provided Under the Illinois Medicaid Program," (A-05-95-00062)

December 27, 1996

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 provides the results of our audit of the Illinois Department of Public Aid (State agency) concerning reimbursement for clinical laboratory services under the Medicaid program for Calendar Years (CY) 1993 and 1994. This report is part of our nationwide review of Medicaid payments for laboratory services.

The objective of our review was to determine the adequacy of procedures for payment of clinical laboratory claims. Specifically, the audit is designed to determine whether Medicaid payments for chemistry and hematology tests exceeded amounts recognized by Medicare for the same tests or were duplicated. In doing so, we identified tests that were not grouped together (bundled into a panel or profile) for payment purposes. Proper grouping of tests helps to ensure that Medicaid agencies do not reimburse medical providers more for clinical laboratory tests than the amounts Medicare recognizes for the same services.

Our audit disclosed that the State agency did not have certain controls in place to detect and prevent Medicaid payments for laboratory tests in excess of what program guidelines allow. According to the State Medicaid Manual, payment for clinical laboratory tests under the Medicaid program cannot exceed the amount recognized by Medicare. These excessive payments occurred because the State agency was paying a higher price for individual tests than they would have if the tests had been bundled into lower cost panels and profiles. Although the State agency established a system of edits which covered the majority of procedure codes included in our review, the absence of certain edits allowed some improper payments to be made to providers. Our findings are primarily related to two conditions. Specifically, the State agency's claims processing system did not edit for three chemistry procedure codes which the Illinois Medicare carrier bundles into a panel and it did not deny payment for hemogram indices claimed with hemogram profiles. In addition, the State agency's policies and its instructions to providers did not require that the three chemistry procedures in our finding be bundled or specify which hematology procedure codes were duplicative.

We randomly selected a stratified sample of 100 instances involving claims with potential payment errors from a population of 318,051 instances that were extracted from the State agency's CYs 1993 and 1994 paid claims files. We found that 79 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 beneficiary on the same date of service) on an individual test basis, instead of as part of a group, or for tests which were duplicative of each other. Projecting the results of our statistical sample to the population using standard statistical methods, we estimate the State agency overpaid providers $2,194,072 (Federal share $1,097,036) for chemistry and hematology tests. At the 90 percent confidence level, the precision of this estimate is plus or minus $463,671 (21.13 percent).

State agency officials indicated that the three chemistry procedures were not bundled because the tests are not listed as automated, multichannel tests for bundling according to the Physicians' Current Procedural Terminology (CPT) guidelines. With respect to hemogram indices claimed with hemogram profiles, the State agency relied on the CPT which defines these procedures as "additional" indices. We were advised that instructions to providers are being updated and will be issued in the next year.

We are recommending that the State agency: (1) ensure that its edits detect and prevent payments for unbundled tests and duplicative tests by addressing the specific overpayment causes enumerated in this report; (2) update and clarify its policies and instructions to providers to include additional procedures which are subject to edits for unbundled and duplicate tests; (3) determine the amount of potential overpayment by provider and obtain recoveries of actual overpayments from those providers with the largest total potential overpayments; and (4) 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 $2,194,072 (Federal share $1,097,036) could be recovered from all providers for CYs 1993 and 1994.

State agency officials do not agree the two primary findings resulted in overpayments during the audit period. State agency officials do not intend to change their edits or policies for the three chemistry procedures because they believe Medicaid regulations, the CPT handbook, and recent Medicare guidance do not require these procedures to be bundled. For the audit period, the hemogram indices were not considered duplications of hemogram profiles based on recommendations from the State agency's physician consultants and the CPT handbook. Although the projected overpayments did not pertain to several chemistry procedures (see page 6), the State agency agreed it would identify overpayments related to these procedures and refund the Federal share, when recovered.

We believe the two primary findings resulted in overpayments based on Medicaid rules and CPT definitions which existed during the audit period. The State Medicaid Manual precludes paying more for laboratory tests than Medicare pays. The Illinois carrier determined that laboratories frequently perform the three chemistry procedures as part of a panel and, therefore, required these tests be bundled and reimbursed at the lower panel fee since at least 1987. When the State agency reimburses these tests individually rather than as a panel, it pays more than Medicare. By CPT definition, the two hemogram indices duplicate automated hemogram profiles and, thus, should not be reimbursed when claimed with a profile.