Department of Health and Human Services

Audit of Observation Service Billings by Prospective Payment System (PPS) Hospitals

February 12, 2002

Complete Text of Report is available in PDF format (265 kb). Copies can also be obtained by contacting the Office of Public Affairs at 202-619-1343.


This report provides the results of our audit work related to outpatient observation services billed by St. Francis Hospital (Hospital) in Tulsa, Oklahoma.  The objective of our audit was to determine whether outpatient observation services billed by the Hospital met the Medicare reimbursement requirements.  Our review covered service dates between July 1, 1996 and June 30, 2000 (fiscal years 1997-2000).  The Hospital billed Medicare for observation services that did not meet Medicare criteria, resulting in an estimated overpayment of $298,549.  We audited a statistical sample of 100 claims that contained observation services and determined that 80 percent of the observation services did not meet Medicare requirements.  These services were unallowable primarily because physician’s orders were not documented in the medical records, or the medical records contained a standing order for observation.  We are recommending that the fiscal intermediary recover the overpayment amount for inappropriate observation billings of $298,549, and instruct the Hospital to develop procedures to correct control problems.  The fiscal intermediary concurred with our recommendations.