Office of Inspector General's Partnership Plan: Medicaid Payments for Clinical Laboratory Tests in 14 States

EXECUTIVE SUMMARY:

This report presents the consolidated results of our audits of Medicaid payments for outpatient clinical laboratory services in 14 States. The audit is being conducted as a joint Federal/State project under the Office of Inspector General's Partnership Plan. Staff from State auditor's offices and the Office of Inspector General's (OIG) Office of Audit Services (OAS) are continuing audit effort in an additional 11 States.

The objective of the nationwide audit is to determine the adequacy of State agency procedures and controls over the payment of Medicaid laboratory claims. Specifically, the audit is designed to determine whether Medicaid payments for chemistry, hematology, and urinalysis 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 amounts that Medicare recognizes for the same services, as required by applicable laws and guidance.

Our audit of Medicaid claims for outpatient clinical laboratory services in 14 States disclosed that the Medicaid State agencies did not have adequate controls to detect and prevent inappropriate payments for laboratory tests. In this regard, the Medicaid State agencies paid medical providers more for clinical laboratory tests performed in a physician's office, by an independent laboratory, or by a hospital laboratory for its outpatients than the amounts Medicare recognizes for the same services, contrary to applicable laws and guidance. This included potential overpayments for hematology profiles and indices that were duplicated or may have been medically unnecessary. As a result, we estimate that the 14 State agencies potentially overpaid laboratory providers by about $27.4 million (Federal share $15.7 million) for chemistry, hematology, and urinalysis tests during our audit period. Assuming that overpayments would continue at the same rate, the savings that would result from correction of the problem at the State agencies audited are estimated at $13.8 million (Federal share $7.9 million) annually.

Individual reports were issued to each of the State agencies. The reports generally recommended that the State agencies: (1) install system edits and controls to detect and prevent the types of errors disclosed in our audit, (2) recover the Medicaid overpayments for clinical laboratory services identified in our audit, and (3) reimburse the Federal Government for its share of any recoveries made by the State agency. In response to our individual reports, four States agreed with reported findings and recommendations, three States partially agreed, while three States did not agree. The final four States did not provide specific written comments.

We are also recommending that the Health Care Financing Administration (HCFA): (1) reemphasize the Medicaid requirement that State agency payments for outpatient clinical laboratory services not exceed the amounts recognized by Medicare for the same services, (2) consider having State agencies update their provider billing instructions to reflect Medicare bundling procedures, and (3) follow-up on the estimated $27.4 million ($15.7 million Federal share) in potential overpayments identified in our audits to ensure that the State agencies have implemented needed edits, initiated recovery actions, and credited the Federal Government for its share of any recoveries.

In its written comments on our draft audit report, HCFA fully concurred with our first and third recommendations and partially concurred with our second recommendation. Regarding our second recommendation, HCFA plans to advise Medicaid State agencies that they should consider using the Medicare bundling procedures for the chemistry, hematology, and urinalysis tests examined in the OIG audit. However, HCFA will not tell the State agencies that they must use Medicare bundling procedures for other types of laboratory tests or medical services as long as they stay within the Medicare upper limit for payments and are consistent with the principles of efficiency, economy, and quality of care. The written comments also raised several points on how we identified laboratory overpayments.

We are pleased that HCFA has agreed to implement our recommendations and believe that HCFA's proposed corrective actions will lead to substantial savings in the Medicaid program. We have provided some clarifications on how we identified Medicaid overpayments during our audit of clinical laboratory services. This additional information should eliminate any misunderstandings.

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