Oversight and Evaluation of the Fiscal Year 2004 Hospital Payment Monitoring Program

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EXECUTIVE SUMMARY:

The Centers for Medicare and Medicaid Services (CMS) developed the Hospital Payment Monitoring Program (HPMP) primarily to establish the Medicare fee-for-service paid claims error rate for inpatient acute care hospital services.  The objectives of this audit were to determine whether (1) HPMP controls were adequate to ensure that contractors followed established procedures for admission-necessity and diagnosis-related group (DRG) validation screenings and for quality control reviews and (2) HPMP contractors accurately calculated and reported the net error amounts for claims with DRG coding changes made by the quality improvement organizations.  The HPMP contractors generally had appropriate controls to ensure that admission-necessity and DRG validation screenings and quality control reviews were performed in accordance with established procedures.  As to our second objective, the methodology for calculating net error amounts was not accurate for some of the claims we reviewed.  Our calculation of the net error amounts for DRG coding changes was based on CMS's standard pricing information (known as PRICER software).  An HPMP contractor, on the other hand, used an alternate methodology, which was not always accurate.  Nevertheless, our sample projection showed that the net error amount differences were not significant in relation to the HPMP projection of erroneous Medicare payments for FY 2004.  We recommended that CMS direct the HPMP contractors to use the most current PRICER software to calculate error amounts for DRGs revised by the quality improvement organizations.  CMS officials agreed with the audit results and the recommendation.