Review of High-Dollar Payments for Inpatient Services Processed by First Coast Service Options, Inc., for the Period January 1, 2004, Through December 31, 2005

Of the 199 high-dollar payments ($200,000 or more) that First Coast Service Options, Inc. (First Coast), made to hospitals for inpatient services for calendar years 2004 and 2005, 74 were appropriate. The remaining 125 payments included overpayments totaling $1.7 million, which had not been repaid by the start of our audit. Contrary to Federal guidance, hospitals reported units of service inaccurately and reported excessive charges that resulted in inappropriate outlier payments. Hospitals attributed most of the incorrect claims to clerical errors, conversion of the pharmacy system from dispensing units to billing units, or outdated billing systems. First Coast made these incorrect payments because neither the Fiscal Intermediary Standard System nor the Common Working File had sufficient edits in place to detect and prevent the overpayments.

We recommended that First Coast recover the $1.7 million in identified overpayments, use the results of this audit in its provider education activities, and consider implementing controls to identify and review all payments greater than $200,000 for inpatient services. In written comments on our draft report, First Coast agreed to initiate recovery procedures for the overpayments that we identified. First Coast stated that it was redesigning its education materials to strengthen their effectiveness and that it would work with the Centers for Medicare & Medicaid Services to implement an edit for payments greater than $200,000.