Review of Medicare Payments Exceeding Charges for Outpatient Services Processed by NHIC, Corp., in Jurisdiction 14 for the Period January 1, 2006, Through June 30, 2009

Our audit found that 756 of 1,396 selected line items for which NHIC, Corp. (NHIC), made Medicare payments to providers for outpatient services during the period January 2006 through June 2009 were incorrect. The line items included items totaling approximately $3.2 million, which the providers had not refunded by the beginning of our audit. Providers refunded overpayments on 81 line items totaling $562,000 before our fieldwork. The remaining 559 line items were correct.

Medicare uses an outpatient prospective payment system to pay certain outpatient providers. In this method of reimbursement, the Medicare payment is not based on the amount that the provider charges. Billed charges generally exceed the amount that Medicare pays the provider. Therefore, a Medicare payment that significantly exceeds the billed charges is likely to be an overpayment.

The deficiencies in the 756 incorrect line items included (1) incorrect units of service, (2) a combination of incorrect units of service claimed and incorrect Healthcare Common Procedure Coding System (HCPCS) coding, (3) HCPCS codes that did not reflect the procedures performed, (4) unallowable services, and (5) other errors.

We recommended that NHIC (1) recover the $3.2 million, (2) implement system edits that identify line item payments that exceed billed charges by a prescribed amount, and (3) use the results of this audit in its provider education activities. NHIC concurred with our recommendations. However, citing limitations within CMS's Part A processing system, NHIC stated that our second recommendation to implement system edits would "require additional clarification and discussion."