Review of Medicare Payments Exceeding Charges for Outpatient Services Processed by Pinnacle in Jurisdiction 7 for the Period January 1, 2006, Through June 30, 2009

Our audit found that 675 of the 870 selected line items for which Pinnacle made Medicare payments to providers for outpatient services during the period January 2006 through June 2009 were incorrect. The line items included overpayments totaling approximately $2.2 million that the providers had not refunded by the beginning of our audit. Providers refunded overpayments on 14 line items totaling $168,000 before our fieldwork. The remaining 181 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 675 incorrect line items included (1) incorrect units of service, (2) Healthcare Common Procedure Coding System codes that did not reflect the procedures performed, (3) lack of supporting documentation, and (4) billing for unallowable services.

We recommended that Pinnacle (1) ensure that the $2.2 million in identified overpayments has been recovered, (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. Pinnacle concurred with our recommendations and said that all adjustments had been processed and collections completed.