What Is the OIG Focusing Upon During Its Hospital Audits?

by Brooks Evan Doyne

A statutory mission is being carried out through a nationwide network of audits, investigations and surveys evaluating participating hospitals for compliance with the Medicare requirements. In doing so, auditors are assessing hospital compliance with the Medicare Conditions of Participation for all services, areas and locations covered by the hospital’s provider agreement. These hospital “surveys” are traditionally all unannounced and in many instances almost compels full cooperation given that refusal can put a provider’s enrollment in question and potentially result in the termination of a hospital’s Medicare provider agreement.

As hospitals learn to cope with governmental challenges to paid claims and long-standing reimbursement streams, recovery audit contractors are putting at risk great deals of money. For calendar year 2012, Medicare paid hospitals $148 billion, which represents 43% of all fee-for-service payments. As such, the Office of Inspector General (“OIG”) has emphasized continuous and effective oversight of Medicare payments to hospitals to protect the integrity of the program.

Several recent audits and recoupment efforts by the OIG have revealed a pattern of focus for many of these audits.  Four common areas reviewed and at risk for recoupment are:

  • Inpatient short stays;
  • Incorrectly billed as separate inpatient stays;
  • Incorrectly billed diagnosis-related-group codes; and
  • Manufacturer credit for a replaced medical device not reported

Inpatient Short Stays

Medicare payments may not be made for items or services that “are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member” (Social Security Act, § 1862(a)(1)(A)). It is important for hospitals to be extremely careful in billing correctly. In many instances of noncompliance hospitals are incorrectly billing Medicare Part A for beneficiary stays that should have been billed as outpatient or outpatient with observations services. Hospitals should pay specific attention to proper staffing resources, simplifying admissions and using the Electronic Medical Records systems to their advantage.

Incorrectly Billed as Separate Inpatient Stays

The Medicare Claims Processing Manual states that when a patient is discharged or transferred from an acute care hospital and is readmitted to the same hospital on the same day for symptoms related to, or for evaluation and management of, the prior stay’s medical condition, hospitals should adjust the original claim generated by the original stay by combining the original and subsequent stay onto a single claim. (Chapter 3, § 40.2.5) To avoid the overpayment, hospitals must pay particular attention to the billed diagnosis codes and compare the patients’ subsequent admissions.

Incorrectly Billed Diagnosis-Related-Group Codes

Medicare payments may not be made for items or services that “are not reasonable and necessary for the diagnosis
or treatment of illness or injury or to improve the functioning of a malformed body member” (Social Security Act § 1862(a)(1)(A)). In addition, the Medicare Claims Processing Manual states, “In order to be processed correctly and promptly, a bill must be completed accurately” (Chapter 1, § 80.3.2.2). One example of such noncompliance occurs when a hospital submits a claim with a secondary diagnosis when the medical records did not support the coding of the diagnosis. The false submission results in an overpayment. Thus, hospitals must maintain proper staffing resources, proper use of Electronic Medical Records and updated medical documentation to make sure the proper codes are submitted.

Manufacturer Credit For A Replaced Medical Device Not Reported

Federal regulations require a reduction in the Outpatient Prospective Payment System for the replacement of an implanted device if (1) the device is replaced without cost to the provider or the beneficiary, (2) the provider receives full credit for the cost of the replaced device, or (3) the provider receives partial credit equal to or great than 50% of the cost of the replacement device (42 CFR § 419.45(a)). Services furnished after January 1, 2007 require the provider to report the modifier and reduced charges on a claim that includes a procedure code of the insertion of a replacement device if the provider incurs no cost or receives full credit for the replaced device. Hospitals must take particular measures to implement a process for identifying when a qualifying credit for a replaced device was received.

The above scenarios are some of the many audit issues that hospitals must be aware of and prepared for to avoid necessary repayments to the government. Such audits in the recent past have proven financially successful to the government. This coupled with the goal of rooting out fraud, waste and abuse suggests that such audits and investigations are only going to continue and likely increase in frequency. Thus, Hospitals must make every effort to improve and operate their compliance programs to proactively stay ahead of these issues and identify/correct them before the government comes in to perform an audit. Such efforts will only help to minimize the potential financial implications when the government inevitably comes knocking at a particular institution.