CMS Overpaid Hospitals $38.2M for Short-Stay Claims

Payments to hospitals were made when elective surgeries failed to take place and inpatient claims did not meet Medicare's admission requirements, says a report from the Office of Inspector General.

Over a two-year period, the Centers for Medicare & Medicaid Services paid an estimated $38.2 million to hospitals for unnecessary short-stay inpatient claims related to canceled elective surgery procedures.

According to a report issued Tuesday by the Office of Inspector General in the Department of Health and Human Services, no clinical conditions existed to justify the admissions. So when the elective surgery failed to take place for one reason or another, the inpatient claim did not meet Medicare's requirement that the admission be reasonable and necessary.

The $38.2 million estimate is based on an OIG review of 100 sample short-stay claims and surgery cancellations in 2009–2010 where 80 of those claims did not meet the reasonable and necessary test for Medicare payment. Among the unacceptable reasons for the surgery cancellations after a short stay: hospital equipment failures, lack of operating rooms, and staff scheduling conflicts.

The OIG attributed the Medicare payment errors to CMS as well as to the hospitals, pointing to:

• A lack of hospital understanding of Medicare requirements for billing cancelled elective surgeries. The report notes that "although regulations clearly state that Medicare will not pay for items or services that are not reasonable and necessary, Medicare manuals did not specifically address the billing for claims in which the reason for the inpatient admission was an elective surgery that did not occur...As a result, hospitals nationwide have billed the same types of claims differently."
• Restrictive CMS requirements for changing a beneficiary status from inpatient to outpatient after discharge. "Physicians cannot unilaterally change an admission decision after an admission for an elective surgery that has been canceled—even if the physician determined that the stay was no longer medically necessary. To change a physician's admission order, the hospital's utilization review committee must determine that the inpatient admission was not reasonable and necessary before the beneficiary's discharge."
• Inadequate utilization review controls to determine if an admission met Medicare requirements when an elective surgery was canceled. "Many hospitals had not established utilization review controls to confirm whether inpatient admissions remained reasonable and necessary after an elective surgery was canceled…these hospitals did not perform concurrent utilization reviews because of the short stays (in some cases, only a few hours), and the hospitals did not perform utilization review after discharges because the opportunity to change the beneficiary's status from inpatient to outpatient was not available."

To reduce the payment errors the OIG made these recommendations to CMS and hospitals:

• Strengthen guidance to better explain the Medicare rule that a clinical condition requiring inpatient care must exist for hospitals to bill for Part A prospective payments for canceled elective surgeries.
• Implement stronger utilization review controls for claims that include admissions for canceled elective surgeries that did not occur.

In response, CMS noted that guidance is addressed in the final 2014 Inpatient Prospective Payment System rule. Hospital groups are objecting to the final IPPS rule specifying how hospitals are to be paid for Medicare beneficiaries' inpatient care starting Oct. 1. Particularly offensive to hospitals is that the rule establishes controversial terms that define an inpatient admission as opposed to "observation" status.

The report notes that CMS stated that it "does not concur with our recommendation" to emphasize to hospitals "the need for stronger utilization review controls for claims that include admissions for elective surgeries that did not occur. However, CMS stated that it has taken action to address" the concern.

The OIG reviewed the canceled elective surgery claims as part of its 2013 work plan to address emerging issues. The work plan includes almost 30 hospital-related reviews such as payments for mechanical ventilation, payments for discharges to swing beds at other hospitals, and inpatient outlier payments.