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Medicare Paid $5.7B for 'Not Reasonable and Necessary' Inpatient Rehab Care

Analysis  |  By John Commins  
   October 02, 2018

An OIG audit found widespread noncompliance with IRF guidelines, with providers and CMS sharing the blame.

Medicare paid hospital-based inpatient rehabilitation facilities $5.7 billion in one year for care that was not reasonable and necessary, a new audit shows.

The review, done for the Office of the Inspector General at the Department of Health and Human Services by an independent auditor, examined $6.75 billion in Medicare payments to 1,139 IRFs nationwide for 370,872 IRF stays in 2013.

The audit used a random sample of 220 IRF claims totaling $11.3 million in payments to 164 IRFs in calendar 2013, which is the most recent claims data available when the audit began.

The auditors were asked to determine if the medical records in the sample met federal coverage and documentation requirements for IRF fee-for-service claims in 2013.

According to the audit findings, may IRFs did not. Only 45 of the 220 sampled IRF stays complied with all Medicare coverage and documentation requirements.

"For 175 of the sampled stays, corresponding to 135 IRFs, medical record documentation did not support that IRF care was reasonable and necessary in accordance with Medicare's requirements," OIG said.

"On the basis of our sample results, we estimated that Medicare paid IRFs nationwide $5.7 billion for care to beneficiaries that was not reasonable and necessary," OIG said.

OIG noted a number of problems with the IRF program that led to the spotty regulation, such as:

  • Inadequate internal controls at IRFs that failed to identify and prevent inappropriate admissions.
  • Inadequate Medicare Part A FFS prepayment reviews for IRF admissions.
  • Ineffective educational efforts and post-payment reviews at Centers for Medicare & Medicaid Services that haven't controlled increasing improper payment rates reported by Comprehensive Error Rate Testing (CERT) since the 2013 audit.
  • Administrative hearings for IRF appeals that did not always include CMS to ensure that Medicare requirements were accurately interpreted.
  • A poorly designed IRF payment system that did not align cost with payments, which OIG said may have provided IRFs with a financial incentive to admit patients inappropriately.

    While not calling for a return of the $5.7 billion, OIG did recommend that CMS:
  • Educate IRF clinical and billing personnel on Medicare coverage and documentation requirements and work with providers to develop best practices.
  • Increase oversight for IRFs, such as post-payment medical review.
  • Work with the Office of Medicare Hearings and Appeals to ensure that Medicare coverage and documentation requirements for IRF care are fairly represented at administrative hearings.
  • Re-evaluate the IRF payment system, which could include a demonstration project requiring preauthorization for Medicare Part A FFS IRF stays modeled on Medicare Advantage practices.

CMS agreed with the findings and recommendations in its written response to the audit, and said it was taking action to address the problem areas identified by OIG.

“We estimated that Medicare paid inpatient rehabilitation facilities nationwide $5.7 billion for care that was not reasonable and necessary.”

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.


Only 45 of the 220 sampled IRF stays complied with all Medicare coverage and documentation requirements.

IRFs blamed for faulty internal controls that fail to screen inappropirate admissions.

CMS blamed for 'ineffective educational efforts and post-payment reviews' of providers.

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