Purpose

To determine whether Medicaid overpaid hospitals by reimbursing for higher levels of medical care than those actually provided to patients. The audit covers the period April 1, 2005 through March 31, 2010.

Background

Medicaid recipients in need of inpatient hospital care are provided a full range of necessary diagnostic, palliative and therapeutic care, including but not limited to surgical, medical, nursing, radiological, laboratory, rehabilitative and psychiatric care. When billing Medicaid for inpatient services, hospitals must indicate a patient's level of care on a claim to ensure accurate processing and payment. Certain levels of care are more intensive, and therefore more expensive than others. When a patient is designated to a lower (and therefore less costly) Alternate Level of Care (ALC) setting, hospitals should not bill Medicaid for more intensive acute levels of care.

To help ensure Medicaid payments are correct, the Department uses a contractor, the Island Peer Review Organization (IPRO), to review claims. We coordinated with the Department and IPRO to review a judgmental sample of 297 hospital stays that were billed by ten hospitals for patients admitted for 50 or more days for high levels of care and without any ALC.

Key Findings

• For the five years ended March 31, 2010, Medicaid overpaid 94 (of the 297) selected inpatient stays by about $7.8 million, primarily because hospitals billed Medicaid for days in acute care settings when, in fact, patients received lower cost ALC.
• In one case, Medicaid paid $130,432 for 249 days of acute care for a patient hospitalized in 2008. Although the hospital provided acute care on the first day of the admission, the patient actually received less costly ALC for the remaining 248 days. If the hospital billed this admission correctly (with 248 days at the ALC rate), Medicaid would have paid only $67,748. Thus, Medicaid overpaid the hospital $62,684 ($130,432 - $67,748).
• During our audit period, Medicaid paid claims for nearly 10,600 inpatient stays per year (on average) of 50 or more days of acute care without any ALC. These inpatient stays cost Medicaid about $750 million per year. Given the relatively high incidence (32 percent) of overpayments from the sample that was reviewed, there is high risk that Medicaid overpaid many other inpatient claims for acute care by tens of millions of dollars a year.

Key Recommendations

• Recover the $7.8 million in inappropriate payments identified in this audit.
• Formally notify hospitals of the correct way to bill inpatient claims for ALC.
• Review additional claims at high risk of overpayment due to incorrect charges for acute care.

Other Related Audits/Reports of Interest

Department of Health: Medicaid Claims Processing Activity April 1, 2011 Through September 30, 2011 (2011-S-9)
Department of Health: Medicaid Claims Processing Activity October 1, 2010 Through March 31, 2011 (2010-S-65)