Kusserow on Compliance: OIG continues to find that Medicare cost reports are not being properly reconciled

The Office of Inspector General (OIG) released another report in a series of studies noting weaknesses in reconciling hospital Medicare cost reports. Medicare supplements basic prospective payments for inpatient hospital services by making outlier payments for unusually high-cost cases. Medicare contractors refer hospitals’ cost reports to CMS for reconciliation of outlier payments that may be adjusted to account for the time value of any underpayments or overpayments. Beginning in April 2011, the Medicare Administrative Contractors (MAC) and Fiscal Intermediaries (FI) began reconciling inpatient rehabilitation facilities (IRF) outlier payments. In 2012, the OIG issued a report critical of CMS in their reconciliation of outlier payments.

The latest OIG report on the topic reviewed performance of the National Government Services, Inc. (NGS), the company that contracted with CMS to refer cost reports for reconciliation. This is the second OIG report this year on the same topic involving NGS, but in a different region. The OIG conducted other audit in this area and found significant problems, similar to previous findings including one for Novitas Solutions, Inc. (formerly Highmark Medicare Services, Inc.), and another last year for Noridian Healthcare Solutions, LLC. The OIG found in this latest report of NGS that:

  • 23 of the 80 Medicare hospital cost reports with outlier payments that qualified for reconciliation had unreliable cost-to-charge ratios (CCR);
  • Of the 57 remaining cost reports, NGS referred 35 to CMS as required, but failed to refer 22 others, including 10 that had not been settled and should have been referred to CMS for reconciliation over approximately $16.8 million that was due to Medicare. There were 12 other cost reports that NGS did not refer to CMS and which had been settled and had exceeded the reopening limit with an estimated financial impact to Medicare of $10.9 million; and
  • Of the 35 cost reports referred to CMS with outlier payments that qualified for reconciliation, NGS had reconciled the outlier payments associated with 11 of these cost reports, but NGS had not reconciled the outlier payments with the remaining 24 cost reports. The financial impact of the outlier payments for 22 of the 24 cost reports that were referred but not reconciled was approximately $102.5 million that was due to Medicare.

OIG recommendations

  • Review the 22 cost reports that qualified for referral and determine whether the cost reports may be reopened, reconcile the associated outlier payments, and refund the amounts due to Medicare and to the provider.
  • Reconcile outlier payments associated with the 24 cost reports that were referred, work with CMS to reconcile the associated outlier payments, finalize these cost reports, and ensure the return of funds to Medicare and to the provider.
  • Work with CMS to resolve $10,000 and $94.2 million in outlier payments that the OIG could not recalculate.
  • Ensure control procedures are in place so that all cost reports with qualifying outlier payments are referred and reconciled.
  • Review all cost reports submitted since the end of the audit period and ensure that those whose outlier payments qualified for reconciliation are referred and reconciled in accordance with federal guidelines.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2015 Strategic Management Services, LLC. Published with permission.