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AHA: OIG Hospital Audit Extrapolation Led to Excessive Claim Denials

CMS should only use extrapolation during OIG hospital audits if hospitals have high payment error rates, the AHA advised.

OIG hospital audits and claim denials

Source: Thinkstock

By Jacqueline LaPointe

- The American Hospital Association (AHA) recently urged CMS to reconsider its extrapolation approach when conducting Office of the Inspector General (OIG) hospital audits because the method leads to excessive repayment requests and claim denials.

OIG conducts billing and payment audits for all Medicare providers in efforts to reduce Medicare fraud, waste, and abuse as well as ensure accurate claims reimbursement. CMS typically accepts findings from these audits and requests repayment.

However, the AHA argued that hospital audits performed by the federal watchdog “regularly include fundamental flaws and inaccuracies, both in the OIG's understanding and application of Medicare payment rules and in the procedures the OIG uses to conduct the audits,” wrote Melinda Reid Hatton, AHA’s General Counsel.

The OIG also unevenly applies Medicare reimbursement policies when auditing hospitals because of incorrect legal interpretations of payment rules. The federal watchdog also inconsistently applies the policies because only some hospitals undergo OIG audits, while others do not.

The flaws and inaccuracies in OIG hospital audits result in overstated repayment requests, reputational damage, and decreased resources for direct patient care, Hatton added.

READ MORE: 3 Best Practices for Hospital Claim Denials Management

“In addition, the audits frequently do not provide a basis for making further improvements to a hospital's practices or procedures because auditors too often review obsolete standards and include large numbers of incorrect claim denials,” she wrote.

With excessive repayment demands and claim denials stemming from OIG hospital audits, providers and hospital leaders are frequently appealing denials made by federal audits. But the audit process lacks an efficient appeals process, making OIG hospital audits even more burdensome on healthcare organizations.

The Medicare claim denials appeal process is currently experiencing a significant backlog of cases, resulting in the decision process to be delayed by about 4.5 years, according to a recent Journal of Hospital Medicine study.

Researchers deemed government contractors responsible for about 71 percent of the delay and hospitals were just 29 percent to blame for the excessive wait times.

A federal judge ordered HHS to alleviate the growing Medicare appeals backlog, which reached 607,402 pending cases at the administrative judge level in June 2017. The judge created a timeline that mandated HHS eliminate the backlog by Dec. 31, 2020.

READ MORE: How to Maximize Revenue with Improved Claims Denials Management

The Medicare appeals backlog timeline is under review by a trial court after the federal department stated that the timeline was impossible to meet.

The AHA contended that CMS could correct the negative effects of OIG hospital audits by rethinking its extrapolation approach. OIG extrapolates its findings to all claims submitted during the audit period, even if hospitals have demonstrated a history of successfully appealing almost identical claim denials found in the most recent audit, Hatton explained.

“As a result, it is premature for CMS to issue a repayment demand based on the OIG's extrapolated findings,” she stated. “Extrapolation often inflates the repayment demand from tens of thousands to millions of dollars, which forces hospitals to appeal each claim (even when they otherwise would not have done so) and creates a severe financial and reputational impact on the hospital that continues long after the OIG's errors are corrected on appeal.”

To address OIG hospital audits, the association advised CMS to only extrapolate findings if hospitals have a significant error rate. The federal agency should use extrapolation rules in the Social Security Act when managing OIG hospital audits.

The Social Security Act states that CMS contractors can use an extrapolation method in overpayment cases only if the organization has a “sustained or high level of payment error” or if an educational intervention did do improve the payment error.

READ MORE: Using Data Analytics to Decrease Claims Denials, Boost Revenue

While the OIG is not a CMS contractor, the federal agency should encourage the watchdog to use the Social Security Act method because the approach is accurate and fair.

CMS should also postpone extrapolation until the Medicare claim denials appeal process is complete, the AHA suggested.

Hospitals tend to be successful with successfully appealing Medicare claim denials stemming from OIG audits. For example, an OIG hospital audit of Mount Sinai related to “short stay” admissions prior to the implementation of the Two-Midnight Rule resulted in claim denials and repayment demands.

But when Mount Sinai appealed the claim denials from the audit, the Administrative Law Judge favored the hospital in about 85 percent of the cases, the AHA reported.

Similarly, hospitals also saw success with appealing claim denials at the first level of the appeals process. Mount Sinai reported that Medicare Administrative Contractors reversed their claim denial decisions in 11 of the 29 denials and Allina Health had 10 of their 41 denials reverses.

“Delaying extrapolation until the individual claim appeals are exhausted will ensure that CMS is looking at an accurate error rate when it decides whether it is appropriate to extrapolate,” Hatton stated. “It also will avoid the unnecessary reputational harm that hospitals suffer when an extrapolated repayment demand is published in the media and is never corrected, even after the hospital significantly reduces the amount of the demand through its appeals.”

Postponing extrapolation would also save the federal government money and resources because officials would not re-determine repayment amounts after each level of the appeals process.

In addition to extrapolation method changes, the AHA also recommended that CMS permit rebilling of inpatient claim denials regardless of the timely filing period.

“In cases where CMS accepts the OIG's determination that hospital services were improperly billed as Part A inpatient claims, we believe that equity requires CMS to allow hospitals to bill under Part B for all covered care and services that were provided (including observation services), regardless of the expiration of the one-year claim filing deadline,” stated Hatton.

CMS should also provide feedback to the OIG on improper claim denials and overturn rates, the association added. The federal agencies should correct the errors made by CMS contractors or Administrative Law Judges in the public audit report.

“Providing this feedback loop would allow the OIG to develop a process for issuing an amended audit report acknowledging that the reversed claims were correctly billed and prevent the OIG from making the same errors in future audits,” the letter stated.

Finally, the AHA advised CMS to review and respond to legal challenges from hospitals prior to an OIG hospital audit or a repayment request.

With hospitals frequently appealing their claims successfully, hospital and government resources could be better spent if CMS would dig deeper, rather than accepting OIG findings and interpretations of Medicare reimbursement rules.

For instance, the AHA explained that one of its hospital members found that the OIG misread or misapplied reimbursement rules relating to manufacturer credits for replacement devices and the use of the modifier 59.

Each claim denial stemming from the misinterpretation has been appealed and corrected, at least in part. However, hospitals should not have to expend resources to appeal denials based on misinterpretation.

“The AHA believes it is critical that CMS take action to improve implementation of the OIG audits for the benefit of hospitals, patients and the Medicare program, and we stand ready to work with you to carry out the improvements suggested above and any others that you may wish to discuss,” the letter concluded.


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