CMS System Edits Reduced Medicare Overpayments to Hospitals


Medicare overpayments totaled $39.3 million between September 2016 and December 2021, but most of those improper payments occurred before CMS corrected its system edits error in May 2019.

CMS system edits helped reduce Medicare overpayments to acute care hospitals for outpatient services provided to beneficiaries who were inpatients of other facilities, a report from the Office of Inspector General (OIG) found.

Through a previous audit, OIG found that Medicare inappropriately paid acute care hospitals $51.6 million for services provided between January 2013 and August 2016. The payments were for outpatient services provided to individuals who were inpatients of long-term care hospitals (LTCHs), inpatient rehabilitation facilities (IRFs), inpatient psychiatric facilities (IPFs), and critical access hospitals (CAHs).

The overpayments occurred because system edits were not working correctly, according to OIG.

As a result of the significant amount of overpayments, OIG conducted a follow-up audit to review payments to acute care hospitals for outpatient services between September 2016 and December 2021. The audit also aimed to determine if CMS had corrected the system edits.

OIG identified inpatient claims from LTCHs, IRFs, IPFs, and CAHs and then used the beneficiary information and service dates to determine outpatient claims from acute care hospitals that overlapped with the inpatient claims.

The audit discovered $39.3 million in Medicare Part B payments to acute care hospitals. Medicare should not have paid the hospitals because the inpatient facilities were responsible for the payments.

The inpatient facilities must either directly provide all services furnished during an inpatient stay or arrange for services to be provided on an outpatient basis by an acute care hospital. If a facility chooses the second option, it must include the outpatient services on its inpatient claims submitted to Medicare.

Before May 2019, CMS system edits were not working properly. System edits help prevent and detect overpayments for outpatient services provided during inpatient stays.

Before Medicare administrative contractors (MACs) pay outpatient claims, the claims are sent to the CMS Common Working File (CWF) for verification, validation, and payment authorization. The CWF has post-payment and prepayment system edits to detect overpayments.

If an outpatient claim is processed for payment before the inpatient claim, once the inpatient claim is processed, the post-payment edit is designed to send an alert to the MAC that processed the outpatient claim so the payment can be recovered. The MAC is then responsible for recovering the overpayment.

If an inpatient claim is processed before the outpatient claim, once the outpatient claim is processed, the prepayment edit should automatically deny the outpatient claim.

After CMS modified the system edit errors, there was only $3.4 million in improper payments to acute care hospitals between June 2019 and December 2021. This is less than 9 percent of the $39.3 million identified across the entire audit period.

OIG recommended that CMS direct the MACs to recover the portion of the $39.3 million that is within the four-year reopening period.

In addition, CMS should instruct acute care hospitals to refund beneficiaries up to $9.8 million in deductible and coinsurance amounts that may have been incorrectly collected from them. CMS should also notify appropriate providers so that they can identify, report, and return any overpayments following the 60-day rule.

OIG recommended the agency continue to review the system edits to determine if any further refinements are necessary to prevent improper payments. OIG also said CMS should direct MACs to recover any improper payments made after the audit period.

CMS agreed with four of the recommendations but said it would review data submitted for the audit period and determine how to best address any remaining overpayments made after the audit period.

In a separate report from August 2022, OIG found that CMS reported collecting $272 million of the $498 million in Medicare overpayments OIG identified. However, the agency only provided documentation showing that it collected $120 million of the $272 million and did not have proof that it collected the other $152 million.

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