Compliance Risks Associated with Outlier Payments 

OIG Audits Outlier Payments

Leverage OIG reports to protect healthcare revenue. 

Raising prices on your hospital’s chargemaster can also raise your level of compliance grief.  In fact, some enforcement agencies are on the lookout for unjustified price increases.  Price increases can sometimes result in inappropriate outlier payments. 

Most federal healthcare payors such as Medicare and Medicaid reimburse most providers on a prospective basis. This means reimbursement is not typically based on charges.  Instead, reimbursement is based on a patient’s condition, or the procedure performed. It is “prospective” because hospitals and other providers know ahead of time what they will be reimbursed.  This is why Medicare publishes its rules on their Inpatient Prospective Payment System (IPPS) or its Outpatient Prospective Payment System (OPPS). 

However, there are certain circumstances when Medicare, for example, will reimburse additional amounts beyond the prospective payment rate.  These additional payments are called outlier payments.” Outlier payments provide additional reimbursement for cases of exceptionally costly treatments.  Outlier payments are calculated based on a facility’s ‘cost-to-charge ratio’ (CCR).  The CCR is determined by a hospital’s cost report that is reconciled with the local Medicare contractor. 

If a hospital raises its charges without certain justifications, it can artificially raise factors in the calculations necessary for determining outlier payments. 

Facilities might receive outlier payments they are not entitled to.  Consequently, enforcement scrutiny and external audits are performed to determine if outlier payments were appropriate.  If they were not, the hospital must return the funds. Depending on other circumstances, they might also face penalties.  

Compliance officers can help protect revenue and reduce the risk of penalties by collaborating with the Finance and Reimbursement departments to navigate the dynamics of outlier payments and prospective repayment. 

Inappropriate Outlier Payments 

A hospital in Massachusetts recently agreed to pay approximately $1.8 million to resolve allegations of inflating charges for cardiac procedures. The inflated charges resulted in inappropriate outlier payments from Medicare. Allegedly, the facility also failed to fully reimburse the government for its receipt of these outlier payments after it became aware of the issue.  According to the settlement agreement, the hospital admitted that it raised its charges once by 18% and then two more times by 15%.  The government alleged these increased charges resulted in the greater number of outlier payments.   The hospital made a voluntary repayment to the Medicare Administrative Contractor, but the government says it was not a full reimbursement.  In this case, the increased outlier payments were a result of increased charges that were not justified by patient needs. Increased charges might be justified if the patient required an increased level of care or a lengthier hospital stay.  

Turbocharging risk associated with outlier payments 

Interestingly, also in December 2022, the Assistant US Attorney for the District of Massachusetts spoke at the Massachusetts Health & Hospital Association’s legal compliance forum.  Whether he was referring to the previously mentioned Massachusetts hospital or not, he said his office is seeing more turbocharging recently. Turbocharging is the practice of increasing the costs they list on your charge masters to account for inflation. The government is watching these adjustments to make sure they are appropriate for federally reimbursed services. He suggested looking at your outlier payments to be sure they are warranted, and returning the money if they are not warranted.  

OIG Audits Outlier Payments  

Concern with outlier payments is not new.  In fact, the Office of the Inspector General (OIG) has had multiple items about outlier payments on its work plan and has conducted audits in this area. 

For example, in 2020, OIG audited an Arkansas facility regarding its outpatient outlier payments.  In this case, the OIG audited a sample of 120 outlier payments.  They found the facility correctly billed 17 of the 120 but incorrectly billed the remaining 103 claims, which totaled over $580,000 in overpayments.  The OIG categorized the facility’s primary errors into three areas: 

  1. Overcharging for time
  2. Charging errors of ‘hardcoded’ charges 
  3. Coding errors

Overcharging for time 

Many hospital services are based on charging for time.  For example, the charges for use of an operating room are typically based on the amount of time the room was used.  OIG pointed out that many claims included overcharges of time.  One claim charged 98 hours of operating room time when actual time was 2.5 hours.  In another instance, anesthesia time was charged for 25 hours instead of two.  And recovery room charges were made on a claim for seven hours when only one hour should have been charged. 

“Hard coded” charging errors 

To apply charges to a claim, most facilities have a charge structure that should be uniformly applied to each patient and represents reasonable and consistent costs of providing services.  A facility’s charge master is often a significant part of its charging structure.  Sometimes facilities “hard code” a medical code or charge to certain charges.  If an error in “hard coding” is made, that error may occur on each claim when that charge is reported.  OIG found errors in this regard.  For example, according to the facility’s policies, one code would have been marked up to $9,223.50 but was instead marked up to $19,157.15.  This was reportedly attributed to human error.  For a different code and charge, it was determined that a supply item was improperly linked in the charging system resulting in an erroneous charge of $28,502.  The facility discovered this on one claim but ultimately found an additional 26 claims where this same charge error was present. 

Incorrect coding charging errors 

Medical numeric codes represent services provided to patients.  Selecting the correct medical code for claim submission is vital because accurate payment is tied to accurate reporting of a code. In this audit, OIG found coding errors as well.  For example, 10 claims included charges for codes that were not supported by the medical documentation.  In one of these claims there were two charges for a device when only one device was used.  This increased the charges by $61,4232.  In yet another scenario, recovery room charges were submitted in addition to charges for conscious sedation.  This is inappropriate because recovery room charges are already included in conscious sedation charges and should not be billed separately.  This happened on 28 claims and each time the mistake increased charges by $3,485.60. 

Proactive assessment of outlier payment risks 

The consequences associated with inappropriate outlier payments can be substantial.  Compliance programs should be proactive in assessing these risks to ensure the hospital is billing an appropriate amount for each procedure. This helps you protect revenue and avoid penalties and returned payments.  Some suggestions for doing so include the following: 

  • Proactively audit claims for which you have received outlier payments.   For Medicare, this typically includes IPPS and OPPS. 
  • Sustain a good working relationship with the Finance and Reimbursement departments. These groups typically maintain the chargemaster as well as determine mark ups and make other pricing decisions. 
  • Return illegitimate reimbursement and overpayments quickly. The government has a 60-day overpayment rule. Be sure to meet that timeline. 

In conclusion, the risks for receiving inappropriate outlier payments are real. Enforcement agencies are keeping an eye open for unjustified price increases that can lead to inappropriate outlier payments. Past OIG audit reports have described some of the common mistakes facilities have made. Compliance programs can create value for the organization by being the proactive force to mitigate these risks. 

CJ Wolf, MD, M.Ed is a healthcare compliance professional with over 22 years of experience in healthcare economics, revenue cycle, coding, billing, and healthcare compliance. He has worked for Intermountain Healthcare, the University of Texas MD Anderson Cancer Center, the University of Texas System, an international medical device company and a healthcare compliance software start up. Currently, Dr. Wolf teaches and provides private healthcare compliance and coding consulting services as well as training. He is a graduate of the University of Illinois at Chicago College of Medicine, earned a masters in education from the University of Texas at Brownsville and was magna cum laude as an undergraduate at Brigham Young University in Provo, UT. In addition to his educational background, Dr. Wolf holds current certifications in medical coding and billing (CPC, COC) and healthcare compliance, ethics, privacy and research (CHC, CCEP, CHPC, CHRC).

Never miss an enforcement article from CJ Wolf on the YouCompli blog

Get a 15-minute strategic overview of YouCompli