Audit Triggers from Medicare Cost Reports

EDITOR’S NOTE: The Office of Inspector General (OIG) for the U.S. Department of Health and Human Services (HHS) reported yesterday that Wisconsin Physicians Service Insurance Corporation (WPS) did not properly settle for federal fiscal years (FYs) 2010 through 2012 Medicare cost reports submitted by inpatient hospitals in Missouri for Medicare disproportionate share hospital (DSH) payments in accordance with federal requirements.

In reviewing a number of Medicare cost reports, I have some advice for why you may face added scrutiny and how to avoid it when possible.

Let’s start with acute care hospitals. After the advent of the prospective payment system (PPS) you may think audits do not matter.  Here are some standard and not so standard exceptions though.

Medicare continues to pay hospitals that treat a high number of poor patients an extra payment to offset the cost of caring for them.  These payments are called disproportionate share hospital (DSH) payments. 

Surprisingly, instead of a few hospitals getting these payments, most hospitals in the U.S. receive some kind of DSH reimbursement. Hospitals that receive large DSH payments are routinely audited.  A specific focus is made during these audits on the number of Medicaid days for your facility.

First, you want to make sure that you are submitting a special bill to Medicare for all your Medicare Advantage patients. A part of the DSH payment computation uses the number of Medicare patient days for patients that became eligible when they qualified for Supplemental Security income, even when they are in a Medicare Advantage plan.

Hospitals with graduate medical education programs are usually good about these billings because they get paid for an extra payment from Medicare, but hospitals that get no extra payments are still required to bill.

You also want to make sure you can document the number of Medicaid patient days for your facility.  This is getting increasingly more difficult as many states have contracted out Medicaid to managed care companies. Denied claims from a Medicaid managed care plan can turn into a double whammy by reducing your Medicare DSH payments.

You also want to look at Schedule S-10 of your Medicare cost report for a potential audit risk.  That is because Medicare was supposed to eventually use the amount of “uncompensated care” in determining DSH reimbursement. You should look at this schedule and make sure it is filled out properly, both to reduce audit risk and make sure if it is used to compute DSH at a later date you do not lose reimbursement.

Speaking of graduate medical education, (GME) hospitals with large intern and resident programs are usually an audit target. Hospitals that have new programs or large swings in the number of residents can also expect audits.  Audits of GME payments can be very in depth and invasive. Make sure you have documented the time interns and residents spend in your facility and keep all the demographic information required by Medicare.

Hospitals are still cost reimbursed for Medicare bad debts. If there is a large swing in the amount of bad debts claimed on your cost report, you can expect an audit. You should also be aware of other regional issued that drive audits of bad debts. 

If your state has recently moved to managed Medicaid, Medicare auditors know you will struggle billing Medicaid for patients that are covered by both Medicare and Medicaid. Make sure your cost report preparer has made sure that your facility is properly billing Medicaid managed care companies for these “cross over” billings.

Let’s talk about skilled nursing facilities (SNFs). These facilities do not receive DSH or GME reimbursement, but they are cost reimbursed for bad debts and all the same comments I made above apply to their bad debts.

The single biggest cause of SNF audits, however, has to do with Schedule S-7 of the SNF cost report.  SNFs are paid a per diem payment falling into a specific resource utilization groups (RUGs).

Days of service for SNFs are broken out by RUG category on Schedule S-7. RUGs have a three-letter code.  If a SNF patient had physical, occupational or speech therapy on a given day, the pay code will start with an “R.” The second digit of the three digit shows how many minutes of therapy the patient received. “L” is for low, “M” is for “Medium”, “H” is for high, “V” is very high and “U” is for ultra-high services.  If a SNF shows most its claims are for ultra-high therapy services, it will greatly increase their audit risk.

What Can You Do?

Don’t live in fear. If your facility should receive a certain amount of reimbursement but it may raise an audit trigger.  Just prepare in advance. Make sure that for cost report entries that rely on the performance of billing functions, these billing functions are properly performed and documented. 

Make sure you keep your compliance officer and revenue cycle staff in the loop. It can all be a win win situation.


Timothy Powell, CPA

Timothy Powell is a nationally recognized expert on regulatory matters, including the False Claims Act, Zone Program Integrity Contractor (ZPIC) audits, and U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) compliance. He is a member of the RACmonitor editorial board and a national correspondent for Monitor Mondays.

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