The OIG claimed that 71 of 333 inpatient claims did not meet Medicare criteria for inpatient status.

A recent report, titled “CMS Can Use OIG Audit Reports to Improve Its Oversight of Hospital Compliance,” from October of 2022, is an unusual U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) report. It’s the first time the OIG has given audit follow-up, and accounts for its own error rate. This is one of the rare OIG reports I encourage providers to review.

Before we dive into the report, I want to first look back to November 2012. At that time, the OIG published a report titled “Improvements Are Needed at the Administrative Law Judge (ALJ) Level of Medicare Appeals.” Most of us recognize that the ALJ is the first level of appeal, where a denial is reviewed by an entity without any financial stake in the outcome. Few providers were surprised that this recent report documented a 56-percent overturn rate of Qualified Independent Contractor (QIC) denials. It’s important to realize that this means two consecutive contractors have had decision-making that’s worse than simply flipping a coin.

Let’s look at what the OIG has told us this time, and what it might mean for providers. This review covered 12 extrapolated audits of claims paid from 2016-2018. The total number of sampled claims was 1,290. From this, there were 387 errors claimed by the OIG’s expert reviewers.

There were 333 incorrectly paid inpatient claims. Two hundred of those alleged errors, or 60 percent, arose from inpatient rehab care, and three-quarters of those denials were for medical necessity. Providers appealed only 172 of the denied claims. After redetermination and reconciliation, only 12 denials were overturned, leaving a final error rate of 96 percent. Of course, some of the remaining 160 may be overturned by an ALJ.

For most providers, the inpatient status denials are more important. The OIG claimed that 71 of 333 inpatient claims did not meet Medicare criteria for inpatient status. Of the 71 denials, only 44 were appealed. But the part that’s interesting about this is that after redetermination and reconciliation, 14 were overturned. What that really means is that the OIG has a nearly 20-percent error rate. This is where the OIG’s 2012 report is important. If half of the reconciliation denials are won at the ALJ level, the OIG’s error rate becomes a whopping 30 percent.

Finally, we need to look at the OIG’s ongoing claim that its determination constitutes “credible

information of potential overpayments.” And consequently, “providers must exercise reasonable diligence to identify overpayments during a six-year lookback period.” The OIG notes in the report that Centers for Medicare & Medicaid Services regulations only provide for an eight-quarter review period, and that this is insufficient for the current appeals process. What this means is that if providers insist that there is no evidence of error until the appeals process is complete, then they only need to wait two years, and CMS will stop monitoring for the lookback.

So, what does all this really mean?

First, Inpatient Rehabilitation Facility (IRF) claims will likely continue to be high-risk targets of auditors for the foreseeable future, and denials are unlikely to be overturned.

Second, and more generally applicable, the prior 12 audits confirm at least a 20-percent OIG error rate for inpatient determinations. This means that providers should always appeal status denials, and consider postponing lookbacks until all appeals are exhausted.


John K. Hall, MD, JD, MBA, FCLM, FRCPC

John K. Hall, MD, JD, MBA, FCLM, FRCPC is a licensed physician in several jurisdictions and is admitted to the California bar. He is also the founder of The Aegis Firm, a healthcare consulting firm providing consultative and litigation support on a wide variety of criminal and civil matters related to healthcare. He lectures frequently on black-letter health law, mediation, medical staff relations, and medical ethics, as well as patient and physician rights. Dr. Hall hopes to help explain complex problems at the intersection of medicine and law and prepare providers to manage those problems.

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