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Weygandt-DrPaul-100The Centers for Medicare & Medicaid Services (CMS) released a special-edition MLN Matters article titled “The Importance of Correctly Coding the Place of Service by Physicians and Their Billing Agents.” This article, released by CMS on March 9, 2011, was a follow-up to a July 2010 report from the acting deputy inspector general for audit services to CMS Administrator Don Berwick.

That report detailed the results of a review of place-of-service coding for physician Part B services billed during the 2007 calendar year. The audit covered 484,218 non facility-coded physician E/M services that were matched to hospital outpatient or ASC for the same patient on the same day, being responsible for more than $42 million in charges.

In a review of 100 sample services, physicians incorrectly coded the place of service 90 times. In this small sample, the resulting overpayments amounted to $4,710. Extrapolated to the larger population, the overpayment for “place-of-service” payments was estimated at $13.8 million. The recommendation of the report was to recover the $4,170 identified in the audit immediately and then reopen the unaudited 484,118 non-sampled services to recover the estimated $13.8 million.


In the RVU system utilized in physician payment, the three critical components of relative value calculation are physician work, malpractice expense and practice expense. The practice expense component, contributing to physician payment, varies based on a distinction between “facility” and “non-facility” sites.

Basically, facility settings are hospital and ASC sites where the physician incurs substantially less practice expenses than in the office or at other non-facility locations, where additional practice expenses are incurred. To account for the increased overhead expense physicians incur to provide services in facilities where they pay practice expenses, Medicare reimburses at a higher rate for “non-facility” services. By misidentifying the place of service as non-facility, physicians in essence are double-charging Medicare for practice expenses for which the facility already is being compensated.

The 90 percent error rate cited in the aforementioned audit exposed physicians to extensive payment recovery, which we anticipate to proceed rapidly. Recall that the $13.8 million recovery is for incorrect place-of-service billing for only the 2007 calendar year. In addition to reopening the un-reviewed 2007 claims, we can anticipate reviews of claims from other years. Furthermore, the Office of Inspector General for the U.S. Department of Health and Human Services is working to improve current program safeguards to avoid future overpayment of such claims.

It is critical that physicians and their professional billing staff correctly identify place of service to code correctly and avoid recoverable overpayments.

Example of Incorrect Coding [from the audit report]

A carrier paid a physician $374 for performing a spinal pain injection procedure coded as having been performed in his office. Our analysis showed that the physician actually performed this procedure in a hospital outpatient department and that a fiscal intermediary had reimbursed the hospital for the overhead portion of the service. If the claim had been coded correctly, the physician would have received a payment of $96, which would not have included overhead costs.

As a result of the incorrect coding, the physician was overpaid $278.

About the Author

Paul Weygandt is a Certified Physician Executive (CPE) with more than 20 combined years of experience in medical management, legal counsel and orthopedic surgery. He has served as a hospital VPMA, improving documentation across all DRG payers. Dr. Weygandt is vice president of physician services for J.A. Thomas & Associates and is a partner in the firm.

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