HHS watchdog flags improper payments to hospitals for services provided to hospice patients

Hospitals may face closer scrutiny over a segment of Medicare outpatient billing after the HHS Office of Inspector General (OIG) found improper payments.

In a report posted Nov. 18, OIG found that improper payments were prevalent for outpatient services provided to hospice enrollees during a five-year period ending in 2021.

Examining a sample size of 100 randomly selected Medicare Part B payments for services provided to hospice enrollees and billed with condition code 07, OIG’s independent medical reviewer identified 70 services that qualified as palliative care or management of a hospice enrollee’s terminal illness and related conditions. Condition code 07 indicates that the patient has elected hospice care and that the services being provided by the hospital are not related to the terminal condition.

“These [audited] services were already covered as part of the hospices’ per diem payments and should have been provided directly by the hospices or under arrangements between the hospices and acute-care hospitals,” the report states. “Instead, the acute-care hospitals improperly billed Medicare using condition code 07 on their outpatient claims.”

Extrapolating the findings, OIG calculated that this subset of improper payments amounted to $190.1 million out of $283.7 million in payments made over the five-year time frame. In addition, Medicare beneficiaries would have saved $43.6 million in deductibles and coinsurance.

“The issues we identified in our audit are longstanding,” the report states, noting a prior audit found $6.6 billion in improper payments for similar scenarios spanning 2010-19.

Shortcomings in current processes

OIG said problems leading to the improper payments included:

• A poorly designed prepayment edit process
• Vague guidance from Medicare
• Lack of prepayment or post-payment review and subsequent guidance to hospitals by Medicare administrative contractors (MACs)

OIG’s key recommendation is to change the prepayment edit process so that it automatically compares diagnosis codes.

“Had the prepayment edit process been designed to automatically compare an outpatient claim’s diagnosis codes with the hospice claim’s diagnosis codes, either by doing an exact match of diagnoses or a ‘familial’ match, the edit would have rejected many of these claims,” the report states, noting that 41 of the 70 improperly paid sample items fell into that category.

The report put some of the responsibility on hospitals, saying many in the audit sample did not request an addendum that has been available since 2020 regarding patients who have chosen hospice care. The addendum includes an enrollee’s conditions present on hospice admission; associated items, services and drugs not covered by the hospice; and clinical explanations of why those are considered unrelated to the enrollee’s terminal illness and related conditions and are not needed for pain management.

“These addenda would have assisted the acute-care hospitals in assessing whether outpatient services palliated or managed the enrollees’ terminal illnesses and related conditions and in appropriately using condition code 07,” the report states.

More generally, while hospitals routinely assess whether outpatient services include palliative care for or management of a hospice enrollee’s terminal illness, OIG said they should also more consistently gauge whether such care applies to related conditions.

Concerns with a recommendation

CMS concurred with most of OIG’s recommendations about ways to correct the issue, including by providing education to hospitals. The agency also agreed about the benefits of directing MACs and recovery audit contractors to better analyze claims data as a means of spotting hospitals that have “aberrant” billing patterns for condition code 07 and to conduct prepayment or post-payment reviews of those billing scenarios.

As for the suggestion to improve system edit processes, CMS expressed concern that such modifications are not feasible, in part because determining whether outpatient services relate to a terminal illness and accompanying conditions is a process that “requires clinical judgment and is best suited for complex medical review.”

OIG responded, “Although we acknowledge the importance of clinical judgment in determining whether a specific outpatient service is related to a terminal illness and related conditions, improving system edit processes could help identify improper claims and claims that require further scrutiny.”

As with most policy- and process-related issues over the next few months, it remains to be seen whether CMS leadership under the incoming administration — including Dr. Mehmet Oz, whom President-elect Donald Trump has nominated as administrator of the agency — adopts the same line of thinking as the current administration.