In Wake of OIG Report, Prepare for Added Scrutiny of Medicare Cost Reports

A recent audit by the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services found that Medicare administrative contractors (MACs) did not consistently meet Medicare cost report oversight requirements.

The OIG report emphasized the importance of cost report oversight. “Medicare cost reports are a crucial component of the operation and oversight of the Medicare program,” the report stated. “The OIG has conducted a significant number of audits involving Medicare cost reports, predominately those submitted by hospitals. This work has led to billions of dollars in savings for the Medicare program through the implementation of our recommendations to adjust payment rates based on information gained from cost report audits.”

MACs’ Dual Role: Cost Report Oversight and Appeals

As the primary contact between healthcare providers and the Medicare program, MACs are responsible for administrative activities such as processing initial cost reports and amendments, conducting desk reviews and audits of cost reports, and issuing final settlements for cost reports.

In addition, when a provider appeals a MAC’s decision, that same MAC serves as the first level of appeal. Notably, the OIG report raised concerns about the integrity of Medicare’s appeals process.

Considering the Implications of the Recent OIG Report

MACs serve only one “client” — the federal government. In this recent OIG report, the “client” has expressed significant frustrations with the results of the MACs’ services, namely that the MACs appear to have been (in the opinion of the OIG) too lenient, not thorough enough in their procedures, or both.

It is equally important to note that the OIG report is directionally focused on perceived overpayments to providers. The OIG is not searching for instances where healthcare providers may have been underpaid.

It is unlikely that any healthcare provider would consider their MAC too lenient. Often, it is quite the contrary. This new OIG report will likely place additional pressure on the MACs to be more stringent with their reviews, investigations, and approval processes. In turn, this added level of scrutiny will result in additional downward pressure on healthcare providers’ Medicare reimbursement, as well as increased costs and time related to more robust MAC procedures.

Details of the OIG Audit Findings

The recent OIG investigation examined whether individual MAC jurisdictions met Medicare cost report oversight requirements. Based on Quality Assurance Surveillance Plan (QASP) results for federal fiscal years 2019 to 2021, each of the 12 MAC jurisdictions failed to comply with contract requirements for audit and reimbursement desk review and audit quality (AR-4) for at least one of the three years.

The Centers for Medicare and Medicaid Services (CMS) identified 287 total audit issues among all MAC jurisdictions during this period. Those issues fell into five major categories:

• Failure to perform proper reviews (41% of issues). For example, one MAC failed to include the Hospital-Acquired Condition Reduction Program in cost report settlement data, resulting in an overpayment of approximately $250,000.
• Inadequate review of graduate medical education (GME) and indirect medical education (IME) reimbursement (18% of issues). One MAC counted duplicate GME and IME full-time equivalents, which could have resulted in erroneous payments of approximately $650,000.
• Improper review of allocation, grouping, or reclassification of charges to cost centers (17% of issues). In one instance, failure to account for physician and physician assistant salaries resulted in an estimated cost reduction of approximately $1.8 million that would have significantly reduced the Medicare reimbursement to the hospital.
• Improper calculation and reimbursement for nursing and allied health programs (13% of issues). Errors in calculating a proposed adjustment resulted in an estimated overpayment of more than $250,000.
• Inadequate review of bad debts (11% of issues). One MAC’s inappropriate sampling approach for bad debts resulted in an overpayment of approximately $200,000.

Prepare to Defend Medicare Cost Reports

In light of this recent report, it is more important than ever that healthcare providers have a robust strategy for preparing and filing accurate Medicare cost reports and aggressively defending appropriate and supportable cost report positions throughout the MAC review and settlement process. Healthcare providers should look to internal resources, supplemented by highly experienced and reputable advisors, to ensure their Medicare reimbursement is legitimately maximized and protected. As always, your CRI healthcare advisors stand ready to assist.