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Medicare overpayments should concern providers [PODCAST]

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The Hospital Finance Podcast

In this episode, we are joined by Mary Devine, Director of Revenue Cycle Services at BESLER, to discuss an issue that is not getting much attention but should concern providers: Medicare overpayments.

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Highlights of this episode include:

  • Background on Medicare overpayments and how they are defined by CMS
  • Reasons why Medicare overpayments occur
  • How providers can avoid compliance issues with Medicare overpayments
  • What CMS means by without fault and fault claims when reporting overpayments
  • And more…

To view the transcript of this podcast episode, click HERE

For a deeper dive on why Transfer DRG underpayments occur, download our white paper “Transfer DRGs – Approaches to Revenue Recovery”.


What is a Medicare overpayment?

CMS defines a Medicare overpayment as a payment received in excess of amounts properly payable under Medicare statutes and regulations. Federal law requires CMS to recover all identified overpayments. Medicare Administrative Contractors (MACs) will initiate overpayment recovery if discovered by contracted auditors such as Recovery Audit Contractors (RACs) or Quality Improvement Organizations (QIOs).

In addition to CMS auditors, the Office of the Inspector General (OIG) is also responsible for identifying overpayments to providers.

Federal law requires providers that discover overpayments to self-report and initiate an overpayment return with the MAC.

Why do Medicare overpayments occur?

Overpayments can result from:

  • Medical necessity errors
  • Insufficient documentation
  • Duplicate payments and administrative errors
  • Incorrect payee
  • Services paid by the primary insurance
  • Changes in the year of service

Most of these errors are due to providers. Administrative or processing errors could happen by the MAC.

Medicare has claim processing edits in place to capture overpayments. Despite these edits, CMS currently only captures eighty-five percent of Medicare overpayments. This means providers are potentially overpaid on Transfer DRGs fifteen percent of the time.

How to avoid compliance issues with Medicare overpayments

For providers to be compliant with CMS requirements, claims must be accurate 100% of the time.

Providers should perform Medicare overpayment audits/reviews where possible. This can be accomplished through chart-to-bill audits to confirm all charges are documented on the claim and nothing appears that is not supported in the chart. These audits should include the review of all diagnosis and procedures codes. Compliance or Internal Auditing teams generally conduct these audits.

Incorrect discharge status codes are common claim errors. While providers routinely search for this error to identify underpayments, either internally or with the assistance of external vendors, they often overlook claims that could be overpaid. This leaves overpayment review in the purview of CMS edits or RACs.

CMS states that providers are responsible for self-reporting overpayments and are liable for all overpayments received unless the provider is “without fault”, meaning the provider could not have known there was an error. However, providers would still be responsible for repaying the overpayment should it be identified by the MAC/RAC.

Most, if not all, coding and charging errors fall under the at “fault/should have known” category and it is the provider’s responsibility to report the overpayments for these errors in the timeline established by each MAC.

Discharge status code errors could be construed as “without fault” or “at fault” depending on the circumstances. For example, if a claim was coded in error, but the chart indicated post-acute care, that would be considered an “at-fault” error. Conversely, should a patient opt for post-acute care post-discharge and there is no indication of the need for services in the chart, this would be considered a “without fault” error.

Even when errors are without fault, if the claim is found to be overpaid, the provider will need to refund the overpayment. This prevents penalties and interest.

There is a look back period of six years for finding and reporting Medicare overpayments. I strongly recommend all providers complete audits to determine if overpayments exist and self-report them, whether through internal efforts or with the help of an external vendor. This audit should cover all potential errors including the discharge status code.

The OIG is currently reviewing potential overpayments and will apply a statistical sample error factor to the entire population of claims for the look back period. If a provider identifies and reports errors, even those without fault, the error rate will be much smaller should there be an external audit by the MAC, OIG or RAC (which has a four-year look back period).


Transcript for “Medicare overpayments should concern providers”

Mike Passanante: Hi, this is Mike Passanante. And welcome back to the Hospital Finance Podcast.

Today, we’re going to be talking about overpayments which is something that maybe doesn’t get discussed as much in the industry as under-payments. And joining me is Mary Devine who is the Director of Revenue Cycle Services here at BESLER.

Mary, welcome back to the show.

Mary Devine: Mike, thanks for having me again.

Mike: So, as I just mentioned, we talk about under-payments and under-payment recovery and those types of subjects a lot in the industry. But overpayments don’t usually get the same amount of attention.

So, why don’t we start out can you just explain what the technical definition of a Medicare overpayment is?

Mary: Sure! And first, let’s comment on—you are absolutely correct in stating that overpayments do not get quite the attention that under-payments do. I mean, let’s be honest, if you’re overpaid, that means you have to give money back. And people do not like to give money back.

But let me jump right into what that technical definition of Medicare’s overpayment is—or CMS’ definition of it.

So, CMS defines a Medicare overpayment as a payment received in excess of amounts properly payable under Medicare’s statues and regulations. And so, federal law requires CMS to recover all identified overpayments. And the MACs are the ones that generally initiative the recovery of the overpayments that was received by a provider.

Mike: Mary, what are some of the reasons that overpayments would occur?

Mary: There’s so many of them. But just to name a few, some overpayments can result from medical necessity errors, meaning that you were paid for a service that was rendered to a patient that was not necessary because there was no underlying diagnosis that supported the test or the procedure that the provider was doing. Potentially, there’s insufficient documentation. So you bill for the administration of a drug, but there’s no documentation in the medical record that supports the administering of the drug or the reason to administer the drug.

Potentially, there’s duplicate payments and administrative errors. So those, if you submit a client, and another provider submits a claim which it should deny as an overlap but it doesn’t, and you both got paid, that would be certainly an error.

Potentially, there’s an incorrect payee. Medicare is the second payer, and they end up paying primary because they didn’t realize there was a worker’s comp in place or a no-fault in place.

Additionally, services paid to the primary insurance, maybe again Medicare is the secondary. Potentially, it’s a working age. And Medicare paid that as if they were primary and not as the secondary and just the co-insurance.

And then, as we all know, things change from one fiscal year to the next. And the payments are different. And potentially, they paid it on a different year-end versus the year that the service actually occurred in.

And most of these errors, as you can see, they are the fault of the provider, but there are certainly some administrative and processing errors that do happen and the provider is not really at fault for it, if you will.

Mike: And if they are, there could be some issues in terms of compliance because it doesn’t come free.

Mary: Absolutely.

Mike: So if you’re a provider in that position, what can you do avoid compliance issues?

Mary: You know, for providers to be compliant with billing and Medicare regulations, your claims have to be 100% accurate all the time. So it is really the responsibility of the providers to perform audits and reviews—and not just on those underpayments that, Mike, you mentioned in the beginning, but also really to dig in and look at some of your overpayments because, again, where there’s underpayments, there’s also overpayments.

And this can be accomplished through chart to bill audits to confirm that all charges that are on that bill are actually supported in the medical record.

You also want to make sure that the diagnosis and the procedure codes present on the claim are documented and supported with physician documentation or otherwise within the chart.

And generally, this is performed within a provider setting by either the compliance or internal auditing teams. And maybe it’s outsourced, but it’s generally organized by those departments.

Mike: Mary, discharge status codes are often a place where errors occur. You mentioned earlier without fault and at fault claims on the provider side. Can you explain what CMS means when they use those terms?

Mary: Sure! So, CMS states that providers are responsible for self-reporting their overpayments and are liable for all overpayments received unless the provider is without fault.

So, when we talk about without fault, that means that the provider really shouldn’t have known or could not have known.

And then, the other errors are they are with fault. They submitted the bill that had the charges on them that aren’t present in the chart, or they had the diagnosis codes on them that aren’t present on the chart, or they submitted a claim where the procedures are not supported from a medical necessity perspective. So those are at fault.

And then, the ones where the provider is without fault, it really comes to be one of two things. Either the discharge status codes is certainly a big area where it’s really difficult for the provider to know what happened after post-discharge (although there are ways to go about that), and additionally, any of the MAC processing errors. And if you dug into a MAC processing error or you had reason to dig into the claim, you would probably find the processing error. But again, you definitely would be without fault for those.

So, if we talk specifically about the discharge status code, when you think of the nature of the claim, you are required by CMS in order to be compliant with the transfer rule and the coding, that you code the discharge status code to the highest level that you are aware of.

So, in the example of a patient being coded an 06, it’s written in the documentation that the patient is going to receive the home care, but when they’re discharged, for whatever reason, they don’t receive home care, you leave it as an 06. Therefore, that claim would be incorrect. And that would be an example of an underpayment.

In the same example, there’s no mention in the chart the patient is going to receive homecare. There’s no reason to put a discharge status code of an 06 on that claim. So you code that an 01. And lo and behold, the patient is home, and they start home care within three days. And because of the timing of it, or the administrative processing errors, that claim slips through as an 01. That would be an example of the claim being overpaid, but you, the provider, not at fault.

And Medicare is quite clear that their edits are about 85% accurate when it talks about the processing errors and their rules and the regulations. And that means 15% of the time, when you submit a claim through DDE, that the claim could potentially be overpaid because the edits only work 85% of the time.

Mike: Mary, how long are providers scrutinized for overpayments?

Mary: You know, to be honest with you, this is really kind of a funny points because, when you talk about some of the look-back periods or some of the contracted auditors, they have four years. But the look-back period and the responsibility to the providers is six years as it relates to overpayments.

So, that means that providers have the responsibility to ensure that, back six years, there are no overpayments. And if there are overpayments, that they repay them. It’s not—you know when we talk about a RAC lookback or a timely filing. It’s not four years. It’s not a year. But it is absolutely six years for an overpayment.

Mike: Do you have any recommendations for providers regarding remediation of overpayments?

Mary: As I mentioned before, I would certainly recommend that they perform those internal audits or contracting with an external audit to provide reviews on overpayments, whether it be the discharge status codes or on charging and coding.

If the OIG comes in—and right now, they’re focused on discharge status codes, especially the use of condition code 42 and 43—if you’re performing those audits, and you self-report, then they’re going to find less of an error. But if you don’t do the overpayment reviews, they might come in and find a greater error in their sample. And they’re going to apply that to a percentage of claims going all the way back six years, making your payback a lot more money than it would be had you been performing those audits all along what they find is a smaller percentage, and then that would mean a smaller payment because the percentage of the payback is much smaller than had you not been performing those audits.

Mike: And Mary, you can perform overpayment reviews as part of your transfer DRG revenue recovery service?

Mary: Absolutely, yup, we highly recommend it. As I mentioned, when you’re looking for underpayments, you should always be looking for the overpayments as well just to make sure that your bills, as we mentioned, are 100% accurate all the time. Whether it be due that they’re inaccurate for overpayment or underpayment, you need to make sure they’re accurate.

Mike: Great advice! Mary, thanks for joining us today on the podcast.

Mary: Thank you.


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