OIG audit reveals incorrect billing of DRGs, modifier –59 at Michigan Health System

An OIG audit of the University of Michigan Health System revealed noncompliance with four types of inpatient claims, including those associated with billing of DRGs, and two types of outpatient claims, including those billed with modifier –59 (distinct procedural service).

In its audit of the health system, OIG selected a sample of 181 claims from 2014 and 2015, 139 of which were inpatient and 42 of which were outpatient. The health system failed to comply with Medicare billing requirements for 65 inpatient claims and eight outpatient claims. The inpatient claim errors resulted in more than $1.2 million in overpayments while the outpatient claim errors resulted in $14,961 in overpayments. Based on the sample, the OIG estimated that the health system received more than $6.1 million in overpayments in 2014 and 2015.

Inpatient claim errors included the following:

• Incorrectly billing claims paid in excess of charges, resulting in overpayments of $533,450. When claims are paid in excess of charges, they are often assigned the incorrect DRGs, procedures, units, or charges. Due to miscommunication between staff members who coded the services and those who performed the services, the health system assigned the incorrect DRG to some claims.
• Incorrectly billing high-severity DRGs, resulting in overpayments of $137,481. This type of error was also attributed to miscommunication between staff members coding the claims and those who performed the services.
• Incorrectly billing for inpatient rehabilitation services, resulting in overpayments of $588,008. The health system incorrectly billed Medicare Part A for stays that did not meet the level of care requirements for rehabilitation facilities. Medical record documentation failed to support the need for care provided by inpatient rehabilitation facilities.
• Failure to report manufacturer credits for replaced medical devices, resulting in overpayments of $20,500. A reduction in IPPS payment is required for replacing implantable devices if the device is replaced without cost to the provider or beneficiary or if the provider receives full or partial (greater than 50% of the device cost) credit for the device cost. Claims must be coded with a combination of condition codes 49 or 50 and value code FD when a replacement device is provided without credit. The health system failed to submit adjusted claims for device credits.

Outpatient claim errors included the following:

• Incorrectly billing outpatient services with modifier –59, resulting in overpayments of $6,941. This modifier is used to indicate a distinct procedural service, which may include the reporting of a different session/encounter, procedure/surgery, site, organ system, incision/excision, or injury. The health system billed incorrect HCPCS codes with modifier –59.
• Failure to report manufacturer credits for replaced medical devices, resulting in overpayments of $7,750. Like with IPPS, a reduction in OPPS payment is required for replacing implantable devices if the device is replaced without cost to the provider or beneficiary or if the provider receives full or partial (greater than 50% of the device cost) credit for the device cost. Reporting of modifier –FB (item provided without cost to provider, supplier or practitioner, or full credit received for replaced device [examples, but not limited to, covered under warranty, replaced due to defect, free samples]) and reduced charges is required for claims that include a procedure code for replacement devices when the provider incurs no cost or receives full credit for the device. The health system failed to report medical device credits.

As a result of the audit, the OIG recommended that University of Michigan Health System refund Medicare more than $6.1 million, identify and return similar overpayments outside the audit period, and strengthen controls. The health system agreed with all OIG recommendations and most findings with the exception of some related to billing for inpatient rehabilitation facilities.