The Office of Inspector General (OIG) of the Department of Health and Human Services (HHS) released its Work Plan for Fiscal Year 2015 on October 31, 2014. Typically issued in October of each year, the work plan provides an annual view into the OIG’s planned areas of focus for investigation and enforcement activities in the coming year.

Below are a few interesting observations from this year’s work plan. The work plan itself contains a number of other areas under review and is worth reading to understand specific concerns in areas not mentioned below.

1. Hospital Inpatient Admission Criteria – “Two Midnight Rule”

The OIG intends to review the impact of new inpatient admission criteria on hospital billing, Medicare payments and beneficiary copayments. Specifically, OIG intends to review how billing varied among hospitals in the 2014 fiscal year. The new inpatient admission criteria took effect in fiscal year 2014, after the OIG identified millions of dollars in overpayments to hospitals for short inpatient stays that should have been billed as outpatient stays. The new inpatient admission criteria states that physicians should admit for inpatient care only those beneficiaries who are expected to need at least two nights of hospital care (the “two midnight policy”). Beneficiaries requiring care that is expected to last fewer than two nights are to be treated as outpatients. Hospitals should review the new inpatient admission criteria and ensure their actions comply with the two midnight policy. The OIG is expected to issue a report in 2016 on the impact of the new inpatient criteria on hospital billing.

2. Provider-Based Facilities

The OIG intends to continue its focus on provider-based facilities through its review of such facilities as we discussed in our summary of the 2014 OIG Work Plan. Provider-based facilities are hospital outpatient departments and often are located off-campus. The facilities tend to be paid more than freestanding clinics are for similar Medicare services, in recognition of the generally higher levels of overhead and infrastructure necessary to qualify as a hospital-based facility. Unlike at physician practice clinics, services at a provider-based facility are reimbursed for both a technical fee (for the hospital) and a professional fee (for the physician). The OIG continues to review the extent to which provider-based facilities meet the provider-based criteria set by the Centers for Medicare and Medicaid Services (CMS). In addition, the OIG plans to continue to review and compare Medicare payments for physician office visits in provider-based facilities and freestanding clinics to determine the potential impact on the Medicare program of these different payments and whether they are justified. Hospitals operating provider-based facilities should continue to ensure that they comply with all Medicare provider-based rules.

3. Outpatient Evaluation and Management (E&M) Codes

The OIG intends to review Medicare outpatient payments for E&M services to determine whether such services were appropriately coded as “new” or “established.” The OIG stated that preliminary work indicates that overpayments have occurred as a result of hospitals indicating that a patient was “new” when the patient should have been coded as “established” under the federal regulations. Federal regulations distinguish between “new” and “established” patients based on whether the patient has been seen as a registered inpatient or outpatient of the hospital within the preceding three years.

4. Hospital Wage Data

The OIG added a new review of hospital controls over their wage data reporting in this year’s work plan. This reported data is used by CMS to calculate the hospital wage index for Medicare payments in calculations of each hospital’s inpatient prospective payment system payment. To determine the wage index, hospitals must report wage data to CMS annually. Prior OIG wage index work identified hundreds of millions of dollars in incorrectly reported wage data and resulted in policy changes by CMS with regard to how hospitals reported deferred compensation costs. The OIG appears to be reviewing those efforts of CMS to see if these policy changes have had an impact on the Medicare system. Hospitals should always make sure that they are reporting accurate information to CMS, but this year may be an important time to self-audit and reevaluate wage index information before the hospital submits its next report.

5. Medicare Dental Claims in Hospitals

The OIG continues its various reviews of Medicare hospital outpatient payments for dental services to determine whether such payments were made in accordance with Medicare requirements. Dental services generally are excluded from Medicare coverage with certain exceptions, such as extraction of teeth to prepare the jaw for radiation treatment. Current OIG audits have suggested that hospitals are receiving Medicare reimbursement for non-covered dental services, resulting in significant overpayments. As such, the OIG continues to investigate and review past Medicare dental billing by hospitals. Before billing, any such Medicare claim should be verified as appropriate under the Medicare program.

6. Medicaid Pediatric Dental Services

The OIG plans to continue its focus on Medicaid pediatric dental services through two work plan items. First, the OIG will continue to review Medicaid payments by states for dental services to determine whether states properly claimed federal reimbursement. Past reports found 31 percent of dental services “resulted in improper payments” (although most were documentation errors). Second, the OIG will continue to review whether children enrolled in Medicaid receive all of their intended dental service benefits. Medicaid covers approximately 37 million low-income children through the program’s early and periodic screening, diagnosis and treatment program. Past OIG reports found three out of four children had not received all of their required screenings, and the OIG notes that children’s dental access has been a longstanding Medicaid problem. On the other hand, the OIG notes in its work plan that a number of dental providers and dental chains have been prosecuted in recent years for providing unnecessary dental procedures, and Congress has released reports questioning certain dental practices’ behaviors. A final report on either of these topics may help to set a direction for policymakers in these areas to expand access to Medicaid dental services. In the meantime, dental providers should continue their efforts to ensure proper compliance.

7. Oversight of Pharmaceutical Compounding

The OIG will review Medicare’s oversight of Medicare-participating acute care hospitals and the recommended practices for pharmaceutical compounding oversight. The work plan notes that most hospitals compound pharmaceuticals onsite and that the accreditation and certification process, which is overseen by Medicare, is particularly important in light of the fact that the 2012 meningitis outbreak resulted from contaminated injections of compounded drugs. Oversight over hospital pharmaceutical compounding was a new initiative for the OIG in its 2014 Work Plan, and commentators have stated that the increased scrutiny leaves hospitals with a difficult choice: minimize risk by outsourcing compounding requirements but lose oversight over quality assurance, or, alternatively, perform the compounding in house with greater costs and resources being expended on quality assurance.

8. Questionable Billing Patterns for Part B Services During Nursing Home Stays

The OIG will investigate questionable billing practices associated with nursing homes for Medicare Part B services provided to nursing home residents during stays that are not paid under Part A (e.g., stays during which benefits are exhausted or stays where the three-day prior inpatient stay requirement has not been met). The OIG will perform a series of studies to examine broad categories of services, such as foot care, and monitor Part B billing to ensure no excessive services are provided. The OIG released a report in 2012 after performing a similar investigation on home health service billing for the year 2010 and found that Medicare inappropriately paid $5 million for home health services in 2010. The 2012 report suggested CMS perform stricter monitoring and enforcement in this area to address the issue.

9. Equipment and Supplies – Policies and Practices

Power mobility devices – Lump-sum purchase versus rental 

The OIG will investigate whether savings can be achieved if certain power mobility devices are rented over 13-month periods, rather than acquired through lump-sum purchases. CMS already has begun moving toward 13-month rentals, as most power wheelchairs furnished on or after January 1, 2011, receive Medicare payments only on a rental basis. This also is consistent with how other forms of durable medical equipment are reimbursed by Medicare.

Competitive bidding for medical equipment items and services − Mandatory post-award audit 

The OIG will review the process CMS used to conduct competitive bidding and to make pricing determinations for certain medical equipment items and services in selected competitive bidding areas under rounds one and two of the competitive bidding program. A previous OIG report on this topic, released in April 2014, found that CMS generally selected suppliers and computed payment amounts in accordance with federal requirements in round one of the rebid program. The OIG is required by law to conduct these post-award audits to access the competitive bidding process.

Competitive bidding for diabetes testing supplies − Market share review 

The OIG will determine the market share for different types of diabetes test strips for the three-month period from October 2013 to December 2013, as required under the Medicare Improvements for Patients and Providers Act (MIPPA). Under MIPPA, CMS may award contracts for mail-order diabetes test strips only to suppliers who demonstrate their bid covers at least 50 percent, by volume, of all types of diabetes test strips in rounds subsequent to round one of the rebid of the competitive bidding program. The OIG most recently examined a sample of 1,210 diabetes test strips associated with Medicare claims for the period from July 2013 to September 2013 and found that 22 suppliers submitted at least 43 types of mail-order diabetes test strips, but two types of test strips accounted for approximately 45 percent of the mail-order market share, three types of strips accounted for 59 percent of the market share, and 10 types accounted for 90 percent. CMS will use the results of this study to analyze the program and evaluate the effect of the competitive bidding program on test-strip choice.

10. Ambulatory Surgical Centers − Payment Systems

As reviewed in last year’s OIG Work Plan client alert, the OIG will continue reviewing the appropriateness of Medicare’s methodology for setting ambulatory surgical center (ASC) payment rates. The OIG also intends to review whether payment disparities exist between ASC and hospital outpatient payment rates for similar surgical procedures. Previous OIG reports estimated that Medicare saved almost $7 billion during calendar years (CYs) 2007 through 2011 and potentially could save $12 billion from CYs 2012 through 2017 because ASC rates frequently are lower than outpatient department rates for surgical procedures. The OIG is expected to release its report later this year.

11. End Stage Renal Disease (ESRD) Bundled Payments

The OIG will continue reviewing payments for ESRD services and drugs under its bundled prospective payment system (PPS) rate. The OIG’s efforts are part of a 2011 federal law requiring CMS to begin implementing a system bundling all of the costs of ESRD care. The OIG uses data on facility acquisition costs and inflation-adjusted estimates to determine how costs for ESRD drugs have changed. The OIG’s findings may impact future calls for ESRD payment changes.

12. Anesthesia Services – Payments for Personally Performed Services

The OIG has renewed its efforts to investigate Medicare Part B claims for personally performed anesthesia services (service code AA) to determine whether such claims are supported in accordance with Medicare requirements. The OIG noted once again that personally performed services are billed at a rate double that of services performed under an anesthesiologist’s medical direction (service code QK), and that incorrect coding results in Medicare paying a higher amount. As was the case last year, anesthesiologists working with nurse anesthetists should ensure that they have proper documentation for all services personally performed (AA), but should use the QK modifier if the patient is left in the care of a nurse anesthetist at any time. As further evidence of its continued focus on proper billing for anesthesia services, on October 30, 2014, the day prior to the release of its 2015 Work Plan, the OIG released an audit report detailing that a New Jersey-based hospital received $1.7 million in Medicare overpayments from April 2011 through September 2012.

13. Chiropractic Services

The OIG intends to review Medicare Part B payments to determine if claims were submitted appropriately. Medicare covers correction only of certain conditions and does not cover services that are not reasonable and necessary, which, under CMS’ definition, includes chiropractic maintenance. Further, the OIG intends to investigate the extent of questionable billing for chiropractic services. Existing data shows high claim error rates amongst certain providers. The OIG intends to compile existing chiropractic billing data to identify and offer recommendations for areas of high fraud vulnerability.

14. Independent Clinical Laboratory Billing Requirements

The OIG will review Medicare payments to independent clinical laboratories to determine laboratories’ compliance with Medicare billing requirements. Medicare is the largest payer of clinical laboratory services in the nation. From 2005 to 2010, Part B Medicare enrollment increased by 10 percent, while spending for laboratory services increased by 29 percent. In 2010, Medicare payments for all Part B lab services totaled $8.2 billion. With this rise in laboratory payments, independent clinical laboratories increasingly have become the subject of OIG audits, investigations and inspections. Independent clinical laboratories should strictly comply with the Medicare billing requirements, because we expect OIG audits, investigations and inspections will continue in the coming years. The OIG is expected to release a review later this year on Medicare payments to independent clinical laboratories.

15. Long-Term Care Hospital Adverse Events

The OIG added a new review that will estimate the national incidence of adverse and temporary harm events for Medicare beneficiaries receiving care in long-term care hospitals (LTCHs). LTCHs are inpatient hospitals that provide long-term care with an average length of stay greater than 25 days for their Medicare patients. A Medicare beneficiary typically enters an LTCH following an acute care hospital stay and pays no additional deductible. A beneficiary admitted directly from the community (i.e., not post-hospital stay) is responsible for a deductible. As LTCHs are the third most common type of post-acute care facility, the OIG is concerned that adverse events in these settings are having a negative impact on a significant number of patients and costing serious dollars. The OIG anticipates determining the extent to which these events are preventable and will provide key factors causing the events. LTCHs will want to implement any changes proposed in these reports in the years to come to avoid preventable harm.