Academic journal article Health Care Financing Review

Estimating Payment Error for Medicare Acute Care Inpatient Services

Academic journal article Health Care Financing Review

Estimating Payment Error for Medicare Acute Care Inpatient Services

Article excerpt


Reducing the percentage of improper Medicare FFS payments (Health Care Financing Administration, 2001) is an agency performance measure for CMS. For the first of these rates reported by the OIG (1996), inpatient acute care payments constituted 22.6 percent of a net $18.3 billion FFS Medicare dollars paid in error during FY 1996, or about $4.1 billion. By FY 1998, inpatient acute care hospital services were the largest source of improper Medicare FFS payments, accounting for 26.8 percent of $13.5 billion net dollars in error, or about $3.6 billion (Office of the Inspector General, 2000).

Inpatient acute care hospital services are addressed specifically under a comprehensive program integrity plan (Health Care Financing Administration, 1999) where CMS stated the intent to develop a system to measure and monitor national and State-level inpatient payment error rates based on medical review of randomly sampled inpatient charts. Such a system would enable CMS to target and monitor the effects of interventions to reduce improper payments. CMS assumed responsibility for calculating the Medicare FFS payment error rate from the OIG starting with the FY 2003 estimate (Health Care Financing Administration, 1999). To validate the surveillance system designed to meet the specifications described for the inpatient acute care portion of this rate, the extent and composition of improper payments for inpatient acute care FFS Medicare discharges during FYs 1998 and 2000 were estimated and compared with estimates derived from published OIG annual audits.


The payment error surveillance and tracking system for inpatient acute care FFS Medicare payments was designed under the Sixth Peer Review Organization/Quality Improvement Organization (QIO) contract (Bhatia et al., 2000). For contractor evaluation under this scope of work, the sample sizes were planned to detect a 25 percent change in the rate of improper payments from FYs 1998 to 2000 within each State/jurisdiction with 90 percent confidence.

The FY 1998 sample consisted primarily of the National Diagnosis Related Group (DRG) Validation Study sample for FY 1998 (Office of the Inspector General, 1999) (discharge dates of October 1, 1997September 30, 1998), which was a national sample of inpatient discharges not stratified by State. Since 1995, the Clinical Data Abstraction Centers (CDACs) have validated DRGs on an annual national sample of over 20,000 Medicare inpatient claims. As contractors for CMS, CDACs were established to provide standardized data abstraction of medical records for national health quality of care projects (Marciniak, Mosedale, and Ellerbeck, 1998). For those States that initially had fewer than 1,100 sampled records, a supplementary simple random sample was drawn to bring the minimum number of discharges sampled per State to 1,100.

For the FY 2000 sample, (discharge dates of October 1, 1999-September 30, 2000), 93 claims were randomly sampled for each State, for each month. The selection criteria specifically excluded critical access, psychiatric, and other prospective payment system (PPS)-exempt hospitals.

FY 2000 claims were sampled from the CMS National Claims History file, the database containing all claims paid by Medicare. Sampling was done after the completion of 3 months following the month of the discharge date to allow for complete billing. Interim bills were aggregated into one final action claim and the most recent final action claim was retained for sampling. Electronic, final action (patient has been discharged), FFS, non-health maintenance organization (HMO) inpatient, acute care hospital stay Medicare claims with a payment amount greater than zero were randomly sampled by the State/jurisdiction where the discharge occurred (all 50 States, Puerto Rico, and Washington, DC).

The delay from discharge date to sampling is necessary to obtain relatively complete reimbursements for discharges due to interim billing and the allowed time to submit claims; Medicare providers have up to 27 months after the date of service to submit a claim. …

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