Hospitals overbilled Medicare $1B by upcoding claims, inspector general finds

Hospitals overbilled Medicare $1 billion by incorrectly assigning severe malnutrition diagnosis codes to inpatient hospital claims, according to a report from HHS' Office of Inspector General. 

The inspector general did the review after previous claims audits found that hospitals had incorrectly billed Medicare by using several malnutrition diagnosis codes when they should have used codes for other forms of malnutrition or not used a malnutrition code at all. Severe malnutrition diagnosis codes are classified as a type of major complication or comorbidity, which have higher Medicare payment rates. 

The audit covered $3.4 billion in Medicare payments for more than 224,000 claims with a discharge date in fiscal year 2016 or 2017. It reviewed a random sample of 200 claims that contained a severe malnutrition diagnosis code and for which removing the code changed the diagnosis-related group. 

The audit revealed that hospitals incorrectly billed Medicare for 173 of the 200 claims reviewed. For 164 of those claims, hospitals used severe malnutrition diagnosis codes when they should have used codes for other forms of malnutrition or no malnutrition code. The upcoding resulted in hospitals receiving $914,128 in overpayments. Based on its sample results, the inspector general estimated hospitals received overpayments of more than $1 billion in fiscal 2016 and 2017. 

The inspector general made several recommendations, including that CMS collect the portion of the $914,128 for the incorrectly billed claims that are within the reopening period and notify providers that submitted the claims so they can identify and return any overpayments. 

"We continue to recommend that CMS review all claims in our sampling frame that were not part of our sample but were within the reopening period and work with the hospitals to ensure they correctly bill Medicare when using severe malnutrition diagnosis codes," the office said. 

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