Medicaid Program – Improper Managed Care Payments for Misclassified Patient Discharges

Issued Date
August 19, 2022
Health, Department of (Medicaid Program)


To determine whether Medicaid managed care organizations (MCOs) made inappropriate payments to hospitals that failed to properly report correct patient discharge codes on inpatient claims. The audit covered the period from January 1, 2016 through December 31, 2021.

About the Program

The State’s Medicaid program is administered by the Department of Health (Department). Many Medicaid recipients receive their medical services through managed care, whereby the Department pays MCOs a monthly premium for each enrolled recipient and, in turn, the MCOs arrange for the provision of services for recipients and reimburse providers.

MCOs use the All Patient Refined Diagnosis Related Groups methodology to reimburse hospitals for inpatient medical care. When a hospital bills an MCO for an inpatient stay, the hospital reports certain information on its claims, such as the patient’s diagnoses and services received.

Hospitals must also use certain codes to indicate whether the patient was transferred or discharged at the end of their stay. These codes are important because payments may vary significantly depending on whether a patient is transferred or discharged. For example, a claim where a patient was transferred to another facility may result in a lower payment than if the patient was simply discharged home from the hospital.

Key Findings

The audit identified 2,808 managed care inpatient claims totaling $32.3 million for Medicaid recipients who were reported as discharged from a hospital but then admitted to a different hospital within the same day or the following day (which often meets the definition of a transfer). These claims are at a high risk of overpayment if the first hospital inappropriately reported an actual transfer as a discharge. We selected a judgmental sample of 166 claims totaling $2,474,162 from six hospitals and reviewed the associated patients’ medical records. Our review found:

  • 47 claims were overpaid $323,531 because they were incorrectly coded as discharges when the patients were actually transferred to another facility.
  • 13 claims totaling $101,447 were incorrectly billed as inpatient claims when outpatient services were actually provided. Medicaid also improperly paid $58,879 as graduate medical education (GME) payments for these claims because GME payments are not allowed for outpatient services.

Key Recommendations

  • Review the identified overpayments and make recoveries, as appropriate.
  • Review the remaining high-risk claims totaling $29.8 million and recover overpayments, as appropriate. Ensure prompt attention is given to providers who received the highest payments.
  • Ensure MCOs develop processes to identify and recover overpayments for inpatient claims that have a high risk of incorrect discharge codes.

Andrea Inman

State Government Accountability Contact Information:
Audit Director: Andrea Inman
Phone: (518) 474-3271; Email: [email protected]
Address: Office of the State Comptroller; Division of State Government Accountability; 110 State Street, 11th Floor; Albany, NY 12236