Medicaid Program – Improper Medicaid Payments for Outpatient Services Billed as Inpatient Claims

Issued Date
August 30, 2023
Health, Department of (Medicaid Program)


To determine whether Medicaid made improper payments to hospitals for outpatient services that were erroneously billed as inpatient claims. The audit covered the period from January 2018 through March 2022.

About the Program

The State’s Medicaid program is administered by the Department of Health (Department). The Medicaid program reimburses hospitals for inpatient and outpatient services. A recipient’s status in a hospital – inpatient versus outpatient – affects Medicaid’s reimbursement for services provided.

Inpatient care generally requires recipients to stay overnight in the hospital and be monitored by the health care team at the hospital throughout treatment and recovery. Generally, outpatient services are medical procedures that can be performed in the same day.

Medicaid uses the All Patient Refined Diagnosis Related Groups (DRG) methodology to reimburse hospitals for inpatient medical care. The DRG methodology classifies recipients according to their diagnosis and severity of illness, which provides the basis for calculating the reimbursement. Outpatient services are typically reimbursed using rate codes, and each service provided could trigger a separate payment. Outpatient services are generally less expensive than inpatient treatments because they are less involved and do not require a patient’s continued presence in a facility.

Key Findings

We found that a lack of Department guidance to assist hospitals in determining when to bill services as inpatient or outpatient likely contributed to improper billings and Medicaid overpayments. The audit identified 34,264 fee-for-service inpatient claims, totaling $360.6 million, where hospitals reported Medicaid recipients were discharged within 24 hours of admission. There is a high risk that a portion of these claims were improper if the services provided should have been billed as outpatient. We selected a judgmental sample of 190 claims, totaling $4,261,428, from six hospitals and reviewed the associated recipient’s medical records. For these 190 claims, 91 claims (48%), totaling $1,577,821, were billed improperly.

Key Recommendations

  • Develop and provide Medicaid guidance to hospitals to assist them in determining when services should be billed as an inpatient or outpatient claim.
  • Review the improperly billed inpatient claims we sampled that have not yet been voided by hospitals and recover overpayments, as appropriate. Develop a risk-based approach to review the remaining 34,074 inpatient claims, totaling $356 million, to identify improper payments and make recoveries, as appropriate.
  • Develop an ongoing process to identify and review the appropriateness of high-risk short-stay inpatient claims such as those identified in this audit.

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