Objective

To assess the extent of implementation of the four recommendations included in our initial audit report, Medicaid Program – Improper Medicaid Payments to Hospitals for Outpatient Services Billed as Inpatient Services for Recipients Enrolled in Managed Care (Report 2023-S-23).

About the Program

Most of the State’s Medicaid recipients receive their medical services through Medicaid managed care organizations (MCOs). When managed care enrollees receive inpatient care or outpatient care from hospitals, MCOs reimburse the hospitals. The Department of Health (DOH) also pays hospitals Graduate Medical Education (GME) payments related to inpatient care to help cover the expenses associated with training resident physicians. 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 to be monitored by the health care team throughout treatment and recovery. Generally, outpatient services are medical procedures that can be performed on the same day and are less expensive than inpatient treatment because they are less involved and do not require a patient’s continued presence in a facility.

The objective of our initial audit, issued on August 28, 2024, was to determine whether Medicaid made improper payments to hospitals for outpatient services that were erroneously billed as inpatient services for recipients enrolled in managed care. The audit covered the period from July 2019 through June 2023. The audit focused on inpatient claims with patient stays less than 24 hours (“short-stay”) to identify high-risk claims that could have been incorrectly classified as inpatient instead of outpatient. The audit found that DOH did not conduct reviews of short-stay inpatient encounters or provide guidance to MCOs and hospitals to assist them in determining whether a short-stay claim should be billed as inpatient or outpatient, which may have contributed to billing misclassifications. We identified a risk population of 61,171 short-stay admissions, totaling over $684 million, where providers reported both an inpatient encounter and a GME claim. Almost $144.1 million of the $684 million was for patient stays of 10 or fewer hours, which we determined to be higher risk. We reviewed a sample of 33 admissions, totaling $773,492, and determined that 13 admissions, totaling $151,508, were billed improperly as a result of misclassification as inpatient or other issues.

Key Findings

DOH officials made little progress in addressing the problems we identified in the initial audit report, and additional actions are still needed. In particular, officials did not develop an ongoing process to identify and review the appropriateness of high-risk, short-stay inpatient claims, and most of the admissions we identified in the initial audit have not been reviewed for appropriateness. Of the initial report’s four audit recommendations, one was implemented and three were not implemented.

Key Recommendation

DOH officials are requested, but not required, to provide information about any actions planned to address the unresolved issues discussed in this follow-up within 30 days of the report’s issuance.