Reviews conducted by consulting organizations have shown that providers lose as much as one to four percentage points from their bottom lines to billing inaccuracies associated with outpatient services, such as coding errors, insufficient documentation of medical necessity, and poor charge description master (CDM) maintenance. Clearly, the opportunity exists to improve understanding of the educational and operational issues related to managing ambulatory payment classification (APC) codes.

To gain this understanding and avoid common APC pitfalls, providers need to be aware of the means used to detect billing inaccuracies, areas most often targeted for review, and steps they can take to initiate improvement. Hospitals that don’t become savvy to the APC system and develop appropriate controls could pay a heavy price–significant underpayments or stiff fines and penalties imposed by the Office of Inspector General (OIG).

The following 10 points are suggested ways that providers can encourage compliance and optimize revenue.

1. Establish an Active Compliance Program

The Centers for Medicare and Medicaid Services (CMS) does not mandate corporate compliance programs as a condition of participating in Medicare. However, it has stated that having an effective corporate compliance program may reduce the risk of unlawful or improper conduct significantly and can mitigate penalties incurred if billing or coding infractions occur.

Providers would be wise to devote staff and resources to program development and maintenance. Having this infrastructure in place will support the internal controls and monitoring needed for effective management of APC compliance risk and payment accuracy.

2. Be Familiar with the OIG’s Initiatives

Understanding the government’s areas of focus can help providers direct compliance efforts. In the past, outpatient initiatives in the OIG work plan have emphasized adequate documentation, proper coding, and demonstration of medical necessity. Specific targets have included:

* Controls over transitional pass-through costs;

* Charges for self-administered drugs that originate from outpatient pharmacy services at acute care hospitals; and

* Undocumented, unnecessary, or noncovered charges for outpatient medical supplies.

Even though the latter two review items apply to claims that existed before August 1, 2000, when the APC prospective payment system was initiated, it is important to be vigilant about these areas because the OIG has the authority to audit claims up to six years after submission.

In 2002 and 2003, the scope of the OIG’s interests widened. In addition to pursuing prior concerns, the work plan urged examination of APC outlier payments; payments for APC services delivered when patients are discharged, treated elsewhere, and then readmitted on the same day; and procedure coding of outpatient and physician services. The OIG is undertaking this last initiative because in a previous review it identified a 23 percent nationwide discrepancy between hospital and physician coding. (a)

Four new review areas will begin in 2003:

* Assessing the appropriateness of Medicare billing for diagnostic procedures performed in the emergency department, including X-rays, magnetic resonance imaging (MRI), and computed tomography scans;

* Determining whether outpatient hospital cardiac rehabilitation services meet Medicare coverage requirements, including the presence of a physician in the exercise program area while patients are exercising;

* Assessing the performance of accrediting organizations and state survey and certification agencies in providing hospital oversight of hospital outpatient departments; and

* Evaluating controls to detect potentially excessive Medicare payments for services.

The OIG will assess the adequacy and extent of actions taken as well as potentially excessive payments.

3. Recognize Data Likely to Be Flagged

Techniques the OIG uses to target providers include routine audits, medical review, qui tam (or whistleblower) cases, and data analysis. Areas likely to be flagged for outpatient billing inaccuracies through data analysis may include duplicate billing, APC distribution irregularities, and codes identifying inpatient-only services.

Duplicate billing. OIG estimated that Medicare carriers paid more than $89 million in duplicate bills in 1998. Outpatient service areas most prone to duplicate billing were nail debridements (APC 0009), MRI of the brain or lumbar region (APC 0337), and psychiatric diagnostic interview examination (APC0323). (b) Duplicate billing can have many causes, from undifferentiated information-technology processes to poor staff education. To address this concern, hospitals should closely analyze bills with these APCs to determine whether duplicate billing is occurring at the hospital level and identify possible origins of duplication.

APC distribution irregularities. High volumes of cases in APCs with higher weight, and therefore higher payment, than the norm could draw OIG attention. Sometimes a legitimate reason may explain the irregularity For example, a hospital designated as a trauma center can expect to generate high-level and critical care bills for emergency-department patients more frequently than a nontrauma facility To minimize compliance risks, providers should identify and examine high-level APC trends for billing accuracy