Medicare & Medicaid
Fraud Audits, OIG, ZPIC

Fraud Audits

Medicare and Medicaid Fraud Billing Audits are on all healthcare providers’ screens. The various audits, PERM, SURS, and CERTS that are being performed by Medicare and Medicaid have made it difficult for providers to deal with the complexity of all the fraud audits. Our firm was hired as reimbursement consultants on nine of those Medicaid and Medicare audits in the last five years. We have been able to overturn $26 million of requested overpayments. On several of the audits, our providers paid nothing back to the Intermediary.

Unidentified Critical Access Hospital No. 1 v. Leavitt, No. 07–5020 RBL (W.D. Wash. Dec. 6, 2007). This court case underscores the importance and necessity of accurate and documented “data reporting on the Medicare Cost Reports.” There are also other lessons CAHs can learn from this case. In this particular case, the hospital changed its nursing staff reporting on its Medicare Cost Report from how it was calculated and reported in prior years. The change in reporting caused a 731% increase in routine costs for acute care over how this data was reported on the Medicare Cost Report for prior years. Not surprisingly, the Medicare fiscal intermediary challenged this dramatic increase.

CMS focused on the hospital’s lack of supporting records that would enable CMS to verify the accuracy of the 731% increase. While this case clearly underscores the need for thorough and accurate recordkeeping, it also contains other important lessons and warnings.

In today’s healthcare regulatory climate, healthcare providers should assume that any dramatic increase in any cost center will trigger a very high level of scrutiny from the state and federal governments. Given the increased activity of state Medicaid fraud control units, PERM audits, CERT audits, and the other audits performed by the state and federal governments, providers are well advised to make sure that they have all of the documentation necessary to support large increases in any cost center. If you are going to show a 700+% increase in routine costs you should just assume that either CMS will question this or you will be subjected to an audit. This type of increase invites additional scrutiny so you should be prepared to defend it. The good reimbursement firm will safeguard your facility when they prepare the Medicare and Medicaid cost reports. This will ensure that your facility will never encounter this situation.

Congress has appropriated over $160 million for Medicaid Fraud enforcement. This increased enforcement is expected to net over $1 billion in recovery from healthcare facilities. A new $8 million Medicare contract was issued in January 2008 to Price Waterhouse for the purpose of conducting Medicare Fraud Audits. The State of Washington like most states today also has a growing Medicare and Medicaid Fraud unit.

State’s Medicaid is conducting the following Fraud Audits:

Federal Medicare is conducting the following Fraud Audits:


The Department of Justice announced that it has secured $3 billion settlements and judgments in cases involving fraud in the fiscal year ending September 30, 2010. This includes $2.5 billion in health care fraud recoveries—the largest in history—and represents the second largest annual recovery of civil fraud claims.

The record health care fraud civil recoveries of $2.5 billion made up 83% of the year’s total civil fraud recoveries. HHS reaped the biggest recoveries, largely attributable to its Medicare and Medicaid programs. Recoveries were also made in Department Defense for the TRICARE program and the Department of Veterans Affairs.


HHS announced a new collaborative initiative between the Department of Health and Human Services Office of the Inspector General (OIG) and the Department of Justice (DOJ) expanding anti-fraud, waste, abuse and payment recovery enforcement activities, including a significant increase of provider post-payment audits, recoupments, civil and criminal actions to be jointly implemented.

Beginning in FY2011 the Act will provide an additional $350 million over the next ten years, for coordinated detection and prevention of fraudulent Medicare and Medicaid billing practices. The coordination of entities has recovered $1 billion in Medicare Medicaid payments under the False Claim Act.

Results reported by CMS for FY 2009 Comprehensive Error Rate Testing (CERT) Medicare payment audits show that 7.8% ($4.7 million) of all Medicare claims sampled were paid in error, with hospitals accounting for over half of these improper payments (40% inpatient and 12% outpatient), while DME providers accounted for 25% of overpayments, followed by physicians at 7% and SNFs at 6%. Based on this audit sample, CMS estimates that approximately $24.1 billion of Medicare claims were improperly paid in error in FY 2009.

The CERT audit results indicate that, 98% of Medicare payments made in error were attributed to three main causes:


The HHS Office of the Inspector General (OIG) recently released its annual audit work plan for FY 2013, establishing audit priorities that include continuation of targeted reviews of the following areas considered high risk for improper Medicare payments:

Note CAH & provider based clinics is 4th on OIG list. A report released earlier this year indicates that hospitals and Durable Medical Equipment (DME) providers continue to lead all other providers in terms of improper Medicare payments

For more details on the OIG’s FY 2013 Work Plan, please go to:

AUDIT UPDATE 2010-2011

ZPICs are organizations hired indirectly by CMS to perform a wide range of medical review, data analysis and Medicare evidence-based policy auditing activities. Take ZPIC into account the potential of provider fraud and abuse and are given much more latitude than RAC and MIC auditors.

An investigative approach is currently being utilized by ZPICs is comparing hospital claims with physician claims for the same patient service episode to identify variances in DRGs with Complications/Comorbidities, E/M service level coding and supporting medical record documentation, for example. This same cross-checking is also occurring between other providers, like DME and Rehabilitation providers. ZPICs are also directly contacting Medicare beneficiaries to determine whether or not the services and products they actually received are consistent with the claims submitted by all providers involved with their care.

Another difference from RAC the ZPICs do not have any limitations on the number of records that they can review, nor do they a time limit on how far back they can conduct such reviews. For key areas that ZPICs have targeted contact FCAW for more detail.

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