What Your Hospital Needs to Know Now to Comply with the Latest OIG Work Plan

March 4, 2014

Understanding the OIG’s Latest Work Plan    

On January 31, 2014, the Office of the Inspector General (OIG) released its fiscal year 2014 Work Plan.  Below are some of the new items on the OIG’s list that directly affect hospital providers.  

Hospital Policies and Practices

The Two-Midnight Rule
The OIG will examine how the two-midnight rule affects hospital billing practices, Medicare payments, and beneficiary payments. The rule provides that physicians should admit beneficiaries for inpatient care if they are expected to need at least two nights of hospital care, and that beneficiaries who are expected to need less than two nights of hospital care should be treated as outpatients.

Employee Compensation Reimbursable by Medicare

The OIG will review Medicare cost reports to examine the salaries that hospitals include in the operating costs submitted to Medicare for reimbursement. The purpose of the OIG’s review is to measure the impact of imposing limits on the amounts hospitals can claim for salaries in future cost reports.

Currently, employee compensation may be included as an allowable cost as long as it represents reasonable compensation for managerial, administrative, professional, and other services related to the operation of the hospital, and furnished in connection with patient care. There are no specific dollar limits on the salaries that can be reported, but that may change depending on the OIG’s recommendation after reviewing the issue.  

Billing by Provider-Based and Freestanding Clinics

The OIG will investigate the impact of hospitals billing for physician services provided at provider-based clinics at provider-based rates compared to billing for services provided at freestanding clinics at freestanding rates, which are lower.  Specifically, the OIG will determine the difference in payments made for similar procedures. The OIG is also investigating the impact of provider-based status on Medicare billings in general, noting that the Medicare Payment Advisory Commission (MedPAC) has expressed concerns about the financial incentives for claiming provider-based status. MedPAC has stated that Medicare should seek to pay similar amounts for similar services.  

Hospital Billing and Payment

Codes Used in Billing for Outpatient Evaluation and Management Services

The OIG will recommend recovery of overpayments where hospitals use new-patient codes for outpatient billing when billing for evaluation and management services to established patients.  A patient who has been seen as a registered inpatient or outpatient of the hospital within the past three years is considered an established patient.

Indirect Medical Education (IME) Payments
The OIG intends to review hospital data to determine whether hospitals’ IME payments were calculated in accordance with federal regulations and guidelines.  Prior OIG reviews have identified hospitals that have received excess reimbursement for IME costs.  Hospitals can expect that the OIG will recommend recoupment if it identifies excess reimbursement. 

Quality of Care and Safety

Case Study of Hospitals’ Emergency Preparedness and Response

The OIG will assess the emergency preparedness and response of hospitals in select counties affected by Hurricane Sandy. The Centers for Medicare and Medicaid Services (CMS) conditions of participation require a hospital to ensure the safety and well-being of patients and to have adequate medical and nursing staff on duty during disasters. CMS is also focusing on this issue. In December 2013, CMS proposed new regulations on emergency preparedness and response requirements for Medicare and Medicaid participating providers and suppliers. The comment period for responding to the proposed regulations was recently extended from February 25, 2014 to March 31, 2014.  

Oversight of How Hospitals Grant Medical Staff Privileges
The OIG will examine how hospitals assess medical staff candidates prior to granting initial privileges, including verifying credentials and reviewing data in the National Practitioner Databank. 

Data Security, Accuracy, and Protected Health Information

Security Controls Over Networked Medical Devices

The OIG will determine whether hospitals’ security controls over networked medical devices – including computerized medical devices, such as dialysis machines, radiology systems, and medication systems that are integrated with electronic medical records and the larger health network – are sufficient to protect electronic protected health information and beneficiary safety. 

If you have questions about the OIG’s 2014 Work Plan, or any concerns regarding your organization’s compliance with the items in the Plan, please contact Rochelle H. Zapol, a partner in Prince Lobel’s Health Care Practice Group and author of this Alert. You can reach Rochelle at 617 456 8036 or  

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