When it comes to protecting the financial integrity of the Medicare program, the Office of Inspector General (OIG) continues to vigorously focus on billing errors related to claims for drugs provided to Medicare beneficiaries in the outpatient hospital setting.

The Office of Audit Services (OAS), which is the OIG’s audit arm, has released 10 reports over the last five months that focus on hospital billing patterns for outpatient drugs. The primary objective for these audits is to determine whether the targeted hospitals are billing Medicare in accordance with federal requirements. Collectively, the OIG identified more than $500,000 in overpayments due to incorrect claim submission, with an average overpayment of $52,000 per facility. In each of the 10 cases, the incorrect payments were directly related to incorrect application and reporting of billing unit multipliers (“billable units”) by the hospital billing system.

How Are These Errors Detected?

Medicare guidance requires providers to submit accurate claims for outpatient services. Each submitted Medicare claim contains details regarding each provided service (called a line item in the audit reports). Included are the appropriate HCPCS level II codes and units of service (the number of times that a service or procedure was performed) or, if the HCPCS code is associated with a drug, the number of units administered.

The OIG has developed a sophisticated method to identify overpayments for drugs that providers need to understand. In general, the drug billing errors are detected through the following process.

First the OIG conducts a review of Medicare payments to hospitals for outpatient drugs. From that review, specific drugs are judgmentally selected as being potentially at risk for billing errors. Then the OIG uses the Centers for Medicare & Medicaid Services’ National Claims History file to identify claims paid during the audit period for those targeted drugs.

Auditors use computer matching, data mining, and analysis techniques extensively to identify specific line items potentially at risk for noncompliance with Medicare billing requirements.

The OIG determines via investigation with the provider whether the information conveyed in the selected line items was correct and, if not, why not. This is followed by a documentation review, which verifies whether each selected line item was billed correctly.

Finally, overpayments are calculated using corrected payment information processed by the hospital’s fiscal intermediary (FI) or Medicare administrative contractor (MAC).

Mitigating Billable Unit Risk

For a large number of outpatient drugs, payment is directly tied to two components: service units and HCPCS code descriptions. The following describes CMS’s guidance for these two reporting parameters.

  • Service units: The Medicare Claims Processing Manual (MCPM), chapter 4, section 20.4, states: “The definition of service units … is the number of times the service or procedure being reported was performed.”
  • HCPCS code descriptions: The MCPM, chapter 17, section 90.2.A, states: “It is … of great importance that hospitals billing for [drugs] make certain that the reported units of service of the reported HCPCS code are consistent with the quantity of a drug … that was used in the care of the patient.”

According to MCPM, Chapter 17, section 70, if the provider is billing for a drug, “[w]here HCPCS is required, units are entered in multiples of the units shown in the HCPCS narrative description. For example, if the description for the code is 50 mg, and 200 mg are provided, units are shown as 4. “

These seemingly simple directives are routinely misunderstood and or misapplied by providers on a daily basis, causing unneeded over- and underpayment risks.

Know Your Systems

Providers should have a complete understanding of how their hospital pharmacy information systems and patient billing systems interact to create a claim. For example, some systems generate pricing and billing units in the pharmacy module and connect to the HCPCS code in a separate billing module. In others, the pricing, coding, and billing unit data come exclusively from the pharmacy system, and the billing module just passes that data through to the claim with no oversight.

In many cases, the disconnected processes are not obvious until billing errors are identified through an external audit. By then, the damage is done, and providers have to work twice as hard to implement system corrections.

Finally, providers should investigate the use of the same “computer matching, data mining, and analysis techniques” that are extensively used by the OIG to identify specific line items potentially at risk for noncompliance with Medicare billing requirements. For example, routine use of computer-matching programs that help align pharmacy information data with hospital billing system data can help identify coding, pricing and billing unit errors before they become audit risks.


Another technique that providers may consider expanding is predictive payment modeling. When used, this allows the provider to calculate the expected payment for a drug based on the HCPCS code and billable units reported on the claim. Expected payment rates that are tied to the dosage can be tracked and outliers flagged for internal review and verification.

As the sheer volume and complexity of reporting requirements for the hundreds of drugs provided in the outpatient setting continues to increase, so will the external audits by the OIG, and recovery audit contractors.

Providers that make a commitment to embrace technology to help identify pharmacy payment risks will not only benefit their own organizations, but will help reduce the number of unnecessary audits that in the end, which all healthcare providers end up paying for.

About the Author

Randy Wiitala, BS, MT (ASCP) is a senior healthcare consultant with Panacea Healthcare Solutions, Inc., St. Paul, MN. Panacea is a nationally recognized expert in healthcare compliance and reimbursement. Founded in 1991, Panacea delivers actionable answers that will equip healthcare organizations with their coding, chargemaster, reimbursement management and RAC solutions.

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