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EXECUTIVE SUMMARY:
This final report points out that the Centers for Medicare and Medicaid Services (CMS) has no controls or edits to detect excessive payments to prospective payment system (PPS) hospitals for erroneously coded discharges that are followed by postacute care. As a result, we estimate, based on a statistical sample, that Medicare paid approximately $61 million in excessive diagnosis related groups (DRG) payments to PPS hospitals for fiscal year (FY) 2000. Combining this estimate with our estimate of $55 million in erroneous payments that were previously identified for FY 1999, we estimate that CMS has overpaid hospital claims by approximately $116 million for the initial 2-year period of the postacute care transfer policy. In addition to financial adjustments and identification of overpayments subsequent to FY 2000, we recommended that CMS, as a long term remedy, establish an alert mechanism within the Common Working File to compare applicable inpatient claims with subsequent postacute claims. This will allow potentially erroneous inpatient hospital claims to be detected, reviewed, and appropriately adjusted on an ongoing basis.