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Prepare for Medi-Cal EHR Audits: OIG Finds $22 Million Overpayments to 95% of Audited Hospitals; DHCS Promises to Audit All Hospital EHR Payments
September 30, 2016

On September 29, 2016, the Office of Inspector General for the U.S. Department of Health and Human Services (OIG) published findings of its audit of Medi-Cal Electronic Health Record (EHR) payments made to 64 hospitals from October 1, 2011, through December 31, 2014.  These hospitals received 53 percent of Medi-Cal EHR incentive payments from the State of California to eligible hospitals during this time period.  Altogether, the State paid 263 hospitals approximately $601 million during this time period.  The OIG report found overpayments and some underpayments to 61 of the 64 hospitals, which net to $22 million.  The OIG also noted that prospective payments to these hospitals should be reduced by an additional $6.3 million.

The OIG recommended that the DHCS refund this $22 million to the federal government, adjust prospective payments to these hospitals, and audit all hospitals to ensure the accuracy of their Medi-Cal EHR incentive payments.  While the DHCS disputed the calculation of the overpayments to hospitals, it agreed to audit the Medi-Cal EHR incentive payments made to all 263 hospitals to date.  Earlier this summer, the DHCS temporarily suspended all hospital attestation reviews and payments until the OIG final report was received and analyzed by the DHCS.

The OIG determined that the calculation of EHR incentive payments were erroneous because they included:

• unpaid Medicaid bed-days in the Medicaid-bed-days-only portion of the Medicaid share (30 hospitals);

• non-acute-care services ( 23 hospitals);

• hospital data not supported by documentation required to be retained (21 hospitals);

• bad debt within charity-care charges (13 hospitals); 

• Medicaid dual-eligible acute inpatient bed-days in the numerator (5 hospitals); and 

• clerical errors, such as reporting an incorrect charity-care charge because of a keying error (5 hospitals).

In addition, the OIG found that the incentive payment calculations did not include the following services that it contended should have been included:

• labor and delivery services (12 hospitals),  

• NICU services (10 hospitals), and

• intensive-care services (8 hospitals).

These issues have been confusing for many hospitals, which followed instructions from the DHCS to use specific data from cost reports for the attestation.  As noted by the OIG, the DHCS did not follow more specific guidance from CMS in instructing hospitals how to enter data from cost reports, i.e., to remove certain data elements.  In turn, many hospitals relied on the instructions from DHCS in estimating the amount of expected payment amounts. 

Notably, the OIG did not recommend that the State recoup Medi-Cal EHR incentive payments already paid to hospitals.  At this point, it is unclear whether the State intends to do so.  However, the State’s agreement to audit all Medi-Cal EHR incentive payments to hospitals strongly suggests that the State intends to recoup funds according to the methodology expressed by the OIG.  A key question is how the DHCS can take back money when the hospitals were relying on the DHCS’ own instructions, as approved by CMS.

Hooper, Lundy & Bookman, P.C. has represented hospitals with respect to the OIG audit, as well as other Medi-Cal EHR audits.  For more information, please contact the San Francisco Office at 417.875.8503, or Lloyd Bookman in Los Angeles at 310.551.8185.

For media inquiries, please contact Barrett McBride at 916.456.5855.