On May 6, 2015, the Office of Inspector General (OIG) for the U.S. Department of Health & Human Services (HHS) released a report on overpayments attributed to incorrect physician place-of-service coding. The report determined that Medicare potentially overpaid physicians approximately $33.4 million for incorrectly coded services that were provided from January 2010 through September 2012.

As part of their claims submissions, physicians and other Medicare suppliers are required to report the setting in which they furnish services. This setting designation (either “facility” or “non-facility”) is a decisive reimbursement factor as Medicare only reimburses physicians for overhead expenses if their services are provided in a non-facility setting (e.g., physician offices and independent clinics). The OIG report compared same-day physician and facility claims to determine how often physicians performed services in facility locations but incorrectly coded the services as performed in non-facility locations. Of $33.4 million in estimated overpayments, approximately 75 percent were made for services provided in a hospital outpatient setting but coded as a non-facility claim. The other roughly 25 percent of the overpayments were made for miscoded services provided in ambulatory surgery centers.

The OIG attributed the overpayments to physician-level internal control weaknesses as well as insufficient Medicare contractor post-payment reviews. The OIG recommended that the Centers for Medicare & Medicaid Services (CMS) direct its Medicare contractors to initiate and monitor recoveries of the overpayments identified by the report (as of December 2014, $1.75 million of the 2010 overpayments had already been recovered). Other recommendations included more comprehensive education efforts and directives for Medicare contractors to perform similar place-of-service audits on high-risk physician services and recover any resulting overpayments.

Given the report’s recommendations, physician practices and employers should ensure they are proactively managing compliance to include periodic internal audits of place-of-service coding. By doing so, providers can better protect themselves from potential overpayment liability and can make more timely decisions about corrective actions and government disclosures.