CLIENT ALERT, March 2007
The Department of Health and Human Services' Office of the Inspector General (OIG) issued a consolidated report today, stating that a sample of 21 hospitals overstated their wage data by over $377 million, and recommending that the Centers for Medicare & Medicaid Services (CMS) develop an action plan for correcting FFY 2007 wage index data and auditing future wage data reported on hospitals' cost reports (http://oig.hhs.gov/oas/reports/region1/10500504.pdf). The areas of error identified by the OIG included: (1) overstated pension and post-retirement benefit costs; (2) misstated wages, fringe benefit costs, and home office nonsalary costs; (3) misstated and unsupported costs for contract labor services; (4) costs for unallowable Part B services (e.g., physician time spent on patient care) included as Part A costs; and (5) misstated and misclassified wages. In performing its audit, the OIG looked at whether the wage data on the hospitals' trial balances reconciled to their audited financial statements; total wages reported on the cost report reconciled to their trial balances; and wage data from selected cost centers reconciled to underlying payroll registers or accounts payable invoices. The OIG noted that one criterion they used in selecting their sample was hospitals with "certain high-risk characteristics (e.g., wage-related benefit costs exceeding 28 percent of salaries and significant contract labor or deferred compensation costs)." The OIG concluded that the errors occurred because the hospitals did not adequately review and reconcile their reported wage data to supporting documents, and recommended that CMS develop a corrective action plan, including identifying "high risk" hospitals for targeted review.
In response to the OIG's recommendations, CMS noted that it has already instructed its intermediaries to review pension costs as part of current and future cost report settlements, and has instructed the intermediaries to review the OIG's report as part of identifying areas to prioritize during their wage index reviews. CMS did not indicate that it would begin identifying hospitals for targeted review, outside the normal wage index desk review process. Because of the ongoing OIG efforts in this area, we encourage clients to focus attention on the risk areas identified in the OIG report, as well as overall wage data reconciliation to supporting documents, prior to filing future cost reports.
If you have any questions regarding the foregoing, please contact Sandy Pitler.
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