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Department of Health and Human Services

OFFICE OF 

INSPECTOR GENERAL 

U M 25 

SE OF  ODIFIER 
Daniel R. Levinson 

Inspector General 

November 2005

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Office of Inspector General 
http://oig.hhs.gov 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 
amended, is to protect the integrity of the Department of Health and Human Services (HHS) 
programs, as well as the health and welfare of beneficiaries served by those programs. This 
statutory mission is carried out through a nationwide network of audits, investigations, and 
inspections conducted by the following operating components: 
Office of Audit Services 
The Office of Audit Services (OAS) provides all auditing services for HHS, either by conducting 
audits with its own audit resources or by overseeing audit work done by others.  Audits examine 
the performance of HHS programs and/or its grantees and contractors in carrying out their 
respective responsibilities and are intended to provide independent assessments of HHS programs 
and operations in order to reduce waste, abuse, and mismanagement and to promote economy 
and efficiency throughout HHS. 
Office of Evaluation and Inspections 
The Office of Evaluation and Inspections (OEI) conducts management and program evaluations 
(called inspections) that focus on issues of concern to HHS, Congress, and the public.  The 
findings and recommendations contained in the inspections generate rapid, accurate, and up-to-
date information on the efficiency, vulnerability, and effectiveness of departmental programs.  
OEI also oversees State Medicaid Fraud Control Units which investigate and prosecute fraud and 
patient abuse in the Medicaid program. 
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative investigations of 
allegations of wrongdoing in HHS programs or to HHS beneficiaries and of unjust enrichment by 
providers. The investigative efforts of OI lead to criminal convictions, administrative sanctions, 
or civil monetary penalties. 
Office of Counsel to the Inspector General 
The Office of Counsel to the Inspector General (OCIG) provides general legal services to OIG, 
rendering advice and opinions on HHS programs and operations and providing all legal support 
in OIGs internal operations.  OCIG imposes program exclusions and civil monetary penalties on 
health care providers and litigates those actions within HHS.  OCIG also represents OIG in the 
global settlement of cases arising under the Civil False Claims Act, develops and monitors 
corporate integrity agreements, develops compliance program guidances, renders advisory 
opinions on OIG sanctions to the health care community, and issues fraud alerts and other 
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I N T R O D U C T I O N
  E X E C U T I V E   S U M M A R Y  

OBJECTIVE 
To determine the extent to which use of modifier 25 meets Medicare 
program requirements. 
BACKGROUND 
Medicare payments for medical procedures include payments for certain 
evaluation and management (E/M) services that are necessary prior to 
the performance of a procedure.  The Centers for Medicare & Medicaid 
Services (CMS) does not normally allow additional payments for 
separate E/M services performed by a provider on the same day as a 
procedure. However, if a provider performs an E/M service on the same 
day as a procedure that is significant, separately identifiable, and above 
and beyond the usual preoperative and postoperative care associated 
with the procedure, modifier 25 may be attached to the claim to allow 
additional payment for the separate E/M service.  In calendar 
year 2002, Medicare allowed $1.96 billion for approximately 29 million 
claims using modifier 25. 
The Office of Inspector General (OIG) randomly selected 450 claims 
billed in calendar year 2002 using modifier 25 for medical review.  OIG 
requested from the appropriate providers all medical records for 
services provided to the beneficiary on the date of service listed on the 
sampled claim.  OIG was able to contact the providers who submitted 
431 of these sampled claims; therefore, 19 claims were excluded from 
the analysis. OIG contracted with certified professional coders to 
determine whether the use of modifier 25 met program requirements. 
OIG also conducted structured interviews with all carriers focusing on 
their understanding, outreach, and oversight regarding modifier 25; 
conducted interviews with staff in CMS central and regional offices 
about their oversight of modifier 25 use; and reviewed examples of 
carrier outreach relating to modifier 25. 
FINDINGS 
Thirty-five percent of claims using modifier 25 that Medicare allowed 
in 2002 did not meet program requirements, resulting in $538 million 
in improper payments.  Medicare should not have allowed payment for 
these claims because the E/M services were not significant, separately 
identifiable, and above and beyond the usual preoperative and 
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postoperative care associated with the procedure; or because the claims 
failed to meet basic Medicare documentation requirements. 
Some additional claims did not meet program requirements, 
although the unnecessary use of modifier 25 may not have resulted 
in improper payments. A large number of claims submitted used 
modifier 25 unnecessarily, such as by attaching the modifier to an E/M 
claim when no other service was performed on the same day.  While 
such use may not lead to improper payments, it does fail to meet 
program requirements. 
Carrier oversight related to modifier 25 is limited. Carriers use 
different methods to provide outreach regarding the use of modifier 25.  
More than one-third of carriers have not conducted oversight related to 
modifier 25. 
RECOMMENDATION 
CMS should work with carriers to reduce the number of claims 
submitted using modifier 25 that do not meet program requirements. 
CMS may want to: 
o 	 Reinforce the requirements that E/M services billed using 
modifier 25 be significant, separately identifiable, and above and 
beyond the usual preoperative and postoperative care associated 
with the procedure; 
o 	 Encourage carriers to emphasize that appropriate documentation 
of both E/M services and procedures must be maintained to 
support claims for payments using modifier 25 even though the 
documentation is not required to be submitted with the claims; 
and 
o 	 Emphasize that modifier 25 should only be used on claims for E/M 
services, and only when these services are provided on the same 
day as another procedure. 
CMS should also encourage carriers to reexamine their 
modifier 25 outreach activities and include modifier 25 reviews 
in their medical review strategies where appropriate. 
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AGENCY COMMENTS 
CMS concurred with the OIG recommendations and indicated that it 
recently made significant efforts to educate the provider community 
about the need for documentation to support services billed to the 
Medicare program. CMS noted that it will inform contractors of the 
OIG findings so they can take any appropriate actions. CMS will also 
modify the Medical Claims Processing Manual to clarify that 
appropriate documentation must be maintained to support claims for 
payments, even though providers are not required to submit the 
documentation with the claim.  CMS indicated that it will explore the 
potential to place greater emphasis on modifier 25 outreach activities 
and include the modifier in contractor medical review strategies. 
CMS did note that the majority of improper payments reported 
stemmed from instances in which the provider failed to furnish the 
documentation necessary to determine the medical necessity of the 
service, rather than uncertainty about the guidelines for using modifier 
25. Nonetheless, CMS indicates it will explore options to reinforce or 
emphasize the requirements for using modifier 25. 
OFFICE OF INSPECTOR GENERAL RESPONSE 
OIG appreciates CMSs comments on the draft report and recognizes its 
efforts to educate the provider community and contractors regarding the 
need for documentation to support services billed to Medicare. 
However, OIG believes it is important to note that additional improper 
payments may have been made, and that without proper documentation 
OIG was unable to determine if services were provided and whether 
these payments were appropriate.  
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EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

I N T RO DUC T IO N  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1 

F I N D IN G S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6 

  Improper payments totaled $538 million. . . . . . . . . . . . . . . . . . . . . . .  6 

  Unnecessary use exists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9 

Carrier oversight is limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9 

R E C O MMEN D A T ION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11 

APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13 

Stratification and Sample. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13 

AGENCY COMMENT S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14 

A C K NO WL E D G M E N T S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
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OBJECTIVE 
To determine the extent to which use of modifier 25 meets Medicare 
program requirements. 
BACKGROUND 
Evaluation and management (E/M) services that are necessary for the 
performance of a medical procedure (for example, assessing the 
site/condition of the problem area, explaining the procedure, and 
obtaining informed consent) are included in Medicare payments for the 
procedure.1  However, if a provider performs an E/M service on the same 
day as a procedure that is significant, separately identifiable, and above 
and beyond the usual preoperative and postoperative care associated 
with the procedure, the provider may attach modifier 25 to the E/M 
service claim2 to facilitate billing and to allow separate payment for the 
E/M service.3  In calendar year 2002, Medicare allowed $1.96 billion for 
approximately 29 million services billed using modifier 25. 
Required Documentation 
Although providers are not required to provide supporting 
documentation when submitting claims using modifier 25,4 they must 
furnish such information as may be necessary in order to determine the 
amounts due to receive Medicare payment.5 Medical record 
documentation should include: 
o 	 Clinical information confirming that the E/M service billed was 
above and beyond the E/M services included in the procedure, 6 
1 CPT Assistant, Vol. 8, Issue 9, September 1998. 
2 Within a single claim, multiple line items for individual services and procedures may be 
billed. OIG uses the term claim generically to refer to claims and claim line items.   
3 CMSs Internet-Only Manual, Educational Resource Web Guide, CMS Manual System, 
Publication 100-4, Medicare Claims Processing, Chapter 12,  40.2 Billing Requirements 
for Global Surgeries, A-Procedure Codes and Modifiers, 8-Significant Evaluation and 
Management on Day of Procedure.   
4 Medicare Program; Revisions to Payment Policies Under the Physician Fee Schedule for 
Calendar Year 2000, 56 Fed. Reg. 5950259603 (1990). 
5 Social Security Act,  1833 (e).  No payment shall be made to any provider of services or 
other person under this part unless there has been furnished such information as may be 
necessary in order to determine the amounts due . . .  
6 CPT Assistant, Vol. 8, Issue 9, September 1998. 
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o 	 Information to support that the provider submitting the claims for 
payment is the same provider that furnished both the medical 
procedure(s) and the E/M service,7 and 
o 	 Information indicating that a single beneficiary received both the 
medical procedure(s) and the E/M service billed. 
Modifier 25 should be used only with the E/M service portion of the 
Medicare claim. Procedures submitted in conjunction with an 
E/M service do not need modifier 25 in order to be paid. 8 Therefore, 
even if used appropriately for every encounter a provider has with every 
patient (one surgical procedure and one E/M service), modifier 25 should 
be used on no more than 50 percent of items billed. 
Guidance and Outreach 
Guidance to providers regarding the use of modifier 25 is available 
through a variety of sources, such as newsletters, bulletins, and letters 
from contractors and the Centers for Medicare & Medicaid Services 
(CMS). However, the governing source for determining appropriate 
payment is CMSs Internet-Only Manual.9 Chapter 12, section 40.2 of 
the manual states: 
Modifier 25 is used to facilitate billing of evaluation and 
management services on the day of a procedure for which separate 
payment may be made. It is used to report a significant, 
separately identifiable evaluation and management service 
performed by the same physician on the day of a procedure. The 
physician may need to indicate that on the day a procedure or 
service that is identified with a [Current Procedural Terminology] 
code was performed, the patients condition required a significant, 
separately identifiable evaluation and management service above 
and beyond the usual preoperative and postoperative care 
associated with the procedure or service that was performed. 
In addition, CMS allows providers to use the Current Procedural 
Terminology (CPT) Manual, published by the American Medical 
Association, as a source of information regarding the use of modifier 25. 
The CPT Manual contains detailed descriptions of the procedure codes 
7 Social Security Act,  1833 (e). 

8 CMSs Internet-Only Manual, Pub. 100-4, Medicare Claims Processing, chapter 12. 

9 Department of Health and Human Services, CMS, Internet-Only Manual, retrieved 

March 7, 2005, from http://www.cms.hhs.gov/manuals/cmsindex.asp. 
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and modifiers that providers use to submit claims for reimbursement to 
Medicare. 
Medicare contractors that pay Part B claims, which are called carriers, 
issue guidance to providers regarding modifier 25 through carrier 
websites, newsletters, and workshops.  Carriers also conduct outreach 
activities to help educate providers about Medicare policies, including 
modifier 25.  Carriers may communicate directly through e-mails or 
letters, conduct local provider education and training programs, publish 
newsletters, and conduct provider communication meetings. 
Oversight 
CMS requires carriers to conduct oversight of claims in their respective 
jurisdictions.  Carriers prioritize their claims oversight activities based 
on the degree of risk to the Medicare program and available resources, 
and prepare an annual medical review strategy that they submit to 
CMS. Each carrier may choose whether modifier 25 is included in its 
annual review strategy. CMS allocates funds to conduct the reviews 
based on each carriers past review volume.  Carriers are asked to then 
prioritize their workloads and perform reviews within that target 
budget amount. 
METHODOLOGY 
Literature Review 
The Office of Inspector General (OIG) reviewed reports and other 
documents related to modifier 25 published by CMS, Medicare carriers, 
OIG, the Government Accountability Office, and other organizations 
(such as provider groups, journals, and industry newsletters).   
Interviews 
OIG conducted structured interviews with staff in CMS central and 
regional offices regarding their oversight of modifier 25 use. OIG also 
conducted structured interviews with medical review and provider 
education staff at all 24 carriers contracting with Medicare at the time 
of the review.  Carrier interviews focused on the carriers understanding 
of the definition of modifier 25 and the outreach and oversight they had 
conducted related to this modifier.  
Electronic Claims Review and Sample Selection 
OIG obtained all 2002 Medicare Part B provider claims from the CMS 
National Claims History file.  From this file, OIG identified all allowed 
claims for services billed with modifier 25 and merged these claims with 
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the Physician Identification Master Record.  OIG then determined each 
providers proportion of modifier 25 use, based on all claims each 
provider submitted, which was used later in determining the sample for 
medical review. 
OIG divided claims submitted with modifier 25 into two groups:  those 
that had no other claim for the same beneficiary on the same day for the 
same provider and those that did.   
Physicians who submitted claims included in the first group used

modifier 25 unnecessarily because no other claims were submitted for 

the beneficiaries on the dates of those services. 

From the second group, OIG excluded all providers submitting fewer 

than 25 claims using modifier 25 and those whose proportion of 

modifier 25 use was less than 1 percent, due to the low risk these 

providers pose. 

OIG grouped the remaining 24.8 million claims into six strata based on the 
providers proportion of modifier 25 use and volume of claims.  OIG then 
randomly selected 75 claims from each of the six strata to create a sample 
of 450 claims. The appendix provides an overview of the six strata.  
Medical Record Request 
For each of the 450 sampled claims, OIG requested the provider 

identified to provide all medical records for services rendered to the 

beneficiary on the date of service listed.  OIG achieved a 92 percent

(415/450) response rate to the request for medical records.  This 

response rate was spread across all six strata.   

For the remaining 35 providers, either OIG received no response to the

requests for medical records or requests were returned because of 

invalid addresses.  OIG attempted to identify alternative addresses for 

these providers by consulting Medicare contractors, the Unique 

Provider Identification Number Registry Web site, State licensing 

boards for the providers State of practice, and State licensing boards in 

contiguous States.  OIG then mailed a request to each address 

identified. When telephone numbers were available, OIG also 

attempted to contact these providers by telephone. 

Through these efforts, OIG was able to obtain valid addresses 

for 14 of the remaining 35 providers.  OIG made at least four attempts 

to contact each of these providers, two or more of which were made via 

certified mail to each valid address identified.  OIG received return 

receipts for these 14 providers, indicating that they received the 

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request. OIG did not receive the requested documents from 13 of these 
providers. One provider submitted documentation after the completion 
of the data collection and review, and was therefore included in the 14 
providers who did not respond to the OIG request. Two providers 
refused to provide medical records because they no longer maintained 
the records in question. One provider had retired and forwarded all 
medical records to his patients; the other was a physical therapist 
providing services to the patients of a provider OIG was unable to 
contact. 
OIG was unable to obtain valid addresses or telephone numbers for 
18 providers and unable to contact 1 additional provider. These 19 
providers were not included in the analysis. Providers for 431 of the 
450 sampled claims had the opportunity to respond and were included 
in the analysis. 
Medical Record Review 
OIG contracted with certified professional coders who used the medical 
records received from providers to determine whether the use of 
modifier 25 met program requirements. One of two coders reviewed 
each sampled record using a data collection instrument specifically 
designed for this study. This data collection instrument was based on 
the CMS definition of modifier 25 in the Internet-Only Manual, 
Chapter 12, section 40.2. CMS approved the instrument prior to use. 
After the initial coding review, a second coder reviewed each completed 
data collection instrument to be sure that the initial coder addressed 
each question correctly and clearly explained the results from a coding 
perspective. The project manager, a registered nurse with 18 years 
experience, also conducted a quality assurance evaluation of all reviews 
to ensure that the answers to questions were complete, consistent, and 
clearly communicated. In addition, interrater reliability testing was 
conducted on a 5-percent sample of the reviews. This means that for 
5 percent of the records reviewed, the source medical record was 
rereviewed by a second coder in addition to the review done by the 
primary reviewer. Results of the second review were then compared 
with the original review to ensure that the coders were in agreement. 
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspections issued by the Presidents Council on Integrity and 
Efficiency and the Executive Council on Integrity and Efficiency. 
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Thirty-five percent of claims using  In 2002, Medicare should not 
modifier 25 that Medicare allowed in 2002 did  have allowed payments for 
35 percent of claims for 
not meet program requirements, resulting 
E/M services billed using 
in $538 million in improper payments 
modifier 25.  These claims totaled 
$538 million in improper payments that Medicare and/or beneficiaries 
made.  The payments were improper because the services were deemed 
(1) noncovered because they did not meet the requirements for use of 
modifier 25 or (2) undocumented due to failure to meet basic Medicare 
documentation requirements under section 1833(e) of the Social 
Security Act (the Act).10  These claims were distributed across strata, 
provider specialty types, and the Medicare carriers that allowed the 
claims. See Table 1 below for a summary of the improper payments. 
Table 1: Improper Payments for Claims Using Modifier 25 
Sample   Weighted Projection 
Basis for Improper Payment 
Number of  Services  Allowed  Services  Allowed 
Services  (Proportion)  Amount  (Proportion)  Amount 
Failed to meet modifier 25 
Noncovered  9  0.02  $469.75 
requirements 
Failed to document E/M 
116  0.27  $6,868.20 
service and/or procedure 
Missing identifying 
Undocumented  19  0.04  $1,202.72
information 
Did not respond to request  14  0.03  $1,127.51 
 Total  158  0.36  $9,668.18  0.35*  $538 million
 Source: OIG medical review of claim line items billed with modifier 25 and allowed by Medicare in 2002 and 2005. 
* This percentage is projected and may therefore vary slightly from the sample proportion. 
10 These projected statistics use weights derived by dividing the population of an individual 
stratum by the number of sampled claims in that stratum.  For the point estimate of 
35 percent, the confidence interval at 95 percent is 28 to 40 percent.  For the estimated 
dollar amount of $538 million, the confidence interval at 95 percent is $431 million to 
$643 million. 
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Noncovered 
Medical reviewers determined that Medicare should not have allowed 
2 percent (9/431) of the sampled claims reviewed because the 
E/M services for which payments were made did not meet the 
requirement that the services be significant, separately identifiable, and 
above and beyond the usual preoperative and postoperative care 
associated with the procedure.  Therefore, these services were not 
covered. 
For example, documentation for one of the records reviewed indicated 
that a Medicare beneficiary had returned for a nail debridement 
procedure after a previous visit.  The patients condition had been 
evaluated prior to the day of the procedure.  The provider documented 
some E/M services the day of the procedure, but did not document any 
E/M services above and beyond the services necessary to perform the 
debridement on the day of the procedure.  Therefore, payment for the 
separate E/M service should not have been allowed.  
Undocumented 
Providers failed to furnish documentation that met Medicare program 
payment requirements for 34 percent (149/431) of the sampled claims.  
These claims did not meet the requirements of section 1833(e) of the 
Act, which states that, to receive Medicare payment, providers must 
furnish such information as may be necessary in order to determine the 
amounts due.  The providers who submitted these claims failed to 
document E/M services and/or procedures, provided documentation that 
was missing identifying information, or failed to respond to OIG 
request(s) for documentation.  
It is important to note that some of the undocumented claims might 
have fallen into the noncovered category had OIG received more 
complete documentation.  For example, if a provider performed only a 
procedure but billed for both the procedure and an E/M service, the E/M 
service should not have been allowed.  However, OIG could not 
determine if missing documentation was the result of the provider 
simply not supplying it, thus failing to meet the requirements of 
section 1833(e) of the Act, or because an E/M service did not meet 
program requirements.  OIG grouped all cases involving missing 
documentation into the undocumented category. 
Failure to document E/M service and/or procedure.  Medical reviewers found 
that providers did not document the E/M services and/or procedures for 
27 percent (116/431) of the sampled claims received from providers.  For 
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example, documentation for one of the records reviewed indicated that a 
Medicare beneficiary presented for a flu shot.  The provider submitted a 
claim for the flu shot and an E/M service, the latter using modifier 25.  
Both claims were allowed.  The provider furnished documentation that 
a flu shot was provided, but no documentation to support the claim for a 
separate E/M service. 
Another provider documented the E/M service provided to a beneficiary 
but did not document that the procedures were performed.  In this 
instance, Medicare allowed the E/M service that was documented and 
four physical therapy procedures that were not documented.  These 
physical therapy procedures were listed in the record as planned 
treatment, but there was no documentation that these procedures were 
actually performed.  Without documentation of the procedures, 
Medicare should not have allowed these claims because it is impossible 
to determine if the procedures were provided and if the E/M service met 
program requirements. 
Missing identifying information.  Four percent (19/431) of the records 
reviewed were missing identifying information, such as the beneficiary 
or physician name, or a physician signature. Section 1833(e) of the Act 
states that providers must furnish information necessary to determine 
the amount of payment due.  Without identifying information, reviewers 
cannot determine if the same provider furnished or the same beneficiary 
received both the procedure and the E/M service.  Therefore, these 
records failed to meet basic documentation requirements and made it 
impossible to determine whether the use of modifier 25 met CMS 
requirements. 
Providers did not respond to requests for documentation.  Despite repeated 
requests, providers failed to furnish the documentation required to 
support payment for the E/M services and associated procedures for 
3 percent (14/431) of the sampled claims.  Therefore, Medicare should 
not have paid these claims because it is impossible to determine if the 
services were provided. 
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Some additional claims did not meet program  The primary study objective was 
requirements, although the unnecessary use of  to determine the extent to which 
the use of modifier 25 meets 
modifier 25 may not have resulted in improper 
Medicare program 
payments 
requirements.  However, in 
developing the sample, OIG identified a large number of claims on 
which modifier 25 was used unnecessarily.  While unnecessary use of 
modifier 25 does not always lead to improper payments, such use fails to 
meet program requirements. 
In 2002, Medicare allowed 9 percent of all claims (2.6 million) using 
modifier 25 in which the provider billed for only one service on a single 
day. Because modifier 25 is to be used only with an E/M service that 
the same provider furnished on the same day as a procedure, the use of 
modifier 25 was unnecessary.  These 2.6 million claims, submitted by 
192,974 providers, were distributed among many specialty types and 
multiple carriers.11 
Twenty-eight percent of all providers in the sample population used 
modifier 25 on more than 50 percent of their claims, thus using it 
unnecessarily. Modifier 25 should only be used with the E/M service 
portion of a Medicare claim and not on the procedure portion of the 
claim. Therefore, even if used properly for every encounter a provider 
has with every beneficiary, modifier 25 should be used on no more than 
50 percent of services billed.  Claims submitted for some providers 
included the modifier on every item billed to Medicare in 2002both 
procedures and E/M services. 
Carrier oversight related to  Carriers have many ways of 
communicating information to 
modifier 25 is limited 
providers regarding modifier 25. 
Carriers may communicate directly through e-mails or letters, conduct 
local provider education and training programs, publish newsletters, 
and conduct provider communication meetings. The majority of carriers 
reported using one or two of these channels.   
11  The number of providers was calculated by counting Unique Physician Identification 
Numbers listed on these claims. 
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Thirty-eight percent (9/24) of carriers reported that they have never 
conducted any review of modifier 25.  These carriers indicated that the 
use of modifier 25 had not risen to a level to warrant inclusion in their 
medical review strategy, or that resource limitations prohibited them 
from doing so. 
The remaining 15 carriers reported having conducted some type of 
review for modifier 25 at least once since 1998.  Twelve carriers found 
improper use, and 10 of these reported high error rates. For 
example, one carrier reported an error rate of 39 percent, while another 
reported a 44 percent error rate.  Despite these results, carriers 
indicated to us that modifier 25 reviews are not a priority. 
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In 2002, Medicare allowed $538 million in improper payments for 
services billed using modifier 25. At the time of the review, carrier 
oversight was limited despite evidence of problems with modifier 25.  
Without changes, future Medicare expenditures related to 
modifier 25 remain at risk. 
CMS should work with carriers to reduce the number of improper 
claims submitted using modifier 25. CMS may want to: 
o 	 Reinforce the requirements that E/M services billed using 
modifier 25 be significant, separately identifiable and above and 
beyond the usual preoperative and postoperative care associated 
with the procedure;   
o 	 In its outreach to providers, encourage carriers to emphasize that 
appropriate documentation of both E/M services and procedures 
must be maintained to support claims for payments using 
modifier 25 even though documentation is not required to be 
submitted with the claims; and 
o 	 Emphasize that modifier 25 should only be used on claims for E/M 
services, and only when these services are provided on the same day 
as another procedure. 
CMS should also encourage carriers to reexamine their 
modifier 25 outreach activities and include modifier 25 reviews in their 
medical review strategies where appropriate. 
AGENCY COMMENTS 
CMS concurred with the OIG recommendations and indicated that it 
had recently made significant efforts to educate the provider community 
about the need for documentation to support services billed to the 
Medicare program. CMS noted that it will inform contractors of the 
OIG findings so they can take any appropriate actions. CMS will also 
modify the Medical Claims Processing Manual to clarify that 
appropriate documentation must be maintained to support claims for 
payments, even though providers are not required to submit the 
documentation with the claim.  CMS indicated that it will explore the 
potential to place greater emphasis on modifier 25 outreach activities 
and include the modifier in contractor medical review strategies. 
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R E C O M M E N D A T I O N  
CMS did note that the majority of improper payments reported 
stemmed from instances in which the provider failed to furnish the 
documentation necessary to determine the medical necessity of the 
service, rather than from uncertainty about the guidelines for using 
modifier 25.  Nonetheless, CMS indicates it will explore options to 
reinforce or emphasize the requirements for using modifier 25.   The full 
text of the agencys comments can be found in the Agency Comments 
section of this report. 
OFFICE OF INSPECTOR GENERAL RESPONSE 
OIG appreciates CMSs comments to the draft report and recognizes its 
efforts to educate the provider community and contractors regarding the 
need for documentation to support services billed to Medicare. 
However, OIG believes it is important to note that additional improper 
payments may have been made, and that without proper documentation 
OIG was unable to determine whether services were provided and the 
appropriateness of some payments. OIG made changes to the report in 
response to CMSs technical comments. 
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  A P P E N D I X  
Stratification of Medical Review Sample Based on Claims Submitted Using 
Modifier 25 That Medicare Allowed in 2002 
Allowed 
Stratum Based on Volume of  Number of  Percentage 
Dollars for 
Claims and the Proportion of  Claims in  of Claims 
Claims in  Stratum 
a Providers Allowed Claims  Sample  in Sample 
Sample 
Submitted Using Modifier 25  Universe  Universe 
Universe 
Top 10 percent based 
64,841  0.3%  $4 million  1
on number of claims 
100 Percent 
Remaining 90 
55,767  0.2%  $3.6 million  2
percent 

Top 10 percent based 

50 percent to  2.9 million  12%  $168.2 million  3
on number of claims 
less than 
100 percent  Remaining 90 4.1 million  16.5%  $262.7 million  4
percent 
20 percent to less than 
8.8 million  35%  $576.9 million  5
50 percent  
1 percent to less than 20 percent  8.9 million  36%  $623.7 million 6 
Total  24.8 million  100%  $1.6 billion 
Source: OIG, stratification of 2002 Medicare modifier 25 claims, 2005. 
Note: All providers submitting fewer than 25 claims using modifier 25 and those whose proportion of 
modifier 25 use was less than 1 percent were excluded because they posed a low risk.  
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  A G E N C Y   C O M M E N T S  

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A G E N C Y   C O M M E N T S

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A G E N C Y   C O M M E N T S

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  A C K N O W L E D G M E N T S  

This report was prepared under the direction of Brian T. Pattison, 
Regional Inspector General for Evaluation and Inspections in the 
Kansas City regional office, and Gina C. Maree, Assistant Regional 
Inspector General.  Other principal Office of Evaluation and Inspections 
staff who contributed include: 
Deborah Walden, Team Leader 
Michael P. Barrett, J.D., Program Analyst 
Steven Milas, Program Analyst 
Michala Walker, Program Analyst 
Stephanie London, Program Specialist 
Linda Frisch, Program Specialist 
Doris Jackson, Program Specialist 
Tricia Davis, Director, Medicare & Medicaid Branch 
Technical Assistance  
Barbara Tedesco, Mathematical Statistician 
Robert Gibbons, Program Analyst 
Scott Hutchison, Program Analyst 
Tara Bernabe, Program Analyst 
Nancy Molyneaux, Program Analyst 
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