Department of Health and Human Services
OFFICE OF 
   
INSPECTOR GENERAL 
 
 
 
 
 
 
 
 
NURSIN G HOME ENFORCEMENT: 
 
P D
ROCESSING  ENIALS OF 
 
 
M P  
EDICARE  AYMENT
 
 
 
 
 
 
Daniel R. Levinson  
Inspector General 
 
May 2008 
OEI-06-03-00390     
 
 
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 
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mismanagement and promote economy and efficiency throughout HHS. 
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issues.  These evaluations focus on preventing fraud, waste, or abuse and promoting 
economy, efficiency, and effectiveness of departmental programs.  To promote impact, OEI 
reports also present practical recommendations for improving program operations.  
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of fraud and misconduct related to HHS programs, operations, and beneficiaries.  With 
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law enforcement authorities.  The investigative efforts of OI often lead to criminal 
convictions, administrative sanctions, and/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 for OIGs internal operations.  OCIG represents OIG in all civil and 
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program exclusion, and civil monetary penalty cases.  In connection with these cases, OCIG 
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opinions, issues compliance program guidance, publishes fraud alerts, and provides other 
guidance to the health care industry concerning the anti-kickback statute and other OIG 
enforcement authorities.   
   
  E X E C U T I V E   S U M M A R Y
OBJECTIVE 
 
To determine the extent to which the Centers for  Medicare &  Medicaid 
Services (CMS) and its fiscal intermediaries (FI) appropriately process 
denials of Medicare payment remedies for skilled nursing facilities that 
have been found noncompliant with Federal program participation 
standards. 
BACKGROUND 
Denial of payment is an enforcement remedy that CMS may use to  
address noncompliance with Federal quality of care standards in skilled 
nursing facilities. CMS is responsible for imposing denial of payment 
remedies but relies on its FIs to actually identify and reject the relevant 
Medicare claims.  Once  CMS instructs an FI to  put a remedy into effect,  
the FI creates an edit, also known as a Medicare Medical Policy 
Parameter, to identify and suspend claims meeting certain parameters.   
Those claims are reviewed and then paid, rejected, or returned to the 
facility as appropriate. 
We reviewed information and supporting documentation from CMS and 
FIs for a random sample of cases in which CMS imposed denials of 
payment for new admissions (DPNA)  remedies during fiscal year  
(FY) 2004. Based on this analysis and follow-up conversations with 
CMS and FI staff, we identified cases in which denials of payment were 
processed incorrectly by FIs and the resulting overpayments.  
FINDINGS 
During FY 2004, 74 percent of denial of payment remedies were 
processed incorrectly, resulting in overpayments exceeding  
$5 million.  In 40 percent of cases,  errors resulted in one or more  
inappropriate payments to skilled nursing facilities.  These 
overpayments exceeded $5 million.  In the other 34 percent of cases, 
processing errors occurred but did not result in claims paid in error, 
either because the facilities did not have new admissions during the 
remedy periods or because the facilities were aware of the remedies and 
did not submit claims for new admissions during the remedy periods.  
Errors were attributable primarily to late processing and problems with 
CMSs provision of denial of payment  instructions to the appropriate FI. 
  OEI-06-03-00390   NURSING  HOME  ENFORCEMENT:   PROCESSING  DENIALS OF  MEDICARE PAYMENT   i   
   
E X E C U T I V E   S U M M A R Y   
Approximately half of claims involving readmissions lacked codes  
indicating the readmission status,  which made  these claims appear  
to be new admissions that should be denied. Although readmission  
claims are suitable for reimbursement during a DPNA remedy, the 
absence of appropriate codes causes these claims to appear to be new 
admissions that should be denied.  This creates additional work for the  
FIs and limits CMSs ability to verify that claims for new admissions 
are appropriately denied under a DPNA remedy.  
RECOMMENDATIONS 
We  recognize that recent changes have the potential to improve 
processing of DPNAs.  First, as part of Medicare contracting reform,  
work currently conducted by FIs is gradually being assumed by 
Medicare Administrative Contractors (MAC) and providers will be 
required to  submit claims to a designated MAC.  Providers will no 
longer be permitted to routinely change contractors, which may make it 
less likely that CMS will send instructions about DPNAs to the wrong 
MACs. Second, new features of the Automated Service Processing 
Environment Enforcement Management system may better enable CMS 
to provide timely notice  of DPNAs to the contractors.    
Although these changes may result in improved processing of DPNAs, 
they may not fully address all of the types of errors identified in this 
report.   Therefore, we recommend that CMS: 
Manage DPNA cases to ensure that all DPNA  instructions are sent 
timely  and ensure that FIs and MACs retrospectively review  cases 
that are processed late  to correct any payment errors.    
Address communication breakdowns by  implementing a standard  
format to notify FIs or  MACs that a DPNA remedy will be in effect 
and require confirmation that instructions are received  and 
understood.    
Update guidance on coding readmissions and verifying readmission  
status for DPNA claims.   
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
CMS agreed with our recommendations and outlined specific actions 
that it will take to address each recommendation.  These actions include 
developing new internal procedures to help ensure that CMS effectively  
  OEI-06-03-00390   NURSING  HOME  ENFORCEMENT:   PROCESSING  DENIALS OF  MEDICARE PAYMENT   ii   
   
communicates DPNA instructions to FIs and MACs, creating a protocol 
between CMS and contractors to ensure follow-up notification to CMS 
that a DPNA was implemented as requested, and updating manual 
instructions to clarify coding and verification requirements for DPNA 
readmissions.  CMSs response is included in its entirety as Appendix B.   
  OEI-06-03-00390   NURSING  HOME  ENFORCEMENT:   PROCESSING  DENIALS OF  MEDICARE PAYMENT   iii   
  T A B L E   O F   C O N T E N T S  
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
  
 
 
I N T RO DUC T IO N  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1 
  
 
 
F I N D IN G S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6 
  
  In FY 2004, 74 percent of remedies were processed incorrectly . . .  6 

  Half of claims involving readmissions lacked codes  . . . . . . . . . . .  10 
  
   
R E C O MMEN D A T ION S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12 
  
  Agency Comments and Office of Inspector General Response . . .  13 

 
 
APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15 
  
  A:  Estimates and 95-Percent Confidence Intervals  . . . . . . . . . . .  15 
  
  B:  Agency Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16 
  
 
A C K NO WL E D G M E N T S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20 
    
   
  I N T R O D U C T I O N
OBJECTIVE 
To determine the extent to which the Centers for  Medicare &  Medicaid 
Services (CMS) and its fiscal intermediaries (FI) appropriately process 
denials of Medicare payment remedies for skilled nursing facilities that 
have been found noncompliant with Federal program participation 
standards. 
BACKGROUND 
The Social Security Act (the Act), as amended by the Omnibus Budget 
Reconciliation Act of 1987, established a survey and certification process 
to ensure that nursing homes meet Federal standards for participation 
12
in the Medicare and Medicaid programs.     The Secretary of the 
Department of Health and Human Services is responsible for ensuring  
that these requirements and their enforcement are adequate to protect  
the health, safety, welfare, and rights of residents and to promote the 
3
effective and efficient use of public moneys.  To accomplish this, CMS 
contracts with State agencies to conduct surveys assessing nursing 
facilities compliance with the requirements.  If, during a survey, the 
State agency finds that a nursing home is not in substantial compliance 
with Federal requirements, CMS may initiate a variety of enforcement 
actions.  Collectively, these actions are known as remedies,  the purpose  
4 
of which is to ensure prompt compliance with program requirements.   
Denial of Payment Remedies  
CMS has two denial of payment remedies for nursing home  
enforcement.  The more  severe  remedy is to deny payment for services  
provided to  all Medicare and Medicaid beneficiaries, including those 
who are already receiving care in the nursing home.  This remedy would 
likely cause existing nursing home residents to be relocated.  As such, 
this remedy is rarely used and CMSs internal guidance documents 
emphasize that it is a severe sanction and should be considered for use 
5
only when other remedies have failed to achieve compliance.  The less 
 
1 Social Security Act, sections 1819(f)(1) and 1919(f)(1). 

2 Omnibus Budget Reconciliation Act, P.L. No.100-203  4202 (1987). 

3 Social Security Act, sections 1819(f)(1) and 1919(f)(1). 

4 42 CFR  488.402 (2004) and 59 FR 56116 (November 10, 1994). 

5 Centers for Medicare and Medicaid Services (CMS), State Operations Manual,  7508.  

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I N T R O D U C T I O N   
severe  remedy is to deny payment only for services provided  to 
6 
beneficiaries who are newly admitted to the nursing home.    
CMS has discretion to impose  either type  of denial of payment remedy 
in enforcement cases, but is required to impose at least a denial of 
payment for new admissions (DPNA) under two circumstances:   
(1) extended noncompliance, i.e., when facilities remain out of 
compliance with Federal standards longer than 3 months; and  
(2) repeated instances of substandard quality of care, i.e., three 
7 8
consecutive surveys with findings of substandard quality of care.  In 
effect, this remedy is used for a wide variety of noncompliance offenses.   
For example, DPNAs may similarly be used for facilities that are cited 
with a string of unrelated, low-level  deficiencies that create a potential 
for harm to beneficiaries as well as  for the most severe instances of 
immediate jeopardy, which pose serious injury, harm, impairment, or 
death to beneficiaries. 
Processing Denial of Payment Remedies 
CMS is responsible for imposing denial of payment remedies, but relies 
on FIs to identify and deny the relevant Medicare claims.  CMS regional  
offices initiate the process by providing written instructions to the 
9
appropriate FI.   In order for the FI to process the remedy before claims 
are received, CMS must provide initiating instructions to the FI prior to 
the designated effective  date of the remedy.  CMS must also provide 
instructions to end the remedy once the facility has achieved 
compliance.  A similar process is used to notify State agencies of the  
need to deny the relevant Medicaid claims; however, that process is 
outside the  scope of this study. 
FIs process a remedy by creating a Medicare Medical Policy Parameter,  
also known  as an edit.  The edit is part of an electronic screening system 
that will suspend claims that meet certain parameters.  When a denial 
of payment is put into effect, an edit is created to identify claims for  
particular providers that are subject to a denial of payment remedy.  
The edit can be designed to flag only  claims with admission dates 
 
6 42 CFR  488.406(a)(2) (2004). 

7 Social Security Act, sections 1819(h)(2)(D) and (E). 

8 42 CFR  483.13, 483.15, and 483.25 (2004).  Substandard quality of care is defined as 

any  deficiency that constitutes immediate jeopardy to a residents health or safety; a 
pattern of widespread actual harm that is not immediate jeopardy; or a widespread  
potential for more than minimal harm that is not immediate jeopardy, with no actual harm. 
9 CMS, State Operations Manual,  7506(D).   
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I N T R O D U C T I O N   
during the remedy period.  As claims are submitted by skilled nursing 
facilities, this screening mechanism will suspend claims pending further 
review by FI staff.  Staff verify whether each claim is subject to the 
denial of payment remedy and pay, reject, or return the claim to the  
facility as appropriate. If a claim is not suspended by an edit, the claim 
will be processed through an automated system without further review 
by FI staff. 
New Admissions 
In its 2001 Program Memorandum, Fiscal Intermediary (FI) 
Instructions on Applying Payment  Bans on Skilled Nursing Facility 
(SNF) Admissions, CMS provided detailed instructions to FIs for 
processing denial of payment remedies, including specific criteria to use 
in determining which residents fall under the definition of a new 
10 
admission.   This guidance has also been incorporated into the 
Medicare Claims Processing Manual and the Medicare Benefit Policy  
11 12 
Manual.      For the purpose of denial of payment remedies, a new 
admission is a resident who is admitted to the facility on or after the 
effective date of a denial of payment remedy and, if previously admitted, 
13
has been discharged before that effective date.  This definition 
provides several important distinctions about which residents are 
subject to the remedy.  For example, claims for residents on temporary  
leave or returning to a facility after treatment at an inpatient hospital 
are not subject to the remedy.  This type of admission is termed a 
readmission. Additionally, some patients residing in a facility may 
newly qualify for Medicare or for a new Medicare benefit period during 
the DPNA remedy period.  Because such residents already reside in the 
facility, they are also classified as readmissions and are exempt from 
the DPNA restrictions.  However, without proper coding on the claim,  
FI staff may be unable to distinguish between a new admission and a 
readmission. 
 
10 CMS, Program  Memorandum, Intermediaries/Carriers, Fiscal Intermediary (FI)  
Instructions on Applying Payment Bans on Skilled Nursing Facility (SNF) Admissions, 
Transmittal AB-01-131, September 21, 2001.   
11 CMS, Medicare Claims Processing Manual, Chapter 6,  50 (Rev. 1151,            
January 11, 2007). 
12 CMS, Medicare Benefit Policy Manual, Chapter 8,  20.3 (Rev. 58, November 9, 2006). 
13 42 CFR  488.401. 
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II NN TT RR OO DD UU CC TT II OO NN
    
METHODOLOGY 
Scope 
This report focuses on the processing of DPNAs by CMS and its FIs. 
Although the DPNA remedy spans both the Medicare and Medicaid 
programs, we did not evaluate the  performance  of State agencies in  
denying Medicaid claims subject to the remedy. In 2004, the Office of 
Inspector General (OIG) released audits of seven State agencies 
performance in processing denials of  payment during fiscal year (FY) 
14
2001.  Additionally, this report focuses specifically on the DPNA  
remedy and does not address the denial of payment remedy for all 
15 
Medicare and Medicaid beneficiaries.    
Sample Selection 
To assess the performance of CMS and its fiscal intermediaries, we  
randomly selected 200 denial of payment cases for review. Cases were 
chosen from a population of 726 skilled nursing facilities identified as 
having denials of payment that went into effect during FY 2004, 
i.e., October 2003 through September 2004, the most current data 
available at the time we began the review.16 Of the 200 cases selected, 
8 were determined to be ineligible for review. Specifically, three denials 
of payment were imposed against Medicaid-only facilities and five 
17
denials of payment did not go into effect.  These ineligible cases 
reduced our sample size to 192 cases and our projected number of 
denials of payment from 726 to 697. 
Data Collection and Analysis 
For each sampled case, we requested information and supporting 
documentation from both the CMS regional office and the FI responsible  
for the case. From CMS we requested copies of the instructions sent to  
the FI, directing it to process the DPNA. From the FI we requested 
 
14 See, for example, OIG, Nursing Homes and Denial of Payment Remedies in the State 
of Florida, A-04-03-06007 (February 2004). Other States reviewed include Illinois, 
Indiana, Massachusetts, Michigan, Ohio, and Pennsylvania. 
15 Only one denial of payment for all Medicare and Medicaid beneficiaries remedy was 
identified in our sampling frame.  
16 Some facilities were represented more than once in the sampling frame because  
multiple denials of payment went into effect during the specified  timeframe. 
17 In the five sample cases for which denials of  payment did  not go into effect, 
documentation was inadequate  to determine prior to sample selection that either: (1) the 
cases were not in effect, or (2) a settlement agreement revised the compliance and/or 
effective dates, which effectively nullified the remedy. 
OEI-06-03-00390   NURSING  HOME  ENFORCEMENT:   PROCESSING  DENIALS OF  MEDICARE PAYMENT   4   
   
I N T R O D U C T I O N   
documentation that the denial of payment was processed and 
information about the associated dollar amounts.  We reviewed  
documentation for each case to determine whether the DPNA was 
processed correctly and to identify causes of errors.  In addition, we  
independently identified claims in the National Claims History that 
appeared to have been paid in errori.e., claims that appeared to have 
been paid for new admissions while the DPNA was in effect.  All 
identified errors were verified by the appropriate FI and recoupment 
actions were requested  when appropriate.   
Our discussion of procedural breakdowns is the result of our original 
documentation requests, responses to the error verification, and    
follow-up conversations with both CMS and FI staff.  
Confidence intervals for  key statistics are presented in the appendix 
and use a 95-percent level of confidence.  They were calculated using 
standard statistical formulas, including an adjustment, i.e., finite 
population correction factor, to account for the fact that our original 
sample of 200 cases was a significant proportion of the population.   
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. 
  OEI-06-03-00390   NURSING  HOME  ENFORCEMENT:   PROCESSING  DENIALS OF  MEDICARE PAYMENT   5   
   
  F I N D I N G S  
 
During FY 2004, 74 percent of denial of payment  We estimate that of 697 DPNAs 
remedies were processed incorrectly, resulting  that were in effect during FY 2004, 
74 percent (516 cases) had 
in overpayments exceeding $5 million 
processing and/or payment errors  
(see Table 1).  In 40 percent of DPNA cases, errors resulted  in one or  
more inappropriate payments to skilled nursing facilities.  This means 
that noncompliant skilled nursing facilities admitted new Medicare 
beneficiaries and received payment.  For this group, we estimate that 
3,133 Medicare claims were paid to 276 facilities for services rendered 
during DPNAs. Resulting overpayments total more than $5 million for 
the 1-year period.  In 34 percent of cases, processing errors occurred but 
did not result in claims paid in error, either because the facilities did 
not have new Medicare admissions during the  remedy periods or  
because the facilities admitted new beneficiaries but did not submit 
claims for them during the remedy periods.   
 
Table 1: CMS and FI Processing of Medicare DPNA Cases in FY 2004 
Estimated  Estimated  Estimated 
  Number of   Percentage  Paid in 
Cases  of Cases  Error 
Processed Correctly   182  26%  N/A 
Processed Incorrectly   516  74%  $5,042,181
  Resulting in Payment Errors  276  40%  $5,042,181
Processing Errors Only   240  34%  N/A
 Total  697  100%  $5,042,181 
Source:  Office  of Inspector General analysis of 192 DPNA cases.  Estimated number of  

cases does not total 697 because  of rounding.  Confidence intervals are displayed in the
  
appendix.
   
Errors were attributable primarily to late processing and problems with the  
provision of instructions  
Processing a DPNA requires that the FI receive appropriate 
instructions from CMS and create the necessary  screening system, or  
edit, to suspend claims for additional review.  Until the edit is created, 
the FI will have no mechanism to identify claims subject to DPNA 
remedies.  Late processing of the edit was the single largest  cause of  
processing errors, accounting for almost half of  the errors identified (see  
Table 2 on the next page).  The other leading causes of error involved  
communication breakdowns between CMS and the FIs and  CMS 
sending the processing instructions  to the wrong FIs.  Less common 
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F I N D I N G S  
sources of error included inappropriate deletion of the edits and human 
error. 
 
Table 2: Types of Errors Identified in DPNA Cases in FY 2004 
Estimated  Estimated 
  Number of   Percentage of 
Error Cases   Error Cases  
Late Processing  254  49% 
Communication Breakdown   87  17% 
Sent to Wrong FI  73  14% 
Deleted Edit  62  12% 
Human or Other Error  40  8% 
Total  516  100% 
Source:  Office  of Inspector General analysis of 192 DPNA cases.  Confidence intervals  are 
 
displayed  in the appendix.
   
 
Late processing of the DPNA.   Forty-nine percent of errors resulted from  
edits that were put into place after the beginning of the remedy periods.  
If the edit is not in place when the remedy begins, there is a window of 
time during which claims that should be denied  may be processed and 
incorrectly paid.  Cases involving late processing of the DPNA included  
both circumstances in which CMS did not provide the FI with 
instructions until after the start date of the DPNA remedy, and 
circumstances in which we were able to document that the FI had 
indeed received instructions timely.   
When a DPNA remedy is processed late, the FI is required to recover  
18
payments for claims erroneously paid.  To accomplish this, FIs should 
retrospectively review claims to identify those inappropriately paid  
prior to the  creation of the edit and make necessary adjustments.  
However, staff in several FIs told us that they do not consistently (and 
in some cases, never) review previously paid claims when a DPNA 
remedy is put into effect late. 
Communication breakdowns between CMS and FIs.  In 17 percent of error 
cases, the FIs reported that they never received instructions to initiate 
DPNA remedies.  In these cases, it was often difficult to determine 
 
18CMS, Medicare Claims Processing Manual, Chapter 6,  50.6 (Rev. 1151,        
January 11, 2007). 
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F I N D I N G S  
whether the instructions were misdirected, never sent by CMS, or 
mishandled by the FIs. Of the 24 sample cases in this group, we were 
able to document that CMS failed to send instructions for 7 DPNA 
remedies.  For the remaining 17 cases, we were unable to identify the 
breakdown.  In 16 of these 17 cases,  CMS provided us some, although 
frequently very limited, documentation that instructions were sent to  
the FI, but the FI reported that instructions were never received.  In the 
other case, the FI reported that a breakdown occurred internally. 
Documentation provided by CMS was often limited to a copy of the 
imposition letter addressed to the facility administrator with a cc 
notation to indicate that a copy was sent to the  FI.  In these cases, it is 
difficult to ascertain whether instructions were actually sent and to 
whom they were sent.   However, our review demonstrates  that a cc 
copy of the imposition letter without specific instructions to the FI is not  
always sufficient to alert the FI that it needs to process an edit.   
Instructions sent to the wrong FI.   Instructions for approximately  
14 percent of error cases were sent to the wrong FIs.  This was 
evidenced by CMSs responses to our case-specific questions  and copies 
of the instructions actually provided to the FIs.   
At the time of our data collection, nursing facilities were able to choose 
from two or more FIs to process their claims and could change their 
19 20
selection periodically.     CMS had to keep FI information current for  
each nursing facility to ensure that DPNA instructions were directed to  
the proper FI.  According to CMS staff, CMS used two different  
databases to identify which FI a facility had chosen.  These two sources 
were not always updated at the same time, so the FI information was 
not always consistent or correct.  
When a second quality check was skipped by the FI, payments were 
made in error.  Although it is not currently a requirement, some FIs 
reported that they routinely check to verify that they have  
responsibility for the nursing facility indicated in the instructions and 
notify CMS and/or the appropriate FI when they discover an  error. In 
 
19 42 CFR 421.104(a) (2004) allowed providers to nominate an organization or agency to 
serve as their FI.  All nursing  home providers had the option to select their regional FI, the 
regional FI that served a corporate headquarters, or an FI that served  providers across the 
Nation. 
20 The nursing homes right to nominate its FI was repealed by section 911(b) of the 
Medicare Prescription Drug, Improvement, and Modernization Act of 2003,                      
P.L. No. 108-173  911(b).  See also 71 FR 68183 (November 24, 2006). 
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F I N D I N G
  S  
the 14 percent of cases identified by our review, the FIs either did not 
recognize CMSs error and incorrectly entered edits into their own 
systems (in effect creating null edits), or the FIs realized that the 
information was misdirected but did not notify CMS staff.   
Deleted edits.  In 12 percent of error  cases, FI staff misinterpreted  
CMSs instruction to  end the remedies as an instruction to  rescind the 
remedies.  Consequently, the FIs repaid monies that had been 
appropriately withheld from the facility.  We reviewed the language in 
CMSs instructions to the FIs and found that the wording that most 
frequently caused confusion was we are now canceling the remedy.   
Although the letter containing this phrase went on to state the dates 
that the DPNA was in effect, the FIs that made this mistake apparently 
identified the operative word as cancel.  Two FIs made this mistake 
frequently, with related errors in over half of the sample cases we 
reviewed for those FIs.   However, one of them reported that it corrected  
its procedures prior to our data request.  Other  FIs also made this 
mistake, but did so only in isolated cases.   
Other causes.   Other problems, including human error, accounted for  
8 percent of errors.  In these cases, edits were in place timely but still 
resulted in claims paid in error.  The most frequently identified issue 
was a manual bypass of the edit.  In these cases,  the edits properly 
suspended the claims, but claims-processing personnel manually 
processed the claims as  payable.  Although there are legitimate reasons 
for a manual bypass, the FIs in these cases provided no rationale 
supporting payment of these claims.  Some  of these claims were paid  
after multiple submissions by a facility had been denied or rejected.  
These errors may have resulted because a claims processor was 
improperly trained or because the resubmission occurred after the edits 
effective period had lapsed.  Additionally, processing errors occurred  
when data elements, such as dates or facility identifiers, were 
incorrectly entered into the edit.  These data entry errors can make the 
edit ineffective at identifying claims subject to the DPNA  remedy. 
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F I N D I N G S  
21 
Another problem we identified related to a system known as SuperOp.   
Some claims that were processed through SuperOp bypassed the edit, 
causing the DPNA status for the nursing facility to be overlooked. 
 
We estimate that during our 
Approximately half of claims involving 
sample year, 1,898 claims were 
readmissions lacked codes indicating the 
processed and paid for residents 
readmission status, which made these     
exempted from the DPNA remedy  
claims appear to be new admissions that  
because they were identified as 
should be denied 
readmissions.  Of these, less than 
22
half (46 percent) were properly coded.   According to CMSs program 
memorandum, Fiscal Intermediary (FI) Instructions on Applying 
Payment Bans on Skilled Nursing Facility (SNF) Admissions, claims 
23 
for readmissions should be identified by including specific codes.   
Although readmission claims are suitable for reimbursement during a 
DPNA remedy, the absence of these codes causes these claims to appear 
as if they are new admissions that should be denied.  This creates 
additional work for the FIs that will initially reject or deny the claims 
and must reprocess the  claims once  additional information is supplied 
by the facilities.  Additionally, this problem limits CMSs ability to 
verify that claims for new admissions are appropriately denied under a 
DPNA remedy.   
FIs reported different processes for verifying the prior stay and 
ensuring that the claim qualifies for readmission status.  Several told us 
that they have no verification processes at all and rely on statements by 
the facilities. Others described ad hoc processes utilizing whatever 
information is at hand.  For example, one FI reported that it looks for a 
prior admission and, if there is a discharge code, rejects the claim.  This  
procedure would help identify individuals who were previous residents  
at the nursing home but do not qualify as readmissions because the 
 
21 SuperOp is an  automated program used by all FIs to identify and resolve claims  
meeting certain  predefined criteria.  Processing logic within SuperOp allows identified 
claims to be automatically modified without claims-processing personnel reviewing the 
claims. 
22 The percentage of readmissions properly  coded is projected to be 46 percent, with a 
confidence interval of 34 to 59 percent. 
23 Readmission claims are distinguished by the inclusion of condition code 57 and 
occurrence span code 78.  CMS, Program Memorandum, Intermediaries/Carriers,  Fiscal 
Intermediary (FI) Instructions on Applying Payment Bans on Skilled Nursing Facility  
(SNF) Admissions, Transmittal AB-01-131, September 21, 2001. 
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F I N D I N G S  
admissions represented new and unrelated spells of illness.  However, 
this practice would not identify first-time admissions that were 
incorrectly coded as readmissions. 
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R E C O M M E N D A T I O N S  
  R E C O M M E N D A T I O N S  
Our evaluation revealed that DPNAs were frequently mishandled in  
FY 2004, with processing errors in almost three-quarters of remedy 
cases.  Although not all errors resulted in inappropriate payments to 
facilities, we estimate that in FY 2004 approximately $5 million in 
overpayments were made that should have been  denied as a result of 
DPNAs.  These errors and overpayments limit  the effectiveness of the 
DPNA remedy, which is one of the strongest enforcement tools available 
to CMS for managing nursing facility compliance with Federal 
standards. 
We recognize that recent changes related to Medicare contracting 
reform and enhancements to CMSs electronic tracking system for 
nursing home enforcement cases,  known as the Automated Service  
Processing Environment (ASPEN) Enforcement Management system, 
have the potential to improve processing of DPNAs.  First, as part of 
Medicare contracting reform pursuant to the Medicare Prescription 
Drug, Improvement, and Modernization Act of 2003, work currently 
conducted by FIs is gradually being assumed by Medicare 
Administrative Contractors (MAC).  As these new contractors begin to 
administer claims within a geographic area, providers will be required 
to submit claims to a designated MAC and will not be permitted to 
24
routinely change contractors.   This reform may make it less likely that 
CMS will send instructions about DPNAs to the wrong MACs.  Second, 
in its comments regarding two recent OIG reports, CMS reported that 
new features of the ASPEN Enforcement Management system enable 
the system to provide CMS regional offices with  early notification of 
25
impending DPNAs.   If these features are utilized appropriately, this 
enhancement may better enable CMS to provide  timely notice of DPNAs 
to FIs or MACs.   
Although these changes may result in improved processing of DPNAs, 
they may not fully address all of the types of errors identified in this 
report.   Therefore, we recommend that CMS: 
Manage DPNA Cases To Ensure That All DPNA Instructions Are Sent 
Timely and That FIs and MACs Retrospectively Review Cases That Are 
Processed Late To Correct Any Payment Errors    
Late processing of DPNAs accounted  for nearly half of the error cases 
 
24 71 FR 68228, 68229 (November 24, 2006). 
25 OIG, State Referral of Nursing Home Enforcement Cases, OEI-06-03-00400; and 
Nursing Home Enforcement:  Application of Mandatory Remedies, OEI-06-03-00410. 
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R E C O M M E N D A T I O N S  
we identified, and FIs self-reported that they do not consistently 
attempt to retrospectively recoup payments that should have been  
denied.  Recently added features of the ASPEN Enforcement  
Management system have improved CMSs ability to monitor upcoming 
DPNA dates (for 3-month DPNAs).  CMS should utilize the ASPEN 
Enforcement Management System to monitor these cases and ensure 
that instructions are sent well in advance of those dates. Additionally, 
reviewing any payments made prior to  edit creation will enable FIs and 
MACs to identify and recoup inappropriate payments. 
Address Communication Breakdowns by Implementing a Standard 
Format To Notify FIs or MACs That a DPNA Remedy Will Be in Effect 
and Require Confirmation That Instructions Are Received and 
Understood   
Communication breakdowns and instructions sent to the wrong FIs 
accounted for 31 percent of errors.  Standard formats will help ensure 
that instructions are recognized as such.  Further, including 
standardized language that is clear and comprehensible will help 
prevent confusion, which caused inappropriate deletion of edits in  
12 percent of errors.   Additionally, a common procedure for confirming 
receipt of instructions will help ensure that instructions are received 
and understood by FIs and MACs.  For instances in which the FI or 
MAC does not confirm receipt, CMS should follow up to ensure that the 
appropriate staff received the instruction. 
Update and Clarify Guidance on Coding Readmissions and Verifying 
Readmission Status for DPNA Claims 
Approximately half of claims involving readmissions lacked proper 
codes and FIs reported varied practices for handling readmission 
claims. Although this problem does  not result in overpayments, it does  
create unnecessary work for the FIs and inhibits CMSs ability to 
monitor FI performance in implementing DPNAs.  The guidance should 
include information on how to handle readmission claims that lack the 
proper codes and how to verify whether claims qualify as readmissions. 
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
CMS agreed with our recommendations and outlined specific actions 
that it will take to address each recommendation.  These actions include 
developing new internal procedures to help ensure that CMS effectively  
communicates DPNA instructions to FIs and MACs, creating a protocol 
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between CMS and contractors to ensure follow-up notification to CMS 
that a DPNA was implemented as requested, and updating manual 
instructions to clarify coding and verification requirements for DPNA 
readmissions.  As noted in CMSs comments, FI activities are 
transitioning to MACs. Consequently, this transition provides an 
important opportunity for CMS to clarify the MACs role in processing  
DPNAs. CMSs response is included in its entirety as Appendix B.   
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  A P P E N D I X   A    
 
Estimates and 95-Percent Confidence Intervals 
  
Overview   Estimate  Lower Bound  Upper Bound 
Processed Correctly  182  144  219 
Processing Errors Only  240  199  280 
Payment Errors  276  234  318 
   Total  697  680  714 
  
Percentage  
Types of Error  of Cases  Lower Bound  Upper Bound 
Late Processing  49%  42%  56% 
Communication Breakdown  17%  12%  22% 
Sent to Wrong FI  14%  9%  19% 
Deleted Edit  12%  7%  17% 
Human or Other Error  8%  4%  12% 
   Total Errors  74%  69%  79% 
  
Impact of Errors  Estimate  Lower Bound  Upper Bound 
Total Cases in Error  516  476  554 
Total Claims in Error  3,133  2,238  4,027 
Dollars Paid in Error  $5,042,181  $3,421,805  $6,662,556 
  
Percentage of 
Readmission 
Readmissions  Claims  Lower Bound  Upper Bound 
Improperly Coded 
Readmissions   54%  41%  66% 
Properly Coded 
Readmissions  46%  34%  59% 
Source:  Office of Inspector  General analysis of  192 denial of payment for new admission  
remedy cases. 
 
 
 
 
 
 
 
 
 
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 A P P E N D I X   B  
 
Agency Comments  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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A P P E N D I X   ~   B  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  OEI-06-03-00390  NURSING HOME ENFORCEMENT:  PROCESSING DENIALS OF MEDICARE PAYMENT  17   
   
A P P E N D I X   ~   B  
 
  OEI-06-03-00390  NURSING HOME ENFORCEMENT:  PROCESSING DENIALS OF MEDICARE PAYMENT  18   
   
A P P E N D I X   ~   B  
 
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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 Kevin K. Golladay, 
Regional Inspector General for Evaluation and Inspections in the Dallas 
regional office, and A. Blaine Collins, Deputy Regional Inspector 
General. 
Amy Ashcraft served as the team leader for this study.  Other principal 
Office of Evaluation and Inspections staff from the Dallas regional office  
who contributed to the report include Diahann Williams and Anna 
Urban; other regional and central office staff who contributed include 
Sandy Khoury, Barbara Tedesco, and Kevin Farber. 
 
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