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DEPARTMENT OF HEALTH &. HUMAN SERVICES
Office of Inspector General
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APR 10 2009
TO: Jackie Garner
Acting Director, Center for Medicaid and State Operations
Centers for Medicare & Medicaid Services
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FROM: Stuart Wright' l
Deputy Inspector General
for Evaluation and Inspections
SUBJECT: Memorandum Report: "Potential Improper Medicaid Payments for Outpatient
Clinical Diagnostic Laboratory Services for Dual-Eligible Beneficiaries,"
OEI -04-07 -00340
This memorandum report provides information on potential improper Medicaid payments for
outpatient clinical diagnostic laboratory services that were provided on an assignment-related
basis during fiscal years (FY) 2005 and 2006 to dual eligibles who were Medicare Part B
beneficiaries. Dual eligibles are beneficiaries who are enrolled in Medicare Part A and/or Part B
and also entitled to some Medicaid benefits.! State Medicaid programs should not pay for any
portion of outpatient clinical diagnostic laboratory services that were provided on an
assignment-related basis to dual eligibles who are enrolled in Medicare Paii B.2 However, we
found that Medicaid programs in 8 of 11 selected States spent a total of $1.3 milion in potential
this amount
improper payments for these services in FYs 2005 and 2006. Over half of 
these codes
corresponded to five Current Procedural Terminology (CPT) codes. One of 
accounted for almost 30 percent of the potential improper payments we identified.
BACKGROUND
As of January 2006, there were over 6 million dual eligibles nationwide.3 Both Medicare and
Medicaid have regulations to determine which program covers the cost of services provided for
dual eligibles, as well as the payment rates for those services.
1 The Centers for Medicare & Medicaid Services (CMS), "Dual Eligibility: Overview." Available online at
http://www.cms.hhs.gov/dualeligible/01 overview.asp. Accessed March 1,2008. Not all dual eligibles qualify for
full Medicaid benefits (i.e., some dual eligibles receive Medicaid assistance only for paying some or all of the
Medicare premiums, deductibles, and copayments).
2 Pursuant to 42 U .S.C.  I 3951(a)(1 )(0), with respect to clinical laboratory services paid under the clinical
laboratory fee schedule on an assignment-related basis, Medicare shall pay 100 percent of  the lesser of  the actual
charge, the fee schedule amount, or the National Limitation Amount.
3 Kaiser Family Foundation. "Resources on Dual Eligibles and Issues to Their Transition to the New Medicare
Drug Benefit." Available online at http://www.kff.org/medicaid/dualsrx.cfm. Accessed October 28, 2008.
OEI-04-07-00340 Potential Improper Medicaid Payments for Outpatient Laboratory Services for Dual-Eligible
Beneficiaries Page 2  Jackie Garner 
 
 
For a dual eligible, services that are covered by both Medicare and Medicaid will be paid first by 
Medicare.  Any remaining balance for a service will be covered by Medicaid up to the States 
payment limit.4  
 
Outpatient Laboratory Services Provided for Dual Eligibles 
Dual eligibles may receive clinical diagnostic laboratory services in different settings, such as 
independent laboratories, physicians offices, hospitals, and clinics.  After laboratory services are 
rendered, providers submit claims to Medicare for payment using CPT codes.  These codes 
determine amounts that Medicare will pay for services.  The 2005 and 2006 Medicare Clinical 
Laboratory Improvement Amendments fee schedules included approximately 1,080 CPT codes 
under the Pathology and Laboratory classification.5 
 
Generally, Medicare payment for outpatient clinical laboratory tests may be made only on an 
assignment-related basis (i.e., the Medicare-paid amount is the payment in full).6  With respect to 
clinical laboratory services paid on an assignment-related basis, Medicare pays 100 percent of 
the lesser of the actual charge, the fee schedule amount, or the National Limitation Amount and 
no deductible or copay is required.7  Therefore, when Medicare Part B is liable for payment of 
100 percent of a dual eligibles clinical laboratory services, no payment should be made by the 
recipients State Medicaid program.  
 
METHODOLOGY 
 
Scope  
We determined the extent to which Medicaid programs in 11 selected States made payments on 
an assignment-related basis for dual-eligible fee-for-service outpatient clinical diagnostic 
laboratory services during FYs 2005 and 2006.   
 
Data Collection and Analysis 
State Selection.  We obtained FY 2005 Medicaid Statistical Information System (MSIS) 
eligibility and claims files from CMS.  The MSIS is a CMS-maintained database and the only 
source of nationwide Medicaid data.  We analyzed MSIS claims and eligibility data from all 39 
States that had submitted this information to CMS as of July 2007.8  First, we identified 
payments associated with dual eligibles using the dual-eligible identifier in the MSIS eligibility 
file.  Next, we totaled fee-for-service payments for all clinical diagnostic laboratory services 
provided to dual eligibles by State.9   
                                                 
4 CMS, Dual Eligibility:  Overview.  Available online at http://www.cms.hhs.gov/dualeligible/01_overview.asp.  
Accessed October 28, 2008. 
5  A fee schedule is a listing of codes with the corresponding maximum amounts that a provider may receive in 
payment for each code.     
6 CMS, Medicare Claims Processing Manual, Pub. No. 100-04, chapter 16,  30.1.  Available online at 
http://www.cms.hhs.gov/manuals/Downloads/clm104c16.pdf.  Accessed February 9, 2009.   
See 42 U.S.C.  1395l(h)(5)(C) (excluding rural health clinics from this requirement).  
7 42 U.S.C. 1395l(a)(1)(D) and (b)(3). 
8 FY 2005 MSIS eligibility and claims files were the most current data available as of July 2007.  
9 We identified these services using all clinical diagnostic laboratory CPT codes listed in the FY 2005 Medicare fee 
schedule.   
OEI-04-07-00340     Potential Improper Medicaid Payments for Outpatient Laboratory Services for Dual-Eligible   
Beneficiaries    Page 3  Jackie Garner 
 
 
We then selected the 10 States with the highest Medicaid payments for all clinical diagnostic 
laboratory services for dual eligibles:  California, Florida, Illinois, Ohio, Mississippi,  
New Jersey, New York, North Carolina, Tennessee, and Texas.10  We also selected Washington, 
based on discussions with CMS officials, for a total of 11 States.11   
 
Calculating Potential Improper Payments.  Next, we obtained payment data from each of the  
11 selected States Medicaid Management Information Systems (MMIS).  Specifically, we 
obtained information on FYs 2005 and 2006 Medicaid payments for dual eligibles for all clinical 
diagnostic laboratory CPT codes listed in the 2005 and 2006 Medicare fee schedules.12 13  
 
We then sorted the clinical diagnostic laboratory CPT codes included in the MMIS data that we 
obtained by service location and excluded services provided in inpatient settings.  We also 
excluded outpatient laboratory services provided in rural health clinics and critical access 
hospitals.14  For all 11 selected States, Medicaid paid for 104,070 outpatient clinical diagnostic 
laboratory services that were provided to dual eligibles on an assignment-related basis.  Finally, 
we calculated the amount each selected State Medicaid program paid for these services.   
 
Limitations  
The data obtained for Texas were from CYs 2005 and 2006; the data for Washington were from 
CY 2005 only.15  Therefore, the results for these two States do not reflect improper payments for 
the entire timeframe under review, i.e., FYs 2005 and 2006.  
                                                 
10 We excluded payments for services provided in inpatient settings.  
11 Meeting with CMS officials in June 2007. 
12 The data we obtained for Texas were from calendar years (CY) 2005 and 2006; CMS officials provided us with 
Washington MMIS data for CY 2005 only. 
13 We requested States to provide payment information for dual eligibles only.  We confirmed that these payments 
were for Medicaid recipients who were also enrolled in Medicare Part B as of July 2007 using the CMS Enterprise 
Cross Reference.  The Enterprise Cross Reference matches beneficiary identification numbers from MMIS and the 
Medicare Enrollment Database. 
14 Payments for outpatient clinical diagnostic laboratory services furnished to critical access hospitals are made on a 
reasonable cost basis.  CMS, Medicare Claims Processing Manual, Pub. No. 100-04, chapter 16,  10.2.  
Available online at http://www.cms.hhs.gov/manuals/Downloads/clm104c16.pdf.  Accessed February 9, 2009.  
Rural health clinics are not required to accept assignment.  42 U.S.C.  1395l(h)(5)(C). 
15 The 2006 data for Washington were unavailable from CMS.  
OEI-04-07-00340     Potential Improper Medicaid Payments for Outpatient Laboratory Services for Dual-Eligible   
Beneficiaries    Page 4  Jackie Garner 
 
 
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. 
 
RESULTS 
  
Eight of Eleven Selected State Medicaid Programs Spent a Total of $1.3 Million in 
Potential Improper Payments During FYs 2005 and 2006 for Outpatient Clinical 
Diagnostic Laboratory Services for Dual Eligibles 
Of the $1.3 million in potential improper payments, $722,906 was paid in FY 2005 by 8 of the 
11 selected States.  The remaining $563,820 was paid in FY 2006 by 7 of 10 States.16   
 
Table 1 shows potential improper Medicaid payments in FYs 2005 and 2006 for outpatient 
clinical diagnostic laboratory services for dual eligibles by State.  
 
Table 1 
State  FY 2005 Potential  FY 2006 Potential  Total Potential 
Improper Medicaid  Improper Medicaid  Improper Medicaid 
Payments  Payments  Payments 
California  $1,401  $4,081  $5,482 
Florida  $21,967  $12,981  $34,948 
Illinois   $0  $0  $0 
Mississippi  $0  $0  $0 
New Jersey  $0  $0  $0 
New York   $63,160  $66,052  $129,212 
North Carolina   $4,137  $5,123  $9,260 
Ohio  $35,677  $24,016  $59,693 
Tennessee  $63,809  $45,775  $109,584 
Texas*  $388,787  $405,793  $794,580 
Washington**  $143,968  NA  $143,968 
TOTAL  $722,906  $563,820  $1,286,726 
               Lines may not sum to totals because of rounding.  
                    * CYs 2005 and 2006 data. 
                    ** CY 2005 data only. 
         
Fifty-five Percent of Potential Improper Medicaid Payments Corresponded to Five CPT 
Codes 
The following CPT codes represented the most frequently reimbursed services:  36415, 85025, 
80053, 81000, and 87536.  These five services represented 55 percent of all potential improper 
Medicaid payments that we identified.  Code 36415 represented 29 percent of the total potential 
improper payments.   
 
                                                 
16 The 2006 data for Washington were unavailable and, therefore, were not included in the analysis.  
OEI-04-07-00340     Potential Improper Medicaid Payments for Outpatient Laboratory Services for Dual-Eligible   
Beneficiaries    Page 5  Jackie Garner 
 
 
Table 2 lists the top five CPT codes associated with improper Medicaid payments in  
FYs 2005 and 2006 for outpatient clinical diagnostic laboratory services for dual eligibles and 
the potential improper payments associated with each code.   
 
Table 2 
CPT Code  Description  Total Potential  Percentage of Total 
Improper Medicaid  Potential Improper 
Payments  Medicaid Payments 
36415  Collection of venous blood by  $379,065     29% 
venipuncture 
85025  Complete, automated, and  $166,457     13% 
automated differential white blood 
cell count 
80053  Comprehensive metabolic panel  $57,981      5% 
81000  Urinalysis, nonautomated with  $50,884     4%   
microscopy 
87536  HIV-1, quantification  $49,771     4%   
       
Others  All remaining procedure codes  $582,568  45% 
TOTAL    $1,286,726  100% 
     
 
CONCLUSION 
 
In FYs 2005 and 2006, 8 of 11 selected State Medicaid programs paid a total of $1.3 million in 
potential improper payments for outpatient clinical diagnostic laboratory services provided on 
assignment to dual eligibles.  These results demonstrate that opportunities exist to educate State 
Medicaid programs that they should not pay for any portion of these services.  To facilitate 
followup, we will provide a summary of these potential improper Medicaid payments under 
separate cover. 
  
This memorandum report is being issued directly in final form because it contains no 
recommendations.  If you have comments or questions about this memorandum report, please 
provide them within 60 days.  Please refer to memorandum report OEI-04-07-00340 in all 
correspondence. 
 
cc:  Jacquelyn White 
       Director, Office of Strategic Operations and Regulatory Affairs 
       Centers for Medicare & Medicaid Services 
 
 
 
 
  
 
OEI-04-07-00340     Potential Improper Medicaid Payments for Outpatient Laboratory Services for Dual-Eligible   
Beneficiaries