Department of Health and Human Services


OFFICE OF 

INSPECTOR GENERAL 

CONSULTATIONS IN MEDICARE:


CODING AND REIMBURSEMENT 


Daniel R. Levinson


Inspector General 


March 2006


OEI-09-02-00030

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 national evaluations to provide 

the Department, Congress, and the public with timely, useful, and reliable information on 

significant issues. Specifically, these evaluations focus on preventing fraud, waste, or 

abuse and promoting economy, efficiency, and effectiveness in departmental programs. 

To promote impact, the reports also present practical recommendations for improving 

program operations. 

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 OIG's 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 industry guidance. 
ΔEXE CUTIVE S U MMAR Y

 EXECUTIVE SUMMAR Y 

OBJECTIVE 

To determine if services billed to Medicare as consultations were coded 

correctly and documented adequately. 

BACKGROUND 

Medicare allowed $3.3 billion for consultations in 2001. The Current 

Procedural Terminology (CPT) defines a consultation as “ . . . a type of 

service provided by a physician whose opinion or advice regarding 

evaluation and/or management of a specific problem is requested by 

another physician or other appropriate source.” A consultation differs 

from similar evaluation and management services in that a consultation 

involves a specific request for help with a particular diagnosis or course 

of treatment on a limited basis, while an office or inpatient visit lacks 

such a request and can involve ongoing care of a patient. 

The CPT defines four types of consultation: (1) office or other 

outpatient, (2) initial inpatient, (3) follow-up inpatient, and 

(4) confirmatory (also called a second opinion). Within each type, three 

or five levels of complexity exist, with a distinct billing code for each 

level. The level depends on three key components: (1) the extent of the 

patient history taken, (2) the thoroughness of the physical examination, 

and (3) the complexity of the consultant’s medical decisionmaking. 

Pursuant to 42 CFR § 411.351 and section 15506 of the Medicare 

Carriers Manual, Medicare allows reimbursement for consultations if 

(1) a physician requests the consultation, (2) the request and need for 

the consultation are documented in the patient’s medical record, and 

(3) the consultant furnishes a written report to the referring physician. 

Other provisions of Federal law require that physicians document all 

Medicare services and bill them with the correct code. 

We selected a simple random sample of 400 consultations allowed by 

Medicare with dates of service in calendar year 2001. For each 

consultation, we identified the patient, consultant, and referring 

physician listed on the claim, as well as the provider of any concurrent 

Part A services. From each of these sources, we requested photocopies 

of the portion of the patient’s medical record that pertained to the 

sampled consultation. We contracted with certified professional coders 

who have extensive experience reviewing Medicare claims to determine 

OE I-09-02-00 030 C O N S U LTAT I O N S IN ME D I CARE : C O D I N G A N D RE I MBURS E M E N T i 
EXE CUTIVE S U MMAR Y

if each service was billed with the correct code and documented 

adequately. 

Because we only reviewed consultation services provided in 2001, our 

sample results cannot be extrapolated to other periods. Accordingly, we 

make no inferences to consultation error rates in subsequent years. As 

noted previously, Medicare reimbursement for consultations increased 

from $3.3 billion in 2001 to $4.1 billion in 2004. To our knowledge, the 

Centers for Medicare & Medicaid Services (CMS) has made no national 

policy changes that would affect the incidence of consultation payment 

errors since 2001, suggesting that at least some of the payment 

vulnerabilities that we identified still exist. 

FINDING 

Medicare allowed approximately $1.1 billion more in 2001 than it 

should have for services that were billed as consultations. 

Approximately 75 percent of services billed as consultations and allowed 

by Medicare in 2001 did not meet all applicable program requirements, 

resulting in $1.1 billion in improper payments. Services billed as 

consultations often did not meet Medicare’s definition of a consultation 

(19 percent—$191 million), were billed as the wrong type or level of 

consultation (47 percent—$613 million), or were not substantiated by 

documentation (9 percent—$260 million). Consultations billed at the 

highest billing level (the most complex services, which generate the 

highest reimbursements under the physician fee schedule) and 

follow-up inpatient consultations were particularly problematic; 

approximately 95 percent of each were miscoded. 

RECOMMENDATION 

Our review showed that services billed to Medicare as consultations 

often were not actually consultations, were coded as the incorrect type 

or level of consultation, or were not substantiated by documentation. 

Although CMS clarified the difference between office visits and 

consultations in an October 2003 update to section 15506 of the 

Medicare Carriers Manual, the distinctions among the types and levels 

of consultations were not addressed. Therefore, we recommend that, 

through its Medicare carriers, CMS educate physicians and other 

health care practitioners about the criteria and proper billing for all 

types and levels of consultations with emphasis on the highest 

billing levels and follow-up inpatient consultations. 

OE I-09-02-00 030 C O N S U LTAT I O N S IN ME D I CARE : C O D I N G A N D RE I MBURS E M E N T ii 
EXE CUTIVE S U MMAR Y

In addition, we have forwarded information on the miscoded and 

undocumented services identified in our sample to CMS for appropriate 

action. 

AGENCY COMMENTS 

In its comments to our draft report, CMS noted that the CPT codes for 

follow-up inpatient consultations and confirmatory consultations were 

deleted effective January 1, 2006. CMS has revised its policy manuals 

to reflect these changes. The agency agreed with our recommendation 

to educate providers about consultations and plans to publish on its 

Web site a Special Edition article highlighting these changes and 

providing new coding instructions for consultation services. 

OFFICE OF INSPECTOR GENERAL RESPONSE 

We are pleased that CMS has agreed to implement our recommendation 

and look forward to seeing the Special Edition article when it is 

published. Also, the elimination of the codes for follow-up inpatient 

consultations and confirmatory consultations should improve providers’ 

understanding of the proper billing for consultations and reduce the 

error rate associated with these services. 

OE I-09-02-00 030 C O N S U LTAT I O N S IN ME D I CARE : C O D I N G A N D RE I MBURS E M E N T iii 
Δ T ABLE OF CONTENTS 

EXECUTI VE SUMMARY ........................................ i

INTRODUCTI ON ................................................ 1 

FINDI NG ......................................................... 8 

Overpayments of $1.1 billion .................................. 8 

RECOM M E NDATI O N ........................................... 11 

 Agency Comments .......................................... 11 

Office of Inspector General Response ......................... 11 

APPENDI XES .................................................. 12 

A: Coding Levels for Consultations ........................... 12 

B: Confidence Intervals for Ratios and Percentages ............ 14 

C: Inappropriately Allowed Amounts From Service Universe ... 16 

D: Agency Comments ....................................... 17 

ACKN O W LEDGMENTS ......................................... 21 
Δ INTRODU C TION 

OBJECTIVE 

To determine if services billed to Medicare as consultations were coded 

correctly and documented adequately. 

BACKGROUND 

What Are Consultations? 

The Current Procedural Terminology (CPT) defines a consultation as a 

“ . . . type of service provided by a physician whose opinion or advice 

regarding evaluation and/or management of a specific problem is 

requested by another physician or other appropriate source.” 

Appropriate sources include physicians, other health care practitioners, 

and—in the case of a confirmatory consultation—the patient.1 A 

consultation differs from similar evaluation and management services 

in that it involves a specific request for help with a particular diagnosis 

or course of treatment on a limited basis, while an office or inpatient 

visit lacks such a request and can involve ongoing care of a patient. 

The CPT, which the Centers for Medicare & Medicaid Services (CMS) 

uses as the basis for reimbursing physician services, defines four types 

of consultation according to the place of service and the source of the 

request: 

1. An office or other outpatient consultation is a consultation 

provided in the consultant’s office or other ambulatory facility 

such as the patient’s residence, a hospital observation unit, or an 

emergency department. As set forth in the 2001 Physician Fee 

Schedule, an office or other outpatient consultation has the 

highest Medicare reimbursement rate of all consultation types. 

2. An initial inpatient consultation is provided in an inpatient 

hospital, a skilled nursing facility, or a partial hospital setting. 

This type of consultation should be billed only once by a 

particular consultant per inpatient admission. This type of 

consultation has the second-highest level of Medicare 

reimbursement. 

1 Hereinafter, we will use the term “referring physician” as a generic term to designate the 

source of the consultation, regardless of that individual’s credentials. We will use the 

term “consultant” to mean the provider of the consultation. 

OE I-09-02-00 030 C O N S U LTAT I O N S IN ME D I CARE : C O D I N G A N D RE I MBURS E M E N T 1 
INTROD UCT ION 

3. A confirmatory consultation—also called a second opinion—may 

be initiated by the patient or third-party insurance payers who 

require another opinion before approving a medical treatment or 

surgical procedure. This service can be provided in either an 

office or inpatient setting. A confirmatory consultation ranks 

third among the consultation types in terms of Medicare 

reimbursement rates. 

4. A follow-up inpatient consultation is a service provided to 

complete an initial inpatient consultation or a new consultation 

provided by a consultant who has already performed an initial 

inpatient consultation for the patient during a single admission. 

A follow-up consultation can include monitoring progress, 

recommending treatment modifications, or advising on a new 

plan of care in response to changes in the patient’s status. A 

follow-up inpatient consultation has the lowest Medicare 

reimbursement rate of all consultation types. 

The CPT further divides each type of consultation into levels based on 

the intensity and complexity of three key components. These three key 

components are patient history, physical examination, and medical 

decisionmaking. Higher-level codes describe more complex 

consultations and are reimbursed accordingly. Follow-up inpatient 

consultations are divided among three levels, while the three other 

types each have five levels. See Appendix A for a detailed explanation 

of consultation levels. 

Medicare Coverage of and Reimbursement for Consultations 

In 1983, CMS adopted CPT as part of the Healthcare Common 

Procedure Coding System (HCPCS) and mandated that providers use 

HCPCS to report consultations and other services to Medicare. Section 

1848(c)(5) of the Social Security Act (the Act) required the Secretary of 

the Department of Health and Human Services to develop a uniform 

procedure coding system for all physician services, and specifically 

called for “an appropriate coding structure for . . . consultations.” 

Section 1848(a)(1) of the Act established the physician fee schedule as 

the basis for Medicare reimbursement for all physician services, 

including consultations, beginning in January 1992. In implementing 

the physician fee schedule, CMS provided new, nationally uniform 

interpretations of consultation codes. 

Pursuant to 42 CFR § 411.351 and section 15506 of the Medicare 

Carriers Manual (the Manual), Medicare allows reimbursement for 

OE I-09-02-00 030 C O N S U LTAT I O N S IN ME D I CARE : C O D I N G A N D RE I MBURS E M E N T 2 
INTROD UCT ION 

consultations if the following conditions are satisfied (not applicable to 

confirmatory consultations): 

o The referring physician requests the consultant’s opinion or 

advice regarding evaluation and/or management of a specific 

medical problem. 

o The written or verbal request and need for the consultation are 

documented in the patient’s medical record. 

o After the consultation is provided, the consultant prepares a 

written report of his or her findings, which is provided to the 

referring physician. 

In a September 2001 update of the Manual, CMS clarified that 

physician assistants, nurse practitioners, and certified nurse-midwives 

can request and perform consultations if the services are within their 

scope of practice, as defined by State law. 

In addition to these requirements, section 1833(e) of the Act states that 

Medicare will not pay for services, including consultations, unless 

documentation or other information is furnished to support the claim. 

Federal regulations at 42 CFR § 424.5(a)(6) require physicians to 

furnish sufficient documentation (upon request) to Medicare to 

determine whether payment is due and, if so, the amount to be paid. 

In 2001, Medicare allowed approximately $3.3 billion for consultations 

out of a total of $23 billion for evaluation and management services.2 

By 2004, that figure had grown to $4.1 billion. In 2001, approximately 

45 percent of the allowed claims were for office or other outpatient 

consultations, and 44 percent were for initial inpatient consultations. 

The remaining 11 percent were primarily for follow-up inpatient 

consultations, with a small number of second opinions. 

METHODOLOGY 

Overview 

Certified professional coders reviewed the medical records and 

supporting documentation for a sample of 400 services billed as 

consultations and performed in 2001. 

2 Medicare normally pays 80 percent of allowed charges, and the beneficiary or his or her 

supplemental insurance pays the remaining 20 percent as coinsurance. 

OE I-09-02-00 030 C O N S U LTAT I O N S IN ME D I CARE : C O D I N G A N D RE I MBURS E M E N T 3 
INTROD UCT ION 

Sample Selection 

We defined our population as all services allowed with a consultation 

code (CPT codes 99241 through 99275) appearing in Medicare’s 

National Claims History with service dates in 2001. From this 

population, we selected a simple random sample of 400 services to be 

reviewed for documentation and billing accuracy. Because we selected 

our sample in March 2002, and Medicare may reimburse claims up to 

12 months after the date of service, our population actually contained 

only 16,470,281 services—about two-thirds of the total 25,557,836 

consultations allowed with service dates falling in 2001. 

After completing the medical review, we compared our population with 

the set of consultations that were provided in 2001, but did not appear 

in the National Claims History at the time we selected our sample (and 

hence were not part of our population). As a result of this comparison, 

we found that CPT code 99255—Initial inpatient consultation, level 

five—was underrepresented in our population. We discussed this issue 

with CMS, but were not able to determine why this code differed from 

the others. Because nearly all level five codes were upcoded (see 

Findings), this inconsistency most likely caused us to underestimate the 

dollars allowed by Medicare for miscoded consultations. 

Sources of Medical Records 

For each service, we identified the patient, the consultant who 

submitted the claim, the referring physician listed on the claim (if 

any), and the provider of any concurrent Part A services. We 

identified the consultant and referring physicians from the unique 

physician identification number matches. If the claims did not 

include the unique physician identification numbers, we contacted the 

appropriate Medicare carrier to identify the provider. From each 

physician and hospital, we requested photocopies of the portion of 

each patient’s medical record pertaining to the sampled consultation. 

Pursuant to Medicare coverage guidelines, documentation for a 

consultation should contain at least three parts: (1) a request for the 

consultation from the referring physician, (2) the need for the 

consultation, and (3) a copy of the written opinion sent by the consultant 

to the referring physician.3 For office or other outpatient consultations, 

the same documentation should be in the medical records for both the 

3 Centers for Medicare & Medicaid Services, Medicare Part B Physician’s & Other 

Non-Physician Practitioner Manual—Medical Care Section, p. 11. 

OE I-09-02-00 030 C O N S U LTAT I O N S IN ME D I CARE : C O D I N G A N D RE I MBURS E M E N T 4 
INTROD UCT ION 

referring physician and the consultant. For initial inpatient and 

follow-up inpatient consultations, documentation of the request, the 

patient history and physical examination, and the written consultation 

should be contained in the same hospital medical record. For 

confirmatory consultations completed in an office setting, the consultant 

is the only source of the record. For confirmatory consultations 

completed in an inpatient setting, documentation of the patient history 

and physical examination and the consultant’s written report should be 

included in the hospital medical record. Regardless of the setting, 

consultants usually keep a copy of the written opinion in their office 

records. 

Collecting Medical Records 

We mailed an initial written request to all consultants, referring 

physicians, and hospitals appearing in our sample. A number of these 

initial mailings were returned by the post office as undeliverable. We 

conducted Internet searches using various search engines for alternate 

addresses for these individuals and facilities. We continued mailing 

requests to all alternate addresses until we found a valid address or 

exhausted all possibilities. We sent up to two follow-up requests to each 

physician or hospital that did not respond. If a hospital did not respond 

to our second follow-up request, we called the facility to request the 

records. 

Even after repeated attempts, we could not contact any of the sources 

associated with three consultations in our sample. We removed these 

services from all subsequent data analyses. Of the 397 consultations for 

which we were able to contact at least 1 of the sources, we did not 

receive any records for 2, and counted these as undocumented. Hence, 

we received a response from at least 1 source of records for 395 of the 

400 services in our sample, for an overall response rate of 99 percent. 

In some cases, we did not receive records from all the sources for a 

consultation. In these cases, the coders still could complete their record 

review because most of the information from the various sources is 

redundant. 

Record Review 

We contracted with certified professional coders who have extensive 

experience reviewing Medicare claims to review the medical records. 

Relying on the coders’ expertise, we developed a review instrument 

using Medicare and CPT guidelines for evaluation and management 

services. The coders used this standardized instrument to perform the 

OE I-09-02-00 030 C O N S U LTAT I O N S IN ME D I CARE : C O D I N G A N D RE I MBURS E M E N T 5 
INTROD UCT ION 

reviews. The coders reviewed each record and determined if the service 

performed was coded correctly (meaning it met Medicare’s definition of 

a consultation and was billed as the type and level of consultation) and 

was documented adequately. After completing the instruments, the 

coders forwarded them for review to our primary contractor, who then 

returned the instruments to us. 

Cost Projections 

To calculate the allowed amounts cited in the findings, we first 

calculated the ratio of the total overpayments for a given category of 

error (e.g., upcoded consultations) to the total amount allowed for all 

consultations in our sample. We then applied this ratio to the total 

amount allowed for consultations in 2001—$3,290,931,599—to 

determine the amount allowed in 2001 for each category of improper 

payment. We used a similar method to estimate the total amount 

allowed in 2001 for undocumented services. Appendix B shows the 

point estimates and confidence intervals for these ratios, as well as for 

other percentages cited in the report. Appendix C gives projections of 

improperly allowed dollars based strictly on projections to our service 

universe. 

Because we only reviewed consultation services provided in 2001, our 

sample results cannot be extrapolated to other periods. Accordingly, we 

make no inferences to consultation error rates in subsequent years. As 

noted previously, Medicare reimbursement for consultations increased 

from $3.3 billion in 2001 to $4.1 billion in 2004. To our knowledge, CMS 

has made no national policy changes that would affect the incidence of 

consultation payment errors since 2001, suggesting that at least some of 

the payment vulnerabilities that we identified still exist. 

CERT and This Inspection 

In 2003 and 2004, CMS reported payment error rates for consultations 

as part of its Comprehensive Error Rate Testing (CERT) program. 

While its findings were quite similar to the findings in this report, 

which are based on 2001 data, the Office of Inspector General (OIG) and 

CMS reviews should not be directly compared because their goals and 

methodologies are different. The goal of CERT is to measure the 

performance of CMS’s contractors by calculating a paid claims error 

rate. Our objective, on the other hand, was to determine specifically if 

consultations billed to Medicare were coded correctly and documented 

adequately. Hence, CERT reports on nearly every type of service 

Medicare allows, but does not offer the same depth of information 

OE I-09-02-00 030 C O N S U LTAT I O N S IN ME D I CARE : C O D I N G A N D RE I MBURS E M E N T 6 
INTROD UCT ION 

specific to consultations that our narrowly focused inspection provides. 

This inspection was not designed to reproduce or to review the CERT 

findings. 

This inspection was conducted in accordance with the Quality 

Standards for Inspections issued by the President’s Council on Integrity 

and Efficiency. 

OE I-09-02-00 030 C O N S U LTAT I O N S IN ME D I CARE : C O D I N G A N D RE I MBURS E M E N T 7 
-

Δ FINDING 

Medicare allowed approximately 

26 million services that were billed 

 Medicare allowed approximately $1.1 billion more 

than it should have for services that were billed as 

with a consultation code in 2001. consultations 

According to our medical review, 

approximately 75 percent of these services did not comply with 

Medicare regulations for reimbursement as a consultation, were billed 

with an incorrect consultation code, or were documented inadequately. 

Table 1 shows the types of services improperly paid as consultations, 

the representation of each type in our sample, and projections to the 

universe of all services allowed with consultation codes in 2001.4 

Table 1: Seventy Five Percent of Services Billed as Consultations 

Were Improperly Paid 

Type of Improper Payment 

Sample Projected 

Services 

Allowed 

Amount 

Services 

(Proportion) 

Allowed Amount 

(Millions) 

Not a Consultation 74 $2,860.85 0.19 $191 

Incorrect Consultation Code 187 $9,186.39 0.47 $613 

Incorrect Type 

Incorrect Level 

- Upcoded 

- Downcoded 

7 

180 

161 

19 

$339.64 

$8,846.75 

$9,625.61 

($778.86) 

0.02 

0.45 

0.41 

0.05 

$23 

$591 

$643 

($52) 

Undocumented 

Nonresponse 

Unsubstantiated 

37 

2 

35 

$3,894.36 

$97.06 

$3,797.30 

0.09 

* 

0.09 

$260

*

$254 

Total Improperly Paid 298 $15,941.60 0.75 $1,064 

Source: Office of Inspector General, Analysis of Record Review Results, 2004. Projected allowed amounts for the 

different types do not equal total due to rounding. The * indicates that the n for that cell is too small to reliably project. 

Not a consultation. Approximately 19 percent of services allowed as 

consultations did not meet the definition of a consultation contained in 

42 CFR § 411.351. Had providers billed these services correctly, 

Medicare and its beneficiaries would have saved approximately 

$191 million in 2001. Most of these services were actually lower-paying 

regular office or inpatient visits. Other examples of errors included 

billing a psychiatric diagnostic interview and a discharge management 

service as initial inpatient consultations. Nurses (who are not eligible 

4 See the Methodology section for a discussion of our sampling frame as it relates to the 

universe of services allowed as consultations in 2001. 

OE I-09-02-00 030 C O N S U LTAT I O N S IN ME D I CARE : C O D I N G A N D RE I MBURS E M E N T 8 
F I NDING 

to bill Medicare for consultations) furnished an additional two services 

in our sample. 

Incorrect consultation code: Incorrect type. Two percent of the services that 

were coded as consultations met the regulatory definition of a 

consultation, but were billed as the wrong type of consultation. Most of 

these were billed as a type of consultation reimbursed at a higher rate 

than the one actually performed. Two consultants, however, billed for 

follow-up inpatient consultations instead of the appropriate, higherpaying initial inpatient consultation codes. Net overpayments for 

consultations billed as the wrong type totaled $23 million. 

Incorrect consultation code: Incorrect level. Nearly 45 percent of the 

services that were billed as consultations in 2001 were not coded at 

the proper level. More specifically, 41 percent of all services billed as 

consultations were upcoded (billed at a higher level than the service 

actually performed), and 5 percent were downcoded (billed at a lower 

level). Overall, Medicare and its beneficiaries paid $643 million too 

much for upcoded consultations but paid $52 million too little for 

downcoded consultations, yielding a net overpayment of $591 million. 

Table 2 shows the distribution of downcoded and upcoded services.

 5 

Table 2: Distribution of Levels Downcoded and Upcoded 

Type of Error 

Number of 

Services in 

Sample 

Percentage of 

Downcoded/ 

Upcoded 

Services 

Mean Under- or 

Over-Payment 

Projected 

Under- or OverAllowed 

Amount 

(Millions) 

Downcoded 

- By 1 Level 

- By 2 Levels 

Upcoded 

- By 1 Level 

- By 2 Levels 

- By 3 Levels 

19 

18 

1 

161 

92 

53 

16 

-

95% 

5% 

-

57% 

33% 

10% 

($40.99) 

($37.36) 

($106.81) 

$59.79 

$39.27 

$77.95 

$117.62 

($52.1)

($45.0)

* 

$643

$241

$276

$126 

Total Billed at 

Incorrect Level 180 - $49.15 $591 (net) 

Source: Office of Inspector General, Analysis of Record Review Results, 2004. 

The * indicates that the n for that cell is too small to reliably project. 

5 Data are reported in the aggregate for all consultation types. Differences in upcoding 

among the types of consultation exist, but were not statistically significant. 

OE I-09-02-00 030 C O N S U LTAT I O N S IN ME D I CARE : C O D I N G A N D RE I MBURS E M E N T 9 
F I NDING

Physicians billed approximately 2 million services at the highest level 

of the correct type of consultation, but coded just 5 percent of these 

correctly. For example: a level five office or other outpatient 

consultation requires a comprehensive history and evaluation and a 

high complexity of medical decisionmaking. Nine physicians billed 

this code instead of the level three office or other outpatient 

consultation that was supported by the medical record, which showed 

that the physician took only a detailed history and evaluation and 

exhibited only a low complexity of medical decisionmaking. Office or 

other outpatient, initial inpatient, and confirmatory consultations 

billed at level five were upcoded by 1.9 levels on average, for a mean 

overpayment of $93.61 per service. 

Undocumented. Reviewers found that 9 percent of consultations were 

not documented in any of the patient’s medical records, including those 

we received from the consultant, the referring physician, and/or the 

inpatient facility where the patient was staying at the time of the 

service. Based on this finding, we estimate that Medicare may have 

allowed approximately $260 million in 2001 for undocumented services 

billed as consultations. Besides services that were completely 

undocumented, medical records for an additional 4 percent were 

insufficient to determine the correct code to describe the service. 

Approximately 94 percent of services billed as follow-up inpatient 

consultations were coded incorrectly 

Excluding undocumented and inadequately documented services, 

approximately 94 percent of services that were billed as follow-up 

inpatient consultations should have been billed as another service. In 

our sample, we found that: 

o 79 percent of these services were actually inpatient visits for daily 

care, not consultations; 

o 6 percent were actually initial inpatient or outpatient consultations; 

and 

o 9 percent were upcoded. 

As indicated by the Physician Fee Schedule, Medicare reimbursed 

follow-up inpatient consultations at a lower rate than other types of 

consultations or regular inpatient visits in 2001. Therefore, it is 

likely that most of these errors were unintentional. 

OE I-09-02-00 030 C O N S U LTAT I O N S IN ME D I CARE : C O D I N G A N D RE I MBURS E M E N T 10 
ΔEXE CUTIVE S U MMAR Y

 RECOMME NDA TION 

Our review showed that services billed to Medicare as consultations 

often were not actually consultations, were coded as the incorrect type 

or level of consultations, or were not substantiated by documentation. 

Although CMS clarified the difference between office visits and 

consultations in October 2003, it did not address the distinctions among 

the types and levels of consultations. 

Therefore, we recommend that, through its Medicare carriers, CMS educate 

physicians and other health care practitioners about the criteria and proper 

billing for all types and levels of consultations with emphasis on the highest 

billing levels and follow-up inpatient consultations. 

In addition, we have forwarded information on the miscoded and 

undocumented services identified in our sample to CMS for appropriate 

action. 

AGENCY COMMENTS 

In its comments to our draft report, CMS noted that the CPT codes for 

follow-up inpatient consultations and confirmatory consultations were 

deleted effective January 1, 2006. CMS has revised its policy manuals 

to reflect these changes. The agency agreed with our recommendation 

to educate providers about consultations and plans to publish on its 

Web site a Special Edition article highlighting these changes and 

providing new coding instructions for consultation services. The 

complete text of CMS’s comments is included starting on page 17. 

OFFICE OF INSPECTOR GENERAL RESPONSE 

We are pleased that CMS has agreed to implement our recommendation 

and look forward to seeing the Special Edition article when it is 

published. Also, the elimination of the codes for follow-up inpatient 

consultations and confirmatory consultations should improve providers’ 

understanding of the proper billing for consultations and reduce the 

error rate associated with these services. 

OE I-09-02-00 030 C O N S U LTAT I O N S IN ME D I CARE : C O D I N G A N D RE I MBURS E M E N T 11 
Δ APPENDIX ~ A 

Coding Levels for Consultations 

As defined by CPT, evaluation and management codes include seven 

basic elements—patient history, physical examination, medical 

decisionmaking, counseling, coordination of care, the nature of the 

patient’s presenting problem (or the reason for the visit with the 

physician), and time. 6 The first three components are key to selecting 

the correct level for a consultation. To properly code the consultation, 

the provider must determine, based on these key components, which 

level of consultation is appropriate. The three key components are: 

o The extent of the patient history—consultants use their clinical 

judgment and the nature of the patient’s presenting problems to 

determine the depth of the history needed to complete the 

consultation and provide an opinion to the referring physician. A 

patient history can be classified into one of four categories: 

• Problem focused (brief history of present illness or problem), 

• Expanded problem focused (brief history of present illness 

with problem-pertinent system review), 

• Detailed (extended history of present illness with pertinent 

past, family, and social history directly related to the 

presenting problem; includes review of a limited number of 

additional systems), and 

• Comprehensive (extended history of present illness with 

review of body systems directly related to the patient’s 

problems; complete past, family, and social history). 

o The extent of physical examination—based on clinical judgment 

and the presenting medical problems, the consultant can perform 

four types of examination: 

• Problem focused (limited examination of the affected body 

area or organ system), 

• Expanded problem focused (limited examination of affected 

area or systems with other symptomatic or related organ 

systems), 

6 American Medical Association, Current Procedural Terminology—CPT 2000, 2002, and 

2003 versions. 

OE I-09-02-00 030 C O N S U LTAT I O N S IN ME D I CARE : C O D I N G A N D RE I MBURS E M E N T 12 
APP E N D I X ~A 

• Detailed (extended examination of affected body areas and 

other related systems), and 

• Comprehensive (a general multisystem examination or a 

complete examination of a single organ system). 

o The complexity of the consultant’s medical decisionmaking, 

referring to the factors needed to establish a diagnosis and/or 

select a management option: 

• Selecting the correct level of decisionmaking is based on the 

number of possible diagnoses or the number of options that 

must be considered; the amount and/or complexity of 

medical records, diagnostic tests, and other information that 

physicians must obtain, review, and analyze; and the risk of 

significant complications, morbidity, and/or mortality. 

• Four levels of medical decisionmaking are recognized: 

straightforward, low complexity, moderate complexity, and 

high complexity. 

OE I-09-02-00 030 C O N S U LTAT I O N S IN ME D I CARE : C O D I N G A N D RE I MBURS E M E N T 13 
Δ APPENDIX ~ B 

Confidence Intervals for Ratios and Percentages 

Statistic N Point Estimate 95% Confidence Interval 

Ratio of excess allowed amount for services that were 

miscoded or undocumented to all allowances 

397 0.33 0.29 to 0.36 

Percentage of services that were miscoded or 

undocumented 

397 0.75 0.71 to 0.79 

Percentage of services that were not consultations 397 0.19 0.15 to 0.23 

Ratio of excess amount allowed for services that were not 

consultations to all allowances 397 0.06 0.04 to 0.08 

Percentage of services billed as consultations that were 

coded as the incorrect type or level 

397 0.47 0.42 to 0.52 

Ratio of excess amount allowed for services coded as the 

incorrect type or level to all allowances 

397 0.19 0.16 to 0.22 

Percentage of services billed as the incorrect type 

of consultation 

397 0.02 0.00 to 0.03 

Ratio of excess amount allowed for services billed as the 

incorrect type of consultation to all allowances 397 0.01 ≤ 0.01 

Percentage of services billed at the incorrect level 397 0.45 0.40 to 0.50 

Ratio of excess amount allowed for services billed at the 

wrong level to all allowances 397 0.18 0.16 to 0.21 

Percentage of services that were upcoded 397 0.41 0.36 to 0.45 

Ratio of excess amount allowed for upcoded services to all 

allowances 

397 0.20 0.18 to 0.23 

Percentage of services that were downcoded 397 0.05 0.03 to 0.07 

Ratio of underpayments for downcoded services to all 

allowances 

397 (0.02) (≤ 0.02) to (0.01) 

Percentage of services that were undocumented 397 0.09 0.06 to 0.12 

Ratio of the amount allowed for undocumented services 

to all allowances 

397 0.08 0.05 to 0.11 

Percentage of services that were documented 

inadequately 

397 0.04 0.02 to 0.06 

OE I-09-02-00 030 C O N S U LTAT I O N S IN ME D I CARE : C O D I N G A N D RE I MBURS E M E N T 14 
APP E N D I X ~B 

Confidence Intervals for Statistics (continued) 

Statistic N Point Estimate 95% Confidence Interval 

Percentage of services billed at level five of the 

correct type that were billed incorrectly 

22 0.95 > 0.87 

Mean degree of upcoding where the consultation was 

billed at level five of the correct type 

22 1.91 levels 1.58 to 2.24 levels 

Mean overpayment due to upcoding where the 

consultation was billed at level five of the correct type 

22 $92.52 $77.98 to $107.06 

Ratio of dollars improperly allowed at level five to all 

allowances 

397 0.07 0.04 to 0.09 

Percentage of documented services billed as follow-up 

consultations that were miscoded 

34 0.94 > 0.86 

OE I-09-02-00 030 C O N S U LTAT I O N S IN ME D I CARE : C O D I N G A N D RE I MBURS E M E N T 15 
Δ APPENDIX ~ C 

Inappropriately Allowed Amounts Based Strictly on Our Service Universe 

Statistic N Point Estimate 95% Confidence Interval 

Excess amount allowed for services that were miscoded 

or undocumented 

397 $656 million $578 million to $734 million 

Excess amount allowed for services that were not actually 

consultations 

397 $118 million $77 million to $159 million 

Excess amount allowed for consultations billed as the 

incorrect type or level 

397 $378 million $317 million to $439 million 

Excess amount allowed for consultations billed as the 

incorrect type of consultation 397 $14 million < $29 million 

Excess amount allowed for consultations billed at the 

wrong level 

397 $364 million $304 million to $424 million 

Excess amount allowed for upcoded services 397 $396 million $340 million to $452 million 

Underpayments for downcoded services 397 ($32 million) ($47 million) to ($17 million) 

Amount allowed for undocumented services 397 $160 million $105 million to $216 million 

OE I-09-02-00 030 C O N S U LTAT I O N S IN ME D I CARE : C O D I N G A N D RE I MBURS E M E N T 16 
Δ APPENDIX ~ D 

OE I-09-02-00 030 C O N S U LTAT I O N S IN ME D I CARE : C O D I N G A N D RE I MBURS E M E N T 17 
APP E N D I X ~D 

OE I-09-02-00 030 C O N S U LTAT I O N S IN ME D I CARE : C O D I N G A N D RE I MBURS E M E N T 18 
APP E N D I X ~D 

OE I-09-02-00 030 C O N S U LTAT I O N S IN ME D I CARE : C O D I N G A N D RE I MBURS E M E N T 19 
APP E N D I X ~D 

OE I-09-02-00 030 C O N S U LTAT I O N S IN ME D I CARE : C O D I N G A N D RE I MBURS E M E N T 20 
Δ APPENDIX ~ A ACKNOWLEDGMENTS 

This report was prepared under the direction of Paul A. Gottlober, 

Regional Inspector General for Evaluation and Inspections in the San 

Francisco regional office. Other principal Office of Evaluation and 

Inspections staff who contributed include: 

Deborah Harvey, Project Leader 

Scott Hutchison, Project Leader 

Silvia Chin, Program Analyst 

Cheryl Dotts, Program Assistant 

Robert Gibbons, Program Analyst 

Michael Henry, Program Analyst 

Thomas Purvis, Program Analyst 

Stephanie London, Program Specialist 

Linda Moscoe, Program Analyst 

Bambi Straw, Program Specialist 

Tricia Davis, Director, Medicare and Medicaid Branch 

Barbara Tedesco, Mathematical Statistician 

OE I-09-02-00 030 C O N S U LTAT I O N S IN ME D I CARE : C O D I N G A N D RE I MBURS E M E N T 21