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DEPARTMENT OF HEALTH &. HUMAN SERVICES Office of Inspector General

Washington, D.C. 20201

APR 10 2009

TO: Jackie Garner

Acting Director, Center for Medicaid and State Operations

Centers for Medicare & Medicaid Services

FROM:

~1jJ.M~ 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

improper payments for these services in FYs 2005 and 2006. Over half of this amount

corresponded to five Current Procedural Terminology (CPT) codes. One of these codes

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 

OEI-04-07-00340 Potential Improper Medicaid Payments for Outpatient Laboratory Services for Dual-Eligible 

Beneficiaries 

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 State’s 

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 eligible’s clinical laboratory services, no payment should be made by the 

recipient’s 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. 
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OEI-04-07-00340 Potential Improper Medicaid Payments for Outpatient Laboratory Services for Dual-Eligible 

Beneficiaries 

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. 
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OEI-04-07-00340 Potential Improper Medicaid Payments for Outpatient Laboratory Services for Dual-Eligible 

Beneficiaries 

Standards 

This study was conducted in accordance with the “Quality Standards for Inspections” issued by 

the President’s 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 

Improper Medicaid 

Payments 

FY 2006 Potential 

Improper Medicaid 

Payments 

Total Potential 

Improper Medicaid 

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. 
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OEI-04-07-00340 Potential Improper Medicaid Payments for Outpatient Laboratory Services for Dual-Eligible 

Beneficiaries 

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 

Improper Medicaid 

Payments 

Percentage of Total 

Potential Improper 

Medicaid Payments 

36415 Collection of venous blood by 

venipuncture 

$379,065 29% 

85025 Complete, automated, and 

automated differential white blood 

cell count 

$166,457 13% 

80053 Comprehensive metabolic panel $57,981 5% 

81000 Urinalysis, nonautomated with 

microscopy 

$50,884 4% 

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