Department of Health and Human Services

OFFICE OF 

INSPECTOR GENERAL 

 

Daniel R. Levinson 

Inspector General 

May 2008 

OEI-06-03-00390 

 

NURSING HOME ENFORCEMENT: 

PROCESSING DENIALS OF 

MEDICARE PAYMENT 
 

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 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. These assessments help reduce waste, abuse, and 

mismanagement and promote economy and efficiency throughout HHS. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 

HHS, Congress, and the public with timely, useful, and reliable information on significant 

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. 

Office of Investigations 

The Office of Investigations (OI) conducts criminal, civil, and administrative investigations 

of fraud and misconduct related to HHS programs, operations, and beneficiaries. With 

investigators working in all 50 States and the District of Columbia, OI utilizes its resources 

by actively coordinating with the Department of Justice and other Federal, State, and local 

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 OIG’s internal operations. OCIG represents OIG in all civil and 

administrative fraud and abuse cases involving HHS programs, including False Claims Act, 

program exclusion, and civil monetary penalty cases. In connection with these cases, OCIG 

also negotiates and monitors corporate integrity agreements. OCIG renders advisory 

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. 
 

 

 

Δ EXECUTIVE SUMMARY 

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 

CMS’s provision of denial of payment instructions to the appropriate FI. 

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EXECUTIVE SUMMARY 

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 CMS’s 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 

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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. CMS’s response is included in its entirety as Appendix B. 

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Δ TABLE OF CONTENTS 

EXECUTIVE SUMMARY ..................................... i 
 

INTRODUCTION ........................................... 1 
 

FINDINGS ................................................. 6 
 

In FY 2004, 74 percent of remedies were processed incorrectly . . . 6 

Half of claims involving readmissions lacked codes ........... 10 
 

RECOMMENDATIONS ..................................... 12 
 

Agency Comments and Office of Inspector General Response . . . 13 

APPENDIXES ............................................. 15 
 

A: Estimates and 95-Percent Confidence Intervals ........... 15 
 

B: Agency Comments ................................... 16 
 

ACKNOWLEDGMENTS .................................... 20 
 
 

 

 

 

Δ INTRODUCTION 

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 

in the Medicare and Medicaid programs.1 2 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 

effective and efficient use of public moneys.”3 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 

of which is “to ensure prompt compliance with program requirements.”4 

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 CMS’s internal guidance documents 

emphasize that “it is a severe sanction” and should be considered for use 

only when other remedies have failed to achieve compliance.5 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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INTRODUCTION 

severe remedy is to deny payment only for services provided to 

beneficiaries who are newly admitted to the nursing home.6 

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 

consecutive surveys with findings of substandard quality of care.7 8 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 

appropriate FI.9

 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 

 OEI-06-03-00390 

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 resident’s 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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INTRODUCTION 

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 

admission.10 This guidance has also been incorporated into the 

“Medicare Claims Processing Manual” and the “Medicare Benefit Policy 

Manual.” 11 12 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, 

has been discharged before that effective date.”13 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. 

 OEI-06-03-00390 

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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INTROD U C T I O N 
 

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) 

2001.14 Additionally, this report focuses specifically on the DPNA 

remedy and does not address the denial of payment remedy for all 

Medicare and Medicaid beneficiaries.15 

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 

denials of payment did not go into effect.17 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. 

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INTRODUCTION 

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 error—i.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 President’s Council on Integrity and 

Efficiency and the Executive Council on Integrity and Efficiency. 

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Δ FINDINGS 

During FY 2004, 74 percent of denial of payment 

remedies were processed incorrectly, resulting 

in overpayments exceeding $5 million 

We estimate that of 697 DPNAs 

that were in effect during FY 2004, 

74 percent (516 cases) had 

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 

Number of 

Cases 

Estimated 

Percentage 

of Cases 

Estimated 

Paid in 

Error 

Processed Correctly 182 26% N/A 

Processed Incorrectly 

 Resulting in Payment Errors 

Processing Errors Only 

516 

276 

240 

74% 

40% 

34% 

$5,042,181

$5,042,181

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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FINDINGS 

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 

Number of 

Error Cases 

Estimated 

Percentage of 

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 

payments for claims erroneously paid.18 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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FINDINGS 

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 CMS’s 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 

selection periodically.19 20 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 

 OEI-06-03-00390 

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 home’s 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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FINDING 
 S 

the 14 percent of cases identified by our review, the FIs either did not 

recognize CMS’s 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 

CMS’s 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 

CMS’s 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 edit’s 

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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FINDINGS 

Another problem we identified related to a system known as SuperOp.21 

Some claims that were processed through SuperOp bypassed the edit, 

causing the DPNA status for the nursing facility to be overlooked. 

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 

We estimate that during our 

sample year, 1,898 claims were 

processed and paid for residents 

exempted from the DPNA remedy 

because they were identified as 

readmissions. Of these, less than 

half (46 percent) were properly coded.22 According to CMS’s program 

memorandum, “Fiscal Intermediary (FI) Instructions on Applying 

Payment Bans on Skilled Nursing Facility (SNF) Admissions,” claims 

for readmissions should be identified by including specific codes.23 

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 CMS’s 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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FINDINGS 

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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RECOMMENDATIONS 

 

 

Δ RECOMMENDATIONS 

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 CMS’s 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 

routinely change contractors.24 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 

impending DPNAs.25 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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RECOMMENDATIONS 

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 CMS’s 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 CMS’s 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 CMS’s comments, FI activities are 

transitioning to MACs. Consequently, this transition provides an 

important opportunity for CMS to clarify the MAC’s role in processing 

DPNAs. CMS’s response is included in its entirety as Appendix B. 

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Δ APPENDIX 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 

Types of Error 

Percentage 

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 

Readmissions 

Percentage of 

Readmission 

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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Agency Comments 

Δ APPENDIX B 
 

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APPENDIX ~ B 
 

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APPENDIX ~ B 
 

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APPENDIX ~ B 
 

 

Δ ACKNOWLEDGMENTS 

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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