Inpatient Psychiatric Facilities are Overpaid for Unnecessary Outlier Payments

At the end of the day, virtually all of the Medicare program – and any health insurance plan for that matter – relies on the honor system.  Medicare will pay claims based on the representations of doctors and healthcare staff, and ultimately the coders/billing department.  While there are certain checks and balances in the process, the system stands or falls based on the honesty of those making the claims. 

Hospital Fraud Lawyers - The Whistleblower Firm

That means that oversight entities, like the U.S. Department of Health & Human Services Office of the Inspector General (OIG), serve a crucial role in the process.  Without an objective watchdog keeping an eye on the way the system is administered, it is highly likely that the Medicare system would increasingly suffer Healthcare Fraud costs.

The importance of OIG’s function was borne out again in its April 2020 report on inpatient psychiatric facilities (IPFs).  Apparently, IPFs have been less than careful with regard to making so-called “outlier” claims. It appears that IPFs may have improperly made outlier claims 87 percent of the time.  

What is an “Outlier” Claim?

Medicare pays IPFs a set per diem rate for inpatient services duly modified based on the patient’s level of care and length of stay, as well as the facilities particular characteristics. 

In addition, Medicare will utilize an “outlier” payment policy, which is an additional payment to the IPF when the costs for a patient’s case are unusually high when appropriately applied, the outlier payment is available as a way to ensure that an IPF does not suffer substantial financial loss for providing patient care.

Why Did OIG Put IPF Outlier Claims in the Crosshairs?

OIG discovered that between 2014 and 2015 the number of outlier claims made by IPFs increased by 28 percent.  That increase represented about $100 million more paid to IPFs based on outlier claims alone. 

Accordingly, OIG launched an audit to determine whether IPFs were complying with Medicare’s rules with regard to coverage, payment, and participation in 2014 and 2015.  The audit consisted of a random sample of 160 outlier claims that Medicare paid to IPFs during those two years.

OIG’s Audit Revealed 87 Percent Non-Compliance with Medicare Requirements

The audit revealed a distressing conclusion.  Eighty seven percent of the outlier claims failed the audit protocol. Specifically, IPFs made outlier claims without any proof of medical necessity or sufficient supporting medical records.  For example, many outlier claims lacked a physician certification supporting the need for an outlier payment.  Further, several medical records showed that certain IPFs failed to protect a patient’s right to make informed decisions about his or her care.

Those troubling conclusions indicated an overall sense that most outlier claims were not justified by unusually high costs for care.  Thus, OIG estimated that over the years 2014 and 2015, Medicare may have overpaid IPFs approximately $100 million. 

OIG also found three other areas of concern:

  • Outlier payments were made even though the care was not unusually expensive;
  • Some patients used “lifetime reserve days” to pay for days in an IPF only because no post-hospitalization placements were available; and
  • CMS failed to track patient falls at IPFs.

What Recommendations did OIG Make?

In order to avoid overpayments to IPFs for unsupported outlier claims, and to remedy certain non-outlier related issues, OIG made seven separate recommendations to CMS:

  1. Conduct more post-payment reviews, and give IPFs more claim feedback;
  2. Institute regulations to protect a patient’s right to make informed decisions on care;
  3. Review the accuracy of the outlier payment system;
  4. Track patient fall rates;
  5. Research whether physician certifications actually help limit inappropriate outlier claims;
  6. Create a uniform physician certification to assist in auditing outlier claims; and
  7. Study the issue of patients using their “lifetime reserve days” for hospital stays.

CMS was open to implementing the first four OIG recommendations.  However, CMS did not concur with the last three recommendations.  With regard to physician certifications, CMS noted that the certifications are required by law, and CMS lacks the power to make changes in that regard.  Further, CMS did not see any utility to making a certification form uniform.  Finally, CMS recognized that lifetime reserve days should not be used when a patient falls below an active level of care.  However, administrative necessary days are available when a patient is ready for discharge, but an appropriate post-hospital setting is not available.


Outlier payments are often low-hanging fruit for unscrupulous providers.  With inpatient psych facilities, the opportunities are even greater because the patients are often not available or are not reliable as witnesses. For more information about IPF fraud, be sure to check out our Knowledge Base page on the subject

If you have further questions on this or any Medicare subject, please contact the Whistleblower Firm – Nolan Auerbach & White, LLP.  We have the experience and resources to protect healthcare fraud whistleblowers.  Contact us online, or by calling 800-372-8304 today.

OUR PROMISE Being a healthcare whistleblower can feel like David taking on Goliath. We help level the playing field.

Our law practice is dedicated exclusively to representing healthcare whistleblowers who are willing to take a stand against unscrupulous corporations that are ripping off our government. Whether the fraud involves __________, we pride ourselves on unparalleled level of service, support and legal assistance for our clients.
Contact Us