Results of a Limited Scope Audit of Skilled Nursing Facility Medical Supply and Equipment Items Billed to Medicare as Ancillary by Methodist Hospital

This report provides you with the results of a limited scope audit of Skilled Nursing Facility (SNF) medical supply and equipment items billed to Medicare as ancillary by Methodist Hospital between June 1, 1992 and May 31, 1994, fiscal years (FYs) 1993 and 1994. During this period, Methodist Hospital, located in Lubbock, Texas, billed Medicare $1,666,416 for these ancillary items. The objective of our audit was to determine whether medical supply and equipment items were properly billed as ancillary under Medicare guidelines.

The Methodist Hospital improperly billed routine medical supply and equipment items as ancillary. As a result, overcharges totaling $503,590 ($252,223 for FY 1993 and $251,367 for FY 1994) were made to the Medicare program. Ancillary charges were overstated and the SNF's routine costs were understated. However, because the SNF's routine costs were above the Medicare cost limitation for both FYs 1993 and 1994 an overpayment occurred totaling about $200,000. According to Blue Cross Blue Shield of Texas (BCBSTX), this overpayment amount may vary after reclassifications are made and the cost-to-charge ratios are modified.

The Methodist Hospital's billing system has not changed significantly since FY 1994. According to a Methodist Hospital official, essentially, the medical supply and equipment items that were billed for FY 1994 were also billed for FYs 1995 and 1996. This official stated that better communication between BCBSTX and the Methodist Hospital would ensure the proper classification of SNF medical supply and equipment items.