Iowa Complied With Most Federal Requirements Prohibiting Medicaid Payments for Inpatient Hospital Services Related to Provider-Preventable Conditions

The Iowa Department of Human Services (State agency) complied with most Federal requirements prohibiting Medicaid payments for inpatient hospital services related to treating certain provider-preventable conditions (PPCs), because its automated system edits identified claims submitted by the hospitals for those services that related to treating PPCs and reduced the related payment amounts accordingly. PPCs are certain reasonably preventable conditions caused by medical accidents or errors in a health care setting.

However, the State agency incorrectly excluded certain inpatient hospital types from the Federal PPC reporting and payment reduction requirements and did not require those hospital types to populate the present-on-admission (POA) code field on their claims.

Furthermore, although the State agency did reduce the payments related to treating PPCs, its system edits incorrectly included diagnosis codes that should not have been subject to the payment reduction because the Centers for Medicare & Medicaid Services (CMS) had not designated those codes as complications or comorbidities (CCs) or major CCs (MCCs).

The State agency's instances of noncompliance with Federal requirements occurred because the State agency misinterpreted some specific portions of the requirements related to the hospital types subject to PPC reporting requirements and disseminated incorrect guidance in the form of a State agency Informational Letter to inpatient hospitals.

We recommended that the State agency issue a revised Informational Letter to require that all inpatient hospital types report PPCs and appropriately reduce payments for PPCs for all future claims in accordance with Federal requirements. We also made procedural recommendations to the State agency that it obtain the POA codes for inpatient hospital types that were excluded due to the State agency's misinterpretation of the Federal requirements and identify and adjust any paid claims as necessary, revise its claims processing system edits, and identify any paid claims that had an improper payment reduction from diagnosis codes that were not considered a CC or MCC and make the proper adjustments.

The State agency did not concur with our recommendations. The State agency stated that it followed CMS Medicare guidance that specifically exempts certain hospitals. The State agency added that no corrective action was necessary for its system edits because it updated its claims system on October 1, 2015, and said that it can identify but not adjust claims that are 3 years old or older.

We maintain that our recommendations remain valid. Entities that operate as Medicaid inpatient hospitals are not exempt from payment reduction. We did not review the State agency's updated claims system because it was implemented after our audit period. Finally, because the State agency can identify the claims that had an improper payment reduction, it has the ability to adjust those payments.