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HHS Inspector General Issues Report Showing Widespread Flaws In Medicare Reimbursements For Outpatient Psychiatric Services

Report Further Supports NAMI's Advocacy Positions

For Immediate Release, April 6, 2000
Contact: Chris Marshall

The Office of the Inspector General (OIG) of the Department of Health and Human Services (HHS) recently released a report examining whether billing and reimbursement for psychiatric services delivered on an outpatient basis met with Medicare requirements. The OIG report, "Ten-State Review of Outpatient Psychiatric Services at Acute Care Hospitals" (A-01-99-00507, March 2000), that also included Partial Hospitalization Programs (PHPs), found that a large percentage (58.8%) of Medicare claims and reimbursements were in error, and paid for "unallowable or unsupported" psychiatric services provided on a outpatient basis in 10 states with the highest volume of claims.

Previously in October of 1998, the OIG conducted reviews of PHP services conducted by Community Mental Health Centers. The findings were remarkably similar to this report on PHP services and other outpatient services in acute care hospital settings. In response to these reports and strong advocacy efforts, HCFA is implementing a broad evaluation of the PHP benefit in both CMHCs and hospital outpatient departments.

The 10 states reviewed by OIG were California, Connecticut, Florida, Illinois, Louisiana, Massachusetts, Michigan, New York, Pennsylvania, and Texas. The OIG identified 473,976 outpatient psychiatric claims made in 1997 that cost Medicare $381,941,152 (77 percent of the nationwide total). Through statistical analysis, the OIG found that approximately 58.8 percent of the amount of paid claims for PHPs and other outpatient psychiatric programs did not meet the criteria for Medicare reimbursement. The OIG found that these services were 1) not documented in accordance with Medicare requirements, 2) not reasonable and necessary, and/or 3) rendered by unlicensed personnel.

NAMI has been concerned that lack of proper documentation may signal a lack of delivery of appropriate and necessary services to people with severe mental illnesses in these programs. Without documentation, it is impossible to ensure that these services are being delivered and impossible to hold service providers accountable for providing these services in accordance with the treatment plan. Despite the obvious inefficiency and waste of paying out Medicare claims without the required coding and documentation for payment, the OIG report found in many instances that the medical records of patients were not being maintained.

The law requires that the " medical record must contain information to justify admission and continued hospitalization, support the diagnosis, and describe the patient's progress and response to medications and services." The law further states that a medical record must contain a treatment plan that includes " ..The Physician's diagnosis, the type, amount, duration, and frequency of the services; and treatment goals under the plan." In many of the claims reviewed by OIG, no documentation appeared in the medical record, and in an even larger amount of claims that contained some documentation for services, medical reviewers could not conclude that the services claimed for Medicare payment were actually provided to the patient, or were provided at the level billed, and/or were medically necessary.

NAMI is very concerned that the lack of proper medical record documentation in outpatient programs, required by law, translates into a lack of appropriate patient care and that the vast majority of people with mental illnesses in PHPs and other outpatient programs are not getting the treatment and services that they need and that are provided for by law. The OIG report concluded that the "patient's level of care is unclear."

NAMI states clearly in its advocacy positions that:

  • providers of partial hospitalization programs must provide 24 hour-a-day emergency care services and must screen and assess persons for possible hospital admissions,
  • all persons served should have a documented diagnosis of illness,
  • all persons served should have an individualized plan with stated clinical goals and progress notes.
  • existing peer review organizations (PROs) should be directly involved in verifying a sample of clinical cases as medically necessary and appropriate. These reports should be publicly available.

Please refer to the NAMI Where We Stand paper on Partial Hospitalization for NAMI's previously stated advocacy positions which are supported by the conclusions of the OIG in this report and previous reports on the PHP benefit.

Program integrity of partial hospitalization services has also been one of NAMI's issues for reform. Last October, a subcommittee of the House Commerce Committee conducted a hearing on "fraud and abuse" in the partial hospitalization program. Auditors for the Health Care Financing Administration (HCFA) had just the week before terminated 80 Community Mental Health Centers (CMHCs) in nine states providing partial hospitalization services from the program because they failed to provide active treatment and instead were simply "warehousing" people with severe mental illnesses in the programs. Although NAMI has acknowledged that partial hospitalization is frequently used because of the inadequacy of the Medicare mental health benefit which does not cover services such as psychiatric rehabilitation, case management, and programs of assertive community treatment, pressure to approve services outside allowable Medicare benefits parameters may do more harm than good by the loss of the Medicare benefit altogether. NAMI strongly advocates that:

  • the Medicare benefit be expanded to cover medications, psychiatric rehabilitation, case management, and programs of assertive community treatment, and
  • program integrity of services must be restored to retain this important Medicare benefit.

Although NAMI supports these modest efforts to grapple with the problems of the PHP benefit program, they are hardly adequate in facing the real concerns of patients with severe mental illnesses currently being underserved by these programs and the problems indicated by an error rate in reimbursement of almost 60%. These findings demand more attention and it is questionable whether they would be tolerated for any other population than people with severe mental illnesses. NAMI strongly recommends that further steps be taken to ensure an appropriate level of patient care. The following Where We Stand paper on Partial Hospitalization contains all of NAMI's specific recommendations.

The OIG report can be accessed online at