Audit of Yale-New Haven Hospital Organ Acquisition Costs Claimed For The Period October 1997 Through

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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 OIG's Office of Audit Services (OAS) provides all 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 in order to reduce waste, abuse, and mismanagement and to promote economy and efficiency throughout the department. Office of Evaluation and Inspections The OIG's Office of Evaluation and Inspections (OEI) conducts short-term management and program evaluations (called inspections) that focus on issues of concern to the department, the Congress, and the public. The findings and recommendations contained in the inspections reports generate rapid, accurate, and up-to-date information on the efficiency, vulnerability, and effectiveness of departmental programs ...

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http://oig.hhs.gov

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:

The OIG's Office of Audit Services (OAS) provides all 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 in order to reduce waste, abuse, and mismanagement and to promote economy and efficiency throughout the department. Office of Evaluation and Inspections The OIG's Office of Evaluation and Inspections (OEI) conducts short-term management and program evaluations (called inspections) that focus on issues of concern to the department, the Congress, and the public. The findings and recommendations contained in the inspections reports generate rapid, accurate, and up-to-date information on the efficiency, vulnerability, and effectiveness of departmental programs. Office of Investigations The OIG's Office of Investigations (OI) conducts criminal, civil, and administrative investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries and of unjust enrichment by providers. The investigative efforts of OI lead to criminal convictions, administrative sanctions, or civil monetary penalties. The OI also oversees state Medicaid fraud control units, which investigate and prosecute fraud and patient abuse in the Medicaid program. 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 in OIG's internal operations. The OCIG imposes program exclusions and civil monetary penalties on health care providers and litigates those actions within the department. The OCIG also represents OIG in the global settlement of cases arising under the Civil False Claims Act, develops and monitors corporate integrity agreements, develops model compliance plans, renders advisory opinions on OIG sanctions to the health care

THIS REPORT IS AVAILABLE TO THE PUBLIC

U.S.C. 55 as amended by Public Law 104-231), IOnffsipce efoA du,lO ffcir Gen eorfacto it Services reports are made availablme bteor sm oef the public to the extent the 5.)

OAS FINDINGS AND OPINIONS

recommendation for the disallowance of costs incurred or claimed, as well as ot conclusions and recommendationsr eipn otrhti, sr epresent the findings and opinions of the HHS/OIG/OAS. Authorized officials of the HHS divisions will make final

EXECUTIVE SUMMARY BACKGROUND Yale-New Haven Hospital (Yale-New Haven), located in New Haven, Connecticut, is a 944-bed tertiary referral center which includes the 201-bed Yale-New Haven Children’s Hospital and the 76-bed Yale-New Haven Psychiatric Hospital. On its fiscal year (FY) 1998 through FY 2001 Medicare cost reports, Yale-New Haven claimed over $13.4 million for organ acquisition costs associated with kidney, heart, liver, and pancreas transplants. Medicare reimburses certified transplant programs for costs associated with the acquisition of organs for transplant to Medicare beneficiaries. Of the amount claimed for FY 1998 through FY 2001, Medicare’s share was $6,492,769. Medicare allows as organ acquisition costs all costs associated with the organ donor and recipient before admission to a hospital for the transplant operation (i.e., pre-transplant services) and the hospital inpatient costs associated with the donor. Regarding salaries, only the portion of salaries that relates to time spent on pre-transplant activities may be included as organ acquisition costs on the Medicare cost report. If an employee performs both pre-transplant and other activities (post-transplant or non-transplant), then the related salary should be allocated to the appropriate cost centers using a reasonable basis, such as time studies. OBJECTIVE The objective of this self-initiated audit was to determine whether organ acquisition costs claimed on the FYs 1998 through 2001 Medicare cost reports by Yale-New Haven for its kidney, heart, liver and pancreas transplant programs were allowable and supported. Specifically, did Yale-New Haven: •Comply with Medicare laws, regulations, and guidelines for claiming organ acquisition costs? •Medicare reimbursement for organ acquisition activities?Receive excess SUMMARY OF FINDINGS Yale-New Haven did not comply with Medicare laws, regulations, and guidelines in the preparation of its Medicare cost report and received excess reimbursement for organ acquisition activities. Specifically, Yale-New Haven claimed costs associated with post-transplant activities. This occurred because Yale-New Haven did not have a system to identify salaries related to post- transplant activities. As a result, Yale-New Haven claimed, as organ acquisition costs, $1,572,795 of salary costs that were not properly supported with current, accurate documentation that differentiated between pre-transplant and post-transplant activities as required by Medicare.

The table below summarizes the results of the audit by fiscal year: Unsupported Cost and Medicare Overpayments by Fiscal Year Claimed1 Medicare Medicare Year Costs Allowable Unsupported Unaudited2Reimbursement Overpayments 1998 2,664,324 324,395 1,302,480 1,037,449 1,438,543 180,332 1,289,492 2,729,136 - 441,6041999 3,170,740 183,796 2000 3,605,050 197,134 3,233,700 1,770,439 371,350 - 3,609,734 1,994,295 435,446 -2001 4,045,180 232,220 Total 13,485,294 1,572,795 6,492,769 1,302,480 10,610,019 793,482 The unsupported costs pertain to the total salaries claimed as OAC during FYs 1998 2001. Based on interviews with various transplant employees, we determined that the salaries claimed were for personnel that performed both pre-transplant and post-transplant activities in the OAC cost centers. However, each employee’s entire salary was included in the OAC cost centers because Yale-New Haven did not have a system to identify salaries related to post-transplant activities. While we recognize that some portion of the salaries may have related to organ acquisition activities and would have been allowable if properly documented, based on Federal regulations and the Provider Reimbursement Manual the costs are considered unallowable for Medicare reimbursement. If Yale-New Haven cannot provide adequate support for these costs, the Medicare intermediary should remove the $1,572,795 of salaries from the organ acquisition cost center and recover the entire Medicare overpayment of $793,482 associated with those costs. We provided a copy of this report to both Yale-New Haven and Empire Medical Services, as both parties shall be responsible for correcting the issues identified in this report. While Yale-New Haven will be responsible for instituting internal controls to ensure that salaries claimed as OAC are limited to those related to pre-transplant services, Empire Medical Services shall be responsible for all financial adjustments. RECOMMENDATIONS We recommend that the Medicare intermediary: 1. Work with Yale-New Haven to determine, if possible, what portion of the $1,572,795 of unsupported costs and related Medicare payment of $793,482 is associated with

1We limited the scope of our audit based on our analysis of high risk cost categories and a review of audits performed by the Medicare contractor. We do not express an opinion on the $10.6 million not audited. 2We limited the scope of our audit to the salaries for FY 1999 through FY 2001 based on analysis of FY 1998. ii

allowable organ acquisition activities, and recover that portion of the $793,482 that Yale-New Haven is unable to support with allowable organ acquisition costs.

2. Monitor future Medicare cost report claims for organ acquisition costs from Yale-

New Haven to ensure compliance with Medicare requirements. 3. Instruct Yale-New Haven to develop and maintain adequate time studies and accounting controls, and to provide clear direction to responsible personnel as to Medicare requirements for claiming and documenting organ acquisition costs. Yale-New Haven Hospital and Empire Medicare Services Comments In their responses to our draft report, Yale-New Haven Hospital and Empire Medicare Services agreed with our findings and recommendations.

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TABLE OF CONTENTS INTRODUCTION..........................................................................................................1... BACKGROUND.................................................... .1.................................................... Yale-New Haven Hospital....................................................................................1 Medicare Reimbursement of Organ Acquisition and Transplant Costs.........1 Medicare Allowable Organ Acquisition Costs...................................................2 Medicare’s Supporting Documentation Rules...................................................2

OBJECTIVE, SCOPE, AND METHODOLOGY..........................................2 .................... .2.........................................................................e..tcvibOej................ Scope.......................................................................................................................3 Methodology...........................................................................................................3 FINDINGS AND RECOMMENDATIONS......................................................4 RECOMMENDATIONS..................................................................................... ....5 Yale-New Haven Hospital Comments............................................................. ....5

INTRODUCTION BACKGROUND Yale-New Haven Hospital Yale-New Haven Hospital (Yale-New Haven), located in New Haven, Connecticut, is a 944-bed tertiary referral center which includes the 201-bed YaleNew Haven Children’s Hospital and the 76-bed Yale-New Haven Psychiatric Hospital. Our audit covered fiscal years 1998 through 2001. During that period, Yale-New Haven operated transplant programs that were Medicare-certified for kidney (July 1, 1966), heart (March 14, 1992), liver (November 4, 1998) and pancreas (July 1, 1999). During this period, Yale-New Haven purchased organs for transplant from the New England Organ Bank. Yale-New Haven claimed $13,485,294 for organ acquisition costs associated with its transplant programs during FYs 1998 through 2001. Of the amount claimed, Medicare’s share was $6,492,769 (48 % percent). There was an additional $785,821 in organ acquisition costs associated with liver and pancreas transplants that was non-reimbursable because the Medicare certification had not yet been obtained. Medicare Reimbursement of Organ Acquisition and Transplant Costs Medicare reimburses hospitals that are certified transplant centers for their reasonable costs associated with organ acquisition. Costs that qualify as organ acquisition costs are reimbursed outside of the Medicare prospective payment system and are in addition to the hospital’s payment for the transplant itself. Medicare reimbursed Yale-New Haven for organ acquisition costs as pass-through costs under Medicare Part A, based on the ratio of Medicare transplants to total transplants. Under this retrospective cost reimbursement system, Medicare makes interim payments to hospitals throughout the fiscal year. At the end of the fiscal year, each hospital files a cost report and its interim payments are reconciled with allowable costs, which are defined in regulation and policy. The Medicare program also reimbursed Yale-New Haven for the transplant surgery, inpatient, and post-transplant costs for the recipients, but through different payment systems. Medicare Part A paid for the cost of the transplant surgeries and certain follow-up care through diagnosis-related group (DRG) payments to the hospital. The DRG payments were set at a predetermined rate per discharge for groups of patients that demonstrate similar resource consumption and length-of-stay patterns. Medicare Part B paid for the physician services furnished to a live donor or recipient during and after the transplant.

Medicare Allowable Organ Acquisition Costs Medicare allows as organ acquisition costs all costs associated with the organ donor and recipient before admission to a hospital for the transplant operation (i.e., pre-transplant services) and the hospital inpatient costs associated with the donor. Allowable organ acquisition costs include costs for activities, such as tissue typing, recipient registration fees, recipient and donor evaluations, purchase and transportation of the organs, and inpatient stays for organ donors. Medicare’s Supporting Documentation Rules The Medicare rules require that hospitals maintain separate cost centers for each type of organ. Only the portion of salaries that relates to time spent on allowable organ acquisition activities may be included as organ acquisition costs on the Medicare cost report. If an employee performs both pre-transplant and other activities (post-transplant or non-transplant), then the related salary should be allocated to the appropriate cost centers using a reasonable basis. The documentation must be current, accurate, and in sufficient detail to support payments made for services rendered to beneficiaries. This includes all ledgers, books, records, and original evidences of cost (e.g., labor time cards, payrolls, bases for apportioning costs), which pertain to the determination of reasonable cost. Regarding salaries, an employee’s job description often describes activities that are both pre- and post-transplant. In such situations, the hospital is expected to keep accurate time records or time studies to support its decision to allocate a portion of the employee’s salary to the organ acquisition cost center. OBJECTIVE, SCOPE, AND METHODOLOGY Objective The objective of this self-initiated audit was to determine whether organ acquisition costs claimed on the FY 1998 through FY 2001 Medicare cost reports by Yale-New Haven for its kidney, heart, liver and pancreas transplant programs were allowable and supported. Specifically, did Yale-New Haven: •Comply with Medicare laws, regulations, and guidelines for claiming organ acquisition costs? •Receive excess Medicare reimbursement for organ acquisition activities? To the extent that the costs claimed were unsupported, we disclosed the related estimated Medicare overpayment.

Scope The scope of our audit included kidney, heart, liver, and pancreas acquisition costs claimed by Yale-New Haven on its FYs 1998 through 2001 Medicare cost reports. We did not audit the total number of organs transplanted, the Medicare eligibility of the recipients, inpatient days, or the ratio of costs to charges used on the Medicare Part A cost report to determine certain costs. We limited our review of costs claimed in FY 1998 to salaries and organ acquisition invoices. Based on those, we limited our review of FY 1999 2001 to salaries. Our audit was conducted in accordance with generally accepted government auditing standards. We did not review the internal controls at Yale-New Haven because a review of such controls was not necessary to accomplish the objectives of our audit. We issued a draft report to Yale-New Haven and Empire Medicare Services on May 21, 2004. Yale-New Haven and Empire Medicare Services comments to our draft report are included in their entirety as an appendix to this report and summarized on Page 5. Methodology To accomplish our objective, we: •obtained an understanding of Medicare reimbursement principles for organ acquisition costs •reviewed the documentation supporting organ acquisition costs claimed by Yale-New Haven for FYs 1998 through 2001 •reviewed accounting records and reports •reviewed payroll records •interviewed Yale-New Haven employees and managers •obtained documentation from the Empire Medical Services fiscal intermediary (FI) •reviewed working papers from prior FI audits •discussed the OIG recommended adjustments with the FI The FI determined the estimated Medicare overpayment amounts associated with our findings using proprietary software to adjust Yale-New Haven’s Medicare cost report. We performed our fieldwork at Yale-New Haven Hospital and the FI during the period from December 2003 through January 2004.