Feb. 13—Medicare’s waste and fraud watchdog agency has begun examining whether the program could derive savings from future limits of hospital executive pay.

The first-time examination of executive pay was revealed in the Office of Inspector General (OIG) annual report on its plans for FY14, released at the end of January.

The agency plans to review data from Medicare cost reports and hospitals to identify salary amounts included in operating costs reported to and reimbursed by Medicare.

“We will determine the potential impact on the Medicare Trust Fund if the amount of employee compensation that could be submitted to Medicare for reimbursement on future cost reports had limits,” the report stated.

Medicare rules allow the inclusion of employee compensation in allowable provider costs if it represents “reasonable remuneration” for managerial, administrative, professional, and other services related to the operation of the facility and furnished in connection with patient care.

Medicare does not limit the salary amounts that can be reported on the hospital cost report.

Richard L. Gundling, vice president of healthcare financial practices for HFMA, said any OIG audit of executive compensation as it relates to Medicare payment is misguided.

“Healthcare organizations to a vast degree are paid based on prospective payment by the Centers for Medicare & Medicaid Services, and the era of cost-based reimbursement is long past,” Gundling said. “From this standpoint, the question of ‘excessive’ compensation passed through on the Medicare cost report is moot.”

Other federal agencies, specifically the IRS, already provide oversight and audit tax-exempt healthcare organizations and their compensation policies, he noted.

The agency did not provide additional details on the initiatives listed in its work plan.

Significance Disputed

The American Hospital Association (AHA) said the initiative is a continuation of work begun last fall by an OIG regional office and is not an effort to cap compensation, according to AHA discussions with the agency’s staff. Instead, the goal of the project is to determine how hospital compensation is reflected on the cost report and whether such reporting could impact future Medicare payments.

Other OIG FY14 plans mentioned in the report include reviews of the new two-midnight admissions rule, which went into effect in October 2013, but for which CMS suspended Medicare contractor audits until October 2014.


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter @rdalyhealthcare.

Publication Date: Thursday, February 13, 2014