OIG Medical Necessity Audit
In May 2026, the HHS Office of Inspector General (OIG) released a new report “Unclear Medicare Requirements Led to Differing Interpretations of Inpatient Rehabilitation Facility Documentation, Coverage, and Billing Requirements.” A previous nationwide IRF audit by OIG published in 2018 found an 84% error rate. AAPM&R and partners strongly challenged that finding, filed a Freedom of Information Act request to press for additional details, and continued a dialogue with OIG eventually leading to an opportunity for AAPM&R and our partners to provide input on the OIG’s most recent IRF audit. AAPM&R was a leader in this process working with the stakeholder group also including the American Medical Rehabilitation Providers Association (AMRPA) and the Federation of American Hospitals (FAH).
After months of preparation and review of actual patient cases, the IRF stakeholders met with the OIG, its audit contractor, Performant, and CMS officials in spring 2025 to discuss medical necessity and documentation requirements in connection with this new audit. A panel of IRF stakeholders, including AAPM&R members, participated in a wide-ranging dialogue with OIG and its audit contractor, Performant, in an effort to identify key issues that lead to denials of IRF claims by closely reviewing 19 sample cases.
OIG’s new report acknowledges the differing interpretation of Medicare regulations by contractors, does not call into question the quality of IRF care, and found no evidence of fraud. However, it also includes an updated error rate of 71% and an inappropriately extrapolated overpayment estimate. The report includes a response from CMS, that provides significant agreement with the perspectives offered by AAPM&R and our partners, and we believe our stakeholder engagement was a major factor in CMS’s ultimate position. The report also includes a 10-page response from AAPM&R, AMRPA and FAH.
Based on OIG’ s final report, the stakeholders made a joint statement today which highlights IRF compliance and quality of care while disputing other findings in the OIG report. Specifically, we assert that “OIG’s error rates and overpayment estimates are clear outliers, and the discrepancies between this report and CMS’s own oversight data – including its CERT report and Review Choice Demonstration results – raise serious questions about the report's conclusions. Inpatient Rehabilitation Facilities (IRFs) and rehabilitation physicians deliver highly specialized, intensive care that helps patients recover from serious illness or injury and return safely home, with some of the strongest patient outcomes in the Medicare program. Despite the complex regulatory landscape that IRFs operate within, CMS nonetheless ‘generally found that Medicare requirements were met’ and that, critically, ‘OIG’s findings and perceived risks may be overstated.’” The stakeholders add “it is therefore inappropriate to extrapolate overpayment estimates or to use this report as any indication of intentional noncompliance or an increased risk of improper payments.”
As our statement concludes, “Patients should not face barriers to inpatient rehabilitation care – and our providers should not be subject to flawed findings – because of inconsistent interpretations of Medicare rules. We believe contractors need better training and education, and we will continue to work with CMS to streamline requirements so IRFs and rehabilitation physicians can continue focusing on what matters most: helping patients recover, improve function, and return home.”
As your Academy, AAPM&R will continue to fight to ensure ongoing recognition of PM&R’s value and expertise and work to remove barriers to critical rehabilitation care for the patients you serve.
IRF Review Choice Demonstration (RCD)
Centers for Medicare and Medicaid Services (CMS) has begun to implement a “Review Choice Demonstration” (RCD) for Inpatient Rehabilitation Facilities (IRFs), which subjects selected IRFs to 100% pre-claim or post-claim review of their Medicare claims. While this demonstration has begun with all IRFs in Alabama and Pennsylvania, CMS is planning to eventually expand the RCD to all providers in four Medicare Administrative Contract (MAC) jurisdictions, covering 17 states, three U.S. territories, and the District of Columbia. CMS has publicly announced that while there is no set timeline yet, this program will next expand to Texas and then California.
AAPM&R has significant concerns with the IRF RCD project and has been a leader in opposing its implementation. This project will dramatically increase physician burden in a field already subject to onerous documentation requirements and serve as an unprecedented intrusion by CMS contractors in the exercise of independent physician judgment. Academy staff, along with representatives from other stakeholder organizations will continue to engage with the CMS to discuss concerns with this ongoing project.
Please click here for more background on AAPM&R’s engagement on this issue when this program was first announced by CMS.
Comment and Sign-On Letters: