OIG Medical Necessity Audit
The U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) details in its work plan a nationwide audit of Inpatient Rehabilitation Facilities. IRFs were encouraged to promptly reply to early 2023 requests for documentation.
This audit of 2022 IRF claims follows a previous nationwide audit in 2018 that found an error rate of 84% of IRF Medicare claims. This was nearly five times higher than the IRF error rate found by the Centers for Medicare and Medicaid Services’ (CMS’) in the same year. The IRF community strongly disputed the OIG’s 2018 audit findings and recommendations.
As a result of that 2018 report, the American Academy of Physical Medicine and Rehabilitation (AAPM&R), the Federation of American Hospitals (FAH), and the American Medical Rehabilitation Providers Association (AMRPA) (collectively, the “IRF stakeholders”) issued a joint statement raising serious concerns and questioned the validity of the findings. The stakeholders submitted a Freedom of Information Act (FOIA) request to obtain patient records from the 2018 audit sample and began a dialogue with the OIG to try to understand how the OIG’s contractor could have reached such an unlikely conclusion.
This ongoing dialogue between the IRF stakeholders and the OIG culminated in late 2022 in the launch of OIG’s latest nationwide IRF audit, but this time, OIG is taking a very innovative approach. While OIG is bound to remain independent in conducting this audit, it will accept data and substantive input from the IRF stakeholders throughout the course of the audit itself. In fact, the IRF stakeholders will have the opportunity to review denied cases and will meet with the OIG and its contractor to discuss the medical necessity and documentation compliance of each denial. The goal of this innovative project is to help identify any specific areas that might require clarification in the regulations and make meaningful recommendations to decrease the IRF error rate and have a positive impact on the Medicare IRF benefit.
Throughout the forthcoming audit, OIG will gather information on claims from the IRF stakeholders and identify opportunities, if any, for CMS to clarify claims payment criteria to improve program integrity. If warranted based on the findings of the audit, OIG will also make recommendations to clarify the IRF coverage and documentation requirements.
Although the IRF stakeholders will supply the OIG with data and substantive input, the audit will be an independent performance audit in accordance with Generally Accepted Government Auditing Standards (GAGAS). The IRF Stakeholders are not taking part in the audit itself.
The OIG is currently conducting this nationwide IRF audit, with an expected issue date for the report sometime in late 2025 or in 2026.
AAPM&R Meets with OIG to Discuss Ways to Reduce IRF Error Rates
Jun 03, 2025
AAPM&R has partnered with the American Medical Rehabilitation Providers Association (AMRPA) and the Federation of American Hospitals (FAH) on an innovative project with the HHS Office of Inspector General to address wide variations in error rates found by CMS contractors and OIG on Medicare IRF claims over the past 15 years. The three organizations are providing data and feedback to OIG as the agency conducts a nationwide audit of IRF claims. A previous nationwide audit by OIG published in 2018 found an 84% error rate. At the time, AAPM&R strongly challenged that finding and continued a dialogue with OIG which has led to this initiative.
After months of preparation and review of actual patient cases, the IRF stakeholders recently met with the OIG, its audit contractor, Performant, and CMS officials to discuss medical necessity and documentation requirements in connection with this new audit. A panel of IRF stakeholders, including rehabilitation physicians and clinicians, association leaders, and legal counsel 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. Government auditors and IRF stakeholders exchanged views and shared different perspectives on a wide variety of IRF medical necessity and documentation requirements with the goal of gaining consensus on areas in need of additional attention to reduce error rates.
OIG is expected to draft its report on this nationwide IRF audit over the next several months and AAPM&R and the other IRF stakeholders will be able to respond to the draft report before it is published. The written response will be published as an addendum in the final OIG report, which is expected within the next year.
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.
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