A federal audit posted this summer found that a second Pennsylvania hospital owes the government an estimated $4.7 million after reviewers turned up billing errors in a sample of its Medicare claims. The finding, tied to Jefferson Regional Medical Center outside Pittsburgh, follows a separate audit of another Pennsylvania hospital’s Medicare billing made public weeks earlier, part of a broader federal effort to check hospitals that submit an unusually high volume of claims flagged as prone to error. Investigators traced most of the errors back to a single technical distinction: whether a patient’s stay should have been billed as inpatient or outpatient care. For Medicare enrollees, that distinction is not just paperwork; it can determine how much of a hospital stay Medicare covers and whether a later nursing-home stay qualifies for coverage at all.
Why a High-Risk Claims Volume Put One Hospital Under Review
The report, numbered A-04-22-07101 by the HHS Office of Inspector General, is part of a series of audits examining hospitals with a high volume of claims previously identified as high-risk for noncompliance. Investigators noted that Medicare paid hospitals $182 billion in calendar year 2021 alone, 46 percent of all Medicare fee-for-service payments, which is why the agency treats hospital billing accuracy as a recurring audit priority. Jefferson Regional Medical Center, now operating as Jefferson Hospital under Pittsburgh-based Allegheny Health Network, was selected for this round because it had submitted a substantial number of inpatient and outpatient claims that OIG’s own screening flagged as high risk for erroneous billing. OIG’s own classification of the report lists the audit under the issue area of Hospitals, the financial group of Medicare Part A, and the target group of Elderly, the same three-part label OIG applies across this audit series, underscoring that the population whose Medicare Part A trust fund absorbs an overpayment is largely made up of older enrollees rather than the hospital itself.
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What the Two-Midnight Rule Actually Controls
Medicare pays hospitals differently depending on how a stay is classified. Inpatient stays are paid under Medicare Part A through the Hospital Inpatient Prospective Payment System, with rates set in advance based on a patient’s diagnoses and severity of illness, according to a Centers for Medicare & Medicaid Services fact sheet on the policy. Outpatient care, including extended observation stays, is billed under Medicare Part B through an entirely different payment system, with its own cost-sharing rules for the patient. CMS adopted the Two-Midnight Rule in 2013 to give hospitals a clear benchmark: admission as an inpatient is generally payable under Part A when a physician reasonably expects the stay to span at least two midnights, while shorter expected stays are generally not. CMS has also flagged a second consequence for beneficiaries directly: time spent as a hospital outpatient, even overnight, does not count toward the three consecutive inpatient days that Medicare requires before it will cover a follow-on stay in a skilled nursing facility. A hospital that misclassifies a stay does not only risk an OIG finding years later; in the moment, the classification can also change what a Medicare enrollee owes and what coverage follows the hospital stay.
A 100-Claim Sample With a One-Third Failure Rate
Auditors pulled a sample of 100 inpatient and outpatient claims totaling $1,313,299 and checked each one against Medicare billing requirements. The hospital complied on 67 of those claims. The remaining 33 did not fully comply, producing net overpayments of $348,677 within the sample alone, covering the audit period of July 1, 2019, through June 30, 2021. OIG attributed the errors mainly to lapses in following the hospital’s own written billing policies, centered on three recurring problem areas: application of the Two-Midnight Rule, admission criteria for inpatient rehabilitation facility (IRF) stays, and general inpatient-versus-outpatient coding.
Extrapolating a Sample Into a $4.7 Million Estimate
Because full claim-by-claim review of every bill a hospital submits is impractical, OIG used statistical extrapolation to project the sample’s error rate across the hospital’s full claims volume. Of the roughly $17.5 million Medicare paid the hospital for the services under review during the audit period, OIG estimated the hospital received net overpayments of at least $4.7 million, precisely $4,701,168, for claims that did not comply with Medicare billing requirements. That figure excludes amounts OIG presumes are unrecoverable under the Section 1870 waiver-of-liability provision, a standing Medicare rule that shields some overpayments from collection, and it is the number, not the smaller $348,677 identified in the sample itself, that OIG has recommended the hospital return to the federal government.
The Hospital's Disagreement and Three Open Recommendations
OIG issued three recommendations, addressed to the Centers for Medicare & Medicaid Services as the agency responsible for enforcement: that the hospital refund the estimated $4,701,168 in net overpayments, that it review claims filed after the audit period for similar errors and return any it finds, and that it train clinical and billing staff on the Two-Midnight Rule, IRF admission requirements, and inpatient/outpatient coding. The hospital disagreed with most of the findings, did not concur with the first two recommendations, and took no stated position on the third.
OIG’s public recommendation tracker lists all three items, numbered 26-A-04-074.01 through .03, as open and unimplemented against Jefferson Regional Medical Center, with the next status update expected December 15, 2026, meaning the $4.7 million has not yet been confirmed as returned. It is the third recommendation, training staff on the same Two-Midnight and IRF admission rules the audit found the hospital getting wrong, where the hospital gave no position at all, leaving OIG’s tracker to record that outcome as unresolved alongside the refund itself.
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This story was researched and written with AI assistance and edited before publication.
Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
