A patient is on hospice.
They go to the hospital for an outpatient service.
The hospital bills Medicare.
Everything moves forward until someone asks a simple question:
Was that service actually unrelated to the terminal illness?
That is where things start to break down.
Because in many cases, the answer is not as clear as teams think. The consequences of getting it wrong do not always show up right away. They show up later in audits, payment reviews, and survey scrutiny.
This article was written in consultation with Mariam Treystman.
At The Home Health Consultant, we work with Medicare-certified agencies every day to turn complex compliance expectations into practical workflows.
We are writing this article to help you understand a recent OIG audit that is already raising important questions about hospice responsibility, billing boundaries, and care coordination so you can make more informed decisions moving forward.
What Was the November 2024 OIG Hospice Audit Actually Looking At?
This audit focused on a specific but very important scenario.
When hospice patients receive outpatient services at acute-care hospitals, who should be responsible for those services and who should be billing Medicare?
The OIG reviewed Medicare Part B payments made to hospitals for services billed with Condition Code 07, which indicates the service is unrelated to the patient’s terminal illness and related conditions.
Over a five-year period from 2017 through 2021, the audit examined:
- $283.7 million in payments
- 1.3 million outpatient services provided to hospice enrollees
This was not a narrow review. It was a system-level analysis.
What Did the Audit Find About These Payments?
When the OIG reviewed a sample of claims, it found that:
- Only 30 percent of services were correctly billed
- 70 percent did not comply with Medicare requirements
In most of those noncompliant cases, the issue was not that the service should not have been provided.
The issue was who should have been responsible for it.
According to the audit, many services billed as unrelated were actually:
- Managing the terminal illness, or
- Managing conditions related to the terminal illness
Under Medicare, that distinction changes how the service should be handled and billed.
Why Does It Matter Whether a Service Is Related or Unrelated?
This is one of the most important concepts in hospice and one of the most misunderstood.
When a patient elects hospice, Medicare does not stop covering care related to the terminal illness. Instead, it changes how that care is paid for.
- Medicare no longer pays outside providers separately for services related to the terminal illness
- Instead, Medicare pays the hospice a per diem rate to manage all care related to that illness
- The hospice is then responsible for providing or arranging that care
That responsibility includes:
- The terminal illness itself
- Any conditions that are related to or caused by that illness
Again, the hospice is paid through a per diem rate that is intended to cover all services needed for palliation and management.
So when a hospital bills Medicare separately for a service that is actually related, Medicare may be paying twice for the same care.
That is exactly what the OIG identified.
How Much Financial Impact Did the OIG Estimate?
Based on its findings, the OIG estimated:
- $190.1 million in improper Medicare payments
- $43.6 million in patient deductibles and coinsurance that may not have been appropriate
These numbers point to a widespread issue, not isolated billing errors.
Where Is the Breakdown Actually Happening?
The audit highlights several areas where processes are not aligning with Medicare expectations. One of the biggest issues involves how Condition Code 07 is being used.
When that code is applied:
- The claim is generally processed automatically
- There is little validation upfront to confirm whether the service is truly unrelated
At the same time, many providers are only evaluating whether a service is tied to the terminal illness, without fully analyzing related conditions.
That distinction matters clinically and financially, but it is often missed.
The audit also points to coordination gaps:
- Hospitals did not consistently request hospice election addendums
- Communication between providers was inconsistent
- Oversight from Medicare contractors was limited
Together, these issues allow incorrect billing to occur without being caught early.
What Are Related Conditions and Why Are They Causing Confusion?
Medicare expects hospice to cover:
- The terminal illness
- Conditions caused by or connected to that illness
The challenge is that related conditions are not always clearly defined in guidance.
Determining whether a condition is related requires clinical judgment and review of the patient’s full condition
For example:
A patient with heart failure may also have:
- Atrial fibrillation
- Fluid overload
- Shortness of breath
These conditions may be separate diagnoses, but they are often clinically connected. That connection determines responsibility for care and payment.
How Does Medicare Expect Hospices to Handle Outside Services?
Medicare’s expectation is consistent even if the application can be complex.
Hospices are expected to:
- Provide services related to the terminal illness directly, or
- Arrange for those services through outside providers
In both cases, those services are still covered under the hospice payment. They should not be billed separately to Medicare.
CMS has emphasized that services outside the hospice benefit should be:
- Exceptional
- Unusual
- Rare
That expectation is central to the audit findings.
What Could This Mean for Agencies Moving Forward?
This is where it is important to separate facts from interpretation.
What we know:
- The audit identified a high rate of improper payments
- CMS agreed with most recommendations
- There are gaps in guidance and oversight
What we do not know:
- Whether enforcement will increase
- Whether audits will expand
- Whether new rules will be implemented
*Important note: Any discussion about future changes is interpretation, not confirmed policy.
So could these audit findings lead to increased scrutiny? It is possible, but not guaranteed or confirmed as of now.
Based on the findings, it would not be surprising to see:
- More attention on how agencies determine related versus unrelated services
- Greater focus on coordination between hospices and hospitals
- Additional education or clarification from CMS
Again, this is not confirmed. It’s a few possibilities out of many based on the audit.
What Should Your Team Be Evaluating Right Now?
Rather than reacting to what might happen, focus on what is already within your control.
Consider how your team answers these questions:
- How are related conditions identified and documented?
- Who determines responsibility when outside services are involved?
- Does the plan of care clearly support those decisions?
- Would your documentation support your clinical reasoning in an audit?
This issue goes beyond billing. It reflects clinical decision-making and documentation practices.
What Does This Audit Really Say About Hospice Responsibility?
At its core, this audit reinforces a long-standing Medicare expectation. When hospice is elected, the hospice is responsible for managing the patient’s care.
That includes:
- Anticipating needs
- Coordinating services
- Aligning care with the plan of care
When that alignment breaks down, billing issues are often the result.
If this audit raised questions about how your agency handles:
- Related condition determination
- Coordination of outside services
- Documentation of clinical decision-making
The next step is not guessing. It is reviewing your charts with intention.
Because in situations like this, your chart is the only place that proves what happened and why it was appropriate.
*Disclaimer: The content provided in this article is not intended to be, nor should it be construed as, legal, financial, or professional advice. No consultant-client relationship is established by engaging with this content. You should seek the advice of a qualified attorney, financial advisor, or other professional regarding any legal or business matters. The consultant assumes no liability for any actions taken based on the information provided.
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