OIG Report Highlights Medicare Discrepancies in Rehabilitation Facilities
On May 14, 2026, the Office of Inspector General (OIG) within the Department of Health and Human Services released a report exposing discrepancies in the interpretation of Medicare's requirements for inpatient rehabilitation facilities (IRFs). The report estimated that in the federal fiscal year 2022, Medicare reimbursed IRFs approximately $5 billion for claims that did not fully comply with Medicare standards. OIG urged the Centers for Medicare & Medicaid Services (CMS) to provide more precise regulatory guidance to resolve these interpretational issues.
IRFs deliver essential care to patients requiring comprehensive medical treatment through a collaborative team approach. CMS compensates these facilities using a prospective payment system, with payments depending on factors such as a patient’s case-mix group, primary rehabilitation needs, age, and motor and cognitive function levels. Payment eligibility is confined to services that are deemed reasonable and necessary.
This report builds on an earlier OIG audit from 2018, which revealed that Medicare had paid IRFs $5.7 billion, a significant portion of which was not justified as necessary care. The American Medical Rehabilitation Providers Association and other IRF Stakeholders previously voiced concerns over the audit methodology. In response, OIG collaborated with CMS and these stakeholders to develop an audit strategy aimed at identifying reasons behind differing interpretations of Medicare guidelines and potential clarifications needed from CMS.
The latest OIG audit assessed $7 billion in Medicare payments to 1,109 IRFs, examining 300,269 claims within fiscal year 2022. An independent medical review contractor evaluated a random sample of 200 claims, finding only 42 met Medicare's IRF requirements. The remaining 158 claims, as reviewed by IRF Stakeholders, indicated a lower error rate, raising concerns over substantial funds being at risk due to varying interpretations of CMS regulations on documentation, coverage, and billing.
OIG concluded that the ambiguity in Medicare's guidelines led to differing interpretations among OIG, IRF Stakeholders, and CMS regarding documentation, coverage, and billing standards. OIG made four recommendations to CMS, but CMS only agreed to continue offering educational resources. IRF Stakeholders argued that the discrepancies stemmed from legitimate interpretational disagreements and urged auditors to respect clinical judgments by rehabilitation physicians. Nevertheless, OIG maintained that clear guidelines are crucial to reducing noncompliance and correcting documentation and signature issues.