Medicare Billing

More than three years after GAO recommended that Medicare acquire commercial software to detect inappropriate billings--which could save hundreds of millions of dollars each year--the Health Care Financing Administration (HCFA) has tested the software and plans to install it. Incorrect billings, fraudulent and otherwise, cost Medicare about $1.7 billion in improper payments in 1997. This report analyzes HCFA's progress in testing and acquiring a commercial system for identifying inappropriate Medicare bills, the consequences of HCFA's initial management decisions, and its current plans for immediate implementation. GAO summarized this report in testimony before Congress; see: Medicare Billing: Commercial System Will Allow HCFA to Save Money, Combat Fraud and Abuse, by Joel C. Willemssen, Director of Civil Agencies Information Systems Issues, before the Subcommittee on Oversight and Investigations, House Committee on Commerce. GAO/T-AIMD-98-166, May 19 (12 pages).

GAO noted that: (1) the test methodology HCFA used in Iowa was consistent with the approach used by other public health care insurers who have already implemented a commercial claims auditing system; (2) HCFA's test covered 15 months and included extensive work, such as modifying the system's software to comply with Medicare payment policies; (3) the test showed that the commercial claims auditing system could save Medicare up to $465 million annually with claims auditing edits that detect inappropriately coded claims; (4) these savings are in addition to any results from the correct coding initiative which, according to HCFA, saved Medicare about $217 million in 1996; (5) while HCFA used an adequate methodology to test the system and demonstrated that commercial claims auditing edits could result in significant savings, two critical management decisions would have unnecessarily delayed implementation for several years, resulting in potentially hundreds of millions of dollars in lost savings annually; (6) first, HCFA limited its 1996 test contract to the test, and did not include a provision for implementing the commercial system throughout the Medicare program; (7) thus, to acquire a commercial system for nationwide implementation, up to an additional year may be required to complete all activities necessary to plan for and award another contract; (8) this could also result in substantial rework to adapt the system if a different contractor were to win the new contract; (9) HCFA's administrator told GAO that HCFA is evaluating legal options for expediting the contracting process; (10) second, in addition to the potential delay from the test contract limitation, following the test HCFA initially planned to develop its own claims auditing edits rather than acquire commercial edits, such as those used in the test; (11) under this plan, HCFA would have obtained a development contractor that may, or may not, have existing claims auditing edits; (12) if the winning contractor did not have existing edits on which to build, it could take years to complete the HCFA-owned edits; (13) near the conclusion of GAO's review HCFA representatives told GAO this approach would have allowed them to make the edits available to the public and avoid being obligated to one vendor's commercial edits and related fees; and (14) public health care insurers for the Department of Defense and the Department of Veterans Affairs and several state Medicaid agencies did not take this approach, opting to lease commercial systems instead of owning the claims auditing edits.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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