Medicare Integrity Program
Agency Approach for Allocating Funds Should Be Revised Gao ID: GAO-06-813 September 6, 2006Since 1990, GAO has considered Medicare at high risk for fraud, waste, abuse, and mismanagement. The Medicare Integrity Program (MIP) provides funds to the Centers for Medicare & Medicaid Services (CMS--the agency that administers Medicare--to safeguard over $300 billion in program payments made on behalf of its beneficiaries. CMS conducts five program integrity activities: audits; medical reviews of claims; determinations of whether Medicare or other insurance sources have primary responsibility for payment, called secondary payer; benefit integrity to address potential fraud cases; and provider education. In this report, GAO determined (1) the amount of MIP funds that CMS has allocated to the five program integrity activities over time, (2) the approach that CMS uses to allocate MIP funds, and (3) how major changes in the Medicare program may affect MIP funding allocations.
For fiscal years 1997 through 2005, CMS's MIP expenditures generally increased for each of the five program integrity activities, but the amount of the increase differed by activity. Since fiscal year 1997, provider education has had the largest percentage increase in funding--about 590 percent, while audit and medical review had the largest amounts of funding allocated. In fiscal year 2006, funding for MIP will increase further to $832 million, which includes $112 million in funds that CMS plans to use, in part, to address potential fraud and abuse in the new Medicare prescription drug benefit. CMS officials told us that they have allocated MIP funds to the five program integrity activities based primarily on past allocation levels. Although CMS has quantitative measures of effectiveness for two of its activities--the savings that medical review and secondary payer generate compared to their costs--it does not have a means to determine the effectiveness of each of the five activities relative to the others to aid it in allocating funds. Further, CMS has generally not assessed whether MIP funds are distributed to the contractors conducting each program integrity activity to provide the greatest benefit to Medicare. Because of significant programmatic changes, such as the implementation of the Medicare prescription drug benefit and competitive selection of contractors responsible for claims administration and program integrity activities, the agency's current approach will not be adequate for making future allocation decisions. For example, CMS will need to allocate funds for program integrity activities to address emerging vulnerabilities that could affect the Medicare prescription drug benefit. Further, through contracting reform, CMS will task new contractors with performing a different mix of program integrity activities. However, the agency's funding approach is not geared to target MIP resources to the activities with the greatest impact on the program and to ensure that the contractors have funding commensurate with their relative workloads and risk of making improper payments.
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Report to the Chairman, Committee on Finance, U.S. Senate:
United States Government Accountability Office:
GAO:
September 2006:
Medicare Integrity Program:
Agency Approach for Allocating Funds Should Be Revised:
Medicare Integrity Program:
GAO Highlights:
Highlights of GAO-06-813, a report to the Chairman, Committee on
Finance, U.S. Senate
Why GAO Did This Study:
Since 1990, GAO has considered Medicare at high risk for fraud, waste,
abuse, and mismanagement. The Medicare Integrity Program (MIP) provides
funds to the Centers for Medicare & Medicaid Services (CMS)”the agency
that administers Medicare”to safeguard over $300 billion in program
payments made on behalf of its beneficiaries. CMS conducts five program
integrity activities: audits; medical reviews of claims; determinations
of whether Medicare or other insurance sources have primary
responsibility for payment, called secondary payer; benefit integrity
to address potential fraud cases; and provider education. In this
report, GAO determined (1) the amount of MIP funds that CMS has
allocated to the five program integrity activities over time, (2) the
approach that CMS uses to allocate MIP funds, and (3) how major changes
in the Medicare program may affect MIP funding allocations.
What GAO Found:
For fiscal years 1997 through 2005, CMS‘s MIP expenditures generally
increased for each of the five program integrity activities, but the
amount of the increase differed by activity. Since fiscal year 1997,
provider education has had the largest percentage increase in
funding”about 590 percent, while audit and medical review had the
largest amounts of funding allocated. In fiscal year 2006, funding for
MIP will increase further to $832 million, which includes $112 million
in funds that CMS plans to use, in part, to address potential fraud and
abuse in the new Medicare prescription drug benefit. CMS officials told
us that they have allocated MIP funds to the five program integrity
activities based primarily on past allocation levels. Although CMS has
quantitative measures of effectiveness for two of its activities”the
savings that medical review and secondary payer generate compared to
their costs”it does not have a means to determine the effectiveness of
each of the five activities relative to the others to aid it in
allocating funds. Further, CMS has generally not assessed whether MIP
funds are distributed to the contractors conducting each program
integrity activity to provide the greatest benefit to Medicare.
[See pdf for image]
Source: GAO analysis of CMS data.
[End of figure]
Because of significant programmatic changes, such as the implementation
of the Medicare prescription drug benefit and competitive selection of
contractors responsible for claims administration and program integrity
activities, the agency‘s current approach will not be adequate for
making future allocation decisions. For example, CMS will need to
allocate funds for program integrity activities to address emerging
vulnerabilities that could affect the Medicare prescription drug
benefit. Further, through contracting reform, CMS will task new
contractors with performing a different mix of program integrity
activities. However, the agency‘s funding approach is not geared to
target MIP resources to the activities with the greatest impact on the
program and to ensure that the contractors have funding commensurate
with their relative workloads and risk of making improper payments.
What GAO Recommends:
GAO recommends that CMS develop an approach for allocating funds that
is based on the effectiveness of the activities, contractors‘ workload,
and risk. CMS generally agreed with GAO‘s recommendation. CMS also
stated that a quantitative measure can be an indicator of
effectiveness, but emphasized that such a measure cannot serve as the
sole basis for informing funding decisions
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-813].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Leslie G. Aronovitz at
(312) 220-7600 or aronovitzl@gao.gov.
GAO-06-813:
Contents:
Letter:
Results in Brief:
Background:
MIP Funding for All Five Activities Has Generally Increased over Time:
CMS's Current MIP Funding Allocation Approach Has Weaknesses:
Future Programmatic Changes Will Affect MIP Funding Allocations:
Conclusions:
Recommendation for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Information on MIP Funding, Expenditures, and ROI:
Appendix III: Key Tasks Performed by Contractors That Conduct MIP
Activities:
Appendix IV: CMS's Planned Spending of $100 Million Provided by DRA:
Appendix V: Comments from the Centers for Medicare & Medicaid Services:
Tables:
Table 1: MIP Activities Performed by Specific Types of Medicare
Contractors:
Table 2: Fiscal Year MIP Funding Ranges under HIPAA:
Table 3: Amount of MIP Expenditures Allocated to the Five Program
Integrity Activities, Fiscal Years 1997 through 2005:
Table 4: Percentage of MIP Funds Allocated to the Five Program
Integrity Activities, Fiscal Years 1997 through 2005:
Table 5: Reported ROI for Audit, Medical Review, and Secondary Payer
Activities, Fiscal Years 1997 through 2005:
Table 6: CMS's Planned Spending of MIP Funds Provided by DRA:
Figures:
Figure 1: MIP Expenditures for Fiscal Years 1997 through 2005:
Figure 2: MIP Expenditures by Activity, Fiscal Years 1997 through 2005:
Figure 3: Spending for the Five MIP Activities for Fiscal Years 1997,
2001, and 2005:
Figure 4: Percentage of MIP Funds Allocated to the Five Program
Integrity Activities, Fiscal Years 1997 and 2005, and Average for
Fiscal Years 1997 through 2005:
Figure 5: CMS Reported ROI for Secondary Payer, Medical Review, and
Audit, Fiscal Years 1997 through 2005:
Abbreviations:
ACRP: Adjusted Community Rate Proposal:
CMS: Centers for Medicare & Medicaid Services:
COB: coordination of benefits:
DAC: data analysis and coding:
DME: durable medical equipment:
DRA: Deficit Reduction Act of 2005:
ESRD: end- stage renal disease:
FBI: Federal Bureau of Investigation:
HHS: Department of Health and Human Services:
HIPAA: Health Insurance Portability and Accountability Act of 1996
MAC: Medicare administrative contractor:
MEDIC: Medicare prescription drug integrity contractor:
MedPAC: Medicare Payment Advisory Commission:
MIP: Medicare Integrity Program:
MMA: Medicare Prescription Drug, Improvement, and Modernization Act of
2003:
NSC: National Supplier Clearinghouse:
OIG: Office of Inspector General:
PDE: prescription drug event:
PPS: prospective payment system:
PSC: program safeguard contractor:
ROI: return on investment:
United States Government Accountability Office:
Washington, DC 20548:
September 6, 2006:
The Honorable Charles E. Grassley:
Chairman:
Committee on Finance:
United States Senate:
Dear Mr. Chairman:
In 1990, we designated the Medicare program as high risk for fraud,
waste, abuse, and mismanagement, in part because of its sheer size and
complexity. Medicare is a federal program that now pays over $300
billion a year to over 1 million providers to help more than 42 million
elderly and certain disabled beneficiaries obtain a variety of health
care services and items. One measure of the program's vulnerability is
the billions of dollars in improper payments that Medicare makes each
year to providers that participate in the program.[Footnote 1] In
November 2005, the Centers for Medicare & Medicaid Services
(CMS)[Footnote 2]--the agency that administers the Medicare program--
reported that Medicare made an estimated $12.1 billion in improper
payments to providers.[Footnote 3] To address Medicare's vulnerability,
the Congress enacted a provision in the Health Insurance Portability
and Accountability Act of 1996 (HIPAA) that established the Medicare
Integrity Program (MIP).[Footnote 4] MIP provides CMS with dedicated
funds to identify and combat improper payments, including those caused
by fraud and abuse.
CMS pays MIP funds to its Medicare contractors to conduct five
activities to safeguard Medicare payments.[Footnote 5] These activities
are (1) audits of cost reports, which are financial documents that
hospitals and other institutions are required to submit annually to
CMS; (2) medical reviews of claims to determine whether services
provided are medically reasonable and necessary; (3) determinations of
whether Medicare or other insurance sources have primary responsibility
for payment, which is called secondary payer; (4) identification and
investigation of potential fraud cases, which is called benefit
integrity; and (5) education to inform providers about appropriate
billing procedures.
Recent events have raised questions about how MIP funding is being
used. In addition to establishing MIP, HIPAA established a fund to
provide resources for the Department of Justice--including the Federal
Bureau of Investigation (FBI)--and the Department of Health and Human
Services (HHS) Office of Inspector General (OIG) to investigate and
prosecute health care fraud and abuse.[Footnote 6] In 2005, we reported
that the FBI could not adequately account for its share of these funds
or demonstrate that its funds were being used to investigate health
care cases.[Footnote 7] This finding raises concerns about how CMS is
using its MIP funds to conduct its program integrity efforts--also
called program safeguard activities. Further, the Medicare program is
undergoing significant changes that will alter the nature and scope of
CMS's program integrity efforts. For example, the new Medicare Part D
prescription drug benefit will increase Medicare's vulnerability to
improper payments.
You expressed interest in CMS's efforts to safeguard Medicare payments
and ensure that MIP funds are used effectively. In this report, we (1)
provide information on CMS's allocation of MIP funds among its five
program integrity activities over time, (2) examine the approach that
CMS uses to allocate MIP funds among these activities, and (3) describe
how major changes in the Medicare program may affect MIP funding
allocations.
In preparing this report, we interviewed CMS officials about their
allocation of MIP funds among the five activities for fiscal years 1997
through 2005 and reviewed allocations of MIP funds to the five
activities. We also reviewed related financial and other documentation,
including budget, expenditure, and savings data for fiscal years 1997
through 2005, and budget proposals for fiscal years 2006 and 2007.
Because most MIP expenditures are for activities related to Medicare
Parts A and B,[Footnote 8] our analysis focused on those
expenditures;[Footnote 9] however, we also collected some information
about CMS's planned MIP expenditures for the new prescription drug
benefit (Part D). In addition, the Deficit Reduction Act of 2005 (DRA),
which was enacted in February 2006, established an additional activity
under MIP and provided $12 million in funding for this activity in
fiscal year 2006.[Footnote 10] We did not review allocations of funds
for this activity because our review covered expenditures through
fiscal year 2005.
We also interviewed CMS officials regarding the approach they use to
make decisions on MIP funding allocations and reviewed related
documentation, including CMS reports on dollars saved in relation to
dollars spent. We did not independently examine the internal and
automated data processing controls for CMS systems from which we
obtained data used in our analyses, but we reviewed selected data for
internal consistency and accuracy. CMS subjects its data to different
levels of review and conducts periodic examinations of selected systems
and controls over the data. The agency uses these data to support its
management and budgetary decisions and expend funds to contractors.
Therefore, we considered the data to be reliable for the purposes of
our review. In addition, we interviewed CMS officials regarding changes
in Medicare contracting that may affect MIP funding allocations,
performance measures, and contractors' evaluations, and reviewed
related agency documents. Appendix I contains a more detailed
discussion of our scope and methodology. We performed our work from
August 2005 through August 2006 in accordance with generally accepted
government auditing standards.
Results in Brief:
MIP funding allocated to the five program integrity activities has
generally increased since fiscal year 1997, but the amounts of the
allocations and the percentage increases varied by year and activity.
For fiscal years 1997 through 2005, provider education received the
largest percentage increase in funds, while audit and medical review
received the largest share of funds. Among the five activities, from
fiscal year 1997 to fiscal year 2005, CMS increased its allocation by
about 45 percent for audits to $207.6 million, 40 percent for medical
review to $165.9 million, 49 percent for secondary payer to $151.5
million, and 89 percent for benefit integrity to $118.5 million. CMS
increased its allocation by about 590 percent for provider education to
$70 million. This increase was due, in part, to CMS's decision in
fiscal year 2002 to use MIP funds for outreach activities to groups of
providers, which had not previously been funded through MIP. In fiscal
year 2006, CMS will be able to further increase expenditures to MIP
activities because the $720 million originally appropriated for fiscal
year 2006 under HIPAA was increased by $112 million under DRA.[Footnote
11] CMS plans to use these additional funds, in part, to address
potential fraud and abuse in the new Medicare prescription drug benefit.
CMS officials told us that they generally have allocated MIP funds to
the five activities based predominantly on their past allocation
levels. Although CMS has quantitative measures of effectiveness for two
activities--the savings generated by medical review and secondary payer
compared to their costs--it does not have similar measures to determine
the effectiveness of each of its program integrity activities in
relation to the others. In addition, CMS has generally not assessed
whether MIP funds are allocated within the program integrity activities
to address risks or provide the greatest overall potential benefit to
Medicare. For example, distribution of medical review funds to
individual contractors has not considered the size of a particular
contractor's claims payment workload and its risk of making improper
payments, based on the propensity of fraud in the area or past levels
of improper payments. While agency officials told us that MIP
allocations are generally historically based, in a few instances, CMS
has modified its funding to respond to the agency's immediate
priorities. For example, in fiscal year 2004, CMS began to increase
funds to expand the scope of its annual study to estimate Medicare
improper payment rates, and in fiscal year 2002, it increased its MIP
allocation for contractors to better educate providers about Medicare.
As a result of significant changes that the Medicare program is
undergoing, CMS will need to make new choices about how it should
allocate its MIP funds to best address challenges that will occur. For
example, in 2006, CMS implemented the new Part D prescription drug
benefit. CMS may need to reallocate funds from program integrity
activities for Parts A and B to conduct program integrity activities
for Part D. Further, the agency is also reforming contracting practices
for claims administration services, which include program integrity
activities. As part of its contracting reform efforts, CMS plans to
reduce the number of Medicare claims administration contractors from 51
to 23 by 2009, has established new jurisdictions for them and the
program safeguard contractors (PSC) that will be working with them, and
will require the contractors to perform different MIP activities from
those they perform currently. While there is little precedent for CMS
to follow in addressing these programmatic changes, its current
allocation approach is not geared to best address future needs by
targeting MIP funds to the activities with the greatest impact on the
program and to ensure that the contractors have funding commensurate
with their relative workloads and risk of making improper payments.
To better ensure that MIP funds are appropriately allocated among and
within the five activities, we recommend that CMS develop a method of
allocating funds based on the effectiveness of its program integrity
activities, the contractors' workloads, and risk.
In its written comments on a draft of this report, CMS generally agreed
with our recommendation. (See app. V). However, CMS expressed concern
that the report appeared to emphasize the use of a quantitative measure
that tracks dollars saved in relation to dollars spent as a way to
allocate MIP funds. CMS stated that this quantitative measure can be an
indicator of effectiveness, but noted that such a measure cannot serve
as the sole basis for informing funding decisions. While our report
does discuss the importance of quantitative measures of effectiveness,
it also discusses other considerations for allocating MIP funds.
Background:
Before 1996, Medicare program integrity activities were subsumed under
Medicare's general administrative budget and performed, along with
general claims processing functions, by insurance companies under
contract with CMS, which led to certain problems. The level of funding
available for program integrity activities was constrained, not only by
the need to fund ongoing Medicare program operations--such as the costs
for processing medical claims, but also by budget procedures imposed
under the Budget Enforcement Act of 1990.[Footnote 12] In the early and
mid-1990s, we reported that such funding constraints had reduced
Medicare contractors' ability to conduct audits and review medical
claims.[Footnote 13] HHS advocated for a dedicated and stable amount of
program integrity funding outside of the annual appropriations process,
so that CMS and its contractors could plan and manage the function on a
multiyear basis. HHS also asserted that past fluctuations in funding
had made it difficult for contractors to retain experienced staff who
understood the complexities of, and could protect, the financial
integrity of Medicare program spending.
HIPAA Established MIP and Provided Dedicated Funding:
Beginning in fiscal year 1997, HIPAA established MIP and provided CMS
with dedicated funding to conduct program integrity activities. HIPAA
stipulated a range of funds available for these activities from the
Medicare trust funds each year. For example, for fiscal year 1997, the
law stipulated that at least $430 million and not more than $440
million should be used. The maximum amount of MIP funds rose from $440
million in fiscal year 1997 to $720 million in fiscal year 2003. For
fiscal year 2003, and every year thereafter, the maximum amount that
HIPAA stipulated for MIP was $720 million. (See app. II, table 2, for
additional information on the MIP funding ranges.) As a result of the
increases stipulated in HIPAA, from fiscal years 1997 through 2005,
total MIP expenditures increased about 63 percent--from about $438
million to $714 million, as figure 1 shows.[Footnote 14] HIPAA
authorized MIP funds to be used to enter into contracts to "promote the
integrity of the Medicare program." The statute also listed the various
program integrity activities to be conducted by contractors.[Footnote
15]
Figure 1: MIP Expenditures for Fiscal Years 1997 through 2005:
[See PDF for image]
Source: GAO analysis of CMS data.
[End of figure]
MIP Funds Support Program Integrity Efforts:
CMS allocates MIP funds primarily to support its contractors' program
integrity efforts for the traditional Medicare program, known as fee-
for-service Medicare.[Footnote 16] Among these contractors are fiscal
intermediaries (intermediaries), carriers,[Footnote 17] PSCs, and
Medicare administrative contractors (MAC).[Footnote 18] MACs are a new
type of contractor that will replace all intermediaries and carriers by
October 2011, as required by the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 (MMA).[Footnote 19] MMA
required CMS to conduct full and open competition to select MACs. CMS
refers to this change as contracting reform.
CMS has contracted with intermediaries, carriers, and MACs to perform
two types of activities--claims processing and program integrity. Their
claims processing activities include receiving and paying claims. These
activities are classified as program management and are funded through
a program management budget. In addition, intermediaries and carriers
have been charged with conducting some program integrity activities
under MIP, including performing medical review of claims. The four MACs
selected in January 2006 will not conduct medical review activities.
CMS plans to assign responsibility for medical review of claims to the
MAC selected in July 2006 and to the other MAC contracts to be awarded
in the future. MIP provides funds to support these program safeguard
efforts.
In addition, CMS uses MIP funds to support the activities of PSCs,
which perform medical review of claims and identify and investigate
potential fraud cases; a coordination of benefits (COB) contractor,
which determines whether Medicare or other insurance has primary
responsibility for paying a beneficiary's health care costs; the
National Supplier Clearinghouse (NSC), which screens and enrolls
suppliers in the Medicare program; and the data analysis and coding
(DAC) contractor, which maintains and analyzes Medicare claims data for
durable medical equipment (DME), prosthetics, orthotics, and
supplies.[Footnote 20]
Contractors receive MIP funds to perform one or more of the following
five program integrity activities:
* Audits involve the review of cost reports from institutions, such as
hospitals, nursing homes, and home health agencies. Cost reports play a
role in determining the amount of providers' Medicare reimbursement.
* Medical review includes both automated and manual prepayment and
postpayment reviews of Medicare claims and is intended to identify
claims for noncovered or medically unnecessary services.
* The secondary payer activity seeks to identify primary sources of
payment--such as employer-sponsored health insurance, automobile
liability insurance, and workers' compensation insurance--that should
be paying claims mistakenly billed to Medicare. Secondary payer
activities also include recouping Medicare payments made for claims not
first identified as the responsibility of other insurers.
* Benefit integrity involves efforts to identify, investigate, and
refer potential cases of fraud or abuse to law enforcement agencies
that prosecute fraud cases.
* Provider education communicates information related to Medicare
coverage policies, billing practices, and issues related to fraud and
abuse both to providers identified as having submitted claims that were
improper, and to the general provider population.
CMS also uses MIP to fund support for the five activities, such as
certain information technology systems, fees for consultants, storage
of CMS records, and postage and printing. The agency allocates the cost
of this support to the five activities, depending on which of the
activities is receiving support. Table 1 provides information on
specific MIP activities performed by the contractors. Appendix III
provides examples of key tasks performed by each of these contractors.
Table 1: MIP Activities Performed by Specific Types of Medicare
Contractors:
Activity: Audit[B]; Intermediaries: [*]; Carriers: [o]; MACs[A]: [o];
PSCs: [*]; COB contractor: [o]; NSC: [o]; DAC contractor: [o].
Activity: Medical review; Intermediaries: [*]; Carriers: [*]; MACs[A]:
[o]; PSCs: [*]; COB contractor: [o]; NSC: [o]; DAC contractor: [o].
Activity: Secondary payer; Intermediaries: [*]; Carriers: [*]; MACs[A]:
[*]; PSCs: [o]; COB contractor: [*]; NSC: [o]; DAC contractor: [o].
Activity: Benefit integrity[C]; Intermediaries: [o]; Carriers: [o];
MACs[A]: [o]; PSCs: [*]; COB contractor: [o]; NSC: [*]; DAC contractor:
[*].
Activity: Provider education; Intermediaries: [*]; Carriers: [*];
MACs[A]: [*]; PSCs: [*]; COB contractor: [o]; NSC: [o]; DAC contractor:
[o].
Source: GAO analysis of CMS information.
Legend: * Contractor performs this activity; o Contractor does not
perform this activity or supports other contractors that have primary
responsibility for performing this activity.
[A] This information pertains to the four MACs that were selected by
CMS in January 2006. The MAC selected in July 2006 will perform audit,
medical review, secondary payer, and provider education activities.
This contractor will also support a PSC that performs the benefit
integrity activity.
[B] Audits of cost reports are conducted for the benefits paid under
Part A, the part of the program that pays for the services of
institutional providers, such as hospitals. All of the other activities
are conducted for both Parts A and B.
[C] Intermediaries, carriers, and MACs do not have primary
responsibility for benefit integrity, but they do provide support to
the PSCs that perform this activity.
[End of table]
MIP Funding for All Five Activities Has Generally Increased over Time:
For fiscal years 1997 through 2005, CMS generally increased the amount
of funding for each of its five program integrity activities, but the
amount of the funding provided and the percentage increase have varied
among the activities. Provider education received the largest
percentage increase in funds, while audit and medical review received
the largest amount of funds overall. (See fig. 2.) CMS increased its
allocation for provider education by about 590 percent from fiscal year
1997 through fiscal year 2005. This increase was due, in part, to CMS's
decision in fiscal year 2002 to use MIP funds for outreach activities
to groups of like providers, which had not previously been funded
through MIP. CMS will be able to further increase expenditures for
program integrity in fiscal year 2006. In addition to the maximum of
$720 million originally appropriated under HIPAA for fiscal year 2006,
DRA increased the maximum by an additional $112 million, for a total of
$832 million.[Footnote 21] CMS plans to use some of the $112 million to
address potential fraud, waste, and abuse in the new Medicare
prescription drug benefit.[Footnote 22]
Figure 2: MIP Expenditures by Activity, Fiscal Years 1997 through 2005:
[See PDF for image]
Source: GAO analysis of CMS data.
[End of figure]
In each year from fiscal year 1997 through fiscal year 2005, CMS
generally increased the amount of MIP funds spent for each of its five
program integrity activities, as figure 2 shows. In addition to the
increase in the amount of funding for provider education, the
expenditures for audit increased 45 percent during the same period. As
figure 3 shows, expenditures for medical review increased from fiscal
year 1997 to fiscal year 2001 to almost $215 million--about 81 percent-
-and, since fiscal year 2001, decreased to about $166 million, or about
23 percent. Overall, expenditures for medical review increased 40
percent from fiscal year 1997 to fiscal year 2005. During this period,
expenditures for secondary payer increased 49 percent, and for benefit
integrity, expenditures increased 89 percent. (See fig. 3 for the
amount of expenditures by activity in fiscal years 1997, 2001, and 2005
and app. II, table 3, for more detailed information on the amount of
expenditures for each activity in each year.)
Figure 3: Spending for the Five MIP Activities for Fiscal Years 1997,
2001, and 2005:
[See PDF for image]
Source: GAO analysis of CMS data.
Note: The total expenditures for fiscal year 1997 ($437.9 million)
include $1.2 million in "other" expenditures that CMS did not include
under a particular MIP activity.
[End of figure]
Increased spending for provider education stemmed, in part, from
provider concerns about an increased burden on them in the medical
review process. In 2001, we reported that as CMS increasingly focused
on ensuring program integrity, providers were concerned about what they
considered to be inappropriate targeting of their claims for
review.[Footnote 23] Further, providers asserted that they may have
billed incorrectly because of their confusion about Medicare's program
rules. To address these concerns, CMS developed a more data-driven
approach for conducting medical review and also increased its emphasis
on provider education. CMS officials explained that medical review
would help identify providers that were billing inappropriately, and
provider education would focus on individuals' specific billing errors
to eliminate or prevent recurrence of the problems. In addition,
beginning in fiscal year 2002, spending for the provider education
activity increased significantly because CMS began to use MIP funds for
what the agency called provider outreach. Provider outreach focuses on
communicating with groups of providers about Medicare policies,
initiatives, and significant programmatic changes that could affect
their billing. This information is conveyed through seminars,
workshops, articles, and Web site publications. Previously, provider
outreach had been funded outside of MIP, as part of CMS's program
management budget. Provider education spending increased from $17
million in fiscal year 2001--before provider outreach was added to the
provider education activity--to $53.5 million in fiscal year 2002. In
fiscal year 2005, funding for the provider education activity reached
$70 million.[Footnote 24]
In comparing the share of funds spent on each program integrity
activity, from fiscal year 1997 through fiscal year 2005, we found that
CMS generally spent the largest share on audit, averaging about 31
percent, and on medical review, averaging about 27 percent. CMS spent
less on secondary payer, averaging 21 percent, and benefit integrity,
averaging 15 percent. In contrast, during this period, CMS spent the
smallest percentage on provider education, which averaged about 6
percent of MIP expenditures. See figure 4 for information on the
percentage of funds allocated to each activity. (For more detail, see
table 4 in app. II.)
Figure 4: Percentage of MIP Funds Allocated to the Five Program
Integrity Activities, Fiscal Years 1997 and 2005, and Average for
Fiscal Years 1997 through 2005:
[See PDF for image]
Source: GAO analysis of CMS data.
Note: Percentages for fiscal year 1997 exclude the $1.2 million in
"other" expenditures, which accounted for less than 1 percent of the
total allocation for that fiscal year.
[End of figure]
CMS's Current MIP Funding Allocation Approach Has Weaknesses:
CMS officials told us that they generally had allocated MIP funds to
the five activities based predominantly on historical funding, but
sometimes considered high-level priorities. However, this approach does
not take into account data or information on the effectiveness of one
activity over the other in ensuring the integrity of Medicare or allow
CMS to determine if activities are yielding benefits that are
commensurate with the amounts spent. For example, while CMS has noted
that benefit integrity and provider education activities have
intangible value, the agency has not routinely collected information to
evaluate their comparative effectiveness. Furthermore, CMS has not
fully assessed whether MIP funds are appropriately allocated within the
audit, medical review, benefit integrity, and provider education
activities. For example, audit's role has changed as Medicare's payment
methods have changed in the last decade, but it continues to have the
largest share of MIP funding.
MIP Funds Allocated Primarily on a Historical Basis:
According to agency officials, CMS allocates funds for the five
activities based primarily on an analysis of previous years' spending
and may also consider other information when developing the MIP budget,
such as current expenditures by individual contractors.[Footnote 25]
CMS officials told us that they may also consider the agency's high-
level priorities. For example, in fiscal year 2004, CMS began to
increase funds to expand the scope of its annual study to estimate
Medicare improper payment rates, and in fiscal year 2002, it increased
its MIP allocation for provider education.
CMS does not have a means to compare quantitative data or qualitative
information on the relative effectiveness of MIP activities that it
could use in allocating funds. Instead, it calculates the quantitative
benefits for two, and assesses the qualitative benefits--which are not
objectively measured--for the other three. In fiscal year 2005, for its
medical review and secondary payer activities, CMS tracked dollars
saved in relation to dollars spent--a quantitative measure that the
agency calls a return on investment (ROI).[Footnote 26]
Having an ROI figure is useful because it measures the effectiveness of
an individual activity so that its value can be compared with that of
another activity. As of fiscal year 2005, secondary payer had an ROI of
$37 for every dollar spent on the activity, and medical review had an
ROI of $21 for every dollar spent. CMS tracked the ROI for audit, but
by fiscal year 2002, audit's reported contribution to ROI fell to
almost zero. (See fig. 5 and app. II, table 5, for additional ROI
details.)
Figure 5: CMS Reported ROI for Secondary Payer, Medical Review, and
Audit, Fiscal Years 1997 through 2005:
[See PDF for image]
Source: GAO analysis of CMS data.
[End of figure]
CMS officials told us that the decrease in the ROI for audit was due to
the implementation of prospective payment systems (PPS),[Footnote 27]
under which Medicare pays institutional providers fixed, predetermined
amounts that vary according to patients' need for care.[Footnote 28]
Until fiscal year 2001, audits had achieved an ROI that was generally
$9 or more for every dollar spent conducting them, by disallowing
payment for individual costs that should not have been paid by Medicare
under the previous payment method. Under PPS, CMS's methods for paying
providers changed. However, the information system that had been used
to track ROI began to incorrectly calculate the savings from audit
because it had not been adjusted for the new payment method. According
to agency officials, CMS is implementing a different way to track audit
savings, and an overall ROI. It will focus on the savings from
disallowing items that directly affect an individual provider's payment
under a PPS, such as bad debts and the number of low-income patients
hospitals serve. It will track the amounts related to these add-on
payments actually paid by Medicare to, or recouped from, the provider
after an audit. The difference between the amount paid prior to the
audit and the amount paid after the audit (assuming there has been an
adjustment) would be the savings.
However, all audit functions do not result in measurable savings. For
example, in its written comments on a draft of this report, CMS noted
that many audit functions funded by MIP do not have an ROI. CMS stated
that these include processing cost reports for data collection
purposes, correcting omissions on providers' cost reports, implementing
court decisions, and issuing notifications concerning Medicare
payments. In addition, CMS stated that some of these activities are
mandated by law, while others have significant value to the Medicare
Payment Advisory Commission (MedPAC), which is an independent federal
commission; providers; provider associations; and actuaries.
From fiscal year 1997 through fiscal year 2005, CMS developed
qualitative assessments of the impact of benefit integrity and provider
education. According to CMS, the agency develops such assessments when
the savings generated by MIP activities are impossible or difficult to
identify. Nevertheless, CMS officials told us that these activities
provide value to the program in helping to ensure proper Medicare
payments. For example, CMS officials said that benefit integrity
contributes to the work of federal law enforcement agencies, which
investigate and prosecute Medicare fraud and abuse. CMS officials also
noted that they consider benefit integrity to have a sentinel effect in
discouraging entities that may be considering defrauding the Medicare
program, but this effect is impossible to measure.
CMS indicated that trying to measure the results of the contractors'
benefit integrity activities could create incentives that undermine the
value of their work. For example, counting the number of cases referred
to law enforcement for further investigation could lead the contractors
to refer more cases that were less fully developed. However, other
agencies that investigate or prosecute fraud, such as HHS and the
Department of Justice, keep track of their successful cases,
recoveries, and fines to demonstrate their results. Similarly, CMS
could assess the degree to which each of its contractors had
contributed to HHS and the Department of Justice's successful
investigations and prosecutions.
In regard to educating providers on appropriate billing practices, CMS
may be missing opportunities to evaluate its contractors' performance.
Provider education can help reduce billing errors, according to CMS.
However, according to an OIG report, CMS has not evaluated the
strategies used to modify the behavior of providers through education
to determine if these strategies are achieving desired
results.[Footnote 29]
CMS has noted the intangible value inherent in benefit integrity and
provider education activities, but the agency has not routinely
collected information to evaluate their comparative effectiveness in
ensuring program integrity. Further, as discussed earlier, correct
information on audit's effectiveness, based on an ROI, has not been
available for the last several years. Consequently, CMS is not able to
determine if some of the funds spent for benefit integrity, provider
education, and audit--about $396 million, or 56 percent of MIP funds in
fiscal year 2005--could be better directed to secondary payer or
medical review. Nevertheless, CMS officials told us that they plan to
decrease the allocation to medical review and increase the allocation
to provider education.
CMS officials stated that they are developing two initiatives that will
give the agency objective measures of the results of the audit and
provider education activities. As discussed earlier, CMS is
implementing a revised methodology for calculating the ROI for audit.
In addition, it is trying to develop information on the effectiveness
of provider education. A CMS official explained that the agency is
adding a provider education component to its program integrity
management reporting system.[Footnote 30] This component will
potentially allow CMS to develop an ROI figure for provider education
by correlating educational efforts to a decrease in claim denials and
provide a measure of the quantitative benefits of this activity. This
component is scheduled to begin operating in the summer of 2006.
CMS Does Not Ensure That Funds Are Allocated in an Optimal Way within
Activities:
After CMS has allocated funds to each of the five MIP activities, it
must decide how to further distribute those funds to pay contractors
that carry out each one. For example, in fiscal year 2004, after CMS
allocated about $135 million for medical review to be conducted by
intermediaries and carriers, it then distributed those funds to pay 28
intermediaries and 24 carriers that were conducting medical review at
that time. However, given vulnerabilities for improper payment,
contractor workload, and the relative effectiveness of activities
performed, CMS has not always taken steps to ensure that it has
allocated funds in an optimal way within its activities. Nevertheless,
CMS has used information on relative savings to decide on funding
allocations within the secondary payer activity.
Allocations for Medical Review, Provider Education, and Benefit
Integrity Are Not Based on Vulnerabilities:
Medical review, provider education, and benefit integrity are
activities for which allocation of MIP funds may not be optimal,
because our analysis suggests that CMS has not allocated funds within
these activities based on information concerning contractor
vulnerabilities. Such vulnerabilities include the potential for
fraudulent billing in different locations and the amount of potential
benefit payments at risk in the contractor's jurisdiction. For example,
CMS estimated that the contractor that handled claims for DME,
orthotics, prosthetics, and supplies in a jurisdiction that included
Texas and Florida--two states experiencing high levels of fraudulent
Medicare billing--improperly paid 11.5 percent of its 2004 claims--or
$474.9 million--which was a higher improper payment rate than that of
other contractors paying these types of claims. As we previously
reported, our analysis indicated this contractor received almost a
third less funds for medical review per $100 in submitted claims in
fiscal year 2003 than the amount given to contractors in other regions
with less risk of fraudulent billing.[Footnote 31] Our most recent
analysis indicated that the imbalance in fund allocation did not change
in fiscal years 2004 and 2005. We could not determine the rationale for
this allocation beyond what was historically budgeted for this
contractor.
The amount of medical review funds allocated to individual contractors
is not directly tied to the amount of benefits that they pay, which is
a key measure of potential risk. For example, in fiscal year 2004, one
contractor paid out $66 million in benefits and received about 28 cents
in medical review funds for each $100 in benefits paid. In contrast,
another contractor paid out considerably more in benefits--about $5
billion in fiscal year 2004--and received about 7 cents in medical
review funds for each $100 in benefits paid.
Further, CMS has not adjusted the amount of funding for individual
contractors to educate providers based on their relative risks. A CMS
official told us that the amount of provider education funding is
generally aligned with the amount allocated for medical review,
regardless of the value of the benefits that the contractor pays.
Similarly, the amount of MIP funds provided to PSCs is not directly
tied to the amount of benefits paid in jurisdictions for which they
have responsibility for benefit integrity. For example, CMS spent about
$75 million for work performed by PSCs under 13 benefit integrity task
orders. The PSCs averaged about 3 cents for each $100 in paid claims in
the jurisdictions for which they conducted benefit integrity
tasks.[Footnote 32] However, the amount of MIP funding paid to the PSCs
to conduct benefit integrity activities varied from about 1 cent to
about 7 cents for each $100 in claims paid. Further, our analysis
showed no clear relationship between funds provided to PSCs and their
responsibilities for conducting benefit integrity activities in
jurisdictions with high incidences of fraudulent Medicare billing. For
example, one PSC received about 4 cents for conducting benefit
integrity work for each $100 in paid claims for benefit integrity work
in a jurisdiction that included Florida, which is at high risk for
fraudulent billing. In contrast, PSCs received the same level of
funding to conduct benefit integrity work in states at lower risk for
fraudulent billing, including Iowa, Montana, Pennsylvania, and Wyoming.
Audit's Role Has Changed, but Funding Allocations May Not Be Optimal:
During the last decade, Medicare has significantly changed how it pays
institutional providers--such as hospitals and nursing homes--that it
audits.[Footnote 33] To align with the payment method changes, CMS has
modified its audit focus to items in the cost report that can affect
payments under a PPS. However, these audits can affect a much smaller
proportion of Medicare's payments under a PPS than audits of costs
under the previous payment method. Given the magnitude of the payment
method change, CMS has not evaluated whether funds within the audit
activity should be further reallocated to potentially generate greater
savings to the Medicare program by addressing the accuracy of reported
costs that may be used to determine payment increases.
CMS distributes funds to its contractors to conduct certain tasks, such
as inputting data from; reviewing; and, if needed, auditing cost
reports submitted by its institutional providers in order to settle, or
agree upon, the reported costs.[Footnote 34] CMS's audit contractors
are also required to conduct wage index reviews[Footnote 35] and assist
with intermediary hearings and appeals of settled cost reports. For
several years, CMS has had a backlog of cost reports to settle, and the
agency has made a priority of reducing the backlog. Other priorities
include more closely scrutinizing those providers that are still paid
based on their costs--such as critical access hospitals--and conducting
required audits.
For providers paid under a PPS, CMS has shifted its audit focus to the
few items that could affect a provider's payments if disallowed. These
include bad debt, payments for graduate medical training, and the
number of low-income patients that hospitals serve. CMS has also
shifted more audit resources to hospitals because more items on their
cost reports can affect calculations of a provider's add-on payments.
CMS does not know the amount of MIP funds that are associated with
audits of different types of providers or specific issues, such as bad
debt. However, in fiscal year 2004, CMS began to separately track some
audit costs, such as those for desk reviews,[Footnote 36] audits, and
wage index reviews. This provided some information on how audit funds
were being spent. According to CMS officials, tracking the costs of
individual audits at a provider or issue level would be difficult and
costly because multiple issues are audited at the same time and the
complexity of individual audits varies for the same provider type.
Nevertheless, more detailed information on audit costs--such as at the
provider level--than CMS currently tracks could provide it with a
better understanding of the value of its current mix of tasks,
particularly if it could associate the costs with the savings from the
audits. This could provide CMS with information on whether it needs to
change the balance of funding for those tasks--for example, whether it
should focus more attention on bad debt or other areas of the cost
report for specific types of providers.
Further, CMS's audit function continues to focus on verifying specific
aspects of the provider's cost report that affect its individual
payment. This type of audit generally addresses a small portion of
providers' Medicare payments, while under a PPS, a much greater portion
of the payments are based on overall industry costs.[Footnote 37] Each
year, MedPAC advises the Congress on whether the Medicare PPS rates for
institutional providers should increase, decrease, or remain constant.
However, MedPAC generally does not have a set of audited cost reports
that validate the information it uses in its assessments of providers,
such as hospitals' allocations of their costs. According to MedPAC, the
current audit process reveals little about the accuracy of the Medicare
cost information.[Footnote 38] For example, while CMS audits individual
providers through full or partial audits, it does not allocate funds to
audit a panel of providers, such as hospitals, which could provide a
means to highlight areas where cost reporting accuracy is problematic.
Without accurate information, CMS cannot ensure that payments to
hospitals properly reflect their costs and provide reliable information
that can be a factor in determining whether rates should change or
remain constant.
CMS might find it cost-effective to gather additional information
because audits have the potential to give the Congress better
information on hospitals' costs. For example, by law, CMS is required
to periodically conduct audits of end-stage renal disease (ESRD)
facilities, which care for patients who must rely on dialysis
treatments to compensate for kidney failure. CMS broadened its audit
plan for these facilities to include a review not only of bad debts,
but also to validate the costs of a selected number of items that are
paid through PPS.[Footnote 39] CMS officials indicated that their
audits of these facilities generated only limited savings, usually
related to bad debts, so they did not consider these audits very
valuable. However, as a result of these audits, MedPAC officials stated
in 2005 that these facilities had a greater margin--or ratio of
Medicare payments to costs--than their cost reports suggested.[Footnote
40] This information was factored into MedPAC's recommendation about
the amount of payment increase needed in calendar year 2007. Setting
appropriate payment increases for hospitals is potentially more
important to Medicare than for ESRD facilities because payments to
participating inpatient hospitals represented about $116 billion, or
about 40 percent of Medicare's benefit payments in fiscal year 2004.
CMS officials agreed that gathering this information might be valuable,
but indicated that they did not currently have sufficient funding to
conduct this data validation in addition to their current efforts
funded as part of audit.
CMS Used Savings Information to Optimize Allocation of Secondary Payer
Funds:
In contrast to provider education and audit, CMS collects information
on the relative savings from specific secondary payer functions and has
used this information to decide on funding allocations within the
secondary payer activity. CMS allocates funds to, and calculates
savings for, about 16 secondary payer functions. Among these functions
are (1) a data match that helps identify instances when a Medicare
beneficiary was covered by other insurance and (2) the initial
enrollment questionnaire, which gathers insurance information on
beneficiaries before they become eligible for Medicare. Within
secondary payer, for fiscal year 2005, savings for the 16 functions
ranged from less than 1 percent to 49 percent of savings of over $5
billion for all of the functions.
CMS officials told us that they have used relative savings information
for secondary payer functions as one factor in determining whether to
increase, decrease, or terminate funding for the functions within this
activity. For example, according to CMS officials, in fiscal year 2005,
savings for one secondary payer function--voluntary reporting of
primary payer information to CMS by health insurance companies--
increased by about 65 percent over fiscal year 2004. Further, savings
from this effort continue to increase. CMS is planning to maintain or
expand funding to it. However, CMS officials said that after confirming
their relatively low savings, they had terminated certain other efforts
to identify secondary payer claims. The terminated efforts included (1)
a second questionnaire sent as follow-up to determine whether a
beneficiary who is claiming Medicare benefits for the first time has
other health insurance that would be responsible for paying the claim
and (2) an effort to determine whether certain trauma codes contained
in a claim could indicate that another insurer, such as worker's
compensation, could be the primary payer.
Future Programmatic Changes Will Affect MIP Funding Allocations:
The Medicare program is undergoing significant changes for which there
is little precedent. These include the addition of the new Part D
prescription drug benefit and the reform of Medicare contracting. Both
will require CMS to make new choices in how it should allocate its MIP
funds to best address its program integrity challenges. CMS's current
allocation approach--which agency officials characterized as primarily
relying on previous fiscal year funding allocations for each activity,
and to each contractor, to determine current allocations--will not be
adequate to address emerging program integrity risks and ongoing
programmatic changes. In addition, as contracting reform proceeds, CMS
intends to increase its use of MIP funds to reward contractors to
encourage superior performance. However, the usefulness of award
payments as a tool to encourage contractors to perform MIP tasks
effectively depends on how well CMS can develop, and consistently
apply, performance measures to gauge differences in the quality of
performance.
CMS's Current MIP Allocation Approach Is Not Adequate to Address
Emerging Risks:
CMS's current allocation approach will not be adequate to address
Medicare's emerging program integrity risks related to the prescription
drug benefit. Over the next 10 years, total expenditures for the
prescription drug benefit, which was implemented in January 2006, are
projected to be about $978 billion, while total expenditures for the
Medicare program are projected to be about $6.1 trillion.[Footnote 41]
CMS and others have stated that the prescription drug benefit is at
risk for significant fraud and abuse. In December 2005, an assistant
U.S. attorney noted that the Medicare prescription drug benefit would
be vulnerable to a host of fraud and abuse schemes unless better
detection systems are developed. According to CMS, the prescription
drug benefit may be vulnerable to fraud and abuse in particular areas,
including beneficiary eligibility, fraud by pharmacies, and kickbacks
designed to encourage certain drugs to be included by the plans
administering the benefit. To respond to these challenges, CMS has
selected eight private organizations, called Medicare prescription drug
integrity contractors (MEDIC), to support CMS's benefit integrity and
audit efforts.[Footnote 42]
Because the Medicare prescription drug benefit is in the early stages
of implementation, CMS does not yet have data to estimate the level of
improper payments or information to determine the level of program
integrity funds needed to address emerging vulnerabilities. As a
result, it is not clear whether, in the future, CMS will need to shift
funds from program integrity activities for Parts A and B to protect
the Part D drug benefit from potential fraud and abuse. For fiscal year
2006, $112 million beyond the HIPAA limit of $720 million has been
appropriated for CMS to support program integrity activities. The
President's Budget for fiscal year 2007 has also proposed additional
funds for fiscal year 2007 and fiscal year 2008. CMS plans to use some
of the additional funding provided under DRA for fiscal year 2006 to
support Part D program integrity efforts. For example, CMS plans to
spend $14 million over the next fiscal year to fund efforts by MEDICs
to protect the prescription drug benefit by performing selected tasks,
such as analyzing data to identify instances of potential fraud and
abuse. In addition, CMS plans to spend about $33 million on Part D
information technology systems to track data related to beneficiary
eligibility and to collect, maintain, and process information on
Medicare covered and noncovered drugs for Medicare beneficiaries
participating in Part D. See appendix IV for more information.
Medicare Contracting Changes Will Affect MIP Allocations:
Another significant programmatic change that will affect future MIP
funding allocations is Medicare contracting reform. MMA required CMS to
transfer all claims administration work, which includes selected
program integrity activities, to MACs by October 2011. CMS plans to
transfer all work to the MACs by July 2009--about 2 years ahead of
MMA's specified time frame. Contracting reform will affect MIP funding
allocations because of (1) changes in contractors' responsibilities for
program integrity activities and their jurisdictions, (2) the potential
for operational efficiencies, and (3) increasing use of MIP funds for
contractor award payments.
The transition to MACs will change some contractors' program integrity
responsibilities and require reallocation of MIP funds among them. The
new MACs will be responsible for paying claims that were previously
processed by intermediaries and carriers, but CMS has decided that MACs
will not be performing all of the MIP activities that they previously
conducted. For example, PSCs performed medical reviews of claims in
some contractors' jurisdictions, but this activity will be performed by
almost all of the MACs in the future.[Footnote 43] Further,
contractors' jurisdictions will change as 23 MACs assume the work
previously performed by a total of 51 Medicare intermediaries and
carriers, within the confines of 15 newly designated geographic
jurisdictions.[Footnote 44] The PSCs conducting benefit integrity work
will be aligned with the MACs in the 15 jurisdictions. In some cases,
one PSC may be aligned with more than one MAC jurisdiction.
According to CMS officials, Medicare contracting reform will lead to
operational efficiencies and savings that would mostly be due to more
effective medical review. For example, CMS anticipates that greater
incentives for MACs to operate efficiently and adopt industry
innovations in the automated medical review of claims will result in
total estimated trust fund savings of $650 million for Medicare from
fiscal year 2006 to fiscal year 2011. Having program integrity
activities operate more effectively could give CMS additional
flexibility to reallocate some funding while achieving reductions in
improperly paid claims. However, we have not validated CMS's estimate,
and in our August 2005 report on CMS's plan for implementing Medicare
contracting reform, we raised concerns about the uncertainty of savings
estimates, which were based on future developments that are difficult
to predict.[Footnote 45]
As part of contracting reform, CMS plans to increase its allocation of
MIP funds that are used as award payments to encourage superior
performance of program integrity activities by contractors. Award
payments that are tied to appropriate performance measures could
encourage contractors to conduct MIP activities effectively and
introduce innovations, such as developing new analytical approaches to
enhance the medical review process. Intermediaries and carriers, both
of which conduct some program integrity activities, are currently paid
on the basis of their costs, generally without financial incentives to
encourage superior performance.[Footnote 46] In contrast, CMS currently
offers award payments to other types of contractors that conduct
program integrity activities, including four MACs that were selected in
January 2006, PSCs, the COB contractor, NSC, and the DAC contractor. As
early as 2009, or when all administrative work has been transferred to
MACs, CMS will be offering the opportunity to be selected for award
payments to all contractors that conduct program integrity
activities.[Footnote 47]
The usefulness of using MIP funding for award payments to encourage
contractors to conduct program integrity tasks effectively depends on
how well CMS can develop, and consistently apply, performance measures
to gauge differences in the quality of performance. In 2004, CMS
conducted a study to evaluate whether the agency could reduce improper
payments by using award payments for contractors to lower their paid
claims error rates, which represent the amount of claims contractors
paid in error compared with their total fee-for-service payments.
According to CMS, the outcome of that pilot was positive, and CMS plans
to use award payments in the future as part of its strategy for
reducing improper payments. However, as we reported in March 2006, CMS
will need to refine its measure of contractor-specific improper
payments, which would enhance its ability to evaluate their performance
of medical review and provider education activities.[Footnote 48]
Further, even when CMS has developed measures to assess the performance
of contractors that conduct MIP activities, it has not always
effectively or consistently applied them. For example, the OIG recently
reviewed the extent and type of information provided in evaluation
reports on PSCs' performance in detecting and deterring fraud and
abuse. The OIG found that although the evaluation reports were used as
a basis to assess contractors' overall performance, they did not
consistently include quantitative information on the activities
contractors performed or their effectiveness.
Conclusions:
We designated the Medicare program as high risk for fraud, waste,
abuse, and mismanagement in 1990, and the program remains so today. To
address this ongoing risk and reduce the program's billions of dollars
in improper payments, CMS must use Medicare's program integrity funding
as effectively as possible. Further, Medicare's susceptibility to fraud
is growing, as it addresses the challenges of adding a prescription
drug benefit to the program. Despite Medicare's increasing
vulnerability, CMS has generally not changed its allocation approach
for MIP funding. In 2006, a decade after MIP was established to support
Medicare program integrity activities, CMS officials state that the
primary basis for their allocation of funds is how they have been
allocated in the past. However, programmatic changes for Medicare's
contractors and emerging risks for the Part D prescription drug benefit
suggest that CMS needs to modify its approach for deciding on funding
allocations for--and within--the five program integrity activities.
Also supporting the need for CMS to assess its current allocation
approach is that the agency's funding decisions do not routinely take
into account quantitative data or qualitative information on the
relative effectiveness of its five program integrity activities or
contractors' vulnerabilities. Without considering information or data,
CMS cannot judge whether funds are being spent as effectively as
possible or if they should be reallocated. CMS is developing two new
measures that may help the agency evaluate the relative effectiveness
of provider education and the audit activity. Better information about
MIP activities' effectiveness should assist CMS in making more prudent
management and funding allocation decisions.
Recommendation for Executive Action:
To better ensure that MIP funds are appropriately allocated among and
within the five program integrity activities, we recommend that CMS
develop a method of allocating funds based on the effectiveness of its
program integrity activities, the contractors' workloads, and risk.
Agency Comments and Our Evaluation:
In its written comments on a draft of this report, CMS stated that it
generally agreed with our recommendation to develop a method of
allocating MIP funds based on the effectiveness of the agency's program
integrity activities, Medicare contractors' workloads, and risk.
However, the agency expressed concern that the report appeared to
emphasize the use of ROI, a quantitative measure that tracks dollars
saved in relation to dollars spent, as a way to allocate funds. CMS
stated this quantitative measure can be an indicator of effectiveness,
but noted that such a measure cannot serve as the sole basis for
informing funding decisions. The agency stated that some of its MIP
activities had benefits that could not be easily quantified. CMS agreed
on the value of allocating funds based on risk and provided information
on programmatic changes that would help it do so. The agency also noted
the efforts it had recently made to strengthen program integrity.
CMS expressed concern about our discussion in the draft report
concerning the use of ROI as a way to quantitatively measure
effectiveness and to allocate MIP funds. CMS stated that the agency
cannot provide funding based exclusively on an ROI because some
activities, including benefit integrity, do not lend themselves to an
ROI measurement and others, such as audit, are governed by statutory
requirements. CMS also stated that in allocating MIP funds, it is
critical that it consider factors other than ROI, including historical
funding, because MIP funding has not increased since 2003.
Our report indicates that an ROI is an important factor that should be
considered in allocating funds, but cannot be the sole consideration.
Our conclusions reflect our support of an approach that takes into
account the qualitative benefits of program integrity activities. Our
report discusses agency officials' views on the difficulty of
developing quantitative measures for the benefit integrity activity. We
also provide information on CMS officials' qualitative assessments of
the positive impact of benefit integrity and provider education. For
example, our report notes that according to CMS officials, these
benefits include discouraging entities that may be considering
defrauding the Medicare program and helping to ensure proper Medicare
payments. Both quantitative and qualitative assessments of
effectiveness--to the extent they can be developed--could help CMS
determine whether MIP funds are being wisely invested or if they should
be reallocated.
CMS also commented on the allocation of MIP funds to Medicare
contractors based on workload and risk. CMS noted that contracting
reform and the introduction of MACs will result in contractors'
workloads being more evenly distributed. In addition, CMS noted that it
is developing award fee measures for contractors' medical review
activities, including establishing performance goals for the
Comprehensive Error Rate Testing program contractor-specific error
rate. CMS agreed with us that risk is a factor that should be
considered in allocating funds.
CMS stated that it is committed to identifying and investigating better
approaches to allocate resources to support critical agency functions,
including using its new contracting authority to introduce incentives
for Medicare fee-for-service claims processing contracts and
consolidating Medicare secondary payer activities. CMS also noted that
it is using state-of-the-art systems and expertise to aggressively
fight waste and abuse in the program, continues to work closely with
its contractors to help ensure that providers receive appropriate
education and guidance in areas where billing problems have been
identified, and has expanded oversight of the new Medicare Part D
prescription drug benefit. In addition, CMS discussed recent program
integrity efforts and successes, including reducing the number of
improper fee-for-service Medicare payments and addressing fraud across
all provider types by coordinating the activities of CMS, law
enforcement, and Medicare contactors in Los Angeles, California, and
Miami, Florida.
We have reprinted CMS's letter in appendix V. CMS also provided us with
technical comments, which we incorporated in the report where
appropriate.
As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
after its date. At that time, we will send copies to the Secretary of
HHS, the Administrator of CMS, appropriate congressional committees,
and other interested parties. We will also make copies available to
others upon request. This report will also be available at no charge on
GAO's Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please
contact me at (312) 220-7600 or aronovitzl@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff who made major contributions
to this report are Sheila K. Avruch, Assistant Director; Hazel Bailey;
Krister Friday; Sandra D. Gove; and Craig Winslow.
Sincerely yours,
[Signed by]:
Leslie G. Aronovitz:
Director, Health Care:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
To provide information on the amount of funds allocated to the five
Medicare Integrity Program (MIP) activities over time, we interviewed
officials from the Centers for Medicare & Medicaid Services (CMS). We
obtained information concerning MIP funding allocations for audit,
medical review, secondary payer, benefit integrity, and provider
education for fiscal years 1997 through 2005. We also analyzed
allocations within these activities. Further, we obtained and analyzed
related financial information, including CMS's planned and actual
expenditures, savings, and return on investment (ROI) calculations for
fiscal year 1997 through fiscal year 2005; CMS financial reports; and
presidential and Department of Health and Human Service (HHS) budget
proposals for fiscal years 2006 and 2007. Because most MIP expenditures
are for activities related to the Medicare fee-for-service plan, our
analyses focused on those expenditures. We reviewed relevant
legislation, such as the Health Insurance Portability and
Accountability Act of 1996 (HIPAA); the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 (MMA); and the Deficit
Reduction Act of 2005 (DRA). We reviewed pertinent reports and
congressional testimony, including our own and those of CMS and the HHS
Office of Inspector General (OIG), related to program integrity
requirements.
To examine the approach that CMS uses to allocate MIP funds, we
interviewed CMS officials regarding factors they consider when
allocating MIP funds. We reviewed related documentation provided to us
by CMS, including budget development guidelines; manuals, such as the
Financial Management Manual; operating plans; and selected workload
data. We also reviewed information on individual projects, such as
information technology systems. We also reviewed pertinent GAO reports
and testimony and Medicare Payment Advisory Commission reports. We did
not independently examine the internal and automated data processing
controls for CMS systems from which we obtained data used in our
analyses. CMS subjects its data to limited reviews and periodic
examinations and relies on the data obtained from these systems as
evidence of Medicare expenditures and to support CMS's management and
budgetary decisions. Therefore, we considered these data to be reliable
for the purposes of our review.
In addition, we interviewed CMS officials regarding changes in the
Medicare program that may affect MIP funding allocations, including
CMS's plans to support activities to detect fraud and improper billing
for the new Part D prescription drug benefit and MIP activities to be
performed by contractors in the future. We also interviewed CMS
officials concerning performance measures and evaluations of
contractors. We reviewed related documentation, including the statement
of work for the Medicare prescription drug integrity contractors; plans
for Medicare contracting reform; policies and procedures associated
with CMS's measurement of contractor performance; standards and
performance measures, such as the Comprehensive Error Rate Testing
program; various manuals, including the Medicare Program Integrity
Manual; and an OIG report on performance evaluations of program
safeguard contractors (PSC). We also reviewed CMS's evaluations of
contractor performance. We performed our work from August 2005 through
August 2006 in accordance with generally accepted government auditing
standards.
[End of section]
Appendix II: Information on MIP Funding, Expenditures, and ROI:
The following tables contain details on MIP funding, expenditures,
allocations, and ROI. Table 2 shows MIP funding ranges under HIPAA.
Table 3 shows the amounts of MIP expenditures allocated to each of the
program integrity activities. Table 4 shows the percentage of MIP funds
allocated to the program integrity activities. Table 5 shows the ROI
for three of the program integrity activities.
Table 2: Fiscal Year MIP Funding Ranges under HIPAA:
Dollars in millions:
Dollars in millions: Amount: Not less than; 1997: $430; 1998: $490;
1999: $550; 2000: $620; 2001: $670; 2002: $690; 2003 and later years:
$710.
Dollars in millions: Not more than; 1997: 440; 1998: 500[A]; 1999: 560;
2000: 630; 2001: 680; 2002: 700; 2003 and later years: 720[B].
Source: GAO analysis of HIPAA and DRA.
[A] This amount does not include the $50 million in supplemental
program integrity funds made available by HHS's fiscal year 1998
appropriation.
[B] This amount does not include the $112 million for fiscal year 2006,
which was included in DRA.
[End of table]
Table 3: Amount of MIP Expenditures Allocated to the Five Program
Integrity Activities, Fiscal Years 1997 through 2005:
Dollars in millions.
Activity: Audit; 1997: $143.3; 1998: $187.2; 1999: $177.3; 2000:
$193.8; 2001: $209.5; 2002: $205.4; 2003: $221.9; 2004: $210.2; 2005:
$207.6.
Activity: Medical review; 1997: 118.6; 1998: 158.3; 1999: 178.7; 2000:
196.0; 2001: 214.8; 2002: 193.2; 2003: 162.4; 2004: 166.5; 2005: 165.9.
Activity: Secondary payer; 1997: 102.0; 1998: 108.5; 1999: 103.6; 2000:
128.5; 2001: 140.6; 2002: 138.5; 2003: 143.5; 2004: 152.1; 2005: 151.5.
Activity: Benefit integrity; 1997: 62.7; 1998: 78.5; 1999: 86.8; 2000:
91.3; 2001: 95.5; 2002: 102.4; 2003: 119.4; 2004: 113.1; 2005: 118.5.
Activity: Provider education; 1997: 10.1; 1998: 12.1; 1999: 9.9; 2000:
14.6; 2001: 17.0; 2002: 53.5[A]; 2003: 65.1; 2004: 70.3; 2005: 70.0.
Activity: Total; 1997: $437.9[B]; 1998: $544.6; 1999: $556.3; 2000:
$624.2; 2001: $677.4; 2002: $693.0; 2003: $712.3; 2004: $712.2; 2005:
$713.5.
Source: GAO analysis of CMS data.
[A] From fiscal year 2002, provider education includes amounts for both
provider education and provider outreach.
[B] Fiscal year 1997 total also includes $1.2 million for "other" MIP
expenditures.
[End of table]
Table 4: Percentage of MIP Funds Allocated to the Five Program
Integrity Activities, Fiscal Years 1997 through 2005:
Activity: Audit; 1997: 33; 1998: 34; 1999: 32; 2000: 31; 2001: 31;
2002: 30; 2003: 31; 2004: 30; 2005: 29; Average: 31.
Activity: Medical review; 1997: 27; 1998: 29; 1999: 32; 2000: 31; 2001:
32; 2002: 28; 2003: 23; 2004: 23; 2005: 23; Average: 27.
Activity: Secondary payer; 1997: 23; 1998: 20; 1999: 19; 2000: 21;
2001: 21; 2002: 20; 2003: 20; 2004: 21; 2005: 21; Average: 21.
Activity: Benefit integrity; 1997: 14; 1998: 14; 1999: 16; 2000: 15;
2001: 14; 2002: 15; 2003: 17; 2004: 16; 2005: 17; Average: 15.
Activity: Provider education; 1997: 2; 1998: 2; 1999: 2; 2000: 2; 2001:
3; 2002: 8; 2003: 9; 2004: 10; 2005: 10; Average: 6.
Activity: Total; 1997: 100[A]; 1998: 100; 1999: 100; 2000: 100; 2001:
100; 2002: 100; 2003: 100; 2004: 100; 2005: 100; Average: 100.
Source: GAO analysis of CMS data.
Notes: These amounts also include supporting activities, such as
information technology. Numbers do not always add to 100 percent
because of rounding.
[A] Percentages for fiscal year 1997 exclude $1.2 million in "other
expenditures" for that year, which accounted for less than 1 percent of
the total.
[End of table]
Table 5: Reported ROI for Audit, Medical Review, and Secondary Payer
Activities, Fiscal Years 1997 through 2005:
Activity: Audit; 1997: $11.6; 1998: $8.9; 1999: $15.7; 2000: $12.6;
2001: $3.7; 2002: $0.0; 2003: $0.0; 2004: $0.0; 2005: $0.0.
Activity: Medical review; 1997: 23.6; 1998: 22.5; 1999: 21.1; 2000:
22.2; 2001: 23.1; 2002: 21.8; 2003: 28.0; 2004: 24.0; 2005: 20.5.
Activity: Secondary payer; 1997: 33.1; 1998: 30.1; 1999: 32.2; 2000:
24.3; 2001: 26.8; 2002: 30.9; 2003: 32.0; 2004: 31.7; 2005: 37.4.
Source: GAO analysis of CMS data.
Notes: Based on dollars saved in relation to dollars invested. CMS does
not track ROI for benefit integrity or provider education activities.
[End of table]
[End of section]
Appendix III: Key Tasks Performed by Contractors That Conduct MIP
Activities:
Activity: Audits; Medicare contractors conducting activity: Fiscal
intermediaries (intermediaries), one PSC, and MAC selected in July
2006; Examples of key tasks performed: * Hospitals, nursing homes, home
health agencies, and other institutional providers that are--or have
been--paid on a cost reimbursement basis submit cost reports to CMS.
Cost reports provide a detailed accounting of what costs have been
incurred, what costs the provider is charging to the Medicare program,
and how such costs are accounted for by the provider; * Contractors
review all or part of the cost report to assess whether costs have been
properly allocated and charged to the Medicare program; * Contractors
determine if the cost report is acceptable or if it needs further
review; * In some instances, contractors may conduct on-site cost
report audits, which include the review of financial records and
related documentation supporting costs and charges.
Activity: Medical review; Medicare contractors conducting activity:
Intermediaries, carriers, and PSCs, and MAC selected in July 2006;
Examples of key tasks performed: * Contractors identify billing errors
made by providers through analysis of claims data; take action to
prevent errors, address identified errors, or both; and publish local
coverage policies to provide guidance to the public and medical
community concerning items and services that are eligible for Medicare
payment; * Most medical reviews do not require a manual review of
medical records. Often contactors conduct medical reviews simply by
examining the claim itself, usually using automated methods.
Activity: Secondary payer; Medicare contractors conducting activity:
Coordination of benefits (COB) contractor, intermediaries and carriers,
and Medicare administrative contractors (MAC); Examples of key tasks
performed: * The COB contractor collects, manages, and maintains
information regarding health insurance coverage for Medicare
beneficiaries; * To gather information to properly adjudicate submitted
claims, the COB contractor sends questionnaires to newly enrolled
Medicare beneficiaries and employers to solicit information about
beneficiaries' health insurance coverage; * The COB contractor also
collects secondary payer data from providers, insurers, attorneys, and
some state agencies; * The COB contractor uses data match programs to
identify claims that should have been paid by another insurer. When
information indicates that a beneficiary has other health insurance,
the COB contractor initiates a secondary payer claims investigation; *
Intermediaries and carriers also conduct secondary payer operations,
including prepayment activities in conjunction with the COB contractor,
and they recover erroneous secondary payer payments.
Activity: Benefit integrity; Medicare contractors conducting activity:
PSCs, the National Supplier Clearinghouse (NSC), and the data analysis
and coding (DAC) contractor; Examples of key tasks performed: *
Contractors are tasked with preventing, detecting, and deterring
Medicare fraud; * PSCs conduct medical reviews to support fraud
investigations, analyze data to support medical reviews, process fraud
complaints, develop fraud cases, conduct provider education related to
fraud activities, and support law enforcement entities; * Once a case
is developed, PSCs refer it to the OIG or to law enforcement for
prosecution; * NSC reviews and processes applications from
organizations and individuals seeking to become suppliers of medical
equipment and supplies in the Medicare program; * NSC verifies
suppliers' application information; conducts on-site visits to the
prospective suppliers; issues supplier authorization numbers, which
allow suppliers to bill Medicare; and maintains a central data
repository of information concerning suppliers; * NSC also periodically
reenrolls active suppliers and uses data to assist with fraud and abuse
research; * The DAC contractor conducts ongoing data analysis and
reporting of trends related to supplier billing for medical equipment
and supplies and provides ongoing feedback to the PSCs.
Activity: Provider education; Medicare contractors conducting activity:
Intermediaries, carriers, MACs, and PSCs; Examples of key tasks
performed: * When billing problems are identified through medical
reviews, contractors take a variety of steps to educate providers about
Medicare coverage policies, billing practices, and issues related to
fraud and abuse; * Contractors may conduct group training sessions,
including seminars and workshops; send informational letters to
providers; arrange for teleconferences; conduct site visits; and
provide information on their Web sites.
Source: GAO analysis of CMS documents.
[End of table]
[End of section]
Appendix IV: CMS's Planned Spending of $100 Million Provided by DRA:
For fiscal year 2006, DRA provided $112 million in MIP funds beyond the
annual HIPAA limit of $720 million. Of this amount, DRA specified that
$12 million was for the Medi-Medi program and $100 million was for MIP
in general. Table 6 provides information on CMS's planned spending of
$100 million in general MIP funds provided by DRA, including spending
related to the Part D prescription drug benefit.
Table 6: CMS's Planned Spending of MIP Funds Provided by DRA:
Category: Information technology; Amount: $33,100,000; Description: CMS
developed several information technology systems to implement the
prescription drug benefit. These MIP funds from DRA are partially
supporting these systems. They include the following:
* Medicare Drug Data Processing System contains summary prescription
drug claim information on all Medicare covered and noncovered drug
events, including non-Medicare drug events, for Medicare beneficiaries.
Each time a beneficiary fills a prescription drug covered under Part D,
plans must submit a summary record called the prescription drug event
(PDE) record to CMS. The PDE record contains prescription drug cost and
payment data that will enable CMS to make payments to plans and
otherwise administer the Part D benefit;
* Medicare Advantage Prescription Drug System will be a stand-alone
system that will include the processing of all enrollment and
disenrollment transactions associated with the Part D benefit;
* Medicare Beneficiary Database tracks data related to beneficiary
eligibility for Part D.
Category: Reviews of requested exceptions to therapy cap; Amount:
20,000,000; Description: Medicare has financial limitations on payments
for certain types of therapy services provided to a beneficiary during
a calendar year--called therapy caps.[A] DRA allows CMS to grant
exceptions to these therapy caps, as long as the services are medically
necessary for the beneficiary. CMS will use these DRA funds to review
supporting documentation for requests for exception to the therapy cap
amounts to determine whether the services are medically necessary and
whether the exception should be granted.
Category: Information technology infrastructure; Amount: 15,000,000;
Description: CMS is consolidating data generated by Medi-Medi and Parts
B and D into an integrated data repository.[B] MIP funds are to be used
to help develop the information technology infrastructure to achieve
this task.
Category: Medicare prescription drug integrity contractor (MEDIC);
Amount: 14,000,000; Description: In November 2005, CMS awarded one task
order to the enrollment and eligibility MEDIC, which is tasked with
identifying and addressing potential fraud, waste, and abuse in the
early implementation of the Part D benefit. This task order will be in
effect until CMS selects three regional MEDICs and one MEDIC to act as
a data integrator. CMS plans to select these MEDICs later this summer.
Category: Part D and Medicare Advantage activities; Amount: 8,749,732;
Description: These funds are to be used to monitor and audit Part D and
Medicare Advantage activities. Several types of audits are to be
carried out for Part D.[C] Funds, for example, will be used for Part D
compliance monitoring and auditing activities.
Category: Audits of Adjusted Community Rate Proposals (ACRP); Amount:
4,077,000; Description: A Medicare Advantage plan's ACRP identifies the
health services that will be provided to beneficiaries, the estimated
costs of providing these health services, and the estimated payments
the plan will receive--so that CMS can ensure that the plans are using
any excess payments as allowed by law. CMS will use these DRA funds to
conduct required audits in order to evaluate the reasonableness of
ACRPs.[D] Prior to this year, these audits were paid by MIP funds
provided through HIPAA.
Category: Contingency funds; Amount: 5,073,268; Description: CMS is
reserving these funds to be allocated later in the fiscal year.
Category: Total; Amount: $100,000,000; Description: [Empty].
Source: GAO analysis of CMS and DRA information.
[A] The term therapy caps refers to limitations on Medicare payments
for certain outpatient rehabilitation services, which were initiated by
the Balanced Budget Act of 1997. Pub. L. No. 105-33, § 4541(c), 111
Stat. 251, 456-57. As of January 1, 2006, caps are in effect for
occupational therapy and outpatient physical therapy and speech-
language pathology received by Medicare beneficiaries. For services
received in 2006, beneficiaries may request an exception to the caps
based on medical necessity. In addition, such necessity will be deemed
present if a decision is not made on a request within 10 business days
of its receipt. DRA § 5107, 120 Stat. 4, 42 (to be codified at 42
U.S.C. § 1395l(g)(5)).
[B] This amount does not include the $12 million specifically provided
for the Medi-Medi program by DRA for fiscal year 2006.
[C] CMS will do regularly scheduled audits and do focused and targeted
audits when questionable findings are identified through contractor
activities, such as data analysis. In instances of allegations of
fraud, waste, or abuse, MEDICs will conduct audits. Also, CMS has
planned a 3-year comprehensive, regularly scheduled audit cycle for
Part D plans, because MMA required audits of financial records for at
least one-third of all Part D prescription drug plans each year. MMA §
101(a)(2), 117 Stat. 2100 (to be codified at 42 U.S.C. § 1395w-
112(b)(3)(C)).
[D] CMS is required to audit the financial records of at least one-
third of the participating Medicare Advantage Plans (formerly called
Medicare+Choice Plans) annually. 42 U.S.C. § 1395w-27(d)(1) (2000).
[End of table]
[End of section]
Appendix V Comments from the Centers for Medicare & Medicaid Services:
Department Of Health & Human Services: Centers for Medicare & Medicaid
Services:
Administrator:
Washington, DC 20201:
DATE: AUG - 7 2006:
TO: Leslie G. Aronovitz:
Director, Health Care:
Government Accountability Office:
FROM: Mark B. McClellan, M.D., Ph.D.
Administrator:
[See PDF for image]
[End of figure]
SUBJECT: Government Accountability Office's (GAO) Report: "Medicare
Integrity Program, Agency Approach for Allocating Funds Should
Be Revised" (GAO-06-813):
Thank you for the opportunity to review the GAO's report entitled
"Medicare Integrity Program, Agency Approach for Allocating Funds
Should Be Revised." In this report, the GAO evaluated: (1) the amount
of Medicare Integrity Program (MIP) funds that CMS has allocated across
the five program integrity activities (medical review, cost report
audit, benefit integrity, Medicare Secondary Payer, and provider
education) over time; (2) the approach that CMS uses to allocate MIP
funds; and (3) how major changes in the Medicare program may affect MIP
funding allocations.
The Centers for Medicare & Medicaid Services (CMS) has expanded its
efforts in aggressively fighting waste and abuse in Medicare by using
state of the art systems and expertise to identify problems before they
occur and those efforts are paying off. CMS continues to monitor
information and work across the Agency to identify program
vulnerabilities faster and more efficiently. The Agency's goal is to
address and resolve problems timely and effectively. CMS continues to
work closely with the Medicare contractors to make sure appropriate
education and guidance is given to the provider community on billing
problems identified.
CMS' recent efforts support existing and successful activities
including:
* Aggressively overseeing and improving CMS' overall program integrity
efforts have reduced the number of improper fee-for-service Medicare
claims payments by half in one year, from 10.1 percent in 2004 to 5.2
percent in 2005, a $9.5 billion reduction in Medicare improper payments.
* Continuing to coordinate efforts among the CMS satellite offices, in
Los Angeles and Miami, CMS regional offices, law enforcement and
contractors:
Page 2-Leslie G. Aronovitz:
to address fraud across all provider types. One of these recent efforts
resulted in Medicare savings of over $500 million related to
beneficiary identity theft.
* Revoking over 100 Medicare billing numbers, based on Program
Safeguard Contractor (PSC) activities.
* Continuing to focus projects by the CMS contractors on areas of
potentially fraudulent payments in their respective jurisdictions. One
recent project identified over $30 million in improper claims related
to DRG code combinations.
Recommendation: To better ensure that MIP funds are appropriately
allocated, GAO recommends that CMS develop a method of allocating funds
based on the effectiveness of the activities, contractors' workloads,
and risk.
In general, CMS agrees with the report recommendation. CMS is committed
to identifying and investigating better ways to efficiently allocate
our resources to support the critical functions of our Agency. We
continually review our activities to ensure efficient and effective use
of resources through consolidation and expansion of activities. For
example, CMS is developing a strategy to use the new contracting
authority provided by the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA) to introduce incentives into the
Medicare fee-for-service claims processing contracts and the use of
recovery auditor contracts. CMS is also beginning an effort to
consolidate our Medicare Secondary Payer activities to further achieve
program efficiencies.
Additionally, in the report, the GAO states that vulnerabilities have
increased as a result of various programmatic initiatives (e.g., the
prescription drug program) and that it has become increasingly critical
that funds be used effectively and efficiently. We agree and, like the
GAO, recognize that additional MIP funding is necessary. However, we
have already taken steps to expand our oversight efforts to include the
Medicare Part D program. CMS contracted with program integrity
contractors, the Medicare Drug Integrity Contractors (MEDICS), to
support our anti-fraud and abuse efforts with the new Prescription Drug
Benefit. These contractors will perform data analysis related to fraud
and abuse, conduct fraud complaint investigations and refer cases to
the appropriate law enforcement agency as needed.
Following are CMS' general comments on this report:
Effectiveness of Program Activities: CMS spends a considerable amount
of time evaluating the effectiveness of its fraud, waste, and abuse
program activities, including the five activities funded through MIP.
For example, as the report indicates, we have utilized the savings-to-
costs ratios associated with Medicare Secondary Payer activities in the
budget allocation process. However, it is also critical that CMS
consider other:
Page 3 - Leslie G. Aronovitz:
factors, including historical funding, in part because MIP funding has
been flat-lined since 2003.
Contractors have built infrastructures and a workforce to address CMS
goals and meet performance standards across all of these five MIP
program areas. A significant shift in the allocation of MIP funds would
result in the deterioration of those already 1 Built infrastructures
and already trained and hired staff. Without an influx of new r money,
contractors can not keep up with inflation, let alone address new
vulnerabilities. That said, CMS does re-program funds to areas of
greatest need or vulnerability by routinely shifting funds, throughout
the fiscal year, to activities with demonstrated results.
Further, CMS is concerned about the emphasis this report placed on
return on investment (ROI) as a way to measure effectiveness and
thereby allocate funding. While the use of ROI is certainly one
indicator of effectiveness, CMS can not provide funding based on the
ROI alone since some of these functions, such as benefit integrity, do
not lend themselves to an ROI measurement and other functions, such as
audit, are governed by statutory requirements. Further, while the ROI
identifies quantifiable benefits that are commensurate with the amount
spent, it fails to capture benefits that accrue a: a result of the
sentinel effect of program safeguard activities. For example, cost
report audits result in hundreds of millions of dollars returned to the
trust funds annually.
As part of our ongoing review of Medicare Secondary Payer program
operations, CMS is initiating a consolidation of postpay activities at
one site, rather than at each individual Medicare contractor site. We
expect the introduction of the Medicare Second try Payer Recovery
Contractor will allow for a more efficient approach to recover mistaken
Medicare payments and will likely increase our ROI for this MIP
function.
Contractors' Workloads: First, it is important to note that CMS'
allocation of MIP funds to the contractor community will be changing
pursuant to the contracting reform changes required in the MMA. With
the implementation of Medicare Administrative Contractors, (MACs),
contractors' workloads will be more evenly distributed across MACs than
at present and budgets will be negotiated through the Federal
Acquisition Regulation contract processes.
Additionally, award fee measures are being developed. For example, an
award fee for medical review activities is being developed based on
attaining specific performance metrics designed to measure the
effectiveness of medical review activities, such as (but not limited
to) setting goals for the Comprehensive Error Rate Testing (CERT)
contractor-specific error rate.
Risk: With respect to the allocation of funds based on risk, CMS agrees
this is a good idea. Based upon our experience with the Miami satellite
office in identifying fraudulent activities in Florida, we established
a second CMS satellite office in Los Angeles to:
Page 4 - Leslie G. Aronovitz:
reduce the unusually high rates of improper payments identified in the
Medicare and Medicaid programs in California. Our oversight efforts and
data analysis identified many operations set up to defraud the Medicare
and Medicaid programs by billing for services never provided. Due to
the success of such satellite offices, CMS is considering further
expanding such satellite offices in other high risk areas. In addition,
we plan to enhance our data analysis function to ensure our MIP efforts
locus on high risk activities.
Again, we thank the GAO for the time and effort spent on this report.
Attachment:
[End of section]
FOOTNOTES
[1] Improper payments are payments made for unauthorized purposes or in
excessive amounts and range from inadvertent errors to outright fraud
and abuse.
[2] Until July 1, 2001, CMS was called the Health Care Financing
Administration. We use the name CMS throughout this report.
[3] The estimated amount of $12.1 billion represents gross dollars paid
in error, which is calculated by adding estimated dollars paid in error
that were due to overpayments to the estimated amount of underpayments.
In 2004, Medicare paid an estimated $11.2 billion in overpayments and
underpaid claims by an estimated $0.9 billion.
[4] Pub. L. No. 104-191, § 202, 110 Stat. 1996-98 (codified at 42
U.S.C. § 1395ddd (2000)).
[5] These payments include those made to participating Medicare
providers of services, such as physicians, hospitals, and others.
[6] HIPAA § 201(b), 110 Stat. 1992 (codified at 42 U.S.C. § 1395i(k)(4)
(2000)).
[7] GAO, Federal Bureau of Investigation: Accountability over the HIPAA
Funding of Health Care Fraud Investigations Is Inadequate, GAO-05-388
(Washington, D.C.: Apr. 22, 2005).
[8] Medicare Part A covers inpatient hospital care, skilled nursing
facility care, some home health care services, and hospice care. Part B
services include physician and outpatient hospital services, diagnostic
tests, mental health services, outpatient physical and occupational
therapy, ambulance services, some home health services, and medical
equipment and supplies.
[9] Under the traditional Medicare fee-for-service program,
beneficiaries are usually charged for each health care service or item
provided to them. Medicare Advantage plans, under Part C of Medicare,
charge a fixed monthly fee per enrollee regardless of the number and
mix of services they provide. In fiscal year 2005, about 87 percent of
Medicare beneficiaries were enrolled in fee-for-service and about 13
percent were enrolled in Medicare Advantage.
[10] Pub. L. No. 109-171, § 6034(d), 120 Stat. 4, 77 (2006) (to be
codified at 42 U.S.C. § 1395ddd(b)(6) and 1395i(k)(4)(D)). This
activity is the Medi-Medi program, which is designed to identify
improper billing and utilization patterns by matching Medicare and
Medicaid claims information on providers and beneficiaries to reduce
fraudulent schemes that cross program boundaries. The statute
appropriates funds for CMS to contract with third parties to identify
program vulnerabilities in Medicare and Medicaid through examining
billing and payment abnormalities. The funds also can be used in
connection with the Medi-Medi program for two other purposes: (1)
coordinate actions by CMS, the states, the Attorney General, and the
HHS OIG to protect Medicaid and Medicare expenditures and (2) increase
the effectiveness and efficiency of both Medicare and Medicaid through
cost avoidance, savings, and recouping fraudulent, wasteful, or abusive
expenditures.
[11] DRA §§ 5204 and 6034(d), 120 Stat. 48 and 77 (to be codified at 42
U.S.C. § 1395i(k)(4)(C) and (D)).
[12] Pub. L. No. 101-508, tit. XIII, 104 Stat. 1388, 1388-573--1388-
630. Under the Budget Enforcement Act, funding for Medicare
administrative activities, including for program safeguard activities
that were found to be very cost-effective, could be increased only if
discretionary funding for other programs, such as immunizations or job
training, were reduced.
[13] GAO, Medicare Spending: Modern Management Strategies Needed to
Curb Billions in Unnecessary Payments, GAO/HEHS-95-210 (Washington,
D.C.: Sept. 19, 1995); Medicare: Adequate Funding and Better Oversight
Needed to Protect Benefit Dollars, GAO/T-HRD-94-59 (Washington, D.C.:
Nov. 12, 1993); and Medicare: Funding and Management Problems Result in
Unnecessary Expenditures, GAO/T-HRD-93-4 (Washington, D.C.: Feb. 17,
1993).
[14] A CMS official told us that the agency typically spends about 1
percent less than the maximum appropriated amount to ensure that it can
cover additional contractor expenses that may occur.
[15] These activities are (1) review of activities of providers of
services or other individuals and entities furnishing items and
services for which payment may be made (such as skilled nursing
facilities and home health agencies), including medical and utilization
review and fraud review; (2) audit of cost reports; (3) determinations
as to whether payment should not be, or should not have been, made and
recovery of payments that should not have been made; (4) education of
providers of services, beneficiaries, and other persons with respect to
payment integrity and benefit quality assurance issues; and (5)
developing (and periodically updating) a list of items of durable
medical equipment (DME) that are subject to prior authorization.
Concerning the fifth activity, CMS has published instructions related
to the prior authorization of customized DME in the Medicare Program
Integrity Manual, and contractors (Medicare administrative contractors
and PSCs) are required to publish examples of the types of items for
which prior authorization is available. The first activity listed above
includes both medical review and benefit integrity.
[16] In fiscal year 2005, about 1.6 percent of total MIP expenditures
were used for program integrity efforts for Medicare Advantage plans.
[17] Intermediaries process Medicare Part A and Part B claims paid to
hospitals and other institutions, such as home health agencies.
Carriers process the majority of Part B claims for the services of
physicians and other providers.
[18] In January 2006, CMS selected four MACs.
[19] Pub. L. No. 108-173, § 911, 117 Stat. 2066, 2378-86.
[20] Medicare defines DME as equipment that serves a medical purpose,
can withstand repeated use, is generally not useful in the absence of
an illness or injury, and is appropriate for use in the home. DME
includes items such as wheelchairs, hospital beds, and walkers.
Medicare defines prosthetic devices (other than dental) as devices that
are needed to replace a body part or function. Prosthetic devices
include artificial limbs and eyes and cardiac pacemakers. Medicare
defines orthotic devices to include leg, arm, back, and neck braces
that provide rigid or semirigid support to weak or deformed body parts
or restrict or eliminate motion in a diseased or injured part of the
body. Medicare-reimbursed DME supplies are items that are used in
conjunction with DME and consumed during the use of the equipment--such
as drugs used for inhalation therapy--or items that need to be replaced
on a frequent, usually daily, basis--such as surgical dressings.
[21] For fiscal year 2006, DRA appropriated $100 million to MIP in
general and $12 million for the Medi-Medi program, for a total of $112
million. In addition to the $12 million appropriated in fiscal year
2006 for the Medi-Medi program, the statute also appropriated $24
million for fiscal year 2007, $36 million for fiscal year 2008, $48
million for fiscal year 2009, and $60 million for fiscal year 2010 and
each subsequent fiscal year for the Medi-Medi program.
[22] The President's budget for fiscal year 2007 has proposed funding
for MIP beyond the HIPAA-specified maximum amount of $720 million. The
proposal is part of a governmentwide effort to provide a specified
level of discretionary funding for a defined period for program
integrity activities.
[23] GAO, Medicare Management: CMS Faces Challenges in Safeguarding
Payments While Addressing Provider Needs, GAO-01-1014T (Washington,
D.C.: July 26, 2001).
[24] In fiscal year 2005, expenditures for the provider education
activity totaled $70 million, which consisted of $36.7 million for
provider outreach and $33.3 million for provider education.
[25] According to CMS officials, before determining budget amounts for
medical review, they analyze both last year's and current expenditures
by individual contractor. A contractor might not be spending the full
amount allocated to it for various reasons, such as staff turnover.
[26] A CMS official also indicated that the agency considers medical
review to have a sentinel effect in discouraging providers that might
be considering defrauding Medicare. However, this effect is not
possible to measure.
[27] In 1983, legislation required the establishment of PPS for
inpatient hospital services. Social Security Amendments of 1983, Pub.
L. No. 98-21, § 601(e), 97 Stat. 65, 152-62. Before then, Medicare had
generally paid providers based on their reported costs, and audit
disallowances of reported costs led to savings. Under PPS, payment
rates are generally not based on individual providers' costs, but are
typically set for groups of services, with payment amounts varying by
the intensity of need for care by patients served. From 1998 through
2002, CMS implemented PPS for skilled nursing facilities (nursing
homes), hospital outpatient departments, home health agencies, and
inpatient rehabilitation facilities.
[28] For example, the basic PPS payment for hospitals is determined by
the diagnoses of the patients that they serve, with the specific
diagnosis-related payments based on the average weighted costs of
hospitals to provide care to patients in 1981, adjusted upwards over
time. In addition, a hospital's payment rates are further adjusted
based on factors specific to the hospital, including providing an
additional payment to hospitals that treat an unusually large number of
low-income patients or that offer graduate medical education. Certain
items, such as bad debt expense, are also paid based on a hospital's
reported costs.
[29] Department of Health and Human Services, Office of Inspector
General, Carrier Medical Review Progressive Corrective Action, OEI-02-
03-00300 (Washington, D.C.: October 2005).
[30] CMS began implementing the first phase of this system in 2000 and
fully implemented it in 2004.
[31] GAO, Medicare: CMS's Program Safeguards Did Not Deter Growth in
Spending for Power Wheelchairs, GAO-05-43 (Washington, D.C.: Nov. 17,
2004).
[32] Task orders were effective for about 1 year, and beginning task
order dates ranged from November 1, 2004, through January 25, 2005.
[33] CMS officials indicated that although the hospital inpatient PPS
was implemented in 1983, the major changes to payment methods occurred
beginning in 1998 and later as prospective payment was introduced for
skilled nursing facilities, hospital outpatient departments, and home
health agencies.
[34] Institutional providers are required to submit cost reports and
CMS is required to settle them, even though most institutional
providers are paid through a prospective payment method.
[35] As part of the methodology for determining prospective payments to
hospitals, CMS is required to adjust standardized amounts for area
differences in hospital wage levels by a factor, which is known as the
wage index. The wage index reflects the relative hospital wage level
(in the geographic area of the hospital) compared to the national-
average hospital wage level. Through a survey, CMS obtains hospital
wages and wage-related costs. As part of the process of adjustment,
contractors conduct reviews of the submitted data and the supporting
documentation.
[36] A desk review determines the acceptability of the cost report; the
need for audit; and if needed, the depth of audit to be performed.
[37] CMS audit priorities include reviewing providers under PPS for non-
PPS payments made through the cost report, including those associated
with bad debts; graduate medical education; indirect medical education;
disproportionate share hospitals, which provide care to an unusually
large proportion of low-income patients; and organ acquisition.
Priorities also include focusing on providers not recently audited and
on specific types of providers, including those still reimbursed on a
cost basis, such as critical access and cancer hospitals and end-stage
renal disease facilities. Under the Balanced Budget Act of 1997, CMS is
required to audit end-stage renal disease facilities every 3 years
(Pub. L. No. 105-33, § 4558(a), 111 Stat. 251, 463).
[38] Medicare Payment Advisory Commission, Report to the Congress:
Sources of Financial Data on Medicare Providers (Washington, D.C.: June
2004). This report mentions several possibilities for using audit to
obtain more accurate data, including making that an objective of the
audit, focusing audit attention on the section of the cost report that
deals with a hospital's total financial performance data, conducting
full scale audits--which MedPAC estimates can take from 1,000 to 2,000
hours of auditors' time to complete, or targeting audits to suspected
areas within cost reports to determine reporting accuracy.
[39] Contractors typically develop an "audit program," or plan, which
identifies the audit objectives, issues, transactions, or cost report
entries to audited, reviewed, or verified; the audit steps to be
performed; and the tests to be applied.
[40] The margin--the difference between Medicare payments and
providers' costs for services to Medicare beneficiaries expressed as a
percentage of payments--is one of the factors MedPAC uses in developing
a recommendation. MedPAC reported in 2004 that preaudit costs for ESRD
facilities were 4 percent higher than postaudit costs in 1996 based on
the audited cost reports it reviewed. Audits reveal the difference
between allowable and nonallowable costs. There is generally a several
year time lag during which CMS's contractors receive and audit cost
reports, which is why MedPAC had to rely upon the 1996 audited cost
reports in 2004.
[41] Boards of Trustees of the Federal Hospital Insurance and Federal
Supplementary Medical Insurance Trust Funds, 2006 Annual Report of the
Boards of Trustees of the Federal Hospital Insurance and Federal
Supplementary Medical Insurance Trust Funds (Washington, D.C.: May 1,
2006).
[42] Some of the main functions of the MEDICs will include identifying
and investigating potential fraud and abuse, developing cases for
referral, acting as liaisons to law enforcement agencies, and providing
audit services. MEDICs may be assigned various types of audits, such as
audits of the information provided to CMS by the plans administering
the Part D benefits, the plans' required fraud and abuse compliance
plans, and plans' services to beneficiaries. In addition, CMS plans to
determine an improper payment rate for the prescription drug benefit,
and at least one of the MEDICs may assume that task. CMS used start-up
funds in fiscal year 2005 for the prescription drug benefit, which were
not part of MIP funds, to conduct the competition to select the MEDICs.
[43] The first four MACs selected in January 2006 will process DME,
prosthetics, orthotics, and supply claims and will not be responsible
for medical review of the claims they process. Three PSCs will conduct
medical review for these claims.
[44] Fifteen MACs will each process both Part A and Part B claims in 1
of the 15 jurisdictions. In addition, 4 MACs will process DME,
prosthetics, orthotics, and supply claims, and 4 MACs will process home
health and hospice claims in 4 jurisdictions that encompass the 15 Part
A and Part B jurisdictions.
[45] GAO, Medicare Contracting Reform: CMS's Plan Has Gaps and Its
Anticipated Savings Are Uncertain, GAO-05-873 (Washington, D.C.: Aug.
17, 2005).
[46] Prior to MMA, CMS's authority to contract using other payment
methods was restricted.
[47] In addition to the 4 MACs that were selected in January 2006 and 1
that was selected in July 2006, CMS plans to select 18 MACs from
September 2007 through September 2008.
[48] GAO, Medicare Payments: CMS Methodology Adequate to Estimate
National Error Rate, GAO-06-300 (Washington, D.C.: Mar. 24, 2006).
[End of section]
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