Improper Payments
Responses to Posthearing Questions Related to Eliminating Waste and Fraud in Medicare and Medicaid
Gao ID: GAO-09-838R July 20, 2009
On April 22, 2009, GAO testified before the subcommittee at a hearing entitled, "Eliminating Waste and Fraud in Medicare and Medicaid." This letter responds to a May 29, 2009, request for responses to questions for the record related to our April 22, 2009, testimony. The questions are as follows: (1) What do you see as the biggest challenge for CMS to provide an estimate for improper payments under Medicare Part D? (2) Has GAO identified any problems with the current process for reviewing and paying Medicare claims that would make the program more vulnerable to fraudulent claims? (3) Is there any reason CMS cannot include penalties in its Medicare Administrative Contractor contracts for paying improper or fraudulent claims that you are aware of?
(1) With total outlays of about $46 billion in fiscal year 2008, Medicare Part D is the last significant part of Medicare for which the department has yet to develop an estimate of improper payments. In developing its estimate, it will be important for CMS to determine where the vulnerabilities and risks exist in the Medicare Part D structure and operations that could impact CMS's ability to effectively detect, measure, and ultimately reduce improper payments. In HHS's fiscal year 2008 AFR, the department reported that it had calculated payment error rates for two components of Medicare Part D but also that its measurement was not fully implemented. Also, it will be important to consider HHS's Office of Inspector General (OIG)-identified concerns about CMS's implementation of internal controls to ensure payment accuracy as well as inadequate analysis of claims data. (2) We have identified several weaknesses with the current process for reviewing Medicare claims. Limitations in the number of medical reviews conducted leave the home health benefit--within the Medicare program--vulnerable to improper payments, including payments resulting from fraud and abuse. We reported in February 2009 that in fiscal year 2007, only 0.5 percent of the more than 8.7 million home health agency (HHA) claims processed were subjected to prepayment review by Medicare's contractors. The contractors focused primarily on claims submitted by HHAs whose billing patterns differed from their peers on measures such as cost per episode. Of those claims that were reviewed, over 40 percent were denied in whole or in part. There are also weaknesses with respect to selecting claims to review in Medicare Fee-for-Service. In addition to the weaknesses with the current Medicare claims review process, we found that failure to effectively screen health providers before granting them billing privileges also increases the program's vulnerability to fraudulent claims. (3) Consistent with the Social Security Act and applicable federal procurement regulations, CMS may include provisions in Medicare Administrative Contractor (MAC) contracts to: (1) prescribe the costs incurred by MACs in processing and paying Medicare claims that CMS may reimburse; (2) provide incentives or disincentives related to payment accuracy; and (3) hold MACs and their employees liable for improper or fraudulent claims payments under limited circumstances. Otherwise, neither the Social Security Act nor applicable federal procurement regulations expressly provides for CMS to reduce amounts owed to MACs under their contracts or to assess charges against MACs for improper or fraudulent claims payments.
GAO-09-838R, Improper Payments: Responses to Posthearing Questions Related to Eliminating Waste and Fraud in Medicare and Medicaid
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GAO-09-838R:
United States Government Accountability Office:
Washington, DC 20548:
July 20, 2009:
The Honorable Thomas R. Carper:
Chairman:
The Honorable John McCain:
Ranking Member:
Subcommittee on Federal Financial Management, Government Information,
Federal Services, and International Security:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
The Honorable Tom Coburn, M.D.
United States Senate:
Subject: Improper Payments: Responses to Posthearing Questions Related
to Eliminating Waste and Fraud in Medicare and Medicaid:
On April 22, 2009, we testified[Footnote 1] before your subcommittee at
a hearing entitled, "Eliminating Waste and Fraud in Medicare and
Medicaid." At that hearing, we discussed federal agencies' progress in
estimating and reducing improper payments, as well as existing
challenges for federal agencies to fully meet the requirements of the
Improper Payments Information Act of 2002 (IPIA).[Footnote 2] Further,
our testimony provided an overview of implementation of IPIA with
respect to the Medicare and Medicaid programs by the Centers for
Medicare and Medicaid Services (CMS), a component of the Department of
Health and Human Services (HHS).
This letter responds to a May 29, 2009, request for responses to
questions for the record related to our April 22, 2009, testimony. Our
responses are based on work associated with previously issued GAO
reports (see Related GAO Products at the end of this correspondence),
data included in HHS's fiscal year 2008 annual financial report (AFR),
and data reported for fiscal year 2008 by CMS. We conducted our work
from May 2009 to July 2009 in accordance with all sections of GAO's
Quality Assurance Framework that are relevant to our objectives. The
framework requires that we plan and perform the engagement to obtain
sufficient and appropriate evidence to meet our stated objectives and
to discuss any limitations in our work. We believe that the information
and data obtained, and the analysis conducted, provide a reasonable
basis for any findings and conclusions in this product. Your questions,
along with our responses, follow.
1. What do you see as the biggest challenge for CMS to provide an
estimate for improper payments under Medicare Part D?
With total outlays of about $46 billion in fiscal year 2008, Medicare
Part D is the last significant part of Medicare for which the
department has yet to develop an estimate of improper payments. CMS
testified in April 2009 that it is on track to develop that
methodology, but a completion date was not provided. We have not yet
evaluated CMS's current efforts to develop a methodology for estimating
improper payments associated with Medicare Part D (Prescription Drug
Benefit).
In developing its estimate, it will be important for CMS to determine
where the vulnerabilities and risks exist in the Medicare Part D
structure and operations that could impact CMS's ability to effectively
detect, measure, and ultimately reduce improper payments. In HHS's
fiscal year 2008 AFR, the department reported that it had calculated
payment error rates for two components of Medicare Part D but also that
its measurement was not fully implemented. Also, it will be important
to consider HHS's Office of Inspector General (OIG)-identified concerns
about CMS's implementation of internal controls to ensure payment
accuracy as well as inadequate analysis of claims data.
2. Has GAO identified any problems with the current process for
reviewing and paying Medicare claims that would make the program more
vulnerable to fraudulent claims?
We have identified several weaknesses with the current process for
reviewing Medicare claims. Limitations in the number of medical reviews
conducted leave the home health benefit--within the Medicare program--
vulnerable to improper payments, including payments resulting from
fraud and abuse. We reported in February 2009 that in fiscal year 2007,
only 0.5 percent of the more than 8.7 million home health agency (HHA)
claims processed were subjected to prepayment review by Medicare's
contractors.[Footnote 3] The contractors focused primarily on claims
submitted by HHAs whose billing patterns differed from their peers on
measures such as cost per episode. Of those claims that were reviewed,
over 40 percent were denied in whole or in part. Furthermore, the
contractors rarely performed postpayment medical reviews to recover
funds previously paid in error, even when the HHA was identified as
billing improperly through prepayment review. Thus, although the
limited claims-review process that was performed was valuable in
reducing potential improper payments, the extent of errors found would
suggest that both prepayment and postpayment medical reviews should be
increased to more effectively avoid or recoup overpayments.
There are also weaknesses with respect to selecting claims to review in
Medicare Fee-for-Service. In January 2007, we reported on shortfalls in
the automated prepayment controls that are used to deny durable medical
equipment, prosthetics, orthotics, and supplies (DMEPOS) claims that
should not be paid or to identify claims that should be
reviewed.[Footnote 4] For example, CMS's contractors responsible for
the medical review of these claims did not have edits with predesigned
thresholds in place to identify claims for review that were part of an
atypical increase in billing.[Footnote 5] Further, there are weaknesses
in monitoring home health agencies' claims. We found that CMS did not
routinely send verification of services billed by the HHAs to the
authorizing physicians, to determine whether the type and frequency of
home health visits were consistent with what physicians had authorized.
[Footnote 6]
In addition to the weaknesses with the current Medicare claims review
process, we found that failure to effectively screen health providers
before granting them billing privileges also increases the program's
vulnerability to fraudulent claims. In September 2005, we reported on
weaknesses in standards, procedures, and oversight of the screening
process for DMEPOS suppliers,[Footnote 7] which could leave the program
vulnerable to fraudulent claims activities. Despite some improvements,
in July 2008, we reported on deficiencies in CMS's enrollment and
inspection process for DMEPOS suppliers that would allow them to
fraudulently bill Medicare for unnecessary supplies or supplies from
nonexistent suppliers.[Footnote 8] As part of our investigation, we
created fictitious DMEPOS companies to which CMS granted billing
privileges despite having no clients and no inventory. Those billing
privileges could have allowed the fictitious companies to bill Medicare
for potentially millions of dollars for nonexistent supplies. We also
reported that criminals who create similar fictitious DMEPOS companies
typically steal or illegally buy Medicare beneficiary numbers and
physician identification numbers and use them to repeatedly submit
bogus claims. HHS acknowledged that CMS's oversight of DMEPOS suppliers
contains gaps in oversight that still require improvements. In
addition, we identified issues with screening potential and current
home health agencies that may enable problem providers to enter and
remain in the Medicare program. For example, we reported that CMS does
not require its home health contractors responsible for screening
applications to verify the criminal history of persons named on the
application.
Health care fraud is a serious financial drain on our health care
system. HHS reported in its fiscal year 2008 AFR that an estimated
$17.2 billion of Medicare Fee-for-Service and Medicare Advantage claims
were improperly paid for reasons such as medically unnecessary services
and insufficient documentation. It is unclear how much of this estimate
resulted from fraudulent claims. Our work to uncover vulnerabilities to
fraud in the Medicare program focused on specific areas as discussed
above; consequently, opportunities for fraud may also exist in other
areas of the Medicare program.
3. Is there any reason CMS cannot include penalties in its Medicare
Administrative Contractor contracts for paying improper or fraudulent
claims that you are aware of?
Consistent with the Social Security Act[Footnote 9] and applicable
federal procurement regulations, CMS may include provisions in Medicare
Administrative Contractor (MAC) contracts to: (1) prescribe the costs
incurred by MACs in processing and paying Medicare claims that CMS may
reimburse; (2) provide incentives or disincentives related to payment
accuracy; and (3) hold MACs and their employees liable for improper or
fraudulent claims payments under limited circumstances.[Footnote 10]
Otherwise, neither the Social Security Act nor applicable federal
procurement regulations expressly provides for CMS to reduce amounts
owed to MACs under their contracts or to assess charges against MACs
for improper or fraudulent claims payments.
The MAC contracts contain requirements for MACs to take certain actions
and implement certain plans to manage Medicare trust fund finances and
achieve payment accuracy.[Footnote 11] Under the MAC contracts, CMS
reimburses MACs for the allowable, allocable, and reasonable costs of
these efforts. While not considered a penalty, CMS may disallow any
costs claimed by a MAC related to claims and payment processing,
including finance and payment management, that fail to meet these
standards.[Footnote 12]
The Secretary of HHS is authorized to develop MAC-specific performance
requirements and provide incentives to MACs to provide quality service
and promote efficiency.[Footnote 13] This is consistent with provisions
in the Federal Acquisition Regulation, subpart 16.4, that authorize the
use of positive and negative incentives in incentive-type, cost-
reimbursement contracts. These provisions appear to authorize
performance standards in the MAC contracts related to making proper
payments that would be considered in determining the amount of the fee
earned by the contractor under a cost-plus-award-fee type contract or
other incentive-type contract, as mutually agreed to by both the
government and the contractor.
CMS has developed mechanisms--within the framework established by the
statute--to encourage MACs to perform effectively and efficiently such
as establishing an award fee program.[Footnote 14] Currently, we have
ongoing work to examine how CMS has assessed the performance of the
MACs. During our preliminary work, we noted that CMS has developed
specific performance metrics as part of the award fee program to
provide an incentive for MACs to achieve desired results. One of those
metrics includes measuring a MAC's payment accuracy and ability to
reduce improper claims payments. Because the MAC contracts have been
awarded relatively recently, it is too soon to evaluate the
effectiveness of providing an award fee for meeting a payment-accuracy
metric.
With respect to improper or fraudulent benefit payments made by a MAC,
section 1874A(d)(3) of the Social Security Act provides that a MAC
shall not be held liable to the United States for payments made by its
certifying or disbursing officers unless the MAC acts with reckless
disregard of its contractual obligations or with intent to defraud the
United States. It also provides that this exemption from liability does
not extend to violations of the False Claims Act.[Footnote 15] The
False Claims Act authorizes a court to impose a civil penalty on a
person for certain acts, including knowingly presenting or causing to
be presented to an officer or employee of the United States a false or
fraudulent claim for payment or approval.
We are providing copies of this correspondence to interested parties.
This correspondence is also available on GAO's home page at [hyperlink,
http://www.gao.gov]. Should you have any questions on matters discussed
in this correspondence or need additional information, please contact
me at (202) 512-9095 or by e-mail at dalykl@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this correspondence. Key contributors to this
correspondence are listed in enclosure I.
Signed by:
Kay L. Daly:
Director:
Financial Management and Assurance:
Enclosures:
[End of section]
Enclosure I: GAO Contact and Staff Acknowledgments:
GAO Contact:
Kay L. Daly, (202) 512-9095 or dalykl@gao.gov:
Staff Acknowledgments:
In addition to the contact named above Sabrina Springfield, Assistant
Director; Sheila Avruch; LaSherri Bush; Richard Cambosos; F. Abe
Dymond; Joy Kraybill; Crystal Lazcano; Sarah-Lynn McGrath; Olivia
Smith; and David Yoder.
[End of section]
Related GAO Products:
Improper Payments: Progress Made but Challenges Remain in Estimating
and Reducing Improper Payments. [hyperlink,
http://www.gao.gov/products/GAO-09-628T]. Washington, D.C.: April 22,
2009.
Medicare: Improvements Needed to Address Improper Payments in Home
Health. [hyperlink, http://www.gao.gov/products/GAO-09-185].
Washington, D.C.: February 27, 2009.
High-Risk Series: An Update. [hyperlink,
http://www.gao.gov/products/GAO-09-271]. Washington, D.C.: January
2009.
Medicare Part D: Some Plan Sponsors Have Not Completely Implemented
Fraud and Abuse Programs, and CMS Oversight Has Been Limited.
[hyperlink, http://www.gao.gov/products/GAO-08-760]. Washington, D.C.:
July 21, 2008.
Medicare: Covert Testing Exposes Weaknesses in the Durable Medical
Equipment Supplier Screening Process. [hyperlink,
http://www.gao.gov/products/GAO-08-955]. Washington, D.C.: July 3,
2008.
Medicare: Improvements Needed to Address Improper Payments for Medical
Equipment and Supplies. [hyperlink,
http://www.gao.gov/products/GAO-07-59]. Washington, D.C.: January 31,
2007.
Medicare: More Effective Screening and Stronger Enrollment Standards
Needed for Medical Equipment Suppliers. [hyperlink,
http://www.gao.gov/products/GAO-05-656]. Washington, D.C.: September
22, 2005.
Health Care Fraud: Schemes to Defraud Medicare, Medicaid, and Private
Health Care Insurers. [hyperlink,
http://www.gao.gov/products/GAO/T-OSI-00-15]. Washington, D.C.: July
25, 2000.
[End of section]
FOOTNOTES
[1] GAO, Improper Payments: Progress Made but Challenges Remain in
Estimating and Reducing Improper Payments, [hyperlink,
http://www.gao.gov/products/GAO-09-628T] (Washington, D.C.: Apr. 22,
2009).
[2] Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002).
[3] GAO, Medicare: Improvements Needed to Address Improper Payments in
Home Health, [hyperlink, http://www.gao.gov/products/GAO-09-185]
(Washington, D.C.: Feb. 27, 2009).
[4] GAO, Medicare: Improvements Needed to Address Improper Payments for
Medical Equipment and Supplies, [hyperlink,
http://www.gao.gov/products/GAO-07-59] (Washington, D.C.: Jan. 31,
2007).
[5] Due to the absence of the threshold edits, we found that from the
first quarter of 2003 through the first quarter of 2005, 225 suppliers
increased their billing to Medicare by $500,000 and 50 percent from at
least one 3-month period to the next.
[6] [hyperlink, http://www.gao.gov/products/GAO-09-185].
[7] GAO, Medicare: More Effective Screening and Stronger Enrollment
Standards Needed for Medical Equipment Suppliers, [hyperlink,
http://www.gao.gov/products/GAO-05-656] (Washington, D.C.: Sept. 22,
2005).
[8] GAO, Medicare: Covert Testing Exposes Weaknesses in the Durable
Medical Equipment Supplier Screening Process, [hyperlink,
http://www.gao.gov/products/GAO-08-955] (Washington, D.C.: July 3,
2008).
[9] Act of Aug. 14, 1935, ch. 531, 49 Stat. 620, as amended, 42 U.S.C.
secs. 301 et seq.
[10] As required by section 911 of the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (MMA), CMS is replacing its
Medicare Part A and Part B claims payment contractors (fiscal
intermediaries and carriers) with MACs. This process must be completed
by October 1, 2011. On behalf of CMS, MACs provide Medicare Part A and
Part B claims processing and benefit payment services for providers and
suppliers, among other functions. CMS awards cost-plus-award-fee type
contracts to MACs, meaning that MACs are reimbursed for their
allowable, allocable, and reasonable costs plus an award fee, up to
amounts prescribed in the contracts, calculated using criteria in an
award fee plan, in addition to a base fee amount. These contracts
generally are subject to the Federal Acquisition Regulation (FAR),
which includes rules, standards, and requirements for the awarding,
administration, and termination of government contracts.
[11] Under section 1874A of the Social Security Act, as amended by
section 911 of MMA (42 U.S.C. § 1395kk-1), and the terms of their
contracts with CMS, MACs receive and review Medicare Part A and Part B
claims and approve those that comply with applicable laws, regulations,
and CMS policies. To cover claims paid, the MACs draw on funds from a
benefits account held by the commercial bank. CMS issues a letter of
credit to authorize the funds into the benefits account. Payments may
be made only by disbursing officers designated in writing by the MAC,
based on the authorization of a separate certifying officer designated
in writing by the MAC. (MACs are required by their contracts to account
for benefit payments separately from their administrative costs.)
[12] Agencies may assess penalties for indirect costs submitted for
payment that contain indirect costs expressly unallowable or determined
unallowable pursuant to FAR §§ 42.709 through 42.709-6.
[13] 42 U.S.C. § 1395kk-1(b).
[14] CMS also employs other tools to detect improper payments and fraud
in the Medicare payment system, such as engaging Program Safeguard
Contractors under the Medicare Integrity Program and Recovery Audit
Contractors.
[15] 31 U.S.C. §§ 3729-3731. Individual certifying and disbursing
officers are afforded the same exemption from liability.
[End of section]
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