Improper Payments

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.