September 29, 1997
Report No. 09-97-200-04-431

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Objectives, Scope and Methodology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

Audit Results

Improper Billings by Physicians, Hospitals, and Others
Cost the FECA Program At Least $7 Million During
Fiscal Year 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

There Were No Definitive Concentrations or Patterns of
Problems Identifiable to Specific FECA District Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

20 Medical Providers are Targeted for Criminal Investigation  . . . . . . . . . . . . . . . . . . . . . . . 16

DFEC Management Will Request $1.4 Million from Providers
Who Improperly Billed the Program During FY 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Recommendations   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
 

Appendix       Background
Exhibit I          Sampling Methodology
Exhibit II         Examples of Improper Medical Billings
Exhibit III        OWCP Response
 

AMA             American Medical Association

BPS             Bill Processing System

CPT             Current Procedural Terminology

DFEC           Division of Federal Employees' Compensation

DO                District Office

DOL             Department of Labor

EIN                Employer Identification Number

FECA            Federal Employees' Compensation Act

GAO             General Accounting Office

GSA             General Services Administration

HCFA           Health Care Financing Administration

HCPCS        HCFA Common Procedure Coding System

HHS             Health and Human Services

OI                 Office of Investigations

OIG               Office of Inspector General

OWCP         Office of Workers' Compensation Programs

PL                 Public Law

SAS             Statistical Analysis Software

TVA             Tennessee Valley Authority

The Department of Labor (DOL) can save millions of dollars each year by utilizing commercial systems to screen billings for medical provider code manipulation in the Federal Employees' Compensation Act (FECA) program. Our sample of Fiscal Year 1995 bills, reprocessed by a commercial vendor specializing in code manipulation detection, showed at least a $7 million loss because of improper or abusive medical provider billings. Our projection is based on a test of $242 million in payments (54 percent of the total medical provider billings made during the period October 1, 1994 to September 30, 1995). The full universe of medical payments could not be tested because of FECA bill processing system limitations and code manipulation software constraints. Although the percentage of FECA payment dollars lost to improper billings is small (about 3 percent), the volume of payment activity ($450 million for FY 1995) translates to significant dollar losses.

We found the level of improper billings was reasonably consistent nationwide. There were no significant concentrations of problem billings in any of the FECA District Offices.

The audit identified 20 providers which warrant criminal investigations. Another 12 providers identified by the audit as submitting improper, abusive billings were already under investigation by the Office of Inspector General, Office of Investigations (OIG, OI). These 32 providers represent about one half of one percent of the medical providers we identified as improperly billing FECA.

We found no indication of widespread fraud. We cannot make projections as to what portion, if any, of the $7 million improperly billed amount was due to fraud. Conversely, a portion of the billings not identified as improper or abusive may, in fact, be fraudulent.

FECA program management have been supportive partners throughout the audit. At the conclusion of fieldwork, we provided them information on the types and amounts of identified improper billings. They have promised aggressive collection action against providers who improperly billed FECA.

We are recommending that DFEC begin formally evaluating commercial code manipulation detection packages for potential procurement. We concluded that procurement and use of a commercially available code manipulation detection product are advisable because:

• Medical providers will be placed on notice that FECA will not tolerate sloppily prepared or false billings.
• Medical providers that continue to submit improper billings can be easily identified and targeted for educational assistance, or if warranted, criminal investigation.
• Commercial firms usually have multiple physicians available and a network of board certified specialists to analyze codes and code combinations and provide explanations and support for identified problems.
• Commercial firms can develop product improvements to counter new types of abuse because they have access to information from insurance clients on newly detected abuses.
• Commercial firms generally react quickly to changes in the codes or code combinations and set up new algorithms to evaluate the codes.

Office of Workers' Compensation Programs (OWCP) Response

The OWCP response was generally complimentary. They have agreed that procurement of a commercial code manipulation detection package is advisable. Also, discussions with FECA officials show they are proceeding with $1.4 million in collection actions against about 1,600 providers we identified as improperly billing FECA.

The full text of the OWCP response is included as Exhibit III to this report.

In 1950 responsibility for the Federal Employees' Compensation Act (FECA), United States Code, Chapter 81 was transferred to the Department of Labor (DOL). The Department's Office of Workers' Compensation Programs (OWCP), Division of Federal Employees' Compensation (DFEC) is responsible for managing FECA on behalf of all government agencies. Federal employees (and other statutorily included groups) who are injured or become ill as a result of their employment are provided workers' compensation under FECA. Eligible employees are compensated for wage loss and permanent bodily impairment as well as medical and related services made necessary by the illness or injury.

Although responsibility for management of the program rests with DFEC, the costs incurred for the injured or sick worker are eventually billed to the Federal agency that employed the worker (employing agency). DFEC personnel make payments from the Employees' Compensation Fund which, in turn, are billed to the employing agencies through a mechanism known as "chargeback." The costs of administering the program, however, are part of the DOL appropriation.

In its most recent Annual Report to Congress,¹  OWCP reported that 180,350 new cases were filed during the year and that benefits were paid to 273,000 workers. Wage loss compensation amounted to about $1.3 billion and medical and rehabilitation service payments totaled about $470 million.

Clearly, wage loss compensation is the largest element of program expenses. But, in recent years there have been increasing concerns about the legitimacy and propriety of billings for physician, hospital, and medical support services. Criminal investigations conducted by the Office of Inspector General (OIG), Office of Investigations (OI), have resulted in convictions of medical providers who fraudulently obtained FECA payments. Also, other Government investigative agencies have isolated instances of fraudulent or improper charges by medical providers billing the FECA program. Often, providers defrauding or improperly billing FECA also are involved in billing schemes against other programs such as Medicare, Medicaid, state workers' compensation programs, or private medical insurance carriers. As the number of investigations and convictions grow, and there is greater

legislative focus on the propriety of medical billings through new laws like the Health

Insurance Portability and Accountability Act (PL 104-191, August 21, 1996), there is an increased perception that improper or fraudulent medical billings are pervasive in the

FECA program. This perception requires the DOL exercise its fiduciary responsibility for effective program management and in so doing provide the employing agencies assurance that appropriate program management, audits, and criminal investigations protect the payment process against fraud and improper billings.

Our general objective was to determine if the FECA program was victimized by fraudulent or improper medical provider billings. This general objective was supported by the following five subobjectives:

• Are there examples of improper billings?
• If there are examples, can we determine the magnitude of the problem?
• Can we isolate patterns of improper billings by FECA District Office?
• Can we isolate indications of fraud and refer providers for criminal investigation?
• Is there an opportunity to collect any of the identified overpayment amounts?

We also worked closely with OI agents who are currently in the midst of a concentrated effort to target medical provider fraud in the FECA program.

Our audit was completed in accordance with Government Auditing Standards (1994 Revision) issued by the Comptroller General of the United States.

To gain an understanding of the management controls relevant to our audit objectives, we reviewed the FY 1994 and 1995 DOL Consolidated Financial Statement Audit Report, the accompanying Management Letter, and workpapers supporting the internal control risk assessment of the FECA program. We also reviewed the FECA Procedures manual relevant to bill payment, and interviewed District Office and National Office FECA staff. We found the FECA Bill Processing System (BPS) does not contain controls or edits that identify improper billings caused by medical providers accidentally or intentionally manipulating American Medical Association, (AMA), Current Procedural Terminology (CPT) codes on the claimant billings.

We conducted audit fieldwork from May 1996 through July 1997 using the most currently audited FECA payment data from the FECA BPS - Fiscal Year (FY) 1995. The BPS data represented all payments made for medical services during FY 1995.

• We applied four primary audit procedures in support of our audit objectives.
• We submitted samples of about 432,000 bills totaling $99 million to three commercial firms that specialize in detecting code manipulation by medical providers. The firms evaluated the billings to isolate instances of improper billings and gave us the reasons why they believed the billings were improper.
• We interviewed 580 DFEC employees to identify medical providers considered to be problem providers. We compiled a list of these providers and why they were considered problems.
• We sent letters to 811 nurses under contract with FECA requesting them to report any suspicions or problem providers to us.
• We performed computer analysis of data collected through the above-mentioned procedures to isolate providers identified as problems from multiple sources.

Based on a statistically valid test of paid FECA bills reprocessed by a commercial firm specializing in code manipulation detection, we estimate FECA paid
at least $7 million more than necessary for physician services and supplies, and hospital outpatient services.

This projection is based on a test of 54 percent of the total medical provider payments made during the period October 1, 1994 to September 30, 1995. The full universe of medical payments could not be tested because of FECA bill processing system limitations and code manipulation software constraints. These constraints led to the exclusion of charges, such as inpatient hospital charges, which did not contain standardized AMA CPT codes or Medicare's Health Care Financing Common Procedure Coding System (HCPCS) codes. Had we been able to test the entire universe of payments, we believe the projections would have been substantially higher.

Almost half (46 percent) of the FECA cases in the sample contained improper billings. However, the improper billings were submitted by only 23 percent of the providers¹

who billed against the cases. Usually the improperly billed amounts were small. In total, these bills represented about 3 percent of the universe of payments. The majority of abusive billings related to providers who charged for multiple procedures where they should have billed for only one procedure (unbundling).

The overpayments were the direct result of improper service provider billings coupled with the absence of a code manipulation detection control in the FECA bill payment process.

Ultimately, the cost of the abusive billing is borne by the Federal agency whose employee has been treated by the service provider. On average, each Federal agency paid about 3 percent more for physician services and supplies than

  ^{1        Unlike Medicare and many provate insurance carriers, FECA does not require unique provider identification numbers.  The FECA system allows providers to use the Employer Identification Number (EIN) they use for income tax reporting.  A provider can have more than one tax reporting number.  However, we could not necessarily identify all the EINs associated with a provider.  For purposes of this audit,             we equated one EIN number to one provider.}

We were assisted by three commercial firms that specialize in detecting medical billing code manipulation. The firms volunteered to reprocess a sample of paid FECA bills in order to ascertain how vulnerable the FECA bill processing system is to code manipulation. They used their standard demonstration package algorithms to process the sample. They did not customize their products to the specific requirements of the FECA program. They also worked with only a sampling of bills rather than having full access to a service provider's billing history. Consequently they cautioned us that their programs did not work as effectively as they would in a normal vendor/client relationship.

Each firm requested claim data in a slightly different format. However, each required that information contain current, valid CPT or HCPCS coding. We established a useable sampling universe containing CPT or HCPCS codes of $242,384,728, or about 54 percent of the total payments.

In order to provide some context to problems which might be identified by the application of the code manipulation detection software, we constructed a statistical sampling plan which allowed us to project the outcomes of the tests to the sampling universe with a high degree of accuracy. Using a 99 percent level of confidence and a 1 percent precision factor, we generated a separate statistical random sample for each vendor. Each sample contained about 1.4 million medical procedures, on about 432,000 bills for 17,470 cases, totaling slightly over $99 million. The billing information was placed into the required vendor format and each firm reprocessed the payment sample.

The firms produced the following summary results: ¹

Firm #1 - rejected $3.2 million of $99 million paid

Firm #2 - rejected $4.3 million of $99 million paid

Firm #3 - rejected $1.4 million of $99 million paid

^{1  Unprojected amounts.}

Projection of the sample results showed the estimated loss due to improper billings to be $7,004,346 at the 99 percent confidence level. The projection ranged from a lower level of $6,485,661 to an upper level of $7,523,030.
 

For purposes of this audit, we defined an improper billing as a billed amount, flagged by the commercial firm's code manipulation detection system, which should not have been paid. We considered only those billed amounts which the systems identified as a "denied" payment.

This is a critical distinction since the systems also identified amounts which they flagged as "questionable" or for which they suggested a "reduced" payment. These types of transactions projected to another $12.4 million of the sample billings. However, these transactions require extensive case-by-case research to determine propriety. Information provided by the commercial firms show that cost savings related to this type of flagged billing varies, but is usually about 10 cents on the dollar. Although we recognize that there are undoubtedly additional improper billings and significant cost savings associated with these classes of transactions; we could not, with assurance, quantify the value of the improper billings or cost savings. Therefore, we did not include them in our projections or consider them as improper or abusive billings.

There were many reasons why the billed amounts were considered to be improper. However, 90 percent of the denied dollars fell into three broad categories.

Multiple examples of the type of improper payments identified by the audit can be found in Exhibit II. Generally, the three primary problem categories identified in our audit can be described as follows:

1. Unbundling - This category covers several related billing abuses. However, in its simplest form unbundling occurs when a provider charges a comprehensive procedure code as well as one or more component codes. Since thousands of comprehensive codes exist with one or more component codes, numerous combinations of comprehensive and component codes can be submitted on a claim. For example,

3. Global Service Period - This violation occurs because the fee for most surgery includes all related services for a set number of days before and after the surgery. For example,

The BPS did not, and does not, contain controls to detect code manipulation on provider billings. If providers accidentally or intentionally submit inflated, or abusive billings, they most likely will be processed and paid by the FECA program.

This is not meant as an indictment of the FECA bill payment process. It would have been physically and fiscally impossible to have had FECA personnel manually examine each of the nearly 2 million bills that were processed during our test period. Further, the complexities of the code manipulation process makes it unlikely that manual examination would have uncovered many of the improper billings.

The BPS does contain controls which perform a variety of evaluations including identifying some type of duplicate billings and assuring that bills are for legitimate FECA claimants. If the bills pass these edits, they are automatically processed and paid with little or no evaluation of the bill itself. The system is totally dependent upon the accuracy and honesty of the persons preparing the billing coding. If an improperly coded bill is submitted, it most likely will be paid without question.

All Federal agencies are impacted by improper and abusive medical provider billings. Payments to medical providers are made from the Employees' Compensation Fund. In turn, most fund outlays are billed to the employing agency whose injured employee received the medical services. This process is known as "chargeback." Through chargeback, the improperly billed amounts are passed directly back to the employing agency.

Although our original sampling plan was not constructed to provide projected information by employing agency, the sample was large enough to provide usable information for some of the agencies. The following table depicts the amount of estimated FY 1995 loss incurred by the 16 largest employing agencies. These agencies make up about 95 percent of total FECA medical billings. The amount of projected loss is related only to the universe of billings which we were able to test. Therefore, actual losses are probably greater.

 ^{1    Test Universe represents the amount of FY 1995 medical billing payments containing CPT or HCPC codes which can be evaluated with code manipulation detection systems - about 54 percent of the total payment universe.}

^{2    The number of billings included in our test for this agency was not sufficient to provide our 99 percent confidence and + or - 1 percent precision factors.  However, amounts shown are for general illustration purposes only and, therefore, the lessor reliability is not a major issue.}
 

We found no significant statistical differences of projected denial rates among FECA District Offices. This narrow clustering suggests that improper billing is a fairly consistent national problem.

Although the overall projections showed no major differences, we noted that analysis of raw, unprojected denial data showed District Office #12 - Denver, experienced significantly more denials of bill line items than other similarly sized offices (Seattle, Chicago, Cleveland).

Information developed during the audit resulted in the opening of 20 criminal investigations. We obtained and analyzed information from multiple sources and developed a list of 143 potential problem providers. OI agents took the names from the problem provider list, compared them to additional sources, obtained additional payment information and determined that further criminal investigation was desirable. Additionally, OI agents had previously opened criminal investigations on another 12 of the providers based on allegations received from other sources. Altogether 32 of the 143 problem providers identified are currently under DOL investigative scrutiny. We found no other indications of widespread potentially fraudulent activity.

We compiled and matched information obtained from interviews with FECA staff, inquiry letters to FECA contract nurses, and discussions with criminal investigators to results from the code manipulation detection system tests, to identify providers who were cited by multiple sources as having problems with their billings. It is important to understand that improper billing is not, by itself, indicative of fraudulent activity. There are many legitimate, understandable reasons why providers billed erroneously. However, when a single provider is identified by multiple sources as being a problem, it is worth developing additional information. The investigators evaluated our list of 143 problem providers, often discovering these same providers were the source of investigative interest in other Federal programs and agencies.

Specifically, our information compilation process consisted of, first, using combined auditor/investigator teams to interview 580 FECA staff at the 13 FECA District Offices. Using standardized interview programs and data collection forms, the OIG teams asked FECA staff to identify any medical provider they perceived as troublesome; and, the reason for their opinion. In most instances, the staff had multiple reasons why they considered a particular provider to be a problem. Second, the audit team sent inquiry letters to 811 FECA contract nurses asking them to provide the same type of information obtained during the staff interviews. Third, we contacted OIG investigators to find out which providers they were currently investigating and what type of schemes they had identified.

These 865 providers were matched to the 7,417 providers which appeared in the output of the code manipulation detection tests. A total of 143 providers were common to both sets of data. These names were referred to OI for further analysis, resulting in the opening of 20 new cases.

The OI concentrates significant resources in the FECA program investigating health care fraud. Over the years investigators have uncovered schemes where doctors, clinics, pharmacists, physical therapists, medical technicians, and providers of medical equipment have billed the Government for services that were not rendered, filed multiple bills for the same procedure, billed for nonexistent illnesses or injuries, or overcharged for services. During the past 18 months, investigations have resulted in 13 individuals indicted, 11 individuals convicted, and produced $369,614 in monetary judgments. These successes help assure that the medical provider community is aware of the Labor Department's aggressive posture toward improper, abusive, or fraudulent FECA billings.

Although the audit had some success isolating potential problem providers for criminal investigations, more can be achieved. Over the next 2 months, we will continue to analyze and refine payment data to provide more information to investigators on the cases they have opened. We also expect the continued analyses will isolate additional providers that may be referred for investigations.

Generally, we found no indications of widespread fraud in the analyses of the improper FECA medical provider billings. However, a portion of the billings not identified as improper or abusive may, in fact, be fraudulent. Consequently, we could not design a methodology to identify and accurately estimate the extent to which fraud impacts the program.

Not all improper billings identified during the audit were included for recovery. We eliminated providers from the dunning letter file if:

• the total amount of improper billing was less than $200;
• the provider is the subject of a criminal investigation;
• the OWCP Medical Director determined that FECA did not have written guidelines which specifically restricted payment for the billed service; ¹ or
• a refund had already been received from the provider during FY 1995.

Fraud, waste, and abuse are problems faced by all health care agencies. One common form of abuse is code manipulation. Currently, the DFEC BPS has no control to detect and reject bills which contain improperly coded billings. Many private and public health insurers use code manipulation detection products and have found them to be a cost-effective tool in combating losses.

If DFEC procured a commercial code manipulation detection product to screen bills, they could prevent the loss of millions of dollars each year by identifying and rejecting improper or abusive medical billings. Also, while such products do not, by themselves, identify fraudulent billings, they can serve as a valuable tool to isolate problem billers for further review, education or possible criminal investigation.

The distribution of improper billings is fairly uniform throughout the nation. Therefore, the benefits of purchasing a commercial system would benefit all DFEC District Offices to a relatively uniform degree.

We found no indications of widespread fraud. But about one quarter (23 percent) of the medical providers in our sample erroneously billed FECA. The dollar loss associated with the improper billings was a relatively small percentage of the overall dollars tested. Eighty percent of the providers tested had less than $500 rejected by the code manipulation screens. The major dollar losses were concentrated in a relatively few providers. We believe that all but the most persistent abusers could be eliminated very rapidly by using commercial products.

Procurement and use of a commercially available code manipulation detection product are advisable for multiple reasons:

• Medical providers will be placed on notice that FECA BPS is on par with other health insurer systems and will not tolerate sloppily prepared or false billings.
• Medical providers that continue to submit improper billings can be easily identified and targeted for educational assistance, or if warranted, criminal investigation.
• Commercial firms usually have multiple physicians available and a network of board certified physicians in speciality areas to analyze codes and code combinations and provide explanations and support for identified problems.

• Commercial firms can develop product improvements to counter new types of abuse because they have access to information from insurance clients on newly detected abuses.

• Commercial firms generally react quickly to changes in the codes or code combinations and set up new algorithms to evaluate the codes.

To ensure the Department continues to exercise appropriate fiduciary responsibility to employing agencies under FECA, we recommend the Assistant Secretary for Employment Standards direct OWCP management:

-- To begin formally evaluating commercial code manipulation detection packages for potential procurement.
 
• Also, we strongly urge that a prepayment module be installed rather than relying on after-the-fact processing (as we did in our testing).
• Further, we suggest careful consideration of the commercial firm's willingness to customize its system to meet the specific needs of the FECA program. Many of the edits currently applied for other health insurers may not be cost beneficial for FECA. (For example, nursing home charges or home health care may be significant concerns of Medicaid and Medicare programs but are a minor portion of FECA billings.)
-- To pursue aggressive collection action against providers identified during our audit tests. Attempts to recover the $1.4 million should include appropriate tracking and, if necessary, followup requests to providers who have not appropriately responded to the initial repayment requests.

The OWCP response is generally complimentary. A full text of their response is included as Exhibit III to this report.

OWCP agrees that it is advisable to procure a code manipulation product. The response does not address progress made to implement $1.4 million in collection actions against providers identified during audit tests. However, FECA staff advised us they are currently in the process of implementing the recommended collection process.

The response raises several discussion issues. We believe three of these issues merit a brief comment:

1.     OWCP questions our opinion on page 7 that if we had been able to test the entire universe of medical payments our projection of overbilled amounts would be higher. They responded that inpatient hospital bills, pharmacy bills, and other types of bills are not coded with CPT or HCPC codes. Therefore, since these bills do not lend themselves to the same code comparison used for the audit sample, it is not reasonable for us to believe that these bills contain overbillings.

The absence or inclusion of CPT or HCPC codes is not related to whether a medical service is overbilled. We know from research of congressional hearings¹  and industry articles that coding abuses for inpatient hospital charges and pharmacy overbillings occur frequently. Therefore, we continue to strongly believe that had we been able to evaluate the non-CPT or HCPC coded billings within the scope of this audit we would have identified additional instances of medical provider overbilling.

2.     OWCP believes that our discussion of why the improperly billed amounts were paid (page 12) is misleading because it implies that inflated or abusive billings will usually be paid by the FECA BPS. They state that their automated BPS rejects about 25 percent of the billings and that a "large number" of the rejections are due to duplicate billings.

We acknowledge in the report that the BPS does contain a variety of edits, including duplicate billing edits. However, there are no edits for code manipulation. The claimed 25 percent rejection of billings has little or nothing to do with identifying code manipulation schemes. We stand by our statements that the BPS does not contain controls to detect code manipulation and therefore this type of abusive billing will most likely be processed and paid.

We agree that if different edits are used, the amount of projected savings will change. However, it is important to understand that the commercial vendors used their conventional demonstration processing package for the test. This package includes basic edits generally accepted by the medical insurance community. Customization of the package to meet FECA needs will affect what is accepted or rejected for payment. It is possible that the final customized code manipulation detection system could, in fact, include more edits resulting in higher than projected program savings. Regardless, when customizing the package it is important for FECA to clearly document why it chooses not to adopt an industry-wide standard edit.
 
 

The Department of Labor's (DOL) Office of Workers' Compensation Programs (OWCP), Division of Federal Employees' Compensation (DFEC) is responsible for managing the Federal Employees' Compensation Act, Title 5, United States Code, Chapter 81, (FECA). Federal employees who are injured during the course of their employment or who become ill as result of their employment are provided workers' compensation coverage under FECA. In addition to disability compensation for loss of wages, coverage includes payment for all medical treatment for the work-related injury or illness.

During Fiscal Year 1995, DFEC's 13 District Offices received and processed more than 2 million bills and paid approximately $450 million to medical providers who provided services to FECA covered employees. The 13 District Offices and their jurisdictions are:

District Office #1 - Boston (Connecticut, Maine, Massachusetts, New Hampshire,
Rhode Island, Vermont)
District Office #2 - New York (New Jersey, New York, Puerto Rico, Virgin Islands)
District Office #3 - Philadelphia (Delaware, Pennsylvania, West Virginia)
District Office #6 - Jacksonville (Alabama, Florida, Georgia, Kentucky, Mississippi,
North Carolina, South Carolina, Tennessee)
District Office #9 - Cleveland (Indiana, Michigan, Ohio)
District Office #10 - Chicago (Illinois, Minnesota, Wisconsin)
District Office #11 - Kansas City (Iowa, Kansas, Missouri, Nebraska, all DOL
Employees)
District Office #12 - Denver (Colorado, Montana, North Dakota, South Dakota, Utah,
Wyoming)
District Office #13 - San Francisco (Arizona, California, Guam, Hawaii, Nevada)
District Office #14 - Seattle (Alaska, Idaho, Oregon, Washington)
District Office #16 - Dallas (Arkansas, Louisiana, New Mexico, Oklahoma, Texas)
District Office #25 - Washington D.C. (District of Columbia, Maryland, Virginia, and
overseas cases/special claims)
District Office #50 - Washington D.C. (cases assigned to DFEC's Branch of Hearings
and Review and the Employees Compensation
Appeals Board)

Medical bills are sent (mailed/faxed) to the 13 District Offices for payment by physicians, other providers of medical care/services/appliances/supplies, or the injured workers (claimants). Physicians' bills must be submitted on the standard American Medical Association (AMA) approved "Health Insurance Claim Form" which is referred to as the HCFA 1550 or OWCP 1500. The Physician must itemize services for each date separately, use AMA CPT or HCPCS codes to describe the services performed, and provide his or her tax identification number.

The bills pass through a series of edits to determine what payment should be made (fee schedule) and which bills must be manually reviewed. According to the FECA Procedures Manual, "The goals of medical bill processing are to ensure that all proper charges are paid promptly and that charges which cannot be paid are denied promptly with an explanation." Once a bill is paid (Treasury check issued) the amount is identified to the Federal agency who employed the injured worker. This process is known as "chargeback." The Federal agencies are billed once a year for the prior year's medical payments.

In 1996 the Inspector General targeted the FECA medical payment system for coordinated audit and investigative coverage. This decision was based on three premises:

1) medical payment systems governmentwide appear to be exposed to improper and fraudulent billings;

2) the combination of audit and investigative disciplines coupled with FECA program management and staff knowledge could result in improved internal control systems; and

3) the recognition that in spite of dwindling audit and investigative staff resources, OIG coverage of the FECA program must be maintained or even enhanced.
 

In planning and performing our audit, we conducted extensive research in the area of health care fraud and improper medical billings. DFEC staff assisted in the areas of program requirements, issues, and problems.

We evaluated:

• pertinent congressional hearings and periodical articles about medical provider fraud; and

• pertinent General Accounting Office (GAO) reports and Health and Human Services (HHS) Inspector General audit reports and audit guides related to health care problems.

• Federal representatives (Department of Defense/OIG/Defense Criminal Investigative Service, Department of Defense/Civilian Health and Medical Program of Uniformed Services (CHAMPUS), GAO, Department of Health and Human Services/ Health Care Financing Administration, Department of Health and Human Services/ OIG, Department of Justice, Department of Labor/Pension and Welfare Benefits Administration, National Practitioner Data Bank, United States Postal Service/Human Resources Division, Department of Veterans Affairs/OIG).
• State representatives (WA Attorney General/Medicaid Fraud Control Unit, WA Department of Health/Medical Quality Assurance Commission, WA Department of Labor and Industries, WA Health Care Authority, WA Insurance Commissioners Office, WA Department of Social and Health Services, WA State Auditors Office, WA State Legislative Auditor, OR Department of Human Resources, OR Department of Justice/Medicaid Fraud Control Unit, OR State Accident Insurance Fund).
• Public/private sector representatives (Advanced Health Care Consultants.
• Aetna - Medicare carrier, Alexis Risk Management, CNA Insurance, Comprehensive Medical Review, King County Medical Society - local American Medical Association office, Medical Services Corporation, Pierce County Medical, National Council on Compensation Insurance, National Health Care Anti-Fraud Association, National Insurance Crime Bureau, WA Self Insurers' Association).
• Commercial vendors who specialize in sophisticated computer algorithms which analyze medical bills (CorVel Corporation, Genex, GMIS, HCIA/HealthChex, HPR, Medicode, Inter Qual, IntraCorp, Shorman and Associates, Value Health Sciences).

To gain an understanding of management controls relevant to our audit objectives, we reviewed the following:

• the FY 1994 and 1995 DOL Consolidated Financial Statement Audit Report, the accompanying Management Letter, and the workpapers supporting the internal control risk assessment; and
• the FY 1995 Special Benefit Fund Financial Statements and Related Reports.

We also reviewed the FECA Procedures Manual (chapters dealing with the DFEC medical bill processing system (BPS)), interviewed District Office #14 staff regarding actual bill processing/bill resolving procedures, and reviewed supporting documents.

Further, we discussed the FECA bill processing system with DFEC National Office representatives who confirmed the FECA BPS does not contain controls or edits which identify CPT code manipulations such as unbundling and billings which contain the following: duplicate procedures; multiple office visits in a single day; incidental procedures; and procedures included in the global service period.

In developing information on improper medical provider billings, we focused on two primary sources: 1) commercial software systems designed to identify American Medical Association Physicians' Current Procedural Terminology (CPT) code manipulation; and 2) interviews of FECA District Office staff and FECA contract nurses.

We performed the following procedures to obtain the sample results presented in this report.

To assure the accuracy of financial information developed in the FECA BPS, we utilized audit work performed in support of the FY 1995 DOL Consolidated Financial Statement Audit. Once we reconciled audited provider expenditure totals from the BPS to the financial statements, we evaluated the BPS data files to determine the types and composition of the payments included in the files.

We determined the information requirements of the commercial firms who volunteered to reprocess a sample of BPS payments to demonstrate the BPS vulnerability to improper payments. We also determined the approximate magnitude of transactions that the firms would be willing to include in their pro bono demonstration.

To maximize the benefit of the commercial firm tests, we constructed a sampling plan using a stratified random sample for variables approach. We used this sampling methodology because it provided an effective means to determine:

• the extent of improperly billed medical services;
• any variances in improperly billed rates among the FECA District Offices; and
• medical providers which consistently submitted improper billings.

1.     The following BPS provider types were excluded since they do not submit medical bills: A (transportation purchased with a GTR), C (tuition payments), J (assisted reemployment), K (transportation reimbursed to claimants), Q (rehabilitation maintenance), U (rehabilitation plan development), V (rehabilitation training), W (rehabilitation placement), and Y (relocation assistance).

2.     These bills were excluded since FECA staff determined nothing was owed for services billed by providers.

3.     These services were excluded since they were either not coded (field blank) or coded with other than a CPT/HCPCS code (hospital revenue codes, dental codes, and FECA specific codes).

Additionally, to maximize the reliability and usefulness of sample results, each firm's sample was subdivided into 13 subsamples, one for each District Office (DO), and DO cases were stratified by dollar amounts. Eleven strata were established in each subsample to minimize sampling error caused by extreme differences between case payment totals. The risk of such error was further reduced by testing

all high dollar cases in the llth stratum. This stratum contains cases where providers were paid more than $5,000. We set the following dollar intervals to minimize sampling error.
 

We used stratified random sampling methodology to calculate sample size based on a desired sampling precision of ± 1 percent with a confidence level of 99 percent (two sided). The sample allocation to each stratum was achieved using Neyman allocation methodology. Calculations showed 17,276 cases should be reviewed. This total increased to 17,470 cases when we elected to include 100 percent of stratum 11 cases in the sample.

Three samples were selected with PanAudit II software. The software was programmed to pull 130 samples (one sample for each 10 strata at 13 District Offices). To limit case overlap among firm samples, 130 unique seed numbers were

fed into the program's random number generator. Case selections continued until each stratum met sample size requirements. Any duplicate selections were automatically replaced with another randomly selected case.

The sample selection process produced the following random samples from the CPT/HCPCS Universe.
 

The overlap among cases in the three samples was found to be 3.7 percent of cases sampled.

The sample results were projected using the following formulas that are commonly accepted statistical techniques for projecting a stratified sample. Only one firm produced a comprehensive set of output data which we accepted for projection.

• The formula for calculating the confidence interval for a stratified sample's point estimate.

(yst) = (NL)2 NL - nL SL2 (yst) = ± 2.58 (yst)
NL nL  (yst) = estimated variance of sample mean
NL = number of cases in the strata being sampled
nL = number of cases sampled in the strata
SL = standard deviation of expenditure mean in a strata
yst = estimated variance of the mean at the 99%
confidence level

Sample projections at the 99% confidence level ±1 precision were
 

This exhibit presents examples of four frequently occurring types of improper medical billings. Over 90 percent of the improper billing amounts identified by the commercial firm contain unbundled procedures, duplicate procedures within the same bill, visits within the global service period, or multiple office visits on the same day. The following examples represent actual bills paid by FECA during FY 1995 and illustrate how providers improperly billed the FECA program.

Unbundled Procedures: Unbundling occurs when a provider bills for both a "major" procedure and a "minor" procedure on the same day of service. According to the American Medical Association's (AMA) uniformly accepted coding system called the Current Procedure Terminology (CPT), the "minor" procedure is considered a component of the "major" procedure and should not be listed separately.
 
 

Global Service Period: The global service period violation occurs when a physician bills for office visits and consultations before and after a surgical procedure. The office visits and consultations are included in the reimbursement for the surgery. This also occurs when the physician bills for office visits which are incidental to the service provided.

Global Service Period:

Multiple Office Visits: Multiple office visits occur when a provider bills for more than one office visit on the same day.

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