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For the second straight year, HHS and the Health Care Financing Administration (HCFA), which administers Medicare, received "clean" audit opinions of their financial statements from the Office of Inspector General (OIG). The OIG serves as independent auditor as required under the Government Management Reform Act.

Medicare's estimated error rate was 6.8 percent in fiscal year 2000, compared with nearly 8 percent the previous year, according to the OIG's latest report. The error rate has fallen to roughly half of the 14 percent rate estimated in fiscal year 1996, the first year that the Inspector General conducted an audit to estimate Medicare's overall error rate.

"HCFA has made significant improvement toward assuring proper payment for medical services, but more must be done," HHS Secretary Tommy G. Thompson said. "Our challenge now is to keep improving Medicare's management and to modernize and strengthen the program to ensure that we meet the long-term needs of our seniors and people with disabilities.

"We must not only modernize Medicare's accounting systems, but also make its rules and procedures more understandable and user-friendly. If we can make our programs and our coverage easier to understand, we'll be helping physicians and other providers to avoid unintended errors, and we'll help detect deliberate abuses as well."

The fiscal year 2000 error rate represents an estimated $11.9 billion in improper payments out of the total $173.6 billion in fee-for-service Medicare payments -- compared with $13.5 billion in fiscal year 1999 and $23.2 billion in fiscal year 1996. HCFA met its target for reducing the error rate to 7 percent in fiscal year 2000 and continues to take steps to meet its fiscal year 2002 goal of 5 percent.

According to the OIG, virtually all the sampled claims examined in the review were paid correctly by Medicare based on the information that was submitted in the claims. The errors were identified by medical review staff who "looked behind" a sample of claims at the patient medical records. These errors included problems in the documentation that should back up the claims, as well as the coding for the actual services provided, the medical need for the services, or Medicare non-coverage of the services provided. The error rate does not measure fraud, although some errors could be the result of fraud. The audit does not attempt to determine the reason for each error.

HCFA will take steps to recover improper payments specifically identified by the OIG audit. HCFA upheld more than 90 percent of overpayments identified in earlier audits and recovered the bulk of them.

"Our progress to date reflects not only our efforts, but also the efforts of doctors, hospitals and other health care providers to bill Medicare correctly," said Michael McMullan, acting HCFA deputy administrator. "We must all continue to work together to ensure that beneficiaries and taxpayers get their money's worth under the Medicare program."

According to the OIG, the significant, sustained improvement over the past four years in part reflects HCFA's improved oversight and its efforts to clarify reimbursement policies and encourage doctors and health care providers to fully document their services. Another major factor has been new initiatives and resources to prevent, detect and eliminate errors and fraud, as supported by Congress, HCFA, the U.S. Department of Justice and the OIG.

"These combined efforts have made a significant impact although problems remain in ensuring providers maintain adequate documentation, properly code claims, and bill only for services that are medically necessary," Acting Inspector General
Michael F. Mangano said. "Continued vigilance is needed to allow HCFA to sustain and build on this progress."

The OIG calculated the improper payment rate by examining a valid statistical sample of 5,234 Medicare claims across the U.S. valued at $5.3 million. OIG auditors reviewed the medical records supporting the claims with the assistance of medical experts and then projected the sample findings over the universe of Medicare fee-for-service benefit payments, which totaled $173.6 billion during fiscal year 2000.

HCFA this year is pursuing a number of new and ongoing initiatives as part of its broader strategy to reduce Medicare's improper payment rate. These efforts include:

• Targeting program vulnerabilities. Since 1999, HCFA has used special contractors with program integrity experience to target problem areas, such as reviewing claims for therapy services and developing data analysis centers to identify and stop payment errors and possible fraud. These contractors give HCFA the information and flexibility to identify and meet emerging challenges.

• Developing contractor-specific error rates. HCFA in 2000 began developing error rates for each of the private insurance companies that pay Medicare claims in order to better target their education and program integrity efforts. Initial results are expected in 2002.

• Improving customer service. HCFA has expanded its efforts to assess and improve the customer service provided by the claims-processing contractors to ensure that they provide accurate, reliable and relevant information about Medicare coverage and billing to physicians and other health care providers.

• Expanding education and outreach. HCFA will continue to expand its education efforts to help doctors, hospitals and other providers learn how to properly file and document claims. HCFA already provides free information, educational courses, and other services on the Web through the Medicare Learning Network at cms.hhs.gov/medlearn.

• Clarifying documentation guidelines. This year, HCFA will test new guidelines for physicians who provide evaluation and management services to patients. The guidelines are designed to ensure Medicare pays claims appropriately while minimizing the paperwork burden for doctors.

• Strengthening enrollment. HCFA this year will issue revised procedures to better ensure that the relatively few unqualified providers cannot bill Medicare while reducing the burden of the Medicare enrollment process on the large number of qualified health care providers. The new process will reflect extensive input from doctors and other providers.

• Improving industry compliance. HCFA has supported the Inspector General's development of voluntary compliance guidance for hospitals, medical equipment suppliers, clinical laboratories, home health agencies, third-party billers, Medicare+Choice organizations and other providers.

Prior to fiscal year 1999, HHS and most of its agencies received "qualified" audit opinions, meaning annual financial statements were not sufficiently reliable. Achieving a "clean" opinion for the second straight year shows that HHS has sustained its successes in assuring that the statements are fairly presented.

The annual chief financial officer audits have provided a roadmap for HHS' agencies to improve their financial controls and accounting systems to meet professional accounting standards. As part of the audit, the OIG identified a number of steps for the department to take in order to further improve its financial processes. The secretary is leading the way for HHS to invest in the technology, including financial systems, that will enable HHS to better manage its programs.

"We owe the American people reliable financial data just as major corporations in the private sector owe a sound accounting to their shareholders," Secretary Thompson said. "Our 'clean opinion' does not mean our goal has been reached. We still have important work ahead of us, and I am committed to ensuring that the department invests in the technology and systems needed to make these improvements."

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