Management Issue 2: Integrity of Medicare PaymentsTopics on this Page:
The size and scope of the Medicare program place it at high risk for payment errors. In fiscal year (FY) 2006, Medicare benefit payments totaled about $382 billion for services provided to approximately 43 million beneficiaries. To ensure both the solvency of the Trust Fund and beneficiaries’ continued access to quality services, correct and appropriate payments must be made for properly rendered services.
From FY 1996 through FY 2002, OIG developed and reported on the annual Medicare fee-for-service paid claims error rate. In FY 2003, CMS assumed responsibility for developing the error rate. In its 2006 financial report, CMS reported a gross paid claims error rate (overpayments plus underpayments) of 4.4 percent ($10.8 billion) for the fiscal year. However, OIG’s FY 2006 financial statement audit reported internal control weaknesses in managed care and the prescription drug benefit program and the lack of an integrated general ledger accounting system within CMS. Further, OIG audits continue to show that Medicare has serious internal control weaknesses in its financial system sand processes.
Targeted audits and evaluations by OIG also continue to identify significant improper payments and problems in specific parts of the program. These reviews have revealed payments for unallowable services, improper coding, and other types of improper payments. For example, OIG identified $1.1 billion in improper payments for services billed as consultations, $718 million in improper payments for Part B mental health services, an estimated $402 million in improper payments for ambulance transports, and $377.9 million in inaccurate hospital wage data that impact future Medicare payments. In additional reviews, OIG found $72.4 million in improper payments to hospitals that incorrectly coded claims as discharges to home rather than transfers to post-acute care facilities. OIG also identified $71.5 million in improper payments to independent diagnostic testing facilities for services that were not reasonable and necessary, were not sufficiently documented, or were performed without the knowledge of treating physicians.
OIG has also consistently found that the Medicare durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) benefit is vulnerable to fraud and abuse. For example from 2002 to 2006, OIG excluded from the Medicare and Medicaid programs 121 DMEPOS companies and 457 individuals associated with DMEPOS. During this same period, OIG’s investigations resulted in 289 successful criminal prosecutions of DMEPOS suppliers and 76 civil settlements or judgments were imposed. Together these criminal convictions and civil adjudications resulted in more than $796 million in restitution, fines, and penalties.
In other work, OIG has identified weaknesses in the DMEPOS enrollment process and CMS’s oversight of infusion claims that make Medicare vulnerable to fraudulent billing practices for these services. In a 2007 report, OIG found that 31 percent of DMEPOS suppliers in three South Florida counties (Miami-Dade, Broward, and Palm Beach) did not maintain physical facilities or were not open and staffed, contrary to Medicare participation guidelines. The guidelines are intended to ensure that only qualified suppliers are enrolled in the Medicare program. In a separate review, OIG determined that in the second half of 2006, the claims originating in the same three Florida counties constituted 50percent of the submitted charges and 37 percent of the amount Medicare paid for services on behalf of beneficiaries with HIV/AIDS. These counties also accounted for 79 percent of the amount submitted to Medicare nationally for drug claims involving HIV/AIDS patients. However, only 10 percent of Medicare beneficiaries with HIV/AIDS lived in these three counties. Other metropolitan areas exhibited patterns of aberrant billing similar to those in South Florida, but to a lesser extent.
Additionally, in a 2007 report, OIG reviewed Part B claims for beneficiaries who were in Part A-covered skilled nursing facility stays for which the Part B services are reimbursed as part of the Part A payment. For calendar years(CY) 1999-2002, before the Common Working File edits were fully operational, OIG found that Medicare Part B made $100.8 million in potential overpayments to suppliers of DMEPOS on behalf of beneficiaries in Part A-covered skilled nursing facility stays. For CY 2003, after the edits were fully operational, OIG identified potential DMEPOS overpayments of $15.4 million and estimated that durable medical equipment regional carriers had not recovered approximately 69 percent ($11.2 million) of these overpayments.
To help combat DMEPOS fraud, OIG, in conjunction with the U.S. Attorney’s Office for the Southern District of Florida,the Federal Bureau of Investigation, and the Department of Justice (DOJ) launched a health care initiative designed to identify suspicious suppliers and review questionable financial activities. Since its inception in September 2006, the initiative has recovered more than $10 million from nominee account holders who agreed to turn over the funds in the bank accounts when confronted by law enforcement officials. In most cases, the nominee account holders stated that they had no operational control of the businesses and had only lent their names in return for remuneration.
The FY 2006 gross paid claims error rate of 4.4 percent reported by CMS is 0.8 percentage points lower than the5.2 percent error rate it reported the previous year. CMS has demonstrated continued vigilance in monitoring the error rate and is developing appropriate corrective action plans. For example, CMS has worked with the healthcare provider community to clarify reimbursement rules and to impress upon providers the importance of fully documented services. CMS also has taken a number of steps to improve compliance with Medicare coverage and reimbursement requirements to curb inappropriate payments. These steps include increasing and refining one-Confederation contacts with providers and working with contractors to assist providers in submitting sufficient documentation to support billed services.
CMS received an unqualified opinion on its FY 2006 financial statements. However, the material weakness related to Medicare electronic data processing and the reportable conditions related to managed care and prescription drug payment cycles, taken together, represent substantial noncompliance with the Federal financial management system requirements. In addition, although the Healthcare Integrated General Ledger Accounting System (HIGLAS)is operational at numerous Medicare contractors, CMS has not yet completed its implementation and, as a result,is not compliant with the U.S. Government Standard General Ledger at the transaction level. Although CMS has also made improvements to its general and application controls (such as access controls, application software development controls, and program change controls), OIG’s financial statement audit identified weaknesses in application controls at Medicare contractors, at data centers where Medicare claims are processed, at sites that maintain the “shared” application system software used in claims processing, and at the CMS central office.
To address the potential improper payment exposure for durable medical equipment, the Secretary of the Department of Health and Human Services (HHS) announced a 2-year effort aimed at stopping fraudulent billing to the Medicare program and protecting beneficiaries and taxpayers. Under the initiative, CMS will implement a demonstration project requiring DMEPOS suppliers in South Florida and Southern California to reapply for participation in the Medicare program to maintain their billing privileges. Those who fail to reapply within 30 days of receiving a letter from CMS; fail to report a change in ownership or address; or fail to report having owners, partners,directors or managing employees who have committed felonies within the past 10 years will have their billing privileges revoked. CMS has also recently announced a demonstration project in South Florida focusing on infusion therapy. Under this demonstration, currently enrolled infusion therapy clinics located in the targeted area will be required to submit new enrollment applications and will undergo mandatory site visits.
Additionally, CMS issued a proposed rule on August 1, 2007 (72 FR 42001) that would require all DMEPOS suppliers,except those that are Government operated, to obtain and retain surety bonds in the amount of $65,000. Under this rule, Medicare can recover erroneous payments up to $65,000 that result from fraudulent or abusive supplier billing practices. This requirement may also help to ensure that only legitimate DMEPOS suppliers are enrolled in the program.
The FY 2006 gross paid claims error rate of 4.4 percent reported by CMS is 0.8 percentage points lower than the5.2 percent error rate it reported the previous year. CMS has demonstrated continued vigilance in monitoring the error rate and is developing appropriate corrective action plans. For example, CMS has worked with the healthcare provider community to clarify reimbursement rules and to impress upon providers the importance of fully documented services. CMS also has taken a number of steps to improve compliance with Medicare coverage and reimbursement requirements to curb inappropriate payments. These steps include increasing and refining one-Confederation contacts with providers and working with contractors to assist providers in submitting sufficient documentation to support billed services.
CMS received an unqualified opinion on its FY 2006 financial statements. However, the material weakness related to Medicare electronic data processing and the reportable conditions related to managed care and prescription drug payment cycles, taken together, represent substantial noncompliance with the Federal financial management system requirements. In addition, although the Healthcare Integrated General Ledger Accounting System (HIGLAS)is operational at numerous Medicare contractors, CMS has not yet completed its implementation and, as a result,is not compliant with the U.S. Government Standard General Ledger at the transaction level. Although CMS has also made improvements to its general and application controls (such as access controls, application software development controls, and program change controls), OIG’s financial statement audit identified weaknesses in application controls at Medicare contractors, at data centers where Medicare claims are processed, at sites that maintain the “shared” application system software used in claims processing, and at the CMS central office.
To address the potential improper payment exposure for durable medical equipment, the Secretary of the Department of Health and Human Services (HHS) announced a 2-year effort aimed at stopping fraudulent billing to the Medicare program and protecting beneficiaries and taxpayers. Under the initiative, CMS will implement a demonstration project requiring DMEPOS suppliers in South Florida and Southern California to reapply for participation in the Medicare program to maintain their billing privileges. Those who fail to reapply within 30 days of receiving a letter from CMS; fail to report a change in ownership or address; or fail to report having owners, partners,directors or managing employees who have committed felonies within the past 10 years will have their billing privileges revoked. CMS has also recently announced a demonstration project in South Florida focusing on infusion therapy. Under this demonstration, currently enrolled infusion therapy clinics located in the targeted area will be required to submit new enrollment applications and will undergo mandatory site visits.
Additionally, CMS issued a proposed rule on August 1, 2007 (72 FR 42001) that would require all DMEPOS suppliers,except those that are Government operated, to obtain and retain surety bonds in the amount of $65,000. Under this rule, Medicare can recover erroneous payments up to $65,000 that result from fraudulent or abusive supplier billing practices. This requirement may also help to ensure that only legitimate DMEPOS suppliers are enrolled in the program.
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