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Medicare has been designated as a high-risk program because its complexity and susceptibility to improper payments, added to its size, have led to serious management challenges. Addressing these challenges requires improvements to payment methods, program management, and program safeguards.

Reforming and refining payment methods to encourage efficient service delivery

• CMS has continued to implement payment reforms in various parts of the program, such as for inpatient hospital and home health services.
• However, several fee-for-service payment areas need further attention, including aspects of physician payment, end-stage renal disease, imaging, home oxygen, and preventive services.
• In regard to Medicare Advantage, the Quality Bonus Payment Demonstration, which provides extra bonus payments based on assessment of quality to the plans that administer Medicare Advantage, has design flaws and raises legal concerns.

Improving program management for efficiency and better service to beneficiaries

• CMS has made progress in implementing new aspects of the program. For example, although CMS’s initial effort to conduct competitive bidding for durable medical equipment and supplies had procedural issues, its Round I rebid went more smoothly for bidders and suppliers, and beneficiary access and satisfaction appeared stable in early assessments.
• CMS has begun a Medicare Physician Feedback Program, but faces challenges in identifying physicians with inefficient practice patterns and helping them reduce their service costs.
• To help non-group health plans comply with reporting situations when Medicare is the secondary payer (MSP) for health care services, CMS could improve guidance and communication about MSP requirements and periodically review recovery thresholds to ensure they are set at a cost-effective level.

Enhancing program integrity to safeguard Medicare from loss

• CMS must sustain progress in reducing its payment error rates—in total almost $43 billion in fiscal year 2011—to better ensure the integrity of the Medicare program.
• CMS’s efforts to implement requirements of recent laws, guidance, and directives aimed at reducing improper payments are likely to be very significant in the coming years. For example, CMS has added additional steps to strengthen provider enrollment to help ensure that only legitimate entities are given billing privileges. However, several actions have not been completed, such as issuing establishing core elements for provider compliance programs.
• CMS has developed a corrective action process to address the vulnerabilities to improper payment, but it lacks policies and procedures that set clear timeframes for implementation and steps for monitoring the results of corrective actions. CMS has agreed to address this issue through a revision of policies and procedures and to improve its analysis of vulnerabilities.

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