Medicare Billing:

Commercial System Could Save Hundreds of Millions Annually

AIMD-98-91: Published: Apr 15, 1998. Publicly Released: May 19, 1998.

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Pursuant to a congressional request, GAO reviewed whether the Health Care Financing Administration (HCFA) used an adequate methodology for testing the commercial claims auditing system for potential nationwide implementation with its Medicare claims processing system.

GAO noted that: (1) the test methodology HCFA used in Iowa was consistent with the approach used by other public health care insurers who have already implemented a commercial claims auditing system; (2) HCFA's test covered 15 months and included extensive work, such as modifying the system's software to comply with Medicare payment policies; (3) the test showed that the commercial claims auditing system could save Medicare up to $465 million annually with claims auditing edits that detect inappropriately coded claims; (4) these savings are in addition to any results from the correct coding initiative which, according to HCFA, saved Medicare about $217 million in 1996; (5) while HCFA used an adequate methodology to test the system and demonstrated that commercial claims auditing edits could result in significant savings, two critical management decisions would have unnecessarily delayed implementation for several years, resulting in potentially hundreds of millions of dollars in lost savings annually; (6) first, HCFA limited its 1996 test contract to the test, and did not include a provision for implementing the commercial system throughout the Medicare program; (7) thus, to acquire a commercial system for nationwide implementation, up to an additional year may be required to complete all activities necessary to plan for and award another contract; (8) this could also result in substantial rework to adapt the system if a different contractor were to win the new contract; (9) HCFA's administrator told GAO that HCFA is evaluating legal options for expediting the contracting process; (10) second, in addition to the potential delay from the test contract limitation, following the test HCFA initially planned to develop its own claims auditing edits rather than acquire commercial edits, such as those used in the test; (11) under this plan, HCFA would have obtained a development contractor that may, or may not, have existing claims auditing edits; (12) if the winning contractor did not have existing edits on which to build, it could take years to complete the HCFA-owned edits; (13) near the conclusion of GAO's review HCFA representatives told GAO this approach would have allowed them to make the edits available to the public and avoid being obligated to one vendor's commercial edits and related fees; and (14) public health care insurers for the Department of Defense and the Department of Veterans Affairs and several state Medicaid agencies did not take this approach, opting to lease commercial systems instead of owning the claims auditing edits.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To implement HCFA's current plans to expeditiously realize dollar savings in the Medicare program through the use of claims auditing edits, the Administrator, HCFA, should proceed immediately to purchase or lease existing comprehensive commercial claims auditing edits and begin a phased national implementation.

    Agency Affected: Department of Health and Human Services: Health Care Financing Administration

    Status: Closed - Implemented

    Comments: HCFA acquired a license to use claims auditing edits software for the Medicare program in September 1998. HCFA began national implementation of the software in October 1998.

    Recommendation: To implement HCFA's current plans to expeditiously realize dollar savings in the Medicare program through the use of claims auditing edits, the Administrator, HCFA, should require, in any competition, that vendors have comprehensive claims auditing edits, which at a minimum address the mutually exclusive, incidental procedure, and diagnosis-to-procedure categories of inappropriate billing codes.

    Agency Affected: Department of Health and Human Services: Health Care Financing Administration

    Status: Closed - Implemented

    Comments: HCFA licensed commercial software for two years that included mutually exclusive and procedure-to-procedure edits, but not diagnostic-to-procedure edits because of limitations in HCFA's systems. HCFA has no further plans to issue RFPs for commercial edits.

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