Medicare Program Integrity:

Greater Prepayment Control Efforts Could Increase Savings and Better Ensure Proper Payment

GAO-13-102: Published: Nov 13, 2012. Publicly Released: Dec 10, 2012.

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What GAO Found

Use of prepayment edits saved Medicare at least $1.76 billion in fiscal year 2010, but GAO found that savings could have been greater had prepayment edits been more widely used. GAO illustrated this point using analysis of a limited number of national policies and local coverage determinations (LCD), which are established by each Medicare administrative contractor (MAC) to specify coverage rules in its jurisdiction. GAO identified $14.7 million in payments in fiscal year 2010 that appeared to be inconsistent with four national policies and therefore improper. These payments could have been prevented through automated prepayment edits. GAO also found more than $100 million in payments that were inconsistent with three selected LCDs and that could have been identified using automated edits.

The Centers for Medicare & Medicaid Services (CMS) has three processes with some appropriately designed steps to identify the need for, and to implement, edits based on national policies, but each of these processes has at least one weakness. The weaknesses include incomplete analysis of vulnerabilities to improper payment that could be addressed by edits; lack of specific time frames for implementing edits and other corrective actions; flaws in the structure of some edits; lack of centralization in the implementation of some edits, which leads to inconsistencies; incomplete assessment of whether edits are working as intended; and lack of full documentation of the processes. For example, GAO found that Medicare paid $8.6 million in fiscal year 2010 for claims that exceeded CMS's limits on the quantity of certain services that can be provided to a beneficiary by the same provider on a single date of service. Although edits had been implemented to limit service quantities, a weakness in their structure caused them to miss instances in which quantity limits were exceeded.

CMS informs MACs about vulnerabilities that could be addressed through prepayment edits, but the agency does not systematically compile and disseminate information about effective local edits to address such vulnerabilities. CMS oversees MACs' use of edits partly through its review of certain MAC reports, but these reports are not intended to provide a comprehensive overview of their edits. In January 2011, CMS expanded its oversight activities and began requiring MACs to report on how they had addressed certain vulnerabilities to improper payment, some of which could be addressed through edits. While CMS increased the funding in fiscal year 2011 for contractors' medical review activities, including edit development, the agency provided relatively small incentives--3 percent or less of all contract award fees--to promote use of effective prepayment edits by MACs.

Why GAO Did Ths Study

CMS reported an improper payment rate of 8.6 percent ($28.8 billion) in the Medicare fee-for-service program for fiscal year 2011. To help ensure that payments are made properly, CMS uses controls called edits that are programmed into claims processing systems to compare claims data to Medicare requirements in order to approve or deny claims or flag them for further review.

GAO was asked to assess the use of prepayment edits in the Medicare program and CMS's oversight of MACs, which process claims and implement some edits. This report examines the extent to which (1) CMS and its contractors employed prepayment edits, (2) CMS has designed adequate processes to determine the need for and to implement edits based on national policies, and (3) CMS provides information, oversight, and incentives to MACs to promote use of effective edits. GAO analyzed Medicare claims for consistency with selected coverage policies, reviewed CMS and contractor documents, and interviewed officials from CMS and selected contractors.

What GAO Recommends

GAO recommends that CMS take seven actions to strengthen its use of prepayment edits, such as restructuring some edits, centralizing implementation of others, fully documenting processes, encouraging more information sharing about effective edits, and assessing the feasibility of increasing incentives for edit use. The Department of Health and Human Services generally agreed with GAO's recommendations and noted CMS's plans to address them.

For more information, contact Kathleen King at (202) 512-7114 or kingk@gao.gov.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: CMS has centralized the development and implementation of automated edits based on National Coverage Determinations (NCDs), as GAO recommended in November 2012, and is in the process of assessing all of its existing NCDs through this process to determine whether edits should be developed for them, according to agency officials. Through this centralized process, CMS has created edits for at least 90 existing NCDs, officials said. CMS officials said in June 2013 that CMS expects to complete the assessment and edit development and implementation process for all existing NCDs by the end of 2013. CMS typically develops NCDs for services that have the potential to affect a large number of beneficiaries and that have the greatest effect on the Medicare program. CMS's progress in centralizing development and implementation of automated edits based on NCDs will help ensure greater consistency in paying only those Medicare claims that are consistent with NCDs.

    Recommendation: In order to promote greater use of effective prepayment edits and better ensure proper payment, and to promote implementation of effective edits based on national policies, the CMS Administrator should centralize within CMS the development and implementation of automated edits based on NCDs to ensure greater consistency.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

  2. Status: Closed - Implemented

    Priority recommendation

    Comments: CMS has developed an ongoing process that includes data and coding analysis to determine the billing codes used on claims that should be subject to a ?date of service? MUE approach, as GAO recommended in November 2012. The National Correct Coding Initiative (NCCI) workgroup, which includes members from CMS?s Center for Program Integrity, the Center for Medicare, and the NCCI contractor, evaluates NCCI edits?which include MUEs?on a weekly basis. When there is a request to make changes or updates to any of the MUE edits, the request is reviewed, discussed, vetted, and a decision is made by the NCCI workgroup as to whether a ?date of service? modification is appropriate. As part of the ongoing process, CMS also created an MUE Adjudication Indicator for each billing code that indicates whether claims will be processed subject to edits that reflect a maximum use of services per day. Incorporating ?date of service? edits in the MUE updating process should help MUEs to be more effective by more accurately identifying instances where the total quantity of services exceeds reasonable and necessary amounts.

    Recommendation: In order to promote greater use of effective prepayment edits and better ensure proper payment, and to promote implementation of effective edits based on national policies, the CMS Administrator should implement MUEs that assess all quantities provided to the same beneficiary by the same provider on the same day, so providers cannot avoid claim denials by billing for services on multiple claim lines or multiple claims without including modifiers that reflect a declaration that quantities above the normal limit are reasonable and necessary.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

  3. Status: Closed - Implemented

    Priority recommendation

    Comments: In April 2016 CMS implemented a quarterly corrective action process for vulnerabilities identified by the recovery audit contractors (RAC), as recommended by GAO in November 2012. When the total amount of overpayments identified by a RAC for a vulnerability exceeds $500,000, the vulnerability is prioritized as a ?Top Issue.? Quarterly, all MACs are sent a spreadsheet with the RAC-identified Top Issues identified during the quarter. For each of the Top Issues, each MAC is report to CMS the extent to which the issue is a problem in their jurisdiction and any corrective actions the MAC is taking. This process will ensure that prioritized RAC-identified vulnerabilities are prioritized and MACs take action to address the vulnerabilities in their jurisdictions.

    Recommendation: In order to promote greater use of effective prepayment edits and better ensure proper payment, and to promote implementation of effective edits based on national policies, the CMS Administrator should revise the method for compiling information about RAC-identified vulnerabilities to identify their full extent and prioritize them accordingly.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

  4. Status: Open

    Priority recommendation

    Comments: CMS developed written procedures in November 2012 to provide guidance to agency staff on procedures for ensuring consideration of automated edits whenever possible, as GAO recommended in November 2012, but these procedures do not include several key elements of GAO's recommendation. For example, the written procedures do not include time frames for making decisions on whether an edit will be developed for all existing National Coverage Determinations (NCD) and national policies. The written procedures also do not include requirements for methods to assess the effects of corrective actions taken. Implementing a comprehensive written process for developing edits for national policies whenever possible could help ensure that edits are implemented whenever possible to reduce improper payments. CMS officials said in October 2015 that the written procedures introduced in November 2012 had not been updated since originally rolled out. In October 2016, CMS provided some additional information. GAO is considering the information and will update the recommendation accordingly.

    Recommendation: In order to promote greater use of effective prepayment edits and better ensure proper payment, and to promote implementation of effective edits based on national policies, the CMS Administrator should develop written procedures to provide guidance to agency staff on all steps in the processes for developing and implementing edits based on national policies, including (1) time frames for taking corrective actions, (2) methods for assessing the effects of corrective actions, and (3) procedures for ensuring consideration of automated edits whenever possible, including for all existing NCDs and other national policies.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

  5. Status: Closed - Implemented

    Priority recommendation

    Comments: In 2014, CMS directed the MACs to report their top two prepayment edits based on local coverage policies. In September 2015, CMS distributed this information to all the MACs for their consideration when developing their own local coverage policies and associated edits. CMS further requested that MACs provide their top two edits annually to CMS so that the agency can use this information to determine if there are edits that can be shared across the MACs. With CMS obtaining and disseminating information about the most effective local edits, the MACs will be better positioned to determine the most appropriate approach for effectively implementing Medicare payment policy, which could help to reduce improper payments.

    Recommendation: In order to promote greater use of effective prepayment edits and better ensure proper payment, to promote implementation of effective edits based on national policies, and to encourage more widespread use of effective local edits by MACs the CMS Administrator should improve the data collected about local prepayment edits to enable CMS to identify the most effective edits and the local coverage policies on which they are based and disseminate this information to MACs for their consideration.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

  6. Status: Closed - Implemented

    Priority recommendation

    Comments: In May 2014, CMS issued a technical direction letter to the MACs requesting that all MACs report to CMS their top two edits based on local coverage determinations. Local coverage determinations are coverage policies set by individual MACs that only apply to the MAC?s jurisdiction. In September 2015, CMS issued another technical direction letter to the MACs that included a chart listing the LCDs associated with the top edits that were submitted to CMS by the MACs. The technical direction letter noted that the information may be of interest to MACs and helpful when developing or revising LCDs and associated edits. This letter also made the process of submitting top edits an annual process. This sharing of information about top edits will encourage more widespread use of effective local edits by MACs and, therefore, better ensure proper payment in Medicare.

    Recommendation: In order to promote greater use of effective prepayment edits and better ensure proper payment, to promote implementation of effective edits based on national policies, and to encourage more widespread use of effective local edits by MACs the CMS Administrator should, until CMS has a new database in place to collect information about edits, require MACs to share information about the underlying policies and savings related to their most effective edits.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

  7. Status: Closed - Implemented

    Comments: CMS has assessed the feasibility of providing increased incentives to Medicare administrative contractors (MAC) for increasing the effectiveness of prepayment edits, as GAO recommended in November 2012, and is considering a method for measuring contractors' increases in edit effectiveness, according to CMS officials. CMS established MAC contracts as cost-plus-award-fee contracts, a type of cost-reimbursement contract designed to provide sufficient motivation to encourage excellence in contract performance. MACs can earn incentives--known as an award fees--based on performance. However, CMS provided relatively small incentives--3 percent or less of all contract award fees--to promote use of effective prepayment edits by MACs. In July 2013, CMS issued a draft award fee plan for fiscal year 2014 that included a proposed new edit effectiveness metric. However, officials said the methodology for changes to the award fee will need to be reworked based on MACs' feedback to the draft plan and further research on the part of CMS. CMS will continue to evaluate the feasibility of a new award fee metric, officials said. Increasing MACs incentives to improve edit effectiveness as part of the prepayment review process could lead to savings for the Medicare program as a whole by better identifying medical claims that do not meet the criteria for payment.

    Recommendation: In order to promote greater use of effective prepayment edits and better ensure proper payment, to promote implementation of effective edits based on national policies, and to encourage more widespread use of effective local edits by MACs the CMS Administrator should assess the feasibility of providing increased incentives to MACs to implement effective prepayment edits.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

 

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