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.

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: 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

    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 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

    Status: Open

    Comments: CMS has begun the process of evaluating Medically Unlikely Edits (MUEs) to determine which MUEs can be modified to include date of service editing information as GAO recommended in November 2012. This information will allow the modified MUEs to assess whether the total quantity of services provided to the same beneficiary by the same provider on the same day is reasonable and necessary. However, this effort is not yet complete, agency officials said. CMS began implementing date of service edits on April 1, 2013, and by January 1, 2014, had implemented date of service edit limits for more than 4,500 medical procedures. Other services were expected to be converted in future quarters, officials said. CMS's updates MUEs on a quarterly basis. By incorporating date of service limits in the quarterly MUE updating process, MUEs will be more effective because they will more accurately identify 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 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

    Status: Open

    Comments: CMS agreed with GAO's recommendation and officials said that CMS would consider ways to aggregate all major findings to allow for effective prioritization of findings by recovery auditors. However, CMS officials have not indicated that they have taken any steps as a result of our recommendation.

    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

    Status: Open

    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. The written procedures include all existing National Coverage Determinations (NCD) and other national policies and time frames for instituting edits once a decision has been made to develop them, but do not include time frames for making decisions on whether an edit will be developed. 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.

    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

    Status: Open

    Comments: CMS has reported taking initial steps to improve the data collected about local prepayment edits, as GAO recommended in November 2012. In Spring 2013, CMS established a workgroup with the Medicare administrative contractors (MAC) to determine a process for developing, sharing and implementing prepayment edits across all MAC jurisdictions to prevent improper payments, according to CMS officials. However, CMS officials said that CMS and the MACs have not yet determined the final process that will be used to collect local prepayment edit data from MACs in order to disseminate information about the most effective local edits to all MACs. If CMS obtained and disseminated information about the most effective local edits, MACs would have better information 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, 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

    Status: Open

    Comments: CMS officials began organizing conference calls in spring 2013 to focus on medical review collaboration among the Medicare administrative contractor (MACs) that process claims for Medicare parts A and B. However, these calls have not used MACs data about savings from the most effective local edits as a topic for discussion.

    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

    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.

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