Medicare HMO Institutional Payments:

Improved HCFA Oversight, More Recent Cost Data Could Reduce Overpayments

HEHS-98-153: Published: Sep 9, 1998. Publicly Released: Oct 13, 1998.

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Pursuant to a congressional request, GAO reviewed the Health Care Financing Administration's (HCFA) oversight of Medicare payments to health maintenance organizations (HMO) for institutionalized beneficiaries, focusing on: (1) the criteria HCFA uses to determine a beneficiary's institutional status; (2) the methods HCFA employs to ensure that HMOs properly classify beneficiaries as institutionalized; and (3) whether the higher capitation rate for beneficiaries who live in institutions is justified by higher health care costs.

GAO noted that: (1) HCFA's broad definition of institution allowed HMOs to claim institutional status for individuals residing in facilities not likely to house sicker-than-average seniors; (2) some of the facilities GAO visited that HMOs had classified as institutional residences provided no medical care but rather offered a menu of recreational activities for seniors capable of living independently; (3) HCFA acted on GAO's findings and those of others by narrowing the definition of eligible institutions, effective January 1, 1998; (4) even with more stringent criteria, however, HCFA relies on the HMOs to determine which beneficiaries qualify for institutional status; and conducts only limited reviews to confirm the accuracy of HMO records; (5) studies by the Department of Health and Human Services Inspector General reviewing the accuracy of HMO institutional status data support GAO's finding that HCFA's reviews are not adequate to detect the extent of errors or overpayments resulting from HMOs' misclassification of beneficiaries; (6) the task of ensuring accurate data may be further complicated by HCFA's policy that allows HMOs 3 years to retroactively change institutional status data in beneficiary records; (7) the lack of a systematic approach for identifying errors limits HCFA's efforts to recover overpayments and ensure that appropriate payments are made to HMOs; (8) HCFA generally waits 2 years to verify that HMOs have corrected inaccurate recordkeeping systems, even when serious errors have been identified; (9) HCFA continues to use 20-year-old cost data in determining the payment rates for institutionalized enrollees and, as a result, HCFA overcompensates HMOs for their enrolled, institutionalized beneficiaries; (10) this overpayment problem may be corrected when HCFA implements a revised set of risk factors in 2000; (11) however, provisions of the Balanced Budget Act of 1997 that use 1997 rates as the basis for 1998 and future rates effectively preclude a revision to the institutional risk factor at this time; (12) while HCFA has revised its definition of eligible institutions, concerns remain that HCFA's oversight of payments for institutional status is inadequate; (13) HCFA has no system to estimate and recover total overpayments when institutional status errors are detected or to verify HMOs' retroactive adjustment requests; and (14) further, HCFA does not ensure timely review of those HMOs found to have submitted inaccurate institutional status data, and its use of outdated cost data in determining payments continues to overcompensate HMOs for institutionalized enrollees.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: CMS is working with a program safeguard contractor to validate the institutional status data submitted by Medicare+Choice Organizations (M+CO). The contractor was initially tasked with studying the variation in the percentage of members classified by M+COs as living in institutions, but the project's scope was subsequently scaled back. As of September 2002, the contractor is preparing a final report to CMS. CMS recently awarded a contract to this same entity to process all retroactive payment adjustments, a responsibility previously held by the regional offices. Although CMS collects overpayments from M+COs when errors are identified, the agency currently has no plan to estimate and recover total overpayments based on the identified errors in submitted institutional status data. CMS believes that full implementation of the health-based risk adjustment system, which does not rely on institutional status information, will eliminate this issue as a concern.

    Recommendation: To better protect the integrity of Medicare capitation payments, the Administrator of HCFA should establish a system to estimate and recover total overpayments when institutional status data errors are detected.

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

  2. Status: Closed - Not Implemented

    Comments: No action is intended.

    Recommendation: To better protect the integrity of Medicare capitation payments, the Administrator of HCFA should allow HMOs to revise records and claim retroactive payment adjustments for beneficiaries with institutional status only when HMO records have been verified by an independent third party.

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

  3. Status: Closed - Not Implemented

    Comments: According to CMS's written response as of July 2006, these findings are no longer relevant due to significant changes in payment methodology. CMS stated that no corrective actions will be taken on these findings and they should be closed.

    Recommendation: To better protect the integrity of Medicare capitation payments, the Administrator of HCFA should conduct timely follow-up reviews of those HMOs found to have submitted inaccurate institutional status data.

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

  4. Status: Closed - Not Implemented

    Comments: The new risk adjustment methodology phases out institutional status.

    Recommendation: To better protect the integrity of Medicare capitation payments, the Administrator of HCFA should use more recent cost data to calculate the institutional risk adjuster in the event HCFA continues to include institutional status as a part of its new risk adjustment methodology.

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

 

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