Medicare Program & Improper Payments

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Since our 2019 High-Risk Report, ratings for all five criteria remain unchanged for the Medicare Improper Payments segment of this high-risk area. The Centers for Medicare & Medicaid Services (CMS) has maintained its leadership commitment to addressing Medicare improper payments and is meeting the capacity criterion. The agency partially meets the remaining three criteria.

The Medicare program has faced challenges in three additional broad segments—(1) payments, provider incentives, and program management under Medicare fee-for-service (FFS); (2) Medicare Advantage (MA) and other Medicare health plans; and (3) design and oversight of the Medicare program and the effects on beneficiaries.

We continue to not rate CMS’s progress against the high-risk criteria for these three segments for two main reasons. First, the Medicare program is subject to frequent legislative updates to provider payments and other policies. This active congressional participation in the details of the program means that many vital factors are outside of the agency’s control. Second, the Medicare program is in a profound state of transition from a payment system that rewards providers based on the volume and complexity of health care services they deliver to one that ties payments to the quality and efficiency of care.

While we are beginning to evaluate some of the revisions to Medicare’s payment system that have resulted from this transition, these programs take several years to fully implement and some providers are still being transitioned. Nonetheless, we have identified some actions CMS can take to better manage the program.

In response to COVID-19, CMS approved waivers and flexibilities to expand the availability of Medicare services during the pandemic, including things such as waiving certain telehealth and provider enrollment requirements. It is too early to determine the potential effects of the COVID-19 pandemic on the Medicare program, and thereby on CMS’s ability to make progress in addressing high-risk areas—such as the impact of these flexibilities on Medicare’s improper payment rates. However, CMS needs to carefully monitor whether the suspension of these program safeguards may have increased the potential for fraud, waste, and abuse.

Since we added Medicare to our High-Risk List in 1990, we have made more than 750 recommendations related to improper payments and other aspects of the Medicare program, 22 of which were made since the last high-risk update in March 2019. As of December 2020, 89 recommendations remained open.

Improper Payments

Leadership commitment: met. CMS has continued to demonstrate leadership commitment. For example, in 2019, CMS developed a “five pillar” program integrity strategy to address Medicare improper payments. Elements of the strategy include working with law enforcement agencies to identify and take action against providers who defraud the program; improving infrastructure to prevent fraud, waste, and abuse on the front end before claims are paid; and monitoring new and emerging areas of risk.

Capacity: met. The Center for Program Integrity (CPI)—CMS’s centralized entity for Medicare and Medicaid program integrity issues—has experienced an increase in its resources over time, and the agency has established work groups and interagency collaborations to extend its capacity. For example, CMS allocated additional staff to CPI after Congress provided additional funding. CPI’s full-time equivalent positions increased from 177 in 2011 to about 492 in 2021.

We have reported that CMS’s Fraud Prevention System, which analyzes claims to identify health care providers with suspect billing patterns, has also helped speed up certain investigation processes. Further, the Healthcare Fraud Prevention Partnership has helped improve information sharing among payers inside and outside of the government, and as of September 2020 had grown to include 172 federal partners, law enforcement, private payers, and other partners.

Action plan: partially met. CMS continues to identify and report progress on corrective actions related to Medicare improper payments, though work remains to be done to fully meet this criterion. CMS reported this progress in the Department of Health and Human Services’ (HHS) annual Agency Financial Report, which CMS officials stated reflects the agency’s record on its action plan. However, while the fiscal year 2020 report includes targets for reducing Medicare improper payments and highlights corrective actions taken to address root causes of payment errors, it does not identify clear metrics to assess progress, the resources needed to implement corrective actions, or time frames for completing those actions in order to meet its goals.

As of December 2020, CMS officials stated that the agency recently had begun work to enhance its process for analyzing and addressing areas of improper payment risk, using the GAO Fraud Risk Framework, including developing the Vulnerability Collaboration Council to help achieve these goals. CMS officials stated that while the agency will continue to report corrective actions in the Agency Financial Report, the action plans used by CMS to address areas of high risk will be developed through the Vulnerability Collaboration Council process and documented in specific “vulnerability summaries.” For example, the agency has developed a vulnerability summary for a certain type of fraud related to durable medical equipment, prosthetics, orthotics, and supplies, such as orthotic back and knee braces. CMS officials stated that vulnerability summaries for areas noted in the Agency Financial Report have not been finalized.

While CMS has taken steps, through the Vulnerability Collaboration Council, to develop a centralized process to identify, prioritize, track, and mitigate vulnerabilities that affect the integrity of payments, it has not conducted a complete fraud risk assessment or created a risk-based antifraud strategy for each of Medicare’s parts—Medicare FFS, MA, and Medicare Part D (the outpatient prescription drug benefit)—which we recommended in December 2017. This strategy, if implemented, would allow the agency to better ensure it is addressing the full portfolio of risks and strategically targeting the most significant fraud.

Monitoring: partially met. CMS made progress to improve monitoring in some areas, such as its oversight of Medicare provider education efforts and provider enrollment screening processes. However, to make further progress, our recommendation from March 2019 states that CMS should take steps to routinely assess how variations in the documentation requirements between Medicare and the Medicaid program may be affecting estimates of improper payment rates. Without such assessments, CMS may not have the information it needs to ensure the requirements are effective at demonstrating compliance and appropriately address program risks. 

Demonstrated progress: partially met. Estimated improper payment rates declined more than 1 percentage point from fiscal year 2018 to 2020 for Medicare FFS and MA—to 6.27 percent and 6.78 percent respectively—and by about a half percentage point to 1.15 percent for Medicare Part D. In total, Medicare improper payments were estimated to be $43 billion in fiscal year 2020. However, the amount of improper payments made in Medicare are significant, accounting for over one-quarter of the total amount of improper payments made government-wide in fiscal year 2019.

In addition, improper payment rates do not yet take into account the potential for improper payments that may result from inappropriate use of flexibilities given to providers and patients during the COVID-19 public health emergency. These flexibilities included such things as the use of program waivers for telehealth services and waivers of a number of provider enrollment requirements, such as certain background checks.

Many of our recommendations that could further lower improper payment rates remain open. For example, CMS has not implemented our recommendation from April 2016 that it seek legislative authority to permit payment for recovery auditors to conduct prepayment claims reviews. Reviewing Medicare claims before payment can prevent improper payment.

Further, CMS made some progress implementing recommendations related to continuing the use of prior authorizations based on our April 2018 report, but further action is needed. For example, CMS added 12 items—seven power wheel chairs and five pressure reducing support surfaces—to its required prior authorization list and resumed its home health services demonstration. However, CMS has yet to fully evaluate its prior authorization programs, such as determining cost savings from its actions.

Payments, Provider Incentives, and Program Management under Medicare Fee-for-service

As CMS progresses toward full implementation of its value-based payment system, it will be important for the agency to use reliable quality and efficiency measures and methodological approaches, as highlighted in these two areas.

Hospital Value-Based Purchasing Program. The Hospital Value-Based Purchasing Program provides financial incentives to acute-care hospitals to provide efficient, high-quality care to Medicare beneficiaries. In June 2017, we reported some hospitals with high efficiency scores received bonuses despite having relatively low quality scores. This contradicts CMS’s intention to reward high-quality care provided at a lower cost; we have two open recommendations to ensure the performance scores under the Hospital Value-Based Purchasing Program allow the program to accomplish its goal of balancing both quality and efficiency.

Laboratory tests. Medicare is the largest purchaser of laboratory tests that help health care providers prevent, diagnose, and treat diseases. In 2018, we reported that changes CMS made to how it paid for panel tests (groups of laboratory tests generally performed together) could potentially increase Medicare expenditures by billions of dollars. While CMS has taken steps to ensure the use of lower bundled payment rates for common panel tests, it has not done so for less common panel tests.

Medicare Advantage and Other Medicare Health Plans

The MA program provides health care coverage to Medicare beneficiaries through private health plans. The number and percentage of Medicare beneficiaries enrolled in MA has grown steadily over the past several years, increasing from approximately 11 million (24 percent of all Medicare beneficiaries) in 2010 to about 22 million (36 percent of all Medicare beneficiaries) in 2019.

Similar to the FFS program, the MA program has been in a period of transition. For example, in May 2020, CMS finalized guidance for 2021 that expanded access to the MA program by allowing all beneficiaries with end-stage renal disease to enroll in an MA plan for the first time.

MA plan payment adjustments. CMS pays plans in MA a predetermined amount per beneficiary, adjusted for health status. To make this adjustment, CMS calculates a risk score—a relative measure of expected health care costs—for each beneficiary. In January 2012 and January 2013, we reported that CMS’s adjustments to account for differences between FFS and MA providers’ coding of medical diagnoses were too low, resulting in billions of excess payments to MA plans. We have an open recommendation related to improving the accuracy of MA plan payment adjustments.

Encounter data. In January 2017, we reported that CMS had begun to use encounter data—claims-like data collected from the sponsors of MA plans—in its methodology for risk adjusting payments to MA plans. While the encounter data were intended to improve the accuracy of risk adjustment, the data have yet to be fully validated. We have two open recommendations related to improving the quality of encounter data.

Plan enrollment for dual-eligible beneficiaries. As we reported in March 2020, some dual-eligible beneficiaries—those eligible for both Medicare and Medicaid—were enrolled in a special MA plan for dual-eligible beneficiaries, known as a dual-eligible special needs plan (D-SNP), and a Medicaid managed care plan that were offered by the same or related companies.

While this arrangement may create opportunities for better coordination of care for dual-eligible beneficiaries, some beneficiaries are default enrolled in the plans and CMS does not have quality information on their experiences after they are enrolled. We have an open recommendation to improve what is known about the experiences of dual-eligible beneficiaries who have been default enrolled.

Design and Oversight of the Medicare Program and the Effects on Beneficiaries

The design and CMS’s oversight of the Medicare program affect both beneficiaries’ out-of-pocket costs and the quality and safety of care they receive. Medicare FFS’s benefit design does not include a cap on the maximum cost-sharing amount a beneficiary can be responsible for during a given year for covered services. This could leave beneficiaries vulnerable to catastrophic costs, especially if they do not have supplemental insurance.

In addition, Medicare spending can affect the premiums Medicare Part B (hospital outpatient, physician, and other services) beneficiaries pay. In 2020, the Medicare Trustees estimated federal Medicare spending will grow at a faster rate than workers’ earnings and the economy overall. This will impose a significant burden on many Medicare beneficiaries, as changes to the amount beneficiaries pay in premiums each year is based in part on changes to federal Medicare spending.

With regard to quality, CMS has made progress in improving the health and safety of beneficiaries. CMS reported that Medicare Quality Improvement Organizations (QIO) provided oversight that helped to prevent tens of thousands of beneficiaries from needing hospitalization or being readmitted to hospitals.

Additionally, as over one-quarter of people 65 years and older are affected by diabetes, the QIO program launched a diabetes self-management education program. Through the reporting period ending in July 2018, more than 50,000 beneficiaries completed this program, which aims to improve health outcomes and quality of life for beneficiaries with diabetes.

Medicare Trustees report. Over the past 25 years, the boards of trustees have missed 17 of the annual statutory deadlines for submitting the trust fund reports to Congress. In July 2019, we reported that lack of improved efforts to keep congressional committees informed could potentially hinder oversight of the trust funds. We have two open recommendations to improve the timeliness of the boards of trustees’ trust fund reports.

Hospice provider oversight. In October 2019, we reported that additional opportunities exist to strengthen CMS’s oversight of hospice providers. CMS collects data on the quality of hospice care but does not require hospice surveyors—those who conduct the program inspections—to use that data to inform their inspections. We have one open recommendation to improve CMS’s identification of quality of care issues in hospice programs.