Why Area Is Important

The Centers for Medicare & Medicaid Services (CMS)—the agency that administers Medicare—has estimated that improper payments for Medicare fee-for-service (FFS) were $34.3 billion in fiscal year 2010. Because the program's complexity and size make it vulnerable to billions of dollars in improper payments—over- and underpayments that should not have been made—GAO has designated it as a high-risk program. CMS and its contractors conduct activities to identify improper payments, including reviewing claims before and after payment. CMS contractors are also responsible for processing and paying approximately 4.5 million claims per work day, which makes the volume and cost to review the claims challenging.

What GAO Found

Aspects of the Medicare program's design make it susceptible to improper payments and effective use of payment controls can help ensure that these improper payments are minimized. GAO found that improving automated review and better targeting of claims to review manually could help prevent improper payments.

Medicare is designed to pay claims promptly and the number of claims it receives limits the amount of possible review. CMS is generally required to pay electronic claims between 14 and 30 days from the date of receipt and the program now pays 4.5 million claims each work day. The amount of program payments that are made with minimal review has made Medicare a target for fraud, waste, and abuse that can result in improper payments. Medicare requires that covered services be reasonable and medically necessary—and of course, be provided as claimed. Since it was first estimated in 1996, Medicare's improper payment rate has been in the billions of dollars each year, although efforts to improve the methodology used for the estimate have made current year estimates noncomparable to any made before 2009. Prior to 1996, CMS had controls in place to try to minimize improper payments and beginning in fiscal year 1997, Congress provided funds specifically for CMS activities designed to ensure that claims are paid correctly. CMS allocates these funds to contractors that conduct a number of activities, including a limited amount of claims review, to help prevent or identify and address improper payments.

Despite agency efforts, CMS still faces challenges in designing and implementing internal controls to effectively prevent or recoup improper payments and to prevent fraud, waste, and abuse. Previous GAO products identified some specific weaknesses in the area of claims review and made recommendations to implement key strategies related to automating and targeting claims review that are particularly important to helping prevent fraud, waste, and abuse, and ultimately, to reducing improper payments. The claims review weaknesses identified include:

Prepayment review of claims did not identify atypical billing associated with fraud. Overall, less than 1 percent of Medicare's claims are subject to a medical record review by trained personnel—so having robust automated payment controls in place that can deny inappropriate claims or flag them for further review is critical. However, GAO has found weaknesses in this area. Specifically, in 2007, GAO found that contractors responsible for reviewing claims from suppliers of durable medical equipment, prosthetics, orthotics, and supplies did not have automated prepayment controls in place to identify questionable claims that might suggest fraud, such as those associated with atypically rapid increases in billing or for items unlikely to be prescribed in the course of routine quality medical care.

Postpayment claims review was not focused on most vulnerable areas. Postpayment reviews are critical to identifying payment errors, recouping overpayments, or repaying underpayments. CMS's contractors have conducted limited postpayment reviews—for example, GAO reported in 2009 that the contractors paying claims for home health care conducted postpayment reviews on fewer than 700 of the more than 8.7 million claims that they paid in fiscal year 2007. Further, GAO found they were not using evidence, such as findings from prepayment review, to target their postpayment review resources on providers with a demonstrated high risk of improper payments.

Regular cross-checking of claims for home health services with the physicians listed as prescribing them was not always done. CMS does not routinely provide physicians responsible for authorizing home health care with information that would enable them to determine whether a home health agency (HHA) was billing for unauthorized care. In one instance, a CMS contractor identified overpayments in excess of $9 million after interviewing physicians whose names and signatures appeared on referrals for beneficiaries with high home health costs. Some physicians indicated their signatures had been forged or they had not realized the amount of care they had authorized.

CMS's new national recovery audit contracting program, begun in March 2009, added to postpayment efforts; but not for fraud-prone claims. Recovery audit contractors (RAC) review claims after payment, with reimbursement to them contingent on the improper over- and underpayments identified. According to CMS, because RACs are paid fees contingent on the dollar value of the improper payments identified, RACs have focused on high-dollar claims from inpatient hospital stays, not other services prone to improper payment, such as home health services.

Actions Needed

More targeted claims review could help reduce improper payments. While the potential for savings exists, the extent of savings realized would depend on the efforts taken to address weaknesses in the review process.

GAO continues to believe that CMS should address these previously made recommendations:

• In 2007, GAO recommended that CMS require its contractors to develop thresholds for unexplained increases in billing and use them to develop automated prepayment controls. CMS agreed with this recommendation in its comments on the report, but has not implemented it. The agency has added other prepayment controls to flag claims for services that were unlikely to be provided in the normal course of medical care. However, implementing GAO's recommendation and adding additional prepayment controls could enhance identification of improper claims before they are paid.
• In 2009, GAO's report on home health services recommended that postpayment reviews be conducted on claims submitted by HHAs with high rates of improper billing identified through prepayment review. CMS did not indicate that it agreed or disagreed with this recommendation and has not implemented it. The agency stated that its contractors conduct pre- and postpayment reviews for HHAs with high utilization as resources allow. However, this might not lead to postpayment review of claims by HHAs with high rates of improper prepayment billing and GAO continues to believe that such reviews would be valuable.
• The 2009 home health report also recommended that CMS require that physicians receive a statement of home health services beneficiaries received based on the physicians' certification. The agency agreed to consider this recommendation, but has not taken action. Such action could also be beneficial for other items and services susceptible to fraud and abuse that are often not directly billed by physicians, such as high-cost durable medical equipment, prosthetics, orthotics, and supplies. CMS indicated in 2010 that the Affordable Care Act included a section requiring a physician (or nonphysician working for or in collaboration with a physician) to document that a face-to-face encounter with the physician occurred before home health services can be implemented. However, the actual services provided could differ from what the initial ordering physician intended, and the initial documentation of a face-to-face encounter would not address that issue.

In addition, as GAO pointed out in 2010 testimony on Medicare fraud, waste, and abuse, because the RACs are focusing on review of hospitals, other contractors' postpayment review activities could be more valuable if CMS directed these contractors to focus on services where RACs are not expected to focus their reviews, and where improper payments are known to be high, specifically home health services.

The amount that could be saved from taking these actions has not been estimated and would depend on how they were implemented.

Framework for Analysis

The information contained in this analysis is based on findings from the GAO reports listed under the "Related GAO Products" tab.

Area Contact

For additional information about this area, contact Kathleen King at (202) 512-7114 or kingk@gao.gov.

Related GAO Products