Improving Medicare and Medicaid Systems To Control Payments for Unnecessary Physicians' Services

HRD-83-16: Published: Feb 8, 1983. Publicly Released: Feb 8, 1983.

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GAO reviewed the Medicare and Medicaid programs to assess the mechanisms that paying agents under these programs are using to identify and prevent reimbursement to physicians and suppliers for medically unnecessary services and to recoup payments made for such services. The objectives of the review were to: (1) assess and compare the costs and benefits of the prepayment and postpayment utilization review (UR) functions and a representative number of carriers and state Medicaid agencies; (2) identify probable causes for the variations in the performance of these UR functions; and (3) evaluate the Health Care Financing Administration's (HCFA) role, particularly under Medicare, in providing direction to these activities.

The nine Medicare carriers GAO visited supplied information which showed that their prepayment UR activities were cost beneficial, but the performance in terms of cost/benefit ratios and other indicators varies widely. Those making extensive use of automated edits to identify unnecessary services generally performed better and saved comparatively more Medicare program dollars. There are also opportunities for increased effectiveness in the carriers' postpayment UR activities. HCFA policies and practices have tended to provide disincentives to carriers for performing effective prepayment UR. Medicare carriers are incurring extraordinary costs to continually review the claims of habitual overutilizers. GAO found that only 3 of the 11 state Medicaid programs it reviewed used automated prepayment edits to detect possible overutilization. Only one of these programs could provide enough information for GAO to estimate the costs and benefits of prepayment UR operations in Medicaid. Regarding postpayment UR, GAO could identify few tangible benefits resulting from medical necessity issues raised through this activity. Congress has given the states financial incentives to develop effective UR programs. However, neither HCFA nor the states have effectively implemented these incentives.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Effective October 1, 1984, 14 prepayment UR screens were mandated for all Medicare carriers. UR costs were also segregated from other claims processing costs for fiscal year 1985.

    Recommendation: The Secretary of Health and Human Services (HHS) should direct the Administrator, HCFA, to: (1) compare the prepayment utilization edits used by Medicare carriers, identify the more effective ones in terms of valid denials, and require their implementation, except where a carrier has a reasonable basis for believing that the implementation on a particular edit would not be cost beneficial; and (2) require that prepayment UR costs be reported separately from other claims processing costs to allow for valid analysis of carrier costs and related benefits in conducting prepayment UR.

    Agency Affected: Department of Health and Human Services

  2. Status: Closed - Implemented

    Comments: HHS did not agree with the first part of this recommendation and intends to take no action. The second part was implemented, effective October 1, 1984, when the Contractor Performance Evaluation Program included a specific element for postpayment review.

    Recommendation: The Secretary of Health and Human Services should direct the Administrator, HCFA, to: (1) require that the costs and benefits associated with carrier postpayment UR be reported separately from claims processing costs for use in determining the effectiveness of postpayment UR operations; and (2) ensure that the HCFA regional offices evaluate carrier effectiveness on postpayment UR's regarding the appropriateness of the selection criteria used for full-scale reviews, and whether overpayments are computed and recovered when overutilization is identified.

    Agency Affected: Department of Health and Human Services

  3. Status: Closed - Implemented

    Comments: In 1983, the Office of the Inspector General (OIG) assumed responsibility for administrative sanctions of providers from HCFA. In 1983 and 1984, at least 20 providers were successfully prosecuted for medically unnecessary or poor quality services.

    Recommendation: The Secretary of Health and Human Services should direct the Administrator, HCFA, in accordance with due process requirements, to: (1) exclude providers who remain on prepayment review for over a specified period of time because they refuse to correct their abusive billing practices; and (2) make it clear to carriers which peer review mechanisms, besides professional standards review organizations, are acceptable for initiating exclusion procedures.

    Agency Affected: Department of Health and Human Services

  4. Status: Closed - Implemented

    Comments: Except for revising the State Medicaid Manual to provide for the guidelines contemplated in the second part of this recommendation, HHS does not intend to require more information from the individual states.

    Recommendation: The Secretary of Health and Human Services should direct the Administrator, HCFA, to: (1) add to 42 C.F.R. 447.45(f)(1)(ii) a requirement that a minimum number of automated medical necessity edits be tested and, where cost effective, implemented in all states with the Medicaid management information system; (2) develop guidelines for state Medicaid programs seeking reapproval of their Medicaid management information systems to use in reporting costs and benefits of their UR efforts; and (3) provide state Medicaid programs information on prepayment UR edits that are being successfully used by Medicare carriers and encourage the exchange of information on the edits between carriers and state agencies.

    Agency Affected: Department of Health and Human Services


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