Medicare: Improvements Needed to Address Improper Payments for Medical Equipment and Supplies

GAO-07-59 Published: Jan 31, 2007. Publicly Released: Mar 06, 2007.
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The Centers for Medicare & Medicaid Services (CMS)--the agency that administers Medicare--estimated that the program made about $700 million in improper payments for durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) from April 1, 2005, through March 31, 2006. To protect Medicare from improper DMEPOS payments, CMS relies on three Program Safeguard Contractors (PSC), and four contractors that process Medicare claims, to conduct critical program integrity activities. GAO was requested to examine CMS's and CMS's contractors' activities to prevent and minimize improper payments for DMEPOS, and describe CMS's oversight of PSC program integrity activities. To do this, GAO analyzed DMEPOS claims data by supplier and item to identify atypical, or large, increases in billing; reviewed CMS documents; and conducted interviews with CMS and contractor officials. GAO focused its work on contractors' automated prepayment controls and described related claims analysis functions.

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Recommendations for Executive Action

Agency Affected Recommendation Status
Centers for Medicare & Medicaid Services The Administrator of CMS should require the PSCs to develop thresholds for unexplained increases in billing--and use them to develop automated prepayment controls as one component of their manual medical review strategies.
Closed – Implemented
As of December 2017, CMS had taken a number of steps to help identify and address unexplained increases in Medicare providers' billing, consistent with GAO's January 2007 recommendation. For example, CMS's Fraud Prevention System, implemented in 2011, uses a series of algorithms to identify potentially fraudulent claims. As each claim streams through the system, it builds profiles of providers, networks, and billing patterns. As of 2016, CMS had developed algorithms in the system to flag providers with unexpected increases in billings for further investigation by CMS program integrity contractors. GAO reported in August 2017 that the Fraud Prevention System had led to corrective actions against providers and to an estimated $6.7 million in savings in fiscal year 2016. In addition, CMS officials stated in November 2017 that the agency has developed a new monitoring report to identify providers exceeding certain billing limits--known as unpublished Medically Unlikely Edits--who are being paid for amounts of Medicare services in excess of pre-established values. Additionally, since 2015 CMS has directed its Medicare Administrative Contractors (MAC) to report their most effective local prepayment edits--or controls--annually to the agency, so that it can use this information to determine if there are edits that can be shared across the MACs. This effort can better position MACs to determine the most appropriate approach for effectively implementing Medicare payment policy, which could help to reduce improper payments. The implementation of these and other program integrity efforts are important steps in CMS's efforts for ensuring the appropriateness of Medicare payments.
Centers for Medicare & Medicaid Services The Administrator of CMS should require the Durable Medical Equipment Medicare Administrative Contractors, Durable Medical Equipment Regional Carrier, and PSCs to exchange information on their automated prepayment controls, and have each of these contractors consider whether the automated prepayment controls developed by the others could reduce their incidence of improper payments.
Closed – Implemented
The Centers for Medicare & Medicaid Services (CMS) agreed with this recommendation in its comments on the report and responded that the contractors' Joint Operating Agreements (JOA) provide a means through which information could be shared. CMS currently requires these contractors to have Joint Operating Agreements attached to each of their contracts to outline specifically the contact people and coordination points for sharing information across contractors. In 2007, CMS reviewed the JOAs and confirmed that contractors are required to exchange information and coordinate on program edits including auto-deny and other prepayment edits. These opportunities for communication include meetings between the DME PSCs, DME MACs and other relevant contractor groups. The DME PSCs develop and share the information to determine if actions, including automated prepayment edits, would be appropriate for their jurisdiction and to refer such actions to the appropriate DME MAC. CMS also implemented a workgroup that will enhance the sharing of edits across DME MACs and DME PSCs to further address the GAO's recommendation. In addition, on October 6, 2008, CMS implemented a fraud module that allowed the DME MACs to share edits that were developed locally, but could be shared nationally.

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