Medicare Advantage:

Fundamental Improvements Needed in CMS's Effort to Recover Substantial Amounts of Improper Payments

GAO-16-76: Published: Apr 8, 2016. Publicly Released: May 9, 2016.

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cosgrovej@gao.gov

 

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What GAO Found

Medicare Advantage (MA) organizations contract with the Centers for Medicare & Medicaid Services (CMS) to offer beneficiaries a private plan alternative to the original program and are paid a predetermined monthly amount by Medicare for each enrolled beneficiary. These payments are risk adjusted to reflect each enrolled beneficiary's health status and projected spending for Medicare-covered services. CMS conducts risk adjustment data validation (RADV) audits of MA contracts which facilitate the recovery of improper payments from MA organizations that submitted beneficiary diagnoses for payment adjustment purposes that were unsupported by medical records. With a separate national audit, CMS estimated that it improperly paid $14.1 billion in 2013 to MA organizations, primarily because of these unsupported diagnoses.

GAO found that CMS's methodology does not result in the selection of contracts for audit that have the greatest potential for recovery of improper payments. First, CMS's estimate of improper payment risk for each contract, which is based on the diagnoses reported for the beneficiaries in that contract, is not strongly correlated with unsupported diagnoses. Second, CMS does not use other available information to select the contracts at the highest risk of improper payments. As a result, 4 of the 30 contracts CMS selected for its RADV audit of 2011 payments were among the 10 percent of contracts estimated by CMS to be at the highest risk for improper payments. These limitations are impediments to CMS's goal of recovering improper payments and do not align with federal internal control standards, which require that agencies use quality information to achieve their program goals.

CMS's goal of eventually conducting annual RADV audits is in jeopardy because its two RADV audits to date have experienced substantial delays in identifying and recovering improper payments. RADV audits of 2007 and 2011 payments have taken multiple years and are still ongoing for several reasons. First, CMS's RADV audits rely on a system for transferring medical records from MA organizations that has often been inoperable. Second, CMS audit procedures have lacked specified time requirements for completing medical record reviews and for other steps in the RADV audit process. In addition, CMS has not established timeframes for appeal decisions at the first-level of the MA appeal process, as it has done in other contexts.

CMS has not expanded the recovery audit program to MA by the end of 2010, as it was required to do by the Patient Protection and Affordable Care Act. RACs have been used in other Medicare programs to recover improper payments for a contingency fee. In December 2015, CMS issued a request for information seeking industry comment on how an MA RAC could be incorporated into the RADV audit framework. CMS noted in its request that incorporating a RAC into the RADV framework would increase the number of MA contracts audited each year. CMS currently includes 30 MA contracts in each RADV audit, about 5 percent of all MA contracts. Despite the importance of increasing the number of contracts audited, CMS does not have specific plans or a timetable for incorporating RACs into the RADV audit framework, contrary to established project management principles, which stress the importance of developing an overall plan to meet strategic goals.

Why GAO Did This Study

In 2014, Medicare paid about $160 billion to MA organizations to provide health care services for approximately 16 million beneficiaries. CMS, which administers Medicare, estimates that about 9.5 percent of its payments to MA organizations were improper, according to the most recent data—primarily stemming from unsupported diagnoses submitted by MA organizations. CMS currently uses RADV audits to recover improper payments in the MA program.

GAO was asked to review the extent to which CMS is addressing improper payments in the MA program. This report examines the extent to which (1) CMS's contract selection methodology for RADV audits facilitates the recovery of improper payments, (2) CMS has completed RADV audits and appeals in a timely manner, and (3) CMS has made progress toward incorporating RACs into the MA program to identify and assist with improper payment recovery. In addition to reviewing research literature and agency documents, GAO analyzed data from ongoing RADV audits of 2007 and 2011 payments—CMS's two initial contract-level RADV audits. GAO also interviewed CMS officials.

What GAO Recommends

GAO is making five recommendations to CMS to improve its processes for selecting contracts to include in the RADV audits, enhance the timeliness of the audits, and incorporate RACs into the RADV audits. HHS concurred with the recommendations.

For more information, contact James Cosgrove at (202) 512-7114 or cosgrovej@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: CMS is working to improve the accuracy of its calculation of coding intensity, as GAO recommended in April 2016. In October 2017, CMS officials told GAO that the agency is reevaluating the design of the risk adjustment data validation audits to ensure their rigor in the context of all the payment error data acquired since the original design of the audits. As part of this work, CMS officials told GAO that the agency will examine whether coding intensity is the best criterion to use to select contracts for audit. As a result, in October 2018, CMS told GAO that rather than coding intensity, it plans to implement a new methodology using payment error as the key sampling driver beginning with audits for payment year 2014. Additionally, CMS was taking steps to modernize its audit system to improve reliability. For example, it initiated a project to explore how to directly receive electronic medical record documentation. As of January 2020, the agency is continuing to reevaluate the design of these audits. Unless CMS takes this and other actions to improve the risk adjustment data validation contract-level audit process, it will fail to recover improper payments of hundreds of millions of dollars annually.

    Recommendation: As CMS continues to implement and refine the contract-level RADV audit process to improve the efficiency and effectiveness of reducing and recovering improper payments and to improve the accuracy of CMS's calculation of coding intensity, the Administrator should modify that calculation by taking actions such as the following: (1) including only the three most recent pair-years of risk score data for all contracts; (2) standardizing the changes in disease risk scores to account for the expected increase in risk scores for all MA contracts; (3) developing a method of accounting for diagnostic errors not coded by providers, such as requiring that diagnoses added by MA organizations be flagged as supplemental diagnoses in the agency's Encounter Data System to separately calculate coding intensity scores related only to diagnoses that were added through MA organizations' supplemental record review (that is, were not coded by providers); and (4) including MA beneficiaries enrolled in contracts that were renewed from a different contract under the same MA organization during the pair-year period.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

  2. Status: Open

    Comments: CMS is working to modify the selection of MA contracts for audit, as GAO recommended in April 2016. In October 2017, CMS officials told GAO that the initial RADV audit design was based on a limited set of payment error data available at the time. As part of efforts to improve the audits, CMS officials told GAO that the agency will examine whether coding intensity is the best criterion to select contracts for audit. In October 2018, CMS told GAO that it plans to implement a new methodology using payment error as the key sampling driver-rather than coding intensity-beginning with audits for payment year 2014. As of January 2020, the agency is using the revised methodology on the 2014 and 2015 payment year audits. They expect to conclude this process in late fiscal year 2020 and 2021, respectively. Unless CMS completes actions to improve the RADV contract-level audit process, it will fail to recover improper payments of hundreds of millions of dollars annually.

    Recommendation: As CMS continues to implement and refine the contract-level RADV audit process to improve the efficiency and effectiveness of reducing and recovering improper payments. The Administrator should modify CMS's selection of contracts for contract-level RADV audits to focus on those contracts most likely to have high rates of improper payments by taking actions such as the following: (1) selecting more contracts with the highest coding intensity scores; (2) excluding contracts with low coding intensity scores; (3) selecting contracts with high rates of unsupported diagnoses in prior contract-level RADV audits; (4) if a contract with a high rate of unsupported diagnoses is no longer in operation, selecting a contract under the same MA organization that includes the service area of the prior contract; and (5) selecting some contracts with high enrollment that also have either high rates of unsupported diagnoses in prior contract-level RADV audits or high coding intensity scores.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

  3. Status: Open

    Priority recommendation

    Comments: HHS concurred with this recommendation in its fiscal year 2021 budget justification. HHS reaffirmed its commitment to identifying and correcting improper payments in the MA program. It has begun taking steps to improve the timeliness of the contract-level RADV audit process, such as aligning the time frames in CMS's contract-level RADV audits with those of the national RADV audits. Once completed, CMS needs to provide evidence that the actions taken by the agency have enhanced the timeliness of CMS's contract-level RADV process.

    Recommendation: As CMS continues to implement and refine the contract-level RADV audit process to improve the efficiency and effectiveness of reducing and recovering improper payments. The Administrator should enhance the timeliness of CMS's contract-level RADV process by taking actions such as the following: (1) closely aligning the time frames in CMS's contract-level RADV audits with those of the national RADV audits the agency uses to estimate the MA improper payment rate; (2) reducing the time between notifying MA organizations of contract audit selection and notifying them about the beneficiaries and diagnoses that will be audited; (3) improving the reliability and performance of the agency's process for transferring medical records from MA organizations, including assessing the feasibility of updating Electronic Submission of Medical Documentation for use in transferring medical records in contract-level RADV audits; and (4) requiring that CMS contract-level RADV auditors complete their medical record reviews within a specific number of days comparable to other medical record review time frames in the Medicare program.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

  4. Status: Open

    Comments: CMS is working to improve the timeliness of the agency's contract-level risk adjustment data validation appeals process, as GAO recommended in April 2016. In October 2017, CMS officials told GAO that the agency is actively considering options for expediting the appeals process. For example, CMS is considering the appropriate number of days for rendering reconsideration decisions while allowing for a complete and thorough adjudication. In December 2019, CMS officials told GAO they expect to issue a final rule in January 2021 that will establish uniform timelines to expedite the appeals process. Specifically, they plan to require that a findings determination be made within 60-90 days of an arbiter's receipt of each party's arguments at each stage of an appeal. Unless CMS takes such actions to improve the risk adjustment data validation contract-level audit process, it will fail to recover improper payments of hundreds of millions of dollars annually.

    Recommendation: As CMS continues to implement and refine the contract-level RADV audit process to improve the efficiency and effectiveness of reducing and recovering improper payments. The Administrator should improve the timeliness of CMS's contract-level RADV appeal process by requiring that reconsideration decisions be rendered within a specified number of days comparable to other medical record review and first-level appeal time frames in the Medicare program.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

  5. Status: Open

    Comments: CMS has attempted to incorporate a recovery audit contractor in the Medicare Advantage program, as GAO recommended in April 2016. After failing to receive any proposals when CMS first issued a request for proposals (RFP) in 2014, CMS issued a request for information to industry in December 2015, which included a draft Statement of Work to solicit feedback, gauge interest, and conduct market research regarding CMS entering into a contract with a recovery audit contractor to identify underpayments and overpayments associated with diagnosis data submitted to CMS by Medicare Advantage Organizations. CMS reported that it subsequently issued another RFP in 2016 and did not receive any proposals for a second time. In December 2019, CMS officials told GAO that the functions of the Part C recovery Audit programs are being performed through other program integrity mechanisms. CMS subsequently reported in its fiscal year 2021 budget justification that CMS believes the proposed scope of the Part C RAC has been subsumed by RADV and CMS will demonstrate that the RADV program satisfies this recommendation. Until CMS completes efforts to improve the risk adjustment data validation contract-level audit process and demonstrates that it has satisfied the requirement to incorporate a recovery audit contractor in the MA program, CMS will fail to recover improper payments of hundreds of millions of dollars annually.

    Recommendation: As CMS continues to implement and refine the contract-level RADV audit process to improve the efficiency and effectiveness of reducing and recovering improper payments. The Administrator should ensure that CMS develops specific plans and a timetable for incorporating a RAC in the MA program as mandated by the Patient Protection and Affordable Care Act.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

 

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