oversight

Medicare Program Integrity: Greater Prepayment Control Efforts Could Increase Savings and Better Ensure Proper Payment

Published by the Government Accountability Office on 2012-11-13.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                             United States Government Accountability Office

GAO                          Report to Congressional Requesters




November 2012
                             MEDICARE
                             PROGRAM
                             INTEGRITY
                             Greater Prepayment
                             Control Efforts Could
                             Increase Savings and
                             Better Ensure Proper
                             Payment


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GAO-13-102
                                             November 2012

                                             MEDICARE PROGRAM INTEGRITY
                                             Greater Prepayment Control Efforts Could Increase
                                             Savings and Better Ensure Proper Payment
Highlights of GAO-13-102, a report to
congressional requesters




Why GAO Did This Study                       What GAO Found
CMS reported an improper payment             Use of prepayment edits saved Medicare at least $1.76 billion in fiscal year 2010,
rate of 8.6 percent ($28.8 billion) in the   but GAO found that savings could have been greater had prepayment edits been
Medicare fee-for-service program for         more widely used. GAO illustrated this point using analysis of a limited number of
fiscal year 2011. To help ensure that        national policies and local coverage determinations (LCD), which are established
payments are made properly, CMS              by each Medicare administrative contractor (MAC) to specify coverage rules in its
uses controls called edits that are          jurisdiction. GAO identified $14.7 million in payments in fiscal year 2010 that
programmed into claims processing            appeared to be inconsistent with four national policies and therefore improper.
systems to compare claims data to            These payments could have been prevented through automated prepayment
Medicare requirements in order to
                                             edits. GAO also found more than $100 million in payments that were inconsistent
approve or deny claims or flag them for
                                             with three selected LCDs and that could have been identified using automated
further review.
                                             edits.
GAO was asked to assess the use of
prepayment edits in the Medicare             The Centers for Medicare & Medicaid Services (CMS) has three processes with
program and CMS’s oversight of               some appropriately designed steps to identify the need for, and to implement,
MACs, which process claims and               edits based on national policies, but each of these processes has at least one
implement some edits. This report            weakness. The weaknesses include incomplete analysis of vulnerabilities to
examines the extent to which (1) CMS         improper payment that could be addressed by edits; lack of specific time frames
and its contractors employed                 for implementing edits and other corrective actions; flaws in the structure of some
prepayment edits, (2) CMS has                edits; lack of centralization in the implementation of some edits, which leads to
designed adequate processes to               inconsistencies; incomplete assessment of whether edits are working as
determine the need for and to                intended; and lack of full documentation of the processes. For example, GAO
implement edits based on national            found that Medicare paid $8.6 million in fiscal year 2010 for claims that exceeded
policies, and (3) CMS provides               CMS’s limits on the quantity of certain services that can be provided to a
information, oversight, and incentives       beneficiary by the same provider on a single date of service. Although edits had
to MACs to promote use of effective          been implemented to limit service quantities, a weakness in their structure
edits. GAO analyzed Medicare claims          caused them to miss instances in which quantity limits were exceeded.
for consistency with selected coverage
policies, reviewed CMS and contractor        CMS informs MACs about vulnerabilities that could be addressed through
documents, and interviewed officials         prepayment edits, but the agency does not systematically compile and
from CMS and selected contractors.           disseminate information about effective local edits to address such
                                             vulnerabilities. CMS oversees MACs’ use of edits partly through its review of
What GAO Recommends                          certain MAC reports, but these reports are not intended to provide a
GAO recommends that CMS take                 comprehensive overview of their edits. In January 2011, CMS expanded its
seven actions to strengthen its use of       oversight activities and began requiring MACs to report on how they had
prepayment edits, such as                    addressed certain vulnerabilities to improper payment, some of which could be
restructuring some edits, centralizing       addressed through edits. While CMS increased the funding in fiscal year 2011 for
implementation of others, fully              contractors’ medical review activities, including edit development, the agency
documenting processes, encouraging           provided relatively small incentives—3 percent or less of all contract award
more information sharing about               fees—to promote use of effective prepayment edits by MACs.
effective edits, and assessing the
feasibility of increasing incentives for
edit use. The Department of Health
and Human Services generally agreed
with GAO’s recommendations and
noted CMS’s plans to address them.

View GAO-13-102. For more information,
contact Kathleen King at (202) 512-7114 or
kingk@gao.gov.

                                                                                     United States Government Accountability Office
Contents


Letter                                                                                    1
               Background                                                                 6
               Prepayment Edits Saved Medicare at Least $1.76 Billion in 2010 but
                 Were Not Used to Full Extent Possible                                  15
               CMS’s Processes for Identifying Needs for, and Implementing,
                 Prepayment Edits Based on National Policies Have Weaknesses            22
               CMS Informs MACs about Some Vulnerabilities That Could Be
                 Addressed through Local Edits but Provides Relatively Small
                 Financial Incentives to Promote Their Use                              31
               Conclusions                                                              40
               Recommendations for Executive Action                                     42
               Agency Comments, Third-Party Views, and Our Evaluation                   43

Appendix I     Scope and Methodology                                                    45



Appendix II    Hypothetical Example of How Medicare Claims Can Avoid
               Triggering Medically Unlikely Edits (MUE)                                51



Appendix III   Comments from the Department of Health and Human Services                52



Appendix IV    GAO Contact and Staff Acknowledgments                                    57



Tables
               Table 1: Scope, Mode, and Description of Selected Types of
                        Prepayment Coverage, Payment, and Coding Edits                    9
               Table 2: Internal Control Standards or Activities That Apply to
                        CMS’s Determination of the Need for, and Implementation
                        of, Prepayment Edits Based on National Policies                 15
               Table 3: Payments for Claims That Appeared to Be Inconsistent
                        with Selected National Policies and Therefore Improper
                        and That Could Have Been Identified through Automated
                        Edits, Fiscal Year 2010                                         18




               Page i                                   GAO-13-102 Medicare Prepayment Edits
         Table 4: Payments for Claims That Were Inconsistent with Selected
                  Local Coverage Determinations (LCD) Issued by Medicare
                  Administrative Contractors (MAC), Fiscal Year 2010              21
         Table 5: Percentage of A/B Medicare Administrative Contractor
                  (MAC) Award Fees Allocated to Specified Performance
                  Areas, Fiscal Year 2011                                         39
         Table 6: Internal Control Standards or Activities That Apply to
                  CMS’s Determination of the Need for, and Implementation
                  of, Prepayment Edits Based on National Policies                 49


Figure
         Figure 1: Average Number of Quality Assurance Surveillance Plan
                  (QASP) Standards Used by CMS to Evaluate A/B and DME
                  Medicare Administrative Contractors’ (MAC)
                  Performance in Most Recent Reviews                              36




         Page ii                                  GAO-13-102 Medicare Prepayment Edits
Abbreviations

ARTS              Automated Reporting and Tracking System
CERT              Comprehensive Error Rate Testing
CMS               Centers for Medicare & Medicaid Services
CUE               Clinically Unlikely Edit
CWF               Common Working File
DME               durable medical equipment
FAR               Federal Acquisition Regulation
HCPCS             Healthcare Common Procedure Coding System
HHS               Department of Health and Human Services
ICD               International Classification of Diseases
LCD               local coverage determination
MAC               Medicare administrative contractor
MIP               Medicare Integrity Program
MMA               Medicare Prescription Drug, Improvement, and
                    Modernization Act of 2003
MUE               Medically Unlikely Edit
NCCI              National Correct Coding Initiative
NCD               national coverage determination
OIG               Office of Inspector General
OPT               ocular photodynamic therapy
PIMR              Program Integrity Management Reports
QASP              Quality Assurance Surveillance Plan
RAC               recovery audit contractor
SAF               Standard Analytic File



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Page iii                                            GAO-13-102 Medicare Prepayment Edits
United States Government Accountability Office
Washington, DC 20548




                                   November 13, 2012

                                   The Honorable Thomas R. Carper
                                   Chairman
                                   The Honorable Scott P. Brown
                                   Ranking Member
                                   Subcommittee on Federal Financial Management, Government
                                    Information, Federal Services, and International Security
                                   Committee on Homeland Security and Governmental Affairs
                                   United States Senate

                                   The Honorable John S. McCain
                                   United States Senate

                                   Since 1990, we have designated Medicare a high-risk program, due in
                                   part to its size and its susceptibility to improper payments. 1 In fiscal year
                                   2011, the Medicare program covered about 48 million elderly or disabled
                                   beneficiaries and paid about $550 billion in claims for health care services
                                   provided. The Centers for Medicare & Medicaid Services (CMS), which
                                   administers the program, has stated that one of its key goals is to pay
                                   claims properly the first time—that is, to ensure that payments go to
                                   legitimate providers in the right amount for reasonable and necessary
                                   services covered by the program for eligible beneficiaries. If claims are
                                   paid properly the first time, the agency does not need to spend additional
                                   resources to recover improper payments. CMS has estimated that
                                   8.6 percent—or about $28.8 billion—of the $336 billion in Medicare fee-




                                   1
                                    An improper payment is any payment that should not have been made or that was made
                                   in an incorrect amount (including overpayments and underpayments) under statutory,
                                   contractual, administrative, or other legally applicable requirements. Improper Payments
                                   Elimination and Recovery Act of 2010, Pub. L. No. 111-204, § 2(e), 124 Stat. 2224, 2227
                                   (codified at 31 U.S.C. § 3321 note). The Medicare program generally makes fee-for-
                                   service payments directly to health care providers, based on their submitted claims for
                                   services provided to beneficiaries.




                                   Page 1                                            GAO-13-102 Medicare Prepayment Edits
for-service payments in fiscal year 2011 were improper. 2 CMS has
strategies in place to prevent, or identify and recoup, improper payments.

One internal control strategy that CMS uses in an effort to pay claims
properly and to administer the Medicare program effectively is the
application of “prepayment edits”—instructions that CMS’s contractors
program into claims processing systems that serve as internal controls by
comparing claim information to Medicare requirements in order to
approve or deny claims or to flag them for additional review. 3 CMS
contracts with private firms to process and pay approximately 4.8 million
Medicare claims per business day. In 2006, CMS began transitioning
responsibility for claims administration for Medicare Parts A and B and
durable medical equipment (DME) from the contractors known as fiscal
intermediaries and carriers to Medicare administrative contractors (MAC),
which are referred to, respectively, as A/B MACs and DME MACs. 4 CMS
also has other types of contractors to help identify and recover improper
payments, address fraud and abuse, or develop specific types of edits.
MACs and these other contractors also share responsibility with CMS for
identifying vulnerabilities to improper payments—billing practices or
patterns that are or may be associated with significant amounts of
improper payments, which we refer to hereafter as “vulnerabilities”—and




2
 Medicare fee-for-service consists of Medicare Part A, which covers inpatient hospital
care, skilled nursing facility care, some home health services, and hospice care, and
Medicare Part B, which covers physician and hospital outpatient services, diagnostic tests,
mental health services, outpatient physical and occupational therapy, ambulance services,
some home health services, durable medical equipment, prosthetics, orthotics, and
supplies, among other things.
3
 Internal controls are components of an organization’s management that provide
reasonable assurance that the organization achieves effective and efficient operations,
reliable financial reporting, and compliance with applicable laws and regulations. Internal
control standards provide a framework for identifying and addressing major performance
challenges and areas at greatest risk for mismanagement.
4
 As of May 2012, CMS had implemented 5-year contracts in all 4 of the DME MAC
jurisdictions and 11 of the 14 existing A/B MAC jurisdictions. Three A/B MAC jurisdictions
are being served by legacy contractors—fiscal intermediaries and carriers. CMS
anticipates replacing the remaining fiscal intermediaries and carriers with MACs and
consolidating A/B MAC jurisdictions from 14 to 10. For simplicity—and because CMS
intends to convert all claims administration contractors to MACs—we use the term MAC to
refer to all claims administration contractors in this report, except where specifically noted.




Page 2                                                GAO-13-102 Medicare Prepayment Edits
for taking action to address them. 5 Most of the prepayment edits
implemented by CMS and its contractors are automated, meaning that if a
claim does not meet the criteria of the edit, it is automatically denied.
Other prepayment edits are manual, meaning that they flag individual
claims for review by trained contractor staff to determine whether the
claim should be paid. Whereas automated edits are applied to all claims,
manual edits are applied to very few. Less than 0.25 percent of claims
received manual review that involved clinician review of the medical
record.

The Medicare program has defined categories of items and services
eligible for coverage and excludes from coverage items or services that
are determined not to be “reasonable and necessary” for the diagnosis
and treatment of an illness or injury or to improve functioning of a
malformed body part. 6 CMS determines what services are covered under
what conditions within the broad categories defined in law. CMS sets
some national Medicare coverage and payment policies that apply to all
beneficiaries. These include national coverage determinations (NCD),
which describe the circumstances under which Medicare will cover
particular items or services nationwide. CMS works with several
contractors to implement prepayment edits for certain national coverage
and payment policies. In addition to prepayment edits related to service
coverage and payment, prepayment edits may be implemented to verify
that the claim is properly filled out, that providers are enrolled in
Medicare, or that patients are eligible Medicare beneficiaries. 7

Each MAC has the authority to develop local coverage determinations
(LCD) that delineate the circumstances under which services are
considered reasonable and necessary and are therefore covered in the
geographic area where that MAC processes claims. These local policies
cannot conflict with national coverage and payment policies established
by CMS or by law. MACs’ authority to develop LCDs leads to differences



5
 Examples of vulnerabilities are providers billing Medicare for ambulance services that
should be billed to the hospital that provided the beneficiary’s inpatient care, and high
utilization of diabetic test strips.
6
42 U.S.C. § 1395y(a)(1)(A).
7
 For more information on edits related to provider enrollment information, see GAO,
Medicare Program Integrity: CMS Continues Efforts to Strengthen the Screening of
Providers and Suppliers, GAO-12-351 (Washington, D.C.: Apr. 10, 2012).




Page 3                                               GAO-13-102 Medicare Prepayment Edits
in Medicare coverage policy in different areas of the country. 8 MACs may
create prepayment edits either to enforce their LCDs or to enforce
national Medicare policies set by CMS, although not every LCD or
national policy is structured in a way that makes edit development
feasible. CMS has responsibility for providing information and oversight to
MACs with respect to their use of prepayment edits to promote effective
stewardship of Medicare funds.

Given your interest in ensuring sound fiscal oversight of the Medicare
program, you asked us to examine the use of prepayment edits that
implement coverage and payment policies to achieve savings, as well as
CMS’s oversight of MACs, which develop and implement some edits. For
this report, we assessed the extent to which (1) CMS and its contractors
employed prepayment edits; (2) CMS has designed adequate processes
to determine the need for prepayment edits and to implement edits based
on national policies; and (3) CMS provides information, oversight, and
incentives to MACs to promote use of effective prepayment edits.

To address all three objectives, we reviewed the Medicare Program
Integrity Manual, which provides guidance for Medicare contractors, and
interviewed CMS officials and representatives of selected contractors
responsible for developing prepayment edits. We focused on edits that
implement coverage and payment policies, and did not include edits
based on beneficiary or provider enrollment data or edits designed to
verify that a claim has been properly filled out.

To assess the extent to which CMS and its contractors employed
prepayment edits, we reviewed data from two CMS data systems—the
Automated Reporting and Tracking System (ARTS), which tracks MACs’
claims administration costs, and the Program Integrity Management
Reports (PIMR) system, which collects savings and usage data about
prepayment edits. We conducted an analysis of paid Medicare claims
from fiscal year 2010. Through a few selected examples, we assessed
whether there were paid claims (1) that appeared to be inconsistent with
certain national policies, which would provide examples of potentially



8
 For example, we reported in 2003 that two of four carriers—which predated MACs as the
claims administration contractors responsible for processing Part B claims—had local
coverage policies for magnetic resonance angiography and two did not. See GAO,
Medicare: Divided Authority for Policies on Coverage of Procedures and Devices Results
in Inequities, GAO-03-175 (Washington, D.C.: Apr. 11, 2003).




Page 4                                           GAO-13-102 Medicare Prepayment Edits
improper payments, and (2) that were inconsistent with local coverage
determinations (LCD), which would provide examples of the potential for
increased savings associated with more widespread use of local edits.
The national policies we chose for our analysis were among those that
CMS had developed into NCDs or that had been identified with improper
payments in excess of $500,000 by Medicare contractors responsible for
identifying improper payments. The LCDs we chose were those for which
MACs had implemented automated edits that led to relatively large
savings for the Medicare program in their jurisdictions. 9 We reviewed only
examples where payments could have been prevented with automated
edits because, unlike manual edits, automated edits can be used without
an additional cost for claim reviewers’ time for each additional claim
analyzed.

To assess the extent to which CMS has designed adequate processes to
determine the need for prepayment edits and to implement edits based
on national policies, we reviewed relevant documentation, including
documents from CMS describing its processes, and reports that CMS
uses to track vulnerabilities and corrective actions. We evaluated CMS’s
processes using criteria outlined in our internal control documents,
Standards for Internal Control in the Federal Government and Internal
Control Management and Evaluation Tool. 10 The specific standards used
were risk assessment, control activities (documentation), and monitoring.

To assess the extent to which CMS provides information, oversight, and
incentives to MACs to promote use of effective prepayment edits, we
reviewed relevant documentation, including MACs’ statements of work 11
and various reports MACs are required to submit to CMS, and analyzed
data from CMS’s performance reviews of MACs.




9
 We also used other criteria to select these local policies, which included feasibility of
analysis and implementation of similar policies by fewer than half of all MACs at the start
of fiscal year 2010.
10
 See GAO, Standards for Internal Control in the Federal Government,
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999), and GAO, Internal Control
Management and Evaluation Tool, GAO-01-1008G (Washington, D.C.: August 2001).
11
  Statements of work are those documents generally incorporated in contract solicitations
and, subsequently, contracts, that specify, either directly or with reference to other
documents, the work the government expects the contractors to perform.




Page 5                                               GAO-13-102 Medicare Prepayment Edits
                    We performed appropriate electronic data checks for the data used in our
                    analyses and interviewed agency officials who were knowledgeable about
                    the data from PIMR, ARTS, and the Medicare claims database to ensure
                    that the data were reliable enough for our purpose. We found the data
                    were sufficiently reliable for the purpose of our analyses. We conducted
                    this performance audit from July 2011 through November 2012 in
                    accordance with generally accepted government auditing standards.
                    Those standards require that we plan and perform the audit to obtain
                    sufficient, appropriate evidence to provide a reasonable basis for our
                    findings and conclusions based on our audit objectives. We believe that
                    the evidence obtained provides a reasonable basis for our findings and
                    conclusions based on our audit objectives.


                    About three-quarters of all Medicare beneficiaries receive their care on a
Background          fee-for-service basis, with providers submitting claims for payment for
                    each service provided. 12 CMS contracts with claims administration
                    contractors—primarily MACs—to process claims from over 1 million
                    hospitals, physicians, and other health care providers. In fiscal year 2011,
                    MACs and other claims administration contractors processed about
                    1.2 billion claims. Medicare claims administration contractors have had a
                    role in determining coverage since 1965, when the Medicare program
                    was enacted. At that time, Congress arranged for many Medicare
                    functions to be contracted out to private insurers to allow the program to
                    be implemented rapidly by organizations already processing claims for
                    hospitals and physicians.


Medicare Coverage   Medicare law defines the categories of services covered by the program
Policies            and provides the Secretary of the Department of Health and Human
                    Services (HHS) with the authority to specify which services within these
                    categories are covered and under what conditions. 13 The Secretary
                    delegates this responsibility to CMS, which, in turn, carries out some of
                    these responsibilities through MACs. Consistent with Medicare law, CMS
                    sets national coverage, payment, and coding policies regarding when and
                    how services will be covered by Medicare, as well as coding and billing



                    12
                      The remaining beneficiaries are enrolled in a Medicare Advantage plan, in which private
                    insurance plans offer health care coverage to Medicare beneficiaries.
                    13
                     42 U.S.C. § 1395y(a).




                    Page 6                                             GAO-13-102 Medicare Prepayment Edits
requirements for claims. CMS develops or implements the following types
of national policies:

•    NCDs, which CMS typically develops for services that have the
     potential to affect a large number of beneficiaries and that have the
     greatest effect on the Medicare program. 14 For example, this can
     include new technologies introduced into health care practice, such as
     use of Positron Emission Tomography scans for diagnostic
     purposes. 15 Development of NCDs is a lengthy process, which
     requires review of clinical evidence and allows for public comment.
     According to CMS, the agency has the resources to develop
     approximately 12 NCDs per year. As of February 2012, there were
     328 NCDs.

•    National payment policies that specify how payment will be made for
     covered services in certain situations—such as how physicians who
     collaborate on providing the same service to a beneficiary will be paid.

•    National Correct Coding Initiative (NCCI) coding policies, which aim to
     reduce inappropriate payments through the use of automated edits
     that deny improperly coded claims. NCCI edits include code-pair
     edits, which deny payment for services that should not be billed
     together. NCCI edits also include Medically Unlikely Edits (MUE),
     which deny payment for services where the quantity billed is at a level
     not likely to be provided under normal medical practice, such as daily
     doses of drugs higher than the maximum amounts in the prescribing
     information or services that are anatomically impossible, such as
     more than one appendectomy on the same beneficiary. CMS allows
     exceptions to MUEs and some code-pair edits when providers believe
     the services provided are clinically appropriate. In such cases, special
     codes called modifiers are included on the claim to indicate why the
     services were clinically appropriate.




14
  CMS officials also noted that outside groups or individuals can request an NCD and the
agency must consider the request.
15
  Positron Emission Tomography is a diagnostic imaging procedure used to evaluate
metabolism in normal tissue as well as in diseased tissues in conditions such as cancer,
ischemic heart disease, and some neurologic disorders.




Page 7                                             GAO-13-102 Medicare Prepayment Edits
MACs may develop local coverage policies as long as these policies are
consistent with national policy. MACs develop the following types of local
coverage policies:

•    LCDs, which specify the circumstances under which services will be
     covered in a MAC’s jurisdiction. 16 According to CMS, allowing MACs
     to develop LCDs allows for timely local reaction to changes in the
     practice of medicine. MACs also use LCDs to place limits on services
     that may be overused or abused in their jurisdictions. 17 Before
     implementing or revising an LCD, a MAC must review clinical
     evidence and incorporate the information reviewed into the proposed
     LCD, provide notice of proposed changes on its website, and, in some
     cases, seek public input from potentially affected individuals or
     organizations, such as physicians whose billing could be affected by
     the policy. There are currently thousands of LCDs.

•    Limits on quantities of services that will be covered in a MAC’s
     jurisdiction. A quantity limit may be included within an LCD or
     developed separately as a Clinically Unlikely Edit (CUE).

CMS and its contractors have developed and implemented various types
of prepayment edits based on national and local coverage policies. (See
table 1.)




16
 The four DME MACs are required to use one set of LCDs. In contrast, the A/B MACs
may have similar policies, but are not required to do so.
17
  For example, a DME MAC has set maximum allowable amounts for certain drugs that
are inhaled using a nebulizer.




Page 8                                          GAO-13-102 Medicare Prepayment Edits
Table 1: Scope, Mode, and Description of Selected Types of Prepayment Coverage, Payment, and Coding Edits

Type                        Scope         Mode                   Description
Edits based on national     National or   Automated or           These edits compare information from claims with Medicare
coverage determinations     local         manual                 requirements in NCDs, which specify the circumstances under which a
(NCD)                                                            service is covered, to identify claims that should not be paid.
Edits based on national     National or   Automated or           These edits compare information from claims with policies regarding
payment policies            local         manual                 payments to providers and coverage limitations contained in the
                                                                 Medicare Claims Processing Manual and other CMS documents, to
                                                                 identify claims that should not be paid.
Code-pair edits developed   National      Automated              These edits deny payment for services that should not be billed together
through the National                                             in order to prevent improper payment of these services.
Correct Coding Initiative
(NCCI)
Medically Unlikely Edits    National      Automated              These edits deny payment for services where the number of units billed
(MUE) developed through                                          on the claim line exceeds the maximum number a provider would bill
the NCCI                                                         under most circumstances for a beneficiary on a single date of service in
                                                                 order to prevent improper payment of these services.
Edits based on local        Local         Automated or           These edits compare information on claims to LCDs, to determine
coverage determinations                   manual                 whether the claim should be paid. In the absence of a national coverage
(LCD)                                                            policy, local contractors may determine the circumstances under which a
                                                                 service is covered. LCDs also can articulate additional detail about how
                                                                 a national coverage policy will be applied.
Clinically Unlikely Edits   Local         Automated              These edits are similar to MUEs but are developed and implemented at
(CUE)                                                            the local level.
                                          Source: GAO analysis of CMS documents and interviews with CMS officials.

                                          Note: The prepayment edits listed here focus on clinical criteria, including procedure and diagnosis
                                          codes. Other prepayment edits include edits that identify improper provider and beneficiary data.



Medicare Claims                           MACs are responsible for processing and paying claims, generally in
Processing and Review                     specific geographic jurisdictions, in compliance with coverage and
                                          payment policies. Health care providers generally submit claims to the
                                          MAC responsible for the geographic area where the services were
                                          delivered or the beneficiary resides. 18 Providers submit claims using a
                                          standardized coding system, known as the Healthcare Common
                                          Procedure Coding System (HCPCS), to identify the medical services,




                                          18
                                            This description of Medicare claims processing also applies to claims administration
                                          contractors known as fiscal intermediaries and carriers, which CMS expects to replace
                                          with MACs by early 2013. Ambulance services are billed based on where the ambulance
                                          is garaged. Laboratory services are billed based on either where the specimen is taken or
                                          where it is analyzed.




                                          Page 9                                                                     GAO-13-102 Medicare Prepayment Edits
equipment, and other goods provided. 19 Claims also identify relevant
patient diagnoses, using a different coding system called the International
Classification of Diseases (ICD).

Medicare fee-for-service claims processing includes several basic steps
that involve three types of systems: MAC front-end systems, shared
systems, and the Common Working File (CWF).

•    MAC front-end systems. Claims are submitted to MACs, whose front-
     end computer systems perform automated checks to determine
     whether claims meet certain requirements, such as that the data are
     complete.

•    Shared systems. Claims that meet the initial requirements in the front-
     end systems are sent to one of three shared systems—depending on
     the type of claim—where they are subjected to prepayment edits
     based on coverage and payment policy criteria. 20 Claims that do not
     meet these criteria are either automatically denied or flagged for
     review by trained staff. These systems also verify that providers are
     enrolled in Medicare. Claims that are not denied by automated edits
     or suspended for manual review by manual edits in the shared
     systems are then sent to the CWF, the central CMS system that
     authorizes payment.

•    Common Working File. The CWF verifies beneficiary eligibility,
     coordinates Part A and Part B benefits, and determines the extent of
     Medicare’s responsibility for payment, based on such factors as
     whether beneficiaries’ deductibles have been met or utilization limits
     have been reached. From there, claims are returned to the relevant
     shared system for final processing and then payments are sent to
     providers.




19
  Many HCPCS codes are based on the Current Procedural Terminology codes, which
are maintained by the American Medical Association and which many private insurers use
for processing claims. HCPCS also includes codes for other items, such as ambulance
services and durable medical equipment used in a beneficiary’s home.
20
  The three systems are called the Fiscal Intermediary Standard System (FISS), the Multi-
Carrier System (MCS), and the ViPS Medicare System (VMS). FISS processes Part A and
certain types of Part B claims from institutional providers. MCS processes other Part B
claims. VMS processes DME claims.




Page 10                                           GAO-13-102 Medicare Prepayment Edits
The process of determining whether claims are consistent with Medicare
coverage, payment, and medical coding policies—which includes the
application of edits based on these policies, as well as manual review of
flagged claims—is known as the medical review process. Of the two
categories of prepayment edits used by MACs in this process—
automated and manual—automated are less resource intensive. CMS
policy requires that automated edits be used whenever possible.
However, many improper claims can be identified only through more
costly manual review, because staff may have to review associated
medical records and claims history or exercise clinical judgment to
determine whether a service is reasonable and necessary and therefore
should be approved for payment. CMS officials indicated that there are
about 17,000 prepayment edits related to medical coverage issues in
PIMR. 21 However, some edits—in particular, those that require manual
review—may not be in use at any given time for various reasons, such as
the staff costs associated with manual review, or because changes in
provider behavior make the edit unnecessary. In addition, edits can vary
in complexity and the policy issues covered, since some automated edits
address only a portion of one coverage policy, while other automated
edits address multiple policies. 22

There are limitations to the use of prepayment edits and associated
manual review as medical review strategies because some claims can be




21
  Edits developed through the National Correct Coding Initiative (NCCI) are not in PIMR,
and therefore are not included in this total.
22
  CMS also recently launched the Fraud Prevention System, a predictive modeling system
that screens all Medicare fee-for-service claims on a prepayment basis in order to identify
potentially fraudulent claims. The Fraud Prevention System analyzes claims to identify
unusual billing patterns and assigns risk scores to claims to prioritize them for
investigation.




Page 11                                            GAO-13-102 Medicare Prepayment Edits
                        identified as improper only after a payment is made. 23 CMS employs
                        recovery audit contractors (RAC) to find and correct overpayments and
                        underpayments after claims have been processed. Although some of the
                        improper payments identified by RACs could have been prevented by
                        prepayment edits, others can be identified only after payment through
                        review of medical records. CMS requires RACs to provide information,
                        based on their analyses, about vulnerabilities, including those that could
                        be addressed through prepayment edits.


CMS Oversight of MACs   CMS’s oversight of MACs is governed by the terms of the MACs’
                        contracts, which in turn reflect provisions of the Medicare Prescription
                        Drug, Improvement, and Modernization Act of 2003 (MMA). The MMA
                        includes a requirement for CMS to use competitive procedures to select
                        contractors to process claims; to develop performance standards for
                        these contractors, including standards for customer satisfaction; and to
                        provide incentives for these contractors to provide high-quality service. 24
                        CMS established the MAC contracts as cost-plus-award-fee contracts, a
                        type of cost-reimbursement contract designed to provide sufficient
                        motivation to encourage excellence in contract performance. 25
                        Specifically, a MAC may earn an incentive, known as an award fee,
                        based on performance, in addition to reimbursement for allowable costs


                        23
                          For example, some Medicare payments are so-called “bundled payments” for a group of
                        related services that should be billed together for specified treatments. However, services
                        that should be billed as part of a bundle under some circumstances also can be billed
                        separately under other circumstances. When a claim is submitted for an individual service
                        that could be part of a bundled payment, MACs may pay the claim not knowing that a
                        claim for the bundled set of services will be submitted in the future. In such cases,
                        overpayments must be addressed after claims have been processed. An example of a
                        service that could be billed either as part of a bundle or separately is an ambulance trip
                        that transfers a patient from a hospital to a skilled-nursing facility. If the ambulance trip is
                        associated with a patient’s Part A hospital stay, then the ambulance transfer is covered as
                        part of a bundled payment for the patient’s Part A stay. A separate payment for this type of
                        ambulance trip when a patient is in a Part A stay would be an overpayment. However, if
                        the patient’s stay in the hospital is not being covered by Medicare Part A, then the
                        ambulance provider may bill Medicare for the ambulance trip, if the trip meets other
                        Medicare coverage rules.
                        24
                          Pub. L. No. 108-173, § 911, 117 Stat. 2066, 2378 (Dec. 8, 2003) (codified at 42 U.S.C.
                        § 1395kk). MMA also established the application of the Federal Acquisition Regulation
                        (FAR) to MAC contracts, except where inconsistent with specific MMA provisions. The
                        FAR establishes uniform policies for acquisition of supplies and services by executive
                        agencies. 48 C.F.R. ch.1.
                        25
                          48 C.F.R. § 16.305.




                        Page 12                                               GAO-13-102 Medicare Prepayment Edits
and a base fee for the contract, which is fixed at the inception of the
contract. Under the terms of these contracts, CMS sets requirements for
MACs with respect to prepayment edits and other aspects of the medical
review process. In general, CMS requires MACs to target medical review
to areas that pose the greatest financial risk to the Medicare program and
where their efforts are likely to produce the best return on investment, and
also to implement automated prepayment edits whenever appropriate.
CMS also requires MACs to assess the effectiveness of their edits and to
submit their medical review strategies to CMS for review and approval.
However, MACs have considerable discretion in developing local
coverage policies and in deciding how to implement edits to address both
local and national coverage policies.

CMS assesses MACs’ performance in part through its Quality Assurance
Surveillance Plan (QASP) review and its Award Fee Plan review. 26 For
the QASP review, which is generally conducted annually, CMS evaluates
each MAC’s performance against a MAC-specific subset of performance
standards in accordance with the statement of work and other
requirements specified in related CMS policy documents. The Award Fee
Plan identifies the criteria upon which the MAC will be evaluated and
provides an explanation of when the MAC can potentially earn an
incentive based on its performance. On an annual basis, CMS creates an
award fee plan for each MAC that contains metrics that are generally
more challenging to achieve than the requirements outlined in the
statement of work. The pool of award fees available to each MAC is
established during contract negotiations and depends in part on the
negotiated division of fees between award fees and base fees.

CMS monitors the accuracy of the MACs’ claims payment determinations
through its Comprehensive Error Rate Testing (CERT) Program, which
measures improper payments. Each year, CMS establishes a national
error rate goal under the Government Performance and Results Act of
1993. To calculate error rates, CMS’s CERT Program contractor
randomly samples Medicare fee-for-service claims and reviews them after
payment. Currently, CMS publishes error rates by type of error, type of



26
  CMS’s performance assessment program also includes the Quality Control Plan
Review, which is CMS’s review of the MAC’s quality control plan, which describes the
plans, methods, and procedures—or internal controls—that a contractor will use to meet
performance standards in the statement of work, such as those related to quality, quantity,
time frames, responsiveness, and customer satisfaction.




Page 13                                             GAO-13-102 Medicare Prepayment Edits
                   claim—for example, DME—and clinical setting, as well as nationally. 27
                   Prior to 2009, CMS also published contractor-specific error rates.
                   However, in that year, CMS implemented a new methodology for CERT
                   claim reviews, and as a result, the error rates computed for 2009 were not
                   comparable to those computed for previous years. 28 CMS used
                   contractor-specific error rates in award fee plan reviews in fiscal year
                   2011.


Internal Control   CMS, like other agencies, is responsible for maintaining internal control—
                   the component of an organization’s management that provides
                   reasonable assurance that the organization achieves effective and
                   efficient operations, reliable financial reporting, and compliance with
                   applicable laws and regulations. Internal control standards provide a
                   framework for identifying and addressing major performance challenges
                   and areas at greatest risk for mismanagement. As noted above, GAO has
                   published guidelines for internal controls, and we used these guidelines to
                   assess some of CMS’s processes. (See table 2 for the specific internal
                   control standards and activities we used.)




                   27
                     In 2011, 85 percent of the improper payments identified by CERT were for claims in
                   which the medical documentation submitted either was inadequate to support payment for
                   the services billed or indicated that the services billed were not medically necessary based
                   upon Medicare coverage policies.
                   28
                     CMS’s revisions included a strict adherence to policy documentation requirements, the
                   removal of claims history as a valid source for review information, and the determination
                   that medical record documentation created by a supplier is insufficient to substantiate a
                   claim.




                   Page 14                                             GAO-13-102 Medicare Prepayment Edits
                         Table 2: Internal Control Standards or Activities That Apply to CMS’s Determination
                         of the Need for, and Implementation of, Prepayment Edits Based on National
                         Policies

                             Standard or
                             activity             Description of elements applicable to our assessment
                             Risk assessment      Management comprehensively identifies risk using various
                                                  methodologies as appropriate.
                                                  A determination is made on how best to manage or mitigate the
                                                  risk and what specific actions should be taken.
                                           a
                             Documentation        Internal control and all transactions and other significant events are
                                                  clearly documented, and the documentation is readily available for
                                                  examination.
                                                  The documentation appears in management directives,
                                                  administrative policies, or operating manuals in either paper or
                                                  electronic form.
                                                  All documentation and records are properly managed and
                                                  maintained.
                             Monitoring           Corrective action is taken or improvements made within
                                                  established time frames to resolve the matters brought to
                                                  management’s attention.
                                                  Agency personnel obtain information about whether their internal
                                                  control is functioning properly.
                         Source: GAO.

                         Notes: Information is from GAO, Standards for Internal Control in the Federal Government,
                         GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999), and GAO, Internal Control Management
                         and Evaluation Tool, GAO-01-1008G (Washington, D.C.: August 2001).
                         a
                         Documentation is an activity under the standard called Control Activities.



                         CMS reported that the use of prepayment edits saved Medicare
Prepayment Edits         $1.76 billion in fiscal year 2010, but the reported total is likely to be an
Saved Medicare at        underestimate because CMS does not collect information on savings from
                         all of its current edits. Moreover, the savings could have been greater had
Least $1.76 Billion in   prepayment edits been more widely used. Our analysis of Medicare data
2010 but Were Not        using only a limited number of national policies identified payments that
Used to Full Extent      appeared to be improper and that might have been prevented through
                         wider use of automated edits. We also found that wider use of edits
Possible                 based on LCDs could have led to increased savings. Using just three
                         MAC-issued LCDs as examples, we found that MACs in other geographic
                         areas processed Medicare payments totaling more than $100 million for
                         services that were not covered under the three policies we selected.




                         Page 15                                                   GAO-13-102 Medicare Prepayment Edits
Use of Prepayment Edits      Although CMS’s PIMR data indicate that Medicare savings from
Led to Reported Savings of   prepayment edits were $1.76 billion in fiscal year 2010, that total is
$1.76 Billion, but That      probably an underestimate because CMS does not collect information on
                             savings from all of its current edits. 29 For example, although the savings
Total Is Probably an
                             total included $497 million in savings from some NCCI code-pair edits, it
Underestimate                did not include savings from other NCCI code-pair edits or from MUEs. In
                             addition to lacking complete information about total savings from edits,
                             CMS also lacked reliable information about savings associated with
                             particular types of edits. For example, PIMR did not contain reliable data
                             about fiscal year 2010 savings attributable to automated edits versus
                             manual edits or to edits based on national policy versus those based on
                             local policy. Although PIMR captured both kinds of information, CMS
                             officials said these data were unreliable because not all MACs defined
                             and reported information about edits in the same way. However, in 2011,
                             CMS issued new reporting instructions for contractors to standardize
                             definitions for various types of edits.

                             CMS also does not centrally track all of its costs related to developing and
                             implementing edits. Our analysis of ARTS data showed that MACs
                             incurred about $59 million in costs for tasks directly related to prepayment
                             edits and medical review in their most recent contract year. 30 However,
                             ARTS data do not capture all costs related to prepayment edits and
                             medical review. For example, CMS does not track its staff costs to
                             develop national edits or to oversee MACs’ edit development and
                             implementation, which include tasks such as conducting medical review
                             of claims, developing LCDs, and analyzing the effectiveness of edits. In


                             29
                               PIMR’s calculation of savings accounts for $239 million in claims denials that were
                             subsequently reversed. Medicare requires that a denied claim be adjusted, rather than
                             resubmitted as a new claim, and PIMR captures data about payment amounts for adjusted
                             claims.
                             30
                               We analyzed MACs’ costs for specific tasks related to prepayment edits and medical
                             review, based on the most recent contract periods for which we had data at the time of our
                             analysis. These contract periods, which were almost always 1 year, ranged from a period
                             ending July 30, 2010, to one ending March 31, 2011, depending on the time frame for
                             each contract. Medicare Integrity Program (MIP) funds were used to pay the costs for the
                             tasks we included in our review. MIP was established to enhance efforts to address
                             Medicare’s vulnerabilities to fraud, waste, and abuse. Costs of various tasks in the MIP
                             category—which also includes provider outreach and education and coordination of
                             benefits—are paid with MIP funds. MACs are permitted to direct the MIP funds they
                             receive among these tasks but are not permitted to use MIP funds for tasks in other
                             categories. On average, the MIP category accounted for 30 percent of A/B MACs’ total
                             costs and 19 percent of DME MACs’ total costs in the most recent contract period.




                             Page 16                                            GAO-13-102 Medicare Prepayment Edits
                          addition, ARTS data do not include approximately $1.1 million in costs
                          incurred for another contractor to develop NCCI edits.


Wider Use of Automated    Our analysis of Medicare claims data, for which we selected five national
Edits Based on National   Medicare policies, found cases in which Medicare paid for services that
Policies Could Have       appeared to be inconsistent with its national coverage and coding
                          policies. Specifically, we found $14.7 million in payments from fiscal year
Prevented Some Improper   2010 that appeared to be inconsistent with four of the selected policies
Payments                  and therefore improper. 31 At least some of these payments that were
                          improper could have been prevented by prepayment edits. (See table 3.)
                          For each of the four policies, the steps we followed for our analysis also
                          could have been followed on a prepayment basis using automated edits
                          because the steps consisted of a review of only the procedure codes,
                          diagnosis codes, and quantities provided, all of which could be
                          determined prior to claim payment. (See app. I for a description of the
                          analytic approach.) For the remaining policy, we found no payments that
                          appeared to be inconsistent.




                          31
                            Our analysis used Medicare data on final action claims, which include detail about
                          disputes resolved and adjustments made up until the point when CMS finalized these data
                          in June 2011. However, CMS officials indicated that in fiscal year 2010 some claims might
                          have been adjusted after CMS finalized its data on these claims. According to CMS
                          officials, this was because the Affordable Care Act of 2010 mandated retroactive changes
                          to the physician fee schedule that required CMS to reprocess some adjudicated claims.
                          CMS officials said this reprocessing was not completed until December 2011.




                          Page 17                                           GAO-13-102 Medicare Prepayment Edits
Table 3: Payments for Claims That Appeared to Be Inconsistent with Selected
National Policies and Therefore Improper and That Could Have Been Identified
through Automated Edits, Fiscal Year 2010

                                Medicare payment
                                 amount identified
    Policy                     (dollars in millions) Description
    Medically Unlikely                        $8.6 Medicare limits service quantities that can
               a
    Edits (MUE)                                    be billed for the same beneficiary, on the
                                                   same day, by the same provider. We
                                                   identified payments where the quantity of
                                                   services was greater than those limits and
                                                   the claims did not include modifiers to
                                                   explain why the limit was exceeded.
    National coverage                          5.0 Medicare does not cover vagus nerve
    determination                                  stimulation, which involves delivering an
    (NCD) on vagus                                 electrical pulse to the brain, for treatment
    nerve stimulation                              of resistant depression. We identified paid
                                                   claims for vagus nerve stimulation where
                                                   depression was a diagnosis on the claim.
    NCD on ocular                              1.1 Medicare requires that OPT and
    photodynamic                                   verteporfin be delivered together as a
    therapy (OPT) and                              treatment for vision problems. Also, a
                      b
    NCD on verteporfin                             diagnostic test is required prior to
                                                   treatment. We identified paid claims where
                                                   OPT and verteporfin were not delivered on
                                                   the same day or the diagnostic test was
                                                   not performed.
    Total                                    $14.7
Source: GAO analysis of Medicare data.
a
 We analyzed only claims from noninstitutional providers of outpatient services, such as physician
services. In addition, we analyzed only MUEs for which CMS had published the service or item limits.
CMS does not publish the service or item limits for some MUEs designed to identify services or items
commonly billed fraudulently.
b
CMS issued separate NCDs for OPT and verteporfin.


We found that Medicare paid $8.6 million for claims that exceeded the
MUE quantity limits for a single beneficiary under most circumstances on
a single date of service. 32 By the beginning of fiscal year 2012, CMS had
established quantity limits for about 10,800 HCPCS codes for services




32
  CMS allows providers to use modifiers on claims in order to report units of service in
excess of an MUE limit to indicate that the provider deems it to be medically reasonable
and necessary. Our analysis does not include claims with modifiers.




Page 18                                                   GAO-13-102 Medicare Prepayment Edits
provided by physicians and other noninstitutional outpatient service
providers. 33

Claims can have multiple lines, with a single service claimed on each line.
MUEs look for excess quantities of services provided to a single
beneficiary by a single provider on each individual claim line. (See app. II
for an example of how excess quantities of services could be billed in a
way that avoids triggering an MUE.) Therefore providers still could be
paid for more than the maximum quantity specified under the policy if
quantities were divided among multiple lines on the same claim or among
multiple claims for the same beneficiary. When we analyzed claims using
the method actually applied by MUEs—in which each claim line was
analyzed independently—we found only about $400,000 in paid claims
that exceeded the MUE quantity limits. However, when we analyzed
claims using the quantity limits to identify payments for the same
beneficiary, same provider, and same date of service—whether on the
same claim line or multiple claim lines—we found $8.6 million in paid
claims that exceeded quantity limits. 34

We also found $6.1 million in payments that appeared to be inconsistent
with three selected NCDs and therefore improper. For a fourth NCD, we
did not find any payments that appeared to be inconsistent. Using one of
the three NCDs, which prohibits use of vagus nerve stimulation to treat
resistant depression, we found that Medicare paid about $5.0 million in
fiscal year 2010 for vagus nerve stimulation for claims with diagnoses for
depression. 35 In addition, using two NCDs that address a treatment for


33
  We analyzed claims using MUEs for approximately 8,900 HCPCS codes for claims from
noninstitutional providers of outpatient services for which CMS publishes quantity limits to
inform providers about correct coding practices. However, quantity limits are not published
for some MUEs that are intended to deter potential fraud or abuse. The contractor
responsible for creating MUEs reported that the proportion of unpublished MUEs has been
increasing and was about 15 percent of the MUEs in effect as of July 2012.
34
  The $8.6 million we identified represented payments for all quantities where the total
quantity for a single day exceeded the limits established by MUEs because MACs are
instructed to deny payment for the entire quantity when they identify it as exceeding the
MUE limit.
35
  The vagus nerve stimulation NCD covers a set of procedures in which an implanted
device delivers an electrical signal that travels through the vagus nerve to the brain. CMS
determined in 2007 that vagus nerve stimulation was not reasonable and necessary for
resistant depression. Our analysis was designed to mimic an automated edit used by at
least one MAC, which denies claims for vagus nerve stimulation procedures when a
diagnosis for depression is included on the claim.




Page 19                                             GAO-13-102 Medicare Prepayment Edits
                           age-related macular degeneration, we found $1.1 million in payments that
                           appeared to be improper. 36 These two related NCDs stipulate that this
                           macular degeneration treatment must use both ocular photodynamic
                           therapy (OPT) and the drug verteporfin together and that beneficiaries
                           must receive a diagnostic test prior to treatment. 37 The $1.1 million we
                           found was for claims for the therapy without the diagnostic test, the
                           therapy without the drug, or the drug without the therapy. We did not find
                           any payments that appeared to be inconsistent with the remaining NCD,
                           which establishes that Medicare does not cover lumbar artificial disc
                           replacement for beneficiaries older than age 60. 38


Wider Use of Edits Based   Our analysis of Medicare claims using three selected LCDs demonstrated
on MACs’ LCDs Could        the potential for increased savings. Variation in Medicare coverage and in
Have Led to Increased      the prepayment edits used to enforce coverage policy in different
                           geographic areas results in Medicare paying for services that are covered
Savings                    in some parts of the country but not others. We found that MACs other
                           than those whose LCDs we used as the basis for our analysis paid more
                           than $100 million for claims that were inconsistent with these three
                           LCDs. 39 (See table 4.) These payments cannot necessarily be classified
                           as improper because other MACs may not have had a similar LCD in
                           place. 40 However, variation in coverage among MACs can result in
                           greater or lesser use of services in some jurisdictions than in others.


                           36
                             Age-related macular degeneration is a condition in which vision is impaired as a result of
                           damage to the retina.
                           37
                             Claims data from Medicare Part B would not have information about diagnostic tests that
                           beneficiaries received prior to enrolling in Medicare or while enrolled in a Medicare
                           managed care plan. Treatment with OPT and verteporfin should begin within 1 week of
                           the fluorescein angiogram on which the clinical decision to treat is based, according to an
                           expert panel convened by the distributors of verteporfin with input from representatives of
                           relevant medical organizations.
                           38
                             In addition to providing health care insurance for individuals 65 and older, Medicare also
                           covers health care services for individuals with certain types of disabilities regardless of
                           age.
                           39
                              This does not mean that Medicare would have saved the entire amount we identified if
                           automated edits based on these policies had been in place nationwide. One reason is that
                           if all MACs had used automated edits to prevent payment for the issues we reviewed,
                           medical providers might have substituted different treatments that would have been
                           covered by Medicare or might have been able to appropriately code their claims in ways
                           that conformed with the policies.
                           40
                            For each LCD analyzed, we excluded results from the MAC that issued the policy.




                           Page 20                                             GAO-13-102 Medicare Prepayment Edits
Although greater use of services does not necessarily reflect overuse,
leading health care experts have noted that overuse of services is a
significant problem that has led to increased health care spending,
including in the Medicare program. More widespread use of automated
edits that some MACs found to be among their most effective at
identifying claims for services that they do not consider reasonable and
necessary could have led to more consistent coverage throughout the
country and therefore to savings for the Medicare program as a whole.

Table 4: Payments for Claims That Were Inconsistent with Selected Local Coverage
Determinations (LCD) Issued by Medicare Administrative Contractors (MAC), Fiscal
Year 2010

                                         Amount
                                       identified
                                         (dollars
                                                a
    Policy                          in millions) Description
    LCD on monitored                         $68.7 Monitored anesthesia care, which involves
    anesthesia care                                monitoring patients’ vital physiological functions
                                                   while they are under anesthesia, was covered
                                                   by a MAC only for specified diagnoses. We
                                                   identified claims in other MAC jurisdictions that
                                                   did not contain any of the diagnoses required by
                                                   the MAC with the policy.
    LCD on parathormone                       30.9 A parathyroid hormone test was covered by a
                                                   MAC only for specified diagnoses, such as
                                                   chronic renal disease, vitamin deficiencies, or
                                                   osteoporosis. The policy limited coverage to one
                                                   test per day, under most circumstances. We
                                                   identified claims in other MAC jurisdictions that
                                                   did not contain any of the diagnoses required by
                                                   the MAC with the policy and claims that
                                                   exceeded limits on daily quantities.
                                                 b
    LCD on noninvasive                        4.5    These services, which involve identifying
    cerebrovascular studies                          potential problems in the structure of, or flow of
                                                     blood in, the carotid artery, were covered by a
                                                     MAC only for certain specified diagnoses. We
                                                     identified claims in other MAC jurisdictions that
                                                     did not contain any of the diagnoses required by
                                                     the MAC with the policy.
    Total                                   $104.1
Source: GAO analysis of CMS and MAC data.

Notes: Data are from Medicare claims, CMS Medicare Coverage Database, and MAC-supplied data
about automated edits.
These LCDs do not conflict with national coverage policy.
a
For each LCD analyzed, we excluded results from the MAC that issued the policy.
b
 We analyzed only claims from noninstitutional providers of outpatient services, such as physician
services, because the MAC whose policy we used applies an automated edit only to those claims for
this policy.



Page 21                                                        GAO-13-102 Medicare Prepayment Edits
                         In our analysis, we found about $68.7 million in payments for monitored
                         anesthesia care that were made by MACs other than the MAC whose
                         LCD we used as the basis for this analysis. 41 The LCD specified the
                         diagnoses for which monitored anesthesia care would be covered by
                         Medicare in the MAC’s jurisdiction. The MAC whose LCD we used for this
                         analysis had implemented an automated edit to identify claims that lacked
                         one of the required diagnoses. In addition, we found about $30.9 million
                         in payments for claims for a test of parathyroid hormone levels that was
                         performed more than once per day or lacked one of the diagnoses
                         required by the MAC whose LCD we used. The LCD identified a set of
                         diagnoses for which a parathormone test would be covered as medically
                         necessary and generally prohibited coverage for more than one service
                         per day. 42 Medicare payments in 2 of the 15 MAC jurisdictions made up
                         about half—$17.1 million—of the payments we identified as inconsistent
                         with the parathormone LCD. Finally, we found about $4.5 million in
                         payments in fiscal year 2010 that were inconsistent with an LCD covering
                         tests to measure blood flow to the brain. The claims we found did not
                         contain any of the diagnoses required by that LCD.


                         CMS has three processes for identifying the need for, and implementing,
CMS’s Processes for      prepayment edits based on national policies: (1) the NCCI process;
Identifying Needs for,   (2) the Vulnerability Tracking Corrective Action Process; and (3) the NCD
                         process. The designs of these processes have steps consistent with our
and Implementing,        internal control standards. However, they also have weaknesses that
Prepayment Edits         hinder their effectiveness in preventing improper payments.
Based on National
Policies Have
Weaknesses




                         41
                           Monitored anesthesia care involves active monitoring of patients under the influence of a
                         local anesthetic.
                         42
                           Parathyroid hormone is produced by the parathyroid gland, and its benefits include
                         facilitating the absorption of calcium. The MAC policy we used excluded one diagnosis
                         from the one-per-day limit, and our analysis also applied this exception.




                         Page 22                                            GAO-13-102 Medicare Prepayment Edits
CMS’s NCCI Process to     The NCCI process, which CMS initiated in 1996, aims to reduce
Develop Code-Pair Edits   inappropriate payments through the development and implementation of
and MUEs Adheres to       automated edits that deny certain types of improperly coded claims. The
                          NCCI process develops two types of edits. Code-pair edits are designed
Some Internal Control     to result in denial of claims for services to a beneficiary with pairs of
Standards but Has         codes that should not be billed together. MUEs are designed to result in
Weaknesses                denial of claims with units of service that exceed the maximum number a
                          provider would bill under most circumstances.

                          The first step outlined in the NCCI process—in which CMS identifies risks
                          that can be addressed with NCCI edits—is consistent with our risk
                          assessment internal control standard that calls for agencies to identify
                          risks comprehensively using various methods. To identify the need for an
                          NCCI edit, CMS’s NCCI contractor reviews information from a variety of
                          sources, including MAC medical directors, publications of national health
                          care organizations, new laws and regulations, and annual changes in
                          procedure codes. In general, the NCCI contractor staff told us that they
                          propose a code-pair edit whenever they identify a procedure or item
                          where proper payment could be enhanced, irrespective of the size of the
                          potential vulnerability. However, CMS guidance indicates that the
                          magnitude of potential program vulnerability is one possible rationale for
                          setting an MUE at a particular level.

                          CMS has procedures for deciding whether to implement an NCCI edit,
                          consistent with our risk assessment standard that calls for deciding on
                          appropriate corrective actions. To help CMS determine whether an NCCI
                          edit might be appropriate, the NCCI contractor reviews CMS policy,
                          standards of medical and surgical practice, current coding practice, and
                          provider billing patterns. The contractor then presents information on
                          proposed edits in regular meetings with senior-level CMS staff assigned
                          to NCCI workgroups, who then decide whether to implement proposed
                          edits. 43 CMS generally provides a review and comment period before
                          implementing edits to allow for input from representative national
                          organizations that may be affected by the edits. CMS considers the
                          comments when it makes its final decision about implementing an edit,
                          but does not necessarily decide against an edit because of adverse
                          comments.



                          43
                            CMS staff can also decide separately from the workgroup to take other corrective
                          actions, such as educating specialty societies or individual providers about coding policy.




                          Page 23                                             GAO-13-102 Medicare Prepayment Edits
CMS implements NCCI edits on a regular timeline, consistent with our
monitoring standard that calls for taking action within established time
frames. The NCCI contractor provides a file of new and revised edits to
CMS on a quarterly basis. The contractors then download this file from
CMS’s Data Mover to integrate it into the claims payment systems. 44
Representatives of MACs we contacted said they receive the edit files in
a timely manner.

CMS has procedures in place to determine whether NCCI edits are
operating as intended before applying the edits in processing claims.
Prior to submitting the edit files to CMS, the NCCI contractor performs a
series of quality control checks to ensure that the edits are operating
correctly. Representatives of the MACs we contacted said they also test
these edits to ensure they are operating correctly within the shared
systems.

However, the MUE edits are not working to enforce the MUE limits
because of how they are structured. Thus, this monitoring step does not
meet our standard that calls for agencies to assess whether internal
controls are functioning properly. As noted above, MUEs are structured to
identify each claim line in which units of service exceed the MUE limit,
and do not identify excess units billed across multiple claim lines. 45 As a
result, we identified about $8.2 million in Medicare payments in fiscal year
2010 for quantities of services that exceeded published MUE limits but
were not identified by MUEs because the excess amounts were billed
across multiple claim lines. 46 The NCCI contractor recognized this
weakness in the MUEs and recently recommended to CMS that MUEs be
restructured so that they are applied against all claims reported for a
single date of service rather than against each line of a claim.

Finally, the process for developing NCCI edits is adequately documented,
consistent with our control activities standard that calls for agencies to
develop written policies and procedures for their activities. CMS has


44
  CMS also publishes on its website the codes with service limits used for most of the
edits, although some MUE thresholds are confidential. The agency provides public
information so that providers can bill properly.
45
  The specific weakness we found for MUEs does not apply to code-pair edits because
code-pair edits do not address quantity limits.
46
  In addition, we found about $400,000 in payments where the published MUE limits were
exceeded on a single claim line.




Page 24                                            GAO-13-102 Medicare Prepayment Edits
                            documented its processes for NCCI edits in a policy manual that explains
                            the rationale for these edits and how edit decisions are made. The
                            document is updated annually and is available to the public on the CMS
                            website.


CMS’s Vulnerability         CMS’s Vulnerability Tracking Corrective Action Process (Vulnerability
Tracking Process Lacks      Tracking) began in November 2008 and is still evolving, according to
Time Frames for, and        agency officials. It was originally developed to track vulnerabilities
                            identified by the RACs and corrective actions taken, but it has expanded
Assessment of, Corrective   to include vulnerabilities identified through other means. CMS can decide
Actions                     to address these vulnerabilities with prepayment edits or with other types
                            of corrective actions.

                            To identify risks associated with vulnerabilities to improper payments,
                            CMS has designed a process that calls for analyzing several sources of
                            information, an approach consistent with our risk assessment standard
                            that calls for comprehensively identifying risks. CMS staff analyze
                            available data—such as CERT data and data on improper payments
                            identified by RACs and other CMS contractors—in order to identify
                            potential vulnerabilities and determine whether they are actual
                            vulnerabilities. CMS staff then assess the risks posed by these
                            vulnerabilities and prioritize them for corrective action based on five
                            criteria: (1) the associated CERT error rate; (2) whether the vulnerability
                            has been identified by RACs as a “major finding,” meaning a vulnerability
                            for which more than $500,000 was identified for recoupment; (3) overall
                            financial effect; (4) geographic effect and scope; and (5) political and
                            media sensitivity. 47

                            Although the application of criteria to prioritize vulnerabilities is a strength
                            of CMS’s process, we found a weakness in how CMS analyzes RAC data
                            to identify vulnerabilities to prioritize for correction through edits or other
                            actions. When setting the threshold to determine whether a RAC-
                            identified vulnerability should be considered a major finding, CMS
                            considers only the amount identified by each RAC and does not
                            aggregate the amounts across all RACs that have identified similar
                            vulnerabilities and may not consider thoroughly the potential national



                            47
                             CMS officials told us that they prioritize vulnerabilities in order to reduce to a
                            manageable number the vulnerabilities to be addressed.




                            Page 25                                               GAO-13-102 Medicare Prepayment Edits
scope of vulnerabilities that one or two RACs are pursuing. CMS officials
told us they do not routinely review information on RAC-identified
vulnerabilities under the $500,000 threshold. As a result, CMS can leave
vulnerabilities unaddressed, some of which could be addressed with
prepayment edits. For example, as of December 2011, the four RACs had
identified a total of about $503,000 in improper payments for claims for
the services of clinical social workers provided during inpatient stays.
Because this amount was not identified by a single RAC, this would not
meet the definition of a major finding. CMS also does not take into
account the period over which the RACs identified the improper
payments.

CMS has designed procedures for determining what actions will be taken
to address vulnerabilities, including prepayment edits, which is consistent
with our risk assessment standard that calls for deciding on appropriate
corrective actions to address risks. The agency has assembled a
Corrective Action Development Team, which meets weekly to review
analyses on prioritized vulnerabilities and to propose corrective actions to
leadership in the CMS Provider Compliance Group, which is responsible
for vulnerability tracking. The Provider Compliance Group can develop
edits or take other corrective actions such as publishing provider
education articles, referring vulnerabilities to other CMS components, or
referring vulnerabilities to the MACs to be addressed at the local level. 48
CMS officials in the Provider Compliance Group told us they had
developed at least three edits as part of the Vulnerability Tracking
process to address identified vulnerabilities, and were in the process of
developing edits to address at least 10 other vulnerabilities identified by
the RACs.

CMS has not specified time frames for implementing all corrective
actions, contrary to our monitoring standard that calls for taking corrective
action within established time frames. CMS officials explained that they
have not done so because the time involved can vary from a few days to
several months, depending on the work involved in determining and
implementing the appropriate action. For example, CMS officials told us
that staff may conduct research to determine whether local and national
edits have already been implemented to address the vulnerability in
question. But CMS has not established planned time frames for


48
 CMS officials told us that MACs can develop and input local edits more quickly than
CMS can national edits, so they sometimes prefer to have MACs input edits.




Page 26                                           GAO-13-102 Medicare Prepayment Edits
addressing each vulnerability once the agency has determined the type of
corrective action needed. 49 Also, as recently reported by the HHS Office
of Inspector General (OIG), the Provider Compliance Group has not
established procedures or time frames for following up with other CMS
components to which it has referred vulnerabilities, to ensure that
vulnerabilities have been resolved. 50

CMS has not obtained information to assess whether all of its edits and
other corrective actions taken through its Vulnerability Tracking Process
are functioning properly, contrary to our monitoring standard. However,
CMS does test edits before implementation and has assessed the effects
of some edits and other corrective actions. According to CMS officials, all
edits CMS develops centrally are implemented through the change
management process, which includes testing prior to implementation to
ensure they are working as intended. With respect to other types of
corrective actions, CMS officials told us they gathered and analyzed data
to assess two corrective actions to see if the actions were having the
intended effects and have plans to conduct similar data analyses to
assess others 18 to 24 months after implementation, when their effects
will be more evident. However, CMS officials said they do not have the
resources to monitor the results of all edits or other corrective actions
themselves and that, depending on the risk to the program, the agency
may rely on information from other entities, such as reports from RACs,
the CERT contractor, or the HHS OIG. While information from these
entities can be useful, our standard on monitoring calls for routine
monitoring that assesses the effectiveness of control activities, which
CMS managers told us they are not doing. CMS officials indicated that
better data on the effects of edits will be available when the agency
replaces its PIMR database.



49
  The agency has established time frames for some phases in the implementation of
corrective actions. For example, once CMS decides that a national edit is the appropriate
corrective action, it develops a change request, which establishes a timeline for its
contractors to implement the edit and identifies the entities responsible for key tasks. CMS
officials told us that developing and implementing an edit through change requests can
take at least 9 months.
50
  In its comments on the OIG report, CMS stated that the agency can establish time
frames for resolution on a case-by-case basis, but that establishing standard time frames
is difficult. In response, the OIG indicated that the agency could establish standard
intervals for follow-up with other components. See HHS, Office of Inspector General,
Addressing Vulnerabilities Reported by Medicare Benefit Integrity Contractors,
OEI-03-10-00500 (Washington, D.C.: 2011).




Page 27                                             GAO-13-102 Medicare Prepayment Edits
                           CMS has developed preliminary documentation of the Vulnerability
                           Tracking Process, but the documentation is incomplete and therefore
                           inconsistent with our control activities standard with respect to
                           documentation, which calls for agencies to develop written policies and
                           procedures for their activities. CMS’s documentation specifies roles and
                           responsibilities for CMS teams, identifies sources of information about
                           potential vulnerabilities, specifies criteria for prioritizing vulnerabilities for
                           corrective action, 51 and lists possible corrective actions. The document
                           also lists monitoring of corrective action plans as a responsibility of CMS
                           staff and mentions assessing billing and payment trends as a monitoring
                           strategy. However, this documentation does not establish time frames for
                           monitoring corrective actions, as the HHS OIG also reported. In addition,
                           it does not outline required steps to take if the corrective action is not
                           working as intended.


CMS’s Process for          According to CMS officials, there are procedures in place for agency staff
Implementing Edits Based   to decide whether to implement an edit based on an NCD. As described
on NCDs May Have Led to    by CMS officials, this process for determining whether to implement an
                           edit based on an NCD is consistent with our risk assessment standard
the Inconsistent           that calls for deciding on appropriate corrective actions. CMS develops
Application of National    NCDs to describe the circumstances under which Medicare covers
Policies and Lacks         certain services. CMS officials told us that, when feasible, CMS develops
Assessment and             and implements edits to enforce the policy behind the NCD to ensure that
Documentation              claims that do not follow the policy are not paid. According to CMS
                           officials, when the agency develops an NCD, staff in the CMS component
                           responsible for policy development consult with staff in the component
                           responsible for provider billing to determine whether an automated edit
                           can be developed. However, CMS officials could not confirm that such
                           consideration was consistently given in the past. Although agency officials
                           told us they had separate documentation on each of the edits
                           implemented based on an NCD, the agency has not assembled that
                           information. Therefore, CMS could not readily provide information about
                           all of its edits based on NCDs, or all of the NCDs for which there are
                           associated edits. If CMS determines that an automated edit based on the
                           NCD is not possible—for example, because certain aspects of the NCD
                           are not specific or because the necessary procedure and diagnosis codes



                           51
                             Two of the criteria have specific dollar amounts to determine whether a vulnerability
                           should be categorized as high, medium, or low risk.




                           Page 28                                             GAO-13-102 Medicare Prepayment Edits
do not exit 52—CMS assigns MACs the responsibility of ensuring that they
process claims in conformance with the policy. 53

Some aspects of the agency’s approach to implementing edits based on
NCDs are consistent with our standard that calls for taking action within
established time frames, but other aspects have weaknesses. If CMS
determines that an automated edit based on the NCD is possible, the edit
is generally implemented through a change request, which calls for
central implementation and follows documented procedures and specific
time frames. However, for some edits, CMS has assigned responsibility to
MACs to independently program and integrate the edits into the shared
systems. CMS officials told us that they have sometimes assigned
responsibility to MACs because there is a queue for implementing system
changes at the national level, and in some cases MACs can implement
edits more quickly. CMS officials acknowledged that having multiple
MACs program some edits based on NCDs may have led to inconsistent
implementation of national coverage policy. CMS officials also noted that
this approach creates more work than necessary for MACs, particularly
because each MAC must update the edits regularly to reflect coding
changes, which can lead to additional inconsistencies. Our claims
analysis found instances where inconsistent implementation of NCDs
may have led to improper payments. As we reported earlier, we found
about $6.1 million in payments in fiscal year 2010 that appeared to be
inconsistent with three NCDs we selected for analysis.

CMS officials told us that the agency is considering steps to address
inconsistent implementation of NCD-based edits by assessing whether
the agency can implement centrally all automated prepayment edits
based on NCDs. CMS is working with a contractor to update coding for
NCDs as part of the transition to the International Classification of




52
  For example, one CMS official told us that CMS had developed an NCD for a certain
drug but could not develop an edit because the specific diagnosis codes needed to
describe some of the conditions that the drug was designed to treat did not exist.
53
  If CMS cannot develop an automated edit, MACs have the authority to ensure
compliance by manually reviewing selected claims. In other instances, MACs may build on
the NCD with a more specific LCD on which an automated edit can be based.




Page 29                                          GAO-13-102 Medicare Prepayment Edits
Diseases 10th Edition (ICD-10). 54 As part of this transition, the contractor
has begun to inventory the edits based on NCDs. The contractor will also
consider whether automated prepayment edits could be developed and
implemented centrally for NCDs that do not currently have them. CMS
officials also told us that centrally coding edits based on NCDs will help
ease MAC workloads.

CMS tests edits based on NCDs before implementation to ensure they
are working as intended, but the agency does not assess the effects of
these edits thereafter, contrary to our monitoring standard that calls for
agencies to assess whether internal controls are functioning properly.
CMS officials told us the shared systems maintainers test edits prior to
implementation, and the MACs subsequently test the edits as well.
However, according to CMS officials in both components responsible for
NCD-based edits, neither component monitors the effects of these edits
nor tracks savings information.

CMS officials did not provide any written guidance outlining the decision-
making process they described to us, contrary to our control activities
standard that calls for agencies to develop written policies and
procedures for their activities. They also did not provide documentation
that the process has been followed for each NCD developed recently.




54
  ICD-10 is a set of codes used for reporting diagnoses in treatment settings and
procedures in inpatient hospital settings. HHS originally intended to implement ICD-10
codes in October 2013 to replace ICD-9, which is the current edition. However, the agency
recently announced it would delay implementation until October 2014 to respond to
provider concerns about the administrative burden related to the change. According to
CMS, ICD-10 codes will allow for greater clinical detail and specificity in describing
diagnoses and procedures.




Page 30                                           GAO-13-102 Medicare Prepayment Edits
                              CMS informs MACs about program vulnerabilities that could be
CMS Informs MACs              addressed through local prepayment edits and about the varying
about Some                    coverage policies MACs have implemented in their jurisdictions, but the
                              agency does not systematically compile and disseminate information
Vulnerabilities That          about effective local edits. To oversee MACs’ efforts to address
Could Be Addressed            vulnerabilities, which include implementation of edits, CMS requires
through Local Edits           MACs to report on plans to address specific vulnerabilities and examines
                              some of these reports as part of performance reviews. In fiscal year 2011,
but Provides                  CMS increased the funding allocated to MACs for medical review
Relatively Small              activities by 12 percent. 55 However, the agency provided relatively small
                              financial incentives in the form of award fees to motivate MACs to make
Financial Incentives          more effective use of prepayment edits.
to Promote Their Use
CMS Provides Information      CMS provides information to MACs about some program vulnerabilities
about Some Vulnerabilities    that could be addressed through prepayment edits. The agency also
but Does Not                  provides some information about local coverage policies, but little about
                              effective prepayment edits and the policies on which they are based.
Systematically
Disseminate Information       Vulnerabilities. CMS disseminates information to MACs about program
about Effective Local Edits   vulnerabilities through several channels. One key channel is the agency’s
                              regular reports identifying vulnerabilities. For example, CMS publishes
                              midyear and annual reports on improper payments identified by CERT
                              and also makes CERT data available to MACs to conduct their own
                              analyses. Other data CMS makes available include the Part B National
                              Summary Data file, which MACs can use to compare the utilization rates
                              of providers in their jurisdiction to national rates, to detect potentially
                              aberrant billing patterns. In addition, CMS facilitates regular conference
                              calls and meetings with MACs at which vulnerabilities are discussed. For
                              example, CMS leads three conference calls per month, each focusing on
                              a different type of claim, in which MACs can obtain information from
                              RACs about vulnerabilities these other contractors have identified in their
                              analyses of paid claims. CMS also sponsors two annual meetings for A/B
                              MAC staff—one for medical directors and another for medical review
                              managers—and similar meetings for DME MAC staff, at which
                              vulnerabilities may be discussed.



                              55
                                The funding increase was for fiscal intermediaries and carriers as well as MACs. As
                              noted earlier, we use the term MAC to refer to all claims administration contractors, except
                              where specifically noted.




                              Page 31                                             GAO-13-102 Medicare Prepayment Edits
Local coverage policies. CMS facilitates information sharing about local
coverage policies through regular conference calls and national meetings
two to three times per year. CMS also maintains a public web-based
Medicare Coverage Database that contains detailed information about
both NCDs and LCDs. MACs considering changes to local coverage
policy can search the database for information about related NCDs or
LCDs. Some of the LCD descriptions contain enough information,
including diagnosis and procedure codes, to give an idea of the edits that
may have been implemented to enforce them. However, the LCD
descriptions do not indicate whether those edits have actually been
implemented or provide any measure of the effectiveness of those that
have.

Prepayment edits. Although CMS facilitates limited and generally
informal information sharing among MACs about their prepayment edits,
the agency does not systematically compile and disseminate information
about effective edits. Such information would include information about
the national or local coverage policies on which the edits are based and
the savings they have generated. CMS requires MACs to analyze the
effectiveness of each of their edits—quarterly for manual edits and
annually for automated edits—but does not require MACs to report this
information to the agency. 56 Although CMS may examine MACs’
documentation of these analyses as part of broader reviews, it does not
compile or analyze the data across MACs. Representatives of one of the
MACs we contacted said that if a vulnerability were widespread, CMS
might ask a MAC that had successfully addressed it to present
information about its edit and associated savings to other MACs during a
regularly scheduled conference call or national meeting. However,
representatives of another MAC noted that sharing of information about
edits typically occurred in informal exchanges among MACs at national
meetings and did not include information about savings.

CMS lacks a complete and centralized source of information on the most
effective local edits that could facilitate information sharing. The PIMR
database was established by CMS specifically to compile information
about the edits implemented by claims administration contractors and to


56
  Depending on the type of edit, CMS instructs MACs to evaluate the effectiveness of their
edits based on such factors as denial rates; time and staff needed for review, including
appeals reviews; changes in provider behavior; and the presence of potentially more
costly vulnerabilities than those addressed by the edit.




Page 32                                            GAO-13-102 Medicare Prepayment Edits
                              collect savings and cost data to assess the edits’ effectiveness. However,
                              CMS officials reported that the database has not served that purpose
                              since MACs began processing claims, in part because MACs’ cost data
                              are collected in a system that does not link to PIMR. In addition, PIMR
                              lacks descriptions of many edits, which MACs must enter manually, and,
                              according to CMS officials, it has other flaws that significantly limit its
                              usefulness as a tool for identifying effective edits. 57 CMS contracted with
                              a consultant to evaluate the system and make recommendations for an
                              upgrade or replacement. CMS received these recommendations in
                              January 2012, but agency officials we interviewed could not say if or
                              when HHS would approve the funding for a new system. CMS officials
                              said the agency will stop using the PIMR database in July 2012. Until a
                              new database is in place, the agency will continue using a manual data
                              collection process initiated in September 2011, in which staff compile in a
                              spreadsheet information from MACs about the number of claims denied
                              and dollars saved each month by different types of edits, including
                              automated and manual prepayment edits.


CMS’s Oversight of Edit       CMS provides oversight of MACs’ use of prepayment edits primarily
Use Relies Partly on MACs’    through its review of certain MAC reports, through annual QASP reviews,
Reports on Their Efforts to   and, most recently, through directives requiring the MACs to explain
                              whether and how they have addressed certain vulnerabilities specified by
Address Specific              CMS.
Vulnerabilities
                              CMS review of MAC reports. CMS requires MACs to submit several
                              types of reports that include partial information about their use of
                              prepayment edits. These reports include annual medical review strategies
                              and monthly status reports: 58

                              •    Medical review strategies. As directed by CMS, the central element of
                                   each MAC’s annual medical review strategy is a prioritized list of the
                                   specific vulnerabilities the MAC has deemed most critical to address



                              57
                                CMS officials reported that some data were duplicated and that codes distinguishing the
                              different types of edits and their status, as active or inactive, were unreliable.
                              58
                                MACs are also required to submit midyear updates to their medical review strategies
                              describing progress made and any changes in strategy. In addition, MACs are required to
                              submit error rate reduction plans and midyear updates, discussing the reasons for the
                              errors identified in their jurisdictions in the most recent CERT report and identifying
                              processes that could be improved to reduce these errors.




                              Page 33                                            GAO-13-102 Medicare Prepayment Edits
     and a description of plans to address them, which may include
     implementation of prepayments edits or other efforts, such as provider
     education. The strategy must also indicate the data analyses the MAC
     conducted, describe methods for assessing the effectiveness of
     planned interventions, and explain how the work will be managed,
     staffed, and budgeted. CMS assigns two staff members—one with
     expertise in medical review and another, generally from a CMS
     regional office, with broader responsibility for monitoring a MAC’s
     performance—to review each MAC’s medical review strategy. 59 In
     addition, according to CMS officials, the CMS group responsible for
     medical review began in 2011 to conduct what they intend to be
     annual conference calls with each MAC to discuss its medical review
     strategy. Representatives of two MACs we contacted said that CMS
     has sometimes requested revisions to their medical review
     strategies—for example, to provide more detail about certain aspects
     of their plans.

•    Monthly status reports. CMS requires MACs to submit monthly status
     reports to inform the agency of problems and risks encountered
     during the review period and actions taken to address them, which
     may include implementation of new local coverage policies or
     prepayment edits. 60 These reports are reviewed by multiple CMS staff
     members with expertise in the different functional areas covered by
     the reports and discussed in monthly conference calls with each MAC.

These reports are designed to provide CMS with information about
prepayment edits MACs have implemented to address or explore specific
vulnerabilities or potential vulnerabilities, but not to provide a
comprehensive overview of MACs’ use of prepayment edits. For example,
in their medical review strategies, MACs commonly described plans to
conduct probe reviews—reviews of a representative sample of claims that
have been flagged by manual edits—which are designed to determine the
nature and extent of vulnerabilities in order to develop appropriate
interventions. Although the protocols for some of these reports call for


59
  These reviewers advise the CMS contracting officer as to any clarifications needed and
ultimately whether to accept a report or request revisions. In general, according to CMS’s
MAC Contract Administration Guide, a report is acceptable if it is submitted in the proper
format and contains the required information as identified in the MAC statement of work
and any relevant CMS policy documents.
60
  LCDs and medical review are 2 of the 14 functional areas that must be addressed in the
A/B MACs’ monthly status reports and may be discussed in DME MACs’ reports.




Page 34                                             GAO-13-102 Medicare Prepayment Edits
MACs to describe their active manual edits, they do not call for MACs to
describe or document the effectiveness of all the edits they have
implemented or to identify their most effective edits.

QASP reviews. CMS also oversees MACs’ use of prepayment edits
through QASP reviews, but these reviews include a greater number of
standards related to other aspects of MACs’ performance, such as
financial management. CMS selects the standards to include in each
MAC’s review based in part on areas of concern in each MAC’s
performance. The number of QASP standards focused on a particular
performance area is significant because MACs’ eligibility for award fees
depends partly on the percentage of QASP metrics passed. Specifically,
for a MAC to be eligible for award fees, it must have a rating of
satisfactory or better in all categories in which it was rated that year in the
Contractor Performance Assessment Reporting System. 61 Recent QASP
reviews have included relatively few performance standards related to
medical review—the one performance area that focuses on prepayment
edits and associated review of claims—compared with the number related
to other aspects of MACs’ performance. (See fig. 1.) QASP reviews of
A/B MACs typically included two standards related to medical review—
one focused on MACs’ strategies for this review and the other on their
handling of skilled nursing facility demand bills. 62 QASP reviews of DME
MACs typically included only one standard focused on medical review
strategies. Although the agency developed a third medical review QASP
standard, focused on CERT rates, CMS officials told us the agency has
rarely used it because of recent revisions to the CERT methodology.




61
  This system is designed to collect information about contractors’ past performance.
CMS assesses a MAC’s performance in the Quality of Product or Service category based
in part on the percentage of QASP standards passed.
62
  Skilled nursing facility demand bills are bills submitted by a skilled nursing facility at a
beneficiary’s request because the beneficiary disputes the provider’s opinion that the bill
will not be paid by Medicare and requests that the bill be submitted for a payment
determination. MACs are required to review all skilled nursing facility demand bills from
beneficiaries eligible for these services.




Page 35                                                GAO-13-102 Medicare Prepayment Edits
Figure 1: Average Number of Quality Assurance Surveillance Plan (QASP)
Standards Used by CMS to Evaluate A/B and DME Medicare Administrative
Contractors’ (MAC) Performance in Most Recent Reviews




Notes: We defined the fiscal year of the QASP reviews based on the end date of the period under
review. Depending on the MAC, the most recent review conducted at the time we obtained data from
CMS was in fiscal year 2010 or 2011.
a
The DME MACs do not conduct activities in this performance area.


The QASP review of MACs’ medical review strategy is extensive, but is
not designed to evaluate the extent to which MACs are employing
effective edits. The protocol for this standard calls for reviewers to
evaluate the medical review strategy and related documentation,
including sample manual reviews, on more than a dozen dimensions,
including whether the MAC used the corrective action process specified
by CMS. However, because the medical review strategy is not intended to


Page 36                                                GAO-13-102 Medicare Prepayment Edits
provide a comprehensive overview of a MAC’s use of prepayment edits,
this standard cannot be used to evaluate the extent to which a MAC has
implemented effective prepayment edits. In addition, while reviewers are
expected to assess whether the MAC used a variety of data sources,
including CERT, to support its medical review activities, they are not
expected to assess whether the MAC’s data analyses were adequate to
identify the greatest program vulnerabilities.

Review of MACs’ responses to CMS directives regarding specific
vulnerabilities. In January 2011, CMS began requiring MACs to report
quarterly on how they had addressed or planned to address certain
vulnerabilities identified by the agency based on information from RACs,
CERT, audits by the HHS OIG, and other sources. For at least one
vulnerability, CMS directed MACs to consider implementing an edit, such
as an edit to address high rates of outpatient therapy services, but did not
require them to do so. In other cases, MACs reported that they had
implemented an edit based on the analysis they had conducted at CMS’s
direction. 63 This new oversight represents a positive effort by CMS to
direct MACs’ attention to vulnerabilities identified as high priority by the
agency through its synthesis of information from multiple data sources,
and to gather information from MACs both about the extent of each
vulnerability in their jurisdictions and about the corrective actions they
have taken. As of December 2011, CMS had issued four quarterly
directives, each of which listed one to nine vulnerabilities. The agency
had not yet established a process to analyze MACs’ responses or to
disseminate information about corrective actions that appear promising,
but agency officials indicated that they intend to track MACs’ responses.
MAC representatives we interviewed in September 2011 said they had
not yet received any feedback from CMS about the quarterly reports they
submitted in April and June.




63
  In some cases, MACs reported that they already had a prepayment edit in place to
address a vulnerability.




Page 37                                           GAO-13-102 Medicare Prepayment Edits
CMS Provides Relatively      In fiscal year 2011, CMS increased the funding allocated to MACs for
Small Financial Incentives   medical review activities by 12 percent, to $147 million. 64 Overall funding
to Promote Use of            for the Medicare Integrity Program (MIP), which supports these activities,
                             increased by less (9.3 percent) over this period. CMS officials stated that
Effective Prepayment
                             the agency had made a concerted effort to target some of the additional
Edits                        MIP funding to contractors’ medical review activities.

                             However, CMS provided relatively small financial incentives for MACs to
                             exceed contract requirements related to medical review activities,
                             including prepayment edits. In the most recent contract periods for which
                             we had data, award fees represented 1 to 5 percent of the total value of
                             MACs’ contracts. 65 In fiscal year 2011, award fees allocated to the one
                             performance area most directly related to MACs’ use of prepayment edits
                             and medical review—the CERT area, which included one performance
                             metric focused on payment error rates—accounted for 3 percent or less
                             of the award fee pool for any MAC. 66 (See table 5.) The CERT metric is
                             designed to motivate MACs to meet CMS’s national error rate goal and to
                             reduce their error rate from the prior year. One way that MACs can make
                             progress toward these goals is through use of effective prepayment edits
                             and medical review, although the error rate is also influenced by other
                             factors. 67




                             64
                               For fiscal years 2008 through 2010, the funding provided by CMS to support medical
                             review activities by MACs and other claims administration contractors was fairly flat, at
                             about $132 million per year. All funding amounts are in inflation-adjusted 2012 dollars.
                             65
                               These contract periods, which were almost always 1 year, ranged from a period ending
                             July 30, 2010, to one ending March 31, 2011, depending on the time frame for each
                             contract. The award fee percentage varied in part because the MAC contracts included
                             different allocations between award fees and base fees as a result of contract negotiations
                             with different MACs. For the same contract years, tasks directly related to prepayment
                             edits and medical review, including development of LCDs, accounted for about 10 percent
                             of MACs’ costs.
                             66
                               Award fee dollars allocated to the CERT metric ranged from about $20,000 to about
                             $82,000—out of total award fees ranging from $1 million to $3.2 million—for those MACs
                             whose award fee plans included the metric in fiscal year 2011.
                             67
                               Among these other factors are how responsive providers are to the CERT contractor’s
                             request for medical records supporting the claims selected for review. When medical
                             records are not submitted by the provider, the CERT contractor classifies the selected
                             claim as a “no documentation claim” and counts it as an error.




                             Page 38                                              GAO-13-102 Medicare Prepayment Edits
Table 5: Percentage of A/B Medicare Administrative Contractor (MAC) Award Fees
Allocated to Specified Performance Areas, Fiscal Year 2011

 Percentage
 Performance area                                                     Minimum             Maximum
 Contract administration                                                      30                   41
 Appeals                                                                      14                   18
 Provider customer service                                                    14                   18
 Program integrity support                                                     3                   17
 Systems security                                                              4                   12
 Workload processing                                                           0                       8
 Beneficiary inquiries                                                         4                       5
 Comprehensive Error Rate Testing (CERT)                                       0                       3
 Audit quality                                                                 0                       1
Source: GAO analysis of CMS data.

Notes: We defined the fiscal year of the award fee plans based on the end date of the contract year
under review.
The A/B MAC award fee plans for this year included no more than one metric in some performance
areas—contract administration, systems security, CERT, and audit quality—but multiple metrics in
other areas, in some cases because there were separate metrics for Medicare Part A and Part B.
Specifically, the appeals area included up to five metrics, program integrity support included up to
three, and provider customer service, workload processing, and beneficiary inquiries each included
up to two.
None of the DME MAC award fee plans included metrics for audit quality, CERT, or workload
processing, so the minimum and maximum percentages allocated to the other performance areas
were generally higher than those for A/B MACs.


CMS officials said that the agency chooses the metrics to include in an
award fee plan and the amount to allocate to each metric based in part on
the areas in which the agency particularly wants to see improvement in a
MAC’s performance. Metrics are removed or made more difficult in
subsequent years once met. CMS included the CERT metric in award fee
plans for six of the nine A/B MACs but none of the DME MACs in fiscal
year 2011, even though the error rate for DME claims has been much
higher than for other claims. 68 CMS officials said the agency had intended
to include this metric in award fee plans earlier, but the agency had
revised the CERT methodology for measuring payment errors in 2009. As



68
  Of the three A/B MACs whose award fee plans did not include the CERT metric in fiscal
year 2011, two were contracted by CMS as MACs only 2 years earlier and evaluated for
award fees for the first time in fiscal year 2010. Prior to fiscal year 2011, CMS included the
CERT metric in just one award fee plan, as a pilot in fiscal year 2008.




Page 39                                                   GAO-13-102 Medicare Prepayment Edits
              a result, the agency needed to establish a new baseline for each MAC’s
              payment error rate using the new methodology before measuring MAC
              performance with this metric.

              CMS intends to provide different financial incentives to RACs to conduct
              prepayment reviews in a 3-year demonstration that is scheduled to begin
              in summer 2012. In the demonstration, RACs, which previously
              conducted only postpayment review of claims, will begin to conduct
              prepayment reviews of certain types of claims that historically have
              resulted in high rates of improper payments. 69 Unlike the MACs, RACs
              have been compensated by contingency fees for overpayments collected
              and underpayments refunded and will also be compensated on a
              contingency basis for improper payments prevented through prepayment
              reviews. CMS officials told us that based on the results of that
              demonstration they may adjust which contractors conduct prepayment
              work and the incentives provided to do so.


              The application of prepayment edits is an important strategy to help
Conclusions   ensure that Medicare claims are paid properly the first time. As CMS data
              show, this strategy prevented at least $1.76 billion in improper payments
              in fiscal year 2010 alone. But CMS has opportunities to further reduce
              improper payments by promoting more widespread use of effective
              prepayment edits.

              CMS has processes in place to identify the need for and to develop edits
              based on national policies—such as NCDs and MUEs—but these
              processes could be improved. CMS could do more to ensure that edits
              based on NCDs are implemented consistently, such as centralizing the
              process within the agency rather than leaving it up to MACs. Greater
              attention to developing centralized NCD edits whenever possible could
              reduce improper payments. CMS could also do more to ensure that its
              edits are structured to enforce the national policies on which they are
              based. Our findings show that CMS has paid for quantities of service in
              excess of its policies for what would ordinarily be provided to a



              69
                These reviews will focus on 7 states with high populations of fraud- and error-prone
              providers (California, Florida, Illinois, Louisiana, Michigan, New York, and Texas) and 4
              states with high claims volumes of short inpatient hospital stays (Missouri, North Carolina,
              Ohio, and Pennsylvania), for a total of 11 states. Short inpatient stays that should have
              been billed as outpatient services have been a vulnerability leading to improper payments.




              Page 40                                             GAO-13-102 Medicare Prepayment Edits
beneficiary on a single day, because MUEs allow payment for excessive
quantities of services if those quantities are spread over multiple claim
lines or multiple claims, even if explanatory modifiers are not included.
Although CMS has made progress in cataloging and assessing
vulnerabilities in a structured way, it could do more to improve some of its
analysis and documentation. Specifically, the agency could improve how
it prioritizes vulnerabilities identified by RACs in their postpayment
reviews by compiling the information on these vulnerabilities differently—
for example, by aggregating the overpayments identified by all the RACs
for a given vulnerability, rather than considering each RAC’s findings in
isolation. CMS could further strengthen its Vulnerability Tracking process
and edits based on NCDs by developing written procedures for steps
where such documentation is currently lacking. This would include
specifying time frames for taking corrective actions, methods for
assessing the effects of corrective actions, and procedures to ensure that
CMS considers and ultimately implements edits for all applicable NCDs,
including older NCDs that were not previously considered for automated
edits.

CMS could take several actions to encourage MACs to implement
effective prepayment edits at the local level by collecting and providing
information about the underlying coverage policies and savings
associated with edits that have proved particularly effective in some
jurisdictions, and, if feasible, by increasing the incentives for edit
implementation. Currently, CMS lacks the information needed to assess
how effectively MACs are employing prepayment edits, even in
comparison with other MACs. The agency has taken steps to improve the
information it collects about edits by setting new reporting standards and
pursuing a possible replacement for the PIMR database. Until a new
database is in place, CMS could facilitate an information exchange about
edits among MACs through some of its usual channels. Each MAC would
need to consider local circumstances in deciding whether to implement
LCDs and related edits similar to those used by another MAC.
Nevertheless, systematic exchanges of information about policies and
edits that have proved particularly effective in some jurisdictions would
highlight for MACs additional ways to help ensure that Medicare pays
only for reasonable and necessary services. CMS has recently begun
encouraging MACs to address certain vulnerabilities by requiring them to
report on what actions, if any, they have taken. This has led to MACs
reporting on or implementing edits. CMS could also consider encouraging
MACs to implement prepayment edits by increasing the financial
incentives for them to do so. Award fees offer a mechanism to provide
such an incentive, but the share of award fees CMS allocated to the one


Page 41                                    GAO-13-102 Medicare Prepayment Edits
                      metric most directly related to prepayment edits and medical review in
                      2011 was relatively small.


                      In order to promote greater use of effective prepayment edits and better
Recommendations for   ensure proper payment, we recommend that the CMS Administrator take
Executive Action      the following seven actions.

                      To promote implementation of effective edits based on national policies,
                      we recommend that the CMS Administrator:

                      •   centralize within CMS the development and implementation of
                          automated edits based on NCDs to ensure greater consistency;

                      •   implement MUEs that assess all quantities provided to the same
                          beneficiary by the same provider on the same day, so providers
                          cannot avoid claim denials by billing for services on multiple claim
                          lines or multiple claims without including modifiers that reflect a
                          declaration that quantities above the normal limit are reasonable and
                          necessary;

                      •   revise the method for compiling information about RAC-identified
                          vulnerabilities to identify their full extent and prioritize them
                          accordingly; and

                      •   develop written procedures to provide guidance to agency staff on all
                          steps in the processes for developing and implementing edits based
                          on national policies, including (1) time frames for taking corrective
                          actions, (2) methods for assessing the effects of corrective actions,
                          and (3) procedures for ensuring consideration of automated edits
                          whenever possible, including for all existing NCDs and other national
                          policies.

                      To encourage more widespread use of effective local edits by MACs, we
                      recommend that the CMS Administrator:

                      •   improve the data collected about local prepayment edits to enable
                          CMS to identify the most effective edits and the local coverage
                          policies on which they are based and disseminate this information to
                          MACs for their consideration;




                      Page 42                                   GAO-13-102 Medicare Prepayment Edits
                     •   until CMS has a new database in place to collect information about
                         edits, require MACs to share information about the underlying policies
                         and savings related to their most effective edits; and

                     •   assess the feasibility of providing increased incentives to MACs to
                         implement effective prepayment edits.

                     We provided a draft of this report to HHS for comment and received
Agency Comments,     written comments, which are reprinted in appendix III. In its written
Third-Party Views,   comments, HHS generally concurred with our seven recommendations
                     and cited actions that CMS plans to take to address them. In addition, we
and Our Evaluation   had obtained the views of third parties—CMS’s contractors—on specific
                     sections of an earlier draft. Both HHS and the contractors provided
                     technical comments, which we addressed as appropriate.

                     HHS generally agreed with our four recommendations to promote
                     implementation of effective edits based on national policies. HHS agreed
                     with our recommendation to centralize the development and
                     implementation of automated edits. In response to our recommendation
                     to implement MUEs that assess all quantities provided to the same
                     beneficiary by the same provider on the same date of service, HHS
                     agreed to further investigate how to address this recommendation but
                     noted that there are numerous clinical situations in which MUEs can
                     reasonably be exceeded. The agency commented that our report did not
                     identify which services would benefit from improved MUEs without
                     causing unreasonable claim denials. However, we believe all claims
                     payments we identified could reasonably have been denied because we
                     identified only payments for claims without modifier codes, and—as HHS
                     noted in its comments—providers should include modifier codes when
                     billing above the MUE limits. If CMS implemented MUEs as we
                     recommended, it could continue to allow providers to use modifiers as
                     indicators of medical necessity for exceeding the MUE limits. HHS also
                     agreed with our recommendation to revise the method for compiling
                     information about vulnerabilities identified by Recovery Audit Contractors.
                     Finally, the agency agreed with our recommendation to create written
                     procedures for developing and implementing edits based on national
                     policies and said CMS would take steps to address this recommendation
                     by December 31, 2012.




                     Page 43                                    GAO-13-102 Medicare Prepayment Edits
HHS also agreed with our three recommendations to encourage more
widespread use of effective local edits by MACs. In response to our
recommendation that CMS improve the data collected about local edits,
the agency acknowledged that the data-collection process needed
improvement and said that CMS would explore ways to collect data about
local edits from MACs. In addition, to address our recommendation that
CMS require MACs to share information about the local policies and
savings related to their most effective local edits, the agency said CMS
would issue a Technical Direction Letter to MACs about collaborating on
the most effective edits. Finally, HHS agreed with our recommendation to
assess the feasibility of providing increased incentives to MACs to
implement effective prepayment edits and said the units within CMS that
are responsible for overseeing MAC contracts—which CMS calls
“business owners”—would assess the feasibility and benefits of
increasing performance incentives. However, the agency noted that any
changes to a MAC’s award fee plan proposed by CMS during an existing
evaluation period would need to be agreed to by the MAC.


As agreed with your offices, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days from the
report date. At that time, we will send copies to the Secretary of Health
and Human Services, the Administrator of CMS, and other interested
parties. In addition, the report will be available at no charge on the GAO
website at http://www.gao.gov.

If you or your staffs have any questions about this report, please contact
me at (202) 512-7114 or kingk@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last page
of this report. GAO staff who made major contributions to this report are
listed in appendix IV.




Kathleen M. King
Director, Health Care




Page 44                                    GAO-13-102 Medicare Prepayment Edits
Appendix I: Scope and Methodology
                          Appendix I: Scope and Methodology




                          We used several methods to assess the extent to which (1) the Centers
                          for Medicare & Medicaid Services (CMS) and its contractors employed
                          prepayment edits, (2) CMS has designed adequate processes to
                          determine the need for prepayment edits and to implement edits based
                          on national policies, and (3) CMS provides information, oversight, and
                          incentives to Medicare administrative contractors (MAC) to promote use
                          of effective prepayment edits. To address these objectives, we reviewed
                          data from CMS databases, interviewed CMS officials and MAC
                          representatives, conducted an analysis of Medicare claims data, reviewed
                          CMS documentation on processes to develop and implement edits to
                          assess consistency with our internal control standards, and reviewed
                          relevant CMS and MAC documents, such as those that described MAC’s
                          medical review activities and CMS’s oversight of those activities.


Review of Data from CMS   To assess the extent to which CMS and its contractors employed
Databases                 prepayment edits, we reviewed data from two CMS data systems—the
                          Program Integrity Management Reports (PIMR) system and the
                          Automated Reporting and Tracking System (ARTS)—that contain
                          information about the savings and costs associated with prepayment
                          edits. We obtained PIMR data reports from CMS for fiscal year 2010 that
                          contained information about the savings associated with prepayment
                          edits for each claims administration contractor. We also obtained ARTS
                          data reports from CMS showing MACs’ task budgets and costs. In the
                          ARTS reports, we identified the specific tasks most closely associated
                          with prepayment edits and related medical review, including the
                          development of underlying local coverage determinations (LCD), and
                          confirmed our identification of these tasks with CMS officials. We then
                          calculated MACs’ prepayment-edit-related costs for the most recently
                          completed contract period—in almost all cases, one year—as of
                          August 4, 2011, the date on which CMS provided the data to us.
                          Depending on the MAC, these data represented a contract period ending
                          in fiscal year 2010 or fiscal year 2011.


Analysis of Medicare      To assess whether CMS and its contractors applied prepayment edits to
Claims Data               the extent possible, we selected a sample of five national and three local
                          policies that could be implemented using automated edits and analyzed
                          paid Part B claims from fiscal year 2010 to identify payments that
                          appeared to be inconsistent with those policies. We selected components
                          of policies that could be implemented using automated edits because
                          automated edits are less costly for MACs to use than manual edits. For
                          national policies, we identified paid claims that appeared to be


                          Page 45                                   GAO-13-102 Medicare Prepayment Edits
                                  Appendix I: Scope and Methodology




                                  inconsistent with the policy in all MAC jurisdictions. For local policies, we
                                  identified paid claims that were inconsistent with the policy in all MAC
                                  jurisdictions except the jurisdiction that implemented the coverage policy
                                  and associated edit that we selected for analysis.

Selection of National and Local   We selected national policies for which Recovery Audit Contractors
Policies on Which Our Analysis    (RAC) had identified improper payments in excess of $500,000 through
Was Based                         fully automated postpayment reviews or national coverage determinations
                                  (NCD) for which CMS had not initiated a corrective action using a
                                  quarterly Technical Direction Letter to MACs at the time of our review. 1
                                  We also restricted our selection to those policies for which automated
                                  prepayment edits could be implemented and which could be analyzed
                                  using data elements in the Carrier Standard Analytic File (SAF), which
                                  contains claims data about noninstitutional providers of outpatient
                                  services such as physicians, and the Outpatient SAF, which contains
                                  claims data about services from institutional outpatient providers such as
                                  hospital outpatient departments and rural health clinics. (For some
                                  analyses, we used only the Carrier SAF because the edits on which those
                                  analyses were based applied only to claims that would appear in this file.)
                                  We selected LCDs from three MACs that process Part A and Part B
                                  claims 2 whose contracts were in effect at the start of fiscal year 2010 and
                                  were not scheduled to be recompeted in 2011. 3 We selected the three
                                  MACs to include some that served a high-fraud area, had a high medical
                                  review savings per beneficiary relative to other MACs, were identified by
                                  CMS as having an effective medical review strategy, and were
                                  geographically dispersed. 4 We asked these three MACs to identify the
                                  10 automated edits they had in place for Part B services in fiscal years


                                  1
                                   Issues that are identified by any single RAC as having more than $500,000 in improper
                                  payments are considered “major findings” by CMS.
                                  2
                                   MACs that process Part A and Part B claims are referred to as “A/B MACs.” CMS also
                                  contracts with MACs to process durable medical equipment claims.
                                  3
                                   We excluded MACs in jurisdictions where the contract was up for recompetition to avoid
                                  including in our sample MACs that might lose their contracts before we completed data
                                  collection.
                                  4
                                   We identified high-fraud areas based on the location of the operations for the Medicare
                                  Fraud Strike Force—a joint effort of the U.S. Department of Health and Human Services
                                  and the U.S. Department of Justice—as of March 11, 2011. The operations were located
                                  in seven states: California (Los Angeles), Florida (South Florida and Tampa), Illinois
                                  (Chicago), Louisiana (Baton Rouge), Michigan (Detroit), New York (Brooklyn), and Texas
                                  (Dallas and Houston).




                                  Page 46                                            GAO-13-102 Medicare Prepayment Edits
                    Appendix I: Scope and Methodology




                    2009 and 2010 that generated the most savings to the Medicare program,
                    and to provide information about the savings generated by each of those
                    edits and about the LCDs or other local policies on which these edits
                    were based. We chose to analyze LCDs for monitored anesthesia care,
                    parathormone, and noninvasive cerebrovascular studies because (1) they
                    were feasible to analyze using data elements in the Carrier and
                    Outpatient SAFs, (2) fewer than half of the other A/B MACs operating at
                    the start of fiscal year 2010 had implemented a similar LCD, 5 and (3) the
                    edits based on these LCDs had generated a relatively high amount of
                    overall savings. Our analysis of this selected sample of policies and
                    associated edits was intended to allow us to illustrate whether greater
                    savings to the Medicare program could be achieved if effective
                    prepayment edits—and, in some cases, the underlying LCDs—were
                    implemented more widely. Our sample is not an exhaustive list of every
                    policy that could be implemented more fully through additional edits.

Analytic Approach   We took steps to confirm that we understood the policies and that our
                    analytic approach was appropriate. To confirm our understanding of
                    Medically Unlikely Edits (MUE), we discussed our analytic approach with
                    the contractor that creates MUEs and reviewed CMS documentation
                    about MUEs. To confirm our understanding of other national policies, we
                    discussed them with CMS. We discussed the selected LCDs with the
                    MACs that issued them to ensure that our interpretation of the LCDs was
                    accurate. To further test the validity of our analyses based on LCDs, we
                    compared the payments in the jurisdiction of the MAC that had
                    implemented the LCD to payments in other MAC jurisdictions. For each of
                    our analyses based on LCDs, we found the lowest amount of payments in
                    the jurisdiction of the MAC whose LCD we used as the basis for analysis,
                    which was consistent with our expectation. 6

                    We analyzed a representative 5 percent sample of Medicare claims from
                    the Carrier SAF and Outpatient SAF for fiscal year 2010 to calculate
                    payments for services that appeared to be inconsistent with the national
                    policies and LCDs we selected. We aggregated these data by state, by


                    5
                     To identify MACs with similar policies, we used CMS’s web-based Medicare Coverage
                    Database. In addition to the MAC from which we obtained the policy, there were eight
                    other MACs whose contracts had been implemented by the start of fiscal year 2010.
                    Therefore, we selected policies for which four or fewer other MACs had similar policies.
                    6
                     Because providers may appeal claims denials based on an LCD, some payments
                    inconsistent with the LCD could occur.




                    Page 47                                             GAO-13-102 Medicare Prepayment Edits
                          Appendix I: Scope and Methodology




                          MAC jurisdiction, and at the national level. We extrapolated our results
                          from the 5 percent sample of claims from the Carrier SAF and Outpatient
                          SAF to estimate results for the entire fee-for-service Medicare population.
                          For our analysis of MUEs, we excluded claims that contained modifiers,
                          which are used by providers to indicate potentially legitimate reasons why
                          certain procedures were performed. For the MUE analysis, we also
                          excluded claims data that appeared multiple times in the SAF. We
                          identified these multiple entries by identifying claim lines that matched on
                          certain key variables—including the same beneficiary identification
                          number, procedure, date of service, and provider. For each set of
                          matching entries, we kept the claim line with the latest processing date
                          and excluded all matching claim lines. 7


Assessment of Extent to   We reviewed several CMS documents that describe processes used to
Which CMS’s Edit          determine the need for prepayment edits and to implement edits based
Development Processes     on national policies. We also interviewed CMS officials to obtain
                          additional detail where needed about these processes. In some cases,
Comply with Internal      the processes were not documented or not fully documented, and in
Control Standards         those cases we relied on the officials’ oral descriptions of the processes.
                          We compared these process descriptions to our internal control standards
                          to assess whether CMS has designed adequate processes. We focused
                          our assessment primarily on the design of these processes and did not
                          attempt to fully assess whether the processes were operating as
                          intended. We identified three internal control standards as relevant to our
                          assessment of the design of CMS’s processes: (1) risk assessment,
                          (2) monitoring, and (3) appropriate documentation of transactions and
                          internal control. Table 6 describes the specific elements of these
                          standards that were applicable to our assessment.




                          7
                           CMS and its contractors explained that data about some claims payments appeared
                          multiple times in the SAF because of reprocessing needed to implement new payment
                          rates mandated by the Affordable Care Act and for other reasons. Because our MUE
                          analysis was designed to identify the quantity of services provided to the same beneficiary
                          on the same day, it was necessary to exclude these multiple entries to avoid overstating
                          payment for services that exceeded CMS’s quantity limits for certain services.




                          Page 48                                             GAO-13-102 Medicare Prepayment Edits
                            Appendix I: Scope and Methodology




                            Table 6: Internal Control Standards or Activities That Apply to CMS’s Determination
                            of the Need for, and Implementation of, Prepayment Edits Based on National
                            Policies

                                Standard or activity    Description of elements applicable to our assessment
                                Risk assessment         Management comprehensively identifies risk using various
                                                        methodologies as appropriate.
                                                        A determination is made on how best to manage or mitigate the
                                                        risk and what specific actions should be taken.
                                              a
                                Documentation           Internal control and all transactions and other significant events
                                                        are clearly documented, and the documentation is readily
                                                        available for examination.
                                                        The documentation appears in management directives,
                                                        administrative policies, or operating manuals, in either paper or
                                                        electronic form.
                                                        All documentation and records are properly managed and
                                                        maintained.
                                Monitoring              Corrective action is taken or improvements made within
                                                        established time frames to resolve the matters brought to
                                                        management’s attention.
                                                        Agency personnel obtain information about whether their
                                                        internal control is functioning properly.
                            Source: GAO.

                            Notes: Information is from GAO, Standards for Internal Control in the Federal Government,
                            GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999), and Internal Control Management and
                            Evaluation Tool, GAO-01-1008G (Washington, D.C.: August 2001).
                            a
                            Documentation is an activity under the standard called Control Activities.


Information and Oversight   To assess the information CMS provides to MACs to promote use of
Provided by CMS             effective local prepayment edits, including information about program
                            vulnerabilities and local coverage policies on which effective prepayment
                            edits have been based, we examined the web-based Medicare Coverage
                            Database and reviewed relevant documents, including documentation for
                            the PIMR database. We also interviewed CMS officials and
                            representatives of the MACs in our sample to understand how CMS
                            facilitates information sharing.

                            To assess CMS’s oversight of MACs’ use of prepayment edits, we
                            reviewed agency documents that specify relevant requirements for MACs,
                            including the MAC statement of work, the Program Integrity Manual, the
                            Quality Assurance Surveillance Program (QASP) review protocols, and
                            the quarterly Technical Direction Letters that required MACs to report how
                            they had addressed or planned to address certain vulnerabilities. We also
                            examined samples of reports submitted by MACs, including medical
                            review strategies and responses to the quarterly Technical Direction



                            Page 49                                                   GAO-13-102 Medicare Prepayment Edits
                             Appendix I: Scope and Methodology




                             Letters. In addition, we analyzed data on the most recent QASP reviews
                             conducted as of August 3, 2011, the date on which CMS provided the
                             data to us. Depending on the MAC, these data represented a review
                             period ending in fiscal year 2010 or fiscal year 2011. We also interviewed
                             CMS officials and representatives of MACs in our sample about CMS’s
                             oversight.


MAC Contract Incentives      To assess the financial incentives CMS provides to MACs to promote use
                             of effective local prepayment edits, we examined relevant documents,
                             including descriptions of award fee metrics and review protocols. We also
                             analyzed CMS data on the distribution of award fees for review periods
                             ending in fiscal year 2011, as well as ARTS data on the award fees and
                             base fees budgeted for MACs in the most recent contract year for which
                             we had data—which, as noted above, was either fiscal year 2010 or fiscal
                             year 2011, depending on the MAC. In addition, we examined data on
                             Medicare Integrity Program funding from fiscal year 2008 through fiscal
                             year 2011. We also interviewed CMS officials about how metrics are
                             selected for inclusion in award fee plans, how MACs’ fees are divided
                             between award fees and base fees, and the RAC prepayment review
                             demonstration.


Data Reliability and Audit   To ensure that the data from PIMR, ARTS, and the Medicare claims
Standards                    database used in this report were reliable enough for the purposes used,
                             we performed appropriate electronic data checks, examined relevant
                             documentation, and interviewed agency officials who were
                             knowledgeable about the data. We found the data were sufficiently
                             reliable for the purpose of our analyses.

                             We conducted this performance audit from July 2011 through November
                             2012 in accordance with generally accepted government auditing
                             standards. Those standards require that we plan and perform the audit to
                             obtain sufficient, appropriate evidence to provide a reasonable basis for
                             our findings and conclusions based on our audit objectives. We believe
                             that the evidence obtained provides a reasonable basis for our findings
                             and conclusions based on our audit objectives.




                             Page 50                                   GAO-13-102 Medicare Prepayment Edits
Appendix II: Hypothetical Example of How
              Appendix II: Hypothetical Example of How
              Medicare Claims Can Avoid Triggering
              Medically Unlikely Edits (MUE)


Medicare Claims Can Avoid Triggering
Medically Unlikely Edits (MUE)




              Page 51                                    GAO-13-102 Medicare Prepayment Edits
Appendix III: Comments from the
             Appendix III: Comments from the Department
             of Health and Human Services



Department of Health and Human Services




             Page 52                                      GAO-13-102 Medicare Prepayment Edits
Appendix III: Comments from the Department
of Health and Human Services




Page 53                                      GAO-13-102 Medicare Prepayment Edits
Appendix III: Comments from the Department
of Health and Human Services




Page 54                                      GAO-13-102 Medicare Prepayment Edits
Appendix III: Comments from the Department
of Health and Human Services




Page 55                                      GAO-13-102 Medicare Prepayment Edits
Appendix III: Comments from the Department
of Health and Human Services




Page 56                                      GAO-13-102 Medicare Prepayment Edits
Appendix IV: GAO Contact and Staff
                  Appendix IV: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  Kathleen M. King, (202) 512-7114 or kingk@gao.gov
GAO Contact
                  In addition to the contact named above, Sheila K. Avruch, Assistant
Staff             Director; Zhi Boon; Elizabeth Conklin; Nancy Fasciano; Matthew Gever;
Acknowledgments   Richard Lipinski; Roseanne Price; and Steve Robblee made key
                  contributions to this report.




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                  Page 57                                 GAO-13-102 Medicare Prepayment Edits
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