oversight

Defense Health Care: Claims Processing Improvements Are Underway but Further Enhancements Are Needed

Published by the Government Accountability Office on 1999-08-23.

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

                  United States General Accounting Office

GAO               Report to the Chairman and Ranking
                  Minority Member, Subcommittee on
                  Military Personnel, Committee on Armed
                  Services, and the Honorable Charles W.
                  Stenholm, House of Representatives
August 1999
                  DEFENSE HEALTH
                  CARE
                  Claims Processing
                  Improvements Are
                  Under Way but Further
                  Enhancements Are
                  Needed




GAO/HEHS-99-128
                   United States
GAO                General Accounting Office
                   Washington, D.C. 20548

                   Health, Education, and
                   Human Services Division

                   B-282389

                   August 23, 1999

                   The Honorable Steve Buyer
                   Chairman
                   The Honorable Neil Abercrombie
                   Ranking Minority Member
                   Subcommittee on Military Personnel
                   Committee on Armed Services
                   House of Representatives

                   The Honorable Charles W. Stenholm
                   House of Representatives

                   Today, about 8.2 million active duty personnel, their dependents, and
                   retirees are eligible to receive health care through the
                   $15.6 billion-per-year military health system. Medical care is provided by
                   Department of Defense (DOD) personnel in military facilities and through
                   civilian contractors. Civilian-provided care requires that providers or
                   beneficiaries submit claims to DOD contractors who, in turn, adjudicate the
                   claim and pay according to established rules and policies.

                   Concerns about claims processing timeliness and accuracy have plagued
                   the military health care system since the advent of TRICARE, DOD’s
                   managed care program. During the 1-year period ending June 1998, the
                   contractors we reviewed processed approximately 19 million claims worth
                   over $1.7 billion. Health care providers and beneficiaries have frequently
                   complained that claims were being processed too slowly and that many
                   errors were occurring. While DOD contractors have acknowledged that
                   they experienced problems processing claims in a timely manner during
                   the start-up phase of health care delivery, they contend that they are now
                   meeting standards. In response to your request, we evaluated the
                   timeliness and accuracy of claims processing. We also evaluated the
                   effectiveness of DOD’s use of ClaimCheckTM, a claim editing software
                   package DOD requires its contractors to use. We performed our work
                   between April 1998 and June 1999 in accordance with generally accepted
                   government auditing standards. For a further description of our scope and
                   methodology, see appendix I.


                   Between July 1, 1997, and June 30, 1998, DOD’s contractors processed 86
Results in Brief   percent of claims (or 16 million) within 21 days. This met DOD’s timeliness
                   standard of processing 75 percent of claims within 21 days. Even so, nearly




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3 million claims took more than 21 days to process, which prompted
complaints from some providers and beneficiaries about what they
considered to be payment delays. DOD has several initiatives under way to
improve timeliness, including adopting the payment and penalty standards
used by the Medicare program. If these standards are properly
implemented and met by contractors, they should help reduce providers’
complaints.

While DOD adequately measures contractors’ performance in claims
processing timeliness, it does not know the extent to which contractors
are accurately paying claims. Less than half the claims are subject to its
payment accuracy audit, and the methodology used to calculate the
payment error rate is statistically invalid. All contractors experienced
problems with payment accuracy when they began processing TRICARE
claims, often because they did not have enough time to adequately prepare
to administer the program. Although contractors addressed these
problems, they acknowledged that many factors affect the accuracy of
claims processing—primarily the complexity of the program, compounded
by numerous program changes. We also found that some claims
processing problems were due to mistakes made by providers and
beneficiaries when filing their claims. Furthermore, because they do not
always understand the program, providers and beneficiaries sometimes
complain about adjudication decisions on claims that had actually been
processed correctly.

To help ensure payment accuracy, DOD requires its contractors to use
ClaimCheckTM, a commercial software program designed to ensure that
professional providers are appropriately paid for services rendered.
ClaimCheckTM’s use resulted in changes to only 3.5 percent of professional
claims in fiscal year 1998 and saved over $53 million. Nonetheless, some
providers complain about its use because ClaimCheckTM’s review criteria
are not published and available to them. Without this information, they
expressed doubt that the criteria comply with industry claims review
standards. We found that, although ClaimCheckTM’s review criteria are
based on industry standards, its use has resulted in some inappropriate
denials to TRICARE claims. These errors occurred because DOD was slow
to direct contractors to incorporate TRICARE policy changes into their
claims processing systems. This report makes a number of
recommendations to the Secretary of Defense to improve claims
processing timeliness and accuracy.




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             DOD’s primary medical mission is to maintain the health of 1.6 million
Background   active duty service personnel and to provide them with health care during
             military operations. DOD also offers health care to 6.6 million non-active
             duty beneficiaries, including dependents of active duty personnel, military
             retirees, and dependents of retirees. Under TRICARE, care is provided in
             military-operated hospitals and clinics worldwide and is supplemented by
             civilian providers.1 TRICARE is a triple-option benefit program designed to
             give beneficiaries a choice among a health maintenance organization, a
             preferred provider organization, and a fee-for-service benefit. The health
             maintenance organization option, called TRICARE Prime, is the only
             option for which beneficiaries must enroll. TRICARE Extra is the
             preferred provider organization option, and TRICARE Standard is the
             fee-for-service option. Contractors, who are referred to as managed care
             support contractors (MCSC), must create networks of providers for the
             Prime and Extra options. During network development MCSCs recruit
             providers, negotiate reimbursement rates, and verify professional
             credentials.

             TRICARE is organized geographically into 11 health care regions
             administered by 5 MCSCs. The MCSCs’ many responsibilities include
             processing claims, providing customer service, and developing and
             maintaining an adequate network of civilian providers. While the MCSCs are
             ultimately responsible for claims processing, all of the MCSCs have
             subcontracted with one of two companies to process claims, as shown in
             table 1.




             1
             DOD previously provided health care under the Civilian Health and Medical Program of the
             Uniformed Services (CHAMPUS), a fee-for-service program.



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Table 1: TRICARE MCSCs and
Subcontractors Responsible for                                     TRICARE MCSC                     MCSCs’ subcontractors
Claims Processing                Regions included in our review
                                 Northwest                         Foundation Health Federal        Wisconsin Physicians
                                                                   Services, Inc.                   Service
                                 Southwest                         Foundation Health Federal        Wisconsin Physicians
                                                                   Services, Inc.                   Service
                                 Southern California, Golden       Foundation Health Federal        Palmetto Government
                                 Gate, and Hawaii-Pacific          Services, Inc.                   Benefits Administrators
                                 Southeast and Gulf South          Humana Military Healthcare Palmetto Government
                                                                   Services, Inc.             Benefits Administrators
                                 Central                           TriWest Healthcare Alliance, Palmetto Government
                                                                   Inc.                         Benefits Administrators
                                 Regions not included in our reviewa
                                 Northeast                         Sierra Military Health           Palmetto Government
                                                                   Services                         Benefits Administrators
                                 Mid-Atlantic and Heartland        Anthem Alliance for Health,      Palmetto Government
                                                                   Inc.                             Benefits Administrators
                                 a
                                  These regions were not included because they did not have at least 1 year of claims processing
                                 experience as of July 1998.



                                 Claims processing involves timely, accurate, and appropriate adjudication
                                 of health care claims based on TRICARE rules and policies. Claims
                                 processing tasks include receipt of the claim form, data entry, claims
                                 adjudication, and claim payment or denial.

                                 DOD requires MCSCs to meet specific timeliness and accuracy standards for
                                 claims processing. MCSCs must process 75 percent of claims within 21 days.
                                 This standard applies to all claims, even when MCSCs must obtain
                                 additional information to process them. DOD verifies whether MCSCs are
                                 meeting timeliness standards through its database of health care service
                                 records (HCSR), which are the final records of the claims. DOD requires the
                                 MCSCs to send an electronic HCSR to DOD for each claim processed to
                                 completion. DOD also requires MCSCs to maintain a 98-percent payment
                                 accuracy rate and a 97-percent data input accuracy rate. DOD conducts
                                 quarterly external audits to monitor whether MCSCs meet these standards.

                                 DOD  requires MCSCs to use ClaimCheckTM, a commercial claims editing
                                 software package that performs a pre-payment review of professional
                                 claims and helps prevent overpayment by analyzing relationships between
                                 medical procedure codes. For example, ClaimCheckTM contains review
                                 criteria, known as edits, to prevent “unbundling,” a process whereby




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                        providers use two or more procedure codes to describe a service when a
                        single, more comprehensive code exists. Generally, providers receive
                        higher reimbursement for unbundled codes compared to a single,
                        comprehensive code. The basic ClaimCheckTM software package contains
                        approximately 5 million edits. However, companies that purchase
                        ClaimCheckTM may customize the edits to reflect their plan’s benefit
                        structure. DOD purchased ClaimCheckTM software in March 1994 and had it
                        customized to edit for TRICARE’s benefit structure. DOD refers to its
                        customized version as TRICARE ClaimCheck (TCC). DOD does not require
                        the use of TCC for anesthesia, pharmacy, physical therapy, or institutional
                        claims (except ambulatory surgery facility claims), or for adjustments to
                        claims that were processed prior to the use of TCC. As a result, TCC affects
                        only about 60 percent of claims.

                        In response to beneficiary and provider concerns, DOD intends to make
                        changes to future TRICARE contracts that could improve the timeliness
                        and accuracy of claims processing. However, because the next round of
                        contracts is not anticipated to be awarded until 2001, DOD recently decided
                        to implement selected changes in advance by amending current contracts.
                        This effort, called work simplification, involves adopting timeliness
                        standards similar to Medicare’s and changing the way incomplete claims
                        are handled. In addition, DOD has contracted with a consulting firm to
                        evaluate its claims processing procedures and make recommendations for
                        improvement. The consultant’s report is due by October 1999.


                        Each of the MCSCs experienced problems with claims processing timeliness
MCSCs Are Meeting       during the early months of health care delivery. This was partially due to a
DOD’s Claims            higher-than-expected claims volume—for example, two contracts received
Processing Timeliness   40 to 50 percent more claims than anticipated. As a result, the claims
                        processing subcontractor had to recruit, hire, and train additional staff—a
Standard, but           process that took approximately 4 months. During this time, the backlog
Complaints About        of incoming claims continued to grow.
Slow Payments           Claims processing timeliness has improved as MCSCs have gained more
Continue                experience with the TRICARE program. We analyzed over 19 million claim
                        records and determined that during the period between July 1, 1997, and
                        June 30, 1998, MCSCs met DOD’s contractual timeliness standard by
                        processing 86 percent of claims within 21 days. Despite this, nearly
                        3 million claims took longer than 21 days to process and therefore some
                        providers and beneficiaries experienced what they considered to be
                        payment delays.



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Timeliness Standards Met               Processing time was affected by characteristics such as type of claim
Overall, but Differences               (professional, pharmacy, or institutional), submission method (electronic
Exist by Claim                         or paper), and amount allowed for payment.2 We found that institutional
                                       claims did not meet the standard; however, MCSCs did meet the standard
Characteristics                        overall because higher-than-required percentages of claims in other
                                       categories were paid in less than 21 days. To improve claims processing
                                       timeliness in the future, DOD has proposed several initiatives, including the
                                       adoption of some Medicare standards.

                                       Tables 2 through 4 display various statistics by claim category. As table 2
                                       shows, professional and pharmacy claims met the standard, but only
                                       66 percent of institutional claims were processed within 21 days.
                                       Pharmacy claims are usually for small dollar amounts, as are many
                                       professional claims. High-dollar claims, often from hospitals, are usually
                                       the most complicated and often require medical review, adding to
                                       processing time. For example, as shown in table 3, only 30 percent of
                                       claims over $10,000 were paid within 21 days. Because institutional claims
                                       comprise only 4 percent of all claims, MCSCs were still able to meet
                                       standards overall. And even though professional claims met the standard,
                                       they comprise 83 percent of the claims that took more than 21 days to
                                       process, which may explain why some providers complain about
                                       delinquent payments.

Table 2: Processing Time by Category
of Claim                                                                                Claims processed

                                       Category of                0 to 21 days                   More than 21 days
                                       claims                  Number       Percentage            Number       Percentage         All claims
                                       Professional          9,480,983                 81       2,265,093                 19     11,746,076
                                       Pharmacy              6,506,867                 97         215,252                  3      6,722,119
                                       Institutional            473,964                66         243,382                 34        717,346
                                       All claims           16,461,814                 86       2,723,727                 14     19,185,541




                                       2
                                        Professional claims represent care rendered by physicians and other health care providers, such as
                                       physical therapists. Most institutional claims represent care provided by hospitals. Pharmacy claims
                                       are claims for prescription drugs.



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Table 3: Processing Time by Cost of
Claim                                                                                   Claims processed
                                                                  0 to 21 days                  More than 21 days
                                       Cost of claim           Number       Percentage           Number       Percentage        All claimsa
                                       Less than $100       13,913,061                 89      1,750,311                 11     15,663,372
                                       $100 to $999          2,335,391                 75         781,886                25       3,117,277
                                       $1,000 to
                                       $9,999                  205,395                 54         178,397                46            383,792
                                       $10,000 or
                                       more                       5,149                30          12,120                70             17,269
                                       All claims           16,458,996                 86      2,722,714                 14     19,181,710
                                       a
                                        The total number of claims for this table does not match that of table 2 because it excludes
                                       claims with missing cost data.



                                       The method of submission—paper or electronic—also affected timeliness.
                                       Forty-three percent of all claims were submitted electronically,
                                       three-fourths of which were pharmacy claims. As shown in table 4, we
                                       found that 95 percent of electronic claims met the timeliness standard
                                       compared with 79 percent of paper claims. Institutional and professional
                                       claims can be harder to submit electronically because they sometimes
                                       require additional documentation that cannot be submitted with the
                                       electronic form. Furthermore, providers may choose not to invest in the
                                       software needed to submit TRICARE claims electronically if TRICARE is a
                                       small percentage of their business.

Table 4: Electronic and Paper Claims
Processed in 21 Days by Category of                                              Claims processed in 21 days
Claim                                                             Paper claims                   Electronic claims
                                       Category of
                                       claims                  Number       Percentage           Number       Percentage        All claimsa
                                       Professional          7,829,368                 80      1,651,614                 87       9,480,982
                                       Pharmacy                548,386                 84      5,958,481                 98       6,506,867
                                       Institutional           332,525                 65         141,439                70            473,964
                                       All claims            8,710,279                 79      7,751,534                 95     16,461,813
                                       a
                                        The total number of claims for this table does not match that of table 2 because it excludes
                                       claims for which the method of submission was unknown and all claims that took longer than 21
                                       days to process.



                                       We also analyzed the effect on timeliness when MCSCs needed to obtain
                                       information from other health insurers or liable third parties before




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                       processing claims to completion.3 We found that compensation from other
                       health insurers was obtained for about 10 percent of claims and that MCSCs
                       met the 75-percent timeliness standard even when they had to obtain this
                       information from the insurers. In contrast, the timeliness standard was not
                       met for claims that involved third-party liability. There were fewer than
                       3,000 of these claims in the 19 million that we evaluated. Although few
                       claims were actually found to involve third-party liability, many more were
                       investigated to determine whether they fell into this category. These
                       investigations are one reason claims may be paid after 21 days.


Efforts Under Way to   Although MCSCs have been meeting timeliness standards overall,
Improve Timeliness     beneficiaries and providers have expressed concerns about claims
                       processing timeliness. DOD and MCSC officials have identified several
                       initiatives they believe have the potential to improve claims processing
                       timeliness. One of the proposed changes will adopt revised timeliness
                       standards similar to those used by Medicare.4 Under these revised
                       standards, MCSCs will be required to pay 95 percent of complete claims
                       within 30 days and 100 percent of them within 60 days. MCSCs will be
                       required to pay interest on claims taking longer than 30 days to process to
                       completion. As shown in table 5, MCSCs are already close to meeting this
                       standard because they processed 92 percent of claims within 30 days.
                       Although DOD expects to implement these revised standards in
                       September 1999, they will require changes to each MCSC contract—a
                       time-consuming process that could result in delays. Nonetheless, it is
                       important that DOD follow through with this initiative, which will help
                       improve providers’ view of TRICARE by mirroring a more familiar
                       program.




                       3
                        When a beneficiary has additional health insurance, TRICARE is usually the secondary payer. The
                       only time TRICARE is not the secondary payer is when Medicaid is involved, or if the beneficiary has a
                       health insurance policy that is specifically designated as a TRICARE supplemental policy. Third-party
                       liability claims involve treatment for injury or illness resulting from circumstances that created a legal
                       liability for a third party to pay damages for the care.
                       4
                        This proposal is contained in draft legislation for DOD’s fiscal year 2000 authorization bill.



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Table 5: Number of Days to Process
Claims                                                                                                   Cumulative
                                                                                    Percentage           percentage
                                     Number of days       Number of claims           processed            processed
                                     0 to 13                     13,533,876                  71                  71
                                     14 to 21                     2,927,938                  15                  86
                                     22 to 30                     1,146,999                   6                  92
                                     31 to 60                     1,108,031                   6                  98
                                     61 or more                     468,697                   2                 100
                                     All claims                  19,185,541                 100

                                     Another of the proposed changes, which was implemented in June 1999,
                                     allows MCSCs to return incomplete claims for needed information without
                                     counting them against the timeliness standard. Previously, DOD required
                                     claims processors to permit claimants 35 days to provide the information
                                     needed to process their claim. If information was not received within this
                                     time, the claim was denied and would need to be resubmitted in order to
                                     be processed. This requirement automatically forced some claims to
                                     exceed DOD’s 21-day timeliness standard.

                                     In addition to DOD’s proposed changes, impending changes in industry
                                     standards should also improve timeliness by making it easier for providers
                                     to submit claims electronically. The Health Insurance Portability and
                                     Accountability Act of 1996 (P.L. 104-191) requires the industrywide
                                     adoption of uniform standards for electronic transactions, including
                                     claims filing. Uniform standards for electronic filing will enable providers
                                     to submit claims for any health insurance plan in the same format,
                                     eliminating the need for plan-specific software. The Department of Health
                                     and Human Services (HHS), the agency responsible for implementing the
                                     act, reported that this effort should be under way in late 1999.


                                     DOD does not know the extent to which MCSCs are meeting contractual
Extent of Claims                     requirements for claims processing payment accuracy because its primary
Processing Accuracy                  assessment tool yields statistically invalid results. As with timeliness, all
Is Unknown                           MCSCs experienced problems with claims processing accuracy during the
                                     early months of health care delivery and subsequently improved. However,
                                     even when problems are identified and corrected, several factors—such as
                                     TRICARE’s complex program structure and frequent program
                                     changes—add to the difficulty of processing claims accurately. TRICARE’s
                                     complex rules can also cause providers and beneficiaries to
                                     misunderstand requirements and submit incorrect information.




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Audit Methods Do Not   A DOD contractor conducts quarterly audits of claims processing accuracy
Adequately Measure     for each TRICARE contract to assess the rate of incorrect payments and
Processing Accuracy    data input errors. The payment error rate, which is a combined rate for
                       both denied and paid claims, is computed by adding the absolute value of
                       underpayments and overpayments and dividing this amount by the total
                       billed charges for the sampled claims. The data input error rate, called the
                       occurrence error rate, is based on the total number of errors found in the
                       audited claims, divided by the total number of data fields. DOD has
                       established standards of 2 percent for payment error rates and 3 percent
                       for occurrence error rates. DOD gives financial rewards to MCSCs who
                       achieve a payment error rate of 1 percent or less, and penalizes them for a
                       rate of 4 percent and above. Likewise, DOD financially rewards contractors
                       if their occurrence error rate is 2.4 percent or less and penalizes them if it
                       is 5 percent or more.

                       We identified three problems with DOD’s method for determining claim
                       payment error rates. First, more than half of the claims are excluded from
                       the audit process. DOD does not sample from claims under $100 for the
                       payment audit because they represent a relatively small percentage (about
                       12 percent) of the dollars paid on TRICARE claims. However, about
                       60 percent of all claims fall into this category and therefore are not subject
                       to this quality assurance procedure. Including these claims in the audit
                       would better describe the quality of MCSCs’ claims processing operations
                       because the error rate would apply to the entire population of claims,
                       regardless of claim amount.

                       Second, the calculation of the payment error rate is not properly adjusted
                       to account for DOD’s stratified sampling and, as a result, its error rates are
                       statistically invalid. DOD samples claims from defined dollar ranges of
                       claim payments. Each range contains a different number of claims.
                       However, DOD does not use statistical adjustments in its error rate
                       calculation to account for these differences.5 As a result, DOD’s calculated
                       error rate may be higher or lower than the actual payment error rate.
                       Table 6 illustrates the effect these statistical adjustments would have on
                       the error rates for the quarterly audits we reviewed for the MCSCs included
                       in our evaluation. The third column contains the error rate as computed
                       with DOD’s methodology. The fourth column shows the error rate
                       recomputed with statistical adjustments. A comparison (fifth column)
                       shows that all but one rate changed.



                       5
                        These adjustments, called weights, are necessary to correct for the fact that some ranges may be
                       over-represented in the sample while others may be under-represented.



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Table 6: Effect of Statistical
Adjustment on Error Rates for the                                                               Corrected error rate
Most Recently Available Finalized                                               DOD error            with statistical       Comparison
Audits for a 1-Year Period                                                           rateb            adjustmentsc         between rates
                                    Contracta                  Quarter           (percent)                 (percent)           (percent)
                                    A                                  1                 5.7                        5.7               0.0
                                                                       2                 5.5                        7.8               2.3
                                                                       3                11.3                        7.3             –4.0
                                                                       4                 4.7                        3.5             –1.2
                                    B                                  1                 5.0                        4.9             –0.1
                                                                       2                 4.0                        3.7             –0.3
                                                                       3                 6.1                        4.1             –2.0
                                                                       4                 6.1                        3.6             –2.5
                                    C                                  1                 1.1                        2.5               1.4
                                                                       2                 3.2                        3.8               0.6
                                                                       3                 1.5                        2.3               0.8
                                                                       4                 1.4                        2.6               1.2
                                    D                                  1                 3.6                        3.2             –0.4
                                                                       2                 4.6                        5.0               0.4
                                                                       3                 3.1                        3.4               0.3
                                                                       4                 3.7                        3.5             –0.2
                                    E                                  1                 4.6                        4.7               0.1
                                                                       2                 3.0                        3.9               0.9
                                                                       3                 3.2                        2.9             –0.3
                                    Note: The earliest audit began in November 1996 and the latest ended in December 1997. For
                                    one of the TRICARE contracts, only three finalized audits were available.
                                    a
                                        The letters in this column represent five contracts for the three MCSCs we reviewed.
                                    b
                                        DOD audit reports.
                                    c
                                        GAO calculations based on the same data used in DOD’s audit reports.



                                    Third, DOD inappropriately uses billed charges as the denominator to
                                    calculate payment error rates instead of actual payment amounts. Because
                                    providers’ billed charges are typically much higher than the corresponding
                                    payment amounts, DOD’s practice of using billed charges instead of paid
                                    amounts for error calculations results in payment error rates that are
                                    artificially low. For example, suppose a claim was billed at $500, and the
                                    amount paid on the claim was $300.6 During the audit, a $50 payment error
                                    was discovered. Calculating the error rate with the billed charges, as DOD

                                    6
                                     This example is based on TRICARE allowable charges being about 60 percent of billed charges on
                                    average.



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                                          does, results in a 10-percent error rate. Calculating it using the paid
                                          amount results in a 17-percent error rate. We found that paid charges were
                                          also used in calculating payment error rates for some commercial industry
                                          audits as well as in audits of Medicare claims conducted by HHS’ Inspector
                                          General. A common method used in industry audits for calculating this
                                          type of payment error is to divide the total dollars in error by the total
                                          dollars actually paid. This calculation is illustrated in the fourth column of
                                          table 7. These error rates are 3.6 to 12.7 percentage points higher than
                                          DOD’s calculated rates.


Table 7: Comparison Between
Quarterly Payment Error Rates                                                                    Statistically accurate
Calculated by Contract for the Most                                               DOD error        error rate based on        Comparison
Recently Available Finalized Audits for                                                rateb      actual dollars paidc       between rates
a 1-Year Period                           Contracta                Quarter         (percent)                  (percent)          (percent)
                                          A                              1                 5.7                       13.5               7.8
                                                                         2                 5.5                       18.2              12.7
                                                                         3                11.3                       17.0               5.7
                                                                         4                 4.7                        8.9               4.2
                                          B                              1                 5.0                       14.3               9.3
                                                                         2                 4.0                       10.2               6.2
                                                                         3                 6.1                       11.5               5.4
                                                                         4                 6.1                       10.6               4.5
                                          C                              1                 1.0                        5.2               4.1
                                                                         2                 3.2                        8.5               5.3
                                                                         3                 1.5                        5.3               3.8
                                                                         4                 1.4                        6.3               4.9
                                          D                              1                 3.6                        8.6               5.0
                                                                         2                 4.6                       14.0               9.4
                                                                         3                 3.1                        9.0               5.9
                                                                         4                 3.7                        9.4               5.7
                                          E                              1                 4.6                       11.8               7.2
                                                                         2                 3.0                        9.7               6.7
                                                                         3                 3.2                        6.8               3.6
                                          Note: The earliest audit began in November 1996 and the latest ended in December 1997. For
                                          one of the TRICARE contracts, only three finalized audits were available.
                                          a
                                          The letters in this column represent five contracts for the three MCSCs we reviewed.
                                          b
                                              DOD audit reports.
                                          c
                                          GAO calculations based on the same data used in DOD’s audit reports.




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Beyond these technical weaknesses, DOD’s measures for payment accuracy
and data input, or occurrence, accuracy give only a partial picture of
MCSCs’ performance. These error rates provide some information on the
extent of error but not on the percentage of claims affected. Therefore, a
useful companion measure, which could easily be calculated from the
same data, is an error rate representing the percentage of claims
processed incorrectly. For payment error, this calculation is shown in the
fourth column of table 8. As illustrated by the first entry for Contract A,
when the error rate is computed correctly using paid amounts, the error
rate is 13.5 percent. When we calculated the corresponding percentage of
claims affected, the error rate is 16.5 percent. Together, these two
measures—the statistically accurate error rate based on actual dollars
paid and the corresponding percentage of claims processed
incorrectly—provide a more complete picture of payment errors. Although
we did not find methodological flaws in the occurrence audit, a
corresponding measure of the percentage of claims affected could also be
calculated for it. Collectively, these measures, which are also used in some
industry audits, would give a more comprehensive indication of the quality
of MCSCs’ claims processing performance.




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Table 8: Error Rates Calculated With
GAO-Proposed Measures for the Most                                                 Statistically accurate error             Sampled claims
Recently Available Finalized Audits for                                           rate based on actual dollars         processed incorrectly
a 1-Year Period                           Contracta                  Quarter                    paidb (percent)                    (percent)
                                          A                                  1                                13.5                      16.5
                                                                             2                                18.2                      25.3
                                                                             3                                17.0                      15.0
                                                                             4                                  8.9                     14.2
                                          B                                  1                                14.3                      15.6
                                                                             2                                10.2                      14.4
                                                                             3                                11.5                      17.6
                                                                             4                                10.6                      16.1
                                          C                                  1                                  5.2                     14.3
                                                                             2                                  8.5                     14.7
                                                                             3                                  5.3                     13.4
                                                                             4                                  6.3                     10.0
                                          D                                  1                                  8.6                      8.0
                                                                             2                                14.0                      11.8
                                                                             3                                  9.0                     10.6
                                                                             4                                  9.4                     10.4
                                          E                                  1                                11.8                      11.7
                                                                             2                                  9.7                     11.1
                                                                             3                                  6.8                      8.2
                                          Note: The earliest audit began in November 1996 and the latest ended in December 1997. For
                                          one of the TRICARE contracts, only three finalized audits were available.
                                          a
                                              The letters in this column represent five contracts for the three MCSCs we reviewed.
                                          b
                                              GAO calculations based on the same data used in DOD’s audit reports.




Inadequate Contract                       A major factor contributing to early claims processing inaccuracies was
Transition Time                           the short transition period allowed for MCSCs to prepare for delivering
Contributed to Early Claim                health care. For its initial TRICARE contracts, DOD tried to recover time
                                          lost in procurement delays by reducing the scheduled 8- to 9-month
Difficulties                              transition period to 6 months. Previously, we reported that DOD had
                                          experienced serious problems with contractors’ inability to process claims
                                          by the start-work date of the contract because the 6-month transition
                                          period was too short.7 In August 1995, we recommended that DOD adhere


                                          7
                                           CHAMPUS Has Improved Its Methods for Procuring and Monitoring Fiscal Intermediary Services to
                                          Process Medical Claims (GAO/HRD-85-56, Aug. 23, 1985); Implementation of the CHAMPUS Reform
                                          Initiative (GAO/T-HRD-89-25, June 5, 1989).



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                              to the 8- to 9-month scheduled transition period and discontinue reducing
                              such periods.8 However, DOD did not extend the transition period to 9
                              months, and MCSCs continued to experience problems completing the
                              preparatory tasks needed to deliver health care and accurately process
                              claims by the health care delivery start date. DOD officials have recently
                              stated that, because MCSCs have been struggling to fully prepare for health
                              care delivery, they now believe a longer transition period—9 to 12
                              months—is needed.

                              During the transition period, MCSCs are required to build complete
                              networks of physicians and others for providing medical care. Typically,
                              these networks consist of thousands of providers and hundreds of
                              hospitals and pharmacies, and the network has to be in place 30 to 60 days
                              prior to the start of health care delivery. MCSCs generally did not assemble
                              a complete network in the allotted time. In addition to recruiting
                              providers, DOD required MCSCs to conduct an extensive verification of
                              providers’ credentials, a process that sometimes took months to complete.
                              Because health care delivery began before providers’ professional
                              credentials could be verified and entered into the claims processing
                              system, some claims were erroneously paid as non-network. These errors
                              sometimes took months to rectify. Not only did this irritate providers, but
                              it also created additional, unnecessary work for the claims
                              processors—especially since the vast majority of providers were
                              eventually certified to provide care.


TRICARE’s Complexity          Many claims processing errors are caused by program complexities and
and Frequent Program          frequent changes. MCSCs told us that, of the many programs they
Changes Affect Accuracy       administer—including Medicare and private plans—TRICARE is unique
                              and the most complicated, contributing to claims processing difficulties.
                              The following features contribute to TRICARE’s complexity:

                          •   Each of TRICARE’s three options has a different array of benefits,
                              copayments, deductibles, and adjudication procedures. For example, each
                              option has different cost shares, provider payments, and authorization
                              requirements, creating added difficulty in processing claims and increasing
                              the potential for processing errors. Sometimes, even within an option,
                              different claims processing rules apply. For example, a Prime beneficiary
                              could elect to use a provider without authorization and pay a higher cost
                              share for the care.



                              8
                               Despite TRICARE Procurement Improvements, Problems Remain (GAO/HEHS-95-142, Aug. 3, 1995).



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•   For the Prime and Extra options, it is difficult to maintain accurate
    provider reimbursement information because payment agreements are
    complicated and individual providers may belong to multiple practices
    with different agreements.
•   Claims submitted under the Standard option can be complex to process
    because providers can either accept TRICARE’s allowable amount as
    payment in full or charge up to an additional 15 percent on a
    claim-by-claim basis.
•   For each claim, MCSCs’ subcontractors must connect with and rely on
    selected DOD databases to verify eligibility, deductibles, and enrollment.
    MCSCs stated that this requirement complicates claims processing and
    increases the likelihood of errors. In contrast, most private insurers
    maintain their own files for these purposes.
•   TRICARE is almost never the primary payer when other health insurance
    is involved. Thus, MCSCs’ subcontractors must understand the requirements
    of many other programs’ benefit structures and obtain reimbursement
    information before a claim can be processed to completion.
•   TRICARE is subject to many special demonstration programs, such as
    TRICARE Prime Remote and TRICARE Senior Prime, which have different
    claims processing requirements.9

    TRICARE’s frequent program changes further complicate claims
    processing. Program changes, which include changes to health care
    benefits as well as administrative changes, are generally communicated
    throughout the year in the form of contract modifications. As of
    October 1998, DOD had instructed the MCSCs we reviewed to implement
    about 650 contract modifications—an average of about 130 per contract
    since 1995. DOD and subcontractor officials stated that most contract
    modifications have an impact on claims processing. MCSCs stated that their
    ability to process claims accurately is impeded because most changes
    affect claims processing and require system reprogramming and testing as
    well as staff retraining within a relatively short time—generally a month or
    less.

    DOD’s recently established work simplification initiative calls for program
    benefit changes to be implemented on an annual basis, with 8 to 9 months
    of lead time provided prior to implementation. In addition, DOD plans to
    implement administrative changes on a quarterly basis with the same


    9
     The TRICARE Senior Prime program is a 3-year demonstration project under which Medicare will
    reimburse DOD for care provided to Medicare-eligible beneficiaries under the TRICARE Prime option.
    The TRICARE Prime Remote program provides medical care comparable to coverage under the
    TRICARE Prime program to active duty members assigned to remote locations.



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                            amount of lead time as benefit changes.10 This should reduce claims
                            processing errors resulting from frequent program changes.


MCSCs Are Not               Although DOD and its MCSCs are responsible for the majority of claims
Responsible for All Claim   processing errors, about 16 percent of adjustments to claims were due to
Errors                      filing errors. If providers and their office staff do not understand the
                            TRICARE program, their claims may be submitted with inaccurate or
                            incomplete information. After these claims are processed to completion,
                            the providers may disagree with the outcomes and submit additional
                            information. Once this information is provided, the claims must be
                            reprocessed.

                            MCSCs  are required to conduct educational seminars and to publish
                            provider handbooks and newsletters communicating TRICARE issues,
                            including claims filing. We found that MCSCs were providing training
                            seminars semiannually for their network providers and annually for their
                            non-network providers. However, they told us that because TRICARE is
                            usually a small percentage of providers’ businesses, providers have little
                            incentive to participate in educational seminars or to read the many
                            bulletins and updates to stay current on the frequent program changes.
                            For example, in some urban areas providers may accept patients from 20
                            different health insurers—and need to understand all their
                            requirements—with TRICARE often being a small portion of their
                            practices. MCSCs stated that TRICARE is the most complicated plan in
                            which providers participate. Consequently some providers do not express
                            an interest in learning about the program until they have questions about
                            their claims.

                            Because beneficiaries and providers do not always understand the
                            TRICARE program, they may file their claims incorrectly or complain
                            about adjudication decisions on claims that have been processed
                            correctly. For example, misunderstandings can arise when a covered
                            service is processed but no check or a smaller-than-expected check is
                            issued. This could happen when annual deductibles have not been met,
                            and beneficiaries do not understand that they are responsible for paying
                            for the covered services. This could also occur when other health
                            insurance has paid as much as TRICARE allows, but the provider expects
                            additional payment from TRICARE as the secondary carrier. In addition,
                            because of negotiated discounts, providers are sometimes paid less under
                            TRICARE than under DOD’s previous civilian health program, CHAMPUS.

                            10
                              A similar proposal is contained in draft legislation for DOD’s fiscal year 2000 authorization bill.



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                           While these differences are the result of policy changes and not processing
                           errors, some providers may not recognize this.


                           TCC software, which is used to prevent overpayments on professional
DOD’s Slowness in          claims, saved DOD over $53 million during fiscal year 1998. While providers
Implementing Policy        have frequently complained about TCC determinations, TCC determinations
Changes Has Led to         changed only a small percentage (3.5 percent) of professional claims
                           during this time. Providers have also expressed concern that they have no
Complaints About           assurance that the software’s edits comply with industry standards. We
TCC                        found that the basic product was developed based on industry standards
                           and that TCC—DOD’s modified version—essentially mirrors the standard
                           commercial product. Nonetheless, in spite of its effectiveness, TCC
                           inappropriately denied procedures on some claims because DOD has been
                           slow to direct MCSCs to reflect policy changes affecting TCC outcomes in
                           their claims processing systems. MCSCs also occasionally provided
                           incomplete and inaccurate information, which led providers to believe
                           they had no recourse over TCC outcomes.


ClaimCheckTM Is Used by    ClaimCheckTM is a leader in the claim editing software industry and has
Many Commercial Plans      more than 200 customers nationwide, including the Department of
and Is Based on Industry   Veterans Affairs and over 60 percent of Blue Cross Blue Shield carriers. In
                           October 1998, HHS’ Health Care Financing Administration (HCFA) started
Standards                  supplementing its Correct Coding Initiative (CCI) edits with selected
                           ClaimCheckTM edits to prevent overpayments in the Medicare program.11

                           Despite ClaimCheckTM’s general acceptance in the insurance industry, the
                           providers we spoke with expressed an overall concern about commercial
                           code-editing software. They stated that because the edits are not published
                           and available to them, they have no way of ensuring that the edits comply
                           with the American Medical Association’s (AMA) Physicians’ Current
                           Procedural Terminology (CPT) coding guidelines, which are the industry
                           standard. Officials of McKesson/HBO & Company (HBOC), who market the
                           software, stated that its edits are based upon CPT guidelines published by
                           the AMA as well as guidelines published by HCFA and medical specialty
                           societies. In addition, physicians retained by the HBOC Clinical Consulting




                           11
                            The CCI was developed by Administar specifically for Medicare to help reduce provider
                           overpayments.



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                       Network were involved in the development of ClaimCheckTM and are also
                       involved in the yearly software updates.12

                       ClaimCheckTM can be modified to reflect any health care plan’s benefit
                       structure and reimbursement policies. However, because purchasers of
                       such software can customize the edits, some providers argue that they
                       have no assurances that such modifications comply with industry
                       standards. We found that TCC essentially mirrors the commercial product
                       because DOD has made only 12 customizations to the software to reflect its
                       benefit structure and reimbursement policies. DOD’s customizations are
                       described in appendix III. Furthermore, according to DOD officials, DOD
                       centrally directs all TCC modifications, and MCSCs cannot independently
                       customize it.


DOD Has Been Slow to   MCSCs were unanimous that the biggest problem with TCC was the length of
Make Policy Changes    time it took for DOD to direct implementation of changes to reimbursement
Affecting TCC          policies. Most program changes, including those affecting TCC, must be
                       communicated and implemented through contract modifications. Policy
Determinations         changes can take a long time to issue because they must be drafted and
                       priced, sent to MCSCs for comment, and then finalized and issued.
                       Additional time is also needed for implementation.

                       DOD’s decision to reimburse dermatologists for surgical pathology provides
                       an example of this problem.13 In April 1996—early into the implementation
                       of TCC—DOD realized that the software’s edits resulted in denials to
                       dermatologists for surgical pathology procedures. Initially, DOD’s policy
                       supported this determination, but DOD subsequently decided that, unlike
                       other providers, dermatologists were qualified to perform surgical
                       pathology and should be reimbursed accordingly. Because ClaimCheckTM’s
                       auditing logic does not accommodate physician specialties, this change
                       had to be accommodated within the MCSCs’ claims processing systems in
                       order to prevent inappropriate TCC denials. However, it took DOD almost 2
                       years to finalize the modification and provide it to MCSCs. One MCSC stated
                       that dermatologists left its network solely because of DOD’s inability to
                       react quickly to this needed change.




                       12
                         HBOC’s Clinical Consulting Network, which currently consists of more than 180 members, represents
                       a cross-section of physicians with extensive clinical practice, academic, and medical management
                       experience.
                       13
                         Surgical pathology is the gross and microscopic examination of sampled tissue.



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Confusion About the        Misleading communication regarding the proprietary nature of TCC edits
Ability to Challenge TCC   has fueled providers’ frustration because they have sometimes been
Determinations Adds to     unable to obtain explanations from MCSCs concerning the edits that
                           affected their claims. However, HBOC officials stated that ClaimCheckTM is
Providers’ Frustration     not a “black box” because purchasers receive narrative descriptions on
                           how every edit works. DOD officials added that providers can request and
                           receive information on specific edits from MCSCs. MCSCs have on-line access
                           to explanations about the edits that result in the most frequent
                           adjustments and denials. HBOC also provides a toll-free telephone number
                           MCSCs can call to obtain explanations for all other types of edits. However,
                           DOD officials acknowledged that MCSCs have incorrectly told providers that
                           the edits cannot be explained to them. To ensure that MCSCs share
                           appropriate information with health care providers, DOD stated that it
                           recently reminded them of the availability of the on-line rationale and the
                           toll-free hotline. The extent to which DOD’s reminder addresses this
                           problem remains to be seen.

                           Providers’ frustration was further compounded by DOD’s and MCSCs’ poor
                           communication regarding the available recourse over TCC determinations.
                           As part of its allowable charge review process, DOD has established a
                           process for reconsidering claims denied by software edits; however, this
                           process has not been well communicated to providers and beneficiaries.
                           As a result, many providers and beneficiaries who questioned TCC
                           determinations were incorrectly informed that these determinations
                           accurately reflected TRICARE policy and that no recourse for review was
                           available to them. DOD’s Medical Director for the Southwest Region said
                           that the failure to inform providers of the TCC determination review
                           process created significant problems for the network, including some
                           providers’ decisions to leave it.

                           Beneficiaries’ and providers’ complaints that DOD and its MCSCs did not
                           make a review process available to them prompted the Congress to
                           mandate, in the Strom Thurmond National Defense Authorization Act for
                           Fiscal Year 1999 (P.L. 105-261), that DOD establish an appeals process for
                           TCC denials. In response, DOD has proposed a two-level appeals process for
                           TCC determinations. DOD has informed MCSCs that they are to advise
                           beneficiaries and providers that they can request a TCC appeal if they are
                           dissatisfied with a TCC determination. If beneficiaries or providers are
                           dissatisfied with the results of the initial review, DOD has proposed a
                           second level of TCC appeals.




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Claim-Editing Software   In order to be less prescriptive and to allow MCSCs to use best industry
May Not Be Required in   practices, DOD is considering eliminating the requirement that MCSCs use
                         TCC or any other claim-editing software from the next round of TRICARE
Future Contracts
                         contracts. DOD officials stated that, in the future, interested companies
                         would probably offer to use code-editing software whether or not they are
                         required to do so. They would most likely choose ClaimCheckTM because it
                         is the industry leader, and it is already being used by current MCSCs for
                         TRICARE as well as by many other potential MCSCs for their commercial
                         health care plans.

                         DOD  officials added that, even though MCSCs would be permitted to use
                         different code-editing software, the claim outcomes would be required to
                         accurately reflect the TRICARE benefit. Because differences in the types
                         of software used and individual MCSC customization could result in
                         inconsistently processed claims, DOD will need to closely monitor claim
                         outcomes to ensure that MCSCs adhere to the TRICARE benefit.


                         MCSCs   are meeting DOD’s timeliness standard for processing claims.
Conclusions              However, the overall timeliness measure masks weaker performance in
                         processing certain types of claims, such as those submitted by hospitals
                         and other institutions. Furthermore, many providers and beneficiaries
                         continue to complain about slow claims payment, perhaps because some
                         3 million claims took more than 21 days to process. DOD has proposed
                         initiatives to improve claims processing timeliness. These initiatives
                         include adopting timeliness standards similar to Medicare’s, paying
                         interest on claims unresolved after 30 days, and not including incomplete
                         claims in measuring performance against the timeliness standard. These
                         initiatives appear to be steps in the right direction as they mirror standards
                         in both Medicare and the health insurance industry. If these initiatives
                         improve payment timeliness, DOD will enhance TRICARE’s image to
                         providers and encourage more confidence in the program.

                         Although DOD attempts to assess claims processing accuracy, we found
                         limitations in its methodology, which currently yields statistically invalid
                         results. It is imperative that DOD accurately measure payment error rates to
                         better identify and correct problems as well as assess MCSCs’ performance.
                         However, the TRICARE program structure, with its many complexities,
                         means that claims processing difficulties are not always easily resolved.
                         Inappropriate claim denials have sometimes been made because of DOD’s
                         slowness to direct MCSCs to make policy changes. In addition, impediments
                         such as inadequate startup time and frequent program changes can cause



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                         claims processing errors. Expediting the policy change process, providing
                         additional startup time, and consolidating program changes could help
                         improve claims processing accuracy.

                         Overall, claims processing problems have caused some providers to
                         become disillusioned with the TRICARE program. DOD and MCSCs are
                         taking steps to address these problems. If these steps are not successful,
                         DOD could face increasing problems attracting the number of civilian
                         providers necessary to ensure that beneficiaries have adequate access to
                         health care.


                         In order to better measure and improve claims processing accuracy, the
Recommendations          Secretary of Defense should direct the Assistant Secretary of Defense for
                         Health Affairs to do the following:

                     •   Restructure the methodology used for claims processing accuracy audits
                         so that performance measures more accurately and completely reflect
                         MCSCs’ performance and are more comparable to those generally used in
                         the industry. This restructuring should include (1) ensuring that claims of
                         all dollar amounts are subject to the payment accuracy audit, (2) ensuring
                         that error rate computations are statistically accurate and meaningful, and
                         (3) adding additional measures of program performance, such as the
                         percentage of claims processed with errors.
                     •   Grant new MCSCs a longer transition period—9 to 12 months—between
                         contract award and the start of health care delivery.

                         To ensure that needed program changes are made in a timely manner, we
                         recommend that the Secretary of Defense direct the Assistant Secretary of
                         Defense for Health Affairs to expedite the process used to direct MCSCs to
                         implement program changes. To help eliminate confusion resulting from
                         frequent program changes, we also recommend that the Secretary
                         consolidate contract modifications and direct MCSCs to implement them on
                         a quarterly basis.


                         In commenting on a draft of this report, the Assistant Secretary of Defense
Agency Comments          for Health Affairs stated that DOD concurs with the report’s findings
and Our Evaluation       regarding past problems associated with processing TRICARE claims. DOD
                         also stated that the report is supportive of its efforts to improve the
                         accuracy and timeliness of claims payment and the implementation of
                         program changes. In response to our recommendations, DOD agreed to



                         Page 22                    GAO/HEHS-99-128 Claims Processing Improvements Needed
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provide new MCSCs a longer transition period between contract award and
the start of health care delivery, to expedite the process used to direct
MCSCs to implement program changes, and to consolidate contract
modifications and direct MCSCs to implement them on a quarterly basis.
However, DOD only partially concurred with our recommendation that it
restructure the methodology used for claims processing accuracy audits.

We recommended that DOD ensure that claims of all dollar amounts,
including those under $100, be subject to the payment accuracy audit. In
response, DOD stated that because of the significant amount of expense
involved with auditing these small claims, the return on investment would
be very low and would not affect the overall impact of errors. In our
opinion, the expense involved in sampling these claims should not be
prohibitive because the low variance in this category (the size of errors
can range only from 1 cent to $99.99) means that it could be sampled at a
much lower rate compared with the higher-dollar claim categories. In fact,
when DOD recalculates the required sample size, it may find the existing
sample could be redistributed to include low-dollar claims so that the
number of claims sampled overall remains the same. While we agree that
including these claims may not result in a large financial effect on the
government, it is an important quality assurance procedure because these
low-dollar claims comprise 60 percent of the claims paid and consequently
affect a large number of beneficiaries and providers. Sampling claims
under $100 is also important in describing the quality of operations
because the resulting error rate would include the entire population of
claims. Surprisingly, despite its concerns about the value of auditing
low-dollar claims, DOD said it would review its current quarterly sampling
methodology to determine the costs and benefits of reviewing claims of all
dollar amounts.

DOD stated that there are other mechanisms in place to ensure payment
accuracy, such as internal quality assurance audits conducted by each
MCSC and on-site surveillance by TRICARE Management Activity
representatives. However, while these mechanisms provide some useful
information, DOD does not use them to measure MCSC’s performance
against contract standards.

DOD also disagreed with our recommendation that it use paid amounts
rather than billed amounts to calculate payment error rates, stating that
while it might result in higher error rates, no additional information would
be gained. Our point is not that the use of paid charges results in a higher
payment error rate, but that paid amounts are a more logical and



Page 23                    GAO/HEHS-99-128 Claims Processing Improvements Needed
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meaningful measure that will provide better information on MCSCs’
performance. Payments under TRICARE are usually based on a fee
schedule or negotiated amounts, not billed amounts. Therefore, when
computing payment error rates, using actual amounts paid seems more
appropriate and useful.


As agreed with your offices, we are sending copies of this report to the
Honorable William S. Cohen, Secretary of Defense, and will make copies
available to others upon request. Please contact me on (202) 512-7101 if
you or your staff have any questions concerning this report. Staff contact
and other contributors are listed inappendix IV.

Sincerely,




Stephen P. Backhus
Director, Veterans’ Affairs and
  Military Health Care Issues




Page 24                    GAO/HEHS-99-128 Claims Processing Improvements Needed
Page 25   GAO/HEHS-99-128 Claims Processing Improvements Needed
Contents



Letter                                                                                              1


Appendix I                                                                                         28

Scope and
Methodology
Appendix II                                                                                        31

Claims Processing
Timeliness for the
Northeast,
Mid-Atlantic, and
Heartland Regions
Appendix III                                                                                       33

DOD’s Customization
of TRICARE
ClaimCheck
Appendix IV                                                                                        35

Comments From the
Department of
Defense
Appendix V                                                                                         40

GAO Contact and Staff
Acknowledgments
Tables                  Table 1: TRICARE MCSCs and Subcontractors Responsible for                   4
                          Claims Processing
                        Table 2: Processing Time by Category of Claim                               6
                        Table 3: Processing Time by Cost of Claim                                   7
                        Table 4: Electronic and Paper Claims Processed in 21 Days by                7
                          Category of Claim
                        Table 5: Number of Days to Process Claims                                   9




                        Page 26                  GAO/HEHS-99-128 Claims Processing Improvements Needed
Contents




Table 6: Effect of Statistical Adjustment on Error Rates for the            11
  Most Recently Available Finalized Audits for a 1-Year Period
Table 7: Comparison Between Quarterly Payment Error Rates                   12
  Calculated by Contract for the Most Recently Available Finalized
  Audits For a 1-Year Period
Table 8: Error Rates Calculated with GAO-Proposed Measures for              14
  the Most Recently Available Finalized Audits for a 1-Year Period
Table II.1: Claims Processing Time in the Northeast Region                  31
Table II.2: Claims Processing Time in the Mid-Atlantic and                  32
  Heartland Regions




Abbreviations

AMA          American Medical Association
CCI          Correct Coding Initiative
CHAMPUS      Civilian Health and Medical Program of the Uniformed
                   Services
CPT          Physicians’ Current Procedural Terminology
DOD          Department of Defense
E&M          evaluation and management
HBOC         McKesson/HBO & Company
HCFA         Health Care Financing Administration
HCSR         health care service record
HHS          Department of Health and Human Services
MCSC         managed care support contractor
TCC          TRICARE ClaimCheck
TMA          TRICARE Management Activity


Page 27                   GAO/HEHS-99-128 Claims Processing Improvements Needed
Appendix I

Scope and Methodology


             To assess claims processing timeliness, we obtained a health care service
             record (HCSR) file from the Department of Defense (DOD) containing
             19,185,541 records of completed claims that were processed between July
             1, 1997, and June 30, 1998, for the managed care support contractors
             (MCSC) that had at least 1 year’s experience in processing claims as of
             July 1998. Thus, we included claims from 8 of the 11 regions but did not
             include claims processed in the 3 regions that began health care delivery
             in 1998. (See table 1 (page 4) for a list of the regions that were and were
             not included in our analyses. See appendix II for timeliness statistics on
             the 3 regions that did not have at least 1 year’s experience processing
             claims as of July 1998.) The information for each claim represented the
             status of the claim at the time we received it and did not contain all data
             that may have been used to process the claim. For example, if the claim
             was adjusted multiple times, only the most recent adjustment information
             was on the database. In addition, while we did not independently verify
             the accuracy of the data, we conducted reliability tests to ensure the
             consistency of the information with DOD’s internal reports. We also
             reviewed the computer programs used to prepare their timeliness reports.

             To identify the time taken to process a claim, we used DOD’s formula for
             calculating the number of days between the date the claim was filed and
             the date it was processed to completion. We performed this calculation for
             all claims and summarized the calculations for several groups of claims.
             These groups were claim category (professional, pharmacy, and
             institutional), method of submission (electronic or paper), amount
             allowed for payment, and whether other health insurers or third parties
             were liable for health care costs. To identify DOD’s activities to improve
             timeliness, we also met with TRICARE Management Activity (TMA)
             officials to discuss the work simplification initiatives relating to claims
             processing.

             We assessed DOD’s process for determining claims processing accuracy by
             analyzing the four most recently completed audit reports for each of the
             TRICARE contracts we reviewed.14 We gathered information from officials
             at DOD and from its external auditor, Meridian Resource Corporation,
             about the audit process, including methods used to draw the samples and
             calculate the error rates. We also acquired from DOD both the audit reports
             and the corresponding sample data. To calculate sampling weights, we
             obtained the files containing necessary data on the populations from
             which the samples were drawn. To ensure that the correct files were

             14
              At the time we initiated our review, the earliest audit began in November 1996 and the latest ended in
             December 1997. For one of the TRICARE contracts, only three finalized audits were available.



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Appendix I
Scope and Methodology




received, we replicated findings on the audit reports from the data we
received; however, we did not verify the accuracy of the audit process
itself.

To assess the effect of contract modifications on claims processing, we
met with the TMA officials responsible for developing, implementing, and
monitoring them. We also met with representatives from MCSCs and their
claims processing subcontractors to learn how they were affected by
contract modifications. We obtained and analyzed schedules of these
modifications to TRICARE contracts to determine their volume. We
obtained information from DOD on MCSCs’ responsibilities for provider
education to assess their efforts to teach correct claims filing. We
interviewed and obtained information from each of the MCSCs to determine
what efforts were under way to educate providers and to identify the
effect of provider education on claims processing accuracy. We also
interviewed the claims processing subcontractors, who sometimes assist
the MCSCs with education efforts.

To assess the magnitude of filing errors, we obtained computerized files
from Wisconsin Physicians Service and Palmetto Government Benefits
Administrators, the two claims processing subcontractors. These files
contained records of all adjustments to claims submitted between July 1,
1997, and June 30, 1998, in the eight regions with at least 1 year’s
experience in processing claims as of July 1998. The records identified
whether an error(s) was made by the contractor or by the person filing the
claim.

We met with officials of McKesson/HBO & Company (HBOC), the
distributors of ClaimCheckTM, to discuss the development and features of
their claims editing software and to obtain statistics on its market
penetration. To identify specific physician complaints about TRICARE
ClaimCheck (TCC), we reviewed extensive documentation of physicians’
complaints provided by various medical societies, individual physician
practices, and TMA. We also interviewed officials from the American
Medical Association, the Texas Medical Association, and the American
Academy of Dermatology, who were identified as having specific concerns
about the software. In addition, we contacted individual physician
practices, which were referred to us by the various advocacy groups, to
discuss their concerns and to obtain supporting claim documentation. To
assess whether physicians’ complaints were valid, we met with DOD’s TCC
policy officials to discuss the implementation and customization of
ClaimCheckTM software for the TRICARE program. We obtained



Page 29                   GAO/HEHS-99-128 Claims Processing Improvements Needed
Appendix I
Scope and Methodology




documentation on DOD’s policy for using the software, including instances
in which a specific edit could be overridden by a contractor to allow
payment in certain circumstances.

To determine how the TCC software is actually working, we met with MCSC
officials as well as their claims processing subcontractors. We discussed
the yearly updates as well as notifications of interim changes to TCC
decisions, such as policy changes, that DOD would like for contractors to
make within their own claims processing systems. We obtained
information on how the contractors communicate with providers about
TCC. We also discussed the process through which a provider can question
TCC decisions on specific claims as well as how MCSCs’ customer service
representatives are trained to respond to these inquiries.

We performed our work between April 1998 and June 1999 in accordance
with generally accepted government auditing standards.




Page 30                   GAO/HEHS-99-128 Claims Processing Improvements Needed
Appendix II

Claims Processing Timeliness for the
Northeast, Mid-Atlantic, and Heartland
Regions
                                        This appendix provides information on claims processing timeliness for
                                        the three regions that did not have at least 1 year of processing experience.
                                        We obtained data from DOD’s HCSR database to determine the timeliness of
                                        claims processing in the Northeast region, managed by Sierra Military
                                        Health Services, and the Mid-Atlantic and Heartland regions, managed by
                                        Anthem Alliance for Health, Inc. However, we could not use this file to
                                        independently verify timeliness because approximately 20 percent of the
                                        records were missing. Therefore, to assess timeliness for these regions, we
                                        used DOD’s monthly analyses of MCSCs’ claims records, which are based on
                                        a more complete version of this same file.

                                        As shown in table II.1, the MCSC for the Northeast region met the timeliness
                                        standard of processing 75 percent of claims within 21 days in 5 of their
                                        first 9 months. However, during this time, nearly half a million claims took
                                        longer than 21 days to process.

Table II.1: Claims Processing Time in
the Northeast Region                    Month and year               Claims processed     Percentage paid within 21 days
                                        July 1998                               87,692                            79.57
                                        August 1998                            100,823                            81.33
                                        September 1998                         178,700                            73.61
                                        October 1998                           211,376                            78.36
                                        November 1998                          120,661                            70.85
                                        December 1998                          364,582                            76.95
                                        January 1999                           294,538                            70.35
                                        February 1999                          375,865                            84.45
                                        March 1999                             219,082                            71.48
                                        Total for 9 months                    1,953,319                           76.60




                                        Page 31                    GAO/HEHS-99-128 Claims Processing Improvements Needed
                                        Appendix II
                                        Claims Processing Timeliness for the
                                        Northeast, Mid-Atlantic, and Heartland
                                        Regions




                                        As table II.2 shows, the MCSC for the Mid-Atlantic and Heartland regions
                                        met the timeliness standard for 4 of the first 10 months of processing
                                        claims. About 1 million of the over 4 million claims processed during this
                                        time took longer than 21 days to process.

Table II.2: Claims Processing Time in
the Mid-Atlantic and Heartland          Month and year                    Claims processed    Percentage paid within 21 days
Regions                                 June 1998                                  153,888                            89.40
                                        July 1998                                  356,405                            76.83
                                        August 1998                                359,420                            74.47
                                        September 1998                             514,561                            72.73
                                        October 1998                               420,357                            70.77
                                        November 1998                              245,086                            72.08
                                        December 1998                              667,272                            70.50
                                        January 1999                               504,915                            72.77
                                        February 1999                              550,796                            77.89
                                        March 1999                                 547,471                            83.55
                                        Total for 10 months                       4,320,171                           75.27




                                        Page 32                        GAO/HEHS-99-128 Claims Processing Improvements Needed
Appendix III

DOD’s Customization of TRICARE
ClaimCheck

                 To ensure that ClaimCheckTM’s edits reflected TRICARE policy, DOD
                 officials compared the auditing logic in the ClaimCheckTM manual to
                 TRICARE policy.15 When conflicts were identified, DOD officials either
                 adopted the ClaimCheckTM determination as policy or customized the
                 ClaimCheckTM determination to conform to TRICARE policy. For example,
                 the generic version of ClaimCheckTM always denies reimbursement for
                 procedures billed with modifiers –24, –25, and –79, which are used in
                 conjunction with procedure codes to better describe the circumstances
                 under which medical services were performed.16 During its review of the
                 auditing logic, DOD decided to always allow payment for procedures
                 correctly billed with these modifiers. DOD calls the customized product
                 TCC. Contractors receive annual TCC updates, which are customized
                 centrally by HBOC based on DOD direction. To ensure uniformity, MCSCs are
                 not permitted to individually customize TCC except by direction from DOD.
                 DOD’s customizations to date are listed in this section.



DOD-Directed     1. Deleted the incidental edit for Physicians’ Current Procedural
Customizations   Technology (CPT) 76818 (fetal biophysical profile) with CPT 76805
                 (complete fetal and maternal evaluation) so that both procedures will be
                 paid when billed together.

                 2. Added the following CPT codes for payment of the following
                 cosmetic/experimental procedures: 15775 (skin graft), 15776 (skin grafts),
                 89329 (sperm evaluation), 65771 (radial keratotomy), 95961 (functional
                 cortical mapping), and 52510 (dilation of prostatic urethra).

                 3. Customized the mutually exclusive edit to allow reimbursement for the
                 most clinically intensive procedure as opposed to the procedure with the
                 highest charges or the procedure with the lowest charges.

                 4. Added TRICARE-specific procedure codes for payment.

                 5. Customized to always allow reimbursement for modifiers –24, –25, and
                 –79.


                 15
                    DOD’s TCC policy officials stated that, because ClaimCheckTM’s software logic was well documented
                 and supported, they did not perform an edit-by-edit review for each of the 5 million edits.
                 16
                   Modifier –24 is used to describe an unrelated evaluation and management service by the same
                 physician during a postoperative period. Modifier –25 is used to describe a significant, separately
                 identifiable evaluation and management service performed by the same physician on the same day of a
                 procedure or other service. Modifier –79 describes an unrelated procedure or service by the same
                 physician during a postoperative period.



                 Page 33                            GAO/HEHS-99-128 Claims Processing Improvements Needed
Appendix III
DOD’s Customization of TRICARE
ClaimCheck




6. Added all Health Care Financing Administration Common Procedural
Coding System modifiers for system recognition.17

7. Customized CPT 94150 (vital capacity) to be found incidental to all
evaluation and management (E&M) procedure codes since payment for this
code is included in the allowable amount of the E&M codes.

8. Deleted the edit that found CPT 90887 (interpretation of psychiatric
exam) incidental to CPT 90845 (psychoanalysis) so that they will both be
paid when billed together.

9. Customized system to recognize modifiers –26, –27, –59, and –90.

10. Deleted incidental edit associated with CPT 62278 and 62279 (epidural
codes) when billed with maternity codes so that they will be paid.

11. Effective January 1, 1998, deleted the incidental edit associated with
CPT 54150 (newborn circumcision) and E&M codes to allow payment for the
circumcision when billed with an E&M code.18

12. Effective December 1, 1998, added TRICARE-specific codes
W0002-W0019 for automated multi-channel laboratory tests so that they
will be paid.




17
 System recognition does not mean that these procedure codes will be paid. It means that the claims
will be able to pass through the system without having to stop for manual review.
18
 In January 1999, DOD directed MCSCs to make this change by February 1999. However, some MCSCs
did not make the change until March 1999. With a retroactive effective date, MCSCs may adjust claims,
when brought to their attention, back to January 1, 1998.



Page 34                            GAO/HEHS-99-128 Claims Processing Improvements Needed
Appendix IV

Comments From the Department of Defense




              Page 35   GAO/HEHS-99-128 Claims Processing Improvements Needed
Appendix IV
Comments From the Department of Defense




Page 36                      GAO/HEHS-99-128 Claims Processing Improvements Needed
Appendix IV
Comments From the Department of Defense




Page 37                      GAO/HEHS-99-128 Claims Processing Improvements Needed
Appendix IV
Comments From the Department of Defense




Page 38                      GAO/HEHS-99-128 Claims Processing Improvements Needed
Appendix IV
Comments From the Department of Defense




Page 39                      GAO/HEHS-99-128 Claims Processing Improvements Needed
Appendix V

GAO Contact and Staff Acknowledgments


                  Michael T. Blair, Jr., (404) 679-1944
GAO Contact
                  In addition to the contact named above, Bonnie Anderson, Deborah
Acknowledgments   Edwards, Art Kendall, Robert DeRoy, Dayna K. Shah, Cynthia Forbes, and
                  Lois Shoemaker made key contributions to this report.




(101627)          Page 40                    GAO/HEHS-99-128 Claims Processing Improvements Needed
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