oversight

Medicare: Program Safeguard Activities Expand, but Results Difficult to Measure

Published by the Government Accountability Office on 1999-08-04.

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

                  United States General Accounting Office

GAO               Report to the Ranking Minority Member,
                  Subcommittee on Labor, Health and
                  Human Services, Education, and Related
                  Agencies, Committee on Appropriations,
                  U.S. Senate
August 1999
                  MEDICARE
                  Program Safeguard
                  Activities Expand, but
                  Results Difficult to
                  Measure




GAO/HEHS-99-165
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Health, Education, and
      Human Services Division

      B-282114

      August 4, 1999

      The Honorable Tom Harkin
      Ranking Minority Member
      Subcommittee on Labor, Health and Human
        Services, Education, and Related Agencies
      Committee on Appropriations
      United States Senate

      Dear Senator Harkin:

      With its broad range of services, delivered by hundreds of thousands of
      providers to about 39 million beneficiaries—and payments of about
      $200 billion in fiscal year 1998—Medicare will always be vulnerable to
      fraud, waste, and abuse. We designated Medicare as a high-risk program at
      the inception of our efforts to identify programs most susceptible to fraud
      and abuse and have issued a number of reports addressing ways to better
      safeguard the program. Despite the work of several oversight agencies,
      Medicare’s vulnerability continues, as highlighted by a recent Department
      of Health and Human Services (HHS) Office of the Inspector General (OIG)
      audit report, which estimated that improper Medicare payments totaled
      $12.6 billion in 1998.

      To help the Health Care Financing Administration (HCFA), which
      administers Medicare, to combat fraud, waste, and abuse, the Congress
      enacted title II of the Health Insurance Portability and Accountability Act
      in 1996 (HIPAA). That title established the Medicare Integrity Program (MIP),
      which provides HCFA with assured levels of funding for Medicare program
      safeguard activities. The five main types of program safeguard activities
      performed by contractors before and after passage of HIPAA are (1) medical
      reviews of claims; (2) determinations of whether Medicare or other
      insurance sources have primary responsibility for payment, which is called
      Medicare Secondary Payer (MSP); (3) audits of cost reports;
      (4) identification and investigation of potential fraud cases (benefit
      integrity); and (5) provider education and training (PET).1 HIPAA also
      authorized HCFA to hire MIP contractors to perform these program
      safeguard activities.

      Because of your ongoing interest in safeguarding Medicare payments, you
      asked us to undertake a comprehensive review of HCFA’s program


      1
       HIPAA also required HCFA, as part of its safeguard activities, to develop a list of the durable medical
      equipment that will be subject to authorization before payment is made.



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                   safeguard activities. This report responds to your request and provides
                   specific information on (1) how Medicare program safeguard activities
                   have changed from fiscal years 1995 to 1999 and what changes are planned
                   for fiscal year 2000; (2) HCFA’s actions to better manage its program
                   safeguard activities, which respond to key findings from our previous
                   audit reports and those of the HHS OIG; and (3) the initial effects of MIP on
                   controlling Medicare fraud and abuse, including the adequacy of HCFA’s
                   data for measuring the effectiveness of its program safeguard activities.

                   To address these issues, we obtained from HCFA program safeguard
                   expenditure and workload data for fiscal years 1995 to 1998 as well as
                   budget data for fiscal years 1999 and 2000. We discussed with HCFA
                   officials reasons for actual or planned changes in program safeguard
                   activities for fiscal years 1995 to 2000 and whether the officials could
                   identify specific effects of MIP on controlling Medicare fraud and abuse.
                   Further, we reviewed pertinent HHS OIG audit reports, including the Chief
                   Financial Officers (CFO) Act audit reports for fiscal years 1996 through
                   1998, and determined HCFA’s actual and planned corrective actions.2 We
                   also reviewed our reports relating to program safeguard activities and
                   HCFA’s responses to our recommendations. Additionally, we met with two
                   Medicare claims processing contractors to determine how MIP
                   implementation affected their program safeguard operations and whether
                   these contractors could identify specific effects of MIP on reducing
                   Medicare fraud and abuse. We did not independently examine the internal
                   and automated data processing controls for systems from which we
                   obtained data used in our analyses. HCFA subjects its data to limited
                   reviews and examinations and relies on the data obtained from these
                   systems as evidence of Medicare expenditures and to support HCFA’s
                   management and budgetary decisions. We performed our work from
                   January through June 1999 in accordance with generally accepted
                   government auditing standards, with the one exception we have noted.


                   Total program safeguard expenditures began to increase in fiscal year 1998
Results in Brief   and will continue to do so through fiscal year 2003. Further, between fiscal
                   years 1995 and 1998 expenditures on four of the five safeguard activities
                   increased, and expenditures for all activities will have increased from
                   fiscal year 1995 levels in fiscal year 2000. Of the five activities, medical
                   review has experienced the largest overall increase. HCFA has taken a
                   number of actions to better protect Medicare and to promote more

                   2
                    We refer to the OIG’s fiscal year 1996, 1997, and 1998 Report on the Financial Statement Audit of the
                   Health Care Financing Administration as the CFO Act audits. The CFO Act audit report of 1996 was the
                   first report issued by the OIG that estimated total improper Medicare payments.



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             efficient and effective contractor safeguard operations. For example, HCFA
             directed contractors to review more claims before payment because such
             reviews are consistent with the agency’s goal of paying claims correctly
             and do not involve the “pay and chase” activities associated with
             postpayment medical reviews. HCFA also recently selected 13 MIP
             contractors that will initially supplement, rather than take over, the
             safeguard activities of the contractors that currently process claims.

             HCFA  is using the results of both our audits and those of the OIG to improve
             its MIP management. For example, in response to the fiscal year 1996 CFO
             Act audit, HCFA increased contractor reviews of certain types of claims that
             the OIG deemed most susceptible to inappropriate payments. HCFA has
             taken, or plans to take, additional corrective actions that respond to the
             CFO Act audits from 1996 through 1998 and has also used the results of
             other OIG audits to better manage its program safeguard activities.
             Additionally, HCFA has agreed with and implemented many, but not all, of
             our recommendations related to program safeguards.

             Despite HCFA’s efforts to improve its safeguard activities, it is both
             premature and difficult to quantify the effects of MIP on controlling
             Medicare fraud and abuse. Although MIP started in fiscal year 1997, the first
             year of increased program safeguard funding under MIP was fiscal year
             1998, thus leaving less than 1 year for the effects of this increased funding
             to occur and to be measured. Perhaps more importantly, HCFA does not
             have the kind of data needed to measure the effectiveness of its efforts,
             which also affected our ability to assess MIP’s effectiveness. HCFA
             recognizes the need for this kind of data and has plans for obtaining them
             in the future; but, in many cases, implementation of data system changes
             must wait until next year because HCFA is devoting considerable effort to
             ensuring that its data systems are year-2000 compliant. There are,
             however, important intangible benefits associated with MIP, such as
             deterring providers from submitting abusive claims. According to HCFA and
             its claims administration contractors, other benefits include increased
             HCFA oversight of contractor safeguard operations and an increased
             awareness of and focus on combating fraud and abuse by HCFA and its
             contractors.


             Established under the Social Security Amendments of 1965, Medicare
Background   consists of two parts: (1) “hospital insurance,” or part A, covers inpatient
             hospital, skilled nursing facility (SNF), hospice, and certain home health
             services, and (2) “supplemental medical insurance,” or part B, covers



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physician and outpatient hospital services, diagnostic tests, and other
medical services and supplies. Medicare covers an estimated 39 million
beneficiaries, the vast majority of whom receive their benefits under the
fee-for-service program. Under Medicare fee-for service, physicians,
hospitals, and other providers submit claims to Medicare and receive
payment for services they have provided to beneficiaries. Claims are
processed and paid by a network of about 60 claims administration
contractors—such as Blue Cross and Blue Shield plans, Mutual of Omaha,
and CIGNA. Contractors that process part A claims are referred to as
intermediaries, while those that process part B claims are called carriers.
In fiscal year 1998, contractors processed about 900 million claims.

Before enactment of HIPAA on August 21, 1996, program safeguard
activities were funded from the contractors’ general program management
budget, which also covered contractors’ costs for processing claims.
Additionally, only these contractors performed safeguard activities. Now,
under HIPAA, HCFA is provided dedicated funding for its anti-fraud and
-abuse activities as well as the authority to enter into contracts with MIP
contractors to promote the integrity of Medicare.

MIP consists of five types of program safeguard activities. First, medical
review includes both automated and manual prepayment and postpayment
reviews of Medicare claims and is intended to identify claims for
noncovered, medically unnecessary, or unreasonable services. The second
activity, MSP, seeks to identify primary sources of payment, such as
employer-sponsored health insurance, automobile liability insurance, and
workers’ compensation insurance, that should be paying claims
mistakenly billed to Medicare. MSP activities also include recouping
Medicare payments made for claims not first identified as the
responsibility of other insurers. MSP involves (1) reviewing claims on a
prepayment and postpayment basis; (2) matching information from the
Internal Revenue Service (IRS) and the Social Security Administration (SSA)
with information maintained by HCFA to identify those beneficiaries who
have the potential for being covered by employer-sponsored group health
insurance; and (3) responding to inquiries from beneficiaries, insurers, and
employers. The third MIP activity is the audit process, which involves
auditing cost reports submitted by hospitals, community mental health
centers, and others to determine if the costs are allowable and reasonable.
Fourth, benefit integrity involves contractor fraud units that identify,
investigate, and refer potential cases of fraud or abuse to law enforcement
agencies that prosecute fraud cases. Finally, MIP-funded PET provides
information related to Medicare coverage policies, billing practices, and



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                          issues related to fraud and abuse both to providers identified as being
                          aberrant, abusive, or fraudulent and to the general provider population.


                          Program safeguard expenditures in total increased between fiscal years
HCFA Has Expanded         1995 and 1998 and will continue to increase over the next 4 years because
and Modified Its          of the assured funding provided by HIPAA. Expenditures for the different
Safeguard Activities      program safeguard activities, except for MSP, also increased between fiscal
                          years 1995 and 1998; expenditures for all activities will have increased
Following MIP             over 1995 levels by fiscal year 2000. Since the inception of MIP, HCFA has
Implementation            increased the amount of program safeguard money that it administers
                          centrally for projects that support contractors’ safeguard activities, such
                          as maintenance and improvement of a database intended to assist
                          contractors in developing local medical review policies. HCFA has also
                          undertaken various actions to increase the efficiency and effectiveness of
                          its contractors’ safeguard operations—for example, by emphasizing
                          prepayment claims reviews. Further, HCFA recently hired MIP contractors as
                          authorized by HIPAA.


HIPAA’s Assured Program   HIPAA stipulated, beginning in fiscal year 1997, the amount of funding to
Safeguard Funding Has     carry out program safeguard activities that would be appropriated from
Resulted in Increased     the Medicare Trust Fund each year. This change provided HCFA with
                          dedicated, assured funding and represented a departure from the past.
Expenditures              Before HIPAA, program safeguard activities were funded as part of the
                          contractors’ general program management budget and were subject to
                          funding fluctuations. As we have reported in the past, these fluctuations
                          made it difficult to staff and develop anti-fraud and -abuse efforts by
                          contractors. Further, HCFA officials told us that funding for safeguard
                          activities was often reduced when more program management monies
                          were needed for claims processing.3

                          Figure 1 shows actual program safeguard expenditures for fiscal years
                          1995 through 1998 and HIPAA-appropriated amounts for fiscal years 1999
                          through 2003. We included expenditures for fiscal years 1995 and 1996 to
                          provide a comparison between actual expenditures 2 years before and 2
                          years after MIP implementation.




                          3
                           HCFA can no longer transfer funding between program operations, which are paid for from HCFA’s
                          operating budget, and program safeguard activities, which are now paid for from the Medicare Trust
                          Fund, unless HCFA receives specific legislative authority to do so.



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Figure 1: Program Safeguard Expenditures for Fiscal Years 1995 Through 1998 and HIPAA-Appropriated Funding for Fiscal
Years 1999 Through 2003




                                         MIP expenditures for fiscal year 1997 were actually less than in fiscal year
                                         1996, the last year before MIP implementation. This occurred because in
                                         1996 HCFA’s program safeguard spending benefited from transfers of funds
                                         from claims processing operations. Fiscal year 1998 represented the first
                                         year of increased program safeguard expenditures following MIP
                                         implementation. Not only did the MIP appropriation increase $60 million
                                         from the prior year, but HCFA received an additional $50 million in
                                         supplemental budget authority for fiscal year 1998 that it expended on
                                         program safeguard activities. Program safeguard appropriations are slated
                                         to increase between fiscal years 1999 and 2003, with increases of
                                         $70 million committed for fiscal year 2000 and another $50 million for
                                         fiscal year 2001. By fiscal year 2003, the program safeguard appropriation
                                         will total $720 million.



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                       Even when the effects of inflation are considered, program safeguard
                       expenditures grew between fiscal years 1995 and 1998—2 years before and
                       2 years after MIP implementation. In constant 1998 dollars, program
                       safeguard expenditures increased from 58 cents per claim processed in
                       fiscal year 1995 to 63 cents per claim in fiscal year 1998. However, this 63
                       cents is still almost one-third less than the amount Medicare expended per
                       claim in fiscal year 1989.


Expenditures on the    With the exception of MSP, which experienced a decrease of approximately
Various Safeguard      $10 million, or 9 percent, program safeguard expenditures increased for
Activities Have Also   each of the five main types of safeguard activities between fiscal years
                       1995 and 1998. Comparing fiscal year 1998 expenditures with budgeted
Increased              amounts for fiscal year 2000 indicates that funding for all safeguard
                       activities will increase, with the exception of benefit integrity, which will
                       experience a slight reduction. Figure 2 shows these changes.




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Figure 2: Comparison of Program Safeguard Expenditures for Fiscal Years 1995 and 1998 and Budgeted Amounts for
Fiscal Year 2000, by Activity




                                        A HCFA official told us that the agency decreased its MSP funding in past
                                        years to provide additional funding for the other safeguard activities
                                        because HCFA believed it could sustain the effectiveness of its MSP activities
                                        with less money. Funding for MIP-related PET conducted by contractors
                                        began in fiscal year 1997. Before that time, contractors used general
                                        program management funds to educate and train providers, and they
                                        continue to receive such funds for non-MIP-related PET activities.

                                        Although expenditures on benefit integrity activities increased from fiscal
                                        years 1995 to 1998, comparing fiscal year 1998 expenditures with the
                                        amount budgeted for fiscal year 2000 indicates that benefit integrity
                                        expenditures will decrease slightly. However, funding for benefit integrity
                                        would have increased had HCFA not reclassified some benefit integrity data



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                          analysis costs as medical review costs. (The same data analysis staff
                          support both of these safeguard activities.) This change resulted in the
                          transfer of $9 million from benefit integrity to medical review in fiscal year
                          1999.


HCFA Is Centrally         HCFA  is now centrally administering more money for program safeguard
Administering More        projects, resulting in proportionately less money for funding the program
Program Safeguard Money   safeguard activities performed by the claims administration contractors.4
                          These centrally administered projects, however, generally support the
                          safeguard activities performed by the contractors. For example, in fiscal
                          year 1998, HCFA spent $2.8 million on developing the Customer Information
                          System—a database that provides analytical support to the medical
                          review, MSP, audit, and benefit integrity safeguard activities. That same
                          year, HCFA spent $400,000 to maintain and improve a database designed to
                          assist contractors in developing local medical review policies. Funding for
                          some projects is provided on an ongoing basis, such as HCFA’s
                          expenditures for the information provided by the IRS and SSA that is
                          matched with HCFA data and used to determine if beneficiaries might have
                          employer-sponsored group health insurance. Funding for other projects is
                          limited to a defined period. For example, last year HCFA entered into a
                          17-month contract with a consulting and accounting firm. The firm’s tasks
                          include identifying contractor “best practices” related to medical review,
                          gathering information on how contractors develop their medical review
                          budgets, and making recommendations to HCFA on ways to improve
                          medical review nationally.

                          As shown in figures 3 and 4, HCFA centrally administered 1 percent of total
                          safeguard funds in fiscal year 1995, while it administered 9 percent in
                          fiscal year 1998. HCFA’s claims administration contractors expended the
                          remaining funds on their program safeguard activities.




                          4
                           For accounting purposes, HCFA refers to these projects as miscellaneous contracts and agreements.



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Figure 3: Medicare Expenditures for
Program Safeguard Projects Centrally
Administered by HCFA and for
Activities Carried Out by Contractors,
Fiscal Year 1995




Figure 4: Medicare Expenditures for
Program Safeguard Projects Centrally
Administered by HCFA and for
Activities Carried Out by Contractors,
Fiscal Year 1998




                                         HCFA centrally administered 38 projects in fiscal year 1998 costing a total of
                                         $47.2 million. The largest project involves HCFA’s 2-year licensing of
                                         commercial off-the-shelf software edits from a private contractor. Fiscal
                                         year 1998 expenditures on this project totaled $7.9 million, with another
                                         $8 million budgeted for fiscal year 1999. Savings from the first 6 months of
                                         requiring contractors to use a small number of edits totaled $4.6 million;
                                         HCFA officials told us that contractors would begin to use more edits in
                                         July 1999. The next two largest projects involve audits of cost reports from



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                           health maintenance organizations (HMO) whose payments are based on
                           their costs and a special audit initiative concerning home health agencies
                           (HHA).5 HCFA spent $4 million and $5.4 million, respectively, on these two
                           projects in fiscal year 1998 and has budgeted $4.8 million for HMO audits
                           this fiscal year. Appendix I provides details on the eight largest projects
                           centrally administered by HCFA in fiscal year 1998, including a brief
                           description of their objectives, status, and amount budgeted for fiscal year
                           1999.

                           HCFA  officials told us that part of the reason for the increased spending on
                           projects centrally administered by HCFA relates to implementation of MIP.
                           Previously, activities supporting program safeguard and claims processing
                           activities were funded from the general program management budget. For
                           example, before paying claims, carriers and intermediaries submit claims
                           to a system called the Common Working File to validate a beneficiary’s
                           entitlement, available benefits, and authorization to pay the claim. This
                           system is operated at nine host sites, with each site supporting the carriers
                           and intermediaries in a defined geographic area. Now, with MIP, HCFA has
                           allocated the costs of these activities to both the MIP and general program
                           management budgets. As a result, some activities that previously were
                           funded exclusively by the program management budget now show up as
                           MIP-funded projects administered by HCFA as well.



Medical Review, MSP, and   To more effectively protect Medicare from fraud, waste, and abuse and to
Audit Activities Are       increase the efficiency and effectiveness of contractor safeguard
Changing                   operations, HCFA has emphasized different types of medical review, MSP,
                           and audit efforts performed by contractors. These are the three safeguard
                           activities that are allocated the most MIP money. Contractors that we
                           visited responded by adjusting their mix of staff skills. The contractors are
                           now (1) using more highly trained nurses to perform medical review and
                           (2) hiring new or additional data analysis specialists who provide support
                           to both medical review and benefit integrity staff. One of the contractors
                           also hired specially trained staff to handle liability insurance cases in
                           which Medicare may be a secondary payer of a beneficiary’s health care
                           costs.

                           Contractors do not review each of the millions of claims they process each
                           year for medical necessity. Instead, contractors review a small percentage
                           of claims, trying to focus on medical procedures that they consider at risk


                           5
                            HMO audits represent an ongoing centrally managed program safeguard project, while the special
                           audit initiative involving HHAs was funded for 1 year.



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                                      for excessive use. Figure 5 shows that within medical review, HCFA is now
                                      emphasizing prepayment medical review over the “pay and chase”
                                      activities associated with postpayment review—an emphasis consistent
                                      with HCFA’s goal of paying claims correctly the first time.


Figure 5: Number of Claims Reviewed
on a Prepayment and Postpayment
Basis, Fiscal Years 1995 and 1998




                                      The number of prepayment reviews increased by more than one-half over
                                      the 4 years, from 66.5 million claims in fiscal year 1995 to 104 million in
                                      fiscal year 1998.6 At the same time, the number of claims reviewed on a
                                      postpayment basis declined from approximately 960,000 to 565,000, or by
                                      about 40 percent. In its fiscal years 1999 and 2000 budget and performance


                                      6
                                       HCFA data for fiscal year 1995 did not distinguish between prepayment and postpayment medical
                                      review of part A claims. Because data from fiscal year 1998, the first year that HCFA reported
                                      separately on the number of part A claims reviewed on a prepayment and postpayment basis, indicate
                                      that nearly all medical reviews of part A claims involve prepayment reviews, we considered all medical
                                      reviews of part A claims during fiscal year 1995 to be prepayment reviews.



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                                      requirements issued to contractors, HCFA stated that its goal is for
                                      contractors to maximize the number of prepayment reviews they conduct
                                      and encouraged contractors to develop and implement as many automated
                                      edits as possible.7 HCFA’s goal of performing more prepayment reviews to
                                      promote the correct payment of claims seems reasonable. However, in
                                      those cases in which providers are required to supply documentation in
                                      support of their claims before payment, HCFA must balance the expected
                                      benefits with the burden placed on providers.

                                      Figure 6 shows that contractors are conducting more MSP prepayment
                                      claims reviews and fewer MSP postpayment reviews. This, too, is consistent
                                      with HCFA’s goal of paying claims correctly.


Figure 6: Number of Claims Reviewed
for MSP Considerations on a
Prepayment and Postpayment Basis,
Fiscal Years 1995 and 1998




                                      7
                                       These edits would automatically deny services that are excluded by statute, are never medically
                                      reasonable and necessary, or are not covered on the basis of national or local medical review policies.



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                                      Figure 7 shows that fewer MSP IRS/SSA/HCFA data match recovery actions,
                                      which primarily involve issuing demand letters seeking payment in MSP
                                      cases, are being conducted.8


Figure 7: Number of MSP Data Match
Recovery Actions, Fiscal Years 1995
and 1998




                                      This reduction in the number of data match recovery actions from
                                      approximately 591,000 to about 299,000 over the 4-year period reflects
                                      several steps taken by HCFA to increase the efficiency of its contractors’
                                      MSP operations. For example, in fiscal year 1996, HCFA raised the threshold
                                      of the amount owed Medicare that would trigger a data match recovery
                                      action; it also decreased from three to one the number of demand letters
                                      issued seeking payment in individual MSP cases. As another example, in
                                      1998, HCFA decided not to send questionnaires to employers if an employee
                                      who was identified by Medicare as potentially having group health
                                      insurance made less than $10,000. This, too, reduced the number of
                                      demand letters issued. A HCFA official told us that it was unlikely that such



                                      8
                                       Recovery actions also include researching claims but taking no further action because the threshold
                                      that would trigger a demand letter has not been reached and determining that there are no claims
                                      Medicare has paid as the primary payer.



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employees had group health insurance that would be responsible for
paying their medical claims before Medicare was required to do so.

Cost report audit activity, which includes desk reviews and audits, has
increased in an effort to keep up with a growing number of entities
submitting cost reports and, in the case of HHAs, to prepare for
implementation of a new payment system.9 As shown in figure 8, desk
reviews of cost reports submitted by SNFs, HHAs, and “other” entities
increased; desk reviews of hospital cost reports decreased slightly; and
desk reviews of chain home office cost reports remained about the same
from fiscal years 1995 to 1998.10




9
 Desk reviews involve a less intensive review of provider cost reports, while audits involve a more
detailed, in-depth review of the reports by auditors.
10
 HCFA defines “other” entities as including community mental health centers, rural health clinics, and
end-stage renal dialysis facilities. Chain home offices are the parent sites of organizations that operate
health care facilities; home offices can allocate some of their operating costs to their other facilities.



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Figure 8: Number of Desk Reviews Performed, by Type of Entity Submitting Cost Reports, Fiscal Years 1995 and 1998




                                         The increasing number of desk reviews of SNF, HHA, and “other” cost
                                         reports reflects the growing number of these entities. From fiscal years
                                         1995 to 1998, the number of SNFs grew by 17 percent, HHAs by 20 percent,
                                         and “other” entities by 36 percent.

                                         The number of cost report audits of SNFs and HHAs increased as well, as did
                                         audits of chain home office cost reports (see fig. 9).




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Figure 9: Number of Audits Performed, by Type of Entity Submitting Cost Reports, Fiscal Years 1995 and 1998




                                          The number of cost report audits increased for each type of entity except
                                          hospitals from fiscal year 1995 to fiscal year 1998. A HCFA official told us
                                          that there is less emphasis on auditing hospitals that have no associated
                                          facilities, such as a SNF or an HHA, because HCFA has found relatively few
                                          problems with these providers. Regarding HHA audits, HCFA spent about 20
                                          percent of the $50 million in supplemental budget authority it received in
                                          fiscal year 1998 on audits of these providers. The results from many of
                                          these audits will be used to help develop an HHA prospective payment
                                          system that is to take effect in fiscal year 2000.




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Although Initial Steps to   HIPAAprovided HCFA with authority to hire MIP contractors, whereas
Hire MIP Contractors Are    previously HCFA used only its claims administration contractors to perform
Complete, Effects Will      program safeguard activities. Although HIPAA passed in 1996, it was only
                            recently that HCFA utilized its new authority.
Take Time
                            In May 1999, HCFA announced the businesses that have been chosen to
                            serve as program safeguard contractors (PSC)—one type of MIP contractor.11
                            The PSCs will perform medical review, audit, benefit integrity, and PET
                            activities. HCFA also announced the first six task orders describing the
                            initial scope of work to be done; the 13 PSCs will compete to perform the
                            work described in the task orders. These task orders are for program
                            safeguard activities that will supplement those currently performed by
                            carriers and intermediaries. For example, one task order calls for the PSCs
                            to identify effective areas to target for national provider education
                            activities in the future. Another task order calls for the PSCs to provide data
                            analysis and other support to the relatively small fraud units at the
                            intermediaries located in New England; these units will continue with their
                            current workload and staffing levels.

                            HCFA  officials said they did not want to take program safeguard activities
                            away from existing contractors this year. They were concerned that doing
                            so could disrupt claims processing activities at a time when HCFA is placing
                            significant emphasis on making its computer systems millennium-
                            compliant. Although HCFA’s concerns seem well-founded, this approach
                            will delay HCFA’s ability to evaluate some of the intended benefits of the
                            PSCs.


                            HCFA  also plans to hire a coordination of benefits contractor—a second
                            type of MIP contractor—by the end of the fiscal year that will be
                            responsible for many MSP functions currently performed by existing
                            contractors. These responsibilities include the IRS/SSA/HCFA data match now
                            performed by a claims administration contractor and administration of the
                            initial enrollment questionnaire sent to soon-to-be beneficiaries before
                            they become Medicare-eligible. This work is now conducted by a
                            nonclaims administration contractor hired by HCFA.




                            11
                             Initially, HCFA announced 12 PSCs. However, one business that was not chosen objected to HCFA’s
                            selection of contractors and, as a result, that business was added to the list of PSCs.



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                             HCFA’s policy is to utilize our findings and those of HHS’ OIG to help it
HCFA Is Using Results        administer and manage its program safeguard activities, and we found that
of OIG and Our Audits        this is generally happening. As required, HCFA has prepared, and is
to Manage Its                implementing, corrective action plans that respond to program safeguard
                             recommendations contained in the OIG’s CFO Act audit reports from 1996,
Program Safeguard            1997, and 1998. HCFA has also taken, or is planning, actions responding to
Operations                   virtually all of the findings from other OIG reports we reviewed to guide
                             HCFA’s MIP management. Further, HCFA has responded positively to many of
                             our recommendations for program safeguard improvements. In some
                             cases, however, HCFA did not agree with our recommendations or has yet
                             to take corrective actions.


HCFA Is Responding to        The CFO Act of 1990 imposed important requirements on federal agencies
CFO Act Audits               relating to the development of annual financial statements. Under the act,
                             HCFA is required to prepare financial statements that report its financial
                             position and the results of its operations. In the OIG’s first CFO Act audit of
                             HCFA covering fiscal year 1996, HCFA was cited for two issues directly
                             relating to program safeguards. First, the OIG reported that HCFA did not
                             have a process for estimating a national error rate for improper Medicare
                             payments. The OIG noted that such a process would enable HCFA to
                             measure its performance in reducing erroneous payments. The OIG
                             developed its own error rate estimate for fiscal year 1996 of 14 percent of
                             total Medicare fee-for-service payments, or $23.2 billion. Second, the OIG
                             reported that it was unable to determine whether the cost report
                             settlement payments made by HCFA as part of its audits of provider cost
                             reports were accurate.12 Because HCFA’s audits primarily target providers
                             deemed to have the greatest potential for overpayments, the OIG did not
                             have a statistically valid sample to draw upon to validate HCFA’s settlement
                             results.

National Error Rate for      The fiscal year 1997 CFO Act audit again reported that HCFA did not have a
Improper Medicare Payments   process for establishing a national claims payment error rate—the first of
                             the OIG’s fiscal year 1996 program safeguard findings. (The fiscal year 1998
                             CFO Act audit report also mentioned this issue but did not cite it as a
                             material weakness as in prior years.) To address this issue, HCFA signed a




                             12
                              Each cost report must be settled. That is, HCFA determines the amount of the allowed costs to be
                             paid by Medicare to the provider. Because of the limited scope of the audit work conducted by
                             contractors, the OIG was unable to determine what adjustments, if any, were necessary to the
                             $3 billion in cost settlements from prior years as well as any settlements that might be required for the
                             cost reports filed for fiscal year 1996.



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contract with the OIG in August 1998.13 Under the contract, the OIG was to
spend $4.7 million in fiscal year 1999 to develop a national Medicare
payment error rate for HCFA and estimate the amount of improper
payments for that year. The OIG was also to develop an error rate and
estimate the amount of improper payments for fiscal years 2000 and 2001,
at an additional cost to HCFA.

In February 1999, the OIG reported that HCFA had made improvements in
reducing improper Medicare payments.14 The OIG found that improper
Medicare payments in fiscal year 1998 totaled $12.6 billion, $7.7 billion less
than in fiscal year 1997. The OIG attributed this reduction, in part, to HCFA’s
efforts under MIP to expand contractor safeguard activities and to HCFA’s
corrective action plans in response to CFO Act audits. For example, HCFA
targeted medical reviews in fiscal year 1998 at certain types of services the
OIG deemed most susceptible to improper payments, such as office visit
services provided by physicians. However, despite these HCFA efforts noted
by the OIG, approximately 80 percent of the reduction in improper
payments from fiscal year 1997 to 1998 resulted from improved provider
documentation given to auditors rather than from a substantive reduction
in improper payments in categories such as lack of medical necessity,
incorrect coding of claims, and noncovered services.15 In fiscal year 1997,
documentation problems accounted for $9 billion, or 44 percent of the
$20.3 billion in improper payments, while in fiscal year 1998,
documentation problems accounted for $2.1 billion, or 17 percent of the
improper payments estimated by the OIG.

HCFA’s corrective action plan responding to the fiscal year 1998 CFO Act
audit contains a number of steps intended to reduce improper Medicare
payments in future years. These steps include (1) improving the
effectiveness and efficiency of medical reviews by identifying contractors’
best practices, (2) implementing and then further expanding upon the use
of commercial off-the-shelf computer edits for medical review,
(3) expanding upon HCFA’s initiative to ensure that claims contain correct
codes for the services provided, and (4) educating physicians with billing
problems about proper Medicare billing. Although these efforts to reduce

13
 According to the contract, the OIG’s work is comparable to management advisory services provided
by independent public accounting firms.
14
 HHS, OIG, Improper Fiscal Year 1998 Medicare Fee-for-Service Payments
(A-17-99-00099) (Washington, D.C.: HHS, Feb. 9, 1999).
15
 Medicare requires providers to maintain sufficient documentation to justify the claims submitted for
payment. Documentation errors found by the OIG included (1) insufficient documentation to
determine the patient’s overall condition, diagnosis, and extent of services performed and (2) no
documentation to support the services provided.



Page 20                                         GAO/HEHS-99-165 Medicare Safeguard Activities
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                          improper payments are noteworthy, HCFA needs to consider other
                          alternatives for spending its scarce resources as well. For example,
                          calculating an error rate for each contractor may be more important than
                          calculating a national claims payment error rate because error rates will
                          likely vary by contractor, and this process could lead to identification of
                          best practices at some contractors. Additionally, HCFA would have a better
                          basis for targeting its safeguard monies.16

Accuracy of Cost Report   The 1997 CFO Act audit report again cited the OIG’s inability to determine
Settlement Payments       whether cost report settlement payments made by HCFA during the year
                          were accurate—the second of the OIG’s 1996 program safeguard findings.
                          While the fiscal year 1998 report did not specifically cite this same
                          problem, a HCFA official told us that HCFA continues to audit insufficient
                          numbers of cost reports, with the result that the OIG cannot take obtain a
                          statistically valid sample. The HCFA official attributed this problem to a
                          lack of audit funds.

MSP Accounts Receivable   The OIG’s fiscal year 1998 CFO Act audit report cited problems related to
                          MSP accounts receivable that had not been cited in earlier CFO Act audits.
                          The OIG reported deficiencies in nearly all facets of MSP activity at the
                          contractors tested. For example, some contractors could not reconcile
                          their MSP accounting records with the amounts that they reported to HCFA.
                          The OIG also could not verify the allowance for uncollectible MSP accounts
                          receivable that HCFA calculated.17 Further, the OIG noted that HCFA had
                          executed settlement agreements with several insurance companies for MSP
                          overpayments. However, at fiscal year end, HCFA had not adjusted its MSP
                          accounts receivable balance to reflect either the collections from the
                          settlement agreements or the amounts to be settled. A HCFA official told us
                          that HCFA has not yet finalized its corrective action plan that will respond
                          to these findings, but that the agency was in the process of doing so.




                          16
                            In commenting on a draft of this report, HCFA said that it had established a goal for 2001 of
                          developing error rates at the contractor level, as well as error rates for the different categories of
                          Medicare benefits. HCFA also said that it is completing work at one contractor to test a methodology
                          for developing these error rates.
                          17
                           Not all MSP accounts receivable are collectible; HCFA therefore estimates the amount to be written
                          off as uncollectible.



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HCFA Is Also Responding   As part of our work, we judgmentally sampled seven other OIG audit
to Other OIG Findings     reports issued since 1995 pertaining to program safeguards and reviewed
Related to Program        how HCFA responded to them.18 We found that HCFA agreed to, and had
                          taken or planned to take corrective actions on, virtually all OIG
Safeguards                recommendations contained in the seven reports. Several examples
                          follow.

                          In November 1998, the OIG reported on intermediary fraud control units.
                          Among its findings were that fraud control units differed substantially in
                          the number of complaints and cases handled and that some units
                          produced few, if any, significant results. The OIG also found that key words
                          and terms related to fraud unit work varied in meaning, thereby hindering
                          HCFA’s ability to interpret fraud control unit data and to measure units’
                          performance. The OIG made five recommendations, and HCFA agreed with
                          each. Among the actions taken or planned by HCFA in response to the OIG’s
                          recommendations were (1) establishing a set of measures in order to
                          evaluate contractors’ performance in meeting national objectives and
                          (2) clarifying definitions of key words relating to fraud and abuse.

                          Another example concerns a second November 1998 OIG audit report
                          regarding clinical laboratory tests performed by hospital outpatient
                          department laboratories. The OIG found that intermediaries did not always
                          have adequate controls to detect and prevent inappropriate payment for
                          laboratory tests. The OIG recommended several actions, including that
                          intermediaries (1) implement additional procedures and controls to ensure
                          that all clinical laboratory tests performed by hospital outpatient
                          department laboratories are appropriately grouped together and not billed
                          separately and (2) collect overpayments that the OIG estimated at
                          $43.6 million for a 2-year period ending December 1995. HCFA agreed with
                          these recommendations and took several actions, including requiring its
                          contractors to have the detection capabilities in place to ensure that no
                          inappropriate payments are made.

                          In a third case, the OIG reported on questionable Medicare payments for
                          wound care supplies—such as dressings, adhesive tape, and roll gauze—in
                          October 1995. The report made two recommendations, to which HCFA
                          agreed, on ways that HCFA and its contractors could reduce unnecessary
                          payments. In a related report issued in June 1998, the OIG noted that there
                          had been a significant reduction in Medicare payments for wound care

                          18
                            The OIG has issued hundreds of reports since 1995 dealing with many different Medicare issues. We
                          did not attempt to review all of these reports to determine if they addressed program safeguard issues;
                          rather, we reviewed a list of the OIG’s reports and identified seven that, in our opinion, dealt with
                          major safeguard issues and related to the activities at multiple Medicare contractors.



                          Page 22                                         GAO/HEHS-99-165 Medicare Safeguard Activities
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                         supplies—from $143 million in 1995 to $74 million in 1996. The OIG
                         attributed this reduction, in part, to measures taken by contractors,
                         including their use of edits to screen for unnecessary supplies, as the OIG
                         had recommended in its October 1995 report.


HCFA Is Using Our        According to four of our key reports issued since fiscal year 1995 that
Findings in Its MIP      related to HCFA’s program safeguard activities, HCFA has often, but not
Management but Has Not   always, agreed with our findings and implemented our recommendations
                         for improving program safeguard operations. Three examples follow.
Always Agreed With Our
Recommendations          In June 1998, we reported that while HIPAA provided HCFA with assured
                         funding levels for program safeguards, HCFA had not administered that
                         funding in a way that provided contractors with increased funding
                         stability.19 Specifically, we reported that HCFA did not notify contractors of
                         their fiscal year 1998 program safeguard funding until one-third of the way
                         through the fiscal year, hindering contractors’ ability to expand their
                         program safeguard activities. HCFA addressed this finding by issuing
                         contractors their fiscal year 1999 program safeguard funds at the
                         beginning of the fiscal year.

                         As another example, our January 1996 report concerning medical review
                         made several recommendations, including one that HCFA establish
                         computerized prepayment controls that would suspend the most aberrant
                         claims for further review.20 HCFA subsequently strengthened its
                         instructions to contractors, directing them to implement prepayment
                         screens to prevent payment of billings for egregious amounts or patterns
                         of medically unnecessary services or items. HCFA also authorized its
                         contractors to deny automatically the entire amount for any services that
                         exceeded certain service limits.

                         In a third example, we reported on problems associated with Medicare’s
                         payments for surgical dressings in August 1995.21 One of our
                         recommendations was that HCFA develop and implement prepayment
                         review policies as part of its process for implementing any new or
                         expanded Medicare coverage. In October 1995, HCFA implemented a

                         19
                          Medicare: HCFA’s Use of Anti-Fraud-and-Abuse Funding and Authorities (GAO/HEHS-98-160, June 1,
                         1998).
                         20
                          Medicare: Millions Can Be Saved by Screening Claims for Overused Services (GAO/HEHS-96-49,
                         Jan. 30, 1996).
                         21
                          Medicare: Excessive Payments for Medical Supplies Continue Despite Improvements
                         (GAO/HEHS-95-171, Aug. 8, 1995).



                         Page 23                                      GAO/HEHS-99-165 Medicare Safeguard Activities
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                       regional medical review policy covering the expansion of the surgical
                       dressing benefit that had occurred in March 1994.22 Also, specialized
                       contractors that process and pay claims for durable medical equipment
                       and supplies began using prepayment edits following the policy’s
                       implementation. As discussed above, the OIG’s June 1998 report on wound
                       care dressings noted a significant reduction in Medicare’s payments for
                       surgical dressings following these and other actions by HCFA.

                       While HCFA’s policy is to use our findings to help it administer and manage
                       program safeguard activities, HCFA has not always agreed with, or
                       implemented, our program safeguard recommendations. For example, our
                       August 1995 report concerning Medicare’s payments for surgical dressings
                       recommended that providers be required to itemize supplies they bill to
                       Medicare. This would provide contractors with more detailed information
                       for determining whether the supplies were covered by Medicare and were
                       medically necessary. HCFA disagreed with our recommendation, saying that
                       the additional cost and burden on providers and Medicare contractors
                       outweighed the value of itemization. In May 1998, we again reported on
                       Medicare’s payment system for medical equipment and supplies and
                       recommended that HCFA require providers to identify the specific supplies
                       and equipment they bill Medicare by including the universal product
                       numbers on their claims.23 We explained that the universal product
                       numbers would provide HCFA with better information to determine exactly
                       what it is paying for. While HCFA did not specifically disagree with our
                       recommendation, HCFA cited several problems associated with using
                       universal product numbers. According to a HCFA official, the agency is
                       currently studying the issues related to implementing universal product
                       numbers for supplies billed to Medicare.


                       Although HIPAA provided HCFA with important new tools and resources for
Although Effects of    fighting fraud and abuse, precisely measuring the effects of MIP on saving
MIP Are Difficult to   Medicare funds is difficult. The period of time since MIP implementation is
Determine, Certain     relatively short, and it is not known what would have occurred in the
                       absence of MIP. Further, we identified inconsistencies, inaccuracies, and
Benefits Have          other problems with HCFA’s data and data systems that could lead HCFA to
Resulted               draw incorrect conclusions about the effectiveness of its safeguard
                       activities. These same limitations also affected our reporting on the


                       22
                        In March 1994, HCFA had greatly expanded the surgical dressing benefit by broadening the types of
                       dressings covered and the conditions under which they would be covered.
                       23
                        Medicare: Need to Overhaul Costly Payment System for Medical Equipment and Supplies
                       (GAO/HEHS-98-102, May 12, 1998).



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                          effectiveness of MIP. HCFA officials told us that they recognize the need for
                          better data but that HCFA’s emphasis on ensuring that its computer systems
                          are year-2000 compliant takes precedence over other necessary data
                          systems changes. Even with better data, however, HCFA officials said that
                          some of the most important benefits of MIP are not directly measurable,
                          such as increased HCFA oversight of its contractor program safeguard
                          activities.


Several Factors Make It   Although MIP began in fiscal year 1997, the first year of funding increases
Difficult to Determine    for program safeguard activities was fiscal year 1998, when the MIP budget
Effects of MIP            increased from $440 million to $550 million.24 As a result, not enough time
                          has passed since HCFA directed additional money toward safeguard
                          activities to measure the effects of that funding. For example, in fiscal year
                          1998, HCFA encouraged its contractors to develop greater numbers of local
                          medical policies. Contractor staff that we met with explained that it often
                          takes months to draft new policies, submit them for review by medical
                          societies within the states where they will apply, and finalize them.
                          Further, claims processing edits to enforce the policies must be developed
                          and installed in the claims processing system, and providers must be
                          educated about the policies. Thus, the full effects of policies developed in
                          fiscal year 1998 in response to HCFA’s directions are not likely to be known
                          for several years.

                          There are several other reasons why it is hard to measure the effects of MIP
                          on reducing or deterring Medicare fraud and abuse. First, it is difficult to
                          quantify the incremental effects of MIP from ongoing program safeguard
                          activities performed by Medicare contractors. For example, it is unknown
                          whether a contractor would have identified and developed a potential
                          fraud case in the absence of the program. Second, it commonly takes many
                          years to develop and prosecute fraud cases, and there has been
                          insufficient time since MIP implementation for cases to be settled and
                          recoveries made. Moreover, it will be difficult to associate Medicare
                          savings to MIP even in future years because different agencies use different
                          funding sources to identify, develop, and prosecute fraud cases. For
                          example, Medicare contractors may use MIP funds to identify a potential
                          fraud case, while the Department of Justice may use its own funds to
                          develop and prosecute the case.




                          24
                            This included an additional $50 million in supplemental program safeguard funds made available by
                          the HHS fiscal year 1998 appropriation.



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    Data limitations also hamper effective measurement of HCFA’s program
    safeguards. HCFA needs consistent, detailed data to effectively monitor and
    evaluate the various program safeguard activities. However, we identified
    data limitations that hinder HCFA’s ability to make the most informed
    decisions, as illustrated by the following examples.

•   HCFA’s medical review savings data are not sufficiently detailed for HCFA to
    determine which types of reviews are most effective. Medical review
    involves decisions on whether claims are for covered services that are
    medically necessary and reasonable. Decisions can be made by
    contractors either before a claim is paid (prepayment medical review) or
    after a claim is paid (postpayment medical review). There are three types
    of prepayment review: automated reviews that are based on computerized
    edits within the contractor’s claims processing system, routine manual
    reviews that involve decisions by contractor staff based on the claim and
    any attachments to it, and complex manual reviews that require staff to
    request and evaluate medical records and other documentation from the
    provider. There are two types of postpayment review: routine
    postpayment medical review of individual claims and comprehensive
    medical review of all, or certain types of, claims by an individual provider.

    Under Medicare part B, HCFA can identify whether medical review savings
    stem from prepayment or postpayment reviews, but it cannot identify
    whether prepayment savings result from automated, routine manual, or
    complex manual reviews. On a more fundamental level, HCFA cannot
    identify whether part A medical review savings originate from prepayment
    or postpayment activities and can therefore only report medical review
    savings in total for part A.

•   Limitations of HCFA’s cost and savings data related to cost report audits
    also hinder HCFA’s ability to determine which cost report audit activities
    are most effective. Medicare’s cost report audit process includes both desk
    reviews and audits. Currently, there are two types of desk
    reviews—limited and full—and two types of audits—focused audit reviews
    and field audits.25 HCFA’s information systems do not separately identify
    costs and savings by the types of desk reviews or audits conducted.
    Rather, HCFA reports the total cost of desk reviews and the total cost of


    25
     During limited desk reviews of cost reports, auditors examine the reports, compare specific provider
    characteristics with thresholds set by HCFA, and decide if the cost reports should be reviewed in more
    depth. Full desk reviews involve a more complete examination of the cost reports, a determination of
    whether they should be audited, and a decision on the scope of the audit to be conducted. Focused
    audit reviews address preselected cost report issues and are conducted on-site. Field audits involve a
    complete, on-site audit of cost reports.



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    audits and reports savings in two broad categories. As a result of such
    reporting, HCFA cannot calculate either savings or a return on
    investment—costs divided by savings—for the different types of desk
    reviews and audits contractors perform.
•   Because contractors sequence their medical review and MSP edits
    differently, part A medical review and MSP savings data, along with the
    return on investment for each activity, are inaccurate. Seven fiscal
    intermediaries currently use a claims processing system called the
    Arkansas Shared System. This system first subjects claims to MSP edits to
    determine if the claims should be paid by Medicare as the primary payer or
    as secondary payer to the beneficiary’s other insurance. Once this MSP
    determination is made, the claims are then subjected to medical review
    edits. However, other fiscal intermediaries use the Fiscal Intermediary
    Shared System—the system that all fiscal intermediaries will eventually
    use. This system first edits claims for medical review and then edits them
    for MSP considerations. Since the priority in which claims are edited affects
    how savings are recorded, contractors using the Arkansas Shared System
    report MSP savings for claims while those on the Fiscal Intermediary
    Shared System claim medical review savings for the same claims.26
    Because of these inconsistencies, both medical review and MSP part A
    savings data reported by HCFA are inaccurate; so, too, are the return on
    investment calculations. We do not know, however, the extent to which
    savings are over- or underreported for each of these two program
    safeguard activities.
•   Finally, HCFA does not know which contractors are realizing the highest
    return on investment from their program safeguard activities. As we
    learned from our work on HCFA’s oversight of contractors, HCFA has few
    outcomes standards or performance measures to ensure that contractors
    adequately perform their program safeguard activities.27 Further, HCFA
    relies primarily on contractors to self-report the results of their operations
    and does little in the way of validating the accuracy of the reported data.
    Moreover, HCFA recognizes that there may be inaccurate data in its various
    databases because of policy and procedural inconsistencies among its
    contractors. As a result of these problems, HCFA does not know which
    contractors are saving Medicare the most money from their safeguard
    activities and, therefore, cannot calculate an accurate return on
    investment for individual contractors’ program safeguard activities.



    26
      This assumes that the claims reviewed had both MSP and medical review problems.
    27
     Medicare Contractors: Despite Its Efforts, HCFA Cannot Ensure Their Effectiveness or Integrity
    (GAO/HEHS-99-115, July 14, 1999).



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                          Because of the limitations identified above, we could not determine the
                          savings associated with medical review, MSP, or cost report audit activities.
                          Neither could we determine return on investment for these three
                          safeguard activities.28

                          HCFA  is taking several steps to address its data limitations, but most of
                          these improvements will not be implemented until the year 2000. For
                          example, HCFA is now developing a program integrity management
                          reporting system that will provide HCFA with more detailed medical review
                          savings, workload, and cost data. According to a HCFA official, this system
                          is expected to be tested and sent to contractors for their use in 2000.
                          Another HCFA official told us that the agency plans to develop more
                          detailed cost and savings data related to cost report audits in the coming
                          months through changes to one of its reporting systems. HCFA officials also
                          told us that they recognize the MSP and medical review edit sequencing
                          problem caused by intermediaries’ using both the Arkansas Shared System
                          and the Fiscal Intermediary Shared System and that they intend to fix this
                          problem. However, again, because HCFA’s ongoing efforts to ensure that its
                          data systems are year-2000 compliant take precedence, HCFA will not be
                          able to implement corrections until next year.



Important Intangible      We identified several important intangible benefits of MIP. HCFA officials
Benefits Are Associated   told us that, perhaps most importantly, MIP has resulted in increased
With MIP                  agency oversight of contractor program safeguard activities. Our related
                          work shows this to be true; HCFA is moving toward a more structured
                          evaluation process of its contractors and is reorganizing its contractor
                          activities at headquarters. HCFA officials and contractor representatives we
                          contacted also pointed to an increased awareness of and focus on
                          Medicare fraud during the past several years that they believe has
                          translated into a more determined effort to combat improper Medicare
                          payments. Further, contractor representatives pointed to increased
                          collaboration among HCFA, contractors, and law enforcement agencies
                          since MIP implementation and noted that the OIG and other law
                          enforcement agencies are more frequently seeking data and assistance
                          from them. Representatives from one contractor also said that the
                          contractor is referring greater numbers of potential fraud and abuse cases
                          to the OIG since implementation of MIP; we did not, however, verify this
                          information.

                          28
                            HCFA does not report savings associated with either benefit integrity or PET because the effects of
                          these activities on Medicare savings cannot be directly identified.



                          Page 28                                         GAO/HEHS-99-165 Medicare Safeguard Activities
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                   Implementation of MIP has positively affected HCFA’s program safeguard
Conclusions        activities. Now that it has predictable, assured program safeguard funding,
                   HCFA and its contractors can better plan and implement their safeguard
                   strategy and efforts. A number of the centrally managed projects
                   administered by HCFA should be able to assist contractors in performing
                   more effective safeguard activities and better protect Medicare from fraud,
                   waste, and abuse. Appropriately, HCFA is emphasizing prepayment claims
                   reviews to promote correct claims payment, thereby avoiding the
                   difficulties of seeking repayment from providers when claims are paid in
                   error. Recent hiring of the MIP contractors is an important first step in
                   HCFA’s use of its new contracting authority.


                   The CFO Act audit reports have identified important areas for improvement
                   in managing MIP, and HCFA has taken, or plans to take, appropriate
                   corrective actions. HCFA’s responses to other OIG audit report
                   recommendations, as well as recommendations that we have made, also
                   indicate that HCFA takes seriously its responsibilities for improving its
                   program safeguard operations.

                   Additional time and improved data will enable HCFA to better measure the
                   effects of MIP. Better safeguard data in many cases, however, will not be
                   available for another year, because HCFA is first addressing the larger issue
                   of ensuring that its data systems are millennium-compliant. Perhaps the
                   most important effects of MIP so far have been those that are intangible. In
                   the longer term, greater HCFA oversight of its contractors’ safeguard
                   activities and closer collaboration among HCFA, its contractors, and law
                   enforcement agencies could lead to substantial reductions in Medicare
                   fraud, waste, and abuse.


                   In commenting on a draft of this report, HCFA said that it agreed that
Agency Comments    measuring the impact of program safeguard activities undertaken as a
and Our Response   result of MIP is a difficult and challenging task. HCFA suggested we
                   recognize that, as part of its MIP activities, it is required to develop a list of
                   durable medical equipment that will be subject to prior authorization. The
                   report now notes the need for HCFA to develop such a list. A copy of HCFA’s
                   comments appears in appendix II. HCFA’s comments also suggested
                   technical changes to the draft, which we have incorporated as appropriate.




                   Page 29                               GAO/HEHS-99-165 Medicare Safeguard Activities
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We are sending copies of this report to the Honorable Donna E. Shalala,
Secretary of HHS; the Honorable Nancy-Ann Min DeParle, Administrator of
HCFA; interested congressional committees; and others. We will also make
copies available upon request.

If you or your staff have any questions about this report, please contact me
at (312) 220-7600. Robert Dee, Anna Kelley, and Lisa Stein made major
contributions to this report.

Sincerely yours,




Leslie G. Aronovitz
Associate Director, Health Financing
  and Public Health Issues




Page 30                            GAO/HEHS-99-165 Medicare Safeguard Activities
Page 31   GAO/HEHS-99-165 Medicare Safeguard Activities
Contents



Letter                                                                                               1


Appendix I                                                                                          34

Major Program
Safeguard Projects
Centrally
Administered by
HCFA, Fiscal Year
1998
Appendix II                                                                                         36

Comments From the
Health Care Financing
Administration
Table                   Table I.1: The Eight Largest Program Safeguard Projects                     35
                          Centrally Administered by HCFA, Fiscal Year 1998

Figures                 Figure 1: Program Safeguard Expenditures for Fiscal Years 1995               6
                          Through 1998 and HIPAA-Appropriated Funding for Fiscal Years
                          1999 Through 2003
                        Figure 2: Comparison of Program Safeguard Expenditures for                   8
                          Fiscal Years 1995 and 1998 and Budgeted Amounts for Fiscal
                          Year 2000, by Activity
                        Figure 3: Medicare Expenditures for Program Safeguard Projects              10
                          Centrally Administered by HCFA and for Activities Carried Out
                          by Contractors, Fiscal Year 1995
                        Figure 4: Medicare Expenditures for Program Safeguard Projects              10
                          Centrally Administered by HCFA and for Activities Carried Out
                          by Contractors, Fiscal Year 1998
                        Figure 5: Number of Claims Reviewed on a Prepayment and                     12
                          Postpayment Basis, Fiscal Years 1995 and 1998
                        Figure 6: Number of Claims Reviewed for MSP Considerations on               13
                          a Prepayment and Postpayment Basis, Fiscal Years 1995 and 1998
                        Figure 7: Number of MSP Data Match Recovery Actions, Fiscal                 14
                          Years 1995 and 1998




                        Page 32                           GAO/HEHS-99-165 Medicare Safeguard Activities
Contents




Figure 8: Number of Desk Reviews Performed, by Type of Entity               16
  Submitting Cost Reports, Fiscal Years 1995 and 1998
Figure 9: Number of Audits Performed, by Type of Entity                     17
  Submitting Cost Reports, Fiscal Years 1995 and 1998




Abbreviations

CFO        Chief Financial Officers
HCFA       Health Care Financing Administration
HHA        home health agency
HHS        Department of Health and Human Services
HIPAA      Health Insurance Portability and Accountability Act
HMO        health maintenance organization
IRS        Internal Revenue Service
MIP        Medicare Integrity Program
MSP        Medicare Secondary Payer
OIG        Office of the Inspector General
PET        provider education and training
PSC        program safeguard contractor
SNF        skilled nursing facility
SSA        Social Security Administration


Page 33                           GAO/HEHS-99-165 Medicare Safeguard Activities
Appendix I

Major Program Safeguard Projects Centrally
Administered by HCFA, Fiscal Year 1998

              The following table lists the eight largest program safeguard projects
              centrally administered by the Health Care Financing Administration (HCFA)
              in fiscal year 1998; collectively, they represent 70 percent of the
              $47.2 million spent by HCFA that year on such projects.




              Page 34                           GAO/HEHS-99-165 Medicare Safeguard Activities
                                                Appendix I
                                                Major Program Safeguard Projects Centrally
                                                Administered by HCFA, Fiscal Year 1998




Table I.1: The Eight Largest Program Safeguard Projects Centrally Administered by HCFA, Fiscal Year 1998
                                                                                                                             Fiscal year 1999
Project                    Description                                   Status                                           budget (in millions)
Medicare summary           These notices inform beneficiaries of         Ongoing; some, but not all, contractors                               $6.4
notices                    actions taken by contractors on their         have already begun using the notices;
                           claims and standardize the many               others are scheduled to begin this fiscal
                           Medicare notices that beneficiaries have      year.
                           previously received.
Common Working File        The Common Working File database is a         Ongoing                                                                2.9
host operations            major component of the Medicare claims
                           processing function. It is used by
                           contractors to validate Medicare claims
                           payments and is operated at nine host
                           locations. Medicare Integrity Program
                           (MIP) funds are used to support the work
                           of the host sites.
Customer Information       This HCFA database provides analytical     Ongoing                                                                   2.4
System                     support to the medical review, Medicare
                           Secondary Payer (MSP), audit, and benefit
                           integrity safeguard activities. The system
                           has been in development since 1994 and
                           continues to be expanded.
Local medical review       HCFA hired a private firm to analyze and      Ongoing                                                                0
policy analysis            report on various issues associated with                                                          (Project was totally
contractor                 local medical review policies,a including                                                       funded in fiscal year
                           the sufficiency of local medical review                                                                        1998.)
                           policies at contractors’ sites and the need
                           for national coverage policies.
Commercial                 HCFA has a 2-year license with a private      Ongoing                                                                8.0
off-the-shelf software     firm to use its off-the-shelf prepayment
edits                      medical review software edits.
Health maintenance         This activity involves audits and             Ongoing, yearly activity                                               4.8
organization (HMO)         settlements of HMO cost reports. HCFA
audits                     hires private accounting firms to conduct
                           the audits.
Special audit initiative   This initiative was part of HCFA’s special  This was part of a 1-year special initiative.                             0
                           initiative to utilize prepayment and
                           postpayment strategies to prevent home
                           health agency fraud and abuse. It involved
                           coordination of the medical review, benefit
                           integrity, and audit program safeguard
                           activities.
Medical review             HCFA hired a private firm to identify best    Ongoing                                                                0
verification and           practices in contractors’ medical review                                                          (Project was totally
validation contractor      activities, assess the accuracy of medical                                                      funded in fiscal year
                           review decisions, and make                                                                                     1998.)
                           recommendations to improve medical
                           review nationwide.
                                                a
                                                 Local medical review policies describe whether Medicare covers an item or service and under
                                                what circumstances it is considered to be reasonable, necessary, and appropriate.




                                                Page 35                                       GAO/HEHS-99-165 Medicare Safeguard Activities
Appendix II

Comments From the Health Care Financing
Administration




              Page 36      GAO/HEHS-99-165 Medicare Safeguard Activities
Appendix II
Comments From the Health Care Financing
Administration




Page 37                                   GAO/HEHS-99-165 Medicare Safeguard Activities
           Appendix II
           Comments From the Health Care Financing
           Administration




(101798)   Page 38                                   GAO/HEHS-99-165 Medicare Safeguard Activities
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