Regulatory Issues for Medicare Providers (11-JUN-01,		 
GAO-01-802R).							 
								 
Medicare is highly vulnerable to fraud, waste, and abuse. The	 
enforcement of program payment rules, however, has raised	 
concerns that these safeguards may have imposed too great a	 
burden on health care providers. The proposed Medicare Education 
and Regulatory Fairness Act would seek to address some of these  
concerns by providing expedited procedures for provider appeals, 
new options for providers to use in repaying Medicare		 
overpayments, protections for providers who voluntarily return	 
overpayments or ask for a review of their claims, and new	 
requirements for provider education. This report reviews how this
proposed legislation would affect Medicare policies and 	 
procedures in (1) provider education and participation; (2)	 
medical reviews, audits, and appeals; (3) recovery of		 
overpayments; and (4) related legal issues.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-802R					        
    ACCNO:   A01197						        
  TITLE:     Regulatory Issues for Medicare Providers		      
     DATE:   06/11/2001 
  SUBJECT:   Fraud						 
	     Program abuses					 
	     Health care programs				 
	     Health insurance					 
	     Internal controls					 
	     Proposed legislation				 
	     Reporting requirements				 
	     Overpayments					 
	     Medicare Program					 
	     Medicare Trust Fund				 

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GAO-01-802R
     
GAO- 01- 802R Regulatory Issues for Medicare Providers

United States General Accounting Office Washington, DC 20548

June 11, 2001 The Honorable Max Baucus Chairman The Honorable Charles E.
Grassley Ranking Minority Member Committee on Finance United States Senate

Subject: Regulatory Issues for Medicare Providers With services delivered by
hundreds of thousands of providers to nearly 40 million beneficiaries and
payments of about $220 billion in fiscal year 2000, Medicare is highly
vulnerable to fraud, waste, and abuse. 1 The process of enforcing program
payment rules, however, has raised concerns that the impact of these
safeguard activities has imposed too great a burden on health care
providers. Concerns about the regulatory burden facing providers include
perceptions of unreasonable or unclear demands for documentation from the
Health Care Financing Administration's (HCFA) payment contractors, excessive
paperwork, and a belief that Medicare contractors unfairly pursue and
investigate physicians who have made innocent billing errors. The Medicare
Education and Regulatory Fairness Act (MERFA)- S. 452 and H. R. 868- has
been introduced to address some of these concerns. The bills would provide
expedited procedures for provider appeals, new options for providers to use
in repaying Medicare overpayments, protections for providers who voluntarily
return overpayments or ask for a review of their claims, and new
requirements for provider education.

This letter responds to your May 16, 2001, request that we provide
information on several issues addressed in S. 452. You asked us 18 specific
questions about how the proposed legislation would affect Medicare policies
and procedures in the following areas: (1) provider education and
participation, (2) medical reviews, audits, and appeals, (3) recovery of
overpayments, and (4) related legal issues. You also asked that we identify
alternative solutions that could address provider concerns while maintaining
program integrity.

To address these issues, we collected information from HCFA, the Department
of Health and Human Services? Office of the Inspector General (HHS/ OIG),
and the Department of Justice (DOJ) about their roles and responsibilities.
We also compared the proposed legislation to current laws and regulations
and examined relevant agency materials. Regarding alternative approaches to
these issues, we reviewed suggested modifications to specific provisions of

1 High Risk Series: An Update (GAO- 01- 263, January 2001).

GAO- 01- 802R Regulatory Issues for Medicare Providers 2 MERFA from the
American Medical Association and Taxpayers Against Fraud. 2 According to

the bill?s sponsors, these groups have taken the lead in recommending
revisions to MERFA. We conducted our review during May and June 2001, in
accordance with generally accepted government auditing standards. Enclosure
I contains our responses to the 18 specific questions.

A draft of this correspondence was sent to HHS and DOJ for their review. HHS
was unable to provide comments in the time allotted. However, program
officials informally provided technical comments, which we incorporated
where appropriate. In its written comments, DOJ generally agreed with the
substance of our report. DOJ indicated that it expects to submit official
views on the bills- including MERFA?s likely effect on use of the False
Claims Act in pursuing Medicare fraud- to the Committee on Finance. DOJ also
stated that funds collected and returned to the Medicare Trust Fund are one
of the most important measures of the effort to control health care fraud,
noting that over $2 billion has been recovered since fiscal year 1997. (See
enclosure II.) We incorporated DOJ's technical comments as appropriate.

As agreed with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this letter for 30 days. At that
time, we will send copies to the Secretary of Health and Human Services, and
others who are interested. The correspondence will also be available on
GAO?s home page at www. gao. gov. If you would like to discuss the
information further, please contact me at (312) 220- 7600 or Rosamond Katz,
Assistant Director, at (202) 512- 7148. Other key contributors to this
correspondence were Jenny Grover and Craig Winslow.

Leslie G. Aronovitz, Director Health Care- Program Administration

and Integrity Issues Enclosures - 2

2 Taxpayers Against Fraud is a nonprofit, public interest organization that
promotes the use of the False Claims Act to combat fraud against the federal
government.

Enclosure I Enclosure I

GAO- 01- 802R Regulatory Issues for Medicare Providers 3

INFORMATION RELATED TO S. 452 1. What educational services are currently
offered to Medicare providers and

how can providers access these services?

Educational services aim to help providers become more aware of Medicare
coverage and billing policies and are provided by the Department of Health
and Human Services' (HHS) Health Care Financing Administration (HCFA) and
its claims administration contractors- known as fiscal intermediaries and
carriers-- and by HHS? Office of Inspector General (OIG). 3 HCFA offers
information on its website and has also established the web- based Medicare
Learning Network (MedLearn) to provide information about Medicare coverage
and payment policies. Agency officials also identify provider education
needs and develop training materials to be used by contractors.

Medicare claims administration contractors are responsible for planning and
conducting most education activities for providers. Examples of these
activities include:

Issuing bulletins. These bulletins are issued at least quarterly and outline
changes in national and local Medicare policy and payment, report upcoming
training events, inform providers of billing system changes, and address
frequently asked questions. Bulletins are mailed to every enrolled provider
and are also available at the contractors? web sites.

Organizing planned events. Contractors conduct seminars, workshops, and
teleconferences to educate providers on billing and service issues. They
also work closely in a partnership with professional and specialty societies
or state agencies to deliver training.

Responding to individual provider inquiries. Since fiscal year 2000, HCFA
has required contractors to maintain toll- free telephone lines for health
care providers. Although many calls relate to claims status, contractors
also answer questions pertaining to Medicare regulations, billing, and local
medical review policies. If a provider inquiry may be more appropriately
answered by another entity, the contractors are expected to refer the
provider to the appropriate source of information. For example, a coding
question regarding the American Medical Association?s (AMA) clinical
classification of services would be referred to the AMA.

The HHS/ OIG?s primary education effort for providers has been the
development (with industry input) of written guidance on compliance with
Medicare program

3 HCFA has contracted with about 50 insurance companies to serve as fiscal
intermediaries (that process part A claims) and carriers (that process part
B claims).

Enclosure I Enclosure I

GAO- 01- 802R Regulatory Issues for Medicare Providers 4 billing
requirements. 4 In addition, it issues fraud alerts, advisory bulletins, and

advisory opinions. It also makes presentations to industry groups on areas
of suspected fraud and abuse.

2. How much is currently spent on Medicare provider education programs by
HCFA and its fiscal intermediaries and carriers? Would S. 452, section 301(
b), designate education funding for all Medicare providers or only a
selected group?

Funding for Medicare provider education comes from two sources. In fiscal
year 2000, about $43 million was allocated for provider education from
HCFA?s regular program management appropriation and about $12 million came
from the Provider Education and Training component of the Medicare Integrity
Program (MIP). 5 Although HCFA's Center for Health Plans and Providers also
supports provider education, the vast majority of these funds are passed on
to Medicare contractors. Table 1 shows the amounts and proportions of
Medicare fiscal intermediary and carrier funds devoted to provider
education.

Table 1: Medicare Contractor Spending for Provider Education and Training
Activities, Fiscal Years 2000 and 2001

Fiscal year 2000 Fiscal year 2001 Millions of

dollars Percent of contractor

expenditures Millions of

dollars Percent of budgeted

funds

Carriers $37.3 3.7 $37.9 3.7 Fiscal intermediaries 17.5 3.1 19.4 3.4

Total 54.8 3. 5 57.3 3. 6

Source: HCFA S. 452, section 301( b), would amend current law to require
that at least 10 percent of MIP funds must be designated to educate
physicians, providers of ambulance services, and other providers covered in
the bill. As applied to the fiscal year 2001 MIP budget, the new levels
would represent a significant increase in provider education spending- from
$16.1 million (2.9 percent) to $60.7 million (10 percent). Section 301( b)
would also establish minimum spending requirements for contractors? provider
education programs. Overall, 1 percent of total fiscal intermediary funds
and 2 percent of total carrier funds would have to be used for provider
education. As shown in table 1, the bill?s target levels are actually below
current spending by contractors- 3. 4 percent for fiscal intermediaries and
3.7 percent for carriers.

S. 452, section 301( b), would apply to the funding of educational programs
for certain groups. These include physicians, providers of services
(hospitals, critical access hospitals, skilled

4 To date, compliance guidance has been issued for hospitals, hospices,
Medicare+ Choice organizations offering coordinated care plans, nursing
facilities, individual and small group physician practices, durable medical
equipment suppliers, clinical laboratories, home health agencies, and third-
party billing companies.

5 Established by the Congress as part of the Health Insurance Portability
and Accountability Act of 1996, MIP provides dedicated funding for Medicare
program safeguard activities. Total MIP funding was $539. 1 million in FY
2000 and $606. 7 million in fiscal year 2001.

Enclosure I Enclosure I

GAO- 01- 802R Regulatory Issues for Medicare Providers 5 nursing facilities,
comprehensive outpatient rehabilitation facilities, home health agencies,

and hospice programs), and providers of ambulance services. However, there
are other entities that provide services or supplies to Medicare
beneficiaries that are not included in these groups, such as occupational
and physical therapists, nurse practitioners, psychologists, laboratories,
facilities providing treatment for end- stage renal disease, and suppliers
of durable medical equipment.

3. What proportion of Medicare claims were billed correctly in fiscal year
2000 and how does this compare with previous years?

HCFA data on part A and part B claims processed during fiscal year 1999
indicate that about 81 percent of claims processed were paid as ?clean?
claims. (HCFA defines a clean claim as one that did not require the
contractor to request additional information from the provider prior to
payment.) In further analysis of part B denied claims from that year, HCFA
found that over 70 percent were denied because they were duplicate,
incomplete, or for services that were not medically necessary or covered by
Medicare.

Although some claims are not paid the first time they are processed, other
claims are paid that should not be. Contractors have made payments in error
for claims that lack appropriate documentation, are incorrectly coded, are
not for Medicare covered services, or are for services that were deemed not
to be medically necessary. As part of its audit of HCFA?s annual financial
statements, the HHS/ OIG estimates a national overpayment error rate from
all claims processed for a sample of Medicare beneficiaries. In fiscal year
2000, the HHS/ OIG found that $11.9 billion, or 6.8 percent of the $173.6
billion in Medicare fee- for- service payments, were paid improperly. This
error rate compares with rates for fiscal years 1998 and 1999 of 7.1 percent
and 7.9 percent, respectively.

We have previously reported that the HHS/ OIG error rate does not
distinguish between benign paperwork mistakes and abusive billing practices,
nor does it identify the volume of erroneous payments at each contractor. 6
Because the HHS/ OIG methodology generally assumes that medical records
received for review are valid, and thus represent actual services provided,
improper payments supported by falsified documentation may go undetected.
Furthermore, the claims identified as improperly paid had successfully
passed through contractors? automated claims processing systems because they
were valid on their face. They were disputed only after the underlying
medical records were obtained from providers and reviewed in detail or
providers failed to supply those records.

4. What are the implications for program integrity of having Medicare
contractors disclose claims processing screens as part of provider
education?

Prior to payment, all Medicare claims are screened by two sets of
computerized medical review edits. The first set of edits- completed with no
manual review by contractor staff- allows claims to be denied automatically
for coverage or coding reasons. The second set of edits- which identify
claims for manual review by contractor staff- focuses on questionable
billing patterns for individual providers, groups of providers, or specific
services. (These manual review edits change often.)

6 Medicare Improper Payments: While Enhancements Hold Promise for Measuring
Potential Fraud and Abuse, Challenges Remain, (GAO/ AIMD/ OSI- 00- 281,
Sept. 15, 2000).

Enclosure I Enclosure I

GAO- 01- 802R Regulatory Issues for Medicare Providers 6 S. 452, section
202, would amend current law to require that all edits used to identify or
flag

claims for medical review be included in education programs for physicians,
providers of services, and providers of ambulance services. HCFA officials
noted that, although the agency has not disclosed most automated review
edits in the past (those resulting in automatic denials), it would not be
opposed to doing so. However, HCFA, HHS/ OIG, and the Department of Justice
(DOJ) agreed that manual review edits (used to identify aberrant providers
for more focused review of their claims) should not be shared. The HHS/ OIG
noted that revealing such edits would give dishonest providers information
to avoid detection and exploit the Medicare program. Program integrity would
be at risk if unscrupulous providers were alerted to the safeguards being
used and could therefore target their efforts accordingly.

In its proposed modifications to the bill, the AMA suggested eliminating the
requirement that all medical review edits, per se, be disclosed to
providers. Rather, it stated that information about medical review edits
should be used more generally to create education programs on Medicare
policy and proper coding. This modification would reduce the risk to HCFA?s
program integrity activities while improving the focus of provider education
efforts.

5. Is there evidence that physicians are cutting back their participation in
the Medicare program?

Although HCFA officials acknowledge reports that physicians are considering
leaving the Medicare program, they noted that their data do not support such
a trend. As shown in table 2, relative to the number of physicians
nationwide, the number of participating physicians in fee- for- service
Medicare has increased in each of the past several years. 7 However, it is
unclear whether some physicians have decided to no longer accept new
Medicare beneficiaries. Furthermore, HCFA cannot say whether access problems
exist for beneficiaries in specific geographic areas.

Table 2: Fee- for- Service Physicians in the Medicare Program, 1996- 2000

Fiscal year Participating physicians a as a percent of all physicians
Physicians b per 1,000 fee- forservice Medicare beneficiaries

1996 74.8 14.5 1997 77.5 15.0 1998 80.4 15.4 1999 82.3 15.7 2000 86.3 c

a Includes fee- for- service physicians who accept assignment on claims for
Medicare payment. b Includes all fee- for- service physicians who bill
Medicare. c Data are not available.

Source: HCFA

6. What proportion of Medicare providers were subject to medical review in
fiscal year 2000 and how has this percentage changed over the past 3 years?

HCFA guidance to Medicare contractors notes that a provider should be placed
on manual prepayment review (which results in payments being delayed while
claims are examined)

7 Participating providers agree to accept assignment for all services
provided to Medicare patients. Such providers accept the Medicare payment
and agree not to charge the patient any additional amount.

Enclosure I Enclosure I

GAO- 01- 802R Regulatory Issues for Medicare Providers 7 only when data
suggest a pattern of billing problems. Data are not available on the number
of

providers under review each year. HCFA conducted a one- time limited survey
of contractors to determine the number of physicians subject to complex
medical review- a small subset of all manual reviews- in fiscal year 2000. 8
It found that 1,891, or 0.3 percent of all physicians who bill the Medicare
program, were under complex medical review that year.

HCFA provides contractors with direction as to the rates of manual medical
review they are expected to perform. The suggested rates of review vary by
contractor type and type of review. Table 3 shows HCFA?s goals for manual
review levels as a percentage of total claims processed, for fiscal year
2000.

Table 3: Manual Medical Review Goalsfor HCFA Contractors, Fiscal Year 2000

Percent of claims by type of contractor Type of review Carriers Fiscal

intermediaries Durable medical

equipment regional carriers a

Regional home health intermediaries b

Prepay routine 4.8 Prepay complex

0.35 At least 2.05

(combined) Up to 14.0 (combined) At least 2.05

(combined) Prepay random 0.01 to

0.02 0.01 to 0.02 0.01 to 0.02 0.01 to 0.02 Postpay 0.04 0.04 0.1 0.04

a Four health insurance companies that make payments to durable medical
equipment suppliers. b Four fiscal intermediaries that make payments to home
health agencies and hospices.

Source: HCFA

7. Under current procedures, are there limits on the length of time a
provider may be subject to prepayment review?

Medicare contractors analyze aggregate claims data to identify potential
billing problems, such as claims for services that are not covered by
Medicare or for services that are not coded correctly. When data analysis
indicates that a limited problem may exist (that is, billing errors by a
small group of providers), the contractor conducts a review of a small
number of claims from that group, on either a prepayment or postpayment
basis. A more comprehensive prepayment claims review may be conducted if a
pattern of billing problems is identified. In this case, for a certain
period of time, contractor staff review a portion (or all) of a provider's
claims prior to payment.

Currently, HCFA guidance to contractors does not set a specific time limit
on how long prepayment review can continue. Instead, HCFA specifies that
contractors must "remove

8 HCFA requires that clinically trained staff carry out complex medical
reviews based on examination of medical records. In contrast, routine
medical review may be carried out by nonclinical staff and does not involve
review of patient records.

Enclosure I Enclosure I

GAO- 01- 802R Regulatory Issues for Medicare Providers 8 providers from
medical review as soon as possible when they demonstrate compliance with

Medicare billing requirements." 9 However, HCFA's guidance to contractors
goes on to state that ?we recognize that some providers may remain on
medical review for long periods of time . . . . In the case of extended
medical review activities, provide written notification [to the provider
under review] at least every 6 months."

S. 452, section 202, would amend current law to limit the duration of
prepayment reviews except when a referral has been made to the HHS/ OIG or
DOJ. Under the provision, prepayment reviews must end whenever a fiscal
intermediary or carrier finds that claims for the same services that were
the basis for instituting the prepayment review are proper over a specified
time period (180 days) or for a specified volume of claims processed (at
least 75 percent of the number of claims received in the full month
preceding the start of the prepayment review).

Proposals offered by the AMA and Taxpayers Against Fraud (TAF) would provide
that the limit on the duration of prepayment reviews would not apply to an
act giving rise to liability under the False Claims Act (FCA), even if no
referral had yet been made to DOJ or the HHS/ OIG. Commenting on this
modification, HHS/ OIG officials noted that cases where other sanctions may
apply (such as monetary and civil penalties and criminal sanctions) should
also be covered by this exemption.

8. What are the respective roles and activity levels of Medicare
contractors, DOJ, and the HHS/ OIG in conducting Medicare audits and
investigations?

Medicare contractors have lead responsibility for preventing and detecting
Medicare overpayments. 10 They have broad discretion in conducting program
safeguard activities, which include:

Medical review. Contractors review claims to identify those that should not
be paid because the service provided was not covered or was medically
unnecessary. Medical review may be conducted manually or automatically by
computer, and it may be done prior to payment or after payment has been
made. In fiscal year 1998, 1 in 8 claims were medically reviewed prior to
payment, and 1 in 16 were subject to manual prepayment review.

Medicare secondary payer review. Contractors identify other primary sources
of payment for claims, such as employer- sponsored health insurance or
third- party liability settlements.

Audit of provider cost reports. Fiscal intermediaries audit providers? cost
reports to determine if the costs cited are allowable and reasonable.

Fraud unit investigations. Special contractor fraud units identify potential
cases of fraud by sampling claims, verifying delivery of services or medical
necessity, and analyzing local billing trends. Based on the results of these
activities, they may further investigate

9 HCFA Program Memorandum to Intermediaries/ Carriers, Medical Review
Progressive Corrective Action, Transmittal AB- 00- 72, #6, August 7, 2000.
10 HCFA is supplementing regular contractor oversight activities through
agreements with 12 special program safeguard contractors. For a discussion
of HCFA's management of these contractors, see Medicare: Opportunities and
Challenges in Contracting for Program Safeguards (GAO- 01- 616, May 18,
2001).

Enclosure I Enclosure I

GAO- 01- 802R Regulatory Issues for Medicare Providers 9 or refer cases to
law enforcement agencies. Medicare contractors referred over 820 cases

annually to law enforcement agencies in 1998 and 1999. Independent of HCFA,
the HHS/ OIG conducts investigations, audits and inspections related to the
Medicare program. It pursues potential fraud brought to its attention by the
contractors and from sources such as beneficiaries, competitors, and qui tam
(whistleblower) complaints. For example, of the approximately 650,000
physicians

participating in the Medicare program, the HHS/ OIG investigates roughly 250
to 300 physicians each year. In fiscal year 2000, the HHS/ OIG received
$119.3 million for its activities related to the Medicare and Medicaid
programs, and had 1,003 full- time equivalent staff devoted to such
activities. 11

DOJ primarily investigates cases that have been referred by the HHS/ OIG or
other sources to determine if health care providers have engaged in
fraudulent activity, and it pursues civil actions or criminal prosecutions,
as appropriate. In fiscal year 2000, DOJ received $159.5 million for its
health care antifraud activities from direct appropriations and the Health
Care Fraud and Abuse Control program. Most of these funds were allocated to
the Federal Bureau of Investigation ($ 101.9 million) and DOJ?s 94 U. S.
Attorney?s offices ($ 38.2 million). That year, DOJ had 1, 939 criminal
health care matters pending (involving 3,049 defendants), 457 criminal cases
filed, and 233 civil cases filed. Department wide, it had 1,228 full- time
equivalent staff involved in health care fraud control activities.

9. What is the status of cases currently in the fee- for- service appeals
process? How would S. 542 affect the appeals process and Medicare providers?
eligibility for appeals?

Appeals of denied claims may be made by the provider-- on its own behalf or
as a representative of the beneficiary- and may be made by the beneficiary
directly. In part B appeals (involving claims for physicians and other
outpatient provider services), there are two stages of appeal at the carrier
level- an informal carrier review and a carrier fair hearing before a
hearing officer. 12 For part A appeals (involving claims for inpatient
hospital care and skilled nursing care), the sequence of steps is a
reconsideration by the fiscal intermediary followed by appeal to an
administrative law judge (ALJ), the Departmental Appeals Board (DAB), and
federal court. Only about 3 percent of denied claims under both part A and
part B were appealed in fiscal year 2000.

11 HHS/ OIG health care fraud and abuse control activities are funded
through the Health Care Fraud and Abuse Control Program. This program, under
the joint direction of HHS/ OIG and the DOJ, coordinates federal, state, and
local law enforcement activities with respect to health care fraud and
abuse.

12 Fair hearing decisions may be appealed to an administrative law judge,
assigned to the Social Security Administration, then to the Medicare
Operations Divisions, where the appeals are decided by Administrative
Appeals Judges of the Medicare Appeals Council located within the
Departmental Appeals Board, and finally to federal court.

Enclosure I Enclosure I

GAO- 01- 802R Regulatory Issues for Medicare Providers 10 Table 4: Medicare
Fee- for- Service Appeals, Fiscal Year 2000

All Medicare (millions) Part A

(millions) Part B (millions)

Claims processed 899.0 154.8 744.2 Claims denied 171.5 12.0 159.5 Claims
appealed 5.7 0.3 5.4

Source: HCFA According to HCFA, roughly half of appealed claims are resolved
in favor of the provider, and paid, each year. Also, most are resolved at
the contractor level. In fiscal year 2000, at the carrier fair hearing
level, 965,000 appealed part B claims were bundled into 106,835 cases. In
those, 57. 6 percent of contractors? decisions were upheld, while the
remaining 42.4 percent of cases were overturned, resulting in payment of the
claims involved. In fiscal year 1999 (the latest year for which Social
Security Administration (SSA) data were available), about 60 percent of the
roughly 67,000 part A and part B cases heard at the ALJ level involved the
contractor decision being overturned and the claims paid, while in the
remainder, the contractor decision was upheld.

HCFA noted that the vast majority of contractor appeals are processed on a
timely basis. However, the agency has identified appreciable short- term
claims appeals backlogs at two carriers (for example, more than 1,000 cases
with reviews pending for over 60 days) and has taken steps to allocate
available funds to these carriers to reduce these backlogs. In addition,
there continue to be substantial long- term backlogs at the higher levels of
the claims appeals process- the ALJ and DAB. The most recent data available
from the SSA?s Office of Hearings and Appeals indicate that the average
adjudication time for a Medicare appeal is 382 days at the ALJ, with even
longer delays at the DAB.

The Medicare appeals process was revised by section 521 of the Medicare,
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA).
BIPA imposes deadlines at each step of the appeals process, with the right
to bypass most appeals steps if the deadlines are not met. The following
revisions are scheduled to take effect October 1, 2002:

Generally, initial determinations of a claim must be concluded within 45
days from the date of claim.

If the individual requests a redetermination, it must be completed within 30
days of receipt of the request.

If still dissatisfied, the individual has 180 days from receipt of notice of
redetermination to request reconsideration through a qualified contractor
independent of any organization under contract to make initial
determinations. This contractor would have 30 days to conclude the
reconsideration.

If a timely decision is not made and the amount at issue is $100 or more,
the individual may then request a hearing by the Secretary (before an SSA
ALJ). Such hearings must be held and decisions issued within 90 days.

Enclosure I Enclosure I

GAO- 01- 802R Regulatory Issues for Medicare Providers 11

If the 90- day limit is not met, individuals may go directly to the DAB. The
Medicare Appeals Council of the DAB must conduct a review of an ALJ decision
on an escalated appeal within 90 days, or individuals may go directly to
federal district court.

If the dispute is not satisfactorily resolved through this administrative
process, and if contested amounts are $1,000 or more, the individual could
request judicial review of the Secretary's final decision.

S. 452 would grant new Medicare appeals rights to physicians and certain
other providers. Section 201 would amend current law to provide that a
decision by a carrier to not approve or renew a physician's Medicare
enrollment would constitute an initial determination subject to the same
full appeals process as coverage and payment determinations, including the
right to judicial review. 13 In addition, under section 204, physicians,
providers of services, and ambulance service providers would be entitled to
appeal claims determinations on behalf of deceased beneficiaries where no
substitute party is available.

Section 102( b) of S. 452 would modify the Medicare appeals process that
applies to nursing homes, home health agencies, or other health care
institutions or agencies. Currently, a nursing home or home health agency
may challenge a determination by HHS to deny its Medicare participation. The
bill would subject such hearings to new timelines. 14

Section 102( b) would also establish a new right to appeal deficiencies
identified in inspections prior to the imposition of a sanction. It would
also provide a right to a formal hearing or reconsideration before any
corrective action or other type of sanction could be imposed on a nursing
home or home health agency found out of compliance with any standard or
condition of participation. This requirement appears to apply even in cases
where a patient?s health is found to be in immediate jeopardy.

In commenting on S. 452, section 102( b), the HHS/ OIG noted that the DAB
and federal courts are not well equipped to develop the facts of such cases
and are accustomed to having a full record upon which to review an agency?s
decision. HCFA officials were similarly concerned that the courts would
decide disputes that otherwise would have been resolved at the
administrative level by officials most knowledgeable about the subject
matter.

10. How many providers were prosecuted for fraud in fiscal year 2000 and how
has this number changed over the past 3 years?

DOJ is primarily responsible for Medicare fraud prosecutions, including the
application of civil or criminal actions, fines, civil money penalties, or
other restitution. Criminal health care fraud cases are most often referred
to DOJ by the HHS/ OIG. As shown in Table 5, the number of civil health care
fraud cases filed more than doubled from fiscal year 1998 to 2000. Over the
same period, the number of criminal cases filed rose 43 percent and the
number of defendants increased by 53 percent. A total of 467 defendants were
convicted for health care

13 During fiscal year 2000, over 3, 300 individuals and entities were
excluded from participation in Medicare, Medicaid, and other federal health
care programs. 14 Under the bill, unless waived by the appealing party, ALJs
would be required to decide appeals within 90 days. ALJ decisions could be
appealed to the DAB, which must issue a decision or remand the case within
90 days. If an ALJ did not meet the initial 90- day decision deadline, the
matter could be directly appealed to the DAB for determination of the facts
and decision within 60 days.

Enclosure I Enclosure I

GAO- 01- 802R Regulatory Issues for Medicare Providers 12 fraud- related
crimes in fiscal year 2000. (DOJ does not maintain data on the proportion of

providers convicted of fraud who were participating in Medicare.) Table 5:
Civil and Criminal Health Care Fraud Enforcement Actions at DOJ, Fiscal
Years 1998- 2000

Fiscal year 1998 Fiscal year 1999 Fiscal year 2000 Civil cases filed 107 91
233

Criminal prosecutions filed

Cases 319 371 457 Defendants 436 506 668

Criminal convictions

Cases 219 263 343 Defendants 326 398 467

Source: DOJ

11. In auditing samples of claims from which to extrapolate overpayment
amounts, do Medicare contractors always draw statistically valid random
samples?

HCFA requires that contractors validate a provider?s potential billing
problems by conducting a ?probe? review of roughly 20 to 40 claims. If the
probe sample indicates improper billing, then one remedy can be the
selection of a statistically valid random sample of claims to extrapolate
the provider?s overpayment amount. 15

However, overpayment amounts are sometimes based on the probe sample or
other small sample which is not statistically representative of a provider?s
claims. HCFA permits contractors to offer providers the option of entering
into a consent settlement, whereby the provider accepts the results of the
review and agrees to an extrapolated ?potential?

overpayment amount based on the small sample. 16 Alternatively, providers
may choose to accept the settlement but submit additional documentation on
specific claims, to potentially adjust downward the amount of the projected
overpayment. A provider that believes that the claims reviewed are not
representative of the claims in question may decline a consent settlement
and require the Medicare contractor to use a statistically valid random
sample to extrapolate the overpayment amount.

Although providers have the option of choosing a statistically valid random
sampling of claims, consent settlements are less burdensome for both
Medicare contractors and providers, as fewer claims have to be documented
and reviewed. However, because the limited sample is not statistically
representative of the provider?s claims in question, the amount repaid by
the provider may not be an accurate representation of the overpayment
amount.

15 HCFA provides guidance to the contractors on how to conduct the
statistically valid random sample, including how to draw the sample, how to
determine the period of review, and the required criteria for confidence and
precision levels.

16 As part of a consent settlement, the provider also agrees to relinquish
the right to appeal the denied claims.

Enclosure I Enclosure I

GAO- 01- 802R Regulatory Issues for Medicare Providers 13

12. How does the standard of ?clear and convincing evidence of fraud? in S.
452, section 103, differ from the standard of proof currently required to
determine provider fraud? What impact could this standard have on the
ability of the federal government to collect overpayments?

Because it is a regulatory rather than a law enforcement agency, HCFA does
not have the authority to make a legal finding of fraud. Agency officials
stated that when a provider is suspected of engaging in egregious
activities, contractors suspend payment if there is

?reliable evidence of fraud? stemming from an investigation of the
provider?s billing pattern. Contractors may refer the case to the HHS/ OIG
or DOJ for further investigation and possible prosecution. In civil fraud
litigation, however, the standard of proof established by the False Claims
Act (FCA) is a ?preponderance of the evidence.? 17 That is, the government
must show that its characterization of the facts is more likely to be true
than not.

S. 452, section 103, would require that the agency prove ?clear and
convincing evidence of fraud? prior to disallowing the option of extended
repayments. This standard is the highest burden of proof used in civil cases
and would require the Secretary of HHS to prove its allegations of false
claims much more conclusively than is now required. 18 Even where the
liability of a provider to repay Medicare funds was satisfactorily
established through civil litigation, unless HCFA found there to be clear
and convincing evidence of fraud, it would be required to give covered
providers up to 3 years to make those repayments through offsets against
future Medicare payments or other repayment plan.

An HHS/ OIG official told us that this standard may be unworkable. He noted
that it would be impractical to apply such a rigorous standard so early in
the process, when the facts of the case have not been developed. The DOJ
commented that section 103 would require the Secretary of HHS to meet a
higher standard of proof to recoup overpayments than the Department of
Justice is currently required to show in order to impose treble damages and
penalties for the same conduct under the FCA.

In its proposal to modify the bill, the AMA suggested that the standard of
?clear and convincing evidence of fraud? be lowered to a standard of
?sufficient evidence of fraud to warrant an investigation.?

13. What procedures are currently in place for providers to voluntarily
return overpayments? Could S. 452, section 103, allow providers to return
only a portion of an overpayment and be held harmless for the remainder?

HCFA?s current procedures generally allow providers to submit voluntary
refunds to the fiscal intermediaries and carriers. There are different
methods of handling overpayments for part A and part B. If a part A provider
is erroneously paid for services not performed or is incorrectly paid for
any other reason, overpayments can be resolved through the credit

17 31 USC section 3731( c). For a discussion regarding the standard of proof
applicable under the FCA, see John Terrence A. Rosenthal and Robert T.
Atler, "Clear and Convincing to Whom? The False Claims Act and its Burden of
Proof Standard: Why the Government Needs a Big Stick", Notre Dame Law
Review, Vol. 75, p. 1409 (2000).

18 Like other criminal violations, criminal fraud convictions related to
Medicare require guilt to be proven beyond a reasonable doubt.

Enclosure I Enclosure I

GAO- 01- 802R Regulatory Issues for Medicare Providers 14 balance reports
(quarterly reports that identify whether the provider owes Medicare money).

Any part B provider that is overpaid must return the money to Medicare
within 30 days to avoid interest and penalties.

S. 452, section 202, would amend current law to permit a physician or an
ambulance service provider to return an overpayment without penalty or
interest within 1 year from the date of receipt of the overpayment, if (1)
the fiscal intermediary or carrier has not requested ?any

relevant record or file,? or (2) the case has not been referred before the
date of repayment to DOJ or the HHS/ OIG. Thus, if a covered provider
returned an overpayment within a year from the time it was received,
subsequent investigations of claims related to the voluntary repayment would
be prohibited. Under this provision, it appears that a provider could return
a portion of an overpayment and essentially be held harmless for the
remainder.

The AMA and TAF have offered several revisions to this provision. First,
they propose an additional circumstance- when an FCA investigation is
imminent or has already begun- under which a provider would not be allowed
to make a voluntary repayment without incurring penalty or interest. Second,
they propose that the overpayment must be returned in full. Finally, the
prohibition on investigations would apply to contractors but not to law
enforcement agencies.

14. What are the implications of offering extended provider repayment
periods on the federal government?s ability to fully recover overpayments?

When a billing error is detected, Medicare contractors send a letter listing
the services at issue, the basis for the overpayment, and the amount being
requested as repayment. If the refund is not received within 30 days, a
second letter will be sent and the balance due will be satisfied by
withholding future claim payments (otherwise known as offset). Contractors
commonly recover overpayments automatically through offsets. According to
HCFA, contractors allow providers to arrange extended repayment schedules
for large overpayments, if a provider demonstrates financial hardship and an
ability to repay over the course of the extended repayment schedule.

Under S. 452, section 103, overpayments to providers covered under the bill
could not be automatically offset against future payments. Instead,
providers would have the option of paying back any overpayment exceeding
$5,000 over a 3- year period, even when liability has been established
through civil litigation and the provider has the ability to pay. (This
would not apply to cases where HHS finds ?clear and convincing evidence of
fraud or similar fault,? a very high standard.) In addition, S. 452, section
104, would protect providers from offset or other repayment during an
appeal.

We reported last year that whenever the recovery of Medicare overpayments is
delayed, the chances that the amounts will not be fully recovered are
increased. 19 HCFA?s practice of offsetting overpayments with future
payments has given it leverage that accounts for much of its collection
success. The HHS/ OIG noted that changes under section 103 of S. 452 would
most likely result in reduced collections of overpayments, as some providers
under extended repayment agreements would file for bankruptcy, leave
Medicare, or cease operations- making it unlikely that the amounts due would
be collected.

19 Medicare: HCFA Could Do More to Identify and Collect Overpayments (GAO/
HEHS/ AIMD- 00- 304, Sept. 7, 2000).

Enclosure I Enclosure I

GAO- 01- 802R Regulatory Issues for Medicare Providers 15 The AMA and TAF
have suggested significant changes to this provision. They propose that

the option of entering into an extended repayment schedule apply only to
providers covered under the bill with 25 or fewer employees. They also
clarify that the provider would have to pay interest on the alleged
overpayment. Most importantly, this option would not be available in cases
where (1) the overpayment was attributed to improper billing under the FCA,
(2) there is sufficient evidence of fraud to warrant an investigation, or
(3) an offset arrangement is already in place.

15. What rate of interest does HHS charge providers on outstanding payments
and how does this compare with interest rates charged by the Internal
Revenue Service (IRS) and other federal agencies? Under S. 452, section 104,
would HHS be allowed to assess an interest penalty while an appeal is in
process?

Medicare is required to collect interest on overpayments not satisfied
within 30 days of its request for a provider refund. HCFA charges providers
and suppliers the higher of the private consumer rate or the current value
of funds rate that is in effect on the date of the initial demand for
payment. 20 The private consumer rate is historically higher than the
current value of funds rate, which is used by many federal agencies.
According to HCFA officials, it is also higher than the IRS underpayment
rate but lower than some IRS penalty rates. They noted that the private
consumer rate is currently 13.75 percent and is adjusted quarterly.

S. 452, section 104, would prohibit HCFA from recovering overpayments or
imposing penalties while an appeal is pending. Whether HCFA could assess
interest while an appeal is pending would depend on whether such interest
would be characterized as a penalty.

16. How does S. 452, section 3, define a ?provider of services?? Are there
provisions in the bill that provide differential treatment for some Medicare
providers?

The entities covered by the bill include providers of services, physicians
and providers of ambulance services. S. 452, section 3, paragraph (9),
specifies that ?provider of services? has the same meaning as it does in
section 1861( u) of the Social Security Act. Under that definition, provider
of services includes hospitals, critical access hospitals, skilled nursing
facilities, comprehensive outpatient rehabilitation facilities, home health
agencies, and hospice programs.

However, it appears that the bill generally would not cover other entities
that provide services or supplies to Medicare beneficiaries. For example,
occupational and physical therapists, nurse practitioners, psychologists,
and other specialized providers of services generally do not appear to be
covered by the bill. Most institutional providers are covered under the
definition of providers of services, but laboratories and facilities
providing treatment for end- stage renal disease are not among them.
Suppliers of durable medical equipment are also not covered by the bill.

20 The requirement that providers of service must pay interest on
overpayment amounts is set out in the Social Security Act, section 1815( d).

Enclosure I Enclosure I

GAO- 01- 802R Regulatory Issues for Medicare Providers 16

17. Is it more difficult to challenge a Medicare regulation in court
compared to other federal regulations? How would S. 452, section 102, affect
an entity?s ability to challenge Medicare regulations?

Parties generally must exhaust administrative remedies and obtain final
agency action before going into federal court. Under the Administrative
Procedure Act, the promulgation of a final regulation is generally
considered a final agency action. Those adversely affected by a regulation
often challenge it in federal district court by invoking federal question
jurisdiction. Frequently, however, the statute under which a regulation was
promulgated establishes different grounds for obtaining judicial review,
which must be followed instead.

That is essentially what has happened with respect to challenges to Medicare
regulations. The Social Security Act provides for a hearing before an ALJ
(and, in some cases, the DAB), as well as subsequent judicial review.
However, federal question jurisdiction cannot be invoked in the Medicare
context. Thus, Medicare regulations generally cannot be challenged in
federal district court until after they have been channeled through the same
administrative process followed in other Medicare disputes. 21

This makes challenging Medicare regulations more cumbersome than it would be
if it were possible to invoke federal question jurisdiction and go to
federal district court as soon as a regulation is finalized. Under HCFA
regulations governing provider payment disputes, parties can pursue judicial
review when the sole issue in dispute is the constitutionality of a statute
or validity of a regulation. 22 In addition, as noted in question 9, recent
amendments in BIPA that take effect October 1, 2002, establish deadlines at
each step of the administrative process and permit parties to bypass steps
if these deadlines are missed.

S. 452 would make it easier to challenge a Medicare regulation. Essentially,
section 102 would amend current law to provide that the administrative
process followed in other Medicare disputes would not have to be followed
when challenging the constitutionality of a Medicare provision or
regulation, or the authority of HCFA to promulgate a regulation. Instead,
individuals adversely affected by a regulation could go directly to federal
district court to challenge HCFA?s application of the good cause exception
to promulgate a rule without providing notice and comment. 23 It is also
uncertain whether disputes would be resolved more quickly in court than in
the sometimes- backlogged administrative appeals process.

21 For a complete discussion, see John Alysius Cogan, Jr. and Rodney A.
Johnson, "Administrative Channeling Under the Medicare Act Clarified:
Illinois Council, Section [205( h)], and the Application of Congressional
Intent," Annals of Health Law, vol. 9, p. 125 (2000).

22 See, for example, 42 C. F. R., sections 405.718, 405. 853, 405.1842.
However, parties must still present a claim for determination prior to
pursuing expedited judicial review. 23 Agencies do not have to provide for
notice and comment if they determine that it would be impracticable,
unnecessary, or contrary to the public interest.

Enclosure I Enclosure I

GAO- 01- 802R Regulatory Issues for Medicare Providers 17

18. How might S. 452 affect the federal government?s ability to use the
False Claims Act in regard to Medicare payments?

The FCA is the federal government?s primary civil remedy for fraudulent
claims. 24 It covers only offenses committed with actual knowledge that a
claim is false or offenses by providers who demonstrate a reckless disregard
of the truth of the claim. The FCA allows for penalties of between $5,500
and $11,000 for each false claim, plus damages of up to three times the
amount of the erroneous payment. 25

S. 452 does not directly address the FCA, but includes a number of
provisions that offer health care providers immunity from investigation or
other law enforcement activities. These protections may adversely affect the
federal government?s ability to use the FCA. For example, under section 202,
covered providers would be permitted to repay Medicare overpayments for up
to 1 year (without penalties or interest) and, in such circumstances, no law
enforcement agency would be permitted to initiate an investigation
associated with the Medicare claim involved. This would apparently prevent
the government from pursuing an investigation under the FCA even if the
provider returned only a small portion of a disputed Medicare payment.

S. 452 would also offer protections to covered providers who request written
assistance from HCFA or its contractors related to Medicare claims.
Specifically, section 301 would disallow extrapolation of overpayment
amounts based on claims voluntarily submitted for review, while section 303
would protect providers from future findings that the provider had received
an overpayment related to claims submitted. 26 Since the amount of liability
under the FCA is often derived through extrapolation, it is unclear to what
extent this would affect FCA actions. In addition, HCFA noted that because
S. 452, section 105, would prohibit requests for documents from providers
without cause and require notification of any postpayment audits, it would
make it more difficult to conduct the type of preliminary investigations
often necessary before pursing FCA claims.

The modifications proposed by the AMA and TAF would clarify that none of the
provisions in S. 452 are intended to limit, or in any way affect,
investigations or provider liability under the FCA.

24 In 1986, amendments to the FCA strengthened the government?s ability to
identify and recover improper payments by federal programs, including
Medicare. 25 Although an individual claim submitted by a provider to
Medicare is not likely to be very large, because providers submit hundreds
of claims each year, high- volume providers could potentially incur
substantial penalties under the FCA.

26 This would not apply in cases of fraudulent billing.

Enclosure II Enclosure II

GAO- 01- 802R Regulatory Issues for Medicare Providers 18

Enclosure II Enclosure II

GAO- 01- 802R Regulatory Issues for Medicare Providers 19 (290074)
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