Medicare: Using Education and Claims Scrutiny to Minimize	 
Physician Billing Errors (28-MAY-02, GAO-02-778T).		 
                                                                 
In its audit for year 2001, the Department of Health and Human	 
Services' Office of Inspector General found that $12.1 billion	 
was improperly paid to Medicare providers. GAO's February report 
(GAO-02-249) showed that physicians often do not receive	 
complete, accurate, clear, or timely guidance on Medicare billing
and payment policies. At the carriers studied, GAO found	 
significant shortcomings in printed material, web sites, and	 
telephone help lines used to provide information and respond to  
physicians' questions. GAO concluded the Centers for Medicare and
Medicaid Services (CMS) needed to initiate a more centralized and
coordinated approach, and provide technical assistance to	 
carriers, to improve provider communications. In fiscal year	 
2001, CMS revised its policy on conducting medical reviews. The  
policy directs carriers to differentiate among levels of billing 
problems and tailor corrective actions accordingly. As a result  
of this and other medical review modifications, the highest	 
overpayment amounts assessed a physician practice by a carrier	 
dropped substantially.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-778T					        
    ACCNO:   A03432						        
  TITLE:     Medicare: Using Education and Claims Scrutiny to Minimize
Physician Billing Errors					 
     DATE:   05/28/2002 
  SUBJECT:   Billing procedures 				 
	     Erroneous payments 				 
	     Errors						 
	     Health care costs					 
	     Health care programs				 
	     Health care services				 
	     Overpayments					 
	     Claims processing					 
	     Medicare Program					 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Product.                                                 **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-02-778T
     
Testimony Before the Committee on Finance, U. S. Senate United States
General Accounting Office GAO

For Release on Delivery Expected at 10: 00 a. m. In Bozeman, Montana
Tuesday, May 28, 2002 MEDICARE

Using Education and Claims Scrutiny to Minimize Physician Billing Errors

Statement of Leslie G. Aronovitz Director, Health Care- Program

Administration and Integrity Issues GAO- 02- 778T

Page 1 GAO- 02- 778T Mr. Chairman and Members of the Committee: I am pleased
to be here today to discuss the challenges physicians and the

Medicare program face in ensuring that claims for physician services are
billed and paid appropriately. The General Accounting Office, an agency
within the legislative branch that monitors the effectiveness and efficiency
of federal programs for the Congress, has conducted oversight of the

Medicare program for many years. With annual fee- for- service payments now
totaling about $192 billion, the Centers for Medicare and Medicaid Services
(CMS), the agency responsible for administering Medicare, has an important
responsibility to safeguard payments for health services delivered to
elderly and disabled individuals by hundreds of thousands of providers. In
its most recent audit, covering fiscal year 2001, the

Department of Health and Human Services? (HHS) Office of Inspector General
found that $12.1 billion, or about 6.3 percent of fee- for- service
payments, was improperly paid to Medicare providers. 1 However, physicians
and other providers have raised concerns that

Medicare?s efforts to provide information on billing rules fall far short of
the need for clear explanations of the program?s increasingly complex
coverage policies and billing requirements. Physicians have also raised
questions about whether the program?s enforcement of payment rules has
imposed too great an administrative burden on those billing Medicare. In
light of these issues, legislation before this committee seeks to address
some of these concerns while maintaining effective payment safeguards.

We have recently completed two studies that examine aspects of the
interactions between physicians and carriers- the contractors responsible
for processing physicians? Medicare claims. 2 The first study, issued in
February 2002, reviewed the information that carriers provide physicians
about billing rules. The study we are releasing today addresses how carriers
conduct medical reviews of claims to ensure compliance with those rules.
Medical reviews involve a detailed examination of a sample of claims by
clinically trained staff and require that physicians submit

1 Department of Health and Human Services/ Office of Inspector General,
Improper Fiscal Year 2001 Medicare Fee- For- Service Payments, A- 17- 00-
02000 (Washington, D. C.: Feb. 15, 2002). 2 In February 2002, we issued
Medicare: Communications With Physicians Can Be Improved, GAO- 02- 249
(Washington, D. C.: Feb. 27, 2002). In conjunction with this hearing, we are
releasing our report Medicare: Recent CMS Reforms Address Carrier Scrutiny
of Physicians? Claims for Payment, GAO- 02- 693 (Washington, D. C.: May 28,
2002).

Page 2 GAO- 02- 778T medical records to substantiate their claims. My
remarks today will focus on (1) carriers? provision of information to
physicians regarding Medicare?s billing requirements and program changes,
(2) carriers? scrutiny of physicians? claims selected for medical review
because they are more likely to have billing errors, and (3) implications of
Medicare?s recent

changes to claims review policies for physicians. (The details of how we
conducted our studies are included in the two reports.)

In summary, our February report showed that physicians often do not receive
complete, accurate, clear, or timely guidance on Medicare billing and
payment policies. At the carriers we studied, we found significant
shortcomings in printed material, Web sites, and telephone help- lines that
carriers used to provide information and respond to physicians? questions.

We concluded that CMS needed to initiate a more centralized and coordinated
approach, and provide technical assistance to carriers, to substantially
improve Medicare carriers? provider communications.

In the report we are releasing today, we examined the operations of three
carriers that serve six states and process claims for about one- quarter of
Medicare participating physicians. The vast majority of physician

practices- at least 90 percent in fiscal year 2001- had no claims selected
for medical review by their carrier. For the relatively few practices with
any claims reviewed, the carriers typically requested patients? medical
records for no more than two claims during the year. In an independent
assessment we sponsored, carriers were found to be highly accurate in their
decisions to deny, reduce, or pay claims in full. The overall level of
accuracy was consistent across the three carriers at about 96 percent.

However, improvements could be made in selecting claims for review that are
more likely to be inappropriate, thereby making better use of program
resources and reducing documentation requests to providers who have not made
billing errors.

In fiscal year 2001, CMS revised its policy on conducting medical reviews
under an initiative called Progressive Corrective Action (PCA). 3 The policy
directs carriers to differentiate among levels of billing problems and
tailor corrective actions accordingly. It also instructs carriers to focus
educational outreach on physicians who have experienced billing problems.
Under PCA, carriers are to limit extrapolation- a process by 3 HHS, Health
Care Financing Administration, Medical Review Progressive Corrective Action,
Program Memorandum Transmittal AB- 00- 72 (Baltimore, MD: Aug. 7, 2000).

Page 3 GAO- 02- 778T which overpayment amounts are projected from a sample
of claims reviewed- to those cases that involve major billing problems. In
fiscal

year 2001, the three carriers in our study virtually eliminated the use of
extrapolation. As a result of this and other medical review modifications,
the highest overpayment amounts assessed a physician practice by a carrier
dropped substantially. The carriers in our study increased feedback to
individual physicians concerning the results of medical reviews and how to
bill appropriately in specific situations.

Within HHS, CMS provides operational direction and policy guidance for the
nationwide administration of the Medicare program. It contracts with
carriers- 23 in fiscal year 2002- to process and pay part B claims from
Medicare physicians and certain other providers. 4 To help providers bill
properly, carriers are required to issue bulletins periodically that
publicize

new national and local Medicare coverage rules, inform providers of billing
changes, and address frequently asked questions. In addition, they must use
Web sites and maintain toll- free lines to disseminate new information and
respond to physician inquiries.

Carriers are also responsible for ensuring that claims are paid properly.
Few claims receive more than a computerized review designed to detect
missing information, services that do not correspond to a beneficiary?s

diagnosis, or other obvious errors. However, in some cases, carriers review
claims manually to determine, for example, whether the services physicians
bill for are covered by Medicare, are reasonable and necessary, and have
been billed with the proper codes. In the most thorough type of claims
review, called medical review, clinically trained personnel determine a
claim?s conformance with payment rules by examining

medical records submitted by the physician. Medical reviews can occur before
a claim has undergone final processing (prepayment) or after the claim has
been paid (postpayment).

4 Part B covers charges from licensed practitioners, as well as clinical
laboratory and diagnostic services, surgical supplies and durable medical
equipment, and ambulance services. Part A covers hospital inpatient and
certain other services. Background

Page 4 GAO- 02- 778T In our February report, we noted that carrier
communications with physicians regarding Medicare rules and program changes
are often incomplete, confusing, untimely, or even incorrect. We found that
Medicare bulletins were often unclear and difficult to use. The bulletins
from 10 carriers we reviewed were typically over 50 pages in length,

contained long articles written in dense language, and were printed in small
type. Many of the bulletins were also poorly organized, making it difficult
for a physician to identify relevant or new information. For

example, several bulletins lacked tables of contents and the information
provided was not delineated by specialty or by states where it applied.
Moreover, information concerning program changes was not always communicated
in a timely fashion, so that physicians sometimes had little

or no advance notice prior to a program change taking effect. Carriers?
other principal means of communicating information with physicians- Web
sites and information call centers- also proved to be problematic. Our
review of 10 Web sites found that only 2 complied with CMS content
requirements and most did not contain features that would

allow physicians to readily obtain the information they need. Sites often
lacked logical organization, search functions, and timely information. To
assess the accuracy of call- center- provided information, we placed
approximately 60 calls to three carriers? provider inquiry lines. The
customer service representatives rarely provided appropriate answers to our
questions. The three test questions, selected from the ?frequently

asked questions? on various carriers? sites, concerned the appropriate way
to bill Medicare under different circumstances. The results, which were
verified by CMS, showed that only 15 percent of the answers were complete
and accurate.

CMS has few standards to guide carriers? communications with physicians.
While the standards require that carriers issue bulletins at least
quarterly, they require little in terms of content or readability. This is
also the case for Web sites, as CMS has done little, through standards, to
promote clarity or timeliness of the information presented. Similarly, with
regard to call centers, the agency has not established a clear performance
requirement for accurate and complete telephone responses.

CMS is planning several steps to improve and monitor carrier communications
with physicians. These include developing training for customer service
representatives and maintaining a CMS Web site that contains, among other
things, reference materials on billing changes. In our February report, we
recommended that CMS adopt a standardized approach to information
dissemination that includes the publication of Substantial

Improvement Needed in Carriers? Routine Communications

Page 5 GAO- 02- 778T one national bulletin for physicians (supplemented with
information from local carriers), performance standards for carriers? call
centers, and requirements for carriers? Web sites to link to CMS?s national
information sources. In addition to poor communication from the carriers,
physicians have

expressed concern about whether carriers apply excessive scrutiny to claims
billed appropriately. In our study released today, we focused on the medical
review of claims submitted by physicians to three carriers: National
Heritage Insurance Company (NHIC) in California, Wisconsin Physicians
Service Insurance Corporation (WPS), and HealthNow NY. 5 Data from these
carriers show that more than 90 percent of the physician

practices- including individual physicians, groups, and clinics- did not
have any of their claims selected for medical review in fiscal year 2001.
Table 1 shows that about 10 percent of the practices that filed claims with
WPS had a prepayment medical review, while this proportion was even lower at
HealthNow NY and NHIC California. In addition, only about onetenth of 1
percent of the practices for any of the carriers had claims selected for
postpayment medical review.

5 NHIC?s California component is a large insurer with separate facilities
that serve the northern and southern areas of the state. WPS, also a large
insurer, has separate facilities in four states (Wisconsin, Illinois,
Michigan, and Minnesota). In comparison, HealthNow NY is a small insurer
that serves providers in upstate New York. Medical Reviews

Affect Few Physicians and Result in Accurate Payment Decisions

Page 6 GAO- 02- 778T Table 1: Physician Practices Whose Claims Received
Medical Review, Fiscal Year 2001 Medical review NHIC California a WPS b
HealthNow NY

Number Percent of total c Number Percent of total d Number Percent of total
d

Prepayment 5,590 7.4 13,732 10.1 1,270 4.3 Postpayment 113 0.1 80 0.1 33 0.1

Note: Physician practices were identified by the Medicare Provider
Identification Number (PIN). a The number of practices shown include data
from northern California for November 2000 to September 2001 and from
southern California for December 2000 to September 2001. b WPS prepayment
data include reviews in Illinois, Michigan, and Minnesota only; data were
not available for Wisconsin. Postpayment data include Illinois, Michigan,
Minnesota, and Wisconsin. c Because a list of active PINs was not available
from NHIC California, we estimated the total number of solo and group
practices in California based on data from the most recent American Medical
Association census of group medical practices, adjusted for increases in the
total number of nonfederal medical doctors as of December 31, 2000, and the
number of osteopaths in the state. d Percentages are based on lists of
active PINs obtained from the carrier. Source: GAO analysis of carrier data,
and physician practice data from the American Medical Association and
American Osteopathic Association. Further, for most of the physician
practices that had any claims subject to

medical review in fiscal year 2001, the carriers examined relatively few
claims. For example, at each carrier, over 80 percent of the practices whose
claims received a prepayment review had 10 or fewer claims examined and
about half had only 1 or 2 claims reviewed. The typical number of claims per
practice that received a postpayment review was 30 to 50.

For those claims that carriers selected for medical review, we found that
carriers? decisions were highly accurate regarding whether to pay, deny, or
reduce payment. To assess the appropriateness of clinical judgments made by
carriers? medical review staff, we sponsored an independent review- by a
firm that monitors claims payment error rates for the Medicare program- of
the three carriers? payment decisions. This review included samples of
physician claims from each carrier that were selected randomly from all
claims undergoing either prepayment or postpayment medical review in March
2001. The independent reviews validated the carriers? decisions for almost
all claims. As shown in table 2, the carriers and

reviewers agreed that the original decisions were correct in 280 of 293
cases examined, or about 96 percent of the time. Carrier decisions tended to
be least accurate when they partially reduced payment amounts. In 5 of 59
claims where carriers denied payment in part, our reviewers

Page 7 GAO- 02- 778T determined that the claim should have been denied in
full, reduced by a smaller amount, or paid in full.

Table 2: Accuracy of Carrier Medical Review Decisions on Physician Claims
(percent) Accurate decision rate (percent) Inaccurate decision rate Carrier
decision Overpayment (percent) Underpayment (percent)

All decisions on sampled claims a (n= 293) 95.6 2.7 1. 7 Deny in full (n=
64) 98.4 0.0 1. 6 Deny in part (n= 59) 91.5 1.7 6. 8 Pay in full (n= 170)
95.9 4.1 0. 0

a Claims randomly selected from all carrier prepayment and postpayment
reviews during March 2001. Although 100 claims were selected from each of
the three carriers, five claims from WPS and two from HealthNow NY were
excluded either because the billing entity did not meet our definition of
physician or because documentation from the carrier associated with the
claim was unavailable or not interpretable. Source: GAO analysis of
independent review results. To avoid payment errors, carriers should target
for medical reviews those

claims most likely to be billed inappropriately. After identifying and
validating a suspected billing problem, they develop computerized edits-
instructions programmed into the claims processing system that identify a
set of claims meeting specified characteristics. 6 Although carriers?
reviews produced highly accurate payment decisions, their selection of
potentially erroneous claims left opportunities for improvement. We examined
fiscal year 2001 data on carrier edits used for medical reviews conducted
before a payment decision is made. Specifically, we looked at denial rates-
the percentage of claims selected for review for particular reasons that
were denied, in full or in part- and the average value of the amount denied.
We found that denial rates for the edits that accounted for the largest
number

of claims reviewed by the carriers varied considerably. CMS does not provide
information to carriers programwide on criteria for selecting claims to
review that have proven to be effective, nor does it encourage carriers to
share information on their most productive criteria. These actions could
lead to more effective claims reviews with potential 6 Some edits focus on
billing codes for certain clinical procedures; others focus on the frequency
with which services are delivered. Carriers develop edits based on their
analysis of billing data or other factors that suggest a pattern of
erroneous billing, followed up by medical reviews of small samples of claims
selected by the edit to test the validity of identified problems.

Page 8 GAO- 02- 778T reduction in inappropriate Medicare payments, better
investment of administrative resources, and less burden on providers.

Carriers in our study conducted postpayment reviews for about 0.1 percent of
physician practices. However, individuals involved in such reviews have
raised concerns regarding carrier procedures. We found that, since
implementation of CMS?s revised medical review policy- PCA- in fiscal year
2001, the carriers in our study have adopted a more strategic

approach to medical reviews, particularly postpayment reviews. As PCA has
been applied to these reviews, carrier requests for documentation from
physicians and assessments of amounts to be returned to the program have
declined, while efforts to educate physicians individually about appropriate
billing have increased.

The following components of the PCA initiative are designed to ensure the
effective use of carriers? medical review resources and improve physicians?
ability to achieve compliance with program billing rules:

 Differentiating billing errors by levels of concern. Carriers are
instructed to conduct a ?probe? medical review- examining a small sample of
a practice?s claims- to determine whether a suspected billing problem exits.
After taking this interim step, carrier staff classify the billing problems

identified in the sample as belonging to one of three levels of concern:
minor, moderate, or major. For example, minor concerns can include cases
where the percentage of dollars billed in error is small and the billing
physician does not have a history of filing problem claims. In contrast,
major concerns can include cases where the percentage billed in error is
high, or moderate if the physician has not responded to carrier education
efforts to correct previous billing problems.

 Tailoring corrective actions to the seriousness of the billing errors
identified. Across all levels of concern, PCA directs carriers to contact
physicians individually to discuss their particular billing problems and to
recover payments for erroneous claims. For minor concerns, education

may be the principal action the carrier takes. For moderate concerns,
carriers may also medically review a portion of the physician?s claims prior
to payment for a set period of time. For major concerns, carriers may

go one step further by reviewing another larger postpayment claims sample in
order to estimate and recover potential additional overpayments.

 Educating physicians about appropriate billing practices. Carriers must
inform physicians and their staffs about billing rules to prevent the Under
PCA, Physicians Had Lower

Repayment Amounts Assessed and More Individualized Education

Page 9 GAO- 02- 778T recurrence of payment errors. Carriers are instructed
to notify physicians of billing problems through one- on- one contacts using
phone calls, letters,

and meetings. Whereas in the past, carriers? medical review staff simply
pointed physicians toward the applicable Medicare rules, under PCA, carrier
staff are directed to assist physicians in applying these rules to their
specific billing situation. As part of their strategies to increase
physician education, the three carriers in our study reported greater use of
phone calls and letters to provide individual physicians feedback on their

billing errors. Although we cannot identify as yet how PCA affects the rate
of physician billing errors, one effect is measurable. The highest amount a
physician practice in our study was required to repay the Medicare program
decreased substantially. In fiscal year 2000- the year before PCA
implementation- the largest overpayment amounts assessed ranged from about
$95,000 to $372,000 across the three carriers. These amounts declined in
fiscal year 2001, when PCA was implemented, with

overpayment assessments ranging from $6,000 to $79,000. A major factor
contributing to this decline is that, under PCA, the carriers in our study
virtually eliminated their use of extrapolation- a way of estimating the
amount Medicare overpaid a physician by projecting an error rate found in a
sample of the physician?s claims. According to an October 2001 CMS survey,
most other carriers similarly limited their use of extrapolation. Of the 18
carriers that responded to the CMS survey, only three- serving

Ohio, West Virginia, Massachusetts, and Florida- had more than nine cases
involving extrapolation in fiscal year 2001.

Carriers, CMS, and physicians all have a role in efforts to minimize
erroneous claims. Carriers must do a better job than in the past of
providing physicians with clear and complete information on appropriate
billing practices. In this regard, CMS, through its PCA initiative, has made

billing education a key component of its payment safeguard activities. Over
time, it should become evident whether the strategic and educational
approach under PCA will effectively reduce Medicare?s payment errors. In

addition, we have recommended that CMS assume a direct role in communicating
programwide information to all physicians and other providers rather than
relying on the individual carriers. In previous work, we also recommended
that CMS take steps to ensure that medical review ?best practices? of
individual carriers are shared and, when appropriate, implemented by other
carriers. In our view, it is essential CMS take the necessary steps to
strike a reasonable balance between safeguarding a Concluding Observations

Page 10 GAO- 02- 778T fiscally troubled program while not placing an
inappropriate burden on physicians.

Mr. Chairman, this concludes my prepared statement. I would be happy to
answer any questions that you or other Committee Members may have.

For further information regarding this testimony, please contact Leslie G.
Aronovitz at (312) 220- 7600. Rosamond Katz, Hannah Fein, Jenny Grover, Joel
Hamilton, and Eric Peterson made contributions to this statement. Contact
and Acknowledgements (290188)
*** End of document. ***