Medicare: Program Safeguard Activities Expand, but Results Difficult to
Measure (Letter Report, 08/04/1999, GAO/HEHS-99-165).
Health Care Financing Administration (HCFA) contractors perform five
main types of activity under the Medicare Integrity Program, which was
established in 1996 to safeguard Medicare from fraud, waste, and abuse.
The program has predictable, assured funding and HCFA's contractors are
better able than before to plan and implement their safeguard strategy
and efforts. HCFA has recently hired program contractors, and it is
emphasizing prepayment claims reviews to promote correct claims payment
and avoid the difficulty of seeking repayment from providers when claims
are paid in error. HCFA has taken or plans to take corrective action to
improve important areas identified by audit reports under the Chief
Financial Officers Act. It is also taking seriously its responsibilities
to improve program safeguard operations in response to recommendations
from GAO and from the Office of the Inspector General. HCFA will be
better able to measure the program's effects with more time and better
data
--------------------------- Indexing Terms -----------------------------
REPORTNUM: HEHS-99-165
TITLE: Medicare: Program Safeguard Activities Expand, but Results
Difficult to Measure
DATE: 08/04/1999
SUBJECT: Internal controls
Erroneous payments
Program abuses
Fraud
Contract oversight
Claims processing
Health care programs
Health insurance cost control
Performance measures
IDENTIFIER: Medicare Integrity Program
Medicare Secondary Payer Program
Medicare Program
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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 GAO United States 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 1HIPAA 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. Page 1
GAO/HEHS-99-165 Medicare Safeguard Activities B-282114 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. Results in Brief Total program safeguard expenditures
began to increase in fiscal year 1998 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 2We 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. Page 2
GAO/HEHS-99-165 Medicare Safeguard Activities B-282114 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. Background
Established under the Social Security Amendments of 1965, Medicare
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 Page 3
GAO/HEHS-99-165 Medicare Safeguard Activities B-282114 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 Page 4
GAO/HEHS-99-165 Medicare Safeguard Activities B-282114 issues
related to fraud and abuse both to providers identified as being
aberrant, abusive, or fraudulent and to the general provider
population. HCFA Has Expanded Program safeguard
expenditures in total increased between fiscal years and Modified
Its 1995 and 1998 and will continue to increase over the
next 4 years because of the assured funding provided by HIPAA.
Expenditures for the different Safeguard Activities program
safeguard activities, except for MSP, also increased between
fiscal Following MIP years 1995 and 1998;
expenditures for all activities will have increased 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
Expenditures dedicated, assured funding and
represented a departure from the past. 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. 3HCFA 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. Page
5 GAO/HEHS-99-165
Medicare Safeguard Activities B-282114 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.
Page 6 GAO/HEHS-99-165 Medicare
Safeguard Activities B-282114 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 Increased 1995 and 1998. Comparing fiscal year
1998 expenditures with budgeted 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. Page 7
GAO/HEHS-99-165 Medicare Safeguard Activities B-282114 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 Page 8
GAO/HEHS-99-165 Medicare Safeguard Activities B-282114 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. 4For
accounting purposes, HCFA refers to these projects as
miscellaneous contracts and agreements. Page 9
GAO/HEHS-99-165 Medicare Safeguard Activities B-282114 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 Page 10 GAO/HEHS-
99-165 Medicare Safeguard Activities B-282114 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 5HMO audits represent an ongoing centrally
managed program safeguard project, while the special audit
initiative involving HHAs was funded for 1 year. Page 11
GAO/HEHS-99-165 Medicare Safeguard Activities B-282114 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 6HCFA 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. Page 12
GAO/HEHS-99-165 Medicare Safeguard Activities B-282114
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 7These 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. Page 13
GAO/HEHS-99-165 Medicare Safeguard Activities B-282114 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
8Recovery 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. Page 14
GAO/HEHS-99-165 Medicare Safeguard Activities B-282114 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 9Desk reviews involve a less intensive review of provider
cost reports, while audits involve a more detailed, in-depth
review of the reports by auditors. 10HCFA 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. Page 15
GAO/HEHS-99-165 Medicare Safeguard Activities B-282114 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). Page 16
GAO/HEHS-99-165 Medicare Safeguard Activities B-282114 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. Page 17
GAO/HEHS-99-165 Medicare Safeguard Activities B-282114 Although
Initial Steps to HIPAA provided 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 Take Time
recently that HCFA utilized its new authority. 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. 11Initially, 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. Page 18
GAO/HEHS-99-165 Medicare Safeguard Activities B-282114 HCFA Is
Using Results HCFA's policy is to utilize our findings and those
of HHS' OIG to help it of OIG and Our Audits administer and manage
its program safeguard activities, and we found that this is
generally happening. As required, HCFA has prepared, and is to
Manage Its implementing, corrective action
plans that respond to program safeguard Program Safeguard
recommendations contained in the OIG's CFO Act audit reports from
1996, 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 12Each 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. Page 19
GAO/HEHS-99-165 Medicare Safeguard Activities B-282114 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 13According to
the contract, the OIG's work is comparable to management advisory
services provided by independent public accounting firms. 14HHS,
OIG, Improper Fiscal Year 1998 Medicare Fee-for-Service Payments
(A-17-99-00099) (Washington, D.C.: HHS, Feb. 9, 1999). 15Medicare
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 B-282114 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. 16In 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. 17Not all MSP
accounts receivable are collectible; HCFA therefore estimates the
amount to be written off as uncollectible. Page 21
GAO/HEHS-99-165 Medicare Safeguard Activities B-282114 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 Safeguards taken or
planned to take corrective actions on, virtually all OIG
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 18The
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 B-282114 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 Always Agreed With Our for
improving program safeguard operations. Three examples follow.
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 19Medicare: HCFA's Use of Anti-Fraud-and-Abuse
Funding and Authorities (GAO/HEHS-98-160, June 1, 1998).
20Medicare: Millions Can Be Saved by Screening Claims for Overused
Services (GAO/HEHS-96-49, Jan. 30, 1996). 21Medicare: Excessive
Payments for Medical Supplies Continue Despite Improvements
(GAO/HEHS-95-171, Aug. 8, 1995). Page 23
GAO/HEHS-99-165 Medicare Safeguard Activities B-282114 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 Effects of Although HIPAA provided HCFA
with important new tools and resources for MIP Are Difficult to
fighting fraud and abuse, precisely measuring the effects of MIP
on saving 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 Benefits Have
absence of MIP. Further, we identified inconsistencies,
inaccuracies, and 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 22In
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. 23Medicare: Need to
Overhaul Costly Payment System for Medical Equipment and Supplies
(GAO/HEHS-98-102, May 12, 1998). Page 24
GAO/HEHS-99-165 Medicare Safeguard Activities B-282114
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. 24This included an additional
$50 million in supplemental program safeguard funds made available
by the HHS fiscal year 1998 appropriation. Page 25
GAO/HEHS-99-165 Medicare Safeguard Activities B-282114 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
25During 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. Page 26
GAO/HEHS-99-165 Medicare Safeguard Activities B-282114 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. 26This
assumes that the claims reviewed had both MSP and medical review
problems. 27Medicare Contractors: Despite Its Efforts, HCFA Cannot
Ensure Their Effectiveness or Integrity (GAO/HEHS-99-115, July 14,
1999). Page 27 GAO/HEHS-99-
165 Medicare Safeguard Activities B-282114 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. 28HCFA 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 B-282114 Conclusions
Implementation of MIP has positively affected HCFA's program
safeguard 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. Agency Comments In
commenting on a draft of this report, HCFA said that it agreed
that and Our Response measuring the impact of program safeguard
activities undertaken as a 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 B-282114 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.
aLocal 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 Ordering Information
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