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
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