Medicare: Concerns About HCFA's Efforts to Prevent Fraud by Third-Party
Billers (Testimony, 04/06/2000, GAO/T-HEHS-00-93).

Pursuant to a congressional request, GAO discussed the effectiveness of
the Health Care Financing Administration's (HCFA) efforts to prevent
fraud by third-party billing companies that submit claims to Medicare on
behalf of providers.

GAO noted that: (1) third-party billing companies often have access to
billing information about multiple health care providers and many of
their patients; (2) as a result, unscrupulous operators of such
businesses have an opportunity to submit false claims; (3) even when
HCFA or its contractors suspect that providers' claims are abusive, they
are often unable to tell that the claims were submitted by a third-party
biller; (4) this is due to limitations in both the systems for
processing electronic claims and the complete lack of identifying
information on paper claims; (5) while HCFA has established a process to
monitor the source of electronic claims, no such process exists for
paper claims; (6) paper claim forms include a section or space to
identify the provider but not the biller; (7) an Office of Inspector
General (OIG) official who has investigated several cases of Medicare
fraud by third-party billing companies told GAO that when billing
companies used paper claims, it was difficult for the OIG to identify
all providers using a given biller; (8) HCFA has no routine registration
process to collect comprehensive information about third-party billers;
(9) HCFA has made efforts to obtain information on third-party billers,
but it still cannot routinely match a third-party biller with all of the
providers it represents; (10) in an attempt to gather updated and
comprehensive information about providers, HCFA is drafting a regulation
to require providers that enrolled in Medicare before May 1996 to
complete the new enrollment form to fill this information gap; (11)
providers would also be required to recertify the information on their
enrollment form every 3 years; (12) HCFA plans to have the regulation in
effect by October 1, 2000, and begin requiring providers to update their
enrollment information shortly thereafter; (13) this process involves
self-reported data that typically will not be validated or updated by
the contractors; (14) to make provider and third-party biller
information more accessible to the contractors, HCFA is developing a new
automated system to access the provider enrollment database; (15) HCFA
intends that the system, known as the Provider Enrollment, Chain and
Ownership System will provide a complete history of a Medicare provider
based on the information in the provider enrollment application; and
(16) initially, HCFA plans to incorporate currently available provider
information into the system, and, according to HCFA officials, will
include updated information from all providers in the future.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-HEHS-00-93
     TITLE:  Medicare: Concerns About HCFA's Efforts to Prevent Fraud
	     by Third-Party Billers
      DATE:  04/06/2000
   SUBJECT:  Medical information systems
	     Health care programs
	     Internal controls
	     Fraud
	     Claims processing
	     Program abuses
	     Health insurance
	     Medical expense claims
	     Reporting requirements
IDENTIFIER:  HCFA Provider Enrollment Chain and Ownership System
	     Medicare Program

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   * For Release on Delivery
     Expected at 10:00 a.m.

Thursday, April 6, 2000

GAO/T-HEHS-00-93

medicare

Concerns About HCFA's Efforts to Prevent Fraud by Third-Party Billers

        Statement of Leslie G. Aronovitz, Associate Director

Health Financing and Public Health Issues

Health, Education, and Human Services Division

Testimony

Before the Subcommittee on Oversight and Investigations, Committee on
Commerce, House of Representatives

United States General Accounting Office

GAO

Medicare: Concerns About HCFA's Efforts to Prevent Fraud by Third-Party
Billers

Mr. Chairman and Members of the Subcommittee:

We are pleased to be here today to discuss the effectiveness of HCFA's
efforts to prevent fraud by third-party billing companies that submit claims
to Medicare on behalf of providers. With 1999 payments of about $208 billion
and responsibility for financing health services delivered by hundreds of
thousands of providers to almost 40 million elderly and disabled Americans,
Medicare is inherently vulnerable to fraud, waste, and abuse. We, and the
Department of Health and Human Services (HHS) Office of Inspector General
(OIG) have issued several reports addressing the need for sophisticated
program safeguards to identify and detect potentially fraudulent billing
practices.

In fiscal year 1999, Medicare's fee-for-service program covered about 83
percent of Medicare's beneficiaries. HCFA administers Medicare's
fee-for-service program largely through a network of more than 50 claims
processing contractors-insurance companies such as Mutual of Omaha and Blue
Cross and Blue Shield plans-that process and pay Medicare claims. Once
enrolled in Medicare, physicians, hospitals, and other providers may submit
claims for payment, sometimes through third-party billers, to Medicare
contractors. Third-party billing companies are businesses that prepare and
submit claims on behalf of health care providers to payers such as Medicare,
Medicaid, and private health insurers. In the first 7 months of fiscal year
1999, Medicare contractors processed over 508 million claims-averaging more
than 72 million claims per month.

HCFA's contractors can only review a limited number of claims. Finding fraud
among third-party billing companies is like looking for a needle in a
haystack. Knowing that providers are linked to problematic third-party
billers is like giving HCFA a magnet to look for those needles. In a GAO
report issued last June, we found that HCFA's efforts to comprehensively
identify and review claims associated with third-party billers fell short
for several reasons. First, the identity of a third-party biller submitting
a claim is lost on many electronic claims when multiple entities are
involved, while on paper claims, such information is not recorded at all.
Second, such billers do not register with Medicare, nor are they linked
systematically to the providers they serve. Third, HCFA's efforts to develop
comprehensive data on all providers, including their use of third-party
billers, are still several years from completion. Finally, information HCFA
does have about providers' use of third-party billers is not reliable
because HCFA's database is dependent on provider self-reporting and is not
validated.

Background

Third-party billing companies prepare either paper or electronic claims for
submission to Medicare contractors. In fiscal year 1999, about 83 percent of
Medicare claims were submitted electronically. Electronic claims may be
submitted directly to a contractor or may be sent through one or more other
entities, known as clearinghouses, before reaching the Medicare contractor.
Third-party billers, and even providers, contract with clearinghouses to
reformat claims to meet Medicare's requirements.

Medicare claims administration contractors are responsible for processing
and paying Medicare claims. In addition, they are responsible for payment
safeguard activities intended to protect Medicare from paying
inappropriately. These activities include analyzing claims data to identify
potentially inappropriate claims, performing medical review of claims to
determine whether the services provided were medically necessary and covered
by Medicare, and investigating potential cases of fraud and abuse. To target
program integrity resources, contractors attempt to identify aberrant
patterns of claims submitted by providers to determine whether the claims
should be subjected to greater scrutiny. In this connection, the ability to
scrutinize the claims being submitted by individual third-party billing
companies might allow HCFA to identify aberrant patterns indicative of fraud
and abuse in their submissions.

HCFA Cannot Identify Claims Submitted By Third-Party Billers

Even when HCFA or its contractors suspect that providers' claims are
abusive, they are often unable to tell that the claims were submitted by a
third-party biller. This is due to limitations in both the systems for
processing electronic claims and the complete lack of identifying
information on paper claims. For providers, third-party billers, and
clearinghouses to submit claims to Medicare contractors electronically, they
must obtain a submitter number from a Medicare contractor. This number
becomes part of each claim submission. Electronic claim submissions contain
only one submitter number. If a third-party biller submits a claim directly
to a contractor, the number identifies the claim as coming from that biller.
However, when a claim passes through other entities, such as one or more
clearinghouses, before reaching the contractor for payment, the third-party
biller's number is not always present. In some cases, one entity may
overwrite another's number, or entities may decide among themselves whose
number to use.

While HCFA has established this process-albeit imperfect-to monitor the
source of electronic claims, no such process exists for paper claims. Paper
claim forms include a section or space to identify the provider but not the
biller. In general, contractors would know if a third-party biller submitted
a paper claim only if the provider specifically informed the contractor when
it first enrolled in Medicare of its intention to use a third-party biller,
or if the contractor identified a biller while investigating a provider. An
OIG official who has investigated several cases of Medicare fraud by
third-party billing companies told us that when billing companies used paper
claims, it was difficult for the OIG to identify all providers using a given
biller. In the case where a third-party billing company was submitting
fraudulent claims for surgical dressings on behalf of many nursing homes
across the United States, there was no indication that the same third-party
biller was involved. The OIG agents pursued the case against one nursing
home as an individual fraudulent provider, when in fact 70 nursing homes
were involved. After additional cases were opened by other OIG offices
targeting other individual nursing homes, the agents met to share lessons
learned and realized that all the nursing homes used the same billing
company and that a single company was, in fact, the source of the fraud.

HCFA's Efforts Show Limited Results

HCFA has made efforts to obtain information on third-party billers, but it
still cannot routinely match a third-party biller with all of the providers
it represents. In May 1996, HCFA issued a new enrollment form for providers
entering Medicare. The form requires detailed information, including an
identification of the third-party billing company a provider plans to use,
if any. While the enrollment form provides information about billers that
HCFA and its contractors previously did not have, HCFA data indicate that
only about 15 percent of Medicare providers have enrolled since HCFA began
using the new form. Thus, the 85 percent of Medicare providers that enrolled
before May 1996 likely have not provided this information to HCFA. Further,
even providers that have completed the new enrollment form may not have
valid information in HCFA's system. This is due to the fact that HCFA and
the contractors depend on providers to report any changes. Providers often
do not comply with the requirement in enrollment instructions to notify
their claims processing contractors when they change or add third-party
billers, according to HCFA and contractor officials we talked with. Although
notification is legally required, it is unlikely as a practical matter that
any action would be taken against a non-complying provider.

In an attempt to gather updated and comprehensive information about
providers, HCFA is drafting a regulation to require providers that enrolled
in Medicare before May 1996 to complete the new enrollment form to fill this
information gap. Providers would also be required to recertify the
information on their enrollment form every 3 years. HCFA plans to have the
regulation in effect by October 1, 2000, and begin requiring providers to
update their enrollment information shortly thereafter. Here again, this
process involves self-reported data that typically will not be validated or
updated by the contractors.

To make provider and third-party biller information more accessible to the
contractors, HCFA is developing a new automated system to access the
provider enrollment database. HCFA intends that the system, known as the
Provider Enrollment, Chain and Ownership System (PECOS) will provide a
complete history of a Medicare provider based on the information in the
provider enrollment application. Initially, HCFA plans to incorporate
currently available provider information into the system, and, according to
HCFA officials, will include updated information from all providers in the
future. HCFA plans to implement PECOS for institutional providers, such as
hospitals and nursing homes, by June 2000. HCFA's timeline currently
indicates that PECOS will be operational for providers of outpatient
services in January 2002. According to a HCFA official, this timeline was
developed prior to addressing all Y2K concerns ; due to a smooth transition,
however, it may be able to move implementation up to August 2001. Finally,
HCFA expects that comprehensive data on durable medical equipment suppliers
will be brought into PECOS about 12 months after these other efforts are
completed. The system will depend entirely on providers submitting
information to the contractors, without subsequent validation. As a result,
PECOS will only be as useful as the accuracy of the information it receives.

Conclusions

GAO Contact and Acknowledgements

(201055)

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