Department of Health and Human Services 
OFFICE OF 
 
INSPECTOR GENERAL 
 
 
 
 
 
 
M C
  EDICARE  LAIMS 
 
A
DMINISTRATION  
 
 
C  E R
ONTRACTORS   RROR  ATE 
 
 
R P  
EDUCTION  LANS 
 
Daniel R. Levinson   
Inspector General  
 
January 2014 
OEI-09-12-00090   
   
EXECUTIVE SUMMARY:  MEDICARE CLAIMS ADMINISTRATION 
CONTRACTORS ERROR RATE REDUCTION PLANS, OEI-09-12-00090 
 
WHY WE DID THIS STUDY 
 
According to the Centers for Medicare & Medicaid Services (CMS) Comprehensive 
Error Rate Testing (CERT) program, Medicare claims administration contractors 
improperly paid an estimated $29.6 billion during the Federal fiscal year 2012 reporting 
period. The improper payment rate (error rate) was 8.5 percent, above the target rate of  
5.4 percent. To reduce the error rate, CMS requires claims  administration contractors to 
submit error rate reduction plans.  In these plans, contractors must describe the corrective 
actions that they will take to lower their error rates.  In addition to overseeing contractors 
efforts to reduce their error rates, CMS has the authority to offer financial incentives to 
the new type of claims administration contractor, Medicare Administrative Contractors 
(MACs). 
   
HOW WE DID THIS STUDY  
 
We reviewed error rate reduction plans submitted for calendar year 2011 or 2012 to 
describe plan content and determine whether the plans included the required elements.  
To assess CMSs oversight of the plans, we analyzed interview responses about reviews 
of the plans by CMS staff. We also analyzed information about the incentives that CMS 
offered to MACs in 2011 and 2012 to reduce their error rates.    
 
WHAT WE FOUND 
 
Most error rate reduction plans included the required elements.  However, corrective 
actions were not always relevant to claims administration contractors CERT results and 
varied substantially in number.  CMS oversight of error rate reduction plans is limited.  
CMS staff who reviewed the plans may have been unable to determine whether the plans 
addressed their most recent CERT results.  Additionally, although some of the sampled 
plans did not include the five required elements or were for contracts with high error 
rates, CMS approved all sampled plans without recommending different or additional 
corrective actions.  Finally, limitations in CMSs administration of incentives for error 
rate reduction may reduce their effectiveness.  
 
WHAT WE RECOMMEND  
 
CMS concurred with our four recommendations to (1) review its process for overseeing 
claims administration contractors error rate reduction, (2) ensure that contractors submit 
clear plans for reducing their error rates, (3) provide additional guidance for contractors 
and CMS staff who review plans, and (4) provide error rate reduction incentives that are 
aligned with the contracts error rates and performance periods.  
   
TABLE OF CONTENTS 
 
Objectives ....................................................................................................1 

Background..................................................................................................1 

Methodology................................................................................................7 

Findings......................................................................................................11 
 
Most error rate reduction plans included the required elements,  

but corrective actions were not always relevant to claims  

administration contractors  CERT results and varied  

substantially in number ..................................................................11 
 
CMS oversight of error rate reduction plans is limited ..................14 

Limitations in CMSs administration of incentives for error  

rate reduction may reduce their effectiveness ................................17 

Conclusion and Recommendations ............................................................20 

Agency Comments and Office of Inspector General Response .....22 

Appendix....................................................................................................23 

Agency Comments.........................................................................23 

Acknowledgments......................................................................................26 

 
   
   
OBJECTIVES 
1. 	  To describe claims administration contractors error rate reduction 
plans. 
2. 	  To assess the Centers for Medicare & Medicaid Services (CMS) 
oversight of error rate reduction plans. 
3. 	  To assess the financial incentives that CMS offered to Medicare 
Administrative Contractors (MACs) to reduce their error rates. 
BACKGROUND 
Medicare Claims Administration Contractors  
CMS uses contractors to process claims and pay for services provided to 
beneficiaries in the Medicare fee-for-service program (claims 
administration contractors).1  The scope of each claims administration 
contract covers a specific jurisdiction (i.e., States) and one or more claim 
types.  Claim types include durable medical equipment (DME), Part A  
claims, Part B claims, and home health and hospice claims.  Some of these 
contractors are awarded and administer multiple contracts.  
CMS has completed the process of replacing all other claims  
administration contractor types with MACs.2   When the jurisdiction 
consolidation is complete, 10 MACs will process all Medicare Part A and 
Part B claims (A/B MACs) and 4 MACs will process all DME claims.3   
For the purpose of this report, claims administration contractors or 
contractors refers to all types of claims administration contractors, 
including MACs. Use of the term  MACs refers solely to MACs.  
The primary goal of each claims administration contractor is to pay it 
right, i.e., to pay the proper amount for covered, medically necessary, and 
correctly coded services.4  In Federal fiscal year 2011, claims  
 
1 At the time of data collection, claims administration contractors consisted of fiscal  
intermediaries, carriers, and  regional home health intermediaries, all of  which  have  
historically processed Medicare fee-for-service claims, and MACs.   
2 Section 911  of the Medicare Prescription Drug, Improvement, and Modernization Act  
of 2003, Public Law 108-173, expanded CMSs authority to contract with entities such as 
MACs.   
3 Administration  of home health and  hospice claims will be consolidated into four  of the 
A/B MAC contracts. 

4 CMS, Medicare Fee-for-Service 2011 Improper Payments Report, p. 6.  Accessed at 

http://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/ 

CERT/Downloads/2011-Medicare-FFS-Improper-Payment-Report-.pdf on May 9, 2013. 

Medicare Claims Administration Contractors Error Rate Reduction Plans (OEI-09-12-00090)   1 
   
   
administration contractors collectively processed about 1.2 billion claims.5   
Because of the large number of claims  that contractors must process, they 
cannot manually review every claim submitted by providers.  Instead, 
contractors take two main types of actions to prevent improper payments:  
(1) medical review of selected claims and (2) provider outreach and 
education. Medical review actions include identifying claims for review 
and determining whether they meet Medicare coverage criteria, 
implementing automated prepayment edits,6 and developing local 
coverage policies.  Provider outreach and education is provided through a 
variety of media, such as articles, conference calls, and Web-based 
training.7    
Measuring Improper Payments Made by Claims Administration 
Contractors 
CMSs Comprehensive Error Rate Testing (CERT) program measures the 
improper payment rate (error rate) in the Medicare fee-for-service 
program.  CERT contractors review a stratified random sample of 
submitted claims to determine whether the claims met Medicare 
requirements.  The CERT program found that during the 2012 fiscal 
reporting period, claims administration contractors improperly paid an 
estimated $29.6 billion out of the $349.7 billion in total program  
expenditures.8 The national error rate was 8.5 percent,9 above CMSs 
target error rate of 5.4 percent.10    
In addition to measuring the national error rate, the CERT program  
measures the error rate for each claims administration contract.  In the 
2010 and 2011 reporting periods, the CERT program found that claims  
administration contractors improperly paid between an estimated  
$17 million and $3.2 billion annually, per contract.  Contract-specific error 
rates ranged from  1 to 76 percent.11, 12   
 
5 Government Accountability Office (GAO), Greater Prepayment Control Efforts Could 
Increase  Savings and Better Ensure Proper  Payment (GAO-13-102), November  
2012, p.  6. 
6 Edits are coded into the claims payment system to automatically deny all or part of a 
claim or suspend all or  part  of  a claim for manual review.  CMS, Medicare Program 
Integrity Manual, ch. 3,  3.2, and ch.7,  7.2.8.1.  
7 CMS, Medicare Contractor Beneficiary and Provider Communications Manual, ch.  
6,  20.  
  
8 Department of Health and Human Services, Fiscal Year 2012 Agency Financial Report: 

Other Accompanying Information, pp. 164-165.
    
9 Ibid. 

10 CMS, Medicare Fee-for-Service 2011 Improper Payments Report, p. 32. 
   
11  Office of Inspector General (OIG) analysis  of CMS improper payment and error rate 

data, 2013. 
 
12 During this time, DME MACs had error rates between 61 and 76 percent.  The 

remaining contractor types had error rates between 1 and 24 percent. 
 
Medicare Claims Administration Contractors Error Rate Reduction Plans (OEI-09-12-00090)   2 
   
   
Related Work on Improper Payments Made by Claims 
Administration Contractors 
GAO has considered Medicare to be a high-risk program since 1990.  In 
February 2013, GAO found that although CMS had made progress in 
measuring and reducing Medicare improper payments, it had yet to 
demonstrate sustained progress in lowering the error rates.13    
Recent OIG reports have found that claims administration contractors did 
not take consistent and sufficient action to avoid making improper 
payments.  OIG reported in October 2010 that contractors did not use 
historical CERT data to identify error-prone providers for corrective 
action.14  Another OIG report found that only one of the nine MACs it 
reviewed performed activities to detect and deter fraud by community 
mental health centers in 2010, although, at the time, approximately half of 
the centers exhibited questionable billing characteristics.15   A third OIG 
report found that of the two MACs included in the review, one processed 
claims for 95 percent of the home health agencies in the MACs two 
regions in 2011, but identified only 2 percent of improper payments that 
were prevented for home health services by the two MACs.16    
    Error Rate Reduction Plans 
To reduce the Medicare fee-for-service error rate, CMS began requiring 
claims administration contractors to submit error rate reduction plans in   
2003. The Medicare Program Integrity Manual states that these plans are 
the cornerstone of ... efforts to prevent improper payments.17  In their 
plans, contractors must describe the corrective actions (that is,  medical 
review and provider outreach and education actions) that they plan to take  
to lower their error rates.18  
Data Used To Develop Error Rate Reduction Plans.   CMS requires that 
claims administration contractors use their CERT results to develop error 
rate reduction plans.19  Every November, CMS provides contractors with 
 
13 GAO,  GAOs 2013  High-Risk Update:  Medicare and Medicaid (GAO-13-433T),  
February 2013.  GAO stated that because the size of Medicare relative to other programs 
leads to aggregate improper payments that are extremely large, continuing to  reduce 
improper payments in this program should remain a priority for CMS.    
14 OIG,  Centers  for Medicare  & Medicaid Services Use of Medicare  Fee-for-Service 
Error Rate Data To  Identify and Focus on  Error-Prone Providers (A-05-08-00080),  
October 2010. 
15 OIG,  Vulnerabilities in CMSs and Contractors Activities To  Detect and  Deter Fraud 
in  Community Mental Health Centers  (OEI-04-11-00101), January 2013. 
16 OIG,  CMS and Contractor  Oversight of Home Health Agencies (OEI-04-11-00220), 
December 2012. 
17 CMS, Medicare Program Integrity Manual, ch. 1,   1.3.1. 
 
18 Ibid., ch.12,    12.3.9. 

19 Ibid.,  ch. 12,  12.3.9, and ch. 7,   7.1 and 7.8.1.1. 
 
Medicare Claims Administration Contractors Error Rate Reduction Plans (OEI-09-12-00090)   3 
   
   
CERT results specific to each contract.  The CERT results include 
information about each improper payment, such as the procedure code, 
service setting, and error type, which contractors can analyze to identify 
common reasons for errors in their jurisdictions.  According to CMS, 
contract-specific CERT results provide...contractors with valuable 
information to assist in the development of specific, robust corrective 
actions to prevent improper payments from occurring in the future.20   
Contractors also have continuous access to CERT-identified improper 
payments through a private Web site.      
CMS expects, but does not require, claims administration contractors to 
use information about improper payments identified by Recovery Audit 
Contractors (RAC) to identify areas needing corrective action.21, 22 RACs 
and contractors share data with each other on improper claims and 
overpayment recoupment efforts.  Contractors have continuous access to 
RAC-identified errors through the RAC Data Warehouse.23   Contractors 
also analyze internal data, such as results of medical record reviews, to 
determine which corrective actions would best prevent the CERT- and 
RAC-identified errors in the future. 
Error Rate Reduction Plan Requirements. For each contract they 
administer, claims administration  contractors must develop and submit an 
error rate reduction plan that addresses the contracts annual CERT  
results.24, 25   A/B MACs receive separate Part  A and Part B error rates and 
must submit a plan for each Part.  The plan is due 30 days after each 
contractor receives its annual CERT results.   
 
 
20 CMS, Medicare Fee-for-Service 2011 Improper Payments Report, p. 8.
    
21 CMS, Medicare Program Integrity Manual,  ch.1,  1.3.1.  

22 RACs are responsible for identifying overpayments and underpayments and are paid
  
according to the amount of improper  payments they correct. CMS, Recovery Auditing in 
the Medicare and Medicaid Programs for Fiscal Year 2011, pp. 2-3.    
23 CMS, Statement of  Work for  the Recovery Audit Program, September 1, 2011, p. 12. 
24 CMS, Medicare Program Integrity Manual,  ch.12,   12.3.9.  New contractors are 
required to submit error rate reduction  plans if their contracts were in effect when the 
contract-specific error rates became available, even if their contracts were not in effect 
during the CERT review period.   
25 The  Medicare Program Integrity Manual states that DME Program Safeguard 
Contractors (another type of Medicare contractor) are responsible for DME MAC  
contracts error rate reduction plans.   However, CMS informed  OIG that this is not the 
case: DME MACs are responsible for their contracts plans.   
Medicare Claims Administration Contractors Error Rate Reduction Plans (OEI-09-12-00090)   4 
   
   
The plan must follow the format required by CMSs data entry system.26   
The plan must also include five elements that describe: 
1. 	  reasons for error in the contractors jurisdiction,27  
2. 	  corrective actions in place and new corrective actions planned for 
the future,  
3. 	  adjustments that the contractor  has made or will make to its 
Medical Review Strategy,28  
4. 	  coordination activities among components29 within the contractor, 
and 
5. 	  the ways in which the contractor will use the CERT results to  
develop and implement provider outreach and education efforts.30   
CMS Oversight of Error Rate Reduction Plans.  CMS staff review each 
error rate reduction plan  to determine whether it is a reasonable response 
to the contractors error rate.31  CMS regional office staff review the 
medical review sections of the plans.  CMS central office staff review the 
provider outreach and education sections of the plans.  According to 
regional office guidance, CMS staff review the plan in conjunction with 
the applicable...CERT Improper Payment Report and ensure the plan 
sufficiently addresses the reasons for errors within the [claims 
administration contractors] jurisdiction.32  CMS staff are also required to 
ensure that each plan includes the five required elements.  If CMS staff 
have a question or concern about the plan, they may provide comments or 
suggestions to the contractor.  Contractors may submit multiple versions  
between the initial submission and CMS approval.   
 
26 CMS maintains the data entry system, which is available to  contractors to enter their 

error rate reduction plans.   The system includes fields that identify the contract, fields 

used  by the contractors to enter plan content, and fields used  by CMS staff to enter 

comments and identify CMS staff who reviewed the plan. 

27 According to  CMS, this element requires contractors to report the types of CERT 

errors (e.g., service types or provider types)  that, on the basis of their analysis of their 

CERT results, require corrective action.  Contractors should also  report why those CERT 

errors require corrective action (e.g.,  a high percentage  of  claims with a procedure code 
 
had errors) and the results of  their internal data analyses. 
 
28 Claims administration  contractors are required to develop an annual Medical Review 

Strategy for each contract.  The strategy details the medical review issues, actions, and 

projected goals  for reducing the error rate.   CMS,  Medicare Program Integrity Manual, 
 
ch. 7,  7.1. 

29 For example, medical review and provider outreach and education divisions. 

30 CMS, Medicare Program Integrity Manual, ch. 12,  12.3.9. 

31 Ibid.   

32 CMS, Standard  Operating Procedure M-4:   Review of the  Comprehensive Error Rate 

Testing (CERT) Error Rate Reduction Plan (ERRP), p. 2.  The CERT Improper  Payment 

Report is published annually and reports the national error rate, the common causes of  

improper payments, and the steps CMS is taking to  reduce the error rate.  
 
Medicare Claims Administration Contractors Error Rate Reduction Plans (OEI-09-12-00090)   5 
   
   
Once any comments are addressed, CMS staff who reviewed the medical 
review and provider outreach and education sections each communicate 
the results of their review to central office staff.  Generally, CMS staff 
who review the plans assist CMS contracting officers and technical 
representatives in interpreting Medicare program requirements and 
ensuring that claims administration contractors follow the technical 
requirements of their contracts.33    
Other Documents Used for CMS Oversight of Claims Administration 
Contractors Error Rate Reduction Efforts. In addition to reviewing error 
rate reduction plans, CMS staff monitor claims administration contractors  
error rate reduction efforts throughout the year using a variety of other 
oversight documents.  CMS staff responsible for the medical review 
section of plans review Medical Review Strategies, Strategy Analysis 
Reports, and Monthly Status Reports.34 CMS staff responsible for the 
provider outreach and education section of plans review Provider Service 
Plans, Educational Activities Reports, and Monthly Status Reports.35    
Performance-Based Incentives to MACs 
To improve Medicares administrative services to beneficiaries and health 
care providers, Congress replaced all other claims administration 
contractor types with MACs and authorized CMS to use new contracting 
tools.36  These tools include performance-based financial incentives. 
Unlike the other types of claims administration contractors, MACs are 
paid on a cost-plus-award-fee basis.37  CMS reimburses MACs for the cost 
of fulfilling their contract responsibilities and offers incentives to 
motivate contractor efforts that might not otherwise be emphasized and 
discourage contractor inefficiency and waste.38    
 
33 CMS, MAC Contract Administration Guide,  revised June 3,  2011, p. 7.  
34 The Strategy  Analysis Report is the annual update to the Medical Review Strategy  
Report and describes progress towards goals  and any changes to the strategy.  CMS,  
Medicare Program Integrity  Manual, ch. 7,   7.1 and 7.8.  MACs  submit Monthly  
Status Reports that include updates about all aspects of the contracts, including the 
achievement of milestones and deliverables.  
35 The Provider Service Plan outlines the contractors strategies and actions  planned for 
the coming year to support  provider outreach and education and contains  an evaluation of  
the success of the previous years provider  outreach and education.  The Educational 
Activities Report summarizes the contractors provider  outreach and education actions 
during the previous time period.  CMS, Medicare Contractor Beneficiary and Provider  
Communications Manual, ch. 6,   20.7.1 and 20.7.2. 
36 CMS, Medicare Administrative Contractors. Accessed at 
http://www.cms.gov/Medicare/Medicare-Contracting/Medicare-Administrative-
Contractors/MedicareAdministrativeContractors.html on  August 12, 2013. 
  
37 Social Security Act,   1874A(b)(1)(D),  requires CMS to  provide incentive  payments to 
 
MACs to  ensure service quality and promote efficiency.   

38 Federal  Acquisition Regulation, Subpart  16.4Incentive Contracts.  
Medicare Claims Administration Contractors Error Rate Reduction Plans (OEI-09-12-00090)   6 
   
   
Before the beginning of each year of a MACs contract,39 CMS offers 
incentives for the MACs performance during the upcoming year 
(performance period).40  CMS selects certain metrics from the MACs 
contract for which to offer these incentives.  Examples of these metrics 
include claims administration timeliness, responsiveness to beneficiary 
inquiries, and error rate reduction.  CMS weights each metric to determine 
the percentage of the total incentive payments the MAC can earn for its 
performance in each metric.  CMS may change the metrics at any time, 
although it must inform the MAC of any revisions to the evaluation 
criteria before the performance period begins.41    
At the end of each performance period, CMS determines the amount of 
incentive payments, if any, a MAC has earned.  CMS makes this 
determination on the basis of its annual evaluation of the MAC and the 
MACs self-reported performance assessment.  In November 2012, GAO 
found that CMS provided relatively small incentives3 percent or less of 
total incentivesto promote MACs use of effective prepayment edits.42    
METHODOLOGY 
Data Collection and Analysis 
Error Rate Reduction Plan Content.  From CMS, we collected all error 
rate reduction plans that were in effect during calendar year 2011 or 
2012.43  We received 42 plans in effect during 2011 and 34 plans in effect 
during 2012.  We also requested a list of all claims administration 
contractors that received CERT results and determined whether a plan was 
submitted for each contract, as required.   
We reviewed each error rate reduction plan and recorded information 
about all corrective actions (i.e., we created a corrective action database).  
CMS does not define corrective action for the purpose of reporting them 
in error rate reduction plans. In this report, we define corrective action 
as an action that has been or will be taken by the claims administration 
contractor to address a specific target and reduce its error rate.  Corrective 
 
39 The term of a MAC contract is 5 years. 

40 Performance metrics and evaluation criteria are set in the MACs annual Award Fee 

Plan. The Award Fee Plans performance period begins with  the first full  month and 

ends with the last full month  of the contract  performance period.  
   
41 CMS, Award Fee Plan for Part A and Part B Medicare Administrative Contractor  

(A/B MAC) Jurisdiction  7,  p. 3.  
42 GAO,  Greater Prepayment Control Efforts Could Increase Savings and Better Ensure 
Proper Payment,  GAO-13-102, November 2012. 
43 During data collection, CMS inadvertently did not submit  one error rate reduction plan  
that was in effect during  2012.  Therefore, although 77 plans were in effect during  
2011  or 2012, our analysis is of the 76 submitted plans. 
Medicare Claims Administration Contractors Error Rate Reduction Plans (OEI-09-12-00090)   7 
   
   
action targets include, but are not limited to, specific providers (e.g., 
providers with CERT errors), error types (e.g., documentation errors), 
service types (e.g., an ambulance transport procedure code or a group of 
procedure codes for chiropractic services), provider types (e.g., 
cardiologists), and facility types (e.g., skilled nursing facilities).  A  
statement such as we will publish articles to educate providers does not 
identify the type(s) of error the articles will target and thus would not 
count as a corrective action for the purpose of this report.  However, a 
statement such as we will publish articles about power wheelchair billing 
requirements would count as a corrective action.  
We determined whether error rate reduction plans included each of the five 
required elements.  Because CMS does not provide specific guidance on 
what is required to meet each element, we adopted a lenient approach to 
making this determination.  Table 1 presents the minimum criteria we used 
as review standards for the required elements.    
Table 1:  Required Elements and OIG Review Standards for Error 
Rate Reduction Plans 
Required Element   OIG Minimum Criteria Review Standard 
 Plan identified types of error in the contractors 
Reasons for error in the contractors  CERT results and explained why they required 
jurisdiction  corrective action (e.g., a high percentage of claims 
for a service type had errors) 
 
Corrective actions in place and new   Plan listed at least one past and one new  (i.e., 
corrective actions planned for the future   planned or ongoing) corrective action 
 
Adjustments that the contractor has made  Plan listed at least one medical review  
or  will make to its Medical Review   corrective action and had medical review sections 
Strategy   that were up-to-date 
 
Coordination activities among components  Plan described any type of internal 
within the contractor  coordination 
 
How the contractor  will use the CERT  Plan described the process for use of CERT 
results to develop and implement provider  results for provider outreach and education efforts 
outreach and education efforts  or provided a specific example(s) 
 
Using our corrective action database, we determined the range and 
average numbers of new, medical review, and provider outreach and 
education corrective actions in error rate reduction plans.  We compared 
the numbers of these corrective actions with contracts error rates.   
Using our corrective action database, we determined whether corrective 
actions listed in error rate reduction plans applied to each contracts CERT  
results. Specifically, we determined whether they targeted the appropriate 
timeframe, claim type(s), and jurisdiction.       
Medicare Claims Administration Contractors Error Rate Reduction Plans (OEI-09-12-00090)  8 
   
   
CMS Oversight of Error Rate Reduction Plans. Using date fields in the 
error rate reduction plans we collected, we determined whether CMSs 
plan reviews were timely.   We calculated the average number of days 
between the effective date of each 2011 and 2012 plan and the date of 
CMSs approval as recorded in the data entry system.   
We determined the extent to which claims administration contractors did 
not report characteristics of corrective actions that could have affected 
reviewers ability to determine the extent to which a corrective action 
addressed an error. Using our corrective action database, we identified 
corrective actions for which we could not determine one or more of the 
following: status, service target, action, number of providers affected,44  
and/or number of times the action had been or would be performed.45    
We conducted structured telephone interviews with CMS staff in the 
central and regional offices.  In 2012, every error rate reduction plan 
received a review of its medical review section by one of nine staff in 
CMS regional offices and a review of its provider outreach and education 
section by one of three staff in the central office.  We interviewed and 
collected supporting documentation from all 12 CMS staff who reviewed 
plans about their general oversight of plans and claims administration 
contractors error rate reduction efforts.  We also interviewed them about a 
sample of their plan reviews to determine the extent to which they 
recommended different or additional corrective actions or had concerns 
about the plans.46   We asked about reviews of the medical review and 
provider outreach and education sections of 18 sampled plans. Therefore, 
we collected interview data for 36 reviews.   
We determined the extent to which sampled error rate reduction plans did 
not include the five required elements or were associated with contracts 
with error rates above CMSs target during the Federal fiscal year       
2010 and 2011 reporting periods (i.e., in the 2 years before the sampled 
plans reviews). We compared the results of these analyses to our findings 
on CMSs review of the sampled plans.   
Financial Incentives for MACs Error Rate Reduction.   To analyze the 
incentives that CMS offered to MACs to reduce their error rates, we 
 
44 Applies only to corrective actions that contractors indicated  were specific to certain 
providers.   

45 Applies only to corrective actions that contractors indicated  had been  or  would be
  
performed multiple times. 
 
46  We  selected a sample of 2012 error rate reduction plans so that staff members 
 
responses were based on the  most recent plan  reviews.  The nine CMS staff who were 

responsible for the plans medical review content each reviewed between two and seven 

plans in 2012.  We selected two plans from  each of these staff members, using random 
 
sampling to select plans for staff members who reviewed more than two plans. 
   
Medicare Claims Administration Contractors Error Rate Reduction Plans (OEI-09-12-00090)   9 
   
   
identified MACs with performance periods in calendar years 2011 and 
2012. We requested information from CMS about the incentive payments 
offered and MACs error rates.47   We also conducted a telephone interview  
with CMS to collect information about how and when MACs incentives 
for error rate reduction are set.  
We determined the extent to which the size of incentives for error rate 
reduction varied according to MACs  error rates at the time incentives 
were offered.  We compared the contract performance periods with the 
date range for sampled CERT claims that CMS used to measure MACs  
error rate reduction performance.   
Our analysis focuses on the incentives that CMS offered to MACs at the 
beginning of their performance periods and does not address the extent to 
which MACs successfully reduced their error rates and received incentive 
payments.   
Limitations 
We compared the numbers of corrective actions listed in error rate 
reduction plans with contracts error rates.  However, because the scopes 
of corrective actions may vary, the number of corrective actions in a plan 
may not necessarily measure the plans effectiveness.  As a result, the 
number of corrective actions listed in a plan may be a limited indicator of 
a contractors response to its error rate.   
At the time of our review, CMS did not document the dates that claims  
administration contractors initially submitted error rate reduction 
plans. Therefore, we were unable to determine whether plans were 
submitted within the required timeframe (i.e., 30 days after the contractor  
received its CERT results). We were also unable to determine the total 
time for CMSs plan reviews. 
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspection and Evaluation issued by the Council of the Inspectors General 
on Integrity and Efficiency. 
 
 
47 CMS provided contract information for 13  MACs with contracts in effect during   
2011 and for 15 MACs with contracts in effect during  2012. 
Medicare Claims Administration Contractors Error Rate Reduction Plans (OEI-09-12-00090)   10 
   
   
FINDINGS 
Most error rate reduction plans included the required 
elements, but corrective actions were not always 
relevant to claims administration contractors CERT 
results and varied substantially in number  
Although most error rate reduction plans met the minimum criteria we 
established to determine whether plans included the five required 
elements, some plans listed corrective actions that were irrelevant to 
claims administration contractors CERT results.  The numbers of 
corrective actions listed in plans varied substantially, but not according to  
contractors error rates.  
Sixty-seven of seventy-six plans included the five required 
elements 
All 76 error rate reduction plans were submitted as required, and 67 of   
76 plans met the minimum criteria we established to determine whether 
plans included the 5 required elements.48  All plans included the element to 
describe coordination between each claims administration contractors 
components by meeting our minimum criterion of referencing any type of 
internal coordination. All plans also included the element to describe how 
the contractors would use their CERT results to develop and implement 
provider outreach and education efforts by meeting our minimum criterion 
of generally describing these efforts and/or providing at least one example.   
Seven error rate reduction plans did not include the element to describe 
adjustments that the claims administration contractors had made or would 
make to their Medical Review Strategies.  These plans did not meet our 
minimum criterion of including at least one medical review corrective 
action and having a medical review section that was up-to-date.  The 
contractors responsible for these plans had error rates ranging from 0.5 to               
67.4 percent. 
Three error rate reduction plans did not meet the requirement to describe 
corrective actions in place and new corrective actions planned for the 
future. These plans did not meet our minimum criterion of including at 
least one past and one new corrective action in response to claims  
administration contractors recent CERT results.  For example, one plan 
reported only five corrective actions, all of which had occurred in the past.  
The contractors responsible for these plans had error rates ranging from  
0.5 to 23.7 percent. 
 
48 Six plans did not include one required element and three plans did not include two 
required elements. 
Medicare Claims Administration Contractors Error Rate Reduction Plans (OEI-09-12-00090)   11 
   
   
Two error rate reduction plans did not meet the requirement to describe 
reasons for error in the claims administration contractors jurisdictions.  
These plans did not meet our minimum criterion of identifying types of 
error in their CERT results and explaining why they were considered 
priorities. These plans did not include any analysis of the contractors  
CERT results, such as providing error rates for identified services.  The 
contractors responsible for these plans had error rates of 8.0 and  
75.1 percent. 
Plans corrective actions were not always relevant to 
contractors CERT results 
Some plans listed corrective actions that were outside the timeframe of  
their CERT results or the scope of their contracts.  
Twenty-seven plans listed at least one corrective action outside the 
timeframe of their CERT results. Error rate reduction plans should address 
the claims administration contractors most recent CERT results.  
However, 27 of 76 plans listed at least 1 corrective action outside the 
timeframe of their most recent CERT results.  Contractors that submitted  
the 27 plans reported actions taken prior to the CERT review period or 
used CERT results from prior years as a rationale for corrective actions.  
Thirteen plans each listed more than 20 of these corrective actions.  For 
example, to explain why corrective actions would be taken, a plan that was 
submitted in April 2012 stated:  The error rate [for oxygen supplies] 
increased from 26% on the [contract-specific] November 2009 CERT 
Error Report to 73% on the November 2010 report, but did not include 
information from the contracts most recent (i.e., 2011) CERT results.   
Sixteen plans listed at least one corrective action outside the scope of their 
contracts claim types or jurisdictions. Claims administration contractors 
CERT results are specific to the claim type(s) and jurisdiction included in 
the scope of their contracts. However, 16 of 76 plans listed at least  
1 corrective action outside the scope of their contracts claim type or 
jurisdiction. For example, one contract covered Connecticut and New 
York, but its plan described in-person provider workshops in Kentucky, 
Michigan, Indiana, and Wisconsin.  Corrective actions outside the scope 
of the contract do not indicate that the contractors plan was deficient, but 
rather that the plan was not tailored to the errors specific to the contract.   
The numbers and types of corrective actions in plans varied, 
but not according to contractors error rates 
Although most error rate reduction plans met our minimum criteria for 
including the five required elements, the numbers and types of corrective 
actions listed in plans varied. 
Medicare Claims Administration Contractors Error Rate Reduction Plans (OEI-09-12-00090)   12 
   
   
Most error rate reduction plans included the element to describe 
adjustments to the contracts Medical Review Strategies.  However, the 
numbers of medical review corrective actions listed in all plans varied 
from 0 to 97, with an average of 21 per plan.  Twenty-four of seventy-six 
plans listed 10 or fewer of these corrective actions.  Medical review 
corrective actions varied from postpayment reviews of individual 
providers claims to prepayment reviews of all claims submitted with 
certain procedure codes. 
All error rate reduction plans included the element that claims 
administration contractors describe how they will use CERT results to 
develop and implement provider outreach and education efforts.  
However, the numbers of provider outreach and education corrective 
actions listed in plans varied from 3 to 969, with an average of 74 per 
plan. Provider outreach and education corrective actions varied from a 
letter educating a single provider to an in-person training attended by 
hundreds of providers. 
Although most error rate reduction plans listed at least 1 new (i.e., planned 
or ongoing) corrective action, the numbers of new corrective actions listed 
in plans varied from 0 to 529, with an average of 28 per plan.  On average, 
less than one-third (32 percent) of the corrective actions listed in plans 
were new; the remaining actions were already completed.49 Additionally, 
24 of 76 plans listed 10 or fewer new corrective actions. Although CMS 
expects claims administration contractors to report what they have done in 
the past to address a particular problem, plans should also list new 
corrective actions that a contractor will take to address its most recent 
CERT results.50  
The numbers of corrective actions in error rate reduction plans did not 
vary according to claims administration contractors error rates.51   
Contractors with high error rates did not always submit plans that listed 
more corrective actions than contractors with low error rates.  See 
Table 2 for examples of plans corrective actions and their contracts error 
rates. For example, one plan for a contract with an error rate of  
23.7 percent and $1.7 billion in projected improper payments did not list 
any new corrective actions or medical review corrective actions (Plan  
10 in Table 2). In contrast, one plan for a contract with an error rate of  
4.7 percent and $254 million in projected improper payments listed  
 
49 Because we could not determine the status of 5 percent of corrective actions, these are 

excluded from this analysis.  

50 CMS, Medicare Program Integrity Manual,   12.3.9. 

51 Because contractors may take a wide range of corrective actions, the number of 

corrective actions listed in a plan may be a limited indicator  of a contractors response to
  
its error rate. 

Medicare Claims Administration Contractors Error Rate Reduction Plans (OEI-09-12-00090)   13 
   
   
58 new corrective actions and 21 medical review corrective actions  
(Plan 2 in Table 2).   
Table 2:  Contractors Error Rates and Corresponding Numbers of 
Corrective Actions in Example Error Rate Reduction Plans 
Number of Provider 
Number of New   Number of Medical  Outreach and 
Corrective   Review Corrective   Education Corrective 
Plan  Error Rate   Actions   Actions   Actions  
1  4.3%  6  6  35  
2  4.7%  58   21   51  
3  6.7%   3  20   11  
4  6.7%   77   71   43  
5  8.8%  69   57   85  
6  9.0%  0  0  34  
7  13.5%   65   50   79  
8  14.4%   13   4  61  
9  22.4%  75   19   84  
10  23.7%  0  0  35  
Note: The numbers used in the  table  are not the numbers used by CMS to identify claims administration contracts.  
We use  them to delineate the individual plans that are the  subject of our review.  For one plan in  this table, a  few  
months remained on the contract at the time its plan was submitted;  contracts for the other nine  plans in this table 
each had at least 1  year remaining.  
Source:  OIG analysis of 2011 and 2012 error rate reduction plans, 2013. 
CMS oversight of error rate reduction plans is limited 
CMS does not use error rate reduction plans to oversee claims 
administration contractors error rate reduction efforts to the extent 
possible. CMS staff reviewed plans after the start of the plans effective 
year. CMS staff did not typically use CERT data to ensure that plans 
addressed contractors errors. Further, CMS staff may be unable to 
determine whether contractors plans address their most recent CERT 
results because of contractors unclear reporting of their corrective actions.  
Finally, in our sampled plan reviews, CMS approved all plans without 
recommending different or additional corrective actions.  This occurred 
even though some of the plans did not include the five required elements 
or were associated with contracts with high error rates.  
Some CMS reviews were completed well into the plans 
effective year  
Because the 2011 and 2012 error rate reduction plans were not due from  
claims administration contractors until January 2012 and  
2013, respectively, CMS staff completed all reviews after the plans 
effective year began. Twenty of seventy-six plans were approved by CMS 
more than 2 months into the plans effective year (i.e., on or after March 
1). One of those plans was approved by CMS nearly 5 months into the 
Medicare Claims Administration Contractors Error Rate Reduction Plans (OEI-09-12-00090)   14 
   
   
plans effective year. These delayed approval dates may have been caused 
by late submissions from the contractors.  However, we could not make 
this determination because CMS did not document the dates it received the 
initial plans and documented only the date the contractors submitted the 
last version of the plans. 
CMS does not independently verify contractors top errors 
using CERT results 
CMS staff who review error rate reduction plans do not use  
contract-specific CERT results to independently verify the reasons for 
claims administration contractors errors.  According to CMS regional 
office guidance, CMS staff review the plans in conjunction with the 
applicable...CERT Improper Payment Report.52 However, this report is 
not specific to each contract, and 10 of 12 CMS staff we interviewed 
stated that they do not review contract-specific CERT results.53 Instead, 
CMS staff rely on contractors to analyze their CERT results and identify 
their reasons for error.   
In addition to not using CERT results, CMS staff who review error rate 
reduction plans rarely use other data sources to identify reasons for error 
in the contractors jurisdictions. None of the staff reported that they 
review contract-specific RAC data.  Two staff mentioned that they review 
summaries of provider inquiries (providers who called the contractor to 
ask, for example, about documentation or billing requirements) to identify 
areas needing provider outreach and education corrective actions.  Data 
from RACs and other sources could help CMS staff identify additional 
areas in need of corrective action. 
CMS reviewers may have been  unable to determine whether 
contractors plans addressed their most recent CERT results 
Claims administration contractors often did not clearly report information 
about corrective actions in error rate reduction plans that could have 
affected reviewers ability to determine whether plans were a reasonable 
response to contractors most recent CERT results. For an average of  
41 percent of corrective actions per plan, we could not determine one or 
more of the characteristics below: 
 
52 CMS, Standard  Operating Procedure M-4:   Review of the  Comprehensive Error Rate 
Testing (CERT) Error Rate Reduction Plan (ERRP), p. 2.    
53 CMS central office staff stated that they  began providing contract-specific CERT  
analyses to staff who review  plans in December 2012.  However, when  we interviewed 
them in January 2013, 7 of  12 CMS staff we interviewed were unaware that this 
information was available.   
Medicare Claims Administration Contractors Error Rate Reduction Plans (OEI-09-12-00090)   15 
   
   
 	  Status. The contractor did not indicate whether these actions were 
already completed or were new actions in response to the most recent 
CERT results. 
 	  Service target. The contractor did not indicate the specific service(s), 
such as spinal adjustment, or category of service(s), such as 
chiropractic services, with errors being addressed by these actions.  
For example, a corrective action that is described as addressing errors 
for general surgery is not specific enough to be matched with the 
contracts CERT results. 
 	  Action. For these actions, the contractor did not indicate what it had 
done or planned to do. For example, some plans were vague and 
stated that they would conduct education and others listed a range of 
potential actions, such as articles, targeted mailings, or web[-based 
trainings] without specifying which would be taken. 
 	  Number of providers affected. Although the contractor indicated these 
actions were specific to certain providers, it did not identify the 
numbers of providers affected by the actions (for example, there have 
been multiple face to face meetings with facility providers).  
	   Number of times the action was or would be performed. Although the 
contractor indicated these actions were or would be performed 
multiple times, it did not identify  the numbers of times the actions 
were or will be performed (for example, conduct web-based trainings 
on physical therapy services). 
CMS approved all sampled plans without recommending 
different or additional corrective actions  
CMS staff approved all sampled error rate reduction plans, including plans 
that did not include the five required elements or were for contracts with 
high error rates.54  Three of the eighteen sampled plans did not include one 
or more of the five required elements, according to our review.  CMS staff 
did not note this in their plan reviews.  Additionally, eight sampled plans 
were associated with contracts that had error rates above CMSs national 
error rate targets in the 2 years before the plans were submitted.  The error  
rates for these plans ranged from 8.8 to 71.3 percent.  Although CMS staff 
asked for clarifications or additional information from claims  
administration contractors in their reviews of some of these plans, CMS 
staff did not recommend that contractors take different or additional 
corrective actions for any of the sampled plans.   
 
54 This analysis is based  on CMS interview responses about a sample of 18  of the 34 error 
rate reduction  plans in effect  during  2012.  
Medicare Claims Administration Contractors Error Rate Reduction Plans (OEI-09-12-00090)   16 
   
   
Several CMS staff stated that they did not recommend that claims  
administration contractors address specific errors or take specific actions   
because they do not have the authority to require contractors to take 
specific corrective actions.  Although this is true, CMS staff who review 
error rate reduction plans may make suggestions to contractors.  
Additionally, CMS contracting officers rely on other CMS staff, including 
those who review error rate reduction plans, to ensure that MACs meet 
contractual requirements.55  CMS contracting officers have the authority to 
issue technical direction, as needed, to redirect contractors efforts.56    
Limitations in CMSs administration of incentives for 
error rate reduction may reduce their effectiveness 
Although CMS has the authority to offer incentives to MACs to reduce 
their error rates, limitations in the incentives administration may reduce 
their effectiveness.  CMS offered incentives to MACs only in certain years 
of their contracts.  For MACs that were offered incentives for error rate 
reduction, the amount of incentive payments offered did not vary 
according to the MACs error rates.  Additionally, because of the timing of 
CERT reviews, MACs incentive payments often were not aligned with the 
appropriate performance period. 
CMS offers incentives for error rate reduction in only 2 of the  
5 years of MACs contracts 
In 2011 and 2012, CMS offered error rate reduction incentives to each 
MAC that was entering the third or fourth year of its 5-year contract.  
These MACs were eligible to earn error rate reduction incentive payments 
by (1) meeting CMSs national error rate goal and/or (2) reducing their 
error rates from the previous year.   
CMS stated that it does not offer error rate reduction incentives in the first 
and second years of MACs contracts because their baseline error rates are 
established during that time.57  CMS does not offer error rate reduction 
incentives in the fifth year of MACs  contracts because of delays in CERT  
error rate reporting. Seven A/B MACs and all four DME MACs were not 
eligible to earn error rate reduction incentives in 2011 and/or 2012 because 
they were in the first, second, or fifth years of their contracts.   
 
55 CMS, MAC Contract Administration Guide,  revised June 3,  2011, p. 7.  
56 Ibid.,  pp. 6-7.  Technical direction can be given to MACs  but not the other claims  
administration contractor  types.  
57 During the first year, or base  year, of the contract, which is composed  of 
implementation and operational periods, the performance period may be 6 months. The  
second year, or first option year, is the first year in which the contract is fully operational. 
Medicare Claims Administration Contractors Error Rate Reduction Plans (OEI-09-12-00090)   17 
   
   
The dollar amounts of error rate reduction incentives did not 
vary according to MACs error rates 
CMS allocates a set percentage of a MACs available incentive payments 
to the error rate performance metrics.58  Because the amount of available 
incentive payments varies for each MAC, the amount offered for error rate 
reduction also varies. However, MACs with higher error rates and higher 
amounts of total improper payments are not necessarily offered larger 
error rate reduction incentives than MACs with lower error rates and 
lower total amounts of improper payments.  Table 3 presents MACs error 
rates, projected improper payments, and incentive payments offered for 
MACs error rate reduction in 2011 or 2012. 
Table 3: MACs Error Rates and Error Rate Incentives Offered  
in 2011 or 2012 
 
Total  Incentive  Payment 
Projected Improper  Offered for Error Rate  
MAC  Error Rate  Payments   Performance 
K  21.1%  $1,838,556,166  $25,624  
L  14.4%        $2,588,848,665   $23,396  
M  12.9%        $3,486,959,464   $36,354  
N  12.4%        $2,742,378,638   $12,474  
O  9.2%        $1,691,643,349   $23,362  
P  7.9%          $673,036,000   $4,308  
Q  7.0%          $940,201,239   $5,610  
R  6.6%   $949,329,121   $25,520  
S  5.5%        $1,497,499,970   $36,312  
T  5.3%          $612,733,603   $23,316  
U  4.7%  $603,679,066   $81,966  
V  4.0%   $273,368,227   $24,428  
W  3.5%   $28,572,533   $19,620  
Note: The letters used in the table are not the letters used by CMS to identify MAC  contracts.  We  use them  

to identify the individual MAC contracts that are the  subject of  our review.
  
Source:  OIG analysis of award fees offered to MACs, 2013. 
 
 
In 2011 and 2012, the incentives for error rate reduction ranged from  
$4,308 to $81,966 per contractor, out of total possible incentive payments 
between $891,752 and $3.5 million.  Total contract values in the years in 
which incentives were offered were between $49.6 million and         
$122.1 million. 
 
58 For the 2011 and 2012 performance periods, CMS allocated  5 percent of the Medicare 
Integrity Program pool, one of two funding pools for MACs incentive payments, to error 
rate reduction.  
Medicare Claims Administration Contractors Error Rate Reduction Plans (OEI-09-12-00090)   18 
   
   
Among MACs that were offered error rate reduction incentives, the MAC 
with the second highest projected improper payment amount (listed as N 
in Table 3) was offered one of the smallest incentives for error rate 
reduction. CMS offered the MAC $12,474 to lower its error rate.  At the 
time the incentive was offered, the MAC had an error rate of 12.4 percent, 
resulting in $2.7 billion in projected improper payments.  In contrast, the 
MAC that was offered the largest incentive for error rate reduction (listed 
as U in Table 3) had one of the lowest error rates.   That MAC was 
offered an incentive to lower its error rate of $81,966 and had an error rate 
of 4.7 percent at the time that the incentive was offered.     
CMS did not align MACs incentive payments with the 
appropriate performance periods  
The timing of the CERT program and the error rate reduction incentive 
performance period often did not align.  At the time that CMS offered the 
incentives, an average of 4 months remained in the years during which 
MACs error rate performance was to be measured.  For example, one 
MACs incentive performance period covered its performance between 
October 2010 and September 2011. This MAC was offered incentives to 
reduce its error rate.  However, CMS used the MACs error rate for claims 
processed during calendar year 2010 to determine the incentive payments 
the MAC earned. Therefore, at the time the incentives were offered, the 
MAC had only 3 months remaining in the measurement period.   For two 
MACs, there was no overlap between the error rate measurement period 
and incentive performance period.  The lack of alignment between the 
measurement and incentive performance periods may lessen the 
effectiveness of error rate reduction incentives.     
Medicare Claims Administration Contractors Error Rate Reduction Plans (OEI-09-12-00090)   19 
   
   
CONCLUSION AND RECOMMENDATIONS 
OIG has consistently found vulnerabilities in CMSs oversight of  
contractors. The primary goal of claims administration contractors is to 
pay it right.59  During the 2012 fiscal reporting period, claims  
administration contractors improperly paid an estimated $29.6 billion out 
of the $349.7 billion in total Medicare Part A and Part B expenditures.  
Error rate reduction plans are intended to outline contractors strategies for 
reducing their error rates and serve as  the cornerstone of these efforts.  
Plans that include comprehensive medical review and provider outreach 
and education corrective actions may help protect the integrity of 
Medicare funds. 
Claims administration contractors must process and pay large volumes of 
claims timely.  Implementing medical review actions to detect and prevent 
improper payments slows claims processing, and both medical review and 
provider outreach and education incur costs for the contractor. Given this,  
effective CMS oversight of contractors responses to their CERT results is 
essential. 
CMS monitors claims administration contractors error rate reduction 
efforts using a variety of oversight documents.  However, our review 
identified vulnerabilities and opportunities for improvement in two tools 
central to CMSs oversight of contractor error rates:  error rate reduction 
plans and performance-based financial incentives. 
Therefore, we recommend that CMS:  
Review Its Process for Overseeing Contractors Error Rate 
Reduction 
CMS should review its process for overseeing claims administration 
contractors error rate reduction.  Although CMS reviews a variety of 
documents submitted by contractors, unlike the other documents, error 
rate reduction plans are designed specifically to address the contracts 
most recent errors.  However, if CMS determines that its oversight of 
other documents, such as the Medical Review Strategy and the Provider 
Service Plan, are fulfilling the goal of overseeing contractors response to 
their CERT results, CMS should reevaluate the usefulness of error rate 
reduction plans. 
 
59 CMS, Medicare Fee-for-Service 2011 Improper Payments Report, p. 6.  Accessed at 
http://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-
Programs/CERT/Downloads/2011-Medicare-FFS-Improper-Payment-Report-.pdf on  
May 9,  2013. 
Medicare Claims Administration Contractors Error Rate Reduction Plans (OEI-09-12-00090)   20 
   
   
Ensure That Contractors Submit Clear Plans for Reducing 
Their Error Rates 
CMS should ensure that error rate reduction plans are sufficiently clear so 
that staff who review them can determine whether claims administration 
contractors are planning corrective actions that will effectively reduce 
their error rates. CMS could require that the format in which contractors 
report corrective actions, whether in error rate reduction plans or another 
document reviewed by CMS, clearly convey basic information about each  
action. This should include the status and target of the action. 
Provide Additional Guidance for Contractors and CMS Staff 
Who Review Plans 
CMS should give claims administration contractors and CMS staff who 
review error rate reduction plans specific guidance on what is required to 
meet the five required elements and what constitutes an appropriate 
response to the contractors error rate.  Although regional office guidance 
directs CMS staff to ensure that program funds, resources and actions 
planned are appropriate to reduce the claims payment error rate within 
their jurisdiction, it does not specify how staff should make this 
determination.  Issuing such specific guidance may improve the quality of 
plan submissions and CMS reviews.    
Although CMS stated that it provides staff with analyses of  
contract-specific CERT results, CMS should ensure that staff are aware of 
these analyses. CMS should also provide guidance to staff on how to use 
these analyses in their plan reviews.  CMS could also provide its staff with 
additional analyses of contract-specific RAC data.  Doing so is especially 
important for contractors with persistently high error rates.   
CMS should provide guidance to its staff about what to do if error rate 
reduction plans do not include the required elements or do not address 
claims administration contractors error rates.  The guidance should 
address when staff who review plans should make suggestions to the 
contractor or recommendations to contracting officers, as appropriate.   
Provide Error Rate Reduction Incentives That Are Aligned With 
the Contracts Error Rates and Performance Periods  
If allowed under the Federal Acquisition Regulation, CMS should explore 
offering incentives for error rate reduction in more than 2 years of MACs 
contracts. CMS should take into account MACs error rates when setting 
the incentives.   
CMS should use error rate data that match the incentive performance 
periods. If this is not possible using CERT data, CMS should explore 
using alternate error rate  performance measures.   
Medicare Claims Administration Contractors Error Rate Reduction Plans (OEI-09-12-00090)   21 
   
   
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
CMS concurred with all four of our recommendations.  CMS described 
current and future steps to improve error rate reduction plans and to ensure 
its effective oversight of the plans and the financial incentives it offers 
contractors to reduce their error rates.  Among these steps, CMS has 
already begun to provide quarterly contractor-specific improper payment 
reports and will develop an interactive dashboard containing real-time data 
to help CMS and its contractors address the most recent improper payment 
findings. We note that in its comments about our recommendation to 
provide error rate reduction incentives that are aligned with contracts 
error rates and performance periods, CMS did not indicate whether it will 
take into account MACs error rates when setting the incentives.  For the 
full text of CMSs comments, see the Appendix.   
 
 
 
 
 
Medicare Claims Administration Contractors Error Rate Reduction Plans (OEI-09-12-00090)   22 
  APPENDIX 
Agency Comments 
+.#">1--'-~YICf:$~ 
~ 
(  DEPARTMENT OF HEALTH & HUMAN SERVICES  Centers for Medicare & Medicaid Services 
'~~ 
Administrator 
Washington, DC 20201 
DATE: 
NOV 19 2013 
TO: 	 Daniel R. Levinson 
Inspector General 
FROM: 	 Marilyn T.a~nner 
Administrator' 
SUBJECT: 	 Office ofthe Inspector General (OIG) Draft Report: '"Medicare Claims 
Administration Contractors' Error Rate Reduction Plans" (OEI-09-12-00090) 
The Centers for Medicare & Medicaid Services (CMS) appreciates the opportunity to review and 
comment on the above mentioned OIG report. This report examined error rate reduction plans 
for calendar year 2011 and 2012, described plan content and determined whether the plan 
included required elements. OIG also assessed CMS's oversight ofthe plans and analyzed 
information about the incentives that CMS offered to Medicare Administrative Contractors 
(MACs) in 2011 and 2012 to reduce their error rates. OIG's recommendations and the CMS 
response to those recommendations are discussed below. 
OIG Recommendation 
The OIG recommends CMS review its process for overseeing contractors' error rate reduction. 
CMS Response 
The CMS concurs with this recommendation to review the process for overseeing contractors' 
error rate reduction plans (ERRPs). 
CMS has processes in place to ensure that all plans are approved and properly address reductions 
in improper payments. CMS requires that MACs submit ERRPs on at least an annual basis. The 
ERRPs are reviewed and approved by CMS medical review and provider outreach and education 
stafffor accuracy and corrective actions. CMS provides feedback to the MACs during the ERRP 
evaluation process but the process may not be formally documented. We plan to continue 
monitoring the ERRPs and will formally document the process. 
As a result ofOIG's work on this report and to avoid repetitive reporting, we are evaluating 
alternatives for overseeing the contractor's ERRPs. 
Medicare Claims Administration Contractors' Error Rate Reduction Plans (OEI-09-12-00090)  23   
   
APPENDIX 
Agency Comments Continued 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Medicare Claims Administration Contractors Error Rate Reduction Plans (OEI-09-12-00090)   24 
   
   
APPENDIX 
Agency Comments Continued 
 
Medicare Claims Administration Contractors Error Rate Reduction Plans (OEI-09-12-00090)   25 
   
   
ACKNOWLEDGMENTS 
This report was prepared under the direction of Timothy Brady, Regional 
Inspector General for Evaluation and Inspections in the San Francisco 
regional office, and Michael Henry,  Deputy Regional Inspector General.  
Sarah Ambrose served as the team leader for this study, and Rosemary 
Rawlins served as the lead analyst.  Other Office of Evaluation and 
Inspections staff from the San Francisco regional office who conducted 
the study include Bi Nguyen. Central office staff who provided support 
include Althea Hosein and Scott Manley.  
Medicare Claims Administration Contractors Error Rate Reduction Plans (OEI-09-12-00090)   26 
   
Office of Inspector General
http://oig.hhs.gov  
 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as  
amended, is  to protect the integrity of the Department of  Health and Human Services  
(HHS)  programs, as well as the health and welfare of beneficiaries  served by those 
programs.  This statutory mission  is  carried  out through  a nationwide network  of  audits, 
investigations, and inspections conducted by the  following operating components: 
Office of Audit Services 
The Office  of  Audit Services  (OAS) provides auditing services  for HHS, either by  conducting  
audits  with its own audit resources or by  overseeing  audit work done by others.  Audits  
examine the performance of HHS programs and/or its grantees and contractors in carrying  
out their respective responsibilities and are intended  to provide independent assessments of 
HHS programs and operations.  These assessments help reduce waste, abuse, and  
mismanagement and promote economy and efficiency  throughout  HHS. 
Office of Evaluation and Inspections 
The Office  of  Evaluation and Inspections (OEI)  conducts national evaluations to  provide 
HHS, Congress, and the public with timely, useful, and reliable information on significant 
issues.  These evaluations focus on preventing fraud,  waste, or abuse  and promoting  
economy, efficiency, and effectiveness of departmental programs.  To promote impact, OEI 
reports also present practical recommendations for improving program operations.  
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative investigations  
of  fraud and misconduct  related to HHS programs, operations, and beneficiaries.  With 
investigators working in all 50 States and the District of Columbia, OI  utilizes its resources 
by actively  coordinating with the Department  of Justice  and other Federal, State, and local 
law enforcement authorities.  The investigative efforts of OI often lead to  criminal 
convictions, administrative sanctions,  and/or  civil monetary  penalties.  
Office of Counsel to the Inspector General 
The Office of Counsel to the  Inspector  General (OCIG) provides general legal services to 
OIG, rendering  advice and opinions on HHS programs  and operations and providing all 
legal support for OIGs  internal operations.  OCIG represents  OIG in all civil and 
administrative fraud and abuse cases involving HHS programs,  including False Claims Act, 
program exclusion, and civil monetary penalty cases.  In  connection with these cases, OCIG 
also negotiates and monitors corporate integrity agreements.  OCIG renders advisory 
opinions, issues compliance program  guidance, publishes fraud alerts, and provides other  
guidance  to  the health care industry concerning the anti-kickback statute and other  OIG  
enforcement authorities.