Department  of  Health  and  Human  Services 
OFFICE  OF 
INSPECTOR  GENERAL 
MEDICARE  PREPAYMENT  REVIEW: 

MSP  PROCEDURES  AT  CARRIERS 

Richard  P.  Kusserow 
INSPECTOR  GENERAL 
OEI-07-89-01683  EXECUTIVE  SUMMARY 
PURPOSE 
To  evaluate  the procedures used by Medicare  carriers to identify  primary  payment 
sources other  than Medicare. 
BACKGROUND 
This  inspection  is part  of an initiative  to examine the effectiveness of Medicare 
carriers  prepayment  utilization  review processes. 
Until  1980, Medicare  was the primary  payer of health  care costs for  Medicare 
beneficiaries  except when the beneficiary  is covered by a workers  compensation 
program  or the Veterans  Administration.  Congress became concerned about 
significant  increases in the cost of the Medicare  program.  As a result, between  1980 
and  1986 Congress passed a series of statutory provisions requiring  certain  private 
insurers to pay medical  claims before  Medicare  (See Appendix  A). 
These provisions  created new functions  for  Medicare  contractors.  They  are 
responsible  for  screening, identifying,  and verifying  claims for  other  insurance 
involvement.  In  addition,  contractors  are required  to make  recoveries when 
Medicare  has paid  improperly. 
In  line  with  Health  Care Financing  Administration  (HCFA)  efforts  to reduce 
program  administrative  costs, the budget for  MSP functions  at Medicare  Carriers  was 
reduced by approximately  37% from  FY  1989 to FY  1990. 
METHODOLOGY 
We selected a sample of seven Medicare  carriers for  review based on high  and low 
volumes  of claims processed.  An  inspection  team conducted  field  visits to each 
carrier.  We interviewed  the manager and/or supervisor of the MSP units  of each 
carrier  in our  sample.  Additional  documentation  collected  during  this review was 
used to support  and verify  information  gathered during  these interviews.  This 
documentation  included  published  materials,  claims forms,  monthly  in-house MSP 
savings reports,  and HCFA-1564  savings reports. 
FINDINGS 
Carried  budgetsfor  MSP activitk  were reduced by 37% for  FY 1990. 
Can-km made signijicant  staff reductions to cope with the MSP budget reduction. 
i  Most carriers do not recover overpaymenl~folhvhg  identi&ation  of MSP sihatkms. 
Representatives  from  five of seven carriers in this review told  the review team that 
they are conducting  no MSP recovery activities.  Representatives from  the two 
remaining  sample carriers indicated  that  they are recovering  overpayments on a 
selective basis.  These carriers recover those cases that have greatest potential  for 
savings and only do so within  their  current  operating  budget. 
Ihe  HCFAS  required hz.#  list does not inc&  the recovery of MSP overpaymena. 
Incoruk%n&3  exist in metho&  used to iZen@  and calctdde  savings. 
RECOMMENDATIONS 
lk  HCFA  should conhhue to pursue ditionul  j&ding  to ensure that can&m restore 
operations of the MSP units to a level at least equivalent to FY 1989. 
llae HCFA  should con&h  the development of a kkgidutiveproposal that would allow 
them to conhct  demonstration programs to evaluate incentives designed to enhance the 
idendjkation  and recovery of inappropriate MSP payments. 
We present several options  for  how these demonstration  programs  could be 
structured.  By implementing  one of these options we estimate that  additional  savings 
could  range from  $199 million  to $361 million. 
The HCFA  should modij,  the CPEP standad  to evaluate caniem on their MSP 
idedjication  and recovery @or&. 
Tlze HCFA  should provide clear and un$om  proceduresfor  counthg  MSP savings. 
The  HCFA  did not concur with  the recommendations  presented in the draft  report. 
In  response to the first  recommendation,  the HCFA  points  out that  they will  fund 
the MSP units as much as the current  budget allows.  Also,  previous proposals for 
legislative  changes to allow  incentive  programs have been unsuccessful, and they feel 
the CPEP is appropriate  for  evaluating MSP functions. 
We continue  to believe a higher level of funding  is necessary.  However,  we have 
modified  the first  and second recommendations  to encourage HCFA  to continue  to 
pursue additional  funding  and an initiative  to test an incentive  program.  Also,  the 
HCFA  should evaluate the carriers MSP units on more  specific criteria. 
The  HCFAs  verbatim  comments are included  in Appendix  E. 
ii  TABLE  OF  CONTENTS 
EXECUTIVE  SUMMARY  .......................................  i 
INTRODUCTION..  ............................................  1 
Purpose  ..................................................  1 
Background..  ..............................................  1 
Methodology  ...............................................  3 
FINDINGS  ...................................................  4 
RECOMMENDATIONS  .........................................  8 
AGENCY  COMMENTS  ........................................  11 
APPENDIX  A:  MSP LEGISLATION  ..............................  A-l 
APPENDIX  B: PREVIOUSLY  PUBLISHED  REPORTS  ................  B-l 
APPENDIX  C: PRIORITY  LISTS  ................................  C-l 
APPENDIX  D:  INCENTIVE  PROGRAM  OPTIONS  ...................  D-l 
APPENDIX  E: AGENCY  COMMENTS  ............................  E-l  INTRODUCTION 
PURPOSE 
To  evaluate the procedures used by Medicare  carriers to identify  primary  payment 
sources other  than  Medicare. 
BACKGROUND 
This  inspection  is part  of an initiative  to examine the effectiveness of Medicare 
carriers  prepayment  utilization  review processes. 
History of M&are  Secondary Pqer  (MSP) Rxwbions 
Medicare  helps pay medical  costs for  approximately  28 million  people aged 65 and 
older  and approximately  3 million  disabled people.  Medicare  Part A  covers inpatient 
hospital  services, home health  services, and other  institution-based  services. 
Physician, outpatient  hospital,  and various other  health  services are covered by 
Medicare  Part B. 
The  Health  Care Financing  Administration  (HCFA)  is responsible for  ensuring 
compliance  with  Medicare  legislation  and regulations.  Private insurance companies 
contract  with  HCFA  to process and pay Medicare  claims.  These contractors  are 
as fiscal intermediaries  (Part A)  and carriers (Part B). 
known 
Until  1980, Medicare  was the primary  payer of health  care costs for  Medicare 
beneficiaries  except when the beneficiary  is covered by a workers  compensation 
program  or the Veterans  Administration.  Congress became concerned about 
significant  increases in the cost of the Medicare  program.  As a result, between  1980 
and  1986 Congress passed a series of statutory  provisions requiring  certain  private 
insurers to pay medical  claims before Medicare. 
These provisions require  private  insurers to pay medical  claims primary  to Medicare 
when  the beneficiary  has other  health insurance coverage by an employer  group 
health  plan  (EGHP),  a disabled beneficiarys LGHP,  a spouses EGHP,  or 
automobile,  no-fault,  or liability  insurance (see Appendix  A  for  details of these 
provisions).  After  the private  insurance company pays up to its coverage limits, 
Medicare  reimburses  remaining  covered services subject to coinsurance and 
deductible  limits. 
1 
 Implimmmionof  MSPl?zwi&ns 
These provisions  created new functions  for  Medicare  contractors.  They  are 
responsrble for  screening, identifying,  and verifying  claims for  other  insurance 
involvement.  In  addition,  contractors  are required  to make recoveries when 
Medicare  has paid  improperly. 
The  HCFA  provides contractors with  procedures and instructions  to identify  primary 
payment  sources.  When a Medicare  claim is submitted,  the contractor  searches MSP 
history  files for  coverage by another  insurer.  The  most widely  used contractor 
procedures  for  identifying  MSP situations include 
developing  leads from  HCFAs  Y-trailer  codes; 
0 
0  screening information  included  on the claim  form; 
0  querying  data in the Regional  Data Exchange System (RDES); 
0  developing  the first  claim  filed  by or on behalf  of a beneficiary;  and 
0 	 reviewing  all claims containing  medical  diagnosis codes indicating  trauma--to 
identify  injuries  related  to automobile  or work-related  accidents. 
These procedures  helped  save approximately  $2.2 billion  in FY  1989 by identifying 
primary  insurers.  However,  HCFA  actuary estimates, Office  of Inspector  General 
(OIG)  inspections, and audits by the OIG  and the General Accounting  Office  (see 
Appendix  B for  a list of previously  published  reports)  have confirmed  that  additional 
savings are possible through  improvements  to current  MSP identification  and 
overpayment  recovery systems.  The  OIG  has estimated, based on a random  sample 
of Medicare  beneficiaries,  that  Medicare  lost in excessof $600 million  in FY  1988 
due to unidentified  primary  payment  sources. 
The  carriers  FY  1990 budgets for  MSP activities was significantly  reduced from  the 
FY  1989 level.  The  HCFA  actuary estimates that the Medicare  program  lost 
approximately  $900 million  in FY  1990.  The  current  estimate of Medicare  program 
losses due to failure  to identify  primary  payment  sources and recover inappropriate 
Medicare  payment  has increased to $1.3 billion  for  FY  1991. 
Evaluation  of Contractors 
The  HCFA  establishes MSP savings goals for  all contractors.  The  carriers and 
intermediaries  calculate  and record  all savings resulting from  MSP situations.  These 
savings are reported  to HCFA  on a monthly  savings report  (HCFA-1564). 
2 
 Contractors  are evaluated on achievement of the MSP savings goals as part  of their 
Contractor  Performance  Evaluation  Program (CPEP). 
The  HCFA  establishes four  types of MSP savings. 
0 	 Cost avoided MSP claims are those the carrier  returns  without  payment 
because there  is strong evidence that another insurer  is the primary  payer. 
0 	 Full  recoveries are defined  as savings from  claims that were paid by a private 
insurance company, relieving  Medicare  of all payment  liability. 
0 	 Partial  recoveries are those situations when the primary  payers payment  only 
covers part  of the Medicare  allowable  charge.  In  this situation  Medicare  pays 
the remaining  amount  up to what Medicare  has allowed. 
0 	 Pending claims are those where MSP has been verified  but  all funds have not 
been recovered. 
MEMODOLOGY 
We selected a sample of seven Medicare  carriers for  review based on the volume  of 
claims processed.  Six of the sample carriers have high volumes of claims processed 
and one is considered low volume.  The sample carriers include:  Blue  Shield of 
Massachusetts-T&State;  Blue  Shield of Florida,  Inc; Blue  Shield of Indiana;  Blue 
Shield  of Texas, Inc.; Blue  Shield of Colorado;  Arkansas Blue  Cross &  Blue  Shield, 
Inc.;  and Blue  Shield of Kansas City. 
We visited  each carrier  to obtain  information  about the effects of the FY  1990 
budget  reduction.  We obtained  data about the effects the reduction  had on staff size 
and numbers  of claims processed.  In order to learn what  procedures  the carriers 
have established to handle MSP claims with  reduced resources, we conducted 
interviews  with  the manager and/or  supervisor of the MSP unit  at each carrier.  A 
second interview  was conducted with  the staff member  most familiar  with  the budget 
process and budget  issues. 
In  addition,  we selected a random  sample of 30 claims from  the MSP savings log or 
equivalent  computer  generated report  at each carrier.  This  sample was selected 
from  the claims processed during  the fourth  quarter  of FY  1989.  These claims were 
analyzed and followed  through  the MSP development  process to the HCFA-1564 
monthly  savings report.  The  carriers provided  documentation  to support  the MSP 
savings claimed  on this report. 
3 
 FINDINGS 

THE  FY  1990  MSP  BUDGET  REDUCTlON 
caniers  budgetsfor  MSP acdvities were reduced by 37% for  FY 1990. 
The  carriers  FY  1990 budget for  MSP activities was significantly  reduced from  the 
FY  1989 level.  Table  1 presents a summary of contractors  budgets for  the last three 
fiscal years.  The  entire  budget reduction  was applied  to carriers.  In  fact, the 
intermediaries  budget  actually  increased by 5.7%. 
The  return  on investment  (ROI)  figures calculated by HCFA  represent  the ratio  of 
program  dollars  saved as compared  to administrative  dollars  spent.  These figures 
illustrate  that  MSP activities are cost effective. 
Table  1 
Contractor  Budgets and Return  on Investment 
for  MSP Activities 
FY  1988  m*  FY  1989  ROI  Fy1990  m** 
INTERMEDIARIES  $31,508,823  45:l  $32,800,966  so:1  $34,672,890  52:l 
CARRIERS  $34,598,000  13:1  $38,300,000  14:1  $28,1oo,ooo  22:l 
-------------_--------------------------------------------~~~~--~~~-~~~~~ 
TOTAL  $66,106,823  $71,100,966  $62,772,890 
*  ROI  =  Return  on Investment 
** 
The ROI  figures for  1990 represent eight months 
Carriers made sign$cant  staff reductions to cope with the MSP budget reduction. 
The  most visible  result of the reduced MSP budget is that  it  forced  carriers to make 
significant  staff reductions.  These reductions made it  impossible  to maintain  all MSP 
activities  at the levels of prior  years. 
The  following  graph illustrates  the staff reductions at the seven sample carriers for 
FY  1989 to  1990.  These carriers reduced their  Medicare-funded  full  time  equivalents 
(FIEs)  for  MSP  functions  by 63%.  In order  to maintain  adequate operating  levels, 
4  FINDINGS 

THE  FY  1990  MSP  BUDGET  REDUCTION 
caniers  budgetsfor  MSP activih  were redked  by 37% for  FY 1990. 
The  carriers  FY  1990 budget  for  MSP activities was significantly  reduced from  the 
FY  1989 level.  Table  1 presents a summary of contractors  budgets for  the last three 
fiscal years.  The  entire  budget  reduction  was applied  to carriers.  In  fact, the 
intermediaries  budget  actually  increased by 5.7%. 
The  return  on investment  (ROI)  figures calculated by HCFA  represent  the ratio  of 
program  dollars  saved as compared  to administrative  dollars  spent.  These figures 
illustrate  that  MSP activities  are cost effective. 
Table  1 

Contractor  Budgets and Return  on Investment 

for  MSP Activities 

FY  1988  JuJI*  FY  1989  ROI  Ey1990  ROI** 
INTERMEDIARIES  $31,508,823  45:l  $32,800,966  5O:l  $34,672,890  52:l 
CARRIERS  $34,598,000  13:1  $38,300,000  14:l  $28,100@0  22:l 
======================--------- -------__-------------
TOTAL  $66,106,823  $71,100,966  $62,772,890 
*  ROI  =  Return  on Investment 
** 
The ROI  figures for  1990 represent eight months 
Canien  made significant staff reductions to cope with the MSP budget reduction. 
The  most visible  result  of the reduced MSP budget is that  it  forced  carriers to make 
significant  staff reductions.  These reductions made it impossible  to maintain  all MSP 
activities  at the levels of prior  years. 
The  following  graph  illustrates  the staff reductions at the seven sample carriers for 
FY  1989 to  1990.  These carriers reduced their  Medicare-funded  full  time  equivalents 
(FTEs)  for  MSP functions  by 63%.  In order  to maintain  adequate operating  levels, 
4  employees from  two  sampled carriers told  us that  they were receiving financial 
support  from  their  private  business.  The  data presented in the graph below  does not 
reflect  this support. 
Staff  Reduct  ions  for  MSP  Operat  ions 
Tota  I  FTE  S  at  7  Sampled  Carr  iers 
,40 -._____________1_2_;_________.._.._.._.._.._.._.._.._.._.._._____............................................................................................................... 
120 
100 
80 
60 
40 
20 
0 
1989  1990 
I  FTE'S  IN  km  UNIT 
63%  reduction  in  MSP  staff 
The  budget  reduction  in FY  1990 will  have long term  effects on the operation  of the 
carriers  MSP  units.  The  budget proposal  for  FY  1991 includes a five million  dollar 
increase for  carrier  MSP activities.  Respondents indicated  that  this increase will  not 
allow  the carrier  to catch up on a years backlog created from  operating  without 
sufficient  personnel.  Carriers would  use additional  funds to recruit  and train  new 
personnel. 
When  questioned  about  the effect of the budget  cut, one typical  manager said, It 
will  be several years before  we rebound from  this budget  cut.  Recruiting  and 
training  someone from  off  the street takes a long time.  Another  typical  manager 
commented,  We were forced  to lay off  efficient  employees.  The work  we do in the 
MSP unit  is complicated  and the learning  curve for  these tasks is very large.  We 
heard  these and many similar  comments at all sample carriers. 
Most carriers do not recover overpaymentsfollowingidentijicationof  MSPsituutions. 
5 
 When  carriers  identify  and develop potential  MSP situations  through  the usual 
sources (i.e. first  claim  development,  RDES,  Y-trailer  codes, etc), they deny MSP 
claims and count  the MSP savings from  this denial  on the HCFA-1564  savings 
report.  However  due to the budget and staff reductions  for  FY  1990, the carriers do 
not  conduct  further  MSP development  or initiate  recoveries on claims previously paid 
by Medicare.  These unassessedprogram  losses are in addition  to the OIGs  current 
estimate  of losses due to the MSP provisions.  These new losses have been created 
by the carriers  inability  to continue  MSP operations  at the same levels prior  to the 
budget  reduction. 
Representatives  from  five of seven carriers in this review  told  the review team that 
they are conducting  no MSP recovery activities.  Representatives from  the two 
remaining  sample carriers indicated  that  they are recovering  overpayments on a 
selective basis.  These carriers recover those cases that  have greatest potential  for 
savings and only do so within  their  current  operating  budget. 
When  asked what  development  and recovery action  is taken  on claims that  may have 
been inappropriately  paid by Medicare,  respondents indicated  that  they were being 
stored in boxes and file  cabinets.  The  inspection  team observed these claims 
firsthand  at alI seven sample carriers.  Carrier  representatives  said that  these 
recoveries will  be made when, or if, additional  funding  and development  staff 
become  available. 
We asked respondents from  the carriers MSP staff if  they knew or could estimate 
the value of the inappropriately  paid  claims waiting  to be recovered.  No  one could 
provide  an adequate count or estimate of the number  and/or value of these claims. 
However,  all indicated  that if this substantial amount  was recovered, it would 
accelerate the carriers  progress toward  their  MSP savings goal. 
A  recent audit  conducted by the OIG  Office  of Audit  Services has also verified  this 
backlog  of claims.  Additional  inspection work  could provide  an accurate estimate of 
the lost savings. 
Ilk  HCFA s required task lid  does not include the recovq  of MP  ov~is. 
The  aggressive collection  of debts due the United  States Government  is required  by 
statute and regulations,  these regulations  include  the Federal  Claims Collection  Act 
and 4 CFR  102.1.  Despite  these requirements,  HCFA  has not placed emphasis on 
the recovery of overpayments resulting  from  previously  unidentified  primary  payment 
sources. 
In  November  1989, correspondence from  HCFA  provided  carriers with  MSP claims 
processing and development  priorities  for  coping with  the budget reduction.  These 
priorities  are divided  into  two lists (see Appendix  C).  The  first list contains 
6 
 required  tasks and the second includes those tasks that  should be undertaken  to 
the extent that  funds are available.  Recovery of MSP overpayments is not  included 
on the required  task list and is the third  of four  items on the second list.  The 
decision on how much time  and effort  the carriers expend to make recoveries is left 
to the carriers  discretion. 
The  carriers are not directly  evaluated on the various methods used to identify  and 
recover overpayments.  This  is evidenced by the absence of a CPEP performance 
standard to specifically  evaluate the carriers effectiveness in implementing  the 
various procedures for  identifying  MSP situations or recovering MSP overpayments. 
Currently,  the only criteria  used to evaluate the performance  and effectiveness of the 
MSP units  are based on achievement  of the pre-established MSP goals. 
MSP  SAVINGS  ISSUES 
Incorzsirt~  exist in meti  used to identif  and calcuh-ztesavihgs. 
The  HCFA  calculates MSP savings goals for  all contractors  at the beginning  of each 
fiscal year.  The  HCFA  has issued instructions  and procedures explaining  the 
methods  that  should be used to calculate MSP savings.  However,  carriers are not 
counting  and calculating  these savings uniformly,  and some of the savings being 
counted  are questionable. 
The  HCFA  procedures  do not require  carriers to query for  deductible  status 
0 	
when calculating  savings.  This  allows carriers to count a deductible  amount 
paid by the beneficiary  as MSP savings. The deductible  amount  is not  savings 
because the beneficiary  would  pay this amount  in any situation.  Four  sample 
carriers were not completing  such queries but were claiming  deductible 
amounts as savings.  Three  sample carriers were querying  for  deductible  status 
but were not counting  the deductible  as savings. 
The  HCFA  allows carriers to count savings when an outside source pays a 
0 	
claim  as the primary  payer and the carrier  is informed  of this payment  by an 
outside source (i.e. insurance company or physicians office).  These savings 
are counted by some carriers  even though no claim  is submitted  to the carrier. 
In  this situation,  savings amounts must be estimated by the carrier  because 
they do not pass through  the carriers system.  Four  of the sample carriers 
were counting  these situations  as savings. Three  sample carriers were not 
counting  these situations  as savings. 
7 
 RECOMMENDATIONS 
Y%eHCFA  shouhi conthe  to pursue ackdithnul fiurding  to ensure that caniers restore 
operations of the MSP units to a kvel  at kast  equivalent to FY 1989. 
The  FY  1990 budget reduction  for  MSP activities has affected  carriers  ability  to 
handle  the MSP workload.  Carriers  face a huge backlog  of potential  MSP recovery 
cases with  reduced staffing  and funding.  In  order  to effectively  identify  and recover 
all possible MSP situations,  the carriers must use all procedures available  to them. 
Restoring  the MSP units  operational  efforts  to the levels of the prior  year will  help 
carriers utilize  current  procedures to identify  and recover as many MSP savings as 
possible. 
To  accomplish this, it might  be necessary to restore appropriations  to previous levels. 
An  alternative  would  be to provide  the funding  out of savings captured  by each 
contractor.  The  next recommendation  provides details of this option. 
Ihe  HCFA  should cons&~  the dkveibpment of a legislam)eproposal that  wou.kZallow 
them to conahct denwnstration program  to evaluate incentives des@ed to enhance the 
idbijicaation  and recovery of inappropriate MSP payments. 
Many  sources have established that  Medicare  funds continue  to be lost due to 
unidentified  primary  payment  sources.  An  incentive  program  would  provide  the 
carriers an opportunity  to increase Medicare  savings while  supplementing  their 
operating  budget.  This  incentive  program  should not supercede current  MSP 
requirements  and procedures.  Carriers would  be required  to maintain  all  educational 
efforts  at the current  level. 
For  implementation  of this type of program,  a legislative change is necessary. 
Sections 1814 (b)  (1) and 1814 (b)  (3) (A)  of the Social Security Act  require 
contractors  be reimbursed  only for  the reasonable cost or customary  charge for 
the services rendered.  If  an incentive program  is implemented  as a demonstration 
project,  it might  be necessary to modify  this law. 
Current  MSP procedures are cost effective.  This is illustrated  by the data presented 
in Table  1 on page 4 of this report.  Medicare  is currently  saving 13 to 22 dollars for 
every dollar  spent for  operations  at the carriers MSP units.  As long as these return 
on investment  figures remain  positive, an incentive  program  will  be cost effective  for 
the Medicare  program. 
The  following  options  describe some of the many possibilities  for  this incentive 
program.  By implementing  one of these options, we estimate that  additional  savings 
could range from  $199 million  to $361 million.  We suggest that HCFA  evaluate 
8  these options  for  demonstration  programs and determine  appropriate  reimbursement 
percentages for  these incentives. 
OPTION  AZ  The  HCFA  could allow participating  carriers to use five percent  of all 
savings they identify  during  the year to increase their  ability  to identify  MSP 
situations.  These payments would  not be included  as part  of the carriers  contract 
budgets. 
OPTION  B:  The  HCFA  could allow participating  carriers to use five percent  of all 
savings identified  during  the year plus an additional  two percent of all savings from 
recoveries made  on claims that were previously paid inappropriately.  As in Option 
A,  these payments would  be used by the carriers MSP unit  to finance part  of their 
activities.  This  option  would  provide  additional  funding  to aggressively collect 
inappropriate  payments. 
OPTION  C:  The  HCFA  could allow  participating  carriers to keep a total  of five 
percent  of identified  savings.  Three  percent would  be used by the carriers  MSP unit 
to finance  collection  efforts. ~The remaining  two percent could be an incentive 
payment  used in any area of the Medicare  operation  or be retained  as profit.  This 
option  could  provide  an even greater incentive to the carriers because they would 
have more  flexibility  in utilizing  these incentive payments. 
OPTION  D:  The  HCFA  could allow  participating  carriers to keep twenty-five 
percent  of the savings carriers identify  and/or collect above their  established MSP 
savings goal.  This  option  provides an incentive for  carriers to continue  to 
aggressively pursue all potential  MSP caseseven after the yearly MSP savings goal is 
achieved.  As in Option  C, 60 percent of these payments would  be used to finance 
collection  efforts,  the remaining  40% would  be an incentive  payment. 
[See Appendix  D  for  an estimate of potential  savings to the Medicare  program 
should one of these incentive  options be implemented.] 
In  order  for  any of these incentive  systems to be effective, the method  of measuring 
achieved savings must be reliable.  The next two recommendations  address this 
problem. 
l%e HCFA  should mod@ the CPEP stand&&  to evaluate camkrs on their MSP 
ident@ication, recovery, and educational ej$orts. 
The  only criteria  for  the MSP portion  of the CPEP evaluation  is the achievement of 
their  MSP savings goal.  If  the carriers achieve 90 percent  of their  savings goal, they 
receive 100 points  toward  their  CPEP evaluation.  However,  the carriers are not 
evaluated on their  compliance  and efficiency in conducting  MSP identification  and 
recovery activities. 
9 
 The  recovery of overpayments  created by not properly  identifying  primary  payment 
sources other  than Medicare  is not  a priority  for  the carriers.  This results in a 
substantial loss to the Medicare  program.  The  CPEP standards should be modified 
to emphasize the importance  of identifying  and recovering  these overpayments. 
Ihe  HCFA  should prvvide clear and un$om  pm&a  for  counting iUSP savihgc 
We found  inconsistencies in the methods used to identify,  count, and report  MSP 
savings.  We recommend  that  HCFA  clarify  the procedures  currently  used to count 
and report  these savings. 
We are not recommending  a specific method, but we do recommend  that  the 
procedures used by all carriers be consistent. 
10 
 AGENCY  COMMENTS 
The  HCFA  did  not concur with  the recommendations  presented in this report.  The 
HCFAs  verbatim  comments can be found  in Appendix  E. 
We believe  it  is necessary that  carriers operate  at a level at least equivalent  to FY 
1989.  We understand  that this requires additional  funding  and that  this decision is 
not  completely  in HCFAs  control.  However, we feel the HCFA  should continue  to 
actively  and aggressively pursue this additional  funding.  We have modified  the first 
recommendation  to clarify  our position. 
We believe  that  an incentive program  would  enhance the carriers motivation  to 
aggressively identify  MSP situations and recover overpayments.  We recognize the 
legislative  implications  for  establishing a program  such as this, but  feel the potential 
benefits  in the form  of savings to the Medicare  program  would justify  the efforts  in 
this area.  We have modified  the second recommendation  to encourage HCFA  to 
pursue the necessary legislative changes to make such a demonstration  program 
possible. 
We realize  that  10 percent of the carriers CPEP evaluation  is devoted to MSP 
functions.  However,  the only criteria  for  this evaluation  is the percentage of the 
savings goal that  is achieved by the carrier.  The  carriers are not evaluated on the 
efficiency  and/or  compliance with  the MSP procedures described in the carriers 
manual.  We continue  to believe that a percentage of the CPEP evaluation  should 
be devoted  to areas other  than simply achieving their  MSP savings goals. 
The  fifth  finding  in this report  discussesinconsistencies in methods of counting  and 
reporting  savings.  These inconsistencies are partially  due to differing  interpretations 
of  the procedures.  The HCFA  should assure that all procedures are conducted 
uniformly  among the carriers. 
The  report  has been modified  to agree with  HCFAs  FY  1989 and 1990 budget 
figures  for  MSP  activities. 
11 
 AGENCY  COMMENTS 
The  HCFA  did  not concur with  the recommendations  presented in this report.  The 
HCFAs  verbatim  comments can be found  in Appendix  E. 
We believe  it  is necess  carriers operate  at a level at least equivalent  to FY 
1989.  We understand  requires  additional  funding  and that  this decision is 
not  completely  in HCFAs  01.  However,  we feel the HCFA  should continue  to 
actively and aggressively pur  this additional  funding.  We have modified  the first 
recommendation  to clarify  o 
We believe  that  an incentive  pro  would  enhance the carriers  motivation  to 
aggressively identify  MSP situations  recover overpayments.  We recognize the 
legislative  implications  for  establishi  program  such as this, but  feel the potential 
benefits  in the form  of savings to the  icare program  would  justify  the efforts  in 
this area.  We have modified  the set  commendation  to encourage HCFA  to 
pursue the necessary legislative  changes t  ke such a demonstration  program 
possible. 
We realize  that  10 percent  of the carriers  CP  valuation  is devoted to MSP 
functions.  However,  the only criteria  for  this  n is the percentage of the 
savings goal that  is achieved by the carrier.  The  c  are not  evaluated on the 
efficiency  and/or  compliance  with  the MSP procedur  scribed in the carriers 
manual.  We continue  to believe that  a percentage o  PEP evaluation  should 
be devoted to areas other  than simply  achieving thei 
The  fifth  finding  in this report  discussesinconsistencies in  thods of counting  and 
reporting  savings.  These inconsistencies are partially  due  ring  interpretations 
of the procedures.  The  HCFA  should assure that  all proce  s are conducted 
uniformly  among the carriers. 
The  report  has been 
figures for  MSP activities. 
11  APPENDIX  A 
MEDICARE  SECONDARY  PAYER  LEGISLATION 
TITLE  OF  PUBLIC  ENAcThlENT  EFFECTIVE 
LAW  LAW  DATE  DATE  DESCRIPTION 
Tax Equity  97-248  09-03-82  01-01-83  TEFRA  made Medicare 
and Fiscal  benefits secondary 
Responsibility  if the employee or 
Act  of 1982  spouse is age 65 
0  through  69 covered 
by an EGHP  and the 
employer  has at 
least 20 employees. 
Deficit  98-369  07-18-84  01-01-85  DEFRA  broadened the 
Reduction  Act  definition  of 
of 1984  working  spouse by 
WFRA)  including  spouses 
age 65-69 of 
employed individuals 
under age 65, thereby 
removing  the lower 
age limit. 
Consolidated  98-272  04-06-86  05-01-86  COBRA  further 

Omnibus  Budget  broadened the 

Reconciliation  definition  of 

Act  of  1985  working  aged by 

(COBRA)  removing  the 

limitation  of age 
70 and older. 
Omnibus  99-509  10-21-86  01-01-87  OBRA  made Medicare 
Budget  items and services 
Reconciliation  secondary for 
Act  of 1986  payment if the dis-
(OJ=4  abled beneficiary or 
spouse is working 
and covered under an 
EGHP. 
A  -1 
 APPENDIX  B 

PREVIOUSLY  PUBLISHED  REPORTS 
1.  Priority  Audit  Memorandum  - Survey of the Tax Equity  and Fiscal Responsibility  Act 
of  1982 - March  7, 1984, Control  Number:  ACN-03-42009 
2.  Medicare  Secondary Payer Provision End-Stage Renal  Disease - Program  Inspection 
Report  - August  24, 1984, Control  Number:  l-07-4001-14 
3.  Medicare  Secondary Payer Provision End-Stage Renal  Disease - South Dakota  -
November  20, 1984, Control  Number:  l-08-4009-14 
4.  Medicare  Secondary Payer Provision End-Stage Renal  Disease - Colorado  - December 
4, 1984, Control  Number:  l-08-4001-14 
5.  Medicare  Secondary Payer Provision End-Stage Renal  Disease - Program  Inspection 
Report  - April  3, 1985, Control  Number:  l-07/08-4002-14 
6.  Medicare  Secondary Payer Provision Automobile  Medical  and No-Fault  Insurance -
North  Dakota  - May  1, 1985, Inspection  Control  Number:  03-08-5001-14 
7.  Program  Inspection  of Medicare  as a Secondary Payment  Source for  Beneficiaries 
with  End-Stage  Renal Disease in the State of Oregon  - May  10, 1985, Inspection 
Control  Number:  3-10-4008-14 
8.  Medicare  as Secondary Payer for  Medical  Services Related  to Automobile  Accidents 
in Massachusetts -June 1985, Control  Number:  l-01-4105-31 
9.  Medicare  as a Secondary Payer for  Medical  Services Related  to Automobile  Accidents 
in Massachusetts - Boston - June 1985, Control  Number:  l-01-4105-32 
10.  Report  by the Comptroller  General  of the United  States.  The  Congress Should 
Consider  Amending  the Medicare  Secondary Payer Provisions to Include  Disability 
Beneficiaries  - September 30, 1985, Control  Number:  GAO/HRD-85-102 
11.  Medicare  Secondary Payer Provision Automobile  Liability  and Medical  Insurance -
State of Missouri  -Program Inspection  Report  - December  1985, Control  Number:  3-
07-5001-32 
12.  Medicare  Secondary Payer Provision Automobile  Medical  and No-Fault  Insurance -
State of Colorado  - Program Inspection  Report  - December  1985, Control  Number: 
3-08-5002-14 
B-l  13.  Medicare  Secondary Payer Provision Credit  Balances in Medicare  Beneficiary  Hospital 
Accounts,  Control  Number:  OPI-85-070-040 
14.  Medicare  Secondary Payer Provision Working  Aged  in Missouri  - July 1986, Control 
Number  P-07-86-00079 
15.  Medicare  Secondary Payer Provision Working  Aged  in Colorado  - July 1986, Control 
Number:  P-07-86-00071 
16.  OIG  Audit  Report  - Medicare  Overpayments for  Services Provided  to Beneficiaries 
with  End-Stage Renal  Disease - April  28, 1987, Control  Number:  A-10-86-62003 
17.  OIG  Audit  Report  - Retirees  of Exempt  State and Local  Governments  Could Cost 
Medicare  $12.8 Billion  over the Next 5 Years - September  10, 1987, Control  Number: 
CIN  A-09-86-62050 
18.  Amending  the Medicare  Secondary Payer Provision for  ESRD  Beneficiaries  Could 
Save the Medicare  Program  $3 Billion  Over the Next 5 Years - December  1, 1987, 
Control  Number:  CIN-A-10-86-62016 
19.  Medicare  as a Secondary Payment Source - End-Stage Renal  Disease - January 1988, 
Control  Number:  OAI-07-86-00092 
20.  Medicare  as a Secondary Payment Source - January  1988, Control  Number:  OAI-07-
86-00017 
21.  Medicare  as a Secondary Payment Source:  Medicare  Beneficiaries  Covered By 
Employer  Group  Health  Plans - February  1988, Control  Number:  OAI-07-86-00091 
22.  Nationwide  Review  of Medicare  as Secondary Payer for  the Period  September  1, 1983 
through  November  30, 1985, Control  Number:  CIN  A-10-86-62005 
23.  Medicare:  Incentives  Needed to Assure Private Insurers Pay Before  Medicare  -
November  1988, Control  Number:  GAO/HRD-89-191 
24.  Management  Advisory  Report:  Medicare  as Secondary Payer -- A  Restitution 
Proposal, Control  Number:  AO-12-89-00002 
25.  Management  Advisory  Report:  More  Complete  Employer  Group  Health  Plan 
Information  is Needed  to Administer  the Medicare  Secondary Payer Program, Control 
Number:  A-09-89-00100 
26.  Draft  Management  Advisory  Report:  MSP Survey - Contractors  Questionnaire, 
Control  Number:  A-09-89-00151 
B-2 
 27. 	 Management  Advisory  Report:  Medicare  Secondary Payer: Unrecovered  Funds (OEI-
07-90-00764) 
B-3 
 APPENDIX  C 

PRIORITY  LISTS  FOR  CARRIERS  MSP  ACDVITIES 
Required  tasks 
1. 	 Process prepayment  recoveries.  These recoveries should be processed for  ongoing 
operations  such as Working  Aged, Workers  Compensation,  Automobile  Medical, 
Liability  and No-fault,  End Stage Renal Disease, and disabled. 
2. 	 Develop  first  claims submitted  by a disabled individual  and the first  claim  submitted 
by individuals  ages 65 and 66.  The results of the development  must be incorporated 
into  the regional  data exchange system (RDES). 
3. 	 Operate  and maintain  the standardized software systems, and participate  fully  and 
completely  in the RDES. 
Tasks that  should be comolete  to the extent that funds are available 
1.  Develop  any new leads in any MSP area. 
2. 	 Process suspected cost avoidance claims (claims with  7  trailers  or indications  of 
other  insurance coverage from  the RDES). 
3. 	 Recover  mistaken  prior  payments or provide  recovery information  to lead contractor 
as appropriate. 
4.  Maintain  outreach  activities at the FY  1989 level. 
*  These priorities  were communicated  to HCFA  regional  offices in November  1989. 
Carriers  were often  notified  verbally of these priorities  but written  notification  was not 
uniform.  Some carriers were never provided  with  these priority  lists. 
C-l  APPENDIX  D 

INCENTIVE  PROGRAM  OPTIONS 
The  following  example represents potential  savings to the Medicare  program  if  an incentive 
program  is established.  All  calculations are based on national  figures for  FY  1989 (the most 
recent  fiscal year). 
Return  on Investment  (ROI)  for  carriers (prior  to FY  1990 reductions)  =  14:l 
Total  Savings by carriers  =  $554,920,413 
OPTION  A: 
Total  Savings  X  Reimbursement  Rate  =  Payment to Carriers 
$554,920,413  X  .05 (5%)  =  $27,746,020 
The  savings of over $27 million  would  be used by the carriers to supplement  their  MSP 
activities.  The  following  calculation  illustrates  total  Medicare  program  savings that could be 
achieved if  this program  is implemented. 
Incentive  payments to Carriers  X  ROI  - Payment to Carriers  =  Potential  Medicare 
Program  Savings 
@27,746,020  X  14) - $27,746,020 =  $360,698,269 
Even if  the ROI  decreased with  increased expenditures,  as long as it  remains positive the 
program  will  remain  cost effective. 
OFTION  B: 
This  option  would  provide  additional  funding  to encourage carriers to make  recoveries on 
the backlog  of claims created by the FY  1990 budget reduction. 
Savings for  this option  would  equal the savings in Option  A  plus recoveries made on claims 
that  were  previously  paid inappropriately.  This potential  savings is unknown  because there is 
no accurate count or estimate of these potential  recoveries. 
D-l  OPTION  c: 
This  option  provides an added incentive to the carriers to use a portion  of the funds in any 
area of the corporate  operation. 
Total  Savings  X  Reimbursement  Rate  =  Payment to Carriers 
$554,920,413  x  .03 (3%)  =  $16,647,612 (to supplement  MSP unit  activities) 
$554,920,413  x  .02 (2%)  =  $11,098,408 (incentive payment) 
Payment  to Carrier  X  ROI  - Payment to Carriers  =  Total  Medicare  Savings due to 
Incentives 
($16,647,612  X  14) - ($16,647,612 +  $11,098,408) =  $205,320,548 
OPTION  D: 
Total  Savings  - FY  1989 Savings Goal  =  Amount  Saved Above  Goal 
$554,920,413  - $447,109,000  =  $107,811,413 
Amt.  Saved Above  Goal  X  Reimbursement  Rate  =  Payment to Carrier 
$107,811,413  X  .15 (15%)  =  $16,171,712 (to supplement  MSP unit  activities) 
$107,811,413  X  .lO (10%)  =  $10,781,141 (incentive payment) 
Payment  to Carrier  X  ROI  - Payment to Carrier  =  Total  Medicare  Savings due to 
Incentives 
(Sl6,171,712  X  14) - ($16,171,712 +  $10,781,141) =  $199,451,115 
D-2 
 APPENDIX  E 

AGENCY  COMMENTS 
E-l  .
- . 
.  . 
Health  Care 
DEP.QRTMENT  OF hEAL.TH  6 HCMAX SERVIC=  Financing  Administration 
Memorandum-. 
Date  .  WI? 181954 
3 
From  Gd  R. Wilertsky, Ph.D.+ 
Administrator 
Subjec: 
OIG  Dra5  Re?crt  - Medicare Prepayment Review:  MSP Procedures at 
Carriers, OEI-07-89-01683 
The  Inspector  GeneraI 
Office  of the Secretary 
We have reviewed the subject draft report which concerns the 
efrtziveness  ci  Medicare carriers prepayment utiIiz3tion  retiew  processesused 
to Zen@  &k&are  Szcandary Payer (X5P)  situations.  The report  focxscd 
mainIy cn the Fkal  Year (m)  1990 MSP budget redtxrion  for &ie<icare 
Uriiers. 
OIG  recsmmends that KCFX  ensure that wrriers  restore operatiocs 
cf 
MS?  units to  a Ieve! equiv&nt  to Fk 1989, con&xc: e,@oratot-J dr.TocsZ3don 
projects to e* .r=- iuaze incentives to enhanc0  carrier identificaricn  and recovey
efforts, modi&  the Contractor Pttiormance  EvaIuation Program &PEP) 
standards to  k;aluare  wrrks  on their MSP efforq  and modiiy HCFA 
proctdures  fcr  counrin_eMS? savings. E=CF)\ does not  cancur with 01:s 
recommendacicns.  Our specific cammerits on the repccs  recommendancns are 
attached for your  consideration. 
Tnank you  for  the opportunity  to review and comment on this drafi 
0 with our position on the repons 
reporL  Please advise us whe*Lheryou aFe,
recommendations  at your earliest convenience. 
Attachment 
.  . 
.I 
. 
:    .  _Commentsof the Health Care Financing Administration 
(HCFA)  on the OIG  Draft  Remti  - Medicare Prenavment Review: 
pVrSPProcedures at Carxiers. OEI-074961683 
Recommendation  1 
HCFA  shouid  ensure that carriers restore operations of  the MSP units to a 
level  at least tquivaIent  to FI(  1989. 
Ruuonse 
. 
HCFA  does not  cmxr.  Part B MSP funding was S3S.3 miXion for  Fy  1989. 
FY  1990 Part  B MSP funding was increased to $28.1 xnii~on  from  S22? miion 
when  funds were allocated from )ICFAs  contingency fund.  However,  Parr B 
MSP fundizg  fcr  FY  1991 is $26.8 miXion.  The MSP funding  level reflects tie 
. 	 budgetary  cansrraints faced by HCFA and the entire Federal government. 
ECFA  is ho&  to be abie to more adequate!y fund  the carrier MSP  fuzczion 
in  FY  1992 and  1993,but cannot enstire that this wiX happen. 
evaluating incentives to enhance 
E=CFA should conduct demonstrarion progrms 
MSP payments. 
tie  idemificstion  and recovery of inappropriate 
Resuonse 
HCFA  dces not concur.  The report included several suggestionsfor 
demonsrraticns,  and all the suggestionsproposed that  carriers keep a portion of 
the recovered funds.  OIG  correctly noted that the primary  obstacIe to offering 
cash incentives is that this is contrary to current law.  HCFAs  past attempts to 
cbtain  the necessarylegislative changeto implement this recommendation have 
been unsuccessful. 
Recommendation  3 
HCFA  SbouId modiQ the Contractor Performance Evaluation  Program  (CPEP) 
standards tc  evafuate carriers on their pV[SPidentification,  and 
recovery, 
educational  efforts. 
.  . 
. 
, 
4- :... 
.  . .  - -
i  Page 2 
IiCFA  does not concur.  HCFA  already evaluatescarriers procedures for 
identifying  MSP situations. There is a total of 1000 points  in CPEP.  Of this 
total,  100 points  of CPEP arc devoted solely to evaluating the COII~~~CZOK 
petiormanct  of  their MSP fimti~~~~.  HCFA  believes that  to allocate more 
than  10 percent of CPEP to MSP would not be appropriate.  The current 
criteria  used in  the CpJ3  review include the essenceof all of .the elements 
OIG  has recommended be included in CPEP.  We also wish to note that we 
plan  to use the Common Working  File reports to evaluatk Carrier  identiEcation 
. 
of  MS? situations. 
Recommendation  4 
ECFA  shdd  provide ckar  and uniform procedures for  counting MSP savings. 
: 0
Rtmonse 
ECFA  aIr:zdy  provides uniform  proctdures for counring MS? SW&S.  The 
instruc5ons are found in Section 13458cf the bledicare  Cxier  Manual,  and in 
Section 3899 of  the Lxe:incdiary  IvfanuaI. Savingsare vaiidated during  the 
annual perfcrmance of CPEP.  If  contractors are found  to bc reporting  sabtigs 
incorrectly,  the  CPEP scores are adjusted. Then, corrective action steps are 
cutlined  and controIIed by HCFA  regional offices. 
Technical  Comment 
In  Table  1 of page 4 of the repcn,  OIG states that the  carriers MSP budget
. 
for  FY  19E49was S37,579,565. Our figures show that  $38.3 miXon was 
budgeted for  the carriers MSP function for FY  19S9. Also the carriers b1SP 
budget for FY  1990 was $28.1 miXon, not $21,271,700. 
. 
_:-
.