," 

.. 
Hum 
n Servces 
Department of Health and 

OFFICE OF

INSPECTOR GENERAL

MEDICARE SECONDARY PAYER:

EFFECTIVENESS OF FIRST CLAIM

DEVELOPMENT

MANAGEMENT ADVISORY REPORT

SERVICE 
Richard  P. Kusserow 
INSPECfOR GENERA 
NOVEER 
cf1a  1991  GENL

OFFCE OF INSPECTOR 
The mission of the Office of Inspetor Genera (OIG), as mandated by Public Law 95
452, as amended, is to protect the integrity of the Deparment of Heath and Human 
Services' (HS) progras as well as the heath and welfare of beneficiares served by 
those programs. This statutory mission is caed out though a nationwide network of 
audits, investigations, and inspetions conducted by three OIG operating components: the 
Office of Audit Services, the Office of Investigations, and the Office of Evaluation and 
Inspetions. The OIG . also informs the Secreta of HHS of progra and management 
problems and recommends courses to correct them. 
OFFCE OF AUDIT SERVICES 
The OIG' s Offce of Audit Services (OAS) provides al auditing servces for HHS , either 
by conducting audits with its own audit resources or by overseing audit work done by 
others. Audits examine the performance of HHS progras and/or its grantees and 
contrctors in caring out their respetive responsibilties and are intended to provide 
independent assessments of HHS programs and operations in order to reduce waste, abuse 
and mismanagement and to promote economy and efficiency throughout the Deparment. 
OFFCE OF INESTIGATIONS 
The OIG' s Offce of Investigations (01) conducts criminal, civil, and administrative 
investigations of allegations of wrongdoing in HHS progras or to HHS beneficiares and 
of unjust enrichment by providers. The investigative efforts of 01 lead to criminal 
convictions, administrative sactions, or civil money penalties. The 01 also overses
State Medicad fraud control units which investigate and proseute fraud and patient abuse
in the Medicad progra. 
OFFCE OF EVALUATION AN INSPECTIONS 
The OIG' s Offce of Evaluation and Inspetions (OEI) conducts short-term management 
and program evaluations (caled inspetions) that focus on issues of concern to the 
Deparment, the Congress, and the public. The findings and recmmendations contaned 
in these inspetion reports generate rapid, accurate, and up-to-date information on the 
efficiency, vulnerabilty, and effectiveness of deparmenta programs. 
This report was prepared under the direction of Don McLaughlin, Regional Inspetor 
Genera and James H. Wolf, Deputy Regional Inspetor Genera, Office of Evaluation and 
Inspetions, Region VT. Parcipating in this project were the following peple: 
Kans 
City  Headquarters 
Julie Quirin, Project Leder  Tom Noplock 
Perr Seaton, Tea Leder  ,. 

Department of Health and Human Servces

OFFICE OF

INSPECTOR GENERAL

MEDICARE SECONDARY PAYER:

EFFECTIVENESS OF FIRST CLAIM

DEVELOPMENT

MANAGEMENT ADVISORY REPORT

.. SERVlq: 
Richard P. Kusserow 
INSPECfOR GENERA 
9063 
~~d1a  OEI-07- EXECUTIVE  SUMMAR 
PUROSE 
To evaluate the effectiveness of developing the first claim submitted by or on 
behalf of 
a beneficiary to help identify other insurance coverage. 
BACKGROUN 
In June 1987, Health Care Financing Administration (HCFA) required the carriers to 
contact each beneficiary who is age 65 or 66 when the first Medicare claim is 
submitted on hisfher behalf. This procedure entails sending a form letter to the 
beneficiary asking for current employment and insurance information. If there is an 
indication of a primary payment source, the claim is developed to establish primary 
payment liability. If not, the claim is processed and paid as usual. To assess the 
effectiveness of this procedure, we obtained data from 30 carriers. 
FIINGS 
idti
fi 
peent of th  claim deelpe by carr suces 
pApprroxiitelry y payt6.4  
soures othe than Medare. 
id 
Although some concer were exres  cparar r epresenties belie fit claim 
priry 
deelopmet efectiely  soures. 
id 
Carr  nuer  sitins 
vary greatly in the  of MSP  by th fit claim 
deelopme 
process. 
su pa 
reqe carr 
Th  HCF A does not  ben to  on th fit crleaimt usu mied 
or on behalf of a diable  un th deelopm letter is 
RECOMMNDATIONS 
Th  HCFA sahocutl oib tain daastae to  evalute each carrfs ir eportg o/fit claim
deelopmet  and  complince wi aU  claim deelopmet procedes. 
benri 
heal inance informtin  durg
HCF A shoul coUect  for diable 
tThh   reqed diabiI ben 
waitg 
COMMNT 
The HCF A concurred with both recommendations presented in the draf report. The 
HCF A' s verbatim comments are included in Appendix A.  . . . . . .. 
. . . . . . . . . ..  ....    ....    .....     .....     .....     .....     .....     .....     .....     .....     .....     .....     .....     .....     .....     .....     .....     .....     .....     .....     .....     .....     .....     .....     .....     ....    ....    ....    ....    ....    .....     .....     .....     .....     ....    ..  ..  . . . . . . . 
TABLE OF CONTENTS

EXECUTIV SUMMAY

INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

FININGS  . . . . . . . . . . . . . . . . . . . 3

RECOMMENDATIONS  . . . . . . . . . 6

AGENCY COMMENTS  . . . . . . . . . 7

APPENDIX A . . . . . . .  . . . . . . . . A INTRODUCTION

PUROSE 
To evaluate the effectiveness of developing the first claim submitted by or on behalf of 
a beneficiary to help identify other insurance coverage. 
BACKGROUN 
The Health Care Financing Administration (HCF A) is responsible for administrating 
the Medicare program and for ensuring compliance with Medicare legislation and 
companies contract with HCF A to process and pay 
regulations. Private insurance 
Medicare claims. These contractors are known as fiscal intermediaries (Part A) and 
carrers (Part B). 
The contractors are responsible for ensuring that Medicare pays for covered care only 
after reimbursement from other primary insurers has been made. Contractors are 
required to administer the program in a manner that achieves maxmum savings and 
cost avoidance to the Medicare trust funds. Medicare secondary payer (MSP) 
provisions affect claims involving the working aged, spousal working aged, beneficiaries 
with end-stage renal disease, beneficiaries eligible for payment under automobile 
medical liability, and no-fault insurance; individuals eligible for or receiving workers 
compensation; and the disabled. 
Despite current procedures and HCF A initiatives to help identify MSP situations 
contractors continue to have difficulties identifyng all beneficiaries who have a 
primary payment source(s) other than Medicare. Previous studies and audits 
conducted by the Offce of Inspector General have reported that Medicare is losing at 
least $637 milion annually due to the contractor s inabilty to identify primary payment 
sources. 
In a previous OIG inspection "Extent of Unrecovered Medicare Secondary Payer 
Funds" (OEI-07-90-00760), we conducted MSP development on a random sample of 
Medicare beneficiaries. We tracked our development costs to determine a cost-
every dollar spent to develop an MSP source, we identified $5.40 
benefit ratio. For 
that should have been paid by insurance other than Medicare. 
In June 1987, HCF A required the carrers to contact each beneficiary who is age 65 or 
66 when the first Medicare claim is submitted on his/her behalf. This procedure 
entails sending a form letter to the beneficiary asking for current employment and 
insurance information. Section 4307 of the Medicare Carrers Manual (MCM) 
requires all claims be suspended until the questionnaire is completed by the 
beneficiary and returned to the carrer.  If there is an indication of a primary payment source, the claim is developed to 
establish primary payment liabilty. If not, the claim is processed and paid as usual. 
no response is received after 30 days, a second letter is sent and if no response is 
received after another 15 days, the claim is denied for insuffcient information. 
Carrers are instructed to flag the beneficiary s fie and develop any subsequent claims 
in the same manner. The HCFA's instructions require that no claims be paid until 
complete information is received. 
MEllODOLOY 
We mailed questionnaires to all Medicare carrers and 
the Blue Cross Association to 
obtain data concerning current first claim development procedures and their 
effectiveness. We surveyed the carrers concernng their methods of development, the 
percentage of claims that were verified MSP situations, and their suggestions to 
improve the first claim development process. We also collected information relating 
expanding the current first claim development requirement to 
to the possibilty of 
develop the first claim submitted for a beneficiary each year. 
In addition, we analyzed information collected during onsite visits to carrer MSP units. 
These visits were conducted to collect data for a previous OIG study entitled 
Medicare Prepayment Review: MSP Procedures at Carrers" (OEI-07-89-01683). 
During this study we examined the carriers' methods and interpretation of first claim 
development activities. The findings and recommendations presented in this report 
are based on the information collected during these visits and an analysis of the 
questionnaires. This report presents a summary of the questions that address 
significant issues.  FINDINGS

pri pa  peen of th fi claim deelpe by carr suces idnti
Apprxitely 6.4 
soures othe thn Medare. 
Twenty-four of the thirt carrers that responded to our survey developed a total of 
971 881 first claims during FY 1989. The HCFA does not require formal reporting 
of first claim development activities. Due to the limited scope of this MA, we did 
veri 
not  the responses to the questionnaire because it would have required extensive 
onsite work. 
Six carrers indicated that they did not track this information so it was not readily 
available for analysis. Of the remaining 24 carrers, one carrer reported 70 percent 
and a second reported that 50 percent of the first claims developed successfully 
identified a primary payment source other than Medicare. These two carriers were 
not included in our analysis because we considered them to be "outliers. 
We calculated the weighted average for the carrers. This method placed more 
weight" on those carrers who developed a greater volume of first claims. 
Approximately 6.4 percent (126 200) of the first claims developed by the carriers 
identified a primary payment source. 
We also calculated the median of the percentages reported by the carriers. The 
median number of first claims with a positive indication of a primary payment source 
is 8 percent or a total of 157 750 claims. 
According to HCF A, Medicare carriers processed 407 700 000 claims in FY 1989. 
These claims totaled $27 171 022 826 in Medicare payment for an average of $66. 
per claim. Using this average, the 24 carriers saved from $8 409 968 to $10 512 460 by 
identifyng primary payment sources other than Medicare. 
id 
Although some concer were exprerseid  cparar r epresenties belie fit claim 
deelopme efectiely  soures. 
The carriers responded that first claim development is an effective method of 
identifyng MSP situations. When asked whether the current method of "first claim 
development process effectively identifies MSP situations, all  responded 
thirt carriers 
positively. According to the carriers, first claim development is an important part 
their development process. 
Respondents from the carriers provided the following positive comments. 
First claim development gives Medicare the opportunity to gather the needed 
information pertaining to MSP before we make payment on the 
claim. This 
reduces the number of incorrect payments.  We identify cases on a prepayment basis. By doing so, we avoid costly, time 
consuming overpayment recovery. 
Most of the working aged and working disabled are identified from this 
procedure. 
Despite these and many similar comments, the respondents also expressed some 
concerns with the procedure.

The majority of responses received indicate that there is no MSP involvement. 
Therefore, payment for a new beneficiary s claim is often delayed unnecessarily. 
First claim development has generated many negative professional relations 
issues. 
The information received from the majority of beneficiaries is incorrect 
regarding EGHP/LGHP coverage. 
The number of positive MSP leads identified through first claim development 
is a very smal1 volume in comparison to the number of letters sent out by the 
MSP department. 
id 
Carr 
vary greatly in the nuer MSP sitins  by the fit claim 
deelopme proces. 
Each carrer is required to conduct first claim development according to the 
procedures outlined in Section 4307 of the MCM. 
We asked the carriers to provide the percentage of first claims that successfully 
identified MSP situations. The percentages provided ranged from two percent to 
seventy percent. This is a large range for a process that should be consistent from 
carrier to carrier.

A combination of two factors may be contributing to this variance. Carrers are not 
required to track or report information concerning their first claim development 
procedures. Therefore, some carrers may have reported more accurate figures than 
others. Secondly, the variance may be due to different levels of compliance with the 
first claim development procedures. Some carrers may be more 
aggressive in their 
development. 
In a prior onsite review of seven carrers, we also questioned carrier representatives 
about their first claim development procedures. We found a great variance in how the 
process is conducted and how the instructions are interpreted.  su pa 
RCF A do not reqeb ceann  to  on th fi rcleaimtu sumied 
Th  diable  un th deelpm lett 
is 
or on behalf of a 
The HCFA has modified its instructions to the carrers concerning the first claim 
development process. The procedures no longer require fIrst claim development for 
disabled beneficiaries. Unless the  from another source 
carrer receives information 
that a primary payer exists, all claims for disabled beneficiaries are processed and paid 
without delay. Carrers continue to send development letters, however, claims 
continue to be processed and paid before the letters are returned. 
The HCF A made this modification for two reasons. Firstly, disabled individuals 
tyically file many claims withi the first few months of Medicare eligibilty. 
Suspending all of these claims would create a backlog and beneficiary relations would 
need assistance in responding to the 
suffer. Secondly, disabled beneficiaries often 
development letters. Therefore, responses to the letters would not be timely. This 
also slows the payment process. 
This modification creates an ineffcient "pay and chase" situation for the carrers. 
When the carrer receives a development letter with a positive indication of a primary 
payment source, the contractor must conduct a postpayment recovery.  RECOMMENDA TIONS

cars 
Th HCF A sahocul tob tain data to evalte each  fi reportg of fit claim
deelopm  and ase complie wi aD  claim deelopme procedes. 
Currently, carrers are not required to keep statistics or submit reports about their first 
claim development activities. To monitor compliance with the first claim development 
requirements, HCF A should require the carrers to track and report information 
relating to first claim development. The following list includes examples of the 
tye of
information that would help monitor first claim development procedures. 
The number of development letters sent. 
The total cost of first claim development procedures. 
The number of development letters returned within 30 days. 
The number of claims denied because a development letter was not returned. 
The number of MSP situations identified due to first claim development. 
Th HCF A shoul collct healt innce informtin for diable benri dug
reqed diabil ben 
the  waitg 
We recognize that HCFA's policy of not suspending the first 
claims of the disabled 
until the development letters are returned is based on valid concerns. We believe that 
an alternate solution is possible. 
The Social Security Act provides entitlement to disabled beneficiaries following a two 
year waiting period. During this period, HCF A could be advised of these disability 
beneficiaries and begin the development process. When the disabled beneficiary is 
eligible for Medicare, his/her health insurance situation will have been determined 
prior to submission of the first claim. This would reduce the number of post-payment 
recoveries by eliminating "pay and chase" situations for disabled beneficiaries and be a 
more cost effective method of MSP development. At the same time, it would avoid 
the obstacles during the first few months of eligibility.  COMMENTS

The HCF A concurred with both recommendations presented in the draft report. They 
are arranging to utilze the Common Working File (CWF) to generate a report to 
monitor first claim development activity and track contractor compliance. 
Also, the HCFA is considerig a pre-claim development process to replace first claim 
development. Ths process would include the disabled. It would collect complete 
health insurance information at the time of Medicare enrollment and Medicare 
beneficiaries would complete this form prior to filing their first claim. While this is 
not exactly what we recommended regarding the disabled, we do agree it is responsive 
to the problem that we raised. 
The HCF A's verbatim comments are included in Appendix A.  APPENDIX A

AGENCY COMMENTS

A 
 nt:Cllln \"dlt: 
DEPARTMENT OF HEALTH &. HUMAN SERVICE 
Financing Administration 
Memorandum 
4. 
SEP 3 0 1991

Date

Gail R. Wilensky, Ph.

Admitrator 
From 
Subject OIG Draf Management Advisory Report: ''Medicare Secondar Payer: 
Effectiveness of Firt Oai Development," OEI-07-90-0763 
Inpector General

Offce of the Secreta 
We have reviewed the subject draf management advisory report which 
priar 
evaluates the effectiveness of fit claim development to identi  insurers of 
Medicae beneficiaries. OIG found that, for the most part first claim development 
is effcient. 
OIG recommends that HCF A obtain data to evaluate each caer s reporting of 
first claim development activities and assure compliance with al first claim 
development procedures. They also recommend that HCF A should collect health 
insurance information for disabled beneficiaries durig the required disabilty benefit 
waiting period. HCF A concurs with these recommendations. Our specifc 
comments are attached for your consideration. 
Thank you for the opportunity to review and comment on this draf 
management advisory report. Please advise us whether you agree with our position 
on the report s recommendations at your earliest convenience. 
Attachment 
A 
 oUhealth  Adminstrtion
Comimle nts  Care Financing 
raf 
A) on t  Management Advisory 
Report - ''Medicare Secondary Payer: Effectiveness 
" OEI-07-90-00763 
of First Oaim Development.
Recommendation 1

obta data to evaluate each carrer s reportg of fit clai 
HCF A should 
fist clai development 
development acrvities and assure compliance with al 
procedures. 
HCFA ResDonse 
with th recommendation. We are arangig for the establihment 
HCF A concur 
clai development 
of a Common Workig File report by contractors on fist 
activity and track contractor 
activities. Ths report will be used to monitor the 
compliance. 
Recommendation 2

durg 
information for diabled beneficiares 
HCF A should collect health insurance 
the requied disability benefit waiting period. 
HCFA ResDonse 
are considerig the establishment of 
HCF A concurs with this recommendation. We 
claim development process which would replac  fist claim development. For 
a pre-
to solicit the inormation currently 
, we would develop a questionnair 
that process
distnouted at the 
claim development. The questionnaire would be 
provided by fist 
al Medicare 
the intial Medicare enrollment, and would be completed by 
tie of  fig 
their fit Medicare claim. 
beneficiaries, including the disabled, prior to 

A