-
, 
MEDICARE  CARRIERS 

PERFORMANCE  OF  PROGRAM 

INTEGRITY  FUNCTIONS 

I 
I 
Richard  P. Kusserow 
INSPECTORGENERAL 
OAI-04-88-00710  AUGUST  1988  MEDICARE  CARRIERS 
PERFORMANCE  OF  PROGRAM 
I 
..  INTEGRITY  FUNCTIONS 
; 
.I 
.. 
. 
Richard  P, Kusserow 
INSPECTOR  GENERAL 
OAM4-88-00710  AUGUST  1988  EXECUTIVE  SUMMARY 

PURPOSE 
The purposeof this inspection is to determine: (I)  whether existing Health CareFinancing 
Administration  (HCFA) policies and proceduresare appropriate to ensure adequateprogram 
integrity  safeguards; (2) whether carriers areperforming their-program integrity respon
sibilities in accordancewith HCFA operating policies and procedures;(3) whether current 
funding levels for carrier program integrity activities are adequate;(4) whether carriers are ac
counting for costsand savingsperkring  to program integrity functions in an appropriateman
nm, and (5) where changesin HCFA policies or proceduresareneeded. 
BACKGROUND 
Medicare is a federally-funded program providing health care to the agedand disabled 

Within the Federal government, the Medicare program is administeredby the Department of 

Health and Human Services,Health CareFinancing Administration.  Paymentsfor physician 

servicesand medical equipment, such aswheelchairs, are made through private insurancecom

panies acting under contract with HCFA.  Currently there are 46 suchcontractors (known as 

carriers), eachwith the responsibility for the payment of claims in a designatedgeographic 

area. 

It is estimated that the Medicare carriersprocessedover 333.4 million  claims in Fiscal Year 

1987. In the processingof theseclaims carriers must ensurethat payments are made only for 

servicescovered under the Medicare program, medically necessaryunder recognized stand

ardsof medical care, and actually renderedto eligible beneficiaries (Medicare patients). In

cluded within the function cat&d  out by the carriers to meet theseresponsibilities are 

functions generally labeled as program integrity. Operating guidelines promulgated by 

HCFA for the performance of program integrity functions are contained in the Medicare  Car

riers Manual (MCM),  sections7500 (Payment and PostpaymentProcedures)and 11000 

(Fraud and Abuse). 

The HCFA monitors carriers performanceof their contractual responsibilities, including 

program integrity, through the Contractor PerformanceEvaluation Process(CPEP). Under 

this process,a yearly evaluation of individual facetsof the ctiers  operations is conducted by 

HCFA personnel. Carriers must achieveminimum performance levels set by HCFA in order 

to retain their Medicare contracts. 

This inspection was carried out as a joint effort of the three major componentsof the Office of 

Inspector General: the Office of Analysis and Inspections(OAl), the Office of Audit (OA), 

and the Office of Investigations (Oi).  The data collection processincluded review and 

analysis of pertinent HCFA and carrier budget and procedural documents,as well asexamina

tion of over 250 individual provider program integrity casefiles maintained by the carriers. In 
 addition, 190 personswere interviewed at nine carriers, sevenHCFA regional offices, and the 
Bureau of Program Operations and Bureauof Quality Control in HCFAs central office. 
FINDINGS 
Certain HCFA policies/proceduresregarding carriers program integrity functions are 
outdated and are not being applied by carriers asintended in all instances. 
l  Funding levels for program integrity functions appearadequatebut the trend toward 
allocation of carrier resourcesaway from traditional program integrity processesis a 
concern, 
Carriers areproperly accounting for costsand savingsfigures attributable to their 
program integrity functions. 
Improvements are neededin the OIGs systemsfor providing feedbackon the statusand 
disposition of fraud casesrefened by the carriers. 
It should be noted that severalof the aboveEndings havepreviously beenrecognized and ac
tion is being taken. For example, HCFA hasrecently testednew guidelines for postpayment 
review (MCM 7500) on a demonstrationbasisat sevencarriers. Also the CPEPis being 
modified to place more emphasison quality versusquantity in evaluation of canier program 
integrity activities. 
RECOMMENDATIONS 
The HCFA should 
Implement the new MCM  11000 sectionproposedby the OIG at the earliest possible 
date. Consultation should be held betweenHCFA and the OIG to remove any 
impediment to such implementation, and to consider the necessityof further 
modification of this section basedon the other recommendationscontained in this report. 
Proceedwith the implementation of the new MCM 7500 section, after results of the 
demonstration project have beenthoroughly analyzed. 
Designate a Program Integrity Coordinator in eachHCFA regional office to act asa 
liaison with carriers on all program integrity matters. 
Separateprogram integrity costsfrom prepaymentreview costsfor budget and 
accounting purposes. 
ii  . 	 Improve the technical knowledge of fraud and abuseissuesof personsperforming the 
CPEPreview of the carriers program integrity area. 
. 	 Expand the fraud and abuseelement of the CPEP to include the review of a more 
representativesample of fraud and abusecaseshandled by the carrier. 
. 	 Modify  the current measureof the efficiency of the carriers postpaymentreview 
activities to give more credit for innovative approachesdevelopedby the carrier, and for 
activities that benefit Medicare patients aswell asthe Medicare program. 
The OIG should:  . 
. 	 Undertake a detailed examination of casecontrol systemsand other processesinvolving 
carrier/OIG interaction and consider the needfor altering thesesystems/processesto 
improve communications. 
Excerpts of HCFAs responseto the OIGs recommendationsare incorporated into the 
Recommendations sectionof this report. 
As reflected by their comments,HCFA agreeswith many of the recommendationsbut dis
agreeswith others. Generally where disagreementoccurs,it centersaround the issuesof 
availability of HCFA/catrier budget and/or staff to perform the functions addressedin the 
WC= 
The HCFA sharesa common belief with the OIG that controlling fraud andabuse is essential 
to the continued well being of the Medicare program and they (I-ICFA) are willing  to work 
with the OIG to try to resolve any differences in suggestedapproachestoward achieving this 
god.  ...We support any positive steps(e.g. cross-training,joint projects, regional 
HCFA/OIG/carrier meetings to discussprogram integrity issues)that will  enhancethe effec
tivenessof the process. Already HCFA hasinvited OIG to participate in two meetings with 
carrier personnel to discussimplementation of the new MCM 7500 postpayment guidelines. 
The OIG intends to work closely with HCFA and the caniers on an ongoing basisto facilitate 
additional opportunities for resolving the issuesraised in this report. 
. . . 
111  TABLE  OF CONTENTS 

Page 
EXECUTIVE  SUMMARY 
INTRODUCTION  ...........................................................................................~.~....... 1 

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

Purpose  ......................................................................................~~~*.~=~*~*~=~*6***~~* 
Methodology  ...................................................................................................  6 

FINDINGS  ...............................................................................................................  8 

Current HCFA policies concerningcarriers 

program integrity functions are not aseffective 

or efficient asthey should be in severalkey areas............................................... 8 

Carriers are not applying thesepolicies as 

intended by HCFA in all instances.................................................................... 9 

Funding ievelsfor program integrity functions   

appearto be adequatebut the trend toward 

allocation of resourcesawayfrom thesefunctions 

.

1sa concern ...................................................................................................... 11 

Carriers are properly accountingfor 

program integrity costsand savings,..............................................................*.... 13 

The lack of meaningful monitoring and  . 

feedbackhasa negativeeffect on 

carrier performanceof program integrity functions............................................ 13 

RECOMMENDATIONS  ..........................................................................................~17 
 INTRODUCTION 

BACKGROUND 
Medicare is a federally-funded program establishedto assureaccessof the elderly and dis
abled to quality health care servicesand supplies by meansof payment assistance.The 
program is divided into two distinct parts: (1) Part A -which primarily  covershospital ser
vices and supplies, and (2) Part B - which coversphysicians servicesand durable medical 
equipment such as wheelchairs. This inspection deals with Part B. 
HCFA-Administered  - Within  the Federal government,  the Medicare program is administered 
by the Department of Health and Human Services,Health CareFinancing Administration 
(HCFA).  Overall direction is provided by HCFAs central office component located in Bal
timore, Maryland  Responsibility for administering the program in specific Statesis shared 
among 10 HCFA regional of&es  located in major cities acrossthe country. 
Private  Sector Involvement  -Paymentsfor servicesor suppliescoveredunder Part B of the 
Medicare program are made through private insurancecompaniesacting under contract with 
HCFA.  Curmntly there are 46 suchcontractors(known as carriers), eachwith the respon
sibility  for the payment of claims in a designatedgeographicarea. The HCFA provides direc
tion to the carriers on payment matters and is ultimately responsiblefor assuringthat carriers 
are adhering to applicable program policies and proceduresgoverning suchpayments. 
Adnzinistrolive  Costs -Overseeingthe budget processrelated to administrative costsincurred 
by the catriers in making program paymentsis anotherHCFA function.  As the following  table 
indicates, both thesecosts,and the volume of Part B chums handled by the carriers, have in
creasedsignificantly in recent years: 
Administrative  Claims 
Fiscal  costs  Volume 
Year  (Millions)  (Millions) 
1984  $492.4  213.2 
1985  581 .l  265.9 
1986  589.6  296.4 
1987  659.3  (est.)  333.4 (est.) 
Program  Infegtity  -With suchan enormousnumber of claims to process,it is imperative that 
carriersensurepayments are made only for servicescoveredunder the Medicare program, 
medically necessaryunder recognized standardsof medical care,and actually renderedto 
eligible beneficiaries (Medicare  patients). The meansby which the carriers fulfill  this obliga
tion is known generally as the program integrity function. 
1 
 Although no official policy exists on precisely which carrier processesconstitute the program 
integrity efforts, there is general agreementamong carrier personnelthat the processesencom
passat least the following  activities: 
. 	 prepayment  review--the  review  of claims submitted by certain providers and 
suppliersof medical servicesor equipment, or for certain types of servicesor 
equipment, where the carrier hasreasonto believe that unnecessaryor noncovered 
careis being billed; 
. 
. 	 posrpayment  review--the review of paid claims which allows the comparison of 
servicedelivery patternsof providers or suppliers over a period of time with those 
of their peersover the sameperiod; and 
. 	 complaint  resolution--the  processundertakento develop and resolve situations 
where an allegation or indication of potential fraud or abuseis present. 
Other monitoring functions aimed at ensuringproper paymentsfor servicescould under
standably be included in the definition of program integrity aswell.  However, while many dif
ferent activities may be important to protect the integrity of the Medicare program, the two 
most critical to the detection and eventualresolution of significant instancesof fraud or abuse 
are the postpaymenr  review and complaint  resolution  areas. Accordingly, for purposesof this 
inspection, the term program integrity relatesonly to thesetwo areas. 
Current Requirements  -The guidelines which HCFA hasestablishedfor conducting the 
postpayment and complaint resolution functions arecontained in the MCM sections7500 and 
11000respectively. Both prepayment and postpaymtnt review processesare addressedunder 
the general headingof Medical ReviewAJtilkation  Review (MR/UR). 
Postpayment Review -The principal methodology of the postpaymentMRIUR processis the 
retrospectiveanalysisof paid claims data covering an extendedperiod of time, usually 1 year. 
This processis currently known asthe Initial Three PercentInvestigation List (lTPIL)  and is 
mandatedby HCPA.for use by all carriers. This processbegins with the computer generation 
of the previous calendaryears paid claims data for all providers (physicians or suppliers of 
medical equipment) in the carriers servicearea. This dataconsistsof the comparison of the 
pattern of practice of individual providers with that of their peersin at least 13 separate 
categoriesof services,suchas office and hospital visits. 
Review Selection  Process (ITPIL)  - After the data is generated,an initial review is made by 
qualified carrier personnel,often a registerednurse,to identify 3 percentof the total number 
of providers whosepatternsof practice indicate somepotential aberrancyascompared with 
the patternsof practice of their peers. These 3 percentare then subjectedto threedistinct, 
graduatedlevels of review, asillustrated by the following  chart: 
2 
 All Cases  PRELIMINARY  REVIEW 
w
Selected 
Review of Statistical  or Claims Data 
for Processing  or Billing Errors 
Medical  Review of Clafms for at least 
-omaalhlJnmahd*uwr 
I 
l *FUU  SCALE  REVIEW 
Medical  Review of Claims for Additional 
Benefidries  and Medical  Records 
contacts  with Benefidarfes 
Corrective Actions  -When a question still remains after all levels of review have beencorn-. 
pleted (caxzier statistics show almost 91 percentof the providers initially  selectedare dropped 
out before nacbing the final review level), the carrier is required to institute corrective action 
in one of the following  forms: 
. 	 referral of the provider to the Office of  Inspector General (OIG) for criminal 
investigation and/or administrative sanctionaction suchasexclusion from the 
Medicare program; 
.  educational contactswith the provider, 
.  referral for peerreview by a professional body, such asa Statemedical society; 
.  assessmentand collection of an overpayment; and/or 
. 	 automatic prepayment review of all claims for servicesrenderedby the provider 
under review. 
Periodically, the carriers must conduct follow-up reviews of theseproviders to ensurethat the 
corrective action taken hasbrought about the desiredeffect.  Complaint  Resolution  -The carriers postpaymentprocessdescribedabovebasically repre
sentsa proactive approachto detecting and resolving potential fraud and abuseissues. The ac
tivities which the carriersperform under complaint resolution are more reactive in nature. 
Examples of situations that would trigger the complaint resolution processare: (1) a com
plaint or other report that a claim was submitted for suppliesor serviceswhich were not 
provided, or (2) a report from the claims processingareathat a physicians bill appearsto have 
beenaltered. 
Investigation  -Where suchmattersinvolve questionableutilization practicesor quality of care 
issues, the complaint resolution review processfollowed by the carrier may be very similar to 
that usedin the postpayment areaasalready described. (In fact, in many carriers, thesefunc
tions are conducted by the samepersons.) However, where potential fraud is suspected,the 
carriers role is usually limited to the initial developmentundertakento resolve such situa
tions. This may include contactswith personnelin other parts of the carriers operations, 
review of medical and other recordson hand, and limited contact with Medicare patients of 
the suspectprovider.  Investigation of a potential fraud matter beyond the initial develop
ment stagesis the responsibility of the Office of Investigations (OI)/Office of Inspector 
General. Carriersrefer such casesdirectly to the 01 regional office which servestheir 
geographic area. 
Technical  Advisory  Croups -To help fulfill  its responsibilities to monitor carrier performance 
and to determine the needfor policy or operational reforms, HCFA hasformed Technical Ad
, 

visory Groups (TAGS) for various areasof the caniers operations,including one for Medical 
Review/Utilization  Review. The TAG membershipincludes carrier personnelwith expertise 
turdexperiencein the specific areaof carrier operations. Central and regional office HCFA 
staff also serveasmembers. The MRAJR TAG dealsnot only with matters involving prepay
ment and postpaymentreview, but with the complaint resolution areaas well, although the lat . 

ter is lessof a focal point than the other two. 
MRIUR  Proposed  Changes  - Severalyearsago the MR/UR TAG evaluatedthe carriers 
postpaymentprocesses(primarily IIPIL)  in responseto a growing concern that thoseproces
seswere not aseffective and efficient asthey should be. As a result of the TAGs evaluation, 
a draft for a new MCM 7500 sectionhasbeenwritten which significantly alters the current 
ITPIL process. The principal improvement being proposedis the broadeningof the process 
by which providers are initially  selectedfor review by including the useof other information 
sourcesin addition to the computer-generatedpeercomparison data. This changeshould 
allow the carriers to havegreatersuccessin identifying  productive casesinitially,  without 
having to spendas much time and effort weeding out the nonproductive casesduring the 
subsequentreview processes. 
The changesthe TAG hasproposedwere recently testedon a demonstration basisat sevencar
riers during the period October 1, 1987,through March 31, 1988. Following this test,HCFA 
hasbeenevaluating the rest&s. If no major problems are found, HCFA plans to mandatethe 
changesfor implementation by all carrierseffective October 1, 1988. 
4 
 Strengthen  Program  Integrily  Requirement  -The OIG hasproposeda new MCM  11000sec-
tion which would strengthenthe carriers efforts in the fraud and abuseareasin a number of 
ways. Chief among suchimprovements are the requirementsthat carriers: (1) designate 
specific staff to coordinate or carry out all of the carriers program integrity functions; (2) es
tablish a training program for all levels of employeesto acquaint them with the goals and tech
niques of fraud and abusecontrol; and (3) establisha provider and beneficiary educational 
program on fraud/abusepenaltiesand administrative sanctions. The HCPA hasnot yet imple
mented theserevised instructions. 
Pe@kmance  Monitoring  - In add&ion to establishing the policy and guidelines by which the 
carrier  must conduct its program integrity effort,,HCPA is responsiblefor ensuring that car
riers am actually performing thesefunctions in accordancewith thesepolicies and guidelines. 
This responsibility is met through HCPAs Contractor PerformanceEvaluation Program 
(CPEP). Under CPEP,personsfrom HCPAs regional offices conduct an annual review of 
various elementsof each aspectof the carriers*operations. Specific criteria, standards,ex
pectedlevel of performance and methodsof evaluation for eachelement are establishedby 
HCPA central office on a yearly basis. Point scoresare assignedto eachelement by the 
.i 
reviewers, and carriersmust accumulatea minimum number of points in order to retain the 
Medicare contract. Resultsof the CPEParereportedin the Annual Carrier Evaluation Report 
(ACER) which HCPA issueson eachcarrier. 
tI. 
5 
 PURPOSE 
The purposeof this inspection is to determine: (1) whether existing HCFA policies and proce
dures are appropriate to ensureadequateprogram integrity safeguards;(2) whether carriers are 
performing their program integrity responsibilities in accordancewith HCFA operating 
policies and procedures;(3) whether current funding levels for carrier program integrity ac
tivities are adequate;(4) whether carriers are accountingfor costsand savingspertaining to 
program integrity functions in an appropriatemanner and (5) where changesin HCFA 
policies or proceduresare needed. Among specific questionsto be addressedare: 
. 	 Are current guidelines covering program integrity sufficient to assurethe 
efficiency and effectivenessof the carriers processesfor identifying  and 
resolving potential fraud and abusematters? 
.  Are carriers applying program integrity guidelines asintended by HCFA? 
. 	 What is the level of funding budgetedby HCFA for carrier program integrity 
activities? Is this Ievel adequate? 
. 	 Are carriers properly accountingfor the costsof program integrity activities? Are 
cost and savingsamountsusedby HCFA to evaluatecarrier effectiveness 
properly computed and adequatelysupported? 
. 	 Art  there negative/positive influences on carrier performance of program integrity 
functions? 
. 	 What changescan be madein the current policies that would improve the  . 
effectivenessand efficiency of the carriers program integrity efforts? 
METHODOLOGY 
This inspection was conductedasajoint effort of all threecomponentsof the Office of Inspec
tor General: the Office of Audit (OA), the Office of Investigations (01). and the Office of 
Analysis and Inspections (OAT). Overall coordination of the project wasprovided by OAI. 
Records  Reviewed  - The HCFA budget and policy/procedural documentsrelated to the 
carriers program integrity function were reviewed and analyzed. An analysisof individual 
carriers internal records and procedures,along with various carrier performancereports cover
ing the period of Fiscal Year 1984 through the present,was also performed. Over 250 in
dividual provider program integrity casefiles maintained by the carriers were examined. 
6 
 Persons  Interviewed  -The bulk of the information gathered,however, came from interviews 
with personsmost closely involved in the carriers program integrity processes,both in HCFA 
and at the carriers themselves. In all, 190personswere interviewed.  Theseincluded:  151 at 
9 carriers; 27 at 7 HCFA regional offices; and 12 at the Bureau of Program Operationsand 
Bureau of Quality Control in HCFAs central office.  . 
FINDINGS 

EFFECTlVENESS  OF CURRENT  POLICY 
Current HCFA policies concerning the carriers performanceof their program integrity func
tions are not aseffective or efficient asthey should be. Specific findings of this inspection are: 
HCFA  Guidelines  Not  Used 
. 
. 	 Canier staff membersinvolved in the program integrity function generally do not 
use the current MCM  11000and 7500 sectionsasoperating guidelines. They rely 
instead on internal proceduresthey havedtveloped on their own.  Reasonsgiven 
by carzierpersonnelinterviewed am that the manual sectionsare outdated, 
somewhatconfusing, and too generalto be of practical use. 
. 	 Confusion exists among carrier program integrity staff asto whom to contact 
(HCFA or the OIG) on procedural or policy mattersinvolving the complaint 
resolution areasince the OIG assumedresponsibility for investigating Medicare 
fraud cases. Providing suchdirection is primarily HCFAs responsibility. 
However, current guidelines do not make this clear. Many carrier staff members 
believe that HCFA doesnot havethe technical knowledge of the complaint 
-4  resolution processnecessaryto adequatelyperform this function. 
Peer Review Inadequate 
. 	 Current HCFA policies do not require carriers to useindependentpeerreview 
groups for ren&ring  opinions on practice patternsof physicians who chronically 
abusethe Medicare program. Experiencehasshown that suchpeerreview is 
important to support administrative sanctionactions taken againstproblem 
physicians when other forms of corrective actions have failed.  Although some 
carriers havecontractedfor peerreview with Stateor local medical societies, 
others havenot sought suchservice,or have not found it to be satisfactory. These 
carriers utilize only their own individual medical consultants. Only one of the 
nine carriers visited made useof the peerreview capacity of the peerreview 
I 
organizations (PROS)already under contract with HCFA. 
Review Selection  Process Ineffective 
. 	 Processeshistorically man&ted by HCFA for  carriers usein selectingproviders 
for post-paymentreview havetendedto be ineffective in identifying the worst 
abusersof the Medicare program. Only a few providers identified on the Initial 
Three PercentInvestigations List eventually prove to be defrauding or abusingthe 
program, and much time and effort is wastedin weeding out nonproductive cases 
. 
8  from thoseoriginally  selected. This finding is consistent with that made by the 
MR/UR TAG from its researchfor development of new postpayment guidelines. 
CarrierlState  Medicaid  Relationships 
. 	 Only three of the nine carriers visited havean effective working relationship with 
the Stateagenciesadministering the Medicaid program in their areas. Where such 
a relationship exists, information being sharedon investigative or review methods 
and on providers suspectedof fraud or abusehassignificantly enhancedthe 
carriers overall program integrity effort.  One carrier conductsjoint reviews of 
someproviders in cooperation with Medicaid staff. Current HCFA policies 
encouragesuchrelationships but do not require or facilitate them. 
CARRIER  APPLICATION  OF  HCFA  POLICY  . 
Current HCFA policies regarding the performance of the program integrity function are not 
being applied as intended by HCFA at the nine carriers visited. (However, since the policies 
themselveswere found to be deficient, failure to properly apply them doesnot necessarily 
result in a lesseffective program integrity effort)  The extent of this problem was found to 
vary greatly from carrier to carrier, with somecarriers apparently doing their bestto comply 
with current requirements while others are making considerably lesseffort.  The following  are 
examplesof deficiencies noted at one or more caniers during the courseof this inspection 
which are consideredsignificant enough for comment: 
Inappropkte  Handling  Of Cases 
Sevenof the nine carriers visited are closing potential fraud casesprematurely by 
0. 	
resolving the initial complaint without expanding the review to determine if the 
problem is widespread. At one carrier this situation occurred even though the 
carrier already had evidence in its files that the alleged problem was, in fact, 
widespread  In this case,the carrier had received 15 separatecomplaints against a 
durable medical equipment @ME) supplier over a period of time.  Allegations 
made in thesecomplaints concernedbillings for equipment that the patient had 
neverreceived, and continuing to bill for equipment after it had beenreturned to 
the supplier. Each complaint was handled by the carrier as though it were an 
isolated incident, when the pattern of potential fraud or abusesuggestedby the 
number and similarity of the allegations should have causedthe carrier to refer the 
caseto the OIG for further investigation. 
. 	 In many instancescarriers are not including administrative sanction warning 
notices in their correspondenceto providers asrequired in MCM  11000. Such 
omissions make it more difficult  for the OIG to initiate strongeraction against the 
provider if the carriers initial  contact fails to resolve the issues. 
9 
 . 	 Three of the carriers visited havean early screeningpolicy where direct contact is 
made with the subjectof an allegation to requestdocumentation of the service(s) 
in question. This is done eventhough the allegation may be that the provider is 
billing for servicesnot renderedand prematurecontact with the subject may 
compromise a potential criminal investigation. 
. 	 Canicrs an proceedingto identify and recoveroverpaymentswithout fast 
consulting the OIG in caseswhich may warrant criminal or administrative 
sanction actions. Carrier pcrso~el  interviewed indicated that pressureto do this 
arises,in part, from the needfor carriers to identify actual dollars savedasa result 
of their efforts in order to retain their Medicare contracts.  (Specific  criteria by 
which the carriers program integrity functions are evaluatedby HCFA are 
discussedlater in this report) 
. 	 None of the nine carriers visited arereviewing a full 3 percent of their active 
providers through the IIPIL  process. Some havereducedthis figure, with 
HCFAs permission, by eliminating the review of certain categoriesof providers 
or serviceswhich haveproven unproductive in the past. Othershaveunilaterally 
reducedthe percentagereviewed simply by selecting fewer providers. In both 
instances,carriers claim they are attempting to bring the number of providers to 
be reviewed down to a number they can more realistically handle. 
Carriers  Behind  Schedule 
. 	 Despite the reduction of the ITPIL, many carriers are still behind in their review 
processand are not resolving caseswithin the l-year time- required. One 
canier hasan internal goal of resolving caseswithin 4 years. 
Inappropriate  Prepayment  Review 
. 	 Providers whoseclaims havebeenplacedon special prepaymentreview, asa 
result of problems identified in the postpaymentprocess,are often left on 
prepaymentreview indefinitely without periodic evaluation to determine whether 
additional action may be needed. It was noted, for example, that one carrier had a 
number of providers on specialprepaymentreview at the time of our visit that had 
beenin this statusfor over 5 years. The carrier had not performed any periodic 
evaluation of thesecasesto determine what further action was necessaryto 
resolve theseproblems so as to remove theseproviders from the costly 
prepaymentreview process. 
10 
 Training  Needed 
. 	 Overall program experienceand knowledge levels of personsworking in the 
carriers program integrity areaarerelatively high, with most personshaving 
spentat least severalyears in claims processing. However, a lack of expertisein 
specific methods and techniquesfor reviewing and processingcasesinvolving 
potential fraud or abusewas noted at severalof the carriers visited. Thesecarriers 
do not appearto have the capability to correct this deficiency without outside 
technical assistance. 
ADEQUACY OF FUNDING LEVELS 
Lack of adequatefunding for carriers to perform their program integrity functions doesnot ap
pear to be a seriousproblem at this time.  However, the manner by which suchfunds are allo
catedamong the carriers various operationsmay be gradually eroding the effectivenessof the 
program integrity effort.  Also, asHCFA determinesthe needfor increasedmonitoring in 
selectedareasof carrier activity, the monitoring functions are often placed with the samestaff 
responsiblefor the traditional program integrity roles. This in turn diffuses the staff effort in 
fraud and abusecontrol. 
. 
Program  Integrity  Costs Not Identifiable 
. 	 Un&r  current HCFA budgeting and accounting procedures,costsof the carriers 
program integrity functions are included with costsof various prepayment 
activities in the generalcategory entitled Medical Review/Utilization Review. 
Costs attributable to the individual functions within this category arenot 
specifically identified.  Accordingly, it is not possible to identify the adequacy 
of funding for any particular function by itself. 
Funding  Increased 
. 	 Funding levels for the MR/UR category haveincreasedduring the period covered 
by this review from $36.3 million  in Fiscal Year 1984 to an estimated$68.2 
million  in Fiscal Year 1987. Someof theseincreasescan be attributed to changes 
in accounting proceduresmade during this period, however, there hasalso been 
an actual increasein funds available for useby the carriers. 
Allocation  Changed 
. 	 Since Fiscal Year 1984, the useof MRAJR funds by carriers hasshifted 
dramatically away from postpayment (including ITPIL  and complaint resolution) 
and toward prepayment activities as a result of a higher rate of measurable 
savingsachievedthrough the latter. While fiscally prudent on its face, this shift, 
11 
 in combination with other factors discussedlater in this report, hashad the 
unintentional effect of eroding postpaymentfunctions critical to the assuranceof 
quality care and to the detection of providers abusingor defrauding the Medicare 
program. The following  chart illustrates this trend at the nine carriers visited 
during this inspection: 
.  REPORTED CHANGE IN MR/lJR COST AT SELECTED CARRIERS 
mc---
I 
/-
. 
.  . 
Functions  A&d 
. 	 Numerous functions generally aimed at cost containment have beenaddedto the 
postpaymentreview areain recent years. This hasdiverted carrier staff away 
from the more traditional program integrity functions. Staffing levels in the 
! 

carriers postpayment areado not appearto havekept pacewith theseadded 
responsibilities, nor with the additional workloads resulting from the increased 
claims volume being handled by the carriers (aspreviously noted in this report). 
Some New  Functions  Ineffective 
. 	 According to carrier staff interviewed, someof the functions addedto the 
postpaymentareaare not effective or efficient in terms of either dollars returned 
or deterrence.  Most frequently mentioned is the Part A and Part B link.  This 
. 	 processrequirescarriers to make medical necessitydeterminations on the Part B 
physicians billing for a beneficiary eachtime the Part A contractor 
(intermediary) reducesor fully deniesthe hospital stay of that patient. When the 
Part B serviceis also found to be medically unnecessary,usually no overpayment 
is collected due to waiver of liability  provisions of the Medicare law.  These 
provisions statethat for a patient to be held financially responsible,he must have 
known prior to the servicebeing renderedthat it would not be covered. 
12 
 CARRIER  ACCOUNTING  PROCEDURES 
No significant deficiencies were noted in the methodology or proceduresby which MR/UR 
costs (including costsof program integrity) are accountedfor at the carriers visited. 
CostiSavings  Properly  Documented 
. 	 Costsdirectly charged to the lVWUR operational category are adequately 
supportedby sourcedocumentation. 
. 	 Indirect costsarechargedon the basisof reasonableallocation methods applied 
consistently to applicable carrier cost centers. 
. 	 Savingsfigures attributed to the postpaymentprocesswere verified at eachof the 
carriers visited and no major discrepancieswere observed. 
INFLUENCES  ON  CARRIER  PERFORMANCE 
This inspection revealedtwo factors which influence carrier performanceof the program in
tegrity function:  (1) the attitude of the carriers own managementregarding the importance of 
this function; and (2) the perception of carrier staff regarding the importance which HCPA and 
the OIG attach to the program integrity effort, asreflected by the monitoring and feedback 
provided in this area. Regarding the first factor, managementattitudes differ greatly from car
rier to carrier. Regarding the second,somecarriersperceivea needfor better communications 
with the OIG concerning casereferrals while alI carriers visited believe that program integrity 
is not ashigh a priority for HCPA as an other areas,suchasprepayment and claims process
ing. 
Emphasis  On Dollars  Saved 
. 	 The principal measurementof the eficiency of the carriers postpaymentreview 
processutilized by HCPA in its Carrier PerformanceEvaluation Program (CPEP) 
is the Cost Benefit Ratio (CBR). This is the ratio of savingsattributable to a 
function to the cost of performing that function.  Carriers must achieve a 
combined CBR of no lessthan 5 to 1 for their prepayment and postpayment 
review processesto receive a passingscoreon the CPEP. 
Benefits  Of Postpay  Not Recognized  By CPEP 
. 	 Historically,  the CBR of the prepayment areahasbeen7 to 1 or better, while that 
of postpaymenthasbeen 1 to 1 or less. This may be attributed to the fact that the 
postpaymentprocessis much more labor intensive, and thus more costly than 
prepayment. Also, much of the benefit achievedby the postpayment effort is in 
the form of deterring fraud and abuse and protecting Medicare beneficiaries from 
13 
 harmful or unnecessaryservices. Thesebenefits are not easily measuredin terms 
of specific dollars saved. The disparity in the CBRs was cited by carrier 
managementasone of the principal reasonsfor the shift in the percentageof 
funds allocated from postpaymentto prepayment. 
Insufficient  Review Of The Effectiveness  Of Postpay 
. 	 The effectivenessof the carriers postpaymentfunction is measuredprirm&ly  by 
their adherenceto HCFA guidelines covering review processesand reporting 
requirements. Carriers visited in this inspection reported, however, that they have 
not seena great deal of attention paid to this particular review element by HCFA 
in recent years. The CPEPelement measuringeffectivenessdoesnot carry as 
much weight in the point scoregiven the carriersasdoesthe element measuring 
the CBR. 
Insufficient  Review Of Complaint  Resolution 
.  The HCFA measurescarrier performancein the complaint resolution areaby 
reviewing 10 fraud or abusecaseswhich are openedby the carrier sometime 
between the beginning of the year and the date the CPEPreview is conducted 
during that year. Both carrier and regional office staffs believe that this is not an 
adequatemeasurementof the carriers total performancein this area. The three 
!I 
 principal reasonsare said to be: (1) too few casesarereviewed to provide a valid 
reflection of carrier investigative and review processes;(2) casesopened 
between the beginning of the year and the dateof review may only be several 
weeks/monthsold and, thus, may havehad little or no action taken; and (3) 
HCFA personnelconducting the casereview generally do not havesufficient 
training or background in fraud and abusematters to sufficiently assesscarrier 
performance in this area. 
Program  Integrity  Frequently  Not Reviewed 
. 	 Carriers assertthat neither the fraud and abusenor the effective postpayment 
elementsof the CPEP havereceived sufficient attention in recent years. Their 
assertionsare supportedby the results reported by HCFA. in the Annual Carrier 
Evaluation Reports (ACERs).  The following  chart revealsthat theseelements 
were not reviewed in the Fiscal Year 1986CPEP at a significant percentageof the 
46 carriers under contract that year. Additionally,  where theseelementswere 
reviewed, the carriers were usually given full credit. This inspection however, 
found at least someprocedural or technical deficiencies at every carrier visited. 
14 
 I 
1986 ACER  RESULTS  - ALL CARRIERS 
FUU  CREDIT 50%  PARTIAL CREDIT  15%  FULL CREDIT 33% 
I 
--  FRALID  A ABUSE  ELEMENT  EFFECTIVE POSTPAY ELEMENT  I 
Lack  Of Feedback 
. 	 A comment heardquite frequently during this inspection was that HCFA is not 
providing meaningful feedbackonthe carriers performance of program integrity 
efforts.  Neither the CPEP nor the performancereports submitted periodically by 
the cartiers themselvesappearto generatethe neededdialog betweenHCFA and 
the carriers. For 1985and 1986,HCFA did not require the caniers to submit their 
annual managementreports. These arethe only complete sourceof information 
produced on carrier program integrity activities. When thesereports were 
required, carriers indicated that they received little or no responsefrom HCFA on 
their performance, or on other carriers a&ties  in the program integrity area. 
. 	 Severalcaniers pointed out that the OIG needsto be more involved with their 
(carriers) program integrity responsibilities. Timely and consistenthandling and 
feedbackon statusof suspectedcasesof fraud referred to the OIG were the 
principal areasmentioned. Carriers believe better systemsare neededto facilitate 
communications on suchreferrals. 
CONCLUSION 
A summary of the findings of this inspection revealsthat: 
(1) current HCFA policies concerning carriers program integrity functions are not as 
effective or efficient asthey should be in severalkey areas; 
(2) carriers are not applying thesepolicies asHCFA intends in all instances; 
(3) funding levels appearadequate,but allocation of carrier resourcesaway from 
traditional program integrity processesis a concern; 
15 
 (4) carriers are properly accounting for costsand savings;and 
(5) the lack of meaningful monitoring and feedbackhasa negativeeffect on carrier 
performance. 
It should be noted that the extent of the aboveproblems did vary fn>m HCFA ngional  office 
to regional office, and from carrier to carrier. Deficiencies obsemedpertained more to the na
ture of the policies or processes,rather than to the people perfoxming them, who in generalap
pearedto be making a reasonableeffort  Additionally, HCFA is already taking stepsto 
impmve carrier performance of program integrity functions through the testing of the MR/UR 
TAGs revisioti  of the postpayment guidelines, and by modifying the 1988 CPJV to place 
more emphasison quality over quantity. Through the continuation of suchefforts and the 
adoption of the following  recommendations,the carriers performanceof their program in
tegrity functions should be enhancedsignificantly. 
16 
 .Z 
RECOMMENDATIONS 
The following  actions are recommendedas a result of the findings of this inspection. Excerpts 
of HCFAs responseto theserecommendationsare included 
RECOMMENDATlON#l 

Implement  New  MCM  11000  Section 

Finding:  Carrier staff membersinvolved in the program integrity function do not often use 
the current MCM  11000section as an operating guideline, as they consider it outdated, some-
what confusing; and too generalto be of practical use. 
Recommendation:  The HCFA should adopt and implement the MCM  11000sectionproposed 
by the OIG at the earliest possible date. Consultation should be held betweenHCFA and the 
OIG to remove any impediment to suchimplementation, and to consider the necessityof fur: 
ther modification of this section basedon the other recommendationscontained in this report. 
Impack  This will  provide the carrier with a more practical, up-to-date guideline for perform
ing the program integrity functions. 
HCFA  Comments:  HCFA believesthat controlling fraud and abuseis essentialto the con
tinued well-being of the Medicare program. To this end, $5.6 million  hasbeenincluded in our 
FY 89 funding requestto implement the proposedinstructions. It must be recognized, 
however, that considerabletime haselapsedsince the manual instructions were originally 
drafted and in the intervening period there have beennumerouspolicy and program changes. 
It is essentialthat the proposedmanual instructions be reexamined by our respectivestaffs to 
assurethey am accurateand current before they are finalized and issuedto the contractorsand 
regional offices.... Webelieve theseadditional requirements(within the new instructions) 
could cost more than the $5.6 million  requestedfor FY 1989. As part of a reexamination of 
the proposedmanual instruction, staff from the OIG and HCFA should complete a fiscal 
analysisof the proposedinstructions to determine cost. 
RECOMMENDATlON#2 

Proceed  With  Implementation  Of  New  MCM  7500  Section 

Finding:  Certain postpaymentprocesses(e.g., ITPIL)  &scribed in MCM 7500 are ineffective 
and are not identifying the worst abusersof the Medicare program. 
Recommendation:  HCFA should proceedwith the implementation of the new MCM 7500 
section,recommendedby the MlWJR TAG, after completion of the current demonstration 
process. However, HCFA should ensurethat a thorough analysis of the demonstrationresults 
is carried out to identify and correct any potential weaknessprior to mandating the new 
guidelines for all carriers. 
17 
 Impact:  Implementation of the MR/UR TAGs suggestedchangesshould improve both the ef
fectivenessand efficiency of the carriers processesfor identifying and resolving mattersin
volving abuseof the Medicare program. 
HCFA  Comments:  We plan to implement revisedproceduresfor all carriers on October 1, 
1988 assumingthe analysis supportsnational implementation and providing that funds have 
beenmade available. Obviously, fund availability will  determine the timing of the implemen
tation of MCM 7500 sections. 
RECOMMENDATION  #3 

Ensure  Carriers  Have  And  Maintain  Capability  To  Apply  New  MCM  Sections 

Finding:  Certain HCFA policies regarding the performanceof the program integrity function 
are outdatedand are not being applied asintended in all instances. 
Recommendation:  In conjunction with the implementation of the new MCM  11000and 7500 
sections,HCFA should ensurethat eachcarrier hasthe capability to apply the new guidelines 
asintended. Such an assessmensthould include: (1) adequacyof resources,including number 
and qualifications of availablesmff; (2) training needs;and (3) sufficiency of internal operat
ing procedures. Additionally,  the HCFA should conduct annual reviews of the overall 
program integrity processto assurethat expectedresults am being achieved. Program in
tegrity methods and proceduresmust keep pacewith the rapidly changing manner of deliver
ing health care services,and the increasingly sophisticatedmethods by which providers are 
defrauding or abusing the Medicare program. The carriers annual managementreports could 
be usedasone data sourcefor this analysis. 
Impact:  This will  assure that the generalfoundation neededto achievethe maximum tffective
nessof the new guidelines is in place at all carriers,and that the efficiency and effectiveness 
levels gained by the implementation of the new MCM sectionsam maintained on an ongoing 
basis. 
HCFA  Comments:  The OIG makesthe point that HCFA should ensurethe capability of each 
canier to apply the new guidelines. Measuring contractor capability is one of the major objec
tives of the CPEPprogram.... 
While  HCFA feels strongly that it should havethe sole responsibility for performing CPEP 
reviews, we do encouragethe OIG to conduct training sessionson both the national and 
regional level asa meansof increasing the effectivenessof the CPEPreviews asthey relate to 
program integrity functions. This seemsto be a natural and equitable division of respon
sibilities with respectto the CPEPprogram. In fact, staff level discussionsbetweenHCFA and 
the OIG have already initiated communications betweenregional OIG and CPEPstaff. 
18 
 RECOMMENDATION  #4 

Designate  HCFA  Regional  Office  Program  Integrity  Coordinators 

Finding:  Carrier staff membersare confused asto whom to contact on procedural or policy 
matters involving the program integrity function.  Carrier staff do not feel HCFA hasthe tech
nical knowledge of fraud or abuseissuesnecessaryto provide adequateguidance in this area. 
Recommendation:  The HCFA should designateone personin eachof its regional offices to 
act as a Program Integrity Coordinator for all carriers in the region. The functions of this posi
tion would include:  (1) acting as a liaison with the carriers on all matters involving the 
program integrity effort; (2) providing a focal point for receipt, analysis, and feedbackfor 
reports submitted by the carriers; (3) participating directly (or asa consultant) in the CPEP 
review processof measuring carrier program integrity performance; and, (4) assuringthat 
chronic abusersare not being kept on prepaymentreview indefinitely  when other action is ap
propriate. The HCFA should ensurethat the personsappointed asprogram integrity coor
dinators haveor receive appropriatetraining.in fraud and abusematters to enable them to 
perform their functions adequately. 
Impact:  Creation of this position would improve communications betweenHCFA and the car
riers and, thus, should improve overall results of the carriers program integrity functions. 
HCFA  Comments:  In view of the presentstaffing shortagesand its many other respon
sibilities, it would be counterproductive for HCFA to designatea PI coordinator in each 
regional office. 
RECOMMENDATION #5 

Ensure Adequate  Peer Review 
. 

Finding:  Not all carriers visited during this inspection had the capacity to obtain peerreview 
servicesnecessaryto support administrative sanctionactions taken againstphysicians who are 
abusing the Medicare program by providing excessiveor unnecessaryservices. 
Recommendation:  The HCFA should explore the possibility of carriers who do not have suffr
cient peerreview capabilities obtaining such servicesthrough the appropriatepeer review or
ganization (PRO) under contract with HCFA in their States. For thosecarriers which do have 
adequatepeerreview, HCFA should determine whether such servicescould be supplied by the 
PRO on a more cost-effective basis,if the sameor higher quality level can be achieved. 
Impact:  This will  ensurethat all carriers havethe peer review capabilities necessaryto support 
administrative sanction actions, which act as an important deterrent againstabuseof the 
Medicare program. 
19 
 HCFA  Comments: HCPA hasincreasedits budgetrequestto $50 million  for medical review 
doctors at carrier sites. Assuming this money is forthcoming, we believe this should be ade
quate funding to provide sufficient peer review capability to eachcarrier. 
RECOMMENDATION #6 
Separate Program Integrity  Budget 
Finding:  Canier  program integrity costsarecurrently included, along with prepayment 
review costs,in the generalbudget category known asMedical Review/Utilization  Review. 
Costsfor individual functions within this category are not separatelyidentified.  The effective
nessand efficiency of postpaymentfunctions are evaluatedin terms of how they comparewith 
prepayment functions, rather than on their own merits. 
Recommen&tion:  The HCPA should separatethe carriers program integrity costs(e.g., com
plaint resolution and postpaymentreview, and whateverother functions HCFA, the OIG, and 
the carriers agreeshould be included under the heading of program integrity) from prepay
ment MR/UR costsfor budget and accounting purposes. 
Impact:  This will  allow for a more accurateassessmenotf the adequacyof program integrity 
funding levels and will  help to convey to carriers the importance of their program integrity 
functions. 
HCFA  Comments:  HCPA believesthat some type of a fiscal reporting systemcould be 
devisedto captureoverall PI costs. The main problem would be to devise a suitabledefinition 
of PI that would be accurateand acceptableto both HCPA and the OIG.  Devising a workable 
deftition  (and the costsassociatedwith it) is difficult  at best  HCPA would welcome staff 
input from the OIG asto how a proper reporting mechanismcould be devised. The financial 
staff within HffAs  Bureau of Program Operations(BPO) could work with OIG staff to 
devise a good fiscal reporting systemfor PI costs,once agreementhad beenreachedon the 
definition. 
Another aspectof this recommendation is to separatePI for budget preparation purposes. We 
cannot support this aspectof the recommendation. It would be difficult  to justify such an ar
tificial  separationsincemost of the MR/UR functions are inexorably interwoven. In many 
cases,the samepersonnel,computers,etc., are usedto do both PI issuesas well asnormal 
claims processing. The temptation with a budget line for PI is to argue that this areabe 
funded disproportionately to the other MR/UR functions. This could lead to annual disagree
ments with OIG for eachcarriers budgetfor PI.  We do not wish to encouragedistinctions be-
tween payment safeguards(including good claims processing)and program integrity (asthe 
OIG thinks of it). 
20 
 RECOMMENDATION  #7 

Assess  Benefits  Of Current  Postpayment  Functions 

Finding:  Numerous functions havebeenaddedto the carriers postpaymentprocessesin 
recent years. Carrier staff interviewed indicated that not all of the functions addedareeffec
tive or efficient in terms of either dollars returned or  deterrence. 
Recommend&ion:  The HCFA should analyze eachfunction of the postpayment areato deter-
Non-
mine the extent of the benefit to the program integrity effort derived from that activity. 
productive processesshould be modified or eliminated. 
Impact:  This will  assurethat limited resourcesare being utilized in the most productive man
ner possible. 
HCFA  Comments:  We agreewith this recommendation. HCFA recognizesthe value of effec
tive postpaymentreviews to avoid inappropriate program expenditures. Thus, we would wel
come any suggestionsthe OIG may haveon processeswhich they consider to be productive or 
nonproductive. 
RECOMMENDATION  #8 

Review  Program  Integrity  CPEP  Elements  Annually 

Finding.  The fraud and abuse,and effective postpaymentprocesselementsof the Carrier Per
formance Evaluation Processhavenot beengiven adequateattention in recent years. For Fis
cal Year 1986, the fraud element was not reviewed at 41 percentof all carriers, and the 
effective postpaymentelement was not reviewed at 52 percentof the carriers. 
Recommenddion:  The HCFA should ensurethat all elementsof the CPEPpertaining to the 
program integrity function arereviewed at all carriersyearly. 
Impact:  This will  assureidentification of carriers with performancedeficiencies so that correc
tive action may be implemented and will  also convey to the carriers the importance of the 
program integrity area. 
HCFA  Cornmen&:  FY 1986 was the only year that fraud and abusestandardswere not 
reviewed at all contractorsand this was instituted as an optional element only becauseof 
regional office (PO) resourceslimitations.  In FY 1987, when the standardswere deemedcriti
cal, reviews were required to be conductedat all contractors. For FY 1988 and FY 1989, 
HCFA determined that all standardswill  be reviewed at all contractor sites. 
21 
 RECOMMENDATION  #9 

Improve  Technical  Knowledge  Of CPEP  Reviewers 

Finding:  Carrier staff interviewed believe ihat, in general,HCFA personnelconducting the 
casereviews for the fraud and abuseCPEPelementdo not havesufficient training or back-
ground in fraud and abusemattersto adequatelyassesscarrier performance in this area. This 
opinion was echoedby severalHCPA reviewers.  . 
Recommendiztion:  The HCFA should assurethat regional office staff reviewing the program 
integrity CPEPelementshave sufficient training and knowledge in fraud and abusemattersto 
enable them to conduct suchreviews adequately. 
Impact:  This should improve the effectivenessof the CPEPprocesswhich, in turn, should 
lead to more effective performanceof the program integrity function by the carriers. 
HCFA  Comments:  To do the most thorough evaluation of PI-related CPEP standards,RO 
staff would have to be mom thanjust familiar with fraud and abusematters. Such staff would 
have to be conversantwith the role of pre-pay and post-pay MRKJR in uncovering fraud and 
abuse....We suggestthat the OIG provide guidelines to the HCPA RO CPEPstaff that could 
be usedin evaluating carrier PI functions. Again, we feel OIG training at both the national 
and ttgional  level will  do much to alleviate this problem. 
RECOMMENDATION  #IO 

Expand  Fraud  And  Abuse  CPEP  Element 

Finding:  The CPEPelement concerning carrier performancein the complaint resolution area 
consistsof a review of only 10 casesof alleged provider fraud or abuseopenedby the carrier 
during the review period. Canier and HCPA personnelinterviewed believe this is an inade
quate number of casesat larger carriers and that many of the casesopenedduring the review 
period may have had little or no action-taken on them at the time of the CPEPreview. 
Recommendation:  The HCFA should expand the number of casesto be reviewed for the fraud 
and abuseelement to a sample size more representativeof the carriers claims volume or 
program integrity workload.  Additionally, the review should include casesclosed by the car
rier, not just those opened, in order to provide a broaderreflection of the carriers total ac
tivities related to this area. 
Impact:  This will  improve the effectivenessof the fraud and abuseCPEPelement as a true 
measurementof carrier performance. 
HCFA  Commenfs:  This presentmethod of evaluation (MOE) is basedon small samplesin 
recognition of limited RO resources. In the absenceof updatedinstructions, an expanded 
review was not an efficient way to use limited resources. The MOE can be expandedto a full 
sample,but this is contingent upon the releaseof updatedinstructions, including timeframes, as 
22 
 well as the availability of sufficient RO resourcesto conduct additional reviews. In spirit, 
HCFA agreeswith the recommendation,but with the limited staff resourcesnow available for 
this activity, it will  be difficult  to implement. We have however,revised the FY 1989 CPEP 
standardsto explicitly  include for samplereview thosefraud and abusecasesreceived in FY 
1989or closed in FY 1989. 
RECOMMENDATION  #ll 
Modify  Measure  Of  Efficiency 
Finding:  The CPEPmeasuresthe efficiency of the carriers postpaymentactivities by means 
of the cost-benefit ratio of the prepayment and postpaymentareascombined  The CBR of the 
postpaymentareahashistorically beenfar less than that of the prepayment area. This is be
causepostpaymentis more labor-intensive than prepayment, and much of the benefit of the 
postpaymentprocessis in the form of deterrence,which is not easily quantified. 
Recommendation:  The HCFA should separatethe postpaymentand prepayment areasfor pur
posesof assessingthe efficiency of the postpaymentprocess. The minimum CBR acceptable 
for the postpayment areashould be reducedto a more practical level. Carriers should be given 
credit in the measurementprocessfor monies savedbeneficiaries asa result of their actions 
on assignmentviolations, and for caniers innovative approachesof detecting or deterring 
fraud or abuse. 
Imp&z  This will  provide a more accuratereflection of the benefits derived from the postpay
ment process,encouragecarriers to develop innovative review methods (possibly already 
being usedin their private business),and eliminate the pressureto concentrateresourceson 
the prepayment side due to the higher CBR of that area. 
HCFA  Comments:  Conceptually, this recommendation hasmerit.  We have beenexamining 
the prepayment and postpaymentareasvery closely for some time and will  continue to do so. 
However, our studiesreveal that it is a very complex and involved areawith no easy solutions. 
We would welcome any suggestionsthe OIG might haveon how best to equitably treat car
riers in the measurementprocess. We would also be interestedin any suggestionsthe OIG 
might haveon a minimum cost benefit ratio acceptablefor the postpaymentarea. 
RECOMMENDATION  #12 

Improve  Systems  For  Carrier/OiG  Feedback  And  Communications 

Finding:  Carriers were unevenin voicing concernor praiseregarding their relationship with 
OIG regional staffs. Some noted that OIG failed to acknowledgereceipt of casesof suspected 
fraud, and noted their needfor feedbackon status and disposition. 
23 
 Recommendation: The OIG should undertakea detailed examination of casecontrol systems 
and other processesinvolving carrier/OIG interaction and consider the needfor altering these 
systems/processetso improve communications. 
Impactz  Carriers, in general, would be more likely to refer cases,and to more closely follow 
soundinvestigative techniques,with the prior knowledge that the OIG would give periodic 
and timely feedbackon suchreferrals. 
OIG  Comments:  The OIG hasinitiated an internal review to addressthis issue. 
24