Department  of Health  and Human  Services 
OFFICE  OF 
INSPECTOR  GENERAL 
MONITORING  MEDICARE  CONTRACTOR

PERFORMANCE

A NEW  APPROACH 
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OEI-01-93-00160  OFFICE  OF INSPECTOR  GENERAL 
The  mission of the  Office of Inspector  General  (OIG),  as mandated  by Public  Law 95-452, as 
amended,  is to protect  the integrity  of the Department  of Health  and Human  Services (HHS) 
programs  as well as the  health  and welfare  of beneficiaries  served by those  programs.  This 
statuto~  mission  is carried  out  through  a nationwide  network  of audits,  investigations,  and 
inspections  conducted  by three  OIG  operating  components:  the  Office of Audit  Services,  the 
Office of Investigations,  and the  Office of Evaluation  and Inspections.  The  OIG  also informs 
the  Secretary  of HHS  of program  and management  problems  and recommends  courses  to 
correct  them. 
OFFICE  OF AUDIT  SERVICES 
The  OIGS  Office of Audit  Services (OAS)  provides  all auditing  services for HHS,  either  by 
conducting  audits with its own audit resources  or by overseeing  audit work done  by others. 
Audits  examine  the  performance  of HHS  programs  and/or  its grantees  and contractors  in 
carrying out  their  respective  responsibilities  and are intended  to provide  independent 
assessments  of HHS  programs  and operations  in order  to reduce  waste,  abuse,  and 
mismanagement  and to promote  economy  and efficiency throughout  the Department. 
OFFICE  OF INVESTIGATIONS 
The  OIGS  Office of Investigations  (01)  conducts  criminal, civil, and administrative 
investigations  of allegations  of wrongdoing  in HHS  programs  or to HHS  beneficiaries  and of 
unjust  enrichment  by providers.  The  investigative  efforts  of 01  lead to criminal  convictions, 
administrative  sanctions,  or civil money penalties.  The  01  also oversees  State  Medicaid  fraud 
control  units which investigate  and prosecute  fraud  and patient  abuse  in the  Medicaid  program. 
OFFICE  OF EVALUATION  AND INSPECTIONS 
The  OIGS Office of Evaluation  and Inspections  (OEI)  conducts  short-term  management  and 
program  evaluations  (called inspections)  that  focus on issues of concern  to the Department, 
the  Congress,  and the  public.  The findings  and recommendations  contained  in these  inspection 
reports  generate  rapid,  accurate,  and up-to-date  information  on the  efficiency, vulnerability, 
and effectiveness  of departmental  programs. 
This report  was prepared  under  the direction  of Mark  R. Yessian,  Ph.D.,  Regional  Inspector 
General,  and Martha  B. Kvaal, Deputy  Regional  Inspector  General,  Boston  Region.  Project 
staff included: 
BOSTONREGION  HEADQUARTERS 
Russell  W. Hereford,  Ph.D.,  ProjectLeader  Jennifer  Antico,  ProgramSpecialist 
For additional copies of this report,please contact the Boston Regional Ojfice 
by telephone at 617-565-1050or by fax at 617-565-3751.  Department  of Health  and Human  Services 
OFFICE  OF 
INSPECTOR  GENERAL 
MONITORING  MEDICARE  CONTRACTOR 
PERFORMANCE 
A NEW  APPROACH 
AUGUST  1995 
OEI-01-93-00160  EXECUTIVE  SUMMARY 
PURPOSE 
To  provide  an early,  preliminary  assessment  of the  new approach  that  the  Health  Care 
Financing  Administration  usedin  1994 toevaluate  Medicare  contractor  performance 
in medical  review  and  in fraud  and  abuse  activities. 
BACKGROUND 
The  Health  Care  Financing  Administration  (HCFA)  contracts  with  33 carriers  to 
process  Medicare  claims  for physicians  and  supplies,  and with  46 fiscal intermediaries 
to process  claims  for institutional  providers.  The  FY  1995 appropriation  for these 
contractors  is $1.6 billion.  In 1995, they  are  expected  to process  785 million  claims. 
In  1994 HCFA  instituted  a new approach  for reviewing  contractor  performance  in two 
important  areas  of payment  safeguards:  fraud  and  abuse,  and  medical  review.  This 
approach  had  two basic  features.  First,  the  review used  a qualitative  assessment  of 
contractor  performance,  rather  than  a standardized  numerical  scoring  system.  Second, 
HCFA  used  teams  comprised  of staff from  different  regional  offices to conduct  the 
reviews,  rather  than  rely on a single staff member  from  the  local  regional  office. 
Our  methodology  relies  on three  data  sources:  a review  of the  narrative  reports 
submitted  to contractors  following their  review;  interviews  with HCFA  staff from  five 
regional  offices  and  the  central  office;  and  interviews  with staff from  15 contractors, 
including  10 contractors  that  were  reviewed  under  the  new approach  and  5 that  were 
not  reviewed  using this approach. 
FINDINGS 
-Y  EXPERIENCE INDICATES THAT THE NEW APPROACH HAS IMPROVED HCFAS 
ABILITY TO ASSESS CONTRACTOR PERFORMANCE IN MEDICAL REVIEW AND IN 
FRAUD AND ABUSE. 
Z4e qualitative  assessment  used in the new approach gave HCFA  a way of gathering 
useful  information  that it had not obtained  before. 
.	 The  flexible  protocol  enabled  the  review team  to target  its inquiry  on areas  of 
each  contractors  performance  that  the  team  identified  as problematic. 
Examples  of problems  identified: 
no system  for prioritizing  fraud  cases 
. inadequate  data  analysis  system to identify  aberrant  billing  patterns 
- lack  of system  to evaluate  success of provider  corrective  actions 
i   Thenewapproach  encouraged  theretiew  teams  to identify  strengths  and 
weaknesses  that  cut across  different  operating  units  at individual  contractors. 
Examples  of strengths  identified: 
.  standardized  format  for referrals 
. fraud  unit  staff conducts  fraud  detection  training  for all contractor  staff 
Examples  of weaknesses  identified: 
. referral  of non-fraud  cases  to fraud  unit 
. inadequate  contractor  wide  training  on fraud  detection  and  prevention 
Using teams from  outside  the local regional office to conduct  the reviews enhanced  the 
review for  both HCFA  and contractors. 
.	 The  external  teams  brought  new information  about  contractor  operations  to 
both  HCFA  and  the  contractors. 
Information  brought  to HCFA 
. impact  of requirements  on contractor  operations 
.  central  office involvement  in contractor  assessment 
Information  brought  to contractors: 
.  improved  understanding  of HCFA  policies  and  expectations 
.  improved  ways of using data  systems 
  The  use  of external  teams  added  an element  of objectivity  to the  reviews. 
Contractor  perspectives  on objectivity: 
.  You are  more  challenged  to really walk  an outside  team  through  your 
processes,  to be  sure you explain  your  operation  to them. 
.  If  deal  with someone  daily, they  have  more  trouble  finding  fault. 
YOU 
If they  dont know us, theyre  not  so concerned  about  future 
dealings  with us. 
OUR  EARLY ASSESSMENT AMO  SUGGESTS THAT HCFA HAS NOT YET MADE FULL 
USE OF THE INFORMATION GATHERED IN THESE REVIEWS TO FURTHER 
CONTRMXORS  ABILITY TO SAFEGUARD MEDICARE PAYMENTS 
HCFA  regional staff  are using the written reports @om these reviews in their ongoing 
assessment  of contractor performance.  Howeve~  regional staff may not be taking jidl 
advantage  of these reports to provide  more effective  oversight of contractor activities. 
The written reports varied widely in four  significant  ways: 
Criteria  for imposing  corrective  action  plans;

Differing  interpretations  of similar  facts;

No prioritization  of recommendations;  and

Different  levels of detail  reported,

ii  In the course of the reviews, HCFA  gathered national  information  on effective  contractor 
practices,  as well as practices  to avoid.  Howeve~  the agency has not yet conveyed  this 
inforrnahonto contractors as a way of strengthening overall operation  of the Medicare 
program. 
RECOMMENDATIONS 
The  real  measure  of the  success  of this new approach  will be  determining  whether 
contractors  in the  years  ahead  are  doing  a better  job  of preventing  inappropriate 
payments  under  the  Medicare  program.  In order  to build  upon  the  process  initiated 
this past  year,  we recommend  that  HCFA  take  the  following  steps: 
THE HCFA  CENTRAL OFFICE SHOULD BE SURE TO OBTAIN INFORMATION FROM 
THE REGIONAL  OFFICES TO SEE HOW THEY ARE MONITORING  CONTRACIOR 
IMPROVEMENT PLANS THAT AROSE FROM THESE REVIEWS OF FRAUD AND ABUSE 
ACHWTIES  AND MEDICAL REVIEW. 
Obtaining  this information  is important  for three  reasons: 
HCFA  needs  to assess the  results  of this new approach  over  time; 
HCFA  should  have  a mechanism  for determining  how the  regional  offices  are 
accepting  findings  of reviews  conducted  by outside  teams;  and 
HCFA  should  have  a central  source  for assessing  the  practical  usefulness  of the 
reports. 
THE HCFA  SHOULD DEVELOP A GENERAL FORMAT FOR KEY INFORMATION TO BE 
CONTAINED  IN THE WRITTEN REPOR13. 
At a minimum,  we believe  that  this information  should  include: 
the  basis  for imposing  corrective  action  plans;

the  supporting  data  needed  to portray  accurately  the  results  of the  reviews;  and

prioritization  of recommendations  for improvement.

THE HCFA  SHOULD TAKE IMMEDIATE STEPS K)  PREPARE AN ANALYSIS OF 
EFFECIIVE PRACIKES,  AND PRACTICES TO AVOID, BASED ON FJNDINGS FROM THE 
1994 REVIEW PROCESS.  l_HEHCFA  SHOULD SHARE THESE ANALYSES WITH ALL 
FISCAL INTERMEDIARIES AND CARRIERS. 
The  HCFA  should  evaluate  the  success  of this effort,  perhaps  through  conducting  user 
feedback  surveys.  If the  approach  is meaningful  for the  contractors,  we would  urge 
HCFA  to continue  to conduct  and  share  similar  analyses  in the  future. 
COMMENTS  ON THE  DRAFT  REPORT 
We  sought  comments  on the  draft  report  from  HCFA  and  from  the  Assistant 
Secretary  for Planning  and  Evaluation  (ASPE).  The  HCFA  concurred  with  our 
... 
m  recommendations  and  summarized  steps  that  the  agency  is taking  to implement  those 
recommendations.  The  ASPE  also concurred  with our  recommendations,  but  offered 
no additional  comments.  We include  HCFAS full comments  as Appendix  A. 
In response  to our  first recommendation,  HCFA  indicates  that  regional  offices  are 
submitting  copies  of Contractor  Performance  Improvement  Plans  to the  central  office. 
Central  office  and  the  regions  are working  to develop  a mechanism  for continuous 
monitoring  of these  Performance  Improvement  Plans. 
In response  to our  second  recommendation,  HCFA  notes  that  it is providing  general 
guidelines  for review  teams  concerning  key information  to be  communicated  in written 
reports.  The  actual  report  format  will be determined  by the  review  teams,  as is 
currently  being  done  for the  national  review  in the  Medicare  Secondary  Payer  area. 
In response  to our  third  recommendation,  HCFA  states  that  it already  has 
disseminated  best  practices  to carriers  and  intermediaries, 
We appreciate HCFAs positive  response.  We would be pleased  to work with the agency 
in the future  to evaluate  the effectiveness  of its actions  in these areas. 
iv  INTRODUCTION
. 
PURPOSE 
To provide  an early,  preliminary  assessment  of the  new approach  that  the  Health  Care 
Financing  Administration  used  in 1994 to evaluate  Medicare  contractor  performance 
in medical  review  andin  fraud  and  abuse  activities. 
BACKGROUND 
The  Health  Care  Financing  Administration  (HCFA)  contracts  with 46 fiscal 
intermediaries  to process  claims  for institutional  providers,  and with  33 carriers  to 
process  claims  for physicians  and  supplies.  The  FY  1995 appropriation  for Medicare 
contractors  is $1.6 billion.  In 1995, these  contractors  are  expected  to process  nearly 
785 million  Medicare  claims.1 
Contractor  Performance  Evaluation  Prior  to  1994 
Historically,  HCFA  used  the  Contractor  Performance  Evaluation  Program  (CPEP)  to 
monitor  contractor  performance.  The  CPEP  used  a tightly defined  numerical  scoring 
system  on a wide  range  of performance  criteria. 2  Beginning  in FY  1993, HCFA 
began  to incorporate  some  major  changes  in CPEP.  These  changes  were  driven  in 
part  by budgetary  considerations.  More  significant,  however,  was dissatisfaction  with 
the  effectiveness  of the  annual  CPEP  review  process.  These  dissatisfactions  included: 
1)  Concerns  were  raised  that  CPEP  was not  measuring  the  most  important  aspects  of 
contractor  performance.  The  General  Accounting  Office  criticized  CPEP  because  it 
has focused  more  on process  rather  than  outcome.  Therefore,  CPEP  does  not 
sufficiently  emphasize  efforts  to save program  benefit  payments,  particularly  through 
its measurement  of the  effect  of payment  safeguards.3  For  example,  CPEP  assessed 
the  timeliness  of contractor  responses  to complaints,  or the  ability  of the  contractor  to 
process  claims within  mandated  time  frames. 
2)  Because  contractors  knew  exactly what  they were  being  measured  on, and  had 
even  helped  to develop  the  evaluation  protocol,  they managed  their  contracts  in a way 
that  would  maximize  their  score.  The  CPEP  did not  assess other  areas  of contractor 
performance. 
3)  The  potential  also existed  for regional  office  staff involved  in the  CPEP  reviews  to 
become  too  close to contractors,  threatening  their  objectivity.  For  example,  because 
the  regional  office  staff member  knew the  contractor  staff, he  or she might  not  be 
unbiased  when  it came  to reviewing  the  organization.  Or, the  regional  office  staff 
member  might  not  subject  the  contractor  to rigorous  scrutiny  because  of an 
assumption  that  the  contractor  would  continue  to perform  adequately,  as it had  done 
in the  past. 
1
 TABLE  OF  CONTENTS 
EXECUTIVE  SUMMARY 
INTRODUCHON.  . . . . . . . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..1

FINDINGS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 4 
HCFAsImproved  Abilityto  Assess Contractor  Performance  . . . . . . . . . . . . . . . .
 4 
Qualitative  assessment  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 4 
External  review  teams  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 6 
HCFANot  MakingFull  Useof  Information  . . . . . . . . . . . . . . . . . . . . . . . . . . ...9

Ongoingmonitoring  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...9

Variation  in written  reports..  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 10 
Effective  practices  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 12 
13 
RECOMMENDATIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Monitoring  Contractor  Improvements  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 13 
General  Format  for Written  Reports  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 14 
Analysis  of Effective  Practices  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 14 
16 
AGENCY  COMMENTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

APPENDIX  A  HCFAComments  on the Draft  Report  . . . . . . . . . . . . . . . . . ..A-1

APPENDIX  B:  Endnotes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  B-1
 HCFAS  New Approach  to Contractor  Performance  Review 
In  1994HCFA  instituted  asignificantly  retised  approach  for reviewing  contractor 
performance  in the  areas  of fraud  and  abuse  and  medical  review.  The  1994 CPEP 
was designed  to determine  the  degree  to which  contractors  are  ensuring  effective 
management  of these  program  areas  and whether  the  trust  funds  are  being 
protected.4 
This  new  approach  had  two fundamental  features: 
  Qualitative Assessment  of Contractor Pe~ormance 
The  new  approach  turned  from  a numeric  scoring  system  to a qualitative  assessment 
of contractors  strengths  and weaknesses.  The  review  considered  the  consequences  of 
any weaknesses  and-provided  recommendations  for improvement.  Rather  than 
provide  a single numeric  score  for the  contractor,  the  new review  process  produced  a 
written  narrative.  These  reviews  addressed  two areas  related  to safeguarding  the 
Medicare  Trust  Fund:  Contractors  detection  of fraud  and  abuse  and  their  medical 
review  practices. 
  External  Team Reviews 
Rather  than  rely on review  by a single staff member  from  the  local  regional  office, 
HCFA  used  re~iew teams  m~de  up-of  staff from  different  regions  to c&duct  the  1994 
reviews.  Each  review  team  comprised  at least  two of these  external  staff.  For  some 
reviews,  a third  individual  from  the  HCFA  central  office joined  the  team.  The  review 
team  communicated  its findings  in a report  directly  to the  contractor,  rather  than 
through  the  local  regional  office. 
The  HCFA  used  one  set of six teams  to examine  fraud  and  abuse  detection  for both 
intermediaries  and  carriers.  Another  set of four  teams  examined  medical  review  for 
intermediaries,  and  a different  set of four  teams  examined  medical  review  for  carriers. 
The  HCFA  teams  reviewed  34 contractors  for fraud  and  abuse  detection  (16 Part  A, 
18 Part  B), 20 for Part  A medical  review,  and  19 for Part  B medical  review.5 
METHODOLOGY 
Our  methodology  relied  on three  data  sources: 
First,  we reviewed  each  of HCFAS narrative  reports  submitted  to contractors 
following  their  review. 
Second,  we used  a semi-structured  guide  to interview  HCFA  staff from  the  central 
office  and  from  the  following five regional  offices:  Region  1 (Boston),  Region  3 
(Philadelphia),  Region  4 (Atlanta),  Region  5 (Chicago),  and  Region  6 (Dallas).  We 
selected  these  regions  after  reviewing  the  narrative  reports,  to provide  a distribution 
2
 among  the  regions  in terms  of their  participation  in the  review  process  and  the 
findings with  respect  to different  contractors. 
Third,  we used  a semi-structured  guide  to interview  staff from  the  following  15 
contractors.  We  selected  three  contractors  from  each  region,  two that  had  been 
reviewed  under  the  new approach  and  one  that  had  not.  We  chose  these  contractors 
based  on our  review  of the  narrative  reports  and  discussions  with the  HCFA  regional 
office  staffi 
Region  1:  Blue  Cross  and  Blue  Shield  of Massachusetts;  Blue  Cross  of Maine; 
MetraHealth,  Connecticut. 
Region  3:  Xact  Medicare  Services,  Pennsylvania;  Blue  Cross  of Virginia;  Blue  Cross 
of Maryland. 
Region  4:  Blue  Cross  of North  Carolina;  Blue  Shield  of Florida;  Blue  Cross  of 
Georgia. 
Region  5:  AdminaStar  Federal,  Indiana;  MetraHealth,  Minnesota;  Wisconsin 
Physician  Services. 
Region  6:  Blue  Cross  and  Blue  Shield  of Texas;  New Mexico  Blue  Cross;  Aetna  Life 
Insurance,  Oklahoma. 
AU told,  the  ten  contractors  that  had  been  reviewed  under  the  new approach  comprise 
six Part  A and  seven  Part  B contractors  (three  hold both  A & B contracts).  They 
received  reviews  as follows: five Part  A medical  review,  six Part  B medical  review,  four 
Part  A fraud  and  abuse;  and  six Part  B fraud  and  abuse.  The  five contractors  that  did 
not  participate  in the  1994 reviews  hold  three  Part  A contracts  and  two Part  B 
contracts. 
We  conducted  this study in accordance  with the  Quali~  Standards for Inspections 
issued  by the  Presidents  Council  on Integrity  and  Efficiency. 
.J  FINDINGS

EARLY  EXPERIENCE INDICATES THAT THE NEW APPROACH HAS IMPROVED HCFAS 
ABILITY TO ASSESS CONTRACIXIR PERFORMANCE IN MEDICAL REVIEW AND IN 
FRAUD AND ABUSE. 
Thequalitativeassessment usedinthenewapproachgaveHCFA a way of gathering 
usefidinforrnatk-mthatit had not obtainedbefore. 
We  compared  the  narrative  reports  submitted  by the  review  teams  for the  1994 review 
with the  1993 Reports  of Contractor  Performance  provided  by HCFA  for these  same 
52 contractors.  The  outcomes  of the  reports--the  strengths,  weaknesses,  and 
recommendations  for improvement  identified  in 1994 versus  the  numerical  scores 
issued  in 1993--provide  clear  evidence  that  the  new approach  gave  a greater  level  of 
information  about  contractor  performance  in fraud  and  abuse  and  medical  review. 
In  1994, the  review  teams  found  weaknesses  and  areas  for improvement  in every 
contractor  reviewed.  The  most  serious  problems,  requiring  contractors  to submit 
formal  corrective  action  plans  (CAPS) to their  regional  office, were  found  at 
contractors  in 22 out  of 73 reviews  conducted  (30 percent).  These  22 contractors 
included  14 that  had  received  perfect  scores  in the  prior  year. 
In 1993, in comparison,  28 of the  52 contractors  (54 percent)  reviewed  in  1994 had 
perfect  scores  of 100; 46 (88 percent)  contractors  received  a total  score  of 95 or 
higher,  and  only one  contractor  scored  below  90.  We recognize  that  the  actual  criteria 
on which  they were  judged  varied  between  the  two years.  However,  the  weaknesses 
found  in the  1994 review  provide  solid evidence  that  contractors,  which  had  been 
judged  to be  performing  at a high level in 1993, were  weak  in some  areas  in 1994. 
The  clear  implication  is that  the  1994 protocol  was more  sensitive  to contractor 
operations  in fraud  and  abuse  and/or  medical  review  than  the  1993 version. 
One  important  accomplishment  of the  1994 reviews was to provide  information  for 
HCFA  on how far  contractors  had  come,  and  how much  further  they  need  to go, to 
meet  HCFAS expectations  for performance  in fraud  and  abuse  and  in medical  review. 
A regional  HCFA  official  summarized  this issue when  he  said that,  The  old CPEP 
was a scorecard,  and  as long as you did what  the  protocol  dictated,  youd get  an A. 
With  this new approach,  we were  looking  at no matter  what  you were  doing,  how 
could  you do it better.  These  expectations,  and  the  focus of the  1994 reviews, 
addressed  issues  such as contractors  capacity  to: 
- develop  a strategy  for prioritizing  high cost, high incidence,  high dollar  claims. 
- conduct  large  scale  data  analysis  and  statistical  work  to identify  significant 
local  aberrances; 
4
 - establish  methods  to evaluate  contractors  success  in correcting  inappropriate 
provider  billing;  and 
- proactively  deter  fraud. 
	 The J?exibleprotocol  enabled  the review team  to target its inquiry on areas of each 
contractors pe~ormance  that the team  identified  as problematic. 
Our  interviews  with HCFA  and  contractor  staff confirmed  that  the  1994 protocols 
provided  HCFA  with information  that  was more  useful  for contractor  evaluation.  The 
new evaluation  protocols  did not  use a scoring  system, but  focused  on identifying 
strengths  and  weaknesses,  with recommendations  for improvement.  A key feature  of 
the  protocols  was the  intention  to let the  review team  delve  into  areas  that  the  team 
identified  as important  while  they were  on site at the  contractor.  The  highlighted 
examples,  typical  of those  we heard  from  several  participants,  show that  these 
protocols  seem  to have  accomplished  those  goals. 
Contractors  we interviewed,  both  those  who had  been  reviewed  and  those  who had 
not  been  reviewed,  saw this new approach  as a positive  step.  Several  contractors  used 
the  term  trivia to describe  the  measures  in the  prior  review.  One  contractor  staff 
member  summarized  the  positive  benefit  of the  changes  as follows:  We are  no longer 
worrying  about  timelines--arguing  over whether  a letter  was answered  in 30 days or 31 
days--but  on whether  we are  doing what  we should,  like referring  good  cases  to OIG. 
	 Xhe new approach  encouraged  the review teams  to identify strengths and 
weaknesses  that cut across different  operating units at individual  contractors. 
The  new approach  focused  on the  processes  that  contractors  use to carry  out  their 
work.  Areas  of inquiry  included  the way that  different  operating  units  interact  with 
each  other,  the  flow of information  across  units,  and  the  entire  organizations 
commitment  to payment  safeguards.  To  obtain  this information,  review  teams 
assessed  how other  operating  units  of the  contractor  interacted  with the  one  under 
review.  One  review  team  member  capsulized  how this process  worked.  We had  a lot more 
leeway  in conducting  reviews.  Rather  than  just  talk  to the  manager  or the  fraud  staff, 
we interviewed  everyone  in the  fraud  unit,  plus people  in other  units--medical  review, 
claims  processing,  even  the  receptionists.  In the  past  wed found  a lack  of 
communication  between  fraud  and  abuse  and  other  units;  now we could  factor  that  in 
to the  report. 
Through  these  intemiews,  the  teams  were  able  to identify  issues  of concern  that  went 
beyond  the  specific  area  at hand.  Examples  from  four  reviews  illustrate  these  points. 
Uiingteamsfrom outsidethe kxal regiimalo~e  to conductthe reviewsenhancedthe 
reviewfor both HCFA and contractor 
	 The external teams  brought new information  about  contractor operations  to both 
HCFA  and the contractors. 
Information  brought  to HCFA 
The  HCFA  received  new information  from  these  reviews  in three  principal  ways.

First,  HCFA  central  office staff participated  on the  review  teams.  In 32 of the  73

reviews  (44 percent),  central  office staff were  members  of the  review  teams.  For  the

regional  office  staff, the  benefit  of this participation  was best  characterized  by the  staff

member  who  said that,  It would  have  been  beneficial  if we had  fully experienced

people  from  central  on eve~  review--not  so much  for conducting  the  review,  but  for

6  training  them  so that  central  office understands  that  there  are  multiple  ways to do 
something.  A central  office staff person  verified  this when  she said that  Instructions 
for performance  originate  in Baltimore,  and  it was good  for us to see  how things  work 
out  there  where  they  really  hit the  road. 
Second,  office  staff from  other  regional  offices learned  how their  counterparts 
elsewhere  operated  and  the  impact  of their  policies.  The  benefit  of this cross-
fertilization  was best  characterized  by the  contractor  who told  us, Sharing  best 
practices  from  the  other  regions  prompted  our  local regional  office to look  at things 
differently  as well.  Im sure  that  regional  offices exchange  information  at some  level, 
but  the  team  review  gave them  a very specific framework  to do this. 
Third,  HCFA  staff received  input  from  the  contractors  regarding  problems  that  they 
faced  with HCFA  and  suggestions  for improvement.  This input  was most  formal  in 
the  reviews  conducted  for Part  B medical  review, where  the  narrative  reports  included 
the  carriers  recommendations  for HCFA.  Every  carrier  reviewed  in this area  had 
some  recommendations  for HCFA.  This  section  was not  included  in the  reports  for 
Part  A medical  review,  nor  for the  fraud  and  abuse  reviews. 
A typical  contractor  comment  about  this opportunity  was, The open  discussion  helped 
us.  We were  able  to bring  issues to light to them  to communicate  with  central  office. 
Our  manual  has  changed  so much  over the  last three  years  that  this was a good 
discussion. 
Information  brou~ht  to contractors 
Contractors  received  new information  through  two primary  mechanisms.  First,  the

process  brought  contractors  a better  understanding  of HCFA  policies  and

expectations.  These  policies  had  been  conveyed  in contractor  manuals,  but  the

reviews  reinforced  HCFAS emphasis  cm specific  items,  such as fraud  prevention  and

detection.  The  importance  of the  external  review  teams  in conveying  this message  was

best  characterized  by the  regional  official who told  us that,  The review  team  and  this

approach  really were  instrumental  in giving a wake  up alarm  that  these  problems  were

not just  local  regional  office concerns,  but  HCFA  speaking  from  a national

perspective.

7
 Second,  contractors  found  it particularly  beneficial  to learn  more  about  how others 
dealt  with  similar  problems.  Several  people  we interviewed  considered  this to be  the 
strongest  benefit  of using the  external  teams. 
  The use of external teams  added  an element  of objectivity to the reviews. 
In our  interviews,  contractors  and  HCFA  staff identified  three  ways in which  the  use 
of external  teams  added  objectivity  to the  review  process.  First,  all agreed  that  the 
external  teams  placed  some  new demands  on the  contractors.  One  HCFA  staff 
member  explained  this as, They didnt know us and we didnt know them.  So they 
had  to  show us something  new, not  the  same  old thing  that  they would  dust  off for the 
regional  office  reviewers.  One  aspect  of this fresh  look was that  in most  cases  the 
review  teams  went  to the  contractors  with no advance  contact  with the  local  HCFA 
regional  office.  Although  this lack of contact  may have  meant  that  the  team  was not 
fully informed  on local  issues, those  we spoke  with thought  that  this lack of contact 
didnt  really  matter.  If there  was a problem  we found  it in our  review,  and  didnt  need 
someone  to point  it out  ahead  of time. 
Second,  contractors  felt the  need  to justify and  explain  their  operations  to the  new 
team--and  to themselves--as  part  of this process.  One  contractor  explained  this as 
follows: If you deal  with  someone  on a daily basis, they may have  trouble  coming  in 
and  finding  fault.  If they  dont know us, they  can be  more  objective,  not  as concerned 
about  our  feelings  or their  future  dealings  with us.  Another  contractor  told  us that 
The regional  office is good,  because  you know them;  but  with an outside  team,  you 
are  more  challenged  to really walk them  through  your  processes,  to be  sure  you 
explain  them. 
8
 Finally,  the  use  of teams  themselves  appears  to have  brought  a sense  of balance  to the 
review.  One  contractor  characterized  this as, Each  regional  office has its strengths 
and weaknesses;  each  team  brings  different  perspective.  Another  noted  that,  YOU 
can run  into  problems  in the  individual  philosophies  of different  reviewers  that  may 
disagree  with  us.  Teams  tend  to overcome  that  perspective,  because  the  group  tends 
to moderate  the  extremes. 
The  potential  exists that  external  reviewers  might  not be  knowledgeable  about  unique 
local  situations  affecting  contractors.  However,  our  intemiews  with contractors 
suggested  that  this was not  the  case.  One  contractor  explained  that  The team  did not 
have  all of our  history,  but  that  wasnt a problem.  Youd  probably  have  to walk the 
local  regional  office team  through  the  process  also to bring  them  up to speed. 
Another  told  us, We had  an initial  concern  about  the  external  teams.  But  they were 
up to speed.  This was clear  once  we found  that  they wanted  to talk  rather  than  just 
lock themselves  in a room  with documents!  They  talked,  listened,  were  very  open.  If 
there  was a question,  we could  explain  it to them. 
OUR  EARLY ASSESSMENT ALSO SUGGESTS THAT HCFA HAS NOT YET MADE FULL 
USE OF THE INFORMATION GATHERED IN THESE REVIEWS TO FURTHER 
CONTRACTORS ABILITY TO SAFEGUARD  MEDICARE PAYMENTS. 
HCFA regionalstaffareusingthewrittenreportsfrom thesereviewsintheirongoing 
assessmentof contractorperfomumce. Howeveq regonalstaflmay not be takzkg@l 
advantageof theserepr@ toprovidemoreejfectiveovernighotf contractoractivitkx 
After  issuing its written  report,  the  review  teams  role  in contractor  monitoring  ended. 
When  it had  recommended  a corrective  action  plan  (CAP),  review  team  members 
received  a copy of the  contractors  response.  But  approval  of the  CAP  and  oversight 
of its implementation  are  the  responsibility  of the  contractors  local  regional  office.  In 
reviews  in which  the  team  did not impose  a CAP,  even  if other  weaknesses  were 
identified,  no  specific  action  is required  of the  regional  office. 
The  written  reports  contain  a substantial  amount  of information  that  would  be  useful 
to a regional  office  in its ongoing  monitoring  of contractor  performance--whether  or 
not  a formal  corrective  action  plan  was required.  Our  interviews  with  HCFA  staff 
indicated  that  the  way in which the  reports  are  actually  used  to monitor  contractors  is 
up to the  individual  regional  offices.  The  HCFA  central  office  has apparently  adopted 
a hands-off  approach.  As individuals  there  told  us, We dont  know how the  follow-up 
worked.  Its up to the  home  region  to do and we havent  done  any real  follow-up  with 
them.  Contractor  evaluation  is really  their  job. 
9
 The  contractors  we interviewed  shared  different  experiences  with follow-up. 
One  apparent  reason  for this inconsistency  is that  the  primary  audience  for these 
reports  is not  clear.  According  to those  we interviewed,  at HCFA  and  the  contractors, 
the  primary  audience  for the  report  was not the  regional  office.  During  the  course  of 
our  interviews,  we asked  individuals  from  the  regional  offices, central  office,  and 
contractors  who they thought  was the  focus of the  written  rep~rts.  Four  responded 
that  the  primary  audience  was the  HCFA  central  office, while nine  said that  the 
audience  was the  contractor.  None  indicated  that  the  primary  audience  was the 
regional  office.  We  recognize  that  this is not  a statistically  valid  sample,  but  believe 
that  it does  provide  a strong  indication  that  those  involved  did not  really  view these 
reports  as a way of enhancing  contractor  monitoring  by the  local  regional  office. 
The writtenreportsvariedwiddj infour significant 
  Cnteriafor  imposing corrective action plans 
The  criteria  for imposing  a formal  corrective  action  plan  were  not  clear.  A review 
team  could  require  a CAP  if it determined  that  the  contractor  did not  comply  with the 
requirements  of the  Medicare  manual.  In some  reports,  the  findings were  tied  directly 
to individual  sections  of the  manual;  in other  reports,  the  findings were  more  broadly 
constructed,  along  with details  about  how the  team  thought  the  contractor  should 
come  into  compliance  with the  manual.  At still other  contractors,  it was not  even 
clear  from  reading  the  report  whether  a formal  CAP was required,  or whether  the 
10  team  was merely  identifying  weaknesses  and  making  recommendations  for 
improvement. 
It is also worth  noting  that  the  teams  reviewing  focused  medical  review  at fiscal 
intermediaries  were  much  more  likely to impose  CAPS, doing  so on at least  15 of the 
20 intermediaries  reviewed.  In contrast,  the  review  teams  required  a CAP  for only 4 
of 19 carriers  in medical  review,  and  2 of 16 intermediaries  and  1 of 18 carriers  in 
fraud  and  abuse. 
  Differing interpretations  of similar facts 
We  found  instances  in which  differing  interpretations  were  attached  to similar 
situations,  impacting  on recommendations,  strengths  and weaknesses.  The  following 
boxes  provide  examples  of two such apparent  conflicts. 
  No prioritization  of recommendations 
The  reports  did not  indicate  which recommendations  offered  to contractors  were  the 
most  important.  The  reports  listed  recommendations  for improvement  or corrective 
actions  in the  sequence  in which they  had  appeared  in the  written  report.  In fact,  it 
appears  that  some  weaknesses  are  more  consequential  than  others  and  probably 
should  be  corrected  first, whereas  others  appear  to be  less significant. 
  Different  levels of detail reported 
The  reports  varied  among  teams  in the  detail  that  was provided.  For  example,  when 
describing  a contractors  data  analysis capabilities,  some  reports  described  only the 
software  that  the  contractor  used  in a brief  paragraph.  Other  teams  provided 
11
 extensive  information  on the  type  of hardware,  software,  reports  issued,  and  how the 
data  were  analyzed.  We  raise  this as a concern  because  it reflects  on the  audience  for 
these  reports.  The  contractor  will already  know this information;  the  level  of detail 
may be  more  than  HCFA  central  office needs  (unless  some  type  of standardization  is 
being  considered);  and  the  regional  office is likely to already  be  familiar  with the 
contractor. 
In the come  of the rmews,HCFA gatherednutionalreformationon #ective  contractor 
practices,aswellaspracticesto avoid  Howeve~ theagencyhasnotyet conveyedthk 
informationto contractoras a wayof strengtheninogveraUoperationof the Medicare 
program 
Nine  of the  fifteen  contractors  we interviewed  told  us that  they wanted  information  on 
effective  practices  of other  contractors  that  HCFA  learned  from  the  reviews.  These 
contractors  told  us this in unsolicited  discussion,  i.e., not  in response  to a particular 
question  we asked. 
The  interest  in this information  was particularly  noticeable  among  the  contractors  we 
interviewed  that  had  not been  reviewed  under  the  new approach.  All five of those  we 
spoke  with  requested  this information.  But four  of the  ten  contractors  that  were 
reviewed  also wanted  to receive  such information. 
Four  of these  contractors  told  us that  they had  received  from  HCFA  a general  listing 
of strengths  and  weaknesses  in fraud  and  abuse  at a December  1994 meeting  of 
contractors.  Even  those  contractors  who did obtain  that  summary  told  us that  they 
wanted  a more  formalized  analysis  of what  the  1994 reviews  showed  to be  effective 
practices  and  practices  to avoid.  They  indicated  that  they would  use the  material  to 
examine  ways of improving  their  own operations. 
12
 RECOMMENDATIONS

We  recognize  that  this  approach  marked  a new  direction  for  HCFA.  This  new

approach  clearly  involved  a learning  curve--for  the  reviewers,  for  the  contractors,  and

for  HCFA  administrators.  We  also  recognize  that  the  subjective  nature  of the  reviews

leaves  substantial  discretion  to  the  individual  review  teams.  By its nature  as  an

evolving  process,  the  HCFA  staff  learned  lessons  as they  pursued  the  reviews,

including  development  of additional  questions  to  guide  the  review  and  their

subsequent  reflection  in the  report.

The  real  measure  of the  success  of this new approach  will be  determining  whether 
contractors  in the  years  ahead  are  doing  a better  job  of preventing  inappropriate 
payments  under  the  Medicare  program. 
In order  to build  upon  the  process  initiated  in 1994, we believe  that  HCFA  could 
strengthen  that  process  and  its intended  outcomes  through  the  following  steps: 
THE HCFA CENTRAL OFFICE SHOULD BE SURE TO OBTAIN INFORMATION FROM 
THE REGIONAL  OFFICES X)  SEE HOW THEY ARE MONITORING  CONTRACTOR 
IMPROVEMENT PLANS THAT AROSE FROM THESE REVIEWS OF FRAUD AND ABUSE 
ACIWITEH  AND MEDICAL REWEW. 
We  recognize  that  contractor  evaluation  and  monitoring  remain  the  primary  purview 
of the  regional  offices.  At the  same  time,  we believe  that  it behooves  the  agency  to 
continue  to have  central  knowledge  about  contractors  progress  in implementing 
corrective  actions  and  recommendations  made  by the  review  teams.  We  believe  that 
obtaining  this information  is important  for three  reasons. 
First,  because  this was a dramatically  new approach  to contractor  evaluation,  HCFA 
needs  to assess its impact  over  time.  Because  this evaluative  approach  was designed 
to change  contractor  behavior  and  improve  their  performance,  HCFA  needs  to know 
how and  to what  extent  the  new approach  has been  successful  in achieving  these  goals. 
Second,  the  regional  offices were  not  involved  in reviewing  contractors  within  their 
own region.  To  the  extent  that  the  regional  office  staff may feel  somewhat 
disenfranchised  or left  out  of these  reviews,  it is important  that  HCFA  have  some 
mechanism  to determine  whether  the  regional  offices have  accepted  the  findings  of the 
reviews,  particularly  when  the  reviews were  done  by teams  from  outside  of the  region. 
Third,  as we note  in our findings,  there  appear  to be  different  ways of approaching 
and  using the  reports  among  the  regions.  To be  sure  that  the  goals  of this review  are 
realized,  HCFA  needs  to have  some  central  source  for assessing  the  practical 
usefulness  of the  reports. 
13
 - HCFA SHOULD PROVIDE GUIDANCE FOR REVIEW TEAMS REGARDING  KEY 
INFORMATION TO BE CONTAINED IN THE WRITTEN REPORIS. 
In our  findings,  we note  that  there  are  discrepancies  in the  format  and  supporting  data 
contained  in the  written  reports.  At a minimum,  we believe  that  this information 
should  include: 
  the  basis  for  imposing  corrective  action  plans; 
  the  supporting  data  needed  to portray  accurately  the  results  of the  reviews;  and 
.  prioritization  of recommendations  for improvement. 
We believe  that  HCFA  should  ensure  that  the  reports  contain  this minimum 
information  for two important  reasons. 
First,  having  this information  will let the  agency  compare  and  understand  performance 
from  a broad  national  perspective.  Even  though  HCFA  is no longer  ranking 
contractors,  the  agency  still needs  to have  information  that  lets it assess performance 
across  the  different  organizations  with which it contracts. 
Second,  having  a solid base  of information  would  be  particularly  important  in the 
event  that  the  agency  must  take  adverse  action  against  a contractor.  The  HCFA 
needs  to be  sure  that  the  evaluation  of that  contractor  will stand  up under  scrutiny. 
In developing  a format  for this information,  we urge  HCFA  to be  cautious  not  to lose 
the  vibrancy  and  creativity  contained  in the  team  reviews.  The  ability  of the  teams  to 
identi~  important  issues  at each  contractor,  and  to examine  different  levels  and  depths 
of information  is one  of the  significant  benefits  of the  new approach. 
~  HCFA SHOULD TAKE IMMEDIATE STEPS TO PREPARE AN ANALYSIS OF 
EFFECTIVE PRACIKES,  AND PRACIICES TO AVOID, BASED ON FINDINGS FROM THE 
1994 REVIEW PROCESS. ~  HCFA SHOULD SHARE THESE ANALYSES WITH ALL 
FISCAL mrmRMEDrARIEs AND CARRIERS. 
In the  spirit  of continuous  quality  improvement,  HCFA  could  help  all contractors  meet 
its expectations  for performance  in fraud  and  abuse  and  in medical  review.  We  found 
a strong  demand  for this type  of information  among  contractors,  to help  strengthen 
their  practices  and  to help  them  avoid  reinventing  the wheel.  By providing 
information  on practices  that  are  successful  in achieving  these  outcomes,  HCFA  would 
benefit  the  contractors,  while  also helping  to safeguard  the  Medicare  trust  funds. 
To be  effective  and  useful,  this product  must  be more  than just  a listing of what 
individual  teams  found  on site.  The  analysis  needs  to be  a short  term,  but  thorough, 
appraisal  of what  actions  and  approaches  work,  their  potential  to achieve  program 
goals, ways of measuring  success, and  other  pertinent  information.  This  review  would 
14
 result  in HCFAS constructive  assessment  of what  contractors  should  be  doing  to 
safeguard  Medicare  payments. 
We  urge that  HCFA  evaluate  the  success  of this effort,  perhaps  through  conducting 
surveys to gain feedback  from  the  contractors  who receive  this information.  If the 
approach  is successful  and  meaningful  for the  contractors,  we would  urge  HCFA  to 
continue  to conduct  and  share  similar  analyses  in the  future.  AGENCY  COMMENTS

We  sought  comments  on the  draft  report  from  HCFA  and  from  the  Assistant 
Secretary  for Planning  and  Evaluation  (ASPE).  The  HCFA  concurred  with  our 
recommendations  and  summarized  steps  that  the  agency  is taking  to implement  those 
recommendations.  The  ASPE  also concurred  with our  recommendations,  but  offered 
no additional  comments.  We  include  HCFAS full comments  as Appendix  A. 
In response  to our  first recommendation,  HCFA  indicates  that  regional  offices  are 
submitting  copies  of Contractor  Performance  Improvement  Plans  to the  central  office. 
Central  office  and  the  regions  are working  to develop  a mechanism  for continuous 
monitoring  of these  Performance  Improvement  Plans. 
In response  to our  second  recommendation,  HCFA  notes  that  it is providing  general 
guidelines  for review  teams  concerning  key information  to be  communicated  in written 
reports.  The  actual  report  format  will be  determined  by the  review  teams,  as is 
currently  being  done  for the  national  review  in the  Medicare  Secondary  Payer  area. 
In response  to our  third  recommendation,  HCFA  states  that  it already  has 
disseminated  best  practices  to carriers  and  intermediaries. 
We appreciate HCFAs positive  response.  We would be pleased  to work with the agency 
in the jhture  to evaluate  the effectiveness  of its actions in these areas. 
16
 APPENDIX  A 
HCFA COMMENTS  ON DRAFIREPORT 
A-1  *.+, * $:AVC,.,,J 
:   DEPARTMENT  OF HEALTH & HUMAN  SERVICES  Health  Care  Financing  Adminlstratlon

.

-=

-0  #
+
%%> d,a The Administrator 
Washington,  D.C.  20201 
DATE  JIJL  29  1995 
FROM	 Bruce  Vladeck.. 
Administrator 
SUBJECT	 office  of Inspector  General  Draft  Report  Monitoring  Medicare 
Contractor  Performance:  A  New  Approach,  (OEI-01-93-O0160) 
TO	 June  Gibbs  Brown 
Inspector  General 
This  draft  report  institutes  a new  approach  for reviewing  contractor  performance  in two 
areas  of payment  safeguards:  medical  review  and  fraud  and  abuse  activities. 
We concur  with  the  report  recommendations.  Our  specific  comments  are  attached. 
Thank  you for  the  opportunity  to  review  and  comment  on this  report. 
Attachment 
A-2
 Health  Care  Financin~  Administration  (HCFA)  Comments  on 
Office  of  Inspector  General  Draft  Report:  Monitoring  Medicare 
Contractor  Performance: 
A New Approach,  (OEI-01-93-00160) 
Recommendation  1 
HCFA  Central  Office  (CO)  should  be sure  to obtain  information  from  the  regional 
offices  (RO)  to see  how they  are  monitoring  contractor  improvement  plans  that  arose 
from  these  reviews  of fraud  and  abuse  activities  and  medical  review. 
,, 
HCFA  Res~onse 
We concur.  Currently,  submitting  copies  of their  Contractor  Performance 
ROS  are 
Improvement  Plans  and  CO will be  working  with the  regions  to develop  a mechanism  for 
continuous  monitoring  of the  Performance  Improvement  Plans. 
OIG  Recommendation  2 
HCFA  should  provide  guidance  for review  teams  regarding  key information  to be 
contained  in the  written  reports. 
HCFA  Response 
We concur.  HCFA  wdl  provide  general  guidelines  for review  teams  concerning  key 
information  to be  communicated  in written  reports.  However,  the  review  teams  will 
determine  their  own formats  for the  reports.  This  is currently  being  done  for  the 
natiohal  review  of the  Medicare  Secondary  Payer  area. 
OIG  Recommendation  3 
HCFA  should  take  immediate  steps  to prepare  an analysis  of effective  practices  and 
practices  to avoid  based  on findings  from  the  1994 review  process.  HCFA  should  share 
these  analyses  with  all fiscal  intermediaries  and carriers. 
HCFA  Response 
We concur.  HCFA  has  already  disseminated  best  practices  to all carriers  and 
intermediaries.  The  fraud  and  abuse  best  practices  were  shared  during  the  1994 
national  meeting.  In FebmaV  1995, the  medical  review  best  practices  was distributed 
to all Medicare  contractors.  We  have  not  gathered  information  on practices  to avoid. 
A-3
 APPENDIX  B

ENDNOTES

1.  Conference  Report  103-73, to accompany  H.R.  4606; Public  Law  103-333. 
2.  The  standards  and  criteria  on which  contractors  are  evaluated  are  published 
annually  in the Federal Re@ter. 
3.  U.S. General  Accounting  Office, Medicare:  HCFAs  Contacting Authori~  for 
Processing Medicare  Claims,  GAO/HEHS-94-171,  2 August,  1994,  p.  7. 
4.  Letter  to  All  Medicare  Contractors,  from  Carol  J. Walton,  Director,  HCFA  Bureau 
of Program  Operations,  May  20,  1994. 
5.  Of the  79 Medicare  contractors,  52 were  actually  reviewed  using the  new approach. 
These  comprised  28 intermediaries  and  24 carriers.  Eight  intermediaries  and  carriers 
were  units  of single overall  organization,  eg, a Blue  Cross-Blue  Shield  plan  that  held  a 
contract  for both  Parts  A and  B. 
The  HCFA  teams  conducted  a total  of 73 reviews.  The  teams  reviewed  20 
intermediaries  in only 1 area,  and  8 in both  areas.  The  teams  reviewed  11 carriers  in 
only 1 area,  and  13 in both  areas. 
B-1