Background

CMS, within the Department of Health and Human Services (HHS),  provides operational direction and policy guidance for the nationwide  administration of the Medicare program. It contracts with private  organizations—called carriers and fiscal intermediaries—to process and  pay claims from Medicare providers and perform related administrative  functions. Twenty-three carriers nationwide make claims payments for  physician services, which are covered under part B of Medicare. In  addition, carriers are responsible for implementing controls to safeguard  program dollars and providing information services to beneficiaries and  providers. To ensure appropriate payment, they conduct claims reviews  that determine, for example, whether the services physicians have claimed  are covered by Medicare, are reasonable and necessary, and have been  billed with the proper codes.
Carriers employ a variety of review mechanisms. Automated checks,  applied to all claims, are designed to detect missing information, services  that do not correspond to a beneficiary’s diagnosis, or other obvious  errors. They may also be used to determine if a claim meets other specific  requirements, including national or local coverage policies (such as  allowing only one office visit for an eye examination per beneficiary per  year unless medical necessity is documented). Manual reviews by carrier  staff are used when the review of a claim cannot be automated to  determine if sufficient information has been included to support the claim.  In the most thorough type of manual claims review, a carrier’s clinically  trained personnel perform a medical review, which involves an  examination of the claim along with the patient’s medical record,  submitted by the physician, to determine compliance with all billing  requirements.
Typically, carriers conduct medical reviews on claims before they are  paid, by suspending payment pending further examination of the claim.  Prepayment medical reviews help to ensure that a carrier is making  appropriate payment decisions while the claims are processed, rather than  later trying to collect payments made in error. To target such reviews,  carriers develop “edits”—specific criteria used to identify services that the  carrier determines to have a high probability of being billed in error.  Carriers develop these edits based on data analyses that include  comparisons of local and national billing patterns to identify services  billed locally at substantially higher rates than the national norm. Carriers  may also develop edits for prepayment medical review based on other  factors, such as CMS directives or individual physicians or group practices  the carrier has flagged for review based on their billing histories. Before  putting edits into effect, CMS expects the carriers to conduct targeted  medical reviews on a small sample of claims in order to validate that the  billing problem identified by the carrier’s data analysis or other sources  does actually exist.
In addition to prepayment medical reviews, carriers conduct some medical  reviews after claims are paid. Postpayment reviews determine if claims  were paid in error and the amounts that may need to be returned to the  Medicare program. They focus on the claims of individual physicians or  group practices that have atypical billing patterns as determined by data  analysis. Such analyses may include comparisons of paid claims for  particular services to identify physicians who routinely billed at rates  higher than their peers. Carriers may also select claims for postpayment  review based on other factors, such as information derived from  prepayment reviews, referrals from other carrier units, and complaints  from beneficiaries. In rare cases, postpayment reviews may result in  referrals to carrier fraud units.
Each year, as part of their budget negotiations with CMS, carriers develop  medical review strategies that include workload goals for conducting  medical reviews. CMS provides each carrier with an overall budget for  claims review. The carriers then submit for CMS approval their workload  goals for specific activities, such as the number of prepayment and  postpayment medical reviews they plan to conduct, along with proposed  budgets and staff allocations across these activities. In addition, the  carriers submit budget proposals for provider education and training  related to issues identified in medical review. CMS requires the carriers to  reassess the allocation of these resources among review and educational  activities during the course of the year and, with CMS approval, to shift  resources as appropriate to deal with changing circumstances.

	Few Physician Practices and Few Claims Per Practice Receive Medical Reviews

In estimating the prevalence of medical reviews, data from the three  carriers in our study show that more than 90 percent of physician  practices—including individual physicians, groups, and clinics—did not  have any of their claims selected for medical review in fiscal year 2001,  and for those that did, relatively few claims were subject to review.
A small proportion of physician practices served by the three carriers had  any claims medically reviewed during fiscal year 2001. Table 1 shows that  about 10 percent of the solo and group practices that filed claims with  WPS had any prepayment medical reviews. This proportion was even  lower at HealthNow NY and NHIC California, with rates of about   4 and 7 percent, respectively. The share of physician practices with  postpayment reviews by any of these carriers was much smaller;  approximately one tenth of 1 percent of practices had claims selected for  medical review after payment had been made.
Further, for most of the physician practices having any claims subject to  medical review in fiscal year 2001, the carriers examined relatively few  claims. As shown in table 2, over 80 percent of the practices at each carrier  whose claims received a prepayment review had 10 or fewer claims  examined and about half had only 1 or 2 claims reviewed.
For the small number of physician practices whose claims were subject to  postpayment review in fiscal year 2001, the three carriers typically  examined more claims per practice. At NHIC California, the median  physician practice had 33 claims reviewed postpayment; at WPS, 49; and at  HealthNow NY, 31.

	New CMS Review Policy Has Reduced Physician Repayment Amounts Due and Increased Focus on Physician Education

With the issuance of the PCA initiative, CMS modified the approach that  carriers use to select physicians’ claims for medical review, determine  repayments due, and prevent future billing errors. PCA directs carriers to  (1) use their analyses of physician billing patterns to better focus their  medical review efforts towards claims with the greatest risk of  inappropriate payments, and (2) provide targeted education regarding how  to correct billing errors. Information from our three carriers indicates that,  as a result of PCA, they virtually eliminated in fiscal year 2001 their use of  extrapolation, a corrective action that involves projecting a potential  overpayment from a statistical sample. A recent CMS survey also showed  reduced use of extrapolation by other carriers. After PCA was  implemented, the highest repayment amounts each of our three carriers  assessed physicians were substantially lower than in the previous year.  The carriers have also developed medical review strategies that include  increased education for individual physicians in an effort to change billing  behavior and, thus, prevent incorrect payments.

		CMS Policy Matches Corrective Actions to Level of the Physician’s Billing Problems

PCA seeks to more effectively select physician claims for medical review.  The initiative aims to further the agency’s program integrity goals of  making sure that claims are paid correctly and billing errors are reduced  while carriers maintain a level of medical review consistent with their  workload agreements with CMS. In targeting physician claims, PCA  requires that carriers subject physicians only to the amount of medical  review necessary to address the level and type of billing error identified. If  claims data analysis shows a potential billing problem for a particular  service, carriers must first conduct a “probe review”—requesting and  examining medical records from a physician for a limited sample of  claims—to validate suspicions of improper billing or payment. For  example, a carrier may initiate a postpayment probe review after  discovering that a physician billed, per patient, substantially more services  than his or her peers. If the carrier determines that the documentation in  the medical records does not support the type or level of services that was  billed, the carrier calculates an error rate—the dollar amounts paid in  error relative to the dollar amount of services reviewed. The error rate, the  dollar value of the errors, and the physician’s past billing history are  among the factors the carrier may consider in assessing the level of the  billing errors and determining the appropriate response.
Under PCA, CMS instructs carriers to categorize the severity of billing  errors found in probe samples into three levels of concern—minor,  moderate, or major. Minor concerns may include cases with a low error  rate, small amounts improperly paid, and no physician history of billing  problems. Moderate concerns include cases that have a low error rate but  substantial amounts improperly paid. Major concerns are cases with a very  high error rate, or even a moderate error rate if the carrier had previously  provided education to the physician concerning the same type of billing  errors. Although no numerical thresholds were established in the  instructions to carriers, CMS provided vignettes illustrating the various  levels of concern. In an example of a major concern, 50 percent of the  claims in a probe sample were denied, representing 50 percent of the  dollar amount of the claims reviewed.
PCA allows carriers flexibility in determining the most appropriate  corrective action corresponding to the level of concern identified. At a  minimum, the carrier will communicate directly with the provider to  correct improper billing practices. For probe reviews that are conducted  postpayment—the stage at which probe reviews are most commonly done  at the three carriers we visited—they must also take steps to recover  payment on claims identified as having errors. Further options for  corrective action include:  for minor concerns, conducting further claims analysis at a later date to  ensure the problem was corrected;  for moderate concerns, initiating prepayment medical review for a  percentage of the physician’s claims until the physician demonstrates  compliance with billing procedures; and  for major concerns, initiating prepayment medical review for a large share  of claims or further postpayment review to estimate and recover potential  overpayments by projecting an error rate for the universe of comparable  claims—a method of estimation called “extrapolation.”
Under PCA, because the corrective action is scaled to the level of errors  identified, the potential financial impact of medical review on some  physicians has decreased. Although our three carriers did not frequently  use extrapolation in 2000, before PCA, a physician could experience a  postpayment medical review that involved extrapolation regardless of the  level of errors detected. As shown in table 3, after PCA’s implementation,  the highest amount any physician practice was required to repay  substantially declined at the three carriers. The largest overpayment  assessed across the carriers ranged from about $6,000 to $79,000 in fiscal  year 2001, compared with about $95,000 to $372,000 in the previous year.  At the same time, changes in the median overpayment amounts varied  across our three carriers, with a dramatic decline at NHIC California.  (Recovery of overpayments from physicians is discussed in app. II.)
Several factors may account for the lower overpayment amounts assessed  physician practices in fiscal year 2001. Under PCA, probe samples are  designed to include a small number of claims per physician, so any  overpayments discovered through the probe review process will likely be  limited. Whereas the typical postpayment medical review conducted  before PCA might involve several hundred claims, a probe review  generally samples 20 to 40 claims selected from an individual physician for  the time period and the type of service in question. If the carrier classifies  the physician’s billing problem as a minor or moderate level of concern,  the physician is responsible for returning only the amount paid in error  found in the probe sample. In these cases, there would not be an  extrapolation as may have occurred in the past.
The circumstances in which carriers determine an overpayment by  extrapolating from a statistical sample have narrowed. Before PCA was  implemented, carriers were encouraged to extrapolate an overpayment  amount whenever a postpayment sample of claims was drawn. However,  even then, our three carriers used extrapolation in only 38 instances in  fiscal year 2000. Now CMS has directed carriers to reserve the use of  extrapolation for those cases where a major level of concern has been  identified. In addition, before it can proceed with an extrapolation, the  carrier has to draw a new, statistically valid random sample from which to  project the assessed overpayment. Furthermore, the amount to be  recovered based on an extrapolation is smaller than it typically would  have been in years past because instead of using the average overpayment  found in the sample, the average is reduced because statistical estimates  do not have 100 percent accuracy.
In the event that extrapolation is used, the requirement to start with probe  samples may also reduce the physician’s financial risk. Because a probe  sample is fairly small, carrier officials stated that they may only examine  one or two types of services, compared to four to six types of services  reviewed previously. This means that if the probe review results lead to an  extrapolation based on a larger statistically valid random sample, only  claims for the small number of service types will be included in that  sample and the results will be projected to a smaller universe of claims.
Consequently, the total amount assessed would tend to be smaller than  previously extrapolated amounts.
In the first year of PCA implementation, our three carriers virtually  eliminated their use of extrapolation to determine overpayments. For  example, NHIC California officials stated that before PCA it was not  uncommon to use extrapolation in determining overpayments based on  samples involving a relatively large number of claims. But now, such  extrapolation is to be used infrequently. If a physician failed to correct  inappropriate billing practices following a probe sample and targeted  education, the carrier would probably subject some or all of the  physician’s subsequent Medicare billing for prepayment review before it  would consider selecting a larger postpayment sample suitable for  extrapolation. As shown in table 4, in fiscal year 2000, NHIC California  conducted 31 postpayment reviews that involved extrapolation, with a  median overpayment assessment of about $32,000, but had no cases  involving extrapolation in fiscal year 2001. Similarly, HealthNow NY had  none in fiscal year 2001 and WPS reported no cases of extrapolation other  than a small number of consent settlement cases.
A recent CMS survey indicates that most carriers limit their use of  extrapolation. In October 2001, CMS surveyed carriers to determine, in  part, the number of cases that involved extrapolation during the last   3 fiscal years. Of the 18 carriers that responded to the survey, only  3—serving Ohio, West Virginia, Massachusetts, and Florida—had more  than 9 cases involving extrapolation in fiscal year 2001.

		Carriers Are Expected To Integrate Medical Review And Education Outreach Functions

A key focus of PCA is its emphasis on carrier feedback to physicians in the  medical review process. Educating physicians and their staffs about billing  rules is intended to increase correct billing, which reduces both inaccurate  payments and the number of questionable claims for which physicians  may be required to forward copies of patient medical records. When a  carrier identifies a physician’s billing problem, PCA requires the carrier to  provide data to the physician about how his or her billing pattern varies  from other physicians in the same specialty or locality. For issues that  affect a large number of providers, CMS recommends that carriers work  with specialty and state medical societies to provide education and  training on proper billing procedures.
In response to PCA, two of the three carriers planned substantial increases  in their spending for education and feedback to physicians on medical  review issues as part of their overall medical review strategies for fiscal  year 2002. As shown in table 5, the three carriers had budget increases of  various sizes for provider education and training related to medical  review.
As part of their strategies to increase physician education, the three  carriers reported that they were making greater use of phone calls and  individualized letters to physicians’ offices to notify them about billing  errors. Carriers record their contacts using physician tracking systems to  check on the education that has been provided to the physician, which can  include letters, materials, phone calls, or face-to-face visits. Whereas in the  past it was common for carriers to simply point physicians toward the  applicable Medicare rules, under PCA they have assisted physicians in  interpreting the rules and applying them to specific billing situations. The  carrier’s medical review staff has addressed problems of questionable  billing patterns by contacting physicians by phone to provide specific  information pertaining to billing rules. For physicians whose claims are  undergoing postpayment review, the carrier sends a letter at the  completion of the medical review that provides a description of the billing  problems found, including, as needed, information on the relevant national  and local medical policies. The letter also identifies a contact person at the  carrier, should the physician want additional information about billing or  documentation issues.
For example, WPS officials acknowledged that they previously had little or  no follow-up with physician practices whose claims were denied or  reduced after medical review to make sure they understood how to bill  correctly. In fiscal year 2001, WPS began providing additional education— some efforts addressing all Medicare physicians and some targeted to  providers in specific specialties or service locations. To identify the groups  that would most benefit from targeted education, the carrier developed  benchmark data on billing errors using aggregate claims data on  utilization, denial rates, and other billing patterns. For example, the carrier  developed education campaigns targeted to mental health practitioners,  such as psychologists, clinical social workers, and psychiatrists. In fiscal  year 2001, WPS also began to conduct on-site education and group  meetings and contact specialty associations to disseminate further  information.

	Independent Review Confirms Accuracy of Carriers’ Payment Decisions

In addition to concerns about having their claims selected for medical  review, some physicians have expressed dissatisfaction with the accuracy  of the carrier medical review decisions concerning the medical necessity,  coding, and documentation of physician services billed to Medicare. To  assess the appropriateness of clinical judgments made by carriers’ medical  review staff, we sponsored an independent evaluation by the private firm  that monitors claims payment error rates as a Medicare program safeguard  contractor. The firm found that our three carriers made highly accurate  medical review decisions. In addition, the level of accuracy was highly  consistent across the three carriers. Slight variation in the degree of  accuracy was evident when the claims reviewed were classified by the  type of payment decision: to pay the claim in full, to pay a reduced  amount, or to fully deny payment.
The independent review was conducted on samples of 100 physician  claims from each carrier selected randomly from all claims undergoing  either prepayment or postpayment medical review in March 2001. Nurse  reviewers examined the carrier’s initial review decision to see if it was  supported by the available medical record documentation and carrier  policies in effect when the carrier made its payment decision. These  reviewers then discussed with the carrier’s staff each claim where they  had come to a different conclusion, and in all but one instance, the carrier  and contractor achieved a consensus as to whether the original carrier  decision was in error. The acting deputy director of CMS’s Program  Integrity Group, a physician, decided the accuracy of the one case that  remained in dispute.
For the vast majority of claims, the independent reviews validated the  carriers’ decisions. As shown in table 6, the independent reviewers agreed  with carriers’ original assessments in 280 of the 293 cases examined, or  about 96 percent of the time. The small share of inaccurate decisions  made by the carrier resulted in both overpayments and underpayments to  physicians.
There was slight variation in the accuracy of carrier medical review  decisions for different types of payment determinations that resulted from  the carriers’ initial review. The independent reviewer found that carrier  decisions to completely deny payment were the most accurate. In our  sample, only 1 of the 64 carrier decisions (1.6 percent) to fully deny a  claim was determined to be a medical review error. Carrier decisions to  reduce payment amounts were slightly less accurate. The independent  reviewers (with subsequent concurrence by the carriers) found errors in 5  of 59 claims (8.5 percent) that the carriers had initially decided to pay at a  reduced amount. In one instance, the independent reviewer determined  that the carrier should have denied the claim altogether; for the other 4  claims, it judged that the carrier should have made a smaller reduction or  paid the claim in full.
Three of the five instances in which the independent reviewer questioned  the carrier’s decision to reduce the amount paid involved claims for  physicians’ evaluation and management (E&M) services—commonly  known as physician visits or consultations. The coding system used for  billing much of physician care has five separate levels of evaluation and  management service intensity, each linked to a distinct payment amount.  In order to assess the appropriateness of a claim’s billing level, reviewers  have to find specific information in the submitted clinical documentation  on, among other factors, the breadth of the medical history taken, the  scope of the physical examination conducted, and the complexity of the  decisions made by the physician. According to CMS officials, one reason  medical review decisions for these claims are likely to raise questions is  that the different levels along these key dimensions are not clearly defined,  such as distinguishing between “straightforward” and “low” complexity in  medical decision making. Such reviews are also complicated by CMS’s  instruction to the carriers that they may use either the guidelines for  billing evaluation and management services issued in 1995 or the ones  issued in 1997, depending on which set is most advantageous to the  physician.
Another factor contributing to the difficulty in medically reviewing E&M  claims is the broad variability in style and content found in the medical  records. Carrier officials noted that some physicians meticulously  document exactly what they have observed and done while others tend to  be less complete and careful. Reviewers are likely to vary in what they  infer from the less complete records, which, in turn, can lead to different  conclusions as to whether a case is of low, medium, or high complexity.

	Targeting Claims That Most Warrant Medical Review Could Be Improved

Although the carriers in our study were highly accurate in making payment  determinations, they can improve their process for selecting claims for  medical review that are most likely to contain billing errors. Our data  show that, in fiscal year 2001, there was variation in the performance of  edits—criteria used to target specific services for review—that our three  carriers employed to identify medically unnecessary, or incorrectly coded,  physician services. Carriers have difficulty establishing edits that routinely  select claims with the greatest probability of errors because they have to  rely, to some degree, on incomplete data. Also, CMS’s oversight of the  carriers does not include incentives to develop and use more refined edits.  CMS has limited its involvement in this area to collecting data from the  carriers on the results of reviews selected by the edits and setting general  expectations for the carriers to assess the effectiveness of the edits that  they use. Carriers receive no feedback on the edit effectiveness data that  they have reported to the agency and little guidance as to how they could  maximize the effectiveness of their procedures to select physician claims  for medical review.
To help reduce local billing problems, carriers usually decide on their own  which claims to select for medical review. They generally develop edits by  (1) analyzing claims data to identify services or providers where local  billing rates are substantially higher than national averages, and   (2) selecting a small probe sample of such claims for medical review to  substantiate the existence of a billing problem. Other edits are designed to  ensure that physicians adhere to local medical review policies—rules that  describe when and under what circumstances certain services may be  covered. Claims identified by the edits are suspended, that is, temporarily  held back from final processing, and the physicians involved are contacted  to request the relevant medical records. Once those records arrive, claims  examiners determine whether the claim should be paid in full, reduced, or  denied. Of the total number of prepayment edits related to physician  services used at each carrier (36 edits at WPS in each of its two largest  states; 18 at NHIC’s Northern California office, and 7 at HealthNow NY), 27  identified the large majority of claims undergoing medical review in fiscal  year 2001. Specifically, 10 or fewer edits at each of the carriers suspended  more than three-fourths of the claims medically reviewed prior to  payment.
In order to assess the relative effectiveness of those edits, we drew on data  that the carriers recorded on the results of reviews initiated by each edit in  effect during that period. These data included information on the  proportion of suspended claims that were reduced or denied as a  consequence of medical review, and the average dollar reduction for those  claims that were not paid in full. Edits would be considered better targeted  if they have (1) a higher rate of claims denied or reduced, or (2) a larger  average amount of dollars withheld from payment for an inappropriately  billed service. The strongest case could be made for edits that did well on  both dimensions, and the weakest case would apply for those edits that  ranked low on both denial rate and average amount withheld.
Figure 1 shows the results of this analysis for the 27 prepayment edits that  accounted for the largest number of claims suspended by each of our  three carriers. The four bars indicate the number of edits achieving  different levels of denial (or reduction) rates. The grouping with the  largest number of edits, 11, represents the lowest level of effective  targeting, between 5 and 19 percent. Two thirds of the edits, 18, have  denial rates under 40 percent. By contrast, 6 edits have denial rates of  between 60 and 82 percent.
The segments within the bars indicate the average dollar amount reduced  or denied when either occurs. Only 3 of the 11 major edits in the lowest  denial rate group generated relatively large program savings—an average  of $200 or more—for those claims that were reduced or denied. An equal  number, and larger proportion, of edits in the highest denial rate group  also produced savings exceeding $200 per claim.
The wide variation among these 27 major edits across both the dimensions  of denial rate and average dollar amount denied or reduced suggests that  there is room for improvement. CMS requires the carriers to periodically  evaluate the effectiveness of the edits they use to ensure that each has a  reasonable denial rate and dollar return. However, CMS has not provided  guidelines to the carriers as to how such evaluation should be conducted,  or what minimum level of performance they should strive for with respect  to denial rates, average dollar reductions, or other measures of efficiency.  Moreover, officials at the three carriers indicated that they did not receive  feedback from CMS regarding the performance of their edits, even though  the carriers submit quarterly reports to the agency on the performance of  their most active edits. CMS’s involvement in this area was generally  limited to ensuring that carriers had their own process in place for  evaluating prepayment edits.
The three carriers tend to consider similar variables in evaluating edit  effectiveness, but vary quite a bit in the procedures that they follow to  make that assessment. In general, all three carriers consider factors such  as the number of claims suspended, the denial rate, dollar savings, and the  overall magnitude of the potential billing problem. With respect to  process, HealthNow NY did not have any explicit procedure to evaluate  edits until the end of fiscal year 2001. At that point it adopted a detailed  scoring system with numeric thresholds that determine when to  discontinue using a edit. The other carriers continue to rely less on  quantitative measures and more on the professional judgment of medical  review staff in evaluating prepayment edits.
Several factors contribute to the continued use of poorly targeted edits.  Some of the carriers contend that their data on the relative effectiveness of  their edits are incomplete and therefore unreliable. For example, NHIC  California officials noted that they often lack good information on the  ultimate outcome of reviews, taking account of reversals that occur when  initial carrier decisions are appealed. Not only does the appeal process  take a long time, if followed to its full extent, it can also be difficult to  determine why certain claim denials were overturned.
Another reason why carriers maintain low-performing prepayment edits is  that there are few incentives—and some disincentives—for them to  change. In particular, carriers have agreed with CMS to conduct a certain  number of reviews that are evenly distributed throughout the course of the  year. Before a carrier discontinues use of an edit, it must have another one  in place that will garner at least as many claims for medical review to meet  workload targets, or else negotiate a change in its medical review strategy  with CMS officials to reallocate those review resources to other activities.  Putting new edits in place often requires carriers to adjust the selection  criteria over time in order to obtain the manageable number of claims  selected for review.
Carrier officials also noted that there is no systematic dissemination of  carriers’ best practices—those worthy of consideration by all carriers— regarding the success of individual edits or methods to evaluate edit  efficiency. An official at HealthNow NY told us that they informally share  information about their experiences with particular prepayment edits with  other carriers operating in the same region. Carrier officials reported that  this is not common practice at WPS or NHIC California. In a 1996 report  on selected prepayment edits, we recommended that HCFA, now CMS,  disseminate information to carriers on highly productive edits. However,  the agency currently does not identify and publicize in any systematic  manner those edits that generate high denial rates or the selection criteria  used to develop them.

	CMS Makes Claims Accuracy New Benchmark for Measuring Carrier Performance

Since 1996, the overall level of payment errors for the Medicare program  has been tracked nationwide in annual audit reports issued by the HHS  Office of Inspector General (OIG). In the most recent audit, covering fiscal  year 2001, the OIG found that $12.1 billion, or about 6.3 percent of the  $191.8 billion in processed fee-for-service payments, was improperly paid  to Medicare providers. These OIG reports of aggregate Medicare payment  errors have spurred CMS to improve its efforts to safeguard Medicare  payments by assessing not only an error rate nationwide but also for the  individual carriers.
In February 2000, HCFA announced the development of a new tool to  assess individual carrier performance called the Comprehensive Error  Rate Testing (CERT) Program. CERT is designed to measure, for all  claims, the accuracy of payment decisions made by each carrier. The  CERT benchmark will allow CMS to hold the carriers accountable for the  accuracy of payment decisions for all claims processed, not just those  selected for review. Thus, the results will reflect not only the carrier’s  performance, but also the billing practices of the providers in their region.  According to CMS officials, CERT information on all the carriers  processing physician claims is expected to become available in   November 2002. At that point, both CMS and the carriers can begin to use  that information for program oversight and management, and will then see  if the expectations for CERT are met in practice.
Under the CERT program, CMS will use an independent contractor to  select a random sample of approximately 200 claims for each carrier from  among all those submitted each month for processing. For this sample, the  carrier will provide the CERT contractor with information on the payment  decisions made and all applicable medical documentation used in any  medical reviews of the sample claims. The CERT contractor will request  comparable documentation from physicians whose claims in the sample  were not medically reviewed by the carrier. The CERT teams of clinician  reviewers will examine the documentation and apply the applicable  national and local medical policies to arrive at their own payment  decisions for all of the sampled claims.
With the development of carrier-level error rates, CMS expects to monitor  payment accuracy trends for the individual carriers and focus its oversight  on those carriers with relatively high, or worsening, rates of error.  Moreover, on a national basis, CERT will calculate error rates for different  provider types. For example, it will indicate how often physicians bill  incorrectly and receive either too much or too little payment compared to  such nonphysician providers as ambulance companies and clinical labs.  The structure of subgroup analyses designed to help carriers better target  their medical reviews remains open to discussion among CMS officials.
CERT will complement but not replace CMS tracking systems designed to  monitor carrier performance using data periodically reported to CMS by  the carriers concerning medical review costs, the reduction in provider  payments resulting from medical reviews, and workload. CMS has relied  on these data to ensure that carriers sustain the level of effort specified in  agreements with CMS—particularly the number of medical reviews  conducted. CMS is currently working to consolidate and streamline these  various reports into a Program Integrity Management Reporting (PIMR)  system. CMS’s intention is for PIMR to collect, from each carrier, data  such as the number of claims medically reviewed, the number denied, the  number of denials reversed on appeal, and the associated dollar amounts  saved or recouped. Currently, this information is not maintained in a  common format and is difficult to compile. The first management reports  based on PIMR are expected by the end of fiscal year 2002.
In addition to CERT and the carrier-reported data, CMS oversight of  physician medical review will continue to rely on contractor performance  evaluations (CPEs)—assessments based on site visits conducted by a  small team of CMS regional and headquarters staff. For carrier medical  review activities, these CMS evaluations occur at irregular intervals,  depending on the carrier’s volume of claims and the level of risk of finding  substantial problems at the carrier. CMS’s evaluation emphasizes an  assessment of the carrier’s compliance with Medicare rules and  procedures in areas related to medical review—such as data analysis to  support the selection of edits, the development of local coverage rules,  and tracking contacts with physicians. The evaluation also involves  examining a small number of claims to determine the accuracy of the  carrier’s review decisions. Critics have previously alleged that CPE  assessments lacked consistency and objectivity. In response, CMS has  attempted to ensure greater uniformity across carriers in the way these  evaluations are conducted by recruiting CPE team members from the  agency as a whole, not the local regional office, and by using nationally  based CPE protocols.

	Concluding Observations

While CMS has modified its medical review procedures, it is too soon to  determine whether the PCA approach will enhance the agency’s efforts to  perform its program integrity responsibilities. Carrier staff conduct  medical reviews to maintain program surveillance and make physicians  aware of any billing practices that are not in keeping with payment rules.  In this regard, CMS’s PCA policy emphasizes feedback and educational  contacts with individual physicians. Evaluating the efficacy of this policy  will require a systematic examination of carriers’ performance data. When  CERT data become available, CMS may be in a better position to assess  PCA’s impact on reducing billing errors and preventing inappropriate  payments.

	Agency Comments

CMS officials reviewed a draft of this report and generally agreed with its  findings. In particular, the agency noted that our discussion of the  effectiveness of carrier edits confirmed the need for CMS to “become  more active in assisting contractors in this area.” The agency also provided  a number of technical corrections and clarifications that we incorporated  into the text as appropriate. These comments are reprinted in   Appendix III.
We are sending copies of this report to the Administrator of CMS and we  will make copies available to others upon request. In addition, the report  will be available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staffs have questions about this report, please contact me at  (312) 220-7600 or Rosamond Katz at (202) 512-7148. Other contributors to  this report were Hannah Fein, Jenny Grover, Joel Hamilton, and Eric  Peterson.

Appendix I: Review of Medicare Carrier Medical Review Decisions

We assessed the claims review accuracy of the three carriers in our  study—National Heritage Insurance Company in California, Wisconsin  Physicians Service Insurance Corp, and HealthNow NY—by validating  initial medical review decisions involving physician claims. We contracted  with DynCorp—the Medicare contractor already selected by CMS to  administer its Comprehensive Error Rate Testing (CERT) program—to use  the same review procedures developed for CERT in assessing a sample of  medical review decisions made by the three carriers.

	Methodology Used to Validate Carrier Medical Review Decisions

We requested that each carrier identify the universe of physician claims  subjected to prepayment and postpayment review during March 2001,  limiting the universe to those claims submitted by M.D.s and D.O.s. From  that universe, Dyncorp randomly selected 100 claims for review. Then,  DynCorp obtained the medical record information for those claims from  the carrier, and reviewed each payment decision for accuracy. The  number of carrier decisions examined by DynCorp staff exceeded the  number of claims because, in several instances, carriers had reviewed  multiple lines on a claim. The results of this assessment of carrier medical  review decisions can only be generalized to the universe of claims from  which the samples were drawn: claims from M.D.s or D.O.s that  underwent medical review in March 2001 by one of our three carriers.
In reviewing payment accuracy, DynCorp staff was tasked with  determining if the carrier’s initial review decision was supported by the  medical record and carrier policies in place at the time the payment  decision was made. Specifically, DynCorp assessed whether  documentation in the medical records supported the procedure codes and  level of service that was billed. Where their determination differed from  that of the carrier, DynCorp staff discussed those claims with the carrier’s  medical review staff. In all but one case, the parties came to agreement on  whether payment decisions were accurate. In the one case where  agreement could not be reached, the acting deputy director of CMS’s  Program Integrity Group—a physician—provided a second opinion that  confirmed the carrier’s decision.

	Results of the DynCorp Review

The results obtained from DynCorp’s review of physician claims  undergoing medical review were consistent across the three carriers. The  accuracy of decisions across all the sampled medical reviews for each  carrier exceeded 94 percent. (See table 7.) In those cases where medical  review errors were identified, NHIC California and WPS decisions resulted  in a mix of underpayments and overpayments. However, HealthNow NY’s  review errors were concentrated in decisions to pay claims in full that  should have been denied or reduced.
Because a relatively small proportion of medical reviews are conducted  after claims payment, our samples from the three carriers included just 19  claims where a postpayment review was performed. The accuracy of  carrier determinations for both prepayment and postpayment medical  reviews was consistent, at about 95 percent. (See table 8.)

Appendix II: Recovery of Overpayments

Carriers attempt to collect any overpayments due the Medicare program as  soon as possible after the completion of postpayment reviews. The carrier  notifies physician practices that they have three options for returning an  overpayment: (1) pay the entire overpayment amount within 30 days, (2)  apply for an extended repayment plan, or (3) allow the carrier to offset the  overpayment amount against future claims.
Initially, the carrier sends a letter informing the physician practice of the  medical review results and the specific dollar amount that the practice  must return to Medicare. The letter provides an explanation of the  procedures for repaying an overpayment, which includes a statement of  Medicare’s right to recover overpayments and charge interest on debts not  repaid within 30 days, as well as the practice’s right to request an extended  repayment plan if the overpayment cannot be paid in that time. The letter  also advises the physician practice of the right to submit a rebuttal  statement prior to any recoupment by the carrier and to appeal the review  decision to, in the first instance, the carrier’s separate appeals unit. In  addition, the letter notifies the practice of any additional reviews that the  carrier has planned. Regardless of whether the physician practice appeals  the review decision, repayment is due within 30 days of the date of the  letter, unless an extension is approved.
Carriers will consider extended repayment plans for those physician  practices that cannot make a lump sum payment by the due date. To  qualify for an extension, the overpayment amount must be $1,000 or more  and a practice must prove that returning an overpayment within the  required time period would cause a financial hardship. Accordingly, a  physician practice must offer specific documentation to support the  request, including a financial statement with information on monthly  income and expenses, investments, property owned, loans payable, and  other assets and liabilities. In addition, if the requested repayment  extension is for 12 months or longer, the physician practice must submit at  least two letters from separate institutions indicating that they denied a  loan request for the amount of the repayment. Requests for payment  extensions that exceed 12 months must be referred to CMS regional staff  for approval.
If a physician practice does not return payment within 30 days or establish  a repayment extension plan, the carrier must offset the amount owed  against pending or future claims. The carrier has some discretion as to the  exact date that offsetting begins, taking into consideration any statements  or evidence from the physician practice as to the reasons why offsetting  should not occur. In fiscal year 2001, HealthNow NY offset amounts owed  by 72 of 95 physician practices that did not pay their overpayment  amounts within 30 days. Most of the practices that did not have amounts  offset returned their overpayments within 40 days. Any offset payments  are applied against the accrued interest first, and then the principal.
As shown in table 9, the three carriers in our study reported that most  physician practices assessed an overpayment in fiscal year 2000 or 2001  repaid Medicare within 6 months of the carrier’s notice.
The three carriers also reported few requests from physician practices for  extended repayment plans. As shown in table 10, none of the carriers had  more than four requests during fiscal year 2001, and no extension  exceeded 1 year.

Appendix III: Comments from the Centers for Medicare and Medicaid Services

Related GAO Products

Medicare: Communications With Physicians Can Be Improved   (GAO-02-249, February 27, 2002).
Medicare Management: CMS Faces Challenges to Sustain Progress and  Address Weaknesses (GAO-01-817, July 31, 2001).
Medicare Management: CMS Faces Challenges in Safeguarding  Payments While Addressing Provider Needs (GAO-01-1014T,   July 26, 2001).
Regulatory Issues for Medicare Providers (GAO-01-802R, June 11, 2001).

Summary:
Why GAO Did This Study

In 1990, GAO designated the Medicare program to be at high-risk for waste, fraud, and abuse. More than a decade later, Medicare remains on GAO's high-risk list. This report examines Medicare's claims review process, which is designed to detect improper billing or payments.

What GAO Found

GAO found that most physicians who bill Medicare are largely unaffected by carriers' medical reviews, with 90 percent of physician claims going unreviewed in fiscal year 2001. At the three carriers GAO studied, implementation of the progressive corrective action initiative has reduced medical reviews of claims and has increased carrier education to individual physicians. The carriers in the study generally made appropriate payment determinations in examining physician claims selected for a medical review. By targeting claims that are more likely to have errors, carriers could improve the efficiency of their own operations and reduce administrative demands on the small proportion of physician practices with claims selected for review. The Centers for Medicare and Medicaid Services (CMS) is refocusing its oversight of carrier performance in processing and reviewing claims. The agency intends to hold carriers accountable for the overall level of payment errors in all the claims they process, not just the ones they review. Consistent with this approach, CMS is developing a program in which an independent contractor determines the accuracy of claims processed and paid by each carrier using quantitative performance measures.