Report Template Version = 09-08-04 

Department of Health and Human Services


OFFICE OF 

INSPECTOR GENERAL 

CARRIER MEDICAL REVIEW 


PROGRESSIVE CORRECTIVE 


ACTION


Daniel R. Levinson


Inspector General 


October 2005


OEI-02-03-00300

Report Template Version = 09-08-04 

Office of Inspector General 

http://oig.hhs.gov 

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 

statutory mission is carried out through a nationwide network of audits, investigations, and 

inspections conducted by the following operating components: 

Office of Audit Services 

The 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 HHS. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) conducts management and program evaluations 

(called inspections) that focus on issues of concern to HHS, Congress, and the public. The 

findings and recommendations contained in the inspections generate rapid, accurate, and up-todate information on the efficiency, vulnerability, and effectiveness of departmental programs. 

OEI also oversees State Medicaid Fraud Control Units which investigate and prosecute fraud and 

patient abuse in the Medicaid program. 

Office of Investigations 

The Office of Investigations (OI) 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 OI lead to criminal convictions, administrative 

sanctions, or civil monetary penalties. 

Office of Counsel to the Inspector General 

The Office of Counsel to the Inspector General (OCIG) provides general legal services to OIG, 

rendering advice and opinions on HHS programs and operations and providing all legal support 

in OIG’s internal operations. OCIG imposes program exclusions and civil monetary penalties on 

health care providers and litigates those actions within HHS. OCIG also represents OIG in the 

global settlement of cases arising under the Civil False Claims Act, develops and monitors 

corporate integrity agreements, develops compliance program guidances, renders advisory 

opinions on OIG sanctions to the health care community, and issues fraud alerts and other 

industry guidance. 
Report Template Version = 09-08-04 

Δ EXECUTIVE SUMMAR Y 

OBJECTIVES 

To determine whether Medicare carriers have implemented medical 

review progressive corrective action strategies for physicians in 

accordance with guidance issued by the Centers for Medicare & 

Medicaid Services (CMS). 

To determine whether progressive corrective action is achieving desired 

results, which are to reduce physician error rates and to modify the 

behavior of physicians. 

BACKGROUND 

In fiscal year (FY) 2000, CMS revised its Program Integrity policy to 

include a new process for conducting medical review. In general, this 

revised strategy uses progressive corrective action approaches such as 

preliminary data analysis, probe medical reviews, and the calculation of 

billing error rates to correct billing problems through targeted education 

and training. The ultimate goal of these strategies is to reduce billing 

and payment errors. 

Progressive corrective action strategies have taken on increased 

significance under the Medicare Prescription Drug, Improvement, and 

Modernization Act of 2003 (MMA). Section 921 of the MMA highlights 

the importance of providing effective education and training to Medicare 

participating providers. It provides increased funding to improve the 

accuracy of billing and coding claims data and the timeliness of 

contractor responses.

1 In addition, effective October 1, 2005, the MMA 

requires Medicare contractors to use claims payment error rate 

information as “an incentive to implement effective education and 

outreach programs.”2 

Under progressive corrective action strategies, carriers are instructed 

to: (1) conduct preliminary data analysis to identify inappropriate, 

unnecessary, or excessive provider claims billed to the Medicare 

program; (2) complete a medical review of a probe sample of provider 

claims to determine the severity of the billing problem; (3) consider 

indicators such as the individual provider error rate when deciding how 

1 MMA, section 921(d)(2). 

2 MMA, section 921(b)(1). 

 OE I-02-03-00 300 CARRI ER MEDICA L RE V IEW P R O G R E S SIVE C O RRECT I V E ACTI O N i 
Report Template Version = 09-08-04 

EXE CUTIVE S U MMAR Y 

to address a problem; (4) conduct medical review activities that are 

appropriate to the identified problem; and (5) provide education and 

training to all providers identified as aberrant billers. 

In addition, carriers are required to have a tracking system and 

document the following five items: all educational contacts made as a 

result of actions to correct identified problems; the results of quarterly 

reassessments for all providers; the date a provider is put on a providerspecific edit; the date edits are turned off; and the results of appealed 

medical review decisions. 

For this inspection, we conducted a document review of carrier manual 

instructions and program memoranda, reviewed 18 Medicare Part B 

carriers’ tracking systems for all physicians who were first identified for 

progressive corrective action during the first two quarters of FY 2003, 

and collected information from staff at CMS and 18 Part B carriers. 

FINDINGS 

Carriers are generally implementing progressive corrective action 

strategies consistent with CMS guidance. Our examination of the 

data from carriers’ tracking systems for Medicare participating 

physicians leads us to conclude that carriers are generally 

implementing progressive corrective action strategies consistent with 

CMS guidance. Even though carriers are not required to document 

their approaches in all cases, there is evidence in their tracking systems 

that they are implementing the five progressive corrective action 

approaches. Specifically, 

• sixteen carriers have evidence in their tracking systems that their 

decision to conduct medical review is based on the results of 

preliminary data analysis, 

• all eighteen carriers have information indicating that they conduct 

pre-or postpayment probes to validate suspected aberrant billing 

behavior for at least some of the physicians identified for corrective 

action, 

• sixteen carriers include error rate calculations in their tracking 

systems for at least some of the identified physicians, which 

indicates that carriers consider error rates when deciding how to 

address a given billing problem, 

 OE I-02-03-00 300 CARRI ER MEDICA L RE V IEW P R O G R E S SIVE C O RRECT I V E ACTI O N ii 
Report Template Version = 09-08-04 

EXE CUTIVE S U MMAR Y

• all eighteen carriers have information documenting that they take 

steps to subject physicians to reasonable amounts of medical review, 

and 

• seventeen carriers have information in their system documenting 

that they provide education and training to at least some of the 

physicians identified for progressive corrective action. 

In addition, in our interviews with the 18 carriers, they confirm that 

they are implementing corrective action strategies, and they provide 

explanations of how they carry out each of the 5 approaches. 

However, carriers are not following all tracking requirements. 

Carriers are required to have a tracking system and document five 

specific progressive corrective action elements. We found that while all 

carriers have a tracking system, none of the carriers document all the 

required elements. They are most commonly missing the results of 

quarterly reassessments and information on contacts made to correct 

identified problems. 

Little information exists to determine whether progressive 

corrective action strategies are achieving desired results. We 

found that carriers calculated baseline and subsequent error rates for 

an average of 8 percent of the 2,316 physicians identified for 

corrective action during the first two quarters of FY 2003, which is too 

small a sample to determine whether or not progressive corrective 

action strategies are effective. Additionally, CMS relies primarily on 

compliance-based oversight mechanisms that do not address 

progressive corrective action outcomes. As a result, we cannot 

determine whether progressive corrective action strategies reduce 

individual physician error rates and/or modify the behavior of 

physicians. 

RECOMMENDATIONS 

The MMA highlights the importance of providing effective education 

and training to Medicare participating providers. However, CMS does 

not currently have any method that measures the effectiveness of 

progressive corrective action strategies and whether the strategies 

reduce individual physician error rates and/or modify the behavior of 

physicians. 

To address these issues, we recommend that CMS: 

OE I-02-03-00 300 CARRI ER MEDICA L RE V IEW P R O G R E S SIVE C O RRECT I V E ACTI O N iii 
Report Template Version = 09-08-04 

EXE CUTIVE S U MMAR Y 

• Institute outcome-based program measures to better determine 

whether progressive corrective action strategies reduce individual 

physician error rates and/or modify the behavior of physicians. 

• Conduct reviews of carrier tracking systems to ensure that carriers 

are complying with requirements. 

AGENCY COMMENTS 

CMS concurred with our recommendations. CMS further commented 

that it has already taken steps to include reviews of carrier tracking 

systems as part of its annual SAS-70 reviews. The full text of CMS’s 

comments is included in Appendix A. 

CMS also commented that it will “continue to require its contractors to 

evaluate the effectiveness of corrective actions taken.” It noted that 

there are a number of methods that can be employed to identify 

progressive corrective action outcomes. CMS commented that error 

rates, as well as analysis of claims data, may be sufficient to determine 

the effectiveness of a progressive corrective action intervention. 

OFFICE OF INSPECTOR GENERAL RESPONSE 

We agree. However, we question whether carriers will evaluate and 

track the effectiveness of corrective action strategies in absence of more 

guidance from CMS. For example, further guidance on when to require 

the calculation of individual provider error rates would increase CMS’s 

ability to determine whether progressive corrective action strategies are 

achieving desired results. We reiterate that, based on our review of 

carriers’ tracking systems, we found that none of the 18 carriers tracked 

the results of quarterly reassessments for all physicians identified for 

corrective action during our sampling timeframe, as required by CMS. 

 OE I-02-03-00 300 CARRI ER MEDICA L RE V IEW P R O G R E S SIVE C O RRECT I V E ACTI O N iv 
Report Template Version = 09-08-04 

Δ T ABLE OF CONTENTS 

i 

 

EXECUTIVE SUMMARY ................................... 


INTR O D U C T I O N ........................................... 1 

FINDI NGS ................................................. 9 

Carriers’ implementation of progressive corrective action ....... 9 

Carriers are not following all tracking requirements .......... 11 

Little information exists about whether progressive corrective 

action achieves results .................................. 13 

RECOM M E NDATI O NS .................................... 16 

APPENDI X ............................................... 18 

Agency Comments ..................................... 18 

ACKN O W LEDGMENTS .................................... 21
Report Template Version = 09-08-04 

Δ INTRODU C TION 

OBJECTIVES 

To determine whether Medicare carriers have implemented medical 

review progressive corrective action strategies for physicians in 

accordance with guidance issued by the Centers for Medicare & 

Medicaid Services (CMS). 

To determine whether progressive corrective action is achieving desired 

results, which are to reduce physician error rates and to modify the 

behavior of physicians. 

BACKGROUND 

In fiscal year (FY) 2000, CMS revised its Program Integrity policy to 

include a new process for conducting medical review. In general, this 

revised strategy uses progressive corrective action approaches such as 

preliminary data analysis, probe medical reviews, and the calculation of 

billing error rates to correct billing problems through targeted education 

and training. The ultimate goal of these strategies is to reduce billing 

and payment errors. 

Progressive corrective action strategies have taken on increased 

significance under the Medicare Prescription Drug, Improvement, and 

Modernization Act of 2003 (MMA). Section 921 of the MMA highlights 

the importance of providing effective education and training to Medicare 

participating providers. It provides increased funding to improve the 

accuracy of billing and coding claims data and the timeliness of 

contractor responses.

3 In addition, effective October 1, 2005, the MMA 

requires Medicare contractors to use claims payment error rate 

information as “an incentive to implement effective education and 

outreach programs.”4 

Medical Review and Progressive Corrective Action 

Section 1862(a)(1)(A) of the Social Security Act states that Medicare 

covers services that are included in a Medicare benefit category, are not 

statutorily excluded, and are reasonable and necessary. Federal statute 

sets forth broad categories of benefits covered by Medicare, but does not 

provide a comprehensive list of services that are reasonable and 

necessary for beneficiaries’ medical care. CMS and the contractors 

3 MMA, section 921(d)(2). 

4 MMA, section 921(b)(1). 

OE I-02-03-00300 CARRI ER MEDICA L RE V IEW P R O G R E S SIVE C O RRECT I V E ACTI O N 1 
Report Template Version = 09-08-04 

INTROD UCT ION 

(including Medicare Part B carriers) are responsible for reviewing, 

processing, and adjudicating claims to determine whether services 

provided are reasonable and necessary, and are therefore covered under 

Medicare. 

In an effort to minimize fraud, waste, and abuse in Medicare, CMS 

requires Part B carriers to review claims submitted for payment.5 

Specifically, under the Program Integrity medical review function, 

carriers are instructed to review submitted claims to determine whether 

they are reasonable and necessary and are correctly coded. When 

conducting medical review, carriers are instructed to apply progressive 

corrective action strategies. 

CMS program memorandum AB-00-72, dated August 7, 2000, provides 

Medicare carriers with written instructions on progressive corrective 

action strategies. CMS describes these instructions as “ . . . further 

guidance, underlying principles and approaches to be used in deciding 

how to deploy resources and tools for medical review.” These 

instructions require some specific activities, but also allow carriers 

flexibility in the approaches they may use when carrying out 

progressive corrective action. 

CMS instructs carriers to perform preliminary data analysis to identify 

inappropriate, unnecessary, or excessive provider claims billed to the 

Medicare program. In addition, carriers must complete a medical 

review of a probe sample of provider claims to determine the degree of 

severity of the billing problem.6 When problems are identified, carriers 

are to conduct medical review activities that are appropriate to the 

problem. Carriers must also provide education and training to all 

providers who are identified as aberrant billers. See the chart on the 

next page for a primer on progressive corrective action approaches, 

which are outlined in CMS program memorandum AB-00-72. 

5 CMS, “Medicare Program Integrity Manual,” June 2000. 

6 With the exception of not exceeding a probe sample size of 20-40 claims, currently CMS 

does not require carriers to use a specific sampling methodology (e.g., a random sample) 

for the probe medical review. 

OE I-02-03-00300 CARRI ER MEDICA L RE V IEW P R O G R E S SIVE C O RRECT I V E ACTI O N 2 
Report Template Version = 09-08-04 

INTROD UCT ION

Primer on Progressive Corrective Action Approaches and Activities 

Recommended 

Approach 

Underlying 

Principle Specific Activities 

The decision to 

conduct medical 

review should be 

data driven. 

Preliminary data 

analysis determines 

whether patterns of 

claims submission 

and payments 

indicate potential 

problems. 

Activities may include simple identification of 

aberrancies in billing patterns or claims; 

provider referrals; reports from CMS; and/or 

comparisons between peer groups, for 

example, how identified physicians’ billing 

patterns compare to billing patterns of peers in 

the same specialty. 

Validate potential 

problems by 

conducting probe 

reviews. 

Probe sample reviews 

validate the existence 

of billing errors. 

Carriers should select a sample (either 

prepayment or postpayment) that generally 

does not exceed more than 20 to 40 claims for 

any individual provider problem, or 100 

claims or services from a wider universe of 

providers. 

The provider error 

rate is an 

important 

consideration. 

Information such as 

provider billing or 

payment error rates 

guide carriers in how 

to address the billing 

problem. 

Carriers should consider the error rate. They 

are also encouraged to consider the total value 

of the problem, the past history of the 

provider, and/or whether the severity of the 

problem is determined to be minor, moderate, 

or significant in nature. 

Subject providers 

only to the amount 

of medical review 

necessary. 

Medical review 

resources are 

allocated to providers 

or services where the 

Medicare Trust Fund 

is at greatest risk. 

Carriers should target problems that are high 

cost, likely to have adverse impact on 

beneficiaries, and/or are problems that have 

become progressively worse. 

Provider feedback 

and education is an 

essential part of 

solving problems. 

Education and 

feedback is a core 

step in solving billing 

problems. 

Carriers should provide education and training 

to all providers identified for medical review. 

This education can be in the form of direct 

one-on-one contacts, through telephone or 

conference calls, and/or through group 

meetings. These are referred to as types of 

interventions. 

Source: CMS, Medical Review Progressive Corrective Action Program Memoranda Transmittal AB-00-72, August 2000. 

OE I-02-03-00300 CARRI ER MEDICA L RE V IEW P R O G R E S SIVE C O RRECT I V E ACTI O N 3 
Report Template Version = 09-08-04 

INTROD UCT ION 

In addition, carriers are required to have a tracking system that 

documents the following five items: 

• all educational contacts made as a result of actions to correct 

identified billing problems. This information may include dates 

when educational letters were mailed out or when telephone or 

onsite meetings were held, 

• results of quarterly reassessments to determine if behavior changed 

after the provider received necessary education and training, 

• date a provider is put on a provider-specific edit,7 

• date a provider is taken off an edit, and 

• results of appealed medical review decisions. 

National Paid Claims Error Rate 

Currently, CMS contracts with the program safeguard contractor, 

AdvanceMed, to calculate the national paid claims error rate through 

the Comprehensive Error Rate Testing (CERT) program.8 The goal of 

this work is to improve the accuracy of payment decisions made by 

Medicare contractors. Based on local and national coverage policies, a 

medical review team reviews information the carrier used to make its 

decision “to verify that decisions regarding the claims were accurate 

and based on sound policy.” In FY 2003, CMS found that carriers paid 

7.3 percent of all Medicare Part B claims in error.9 It is CMS’s 

expectation that progressive corrective action intervention efforts will 

contribute to a reduction in the national paid claims error rate.10 

CMS Oversight 

In FY 2003, CMS initiated the Self-Assessment, Performance Oversight, 

and Comprehensive Error Rate Testing and Educational program 

(SPACE) and began using it to conduct oversight of carrier activities, 

7 Edits are software-based controls used to prevent an overutilization of codes, upcoding to 

a higher reimbursement rate, or inappropriate frequencies of services billed for the same 

beneficiary. Edits are put in place to flag any group of claims that does not follow 

Medicare coverage guidelines and may serve to delay or reject payments. 

8 From fiscal year 1996 to fiscal year 2002, the Office of Inspector General calculated the 

national Medicare paid claims error rate. In fiscal year 2003, CMS assumed this 

responsibility. 

9 This estimate excludes nonresponse claims. 

10 CMS, “FY 2003 Improper Medicare Fee For Service Payments Report,” November 2003. 

OE I-02-03-00300 CARRI ER MEDICA L RE V IEW P R O G R E S SIVE C O RRECT I V E ACTI O N 4 
Report Template Version = 09-08-04 

INTROD UCT ION 

including those activities associated with progressive corrective action 

interventions. The SPACE program consists of the following: 

• Self-Assessment —“Certification Package for Internal Controls”- A 

carrier’s self-assessment to identify and correct any weakness 

within an operational area; 

• Performance Oversight —“Statement on Auditing Standards 

Number 70” (SAS-70) — An audit of a Medicare contractor’s 

operational areas conducted by an independent auditing firm. 

Among other elements, auditors measure whether internal controls 

and objectives for medical review are in place and based on CMS 

instructions; 

• Comprehensive Error Rate Testing — A program safeguard 

contractor-run program that measures carriers’ paid claims error 

rates; and 

• Educational Training Program — An educational interaction 

between CMS staff and carriers based on potential or current areas 

of contractor vulnerability. Educational interventions may be based 

on findings from SAS-70 audits or other CMS concerns. 

Related Work 

The Government Accountability Office (GAO) issued a report entitled 

“Recent CMS Reforms Address Carrier Scrutiny of Physicians’ Claims 

for Payment” in May 2002.11 This report describes the progressive 

corrective action strategy and its use of provider education in 

combination with medical review, as well as its effects on physician paid 

claims. GAO found that only a small percentage of total physician 

claims are ever selected for medical review, which can limit progressive 

corrective action’s influence on reducing the national paid claims error 

rate. 

SCOPE 

This inspection determines the extent to which carriers have 

implemented progressive corrective action strategies consistent with 

CMS guidance. It does not determine the effectiveness of any individual 

carrier’s use of progressive corrective action strategies. In addition, this 

11 GAO-02-693, May 2002. 

OE I-02-03-00300 CARRI ER MEDICA L RE V IEW P R O G R E S SIVE C O RRECT I V E ACTI O N 5 
Report Template Version = 09-08-04 

INTROD UCT ION 

inspection focuses solely on physicians and excludes other types of 

providers that may be identified for corrective action. 

METHODOLOGY 

We obtained information for this inspection from a number of sources: a 

document review of carrier manual instructions and transmittals, a 

review of 18 Medicare Part B carriers’ tracking systems, telephone 

interviews and onsite discussions with carrier staff, and telephone and 

in-person interviews with key CMS regional and central office staff. 

Document Review 

We reviewed the “Medicare Program Integrity Manual” and CMS 

Program Memoranda transmittals pertaining to progressive corrective 

action and other relevant documents.

12 These documents were 

primarily used to determine the approaches and recommended activities 

under progressive corrective action. 

Tracking System and Error Rate Analysis 

We contacted 18 Medicare Part B carriers and requested a description of 

the variables listed in their tracking system. We also asked for data for 

all physicians who were first identified for progressive corrective action 

during the first or second quarters of FY 2003. For all identified 

physicians, we requested that carriers submit the following information: 

• all education and training activities in FY 2003;13 

• error rates prior to progressive corrective action intervention, 

i.e., “baseline error rates,” and error rates after receiving 

progressive corrective action intervention, i.e., “subsequent error 

rates” that were calculated in FY 2003; and 

• any information regarding the status of appealed medical review 

decisions. 

We developed an instrument to review and analyze the variables and 

data in the carriers’ tracking system. Specifically, we determined 

whether each carrier documented both the required information and 

any other information regarding recommended progressive corrective 

12 CMS, “Medicare Program Integrity Manual,” June 2000. 

13 Carriers had a reasonable amount of time during the course of fiscal year 2003 to provide 

education and/or training and conduct at least one quarterly reassessment, as required 

by CMS guidance. 

OE I-02-03-00300 CARRI ER MEDICA L RE V IEW P R O G R E S SIVE C O RRECT I V E ACTI O N 6 
Report Template Version = 09-08-04 

INTROD UCT ION

action approaches and/or activities. Note that we did not independently 

verify the accuracy of any of the data in the tracking systems. 

We also analyzed the error rate information provided by carriers. 

Specifically, we determined the extent to which carriers calculated 

baseline and subsequent error rates for the physicians identified for 

progressive corrective action. 

Carrier Onsite Discussions and Telephone Interviews 

We conducted site visits with three carriers to determine their 

understanding of progressive corrective action strategies and objectives. 

We also conducted structured telephone interviews with the supervising 

staff at each of the 18 Medicare Part B carriers involved in conducting 

progressive corrective action activities.14 During telephone interviews, 

we gathered information about carriers’ experiences implementing 

progressive corrective action, which included: 

• the extent to which carriers have implemented the strategies, 

• the extent to which progressive corrective action has achieved 

desired results, and 

• how CMS oversees carriers’ performance related to progressive 

corrective action. 

CMS Central Office and Regional Office Interviews 

We conducted structured in-person interviews with key staff at CMS 

central office who are responsible for Program Integrity, medical review 

oversight. We also conducted telephone interviews with each of the 

eight CMS regional offices.15 Our questions focused on the following: 

• the extent to which carriers have implemented the strategies, 

• the extent to which progressive corrective action strategies have 

achieved desired results, and 

• the oversight mechanisms CMS currently uses to determine 

carrier performance with regard to progressive corrective action. 

14 We excluded Triple-S, the carrier for Puerto Rico and the Virgin Islands. 

15 At the time we collected data for this inspection, CMS had 10 regional offices throughout 

the United States, and for its medical review work, had combined regions 8, 9, and 10 

into a consortium. 

OE I-02-03-00300 CARRI ER MEDICA L RE V IEW P R O G R E S SIVE C O RRECT I V E ACTI O N 7 
Report Template Version = 09-08-04 

INTROD UCT ION

LIMITATIONS 

Although CMS guidance instructs carriers to consider individual 

provider error rates when deciding how to address a billing problem, it 

does not explicitly require the carriers to calculate baseline or 

subsequent billing and/or payment error rates. As we discuss in more 

detail later, carriers had limited information on baseline and 

subsequent error rates in their tracking systems. As a result, we were 

unable to determine whether progressive corrective action strategies 

reduce billing and/or payment errors. 

STANDARDS 

This inspection was conducted in accordance with the “Quality 

Standards for Inspections” issued by the President’s Council on 

Integrity and Efficiency. 

OE I-02-03-00300 CARRI ER MEDICA L RE V IEW P R O G R E S SIVE C O RRECT I V E ACTI O N 8 
Report Template Version = 09-08-04 

Carriers are generally implementing progressive 

Our examination of the data from corrective action strategies consistent with CMS 

carriers’ tracking systems for guidance Medicare participating physicians 

Δ FINDINGS 

leads us to conclude that carriers are generally implementing 

progressive corrective action strategies consistent with CMS guidance. 

Even though carriers are not required to document their approaches in 

all cases, there is evidence in their tracking systems that they are 

implementing the five progressive corrective action approaches.16 

Additionally, in our interviews with the 18 carriers, they confirm that 

they are generally implementing corrective action strategies, and they 

provide explanations of how they carry out each of the 5 specific 

approaches. 

The decision to conduct medical review should be data driven. 

Sixteen of the eighteen carriers have evidence in their tracking system 

that their decision to conduct medical review is based on the results of 

preliminary data analysis. Carriers’ tracking systems have information 

such as indications that a given physician appeared to be upcoding for a 

particular service and indications that a given physician billed for 

significantly higher amounts than other physicians in the same area of 

specialization. 

In addition, in our interviews with the carriers, all 18 report that their 

decision to conduct medical review is based on the results of preliminary 

data analysis. Specifically, all carriers report that they analyze 

provider billing information to identify aberrant billing patterns for 

both physician specific and service specific data prior to conducting 

medical review.17 When asked to provide further detail, 10 carriers 

explain that they compare national, State, and local data across 

provider peer groups to determine where aberrancies exist. 

Validate potential problems by conducting “probe reviews.” All 18 carriers 

have information in their tracking systems indicating that they conduct 

prepayment or postpayment probes to validate suspected aberrant 

billing behavior. Specifically, carriers’ tracking systems include 

OE I-02-03-00300

16 CMS, “Medial Review Progressive Corrective Action,” Program Memoranda Transmittal 

AB-00-72, August 2000. 

17 Physician specific data analysis generally involves comparing individual physicians’ 

billing practices with billing practices of other, comparable physicians. Service specific 

analysis generally involves comparing the billing of particular services with local or 

national trends data. 

C ARRI ER MEDICA L RE V IEW P R O G R E S SIVE C O RRECT I V E ACTI O N 9 
Report Template Version = 09-08-04 

F I NDING S 

information such as the sample size of a given probe, the number of 

claims reviewed, the type of probe action taken, and the date that a 

given probe was closed. 

Furthermore, in our interviews with the carriers, all 18 report that they 

use the results of prepayment or postpayment probe medical reviews to 

validate a potential billing problem. Seven carriers report that probe 

reviews are one of the most effective progressive corrective action 

practices. One carrier notes, “The concept of the probe review has been 

very effective. It can validate that the issue is valid before over-working 

the provider.” 

The provider error rate is an important consideration in deciding how to address 

the problem. Sixteen of the eighteen carriers have error rate calculations 

in their tracking systems for at least some physicians who were 

identified for progressive corrective action during the first two quarters 

of FY 2003. Further, in our interviews, 17 of the 18 carriers report that 

they consider the individual physician error rate when deciding how to 

address a physician’s billing problem. 

Subject providers only to the amount of medical review necessary to address 

the nature and the extent of the identified problems. All 18 carriers have 

information in their tracking system indicating that they consider 

factors such as the dollar value of the billing problem, the history of the 

physician’s billing patterns and/or the physician’s billing or payment 

error rate when deciding how to address a given billing problem. 

In our interviews with the carriers, all 18 confirm that they take steps 

to ensure that physicians are subjected only to reasonable amounts of 

medical review. For example, all carriers explain that they determine 

the severity of a problem by examining the dollar value of the identified 

problem, and/or the past billing history of the physician. Eight carriers 

also report using the results of probe reviews to determine the level of a 

given billing problem. This severity level information is then used to 

determine the type of corrective action. 

Provider feedback and education is an essential part of solving problems. 

Seventeen of eighteen carriers have information in their tracking 

systems documenting that they provided education and training to at 

least some of the physicians identified for progressive corrective action 

during the first two quarters of FY 2003. The tracking systems have 

indications that educational letters were sent to at least some 

physicians or that education was provided on a given date. The extent 

OE I-02-03-00300 CARRI ER MEDICA L RE V IEW P R O G R E S SIVE C O RRECT I V E ACTI O N 10 
Report Template Version = 09-08-04 

F I NDING S 

to which carriers meet the requirement to track this information for all 

physicians identified for progressive corrective action is discussed in 

greater detail in the next section.18 

Additionally, in our interviews with the carriers, all 18 report that they 

use feedback and education to solve billing problems. Specifically, all 

18 carriers explain that they provide education and training on a oneon-one and/or group basis. They also report providing training through 

written materials or electronically. 

Carriers are required to have a However, carriers are not following all tracking 

tracking system and document requirements 

five specific elements. We found 

that all carriers have a tracking system; however, none of the carriers 

document all the required elements. (See Table 1 on the next page.) 

Carriers are instructed to “identify all individual providers and track all 

contacts made as a result of actions to correct identified problems.” 

Twelve of eighteen carriers do not track this information for all 

physicians identified for progressive corrective action during the first 

two quarters of FY 2003, as required. Specifically, six carriers have this 

information for at least half but not all of the identified physicians. Five 

carriers document contact information for less than half of the identified 

physicians. One carrier does not track any information for any of the 

identified physicians. 

Carriers are also required to reassess all providers on medical review 

quarterly to determine if their behavior has changed. The results of 

these reassessments must be noted in their tracking system.19 None of 

the 18 carriers track the results of these quarterly reviews for all 

physicians identified for corrective action during our sampling 

timeframe. One carrier tracks quarterly results for less than half of the 

identified physicians. While some carriers have subsequent error rate 

calculations for some identified physicians, there is often no indication 

that these rates were calculated on a quarterly basis. Further, there 

are no other reassessment measures, such as a downgrade from a major 

problem to a minor problem, recorded for all identified physicians. 

18 CMS, “Medial Review Progressive Corrective Action,” Program Memoranda Transmittal 

AB-00-72, August 2000. 

19 Quarterly reassessments included subsequent error rates or any other measure 

indicating that the physician’s billing behavior was reevaluated at 3-month intervals. 

OE I-02-03-00300 CARRI ER MEDICA L RE V IEW P R O G R E S SIVE C O RRECT I V E ACTI O N 11 
Report Template Version = 09-08-04 

F I NDING S 

Carriers are also required to document the date the provider is put on a 

provider-specific edit.20 While not all billing problems warrant this type 

of information, 9 of 18 carriers do not have any dates that physicians 

who were identified for corrective action during the first two quarters of 

FY 2003 were placed on an edit. Furthermore, carriers must record the 

dates that edits are turned off. Eleven carriers do not have this 

information for any of the identified physicians. 

Finally, carriers are required to “track and consider the results of 

appeals in their medical review activities.” Six carriers do not have this 

information for any of the physicians identified for progressive 

corrective action during the first two quarters of FY 2003. 

Table 1: Number of Carriers that Follow Tracking System Requirements 

Tracking Requirements 

Number of 

Carriers Not 

Following 

Requirement 

Number of 

Carriers 

Following 

Requirement 

Number of 

Carriers that 

Track Information 

for at Least Some 

Identified 

Physicians 

All contacts made as a result of 

actions to correct identified problem 12 6 17 

Results of quarterly reassessments 

for all providers 

18 0 1 

Date a provider is put on 

provider-specific edit for medical 

review 

9 9

a 9 

Date edits are turned off 11 7

a 7 

Results of appealed medical review 

decisions 6 12b 12 

Source: OIG Review of Carrier Tracking Systems, 2004. 

a = Includes carriers that have information on any dates that physicians were placed

on edits. 

b = Includes carriers that have information on any appealed medical review decisions. 

20 Edits are software-based controls used to prevent an overutilization of codes, upcoding to 

a higher reimbursement rate, or inappropriate frequencies of services billed for the same 

beneficiary. Edits are put in place to flag any group of claims that does not follow 

Medicare coverage guidelines and could serve to delay or reject payments. 

OE I-02-03-00300 CARRI ER MEDICA L RE V IEW P R O G R E S SIVE C O RRECT I V E ACTI O N 12 
Report Template Version = 09-08-04 

F I NDING S 

Little information exists to determine whether 

progressive corrective action strategies are 

achieving desired results 

Carriers report that progressive 

corrective action strategies seek to 

reduce individual physician error 

rates and modify behavior of 

physicians through education.21 We found that little information exists 

to determine whether progressive corrective action strategies are 

achieving these desired results. Specifically, carriers have limited data 

on physician error rates, and CMS relies on compliance-based oversight 

that does not measure progressive corrective action outcomes. 

Carriers have limited data on physician error rates 

CMS transmittals instruct carriers to consider the individual provider 

error rate when deciding how to address a billing problem. Carriers are 

not, however, explicitly required to calculate or track these error rates 

for each physician identified for progressive corrective action. We found 

that carriers calculated baseline error rates for an average of 48 percent 

of physicians who were identified for progressive corrective action 

during our sampling timeframe. Seven carriers calculated baseline 

error rates for less than 50 percent of physicians identified for 

progressive corrective action during this timeframe. Only one carrier 

calculated baseline error rates for all identified physicians. 

Carriers calculated subsequent error rates for even fewer physicians 

who were identified for progressive corrective action. Specifically, 

carriers calculated subsequent rates for an average of 8 percent of the 

physicians identified for corrective action during the first two quarters 

of FY 2003. Twelve carriers calculated these rates for less than 

10 percent of identified physicians. Again, only one calculated 

subsequent rates for all physicians identified for corrective action 

during this timeframe. See Table 2 on the next page. 

21 Additionally, CMS guidance (SPACE Program Guidelines: Contractor Medical Review 

Oversight, p. 3, October, 2004) indicates, and carriers report, that the ultimate goal of the 

progressive corrective action strategies is to reduce the national paid claims error rate. 

OE I-02-03-00300 CARRI ER MEDICA L RE V IEW P R O G R E S SIVE C O RRECT I V E ACTI O N 13 
Report Template Version = 09-08-04 

F I NDING S 

Table 2: Number of Physicians Identified for Progressive Corrective 

Action With Baseline and Subsequent Error Rates by Carrier* 

Carriers 

Total Number of 

Physicians 

Identified for 

Progressive 

Corrective Action 

Number of 

Physicians with 

Baseline Error 

Rates 

Percentage of 

Physicians 

with Baseline 

Error Rates 

Number of 

Physicians with 

Subsequent 

Error Rates 

Percentage of 

Physicians with 

Subsequent Error 

Rates 

A 407 

8 

106 

31 

2 

73 

277 

327 

94 

13 

119 

113 

216 

28 

385 

48 

59 

10 

162 

7 

52 

16 

0 

47 

177 

224 

35 

13 

59 

50 

168 

19 

24 

0 

51 

8 

40 

88 

49 

52 

0 

64 

64 

69 

37 

100 

50 

44 

78 

68 

6 

0 

86 

80 

0 

1 

2 

0 

0 

29 

14 

4 

15 

13 

5 

3 

77 

2 

4 

0 

11 

0 

0 

13 

2 

0 

0 

40 

5 

1 

16 

100 

4 

3 

36 

7 

1 

0 

19 

0 

B 

C 

D 

E 

F 

G 

H 

I 

J 

K 

L 

M 

N 

O 

P 

Q 

R 

Totals 2,316 1,112 48% 180 8% 

Source: OIG Review of Carrier Tracking Systems, 2004. 

*Physicians were identified during the first two quarters of FY 2003. 

In total, 180 physicians who were identified for progressive corrective 

action during the first two quarters of FY 2003 had a baseline and a 

subsequent error rate. Because this represents only 8 percent of the 

2,316 physicians who were identified, we are unable to determine 

whether progressive corrective action interventions do, in fact, reduce 

individual physician error rates. 

CMS relies on compliance-based oversight that does not address 

progressive corrective action outcomes 

CMS central office reports that the Self-Assessment, Performance 

Oversight and Comprehensive Error Rate Testing and Educational 

program (SPACE) measures progressive corrective action outcomes. 

The SPACE program includes the Certification Package for Internal 

OE I-02-03-00300 CARRI ER MEDICA L RE V IEW P R O G R E S SIVE C O RRECT I V E ACTI O N 14 
Report Template Version = 09-08-04 

F I NDING S 

Controls (CPIC), SAS-70 audits, the Comprehensive Error Rate Testing 

(CERT) program, and the Educational Training program. 

The majority of the SPACE program activities measure the extent to 

which carriers comply with progressive corrective action requirements 

and whether controls exist to ensure compliance. The primary goal of 

the self-assessment CPICs is to identify operational areas that are at 

risk and need improvement. The goal of the SAS-70 audits is to 

determine if internal controls are in place and whether they are 

effective. The goal of the Educational Training program is to correct 

areas of contractor vulnerabilities. None of these three activities 

measures whether progressive corrective action strategies are reducing 

individual error rates or modifying behavior of physicians through 

education. 

The final component of the SPACE is the CERT program. The CERT 

program measures the extent to which all Medicare Part B claims were 

paid in error. The goal of this measure is to improve the accuracy of 

payment decisions made by Medicare contractors for all Medicare 

participating providers. In contrast, progressive corrective action 

strategies aim to reduce the billing or payment errors for a select group 

of providers who are identified as aberrant billers. Therefore, while the 

CERT program measures outcomes, it may not be specific enough to 

determine whether progressive corrective action is achieving its desired 

results. 

OE I-02-03-00300 CARRI ER MEDICA L RE V IEW P R O G R E S SIVE C O RRECT I V E ACTI O N 15 
Report Template Version = 09-08-04 

ΔEXE CUTIVE S U MMAR Y RECOMME NDA TIONS 

While all carriers appear to be implementing progressive corrective 

action strategies consistent with CMS guidance, we found that none of 

the carriers are following all tracking requirements. In addition, we 

found that little information exists to determine whether progressive 

corrective action is achieving desired results. 

The MMA highlights the importance of providing effective education 

and training to Medicare participating providers. However, CMS does 

not currently have any method that measures the effectiveness of 

progressive corrective action strategies and whether the strategies 

reduce individual physician error rates and/or modify the behavior of 

physicians. 

To address these issues, we recommend that CMS: 

• Institute outcome-based program measures to better determine 

whether progressive corrective action strategies reduce individual 

physician error rates and/or modify the behavior of physicians. To 

do this, CMS could: 

- Modify its SPACE program to assess progressive corrective 

action outcomes. 

- Revise its Medicare Carriers and Intermediaries Manuals to 

explicitly require the calculation of individual-provider error 

rates before and after progressive corrective action 

intervention. This information could then be used to 

determine whether corrective action strategies do, in fact, 

help reduce billing errors. 

• Conduct reviews of carriers’ tracking systems to ensure that carriers 

are complying with requirements. 

AGENCY COMMENTS 

CMS concurred with our recommendations. CMS further commented 

that it has already taken steps to include reviews of carrier tracking 

systems as part of its annual SAS-70 reviews. The full text of CMS’s 

comments is included in the Appendix. 

CMS also commented that it will “continue to require its contractors to 

evaluate the effectiveness of corrective actions taken.” It noted that 

there are a number of methods that can be employed to identify 

progressive corrective action outcomes. CMS commented that error 

OE I-02-03-00300 CARRI ER MEDICA L RE V IEW P R O G R E S SIVE C O RRECT I V E ACTI O N 16 
Report Template Version = 09-08-04 

R E C O MMENDA T I O N S 

rates, as well as analysis of claims data, may be sufficient to determine 

the effectiveness of a progressive corrective action intervention. 

OFFICE OF INSPECTOR GENERAL RESPONSE 

We agree. However, we question whether carriers will evaluate and 

track the effectiveness of corrective action strategies in absence of more 

guidance from CMS. For example, further guidance on when to require 

the calculation of individual provider error rates would increase CMS’s 

ability to determine whether progressive corrective action strategies are 

achieving desired results. We reiterate that, based on our review of 

carriers’ tracking systems, we found that none of the 18 carriers tracked 

the results of quarterly reassessments for all physicians identified for 

corrective action during our sampling timeframe, as required by CMS. 

OE I-02-03-00300 CARRI ER MEDICA L RE V IEW P R O G R E S SIVE C O RRECT I V E ACTI O N 17 
Report Template Version = 09-08-04 

Δ APPENDIX 

OE I-02-03-00300 CARRI ER MEDICA L RE V IEW P R O G R E S SIVE C O RRECT I V E ACTI O N 18 
Report Template Version = 09-08-04 

APP E N D I X

OE I-02-03-00300 CARRI ER MEDICA L RE V IEW P R O G R E S SIVE C O RRECT I V E ACTI O N 19 
Report Template Version = 09-08-04 

APP E N D I X

OE I-02-03-00300 CARRI ER MEDICA L RE V IEW P R O G R E S SIVE C O RRECT I V E ACTI O N 20 
Report Template Version = 09-08-04 

Δ ACKNOWLEDGMENTS 

This report was prepared under the direction of Jodi Nudelman, Acting 

Regional Inspector General for Evaluation and Inspections in the New 

York regional office. Other principal Office of Evaluation and 

Inspections staff who contributed include: 

Ellen Vinkey, Team Leader 

Christi Macrina, Project Leader 

David Rudich, Program Analyst 

Tricia Davis, Director, Medicare and Medicaid Branch 

Barbara Tedesco, Mathematical Statistician 

OE I-02-03-00300 CARRI ER MEDICA L RE V IEW P R O G R E S SIVE C O RRECT I V E ACTI O N 21