,

.. 

Department of Health and 
 Hum n Servces 

OFFICE OF


INSPECTOR GENERAL


MEDICARE SECONDARY PAYER:


EFFECTIVENESS OF FIRST CLAIM


DEVELOPMENT


MANAGEMENT ADVISORY REPORT


SERVICE 

Richard P. Kusserow 

INSPECfOR GENERA 

cf1a NOVEER 1991 
OFFCE OF INSPECTOR GENL


The mission of the Office of Inspetor Genera (OIG), as mandated by Public Law 95­

452, as amended, is to protect the integrity of the Deparment of Heath and Human 

Services' (HS) progras as well as the heath and welfare of beneficiares served by 

those programs. This statutory mission is caed out though a nationwide network of 

audits, investigations, and inspetions conducted by three OIG operating components: the 

Office of Audit Services, the Office of Investigations, and the Office of Evaluation and 

Inspetions. The OIG . also informs the Secreta of HHS of progra and management 

problems and recommends courses to correct them. 

OFFCE OF AUDIT SERVICES 

The OIG' s Offce of Audit Services (OAS) provides al auditing servces for HHS , either 

by conducting audits with its own audit resources or by overseing audit work done by 

others. Audits examine the performance of HHS progras and/or its grantees and 

contrctors in caring out their respetive responsibilties and are intended to provide 

independent assessments of HHS programs and operations in order to reduce waste, abuse 

and mismanagement and to promote economy and efficiency throughout the Deparment. 

OFFCE OF INESTIGATIONS 

The OIG' s Offce of Investigations (01) conducts criminal, civil, and administrative 

investigations of allegations of wrongdoing in HHS progras or to HHS beneficiares and 

of unjust enrichment by providers. The investigative efforts of 01 lead to criminal 

convictions, administrative sactions, or civil money penalties. The 01 also overses State Medicad fraud control units which investigate and proseute fraud and patient abuse in the Medicad progra. ­

OFFCE OF EVALUATION AN INSPECTIONS 

The OIG' s Offce of Evaluation and Inspetions (OEI) conducts short-term management 

and program evaluations (caled inspetions) that focus on issues of concern to the 

Deparment, the Congress, and the public. The findings and recmmendations contaned 

in these inspetion reports generate rapid, accurate, and up-to-date information on the 

efficiency, vulnerabilty, and effectiveness of deparmenta programs. 

This report was prepared under the direction of Don McLaughlin, Regional Inspetor 

Genera and James H. Wolf, Deputy Regional Inspetor Genera, Office of Evaluation and 

Inspetions, Region VT. Parcipating in this project were the following peple: 

Kans City Headquarters 

Julie Quirin, Project Leder Tom Noplock 

Perr Seaton, Tea Leder 
,. 

Department of Health and Human Servces


OFFICE OF


INSPECTOR GENERAL


MEDICARE SECONDARY PAYER:


EFFECTIVENESS OF FIRST CLAIM


DEVELOPMENT


MANAGEMENT ADVISORY REPORT


.. SERVlq: 

Richard P. Kusserow 

INSPECfOR GENERA 

~~d1a OEI-07-9063 
EXECUTIVE SUMMAR 

PUROSE 

To evaluate the effectiveness of developing the first claim submitted by or on behalf of 

a beneficiary to help identify other insurance coverage. 

BACKGROUN 

In June 1987, Health Care Financing Administration (HCFA) required the carriers to 

contact each beneficiary who is age 65 or 66 when the first Medicare claim is 

submitted on hisfher behalf. This procedure entails sending a form letter to the 

beneficiary asking for current employment and insurance information. If there is an 

indication of a primary payment source, the claim is developed to establish primary 

payment liability. If not, the claim is processed and paid as usual. To assess the 

effectiveness of this procedure, we obtained data from 30 carriers. 

FIINGS 

Approxitely 6.4 peent of th fi claim deelpe by carr suces idti priry payt soures othe than Medare. 

Although some concer were exres carr representies belie fit claim 

deelopmet efectiely id priry pa soures. 

Carr vary greatly in the nuer of MSP sitins id by th fit claim 

deelopme process. 

Th HCF A does not reqe carr to su pa on th fit claim sumied 

or on behalf of a diable ben un th deelopm letter is retu 

RECOMMNDATIONS 

Th HCFA shoul obtain data to evalute each carrs reportg o/fit claim

deelopmet acti and ase complince wi aU fi claim deelopmet procedes. 

Th HCF A shoul coUect heal inance informtin for diable benri durg th reqed diabiI ben waitg 

COMMNT 

The HCF A concurred with both recommendations presented in the draf report. The 

HCF A' s verbatim comments are included in Appendix A. 
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 

TABLE OF CONTENTS


EXECUTIV SUMMAY


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


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


RECOMMENDATIONS . . . . . . . . . 6


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


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


PUROSE 

To evaluate the effectiveness of developing the first claim submitted by or on behalf of 

a beneficiary to help identify other insurance coverage. 

BACKGROUN 

The Health Care Financing Administration (HCF A) is responsible for administrating 

the Medicare program and for ensuring compliance with Medicare legislation and 

regulations. Private insurance companies contract with HCF A to process and pay 

Medicare claims. These contractors are known as fiscal intermediaries (Part A) and 

carrers (Part B). 

The contractors are responsible for ensuring that Medicare pays for covered care only 

after reimbursement from other primary insurers has been made. Contractors are 

required to administer the program in a manner that achieves maxmum savings and 

cost avoidance to the Medicare trust funds. Medicare secondary payer (MSP) 

provisions affect claims involving the working aged, spousal working aged, beneficiaries 

with end-stage renal disease, beneficiaries eligible for payment under automobile 

medical liability, and no-fault insurance; individuals eligible for or receiving workers 

compensation; and the disabled. 

Despite current procedures and HCF A initiatives to help identify MSP situations 

contractors continue to have difficulties identifyng all beneficiaries who have a 

primary payment source(s) other than Medicare. Previous studies and audits 

conducted by the Offce of Inspector General have reported that Medicare is losing at 

least $637 milion annually due to the contractor s inabilty to identify primary payment 

sources. 

In a previous OIG inspection "Extent of Unrecovered Medicare Secondary Payer 

Funds" (OEI-07-90-00760), we conducted MSP development on a random sample of 

Medicare beneficiaries. We tracked our development costs to determine a costbenefit ratio. For every dollar spent to develop an MSP source, we identified $5.40 

that should have been paid by insurance other than Medicare. 

In June 1987, HCF A required the carrers to contact each beneficiary who is age 65 or 

66 when the first Medicare claim is submitted on his/her behalf. This procedure 

entails sending a form letter to the beneficiary asking for current employment and 

insurance information. Section 4307 of the Medicare Carrers Manual (MCM) 

requires all claims be suspended until the questionnaire is completed by the 

beneficiary and returned to the carrer. 
If there is an indication of a primary payment source, the claim is developed to 

establish primary payment liabilty. If not, the claim is processed and paid as usual. 

no response is received after 30 days, a second letter is sent and if no response is 

received after another 15 days, the claim is denied for insuffcient information. 

Carrers are instructed to flag the beneficiary s fie and develop any subsequent claims 

in the same manner. The HCFA's instructions require that no claims be paid until 

complete information is received. 

MEllODOLOY 

We mailed questionnaires to all Medicare carrers and the Blue Cross Association to 

obtain data concerning current first claim development procedures and their 

effectiveness. We surveyed the carrers concernng their methods of development, the 

percentage of claims that were verified MSP situations, and their suggestions to 

improve the first claim development process. We also collected information relating 

to the possibilty of expanding the current first claim development requirement to 

develop the first claim submitted for a beneficiary each year. 

In addition, we analyzed information collected during onsite visits to carrer MSP units. 

These visits were conducted to collect data for a previous OIG study entitled 

Medicare Prepayment Review: MSP Procedures at Carrers" (OEI-07-89-01683). 

During this study we examined the carriers' methods and interpretation of first claim 

development activities. The findings and recommendations presented in this report 

are based on the information collected during these visits and an analysis of the 

questionnaires. This report presents a summary of the questions that address 

significant issues. 
FINDINGS


Apprxitely 6.4 peen of th fi claim deelpe by carr suces idnti pri pa soures othe thn Medare. 

Twenty-four of the thirt carrers that responded to our survey developed a total of 

971 881 first claims during FY 1989. The HCFA does not require formal reporting 

of first claim development activities. Due to the limited scope of this MA, we did 

not veri the responses to the questionnaire because it would have required extensive 

onsite work. 

Six carrers indicated that they did not track this information so it was not readily 

available for analysis. Of the remaining 24 carrers, one carrer reported 70 percent 

and a second reported that 50 percent of the first claims developed successfully 

identified a primary payment source other than Medicare. These two carriers were 

not included in our analysis because we considered them to be "outliers. 

We calculated the weighted average for the carrers. This method placed more 

weight" on those carrers who developed a greater volume of first claims. 

Approximately 6.4 percent (126 200) of the first claims developed by the carriers 

identified a primary payment source. 

We also calculated the median of the percentages reported by the carriers. The 

median number of first claims with a positive indication of a primary payment source 

is 8 percent or a total of 157 750 claims. 

According to HCF A, Medicare carriers processed 407 700 000 claims in FY 1989. 

These claims totaled $27 171 022 826 in Medicare payment for an average of $66. 

per claim. Using this average, the 24 carriers saved from $8 409 968 to $10 512 460 by 

identifyng primary payment sources other than Medicare. 

Although some concer were exresed carr representies belie fit claim 

deelopme efectiely id pri pa soures. 

The carriers responded that first claim development is an effective method of 

identifyng MSP situations. When asked whether the current method of "first claim 

development process effectively identifies MSP situations, all thirt carriers responded 

positively. According to the carriers, first claim development is an important part 

their development process. 

Respondents from the carriers provided the following positive comments. 

First claim development gives Medicare the opportunity to gather the needed 

information pertaining to MSP before we make payment on the claim. This 

reduces the number of incorrect payments. 
We identify cases on a prepayment basis. By doing so, we avoid costly, time 

consuming overpayment recovery. 

Most of the working aged and working disabled are identified from this 

procedure. 

Despite these and many similar comments, the respondents also expressed some 

concerns with the procedure.


The majority of responses received indicate that there is no MSP involvement. 

Therefore, payment for a new beneficiary s claim is often delayed unnecessarily. 

First claim development has generated many negative professional relations 

issues. 

The information received from the majority of beneficiaries is incorrect 

regarding EGHP/LGHP coverage. 

The number of positive MSP leads identified through first claim development 

is a very smal1 volume in comparison to the number of letters sent out by the 

MSP department. 

Carr vary greatly in the nuer MSP sitins id by the fit claim 

deelopme proces. 

Each carrer is required to conduct first claim development according to the 

procedures outlined in Section 4307 of the MCM. 

We asked the carriers to provide the percentage of first claims that successfully 

identified MSP situations. The percentages provided ranged from two percent to 

seventy percent. This is a large range for a process that should be consistent from 

carrier to carrier.


A combination of two factors may be contributing to this variance. Carrers are not 

required to track or report information concerning their first claim development 

procedures. Therefore, some carrers may have reported more accurate figures than 

others. Secondly, the variance may be due to different levels of compliance with the 

first claim development procedures. Some carrers may be more aggressive in their 

development. 

In a prior onsite review of seven carrers, we also questioned carrier representatives 

about their first claim development procedures. We found a great variance in how the 

process is conducted and how the instructions are interpreted. 
RCF A do not reqe can to su pa on th fi claim sumied 

or on behalf of a diable ben un th deelpm lett is retu Th 

The HCFA has modified its instructions to the carrers concerning the first claim 

development process. The procedures no longer require fIrst claim development for 

disabled beneficiaries. Unless the carrer receives information from another source 

that a primary payer exists, all claims for disabled beneficiaries are processed and paid 

without delay. Carrers continue to send development letters, however, claims 

continue to be processed and paid before the letters are returned. 

The HCF A made this modification for two reasons. Firstly, disabled individuals 

tyically file many claims withi the first few months of Medicare eligibilty. 

Suspending all of these claims would create a backlog and beneficiary relations would 

suffer. Secondly, disabled beneficiaries often need assistance in responding to the 

development letters. Therefore, responses to the letters would not be timely. This 

also slows the payment process. 

This modification creates an ineffcient "pay and chase" situation for the carrers. 

When the carrer receives a development letter with a positive indication of a primary 

payment source, the contractor must conduct a postpayment recovery. 
RECOMMENDA TIONS


Th HCF A shoul obtain data to evalte each cars reportg of fit claim deelopm act and ase complie wi aD fi claim deelopme procedes. 

Currently, carrers are not required to keep statistics or submit reports about their first 

claim development activities. To monitor compliance with the first claim development 

requirements, HCF A should require the carrers to track and report information 

relating to first claim development. The following list includes examples of the tye of information that would help monitor first claim development procedures. 

The number of development letters sent. 

The total cost of first claim development procedures. 

The number of development letters returned within 30 days. 

The number of claims denied because a development letter was not returned. 

The number of MSP situations identified due to first claim development. 

Th HCF A shoul collct healt innce informtin for diable benri dug

the reqed diabil ben waitg 

We recognize that HCFA's policy of not suspending the first claims of the disabled 

until the development letters are returned is based on valid concerns. We believe that 

an alternate solution is possible. 

The Social Security Act provides entitlement to disabled beneficiaries following a two 

year waiting period. During this period, HCF A could be advised of these disability 

beneficiaries and begin the development process. When the disabled beneficiary is 

eligible for Medicare, his/her health insurance situation will have been determined 

prior to submission of the first claim. This would reduce the number of post-payment 

recoveries by eliminating "pay and chase" situations for disabled beneficiaries and be a 

more cost effective method of MSP development. At the same time, it would avoid 

the obstacles during the first few months of eligibility. 
COMMENTS


The HCF A concurred with both recommendations presented in the draft report. They 

are arranging to utilze the Common Working File (CWF) to generate a report to 

monitor first claim development activity and track contractor compliance. 

Also, the HCFA is considerig a pre-claim development process to replace first claim 

development. Ths process would include the disabled. It would collect complete 

health insurance information at the time of Medicare enrollment and Medicare 

beneficiaries would complete this form prior to filing their first claim. While this is 

not exactly what we recommended regarding the disabled, we do agree it is responsive 

to the problem that we raised. 

The HCF A's verbatim comments are included in Appendix A. 
APPENDIX A


AGENCY COMMENTS


A ­

nt:Cllln \"dlt: 

DEPARTMENT OF HEALTH &. HUMAN SERVICE Financing Administration 

4. Memorandum 

SEP 3 0 1991


Date


Gail R. Wilensky, Ph.


From Admitrator 

Subject OIG Draf Management Advisory Report: ''Medicare Secondar Payer: 

Effectiveness of Firt Oai Development," OEI-07-90-0763 

Inpector General


Offce of the Secreta 

We have reviewed the subject draf management advisory report which 

evaluates the effectiveness of fit claim development to identi priar insurers of 

Medicae beneficiaries. OIG found that, for the most part first claim development 

is effcient. 

OIG recommends that HCF A obtain data to evaluate each caer s reporting of 

first claim development activities and assure compliance with al first claim 

development procedures. They also recommend that HCF A should collect health 

insurance information for disabled beneficiaries durig the required disabilty benefit 

waiting period. HCF A concurs with these recommendations. Our specifc 

comments are attached for your consideration. 

Thank you for the opportunity to review and comment on this draf 

management advisory report. Please advise us whether you agree with our position 

on the report s recommendations at your earliest convenience. 

Attachment 

A ­

Comments oUhealth Care Financing Adminstrtion il A) on t raf Management Advisory 

Report - ''Medicare Secondary Payer: Effectiveness 

of First Oaim Development." OEI-07-90-00763 

Recommendation 1


HCF A should obta data to evaluate each carrer s reportg of fit clai 

development acrvities and assure compliance with al fist clai development 

procedures. 

HCFA ResDonse 

HCF A concur with th recommendation. We are arangig for the establihment 

of a Common Workig File report by contractors on fist clai development 

activities. Ths report will be used to monitor the activity and track contractor 

compliance. 

Recommendation 2


HCF A should collect health insurance information for diabled beneficiares durg 

the requied disability benefit waiting period. 

HCFA ResDonse 

HCF A concurs with this recommendation. We are considerig the establishment of 

a pre-claim development process which would replac fist claim development. For 

that process, we would develop a questionnair to solicit the inormation currently 

provided by fist claim development. The questionnaire would be distnouted at the 

tie of the intial Medicare enrollment, and would be completed by al Medicare 

fig their fit Medicare claim. 

beneficiaries, including the disabled, prior to 


A ­