MEDICARE

Further Action Could 

Improve Improper Payment 

Prevention and 

Recoupment Efforts

Statement of Kathleen M. King

Director, Health Care

Testimony 

Before the Subcommittee on Energy 

Policy, Health Care and Entitlements, 

Committee on Oversight and Government 

Reform, House of Representatives

For Release on Delivery 

Expected at 9:30 a.m. ET

Tuesday, May 20, 2014

GAO-14-619T

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-619T, a testimony 

before the Subcommittee on Energy Policy, 

Health Care and Entitlements, Committee on 

Oversight and Government Reform, House of 

Representatives

May 20, 2014

MEDICARE

Further Action Could Improve Improper Payment 

Prevention and Recoupment Efforts

Why GAO Did This Study

Due to its size, complexity, and 

susceptibility to mismanagement and 

improper payments, GAO has 

designated Medicare as a high-risk 

program. In 2013, Medicare financed 

health care services for approximately 

51 million individuals at a cost of about 

$604 billion, and reported an estimated 

$50 billion in improper payments—

payments that either were made in an 

incorrect amount or should not have 

been made at all. Most of these 

improper payments were made 

through the Medicare FFS program, 

which pays providers based on claims 

and uses contractors to pay the claims 

and ensure program integrity.

This statement focuses on the 

progress made and steps still to be 

taken by CMS to improve improper 

payment prevention and recoupment 

efforts in the Medicare FFS program. 

This statement is based on relevant 

GAO products and recommendations 

issued from 2007 through 2014 using a 

variety of methodologies. GAO also 

updated information by examining 

public documents and, in April 2014, 

GAO received updated information 

from CMS on its actions related to laws 

and regulations discussed in this 

statement.

What GAO Found

The Centers for Medicare & Medicaid Services (CMS), the agency within the 

Department of Health and Human Services (HHS) that oversees Medicare, has 

made progress improving improper payment prevention and recoupment efforts 

in the Medicare fee-for-service (FFS) program, but further actions are needed.

Provider enrollment. CMS has implemented certain provider enrollment 

screening procedures authorized by the Patient Protection and Affordable Care 

Act (PPACA) that address past weaknesses identified by GAO and others. The 

agency has also put in place other measures intended to strengthen existing 

procedures, but could do more to improve provider enrollment screening and 

ultimately reduce improper payments. For example, CMS has hired contractors 

to determine whether providers and suppliers have valid licenses, meet certain 

Medicare standards, and are at legitimate locations. CMS also recently 

contracted for fingerprint-based criminal history checks of providers and suppliers 

it has identified as high-risk. However, CMS has not implemented other 

screening actions authorized by PPACA that could further strengthen provider 

enrollment. 

Prepayment controls. In response to GAO’s prior recommendations, CMS has 

taken steps to improve the development of certain prepayment edits—

prepayment controls used to deny Medicare claims that should not be paid; 

however, important actions that could further prevent improper payments have 

not yet been implemented. For example, CMS has implemented an automated 

edit to identify services billed in medically unlikely amounts, but has not 

implemented a GAO recommendation to examine certain edits to determine 

whether they should be revised to reflect more restrictive payment limits. GAO 

has found that wider use of prepayment edits could help prevent improper 

payments and generate savings for Medicare. 

Postpayment claims reviews. Postpayment claims reviews help CMS identify 

and recoup improper payments. Medicare uses a variety of contractors to 

conduct such reviews, which generally involve reviewing a provider’s 

documentation to ensure that the service was billed properly and was covered, 

reasonable, and necessary. GAO has found that differing requirements for the 

various contractors may reduce the efficiency and effectiveness of such reviews. 

To improve these reviews, GAO has previously recommended CMS examine 

ways to make the contractor requirements more consistent. CMS reported that it 

has begun to address these recommendations. Although the percentage of 

Medicare claims that undergo postpayment review remains very small, GAO has 

found that the overall number of postpayment claims reviews has been 

increasing in recent years. HHS has reported that the increase in claims reviews 

is one factor causing backlogs in the Medicare appeals process.

GAO has ongoing work focused on how CMS could continue its efforts to reduce 

improper Medicare payments. For instance, GAO is examining the extent to 

which CMS’s provider enrollment system can help prevent and detect the 

continued enrollment of ineligible providers in Medicare. GAO also has work 

underway to examine whether CMS has strategies for coordinating postpayment 

review contractors’ claims review activities.

View GAO-14-619T. For more information, 

contact Kathleen M. King at (202) 512-7114 or 

kingk@gao.gov.
 

Page 1 GAO-14-619T Medicare Improper Payments

Chairman Lankford, Ranking Member Speier, and Members of the 

Subcommittee:

I am pleased to be here today to discuss our work examining further 

action Medicare could take to improve its improper payment prevention 

and recoupment efforts.1 In 2013, Medicare financed health care services 

for approximately 51 million individuals at a cost of about $604 billion, and 

reported some of the largest estimates of improper payments among 

federal programs—payments that either were made in an incorrect 

amount or should not have been made at all.2 Due to its size, complexity, 

and susceptibility to mismanagement and improper payments, we have 

designated Medicare as a high-risk program since 1990.3

The Centers for Medicare & Medicaid Services (CMS), the agency within 

the Department of Health and Human Services (HHS) that oversees 

Medicare, has estimated that improper payments in the Medicare 

program were almost $50 billion in fiscal year 2013.4 CMS separately 

calculates error rates and performance targets for the Medicare fee-forservice (FFS) program, Medicare Advantage, and the Medicare 

Prescription Drug Benefit.5

 

1

Medicare is the federally financed health insurance program for persons age 65 or over, 

certain individuals with disabilities, and individuals with end-stage renal disease.

Medicare FFS accounted for more than 

70 percent of Medicare’s estimated improper payments in 2013. The 

Medicare FFS estimated improper payments were about $36 billion or 

about 10.1 percent of total FFS payments. This is about $6.5 billion 

2

An improper payment is defined as any payment that should not have been made or that 

was made in an incorrect amount (including overpayments and underpayments) under 

statutory, contractual, administrative, or other legally applicable requirements. It includes 

any payment to an ineligible recipient, any payment for an ineligible good or service, any 

duplicate payment, payment for a good or service not received (except for such payments 

where authorized by law), and any payment that does not account for credit for applicable 

discounts. Improper Payments Elimination and Recovery Act of 2010, Pub. L. No. 111-

204, § 2(e), 124 Stat. 2224, 2227 (codified at 31 U.S.C. § 3321 note).

3

GAO, High-Risk Series: An Update, GAO-13-283 (Washington, D.C.: February 2013)

4

A list of abbreviations used in this statement is provided in appendix I. 

5

Medicare consists of four parts. Parts A and B are known as Medicare FFS. Part A 

covers hospital and other inpatient stays and Part B covers hospital outpatient, physician, 

and other services. Part C, also known as Medicare Advantage, is the private plan 

alternative to Medicare FFS under which beneficiaries receive benefits through private 

health plans. Part D is the outpatient prescription drug benefit. 
 

Page 2 GAO-14-619T Medicare Improper Payments

higher than in 2012 and did not meet the fiscal year 2013 target error rate 

of 8.3 percent that the agency set for itself to reduce improper payments.6

Improper payments may be a result of fraud, waste, or abuse, but it is 

important to distinguish that the $50 billion in estimated improper 

payments reported by CMS in fiscal year 2013 is not an estimate of fraud 

in Medicare.7

According to HHS, the primary cause of improper payments in Medicare 

FFS was administrative and documentation errors in large part due to 

insufficient documentation, meaning the medical records submitted by the 

provider or supplier were inadequate to support payment for the services 

billed.

Reported improper payment estimates include many types 

of payments that should not have been made or were made in an 

incorrect amount such as overpayments, underpayments, and payments 

that were not adequately documented. 

8

 

6

See Department of Health and Human Services, Fiscal Year 2012 Agency Financial 

Report (Washington D.C.: Nov 15, 2012). 

HHS has reported that physicians and suppliers substantially 

contributed to insufficient documentation errors. HHS also cited the 

provision of services that were found not to be medically necessary and 

incorrect diagnosis coding as causes for FFS improper payments. 

Medical necessity errors occur, for example, when a claim is paid for a 

service that should have been provided in a less intensive setting. This 

error type has accounted for the majority of Part A inpatient hospital 

improper payments. For Medicare Advantage, HHS reported that the 

majority of the improper payment estimate resulted from insufficient 

documentation to support the diagnoses submitted by private health plans 

for payment. HHS cited administrative and documentation errors as the 

cause for all improper payments in the prescription drug benefit. Despite 

7

Fraud consists of intentional acts of deception with knowledge that the action or 

representation could result in an inappropriate gain. Waste includes inaccurate payments 

for services, such as unintentional duplicate payments. Abuse represents actions 

inconsistent with acceptable business or medical practices.

8

Department of Health and Human Services, Fiscal Year 2013 Agency Financial Report

(Washington D.C.: Dec 16, 2013). Medicare FFS uses the Comprehensive Error Rate 

Testing (CERT) program to calculate improper payment estimates. The CERT program 

categorized five types of errors—no documentation, insufficient documentation, medical 

necessity, incorrect coding, and other errors (such as duplicate payments). In this 

statement, the term provider includes entities such as hospitals or physicians, and supplier 

means an entity that supplies Medicare beneficiaries with durable medical equipment, 

prosthetics, orthotics, and supplies (DMEPOS) such as walkers and wheelchairs.
 

Page 3 GAO-14-619T Medicare Improper Payments

CMS efforts to address these causes, reducing Medicare improper 

payments continues to be a challenge.

Today, my testimony will focus on the progress made and steps still 

needed by CMS to reduce improper payments in the Medicare FFS 

program. I will focus on CMS’s progress with respect to three key 

strategies we have identified in prior work that can help prevent improper 

payments and recoup overpayments:

• Strengthening provider enrollment standards and procedures to help 

reduce the risk of enrolling entities intent on defrauding the program;

• Improving prepayment controls, to ensure that claims are paid 

correctly the first time; and

• Improving postpayment claims review and recovery of improper 

payments to reduce the likelihood of improper payments and recoup 

overpayments.

My statement today is based primarily on previous GAO reports related to 

Medicare program integrity efforts issued between January 2007 and 

April 2014. A list of related GAO products is included at the end of this 

statement.9 We supplemented prior work with additional information on 

Medicare improper payments reported by HHS in its fiscal year 2013 

agency financial report and with other publicly available information from 

HHS’s website on Medicare appeals, and we received updated 

information from CMS in April 2014 on its actions related to relevant laws, 

regulations, and recommendations that had not yet been implemented 

discussed in this statement. Our work for this statement and the products 

on which it was based was conducted in accordance with generally 

accepted government auditing standards. Those standards require that 

we plan and perform the audit to obtain sufficient, appropriate evidence to 

provide a reasonable basis for our findings and conclusions based on our 

audit objectives. We believe that the evidence obtained provides a 

reasonable basis for our findings and conclusions based on our audit 

objectives.

 

9

The products listed at the end of this statement contain detailed information on the 

various methodologies used in our work.
 

Page 4 GAO-14-619T Medicare Improper Payments

CMS has made progress strengthening provider enrollment procedures 

and prepayment controls in the Medicare program to help ensure that 

payments are made correctly the first time, but the agency could further 

improve upon its efforts by implementing additional enrollment 

procedures and prepayment strategies. Likewise, additional 

improvements to CMS’s postpayment claims review activities could 

improve their efficiency and effectiveness.

CMS has implemented certain provider enrollment screening procedures 

authorized by the Patient Protection and Affordable Care Act (PPACA) 

and put in place other measures intended to strengthen existing 

procedures.10

• Screening Provider Enrollment Applications by Risk Level: CMS and 

the OIG issued a final rule in February 2011 to implement many of the 

new screening procedures required by PPACA.

The changes to provider screening procedures are 

intended to address past weaknesses identified by GAO and the HHS’s 

Office of Inspector General (OIG) that allowed entities intent on 

committing fraud to enroll in Medicare. Blocking the enrollment of such 

providers helps to prevent Medicare from making improper payments. 

Specifically, CMS added screenings of categories of provider enrollment 

applications by risk level and contracted with new national enrollment 

screening and site visit contractors.

11

 

10Pub. L. No. 111-148, 124 Stat. 119 (2010), as amended by the Health Care and 

Education Reconciliation Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029 (2010).

CMS designated 

three levels of risk—high, moderate, and limited—with different 

screening procedures for categories of Medicare providers at each 

level. Providers in the high-risk level are subject to the most rigorous 

screening. Based in part on our work and that of the OIG, CMS 

designated newly enrolling home health agencies and suppliers of 

durable medical equipment, prosthetics, orthotics, and supplies 

(DMEPOS) as high risk, and designated other providers as lower risk. 

11Medicare, Medicaid, and Children’s Health Insurance Programs; Additional Screening 

Requirements, Application Fees, Temporary Enrollment Moratoria, Payment Suspensions 

and Compliance Plans for Providers and Suppliers, 76 Fed. Reg. 5862 (Feb. 2, 2011). In 

discussing the final rule, CMS noted that Medicare had already employed a number of the 

screening practices described in PPACA to determine whether a provider is in compliance 

with federal and state requirements to enroll or to maintain enrollment in the Medicare 

program.

CMS Has Improved 

Key Strategies for 

Preventing and 

Recouping Improper 

Payment, but More 

Can Be Done

CMS Has Implemented 

Certain Enrollment 

Procedures to Better 

Screen Providers, but Has 

Not Completed Others
 

Page 5 GAO-14-619T Medicare Improper Payments

Providers at all risk levels are screened to verify that they meet 

specific requirements established by Medicare, such as having 

current licenses or accreditation and valid Social Security numbers. 

High- and moderate-risk providers are also subject to unannounced 

site visits.

Further, PPACA authorizes CMS to require fingerprint-based criminal 

background checks of providers and suppliers depending on the risks 

presented. In March 2014, CMS awarded a contract to a Federal 

Bureau of Investigation-approved contractor that will enable the 

agency to access criminal history information to help conduct those 

checks of high-risk providers and suppliers. CMS has indicated that 

the agency will continue to review the criteria for its screening levels 

and will publish changes if the agency decides to update the 

assignment of screening levels for categories of Medicare providers. 

Doing so could become important because the Department of Justice 

and HHS reported multiple convictions, judgments, settlements, or

exclusions against types of providers not currently at the high-risk 

level, including community mental health centers and ambulance 

providers.12

• National Enrollment Screening and Site Visit Contractors: CMS 

contracted with two new contractors at the end of 2011 to assume 

centralized responsibility for two functions that had been the 

responsibility of multiple contractors. One of the new contractors is 

conducting automated screenings to check that existing and newly 

enrolling providers and suppliers have valid licensure, accreditation, 

and a National Provider Identifier, and are not on the OIG list of 

providers and suppliers excluded from participating in federal health 

care programs. The second contractor conducts site visits of providers 

to determine whether sites are legitimate and the providers meet 

certain Medicare standards. A CMS official reported that, since the 

implementation of the PPACA screening requirements, the agency 

 

12Department of Health and Human Services and the Department of Justice, Health Care 

Fraud and Abuse Control Program Annual Report for Fiscal Year 2013 (Washington, D.C.: 

February 2014).
 

Page 6 GAO-14-619T Medicare Improper Payments

had revoked over 17,000 suspect providers’ privileges to bill the

Medicare program.13

Although CMS has taken actions to strengthen the provider enrollment 

process, we and the OIG have found that CMS has not taken other 

actions authorized by PPACA and that could improve screening and 

ultimately reduce improper payments.14

• Surety Bonds: PPACA authorized CMS to require a surety bond for 

certain types of at-risk providers and suppliers.

They include issuing a rule to 

require surety bonds for certain providers and suppliers as well as a rule 

on provider and supplier disclosure requirements.

15 Surety bonds may 

serve as a source for recoupment of erroneous payments. DMEPOS 

suppliers are currently required to post a surety bond at the time of 

enrollment.16

• Providers and Suppliers Disclosure: CMS has not yet scheduled the 

publication of a proposed rule for increased disclosures of prior 

actions taken against providers and suppliers enrolling or revalidating 

enrollment in Medicare, such as whether the provider or supplier has 

been subject to a payment suspension from a federal health care 

CMS told us in April 2014 that the agency collected 

about $1.6 million in DMEPOS supplier overpayments between 

February 2012 and March 2013. However, also in April 2014, CMS 

reported that it had not scheduled for publication a proposed rule to 

impose a surety bond requirement as authorized by PPACA for other 

types of at-risk providers and suppliers—such as home health 

agencies and independent diagnostic testing facilities.

 

13S. Agrawal, Deputy Administrator and Director, Center for Program Integrity, Centers 

for Medicare & Medicaid Services, Preventing Medicare Fraud: How Can We Best 

Protect Seniors and Taxpayers?, testimony before the Senate Special Aging Committee, 

March 26, 2014.

14GAO, Medicare Program Integrity: CMS Continues Efforts to Strengthen the Screening 

of Providers and Suppliers, GAO-12-351 (Washington, D.C.: Apr. 10, 2012).

15A surety bond guarantees that if a provider or supplier does not fulfill its obligation to 

Medicare, CMS can recover its losses via the surety bond.

1642 U.S.C. § 1395m(a)(16)(B). A DMEPOS surety bond is a bond issued by an entity 

guaranteeing that a DMEPOS supplier will fulfill its obligation to Medicare. If the obligation 

is not met, the surety bond is paid to Medicare. Medicare Program; Surety Bond 

Requirement for Suppliers of Durable Medical Equipment, Prosthetics, Orthotics, and 

Supplies, 74 Fed. Reg. 166 (Jan. 2, 2009).
 

Page 7 GAO-14-619T Medicare Improper Payments

program.17 As we reported in April 2012, agency officials indicated 

that developing the additional disclosure requirements has been 

complicated by provider and supplier concerns about what types of 

information will be collected, what CMS will do with it, and how the 

privacy and security of this information will be maintained.18

We are currently examining the ability of CMS’s provider enrollment 

system to prevent and detect the continued enrollment of ineligible or 

potentially fraudulent providers in Medicare. Specifically, we are 

assessing the process used to enroll and verify the eligibility of Medicare 

providers in Medicare’s Provider Enrollment, Chain, and Ownership 

System (PECOS) and the extent to which CMS’s controls are designed to 

prevent and detect the continued enrollment of ineligible or potentially 

fraudulent providers in PECOS.19

CMS has enhanced its efforts to reduce improper payments by improving 

prepayment controls, particularly prepayment edits to deny claims that 

should not be paid. CMS has stated that one of its key goals is to pay 

claims properly the first time—that is, to ensure that payments go to 

legitimate providers in the right amount for reasonable and necessary 

services covered by the program for eligible beneficiaries. To do so, 

among other things, CMS uses prepayment controls such as prepayment 

edits—instructions that CMS’s contractors, including Medicare 

Administrative Contractors (MAC), program into claims processing 

systems that compare claim information to Medicare requirements in 

 

17At the time of initial enrollment or revalidation of enrollment, PPACA requires providers 

and suppliers to disclose, in a form and manner and at such time as determined by the 

Secretary, any current or previous affiliation with another provider or supplier that has 

uncollected debt; has been or is subject to a payment suspension under a federal health 

care program; has been excluded from participation under Medicare, Medicaid, or State 

Children’s Health Insurance Program; or has had its billing privileges denied or revoked. 

Pub. L. No. 111-148, § 6401(a), 124 Stat. 119, 750 (2010).

18GAO-12-351. 

19PECOS is CMS’s centralized database for Medicare enrollment information. To bill 

Medicare, providers and suppliers must first enroll in PECOS and as part of the enrollment 

process CMS contractors validate certain provider information.

CMS Has Improved 

Prepayment Controls, but 

More Could Be Done to 

Prevent Improper 

Payments
 

Page 8 GAO-14-619T Medicare Improper Payments

order to approve or deny claims or to flag them for additional review.20 For 

example, some prepayment edits are related to service coverage and 

payment, while others are implemented to verify that the claim is properly 

filled out, that providers are enrolled in Medicare, or that patients are 

eligible Medicare beneficiaries.21

We previously evaluated CMS’s implementation of prepayment edits 

and found that while use of prepayment edits saved Medicare at least 

$1.76 billion in fiscal year 2010, the savings could have been greater had 

prepayment edits been used more widely.

Most of the edits implemented by CMS 

and its contractors are automated and applied to all claims; if a claim 

does not meet the criteria of the edits, it is automatically denied. Other 

prepayment edits are manual; they flag a claim for individual review by 

trained staff to determine whether it should be paid.

22 For example, based on our 

analysis of a limited number of national policies and local coverage 

determinations in 2012,23

As we recommended, CMS has taken steps to improve the development 

of certain prepayment edits that are implemented nationwide. For 

example, the agency has centralized the development and 

we identified $14.7 million and $100 million in 

payments, respectively, that were inconsistent with policies and 

determinations and were therefore improper. Such inconsistencies could 

have been identified using automated edits.

 

20Some edits use provider enrollment information, while others use information on 

coverage or payment policies, to determine whether claims should be paid. MACs process 

and pay FFS claims. In addition to MACs, CMS has other types of contractors to help 

identify and recover improper payments, address fraud and abuse, or develop specific 

types of edits.

21For more information on the scope of prepayment coverage, payment and coding edits, 

see GAO, Medicare Program Integrity: Greater Prepayment Control Efforts Could 

Increase Savings and Better Ensure Proper Payment, GAO-13-102 (Washington, D.C.: 

Nov. 13, 2012).

22GAO-13-102. 

23CMS typically develops national coverage determination policies for services that have 

the potential to affect a large number of beneficiaries and that have the greatest effect on 

the Medicare program. Development of national coverage determinations is a lengthy 

process, which requires review of clinical evidence and allows for public comment. In 

addition, each MAC has the authority to develop local coverage determinations (LCDs) 

that delineate the circumstances under which services are considered reasonable and 

necessary and are therefore covered in the geographic area where that MAC processes 

claims.
 

Page 9 GAO-14-619T Medicare Improper Payments

implementation of automated edits based on a type of national policy 

called national coverage determinations.24 In addition, CMS has modified 

its processes for identifying provider billing of services that are medically 

unlikely, in order to prevent circumvention of automated edits designed to 

identify an unusually large quantity of services provided to the same 

patient.25 However, as of April 2014, CMS had not fully implemented 

several of the recommendations we made in 2013 that we believe would 

promote greater use of prepayment edits and better ensure proper 

payment.26 For example, the agency did not include, in its written 

guidance to agency staff on procedures for ensuring consideration of 

automated edits, time frames for making decisions on whether an edit 

would be developed nor did it include requirements for assessing the 

effects of corrective actions taken. In addition, although CMS has taken 

initial steps to improve the data it collects about local prepayment edits 

implemented by its contractors, it had not yet determined a final process 

for how it would obtain and disseminate information about these edits 

across contractors.27

To help prevent improper payments, CMS also implemented a specific 

type of national edit, called a Medical Unlikely Edit (MUE), which limits the 

amount of a service that is paid when billed by a provider for a beneficiary 

on the same day. The limits for certain services that have been 

fraudulently or abusively billed are unpublished to deter providers from 

billing up to the maximum allowable limit. In 2013, we reported that CMS 

may be missing opportunities to prevent improper payments because it 

Nor does CMS require contractors to share 

information with each other about the underlying policies and savings 

related to their most effective edits, as the agency currently lacks a 

database to collect such information. Having information about the most 

effective local edits would enable contractors to determine the most 

appropriate approach for implementing Medicare payment policy 

effectively, which could help reduce improper payments.

 

24GAO, Medicare Fraud: Progress Made, but More Action Is Needed to Address Medicare 

Fraud, Waste and Abuse, GAO-14-560T (Washington, D.C.: Apr. 30, 2014).

25CMS refers to these automated edits as Medically Unlikely Edits (MUE).

26See GAO-13-102 for our recommendations related to our evaluation of CMS’s 

implementation of prepayment edits.

27MACs may create prepayment edits to implement their LCDs. CMS has responsibility for 

providing information and oversight to MACs with respect to their use of prepayment edits 

to promote effective stewardship of Medicare funds.
 

Page 10 GAO-14-619T Medicare Improper Payments

has not systematically evaluated MUE limits to determine whether

national edits should be revised to reflect more restrictive local limits.28 In 

addition, we found that CMS and its contractors did not have a system in

place for examining claims to determine the extent to which providers 

may be exceeding unpublished MUE limits and whether payments for 

such services were proper. As a result, we recommended that CMS 

examine contractor edits to determine whether any national unpublished 

MUE limits should be revised, consider reviewing claims to identify 

providers that exceed the unpublished MUE limits, and determine 

whether the provider’s billing was proper. HHS agreed with these 

recommendations, but as of April 2014, CMS had not implemented them.

Medicare uses four types of contractors to conduct postpayment claims 

reviews to identify and recoup overpayments.29

• MACs, in addition to conducting prepayment claims reviews, conduct 

postpayment claims reviews to help ensure accurate payment and 

specifically to identify payment errors. This includes identifying ways 

to address future payment errors—for example, through automated 

controls that can be added on a prepayment basis and by educating 

providers with a history of a sustained or high level of billing errors to 

ensure that they comply with Medicare billing requirements.

The contractors all use 

the same Medicare coverage and payment guidelines.

• Zone Program Integrity Contractors (ZPIC), the CMS contractors 

responsible for detecting and investigating fraud, perform 

postpayment claims reviews as a part of their investigations.30

 

28GAO, Medicare Program Integrity: Few Payments in 2011 Exceed Limits Under One 

Type of Prepayment Control, but Reassessing Limits Could Be Helpful, GAO-13-430

(Washington, D.C.: May 9, 2013).

29In this statement, we discuss the four types of primary contractors that perform claims 

reviews. In addition to these four, in 2012 CMS established the Supplemental Medicare 

Review Contractor type to perform national claims reviews of Medicare Part A, Part B, and 

durable medical equipment providers and suppliers. This type of contractor conducts 

large-volume medical reviews nationwide for specific services, such as Inpatient 

Psychiatric Facility Interrupted Stays, Epidural Injections, and Place-of-Service coding. We 

are not discussing this type of contractor because it was too new to examine during our 

most recent work on Medicare postpayment contractors.

30Program safeguard contractors conducted activities to investigate fraud prior to the 

establishment of ZPICs, and are still doing so in one of seven geographic zones.

Postpayment Claims 

Reviews Have Increased 

in Recent Years, but More 

Could Be Done to 

Increase Consistency 

across Contractors
 

Page 11 GAO-14-619T Medicare Improper Payments

Therefore, ZPIC reviews generally focus on providers whose billing 

patterns are unusual or aberrant in relation to those of similar 

providers in order to identify potential fraud.

• The Comprehensive Error Rate Testing (CERT) contractor estimates 

the Medicare FFS improper payment rate by using the results of 

postpayment claims reviews conducted on a sample of claims 

processed by the MACs. CERT reviews may also help identify 

program vulnerabilities by measuring the payment accuracy of each 

MAC, and the Medicare FFS improper payment rate by type of claim 

and service.

• Recovery audit contractors (RAC) conduct postpayment claims 

reviews to identify improper payments. Use of RACs was designed to 

be in addition to MACs’ existing claims review processes, since the 

number of postpayment reviews conducted by MACs and other 

contractors was small relative to the number of claims paid and the 

amount of improper payments. Whereas RACs are paid on a 

contingency fee basis based on the amount of improper payments 

they recoup, the other three contractors are paid under the terms of 

their contract using appropriated funds.

31 In February 2014, CMS 

announced a “pause” in the RAC program as the agency makes 

changes to the program and starts a new procurement process for the 

next round of recovery audit contracts. CMS said it anticipates 

awarding all five of these new Medicare FFS recovery audit contracts 

by the end of summer 2014.32

All four types of contractors conduct complex reviews of claims. Complex 

reviews involve manual examinations of each claim and any related 

documentation requested and received from the provider, including paper 

files, to determine whether the service was billed properly, and was 

covered, reasonable, and necessary. Licensed clinical professionals, 

such as licensed practical nurses, and certified coders typically perform 

 

31Recovery auditing has been used in various industries, including health care, to identify 

and collect overpayments for about 40 years. Typically, contractors that perform recovery 

audits are paid a contingency fee based on a percentage of the overpayments collected. 

In Medicare, the RACs are paid a contingency fee based on both the percentage of 

overpayments collected and underpayments identified.

32PPACA required the expansion of Medicare RACs to Parts C and D. See Pub. L. 

No. 111-148, § 6411(b) 124 Stat. 119, 775 (2010) (codified at 42 U.S.C. § 1395ddd(h). 

CMS has implemented a RAC for Part D, and CMS said it plans to award a contract for a

Part C RAC by the end of 2014.
 

Page 12 GAO-14-619T Medicare Improper Payments

the reviews. Contractors have physician medical directors on staff who 

provide guidance about making payment determinations on the basis of 

medical records and other documentation and who may discuss such 

determinations with providers.

In addition to conducting complex reviews, RACs also conduct automated 

and semiautomated postpayment claims reviews. Automated reviews use 

computer programming logic to check claims for evidence of improper 

coding or other mistakes. Automated postpayment reviews analyze paid 

claims and identify those that can be determined to be improper without 

examining any additional documentation, such as when a durable medical 

equipment supplier bills for items that should have been included as part 

of a bundled payment for a skilled nursing facility stay.33

Our prior work has found that the overall number of postpayment claims 

reviews has been increasing in recent years, but remains a very small 

percentage of total Medicare claims submitted.

Semiautomated 

reviews use computer programming logic to check for possible improper 

payments, but allow providers to send in information to rebut the claim 

denial before it is implemented. If providers send in information, RAC staff 

review it before making a final determination.

34 In 2012, the most recent 

year for which we have data, the four types of Medicare postpayment 

review contractors conducted about 2.3 million claims reviews, which is a 

55 percent increase from 2011. RACs conducted about 2.1 million, or 

90 percent, of these reviews in 2012. All four types of contractors listed 

except the CERT contractor increased the number of claims they 

reviewed in 2012, as shown in table 1.

 

33If the durable medical equipment claim is submitted prior to the bundled skilled nursing 

facility claim, the durable medical equipment claim may not appear to be improper when 

made.

34GAO, Medicare Program Integrity: Increasing Consistency of Contractor Requirements 

May Improve Administrative Efficiency. GAO-13-522 (Washington, D.C.: July 23, 2013).
 

Page 13 GAO-14-619T Medicare Improper Payments

Table 1: Volume of Contractors’ Postpayment Claims Reviews, by Type of Contractor 2011-2012

Type of contractor Type of review 2011 2012 Percent change

Medicare Administrative Contractors (MAC) Complex a 10,518 b 84,070 699%

Zone Program Integrity Contractors (ZPIC) Complex c 92,655 107,621 16

Comprehensive Error Rate Testing (CERT) contractor Complex 47,877 41,396 -14

Recovery Audit Contractors (RAC) Automated d 723,484 e 985,946 36

Complex 634,613 f 1,121,509 77

Total 1,358,097 2,107,455 55

Total 1,509,147 2,340,542 55%

Source: GAO analysis of CMS data.

a

Reviews completed by MACs do not include the reviews performed by the three legacy contractors 

that were continuing to provide claims administration services as of June 2013.

b

Complex reviews are manual examinations of claims documentation including paper files, to 

determine whether the service was billed properly and was covered, reasonable, and necessary. 

They typically are performed by licensed clinical professionals or certified coders.

c

Reviews completed by ZPICs include those performed by the program safeguard contractors (PSC) 

and reflect PSCs’ reviews of potentially abusive physical therapy claims in one geographic area.

d

RAC data are reported for fiscal years 2011 and 2012, rather than calendar year.

e

Automated reviews use computer programming logic to check claims for evidence of improper 

coding or other mistakes. Only the RACs conducted automated postpayment reviews.

f

While the number of postpayment reviews has increased significantly, the 

percentage of Medicare claims reviewed after payment remains small. 

The 2.3 million reviews performed by these four types of contractors 

accounted for less than 1 percent of the more than 1 billion FFS claims 

paid annually. About 1.4 million of the reviews were complex reviews 

which required the submission of documentation for review.

RAC complex reviews are based on the number of additional documentation requests received and

also include semiautomated reviews.

As a systematic matter, the increase in postpayment claims reviews is 

one factor causing backlogs and delays at the third level of the Medicare 

appeals process. Medicare providers and suppliers can appeal 

prepayment and postpayment claims determinations through the 

Medicare appeals process, which offers four levels of administrative 

review followed by judicial review. The first two levels of appeals for FFS 

claims are managed by two CMS contractors—the MAC that processed 

the original claim and a Qualified Independent Contractor, in that order.35

 

35There are five Qualified Independent Contractors that serve different areas of the 

country and focus on specific parts of the Medicare FFS program.
 

Page 14 GAO-14-619T Medicare Improper Payments

The third level of appeal is to an Administrative Law Judge (ALJ) at the 

Office of Medicare Hearings and Appeals (OMHA), a separate staff 

division within HHS. A Part A or Part B appeal filed with OMHA should 

generally be decided within 90 days of the appeal being filed.36 However, 

due to a backlog of cases, OMHA currently reports that the average time 

for appeals to be decided in fiscal year 2014 is 346 days.37

We have made recommendations to CMS in the past to improve the 

postpayment claims review process, and we continue to do work in this 

area. In October 2012, we reported on CMS’s Fraud Prevention System 

(FPS), which uses predictive analytics to analyze Medicare FFS claims.

The number of 

appeals filed at the ALJ level increased from 59,601 in fiscal year 2011 to 

384,651 in fiscal year 2013, according to OMHA. OMHA’s website 

currently says that new appeals will take about 28 months before they are 

put on an ALJ’s hearing docket. OMHA has reported that part of the 

reason for the backlog in Medicare appeals is the increase in 

postpayment contractor activities. We have been asked to examine the 

Medicare appeals process, including the reasons for the appeals backlog 

and what HHS is doing to address it.

38

FPS is intended to detect aberrant billing practices as quickly as possible 

so they can be investigated to determine whether the payments are 

proper. At the time, we recommended that CMS integrate FPS with 

Medicare’s payment-processing system to allow for the prevention of 

payments until suspect claims could be investigated by ZPICs. Although 

CMS reported in April 2014 that it had integrated the systems, the system 

still does not have the ability to suspend payment until suspect claims can 

be investigated. CMS has begun to implement prepayment edits in FPS 

that automatically deny claims based on attributes of the FPS edit which 

reviews the claim against historical claims across all lines of business.39

 

36OMHA also adjudicates other Medicare appeals, including those related to Part D 

prescription drug coverage. However, Part A and Part B appeals make up the vast 

majority of appeals made to OMHA.

37OMHA prioritizes beneficiary appeals and expedited appeals of Part D drug denials.

38GAO, Medicare Fraud Prevention: CMS Has Implemented a Predictive Analytics 

System, but Needs to Define Measures to Determine Its Effectiveness, GAO-13-104

(Washington, D.C.: Oct. 15, 2012). 

39CMS told us that it implemented the first FPS edit in January 2014 and that two 

additional FPS edits are planned for implementation in June 2014 and two more in 

September 2014.
 

Page 15 GAO-14-619T Medicare Improper Payments

In July 2013, we reported that the differences in CMS’s postpayment 

claims review requirements for the four types of contractors may reduce 

the efficiency and effectiveness of claims reviews by complicating 

providers’ compliance with the requirements.40

In conclusion, given the amount of estimated improper payments in the 

Medicare program, the imperative for CMS to use all available authorities 

to prevent and recoup improper payments is clear. Although CMS has 

taken important steps to strengthen key strategies for identifying and 

preventing improper payments, the agency must continue to improve 

upon these efforts. Identifying the nature, extent, and underlying causes 

of improper payments and developing adequate corrective action 

processes to address vulnerabilities are essential prerequisites to 

reducing them. As CMS continues its implementation of PPACA, 

additional evaluation and oversight will help determine whether 

implementation of relevant provisions has been effective in reducing 

improper payments. We are continuing to conduct a body of work that 

assesses CMS’s efforts to refine and improve its ability to prevent, 

identify, and recoup improper payments. Notably, we are currently 

For instance, while RACs 

have to obtain approval from CMS for the billing issues they choose to 

review on a widespread basis and notify providers and suppliers of those 

issues on their websites, the other contractors do not. In addition, the 

minimum number of days that CMS requires a contractor to give a 

provider to submit additional documentation for a complex review before 

the claim can be found improper for lack of documentation varies among 

the contractors from 30 days for ZPICs to 75 days for the CERT 

contractor. Staffing requirements and quality assurance requirements 

also vary among the four types of contractors. We recommended that 

CMS examine all postpayment review requirements for contractors to 

determine whether they could be made more consistent without negative 

effects on program integrity. We also recommended that CMS reduce 

differences in those requirements where it can be done without impeding 

the efficiency of its efforts to reduce improper payments. In commenting 

on that report, CMS agreed with our recommendations and stated that the 

agency was beginning to review its requirements for postpayment claims 

reviews. We are following up on this work with a study reviewing, among 

other things, whether CMS has strategies for coordinating postpayment 

review contractors’ claims review activities.

 

40GAO-13-522. 
 

Page 16 GAO-14-619T Medicare Improper Payments

assessing the extent to which CMS’s information system can help prevent 

and detect the continued enrollment of ineligible or potentially fraudulent 

providers in Medicare. Additionally, we are examining CMS’s oversight of 

some of the contractors that conduct postpayment reviews of claims 

including whether CMS has a strategy for coordinating these contractors’ 

claims review activities. Separately, we have also been asked to examine 

the Medicare appeals process, including the reasons for the appeals 

backlog and how it is being addressed. Through this work, we hope to 

develop further recommendations for CMS to help the agency continue to 

refine its efforts to reduce improper Medicare payments.

Chairman Lankford, Ranking Member Speier, and Members of the 

Subcommittee, this concludes my prepared remarks. I would be pleased 

to respond to any questions you may have at this time.

For further information about this statement, please contact 

Kathleen M. King at (202) 512-7114 or kingk@gao.gov. Contact

points for our Offices of Congressional Relations and Public Affairs 

may be found on the last page of this statement. Lori Achman, Assistant 

Director; Rebecca Abela; Jennel Lockley; and Jennifer Whitworth were 

key contributors to this statement.

GAO Contact and 

Staff 

Acknowledgments
Appendix I: Abbreviations

Page 17 GAO-14-619T Medicare Improper Payments

ALJ Administrative Law Judge

CERT Comprehensive Error Rate Testing

CMS Centers for Medicare & Medicaid Services

DMEPOS durable medical equipment, prosthetics, orthotics, 

 and supplies

FFS fee-for-service 

FPS Fraud Prevention System

HHS Department of Health and Human Services

LCD local coverage determination

MAC Medicare Administrative Contractor

MUE Medically Unlikely Edit

OIG Office of Inspector General

OMHA Office of Medicare Hearings and Appeals

PECOS Provider Enrollment, Chain, and Ownership System

PPACA Patient Protection and Affordable Care Act

PSC program safeguard contractor

RAC recovery audit contractor

ZPIC Zone Program Integrity Contractor

Appendix I: Abbreviations
Related GAO Products

Page 18 GAO-14-619T Medicare Improper Payments

Medicare Fraud: Progress Made, but More Action Needed to Address 

Medicare Fraud, Waste, and Abuse. GAO-14-560T. Washington, D.C.: 

April 30, 2014.

Medicare Program Integrity: Contractors Reported Generating Savings, 

but CMS Could Improve Its Oversight. GAO-14-111. Washington, D.C.: 

October 25, 2013.

Health Care Fraud and Abuse Control Program: Indicators Provide 

Information on Program Accomplishments, but Assessing Program 

Effectiveness Is Difficult. GAO-13-746. Washington, D.C.: September 30, 

2013.

Medicare Program Integrity: Increasing Consistency of Contractor 

Requirements May Improve Administrative Efficiency. GAO-13-522. 

Washington, D.C.: July 23, 2013.

Medicare Program Integrity: Few Payments in 2011 Exceeded Limits 

under One Kind of Prepayment Control, but Reassessing Limits Could Be 

Helpful. GAO-13-430. Washington, D.C.: May 9, 2013.

Medicare Fraud Prevention: CMS Has Implemented a Predictive 

Analytics System, but Needs to Define Measures to Determine Its 

Effectiveness. GAO-13-104. Washington, D.C.: October 15, 2012.

Medicare Program Integrity: Greater Prepayment Control Efforts Could 

Increase Savings and Better Ensure Proper Payment. GAO-13-102. 

Washington, D.C.: November 13, 2012.

Health Care Fraud: Types of Providers Involved in Medicare, Medicaid, 

and the Children’s Health Insurance Program Cases. GAO-12-820. 

Washington, D.C.: September 7, 2012.

Program Integrity: Further Action Needed to Address Vulnerabilities in 

Medicaid and Medicare Programs. GAO-12-803T. Washington, D.C.: 

June 7, 2012.

Medicare: Important Steps Have Been Taken, but More Could Be Done to 

Deter Fraud. GAO-12-671T. Washington, D.C.: April 24, 2012.

Medicare Program Integrity: CMS Continues Efforts to Strengthen the 

Screening of Providers and Suppliers. GAO-12-351. Washington, D.C.: 

April 10, 2012.

Related GAO Products
Related GAO Products

Page 19 GAO-14-619T Medicare Improper Payments

Improper Payments: Remaining Challenges and Strategies for

Governmentwide Reduction Efforts. GAO-12-573T. Washington, D.C.: 

March 28, 2012.

Fraud Detection Systems: Centers for Medicare and Medicaid Services 

Needs to Expand Efforts to Support Program Integrity Initiatives. 

GAO-12-292T. Washington, D.C.: December 7, 2011.

Medicare Integrity Program: CMS Used Increased Funding for New 

Activities but Could Improve Measurement of Program Effectiveness. 

GAO-11-592. Washington, D.C.: July 29, 2011.

Improper Payments: Reported Medicare Estimates and Key Remediation 

Strategies. GAO-11-842T. Washington, D.C.: July 28, 2011.

Fraud Detection Systems: Additional Actions Needed to Support Program 

Integrity Efforts at Centers for Medicare and Medicaid Services. 

GAO-11-822T. Washington, D.C.: July 12, 2011.

Fraud Detection Systems: Centers for Medicare and Medicaid Services 

Needs to Ensure More Widespread Use. GAO-11-475. Washington, D.C.: 

June 30, 2011.

Improper Payments: Recent Efforts to Address Improper Payments and 

Remaining Challenges. GAO-11-575T. Washington, D.C.: April 15, 2011.

Medicare and Medicaid Fraud, Waste, and Abuse: Effective 

Implementation of Recent Laws and Agency Actions Could Help Reduce 

Improper Payments. GAO-11-409T. Washington, D.C.: March 9, 2011.

Improper Payments: Progress Made but Challenges Remain in 

Estimating and Reducing Improper Payments. GAO-09-628T. 

Washington, D.C.: April 22, 2009.

Medicare: Thousands of Medicare Providers Abuse the Federal Tax 

System. GAO-08-618. Washington, D.C.: June 13, 2008.

Improper Payments: Status of Agencies’ Efforts to Address Improper 

Payment and Recovery Auditing Requirements. GAO-08-438T. 

Washington, D.C.: January 31, 2008.
Related GAO Products

Page 20 GAO-14-619T Medicare Improper Payments

Improper Payments: Federal Executive Branch Agencies’ Fiscal Year 

2007 Improper Payment Estimate Reporting. GAO-08-377R. Washington, 

D.C.: January 23, 2008.

Medicare: Improvements Needed to Address Improper Payments for 

Medical Equipment and Supplies. GAO-07-59. Washington, D.C.: 

January 31, 2007.

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