Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

MEDICARE CLAIMS 

ADMINISTRATION 

CONTRACTORS’ ERROR RATE 

REDUCTION PLANS 

Daniel R. Levinson 

Inspector General 

January 2014 

OEI-09-12-00090 
 

 

EXECUTIVE SUMMARY: MEDICARE CLAIMS ADMINISTRATION 

CONTRACTORS’ ERROR RATE REDUCTION PLANS, OEI-09-12-00090 

WHY WE DID THIS STUDY 

According to the Centers for Medicare & Medicaid Services’ (CMS) Comprehensive 

Error Rate Testing (CERT) program, Medicare claims administration contractors 

improperly paid an estimated $29.6 billion during the Federal fiscal year 2012 reporting 

period. The improper payment rate (error rate) was 8.5 percent, above the target rate of 

5.4 percent. To reduce the error rate, CMS requires claims administration contractors to 

submit error rate reduction plans. In these plans, contractors must describe the corrective 

actions that they will take to lower their error rates. In addition to overseeing contractors’ 

efforts to reduce their error rates, CMS has the authority to offer financial incentives to 

the new type of claims administration contractor, Medicare Administrative Contractors 

(MACs). 

HOW WE DID THIS STUDY 

We reviewed error rate reduction plans submitted for calendar year 2011 or 2012 to 

describe plan content and determine whether the plans included the required elements. 

To assess CMS’s oversight of the plans, we analyzed interview responses about reviews 

of the plans by CMS staff. We also analyzed information about the incentives that CMS 

offered to MACs in 2011 and 2012 to reduce their error rates. 

WHAT WE FOUND 

Most error rate reduction plans included the required elements. However, corrective 

actions were not always relevant to claims administration contractors’ CERT results and 

varied substantially in number. CMS oversight of error rate reduction plans is limited. 

CMS staff who reviewed the plans may have been unable to determine whether the plans 

addressed their most recent CERT results. Additionally, although some of the sampled 

plans did not include the five required elements or were for contracts with high error 

rates, CMS approved all sampled plans without recommending different or additional 

corrective actions. Finally, limitations in CMS’s administration of incentives for error 

rate reduction may reduce their effectiveness. 

WHAT WE RECOMMEND 

CMS concurred with our four recommendations to (1) review its process for overseeing 

claims administration contractors’ error rate reduction, (2) ensure that contractors submit 

clear plans for reducing their error rates, (3) provide additional guidance for contractors 

and CMS staff who review plans, and (4) provide error rate reduction incentives that are 

aligned with the contracts’ error rates and performance periods. 
TABLE OF CONTENTS 

Objectives ....................................................................................................1 

Background..................................................................................................1 

Methodology................................................................................................7 

Findings......................................................................................................11
 

Most error rate reduction plans included the required elements, 

but corrective actions were not always relevant to claims
 

administration contractors’ CERT results and varied 

substantially in number ..................................................................11
 

CMS oversight of error rate reduction plans is limited ..................14 

Limitations in CMS’s administration of incentives for error 

rate reduction may reduce their effectiveness ................................17 

Conclusion and Recommendations ............................................................20 

Agency Comments and Office of Inspector General Response .....22 

Appendix....................................................................................................23 

Agency Comments.........................................................................23 

Acknowledgments......................................................................................26 
 

 

 

 

OBJECTIVES 

1.	 To describe claims administration contractors’ error rate reduction 

plans. 

2.	 To assess the Centers for Medicare & Medicaid Services’ (CMS) 

oversight of error rate reduction plans. 

3.	 To assess the financial incentives that CMS offered to Medicare 

Administrative Contractors (MACs) to reduce their error rates. 

BACKGROUND 

Medicare Claims Administration Contractors 

CMS uses contractors to process claims and pay for services provided to 

beneficiaries in the Medicare fee-for-service program (claims 

administration contractors).1

 The scope of each claims administration 

contract covers a specific jurisdiction (i.e., States) and one or more claim 

types. Claim types include durable medical equipment (DME), Part A 

claims, Part B claims, and home health and hospice claims. Some of these 

contractors are awarded and administer multiple contracts. 

CMS has completed the process of replacing all other claims 

administration contractor types with MACs.2 When the jurisdiction 

consolidation is complete, 10 MACs will process all Medicare Part A and 

Part B claims (A/B MACs) and 4 MACs will process all DME claims.3 

For the purpose of this report, “claims administration contractors” or 

“contractors” refers to all types of claims administration contractors, 

including MACs. Use of the term “MACs” refers solely to MACs. 

The primary goal of each claims administration contractor is to “pay it 

right,” i.e., to pay the proper amount for covered, medically necessary, and 

correctly coded services.4

 In Federal fiscal year 2011, claims 

1

 At the time of data collection, claims administration contractors consisted of fiscal 

intermediaries, carriers, and regional home health intermediaries, all of which have 

historically processed Medicare fee-for-service claims, and MACs. 2

 Section 911 of the Medicare Prescription Drug, Improvement, and Modernization Act 

of 2003, Public Law 108-173, expanded CMS’s authority to contract with entities such as 

MACs. 

3

 Administration of home health and hospice claims will be consolidated into four of the 

A/B MAC contracts. 

4

 CMS, Medicare Fee-for-Service 2011 Improper Payments Report, p. 6. Accessed at 

http://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/ 

CERT/Downloads/2011-Medicare-FFS-Improper-Payment-Report-.pdf on May 9, 2013. 

Medicare Claims Administration Contractors’ Error Rate Reduction Plans (OEI-09-12-00090) 1 
 

 

 

 

 

 

 

 

administration contractors collectively processed about 1.2 billion claims.5 

Because of the large number of claims that contractors must process, they 

cannot manually review every claim submitted by providers. Instead, 

contractors take two main types of actions to prevent improper payments: 

(1) medical review of selected claims and (2) provider outreach and 

education. Medical review actions include identifying claims for review 

and determining whether they meet Medicare coverage criteria, 

implementing automated prepayment edits,6 and developing local 

coverage policies. Provider outreach and education is provided through a 

variety of media, such as articles, conference calls, and Web-based 

training.7 

Measuring Improper Payments Made by Claims Administration 

Contractors 

CMS’s Comprehensive Error Rate Testing (CERT) program measures the 

improper payment rate (error rate) in the Medicare fee-for-service 

program. CERT contractors review a stratified random sample of 

submitted claims to determine whether the claims met Medicare 

requirements. The CERT program found that during the 2012 fiscal 

reporting period, claims administration contractors improperly paid an 

estimated $29.6 billion out of the $349.7 billion in total program 

expenditures.8 The national error rate was 8.5 percent,9 above CMS’s 

target error rate of 5.4 percent.10 

In addition to measuring the national error rate, the CERT program 

measures the error rate for each claims administration contract. In the 

2010 and 2011 reporting periods, the CERT program found that claims 

administration contractors improperly paid between an estimated 

$17 million and $3.2 billion annually, per contract. Contract-specific error 

rates ranged from 1 to 76 percent.11, 12 

5

 Government Accountability Office (GAO), Greater Prepayment Control Efforts Could 

Increase Savings and Better Ensure Proper Payment (GAO-13-102), November 

2012, p. 6. 

6

 “Edits” are coded into the claims payment system to automatically deny all or part of a 

claim or suspend all or part of a claim for manual review. CMS, Medicare Program 

Integrity Manual, ch. 3, § 3.2, and ch.7, § 7.2.8.1. 7

 CMS, Medicare Contractor Beneficiary and Provider Communications Manual, ch. 

6, § 20. 

8

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

Other Accompanying Information, pp. 164-165.
 9

 Ibid. 

10 CMS, Medicare Fee-for-Service 2011 Improper Payments Report, p. 32.
 11 Office of Inspector General (OIG) analysis of CMS improper payment and error rate 

data, 2013.
 12 During this time, DME MACs had error rates between 61 and 76 percent. The 

remaining contractor types had error rates between 1 and 24 percent.
 

Medicare Claims Administration Contractors’ Error Rate Reduction Plans (OEI-09-12-00090) 2 
 

 

 

 

 

 

 

 

 

 

Related Work on Improper Payments Made by Claims 

Administration Contractors 

GAO has considered Medicare to be a high-risk program since 1990. In 

February 2013, GAO found that although CMS had made progress in 

measuring and reducing Medicare improper payments, it had yet to 

demonstrate sustained progress in lowering the error rates.13 

Recent OIG reports have found that claims administration contractors did 

not take consistent and sufficient action to avoid making improper 

payments. OIG reported in October 2010 that contractors did not use 

historical CERT data to identify error-prone providers for corrective 

action.14 Another OIG report found that only one of the nine MACs it 

reviewed performed activities to detect and deter fraud by community 

mental health centers in 2010, although, at the time, approximately half of 

the centers exhibited questionable billing characteristics.15 A third OIG 

report found that of the two MACs included in the review, one processed 

claims for 95 percent of the home health agencies in the MACs’ two 

regions in 2011, but identified only 2 percent of improper payments that 

were prevented for home health services by the two MACs.16 

Error Rate Reduction Plans 

To reduce the Medicare fee-for-service error rate, CMS began requiring 

claims administration contractors to submit error rate reduction plans in 

2003. The Medicare Program Integrity Manual states that these plans are 

the “cornerstone of ... efforts to prevent improper payments.”17 In their 

plans, contractors must describe the corrective actions (that is, medical 

review and provider outreach and education actions) that they plan to take 

to lower their error rates.18 

Data Used To Develop Error Rate Reduction Plans. CMS requires that 

claims administration contractors use their CERT results to develop error 

rate reduction plans.19 Every November, CMS provides contractors with 

13 GAO, GAO’s 2013 High-Risk Update: Medicare and Medicaid (GAO-13-433T), 

February 2013. GAO stated that because the size of Medicare relative to other programs 

leads to aggregate improper payments that are extremely large, continuing to reduce 

improper payments in this program should remain a priority for CMS. 

14 OIG, Centers for Medicare & Medicaid Services’ Use of Medicare Fee-for-Service 

Error Rate Data To Identify and Focus on Error-Prone Providers (A-05-08-00080), 

October 2010. 

15 OIG, Vulnerabilities in CMS’s and Contractors’ Activities To Detect and Deter Fraud 

in Community Mental Health Centers (OEI-04-11-00101), January 2013. 16 OIG, CMS and Contractor Oversight of Home Health Agencies (OEI-04-11-00220), 

December 2012. 

17 CMS, Medicare Program Integrity Manual, ch. 1, § 1.3.1.
 18 Ibid., ch.12, § 12.3.9. 

19 Ibid., ch. 12, § 12.3.9, and ch. 7, §§ 7.1 and 7.8.1.1.
 

Medicare Claims Administration Contractors’ Error Rate Reduction Plans (OEI-09-12-00090) 3 
 

 

 

 

 

 

 

 

 

 

CERT results specific to each contract. The CERT results include 

information about each improper payment, such as the procedure code, 

service setting, and error type, which contractors can analyze to identify 

common reasons for errors in their jurisdictions. According to CMS, 

contract-specific CERT results “provide...contractors with valuable 

information to assist in the development of specific, robust corrective 

actions to prevent improper payments from occurring in the future.”20 

Contractors also have continuous access to CERT-identified improper 

payments through a private Web site. 

CMS expects, but does not require, claims administration contractors to 

use information about improper payments identified by Recovery Audit 

Contractors (RAC) to identify areas needing corrective action.21, 22 RACs 

and contractors share data with each other on improper claims and 

overpayment recoupment efforts. Contractors have continuous access to 

RAC-identified errors through the RAC Data Warehouse.23 Contractors 

also analyze internal data, such as results of medical record reviews, to 

determine which corrective actions would best prevent the CERT- and 

RAC-identified errors in the future. 

Error Rate Reduction Plan Requirements. For each contract they 

administer, claims administration contractors must develop and submit an 

error rate reduction plan that addresses the contract’s annual CERT 

results.24, 25 A/B MACs receive separate Part A and Part B error rates and 

must submit a plan for each Part. The plan is due 30 days after each 

contractor receives its annual CERT results. 

20 CMS, Medicare Fee-for-Service 2011 Improper Payments Report, p. 8.
 21 CMS, Medicare Program Integrity Manual, ch.1, § 1.3.1. 22 RACs are responsible for identifying overpayments and underpayments and are paid
 

according to the amount of improper payments they correct. CMS, Recovery Auditing in 

the Medicare and Medicaid Programs for Fiscal Year 2011, pp. 2-3. 23 CMS, Statement of Work for the Recovery Audit Program, September 1, 2011, p. 12. 24 CMS, Medicare Program Integrity Manual, ch.12, § 12.3.9. New contractors are 

required to submit error rate reduction plans if their contracts were in effect when the 

contract-specific error rates became available, even if their contracts were not in effect 

during the CERT review period. 

25 The Medicare Program Integrity Manual states that DME Program Safeguard 

Contractors (another type of Medicare contractor) are responsible for DME MAC 

contracts’ error rate reduction plans. However, CMS informed OIG that this is not the 

case: DME MACs are responsible for their contracts’ plans. 

Medicare Claims Administration Contractors’ Error Rate Reduction Plans (OEI-09-12-00090) 4 
 

 

 

 

 

 

The plan must follow the format required by CMS’s data entry system.26 

The plan must also include five elements that describe: 

1.	 reasons for error in the contractor’s jurisdiction,27 

2.	 corrective actions in place and new corrective actions planned for 

the future, 

3.	 adjustments that the contractor has made or will make to its 

Medical Review Strategy,28 

4.	 coordination activities among components29 within the contractor, 

and 

5.	 the ways in which the contractor will use the CERT results to 

develop and implement provider outreach and education efforts.30 

CMS Oversight of Error Rate Reduction Plans. CMS staff review each 

error rate reduction plan to determine whether it is a “reasonable response 

to the contractor’s error rate.”31 CMS regional office staff review the 

medical review sections of the plans. CMS central office staff review the 

provider outreach and education sections of the plans. According to 

regional office guidance, CMS staff review the plan “in conjunction with 

the applicable...CERT Improper Payment Report” and “ensure the plan 

sufficiently addresses the reasons for errors within the [claims 

administration contractor’s] jurisdiction.”32 CMS staff are also required to 

ensure that each plan includes the five required elements. If CMS staff 

have a question or concern about the plan, they may provide comments or 

suggestions to the contractor. Contractors may submit multiple versions 

between the initial submission and CMS approval. 

26 CMS maintains the data entry system, which is available to contractors to enter their 

error rate reduction plans. The system includes fields that identify the contract, fields 

used by the contractors to enter plan content, and fields used by CMS staff to enter 

comments and identify CMS staff who reviewed the plan. 27 According to CMS, this element requires contractors to report the types of CERT 

errors (e.g., service types or provider types) that, on the basis of their analysis of their 

CERT results, require corrective action. Contractors should also report why those CERT 

errors require corrective action (e.g., a high percentage of claims with a procedure code
 

had errors) and the results of their internal data analyses.
 28 Claims administration contractors are required to develop an annual Medical Review 

Strategy for each contract. The strategy details the medical review issues, actions, and 

projected goals for reducing the error rate. CMS, Medicare Program Integrity Manual,
 

ch. 7, § 7.1. 

29 For example, medical review and provider outreach and education divisions. 30 CMS, Medicare Program Integrity Manual, ch. 12, § 12.3.9. 31 Ibid. 

32 CMS, Standard Operating Procedure M-4: Review of the Comprehensive Error Rate 

Testing (CERT) Error Rate Reduction Plan (ERRP), p. 2. The CERT Improper Payment 

Report is published annually and reports the national error rate, the common causes of
 

improper payments, and the steps CMS is taking to reduce the error rate. 

Medicare Claims Administration Contractors’ Error Rate Reduction Plans (OEI-09-12-00090) 5 
 

 

 

 

 

 

 

Once any comments are addressed, CMS staff who reviewed the medical 

review and provider outreach and education sections each communicate 

the results of their review to central office staff. Generally, CMS staff 

who review the plans assist CMS contracting officers and technical 

representatives in interpreting Medicare program requirements and 

ensuring that claims administration contractors follow the technical 

requirements of their contracts.33 

Other Documents Used for CMS Oversight of Claims Administration 

Contractors’ Error Rate Reduction Efforts. In addition to reviewing error 

rate reduction plans, CMS staff monitor claims administration contractors’ 

error rate reduction efforts throughout the year using a variety of other 

oversight documents. CMS staff responsible for the medical review 

section of plans review Medical Review Strategies, Strategy Analysis 

Reports, and Monthly Status Reports.34 CMS staff responsible for the 

provider outreach and education section of plans review Provider Service 

Plans, Educational Activities Reports, and Monthly Status Reports.35 

Performance-Based Incentives to MACs 

To improve Medicare’s administrative services to beneficiaries and health 

care providers, Congress replaced all other claims administration 

contractor types with MACs and authorized CMS to use new contracting 

tools.36 These tools include performance-based financial incentives. 

Unlike the other types of claims administration contractors, MACs are 

paid on a cost-plus-award-fee basis.37 CMS reimburses MACs for the cost 

of fulfilling their contract responsibilities and offers incentives to 

“motivate contractor efforts that might not otherwise be emphasized and 

discourage contractor inefficiency and waste.”38 

33 CMS, MAC Contract Administration Guide, revised June 3, 2011, p. 7. 34 The Strategy Analysis Report is the annual update to the Medical Review Strategy 

Report and describes progress towards goals and any changes to the strategy. CMS, 

Medicare Program Integrity Manual, ch. 7, §§ 7.1 and 7.8. MACs submit Monthly 

Status Reports that include updates about all aspects of the contracts, including the 

achievement of milestones and deliverables. 

35 The Provider Service Plan outlines the contractor’s strategies and actions planned for 

the coming year to support provider outreach and education and contains an evaluation of 

the success of the previous year’s provider outreach and education. The Educational 

Activities Report summarizes the contractor’s provider outreach and education actions 

during the previous time period. CMS, Medicare Contractor Beneficiary and Provider 

Communications Manual, ch. 6, §§ 20.7.1 and 20.7.2. 36 CMS, Medicare Administrative Contractors. Accessed at 

http://www.cms.gov/Medicare/Medicare-Contracting/Medicare-AdministrativeContractors/MedicareAdministrativeContractors.html on August 12, 2013. 37 Social Security Act, § 1874A(b)(1)(D), requires CMS to provide incentive payments to
 

MACs to ensure service quality and promote efficiency. 

38 Federal Acquisition Regulation, Subpart 16.4—Incentive Contracts. 

Medicare Claims Administration Contractors’ Error Rate Reduction Plans (OEI-09-12-00090) 6 
 

 

 

 

 

 

Before the beginning of each year of a MAC’s contract,39 CMS offers 

incentives for the MAC’s performance during the upcoming year 

(performance period).40 CMS selects certain metrics from the MAC’s 

contract for which to offer these incentives. Examples of these metrics 

include claims administration timeliness, responsiveness to beneficiary 

inquiries, and error rate reduction. CMS weights each metric to determine 

the percentage of the total incentive payments the MAC can earn for its 

performance in each metric. CMS may change the metrics at any time, 

although it must inform the MAC of any revisions to the evaluation 

criteria before the performance period begins.41 

At the end of each performance period, CMS determines the amount of 

incentive payments, if any, a MAC has earned. CMS makes this 

determination on the basis of its annual evaluation of the MAC and the 

MAC’s self-reported performance assessment. In November 2012, GAO 

found that CMS provided relatively small incentives—3 percent or less of 

total incentives—to promote MACs’ use of effective prepayment edits.42 

METHODOLOGY 

Data Collection and Analysis 

Error Rate Reduction Plan Content. From CMS, we collected all error 

rate reduction plans that were in effect during calendar year 2011 or 

2012.43 We received 42 plans in effect during 2011 and 34 plans in effect 

during 2012. We also requested a list of all claims administration 

contractors that received CERT results and determined whether a plan was 

submitted for each contract, as required. 

We reviewed each error rate reduction plan and recorded information 

about all corrective actions (i.e., we created a corrective action database). 

CMS does not define “corrective action” for the purpose of reporting them 

in error rate reduction plans. In this report, we define “corrective action” 

as an action that has been or will be taken by the claims administration 

contractor to address a specific target and reduce its error rate. Corrective 

39 The term of a MAC contract is 5 years. 

40 Performance metrics and evaluation criteria are set in the MAC’s annual Award Fee 

Plan. The Award Fee Plan’s performance period begins with the first full month and 

ends with the last full month of the contract performance period. 

41 CMS, Award Fee Plan for Part A and Part B Medicare Administrative Contractor
 

(A/B MAC) Jurisdiction 7, p. 3. 42 GAO, Greater Prepayment Control Efforts Could Increase Savings and Better Ensure 

Proper Payment, GAO-13-102, November 2012. 43 During data collection, CMS inadvertently did not submit one error rate reduction plan 

that was in effect during 2012. Therefore, although 77 plans were in effect during 

2011 or 2012, our analysis is of the 76 submitted plans. 

Medicare Claims Administration Contractors’ Error Rate Reduction Plans (OEI-09-12-00090) 7 
 

action targets include, but are not limited to, specific providers (e.g., 

providers with CERT errors), error types (e.g., documentation errors), 

service types (e.g., an ambulance transport procedure code or a group of 

procedure codes for chiropractic services), provider types (e.g., 

cardiologists), and facility types (e.g., skilled nursing facilities). A 

statement such as “we will publish articles to educate providers” does not 

identify the type(s) of error the articles will target and thus would not 

count as a corrective action for the purpose of this report. However, a 

statement such as “we will publish articles about power wheelchair billing 

requirements” would count as a corrective action. 

We determined whether error rate reduction plans included each of the five 

required elements. Because CMS does not provide specific guidance on 

what is required to meet each element, we adopted a lenient approach to 

making this determination. Table 1 presents the minimum criteria we used 

as review standards for the required elements. 

Table 1: Required Elements and OIG Review Standards for Error 

Rate Reduction Plans 

Required Element OIG Minimum Criteria Review Standard 

Reasons for error in the contractor’s 

jurisdiction

 Plan identified types of error in the contractor’s 

CERT results and explained why they required 

corrective action (e.g., a high percentage of claims 

for a service type had errors) 

Corrective actions in place and new 

corrective actions planned for the future 

Plan listed at least one past and one new (i.e., 

planned or ongoing) corrective action 

Adjustments that the contractor has made 

or will make to its Medical Review 

Strategy 

Plan listed at least one medical review 

corrective action and had medical review sections 

that were up-to-date 

Coordination activities among components 

within the contractor 

Plan described any type of internal 

coordination 

How the contractor will use the CERT 

results to develop and implement provider 

outreach and education efforts 

Plan described the process for use of CERT 

results for provider outreach and education efforts 

or provided a specific example(s) 

Using our corrective action database, we determined the range and 

average numbers of new, medical review, and provider outreach and 

education corrective actions in error rate reduction plans. We compared 

the numbers of these corrective actions with contracts’ error rates. 

Using our corrective action database, we determined whether corrective 

actions listed in error rate reduction plans applied to each contracts’ CERT 

results. Specifically, we determined whether they targeted the appropriate 

timeframe, claim type(s), and jurisdiction. 

Medicare Claims Administration Contractors’ Error Rate Reduction Plans (OEI-09-12-00090) 8 
 

 

 

 

 

 

 

 

CMS Oversight of Error Rate Reduction Plans. Using date fields in the 

error rate reduction plans we collected, we determined whether CMS’s 

plan reviews were timely. We calculated the average number of days 

between the effective date of each 2011 and 2012 plan and the date of 

CMS’s approval as recorded in the data entry system. 

We determined the extent to which claims administration contractors did 

not report characteristics of corrective actions that could have affected 

reviewers’ ability to determine the extent to which a corrective action 

addressed an error. Using our corrective action database, we identified 

corrective actions for which we could not determine one or more of the 

following: status, service target, action, number of providers affected,44 

and/or number of times the action had been or would be performed.45 

We conducted structured telephone interviews with CMS staff in the 

central and regional offices. In 2012, every error rate reduction plan 

received a review of its medical review section by one of nine staff in 

CMS regional offices and a review of its provider outreach and education 

section by one of three staff in the central office. We interviewed and 

collected supporting documentation from all 12 CMS staff who reviewed 

plans about their general oversight of plans and claims administration 

contractors’ error rate reduction efforts. We also interviewed them about a 

sample of their plan reviews to determine the extent to which they 

recommended different or additional corrective actions or had concerns 

about the plans.46 We asked about reviews of the medical review and 

provider outreach and education sections of 18 sampled plans. Therefore, 

we collected interview data for 36 reviews. 

We determined the extent to which sampled error rate reduction plans did 

not include the five required elements or were associated with contracts 

with error rates above CMS’s target during the Federal fiscal year 

2010 and 2011 reporting periods (i.e., in the 2 years before the sampled 

plans’ reviews). We compared the results of these analyses to our findings 

on CMS’s review of the sampled plans. 

Financial Incentives for MACs’ Error Rate Reduction. To analyze the 

incentives that CMS offered to MACs to reduce their error rates, we 

44 Applies only to corrective actions that contractors indicated were specific to certain 

providers. 

45 Applies only to corrective actions that contractors indicated had been or would be
 

performed multiple times.
 46 We selected a sample of 2012 error rate reduction plans so that staff members’
 

responses were based on the most recent plan reviews. The nine CMS staff who were 

responsible for the plans’ medical review content each reviewed between two and seven 

plans in 2012. We selected two plans from each of these staff members, using random
 

sampling to select plans for staff members who reviewed more than two plans.
 

Medicare Claims Administration Contractors’ Error Rate Reduction Plans (OEI-09-12-00090) 9 
 

 

 

Medicare Claims Administration Contractors’ Error Rate Reduction Plans (OEI-09-12-00090) 10 

identified MACs with performance periods in calendar years 2011 and 

2012. We requested information from CMS about the incentive payments 

offered and MACs’ error rates.47 We also conducted a telephone interview 

with CMS to collect information about how and when MACs’ incentives 

for error rate reduction are set. 

We determined the extent to which the size of incentives for error rate 

reduction varied according to MACs’ error rates at the time incentives 

were offered. We compared the contract performance periods with the 

date range for sampled CERT claims that CMS used to measure MACs’ 

error rate reduction performance. 

Our analysis focuses on the incentives that CMS offered to MACs at the 

beginning of their performance periods and does not address the extent to 

which MACs successfully reduced their error rates and received incentive 

payments. 

Limitations 

We compared the numbers of corrective actions listed in error rate 

reduction plans with contracts’ error rates. However, because the scopes 

of corrective actions may vary, the number of corrective actions in a plan 

may not necessarily measure the plan’s effectiveness. As a result, the 

number of corrective actions listed in a plan may be a limited indicator of 

a contractor’s response to its error rate. 

At the time of our review, CMS did not document the dates that claims 

administration contractors initially submitted error rate reduction 

plans. Therefore, we were unable to determine whether plans were 

submitted within the required timeframe (i.e., 30 days after the contractor 

received its CERT results). We were also unable to determine the total 

time for CMS’s plan reviews. 

Standards 

This study was conducted in accordance with the Quality Standards for 

Inspection and Evaluation issued by the Council of the Inspectors General 

on Integrity and Efficiency. 

47 CMS provided contract information for 13 MACs with contracts in effect during 

2011 and for 15 MACs with contracts in effect during 2012. 
 

Medicare Claims Administration Contractors’ Error Rate Reduction Plans (OEI-09-12-00090) 11 

 

FINDINGS 

Most error rate reduction plans included the required 

elements, but corrective actions were not always

relevant to claims administration contractors’ CERT 

results and varied substantially in number 

Although most error rate reduction plans met the minimum criteria we 

established to determine whether plans included the five required 

elements, some plans listed corrective actions that were irrelevant to 

claims administration contractors’ CERT results. The numbers of 

corrective actions listed in plans varied substantially, but not according to 

contractors’ error rates. 

Sixty-seven of seventy-six plans included the five required 

elements 

All 76 error rate reduction plans were submitted as required, and 67 of 

76 plans met the minimum criteria we established to determine whether 

plans included the 5 required elements.48 All plans included the element to 

describe coordination between each claims administration contractor’s 

components by meeting our minimum criterion of referencing any type of 

internal coordination. All plans also included the element to describe how 

the contractors would use their CERT results to develop and implement 

provider outreach and education efforts by meeting our minimum criterion 

of generally describing these efforts and/or providing at least one example. 

Seven error rate reduction plans did not include the element to describe 

adjustments that the claims administration contractors had made or would 

make to their Medical Review Strategies. These plans did not meet our 

minimum criterion of including at least one medical review corrective 

action and having a medical review section that was up-to-date. The 

contractors responsible for these plans had error rates ranging from 0.5 to 

67.4 percent. 

Three error rate reduction plans did not meet the requirement to describe 

corrective actions in place and new corrective actions planned for the 

future. These plans did not meet our minimum criterion of including at 

least one past and one new corrective action in response to claims 

administration contractors’ recent CERT results. For example, one plan 

reported only five corrective actions, all of which had occurred in the past. 

The contractors responsible for these plans had error rates ranging from 

0.5 to 23.7 percent. 

48 Six plans did not include one required element and three plans did not include two 

required elements. 
 

Two error rate reduction plans did not meet the requirement to describe 

reasons for error in the claims administration contractors’ jurisdictions. 

These plans did not meet our minimum criterion of identifying types of 

error in their CERT results and explaining why they were considered 

priorities. These plans did not include any analysis of the contractors’ 

CERT results, such as providing error rates for identified services. The 

contractors responsible for these plans had error rates of 8.0 and 

75.1 percent. 

Plans’ corrective actions were not always relevant to 

contractors’ CERT results 

Some plans listed corrective actions that were outside the timeframe of 

their CERT results or the scope of their contracts. 

Twenty-seven plans listed at least one corrective action outside the 

timeframe of their CERT results. Error rate reduction plans should address 

the claims administration contractor’s most recent CERT results. 

However, 27 of 76 plans listed at least 1 corrective action outside the 

timeframe of their most recent CERT results. Contractors that submitted 

the 27 plans reported actions taken prior to the CERT review period or 

used CERT results from prior years as a rationale for corrective actions. 

Thirteen plans each listed more than 20 of these corrective actions. For 

example, to explain why corrective actions would be taken, a plan that was 

submitted in April 2012 stated: “The error rate [for oxygen supplies] 

increased from 26% on the [contract-specific] November 2009 CERT 

Error Report to 73% on the November 2010 report,” but did not include 

information from the contract’s most recent (i.e., 2011) CERT results. 

Sixteen plans listed at least one corrective action outside the scope of their 

contracts’ claim types or jurisdictions. Claims administration contractors’ 

CERT results are specific to the claim type(s) and jurisdiction included in 

the scope of their contracts. However, 16 of 76 plans listed at least 

1 corrective action outside the scope of their contracts’ claim type or 

jurisdiction. For example, one contract covered Connecticut and New 

York, but its plan described in-person provider workshops in Kentucky, 

Michigan, Indiana, and Wisconsin. Corrective actions outside the scope 

of the contract do not indicate that the contractor’s plan was deficient, but 

rather that the plan was not tailored to the errors specific to the contract. 

The numbers and types of corrective actions in plans varied, 

but not according to contractors’ error rates 

Although most error rate reduction plans met our minimum criteria for 

including the five required elements, the numbers and types of corrective 

actions listed in plans varied. 

Medicare Claims Administration Contractors’ Error Rate Reduction Plans (OEI-09-12-00090) 12 
 

 

Most error rate reduction plans included the element to describe 

adjustments to the contracts’ Medical Review Strategies. However, the 

numbers of medical review corrective actions listed in all plans varied 

from 0 to 97, with an average of 21 per plan. Twenty-four of seventy-six 

plans listed 10 or fewer of these corrective actions. Medical review 

corrective actions varied from postpayment reviews of individual 

providers’ claims to prepayment reviews of all claims submitted with 

certain procedure codes. 

All error rate reduction plans included the element that claims 

administration contractors describe how they will use CERT results to 

develop and implement provider outreach and education efforts. 

However, the numbers of provider outreach and education corrective 

actions listed in plans varied from 3 to 969, with an average of 74 per 

plan. Provider outreach and education corrective actions varied from a 

letter educating a single provider to an in-person training attended by 

hundreds of providers. 

Although most error rate reduction plans listed at least 1 new (i.e., planned 

or ongoing) corrective action, the numbers of new corrective actions listed 

in plans varied from 0 to 529, with an average of 28 per plan. On average, 

less than one-third (32 percent) of the corrective actions listed in plans 

were new; the remaining actions were already completed.49 Additionally, 

24 of 76 plans listed 10 or fewer new corrective actions. Although CMS 

expects claims administration contractors to report what they have done in 

the past to address a particular problem, plans should also list new 

corrective actions that a contractor will take to address its most recent 

CERT results.50 

The numbers of corrective actions in error rate reduction plans did not 

vary according to claims administration contractors’ error rates.51 

Contractors with high error rates did not always submit plans that listed 

more corrective actions than contractors with low error rates. See 

Table 2 for examples of plans’ corrective actions and their contracts’ error 

rates. For example, one plan for a contract with an error rate of 

23.7 percent and $1.7 billion in projected improper payments did not list 

any new corrective actions or medical review corrective actions (Plan 

10 in Table 2). In contrast, one plan for a contract with an error rate of 

4.7 percent and $254 million in projected improper payments listed 

49 Because we could not determine the status of 5 percent of corrective actions, these are 

excluded from this analysis.
 50 CMS, Medicare Program Integrity Manual, § 12.3.9. 51 Because contractors may take a wide range of corrective actions, the number of 

corrective actions listed in a plan may be a limited indicator of a contractor’s response to
 

its error rate. 

Medicare Claims Administration Contractors’ Error Rate Reduction Plans (OEI-09-12-00090) 13 
 

 

 

 

 

 

58 new corrective actions and 21 medical review corrective actions 

(Plan 2 in Table 2). 

Table 2: Contractors’ Error Rates and Corresponding Numbers of 

Corrective Actions in Example Error Rate Reduction Plans 

Plan Error Rate 

Number of New 

Corrective 

Actions 

Number of Medical 

Review Corrective 

Actions 

Number of Provider 

Outreach and 

Education Corrective 

Actions 

1 4.3% 6 6 35 

2 4.7% 58 21 51 

3 6.7% 3 20 11 

4 6.7% 77 71 43 

5 8.8% 69 57 85 

6 9.0% 0 0 34 

7 13.5% 65 50 79 

8 14.4% 13 4 61 

9 22.4% 75 19 84 

10 23.7% 0 0 35 

Note: The numbers used in the table are not the numbers used by CMS to identify claims administration contracts. 

We use them to delineate the individual plans that are the subject of our review. For one plan in this table, a few 

months remained on the contract at the time its plan was submitted; contracts for the other nine plans in this table 

each had at least 1 year remaining. 

Source: OIG analysis of 2011 and 2012 error rate reduction plans, 2013. 

CMS oversight of error rate reduction plans is limited 

CMS does not use error rate reduction plans to oversee claims 

administration contractors’ error rate reduction efforts to the extent 

possible. CMS staff reviewed plans after the start of the plans’ effective 

year. CMS staff did not typically use CERT data to ensure that plans 

addressed contractors’ errors. Further, CMS staff may be unable to 

determine whether contractors’ plans address their most recent CERT 

results because of contractors’ unclear reporting of their corrective actions. 

Finally, in our sampled plan reviews, CMS approved all plans without 

recommending different or additional corrective actions. This occurred 

even though some of the plans did not include the five required elements 

or were associated with contracts with high error rates. 

Some CMS reviews were completed well into the plans’ 

effective year 

Because the 2011 and 2012 error rate reduction plans were not due from 

claims administration contractors until January 2012 and 

2013, respectively, CMS staff completed all reviews after the plans’ 

effective year began. Twenty of seventy-six plans were approved by CMS 

more than 2 months into the plans’ effective year (i.e., on or after March 

1). One of those plans was approved by CMS nearly 5 months into the 

Medicare Claims Administration Contractors’ Error Rate Reduction Plans (OEI-09-12-00090) 14 
 

 

 

plan’s effective year. These delayed approval dates may have been caused 

by late submissions from the contractors. However, we could not make 

this determination because CMS did not document the dates it received the 

initial plans and documented only the date the contractors submitted the 

last version of the plans. 

CMS does not independently verify contractors’ top errors 

using CERT results 

CMS staff who review error rate reduction plans do not use 

contract-specific CERT results to independently verify the reasons for 

claims administration contractors’ errors. According to CMS regional 

office guidance, CMS staff review the plans “in conjunction with the 

applicable...CERT Improper Payment Report.”52 However, this report is 

not specific to each contract, and 10 of 12 CMS staff we interviewed 

stated that they do not review contract-specific CERT results.53 Instead, 

CMS staff rely on contractors to analyze their CERT results and identify 

their reasons for error. 

In addition to not using CERT results, CMS staff who review error rate 

reduction plans rarely use other data sources to identify reasons for error 

in the contractors’ jurisdictions. None of the staff reported that they 

review contract-specific RAC data. Two staff mentioned that they review 

summaries of provider inquiries (providers who called the contractor to 

ask, for example, about documentation or billing requirements) to identify 

areas needing provider outreach and education corrective actions. Data 

from RACs and other sources could help CMS staff identify additional 

areas in need of corrective action. 

CMS reviewers may have been unable to determine whether 

contractors’ plans addressed their most recent CERT results 

Claims administration contractors often did not clearly report information 

about corrective actions in error rate reduction plans that could have 

affected reviewers’ ability to determine whether plans were a reasonable 

response to contractors’ most recent CERT results. For an average of 

41 percent of corrective actions per plan, we could not determine one or 

more of the characteristics below: 

52 CMS, Standard Operating Procedure M-4: Review of the Comprehensive Error Rate 

Testing (CERT) Error Rate Reduction Plan (ERRP), p. 2. 53 CMS central office staff stated that they began providing contract-specific CERT 

analyses to staff who review plans in December 2012. However, when we interviewed 

them in January 2013, 7 of 12 CMS staff we interviewed were unaware that this 

information was available. 

Medicare Claims Administration Contractors’ Error Rate Reduction Plans (OEI-09-12-00090) 15 
 

Medicare Claims Administration Contractors’ Error Rate Reduction Plans (OEI-09-12-00090) 16 

 

	 Status. The contractor did not indicate whether these actions were 

already completed or were new actions in response to the most recent 

CERT results. 

	 Service target. The contractor did not indicate the specific service(s), 

such as spinal adjustment, or category of service(s), such as 

chiropractic services, with errors being addressed by these actions. 

For example, a corrective action that is described as addressing errors 

for “general surgery” is not specific enough to be matched with the 

contract’s CERT results. 

	 Action. For these actions, the contractor did not indicate what it had 

done or planned to do. For example, some plans were vague and 

stated that they would “conduct education” and others listed a range of 

potential actions, such as “articles, targeted mailings, or web[-based 

trainings]” without specifying which would be taken. 

	 Number of providers affected. Although the contractor indicated these 

actions were specific to certain providers, it did not identify the 

numbers of providers affected by the actions (for example, “there have 

been multiple face to face meetings with facility providers”). 

	 Number of times the action was or would be performed. Although the 

contractor indicated these actions were or would be performed 

multiple times, it did not identify the numbers of times the actions 

were or will be performed (for example, “conduct web-based trainings 

on physical therapy services”). 

CMS approved all sampled plans without recommending 

different or additional corrective actions 

CMS staff approved all sampled error rate reduction plans, including plans 

that did not include the five required elements or were for contracts with 

high error rates.54 Three of the eighteen sampled plans did not include one 

or more of the five required elements, according to our review. CMS staff 

did not note this in their plan reviews. Additionally, eight sampled plans 

were associated with contracts that had error rates above CMS’s national 

error rate targets in the 2 years before the plans were submitted. The error 

rates for these plans ranged from 8.8 to 71.3 percent. Although CMS staff 

asked for clarifications or additional information from claims 

administration contractors in their reviews of some of these plans, CMS 

staff did not recommend that contractors take different or additional 

corrective actions for any of the sampled plans. 

54 This analysis is based on CMS interview responses about a sample of 18 of the 34 error 

rate reduction plans in effect during 2012. 
 

 

 

Several CMS staff stated that they did not recommend that claims 

administration contractors address specific errors or take specific actions 

because they do not have the authority to require contractors to take 

specific corrective actions. Although this is true, CMS staff who review 

error rate reduction plans may make suggestions to contractors. 

Additionally, CMS contracting officers rely on other CMS staff, including 

those who review error rate reduction plans, to ensure that MACs meet 

contractual requirements.55 CMS contracting officers have the authority to 

issue technical direction, as needed, to redirect contractors’ efforts.56 

Limitations in CMS’s administration of incentives for 

error rate reduction may reduce their effectiveness 

Although CMS has the authority to offer incentives to MACs to reduce 

their error rates, limitations in the incentives’ administration may reduce 

their effectiveness. CMS offered incentives to MACs only in certain years 

of their contracts. For MACs that were offered incentives for error rate 

reduction, the amount of incentive payments offered did not vary 

according to the MACs’ error rates. Additionally, because of the timing of 

CERT reviews, MACs’ incentive payments often were not aligned with the 

appropriate performance period. 

CMS offers incentives for error rate reduction in only 2 of the 

5 years of MACs’ contracts 

In 2011 and 2012, CMS offered error rate reduction incentives to each 

MAC that was entering the third or fourth year of its 5-year contract. 

These MACs were eligible to earn error rate reduction incentive payments 

by (1) meeting CMS’s national error rate goal and/or (2) reducing their 

error rates from the previous year. 

CMS stated that it does not offer error rate reduction incentives in the first 

and second years of MACs’ contracts because their baseline error rates are 

established during that time.57 CMS does not offer error rate reduction 

incentives in the fifth year of MACs’ contracts because of delays in CERT 

error rate reporting. Seven A/B MACs and all four DME MACs were not 

eligible to earn error rate reduction incentives in 2011 and/or 2012 because 

they were in the first, second, or fifth years of their contracts. 

55 CMS, MAC Contract Administration Guide, revised June 3, 2011, p. 7. 56 Ibid., pp. 6-7. Technical direction can be given to MACs but not the other claims 

administration contractor types. 

57 During the first year, or base year, of the contract, which is composed of 

implementation and operational periods, the performance period may be 6 months. The 

second year, or first option year, is the first year in which the contract is fully operational. 

Medicare Claims Administration Contractors’ Error Rate Reduction Plans (OEI-09-12-00090) 17 
 

 

 

 

 

 

 

 

 

 

The dollar amounts of error rate reduction incentives did not 

vary according to MACs’ error rates 

CMS allocates a set percentage of a MAC’s available incentive payments 

to the error rate performance metrics.58 Because the amount of available 

incentive payments varies for each MAC, the amount offered for error rate 

reduction also varies. However, MACs with higher error rates and higher 

amounts of total improper payments are not necessarily offered larger 

error rate reduction incentives than MACs with lower error rates and 

lower total amounts of improper payments. Table 3 presents MACs’ error 

rates, projected improper payments, and incentive payments offered for 

MACs’ error rate reduction in 2011 or 2012. 

Table 3: MACs’ Error Rates and Error Rate Incentives Offered 

in 2011 or 2012 

MAC Error Rate 

Projected Improper 

Payments 

Total Incentive Payment 

Offered for Error Rate 

Performance 

K 21.1% $1,838,556,166 $25,624 

L 14.4% $2,588,848,665 $23,396 

M 12.9% $3,486,959,464 $36,354 

N 12.4% $2,742,378,638 $12,474 

O 9.2% $1,691,643,349 $23,362 

P 7.9% $673,036,000 $4,308 

Q 7.0% $940,201,239 $5,610 

R 6.6% $949,329,121 $25,520 

S 5.5% $1,497,499,970 $36,312 

T 5.3% $612,733,603 $23,316 

U 4.7% $603,679,066 $81,966 

V 4.0% $273,368,227 $24,428 

W 3.5% $28,572,533 $19,620 

Note: The letters used in the table are not the letters used by CMS to identify MAC contracts. We use them 

to identify the individual MAC contracts that are the subject of our review.
 

Source: OIG analysis of award fees offered to MACs, 2013.
 

In 2011 and 2012, the incentives for error rate reduction ranged from 

$4,308 to $81,966 per contractor, out of total possible incentive payments 

between $891,752 and $3.5 million. Total contract values in the years in 

which incentives were offered were between $49.6 million and 

$122.1 million. 

58 For the 2011 and 2012 performance periods, CMS allocated 5 percent of the Medicare 

Integrity Program pool, one of two funding pools for MACs’ incentive payments, to error 

rate reduction. 

Medicare Claims Administration Contractors’ Error Rate Reduction Plans (OEI-09-12-00090) 18 
 

 

 

 

Among MACs that were offered error rate reduction incentives, the MAC 

with the second highest projected improper payment amount (listed as “N” 

in Table 3) was offered one of the smallest incentives for error rate 

reduction. CMS offered the MAC $12,474 to lower its error rate. At the 

time the incentive was offered, the MAC had an error rate of 12.4 percent, 

resulting in $2.7 billion in projected improper payments. In contrast, the 

MAC that was offered the largest incentive for error rate reduction (listed 

as “U” in Table 3) had one of the lowest error rates. That MAC was 

offered an incentive to lower its error rate of $81,966 and had an error rate 

of 4.7 percent at the time that the incentive was offered. 

CMS did not align MACs’ incentive payments with the 

appropriate performance periods 

The timing of the CERT program and the error rate reduction incentive 

performance period often did not align. At the time that CMS offered the 

incentives, an average of 4 months remained in the years during which 

MACs’ error rate performance was to be measured. For example, one 

MAC’s incentive performance period covered its performance between 

October 2010 and September 2011. This MAC was offered incentives to 

reduce its error rate. However, CMS used the MAC’s error rate for claims 

processed during calendar year 2010 to determine the incentive payments 

the MAC earned. Therefore, at the time the incentives were offered, the 

MAC had only 3 months remaining in the measurement period. For two 

MACs, there was no overlap between the error rate measurement period 

and incentive performance period. The lack of alignment between the 

measurement and incentive performance periods may lessen the 

effectiveness of error rate reduction incentives. 

Medicare Claims Administration Contractors’ Error Rate Reduction Plans (OEI-09-12-00090) 19 
 

CONCLUSION AND RECOMMENDATIONS 

OIG has consistently found vulnerabilities in CMS’s oversight of 

contractors. The primary goal of claims administration contractors is to 

“pay it right.”59 During the 2012 fiscal reporting period, claims 

administration contractors improperly paid an estimated $29.6 billion out 

of the $349.7 billion in total Medicare Part A and Part B expenditures. 

Error rate reduction plans are intended to outline contractors’ strategies for 

reducing their error rates and serve as the cornerstone of these efforts. 

Plans that include comprehensive medical review and provider outreach 

and education corrective actions may help protect the integrity of 

Medicare funds. 

Claims administration contractors must process and pay large volumes of 

claims timely. Implementing medical review actions to detect and prevent 

improper payments slows claims processing, and both medical review and 

provider outreach and education incur costs for the contractor. Given this, 

effective CMS oversight of contractors’ responses to their CERT results is 

essential. 

CMS monitors claims administration contractors’ error rate reduction 

efforts using a variety of oversight documents. However, our review 

identified vulnerabilities and opportunities for improvement in two tools 

central to CMS’s oversight of contractor error rates: error rate reduction 

plans and performance-based financial incentives. 

Therefore, we recommend that CMS: 

Review Its Process for Overseeing Contractors’ Error Rate 

Reduction 

CMS should review its process for overseeing claims administration 

contractors’ error rate reduction. Although CMS reviews a variety of 

documents submitted by contractors, unlike the other documents, error 

rate reduction plans are designed specifically to address the contracts’ 

most recent errors. However, if CMS determines that its oversight of 

other documents, such as the Medical Review Strategy and the Provider 

Service Plan, are fulfilling the goal of overseeing contractors’ response to 

their CERT results, CMS should reevaluate the usefulness of error rate 

reduction plans. 

59 CMS, Medicare Fee-for-Service 2011 Improper Payments Report, p. 6. Accessed at 

http://www.cms.gov/Research-Statistics-Data-and-Systems/MonitoringPrograms/CERT/Downloads/2011-Medicare-FFS-Improper-Payment-Report-.pdf on 

May 9, 2013. 

Medicare Claims Administration Contractors’ Error Rate Reduction Plans (OEI-09-12-00090) 20 
 

Ensure That Contractors Submit Clear Plans for Reducing 

Their Error Rates 

CMS should ensure that error rate reduction plans are sufficiently clear so 

that staff who review them can determine whether claims administration 

contractors are planning corrective actions that will effectively reduce 

their error rates. CMS could require that the format in which contractors 

report corrective actions, whether in error rate reduction plans or another 

document reviewed by CMS, clearly convey basic information about each 

action. This should include the status and target of the action. 

Provide Additional Guidance for Contractors and CMS Staff 

Who Review Plans 

CMS should give claims administration contractors and CMS staff who 

review error rate reduction plans specific guidance on what is required to 

meet the five required elements and what constitutes an “appropriate 

response to the contractor’s error rate.” Although regional office guidance 

directs CMS staff to ensure that “program funds, resources and actions 

planned are appropriate to reduce the claims payment error rate within 

their jurisdiction,” it does not specify how staff should make this 

determination. Issuing such specific guidance may improve the quality of 

plan submissions and CMS reviews. 

Although CMS stated that it provides staff with analyses of 

contract-specific CERT results, CMS should ensure that staff are aware of 

these analyses. CMS should also provide guidance to staff on how to use 

these analyses in their plan reviews. CMS could also provide its staff with 

additional analyses of contract-specific RAC data. Doing so is especially 

important for contractors with persistently high error rates. 

CMS should provide guidance to its staff about what to do if error rate 

reduction plans do not include the required elements or do not address 

claims administration contractors’ error rates. The guidance should 

address when staff who review plans should make suggestions to the 

contractor or recommendations to contracting officers, as appropriate. 

Provide Error Rate Reduction Incentives That Are Aligned With 

the Contracts’ Error Rates and Performance Periods 

If allowed under the Federal Acquisition Regulation, CMS should explore 

offering incentives for error rate reduction in more than 2 years of MACs’ 

contracts. CMS should take into account MACs’ error rates when setting 

the incentives. 

CMS should use error rate data that match the incentive performance 

periods. If this is not possible using CERT data, CMS should explore 

using alternate error rate performance measures. 

Medicare Claims Administration Contractors’ Error Rate Reduction Plans (OEI-09-12-00090) 21 
 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS concurred with all four of our recommendations. CMS described 

current and future steps to improve error rate reduction plans and to ensure 

its effective oversight of the plans and the financial incentives it offers 

contractors to reduce their error rates. Among these steps, CMS has 

already begun to provide quarterly contractor-specific improper payment 

reports and will develop an interactive dashboard containing real-time data 

to help CMS and its contractors address the most recent improper payment 

findings. We note that in its comments about our recommendation to 

provide error rate reduction incentives that are aligned with contracts’ 

error rates and performance periods, CMS did not indicate whether it will 

take into account MACs’ error rates when setting the incentives. For the 

full text of CMS’s comments, see the Appendix. 

Medicare Claims Administration Contractors’ Error Rate Reduction Plans (OEI-09-12-00090) 22 
APPENDIX 

Agency Comments 

+.#">1--'-~YICf:$~ 

( ~ 

'·~~ 

DEPARTMENT OF HEALTH & HUMAN SERVICES Centers for Medicare & Medicaid Services 

Administrator 

Washington, DC 20201 

DATE: 

NOV 19 2013 

TO: 	 Daniel R. Levinson 

Inspector General 

FROM: 	 Marilyn T.a~nner 

Administrator' 

SUBJECT: 	 Office ofthe Inspector General (OIG) Draft Report: '"Medicare Claims 

Administration Contractors' Error Rate Reduction Plans" (OEI-09-12-00090) 

The Centers for Medicare & Medicaid Services (CMS) appreciates the opportunity to review and 

comment on the above mentioned OIG report. This report examined error rate reduction plans 

for calendar year 2011 and 2012, described plan content and determined whether the plan 

included required elements. OIG also assessed CMS's oversight ofthe plans and analyzed 

information about the incentives that CMS offered to Medicare Administrative Contractors 

(MACs) in 2011 and 2012 to reduce their error rates. OIG's recommendations and the CMS 

response to those recommendations are discussed below. 

OIG Recommendation 

The OIG recommends CMS review its process for overseeing contractors' error rate reduction. 

CMS Response 

The CMS concurs with this recommendation to review the process for overseeing contractors' 

error rate reduction plans (ERRPs). 

CMS has processes in place to ensure that all plans are approved and properly address reductions 

in improper payments. CMS requires that MACs submit ERRPs on at least an annual basis. The 

ERRPs are reviewed and approved by CMS medical review and provider outreach and education 

stafffor accuracy and corrective actions. CMS provides feedback to the MACs during the ERRP 

evaluation process but the process may not be formally documented. We plan to continue 

monitoring the ERRPs and will formally document the process. 

As a result ofOIG's work on this report and to avoid repetitive reporting, we are evaluating 

alternatives for overseeing the contractor's ERRPs. 

Medicare Claims Administration Contractors' Error Rate Reduction Plans (OEI-09-12-00090) 23 
 

APPENDIX 

Agency Comments Continued 

Medicare Claims Administration Contractors’ Error Rate Reduction Plans (OEI-09-12-00090) 24 
 

APPENDIX 

Agency Comments Continued 

Medicare Claims Administration Contractors’ Error Rate Reduction Plans (OEI-09-12-00090) 25 
 

ACKNOWLEDGMENTS 

This report was prepared under the direction of Timothy Brady, Regional 

Inspector General for Evaluation and Inspections in the San Francisco 

regional office, and Michael Henry, Deputy Regional Inspector General. 

Sarah Ambrose served as the team leader for this study, and Rosemary 

Rawlins served as the lead analyst. Other Office of Evaluation and 

Inspections staff from the San Francisco regional office who conducted 

the study include Bi Nguyen. Central office staff who provided support 

include Althea Hosein and Scott Manley. 

Medicare Claims Administration Contractors’ Error Rate Reduction Plans (OEI-09-12-00090) 26 
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 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. These assessments help reduce waste, abuse, and 

mismanagement and promote economy and efficiency throughout HHS. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 

HHS, Congress, and the public with timely, useful, and reliable information on significant 

issues. These evaluations focus on preventing fraud, waste, or abuse and promoting 

economy, efficiency, and effectiveness of departmental programs. To promote impact, OEI 

reports also present practical recommendations for improving program operations. 

Office of Investigations 

The Office of Investigations (OI) conducts criminal, civil, and administrative investigations 

of fraud and misconduct related to HHS programs, operations, and beneficiaries. With 

investigators working in all 50 States and the District of Columbia, OI utilizes its resources 

by actively coordinating with the Department of Justice and other Federal, State, and local 

law enforcement authorities. The investigative efforts of OI often lead to criminal 

convictions, administrative sanctions, and/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 for OIG’s internal operations. OCIG represents OIG in all civil and 

administrative fraud and abuse cases involving HHS programs, including False Claims Act, 

program exclusion, and civil monetary penalty cases. In connection with these cases, OCIG 

also negotiates and monitors corporate integrity agreements. OCIG renders advisory 

opinions, issues compliance program guidance, publishes fraud alerts, and provides other 

guidance to the health care industry concerning the anti-kickback statute and other OIG 

enforcement authorities.