United States General Accounting Office

GAO Report to Congressional Requesters

January 2000 MEDICARE

Lessons Learned From

HCFA’s

Implementation of

Changes to Benefits

GAO/HEHS-00-31

GAO United States

General Accounting Office

Washington, D.C. 20548

Health, Education, and

Human Services Division

B-283963 

January 25, 2000

The Honorable John D. Dingell

Ranking Minority Member

Committee on Commerce

House of Representatives

The Honorable Ron Klink

Ranking Minority Member

Subcommittee on Oversight and Investigations

Committee on Commerce

House of Representatives

Medicare, the federal health insurance program serving over 39 million

elderly and disabled Americans, has undergone numerous changes as the

Congress has expanded and modernized the program. The Health Care

Financing Administration’s (HCFA) implementation of these changes has

sometimes created program vulnerabilities. As a result, dishonest or

unknowing providers have submitted claims for inappropriate services,

unknowledgeable contractors have processed these claims, and HCFA has

sometimes paid more than it should have. For example, before 1991,

Medicare covered “partial hospitalization” mental health services only

when they were provided by hospitals. Partial hospitalization is an

intermediate level of outpatient treatment for beneficiaries with acute

mental illness that is less intensive than inpatient care and more

comprehensive than outpatient therapy. In 1991, legislation expanded

Medicare’s coverage of partial hospitalization services to include services

provided by community mental health centers (CMHC). In 1998, the

Department of Health and Human Services’ (HHS) Office of the Inspector

General (OIG) reported that, for five states in fiscal year 1997, over

90 percent of the partial hospitalization mental health benefit payments

should not have been made.

The Balanced Budget Act of 1997 (BBA) set in motion additional significant

changes to Medicare that were intended to modernize the program,

expand benefits, and extend the life of the Medicare trust fund. For

example, as a result of the BBA, the Medicare+Choice program now offers

beneficiaries a wider array of health plan choices, comparable to options

available from insurers through employers. Concerned that HCFA

implement BBA changes to Medicare in a way that ensures beneficiaries’

access to covered services without compromising the fiscal integrity of the

program, you asked that we compare (1) HCFA’s implementation of the

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expansion of the partial hospitalization benefit and (2) HCFA’s

implementation of the more recent changes under the BBA to determine

whether HCFA is acting upon lessons learned from the partial

hospitalization program.

To do this work, we reviewed the BBA as well as HCFA documents on the

partial hospitalization benefit, spoke with officials of HHS’ OIG and HCFA,

and met with representatives of three contractors that processed and paid

almost two-thirds of total Medicare payments to CMHCs in 1997. We

performed our work between November 1998 and November 1999 in

accordance with generally accepted government auditing standards. For

more detailed information on our study scope and methodology, see

appendix I.

Results in Brief HCFA has a difficult task in overseeing the implementation of changes to

Medicare, yet this oversight is essential to counteract the opportunities

that sometimes arise for dishonest providers to abuse the program. In the

early 1990s, when HCFA implemented the expansion of the partial

hospitalization benefit to include CMHCs, HCFA did not systematically

evaluate the implications of the benefit’s expansion. As a result, Medicare

paid claims that should not have been paid. Moreover, HCFA did not

provide its contractors with timely and adequate guidance on the partial

hospitalization benefit, and neither HCFA nor its contractors systematically

monitored claims for the new benefit until it had been in effect for several

years. Finally, although individual Medicare contractors detected some

improper payments in the early years of the partial hospitalization

program, HCFA did not take prompt action to investigate these problems or

share this information with its other contractors.

Taking advantage of its experience with CMHCs, HCFA has done better in

implementing the benefit changes required by the BBA, but more needs to

be done to determine whether corrective actions are needed. For example,

HCFA created several internal groups to evaluate its implementation of

certain changes under the BBA and to identify the potential for vulnerability

to fraud and abuse that might result from these changes. In addition, HCFA

has provided more timely explanation of the benefit changes to its

contractors and providers, but it still needs to provide contractors with

more specific instructions on how to review claims and detect

inappropriate billing. Further, although HCFA has recognized the need to

develop baseline data for use in identifying questionable claims, it has not

yet begun to do so. Finally, HCFA has made limited progress in addressing

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the recommendations of the groups that it charged with evaluating its

implementation of several BBA benefit changes. For example, HCFA was

advised to conduct a baseline study to determine the volume and type of

services billed by nonphysician providers, but HCFA officials told us it had

not yet done so largely because its resources were focused on year-2000

concerns. This report makes a recommendation to the HCFA Administrator

to improve implementation of adjustments to Medicare’s benefits.

Background Established by the Social Security Act Amendments of 1965, Medicare

provides two basic types of health insurance for the disabled and the

elderly: part A, “hospital insurance,” covers inpatient hospital, skilled

nursing facility, hospice, and certain home health services; part B,

“supplemental medical insurance,” covers physician and outpatient

hospital services, diagnostic tests, and other medical services and

supplies. Under the Medicare fee-for-service program, physicians,

hospitals, and other providers submit claims and receive payment for

services they have provided to beneficiaries. HCFA contracts with a

network of about 60 claims administration contractors to process and pay

Medicare claims. Contractors that process part A claims are referred to as

intermediaries, and those that process part B claims are called carriers.

In addition to processing claims, these contractors are responsible for

carrying out program safeguard activities, such as claims reviews, audits,

and fraud and abuse investigations. HCFA’s Program Integrity Group serves

as monitor and facilitator for these and other payment safeguard activities

within HCFA. The group works to achieve program integrity through

planning and implementing fraud and abuse detection activities for

contractors, providers, and beneficiaries as well as for HCFA’s program and

staff offices.

Community Mental Health

Centers and Medicare’s

Partial Hospitalization

Benefit

Before the passage of the Omnibus Budget Reconciliation Act of 1990

(OBRA ’90), Medicare had covered only those partial hospitalization services

that were provided by hospitals. OBRA ’90 authorized Medicare to include

CMHCs as covered providers of partial hospitalization services.1 According

to the Social Security Act, to participate as Medicare providers of partial

hospitalization services, CMHCs are required to meet applicable state

licensing or certification requirements and provide the following services:

1

The Community Mental Health Centers Act of 1963 provided funding to help states construct CMHCs.

HHS supported states’ efforts to establish CMHCs, which would provide comprehensive mental health

services in the community.

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• outpatient services, including specialized services for children, the elderly,

the chronically mentally ill, and those who have been discharged from

inpatient treatment at a mental health facility;

• 24-hour emergency care services;

• day treatment, other partial hospitalization services, or psychological

rehabilitation services; and

• screening for patients being considered for admission to state mental

health facilities.

Specific services covered by Medicare partial hospitalization include

individual or group therapy, diagnostic services, and occupational therapy.

In addition to providing such services directly, a CMHC may also enter into

a contractual arrangement with another provider to perform a particular

service. Admitting a patient to a partial hospitalization program requires a

physician’s certification that without the partial hospitalization treatment,

the patient would require inpatient hospitalization. CMHCs submit their

claims for partial hospitalization services to HCFA’s part A intermediaries.

Changes Under the BBA The BBA embodies some of the most significant changes to Medicare since

its inception more than 30 years ago. One provision of the BBA—the

establishment of the new Medicare+Choice program—has considerably

broadened the coverage options available to Medicare beneficiaries. Other

provisions involve more narrowly focused changes aimed at improving

coverage and making it more uniform. These changes include expanding

benefits for diabetes self-management, standardizing coverage for bone

mass measurements, and expanding authority for nurse practitioners and

clinical nurse specialists to bill Medicare for services they perform.

HCFA’s

Implementation of the

Partial Hospitalization

Benefit Was Not

Adequate

Introducing changes into the Medicare program, such as expanding or

revising a benefit, has the potential for creating opportunities for

dishonest providers to take advantage of the program. HCFA implemented

the partial hospitalization program without adequately considering the

problems that could occur as a result of enrolling a new group of

providers. Moreover, HCFA did not provide its contractors with timely and

adequate guidance on the partial hospitalization benefit—its scope, the

type of patients it covers, the types and duration of services it covers, and

the services CMHCs are required to provide. In addition, neither HCFA nor its

contractors monitored the claims received for the new benefit, and, when

improper payments were discovered, HCFA did not respond effectively.

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HCFA Did Not Identify the

Risks of Adding CMHCs to

the Program

HCFA did not systematically evaluate the potential risks to Medicare that

could result from extending the partial hospitalization program to CMHCs.

According to HCFA officials, the agency expected that the nonprofit CMHCs

that were originally established with federal assistance would be providing

the partial hospitalization services. However, many other organizations

entered the program, and it rapidly went out of control. HCFA’s enrollment

procedure relied solely on CMHCs’ statements that they were providing all

of the required services as the basis for making them eligible to bill

Medicare. In signing these statements, CMHCs certified, under penalty of

law, that they were not fraudulently trying to become eligible to

participate in Medicare. HCFA did not recognize that under OBRA ’90

dishonest individuals, particularly in states with no CMHC licensure

requirements, could establish CMHCs and improperly bill Medicare for

partial hospitalization services.

HCFA’s limited evaluation of the risks and its lack of verification of CMHCs’

qualifications resulted in rapid growth both in the number of participating

CMHCs and in Medicare payments. The number of CMHCs participating in the

partial hospitalization program more than doubled between 1993 and

1997—from 296 to 769—according to an HHS OIG report (see fig. 1).2 HCFA

had expected that the benefit would be narrowly applied and that it would

cost, by one estimate, about $15 million to $20 million per year. Instead,

Medicare payments to CMHCs for partial hospitalization services grew

rapidly, from $60 million in 1993 to $349 million in 1997, an increase of

482 percent. Average payments per patient increased 530 percent over this

same period, from $1,642 to $10,352. Another HHS OIG report estimated that

over 90 percent of payments to CMHCs in five states during fiscal year 1997

were for claims that should not have been paid.3

Preliminary data show a slight decrease in the number of CMHCs and total

payments made to them in 1998. We did not identify with certainty the

specific reasons for this decline in benefit payments. However, by 1998,

some Medicare contractors had begun to increase their review of CMHC

claims. Also by that time, contractors were conducting more site visits to

assess CMHC operations and to verify information provided by new CMHC

applicants, particularly in the southern states.

2

HHS, OIG, Review of Partial Hospitalization Services Provided Through Community Mental Health

Centers (A-04-98-02146) (Washington, D.C.: HHS, Oct. 5, 1998).

3

HHS, OIG, Five-State Review of Partial Hospitalization Programs at Community Mental Centers

(A-04-98-02145) (Washington, D.C.: HHS, Oct. 5, 1998). The study examined claims from CMHCs in

Alabama, Colorado, Florida, Pennsylvania, and Texas.

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Figure 1: National Growth in the

Number of CMHCs Participating in the

Medicare Partial Hospitalization

Program and Amount of Payments,

1993-98

Note: Data for 1998 are estimated.

Sources: HHS’ OIG and HCFA’s Office of Information Services.

Lack of Timely,

Appropriate Guidance

Hindered Contractor

Efforts

At first, CMHC partial hospitalization services were expected to serve a

limited group of beneficiaries, and HCFA initially gave its contractors little

guidance on, or explanation of, the program beyond the implementing

language of OBRA ’90. As a result, contractors struggled to understand the

parameters of the partial hospitalization benefit in the first years it was in

effect. Our discussions with contractors and correspondence between

contractors and HCFA regional offices show that contractors raised

concerns over such issues as

• whether partial hospitalization could cover organic conditions such as

Alzheimer’s, which are unlikely to improve;

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• whether the benefit was available to only those patients with previous

psychiatric treatment, or even further limited to only those who had

previously been psychiatric inpatients;

• which specific services could be billed to Medicare as partial

hospitalization services;

• how frequently services had to be delivered for Medicare to consider a

beneficiary’s treatment program as partial hospitalization; and

• the level of physician involvement required for services provided to the

patient.

A February 1994 interim final rule for partial hospitalization services

provided by CMHCs addressed the degree of physician supervision required,

the services covered by partial hospitalization, and other matters. In

June 1995, more than 3 years after the benefit was instituted, HCFA issued a

program memorandum that gave contractors and providers clearer

guidance regarding the scope and limits of the benefit, patient eligibility

requirements, and the requirement that a physician certify that a patient

warrants partial hospitalization.

HCFA has recently taken additional actions to augment its guidance to

contractors that process CMHC claims. In June 1999, HCFA conducted a

training seminar for intermediary claims review staff that covered the

partial hospitalization program benefit at CMHCs. This was the first time

HCFA had provided direct training to contractor staff on this issue. The

training addressed the background of the partial hospitalization benefit,

services and beneficiaries that Medicare covers under this benefit,

problems found by the HHS OIG audits, and requirements for medical review

of CMHC claims. In September 1999, HCFA issued two additional program

memorandums, one setting forth the process for intermediaries to use

when conducting medical reviews of partial hospitalization claims from

CMHCs and the other instructing intermediaries to deactivate the Medicare

provider numbers of CMHCs that have not submitted a claim in 12 months.

Figure 2 shows the timing of HCFA guidance to address potential

vulnerabilities of the partial hospitalization benefit, as well as the dates of

related events.

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Figure 2: Key Activities and Actions Related to the Partial Hospitalization Benefit

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Lack of Monitoring

Focused on the New

Benefit Slowed

Recognition of Problems

Consistent with its expectation that partial hospitalization would be a

small and stable benefit provided by existing CMHCs, HCFA initially paid

little additional attention to contractors’ oversight of the program. Instead,

HCFA relied on its contractors’ ongoing safeguard activities, such as their

focused medical review efforts, under which contractors analyzed their

paid claims data to identify which benefits and providers warranted more

detailed review. However, it can take some time to identify emerging

problems through medical review. For example, a representative of the

primary Medicare contractor for Florida—which has processed the largest

amount of payments to CMHCs of any contractor since the benefit

began—told us it had previously been aware of problems with individual

CMHCs. However, it was not until focused medical review revealed the

disproportionate level of CMHC activity in the state, relative to the rest of

the country, that the contractor realized CMHCs posed a major problem.

Thus, it was not until 1997, or 2 years after Medicare payments to CMHCs in

Florida had begun to grow significantly, that the contractor realized the

scope of the problem. Similarly, a representative of the Medicare

contractor for Texas, which also has a large number of CMHCs, told us that

it began focusing on CMHC claims at the end of 1995—4 years after the CMHC

partial hospitalization benefit was initiated. These examples illustrate that

without a specific effort to monitor CMHC claims in the initial years of the

benefit, contractors and HCFA dealt with irregularities involving CMHCs as

isolated incidents, without recognizing that there was a programwide

problem until payments and losses became large.

HCFA’s Failure to Respond

to Emerging Partial

Hospitalization Problems

Allowed Improper

Payments to Grow

Unchecked

Despite the lack of a targeted monitoring program, some intermediaries

did uncover instances of unnecessary and inappropriate services being

provided by CMHCs and billed to Medicare in the early years of the partial

hospitalization program. For example, in 1993, a CMHC in Washington came

to the attention of its intermediary because of claims in excess of $10,000

per beneficiary per month. The CMHC operated residential board and care

facilities with live-in aides who assisted residents with everyday needs,

such as cooking, cleaning, and transportation. The CMHC was billing

Medicare up to $100 per hour, per patient, for these uncovered services.

Around the same time, CMHCs in Montana were also misinterpreting the

partial hospitalization benefit guidelines to mean that all CMHC services

were covered by Medicare and were submitting claims for noncovered

services such as day care. Additional problems reported by other

intermediaries in late 1993 included the following:

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• Day care and geriatric care programs were being billed to Medicare as

partial hospitalization.

• Arts and craft activities were being billed as occupational therapy or

patient education.

• Family counseling services were being billed when there was no evidence

of family member participation.

• Long-term psychiatric patients with controlled symptoms were being

monitored in partial hospitalization programs for years.

One HCFA regional office reported its concern about many CMHCs’

misinterpretation of the partial hospitalization benefit in a January 1994

memorandum to HCFA headquarters. However, at that time HCFA neither

attempted to determine how widespread these misinterpretations were

nor directed its contractors to increase their oversight of CMHC claims.

In addition to these early indicators of misinterpretation or misuse of the

benefit, officials in HCFA’s Atlanta regional office became concerned about

the rapid increase in applications received from new CMHCs. In late 1995,

the regional office began telephoning and visiting selected CMHCs that were

already participating in the program, as well as some new applicants.

Many of the telephone calls reached disconnected numbers, private

residences, and nonmedical businesses. Site visits to previously enrolled

CMHCs found that many were not located at the addresses they had

provided to HCFA, and that prospective providers were applying for CMHC

provider numbers without having viable facilities. In 1996, HCFA’s Atlanta

regional office began requiring its contractors to visit new CMHC applicants

before they were issued a Medicare provider number.

Despite these early indications of problems, HCFA did not address the

partial hospitalization benefit or CMHCs as a whole until the HHS OIG and

HCFA together reviewed several CMHCs as part of Operation Restore Trust in

calendar year 1997.4

 This focus on CMHCs culminated in the two reports

issued by the HHS OIG in October 1998. In that same year, HCFA conducted

site visits at about 700 CMHCs in the southern states, where CMHCs are

concentrated. It was also not until 1998 that HCFA developed a

comprehensive national approach—its 10-point plan for CMHCs—to ensure

that Medicare beneficiaries with acute mental illness get quality treatment

in CMHCs and that Medicare pays appropriately for these services. Further,

HCFA’s yearly budget and performance requirements (BPR), which are the

agency’s primary means for communicating annual performance goals to

4

Operation Restore Trust, initiated in fiscal year 1995, involved the joint efforts of HHS, the HHS OIG,

the Administration on Aging, the Department of Justice, and state agencies to identify and investigate

fraud and abuse in the Medicare and Medicaid programs.

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its contractors, did not identify CMHCs as a high-risk area until fiscal year

1999.5

 In 1999, HCFA provided intermediaries with its first specific

instructions for conducting medical reviews of partial hospitalization

claims from CMHCs, and for the first time HCFA set a quantitative goal for

the percentage of CMHC claims that are to be medically reviewed.6

Implementation of

BBA Changes

Indicates Some

Lessons Learned

With the changes made to the Medicare program as a result of the BBA,

HCFA has done more to systematically identify areas that are potentially

susceptible to fraud and abuse, although HCFA’s actions to mitigate

problems are not yet complete. HCFA has also provided contractors with

more timely guidance for selected BBA benefit changes, although some

identified vulnerabilities remain unaddressed. In addition, HCFA has

recognized the need to develop baseline data to monitor claims, but much

work remains to be done. Finally, the groups that HCFA charged with both

evaluating the potential effects of several BBA changes on Medicare’s

integrity and assessing HCFA’s implementation of these changes have

recommended actions that could help determine whether potential

vulnerabilities represent real weaknesses. As of November 1999, however,

HCFA had made only limited progress in carrying out these

recommendations.

HCFA Has Identified Some

Program Vulnerabilities

Related to BBA Changes

HCFA has made a more intensive effort to identify vulnerabilities that might

result from implementing changes required by the BBA than it did for the

partial hospitalization benefit change. HCFA formed groups to assess how

certain changes, including changes in nonphysician provider

reimbursement7

 and bone mass measurement coverage, would affect

Medicare. However, HCFA has only begun to implement the

recommendations of the groups.

The HCFA group evaluating the changes to nonphysician provider

reimbursement under the BBA identified a potential vulnerability regarding

5

HCFA’s BPR for that year cited CMHCs as one of five high-risk areas that should be targeted for

prepayment medical reviews. HCFA also directed that each intermediary conduct prepayment medical

review on the first CMHC claim it received for a new beneficiary, but HCFA dropped this requirement

because it could not be practically implemented using the intermediaries’ claims processing systems.

The BPR for fiscal year 2000 also identifies CMHCs as a concern but does not set specific targets for

the number or percentage of CMHC claims to be reviewed.

6

A September 1999 program memorandum directed contractors processing claims for the states of

Florida, Texas, Colorado, Pennsylvania, and Alabama to review a minimum of 30 percent of the claims

for each CMHC provider for a period of 90 days. The memorandum specified increasing or decreasing

levels of review after the initial 90 days, depending on the claims denial rate experienced.

7

Nonphysician providers include nurse practitioners, clinical nurse specialists, and physician

assistants.

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services provided by nurse practitioners and clinical nurse specialists. The

BBA authorizes Medicare to reimburse these nonphysician providers for

services that they are allowed to perform under their state laws. But state

laws vary in both the services that nurse practitioners and clinical nurse

specialists are allowed to provide and the settings in which they can

provide services. HCFA currently does not have information on what the

laws of each state allow. Without this information, Medicare is vulnerable

to reimbursing providers who submit claims for services that are not

within their allowed scope of practice. The group recommended that HCFA

(1) survey the states to establish a national database of allowable practices

for possible use in forming policies and (2) work with national

accreditation bodies to establish standard minimum scopes of practice. In

November 1999, HCFA officials informed us that they had not yet begun to

collect data on services that nurse practitioners and clinical nurse

specialists may provide. HCFA is currently trying to identify the best way to

gather these data.

The bone mass measurement group discovered that, as a result of the BBA,

bone mass measurements are no longer subject to a provision that limits

the amount Medicare will pay physicians for services provided by outside

suppliers. Prior to passage of the BBA, bone mass measurements were

covered as general diagnostic tests, which are subject to payment limits

when they are performed by outside suppliers and billed by the

beneficiary’s physician. The bone mass measurement group recommended

that HCFA examine the Medicare claims history to determine the extent to

which these payment limits had affected payments for bone mass

measurements before the BBA change. However, as of November 1999,

HCFA had not begun this work.

Guidance on BBA Changes

Has Been More Timely, but

Some Identified

Vulnerabilities Remain to

Be Addressed

For the BBA benefit changes we reviewed, HCFA has provided its

contractors with more timely guidance, in the form of program

memorandums and interim rules, than it did for the partial hospitalization

changes. For the bone mass measurement and diabetes self-management

benefit changes that became effective in 1998, HCFA issued initial program

memorandums or interim rules either before or during the month the

benefit change took effect. However, in one instance, this guidance was

not implemented as HCFA had expected. Moreover, HCFA has not addressed

some of the guidance concerns identified by one of the groups that

assessed the vulnerabilities that might result from these benefit changes.

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Before the BBA changes, bone mass measurements were covered under

general Medicare provisions for diagnostic tests. Most Medicare

contractors paid for the medically necessary use of these measures,

although a few did not. The BBA established bone mass measurement as a

specific benefit in an attempt to provide for uniform coverage and directed

HCFA to establish a standard for how frequently a beneficiary could be

eligible for this procedure. HCFA published an interim rule when the benefit

went into effect in June 1998, establishing the conditions under which

bone mass measurements were to be considered medically necessary and

how frequently they could be provided. The HCFA group that reviewed the

implementation of the new benefit found that many contractors had not

standardized coverage provisions. Instead, contractors may have simply

added the new BBA criteria to their existing coverage criteria. The group

recommended that HCFA convene a committee of experts to develop an

all-inclusive list of covered diagnoses, publish this list for use among its

claims processing contractors, and monitor contractors’ implementation

of the defined coverage. HCFA officials told us that a list of the diagnoses

for which bone mass measurements should be covered was developed and

made available to contractors at the end of August 1999. Moreover, HCFA

asked contractors to review their local medical review policies for

consistency with the benefit as defined by the BBA.

The BBA also provided coverage of diabetes self-management training that

is furnished by certified providers to individuals with diabetes. HCFA

established the standard of up to 10 hours of training for a patient within a

12-month period, with 1 hour of follow-up training annually. The group

that assessed this benefit change concluded that the following

vulnerabilities might occur: Medicare might be billed for more than the 10

hours of training, for training that was not actually provided, or for

multiple claims for the same beneficiary. The group recommended that

HCFA create system edits that allow a beneficiary only 10 hours of training

in a 12-month period, even if training is received at multiple training

locations. In November 1999, HCFA officials informed us that they plan to

implement this edit, but the agency’s need to address year-2000 system

concerns has resulted in a backlog of proposed system changes, so that

the edit will not be implemented until next spring. Also, the group

recommended that follow-up letters be sent to beneficiaries to confirm

that they have received the training that was billed. HCFA has yet to

formally instruct contractors to implement this recommendation.

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Baseline Data Needed to

Monitor Claims Under the

BBA Changes

HCFA has recognized the value of developing baseline claims data for

changes to Medicare resulting from the BBA. The group evaluating the bone

mass measurement benefit noted that suppliers of this test could abuse

this benefit in nursing homes, for example, by providing medically

unnecessary tests that were not interpreted or used in the treatment of the

patient. This group recommended that HCFA review the Medicare claims

history to identify the extent to which these tests are being performed and

billed without an interpretation of the results being performed and billed.

In addition, the group reviewing the changes for nonphysician providers

recommended that HCFA conduct a baseline study to determine the volume

and type of services billed by nurse practitioners and clinical nurse

specialists. These types of baseline data can support analysis of claims

submitted after the changes to reveal payment trends or patterns of claims

that warrant investigation. As of November 1999, HCFA had not begun work

on any of these analyses, largely because staff resources were focused on

year-2000 concerns.

HCFA officials told us that HCFA is considering contracting out this work,

but the agency has not yet instructed contractors to conduct any medical

review or other monitoring of claims for these new benefits. Neither has

HCFA itself begun reviewing the claims paid on the new BBA benefits to

determine if the claims activity is consistent with expectations or if

potential problems are emerging. Officials we spoke with in HCFA’s

Program Integrity Group noted that because the BBA changes took effect

only in 1998, data would currently be available for only a year, or less—a

period of time that is probably insufficient to reveal any trends.

HCFA Has Not Yet

Determined That

Corrective Actions Are

Needed for the BBA

Changes

Earlier this year, HCFA’s groups that evaluated the potential effects of

changes regarding nonphysician providers, bone mass measurement, and

diabetes self-management made several recommendations for HCFA actions

that could help determine whether potential vulnerabilities represent real

weaknesses requiring corrective action. As of November 1999, HCFA had

made only limited progress in carrying out these recommendations. Until

HCFA and its contractors take these steps, they are not able to determine

with any certainty what corrective actions are actually needed. Further, if

indications of improper payments associated with these changes are

detected, HCFA must be in a position to respond quickly.

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Conclusions The partial hospitalization program was more easily misused because HCFA

did not assess the potential for problems with the expanded benefit and

did not take appropriate action to ensure its integrity. Our review of HCFA’s

implementation of three changes to Medicare required by the BBA indicates

that HCFA has now made a systematic effort to identify potential

vulnerabilities with these changes and has done a better job of providing

contractors with timely guidance on the changes than it did when it

introduced the partial hospitalization benefit for CMHCs. However, HCFA

made little progress in implementing recommendations intended to

address potential vulnerabilities largely because it had been using its

resources to address year-2000 concerns, according to HCFA officials.

Recommendation We recommend that the Administrator of HCFA establish a process for

implementing legislated Medicare changes that will ensure careful

assessment of the potential effects of such changes on the program;

sufficient explanation of the changes to enable contractors to review and

correctly pay claims; adequate claims monitoring to detect irregularities,

patterns of abuse, or other potential problems; and timely corrective

action should problems with the changes arise.

Agency Comments We provided HCFA officials an opportunity to review a draft of this report.

HCFA concurred with our recommendation and highlighted the more

proactive approach it is now taking to identify and eliminate abuse. HCFA

noted that it has issued its first Comprehensive Plan for Program Integrity,

which outlines the agency’s overall national program integrity strategy as

well as 10 initiatives HCFA is implementing to further safeguard Medicare

program dollars. HCFA said that it is also conducting ongoing analysis of

program benefits at the contractor level to identify problem areas. Finally,

HCFA cited plans to implement regulatory and legislative recommendations

made by internal work groups on changes made as a result of the BBA. HCFA

officials also provided technical comments, which we have incorporated

as appropriate. The text of HCFA’s comments is presented in appendix II.

As agreed with your offices, unless you publicly announce its contents

earlier, we plan no further distribution of this report until 14 days from the

date of this report. At that time, we will send copies of this report to the

Honorable Donna E. Shalala, Secretary of Health and Human Services; the

Honorable Nancy-Ann Min DeParle, Administrator of HCFA; appropriate

Page 15 GAO/HEHS-00-31 Medicare Benefit Changes
B-283963 

congressional committees; and other interested parties. We will also make

copies available to others upon request.

If you have any questions about the information presented in this report,

please call me at (312) 220-7600. Other staff who made key contributions

to this report include Paul D. Alcocer, Shaunessye D. Curry, and Donald

Kittler.

Leslie G. Aronovitz

Associate Director, Health Financing

 and Public Health Issues

Page 16 GAO/HEHS-00-31 Medicare Benefit Changes
Page 17 GAO/HEHS-00-31 Medicare Benefit Changes
Contents

Letter 1

Appendix I 

Scope and

Methodology

20

Appendix II 

Comments From the

Health Care Financing

Administration

21

Figures Figure 1: National Growth in the Number of CMHCs Participating

in the Medicare Partial Hospitalization Program and Amount of

Payments, 1993-98

6

Figure 2: Key Activities and Actions Related to the Partial

Hospitalization Benefit

8

Abbreviations

BBA Balanced Budget Act of 1997

BPR budget and performance requirements

CMHC community mental health center

HCFA Health Care Financing Administration

HHS Department of Health and Human Services

OBRA Omnibus Budget Reconciliation Act of 1990

OIG Office of the Inspector General

Page 18 GAO/HEHS-00-31 Medicare Benefit Changes
Page 19 GAO/HEHS-00-31 Medicare Benefit Changes
Appendix I 

Scope and Methodology

To compare the Health Care Financing Administration’s (HCFA)

implementation of Medicare’s partial hospitalization benefit for

community mental health centers (CMHC) with its implementation of the

changes to benefits required by the Balanced Budget Act of 1997 (BBA), we

reviewed HCFA program documents for the partial hospitalization

benefit—including the Department of Health and Human Services’ (HHS)

Office of Inspector General (OIG) reports, program memorandums,

contractor manuals, local medical review policies, and

correspondence—to examine how HCFA’s review and monitoring of claims

fell short of identifying inappropriate Medicare reimbursements. We spoke

with officials of HHS’ OIG to discuss their involvement in auditing the partial

hospitalization benefit. We also met with representatives of three

intermediaries—Blue Cross/Blue Shield of Florida, Blue Cross/Blue Shield

of Texas, and Mutual of Omaha—to discuss their experiences with the

partial hospitalization benefit. Although these intermediaries are not

representative of all intermediaries and providers, they processed almost

two-thirds of total Medicare payments to CMHCs in 1997. In addition, we

reviewed the BBA to determine how the legislation changed other benefits.

We also met with headquarters and regional HCFA officials who work

directly with the partial hospitalization benefit and BBA benefit changes to

determine how HCFA reviews the programs and oversees contractors’

activities.

To determine how HCFA has incorporated lessons learned from past

problems into its implementation of the BBA changes, we gathered

information on the factors HCFA considered when it introduced or

expanded other Medicare benefits. We also reviewed program

memorandums and internal reports to determine the steps that HCFA took

to implement Medicare-related BBA changes to nonphysician provider

reimbursement and the bone mass measurement and diabetes

self-management benefits. We also interviewed officials from the groups

HCFA charged with identifying potential vulnerabilities associated with

Medicare benefit changes and reviewed their recommendations for

preventing fraudulent activities. Finally, we identified the guidance HCFA

provided to contractors for performing medical review of claims

submitted under the benefit changes.

Page 20 GAO/HEHS-00-31 Medicare Benefit Changes
Appendix II 

Comments From the Health Care Financing

Administration

Page 21 GAO/HEHS-00-31 Medicare Benefit Changes
Appendix II 

Comments From the Health Care Financing

Administration

(101787) Page 22 GAO/HEHS-00-31 Medicare Benefit Changes
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