Medicare Program Integrity: Greater Prepayment Control Efforts Could Increase Savings and Better Ensure Proper Payment
Published: 2012-11-13T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: CMS reported an improper payment rate of 8.6 percent ($28.8 billion) in the Medicare fee-for-service program for fiscal year 2011. To help ensure that payments are made properly, CMS uses controls called edits that are programmed into claims processing systems to compare claims data to Medicare requirements in order to approve or deny claims or flag them for further review.
GAO was asked to assess the use of prepayment edits in the Medicare program and CMS's oversight of MACs, which process claims and implement some edits. This report examines the extent to which (1) CMS and its contractors employed prepayment edits, (2) CMS has designed adequate processes to determine the need for and to implement edits based on national policies, and (3) CMS provides information, oversight, and incentives to MACs to promote use of effective edits. GAO analyzed Medicare claims for consistency with selected coverage policies, reviewed CMS and contractor documents, and interviewed officials from CMS and selected contractors.
section_title: What GAO Found
paragraphs: Use of prepayment edits saved Medicare at least $1.76 billion in fiscal year 2010, but GAO found that savings could have been greater had prepayment edits been more widely used. GAO illustrated this point using analysis of a limited number of national policies and local coverage determinations (LCD), which are established by each Medicare administrative contractor (MAC) to specify coverage rules in its jurisdiction. GAO identified $14.7 million in payments in fiscal year 2010 that appeared to be inconsistent with four national policies and therefore improper. These payments could have been prevented through automated prepayment edits. GAO also found more than $100 million in payments that were inconsistent with three selected LCDs and that could have been identified using automated edits.
The Centers for Medicare & Medicaid Services (CMS) has three processes with some appropriately designed steps to identify the need for, and to implement, edits based on national policies, but each of these processes has at least one weakness. The weaknesses include incomplete analysis of vulnerabilities to improper payment that could be addressed by edits; lack of specific time frames for implementing edits and other corrective actions; flaws in the structure of some edits; lack of centralization in the implementation of some edits, which leads to inconsistencies; incomplete assessment of whether edits are working as intended; and lack of full documentation of the processes. For example, GAO found that Medicare paid $8.6 million in fiscal year 2010 for claims that exceeded CMS's limits on the quantity of certain services that can be provided to a beneficiary by the same provider on a single date of service. Although edits had been implemented to limit service quantities, a weakness in their structure caused them to miss instances in which quantity limits were exceeded.
CMS informs MACs about vulnerabilities that could be addressed through prepayment edits, but the agency does not systematically compile and disseminate information about effective local edits to address such vulnerabilities. CMS oversees MACs' use of edits partly through its review of certain MAC reports, but these reports are not intended to provide a comprehensive overview of their edits. In January 2011, CMS expanded its oversight activities and began requiring MACs to report on how they had addressed certain vulnerabilities to improper payment, some of which could be addressed through edits. While CMS increased the funding in fiscal year 2011 for contractors' medical review activities, including edit development, the agency provided relatively small incentives--3 percent or less of all contract award fees--to promote use of effective prepayment edits by MACs.
section_title: What GAO Recommends
paragraphs: GAO recommends that CMS take seven actions to strengthen its use of prepayment edits, such as restructuring some edits, centralizing implementation of others, fully documenting processes, encouraging more information sharing about effective edits, and assessing the feasibility of increasing incentives for edit use. The Department of Health and Human Services generally agreed with GAO's recommendations and noted CMS's plans to address them.

section_title: Letter
paragraphs: Since 1990, we have designated Medicare a high-risk program, due in   In fiscal year  part to its size and its susceptibility to improper payments.2011, the Medicare program covered about 48 million elderly or disabled  beneficiaries and paid about $550 billion in claims for health care services  provided. The Centers for Medicare & Medicaid Services (CMS), which  administers the program, has stated that one of its key goals is to pay  claims properly the first time—that is, to ensure that payments go to  legitimate providers in the right amount for reasonable and necessary  services covered by the program for eligible beneficiaries. If claims are  paid properly the first time, the agency does not need to spend additional  resources to recover improper payments. CMS has estimated that   8.6 percent—or about $28.8 billion—of the $336 billion in Medicare fee- for-service payments in fiscal year 2011 were improper.strategies in place to prevent, or identify and recoup, improper payments.
Internal controls are components of an organization’s management that provide  reasonable assurance that the organization achieves effective and efficient operations,  reliable financial reporting, and compliance with applicable laws and regulations. Internal  control standards provide a framework for identifying and addressing major performance  challenges and areas at greatest risk for mismanagement. for taking action to address them.implemented by CMS and its contractors are automated, meaning that if a  claim does not meet the criteria of the edit, it is automatically denied.  Other prepayment edits are manual, meaning that they flag individual  claims for review by trained contractor staff to determine whether the  claim should be paid. Whereas automated edits are applied to all claims,  manual edits are applied to very few. Less than 0.25 percent of claims  received manual review that involved clinician review of the medical  record.
Most of the prepayment edits  The Medicare program has defined categories of items and services  eligible for coverage and excludes from coverage items or services that  are determined not to be “reasonable and necessary” for the diagnosis  and treatment of an illness or injury or to improve functioning of a  malformed body part. what conditions within the broad categories defined in law. CMS sets  some national Medicare coverage and payment policies that apply to all  beneficiaries. These include national coverage determinations (NCD),  which describe the circumstances under which Medicare will cover  particular items or services nationwide. CMS works with several  contractors to implement prepayment edits for certain national coverage  and payment policies. In addition to prepayment edits related to service  coverage and payment, prepayment edits may be implemented to verify  that the claim is properly filled out, that providers are enrolled in  Medicare, or that patients are eligible Medicare beneficiaries.
42 U.S.C. § 1395y(a)(1)(A). in Medicare coverage policy in different areas of the country.create prepayment edits either to enforce their LCDs or to enforce  national Medicare policies set by CMS, although not every LCD or  national policy is structured in a way that makes edit development  feasible. CMS has responsibility for providing information and oversight to  MACs with respect to their use of prepayment edits to promote effective  stewardship of Medicare funds.
Given your interest in ensuring sound fiscal oversight of the Medicare  program, you asked us to examine the use of prepayment edits that  implement coverage and payment policies to achieve savings, as well as  CMS’s oversight of MACs, which develop and implement some edits. For  this report, we assessed the extent to which (1) CMS and its contractors  employed prepayment edits; (2) CMS has designed adequate processes  to determine the need for prepayment edits and to implement edits based  on national policies; and (3) CMS provides information, oversight, and  incentives to MACs to promote use of effective prepayment edits.
To address all three objectives, we reviewed the Medicare Program  Integrity Manual, which provides guidance for Medicare contractors, and  interviewed CMS officials and representatives of selected contractors  responsible for developing prepayment edits. We focused on edits that  implement coverage and payment policies, and did not include edits  based on beneficiary or provider enrollment data or edits designed to  verify that a claim has been properly filled out.
To assess the extent to which CMS and its contractors employed  prepayment edits, we reviewed data from two CMS data systems—the  Automated Reporting and Tracking System (ARTS), which tracks MACs’  claims administration costs, and the Program Integrity Management  Reports (PIMR) system, which collects savings and usage data about  prepayment edits. We conducted an analysis of paid Medicare claims  from fiscal year 2010. Through a few selected examples, we assessed  whether there were paid claims (1) that appeared to be inconsistent with  certain national policies, which would provide examples of potentially  improper payments, and (2) that were inconsistent with local coverage  determinations (LCD), which would provide examples of the potential for  increased savings associated with more widespread use of local edits.  The national policies we chose for our analysis were among those that  CMS had developed into NCDs or that had been identified with improper  payments in excess of $500,000 by Medicare contractors responsible for  identifying improper payments. The LCDs we chose were those for which  MACs had implemented automated edits that led to relatively large  savings for the Medicare program in their jurisdictions. We reviewed only  examples where payments could have been prevented with automated  edits because, unlike manual edits, automated edits can be used without  an additional cost for claim reviewers’ time for each additional claim  analyzed.
To assess the extent to which CMS has designed adequate processes to  determine the need for prepayment edits and to implement edits based  on national policies, we reviewed relevant documentation, including  documents from CMS describing its processes, and reports that CMS  uses to track vulnerabilities and corrective actions. We evaluated CMS’s  processes using criteria outlined in our internal control documents,  Standards for Internal Control in the Federal Government and Internal   The specific standards used  Control Management and Evaluation Tool. were risk assessment, control activities (documentation), and monitoring.
To assess the extent to which CMS provides information, oversight, and  incentives to MACs to promote use of effective prepayment edits, we  reviewed relevant documentation, including MACs’ statements of workand various reports MACs are required to submit to CMS, and analyzed  data from CMS’s performance reviews of MACs.
See GAO, Standards for Internal Control in the Federal Government,   GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999), and GAO, Internal Control  Management and Evaluation Tool, GAO-01-1008G (Washington, D.C.: August 2001).   Statements of work are those documents generally incorporated in contract solicitations  and, subsequently, contracts, that specify, either directly or with reference to other  documents, the work the government expects the contractors to perform.
We performed appropriate electronic data checks for the data used in our  analyses and interviewed agency officials who were knowledgeable about  the data from PIMR, ARTS, and the Medicare claims database to ensure  that the data were reliable enough for our purpose. We found the data  were sufficiently reliable for the purpose of our analyses. We conducted  this performance audit from July 2011 through November 2012 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: About three-quarters of all Medicare beneficiaries receive their care on a  fee-for-service basis, with providers submitting claims for payment for  each service provided. CMS contracts with claims administration  contractors—primarily MACs—to process claims from over 1 million  hospitals, physicians, and other health care providers. In fiscal year 2011,  MACs and other claims administration contractors processed about   1.2 billion claims. Medicare claims administration contractors have had a  role in determining coverage since 1965, when the Medicare program  was enacted. At that time, Congress arranged for many Medicare  functions to be contracted out to private insurers to allow the program to  be implemented rapidly by organizations already processing claims for  hospitals and physicians.
subsections: section_title: Medicare Coverage Policies
paragraphs: Medicare law defines the categories of services covered by the program  and provides the Secretary of the Department of Health and Human  Services (HHS) with the authority to specify which services within these  categories are covered and under what conditions.delegates this responsibility to CMS, which, in turn, carries out some of  these responsibilities through MACs. Consistent with Medicare law, CMS  sets national coverage, payment, and coding policies regarding when and  how services will be covered by Medicare, as well as coding and billing   The Secretary  requirements for claims. CMS develops or implements the following types  of national policies:
NCDs, which CMS typically develops for services that have the  potential to affect a large number of beneficiaries and that have the  greatest effect on the Medicare program. For example, this can  include new technologies introduced into health care practice, such as  use of Positron Emission Tomography scans for diagnostic  purposes. Development of NCDs is a lengthy process, which  requires review of clinical evidence and allows for public comment.  According to CMS, the agency has the resources to develop  approximately 12 NCDs per year. As of February 2012, there were  328 NCDs.
National payment policies that specify how payment will be made for  covered services in certain situations—such as how physicians who  collaborate on providing the same service to a beneficiary will be paid.
National Correct Coding Initiative (NCCI) coding policies, which aim to  reduce inappropriate payments through the use of automated edits  that deny improperly coded claims. NCCI edits include code-pair  edits, which deny payment for services that should not be billed  together. NCCI edits also include Medically Unlikely Edits (MUE),  which deny payment for services where the quantity billed is at a level  not likely to be provided under normal medical practice, such as daily  doses of drugs higher than the maximum amounts in the prescribing  information or services that are anatomically impossible, such as  more than one appendectomy on the same beneficiary. CMS allows  exceptions to MUEs and some code-pair edits when providers believe  the services provided are clinically appropriate. In such cases, special  codes called modifiers are included on the claim to indicate why the  services were clinically appropriate.
MACs may develop local coverage policies as long as these policies are  consistent with national policy. MACs develop the following types of local  coverage policies:
LCDs, which specify the circumstances under which services will be  covered in a MAC’s jurisdiction. According to CMS, allowing MACs  to develop LCDs allows for timely local reaction to changes in the  practice of medicine. MACs also use LCDs to place limits on services  that may be overused or abused in their jurisdictions. Before  implementing or revising an LCD, a MAC must review clinical  evidence and incorporate the information reviewed into the proposed  LCD, provide notice of proposed changes on its website, and, in some  cases, seek public input from potentially affected individuals or  organizations, such as physicians whose billing could be affected by  the policy. There are currently thousands of LCDs.
Limits on quantities of services that will be covered in a MAC’s  jurisdiction. A quantity limit may be included within an LCD or  developed separately as a Clinically Unlikely Edit (CUE).
CMS and its contractors have developed and implemented various types  of prepayment edits based on national and local coverage policies. (See  table 1.)
MACs are responsible for processing and paying claims, generally in  specific geographic jurisdictions, in compliance with coverage and  payment policies. Health care providers generally submit claims to the  MAC responsible for the geographic area where the services were  delivered or the beneficiary resides.standardized coding system, known as the Healthcare Common  Procedure Coding System (HCPCS), to identify the medical services,   Providers submit claims using a  equipment, and other goods provided.patient diagnoses, using a different coding system called the International  Classification of Diseases (ICD).
Medicare fee-for-service claims processing includes several basic steps  that involve three types of systems: MAC front-end systems, shared  systems, and the Common Working File (CWF).  . Claims are submitted to MACs, whose front- end computer systems perform automated checks to determine  whether claims meet certain requirements, such as that the data are  complete.
Shared systems. Claims that meet the initial requirements in the front- end systems are sent to one of three shared systems—depending on  the type of claim—where they are subjected to prepayment edits  based on coverage and payment policy criteria. Claims that do not  meet these criteria are either automatically denied or flagged for  review by trained staff. These systems also verify that providers are  enrolled in Medicare. Claims that are not denied by automated edits  or suspended for manual review by manual edits in the shared  systems are then sent to the CWF, the central CMS system that  authorizes payment. . The CWF verifies beneficiary eligibility,  coordinates Part A and Part B benefits, and determines the extent of  Medicare’s responsibility for payment, based on such factors as  whether beneficiaries’ deductibles have been met or utilization limits  have been reached. From there, claims are returned to the relevant  shared system for final processing and then payments are sent to  providers.
The process of determining whether claims are consistent with Medicare  coverage, payment, and medical coding policies—which includes the  application of edits based on these policies, as well as manual review of  flagged claims—is known as the medical review process. Of the two  categories of prepayment edits used by MACs in this process— automated and manual—automated are less resource intensive. CMS  policy requires that automated edits be used whenever possible.  However, many improper claims can be identified only through more  costly manual review, because staff may have to review associated  medical records and claims history or exercise clinical judgment to  determine whether a service is reasonable and necessary and therefore  should be approved for payment. CMS officials indicated that there are  about 17,000 prepayment edits related to medical coverage issues in  PIMR. However, some edits—in particular, those that require manual  review—may not be in use at any given time for various reasons, such as  the staff costs associated with manual review, or because changes in  provider behavior make the edit unnecessary. In addition, edits can vary  in complexity and the policy issues covered, since some automated edits  address only a portion of one coverage policy, while other automated  edits address multiple policies.
There are limitations to the use of prepayment edits and associated  manual review as medical review strategies because some claims can be  identified as improper only after a payment is made.recovery audit contractors (RAC) to find and correct overpayments and  underpayments after claims have been processed. Although some of the  improper payments identified by RACs could have been prevented by  prepayment edits, others can be identified only after payment through  review of medical records. CMS requires RACs to provide information,  based on their analyses, about vulnerabilities, including those that could  be addressed through prepayment edits.
section_title: CMS Oversight of MACs
paragraphs: CMS’s oversight of MACs is governed by the terms of the MACs’  contracts, which in turn reflect provisions of the Medicare Prescription  Drug, Improvement, and Modernization Act of 2003 (MMA). The MMA  includes a requirement for CMS to use competitive procedures to select  contractors to process claims; to develop performance standards for  these contractors, including standards for customer satisfaction; and to  provide incentives for these contractors to provide high-quality service.  CMS established the MAC contracts as cost-plus-award-fee contracts, a  type of cost-reimbursement contract designed to provide sufficient  motivation to encourage excellence in contract performance.Specifically, a MAC may earn an incentive, known as an award fee,  based on performance, in addition to reimbursement for allowable costs  and a base fee for the contract, which is fixed at the inception of the  contract. Under the terms of these contracts, CMS sets requirements for  MACs with respect to prepayment edits and other aspects of the medical  review process. In general, CMS requires MACs to target medical review  to areas that pose the greatest financial risk to the Medicare program and  where their efforts are likely to produce the best return on investment, and  also to implement automated prepayment edits whenever appropriate.  CMS also requires MACs to assess the effectiveness of their edits and to  submit their medical review strategies to CMS for review and approval.  However, MACs have considerable discretion in developing local  coverage policies and in deciding how to implement edits to address both  local and national coverage policies.
CMS assesses MACs’ performance in part through its Quality Assurance  Surveillance Plan (QASP) review and its Award Fee Plan review. For  the QASP review, which is generally conducted annually, CMS evaluates  each MAC’s performance against a MAC-specific subset of performance  standards in accordance with the statement of work and other  requirements specified in related CMS policy documents. The Award Fee  Plan identifies the criteria upon which the MAC will be evaluated and  provides an explanation of when the MAC can potentially earn an  incentive based on its performance. On an annual basis, CMS creates an  award fee plan for each MAC that contains metrics that are generally  more challenging to achieve than the requirements outlined in the  statement of work. The pool of award fees available to each MAC is  established during contract negotiations and depends in part on the  negotiated division of fees between award fees and base fees.
CMS monitors the accuracy of the MACs’ claims payment determinations  through its Comprehensive Error Rate Testing (CERT) Program, which  measures improper payments. Each year, CMS establishes a national  error rate goal under the Government Performance and Results Act of  1993. To calculate error rates, CMS’s CERT Program contractor  randomly samples Medicare fee-for-service claims and reviews them after  payment. Currently, CMS publishes error rates by type of error, type of  claim—for example, DME—and clinical setting, as well as nationally.  Prior to 2009, CMS also published contractor-specific error rates.  However, in that year, CMS implemented a new methodology for CERT  claim reviews, and as a result, the error rates computed for 2009 were not  comparable to those computed for previous years.contractor-specific error rates in award fee plan reviews in fiscal year  2011.
section_title: Internal Control
paragraphs: CMS, like other agencies, is responsible for maintaining internal control— the component of an organization’s management that provides  reasonable assurance that the organization achieves effective and  efficient operations, reliable financial reporting, and compliance with  applicable laws and regulations. Internal control standards provide a  framework for identifying and addressing major performance challenges  and areas at greatest risk for mismanagement. As noted above, GAO has  published guidelines for internal controls, and we used these guidelines to  assess some of CMS’s processes. (See table 2 for the specific internal  control standards and activities we used.)
section_title: Prepayment Edits Saved Medicare at Least $1.76 Billion in 2010 but Were Not Used to Full Extent Possible
paragraphs: CMS reported that the use of prepayment edits saved Medicare   $1.76 billion in fiscal year 2010, but the reported total is likely to be an  underestimate because CMS does not collect information on savings from  all of its current edits. Moreover, the savings could have been greater had  prepayment edits been more widely used. Our analysis of Medicare data  using only a limited number of national policies identified payments that  appeared to be improper and that might have been prevented through  wider use of automated edits. We also found that wider use of edits  based on LCDs could have led to increased savings. Using just three  MAC-issued LCDs as examples, we found that MACs in other geographic  areas processed Medicare payments totaling more than $100 million for  services that were not covered under the three policies we selected.
subsections: section_title: Use of Prepayment Edits Led to Reported Savings of $1.76 Billion, but That Total Is Probably an Underestimate
paragraphs: Although CMS’s PIMR data indicate that Medicare savings from  prepayment edits were $1.76 billion in fiscal year 2010, that total is  probably an underestimate because CMS does not collect information on  savings from all of its current edits. For example, although the savings  total included $497 million in savings from some NCCI code-pair edits, it  did not include savings from other NCCI code-pair edits or from MUEs. In  addition to lacking complete information about total savings from edits,  CMS also lacked reliable information about savings associated with  particular types of edits. For example, PIMR did not contain reliable data  about fiscal year 2010 savings attributable to automated edits versus  manual edits or to edits based on national policy versus those based on  local policy. Although PIMR captured both kinds of information, CMS  officials said these data were unreliable because not all MACs defined  and reported information about edits in the same way. However, in 2011,  CMS issued new reporting instructions for contractors to standardize  definitions for various types of edits.
We analyzed MACs’ costs for specific tasks related to prepayment edits and medical  review, based on the most recent contract periods for which we had data at the time of our  analysis. These contract periods, which were almost always 1 year, ranged from a period  ending July 30, 2010, to one ending March 31, 2011, depending on the time frame for  each contract. Medicare Integrity Program (MIP) funds were used to pay the costs for the  tasks we included in our review. MIP was established to enhance efforts to address  Medicare’s vulnerabilities to fraud, waste, and abuse. Costs of various tasks in the MIP  category—which also includes provider outreach and education and coordination of  benefits—are paid with MIP funds. MACs are permitted to direct the MIP funds they  receive among these tasks but are not permitted to use MIP funds for tasks in other  categories. On average, the MIP category accounted for 30 percent of A/B MACs’ total  costs and 19 percent of DME MACs’ total costs in the most recent contract period. addition, ARTS data do not include approximately $1.1 million in costs  incurred for another contractor to develop NCCI edits.
section_title: Wider Use of Automated Edits Based on National Policies Could Have Prevented Some Improper Payments
paragraphs: Our analysis of Medicare claims data, for which we selected five national  Medicare policies, found cases in which Medicare paid for services that  appeared to be inconsistent with its national coverage and coding  policies. Specifically, we found $14.7 million in payments from fiscal year  2010 that appeared to be inconsistent with four of the selected policies  and therefore improper. At least some of these payments that were  improper could have been prevented by prepayment edits. (See table 3.)  For each of the four policies, the steps we followed for our analysis also  could have been followed on a prepayment basis using automated edits  because the steps consisted of a review of only the procedure codes,  diagnosis codes, and quantities provided, all of which could be  determined prior to claim payment. (See app. I for a description of the  analytic approach.) For the remaining policy, we found no payments that  appeared to be inconsistent.
We found that Medicare paid $8.6 million for claims that exceeded the  MUE quantity limits for a single beneficiary under most circumstances on  a single date of service. By the beginning of fiscal year 2012, CMS had  established quantity limits for about 10,800 HCPCS codes for services  provided by physicians and other noninstitutional outpatient service  providers.
Claims can have multiple lines, with a single service claimed on each line.  MUEs look for excess quantities of services provided to a single  beneficiary by a single provider on each individual claim line. (See app. II  for an example of how excess quantities of services could be billed in a  way that avoids triggering an MUE.) Therefore providers still could be  paid for more than the maximum quantity specified under the policy if  quantities were divided among multiple lines on the same claim or among  multiple claims for the same beneficiary. When we analyzed claims using  the method actually applied by MUEs—in which each claim line was  analyzed independently—we found only about $400,000 in paid claims  that exceeded the MUE quantity limits. However, when we analyzed  claims using the quantity limits to identify payments for the same  beneficiary, same provider, and same date of service—whether on the  same claim line or multiple claim lines—we found $8.6 million in paid  claims that exceeded quantity limits.
We also found $6.1 million in payments that appeared to be inconsistent  with three selected NCDs and therefore improper. For a fourth NCD, we  did not find any payments that appeared to be inconsistent. Using one of  the three NCDs, which prohibits use of vagus nerve stimulation to treat  resistant depression, we found that Medicare paid about $5.0 million in  fiscal year 2010 for vagus nerve stimulation for claims with diagnoses for  depression. In addition, using two NCDs that address a treatment for age-related macular degeneration, we found $1.1 million in payments that  appeared to be improper. These two related NCDs stipulate that this  macular degeneration treatment must use both ocular photodynamic  therapy (OPT) and the drug verteporfin together and that beneficiaries  must receive a diagnostic test prior to treatment. The $1.1 million we  found was for claims for the therapy without the diagnostic test, the  therapy without the drug, or the drug without the therapy. We did not find  any payments that appeared to be inconsistent with the remaining NCD,  which establishes that Medicare does not cover lumbar artificial disc  replacement for beneficiaries older than age 60.
section_title: Wider Use of Edits Based on MACs’ LCDs Could Have Led to Increased Savings
paragraphs: Our analysis of Medicare claims using three selected LCDs demonstrated  the potential for increased savings. Variation in Medicare coverage and in  the prepayment edits used to enforce coverage policy in different  geographic areas results in Medicare paying for services that are covered  in some parts of the country but not others. We found that MACs other  than those whose LCDs we used as the basis for our analysis paid more  than $100 million for claims that were inconsistent with these three  LCDs. (See table 4.) These payments cannot necessarily be classified  as improper because other MACs may not have had a similar LCD in  place.greater or lesser use of services in some jurisdictions than in others.
However, variation in coverage among MACs can result in  Although greater use of services does not necessarily reflect overuse,  leading health care experts have noted that overuse of services is a  significant problem that has led to increased health care spending,  including in the Medicare program. More widespread use of automated  edits that some MACs found to be among their most effective at  identifying claims for services that they do not consider reasonable and  necessary could have led to more consistent coverage throughout the  country and therefore to savings for the Medicare program as a whole.
In our analysis, we found about $68.7 million in payments for monitored  anesthesia care that were made by MACs other than the MAC whose  LCD we used as the basis for this analysis. The LCD specified the  diagnoses for which monitored anesthesia care would be covered by  Medicare in the MAC’s jurisdiction. The MAC whose LCD we used for this  analysis had implemented an automated edit to identify claims that lacked  one of the required diagnoses. In addition, we found about $30.9 million  in payments for claims for a test of parathyroid hormone levels that was  performed more than once per day or lacked one of the diagnoses  required by the MAC whose LCD we used. The LCD identified a set of  diagnoses for which a parathormone test would be covered as medically  necessary and generally prohibited coverage for more than one service   Medicare payments in 2 of the 15 MAC jurisdictions made up  per day.about half—$17.1 million—of the payments we identified as inconsistent  with the parathormone LCD. Finally, we found about $4.5 million in  payments in fiscal year 2010 that were inconsistent with an LCD covering  tests to measure blood flow to the brain. The claims we found did not  contain any of the diagnoses required by that LCD.
section_title: CMS’s Processes for Identifying Needs for, and Implementing, Prepayment Edits Based on National Policies Have Weaknesses
paragraphs: CMS has three processes for identifying the need for, and implementing,  prepayment edits based on national policies: (1) the NCCI process;   (2) the Vulnerability Tracking Corrective Action Process; and (3) the NCD  process. The designs of these processes have steps consistent with our  internal control standards. However, they also have weaknesses that  hinder their effectiveness in preventing improper payments.
subsections: section_title: CMS’s NCCI Process to Develop Code-Pair Edits and MUEs Adheres to Some Internal Control Standards but Has Weaknesses
paragraphs: The NCCI process, which CMS initiated in 1996, aims to reduce  inappropriate payments through the development and implementation of  automated edits that deny certain types of improperly coded claims. The  NCCI process develops two types of edits. Code-pair edits are designed  to result in denial of claims for services to a beneficiary with pairs of  codes that should not be billed together. MUEs are designed to result in  denial of claims with units of service that exceed the maximum number a  provider would bill under most circumstances.
The first step outlined in the NCCI process—in which CMS identifies risks  that can be addressed with NCCI edits—is consistent with our risk  assessment internal control standard that calls for agencies to identify  risks comprehensively using various methods. To identify the need for an  NCCI edit, CMS’s NCCI contractor reviews information from a variety of  sources, including MAC medical directors, publications of national health  care organizations, new laws and regulations, and annual changes in  procedure codes. In general, the NCCI contractor staff told us that they  propose a code-pair edit whenever they identify a procedure or item  where proper payment could be enhanced, irrespective of the size of the  potential vulnerability. However, CMS guidance indicates that the  magnitude of potential program vulnerability is one possible rationale for  setting an MUE at a particular level.
CMS has procedures for deciding whether to implement an NCCI edit,  consistent with our risk assessment standard that calls for deciding on  appropriate corrective actions. To help CMS determine whether an NCCI  edit might be appropriate, the NCCI contractor reviews CMS policy,  standards of medical and surgical practice, current coding practice, and  provider billing patterns. The contractor then presents information on  proposed edits in regular meetings with senior-level CMS staff assigned  to NCCI workgroups, who then decide whether to implement proposed  edits. CMS generally provides a review and comment period before  implementing edits to allow for input from representative national  organizations that may be affected by the edits. CMS considers the  comments when it makes its final decision about implementing an edit,  but does not necessarily decide against an edit because of adverse  comments.
CMS implements NCCI edits on a regular timeline, consistent with our  monitoring standard that calls for taking action within established time  frames. The NCCI contractor provides a file of new and revised edits to  CMS on a quarterly basis. The contractors then download this file from  CMS’s Data Mover to integrate it into the claims payment systems.  Representatives of MACs we contacted said they receive the edit files in  a timely manner.
CMS has procedures in place to determine whether NCCI edits are  operating as intended before applying the edits in processing claims.  Prior to submitting the edit files to CMS, the NCCI contractor performs a  series of quality control checks to ensure that the edits are operating  correctly. Representatives of the MACs we contacted said they also test  these edits to ensure they are operating correctly within the shared  systems.
However, the MUE edits are not working to enforce the MUE limits  because of how they are structured. Thus, this monitoring step does not  meet our standard that calls for agencies to assess whether internal  controls are functioning properly. As noted above, MUEs are structured to  identify each claim line in which units of service exceed the MUE limit,  and do not identify excess units billed across multiple claim lines. As a  result, we identified about $8.2 million in Medicare payments in fiscal year  2010 for quantities of services that exceeded published MUE limits but  were not identified by MUEs because the excess amounts were billed  across multiple claim lines. The NCCI contractor recognized this  weakness in the MUEs and recently recommended to CMS that MUEs be  restructured so that they are applied against all claims reported for a  single date of service rather than against each line of a claim.
Finally, the process for developing NCCI edits is adequately documented,  consistent with our control activities standard that calls for agencies to  develop written policies and procedures for their activities. CMS has  documented its processes for NCCI edits in a policy manual that explains  the rationale for these edits and how edit decisions are made. The  document is updated annually and is available to the public on the CMS  website.
section_title: CMS’s Vulnerability Tracking Process Lacks Time Frames for, and Assessment of, Corrective Actions
paragraphs: CMS’s Vulnerability Tracking Corrective Action Process (Vulnerability  Tracking) began in November 2008 and is still evolving, according to  agency officials. It was originally developed to track vulnerabilities  identified by the RACs and corrective actions taken, but it has expanded  to include vulnerabilities identified through other means. CMS can decide  to address these vulnerabilities with prepayment edits or with other types  of corrective actions.
To identify risks associated with vulnerabilities to improper payments,  CMS has designed a process that calls for analyzing several sources of  information, an approach consistent with our risk assessment standard  that calls for comprehensively identifying risks. CMS staff analyze  available data—such as CERT data and data on improper payments  identified by RACs and other CMS contractors—in order to identify  potential vulnerabilities and determine whether they are actual  vulnerabilities. CMS staff then assess the risks posed by these  vulnerabilities and prioritize them for corrective action based on five  criteria: (1) the associated CERT error rate; (2) whether the vulnerability  has been identified by RACs as a “major finding,” meaning a vulnerability  for which more than $500,000 was identified for recoupment; (3) overall  financial effect; (4) geographic effect and scope; and (5) political and  media sensitivity.
Although the application of criteria to prioritize vulnerabilities is a strength  of CMS’s process, we found a weakness in how CMS analyzes RAC data  to identify vulnerabilities to prioritize for correction through edits or other  actions. When setting the threshold to determine whether a RAC- identified vulnerability should be considered a major finding, CMS  considers only the amount identified by each RAC and does not  aggregate the amounts across all RACs that have identified similar  vulnerabilities and may not consider thoroughly the potential national  scope of vulnerabilities that one or two RACs are pursuing. CMS officials  told us they do not routinely review information on RAC-identified  vulnerabilities under the $500,000 threshold. As a result, CMS can leave  vulnerabilities unaddressed, some of which could be addressed with  prepayment edits. For example, as of December 2011, the four RACs had  identified a total of about $503,000 in improper payments for claims for  the services of clinical social workers provided during inpatient stays.  Because this amount was not identified by a single RAC, this would not  meet the definition of a major finding. CMS also does not take into  account the period over which the RACs identified the improper  payments.
CMS has designed procedures for determining what actions will be taken  to address vulnerabilities, including prepayment edits, which is consistent  with our risk assessment standard that calls for deciding on appropriate  corrective actions to address risks. The agency has assembled a  Corrective Action Development Team, which meets weekly to review  analyses on prioritized vulnerabilities and to propose corrective actions to  leadership in the CMS Provider Compliance Group, which is responsible  for vulnerability tracking. The Provider Compliance Group can develop  edits or take other corrective actions such as publishing provider  education articles, referring vulnerabilities to other CMS components, or referring vulnerabilities to the MACs to be addressed at the local level.CMS officials in the Provider Compliance Group told us they had  developed at least three edits as part of the Vulnerability Tracking  process to address identified vulnerabilities, and were in the process of  developing edits to address at least 10 other vulnerabilities identified by  the RACs.
CMS has not specified time frames for implementing all corrective  actions, contrary to our monitoring standard that calls for taking corrective  action within established time frames. CMS officials explained that they  have not done so because the time involved can vary from a few days to  several months, depending on the work involved in determining and  implementing the appropriate action. For example, CMS officials told us  that staff may conduct research to determine whether local and national  edits have already been implemented to address the vulnerability in  question. But CMS has not established planned time frames for  addressing each vulnerability once the agency has determined the type of  corrective action needed. Also, as recently reported by the HHS Office  of Inspector General (OIG), the Provider Compliance Group has not  established procedures or time frames for following up with other CMS  components to which it has referred vulnerabilities, to ensure that  vulnerabilities have been resolved.
CMS has not obtained information to assess whether all of its edits and  other corrective actions taken through its Vulnerability Tracking Process  are functioning properly, contrary to our monitoring standard. However,  CMS does test edits before implementation and has assessed the effects  of some edits and other corrective actions. According to CMS officials, all  edits CMS develops centrally are implemented through the change  management process, which includes testing prior to implementation to  ensure they are working as intended. With respect to other types of  corrective actions, CMS officials told us they gathered and analyzed data  to assess two corrective actions to see if the actions were having the  intended effects and have plans to conduct similar data analyses to  assess others 18 to 24 months after implementation, when their effects  will be more evident. However, CMS officials said they do not have the  resources to monitor the results of all edits or other corrective actions  themselves and that, depending on the risk to the program, the agency  may rely on information from other entities, such as reports from RACs,  the CERT contractor, or the HHS OIG. While information from these  entities can be useful, our standard on monitoring calls for routine  monitoring that assesses the effectiveness of control activities, which  CMS managers told us they are not doing. CMS officials indicated that  better data on the effects of edits will be available when the agency  replaces its PIMR database.
CMS has developed preliminary documentation of the Vulnerability  Tracking Process, but the documentation is incomplete and therefore  inconsistent with our control activities standard with respect to  documentation, which calls for agencies to develop written policies and  procedures for their activities. CMS’s documentation specifies roles and  responsibilities for CMS teams, identifies sources of information about  potential vulnerabilities, specifies criteria for prioritizing vulnerabilities for  corrective action, and lists possible corrective actions. The document  also lists monitoring of corrective action plans as a responsibility of CMS  staff and mentions assessing billing and payment trends as a monitoring  strategy. However, this documentation does not establish time frames for  monitoring corrective actions, as the HHS OIG also reported. In addition,  it does not outline required steps to take if the corrective action is not  working as intended.
section_title: CMS’s Process for Implementing Edits Based on NCDs May Have Led to the Inconsistent Application of National Policies and Lacks Assessment and Documentation
paragraphs: According to CMS officials, there are procedures in place for agency staff  to decide whether to implement an edit based on an NCD. As described  by CMS officials, this process for determining whether to implement an  edit based on an NCD is consistent with our risk assessment standard  that calls for deciding on appropriate corrective actions. CMS develops  NCDs to describe the circumstances under which Medicare covers  certain services. CMS officials told us that, when feasible, CMS develops  and implements edits to enforce the policy behind the NCD to ensure that  claims that do not follow the policy are not paid. According to CMS  officials, when the agency develops an NCD, staff in the CMS component  responsible for policy development consult with staff in the component  responsible for provider billing to determine whether an automated edit  can be developed. However, CMS officials could not confirm that such  consideration was consistently given in the past. Although agency officials  told us they had separate documentation on each of the edits  implemented based on an NCD, the agency has not assembled that  information. Therefore, CMS could not readily provide information about  all of its edits based on NCDs, or all of the NCDs for which there are  associated edits. If CMS determines that an automated edit based on the  NCD is not possible—for example, because certain aspects of the NCD  are not specific or because the necessary procedure and diagnosis codes  do not exit—CMS assigns MACs the responsibility of ensuring that they  process claims in conformance with the policy.
Some aspects of the agency’s approach to implementing edits based on  NCDs are consistent with our standard that calls for taking action within  established time frames, but other aspects have weaknesses. If CMS  determines that an automated edit based on the NCD is possible, the edit  is generally implemented through a change request, which calls for  central implementation and follows documented procedures and specific  time frames. However, for some edits, CMS has assigned responsibility to  MACs to independently program and integrate the edits into the shared  systems. CMS officials told us that they have sometimes assigned  responsibility to MACs because there is a queue for implementing system  changes at the national level, and in some cases MACs can implement  edits more quickly. CMS officials acknowledged that having multiple  MACs program some edits based on NCDs may have led to inconsistent  implementation of national coverage policy. CMS officials also noted that  this approach creates more work than necessary for MACs, particularly  because each MAC must update the edits regularly to reflect coding  changes, which can lead to additional inconsistencies. Our claims  analysis found instances where inconsistent implementation of NCDs  may have led to improper payments. As we reported earlier, we found  about $6.1 million in payments in fiscal year 2010 that appeared to be  inconsistent with three NCDs we selected for analysis.
CMS officials told us that the agency is considering steps to address  inconsistent implementation of NCD-based edits by assessing whether  the agency can implement centrally all automated prepayment edits  based on NCDs. CMS is working with a contractor to update coding for  NCDs as part of the transition to the International Classification of  Diseases 10th Edition (ICD-10).has begun to inventory the edits based on NCDs. The contractor will also  consider whether automated prepayment edits could be developed and  implemented centrally for NCDs that do not currently have them. CMS  officials also told us that centrally coding edits based on NCDs will help  ease MAC workloads.
As part of this transition, the contractor  CMS tests edits based on NCDs before implementation to ensure they  are working as intended, but the agency does not assess the effects of  these edits thereafter, contrary to our monitoring standard that calls for  agencies to assess whether internal controls are functioning properly.  CMS officials told us the shared systems maintainers test edits prior to  implementation, and the MACs subsequently test the edits as well.  However, according to CMS officials in both components responsible for  NCD-based edits, neither component monitors the effects of these edits  nor tracks savings information.
CMS officials did not provide any written guidance outlining the decision- making process they described to us, contrary to our control activities  standard that calls for agencies to develop written policies and  procedures for their activities. They also did not provide documentation  that the process has been followed for each NCD developed recently.
section_title: CMS Informs MACs about Some Vulnerabilities That Could Be Addressed through Local Edits but Provides Relatively Small Financial Incentives to Promote Their Use
paragraphs: CMS informs MACs about program vulnerabilities that could be  addressed through local prepayment edits and about the varying  coverage policies MACs have implemented in their jurisdictions, but the  agency does not systematically compile and disseminate information  about effective local edits. To oversee MACs’ efforts to address  vulnerabilities, which include implementation of edits, CMS requires  MACs to report on plans to address specific vulnerabilities and examines  some of these reports as part of performance reviews. In fiscal year 2011,  CMS increased the funding allocated to MACs for medical review   However, the agency provided relatively small  activities by 12 percent.financial incentives in the form of award fees to motivate MACs to make  more effective use of prepayment edits.
subsections: section_title: CMS Provides Information about Some Vulnerabilities but Does Not Systematically Disseminate Information about Effective Local Edits
paragraphs: CMS provides information to MACs about some program vulnerabilities  that could be addressed through prepayment edits. The agency also  provides some information about local coverage policies, but little about  effective prepayment edits and the policies on which they are based.
Vulnerabilities. CMS disseminates information to MACs about program  vulnerabilities through several channels. One key channel is the agency’s  regular reports identifying vulnerabilities. For example, CMS publishes  midyear and annual reports on improper payments identified by CERT  and also makes CERT data available to MACs to conduct their own  analyses. Other data CMS makes available include the Part B National  Summary Data file, which MACs can use to compare the utilization rates  of providers in their jurisdiction to national rates, to detect potentially  aberrant billing patterns. In addition, CMS facilitates regular conference  calls and meetings with MACs at which vulnerabilities are discussed. For  example, CMS leads three conference calls per month, each focusing on  a different type of claim, in which MACs can obtain information from  RACs about vulnerabilities these other contractors have identified in their  analyses of paid claims. CMS also sponsors two annual meetings for A/B  MAC staff—one for medical directors and another for medical review  managers—and similar meetings for DME MAC staff, at which  vulnerabilities may be discussed.
Local coverage policies. CMS facilitates information sharing about local  coverage policies through regular conference calls and national meetings  two to three times per year. CMS also maintains a public web-based  Medicare Coverage Database that contains detailed information about  both NCDs and LCDs. MACs considering changes to local coverage  policy can search the database for information about related NCDs or  LCDs. Some of the LCD descriptions contain enough information,  including diagnosis and procedure codes, to give an idea of the edits that  may have been implemented to enforce them. However, the LCD  descriptions do not indicate whether those edits have actually been  implemented or provide any measure of the effectiveness of those that  have.
Prepayment edits. Although CMS facilitates limited and generally  informal information sharing among MACs about their prepayment edits,  the agency does not systematically compile and disseminate information  about effective edits. Such information would include information about  the national or local coverage policies on which the edits are based and  the savings they have generated. CMS requires MACs to analyze the  effectiveness of each of their edits—quarterly for manual edits and  annually for automated edits—but does not require MACs to report this  information to the agency. Although CMS may examine MACs’  documentation of these analyses as part of broader reviews, it does not  compile or analyze the data across MACs. Representatives of one of the  MACs we contacted said that if a vulnerability were widespread, CMS  might ask a MAC that had successfully addressed it to present  information about its edit and associated savings to other MACs during a  regularly scheduled conference call or national meeting. However,  representatives of another MAC noted that sharing of information about  edits typically occurred in informal exchanges among MACs at national  meetings and did not include information about savings.
CMS lacks a complete and centralized source of information on the most  effective local edits that could facilitate information sharing. The PIMR  database was established by CMS specifically to compile information  about the edits implemented by claims administration contractors and to  collect savings and cost data to assess the edits’ effectiveness. However,  CMS officials reported that the database has not served that purpose  since MACs began processing claims, in part because MACs’ cost data  are collected in a system that does not link to PIMR. In addition, PIMR  lacks descriptions of many edits, which MACs must enter manually, and,  according to CMS officials, it has other flaws that significantly limit its  usefulness as a tool for identifying effective edits. CMS contracted with  a consultant to evaluate the system and make recommendations for an  upgrade or replacement. CMS received these recommendations in  January 2012, but agency officials we interviewed could not say if or  when HHS would approve the funding for a new system. CMS officials  said the agency will stop using the PIMR database in July 2012. Until a  new database is in place, the agency will continue using a manual data  collection process initiated in September 2011, in which staff compile in a  spreadsheet information from MACs about the number of claims denied  and dollars saved each month by different types of edits, including  automated and manual prepayment edits.
section_title: CMS’s Oversight of Edit Use Relies Partly on MACs’ Reports on Their Efforts to Address Specific Vulnerabilities
paragraphs: CMS provides oversight of MACs’ use of prepayment edits primarily  through its review of certain MAC reports, through annual QASP reviews,  and, most recently, through directives requiring the MACs to explain  whether and how they have addressed certain vulnerabilities specified by  CMS.
CMS review of MAC reports. CMS requires MACs to submit several  types of reports that include partial information about their use of  prepayment edits. These reports include annual medical review strategies  and monthly status reports:  Medical review strategies each MAC’s annual medical review strategy is a prioritized list of the  specific vulnerabilities the MAC has deemed most critical to address  . As directed by CMS, the central element of  and a description of plans to address them, which may include  implementation of prepayments edits or other efforts, such as provider  education. The strategy must also indicate the data analyses the MAC  conducted, describe methods for assessing the effectiveness of  planned interventions, and explain how the work will be managed,  staffed, and budgeted. CMS assigns two staff members—one with  expertise in medical review and another, generally from a CMS  regional office, with broader responsibility for monitoring a MAC’s  performance—to review each MAC’s medical review strategy. In  addition, according to CMS officials, the CMS group responsible for  medical review began in 2011 to conduct what they intend to be  annual conference calls with each MAC to discuss its medical review  strategy. Representatives of two MACs we contacted said that CMS  has sometimes requested revisions to their medical review  strategies—for example, to provide more detail about certain aspects  of their plans.
Monthly status reports. CMS requires MACs to submit monthly status  reports to inform the agency of problems and risks encountered  during the review period and actions taken to address them, which  may include implementation of new local coverage policies or  prepayment edits. These reports are reviewed by multiple CMS staff  members with expertise in the different functional areas covered by  the reports and discussed in monthly conference calls with each MAC.
These reports are designed to provide CMS with information about  prepayment edits MACs have implemented to address or explore specific  vulnerabilities or potential vulnerabilities, but not to provide a  comprehensive overview of MACs’ use of prepayment edits. For example,  in their medical review strategies, MACs commonly described plans to  conduct probe reviews—reviews of a representative sample of claims that  have been flagged by manual edits—which are designed to determine the  nature and extent of vulnerabilities in order to develop appropriate  interventions. Although the protocols for some of these reports call for  MACs to describe their active manual edits, they do not call for MACs to  describe or document the effectiveness of all the edits they have  implemented or to identify their most effective edits.
QASP reviews. CMS also oversees MACs’ use of prepayment edits  through QASP reviews, but these reviews include a greater number of  standards related to other aspects of MACs’ performance, such as  financial management. CMS selects the standards to include in each  MAC’s review based in part on areas of concern in each MAC’s  performance. The number of QASP standards focused on a particular  performance area is significant because MACs’ eligibility for award fees  depends partly on the percentage of QASP metrics passed. Specifically,  for a MAC to be eligible for award fees, it must have a rating of  satisfactory or better in all categories in which it was rated that year in the  Contractor Performance Assessment Reporting System. Recent QASP  reviews have included relatively few performance standards related to  medical review—the one performance area that focuses on prepayment  edits and associated review of claims—compared with the number related  to other aspects of MACs’ performance. (See fig. 1.) QASP reviews of  A/B MACs typically included two standards related to medical review— one focused on MACs’ strategies for this review and the other on their  handling of skilled nursing facility demand bills.MACs typically included only one standard focused on medical review  strategies. Although the agency developed a third medical review QASP  standard, focused on CERT rates, CMS officials told us the agency has  rarely used it because of recent revisions to the CERT methodology.
section_title: Conclusions
paragraphs: The application of prepayment edits is an important strategy to help  ensure that Medicare claims are paid properly the first time. As CMS data  show, this strategy prevented at least $1.76 billion in improper payments  in fiscal year 2010 alone. But CMS has opportunities to further reduce  improper payments by promoting more widespread use of effective  prepayment edits.
CMS has processes in place to identify the need for and to develop edits  based on national policies—such as NCDs and MUEs—but these  processes could be improved. CMS could do more to ensure that edits  based on NCDs are implemented consistently, such as centralizing the  process within the agency rather than leaving it up to MACs. Greater  attention to developing centralized NCD edits whenever possible could  reduce improper payments. CMS could also do more to ensure that its  edits are structured to enforce the national policies on which they are  based. Our findings show that CMS has paid for quantities of service in  excess of its policies for what would ordinarily be provided to a  beneficiary on a single day, because MUEs allow payment for excessive  quantities of services if those quantities are spread over multiple claim  lines or multiple claims, even if explanatory modifiers are not included.  Although CMS has made progress in cataloging and assessing  vulnerabilities in a structured way, it could do more to improve some of its  analysis and documentation. Specifically, the agency could improve how  it prioritizes vulnerabilities identified by RACs in their postpayment  reviews by compiling the information on these vulnerabilities differently— for example, by aggregating the overpayments identified by all the RACs  for a given vulnerability, rather than considering each RAC’s findings in  isolation. CMS could further strengthen its Vulnerability Tracking process  and edits based on NCDs by developing written procedures for steps  where such documentation is currently lacking. This would include  specifying time frames for taking corrective actions, methods for  assessing the effects of corrective actions, and procedures to ensure that  CMS considers and ultimately implements edits for all applicable NCDs,  including older NCDs that were not previously considered for automated  edits.
CMS could take several actions to encourage MACs to implement  effective prepayment edits at the local level by collecting and providing  information about the underlying coverage policies and savings  associated with edits that have proved particularly effective in some  jurisdictions, and, if feasible, by increasing the incentives for edit  implementation. Currently, CMS lacks the information needed to assess  how effectively MACs are employing prepayment edits, even in  comparison with other MACs. The agency has taken steps to improve the  information it collects about edits by setting new reporting standards and  pursuing a possible replacement for the PIMR database. Until a new  database is in place, CMS could facilitate an information exchange about  edits among MACs through some of its usual channels. Each MAC would  need to consider local circumstances in deciding whether to implement  LCDs and related edits similar to those used by another MAC.  Nevertheless, systematic exchanges of information about policies and  edits that have proved particularly effective in some jurisdictions would  highlight for MACs additional ways to help ensure that Medicare pays  only for reasonable and necessary services. CMS has recently begun  encouraging MACs to address certain vulnerabilities by requiring them to  report on what actions, if any, they have taken. This has led to MACs  reporting on or implementing edits. CMS could also consider encouraging  MACs to implement prepayment edits by increasing the financial  incentives for them to do so. Award fees offer a mechanism to provide  such an incentive, but the share of award fees CMS allocated to the one  metric most directly related to prepayment edits and medical review in  2011 was relatively small.
section_title: Recommendations for Executive Action
paragraphs: In order to promote greater use of effective prepayment edits and better  ensure proper payment, we recommend that the CMS Administrator take  the following seven actions.
To promote implementation of effective edits based on national policies,  we recommend that the CMS Administrator:  centralize within CMS the development and implementation of  automated edits based on NCDs to ensure greater consistency; implement MUEs that assess all quantities provided to the same  beneficiary by the same provider on the same day, so providers  cannot avoid claim denials by billing for services on multiple claim  lines or multiple claims without including modifiers that reflect a  declaration that quantities above the normal limit are reasonable and  necessary; revise the method for compiling information about RAC-identified  vulnerabilities to identify their full extent and prioritize them  accordingly; and develop written procedures to provide guidance to agency staff on all  steps in the processes for developing and implementing edits based  on national policies, including (1) time frames for taking corrective  actions, (2) methods for assessing the effects of corrective actions,  and (3) procedures for ensuring consideration of automated edits  whenever possible, including for all existing NCDs and other national  policies.
To encourage more widespread use of effective local edits by MACs, we  recommend that the CMS Administrator:  improve the data collected about local prepayment edits to enable  CMS to identify the most effective edits and the local coverage  policies on which they are based and disseminate this information to  MACs for their consideration; until CMS has a new database in place to collect information about  edits, require MACs to share information about the underlying policies  and savings related to their most effective edits; and assess the feasibility of providing increased incentives to MACs to  implement effective prepayment edits.
section_title: Agency Comments, Third-Party Views, and Our Evaluation
paragraphs: We provided a draft of this report to HHS for comment and received  written comments, which are reprinted in appendix III. In its written  comments, HHS generally concurred with our seven recommendations  and cited actions that CMS plans to take to address them. In addition, we  had obtained the views of third parties—CMS’s contractors—on specific  sections of an earlier draft.  Both HHS and the contractors provided  technical comments, which we addressed as appropriate.
HHS generally agreed with our four recommendations to promote  implementation of effective edits based on national policies. HHS agreed  with our recommendation to centralize the development and  implementation of automated edits. In response to our recommendation  to implement MUEs that assess all quantities provided to the same  beneficiary by the same provider on the same date of service, HHS  agreed to further investigate how to address this recommendation but  noted that there are numerous clinical situations in which MUEs can  reasonably be exceeded. The agency commented that our report did not  identify which services would benefit from improved MUEs without  causing unreasonable claim denials. However, we believe all claims  payments we identified could reasonably have been denied because we  identified only payments for claims without modifier codes, and—as HHS  noted in its comments—providers should include modifier codes when  billing above the MUE limits. If CMS implemented MUEs as we  recommended, it could continue to allow providers to use modifiers as  indicators of medical necessity for exceeding the MUE limits. HHS also  agreed with our recommendation to revise the method for compiling  information about vulnerabilities identified by Recovery Audit Contractors.  Finally, the agency agreed with our recommendation to create written  procedures for developing and implementing edits based on national  policies and said CMS would take steps to address this recommendation  by December 31, 2012.
HHS also agreed with our three recommendations to encourage more  widespread use of effective local edits by MACs. In response to our  recommendation that CMS improve the data collected about local edits,  the agency acknowledged that the data-collection process needed  improvement and said that CMS would explore ways to collect data about  local edits from MACs. In addition, to address our recommendation that  CMS require MACs to share information about the local policies and  savings related to their most effective local edits, the agency said CMS  would issue a Technical Direction Letter to MACs about collaborating on  the most effective edits. Finally, HHS agreed with our recommendation to  assess the feasibility of providing increased incentives to MACs to  implement effective prepayment edits and said the units within CMS that  are responsible for overseeing MAC contracts—which CMS calls  “business owners”—would assess the feasibility and benefits of  increasing performance incentives. However, the agency noted that any  changes to a MAC’s award fee plan proposed by CMS during an existing  evaluation period would need to be agreed to by the MAC.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the Secretary of Health  and Human Services, the Administrator of CMS, and other interested  parties. In addition, the report will be available at no charge on the GAO  website at http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me at (202) 512-7114 or kingk@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made major contributions to this report are  listed in appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: We used several methods to assess the extent to which (1) the Centers  for Medicare & Medicaid Services (CMS) and its contractors employed  prepayment edits, (2) CMS has designed adequate processes to  determine the need for prepayment edits and to implement edits based  on national policies, and (3) CMS provides information, oversight, and  incentives to Medicare administrative contractors (MAC) to promote use  of effective prepayment edits. To address these objectives, we reviewed  data from CMS databases, interviewed CMS officials and MAC  representatives, conducted an analysis of Medicare claims data, reviewed  CMS documentation on processes to develop and implement edits to  assess consistency with our internal control standards, and reviewed  relevant CMS and MAC documents, such as those that described MAC’s  medical review activities and CMS’s oversight of those activities.
subsections: section_title: Review of Data from CMS Databases
paragraphs: To assess the extent to which CMS and its contractors employed  prepayment edits, we reviewed data from two CMS data systems—the  Program Integrity Management Reports (PIMR) system and the  Automated Reporting and Tracking System (ARTS)—that contain  information about the savings and costs associated with prepayment  edits. We obtained PIMR data reports from CMS for fiscal year 2010 that  contained information about the savings associated with prepayment  edits for each claims administration contractor. We also obtained ARTS  data reports from CMS showing MACs’ task budgets and costs. In the  ARTS reports, we identified the specific tasks most closely associated  with prepayment edits and related medical review, including the  development of underlying local coverage determinations (LCD), and  confirmed our identification of these tasks with CMS officials. We then  calculated MACs’ prepayment-edit-related costs for the most recently  completed contract period—in almost all cases, one year—as of   August 4, 2011, the date on which CMS provided the data to us.  Depending on the MAC, these data represented a contract period ending  in fiscal year 2010 or fiscal year 2011.
section_title: Analysis of Medicare Claims Data
paragraphs: To assess whether CMS and its contractors applied prepayment edits to  the extent possible, we selected a sample of five national and three local  policies that could be implemented using automated edits and analyzed  paid Part B claims from fiscal year 2010 to identify payments that  appeared to be inconsistent with those policies. We selected components  of policies that could be implemented using automated edits because  automated edits are less costly for MACs to use than manual edits. For  national policies, we identified paid claims that appeared to be  inconsistent with the policy in all MAC jurisdictions. For local policies, we  identified paid claims that were inconsistent with the policy in all MAC  jurisdictions except the jurisdiction that implemented the coverage policy  and associated edit that we selected for analysis.
We excluded MACs in jurisdictions where the contract was up for recompetition to avoid  including in our sample MACs that might lose their contracts before we completed data  collection.
2009 and 2010 that generated the most savings to the Medicare program,  and to provide information about the savings generated by each of those  edits and about the LCDs or other local policies on which these edits  were based. We chose to analyze LCDs for monitored anesthesia care,  parathormone, and noninvasive cerebrovascular studies because (1) they  were feasible to analyze using data elements in the Carrier and  Outpatient SAFs, (2) fewer than half of the other A/B MACs operating at  the start of fiscal year 2010 had implemented a similar LCD, and (3) the  edits based on these LCDs had generated a relatively high amount of  overall savings. Our analysis of this selected sample of policies and  associated edits was intended to allow us to illustrate whether greater  savings to the Medicare program could be achieved if effective  prepayment edits—and, in some cases, the underlying LCDs—were  implemented more widely. Our sample is not an exhaustive list of every  policy that could be implemented more fully through additional edits.
We took steps to confirm that we understood the policies and that our  analytic approach was appropriate. To confirm our understanding of  Medically Unlikely Edits (MUE), we discussed our analytic approach with  the contractor that creates MUEs and reviewed CMS documentation  about MUEs. To confirm our understanding of other national policies, we  discussed them with CMS. We discussed the selected LCDs with the  MACs that issued them to ensure that our interpretation of the LCDs was  accurate. To further test the validity of our analyses based on LCDs, we  compared the payments in the jurisdiction of the MAC that had  implemented the LCD to payments in other MAC jurisdictions. For each of  our analyses based on LCDs, we found the lowest amount of payments in  the jurisdiction of the MAC whose LCD we used as the basis for analysis,  which was consistent with our expectation.
Because providers may appeal claims denials based on an LCD, some payments  inconsistent with the LCD could occur.
MAC jurisdiction, and at the national level. We extrapolated our results  from the 5 percent sample of claims from the Carrier SAF and Outpatient  SAF to estimate results for the entire fee-for-service Medicare population.   For our analysis of MUEs, we excluded claims that contained modifiers,  which are used by providers to indicate potentially legitimate reasons why  certain procedures were performed. For the MUE analysis, we also  excluded claims data that appeared multiple times in the SAF. We  identified these multiple entries by identifying claim lines that matched on  certain key variables—including the same beneficiary identification  number, procedure, date of service, and provider. For each set of  matching entries, we kept the claim line with the latest processing date  and excluded all matching claim lines.
section_title: Assessment of Extent to Which CMS’s Edit Development Processes Comply with Internal Control Standards
paragraphs: We reviewed several CMS documents that describe processes used to  determine the need for prepayment edits and to implement edits based  on national policies. We also interviewed CMS officials to obtain  additional detail where needed about these processes. In some cases,  the processes were not documented or not fully documented, and in  those cases we relied on the officials’ oral descriptions of the processes.  We compared these process descriptions to our internal control standards  to assess whether CMS has designed adequate processes. We focused  our assessment primarily on the design of these processes and did not  attempt to fully assess whether the processes were operating as  intended. We identified three internal control standards as relevant to our  assessment of the design of CMS’s processes: (1) risk assessment,   (2) monitoring, and (3) appropriate documentation of transactions and  internal control. Table 6 describes the specific elements of these  standards that were applicable to our assessment.
To assess the information CMS provides to MACs to promote use of  effective local prepayment edits, including information about program  vulnerabilities and local coverage policies on which effective prepayment  edits have been based, we examined the web-based Medicare Coverage  Database and reviewed relevant documents, including documentation for  the PIMR database. We also interviewed CMS officials and  representatives of the MACs in our sample to understand how CMS  facilitates information sharing.
To assess CMS’s oversight of MACs’ use of prepayment edits, we  reviewed agency documents that specify relevant requirements for MACs,  including the MAC statement of work, the Program Integrity Manual, the  Quality Assurance Surveillance Program (QASP) review protocols, and  the quarterly Technical Direction Letters that required MACs to report how  they had addressed or planned to address certain vulnerabilities. We also  examined samples of reports submitted by MACs, including medical  review strategies and responses to the quarterly Technical Direction  Letters. In addition, we analyzed data on the most recent QASP reviews  conducted as of August 3, 2011, the date on which CMS provided the  data to us. Depending on the MAC, these data represented a review  period ending in fiscal year 2010 or fiscal year 2011. We also interviewed  CMS officials and representatives of MACs in our sample about CMS’s  oversight.
section_title: MAC Contract Incentives
paragraphs: To assess the financial incentives CMS provides to MACs to promote use  of effective local prepayment edits, we examined relevant documents,  including descriptions of award fee metrics and review protocols. We also  analyzed CMS data on the distribution of award fees for review periods  ending in fiscal year 2011, as well as ARTS data on the award fees and  base fees budgeted for MACs in the most recent contract year for which  we had data—which, as noted above, was either fiscal year 2010 or fiscal  year 2011, depending on the MAC. In addition, we examined data on  Medicare Integrity Program funding from fiscal year 2008 through fiscal  year 2011. We also interviewed CMS officials about how metrics are  selected for inclusion in award fee plans, how MACs’ fees are divided  between award fees and base fees, and the RAC prepayment review  demonstration.
section_title: Data Reliability and Audit Standards
paragraphs: To ensure that the data from PIMR, ARTS, and the Medicare claims  database used in this report were reliable enough for the purposes used,  we performed appropriate electronic data checks, examined relevant  documentation, and interviewed agency officials who were  knowledgeable about the data. We found the data were sufficiently  reliable for the purpose of our analyses.
We conducted this performance audit from July 2011 through November  2012 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix II: Hypothetical Example of How Medicare Claims Can Avoid Triggering Medically Unlikely Edits (MUE)
paragraphs: Appendix II: Hypothetical Example of How  Medicare Claims Can Avoid Triggering  Medically Unlikely Edits (MUE)
section_title: Appendix III: Comments from the Department of Health and Human Services
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Sheila K. Avruch, Assistant  Director; Zhi Boon; Elizabeth Conklin; Nancy Fasciano; Matthew Gever;  Richard Lipinski; Roseanne Price; and Steve Robblee made key  contributions to this report.