Medicaid: CMS Should Ensure That States Clearly Report Overpayments
Published: 2013-12-06T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: While states and certain federal entities have had long-standing roles identifying Medicaid improper payments, the Deficit Reduction Act of 2005 expanded CMS's role in identifying improper payments. As a result, CMS created a national audit program, which uses federal contractors to audit state Medicaid claims and identify overpayments--payments that should not have been made or were higher than allowed--to providers. States are responsible for recovering any identified overpayments and reporting the return of the federal share of those overpayments to CMS.
GAO was asked to examine states' efforts to recover and report overpayments identified by federal audits, and examine CMS's review of state reporting. This report assesses the extent to which: (1) states recovered Medicaid overpayments identified by federal audits and reported the return of the federal share, and (2) CMS reviewed states' reporting of Medicaid overpayments related to these federal audits. GAO obtained overpayment and recovery data from all states with an identified overpayment and compared this with CMS data; reviewed relevant laws, regulations, and CMS guidance; and interviewed CMS and state officials.
section_title: What GAO Found
paragraphs: States recovered $9.8 million in Medicaid overpayments, but they did not clearly report the overpayments and the return of the federal share to the Centers for Medicare & Medicaid Services (CMS) within the Department of Health and Human Services (HHS). Federal audits initially identified about $20.4 million in potential Medicaid overpayments across the 19 states with identified overpayments from June 2007 through February 2012. Of the $13.3 million in net overpayments shown below, states recovered $9.8 million and were in the process of recovering the remaining $3.5 million. States should have reported the return of the federal share for $13.3 million on the line designated for overpayments identified by national audit program contractors on the CMS-64--the form that states fill out quarterly to obtain federal reimbursement for Medicaid services. However, states made multiple reporting errors. Specifically:
instead of reporting $13.3 million, states reported the return of the federal share for $12.4 million and did not report the return of the federal share for the remaining $855,000; and
within the $12.4 million that was reported by states, $6.6 million was correctly reported on the CMS-64, while the remaining $5.8 million was reported on the CMS-64, but not on the correct line.
CMS generally reviewed states' reporting of overpayments but was not always aware of incomplete reporting. All 7 of the CMS regional offices GAO spoke with indicated that reviewing states' reporting of the return of the federal share of overpayments was a routine part of their quarterly review of the CMS-64 and helped ensure the timely return of the federal share of overpayments in 59 of the 89 audits GAO reviewed. In some cases, though, regional offices were not always aware that states' reporting was incomplete. CMS's Medicaid Integrity Group may review data from these audits on the designated line of the CMS-64, which can be an important gauge for measuring the effectiveness of CMS's efforts to reduce improper payments. However, reviewing these data would not yield a clear picture of the return of the federal share of overpayments given the errors GAO identified in state reporting.
section_title: What GAO Recommends
paragraphs: GAO recommends that the CMS Administrator increase efforts to ensure that states are clearly reporting overpayments identified by federal audits in the designated location of the CMS-64 form. HHS concurred with this recommendation.

section_title: Letter
paragraphs: The Centers for Medicare & Medicaid Services (CMS), the federal agency  within the Department of Health and Human Services (HHS) that  oversees Medicaid, estimated that $19.2 billion of Medicaid’s federal  expenditures in fiscal year 2012 involved improper payments. Improper  payments include overpayments, which are any payments that should not  have been made or were more than allowed. While states and certain  federal entities have had long-standing roles in program integrity  activities, such as identifying improper payments and recovering  overpayments, the Deficit Reduction Act of 2005 (DRA) expanded  CMS’s role. CMS subsequently established the National Medicaid Audit  Program (NMAP), which uses contractors to audit state Medicaid claims.  From June 2007, when these audits began, through February 2012,  NMAP contractors conducted over 1,500 audits and identified potential  overpayments to health care providers of about $20.4 million in their audit  reports.
States are responsible for recovering overpayments identified by audits.  Because the federal government matches states’ expenditures for most  Medicaid services, a portion of the overpayments are federal dollars that  states must return to CMS. States return the federal share by reporting  the overpayment amount on the CMS-64—a form that states fill out  quarterly to obtain federal reimbursement for services provided under the  Medicaid program.
Our recent work identified limitations in the effectiveness of NMAP audits  and instances where states may have under-reported the recovery of  overpayments.examine states’ efforts to recover and report overpayments identified by  NMAP contractors—which we refer to as federal audits—and CMS’s  review of state reporting. This report focuses on the extent to which:   To follow-up on our recent work, you asked us to  1.  states recovered Medicaid overpayments identified by federal audits  and reported the return of the federal share, and  2.  CMS reviewed states’ reporting of Medicaid overpayments related to  these federal audits.
To address both reporting objectives, we collected data on state  recoveries and conducted structured interviews with all 19 states that had  one or more overpayments identified by federal audits conducted from  June 2007 through February 2012. We chose this end date because  states should have reported the return of the federal share for their  overpayments to CMS by March 2013 when we began our data  collection. We compared the data we collected from states on recoveries  to the overpayments identified by the federal audits and to the  overpayments reported by the states on the CMS-64. We also  interviewed CMS headquarters staff, including the Medicaid Integrity  Group (MIG), the main entity responsible for establishing policies for the  NMAP and, through the contractors, conducting the federal audits; the  Financial Management Group, which is responsible for reviewing the  CMS-64; and the 7 CMS regional offices responsible for overseeing the  reporting of overpayments for the 19 states that had an identified  overpayment. In addition, we reviewed relevant Medicaid Integrity  Program laws and regulations. We also reviewed CMS guidance issued  to states on reporting of overpayments from federal audits, including the  CMS financial review guide on the CMS-64.
We reviewed the state data we collected for reasonableness and verified  whether the provider identification, overpayment amount, and audit  report’s issuance date was consistent with overpayment data from the  federal audits. In four instances, we found differences in the overpayment  amount identified by the state and by the federal audits. For these  instances, we discussed the differences with the states and CMS and  resolved the discrepancies. Based on these checks, we determined that  these data were sufficiently reliable for our purposes. We also performed  checks of the CMS-64 data, and discussed these data and their internal  controls with knowledgeable CMS officials. Because state reporting of  overpayments on the CMS-64 was incomplete, we discuss the CMS-64’s  data limitations in this report, but did not use these data to report states’  return of the federal share of overpayments.
We conducted this performance audit from January 2013 to December  2013 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: When a contractor conducts a federal audit of claims data and identifies  an overpayment, the contractor drafts an audit report and obtains  comments from CMS, the provider, and the state before submitting the  completed report to CMS. Within CMS, the MIG reviews the audit  contractor’s submission and, when finalized, sends a final audit report  (FAR) to the state, as well as the appropriate CMS regional office that  oversees the state. The FAR identifies the total overpayment amount paid  to the provider and specifies the amount of the federal share of that  overpayment the state must return.
To initiate recovery of the overpayment, the state sends a demand letter  to the provider indicating the amount due as identified in the FAR.  Providers may opt to appeal the findings in the FAR, thus initiating an  appeals process that is determined by each state and is subject to the  state’s Medicaid program requirements. process is complete, that decision determines the final amount owed by  the provider. This final amount may be the full overpayment, a reduced  amount of the overpayment, or nothing.
When the state’s appeals  The state generally has one year from the date of the FAR to recover the  overpayment from the provider before reporting the return of the federal  share to CMS.  Federal law requires the state to return the federal share  of the overpayment regardless of whether the state was able to recover it,  unless the provider has been determined to be bankrupt or out of  business.the state is only required to return the federal share for the net  overpayment amount.
States may also challenge the findings of a FAR by filing an appeal with the Department  of Health and Human Services’ Appeals Board Appellate Division.
CMS has had a long-standing requirement that states report  overpayments and the return of the federal share on the CMS-64.  Beginning in fiscal year 2010, CMS initiated a more detailed reporting  requirement to better track overpayments and the return of the federal  share from different types of audits. As a result, CMS required states to  report overpayments from federal audits, as well as other sources—such  as state audit results, Medicaid Fraud Control Units, and others—on each  of the six line items specified for each type of audit. The reported  overpayments are subtracted from the states’ Medicaid expenditures,  which forms the basis for computing the federal share of program costs.
CMS’s regional offices are responsible for overseeing states’ reporting of  overpayments identified in the FARs and receive a copy of the FAR when  it is sent to a state in its region. responsibility for ensuring that the state reports the overpayment  identified and returns the federal share at the applicable federal match  within one year from the date of the FAR. If the state does not return the  federal share of an overpayment within one year, the state will be liable  for interest on the federal share of overpayments not recovered and not  returned.
The FAR alerts the regional office of its   (See fig. 1.)
CMS must ensure that state expenditures claimed for federal matching on the CMS-64  are programmatically reasonable and allowable under federal laws, regulations, and policy  guidance. To achieve this, CMS relies primarily on its regional offices’ financial and  funding staff to perform quarterly reviews and validate state entries on the CMS-64. The  10 regional offices, located throughout the country, validate and audit the reported  expenditure data and accompanying detailed information each quarter in their respective  states.
section_title: States Recovered $9.8 Million in Medicaid Overpayments, but Did Not Clearly Report the Overpayments and the Return of the Federal Share to CMS
paragraphs: Federal audits conducted from June 2007 through February 2012 initially  identified $20.4 million in potential Medicaid overpayments across 19  states, an amount that was reduced by $7.1 million, primarily due to  successful provider appeals and settlements. Of the remaining   $13.3 million in net overpayments, states recovered $9.8 million in  overpayments as of March 2013, and state officials told us that they are in  the process of recovering the remaining $3.5 million. (See fig. 2.)  (Appendix I summarizes the potential Medicaid overpayments identified  by federal audits, net overpayments, and state recoveries.)
Of the $7.1 million in overpayment reductions, state officials told us that  successful provider appeals and settlements accounted for $6.9 million of  that total; the remaining overpayment reductions—approximately  $186,000—represented overpayments that states had already identified  and recovered or were overpayments that could not be recovered due to  the provider filing for bankruptcy. State officials told us that appeals may  be successful for a number of reasons. For example, in one state,  providers successfully demonstrated that state law did not preclude them  from receiving payments for services provided to Medicaid patients, even  though they were not approved Medicaid providers. In another state,  providers successfully appealed an audit’s finding that services were not  medically necessary.
The $9.8 million in recovered overpayments represented full recoveries in  15 of the 19 states we reviewed. Officials in the remaining 4 states told us  they were in the process of recovering $3.5 million in overpayments,  accounting for the remainder of the $13.3 million in net overpayments.  Medicaid overpayments may be recovered by offsetting a provider’s  subsequent Medicaid reimbursements against the balance due to the  state, and officials in 3 states told us that, as a result, certain providers  had not yet paid the full amounts owed. In the fourth state, officials told us  that the overpayments had not been fully recovered for several reasons,  including that (1) some providers had not provided full payment, (2) there  were pending appeals, and (3) in one case, state officials were unable to  confirm the receipt of the FAR from CMS. As a result, the state had not  initiated the recovery process.
States should have reported the return of the federal share for   $13.3 million on line 5 of the CMS-64, the line designated for  overpayments identified by federal audits. Based on data we collected  from the states, we found that states made multiple errors reporting the  return of the federal share for overpayments identified by federal audits,  as detailed below.
Instead of reporting $13.3 million, states reported the return of the  federal share for $12.4 million, and did not report the return of the  federal share for the remaining $855,000.
Within the $12.4 million that was reported by states, $6.6 million was  correctly reported on line 5 of the CMS-64, while the remaining   $5.8 million was reported in the CMS-64, but not on line 5. (See   fig. 3.)
In addition to incomplete and inconsistent reporting of the return of the  federal share, we identified errors in states’ reporting. In particular, states  included $20.2 million in overpayments on line 5 of CMS-64 that were not  related to federal audits. This $20.2 million represented errors by   4 states, one of which was a $20 million error made by 1 state.
Officials provided several reasons for states’ errors in reporting  overpayments, including not understanding CMS’s reporting  requirements, frequent state staff turnover, and not being able to identify  and, therefore, correctly report overpayments that resulted from federal  audits.overpayments would be reported by June 2013.
section_title: CMS Generally Reviewed States’ Reporting of Overpayments, but Was Not Always Aware of Incomplete Reporting
paragraphs: All 7 of the CMS regional offices we spoke with indicated that reviewing  state reporting of the return of the federal share of overpayments was a  routine part of their quarterly review of the CMS-64. Regional office  officials noted that they review state documentation for the amounts  entered on the form and check them against the FAR to make sure that  states accurately report the return of the federal share. This review is also  specifically noted as a required step in the CMS Financial Review Guide,  which regional office financial analysts must follow when verifying state  entries on the CMS-64.with states to improve reporting of overpayments on line 5 on the CMS- 64, but there was some variability in how the regional offices required  states to correct errors in their reporting. For example, some regional  offices verified the overpayment reported on lines other than line 5 of the  CMS-64 and encouraged states to report appropriately in the future, while  other regional offices required states to make a correction for the quarter  in which the error appeared.
Regional office officials also said that they work  As part of their reviews, regional office officials noted that when they  receive a FAR for one of the states in their region they follow-up with the  state to make sure the state is aware of the FAR and the timeframes for  returning the federal share. As a result of these efforts, CMS’s regional  offices helped ensure the timely return of the federal share for most  overpayments. For 59 of the 89 audits we reviewed, states reported the  return of the federal share of the overpayment within 1 year as required  by federal law. This on-time reporting of the return of the federal share  represented $9.8 million out of $13.3 million in net overpayments related  to federal audits. For the remaining 30 audits that states did not report the  return of federal share within 1 year, $2.7 million was reported late and  $855,000 was not reported at all.
However, in some cases, regional offices were not always aware that  states’ reporting was incomplete.
In one regional office, the CMS analyst charged with reviewing a  particular state’s CMS-64 was unaware that the state did not report  returning the federal share from several FARs.
In another regional office, it was unclear if the office had received  copies of the numerous FARs that a particular state in its region had  received in 2011 and 2012. Thus, the regional office was not aware of  the need to look for these overpayments and the return of the federal  share on the CMS-64.
In these two cases, MIG officials were aware of the FARs but the regional  offices were not. Additionally, the MIG does not regularly follow-up with  the regional offices on the status of overpayments in light of CMS’s  approach to divide responsibility related to state recovery and reporting of  overpayments. Rather, the MIG interacts with the offices as needed.
MIG officials acknowledged that at the beginning of the audit program,  they had more contact with the regional offices on state recovery efforts.  But such direct follow-up was not continued since the MIG may review  data on line 5 of the CMS-64, enabling them to check the status of state  overpayments directly, according to two regional office officials. However,  given the errors we identified on the CMS-64, checking the status of state  reporting of overpayments based on the reported CMS-64 data would not  always yield a clear picture of states’ reporting of the federal share of  overpayments.
section_title: Conclusions
paragraphs: CMS’s audit approach for identifying Medicaid overpayments has shown  some success in that states have returned most of the federal share of  net overpayments—often within the one-year timeframe. However, state  errors in reporting overpayments in the proper location of the CMS-64  prevent CMS from having a full understanding of the extent to which the  federal share has been returned from the audits that they conduct.  Officials in the regional offices play a critical role in reviewing and  assisting states in reporting, and they are well positioned to ensure that  states correctly report overpayments and the return of the federal share.  Additionally, a full accounting of federal audit recoveries is an important  gauge for measuring the effectiveness of CMS’s efforts to reduce  improper payments, but states’ reporting of overpayments and the return  of the federal share are not always clear or complete. Gaps such as these  hamper federal efforts to quantify the results of state and federal  activities, and make it difficult to determine the extent to which states are  returning the federal share of these overpayments.
section_title: Recommendations
paragraphs: To ensure the timely return of the federal share of Medicaid  overpayments, the CMS Administrator should increase efforts to ensure  that states are clearly reporting overpayments identified by federal audits  on the designated location of the CMS-64 form.
section_title: Agency Comment
paragraphs: We provided a draft of this product to HHS for comment. In its written  comments, reproduced in appendix II, HHS concurred with our  recommendation and noted that CMS will increase efforts to ensure that  states correctly report overpayments on the CMS-64 by providing  additional training to states and regional offices on accurate reporting and  improve internal processes to ensure timely resolution of incorrect  reporting. HHS also provided technical comments that we incorporated,  as appropriate.
We are sending copies to the Secretary of Health and Human Services,  the Administrator of CMS, and the appropriate congressional committees.  In addition, the report is available at no charge on the GAO website at  http://www.gao.gov.
If you or your staff has any questions about this report, please contact me  at (202) 512-7114 or at yocomc@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 key contributions to this report  are listed in Appendix III.
section_title: Appendix I: Medicaid Overpayments Identified by Federal Audits Conducted June 2007 through February 2012
paragraphs: Appendix I: Medicaid Overpayments Identified  by Federal Audits Conducted June 2007  through February 2012 State  (number of audits)  Potential overpayments  Net overpayments  State recoveries  AR (15)  $130,862 $488,996 $489,966  CA (2)
CO (1)
DC (4)
DE (6)
FL (21)
IA (1)
KY (1)
MD (3)
MS (10)
NE (1)
NM (1)
PA (1)
SC (5)
SD (1)
TX (5)
UT (1)
VA (2)
WA (8)
section_title: Appendix II: Comments from the Department of Health and Human Services
section_title: Appendix III: GAO Contact and Staff Acknowledgements
subsections: section_title: GAO Contact
section_title: Staff Acknowledgements:
paragraphs: In addition to the named above, key contributors to this report   were: Rashmi Agarwal, Assistant Director; Walter Ochinko,   Assistant Director; Sarah Harvey; Drew Long; JoAnn Martinez-Shriver;  and Jennifer Whitworth.
section_title: Related GAO Products
paragraphs: GAO, Medicaid Integrity Program: CMS Should Take Steps to Eliminate  Duplication and Improve Efficiency, GAO-13-50 (Washington, D.C.:   Nov. 13, 2012).
National Medicaid Audit Program: CMS Should Improve Reporting and  Focus on Audit Collaboration with States, GAO-12-814T (Washington,  D.C.: June 14, 2012).
National Medicaid Audit Program: CMS Should Improve Reporting and  Focus on Audit Collaboration with States, GAO-12-627 (Washington,  D.C.: June 14, 2012).
Program Integrity: Further Action Needed to Address Vulnerabilities in  Medicaid and Medicare Programs, GAO-12-803T (Washington, D.C.:  June 7, 2012).
Medicaid: Federal Oversight of Payments and Program Integrity Needs  Improvement, GAO-12-674T (Washington, D.C.: April 25, 2012).
Medicaid Program Integrity: Expanded Federal Role Presents Challenges  to and Opportunities for Assisting States, GAO-12-288T (Washington,  D.C.: Dec. 7, 2011).
Fraud Detection Systems: Additional Actions Needed to Support   Program Integrity Efforts at Centers for Medicare and Medicaid Services,   GAO-11-822T (Washington, D.C.: July 12, 2011).
Fraud Detection Systems: Centers for Medicare and Medicaid Services  Needs to Ensure More Widespread Use, GAO-11-475 (Washington, D.C.:  June 30, 2011).
Improper Payments: Recent Efforts to Address Improper Payments and  Remaining Challenges, GAO-11-575T (Washington, D.C.: April 15, 2011).
Status of Fiscal Year 2010 Federal Improper Payments Reporting,   GAO-11-443R (Washington, D.C.: March 25, 2011).
Medicare and Medicaid Fraud, Waste, and Abuse: Effective  Implementation of Recent Laws and Agency Actions Could Help Reduce  Improper Payments, GAO-11-409T (Washington, D.C.: March 9, 2011).
Medicare: Program Remains at High Risk Because of Continuing  Management Challenges, GAO-11-430T (Washington, D.C.:   March 2, 2011).
Opportunities to Reduce Potential Duplication in Government   Programs, Save Tax Dollars, and Enhance Revenue, GAO-11-318SP  (Washington, D.C.: March 1, 2011).
High-Risk Series: An Update, GAO-11-278 (Washington, D.C.:   February 2011).
Medicare Recovery Audit Contracting: Weaknesses Remain in  Addressing Vulnerabilities to Improper Payments, Although  Improvements Made to Contractor Oversight, GAO-10-143.   (Washington, D.C.: March 31, 2010).
Medicaid: Fraud and Abuse Related to Controlled Substances Identified  in Selected States, GAO-09-1004T (Washington, D.C.: Sept. 30, 2009).
Medicaid: Fraud and Abuse Related to Controlled Substances Identified  in Selected States, GAO-09-957 (Washington, D.C.: Sept. 9, 2009).
Improper Payments: Progress Made but Challenges Remain in  Estimating and Reducing Improper Payments, GAO-09-628T  (Washington, D.C.: April 22, 2009).
Medicaid: Thousands of Medicaid Providers Abuse the Federal Tax  System, GAO-08-239T (Washington, D.C.: Nov. 14, 2007).
Medicaid: Thousands of Medicaid Providers Abuse the Federal Tax  System, GAO-08-17 (Washington, D.C.: Nov. 14, 2007).
Medicaid Financial Management: Steps Taken to Improve Federal  Oversight but Other Actions Needed to Sustain Efforts, GAO-06-705  (Washington, D.C.: June 22, 2006).
Medicaid Integrity: Implementation of New Program Provides  Opportunities for Federal Leadership to Combat Fraud, Waste, and  Abuse, GAO-06-578T (Washington, D.C.: March 28, 2006).
Medicaid Fraud and Abuse: CMS’s Commitment to Helping States  Safeguard Program Dollars Is Limited, GAO-05-855T (Washington, D.C.:  June 28, 2005).
Major Management Challenges and Program Risks: Department of  Health and Human Services, GAO-03-101 (Washington, D.C.:   January 2003).