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

Letter

Background

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.

States Recovered $9.8 Million in Medicaid Overpayments, but Did Not Clearly Report the Overpayments and the Return of the Federal Share to CMS

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.

CMS Generally Reviewed States’ Reporting of Overpayments, but Was Not Always Aware of Incomplete Reporting

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.

Conclusions

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.

Recommendations

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.

Agency Comment

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.

Appendix I: Medicaid Overpayments Identified by Federal Audits Conducted June 2007 through February 2012

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)

Appendix II: Comments from the Department of Health and Human Services

Appendix III: GAO Contact and Staff Acknowledgements

GAO Contact

Staff Acknowledgements:

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.

Related GAO Products

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).

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Medicare: Program Remains at High Risk Because of Continuing Management Challenges, GAO-11-430T (Washington, D.C.: March 2, 2011).

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