Medicare: Progress Made to Deter Fraud, but More Could Be Done
Released: 2012-06-08T00:00:00

Letter

CMS Has Made Progress in Strengthening Provider Enrollment, but Further Actions Are Needed

CMS has made progress strengthening provider enrollment to try to better ensure that only legitimate providers and suppliers are allowed to bill Medicare. However, CMS has not completed other actions that could help prevent individuals intent on fraud from enrolling, including implementation of some relevant PPACA provisions.

Past CMS Efforts to Strengthen Provider Enrollment

Our previous work found persistent weaknesses in Medicare’s enrollment standards and procedures that increased the risk of enrolling entities intent on defrauding the Medicare program. We, CMS, and the HHS Office of Inspector General (OIG) have previously identified two types of providers whose services and items are especially vulnerable to improper payments and fraud—home health agencies (HHA) and suppliers of durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS). We found weaknesses in oversight of these providers’ and suppliers’ enrollment. For example, in 2008, we identified weaknesses when we created two fictitious DMEPOS companies, which were subsequently enrolled by CMS’s contractor and given permission to begin billing Medicare. In 2009, we found that CMS’s contractors were not requiring HHAs to resubmit enrollment information for re-verification every 5 years as required by CMS.

To strengthen the Medicare enrollment process, in 2006 CMS began requiring all providers and suppliers—including those that order HHA services or DMEPOS for beneficiaries to be enrolled in Medicare. The agency also required all providers and suppliers to report their National Provider Identifiers (NPI) on enrollment applications, which can help address fraud because providers and suppliers must submit either their Social Security Number or their employer identification number and state licensing information to obtain an NPI. In 2007, CMS initiated the first This phase of a Medicare competitive-bidding program for DMEPOS.program requires suppliers’ bids to include new financial documentation for the year prior to submitting the bids. Because CMS can now disqualify suppliers based in part on new scrutiny of their financial documents, competitive bidding can help reduce fraud. Finally, in 2010, CMS also required that all DMEPOS suppliers be accredited by a CMS-approved accrediting organization to ensure that they meet certain quality standards. Such accreditation also increased scrutiny of these businesses.

CMS Has Taken Action on Certain PPACA Provider Enrollment Provisions

PPACA authorized CMS to implement several actions to strengthen provider enrollment. As of April 2012, the agency has completed some of these actions.

Screening Provider Enrollment Applications by Risk Level: CMS and OIG issued a final rule with comment period in February 2011 to implement some of the new screening procedures required by PPACA. CMS designated three levels of risk—high, moderate, and limited—with different screening procedures for categories of Medicare providers at each level. Providers in the high-risk level are subject to the most rigorous screening. To determine which providers to place in these risk levels, CMS considered issues such as past occurrences of improper payments and fraud among different categories of providers. Based in part on our work and that of the OIG, CMS designated newly enrolling HHAs and DMEPOS suppliers as high risk and designated other providers at lower levels. (See table 1.) Providers at all risk levels are screened to verify that they meet specific requirements established by Medicare such as having current licenses or accreditation and valid Social Security numbers. High- and moderate-risk providers are additionally subject to unannounced site visits. Further, depending on the risks presented, PPACA authorizes CMS to require fingerprint-based criminal history checks, and the posting of surety bonds for certain providers. CMS may also provide enhanced oversight for specific periods for new providers and for initial claims of DMEPOS suppliers.

CMS indicated that the agency will continue to review the criteria for its screening levels on an ongoing basis and would publish changes if the agency decided to update the assignment of screening levels for categories of Medicare providers. This may become necessary because fraud is not confined to HHAs and DMEPOS suppliers. We are currently examining the types of providers involved in fraud cases investigated by the OIG and the Department of Justice (DOJ), which may help illuminate risk to the Medicare program from different types of providers. Further, in their 2011 annual report on the Health Care Fraud and Abuse Control Program, DOJ and HHS reported convictions or other legal actions, such as exclusions or civil monetary penalties, against several types of Medicare providers other than DMEPOS suppliers and HHAs, including pharmacists, orthopedic surgeons, infusion and other types of medical clinics, and physical therapy services. CMS also has established triggers for adjustments to an individual provider’s risk level. For example, CMS regulations state that an individual provider or supplier at the limited- or moderate-risk level that has had its billing privileges revoked by a Medicare contractor within the last 10 years and is attempting to re- enroll, would move to the high-risk level for screening.

New National Enrollment Screening and Site Visit Contractors: In a further effort to strengthen its enrollment processes, CMS contracted with two new entities at the end of 2011 to assume centralized responsibility for automated screening of provider and supplier enrollment and for conducting site visits of providers.

Automated-screening contractor. In December 2011, the new contractor began to establish systems to conduct automated screening of providers and suppliers to ensure they meet Medicare eligibility criteria (such as valid licensure, accreditation, a valid NPI, and no presence on the OIG list of providers and suppliers excluded from participating in federal health care programs). Prior to the implementation of this new automated screening, such screening was done manually for the 30,000 enrollees each month by CMS’s Medicare Administrative Contractors (MAC), which enroll Medicare providers, and the National Supplier Clearinghouse (NSC), which enrolls DMEPOS suppliers. According to CMS, the old screening process was neither efficient nor timely. CMS officials said that in 2012, the automated-screening contractor began automated screening of the licensure status of all currently enrolled Medicare providers and suppliers. The agency said it expects the automated- screening contractor to begin screening newly enrolling providers and suppliers later this year. CMS expects that the new, national contractor will enable better monitoring of providers and suppliers on a continuous basis to help ensure they continue to meet Medicare enrollment requirements. The new screening contractor will also help the MACs and the NSC maintain enrollment information in CMS’s Provider Enrollment Chain and Ownership System (PECOS)—a database that contains details on enrolled providers and suppliers. In addition, CMS officials said the automated-screening contractor is developing an individual risk score for each provider or supplier, similar to a credit risk score. Although these individual scores are not currently used to determine an individual provider’s placement in a risk level, CMS indicated that this risk score may be used eventually as additional risk criteria in the screening process.

Site visits for all providers designated as moderate and high risk.

Beginning in February 2012, a single national site-visit contractor began conducting site visits of moderate- and high-risk providers to determine if sites are legitimate and the providers meet certain Medicare standards. The contractor collects the same information from each site visit, including photographic evidence that will be available electronically through a Web portal accessible to CMS and its other contractors. The national site-visit contractor is expected to validate the legitimacy of these sites. CMS officials told us that the contractor will provide consistency in site visits across the country, in contrast to CMS relying on different MACs to conduct any required site visits.

CMS Has Not Completely Implemented Some PPACA Enrollment Provisions

Implementation of other enrollment screening actions authorized by PPACA that could help CMS reduce the enrollment of providers and suppliers intent on defrauding the Medicare program remains incomplete, including:

Surety bond—PPACA authorizes CMS to require a surety bond for certain types of at-risk providers, which can be helpful in recouping erroneous payments. CMS officials expect to issue a proposed rule to require surety bonds as conditions of enrollment for certain other types of providers. Extending the use of surety bonds to these new entities would augment a previous statutory requirement for DMEPOS suppliers to post a surety bond at the time of enrollment. CMS issued final instructions to its MACs, effective February 2012, for recovering DMEPOS overpayments through surety bonds. CMS officials reported that as of April 19, 2012, they had issued notices to 20 surety bond companies indicating intent to collect funds, but had not collected any funds as of that date.

Fingerprint-based criminal background checks—CMS officials told us that they are working with the Federal Bureau of Investigation to arrange contracts to help conduct fingerprint-based criminal background checks of high-risk providers and suppliers. On April 13, 2012, CMS issued a request for information regarding the potential solicitation of a single contract for Medicare provider and supplier fingerprint-based background checks. The agency expects to have the contract in place before the end of 2012.

Providers and suppliers disclosure—CMS officials said the agency is reviewing options to include in regulations for increased disclosures of prior actions taken against providers and suppliers enrolling or revalidating enrollment in Medicare, such as whether the provider or supplier has been subject to a payment suspension from a federal health care program. In April 2012, agency officials indicated that they were not certain when the regulation would be published. CMS officials noted that the additional disclosure requirements are complicated by provider and supplier concerns about what types of information will be collected, what CMS will do with it, and how the privacy and security of this information will be maintained.

Compliance and ethics program—CMS officials said that the agency was studying criteria found in OIG model plans as it worked to address the PPACA requirement that the agency establish the core elements of compliance programs for providers and suppliers.April 2012, CMS did not have a projected target date for implementation.

Additional Action May Help Better Identify Potential Fraud through Pre- and Post- Payment Claims Review

Increased efforts to review claims on a prepayment basis can better prevent payments that should not be made, while improving systems used to review claims on a post-payment basis could better identify patterns of fraudulent billing for further investigation.

Additional Efforts to Improve Prepayment Claims Review May Help Reduce Fraud

Having robust controls in claims payment systems to prevent payment of problematic claims can help reduce loss. As claims go through Medicare’s electronic claims payment systems, they are subjected to automated prepayment controls called “edits,” instructions programmed in the systems to prevent payment of incomplete or incorrect claims. Some edits use provider enrollment information, while others use information on coverage or payment policies, to determine if claims should be paid. Most of these controls are fully automated; if a claim does not meet the criteria of the edit, it is automatically denied. Other prepayment edits are manual; they flag a claim for individual review by trained staff who determine if it should be paid. Due to the volume of claims, CMS has reported that less than 1 percent of Medicare claims are subject to manual medical record review by trained staff.

Having effective pre-payment edits that deny claims for ineligible providers and suppliers depends on having timely and accurate information about them, such as whether the providers are currently enrolled and have the appropriate license or accreditation to provide specific services. We previously recommended that CMS take action to ensure the timeliness and accuracy of PECOS—the database that maintains Medicare provider and supplier enrollment information. We noted that weaknesses in PECOS data may result in CMS making improper payments to ineligible providers and suppliers. These weaknesses are related to the frequency with which CMS’s contractors update enrollment information and the timeliness and accuracy of information obtained from outside entities, such as state licensing boards, the OIG, and the Social Security Administration’s Death Master File, which contains information on deceased individuals that can be used to identify deceased providers in order to terminate those providers’ Medicare billing privileges. These sources vary in the ease in which CMS contractors have been able to access their data and the frequency with which they are updated. CMS has indicated that its new national- screening contractor should improve the timeliness and accuracy of the provider and supplier information in PECOS by centralizing the process, increasing automation of the process, continuously checking databases, and incorporating new sources of data, such as financial, business, tax, and geospatial data. However, it is too soon to tell if these efforts will better prevent payments to ineligible providers and suppliers.

Having effective edits to implement coverage and payment policies before payment is made can also help to deter fraud. 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.” its contractors set policies regarding when and how items and services will be covered by Medicare, as well as coding and billing requirements for payment, which also can be implemented in the payment systems through edits. We have previously found Medicare’s payment systems did not have edits for items and services unlikely to be provided in the normal course of medical care. CMS has since implemented edits to flag such claims—called Medically Unlikely Edits. We are currently assessing Medicare’s prepayment edits based on coverage and payment policies, including the Medically Unlikely Edits.

42 U.S.C. § 1395y(a)(1)(A).

Additionally, suspending payments to providers suspected of fraudulent billing can be an effective tool to prevent excess loss to the Medicare program while suspected fraud is being investigated. For example, in March 2011, the OIG testified that payment suspensions and pre- payment edits on 18 providers and suppliers stopped the potential loss of more than $1.3 million submitted in claims by these individuals. Furthermore, HHS recently reported that it imposed payment suspensions on 78 home health agencies in conjunction with arrests related to a multimillion-dollar health care fraud scheme. While CMS had the authority to impose payment suspensions prior to PPACA, the law specifically authorized CMS to suspend payments to providers pending the CMS officials reported that investigation of credible allegations of fraud.the agency had imposed 212 payment suspensions since the regulations implementing the PPACA provisions took effect. Agency officials indicated that almost half of these suspensions were imposed this calendar year, representing about $6 million in Medicare claims.

CMS is replacing its legacy Program Safeguard Contractors (PSC) with seven ZPICs. While the PSCs were responsible for program integrity for specific parts of Medicare, such as Part A, the ZPICs are responsible for Medicare’s fee-for-service program integrity in their geographic zones. For simplicity, we refer to these program integrity contractors as ZPICs throughout the testimony. suspicious patterns or abnormalities in Medicare provider networks, claims billing patterns, and beneficiary utilization. According to CMS, FPS may enhance CMS’s ability to identify potential fraud because it analyzes large numbers of claims from multiple data sources nationwide simultaneously before payment is made, thus allowing CMS to examine billing patterns across geographic regions for those that may indicate fraud. The results of FPS are used by the ZPICs to initiate investigations that could result in payment suspensions, implementation of automatic claim denials, identification of additional prepayment edits, or the revocation of Medicare billing privileges. CMS began using FPS to screen all FFS claims nationwide prior to payment as of June 30, 2011, and CMS has been directing the ZPICs to investigate high priority leads generated by the system. Because FPS is relatively new and we have not completed our work, it is too soon to determine whether FPS will improve CMS’s ability to address fraud. Questions have also been raised about CMS’s ability to adequately assess ZPICs’ performance and we have been asked to examine CMS’s management of the ZPICs, including criteria used by CMS to evaluate their effectiveness. “Bust-out” fraud schemes in which providers or suppliers suddenly bill very high volumes of claims to obtain large payments from Medicare could be addressed by adding a prepayment edit. Such an edit would set thresholds to stop payment for atypically rapid increases in billing thus helping them to stem losses from these schemes. In our prior work on DMEPOS, we recommended that CMS require its contractors to develop thresholds for unexplained increases in billing and use them to develop pre-payment controls that could suspend these claims for further review before payment. CMS officials told us that they are currently considering developing analytic models in FPS that could help CMS and ZPICs identify and address billing practices suggestive of bust outs.

Actions Needed to Improve Use of Systems Intended for Post-payment Claims Review

Further actions are needed to improve use of two CMS information technology systems that could help CMS and program integrity contractors identify fraud after claims have been paid.

The Integrated Data Repository (IDR) became operational in September 2006 as a central data store of Medicare and other data needed to help CMS’s program integrity staff, ZPICs, and other contractors prevent and detect improper payments of claims. However, we found IDR did not include all the data that were planned to be incorporated by fiscal year 2010, because of technical obstacles and delays in funding. Further, as of December 2011 the agency had not finalized plans or developed reliable schedules for efforts to incorporate these data, which could lead to additional delays.

One Program Integrity (One PI) is a Web portal intended to provide CMS staff, ZPICs, and other contractors with a single source of access to data contained in IDR, as well as tools for analyzing those data. While One PI is operational, we reported in December 2011 that CMS had trained few program integrity analysts and that the system was not being widely used.

GAO recommended that CMS take steps to finalize plans and reliable schedules for fully implementing and expanding the use of both IDR and One PI. Although the agency told us in April 2012 that it had initiated activities to incorporate some additional data into IDR and expand the use of One PI, such as training more ZPIC and other staff, it has not fully addressed our recommendations.

A Robust Process to Address Identified Vulnerabilities Could Help Reduce Fraud

Having mechanisms in place to resolve vulnerabilities that lead to improper payments is critical to effective program management and could help address fraud. A number of different types of program integrity contractors are responsible for identifying and reporting vulnerabilities to CMS. However, our work and the work of OIG have shown weaknesses in CMS’s processes to address vulnerabilities identified by these contractors.

CMS’s Recovery Audit Contractors (RAC) are specifically charged with identifying improper payments and vulnerabilities that could lead to such payment errors. However, in our March 2010 report on the RAC demonstration program, we found that CMS had not established an adequate process during the demonstration or in planning for the national program to ensure prompt resolution of such identified vulnerabilities in Medicare; further, the majority of the most significant vulnerabilities identified during the demonstration were not addressed. recommended that CMS develop and implement a corrective action process that includes policies and procedures to ensure the agency promptly (1) evaluates findings of RAC audits, (2) decides on the appropriate response and a time frame for taking action based on established criteria, and (3) acts to correct the vulnerabilities identified.

GAO, Medicare Recovery Audit Contracting: Weaknesses Remain in Addressing Vulnerabilities to Improper Payments, Although Improvements Made to Contractor Oversight, GAO-10-143 (Washington, D.C.: Mar. 31, 2010). by other contractors were resolved. CMS had not resolved or taken significant action to resolve 38 of 44 vulnerabilities (86 percent) reported in 2009 by ZPICs. Only 1 vulnerability had been fully resolved by January 2011. The OIG made several recommendations, including that CMS have written procedures and time frames to assure that vulnerabilities were resolved. CMS has indicated that it is now tracking vulnerabilities identified from several types of contractors through a single vulnerability tracking process. We are currently examining aspects of CMS’s vulnerability tracking process and will be reporting on it soon.

Concluding Observations

Although CMS has taken some important steps to identify and prevent fraud, including implementing provisions in PPACA and the Small Business Jobs Act, more remains to be done to prevent making erroneous Medicare payments due to fraud. In particular, we have found CMS could do more to strengthen provider enrollment screening to avoid enrolling those intent on committing fraud, improve pre- and post- payment claims review to identify and respond to patterns of suspicious billing activity more effectively, and identify and address vulnerabilities to reduce the ease with which fraudulent entities can obtain improper payments. It is critical that CMS implement and make full use of new authorities granted by recent legislation, as well as incorporate recommendations made by us, as well as the OIG in these areas. Moving from responding once fraud has already occurred to preventing it from occurring in the first place is key to ensuring that federal funds are used efficiently and for their intended purposes.

As all of these new authorities and requirements become part of Medicare’s operations, additional evaluation and oversight will be necessary to determine whether they are implemented as required and have the desired effect. We have several studies underway that assess efforts to fight fraud in Medicare and that should continue to help CMS refine and improve its fraud detection and prevention efforts. Notably, we are assessing the effectiveness of different types of pre-payment edits in Medicare and of CMS’s oversight of its contractors in implementing those edits to help ensure that Medicare pays claims correctly the first time. We are also examining the use of predictive analytics by CMS and the ZPICs to improve fraud prevention and detection. ZPICs play an important role in detecting and investigating fraud and identifying vulnerabilities, and FPS will likely play an increasing role in how ZPICs conduct their work. Additionally, we have work under way to identify the types of providers and suppliers currently under investigation and those that have been found to have engaged in fraudulent activities. These studies may enable us to point out additional actions for CMS that could help the agency more systematically reduce fraud in the Medicare program.

Due to the amount of program funding at risk, fraud will remain a continuing threat to Medicare, so continuing vigilance to reduce vulnerabilities will be necessary. Individuals who want to defraud Medicare will continue to develop new approaches to try to circumvent CMS’s safeguards and investigative and enforcement efforts. Although targeting certain types of providers that the agency has identified as high risk may be useful, it may allow other types of providers committing fraud to go unnoticed. We will continue to assess efforts to fight fraud and provide recommendations to CMS, as appropriate, that we believe will assist the agency and its contractors in this important task. We urge CMS to continue its efforts as well.

Mr. Chairman, this concludes my prepared statement. I would be happy to answer any questions you or other members of the committee may have.

For further information about this statement, please contact Kathleen M. King 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 statement. Thomas Walke, Assistant Director; Michael Erhardt; Eden Savino; and Jennifer Whitworth were key contributors to this statement.

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