Contractors have a long-standing and essential role in the Medicare program. Program integrity activities—particularly postpayment claims reviews—have been a core component of contractors’ roles. When conducting postpayment claims reviews, contractors apply the same criteria—Medicare regulations, and coverage and coding policies— to determine whether or not a claim was paid properly. CMS outlines the general process and contractor requirements for conducting claims review in its manuals and contractor statements of work. Postpayment claims reviews may be automated, semiautomated, or complex. Automated reviews use computer programming logic to check claims Contractors can for evidence of improper coding or other mistakes. use automated postpayment reviews to analyze paid claims and identify those that can be determined to be improper without examining any additional documentation, such as when a durable medical equipment (DME) supplier bills for items that should have been included as part of a bundled payment for a skilled nursing facility stay. Semiautomated reviews use computer programming logic to check for possible improper payments, but allow providers to send in information to rebut the claim denial before it is implemented. Only the RAs conduct such reviews. If providers send in information, RA staff review it before making a final determination. Complex reviews are conducted if additional documentation is needed to determine whether a payment was made in error. Complex reviews involve manual examinations of each claim and any related documentation requested and received from the provider, including paper files, to determine whether the service was billed properly, and was covered, reasonable, and necessary. Licensed clinical professionals, such as licensed practical nurses, and certified coders typically perform the reviews. Contractors have physician medical directors on staff who provide guidance about making payment determinations on the basis of medical records and other documentation and who may discuss such determinations with providers. The postpayment claims review process involves selection of the claims to be reviewed, the review itself, communicating with providers during and about the review, and a process for assuring quality of the contractor’s reviews and decisions. Each contractor establishes its own claims selection criteria. A contractor may use data analyses, knowledge of Medicare billing requirements, and clinical expertise to develop its claims selection criteria to focus on claims with a high likelihood of being improper. As a part of the review, the contractor may notify the provider that a claim is under review, or ask for medical records or other documentation to substantiate the claim. The latter is called an additional documentation request (ADR). If the contractor requires additional documentation, the provider must submit the requested documents within a specified time frame. If the review has determined that the Medicare payment amount was improper, either the contractor or the MAC for that jurisdiction will notify the provider that an overpayment was made and will need to be recouped, or an underpayment was made and the remainder of the remittance will be paid to the provider. Providers may appeal any of the contractors’ decisions. The contractors’ quality assurance (QA) processes may include various steps to assure consistency, reliability, and quality in claims reviews. The QA process may include some type of examination of the work that has been done and may be performed internally, by the contractors themselves, or externally, by CMS or an independent third party. A contractor’s QA process may include comparing multiple reviewers’ decisions about the same claim to determine the extent of their agreement (known as interrater reliability testing) or reviews to validate the claims review decisions by others who are either internal or external to the reviewer’s organization. The QA process may also include staff training, to ensure that the reviewers understand Medicare program and payment rules so that their determinations can be consistent. The QA processes followed may also be outlined in a QA plan. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) directed CMS to establish a demonstration program to test the use of RAs on a contingency fee basis in the Medicare program. Other contractors that review claims are given a set amount of funding to conduct reviews. In the demonstration project, RAs were paid contingency fees on claims that were identified as improper, including on claims for which the RA determinations were overturned on appeal at the second through fifth levels of review. Subsequently, the Tax Relief and Health Care Act of 2006 required CMS to implement a permanent and national Medicare recovery audit contractor program to increase efforts to identify and recoup improper payments. During the course of the RA demonstration program, providers reported several specific problems. In providers’ views, the RA’s contingency fee payment structure created an incentive for these contractors to be too aggressive in determining that claims were improper. Providers also faulted CMS for not penalizing RAs for inaccurate claim determinations, noting that contractor determinations resulted in thousands of provider appeals that were expensive and burdensome for providers. In addition, providers stated that during the demonstration project RAs did not have the necessary medical expertise to make their determinations, because they were not required to have a physician medical director on staff or coding experts conducting the claims reviews. We indicated in a previous report that CMS took a number of steps to address issues raised by providers about the RA demonstration program when it implemented the RA national program. For example, CMS put in place more rigorous staffing requirements and eliminated contingency fee payments when RAs’ claims determinations are overturned on appeal. In addition, CMS took steps to improve oversight of the accuracy of RAs’ claims review determinations and the quality of RA service to providers in the national program. CMS added processes to review the accuracy of RA determinations and established performance metrics to monitor RA accuracy and service to providers. Internal control is 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.postpayment claims reviews, should provide reasonable assurance that the Medicare program is appropriately reimbursing for services provided to beneficiaries, thereby protecting the integrity of the Medicare program. Ineffective or inefficient claims reviews present the risk of generating false findings of improper payments and an unnecessary administrative and financial burden related to provider appeals for Medicare-participating providers and the Medicare program. CMS requirements for contractors performing postpayment claims reviews help establish the control environment and control activities, such as monitoring. The manner in which the agency delegates authority and responsibility through these requirements establishes part of the control environment. Contractor requirements also establish the mechanisms that contractors use to communicate and interact with providers. Internal controls, in this case In addition, Executive Order 13571—Streamlining Service Delivery and Improving Customer Services—was issued in April 2011 to improve government services to individuals and entities by requiring agencies to develop customer service plans in consultation with OMB. Subsequently, OMB issued implementation guidance for agencies for those services that the agencies plan to focus on improving. The guidance calls for improving the customer service experience through practices such as developing a process for ensuring consistency and coordinating with others to identify opportunities to use common processes. Among other things, the guidance also suggests analyzing customer preferences and redirecting resources from less preferred and more costly channels—like printed materials—to preferred, less costly and more widely accessible channels (such as internet communications) where appropriate. Over time, Congress provided for CMS to use contractors to carry out functions in connection with the FFS program, which has resulted in the use of more types of contractors to conduct postpayment claims reviews. These contractors also have different primary functions and characteristics, which affect their use of postpayment claims reviews. Although contractors have been used for Medicare since the beginning of the program, several statutory changes since the 1990’s increased CMS’s resources and authority to use new types of contractors—MACs, RAs, ZPICs, and CERT contractors—to conduct postpayment claims reviews in order to help detect and recoup overpayments or repay underpayments, and to investigate potential fraud. In 1965 when Medicare was established, Congress provided for two types of contractors that could be used to administer the program. From then until 1996, responsibility for processing and paying Medicare claims, as well as for the program integrity tasks of developing potential cases and coordinating with law enforcement regarding any investigations of suspected Medicare fraud, resided with contractors called fiscal intermediaries and carriers. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) established the Medicare Integrity Program (MIP), which authorized CMS to contract separately for program safeguard contractors (PSC)—the precursor to the ZPICs—to conduct activities, such as identifying and investigating potential fraud, that had previously been conducted by fiscal intermediaries and carriers and provided funding for MIP. In 2003, the MMA required CMS to replace the fiscal intermediaries and carriers with the MACs. (See table 1.) During the implementation of the MACs, CMS consolidated the number of contractors that process and pay Medicare FFS claims, enlarged their geographic jurisdictions compared to the previous contractors, and combined Part A and Part B claims processing within each jurisdiction. As part of changes made while implementing MACs, CMS also transitioned fraud investigation from PSCs to ZPICs in all but one zone. The MMA also directed CMS to establish a demonstration project to test the use of recovery audit contractors in the Medicare program. Subsequently, the Tax Relief and Health Care Act of 2006 required CMS to implement a permanent and national Medicare recovery audit contractor program to increase efforts to identify and recoup improper payments. Although HHS had begun estimating the extent of improper payments in Medicare FFS claims in 1996, the Improper Payments Information Act of 2002 (IPIA) requires executive-branch federal agencies to annually review all programs and activities to identify those that are susceptible to significant improper payments, estimate the annual amount of improper payments for these programs and activities, and report these estimates along with actions taken to reduce improper payments for programs with estimates that exceed $10 million.