In 2010, the President announced three goals for cutting improper payments in federal health programs by 2012: reducing overall payment errors by $50 billion, cutting the Medicare fee-for-service error rate in half, and recovering $2 billion in improper payments. The Obama Administration put these goals into a program called the “Campaign to Cut Waste.”
This month, the Office of Management and Budget (OMB) announced that the Administration cut wasteful improper payments by $17.6 billion dollars in 2011 as part of Campaign to Cut Waste, fueled by decreases in payment errors in Medicare, Medicaid, Pell Grants, and Food Stamps.
Additionally, OMB Director Jack Lew recently issued a memo to agencies directing them to step up their oversight of contractors and grant recipients in order to eliminate unnecessary risk of waste, fraud and abuse. Specifically, the guidance directs agencies to strengthen their suspension and debarment procedures – tools that allow the Federal government to stop doing business with bad actors who put taxpayer dollars at risk.
Fighting Fraud, Waste and Abuse
Combined with the improper payment cuts in 2010, agencies have avoided making over $20 billion in improper payments in the two years since President Obama issued an Executive Order initiating an aggressive campaign against wasteful payment errors. Vice President Joe Biden said, “The sharp reduction in payment errors … demonstrates this Administration is serious about cutting waste.”
“Because of the sustained commitment from the President, the Vice President, and leaders across the Administration – and the effective use of technology – we are seeing real progress cracking down on this waste of taxpayer dollars that has persisted for far too long,” said OMB Director Jack Lew.
“Through aggressive and innovative solutions being deployed by Federal agencies, we are on track to meet the President’s bold directive to prevent $50 billion in payment errors by the end of 2012. This is a good step, but not the end. We will continue to work day and night to prevent taxpayer dollars from being wasted in payments to the wrong people or in the wrong amount.”
In addition to OMB’s announcement, the Centers for Medicare & Medicaid Services (CMS) recently announced that it will launch demonstration programs beginning in January 2012 targeting some of the most common factors that lead to improper payments in health programs.
Cost Saving Projects will Help Protect Medicare and Medicaid
Beginning on January 1, 2012, CMS will conduct demonstration projects that will strengthen Medicare by aiming at eliminating fraud, waste, and abuse. Reductions in improper payments will help ensure the sound future of the Medicare Trust Fund and protect Medicare beneficiaries who depend upon it.
- Recovery Audit Prepayment Review: The Recovery Audit Prepayment Review demonstration will allow Medicare Recovery Auditors (RACs) to review claims before they are paid to ensure that the provider complied with all Medicare payment rules. The RACs will conduct prepayment reviews on certain types of claims that historically result in high rates of improper payments. These reviews will focus on seven states with high populations of fraud- and error-prone providers (FL, CA, MI, TX, NY, LA, IL) and four states with high claims volumes of short inpatient hospital stays (PA, OH, NC, MO) for a total of 11 states. This demonstration will also help lower the error rate by preventing improper payments rather than the traditional “pay and chase” methods of looking for improper payments after they have been made.
- Prior Authorization for Certain Medical Equipment: The second demonstration will require Prior Authorization for certain medical equipment for all people with Medicare who reside in seven states with high populations of fraud- and error-prone providers (CA, FL, IL, MI, NY, NC and TX). This demonstration will help ensure that a beneficiary’s medical condition warrants their medical equipment under existing coverage guidelines. Moreover, the program will assist in preserving a Medicare beneficiary’s right to receive quality products from accredited suppliers.
The Prior Authorization demonstration will be implemented in two phases. During the first phase (the first three to nine months), the Medicare Administrative Contractors will conduct prepayment reviews on certain medical equipment claims. The second phase, for the remainder of this three-year demonstration, will implement prior authorization, a tool utilized by private-sector health care payers to prevent improper payments and deter the fraudulent provision of items or services.
- Part A to Part B Rebilling: The third initiative will allow hospitals to rebill for 90 percent of the Part B payment when a Medicare contractor denies a Part A inpatient short stay claim as not reasonable and necessary due to the hospital billing for the wrong setting. Currently, when outpatient services are billed as inpatient services, the entire claim is denied in full.
This demonstration will be limited to a representative sample of 380 hospitals nationwide that volunteer to be part of the program. This demonstration will allow hospitals to resubmit claims for 90 percent of the allowable Part B payment when a Medicare Administrative Contractor, Recovery Auditor, or the Comprehensive Error Rate Testing Contractor finds that a Medicare patient met the requirements for Part B services but did not meet the requirements for a Part A inpatient stay. In addition, this demonstration is expected to lower the appeals rate which will protect the trust fund and reduce hospital burden. Beneficiaries will be held harmless with respect to changes in hospital coinsurance liability.
CMS also noted a pilot project announced by HHS this past May under the Partnership Fund for Program Integrity Innovation to test an automated tool to screen providers for the risk of fraud. Currently, HHS and States lack standardized Medicaid provider data, which hampers detection of potential fraud.
New Projects Build on 2011 Savings
CMS asserted that the 2012 projects will build on accomplishments in 2011 to reduce Medicare and Medicaid improper payment rates. For example, the Medicare fee-for-service error rate fell from 9.1 percent in 2010 to 8.6 percent in 2011. Since 2009, the error rate has fallen more than 2 percentage points. The overall error rate for Medicare programs fell from 10.2 percent in 2010 to 8.6 percent in 2011. Since 2009, the error rate has fallen nearly 3.2 percentage points.
- Medicare fee-for-service avoided about $7 billion in payment errors.
- Medicare Part C avoided about $5 billion in payment errors.
- Medicare Part D reported a composite error rate for the first time, with an error rate of 3.2 percent, well below the government average.
- In addition, the error rate for Medicaid fell to 8.1 percent in 2011 from 9.4 percent in 2010, avoiding about $4 billion in payment errors since 2009.
CMS is also reporting for the first time a composite improper payment rate for the Medicare Part D prescription drug program. Based on payment year 2009, the improper payment rate is 3.2 percent, or $1.7 billion. The improper payment rate for the Children’s Health Insurance Program (CHIP) will not be published until 2012.
Other Fraud/CMS Developments
Nine months ago, the President proposed in his 2012 Budget even more aggressive tools that will help drive down this waste. If Congress passes these proposals, they will result in more than $160 billion in savings to the Federal Government over the next decade. HHS Secretary Sebelius applaued the announcement of these figures, but noted that her agency still needs Congress to act on the President’s proposal. “Until Congress acts, we will continue doing everything in our power to save money on behalf of the American people.”
Secretary Sebelius announced that HHS will launch four additional pilots to reduce the error rate and cut Medicare and Medicaid waste and fraud:
Let private inspectors catch wasteful spending before it happens by expanding the use of Recovery Audit Contractors. At HHS and other agencies, private recovery audit contractors normally review payments and identify errors after the payments are made. Then, the agency must track down and recover the improper payments. Last year, private companies recovered hundreds of millions of taxpayer dollars by finding improper payments that have already been paid out. The agency will now allow private companies to screen certain hospital payments before they are made, which will prevent improper Medicare payments from happening in the first place.
Test changes to outdated hospital billing system to help prevent over-billing. Hospitals sometimes perform services as inpatient that Medicare requires to be outpatient. Right now, when those hospitals bill Medicare, HHS does not allow them to re-bill as outpatient. Under this pilot, HHS will allow some claims that are incorrectly made under the inpatient program to be resubmitted under the outpatient program. This mistake—incorrect billing of services—is a leading cause of error in the Medicare program and wastes time and money in appeals.
Change its process for approving payments for medical equipment with high error rates. One contributor to the Medicare improper payment rate is incorrect reimbursement for medical equipment that is not medically necessary. This change will allow HHS to pilot a new process for reviewing these medical equipment claims before they are made, thus helping to reduce Medicare improper payments.
Work with States to improve fraud detection. HHS is initiating a pilot project under the Partnership Fund for Program Integrity Innovation to test an automated tool to screen providers for the risk of fraud. Currently, HHS and States lack standardized Medicaid provider data, which hampers detection of potential fraud. If successful, this tool will not only help prevent improper payments by weeding out fraudulent providers, but it will help States focus their resources where fraud is most likely to occur.