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Management Challenge 6:
Preventing Improper Payments and Fraud in Medicare Advantage

Why This Is a Challenge

Improper payments to MA plans pose a significant vulnerability for CMS and cost taxpayers billions of dollars. In FY 2013, the Department reported an error rate of 9.5 percent for MA, corresponding to an estimate of almost $11.8 billion in improper payments (consisting of about $9.3 billion in overpayments and about $2.6 billion in underpayments). The MA error rate measures errors related to risk-adjustment payments.

In general, Medicare makes capitated payments to MA organizations to deliver a specified set of health care benefits to qualified beneficiaries. MA organizations submit bids to CMS related to their expected costs for the upcoming year to calculate a standard monthly payment rate per beneficiary. This standard rate is then risk-adjusted (increased or decreased) based on the health characteristics of individual enrolled beneficiaries; i.e., Medicare will make higher monthly payments on behalf of sicker beneficiaries. To calculate risk-adjustment payments, MA organizations submit beneficiaries' clinical diagnoses to CMS. If a diagnosis submitted is not supported by the beneficiary's medical record, the risk-adjustment will be inaccurate and result in payment errors.

OIG has audited risk-adjustment payments to MA organizations. In OIG audits of six MA organizations' risk data from payment year 2007, we identified approximately $650 million in aggregate extrapolated overpayments to these plans because the medical records did not support the reported diagnosis.

Improper payments by MA organizations to providers (including those resulting from provider fraud) also raise concerns. These improper payments are not measured or reported in the MA error rate because CMS does not reimburse MA organizations on a claim-by-claim basis. However, such improper payments raise costs for MA organizations, and in turn, raise costs for Medicare and beneficiaries.

MA organizations share risk with the Government and have incentives to detect and prevent fraud; however, not all MA organizations have done so effectively. OIG found wide variability across MA organizations in their identification and reporting of fraud and abuse incidents (ranging from 1 incident to 1.1 million incidents). In addition, not all MA organizations took appropriate steps to respond to suspected fraud incidents.

Further, OIG found that from 2010 to 2011, CMS's contractor charged with oversight of MA program integrity (known as the MEDIC) produced limited results and faced significant barriers to effectively safeguarding this program. For example, lack of a centralized MA data repository hindered the MEDIC's ability to identify and investigate MA fraud and abuse. The MEDIC also lacked administrative authority to recommend recoupment of payments associated with inappropriate services.

Progress in Addressing the Challenge

CMS's reported error rate for MA decreased from 11.4 percent for FY 2012 to 9.5 percent for FY 2013. CMS described changes to its process for measuring MA payment errors in FY 2013 intended to ensure that the error rate reflects MA organizations' submissions of inaccurate diagnoses and not "false positives" associated with the procedures for submitting medical record documentation. These changes included extending the time allotted for MA organizations to submit medical records, providing interim feedback on the validity of those records, and providing preliminary coding results to MA organizations.

CMS has reported that it is implementing three initiatives to reduce the errors in risk-adjustment data and resulting improper payments. One is by contracting for audits of risk-adjustment data to verify the accuracy of plan-reported diagnoses through medical record review and recouping improper payments identified by these audits. CMS launched these audits in November 2013 and plans to audit about 30 MA contracts per year. The second is conducting training for MA organizations about accurate diagnosis reporting, including identifying the diagnoses most often resulting in errors. The third is educating physicians to improve their medical record documentation in support of patient diagnoses.

Building on a model for identifying and collecting overpayments for Medicare Parts A & B, the ACA required CMS to develop a RAC program for MA. CMS is working to implement this requirement.

CMS has updated its reporting requirements for the MEDIC to better oversee its performance in safeguarding MA program integrity. CMS has reported that the MEDIC has access to a new data source, which facilitates analysis of a large volume of data and increases data storage capacity. CMS expects that this will help the MEDIC perform proactive analyses targeting MA fraud and abuse in the future.

What Needs To Be Done

CMS needs to ensure that MA organizations submit accurate beneficiary diagnoses for setting risk-adjustment payments and recoup overpayments that were based on inaccurate data reported by plans. It should continue to monitor the effectiveness of its initiatives aimed at this goal and take additional steps if error rates remain high.

CMS should also develop administrative mechanisms to recover or otherwise remedy overpayments that MA organizations have made to providers so that these do not increase costs for Medicare. Implementation of the RAC program in MA may provide such an opportunity.

CMS should work with MA organizations to ensure that they implement effective programs to detect, correct, and prevent fraud, waste, and abuse, as required in their compliance plans. In addition, CMS should require MA organizations to report suspected fraud incidents to the CMS and/or the MEDIC for further review and potential referral to law enforcement. CMS should also develop a centralized repository of MA data, and provide access to that repository to the MEDIC, to facilitate more effective program oversight. CMS should continue working to ensure that the MEDIC successfully carries out proactive data analyses targeting MA fraud and abuse, as planned.

Key Resources

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