Department of Health and Human Services

Office of Inspector General -- AUDIT

"Audit of Medicare Payments Made to Group Health Cooperative of Puget Sound for Beneficiaries Classified As Having End Stage Renal Disease," (A-10-96-00001)

April 18, 1997

Complete Text of Report is available in PDF format (648K). Copies can also be obtained by contacting the Office of Public Affairs at 202-619-1343.


This report provides the results of our audit of enhanced Medicare payments made to Group Health Cooperative of Puget Sound (Group Health) for beneficiaries classified as having end stage renal disease (ESRD). Our audit included Medicare payments made during the period March 1992 through April 1996.

Group Health is a managed care organization and has been providing services to Medicare beneficiaries under contract with the Health Care Financing Administration (HCFA) since January 1, 1989. Group Health is paid a fixed monthly payment for each enrolled Medicare beneficiary. Enhanced payments are made on behalf of certain high-cost categories of beneficiaries, such as those having ESRD. However, when a beneficiary's ESRD status changes, such as after a 3-year time period following a successful transplant, the enhanced payments are to be discontinued.

We identified 40 beneficiaries enrolled with Group Health between March 1992 and April 1996 who were inappropriately classified as having ESRD status. As a result, Group Health received Medicare overpayments of $2,763,498 for that period.

In our audit, we determined that Group Health was providing timely notification to HCFA when the ESRD status of beneficiaries changed. However, because of a HCFA computer system deficiency, the ESRD designation for beneficiaries was not changed and the enhanced payments continued. We have been advised by HCFA officials that, in August 1996, they began implementing system enhancements to address the problem of incorrect ESRD status.

We are recommending that Group Health refund the $2,763,498 in Medicare overpayments. We are also recommending that Group Health review the ESRD status of Medicare enrollees subsequent to the period covered by our audit, and refund overpayments received for beneficiaries inappropriately classified as having ESRD during this period.

In a written response to the draft report dated January 9, 1997, Group Health acknowledged that overpayments were received, but did not agree with the beginning date of March 1, 1992 for determining the amount that should be reimbursed to the Federal Government. Group Health stated that a beginning date of September 1, 1993 was appropriate based on instructions received from HCFA. By use of this beginning date, and including the period subsequent to our audit period, Group Health determined that the amount to be repaid was $1,966,502. The response stated that reimbursement of the overpayment was begun on October 1, 1996.

We believe that the beginning date of March 1, 1992 for determining amounts to be reimbursed is appropriate in light of the circumstances involving the overpayments, and related policy decisions that are applied to fee-for-service Medicare providers. In a separate report, we are recommending to HCFA that it recover all overpayments that have occurred since at least 1992 that resulted from the computer system deficiency.