Department of Health and Human Services

Office of Inspector General -- AUDIT

"End Stage Renal Disease Payments to Health Maintenance Organizations," (A-14-96-00203)

June 12, 1997

Complete Text of Report is available in PDF format (1M). Copies can also be obtained by contacting the Office of Public Affairs at 202-619-1343.


This report provides the results of our continuing review of Medicare payments made to risk-based health maintenance organizations (HMO) on behalf of beneficiaries classified as having end stage renal disease (ESRD).

The objective of this review was to continue and update our prior work (see our report, "Review of Medicare Payments to Health Maintenance Organizations for End Stage Renal Disease Beneficiaries" (A-04-94-01090)) to determine the appropriateness of payments made to HMOs on behalf of ESRD-classified beneficiaries. Our prior review found that the Health Care Financing Administration's (HCFA) systems did not recognize ESRD eligibility termination dates for beneficiaries enrolled in HMOs. The scope of the prior review included those beneficiaries who did not meet HCFA rules of HMO enrollment as an ESRD-eligible person. This review examines eligibility and payment issues on behalf of those beneficiaries who were not included in our prior review.

We found that HCFA's systems have been improved and now maintain a more complete history of ESRD information and, effective October 1996, HCFA implemented systems changes to adjust payments to HMOs when a beneficiary's ESRD entitlement ends. Although several recalculations were necessary to properly identify beneficiaries' correct periods of ESRD eligibility resulting in a mistaken $100 million in overpayments being issued in October 1996, we commend HCFA for its efforts in updating data in its systems for the ESRD beneficiary population and implementing software modifications to recognize ESRD end dates for HMO payment adjustments and enrollment decisions. These systems enhancements will prevent approximately $15 million a year in future overpayments.

However, we also found that HCFA is unnecessarily limiting the time period for recovery of the overpayments from HMOs made on behalf of beneficiaries whose ESRD entitlement had ended. We identified $20.5 million in overpayments which HCFA does not plan to collect because of the time limits it is imposing on its recovery efforts. These overpayments were made to HMOs between January 1992 and February 1995 on behalf of beneficiaries who, according to HCFA's records, no longer meet the statutory definition for ESRD entitlement because they had a successful kidney transplant or are no longer dialyzing. The $20.5 million in overpayments is in addition to the overpayments identified in our prior report. We noted that the law, regulations, and the HCFA HMO manual are silent regarding a statute of limitations to recover overpayments from risk-based HMOs.

We are recommending that HCFA recover all overpayments that have occurred at least since 1992 as a result of the system not recognizing ESRD termination dates for beneficiaries enrolled in HMOs and issue regulations to clearly specify time limits for the recovery of overpayments from HMOs. Also, aggressive management action should be taken to curtail payments whenever it is known or anticipated that a major overpayment may occur, such as the overpayment that occurred in October 1996.

In response to our draft report, HCFA disagreed with our recommendation to recover all overpayments that occurred at least since 1992, but agreed with our other recommendations.

We continue to believe that HCFA should recover overpayments at least since 1992. This situation is especially disconcerting to us since 71 HMOs received this $20.5 million in a highly enhanced payment rate to provide a special type of service which they did not provide. We are unable to determine HCFA's justification for limiting the time period for recovery of overpayments, while setting no time limitations on paying underpayments to the HMOs. We also still have concerns about the separate recovery schedules HCFA established for overpayment recoveries and the resulting distinction and apparent disparity in treatment between beneficiaries who lost ESRD status while enrolled in a plan and those who lost ESRD status before enrollment in a plan. Prior to HCFA's systems enhancements implemented in August 1996, the systems were not able to calculate end dates, however, the systems can now calculate end dates. We note that HCFA's systems do have information which would allow retroactive adjustments at least to 1992--we used this information to identify the misclassified beneficiaries in our review and to calculate the overpayments.