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#1 Ensuring Program Integrity in Medicare Parts A and B

Why This Is a Challenge

Spending under Medicare Parts A and B is expected to increase significantly over time due to the growth in the number of beneficiaries and the increase in per capita health care costs. The 2016 Annual Report by Medicare's Board of Trustees estimates that the Trust Fund for Part A will be depleted by 2028. The report also projects Part B spending growth of almost 7 percent over the next 5 years, outpacing the projected 5 percent growth of the U.S. economy during that time. Further, the Part B payment system for providers is undergoing substantial changes through the Medicare Access and CHIP Reauthorization Act of 2015 and other reforms. (For more information on Medicare payment and delivery reform, see TMC #9.) HHS faces challenges-and opportunities-in each of the key areas addressed below.

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Key Components of the Challenge

Reducing Improper Payments. In FY 2015, the Centers for Medicare & Medicaid Services (CMS) reported an improper payment rate of 12.1 percent, corresponding to $43.3 billion, for Medicare Fee-for-Service (Parts A and B). These measures include payments that were paid at an incorrect amount (including both overpayments and underpayments), as well as payments for unnecessary services, services not rendered, billing or coding errors, and claims that did not meet documentation or other Medicare coverage requirements. (For more information on improper payment rate measurement and reporting, see TMC #4.)

While OIG reviews all areas of improper payments, OIG efforts in recent years have focused on specific provider areas based on risk and program size. Our reviews of hospitals' compliance with and risk of not complying with Federal and State requirements have served an important role in highlighting vulnerabilities in hospital billings and returning improper payments to the Medicare Trust Fund. OIG has also focused attention on improper payments in home health and hospice care due to concerns about vulnerabilities in these areas. Through compliance audits of home health agencies, OIG has uncovered improper payments across a number of risk areas, such as insufficient documentation, medical necessity, and homebound determinations. With respect to hospice, OIG found that one-third of stays for hospice general inpatient care in 2012 did not meet Medicare requirements, costing $268 million. (For more information on the quality of care in home health and hospice, see TMC #7.)

In addition, OIG has focused efforts on improper payments to Part B providers, such as chiropractors, physical therapists, and certain durable medical equipment (DME) suppliers (e.g., power mobility device suppliers). Historically, these providers have had high improper payment rates, and OIG has identified error rates exceeding 50 percent in its reviews of them.

Preventing, Detecting, and Responding to Fraud. Curbing fraud is vital to protecting beneficiaries and conserving scarce health care resources. Fraud schemes can shift over time, but certain Medicare services have been consistent targets. Program areas susceptible to widespread fraud include home health and hospice services and DME. Common schemes include billing for unnecessary services or services not provided and kickbacks to recruiters and patients. Other concerns include aggressive and illegal DME telemarketing and social targeting of Medicare beneficiaries, which can result in financial loss to Medicare and beneficiaries being put at risk of medical identity theft.

To help prevent fraud, Medicare must have accurate information about the individuals and entities with which it does business and must take appropriate steps to avoid doing business with, and exposing beneficiaries to, those who are untrustworthy. To this end, CMS must fully and effectively deploy all available program integrity tools, including those provided under the Patient Protection and Affordable Care Act, such as enhanced screening of provider enrollments. However, OIG found weaknesses in Medicare contractors' administration of provider enrollments that could leave Medicare vulnerable to billing by ineligible providers and beneficiaries vulnerable to seeking care from substandard providers. The weaknesses included gaps in the verification of key information, inconsistencies in site visit procedures, and failures to use site visit results for enrollment decisions. Further, CMS's Provider Enrollment, Chain and Ownership System (PECOS) is incomplete and, in some cases, inaccurate. The information in PECOS is intended to aid CMS in tracking enrollment and revalidation trends and to help determine whether CMS contractors are meeting requirements.

Fostering Prudent Payment Policies. In certain contexts, Medicare pays significantly different amounts for the same services provided to similar patients in different settings. For example, we estimated that during calendar year 2010 swing-bed services provided at 90 percent of the critical access hospitals (CAHs) we reviewed could have been provided at other nearby facilities that are paid under the Skilled Nursing Facility (SNF) Prospective Payment System. We believe that Medicare could have saved $4.1 billion over 6 years if payments for swing-bed services at CAHs were made to other facilities at SNF rates. Medicare and beneficiaries also typically pay more for a physician service provided in a "provider-based facility" (i.e., one owned by a hospital) than for the same service provided in an independent facility. OIG has highlighted weaknesses in CMS's management of these payment policies.

CMS is implementing a significant overhaul of the payment system for clinical laboratory tests pursuant to the Protecting Access to Medicare Act of 2014. The new system, which seeks to better align Medicare reimbursement for lab tests with market rates, takes effect on January 1, 2018. Before then, CMS must complete numerous tasks associated with collecting private payer data from labs and using it to establish the new reimbursement rates for lab tests. Timeframes for some of these tasks are tight, e.g., completing sub-regulatory guidance before the data-reporting period begins on January 1, 2017. Further, OIG has raised concerns about risks to payment accuracy on the basis of CMS's plans to rely on labs to self-identify whether they meet the criteria for reporting private payer data and CMS's plans to rely on reporting labs' self-attestations of the data's completeness and accuracy.

Some payment systems create financial incentives that may negatively affect patient care and drive up Medicare costs. For example, Medicare's payment policies for SNFs gives these facilities incentives to bill for higher levels of therapy than beneficiaries need. OIG work showed that SNFs have billed for the highest level of therapy at increasing rates that were not supported by patient needs. Additionally, hospices provided care much longer and received much higher Medicare payments for beneficiaries in inpatient assisted living facilities (ALFs) than for beneficiaries in other settings, creating incentives for hospices to target these patients. OIG found that Medicare payments for hospice care in ALFs more than doubled in 5 years, totaling $2.1 billion in 2012.

Progress in Addressing the Challenge

Through the Health Care Fraud and Abuse Control (HCFAC) Program, OIG, HHS, and the Department of Justice have made substantial strides in fighting fraud, waste, and abuse in Medicare (all parts) and Medicaid and recovering stolen and misspent funds. From 2013 to 2015, the HCFAC Program has returned $6.10 for every $1 invested. In FY 2015, HCFAC-funded audits and investigations resulted in expected recoveries of $2.4 billion. To combat Medicare fraud, waste, and abuse, HHS has also taken steps to implement additional program integrity tools and many of OIG's recommendations. Specifically, in FY 2015, OIG reported potential savings of more than $18.4 billion from legislative, regulatory, and administrative actions taken by HHS and that were supported by OIG recommendations.

CMS is implementing prior authorization models and demonstrations in certain areas to help make sure items and services are provided in compliance with Medicare coverage, coding, and payment rules. CMS has established or is implementing prior authorization processes in certain locations that cover the following: power mobility devices, repetitive scheduled non-emergent ambulance transport, and certain durable medical equipment, prosthetics, orthotics, and supplies. CMS has also begun implementing a demonstration project in five States requiring home health agencies to submit required documentation for pre-claim review to help reduce and prevent improper payments. OIG has noted reductions in Medicare billing and payments for certain services and geographic areas known for fraud risks. For example, following law enforcement activities and CMS administrative actions, billing and payments for home health services and community mental health services declined significantly from 2009 to 2014 in fraud hot spots.

Furthermore, CMS has performed actions to improve provider enrollment safeguards to protect the integrity of the Medicare program. CMS has expanded its temporary provider enrollment moratoria for home health agencies to Statewide moratoria in certain geographic locations known for significant fraud. CMS has also proposed new regulations that would use its provider and supplier information more effectively to keep out or remove providers who pose risks to Medicare and its beneficiaries. In FY 2016, CMS reported that it has enhanced the address verification software in PECOS to better detect vacant or invalid addresses or commercial mailing reporting agencies. Further, CMS has reported improvements in its oversight and measurement of its contractors' performance and its corrective actions regarding improper payment vulnerabilities that contractors identify.

With respect to clinical laboratory services, CMS reports significant progress in several key areas, including promulgating regulations, establishing the Advisory Panel, publishing most of the sub-regulatory guidance, and building the data collection system. Finally, CMS is working to implement new legislation that would restrict the higher payment rates for provider-based facilities to "on-campus" facilities (those within 250 yards of the main provider) and to "off-campus" facilities that were designated as such before November 2, 2015.

What Needs To Be Done

Despite progress in some key areas, more must be done to protect Medicare from fraud, waste, and abuse and extend the solvency of the program. CMS could do more to ensure that fraudulent or abusive providers are not allowed to enroll or remain in Medicare in order to help prevent inappropriate payments, protect beneficiaries, and reduce the need for collection efforts against fraudulent providers who abscond with ill-gotten Medicare funds. CMS must continue improving its oversight and the performance of contractors in implementing Medicare provider enrollment safeguards, ensuring payment accuracy, and identifying and recovering overpayments in a timely manner. CMS should also improve the completeness, accuracy, and timeliness of its provider ownership data (maintained in PECOS) to support effective oversight.

HHS should continue to address and resolve program integrity weaknesses identified. OIG has recommended numerous actions, which remain unimplemented, to reduce improper payments for specific services. For example, OIG has recommended that CMS increase its oversight of hospice general inpatient claims, ensure that a physician is involved in the decision to use this level of care, and conduct prepayment reviews for lengthy stays. OIG has also recommended strengthened safeguards to ensure that Medicare pays for home health services only when the beneficiary meets the applicable homebound requirement and the home health agency has provided reasonable and necessary skilled services that are supported by and documented in the physician's certification plan.

OIG has also recommended changes to promote more prudent payment policies, including payments to hospital outpatient departments and ambulatory surgical centers, SNFs, and hospices. Many of these changes would require new statutory authority, and HHS's role is to develop legislative proposals for consideration by the Administration and Congress. Concurrently, OIG has recommended numerous actions that CMS can take within its existing authorities to mitigate the financial and quality of care risks under the current systems. For example, OIG recommended that CMS analyze billing data to identify SNFs that appear to be overbilling for therapy and expand its oversight reviews of those SNFs.

For laboratory tests, CMS must maintain focus on key remaining tasks, including completing the data collection system, ensuring completeness and accuracy of reported data, and establishing new Medicare payment rates after labs report data in 2017. CMS should monitor labs' reporting to ensure that all required labs' report data are accurate and complete. In the longer term, CMS should monitor the new system to ensure that it is meeting its cost savings goals.

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