Review of Medicare Payments for Beneficiaries With Institutional Status

EXECUTIVE SUMMARY:

The objective of this audit was to determine whether Medicare payments to managed care organizations (MCOs) were appropriate for beneficiaries reported as institutionalized.  Medicare pays a higher monthly rate to MCOs for such beneficiaries.  Based on a statistically valid sample of 8 of 79 MCOs, we found the MCOs incorrectly claimed 801 beneficiaries as institutionalized from January 1998 through December 2000.  We estimate overpayments totaled about $9.5 million.  The major cause of the overpayments was that the MCOs did not adequately verify that the beneficiaries had met residency requirements before claiming them as institutionalized.  We recommended financial adjustments and that the Centers for Medicare and Medicaid Services improve oversight procedures to better identify MCOs that inappropriately claim beneficiaries as institutionalized.