Medicare Improperly Paid Providers Millions of Dollars for Incarcerated Beneficiaries Who Received Services During 2009 Through 2011

Prisons, not the Centers for Medicare & Medicaid Services, pay for health care of incarcerated people who are otherwise eligible for Medicare (incarcerated beneficiaries). If a Medicare claim was processed after CMS's data systems indicated the incarceration status, CMS was able to prevent the payment. However, when CMS's systems did not indicate the incarceration status until after the claim had been processed, CMS was not able to detect and recoup the improper payment.

Because CMS did not always receive incarceration information promptly, Medicare payments totaling $33.6 million were made to health care providers (providers) for services to approximately 11,600 incarcerated beneficiaries during calendar years 2009 through 2011. CMS did not have policies and procedures that would have enabled it to detect such improper payments after the payments were made. Consequently, CMS did not notify its payment processing contractors (Medicare contractors) to recoup any such payments.

Medicare can pay medical costs of incarcerated beneficiaries if State or local law requires such beneficiaries to repay the costs. In such cases, providers indicate this by placing a specific code, called an "exception code," on their claims for payment by Medicare.

CMS allowed Medicare contractors to follow varying policies in using exception codes. For instance, a contractor approved claims with exception codes that another contractor would have denied. Therefore, providers also had varying procedures regarding the use of exception codes when submitting claims. For example, some providers submitted claims without the exception codes, even though they knew that the beneficiaries were incarcerated and that the requirements for the exception codes had been met.

Even if CMS's data systems were able to recognize an incarcerated beneficiary after payment had been made so that the payment could be recouped, the lack of standard claims-processing policies would cause some providers to have to resubmit the claims with the exception codes added. This would create inefficiencies and delays at both the provider and contractor levels.

We recommended that CMS (1) ensure that Medicare contractors recoup the $33.6 million in improper payments; (2) implement policies and procedures to detect and recoup improper payments made for Medicare services rendered to incarcerated beneficiaries when incarceration information is received on previously paid Medicare claims; (3) identify improper payments made on behalf of incarcerated beneficiaries after our audit period but before implementation of policies and procedures and ensure that Medicare contractors recoup those payments; (4) work with other entities, including the Social Security Administration (which is CMS's primary source of information about incarcerated beneficiaries), to identify ways to improve the timeliness with which CMS receives incarceration information before Medicare contractors pay providers on behalf of incarcerated beneficiaries; and (5) work with the Medicare contractors to ensure that all claims with exception codes are processed consistently and pursuant to Federal requirements.

CMS concurred with three of our recommendations and stated that in April 2013 it plans to implement a process for detecting and recouping improper payments for previously paid Medicare claims. CMS partially concurred with our recommendation regarding the recoupment of the $33.6 million in improper payments, noting that it must take into account the cost benefit of recoupment activities. CMS did not concur with our last recommendation regarding the consistent processing of claims with exception codes.