OIG Report Reveals Steady Drop in Medicare Payment Errors

Healthcare Financial Management, May, 2001 by Richard L. Gundling

In each of the past five years, HHS's Office of Inspector General (OIG) has performed a review of HCFA's processing of Medicare feefor-service claims. On March 6, the OIG issued results of its review for FY00. [a] The OIG estimated that for the $173.6 billion in processed Medicare fee-for-service payments reported by HGFA, the payment error rate was 6.8 percent, or $11.9 billion. This finding represents an improvement of about $1.6 billion over improper payments made in FY99 and the lowest payment-error rate since the OIG began estimating improper Medicare payments. Nonetheless, the OIG stresses that HGFA must do more to eliminate improper payments.

The OIG categorizes improper payments by type (eg, payments that reflect coding errors and payments made for claims unsupported by documentation, as well as medically unnecessary and noncovered services) and observes that such payments range from inadvertent mistakes to fraud and abuse. The OIG acknowledges that it cannot quantify the percentage of improper payments that are fraudulent.

The OIG Review

The OIG's review involved an evaluation of a statistical sampling of 610 Medicare beneficiaries nationwide, for whom 5,234 fee-for-service claims were processed during FY00. The OIG found that 1,125 of these claims did not comply with Medicare laws and regulations. The estimate of $11.9 billion in improper Medicare payments for FY00 was based on the OIG's findings regarding the statistical sample.

The OIG noted that HCFA has made sustained progress in reducing improper payments. For FY96, the first year for which the OIG reported an error rate, estimated improper payments totaled $23.2 billion, or about 14 percent of the fee-for-service payments. The OIG attributed the nearly 50 percent reduction in improper payments over five years to HCFA's continuing corrective actions, efforts by healthcare providers to comply with Medicare reimbursement regulations, and government antifraud-and-abuse initiatives.

Nonetheless, the OIG also observed that unsupported and medically unnecessary services continue to be prevalent problems, accounting for more than 70 percent of the total improper payments over the past five years. Unsupported services was the largest payment-error category in three of the past five years, while payment for medically unnecessary services was the largest error category in FY00, costing the Medicare program $5.1 billion, or about 43 percent of the program's improper payments for the year. Improper payments for coding errors have remained relatively constant over the past five years, ranging between $2 billion and $3 billion, while noncovered services have consistently represented the least-costly payment-error category.

Significantly the OIG noted that if its review had looked only at the information that was submitted in the sample claims, it would have concluded that HCFA paid virtually all the claims correctly The errors were identified only after medical review staff had studied the patient medical records.

The OIG's Recommendations

The OIG's chief recommendation was that HCFA continue its efforts to reduce improper payments. In particular, the OIG strongly urged HCFA to continue working with providers to ensure that medical records support billed services.

The OIG emphasized that medical records not only assist providers in evaluating and planning each patient's treatment, but also ensure the continuity of care should another caregiver assume responsibility for the patient's care. The OIG also stressed that medical records help to ensure the correct and timely payment of provider claims. Healthcare financial managers therefore should expect HCFA to follow the OIG's recommendation to increase its scrutiny of providers' medical records.

The OIG also recommended that HGFA:

* Expand provider training to Medicare contractors to further emphasize the need to maintain sufficiently documented medical records and to use proper procedure codes when submitting claims to the Medicare program;

* Keep Medicare providers informed of procedure codes and DRGs that display the highest incidence of error in the OIG's audits, as well as problem codes and DRGs identified by Medicare contractors;

* Direct peer-review organizations to identify high-risk areas and reinstate certain surveillance initiatives, such as hospital-readmission and DRG-coding reviews;

* Refine Medicare regulations and guidelines to ensure that medical services are correctly coded and sufficiently documented;

* Continue to encourage healthcare providers to adopt corporate compliance plans; and

* Take steps to recover the improper payments identified in the OIG's FY00 review.

These recommendations affect healthcare providers directly because they all point to areas in which HCFA is likely to focus its ongoing efforts to reduce problems with its claims processing. To prepare for HCFA's probable actions, healthcare financial managers should make sure that their organizations' compliance programs have a process for ensuring that only claims for services believed to be medically necessary are submitted, and that documentation can be provided upon request showing that all such services were ordered by a physician. In addition, healthcare financial managers should ensure that all staff who are in a position to determine whether a service is medically necessary receive a clear, comprehensive summary of the definitions of medical necessity.