In fiscal year 2011,  MACs and other claims administration contractors processed about   1.2 billion claims. Medicare claims administration contractors have had a  role in determining coverage since 1965, when the Medicare program  was enacted. Limits on quantities of services that will be covered in a MAC’s  jurisdiction. Shared systems. To calculate error rates, CMS’s CERT Program contractor  randomly samples Medicare fee-for-service claims and reviews them after  payment. Prepayment Edits Saved Medicare at Least $1.76 Billion in 2010 but Were Not Used to Full Extent Possible

CMS reported that the use of prepayment edits saved Medicare   $1.76 billion in fiscal year 2010, but the reported total is likely to be an  underestimate because CMS does not collect information on savings from  all of its current edits. Moreover, the savings could have been greater had  prepayment edits been more widely used. Our analysis of Medicare data  using only a limited number of national policies identified payments that  appeared to be improper and that might have been prevented through  wider use of automated edits. Specifically, we found $14.7 million in payments from fiscal year  2010 that appeared to be inconsistent with four of the selected policies  and therefore improper. At least some of these payments that were  improper could have been prevented by prepayment edits. We found that Medicare paid $8.6 million for claims that exceeded the  MUE quantity limits for a single beneficiary under most circumstances on  a single date of service. We also found $6.1 million in payments that appeared to be inconsistent  with three selected NCDs and therefore improper. As a result, CMS can leave  vulnerabilities unaddressed, some of which could be addressed with  prepayment edits. As we reported earlier, we found  about $6.1 million in payments in fiscal year 2010 that appeared to be  inconsistent with three NCDs we selected for analysis. CMS Informs MACs about Some Vulnerabilities That Could Be Addressed through Local Edits but Provides Relatively Small Financial Incentives to Promote Their Use

CMS informs MACs about program vulnerabilities that could be  addressed through local prepayment edits and about the varying  coverage policies MACs have implemented in their jurisdictions, but the  agency does not systematically compile and disseminate information  about effective local edits. In fiscal year 2011,  CMS increased the funding allocated to MACs for medical review   However, the agency provided relatively small  activities by 12 percent.financial incentives in the form of award fees to motivate MACs to make  more effective use of prepayment edits. CMS’s Oversight of Edit Use Relies Partly on MACs’ Reports on Their Efforts to Address Specific Vulnerabilities

CMS provides oversight of MACs’ use of prepayment edits primarily  through its review of certain MAC reports, through annual QASP reviews,  and, most recently, through directives requiring the MACs to explain  whether and how they have addressed certain vulnerabilities specified by  CMS. To promote implementation of effective edits based on national policies,  we recommend that the CMS Administrator:  centralize within CMS the development and implementation of  automated edits based on NCDs to ensure greater consistency; implement MUEs that assess all quantities provided to the same  beneficiary by the same provider on the same day, so providers  cannot avoid claim denials by billing for services on multiple claim  lines or multiple claims without including modifiers that reflect a  declaration that quantities above the normal limit are reasonable and  necessary; revise the method for compiling information about RAC-identified  vulnerabilities to identify their full extent and prioritize them  accordingly; and develop written procedures to provide guidance to agency staff on all  steps in the processes for developing and implementing edits based  on national policies, including (1) time frames for taking corrective  actions, (2) methods for assessing the effects of corrective actions,  and (3) procedures for ensuring consideration of automated edits  whenever possible, including for all existing NCDs and other national  policies. To encourage more widespread use of effective local edits by MACs, we  recommend that the CMS Administrator:  improve the data collected about local prepayment edits to enable  CMS to identify the most effective edits and the local coverage  policies on which they are based and disseminate this information to  MACs for their consideration; until CMS has a new database in place to collect information about  edits, require MACs to share information about the underlying policies  and savings related to their most effective edits; and assess the feasibility of providing increased incentives to MACs to  implement effective prepayment edits. In its written  comments, HHS generally concurred with our seven recommendations  and cited actions that CMS plans to take to address them. Appendix I: Scope and Methodology

We used several methods to assess the extent to which (1) the Centers  for Medicare & Medicaid Services (CMS) and its contractors employed  prepayment edits, (2) CMS has designed adequate processes to  determine the need for prepayment edits and to implement edits based  on national policies, and (3) CMS provides information, oversight, and  incentives to Medicare administrative contractors (MAC) to promote use  of effective prepayment edits.
Why GAO Did This Study

CMS reported an improper payment rate of 8.6 percent ($28.8 billion) in the Medicare fee-for-service program for fiscal year 2011. To help ensure that payments are made properly, CMS uses controls called edits that are programmed into claims processing systems to compare claims data to Medicare requirements in order to approve or deny claims or flag them for further review.
GAO was asked to assess the use of prepayment edits in the Medicare program and CMS's oversight of MACs, which process claims and implement some edits. This report examines the extent to which (1) CMS and its contractors employed prepayment edits, (2) CMS has designed adequate processes to determine the need for and to implement edits based on national policies, and (3) CMS provides information, oversight, and incentives to MACs to promote use of effective edits. GAO analyzed Medicare claims for consistency with selected coverage policies, reviewed CMS and contractor documents, and interviewed officials from CMS and selected contractors.

What GAO Found

Use of prepayment edits saved Medicare at least $1.76 billion in fiscal year 2010, but GAO found that savings could have been greater had prepayment edits been more widely used. GAO illustrated this point using analysis of a limited number of national policies and local coverage determinations (LCD), which are established by each Medicare administrative contractor (MAC) to specify coverage rules in its jurisdiction. GAO identified $14.7 million in payments in fiscal year 2010 that appeared to be inconsistent with four national policies and therefore improper. These payments could have been prevented through automated prepayment edits. GAO also found more than $100 million in payments that were inconsistent with three selected LCDs and that could have been identified using automated edits.
The Centers for Medicare & Medicaid Services (CMS) has three processes with some appropriately designed steps to identify the need for, and to implement, edits based on national policies, but each of these processes has at least one weakness. The weaknesses include incomplete analysis of vulnerabilities to improper payment that could be addressed by edits; lack of specific time frames for implementing edits and other corrective actions; flaws in the structure of some edits; lack of centralization in the implementation of some edits, which leads to inconsistencies; incomplete assessment of whether edits are working as intended; and lack of full documentation of the processes. For example, GAO found that Medicare paid $8.6 million in fiscal year 2010 for claims that exceeded CMS's limits on the quantity of certain services that can be provided to a beneficiary by the same provider on a single date of service. Although edits had been implemented to limit service quantities, a weakness in their structure caused them to miss instances in which quantity limits were exceeded.
CMS informs MACs about vulnerabilities that could be addressed through prepayment edits, but the agency does not systematically compile and disseminate information about effective local edits to address such vulnerabilities. CMS oversees MACs' use of edits partly through its review of certain MAC reports, but these reports are not intended to provide a comprehensive overview of their edits. In January 2011, CMS expanded its oversight activities and began requiring MACs to report on how they had addressed certain vulnerabilities to improper payment, some of which could be addressed through edits. While CMS increased the funding in fiscal year 2011 for contractors' medical review activities, including edit development, the agency provided relatively small incentives--3 percent or less of all contract award fees--to promote use of effective prepayment edits by MACs.

What GAO Recommends

GAO recommends that CMS take seven actions to strengthen its use of prepayment edits, such as restructuring some edits, centralizing implementation of others, fully documenting processes, encouraging more information sharing about effective edits, and assessing the feasibility of increasing incentives for edit use. The Department of Health and Human Services generally agreed with GAO's recommendations and noted CMS's plans to address them.