According to HCFA, the CCI edits helped Medicare save about $217 million in 1996 by successfully identifying inappropriate claims. Objective, Scope, and Methodology

Our objective was to determine if HCFA was using an adequate methodology for testing the commercial claims auditing system in Iowa for potential implementation with its Medicare claims processing systems. These insurers’ activities were comprehensive and required significant time to complete. First, it developed the design specifications and related computer code necessary for integrating the commercial system into the Medicare claims-processing software. They reported that the test showed that the system’s claims auditing edits could save Medicare up to $465 million annually, which is in addition to the savings provided by the CCI edits. The second—HCFA’s initial plan following the test to award a contract to develop its own edits rather than acquiring commercial edits such as those used in the test—would have potentially not only required additional time before implementation, but could well have resulted in a system that is not as comprehensive as commercially available edits. She said HCFA (1) is evaluating legal options for expediting the contracting process, and (2) now plans to begin immediately to acquire commercial claims auditing edits. Awarding a new contract could result in additional expense to either develop new edits or for substantial rework to adapt the new system’s edits to HCFA’s payment policy if a contractor other than the one performing the original test wins the competition. In March 1998, HCFA’s administrator told us that HCFA is doing what it can to avoid any delay resulting from this limited test contract. Likewise, other public health care insurers, including CHAMPVA, TRICARE, and the two state Medicaid agencies we visited, do not have such a policy, and are indeed using commercial claims-auditing systems without disclosing the details of the edits. Developing comprehensive HCFA-owned claims auditing edits could take years, during which time hundreds of millions of dollars could be lost annually due to incorrectly coded claims. Conclusions

HCFA followed an approach in testing and evaluating the commercial claims auditing system that was consistent with the approach used by other public health care insurers. Two critical HCFA decisions could have unnecessarily delayed implementation for several years and prevented HCFA from taking full advantage of the substantial savings offered by this technology. These decisions—to limit the test contract to the test and not include a provision for national implementation, and to develop HCFA’s own edits rather than acquiring commercial ones—would have resulted in costly delays and could have resulted in an inferior system. Recommendations

To implement HCFA’s current plans to expeditiously realize dollar savings in the Medicare program through the use of claims auditing edits, we recommend that the Administrator, Health Care Financing Administration proceed immediately to purchase or lease existing comprehensive commercial claims auditing edits and begin a phased national implementation, and require, in any competition, that vendors have comprehensive claims auditing edits, which at a minimum address the mutually exclusive, incidental procedure, and diagnosis-to-procedure categories of inappropriate billing codes. 3.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed whether the Health Care Financing Administration (HCFA) used an adequate methodology for testing the commercial claims auditing system for potential nationwide implementation with its Medicare claims processing system.

What GAO Found

GAO noted that: (1) the test methodology HCFA used in Iowa was consistent with the approach used by other public health care insurers who have already implemented a commercial claims auditing system; (2) HCFA's test covered 15 months and included extensive work, such as modifying the system's software to comply with Medicare payment policies; (3) the test showed that the commercial claims auditing system could save Medicare up to $465 million annually with claims auditing edits that detect inappropriately coded claims; (4) these savings are in addition to any results from the correct coding initiative which, according to HCFA, saved Medicare about $217 million in 1996; (5) while HCFA used an adequate methodology to test the system and demonstrated that commercial claims auditing edits could result in significant savings, two critical management decisions would have unnecessarily delayed implementation for several years, resulting in potentially hundreds of millions of dollars in lost savings annually; (6) first, HCFA limited its 1996 test contract to the test, and did not include a provision for implementing the commercial system throughout the Medicare program; (7) thus, to acquire a commercial system for nationwide implementation, up to an additional year may be required to complete all activities necessary to plan for and award another contract; (8) this could also result in substantial rework to adapt the system if a different contractor were to win the new contract; (9) HCFA's administrator told GAO that HCFA is evaluating legal options for expediting the contracting process; (10) second, in addition to the potential delay from the test contract limitation, following the test HCFA initially planned to develop its own claims auditing edits rather than acquire commercial edits, such as those used in the test; (11) under this plan, HCFA would have obtained a development contractor that may, or may not, have existing claims auditing edits; (12) if the winning contractor did not have existing edits on which to build, it could take years to complete the HCFA-owned edits; (13) near the conclusion of GAO's review HCFA representatives told GAO this approach would have allowed them to make the edits available to the public and avoid being obligated to one vendor's commercial edits and related fees; and (14) public health care insurers for the Department of Defense and the Department of Veterans Affairs and several state Medicaid agencies did not take this approach, opting to lease commercial systems instead of owning the claims auditing edits.