As required by law, the RAs are paid on a contingent basis from  recovered overpayments. Under the  demonstration, instead of being paid a contingency fee based on  recovered overpayments, the RAs were paid contingency fees based on  claim denial amounts. Few Differences Exist between Prepayment and Postpayment Reviews and Use Varies by Contractor, but Prepayment Reviews Better Protect Medicare Funds

		Prepayment Reviews Better Protect Medicare Funds, and Stakeholders Report Few Differences between Prepayment and Postpayment Reviews

See Improper Payments Information Act of 2002 (IPIA), Pub. Key stakeholders we interviewed identified few significant differences in  conducting and responding to prepayment and postpayment reviews. Specifically, CMS, MAC, and RA officials stated that prepayment and  postpayment review activities are generally conducted by claim review  contractors in similar ways. In not seeking the authority, CMS may be missing an opportunity to  reduce the amount of uncollectable overpayments from RA reviews and  save administrative resources associated with recovering overpayments. Contractors Focused on Different Types of Claims in 2013 and 2014

		RAs Focused on Inpatient Claim Reviews, Though CMS Has Taken Steps to Ensure RAs Review All Claim Types

Our analysis of RA claim review data shows that the RAs focused on  reviewing inpatient claims in 2013 and 2014, though this focus was not  consistent with the degree to which inpatient services constituted  improper payments, or with CMS’s expectation that the RAs review all  claim types. For RA  postpayment reviews specifically, which excludes reviews conducted as  part of the RA Prepayment Review Demonstration, 87 percent of RA  reviews were for inpatient claims in 2013, and 64 percent were for  inpatient claims in 2014. In general, the RAs have discretion to select the claims they review, and  their focus on reviewing inpatient claims is consistent with the financial  incentives associated with the contingency fees they receive, as inpatient  claims generally have higher payment amounts compared to other claim  types. To encourage the RAs to review DME claims— which had the highest rates of improper payments in fiscal years 2012  and 2013—CMS officials stated that they increased the contingency fee  percentage paid to the RAs for DME claims. The Focus of SMRC Claim Reviews Varied between 2013 and 2014 Based on CMS’s Direction

The focus of the SMRC’s claim reviews depended on the studies that  CMS directed the contractor to conduct in 2013 and 2014. In 2014, the  claim reviews for this study accounted for all of the SMRC’s DME claim  reviews and nearly half of all the SMRC claim reviews. Both RAs and the SMRC Generated Savings for CMS, but Unreliable Data Prevent Comparison to MACs

		CMS Paid the RAs an Average of $158 per Review, and the RAs Averaged $14 in Identified Improper Payments per Dollar Paid by CMS in 2013 and 2014

The RAs were paid an average of $158 per claim review conducted in  2013 and 2014 and identified $14 in improper payments, on average, per  dollar paid by CMS in contingency fees (see Table 7). CMS’s Lack of Reliable MAC Cost and Savings Data Precludes Analysis of the Cost per Review and the Amount of Improper Payments Identified per Dollar Paid by CMS

We were unable to determine the cost per review and the amount of  improper payments identified by the MACs per dollar paid by CMS  because the agency does not have reliable data on funding of MAC claim  reviews for 2013 and 2014, and the agency collects inconsistent data on  the savings from prepayment claim denials. Conclusions

CMS contracts with claim review contractors that use varying degrees of  prepayment and postpayment reviews to identify improper payments and  protect the integrity of the Medicare program. Although CMS  considered the Prepayment Review Demonstration a success, and  having the RAs conduct prepayment reviews would align with CMS’s  strategy to pay claims properly the first time, the agency has not  requested legislative authority to allow the RAs to do so. Inconsistent with federal internal control standards, CMS has not provided  the MACs with documented guidance or other instructions for how to  calculate savings from prepayment reviews. CMS uses claim review contractors that  have different roles and take different approaches to preventing improper  payments. However, the essential task of reviewing claims is similar  across the different contractors and, without better data, CMS is not in a  position to evaluate the performance and cost effectiveness of these  different approaches. In order to ensure that CMS has the information it needs to evaluate  MAC effectiveness in preventing improper payments and to evaluate  and compare contractor performance across its Medicare claim  review program, CMS should provide the MACs with written guidance  on how to accurately calculate and report savings from prepayment  claim reviews. In its comments, HHS disagreed with our first  recommendation, but it concurred with our second recommendation.
Why GAO Did This Study

CMS uses several types of claim review contractors to help reduce improper payments and protect the integrity of the Medicare program. CMS pays its contractors differently—the agency is required by law to pay RAs contingency fees from recovered overpayments, while other contractors are paid based on cost. Questions have been raised about the focus of RA reviews because of the incentives associated with the contingency fees.
GAO was asked to examine the review activities of the different Medicare claim review contractors. This report examines (1) differences between prepayment and postpayment reviews and the extent to which contractors use them; (2) the extent to which the claim review contractors focus their reviews on different types of claims; and (3) CMS's cost per review and amount of improper payments identified by the claim review contractors per dollar paid by CMS. GAO reviewed CMS documents; analyzed CMS and contractor claim review and funding data for 2013 and 2014; interviewed CMS officials, claim review contractors, and health care provider organizations; and assessed CMS's oversight against federal internal control standards.

What GAO Found

The Centers for Medicare & Medicaid Services (CMS) uses different types of contractors to conduct prepayment and postpayment reviews of Medicare fee-for-service claims at high risk for improper payments. Medicare Administrative Contractors (MAC) conduct prepayment and postpayment reviews; Recovery Auditors (RA) generally conduct postpayment reviews; and the Supplemental Medical Review Contractor (SMRC) conducts postpayment reviews as part of studies directed by CMS. CMS, its contractors, and provider organizations identified few significant differences between conducting and responding to prepayment and postpayment reviews. Using prepayment reviews to deny improper claims and prevent overpayments is consistent with CMS's goal to pay claims correctly the first time and can better protect Medicare funds because not all overpayments can be collected. In 2013 and 2014, 98 percent of MAC claim reviews were prepayment, and 85 percent of RA claim reviews and 100 percent of SMRC reviews were postpayment. Because CMS is required by law to pay RAs contingency fees from recovered overpayments, the RAs can only conduct prepayment reviews under a demonstration. From 2012 through 2014, CMS conducted a demonstration in which the RAs conducted prepayment reviews and were paid contingency fees based on claim denial amounts. CMS officials considered the demonstration a success. However, CMS has not requested legislation that would allow for RA prepayment reviews by amending existing payment requirements and thus may be missing an opportunity to better protect Medicare funds.
The contractors focused their reviews on different types of claims. In 2013 and 2014, the RAs focused their reviews on inpatient claims, which represented about 30 percent of Medicare improper payments. In 2013 and 2014, inpatient claim reviews accounted for 78 and 47 percent, respectively, of all RA claim reviews. Inpatient claims had high average identified improper payment amounts, reflecting the costs of the services. The RAs' focus on inpatient claims was consistent with the financial incentives from their contingency fees, which are based on the amount of identified overpayments, but the focus was not consistent with CMS's expectations that RAs review all claim types. CMS has since taken steps to limit the RAs' focus on inpatient claims and broaden the types of claims being reviewed. The MACs focused their reviews on physician and durable medical equipment claims, the latter of which had the highest rate of improper payments. The focus of the SMRC's claim reviews varied.
In 2013 and 2014, the RAs had an average cost per review to CMS of $158 and identified $14 in improper payments per dollar paid by CMS to the RAs. The SMRC had an average cost per review of $256 and identified $7 in improper payments per dollar paid by CMS. GAO was unable to determine the cost per review and amount of improper payments identified by the MACs per dollar paid by CMS because of unreliable data on costs and claim review savings. Inconsistent with federal internal control standards, CMS has not provided written guidance on how the MACs should calculate savings from prepayment reviews. Without reliable savings data, CMS does not have the information it needs to evaluate the MACs' performance and cost effectiveness in preventing improper payments, and CMS cannot compare performance across contractors.

What GAO Recommends

GAO recommends that CMS (1) request legislation to allow the RAs to conduct prepayment claim reviews, and (2) provide written guidance on calculating savings from prepayment reviews. The Department of Health and Human Services disagreed with the first recommendation, but concurred with the second. GAO continues to believe the first recommendation is valid as discussed in the report.