For fiscal year  2010, HHS reported improper payment estimates for several programs,  including Medicare. Collectively, HHS reported an estimate of almost $48  billion in improper payments in Medicare. As shown in figure 1,  the Medicare program represents about 38 percent of the $125.4 billion  improper payment estimated amount reported by 20 federal agencies  covering 70 programs. HHS’s estimated amount of improper payments for Medicare is  incomplete because it has yet to report a comprehensive improper  payment estimate for the Medicare prescription drug benefit program,  which had reported outlays of about $59 billion in fiscal year 2010. It is important to recognize that the $48 billion in estimated improper  payments reported by HHS in fiscal year 2010 is not an estimate of fraud  in Medicare. In addition, because the improper payment  estimation process is not designed to detect or measure the amount of  fraud in Medicare, there may be fraud that exists in the Medicare program  that is not included in the reported improper payment estimate. In 2010, CMS created the Center for Program Integrity (CPI) to serve as  its focal point for all national Medicare program integrity issues. Status of CMS’s Efforts to Implement Key Strategies to Help Remediate Improper Payments

CMS has begun a number of initiatives related to the five strategies  identified in our previous reporting that are key to reducing Medicare  improper payments. However, CMS still faces significant challenges in  designing and implementing internal controls to effectively prevent or  detect and recoup improper payments and to prevent fraud, waste, and  abuse. GAO has made  recommendations to strengthen CMS’s actions to address these  strategies, some of which have not been implemented. Strengthening provider enrollment standards and procedures. As  discussed in our March 2011 testimony, strengthening the standards  and procedures for provider enrollment could help reduce the risk of  enrolling providers intent on defrauding or abusing the program. Improving prepayment review of claims. According to CMS, as of July 1, 2011, initial predictive modeling has been  used on claims prior to payment to identify their level of risk for being  improper and to focus investigative efforts. As of July 2011,  this governmentwide database was still under development. We  previously reported that postpayment reviews are critical to identifying  payment errors to recoup overpayments in Medicare. CMS has not acted to implement our recommendation  about focusing postpayment home health claims review based on high  rates of improper billing identified through prepayment reviews. The national program was designed to  help the agency supplement the postpayment reviews conducted by  contractors other than RACs. In June 2011, we reported that CMS has also developed information  technology to help it better identify claims paid in error, but the systems  are not being used to the extent originally planned, and CMS has not  measured whether they have helped in reducing payment errors. Improving oversight of contractors. CMS agreed with this  recommendation. Developing a robust process for addressing identified  vulnerabilities. Having mechanisms in place to resolve vulnerabilities  that lead to improper payments is key to effective program management. But our work has shown that CMS has not developed a robust process to  specifically address identified vulnerabilities that lead to improper  payments in Medicare. Because of these weaknesses, we recommended that CMS develop and  implement a corrective action process that includes policies and  procedures to ensure that the agency promptly (1) evaluates findings of  RAC audits, (2) decides on the appropriate response and a time frame for  taking action based on established criteria, and (3) acts to correct the  vulnerabilities identified. CMS concurred with this recommendation. CMS began implementing it in March  2009. These provisions include:     establishing procedures for screening providers enrolling in Medicare,  including assessing the risk levels of fraud, waste, and abuse by  categories of providers;    expanding the Medicare RAC program to Medicare Advantage and  Medicare prescription drug benefit program;    adding requirements for providers to disclose any current or previous  affiliation with a provider that has uncollected debt; has been or is  subject to a payment suspension under a federal health care program;  has been excluded from participation under Medicare, Medicaid, or  the Children’s Health Insurance Program or has had its billing  privileges denied or revoked;    expanding the number of areas to be included in the competitive  bidding program for durable medical equipment; and  strengthening the Health Care Fraud and Abuse Control Program, a  joint effort of the HHS Inspector General and the Department of  Justice, which is designed to coordinate law enforcement activities  regarding health care fraud and abuse, including that in Medicare. Medicare and Medicaid Fraud, Waste, and Abuse: Effective  Implementation of Recent Laws and Agency Actions Could Help Reduce  Improper Payments. High-Risk Series: An Update.
Why GAO Did This Study

GAO has designated Medicare as a high-risk program because of its size, complexity, and susceptibility to improper payments. In 2010, Medicare covered 47 million elderly and disabled beneficiaries and had estimated outlays of $516 billion. The Centers for Medicare & Medicaid Services (CMS) is the agency in the Department of Health and Human Services (HHS) responsible for administering the Medicare program and leading efforts to reduce Medicare improper payments. This testimony focuses on estimated improper payments in the Medicare program for fiscal year 2010 and the status of CMS's efforts to implement key strategies to help reduce improper payments. This testimony is primarily based on previous GAO reporting related to governmentwide improper payments, Medicare high-risk challenges and program integrity efforts, and CMS's information technology systems intended to identify improper payments. GAO supplemented that prior work with additional information on the nature and extent of Medicare improper payments reported by HHS in its fiscal year 2010 agency financial report. GAO also received updated information from CMS in February 2011 and, in select cases, as of July 2011, on its actions related to relevant laws, regulations, guidance, and open recommendations pertaining to key remediation strategies.

What GAO Found

For fiscal year 2010, HHS reported an estimate of almost $48 billion in Medicare improper payments, representing about 38 percent of the total $125.4 billion estimate for the federal government. However, this Medicare improper payment estimate is incomplete because HHS has yet to develop a comprehensive estimate for the Medicare prescription drug benefit. The improper payment estimate includes both overpayments and underpayments. Causes cited include inadequate documentation, medically unnecessary services, coding errors, and payment calculation errors. It is important to recognize that the $48 billion is not an estimate of fraud in Medicare. Because the improper payment estimation process is not designed to detect or measure the amount of fraud that may exist, there may be fraud that is not reflected in HHS's reported estimate. CMS faces challenges in designing and implementing internal controls to effectively prevent or detect and recoup improper payments. In 2010, CMS established the Center for Program Integrity to serve as its focal point for all national Medicare program integrity issues. Based on past work, GAO identified five key strategies to help reduce fraud, waste, and abuse and improper payments in Medicare, which CMS has reported initiating actions to address.

What GAO Recommends

GAO has made recommendations to strengthen CMS's implementation of these strategies, some of which the agency has not implemented. (1) Strengthen provider enrollment standards and procedures. Strong standards and procedures can help reduce the risk of enrolling providers intent on defrauding the program. CMS has taken action to implement provisions of the Patient Protection and Affordable Care Act by screening providers by levels of risk and providing more stringent review of high-risk providers, but has yet to implement certain GAO recommendations in this area. (2) Improve prepayment reviews. Prepayment reviews of claims help ensure that Medicare pays correctly the first time. According to CMS, as of July 1, 2011, CMS has begun applying predictive modeling analysis to claims and plans to expand Medicare prepayment controls. CMS has not implemented GAO's recommendation to improve prepayment reviews. (3) Focus postpayment reviews on vulnerable areas. Postpayment reviews are critical to identifying payment errors and recouping overpayments. In March 2009, CMS began instituting a national recovery audit contractor (RAC) program to help the agency supplement its postpayment reviews. CMS has also developed information technology to help it better identify claims paid in error, but GAO recently reported that the systems are not being used to the extent originally planned and made several recommendations to address the issues. (4) Improve oversight of contractors. CMS has taken action to improve oversight of prescription drug plan sponsors' fraud and abuse programs, which addresses GAO's recommendation, but is still developing specific performance statistics. (5) Develop a robust process to address identified vulnerabilities. Having mechanisms in place to resolve vulnerabilities that lead to improper payments is critical. While CMS has begun actions in this area, it has not developed a robust corrective action process for vulnerabilities identified by Medicare RACs as GAO recommended.