Lawmakers Dismayed Over High Medicare Improper Payments Rate

Stay ahead of developments in federal and state health care law, regulation and transactions with timely, expert news and analysis.

By James Swann

March 24 — Lawmakers told government officials they were upset about the high rate of improper payments within the Medicare program and called for improved inter-agency cooperation on anti-fraud efforts, during a House Ways and Means Subcommittee on Oversight hearing March 24.

Subcommittee Chairman Peter Roskam (R-Ill.) said Medicare accounted for $60 billion in improper payments last year, and had an error rate of 12.7 percent.

Roskam said that although the Centers for Medicare & Medicaid Services' Fraud Prevention System (FPS) was able to save Medicare $54 million in its second year of operation, the program is still detecting less than 1 percent of Medicare improper payments.

“And when we look around at what private companies are doing to protect the integrity of their transactions, it's clear that so far, [the] FPS is leaving a lot on the table,” Roskam said.

The FPS, which began in June 2011, makes use of predictive modeling technology and analytics to identify and prevent improper Medicare payments before they are made.

Rep. Patrick Meehan (R-Pa.) said that too often health-care fraud ends up being prosecuted as civil cases rather than criminal ones, reducing the deterrent that prison sentences could impose on fraudsters. And, Rep. Mike Kelly (R-Pa.) said that although the CMS and the Department of Health and Human Services Office of Inspector General are collecting large volumes of data “we're not getting closer to fixing the improper payment problem.”

Error Rates

Roskam compared the Medicare error rate of 12.7 percent to credit card processor Visa's global fraud rate (0.06 percent) and told officials from the CMS and the OIG that the error rate must be lowered.

“Each dollar we fail to secure from fraud and improper payment is a dollar that isn't going to needed health-care services for our seniors,” Roskam said.

Shantanu Agrawal, the CMS deputy administrator and director of the CMS Center for Program Integrity, said it's hard to compare Medicare error rates with credit card fraud rates, noting that medical claims are much more complex than credit card transactions, relying on underlying medical records that aren't included in the actual claims. Agrawal also said that Medicare has to weigh patient access to care when making claims payment decisions, something credit card companies don't have to do.

Agrawal also said that improper documentation was a major driver of the improper error rate, especially among home-health providers. For example, improper claims can occur when the required face-to-face meeting between a provider and patient prior to the provision of home-health services is not properly documented, Agrawal said.

Agrawal was joined at the hearing by Gary Cantrell, deputy inspector general for investigations at the OIG, who said OIG investigations have resulted in $14.8 billion in fraud recoveries over the past three fiscal years as well as 10,363 exclusions from federal health-care programs.

Cantrell said the OIG also works closely with federal agencies and the private sector on anti-fraud issues. The OIG is currently playing an active role in the Healthcare Fraud Prevention Partnership (HFPP), an initiative launched in July 2012 that is designed to share information and best practices between the private sector and the government regarding health-care anti-fraud initiatives.

SGR Bill Fraud Provisions

While the subcommittee held its hearing on Medicare fraud, leadership in the House Energy and Commerce and Ways and Means committees released the Medicare Access and CHIP Reauthorization Act (H.R. 2), the “doc fix” bill that would permanently repeal the sustainable growth rate formula for Medicare Part B payments, which included several fraud provisions.

The bill called for delaying enforcement of the two-midnight rule until the end of FY 2015 and allowing Medicare Administrative Contractors (MACs) to continue conducting “probe and educate” audits on providers to determine if they're in compliance with the two-midnight rule.

Under the policy, patients qualify as inpatients if their stay at the hospital lasts through two midnights, while anything less than that qualifies as an outpatient visit.

The probe and educate review process involves MAC prepayment reviews of small samples of Medicare Part A inpatient hospital claims with respect to claim adherence to the two-midnight rule.

Additionally, the bill incorporates the Protecting the Integrity of Medicare Act of 2015 (H.R. 1021), which would:

• ban Social Security numbers from Medicare beneficiary cards;

• reduce Medicare improper payments through increased outreach and educational efforts from Medicare contractors; and

• eliminate civil monetary penalties (CMPs) for payments to physicians who have reduced medically unnecessary services.


Provider Screening

Agrawal testified that the CMS has made progress in detecting and preventing fraud through a variety of programs, including automated provider screening, enrollment moratoria and the FPS.

For example, Agrawal said that since March 2011, over one million Medicare providers and suppliers have been revalidated under a new risk-based screening methodology. During this process, “over 475,000 provider and supplier practice locations had their billing deactivated as a result of revalidation and other screening efforts, and almost 28,000 provider and supplier enrollments were revoked,” Agrawal said.

Agrawal also said the CMS has imposed temporary enrollment moratoria on home-health agencies operating in Miami, Fort Lauderdale, Fla., Detroit, Dallas, Houston and Chicago, as well as ambulance services operating in Houston and Philadelphia.

Section 6401(a) of the Affordable Care Act gave the HHS the authority to impose a temporary moratorium on the enrollment of new Medicare, Medicaid or CHIP providers and suppliers, including categories of providers and suppliers, if the CMS determines a moratorium is necessary to prevent or combat fraud, waste, or abuse.

As for the FPS, Agrawal said it has a return on investment of 5:1, and the CMS is working on pilot program allowing MACs to contact providers who are flagged by the FPS.

“Based on the small pilot, CMS has seen changes in billing behavior in half of the providers contacted within one month, and of the remaining, additional actions were taken, including self-audit and prepayment review,” Agrawal said.

The program's initial funding under the Small Business Jobs Act will expire at the end of this fiscal year, Agrawal said, but the CMS is working to transition it to additional funding sources within the agency.

Budget Authority

Although Agrawal said CMS anti-fraud efforts have been successful, he said it's important that the agency continue to receive appropriate funding.

The administration's FY 2016 budget proposal would invest in program integrity initiatives at the CMS, Agrawal said, which would result in $21.7 billion in savings over a 10-year period.

The budget proposal would also invest $50 million in FY 2016 to remove Social Security numbers from Medicare beneficiary cards, which would reduce the risks of identity theft, Agrawal said.

Private Sector

The hearing also featured testimony from representatives of the private sector, including Kirk Ogrosky, an attorney with Arnold & Porter in Washington and former head of criminal enforcement for the Department of Justice. Ogrosky said one problem with anti-fraud efforts is a lack of coordination among various federal agencies as well as a lack of real-time access to billing information.

“Effective government oversight and enforcement requires collaboration across agencies,” Ogrosky said.

“And it also requires innovative techniques, such as sophisticated examination of claims data, including predictive analytics and modeling to identify aberrant or otherwise suspicious patterns at the time claims are submitted,” Ogrosky said.

Louis Saccoccio, chief executive officer of the National Health Care Anti-Fraud Association, agreed with Ogrosky that improved coordination is essential.

Saccoccio said information sharing between government agencies, providers and the private sector is critical, and stressed that fraud doesn't discriminate between the private and public sectors.

When asked to identify potential hot spots for health-care fraud, Saccoccio said home health has always been high on the list, as well as durable medical equipment. Saccoccio said most health-care fraud usually doesn't involve physicians.

To contact the reporter on this story: James Swann in Washington at

To contact the editor responsible for this story: Kendra Casey Plank at


Request Health Care on Bloomberg Law