Medicare Dinged for Failing to Lower Payment Error Rates

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By James Swann

The CMS didn’t bring improper payment rates for Medicare and Medicaid below 10 percent in fiscal year 2016, failing to meet a legislative requirement.

The Centers for Medicare & Medicaid Services also failed to meet improper payment rate targets for the Medicare Advantage program and the Children’s Health Insurance Program and has yet to award a recovery audit contract for Medicare Advantage, according to a Health and Human Services Office of Inspector General report released May 16.

The report reflects ongoing program integrity challenges faced by various HHS programs, and it’s evident the improper payment rates are still higher than expectations and in some case higher than in 2015, Danielle Sloane, a health-care attorney with Bass, Berry & Sims in Nashville, Tenn., told Bloomberg BNA May 16.

The findings are likely to support continued program integrity and enforcement efforts, Sloane said. “With respect to Medicare, providers can expect continued audits, particularly in home and inpatient rehabilitation,” Sloane said.

Sloane said the audit identified insufficient documentation and a lack of medical necessity as contributing to improper payment rates of 42.01 percent and 62.39 percent for home health and inpatient rehabilitation, respectively.

Ernst & Young conducted the performance audit on behalf of the OIG to assess compliance with the Improper Payments Information Act of 2002. The IPIA requires executive agencies to make annual reports to the president and Congress on their improper payment rates.

The Improper Payments Elimination and Recovery Act (IPERA) of 2010 tasked the OIG with evaluating and reporting the HHS’s annual improper payment rate data.

Target Rates

One feature of IPERA requires executive agencies to set improper payment targets and meet them during the fiscal year, and both Medicare Advantage and CHIP failed to meet that standard in FY 2016. The CMS set a 9.14 percent improper payment rate for Medicare Advantage in FY 2016, while the actual rate was 9.99 percent. CHIP had a 6.81 percent target rate and an actual rate of 7.99 percent.

Medicare Advantage failed to meet its target largely through insufficient documentation, while CHIP didn’t make the target due to administrative errors, the report said.

Medicare Advantage’s problems with insufficient documentation from third parties presumably refers to providers, who aren’t really under the control of the Medicare Advantage plans, Judy Waltz, a health-attorney with Foley & Lardner LLP in San Francisco, told Bloomberg BNA May 16.

“Sometimes even physician providers have trouble extracting hospital records if the services are provided in a hospital that keeps the main record,” Waltz said, which could explain some of the improper payment rate.

Waltz said the Medicare Advantage improper payment rate was still below 10 percent, and was fairly close to the initial target.

As for the Medicare fee-for-service improper payment rate, Waltz said the problems with home health and inpatient rehabilitation should be somewhat easy to fix, and the CMS will likely use education to address their deficiencies.

The Medicaid improper payment rate, which was 10.48 percent in FY 2016, was likely the result of states continuing to have issues with the Affordable Care Act’s expansion of the program, Waltz said.

“I would expect those error rates to continue to decline as the states get better at these requirements, but CMS may need to ride them a bit harder to get this done,” Waltz said.

Recovery Audits

The report also found fault with the lack of a recovery audit contractor (RAC) for the Medicare Advantage program, and Waltz said she found it interesting that the contract bid originally didn’t attract any applicants.

That could be a reflection of how difficult it is to audit a managed care plan’s performance when the metrics are so different from the fee-for service side, Waltz said.

For example, Medicare Advantage plans may provide additional services or supplemental benefits that wouldn’t be considered medically necessary under Medicare fee-for-service, including gym memberships or hearing aids, Waltz said.

The report recommended that the HHS finish the search for a RAC and plan on conducting audits during FY 2017.

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

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

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