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FAX TRANSMISSION
HEALTH CARE FINANCING ADMINISTRATION
PRESS OFFICE
(202)690-6145
Fax: (202)690-7159
To: DEVORA5557
Date: 12/2
Fax #: 456-5757
Pages:
,
including this cover sheet
From:
Craig Palosky
Subject: IG Repont
COMMENTS: "/: HCFA'S RESPONSE to IG REPONT
"2" DRAFT VERSION OF IG Ronary
Q.A to camp
0
memo contractors
2
DEPARTMENT OF HEALTH & HUMAN SERVICES
Health Care Financing Administration
8
DEPARTMENT
The Administrator
Washington, D.C. 20201
DATE:
OCT 27 1998
Phogogoo
TO:
June Gibbs Brown
prog memo
Inspector General
to contractors
FROM:
Nancy-Ann Administrator Min DeParle Nancy-A Depart
SUBJECT: Office of Inspector General (OIG) Draft Report: "Fiscal Intermediary Fraud
Units," (OEI-03-97-00350)
We welcome the suggestions in the above-referenced report that provides national
information on the performance of fiscal intermediary fraud units. We appreciate OIG's
efforts to help us strengthen the monitoring and oversight of fraud unit efforts.
The data collected for the report covered fiscal year (FY) 1996. Beginning in 1997, the
Health Care Financing Administration (HCFA) mandated that fiscal intermediaries (FIs)
use the HCFA Customer Information System as a fraud detection tool. The tool will
enable the FIs to proactively identify fraud. In addition, during FY 1999, HCFA
contractors will attend OIG regional training sessions that will further educate them about
the proper development of cases to be referred to law enforcement agencies.
We concur with the report's recommendations. Our specific comments follow:
OIG Recommendation #1
HCFA should improve the contractor performance evaluation system so that it not only
encourages continuous improvement, but also holds contractors accountable for meeting
specific objectives.
HCFA Response
We concur and plan to develop specific national objectives to be evaluated during FY
1999. In September 1998, we visited 13 contractor fraud units to gather information that
will help us develop ambitious, but practical, objectives. In addition, HCFA through its
contractor has just completed gathering the requirements to be used in the design of a
new program integrity management information system. The process required that the
data metrics needed to evaluate Medicare contractor medical review and benefit integrity
effectiveness be identified before building the new system. A contract has been let to
build the new system.
OFFICE
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Page 3 - June Gibbs Brown
HCFA Response
We concur. In March 1998, HCFA convened a national conference to identify best
practices in fighting waste, fraud, and abuse. The conference brought together
representatives from Medicare contractors, private industry, law enforcement, health care
providers, and beneficiaries, in order to discuss ways to combat fraud. HCFA listened to
these experts, and we are working to incorporate their effective methods into our own
program integrity strategy.
DEC-02-1998 10.00
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DEPARTMENT OF HEALTH & HUMAN SERVICES
Office of Inspector General
OFMS
Memorandum
Date
AUG 24 1998
1335
From
June
Inspector Gibbs General Brown June & Brown
Subject
OIG Draft Report. "Fiscal Intermediary Fraud Units," OEI-03-97-00350
To
Nancy-Ann Min DeParle
Administrator
Health Care Financing Administration
Attached for your review and comment is our draft inspection report on fiscal intermediary
fraud units. We found that fiscal intermediary fraud units differed substantially in the number
of complaints and cases handled. Some units produced few, if any, significant results. While
one would expect units of different size and resources to handle different size workloads, we
found units of similar size and resources handling substantially different workloads.
We also found that despite the Health Care Financing Administration's (HCFA) expectation
that the units proactively identify fraud, half of them did not open any cases proactively. In
addition, more than one-third of the units did not identify program vulnerabilities even though
this heads the list of responsibilities for fraud units in the Medicare Intermediary Manual. We
found that key words and terms related to fraud unit work vary in meaning and this hinders
HCFA's ability to interpret fraud unit data and measure fraud unit performance.
We make several recommendations to strengthen HCFA's monitoring and oversight of fraud
unit efforts to identify fraud and abuse.
We would appreciate receiving your comments on the draft report within 45 days of the date
of this memorandum.
If you have any questions or comments about this report, please call me or George Grob,
Deputy Inspector General for Evaluation and Inspections, or have your staff contact
Mary Beth Clarke at (202) 619-2481.
Attachment
RECEIVED
22 :9 Hd 70 any 8661
PUBLIC
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TABLE OF CONTENTS
PAGE
EXECUTIVE SUMMARY
i
INTRODUCTION
1
FINDINGS
5
Complaints and Cases
5
Proactive Cases
8
Program Vulnerabilities
9
Key Words and Terms
9
RECOMMENDATIONS
11
ENDNOTES
12
APPENDIX: Fraud Unit Tables
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INTRODUCTION
PURPOSE
The purpose of this report is to provide national information on fiscal intermediary fraud units.
BACKGROUND
Fiscal Intermediaries
Fiscal intermediaries are companies under contract with the Health Care Financing
Administration (HCFA) to administer a major part of the Medicare program. As a group, fiscal
intermediaries have responsibility for processing 75 percent of Medicare payments. Other
contractors called carriers process the remaining 25 percent. In 1996, fiscal intermediaries
processed $130 billion in Medicare payments.¹ Intermediaries pay for inpatient services under
Medicare Part A, and certain types of outpatient claims under Medicare Part B. The types of
providers billing intermediaries are: hospitals, skilled nursing facilities, home health agencies,
rural health clinics, renal dialysis centers, federally qualified health centers, rehabilitation
facilities, community mental health centers, and hospices. Individual fiscal intermediaries vary
in the amount of Medicare claims and payments they process.
Fraud Units
Fraud units are part of HCFA's overall Medicare integrity program. As of 1993, HCFA required
all fiscal intermediaries and carriers to have distinct units to detect and deter Medicare fraud. In
1996, HCFA budgeted 20 percent of its program integrity dollars to fiscal intermediary fraud
units and 80 percent to carrier fraud units. From 1993 through 1997, funding was based mainly
on the contractors' claim volume. However, in fiscal year 1998, HCFA changed the funding
methodology to take into account the contractors' workload, risk, and performance.²
Fraud units differ in human and financial resources as well as workload. However, regardless of
differences, they all must meet requirements outlined in the Medicare Intermediary Manual.
According to the Manual (Section 3950ff), fraud units are expected to:
identify program vulnerabilities;
proactively identify fraud within their service area and take appropriate action;
determine factual basis of complaints of fraud made by beneficiaries, providers, HCFA,
Office of Inspector General (OIG), and other sources;
explore fraud leads in their jurisdiction;
initiate action to deny or suspend payments where there is reliable evidence of fraud;
develop cases and refer them to the OIG for consideration of civil and criminal
prosecution and/or application of administrative sanctions; and
provide outreach to providers and beneficiaries.
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The HCFA also has other expectations of the fraud unit. For example, all fraud units must enter
their fraud cases in the national Fraud Investigation Database. The database was created by
HCFA and implemented in May 1996. It tracks contractors' cases of fraud and abuse. It is
meant to be an information sharing tool for Medicare, Medicaid, and law enforcement agencies,
including the OIG, Federal Bureau of Investigations, and Department of Justice. Also, HCFA
has stressed that fraud units should develop fraud cases through proactive data analysis, and not
use complaints as the sole driver of case development.
Oversight of Fraud Units
The HCFA regional offices have oversight authority for the contractor fraud units in their
regions. They stay in touch with fraud unit staff, oversee the Fraud Investigation Database, and
collect various mandatory reports (e.g., quarterly workload reports) from the fraud units. The
regional HCFA staff conduct annual or biennial performance evaluations of each fraud unit.
They give the fraud unit a written evaluation report, pointing out areas where the unit has
improved from the previous evaluation and where the unit has weaknesses. Emphasis is on
continuous improvement. Copies of evaluation reports are sent to HCFA Central Office.
New Program Safeguard Contractors
The HCFA is currently planning to separate future anti-fraud activities from other carrier and
fiscal intermediary operations. These activities will become the purview of new contractors to be
known as program safeguard contractors. A time line and other details related to this plan (e.g.,
the number of new contractors and geographical area of jurisdiction) have not yet been
determined.³
National Study of Fiscal Intermediary Fraud Units and Related OIG Studies
This study is the first national evaluation of fiscal intermediary fraud units since their creation in
fiscal year 1993. Our national study of carrier fraud units was issued in November 1996 (Carrier
Fraud Units, OEI-05-94-00470). In August 1995, we issued a study of HCFA's new approach to
monitoring contractors' program integrity efforts (Monitoring Medicare Contractor
Performance: A New Approach, OEI-01-93-00160).
SCOPE AND METHODOLOGY
We surveyed all 41 fiscal intermediaries that were under contract in 1996 and still under contract
in 1998. We selected fiscal year 1996 as the period for our study because it was the most recent
year for which a complete year of fraud unit workload data were available. In the text and tables
of this report, complaint and case workload data represents fiscal year 1996. These workload
data include complaints and cases that were open during any part of fiscal year 1996.
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Fraud Unit Information
Our primary data collection instrument was a self-administered questionnaire. It was mailed to
all fraud unit managers, and all fraud units responded. We also telephoned the fraud units to
answer any questions they might have about the intent of the questionnaire and the definition of
terms used. When incomplete questionnaires were returned to us, we contacted the fraud units
for clarification. We did not, however, independently verify the responses.
The questionnaire was developed with assistance from HCFA staff in Central Office and Region
III as well as a fiscal intermediary fraud unit manager. These individuals provided insight as to
the variety of fraud unit operations and the kind of data that should be available from all units.
They also provided advice on question wording, layout, and definition of terms. The program
integrity staff in HCFA Central Office gave us the definitions for the terms "complaint" and
"case," and we used their definitions with minor paraphrasing. A complaint is an allegation of
fraud or abuse committed by a provider, beneficiary, or other individual or entity against the
Medicare program. A case is expanded data collection and analysis performed on (1)
substantiated complaints, or (2) proactively identified fraud or abuse.
While most fraud units handle complaints as well as cases, and while complaints may lead to the
collection of overpayments, our questionnaire contained few questions about complaints.
Complaints frequently turn out to be misunderstandings or billing errors, not fraud or abuse.
Therefore, we limited complaint questions to the issue of complaint volume in the fraud unit
workload.
In addition to collecting data from the fraud units, we collected data from HCFA regarding
Medicare payment amounts, claim volume, and fraud unit funding. In order to compare fraud
units of similar size, we arrayed the 41 intermediaries by the amount of their 1996 Medicare
payments. We did not use claim volume as a size indicator because HCFA's database did not
contain claim volume for two of the 1996 intermediaries. In any case, Medicare payments and
claim volume were generally correlated. We then grouped the intermediaries into large, medium,
and small categories, as shown in the table below.
We calculated the totals and medians for key variables within the large, medium, and small
categories including: fiscal intermediary Medicare payments, fraud unit budget, full-time-
equivalent (FTE) staff, complaint volume, case volume, number of fraud unit cases opened
proactively, number of cases referred to the OIG, and number of program vulnerabilities
identified. Hereinafter, when we refer to large, medium, and small fraud units, we are referring
to the units in the intermediary size categories shown in the table below.
SIZE CATEGORY
# OF INTERMEDIARIES
RANGE OF 1996 MEDICARE PAYMENTS
LARGE
11
Over $4 billion
MEDIUM
18
Between $1 and $4 billion
SMALL
12
Less than $1 billion
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Review of Contractor Performance Evaluations
In addition to the fraud unit questionnaire, we collected contractor performance evaluations for
1995, 1996, and 1997. Between 1995 and 1997, HCFA conducted at least one evaluation for 40
of the 41 fraud units in our study. Most of the evaluation reports were sent to us by the fraud
units. The remainder came from HCFA.
We reviewed one evaluation report for each fraud unit evaluated between fiscal years 1995 and
1997. Since all fraud units are not evaluated annually, we reviewed as many as possible (22) for
our study year. We then sought evaluations from 1997 (5) and then from 1995 (13) for a total of
40 evaluations. We examined the following variables in each evaluation report: cases,
complaints, proactive data analysis, and identification of program vulnerabilities.
This study was conducted in accordance with the Quality Standards for Inspections issued by the
President's Council on Integrity and Efficiency.
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FINDINGS
FRAUD UNITS DIFFERED SUBSTANTIALLY IN THE NUMBER OF COMPLAINTS
AND CASES HANDLED. SOME FRAUD UNITS PRODUCED FEW, IF ANY,
SIGNIFICANT RESULTS.
While one would expect fraud units of different size and resources to handle different size
workloads, we found units of similar size and resources handling substantially different
workloads. We also found some small fraud units that had greater workloads than larger units
with more resources. In addition, some fraud units did not develop any cases or send any case
referrals to the OIG.
Fraud units handled between 3 and 1,892 complaints per unit.
A total of 17,796 complaints were handled by 39 fraud units. Two of the 41 fraud units reported
that they did not handle complaints. In those two instances, the fiscal intermediary had other
staff screening complaints, and the fraud unit handled only cases.
As shown in the table below, the range of complaints handled by fraud units of similar size is
quite broad. Among large fraud units, the unit with the highest complaint workload handled
eight times more complaints than the unit with the smallest workload. Among medium and
small units, the largest workload of complaints was 20 and 100 times greater than the smallest
workload.
Range of Complaints Handled by Fraud Units of Similar Size
Size
Number of
Highest # of
Lowest # of
Median # of
Category
Fraud Units
Complaints Handled
Complaints Handled
Complaints Handled
Large
11
1,892
223
795
Medium
18
1,508
74*
311*
Small
12
357
3
63
*Does not include the two fraud units that did not handle complaints.
Not only were there significant differences among fraud units within the same size category but
unexpected differences were also found between categories. In the aggregate, as evidenced by
the median number of complaints (see table above), larger units tended to handle more
complaints than smaller units. However, one small fraud unit had more complaints than three of
the large fraud units and twelve of the medium-sized units. The table on the next page lists each
unit by size, and provides data regarding intermediary Medicare payments and fraud unit
resources, complaint workload, and case workload.
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Variability in Large, Medium, and Small Fraud Units
Medicare
Fraud Unit
Fraud Unit
Fraud Unit
Fraud Unit
ID#
Payments
Budget
FTEs
Complaints
Cases
1
$10,013,524,077
$428,100
6.25
1696
168
2
$9,574,962,625
$612,300
6
1892
12
3
$8,156,383,788
$359,000
2.5
802"
45"
4
$6,125,735,620
$353,452
3.75
795
564*
5
$5,860,334,858
$374,128
7.25
1750
259
Large
6
$5,698,345,959
$486,534
5
371
365*
7
$5,138,463,636
$360,200
3
223
128
8
$4,695,746,722
$363,000
7
1277
18
9
$4,266,043,734
$518,300
6
307
236
10
$4,205,559,254
$402,000
3.5
250
78
11
$4,164,323,154
$512,680
8.25
385
192
12
$3,946,244,913
$45,760
1.75
88
0
13
$3,528,029,526
$231,800
3.5
699
50
14
$3,046,336,774
$217,600
3
240
3
15
$3,033,310,183
$249,400
2.75
559
15
16
$2,825,729,802
$125,640
2
74
6
17
$2,714,180,846
$155,809
3
646
31*
18
$2,687,677,846
$145,800
3
250
25
19
$2,413,141,222
$111,508
3
935
625
20
$2,409,518,487
$142,100
1.5
158
11
Medium
21
$2,049,178,456
$100,000
2.5
402
79
22
$1,619,800,963
$87,993
1.75
0
285
23
$1,600,681,825
$156,470
1.75
320
22
24
$1,544,764,282
$107,900
1.25
0
65
25
$1,246,209,143
$74,248
1.5
307*
190"
26
$1,132,721,108
$109,600
2
157
2
27
$1,093,918,076
$81,600
1
1508
83
28
$1,066,891,562
$50,953
1.5
314
246"
29
$1,063,221,043
$103,700
1
193
0
30
$993,720,360
$74,100
2.25
357
46
31
$986,682,696
$55,000
1.5
116
40
32
$940,136,850
$97,035
2.5
242
35
33
$573,157,206
$62,600
2
158
1
34
$501,923,887
$45,800
2
123
7
35
$461,651,557
$58,200
1
9
51
Small
36
$418,758,568
$79,300
1.5
24
13
37
$318,344,371
$34,218
1,25
97
1
38
$300,584,905
$7,841
1.25
3
9
39
$287,546,633
$4,400
0.5
28
1
40
$258,659,723
$40,400
0.5
27
1
41
$109,546,573
$15,400
0.25
14
0
TOTAL
$113,071,692,814
$7,641,669
112.75
17,796
4,008
* Workloads estimated by fraud units.
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The number of cases handled by each fraud unit ranged from o to 625.
Nationally, fraud units handled a total of 4,008 cases. Of the 41 fraud units, 3 did not have any
cases. As shown in the table below, the difference between the fraud units with the highest and
lowest cases handled in each category is extreme.
Range of Cases Handled by Fraud Units of Similar Size
Size
Number of
Highest # of
Lowest of
Median # of
Category
Fraud Units
Cases Handled
Cases Handled
Cases Handled
Large
11
564
12
168
Medium
18
625
0
28
Small
12
51
0
8
Variation among individual fraud units could not always be explained by size or resources (see
table on page 6). For example, of the three fraud units with zero cases, two were medium fraud
units and one was small. In addition, the fraud unit with the largest caseload (625) was a
medium unit. This unit had one-third the fraud budget of any large fraud unit and less staff than
most large units. Another example is that 60 percent of the medium units and 25 percent of the
large units handled fewer cases than one of the small fraud units. Moreover, the large fraud unit
with the least number of cases (12) had the highest budget and 6 FTEs. In contrast to this, the
large fraud unit with the highest caseload (564) had the smallest budget and fewer staff.
Fraud units referred between 0 and 102 cases to the OIG.
Fraud units are required to develop cases and refer them to the OIG for consideration of civil and
criminal prosecution and/or the application of administrative sanctions. The fraud units referred
a total of 346 cases to the OIG in 1996 (9 percent of the national case workload).
Ten fraud units (5 medium and 5 small units) made no referrals to the OIG. Out of 41 fraud
units, 27 (or 66 percent) referred three or fewer cases. Nearly half of fraud units referred less
than 5 percent of their cases to the OIG. Table 1 in Appendix A provides a list of all fraud units
in large, medium, and small categories, and shows the number and percent of each unit's case
workload that was referred to the OIG.
As with complaint and case workloads, the number of case referrals to the OIG differed among
fraud units of similar size. For example, although 79 percent of cases referred to the OIG (273 of
346) were from large fraud units, there was a wide disparity among individual units in this
category. One large unit was responsible for nearly 30 percent of all cases referred to the OIG
(102 of 346). This was twice as many as the unit with second highest number of referrals (51 of
346). In contrast, four large units referred seven or fewer cases each.
Between size categories, several smaller fraud units referred more cases than larger units. For
instance, one medium unit referred more cases than over half (7 of 11) of the larger units.
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Another example is that one small unit referred more cases than three-quarters of the medium
units and one-quarter of the large units.
Overall, 56 percent of the 346 referred cases were accepted by the OIG. Another 16 percent were
referred by the OIG to other law enforcement agencies. Nine percent of the cases were returned
to the fraud units for administrative closure, and 1 percent were returned for further development.
The fraud units could not provide the status of the remaining 18 percent of referred cases.
Individual fraud units had OIG acceptance rates ranging from 0 to 100 percent of cases. Table 2
in Appendix A provides the number and status of cases fraud units referred to the OIG.
DESPITE HCFA'S EXPECTATION THAT FRAUD UNITS PROACTIVELY IDENTIFY
FRAUD, HALF OF THE UNITS DID NOT OPEN ANY CASES PROACTIVELY.
Overall, fraud units developed few cases proactively. Even though HCFA emphasizes the
importance of doing proactive work, most cases were developed in reaction to complaints. Of
the 4,008 fraud unit cases, only 5 percent (184) were opened as a result of proactive case
development. Fifty-one percent of fraud units (21 of 41) did not open any cases proactively.
Furthermore, the fraud unit opening the largest number of proactive cases (97) was responsible
for more than half the national total. The unit with the second highest number of proactive cases
had 24, and the unit with the third highest number had 10. These three units alone opened 71
percent of the proactive cases. Rarely did the size of the fiscal intermediary, or the resources of
the fraud unit correlate to the number of cases opened proactively. For example, half the large,
medium, and small fraud units had no such cases, and one small fraud unit had seven (see
Appendix A, Table 3).
Ninety percent of fraud units (37 of 41) said they used proactive methods in their attempt to
uncover fraud and abuse. Yet, only half of these units (20 of 37) opened any cases proactively.
Seventeen units that said they used proactive methods did not open cases as a result of their
proactive work.
The most commonly used proactive method was data analysis. Used by 80 percent of fraud
units, proactive data analysis was used to open 72 percent of proactive cases (133 of 184).
Proactive data analysis is defined as using data to identify fraud leads by looking for patterns,
trends, or aberrancies versus using data solely to expand the scope of an investigation. The
second most common method of proactively identifying fraud was networking with other
intermediary units and with external entities. Used by 56 percent of fraud units, networking was
used to open 21 percent of proactive cases (38 of 184). Table 4 in Appendix A lists the proactive
methods used by fraud units, the number and percent of units that used each method, and the
number of times the method was used to open cases.
In our review of the units' contractor performance evaluations, we found that 80 percent of the
evaluation reports (32 of 40) addressed the subject of using proactive methods to identify fraud.
In addition, 65 percent (26 of 40) specifically noted whether or not the unit had conducted any
proactive data analysis. However, only 50 percent (20 of 40) reminded the fraud units that they
are expected to conduct proactive data analysis to identify potential fraud cases.
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MORE THAN ONE-THIRD OF FRAUD UNITS DID NOT IDENTIFY PROGRAM
VULNERABILITIES.
The identification of program vulnerabilities heads the list of fraud unit responsibilities in the
Medicare Intermediary Manual. Yet 39 percent of fraud units (16 of 41) did not identify any. In
addition, fraud units are not required to keep track of identified program vulnerabilities.⁴ At least
one fraud unit that identified vulnerabilities had to rely on memory to describe them.
In our review of the contractor performance evaluations, we found that few HCFA reviewers
addressed the importance of identifying program vulnerabilities. Only 10 percent of evaluation
reports (4 of 40) stated whether or not the fraud unit identified any program vulnerabilities, and
only 18 percent (7 of 40) reminded the fraud unit they are expected to identify them.
Sixty-one percent of fraud units (25 of 41) identified a total of 61 program vulnerabilities. The
number of vulnerabilities identified by these units ranged from 1 to 5 (see Appendix A, Table 3).
Based on fraud unit descriptions of the vulnerabilities, 52 percent (32 of 61) seemed to be
systematic problems that make the Medicare program vulnerable to abuse, such as, loose
guidelines that promote inappropriate billing for a service. Another 41 percent (25 of 61) were
described as instances of wrongdoing, such as, billing a non-covered service as a covered service.
The remaining 7 percent (4 of 61) were simply described as types of providers, such as, an
assisted living facility or a community mental health center.
KEY WORDS AND TERMS RELATED TO FRAUD UNIT WORK VARY IN
MEANING. THIS HINDERS HCFA'S ABILITY TO INTERPRET FRAUD UNIT DATA
AND MEASURE FRAUD UNIT PERFORMANCE.
The HCFA and fraud unit staffs have work-related terms which help them communicate about
program integrity operations and performance outcomes. This specialized language is necessary
in order to quickly convey meaning about complex subjects. Many of the words and terms do
not sound like specialized terms because they are also used in common speech, e.g., "complaint,"
"case," "program vulnerability" and "overpayment." However, for Medicare fraud control, these
words have special meanings. For example, a "complaint" is not simply an expression of
discontent, it is an allegation of fraud or abuse. In addition, among fraud unit and HCFA staff,
meanings of key words can vary depending on who is using them and the context in which they
are used.
The variety of meanings for key terms is a problem in the Medicare integrity program because it
hinders HCFA's ability to interpret the data it receives from fraud units and its regional oversight
staff. In addition, there are potential problems when HCFA and fraud units share data with one
another or collaborate with other fraud control entities. Furthermore, differences in the use of
key terms in contractor performance evaluations make performance measurement with this tool
difficult if not impossible. These shortcomings are likely to hamper HCFA's effectiveness in
making funding decisions or selecting future program safeguard contractors.
Below we discuss a few key terms that vary in meaning and, consequently, can hinder HCFA in
its ability to interpret data and measure performance.
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Complaints and cases
Complaints and cases represent two very different types of workload, yet the terms are often used
interchangeably and sometimes are tracked as one type of workload. In our fraud unit
questionnaire, we required fraud units to (1) distinguish complaints from cases when they
quantified their workload, and (2) use the definitions for case and complaint given in the
questionnaire. The purpose of these requirements was to ensure data integrity. However, this
posed a problem for several fraud units. For example, it was necessary for some fraud units to
estimate their workload numbers because they had one computer tracking system that did not
distinguish cases from complaints.
In addition, the terms case and complaint were also confused in contractor performance
evaluations. In 43 percent of the evaluation reports (17 of 40), the words case and complaint
were used interchangeably. Moreover, we found inconsistencies in the way the words case and
complaint were used in the Medicare Intermediary Manual (section 3966), and in certain HCFA
guidelines for reporting fraud unit activities.
Program vulnerabilities
The Medicare Manual (section 3953) directs fraud units to "identify Medicare and intermediary
policies and procedures that may make Medicare vulnerable to fraud and abuse." A shorter way
of saying this is that fraud units should identify program vulnerabilities. However, the term
"program vulnerability" is another key term that has more than one interpretation. As we
mentioned previously, fraud units identified 61 program vulnerabilities. Yet, all the
vulnerabilities fraud units described were not systematic problems which make Medicare
vulnerable to fraud and abuse. Forty-one percent of them (25 of 61) were described as instances
of wrongdoing by a provider, and 7 percent (4 of 61) were described as types of providers.
Overpayments
Responses to our fraud unit questionnaire suggest that the word overpayment may have various
meanings in the context of contractor operations and fraud unit cases. In general, overpayments
are Medicare funds that providers receive in excess of amounts owed to them, but we did not
provide this definition in our questionnaire. We asked the fraud units to list their cases where
overpayments were identified (not recovered) in fiscal year 1996. Our analysis found that fraud
units identified overpayments in only 15 percent of the national case workload (610 of 4,008) and
in 36 percent of cases referred to the OIG (124 of 346) even though the Manual (section 3968)
states that identifying overpayments is part of the case development process.
It is conceivable that fraud units were defining the term overpayment in one of two ways when
answering our question: (1) as the actual amount of money they requested back from providers,
or (2) the amount of money at risk associated with a fraud case. If some fraud units used the first
definition, it is possible that they would not have listed an overpayment amount for this question.
However, it is also possible that the fraud units were unable to determine or track the risk
associated with fraud cases.
10
10.00
HCFH PRESS OFFICE
22159 ИБЯ 7.07
P.19/24
RECOMMENDATIONS
The HCFA and fiscal intermediary fraud units have significant responsibilities in identifying and
deterring fraud in a part of the Medicare program where $130 billion is at risk. The variation in
fraud detection, especially among units with similar resources, raises concern about possible poor
performance by some fraud units.
Although HCFA currently conducts performance evaluations of fraud units, we believe there is a
need to strengthen the monitoring and oversight of contractors' efforts to identify fraud and
abuse. In recent years, HCFA has focused on continuous improvement as a method of evaluating
contractor performance. In light of the disparity in fraud detection among contractors, the agency
may need to refocus its evaluation efforts to include some type of return on investment analysis.
In order that HCFA may have a better understanding of fraud unit performance, which in turn
will lead to making better decisions about fraud unit funding, selecting future contractors, and
working collaboratively with other anti-fraud entities, we recommend that HCFA:
Improve the contractor performance evaluation system so that it not only encourages
continuous improvement, but also holds contractors accountable for meeting specific
objectives.
Require that all contractor performance evaluations list HCFA's national and regional
objectives and address whether or not the fraud unit is meeting those objectives.
Establish a standard set of data that can be used to measure fraud units' performance in
meeting established objectives. Require that all contractor performance evaluation
reports contain this data.
Establish clear definitions of key words and terms (e.g., complaint, case, program
vulnerability, and overpayment). Disseminate definitions and require that HCFA
program integrity staff and fraud unit staff use the same definitions. In a future update of
the Medicare Intermediary Manual, revise sections so that these words are consistently
used to mean the same thing.
Provide opportunities for fraud units to exchange ideas, compare methods, and highlight
best practices relating to fraud and abuse detection.
11
DEC-02-1998 10.00
HCFH PRESS OFFICE
202 690 7159
P.20/24
ENDNOTES
1. The 41 fiscal intermediaries in our study processed $113 billion in Medicare payments in
1996.
2. The Health Care Financing Administration's funding of all Medicare fraud control activities
since the passage of the Health Insurance Portability and Accountability Act of 1996, is discussed
in the U.S. General Accounting Office's report, Medicare: HCFA's Use of Anti-Fraud-and-
Abuse Funding and Authorities (GAO/HEHS-98-160), issued June 1998.
3. In April 1998, the Health Care Financing Administration issued, for public comment, a Draft
Scope of Work regarding Program Safeguard Contractors. At that time, the agency anticipated it
would have a Request for Proposal ready by July 1998. However, as of this writing, a Request
for Proposal has not been issued.
4. Nowhere in section 3950ff of the Medicare Intermediary Manual is there a requirement to
track the number or kind of program vulnerabilities that fraud units identify.
12
10:09
HCFH PRESS OFFICE
202 690 7159
P.21/24
APPENDIX A
Table 1: Fraud Unit Cases Referred to the OIG in FY 1996
Total Cases
Number of Cases
Cases Referred as a
ID#
FY 1996
Referred to the OIG
Percent of Total Cases
1
168
3
2%
2
12
3
25%
3
45*
21
47%
4
564"
17
3%
5
259
51
20%
Large
6
365°
16
4%
7
128
102
80%
8
18
7
39%
9
236
15
6%
10
78
3
4%
11
192
35
18%
12
0
0
13
50
O
0%
14
3
t
3
100%
15
15
0
0%
16
6
3
50%
17
31*
4
13%
18
25
3
12%
19
625
5
1%
20
11
3
27%
Medium
21
79
3
4%
22
285
0
0%
23
22
3
14%
24
65
2
3%
25
190"
20
11%
26
2
2
100%
27
83
1
1%
28
246*
5
2%
29
0
0
30
46
4
9%
31
40
1
3%
32
35
5
14%
33
1
1
100%
34
7
0
0%
Small
35
51
3
6%
36
13
1
8%
37
1
1
100%
38
9
0
0%
39
1
0
0%
40
1
0
0%
41
0
0
TOTAL
4,008
346
9%
Workloads estimated by fraud units.
A-1
10.09
HUFH PRESS OFFICE
CKIC
090
Table 2: Disposition of Fraud Unit Cases Referred to the OIG in FY 1996
Cases Referred
Cases Returned
Cases Returned
Cases
Cases
Cases Where
by OIG to
to Fraud Unit
to Fraud Unit for
ID #
Referred to
Accepted by
Status was
Other Law
for Further
Administrative
the OIG
the OIG
Unknown
Enforcement
Development
Handling
1
3
2
0
0
1
0
2
3
0
1
O
2
0
3
21
15
0
0
0
6
4
17
16
0
0
1
0
5
51
11
2
0
1
37
Large
6
16
6
3
0
3
4
7
102
98
0
0
2
2
8
7
0
5
0
0
2
9
15
5
0
1
6
3
10
3
0
2
0
0
1
11
35
13
18
0
3
1
12
0
-
-
-
-
-
13
0
-
-
-
-
-
14
3
0
3
0
0
0
15
0
-
.
-
-
-
16
3
1
2
0
0
0
17
4
0
3
1
0
0
18
3
1
0
0
0
2
19
5
1
1
0
3
o
20
3
2
1
0
0
0
Medium
21
3
2
1
0
0
D
22
0
.
-
-
-
-
23
3
0
1
1
1
0
24
2
2
0
0
0
0
25
20
9
2
0
6
3
26
2
2
0
0
0
0
27
1
1
0
0
0
0
28
5
0
4
0
1
0
29
0
-
.
-
-
-
30
4
4
0
0
0
0
31
1
1
0
0
0
0
32
5
1
3
0
0
1
33
1
0
0
1
0
0
34
0
-
-
-
-
-
35
3
1
Small
1
0
1
0
36
1
1
0
0
0
0
37
1
0
1
0
0
0
38
0
.
-
-
-
-
39
0
.
-
.
1
-
40
0
-
.
-
-
-
41
0
.
-
-
-
-
TOTAL
346
195
64
4
31
62
% OF
CASES
100%
56%
16%
1%
9%
18%
REFERRED
A-2
10.09
HCFH PRESS OFFICE
202 690 7159
Table 3: Proactive Cases Opened and Program Vulnerabilities Identified
ID#
Medicare
Fraud Unit
Fraud Unit
Total Fraud
Proactive
Program
Payments
Budget
FTE#
Unit Cases
Cases
Vulnerabilities
1
$10,013,524,077
$428,100
6.25
168
4
3
2
$9,574,962,625
$612,300
6
12
1
0
3
$8,156,383,788
$359,000
2.5
45°
0
3
4
$6,125,735,620
$353,452
3.75
564*
0
5
5
$5,860,334,858
$374,128
7.25
259
4
0
Large
6
$5,698,345,959
$486,534
5
365*
10
4
7
$5,138,463,636
$360,200
3
128
97
3
8
$4,695,746,722
$363,000
7
18
0
1
9
$4,266,043,734
$518,300
6
236
0
2
10
$4,205,559,254
$402,000
3.5
78
6
2
11
$4,164,323,154
$512,680
8.25
192
0
2
12
$3,946,244,913
$45,760
1.75
0
0
0
13
$3,528,029,526
$231,800
3.5
50
6
1
14
$3,046,336,774
$217,600
3
3
0
0
15
$3,033,310,183
$249,400
2.75
15
0
2
16
$2,825,729,802
$125,640
2
6
3
0
17
$2,714,180,846
$155,809
3
31*
3
3
18
$2,687,677,846
$145,800
3
25
0
1
19
$2,413,141,222
$111,508
3
625
0
0
20
$2,409,518,487
$142,100
1.5
11
3
1
Medium
21
$2,049,178,456
$100,000
2.5
79
0
0
22
$1,619,800,963
$87,993
1.75
285
24
1
23
$1,600,681,825
$156,470
1.75
22
0
2
24
$1,544,764,282
$107,900
1.25
65
0
0
25
$1,246,209,143
$74,248
1.5
190*
2
5
26
$1,132,721,108
$109,600
2
2
0
0
27
$1,093,918,076
$81,600
1
83
2
0
28
$1,066,891,562
$50,953
1.5
246*
5
4
29
$1,063,221,043
$103,700
1
0
0
0
30
$993,720,360
$74,100
2.25
46
2
0
31
$986,682,696
$55,000
1.5
40
7
1
32
$940,136,850
$97,035
2.5
35
0
2
33
$573,157,206
$62,600
2
1
0
0
34
$501,923,887
$45,800
2
7
0
0
35
Small
$461,651,557
$58,200
1
51
1
3
36
$418,758,568
$79,300
1.5
13
1
2
37
$318,344,371
$34,218
1.25
1
0
0
38
$300,584,905
$7,841
1.25
9
2
2
39
$287,546,633
$4,400
0.5
1
1
4
40
$258,659,723
$40,400
0.5
1
0
0
41
$109,546,573
$15,400
0.25
0
0
2
TOTAL
$113,071,692,814
$7,641,869
112.75
4,008
184
61
# Workloads estimated by fraud units.
** Proactive cases are a subset of total fraud unit cases.
A - 3
DEC-02-1998 10:09
HCFA PRESS OFFICE
202 by0 7159
P.24/24
Table 4: Fraud Unit Use of Proactive Methods to Identify Fraud and Abuse
Number of Fraud
Percent of
Number of Times
PROACTIVE METHOD 1
Units Using
Fraud Units
Proactive Method was
Method N=41
Using Method
Used to Open Cases 2
Data Analysis
33
80%
133
Internal and External
23
56%
38
Networking
Look for Patterns and
10
24%
11
Trends (Not Data Analysis)
Conduct Research and
8
20%
1
Analysis on Fraud Alerts
Conduct Medical Review
7
17%
10
Conduct and Receive
5
12%
0
Training
Expand Case
5
,
12%
5
Monitor (e.g.,Edits and
5
Audits)
12%
1
Conduct Education or
Outreach
4
10%
0
Review News Media
4
10%
1
Survey Providers
4
10%
2
1. Except for "Data Analysis," all other proactive methods were identified by the fraud units themselves.
2. The total for this column (202) differs from the total number of cases opened proactively (184) because more than one
proactive method could have been used to open each case.
A-4
TOTAL P.24
OCT-22-1998 11:20
0000000000000000000000000
202 690 6362
P.01/11
HEALTH CARE
FINANCING ADMINISTRATION
ADDRESSEE:
FROM: Corinne Marvin for Nency-Ann
Chris Jennings Devore
OFFICE OF THE ADMINISTRATOR
200 INDEPENDENCE AVE., S.W.
ROOM 314G
WASHINGTON, DC 20201
PHONE: 202-690-6726
PHONE:
456-5560
FAX : 202-690-6262
TOTAL PAGES:
ADDRESSEE'S FAX MACHINE NUMBER:
DATE:
C+10
456-
10/22/98
REMARKS:
We think this is the finel version of the letter.
Please all Jack Hondley (401-8401) or me if you have any
questions.
Thanks,
Corine
OCT-22-1998 11:20
202
byo
0002
11
From:
JACK HOADLEY <[email protected]>
To:
Washington. DC1 (CMarvin, KKing)
Date:
10/22/98 10:04am
Subject:
Thursday's revision -- CORRECT VERSION ATTACHED
IGNORE ATTACHMENT ON PREVIOUS MESSAGE -- THIS HAS THE
CORRECT VERSION ATTACHED.
Here is the new (final?) version of the letter (marked 10/22)
(Remínder
-- Chris Jennings wanted to see the final version before it goes
out)
The changes of note are as follows (marked in redline) :
-- some words added to the "Applicability" paragraph to make the
policy
clearer, in response to Chris Jennings.
-- a couple of new sentence, per Gary, on explaining what we mean
by
nondiscrimination in price
-- a new sentence, per Michael McMullen and others, encouraging
states
to go beyond what is required
-- a corrected sentence, per Michael McMullen (and Don Kosin),
correcting a reference to ESRD benes.
-- an addition to the outreach paragraph in the attachment, per
Chris
Jennings, to give a bit more detail -- specifically a listing of
some of the
partner organizations. (I left Jim Bossenmeyer a voicemail
asking for a
list to use -- it needs to be added to the paragraph --
presumably would
note beneficiary groups, health plans, SHIPs,
)
PHOTOCOPY
PRESERVATION
OCT-22-1998 11:20
202
690
6502
P.03/11
DRAFT
10/22/98 - a.m.
Dear Insurance Commissioner:
I am writing to inform you of new requirements contained in the Balanced Budget Act of 1997
(the BBA) which apply to Medicare Supplement ("Medigap") insurance policies. These
provisions were enacted at the same time as creation of the new Medicare+Choice program,
which changes and expands health care options for Medicare beneficiaries. The new provisions
strengthen the rights of beneficiaries who are involuntarily terminated from Medicare managed
care plans (and certain beneficiaries who leave HMOs voluntarily) to obtain Medigap coverage if
they return to original Medicare.
This protection will be particularly important in the next few months, because, as you probably
know, the Health Care Financing Administration (HCFA) has been notified recently by a number
of HMOs serving portions of 30 States and the District of Columbia that they will no longer serve
some or all of their current Medicare enrollees. A small percentage of beneficiaries may be left
with no HMO plan option and will need to transition back to original Medicare with Medigap,
while a number of others who are losing their HMO coverage may also wish to return to original
Medicare with Medigap.
We are committed to trying to guard beneficiaries from undue concern and unnecessary hardship
as they make this transition. However, in order to protect these vulnerable individuals, we
urgently request your cooperation in immediately alerting Medigap issuers in your State to
the need to comply with the new Federal requirements.
I call your attention to two key issues, which are further explained below. First, the rights
established by the BBA apply to most Medicare beneficiaries, including many who are eligible for
Medicare based on disability or end-stage renal disease (ESRD). Second, there are both State and
Federal enforcement mechanisms that apply to these rights.
Section 4031 of the BBA mandates several new situations in which Medicare beneficiaries are
guaranteed issue of Medigap insurance. Two of these new protections apply to beneficiaries now
enrolled in HMOs that are terminating contracts or reducing service areas.
Most beneficiaries whose coverage is terminating have a key protection: the right to
guaranteed issue of any Medigap plans A, B, C, or F that are offered to new enrollees by
issuers in your State. In Massachusetts, Minnesota, and Wisconsin, section 1882(s)(3)(C) of the
Social Security Act (added by the BBA) provides that issuers must provide guaranteed issue of
policies that are comparable to plans A, B, C, or F. As an alternative, some beneficiaries may
qualify to use a second protection guaranteed by the BBA: if they have been enrolled in their
HMO less than 12 months and were never enrolled in any other Medicare HMO, they may
return to their previous Medigap policy if the same issuer still sells the policy in the State.
1
OCT-22-1998 11:21
00000000000000000000004
202
DRAFT
10/22/98 - am
In either case, Medigap issuers may not: (1) deny or condition the sale of the policy; (2)
discriminate in the pricing of the policy because of the individual's health status, prior history of
claims experience, receipt of health care or medical condition; or (3) impose an exclusion for any
preexisting condition. (More details on these rights are explained in the "Detailed Background"
attachment that is enclosed with this letter).
HMOs will be sending termination notices to all affected Medicare beneficiaries by November 2.
While some beneficiaries will have the option of continuing in another HMO, others will not. In
order to ensure a seamless transition into a new Medicare+Choice plan or to obtain Medigap
coverage in conjunction with returning to original Medicare, beneficiaries will need to make
decisions on new options for receiving their Medicare benefits well before their current HMO
coverage ends on December 31. Many of these beneficiaries will be contacting Medigap insurers
and your Department about Medigap insurance options available to them as they make decisions
on their future Medicare coverage options.
As you address these new Federal requirements in your State, we want to advise you of two
important considerations in interpreting the provisions in the BBA (again, more details are
included in the "Detailed Background" attachment to this letter):
Applicability. The Medigap rights are guaranteed to "individuals" who meet the statutory
criteria (e.g., their prior coverage is terminated). The statute does not distinguish between
individuals eligible for Medicare based on age and those whose eligibility is based on
disability or end stage renal disease (ESRD). Issuers must now make plans A, B, C or F - if
those plans are offered to new enrollees - available on a guaranteed issue basis without exclusions
for preexisting conditions to all Medicare beneficiaries who meet the statutory criteria. This
provision, however, does not require that issuers not now offering all four of the designated plans
begin to offer them. Nor does it require that issuers not now selling these plans to disabled or
ESRD beneficiaries under 65 must start selling to those individuals.
Where policies are sold, it is important to emphasize that the statute mandates that the premium
charged must not be established in a way that discriminates based on health status. This means
that issuers cannot consider the health status of individual applicants in determining eligibility or
premium levels Issuers must accept these applicants at the same premium rate provided to
otherwise similar new applicants with no health problems. Issuers that adjust rates for non-health
status factors, such as age OF geographic location, can apply those adjustments if done on a
nondiscr iminatory basis.
Although the BBA did not extend these protections where Medigap issuers are not now selling
plans to beneficiaries under 65, we encourage States to find ways to help these beneficiaries, for
2
OCT-22-1998 11:22
0000000000000000000000000
202 690 6362 P.05/11
DRAFT
10/22/98 - a.m.
example, by approving policy forms for these beneficiaries on an expedited basis or by urging
plans to extend coverage voluntarily
Enforcement. The BBA mandated a July 1, 1998, effective date for these requirements. Some
confusion has resulted from the fact that the statute incorporates two parallel enforcement
mechanisms - one State and one Federal.
States clearly have the primary authority for enforcement of Medigap requirements under
their approved regulatory programs. The law, however, recognizes that you may need to
make changes to your Medigap regulatory program in order for it to continue to be an
approved program under section 1882(b) of the Social Security Act. If changes are
required in order for your State to enforce these provisions, the BBA deems your program
to continue to be an approved program during a transition period of, in most cases, up to a
year after the NAIC adopted its Model Regulation. Shortly, we will publishing a Federal
Register notice transmitting this Model Regulation to the States.
Regardless of when State laws and regulations come into conformity with the Federal
requirements, section 1882(s)(4) contains a Federal civil monetary penalty that can be
imposed independently of any State enforcement mechanisms. HCFA will be developing
further guidance to specify these Federal requirements, including more detailed
interpretations of the statutory provisions on guaranteed issue and nondiscrimination in
pricing. It is essential for Medigap issuers to understand that the Federal guaranteed
issue requirements added to section 1882(s) by the BBA, as well as the Federal civil
money penalty enforcement authority in section 1882(s)(4), apply to all Medigap
issuers as of the statutory effective date, July 1, 1998.
We stand ready to work with you and your staff to ensure that Medicare beneficiaries can benefit
from the protections that have been afforded them. Staff from our Regional Offices will contact
you shortly to follow up on any questions raised by these requirements. In addition, through the
regional offices, HCFA has initiated an extensive outreach campaign to help all Medicare
beneficiaries understand their rights and options. We encourage you to work with your HCFA
Regional Office to identify issues that could serve as barriers to the effective implementation of
the Medicare beneficiary protections guaranteed under Federal law.
Sincerely,
Nancy-Ann Min DeParle
Administrator
3
OCT-22-1998 11:23
DRAFT
10/22/98 - a.m.
Enclosures
"DETAILED BACK GROUND. WHICH REFERS IN TURN TO 3 OTHERS
(1) THE STATE-BY STATE LIST OF PLANS AND (2) THE MODEL
NOTICE TO BENEFICIARIES -- ALSO LIST OF REGIONAL OFFICE
CONTACTS]
NOTE: WE DROPPED REFERENCE TO THE SECTIONS OF THE NAIC
MODEL REGULATION
cc:
All State Medicaid Directors
All HCFA Regional Offices
All HCFA ARMS, DMSO
APHSA
NGA
NAIC
NCSL
SHIPs
4
OCT-22-1998 11:23
0000000000000000000000000
202 690 6362
P.07/11
DRAFT
10/22/98 - a.m.
DETAILED BACKGROUND
Before the BBA was enacted, the primary managed care option open to Medicare beneficiaries
was to enroll in a health maintenance organization (HMO) or similar organization that had
contracted with Medicare, under section 1876 of the Social Security Act, to provide Medicare
covered services to beneficiaries in return for payment by Medicare. Most of these organizations
had "risk" contracts that paid them a monthly amount for each enrolled beneficiary. Others had
"cost" contracts or contracts as health care prepayment plans (for Part B services only) that
reimbursed the organization's reasonable costs. The BBA eliminates the old risk contract
program at the end of 1998 and replaces it with comparable managed care plans under the new
Medicare+Choice program enacted as part of the BBA. Beginning in 1999, the primary managed
care option available to beneficiaries will be through organizations that enter into contracts under
Medicare+Choice. (For simplicity, we will use the terms "HMO" and "managed care plan"
interchangeably here.)
Plan Decisions to Terminate Contracts or Reduce Service Areas
HCFA has been notified by more than 100 HMOs that they will not enter into new
Medicare+Choice contracts or that they will sign Medicare+Choice contracts for a reduced
service area, effective December 31, 1998. Included are HMOs with risk contracts, HMOs with
cost contracts, health care prepayment plans, and plans operating as part of the Medicare Choices
demonstration. The beneficiaries currently enrolled in these plans will be seeking new options for
receiving their Medicare benefits, effective on or before January 1, 1999. Included among these
beneficiaries are some who will not have access to another managed care plan, primarily because
they live in an area that is no longer served by any Medicare-contracting HMOs. A small number
of beneficiaries who have end-stage renal disease (ESRD) (permanent kidney failure) and are
enrolled in the terminating managed care plan will be precluded by law from enrolling in a plan
offered by another managed care organization These beneficiaries may enroll in plans offered by
the same organization. We have enclosed a list of the counties and numbers of beneficiaries
affected in each State (similar information is available on HCFA's Internet Website at
www.hcfa.gov).
Information for Affected Beneficiaries
Most Medicare beneficiaries will be able to choose between enrolling in another HMO, or
returning to the "Original" Medicare fee-for-service program. When an HMO terminates
coverage because it leaves the Medicare program entirely, or reduces the service area covered by
its contract, the individuals it has served have certain statutory rights to enroll with a new
managed care plan, or to purchase Medigap insurance if they return to "Original" Medicare.
However, these rights are time-limited. It is therefore critical that all affected beneficiaries be
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given sufficient information about their choices, as soon as possible, to allow them to make the
best decision about how to cope with the change in their health care options.
Part of this information will come from the managed care plans. First, under section 1876 of the
Social Security Act, the terminating HMO is required to inform enrolled beneficiaries about other
Medicare-contracting HMOs, if any, that will be available to them. However, the beneficiaries
will generally be required to decide before the end of November whether they wish to enroll under
one of these plans. Second, the HMO is still required under the law that pre-dated the new BBA
protections to ensure that beneficiaries who wish to return to Original Medicare are protected
against out-of-pocket costs related to pre-existing condition exclusions in Medigap policies. This
right, which might in some cases be more attractive than the new BBA protections, is also likely
to involve a deadline for making a choice.
Finally, the HMO is required by the Medigap provisions at section 1882(s)(3)(D) of the Social
Security Act (added by the BBA) to inform beneficiaries of their new rights with respect to
purchasing Medigap insurance. A copy of the letter approved by HCFA for use by the HMOs is
enclosed for your information. This letter will likely be used by beneficiaries to demonstrate to
Medigap issuers that the beneficiaries qualify for the new guaranteed issue protections. In that
notice, HCFA is advising beneficiaries who have any problems with Medigap insurers in your
State to contact your department.
Medigap Rights Extended by the Balanced Budget Act
The most important protection created by the BBA for Medicare beneficiaries enrolled with an
HMO (of any type) that is terminating its contract with Medicare applies to most individuals who
are enrolled in that plan at the time the contract terminates. These individuals have the right to
guaranteed issue of any Medigap plans A, B, C, or F that are offered to new enrollees by
issuers in your State. In the three States with waivers (Massachusetts, Minnesota, and
Wisconsin), section 1882(s)(3)(C) provides that issuers must provide guaranteed issue of policies
that are comparable to plans A, B, C, or F.
The above right applies to individuals by virtue of the involuntary termination of their coverage.
However, certain Medicare beneficiaries in the terminating plans may have another, separate basis
for entitlement to guaranteed issue of a Medigap policy. In particular, if an individual (1) has
been enrolled for less than 12 months with the HMO that is terminating coverage, (2) was never
enrolled in any other Medicare HMO, and (3) was previously enrolled in a Medigap policy, the
individual may terminate enrollment with the HMO before the contract terminates, and return to
the previous Medigap policy if the same issuer still sells the policy in the State. If the policy is no
longer available from that issuer, the individual may purchase Medigap plans A, B, C, or F from
any issuer which sells those plans in the State.
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Note that, if an issuer does not market all four of the specified benefit packages, the Federal law
does not require it to add the other policies.
For either of these groups of beneficiaries, an issuer may not:
(1) deny or condition the sale of the policy;
(2) discriminate in the pricing of the policy because of the individual's health status, prior
history of claims experience, receipt of health care or medical condition; or
(3) impose an exclusion for any preexisting condition.
These rights are guaranteed to "individuals" who meet statutory criteria (e.g., their prior coverage
is terminated). The statute does not distinguish between individuals eligible for Medicare based
on age, and those whose eligibility is based on disability or ESRD. As a result of the BBA
provision, any issuer now offering plans A, B, C or F to beneficiaries over 65 must make these
plans available on a guaranteed- issue basis without exclusions for preexisting conditions to all
Medicare beneficiaries who meet the statutory criteria described above. Issuers now offering
these plans to beneficiaries entitled to Medicare due to disability or ESRD must make the same
plans available to disabled or ESRD beneficiaries who meet the statutory criteria. Issuers not now
selling to those under 65 are not required to start selling to those individuals. Finally, it is
important to emphasize that the statute mandates that the premium charged in these circumstances
must not be established in a way that discriminates based on health status.
In either of the above situations, the Medicare beneficiary must apply for the Medigap policy not
later than 63 days after the date that HMO coverage terminates, unless your State law provides
for a longer period. (The 63-day period will generally begin January 1, 1999, unless a beneficiary
meets the criteria for re-enrolling in a previous Medigap policy. In that case, the 63-day period
begins on the effective date of the individual's disenrollment.) However, most beneficiaries will
prefer to apply before the beginning of this period. While issuers may not sell a policy with an
effective date before a beneficiary's HMO coverage terminates, because that would be duplicate
coverage, nothing in the law prevents an issuer from accepting applications in order to make the
new coverage effective the day after the old coverage ends.
As with previous amendments to the Federal Medigap law, section 4031 of the BBA specifies that
State law and regulations must comply with the requirements of section 1882 of the Social
Security Act and with standards contained in the NAIC's Medicare Supplement Model
Regulation. The Model Regulation, as revised to reflect the BBA amendments, tracks the
statutory language of these protections. As you may be aware, HCFA has worked with the NAIC
to correct an error in the drafting note that follows section 12.B(2) of the Model Regulation, and
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the NAIC issued a memorandum on October 16 explaining this change. A Federal Register
notice, being published shortly, will transmit to the States the revised Model Regulation. This
revised version is the Model Regulation that must be adopted by all States. (The error, regarding
the significance of the statutory reference to the year 2002, does not in any way affect the rights
of beneficiaries whose current section 1876 managed care plans are terminating. It only pertains
to beneficiaries who may, in the future, be covered by a Medicare organization.)
There may be some confusion on the part of Medigap issuers regarding the effective date of the
guaranteed issue requirements described above. These requirements were added to section
1882(s) of the Social Security Act by section 4031(a) of the BBA. Section 4031(d)(1) mandated
a July 1, 1998 effective date. The confusion results from the fact that the statute incorporates two
parallel enforcement mechanisms - one State and one Federal.
States clearly have the primary authority for enforcement of Medigap requirements under their
approved regulatory programs. In order for your State to continue to have an approved
regulatory program under section 1882(b) of the Social Security Act, State laws and regulations
must conform to the new Federal requirements. If changes to your State laws and regulations are
required in order for the State to enforce these provisions, section 4031(e) of the BBA deems
your program to continue to be an approved program during a transition period of, in most cases,
up to a year after the NAIC adopted its Model Regulation, which was April 29, 1998.
However, regardless of when the State laws and regulations come into conformity with the
Federal requirements, it is essential for Medigap issuers to understand that the Federal guaranteed
issue requirements added to section 1882(s) by the BBA, as well as the Federal civil money
penalty enforcement authority in section 1882(s)(4), apply to all Medigap issuers as of the
statutory effective date, July 1, 1998.
Finally, we are aware that some States have no approved policy forms for beneficiaries under 65
and that the NAIC Model Regulation specifies that issuers may not issue new policy forms
without filing them for your approval. Approval of policy forms for beneficiaries under 65 who
meet the specific statutory requirements is desirable if it can be done on an expedited basis. If this
is not possible, however, we believe the guaranteed issue protections for these beneficiaries exist
only for a policy "that is offered and is available for issuance to new enrollees by such issuer"
(section 1882(s)(3)). We request that you make this clear to issuers in your State as quickly as
possible.
The prohibition on discrimination in pricing also raises the issue of agent compensation. Some
issuers have, in the past, attempted to circumvent statutory guaranteed issue requirements
imposed by the Health Insurance Portability and Accountability Act of 1996 (HIPAA) by reducing
or eliminating agent compensation for sales to individuals who meet the statutory requirements.
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If this were to happen, we assume that States would act as they did in the HIPAA context to
address similar abuses.
HCFA's Outreach Campaign
Through our regional offices, HCFA has also initiated an outreach campaign to help Medicare
beneficiaries understand their rights and options. This campaign will target those areas where
Medicare beneficiaries are most affected by HMO withdrawals and inform them of their rights and
options - both that they are automatically eligible for the Original Medicare Plan and what their
Medigap rights and protections are. As part of this plan, HCFA is enlisting a large network of
public and private partners who serve the Medicare population (including xxxxxxx) to provide
their members with needed information through newsletters, conferences, and targeted
information campaigns. As part of this campaign, you should be aware that beneficiaries who are
denied access are being instructed to contact their State's insurance department. They are also
instructed to contact HCFA's regional offices if they have difficulty resolving their individual
concerns. In those States with significant plan withdrawals, staff from our regional offices will
contact your office to identify ways that we can work together to ensure that the correct
information is shared with beneficiaries. In addition, HCFA will post new information on the
Medicare Internet site (www.medicare.gov), so that beneficiaries in every local area have the
most up-to-date information on available HMO coverage options.
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Date
FAX
Health Division
Office of Management and Budget
Executive Office of the President
Washington, D.C. 20503
To:
Chris Jennings t Josh GOYSAWN
Fax:
Phone:
From: Timitill/rette Shenouda
Number of Pages (not including cover):
Subject:
Here IS some background ON the
10 f+A policies being ANNOUNCED
today. Clease call w/ questions
Please call if there are any problems with this transmission:
Health Division (Front Office)
202/395-4922
Health & Human Services Unit
202/395-4925
Health Programs & Services Branch
202/395-4926
Health Financing Branch
202/395-4930
Fax Numbers:
Health Division (Front Office)
202/395-3910
Health Division (Room 7001)
202/395-7840
Health Division (Room 7002)
202/395-5648
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Policy
Page
(1) Eliminating Wasteful
1
ExcessiveMedicare
Reimbursement for Drugs.
(2)
Eliminating Overpayments for
2
Epogen.
(3)
Doubling the Number of Audits
3-5
to Ensure that Medicare only
Reimburses for Appropriate
Provider Costs.
(4) Lowering Medicare's Costs
....
Payments for Equipment and
Non-Physician Services Through
Nationwide Competitive Bidding
Program.
(5) Eliminating Abuse of
6
Medicare's Outpatient Mental
Health Benefits.
He
(6) Creating Civil Monetary
7
Penalties For False Certification
of The Need For Care.
(7) Preventing Providers From
8-9
Taking Advantage of Medicare
By Declaring Bankruptcy.
(8)
Taking Action To End Illegal
10
Provider "Kickback" Schemes.
(9) Ensuring Medicare Does Not
11-14
Pay For Claims Owed By
Private Insurers.
(10) Enable Medicare to capitate
15-16
payments for certain, routine
surgical procedures through a
competitive bidding process
with providers.
65557:# 3
E
Error Reduction: Base Medicare Payment for Drugs on Provider Acquisition Cost
Examiner: Yvette Shenouda
Proposal. Base Medicare's payment for drugs on the provider's actual acquisition cost of the drug.
690
5-Year Savings:
$300 million
Background. While Medicare does not have an expansive outpatient drug benefit, it does cover certain kinds of outpatient drugs, e.g.,
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specific drugs that are used with home infusion or inhalant equipment, and drugs that are prescribed for dialysis and organ transplant
patients. Medicare typically pays for these drugs based on the charge submitted by providers, usually physicians or pharmacies.
Information from the HHS/OIG and anecdotal sources suggest that Medicare currently pays 15 to 30 percent more than what the
provider paid for the drug.26
Discussion. By basing Medicare's payment on the provider's acquisition cost of the drug. you eliminate the mark-up which
providers place on drugs.
...
This proposal was included in the President's FY 1998 Budget. However, it was modified by the BBA such that the payment limit is
now 95 percent of any wholesale price. CBO scored the President proposal at $700million and the BBA at $400 million over five
years. The scoring difference reflects the fact that the average wholesale price is-easily gamed", while acquisition cost is a somewhat
tighter payment limit.
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Physician and pharmaceutical groups will be against this proposal because Medicare will be bursing them at rate than it
has in the past.
"Appropropriateness of Medicare Prescription Drug Allowances" HHS/OIG, May 1996.
(an
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10
Error Reduction: Reduce Medicare Epotein (EPO) Payments by $ Percent
Examiner: Tim Hill
$1.00
Proposal. Reduce Medicare's reimbursement for EPO by 5 percent per dose, or.50 cents-
5-Year Savings:
$100 million $320 MILLION
Background. EPO is a drug used to treat anemia related to chronic renal failure. It is a sole source drug, meaning that its
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manufacturer (Amgen) is competitively protected under the Orphan Drug Act. Medicare is the largest purchaser of EPO.
Medicare reimbursement for EPO totals nearly $1 billion per year. Prior to 1993, Medicare payment was $11.00 per dose. OBRA
1993 reduced Modicare's payment by $1.00 per dose based on an HHS IG report that concluded that dialysis facility costs for EPO -
before manufacturer rebates - were approximately $10.00 per dose, $1.00 less than Medicare's $11.00 reimbursement rate. The HHS
IG report also concluded that some facilities received a 2 to 8 percent manufacturers rebate and that Medicare had no way to
capture the savings from this rebate.
Discussion. This policy would reduce Medicare's reimbursement-for EPOby 5 percent per dose and would capture some of the
savings from the manufacturers rebate. This policy couldbeimplementedadministratively.=However, implementing the policy
through regulation rather than through legislation means that no associated with Dialysis
facilities, ESRD-related beneficiary groups and the manufacturer ofEPO arelikclytoobjecttothischange.
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ANALYSIS:
Issue 1: How should a proposed increase in provider cost report audits and medical reviews be financed?
Background. In FY 1998, HCFA will spend $172 million on provider audits and $153 million on medical review funded through the
Medicare Integrity Program discussed above.
2% get a full
audit
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Provider audits are a review of a sample of provider cost reports. Only those providers paid on a cost basis are audited. Providers paid
on a cost basis include home health agencies, skilled nursing facilities and some hospitals. The cost reports are reviewed to insure that
reported costs per unit are reasonable relative to Medicare's rules and that the amount that was actually paid for these services is
consistent with the level of services provided. In 1997, HCFA performed about 90,000 provider audits, which resulted in adjustments
(savings) of approximately $2 billion.
24,825 promiders
3,400 hospital
13,225 SNF
Medical Review (MR) is the process of systematically and regularly analyzing claims data and prioritizing which claims will be
8,200
examined to determine the reasonableness and necessity of the service or procedure. Medical review can be implemented on a
Ht
prepayment basis, that is claims can be reviewed before they are paid to assess the medical necessity of certain procedures or visits. If
the procedures are unnecessary, the claim is never paid. Medical reviews can'also be implemented on a postpayment basis, that is
claims can be reviewed after they are paid to assess the medical necessity of procedures or visits HCFA encourages the prepayment
medical reviews.
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HCFA's Proposal In FY 1999 HCFA proposes to double the number of audits and medical reviews'over the FY 998 level This
increase would be funded through a combination of user fees and scoring mechanisms.
First, HCFA plans to charge providers for Medicare's audit of their annual cost reports. The proposed fee would be equal to the full
cost of provider audit activities, and act as a deterrent to inflating reported costs. HCFA anticipates collecting $395 million from this
proposed audit user fee, which is $195 million above the current level of effort. Under HHS' FY 1999 budget proposal, these fees,
which would first be collected through the mandatory Medicare Integrity Program spending account, would then be deposited to the
discretionary HCFA program management account, not the HCFAC Program account. Once in the program management account
HHS proposes to spend the collected fees on HCFA's salaries and expenses, claims processing, Medicare contractors and other
administrative activities.
HD staff is attempting to verify this information.
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(t)
Second, HCFA requests an increase in mandatory spending of $395 million, $200 million for audits and $195 million for medical
reviews. According to HCFA, this increase would allow them to increase the number of audits (from 90,000 in FY 1997 to 250,000 in
FY1998) and medical reviews (from approximately 9% of all claims in FY1997 to approximately 18% of claims in FY 1998). Third,
HCFA proposes that OMB agree to reinterpret the 1997 BBA scoring rule number 14 which states that, "no increase in receipts or
decrease in direct spending will be scored as a result of provisions of a law that provides direct spending for administrative or program
management activities". HCFA seeks to score $800 million in going back to the one-time scoring mechanism used in
Kassebaum/Kennedy, $400 million of which would be used to finance the increase of audits by 190,000 and the increase of medical
reviews by 9%, and $400 million of which would count as Medicare savings (see attached sheet for summary presentation of HCFA's
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proposal).
HCFA plans to charge providers a fee that will cover 100% of the cost of audits. The fee would vary by provider type and would be
determined by projecting the amount to be spent on these activities for each provider type and then dividing that total by the number of
providers of that type participating in the Medicare program. The fee would be withheld from payments made to each provider over
the course of the year. HHS' budget submission did not outline an annual user fee schedule, however, HCFA recommends the
following:
Hospitals
$23,000
Skilled Nursing Facilities
$8,000
Home Health Agencies
$11,500
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HD Analysis. We have identified five concerns with the HHS proposal:
1) Dedication of fee to Program Management. HD staff believe that a user fee levied on the industry for the cost of audits should
not be used for unspecified program management administrative expenses. The user fee should be used to increase the number of
audits. While it is a mechanism which will be attractive to HHS (and other agencies), the industry will see this as'a "tax", not as a fee.
Others would see this as a gimmick to shift mandatory dollars to discretionary activities.
2) BBA Precludes Scoring Audit Savings as an Offset. The scoring mechanism proposed by HHS is no longer available. In
changes to the budget process scoring rule #14 precludes scoring increases in spending on administrative activities as saving
mandatory dollars. The inclusion of scoring rule #14 came in response to the one-time suspension of rules to score the
Kassebaum/Kennedy bill in 1996. While HHS and other agencies may find this attractive, budget committees, CBO, and others will
see this as a scoring gimmick.
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3) Precedent setting. Taken together, concerns one and two could raise criticism about: a) reallocating user fee revenues for activities
wholly unrelated to the activity that they are levied for, b) shifting mandatory dollars to finance discretionary activities and c)
circumventing scoring rules when convenient.
4) Fees are Not Tied to Percentage of Costs Claimed. HCFA's cost for conducting an audit varies by provider size as well as
provider type. On average, it may cost more to audit hospitals than skilled nursing facilities but a large skilled nursing facility may
cost more to audit than a very small hospital. For this reason, the amount of the user fee should be tied to the percentage of costs
claimed by the provider rather than on provider type. This would account for the differences in size among providers.
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5) Impact of providers "dropping out" of the system. We believe that HCFA has not properly estimated the revenues obtained
from this user fee, and the overall cost of conducting the medical reviews and audits. In particular, we do not believe that HHS has
properly taken into account the potential for proposed regulations that will impose additional standards on suppliers of durable medical
equipment, home health agencies and laboratory services, to cause providers to drop out of the Medicare system. This dropping will
affect the cost of audits and medical reviews, the anticipated revenue from the user fees, and possibly patient access and customer
satisfaction, two of HCFA's performance goals. In the case of home health agencies, the recently enacted home health moratorium
may also contribute to a decrease in providers.
6) Cost Shifting. Additionally, there exists a possibility of "cost-shifting" fromithe-providers-back to Medicare. Cost shifting could
occur by providers reporting the cost of the audit on their cost report. has not whether or not providers will be allowed
to report the cost of audits on their cost reports (see attached sheet for a discussion of wing providers to pass the cost of a user fee
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through to Medicare on their cost reports).
Recommendation. Having considered the HHS proposals, the Health Division agrees with the goal and recommends that HCFA
double audits and medical reviews in the following manner:
assess the user fee for provider audits, after considering the impacts of cost shifting and providers dropping out, and use the
revenue to fund fully the $195 million currently financed base audits and a increase in audit activity of $200 million;
use the displaced $195 million base audit resources to finance an increase in medical reviews, also while considering the
impact of provider dropping when estimating the amount of funding needed; and
disallow providers from reporting the cost of the audit on their cost reports.
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(9)
Error Reduction: Clarify Medicare's Partial Hospitalization Benefit
Examiner: Tim Hill
Proposal. Preclude providers from furnishing partial hospitalization services in a beneficiary's home or in an inpatient or nursing
home and authorize the Secretary to establish a prospective payment system for partial hospitalization services.
5-Year Savings:
$120 million
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Background. Currently, Medicare covers partial hospitalization services connected with the treatment of mental illness. Partial
hospitalization services are covered only if the individual otherwise would require inpatient psychiatric care. The course of treatment
must be prescribed, supervised, and reviewed by a physician. The program must be hospital-based or hospital-affiliated and must be a
distinct and organized intensive ambulatory treatment service offering less than 24-hour-daily care.
Partial hospitalization services include individual and group therapy sessions, occupational therapy, services of social workers, drugs
and biologicals, family counseling and diagnostic services.
:50PM
Discussion. This proposal would discourage development of partial hospitalization programs targeted to patients in their homes or in
settings where there is a residential population, such as nursing facilities and assisted living facilities and create a more reasonable
payment method for these'services. The proposal addresses current problems whereby providers inappropriately deliver these services
in group or nursing homes where patients live and add costs to their base that are specifically excluded from payment.
The partial hospitalization benefit was intended to be a less costly alternative to impatient psychiatric'care, bowever, the current
reasonable cost reimbursement methodology has resulted in excessive payment and inappropriate payment for items and services that
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are excluded from the definition of partial hospitalization services.
The proposal is based on anecdotal HCFA evidence, there have been no HHS IG or General Accounting Office reports on this issue:
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12/3/97
HEALTH CARE FINANCING ADMINISTRATION
FISCAL YEAR 1999 LEGISLATIVE PROPOSAL
Civil Monetary Penalties for False Certification
Impose Civil Monetary Penalties (CMPs) for False Certification of Eligibility to Receive Partial
Hospitalization and Hospice Services
Current Law: Under Section 1128(A) any person or organization is liable for civil money
penalties for providing a medical or other item or service that was not provided as claimed;
medical or other item or service that a person knows or should know is false or fraudulent; a
medical or other item or service that was not provided by a licensed physician or was provided by
a physician who is excluded from the Medicare or Medicaid program. This provision also
parallels the authority created in HIP. for false certification of home health services.
Proposal: Create a new civil money penalty for false certification of the need for partial
hospitalization or hospice services when the provider knows or should know that the beneficiary
does not meet such requirements Partial hospitalization services are services such as group or
occupational therapy prescribed by a physician and furnished by a hospital or community mental
health center on an outpatientibasis.
Rationale: This proposal would penalize physicians for inappropriate admissions to partial
hospitalization programs when those services either are not needed or can be met through other
more appropriate means. This proposal would provide a strong incentive for physicians to
accurately certify their patients' need for partial hospitalization and hospice services.
Effect on Beneficiaries: This proposal would ensure continued proper use of partial
hospitalization and hospice services for those beneficiaries who need of this level of services.
Cost: To be determined.
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HCFA-99/42
12/3/97
HEALTH CARE FINANCING ADMINISTRATION
FISCAL YEAR 1999 LEGISLATIVE PROPOSAL
Recovery in Bankruptcy Situations
Permit Medicare and Medicaid to Recover Overpayments and Penalties from Bankrupt
Providers.
Current Law: Under Chapter 11 of the U.S. Code, individuals declaring bankruptcy gain a range
of basic protections regarding recovery of their assets, thus prohibiting creditors from collecting
from the debtor. The Medicare and Medicaid programs had priority in bankruptcy proceedings
prior to enactment of the Bankruptcy Reform Act of 1978.
Proposal: Provide that:
the automatic stay of actions during the pendency of bankruptcy proceedings does not
apply to actions by the Secretary or a State with respect to participation in Medicare or
Medicaid, including actions relating to program exclusion, CMPs, recovery of
overpayments, and denial of claims;
debts owed to the United States or a State for an overpayment (except for an overpayment
to a beneficiary or a penalty, fine, or assessment under Medicare, Medicaid, or title XI)
are not dischargeable in bankruptcy;
repayment to the United States or a State of a Medicare or Medicaid debt, or for penalties,
fines, and assessments with respect to a debtor's participation in Medicare or Medicaid,
are considered final and not preferential transfers under the Bankruptcy Code;
bankruptcy courts must üse Medicare rules for determining whether claims by a debtor
under the Medicare program are payable, and the allowable amounts of such claims;
the notice to creditors required under the Bankruptcy Code must be provided, in the case
of Medicare debt, to the Secretary rather than a fiscal agent; and
a claim for payment under Medicare may not be considered a matured debt payable to the
bankruptcy estate until allowed by the Secretary.
Rationale: This bankruptcy proposal would increase the ability of HCFA and the States to
recover overpayments and fines from sanctioned health care providers. Current law is not
uniformly applied, which allows some sanctioned providers to use the protections afforded by the
Bankruptcy Code to avoid paying fines or returning overpayments. In practice, each court makes
its own determinations. When a provider reorganizes or ends operation so that its assets are sold
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to pay creditors, Medicare and Medicaid are not a priority. Instead, our programs are treated in
the same way as all other creditors and rarely benefit in the ultimate distribution. Changing the
Social Security Act would give Medicare and Medicaid priority in recovering assets.
Effect on Beneficiaries: This proposal would allow HCFA to recover more penalties and fines
from fraudulent providers. The recovery of these funds would provide needed revenue, and
discourage continued fraudulent activities by providers and allow for a more secure
administration of the Medicare and Medicaid programs.
Cost: To be determined.
9
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HCFA-99/39
HEALTH CARE FINANCING ADMINISTRATION
FISCAL YEAR 1999 LEGISLATIVE PROPOSAL
Extension of Subpoena and Injunction Authority
Extend the Subpoena and Injunction Authority.
Current Law: Under 1128A, the Secretary has the authority to issue civil monetary penalties
(CMPs) against fraudulent claims and against excluded providers who continue to provide
services. Inherent in this power is subpoena and injunctive authority.
Proposal: Extend the testimonial subpoena power and injunctive authority that the Secretary has
for civil money penalties to other administrative sanctions such as exclusions against Federal
health care program providers. This authority would expand the Secretary's power to require
witnesses to appear and produce testimony related to Medicare fraud and abuse cases.
Rationale: These investigative tools are needed in the complex investigations of fraud, kickbacks
and other prohibited activities. Restricting that power exclusively to situations involving CMPs
limits the tools investigators have to fight fraud and abuse.
Effect on Beneficiaries: This proposal would help expose a wider range of potential fraud and
abuse violations, thereby ensuring that more program dollars are going for the proper delivery of
care.
Cost: To be determined.
be
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HCFA-99/34
HEALTH CARE FINANCING ADMINISTRATION
FISCAL YEAR 1999 LEGISLATIVE PROPOSAL
Medicare Secondary Payer
Require Insurance Companies to Report Liability and No Fault Insurance Payments for Medicare
Beneficiaries
Current Law: Medicare is the secondary payer to no fault and liability insurance (e.g., auto
liability insurance, and property owner's liability insurance). The law does not require insurance
companies to notify HCFA, providers, or suppliers of payments to which Medicare should be the
secondary payer. Nothing in the law permits HCFA to require that the insurance companies that
make these payments notify HCFA, providers, or suppliers of services.
Proposal: Require insurance companies to report to Medicare liability and no fault insurance
payments made to Medicare beneficiaries or to providers and suppliers for services rendered to
Medicare beneficiaries within 30 days of making the payment and to advise the beneficiary and
any legal representative that Medicare has been so advised. Impose CMPs of $10,000 per event
for failure to do so.
Rationale: Currently the burden for determining if there is a primary payer other than Medicare
rests largely upon the provider or supplier of the services. However, this method is unreliable
since often the beneficiary files a claim for no fault or liability insurance at some point after
having told the provider or supplier that they would not seek payment from no fault or liability
insurance. This results in Medicare being billed and making conditional payment. When an
insurance payment is made, the provider or supplier may not be advised and thus cannot notify
Medicare so that Medicare can initiate recovery of its conditional payment to the provider or
supplier. At this point, often years after the services are furnished, the provider or supplier has
been paid and does not know of the primary coverage. Neither the beneficiary, the beneficiary's
attorney, nor the insurance company making the liability or no fault payment is specifically
required to advise Medicare of the availability of this payment, nor do any of these parties have
an incentive to notify Medicare. Hence, if Medicare is never notified, Medicare cannot collect
the payments due to the program.
This proposal would ensure that Medicare is notified of all cases in which these payments are
made so that Medicare can ensure that appropriate recovery is initiated.
Effect on Beneficiaries: Beneficiaries who receive these insurance payments would be pursued
by Medicare for recovery of the amounts that the law makes primary to Medicare. They would
continue, however, to have the full range of appeal, compromise and waiver rights available to
them in these cases.
Cost: To be determined. Medicare does not know the extent to which there are insurance
payments that are primary to Medicare about which Medicare is never notified.
(=
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HCFA-99/35
HEALTH CARE FINANCING ADMINISTRATION
FISCAL YEAR 1999 LEGISLATIVE PROPOSAL
Data Match Responses
Hold Employers Accountable for Failure to Respond to IRS/SSA/HCFA Data Match
Questionnaires
Current Law: Current law imposes a civil money penalty on employers who either do not
respond at all to a Data Match questionnaire or who delay excessively in responding only if the
failure or delay is willful and repeated.
Proposal: Remove the requirement that the failure to respond be willful and repeated in order for
the employer to be subject to the civil money penalty and increase the amount of the applicable
civil money penalty from $1,000 per individual to $5,000 per individual.
Rationale: Current law is ineffective. Employers know that it is virtually impossible for the
government to establish willfulness, and repeatedness is a vague concept with respect to an
annual or biannual questionnaire. As a result, thousands of employers either ignore the
questionnaire or delay responding until the time period for Medicare to recover mistaken primary
payments from the employer sigroup health plan has expired. This proposal establishes an
incentive for employers to comply promptly with the reporting requirement. This would enable
Medicare to avoid mistaken primary payments and to recover mistaken primary payments
previously made.
Effect on Beneficiaries: Beneficiaries generally have lower out-of-pocket expenses when MSP
claims are properly coordinated. This proposal would result in more claims being properly
coordinated.
Cost: To be determined.
Effective Date: Upon enactment.
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HCFA-99/36
HEALTH CARE FINANCING ADMINISTRATION
FISCAL YEAR 1999 LEGISLATIVE PROPOSAL
Insurer Reporting
Require All Group Health Plans to Report Information to Medicare.
Current Law: Group Health Plans are required to be primary payers to Medicare for services
provided to aged and disabled Medicare beneficiaries who have group health plan coverage based
on their own or a spouse's current employment and for services provided to those newly entitled
to Medicare because of end stage renal disease for a 30-month coordination period. There is no
statutory requirement for group health plans to report to Medicare the identities of those
beneficiaries for whom they are responsible for primary coverage.
Proposal: Require all group health plans to provide information to Medicare that is necessary to
enable Medicare to identify beneficiaries for whom specific group health plans are the primary
payer.
Rationale: This proposal would ensure that Medicare is paying the appropriate amount for
beneficiaries who may be covered by group health plans. The problem of Medicare's initially
paying and then attempting to recover payment (or not having enough time to recover payment)
from a group health plan could largely be eliminated by requiring all group health plans to report
information about the insurance coverage of Medicare beneficiaries. HCFA would then know
up-front whether Medicare was responsible for primary payment or whether Medicare only was
responsible for a secondary payment The appropriate payments could be made in a timely
fashion and resources would not be spent in attempting to recoup mistaken payments that may
not be recoverable for a variety of reasons (e.g., a plan's timely filing requirement).
Effect on Beneficiaries: Beneficiary out -of-pocket expenses would be reduced when Medicare is
the secondary payer when claims are initially submitted correctly.
Cost: This proposal was scored at $814 million in savings over 5 years as part of the
Administration's fraud bill. However, in FY 96 alone, an estimated $400 million was saved by
collecting this information from the Blues and Travelers Insurance, as the result of a settlement
agreement. Revised/updated savings estimates could exceed $3 billion over 5 years.
Effective Date: Upon enactment.
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HEALTH CARE FINANCING ADMINISTRATION
FISCAL YEAR 1999 LEGISLATIVE PROPOSAL
Set Conditions for Double Damages
Impose Double Damages When a Third-party Payer Fails to Acknowledge its Status as Primary
Payer.
Current Law: Section 1862 (b)(2) of the Social Security Act permits the government to take
legal action to recover mistaken Medicare primary payments from third-party payers that have
failed to comply with the Medicare secondary payer provisions and may collect double damages.
Proposal: Ensure that double damages would be imposed in cases where a third-party payer has
failed to acknowledge its status as primary payer, unless the third-party payer can demonstrate
that it did not know, and could not have known, of its responsibility as the primary payer.
Rationale: This proposal would reduce gaming of the system by third-party payers by imposing a
stiff damage penalty for failure to comply with current statutory requirements.
Effect on Beneficiaries: Beneficiary/out-of-pocket expenses would be reduced when Medicare is
the secondary payer if claims are initially submitted correctly.
Cost: To be determined.
Effective Date: Upon enactment
65557;#17
Provider Savings: Pay Certain Medicare Providers Competitively
Examiner: Jonathan Blum
Proposal. Expand the current HCFA Centers of Excellence demonstration which enables Medicare to cap payments for certain
routine surgical procedures through a competitive bidding process with providers. The demonstration would be expanded from 10
states to include all urban areas.
5-Year Savings:
$240 million
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Background. Currently, HCFA is conducting a demonstration that will pay facilities in 10 states, considered to be "centers of
excellence," a capped payment for coronary artery bypass graft (CABG) surgery or other heart procedures, knee surgery, hip
replacement surgery, and other procedures that the HHS Secretary determines to be appropriate. Providers will negotiate with HCFA a
flat payment to cover all of costs (hospital and physician) associated with the procedures. HCFA expects up to 100 total facilities to
participate in the current demonstration: This demonstration developed from a smaller HCFA demonstration during the early 1990s of
seven sites that performed CABG and cataract surgery. An independent evaluation determined that, on average, the flat payment
mechanism resulted in reduced costs to the Medicare program without any change in health status of patients who received care from
these centers. The Administration and the House supported expanding the demonstration in the Balanced Budget Act of 1997 (BBA
97); however, the provision was dropped from the Conference Agreement.
Discussion. Even though the Medicare program is the largest purchaser of medical care in the US, it does not receive volume
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discounts like other large purchasers. At the same time, hospitals may not have chough patients to become more proficient providers
of care and thus be able to offer discounts to the Medicare program: The Centers of aceience demonstration 13 otended to
enable the Medicare program to receive volume discounts on routine surgical procedures and, ABB return, enable hospitals to
increase their market share and gain clinical expertise. In effect, participants in the demonstration will receive a fixed payment for
all hospital and physician services that is lower than the average total payment to non-participants. Facilities currently receive a fixed
payment for the operating and capital portions of inpatient care; however, physician and other clinical services remain uncapped. The
demonstration will enable Medicare to cap all related services.
The Administration supported expanding the demonstration during the BBA 97 and the House bill included the expansion, although it
was ultimately dropped from the Conference Agreement. However, expanding the demonstration may incur resistance from some
providers. Even though the demonstration does not require patients to receive care at participating facilities, expanding it may further
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split the market for these procedures. Providers who are not likely to be selected to participate would argue that they would lose
market share if the demonstration were expanded.
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DEC-02-1998 12:24
HCFA PRESS OFFICE
202 690 7159
P.02/03
HUMAN
5
HEALTH
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
of
DEPARTMENT
Press Office
Washington, DC 20201
December 2, 1998
HCFA Press Office
(202) 690-6145
STATEMENT OF NANCY-ANN DePARLE
ADMINISTRATOR, HEALTH CARE FINANCING ADMINISTRATION
We agree with the Inspector General's recommendations to strengthen the fraud-fighting efforts
of the private contractors who process and pay claims. For several years, we've pressed our
contractors to do more, and we've asked Congress repeatedly for more leverage over them.
This Administration has asked Congress five times to enact contractor-reform legislation that
will give us more leverage over those who don't do their work right and replace them with other
companies, when appropriate. To date, Congress has not acted on this legislation.
I also established a new position to oversee contractors' work and hired a physician with
experience in our anti-fraud efforts and expertise in the work done by contractors to lead our efforts.
In 1997, we required contractors to use a standard computer system to identify fraud
proactively and prevent losses.
In September, we requested proposals to hire new special fraud-fighting contractors to enhance
our efforts. We expect to hire contractors to do this additional work in 1999.
And this fiscal year, our regular contractors will attend the Inspector General's training sessions
to further educate them about developing and referring fraud cases.
Medicare's fight to eliminate waste, fraud and abuse involves many fronts and many partners,
including the Inspector General, the Department of Justice, state and local agencies and our contractors.
Last year, these combined efforts saved Medicare $7.5 billion and returned another $1 billion to
the Medicare Trust Fund. We know that we must do more, and we will continue to demand that our
private contractors do their part.
###
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USA Today article on HHS Inspector General's report on Fiscal Intermediary Fraud Units
December 2, 1998
DRAFT - December 2, 1998
For Internal Use Only
BACKGROUND: USA Today ran a story today about an HHS Inspector General's report on
the fraud units of Medicare's fiscal intermediaries, the private contractors who process and pay
Medicare claims. Based on mostly 1996 data, the report found some contractors do little to
identify potential fraud on their own, as they are expected to do. HCFA has worked to improve
their efforts in recent years and to gain greater flexibility to hire new and different contractors.
Q:
USA Today writes that Medicare's contractors aren't doing enough to fight fraud.
Why hasn't the Administration done more to make sure they spot and stop fraud?
A:
This Administration has done more to fight waste, fraud and abuse in the Medicare
program than any previous Administration. In fact, our efforts saved Medicare $7.5
billion and returned another $1 billion to the Medicare Trust Fund last year alone. Our
efforts involves many fronts and many partners, including HCFA, the Inspector General,
the Department of Justice, state and local authorities, and private businesses.
We agree that we need to strengthen the fraud-fighting efforts of Medicare's fiscal
intermediaries, the private contractors who process and pay claims. In fact, we began to
take such steps well over a year ago.
Five times, this Administration has asked Congress to enact legislation that will give
Medicare more leverage over those who don't do their work right and replace them with
other companies, when appropriate. To date, Congress has not acted on this legislation.
In 1997, Medicare required fiscal intermediaries to use a standard computer system to
identify fraud proactively and to prevent losses. These private companies participated in a
fraud-fighting conference in March and attend sessions regularly to tackle these issues.
This year, the Inspector General will provide additional training on developing cases and
referring them to law enforcement.
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1998.04.30: (Fact Sheet) THE CLINTON AD IGHT HEALTH CARE FRAUD, WASTE AND ABUSE http://www.hhs.gov/news/press/1998pres/980603b.h.
Date: Wednesday, June 3, 1998
FACT SHEET
Contact: HHS Press Office (202) 690-6343
THE CLINTON ADMINISTRATION'S COMPREHENSIVE
STRATEGY TO FIGHT HEALTH CARE FRAUD, WASTE
AND ABUSE
Overview: Since 1993, the Clinton Administration has focused unprecedented attention on the
fight against fraud, abuse and waste in the Medicare and Medicaid programs. Today, the result is
a series of investigations, indictments and convictions, as well as new management tools to
identify wasteful mispayments to health care providers.
The heightened focus on fraud and abuse since 1993 by the HHS Inspector General, the FBI and
Department of Justice, HHS' Health Care Financing Administration (HCFA) and others
throughout government is yielding a new, more detailed picture of fraudulent activities aimed at
the Medicare and Medicaid systems. New surveys and audits have helped investigators pinpoint
areas of vulnerability and ongoing patterns of abuse, which in turn are leading to changes in law
enforcement and administrative actions.
At HHS, Secretary Shalala launched Operation Restore Trust, a ground-breaking project aimed at
coordinating federal, state, local and private resources and targeting them on areas most plagued
by abuse. During its two-year demonstration phase, the project identified $23 in overpayments for
every $1 of project costs. In addition, the Secretary led the way toward steady, guaranteed
funding for anti-fraud efforts by the HHS Inspector General, included in the Health Insurance
Portability and Accountability Act of 1996 (HIPAA).
On January 26, 1998, President Clinton sent to Congress the first annual report of the Health
Care Fraud and Abuse Control Program -- created by HIPAA which shows remarkable
progress in rooting out health care fraud and abuse. In FY 1997 alone -the first full year of
anti-fraud and abuse funding under HIPAA nearly $1 billion was returned to the Medicare
Trust Fund, the largest amount ever. HHS also excluded more than 2, 700 individuals and entities
from doing business with Medicare, Medicaid, and other federal and state health care programs
in FY 1997 for engaging in fraud or other professional misconduct - a near doubling (a 93
percent increase) over 1996. In addition, HHS increased convictions for health care fraud-related
crimes by nearly 20 percent, and pursued 4,010 civil health care fraud cases -- an increase of 61
percent over 1996 Since 1993, actions affecting HHS programs alone have saved taxpayers more
than $20 billion and increased health care fraud convictions by more than 240 percent.
The Administration will continue to expand its efforts to identify wrongdoers and to obtain
convictions. The budget bill signed by President Clinton in August 1997 includes many new fraud
fighting tools sought by the Administration. In addition, President Clinton proposed an anti-fraud
and abuse legislative package as part of his FY 1999 budget that would save Medicare some $2
billion over 5 years.
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CLINTON ADMINISTRATION EFFORTS TO FIGHT FRAUD, WASTE, AND ABUSE
Operation Restore Trust. In May 1995, President Clinton launched Operation Restore Trust (ORT), a
comprehensive anti-fraud initiative in five key states designed to test the success of several innovations
in fighting fraud and abuse in the Medicare and Medicaid programs. HCFA, the HHS Inspector General,
and the HHS Administration on Aging are working in partnership to carry out ORT. During the two year
demonstration, ORT identified $23 in overpayments for every $1 spent looking at the fastest-growing
areas of Medicare, including home health care, skilled nursing facilities, and providers of durable
medical equipment. In May 1997, Secretary Shalala announced a new, nationwide expansion of ORT to
look at additional areas of fraud and abuse this year.
Fraud and Abuse Hotline. HHS has expanded the 1-800-HHS-TIPS hotline started in 1995 to
report fraud and abuse in Medicare and Medicaid programs. Over 38,000 complaints that
warranted follow-up action have been received since it began service. The hotline is staffed
Monday through Friday, 8:30 a.m. to 6:00 p.m. Eastern Time, and assistance is available in both
English and Spanish. Medicare beneficiaries across the nation are now receiving the toll-free
number on their monthly Medicare statements, making it easier for them to help Medicare crack
down on fraud and abuse.
Administration on Aging Ombudsman Program. As a partner in Operation Restore Trust, the
Administration on Aging has trained thousands of paid and volunteer long term care ombudsman
and other aging services providers to recognize and report fraud and abuse in nursing homes and
other long term care settings.
Guaranteed and Expanded Funding. In August 1996, President Clinton signed the Health Insurance
Portability and Accountability Act (HIPAA) legislation into law, which for the first time created a stable
source of funding for fraud control. This law established the Health Care Fraud and Abuse Control
Account, a key proposal of the Clinton Administration, to which money is deposited annually from the
Medicare Part A Trust Fund to help finance expanded fraud and abuse control activities. The additional
funding, $104 million in FY 1997 and up to almost $120 million in FY 1998, is divided between HHS
and the Department of Justice to coordinate federal, state and local health care law enforcement
programs; conduct investigations, audits, evaluations and inspections relating to the delivery and
payment of health care; help facilitate enforcement of civil, criminal and administrative statutes on
health care fraud and abuse; provide guidance to the health care industry on fraudulent health care
practices; and establish a national data bank to receive and report final adverse actions against health
care providers.
New Anti-Fraud Grants. On August 21, 1997, HHS awarded more than $2.25 million in grants
funded by HIPAA for new programs to aid in the fight against health care fraud and abuse. Of this
amount, more than $1.5 million in "Health Care Fraud and Abuse Control Grants" will be
administered by HCFA, the HHS Inspector General, and the Department of Justice. The HHS
Administration on Aging also announced a total of $900,000 in grants to be administered through
state offices on aging, which will help expand the Department's highly successful Operation
Restore Trust program. In June 1997, the Administration on Aging also awarded funds to 12 local
agencies to recruit and train retired professionals to teach older persons and their families what to
look for when reviewing their billing statements and how to report potential waste, fraud, and
abuse.
Expanded Office of the Inspector General (OIG). In FY 1997, the Office of the Inspector General
received approximately $70 million from the Health Care Fraud and Abuse Control Account. The
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funding enabled the OIG to open six new field offices to facilitate enforcement actions, increasing
from 26 to 31 the number of states in which the OIG is present. Provisions under HIPAA will also
establish a fraud and abuse database to identify health care providers who have been the subject of
adverse actions as the result of illegal or abusive practices and award grants to partner agencies
engaged in investigations, prosecutions and audits of health care fraud and abuse.
Increased Efforts by the Department of Justice (DOJ). The Department of Justice was allocated
approximately $24 million of the money appropriated from the Health Care Fraud and Abuse
Control Act to step-up their efforts to investigate fraud and abuse and enforce criminal and civil
statutes applicable to health care fraud and abuse. In the last four years the Department of Justice
has increased resources, focused investigative strategies, and improved coordination among law
enforcement to fight health care fraud. Due to DOJ's comprehensive efforts, the number of health
care fraud convictions increased by more than 240 percent since FY 1992.
Incentive Program for Fraud and Abuse Information. On June 3, 1998, HHS announced a new
regulation to implement the Incentive Program for Fraud and Abuse Information, created in the
Health Insurance Portability and Accountability Act. Under this program, which starts in January
1999, rewards will be paid to Medicare beneficiaries and others who report fraud and abuse in the
Medicare program if their information leads directly to the recovery of Medicare money for
fraudulent activity not already under investigation by law enforcement agencies, the HHS
Inspector General, state agencies or Medicare's contractors. Rewards will be for 10 percent of the
recovered overpayment or a $1,000 maximum, and will be financed from the collected
overpayments, after all other fines and penalties have been recovered.
Tightening Standards for Home Health Care Providers. HHS declared a moratorium on enrollment
of new home health providers in the Medicare program while implementing new regulations to prevent
fraud in home health care. The new regulations include provisions to: (1) require home health agencies
to post surety bonds of at least $50,000 before they can enroll or re-enroll in Medicare; (2) require a
minimum number of patients to establish an agency's experience in the industry prior to seeking
Medicare enrollment; and (3) require agencies to submit detailed information about all businesses they
own to prevent the use of shady financial transactions to exploit Medicare. This action is consistent with
strong evidence that the best way to stop fraud and abuse in our Medicare program is to prevent
unscrupulous providers from ever entering the program. The moratorium was lifted on January 14, 1998.
HHS is also developing a new renewal process for home health agencies currently in the program, and is
doubling audits and increasing claims reviews to help weed out bad apple providers. In addition, the
Clinton Administration in March 1997 proposed a new regulation that would revise the federal standards
(Condition of Participation) that home health agencies must meet in order to participate in the Medicare
program. The new rules require home health agencies to be more accountable for the care they provide
and to conduct criminal background checks on the aides they hire.
At the Clinton Administration's urging, several measures to fight fraud in home health care were
included in the Balanced Budget Act of 1997, including:
Establishing a prospective payment system for home health services, to be implemented by Oct. 1,
1999. Moving to a PPS system will be a tremendous tool to stem the flow of home health care
dollars. HCFA will set, in advance, what it will pay for a unit of service, how many visits will be
included in that unit and what mix of services will be provided.
Paying home health services based upon the location where the service is provided-the patient's
home-as opposed to where the service is billed. This will stop agencies from getting higher urban
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reimbursement when, in fact, the service occurred in a lower-cost rural setting.
Eliminating periodic interim payments to home health agencies. These payments were previously
used to encourage Medicare participation and now are no longer necessary.
Tightening eligibility for home health services so that providers can no longer game the system by
certifying patient eligible for home health services simply because they need blood drawn on a
regular basis. There is a separate benefit for blood drawing services only.
New Requirements for Durable Medical Equipment Suppliers. On January 20, 1998, HHS published
a regulation to help prevent fraud and abuse in the supply of durable medical equipment (DME) for
Medicare beneficiaries. DME has been identified as a prime area for potential fraud against Medicare,
and it is one of the special focuses of HHS' anti-fraud initiative, Operation Restore Trust. Under the
regulation, suppliers of DME, including wheelchairs, canes, and other medical supplies, would be
required to obtain surety bonds of at least $50,000. The requirement applies to payment for any DME
furnished on or after January 1, 1998. In addition, the proposed regulation would ban DME supplier
telemarketing; require suppliers to have a physical office and a listed phone number; codify a
requirement that suppliers reenroll in Medicare every three years; prohibit suppliers from reassigning a
supplier number; and apply criminal and civil sanctions for misrepresentations on billing number
applications. On January 24, 1998, the President announced that, to ensure that medical equipment
suppliers are providing the medical devices they claim, the Department of Health and Human Services
will conduct nationwide on-site inspections of medical equipment suppliers.
The Medical Integrity Program (MIP) and Payment Safeguards. This system of payment safeguards,
also authorized by HIPAA, identifies and investigates suspicious claims throughout Medicare, and
ensures that Medicare does not pay claims other insurers should pay. MIP also ensures that Medicare
only pays for covered services that are reasonable and medically necessary. HCFA's current payment
safeguards are already paying dividends in cost savings. These safeguards comprise a comprehensive
system which attempts to identify improper claims before they are paid, to prevent the need to "pay and
chase." HCFA's current strategy for program integrity focuses on prevention and early detection. Some
of the payment safeguard activities include: the Medicare Secondary Payer Program, medical review,
cost report audits and anti-fraud activities. The payment safeguard activities returned $14 for every $1
spent, and saved an estimated $7.5 billion for FY 1997. The Secondary Payment Program alone, which
is identifying whether insurers should pay claims that in the past have inappropriately been paid by
Medicare, saved more than $1.1 billion in 1997.
Improving Health Care Industry Compliance. The HHS Office of the Inspector General has issued
compliance program guidance for hospitals to assist in developing measures to combat fraud and abuse
in the hospital industry. In addition, the OIG released guidelines identifying steps the clinical laboratory
industry should undertake to improve adherence to Medicare and Medicaid statutes, regulations, and
program directives. The guidelines are part of the Inspector General's continuing efforts to work with
health care providers to promote voluntary compliance with the applicable statutes, regulations, and
program requirements pertaining to federal and other health care programs. In addition, the OIG has
issued fraud alerts, advisory opinions and other guidance as part of an ongoing effort to promote the
highest level of ethical and lawful conduct by the health care industry.
Correct Coding Initiative. In 1994, HCFA began the Correct Coding Initiative by awarding a contract
for the development of correct coding policy for all physician billing codes referred to as current
procedural terminology (CPT) codes. Implemented in 1996, this enhanced pre-payment, control and
associated software update resulted in a projected $260 million in savings in FY 1997. In FY 1998,
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HCFA will continue to develop coding policy and edits with a focus on new CPT codes with the
potential for high utilization.
Substantive Claims Testing. HCFA is now working to develop a substantive testing process to help
determine not only whether claims are paid properly, but also whether services are actually rendered and
medically necessary.
Education Efforts. HCFA's contractors educate the provider billing community, including hospitals,
physicians, home health agencies and laboratories about Medicare payment rules and fraudulent activity.
This education covers current payment policy, documentation, requirements and coding changes through
quarterly bulletins, fraud alerts, seminars and, more importantly, through local medical review policy.
Los Alamos National Laboratory. The lab is developing sophisticated pattern detection methods for
application to Medicare's vast data banks. These methods will help identify and target suspect claims
which need additional review. This effort could start directing investigators to new cases of fraud and
abuse.
Tough New Requirements for Medicare and Medicaid Participants. President Clinton's FY 1998
budget proposal included several additional anti-fraud provisions. In addition, President Clinton
introduced new legislation in March 1997, the "Medicare/Medicaid Anti-Waste, Fraud and Abuse Act of
1997," that established tough new requirements for individuals and companies that wish to participate in
Medicare and Medicaid. Most of the Clinton Administration's recommendations were included in the
budget bill signed by the President on August 5, 1997, including:
Penalties for services billed by a provider who has been excluded by Medicare and Medicaid.
Penalties for hospitals who contract with providers who have been excluded by Medicare and
Medicaid.
Civil monetary penalties levied on providers that violated the anti-kickback statute, under which
the physician received some kind of incentive for referring patients.
Requiring health care providers applying to participate in Medicare or Medicaid to provide their
Social Security numbers and their employer identification numbers so HCFA can check an
applicant's history for past fraudulent activity.
Barring convicted felons from participating in Medicare and Medicaid.
h, OTE
wan
10-Step Anti-Fraud and Abuse Legislative Package. To build on the Administration's unprecedented
success in fighting health care fraud, waste, and abuse, President Clinton's FY 1999 budget proposal
includes an anti-fraud and abuse legislative package that saves Medicare some $2 billion over five years.
The package includes measures that would:
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Eliminate excessive payments for certain drugs, for which the Inspector General has reported
Medicare currently overpays;
Ensure Medicare does not pay for claims that ought to be paid by private insurers, such as taking
steps to ensure that Medicare is aware of liability settlements and of other coverage obligations of
private insurers;
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Ask providers to pay for their audits, which will allow Medicare to double the number of audits;
and
Ensure that filing for bankruptcy cannot shield providers from their obligations to Medicare.
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PRESIDENT UNVEILS TEN LEGISLATIVE PROPOSALS AS PART OF HIS
ONGOING ANTI-FRAUD, WASTE, AND ABUSE COMMITMENT
January 23, 1998
(1)
Eliminating Wasteful Excessive Medicare Reimbursement for Drugs. A recent report
by the HHS Inspector General found that Medicare currently pays hundreds of millions of
dollars more for 22 of the most common and costly drugs than would be paid if market
prices were used. For more than one-third of these drugs, Medicare paid more than
double the actual average wholesale prices, and in one case pays as high as ten times the
amount. This proposal would ensure that Medicare payments be reduced to the actual
amount that the drugs cost.
(2) Eliminating Overpayments for Epogen. In a 1997 report, the HHS Office of Inspector
General (OIG) found that reducing the Medicare reimbursement for Epogen (a drug used
for kidney dialysis patients) to reflect current market prices would result in more than
$100 million in savings to the Medicare program and beneficiaries.
(3)
Doubling the Number of Audits to Ensure That Medicare Only Reimburses for
Appropriate Provider Costs. Right now, not all cost-based providers (e.g., hospitals,
home health, non-PPS, skilled nursing facilities) are audited. This proposal would assess
a fee to cover all audits and cost settlement activities for health care providers. These
steps help ensure that Medicare only makes payments for appropriate provider costs.
(4)
Lowering Medicare's Payments for Equipment Through A Nationwide Competitive
Pricing Program. Competitive Pricing would let Medicare do what most private and
other government health care purchasers do to control cost -- lower costs by injecting
competition into the pricing for equipment and non-physician services.
d
(5)
Eliminating Abuse of Medicare's Outpatient Mental Health Benefits. The HHS
Inspector General has found abuses in Medicare's outpatient mental health benefit -
in particular that Medicare is sometimes billed for services in inpatient hospitals or
homes. This proposal would eliminate this abuse by requiring that these services are
only provided in the appropriate treatment setting.
(6)
Creating Civil Monetary Penalties For False Certification of The Need For
Care. Recent HHS Inspector General reports identified providers who
/
inappropriately certified that beneficiaries needed out-patient mental health benefits
and hospice services. This proposal would impose penalties on physicians who
falsely certify their patients' need for these two benefits.
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009
(7)
Preventing Providers From Taking Advantage of Medicare By Declaring
Bankruptcy. Providers who have defrauded and abused Medicare often file for
bankruptcy in order to avoid paying fines or returning overpayments, leaving
Medicare strapped with the bills. This proposal would give Medicare priority over
others when a provider files bankruptcy.
(8)
Taking Action To End Illegal Provider "Kickback" Schemes. A serious area of
fraud is "kickback" schemes, where health care providers unnecessarily send patients
for tests or to facilities where the provider is financially rewarded. While we have
established criminal penalties for these schemes, additional tools are needed to stamp
out this practice: specifically, allowing prosecutors to get a court order put an
immediate halt to such schemes, and to allow civil as well as criminal remedies.
(9)
Ensuring Medicare Does Not Pay For Claims Owed By Private Insurers. Too
often, Medicare pays claims that are owed by private insurers because Medicare has
no way of knowing the private insurer is the primary payer. These proposals would
take steps to address these problems including: requiring insurers to report any
Medicare beneficiaries they cover; allowing Medicare to recoup double the amount
owed by insurers who purposely let Medicare pay claims the group plan should have
made; and imposing fines for not reporting no-fault or liability settlements for which
Medicare should have been reimbursed.
(10) Enable Medicare to Capitate Payments for Certain Routine Surgical Procedures
Through a Competitive Pricing Process With Providers. This will expand
HCFA's current "Centers of Excellence" demonstration to enable Medicare to receive
volume discounts on these surgical procedures and, in return, enable hospitals to
increase their market share and gain clinical expertise.