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CMS Improper Payment Reduction Demonstrations Delayed

On December 29, CMS issued a notice announcing the delay of two out of the three new demonstrations projects aimed at reducing improper payments. The two demonstrations that will be delayed are the recovery audit prepayment review demonstration and the prepayment review and prior authorization for power mobility devices (PMDs) demonstration.

The notice states that CMS has received many comments and suggestions on these demonstrations and that they are considering these comments carefully. As a result, CMS will delay implementation of two of the three demonstrations, but will provide at least 30 days notice before the start of the demonstrations. The one demonstration that will begin as scheduled on January 1, 2012 is the Part A to Part B rebilling demonstration.

The three additional improper payment recovery demonstrations came out of the 2010 Improper Payment Elimination and Recovery Act. This public law further expanded the Comprehensive Error Rate Testing (CERT) program which was created to test Medicare fee for service (FFS) claims to create a way to measure improper payments in the FFS program.

The Medicare FFS improper payment methodology begins with a random sample of claims. In 2011 approximately 50,000 claims were sampled. For each sampled claim, HHS obtains medical records from providers and additional claim detail from its shared systems. This information is reviewed for compliance with Medicare coverage, coding and billing rules. When a provider does not provide the requested medical record documentation or the information submitted does not meet the Medicare requirements, the claim is counted as an error.

The primary causes of improper payments, as identified in the FY 2011 Medicare FFS Improper Payments report, were insufficient documentation errors (Administrative and Documentation), medically unnecessary services (Authentication and Medical Necessity), and to a lesser extent, coding errors (Administrative and Documentation). When the errors are analyzed based on the setting in which the service took place, the data shows that the most improper payments are due to medically unnecessary errors for inpatient hospital services.

Physicians and durable medical equipment suppliers contribute substantially to the amount of improper payments due to insufficient documentation. Incorrect coding errors are most prevalent in physician services.

HHS developed an Error Rate Reduction Plan (ERRP) that outlines actions the agency will implement in an effort to prevent and reduce improper payments for all categories of error. Of particular importance were the three demonstrations that HHS planned to implement to prevent and reduce improper payments:

In the first demonstration, HHS planned to further encourage private companies to catch wasteful spending before it happened by expanding the use of Recovery Audit Contractors in the Medicare program. These private companies recovered hundreds of millions of taxpayer dollars by finding improper payments that have already been paid out. The demonstration would allow private companies to review claims before they are paid, which will prevent improper payments from occurring in the first place. This demonstration called, Recovery Audit Prepayment Review, will allow Medicare Recovery Auditors (RACs) to review claims before they are paid to ensure that the provider complied with all Medicare payment rules. The RACs would conduct prepayment reviews on certain types of claims that historically result in high rates of improper payments. These reviews would focus on seven states with high populations of fraud- and error-prone providers (FL, CA, MI, TX, NY, LA, IL) and four states with high claims volumes of short inpatient hospital stays (PA, OH, NC, MO) for a total of 11 states. This demonstration would also help lower the error rate by preventing improper payments rather than the traditional "pay and chase" methods of looking for improper payments after they occur. This is one of the demonstrations that are delayed until further notice.

In the second demonstration, HHS will test a change in hospital billing policies that would allow some hospitals to rebill for inpatient claims that would have been more appropriately treated in the outpatient settings. These errors account for over 20 percent of all Medicare improper payments. This demonstration called, Part A to Part B Rebilling, will allow hospitals to rebill for 90 percent of the Part B payment when a Medicare contractor denies a Part A inpatient short stay claim as not reasonable and necessary due to the hospital billing for the wrong setting. Currently, when outpatient services are billed as inpatient services, the entire claim is denied in full. This demonstration will be limited to a representative sample of 380 hospitals nationwide that volunteer to be part of the program. This demonstration will allow hospitals to resubmit claims for 90 percent of the allowable Part B payment when a Medicare Administrative Contractor, Recovery Auditor, or the Comprehensive Error Rate Testing Contractor finds that a Medicare patient met the requirements for Part B services but did not meet the requirements for a Part A inpatient stay. In addition, this demonstration is expected to lower the appeals rate which will protect the trust fund and reduce hospital burden. Beneficiaries will be held harmless with respect to changes in hospital coinsurance liability. This demonstration begins January 1, 2012.

In the third demonstration, HHS would have tested a change in payment policies for power mobility devices which have historically seen an extremely high error rate. Reports from the Office of Inspector General found that the error rate for standard and complex power wheelchairs was 80 percent in 2007. The demonstration program would have been instituted in 7 states to test whether a pre-payment review, followed later by a prior authorization program, could reduce fraud and improper payments for power mobility devices. This demonstration called, Prior Authorization of Power Mobility Devices (PMDs), would implement a Prior Authorization process for scooters and power wheelchairs for all people with Medicare who reside in seven states with high populations of fraud- and error-prone providers (CA, IL, MI, NY, NC, FL and TX). This is one of the demonstrations that are delayed until further notice.

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