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GAO Issues Report on Improper Medicare and Medicaid Payments due to Possible Documentation Deficiencies.

The Government Accountability Office (GAO) recently released a report identifying potential causes for substantial differences in Medicare and Medicaid improper payment rates.  Specifically, the GAO reported on disparities caused by differing documentation requirements in the Fee-For-Service (FFS) Medicare and Medicaid programs.  Additionally, the GAO reviewed the medical review processes that CMS payment error rate programs use to determine improper payment rates for the two programs.  The GAO prepared the report to support congressional oversight regarding the proper use of federal health care dollars.  The GAO reported that in Fiscal Year (FY) 2017, Medicaid FFS had an estimated $6.8 billion in improper payments due to insufficient or lacking documentation, while Medicare FFS had an estimated $23.8 billion in improper payments for these reasons.  As such, the GAO conducted this evaluation to determine the cause of this wide variation in Medicare and Medicaid payment error rates.  To make this determination, the GAO examined: 1) CMS’s process for retrieving and reviewing medical documentation to estimate improper FFS Medicare and Medicaid payments; 2) Medicare and Medicaid documentation requirements that contributed to improper payments based on insufficient documentation; and 3) the extent to which medical record reviews provided Medicaid with actionable information to correct underlying problems.

CMS has a Medicare Comprehensive Error Rate Testing (CERT) program and a Medicaid Payment Error Rate Measurement (PERM) program.  Medicare CERT and Medicaid PERM contractors are responsible for conducting medical necessity reviews, including documentation evaluations, and monitoring claim payments accuracy.  These contractors look to determine whether denials or payment of claims are in accordance with Medicare or Medicaid coverage requirements, including federal and state statutes, regulations, and CMS and state coverage policies.  The CERTs and PERMs classify improper payments due to documentation errors into two general categories: “no documentation” or “insufficient documentation.”  A “no documentation” error determination is made if a provider does not submit the requested documentation or have the proper documentation requested.  An “insufficient documentation” error determination is made if a provider submits documentation, but the documentation does not contain: 1) sufficient information to determine that the service was medically necessary; or 2) a required element, such as a signature.  The Medicare and Medicaid documentation requirements outline the documentation required to show medical necessity and compliance with program coverage requirements.

In developing its report, the GAO reviewed CMS CERT, PERM, and Medicare and Medicaid program requirements, policies, processes, and program and error rate data.  The GAO limited its payment review to improper payment data from 2005 through 2017 for home health, durable medical equipment (DME), laboratory, and hospice services.  Specifically, the GAO reviewed CERT and PERM program processes and documentation, data regarding outreach to providers for documentation correction, and policies for referrals of potentially fraudulent claims.  The GAO also interviewed CMS officials, CERT and PERM contractors, officials from the California, Delaware, Indiana, Massachusetts, Michigan, and New York Medicaid agencies, and associations representing physicians.  To determine the extent to which medical record documentation provided actionable information, the GAO also interviewed officials from the Office of Management and Budget (OMB), the Department of Health and Human Services (HHS) Office of Inspector General (OIG), the National Association of Medicaid Fraud and Control Units, and the Association of Certified Fraud Examiners.

The GAO made the following key findings:

Differing Medicare and Medicaid Documentation Requirements May Result in an Inconsistent Assessment of Program Risks

The CERT and PERM contractors have relatively similar procedures for following up with providers that have submitted improper documentation, reporting suspected fraud, conducting interrater reliability (IRR) reviews, and disputing improper payment determinations.  However, the GAO found that four distinct differences in Medicare and Medicaid coverage and documentation requirements may cause the difference in insufficient documentation error rates.  The four important differences include the following:

  • Face-to-face Examinations: Medicare requires referring physicians for home health and DME providers to submit documentation verifying that a face-to-face examination was conducted when certifying medical necessity for a service. Hospice providers must submit the same documentation to evidence face-to-face examination when recertifying medical necessity for beneficiaries who received more than six months of care.  A similar face-to-face examination policy was implemented for home health and DME services in Medicaid in 2016.  However, the requirement likely did not apply to many claims that were subject to the PERM medical reviews for fiscal year 2017.
  • Prior Authorization: Many states impose prior authorization requirements under their Medicaid programs. However, Medicare does not have the same broad authority to implement prior authorization requirements.  Several state Medicaid agencies credited prior authorization policies as one of the reasons why improper medical necessity payments were lower under Medicaid programs.   Purportedly, providers are less likely to render unnecessary services that require a prior authorization.
  • Physician Signatures: Medicare and state Medicaid agencies require physician signatures on provider documentation. However, Medicare has stricter requirements for what constitutes a valid signature.
  • Documentation for Referred Services: Medicare requires documentation from referring physicians for home health, DME, and laboratory services, but state Medicaid agencies generally do not.

After reviewing these differences, the GAO highlighted that documentation for the same services may meet requirements under one program but not necessarily under another, and large differences in identified improper payment rates exist.  Therefore, it is unclear whether the documentation requirements for both programs truly help to determine if services are meeting coverage policies.  CMS may not have the information it needs to accurately identify program risks and develop appropriate program integrity strategies.

Medicaid Medical Reviews May Not Provide Actionable Information for States, and Other Practices May Compromise Fraud Investigations

The GAO found that the lack of robust PERM medical review samples and current policy conflicts regarding fraud investigation reporting may compound CMS’s inability to accurately identify Medicaid program risks.

  • Lack of Robust Sample Size: CMS officials noted that PERM contractors do not generate a statistically generalizable sample when conducting their medical necessity reviews. Additionally, the PERM contractors do not create large samples for specific procedures or services.  As a result, it is difficult to identify and extrapolate a documentation issue with any one service for the whole state.  Therefore, CMS is unable to recommend accurate corrective action because the identified issue may not be an issue that needs to be addressed or may be an issue that is not a state-wide problem.
  • Current fraud investigation reporting policies: The GAO noted that current state policies on reporting fraud investigations to PERM contractors may compromise CMS fraud investigations and incentivize underreporting of fraud inquiries. States may, but are not required to, determine if providers selected in the PERM’s review sample are under a fraud investigation.  However, CMS policy requires that if a state does make such a notification to the PERM contractor, the contractor must terminate all contact with the provider at issue.  The relevant claims involved in the PERM review will be deemed improper as a “no documentation” error determination.  The GAO found that this policy discourages state Medicaid agencies from reporting to the PERM contractor because the automatic “no documentation” determination leads to higher improper payment rate findings for that state.

Moreover, if a state does not inform the PERM contractor of the provider investigation, the PERM contractor will carry on with its own medical review of that provider, which includes obtaining the provider’s documentation and communicating about improper payment determinations.  Such contact could interfere with the ongoing fraud investigations of these providers.  In addition, the PERM contractor contacting providers could give them the impression that they are under heightened scrutiny, which may cause providers to change their behavior, or destroy, create, or falsify evidence.  Finally, the PERM contractor, unaware of the fraud investigation, may communicate with the state about improper payment determinations, which may prompt the state to conduct educational outreach.  This may change the billing practices of the provider in the middle of the investigation.

The GAO provided the following recommendations:

  1. The CMS Administrator should create a process to routinely assess and ensure that Medicare and Medicaid documentation requirements are effective in identifying and addressing coverage compliance risks.
  2. The CMS Administrator should take steps to ensure that PERM Medicaid medical reviews are robust enough to identify and effectively address the underlying causes of improper payments. The GAO suggested that this might require an adjustment to CMS’s sampling approach to include state-specific risks and collaboration with state Medicaid agencies to leverage other resources to create a fuller review.
  3. The CMS Administrator should take steps to decrease the likelihood of PERM medical reviews compromising fraud investigations. CMS could require PERM contractors to determine whether an individual is under investigation and assess whether the contractor’s medical review will compromise the investigation.
  4. The CMS Administrator should address the disincentives for state Medicaid agencies to notify PERM contractors of providers under fraud investigations. The GAO suggested that CMS could educate states on the benefits of reporting providers under fraud investigation and take certain actions such as addressing how claims from providers under fraud investigation are being accounted for in state-specific FFS improper payment rates.

HHS concurred with all but the second GAO recommendation.  HHS noted that creating a more robust PERM medical review would increase the burden and cost to state Medicaid agencies, and the use of other information sources could jeopardize the statistical validity of the reviews.  In addition, HHS noted that it uses a variety of sources beyond the PERM contractor reviews to identify risk and take appropriate action.  The GAO responded that while it appreciates that a change to the current review procedures will increase costs, HHS may be spending resources on corrective actions that do not address appropriate problems because of inaccurate PERM review results.

The GAO report is available at: