Improper payments in FY16 comprised $41.1 billion, or 11 percent of Medicare fee-for-service payments.


April 12—In recent years, the Centers for Medicare & Medicaid Services (CMS) has directed contract auditors to “probe and educate” hospitals and other providers to prevent improper payments. But CMS has collected no data to show whether the effort has helped, federal auditors say.

A recent Government Accountability Office (GAO) analysis found that CMS relied on “anecdotal feedback from providers” instead of establishing performance metrics to determine whether the reviews were effective at reducing improper billing.

The wide-ranging and controversial initiative to educate providers about ways to reduce their Medicare billing errors in certain areas vulnerable to improper billing was operated by Medicare administrative contractors (MACs) for two years, starting in October 2013. Quality improvement organizations (QIOs) took over the education effort in October 2015.

The stakes are high for reducing improper payments, which in FY16 comprised $41.1 billion, or 11 percent of Medicare fee-for-service payments, according to the U.S. Department of Health and Human Services (HHS). Improper payments include payments that should not have been made; payments made in incorrect amounts, including overpayments and underpayments; and payments for claims that were not properly documented.

“This annual report always bothers me because it equates weak documentation with improper payments,” said David M. Glaser, a healthcare attorney at Fredrikson & Byron. “That is simply not fair.”

Short-stay hospital and home health claims were the focus of MAC probe-and-educate reviews, which examined a sample of claims from every provider and then offered individualized education to reduce billing errors. A December report by the HHS Office of the Inspector General concluded that hospitals are inappropriately billing for nearly 40 percent of short inpatient stays, with Medicare paying almost $2.9 billion for those inappropriate stays in FY14.

CMS officials considered the reviews a success based on feedback from satisfied providers and on a decrease in improper billing and documentation among providers moving through the three rounds of MAC review. However, GAO found that the percentage of improperly paid claims remained high throughout the review process, despite the offer of education after each of the three rounds.

CMS also has not established performance metrics for its ongoing home health probe-and-educate effort. However, HHS officials told GAO that it is developing metrics to help measure the effectiveness of future probe-and-educate reviews.

“Without performance metrics, CMS cannot determine whether future probe and educate reviews would be effective in reducing improper billing,” the report stated.

Knowing whether the probe-and-educate effort was effective is important also because such reviews are resource-intensive and usually involve manual review of medical records by trained medical review staff, the GAO report noted. Because of the resources involved, less than 1 percent of all Medicare claims undergo manual review.

The Provider View

The probe-and-educate efforts, which included a large focus on whether hospitals were adhering to the “two-midnight rule” for short-stay admissions, have drawn criticism from providers and their advisers. MACs reviewed more than 64,000 short-stay inpatient hospital claims during the two-year period. The OIG reported that hospitals were paid for 1,074,267 short inpatient stays in FY14, down 10 percent from FY13.

“My anecdotes are that the education was practically worthless,” said Ronald Hirsch, MD, vice president of regulations and education for R1 Physician Advisory Services. “The denied cases were usually ones that ‘slipped through’ the hospital’s review process and should not have been admitted as inpatient or did not have a signed admission order. Most hospitals had a much better understanding of the two-midnight rule than the reviewers.”

Glaser said some contractors initially struggled to understand the rules of probe-and-educate, but “over time things have improved.” 

“The probe-and-educate program isn’t perfect, but it is far better than the alternative,” Glaser said.

The program has exposed improper understandings of billing requirements by both hospitals and contractors, he said. For instance, if some auditors misinterpreted CMS policy, probe-and-educate was a good way to improve the Medicare program without using more-formal audits.

Such audits have been more costly to providers and the federal government, and resulted in a massive appeals backlog that CMS has tried to clear with nationwide settlements.

“There is, however, one significant down side in the probe-and-educate process:  If the contractor uses an improper standard in the review, there isn’t an easy way to seek an ‘appeal,’” Glaser said.

QIOs’ Role

The bigger challenge for hospitals, according to Hirsch, is the effectiveness of ongoing QIO education efforts.

He noted that during a recent webinar, multiple hospitals complained that they had asked for education and heard nothing back.

“That frustrates hospitals in that without feedback and education, how could they possibly be expected to correct their processes?” Hirsch said.

KEPRO, a QIO for 30 states, issued an announcement that effective in April, CMS was changing the process by which short stays are reviewed. The change will replace an approach that requested 10 cases for smaller providers and 25 cases for larger institutions with a 25-case sampling of the top 175 providers in each area with a high or increasing number of short-stay claims and a 10-case request for all other providers previously identified as having “major concerns” during the review.

Most QIO denials are for lack of a signed admission order, Hirsch said. He described the specific education related to the two-midnight policy as “adequate but not anything they did not already know.”

The key to reducing denials, Hirsch said, is “getting providers to document better, and that is a challenge.”

Meanwhile, Glaser is watching for when CMS resumes traditional audits that take a sample of claims, identify flaws, and project the sample to a universe of claims. 

“Concluding that poor documentation suggests a service was not properly billable is a bizarre conclusion,” Glaser said. “It isn’t a standard we use in other areas of life.”


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Wednesday, April 12, 2017