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With the release of fiscal year 2009 improper payment data by the Office of Management and Budget (OMB), a report on how the federal government calculates its error rates in an attempt to better target improper payments, then finally an executive order from President Obama on eliminating waste in federal programs, it was a busy week for our federal government.



  • On Nov. 17, the Office of Management and Budget (OMB) released data on improper payments made by the federal government in the 2009 fiscal year. The data revealed $98 billion in improper payments made during that time – with more than half that amount ($54.2 billion) coming from the Medicare and Medicaid programs – and showed that the rate of Medicare fee-for-service errors more than doubled over the previous year, according to White House budget chief Peter Orszag. The report shows that the Medicare fee-for-service (FFS) program had $24 billion in improper payments during FY 2009, with an improper payment rate of 7.8 percent, compared to a FY 2008 rate of 3.6 percent. The OMB attributed the error rate increase to stricter standards on identifying improper payments, and not necessarily a higher volume of improper payments on the part of providers.

    Orszag stated that the increase reflects methodological changes in the way errors are counted in Medicare fee-for-service. For example, he said, an illegible signature on a claim or insufficient documentation provided to auditors now are more likely to be classified as errors. The changes came in response to recommendations made by HHS’s Inspector General’s Office, which found that the rates the CMS had been reporting actually were underestimating the problem.

    Orszag did not say what percentage of the errors constituted fraud, but in a late evening press call held Nov. 17, he noted that some of the errors were misdirected payments occurring due to a physician’s illegible signature or inadequate documentation. In any case, he stated, “we can no longer tolerate these errors, mistakes and misdeeds … every dollar misspent is a dollar not going to help an unemployed worker, a family in need of help buying groceries or a senior who relies on Medicare to stay healthy.”

  • On Nov. 18, the CMS Office of Public Affairs issued a press release on how the federal government will employ tougher new standards in the calculation of 2009 improper payment rates as a part of the administration-wide strategy to eliminate errors and prevent waste and fraud. “As part of the Obama Administration’s goal of reducing waste, fraud and abuse in Medicare, the Department of Health and Human Services and the Centers for Medicare & Medicaid Services (CMS) significantly revised and improved its calculations of Medicare fee-for-service (FFS) error rates in 2009, reflecting a more complete accounting of Medicare’s improper payments than in past years,” the release stated. The release also states that these improvements will provide CMS with more complete information about errors so the agency can better target improper payments. “The Obama Administration is committed to strengthening and improving the Medicare and Medicaid systems and doing everything we can to be responsible and vigilant stewards of these programs that millions of Americans rely upon,” HHS Secretary Kathleen Sebelius said. “This year, we made the call to stop calculating our error rate in fee-for-service Medicare the way that the previous Administration did and to start using a more rigorous method in calculating this rate in keeping with our mandate to root out errors and fraud.”

  • On Nov. 23, President Obama signed an Executive Order on this very issue of reducing improper payments and eliminating waste in federal programs. According to Orszag, (http://www.whitehouse.gov/omb/blog/09/11/18/ReducingImproperPayments/), the Executive Order will work to ensure that “the right people receive the right payment for the right reason.” The Order revolves around three categories of action: boosting transparency, holding agencies accountable, and creating strong incentives for compliance.
    1. 1 Boosting transparency. In line with the President’s commitment to openness, the Administration will take the following steps:
      • Create and publicize a single mechanism for the public to report suspected incidences of waste, fraud or abuse.
      • Require agencies to more frequently establish error reduction targets and perform error measurement for certain high-priority programs.
      • Create an online dashboard of key indicators and statistics on improper payments.
      • Issue recommendations on ways to measure program access for intended beneficiaries, and include those measures in the dashboard.

    2. 2 Holding agencies accountable for waste. To hold agencies accountable for misusing taxpayer dollars by allowing improper payments, the Administration will:
      • Require each agency to designate a current, Senate-confirmed appointee to be accountable to the President for meeting improper payment reduction targets.
      • Require that all improper payment targets show reduction and/or improvement and share the agency’s measurement methodology and plans for meeting reduction targets with the agency’s Inspector General.
      • Issue recommendations on new internal techniques agencies could use to better detect and mitigate improper payments.
      • For programs in which targets for reducing payment error rates are not met for two years in a row, require the agency head, chief financial officer and agency Inspector General to provide the OMB director a report describing the likely causes of the agency’s failure and corrective actions it will take to meet reduction targets.
      • Increase data sharing among agencies to improve eligibility verification and pre-payment scrutiny.
      • Require agencies to produce quarterly submissions and publish reports on any high-dollar errors identified, plus actions the agency will take to recover the improper payment and to prevent future improper payments.
      • Demand that agencies’ plans for reducing program errors not unduly burden program access and participation for legitimate beneficiaries, and hold agencies accountable for implementing those plans alongside reductions in improper payments.
    3. 3 Creating incentives for compliance. To create incentives for states, agencies and recipients to report and reduce payment errors, the Administration will:
      • Pursue administrative actions to provide state, local and other organizations with incentives for reducing improper payments.
      • Seek to enhance contractor accountability by pursuing methods such as subjecting contractors to debarment, suspension and financial penalties for failing to disclose credible evidence of significant overpayments received on government contracts in a timely manner.
      • Revisit the Single Audit Act requirements.


So what does all of this mean for providers? While improper payment rates are not necessarily an indicator of fraud in Medicare or any other federal healthcare program, they do provide HHS, CMS and partners responsible for the oversight of Medicare and Medicaid funds a more complete assessment of how many errors need to be fixed.

And these new initiatives show exactly how devoted the Administration and Congress are to fixing the errors in improper payments – which is where the RACs, ZPICs and MICs come into the picture.

As the government moves forward in the review of the Medicare and Medicaid error rate data, specific trends will be noted that can better help auditors identify weaknesses in our programs or systems. The data will help in finding emerging trends and vulnerabilities in high-risk areas; data analysis that providers themselves should be performing routinely to identify their own high-risk areas could uncover these issues before the auditors do.

About the Author

Carla Engle, MBA, is a product manger for MediRegs, a Wolters Kluwer company. Her background includes more than 20 years in hospital and physician practice operations, particularly in reimbursement and billing functions. Prior to joining Wolters Kluwer recently, she was the vice president of compliance for a national revenue cycle solutions company and prior to that was in the Reimbursement Training Department with HCA. For several years she headed up the Part A Fraud Investigation Unit for a CMS Program Safeguard Contractor (PSC) where she was successful in the prosecution of several national cases. In her revenue cycle compliance capacity, she worked with a number of clients in California and Florida with Recovery Audit Contractors (RACs) in setting up processes and appeals.


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For further information on these areas, refer to the following source documents:

FY 2009 Improper Payment Rates by Agency and Program: http://www.govexec.com/pdfs/111809e1.pdf

HHS Press Release: Check out the HHS Press Release

Executive Order: http://www.whitehouse.gov/the-press-office/executive-order-reducing-improper-payments


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