Kusserow on Compliance: Medicare parts A and B among OIG’s top management challenges

Annually, the HHS Office of Inspector General (OIG) prepares a summary of the most significant management and performance challenges facing HHS and its progress toward addressing them. Among them are issues relating to Medicare Parts A and B.  The programs are expected to continue increasing significantly due to the growth in the number of beneficiaries and the increase in per capita health care costs. The Annual Report by Medicare’s Board of Trustees estimates that the Trust Fund for Part A will be depleted by 2028, and that the Part B spending growth of almost 7 percent over the next five years will be higher than growth rate for the U.S. economy. Part B is undergoing substantial changes through the Medicare Access and CHIP Reauthorization Act of 2015 and other reforms. The following were the key challenges identified in these programs.

Reducing improper payments. In FY 2015, CMS reported an improper payment rate of 12.1 percent, corresponding to $43.3 billion, for Medicare fee-for-service (Parts A and B). These measures include payments that were paid at an incorrect amount (including both overpayments and underpayments), as well as payments for unnecessary services, services not rendered, billing or coding errors, and claims that did not meet documentation or other Medicare coverage requirements. The OIG found vulnerabilities in hospital billings and returning improper payments to the Medicare Trust Fund. Special focus is needed on improper payments in home health and hospice care vulnerabilities.  Many improper payments have been identified across a number of risk areas, such as insufficient documentation, medical necessity, and homebound determinations.  One-third of stays for hospice general inpatient care have been found as not meeting Medicare requirements, costing $268 million.   There have been findings, as well, of improper payments (some exceeding 50 percent) to Part B providers, such as chiropractors, physical therapists, and certain durable medical equipment (DME) suppliers.

Preventing, detecting, and responding to fraud. The OIG has found that program areas susceptible to widespread fraud include home health and hospice services and DME, including billing for unnecessary services or services not provided; kickbacks to recruiters and patients; aggressive and illegal DME telemarketing; and social targeting of Medicare beneficiaries that put them at risk of medical identity theft.  CMS lacks accurate information about the individuals and entities with which it does business and must take appropriate steps to avoid doing business with, and exposing beneficiaries to, those who are untrustworthy.  There is a need to fully and effectively deploy all available program integrity tools, including those provided under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), such as enhanced screening of provider enrollments.  Weaknesses have been found in contractors’ administration of provider enrollments that could leave Medicare vulnerable to billing by ineligible providers and beneficiaries. Weaknesses included gaps in the verification of key information, inconsistencies in site visit procedures, and failures to use site visit results for enrollment decisions. CMS’s Provider Enrollment, Chain and Ownership System (PECOS) is incomplete and, in some cases, inaccurate. It was intended to aid in tracking enrollment and revalidation trends and to help determine whether contractors are meeting requirements.

Fostering prudent payment policies.  Medicare pays significantly different amounts for the same services provided to similar patients in different settings.   The OIG estimated swing-bed services provided up to 90 percent of the critical access hospital (CAH) services that they reviewed, which could have been provided at other nearby facilities that are paid under the Skilled Nursing Facility (SNF) Prospective Payment System.  Medicare could have saved $4.1 billion over 6 years if payments for swing-bed services at CAHs were made to other facilities at SNF rates. Medicare and beneficiaries also typically pay more for a physician service provided in a “provider-based facility” (i.e., one owned by a hospital) than for the same service provided in an independent facility.  CMS is implementing a significant overhaul of the payment system for clinical laboratory tests pursuant to the Protecting Access to Medicare Act of 2014 and the new system seeks to better align Medicare reimbursement for lab tests with market rates (taking effect on January 1, 2018).  Concerns continue about risks to payment accuracy on the basis of CMS’s plans to rely on labs to self-identify whether they meet the criteria for reporting private payer data and they plan to rely on reporting labs’ self-attestations of the data’s completeness and accuracy.  Some payment systems create financial incentives that may negatively affect patient care and drive up Medicare costs, such as payment policies for SNFs that give facilities incentives to bill for higher levels of therapy than beneficiaries need.  Some SNFs have been billing for the highest level of therapy at increasing rates that were not supported by patient needs.  Many hospices have been found providing care much longer and received much higher Medicare payments for beneficiaries in inpatient assisted-living facilities than for beneficiaries in other settings, creating incentives for hospices to target these patients, doubling hospice care cost in the last 5 years.

Progress reported by CMS/HHS in addressing the challenges

  • Substantial strides in fighting fraud, waste, and abuse in Medicare and Medicaid have been made through the Health Care Fraud and Abuse Control Program, recovering stolen and misspent funds at a return of $6.10 for every $1 invested.
  • Many OIG recommendations are being implement to implement additional program integrity tools.
  • Prior authorization models and demonstrations are being implemented in certain areas to help ensure items and services are provided in compliance with Medicare coverage, coding, and payment rules.
  • Prior authorization processes are being implemented in certain locations for power mobility devices, repetitive scheduled non-emergent ambulance transport, and certain durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS).
  • A demonstration project has begun in five states, requiring home health agencies to submit required documentation for pre-claim review to help reduce and prevent improper payments.
  • There have been reductions in Medicare billing and payments for certain services and geographic areas known for fraud risks.
  • Steps have been taken to improve provider enrollment safeguards and protection for the Medicare program.
  • Expansion of temporary provider enrollment moratoria for home health agencies has been extended in certain geographic locations known for significant fraud.
  • New regulations have been proposed that would use provider and supplier information more effectively to keep out or remove providers who pose risks to Medicare and its beneficiaries.
  •  Enhanced address verification software in PECOS has been reported to better detect vacant or invalid addresses or commercial mailing reporting agencies.
  • Improvements have been reported in oversight and measurement of contractors’ performance and agency corrective actions regarding improper payment vulnerabilities that contractors identify.
  • For laboratory services, reports have been made of significant progress in several key areas, including promulgating regulations, establishing the Advisory Panel, publishing most of the sub-regulatory guidance, and building the data collection system.
  • New legislation is being proposed that would restrict the higher payment rates for provider-based facilities to “on-campus” facilities and to “off-campus” facilities that were designated as such before November 2, 2015.

What OIG states still needs to be done

  • Continued improvement of oversight of the performance of contractors in implementing Medicare provider enrollment safeguards is needed to ensure payment accuracy and identify and recover overpayments in a timely manner.
  • Need to improve the completeness, accuracy, and timeliness of its provider ownership data (maintained in PECOS) to support effective oversight.
  • HHS should continue to address and resolve program integrity weaknesses identified.
  • Numerous actions remain to be acted upon and implemented to reduce improper payments for specific services.
  • Need to increase oversight of hospice general inpatient claims, ensure that a physician is involved in the decision to use proper level of care, and conduct prepayment reviews for lengthy stays.
  • Safeguards need strengthening to ensure that Medicare pays for home health services only when the beneficiary meets the applicable homebound requirement and the home health agency has provided reasonable and necessary skilled services that are supported by and documented in the physician’s certification plan.
  • Changes are needed (some requiring legislation) to promote more prudent payment policies, including payments to hospital outpatient departments and ambulatory surgical centers, SNFs, and hospices.
  • Need to act upon a number of pending recommendations within existing authorities to mitigate the financial and quality of care risks under the current systems, such as CMS analyzing billing data to identify SNFs that appear to be overbilling for therapy and expand its oversight reviews of those SNFs.
  • For laboratory tests, maintain focus on key remaining tasks, including completing the data collection system, ensuring completeness and accuracy of reported data, and establishing new Medicare payment rates after labs report data in 2017.
  • Monitor labs’ reporting to ensure report data are accurate and complete.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2016 Strategic Management Services, LLC. Published with permission.

Value-based purchasing may not be encouraging much improvement

To improve the Value-Based Purchasing (VBP) program CMS should address four concerns, according to a report by David Muhlestein, Ph.D., J.D., of Leavitt Partners. CMS should (1) empirically evaluate whether penalties are large enough to lead providers to make changes across the four domains; (2) structure quality measures so that only meaningful differences in performance lead to meaningful differences in payments; (3) decrease the measurement volatility by increasing the number of cases for each of the metrics and creating an alternative VBP program for low-case volume hospitals; and (4) consider urging Congress to reconsider combining the VBP program with the readmission and hospital-acquired conditions (HAC) reduction to better align measures across programs, the report recommended.


The VBP program was implemented by CMS in 2013 under Section 3001 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-14) as one of three value-based programs for hospitals. The VBP program is different from its counterparts in that it is structured to be revenue neutral, allowing some hospitals to receive bonus payments while others receive penalties for inpatient payments. It also evaluates performance across four weighted domains: clinical process of care (10 percent), patient experience of care (25 percent), clinical outcomes (40 percent), and efficiency (25 percent).

Estimated impact on financial performance

For hospitals involved in the VBP program, an average of 35.4 of discharges are paid for by Medicare, and 46.1 percent of revenue comes from inpatient care. Because the VBP modifier only affects Medicare inpatient care, the modifier can only affect about one-sixth of hospital revenue. The report estimates that, for FY 2016, the VBP modifier will affect a hospital’s income with a maximum 0.35 percent decrease in total revenue or a maximum 0.8 percent increase in total revenue. However, the report estimates that only 4.9 percent of hospitals will see a penalty or bonus payment that exceeds 0.25 percent of net revenue. Of those hospitals, only 8.3 percent will be penalized.

Performance over time

Hospitals may improve their performance each year. The report shows that, between 2015 and 2016, 45 percent of hospitals received bonuses in both 2015 and 2016, while 30 percent were penalized both years. About 25 percent of hospitals made a change between the two categories, with 11 percent moving from bonus to penalty and 14 percent moving from penalty to bonus. The report also classified hospitals into quintiles based on their 2015 and 2016 performance and found a surprising amount of movement between the quintiles, with 40 percent moving up or down one quintile, 13 percent moving two quintiles, 4 percent moving three quintiles, and 1 percent moving four quintiles.

Policy implications

While the VBP program is intended to give incentives for hospitals to improve their quality of care, the relatively small financial incentives may not be sufficient enough to justify the high investment required to implement significant changes for many hospitals, especially considering that the potential for return is unknown. More work needs to be done, the report stated, to determine whether hospitals that had higher penalties improved more than those with smaller penalties or bonuses. To encourage improvement, the report suggested moving toward measures that have clear pathways for improvement, with such measures weighted higher than those with a more nebulous pathway toward improvement. To allow hospitals clearer performance benchmarks, the report also suggested limiting measures used in the program to those where there is a meaningful distribution of performance, limiting the number of potential scores in each category to those that are substantially different.


High levels of volatility in VBP program results may indicate that the program is not adequately measuring true underlying quality and that program measures may be susceptible to random variation, as opposed to a hospital actually alternating between worsening and improving every year. Because smaller facilities tended to be more volatile, the report suggested creating an alternative program for those smaller hospitals to allow better monitoring of changes in quality.

Overlap with other Medicare initiatives

Measures within the VBP program, the Hospital Readmissions Reduction Program (HRRP) and the Hospital Acquired Conditions (HAC) reduction program are not fully coordinated, the report noted. Rather than administering separate programs, the report suggested urging Congress to combine the programs into one to better align all quality and performance measures across programs, allowing hospitals to be better-positioned to prioritize their efforts.