Medicare audit spotlights medical necessity problems

While documentation problems accounted for almost half of erroneous Medicare claims in 1997, this year the chief culprit was medical necessity, according to a recent OIG audit of Medicare fee-for-service payments.

Unnecessary care accounted for almost 56% of all improper payments, followed by incorrect coding at 18%, documentation at 17%, and non-covered services at 5%. This suggests that providers such as teaching hospitals seem to be getting the message that the Health Care Financing Administration is serious about documentation; improper payments caused by documentation plunged 80% between 1996 and 1998.

But these numbers are misleading, argues Mary Grealy, Washington, DC, counsel for the Chicago-based American Hospital Association. Documentation errors in previous audits were inflated because many hospitals did not respond to requests for documentation from their FIs, which caused their claims to be labeled as erroneous. This time, hospitals cooperated after AHA put out the word, claims Grealy.

OIG is touting the audit, which showed a 50% drop in overpayments since 1996, as evidence that its anti-fraud campaign is succeeding. Yet OIG also found that many of the improper claims were not spotted during the regular claims process.

"The overwhelming majority of these improper payments (90%) were detected through medical reviews coordinated by the Inspector General," notes OIG. "When these claims were submitted for payment to Medicare contractors, they contained no visible errors."

Still, Medicare overpayments in FY 1998 dropped to an error rate of 7.1%, or $12.6 billion of the $176.1 billion Medicare paid that year, according to the OIG audit. That's the lowest level since OIG began comprehensive audits three years ago.

It's a dramatic drop-off compared to the 11% error rate and $20.3 billion in overpayments that OIG calculated in 1997, and the 14% error rate and $23.2 billion estimated for 1996.

But this really reflects better compliance with billing regs and less sloppiness with paperwork, says Carolyn McElroy, chief of the Maryland Medicaid Fraud Control Unit. It's not an indication that criminal fraud is on the wane, she says. "There's just as much fraud out there."

Hospitals continue to account for the lion’s share of erroneous claims, with 39% of overpayments compared with nearly 26% to physicians and about 13% to home health agencies, according to OIG. Other providers, such as ambulance companies and durable medical equipment suppliers, accounted for the remaining 22%. But these figures don't indicate which types of hospitals, for example, are most prone to committing errors. Nor do they indicate if specific regions or states have more problems than others, notes Grealy.

More importantly, Grealy says these figures don't reflect whether the errors were successfully appealed, or whether providers subsequently offered documentation that justified the claims.

While OIG admits it cannot link the drop to specific causes, U.S. Department of Health and Human Services Inspector General June Gibbs Brown attributes the decline to several factors. Among them are HCFA and OIG fraud initiatives such as more prepayment reviews, attempts by regulators to educate providers on documentation requirements, and last but not least, better compliance by providers with reimbursement rules.

Not everyone is so sure there's been a real change. Grealy says that although compliance programs created by providers may account for the drop, some of the government's apparent success could be merely a statistical artifice. OIG's methodology has been criticized by industry groups that say its survey sample is too small to give meaningful results. The agency's findings were based on medical review of 5,540 claims from 600 beneficiaries nationwide. Auditors found that 915 of those claims violated Medicare regulations.

Despite the praise for HCFA's efforts, OIG warned that future problems could drive the error rate back up. In particular, more than 100 claims processing systems are being renovated to meet the Y2K computer bug. In addition, there has been a record turnover in Medicare contractors, with several either opting out of the program or being accused of sloppy work.