Audit Shows Dramatic Decline in Improper Medicare Payments

Health Care Financing Review, Winter 1998 | Go to article overview

Audit Shows Dramatic Decline in Improper Medicare Payments


The U.S. Department of Health and Human Services (HHS) recently reported that improper Medicare payments to hospitals, doctors, and other health care providers declined dramatically last year to the lowest error rate since the government initiated comprehensive audits 3 years ago. The findings are included in an audit report prepared by the Department's Office of Inspector General (OIG).

The error rate for fiscal year (FY)1998 was an estimated 7.1 percent, representing estimated improper payments of $12.6 billion. This compares with an error rate of 11 percent in FY 1997, representing an estimated $20.3 billion; and 14 percent in FY 1996, representing an estimated $23.2 billion in improper payments.

"Today's report by the Inspector General is welcome proof that our zero tolerance policy against waste, fraud, and abuse is paying off," HHS Secretary Donna E. Shalala said. "We still have a big job to do in eliminating improper Medicare payments, but with a 45-percent reduction in improper payments in just 2 years, we are making real progress."

OIG auditors with the support of medical experts reviewed a comprehensive statistically valid sample of Medicare fee-for-service (FFS) claim expenditures and supporting medical records to determine the accuracy and legitimacy of the claims. They looked at a statistical selection of 600 beneficiaries nationwide with 5,540 claims valued at $5.6 million and determined that 915 of the claims did not comply with Medicare laws and regulations.

By projecting the sample results over the universe of Medicare FFS benefit payments, which totaled $176.1 billion during the FY, the OIG calculated that $12.6 billion was the midpoint in the estimated range of improper payments.

HHS Inspector General June Gibbs Brown called the 45-percent reduction in overpayments since FY 1996 "a truly remarkable improvement," and said she was "encouraged by the determined and concerted effort of the Secretary, the Health Care Financing Administration (HCFA), the Department of Justice, the Congress, and the provider community to effectively address the overpayment problem. This dearly demonstrates what can be accomplished when we work cooperatively to solve such significant problems."

She noted that the improper payments, as with past years, could range from inadvertent mistakes to outfight fraud and abuse; the portion of the error rate attributable to fraud could not be quantified.

The two major problem areas were identified as billing for services that were not medically necessary and upcoding services to secure a higher reimbursement than justified. They combined to account for about $9.3 billion of the estimated $12.6 billion in improper payments. Another $2.1 billion in overpayments was attributed to documentation discrepancies, and the remaining $1.2 billion to billing for services not covered by Medicare, and other types of errors.

Hospitals, physicians, and home health agencies (HHAs) accounted for more than 77 percent of the improper payments, with approximately 39 percent of the erroneous claims attributable to hospitals, nearly 26 percent to physicians, and almost 13 percent to HHAs. …

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