New steps to measure error rates in Medicare payments

The Centers for Medicare & Medicaid Services (CMS) has announced new steps to measure error rates in Medicare payments more accurately and comprehensively at the contractor level, and to further reduce improper payments through targeted error improvement initiatives. 

"We have made significant strides in how we measure the error rate in Medicare payments, and that will enable us to do even more to bring it down,” said CMS Administrator Mark B. McClellan, M.D., Ph.D. “We have much better data that will help us pinpoint problems and allow us to work with the Medicare contractors and providers to make sure claims are submitted and paid properly.”

In addition, independent auditors for CMS issued an unqualified opinion on the agency’s fiscal year 2004 financial statements, which are required by the Government Management Reform Act.  This year’s opinion marks the sixth consecutive year that CMS has received an unqualified opinion, demonstrating CMS’ stewardship, discipline and accountability in the implementation of its fiscal responsibilities

Under the new measurement process for the Medicare error rate, the net national rate for fiscal year 2004 was 9.3 percent. The enhanced information comes from the first full year of data for an expanded program run by CMS to collect more detailed and contractor-specific information to help prevent future errors.  CMS also announced new initiatives to reduce the error rate by more than half to 4 percent in four years, by building on recent reforms in payment oversight and new authorities in the Medicare law.

Medicare pays more than 1 billion claims each year.   In fiscal year 2004, CMS reviewed approximately 160,000 Medicare claims from the preceding year to learn, more precisely, where errors were being made.  This review was the most extensive ever, providing CMS with more accurate information about contractor-specific error rates, error rates by provider type, and error rates by service type.  This level of detail and accuracy is critical for CMS to identify where problems exist and target improvement efforts more effectively, and it reflects the agency’s increased commitment to use more detailed data and analysis to identify and eliminate improper payments.  

“We have developed the best data ever on contractor specific error rates,” said Dr. McClellan. “With this new and detailed information, we are now able to develop specific steps for the Medicare contractors to take more effective actions in reducing the error rates. Using this report and the new, comprehensive data, we can better manage our contractors, making them more accountable to the taxpayers, beneficiaries, and providers, and laying a foundation for the further contractor reforms that we intend to implement in the next few years.”

The 2003 analysis identified a large and unexpected increase in the rate of non-responses.  CMS adjusted the non-response rate based on past experience with non-responders and other error categories, reporting the 2003 adjusted error rate as 5.8 percent.  Without adjusting for the non-response, the 2003 payment error rate would have been 9.8 percent.  The 2004 data for error rate analysis was larger and more detailed than the 2003 data, just as the 2003 data was more extensive than data from previous years.

Since 1996, the Department of Health and Human Services (HHS) has annually determined the error rate for fee-for-service (FFS) claims paid by Medicare contractors, the insurance organizations that process and pay Medicare claims.  From 1996 until 2002, the HHS Office of Inspector General (OIG) using a sample size of about 6,000 claims conducted the process used to measure Medicare payment error rates.  The measured error rate declined from 13.8 percent in 1996 to 6.3 percent in 2002.  In fiscal year 2003, and as part of the agency’s enhanced efforts to improve payment accuracy, CMS began calculating the Medicare FFS error rate and estimate of improper claim payments using a methodology approved by the OIG for the past two years.  Since 2003, the OIG has assisted CMS in developing, reviewing, and formulating further actions based on the more extensive data collection.

"The assistance provided by the Office of Inspector General is helping us improve our accuracy and effectiveness in identifying and responding to problems in paying claims,” said Dr. McClellan.  “The majority of providers are honest and want to make sure they file their claims correctly so they can be paid timely, and we’re taking new steps to work with our contractors to make sure that happens, as we move forward with fundamental contractor reform over the next few years.”

CMS’ more extensive survey, involving a more comprehensive analysis of a larger number and variety of claims, was accompanied by well-coordinated outreach to health care providers to improve claims submissions.  CMS established two programs to monitor the accuracy of Medicare FFS payments:  The   Comprehensive Error Rate Testing (CERT) program and the Hospital Payment Monitoring Program (HPMP).  The main objective of the CERT program and HPMP is to measure the degree to which CMS and its contractors are meeting the goal of “Paying it Right.” 

The 2004 analysis does not adjust the non-response rate, and also includes other data improvements that reflect input from Congress and other oversight partners.  In particular, the sample of claims for fiscal intermediaries, who process and pay Medicare Part A claims, was doubled from the prior year so that intermediary-specific error rates could be calculated at the same levels as the Medicare carriers (Part B contractors) and durable medical equipment regional carriers. The data now permits accounting for appeals involving all types of benefits (not just hospital benefits).  Thus, the more comprehensive error rates of the last 2 years are illustrative of CMS’ new measurement process.

Of the total payments sampled in 2004, results of the new measurement program indicate the following payment error traits:

• 4.1 percent of payments had errors due to insufficient documentation being submitted (2.6 percent was reported in the 2003 analysis, which included much less information on fiscal intermediaries in 2003);
• 2.8 percent had errors due to non-responses to request for medical records (an unadjusted 5.0 percent rate was found in 2003);
• 1.6 percent had errors due to medically unnecessary services (1.3 percent in 2003);
• 0.7 percent had errors due to incorrect coding (0.7 percent in 2003); and the remaining
• 0.1 percent had other errors (0.2 percent in 2003).

The claims included in this analysis were submitted before many of the agency’s recently-implemented initiatives to reduce error rates took effect.  The more comprehensive data provides CMS with the opportunity to enhance and expand its efforts to monitor the impact of these initiatives. As part of its general efforts to further reduce the Medicare error rate, the CMS contractors will be required to:

• Develop corrective action plans that include efforts to educate providers about the importance of submitting thorough and complete medical records;
• Identify where additional review of claims and education on submitting claims is needed, based on information that shows where the highest percentage of errors on overused billing codes are occurring; and
• Use the performance results to develop local efforts to lower their error rates by addressing the cause of the errors and outlining corrective steps.

"We've taken major steps in recent years to get much better data on payment accuracy for each and every one of our contractors, and in every case, better measures mean an ability to reduce error rate for those contractors,” said Dr. McClellan.  “We've taken a major step this year to improve data on the fiscal intermediaries, and we are now using this information to drive down their error rates in the same way."

In addition, CMS is continually developing educational material and information for healthcare providers as part as of "The Medicare Learning Network.”  CMS has developed over 250 national provider education articles annually that outline, on a flow basis and in plain language, the coverage, billing and coding rules associated with Medicare program changes.  These articles can be found at www.cms.hhs.gov/medlearn/matters.

The 2004 error rate short report can be found at www.cms.hhs.gov/CERT.

http://www.cms.hhs.gov