Expanded and more aggressive accounting has cut the rate of improper payments in Medicare and Medicaid, according to the Obama administration, but providers worry they're bearing increasing costs from those initiatives. The concerns may grow more acute as political pressure and new initiatives accelerate the government's drive to reduce improper payments.

The administration last week claimed $12 billion in savings in fiscal 2011 from a range of measures used to track the rate and total dollar amount of improper payments under the biggest and growing federal healthcare programs.

Such reductions not only demonstrate progress on a key administration goal but follow the narrative used by many Democrats that efficiencies, payment controls and fraud enforcement can control the growth of the programs, while skirting discussion of across-the-board cuts or changes that would more directly affect payments to providers or benefits and eligibility for enrollees.

“We have to tackle the issue of why healthcare in America is so expensive—why we end up spending twice as much per person on healthcare than do the people of every other industrialized country,” Sen. Bernie Sanders (I-Vt.) told Modern Healthcare. “So I think what we need to do is get rid of a lot of waste and bureaucracy and administrative costs in healthcare.”

But the clear political logic of aggressively cutting so-called improper payments looks much grayer from the perspective of many providers, who see both growing costs from compliance and the unintended consequence of increasing overall healthcare spending.

“When you get into the nuts and bolts of some of these programs, you realize it's not as easy as taking the overpayment line out of the budget,” said Michael Regier, senior vice president of legal and corporate affairs for VHA.

The Obama administration announced on Nov. 14 that it was on course to deliver on a 2010 promise to cut Medicare's fee-for-service error rate in half by the end of fiscal 2012. The rate dropped to 8.6% of payments in fiscal 2011, which ended in September, from 10.8% in 2009, the base line year.

The fee-for-service improper payment rate is one of several tracked by the administration in the Medicare and Medicaid programs, which make up nearly a quarter of all federal spending and are highly vulnerable to paying claims with errors, both intentional and not. The CMS also tracks error rates in the Medicare Advantage program, which the administration said dropped to 11% in fiscal 2011, an improvement of 3 percentage points that saved $5 billion.

Another measure of success in reducing improper payments that administration officials recently touted was the $4 billion recovered by antifraud efforts in fiscal 2011.

Such commingling of accidental overpayments or misdirected payments with outright fraud in public campaigns to reduce improper payments is seen by some providers as symptomatic of a broad-brush approach that obscures the unintended consequences of the effort.

“The sharp reduction in payment errors announced today demonstrates this administration is serious about cutting waste,” Vice President Joe Biden said in a news release.

But, as CMS Deputy Administrator Dr. Peter Budetti pointed out in a congressional hearing in April, payment errors don't necessarily represent money the government should not have spent. “They are usually not fraudulent nor necessarily payments for inappropriate claims; rather, they tend to be an indication of errors made by the provider in filing a claim or inappropriately billing for a service,” Budetti, director of program integrity for the CMS, said in testimony to the House Oversight and Government Committee's healthcare subcommittee.

That distinction is becoming increasingly blurred to justify more aggressive auditing efforts that drive up other types of healthcare costs, said some provider advocates.

“I have defended providers for over 30 years on Medicare audits, and the environment has never been anything like we're seeing out there today,” said Andrew Wachler, a Royal Oak, Mich.-based healthcare lawyer.

Such concerns frequently stem from the growth of Medicare's Recovery Audit Contractor Program, which recently reported finding $680 million in Medicare payment errors in its first year of systemwide audits.

The costs associated with RAC reviews not accounted for in that figure, according to 2,024 hospitals that responded to the American Hospital Association's latest RAC survey, include an average of $61,170 spent in just the second quarter of this year on various compliance measures, such as hiring utilization management consultants. And the same survey reported that—the RAC program's success claims notwithstanding—a quarter of the RAC payment denials were appealed and the vast majority of those appeals were granted.

That program—previously scheduled to broaden its reach to Medicaid—will begin prepayment reviews for the first time under a new administration program, which will allow RACs to review Medicare claims in 11 states with high error rates for compliance before they are paid. Administration officials touted the program as another way to move away from so-called “pay and chase,” which is seen as much less efficient and unlikely to produce nearly as much savings as not issuing erroneous payments.

“This is a significant expansion of what RACs do, and we have some real concerns about how this is going to play out,” said Don May, vice president for policy at the AHA.

Hospitals are wary of the RAC expansion into prepayment areas because the auditors are paid a percentage of what they recover, leading critics to think of them as “bounty hunters,” and because RACs have no experience with prepayment review. Previously, only Medicare administrative contractors and zone program integrity contractors performed such prepayment reviews and then only sporadically.

Such prepayment denials are often overturned on appeal, Wachler said. But the delay in payment has driven many smaller healthcare contractors out of business because they lack the financial cushion to survive the wait. And that reduced competition can add to overall healthcare costs.

Another new initiative drawing concern is a pilot program that will require prior authorization for certain medical equipment. Durable medical equipment suppliers who serve any Medicare beneficiaries in the seven states with some of the highest numbers of seniors will need to obtain the prior authorization.

This new approach is largely justified by Medicare's sky-high 61% durable-medical-equipment error rate, according to federal officials, compared with the 7.9% rate of erroneous inpatient hospital payments.

“Anyone can open a DME business, unlike becoming a provider, so it's a lot easier from a fraud perspective,” said Louis Saccoccio, executive director of the National Health Care Anti-fraud Association.

But the new initiative will add costs to the healthcare system in a misguided response to errors caused by prescribing clinicians failing to meet Medicare's requirements to document the need for the equipment, said Walt Gorski, vice president of government relations for the American Association for Homecare.

“In essence, federal auditors are overruling physicians' judgment more than six out of 10 times.” Gorski said in an interview. “At some point you have to wonder if the problem isn't the policies themselves, rather than how they are being followed.”

The latest push to reduce improper payments also has raised questions from providers about a requirement in the Patient Protection and Affordable Care Act that they return overpayments within 60 days or face fines and sanctions. The CMS has yet to issue implementing regulations for the initiative or to announce whether enforcement has begun.

An administration official did not directly respond to questions about whether the program has launched or if any providers face sanctions under it.

“Thousands of providers have had their Medicare billing privileges revoked or deactivated in calendar year 2011,” Tony Salters, a CMS spokesman, wrote in response to e-mailed questions on the provision.

Providers of all sizes are concerned that the provision will require them to perform frequent and ongoing self-audits on all of their own Medicare claims to keep from running afoul of the provision's 60-day time frame, which would add significant compliance costs—especially for smaller providers, according to their advocacy groups.

Meanwhile, the only new improper payment initiative to draw widespread provider praise was one allowing hospitals to rebill for 90% of a Part B payment when a Medicare contractor denies a Part A inpatient short-stay claim on the grounds that it was the wrong setting. That could mean Medicare will pay a large number of claims that are now routinely denied, based on hospital responses in the recent AHA survey.

Hospitals reported that the vast majority of medical necessity denials were for one-day stays and in cases where the auditor concluded care was provided in the wrong setting, not because the care was medically unnecessary. “That could be a significant amount of money,” May said.