GAO: Standardizing prepayment audits could save millions

The Government Accountability Office says the CMS could potentially save tens of millions of dollars a year by standardizing how Medicare payments to hospitals and physicians are audited before the bills are paid—a recommendation likely to irk healthcare providers.

Medicare administrative contractors are already supposed to be using a form of auditing known as "prepayment review," and the more controversial recovery audit contractors were slated to begin a long-stalled prepayment review demonstration project on Aug. 27.

By using standardized methods for selecting which Medicare claims get denied for payment before the appeals process, CMS contractors may have prevented as much as $114.7 million in Medicare payments in 2010, according to the GAO study (PDF). Of that amount, GAO officials say $14.7 million appeared to be clearly improper under CMS national coverage rules, and $100 million appeared to violate the contractors' local coverage rules and may have been held back.

Jeff Baird, chairman of the healthcare group at law firm Brown & Fortunato in Amarillo, Texas, said healthcare providers were likely to take a dim view toward any recommendation of more prepayment reviews.

"What we've seen is a lot of unfairness to providers," he said. "Under the law, possession is nine-tenths of everything. The contractors 'possess,' quote, the providers' money. No matter how you slice it, the providers don't get paid unless the contractors say."

However, Baird noted a potential upside as well—standardizing the Medicare contractor's automated "edits" that determine when payments get audited might bring a welcome measure of consistency, because experience shows that contractors enforce rules differently, and even different auditors within the same organization are not uniform in how they handle auditing decisions.

"I think the provider community is not going to be particularly pleased," he said. "Having said that, provider prepayment reviews are not going away. The key is that they be fairly implemented."

By virtually any measure, improper payments are a problem in Medicare. HHS Inspector General Daniel Levinson wrote recently that the CMS lost an estimated $64 billion to fraud, waste and improper payments during 2011, even as criminal prosecutions reach all-time highs and federal officials direct more resources than ever to the fight errors in Medicare payments.

The GAO reported that the CMS' own estimate of the improper payment rate was closer to $29 billion. Past research has found that prepayment reviews saved Medicare $1.7 billion in 2010.



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