In a move that troubles veteran fraud watchers, a mainstay project for HHS' inspector general's office-the annual Medicare payment error-rate report-now will be outsourced by the Center for Medicare and Medicaid Services.
CMS officials said their decision to transfer the watchdog function to an outside contractor chosen by the CMS would result in better data. News of the change came from a brief reference in the latest payment error-rate report, released last month by the office of Inspector General Janet Rehnquist. The fiscal 2002 report showed no change in the error rate from the previous year.
Reston, Va.-based AdvanceMed Corp., a subsidiary of information technology and defense contractor Dyncorp, was given a $4.7 million contract to produce the next report, for fiscal 2003.
The annual report, which estimates the amount of fraud and errors in the Medicare fee-for-service program, dates from the administration of Rehnquist's predecessor, June Gibbs Brown, during an era when healthcare fraud was a national issue.
The contract transfer alarmed Senate Finance Committee Chairman Charles Grassley (R-Iowa).
"We have serious concerns about this," a Grassley staffer said. "Because of its independence, the inspector general is designed to put checks on the system."
William Mahon, president of the Washington-based National Health Care Anti-Fraud Association, said the report has been a reliable benchmark of the incidence of healthcare fraud, and it tracks well with private insurance estimates. He said the report has had "an inherent credibility" coming from the inspector general's office.
Mac Thornton, Rehnquist's former chief counsel now in private practice with Sonnenschein, Nath & Rosenthal in Washington, also questioned whether next year's report will be as credible.
"The CMS hasn't historically had the same rigorous audit standards as the inspector general," Thornton said, "and now the CMS is being put into a position of evaluating its own performance."
At the time of the first error-rate report, for fiscal 1996, the CMS suffered from deficiencies in its audit process and lacked a methodology for measuring payment accuracy, said Timothy Hill, CMS director of program integrity. Since then, he said, the CMS developed a new program, called Comprehensive Error Rate Testing.
Instead of basing the error rate on a sampling of roughly 5,000 claims, as the inspector general's audit has done, the new system will examine up to 120,000 claims annually, Hill said. Nearly 1 billion Medicare claims are filed each year by Medicare's 40 million beneficiaries.
Hill said the new methodology will allow the CMS to estimate specific error rates for individual contractors, providers and benefits, and gauge the performance of Medicare fiscal intermediaries and other contractors.
"We're going to have a much better capacity to detect errors and make decisions," he said. "It made perfect sense to contract it out and not build an expensive in-house structure to do it."
Hill said the methodology doesn't exist to detect fraud, although the CMS is working on projects that will do that.
The latest report, for fiscal 2002, found that the CMS incorrectly paid an estimated 6.3% of claims, or more than $13.3 billion in reimbursements to providers. The estimated error rate for fiscal 2002, ended Sept. 30, 2002, is nearly identical to last year's percentage of 6.3%, or $12.1 billion out of total 2001 Medicare fee-for-service spending of $191.8 billion. But it's nearly half the amount of estimated payment errors first reported for fiscal 1996-13.8%, or $23.2 billion.
Figures were based on a sampling of 4,985 Medicare claims from 610 beneficiaries valued at $6.2 million.
"We believe that since we developed the first error rate for fiscal year 1996, the CMS has demonstrated continued vigilance in monitoring the error rate and developing appropriate corrective action plans," Rehnquist said in the 18-page report.
She said the agency has worked closely with provider groups like the American Hospital Association and the American Medical Association to clarify reimbursement rules and encourage appropriate compliance and documentation. About 28%, or $3.8 billion, of Medicare claims were unsupported or insufficiently documented, down from fiscal 2001 when documentation errors comprised 42.9% of all improper payments.