OIG sees dead people … that Medicare Advantage is paying bills for

On Halloween, HHS' Office of the Inspector General was shining a spotlight on the dead—specifically, people whose Medicare bills are paid after they pass away.

A new report from the watchdog agency says the federal government and the private companies that work for Medicare are not doing enough to stop the program from paying for health benefits for dead people. But that could change with the launch of a new anti-fraud program in 2014.

The Oct. 31 OIG report on the dead said Medicare paid out $23 million in benefits in 2011 for 17,403 people who were dead, the vast majority that sum through Medicare's private-insurance option, Medicare Advantage. While most of the amounts paid were less than $1,000 per person, some were sizable. Medicare paid more than $50,000 each for benefits for 12 people.

Those findings follow a report from the office earlier this year that criticized Medicare's private auditors for failing to notice examples of outright fraud that involve dead-beneficiary billing.

“Medically necessary services cannot occur after a beneficiary's death,” the report released Thursday says (PDF).

The OIG has devoted numerous studies over the years to detecting whether Medicare is paying bills submitted on behalf of the dead, pinpointing a variety of shortcomings in how the federal agency receives death information from the Social Security Administration and then marries that data with the Medicare claims database.

While those reports have identified flaws in the CMS' methods, the latest analysis says the agency has a robust program to prevent paying out benefits for the dead in Medicare parts A and B, the hospital and physician-services benefits, which accounts for just $2 million of the deceased-beneficiary payments in 2011.

Medicare Advantage, known as Part C, accounted for $20 million of the misspent funds, the report says.

Monitoring for dead beneficiaries is a regular part of Medicare Advantage accounting, because the private insurers that run the program are paid monthly based on their insured populations. When a beneficiary dies, the insurer has its monthly payment from the CMS docked by the corresponding amount.

In 2011, CMS retroactively recovered $589 million from Medicare Advantage contractors for dead beneficiaries, but statistical research found the Medicare agency missed another $20 million that should have been taken back. (Medicare Part D, the prescription drug benefit, accounted for $1 million in erroneous payments.)

The search for dead people in the Medicare payment records is not only a money-saving exercise, the OIG said in the report, but also one that can be used to find fraudsters gaming the system, especially by using Medicare Part B claims that were billed after a beneficiary's death.

The OIG found a large concentration of billing for dead beneficiaries in Los Angeles, New York City and Miami—well-known fraud “hot spots” where anti-fraud joint task forces run by HHS and the Justice Department are already working. “These providers and suppliers may be attempting to obtain payment for services that were not provided,” the OIG report says.

In response, CMS officials told the OIG that they're in the process of examining how to use existing computer data-mining tools to single out providers for extra scrutiny when they submit large numbers of bills for the dead. If the model is viable, the CMS says, it will go live in 2014.

Follow Joe Carlson on Twitter: @MHJCarlson