The Centers for Medicare & Medicaid Services (CMS) has announced it will launch demonstration programs beginning in January 2012 targeting some of the most common factors that lead to improper payments. The cost saving projects will help protect Medicare and Medicaid, according to a news release posted on its site yesterday.

Beginning on January 1, 2012, CMS will conduct demonstration projects that will strengthen Medicare by aiming at eliminating fraud, waste, and abuse.  Reductions in improper payments will help ensure the sound future of the Medicare Trust Fund and protect Medicare beneficiaries who depend upon it, CMS said.  Additionally, noted the agency:

• Recovery Audit Prepayment Review: The Recovery Audit Prepayment Review demonstration will allow Medicare Recovery Auditors (RACs) to review claims before they are paid to ensure that the provider complied with all Medicare payment rules.  The RACs will conduct prepayment reviews on certain types of claims that historically result in high rates of improper payments.   These reviews will focus on  seven states with high populations of fraud- and error-prone providers (FL, CA, MI, TX, NY, LA, IL) and four states with high claims volumes of short inpatient hospital stays (PA, OH, NC, MO) for a total of 11 states. This demonstration will also help lower the error rate by preventing improper payments rather than the traditional “pay and chase” methods of looking for improper payments after they have been made.

• Prior Authorization for Certain Medical Equipment: The second demonstration announced yesterday will require Prior Authorization for certain medical equipment for all people with Medicare who reside in seven states with high populations of fraud- and error-prone providers (CA, FL, IL, MI, NY, NC and TX).  This is an important step toward paying appropriately for certain medical equipment that has a high error rate.  This demonstration will help ensure that a beneficiary’s medical condition warrants their medical equipment under existing coverage guidelines. Moreover, the program will assist in preserving a Medicare beneficiary’s right to receive quality products from accredited suppliers.

CMS said the Prior Authorization demonstration would be implemented in two phases. During the first phase (the first three to nine months), the Medicare Administrative Contractors will conduct prepayment reviews on certain medical equipment claims. The second phase, for the remainder of this three-year demonstration, will implement prior authorization, a tool utilized by private-sector health care payers to prevent improper payments and deter the fraudulent provision of items or services. 

• Part A to Part B Rebilling: The third initiative will allow hospitals to rebill for 90 percent of the Part B payment when a Medicare contractor denies a Part A inpatient short stay claim as not reasonable and necessary due to the hospital billing for the wrong setting.  Currently, when outpatient services are billed as inpatient services, the entire claim is denied in full.

This demonstration will be limited to a representative sample of 380 hospitals nationwide that volunteer to be part of the program. This demonstration will allow hospitals to resubmit claims for 90 percent of the allowable Part B payment when a Medicare Administrative Contractor, Recovery Auditor, or the Comprehensive Error Rate Testing Contractor finds that a Medicare patient met the requirements for Part B services but did not meet the requirements for a Part A inpatient stay.  In addition, this demonstration is expected to lower the appeals rate which will protect the trust fund and reduce hospital burden. Beneficiaries will be held harmless with respect to changes in hospital coinsurance liability.

New Projects Build on 2011 Savings

The 2012 projects announced yesterday will build on accomplishments in 2011 to reduce Medicare and Medicaid improper payment rates.

For example, the Medicare fee-for-service improper payment rate dropped to 8.6 percent, or $28.8 billion in estimated improper claims payments.  This rate was calculated using a refined methodology, after consulting with the Office of the Inspector General, that reflects the impact of late documentation and the results of appeal activities that typically occur after the cut-off date.  For consistency and comparison purposes, CMS adjusted the 2010 error rate to 9.1 percent or $29.7 billion. When comparing the adjusted rates, the 8.6 percent error rate for 2011 represents a 0.5 percentage point reduction in the improper payment rate from 2010.

In addition, for 2011, CMS noted the following:

• The Medicare Advantage (Part C) improper payment rate, based on the 2009 payment year, is 11.0 percent, or $12.4 billion, a reduction from last year’s rate of 14.1 percent, or $13.6 billion.  The Part C improper payment rate dropped 3.1 percentage points (or 21 percent) from 2010, a result of the Administration’s aggressive corrective actions, including ongoing audits - with an emphasis on contract-level risk adjustment data validation audits - designed to recover overpayments to Part C plans.