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Medicare Tries to Reduce Fraud and Waste, But Causes Backlog in Payments

Cheryl Clark, for HealthLeaders Media, April 28, 2010

Efforts to reduce Medicare fraud and waste embedded in the system used to pay $310 billion in provider claims annually has made some progress, but an accelerated push has delayed claims payments and caused backlogs, Senate Finance Committee Chairman Max Baucus and Ranking Member Chuck Grassley said.

They made their comments after the release of a 62-page performance audit from the General Accountability Office on Monday. That report suggested Medicare may have moved too quickly toward reform—ahead of its October, 2011 deadline, creating a confusing system that has caused problems even as it tries to fix them.

The task of reducing waste and inefficiency involved transferring claims administration tasks from 51 "legacy" contractors to 19 newly contracted MACs, or Medicare Administrative Contractors, a job that entailed spending $300 million between 2004 and 2008. The process was ordered by the Medicare Modernization Act of 2003.

Of the 19 new contractors, 15 process both Part A and Part B Medicare claims and the other four process durable medical equipment claims.

According to the report, the new MACs were selected, but six of the contract awards were contested, which slowed down processing of claims. Also, one of the new MACs was set up to inherit 15,000 appeals cases from the legacy contractors' decisions, but instead inherited 46,500, "which led to processing backlogs and delayed payments to providers," according to the GAO.

Additionally, CMS had touted the program as one that would generate substantial savings, in part by eliminating administrative costs paid to so many contractors, and to improved methods of claims review that would detect improper payments. However, the GAO said, "as of April 2009, CMS was unable to provide information on total savings."

According to the GAO report, CMS agreed with the agency's conclusions.

"Delays in payments and backlogged claims create real financial hardship for seniors and healthcare providers," Baucus said in a statement. "I am pleased to see CMS (the Centers for Medicare and Medicaid Services) showing this initiative and moving quickly to streamline payments and reduce fraud, though, when it comes to reforming Medicare contracting, CMS needs to do a better job of improving quality and identifying ways to save money."

Baucus added, "Millions of dollars are wasted every year due to improper Medicare contractor payments. It's critical the contracting reform Congress passed be implemented effectively to stop this waste and ensure taxpayer dollars are used as efficiently as possible."

Added Grassley, "Claims processing is a major function for CMS to oversee, and streamlining claims processing was a major goal," he said. "But more work needs to be done by CMS to implement these reforms with minimal disruption to beneficiaries and providers while ensuring the goals of reducing backlogs and cutting fraud and costs."

"CMS clearly needs to step up its oversight of meeting performance goals and saving taxpayer money, not only on the part of contractors, but the agency itself."

The consolidation process was not an easy one to undertake. It involved a system described as "a patchwork of responsibility and service" in which one state was served by multiple contractors handling Part A and B claims in separate regions. For example, a new MAC jurisdiction now includes six formerly separate (and not always contiguous) Part A regions served by six different contractors, and six formerly separate Part B regions served by three different contractors.

Furthermore, the GAO report says, the new MAC jurisdictions had to consolidate a variety of different contractors' policies of what services Medicare covers in that contractor's jurisdiction – called local coverage determinations – into one consistent policy for the new jurisdiction.

For example, the GAO report said, the legacy smaller jurisdiction contractors might have covered treatment for actinic keratosis, a skin condition, without documentation restrictions, whereas the MAC now requires detailed documentation of the lesions' physical characteristics before it will approve payment for treatment.

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