Medicare Fee-for-Service (FFS) is a program that provides hospital insurance (Part A) and supplementary medical insurance (Part B) to eligible citizens. Part A is provided to persons 65 and over who qualify for Social Security benefits and pays for hospital, skilled nursing facility, home health, and hospice care. Part B is optional coverage that pays for physician, outpatient hospital, home health, laboratory tests, durable medical equipment, designated therapy, outpatient prescription drugs, and other services not covered by Part A. Medicare processes over one billion FFS claims per year.
Agency Accountable Official: Ellen Murray, Assistant Secretary for Financial Resources
Program Accountable Official: Jonathan Blum, Principal Deputy Administrator, Centers for Medicare & Medicaid Services
All amounts are in billions of dollars
Note: Note: Beginning with the Fiscal Year (FY) 2012 report period, HHS modified the report period by moving it back six months. As a result, the FY 2012 reporting period considers claims from July 1, 2010 through June 30, 2011. In addition, HHS refined the improper payment methodology to account for the impact of rebilling of denied Part A inpatient claims for allowable Part B services. These two modifications -- (1) allowing an additional six months for the receipt of late documentation and the effectuation of all appeals, and (2) accounting for the impact of rebilling denied Part A claims under Part B-- comply with the requirements of OMB Circular A-123, Appendix C, and produce a more accurate portrayal of the actual incidence of improper payments in the Medicare FFS program.
The Department of Health and Human Services (HHS) is committed to reducing the incidence of improper payments made by the Medicare FFS program. In order to reduce these improper payments, it is essential to accurately account for where, how, and why these improper payments occur.
Beginning with the FY 2012 Agency Financial Report (AFR), HHS modified the report period by moving it back six months in order to more accurately measure the improper payment rate in the Medicare FFS program. As a result, the FY 2013 Medicare FFS report period consists of claims from July 1, 2011 through June 30, 2012. In addition, in consultation with OMB, beginning in FY 2012 HHS refined the improper payment methodology to account for the impact of rebilling denied Part A inpatient claims for allowable Part B services when a Part A inpatient hospital claim is denied because the services were not reasonable and necessary and should have been provided as outpatient services. HHS continued this methodology in FY 2013. This approach is consistent with: (1) Administrative Law Judge (ALJ) and Departmental Appeals Board (DAB) decisions that directed Medicare to pay hospitals under Part B for all of the services provided (not just the ancillary services) after a Part A inpatient claim was denied, and (2) recent Medicare policy changes that allow rebilling of denied Part A claims under Part B.
HHS calculated an adjustment factor based on a statistical subset of inpatient claims with incorrect setting errors. This adjustment factor reflects the difference between payment for inpatient hospital claims under Medicare Part A and payment for corresponding outpatient services under Medicare Part B. Application of the adjustment factor decreased the overall improper payment rate by 0.6 percentage points to 10.1 percent or $36.0 billion in projected improper payments. Additional information regarding these methodology changes can be found on pages 165-168 of the FY 2012 HHS AFR (available at: http://www.hhs.gov/afr/hhs_agency_financial_report_fy_2012-oai.pdf).
The primary cause of improper payments is Administrative and Documentation errors (63 percent), in large part due to insufficient documentation errors. Insufficient documentation errors occur when either the medical documentation submitted is inadequate to support payment for the services billed or when a specific documentation element that is required as a condition of payment is missing.
The other cause of improper payments is classified as Authentication and Medical Necessity errors (37percent), caused by medically unnecessary services and to the lesser extent, incorrect diagnosis coding. Medical necessity errors occur when the claim review staff receives adequate documentation to make an informed decision that the services billed were not medically necessary based on Medicare coverage policies.
Data shows that many improper payments resulted from claims paid for services that are clinically appropriate, if provided in less intensive settings. Physicians and DME suppliers contributed substantially to insufficient documentation errors, and hospitals contributed substantially to medical necessity errors. Coding errors were most prevalent in physician services.
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