Mr. Chairman and Members of the Subcommittee:
Thank you for the invitation to testify on the Health Care
Financing Administration's (HCFA) management of contractors'
prepayment screens to prevent payment for inappropriate claims.
HCFA is committed to protecting beneficiaries and the integrity of
the Medicare Trust Funds by ensuring that claims processing is done
in a timely, equitable manner that minimizes the program's
vulnerability to losses due to inappropriate payments or abuse.
Medicare contractors are our front line of defense against
inappropriate and fraudulent claims. We are actively working to
improve our contractors' ability to detect and prevent payment of
inappropriate claims before they are paid. HCFA and its
Contractors share the goal of paying claims right the first time.
We want to avoid paying inappropriately and then "chasing" after
HCFA's national strategy to prevent overutilization and payment of
improper claims is centered around our local contractors and their
medical directors, operating in a decentralized but coordinated
fashion. Contractors are expected to identify areas of abuse,
develop appropriate medical review policies, educate providers, and
implement prepayment screens. We support and coordinate the
contractors' efforts through regional and national forums to share
information about possible abuses and local medical review policies
designed to address these abuses, and to develop model policies
that may be adopted by many contractors. HCFA then holds each
contractor accountable for its medical review activities and
evaluates them regularly on their performance.
HCFA's strategy involves an array of methods, including using
focused medical review, which employs prepayment screens and local
and model medical review policy, experimenting with new anti-fraud
and abuse technology, and developing the Medicare Transaction
System. We are continuously improving our array of tools as we
learn more about the nature of abuse and overutilization. For
example, we have recently contracted with the Los Alamos National
Laboratory to analyze our Medicare data bases and, among other
things, to develop state-of-the- art pattern recognition software
designed to identify fraud and abuse on a pre-pay basis. We
appreciate the help of the General Accounting Office in
identifying not only sources of abuse, but also suggestions of
methods with which to combat the abusive practices. The balance of
this statement discusses in more detail our current methods and
the steps we are taking to improve them.
HCFA's Strategy for Focused Medical Review
Beginning in 1993, HCFA adopted the focused medical review
strategy, which requires each contractor to develop criteria for
selecting claims for prepayment review. Focused medical review is
a process through which contractors target services that are
vulnerable to abuse in their area and take appropriate steps to
address them through prepayment screening and development of local
and model medical review policies. Focused medical review is one
of our most effective and most promising tools for helping to
ensure that claims are paid properly. Since a major element of our
program integrity strategy is to ensure that claims are paid
correctly in the first place, we have been placing increasing
emphasis on these techniques, and we expect to develop them much
further in the future. HCFA's strategy in this area has evolved
over time as we have gained experience with prepayment review.
Previously, we had required contractors to use uniform, national
screens for a variety of items and services. We concluded that
this approach was not cost effective, because patterns of
inappropriate claims vary substantially from one part of the
country to another and the provider community was well aware of
what was being screened. Indiscriminate use of the same screens
everywhere meant that many contractors were screening for things
that did not present particular problems in their areas and that
they could not shift their limited resources to deal with more
pressing local problems.
The development of medical review policy on a local basis is key to
our strategy. The Medicare contractors are closest to the source
of the problems and have the most intimate knowledge of abuses and
their perpetrators. Thus, we believe that Medicare contractors
should have some discretion, with appropriate oversight, to take
actions quickly within the realm of their knowledge and resources.
What the problems are and how they can be resolved may vary from
locality to locality, and our focused medical review methodology
takes this variability into account and permits effective action
by the contractors.
One tool for selecting items and services to target has been
analysis of local utilization patterns that differ substantially
from national utilization patterns. Contractors are expected to
rely on other sources of information, including the local medical
community, HCFA, other contractors, the Inspector General, or the
General Accounting Office in deciding which items and services are
most subject to overutilization or abuse. In addition, HCFA uses
its historical utilization databases to provide contractors with
analysis of variations in practice and utilization patterns across
Once contractors have implemented a local medical review policy,
the contractors use a combination of steps to combat problems in
their locality. One of their most important functions is to
educate Medicare providers about their policies, since most
providers operate in good faith and adjust their billing practices
to conform to what they know and understand about Medicare policy.
In addition, contractors institute prepayment screens to identify
providers who continue, in the face of established policy, to bill
incorrectly. Postpayment medical review is also instituted where
providers are identified as being consistently abusive.
As part of the annual contractor performance evaluation, HCFA holds
contractors accountable for their focused medical review activities
by requiring them to report on and evaluate their choices for
items and services to target and to defend the process they have
used to set priorities.
Prepayment Review Techniques
A prepayment screen operates by pulling selected claims from the
routine claims processing flow and evaluating them before they are
approved for payment. This review can occur in two ways:
electronically, also called auto-adjudication, or through
examination by trained personnel. Auto-adjudication screens can be
expected to use fewer contractor resources, as long as they are
used carefully so that any resulting denials of claims are
appropriate. Inappropriate denial of claims is not only wrong, but
it leads to appeals that require substantial resources to resolve.
We agree that, particularly given our resource constraints, we
should expand our use of appropriate auto-adjudication screens
where this makes sense and in accord with medical review policy,
and we are actively doing so.
Of course, auto-adjudication is not appropriate for all claims.
Decisions regarding medical necessity are not always simple, and
further information, which may not be on the claim, may be
required to make an accurate payment decision on a claim evaluated
against medical necessity criteria. For these claims, prepayment
screens may simply suspend processing of the claim for manual
review by trained staff Although manual review is more
resource-intensive than auto- adjudication, it is also an
essential component of contractors' efforts to avoid making
Medicare prepayment review screens must, of course, accord with
Medicare coverage and payment policy. Where screens involve
decisions about medical necessity, they must accord with medical
review policy developed in consultation with the medical
community. Contractors, through their carrier medical directors,
establish local medical review policies in consultation with the
provider community and other local medical experts. This
consultative procedure for establishing medical review policies
produces better policies by giving us the advantage of significant
medical advice, and it helps insure acceptance of the resulting
policies by providers. It means, however, that we cannot simply
import prepayment review screens without first ensuring they are in
accord with medical review policy.
Addressing Widespread Problems
We recognize that some problems may extend beyond local contractor
areas and may even be national in scope. These problems can be
identified by a variety of means, including data analysis of
trends and patterns, contractor medical professional knowledge of
actual and potential abuses, and help from the law enforcement
community, including the Office of Inspector General. Our
understanding is that these are the same sources that were used by
the GAO to identify potential national problems.
GAO has criticized our focused medical review procedure, arguing
that the process does not address nationwide overutilization of
medical procedures. However, GAO does not address the issue of how
HCFA might determine the level of utilization that is appropriate.
An increase in nationwide utilization of a particular service does
not by itself indicate an inappropriate level of utilization.
We agree that better methods need to be developed to identify and
stop true overutilization at the national level, and we are
exploring ways this can be done. As part of our strategic plan,
we have made becoming a leader in health care information
resources management a goal for HCFA. As part of achieving this
goal, we plan on continuing to develop better methods by which we
can analyze our historical health care utilization databases to
identify national variations in practice and utilization patterns.
This analysis will enable us to better direct the focus of local
contractors to areas of potential over-utilization.
When HCFA or our contractors recognize the possibility of a
widespread problem from whatever source, the issue is presented to
the contractor medical directors at large, through one of over 20
regional and national workgroups convened by HCFA. The primary
goal of these workgroups is to develop model policies that can be
adopted by local contractors.
The use of model policy enhances uniformity and consistency in
local policy, and permits more policies to be developed
efficiently. Prepayment screens and edits can follow, where
possible. Without the necessary policy to support them, it is not
effective to develop pre-payment screens for denial of claims,
since the denials will not be upheld through the appeal process.
This model policy process combines the best of both worlds taking
advantage of the knowledge and expertise at the local level, while
it offers the efficiency and consistency of a more centralized
The carrier medical directors are currently developing model
medical review policies for each of the six services discussed by
the GAO report. They have established seven model medical
policies to date and are actively working on 33 more.
HCFA is in the process of creating a centralized data base of all
local and model medical policies. Contractors will be able to
review other contractors' local policies and use them to help
create their own policies. The database has been a pilot project
and is undergoing final modifications. It will be accessible to
contractors, in a user- friendly form, by April 1996. The
database will be updated as new policies are developed to maximize
its usefulness to Medicare contractors.
Correct-Coding Initiative and the Medicare Fee Schedule
HCFA has already undertaken a variety of activities to promote the
development of more effective and efficient claims processing edits
to prevent inappropriate payments. For example, in January 1992,
HCFA implemented a fee schedule for payment of Medicare
physicians' services, which involved specification of payment
policies applicable to many services. In preparation for the
implementation of the fee schedule, we developed an initial set of
bundling and payment edits for contractors to use. Refining these
edits has been an ongoing process, involving iterations in each of
several years. These edits, for example, preclude duplicate
payment when a claim includes both a comprehensive procedure code
and codes for component parts of the procedure.
In 1994, HCFA contracted with AdminaStar to develop a list of
comprehensive and associated component codes that are commonly
billed together. The purpose of the contract is to develop
methodologies to prevent overpayment of Part B claims whenever
manipulation of coding could lead to inappropriately increased
payments. AdminaStar identified problematic coding situations
after soliciting comment from the medical community. On January
1, 1996, Medicare contractors implemented 84,000 correct coding
combinations based on AdminaStar's recommendations. We will have
a preliminary evaluation of the results of the AdminaStar edits by
July of this year.
Improvements for the Future
HCFA is looking to the future and experimenting with technology to
take advantage of methodologies that are just being developed and
have not yet been refined for use in the complex environment of
Medicare claims. For example, we are piloting new anti-fraud and
abuse technology at several contractors and experimenting with
some concepts that have not yet been adapted for widespread use,
such as pattern recognition software using neural net technology.
In September 1995, HCFA entered into an interagency agreement with
the Los Alamos National Laboratory to analyze our Medicare
databases and, among other things, to develop pattern recognition
software for identification of fraudulent or abusive patterns.
Our ultimate goal is the development of prepayment software and
other analytical methods to detect and deter fraudulent and
The Medicare Transaction System (MTS), which will be phased in from
1997 to 1999, will incorporate state-of-the-art detection and
analysis technology that will further enhance our efforts to
detect abuse and avoid making inappropriate payments. Beginning
with its initial implementation in 1997, the MTS will usher in the
next generation of Medicare claims processing and data analysis.
Through MTS, contractors will have quick access to national and
local claims data to improve their ability to identify unusual
utilization patterns and other potential concerns more quickly and
efficiently than the current claims processing systems . One of
the most significant improvements will be the ability to easily
access information on all services delivered to beneficiaries. In
addition, contractors will be better able to share best practices,
such as efficient local prepayment auto-adjudication edits.
Other Anti-Fraud Activities
The Agency's ongoing efforts to develop efficient, effective
prepayment screens and to facilitate sharing of information on
screening criteria and local medical policies between contractors
is an important part of the Agency's comprehensive anti-fraud and
abuse initiative. We want to eliminate any opportunity for
unprincipled groups or individuals to "game" the Medicare program.
The public rightfully becomes enraged when they read about yet
another scheme to steal from or abuse a government program.
Minimizing fraud and abuse is one of our top priorities. HCFA and
the Office of the Inspector General, in partnership with law
enforcement agencies, are implementing a variety of strategies
that fully exploit available information to improve detection of
fraud and abuse and promote the use of best practices in combating
it. Prevention, early detection and management, and coordination
and cooperation in enforcement make up the core of our approach.
Through Operation Restore Trust, HCFA has developed partnership
agreements to work with national, state and local law enforcement
agencies to deter and detect fraudulent and abusive activity in
the Medicare program. This initiative includes a major,
multi-state demonstration of improved enforcement techniques. The
President has proposed expanding and extending the Operation
Restore Trust initiative.
While Medicare's payment integrity activities are improving, they
need further improvement, and we look forward to working together
on this subject with this Subcommittee and others in Congress. To
ensure effectiveness of our payment integrity activities, they
need stable and reliable funding. The President and Congress have
addressed this need by including in various balanced budget plans
a provision that would provide stable funding for payment integrity
activities, and we urge you and your colleagues to retain such a
provision in any further Medicare legislation.
In closing, let me reiterate HCFA's commitment to protecting our
beneficiaries and the integrity of the Medicare trust funds by
preventing inappropriate payments. As I have described, we have
a multi-pronged strategy for addressing issues of overutilization
and payment of inappropriate claims. We center our strategy on the
local contractors, who know best where the problems are and can
deal with them most directly, and we provide coordination and
support to help ensure that widespread problems are addressed
We are continuously attempting to improve our approaches to these
problems. Our contractors are developing more effective local
medical review policies, and we are working together on model
policies that can be adopted widely. We expect to expand
Medicare's use of prepayment edits, including auto-adjudication
screens where appropriate. In partnership with leading public and
private organizations, we are developing "cutting
edge"technologies to detect and prevent abuse.
Our efforts to prevent inappropriate payments are part of HCFA's
comprehensive strategy to combat fraud and abuse in the Medicare
program. We appreciate the Subcommittee's interest in the
problems we confront in this area, and we look forward to working
with you to improve the Medicare program.