Despite expanding its efforts to curtail fraud and waste, a Medicare internal auditor found that the agency’s fee-for-service program’s improper payments grew by almost 19 percent after years of decline.
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In the U.S. Department of Health and Human Services annual financial report, published Dec. 16, Medicare’s Comprehensive Error Rate Testing (CERT) Program estimated that the agency improperly paid through fraud, waste, and errors, an additional $6.5 billion to healthcare providers over 2012. In all, Medicare paid more than $36 billion in erroneous fee-for-service claims, representing more than one dollar out of every 10 spent on beneficiaries for Medicare Parts A and B.
The almost 20 percent increase comes after three years of steady declines, from 10.8 percent in 2010 to a low of 8.5 percent last year. Overall, Medicare improper payments grew from $45 billion to $49 billion.
Neither HHS nor the Centers for Medicare and Medicaid Services (CMS) offered an explanation for the increase, other than issuing a pledge to investigate it. But the report is bad news for healthcare providers and for Medicare beneficiaries. While a percentage of those improper payments can be attributed to fraud, the majority represent fees paid for healthcare services that should have been absorbed, in part, by healthcare providers, and should have been paid, in part, by patients via Medicare Part B co-pays and co-insurance.
In a head-scratching press release, an organization representing Medicare’s private-sector auditors trumpeted the increase in fraud and waste. The American Coalition for Healthcare Claims Integrity, which represents private contractors who earn contingency fees for every misspent dollar by Medicare they find, yesterday sounded a PR-fueled clarion that healthcare providers – hospitals, physicians, clinics, labs, medical device manufacturers, and others – “falsely billed” Medicare for $49 billion in 2013, an increase of $5 billion from the year before.
These same Medicare auditors – called Recovery Auditors or Recovery Audit Contractors (RACs) – were established in recent years to make Medicare more efficient and eliminate waste. The increase is not the fault of the RACs, who have been hired to find improper payments, especially mistakes in Medicare claims made by hospitals and other providers. They are the Medicare equivalent of IRS auditors, but with one huge difference: They receive a contingency fee of 9 percent to 12.5 percent of every dollar of every mistake they find.
While their contracts contain language obligating them to educate healthcare providers about the mistakes they find, the RACs are incentivized to do exactly the opposite—the more errors hospitals make on their claims, the more money RACs will earn. Their job is not to improve the system, but to profit off its inefficiencies. From a revenue-generating viewpoint, the RACs have been an overwhelming success. In 2013 they found $2.3 billion in past improper payments. But as a tool to reform Medicare, it has been a dismal failure. Medicare has become more slipshod and sloppy based on this current financial report.
So in at least one respect, the press release by the RAC organization makes perfect sense. For their investors this is fantastic news, for their employees it means job security—they have billions more dollars in Medicare waste to find.
Evan J. Albright is a contributing editor to insidePatientFinance.com. He lives in Massachusetts.