Administrative errors resulting from adjusting to new policies has led to an increase in the improper payment rate for Medicare, the Department of Health and Human Services disclosed in its annual financial report.
Improper payment rates had been in decline, HHS noted, but in 2013, fee-for-service improper payments increased by 18 percent to total some $36 billion in the Medicare program. Improper payments declined 5.8 percent ($14.4 billion) in the Medicaid program.
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Between fiscal years 2009 and 2012, Medicare fee-for-service error rates consistently improved, falling from 10.8 percent to 8.5 percent – but then rising to 10.1 percent last year, an increase of more than $6 billion.
With the error rate representing a broad mix of outright fraud, overbilling schemes, improper upcoding and administrative mistakes, HHS attributes a large part of the increase to administrative errors stemming from new policies, such as prior documentation for physician home health services and prior authorization pilot programs for mobility devices.
There is "a change management aspect to implementing new policies," HHS officials wrote in the report. "Since it takes time for providers and suppliers to fully implement new policies, especially those with new documentation requirements, it is not unusual to see increases in error rates following the implementation."
The error rate calculation model used for Medicare FFS took a sample of 54,000 claims, measuring those paid that should have been denied and those paid in the wrong amount, including underpayments. For most programs, HHS calculates a gross error rate, the official estimate, and the net error rate, the overall monetary loss (arrived at by subtracting the underpayments from the overpayments and dividing by the total dollar value of the sample).
In 2013, that monetary loss in Medicare FFS is estimated at $33.2 billion (a rate of 9.3 percent), in addition to almost $7 billion in Medicare Advantage, $1.4 billion in the Part D drug program and $13.5 billion in Medicaid, totaling some $50 billion.
For Medicare Advantage and Part D, "the root cause of all" improper payments were "administrative and documentation errors," HHS officials wrote, although some of those Medicare sponsors have run afoul of compliance in the past.
Stemming from audits starting in 2007, Part C plans paid back more than $8 million in fiscal years 2012 and 2013. HHS is also planning to hire a contractor for a Medicare Advantage audit program in 2014.
After some high error rates in recent years, Medicaid's error rate declined by 5.8 percent in 2013.
HHS calculates the Medicaid error rate using a model of 17 states' data on fee-for-service, managed care and enrollment.
Overall, HHS officials wrote, the largest cause of the improper payments in the Medicaid program was verification errors, representing 46 percent of the $14.4 billion, followed by administrative errors mostly related to documentation and "authentication medical necessity" errors mostly related to diagnosis coding errors.
The 2013 Medicaid payment error rate was estimated at 3.6 percent, the eligibility error rate at 3.3 percent and the managed care error rate at 0.3 percent.
HHS also noted that the improper payment rate for those 17 states, measured three years in a row, has fallen since fiscal year 2010, when it was at 9 percent. "The eligibility component reported the greatest improvement," dropping from 7.6 percent to 3.3 percent, the report said.
HHS finance officials tweaked the methodology for the Medicaid's most recent estimate, replacing a three-year weighted average with a one-year rolling rate and recalculating the FFS error rates for seven states. Without the new changes, the fiscal year 2013 national Medicaid error rate would have been 6.1 percent (or $15 billion) instead of the 5.8 percent.