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
All amounts are in billions of dollars
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 in FY 2012, in consultation with OMB, HHS refined the improper payment methodology to account for the impact of rebilling denied Part A inpatient hospital claims for allowable Part B services when a Part A inpatient hospital claim is denied because the services (i.e. improper payments due to inpatient status reviews) should have been provided as outpatient services. HHS continued this methodology in FY 2013 and FY 2014. This approach is consistent with: (1) Administrative Law Judge (ALJ) and Departmental Appeals Board (DAB) decisions that directed HHS to pay hospitals under Part B for all of the services provided if the 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 that were in error because the services should have been provided as outpatient. This adjustment factor reflects the difference between what was paid for the inpatient hospital claims under Medicare Part A and what would have been paid had the hospital claim been properly submitted as an outpatient claim under Medicare Part B. Additional information regarding the adjustment factor can be found on pages 166-167 of HHS's FY 2012 AFR (available at www.hhs.gov/afr).
Application of the adjustment factor mentioned above decreased the overall improper payment rate by 0.9 percentage points to 12.7 percent, or $45.8 billion in projected improper payments. As a result, HHS believes that this adjustment results in a more accurate reflection of improper payment estimates in the Medicare FFS program.
On August 29, 2014, HHS announced that, to more quickly reduce the volume of inpatient status claims currently pending in the appeals process, HHS is offering an administrative agreement to any hospital willing to withdraw their pending appeals in exchange for timely partial payment (68 percent of the net allowable amount). The settlement is intended to ease the administrative burden for all parties. Any claims in the sample that are included in a settlement will still be considered improper for the measurement.
The primary causes of improper payments are insufficient documentation and medical necessity errors. Insufficient documentation was particularly problematic for home health claims. The improper payment rate for home health claims increased from 17.3 percent in FY 2013 to 51.4 percent in FY 2014 due to the implementation of new documentation requirements to support the medical necessity of the services. HHS acknowledges it takes time for providers and suppliers to fully comply with new policies, especially those with new documentation requirements, which can result in increased improper payments.
Another reason for the increase is attributed to medical necessity errors for inpatient hospital claims, particularly short stays determined to not be medically necessary in an inpatient setting (i.e., services should have been billed as outpatient).
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