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Medicare Receives Clean Opinion 

For the second consecutive year, independent auditors issued a clean opinion of the financial statements of the Health Care Financing Administration (HCFA) as part of the annual independent Chief Financial Officer audit required by the Government Management Reform Act. Obtaining a clean audit opinion indicates that HCFA's efforts have succeeded in assuring that the financial statements give taxpayers an accurate look at Medicare's books. 

The fiscal year 2000 audit shows that HCFA continues to make substantial progress in presenting reliable financial data on Medicare and the private insurance companies that, by law, process and pay Medicare claims.  HCFA, which runs Medicare and Medicaid, will use the results of this audit to further improve its management and better protect the financial integrity of the Medicare program.  The audit was conducted by the HHS Office of Inspector General (OIG) with HCFA's full cooperation. 

Each year, Medicare pays more than $210 billion to more than 1 million physicians and other health care providers for services provided to nearly 40 million seniors and disabled Americans.  In addition to the annual CFO audit, the OIG also conducts annual audits to estimate Medicare's fee-for-service payment errors.  For fiscal year 2000, the OIG estimated Medicare's payment error rate at 6.8 percent, compared to nearly 8 percent in fiscal year 1999 and from 14 percent in fiscal year 1996, the first year of such audits.  Projected across all of Medicare's fee-for-service payments, the error rate represents an estimated $11.9 billion in improper payments, down from $13.5 billion in fiscal year 1999 and from $23.2 billion in fiscal year 1996.  Due to the variance of the sample, the true rate of improper payments in fiscal year 2000 could range from 4 percent to 9 percent.  HCFA met its Government Performance Review Act goal of 7 percent for 2000 and continues to take steps to ! meet the FY 2002 goal of 5 percent. 

STRENGTHENING MEDICARE'S MANAGEMENT AND ACCOUNTING Since the OIG's first comprehensive audit was conducted for fiscal year 1996, HCFA has taken many steps to ensure proper payment for Medicare services, strengthen its oversight of the private companies that process and pay Medicare claims, and modernize Medicare's accounting systems. These efforts helped HCFA to reduce improper payments and achieve its clean audit opinions.  HCFA continues to further improve Medicare's financial controls. 

ENSURING PROPER PAYMENT.  During the past five years, Medicare has cut its payment error rate in half, from 14 percent in fiscal year 1996 to 6.8 percent in fiscal year 2000.  Although Medicare pays virtually all claims correctly based on the information submitted, improper payments occur for reasons such as insufficient documentation, lack of medical necessity, and improper coding by physicians and health care providers.  The figure does not measure fraud.  HCFA is continuing and expanding its efforts to reduce improper payments by:

Targeting program vulnerabilities.  Since 1999, HCFA has used special contractors with program integrity experience to target problem areas, such as reviewing claims for therapy services and developing data analysis centers to identify and stop payment errors and possible fraud.  These contractors give HCFA the flexibility to meet emerging challenges.  Expanded activities planned for the coming year include assessing the accuracy of information used to establish nursing home payments and conducting nationwide statistical analysis that identify program vulnerabilities.
Clarifying Medicare policy.  HCFA is reviewing its documentation policies for certain services that consistently have resulted in many of the payment errors in each audit since 1996.  The review will help HCFA to identify and make appropriate changes to documentation policies without reducing appropriate payment safeguards.
Clarifying documentation guidelines.  HCFA this year will test new guidelines for physicians who provide evaluation and management services to patients.  The guidelines are designed to ensure Medicare pays claims appropriately while minimizing the paperwork burden for doctors.
Expanding education and outreach.  HCFA will continue to expand its education efforts to help doctors, hospitals and other providers learn how toproperly file and document claims. HCFA already provides free information, Internet-based educational courses, and other services on the Web through the Medicare Learning Network at www.hcfa.gov/medlearn.
Strengthening enrollment.  HCFA is issuing revised procedures to better ensure that the relatively few unqualified providers cannot bill Medicare while reducing the burden of the Medicare enrollment process on the large number of qualified health care providers.  The new process will reflect extensive input from doctors and other providers.
Recovering improper payments.  HCFA has taken appropriate steps to recover the improper payments identified by the Inspector General.  HCFA upheld more than 90 percent of the overpayments identified in earlier audits, and most have been recovered.
Emphasizing appropriate review.  HCFA in 2000 issued clear, unambiguous instructions to Medicare's claims-processing contractors about the appropriate approach to reviewing Medicare claims.  Contractors are to use medical review primarily as an education tool for doctors and health care providers.  When a doctor or provider is placed on medical review, contractors must tell the providers why they were selected, how to prevent the error in the future, and what they need to do to get off review.
Improving industry compliance.  HCFA has supported the Inspector General's development of voluntary compliance guidance for hospitals, medical equipment suppliers, clinical laboratories, home health agencies, third-party billers, Medicare+Choice organizations, and other providers.
Strengthening oversight of private contractors.  By law, Medicare must rely on private insurance companies to process and pay Medicare claims.  Since 1998, HCFA has stepped up its oversight and management of these contractors.  Elements of this on-going management strategy include:
Developing contractor-specific error rates.  HCFA in 2000 began developing error rates for each of the private insurance companies that pay Medicare claims in order to better target their education and program integrity efforts.  Over time, the results will guide error-prevention efforts at each contractor in more detail than Medicare's overall report allows.
Creating a new national performance evaluation strategy.  In 1999, HCFA implemented a new strategy to ensure consistency and focus on key contractors and high-risk areas.  HCFA continues to develop additional defined, measurable standards to support more targeted and consistent reviews of specific areas of contractor performance.
Using national teams to review performance.  In 1999, HCFA created national review teams to evaluate contractors' fraud and abuse efforts and other key functions, using standardized reporting and evaluation protocols.  These teams cut across regions and use their specific expertise to assure more effective evaluations of contractor performance.
Improving customer service. HCFA has expanded its efforts to assess and improve the customer service provided by the claims-processing contractors to ensure that they provide accurate, relevant information about Medicare coverage and billing to physicians and health care providers.  HCFA in 2000 required all contractors to establish toll-free lines for doctors and providers to ask questions and obtain information.  In addition, HCFA is now evaluating contractors' customer service efforts related to program integrity activities.
Requiring corrective action plans.  HCFA has directed the private insurance companies that process and pay claims to develop and implement corrective action plans immediately following their annual evaluations to make sure they track funds more accurately.
Modernizing Medicare's accounting practices.  HCFA remains committed to modernizing Medicare's financial systems to increase the efficiency and accuracy of its financial statements in accordance with standard government accounting practices.  HCFA is moving to implement a new integrated accounting system that will meet all federal information technology and financial management requirements.  The new accounting system will include the financial activities of HCFA's claims-processing contractors.  Additional improvements include:
Developing a CFO comprehensive business plan.  HCFA last year implemented a new chief financial officer comprehensive plan that provides a coordinated strategy for further improving HCFA's financial stewardship and accountability.  The plan identifies major goals, such as providing timely, accurate financial reports, improving internal accounting operations, and improving contractor financial management oversight.  The plan includes specific initiatives to achieve those goals.  HCFA developed the business plan after creating a new high-level management position to coordinate efforts to further strengthen financial controls.
Improving Medicare's accounts receivable.  In each of the past two years, HCFA has hired independent auditors to analyze Medicare's accounts receivable at the largest Medicare contractors to ensure that the balances accurately reflect their value.  This review has allowed HCFA to take needed corrective steps to achieve recent clean opinions.  In addition, HCFA also has developed analytical procedures to validate account receivable balances and other data reported by Medicare contractors.  This will allow HCFA to take timely action to address reporting inconsistencies.
Validating financial management systems.  HCFA has been using independent accounting firms to analyze the financial controls in place at 25 of its largest claims-processing contractors.  These reviews allow HCFA to strengthen any weaknesses found at those contractors.
Pursuing delinquent debt.  HCFA continues to aggressively pursue delinquent debt and has referred more than $2 billion in receivables for further collection activity and litigation as required by the Debt Collection Improvement Act.