Auditors Recoup Millions For Medicare but Assailed

By Theo Francis

Wall Street Journal
January 26-27, 2008 Weekend Edition Pg A12

A pilot program to audit Medicare claims filed by hospitals and others in three states recouped nearly $250 million last year but is drawing fire from health-care providers as it prepares to go national over the coming year.

The program, which relies on private-sector auditing firms to comb through past claims filed by hospitals and other medical providers, recovered $247.4 million for Medicare last year from medical providers in California, Florida and New York, according to figures from the federal Centers for Medicare and Medicaid Services.

But hospital groups have mounted a campaign against its expansion, saying the effort is "riddled with flaws" and suffered too many problems to expand so soon. Chief among their complaints: The program's reliance on what some hospitals called a "'bounty hunter' payment mechanism" - contingency fees that reward the auditorsan incentive to be thorough at little cost to the government, since the fees come from funds the government otherwise wouldn't have recovered. Critics counter that it encourages the auditors to be too aggressive.

"Any kind of question is a reason for denial," even in subjective decisions such as determining whether an expense was medically necessary, said Don May, vice president for policy at the American Hospital Association. "Going at it from this kind of perspective really isn't, I don't believe, in the best interest of taxpayers."

The program has encountered problems. After California hospitals complained last year - enlisting help from congressional representatives - CMS spot-checked claims from inpatient rehabilition facilities that had been rejected in audits. The review upheld 60% of the auditor's findings, but determined that many had been handled inconsistently.

Medicare considers the program a success, both in recovering pasat improper payments and as a deterrent to future overbilling. "[W]e believe recovery auditing is a valuable tool in the Medicare program," Kerry Weems, the acting CMS administrator, wrote the California lawmakers last month.

Overall, auditors identified $357 million in overpayments in fiscal 2007, of which $17.8 million - or 7.1% of appealed claims - were overturned on appeal, according to CMS figures. An additional $77.7 million went to contingency fees and other administrative expenses, and the auditors identified $14.3 million in underpayments - situations in which Medicare should have paid more than it did.

Hospital groups have also complained that many claim reviews weren't done by qualified medical personnel, that the process doesn't give providers an opportunity to fix errors and that the auditors haven't been required to publicize what areas they are targeting. They also note that CMS isn't required to take the audit program national until 2010.

Supporters of the program note that in expanding the program, CMS is addressing many of these concerns: Auditing firms will have to have a medical director and medical-coding experts, return contingency fees for claims upheld on appeal even when further appeals are possible, and notify CMS sooner if they identify new kinds of problem claims. The national program also shortens the period auditors could review to three years from four, and puts all claims filed before October 2007 off-limits.