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Health Headlines - December 17, 2012

17 Dec 2012

GAO Recommends Strengthening Medicare Prepayment Edits – On December 10, 2012, the Government Accountability Office (GAO) released a report on the use of prepayment edits in the Medicare program and CMS’ oversight of Medicare Administrative Contractors' (MACs) use of these edits. (GAO Report). The use of prepayment edits is a strategy employed by CMS to identify potential improper payments before a claim is paid.  This report was requested by several senators, including Tom Carper (D-Del) and Tom Coburn (R-Okla) and is being released at a time in which lawmakers are attempting to identify potential cost savings in the Medicare program as part of the fiscal cliff negotiations.

According to the GAO Report, in FY 2010, prepayment edits saved the Medicare program at least $1.76 billion.  GAO further states that this is likely an underestimate of the true cost savings because CMS does not collect information on all of its current prepayment edits.  GAO, however, concludes that Medicare could have saved even more money had prepayment edits been more widely used. 

MACs employ automated and manual prepayment edits.  Since automated prepayment edits are less resource-intensive, CMS policy encourages the use of automated edits if feasible.  GAO explains, however, that many improper claims can be identified only through manual review because, for example, clinical judgment may be required to determine whether a service was reasonable and necessary.  GAO also recognizes that certain improper payments can only be identified after a claim has been paid and explains that the Medicare Parts A/B Recovery Audit (RAC) program is designed to identify improper payments that have already been paid. 

Accordingly, GAO recommends that CMS pursue the following seven actions to enhance the effectiveness of prepayment edits:

  • Centralize within CMS the development and implementation of automated edits based on National Coverage Determinations (NCDs) to ensure greater consistency;
  • Implement medically unlikely edits (MUEs) that assess all quantities of services provided to the same beneficiary by the same provider on the same day;
  • Revise the method for compiling information about Medicare A/B RAC-identified vulnerabilities;
  • Develop written procedures to provide guidance to agency staff on all steps in the processes for developing and implementing edits based on national policies;
  • Improve the data collected on local prepayment edits and local coverage policies to enable CMS to identify the most effective edits on which they are based and disseminate this information to MACs;
  • Until CMS develops a new database to collect information about edits, require MACs to share information about underlying policies and savings related to their most effective edits; and
  • Assess the feasibility of providing increased incentives to MACs to implement effective prepayment edits.

To view the GAO Report, click here. 

Reporters, Sara Kay Wheeler, Atlanta, +1 404 572 4685, and Stephanie F. Johnson, Atlanta, +1 404 572 4629,

OIG’s Compendium of Unimplemented Recommendations Highlights Opportunities for Action in FY2013 – The HHS Office of Inspector General (OIG) recently released its 2012 Compendium of Unimplemented Recommendations (the “Compendium”), a report that summarizes significant monetary and nonmonetary recommendations as a result of OIG audits and evaluations that, when implemented, will result in cost savings and/or improvements in program efficiency and effectiveness.  The Compendium updates the status of recommendations made through FY2011 that were not fully implemented as of December 2012 and that represent “significant opportunities for action in FY2013.” The OIG identifies the following recommendations among those that are “priority recommendations”—or recommendations that “represent the most significant opportunities to positively impact HHS’ programs.”       

  • Hospitals.  CMS should seek legislation or legislative authority to eliminate (or reduce) Medicare payments to hospitals for bad debt associated with beneficiaries’ failure to pay deductibles and coinsurance, and modify Medicare bad debt policies.  The HHS budget for FY2013 estimated $35.9 billion in savings over 10 years. 
  • Physicians.  CMS should adjust global surgery fees to reflect the number of evaluation and management services actually being provided by physicians to curb wasteful Medicare spending when Medicare’s fee schedule payments do not align with the number of E&M services provided.  According to 2005 data, savings would be $97.6 million per year.
  • Medical Equipment.  CMS should work with Congress to reduce the rental period for Medicare home oxygen equipment.  The OIG calculated savings of approximately $3.2 billion over 5 years if the rental period were reduced from 36 months to 13 months.  The Congressional Budget Office estimated savings at $11 billion over 10 years.
  • Medicare Advantage.  CMS should modify monthly capitation rates to a level supported by empirical data.  The OIG states that this longstanding recommendation would curb wasteful spending as a result of factors known to negatively impact the reasonableness of Medicare reimbursements for managed care that were not timely addressed, such as a high (14%) fee-for-service error rate that inflated the 1997 capitation base rate that was carried forward unadjusted into future years.  Savings for this recommendation are “probable but not estimated.”
  • Medicare Part D.  CMS should develop a comprehensive safeguard strategy for overseeing Part D prescription drug plans.  According to the OIG, its reviews of Part D indicate that program integrity efforts have been limited in scope and may not sufficiently protect the program.  Savings for this recommendation are “probable but not estimated.”   
  • Medicaid.  The OIG highlights several recommendations related to prescription drug use, including that CMS: (1) develop national pharmacy acquisition cost data as a benchmark for reimbursing prescription drug use; (2) establish a connection between the calculations of Medicaid drug reimbursements and rebates; and (3) extend the additional rebate payment provisions for brand-name drugs to generic drugs.  Savings for these recommendations are “probable but not estimated.”  

For a copy of the Compendium, please click here

Reporter, Kerrie S. Howze, Atlanta, +1 404 572 3594,

MedPAC Issues Draft Recommendations for 2014 Medicare Payment Update Factors – On December 6, 2012, the Medicare Payment Advisory Commission (MedPAC) issued draft recommendations for Medicare payment update factors for 2014.  MedPAC, which advises Congress on issues affecting Medicare, included recommendations for inpatient and outpatient hospitals, skilled nursing facilities, inpatient rehabilitation facilities, long term care hospitals, hospice, and ambulatory surgical center services (ASCs). 

Among other changes, the recommendations would increase Medicare payment rates for hospitals in FY 2014 by 1%.  This rate is .8% less than the statutory update—with the purpose of allowing HHS to recoup past documentation- and coding adjustment- based overpayments to hospitals.

Further, MedPAC also called for a repeal of the sustainable growth rate formula (SGR), which is to cut Medicare physician payments by 26.5% starting on Jan. 1.  Instead of the SGR formula, MedPAC suggested ten years of statutory payment updates.  MedPAC also issued recommendations for a .5% payment increase for ASCs in 2013.  Additionally, it recommended it be mandatory for ASCs to submit cost data starting in CY 2014.

The complete list of draft recommendations are:

Rate Year 2014



Draft Recommendation

Hospitals - Inpatient & Outpatient

Net Payment Update by 1.0%

Skilled Nursing Facilities

No Market Basket Update for FY2014 - Rebase

Home Health

No Market Basket Update for FY2014 - 2Yr Rebase


Reiterate October 2011 SGR repeal letter to Congress

Ambulatory Surgery Centers

Update by 0.5%


No Market Basket Update for FY2014


No Market Basket Update for FY2014

Long-Term Care Hospitals

No Market Basket Update for FY2014

Inpatient Rehabilitation

No Market Basket Update for FY2014

The final recommendations will be voted on at the January 17, 2013 MedPAC meeting, and will be included in MedPAC’s annual Medicare Payment Policy Report to Congress in March.

For more information, please click here.

Reporter, Katy Lucas, Atlanta, +1 404 572 2822,

Partial Medicaid Expansion Not Eligible for Full Funding, According to CMS – On December 10, 2012, CMS published a list of answers to Frequently Asked Questions on topics related to the Affordable Care Act, particularly exchanges and Medicaid expansion.  The FAQ publication was accompanied by a letter to state governors from HHS Secretary Kathleen Sebelius.  Importantly, CMS announced in one of its answers that states cannot choose to partially expand their Medicaid programs and expect to receive full federal matching funding for the partial expansion.

Under the Affordable Care Act, the federal government will fully fund the cost of states’ expansion of their Medicaid programs to 133 percent of the federal poverty level (FPL) for three years, beginning in 2014.  By 2020, the match rate will cover slightly less (90 percent) of state expansion costs.  With the Supreme Court’s ruling in June that states cannot be penalized for not complying with the Affordable Care Act’s Medicaid expansion requirement, the question arose as to whether a state can expand to less than 133 percent of the FPL and still receive 100% federal matching funds.  According to CMS, the answer is no because the “[t]he law does not provide for a phased-in or partial expansion.  As such, we will not consider partial expansions for populations eligible for the 100 percent matching rate in 2014 through 2016.”

However, CMS stated that it would consider such an arrangement as a demonstration project “to the extent that it furthers the purposes of the program, subject to the regular federal matching rate.”  Moreover, in 2017, when the 100% federal funding is slightly reduced, CMS may consider section 1115 Medicaid waivers as a way for states to accomplish phased-in or partial Medicaid expansion.  

The CMS publication also announced or explained that:

  • CMS no longer supports the Medicaid blended matching rate that was previously included in recent budget proposals;
  • CMS provides 90 percent federal matching funds for new or improved Medicaid eligibility systems, and is continuing to explore initiatives to reduce the administrative costs of Medicaid expansion;
  • Low-income individuals in states that do not expand Medicaid to 133 percent of the FPL, and who have incomes above 100 percent of the FPL and are not eligible for Medicaid or CHIP, will be eligible for premium tax credits and cost sharing reductions, assuming they also meet other requirements to purchase coverage in the exchanges.  Low-income individuals with incomes below 100 percent of the FPL in states that do not expand Medicaid will not be eligible for insurance subsidies; and
  • The Affordable Care Act provides for a coordinated system for making eligibility determinations between Medicaid, CHIP, and exchanges to avoid gaps in coverage.

The CMS FAQ is available here.

Reporter, Jennifer S. Lewin, Atlanta, +1 404 572 3569,

This bulletin provides a general summary of recent legal developments. It is not intended to be and should not be relied upon as legal advice.

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