Health Officials Struggle to Monitor Medicare Fraud Contractors as Problems Persist, Report Finds

MIAMI – Contractors paid tens of millions of taxpayer dollars to detect fraudulent Medicare claims are using inaccurate and inconsistent data that makes it extremely difficult to catch bogus bills submitted by crooks, according to an inspector general's report released Monday.

Medicare's contractor system has morphed into a complicated labyrinth, with one set of contractors paying claims and another combing through those claims in an effort to stop an estimated $60 billion a year in fraud. The U.S. Department of Health and Human Services inspector general's report -- obtained by The Associated Press before its official release -- found repeated problems among the fraud contractors over a decade and systemic failures by federal health officials to adequately supervise them.

Investigators found that health officials did not consistently evaluate key measures such as how many investigations were initiated by contractors. Investigators examined two contractors in charge of fraud hot spots in Florida and Texas during a nine-month period.

Contractors also used different types of data, some of which was inaccurate. That makes it impossible to determine if the contractors are effective, leading critics to question how it's possible to adequately monitor them.

The same issues were identified 10 years ago by inspector general investigators, and dozens of reports in the past decade also have found problems. In 2001, acting Inspector General Michael Mangano testified that the Centers for Medicare & Medicaid Services (CMS) wasn't doing a good job of holding contractors accountable.

"The issues we identified have been problematic for some time and present a serious obstacle" to overseeing the contractors, Inspector General Daniel R. Levinson wrote in Monday's report.

CMS has repeatedly said the latest system of fraud contractors was designed to fix the problems with earlier contractors and allow the agency to better monitor them.

Critics say fraud contractors have been revamped over the years, but nagging problems persist.

Investigators found that one contractor referred only two cases of potential fraud to CMS between 2005 and 2008; another did not refer any. But they may have no incentive to refer cases because they are not paid contingency fees for doing so, investigators said. Many experts agree.

"Very few private contractors have financial incentives which are genuinely linked to protection of public funds," said Malcolm Sparrow, a health care fraud expert at Harvard University.

In 2010, inspector general officials testified on Capitol Hill that contractors reviewing fraud in Medicare's prescription drug program also faced serious problems. One contractor didn't receive certain data until nearly one year after being awarded the contract. Once it received the data, key parts were missing or incorrect. Another contractor didn't have access to certain data before its contract ended.

In Monday's report, contractors also said they had difficulty obtaining data they needed and said that daily access to real-time Medicare claims data is critical. One contractor said it eventually had to buy the data from another contractor, which caused a 30-day delay.

The contractors generated only about 100 cases each of potential fraud using the limited data during a nine-month period. Critics say those figures are anemic compared to the billions of dollars of fraud occurring annually.

U.S. Sens. Tom Carper, D-Del., and Tom Coburn, R-Okla., have introduced legislation that would require Medicare officials to share fraud data with law enforcement and contractors, as well as put accuracy requirements into the payment administration contracts.

CMS officials said they are working diligently to give contractors access to data. They also said the investigation was conducted during early stages of the transition, so many issues have since been addressed. They agreed contractors should have access to data, but the agency has not indicated that improved access has been put in place.

Historically, Medicare has paid claims first and reviewed them later, which worked when most providers were hospitals. But the "pay and chase" method gives criminals weeks of lag time to get paid for fraudulent claims and skip town before authorities catch on.

Critics say separating contractors who pay claims from fraud contractors has created a system where the two are essentially working against each other. Fraud detection must be built into the payment system so contractors can track fraudulent claims as soon as crooks send them in, not days or weeks later, said Kirk Ogrosky, former head of the Justice Department's division that investigates health care fraud.

"By divorcing the job of paying claims from detecting fraud, CMS encourages an ineffective `pay-and-chase' system," he said.