The HHS Office of Inspector General has targeted hospitals for fraud enforcement.  It is one of the OIG’s most important initiatives because of the impact it could have on reducing health care costs.

The focus of the initiative is on coding practices – the reimbursement codes that hospitals use for Medicare reimbursement.  Medicare and Medicaid cover over 125 million people at a cost of nearly $1 trillion each year.  The government processes over 1.5 billion reimbursement requests from over 1 million distinct health care providers and equipment suppliers.   Medicare reimbursement contractors process over 4 million requests each day.

CMS is relying on predictive coding algorithms to cull large amounts of data looking for suspicious patterns or abnormalities in provider networks, billing patterns and beneficiaries.  The total Medicare and Medicaid improper payment rate is estimated at 28 percent or a total of $63 billion.

Improper payments in Medicare and Medicaid commonly fall into four categories: unsupported services, is medically unnecessary services, incorrect billings, and other non-covered cost or error types. Acute care payments is a primary focus for the OIG since CMS believes it is an area for significant cost savings.

The CMS prospective fraud initiative is developing investigative leads for CMS’ Zone Program Integrity Contractors (ZPIC) who are responsible for detecting and investigating potential fraud.  The predictive coding technology is similar to that used by credit card companies to reduce the risk of fraud.

Northrop Grumman was the contractor selected by the government develop CMS’ technology.  The software analyzes data by beneficiary, provider, service origin and other patters, and then assigns certain risk scores.  It is too early in the process to conclude how the new program is working but 2013 will be an important year to measure fraud.

CMS’ Center for Program Integrity is overseeing the new strategic direction.  At its core, the effort is seeking to implement proactive strategies to prevent fraud before it occurs.  The reactive model – “pay and chase” – has not been very effective in reducing the incidence of fraud since a small percentage of fraud dollars are actually recovered.

A proactive model focuses on two critical functions – (1) the review and payment of claims; and (2) the enrollment of new providers and suppliers.  The second aspect of this effort is critical – developing due diligence procedures to measure risk and ensure that a new enrollee is legitimate and not complicit in a fraud scheme.

The RAC audit process is a vital part of the integrity program.  The top overpayment issues continue to occur around medical necessity and the wrong codes being used for cardiovascular procedures.  Medical necessity issues are also increasing around joint replacement surgeries (hip and knee) and the three-day inpatient stay rule for skilled nursing facilities.

With so much at stake, hospitals need to develop their own internal protocols and procedures for monitoring their reimbursement and coding activities.  Working groups should be created on acute care, coding accuracy/errors, and any outliers identified through the auditing process.