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Carrier and Intermediary Medical Review

educating providers; and (5) to identify situations where prepayment controls are necessary.

The postpayment review process begins with the selection of a 3-percent sample of physicians and suppliers who exceed utilization norms for the greatest number of categories (for example, office, home, hospital, skilled nursing facility, and nursing home visits, injections, electrocardiograms, surgery, office lab services, X-rays, physical therapy, consultations, and other carrier-proposed categories). Physicians and suppliers who fall into this initial 3-percent investigation list are subjected to additional review to determine if other areas of their practices need to be examined.

Carriers first try to explain the abnormal practice patterns based on knowledge of local conditions or circumstances. Failing that, they initiate efforts to educate providers about their billing practices and provision of services. If these efforts prove unsuccessful, or fraud or abuse is suspected, an integrity review is performed, consisting of an examination of at least 15 beneficiary claims from each suspect category. Consultation with the carrier's medical staff is solicited, if necessary. For integrity reviews triggered by suspicion of fraud, however, medical review is not required at this stage. Further, when integrity review findings are reported to HCFA, no distinction is made between abuse situations involving "propriety or medical necessity of services" and fraud situations where a concern could be "whether or not services were in fact rendered as billed."

If problems are confirmed during the integrity review, a full-scale review is conducted. This review could involve obtaining medical records from physicians, skilled nursing facilities, and hospitals, as well as contacting beneficiaries to verify services if medical records do not support billing or if a physician shows an abnormally high rate of home visits. The medical necessity and reasonableness of services and supplies are verified by carrier physician reviewers.

7Overutilization is considered the most serious type of abuse to which part B services are vulnerable. Other types of abuse include, but are not limited to "excessive charges for services or supplies," "claims for services not medically necessary, or if medically necessary, not to the extent rendered," "breach of assignment" (violating Medicare regulations by billing patients on assigned claims for amounts exceeding the difference between the Medicare payment and the Medicare-approved charge), using a "separate schedule of charges for Medicare and non-Medicare patients," and "gang visits" (billing simultaneously for visiting several patients "without rendering any specific services to individual patients").

Carrier and Intermediary Medical Review

Providers who have been identified for further review are placed on the Physician/Supplier Action File. This file contains the names (and provider numbers) of providers who are under investigation for abuse and the action being taken against them. Only a small number of investigations related to utilization issues (as opposed to fraudulent or abusive billing practices) lead to official sanctions.8

National data for 1985, supplied to us by HCFA, indicated that seven sanctions finalized by the Office of the Inspector General related to utilization and 18 related to utilization were pending. The Carrier Manual also states that severe and longstanding problems with providers should be reported to PROS, peer groups, or other professional organizations capable of exerting corrective influence.

Quality-Related Activities

Although most carriers confine their quality-related review activities to identification of unnecessary or inappropriate care, 10 carriers reported using some screens specifically focused on quality of care in their review of part B claims. These screens are based on criteria developed by practitioner groups and peer review societies, practitioner and staff advisory boards, or medical policy committees, and in one case, the length-of-stay guidelines developed by the Commission on Professional and Hospital Activities.

Carriers also undertake special studies addressing topics of concern in their service areas. For example, one carrier conducted a study that identified abuses in the provision of dermatology, psychiatric, and anesthesia services.9 Another example is a study of coronary bypass graft operations, which was contracted to a local university.10 Special studies like this could be useful in monitoring quality of care in the Medicare program because they can be tailored to carrier-identified problems. Like basic review activities, however, they generally focus on issues of overutilization and the investigation of possible fraud, and not on underutilization or substandard care. In addition, these are one-time efforts, rather than continuing reviews.

8Sanctions include fines and exclusion from the Medicare program.

"In one case, for example, an anesthesiologist did not provide direct, personal, and continuous supervision of a nonphysician anesthetist, and overpayment of $176,631 was identified.

10 The main finding of the study was that as the volume of these operations at a particular facility increases, the length-of-stay and mortality rates decrease.

Carrier and Intermediary Medical Review

HCFA Evaluations of
Carrier Medical Review

HCFA has instituted a system for assessing carrier (and intermediary)
performance called the Contractor Performance and Evaluation Pro-
gram (CPEP). Regional office staff conduct CPEP reviews, focusing on a set
of "functional criteria," which in 1987, included "Payment Safe-
guards-Medical Review." Altogether, there were six criteria sets which
were, in turn, broken down into 78 specific standards against which car-
rier performance was evaluated. Payment Safeguards-Medical Review
accounted for eight standards."

CPEP reviews focus, for the most part, on contract compliance and efficiency. In 1987, the first standard used to evaluate carriers' medical review activities was the cost-effectiveness of its medical review program. This standard was scored on a 10-point scale, with a 10 representing medical review programs that recovered $25.01 or more per dollar spent on medical review, and a 0 representing recovery of $1.99 or less.

A second standard addressed the accuracy of medical review determina-
tions based on the proportion of coverage and documentation errors
found in a sample reviewed by the regional office staff. Carriers were
also evaluated on how well they implemented mandated prepayment
screens and protocols for medical review, how well they identified part
A claims that should be reviewed as a result of part B denials (see
below), whether they complied with HCFA procedures for postpayment
review, and whether they submitted accurate and timely reports to

HCFA.

HCFA's standards for evaluating the accuracy of medical review reports
include whether the carrier has analyzed how well mandated and car-
rier-developed screens are working. Regional office staff are specifically
instructed to determine whether the carrier's annual medical review
report contains specific recommendations for screening improvements.
Carrier reports are also supposed to justify any carrier-generated screen
for which less than 20 percent of suspended claims are actually denied.
Thus, while HCFA requires that carriers assess their prepayment and
postpayment screening systems, these assessments focus primarily on
cost-effectiveness and success in eliminating payment for unnecessary
or noncovered services.

11The fiscal year 1988 CPEP criteria, issued after a draft of this report was provided to HHS for review, place more emphasis on carriers' compliance with medical review standards and the accuracy of medical review determinations, and somewhat less on cost-effectiveness. (See appendix VII.)

Carrier and Intermediary Medical Review

Intermediaries

Hospital Review

Intermediaries process claims for inpatient hospital services and outpatient surgery, which are paid for prospectively, and for outpatient hospital services and subacute care services, which are reimbursed using retrospective cost-based payment methodologies. Their medical review activities focus on the necessity of the services rendered and the appropriateness of the setting in which services were provided. However, the need to coordinate the review of part A services over the course of patients' episodes of care is requiring intermediaries to take a more comprehensive view of quality issues.

Because medical review of acute care inpatient claims is performed by
PROS, intermediaries limit their hospital reviews (about 11 million bills
per year) to questions of coverage, diagnostic coding, and verification of
eligibility and copayment data. (See appendix V). The Medicare Code
Editor identifies cases in which the principal diagnosis or the surgical
procedure codes recorded on the hospital bill are "unacceptable"; that
is, describe circumstances that influence an individual's health status
but do not actually characterize his or her current illness or injury. For
example, the editor program flags (1) cases where the disease or condi-
tion is described in unspecific terms, such as "family history of ischemic
heart disease"; (2) cases with diagnostic codes indicating a manifesta-
tion of a disease rather than the disease itself, such as diabetic cataract;
(3) cases with nonspecific codes, such as bone infection with no indica-
tion of the precise site; and (4) cases with procedure codes that are not
covered by Medicare, such as percutaneous angioscopy.

The code editor program also flags 12 principal diagnoses that are
“questionable"; that is, could indicate unnecessary hospital admissions
(for example, diabetes without complications, elevated blood pressure
without hypertension). For outpatient surgery claims, an analogous
computer program sets out invalid codes, noncovered procedures, and
questionable covered procedures (which are covered only under some
circumstances; for example, a procedure performed for medical and not
cosmetic reasons).12

Cases with “unacceptable” diagnoses are returned to the hospital for correction. Bills with “questionable” diagnoses continue through the

12 Altogether, intermediaries processed about 44 million outpatient hospital claims, including all types of outpatient surgery, therapies, tests, and so on. Outpatient physical therapy bill review is discussed below.

Carrier and Intermediary Medical Review

Skilled Nursing Facility
Review

intermediary bill processing cycle, but are referred to PROS for postpayment review. Intermediaries keep track of the coding of "nonspecific" operating room procedures, and when providers submit too many such codes (more than 10 percent of monthly bills), intermediaries contact them to determine whether there is a need for additional education regarding the use of the procedure codes.

In addition to the mandated medical review edits, intermediaries may employ optional screens to detect utilization problems. Our survey of intermediaries indicated, however, that most intermediaries do not use optional screens when reviewing hospital claims. (See appendix III.)

The Medicare skilled nursing facility benefit is designed to provide
short-term posthospital skilled nursing care; it is used by only a small
percentage of beneficiaries. 13 Intermediaries' medical review of skilled
nursing facility admissions (about 800,000 bills per year) is intended to
ensure that the skilled level of nursing care is necessary and appropriate
and that beneficiaries are not prematurely discharged from acute care
hospitals. Approximately 45 percent of all skilled nursing facility bills
are reviewed by intermediary nurse or physician reviewers. Determining
compliance with Medicare coverage criteria requires fairly extensive
review of information on patients' conditions and care needs.

For all admissions to hospital-based skilled nursing facilities, the intermediary must request medical records and review every claim to make a determination about the medical necessity of the admission and appropriateness of the level of care. Where the admission is necessary but the appropriate level of care required is higher than that provided in these facilities, the intermediary must report the case to the HCFA regional office. For admissions to non-hospital-based skilled facilities, the intermediary must select at least 30 percent of admissions for medical review (or, under alternative review plans approved by the regional office, another sampling fraction that must include, at minimum, a 20-percent random selection). When a significant pattern of unnecessary admissions to a particular facility (over 5 percent) is noted over a calendar

13 The Medicare skilled nursing facility benefit is limited to individuals who need daily skilled nursing care or rehabilitative services following a period of 3 or more days of hospital care. In most cases, the admissions must take place within 30 days of hospital discharge. According to discharge data compiled by the Commission on Professional and Hospital Activities, about 8.5 percent of Medicare discharges were to skilled nursing facilities in 1984; the proportion of these stays actually covered by Medicare (as opposed to other payors), however, is not known. (Otis R. Bowen, M.D., Secretary of Health and Human Services, Report to Congress: The Impact of the Medicare Hospital Prospective Payment System, 1985 Annual Report, draft, 1987.)

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