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Medicare has been designated as a high-risk program because its complexity and susceptibility to improper payments, in addition to its size, have led to serious management challenges. Addressing these challenges requires improvements to payment methods, program management, and program safeguards.

Reforming and refining payment methods to encourage efficient service delivery

• CMS has continued to implement payment reforms in various parts of the program, such as for inpatient hospital and home health services, but other payment areas need further attention, including aspects of physician payment, end-stage renal disease, imaging, and preventive services.
• CMS pays for certain services at a higher rate if the service is performed in a hospital outpatient department than if it were performed in a physician’s office.  CMS is likely paying more than necessary for many services, which is inconsistent with Medicare's role as an efficient purchaser of health care services.  Congress should consider directing the Secretary of Health and Human Services (HHS) to equalize payment rates between settings for evaluation and management services—and other services that the Secretary deems appropriate—and to return the associated savings to the Medicare program.
• Providers that self-refer (referring patients to entities in which they or a family member have a financial interest) have dramatically increased their provision of certain services, including diagnostic imaging, prostate cancer radiation treatment, and diagnostic pathology services. CMS needs to better identify claims from physicians who self-refer advanced imaging, anatomic pathology, and prostate cancer treatment services; reduce payments for certain self-referred services; and, for prostate cancer radiation treatment services, disclose physicians financial interest to patients to avoid unnecessary increases in these self-referred services.
• CMS pays plans in Medicare Advantage (MA), Medicare’s private plan alternative to traditional Medicare, a predetermined amount per enrolled beneficiary adjusted for health status. The agency would improve the accuracy of its MA risk score adjustments and could realize program savings by using the most current data available and incorporating adjustments for additional beneficiary characteristics. CMS has taken steps to collect encounter data—information on the services and items furnished to enrollees—that are more comprehensive than the beneficiary diagnosis data the agency currently uses to risk-adjust payments to MA organizations, and has started using these data in calculating risk adjustments. However, CMS has not fully developed plans for validating and using MA encounter data.

Improving program management for efficiency and better service to beneficiaries

• CMS is responsible for overseeing the MA program, including assessing whether an MA plan’s provider network is adequate. To improve these oversight activities, CMS should augment oversight of MA networks to address provider availability, verify provider information submitted by MA organizations, conduct more periodic reviews of network information, and set minimum information requirements for MA enrollee notification letters.
• More than 54 million Medicare cards display beneficiaries' Social Security numbers. In 2015, Congress enacted legislation requiring the removal of Social Security numbers from Medicare cards. CMS has begun and should continue its work, which will help protect Medicare beneficiaries from identity theft.
• CMS has relied on three accrediting organizations establishing their own standards and auditing for safety and quality of advanced diagnostic imaging services, but their standards and audits vary. CMS should establish minimum national s4tandards for the accreditation of advanced diagnostic imaging suppliers and develop an oversight framework to improve safety and quality.

Enhancing program integrity to safeguard Medicare from loss

• CMS must sustain progress in reducing its payment error rates in total more than $59.6 billion in fiscal year 2015 to better ensure the integrity of the Medicare program.
• CMS should improve its processes for selecting contracts to include in its risk adjustment data validation audits of MA contracts. These audits facilitate the recovery of improper payments from MA organizations that submit beneficiary diagnosis information for payment adjustments that were unsupported by medical records. CMS estimated that it improperly paid $14.1 billion in 2013 to MA organizations. Additionally, CMS should enhance the timeliness of these audits and incorporate recovery audit contractors into the risk adjustment audits.
• CMS saved Medicare at least $1.76 billion in fiscal year 2010 through the use of prepayment edits, but those savings could have been greater had such edits been more widely used.
• The Patient Protection and Affordable Care Act (PPACA) provides CMS with certain authorities to combat fraud, waste, and abuse in Medicare. CMS should fully exercise its PPACA authority to require a surety bond for certain types of at-risk providers and suppliers and establish core elements of compliance programs for providers and suppliers.

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