Life Science Compliance Update

June 17, 2015

E&C Committee Requests Government Accountability Office Look Into CMS's Fraud Prevention System


Bipartisan leaders of the House Energy and Commerce and House Ways and Means Committees on Monday sent a letter to the Government Accountability Office (GAO) requesting a review of the Fraud Prevention System (FPS) at the Centers for Medicare and Medicaid Services. The FPS was implemented in July 2011 in an effort to more proactively prevent fraud in the Medicare program, as opposed to a “pay and chase” approach that still provides the bulk of the enforcement activities.

The leaders explain, “GAO has previously identified key practices for using predictive analysis systems, including leveraging the results of predictive analysis to address service- or system-specific weaknesses that can lead to payment errors, such as gaps in prepayment edits. It is unclear whether CMS is using FPS to identify these broader program vulnerabilities in Medicare and taking action based on these vulnerabilities throughout the program.”

The letter requests GAO study the following questions:

  • What types of potentially fraudulent payments have been denied by FPS prepayment edits, and how do the FPS prepayment edits differ from those implemented by the Medicare Administrative Contractors?
  • How many administrative actions has CMS taken against providers since 2010, what types of actions were taken, and how many of these actions were a direct result of FPS? How do these actions compare with non-FPS-initiated actions?
  • How has the FPS led CMS to identify program vulnerabilities that could lead to payment errors, and what steps has CMS taken to address any identified vulnerabilities.
  • What percentage of savings attributable to FPS are also attributable to prepayment  denials compared to post-payment recoveries? How do these savings compare with other traditional program integrity efforts?
  • What are CMS’s plans for using FPS with Medicaid and the Children’s Health Insurance Program (CHIP) as directed under federal statute? If this is unworkable due to the nature of Medicaid and CHIP claims, what is a recommended alternate approach?
  • How do the program outlays for FPS compare with the actual and projected savings attributable to FPS-initiated actions?

The letter was signed by:

  • Energy and Commerce Committee Chairman Fred Upton (R-MI)
  • Ways and Means Committee Chairman Paul Ryan (R-WI)
  • Energy and Commerce Subcommittee on Oversight and Investigations Chairman Tim Murphy (R-PA)
  • Ways and Means Subcommittee on Oversight Chairman Peter Roskam (R-IL)
  • Energy and Commerce Subcommittee on Health Chairman Joe Pitts (R-PA)
  • Ways and Means Subcommittee on Health Chairman Kevin Brady (R-TX)
  • Energy and Commerce Committee Ranking Member Frank Pallone, Jr. (D-NJ)
  • Ways and Means Committee Ranking Member Sander Levin (D-MI)
  • Energy and Commerce Subcommittee on Oversight and Investigations Ranking Member Diana DeGette (D-CO)
  • Ways and Means Subcommittee on Oversight Ranking Member John Lewis (D-GA)
  • Energy and Commerce Subcommittee on Health Ranking Member Gene Green (D-TX)
  • Ways and Means Subcommittee on Health Ranking Member Jim McDermott (D-WA)

The Energy and Commerce Subcommittee on Oversight and Investigations held a hearing in early June to discuss a report from GAO on fraud in the Medicaid program, entitled, “Additional Actions Needed to Help Improve Provider and Beneficiary Fraud Controls.” 

GAO’s report “found thousands of Medicaid beneficiaries and hundreds of providers involved in potential improper or fraudulent payments during fiscal year 2011 – the most-recent year for which reliable data were available in four selected states: Arizona, Florida, Michigan, and New Jersey. These states had about 9.2 million beneficiaries and accounted for 13 percent of all fiscal year 2011 Medicaid payments.”


  • About 8,600 beneficiaries had payments made on their behalf concurrently by two or more of GAO's selected states totaling at least $18.3 million, even though federal regulations do not permit beneficiaries to have payments made on their behalf by two or more states concurrently
  • The identities of about 200 deceased beneficiaries received about $9.6 million in Medicaid benefits subsequent to the beneficiary's death.
  • About 50 providers were excluded from federal health-care programs, including Medicaid, for a variety of reasons that include patient abuse or neglect, fraud, theft, bribery, or tax evasion.

House Energy and Commerce Subcommittee on Oversight and Investigations chair Rep. Tim Murphy (R-PA) noted, “Last year the Medicaid program provided medical services for approximately 60 million people at a cost of $310 billion. But during that same year, the Centers for Medicare and Medicaid Services estimated that the improper-payment rate was 6.7 percent or $17.5 billion. This is an increase of almost 1 percent or over $3 billion from the previous year.

This is a troubling trend, especially as the program continues to expand.” Full committee Chairman Fred Upton (R-MI) said, “Medicaid is supposed to provide our most vulnerable with vital medical services, but continued waste and fraud undermines this important goal.” Dr. Shantanu Agrawal, Deputy Administrator and Director of the Center for Program Integrity at CMS, testified about steps currently being taken by CMS to reduce waste, fraud and abuse, but agreed that continued oversight is essential. Dr. Agrawal told Rep. Joseph Kennedy (D-MA), “Holding our feet to the fire is appropriate.”



June 08, 2015

Results from the First Two Years of the Pioneer Accountable Care Organization Model


On May 22, the Government Accountability Office (GAO) released a study evaluating the financial and quality outcomes for each accountable care organization (ACO) within the Pioneer Accountable Care Model for 2012 and 2013. The Pioneer ACO was created under the Affordable Care Act and is made up of health care providers and suppliers that voluntarily form individual ACOs to provide coordinated care to patients. The ultimate goal of this, and other ACOs, is to reduce spending and improve quality of care.

The Pioneer ACO model allows ACOs to earn additional Medicare payments if they generate savings but must pay CMS a penalty if spending is higher than expected. In this study GAO analyzed ACOs’ spending benchmarks, amount saved and lost, and payment amounts for shared savings or losses. The GAO found that fewer than half of the ACOs in the Pioneer ACO program earned shared savings in 2012 and 2013, although overall the Pioneer ACO Model produced net shared savings in each year.

The GAO report’s overview notes that 41% of the ACOs produced $139 million in total shared savings in 2012, and 48% percent produced $121 million in total shared savings in 2013. In 2012 and 2013 CMS paid ACOs $77 million and $68 million, respectively, for their shared savings. The Pioneer ACO Model produced net shared savings of $134 million in 2012 reflecting 2 percent of total expenditures for all 32 ACOs that participated in 2012. In 2013, it produced net shared savings of $99 million reflecting 1.4 percent of the total expenditures for the 23 ACOs that participated. The GAO also found that ACOs that participated in both years had significantly higher quality scores in 2013 than in 2012 for 67 percent of the quality measures.

ACOs with higher levels of prior spending likely had more capacity for achieving cost savings in the first two years of the model, for example, by reducing unnecessary services. As part of the GAO’s analysis, it compared the average expected expenditures (the spending benchmarks) for the Pioneer ACOs that achieved shared savings to the average expected expenditures for those ACOs that did not produce shared savings. In each year, GAO observed that the ACOs with shared savings had average expected expenditures that were about $1,100 higher, per beneficiary, compared to those ACOs that did not generate shared savings, absent other differences. For example, in 2013 the average expected expenditures for the 11 ACOs with shared savings ($12,426) was $1,160 higher, per beneficiary, than the average expected expenditures for the 12 ACOs without savings ($11,266).

The Department of Health and Human Services (HHS) provided technical support to assist the GAO in this study. HHS also offered general comments on the report. In its response, the agency stressed its commitment to ACOs like the Pioneer Model, calling it an “innovative initiative that is being used to test the impact of different payment arrangements in helping organizations who already have experience operating in ACO-like arrangements achieve the goals of providing better care to patients, and reducing Medicare costs.” HHS highlighted the fact that ACOs participating in the Pioneer Model for 2012 and 2013 had higher quality scores for a majority of the measures in the second year. Aside from trumpeting positive data, HHS concluded by stating the CMS will continue to test payment models that “incentivize providers to improve patient care and lower costs.”

With the recent MACRA SGR repeal legislation pushing physicians to choose between an unclear merit-based formula and alternative payment models like ACOs, it will be increasingly important to monitor developments in programs like the Pioneer Model. HHS continues to push post-Affordable Care Act projects, like their Health Care Payment Learning and Action Network, which strives to move healthcare from fee-for-service to quality and value-based care. We will continue to monitor these issues throughout the coming years.

June 03, 2015

GAO Wants More Transparency in the How CMS Determines Medicare Payment Values


The transparency movement is shining a light into most every aspect of healthcare these days. How Medicare bases its payments rates, and who makes these rate recommendations, has garnered scrutiny recently, with the Government Accountability Office (GAO) stating that a lack of transparency is to blame for inflated payments to physicians. Their focus is on the American Medical Association’s committee, the AMA/Specialty Society Relative Value Scale Update Committee (RUC), a 31-member committee that makes recommendations to Medicare on the relative value of thousands of physician services.

The GAO’s report is not entirely out of left field as Medicare payment rates have been spotlighted over the last couple of years. Notably, a 2013 Washington Post article—entitled “How a Secretive panel uses data that distorts doctors’ pay”—questioned the “miraculous proficiency” of physicians performing colonoscopies. “In justifying the value it assigns to a colonoscopy, the AMA estimates that the basic procedure takes 75 minutes of a physician’s time, including work performed before, during and after the scoping,” notes the article. “But in reality, the total time the physician spends with each patient is about half the AMA’s estimate — roughly 30 minutes, according to medical journals, interviews and doctors’ records.”

To help CMS establish accurate relative values (both to generate initial relative values for new services and to maintain accurate relative values for existing services), the AMA created RUC, comprising representatives from different specialties. “To inform its decisions, the committee relies on surveys submitted by the relevant professional societies,” Washington Post states. “For example, in setting the value for a colonoscopy, the committee has turned to the American Gastroenterological Association and a similar group for information.”

GAO Report

The U.S. Government Accountability Office (GAO) GAO recently looked into RUC’s process for developing relative value recommendations for CMS. “GAO evaluated (1) the RUC’s process for recommending relative values for CMS to consider when setting Medicare payment rates; and (2) CMS’s process for establishing relative values, including how it uses RUC recommendations,” the Office states. “GAO reviewed RUC and CMS documents and applicable statutes and internal control standards, analyzed RUC and CMS data for payment years 2011 through 2015, and interviewed RUC staff and CMS officials.”

In its report, GAO found that RUC’s recommendations to CMS may not be accurate for two main reasons. “First, the RUC’s process for developing relative value recommendations relies on the input of physicians who may have potential conflicts of interest with respect to the outcomes of CMS’s process,” they state. “While the RUC has taken steps to mitigate the impact of physicians’ potential conflicts of interest, a member of the RUC told GAO that specialty societies’ work relative value recommendations may still be inflated.” GAO noted that RUC staff may attempts to account for the bias, but may not be as successful as they could be. 

Second, GAO found that survey data the RUC used was flawed. “Some of the RUC’s survey data had low response rates, low total number of responses, and large ranges in responses, all of which may undermine the accuracy of the RUC’s recommendations,” the note. GAO mentions, for example, that they found that the median response rate was only 2.2 percent, and 23 of the 231 surveys had under 30 respondents.

In its recommendations to CMS, GAO found that the agency’s “process for establishing relative values embodies several elements that cast doubt on whether it can ensure accurate Medicare payment rates and a transparent process.”

GAO outlines four reasons for this assessment:

(1)    Although CMS officials stated that CMS complies with the statutory requirement to review all Medicare services every 5 years, the agency does not maintain a database to track when a service was last valued or have a documented standardized process for prioritizing its reviews.

(2)    CMS’s process is not fully transparent because the agency does not publish the potentially misvalued services identified by the RUC in its rulemaking or otherwise, and thus stakeholders are unaware that these services will be reviewed and payment rates for these services may change.

(3)    CMS provides some information about its process in its rulemaking, but does not document the methods used to review specific RUC recommendations. For example, CMS does not document what resources were considered during its review of the RUC’s recommendations for specific services.

(4)     The evidence suggests—and CMS officials acknowledge—that the agency relies heavily on RUC recommendations when establishing relative values. “Given the process and data related weaknesses associated with the RUC’s recommendations, such heavy reliance on the RUC could result in inaccurate Medicare payment rates,” concludes GAO.  

“CMS should better document its process for establishing relative values and develop a process to inform the public of potentially misvalued services identified by the RUC,” GAO recommends. “CMS should also develop a plan for using funds appropriated for the collection and use of information on physicians’ services in the determination of relative values.”

View GAO’s full report here.



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