On December 10, 2012, the Government Accountability Office (GAO) released a report on the use of prepayment edits in the Medicare program and CMS’ oversight of Medicare Administrative Contractors' (MACs) use of these edits. (GAO Report). The use of prepayment edits is a strategy employed by CMS to identify potential improper payments before a claim is paid.  This report was requested by several senators, including Tom Carper (D-Del) and Tom Coburn (R-Okla) and is being released at a time in which lawmakers are attempting to identify potential cost savings in the Medicare program as part of the fiscal cliff negotiations.

According to the GAO Report, in FY 2010, prepayment edits saved the Medicare program at least $1.76 billion.  GAO further states that this is likely an underestimate of the true cost savings because CMS does not collect information on all of its current prepayment edits.  GAO, however, concludes that Medicare could have saved even more money had prepayment edits been more widely used.

MACs employ automated and manual prepayment edits.  Since automated prepayment edits are less resource-intensive, CMS policy encourages the use of automated edits if feasible.  GAO explains, however, that many improper claims can be identified only through manual review because, for example, clinical judgment may be required to determine whether a service was reasonable and necessary.  GAO also recognizes that certain improper payments can only be identified after a claim has been paid and explains that the Medicare Parts A/B Recovery Audit (RAC) program is designed to identify improper payments that have already been paid.

Accordingly, GAO recommends that CMS pursue the following seven actions to enhance the effectiveness of prepayment edits:

  • Centralize within CMS the development and implementation of automated edits based on National Coverage Determinations (NCDs) to ensure greater consistency;
  • Implement medically unlikely edits (MUEs) that assess all quantities of services provided to the same beneficiary by the same provider on the same day;
  • Revise the method for compiling information about Medicare A/B RAC-identified vulnerabilities;
  • Develop written procedures to provide guidance to agency staff on all steps in the processes for developing and implementing edits based on national policies;
  • Improve the data collected on local prepayment edits and local coverage policies to enable CMS to identify the most effective edits on which they are based and disseminate this information to MACs;
  • Until CMS develops a new database to collect information about edits, require MACs to share information about underlying policies and savings related to their most effective edits; and
  • Assess the feasibility of providing increased incentives to MACs to implement effective prepayment edits.

To view the GAO Report, click here.