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The federal government sent out $106 billion in improper payments to beneficiaries and contractors in 2013, handing over money to the wrong people, for the wrong amounts and for the wrong reasons, according to a report on “improper payments” from the U.S. Government Accountability Office.

The vast majority of the reported erroneous payments over Fiscal Year 2013, which include fraud as well as innocent mistakes, comes from improper Medicare and Medicaid billing, with some hospitals sending bills to the federal government with error rates “north of 50 percent,” said Leslie Paige, vice president of communications and policy for the Council for Citizens Against Government Waste, a Washington, D.C.-based watchdog group.

Some of the payments should not have been made at all, the report states, while others were inflated.

Paige gave examples of incidents in which a hospital may have billed Medicare for a hysterectomy on a male patient or for two appendectomies on a single patient on the same day.

“These are called medical impossibilities, where somebody puts in the wrong code,” Paige said.

Then there are the ubiquitous claims paid to dead people, which occur thousands of times every year.

“Some are mistakes but others could be people ripping off the program,” Paige said.

Such mistakes are actually a small amount of the total package when it comes to botched government payments in the medical industry. More money is lost in the category of “medical necessity,” where hospitals perform and bill for procedures that fail to comply with rules set by the Centers for Medicare & Medicaid Services, or CMS.

“The larger problem is on the medical necessity side, where someone was wrongly admitted, not following the rules set by CMS. That’s where you get into a whole bunch of gray area,” Paige said. “They require codes for everything and it’s very confusing, with bills related to medical necessity. Auditors are saying ‘that claim was improperly billed and we’re going to ask you for the money back.’ Hospitals are screaming bloody murder about this, saying, ‘don’t question our doctors.’”

Defense Department offers up ‘weak audits’

But possibly the most troubling aspect of the report, which was presented July 9 by GAO before the House Subcommittee on Government Operations, Committee on Oversight and Government Reform, is that it may not even be accurate.

That’s because the Department of Defense, one of the largest portions of the federal budget after entitlements, has not fully complied with the laws Congress has passed over the last decade requiring all federal agencies to file annual reports estimating the amount of improper payments made. Some updates to the landmark Improper Payments Act of 2002 also require audits to be triggered when the estimates reach a certain point.

“I think you’ve pinpointed a valid concern,” a GAO official, Beryl Davis, told WND Thursday. “The Department of Defense has listed nine programs in this year’s (2013) report but estimates may not be reliable for fiscal 2012. They acknowledged there were issues (with auditing) that needed to be addressed. And they said they would address those issues by 2014 so the 2013 report is not reliable either.”

Davis, director of Financial Management and Assurance for the GAO, said, “These estimates have been reviewed but there is no way to confirm that these estimates are accurate, or I should say reliable. Reliable is probably a better word.”

Defense Department defends its record

Cmdr. Bill Urban, press spokesman for the DOD, told WND Thursday that the department has a good program in place that needs to get better.

“DoD has a fundamentally sound and active program in place to identify, report, eliminate and, if needed, recover improper payments. Currently, we estimate that less than 1 percent of all of our payments meet the definition of being improper,” he wrote in an email. “That is low compared with the government-wide rate of 3.53 percent for Fiscal Year 2013. Moreover, many of our improper payments are quickly resolved.”

DoD’s largest challenges go beyond improper payments, he said, and are the same ones that impact financial reporting auditability.

“For example, they include the ability to reconcile and present universes of transactions so that we can conduct comprehensive sampling to provide assurance that we have quality control all payments, while also being able to readily source documents to support those payments. As a result, many of our improvement efforts are focused on making the Department’s financial statements auditable, while also strengthening and increasing the credibility of the low improper payment numbers we report.

“The Office of Management and Budget (OMB) generally agree that DoD has a strong program in place to control improper payments. It is important to note that DoD improper payments are not on OMB’s list of high-priority (error) programs. In fact, OMB has identified some of the techniques we use to combat improper payments as best practices that other agencies should consider to strengthen their own programs.”

The five programs that reported the highest number of improper payments break down as follows:

  • Medicare fee-for-service payments made by Health and Human Services, reported $36 billion in improper payments and a 10 percent error rate.
  • Earned-income tax credits paid out by the Treasury Department for the wrong amount or to the wrong person totaled $14.5 billion for a 24 percent error rate.
  • Medicaid payments made by HHS sent out $14.4 billion in erroneous checks, an error rate of 5.8 percent.
  • Medicaid Advantage (Part C) inaccurate payments amounted to $11.8 billion, an error rate of 9.5 percent.
  • Unemployment Insurance benefits paid out by the Department of Labor came to $6.2 billion for an error rate of 9.3 percent.

“Of course, there is always room for improvement,” Urban continued. “We constantly strive to reduce our improper payment rates where we can cost-effectively do so. Our overall financial improvement and audit readiness effort – known as the FIAR Plan – will continue to provide increased confidence and credibility in the numbers we report. These efforts, plus our collaboration with OMB, GAO, and Congress help to sustain this focus. As a result, we are contributing to government-wide improvements in financial management.”

Paige said Citizens Against Government Waste is not impressed by the DoD’s efforts, which she says have thwarted the GAO’s efforts at true accountability.

“It (the GAO report) is not even a reliable gauge of exactly how much money is being frittered away unnecessarily,” she said. “And we don’t even have the final numbers because the Department of Defense has not coughed up its final (audited) numbers yet.”

Rep. John Mica, R-Fla., who chaired the subcommittee hearing Wednesday, pointed out that improper government payments hovered between $38 billion and $45 billion from 2004 to 2008, and then began to skyrocket.

The total amount of misspent federal money in 2013 was $105.8 billion, down from $107.1 billion in 2012. As a percentage of the government’s total expenditures, the 2013 total represented 3.53 percent, also down from 5.42 percent in 2012.

But, looking at the government’s 15-year track record, which is considered a more accurate gauge, the problem appears to be getting worse. As recently as 1999, when the study of mismanaged payments started, the GAO found a mere $20.7 billion that went to the wrong person or for the wrong amount, and that represented just 1.2 percent of that year’s budget.

Most of the erroneous payments are attributed to “material weaknesses in internal control,” the report says, which basically means weak internal auditing procedures. Again, the Defense Department has been among those agencies considered to be at the highest risk for misspent tax dollars.

“They have such material weaknesses in their auditing procedures, major deficiencies, that you can’t get a valid number, and that’s been going on for years,” Paige said. “I think the GAO is doing everything they can to dig up the numbers but they cannot get information from all the agencies – they are not complying.”

Has the media grown numb to issue of waste?

Paige is also disappointed by the amount of media coverage being given to Wednesday’s report.

“The average tolerance that the news media seems to have on this is amazing to me,” she said. “You wonder how they’re going to rivet their attention on it so we can get some actual movement for reform. We’ve been at this for 20 years and we’re seeing improper payments getting worse.”

Another problem is duplication of services.

For instance, Citizens Against Government Waste found 209 STEM (science, technology, engineering and math) programs spread over 13 federal agencies.

“If you got rid of the Department of Education you would only eliminate a little over half of those,” Paige said. “They’re in the Department of Commerce and God only knows where else, and nobody is doing any assessment of the quality of these programs or even talking about merging them.”

The other problem, Paige said, is that the government spends too much time measuring waste and not enough time cutting it.

“All we do is measure. We’re spending a hell of a lot of money just to measure the waste, fraud and abuse, but all we do is measure,” she said. “Congress is the one, they are the cutters and they are not doing it. We have the constant reports but nobody’s doing anything.”

Hiring private auditors

In fact, there’s a real danger that the little bit of progress Congress has made in recent years could be undone.

An effective method of recovering overbilled payments is to hire private-sector auditors that only get paid for what they recover. It’s a 40-year-old technique proven in the business world called “recovery auditing.” The technique was introduced to the government sector a few years ago through the use of Recovery Auditing Contracts or RACs.

Watchdog groups like the one Paige represents love them. Hospitals don’t.

“They have been extremely successful so far, returned something like $8 billion to the Medicare Trust Fund, and that’s after they take their fee,” Paige said. “And they’re only looking at 2 percent of the claims volume to these hospitals. These are called overpayments to the hospitals. The hospitals are going ballistic.

“They claim they want to reform it, but the rules they are proposing, in our opinion, would gut the RAC program,” Paige continued. “They’re trying to get CMS to back off on the recovery auditing program and the Hospitals Association is working hard to undermine the RAC program both in the House and the Senate. We are opposed to that. Recovery auditing is entrenched in statute going back several years.”

Hospitals complain that they’re being asked to comply with five different auditing regimes all authorized by different statutes with different rules and benchmarks and all have different interpretations.

“They do have an argument that this is a nightmare scenario. Regulatory overburden is real and it’s on everybody, not just hospitals,” Paige said. “They’re really fixated on the RACs because they are the only ones who can take the money back, send them a letter and say, you owe us $100,000. They’re the only ones that have the authority to get the money back. But they’re only looking at 2 percent of the claims at any hospital at any given time.”

And these auditors are finding huge error rates.

“It’s north of 50 percent at some hospitals, so they should know better. They’ve been doing RACs since 2009. Some hospitals have 90 percent error rates in their claims,” Paige said. “One little hospital in Memphis had a zero rate, so apparently it’s doable. So you wonder why these big hospitals are finding it so difficult, and I don’t think it’s difficult. I think it’s because they don’t want to. It’s part of a business model.”

These cases of overbilling are not considered crimes, and hospitals may appeal the audits.

Paige agrees that hospitals, like almost every other industry, could use some simplification of the rules and regulations under which they’re forced to play.

“As an organization, we have no objections to looking at duplication and overlap or right sizing. However, we are not interested and do not support efforts to gut the RACs or hamper them in any way because it doesn’t cost taxpayers a dime,” she said. “Don’t blame the RACs for that, you blame CMS, because they set the rules and if there’s confusion about the rules, that’s on them.”

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