Medicare To Implement New Billing Procedures, Proposes New Regulations To Combat Fraud

Oct 05, 2010   
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On September 27, 2010, President Obama signed into law the Small Business Lending Act which contains a new anti-fraud provision that will significantly change how the Center for Medicare and Medicaid Services (“CMS”) bills for services. Under the new provision, CMS will be required to end its 45 year policy of approving claims quickly without first verifying that the services were actually provided and that the claims submitted are not the product of fraud.

The new law requires CMS, which pays out $500 billion annually in Medicare and Medicaid claims, to adopt new billing software with “predictive modeling” by next year in hopes of reducing fraud. Predictive modeling software is currently used by the credit card industry to detect questionable bills and stop payments if fraud is suspected. Under CMSs current system, nicknamed “pay and chase” by government officials, over $60 billion dollars per year are lost to fraud. By implementing predictive modeling software, CMS will be alerted to suspicious claims, providers, and facilities before payment is rendered, thereby allowing CMS to stop payment on these claims and investigate whether fraudulent activity has taken place.

CMS will start the competitive bidding process by software manufacturers in January of 2011 and will begin phasing in the technology in the 10 states with the highest rates of Medicare fraud by July 2011. Additionally, CMS will require its Medicare contractors to use the new technology for claims processing for hospitalization and outpatient services, the bulk of Medicares costs. The new law provides that the Department of Health and Human Services track the actual savings to the Medicare program after implementation of the software for one year. At that time, should Congress find that the savings are significant, funding will be expanded to allow the program to be used in 10 additional states.

The new law comes at the same time as CMS unveiled new proposed regulations to crack down on fraud. The proposed regulations would make it easier for CMS to suspend payments to providers. Under the proposed rules, payments to providers can be suspended upon a showing of “credible allegations” of fraud that merit further investigation, including tips from consumers. Additionally, the proposed rules would require state Medicaid programs to stop using medical providers that have been kicked out of Medicare or another states Medicaid program.

The proposed rules also include a ranking system of all types of medical providers within the Medicare system by their risk for engaging in fraud. The providers with the highest risk would be required to undergo fingerprinting and criminal background checks before engaging in business. The rules also provide that all new home health agencies and home-health equipment suppliers that are not publicly traded will be subject to this increased screening.

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