Fact Sheets


For Immediate Release: Tuesday, November 15, 2011
Contact: CMS Media Relations


In 2010, the President announced three goals for cutting improper payments by 2012: reducing overall payment errors by $50 billion, cutting the Original Medicare error rate in half, and recovering $2 billion in improper payments to recipients of federal dollars.  As a part of the Centers for Medicare & Medicaid Services (CMS) commitment to achieving those goals, the agency is conducting a three year demonstration to expand prepayment review of Medicare claims.  The Recovery Audit Program Prepayment Review demonstration will allow Medicare Recovery Auditors to conduct prepayment claim reviews to assist in lowering the improper payment rate and to identify potential fraud and abuse in Original Medicare.


Today, Recovery Auditors work on a contingency basis to identify improper payments after the claims have been paid – the traditional “pay and chase” method of recovering improper payments.  The most effective way to limit the amount of taxpayer dollars lost to this type of improper payment is to review the medical record and other supporting documentation for the claim before it is paid to ensure that the correct services were billed and are paid.  Currently, Medicare is only able to conduct a small number of prepayment claims reviews given the large volume of claims and current funding levels, resulting in improper payments for claims. 


This demonstration builds on the existing infrastructure to review claims to expand prepayment review by Recovery Auditors.  Using multiple data sources to develop prepayment review targets, the demonstration will initially focus on inpatient hospital claims, especially short stays, as this type of claim has been shown to have a high improper payment rate. 


Medicare Administrative Contractors (MACs) currently perform a small amount of prepayment review – this demonstration will increase the volume of claims reviewed.  Under this demonstration, CMS will choose specific claim types for review. Then, Recovery Auditors will review selected claims and if an improper claim is identified, it can be denied before the improper payment is made.  Payment determinations will be made following the same processes with which providers are familiar.


Contingency fees for the Recovery Auditors and administrative costs will be paid out of funds that CMS saves by denying improperly billed claims. This approach allows for more reviews without increased funding.  Normal provider appeal rights apply.


This demonstration will be conducted for 3 years, from January 1, 2012 through December 31, 2014.  It will be implemented in 11 states.  Seven of those States were chosen based on their high level of fraudulent claims and providers (FL, CA, MI, TX, NY, LA, IL) and four states were selected based on having high claims volumes for short inpatient hospital says (PA, OH, NC, MO).


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