Department of Health and Human Services
OFFICE OF
INSPECTOR GENERAL

MEDICARE IMPROPERLY PAID
PROVIDERS MILLIONS OF DOLLARS FOR
INCARCERATED BENEFICIARIES WHO
RECEIVED SERVICES DURING 2009
THROUGH 2011

Inquiries about this report may be addressed to the Office of Public Affairs at
Public.Affairs@oig.hhs.gov.

Daniel R. Levinson
Inspector General
January 2013
A-07-12-01113

Office of Inspector General
https://oig.hhs.gov/

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as amended, is
to protect the integrity of the Department of Health and Human Services (HHS) programs, as well as the
health and welfare of beneficiaries served by those programs. This statutory mission is carried out
through a nationwide network of audits, investigations, and inspections conducted by the following
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Office of Audit Services
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reduce waste, abuse, and mismanagement and promote economy and efficiency throughout HHS.

Office of Evaluation and Inspections
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and the public with timely, useful, and reliable information on significant issues. These evaluations focus
on preventing fraud, waste, or abuse and promoting economy, efficiency, and effectiveness of
departmental programs. To promote impact, OEI reports also present practical recommendations for
improving program operations.

Office of Investigations
The Office of Investigations (OI) conducts criminal, civil, and administrative investigations of fraud and
misconduct related to HHS programs, operations, and beneficiaries. With investigators working in all 50
States and the District of Columbia, OI utilizes its resources by actively coordinating with the Department
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often lead to criminal convictions, administrative sanctions, and/or civil monetary penalties.

Office of Counsel to the Inspector General
The Office of Counsel to the Inspector General (OCIG) provides general legal services to OIG, rendering
advice and opinions on HHS programs and operations and providing all legal support for OIG’s internal
operations. OCIG represents OIG in all civil and administrative fraud and abuse cases involving HHS
programs, including False Claims Act, program exclusion, and civil monetary penalty cases. In
connection with these cases, OCIG also negotiates and monitors corporate integrity agreements. OCIG
renders advisory opinions, issues compliance program guidance, publishes fraud alerts, and provides
other guidance to the health care industry concerning the anti-kickback statute and other OIG enforcement
authorities.

Notices

THIS REPORT IS AVAILABLE TO THE PUBLIC
at https://oig.hhs.gov
Section 8L of the Inspector General Act, 5 U.S.C. App., requires
that OIG post its publicly available reports on the OIG Web site.

OFFICE OF AUDIT SERVICES FINDINGS AND OPINIONS
The designation of financial or management practices as
questionable, a recommendation for the disallowance of costs
incurred or claimed, and any other conclusions and
recommendations in this report represent the findings and
opinions of OAS. Authorized officials of the HHS operating
divisions will make final determination on these matters.

EXECUTIVE SUMMARY
BACKGROUND
Pursuant to Title XVIII of the Social Security Act, the Medicare program provides health
insurance for people aged 65 and over, people with disabilities, and people with permanent
kidney disease. The Centers for Medicare & Medicaid Services (CMS), which administers the
program, contracts with Medicare contractors to process and pay Medicare Part A and Part B
claims submitted by health care providers.
Under Federal requirements, Medicare generally does not pay for services rendered to
incarcerated beneficiaries. Federal requirements, however, allow Medicare payment if State or
local law requires incarcerated beneficiaries to repay the cost of medical services. Health care
providers indicate this exception by placing a specific code on the claims submitted for payment.
We refer to this code as “exception code.”
The Social Security Administration (SSA) is CMS’s primary source of information about
incarcerated beneficiaries. Generally, SSA collects information, such as the names of
beneficiaries and the dates on which beneficiaries begin and/or end periods of incarceration,
directly from penal authorities. SSA also collects incarceration end dates from beneficiaries’
requests for reinstatement of Social Security benefits.
CMS’s records identified 135,805 Medicare beneficiaries who had been incarcerated at some
point during calendar years (CY) 2009 through 2011. We limited our review to 75,639 claims on
behalf of 11,619 incarcerated beneficiaries with $33,587,634 in associated Medicare payments.
OBJECTIVE
Our objective was to determine whether CMS had adequate controls to prevent and detect
improper payments for Medicare services rendered to incarcerated beneficiaries.
SUMMARY OF FINDINGS
When CMS’s data systems indicated at the time that a claim was processed that a beneficiary
was incarcerated, CMS’s controls were adequate to prevent payment for Medicare services.
Specifically, CMS had a prepayment edit that flagged claims so that Medicare contractors could
deny payments to providers when the incarceration dates and the dates of service on the claims
overlapped.
When CMS’s data systems did not indicate until after a claim had been processed that a
beneficiary was incarcerated, CMS’s controls were not adequate to detect and recoup the
improper payment. CMS will not always receive timely updates regarding incarceration
information before Medicare contractors pay providers on behalf of incarcerated beneficiaries,
and accordingly, Medicare payments totaling $33,587,634 were made to providers for services
rendered to 11,619 incarcerated beneficiaries during CYs 2009 through 2011. CMS did not have
policies and procedures to review incarceration information on a postpayment basis that would

i

have detected improper payments that the prepayment edit could not prevent. Consequently,
CMS did not notify the contractors to recoup any of the $33,587,634 in improper payments.
CMS allowed Medicare contractors to follow varying policies when processing claims with
exception codes for payment. In one instance, a contractor approved claims with exception
codes that another contractor would have denied. Therefore, providers also had varying
procedures regarding the use of exception codes when submitting claims for payment. For
example, some providers submitted claims without the exception codes, even though they knew
through sources other than CMS that the beneficiaries were incarcerated and that the
requirements for the exception codes had been met. If CMS implements a postpayment edit but
does not also standardize the claims-processing policies for contractors to follow, some providers
will then have to resubmit the claims with the exception codes added, which would create
inefficiencies and time delays at both the provider and contractor levels.
RECOMMENDATIONS
We recommend that CMS:
•

ensure that Medicare contractors recoup the $33,587,634 in improper payments;

•

implement policies and procedures to detect and recoup improper payments made for
Medicare services rendered to incarcerated beneficiaries when incarceration information
is received on previously paid Medicare claims;

•

identify improper payments made on behalf of incarcerated beneficiaries after our audit
period but before implementation of policies and procedures and ensure that Medicare
contractors recoup those payments;

•

work with other entities, including SSA, to identify ways to improve the timeliness with
which CMS receives incarceration information before Medicare contractors pay
providers on behalf of incarcerated beneficiaries; and

•

work with the Medicare contractors to ensure that all claims with exception codes are
processed consistently and pursuant to Federal requirements.

CENTERS FOR MEDICARE & MEDICAID SERVICES COMMENTS AND
OFFICE OF INSPECTOR GENERAL RESPONSE
In written comments on our draft report, CMS concurred with three of our recommendations.
CMS stated that in April 2013 it plans to implement a process for detecting and recouping
improper payments for previously paid Medicare claims.
CMS partially concurred with our recommendation regarding the recoupment of the $33,587,634
in improper payments. CMS stated that it is committed to recovering overpayments we
identified, but it must take into account the cost benefit of recoupment activities, including
potential appeal costs and the cost of manually reopening these claims.

ii

After providing its comments, CMS advised us that it had initiated recovery actions for CY 2009
claims and that it would shortly begin to recoup improper payments for CY 2010 and 2011
claims as well. We acknowledge that CMS must take into account the cost benefit for
recoupment activities. We encourage CMS to continue to recover these improper payments in
accordance with its policies and procedures.
CMS did not concur with our last recommendation, adding that it was not able to fully
understand the issue or fully evaluate this recommendation. CMS requested greater specificity
regarding our findings concerning inconsistencies in contractor policies for the processing of
claims with exception codes. After receiving CMS’s comments, we gave CMS the detailed
information that it had requested.

iii

TABLE OF CONTENTS
Page
INTRODUCTION ................................................................................................................. 1
BACKGROUND ............................................................................................................. 1
Medicare Program ............................................................................................ 1
Medicare Payments on Behalf of Incarcerated Beneficiaries .......................... 1
Obtaining Information for Incarcerated Beneficiaries .................................... 2
OBJECTIVE, SCOPE, AND METHODOLOGY .......................................................... 2
Objective .......................................................................................................... 2
Scope................................................................................................................ 2
Methodology .................................................................................................... 2
FINDINGS AND RECOMMENDATIONS ....................................................................... 3
WHEN THE CENTERS FOR MEDICARE & MEDICAID SERVICES
RECEIVED INCARCERATION INFORMATION BEFORE CLAIMS
WERE PAID, IT HAD CONTROLS TO PREVENT IMPROPER PAYMENTS .... 4
WHEN THE CENTERS FOR MEDICARE & MEDICAID SERVICES
RECEIVED INCARCERATION INFORMATION AFTER CLAIMS
WERE PAID, IT DID NOT HAVE CONTROLS TO DETECT
AND RECOUP IMPROPER PAYMENTS................................................................ 4
Federal Requirements ...................................................................................... 4
Improper Payments Not Detected ................................................................... 5
The Centers for Medicare & Medicaid Services Did Not Have
Policies and Procedures To Detect and Recoup Improper Payments
on a Postpayment Basis .............................................................................. 6
Improper Payments on Behalf of Incarcerated Beneficiaries
Remained Uncollected ................................................................................ 6
INCONSISTENCIES IN POLICIES FOR PROCESSING CLAIMS WOULD
LEAD TO INEFFICIENCIES IN CLAIMS SUBMISSION PROCESS ................... 6
Federal Requirements ...................................................................................... 6
Inconsistent Policies for Processing of Claims for
Incarcerated Beneficiaries ........................................................................... 7
Inefficiencies at Provider Level in Claims Submission Process ...................... 7
RECOMMENDATIONS ................................................................................................. 7

iv

CENTERS FOR MEDICARE & MEDICAID SERVICES COMMENTS AND
OFFICE OF INSPECTOR GENERAL RESPONSE ................................................. 8
Recoupment of Improper Payments ................................................................ 8
Consistent Processing of Claims With Exception Codes ................................ 9
Provider Access to Incarceration Information ................................................. 9
APPENDIX
CENTERS FOR MEDICARE & MEDICAID SERVICES COMMENTS

v

INTRODUCTION
BACKGROUND
Medicare Program
Pursuant to Title XVIII of the Social Security Act (the Act), the Medicare program provides
health insurance for people aged 65 and over, people with disabilities, and people with
permanent kidney disease. The Centers for Medicare & Medicaid Services (CMS) administers
the program. Medicare Part A provides inpatient hospital insurance benefits and coverage of
extended care services for patients after hospital discharge. Medicare Part B provides
supplementary medical insurance for medical and other health services, including coverage of
hospital outpatient services. CMS contracts with Medicare contractors to, among other things,
process and pay claims submitted by hospitals, physicians, and suppliers. For this report, we
refer to all Medicare Part A and Part B entities or individuals receiving Medicare payments as
“providers.”
Medicare Payments on Behalf of Incarcerated Beneficiaries
Pursuant to section 1862 of the Act and Federal requirements, Medicare generally does not pay
for services rendered to incarcerated beneficiaries. 1 Federal regulations (42 CFR § 411.4(b))
define individuals who are in custody of a governmental entity as including, but not limited to,
“… individuals who are under arrest, incarcerated, imprisoned, escaped from confinement, under
supervised release, on medical furlough, required to reside in mental health facilities, required to
reside in halfway houses, required to live under home detention, or confined completely or
partially in any way under a penal statute or rule.” For this report, we refer to individuals in any
of these circumstances as “incarcerated.”
Chapter 1, section 10.4, of CMS’s Medicare Claims Processing Manual explains further:
CMS presumes that a State or local government that has custody of a Medicare
beneficiary under a penal statute has a financial obligation to pay for the cost of
healthcare items and services. Therefore, Medicare’s policy is to deny payment
for items and services furnished to beneficiaries in State or local government
custody.
Federal regulations (42 CFR § 411.4(b)), however, allow Medicare payment if State or local
law requires incarcerated beneficiaries to repay the costs of medical services and the State or
local government enforces the requirement. CMS requires providers to indicate claims that
meet this exception by placing a specific code on them. We refer to this code as “exception
code.” CMS has instructed the Medicare contractors to review, on a sample basis, claims with
the exception code to verify that the requirements have been met.
1

In certain instances, the providers are aware that an individual is incarcerated because the individual is
accompanied by a penal facility official and/or is under physical restraint. In other instances, though, providers may
not be aware that an individual is incarcerated. For example, individuals who are residing in halfway houses or
living under home detention may not be readily recognizable as incarcerated.

1

Obtaining Information for Incarcerated Beneficiaries
The Social Security Administration (SSA) is CMS’s primary source of information about
incarcerated beneficiaries. Generally, SSA collects information, such as the names of
beneficiaries and the dates on which beneficiaries begin and/or end periods of incarceration,
directly from penal authorities. SSA also collects incarceration end dates from beneficiaries’
requests for reinstatement of Social Security benefits. SSA maintains the incarceration
information in its Prisoner Update Processing System.
CMS’s Enrollment Database (EDB) interfaces with SSA’s systems to identify incarcerated
individuals. Several applications, including CMS’s Common Working File (CWF), can then
access the dates of incarceration. The Medicare contractors use the CWF to process Part A and
Part B claims from providers.
OBJECTIVE, SCOPE, AND METHODOLOGY
Objective
Our objective was to determine whether CMS had adequate controls to prevent and detect
improper payments for Medicare services rendered to incarcerated beneficiaries.
Scope
We identified 91,169 claims for which CMS’s data systems indicated that Medicare contractors
made $44,517,431 in payments to providers on behalf of incarcerated beneficiaries who received
services in calendar years (CY) 2009 through 2011. These claims did not contain the exception
codes. As described in “Methodology,” we further limited our review to $33,587,634 of
payments made for 75,639 Part A and Part B claims.
We did not review claims with exception codes. We will determine whether those claims were
paid in accordance with Federal requirements in a separate review.
We limited our review of CMS’s internal controls to those that directly related to our objective.
We performed fieldwork from January through June 2012.
Methodology
To accomplish our objective, we performed the following steps:
•

We reviewed applicable Federal laws, regulations, and guidance.

•

We held discussions with CMS officials, Medicare contractors, and providers to gain an
understanding of how claims for incarcerated beneficiaries are processed.

2

•

We used data from CMS’s EDB (as of March 28, 2012) to identify 135,805 beneficiaries
who had been incarcerated at some point during CYs 2009 through 2011. Our
comparison to CMS’s National Claims History file (as of March 31, 2012) showed that
Medicare contractors paid 91,169 claims (on behalf of 14,034 beneficiaries with
$44,517,431 in associated payments) for which the dates of incarceration overlapped with
the dates of service.

•

We identified 94 penal facilities for which hospitals submitted claims both with and
without exception codes. On the basis of conversations with hospital officials and our
analysis of the data, we concluded that the majority of claims from any provider for
which the beneficiary was incarcerated at 1 of these 94 facilities could have met the
exception to Federal requirements. Therefore, we eliminated 15,530 claims (with
$10,929,797 in payments) without exception codes for medical services rendered to
beneficiaries who were incarcerated in the 94 facilities. 2

•

We reviewed the remaining 75,639 claims for 11,619 incarcerated beneficiaries whose
associated Medicare payments totaled $33,587,634.

•

We judgmentally selected 53 inpatient claims and, for those claims, compared the dates
on which CMS’s data systems were updated with incarceration information from SSA to
the dates on which Medicare contractors paid providers.

•

We discussed the results of our review with CMS officials on August 7, 2012.

We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the evidence obtained provides a reasonable basis
for our findings and conclusions based on our audit objective.
FINDINGS AND RECOMMENDATIONS
When CMS’s data systems indicated at the time that a claim was processed that a beneficiary
was incarcerated, CMS’s controls were adequate to prevent payment for Medicare services.
Specifically, CMS had a prepayment edit that flagged claims so that Medicare contractors could
deny payments to providers when the incarceration dates and the dates of service on the claims
overlapped.
When CMS’s data systems did not indicate until after a claim had been processed that a
beneficiary was incarcerated, CMS’s controls were not adequate to detect and recoup the
improper payment. CMS will not always receive timely updates regarding incarceration
information before Medicare contractors pay providers on behalf of incarcerated beneficiaries,
and accordingly, Medicare payments totaling $33,587,634 were made to providers for services
2

We will determine whether the 15,530 claims without exception codes were paid in accordance with Federal
requirements in a separate review.

3

rendered to 11,619 incarcerated beneficiaries during CYs 2009 through 2011. CMS did not have
policies and procedures to review incarceration information on a postpayment basis that would
have detected improper payments that the prepayment edit could not prevent. Consequently,
CMS did not notify the contractors to recoup any of the $33,587,634 in improper payments.
CMS allowed Medicare contractors to follow varying policies when processing claims with
exception codes for payment. In one instance, a contractor approved claims with exception
codes that another contractor would have denied. Therefore, providers also had varying
procedures regarding the use of exception codes when submitting claims for payment. For
example, some providers submitted claims without the exception codes, even though they knew
through sources other than CMS that the beneficiaries were incarcerated and that the
requirements for the exception codes had been met. If CMS implements a postpayment edit but
does not also standardize the claims-processing policies for contractors to follow, some providers
will then have to resubmit the claims with the exception codes added, which would create
inefficiencies and time delays at both the provider and contractor levels.
WHEN THE CENTERS FOR MEDICARE & MEDICAID SERVICES
RECEIVED INCARCERATION INFORMATION BEFORE CLAIMS
WERE PAID, IT HAD CONTROLS TO PREVENT IMPROPER PAYMENTS
When CMS’s data systems indicated that a beneficiary was incarcerated at the time that a claim
was processed, CMS’s controls, particularly its prepayment edit, were adequate to prevent
payment for Medicare services rendered to incarcerated beneficiaries.
WHEN THE CENTERS FOR MEDICARE & MEDICAID SERVICES
RECEIVED INCARCERATION INFORMATION AFTER CLAIMS
WERE PAID, IT DID NOT HAVE CONTROLS TO DETECT
AND RECOUP IMPROPER PAYMENTS
Federal Requirements
Section 1862(a)(2) of the Act states that no payment will be made under Medicare Part A or Part
B for services for which a beneficiary has no legal obligation to pay and which no other person
has a legal obligation to pay. Section 1862(a)(3) of the Act states that (with limited exceptions)
no payment will be made under Medicare Parts A or B for services paid for directly or indirectly
by a governmental entity.
Chapter 1, section 10.4, of CMS’s Medicare Claims Processing Manual states:
CMS has established claim level editing … using data received from the Social
Security Administration (SSA). Specifically, the data contain the names of the
Medicare beneficiaries and time periods when the beneficiary is in such State or
local custody. These data will be compared to the data on the incoming claims.
CWF will reject claims where the dates from the SSA file and the dates of service
on the claim overlap …. Contractors will, in turn, deny payment of such claims.
[Emphasis added.]
4

The Presidential memorandum entitled Finding and Recapturing Improper Payments (75 Fed.
Reg. 12119 (March 15, 2010)) directs Federal agencies, including CMS, to use every tool
available to identify and reclaim the funds associated with improper payments that the Federal
Government has made. The memorandum notes that reclaiming these funds is a critical
component of the proper stewardship and protection of taxpayer dollars. Office of
Management and Budget Circular A-123, Requirements for Effective Measurement and
Remediation of Improper Payments, also states that Federal agencies should take all necessary
steps to prevent, detect, and collect improper payments (Appendix C, part I, section L (2006)).
Improper Payments Not Detected
When CMS’s data systems did not indicate until after a claim had been processed that a
beneficiary was incarcerated, CMS’s controls were not adequate to detect and recoup the
improper payment.
CMS received information on dates of incarceration after the beginning date of incarceration.
(In one instance, CMS did not receive this information until 1 year after the beneficiary’s
beginning date of incarceration.) As a result, Medicare contractors received and processed
claims from providers before CMS received notification of the beneficiaries’ incarceration.
Contractors incorrectly but unknowingly paid providers for services rendered to incarcerated
beneficiaries. As a result, Medicare payments totaling $33,587,634 were improperly made to
providers for services rendered to 11,619 incarcerated beneficiaries during CYs 2009 through
2011.
When CMS received untimely information indicating that the beneficiaries’ periods of
incarceration overlapped with the dates of service on previously paid Medicare claims, CMS
did not notify Medicare contractors of this updated information. In the absence of such
notification, the contractors did not detect and recoup the improper payments.
For the 53 claims that we reviewed, we compared the dates on which CMS’s systems were
updated with incarceration information from SSA to the dates on which Medicare contractors
paid providers. For each of the 53 claims, we determined that CMS received the incarceration
information from SSA after the contractors had paid the claims.
Medicare contractors confirmed to us that CMS had not notified them of the beneficiaries’ dates
of incarceration for this type of claim and explained that they made the payments because the
information in CMS’s systems at the time of payment did not indicate that the beneficiaries were
incarcerated. After analyzing information from us regarding the beneficiaries’ incarceration
statuses, contractors stated that claims of this type were not allowable for payment. Contractors
stated that they would have retroactively reprocessed such claims and recouped the payments if
CMS had notified them of the incarceration information.

5

The Centers for Medicare & Medicaid Services Did Not Have
Policies and Procedures To Detect and Recoup Improper Payments
on a Postpayment Basis
CMS will not always receive timely updates regarding incarceration information before
Medicare contractors pay providers on behalf of incarcerated beneficiaries. The improper
payments remained uncollected because CMS did not have policies and procedures to review
incarceration information on a postpayment basis to detect improper payments that the
prepayment edit could not prevent.
Because CMS has instructed its Medicare contractors to rely on SSA’s incarceration information
to prevent improper payments and because this information must be present for the prepayment
edit to be effective, using the same information to notify contractors of beneficiaries’ status after
claims have been paid is a reasonable extension of CMS’s efforts. Once notified, the contractors
could then detect and recoup improper payments.
Improper Payments on Behalf of Incarcerated Beneficiaries
Remained Uncollected
Because CMS did not have policies and procedures to detect improper payments, it did not notify
the Medicare contractors to recoup the improper payments. Thus, $33,587,634 in improper
payments for CYs 2009 through 2011 remained uncollected (Table).
Table. Improper Payments That Remained Uncollected
Type of Claim
Inpatient Hospital
Physician and Other Services 3
Outpatient Hospital
Durable Medical Equipment
Skilled Nursing Facility
Home Health Agency
Hospice
Total

2009
$11,101,662
2,585,410
2,225,114
568,987
318,030
265,193
17,900
$17,082,296

2010
$5,540,831
1,728,912
1,351,800
385,264
264,585
192,976
3,659
$9,468,027

2011
$4,317,518
1,171,098
868,535
355,978
110,530
207,948
5,704
$7,037,311

Total
$20,960,011
5,485,420
4,445,449
1,310,229
693,145
666,117
27,263
$33,587,634

INCONSISTENCIES IN POLICIES FOR PROCESSING CLAIMS WOULD
LEAD TO INEFFICIENCIES IN CLAIMS SUBMISSION PROCESS
Federal Requirements
Federal requirements (42 CFR § 411.4(b)) allow Medicare payment if the State or local law
requires incarcerated beneficiaries to repay the cost of medical services. For these instances,
providers place exception codes on the claims submitted for Medicare payment.
3

For this report, this category includes, but is not limited to, ambulance services, home health services not covered
under Medicare Part A, laboratory services, and physical therapy.

6

Inconsistent Policies for Processing of Claims for
Incarcerated Beneficiaries
CMS allowed Medicare contractors to follow varying policies when processing claims with
exception codes. For example, one contractor approved claims with exception codes that another
contractor would have denied. Substantive differences also existed between providers, which to
obtain Medicare reimbursement, undertook additional steps in the submission and resubmission
of claims based on the different policies each contractor followed.
One Medicare contractor stated that it denied claims with exception codes if the CMS databases
were not updated in a timely fashion to indicate that the beneficiary was incarcerated. In
reaction to this contractor’s policy, one provider told us that it did not use an exception code,
even when the requirements for the exception code had been met. This provider added that it
used an exception code only when resubmitting a claim that the contractor had previously
denied.
Conversely, two Medicare contractors stated that they pay claims with exception codes
regardless of the incarceration status that appears in the CMS databases. For that reason, one
provider told us that it submitted claims with the exception codes when it knew through sources
other than CMS that the requirements for the exception codes had been met.
Inefficiencies at Provider Level in Claims Submission Process
If CMS implements a postpayment edit but does not also standardize the policies for Medicare
contractors to follow when developing procedures to process claims, the providers that are not
using the exception codes (even though the requirements have been met) will then have to
resubmit the claims with the exception codes added. Further, providers may have to appeal some
of the claims when time limits for submitting claims have expired. These extra steps would
create inefficiencies and time delays at both the provider and contractor levels—conditions that
would not exist if all of the contractors consistently processed claims with the exception codes.
RECOMMENDATIONS
We recommend that CMS:
•

ensure that Medicare contractors recoup the $33,587,634 in improper payments;

•

implement policies and procedures to detect and recoup improper payments made for
Medicare services rendered to incarcerated beneficiaries when incarceration information
is received on previously paid Medicare claims;

•

identify improper payments made on behalf of incarcerated beneficiaries after our audit
period but before implementation of policies and procedures and ensure that Medicare
contractors recoup those payments;

7

•

work with other entities, including SSA, to identify ways to improve the timeliness with
which CMS receives incarceration information before Medicare contractors pay
providers on behalf of incarcerated beneficiaries; and

•

work with the Medicare contractors to ensure that all claims with exception codes are
processed consistently and pursuant to Federal requirements.

CENTERS FOR MEDICARE & MEDICAID SERVICES COMMENTS AND
OFFICE OF INSPECTOR GENERAL RESPONSE
In written comments on our draft report, CMS concurred with our recommendations to
(a) implement policies and procedures to detect and recoup improper payments when
incarceration information is received on previously paid Medicare claims, (b) identify and
recoup improper payments made after our audit period but before the implementation of those
policies and procedures, and (c) work with other entities to identify ways to improve the
timeliness with which it receives incarceration information. CMS stated that in April 2013 it
plans to implement a process for detecting and recouping improper payments for previously paid
Medicare claims.
CMS partially concurred with our recommendation regarding the recoupment of the $33,587,634
in improper payments and did not concur with our last recommendation regarding the consistent
processing of claims with exception codes.
CMS’s comments appear as the Appendix. We have redacted an individual’s name and phone
number from CMS’s comments.
Recoupment of Improper Payments
Centers for Medicare & Medicaid Services Comments
CMS stated that it is committed to recovering overpayments we identified, but it must take into
account the cost benefit of recoupment activities, including potential appeal costs and the cost of
manually reopening these claims.
CMS added that it is possible that Medicare was the proper payer for some of the 75,639 claims
we questioned. CMS stated that our review did not determine whether the claims that we
identified as improper were for beneficiaries in penal facilities where Medicare was the proper
payer because State or local law required such beneficiaries to repay the costs of medical
services and the State or local government enforced this law.
Office of Inspector General Response
After providing its comments, CMS advised us that it had initiated recovery actions for CY 2009
claims and that it would shortly begin to recoup improper payments for CY 2010 and 2011
claims as well. We acknowledge that CMS must take into account the cost benefit for

8

recoupment activities. We encourage CMS to continue to recover these improper payments in
accordance with its policies and procedures.
We acknowledge that Medicare is the proper payer for some incarcerated beneficiaries. Federal
requirements specify that providers are responsible for indicating that Medicare is the proper
payer by placing an exception code on the claims. Accordingly, as stated in “Methodology,” we
analyzed data from CMS’s systems and eliminated from our review 15,530 claims for which
Medicare was likely the proper payer—even though providers had not used the exception code
on these claims. For the remaining 75,639 claims, we concluded that it was unlikely that
Medicare was the proper payer.
Consistent Processing of Claims With Exception Codes
CMS did not concur with our last recommendation, adding that it was not able to fully
understand the issue or fully evaluate this recommendation. CMS requested that we provide
greater specificity regarding our findings concerning inconsistencies in contractor policies for the
processing of claims with exception codes. After receiving CMS’s comments, we gave CMS the
detailed information that it had requested.
Provider Access to Incarceration Information
Our draft report also contained a finding and associated recommendation (referred to as
Recommendation 1 in CMS’s comments) regarding provider access to the incarceration
information that CMS used to prevent improper payments. CMS did not concur with that
recommendation because one of its systems gives providers access to that information. After we
issued our draft report, CMS gave us supplemental information regarding provider access.
Specifically, CMS said that all providers can make beneficiary eligibility inquiries before filing
claims, either through the Medicare contractors or through the Health Insurance Portability and
Accountability Act (HIPAA) Eligibility Transaction System (HETS). CMS noted that for three
specific reasons, including cases in which the beneficiary has been incarcerated, the HETS
informs providers of a beneficiary’s ineligibility for Medicare benefits without giving the
specific reason for that ineligibility.
After reviewing CMS’s comments regarding provider access to incarceration information and
after getting further information from CMS, we removed that finding and recommendation from
this report.

9

APPENDIX

Page 1 of 4

APPENDIX: CENTERS FOR MEDICARE & MEDICAID SERVICES COMMENTS

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DEPARTMENT OF HEALTH & HUMAN SERVICES
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Wl1StlitIg1on, DC 20201

DATE:
TO;

NOV I 5 1011
Daniel R. Levinson
Inspector Gene ral

,

FROM:

SUBJEc r:

,inislrator
"
Office of Inspector General (OIG) Oraf! Report: "Medicare Improperly Paid
Providers Millions of Dollars for Incarcerated Beneficiaries for Calendar Years
2009 Through 201 \" (A-07-12-01113)

The Cemcrs for Medicare & Medicaid Services (eMS) appreciates the opportunit y to review and
com ment on DIG Draft Report entitled, " Medicare Improper ly Paid Providers Millions of
Dollars for Incarcerated Beneficiaries for Calendar Years 2009 Through 20 11,. (A-07-12-01113).
The objective of Ihis study was \0 determine whether eMS had adequate comTois 10 prevent and
detect improper payments for Medicare services rendered to incarce rated beneficiaries.
Medicare does not generall y pay for services rendered to incarcerated beneficiaries. However,
federal requirements allow Medicare payment if state or local law requires incarcerated
beneficiaries to repay the cost of medical services. Health ca re providers indicate this exception
by placing a specific code on the claims fo r Medicare payment. OIG refers to this code as
" exception code:'
The Social Securit y Admin istrat ion (SSA) is eMS's primary source of information about
incarcerated beneficiaries. Generally, SSA collects informatio n, such as the names of
beneficia ries and the dales on which beneficiaries begin and/or end periods of inca rce ration,
directly from penal authorit ies. SSA also collects incarceration end dates from the beneficiaries'
requests for reinstatement of Social Securit y benefits. With this information, eMS determines:
( I) which beneficiaries are, or have been, incarcerated; and (2) the period of incarceration during
which Medicare w ill nOl pay for health care services provided to these individuals, unless the
beneficiary qual ifies for the exceptio n.
OIG Recommendation I I
The OIG recom mends that eMS change the timing by which it grants providers access to
beneficiaries' incarceration information, so that provide rs have access to that informatio n before
they submit claims to Mcdicare contractors instead of gaini ng that access when claims are
denied.

IOlTice of Inspector General Note - This section is not applicable because the finding and
reconunendation referred to by the auditee are not included in this report.

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Page 2 - Dani el R. Leve nson

e MS Respon se
T he e M S nonconcurs w ith Ihe recommendation. This non-concurrence is base d upon incorrect

info rmation that Medicare providers do not have access to informatio n regarding bene fi ciaries'
ineligibility fo r Medicare benefi ts prior to subm illing a claim. Medicare prov iders do have
access to this information for beneficiaries and have had such access for many years, including
those years included in the DIG audit. All providers are able 10 make be nefici ary eligibility
inquiries in advance o f fil ing a clai m either through Ihe Medica re Ad ministrat ive Cont ractors o r
through Ibe HIPAA Eligi bility T ra nsact ion Syste m (HET S).' While Ihe provider will not be to ld
Ihe reaso n for ineligibili ty (also known as the period o f inact iv it y), the provider has access to the
begi nning and e nd dales for Ihe pe riod of inact iv it y an d that the reason behin d the inactivit y is
for o ne o f the three fo llowing reaso ns: ( 1) T he Medicare be neficia ry has been classified as an
illegal al ie n; (2) The Medi ca re be ne ficiary has been deported; o r (3) T he Medicare be neficiary
has been incarcera ted. Therefo re, the provide r has info rmatio n about the pe riod of inactivit y and
the re leva nt dates p rior to submitt ing a claim.
DIG Recommendation 2
The O IG recomme nds that CMS ensure th at Medicare co ntractors recoup the $33,587,634 in
imprope r payments.

eMS Response
The e MS part iall y co ncurs with the recommendatio n 10 reco up $33,587,634 of imprope r
payments. CMS is co mmitted to collecting ove rpayments identified in this DIG report. In
recoveri ng ove rpayments, eMS must take int o accou nt the respective cost be nefit o f recoupment
activi ties, including po te nti al appeal costs and e fforts to manuall y reope n, re process, and track
these claims.
T he O IG iden tified 9 1, 169 claims for inca rce ra ted benefic iaries tota ling $44,5 17,43 1 in
Medicare pay mc n ~. The D IG removed 15,300 claims that were billed w itho ut exception codes

IL IThe HETS Ihal CMS mainl.3'ns for providers 10 submit be""fid.ry eligibility uMsactions tbat m<Clthe ASC XI2 270.271
HIPM ~Iigibility uIII$IIC1ion requiremonlll does release informalion thai will notify. pro_ider that the be""rociary is ineligible
for Medicare benefits. n.e language in lhe 270·271 Implementalion Guille found at bUp ·/lWww emS gqyIBC!\Clrcb,SlaliS!ics.
Data·and.SYSlcm5lCMS-IIl(ormalion_llihnqlogylHETSHcl!!iDownloadYl!ETSZ7ll2Z1Compao;onGuilleUpromjog pd f notifies
providers whal informat;on 10 expect on the 271 eligibility ",sponse. It reads as folklw",
The H£TS 2701271 IppliClilion will retum . 2110C loop ",iih tltm~nt HUH - ~6·· (I"acti_e) along Wilh a DTP (date
and li m< period) segment cool.3ining bcltinniog and .. d d.les for lile: period of il\aClivily wnco an iodividual entided to
M<:tlicare is ineligible rOf Media re benefilll o""r a pe,MJd of time for any 0"" tnc following reasons;
• The Mediclle !kneficilll)" has been classified as art ilkgai ali"" in the United Slatu.
• The Medicate Ikncfidlll)" has been deponed !Tum rhe United Slates.
• The Medicare Bcner~iary has b«n incarCCl3!cd.
• lII(>t.: Information specifying lh. "'35On ro, the period of i""ligibilily will not be released.

Page 3 of 4

Page 3 - Daniel R. Levenson

because these claims were

a.'l~ialed

with 94 penal facilities where a provider had previously

used an exception code for a beneficiary al that facility. However, Ola did not delennine if the
claims associated w ith pellal facilities that remained in ils database were in a jurisdiction where
the Slate or local law requ ires incarcerated beneficiaries 10 repay the costs of med ical services.
Therefore, it is pos.... ible thai some of the 75.639 claims OIG identified as having improper
payments are for be neficiaries in penal facili ties where Medicare is the proper payer because the
Stale or local law requires th e beneficiary \0 repay the OOslS of medical services and the State or
local goverllmcll\ en forces th is law.

OIG Recommendation 3
The GIG recommend~ that eMS implement policies and procedures to detect and recoup
improper payments made for Medicare services rendered to incarcerated beneficiaries when
incarceration information is rece ived on previously paid Medicare claims.
e M S Res ponse
The eMS concurs with the recommendation and has deve loped more formalized contrnctor
instructions to address these matters that witt be effective April 2013. This guidance will
implement a process to de tect and recoup improper payments made for Medicare services
furnished to incarcerated beneficiaries.

Q IG R«ommendal ion 4
The OIG re commends that eMS identi fy improper payments that we re made on be ha lf of
incarcerated benefi ciaries after our audit period but before implementation of pol icies and
procedures and ensure that Medicare contractors recou p those payments .
e M S Res ponse
The eMS concurs w ith the recommendation and is developing a strategy to au tomate the
identification of improper payments made after the OIG's audit period and before the IUR
process, noted above, is implemented. eMS projects that recoupment e ffo rts w ill, tentatively,
begin in July 2013.

OIG Recommend a tion 5
The O IG recomme nds that e MS work with other e ntities, including SSA, to ide ntify ways to
improve the timcliness w ith which eMS receives incarceration information before Med icare
contractors pay providers on behalf of incarcerated beneficia ries.
eMS R es pon se
The eMS concurs with the recommendation to work with other en tities, including SSA, to
identify ways to impro ve the timing and frequency of e MS' receipt of data on incarcerated
beneficiaries to help prevent Medicare paymen ts for these individuals. e MS uses incarceration

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Page 4 - Daniel R. Levenson
data transm itted by the SSA to adjudicate Medicare claims; therefore, we will in vestigate ways
to improve the timeliness and frequency of OUT data transmissions from SSA. In this regard, it
wou ld be helpfu l to receive O[G's detailed findings regard ing the length of time claims were
paid prior to incarcerated data being available on eMS' systems.

While eMS agrees that timely receipt of incarcerated data is crucial to accurate claims
processing, we a lso recognize thai delays by correctional facilities in reporting this information
will impact the utility of a more frequent reporting requirement. If SSA does not receive timely
incarceration data from correctional facilities, the n increasing the frequency of the data exchange
between SSA and eMS may not prevent payment of all claims from incarcerated beneficiaries.
In such cases, the D IG's other recommendations for eMS to implement policies and procedures
!O detect and recoup improper payments made for Medicare serv ices rendered to incarcerated
beneficiaries would help ensure that imprope r payments are corrected and funds restored to the
Medicare trust funds .
OIG Recommend a ti on 6
The OIG recomme nds that eMS work with the Medicare con tractors to ensure that all claims
with exception codes are processed consistently and pursuant to Federal requirements.
eMS Response
The eMS nonconcurs with this recommendation because th e DIG 's report does not describe the
problem in su(ficient detail to enable eMS to fully understand the issue nor to full y evaluate
DIG's recommendation. First, with respect to what OIG tenns an "exception code," eMS
assumes that DIG is referring to the use of condition code "63" and modifier "QJ" that are
intended to be used on claims for incarcerated beneficiaries whose claims may be payable under
the exception prov isions o r 42 CFR section 4 11.4(b). Nevertheless, we ask th at DIG confirm
this assumpt ion. More importantly, CMS asks OTG for grea ter specificity regarding its findings
concerning contractors" policies and practices (and inconsistencies detected) from the use of
codes" in processing claims for incarcerated beneficiaries to ensure
are correctl y targeted and fully effective. The OIG m"y '~o""
provide this addi tional information. "

--"""p,-;oo

The CMS appreciates DIG's efforts in working with us to help identify billing issues associated
with payments made to or on be half of beneficiaries who are incarcerated on the date of service
and look forward to working wi th OIG in [he future.

"OlTice of Inspector General Note - We redacted the name and phone number of the CMS
official frOOl eMS's conunents.