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Executive Summary

As required by state law, the Texas Comptroller has studied two state-paid health care programs: the Medicaid acute medical care fee-for-service program and the state employees workers’ compensation program. The study was designed to determine the percentage of possible overpayments in those programs. The Comptroller conducted this study in consultation with the State Auditor’s Office and with the assistance of many state agencies.

The study results show the potential overpayment error rate for the Medicaid acute medical care fee-for-service program is 7.24 percent. An error rate of 8.09 percent was calculated for the state employees workers’ compensation claims paid by the State Office of Risk Management (SORM). The margin of error is plus or minus three percent for each measurement.

A potential overpayment could be caused by any one of many factors including clerical errors, poor medical record documentation or intentional fraud and abuse. Whether the potential overpayments the study identified in the Medicaid program are actual overpayments can only be determined after an investigation by the Texas Health and Human Services Commission’s Office of Investigation and Enforcement. Texas Workers’ Compensation laws do not provide a similar process for the final determination of a potential overpayment for the state employees workers’ compensation program.

In 1998, the Comptroller published its first review of overpayments in state-paid health care. Like the current study, the 1998 study included a review of fee-for-service Medicaid payments and state employee workers’ compensation claims. Medical services paid by the Employees Retirement System (ERS) were reviewed in the previous study but deleted from this study because of a change in state law, which removed ERS from the study.

In the 1998 study, the initially reported error rate for Medicaid was 10.5 percent. This rate was later adjusted to between 6 and 6.8 percent after a review of the study by the State Auditor’s Office. The error rate for the state employees workers’ compensation program was 21 percent. Caution should be exercised in comparing these rates to the current study because of significant changes in study methodology.

In fiscal 2000, the state spent more than $11 billion for the Medicaid program, the state’s health care program for low-income persons that provides medical care and long term care such as nursing home care. Medicaid is funded by both state general revenue and federal funds. The Texas Health and Human Services Commission (HHSC) and the Texas Department of Health (TDH) both have roles in the administration of the Medicaid program.

This study focused on payments for medical services that were paid on a fee-for-service basis. Long-term care and medical services delivered through Health Maintenance Organizations were not included. The total fee-for-service expenditures under review for the three-month sample period was $632,687,878. (The 1999 expenditures for fee-for-service medical care for the same services under review was $3,063,080,008. If the sample’s error rate is applied to the annual expenditures, then the total dollars at risk for overpayments in the Medicaid fee-for-service program for fiscal 2000 is approximately $217 million.

SORM acts as the workers’ compensation insurance carrier for most state agencies. A workers’ compensation claim is filed with SORM when a state employee incurs a work-related injury or disease. Texas Workers’ Compensation law requires payment of these work-related medical bills. Seventy-five percent of SORM’s payments for claims are appropriated by the Texas Legislature. SORM is reimbursed for the remaining 25 percent by the state agency that employs the injured worker. In fiscal 2000, the SORM spent $39.6 million on medical bills for state’ employees workers’ compensation claims. If the sample’s error rate is applied to the annual expenditures, then the total dollars at risk for overpayments is approximately $3.2 million dollars.

The study measured both state programs by taking random samples of paid medical services from September through November 1999. A random sample of 700 services was pulled from the Medicaid program’s fee-for-service payments. A random sample of 200 medical services also was extracted from the state employees workers’ compensation program. The Medicaid sample was randomly selected from seven categories of providers: ancillary/outpatient, physicians, mental health, home health, hospital, supplies/durable medical equipment, other health care professionals.

The workers’ compensation sample was randomly selected from all payments in the three-month period and then classified by payment type, such as “pharmacy.” All other paid medical services on the day of the “randomly selected service” for the same client also were extracted and examined in the study. The total number of medical services reviewed in the study was 1,609 for the Medicaid program and 311 for the state employees workers’ compensation program.

The study scrutinized Medicaid services for payment errors using three analytical review techniques. First, a contextual data analysis review was conducted, which examines the electronic payment history of the client to determine if the selected services conformed with published Medicaid payment procedures and policies. Second, the clients in the study were contacted by telephone to confirm the paid medical services had been delivered. Third, a review of the client’s medical record was conducted to determine if the service was properly documented. Although the Comptroller’s office maintained physical custody of the medical records for the duration of the study, the records are the property of the Texas Health and Human Services Commission (HHSC). The confidentiality of the medical records were ensured by a memorandum of understanding between HHSC and the Comptroller.

The lack of documentation and inappropriate documentation of billed medical services was the most significant finding in the Medicaid study. The various documentation errors were found in 225 out of the 269 errors identified in the medical record reviews. The usefulness of the results of the telephone interview was limited because of the difficulty in obtaining accurate phone numbers from the Texas Department of Human Services (DHS) Medicaid eligibility determination system and other sources.

Similarly, the sampled medical services of state employees workers’ compensation were also scrutinized using analytical review techniques. An analysis of medical billing data, case file notes and a telephone interview with the client were conducted. Medical records were not requested and only were reviewed if the case file happened to contain medical records. The clients’ medical information was evaluated based on the requirements of state law and regulations covering workers’ compensation payments, including medical treatment guidelines.

Paying for medical and pharmaceutical services delivered from 18 months to 7 years after a minor injury without questioning medical necessity was the most significant finding in the state employees workers' compensation study.

This study also reviewed the current issues involved in the detection of fraud and abuse in Medicaid managed care programs among the states. The states and the federal government have developed programs and guidelines to detect and prevent abuses in state Medicaid managed care delivery systems especially in the Health Maintenance Organization (HMO) delivery model. Payments for medical services are paid in a lump sum known as “capitation” in a managed care arrangement with HMOs, so the incentives for overpayments and fraud and abuse differ from the fee-for-service environment. One of the obstacles that states, including Texas, face in effectively dealing with abuses in HMO systems is the collection and analysis of accurate data on the number and types of “encounters” between clients and providers. This same lack of complete encounter data prevents this study from measuring overpayments or fraud and abuse in the Texas Medicaid HMO contracts.

Texas Medicaid managed care services are delivered through three arrangements—Primary Care Case Management (PCCM), Prepaid Health Plans (PHP) and Health Maintenance Organizations—to about 29 percent of Medicaid recipients. In fiscal 2000, the state spent approximately $873 million on these services through its Health Maintenance Organizations (HMO) contracts. The expenditures for the PCCM and PHP models are included in the total for the fee-for-service expenditures since those programs share the same payment system.

Summary of Medicaid Recommendations

To improve the integrity of the Medicaid program, the recommendations listed below should be implemented.

  • The Texas Department of Health (TDH) should emphasize proper billing and medical record documentation practices in its Medicaid provider education workshops and publications. TDH also should work with its claims processing contractor to improve prepayment screening processes to prevent improper payments.
  • State law should be changed to require the Health and Human Services Commission and TDH to develop a formal plan for reporting and using encounter data in the Medicaid managed care program.
  • The Comptroller should conduct a pilot study to measure the incidence of overpayments and potential fraud and abuse in its Medicaid managed care Health Maintenance Organization contracts. This pilot should be part of the next overpayment measurement study.
  • State law should be changed to ensure the confidentiality of medical records in the custody of the Comptroller. Since the Comptroller does not typically have custody of medical records, it would be prudent to change state law to exempt these medical records from disclosure through the Texas Open Records Act.
  • The Legislature should include the Comptroller as a participant in any workgroup charged with reviewing or improving the Medicaid eligibility determination system. This would help the Comptroller fulfill the statutory requirements to determine the need for changes in the eligibility system.

Summary of State Employees Workers’ Compensation Recommendations

The Comptroller’s office recommends the State Office of Risk Management begin the activities listed below to avoid overpayments.

  • Improve its bill processing audits and edits to detect potential overpayments.
  • Conduct post-payment reviews to discover billing trends and abuse patterns.
  • Amend rules to require adjusters to have health care-related education and experience.
  • Use existing professional physician consultants, staff health care reviewers and department advisors to question the medical necessity of paying bills that are clearly outside of the Texas Worker’s Compensation Commission’s treatment and payment guidelines.

All of these recommendations can be implemented within current appropriations levels for all affected agencies.