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Executive Summary

As required by state law, the Texas Comptroller has studied the two state-paid health care programs: the Medicaid Fee-for-Service (FFS) program and the state employees workers’ compensation program. The Medicaid study includes a pilot study of the Vendor Drug Program (VDP). The study is designed to determine the percentage of possible overpayments in these programs. The Comptroller conducted this study with the State Auditor’s Office and with the assistance of the affected state agencies.

The study found the potential overpayment rates for the Medicaid FFS programs to be 13.5 percent for the program and 20.5 percent for the Vendor Drug program. The overpayment rate for the state employees workers’ compensation program administered by the State Office of Risk Management is 19.9 percent. The margin of error is plus or minus 2 percent for the Medicaid FFS study, plus or minus 4 percent for the Medicaid Vendor Drug study, and plus or minus 3 percent for the state employees workers’ compensation study.

The potential overpayments are caused by factors that range from billing for services that are not provided or documented to potential fraud or abuse. To determine if these potential overpayments are actual overpayments, the Texas Health and Human Services Commission’s Office of Investigation and Enforcement will perform further research and in-depth investigation of the sample claims. Texas Workers’ Compensation laws do not provide a similar process for a final determination of the potential overpayments for the state employees workers’ compensation program.

The Comptroller’s office published two previous study reports. The first report, published in December 1998, reviewed the Medicaid FFS program, the state employees workers’ compensation program and the Employees Retirement System (ERS). The ERS services were removed from previous studies through a change in state law. The second report was published in January 2001. This 2001 study enhanced the 1998 study sampling criteria, review methodology and overpayment calculation and served as the model for this 2003 study.

The Comptroller’s office and the Health and Human Services Commission (HHSC) also used the Medicaid studies in the year one Payment Accuracy Measurement Demonstration project directed by the Center for Medicare and Medicaid Services (CMS). The cost of the Medicaid studies were covered through a federal grant for participating in this project.


Medicaid FFS Study

The FFS study sampled 800 Medicaid recipients’ randomly selected health care services such as office visits, emergency room visits, medical supplies, etc. These health care services were selected from a universe of paid Medicaid claims during the timeframe of September 1, 2001 through November 30, 2001. Claims from the state’s managed care program Texas Health Network, a Primary Care Case Management (PCCM) program, were included in this universe of claims. The claims in this universe were grouped into eight categories or strata based on the medical providers type and specialty of service. These strata are listed in the Medicaid FFS study section. Each recipient’s sample service was selected by a date (sample date) of service within the specified timeframe. The selected recipient’s sample service and all other services performed by the provider on the sample date made up the entire study
sample.

The study used three review methods to confirm that a sample service occurred on the sample date and was performed by the provider that billed the claim. The methods were a recipient telephone interview, an online system review of the claim and a utilization review of the provider’s medical records for the sample service.

The Medicaid FFS study had 2,122 sample services with a total paid amount of $169,744. The universe for this sample had 972,209 claims (2,193,443 estimated services) with a total paid amount of $120,827,238. The total number of FFS claims paid in the 2001 calendar year was 18.6 million for a total paid amount of $3.3 billion dollars.

In the January 2001 study, the Medicaid FFS overpayment rate was 7.2 percent, which compared with the 2003 rate of 13.5 percent, indicates a significant increase in the number of services potentially overpaid. This increase was due primarily to an increase in the lack of documentation of a sample service submitted by a provider (hospital, physician, outpatient clinic, etc.). The increase of overpayments for this error has almost tripled, from a total of 87 in January 2001 to 228 in this 2003 study. If the study’s error rate is applied to the annual expenditures, the total dollars at risk for overpayments in the Medicaid FFS program for fiscal 2002 is approximately $446 million.


Medicaid VDP Pilot Study

The Medicaid VDP pilot study was performed to develop a methodology for measuring potential overpayments of prescriptions submitted by pharmacies to this program. This study reviewed randomly selected prescription services paid to 225 sample recipients during the timeframe of October 1, 2001 through December 31, 2001. This study used the same review criteria as the FFS study of recipient telephone interview, online system review of the related Medicaid medical records and review of the original hard copy of the sample prescriptions.

The Medicaid VDP pilot study had 1,070 paid prescription services for a total paid amount of $46,937. The universe, paid prescription claims, for this sample had 1,215,539 prescription claims with a total paid amount of $50,244,090. The total number of VDP claims paid in the 2001 calendar year was 28.7 million prescription claims for a total paid amount of $1.4 billion dollars. This is the first overpayment measurement study for this program.
Two types of errors accounted for the majority of overpayments. Out of the identified errors, 193 original prescriptions were not sent by the pharmacies and 36 prescriptions had documentation errors. If the pilot study’s error rate is applied to the annual VDP claim expenditures, the total dollars at risk for overpayments in the Medicaid VDP for fiscal 2002 is approximately $287 million.


State Employees Workers’ Compensation Program Study

The State Employees Workers’ Compensation program study reviewed 200 randomly sampled medical bills paid for worker’s compensation injury claims. These medical bills were paid between September 1, 2001 through November 30, 2001. The study also used the same three reviews of claimant telephone survey, online injury claim review and medical record documentation review as in the Medicaid studies.

The State Employees Workers’ Compensation program study had 256 medical bills for a total paid amount of $48,004. The universe of paid medical bills had 45,812 bills for a total paid amount of $9,250,148. The total number of paid medical bills for calendar year 2001 was 192,345 for a total paid amount of $40 million.

Almost half of the overpayments identified, 75 out of 162, were services exceeding either the Texas Workers’ Compensation Commission’s (TWCC) Spine Treatment Guidelines or the Medical Fee Guidelines. If the study’s error rate is applied to the annual State Employees Workers’ Compensation medical bill expenditures, the total dollars at risk for overpayments for fiscal 2002 is approximately $8 million.

In the January 2001 study, the State Employees Workers’ Compensation overpayment rate was 8.1 percent. This rate is not being compared to the 2003 rate of 19.9 percent because the project team had greater access to medical record documentation which enabled them to conduct a more accurate review.


Summary of Medicaid FFS Recommendations

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

  • The Texas Health and Human Services Commission should include additional procedure queries to their Medicaid Fraud and Abuse Detective System and office investigation as identified in this study to increase potential recoupments for the Medicaid program.
  • The Texas Health and Human Services Commission’s Office of Investigation and Enforcement should increase their staff with professional nurse reviewers to perform targeted provider medical record reviews to identify and recoup services billed but not actually provided, also known as phantom services. The savings made from recoupments should cover the salaries of this additional staff.
  • The Texas Health and Human Services Commission should form a partnership with professional health care associations to develop product recommendations and guidelines to improve record documentation that would potentially benefit the quality of health care, improve office and billing management and reduce overpayments in the Medicaid programs.
  • The Texas Health and Human Services Commission should follow-up with National Heritage Insurance Company on correcting Compass 21 system processing areas resulting in potential overpayments.


Summary of Medicaid VDP Recommendations

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

  • The Texas Health and Human Services Commission should consider enhancing the Medicaid Vendor Drug Program claim processing system to include full information on the Medicaid recipient and the new Medicaid provider numbers.
  • The Office of Investigation and Enforcement should conduct regular audits on the Vendor Drug Program to identify potential fraudulent or abusive practices by either the pharmacies or prescribing providers.
  • The Vendor Drug Program department should perform educational seminars in partnership with the Texas State Board of Pharmacy, at least annually, for all pharmacists and prescribing providers instead of targeted onsite education during routine audits. These seminars should include information on common prescription errors, federal and state requirements and any new federal or state information appropriate to the Medicaid Vendor Drug Program.


Summary of State Employees Workers’ Compensation
Recommendations

To improve the integrity of the State Employees Workers’ Compensation program, the recommendations listed below should be implemented.

  • The State Office of Risk Management should consider contracting with another larger carrier such as Texas Mutual to improve the efficiency of their medical bill processing and cost containment. This contract should include specified performance measures with penalties to ensure true cost savings are occurring with the medical services payments.
  • The State Office of Risk Management should consider enhancing their Medical Management Teams responsibilities to include target reviews, prior authorization reviews and identification of cases for medical case management.
  • The State Office of Risk Management should consider contracting with a physician Medical Advisor with expertise in the Texas Workers’ Compensation Program to assist the Medical Management Teams with identifying services not medically necessary.

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