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The Alphabet Soup of Medicare Contractors

(An article by Dina Benedetto CPC, CPC-H, CPMA, taken from the March/April issue of HBMA Billing)

Navigating through the lists of Medicare contractors can seem overwhelming. QIO, MACs, FIs, RAs, CERT, ZPICs? As healthcare professionals, we need to understand the roles and objectives of these contractors and how they affect our practices.

Addressing improper payments in the Medicare fee-for-service (FFS) program is a top priority for the Centers of Medicare and Medicaid Services (CMS). Preventing improper payments in the CMS FFS program requires the active involvement of every division of CMS as well as effective coordination with its partners, which include various Medicare and Medicaid contractors and providers.

Medicare Program Oversight
Quality Improvement Organization (QIO)

By law, the mission of the QIO Program is to improve the effectiveness, efficiency, economy, and quality of services delivered to Medicare beneficiaries. Based on this statutory charge and CMS's program experience, CMS identifies the core functions of the QIO program as:

  • Improving quality of care for beneficiaries
  • Protecting the integrity of the Medicare Trust Fund by ensuring that Medicare pays only for services and goods that are reasonable and necessary and that are provided in the most appropriate setting
  • Protecting beneficiaries by expeditiously addressing individual complaints, such as beneficiary complaints, provider-based notice appeals, violations of the Emergency Medical Treatment and Labor Act (EMTALA), and other related responsibilities as articulated in QIO-related law

Why does CMS have QIOs?
CMS relies on QIOs to improve the quality of healthcare for all Medicare beneficiaries. Furthermore, QIOs are required under sections 1152–1154 of the Social Security Act. CMS views the QIO Program as an important resource in its effort to improve the quality and efficiency of care for Medicare beneficiaries. Throughout its history, the program has been instrumental in advancing national efforts to motivate providers in improving quality and in measuring and improving outcomes of care. CMS is required to publish a report to Congress every fiscal year that outlines the administration, cost, and impact of the QIO program.

Medicare Claims Processing Contractors
CMS employs a network of contractors to process claims submitted by physicians, hospitals, and other healthcare providers/suppliers to make payments to those providers in accordance with Medicare rules and regulations. These organizations, called "Carriers," "Fiscal Intermediaries" (FIs), and "Medicare Administrative Contractors" (MACs), are also referred to as "Medicare Claims Processing Contractors." For the purpose of this article, the term "Affiliated Contractors," or ACs, will be used to refer to carriers and fiscal intermediaries.
ACs and MACs primarily use internal data, national data error rates produced by the Comprehensive Error Rate Testing (CERT) program, and vulnerabilities identified through the Recovery Audit Program to determine where to target their improper payment prevention efforts. ACs and MACs analyze their internal data to determine which corrective actions would be best utilized to prevent the errors and vulnerabilities identified by the CERT and Recovery Auditors in the future. The cornerstone of the ACs' and MACs' efforts to prevent improper payments is their Error Rate Reduction Plan (ERRP), which includes initiatives to help providers comply with the rules. These initiatives, managed by the ACs and MACs Medical Review department, usually fall into one of three areas:

  • Medical review of claims
  • Procedure-specific or provider-specific medical review
  • New or revised local coverage determinations, articles, or coding instructions

Medical Review of Claims
The goal of the AC and MAC Medical Review (MR) program is to reduce payment error by preventing the initial payment of claims that do not comply with Medicare's coverage, coding, payment, and billing policies. To achieve the goal of the MR program, ACs and MACs:

  • Analyze data (e.g. analysis of provider billing patterns, services utilization, and/or beneficiary utilization) and other information (e.g.. complaints, enrollment, and/or cost report data) to identify provider non-compliance with coverage, coding, billing, and payment policies
  • Take action to prevent and/or address the identified improper payment
  • Place emphasis on reducing the paid claims error rate by notifying the individual billing entities (e.g., providers, suppliers, or other approved clinicians) of review findings
  • Make appropriate referrals to Provider Outreach and Education (POE), Program Safeguard Contractors (PSC), and Zone Program Integrity Contractors (ZPIC)

ACs and MACs apply the Progressive Corrective Action (PCA) process to target their efforts for the greatest impact in their jurisdiction. The PCA process involves data analysis, which leads to the detection of errors, clinical review of medical records, validation of errors, provider education, repeat claims sampling, and payment recovery. It serves as a graded approach to performing medical reviews, and assists contractors in deploying medical review resources and tools appropriately. ACs and MACs subject providers only to the amount of medical review necessary to address the nature and extent of the identified problem. After validating that claims are being billed in error, the contractors target provider or service activities that place the Medicare trust funds at the greatest risk while ensuring that the level of medical review remains within the scope of the budget. PCA is a means of evaluating the relative risk of the error and assigning appropriate corrective actions.

Contractors may use any information they deem necessary to make a prepayment or postpayment claim review determination. This includes reviewing any documentation submitted with the claim as well as requesting documentation from the provider or other entities when the contractor deems it necessary. This is done in accordance with CMS's manuals through an additional documentation request (ADR).

The medical review of Medicare claims is conducted retrospectively (after the service was provided) and can be conducted on a prepayment or postpayment basis. Prepayment review consists of a medical review (MR) of a claim prior to payment. Providers with identified problems who submit correct claims may be placed on prepayment review, during which time medical records will be requested for a percentage of their claims and subjected to MR before payment can be authorized. Once providers have established the practice of billing correctly, they are removed from prepayment review.

Postpayment review involves MR of a claim after payment has been made. Postpayment review may be performed using a statistically valid sampling and extrapolation in cases where there is a sustained or high level of payment error. This allows an underpayment or overpayment (if one exists) to be estimated without requesting all records on all claims from a provider. This reduces the administrative burden for Medicare and the costs for both Medicare and providers.

Both prepayment and postpayment reviews may require providers to submit medical records. When medical records are requested, the provider must submit them within the specified timeframe or the claim will be denied.

In the absence of Medicare national coverage policy, and at the discretion of the local Medicare Contractor, Local Coverage Determinations (LCDs) may be developed to define the medical necessity parameters for an item or service at the local contractor level. LCDs specify under what clinical circumstances a service is considered to be reasonable and necessary. They are administrative and educational tools to assist providers in submitting correct claims for payment. Contractors publish LCDs to provide guidance to the public and medical community within their jurisdictions. Contractors develop LCDs by considering medical literature, the advice of local medical societies and medical consultants, public comments, and comments from the provider community. LCDs are only binding on the providers within the local contractor's jurisdiction and are advisory only to Administrative Law Judges (ALJs), the third level of the Medicare appeals process. LCDs and local policy are found in the Medicare Coverage Database. In addition to the development of LCDs, ACs and MACs also publish articles and other guidance information for providers to use to correctly code their claims.

Comprehensive Error Rate Testing (CERT)
CMS established the CERT program to monitor the accuracy of payments made in the Medicare FFS program. The CERT program calculates the error rates for all ACs and MACs and Durable Medical Equipment Medicare Administrative Contractors (DME MACs). The results of the CERT reviews are published in an annual Improper Medicare Fee-for-Service Payment Report.

The CERT contractor uses a specific methodology that ensures that MACs are adequately sampled, resulting in approximately 2,000 randomly selected claims annually per contractor. The CERT requests medical record documentation from the provider who submitted the selected claim. When performing the claim and record reviews, the CERT contractor follows Medicare regulations, billing instructions, NCDs, coverage provisions in interpretive manuals, and the respective Medicare claims processing contractor's LCDs. If no medical record documentation is received from the provider, the CERT classifies the review as a "no documentation claim" and counts the review as an error. The CERT notifies the provider of the review results, including an underpayment, overpayment, or no findings. To better measure the performance of the Medicare claims processing contractors and to gain insight into the causes of errors, CMS decided to calculate two error rates:

  • The Paid Claims Error Rate, which is based on dollars paid after the Medicare contractor has made its payment decision on the claim. This rate includes fully denied FFS claims. The paid claims error rate represents the percentage of total dollars that all Medicare FFS contractors erroneously paid or denied and is a good indicator of how claim errors in the Medicare FFS program impact the trust fund. CMS calculates the gross rate by adding underpayments to overpayments and dividing that sum by total dollars paid.
  • The Provider Compliance Error Rate, which is based on how the claims were submitted when they first arrived at the Medicare claims processing contractor before any edits were applied or reviewed. The provider compliance error rate is a good indicator of how well the contractor is educating the provider community since it measures how accurately providers prepared claims for submission. CMS does not collect covered charge data from provider facilities that submit claims to FIs or A/B MACs; therefore, current facility data is insufficient for calculating a provider compliance error rate.

Due to the sampling methodology, very few providers are subject to CERT review. Some providers have never been involved in a CERT review. However, provider claims that are selected for CERT review are subject to potential post-payment denials, payment adjustments, or other administrative or legal actions, depending upon the result of the review. Claims can be adjusted or denied based on the CERT review and normal appeals rights and processes apply.

Recovery Auditors (RAs): A New Name for the RAC Program
CMS has changed the name of Recovery Audit Contractors (RACs) to Recovery Auditors (RAs). Responsibility of demand letters shifted from the RAs to the MACs effective January 1, 2012. For the complete statement of work, visit

Section 306 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) required CMS to complete a three-year demonstration program to determine whether the use of RAs was a cost-effective means of identifying and correcting improper Medicare payments in the Medicare FFS program. The RAC demonstration program, which ended in March 2008, succeeded in collecting more than $1.03 billion in improper Medicare payments. Approximately 96 percent of the improper payments were overpayments collected from providers; the remaining four percent were underpayments paid to providers. The majority of the overpayments (85 percent) were collected from inpatient hospital providers, six percent were collected from Inpatient Rehabilitation Facilities (IRFs), and four percent were collected from outpatient hospital providers. In December 2006, the Tax Relief and Health Care Act of 2006 made the Recovery Audit Program permanent, and authorized the expansion of the program nationwide by January 10, 2010.

In general, RAs will not review a claim that has previously been reviewed by another entity, such as by a MAC, Program Safeguard Contractor (PSC), or Zone Program Integrity Contractor (ZPIC). Recovery auditors analyze the claims data using their proprietary software and identify claims that clearly (or likely) contain improper payments. In the case of obviously improper payments, the RA contacts the provider and requests a refund of any overpayment amounts or pays the provider any underpayment amounts. In instances of claims that will most likely result in improper payments, the RA requests the medical record from the provider, reviews the claim and medical record, and makes a determination as to whether the claim contains an overpayment, underpayment, or a correct payment.

If a denial or adjustment is indicated by the review, providers will receive notification letters of the overpayment or underpayment. Providers can appeal denials (including no documentation denials) following the normal appeal processes by submitting documentation supporting their claims. RAs apply statutes, regulations, CMS national coverage policies, payment and billing policies, and LCDs when conducting reviews. RAs do not develop or apply their own coverage, payment, or billing policies.

On September 1, 2011, CMS updated the statement of work, which replaced the 2007 statement of work for the RAs. Providers should be aware of several new revisions.

Although CMS, ACs, and MACs have undertaken actions to prevent future improper payments, it is difficult to prevent all improper payments, considering that more than one billion claims are processed each year. CMS uses the Recovery Audit Program to detect and correct improper payments in the Medicare FFS program and provide information to CMS, ACs, and MACs that could help protect the Medicare Trust Funds by preventing future improper payments.

Recovery Validation Contractor (RVC)
Part of CMS's Recovery Audit Program includes work of an RA Validation Contractor (RVC). This contractor is responsible for the review of select audit concepts proposed by the RAs prior to the final review by CMS. The RVC also conducts reviews of monthly samples from RA recoveries to determine if the claim determinations made by the RA were correct.

Program Safeguard Contractors (PSCs) /
Zone Program Integrity Contractors (ZPICs)

In addition to reducing improper payments, CMS strives to protect the program from potential fraud. CMS contracts with Program Safeguard Contractors (PSCs), and Zone Program Integrity Contractors (ZPICs) to identify and stop potential fraud. The primary task of PSCs and ZPICs is to identify cases of suspected fraud, develop the case with supporting documentation and evidence, and refer substantiated cases to the Department of Health and Human Services (HHS), Office of Inspector General (OIG), and Office of Investigations (OI) for further investigation and possible prosecution. In addition to fraud case development and referral, PSCs and ZPICs are tasked to take immediate action to ensure that the Medicare Trust Fund monies are not inappropriately paid out and that any mistaken payments are identified. These immediate actions may include implementing prepayment edits in claims processing system(s), seeking provider payment suspension, and reviewing claims on a prepayment and postpayment basis. PSCs and ZPICs, like RAs, must follow Medicare statutes and regulations, national coverage policies, payment and billing policies, and the applicable LCDs when conducting reviews.

Contractors work in concert with CMS to meet the goal of reducing the payment error rate. The CERT establishes the error rates and provides information regarding the error correction process. The ACs' and MACs' ERRP address the errors identified by the CERT through claim review, provider education, and LCDs. The RAs are tasked to detect and correct improper payments as well as identify program vulnerabilities for corrective action. PSCs and ZPICs focus their efforts in detecting and preventing Medicare fraud. Contractors involved in the Medicare appeals process also contribute to the reduction of improper payments and provide valuable information regarding Medicare payment rules and regulations.

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