Study: Medicare contractors vulnerable to conflict

July 10, 2012 - 1:43 PM

MIAMI (AP) — Firms that are paid tens of millions of dollars to root out Medicare fraud are bidding on contracts to investigate companies they are doing business with — sometimes their own parent companies, according to a government report released Tuesday.

Two-thirds of the companies that bid on contracts during a nearly year-and-a-half time period beginning in October of 2010 had financial ties to claims processors — and in some cases also processed Medicare claims themselves, according to the study by the U.S. Department of Health and Human Services' inspector-general. The report blames what it calls a flawed bidding system and an inadequate conflict-of-interest policy.

The study looked into bids from about 100 potential contractors and subcontractors and found nearly 2,000 relationships that posed potential conflicts. For example, one company submitted a bid to investigate Medicare fraud even though its parent company provided two types of Medicare coverage in all 50 states.

Medicare fraud contractors are often tied to a large number of providers, but the report doesn't break the numbers down by each contractor.

The federal government requires Medicare fraud contractors to identify their potential conflicts and their financial interests in other companies when submitting bids, but the report found they often failed to provide all the information. Even when they did, it was sometimes inconsistent or unclear, according to the study, which urged federal health officials to adopt formal, clear guidelines for companies to follow when submitting bids.

Tuesday's report examined only companies bidding on Medicare-fraud contracts, not those with existing contracts. But a 2011 congressional survey of companies providing Medicare reimbursements revealed that some had financial relationships with the contractors investigating them.

The Centers for Medicare and Medicaid Services, the federal agency overseeing Medicare, said in a statement that it has a robust program for identifying potential conflicts among providers and that it has taken the proper steps to vet these contractors. Contract bidders who identify a potential conflict must submit a separate plan for how they will mitigate the issue, according to the agency, which added that it has not awarded deals to companies with significant conflicts of interest.

When Medicare began in 1965, Congress mandated that private contractors process and pay claims. Under 1996 legislation, Medicare hired a separate set of contractors to monitor fraud, reasoning it was wise to separate claims payments from the fraud-detection side.

Medicare currently pays 4.4 million claims worth more than $1 billion per day. Contractors comb through thousands of claims to find spikes in billing patterns in an effort to stop an estimated $60 billion a year in fraud.

Lawmakers say the potential for conflict has grown as the manner in which contracts have been assigned has changed. In the past, contractors were assigned to investigate certain regions of the country, so it wasn't a big concern if they had an association with a company in another region. But now that they are moving to a national model, lawmakers warn there is a bigger potential for the contractors to oversee companies with which they have financial relationships.

"If (contractors) with conflicts of interest become less vigilant in combating fraud, then taxpayer dollars may be wasted on payments to unscrupulous providers," the report concludes.

The study was commissioned by Sens. Max Baucus, D-Mont., Tom Carper, D-Del., and Claire McCaskill, D-Mo.

Carper said it is critical to improve the system "because these private-sector contractors perform many of the key payment, oversight and other administrative functions in Medicare."