CMS’ Secretive Settlement

$1.3 billion in improper hospital claims paid out

July 2, 2015

The Center for Medicare and Medicaid Services secretly paid out over a billion dollars in improper hospital claims earlier last month, despite auditors labeling them unnecessary previously.

The payments, which were quietly announced on June 1 by CMS, totaled $1.3 billion and involved 1,900 hospitals and 300,000 claims that had been already denied by CMS auditors on two different levels as medically unnecessary.

The Department of Health and Human Services Office of Medicare Hearings and Appeals settled hundreds of thousands of appeals for 68 cents on the dollar. The money used to cover the claims will be taken from the Medicare Trust Fund. The hospitals that received the settlements were also not announced by CMS.

Citizens Against Government Waste, a nonpartisan organization dedicated to eliminating waste, fraud, mismanagement, and abuse in government, first noticed the payments.

The group says the process has been questionable from the beginning, with a majority of the claims related to short inpatient stays—an area considered extremely vulnerable to improper payments.

"The settlement process was murky from its inception. On August 29, 2014, CMS announced the global financial settlement for hundreds of thousands of Medicare fee-for-service claims that had been denied twice and then appealed by providers to the third level of appeals, the administrative law judges (ALJ)," CAGW wrote. "The vast majority of these claims were related to short inpatient hospital stays (an area that had been identified by CMS as highly vulnerable to improper payments), and had been denied at two lower levels, including by Recovery Audit Contractors (RACs)."

Office of Medicare Hearings and Appeals Chief ALJ Nancy Griswold testified in April before Congress about the drastic jump in OMHA’s workload.

During the testimony before the Senate Finance Committee, Griswold said between fiscal year 2009 and fiscal year 2014, the workload within the office increased by 543 percent. Additionally, the number of appeals OMHA received jumped from 384,000 in fiscal year 2013 to 474,000 appeals during fiscal year 2014.

Citizens Against Government Waste president Tom Schatz called the lack of transparency in the quiet settlements a cause for concern for taxpayers.

"This $1.3 billion settlement is indicative of how endangered program integrity efforts are at CMS," Schatz said in a statement. "The lack of transparency in the hospital settlement process should be a cause of major concern to taxpayers, members of Congress, and Medicare beneficiaries."

"Furthermore, the suspension of RAC audits, coupled with this settlement, means that a portion of the $9.7 billion in improper payments that have been recovered by RACs for the Trust Fund over the last several years has now been sent back to the very providers who systematically flooded the OMHA with appeals over denied claims. Providers have not only managed to fend off oversight of hundreds of thousands of potentially improper claims, they have been rewarded financially for doing it. This is a terrible precedent and deserves a full investigative hearing before jurisdictional committees," he concluded.

CMS did not return a request for comment by press time.