A July 9, 2014 Government Accountability Office (GAO) report revealed that in fiscal year (FY) 2013 federal agencies issued an estimated $105.8 billion in improper payments.  The GAO report serves as an alarming example of bureaucratic waste. The puzzling mismanagement of funds encompassed 84 government programs spread across 18 agencies.

Five programs accounted for about $82.9 billion, or 78 percent of the improper payments.  The department of Health and Human Services (HHS) administers three of the five programs, which include Medicare Fee-for-Service, Medicaid, and Medicare Advantage (Part C) programs.  The other two programs with the highest improper payments were the Earned Income Tax Credit and Unemployment Insurance programs which are administered by the Department of the Treasury and the Department of Labor, respectively.

In a hearing on July 9, 2014, Oversight and Government Reform Committee Chairman Darrell Issa (R-Calif.) stated, “It’s an amount of money the American people can’t even begin to understand.  Nobody can really understand what it would be like to stack up all those bills.”  House Oversight and Government Reform member John Mica (R-Fla.), commented in a July 10, 2014, article appearing in The Fiscal Times, “you could balance the federal budget just by correcting some of these very significant amounts of money that are going out the door unchecked.”

Not only are payments going out the door unchecked, there is very little evidence to suggest that this irresponsible behavior will be curtailed.  According to GAO Director of Financial Management Beryl Davis, "the federal government is unable to determine the full extent to which improper payments occur and reasonably assure that appropriate actions are taken to reduce them.”

Internal Revenue Service (IRS) Commissioner John Koskinen said that combating refund fraud, “is an ongoing battle for the IRS.”  If the 25 percent error rate in the Earned Income Tax Credit Program is any indication, the IRS appears to be badly losing this battle.

Improper payments in unemployment insurance accounted for $6.2 billion of the reported $105.8 from FY 2013.  According to a July 10 2014, article by Real Clear Politics, “The Labor Department said most overpayments went to people who continued to get benefits after returning to work, or who didn't meet state requirements to look for work while they were unemployed.  Others were ineligible for benefits because they voluntarily quit their jobs or were fired.”

Basically, the Department of Labor is accounting for a portion of the overpayments by saying that certain recipients voluntarily quit their jobs and were rewarded for their voluntary relinquishment of income with, lamentably, improper payments from the Department of Labor.  This is a prime example of a federal agency failing to engage in good stewardship of taxpayer money.

The GAO report did reference a remedy, for example, it is sometimes possible to recover some of these improper payments.  In one 2013 case, “HHS reported that the Medicare Fee-for-Service recovery audit program identified approximately $4.2 billion and recovered $3.7 billion in overpayments by the end of the fiscal year.”  Medicare recovery audit contractors (RACs) receive a contingency fee based on the percentage of underpayments identified and overpayments collected.

An August 2013 report by HHS Inspector General Daniel R. Levinson provides further evidence that RACs provide an effective means to recoup improper payments.  According to the report, “In FYs 2010 and 2011, RACs reviewed 2.6 million claims from approximately 292,000 providers.  During this period, RACs identified approximately 1.3 million claims with improper payments (50 percent) that totaled nearly $1.3 billion.  Of this amount, $903 million was recovered from or returned to providers in FYs 2010 and 2011.”

The topic of RACs does not produce giddy enthusiasm from healthcare providers, even so, providers can challenge the classification of a payment as improper. According to a February 18, 2013 Workers’ Compensation Institute article, “In FY 2011...Medicare providers appealed 60,717 claims, which constitute 6.7 percent of all claims with overpayment determinations.  Of those claims appealed, 26,469 claims were overturned (43.6 percent).”  Furthermore, according to August 27 2013 AHA RACTrac survey, “When hospitals choose to appeal, they win 70% of the time.”

Despite its effectiveness, there have been calls by some in congress to reform the RAC program.  On June 17, 2014, Rep. Paul Gosar (R-Ariz.) stated, in reference to RACs, “Many of these accusations have no merit and RAC audit decisions are being overwhelmingly overturned by the Department of Health and Human Services Office of Medicare Hearings and Appeals (OMHA) after years of costly defense on behalf of accused health care providers.” 

Gosar’s assertion that “many of these accusations have no merit” is suspect to say the least.  Particularly when “in 2010 and 2011 providers appealed only 6 percent of the 1.1 million claims in which recovery audit contractors (RACs) found that they overbilled Medicare.”  If many of the accusations truly had no merit, one would think that providers would appeal more than six percent of the time.

The ideal solution to the predicament will be increased accountability at the agency, combined with a robust usage of RACs.  With the results demonstrated by the RAC program, and the current level of improper payments, now is not the time to scale back the program.

- Anderson Haxton