DEPARTMENT OF HUMAN SERVICES

MAY 5

ard P. KusserowInspector General

Medicare and Medicaid Need in the Recovery of Overpayments from Bankrupt Providers (A-09-90-00141)

William Acting Administrator Health Care Financing Administration

The attached management advisory report addresses the need toimprove the recovery of Medicare and Medicaid overpaymentsfrom bankrupt providers. We found that: (1) the currentFederal bankruptcy law does not provide Medicare and Medicaidwith a priority in the recovery of overpayments from bankruptproviders, (2) neither Medicare nor Medicaid preparedmanagement information reports on receivables written-off asbad debts, and (3) the losses to the Government from thesebad debts may be substantial.

We believe that the Health Care Financing Administration(HCFA) be about Medicare and Medicaid lossesfrom bankrupt providers. believe that, asinvoluntary creditors, Government programs are morevulnerable than most creditors in financial dealings withmedical providers and should be given a priority inbankruptcy proceedings.

Accordingly, we recommend that HCFA: (1) prepare periodicmanagement information reports on Medicare and Medicaidreceivables written-off as bad debts and (2) propose alegislative change that would provide Medicare and Medicaidwith a priority in bankruptcy proceedings.

The HCFA partially agreed with our first recommendation andagreed to consider our second recommendation for theDepartment of Health and Human Services' annual legislativeprogram.

Please advise us, within 60 days, on actions taken or plannedon our recommendations. If you have any questions, pleasecall me or have your staff contact George M. Reeb, AssistantInspector General for Health Care Financing Audits at FTS646-7104. Copies of this report are being sent to otherinterested departmental officials.

Attachment

OFFICE OF INSPECTOR GENERAL

MEDICARE AND MEDICAID NEED A PRIORITY IN THE RECOVERY OF

OVERPAYMENTS FROM BANKRUP T PROVIDER S

DEPARTMENT OF HEALTH & HUMAN SERVICES

.Inspector General

Medicare and Medicaid Need a Priority in the Recovery ofOverpayments from Bankrupt Providers (A-09-90-00141)

William Acting AdministratorHealth Care Financing Administration

This management advisory report presents the results of ourreview on improving the recovery of Medicare and Medicaidoverpayments from bankrupt providers through a priority inthe Federal bankruptcy law. With a priority, a creditor'sbankruptcy claims are superior to the claims of othergeneral unsecured creditors. Our objective was to reviewFederal bankruptcy legislation and determine whether apriority would be appropriate for Medicare and Medicaid toprotect their interests in bankruptcy proceedings.

We found that Medicare and Medicaid once had a priority,but it was eliminated in 1979 by the Bankruptcy Reform Actof 1978 (Public Law (P.L.) 95-598). Three primary reasonswere given at that time for eliminating the Government's

priority: (1) the Government entered into businessrelationships on an equal basis with other creditors,(2) the Government had the ability to choose its debtors, and (3) the amount of losses that the Governmentwould incur were not considered significant.

The reasons cited for the removal of the Government'spriority were not, in our opinion, fully valid then ortoday for Medicare and Medicaid. Voluntary creditors mayassess the financial viability of debtors before sellingthem (or even buying from them) goods and services, orlending funds. The two health programs, however, are notvoluntary creditors of medical providers and do not chooseproviders as debtors.

Medical providers, of whom there are hundreds of thousands,are eligible to participate in Medicare and Medicaid,regardless of financial viability. The health programs donot perform financial evaluations of them, nor do they askproviders to obtain performance bonds or security interestsfor indebtedness. Provider debts to the health programsgenerally arise from after-the-fact Government

Page 2 - William

determinations that providers claimed and were paid toomuch. Thus, the programs become involuntary creditors ofmedical providers and are highly vulnerable for losses whenthey go bankrupt.

Neither Medicare nor Medicaid prepared managementinformation reports on receivables due from bankruptproviders that were written-off as bad debts. Nonetheless,there were indications that Government losses from baddebts may be substantial. For example, as of March 1991,Health Care Financing Administration's (HCFA) recordsshowed that about $106 million of Medicare HospitalInsurance (Part A) unsecured debt was owed from bankruptproviders. Although HCFA representatives said they wereunable to estimate how much of the $106 million would becollected, State agencies with similar kinds of receivablesdue from bankrupt Medicaid providers indicated that minimal(between 5 percent and 10 percent) provider indebtednesswould be recovered.

We believe that, for decision making purposes, health carepolicymakers should be informed about Medicare and Medicaidlosses from bankrupt providers. We also believe that, asinvoluntary creditors, the Medicare and Medicaid programsare more vulnerable than most creditors in financialdealings with medical providers and should be given apriority in bankruptcy proceedings.

We recommend that HCFA staff: (1) prepare periodicmanagement information reports on Medicare and Medicaidreceivables written-off as bad debts and (2) propose alegislative change to the Federal bankruptcy law that wouldprovide Medicare and Medicaid with a priority in providerbankruptcy proceedings.

The HCFA partially agreed with our first recommendation andagreed to consider our second recommendation for theDepartment of Health and Human Services' (HHS) annuallegislative program.

BACKGROUND..:.::::;

Federal bankruptcy legislation is designed to provideequality to all creditors in the distribution of a debtor's

Page 3 William

assets. However, there are three main exceptions to theequal distribution principle that allow some creditors toreceive more than others. The three main devices for somecreditors getting more are (1) liens, (2) exceptions todischarge, and (3) priorities.

A lien involves creditors obtaining mortgages on realproperty or security interests on personal property. Withmortgages and security interests, creditors can, with courtapproval, repossess and sell the collateral. Thesecollateral interests are generally obtained by writtenagreements at the time credit is extended to debtors.

With the second device (exceptions to discharge), somecreditors' claims survive bankruptcy and debtors stillremain liable for their liabilities. Examples ofexceptions to discharge are taxes and child supportpayments.

The third main exception is labeled a priority. With apriority, creditors have a demand to first payment from anyassets the debtors have available for payment to unsecuredcreditors. Creditors with priorities get paid before otherunsecured creditors.

The Federal Government has long had a priority for taxes,duties, and related penalties. However, it does not have apriority for claims, such as Medicare and Medicaidoverpayments to providers. The Government's priority for

claims was abolished when P.L. 95-598, the firstcomprehensive revision to bankruptcy statutes since 1938,became law on October 1, 1979. As a reform measure,P.L. 95-598 modernized the existing bankruptcy law inresponse to the growth in bankruptcies at that time.

The rise in bankruptcies in the was reported to haveplaced a great deal of strain on the existing bankruptcysystem and to have prompted the creation of the Commissionon the Bankruptcy Laws of the United States (theCommission) by the Congress in 1970. The Commissionconducted a comprehensive study of the bankruptcy systemand recommended changes in several areas of the bankruptcylaw. One of these recommendations called for theelimination of the Government's priority for claims.

Page 4 - William

In its 1973 report,' the Commission recommended that theCongress: (1) limit the priority claims of the Governmentto administrative expenses, wages, and taxes and(2) abolish the for claims.In making these recommendations, the Commission reasonedthat when the Government entered into businessrelationships, it did so on an basis with othercreditors of bankrupt debtors. As such, the Commissionbelieved that the Government should be ready to acceptbankruptcy losses. The Commission also concluded thatsince the Government is free to choose its debtors,security could be required before doing business with thesedebtors.

In addition to its report, the Commission testified beforea 1977 Senate subcommittee conducting hearings on theFederal bankruptcy law. The Commission was asked if itcould provide an estimate of the amount of Governmentlosses that would occur if the priority waseliminated. Citing a United States (U.S.) Department ofTreasury estimate, a Commission spokesperson told thesubcommittee that the Government would incur losses ofabout $100 million for all Federal programs if prioritiesand liens were eliminated. In terms of the then annualFederal budget of $400 billion, the Commission consideredthese losses to the Government to be insignificant. TheCommission did not address State government losses.

The Commission's recommendations to eliminate theGovernment's priority for claims were objected to bytwo Federal officials, the U.S. Attorney General and theU.S. Deputy Assistant Attorney General. They testifiedbefore Senate and House subcommittees in favor of retainingthe Government's priority.

'Report of the Commission on the Laws of theUnited States, House Document No. 93-137, Part I, datedJuly 31, 1973.

Page 5 - William

The Attorney General maintained that the Government did notform relationships with debtors merely from a businessstandpoint. Rather, he pointed out that the Government didso primarily to carry out the interests mandated by publicpolicy. He also testified that, as part of the policy, theGovernment was an involuntary creditor that deserved theprotection afforded by the priority.

Similarly, the Deputy Assistant Attorney General noted thatthe priority protected the Government in itsnever-ending collection efforts to recover program funds,efforts that were necessary to maintain the increasingprograms and activities authorized by the Congress.Without the Government's participation, many of theseprograms and activities would not have been possible,according to the Deputy Assistant Attorney General.

One of the Government programs that interested the Congressat the time P.L. 95-598 was being considered was theGuaranteed Student Loan (GSL) program. Duringcongressional hearings, pressure was generated to amend thebankruptcy law to exclude educational loans made by theGovernment from discharge. Consequently, the Congressrequested that the General Accounting Office (GAO) performa study to develop information on educational loan losses. .

In its study, the GAO identified some losses related to theGSL program. The GAO reported to the Congress in lettersdated December 23, 1976 and April 15, 1977, that, for theperiod July 1, 1975 through June 30, 1976, about $13million in bankruptcy claims were paid by the then Officeof Education (formerly part of the U.S. Department ofHealth, Education and Welfare (HEW)) and other GSLguarantee agencies. The GAO concluded that, on theaverage, borrowers were repaying little on student loansbefore filing for bankruptcy.

In response to the concern over student loan bankruptcies,the Congress provided that educational loans would notalways be discharged in bankruptcies. Educational loansare one of the exceptions to discharge.

Page 6 - William

Also, as part of its study, the GAO attempted to obtainloss information on Government loan or loan guaranteeprograms which were not related to education. It contactedofficials from the U.S. Department of Agriculture, the thenHEW (now HHS), the Department of Housing and UrbanDevelopment, the Small Business Administration, and theVeterans Administration. According to the GAO, theseagencies did not maintain information on bankruptcy losses.

Our objectives were to (1) review the priorities providedin Federal bankruptcy law, (2) determine why the currentFederal bankruptcy law does not provide the Government witha priority in the recovery of Medicare and Medicaidoverpayments from failed providers, (3) ascertain how muchis lost from bad debt write-offs, and (4) determine if thehealth programs need a priority in bankruptcy proceedings.

We identified and reviewed 42 congressional committee andsubcommittee hearing reports and records on P.L. 95-598.In addition, we also reviewed House and Senate remarks onP.L. 95-598, as reported in the Congressional Record.These congressional reports, records, and statementscovered the period February 1975 through October 1978. Thecongressional committees and subcommittees included:

o the Senate Committee on the Judiciary,the Senate Subcommittee on Taxation and Debt Management,

o the Senate Subcommittee on Improvements in JudicialMachinery, the Senate Committee on Finance, the House Committee on Ways and Means, and the House Subcommittee on Civil and Constitutional Rights.

A general library research of books, periodicals, andpublished studies on the subject of bankruptcy was alsomade. In addition, we interviewed HCFA regional andcentral office (CO) representatives and obtainedinformation from them on overpayments due the Medicareprogram from bankrupt providers. We did not verify theaccuracy of HCFA overpayment data.

Page 7 - William

To obtain information on overpayments due the Medicaidprograms, we contacted the 50 Medicaid agencies (49 Statesand the District of Columbia). Arizona, which has ademonstration project under Medicaid, was excluded from ourreview. Medicaid representatives were asked if they couldprovide us with current information on the amount ofoverpayments due from bankrupt providers, as well as theactual losses resulting from unrecovered overpayments.

We attempted to determine the amount of write-offs byasking the Medicaid agency representatives if they couldprovide us with current, as well as prior, collectionstatistics on overpayments recovered from failed providers.We also asked the Medicaid representatives for an estimateof the amount of overpayments that they could recover ifthey had a priority. We did not verify the accuracy ofoverpayment data provided to us by Medicaid agencies.

To determine the availability of Government data or studieson losses, we spoke with representatives of the: GAO;Congressional Budget Office (CBO); and AdministrativeOffice of the U.S. Courts; and the U.S. Bankruptcy Court,Eastern District of California.

Our review was performed in Baltimore, Maryland andSacramento, California during Fiscal Year 1991.

In its 1973 report to the Congress, the Commissionmaintained that the Government entered into businessrelationships on an equal footing with other creditors. Italso believed that the Government could require securityfrom its debtors as a requirement for programparticipation. Further, the Commission did not apparentlyview the potential losses to the Government to be all thatsignificant.

In our opinion, the Commission's reasons for recommendingthe elimination of the Government's priority were not fullyvalid for Medicare and Medicaid then or now. First, thesehealth programs have not been in a position to assess thefinancial wherewithal of providers who seek to participatein the programs. Unlike voluntary creditors who determinethe financial viability of companies and organizations

Page 8 - William

before selling them (or even buying from them) goods orservices, or lending money, neither Medicare nor Medicaidmake such evaluations. Given the hundreds of thousands ofproviders' doing business with these health programs,making such evaluations is not feasible. Thus, theprograms do not enter into business relationships withproviders on an equal basis with other creditors, as hadbeen claimed by the Commission.

A second Commission rationale cited for removing theGovernment's priority status that was not relevant toMedicare and Medicaid was the claim that the programs couldrequire security before doing business with providers. Infact, it would be extremely difficult for the two programsto obtain security interests, such as liens on realproperty or performance bonds, from the hundreds ofthousands of providers participating in the Medicare andMedicaid programs.

Also, the health programs' receivables generally arise as aresult of after-the-fact Government determinations thatproviders had claimed reimbursement for and had been paidamounts to which they were not entitled. The two healthprograms are involuntary creditors, just as the AttorneyGeneral had claimed about the Government as a whole when hetestified before the Congress in 1977. The Commission'ssuggestion that the Government could seek securityinterests would not be applicable to providers'indebtedness to the health programs. Such interests aresecured by creditors at the time of the credit sale orloan, not later when it is found that an overpaymentoccurred.

The third reason cited by the Commission (Government losseswould not be significant) was not substantiated forMedicare and Medicaid. There was, and still is, a lack ofdata on the two health programs' losses. Although no dataon Medicare and Medicaid were presented by the Commission,we found indications that the health programs' losses may,in fact, be quite significant.

Our review of available congressional reports and recordson P.L. 95-598 disclosed that, other than the U.S.Department of Treasury's loss estimate and the GAO study on

Page 9 - William

student loans, not much additional data were available tothe Congress on Government bankruptcy losses. costestimates on P.L. 95-598, prepared by the CBO and theAdministrative Office of the U.S. Courts, did not addresslosses to the Government resulting from the elimination ofthe priority.

Current information on Government losses is also lacking inboth the Government and private sectors. For example,representatives of the GAO and the CBO informed us thatthey were not aware of any available governmental data orstudies on bankruptcy losses. We noted that although theAdministrative Office of the U.S. Courts publishes somebankruptcy data, such as the number of bankruptcy filingsand the chapters in which the petitioners filed, it doesnot maintain statistics on Government bankruptcy losses.

Others who have researched bankruptcy statistics have alsofound a dearth of governmental data on the issue. Asauthors Sullivan, Warren and reported in theirbook, As We Our Debtors:

"Bankruptcy... is one (phenomenon) about which wehave little hard information...nowhere does thegovernment publish data on how much debt wasdischarged in bankruptcy... (or) which creditors borewhat losses in bankruptcy...."

Although we were unable to find data on Governmentbankruptcy losses, we learned that Medicare couldpotentially lose a significant amount of funds as a resultof provider indebtedness to the program. In interviewswith HCFA CO representatives, we were advised that anelectronic on-line Provider Overpayment Reporting System(PORS) is used by HCFA to identify providers that receiveoverpayments. The PORS, established in 1985, is a uniform

Sullivan, E. Warren, and J.L. Westbrook, As WeForgive Our Debtors, (New York, Oxford University Press,1989) p. 4. This book was based on the Consumer BankruptcyProject, reported to be the largest study of consumerbankruptcy ever undertaken. The project was funded, in part,by the National Science Foundation.

...........

Page 10 - William

method for reporting overpayment data. The March 1991 PORSreport, provided to us by HCFA, showed that about$106 million in Part A unsecured debt was due from bankrupt

We asked HCFA CO representatives if they could identifyMedicare overpayment cases written-off as a result ofbankruptcy discharges. Citing the coding limitations ofPORS, they advised us that the amount of overpaymentsactually written-off could not be determined.

We also asked HCFA CO representatives if they could determine how much of the $106 million could be recovered if Medicare had a priority. The HCFA CO representatives were unable to estimate this amount. We were advised by a HCFA regional representative that Medicare overpayment bankruptcy cases were aggressively pursued by HCFA before the Government lost its priority in 1979. The HCFA regional representative estimated that, with its previous priority, about 80 percent of the overpayments were recovered from bankrupt providers. Such a high priorrecovery rate might portend well for Medicare and Medicaidif a priority were reestablished.

.::::::::................. __ .... . ............................................ :‘.:............................................................ ...:,:.:::::: :,_ ....~~:.:.:.....:.~i~ ..........~.‘.~.~‘~~~~ .... .......... :‘-:,., . .... .........................................................’ .: ................................ _ ........... ._ .. ..: ::::::::: ::

........

.................... __ * .... ...................... .:.: ......................................................................................... ...........................~

............................................................ ..~.~.~.~~......<......... ~::.:~.~ ,:::.:.:.;-::::::;, :.:.;̂ .................................................. ...... ... ._,., ,_ _ _-.,___________, ,::...................... ...................................................... :::: :.:. .................... ~

Like the Medicare program, we found that the Medicaidprograms could also suffer significant losses as a resultof their inability to fully recover overpayments frombankrupt providers. Information was provided to us by 11of the 50 Medicaid agencies (Arkansas, California,Illinois, Kentucky, Maine, Michigan, Minnesota, New Jersey,New Mexico, Tennessee, and Virginia). Each State providedus with accounts receivable balances due from bankruptproviders for various points in time from September 1990 toMarch 1991. These balances totaled about $41 million. Forthe remaining 39 Medicaid agencies interviewed,representatives advised us that they did not have dataavailable on the amount of overpayments due from bankruptproviders.

addition to Part A receivables, the MedicareSupplementary Medical Insurance (Part B) program hadreceivables due from providers. As of July 31, 1991, about$3 million was owed by Part B bankrupt providers.

Page 11 - William

Medicaid representatives from the 11 States told us thatthey were unable to determine how much of the $41 millionwould be lost through eventual write-offs. However, 3 ofthe 11, as well as 2 other States contacted, believed thatrecoveries would be minimal (between 5 percent and 10percent). The other 8 of the 11 had no estimates onrecoveries.

Of the 11 Medicaid agencies that provided us withoverpayment information, we found that the Californiaprogram could suffer the most. The California agency usedan on-line accounts receivable system to track overpaymentsdue from bankrupt providers. According to the State'sMarch 1991 accounts receivable records, almost $27 million,or 66 percent of the $41 million due to the 11 States, wasowed by California bankrupt providers.

Like PORS for Medicare overpayments, the Californiareceivable system did not identify those overpayment casesthat were written-off as a result of bankruptcy. ACalifornia representative estimated that the State wouldprobably collect from 5 percent to 10 percent of the$27 million. The California representative also estimatedthat, if the State had a priority, the recovery ofoverpayments from bankrupt providers could be improved toas much as 80 percent (similar to the HCFA regionalrepresentative's estimate of Medicare recoveries when ithad a priority).

Besides seeking data on bankruptcy losses, we alsointerviewed Medicaid representatives and sought their viewson the need for a priority. Of the 50 agenciesinterviewed, 40 favored a change in the Federal bankruptcylaw and believed that a priority would help. The other 10had no comment.

Medicare and Medicaid are more vulnerable than mostcreditors in provider bankruptcies. They becomeinvoluntary creditors when the Government subsequentlydetermines that providers claimed and were paid more thanthey should have been. When these determinations are made,it is generally not feasible to obtain security interestsor performance bonds to protect the Government's claim.Other creditors, however, can obtain such protections from

Page 12 - William

debtors when they sell them (or even buy from them) goodsand services, or lend money. It should be emphasized thatother voluntary creditors have the opportunity to seek thisprotection before doing business with the debtors.

The potential bankruptcy losses to the two health programsare significant. We found that Medicare Part A had about$106 million in receivables due from bankrupt providers.Eleven State agencies which keep data had about $41 millionin Medicaid bankruptcy receivables. Some States believedthat recoveries on receivables from bankrupt providerswould be minimal (between 5 percent and 10 percent) withouta priority.

Although their potential bankruptcy losses are significant,the health programs are not tracking receivables beingwritten-off as such bad debts. We recommend that HCFA takeaction to provide health care policymakers with informationon such losses. We also believe that the bankruptcypriority, which the two programs once had, should bereinstated to better protect the vulnerable Governmentinterests. Accordingly, we recommend that HCFA propose alegislative change to the Federal bankruptcy law that wouldprovide Medicare and Medicaid with a priority in bankruptcyproceedings.

On the first recommendation, HCFA believed that furtheraction was not necessary because it stated that (i) theMedicare PORS has been modified to identify receivableswritten-off as bad debts from bankrupt providers and(ii) States are currently required to report to the HCFAregional offices data on bad debts for which they areseeking Federal Medicaid reimbursement.

Regarding our second recommendation proposing a legislativepriority, HCFA indicated that it would consider such aproposal in developing annual legislative program.

The HCFA questioned our estimate of receivables due frombankrupt providers but it did not offer an alternativeestimate. It also indicated that about $54 million of the$106 million of receivables cited in our report representeddeemed overpayments. A deemed overpayment is the entireamount of Medicare funds paid to the debtor during each

Page 13 - William

cost reporting period for which the debtor failed to fileadequate cost reports. If the debtors were able to producethe required documentation, HCFA believed that the Medicarereceivables could be significantly reduced.

The HCFA also stated that it plans to implement newdelegations on compromising claims to improve Medicare'schances of recovering overpayments through litigation.Delegations on compromising claims will allow HCFA tosettle claims in-house rather than having to refer them tothe U.S. Department of Justice.

The HCFA requested that we acknowledge current Medicaidoverpayment rules as contained in section 9512 of theConsolidated Omnibus Budget Reconciliation Act of 1985,adding section 1903(d)(2)(D) of the Social Security Act.The rules referred to by HCFA deal with States refundingthe Federal share of Medicaid overpayments made toproviders. (The reply is included in its entiretyas an Appendix to this report.)

We were advised by HCFA representatives that the MedicarePORS was modified in December 1991 in response to our draftreport. With respect to Medicaid, there was no overallreporting by HCFA on the national extent of receivableswritten-off as bad debts. We still believe that healthcare policymakers should be kept informed on Medicaid fundsbeing lost through bankruptcies and that HCFA should gathersuch data and periodically report on the losses.

With regard to comment that if debtors producedocumentation they could substantially reduce their debtsto Medicare, HCFA presented no evidence that such an eventis likely to occur. We tend to believe that since theproviders could not produce such documentation beforefiling for bankruptcy there is less likelihood that theywill be able to do so now.

We did not acknowledge the current Medicaid rules regardingFederal adjustments on debts discharged through bankruptcybecause they were not relevant to the issues of thisreport. This report basically dealt with the need forMedicaid to have a priority in bankruptcies, whereas the

I .

Page 14 William

current rules cited by HCFA essentially pertain to a Staterefunding the Federal share of Medicaid overpayments madeto providers.

�  �

- *

DEPARTMENT OF HEALTH HUMAN SERVICES

MemorandumFEB

From Gail R. Ph.D. @J Administrator

Subject “Medicare and Medicaid a Priority in the of

TO

OIG Draft Report -Overpayments Providers” (A-09-90-00141)

Inspector General Office of the Secretary

We have reviewed subject draft which examines the size of potential losses for both the Medicare and Medicaid programs due to provider bankruptcies. The report reviews the current priority given to both these programs for. recovery of overpayments from bankrupt providers.

The report found that potential overpayments due from Part A

Medicare providers was approximately $106 million. A survey of 11 State programs found due from bankrupt providers to be about $41 million for 7 months during 1990-1991. Therefore, OIG has recommended that the Health Care

Administration (HCFA) direct both programs to develop periodic management information reports in order to identify write-offs due to and propose a legislative change would provide Medicare and Medicaid a priority

bankruptcy proceedings.

HCFA questions the value of proceeding with these recommendations considering of previous attempu to collect these debts, current legal requirements, and

the scope of administrative reporting systems already in place. Our specific comments on the report’s recommendations arc attached for your consideration.

Thank you for the opportunity to review and comment on this draft report. Please advise us as to whether you agree with our position on the report’s recommendations at your earliest convenience.

Attachment

APPENDIX .

- Page 2

;eneraI Comments . *

HCFA plans to implement delegations on compromising claims as a to improve the integrity of current payment activities. These delegations will streamline the process for compromising thereby increasing chances for recovery of overpayments through litigation,

OIG needs to acknowledge current Medicaid overpayment recovery rules as in section of Consolidated Omnibus Budget Reconciliation Act of 1985. Section 9512(d) prohibits adjustments in Federal payments when States are unable to recover debts representing overpayments that have discharged in bankruptcies or are Additionally, section 1903(d)(2)@) of the Social Security Act exempts a State from refunding the Federal share of an overpayment made to a provider if the overpayment is a debt that has been discharged in bankruptcy or is otherwise implementing regulations for statutory provision are found at 42 CFR 433.312(b).

The Provider Overpayment Reporting System shows that $101 million in Part A unsecured is currently due from bankrupt providers. However, the Medicare debt is partially based on deemed overpayments in amount of $54 million. A deemed overpayment represents the entire amount of Medicare funds paid to

during each cost for which the debtor failed to file adequate cost reports. Since most cases the debtors provided to beneficiaries, the amount of the outstanding debt could be substantially reduced if the debtors were to . produce records and to submit adequate cost reports.

’

‘APPENDIX’

.

.Health Care

on OIG Draft “Medicare and Medicaid Need a in of

Recommendation

That direct Medicaid to prepare management reports on receivables written off as bad debts. .

HCFA Response

Although agrees with this recommendation, we believe no additional initiatives are necessary to this recommendation.

We have already modified overpayment reporting systems to identify receivables off as bad debts from Medicare providers. will provided with this information on a quarterly basis.

Medicaid currently requires to report the Federal share of potentially recoverable and reclaimed overpayments on HCFA Forms 64 and 64.9 on a quarterly basis. These forms are returned to HCFA with supporting documentation including descriptions of reasonable efforts to obtain recovery. Regional Offices are responsible for review of these forms and supporting documentation.

We believe these actions satisfy intent of OIG’s recommendation relative to bankrupt providers.

Recommendation 2

That HCFA propose a legislative change to Federal bankruptcy law that would provide Medicare and Medicaid with a priority in provider bankruptcy proceedings.

Response

We question OIG’s estimate of accounts receivable composed of overpayments due bankrupt Medicare and Medicaid providers ($106 million and $41 million,

respectively), as well as the estimated collection percentages associated with these amounts. Even if OIG’s estimates were accurate, the total dollar amount relative to

programs on the whole may not warrant change. However, in the context of developing the Department’s annual legislative program, we will consider taking further action on this proposal.