Medicare Update-Nov-Dec NP article

Medicare update: New system to predict fraud and abuse; psychotherapy codes under review

National Psychologist (Nov/Dec 2011) Vol. 20, No. 6, p. 3

By Paula E. Hartman-Stein, Ph.D.

            Due to increasing pressure to reduce fraud, abuse, and billing errors in its Medicare program, the Center for Medicare and Medicaid Services (CMS) announced on July 1, 2011 that Northrop Grumman Corporation, a global security firm known for its defense contract work, has been contracted to develop a predictive statistical modeling system to identify high-risk medical claims.

            The contract is for $77 million over one year with three, one-year renewal option periods.

            According to Jim Georgoulakis, Ph.D., the APA representative to the Relative Update Committee of the American Medical Association, the contractors will develop specific algorithms to detect individuals who may be over billing.

 “There is no doubt audits will not only continue but we will see more and more of the audits. It is a matter of fact.”

            Through predictive modeling, a form of data mining used by credit card companies to detect fraudulent charges, CMS can move away from the “pay and chase” model in which they paid claims first and determined potential fraud later. This new initiative will result in larger numbers of Medicare claims to be scrutinized before they are paid.

            The new algorithms will allow CMS to examine patterns to identify potential problems and assign alerts and risk scores for claims. The alerts allow CMS to assess the need for further investigation.

            CMS is not revealing what the new predictive algorithms will look like. “I think the algorithms will emphasize whether the provider is ensuring that the clinical service meets medical necessity,” Georgoulakis said.

“For example, what CMS can do is to look at how long a patient has been in treatment. If in fact you have a patient who has been treated for 3 years, you have a high probability of being asked for some records.”   

            According to Georgoulakis, if there are co-morbid conditions, the treatment must reflect the diagnosis for each session. “It is appropriate to change the diagnosis depending upon what you are doing in your treatment in that particular session.

The clinical notes must be in synch with the diagnosis on the claim form.” He said that sloppy, insufficient, or internally inconsistent documentation will make it more difficult for providers to contest the results of the predictive modeling if they are audited.

            Donna Rasin-Waters, Ph.D., President of the New York State Psychological Association, urged psychologists in a recent presentation at the APA convention to monitor the documentation in their records and develop and maintain a compliance plan.

Georgoulakis said that due to the new predictive modeling system, providers will also benefit by examining their claims for patterns and outliers that could raise a red flag for CMS.

            CMS received $100 million through the Small Business Jobs Act of 2010, and the Affordable Care Act provides $350 million over 10 years to improve anti-fraud efforts.

            Georgoulakis said that commercial payers have already put proprietary algorithms into effect to detect fraud, abuse, and overpayment of claims within the last 18 months. “The commercial payers’ definition of medical necessity is often more narrow than that used in the Medicare system. A lot of commercial payers want to see improvement in the patient in order for payment to be made. CMS has allowed payment if there is a reasonable likelihood that if the treatment is withdrawn, the person’s symptoms are likely to worsen.”

            In another Medicare update, Georgoulakis said that psychotherapy codes are currently under review by the AMA. “It will be a while before we know what they look like.

They must reflect the practice of today.”  Georgoulakis said the coding changes are not likely to occur before 2013.

“We are going to have really exciting times ahead in terms of coding and

reimbursement changes,” he said.


Paula Hartman-Stein has a clinical and consulting practice in Kent, Ohio. She is a member of the Medicare Evidence Development and Coverage Advisory Committee to CMS and is co-editor of a new book, Cognitive Fitness in Adults. She may be reached through her website,