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Audit of TRICARE Payments for Health Care Services and Equipment That Were Paid Without Maximum Allowable Reimbursement Rates DODIG-2019-112

Audit

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Publicly released: August 22, 2019

Objective

We determined whether the Defense Health Agency (DHA) paid higher prices than necessary for TRICARE health care services and equipment where it did not establish or use existing TRICARE maximum allowable reimbursement rates. A TRICARE maximum allowable reimbursement rate is the payment ceiling for reimbursement to providers.

We focused on claims for which DHA paid the amount the provider billed (paid‑as‑billed) for vaccines and contraceptive systems, such as human papillomavirus (HPV) vaccines and intrauterine devices (IUD); compression devices; oral appliances for the treatment of obstructive sleep apnea; charges for the installation of medical equipment; and costs associated with obtaining stem cells that were provided to beneficiaries in the TRICARE North, South, and West Regions in 2017. We selected those services for review because of their high claim costs.

Background

DHA, an agency under the direction of the Assistant Secretary of Defense (Health Affairs), manages the TRICARE program. TRICARE is the DoD’s managed health care program for active duty service members, retirees, and eligible family members, both in the United States and overseas. Before January 1, 2018, the TRICARE program was divided into three health care service regions in the United States—North, South, and West (referred to in our report as the three TRICARE regions). DHA awarded contracts to three contractors to manage health care support and claims processing for the three TRICARE regions.

DHA reimburses providers for medical services and equipment using TRICARE maximum allowable reimbursement rates. When TRICARE maximum allowable reimbursement rates do not exist, DHA reimburses providers for health care services and equipment based on the amount billed (paid‑as‑billed). DHA also pays as billed when the amount billed is less than the existing TRICARE maximum allowable reimbursement rates.

To determine whether DHA paid more than necessary for vaccines, contraceptive systems, durable medical equipment, and stem cell acquisition, we compared the amounts DHA paid to vaccine manufacturer pricing, reimbursement rates established by Medicare and state Medicaid programs, retail prices, and Medicare reimbursement methodologies (referred to collectively throughout this report as other pricing benchmarks).

Findings

We determined that DHA regularly paid more than other pricing benchmarks for services and equipment where it did not establish or use existing TRICARE maximum allowable reimbursement rates. Specifically, DHA paid more than other pricing benchmarks for vaccines, contraceptive systems, compression devices, oral appliances, costs associated with the installation of medical equipment, and stem cell acquisition provided to TRICARE beneficiaries in the three TRICARE regions in 2017. For example, DHA paid more than other pricing benchmarks for 70,248 of 107,953 vaccines (65 percent), and 1,341 of 5,450 contraceptive systems (25 percent).

This occurred because DHA did not:

  • use existing TRICARE maximum allowable reimbursement rates or other industry pricing benchmarks to pay TRICARE claims for vaccines and contraceptive systems;
  • identify services and equipment that were paid at prices that exceeded other pricing benchmarks;
  • define in TRICARE guidance what would constitute an excessive payment for TRICARE services and equipment, and provide instructions to its TRICARE contractors to identify and limit these charges; or
  • consistently revise TRICARE reimbursement methodology to align with Medicare reimbursement methodologies when paying for TRICARE services and equipment.

As a result, of the $18.1 million reimbursement that we reviewed, DHA paid $3.9 million more than other pricing benchmarks for vaccines and contraceptive systems provided to TRICARE beneficiaries in the three TRICARE regions in 2017. If DHA continues its current paid‑as‑billed practice, and prices and volume stay the same, we calculated that it will waste an additional $19.5 million for health care services and equipment over the next 5 years.

We also identified examples of DHA paying more than other pricing benchmarks for durable medical equipment, and costs associated with obtaining stem cells. While we were unable to quantify the total magnitude, the examples showed that DHA paid excessive prices and continues to waste funds on other services and equipment that are paid‑as‑billed.

Finally, DHA policy requires beneficiaries in certain TRICARE categories to pay cost shares for equipment. Therefore, TRICARE beneficiaries will continue to pay higher out-of-pocket costs if DHA does not establish or use existing TRICARE maximum allowable reimbursement rates.

Recommendations

We recommend that the DHA Director:

  • identify the reasons why TRICARE region contractors did not use existing TRICARE maximum allowable reimbursement rates, take immediate actions to confirm that TRICARE claims for vaccines and contraceptive systems are paid using the TRICARE maximum allowable reimbursement rates, and recoup overpayments;
     
  • determine whether TRICARE region contractors applied TRICARE maximum allowable reimbursement rates to health care services, other than just vaccines and contraceptive systems;
     
  • determine whether DHA should adopt vaccine manufacturer rates as reported by the CDC when reimbursing TRICARE claims for vaccines, and if adopted, regularly update rates to stay current with the vaccine manufacturer rates;
     
  • conduct annual reviews to identify health care services, supplies, and equipment for which TRICARE paid higher prices, and establish and implement new TRICARE maximum allowable reimbursement rates accordingly;
     
  • revise TRICARE policy to incorporate wording regarding reasonable cost and being a prudent buyer similar to the related clauses in 42 Code of Federal Regulations (CFR) 405.502 and Centers for Medicare and Medicaid Services Publication 15-1, “Provider Reimbursement Manual”;
     
  • revise TRICARE reimbursement methodologies to align with the Medicare program, and establish an annual process to identify recent changes to Medicare reimbursement methodologies; and
     
  • seek voluntary refunds from TRICARE providers where DHA paid more than other pricing benchmarks identified in this report.

Management Comments and Our Response

The DHA Director agreed with all but one of our recommendations. We consider five of the seven recommendations resolved because the response and actions described by the Director met the intent of our recommendations. There are two recommendations that we consider unresolved because management disagreed or did not fully address the intent of the recommendation.

The Director disagreed with the recommendation to seek voluntary refunds from TRICARE providers to whom DHA paid more than other pricing benchmarks identified in this report, and stated that DHA would only recoup on payments that were erroneous. The Director stated that providers would not agree to voluntary refunds without a legal basis and that voluntary refunds are not realistic or enforceable if payments were paid according to the contract. While we agree with the Director that the DHA may not be able to legally force the providers to refund the money, some providers billed as much as seven times the amount that other providers billed for the same health care equipment. As a result of a previous DoD OIG audit report with a similar recommendation, the DoD recovered $16 million from a voluntary refund by a contractor. We believe this is a similar situation, and that DHA should pursue corrective actions, including but not limited to seeking voluntary refunds of excessive payments from these providers. Therefore, we request that the Director reconsider DHA’s position and seek voluntary refunds.

In addition, while the Director agreed with the recommendation to conduct annual reviews to identify health care services, supplies, and equipment for which TRICARE paid higher prices, and establish and implement new TRICARE maximum allowable reimbursement rates accordingly, the Director’s response did not address the specifics of the recommendation. The Director stated that DHA currently conducts annual reviews of health care services that do not have maximum rates to determine whether DHA should establish rates, in accordance with Chapter 5 of the TRICARE Reimbursement Manual. However, the TRICARE Reimbursement Manual does not require DHA to conduct its own review; therefore, the Director’s response did not address the specifics of the recommendation. We request that the Director provide comments to the final report about whether DHA will perform its own reviews on claims that were paid‑as‑billed.

The DHA Director did not respond to the potential monetary benefits in the report. We request that the DHA Director provide comments on potential monetary benefits.

This report is a result of Project No. D2018-D000AW-0120.000.