In 2010, President Obama announced three goals for cutting improper Medicare payments by 2012: reducing overall payment errors by $50 billion, cutting the Medicare fee-for-service error rate in half and recovering $2 billion in improper payments.

To help achieve these goals, the Centers for Medicare & Medicaid Services has announced it will launch three demonstration programs beginning in January targeting some of the most common factors that lead to improper payments.

Recovery Audit Prepayment Review: The Recovery Audit Prepayment Review demonstration will allow Medicare recovery auditors (RACs) to review claims before they are paid to ensure that the provider complied with all Medicare payment rules. The RACs will conduct prepayment reviews on certain types of claims that historically result in high rates of improper payments.

These reviews will focus on seven states with high populations of fraud- and error-prone providers (California, Florida, Illinois, Louisiana, Michigan, New York and Texas) and four states with high claims volumes of short inpatient hospital stays (Missouri, North Carolina, Ohio and Pennsylvania). According to the CMS, this demonstration will also help lower the error rate by preventing improper payments compared with the traditional "pay and chase" methods of looking for improper payments after they have been made.

Prior Authorization for Certain Medical Equipment: The second demonstration will require prior authorization for certain medical equipment for all people with Medicare who reside in the seven aforementioned states with high populations of fraud- and error-prone providers.

According to the CMS, this demonstration represents an important step toward paying appropriately for certain medical equipment that has a high error rate. The demonstration will help ensure a beneficiary's medical condition warrants their medical equipment under existing coverage guidelines and will assist in preserving a Medicare beneficiary's right to receive quality products from accredited suppliers.

The prior authorization demonstration will be implemented in two phases. During the first phase, about three to nine months, the Medicare administrative contractors will conduct prepayment reviews on certain medical equipment claims. The second phase, spanning the remainder of this three-year demonstration, will implement prior authorization, a tool utilized by private-sector healthcare payers to prevent improper payments and deter the fraudulent provision of items or services.

Part A to Part B Rebilling: This demonstration will be limited to a representative sample of 380 hospitals nationwide that volunteer to be part of the program. It will allow hospitals to resubmit claims for 90% of the allowable Part B payment when a Medicare administrative contractor, recovery auditor or the comprehensive error rate testing contractor finds that a Medicare patient met the requirements for Part B services but did not meet the requirement for a Part A inpatient stay. Currently, when outpatient services are billed as inpatient services, the entire claim is denied in full.

In addition, this demonstration is expected to lower the appeals rate, thereby protecting the trust fund and reducing hospital burden. Beneficiaries will be held harmless with respect to changes in hospital coinsurance liability.

In May, the Department of Health and Human Services announced a pilot project under the Partnership Fund for Program Integrity Innovation to test an automated tool to screen Medicaid providers for the risk of fraud. Currently, HHS and states lack standardized Medicaid provider data and thus have a harder time detecting potential fraud. If successful, according to the CMS, this tool will help prevent improper payments by weeding out fraudulent providers and will also help states focus their resources where fraud is most likely to occur.