Office of the Inspector General
Larry G. Massanari
Acting Commissioner of Social Security

Inspector General

Fees Paid by State Disability Determination Services to Purchase Consultative Examinations (A-07-99-21004)

The attached final report presents the results of our audit. Our objectives were to review the fees paid by State Disability Determination Services to purchase consultative examinations and to compare those fees to Medicare fees for the same or similar type of service.

Please comment within 60 days from the date of this memorandum on corrective action taken or planned on each recommendation. If you wish to discuss the final report, please call me or have your staff contact Steven L. Schaeffer, Assistant Inspector General of Audit, at (410) 965-9700.

James G. Huse, Jr.

Executive Summary

Our objectives were to review the fees paid by State Disability Determination Services (DDS) to purchase consultative examinations (CE) and to compare those fees to Medicare fees for the same or similar type of service.

Each State’s DDS performs disability determinations under the Social Security Administration’s (SSA) Disability Insurance (DI) and Supplemental Security Income (SSI) programs in accordance with Federal regulations. DDSs are responsible for obtaining adequate medical evidence to support disability determinations. In doing so, DDSs may purchase CEs to supplement the medical evidence of record obtained from claimants’ treating sources. CEs may include medical and psychological examinations, x-rays, and laboratory tests.

The Department of Health and Human Services (HHS), Centers for Medicare and Medicaid Services (CMS), administers the Medicare program. Medicare provides health insurance to approximately 39 million Americans including people who are age 65 and over, those who have permanent kidney failure, and certain people with disabilities. Medicare is the largest single purchaser of medical services in the world.

Medicare reimburses health care providers for medical services based on fees adjusted for geographical differences in costs. This adjustment allows for the establishment of individual State Medicare fee schedules for medical examinations, laboratory tests, and radiological services within each State. CMS updates the Medicare fee schedules annually to account for changes in medical practice.

Our audit disclosed that SSA had limited involvement in establishing the fees paid by State DDSs to purchase CEs. Federal regulations allow each DDS to establish its rate of payment for purchasing CEs. The rates may not exceed the highest rate paid by Federal or other agencies in the State for the same or similar type of service.

Our audit focused on controlling the costs of individual CEs by limiting payment amounts for CEs to Medicare fees. For five DDSs (Illinois, Kansas, Iowa, Wisconsin, and Delaware), we identified the CEs that accounted for 75 percent of the total dollars expended by the DDSs during Calendar Year (CY) 1998 for non-psychological CEs. For these 91,122 CEs, we compared the DDS’ CE payment amounts to Medicare’s fees for the same or similar service. For 66,220 of the 91,122 CEs, our audit disclosed that the DDS’ fees exceeded Medicare fees by approximately $2.4 million. The Illinois DDS accounted for $2 million of these potential savings. For 24,902 of the 91,122 CEs analyzed, the DDS’ fees were $317,389 less than Medicare fees. We commend the DDSs for purchasing these CEs at fees less than those allowed by Medicare. The DDSs should continue their efforts to negotiate with medical providers to obtain the lowest prices available for CEs.

Our audit also disclosed that the DDS’ ability to provide SSA with management data related to CEs varies. The variance exists because DDSs use different computer systems to collect CE data and SSA has not provided DDSs with uniform requirements for CE data collection. Furthermore, the use of non-uniform CE coding systems by DDSs affects their ability to provide SSA with essential management information.

Unless SSA adopts a standardized coding system, such as the American Medical Association’s (AMA) coding system adopted by Medicare, its ability to obtain CEs electronically may be hindered. This will significantly affect SSA’s plan for implementing the electronic disability folder. The intent of the electronic folder is to move to a totally paperless process where all disability claims information, including CEs, is electronically received and stored.

SSA is projecting that disabled beneficiaries will increase to as many as 9.5 million in the next 10 years. As the volume of disability claims increases, controlling the fees paid for CEs will become increasingly important. In FY 2000, SSA recognized the need to control CE costs, initiated changes to decrease these costs, and reported that the CE purchase rate dropped by 2.2 percent. Because of the drop in the CE purchase rate, total medical costs dropped by approximately $2 per case. This represented overall savings in medical costs of $6 million. While SSA has made progress in controlling overall medical costs, there is still an opportunity for additional medical cost savings, and consequently, a need still exists to control the costs of individual CEs.

Our audit shows that SSA could reduce the costs of individual CEs by requiring DDSs to limit CE payment amounts to Medicare fees. Because the medical services provided for Medicare and DDSs are the same or very similar, we found no reason for DDSs to reimburse medical providers at fees higher than those allowed by Medicare.

To help control CE costs, we recommend that SSA:

• Conduct a CE fee study at DDSs with annual CE expenditures of approximately
  $10 million or more. The study should identify whether the potential cost savings at the Illinois DDS are representative of other DDSs with comparable CE expenditures and how the use of Medicare fees would affect the DDS’ ability to obtain CEs. If the study identifies similar cost savings and proves that the use of Medicare fees will not adversely affect the disability programs, SSA should seek legislation requiring DDSs to use Medicare fees as the limiting CE payment amount.

• Improve its oversight of the DDS CE process by: (a) developing uniform CE data collection requirements for DDSs; (b) performing periodic evaluations of CE data collection processes at DDSs to develop best practices; and (c) encouraging DDSs to adopt the AMA’s coding system for CEs.

In response to our draft report, SSA agreed with both of our recommendations. However, SSA disagreed with our assertion that medical services provided for Medicare and DDSs are the same or very similar and that there is no reason for DDSs to reimburse medical providers at fees higher than those allowed by Medicare. (See Appendix D for the full text of SSA's comments to our report.)

In its comments, SSA noted four reasons to support DDSs reimbursing medical providers at fees higher than those allowed by Medicare. As part of the CE fee study that SSA has agreed to conduct, the Agency should be able to determine how the use of Medicare fees would affect DDSs’ ability to obtain CEs and whether valid reasons do exist for reimbursing medical providers at fees higher than those allowed by Medicare.

Table of Contents

APPENDIX B – DDS Average CE Cost Per Disability Claim for FY’s 1994 through 1998

APPENDIX D – Agency Comments

APPENDIX E – OIG Contacts and Staff Acknowledgments

Acronyms

Introduction

Our objectives were to review the fees paid by State Disability Determination Services (DDS) to purchase consultative examinations (CE) and to compare those fees to Medicare fees for the same or similar type of service.

The Department of Health and Human Services (HHS), Centers for Medicare and Medicaid Services (CMS) administers the Medicare program. Medicare provides health insurance to approximately 39 million Americans including people who are age 65 and over, those who have permanent kidney failure, and certain people with disabilities. Medicare is the largest single purchaser of medical services in the world.

In January 1992, Medicare began a new payment system for physicians’ services. This new payment system was in response to a rapid escalation of medical costs, and was implemented to provide equity and consistency in payments to all physicians. Medicare’s payment system reimburses health care providers for medical services based on fees adjusted for geographical differences in costs. This adjustment allows for the establishment of individual State Medicare fee schedules for medical examinations, laboratory tests, and radiological services within each State. CMS updates the Medicare fee schedules annually to account for changes in medical practice.

To accomplish our objectives we:

• Reviewed pertinent sections of the Social Security Act, the Code of Federal Regulations, and SSA’s Program Operations Manual System;

• Reviewed the American Medical Association’s (AMA) Physicians’ Current Procedural Terminology (CPT) 1998 Handbook, SSA’s Disability Evaluation Under Social Security, and SSA’s CE Guide for Health Professionals;

• Gained an understanding of Medicare’s payment system for reimbursing health care providers for medical services;

• Randomly selected 10 DDSs for on-site field work and obtained electronic data files of CE payments made during Calendar Year (CY) 1998 (see Appendix A);

• Analyzed CE cost information for the 54 DDSs for Fiscal Years (FY) 1994 through 1998 obtained from SSA’s Office of Disability (OD) (see Appendix B);

• Obtained the individual State Medicare fee schedules for CY 1998 for the
  10 randomly selected State DDSs;

• Compared CE payment amounts in the electronic data files obtained from the
  10 DDSs to the CE payment amounts reported to SSA on the Report of Obligations (Form SSA-4513) to validate the completeness of the data;

• Compared CE payments made by 5 of the 10 randomly selected DDSs to Medicare fee schedules (see Appendix C); and

• Administered a questionnaire to the 48 continental United States DDSs to obtain information on CE fees.

We conducted our audit field work between March 1999 and March 2001 in Kansas City, Missouri. The entities reviewed were the State DDSs and OD under the Deputy Commissioner for Disability and Income Security Programs. We conducted our audit in accordance with generally accepted government auditing standards.

Results of Review

Our audit disclosed that SSA had limited involvement in establishing the fees paid by State DDSs to purchase CEs. Federal regulations allow each DDS to establish its rate of payment for CEs. We found that SSA could reduce the costs of individual CEs by requiring DDSs to limit CE payment amounts to Medicare fees. In fact, during CY 1998, SSA could have saved approximately $2.4 million if they had used Medicare’s fees as the limiting CE payment amount.

Our audit also disclosed that the DDS’ ability to provide SSA with management data related to CEs varies. The variance exists because DDSs use different computer systems to collect CE data and SSA has not provided DDSs with uniform requirements for CE data collection. Furthermore, the use of non-uniform CE coding systems by DDSs affects their ability to provide SSA with essential management information.

A DDS’s rate of payment for a CE may not exceed the highest rate paid by the Federal or other agencies in the State for the same or similar types of service. We administered a questionnaire to the 48 continental United States DDSs to find out how they derive their CE fees. We found that DDSs use various and multiple sources when establishing CE fees.

• Twenty-five percent of DDSs use some CE fees established by Medicaid.

• Thirty-nine percent of DDSs use some CE fees established by Medicare.

• Fifty-two percent of DDSs use some CE fees established by their parent State agency.

• Thirty-three percent of DDSs pay usual and customary charges for some CEs.

SSA has experienced increased CE costs over the past several years. From FY 1994 to FY 1998, the average CE cost per claim increased by approximately 14 percent.

We found that 45 of the 54 DDSs experienced increased CE costs from FY 1994 to FY 1998. We requested 15 of the 45 DDSs to explain why CE costs increased. We selected these DDSs because their average CE costs rose by twice the amount of the national average. The DDSs attributed increased CE costs to various reasons including:

• Increased CE fees;

• Increased continuing disability reviews which resulted in additional CEs;

• Increased SSI claims which require additional CEs;

• Additional multiple impairments alleged on claims which require more CE purchases;

• High DDS examiner attrition rates resulting in less-experienced examiners who request more CEs.

For five DDSs, we examined 91,122 CEs accounting for 75 percent of the total CE dollars expended for non-psychological examinations by the DDSs during CY 1998. For these 91,122 CEs, we compared the DDS’ payment for the CEs to Medicare fees for the same or similar service. For 66,220 of the 91,122 CEs, the DDS’ fees exceeded Medicare fees by $2.4 million. Therefore, SSA could have saved approximately $2.4 million by using Medicare fees as the limiting payment amount (see Appendix C).

For 24,902 of the 91,122 CEs, the DDS’ fees were $317,389 less than Medicare fees (see Appendix C). We commend the DDSs for purchasing these CEs at fees less than those allowed by Medicare. The DDSs should continue their efforts at negotiating with medical providers to obtain the lowest price for CEs.

Our analysis of CE expenditures at the five DDSs showed that SSA could have saved $2.4 million during CY 1998 by using Medicare fees as the limiting payment amount. The Illinois DDS accounted for $2 million of these potential savings. The potential cost savings at the Illinois DDS may be greater because the DDS pays an additional fee to obtain the written report of the CEs. During CY 1998, the DDS paid approximately $1.6 million for CE reports.

The Illinois DDS was the only DDS in our analysis with CE expenditures that exceeded $10 million during CY 1998. Given the significance of the potential cost savings we identified at the Illinois DDS, the SSA should determine whether similar cost savings could be realized at DDSs with comparable CE expenditures. SSA should also determine how the use of Medicare fees would affect its disability programs. This audit did not determine the impact that the use of Medicare fees as the limiting CE payment amount would have on the DDS’ ability to obtain CEs.

Because the medical services provided for Medicare and DDSs are the same or very similar, we found no reason for DDSs to reimburse medical providers at fees higher than those allowed by Medicare. The one notable difference we found related to DDSs requesting information from CE providers in addition to the results of the CE. For example, DDSs will ordinarily request from CE providers a statement on the claimant’s ability to perform work-related activities as well as other written reports on specific questions. DDSs use this statement to assist in making a residual functional capacity determination. Medicare does not require this statement; therefore, it is not part of Medicare fees. As such, DDSs should provide reasonable compensation to the CE provider for completing the statement. If Medicare fees are adopted by DDSs as the limiting CE payment amount, SSA should consider compensating medical providers for information requested in addition to the results of the CE separately from the cost of the CE. This would allow SSA to monitor the cost and benefit of the additional documentation requirements, while allowing comparability to Medicare for the specific CE requested. Since the DDSs’ do not identify the cost of the additional documentation separately, we could not determine what impact, if any, such costs might have on the results of our testing.

Our audit disclosed that the DDS’ ability to provide SSA with management data related to CEs varies. This variance exists because DDSs use different computer systems to collect CE data and SSA has not provided DDSs with uniform requirements for CE data collection. Furthermore, the use of non-uniform CE coding systems by DDSs affects their ability to provide SSA with essential management information.

SSA has not provided DDSs with uniform CE data collection requirements. As such, DDSs choose what information is collected resulting in inconsistent information being collected at DDSs. For example, during our review of 10 randomly selected DDSs, we found 3 DDSs were unable to provide information for individual CE costs (See Appendix A). This occurred because the DDSs batch multiple CEs for a claimant into one record, with a single CE cost recorded. Therefore, we question how, or if, the DDSs and SSA determine whether individual CEs are routinely purchased for more than the established CE fee.

The DDSs use different coding systems to identify CEs. Adoption of a standardized CE coding system, like the AMA coding system used by Medicare, would improve SSA’s and the DDSs’ ability to monitor CE costs and provide a mechanism for comparison against fees paid by other government agencies. Presently, approximately 65 percent of the continental United States DDSs use the AMA coding system to some extent.

The Health Insurance Portability and Accountability Act of 1996, required HHS to adopt national standards for Electronic Data Interchange (EDI) formats for health care information transactions, as well as code sets for use in those transactions. Code set means any set of codes used for encoding data elements, such as tables of terms, medical concepts, medical diagnosis codes, or medical procedure codes.

Unless SSA adopts a standardized coding system, such as the AMA coding system adopted by Medicare, SSA’s ability to obtain CEs electronically may be hindered. This will significantly affect SSA’s plan for the electronic disability folder. The intent of the electronic folder is to move to a totally paperless process where all disability claims information, including CEs, is electronically received and stored. Furthermore, SSA’s adoption of the health care industry’s standards for electronic transactions, including the AMA coding system, would improve its ability to obtain management data on the CE process.

Conclusions and Recommendations

SSA projects that disability beneficiaries will increase to as many as 9.5 million in the next 10 years. As the volume of disability claims increases, controlling the fees paid for CEs will become increasingly important. In FY 2000, SSA recognized the need to control CE costs, initiated changes to decrease these costs, and reported that the CE purchase rate dropped by 2.2 percent. Because of the drop in the CE purchase rate, total medical costs dropped by approximately $2 per case. This represented overall savings in medical costs of $6 million. While SSA made progress in reducing overall medical costs, a need still exists to control the costs of individual CEs.

Our review shows that SSA could reduce the costs of individual CEs by requiring DDSs to limit CE payment amounts to Medicare fees. Because the medical services provided for Medicare and DDSs are the same or very similar, we found no reason for DDSs to reimburse medical providers at fees higher than those allowed by Medicare.

Furthermore, SSA may not be able to obtain CEs electronically from medical providers unless it adopts a uniform CE coding system such as the AMA coding system adopted by Medicare. A uniform CE coding system used by all DDSs will become increasingly important for SSA oversight of the disability determination process. DDS utilization of electronic transmission standards would provide many benefits, such as:

• Allowing DDSs to obtain medical information faster and more cost efficiently;

• Assisting in SSA’s migration to a paperless environment; and

• Allowing easier comparison of DDS CE rates to the Medicare rates paid for similar services.

To help control CE costs, we recommend that SSA:

1. Conduct a CE fee study at DDSs with annual CE expenditures of approximately
   $10 million or more. The study should identify whether the potential cost savings at the Illinois DDS are representative of other DDSs with comparable CE expenditures and how the use of Medicare fees would affect DDS’ ability to obtain CEs. If the study identifies similar cost savings and proves that the use of Medicare fees will not adversely affect the disability programs, SSA should seek legislation requiring DDSs to use Medicare fees as the limiting CE payment amount.
2. Improve its oversight of the DDS CE process by: (a) developing uniform CE data collection requirements for DDSs; (b) performing periodic evaluations of CE data collection processes at DDSs to develop best practices; and (c) encouraging DDSs to adopt the AMA’s coding system for CEs.

In response to our draft report, SSA agreed with both of our recommendations. However, SSA disagreed with our assertion that medical services provided for Medicare and DDSs are the same or very similar and that there is no reason for DDSs to reimburse medical providers at fees higher than those allowed by Medicare. (See Appendix D for the full text of SSA's comments to our report.)

In its comments, SSA noted four reasons to support DDSs reimbursing medical providers at fees higher than those allowed by Medicare. As part of the CE fee study that SSA has agreed to conduct, the Agency should be able to determine how the use of Medicare fees would affect DDSs’ ability to obtain CEs and whether valid reasons do exist for reimbursing medical providers at fees higher than those allowed by Medicare.

Appendices

Sampling Methodology and Data Analysis

To complete our objectives, we randomly selected 10 Disability Determination Services (DDS) to provide electronic data of consultative examination (CE) payments issued during the period of January 1, 1998, through December 31, 1998. The 10 DDSs were Arizona, Delaware, Illinois, Massachusetts, New York, North Carolina, South Dakota, Tennessee, Virginia, and Wisconsin.

We dropped 4 of the 10 randomly selected DDSs from the review. We dropped the New York and Tennessee DDSs from our review because of their participation in recent Social Security Administration (SSA), Office of the Inspector General audits. The South Dakota DDS was dropped because it could not provide electronic data files. The Arizona DDS was dropped because it could not electronically provide all data elements required for our audit. We replaced these four DDSs with the Iowa, Utah, Oklahoma, and Kansas DDSs.

Accordingly, we obtained electronic data on CE payments from the Delaware, Illinois, Iowa, Kansas, Massachusetts, North Carolina, Oklahoma, Utah, Virginia, and Wisconsin DDSs. However, additional difficulties with the electronic data resulted in our inability to use files received from the Massachusetts, North Carolina, Oklahoma, Utah, and Virginia DDSs. The files received from the Massachusetts and Virginia DDSs were not complete files of all CE payments. The North Carolina, Oklahoma and Utah DDSs batch CE payments and we were unable to identify individual CE payments.

We concentrated our review on CE payments for non-psychological examinations. We identified the DDS’s Current Procedural Terminology (CPT) codes that represented non-psychological examinations. We then selected the CPT codes with the most expenditures until we reached 75 percent of the individual DDS’s total expenditures for non-psychological CEs.

Although Medicare uses the American Medical Association’s (AMA) CPT coding system, DDSs are not required to code CEs using this standard. As a result, to compare DDS and Medicare fees, the CPT codes used by DDSs had to be cross-walked to the applicable AMA CPT. We contacted each DDS for assistance in cross-walking the codes we selected for our review.

Using the AMA CPT codes provided by the DDS, we determined the maximum Medicare fee amounts. We also calculated the average amount the DDSs paid for CEs for each of the CPT codes included. We then compared this average to the maximum Medicare fee amount, and calculated any differences. Next, we multiplied the difference by the number of CEs the DDS purchased. This resulted in the amount the DDS would have saved if they had purchased CEs using the Medicare fee schedule amount (see Appendix C).

Disability Determination Services (DDS) Calendar Year 1998 Consultative Examination (CE) Cost Comparison to Medicare

Table C-2: Average CE Fees Paid by Five DDSs that were Below Medicare’s Fees

Agency Comments

OIG Contacts and Staff Acknowledgments

In addition to those named above:

Ronald Bussell, Lead Auditor
Kenneth Bennett, Auditor