Electronic Medicare Cards Could Reduce Fraud, Improve Care

Electronically readable Medicare cards could reduce fraud while improving administrative efficiency and increasing access to care, according to a recent report from the Government Accountability Office (GAO). But reluctance on the part of the government agency responsible for administering the Medicare program may limit these potential benefits.

The GAO report, released in April, discusses electronic benefit cards’ potential to improve efficiency in the Medicare program, which the GAO has categorized as being at “high risk” for fraud, waste, and abuse since 1990. The GAO predicts the cards may reduce some common types of Medicare fraud, including identity theft and providers billing for patients they never treated.

Medicare currently uses paper cards that display the beneficiary’s name, Medicare number, eligibility status, and Social Security number. Providers use this information to verify eligibility and submit claims for payment. The GAO says the Centers for Medicare and Medicaid Services (CMS), which administers Medicare, could “use records of the [electronic] cards being swiped to verify that [beneficiaries and providers] were present at the point of care” instead of relying on providers for authentication.

The proposed electronic cards also would not display Social Security numbers–a change that policymakers and the GAO have previously encouraged CMS to implement for the existing paper cards. This could protect beneficiaries from identity theft that often leads to Medicare fraud.

The GAO also recommends attaching PIN numbers or biometric identity requirements to the cards, which would make it more difficult for people to use lost or stolen cards.

Fraud has contributed significantly to Medicare’s fiscal problems, the GAO report says, but policymakers have struggled to find workable solutions. Several pieces of legislation proposing smart card pilot programs were introduced in Congress in recent years, but none of these proposals have come to fruition. CMS has ramped up its efforts to investigate and prosecute Medicare fraud, but the agency “has not made a determination that a higher level of beneficiary and provider authentication is needed.” Additionally, CMS has implemented provisions of the Patient Protection and Affordable Care Act (“Obamacare”) calling for more rigorous provider screening procedures. However, the GAO reports from the last few years have concluded that the government could be doing more to curtail Medicare abuse.

Despite CMS’ efforts at combating fraud, improper Medicare payments have increased substantially. The GAO recently reported that the federal government made approximately $60 billion in improper Medicare payments in 2014–up from $48 billion in 2010–representing about 10% of total Medicare spending that year. In comparison, the second most significant contributor to improper payments in 2014 was the earned income tax credit, which accounted for almost $18 billion.

The GAO is unable to estimate what portion of these improper payments might be attributable to each specific type of Medicare fraud. It is therefore impossible to determine precisely the savings from the implementation of electronic medical cards, because these cards can only protect against certain types of fraud–for example, identity theft and providers billing for patients they never treated at all. The cards are unlikely to impact other types of fraud that are unrelated to authentication, such as mischaracterization of services, billing for medically unnecessary services, or kickback cases where beneficiaries allow their cards to be misused.

CMS would have to update its claims processing technology and card management mechanisms if it wishes to take full advantage of an electronic card system. This may present problems for an agency not known for employing state-of-the-art information technology systems. The GAO has been critical of CMS’ technology systems since as early as 2001. CMS has admitted that its computer system is in need of modernization, but has been slow to implement meaningful change. In 2010, the agency developed a plan to upgrade its system, noting that modernization was “necessary in order for CMS to continue to meet its mission.”

Additionally, CMS has said it would continue to pay claims regardless of whether an electronic card was used, which the GAO speculates might reduce the cards’ ability to combat fraud. CMS has raised concerns that refusing to pay claims in the absence of a card swipe might be a barrier to care, since it would make access to benefits dependent upon patients having their cards at the point of care. CMS officials have noted that the agency could use electronic cards along with its existing technologies, which are designed to flag providers with suspicious billing patterns, to identify providers who submit an “abnormally high percentage of claims in which cards are not used,” and reduce this risk of fraud.

There are three types of electronic cards that could be used for Medicare: magnetic stripe cards, bar code cards, and “smart” cards containing microprocessor chips. All three can be used for authentication and information storage purposes, but the GAO considers magnetic and bar code cards to be less effective because they are more susceptible to counterfeiting. Smart cards, which the GAO reports have been used in France and Germany since the 1990s, are more secure and “provide higher levels of authentication.”

Smart card industry representatives advocate for electronic cards, arguing that if CMS had more assurance of legitimacy in claims where cards were used, this could free up government resources for investigating claims where cards were not used.

In addition to fraud prevention, electronic cards have the potential to improve quality of care by facilitating electronic exchange of beneficiary medical information. The cards could be used to store and exchange electronic health records, as well as provide information about allergies and medical conditions. They could improve provider record-keeping by allowing providers to capture beneficiary information electronically.

The cards also have potential administrative benefits. The GAO predicts improvements in CMS’ administrative processes, such as improved record-keeping and fewer errors in the reimbursement process.