1 
 
OIGS FY 2015 TOP MANAGEMENT AND PERFORMANCE CHALLENGES 
FACING THE DEPARTMENT OF HEALTH AND HUMAN SERVICES 
Management Challenge 1:  Protecting an Expanding Medicaid Program  
from Fraud, Waste, and Abuse 
Why This Is a Challenge 
Protecting the integrity of Medicaid takes on heightened urgency as expenditures and beneficiaries 
served continue to grow.  As of September 2015, 29 states and the District of Columbia are expanding 
Medicaid eligibility to include a larger group of qualifying adults pursuant to the Patient Protection and 
Affordable Care Act (Affordable Care Act) and Medicaid waivers.  Further, states that have not expanded 
eligibility have also seen increases in Medicaid enrollment.  Taking into account the obstacles associated 
with expanding eligibility, along with long-standing program integrity issues, Medicaid continues to be a 
top management challenge for the Department of Health and Human Services (Department or HHS).   
Expansion of Medicaid Eligibility.  As of August 2015, the Centers for Medicare & Medicaid Services 
(CMS) reported that enrollment in Medicaid and the Children's Health Insurance Program (CHIP) had 
increased by 13.6 million people since Affordable Care Act-expanded eligibility criteria went into effect 
in October 2013.  To ensure effective management of the expanding program, updating eligibility 
systems to ensure appropriate eligibility determinations and applicable Federal Medical Assistance 
Percentage (FMAP) is imperative.  A main source of Medicaids 6.7 percent improper payment rate (as 
reported in fiscal year (FY) 2014) is attributed to payments made on behalf of ineligible individuals.  (For 
more information on improper payments, see Management Challenge 4.)  For example, eligibility errors 
occur when beneficiaries lose eligibility status because they are no longer residents of the state and/or 
failed to report a change in circumstances but remain enrolled in a states Medicaid program.  The Public 
Assistance Reporting Information System (PARIS) Medicaid Interstate Match program was designed to 
reduce these errors by identifying beneficiaries who are enrolled in multiple state Medicaid programs, 
but state participation in the match is limited and its effectiveness in reducing improper payments is 
inconsistent.  
Improving Oversight of Medicaid Managed Care.  As of 2011, approximately 75 percent of Medicaid 
beneficiaries nationwide are enrolled in managed care.  To be effective, oversight must include robust 
program integrity measures, have and use accurate and timely data, and ensure that beneficiaries have 
sufficient access to services.  In a December 2011 report, the Office of Inspector General (OIG) found 
that the predominant program integrity concerns of both states and plans are provider fraud  billing for 
services that were not provided, were medically unnecessary, or upcoded  and beneficiary fraud  
including prescription drug abuse.  Fraud or abuse by managed care plans themselves, such as 
manipulating bids to increase reimbursement, also pose program integrity challenges.  States are 
required to collect and submit encounter data that document the managed care services that 
beneficiaries receive, but some states do not submit any data and others do not submit all of the 
required data elements.  As a result, CMS does not have the data necessary to identify and address 
possible fraud, waste, and abuse.  Further, OIG has identified issues that may impede beneficiaries  2 
 
access to care, including limited appointment availability and varying state standards for access (e.g., 
states range from requiring one primary care provider for every 100 to 2,500 enrollees.). 
Improving the Effectiveness of Medicaid Data and Systems.  A functional, national Medicaid database is 
essential to effective oversight.  However, national Medicaid data are not complete, accurate, or timely, 
and additional data are needed to enhance national program integrity activities.  CMS still faces 
challenges in its attempts to improve the availability and quality of Medicaid data.  Limited 
implementation by states has hindered CMSs Transformed Medicaid Statistical Information System (T-
MSIS) initiative, which is CMSs key effort to modernize and enhance the usefulness of state Medicaid 
data.  Other CMS attempts to improve data sharing between states have not been fully successful.  For 
example, CMS established a data-sharing system to implement the Affordable Care Act requirement that 
providers terminated for cause (i.e., for reasons of fraud, integrity, or quality) in one state Medicaid 
program, CHIP, or that have had their Medicare billing privileges revoked are terminated by all other 
state Medicaid programs.  However, data within that system was often incomplete and did not provide 
useful information to states in order to carry out the Affordable Care Act requirement for terminating 
providers.  OIG work found 12 percent of providers terminated for cause in one state Medicaid program 
in 2011 were still participating in other states Medicaid programs as of January 2014.  (For more 
information on data systems and information, see Management Challenge 3.) 
State Policies That Inflate Federal Costs.  Long-standing concerns exist about states' Medicaid policies 
that result in the federal government paying a greater share of Medicaid costs than the FMAP 
percentages dictate.  Misalignment of costs and payments at certain state-operated facilities can inflate 
federal costs.  For example, New York Medicaid payments to state-run developmental centers were 
inflated by more than $1 billion in FY 2009.  In another example, Pennsylvania used a state tax on 
Medicaid managed care plans to draw down almost $1 billion in federal funds over a three-year period.  
Additionally, the lack of transparency related to state waiver programs present challenges to ensure that 
payments are consistent with efficiency, economy, and quality of care, and do not improperly inflate 
federal costs.  The Government Accountability Office (GAO) has found that CMSs approval process for 
section 1115 waivers may increase federal costs, in part, because it is not clear how CMS determines 
whether a waiver is budget neutral.1 
Ensuring Quality Care for Medicaid Beneficiaries.  OIG work has demonstrated that children enrolled in 
Medicaid do not receive all required preventive screenings and has identified quality-of-care concerns 
regarding childrens treatment with antipsychotic drugs.  Some of the quality-of-care concerns included 
poor monitoring of the childrens treatment with drugs, children being prescribed the wrong treatment, 
and children taking too many drugs.  Furthermore, OIG has identified significant and persistent 
vulnerabilities related to Medicaid personal care services, which often includes ineffective program 
safeguards intended to ensure medical necessity, patient safety, and quality.  (For more information on 
ensuring quality in nursing home, hospice, and home-and community-based care, see Management 
Challenge 6).  
   
                                                           
1 GAO, Medicaid Demonstrations: More Transparency and Accountability for Approved Spending are Needed, June 
24, 2015  (http://www.gao.gov/products/GAO-15-715T)  3 
 
Progress in Addressing the Challenge 
CMS is working to promote Medicaid expansion program integrity by providing technical assistance to 
the states, developing new procedures on eligibility determination and payment accuracy, and training 
state staff on reporting and accounting for expenditures of newly eligible individuals.  For FYs 2014- 
2017, CMS required each state to implement an annual 50-State Medicaid and CHIP Eligibility Review 
Pilot program strategy.   
If implemented, CMSs June 2015 Notice of Proposed Rulemaking (NPRM), which revises its Medicaid 
managed care regulations, may address several identified issues, including requirements for providers 
participating in Medicaid managed care to enroll in Medicaid, new standards for beneficiary access, 
more timely, complete and accurate submission of managed care encounter data to states, and 
increased safeguards against fraud, waste, and abuse.  CMS also reports that it has updated its guidance 
on program integrity in Medicaid managed care.  
CMS reports that it continues to improve its data and technology capabilities.  In May 2015, CMS 
implemented T-MSIS with the first state.  CMS reports that states are fully engaged in the transition 
from the Medicaid Statistical Information System (MSIS) to T-MSIS, which includes a CMS-led process to 
test implementation to address data gaps and other issues.  However, CMS has not indicated when all 
states will be submitting T-MSIS data.  CMS has also issued a NPRM to permit partial disallowance or 
deferral of Medicaid Management Information System (MMIS) expenditures if a state fails to produce all 
federally required program management data and information, including T-MSIS.    
In response to the Affordable Care Act requirement regarding provider terminations, CMS reported that 
it implemented a new Medicaid provider termination notification system (TIBCO) in 2014.  Under this 
new system, CMS reports that it is verifying state-submitted provider termination data before the data is 
made available to other states through TIBCO.   
CMS is continuing to work with states to curb policies that inflate federal costs.  CMS has approved a 
State Plan Amendment and entered into a $1.9 billion settlement with New York for the state to repay 
amounts associated with inflated costs for state-run developmental centers and other related costs.  
Finally, CMS issued a letter to state health officials on the treatment of health care-related taxes and 
their effect on federal matching funding.   
In response to OIGs work, CMS reported that it plans to work with states to monitor the use of 
antipsychotic drugs, implement additional quality measures related to treatment of children with 
antipsychotic drugs, and encourage states to request their managed care programs to address quality-
of-care concerns by conducting periodic reviews of medical records of children treated with 
antipsychotic drugs.  CMS also reported that it has disseminated two strategy guides on required 
preventive screenings to states and providers, began developing a quality measure specific to vision 
screenings, held listening sessions with states, and provided training related to federal Early and Periodic 
Screening, Diagnosis, and Treatment (EPSDT).  CMS reported that it performed state-specific program 
integrity reviews, one of which focused on curbing fraud and abuse in personal care services.   
    4 
 
What Needs To Be Done 
CMS should continue to develop robust oversight for the Medicaid expansion.  CMS must be vigilant in 
addressing program integrity risks associated with Medicaid expansion, including monitoring states' 
compliance with eligibility requirements and FMAP expenditures.  
CMS should continue to work with states to ensure the submission of complete, accurate, and timely T-
MSIS data.  If states fail to submit timely T-MSIS data, CMS should use its statutory enforcement 
mechanisms or seek legislative authority to employ alternative tools to compel state participation.  OIG 
is conducting work regarding CMSs and states progress in implementing T-MSIS.     
CMS should continue to improve the data available for states to terminate providers terminated from 
another state Medicaid agency, CHIP, or Medicare by implementing a mandatory state reporting 
requirement of all for cause provider terminations.  Required reporting is a crucial part of creating a 
comprehensive data source and effective oversight.   
CMS should strengthen its oversight of state Medicaid waivers, including monitoring the costs of such 
waivers, and ensure that any oversight actions taken are publicly reported.  
CMS should continue to promote awareness of safe treatment and best practices for treating children 
with antipsychotic drugs and consider ways that states could implement periodic reviews of medical 
records of children who receive antipsychotic drugs.  CMS should also continue its efforts to improve 
delivery of preventive screenings for children, particularly on required reporting of vision and hearing 
screenings.  
Key OIG Resources 
  OIG Testimony, Examining the Federal Government's Failure to Curb Wasteful State Medicaid 
Financing Schemes, July 2014  (http://oversight.house.gov/wp-content/uploads/2014/07/Hagg-HHS-
OIG-Final.pdf) 
  OIG Report, CMSs Process for Sharing Information About Terminated Providers Needs 
Improvement, March 2014  (http://oig.hhs.gov/oei/reports/oei-06-12-00031.pdf) 
  OIG Reports on Medicaid data and systems, OEI-09-11-00780 (http://oig.hhs.gov/oei/reports/oei-
09-11-00780.pdf),  OEI-05-12-00610  (http://oig.hhs.gov/oei/reports/oei-05-12-00610.pdf)  
  OIG Reports on Medicaid managed care, OEI-01-09-00550  (http://oig.hhs.gov/oei/reports/oei-01-
09-00550.pdf), OEI-02-11-00320  (http://oig.hhs.gov/oei/reports/oei-02-11-00320.pdf) 
  OIG Reports on Medicaid quality of care, OEI-05-13-00690  (http://oig.hhs.gov/oei/reports/oei-05-
13-00690.pdf), OEI-07-12-00320  (http://oig.hhs.gov/oei/reports/oei-07-12-00320.pdf) 
Management Challenge 2:  Fighting Fraud, Waste, and Abuse in  
Medicare Parts A and B 
Why This Is a Challenge 
To secure the future of health care for Medicare beneficiaries, the Department must be vigilant in 
reducing wasteful spending and promoting better health outcomes at lower costs.  The Institute of 
Medicine estimated that 30 percent of U.S. health spending (public and private) in 2009  roughly $750  5 
 
billion  was wasted on unnecessary services, excessive administrative costs, fraud, and other 
problems.2  Waste in health care programs is a multidimensional problem.  HHS faces challengesand 
opportunitiesin each of the key areas of focus addressed below.  
Reducing Improper Payments.  CMS reported an improper payment rate of 12.7 percent for Medicare 
fee for service (Parts A and B), corresponding to an estimated $45.8 billion in improper payments in FY 
2014.  This measure includes payments for unnecessary services, billing or coding errors, and payments 
for claims that did not meet documentation or other Medicare coverage requirements.  (For more 
information on improper payment rate measurement and reporting, see Management Challenge 4.)   
Challenges affect every stage of the payment process, from making the initial payment accurately 
(including implementing appropriate payment edits) to recovering overpayments.  High Medicare 
improper payment rates exist for various services, including home health, skilled nursing, and evaluation 
and management services.  Audits of hospitals have uncovered and sought to remedy improper billing 
and payments for myriad issues, such as incorrect billing for transfers to post-acute care and inaccurate 
patient diagnosis codes.  Furthermore, accurate billing by hospitals for short inpatient stays versus 
outpatient observation stays has been an area of considerable challenge and concern.  CMS relies on 
contractors for most of these crucial functions; however, OIG has identified deficiencies in contractor 
performance and in CMS's oversight of these contractors.  Medicare's recent transition to a new system 
of diagnosis codes, the ICD-10, may bring implementation challenges and potential increases in 
improper billing as providers and suppliers transition to the new codes.  In the lead-up to 
implementation of ICD-10, CMS has issued guidance providing temporary flexibility in the claims 
auditing and quality reporting process in response to requests from the provider community. 
(https://www.cms.gov/Medicare/Coding/ICD10/Downloads/ICD-10-guidance.pdf) 
The Department is facing significant challenges in adjudicating provider appeals of Medicare 
overpayments  which primarily include Parts A and B claims  including a substantial backlog of appeals 
at the administrative law judge (ALJ) level (third level of appeals, administered by the Office of Medicare 
Hearings and Appeals); inconsistent decisions among the ALJs and between the ALJs and Qualified 
Independent Contractors (second level of appeals, administered by CMS); and insufficient CMS 
participation in the appellate process.  
Preventing and Deterring Fraud.  Curbing fraud is vital to conserving scarce health care resources and 
protecting beneficiaries.  Fraud schemes shift over time, but certain Medicare services have been 
consistent targets.  They include services provided by durable medical equipment (DME) suppliers, 
home health and hospice agencies, community mental health centers, clinical laboratories, ambulance 
transportation suppliers, outpatient therapy providers, and chiropractors.  CMS's contractors play a key 
role in fighting Medicare fraud.  However, CMS is not realizing the full potential of contractors to 
proactively identify fraud and address other program integrity concerns.    
                                                           
2 Institute of Medicine, Best Care at Lower Cost: The Path to Continuously Learning Health Care in America,  
September 6, 2012.  The Institute of Medicine report includes fraud and abuse as components of waste. 
(http://iom.nationalacademies.org/Reports/2012/Best-Care-at-Lower-Cost-The-Path-to-Continuously-Learning-Health-Care-in-
America.aspx) 
  6 
 
Fostering Economical Payment Policies.  As a result of certain payment policies, Medicare pays 
significantly different amounts for the same services for similar patients in different settings.  For 
example, Medicare pays significantly more for services performed in an outpatient hospital department 
than for the same services performed in an ambulatory surgical center (ASC).  For low-risk patients who 
do not need hospital-level care at an outpatient hospital department, Medicare could save billions of 
dollars by paying for those services at ASC rates.  In another example, Medicare could reduce 
expenditures by millions of dollars per year if infusion drugs administered in conjunction with DME  
were paid on the basis of average sales prices, as is the case with most other drugs covered by  
Medicare Part B. 
Certain payment policies that create incentives for providers to bill for more expensive care instead of 
the appropriate levels of care result in billions of dollars in wasteful spending and compromised care for 
beneficiaries.  For example, Medicares payment policy for skilled nursing facility (SNF) beneficiaries who 
also need therapy give providers incentive to bill for higher levels of therapy than necessary.   
Progress in Addressing the Challenge 
Overall, the Department has taken steps, including implementing many of OIG's recommendations, to 
combat Medicare waste, including fraud, resulting in cost savings, improved program operations, and 
enhanced protections for beneficiaries.  The Health Care Fraud and Abuse Control Program (a joint 
program of the Department, CMS, OIG, and the Department of Justice (DOJ) to fight waste, fraud, and 
abuse in Medicare and Medicaid) returned $7.70 for every $1 invested.  In FY 2014, OIG audits and 
investigations resulted in expected recoveries of $4.9 billion in improperly spent federal health care 
dollars.  In addition, OIG reported estimated savings of more than $15 billion from legislative, 
regulatory, and administrative actions supported by OIG recommendations.   
CMS has moved to improve the integrity and accuracy of billing for numerous types of services.  For 
example, CMS implemented a provision of the Affordable Care Act that practitioners who certify 
Medicare patients as eligible for home health services must document their face-to-face encounters 
with those patients.  CMS modified this requirement, effective January 1, 2015, and is continuing to 
work to improve this requirements low rates of compliance.  Additionally, CMS started a demonstration 
project that requires prior authorization for scooters and power wheelchairs in seven states with high 
incidences of fraud and improper payments, and in FY 2015 expanded this demonstration project to 
include an additional 12 states.  CMS continues to work to address hospital billing for short inpatient 
stays and outpatient observation stays, which significantly affects Medicare spending, beneficiary cost-
sharing, and hospital revenue.   
CMS reports that it is working to identify potential alternatives to the existing methodology used to pay 
for therapy services under the SNF Prospective Payment System (PPS).  CMS initiated the SNF PPS 
Payment Model Research project and reports that it is working to identify potential alternative SNF 
payment models for further analysis. 
In connection with the International Classification of Diseases, 10th Revision (ICD-10), CMS reports that 
it has established an ICD-10 Coordination Center for monitoring the implementation of ICD-10, 
identifying and triaging issues for resolution, and responding to inquiries.  It also has named an ICD-10 
ombudsman to help receive and deal with provider issues.  7 
 
OIG noted reductions in Medicare billing and payments for certain services and geographic areas known 
for fraud risks.  For example, following law enforcement activities and administrative actions by CMS, 
billing and payments for home health services and community mental health services declined 
significantly in fraud hot spots.  CMS also instituted temporary moratoria on the enrollment of new 
home health agencies and ambulance transportation suppliers in select cities and known fraud hot 
spots.  Additionally, CMS continues to develop its Fraud Prevention System (FPS), which had a $133 
million in adjusted actual and projected savings in its third implementation year, and represented a 
positive return on investment of $2.84 for every $1 spent that was certified by OIG. 
(http://oig.hhs.gov/oas/reports/region1/11400503.pdf)  
CMS reported improvements in its oversight and measurement of its contractors' performance and its 
follow-up on improper payment vulnerabilities that contractors identify.  The Department also 
continues to focus on resolving the backlog of Medicare appeals by providers.  CMS reports that it has 
taken steps toward this goal. 
What Needs To Be Done 
Despite progress in key areas, more needs to be done to protect Medicare from waste, including fraud.  
CMS needs to better ensure that Medicare payments are accurate and appropriate.  When Medicare 
improper payments occur, CMS needs to identify and recover them in a timely manner.  CMS must also 
implement safeguards, as needed, to prevent recurrence.  CMS relies on contractors for most of these 
crucial functions; therefore, ensuring effective contractor performance is essential.  Finally, the 
Medicare appeals system needs fundamental changes to resolve appeals efficiently, effectively, and 
fairly.  OIG has recommended numerous actions to advance these outcomes. 
Key OIG Resources 
  OIG Testimony, Fraud in Medicare, March 2015  
 (http://oig.hhs.gov/testimony/docs/2015/cantrell-032415.pdf) 
  OIG Testimony, Medicare Program Integrity: Screening Out Errors, Fraud, and Abuse, June 2014  
(http://oig.hhs.gov/testimony/docs/2014/cantrell_testimony_06252014.pdf) 
  OIG Testimony, Medicare Mismanagement: Oversight of the Federal Government Efforts to 
Recapture Misspent Funds, May 2014  
(http://oig.hhs.gov/testimony/docs/2014/Ritchie_testimony_05202014.pdf) 
  OIG Compendium of Unimplemented Recommendations, March 2015  
(http://oig.hhs.gov/testimony/docs/2014/Ritchie_testimony_05202014.pdf) 
  OIG Report, The Medicare Payment System for Skilled Nursing Facilities Needs To Be Reevaluated, 
September 2015  (http://www.oig.hhs.gov/oei/reports/oei-02-13-00610.pdf) 
Management Challenge 3:  The Meaningful and Secure Exchange and  
Use of Electronic Information and Health Information Technology  
Why This Is a Challenge 
In support of its mission and operations, the Department maintains and uses expanding amounts of 
sensitive information.  Complete, accurate, and timely data can help ensure efficient operations of the  8 
 
Department and its programs, as well as support proactive program oversight.  Similarly, the American 
health care system increasingly relies on health information technology (health IT) and the electronic 
exchange and use of health information.  Health IT, including electronic health records (EHRs), offers 
opportunities for improved patient care, more efficient practice management, and improved overall 
public health.  However, the Department faces a number of significant challenges in this information-
rich environment.   
Ensuring Privacy and Security of Information.  Safeguarding privacy and ensuring data security are, and 
should remain, top priorities for the Department.  The Department must ensure that the data it creates 
and maintains are protected.  Equally important is the need to ensure appropriate protection of health 
information when considering and implementing policies related to the adoption of health IT, and the 
exchange, storage, and use of electronic health information.  The frequency of notable data breaches 
has increased significantly, and data breaches can have serious consequences for the health care 
industry, the Department, and those the Department serves.  Those consequences can include identity 
theft, which, in the health care context, can negatively affect the care that patients receive and lead to 
wasteful, including fraudulent, spending of public funds.  Frequently identified weaknesses include 
inadequacies in access controls, patch management, encryption of data, and Web site security 
vulnerabilities at the Department, health care providers, and other entities that do business with the 
Department.  Such weaknesses could result in unauthorized access to sensitive information.  
Improving Information Flow.  To make use of the benefits of the growing amounts of data in the health 
care context,3 data must be available, subject to appropriate privacy and security safeguards, where and 
when needed.  However, enabling and encouraging the flow of information remains a challenge for the 
Department.  Several factors may impede the flow of information.  These include technical barriers (e.g., 
lack of interoperability), the complex nature of federal and state privacy and security laws, financial 
considerations (e.g., the cost of health IT acquisition), and behavioral issuessuch as information 
blocking4 and consumer confidencethat relate to a willingness to share information. 
Improving the appropriate flow of health information is critical to the success of many delivery reform 
and other initiatives, including the Presidents Precision Medicine Initiative  
(https://www.whitehouse.gov/the-press-office/2015/01/30/fact-sheet-president-obama-s-precision-
medicine-initiative)  Without appropriate information sharing, those who participate in the initiatives 
may face challenges in coordinating care and meeting performance and other goals.  Impediments to 
information sharing can also present patient safety concerns.  For example, a patient could be subjected 
to additional invasive testing that could have been avoided had information about prior results held by a 
different provider been shared.  (For more information on health delivery reforms, see Management 
Challenge 8.) 
                                                           
3 Sources of relevant health care data are ever increasing, particularly as the Internet of Things continues to 
expand.  For more information about the Internet of Things, particularly related privacy and security issues, see 
FTCs Staff Report, Internet of Things:  Privacy and Security in a Connected World, January 2015.  
(https://www.ftc.gov/system/files/documents/reports/federal-trade-commission-staff-report-november-2013-
workshop-entitled-internet-things-privacy/150127iotrpt.pdf)  See also, Federal Bureau of Investigation Public 
Services Announcement, Internet of Things Poses Opportunities for Cyber Crime, September 10, 2015.  
(http://www.ic3.gov/media/2015/150910.aspx) 
4 For more information on the topic of information blocking, see ONCs Report to Congress, Report on Health 
Information Blocking, April 2015  (https://www.healthit.gov/sites/default/files/reports/info_blocking_040915.pdf)  9 
 
The flow of information is also important between the Department and others, including providers.  For 
example, data created, maintained, or transmitted using EHRs or other health IT are used to ensure 
correct Medicare and Medicaid payments, including value-based payments.  Participants in certain 
initiatives also receive Departmental data for their use in improving the care they furnish.  Additionally, 
the Department increasingly uses and shares data as part of its program operations and program 
integrity efforts.  It is critical that, as the flow of information improves, the information is complete, 
accurate, timely, and appropriately protected.   
Ensuring a Return on Health IT Investments.  The Department has made significant investments in 
health IT.  However, the Department faces challenges in ensuring that the goals associated with 
investing in the widespread adoption and use of EHRs and other health IT are fulfilled.  In addition to the 
challenge of improving the flow of information, challenges to ensuring a return on the Departments 
investments in health IT include preventing inappropriate payments to participants who do not meet 
program requirements; ensuring that the beneficial characteristics of EHRs, including efficiency and ease 
of storage and access, are not used as tools for fraud; and ensuring that patient safety benefits are 
realized.  When addressing these challenges, the Department must ensure coordination among internal 
agencies, as well as other federal partners, with overlapping responsibility for various aspects of health 
IT to avoid potential gaps in policy and oversight that could undermine the promise of the investments. 
Progress in Addressing the Challenge 
The Department has made progress with respect to privacy and security of its systems and information.  
Like others in the federal government, the Department has participated in the U.S. Chief Information 
Officers 30-day Cybersecurity Sprint, which aims to further improve federal cybersecurity and protect 
systems against . . . evolving threats.  
(https://www.whitehouse.gov/sites/default/files/omb/budget/fy2016/assets/fact_sheets/enhancing-
strengthening-federal-government-cybersecurity.pdf) 
The Department has made great strides in developing a nationwide health IT infrastructure that 
supports the appropriate flow of information.  As of September 2015, more than 548,000 eligible 
professionals, eligible hospitals, and critical access hospitals (CAH), are actively registered in the EHR 
incentive programs.5  Additionally, the Office of the National Coordinator (ONC) recently issued $38 
million in grants to encourage better information exchange for care coordination and population health. 
Further, the Departments participation in the Healthcare Fraud Prevention Partnership (HFPP) has 
improved the flow of information to address program integrity issues.  The HFPP, a public-private 
partnership, brings interested partiesincluding private insurers, law enforcement agencies, and 
otherstogether to share and use data and analytic tools to proactively address health care fraud. 
The Department has continued to oversee the EHR incentive programs and has made a concerted effort 
to advance the national conversation about important health IT issues to ensure that the potential 
benefits of health IT investments are realized.  Last year, ONC issued a document entitled "Connecting 
Health and Care for the Nation: A 10-Year Vision to Achieve an Interoperable Health IT Infrastructure"  
(http://healthit.gov/sites/default/files/ONC10yearInteroperabilityConceptPaper.pdf)  (10-Year Vision 
                                                           
5 CMS, State Breakdown of Registration by Medicaid and Medicare Providers through September 30, 2015, 
September 2015.    10 
 
Paper), which describes plans to expand the sharing of information for health beyond EHRs and 
identifies privacy and security protections for health information as a building block for a nationwide 
interoperable health information infrastructure.  More recently, ONC issued a document entitled 
Connecting Health and Care for the Nation:  A Shared Nationwide Interoperability Roadmap Draft 
Version 1.0,  (https://www.healthit.gov/sites/default/files/hie-interoperability/nationwide-
interoperability-roadmap-final-version-1.0.pdf)  which supports the vision laid out in the 10-Year Vision 
Paper.  ONC has also issued an information-blocking report to Congress,  
(https://www.healthit.gov/sites/default/files/reports/info_blocking_040915.pdf)  a Health IT Safety 
Center Roadmap,  (http://www.healthitsafety.org/uploads/4/3/6/4/43647387/roadmap.pdf)  and an 
updated Federal Health IT Strategic Plan for 20152020.  (http://www.healthit.gov/sites/default/files/9-
5-federalhealthitstratplanfinal_0.pdf) 
What Needs To Be Done 
Threats to information privacy and security are evolving, and the Department must remain vigilant.  
While the Department has made progress with respect to protecting its own information, as highlighted 
in OIG work and a recent Congressional Report, more remains to be done.  The Department also must 
use available policy levers to address health IT privacy and security issues, such as through the EHR 
incentive programs.  OIG work will continue to focus on HHS systems privacy and security to support 
the Departments efforts to mitigate the risk of unauthorized access to its sensitive information.  OIG 
work will also focus on privacy and security issues in the regulated community and on the related 
agencies to address concerns about similar risks for health information.  Future work may consider 
privacy and security issues that arise from the continuing expansion of the Internet of Things, such as 
connected medical devices.  (A link to the Congressional Report:  
http://energycommerce.house.gov/sites/republicans.energycommerce.house.gov/files/114/Analysis/20
150806HHSinformationsecurityreport.pdf) 
To fully realize the value of health IT investmentswhich included, as of September 2015, over $31 
billion through the EHR incentive programsand achieve the goal of a learning health system identified 
in the 10-Year Vision Paper, the Department must do more to improve the flow of information, subject 
to appropriate privacy and security safeguards.   
Finally, given the magnitude of the investment in EHRs and other health IT programs, it will become 
increasingly important to measure the extent to which EHRs and health IT have achieved the 
Department's goals, which include improved health care and lower costs.  As the Department progresses 
through the development and implementation of meaningful use stages and looks to implement the 
meaningful use portion of the Merit-based Incentive Payment System created in the Medicare Access 
and CHIP Reauthorization Act of 2015 (MACRA), it should continue to consider feedback from 
stakeholders to ensure that adopted policies advance the Nation toward the Department's stated goals, 
while appropriately reflecting the changing health IT landscape and balancing privacy and security 
considerations.  Additional guidance and technical assistance should be issued to address adoption, 
meaningful use, interoperability barriers, and program integrity safeguards.  It is also essential that 
privacy, security, and fraud prevention remain at the forefront of the Department's, ONC's, and CMS's 
health IT efforts.  Ongoing OIG work is examining the accuracy of Medicare and Medicaid EHR incentive 
payments for meaningful use.  Future work may examine health IT interoperability across providers  11 
 
(including those participating in accountable care organizations), across HHS, and between providers 
and patients, as well as examine outcomes from health IT investments.   
Key OIG Resources 
  OIG Reports on EHR Incentive Program Oversight, A-06-13-00047  
(http://oig.hhs.gov/oas/reports/region6/61300047.pdf); OEI-09-11-00380; 
(http://oig.hhs.gov/oei/reports/oei-09-11-00380.pdf)  A-06-12-00041  
(http://oig.hhs.gov/oas/reports/region6/61200041.pdf); OEI-05-11-00250  
(http://oig.hhs.gov/oei/reports/oei-05-11-00250.pdf); OEI-05-11-00080 
(http://oig.hhs.gov/oei/reports/oei-05-10-00080.pdf) 
  OIG Reports on EHR program integrity, OEI-01-11-00570  (http://oig.hhs.gov/oei/reports/oei-01-11-
00570.pdf, OEI-01-11-00571  (http://oig.hhs.gov/oei/reports/oei-01-11-00571.pdf) 
  OIG Report, CMS Response to Breaches and Medical Identity Theft, October 2012  
(http://oig.hhs.gov/oei/reports/oei-02-10-00040.pdf) 
  OIG Summary Report, Information Technology Infrastructure and Operations Office Had Inadequate 
Information Security Controls, April 2015  (http://oig.hhs.gov/oas/reports/region1/181430420.pdf) 
  OIG Reports on hospital IT security, including HIPAA Security Rule Oversight, June 2011  
(http://oig.hhs.gov/newsroom/news-releases/2011/security.asp), OEI-09-10-00510  
(http://www.oig.hhs.gov/oei/reports/oei-09-10-00510.pdf), and OEI-09-10-00511  
(http://www.oig.hhs.gov/oei/reports/oei-09-10-00511.pdf) 
Management Challenge 4:  Administration of Grants, Contracts, and Financial 
and Administrative Management Systems   
Why This Is a Challenge 
HHS is the largest grant-making organization and third-largest contracting agency in the federal 
government, with $402 billion and $21 billion awarded, respectively, in FY 2014.  The Affordable Care 
Act provided additional grant and contract funding, adding to the Departments management and 
oversight responsibilities.  Responsible stewardship of these program dollars is vital, and operating a 
financial management and administrative infrastructure that employs appropriate safeguards to 
minimize risk and protect resources remains a challenge for the Department.   
Grants and Contracts Management.  Across the Department, vulnerabilities have been identified in HHS 
grants, demonstrating the need for purposeful and consistent federal oversight.  Awarding agencies lack 
a systematic method of and timing for sharing grantee risk information; sharing occurs infrequently; and 
oversight of grantee progress during the life of the grant needs improvement.  Many grantees lack the 
robust financial management systems required to provide effective accountability for federal funds.  For 
example, a community health center receiving Affordable Care Act grant assistance was not providing 
the services as described in its grant application and was unable to accurately account for how HHS 
funds were spent.  Recent OIG investigations of HHS grantees reveal similar vulnerabilities in grants 
management.  For example, in June 2014, four former officials of the Blackfeet Tribes Poka Project, a 
multimillion-dollar HHS-funded effort to address the needs of troubled youth on the reservation, were 
convicted of fraud, embezzlement, and conspiracy and sentenced in federal court.  12 
 
Previously identified weaknesses in the oversight of grantees, including late or absent financial reports 
and insufficient documentation on salaries and indirect costs, present challenges to the Departments 
implementation of the Office of Management and Budgets (OMB) Uniform Guidance.6  Another 
challenge is implementation of the DATA Act that establishes governmentwide financial data standards 
related to expenditures of federal grants, contracts, and loans.  
HHS is the second-largest payer under the Small Business Innovation Research (SBIR) and Small Business 
Technology Transfer (STTR) programs, awarding $680.7 million and $96.6 million, respectively, in such 
grants and contracts in FY 2014.  Three significant issues exist with the programs: awardees who 
appeared not to meet eligibility requirements, inconsistent collection of information needed to evaluate 
commercialization success, and failures to check consistently for duplicative funding within the 
Department and across other agencies.   
Given the high dollar amount and complexity of contracts, weaknesses in Department monitoring of the 
corrective actions taken, processes, oversight, and management is a concern.  Oversight vulnerabilities 
have been identified through a range of issues across Departmental programs.  For example, OIG has 
raised concerns about acquisition planning and procurement, contract monitoring, and payments to 
contractors related to the federal health insurance marketplaces operated by CMS.  OIG has also 
identified weaknesses in CMSs oversight and performance measurement for its benefit integrity 
contractors.  (For more information on specific contract management concerns, see Management 
Challenges 2 and 7.)  
Financial Statement Audits.  An audit of the Departments grant and contract systems, which are 
responsible for processing, awarding, and monitoring grants and contracts, uncovered multiple 
deficiencies in effective system controls.  Deficiencies were related to segregation of duties, 
configuration management, and access to financial systems.  The deficiencies represent a material 
weakness in internal controls  affecting the Departments ability to accurately manage financial 
information.  
The financial statement audit also revealed challenges the Department continues to face in addressing 
violations of certain provisions of the Anti-Deficiency Act (ADA).  These ADA violations highlight 
weaknesses in an agencys control over budgetary resources.  Prior OIG audits of the National Institutes 
of Health (NIH) revealed ADA violations.  The Department followed up with GAO regarding the 
violations.  OIG will be doing a status report to assess and summarize the remedial actions taken by the 
Department to address the ADA violations.   
Improper Payments.  Improper payments cost federal programs billions of dollars annually.  In FY 2014, 
the Department reported improper payments totaling almost $78.4 billion overall.  Pursuant to the 
Improper Payments Information Act of 2002 (IPIA), as amended, federal agencies are required to 
provide uniform, annual reporting on improper payments and their efforts to reduce them.  In OIGs 
most recent audit of the Departments IPIA reporting, we found that the Department did not meet all 
IPIA requirements, including reporting an improper payment rate for the Temporary Assistance for 
Needy Families (TANF) program and performing a risk assessment of payments to employees and charge 
                                                           
6 Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (commonly referred to 
as the Uniform Guidance).  13 
 
card payments.  HHS asserts that it does not have the statutory authority to collect from states the data 
that is necessary for the calculation of a TANF improper payment rate. 
Progress in Addressing the Challenge 
The Department has worked to strengthen its grants and contracts program integrity efforts.  New grant 
regulations were published at 45 CFR Part 75, implementing OMBs Uniform Guidance 
requirements.  Pursuant to those rules, the Assistant Secretary for Financial Resources (ASFR) is 
implementing a single audit resolution tracking system -- scheduled for completion by September 30, 
2017.  These rules also create a 270-day requirement to ensure all grant close out activities are 
complete.  The Department is also serving as the governmentwide lead to identify the standardized data 
needed to meet the DATA Act requirements and has developed a Departmental implementation 
strategy to ensure adoption of approved data standards into business policies, processes, and systems. 
The Department proposed an update to the HHS Acquisition Regulation (HHSAR) in March 2015 to 
supplement the Federal Acquisition Regulation.  The HHSAR provides additional policy and procedural 
guidance to foster financial integrity and accountability across the acquisition lifecycle from the concept 
of need through contract close out.  Additionally, HHS issued the Acquisition Strategy Directives in 
March 2015 and Acquisition Plan Directives in April 2015 which articulated the value and importance of 
HHS program offices adopting and implementing the acquisition lifecycle framework as a means to 
ensure business process/practices and mission/program needs drive requirements, and ensure the most 
appropriate vehicle is utilized to deliver critical results. 
With respect to ADA violations related to systemic contract funding problems, the Department 
continues to provide its contracting workforce with an online reference tool for contract funding, 
formation, and appropriations law compliance.  Further, the Department released a major update to its 
internal grants policies, featuring enhanced guidance on grants closeout, suspension and debarment, 
grants systems, and grants payments.   
The Department has made efforts to assess grant program performance and improve grant and contract 
oversight.  For example, the Substance Abuse and Mental Health Services Administration (SAMHSA) has 
improved outcome measurements for its largest program, the Substance Abuse Prevention and 
Treatment Block Grant.  The Indian Health Service (IHS) and OIG partnered to provide training on using 
single audit reports to improve oversight of tribal health care funds.  Furthermore, the Department and 
OIG sponsored training for grants and contracts officers on identifying and reporting potential fraud, 
waste, and abuse across all programs, including the SBIR/STTR programs, and OIG has encouraged 
contractors to self-report contract fraud and overpayments.   
The Department has increased its use of suspension and debarment authorities, resulting in an increase 
from 8 debarments and 8 suspensions in FY 2013 to 32 debarments and 7 suspensions in FY 2014  
preventing offenders from receiving federal funding.   
The Department has taken corrective actions to resolve the IT-related deficiencies reported in the 
Agency Financial Report.  The impact of this effort will be assessed during the FY 2015 audit of these 
systems.  
With respect to IPIA, the Department has stated in its comments on our IPIA-compliance audit report 
pertaining to the Departments FY 2013 AFR that it would submit a legislative proposal to Congress that  14 
 
would allow for a TANF error rate measurement.  The Department, however, did not do so.  Instead, the 
Department has reported that it submitted legislative proposals to Congress to improve TANFs program 
integrity.  Specifically, the Department noted that ACFs FYs 2015 and 2016 Budget requests for TANF 
included $10 million for program improvement initiatives, including technical assistance on 
strengthening state program integrity efforts.  The requests also proposed to prohibit the use of non-
governmental third-party expenditures in meeting state maintenance-of-effort (MOE) requirements, 
and limiting the expenditure of TANF and MOE funds to benefits and services to needy families.  The 
Department asserts that both of these proposed legislative changes would strengthen state 
accountability to the purposes of the TANF statute.  CMS reports that it has prioritized closing out 
contracts. Since February 1, 2014, CMS closed 2,077 contracts with an obligated value of $1.3 billion and 
de-obligated $29.95 million.  In October 2014, CMS implemented a goal of closing out approximately 20 
percentor 2,250overdue contracts per year.   
What Needs To Be Done 
The Department needs to take more aggressive action to identify poorly performing grantees and those 
at risk of misspending federal dollars and either provide increased technical assistance and monitoring 
or prevent them from continuing to receive grant funds.  Sustained focus is needed to monitor and 
address vulnerabilities, and the Department must continue diligent efforts to ensure that recipients use 
funds according to the award terms and consistent with the law.  The Department has improved its 
contractor performance evaluation monitoring but is still underperforming compared to other 
government agencies.   
The Operating Divisions (OPDIV) need to increase their monitoring efforts, including implementing 
program integrity initiatives, such as evaluating and mitigating risks, identifying and addressing cross-
cutting issues; resolving grantee audit findings; and sharing best practices across the Department.  In 
accordance with the new Uniform Guidance, the Department must implement processes to ensure that 
grantees have appropriate internal controls, including improved use of single audit reports throughout 
the grant cycle to ensure proper stewardship of funds.  The Department will need to develop tracking 
and monitoring mechanisms for audit findings and the audit resolution process to effectively carry out 
this responsibility.  The Department must also prepare for implementation of DATA Act requirements. 
The Department needs to develop an improper-payment estimate for TANF and submit a legislative 
proposal to Congress to require state participation in such a measurement.  In addition, the Department 
needs to meet improper-payment reduction targets, and reduce improper payments to less than 10 
percent for all programs.  The Department needs to conduct thorough root cause analyses of significant 
improper payments and develop robust corrective action plans that target identified causes.  The 
Department also needs to conduct a risk assessment of payments made to employees and charge cards.  
The Department should resolve all financial control weaknesses identified by OIG, GAO, and other 
internal and external auditors.   
The Department and OIG should continue to provide training on identifying and pursuing misconduct in 
grants and contracts.  Grant and contract officers should more actively coordinate with and refer 
potential fraud to OIG for investigation.  The Department also needs to continue to refine its suspension 
and debarment procedures by streamlining the referral and decision process, to continue providing  15 
 
training and decrease the processing time of referrals.  Moreover, the Department needs to implement 
a program to actively pursue fraud under the Program Fraud Civil Remedies Act (PFCRA).   
Key OIG Resources 
  OIG Report, U.S. Department of Health and Human Services Met Many Requirements of the 
Improper Payments Information Act of 2002 But Did Not Fully Comply for Fiscal Year 2014, May 
2015  (http://oig.hhs.gov/oas/reports/region1/171552000.pdf) 
  OIG Reports on grant oversight, OEI-04-12-00160  (http://oig.hhs.gov/oei/reports/oei-04-12-
00160.pdf), OEI-04-11-00530  (http://oig.hhs.gov/oei/reports/oei-04-11-00530.pdf),  
OEI-07-12-00110  (http://oig.hhs.gov/oei/reports/oei-07-12-00110.pdf),  
OEI-07-11-00190  (http://oig.hhs.gov/oei/reports/oei-07-11-00190.pdf),  
A-03-14-03304  (http://oig.hhs.gov/oas/reports/region3/31403304.pdf) 
Management Challenge 5:  Ensuring Appropriate Use of Prescription Drugs  
Why This Is a Challenge 
CMS provides prescription drug coverage for 41 million Medicare Part D (Part D) and 71 million Medicaid 
beneficiaries.  Part D is the fastest growing component of the Medicare program.  Since its inception in 
2006, spending for Part D has more than doubled to $121 billion in 2014.  Medicaid expenditures for 
prescription drugs are also increasing, influenced by Medicaid expansion and rising specialty drug costs.  
In 2014, Medicaid expenditures exceeded $44 billion and Medicaid beneficiaries in states that expanded 
the program filled 25 percent more prescriptions, compared with a 3 percent increase in non-expansion 
states.7  The Departments oversight of its prescription drug programs faces numerous challenges 
affecting beneficiary and community safety and the integrity of the benefit itself.   
Oversight.  Ensuring the integrity of programs as expansive as Part D and Medicaid requires 
coordinated, constant, and proactive efforts.  In Part D, CMS contracts with plan sponsors, which are 
responsible for paying claims, monitoring billing patterns, and establishing compliance plans.  CMS also 
contracts with the Medicare Drug Integrity Contractor (MEDIC) to detect and prevent fraud, waste, and 
abuse in Part D.  CMS oversees the plan sponsors and the MEDIC, defines their requirements for carrying 
out program integrity functions, and monitors their performance.  Weaknesses continue to exist in the 
use of data to identify vulnerabilities as well as in the oversight by each of the three key players.  For 
example, CMS does not require plan sponsors to report information on fraud and most have chosen not 
to voluntarily report.  (For more information on Medicaids oversight challenges, see Management 
Challenge 1.)   
Drug Abuse and Diversion.  The abuse and diversion of prescription drugs is an ongoing problem.  As of 
May 2015, OIG has 540 pending complaints and cases involving Medicare and Medicaid prescription 
drug fraud, a 134 percent increase in the last 5 years.  Pharmaceutical manufacturers and pharmacies 
accounted for more than 60 percent of Medicaid Fraud Control Units cases that resulted in civil 
                                                           
7IMS Institute for Healthcare Informatics, Medicine Use and Spending Shifts:  A Review of the Use of Medicines in the U.S. in 
2014, April 2015.  
(http://www.imshealth.com/portal/site/imshealth/menuitem.762a961826aad98f53c753c71ad8c22a/?vgnextoid=3f140a4331e
8c410VgnVCM1000000e2e2ca2RCRD)  16 
 
settlements and judgments in 2014.  The Centers for Disease Control and Prevention (CDC) characterizes 
prescription drug abuse as an epidemic, reaching virtually all demographics and geographic locations.  
Drug diversion is the transfer of legitimate prescription drugs for unlawful purposes.  The diversion of 
controlled substances is of particular concern because of its severe health risk and potential for abuse.  
In 2012, over 700,000 inpatient hospital stays were related to the overuse of opioids.   
The diversion of noncontrolled substances is also a concern because these drugs are becoming more 
common in schemes that defraud Medicare and Medicaid.  Schemes include billing for drugs that are not 
dispensed, combining prescribed drugs with opioids to create an enhanced euphoria, and illegal 
dispensing of expired or adulterated drugs.  These schemes increasingly involve criminal networks 
ranging from informally connected street traffickers to complex criminal enterprises comprised of health 
care professionals, pharmacies, marketing companies, and even program beneficiaries.  Criminal 
networks and others target brand-name, high-cost medications, including respiratory, HIV, and anti-
psychotic medications.  
Questionable and Inappropriate Utilization.  The responsibility of overseeing prescription drugs also 
involves ensuring that safe and high-quality care is provided to seniors and children.  Serious concerns 
surrounding the overprescribing of drugs exist.  For example, Medicare spending for commonly abused 
opioids has grown faster than spending for all Part D drugs.  Additionally, quality-of-care concerns were 
identified with the prescription drug treatment of children enrolled in Medicaid who have mental health 
conditions.  (For more information on ensuring Medicaid quality of care, see Management Challenge 1.)  
Several operating divisions within the Department are responsible for programs related to the safety 
and efficacy of drugs, drug abuse prevention and treatment, and the safety and quality of health care  
including care involving drugs, biologics, and other therapies.  Effectively coordinating all Department 
efforts and prioritizing initiatives are key to combating this complex epidemic.  (For more information on 
challenges for the Food and Drug Administration (FDA) and Medicaid, see Management Challenges 10 
and 1.)   
Progress in Addressing the Challenge 
CMS has taken steps to improve data coordination among the key players tasked with safeguarding Part 
D.   Specifically, CMS has begun sharing plan sponsors voluntarily reported fraud data with the MEDIC 
and has increased data sharing between plans.  CMS is working to enroll over 400,000 prescribers of 
Part D drugs, addressing an OIG recommendation that CMS require Part D sponsors to verify prescribers 
authority.  These prescribers will be subject to risk-based screening requirements, and plan sponsors will 
be better able to deny Part D claims for drugs ordered by ineligible prescribers. 
CMS is also taking steps to prevent pharmacy billing fraud and overutilization of prescription drugs.  CMS 
regularly monitors pharmacy billing patterns and collaborates with Part D sponsors to perform audits or 
take other appropriate actions on high-risk pharmacies.  CMS works with plan sponsors to prevent 
overutilization of certain prescribed medications and share information about beneficiaries that may 
over use prescription drugs.  In April 2015, CMS launched a Web-based tool to allow CMS, law 
enforcement, and plan sponsors to share information and coordinate actions against high-risk 
pharmacies.  17 
 
The Department has taken actions to restrict the manufacture, possession, or use of potentially 
dangerous controlled substances.  The Food and Drug Administration (FDA) is working to reduce the 
abuse of opioids by encouraging formulations that make it more difficult to tamper with these products.  
Additionally, through coordination with the Drug Enforcement Administration (DEA), access to opioids is 
now better controlled because hydrocodone-combination products have been moved from Schedule III 
to the more restrictive Schedule II.  Many state Medicaid programs have reported savings linked to 
implementing lock-in programs, which involves restricting certain beneficiaries to a limited number of 
pharmacies or prescribers.  Additional benefits to lock-in programs include more appropriate beneficiary 
drug utilization and prevention of drug abuse and diversion.  Additionally, CDC is developing guidelines 
to help primary care physicians improve the way they prescribe opioids to treat chronic pain, and CMS 
has established a new Medicaid initiative to undertake improvements in the delivery of care to 
beneficiaries with substance use disorder.   
What Needs To Be Done 
Despite progress in key areas, further actions are needed to achieve effective oversight.  CMS needs to 
do more to monitor plan sponsors fraud detection and compliance programs.  For example, CMS should 
require plan sponsors to report the number of instances of probable fraud, waste, and abuse that they 
identify, and the actions they took to address them.  Collecting and sharing this data would increase each 
players ability to identify and address program vulnerabilities.  Additionally, CMS should improve 
existing safeguards to prevent improper payments in Part D and its ability to recoup those payments 
when identified.  When the MEDIC identifies inappropriate payments there are no established 
procedures to recommend recoupment other than referrals to law enforcement.  While CMS does 
require plan sponsors to return overpayments that they self-identify, CMS has no mechanism to recover 
inappropriate payments identified by the MEDIC during its investigations. 
The Department should continue to prioritize and coordinate efforts to reduce opioid misuse and abuse.  
For example, CMS and plan sponsors should monitor beneficiary use of a wider range of drugs 
susceptible to abuse than they do now.  Also, more needs to be done to effectively deal with 
beneficiaries who may be abusing the program or inflicting harm on themselves by overusing drugs.  This 
could be  addressed by implementing a Medicare lock-in policy, which would require a legislative change 
to CMSs authority.   
Key OIG Resources 
  OIG Portfolio, Ensuring the Integrity of Medicare Part D, June 2015  
(http://oig.hhs.gov/oei/reports/oei-03-15-00180.pdf) 
  OIG Report, Second-Generation Antipsychotic Drug Use Among Medicaid-Enrolled Children: Quality-
of-Care Concerns, March 2015  (http://oig.hhs.gov/oei/reports/oei-07-12-00320.pdf) 
  OIG Report, Questionable Billing and Geographic Hotspots Point to Potential Fraud and Abuse in 
Medicare Part D, June 2015  (http://oig.hhs.gov/oei/reports/oei-02-15-00190.pdf) 
  OIG Report, Medicaid Fraud Control Units Fiscal Year 2014 Annual Report, April 2015  
(http://oig.hhs.gov/oei/reports/oei-06-15-00010.pdf) 
    18 
 
Management Challenge 6: Ensuring Quality in Nursing Home, Hospice,  
and Home- and Community-Based Care 
Why This Is a Challenge 
As Americans continue to live longer and with more chronic medical conditions, the Department must 
ensure that beneficiaries receive high-quality nursing home, hospice, and home- and community-based 
services (HCBS), including personal care services (PCS).  Nursing home and HCBS programs provide 
ongoing assistance with daily living, as well as care for those who need temporary help recuperating 
from hospital stays or other acute care.  Hospice care provides comfort for terminally ill beneficiaries 
and supports family and other caregivers. 
Nursing Home and Hospice Care.  Problems with nursing home and hospice care continue to be 
identified.  Concerns raised include the frequency and severity of preventable adverse events because of 
substandard nursing home care, limited compliance with federal regulations for reporting abuse and 
neglect, lack of monitoring of nursing homes' resident hospitalization rates, failure to correct 
deficiencies identified during the survey process, and employment of caregivers who do not meet 
relevant licensure requirements.  Additional concerns regarding hospice care include inadequate 
oversight of certification surveys and hospice-worker licensure requirements and fraudulent hospice 
enrollments undertaken without beneficiary consent.  
Home- and Community-Based Services.  HCBS programs serve several targeted populations, including 
people with mental illness, or physical, cognitive, or developmental disabilities.  HCBS programs help 
beneficiaries avoid costly and disruptive facility-based care.  These programs help promote beneficiary 
choice and preferences, but persistent payment, compliance, and quality vulnerabilities continue.  
Medicaid is the primary payer for PCS, a critical component of HCBS.  Without effective PCS, the HCBS 
goals of keeping beneficiaries out of institutions cannot be achieved.  Of significant note are 
vulnerabilities specific to PCS, such as delivery in private settings in which care may be harder to observe 
and oversee.   
Progress in Addressing the Challenge 
The Department continues efforts to improve the quality of nursing home, hospice, and HCBS programs, 
including PCS.  CMS developed the CMS Adverse Drug Event Trigger Tool for use by nursing homes and 
state surveyors to improve medication safety and reduce medication-related adverse events.  In July 
2015, the Department published a proposed rule on Reform of Requirements for Long-Term Care 
Facilities.  Along with other quality improvement initiatives, the proposed rule would implement section 
6102 of the Affordable Care Act, which requires each nursing facility to have an operational compliance 
and ethics program that effectively promotes quality of care. 
CMS made the following improvements to the Five Star Quality Rating System posted on the Nursing 
Home Compare Web site to improve beneficiaries and consumers ability to determine meaningful 
differences between nursing homes, incentivize increased quality, and ensure the accuracy of the 
information posted:  added two Quality Measures (QM) for antipsychotic medication use; raised the 
threshold for nursing homes to achieve a high rating on all measures in the QM dimension of the Five 
Star System; and expanded focused surveys nationwide to assess coding practices and its relationship to 
resident care in nursing homes to improve the accuracy of the QMs.    19 
 
In August 2015, CMS finalized a rule for the PPS and Consolidated Billing for SNFs for FY 2016.  This rule 
implemented section 6106 of the Affordable Care Act, which allows for greater oversight and increased 
accuracy for reporting of nursing home staffing on the Nursing Home Compare website and in the Five 
Star Quality Rating System.  Also, this rule specified a SNF all-cause all-condition hospital readmission 
measure and adopts that measure for a new SNF Value-Based Purchasing (VBP) Program.  Additionally, 
the rule will implement a new quality reporting program (QRP) for SNFs that authorizes CMS to reduce 
payments to nursing homes that do not report certain resident assessment items and establishes the 
plan to standardize certain elements of assessment tools and quality measures across post-acute care 
settings.   
In July 2015, CMS published a proposed rule to improve the quality of nursing home care that updates 
Medicare requirements for long-term-care facilities.  This proposed rule also would implement 
provisions of the Affordable Care Act, including requirements for facilities to implement a Quality 
Assurance and Performance Improvement (QAPI) program that would ensure that facilities continuously 
identify and correct quality deficiencies and promote and sustain performance improvement.  Additional 
provisions would implement requirements for a Compliance and Ethics program, requirements for 
dementia and abuse prevention training, and requirements for reporting suspected crimes.  
The Department continues efforts to improve access to hospice care.  Traditionally, to qualify for 
hospice services, Medicare required beneficiaries to forego curative services.  CMS, through the 
Medicare Care Choices model, is now testing allowing beneficiaries to receive hospice care to manage 
discomfort and receive end-of-life counseling while still allowing Medicare payment for treatments 
aimed at curing the underlying terminal illness.  CMS has also taken steps to encourage patients and 
their physicians to discuss end-of-life issues to improve patients quality of life and increase the 
likelihood that the end-of-life care the patients ultimately receive conforms to their informed wishes.  As 
access improves, the Department must continue efforts to ensure that the quality of hospice care 
delivered to beneficiaries who select hospice meets quality standards. 
Federal agencies, including OIG, DOJ, and CMS, continue to pursue enforcement actions against nursing 
homes, hospices, and HCBS providers, including PCS providers that render substandard care.  In the past 
year, OIG launched an initiative to combat hospice fraud in regions identified as areas of particular 
concern.  In the summer of 2015, OIG completed a national health care fraud takedown that included 
arrests of several Medicaid providers accused of committing HCBS fraud.  CMS and OIG work closely 
with law enforcement partners at DOJ and through the federal Elder Justice Interagency Working Group 
to promote better care for older adults and to prosecute providers accused of abuse or neglect.  State 
Medicaid Fraud Control Units (MFCU) devote substantial resources to the investigation and prosecution 
of abuse and neglect. 
In addition to the Departments efforts to improve quality of care, OIG invests substantial efforts in 
helping providers improve.  OIG has developed an innovative quality-oriented corporate integrity 
agreement process to work with nursing home providers so they may better serve beneficiaries.  OIG 
has placed nearly 40 nursing home companies (covering more than 900 facilities) under corporate 
integrity agreements that include quality-monitoring provisions designed to ensure that beneficiaries 
receive the care they deserve.  
Ensuring high-quality home- and community-based services and enabling beneficiaries to avoid 
institutionalization, relies heavily on appropriate personal care services.  CMS is in the second year of a  20 
 
four-year cycle of grants to nine qualified states to test quality measurement tools and demonstrate the 
use of electronic tools in Medicaid community-based long-term services and supports.  These tools are 
designed to establish standardized interoperable data sets for HCBS plans and assessment items, 
measure the experience of care for beneficiaries and test the use of personal health records.  An 
experience-of-care tool has been designed, tested and is in the final stages of certification.  The 
Department entered into a contract last year with the National Quality Forum and began work on the 
development of a national quality measure set for home- and community-based services.  Domains of 
measures have been made and an environmental scan started to identify key measures as well as gaps 
in measures for domains that might not have been developed to date. 
What Needs To Be Done 
The Department should continue to prioritize quality of care in nursing homes and hospices as well as 
the care rendered as HCBS, with particular focus on PCS.  The Department should monitor how often 
nursing home residents are hospitalized and develop resources that can be used to help nursing home 
staff reduce the incidence of adverse events in nursing homes.  In addition, the Department should 
improve internal controls and offer better guidance and training for surveyors to ensure that nursing 
homes with recorded quality and safety issues correct their deficiencies.  CMS should improve 
coordination with state agencies to ensure that care providers meet relevant licensure requirements.  
The Department should seek to link payments for services to meeting quality-of-care requirements and 
work with OIG to hold accountable the providers that have rendered substandard care, thereby 
preventing additional harm to vulnerable beneficiaries. 
Lastly, the Department should ensure the integrity of Medicaid-funded PCS by establishing minimum 
federal qualification standards for providers based on needs of the individual being served; improving 
CMS's and states' ability to monitor billing and care quality; and issuing operational guidance for claims 
documentation, beneficiary assessments, person-centered plans of care, and supervision of personal 
care attendants when hired by an agency.  For self-directed programs in which a beneficiary directs 
his/her own PCS, CMS and the states should improve oversight of controls to ensure individual health 
and welfare and financial integrity.  The Department should also issue guidance to states regarding 
adequate prepayment controls and help states access data necessary to identify overpayments. 
Key OIG Resources  
  OIG Report, Personal Care Services: Trends, Vulnerabilities and Recommendations for Improvement 
 A Portfolio, November 2012   
(http://oig.hhs.gov/reports-and-publications/portfolio/portfolio-12-12-01.pdf) 
  OIG Report, The Medicare Payment System for Skilled Nursing Facilities Needs to Be Reevaluated, 
September 2015 
  OIG Reports on hospice quality of care, OEI-02-14-00070  (http://oig.hhs.gov/oei/reports/oei-02-14-
00070.pdf),  A-02-11-01024  (http://oig.hhs.gov/oas/reports/region2/21101024.pdf) 
  OIG Reports on home health quality of care, OEI-01-12-00390  (http://oig.hhs.gov/oei/reports/oei-
01-12-00390.pdf), OEI-07-14-00130  (http://oig.hhs.gov/oei/reports/oei-07-14-00130.pdf) 
  OIG Reports on nursing home quality of care, OEI-07-13-00010  (http://oig.hhs.gov/oei/reports/oei-
07-13-00010.pdf), OEI-02-13-00611  (http://oig.hhs.gov/oei/reports/oei-02-13-00611.pdf), A-09-13- 21 
 
02039  (http://oig.hhs.gov/oas/reports/region9/91302039.pdf), OEI-06-11-00370  
(http://oig.hhs.gov/oei/reports/oei-06-11-00370.pdf) 
Management Challenge 7:  Implementing, Operating, and Overseeing  
the Health Insurance Marketplaces 
Why This Is a Challenge 
The health insurance marketplaces (marketplaces), also known as health insurance exchanges, are 
critical components of the health care reforms enacted through the Affordable Care Act.  
Implementation, operation, and oversight of the marketplaces were among the most significant 
challenges for the Department in FYs 2014 and 2015 and will continue to present a top management 
and performance challenge in FY 2016.    
The Department must ensure effective communication and coordination between and among all 
internal and external parties with marketplace responsibilities, including within HHS and with 
contractors, issuers, and partners in state and federal government.  Effective coordination with the 
Internal Revenue Service (IRS) is particularly important for sound administration of the premium tax 
credit program.  In addition, CMS needs to ensure that state marketplaces comply with federal 
requirements and provide accurate, timely data used for federal payments.  Further, CMS must take 
appropriate steps to promote compliance by Qualified Health Plans (QHP) with federal requirements, 
including network adequacy and nondiscrimination requirements.  Key focus areas for the federal and 
state marketplaces include:  
Payments.  Ensuring sound expenditure of taxpayer funds for insurance affordability and other 
marketplace purposes poses a substantial management challenge, especially given the continued use of 
interim solutions and manual systems.  For example, CMSs internal controls did not effectively ensure 
the accuracy of nearly $2.8 billion in advance premium tax credits and cost-sharing reductions.  CMS 
must improve its financial systems to ensure accurate and timely initial payments and reconciliations of 
these payments.  CMS must also prioritize effective management of the risk corridor, reinsurance, and 
risk adjustment programs.  CMS must validate information received from issuers to ensure that it is 
timely, complete, and accurate for payment purposes.  In addition, CMS must ensure the correct use of 
federal establishment grant funds by state marketplaces.  (For general information about challenges 
associated with grants management and contract administration, see Management Challenge 4.)  
Eligibility.  Accurate eligibility determinations are critical.  During the first open enrollment period, not 
all internal controls at certain marketplaces were effective in ensuring that individuals were properly 
determined eligible for QHPs, advance premium tax credits, and cost-sharing reductions.  CMS reported 
a large number of unresolved inconsistencies in which applicants self-reported data did not match 
other data sources.  Effective internal controls and timely and accurate resolution of inconsistencies are 
critical to ensure that eligible consumers receive appropriate benefits and that ineligible individuals are 
not enrolled.  
Management and Administration.  Management and administration of the marketplaces requires, 
among other things, clear leadership, disciplined operations, and effective strategies and 
communication.  OIG has raised concerns with, among other issues, CMSs acquisition planning and  22 
 
procurement, contract monitoring, and administration of payments for marketplace contracts.  The 
Department also must ensure, to the greatest extent possible, that the government obtains specified 
products and services from its contractors on time and within budget.   
Security.  Protecting and ensuring the confidentiality and integrity of consumers' sensitive personal 
information and marketplace information systems is paramount.  Effective operation of the 
marketplaces requires rapid, accurate, and secure integration of data from numerous federal and state 
sources, issuers, and consumers.  The Department must vigilantly guard against intrusions and 
continuously assess and improve the security of marketplace-related systems, including, among others, 
the Data Services Hub and the Multidimensional Insurance Data Analytics System (MIDAS), a data 
warehouse and repository.  (For more information on privacy and security, see Management challenge 
3.) 
Progress in Addressing the Challenge 
The Department has reported improvement in the operations of the federal marketplace.  Following the 
initial launch of Healthcare.gov, CMS implemented several core management principles that enabled the 
organization to recover the Web site and improve agency management and culture.  In addition, CMS 
has reported progress in marketplace operations, including publishing additional guidance regarding the 
use of federal establishment grant funds, implementing parallel processing and multiple levels of review 
of financial assistance payments information, working to develop a strategic and unified view of 
marketplace procurement and costs, and developing of a strategy to improve marketplace program 
integrity.  CMS has also reported regular communications with the IRS to validate payment information 
and the provision of technical and other support to the state marketplaces.   
What Needs To Be Done 
The Department must continue to improve the federal marketplace, particularly the eligibility, 
administrative, and financial management functions.  CMS must ensure that all pathways for enrollment 
operate with integrity and that consumers' personal information is secure.  Vigilant monitoring and 
testing and rapid mitigation of identified vulnerabilities are essential.  Attention must be paid to sound 
operation of financial assistance and the risk corridor, reinsurance, and risk-adjustment programs.  CMS 
must ensure that consumers and issuers receive accurate marketplace information, including 
information relevant for tax purposes, such as Form 1095A tax forms.  Furthermore, marketplaces must 
continue to protect personally identifiable information and strengthen security controls.  
CMS must continue to work with its state partners to improve state marketplace operations and to 
ensure compliance with federal requirements for marketplaces and QHPs.  CMS must monitor for and 
address fraud, waste, and abuse risks in marketplace programs.  CMS must respond quickly and 
effectively to fraud that is detected, working with partners at the federal and state level to hold those 
involved accountable.  
Key OIG Resources 
OIG has a broad portfolio of reviews examining various aspects of marketplace operations.  For a 
complete list of these OIG reports, as well as OIGs Health Reform Oversight Plan, please see the 
Affordable Care Act Reviews section on the OIG Web site.  (http://oig.hhs.gov/reports-and-
publications/aca/)  23 
 
Management Challenge 8:  Reforming Delivery and Payment in  
Health Care Programs 
Why This Is a Challenge 
As recently as 2011, almost none of the $558 billion spent on traditional Medicare was paid through 
alternative payment models (APM).  Instead, CMS paid the majority of claims through the fee-for-service 
(FFS) system.  The incentives created by the fee-for-service (FFS) systemwhich pays for health care on 
the basis of the volume of items or services furnishedhave been linked to wasteful spending in health 
care, including unnecessary utilization and fragmented, poor quality care.  
In January 2015, Secretary Burwell announced goals to foster better care, smarter spending, and 
healthier people and propel a transition to new models in Medicare.  The ambitious goals are twofold.  
First, HHS aspires to tie 30 percent of traditional Medicare payments to APMs by the end of 2016, 
including bundled payment arrangements, and 50 percent of payments by the end of 2018.  Second, 
HHS set a broader goal of tying 85 percent of traditional Medicare payments to quality or value 
including not only APMs but also quality-based adjustments to fee-for-service paymentsby 2016 and 
90 percent by 2018.  HHS is working with state Medicaid programs and private payers, including 
Medicare Advantage plans and others, to make comparable reforms for their providers and 
beneficiaries. 
Reforms under Affordable Care Act, MACRA, and other statutes are embedding multiple new payment 
and delivery models into Medicare, requiring concurrent, sustained, and multifaceted efforts at planning 
and implementation.  New models touch on virtually every aspect of the Medicare program  including, 
for example, hospital, physician, home health, dialysis, and post-acute care payment  and experiment 
with a variety of payment structures, including shared savings, episode-based payments, population-
based payments, and capitation.  In addition, CMS must implement a new market-driven payment 
system for laboratory services beginning in 2017.   
CMS must establish policy, infrastructure, data systems, and oversight mechanisms to successfully 
implement these substantial changes.  The Center for Medicare and Medicaid Innovation (CMMI) has a 
10-year budget of $10 billion dollars; the Department must ensure that Medicare realizes a return on 
the governments substantial investment in designing, testing, and implementing new models.  Perhaps 
equally challenging is ensuring that models are viable in light of providers substantial investments in 
infrastructure and care redesign. 
Payment and delivery reforms are not exclusive to fee-for-service Medicare.  The Department is 
promoting new models for Medicare Advantage (Part C).  Medicare Advantage is a growing program 
with potential for increased efficiency and quality through better coordinated care, aligned incentives, 
and performance measurement.  OIG work has identified challenges in the Medicare Advantage 
program with respect to use of data, payment accuracy, and program integrity, including addressing 
vulnerabilities at both the plan and provider levels.  Ensuring a sound Medicare Advantage program is 
essential to enabling this program to meet its intended cost and quality goals.  (For more information on 
improving the effectiveness of Medicaid managed care, please see Management Challenge 1.) 
    24 
 
Progress in Addressing the Challenge 
The Department reports that an estimated 20 percent of Medicare fee-for-service payments had shifted 
to APMs by the end of 2014.  On its Web site, CMS is compiling a steady stream of early results from and 
evaluations of new programs and models.  Recently, for example, CMS reported that Medicare 
accountable care organization (ACO) programs generated total program savings of more than $411 
million for Medicare in 2014 and that ACOs qualified for shared savings payments of more than $422 
million.  CMS further reported that nine of 17 participants in the Independence at Home (medical home) 
Demonstration met the requirements for practice incentive payments in the models first performance 
year. (Link to CMS report:  https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2015-
Fact-sheets-items/2015-08-25.html) 
CMS reported in its second biannual report to Congress that it had undertaken 22 models, including 
accountable care and bundled payment models, with more in development.  CMS is also testing 
initiatives to speed adoption of best practices, accelerate development and testing of new models, and 
reform Medicaid and CHIP.  These include large collaborations with private stakeholders, including the 
Million Hearts Program to advance heart health and the Partnership for Patients to improve hospital 
safety.  The Department initiated the Health Care Payment Learning and Action Network to collaborate 
on aligning reforms across health care sectors.  
Through its Medicaid Innovation Accelerator Program, CMS is providing technical support to state 
Medicaid agencies pursuing delivery system reform related to reducing substance use disorders; 
improving care for Medicaid beneficiaries with complex care needs and high costs; promoting 
community integration for beneficiaries using long-term services and supports; and physical and mental 
health integration.   
CMS continues to issue a range of guidance to participants in new models and has begun the regulatory 
process for the new physician and laboratory payment systems.  Additionally, CMS has taken steps to 
include in new models program integrity safeguards, including transparency of data and monitoring for 
indicators of abuse or gaming.   
What Needs to Be Done 
Much must be accomplished to meet the statutory and Departments reform goals and the promise of 
better quality of care at lower costs.  CMS must manage a broad portfolio of complex models and 
reforms.  CMS must continue to develop clear guidance for providers on program requirements; 
administer (or contract for) financial, beneficiary alignment, and other systems necessary for effective 
operations; and test, evaluate, and verify model progress and outcomes.  The Department should 
carefully monitor for successes and benefits that can be scaled and replicated, as well as for potential 
problemsincluding inefficiencies and misaligned incentives.  Further, CMS must clearly define 
actionable and meaningful quality measures and ensure that they, in fact, measure what CMS intends 
them to measure to achieve desired quality goals.   
New models rely significantly on data, EHRs, and technology.  CMS must ensure that data collected and 
provided for new payment models is timely, accurate, complete, and secure.  Data from providers and 
others must be integrated and shared across models, as appropriate.  (For more information on the 
challenges associated with electronic information and health IT, see Management Challenge 3.)  To the  25 
 
extent that cost and quality performance are measured on the basis of Parts A and B claims data, CMS 
must ensure the soundness and reliability of such data.  (For more information on fraud and abuse in 
Medicare Parts A and B, see Management Challenge 2).   
CMS must monitor for program integrity risks in new models, incorporate safeguards tailored to specific 
risks in particular models, and assess the effectiveness of the safeguards it employs.  Detected program 
integrity problems should be remediated promptly and safeguards strengthened to prevent program 
and patient abuse or gaming.  Sharp attention to program integrity is especially important for models 
that introduce new payment incentives, which might lead to new fraud schemes, or for which waivers of 
payment or fraud and abuse laws may have been issued under sections 1899(f) or 1115A of the Social 
Security Act.  As a critical element of program integrity, CMS must maintain accurate historical and real-
time information identifying providers and beneficiaries in new models. 
Finally, CMS must strengthen Medicare Advantage to ensure that benefits are provided only to eligible 
beneficiaries, that data from providers and the plans are available for fraud detection and prevention, 
and that plans have programs to address fraud and abuse.  Ensuring the accuracy of risk- adjustment 
data used to establish payment rates is also critical to protect against gaming or abuse.  CMS must also 
improve its use of data to review Medicare Advantage organizations performance. 
Key OIG Resources 
  OIG Resources, Accountable Care Organization Resource Page  
(http://oig.hhs.gov/compliance/accountable-care-organizations/index.asp) 
  OIG Report, Medicare Improperly Paid Medicare Advantage Organizations Millions of Dollars for 
Unlawfully Present Beneficiaries for 2010 Through 2012, April 2014  
(http://oig.hhs.gov/oas/reports/region7/71301125.pdf) 
  OIG Report, Medicare Advantage Organizations Identification of Potential Fraud and Abuse, 
February 2012  (http://oig.hhs.gov/oei/reports/oei-03-10-00310.pdf) 
  OIG Report, CMS Regularly Reviews Part C Reporting Requirements Data, but Its Followup and Use 
of the Data are Limited, March 2014  (http://oig.hhs.gov/oei/reports/oei-03-11-00720.pdf) 
Management Challenge 9: Effectively Operating Public Health  
and Human Services Programs 
Why This Is a Challenge 
The Department funds and operates public health and human services programs to promote health and 
economic and social well-being.  These include programs to prevent, track, and treat acute and chronic 
diseases; respond to natural and man-made disasters; protect against hazardous biological agents; and 
protect, care for, and educate children.  Many of these programs serve vulnerable populations.  
Effective management is essential to ensure that the programs achieve their goals and best serve the 
programs intended beneficiaries.  
Public Health Preparedness and Emergency Response.  Effective protection against public health 
threats requires a well-coordinated public health infrastructure that can rapidly respond to emergencies 
at home and internationally.  The Department must ensure that health care facilities and personnel are  26 
 
prepared and trained to address emerging infectious diseases and that the proper protocols are in place 
to foster response coordination with domestic and international partners.  Experiences responding to 
natural disasters, such as Superstorm Sandy, illustrated the important service of first responders and 
other health care professionals, but also identified gaps in natural disaster emergency planning and 
execution.  Shortcomings related to federal, state, and community organization collaboration; response 
team communication; shelter operations; and health care coverage were identified.  Furthermore, the 
Department must ensure that select agents (e.g., anthrax, smallpox) remain safe and secure.  CDC is 
tasked with overseeing the handling of select agents in private and government facilities.  However, 
security vulnerabilities identified at many Department research facilities attest to the continuing 
problems with how these agents are inventoried and handled.  
Access to and Quality of Services.  The Department must ensure that intended beneficiaries of public 
health and human services have access to services and that these services meet quality standards.  
Access to quality services has proven especially challenging in IHS, where one hospital recently lost its 
Medicare provider enrollment after being found to pose immediate jeopardy to patients.  Illustrating the 
challenges of adequately serving another vulnerable population, nearly a third of children in foster care 
who were enrolled in Medicaid did not receive at least one required health screening, and the 
Administration for Children and Families (ACF) did not ensure that these children received the required 
screenings according to state schedules.     
Protecting Vulnerable Populations.  The health and safety of children served by ACFs Child Care and 
Development Fund (CCDF) program  serving approximately 1.6 million children  continues to be an 
unaddressed vulnerability for the Department.  Vulnerabilities in states standards for and monitoring of 
childcare providers jeopardize safety.  A total of 454 violations of state licensing requirements were 
identified, including noncompliance with requirements related to physical conditions, inspection 
procedures, registration, criminal records or protective service checks, and child abuse and neglect 
registry checks.  In addition, states onsite monitoring of providers was infrequent, and states did not 
have enough inspectors to meet the national standard.   In 2014, there was an unprecedented, and 
unpredicted, increase of unaccompanied children arriving in the United States, which required ACFs 
Office of Refugee Resettlement, in coordination with interagency partners, to implement emergency 
response measures to quickly expand capacity and provide shelter for a significant number of children.  
(For general information about challenges associated with grants management and contract 
administration, see Management Challenge 4.)   
Progress in Addressing the Challenge 
The Department is undertaking several initiatives to strengthen federal, state, and community disaster 
response.  The Assistant Secretary for Preparedness and Response (ASPR) launched the Technical 
Resources Assistance Center and Information Exchange, an emergency preparedness information 
gateway designed to ensure that all stakeholders have access to information and resources to improve 
preparedness, response, recovery, and mitigation efforts.  With respect to deficiencies in responding to 
homebound individuals dependent on electrically powered medical equipment, ASPR released the 
emPOWER map as a tool to help communities plan for the disaster needs of these individuals.  CMS is 
also developing more comprehensive emergency preparedness requirements.  In December 2014, CMS 
published a proposed rule establishing emergency preparedness requirements for Medicare- and 
Medicaid-participating providers.    27 
 
The Consolidated and Further Continuing Appropriations Act, 2015, provided $2.7 billion in emergency 
funding to HHS for Ebola preparedness and response activities.  Of this, $1.77 billion was allocated to 
CDC to prevent, prepare for, and respond to Ebola domestically and internationally.  Through its 
Hospital Preparedness Program cooperative agreements, ASPR has designated nine health departments 
and associated partner hospitals to become special regional treatment centers for patients with Ebola or 
other severe, highly infectious diseases.  Through the newly announced National Ebola Training and 
Education Center, CDC and ASPR will support health care provider and facility training and management 
of Ebola and other emerging infectious diseases.8  
The Department has made progress in improving physical security and employee training related to safe 
and secure storage and handling of select agents.  CDC has revised its Vaccines for Children (VFC) 
Operations Guide, published a Storage and Handling Toolkit, and provided additional grantee and 
provider training to improve vaccine storage and handling practices.  CDC also now requires grantees to 
perform unannounced visits to providers offices, which was the technique that the OIG used to initially 
identify VFC program storage and handling vulnerabilities.   
The Child Care and Development Block Grant Act of 2014 (P.L. No. 113-186) reauthorized the CCDF 
program and improved childcare health, safety, and quality requirements.  The law requires states to 
perform an initial onsite monitoring visit and at least one annual unannounced onsite visit of licensed 
providers that have received CCDF subsidies, as well as annual inspections for license-exempt CCDF 
providers.  The law also requires childcare providers to submit background checks at least once every 5 
years for each childcare staff. 
Since the sharp increase of unaccompanied children referred to HHS in the Spring/Summer of 2014, ACF 
has continued to support and participate in the DHS-led Unified Coordination Group, which monitors all 
aspects of unaccompanied children arrivals, including HHS and Department of Homeland Security (DHS) 
programs, along with the collaboration of other federal partners such as the Department of State and 
the Department of Defense.  ACF has also awarded new contracts to support the operations of 
temporary surge shelters, should they need to be deployed in the future. 
What Needs To Be Done 
The Department should continue to promote federal, state, and community collaboration during major 
disasters.  While it may not be possible to predict when and where disasters will strike, the Department 
should prepare for a range of potential emergency scenarios and be ready to rapidly and effectively 
respond.  Additionally, improvements in the adoption and interoperability of health IT can facilitate 
medical care for displaced patients by ensuring continuity of access to health records.  (For more 
information on the secure exchange of health information, see Management Challenge 3.)   
The Department should move swiftly toward finalizing emergency preparedness regulations.  In 
conjunction with these regulations, detailed and clear guidance should be developed for surveyors 
assessing compliance with federal regulations.  In addition, clear guidance should be developed for the 
transport of Medicaid patients across state lines.  The Department must ensure the sufficiency and 
                                                           
8 Lead Inspector General Quarterly Progress Report on US Government Activities, International Ebola Response and 
Preparedness, June 30, 2015  (https://oig.usaid.gov/content/lead-inspector-general-quarterly-progress-report-us-
government-activities-international-eb-0)  28 
 
training of medical staff for disasters and severe infectious diseases to prepare them to maintain patient 
care during periods of poor conditions. 
The Department will need to continue efforts to improve its inventory control policies and procedures 
for select agents to resolve vulnerabilities.   
ACF should expand the scope of its Child and Family Services Reviews to determine whether children in 
foster care receive required screenings according to the timeframes specified in states plans.  
Furthermore, ACF should work with states to identify the barriers that prevent children in foster care 
from receiving required screenings and identify, disseminate, and implement strategies for overcoming 
those barriers.  ACF must continue to effectively implement the Child Care and Development Block 
Grant Act of 2014 to strengthen the Departments oversight of the health and safety of children.  OIG 
continues to recommend that the Department continue coordination with partner agencies, such as the 
Department of Homeland Security, to improve its ability to adequately care for unaccompanied children. 
Key OIG Resources 
  OIG Reports on emergency preparedness and response, OEI-06-13-00260  
(http://oig.hhs.gov/oei/reports/oei-06-13-00260.pdf),  OEI-04-13-00350  
(http://oig.hhs.gov/oei/reports/oei-04-13-00350.pdf) 
  OIG Report, Division of Unaccompanied Children's Services:  Efforts to Serve Children, March 2008  
(http://oig.hhs.gov/oei/reports/oei-07-06-00290.pdf) 
  OIG Testimony,  The Foundation for Success:  Strengthening the Child Care and Development Block 
Grant Program, March 2014  (http://oig.hhs.gov/testimony/docs/2014/jarmon-testimony-0314.pdf) 
  OIG Report, Not All Children in Foster Care Who Were Enrolled in Medicaid Received Required 
Health Screenings, March 2015  (http://oig.hhs.gov/oei/reports/oei-07-13-00460.asp) 
  OIG Testimony, Continuing Concerns with the Federal Select Agent Program: Department Of 
Defense Shipments of Live Anthrax, July 2015  
(http://www.oig.hhs.gov/testimony/docs/2015/demske-0728.pdf) 
Management Challenge 10: Ensuring the Safety of Food, Drugs,  
and Medical Devices 
Why This Is a Challenge 
The Department, through FDA, must ensure the safety, efficacy, and security of drugs, biologics, medical 
devices, dietary supplements, tobacco, feed, and much of our Nation's food supply.  However, 
weaknesses exist.  Areas of particularly high risk include drug compounding; the global supply chain; 
food safety; illegal marketing and promotion; and dietary supplements. 
Compounded Drugs.  Compounded drugs are produced outside of FDAs regulatory process designed to 
ensure the safety and efficacy of commercially manufactured drugs.  The potential danger of 
compounded drugs drew national attention in 2012, when contaminated compounded sterile drug 
injections caused a fungal meningitis outbreak.  The widespread use of compounded products in health 
care and FDA's limited ability to effectively oversee compounding entities, which number in the 
thousands and, generally, do not register with FDA, are causes for concern.   29 
 
Imported Food and Drugs.  Foreign sources account for about 40 percent of the drugs, 50 percent of the 
medical devices, 15 percent of the food, 85 percent of the seafood, and 50 percent of the fresh fruit 
used by Americans.  The global nature and complexity of this supply chain complicates FDAs task of 
ensuring safety.   
Food Facilities.  Food-borne illnesses, such as those caused by salmonella, listeria and E. coli, pose a 
continuing public health threat.  Despite legal requirements for food facilities to investigate and report 
adulteration and other serious food-safety concerns, food facilities failures to comply impede the 
Department's ability to ensure the safety of the Nation's food supply. 
Off-label Promotion and Kickbacks.  Manufacturers of drugs, biologics, and medical devices gain 
approval for sale of their products for specific uses once FDA determines that the products are safe and 
effective for those uses.  Once approved for sale, qualified medical providers may prescribe them for 
any use, including unapproved uses, commonly called off-label uses.  However, manufacturers are 
prohibited from promoting products for off-label uses.  Manufacturers are also prohibited from paying 
kickbacks to physicians or other health care providers to promote the use of their drug, biologic, or 
medical device.  OIG continues to identify illegal off-label promotion and kickbacks that put patients at 
risk of receiving inappropriate or harmful care and lead to fraudulent claims for payment from federal 
health care programs.  (For more information on drug diversion and utilization of prescription drugs, see 
Management Challenge 5).    
Dietary Supplements.  Dietary supplement manufacturers use structure/function claims to persuade 
consumers to purchase and use their products.  Structure/function claims can describe the effect of a 
dietary supplement on the structure and function of human bodies but may not claim to prevent, treat, 
mitigate, cure, or diagnose a disease.  Reliable evidence must substantiate these claims as truthful and 
not misleading, but manufacturers are not required to submit the substantiation to FDA prior to 
marketing their products, and FDA has only voluntary standards for submission.  Those substantiation 
documents submitted often do not reflect reliable evidence. 
Progress in Addressing the Challenge 
In 2013, the Drug Quality and Security Act (DQSA), amended the Federal Food, Drug, and Cosmetic Act 
to enhance FDAs authority to oversee compounding, including by providing a new pathway for 
compounders to register as "outsourcing facilities" to legally compound drugs.  The Department 
continues to work to fully implement DQSA, and FDA has issued numerous policy and guidance 
documents and increased its inspection and enforcement efforts.  FDA continues to inspect 
compounding facilities; oversee recalls of compounded drugs for contamination or lack of sterility 
assurance; and issue warning letters to compounders that violate the law.  
To address risks associated with imported drugs, FDA has engaged in both outreach and enforcement 
actions.  FDA has undertaken significant efforts to warn consumers, medical practitioners, and others 
about the risks associated with illegally buying drugs from foreign sources.  In addition, FDA has 
continued to work with OIG and other law enforcement partners to investigate and prosecute physicians 
and drug suppliers that import unapproved drugs, most notably misbranded, unapproved chemotherapy 
drugs.  Physicians who bill Medicare or Medicaid for such unapproved drugs can be subject to criminal 
liability under the False Claims Act and excluded from participating in federal health care programs.  FDA  30 
 
continues to cooperate with international partners and has introduced improved border screening to 
enhance oversight of imported products. 
FDA continues to implement its enhanced food-safety authorities statutorily granted in 2011 by the 
Food Safety Modernization Act (FSMA).  In September 2015, FDA promulgated new food safety rules 
that will require U.S. manufacturers of both human and animal foods to make detailed plans to identify 
and prevent contamination risks in their production facilities.  FDAs food scientists have helped improve 
genome sequencing technologies to better detect and prevent foodborne illnesses, and FDA continues 
to work on improving nutrition and calorie labeling to better inform consumers. 
OIG and its law enforcement partners have pursued numerous enforcement actions against drug, 
biologic, and device manufacturers for illegally promoting their products in ways that could harm 
patients and waste federal health care program money.   
FDA endeavors to continue to make progress in addressing OIG recommendations to improve oversight 
of dietary supplements.  In response to an OIG recommendation, FDA stated that it would consider 
seeking enhanced authority to review substantiation for structure/function claims. 
What Needs To Be Done 
The Department and FDA must continue issuing rules and guidance documents to fully implement 
FSMA, and DQSA, as well as the July 2012 Food and Drug Administration Safety and Innovation Act 
(FDASIA).  FDA must continue to implement its new authorities to enhance oversight of drug 
compounders and better ensure the safety of compounded products, including by inspecting drug 
compounders and pursuing regulatory action when deficiencies are identified.  OIG plans continued 
oversight of FDAs inspection of food facilities and monitoring of food recalls.  OIG continues to 
recommend that FDA remedy identified weaknesses in its inspections and recall procedures and better 
ensure that states properly conduct contracted food facility inspections.  The Department also must 
continue combating off-label promotion and illegal importation of unapproved drugs.  OIG, in 
cooperation with DOJ and other law enforcement partners, will continue to employ investigative and 
enforcement authorities to protect federal health care programs and beneficiaries from these 
potentially dangerous products.   
Key OIG Resources 
  OIG Report, Penetration Test of the Food and Drug Administrations Computer Network, October 
2014  (http://oig.hhs.gov/oas/reports/other/181330331.pdf) 
  OIG Report, High-Risk Compounded Sterile Preparations and Outsourcing by Hospitals That Use 
Them, April 2013  (http://oig.hhs.gov/oei/reports/oei-01-13-00150.pdf) 
  OIG Report, FDA Lacks Comprehensive Data To Determine Whether Risk Evaluation and Mitigation 
Strategies Improve Drug Safety, February 2013  (http://oig.hhs.gov/oei/reports/oei-04-11-
00510.pdf) 
  OIG Report, Dietary Supplements: Structure/Function Claims Fail to Meet Federal Requirements, 
October 2012  (http://oig.hhs.gov/oei/reports/oei-01-11-00210.pdf)