Background

Medicare covered approximately 54 million beneficiaries in fiscal year  2014 at an estimated cost of $603 billion. The program consists of four  parts, Parts A through D. In general, Part A covers hospital and other  inpatient stays, and Part B covers hospital outpatient and physician  services, durable medical equipment, and other services. Together,   Parts A and B are known as traditional Medicare or Medicare fee-for- service. Part C is Medicare Advantage, under which beneficiaries receive  their Medicare health benefits through private health plans, and Part D is  the Medicare outpatient prescription drug benefit, which is administered  through private drug plans. Medicare beneficiaries who enroll in Part C or  Part D plans receive separate cards from those plans, in addition to their  traditional Medicare card. Generally, an individual’s eligibility to participate  in Medicare is initially determined by the Social Security Administration,  based on factors such as age, work history, contributions made to the  programs through payroll deductions, and disability. Once the Social  Security Administration determines that an individual is eligible, it  provides information about the individual to CMS, which prints and issues  a paper Medicare card to the beneficiary. Providers must apply to enroll  in Medicare to become eligible to bill for services or supplies provided to  Medicare beneficiaries. CMS has enrollment standards and screening  procedures in place that are designed to ensure that only qualified  providers can enroll in the program and to prevent enrollment by entities  that might attempt to defraud Medicare.providers bill Medicare by submitting claims for reimbursement for the  services and supplies they provide to beneficiaries. Providers are not  issued identification cards, but instead use an assigned unique provider   Under Medicare fee-for-service,  identification number—their National Provider Identifier (NPI) number—on  each claim.

		Key Proposed Uses for Electronically Readable Cards

Electronically readable cards could be implemented for a number of  different purposes in Medicare. We identified three key proposed uses:
Authenticating beneficiary and provider presence at the point of  care. Beneficiary and provider cards could be used for authentication  to potentially help limit certain types of Medicare fraud, as CMS could  use records of the cards being swiped to verify that they were present  at the point of care. Using electronically readable cards for  authentication would not necessarily involve both beneficiaries and  providers, as cards could be used solely to authenticate beneficiaries,  or solely to authenticate providers.
Electronically exchanging beneficiary medical information.  Beneficiary cards could be used to store and exchange medical  information, such as electronic health records, beneficiary medical  conditions, and emergency care information, such as allergies.  Provider cards could also be used as a means to authenticate  providers accessing electronic health record (EHR) systems that store  and electronically exchange beneficiary health information.
Electronically conveying beneficiary identity and insurance  information to providers. Beneficiary cards could be used to auto- populate beneficiary information into provider IT systems and to  automatically retrieve existing beneficiary records from provider IT  systems. For example, an electronically readable Medicare  beneficiary card could contain the identity and insurance information  printed on the current paper Medicare cards—beneficiary name,  Medicare number, gender, Medicare benefits, and effective date of  Medicare coverage. The primary purpose of this potential use would  be to improve provider record keeping by allowing providers the  option to capture beneficiary information electronically.
The use of electronically readable cards for health care has been limited  thus far in the United States. According to stakeholders, the limited use  is due, in part, to reluctance among the insurance industry and health  care providers to invest in a technology that would depend on a  significant investment from both parties to implement. However, some  health insurers, including a large insurer, have issued electronically  readable cards to their beneficiaries, and some integrated health systems  have issued cards to patients to help manage patient clinical and  administrative information.cards have been used as health insurance cards for decades. For  example, France and Germany have used smart cards in their health care  systems since the 1990s. Appendix II includes additional details about  France’s and Germany’s use of smart cards.

		Medicare Program Integrity

Although there is no reliable measure of the extent of fraud in the  Medicare program, for over two decades we have documented ways in  which fraud contributes to Medicare’s fiscal problems. Preventing  Medicare fraud and ensuring that payments for services and supplies are  accurate can be complicated, especially since fraud can be difficult to  detect because those involved are generally engaged in intentional  deception. Common health care fraud schemes in Medicare include the  following:
Billing for services not rendered. This can include providers billing  for services and supplies for beneficiaries who were never seen or  rendered care, and billing for services not rendered to beneficiaries  who are provided care (such as adding a service that was not  provided to a claim for otherwise legitimately provided services). In  some types of fraud schemes, individuals may steal a provider’s  identity and submit claims for services never rendered and divert the  reimbursements without the provider’s knowledge.
Fraudulent or abusive billing practices. This can include providers  billing Medicare more than once for the same service; inappropriately  billing Medicare and another payer for the same service; upcoding of  services; unbundling of services; billing for noncovered services as  covered services; billing for medically unnecessary services; and  billing for services that were performed by an unqualified individual, or  misrepresenting the credentials of the person who provided the  services.
Kickbacks. This can include providers, provider associates, or  beneficiaries knowingly and willfully offering, paying, soliciting, or  receiving anything of value to induce or reward referrals or payments  for services or goods under Medicare.
Among other processes, to detect potential fraud, CMS employs IT  systems—including its Fraud Prevention System—that analyze claims  submitted over a period of time to detect patterns of suspicious billing.CMS and its contractors investigate providers and beneficiaries with  suspicious billing and utilization patterns and, in suspected cases of  fraud, can take administrative actions, such as suspending payments or  revoking a provider’s billing privileges, or refer the investigation to the  HHS Office of Inspector General for further examination and possible  criminal or civil prosecution.

		Identity Authentication

As we have previously reported, there are three potential factors that can  be used to authenticate an individual’s identity: (1) “something they  possess,” such as a card, (2) “something they know,” such as a password  or personal identification number (PIN), and (3) “something they are,”  such as biometric information, for example, a fingerprint, or a picture ID.Generally, the more factors that are used to authenticate an individual’s  identity, the higher the level of identity assurance. For example, a card  used in conjunction with a PIN provides a higher level of identity  authentication than just a card, since the PIN makes it more difficult for  individuals who are not the cardholder to use a lost or stolen card.
NIST has issued standards for federal agencies for using electronically  readable cards to achieve a high level of authentication, and those  standards require robust enrollment and card issuance processes to  ensure that the cards are issued to the correct individuals. These  processes include procedures to verify an individual’s identity prior to card  issuance to ensure eligibility and to ensure that the cards are issued to  the correct individual. For example, verifying an individual’s address is an  important practice for issuing cards by mail. If a significant number of  cards are issued to ineligible or incorrect individuals, it undermines the  utility of the cards for identity authentication.
Practices that provide higher levels of identity authentication generally are  more expensive and difficult to implement and maintain and may cause  greater inconvenience to users than practices that provide lower levels of  assurance. The level of identity authentication that is appropriate for a  given application or transaction depends on the risks associated with the  application or transaction. The greater the determined risk, the greater the  need for higher-level identity authentication practices. The Office of  Management and Budget and NIST have issued guidance defining four  levels of identity assurance ranging from level 1—“little or no confidence  in the asserted identity’s validity”—to level four—“very high confidence in  the asserted identity’s validity”—and directed agencies to use risk-based  methods to decide which level of authentication is appropriate for any  given application or transaction. Additionally, authentication practices  should take into account issues related to cost and user acceptability.
CMS currently relies on providers to authenticate the identities of  Medicare beneficiaries to whom they are providing care, but the agency  does not have a way to verify whether beneficiaries and providers were  actually present at the point of care when processing claims. At this point,  CMS has not made a determination that a higher level of beneficiary and  provider authentication is needed.

	Smart Cards Can Provide More Rigorous Authentication, but All Cards Could Electronically Convey Beneficiary Identity and Insurance Information

The type of electronically readable card most appropriate for Medicare  would depend on how the cards would be used. Three common types of  electronically readable cards that could be used to replace the current  printed Medicare card are smart cards, magnetic stripe cards, and bar  code cards. The key distinguishing feature of smart cards is that they  contain a microprocessor chip that can both store and process data,  much like a very basic computer. Based on our analysis of the capability  of the three types of cards, we found that while all of the cards could be  used for authentication, storing and exchanging medical information, and  conveying beneficiary information, the ability of smart cards to process  data enables them to provide higher levels of authentication and better  secure information than cards with magnetic stripes and bar codes.
Our analysis found that smart cards could provide substantially more  rigorous authentication of the identities of Medicare beneficiaries and  providers than magnetic stripe or bar code cards (see fig. 1). Although all  three types of electronically readable cards could be used for  authentication, smart cards provide a higher level of assurance in their  authenticity because they are difficult to counterfeit or copy. Magnetic  stripe and bar code cards, on the other hand, are easily counterfeited or   For example, officials in France told us that they chose to use  copied.smart cards as their health insurance cards, in part, because they were  less susceptible to counterfeiting, and reported that they have not  encountered any problems with counterfeit cards. Additionally, smart  cards can be implemented with a public key infrastructure (PKI)—a  system that uses encryption and decryption techniques to secure  information and transactions—to authenticate the cards and ensure the  data on the cards have not been altered.
All three types of cards could be used in conjunction with other  authentication factors, such as a PIN or biometric information, to achieve  a higher level of authentication. However, only smart cards are capable of  performing on-card verification of other authentication factors. For  example, smart cards can verify whether a user provides a correct PIN or  can confirm a fingerprint match, without being connected to a separate IT  system. Cards with magnetic stripes and barcodes cannot perform such  on-card verification, and require a connection to a separate IT system to  verify PINs or biometric information.
We also determined that using electronically readable cards to store and  exchange medical information would likely require the use of smart cards  given their storage capacity and security features. Smart cards have a  significantly greater storage capacity than magnetic stripe and bar code  cards, and would be able to store more extensive medical information on  the cards. However, the storage on smart cards is limited, so it is  unlikely that the cards would be able to store all of a beneficiary’s medical  records or medical records of a larger file size, such as medical images.  In addition, smart cards could better secure confidential information,  including individually identifiable health information subject to protection  under the Health Insurance Portability and Accountability Act of 1996  (HIPAA). Smart cards can be implemented with PKI to perform public  key encryption and authentication to secure and securely transmit any  medical information on the card. Smart cards’ ability to perform on-card  verification can also be used to limit access to information on the cards to  better ensure that information is not accessed inappropriately. For  example, beneficiaries could be required to enter a PIN for providers to  access medical information on the card, while access to nonsensitive  information could be allowed without beneficiaries entering a PIN.
Our analysis also found that any of the three types of electronically  readable cards could be used to convey beneficiary identity and  insurance information to providers. Each type of card has adequate  storage capacity to contain such information, and storing this type of  information may not require cards with processing capabilities or security  features. If beneficiary SSNs continue to serve as the main component of  Medicare numbers, cards with security features would be needed to  reduce the risk of identity theft.

	The Use of Electronically Readable Cards Would Provide Limited Benefits for Reducing Fraud, but Could Aid Administrative Processes

Using electronically readable cards to authenticate beneficiary and  provider presence at the point of care could potentially curtail certain  types of Medicare fraud, but would have limited effect since CMS has  stated that it would continue to pay claims regardless of whether a card  was used. Using electronically readable cards to store and exchange  medical records is not part of current federal efforts to facilitate health  information exchange and would likely present challenges. Using  electronically readable cards to convey identity and insurance information  to auto-populate and retrieve information from provider IT systems could  reduce errors in the reimbursement process and improve medical record  keeping.

		Authentication Could Make Certain Types of Fraud More Difficult, but Paying Claims for Services When Cards Were Not Used Would Limit Effect on Fraud

Using electronically readable cards to authenticate beneficiary and  provider presence at the point of care could potentially limit certain types  of Medicare fraud. However, we could not determine the extent to which  authenticating beneficiaries and providers at the point of care could limit  fraud because there is no reliable estimate of the extent or total dollar  value associated with specific types of Medicare fraud schemes.  Stakeholders told us that authenticating beneficiaries at the point of care  could potentially limit schemes in which Medicare providers misuse  beneficiary Medicare numbers to bill fraudulently for services. In such  schemes, providers use beneficiary Medicare numbers to bill on their  behalf without having ever seen or rendered care to the beneficiaries. As  of May 2014, CMS was aware of 284,000 Medicare beneficiary numbers  that had been compromised and potentially used to submit fraudulent  claims. Stakeholders also told us that authenticating providers at the  point of care could potentially limit fraud schemes in which individuals or  companies misuse an unknowing provider’s Medicare enrollment  information to submit claims and divert stolen reimbursements.
Adding another authentication factor, such as a PIN or a biometric factor,  to a beneficiary’s card also could limit the potential for individuals to use a  stolen Medicare card to obtain care or bill for services. For example,  individuals attempting to use a stolen card could not pose as a beneficiary  or bill for services on behalf of a beneficiary without knowing the  beneficiary’s PIN. Beneficiaries would still be able to lend their card to  others and tell them their PIN, though replicating a biometric factor would  be more difficult. beneficiaries that were never seen or  rendered care: Two owners of a home  health agency paid kickbacks to obtain  information on Medicare beneficiaries and  used the information to bill for home  health care services that were not actually  rendered.  services: A doctor performing surgeries  on beneficiaries billed Medicare for  individual steps involved in the surgeries,  rather than the entire procedure to  fraudulently increase reimbursements.  services as covered services: The  owner of a medical transport company  provided beneficiaries with routine,  nonemergency transportation services not  covered by Medicare, but billed Medicare  for emergency ambulance transportation,  which is covered by Medicare. told us that requiring cards to be used would not be feasible because of  concerns that doing so would limit beneficiaries’ access to care.  Specifically, CMS officials told us the agency would not want to make  access to Medicare benefits dependent on beneficiaries having their card  at the point of care. According to CMS officials and stakeholders, there  are legitimate reasons why a card may not be present at the point of care,  such as when beneficiaries or providers forget their cards or during a  medical emergency. Because CMS has indicated that it would still  process and pay for these claims, providers submitting potentially  fraudulent claims could simply not use the cards at the point of care.  Some stakeholders noted that CMS could mitigate the risk of paying  claims in which cards are not used by using its Fraud Prevention System  or other IT systems to identify and investigate providers with suspicious  billing patterns related to card use. For example, such systems could  identify providers that submit an abnormally high percentage of claims in  which cards are not used, which could be indicative of claims for  beneficiaries who were never seen or rendered care. However, CMS  officials noted that they already use their IT systems to identify providers  that bill for services for beneficiaries who were never seen or rendered  care. For example, CMS analyzes billing patterns to identify and conduct  postpayment investigations into providers that submit an abnormal  number of claims for beneficiaries with known compromised numbers.
Provider paid or received kickbacks for  beneficiary referrals for specific  services, or for the purchase of goods  or services that may be paid for by  Medicare: The operator of a home health  agency paid illegal kickbacks to  physicians to refer beneficiaries who were  not homebound or who otherwise did not  qualify for home health services, resulting  in fraudulent Medicare billing for home  health services.  kickbacks to allow provider to  fraudulently bill for services: Two  beneficiaries solicited and received  kickbacks to serve as patients for a home  health agency that fraudulently billed  Medicare for physical therapy services.
According to stakeholders, the use of electronically readable beneficiary  cards would also have little effect on many other potentially fraudulent  and abusive provider billing practices. For example, use of the cards  would not prevent providers from mischaracterizing services, billing for  medically unnecessary services, or adding a service that was not  provided to a claim for otherwise legitimate services because such fraud  does not involve issues related to authentication. Instead, these types of  fraud typically involve providers that wrongly bill Medicare for the care  provided, or misrepresent the level or nature of the care provided. The  use of electronically readable beneficiary and provider cards would also  have little effect on preventing fraud that involves collusion between  providers and beneficiaries because complicit beneficiaries, including  those who receive kickbacks, would likely allow their cards to be misused.
Officials we spoke with in France and Germany told us that the use of  electronically readable cards has not limited certain types of fraud.  Officials from provider organizations and an insurance organization in  Germany told us that the use of beneficiary cards does not prevent  providers from fraudulently adding services that they never provided onto  otherwise legitimate claims. In addition, officials from France noted that  certain elderly or infirm beneficiaries may need to rely on providers to  maintain custody of and use their cards, and there had been instances of  providers and caretakers misusing beneficiary cards in such cases. For  example, officials from an insurance organization in France noted that  nurses and caretakers of elderly patients have stolen patient cards and  allowed other providers to misuse them.
Finally, there are also concerns that the use of an electronically readable  card could introduce new types of fraud and ways for individuals to  illegally access Medicare beneficiary data. For example, CMS officials  said that malicious software written onto an electronically readable card  could be used to compromise provider IT systems. In addition, CMS  officials noted that individuals could illicitly access beneficiary information  through “card skimming.” However, Medicare beneficiary data in  provider IT systems may already be vulnerable to illegal access and  use.

		Exchanging Medical Information with Electronically Readable Cards Is Not Part of Current Health Information Exchange Initiatives, and Would Likely Present Challenges

Using electronically readable cards to store and exchange beneficiary  medical information is not part of current federal efforts to facilitate  electronic health information exchange and would likely present  challenges. To help improve health care quality, efficiency, and patient  safety, the Medicare EHR Incentive Program provides financial incentives  for Medicare providers to increase the use of EHR technology to, among  other things, exchange patient medical information electronically with  other providers. In addition, ONC has funded health information  exchange organizations that provide support to facilitate the electronic  exchange of health information between providers. These and other  ongoing federal health information exchange programs aim to increase  the connections and exchanges of medical information directly between  provider EHR systems so that patient medical information is available  where and when it is needed. None of these existing programs include  the use of electronically readable cards to store or exchange medical  information. Using electronically readable cards to store and exchange  beneficiary medical information would introduce an additional medium to  supplement health information exchange among EHR systems, with  beneficiaries serving as intermediaries in the exchange.
Stakeholders noted that implementing another medium, such as a card,  that stores beneficiary medical information outside of provider EHR  systems could lead to inconsistencies with provider records.  Stakeholders, including a health care IT vendor and a provider  organization, stated that storing beneficiary medical information on  beneficiary cards in addition to EHR systems could lead to problems with  ensuring that medical information is synchronized and current. For  example, beneficiaries who have laboratory tests performed after medical  encounters would not have a means to upload the results to their cards  before visiting their providers again, leading to cards that are not  synchronized with provider records.
Several stakeholders also stated that using electronically readable cards  to store and exchange medical information would likely face similar  interoperability issues encountered by federal health exchange programs  and providers implementing EHR systems. Information that is  electronically exchanged among providers must adhere to the same  standards in order to be interpreted and used in EHRs. We previously  found that insufficient standards for electronic health information  exchange have been cited by providers and other stakeholders as a key  challenge for health information exchange. For example, we found that  insufficient standards for classifying and coding patient allergy information  in EHRs could potentially limit providers’ ability to exchange and use such  information. The use of electronically readable cards would involve  exchanging medical information through an additional medium, but it  would also be subject to the same interoperability issues that currently  limit exchange.
Despite potential challenges using electronically readable cards to store  and exchange medical information, several stakeholders noted that  adding patient health information to an electronically readable card may  have benefits such as better health outcomes in emergency medical  situations. For example, a beneficiary card containing medical information  could be used by an emergency care provider to access important  information that might otherwise be unknown, such as beneficiary allergy  information.
One potential benefit of electronically readable provider cards is that they  could provide an option to authenticate providers accessing EHR  systems, especially for remote online access. EHR systems that store  patient medical information can be accessed from places outside the  clinical setting, and there are concerns regarding the current level of  identity authentication to ensure that only authorized providers are  accessing the systems remotely. Although no determinations have been  made regarding what specific authentication practices are needed, or  what types of technology should be used for remote access, an HHS  advisory committee has recommended that the Medicare EHR program  implement rules regarding how providers should be authenticated when  remotely accessing EHR systems. According to an electronically  readable card industry organization, electronically readable cards could  be used to authenticate providers remotely accessing EHR systems.

		Using Electronically Readable Cards to Convey Beneficiary Identity and Insurance Information Could Reduce Reimbursement Errors and Improve Medical Record Keeping

Using electronically readable cards to convey identity and insurance  information to auto-populate and retrieve information from provider IT  systems could reduce errors in the reimbursement process and improve  medical record keeping and health information exchange. Many providers  currently capture identity and insurance information by photocopying  insurance cards and manually entering beneficiary information into their  IT systems, which can lead to data entry errors. In addition, providers  have different practices for entering beneficiary names, such as different  practices for recording names with apostrophes and hyphens, or may use  beneficiary nicknames, leading to possible naming inconsistencies for a  single individual. The failure to initially collect accurate beneficiary identity  and insurance information when providers enter patient information into  their IT systems, or retrieve information on existing beneficiaries, can  compromise subsequent administrative processes.
According to stakeholders, using an electronically readable card to  standardize the process of collecting beneficiary identity and insurance  information could help reduce errors in the reimbursement process. When  beneficiaries’ identity or insurance information is inaccurate, insurers  reject claims for those beneficiaries. Providers then must determine why  the claims have been rejected, and reimbursements are delayed until  issues with the claims are addressed and the claims are resubmitted.  Once any issues are addressed, insurers reprocess resubmitted claims.  Based on data provided by CMS, we found that up to 44 percent of the  more than 70 million Medicare claims that CMS rejected between   January 1, 2014, and September 29, 2014, may have been rejected  because of invalid or incorrect beneficiary identity and insurance  information that could be obtained from beneficiaries’ Medicare cards. In  addition, HHS has cited an industry study indicating that, industrywide, a  significant percentage of denied health insurance claims are due to  providers submitting incorrect patient information to insurers. However,  CMS officials stated that using electronically readable cards may not  necessarily reduce claim rejections because providers may still obtain  beneficiary information in other ways, including over the telephone or  paper forms that have been filled out by beneficiaries.
Stakeholders also told us that problems with collecting beneficiary  information can lead to the creation of medical records that are not linked  accurately to beneficiaries or records that are linked to the wrong  individual, which can lead to clinical inefficiencies and potentially  compromise patient safety. For example, problems collecting beneficiary information can prevent providers from retrieving existing  beneficiary records from their IT systems, leading providers to create  duplicate medical record files that are not matched to existing beneficiary  records. Medical records that are not accurately linked to beneficiaries  can compromise a provider’s ability to make clinical decisions based on  complete and accurate medical records, which can lead to repeat and  unnecessary medical tests and services, and adverse events, such as  adverse drug interactions.
Furthermore, inaccurate and inconsistent beneficiary records can also  limit electronic health information exchange by limiting the ability to match  records among providers. We previously found that difficulty matching  beneficiaries to their health records has been a key challenge for  electronic health information exchange, and this can lead to beneficiaries  being matched to the wrong set of records, and to providers needing to  match records manually.
VA also recently issued new paper cards to certain veterans to obtain care outside of   VA facilities. See the Veterans Access, Choice and Accountability Act of 2014, Pub. L.   No. 113-146, § 101(f),128 Stat. 1754, 1760 (codified at 38 U.S.C. § 1701 note). beneficiary identity and insurance information prior to appointments,  through either telephone conversations or online portals to preregister for  appointments. This practice of ensuring the accuracy of beneficiary  information prior to appointments may limit the possible benefits of using  electronically readable cards to convey information at the point of care.

	CMS and Providers Could Face Challenges Implementing Cards for Authentication, but Conveying Identity and Insurance Information Would Be Less Complex

CMS would need to update its claims processing systems to use  electronically readable cards to authenticate beneficiary and provider  presence at the point of care, while using the cards to convey beneficiary  identity and insurance information might not require CMS to make IT  updates. Similarly, using electronically readable cards for authentication  would require updates to CMS’s current card management processes,  while using the cards to convey beneficiary identity and insurance might  not. For all potential uses of electronically readable cards, Medicare  providers could incur costs and face challenges updating their IT systems  to read and use information from the cards.

		Authentication Would Involve Costs and Updates to CMS’s IT Systems, but Conveying Identity and Insurance Information Might Not Require Updates

Using electronically readable cards to authenticate beneficiaries and  providers would require updates to CMS’s claims processing systems to  verify that the cards were swiped at the point of care. CMS officials told  us they have not fully studied the specific IT updates that would be  needed to the claims processing system and could not provide an  estimate of costs associated with implementing any updates. However,  they noted that any IT updates would necessitate additional funding and  time to implement, and could involve IT challenges.
Based on our research, we identified two options for how CMS could  verify that the cards were swiped by beneficiaries and providers at the  point of care.
The first option is based on proposals from an HHS advisory  organization and a smart card industry organization. When  beneficiaries and providers swipe their cards, CMS’s IT systems  would generate and transmit unique transaction codes to providers.  Providers would include the transaction codes on their claims. When  processing claims, CMS would match the original transaction codes  generated by CMS’s IT systems with the codes on submitted claims.For this option, CMS officials told us that they would need to  implement an IT system to collect and store data on the transaction  codes and build electronic connections with existing claims  processing systems to match the codes with submitted claims.
The second option is based on the processes used in a CMS pilot  program.  When beneficiaries and providers swipe their cards,  information about the card transaction—such as the date of the  transaction and the beneficiary Medicare number and provider NPI  associated with the cards—would be sent to CMS. CMS would match  this information about the card transaction with information on the  claims submitted by the providers. According to officials, this option  would similarly involve implementing an IT system to collect and store  data on the card transactions and connecting the system with existing  claims processing systems to match information about the  transactions with submitted claims.
CMS officials told us that verifying that beneficiary and provider cards  were swiped by including new content on claims—such as unique  transaction codes—would be problematic. Doing so would involve  changes to industrywide standards for claim submission and the way in  which CMS’s IT systems receive submitted claims. These industrywide  standards govern the data content and format for electronic health care  transactions, including claim submission. Adding new content to claims,  such as a field for a transaction code, would require CMS to seek  changes to existing claim standards with the standard-setting body  responsible for overseeing the data content and format for electronic  health care transactions. Officials told us that requesting and having such  changes approved could take several years. CMS officials further noted  that the IT infrastructure that CMS developed to accept electronic claim  submissions was built to accept claims based on current standards and  would need to be updated to accept any new content fields. However,  under the second option, verifying that the cards were swiped by  matching information about the card transaction—such as the date and  beneficiary and provider identification information—with information on  the claims submitted would not involve additional content on claims  because CMS would be matching the card transactions with information  currently included on claims.
See GAO, Information Security: Advances and Remaining Challenges to Adoption of  Public Key Infrastructure Technology, GAO-01-277 (Washington, D.C.: Feb. 26, 2001). federal agencies, told us that CMS could leverage such services to use  PKI for electronically readable Medicare cards. CMS officials stated that  CMS has not studied this issue and said they could not provide any cost  estimates for using PKI for electronically readable Medicare cards.
In contrast to using electronically readable cards for authentication, using  the cards to convey beneficiary identity and insurance information may  not require updates to CMS’s IT systems. Using the cards to convey such  information primarily involves transferring information from the card to  provider IT systems, as opposed to interacting with CMS IT systems.  However, CMS officials said if any additional identity or insurance  information is put on an electronically readable card that requires  changes to the content or formatting of claims, CMS would have to  update its claims processing systems.

		Authentication Would Require New Card Management Processes and Could Present Challenges, while Conveying Identity and Insurance Information Might Not

CMS would need to update and obtain additional resources for its current  card management processes to use electronically readable cards to  achieve a higher level of authentication for beneficiaries and providers.  Card management processes involve procedures for enrollment, issuing  cards, replacing cards, updating information on cards, deactivating cards,  and addressing cardholder issues, among other processes; and  developing standards and procedures for card use. Medicare currently  does not issue cards to providers, and therefore CMS would need to  implement a new program to issue and manage provider cards and to  develop standards and procedures for card use.
In addition, we found that new standards and procedures for card use  would likely need to be developed to implement electronically readable  cards to authenticate beneficiaries and providers. Proponents have  suggested that NIST standards for electronically readable cards could be  used to implement such cards for Medicare. However, these standards  generally apply to the issuance and use of smart cards by federal  employees and contractors for accessing computers and physical  locations, and we found that the application of such standards could  present logistical challenges for Medicare and could entail changes to  current Medicare card management practices. For example, NIST  standards involve procedures for verifying the identities of individuals  before they are issued cards and, among other requirements, require  potential cardholders to appear in person before being issued a card.  Medicare does not require beneficiaries to appear in person to be  enrolled in the program and issued cards. Doing so could present barriers  to beneficiary enrollment and could present logistical challenges, given  that Medicare covered approximately 54 million beneficiaries in 2014 and  CMS does not have an infrastructure in place to meet beneficiaries in  person. Additionally, to use the cards with a PKI system, CMS would  need to implement processes to update and reissue beneficiary cards as  needed to meet security requirements. Currently, the NIST standards  require cards to be reissued every 6 years to update the PKI keys on the  cards. Reissuing cards on a regular basis would likely require the  implementation of new card management processes and additional  resources for CMS. As of now, CMS only reissues cards if they are  reported as lost, stolen, or damaged, or if there is a change to beneficiary  information, such as a name change.
CMS would face additional card management challenges and practical  concerns to use electronically readable cards in conjunction with a PIN or  biometric information. According to CMS officials, implementing PINs or  biometrics would come with large costs and would involve significant  changes for CMS and beneficiaries. To use PINs, CMS would need to  implement processes for creating, managing, and verifying them. CMS  officials and other stakeholders also noted that certain Medicare  beneficiaries, especially those with cognitive impairments, may not be  able to remember their PINs. Officials we spoke with in France told us  that they decided not to have beneficiaries use PINs with their cards after  a pilot project found that some beneficiaries had difficulties remembering  them. In terms of using biometrics, CMS officials and other stakeholders  expressed concerns regarding beneficiaries’ willingness to provide  biometric information due to privacy considerations and the logistics  involved in collecting such information from beneficiaries. Both France  and Germany are currently issuing cards that include photographs of  beneficiaries, and officials from both countries told us that they  experienced difficulties collecting them. Both countries allow beneficiaries  to submit their photographs by mail, and Germany allows beneficiaries to  submit their photographs online.because the pictures are not taken in person, there are few controls in  place to ensure that beneficiaries submit a representative photograph of  themselves. VA includes a photograph of the veteran on its cards, which  it generally obtains in person at local medical centers. CMS does not  have an infrastructure like VA to take photographs of Medicare  beneficiaries.
Officials from Germany noted that  CMS would need to implement processes for securing information on  electronically readable cards to use them to store and exchange  beneficiary medical information. CMS and ONC officials and other  stakeholders expressed concerns about storing individually identifiable  health information on the cards and told us that beneficiaries would likely  be sensitive to having their medical information on the cards, so the  security processes in place to protect this information would need to be  rigorous. In particular, processes would be needed for accessing and  writing information onto the cards to ensure that beneficiaries could  control who could view stored information and to ensure that only  legitimate providers are able to access information from or write  information onto the cards.
In contrast with using electronically readable cards for authentication or to  store and exchange beneficiary medical information, we found that CMS  would not necessarily need to make changes to current standards and  procedures for the cards to electronically convey beneficiary identity and  insurance information. The cards would not be used in a significantly  different way than they are now—to convey information that providers use  to verify beneficiary eligibility and to submit claims—and accordingly, little  would change other than the type of card CMS issues. Instead of a paper  card, CMS would need to produce and issue an electronically readable  card.in the United States has been limited, there are existing industry  standards for using such cards to convey identity and insurance  information. An HHS advisory organization, the Workgroup for Electronic  Data Interchange (WEDI), has issued formatting and terminology   Although the use of electronically readable health insurance cards  standards for using electronically readable cards that could be applied to  electronically readable Medicare cards.
CMS officials also noted that the implementation of electronically  readable cards would require beneficiary and provider education and  outreach regarding the new cards and any associated changes related to  how the cards are used. For example, CMS would have to disseminate  information on the different functions and features of any card and  information on what to do if the electronically readable functions of the  card are not working. For cases where IT systems malfunctioned or IT  access was an issue, CMS officials stated the agency would need to have  support services in place for providers and beneficiaries, and paper back- up options.

		Providers Could Incur Costs and Face Challenges Updating Their IT Systems to Implement Electronically Readable Cards

For all potential uses of electronically readable cards, Medicare providers  could incur costs and face challenges updating their IT systems to read  and use information from the cards. For providers to use electronically  readable cards, they would need to have hardware, such as card readers,  to read information from the cards. According to stakeholders, including  provider organizations, health care IT, transaction standards, billing, and  management organizations, and health care IT vendors, in general,  providers would also need to update their existing IT system software to  use the information on cards. For example, to use electronically readable  cards to store and exchange beneficiary medical information, providers’  EHR systems would need to be updated to be able to read and use the  medical information on the cards.
Generally, providers would have to update their existing IT systems with a  type of software called middleware to interact with and use information  from electronically readable cards, and such updates could involve  significant challenges.provider IT systems, including billing systems and EHRs, vary widely and  often are customized to meet the needs of individual providers. While  some providers have a single, integrated IT system for billing, tracking   According to stakeholders we spoke with,  patient medical information, and other administrative applications, other  providers have individual systems for each application, such as practice  management, billing, and EHR systems. Because of the variety and  customization of systems in place, providers may need to implement  uniquely developed middleware for each software system the cards would  interact with to ensure that their IT systems could read and use  information from the cards.
Updating provider IT systems to use electronically readable cards for  beneficiary and provider authentication by including transaction codes on  claims could prove particularly challenging. To do so, the cards would  need to be able to interact with provider IT systems used for billing so that  the systems could incorporate the transaction codes generated by the  cards onto provider claim forms. Stakeholders told us that current  provider IT systems are not designed to interact with electronically  readable cards to incorporate transaction codes generated by the cards  onto claims. Additionally, they said that provider billing practices vary  widely, which presents challenges for developing standard ways to  update provider IT systems to be able to perform this function. For  example, some providers have IT systems capable of directly billing CMS,  while others use IT systems that electronically transmit clinical encounter  information to third-party billers, who generate and submit claims to CMS.  Some providers do not use IT systems, and submit paper claims or  clinical encounter information to clearinghouses, which convert the claims  into electronic format and submit them to CMS.
If information about the card transaction is sent directly to CMS—and no  transaction codes are included on claims—providers would not  necessarily need to update their existing IT software. In CMS’s 2011 and  2012 electronically readable card pilot program, participating physicians  and suppliers did not need to update their IT systems, as they used  magnetic stripe cards and sent the information to CMS using existing  credit card readers and networks. However, if CMS used smart cards with  PKI for authentication rather than magnetic stripe cards and credit card  readers, providers would likely need to purchase card readers and  software capable of authenticating the cards.
While some provider IT systems would need to be updated with  middleware to be able to use beneficiary identity and insurance  information conveyed by electronically readable cards, some provider  systems already have this capability. One vendor noted that its IT  systems are capable of using beneficiary identity and insurance  information from cards that comply with WEDI electronically readable  card standards to auto-populate and retrieve information from their IT  systems. In addition, an insurer that issues electronically readable cards  that comply with WEDI standards told us that there are providers that  currently use its cards to auto-populate information into their IT systems,  though this insurer could not estimate the percentage of providers who do  so.
In addition to updating IT systems, CMS officials and stakeholders also  expressed concerns regarding how using electronically readable cards to  authenticate providers at the point of care would be incorporated into  provider workflows. During the pilot program conducted by CMS,  participating providers told CMS that using the cards was an  administrative burden that required changes to their workflows.  Stakeholders noted that it might not be practical for providers to swipe the  cards during the course of providing care and that the cards might instead  be used by administrative or billing staff. However, having administrative  staff use provider cards could create complexity in terms of card use and  limits the ability of the card to be used to authenticate provider presence  at the point of care. For some providers, administrative and billing  processes might not take place at the same location where care is  provided.
Stakeholders also expressed logistical concerns regarding when and how  beneficiary and provider cards would be swiped at the point of care. At  larger provider facilities, such as hospitals, having beneficiaries and  providers swipe their cards at the point of care might require providers to  deploy many card readers within a single facility. Additionally,  stakeholders expressed concerns regarding how the cards would be used  when multiple providers provide care during a single medical encounter.  For example, a beneficiary experiencing a medical emergency may be  provided care by an ambulance company, hospital, and attending  physicians. With each provider submitting its own claim for  reimbursement, it raises questions regarding how a single swipe of the  beneficiary’s card would be matched to each of the claims submitted by  the providers. Further, stakeholders raised questions regarding how the  cards would be used by providers that may have little contact with  beneficiaries, such as laboratories.
Many stakeholders also cited potential challenges encouraging providers  to incur costs to purchase hardware and update their IT systems to use  the cards, especially given existing CMS IT requirements. Officials at  CMS and ONC, along with stakeholders, noted that Medicare providers  are already investing resources, and facing IT challenges, to meet  Medicare EHR Incentive Program requirements and to update their IT   Both France and Germany have  systems to adopt new billing codes.experienced similar challenges with provider reluctance to incur costs to  use electronically readable cards. According to officials from  organizations we spoke with in those countries, financial subsidies to  purchase hardware and update IT systems, and financial incentives for  card use have been key to encouraging provider participation.

	France and Germany Have Seen Successes and Challenges Implementing Electronically Readable Card Systems that Provide Lessons Learned for Medicare

France and Germany have each successfully implemented an  electronically readable card system—specifically, a smart card system— on a national scale in their health care systems. The implementation of  these systems provides lessons that could inform U.S. policymakers in  deciding whether to adopt an electronically readable card for Medicare.  Both countries’ experiences demonstrate that implementation of an  electronically readable card would likely be a long process and would  require that competing stakeholder needs be discussed and addressed.  Further, the experiences of France and Germany illustrate that after  implementation, management of an electronically readable card system is  a continuing and costly process.

		Implementation of Electronically Readable Cards in France and Germany Was a Lengthy Process

France and Germany’s successful implementation of an electronically  readable card system demonstrates that implementation of such a system  on a national scale is possible. According to the organization that  manages the smart card system in France, 50 million citizens, or about   76 percent of the population in France, used a beneficiary card and more  than 300,000 health care providers used a health care provider card as  part of a health care service in 2013. Approximately 90 percent of  France’s health care claims were generated by swiping both a beneficiary  and a health care provider smart card. In Germany, approximately   70 million citizens, or about 85 percent of the population, used a smart  card provided to beneficiaries as their health insurance card in 2014,  according to government officials.
The experiences of both countries also demonstrate that the  implementation of an electronically readable card system can be a long  process. France has had a smart card system for beneficiaries and health  care providers since 1998. Officials from the organization that manages  the smart card system in France told us that implementation of the  system had been a slow process in part because many providers lacked  the IT equipment—such as computers and printers—needed to manage  their health care practices and had to obtain that equipment before being  able to participate in the card system. Health care providers’ resistance to  voluntarily adopting and using the smart cards—despite financial  incentives to do so—also contributed to the delay in implementing the  smart card system fully. Fourteen years after the implementation of the  smart card system in France, about 95 percent of self-employed health  care providers and 18 percent of hospital-based providers in France were  using health care provider cards.
While the initial cards for beneficiaries were distributed in 2 to 3 years,  according to French officials, issuance of an updated beneficiary card  with a picture has been a slower process. French officials explained that  the process of adding a photograph to the beneficiary card and issuing  the updated cards has been ongoing since 2007. As of September 2014,  35 percent of beneficiary cards in France being used for health care had  been issued 15 years ago, according to the organization that represents  health care insurers.
In 1995, Germany implemented a memory-only smart card that included  information such as name, address, and insurance status. The card was  used to electronically transfer this information to the health care providers’  IT systems. According to a report by the German auditing agency, in 2003  Germany required that a new smart card containing a microprocessor  chip and with the capability to add new functionality be implemented by  January 2006. This report also indicated that due to technical problems  and stakeholder disagreements, the initial roll out of the new cards did not  occur until October 2011. By the end of 2013, almost all of the population  insured through the statutory health insurance system had been issued  the new cards and providers were equipped with the readers that could  access information from both the new smart card and the previous  memory-only smart card. However, German officials told us that the full  transition to the new cards will not be complete until early 2015, when  beneficiaries will no longer be able to use the memory-only cards.  Currently, the new smart cards are being used in the same way as the  memory-only card. According to officials in Germany, new applications  will be added to the new card incrementally, with the ability to update  insurance information on the card being the first application and then an  expansion to storing emergency care information, such as allergies and  any drug interactions. Officials explained that full implementation of the  new smart card—with all of the applications added—will not be completed  until 2018, more than 10 years later than mandated.
The initial implementation of any new card system in Medicare could also  be a lengthy process because CMS would need time to address the  challenges that we described earlier. Similarly, experiences in both  France and Germany have illustrated that updating a card system has the  potential to be as lengthy and resource-intensive a process as the initial  implementation. French officials noted that being clear about how an  electronically readable card will be used and developing a system that  can be easily updated are key lessons that the Medicare program should  consider.

		Cost Savings Achieved in France and Germany from Electronic Billing Would Not Necessarily Be Achievable for Medicare

Officials in France and Germany indicated that their governments  implemented smart card systems to simplify and improve administrative  processes in their health care systems. Specifically, both countries  implemented a smart card as a means to move from a paper-based to an  electronic billing and reimbursement process. In addition to administrative  improvements, officials from both countries noted that the shift from paper  to electronic billing and reimbursement has resulted in financial savings.  For example, government officials in France told us that the estimated  cost to process a paper claim is $2.40 per claim, while processing an  electronic claim cost $0.20. Officials from France’s federal auditing  agency claim that the cards have been largely successful, with 93 percent  of claims being submitted electronically in 2014, resulting in an estimated  savings of approximately $1.5 billion per year. However, according to  officials from the organization that manages the beneficiary card system  in France, it is difficult to isolate how much of that savings can be  attributed specifically to the use of the smart cards, given that electronic  billing and reimbursement could have been achieved by using technology  other than an electronically readable card. German officials also reported,  but did not quantify, savings associated with using smart cards to move to  an electronic billing and reimbursement process.
The cost savings that France and Germany report from moving to  electronic billing would not necessarily be achievable for Medicare, which  has a long-standing electronic claims processing system that enables  both Medicare and health care providers to process claims faster and at a  lower cost. Some health care providers have been submitting claims  electronically since 1981, and by law Medicare has been prohibited from  paying claims not submitted electronically since October 16, 2003, with  limited exceptions.

		Addressing Stakeholder Needs Is an Important Aspect of Implementing an Electronically Readable Card System

French and German government officials told us that it is important to  ensure that the competing needs of stakeholders are discussed and  addressed. Officials also stated that in their experience this part of the  process generally required a significant time investment and should occur  prior to the decision to implement any electronically readable card. For  instance, officials from provider organizations in Germany told us that  health care providers took issue with what they viewed as a continued  emphasis on enhancing the administrative, rather than the clinical,  features of the card. Officials explained that providers and hospitals had  objected to the decision to add the ability to electronically update identity  and insurance information before adding the ability to store emergency  care information on the new smart card. They stated that the new smart  card is currently being used the same way as the memory-only smart  card—to electronically transfer a beneficiary’s identity and insurance  information to the health care providers’ IT system—which provides no  new benefits for providers relative to the memory-only smart cards.
In both France and Germany, the government established independent  organizations to address stakeholders’ needs. For example, officials from  the independent organization in Germany told us that it has seven  stakeholder groups, including the National Association of Statutory Health  Insurance Funds as the sole representative of all health insurance funds  and six umbrella organizations representing health care providers.  Officials explained that each group is assigned a different share of  interest in the organization, with the stakeholder group that funds the  organization holding a 50 percent share.
An organization like those established in France and Germany may not  be necessary to solicit input from stakeholders in the United States.  However, successful implementation of an electronically readable card  system for the Medicare program would depend on stakeholder  participation. An official from a health care billing and management  organization told us that before implementation of any electronically  readable cards for Medicare, CMS should obtain input from beneficiary  and consumer advocacy groups on how the cards should be  implemented. This official also told us that CMS would need to educate  beneficiary and provider groups on the benefits of electronically readable  cards and how to use them because beneficiary and provider buy-in  would help CMS in implementing the cards. CMS officials confirmed that  implementing an electronically readable card could result in a number of  policy challenges that may cause resistance from provider and  beneficiary advocacy organizations. CMS officials acknowledged that the  agency would have to work with multiple stakeholders who have  competing priorities if they were to move forward with the development  and implementation of an electronically readable card.
Furthermore, implementing an electronically readable card system for  Medicare would be done in a different health IT landscape than France’s  and Germany’s. Officials in both France and Germany told us that they  began implementing their systems when health care providers’ use of IT  systems was limited. However, in the United States, health IT is more  advanced than it was in France and Germany when they first  implemented the electronically readable cards. Nevertheless, according  to officials from a U.S. health insurer, the disparate IT systems of health  care providers in the United States will need to be modified in order to  implement an electronically readable card system. French officials noted  that implementation is easier when the electronically readable card  system does not have to be built on top of existing hardware and  software.

		Card Management Processes for Electronically Readable Cards Would Need to Be Considered

Management of an electronically readable card system includes  maintaining the technical infrastructure as well as continuously producing  and issuing the cards. Officials from France and Germany reported that  the process of managing an electronically readable card system is costly  and needs to be taken into account when deciding whether to implement  such a system. The independent organizations that are responsible for  addressing stakeholders’ needs related to the card systems in France  and Germany also have an ongoing role in managing these systems. In  France, an additional organization manages the health care provider card  system. (See table 1.)
Officials in both France and Germany told us that they experienced  significant costs related to managing the system beyond initial  implementation costs. For example, in France, government officials  explained that it costs about $37 million annually to maintain the  infrastructure for the beneficiary card and nearly $31 million per year in IT  and human resources costs for the provider card. In addition, there are  annual costs to produce, issue, and deactivate the cards. In France, for  instance, the cost to produce and issue beneficiary cards is approximately  $2.50 per card, and production and issuance costs for provider cards  range from about $8 to $12 per card, depending on the method used to  mail the card.
In Germany, the National Association of Statutory Health Insurance  Funds finances the organization that manages the technical infrastructure  for the card system, though the individual insurance funds are responsible  for producing and issuing the beneficiary smart cards. Officials from this  organization told us that they are paid about $2.40 per beneficiary  annually for the development of the infrastructure. In 2014, there were  approximately 70 million beneficiaries using the electronically readable  cards in Germany, which equates to about $168 million in development  costs.
U.S. policymakers would need to determine the extent to which CMS or  other organizations would be responsible for the implementation and  management of an electronically readable system for Medicare. Some of  the responsibilities that the French and German organizations address,  such as certifying the software, are currently being addressed by another  agency within HHS.the appropriate agencies or organizations that should be involved in  developing and implementing such a system.

	Concluding Observations

As consideration is given to whether to increase the functionality of the  current Medicare beneficiary card, and whether to implement cards for  providers, the planned use of the cards will guide the type of card  technology that is needed. The planned use of the cards will also prompt  additional discussions regarding card management processes and  standards, including whether use would be mandatory, whether PINs or  biometric factors would be used in addition to the cards, whether  enrollment and card issuance processes would need to be updated, and  what information would be stored on the card. We found that  electronically readable cards would have a limited effect on program  integrity, but could aid administrative processes. Ultimately, a decision  about whether to implement an electronically readable card will rest upon  a determination regarding the costs and benefits of electronically  readable cards compared to the current paper card or other strategies  and solutions. The success of any electronically readable card system will  also depend on participation from health care providers, and therefore  any planned use will need to take provider costs and potential challenges  into consideration. Finally, as demonstrated by the experiences in France  and Germany with smart cards, implementing and maintaining an  electronically readable Medicare card system would likely require  considerable time and effort.

	Agency and Third- Party Comments and Our Evaluation

We provided a draft of this report to HHS for comment. HHS provided  technical comments, which we incorporated as appropriate.
In addition, we obtained comments from officials from the Smart Card  Alliance, an organization that represents the smart card industry. The  officials emphasized the greater capability of smart cards to authenticate  transactions and secure information on the cards than other electronically  readable card options. Smart Card Alliance officials commented that the  way in which CMS has indicated that it would implement electronically  readable cards in Medicare would diminish the cards’ potential to limit  fraud. Further, the officials commented that we underestimated the  potential of electronically readable cards to further CMS’s program  integrity efforts, particularly CMS’s ability to identify potential fraud  through postpayment claims analysis. The officials said that CMS could  have greater assurance in the legitimacy of claims associated with card  use and that the agency could better focus its analysis on claims in which  cards were not used. Finally, the officials commented that possible  challenges applying NIST standards for using electronically readable  cards in Medicare should not preclude card implementation because  standards that better align with the needs of the program could be  developed. We believe that our report accurately characterizes the  potential effects of electronically readable cards on Medicare program  integrity efforts, though we modified several statements to improve clarity.  We also incorporated the Alliance’s technical comments as appropriate.
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If you or your staff members have any questions about this report, please  contact me at (202) 512-7114 or kingk@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix III.

Appendix I: List of Organizations Interviewed

To examine the potential benefits and limitations associated with the use  of electronically readable cards in Medicare and the steps CMS and  Medicare providers would need to take to implement and use  electronically readable cards, we interviewed officials from the agencies  and organizations listed in table 2.

Appendix II: Information about Use of Electronically Readable Cards in France and Germany

Several European countries, including France and Germany, use  electronically readable cards for health care purposes, such as  transferring identity and insurance information electronically from the card  to a health care provider’s IT system. France and Germany have long- standing experience with the use of such cards. As part of our research  on the potential use of electronically readable cards in Medicare, we  visited France and Germany to learn about how they developed and used  the cards. This appendix provides information on each country’s health  care system, and how electronically readable cards are used within that  system.

	France

		French Health Care System

Health care coverage in France has been universal since 2000. All  residents may receive publicly financed health care through  noncompetitive health insurance funds (commonly referred to as statutory  health insurance funds)—six entities whose membership is based on the  occupation of the individual. Specifically, eligibility to receive statutory  health insurance is granted either through employment (to salaried or  self-employed working persons and their families) or as a benefit to  persons (and their families) who have lost their jobs to students, and to  retired persons. The state covers the health insurance costs of residents  not eligible for statutory health insurance, such as unemployed persons.
The French system of health insurance is composed of two tiers. The first  tier provides basic coverage through the statutory health insurance funds,  which cover about 75 percent of household medical expenses. The  statutory health insurance coverage includes hospital care and treatment  in public or private rehabilitation; outpatient care provided by general  practitioners, specialists, dentists, and midwives; and prescription drugs.  The second tier consists of complementary and supplementary voluntary  health insurance coverage provided by mutual (not-for-profit) or private  insurers that pay for services not covered by statutory health insurance.

		Use of Electronically Readable Cards in France

France’s health care system uses two electronically readable cards—a  beneficiary card and a health care provider card—as part of its billing and  reimbursement processes; both are smart cards. Generally, beneficiaries  make payment to the health care provider when services are delivered,  and the health insurance funds reimburse the beneficiary. In certain  circumstances, such as when services are provided by pharmacists and  radiologists, third-party payment or reimbursement directly to the health  care provider is used. When services are provided, the beneficiary and  the health care provider both insert their cards into a two-card reader at  the point of service. The software enables the health care provider to  enter medical consultation information into the provider’s IT system. That  information is used to generate an electronic health claim form, which is  sent to the statutory health insurance fund and the supplementary  voluntary health insurance fund for payment to either the beneficiary or  the health care provider. (See fig. 2.)

	Germany

		German Health Care System

Health insurance has been mandatory for all citizens and permanent   There are two primary sources of  residents of Germany since 2009.health insurance in Germany—the publicly financed health insurance  (commonly referred to as the statutory health insurance system) and the  private health insurance system.system, which covered about 86 percent of the population in 2013, health  insurance is generally provided by competing, not-for-profit,  nongovernmental health insurance funds (called “sickness funds”). As of  January 2013, there were 134 sickness funds operating under the  statutory health insurance system.
Under the statutory health insurance  All employed citizens earning less than $4,874 per month ($70,489 per  year) as of 2013 are covered by the statutory health insurance system,   Individuals and they and their dependents are covered without charge. whose gross wages exceed the threshold, civil servants, and those who  are self-employed can choose to participate in statutory health insurance  or purchase private health insurance, which covered about 11 percent of  the population in 2013. Statutory health insurance coverage includes  preventive services, inpatient and outpatient hospital care, physician  services, prescription drugs and sick leave compensation. Private health  insurance covers minor benefits not covered by statutory health  insurance, access to better amenities, and some copayments (e.g., for  dental care).

		Use of Electronically Readable Cards in Germany

Germany first introduced a beneficiary, memory-only health insurance  smart card in 1995. German citizens who were members of a public,  statutory health insurance fund were issued the memory-only card, which  contained beneficiary insurance information. This card was used to  electronically transfer the information stored on the card to health care  providers’ IT systems.
More recently, Germany initiated a project to modernize its health care  system with the introduction of a secure network infrastructure. Part of  this project included updating the beneficiary smart card with a card that  has the capability to store and process information. In 2011, Germany  began issuing the updated smart card, which contains the same  information as the memory-only card and is currently being used in the  same way, which is to auto-populate health providers’ IT systems.  According to German officials, new applications will be added  incrementally to the updated smart card, with the card eventually being  used to access and update online beneficiary health insurance  information and exchange beneficiary medical information. As of  September 2014, officials told us that all applications will not be added  until 2018.

Appendix III: GAO Contact and Staff Acknowledgments

	GAO Contact

Kathleen M. King, (202) 512-7114 or kingk@gao.gov.

	Staff Acknowledgments

In addition to the contact named above, Lori Achman, Assistant Director;  George Bogart; Michael Erhardt; Deitra Lee; Elizabeth T. Morrison;   Vikki Porter; Maria Stattel; and Kate Tussey made key contributions to  this report.

Summary:
Why GAO Did This Study

Proposals have been put forward to replace the current paper Medicare cards, which display beneficiaries' Social Security numbers, with electronically readable cards, and to issue electronically readable cards to providers as well. Electronically readable cards include cards with magnetic stripes and bar codes and “smart” cards that can process data. Proponents of such cards suggest that their use would bring a number of benefits to the program and Medicare providers, including reducing fraud through the authentication of beneficiary and provider identity at the point of care, furthering electronic health information exchange, and improving provider record keeping and reimbursement processes.
GAO was asked to review the ways in which electronically readable cards could be used for Medicare. This report (1) evaluates the different functions and features of electronically readable cards, (2) examines the potential benefits and limitations associated with the use of electronically readable cards in Medicare, (3) examines the steps CMS and Medicare providers would need to take to implement and use electronically readable cards, and (4) describes the lessons learned from the implementation and use of electronically readable cards in other countries. To do this, GAO reviewed documents, interviewed stakeholders, and conducted visits to two countries with electronically readable card systems.

What GAO Found

The Centers for Medicare & Medicaid Services (CMS)—the agency that administers Medicare—could use electronically readable cards in Medicare for a number of different purposes. Three key uses include authenticating beneficiary and provider presence at the point of care, electronically exchanging beneficiary medical information, and electronically conveying beneficiary identity and insurance information to providers. The type of electronically readable card that would be most appropriate depends on how the cards would be used. Smart cards could provide substantially more rigorous authentication than cards with magnetic stripes or bar codes, and provide greater security and storage capacity for exchanging medical information. All electronically readable cards could be used to convey beneficiary identity and insurance information since they all have adequate storage capacity to contain such information.
Using electronically readable cards to authenticate beneficiary and provider presence at the point of care could curtail certain types of Medicare fraud, but would have limited effect since CMS officials stated that Medicare would continue to pay claims regardless of whether a card was used due to legitimate reasons why a card may not be present. CMS officials and stakeholders told us that claims should still be paid even when cards are not used because they would not want to limit beneficiaries' access to care. Using electronically readable cards to exchange medical information is not part of current federal efforts to facilitate health information exchange and, if used to supplement current efforts, it would likely involve challenges with interoperability and ensuring consistency with provider records. Using electronically readable cards to convey identity and insurance information to auto-populate and retrieve information from provider information technology (IT) systems could reduce reimbursement errors and improve medical record keeping.
To use electronically readable cards to authenticate beneficiaries and providers, CMS would need to update its claims processing systems to verify that the cards were swiped at the point of care. CMS would also need to update its current card management processes, including issuing provider cards and developing standards and procedures for card use. Conversely, using the cards to convey beneficiary identity and insurance information might not require updates to CMS's IT systems or card management practices. For all potential uses, Medicare providers could incur costs and face challenges updating their IT systems to use the cards.
The experiences of France and Germany demonstrate that an electronically readable card system can be implemented on a national scale, though implementation took years in both countries. It is unclear if the cost savings reported by both countries would be achievable for Medicare since the savings resulted from using the cards to implement electronic billing, which Medicare already uses. Both countries have processes in place to manage competing stakeholder needs and oversee the technical infrastructure needed for the cards.
The Department of Health and Human Services provided technical comments on a draft of this report, which GAO incorporated as appropriate.