Report to the Ranking Minority 

Member, Subcommittee on Health, 

Committee on Ways and Means, House 

of Representatives 

United States Government Accountability Office

GAO 

August 2004 MEDICARE 

SECONDARY PAYER 

Improvements Needed 

to Enhance Debt 

Recovery Process 

GAO-04-783 
www.gao.gov/cgi-bin/getrpt?GAO-04-783.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Leslie G. 

Aronovitz at (312) 220-7600. 

Highlights of GAO-04-783, a report to the 

Ranking Minority Member, Subcommittee 

on Health, Committee on Ways and 

Means, House of Representatives 

August 2004

MEDICARE SECONDARY PAYER

Improvements Needed to Enhance Debt 

Recovery Process 

Last year, employer-sponsored 

group health plans (EGHP) were 

responsible for most of the nearly 

$183 million in outstanding 

Medicare secondary payer (MSP) 

debt. MSP debts arise when 

Medicare inadvertently pays for 

services that are subsequently 

determined to be the financial 

responsibility of another. The 

Centers for Medicare & Medicaid 

Services (CMS) administers 

Medicare with the assistance of 

about 50 contractors that, as part 

of their duties, are required to 

recover MSP debt. 

GAO was asked to determine 

whether Medicare contractors are 

appropriately recovering MSP debt. 

GAO (1) assessed the costeffectiveness of the current debt 

recovery system and (2) identified 

CMS’s plans to enhance the 

recovery process. GAO analyzed 

workload and budget information 

and assessed plans to develop a 

new debt recovery system—the 

Recovery Management and 

Accounting System (ReMAS). 

We are recommending that the 

administrator of CMS (1) improve 

the efficiency of MSP payment 

recovery activities by consolidating 

efforts under a smaller number of 

contractors and ensuring that 

contractor budgets for EGHP 

recovery activities more closely 

reflect their actual workloads and 

(2) expedite implementation of the 

EGHP component of ReMAS. CMS 

agreed with our recommendations. 

Medicare’s system for recovering MSP debt from EGHPs is no longer costeffective, with CMS recovering only 38 cents for every dollar it spent on 

recovery activities in fiscal year 2003. This is largely due to workload and 

budgetary factors. While the number of new debt cases referred to 

contractors has declined by more than 80 percent since fiscal year 2000, 

CMS’s budget for contractor recovery activities has remained relatively 

unchanged. As a result, contractors were funded at a level that exceeded 

their workload. Almost half of the contractors that CMS funded to process 

the 7,634 cases associated with the fiscal year 2003 workload were assigned 

fewer than 50 cases—and eight were not assigned any. The current system 

is also constrained by procedures that prevent contractors from maximizing 

recoveries. For example, CMS has instructed contractors not to pursue 

cases in which the amount of mistaken payments made on behalf of the 

same beneficiary is less than $1,000. In addition, CMS neglected to transmit 

more than 2,000 cases to the contractors—which depend on these 

transmittals to initiate recoveries—during fiscal years 2000, 2001, and 2003. 

CMS is developing a new recovery system—ReMAS—to enhance the MSP 

recovery process. This system has the potential to help increase savings, 

provide CMS with greater flexibility in distributing the workload, and 

simplify the collection of MSP debt. ReMAS is designed to identify relevant 

mistaken payments and will generate a case that can be assigned to any 

contractor for recovery—not only the contractor that processed the 

mistakenly paid claims. However, ReMAS has been under development for 

over 6 years and is currently only being used for liability and workers’ 

compensation recoveries by a fraction of the contractors. Pilot testing of 

ReMAS on EGHP cases will not begin until October 2004. 

Cost-Effectiveness of MSP Debt Recovery Activities by Contractors Has Declined 

Note: Savings data for each fiscal year relate to new EGHP cases opened in that year. CMS did 

not assign new EGHP debt cases to contractors in fiscal year 2002 to allow them time to reduce 

their backlog of old cases. 
Page i GAO-04-783 Medicare Secondary Payer 

Letter 1

Results in Brief 3

Background 5

EGHP Debt Recovery Process No Longer Cost-Effective 8

Contractors’ Performance in Recovering EGHP Debt Is 

Inconclusive 15

Efforts to Improve MSP Management Have Not Focused on EGHP 

Debt Cases 18

Conclusions 20

Recommendations for Executive Action 20

Agency Comments 21

Appendix I Scope and Methodology 22 

Appendix II Comparison of Current System for Recovering EGHP 

Debt with ReMAS 24 

Appendix III Comments from the Centers for Medicare & Medicaid 

Services 25 

Appendix IV GAO Contact and Staff Acknowledgments 27 

GAO Contact 27

Acknowledgments 27

Tables 

Table 1: Information on EGHP Debt Recoveries, Fiscal Years 2000, 

2001, and 2003 10

Table 2: EGHP Workload and Budget Information, Fiscal Year 2003 12

Table 3: Comparison of Current Recovery System to ReMAS 24

Figure 

Figure 1: EGHP Debt Cases, Fiscal Years 2000, 2001, and 2003 11

Contents 
Page ii GAO-04-783 Medicare Secondary Payer 

Abbreviations 

CAFM Contractor Administrative-Budget and Financial 

 Management System 

CMS Centers for Medicare & Medicaid Services 

COBC Coordination of Benefits Contractor 

CWF Common Working File 

EGHP Employer-Sponsored Group Health Plan 

MMA Medicare Prescription Drug, Improvement, and 

 Modernization Act of 2003 

MPaRTS Mistaken Payment Recovery Tracking System 

MSP Medicare Secondary Payer 

ReMAS Recovery Management and Accounting System 

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reproduce this material separately. 
Page 1 GAO-04-783 Medicare Secondary Payer 

August 20, 2004 

The Honorable Pete Stark 

Ranking Minority Member 

Subcommittee on Health 

Committee on Ways and Means 

House of Representatives 

Dear Mr. Stark: 

Medicare—the federal health insurance program that serves the nation’s 

elderly and disabled—paid over $271 billion for the health care of 

approximately 41 million aged and disabled beneficiaries in fiscal year 

2003. The Centers for Medicare & Medicaid Services (CMS)—the federal 

agency within the Department of Health and Human Services that 

administers the Medicare program—has a strong interest in protecting 

Medicare’s fiscal integrity. To safeguard funds, CMS must pay only for 

those services that are the responsibility of the Medicare program. In some 

instances, beneficiaries have other insurance—such as employersponsored group health plans,1

 automobile or other liability insurance 

plans, or workers’ compensation—that has the primary responsibility to 

pay their claims. In these cases, Medicare would be the secondary payer, 

responsible for meeting beneficiaries’ health care costs not covered by the 

primary insurer. 

CMS and the contractors that assist the agency in administering the 

program are charged with determining whether Medicare beneficiaries 

have other health insurance coverage.2

 In fiscal year 2000, CMS estimated 

that about 8 percent of Medicare beneficiaries had health care claims that 

appeared to be the primary responsibility of another insurer. Because 

Medicare does not always know whether a beneficiary has other primary 

 1

Although persons age 65 or older are eligible for Medicare coverage, some are employed 

and may receive health insurance coverage for themselves and their spouses through an 

employer-sponsored group health plan. 

2

CMS and its contractors are interested in determining whether beneficiaries have other 

insurance coverage that is responsible for paying their claims before Medicare. This 

insurance differs from Medicare supplemental insurance, which typically pays for expenses 

that Medicare does not pay. For example, supplemental insurance may pay for routine 

annual check-ups, an expense that Medicare does not cover. 

United States Government Accountability Office

Washington, DC 20548 
Page 2 GAO-04-783 Medicare Secondary Payer 

insurance, it may inadvertently pay for services that are subsequently 

determined to be the financial responsibility of another payer. These 

mistaken payments represent money owed to Medicare and are known as 

Medicare secondary payer (MSP) debt. 

Employer-sponsored group health plans (EGHP) are responsible for the 

majority of outstanding MSP debt, accounting for about $134 million of the 

almost $183 million in outstanding MSP debt in fiscal year 2003.3

 Liability 

insurers, workers’ compensation plans, and other types of coverage 

accounted for the remaining $49 million. Because of your interest in 

protecting the integrity of Medicare funds, you asked that we determine 

whether Medicare contractors are appropriately recovering payments 

from other health care insurers, specifically from EGHPs. 

To evaluate the MSP debt recovery process, we assessed (1) the costeffectiveness of the current system for recovering MSP debt from EGHPs, 

(2) the performance of CMS’s contractors in recovering MSP debt from 

EGHPs, and (3) the agency’s plans to enhance the MSP recovery process. 

To perform our work, we analyzed information from two CMS databases—

the Contractor Administrative-Budget and Financial Management (CAFM) 

System and the Mistaken Payment and Recovery Tracking System 

(MPaRTS)—which together contain budget, workload, and recovery data 

related to MSP claims. We also visited four CMS contractors that 

processed a high volume of MSP debt recovery cases in fiscal years 2000 

and 2001 and reviewed supporting documentation for over 100 closed 

cases at each contractor. These cases consisted of potentially mistakenly 

paid claims for beneficiaries who appeared to be covered by an EGHP. 

Because contractors close the majority of cases without making 

recoveries, we specifically focused on such cases to determine whether 

contractors followed appropriate procedures and made sufficient efforts 

to recover MSP debt. We excluded cases involving liability, workers’ 

compensation, and other forms of coverage from our review. 

To further assess contractor performance, we examined whether the 

contractors’ private health insurance businesses influenced their recovery 

efforts. In some EGHP debt recovery cases, the contractor’s private health 

 3

The amount of outstanding debt does not include approximately $272 million in debt that 

is currently classified as “not collectible.” CMS’s financial reporting system does not track 

this debt by type of debtor—consequently, it is not possible to determine the percentage 

that is associated with EGHPs and other types of insurers. 
Page 3 GAO-04-783 Medicare Secondary Payer 

insurance business sold coverage to the employer that was responsible for 

the MSP debt. Because this creates a potential conflict of interest requiring 

the contractor to collect funds from the private side of its business, our 

examination included an assessment of whether contractors were diligent 

in recovering debt in such circumstances. In addition, we reviewed CMS 

program guidelines and memoranda, interviewed CMS and contractor 

officials, and examined the results of CMS’s fiscal years 2001 and 2002 

Contractor Performance Evaluations pertaining to contractors’ MSP 

operations. (See app. I for additional information on our scope and 

methodology and an assessment of the reliability of CMS data used in this 

report.) We conducted our work from December 2002 through July 2004 in 

accordance with generally accepted government auditing standards. 

The current system for recovering MSP debt from EGHPs is no longer 

cost-effective. Last year, Medicare recovered only 38 cents for every dollar 

it spent on recovery activities associated with EGHPs. This lack of costeffectiveness is due, in part, to a decrease in the number of new debt 

cases, which have declined by more than 80 percent since fiscal year 2000. 

Despite the fact that almost half of the contractors were assigned fewer 

than 50 cases in fiscal year 2003, they were funded to support a much 

larger workload. Eight of these contractors collectively received more 

than $1.8 million for their anticipated EGHP workload, but were never 

assigned any cases to process. Further, operational constraints also 

prevent contractors from maximizing their recoveries of mistaken 

payments. For example, CMS has instructed contractors not to pursue 

cases in which the amount of mistaken payments made on behalf of the 

same beneficiary is less than $1,000. In addition, CMS lost an opportunity 

to recover debt when it neglected to transmit more than 2,000 cases to the 

claims administration contractors—which depend on these transmittals to 

initiate recoveries—during fiscal years 2000, 2001, and 2003. 

Poor record keeping at three of the four contractors we visited prevented 

us from fully evaluating contractor effectiveness in processing MSP debt. 

These three contractors were unable to produce supporting 

documentation for some of the cases that we requested from them. The 

percentage of missing cases at these contractors ranged from 4 to 

24 percent. For the cases that we could examine, we found that contractor 

decisions were supported by appropriate documentation. This held true 

even in those instances where the private side of a contractor’s business 

was identified as having responsibility for MSP debt. However, because 

these files were not available, we were unable to fully assess whether the 

contractors made sufficient efforts to collect MSP debt. Without 

Results in Brief 
Page 4 GAO-04-783 Medicare Secondary Payer 

supporting documentation, we could not conclusively determine in all 

cases that the contractors had followed appropriate recovery procedures, 

including diligently attempting to recover funds from the private side of 

their business. CMS’s own contractor evaluations, conducted in fiscal 

years 2001 and 2002, identified similar problems with records and other 

problems related to contractors’ management of MSP recovery efforts. 

CMS has contracted for the development of a new recovery system—the 

Recovery Management and Accounting System (ReMAS)—to enhance the 

MSP recovery process by automating some tasks now performed 

manually. Because ReMAS was designed to use a national claims database 

to identify mistaken payments, it will be possible for CMS to assign an 

EGHP debt case to any contractor—not only the contractor that processed 

the mistaken payments, which is currently CMS’s only option. These 

improvements have the potential to help increase savings, provide CMS 

with greater flexibility in distributing the workload, and simplify the 

collection of MSP debt. However, ReMAS has been under development for 

6 years and is currently only used for liability and workers’ compensation 

recoveries by a fraction of the contractors. While the agency indicated that 

it would start pilot testing ReMAS for recovering debt from EGHPs at two 

contractors in October 2004, it has not specified when it expects all 

contractors to implement ReMAS for EGHP cases. 

We are recommending that the administrator of CMS (1) develop detailed 

plans and time frames for expanding ReMAS to include EGHP cases, and 

expedite implementation of the EGHP component of ReMAS; and 

(2) improve the efficiency of MSP payment recovery activities by 

consolidating MSP debt recovery efforts under a smaller number of 

contractors and ensuring that contractor budgets for EGHP recovery 

activities more closely reflect their actual workloads. CMS agreed with 

these recommendations and said it has begun taking action to expedite the 

EGHP component of ReMAS. It also said that it is considering options for 

consolidating EGHP recovery activities. 
Page 5 GAO-04-783 Medicare Secondary Payer 

CMS administers the Medicare program with the assistance of about 50 

claims administration contractors.4

 As part of their duties, contractors 

deny claims that are the responsibility of other insurers. In addition, they 

are required to recover mistaken payments that were made before it could 

be determined that the beneficiary had other insurance—such as an 

EGHP, an automobile or other liability insurance plan, workers’ 

compensation, or other types of coverage. 

To ensure that contractors adequately perform these tasks, CMS 

periodically monitors and evaluates their performance. Contractors are 

required to record recovery information pertaining to EGHP debt cases in 

the MPaRTS database. MPaRTS tracks the status of each EGHP case and 

provides CMS with information on the amount of mistaken payments 

identified, the amount demanded to be repaid, the amount recovered, and 

whether the case is currently open or closed. Although CMS does not have 

a database for tracking liability and workers’ compensation cases that is 

comparable to MPaRTS, CMS requires contractors to submit quarterly 

accounts receivable reports for these and other types of cases. These 

reports show the aggregate amount of outstanding debt, but do not 

provide detail at the individual case level. 

To prevent mistaken MSP payments, Medicare claims administration 

contractors match beneficiaries’ health care claims against information 

contained in Medicare’s Common Working File (CWF)—a repository of 

claims and beneficiary enrollment data—to determine whether Medicare is 

the primary or secondary payer. Claims are paid if the CWF indicates that 

Medicare is the primary payer. However, the CWF may not always contain 

accurate information. The MSP status of some beneficiaries is sometimes 

in a state of flux—for example, a retired beneficiary may return to the 

workforce and receive coverage under an EGHP for 6 months, and then 

leave that job. This information may not be recorded in a timely manner, 

leading to mistaken payments. In addition, the CWF can also contain 

inaccurate information if beneficiaries do not notify CMS of their 

insurance status when they become eligible for Medicare or if they provide 

incorrect insurance information. Furthermore, although the CWF is 

periodically updated with new insurance information, there is a lag 

 4

The Medicare fee-for-service program is divided into two parts—A and B. The claims 

administration contractors that process Part A claims—those covering inpatient hospital, 

skilled nursing facility, hospice, and certain home health services—are known as fiscal 

intermediaries. Contractors processing Part B claims—covering physician services, 

diagnostic tests, and related services and supplies—are referred to as carriers. 

Background 
Page 6 GAO-04-783 Medicare Secondary Payer 

between the time beneficiaries obtain coverage and when CMS learns of 

this coverage. In the interim, contractors may mistakenly pay 

beneficiaries’ claims. 

To identify mistaken MSP payments when an EGHP is the primary payer, 

claims administration contractors use information provided by CMS and 

the Coordination of Benefits Contractor (COBC). The COBC is a 

specialized contractor that does not process Medicare claims. Instead, the 

COBC is charged with developing information on beneficiaries who may 

have other primary health insurance through a process known as the data 

match.5

 The purpose of the data match is to identify beneficiaries or their 

spouses who are employed and thus may be covered by an EGHP. To 

facilitate data matching, the Social Security Administration sends the 

Internal Revenue Service a list containing the Social Security numbers of 

Medicare beneficiaries. The Internal Revenue Service then matches the list 

against beneficiary income tax return data and sends the results to the 

COBC for further analysis. For example, if tax records show that an 

employer paid a beneficiary at least $10,000 during the previous year, the 

COBC would contact the beneficiary’s employer to determine whether he 

was covered by that employer’s group health plan. 

CMS compares information developed by the COBC to the national claims 

history file, the most comprehensive source of paid claims information. 

This comparison allows CMS to determine whether Medicare may have 

mistakenly paid claims on behalf of the beneficiary. If the mistakenly paid 

claims total at least $1,000, CMS assigns the case to the claims 

administration contractor that processed and paid the claims. 

Upon receipt of the EGHP debt case, claims administration contractors 

have 60 days to perform certain tasks to determine whether an attempt 

should be made to recover the debt. The contractor must first verify that 

the information being used as a basis for recovering the debt is correct and 

that it has not already recouped the mistaken payments. If the case passes 

this initial validation process, the contractor will initiate recovery by 

sending a demand letter to the beneficiary’s employer and insurance 

 5

The data match process is one of several ways that CMS, the COBC, and the claims 

administration contractors learn that a Medicare beneficiary has primary insurance 

coverage through another insurer. The processes include an initial beneficiary enrollment 

questionnaire, employer reports, and voluntary data-sharing agreements with some 

employers and insurers. 
Page 7 GAO-04-783 Medicare Secondary Payer 

company or third-party administrator, requesting payment within 60 days.6

If there is no response to the demand letter within 60 days, interest begins 

to accrue on the debt. Contractors then send a second letter explaining 

that if a response or payment is not received within another 60 days, the 

matter will be referred to the Department of the Treasury for collection. 

Responses to these letters can include repayment with interest or an 

explanation as to why the employer and associated health insurer are not 

responsible for the debt. This explanation may include documentation 

indicating that the employee retired and thus discontinued health coverage 

or never obtained coverage through the employer. 

The procedures followed by contractors to recover mistaken payments 

from liability insurers and workers’ compensation plans differ from those 

used when the primary payer of an MSP debt is an EGHP. In a liability or 

workers’ compensation case, mistaken payments made on behalf of a 

beneficiary are not related to a period of insurance coverage, but to a 

particular incident—for example, an automobile accident or workplace 

injury. The task of the contractor in such cases is to identify all paid 

medical claims related to the incident and to inform the beneficiary or the 

beneficiary’s attorney of the responsibility to repay Medicare in the event 

that they receive an insurance settlement for their medical expenses. 

Because beneficiaries may require protracted medical treatment for their 

injuries, it may take several years before the total amount of payments 

related to the injury is known. In the interim, a contractor may repeatedly 

review the beneficiary’s claims history to determine whether Medicare has 

paid new claims related to the injury.7

We previously reported that CMS maintained a substantial backlog of 

uncollected debt in fiscal year 2000.8

 Although the Debt Collection 

Improvement Act of 1996 required that agencies refer debt delinquent for 

more than 180 days to the Department of the Treasury, CMS still had not 

 6

In addition to the demand letter, contractors will also include the employee’s name, 

insurer, copies of the claims, and the dates on which services were provided, to assist the 

responsible party in verifying its liability for the debt. 

7

Medicare may conditionally pay a beneficiary’s claims if the contractor is aware that 

another payer may ultimately be found responsible for them. For example, Medicare may 

pay the claims of a beneficiary related to an incident that is the subject of a lawsuit. After a 

settlement or judgment is reached, it may then pursue a recovery from the liable party. 

8

GAO, Debt Collection Improvement Act of 1996: HHS’s Centers for Medicare & Medicaid 

Services Faces Challenges to Fully Implement Certain Key Provisions, GAO-02-307

(Washington, D.C.: Feb. 22, 2002). 
Page 8 GAO-04-783 Medicare Secondary Payer 

fully implemented this requirement. Prior to 2000, CMS did not instruct 

claims administration contractors to refer delinquent EGHP cases to the 

Department of the Treasury for collection. As a result, CMS maintained a 

substantial backlog of older cases that remained open, but inactive, for 

many years. 

CMS’s administration of the Medicare program will undergo significant 

changes over the next several years as the Medicare Prescription Drug, 

Improvement, and Modernization Act of 2003 (MMA) is implemented. 

MMA provides CMS with increased flexibility in contracting with new 

entities to assist it in operating the Medicare program.9

 While CMS has 

relied primarily on the claims administration contractors to perform most 

of the key business functions10 of the program, the new law authorizes 

CMS to enlist a variety of contractors to perform these tasks. For example, 

CMS could use new contractors to process and pay claims and to perform 

financial management and payment safeguard activities. CMS is just 

beginning to develop plans to implement MMA’s contracting reform 

provisions. Phase-in of the amendments to contracting reform takes effect 

on October 1, 2005. The competitive bidding of all contracts is required for 

contract periods that begin on or after October 1, 2011. The agency 

expects to issue its implementation plan for contracting by October 1, 

2004. 

Since fiscal year 2000, the cost-effectiveness of EGHP recovery activities 

has significantly declined. The decline in cost-effectiveness occurred 

because the volume of EGHP debt cases significantly decreased—in fiscal 

year 2003, almost half of the contractors were assigned fewer than 50 

cases—while, at the same time, the cost to CMS for maintaining debt 

collection capabilities at all claims administration contractors increased 

slightly. Moreover, CMS funded eight contractors who were not assigned 

any EGHP debt cases. The recovery process is also constrained by 

procedures that prevent contractors from maximizing their recoveries of 

mistaken payments. Because contractors have access only to claims that 

they have paid, they cannot identify, and thus collect, mistaken payments 

made by other contractors. In addition to these structural problems, we 

 9

Pub. L. No. 108-173, § 911, 117 Stat. 2066, 2378-2386. 

10There are nine business functions: claims processing, beneficiary and provider customer 

service, appeals, provider education, financial management, provider enrollment, 

reimbursement, payment safeguards, and information systems security. 

EGHP Debt Recovery 

Process No Longer 

Cost-Effective 
Page 9 GAO-04-783 Medicare Secondary Payer 

found that in 3 of the last 4 years CMS did not transmit a substantial 

number of EGHP cases to the claims administration contractors, resulting 

in missed recoveries. 

EGHP recovery activities are no longer cost-effective. To measure costeffectiveness, we compared the amount that CMS spent on contractor 

recovery activities for a given fiscal year with the amount recovered from 

all cases that were opened during the same year—regardless of when the 

funds were recovered.11 While Medicare recovered about $2.49 for each 

dollar it spent on EGHP recovery activities in fiscal year 2000, this ratio 

declined to $1.80 in 2001. Although there are no comparable data for fiscal 

year 2002 because CMS did not open any new EGHP cases that year, thus 

allowing contractors time to reduce their backlog of old cases,12 the 

decline in cost-effectiveness continued in fiscal year 2003 when CMS 

resumed opening new EGHP cases. In that year, Medicare lost money on 

EGHP recovery activities, recovering only 38 cents for every dollar spent. 

(See table 1.) 

 11We assigned the recovery amount to the year a case was opened because contractors 

perform the majority of their work shortly after they receive a case—that is, contractors 

must screen the case to determine whether the amount involved meets the $1,000 threshold 

and send letters requesting payment to the responsible party. Although contractors may 

receive payments in subsequent years, these recoveries are largely the result of work 

performed during the year the case was opened. 

12The contractor budget for EGHP debt recovery activities in fiscal year 2002 was 

$6,237,056. Although no new EGHP debt cases were opened that year, these funds were 

used to close old cases, some of which had been inactive for more than 10 years. 

CMS Contractor Funding 

Has Not Decreased 

Despite Declining 

Workload 
Page 10 GAO-04-783 Medicare Secondary Payer 

Table 1: Information on EGHP Debt Recoveries, Fiscal Years 2000, 2001, and 2003 

Fiscal 

year case 

opened 

Amount of EGHP debt 

recoveriesa

CMS budget for EGHP 

debt recoveries 

Savings per dollar 

spent on EGHP 

recovery activities

2000 $21,472,071 $8,612,677 $2.49

2001 15,062,024 8,351,940 1.80

2003 3,719,465b9,786,510 .38

Source: GAO analysis of CMS’s MPaRTS and CAFM data. 

Note: CMS did not open any new EGHP cases in 2002. 

a

The recovered amount includes interest on the debt. Fiscal year recovery amounts include funds that 

were recovered the year the case was opened as well as any funds recovered in subsequent years. 

b

Because 28 percent of cases assigned to contractors in 2003 remain open, the recovered amount for 

2003 was estimated. Using 2000 and 2001 MPaRTS data, we calculated the total amount recovered 

as a percentage of all EGHP debt referred to contractors—which averaged about 7 percent for these 

2 years. We then applied this percentage to the total amount referred to contractors in 2003 to obtain 

our estimate. In fiscal year 2003, CMS referred $51,932,106 of debt to contractors. As of March 2004, 

contractors had recovered $1,094,176. 

The lack of cost-effectiveness of the EGHP recovery process resulted 

partly from a declining workload, which limited the potential for recovery. 

The number of new MSP EGHP debt cases has decreased by more than 

80 percent in recent years, from 49,240 cases in fiscal year 2000 to 7,634 

cases in fiscal year 2003.13 CMS officials told us that improvements in 

identifying beneficiaries with other insurance before a claim is paid have 

reduced the number of mistakenly paid MSP claims. Consequently, 

according to CMS officials, this has lessened the need to recover these 

payments via the EGHP recoveries.14 These officials also projected that the 

number of EGHP cases assigned to contractors could continue to decline. 

Not only have the number of EGHP cases declined since fiscal year 2000, 

but the complexity of these cases and the resources required to process 

many of them have also decreased. Since fiscal year 2000, the claims 

 13In addition to EGHP debt recoveries initiated by the data match, contractors may 

independently initiate recoveries. However, because CMS does not have a database 

comparable to MPaRTS for tracking “nondata match” recoveries, information on the 

number and amount recovered is not directly available. 

14According to CMS officials, several recent initiatives have enhanced the ability of 

contractors to correctly identify Medicare beneficiaries with other coverage before paying 

claims. For example, CMS consolidated MSP case development activities with the COBC. 

CMS has also encouraged employers and insurance companies to share health insurance 

information on Medicare beneficiaries with CMS on an ongoing basis. 
Page 11 GAO-04-783 Medicare Secondary Payer 

administration contractors closed more than half of the cases during their 

initial computer screening process. That is, they often found that the 

mistaken payments totaled less than $1,000, another insurer voluntarily 

paid the claims, or the COBC updated the CWF to show that the 

beneficiary did not have other primary coverage, such as an employersponsored group health plan, during the time the services were delivered. 

In such instances, contractors are not required to correspond with 

employers and insurers. It is only a relatively smaller number of cases—

those that pass the initial screening process—that require significant 

contractor resources to send demand letters, process the responses, and 

archive file materials. As shown in figure 1, of the 49,240 EGHP cases 

processed by contractors in fiscal year 2000, 20,487—about 42 percent—

were resource-intensive cases that entailed sending a demand letter. In 

contrast, only 1,276 cases—about 17 percent—involved a demand letter in 

fiscal year 2003. 

Figure 1: EGHP Debt Cases, Fiscal Years 2000, 2001, and 2003 

Note: Recovery and demand totals are based on the year the cases were assigned to contractors. 

CMS did not assign new EGHP cases to contractors in 2002, to allow them time to reduce their 

backlog of old cases. The number of recoveries for 2003 cases may increase, as the period for 

recovering debt is still open for about 28 percent of cases. 

CMS’s payments to contractors for recovery activities have not reflected 

the sharp decline in the number of EGHP debt cases that occurred in fiscal 

year 2003. For example, in fiscal year 2000, the three contractors with the 
Page 12 GAO-04-783 Medicare Secondary Payer 

largest workloads received a combined budget of less than $1 million and 

processed 7,708 EGHP cases. The workload of those three contractors was 

larger than the entire fiscal year 2003 workload, for which CMS spent 

almost $10 million on contractors’ EGHP debt recovery activities. 

This disparity between workload and budget in fiscal year 2003 is even 

more apparent at the individual contractor level. As shown in table 2, 8 of 

the 51 claims administration contractors processed 400 or more EGHP 

cases—representing about 52 percent of the total EGHP workload of 7,634 

cases.15 However, almost half of the contractors were assigned fewer than 

50 cases. Despite their small combined workload—4 percent of all EGHP 

cases in fiscal year 2003—CMS allocated to these contractors more than a 

quarter of its EGHP budget, about $2.5 million, to support EGHP and 

certain other recovery activities.16 Moreover, CMS funded 8 contractors 

that were not assigned any EGHP debt cases. 

Table 2: EGHP Workload and Budget Information, Fiscal Year 2003 

Source: GAO analysis of CMS’s MPaRTS and CAFM data. 

a

Column percentages do not total to 100 due to rounding. 

 15Although these eight contractors processed significantly more EGHP cases than other 

contractors in fiscal year 2003, their recovery efforts were still not cost-effective—the 

estimated recovery amount of $1,331,118 was significantly less than their budget of 

$3,295,191. 

16EGHP budgets also include funds for contractors to perform certain other tasks related to 

MSP debt recovery, such as responding to incoming correspondence and pursuing 

recoveries that they have identified independently of the data match. 

Number of 

EGHP cases 

assigned 

Number of 

claims 

administration 

contractors

CMS budget 

for EGHP 

recovery 

activities

Percentage of 

total EGHP budget 

for recovery 

activities

Percentage of 

total EGHP 

cases

400 + 8 $3,295,191 34 52

200-399 5 1,379,049 14 21

50-199 14 2,595,844 27 21

1-49 16 648,651 7 4

0 8 1,867,775 19 0

Total 51 9,786,510 100a100a
Page 13 GAO-04-783 Medicare Secondary Payer 

CMS’s budget process does not efficiently match funding for contractor 

recovery activities to contractors’ actual workloads. CMS pays each 

contractor to maintain an infrastructure to support the recovery of EGHP 

debt, regardless of the number of cases the contractor processes during 

the year. In order to process EGHP cases forwarded to them by CMS, the 

claims administration contractors maintain an infrastructure that results in 

costs such as wages, equipment, and records. Typically, this includes a 

staff of MSP examiners who review EGHP cases, contact other potential 

insurers, evaluate explanations from insurers as to why the MSP debt may 

not be valid, make referrals to the Department of the Treasury when a debt 

is not paid within 180 days, and archive case files. Each contractor must 

also maintain screening software to identify and exclude EGHP debt cases 

that do not meet the $1,000 threshold. As a result, some contractors may 

receive funding for their infrastructures even though they process few or 

no cases during the year, as occurred in fiscal year 2003. 

In comparison to other MSP activities performed by contractors—such as 

maintaining computer programs that automatically identify and deny MSP 

claims—EGHP recoveries are expensive to conduct and no longer provide 

a return on investment. In fiscal year 2003, the return on investment for all 

types of MSP activities combined was 48 to 1. That is, Medicare 

contractors spent an estimated $95.6 million for all MSP activities and 

produced identifiable savings of approximately $4.6 billion,17 resulting in 

$48 saved for every dollar spent. 

We found that several system limitations create barriers to recovering 

mistaken payments and reduce program savings. Some mistakenly paid 

claims may be missed because beneficiaries received medical services in 

more than one state, and thus had their claims processed by more than 

one contractor.18 Because contractors have access only to claims records 

that they process, they are unable to identify claims processed by other 

contractors. In addition, beneficiaries whose total MSP claims exceed 

$1,000, but are split among two or more contractors, may not have all of 

 17There are several sources that contributed to these savings, including the amount of 

denied claims, recoveries (from EGHP debt, liability, and workers’ compensation cases), 

and voluntary repayments from providers. 

18The provider’s geographic location determines where a beneficiary’s claims are 

processed. For example, the claims of a beneficiary who maintains a residence in New 

York, but who receives medical services while vacationing in Florida, will be processed by 

the Florida claims administration contractor. 

Operational Constraints 

Reduce Potential MSP 

Savings 
Page 14 GAO-04-783 Medicare Secondary Payer 

their mistaken payments recovered if the payments made by any single 

contractor total less than the $1,000 threshold. Although CMS officials 

could not quantify the effect of these constraints on recoveries, they told 

us that they believe that these limitations have significantly reduced MSP 

savings. 

For example, a beneficiary who lives in the Midwest but spends the winter 

in the South and receives health care services in both locations will have 

claims processed by different contractors. If mistaken payments for $2,000 

were made for services the beneficiary received during the year—for 

example, $1,200 in one location and $800 in the other—only the contractor 

with payments exceeding the threshold would pursue a recovery. 

Therefore, although the primary payer would be responsible for the entire 

$2,000 in services, Medicare would attempt to recover only a portion of the 

amount owed. 

A similar inefficiency occurs when beneficiaries receive inpatient services 

covered by Part A of Medicare and physician services covered by Part B. 

Different contractors typically process Part A and Part B claims, but they 

are not required to coordinate EGHP recoveries with one another. This 

lack of coordination also results in missed savings opportunities when 

neither the Part A nor Part B claims individually meet the $1,000 threshold. 

Even if both the Part A and Part B claims exceed this threshold, greater 

administrative costs are incurred by both CMS and private employers, as 

two different contractors attempt to recoup payments from the same 

payer. 

Finally, the success of the current system depends on CMS distributing 

EGHP cases to the claims administration contractor that processed the 

mistaken payments. Our review of EGHP debt cases revealed that, during 

fiscal years 2000, 2001, and 2003, CMS neglected to transmit 2,364 cases to 

the contractors, representing more than $28 million in potential mistaken 

payments. CMS officials told us that the accurate referral of EGHP cases 

has grown more difficult in recent years as some contractors have left the 

Medicare program and other contractors subsequently assumed their 

existing workload. They explained that they suspected that these EGHP 

cases were overlooked when one contractor processing claims for 

beneficiaries in several states left the program and the related cases were 

never assigned to the replacement contractors. As a result, no recovery 

action was ever initiated for these cases. By using the percentage of 

potential mistaken payments that are typically recovered—7 percent—we 

estimate that CMS’s failure to transmit these cases to contractors for 

potential recovery cost the Medicare program approximately $2 million. 
Page 15 GAO-04-783 Medicare Secondary Payer 

We were unable to fully evaluate the effectiveness of the EGHP debt 

recovery efforts of the claims administration contractors we visited 

because three of the four contractors were unable to produce all of the 

case files we requested. Although the files we examined indicated that 

these contractors were appropriately managing their EGHP workload, the 

volume of unavailable files precluded us from reaching an overall 

conclusion on their performance. CMS’s recent contractor performance 

evaluations found similar records management deficiencies and raised 

additional questions about contractors’ effectiveness. 

We found it difficult to thoroughly assess the performance of all of the 

contractors we visited. At each contractor, we randomly selected a sample 

of cases to review. The number selected varied by contractor and totaled 

644 cases for all contractors combined. However, 78 case files could not 

be located.19 Although one contractor was able to produce the files and 

supporting documentation for all the cases we requested, the other three 

contractors poorly managed their records and were unable to provide all 

of the files and supporting documentation we had requested in advance of 

our visits.20 The percentage of missing cases at these contractors ranged 

from 4 to 24 percent.21 Because these files were not available, we were 

unable to fully assess whether the contractors made sufficient efforts to 

collect MSP debt. For example, without supporting documentation for 

those cases, we could not conclusively determine that the contractors had 

followed all the appropriate recovery procedures. 

Of the 566 cases available for review, we found that contractor files were 

complete and contained appropriate documentation to support the 

 19Typically, support for such cases consists of paper files that are archived in a storage 

facility, or computer-generated reports from the contractors’ claims systems, which are 

stored electronically. 

20At each of the four contractors we visited, we reviewed from 136 to 207 EGHP cases that 

were assigned in 2000 and 2001. 

21The types of missing case files varied across contractors. For example, one contractor 

could not produce support for almost a third of the cases that were closed during the initial 

screening. This contractor told us that it had changed computer systems and the electronic 

versions of the reports stored on the previous computer system could no longer be 

retrieved. Although some of these reports had apparently also been printed at one time, the 

contractor could not locate those documents. Another contractor was unable to produce 

case files for about half of the cases that involved sending a demand letter to the employer. 

A contractor official speculated that the records might have been lost when it assumed the 

Medicare contract previously held by another insurance company. 

Contractors’ 

Performance in 

Recovering EGHP 

Debt Is Inconclusive 

Poor Records Management 

Results in Inconclusive 

Assessment of 

Contractors’ Performance 
Page 16 GAO-04-783 Medicare Secondary Payer 

contractor’s decision to close each case without making a recovery. We 

reviewed two types of cases: those that were closed during the initial 

screening process after the contractor determined that the $1,000 

threshold was not met, and those that were closed after the contractor 

sent a demand letter to the employer requesting payment. Together, these 

two types of cases constituted about 65 percent of the EGHP workload 

during fiscal years 2000 and 2001.22 For cases that were closed because 

they did not meet the $1,000 threshold, contractors provided us with 

adequate supporting documentation showing that the involved claims 

totaled less than this amount. Other cases were properly closed because 

the employers provided valid reasons as to why they were not responsible 

for the MSP debt. For example, if a beneficiary had retired and was not 

covered by the employer’s insurance at the time the claims were 

submitted, contractor case files contained correspondence from the 

employer documenting this fact. In about a third of the MSP cases we 

selected for review, the private side of the contractor’s business sold 

insurance to the employer that was initially identified as having 

responsibility for MSP debt. Although this situation creates a potential 

conflict of interest for the contractor because it must collect funds from its 

private business side, we did not find evidence that contractors closed 

such cases inappropriately or treated them differently from others. 

Our review also found that one contractor made errors entering 

information into CMS’s MPaRTS system, which tracks the status of EGHP 

cases. Although such errors do not mean that the contractor had 

inappropriately processed cases, they make it difficult for CMS to monitor 

the cases’ status. The tracking system uses different codes to describe the 

status of MSP cases. For example, there is a code to indicate that the case 

was closed after a demand letter was sent, and another to indicate that the 

case was closed because the $1,000 recovery threshold was not met. This 

contractor did not correctly apply these two codes and miscoded about 

18 percent of the cases we reviewed. 

CMS’s recent contractor performance evaluations of MSP recovery 

activities support our finding of poor records management. CMS evaluated 

the MSP activities of 12 contractors in fiscal year 2001 and another 12 

contractors in fiscal year 2002. During these evaluations, CMS reviewed 

 22The bulk of the remaining cases included those which remained open, those resulting in a 

recovery, and those referred to the Department of the Treasury for collection. 

CMS Contractor 

Evaluations Highlight 

Other Problem Areas 
Page 17 GAO-04-783 Medicare Secondary Payer 

EGHP case files from contractors. These evaluations are based on a 

relatively small number of case files—10 to 20—and therefore do not 

provide in-depth assessments of contractors’ performance. However, the 

evaluations conducted in 2001 and 2002 highlighted contractor 

performance problems similar to those we identified. That is, CMS found 

that several contractors, which included some that were not part of our 

review, had missing case files and entered inaccurate information into the 

CMS tracking database. For example, during a review of one contractor, 

CMS requested 20 EGHP case files, but the contractor was able to locate 

only 12 files. In addition, CMS found tracking-system coding errors—in 

2001, 5 of the 12 contractors reviewed did not use the correct status code 

when entering information into the CMS computer system that tracks the 

status of EGHP cases. 

CMS evaluations identified additional problems in fiscal years 2001 and 

2002, suggesting other weaknesses in contractors’ MSP recovery activities, 

as illustrated by the following examples: 

• Staffing problems. One contractor discontinued processing data match 

cases for 3 months when the sole staff member performing this task took 

an extended leave of absence. At another contractor, CMS determined that 

the number of staff assigned to MSP recoveries was insufficient to process 

the contractor’s large workload. CMS also noted that a contractor had 

recently changed the educational requirements for MSP staff. Because 

most of the current staff did not possess a college degree as required by 

the contractor’s revised standard, the contractor retained an almost 

entirely new MSP staff. The new staff told CMS reviewers that their 

training was inadequate to prepare them for processing the workload. 

• Delays in processing correspondence. In examining documentation at one 

contractor, CMS reviewers identified a significant backlog of 

correspondence. According to CMS’s estimate, there were over 2,400 

pieces of mail awaiting action—including checks and correspondence 

from employers, insurers, and other contractors. The oldest 

correspondence awaiting action was more than 2 years old—well beyond 

CMS’s requirement that contractors match incoming mail with established 

cases and respond to such correspondence within 45 days. 

• Failure to appropriately document case determinations. At one contractor, 

CMS reviewers found several case files where the contractor did not 

document whether the action was necessary. For example, the contractor 

closed a case and indicated that a full recovery was made; however, the 

file did not show that a check was received from either an employer or 

insurer. At another contractor, CMS reviewers examined cases that were 

inappropriately closed without recovery because the contractor had not 

promptly notified the EGHP of the debt, as required. In this instance, CMS 
Page 18 GAO-04-783 Medicare Secondary Payer 

found that once the contractor recognized its own untimeliness, it erred 

again by closing these cases without confirming that the health plan’s time 

limit for accepting claims had, in fact, expired. 

• Inadequate security measures. Because the recovery process partially 

relies on Internal Revenue Service tax information, contractors are 

required to take certain precautions to prevent unauthorized access. At 

one contractor, CMS found that the workstation of the person responsible 

for processing the EGHP workload was situated next to the workstations 

of staff who did not have authorization to access restricted tax 

information. Reviewers found that files were stored in unlocked file 

cabinets and that sensitive printed materials were left in plain view in a 

general work area, rendering the information easily accessible to anyone 

in the facility. 

Recognizing the need to improve the coordination of its MSP recovery 

efforts, CMS contracted for the development of a new recovery system—

the Recovery Management and Accounting System (ReMAS)—in 1998. The 

purpose of ReMAS is to improve the identification, tracking, and recovery 

of mistaken payments. ReMAS was designed to enhance the MSP recovery 

process by automating some tasks performed manually and by reducing 

the time required to collect MSP debt. As of May 2004, CMS has deployed 

the liability insurance and workers’ compensation component of ReMAS 

to nine contractors. 

ReMAS is designed to receive and evaluate leads from CWF electronically, 

a function that is now performed in separate steps by CMS staff and 

individual claims administration contractors. These leads consist of 

information suggesting that a beneficiary has other coverage that should 

be primary. CMS officials claim that ReMAS will streamline other 

functions as well. For example, when new information on a beneficiary’s 

MSP status is added to CWF, ReMAS is expected to determine, on a daily 

basis, whether mistaken payments were made on his or her behalf. 

Currently, the contractors review the occurrence of mistaken payments at 

varying intervals ranging from quarterly to semiannually. Once ReMAS 

determines that Medicare has paid claims that were the primary 

responsibility of another insurer, it will generate a case that can be 

assigned to any contractor for recovery. It will no longer be necessary for 

the contractor that processed the mistakenly paid claims to perform 

recovery activities. 

Efforts to Improve 

MSP Management 

Have Not Focused on 

EGHP Debt Cases 

Designed to Enhance MSP 

Recoveries, ReMAS Offers 

Promising Features 
Page 19 GAO-04-783 Medicare Secondary Payer 

CMS officials told us that they believe that ReMAS will have several 

advantages over the current process. First, efficiencies gained through 

ReMAS would enable contractors to pursue MSP debt that involves 

amounts less than the current $1,000 threshold, resulting in additional 

recoveries. Second, ReMAS could facilitate the consolidation of MSP debt 

recovery efforts among a handful of contractors, as each contractor would 

have access to all paid claims. CMS officials indicated that ReMAS would 

enable them to reduce administrative costs, provide contractors with a 

more consistent and predictable workload, and simplify contractor 

oversight activities. (See app. II for more information comparing ReMAS to 

the present recovery system). 

Although CMS has spent $7 million on the development of this system, 

which has now spanned 6 years, ReMAS’s implementation is progressing 

slowly. It remains in the early implementation stages—testing on EGHP 

cases started in June 2004. Several critical tasks related to ReMAS’s 

implementation have taken several years to complete. To date, only the 

initial software testing and validation for the liability and workers’ 

compensation components have been completed. 

CMS’s initial plans for implementing ReMAS have focused on recovering 

liability insurance and workers’ compensation debt. Thus far, 17 

contractors have received training in the use of ReMAS. CMS officials told 

us that as of May 2004, the liability and workers’ compensation 

components of ReMAS have been deployed to nine contractors. The 

remaining contractors that process MSP liability cases are scheduled to 

implement ReMAS by October 2004. ReMAS also has the potential to 

recover mistaken payments associated with EGHPs—currently handled 

through the data match process. CMS recently expanded the scope of 

ReMAS to include employer-sponsored group health plans, but details 

related to incorporating EGHP cases in the system are unclear. Unlike 

liability and workers’ compensation cases, which are related to specific 

accidents or injuries, EGHP cases are based on a beneficiary’s dates of 

employer-sponsored coverage. This distinction requires enhancements to 

the ReMAS system, to ensure that it can address and process this key 

difference. According to CMS’s timetable, preliminary tasks such as 

computer testing, validation, and documentation of the EGHP component 

of ReMAS will be completed in September 2004. While CMS expects to 

pilot test the EGHP component with two contractors in October 2004, it 

has not specified when it will implement ReMAS for EGHP cases at all 

contractors. 

Implementation of ReMAS 

for EGHP Debt Cases Is 

Uncertain 
Page 20 GAO-04-783 Medicare Secondary Payer 

As Medicare’s primary steward, CMS should make a concerted effort to 

recoup funds owed the program. However, recovery efforts should be 

planned and executed with cost-effectiveness in mind. CMS’s efforts to 

recover MSP debt from cases that involve EGHPs were cost-effective as 

recently as a few years ago, but CMS is now operating a recovery system 

that is losing money. Although funding for contractors’ EGHP debt 

recovery activities has slightly increased since fiscal year 2000, contractor 

workloads have decreased by 80 percent. In addition, funding for these 

activities is not always related to contractors’ workloads—in fiscal year 

2003, almost half of the contractors received fewer than 50 cases to 

process while 8 of these, which had a collective budget of more than 

$1.8 million, received no cases at all. As recently as fiscal year 2000, three 

contractors collectively processed a workload that exceeded the entire 

EGHP workload of all contractors in fiscal year 2003, suggesting that 

consolidation of debt recovery activities among a smaller number of 

contractors is feasible. The current system, with over 50 contractors 

involved in EGHP recovery activities, is cumbersome to administer, and 

poor record-keeping makes it difficult to determine whether contractors 

are doing all they can to recover debt. 

One of the keys to improving the cost-effectiveness of MSP debt 

recoveries may rest with CMS’s new ReMAS system. Plans to expand the 

scope of ReMAS to recover debt associated with employer-sponsored 

group health plans could ultimately address current operational 

weaknesses, such as an inefficient distribution of workload and limited 

coordination among contractors. Now that CMS has been given new 

authority to contract with a variety of entities to assist it with managing 

the Medicare program, it should take advantage of ReMAS’s capability to 

consolidate debt recovery efforts with a smaller number of contractors 

and thereby improve the efficiency of the program. 

We recommend that the administrator of CMS: 

• develop detailed plans and time frames for expanding ReMAS to include 

EGHP cases, and expedite implementation of the EGHP component of 

ReMAS and 

• improve the efficiency of MSP payment recovery activities by 

consolidating the EGHP workload under a smaller number of contractors 

and ensuring that contractor budgets for EGHP recovery activities more 

closely reflect their actual workloads. 

Conclusions 

Recommendations for 

Executive Action 
Page 21 GAO-04-783 Medicare Secondary Payer 

In written comments on a draft of this report, CMS agreed with our 

recommendations. CMS said it recognizes the importance of improving the 

cost-effectiveness of its debt collection process and has taken steps to 

expedite implementation of the EGHP component of ReMAS. CMS stated 

that operational efficiencies gained through the implementation of ReMAS 

make it feasible to consolidate recovery activities. CMS’s comments are 

reprinted in appendix III. CMS also provided us with technical comments, 

which we incorporated as appropriate. 

As agreed with your office, unless you announce its contents earlier, we 

plan no further distribution of this report until 30 days after its issuance. 

At that time, we will send copies to the Administrator of CMS and other 

interested parties. We will then make copies available to others upon 

request. In addition, the report will be available at no charge on GAO’s 

Web site at http://www.gao.gov. 

If you or your staff have any questions about this report, please call me at 

(312) 220-7600. An additional GAO contact and other staff who made 

contributions to this report are listed in appendix IV. 

Leslie G. Aronovitz 

Director, Health Care—Program 

 Administration and Integrity Issues 

Agency Comments 
Appendix I: Scope and Methodology 

Page 22 GAO-04-783 Medicare Secondary Payer 

To assess the cost-effectiveness of the current system for recovering 

Medicare Secondary Payer (MSP) debt, we analyzed information from two 

CMS databases—the Contractor Administrative-Budget and Financial 

Management (CAFM) system and the Mistaken Payment and Recovery 

Tracking System (MPaRTS). CAFM provided information on CMS’s 

budgets for contractors and MPaRTS provided information on the number 

of potential MSP recovery cases processed by contractors and the amount 

of savings from recovery activities. 

To evaluate contractor performance in recovering MSP debt, we focused 

on cases that involved beneficiaries and their spouses who may have been 

employed and covered by an employer-sponsored group health plan 

(EGHP). These cases consisted of potentially mistakenly paid claims for 

services a beneficiary appeared to have received while covered by an 

EGHP. We selected 4 geographically dispersed contractors that processed 

a high volume of EGHP debt cases—all 4 were among the top 10 

contractors that processed the highest number of such cases in 2000 and 

2001. At each contractor, we randomly selected a sample of cases that 

were opened in 2000 and 2001 for review—the number of cases selected at 

each contractor varied, ranging from 136 to 207.1

 Of the 644 cases selected, 

566 were available for review. Contractors were unable to provide 

documentation for 78 cases. Because contractors close the majority of 

cases without making recoveries, we specifically focused on such cases in 

order to determine whether contractors made sufficient effort to recover 

MSP debt and followed appropriate procedures. Our inspection of these 

files consisted of reviewing contractor adherence to CMS’s detailed 

procedures for steps taken during the recovery process and the sufficiency 

of the contractor’s documentation for closing data match cases without 

recovering funds or referring cases to the Department of the Treasury for 

collection.2

 1

We excluded EGHP debt cases that resulted in a recovery, cases that were currently open, 

and older cases that were still considered open but, because of their age, had been referred 

to the Department of the Treasury for collection. We also excluded liability, workers’ 

compensation, and other nondata match cases. 

2

CMS requires contractors to retain documentation supporting their case determinations 

including copies of mistakenly paid claims, demand letters sent to employers or other 

insurers requesting payment, letters informing employers or other insurers that the case 

will be referred to the Department of the Treasury for collection if payment is not received, 

contractors’ reports describing the beneficiary’s enrollment and payment information, a 

worksheet summarizing the beneficiary’s insurance history, and correspondence with 

employers and other insurers. 

Appendix I: Scope and Methodology 
Appendix I: Scope and Methodology 

Page 23 GAO-04-783 Medicare Secondary Payer 

All four of the Medicare contractors we examined sold private health 

insurance. Because of the possibility that the private side of their 

businesses could have been responsible for reimbursing Medicare for MSP 

debt, our examination included an assessment of whether this potential 

conflict of interest affected contractors’ actions in collecting this debt. 

Using insurer information available from MPaRTS and contractor case 

files, we identified cases that involved the contractor’s private health 

insurance business and compared them to the other cases. Our analysis 

found little difference between the two types of cases in terms of missing 

documentation—12.0 percent of cases that involved the contractor’s 

private side health insurance business were not documented, compared 

with 12.1 for the other cases. To assess CMS efforts to oversee and 

improve MSP debt recovery, we reviewed program guidelines and 

memoranda and interviewed officials from CMS and Medicare contractors. 

To identify contractor performance problems, we also examined the 

results of CMS’s fiscal years 2001 and 2002 contractor performance 

evaluations pertaining to contractors’ MSP operations. 

Although we did not validate CMS’s CAFM and MPaRTs information, CMS 

has procedures in place to ensure the accuracy of these databases. The 

MPaRTs database, which tracks MSP debt recoveries from EGHPs, 

contains internal logic checks that prevent contractors from incorrectly 

entering certain types of information. In addition, CMS periodically 

reviews MPaRTs records as part of its contractor performance 

evaluations. CAFM is a financial management system established to enable 

CMS to control the national budget for the Medicare contractors. It 

contains a small number of system checks that ensure that expenditure 

information provided by contractors is totaled correctly. The reliability of 

the data is ensured through independent audits. In addition, CMS 

personnel also review the data throughout the year. 

To identify the agency’s efforts to enhance the MSP process, we reviewed 

documents and interviewed CMS officials on CMS’s planned Recovery, 

Management and Accounting System (ReMAS), a new CMS system for 

MSP debt recovery activities that is under development. We conducted our 

work from December 2002 through July 2004 in accordance with generally 

accepted government auditing standards. 
Appendix II: Comparison of Current System 

for Recovering EGHP Debt with ReMAS 

Page 24 GAO-04-783 Medicare Secondary Payer 

The following table highlights differences between the way MSP case 

development, validation, and recovery are implemented under the present 

data match recovery system and how they will be implemented under 

ReMAS. 

Table 3: Comparison of Current Recovery System to ReMAS 

Step Current system ReMAS 

MSP Case Development CMS’s Coordination of Benefits contractor (COBC) 

evaluates information provided by the Internal 

Revenue Service and the Social Security 

Administration to identify instances where 

beneficiaries may have primary insurance coverage 

through an employer. The COBC updates the 

Common Working File (CWF) with this information if 

responses to the employer data match questionnaire 

or other analysis confirms that Medicare is the 

secondary payer. 

Same. 

 Updated CWF information produces computer tapes 

that are transmitted to local contractors—usually 

quarterly or semiannually. 

Updated CWF information produces leads daily 

and triggers a search for mistaken payments. 

Because the COBC receives tax and employer 

information irregularly, leads will tend to be 

generated in clusters, but potentially more frequent 

than the quarterly or semiannual basis of the 

current system. 

Case Validation CMS takes MSP leads from the data match. CWF 

updates and matches them against a national claims 

database to determine whether Medicare has paid 

claims for those individuals. 

Same. 

 Performed quarterly or semiannually. Performed when new leads are generated. 

 CMS must send the data match cases to the 

contractor that processed those claims. 

CMS selects a lead recovery contractor, regardless 

of whether that contractor processed the 

mistakenly paid claims. 

 Contractor validates recovery claim amounts by 

comparison with its internal claims history. 

No manual validation is done. The recovery claim 

amount is identified within ReMAS. 

 Recovery threshold of a minimum of $1,000 is used 

by each contractor for each recovery claim. 

No threshold for recovery. 

Recovery Individual contractors use standardized software to 

generate demand letters requesting payment from 

debtors. 

ReMAS will interface with the CMS accounts 

receivable software, which will automatically 

generate demand letters requesting payment from 

debtors. 

 An employer or insurer can receive several demand 

letters if more than one contractor processed the 

mistakenly paid claims or if debt involves more than 

one beneficiary. 

One demand letter is sent. ReMAS identifies all 

claims for which the debtor is responsible. 

Source: CMS. 

Appendix II: Comparison of Current System 

for Recovering EGHP Debt with ReMAS 
Appendix III: Comments from the Centers for Medicare & Medicaid Services 

Page 25 GAO-04-783 Medicare Secondary Payer 

Appendix III: Comments from the Centers for 

Medicare & Medicaid Services 
Appendix III: Comments from the Centers for Medicare & Medicaid Services 

Page 26 GAO-04-783 Medicare Secondary Payer 
Appendix IV: GAO Contact and Staff 

Acknowledgments 

Page 27 GAO-04-783 Medicare Secondary Payer 

Geraldine Redican-Bigott, (312) 220-7678 

Major contributors to this report were Richard M. Lipinski, Barbara 

Mulliken, Enchelle Bolden, Shaunessye Curry, and Kevin Milne. 

Appendix IV: GAO Contact and Staff 

Acknowledgments 

GAO Contact 

Acknowledgments 

(290192) 
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