United States General Accounting Office

GAO Report to Congressional Committees

June 1998 MEDICARE

Health Care Fraud and

Abuse Control

Program Financial

Report for Fiscal Year

1997

GAO/AIMD-98-157

GAO United States

General Accounting Office

Washington, D.C. 20548

Accounting and Information

Management Division

B-278606 

June 1, 1998

The Honorable William V. Roth, Jr.

Chairman

The Honorable Daniel P. Moynihan

Ranking Minority Member

Committee on Finance

United States Senate

The Honorable Tom Bliley

Chairman

The Honorable John D. Dingell

Ranking Minority Member

Committee on Commerce

House of Representatives

The Honorable Bill Archer

Chairman

The Honorable Charles B. Rangel

Ranking Minority Member

House of Representatives

Committee on Ways and Means

The Congress enacted the Health Care Fraud and Abuse Control (HCFAC)

Program as part of the Health Insurance Portability and Accountability Act

of 1996 (HIPAA), Public Law 104-191. HCFAC, which is administered by the

Department of Health and Human Services Office of the Inspector General

(HHS/OIG) and the Department of Justice (DOJ), established a national

framework to coordinate federal, state, and local law enforcement efforts

to detect, prevent, and successfully prosecute health care fraud and abuse

in the public and private sectors. HIPAA requires HHS and DOJ to issue a joint

annual report to Congress for the preceding fiscal year, on (1) amounts

appropriated to (deposited to) the Federal Hospital Insurance Trust Fund1

pursuant to HIPAA and the source of such amounts and (2) amounts

appropriated from the trust fund for the HCFAC program and the

justification for the expenditure of such amounts. The first joint report,

issued on January 23, 1998, covered fiscal year 1997 deposits to the trust

fund and allocation of the HCFAC appropriation.

1

The Hospital Insurance Trust Fund funds the Medicare Part A program, which helps pay for hospital,

home health, skilled nursing facility, and hospice care for the aged and disabled. The trust fund is

funded primarily by employment taxes: payroll and self-employment taxes.

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HIPAA, as amended by the Balanced Budget Act of 1997, Public Law 105-33,

also requires that we submit a report, by June 1, 1998, and January 1, 2000,

2002, and 2004, that identifies (1) the amounts deposited to the trust fund

pursuant to HIPAA and the sources of such amounts, (2) the amounts

appropriated from the trust fund for the HCFAC program and the

justification for the expenditure of such amounts, (3) expenditures from

the trust fund for HCFAC activities not related to Medicare, and (4) any

savings to the trust fund, as well as any other savings, resulting from

expenditures from the trust fund for the HCFAC program. The act also

provides for us to report on other aspects of the operation of the trust

fund as we consider appropriate. In addition to this report, we are also

separately reporting today on the Health Care Financing Administration’s

(HCFA) use of anti-fraud and -abuse funds in the Medicare Integrity

Program—a program also established by HIPAA.

2

Results in Brief The HHS and DOJ joint report for fiscal year 19973

 reported that

$130.7 million4

 was deposited to the trust fund pursuant to HIPAA. The

sources of these deposits, as shown in the joint report, were primarily

penalties and damages ($89 million) and criminal fines ($41 million)

resulting from health care fraud audits, evaluations, investigations, and

litigation activities initiated prior to implementation of the HCFAC program.

The joint report also stated that $104 million was appropriated from the

trust fund for the HCFAC program in fiscal year 1997. Of the $104 million,

HHS and DOJ allocated the maximum—$70 million—to the HHS/OIG to

increase its Medicare and Medicaid fraud activities. The remaining

$34 million was allocated to

• DOJ, which received $22.2 million primarily to increase litigative efforts and

to provide fraud training;

2

HCFA’s Use of Anti-Fraud-and-Abuse Funding and Authorities (GAO/HEHS-98-160, June 1, 1998).

3

Annual Report of the Departments of Health and Human Services and Justice, Health Care Fraud and

Abuse Control Program 1997. This report can be obtained by calling the HHS/OIG Office of Public Affairs

at (202)619-1142.

4

HHS and DOJ reported a total of $135.7 million in HIPAA deposits to the trust fund, but in their joint

report they acknowledged that this amount was overstated by $5 million. Thus, total HIPAA deposits

reported in fiscal year 1997 equal about $130.7 million. Health care fraud activities also resulted in the

collection of other amounts in fiscal year 1997 that HIPAA did not require to be deposited to the trust

fund, including recovered OIG audit disallowances and restitution and compensatory damages. Such

amounts reported in HHS’ and DOJ’s fiscal year 1997 joint HCFAC report totaled about $952 million.

According to HHS and DOJ, while HIPAA does not require these amounts to be deposited to the trust

fund, they are returned to the trust fund to the extent that they represent repayments to Medicare. We

did not verify the reported amounts.

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• HCFA, which received $5.3 million for various initiatives related to health

care fraud and abuse, including the development of a new information

system to identify potential targets for fraud investigations; and

• other federal and state agencies, which received the remaining $6.5 million

for a variety of activities, including increased litigation; development of a

new adverse action data bank; and outreach, education, and training.

We found no material weaknesses5

 in HHS’ and DOJ’s processes for

accumulating this information, and nothing came to our attention to lead

us to believe that the amounts related to HIPAA deposits and the allocation

of the HCFAC appropriation reported by HHS and DOJ in their joint report

were inaccurate or unsupported.

We could not identify expenditures from the trust fund for HCFAC activities

not related to Medicare because neither the HHS/OIG nor DOJ separately

account for or monitor those expenditures. HIPAA restricts the HHS/OIG’s use

of HCFAC funds to Medicare and Medicaid activities. HHS/OIG officials readily

acknowledged that some HCFAC funds were spent on efforts related only to

Medicaid; however, as this is permitted by HIPAA, the HHS/OIG does not

separately track such expenditures. Likewise, DOJ does not separately

account for non-Medicare expenditures. HIPAA does not limit DOJ’s use of

HCFAC funds to Medicare and Medicaid. Furthermore, health care fraud

cases often involve more than one health care program. Thus, it is difficult

to identify non-Medicare related expenditures.

We also could not determine the magnitude of savings to the trust fund, or

other savings, resulting from trust fund expenditures for the HCFAC

program during fiscal year 1997. The joint report cited $6.1 billion in cost

savings6

 of health care funds in fiscal year 1997 as a result of HHS/OIG

recommendations or other initiatives. However, $2.1 billion of this amount

relates to the Medicaid program, which is funded through the general fund

of the Treasury, not the trust fund. The remaining $4.0 billion relates to

actions that predate the HCFAC program and cannot be associated with

expenditures for HCFAC activities. Since audit, evaluation, investigation,

and litigation activities typically span several years, savings from such

5

A material weakness is a condition in which the design or operation of one or more internal control

components does not reduce to a relatively low level the risk that errors or irregularities in amounts

that would be material in relation to amounts deposited to and appropriated from the trust fund may

occur and not be detected within a timely period by employees in the normal course of performing

their assigned functions. Our limited review would not necessarily disclose all matters that might be

material weaknesses.

6

Cost savings are estimated savings resulting from health care funds not being expended in future

years due to legislative or regulatory changes. Cost savings differ from collections that are deposited

to the trust fund.

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activities initiated in fiscal year 1997 are not expected to be realized until

future years.

Finally, the implementation of the Healthcare Integrity and Protection

Data Bank (HIPDB), which is to be an important tool to keep unscrupulous

providers from having access to Medicare and other health care programs,

has been delayed. This national database of adverse actions against health

care providers, which HIPAA mandated, was to be established by January 1,

1997,7

 but will not be operational until at least May 1999.

Background As reported in our high-risk series,8

 as much as 10 percent of health

expenditures nationwide are lost to fraud and abuse. In this regard, the

HHS Office of the Inspector General (HHS/OIG) reported that in fiscal year

1997, an estimated 11 percent, or $20 billion of Medicare fee-for-service

payments were improper.9

 The Congress enacted HIPAA, in part, to respond

to the problem of health care fraud and abuse. HIPAA consolidated and

strengthened ongoing efforts to attack fraud and abuse in health programs

and provided new criminal and civil enforcement tools, as well as

expanded resources for fighting health care fraud, including $104 million

in fiscal year 1997 for HCFAC.

Under the joint direction of the Attorney General and the HHS Secretary

(acting through the HHS/OIG), HCFAC is to achieve the following:

• coordinate federal, state, and local law enforcement efforts to control

fraud and abuse associated with health plans;

• conduct investigations, audits, and other studies of the delivery and

payment for health care in the United States;

• facilitate the enforcement of the civil, criminal, and administrative

statutes10 applicable to health care;

• provide guidance to the health care industry, including the issuance of

advisory opinions, safe harbor notices, and special fraud alerts; and

7

Section 1128E of the Social Security Act, as enacted by section 221 of HIPAA.

8

High-Risk Series: Medicare (GAO/HR-97-10, February, 1997).

9

Report on the Financial Statement Audit of the Health Care Financing Administration for Fiscal Year

1997, HHS/OIG, A-17-97-00097, April 1, 1998. In this report, the HHS/OIG reported that the estimated range

of improper payments at the 95 percent confidence level was $12.1 billion to $28.4 billion, or about 7

percent to 16 percent.

10These statutes include sections 1128, 1128A, and 1128B of the Social Security Act, as well as other

statutes that apply to health care fraud and abuse.

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• establish a national database of adverse actions against health care

providers.

Funds for the HCFAC program are appropriated from the trust fund to a

newly created expenditure account, referred to as the Health Care Fraud

and Abuse Control Account, maintained within the trust fund. The

Attorney General and the Secretary of HHS jointly certify that the funds

transferred to the control account are necessary to finance health care

anti-fraud and -abuse activities, subject to limits for each fiscal year as

specified in HIPAA. Annual minimum and maximum amounts are earmarked

specifically for HHS/OIG activities for the Medicare and Medicaid programs.

For example, of the $104 million available in fiscal year 1997, a minimum

of $60 million and maximum of $70 million was earmarked for the HHS/OIG.

By earmarking funds specifically for the HHS/OIG, the Congress ensured

continued efforts by the HHS/OIG to detect and prevent fraud and abuse in

the Medicare and Medicaid programs.

DOJ and HHS refer to the difference between the maximum annual HCFAC

appropriation and the maximum amount earmarked for the HHS/OIG as the

“wedge amount.” If the HHS/OIG is allocated less than the maximum

statutory amount, that difference is added to the wedge amount, which is

available to fund health care fraud and abuse activities at other HHS entities

and DOJ. Funds that HHS and DOJ do not spend to administer and operate

the program may be made available to other federal, state, and local

agencies engaged in health care fraud and abuse activities. See appendix I

for additional detail regarding HCFAC funding.

HIPAA also requires amounts equal to the following types of collections to

be deposited in the trust fund:

• criminal fines recovered in cases involving a federal health care offense,

including collections pursuant to section 1347 of Title 18, United States

Code,

• civil monetary penalties and assessments imposed in health care fraud

cases,

• amounts resulting from the forfeiture of property by reason of a federal

health care offense, including collections under section 982(a)(6) of Title

18, United States Code, and

• penalties and damages obtained and otherwise creditable to miscellaneous

receipts of the Treasury’s general fund obtained under the False Claims

Act (sections 3729 through 3733 of Title 31, United States Code), in cases

involving claims related to the provision of health care items and services

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(other than funds awarded to a relator,11 for restitution or otherwise

authorized by law).

HIPAA also authorizes the trust fund to accept unconditional gifts and

bequests.

Scope and

Methodology

To meet our first objective of identifying amounts deposited to the trust

fund in fiscal year 1997 pursuant to HIPAA and the sources of these

amounts, we reviewed HHS and DOJ’s fiscal year 1997 joint HCFAC report. We

also obtained the trust fund’s fiscal year 1997 income statement, which

received an unqualified opinion from the independent auditors, Cotton and

Company. We compared amounts shown in the joint report as deposits of

penalties and multiple damages, criminal fines, civil monetary penalties,

and gifts and bequests with the respective amounts reported on the trust

fund’s audited income statement. In addition, we selected 17 deposit

transactions, focusing on large dollar amounts. We tested the selected

transactions to determine whether they were correctly classified as

deposits to the trust fund. Further, we interviewed personnel at various

HHS and DOJ entities to gain an understanding of procedures and controls

related to collecting and reporting deposits.

To satisfy our second objective of identifying amounts appropriated from

the trust fund in fiscal year 1997 for the HCFAC program and the reported

justification for expenditures of such amounts, as well as our third

objective of identifying expenditures from the trust fund for HCFAC

activities not related to Medicare, we reviewed the joint report. We also

reviewed documents supporting the allocation of the HCFAC appropriation,

such as HHS’ and DOJ’s funding decision memorandum, proposals for the

wedge amount, and reallocation documents. In addition, we selected nine

expenditures and three obligations, focusing on large dollar amounts. We

tested the selected transactions to determine whether they were justified

for fraud- and abuse-related activities. Also, because payroll costs were

predominantly allocated to the HCFAC appropriation, rather than accounted

for directly, we reviewed the allocation methodologies at two

entities—HHS/OIG and DOJ’s Criminal Division—to determine whether the

methodologies were reasonable. Further, we interviewed personnel at

various HHS and DOJ entities to gain an understanding of their procedures

for allocating the HCFAC appropriation and reporting related expenditures,

including non-Medicare related expenditures.

11A relator is a private citizen who files suit on behalf of the federal government under the qui tam

provisions of the False Claims Act.

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To identify any savings to the trust fund, as well as any other savings,

resulting from expenditures from the trust fund for the HCFAC program,

which was our fourth objective, we reviewed the joint report. We reviewed

all recommendations and the resulting cost savings as reported in the

HHS/OIG’s fiscal year 1997 semiannual reports12 to determine whether such

cost savings related to the HCFAC program. In addition, we selected 10 cost

savings items from the fiscal year 1997 semiannual reports and reviewed

supporting documentation to determine whether such cost savings related

to fiscal year 1997 and were adequately substantiated. Further, we

interviewed HHS/OIG personnel to determine their methodology for

estimating cost savings.

We reviewed deposit, appropriation, and savings information reported in

HHS’ and DOJ’s joint report. Our review of reported trust fund deposit,

appropriation, and savings information was conducted in accordance with

standards established by the American Institute of Certified Public

Accountants (AICPA)—Attestation Standards sections 100.03 through

100.52. A review is substantially less in scope than an audit. Accordingly,

we do not express an opinion on amounts reported in the HHS and DOJ 1997

joint report.

In response to HIPAA’s provision that we report on other aspects of the

operation of the trust fund as we consider appropriate, we reviewed the

status of HIPDB, the national health care fraud and abuse data collection

program, which is a requirement of HIPAA. To gain an understanding of the

program’s implementation and current status, we reviewed the program

status report prepared by Health Resources and Services Administration

(HRSA). We also interviewed knowledgeable personnel responsible for

HIPDB’s development and reviewed various documents relating to the

program. Specifically, we discussed the planning and current status of the

data bank with personnel from HHS/OIG and HRSA, the organizations

primarily responsible for HIPDB. We did not perform a systems review or

consider whether HIPDB, as planned, will be compliant with Year 200013

requirements.

12Semiannual Report, October 1, 1996 through March 31, 1997 and Semiannual Report, April 1, 1997

through September 30, 1997. The Inspector General Act of 1978 (Public Law 95-452), as amended,

requires the HHS/OIG to submit semiannual reports on the OIG’s activities and accomplishments for the

reporting period to the HHS Secretary for transmittal to the Congress.

13For the past several decades, information systems have typically used two digits to represent the

year, such as “98” for 1998, in order to conserve electronic data storage and reduce operating costs. In

this format, however, 2000 is indistinguishable from 1900 because both are represented as “00.” As a

result, computer systems or applications that use dates or perform date- or time-sensitive calculations

may, if not modified, generate incorrect results beyond 1999.

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We performed work and contacted officials at the Health Care Financing

Administration in Baltimore, Maryland; HHS Headquarters, the HHS/OIG, the

Administration on Aging, and DOJ’s Justice Management Division,

Executive Office of the United States Attorneys, Criminal Division, and

Civil Division in Washington, D.C.; HRSA and HHS’ Program Support Center

in Rockville, Maryland; and the Pennsylvania Eastern District United

States Attorneys Office in Philadelphia, Pennsylvania.

We conducted our work from February 1998 through May 6, 1998 in

accordance with generally accepted government auditing standards, which

incorporate AICPA standards and provide additional audit standards. We

requested comments on a draft of this report from the Secretary of HHS and

the Attorney General or their designees. The Inspector General of HHS

provided us with written comments, which are reprinted in appendix II.

On May 15, the DOJ Chief, Health Care Fraud Unit provided us with oral

comments. Both agencies’ comments are discussed in the “Agency

Comments” section.

Amounts Deposited to

the Trust Fund

HHS and DOJ reported total deposits of $130.7 million to the trust fund in

fiscal year 1997 pursuant to HIPAA. These deposits are reported as resulting

almost totally from penalties and multiple damages obtained under the

False Claims Act14 and criminal fines.

Table 1 presents the total reported deposits to the trust fund in fiscal year

1997 pursuant to HIPAA as reported by HHS and DOJ in their fiscal year 1997

joint HCFAC report.

14Sections 3729 through 3733 of Title 31, United States Code.

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Table 1: Reported Fiscal Year 1997

Deposits to the Trust Fund Pursuant to

HIPAA

Dollars in millions

Source of deposit Amount

Amount equal to penalties and multiple damages $88.8

Amount equal to criminal finesa 41.2

Amount equal to civil monetary penalties .7

Gifts and bequests b

Totalc $130.7d

Source: Annual Report of the Departments of Health and Human Services and Justice, Health

Care Fraud and Abuse Control Program 1997.

aHHS and DOJ reported $46.2 million in criminal fines, but acknowledged in their report that this

amount was overstated by $5 million.

bGifts and bequests totaled $6,750.

cHIPAA also requires that amounts resulting from the forfeiture of property in federal health care

cases be deposited to the trust fund; however, there were no such forfeitures in fiscal year 1997.

dTo show the totality of their fraud and abuse efforts, HHS and DOJ included in their joint report

other amounts collected as a result of health care fraud activities totaling about $952 million.

Because HIPAA does not require that these amounts be deposited to the trust fund, they were not

covered by our review. According to HHS and DOJ, to the extent that they represent repayments

to Medicare, these amounts are returned to the trust fund.

We found no material weaknesses in the procedures that HHS and DOJ have

put in place for identifying and reporting deposits pursuant to HIPAA. In

addition, nothing came to our attention to suggest that HHS and DOJ did not

accurately classify HIPAA deposits in their fiscal year 1997 joint HCFAC

report, except for a $5 million overstatement of criminal fines that they

noted in the joint report.

Penalties and damages obtained under the False Claims Act and criminal

fines resulting from health care fraud cases, as reported by HHS and DOJ,

comprised about 68 percent and 32 percent, respectively, of the deposits

to the trust fund pursuant to HIPAA. DOJ’s Civil Division in Washington, D.C.,

and Financial Litigation Units in United States Attorneys Offices located

throughout the country collect penalties and damages resulting from

health care fraud cases. They report collection information to DOJ’s Debt

Accounting Operations Group, which in turn centrally accounts for

collections of penalties and multiple damages and reports to the

Department of the Treasury the amounts to be deposited to the trust fund.

Clerks of the Administrative Office of the United States Courts located

throughout the country collect criminal fines resulting from health care

fraud cases and report these collections to the Financial Litigation Unit

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associated with their districts. The Financial Litigation Units report

criminal fine collections to DOJ’s Executive Office of the United States

Attorneys in Washington, D.C., which centrally reports the amount of

criminal fines collected to the Department of the Treasury.

We found that the amounts shown in the joint report as deposits of

penalties and multiple damages, criminal fines, civil monetary penalties,

and gifts and bequests agreed with the respective amounts reported on the

trust fund’s audited fiscal year 1997 income statement. In addition, we

found that the 17 deposit transactions we reviewed totaling approximately

$43 million were accurately reported and classified as deposits to the trust

fund.

We also found that deposits reported in fiscal year 1997 primarily resulted

from actions initiated prior to the creation of HCFAC. According to DOJ

officials, investigation and litigation of health care fraud cases generally

span several years. Once cases are settled, it may take several more years

before any resulting fines, penalties, and damages are paid in full.

Consequently, deposits to the trust fund reported in fiscal year 1997

pursuant to HIPAA essentially resulted from prior years investigation and

litigation efforts. For example, in fiscal year 1997, DOJ reported nearly

$41 million in deposits to the trust fund pursuant to HIPAA as a part of a

$319 million settlement with Smithkline Beecham Clinical Labs, which was

the result of a 3-year task force effort targeting unbundling schemes

perpetrated by independent clinical laboratories. Also, a 7-year

investigation of home health agency fraud resulted in a $255 million

settlement with First American Home Health Care of Georgia, formerly

ABC Home Health Services, in fiscal year 1997. DOJ reported almost

$20 million in deposits to the trust fund pursuant to HIPAA in fiscal year

1997 as a result of this settlement. Similarly, investigation and litigation

activities initiated in fiscal year 1997 will most likely result in collections in

future years.

Amounts

Appropriated From

the Trust Fund

In fiscal year 1997, the Attorney General and HHS Secretary certified the

entire $104 million appropriation as necessary to carry out the HCFAC

program. We found no material weaknesses in HHS’ and DOJ’s process for

allocating the HCFAC appropriation for fraud and abuse control purposes.

The Attorney General and HHS Secretary entered into a memorandum of

understanding which laid the groundwork for allocating funds among

program participants. In applying for funds, applicants were required to

explain how proposed activities conformed to the statute and the HCFAC

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program and to provide a spending plan. HHS and DOJ jointly reviewed

proposals and made funding decisions for the HCFAC funds.

In this first year, HHS and DOJ did not make the final funding decisions for

allocating the wedge funds until December 1996. Also, HHS and DOJ did not

grant funds to other federal, state, and local agencies until July 1997, after

requesting, reviewing, and approving proposals for HCFAC funds. Table 2

presents fiscal year 1997 allocations and obligations for the HCFAC

program.

Table 2: Fiscal Year 1997 Allocations

and Reported Obligations (Unaudited) Dollars in thousands

Organization Allocation Obligations

HHS/OIG $70,000 $69,402

Health Care Financing Administration 5,346 5,318

Health Resources and Services

Administration

2,000 1,998

HHS Office of the General Counsel 1,800 1,677

Administration on Aging 1,100 1,091

United States Attorneys 8,548 8,533

Civil Division 9,656 9,424

Criminal Division 329 265

Justice Management Divisiona 3,667 3,631

Other federal and state agencies 1,554 1,554

Total $104,000b $102,893

aThe FBI received about $3.6 million from the control account through a reimbursable agreement

with the Justice Management Division. This reimbursable agreement provided funding for the

purchase of computer and investigative equipment for use in health care fraud investigations.

bThe wedge amount for fiscal year 1997 was $34 million under this plan ($104 million less the

$70 million allocated to the HHS/OIG).

Source: Allocation information was obtained from the Annual Report of the Departments of Health

and Human Services and Justice, Health Care Fraud and Abuse Control Program 1997.

Obligation information was obtained from unaudited HHS and DOJ SF-133 data. We did not

independently verify this information.

The HHS/OIG was allotted $70 million, the maximum statutory amount

authorized, to build upon the policies and practices of Operation Restore

Trust15 (ORT), while strategically increasing resources dedicated to fraud

activities, enhancing existing Medicare fraud protection activities, and

15ORT was a 2-year demonstration project, initiated by HHS and DOJ in March 1995, to combat fraud,

waste, and abuse in three of the fastest growing areas of Medicare—home health care, nursing home

care, and durable medical equipment. The project targeted the five states with the highest Medicare

expenditures—California, Florida, New York, Texas, and Illinois.

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pursuing new anti-fraud initiatives. The HHS/OIG reported that HCFAC

funding allowed it to open six new investigative offices and three new

audit offices and increase its staff levels by approximately 240 in fiscal

year 1997.

The following briefly summarizes the reported allocation of the $34 million

wedge amount and the purposes for which those funds were used.

• The Department of Justice was allocated a total of $22.2 million primarily

to increase efforts to litigate health care fraud cases and provide fraud

training courses. DOJ reported that in fiscal year 1997, it had established a

total of 208 new positions for health care fraud enforcement, including 116

attorneys, 26 paralegals, and 66 support positions.

• HCFA was allocated $5.3 million—$1.8 million to expand its survey and

certification of Medicare coverage reviews tested under ORT, $1.9 million

for the HCFA Customer Information System, and $1.6 million to extend a

contract with the Los Alamos National Laboratory. Medicare coverage

review surveys are intended to provide fiscal and regional home health

intermediaries, who process and pay Medicare claims, with better

information to assess overpayments and implement collection procedures.

The HCFA Customer Information System is designed to identify potential

targets for Medicare fraud and abuse investigations. HCFA received funding

to purchase hardware for the system and provide connectivity to the

HHS/OIG and DOJ. HCFA also received HCFAC funding to extend its contract

with the Los Alamos National Laboratory to develop algorithms that could

be developed as software to identify suspicious providers and patterns of

abuse.

• HRSA was allocated $2 million to design and implement the adverse action

database, referred to as the Healthcare Integrity and Protection Data Bank

(which is discussed later in this report).

• The HHS Office of the General Counsel was allocated $1.8 million primarily

to support the expected increased litigation workload resulting from HIPAA.

• The Administration on Aging was allocated $1.1 million to continue its

outreach, education, and training efforts demonstrated in ORT.

• Eleven other federal and state agencies were allocated a total of

$1.5 million for health care fraud and abuse prevention and detection

activities.

We found no material weaknesses in HHS and DOJ procedures to identify

and report HCFAC expenditures. HCFA performs the accounting for the

control account, from which HCFAC expenditures are made. HCFA sets up

allotments in its accounting system for each of the HHS and DOJ entities

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receiving HCFAC funds. The HHS and DOJ entities account for their HCFAC

obligations and expenditures in their respective accounting systems and

report them to HCFA on a monthly basis. HCFA records the obligations and

expenditures against the appropriate allotments in its accounting system.

We reviewed supporting documentation, such as obligating documents

and invoices, for nine expenditure transactions totaling $726,000.16 We also

reviewed three obligation transactions totaling $3.3 million for which no

expenditures had been made in fiscal year 1997. In addition, we reviewed

the methodology used to allocate payroll costs to the HCFAC program at

two entities—the HHS/OIG and DOJ’s Criminal Division—whose fiscal year

1997 payroll costs allocated to HCFAC totaled $38 million. We found that

(1) the expenditures and obligations we tested related to HHS and DOJ

funding decisions and the proposals approved for HCFAC funds and (2) the

transactions appeared justified for fraud and abuse activities. In addition,

we found no material weaknesses in the payroll cost allocation

methodologies we reviewed.

Non-Medicare

Expenditures

We were not able to identify HCFAC program expenditures from the trust

fund not related to Medicare because the HHS/OIG and DOJ do not separately

account for or monitor such expenditures. HIPAA restricts the HHS/OIG’s use

of HCFAC funds to the Medicare and Medicaid programs. According to

HHS/OIG officials, they use HCFAC funds only for audits, evaluations, or

investigations related to Medicare or Medicaid. The officials also stated

that while some activities may be limited to either Medicare or Medicaid,

most activities are generally related to both programs. Because HIPAA does

not preclude the HHS/OIG from using HCFAC funds for Medicaid efforts, the

HHS/OIG does not believe it is necessary or beneficial to account for such

expenditures separately.

Similarly, DOJ officials do not believe that it is practical or beneficial to

separately account for non-Medicare expenditures due to the nature of

health care fraud cases. HIPAA permits DOJ to use HCFAC funds for health

care fraud activities involving other health care programs. According to

DOJ officials, health care fraud cases usually involve several health care

programs, including Medicare and health programs administered by other

16The obligations reported in table 2 are based on budget data. However, because HHS and DOJ

accounting data provide the detail for obligations and expenditures, we selected and tested

transactions from the accounting data. HHS’ Program Support Center (PSC) provides accounting

services for HHS entities other than HCFA. During the course of our review, PSC accounting personnel

reconciled major differences between budget and accounting data for the HHS/OIG and HHS Office of

General Counsel. However, we did not receive all the detail support necessary for us to analyze the

reconciliations in time for our report. We will continue to followup with PSC to resolve this matter.

Page 13 GAO/AIMD-98-157 HCFAC Program Financial Report
B-278606 

federal agencies, such as the Department of Veterans Affairs, the

Department of Defense, and the Office of Personnel Management.

Consequently, it is difficult to separately charge personnel costs and other

litigation expenses to specific parties in health care fraud cases. Also,

according to DOJ officials, even if Medicare is not a party in a health care

fraud case, the case may provide valuable experience in health care fraud

matters, allowing auditors, investigators, and attorneys to become more

effective in their efforts to combat Medicare fraud. Neither HHS nor DOJ

have plans to identify these expenditures in the future.

Savings to the Trust

Fund

In this first year of the HCFAC program, we were unable to quantify the

savings to the trust fund, or any other savings, resulting from expenditures

from the trust fund due to the nature of health care anti-fraud and -abuse

activities. As discussed earlier, audits, evaluations, and investigations can

take several years to complete. Once they are completed, it can take

several more years before recommendations or initiatives are

implemented. Likewise, it is not uncommon for litigation activities to span

many years before a settlement is reached. Consequently, any savings

resulting from health care anti-fraud and -abuse activities funded by the

HCFAC program in fiscal year 1997 will likely not be realized until

subsequent years.

In their joint report, HHS and DOJ reported approximately $6.1 billion of

cost savings during fiscal year 1997 resulting from implementation of

HHS/OIG recommendations and other initiatives. However, as the

recommendations and other initiatives relate to actions that predate the

HCFAC program, the cost savings cannot be associated with expenditures

from the trust fund pursuant to HIPAA.

We found that $4 billion of the reported $6.1 billion of cost savings related

to the Medicare program. The remaining $2.1 billion were specific to the

Medicaid program and, thus, would not impact the trust fund since the

Medicaid program is funded with general appropriations. We have

discussed this with the HHS/OIG, which has agreed to provide cost savings

information related to the Medicare and Medicaid programs separately in

future reports.

Status of HIPDB In response to HIPAA’s provision for us to report on other aspects of the

trust fund, we determined the status of development and implementation

of the Healthcare Integrity and Protection Data Bank (HIPDB). This

Page 14 GAO/AIMD-98-157 HCFAC Program Financial Report
B-278606 

database was to provide a way of tracking criminal convictions, civil

judgments, and other adverse actions against healthcare providers,

suppliers, and practitioners on a nationwide basis. As required by HIPAA,

the database was to be established by January 1, 1997. While HHS did not

believe it could develop the database by that date, it planned to have an

interim database operational by March 1998. As mentioned previously, HHS

and DOJ allocated $2 million of the fiscal year 1997 HCFAC appropriation for

this effort.

HHS officials advised us that the project has been redirected. They stated

that there will not be an interim database as previously planned and that

the database will not be operational until at least May 1999. We plan to

include an evaluation of the database project in our next report under

HIPAA.

Agency Comments

and Our Evaluation

In commenting on this draft report, DOJ stated that it had no formal

comments. HHS did not raise any issues relating to the facts presented in

the report. However, HHS offered a technical comment that DOJ agreed with

in its oral comments. We have incorporated the agencies’ comments as

appropriate.

We are sending copies of this report to the Chairmen and Ranking

Minority Members of the Senate and House Committees on Judiciary, the

Secretary of HHS, the Attorney General, and other interested parties.

Copies will be made available to others on request.

Please contact me at (202) 512-4476 if you or your staff have any questions.

Major contributors to this letter are listed in appendix III.

Gloria L. Jarmon

Director, Health, Education, and Human Services

Accounting and Financial Management

Page 15 GAO/AIMD-98-157 HCFAC Program Financial Report
Contents

Letter 1

Appendix I 

Additional Detail on

HCFAC Funding

18

Appendix II 

Comments From the

Department of Health

and Human Services

20

Appendix III 

Major Contributors to

This Report

23

Tables Table 1: Reported Fiscal Year 1997 Deposits to the Trust Fund

Pursuant to HIPAA

9

Table 2: Fiscal Year 1997 Allocations and Reported Obligations

(Unaudited)

11

Table I.1: Fiscal Year Funding Limits for the HCFAC Program

Established by HIPAA

18

Table I.2: Actual and Estimated HHS/OIG Funding for Fiscal

Years 1996 Through 2001

19

Abbreviations

AICPA American Institute of Certified Public Accountants

DOJ Department of Justice

FBI Federal Bureau of Investigation

HCFA Health Care Financing Administration

HCFAC Health Care Fraud and Abuse Control

HHS Department of Health and Human Services

HIPDB Healthcare Integrity and Protection Data Bank

HIPAA Health Insurance Portability and Accountability Act of 1996

HRSA Health Resources and Services Administration

OIG Office of the Inspector General

ORT Operation Restore Trust

PSC Program Support Center

Page 16 GAO/AIMD-98-157 HCFAC Program Financial Report
Page 17 GAO/AIMD-98-157 HCFAC Program Financial Report
Appendix I 

Additional Detail on HCFAC Funding

HIPAA provided for appropriations of up to $104 million to the control

account for fiscal year 1997, of which $60 million (the minimum) to

$70 million (the maximum) was earmarked for HHS/OIG activities involving

Medicare and Medicaid. In addition, HIPAA authorizes the HHS/OIG to retain

for current use certain reimbursements for the costs of conducting

investigations and audits and monitoring compliance plans. In fiscal year

1997, these reimbursements were reported to total $540,000. According to

HHS/OIG officials, these funds will be used to open two new investigative

offices in Vermont and New Hampshire in fiscal year 1998. Also, HIPAA

provided for appropriating an additional $47 million from the general fund

of the Treasury to the control account for transfer to the Federal Bureau

of Investigation (FBI) to (1) prosecute, investigate, and audit health care

matters and (2) develop and deliver provider and consumer education

regarding compliance with fraud and abuse provisions.1

HIPAA provides for annual increases of 15 percent in HCFAC funding through

the year 2003, after which the appropriation for HCFAC and the amount

earmarked for the HHS/OIG remains the same. Table I.1 summarizes the

HCFAC funding limits for fiscal years 1997 through 2003.

Table I.1: Fiscal Year Funding Limits

for the HCFAC Program Established by

HIPAA

Fiscal

year

Appropriation

available

Amount available only

to the HHS/OIGa

Wedge

amountb

1997 $104,000,000 $70,000,000 $34,000,000

1998 $119,600,000 $84,650,000 $34,950,000

1999 $137,540,000 $90,000,000 - $100,000,000 $37,540,000

2000 $158,171,000 $110,000,000 - $120,000,000 $38,171,000

2001 $181,896,650 $120,000,000 - $130,000,000 $51,896,650

2002 $209,181,147 $140,000,000 - $150,000,000 $59,181,147

2003 $240,558,320 $150,000,000 - $160,000,000 $80,558,320

aTable I.1 includes the actual amounts allocated to the HHS/OIG in fiscal years 1997 and 1998.

For fiscal years 1999 through 2003, the table includes the annual minimum and maximum

amounts earmarked for the HHS/OIG.

bConsistent with HHS and DOJ’s definition of the wedge amount, the fiscal year 1997 and 1998

wedge amounts are based on the actual amount allocated to the HHS/OIG, and the wedge

amounts for fiscal years 1999 through 2003 are based on the maximum amount available only to

the HHS/OIG.

Table I.2 presents the HHS/OIG’s annual funding in fiscal year 1996, prior to

HIPAA, through fiscal year 2001.

1

This report does not discuss the use of these funds since they were not appropriated from the trust

fund.

Page 18 GAO/AIMD-98-157 HCFAC Program Financial Report
Appendix I 

Additional Detail on HCFAC Funding

Table I.2: Actual and Estimated

HHS/OIG Funding for Fiscal Years

1996 Through 2001

Dollars in millions

Fiscal year

HCFAC

funds

Discretionary

funds

Hospital

Insurance

Trust Fund

transfer

Total

funding

1996 (actual) $58 $21 $79

1997 (actual) $70 $33 $103

1998 (est.)a $84.65 $32 $116.65

1999 (est.)b $100 $29 $129

2000 (est.)c $120 $29 $149

2001 (est.)c $130 $29 $159

aThe projected amount for fiscal year 1998 is based on estimated fiscal year 1998 discretionary

funds as shown in the Fiscal Year 1999 President’s Budget and the HHS/OIG’s actual fiscal year

1998 HCFAC allocation.

bThe projected amount for fiscal year 1999 is based on estimated fiscal year 1999 discretionary

funds as shown in the Fiscal Year 1999 President’s Budget and the maximum amount earmarked

for the HHS/OIG in fiscal year 1999.

cThe projected amounts for fiscal years 2000 and 2001 are based on the assumption that the

HHS/OIG’s discretionary funding will remain at the estimated fiscal year 1999 level of $29 million

and the HHS/OIG will be allotted the maximum statutory amount authorized.

Page 19 GAO/AIMD-98-157 HCFAC Program Financial Report
Appendix II 

Comments From the Department of Health

and Human Services

Page 20 GAO/AIMD-98-157 HCFAC Program Financial Report
Appendix II 

Comments From the Department of Health

and Human Services

Now on p. 9.

See comment 1.

Now on p. 2.

See comment 2.

Page 21 GAO/AIMD-98-157 HCFAC Program Financial Report
Appendix II 

Comments From the Department of Health

and Human Services

The following are GAO’s comments on HHS’ letter dated May 18, 1998.

GAO’s Comments 1. Now footnote d of table 1. The footnote has been modified to reflect the

agency’s comment.

2. Now footnote 4. The footnote has been modified to reflect the agency’s

comment.

Page 22 GAO/AIMD-98-157 HCFAC Program Financial Report
Appendix III 

Major Contributors to This Report

Accounting and

Information

Management Division,

Washington, D.C.

Deborah A. Taylor, Assistant Director

Maria Cruz, Senior Audit Manager

Anastasia Kaluzienski, Senior Audit Manager

Vera Seekins, Audit Manager

Diane Morris, Senior Auditor

Sandra Silzer, Auditor

Maria Zacharias, Communications Analyst

(913799) Page 23 GAO/AIMD-98-157 HCFAC Program Financial Report
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