GAO-04-275R Calendar Years 2001/2002 Summation on Aging 

United States General Accounting Office 

Washington, DC 20548 

November 21, 2003 

The Honorable Larry E. Craig 

Chairman 

Special Committee on Aging 

United States Senate 

Subject: Aging Issues: Related GAO Products in Calendar Years 2001 and 2002

Dear Mr. Chairman: 

This report responds to the Committee’s request for a compilation of our calendar 

years 2001 and 2002 products pertaining to older Americans and their families. 

We are in the midst of one of the most profound changes in American history—

America’s population, estimated at over 288 million in 2002,1 is growing older at a 

rapid pace. The number of Americans age 65 and older, estimated at 35 million in 

2000, is expected to grow to 70 million by 2030 and to about 82 million in 2050, 

according to Bureau of the Census projections (fig. 1). Census projections also 

indicate that the fastest growing segment within the older population is individuals 

age 85 and older. This group, estimated at about 4 million in 2000, is expected to grow 

to 19 million by 2050. 

The nation’s aging population promises to have major policy and budgetary 

implications for the federal government. While there will be large increases in the 

number of older people who will be active and in very good health, there will also be 

growing numbers of older Americans requiring increased medical and long-term care. 

Health care has been one of the most rapidly rising elements of federal spending, 

growing at an average annual rate twice that of the rest of the federal budget over the 

last 10 years. Of particular concern is the growth in Medicare expenditures, estimated 

to total about $264 billion in 2002. Without changes, Medicare is expected to nearly 

double its share of the economy by 2030, crowding out other spending and economic 

activity of value. 

 

1

Population Division, U.S. Census Bureau, Table NA-EST2002-01–National Population Estimates: April 1, 2000 to July 1, 2002 

(Release Date: December 31, 2002).
 

 

Page 2 GAO-04-275R Calendar Years 2001/2002 Summation on Aging 

Figure 1: Total Number of Persons Age 65 or Older, by Age Group, 1900 to 2050 (in millions)

In addition, Social Security has long served as the foundation of the nation’s 

retirement income system. About 39 million people receive Social Security retirement 

and survivor benefits. For one-fifth of the elderly, Social Security is the sole source of 

income. The declining ratio of workers to retirees will have fundamental implications 

for Social Security and the economy. Although Social Security payroll tax revenues 

currently exceed expenditures, projections suggest that beginning in 2017, spending 

will exceed revenues by growing proportions and that in 2041, the Social Security 

Trust Fund will be depleted. Addressing the needs of the elderly will likely become 

increasingly challenging and require sufficient knowledge about the issues facing this 

population. 

One of our goals is to provide continued support of congressional and federal efforts 

relating to the health needs of an aging and diverse population and a secure 

retirement for older Americans. In striving to meet this goal, our work on agingrelated programs and issues continues to reflect the broad range and importance of 

federal programs for older Americans. Our work during calendar years 2001 and 2002 

primarily covered issues concerning health, income security, and veterans. In the 

compilation of work you requested, we describe two types of products that relate to 

older Americans: 

• reports and correspondences (66 in total), and 

• congressional testimonies (36 in total). 

The product summaries included were prepared shortly after the products were 

issued and, therefore, reflect the results of our work at that time. The issues 

addressed by these products are presented in table 1 and the summaries themselves 

are in enclosure I. 
 

 

Page 3 GAO-04-275R Calendar Years 2001/2002 Summation on Aging 

Table 1: GAO Products Relating to the Elderly in Calendar Years 2001 and 2002 

Elderly issues Reports and 

correspondence 

Testimonies 

Health issues 35 21 

Income security 

issues 

15 4 

Veterans/DOD issues 13 9 

Other issues 3 2 

Total 66 36 

Source: GAO. 

If you or your staff have any questions about the information in this report, please 

contact me at (202) 512-7215 or bovbjergb@gao.gov. Other key contributors to this 

report were Shelia D. Drake and Gwendolyn M. Adelekun. 

Sincerely yours, 

Barbara D. Bovbjerg 

Director, Education, Workforce, and 

 Income Security Issues 
 

 

Page 4 GAO-04-275R Calendar Years 2001/2002 Summation on Aging 

CONTENTS 

 Page 

Reports and Correspondence: Calendar Years 

2001 and 2002, Issues Affecting Older Americans 5 

 Health Issues 5 

 Income Security Issues 24 

 Veterans/DOD Issues 32 

 Other Issues 39 

Testimonies: Calendar Years 2001 and 2002, Issues 

Affecting Older Americans 41 

 Health Issues 41 

 Income Security Issues 51 

 Veterans/DOD Issues 53 

 Other Issues 58 

Figure 1: Total Number of Persons Age 65 or Older, 

by Age Group, 1900 to 2050, in Millions 2 

Table 1: GAO Products Relating to the Elderly 

in Calendar Years 2001 and 2002 3 
Enclosure I Enclosure I

 

Page 5 GAO-04-275R Calendar Years 2001/2002 Summation on Aging 

CALENDAR YEARS 2001 AND 2002, ISSUES AFFECTING OLDER 

AMERICANS 

During calendar years 2001 and 2002, GAO issued 102 reports on issues affecting 

older Americans. Of these, 56 were on health issues, 19 were on income security 

issues, 22 were on veterans’ issues, and 5 were other issues related to older 

Americans. 

Reports and Correspondence: Calendar Years 2001 and 2002, Issues Affecting Older 

Americans 

HEALTH ISSUES 

Federal Employees’ Health Plans: Premium Growth and OPM’s Role in Negotiating 

Benefits (GAO-03-236, 31-DEC-02) 

Federal employees’ health insurance premiums have increased at double-digit rates 

for 3 consecutive years. GAO was asked to examine how the Federal Employees 

Health Benefits Program’s (FEHBP) premium trends compared to those of other 

large purchasers of employer-sponsored health insurance, factors contributing to 

FEHBP’s premium growth, and steps the Office of Personnel Management (OPM) 

takes to help contain premium increases compared to those of other large 

purchasers. GAO compared FEHBP to the California Public Employees’ Retirement 

System (CalPERS), General Motors, and a large private employer purchasing 

coalition in California as well as data from employee benefit surveys. 

FEHBP’s premium trends from 1991 to 2002 were generally in line with other large 

purchasers--increasing on average about 6 percent annually. OPM announced that 

average FEHBP premiums would increase about 11 percent in 2003, 2 percentage 

points less than in 2002 and less than some other large purchasers are expecting. 

FEHBP enrollees would likely have paid even higher premiums in recent years if not 

for modest benefit reductions and enrollees who shifted to less expensive plans. 

Increasing premiums are related to the plans’ higher claims expenditures. For 

FEHBP’s three largest plans, about 70 percent of increased claims expenditures from 

1998 to 2000 was due to prescription drugs and hospital outpatient care. Most of the 

increase in drug expenditures was due to higher plan payments per drug, while the 

increase in hospital outpatient care expenditures was due to higher utilization. OPM 

relies on enrollee choice, competition among plans, and annual negotiations with 

participating plans to moderate premium increases. Whereas some large purchasers 

require plans to offer standardized benefit packages and reject bids from plans not 

offering satisfactory premiums, OPM contracts with all plans willing to meet 

minimum standards and allows plans to vary benefits, maximizing enrollees’ choices. 

Each year, OPM suggests cost containment strategies for plans to consider and relies 

on participating plans to propose benefits and premiums that will be competitive with 

other participating plans. OPM generally concurred with our findings. 
Enclosure I Enclosure I

 

Page 6 GAO-04-275R Calendar Years 2001/2002 Summation on Aging 

Fruits and Vegetables: Enhanced Federal Efforts to Increase Consumption Could 

Yield Health Benefits for Americans (GAO-02-657, 25-JUL-02) 

Fruits and vegetables are a critical source of nutrients and other substances that help 

protect against chronic diseases. Yet fewer than one in four Americans consumes the 

5 to 9 daily servings of fruits and vegetables recommended by the federal Dietary 

Guidelines for Americans. Fruit and vegetable consumption by the general public as a 

whole has increased by about half a serving under key federal nutritional policy, 

guidance, and educational programs, as shown by the national consumption data 

compiled by federal agencies. But key federal food assistance programs have had 

mixed effects on fruit and vegetables consumption, as shown by national 

consumption data. However, increasing fruit and vegetable consumption is not a 

primary focus of these programs, which are intended to reduce hunger and support 

agriculture. A number of actions the federal government could take to encourage 

more Americans to consume the recommended daily servings have been identified. 

These include expanding nutrition education efforts, such as the 5 A Day Program; 

modifying the special supplemental Nutrition Program for Women, Infants, and 

Children to allow participants to choose from more of those fruits and vegetables; 

expanding the use of the Department of Defense Fresh Fruit and Vegetable Project in 

schools; and expanding farmers’ market programs for food assistance participants 

and the elderly. These options could require additional resources or redirecting 

resources from other programs. 

Health Care: Adequacy of Pharmacy, Laboratory, and Radiology Workforce Supply 

Difficult to Determine (GAO-02-137R, 10-OCT-01) 

Concerns have been growing about the supply of health care workers and the future 

needs of an aging population. Shortages of nurses and nurse aides, the two largest 

categories of health care workers, are of particular concern. Although the number of 

pharmacists has grown during the past decade, the increasing demand for pharmacy 

services is outpacing the growth in supply, according to the Department of Health 

and Human Services. Provider and professional associations have reported high 

vacancy rates and a decline in new entrants to the laboratory and radiologic fields. 

However, employment and earnings data for laboratory and radiologic technologists 

and technicians do not indicate a clear picture about the current balance of supply 

and demand for these workers. Demographic changes, technological advances, and 

management decisions on how staff and technology are used will affect the future 

demand for health care workers. 

Health Products for Seniors: ‘Anti-Aging’ Products Pose Potential for Physical and 

Economic Harm (GAO-01-1129, 07-SEP-01) 

Evidence from the medical literature shows that a variety of frequently used dietary 

supplements marketed as anti-aging therapies can have serious health consequences 

for senior citizens. Some seniors have underlying diseases or health conditions that 

make the use of the product medically inadvisable, and some supplements can 

interact with medications that are being taken concurrently. Furthermore, studies 
Enclosure I Enclosure I

 

Page 7 GAO-04-275R Calendar Years 2001/2002 Summation on Aging 

have found that products sometimes contain harmful contaminants or much more of 

an active ingredient than is indicated on the label. Unproven anti-aging and 

alternative medicine products also pose an economic risk to seniors. The Food and 

Drug Administration (FDA) and the Federal Trade Commission (FTC) have identified 

several products that make advertising or labeling claims with insufficient 

substantiation, some costing consumers hundreds or thousands of dollars apiece. 

Federal and state agencies have efforts under way to protect consumers of these 

products. FDA and FTC sponsor programs and provide educational materials for 

senior citizens to help them avoid health fraud. At the state level, agencies are 

working to protect consumers of health products by enforcing state consumer 

protection and public health laws, although anti-aging and alternative products are 

receiving limited attention. GAO summarized this report in testimony before 

Congress (GAO-01-1139T). 

Long-Term Care: Availability of Medicaid Home and Community Services for 

Elderly Individuals Varies Considerably (GAO-02-1121, 26-SEP-02) 

As the baby boomers age, spending on long-term care for the elderly could nearly 

quadruple by 2050. Medicaid, the joint federal state health financing program for low 

income individuals is currently the largest payer for long-term care services and is 

anticipated to face substantial increases in spending as demand for long-term care 

increases. Nursing home care traditionally has accounted for most Medicaid longterm care expenditures, but the high costs of such care and the preference of many 

individuals to stay in their own homes has led states to expand their Medicaid 

programs to provide coverage for home- and community-based long-term care. The 

case managers GAO contacted in four states for two hypothetical elderly individuals 

generally offered care plans that relied on in-home services rather than other 

residential care settings. However, the in-home services offered varied considerably. 

The care that case managers offered the two hypothetical individuals sometimes 

differed due to state policies or practices that shaped the availability of their 

Medicaid covered services. In two of the four states there was a waiting list for home 

and community based services and some states had caps or other practices that 

limited the amount of Medicaid in-home care that could be offered. 

Mammography: Capacity Generally Exists to Deliver Services (GAO-02-532, 

19-APR-02) 

Breast cancer is the second leading cause of cancer deaths among American women. 

In 2001, 192,200 new cases of breast cancer were diagnosed and 40,200 women died 

from the disease. The probability of survival increases significantly, however, when 

breast cancer is discovered in its early stages. Currently, the most effective technique 

for early detection of breast cancer is screening mammography, an X-ray procedure 

that can detect small tumors and breast abnormalities up to two years before they 

can be detected by touch. Nationwide data indicate that mammography services are 

generally adequate to meet the growing demand. Between 1998 and 2000, both the 

population of women 40 and older and the extent to which they were screened 

increased by 15 percent. Although mammography services are generally available, 
Enclosure I Enclosure I

 

Page 8 GAO-04-275R Calendar Years 2001/2002 Summation on Aging 

women in some locations have problems obtaining timely mammography services in 

some metropolitan areas. However, the greatest losses in capacity have come in rural 

counties. In all, 121 counties, most of them rural, have experienced a drop of more 

than 25 percent in the number of mammography machines in the last three years. 

Officials from 37 of these counties reported that the decrease had not had a 

measurable adverse effect on the availability of mammography services. By contrast, 

in 18 metropolitan counties that lost a smaller percentage of their total capacity, 

officials in half of the counties reported service disruptions. Officials from six other 

urban areas, including Houston and Los Angeles, reported that public health facilities 

serving low-income women had long waiting times. However, most women whose 

clinical exam or initial mammogram indicated a need for a follow-up mammogram 

were able to get appointments within one to three weeks. 

Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver Projects 

Raise Concerns (GAO-02-817, 12-JUL-02) 

States provide health care coverage to about 40 million uninsured, low-income adults 

and children under two federal-state programs--Medicaid and the State Children’s 

Health Insurance Program (SCHIP). To receive federal funding, states must meet 

statutory requirements, including providing certain levels of benefits to specified 

populations. Under section 1115 of the Social Security Act, the Secretary of Health 

and Human Services (HHS) can waive many of the statutory requirements in the case 

of experimental, pilot, or demonstration projects likely to promote program 

objectives. From August 2001 through May 2002, HHS approved four waiver 

proposals from states to either expand health insurance to uninsured populations or 

extend pharmacy coverage to low-income seniors, consistent with the new goals. Of 

the nine proposals that were under review as of June 2002, five sought to expand 

coverage to uninsured populations, while four sought to provide pharmacy benefits 

for low-income seniors. GAO has both legal and policy concerns about the extent to 

which the approved waivers are consistent with the goals and fiscal integrity of 

Medicaid and SCHIP. The legal concern is that HHS has allowed Arizona to use 

unspent SCHIP funding to cover adults without children, despite SCHIP’s objective of 

expanding health coverage to low-income children. GAO found that HHS’ approval of 

the waiver to cover childless adults is not consistent with this objective, and it is not 

authorized. A related policy concern is that HHS used its waiver authority to allow 

Arizona and California to use SCHIP funds to cover parents of SCHIP and Medicareeligible children with no regard to cost effectiveness when the statute provides that 

family coverage may be provided only if it is cost-effective to do so--that is, with no 

additional costs beyond covering the child. An opportunity for the public to learn 

about and comment on pending waivers has not been consistently provided in 

accordance with policy adopted by HHS in 1994. At the federal level, since 1998 HHS 

has not followed established procedures to publish notification of new and pending 

section 1115 waiver applications in the Federal Register with a 30-day comment 

period. 
Enclosure I Enclosure I

 

Page 9 GAO-04-275R Calendar Years 2001/2002 Summation on Aging 

Medicare: Beneficiary Use of Clinical Preventive Services (GAO-02-422, 10-APR-02) 

Preventive medicine, including immunizations for many diseases and screening for 

some types of cancer, holds the promise to extend and improve the quality of life for 

millions of Americans. Medicare now covers three preventive services for 

immunizations and seven for screenings, and the Centers for Medicare and Medicaid 

Services (CMS) sponsors “interventions” to increase the use of preventive services. 

GAO found that the use of preventive services varies widely by service, state, ethnic 

group, income, and education. The greatest differences among ethnic groups were for 

immunization rates. Cancer screening rates tended to differ according to income and 

education level. CMS pays for interventions that promote breast cancer screenings 

and pneumonia and flu shots. Most of the techniques being used, such as reminder 

systems that medical offices can use to alert doctors and patients to needed cancer 

screenings, have been effective. CMS is evaluating what its current efforts have 

accomplished and expects the results later in the year. 

Medicare: Communications with Physicians Can Be Improved (GAO-02-249, 27-

FEB-02) 

Unlike other federal programs that make expenditures under the direct control of the 

government, Medicare constitutes a promise to pay for covered medical services 

provided to its beneficiaries by about one million providers. Given this open-ended 

entitlement, it is essential that appropriate and effective rules and policies be 

specified so that only necessary services are provided and reimbursed. Congress and 

the Centers for Medicare and Medicaid Services (CMS) have promulgated an 

extensive body of statutes, regulations, policies, and procedures on what shall be 

paid for and under what circumstances. Information that carriers give to physicians is 

often difficult to use, out of date, inaccurate, and incomplete. Medicare bulletins that 

carriers use to communicate with physicians are often poorly organized and contain 

dense legal language. Similarly, other means of communicating with physicians, such 

as toll-free provider assistance lines and websites, have problems with accuracy and 

completeness. Although all carriers issue bulletins, operate call centers, and maintain 

websites, each carrier develops its own communications policies and strategies. This 

approach results in a duplication of effort as well as variations in the quality of carrier 

communications. CMS provides little technical assistance to help carriers develop 

effective communication strategies. Neither CMS carrier oversight nor selfmonitoring by the carriers is comprehensive enough to provide sufficiently detailed 

information that could either pinpoint specific communication problems or identify 

poorly performing carriers. CMS is working to improve its physician communications 

by consolidating new instructions and regulations and issuing them on a more 

predictable schedule to lessen the burden of frequent policy changes that physicians 

cannot anticipate. CMS is also enhancing its education programs for both physicians 

and carrier staffs and expanding its efforts to obtain physician feedback. Finally, CMS 

is improving its national website and intends to develop a single web-based source of 

information for physicians. 
Enclosure I Enclosure I

 

Page 10 GAO-04-275R Calendar Years 2001/2002 Summation on Aging 

Medicare: Orthotics Ruling Has Implications for Beneficiary Access and Federal 

and State Costs (GAO-02-330, 22-MAY-02) 

In the late 1980s and early 1990s, the Health Care Financing Administration (HCFA), 

now called the Centers for Medicare and Medicaid Services (CMS), became 

concerned that some suppliers were improperly billing Medicare for items that attach 

to wheelchairs and other equipment. Some suppliers were billing for such items using 

codes for orthodic devices, including arm, back, and neck braces that provide 

support for or immobilize weak or injured limbs, while others were billing using 

codes for durable medical equipment, which includes equipment such as wheelchairs 

and crutches that can withstand repeated use and is appropriate for home use. 

Whether an item is billed as an orthotic or DME device can affect whether such 

claims are paid. HCFA issued Ruling 96-1 to clarify the circumstances under which 

certain items would be classified as orthotics or as DME for Medicare part B payment 

purposes. A federal appellate court found that HFCA had followed appropriate 

procedures to issue the rule as an interpretation of Medicare policy, the 

interpretation in the ruling was wholly supportable, and the treating of seating 

systems as DME was consistent with congressional intent. HCFA's ruling that 

attached bracing devices were in the DME benefits category and could no longer be 

billed as orthotics affects beneficiaries residing in Medicare-certified skilled nursing 

facilities and other institutions primarily engaged in providing skilled nursing care 

(SNF). Because Medicare part B does not cover DME in SNFs and other institutions 

primarily engaged in providing skilled nursing care, claims for such items are no 

longer paid for residents in nursing homes. If HCFA's ruling were rescinded and 

Medicare’s policy changed so that attached bracing devices were classified as 

orthotics, how much Medicare and Medicaid would spend for orthotics is uncertain. 

The distinction between DME and orthotics would become less clear, which could 

lead to inappropriate billing. Therefore, if the ruling were rescinded, additional 

controls, such as closely monitoring billing and reviewing medical justification for 

customized items prior to payment, would be vital to help curb potentially 

inappropriate billing. 

Medicare: Payments for Covered Outpatient Drugs Exceed Providers’ Costs (GAO01-1118, 21-SEP-01) 

Physicians are able to obtain Medicare-covered drugs at prices significantly below 

current Medicare payments, which are set at 95 percent of average wholesale prices 

(AWP). The difference between these prices and AWP for physician-administered 

drugs in GAO’s sample varied by drug. For most physician-administered drugs, the 

average discount from AWP ranged from 13 percent to 34 percent; two physicianadministered drugs had discounts of 65 percent and 86 percent. Other suppliers are 

also able to buy drugs at prices that are considerably less than the AWP used to 

establish the applicable Medicare payment with discounts ranging from 78 percent to 

85 percent below AWP for two drugs in the sample. Also, suppliers generally receive 

a payment from Medicare for the durable medical equipment needed to administer 

the drug and supplies. Private and other public payers use different payment methods 

for drugs and their administration. Private health plans use their drug-purchase and 
Enclosure I Enclosure I

 

Page 11 GAO-04-275R Calendar Years 2001/2002 Summation on Aging 

patient volume to negotiate favorable prices for drugs and physician and supplier 

services related to supplying or delivering the drugs. Other public payers also use 

their purchasing volume along with information about actual transaction prices from 

private payers to lower their drug payments. 

Medicare: Program Designed to Inform Beneficiaries and Promote Choice Faces 

Challenges (GAO-01-1071, 28-SEP-01) 

The Balanced Budget Act of 1997 (BBA) established the Medicare+Choice (M+C) 

program to expand health plan choices. BBA permitted Medicare participation by 

preferred provider organizations, provider-sponsored organizations, and insurers 

offering private fee-for-service plans or medical savings accounts. It also encouraged 

the wider availability of health maintenance organizations, which have long been an 

option for many beneficiaries. To help beneficiaries understand and consider all of 

their Medicare options, the National Medicare Education Program offers a toll-free 

help line, informational mailings to beneficiaries, an Internet site, and educational 

and publicity campaigns. During fiscal years 1998 through 2000, the Health Care 

Financing Administration (HCFA) spent an average of $107.8 million on the program 

annually. Most of the money came from user fees collected from M+C plans. Reaction 

to the program has generally been positive among beneficiaries and beneficiary 

advocacy groups, but representatives of M+C plans offered a mixed assessment. 

Program activities have increased the information available to beneficiaries on 

Medicare, the M+C program, and specific health plans. However, the extent to which 

the program has motivated beneficiaries to actively weigh their health plan options is 

unknown. 

Medicare: Utilization of Home Health Care by State (GAO-02-782R, 23-MAY-02) 

This report discusses the variation in Medicare home health use across states. Using 

home health claims for the first 6 months of 2001 from the Centers for Medicare and 

Medicaid, GAO compiled statistics on home health users, home health visits, home 

health episodes, and the percentage of home health users with multiple episodes for 

each state. A home health episode, the basis for Medicare payment under the 

prospective payment system, is up to a 60-day period of care during which any 

number of visits may be provided. 

Medicare + Choice: Recent Payment Increases Had Little Effect on Benefits or Plan 

Availability in 2001 (GAO-02-202, 21-NOV-01) 

The number of contracts under Medicare's managed care program--Medicare+Choice 

(M+C)--fell from 340 to 180 between 1998 and 2001. The reduction reflected decisions 

by some managed care organizations (MCOs) to terminate selected contracts or to 

discontinue service in some covered areas. Although nearly all MCOs renewed at 

least some of their Medicare contracts over this period, many reduced the geographic 

areas served. As a result, 1.6 million beneficiaries had to switch MCOs or return to 

Medicare's traditional fee-for-service program. Other MCOs plan either to terminate 

or reduce their participation in M+C at the end of 2001. Concerned about MCO 
Enclosure I Enclosure I

 

Page 12 GAO-04-275R Calendar Years 2001/2002 Summation on Aging 

withdrawals, Congress sought to make participation in the program more attractive. 

As a result of the Benefits Improvement and Protection Act of 2000, aggregate 

Medicare+Choice payments in 2001 are estimated to have increased by $1 billion. The 

act permitted three basic uses for the higher payment. MCOs could (1) improve their 

health plans' benefit packages, (2) set aside money for future years in a benefit 

stabilization fund, or (3) stabilize or enhance beneficiary access to providers. Most 

MCOs reported that additional money would be used to stabilize or enhance 

beneficiary access to providers. A minority of MCOs reported that the money would 

go toward benefit improvements or be placed in a benefit stabilization fund. In 83 

percent of M+C plans, MCOs stated that some or all of the additional money would be 

used to stabilize or enhance beneficiary access. The payment increases had little 

effect on the availability of M+C plans during 2001. Following passage of the act, 

three MCOs reentered counties they had dropped from their service areas, three 

MCOs expanded into counties that they previously had not served, and one MCO both 

reentered previously served counties and expanded into new ones. 

Medicare+Choice: Selected Program Requirements and Other Entities’ Standards 

for HMOs (GAO-03-180, 31-OCT-02) 

Since the early 1980s, health maintenance organizations (HMO) have entered into 

risk-based contracts with Medicare and offered beneficiaries an alternative to the 

traditional fee-for-service (FFS) program. By 1997, 5.2 million Medicare beneficiaries 

were enrolled in an HMO. Although Medicare HMOs were available in most urban 

areas, they were often unavailable in rural areas. Medicare+Choice (M+C) has HMO 

requirements pertaining to benefit package proposals, the beneficiary enrollment 

process, marketing and enrollee communication materials, and quality improvement, 

among other areas. An HMO must annually submit a benefit package proposal to the 

Centers for Medicare and Medicaid Services (CMS) for each M+C health plan that the 

HMO intends to offer. M+C requirements for the beneficiary enrollment process 

specify the information that an HMO must include in its enrollment application and 

the checks that it must perform to ensure that beneficiaries who submit applications 

are eligible to enroll in the HMO's health plan. M+C marketing requirements prohibit 

HMOs from using inaccurate or misleading language in advertisements or materials 

distributed to enrollees. M+C requirements for quality improvements specify that 

HMOs must undertake multiyear projects intended to improve the quality of health 

care and must routinely gather and report performance data to CMS. 

Medicare Home Health: Clarifying the Homebound Definition Is Likely to Have 

Little Effect on Costs and Access (GAO-02-555R, 26-APR-02) 

Medicare's home health benefit provides skilled nursing and other services to eligible 

beneficiaries who are homebound. The Department of Health and Human Services 

(HHS) had a long-standing policy that beneficiaries who regularly attend adult day 

care were not considered homebound, particularly if the purpose of attending was to 

receive nonmedical or custodial care. In 2000, Congress specified that Medicare 

beneficiaries who attended adult day care could be considered homebound if they 

still met the other homebound requirements. GAO found that this clarification will 
Enclosure I Enclosure I

 

Page 13 GAO-04-275R Calendar Years 2001/2002 Summation on Aging 

likely have little effect on program costs or access to services because the number of 

affected individuals is probably small. On the basis of National Long Term Care 

Survey data, GAO estimated that, as of 1999, 0.2 percent of elderly Medicare 

beneficiaries attended adult day care and had mobility or cognitive impairments that 

might make some eligible for Medicare home health services. 

Medicare Home Health Agencies: Weaknesses in Federal and State Oversight Mask 

Potential Quality Issues (GAO-02-382, 19-JUL-02) 

The 6,900 Home Health Agencies (HHAs) that serve Medicare beneficiaries must meet 

federal requirements, known as conditions of participation (COP), to ensure that they 

have the appropriate staff, are following the plan of care specified by a physician, 

maintain medical records to document the care provided, and periodically reassess 

each patient's condition. Although nationwide surveys done at HHAs since 1998 have 

identified a small proportion of agencies with serious deficiencies, the extent of the 

problem may be understated, and situations endangering the health and well being of 

home health patients may occur more often than documented. Shortcomings in the 

survey process and inconsistencies in state surveys make it difficult to assess the 

quality of care delivered and may mask potential problems. The ability to lodge 

complaints about an HHA and have them resolved promptly is important to 

protecting patient health and safety. HHA oversight by the Centers for Medicare and 

Medicaid Services (CMS) has been too limited to identify the problems GAO found in 

the survey process. CMS does not review state compliance with requirements for 

conducting HHA surveys, such as whether HHAs with COP-level deficiencies are 

surveyed annually rather than every 3 years or whether minimum patient visit and 

medical record review samples are adhered to. 

Medicare Home Health Care: OASIS Data Use, Cost, and Privacy Implications

(GAO-01-205, 30-JAN-0) 

With the Health Care Financing Administration's (HCFA) implementation of a 

prospective payment system, efforts to protect patients from potential 

underprovision of care and to hold home health agencies (HHA) accountable are 

essential. Instituting the collection and reporting of Outcome and Assessment 

Information Set (OASIS) data is an important step in that direction. The use of OASIS 

data enhances consistency in the performance and documentation of patient 

assessments for home health services. As a result, information on patient outcomes 

will become available for the first time. Collecting such data is not without its costs. 

To varying degrees, the requirement to collect OASIS data on all home health patients 

increases the amount of staff time devoted to collecting and reporting patient 

assessment information. HHAs have been compensated for some of these costs 

through adjustments made to their payment rates. Moreover, because prospective 

payment system episode payment rates are based on historically high utilization 

levels, which have since declined, these rates should allow the completion of OASIS 

assessments. Protecting the privacy of home health care patients is also important. 

HCFA has made progress in this area by enhancing protections in the collection and 
Enclosure I Enclosure I

 

Page 14 GAO-04-275R Calendar Years 2001/2002 Summation on Aging 

transmission of the OASIS data. The effectiveness of these policies and procedures 

will depend on how well they are implemented. 

Medicare Home Health Care: Payments to Home Health Agencies Are Considerably 

Higher than Costs (GAO-02-663, 06-MAY-02) 

The Balanced Budget Act of 1997 significantly changed Medicare’s home health care 

payments to home health agencies (HHAs). Under a prospective payment system 

(PPS), HHAs are paid a fixed amount, adjusted for beneficiary care needs, for 

providing up to 60 days of care—termed a "home health episode." The act also 

imposed new interim payment limits to moderate spending until the PPS could be 

implemented. Although PPS was designed to lower Medicare spending below what it 

was under the interim system, GAO found that Medicare's payments for full home 

health care episodes were 35 percent higher than estimated costs in the first six 

months of 2001. These disparities indicate that Medicare’s PPS overpays for services 

actually provided, although some HHAs facing extraordinary costs not accounted for 

by the payment system may be financially disadvantaged. 

Medicare Physician Fee Schedule: Practice Expense Payments to Oncologists 

Indicate Need For Overall Refinements (GAO-02-53, 31-OCT-01) 

Medicare’s physician fee schedule establishes payments for more than 7,000 different 

services, such as office visits, surgical procedures, and treatments. Before 1992, fees 

were based on charges physicians billed for these services. Since then, the Health 

Care Financing Administration (HCFA), which administers Medicare, has been 

phasing in a new fee schedule on the basis of the amount of resources used to 

provide that service relative to other services. The development of the resourcebased practice expense component of the fee, which is intended to pay for the costs 

of running a physician’s practice, has been particularly controversial. HCFA adjusted 

the underlying data and basic method for calculating resource-based practice 

expense payments and payment changes were required to be budget-neutral—which 

means that total Medicare spending for physician services was to be the same under 

the new payment method as it was under the old one. As a result, Medicare payments 

to some specialties have increased while payments to other specialties have 

decreased. Oncologists claim that their practice expense payments are particularly 

inadequate for some office-based services, such as chemotherapy. Oncology practice 

expense payments in 2001 are eight percent higher than they would have been had 

charged-based payments continued. Oncology practice expense payments compared 

to their estimated practice expenses are about the same as the average for all 

physicians. HCFA’s adjustments to the data and basic method reduced payments to 

oncologists. 

Medicare Physician Payments: Medical Settings and Safety of Endoscopic 

Procedures (GAO-03-179, 18-OCT-02) 

Every year millions of Americans covered by Medicare undergo endoscopic medical 

procedures in a variety of health care settings ranging from physicians' offices to 
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hospitals. These invasive procedures call for the use of a lighted, flexible instrument 

and are used for screening and treating disease. Although some of these procedures 

can be performed while the patient is fully awake, most require some form of 

sedation and are usually provided in health care facilities such as hospitals or 

ambulatory surgical centers. Some physician specialty societies have expressed 

concern that Medicare’s reimbursement policies may offer a financial incentive to 

physicians to perform endoscopic procedures in their offices and that these 

procedures may be less safe because physicians' offices are less closely regulated and 

therefore there is less oversight of the quality of care. For the 20 procedures 

reviewed, there was no evidence to suggest that there was any difference in the level 

of safety of gastroenterological and urological endoscopic procedures performed on 

Medicare beneficiaries in either physicians' offices or health care facilities, such as 

hospitals and ASC’s. There was also no evidence found to suggest that the resourcebased site-of-service payment differential has caused physicians to conduct a greater 

proportion of gastroenterological or urological endoscopic procedures in their offices 

for Medicare beneficiaries. If Medicare coverage for the office procedures in the 

study were terminated, few access problems would occur in most of the country 

because physicians perform the vast majority of the procedures that were studied in 

health care facilities. 

Medigap Insurance: Plans Are Widely Available but Have Limited Benefits and 

May Have High Costs (GAO-01-941, 31-JUL-01) 

To protect themselves against large out-of-pocket expenses and help fill gaps in 

Medicare coverage, most beneficiaries buy supplemental insurance, known as 

Medigap; contribute to employer-sponsored health benefits to supplement Medicare 

coverage; or enroll in private Medicare+Choice plans rather than traditional fee-forservice Medicare. Because Medicare+Choice plans are not available everywhere and 

many employers do not offer retiree health benefits, Medigap is sometimes the only 

supplemental insurance option available to seniors. Medicare beneficiaries who buy 

Medigap plans have coverage for essentially all major Medicare cost-sharing 

requirements, including coinsurance and deductibles. Although various proposals 

have been made to add a prescription drug benefit to Medicare, relatively few 

beneficiaries buy standardized Medigap plans with this benefit. Low enrollment in 

these plans may be due to the fact that fewer plans are being marketed with these 

benefits; their relatively high cost; and the limited nature of their prescription drug 

benefit, which still requires beneficiaries to pay more than half of their prescription 

drug costs. Most plans offering this coverage have a $3,000 cap on prescription drug 

benefits. As a result, Medigap beneficiaries with prescription drug coverage continue 

to incur substantial out-of-pocket expenses for prescription drugs and other health 

care services. 

Nursing Homes: Federal Efforts to Monitor Resident Assessment Data Should 

Complement State Activities (GAO-02-279, 15-FEB-02) 

Nursing homes that participate in Medicare and Medicaid must periodically assess 

the needs of residents in order to develop an appropriate plan of care. Such resident 
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assessments are known as the minimum data set (MDS). According to officials in the 

10 states with MDS accuracy review programs in operation as of January 2001, these 

programs were established because of the important role played by MDS data in 

setting Medicaid payments and identifying quality of care problems. Nine of the 10 

states conduct periodic on-site reviews in all or a significant portion of their nursing 

homes to assess the accuracy of the MDS data. These reviews sample a home's MDS 

assessments to determine whether the basis for the assessments is adequately 

documented in residents' medical records. These reviews often include interviews of 

nursing home personnel familiar with residents and observations of the residents 

themselves. States with separate MDS review programs identified various approaches 

to improve MDS accuracy. State officials highlighted the on-site review process itself 

and provider education activities as their primary approaches. State officials also 

reported such remedies as requiring nursing homes to prepare a corrective action 

plan or imposing financial penalties on nursing homes when serious or extensive 

errors in MDS data are found. 

Following the 1998 implementation of Medicare’s MDS-based payment system the 

Federal government began building the foundation for its own separate review 

program to ensure the accuracy of MDS data. In the course of developing and testing 

various accuracy review approaches, widespread MDS errors were found that 

resulted in a change in the Medicare payment level for two-thirds of the resident 

assessments sampled. On site visits proved to be a very effective method of assessing 

accuracy. However as currently planned, federal MDS review activities are projected 

to involve roughly 1 percent of the estimated 14.7 million MDS assessments expected 

to be completed with on site reviews in fewer than 200 of the nations 17,000 nursing 

homes each year. While the federal approach may yield some broad sense of the 

accuracy of MDS assessments on an aggregate level, it appears to be insufficient to 

provide confidence about the accuracy of MDS assessments in the vast bulk of 

nursing homes nationwide. Given the substantial level of effort and resources 

already invested at the state and federal levels to oversee nursing home quality of 

care, including periodic inspections at each home nationwide, we recommend that 

CMS reorient its MDS accuracy program so that it complements and leverages 

existing state review activities and its own established nursing home oversight 

efforts. 

Nursing Homes: More Can Be Done to Protect Residents from Abuse (GAO-02-312, 

01-MAR-02) 

Often suffering from multiple physical and mental impairments, the 1.5 million elderly 

and disabled Americans living in nursing homes are a highly vulnerable population. 

These individuals typically require extensive help with daily living, such as such as 

dressing, feeding, and bathing. Many require skilled nursing or rehabilitative care. In 

recent years, reports of inadequate care, including malnutrition, dehydration, and 

other forms of neglect, have led to mounting scrutiny from state and federal 

authorities, which share responsibility for overseeing the nation's 17,000 nursing 

homes. Concerns have also been growing that some residents are abused—pushed, 

slapped, or beaten—by the very individuals to whom their care has been entrusted. 
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GAO found that allegations of physical and sexual abuse of nursing home residents 

are not reported promptly. Local law enforcement officials said that they are seldom 

summoned to nursing homes to immediately investigate allegations of abuse and that 

few allegations are ever prosecuted. Some agencies use different policies when 

deciding whether to refer allegations of abuse to law enforcement. As a result, law 

enforcement agencies were never told of some incidents or were notified only after 

lengthy delays. GAO found that federal and state safeguards intended to protect 

nursing home residents from abuse are inadequate. No federal statute requires 

criminal background checks for nursing home employees. Background checks are 

also not required by the Centers for Medicare and Medicaid Services, which sets the 

standards that nursing homes must meet to participate in the Medicare and Medicaid 

programs. State agencies rarely recommend that sanctions be imposed on nursing 

homes. Although state agencies compile lists of aides who have previously abused 

residents, which can prevent an aide from being hired at another nursing home, GAO 

found that delays in making these identifications can limit the usefulness of these 

registries. GAO summarized this report in testimony before Congress; see GAO-02-

448T. 

Nursing Homes: Public Reporting of Quality Indicators Has Merit, but National 

Implementation Is Premature (GAO-03-187, 31-OCT-02) 

GAO was asked to review the Centers for Medicare & Medicaid Services (CMS) 

initiative to publicly report additional information on its "Nursing Home Compare" 

Web site intended to help consumers choose a nursing home. GAO examined CMS’s 

development of the new nursing home quality indicators and efforts to verify the 

underlying data used to calculate them. GAO also reviewed the assistance CMS 

offered the public in interpreting and comparing indicators available in its six-state 

pilot program, launched in April 2002, and its own evaluation of the pilot. The new 

indicators are scheduled to be used nationally beginning in November 2002. 

CMS’s initiative to augment existing public data on nursing home quality has 

considerable merit, but its planned November 2002 implementation does not allow 

sufficient time to ensure the indicators are appropriate and useful to consumers. 

CMS’s plan urges consumers to consider nursing homes with positive quality 

indicator scores, in effect, attempting to use market forces to encourage nursing 

homes to improve the quality of care. However, CMS is moving forward without 

adequately resolving important open issues on the appropriateness of the indicators 

chosen for national reporting or the accuracy of the underlying data. To develop and 

help select the quality indicators, CMS hired two organizations with expertise in 

health care data—Abt Associates, Inc. and the National Quality Forum (NQF). Abt 

identified a list of potential quality indicators and tested them to verify that they 

represented the actual quality of care individual nursing homes provide. GAO’s 

review of the available portions of the report raised serious questions about the basis 

for moving forward with national reporting at this time. NQF, which was created to 

develop and implement a national strategy for measuring health care quality, was 

hired to review Abt's work and identify core indicators for national reporting. To 

allow sufficient time to review Abt's validation report, NQF agreed to delay its 
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recommendations for national reporting until 2003. CMS limited its own evaluation of 

its six-state pilot program for the initiative so that the November 2002 

implementation date could be met. Early results were expected in October 2002, 

leaving little time to incorporate them into the national rollout. Despite the lack of a 

final report from NQF and an incomplete pilot evaluation, CMS has announced a set 

of indicators it will begin reporting nationally in November 2002. GAO has serious 

concerns about the potential for public confusion by the quality information 

published, especially if there are significant changes to the quality indicators due to 

the NQF's review. CMS's proposed reporting format implies a precision in the data 

that is lacking at this time. While acknowledging this problem, CMS said it prefers to 

wait until after the national rollout to modify the presentation of the data. GAO’s 

analysis of data currently available from the pilot states demonstrated there was 

ample opportunity for the public to be confused, highlighting the need for clear 

descriptions of the data's limitations and easy access to impartial experts hired by 

CMS to operate consumer hotlines. CMS has not yet demonstrated its readiness to 

meet these consumer needs either directly or through the hotlines fielding public 

questions about confusing or conflicting quality data. CMS acknowledged that further 

work is needed to refine its initiative, but believes that its indicators are sufficiently 

valid, reliable, and accurate to move forward with national implementation in 

November 2002 as planned. 

Nursing Homes: Quality of Care More Related to Staffing than Spending (GAO-02-

431R, 13-JUN-02) 

Costs for nursing home care have almost doubled since 1990, from $53 billion to $92 

billion in 2000. Much of that spending has been financed with public monies. Under 

the Medicare and Medicaid programs, the federal government financed 39 percent of 

the nation's nursing home spending in 2000, up from 28 percent in 1990. As federal 

outlays have grown, Congress has focused attention on the quality of care delivered 

and the level of staffing in nursing homes. GAO surveyed three states and found that 

nursing home expenditures per resident day varied considerably across Ohio, 

Mississippi, and Washington. Although the total level of spending varied, the average 

share devoted to resident-care activities, such as nursing care and medical supplies, 

was relatively stable. The share of spending devoted to buildings and equipment, by 

comparison, was more variable. Homes in Ohio and Washington that provided more 

nursing hours per resident day, especially nurses' aide hours, were less likely than 

homes providing fewer nursing hours to have repeated serious or potentially lifethreatening quality problems. However, GAO found no clear relationship between a 

nursing home's spending per resident day and the number of serious quality 

problems. 

Nursing Workforce: Emerging Nurse Shortages Due to Multiple Factors (GAO-01-

944, 10-JUL-01) 

The nation's hospitals and nursing homes rely heavily on the services of nurses. 

Concerns have been raised about whether the current and projected supply of nurses 

will meet the nation's needs. This report reviews (1) whether evidence of a nursing 
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shortage exists, (2) the reasons for current nurse recruitment and retention problems, 

and (3) what is known about the projected future supply of and demand for nurses. 

GAO found that national data are not adequate to describe the nature and extent of 

nurse workforce shortages, nor are data sufficiently sensitive or current to compare 

nurse workforce availability across states, specialties, or provider types. Multiple 

factors affect recruitment and retention problems, including the aging of the nurse 

workforce, resulting from reduced entry of younger people into the profession and 

nurses’ job dissatisfaction. A serious shortage of nurses is expected in the future as 

demographic pressures influence both demand and supply. 

Private Health Insurance: Access to Individual Market Coverage May Be Restricted 

for Applicants with Mental Disorders (GAO-02-339, 28-FEB-02) 

About five percent of adults suffer from serious mental disorders. Although health 

insurance carriers in 11 states guarantee coverage for mental health treatment, in 

most states individuals with mental disorders face restrictions in purchasing private 

health insurance for themselves and their families. Eleven states require carriers to 

accept all applicants regardless of health status, but coverage options vary. Eight of 

these 11 states require all carriers to guarantee access to coverage sold in this 

market. In three states, laws apply only to some carriers, such as Blue Cross and Blue 

Shield, or certain periods of the year. Carriers in nine of the 11 states are also 

required to limit the extent to which premium rates vary between healthy and 

unhealthy individuals. In states without guaranteed coverage in the individual market, 

the seven carriers GAO reviewed would likely deny coverage more frequently for 

applicants with mental disorders than for applicants with other chronic health 

conditions. Specifically, for six mental disorders of generally moderate severity, 

carriers said that they would likely decline applicants 52 percent of the time. Statesponsored high-risk pools are the primary coverage option available to rejected 

applicants in most states. In 27 of the 34 states where carriers may deny coverage to 

applicants with mental disorders or other health conditions, high-risk pools offer 

coverage to applicants denied individual market coverage. The pools are subsidized—

generally through assessments on carriers or state tax revenues—and premium rates 

are generally capped at 125 to 200 percent of standard rates for healthy individuals. 

Health benefits available under the pools are generally comparable to those available 

in the individual market, including similar restrictions on mental health benefits; 

however, benefits for mental disorders or other health conditions are not 

permanently excluded as they may be in the individual insurance market. 

Retiree Health Benefits: Employer-Sponsored Benefits May Be Vulnerable to 

Further Erosion (GAO-01-374, 01-MAY-01) 

In 1999, about 10 million retired people aged 55 or older relied on employersponsored health insurance as either their primary source of coverage or as a 

supplement to their Medicare coverage. Some of these persons are concerned about 

the continued availability of employer-sponsored coverage. Premium increases and 

forecasts for a potential economic slowdown could further erode employersponsored retired health benefits. In the long term, these factors, coupled with the 
Enclosure I Enclosure I

 

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potential for Medicare reforms and the rising number of aging baby boomers, may 

produce even more uncertainty and cost pressures for employers. Consequently, as 

an increasing number of retirees lack employer-based coverage, those in poorer 

health may have difficulty finding affordable alternative health coverage. 

Retiree Health Benefits: Examples of Employer-Reported Obligations in Selected 

Industries (GAO-02-639R, 29-APR-02) 

In addition to providing an overview of a company’s business operations, the annual 

reports submitted to the Securities and Exchange Commission present important 

information on an employer’s estimated obligations for postemployment benefits, 

including retiree health benefits. However, the assumption used to estimate 

obligations for postemployment benefits vary across companies and are not 

comparable. Financial Accounting Standards Board guidelines give employers 

latitude in calculating these obligations. Moreover, changes in companies’ benefit 

offerings or financial stability would likely alter companies’ obligations for retiree 

health benefits. Most employers also reserve the right to change or terminate retiree 

health benefits. 

Skilled Nursing Facilities: Available Data Show Average Nursing Staff Time 

Changed Little after Medicare Payment Increase (GAO-03-176, 13-NOV-02) 

The nation's 15,000 skilled nursing facilities (SNF) play an essential role in our health 

care system, providing Medicare-covered skilled nursing and rehabilitative care each 

year for 1.4 million Medicare patients who have recently been discharged from acute 

care hospitals. In recent years, many analysts and other observers, including 

members of Congress, have expressed concern about the level of nursing staff in 

SNFs and the impact of inadequate staffing on the quality of care. The Congress 

temporarily increased the nursing component of the SNF Medicare payment rate by 

16.6 percent. GAO’s analysis of available data shows that, in the aggregate, SNFs’ 

nurse staffing ratios changed little after the increase took effect. Overall, SNFs’ 

average nursing time increased by 1.9 minutes per patient day, relative to their 

average in 2000 of about 3 and one-half hours of nursing time per patient day. For 

most SNFs, increases in staffing ratios were small. Further, GAO found that the share 

of SNF patients covered by Medicare was not a factor in whether facilities increased 

their nursing time. Similarly, SNFs that had total revenues considerably in excess of 

costs before the added payments took effect did not increase their staffing 

substantially more than others. 

Skilled Nursing Facilities: Medicare Payments Exceed Costs for Most but Not All 

Facilities (GAO-03-183, 31-DEC-02) 

This report addresses (1) the relationship between Medicare skilled nursing facility 

(SNF) payments and the costs of treating Medicare patients in freestanding SNFs, as 

well as the effect of Medicare SNF payments on the financial condition of these 

facilities, and (2) the relationship between Medicare SNF payments and the costs of 
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treating patients in hospital-based SNFs, as well as the factors that may account for 

cost differences between hospital-based and freestanding SNFs. 

Under the prospective payment system (PPS), most freestanding SNFs’ Medicare 

payments substantially exceeded the costs of caring for Medicare patients, 

contributing to facilities' overall positive financial condition. In 1999, the first full 

year under the PPS, the median freestanding SNF Medicare margin—a measure that 

compares Medicare payments with Medicare costs—was slightly over 8 percent. By 

2000, when the temporary payment increases authorized by the Congress started to 

take effect, the median Medicare margin had risen to almost 19 percent. However, 

nearly one-quarter of SNFs in 2000 had Medicare margins exceeding 30 percent, while 

about one-fifth had negative Medicare margins; that is, the payments they received 

from Medicare did not cover their costs of providing care. Medicare margins were 

higher for freestanding SNFs affiliated with large, for-profit nursing home chains and 

for those with high occupancy. The median SNF total margin—which reflects total 

revenues and costs across all patients—was 1.3 percent in 1999 and 1.8 percent in 

2000. A SNF's total margin tended to be higher when its Medicare margin was higher 

despite the fact that, in most SNFs, Medicare's share of patient days was small. The 

total margins for freestanding SNFs tended to be lower when a higher proportion of a 

SNF's patients had their care paid for by Medicaid. Unlike freestanding SNFs, about 

90 percent of hospital-based SNFs reported significantly negative Medicare margins 

after Medicare's new SNF payment system was launched. The median hospital-based 

SNF Medicare margin was -53 percent in 1999. Under the PPS, per diem payments to 

hospital-based SNFs dropped considerably, reflecting the change from payments 

based on a facility's own costs to fixed payments based on average costs for all 

facilities. At the same time, hospital-based SNFs reported per diem costs rose from 

1997 through 1999. This is in contrast to the experience of freestanding SNFs, which 

had lower per diem Medicare costs than hospital-based SNFs prior to the PPS and 

reduced their costs further after the shift to the PPS. The higher Medicare costs 

reported by hospital-based SNFs may stem in part from differences in services 

provided to patients. The higher costs may also reflect the historical allocation of 

overhead costs to the SNF from the hospital, an accounting practice that, while 

consistent with the payment incentives under the prior cost-based reimbursement 

system, means that hospital-based SNFs reported costs should be treated cautiously. 

Skilled Nursing Facilities: Providers Have Responded to Medicare Payment System 

By Changing Practices (GAO-02-841, 23-AUG-02) 

In 1998, the Health Care Financing Administration implemented a prospective 

payment system (PPS) for skilled nursing facility (SNF) services provided to 

Medicare beneficiaries. The PPS is intended to control the growth in Medicare 

spending for skilled nursing and rehabilitative services that SNFs provide by 

providing a predetermined payment for each day of care. The payment varies 

depending on the patient’s payment group classification, which reflects expected 

resource use, but not the actual resource use. Two years after the implementation of 

the PPS, the mix of patients across the payment groups has shifted, as determined by 

the patients’ initial assessments. More patients were classified into the high and 
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medium rehabilitation payment group categories, which were believed to be the most 

profitable, and fewer were initially classified into the most intensive (highest paying) 

and least intensive (lowest paying) rehabilitation payment group categories. The 

majority of patients in rehabilitation payment groups received less therapy than was 

provided in 1999. This was true even for patients within the same rehabilitation 

payment group categories. Across all rehabilitation payment group categories, fewer 

patients received the highest amounts of therapy associated with each payment 

group. 

Skilled Nursing Facilities: Services Excluded From Medicare's Daily Rate Need to 

be Reevaluated (GAO-01-816, 22-AUG-01) 

Congress and the Health Care Financing Administration recognized that certain 

services needed to be excluded from the skilled nursing facility (SNF) prospective 

payment system (PPS) rate to help ensure beneficiary access to appropriate care and 

to financially protect the SNFs that take care of high-cost patients. The criteria used 

to identify services—high cost, infrequently provided during a SNF stay and likely to 

be overprovided--and the services currently excluded appear reasonable. Even so, 

questions remain about whether certain other services should be excluded and how 

to modify the exclusions over time. Current exclusion policies raise three unintended 

consequences—beneficiary liability is higher for excluded services; beneficiaries may 

be required to receive excluded services in only certain facilities, which may be 

higher cost; and the broad definition of excluded emergency services may result in 

more care being classified as emergency. The Centers for Medicare & Medicaid 

Services (CMS) does not plan to collect data on all services provided to beneficiaries 

during their SNF stays. Without these data, CMS will have difficulty updating the 

exclusions over time and limit efforts to refine the payment system. 

Title III, Older Americans Act: Carryover Funds Are Not Creating a Serious Meal 

Service Problem Nationwide (GAO-01-211, 09-JAN-01) 

Under Title III of the Older Americans Act, the Administration on Aging (AoA) 

distributes grants to states on the basis of their proportional share of the total elderly 

population in the United States. Most states then disburse these grants to more than 

600 area agencies nationwide. The grants are further subdivided by these agencies to 

more than 4,000 local service providers and are used to fund group and in-home 

meals, as well as support services, including transportation and housekeeping. AoA 

requires that states obligate these funds by September 30 of the fiscal year in which 

they are awarded. Also, states must spend this money within two years after the fiscal 

year in which it is awarded. During this time AoA does not limit or monitor the 

amount of unspent funds that states may carry over to the succeeding fiscal year. 

GAO examined whether states were using Title III carryover funds to expand their 

meal service programs for the elderly beyond a level sustainable by their annual 

allotments alone. GAO found that the buildup and use of Title III carryover funds to 

support elderly nutrition services does not appear to be a widespread problem. 

However, AoA does not monitor the states' buildup of carryover funds. As a result, 
Enclosure I Enclosure I

 

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the agency has little assurance that it could identify meal service problems that could 

emerge in the future.
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Page 24 GAO-04-275R Calendar Years 2001/2002 Summation on Aging 

INCOME SECURITY ISSUES 

Answers to Key Questions about Private Pension Plans (GAO-02-745SP, 18-SEP-02) 

This primer on private pensions provides information on the basic features of the 

private pension plan system and the federal framework that governs how private 

plans must operate. GAO answers questions about the types of plans that private 

employers may sponsor, the benefits these plans provide, and the basic requirements 

that govern how these plans are administered. 

Older Workers: Demographic Trends Pose Challenges for Employers and Workers

(GAO-02-85, 16-NOV-01) 

The impending retirement of the "baby boom" generation is receiving considerable 

attention. The number of older workers will grow substantially during the next two 

decades, and they will become an increasingly significant share of the U.S. 

workforce. For example, according to the 2001 Current Population Survey, there 

were 17.3 million workers over age 55 in the laborforce, and this number is expected 

to increase to 25.3 million or over 20 percent of the laborforce in 2015. Although 

older workers are less likely than younger workers to lose a job, when they do lose a 

job, they are less likely than younger workers to find other employment. To retain 

older workers and extend their careers, some public and a few private employers are 

providing options, including flexible hours and financial benefits, reduced workloads 

through the use of part-time or part-year schedules, and job-sharing. Most employers 

are not yet facing labor shortages or other economic pressures that would require 

them to consider flexible employment arrangements because the retirement of the 

baby boom generation will occur gradually during the next several decades. 

Private Pensions: Improving Worker Coverage and Benefits (GAO-02-225, 09-APR02) 

Although pensions are an important source of income for many retirees, millions of 

workers lack individual pension coverage. Only half of the nation’s workers have 

been covered by private employer-sponsored pensions since the 1970s. Traditional 

reforms to the voluntary, single-employer-based pension system have limited 

potential to expand pension coverage and improve worker benefits. These pension 

reforms have concentrated mainly on improving tax incentives and reducing the 

regulatory burden on small employers. Furthermore, efforts to increase retirement 

savings by restricting the use of lump-sum distributions could limit worker 

participation in and contributions to pension plans. Three categories of reform—

pooled employer reforms, universal access reforms, and universal participation 

reforms—go beyond the voluntary, single-employer private pension system. Pooled 

employer reforms seek to increase the number of firms offering pension coverage by 

creating centralized third-party administration and increasing pension plan 

portability. Universal access reforms seek to boost savings by offering payroll-based 

accounts, albeit without mandating employer contributions. Universal participation 
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reforms would mandate pension availability and participation for all workers, similar 

to the existing Social Security system. 

Private Pensions: IRS Can Improve the Quality and Usefulness of Compliance 

Studies (GAO-02-353, 12-APR-02) 

The Internal Revenue Service (IRS) studied 401(k) plan compliance with Internal 

Revenue Code requirements for tax-qualified plans. GAO found that IRS's estimates 

of noncompliance were inaccurate. The study, which audited a sample of 401(k) 

plans, did not provide information on the severity of the compliance violations 

identified and did not determine the number of plan participants or the amount of 

assets associated with noncompliance errors. Only 27 of the 73 study questions 

identified as compliance indicators conclusively demonstrated whether a plan was 

compliant or not. Consequently, the 44 percent reported to have one or more 

instances of noncompliance is at best an upper limit on the extent of noncompliance 

found. IRS has chosen specific types of private pension plans to study in a manner 

similar to the one conducted on 401(k) pension plans. The data that IRS collects will 

be analyzed to determine the prevalence and types of noncompliance among the 

plans studied. 

Private Pensions: Issues of Coverage and Increasing Contribution Limits for 

Defined Contribution Plans (GAO-01-846, 17-SEP-01) 

Proposals to expand pension coverage and promote pension savings have recently 

received much attention. In the Economic Growth and Tax Relief Reconciliation Act 

of 2001, for example, Congress raised statutory limits on tax-deferred pension 

contributions and benefits and made other changes to the law governing qualified 

pension plans. Some believe that increasing these limits will encourage employers to 

start new plans and improve existing plan coverage, especially for employees of small 

businesses. Others contend that these measures will primarily benefit higher-paid 

individuals and may not improve pension coverage for low-or moderate-income 

workers. Forty-seven percent of all workers participated in a pension plan, and 36 

percent of all workers participated in a defined contribution (DC) plan. Most pension 

plan participants had low or moderate earnings (less than $40,000 per year) and were 

men. About eight percent of all DC participants, or 3.1 million people, were likely 

direct beneficiaries of a simultaneous increase in all the statutory contribution limits 

GAO analyzed. Higher earners were more likely than low and moderate earners, and 

men were more likely than women, to benefit directly from such an increase; this was 

also true of increases in each of the separate dollar limits on contributions. About 

721,000 DC participants, or 11 percent of eligible DC participants, were likely to 

benefit from a so-called "catch-up" provision allowing persons aged 50 or older to 

make additional contributions to DC plans. Higher earners were more likely to 

benefit directly from this option than were low and moderate earners. However, 

neither male more female DC participants were significantly more likely to benefit 

directly from this option. 
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Private Pensions: Participants Need Information on the Risks of Investing in 

Employer Securities and the Benefits of Diversification (GAO-02-943, 06-SEP-02) 

The financial collapse of large firms and the effects on workers and retirees has 

raised questions about retirement funds being invested in employer securities and the 

laws governing such investments. Pensions are important source of income of many 

retirees, and the federal government has encouraged employers to sponsor and 

maintain pension and savings plans for their employees. The continued growth in 

these plans and their vulnerabilities has caused Congress to focus on issues related to 

participants investing in employer securities through employer-sponsored retirement 

plans. GAO’s analysis of the 1998 plan data for the Fortune 1,000 firms showed that 

550 of those companies held employer securities in their defined benefit plans or 

defined contribution plans, covering 13 million participants. Investment in employer 

securities through employer-sponsored retirement plans can present significant risks 

for employees. If the employees’ retirement savings is largely in employer securities 

in these plans, employees risk losing not only their jobs should the company go out of 

business, but also a significant portion of their savings. Even if employers do not 

declare bankruptcy, employees are still subject to the dual risk of loss of job and loss 

of retirement savings because corporate losses and stock price declines can result in 

companies significantly reducing their operations. Under the Employee Retirement 

Income Security Act and the Securities Acts, the Department of Labor and Securities 

and Exchange Commission (SEC) are responsible for ensuring that certain 

disclosures are made to plan participants regarding their investments. Although 

employees in plans where they control their investments receive disclosures under 

the act regarding their investments, such regulations do not require companies to 

disclose the importance of diversification or warn employees about the potential 

risks of owning employer securities. SEC requires companies with defined 

contribution plans that offer employees an opportunity to invest in employer stock to 

register and disclose to SEC specific information about those plans. In addition, in 

most cases the underlying securities of those plans must be registered with SEC. 

However, SEC does not routinely review these company plan filings because pension 

plans generally fall under other federal regulation. 

Retirement Savings: Opportunities to Improve DOL's SAVER Act Campaign (GAO01-634, 26-JUN-01) 

Many of today's workers may not be financially prepared for retirement when they 

stop working. Many people are counting on Social Security alone, without an 

additional retirement plan. The Savings Are Vital to Everyone’s Retirement (SAVER) 

Act of 1997 requires the Department of Labor (DOL) to hold periodic national 

summits and run an outreach program to promote retirement saving. This report 

(1) identifies major accomplishments of the 1998 summit and issues that might affect 

future summits, (2) describes DOL’s outreach program, and (3) determines what DOL 

knows about the effectiveness of the summit and outreach program. GAO found that 

the 1998 National Summit made progress in identifying problems that workers face in 

saving for retirement. DOL’s Outreach Program--the Retirement Savings Education 

Campaign--targets of small business owners, women, minorities, and youth to change 
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the way they think about, and act on, their retirement saving needs. DOL has not tried 

to assess the extent to which outreach efforts from the 1998 National Summit and 

Pension and Welfare Benefits Administration have increased the public’s knowledge 

and understanding of retirement savings. 

Social Security: Program’s Role in Helping Ensure Income Adequacy (GAO-02-62, 

30-NOV-01) 

Before Social Security, being old often meant being poor. Today, dependency on 

public assistance has dropped to a fraction of its Depression-era levels, and poverty 

rates among the elderly are now lower than for the population as a whole. At the 

same time, Social Security has become the single largest source of retirement income 

for more than 90 percent of persons aged 65 and older. Automatic adjustments were 

introduced in 1972 to reflect increases in the cost of living. Other program changes 

gradually increased social security coverage to larger portions of the workforce and 

extended eligibility to family members and disabled workers. Other benefit programs, 

such as Supplemental Security Income (SSI), Medicare, and Medicaid, have also been 

added over the years. With regard to measuring income adequacy, various measures 

help examine different aspects of this concept, but no single measure can provide a 

complete picture. For various subgroups of beneficiaries that have lower lifetime 

earnings, poverty rates have also declined. Although the Social Security benefit 

formula favors lower lifetime earners, their lower earnings and work histories can 

leave them with incomes below the poverty level when they retire or become 

disabled. The outlook for future Social Security benefit levels and income adequacy 

depend on how the program's long-term financing imbalance is addressed, as well as 

on the measures used. GAO concludes that reductions in promised benefits and 

increases in program revenues will be needed to restore the program's long-term 

solvency and sustainability. Possible benefit changes might include adjustments to 

the benefit formula or reductions in cost-of-living increases. Possible revenue sources 

might include higher payroll taxes or transfers from the Treasury’s general fund. 

Social Security Administration: Information Systems Could Improve Processing 

Attorney Fee Payments in Disability (GAO-01-796, 29-JUN-01) 

To ensure that people claiming disability insurance benefits can obtain legal 

representation at a fair price, the Social Security Act requires that the Social Security 

Administration (SSA) regulate the fees that attorneys charge people to represent their 

disability claims before the agency. Inefficiencies in the current process increase 

both the time it takes to pay the attorney fees and the costs of administration. One 

segment of attorney fee processing—the fee approval process—was substantially 

simplified in 1991. Systems support could streamline the second segment of the 

processing—the fee payment—thus lowering the annual administrative costs and 

cutting processing time. By automating this final segment of the fee processing, SSA 

could help improve customer service for both claimants and their attorneys. GAO 

found that despite internal recommendations for a new system, SSA has repeatedly 

postponed its plans to improve the attorney fee payment process. Indeed, even 

though these improvements have been part of SSA’s system’s plans since 1998, SSA 
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has yet to establish a firm schedule for carrying out its plans. Additionally, although 

SSA has a draft plan for improving the process, agency officials told GAO that the 

details of the plan have not been completed and SSA has yet to complete a cost 

estimate for the project. There are also other gaps in the plan--such as not creating an 

attorney master file or establishing an electronic connection between the payment 

processing staff and the Office of Hearings and Appeals fee approval staff—where 

taking additional actions could improve the process. Furthermore, SSA’s 

performance plan did not have goals related to attorney fees—neither for cost 

reduction of the program nor payment timeliness. SSA would need such goals as part 

of its current planning effort for improving the attorney fee payment process as well 

as for its future operations. Without such quantifiable goals, future efforts to track 

and oversee SSA’s progress in these areas will be difficult. 

Social Security Administration: Revision to the Government Pension Offset 

Exemption Should Be Reconsidered (GAO-02-950, 15-AUG-02) 

Social Security benefits are payable to the spouses of retired, disabled, or deceased 

workers. The benefits often provide income to wives and husbands who have little or 

no Social Security benefits of their own. Until 1977, workers receiving pensions from 

government positions not covered by Social Security could receive their full pension 

benefit and their full spousal benefits as if they were nonworking spouses. Since then, 

a government pension offset has been in effect to equalize the treatment of workers 

covered by Social Security and those with noncovered government benefits. This 

report was prompted by a referral to GAO’s Fraudnet that questioned a practice in 

which individuals in Texas were transferring to Social Security-covered positions for 

one day to avoid the offset. GAO found no central data on the use of the offset 

exemption by individuals, and time constraints did not permit in-depth audit work on 

the 2,300 state and local government retirement plans. However, GAO did establish 

that, as of June 2002, more than 4,800 persons in Texas and Georgia worked for brief 

periods in jobs covered by Social Security to qualify for the “last-day exemption.” 

GAO estimates that the long-term Social Security payments to these individuals could 

be as high as $450 million. Such abuses of the offset exemption could be prevented by 

(1) changing the last-day provision to a longer minimum time period or (2) using a 

proportional approach based on the number of working years as a government 

employee spent in covered and noncovered employment to determine the extent to 

which the government pension offset applies. 

SSA Disability: SGA Levels Appear to Affect the Work Behavior of Relatively Few 

Beneficiaries, but More Data Needed (GAO-02-224, 16-JAN-02) 

The Social Security Administration’s (SSA) Disability Insurance (DI) program paid 

$50 billion in cash benefits to more than five million disabled workers in 2000. 

Eligibility for DI benefits is based on whether a person with a severe physical or 

mental impairment has earnings that exceed the Substantial Gainful Activity (SGA) 

level. SSA terminates monthly cash benefit payments for beneficiaries who return to 

work and have earnings that exceed the SGA level—$1,300 per month for blind 

beneficiaries and $780 per month for all other beneficiaries. GAO found that the SGA 
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level affects the work patterns of only a small proportion of DI beneficiaries. 

However, GAO also found that the SGA may affect the earnings of some beneficiaries. 

About 13 percent of those beneficiaries with earnings near the SGA level in 1985 still 

had earnings near the SGA level in 1995, even though the level was increased during 

that period. The absence of key information identifying the monthly earnings of 

beneficiaries, their trial work period status, and whether they are blind limited GAO’s 

ability to definitively identify a relationship between SGA levels and beneficiaries’ 

work patterns. Data limitations also make the effect of the SGA on DI program entry 

and exit rates difficult to isolate. Although the rate of program entry increased in the 

years immediately following a 1990 increase in the SGA level, it then gradually 

declined to a level below the pre-1990 entry rates. Since 1990, DI exit rates continue 

to be driven largely by beneficiary death and conversion to retirement benefits. 

However, the percentage of all exits caused by improvements in medical conditions 

or a return to work increased slowly, from 1.9 percent in 1985 to 9.2 percent in 1996, 

and then rose dramatically to 19.9 percent in 1997. A substantial increase in the 

number of continuing disability reviews done by SSA may account, in part, for this 

1997 upturn, but data limitations preclude GAO from obtaining a full understanding of 

the link between the SGA and exit behavior. 

Social Security Programs: Scope of SSA’s Authority to Deny Benefits to Fugitive 

Felons and to Release Information About OASI and DI Beneficiaries Who Are 

Fugitive Felons (GAO-02-459R, 27-FEB-02) 

In response to concerns that individuals wanted in connection with a felony or 

violating terms of their parole or probation could receive benefits from programs for 

the needy, the Congress added provisions to the Personal Responsibility and Work 

Opportunity Reconciliation Act (PRWORA) of 1996 that prohibit these individuals 

from receiving Supplemental Security Income (SSI), Food Stamps benefits, 

Temporary Assistance for Needy Families (TANF), and federal housing assistance. 

To assist in the apprehension of fugitive felons, PRWORA also directs these programs 

to provide law enforcement agencies with information about program recipients for 

whom there are outstanding warrants. GAO was asked to determine if SSA has the 

authority under these provisions (1) to deny Old Age and Survivors Insurance (OASI) 

and Disability Insurance (DI) to fugitive felons, and (2) to give law enforcements 

agencies the current addresses and Social Security numbers of OASI or DI recipients 

who are fugitive felons. GAO found that SSA currently lacks the authority to deny 

OASI and DI benefits to fugitive felons who otherwise are eligible to receive them, 

and the Privacy Act authorizes but does not require SSA to provide information it 

collects about individuals, including OASI and DI recipients who are fugitive felons, 

to law enforcement agencies. 

Social Security Reform: Potential Effects on SSA’s Disability Programs and 

Beneficiaries (GAO-01-35, 24-JAN-01) 

There has been little analysis of how the various Social Security reform proposals 

might affect the Social Security Disability Insurance (DI) program. This report 

assesses the potential impact of these proposals on the solvency of the DI trust fund 
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and on the benefits disabled beneficiaries receive. GAO found that most disabled 

beneficiaries would receive higher benefits under the various Social Security reform 

proposals it reviewed than under a solvency scenario that maintained payroll tax 

rates while reducing benefits. However, most of the disabled beneficiaries GAO 

studied would receive lower benefits under three of the reform proposals reviewed 

than under a solvency scenario that maintained current-law benefits while raising 

payroll taxes. The proposals GAO studied treat DI beneficiaries similar to Old-Age 

and Survivor Insurance beneficiaries. However, the circumstances facing disabled 

workers differ from those facing retired workers. The differences between disabled 

workers and retired workers suggest that Social Security reform proposals should be 

viewed not only in light of their effects on retired workers but also explicitly for their 

effect on disabled beneficiaries and their families. 

Supplemental Security Income: Progress Made in Detecting and Recovering 

Overpayments, but Management Attention Should Continue (GAO-02-849, 16-SEP02) 

The Supplemental Security Income (SSI) program is the nation’s largest cash 

assistance program for the poor. The program paid $33 billion in benefits to 

6.8 million aged, blind, and disabled persons in fiscal year 2001. Benefit eligibility and 

payment amounts for the SSI population are determined by complex and often 

difficult to verify financial factors such as an individual's income, resource levels, and 

living arrangements. Thus, the SSI program tends to be difficult, labor intensive, and 

time consuming to administer. These factors make the SSI program vulnerable to 

overpayments. The Social Security Administration (SSA) has demonstrated a stronger 

commitment to SSI program integrity and taken many actions to better deter and 

detect overpayments. Specifically, SSA has (1) obtained legislative authority in 1999 

to use additional tools to verify recipients' financial eligibility for benefits, including 

strengthening its ability to access individuals' bank account information; 

(2) developed additional measures to hold staff accountable for completing assigned 

SSI workloads and resolving overpayment issues; (3) provided field staff with direct 

access to state databases to facilitate more timely verification of recipient's wages 

and unemployment information; and (4) significantly increased, since 1998, the 

number of eligibility reviews conducted each year to verify recipient’s income, 

resources, and continuing eligibility for benefits. In addition to better detection and 

deterrence of SSI overpayments, SSA has made recovery of overpaid benefits a high 

priority. 

Sustained management attention should continue to ensure progress towards fully 

implementing crucial overpayment deterrence, detection, and recovery tools. 

Despite these efforts, further improvements in overpayment recovery are possible. 

The report includes recommendations that SSA address complex SSI program rules 

to better prevent payment errors, reassess its policies and procedures for imposing 

administrative penalties and sanctions, and ensure that overpayment waiver policies 

are designed and implemented in a way that maintains program integrity. 
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Welfare Reform: Implementation of Fugitive Felon Provisions Should Be 

Strengthened (GAO-02-716, 25-SEP-02) 

In response to concerns that individuals wanted in connection with a felony or 

violating terms of their parole or probation could receive benefits from programs for 

the needy, Congress added provisions to the Personal Responsibility and Work 

Opportunity Reconciliation Act of 1996 that prohibit these individuals from receiving 

Supplemental Security Income (SSI), Food Stamp benefits, and Temporary 

Assistance to Needy Families (TANF) and make fugitive felon status grounds for the 

termination of tenancy in federal housing assistance programs. In addition, the Act 

directs these programs to provide law enforcement officers with information about 

program recipients for whom there are outstanding warrants to assist in their 

apprehension. Actions taken to implement the Act's fugitive felon provisions have 

varied substantially by program. In implementing provisions to prohibit benefits to 

fugitive felons, all but housing assistance programs include, at a minimum, a question 

about fugitive felon status in their applications. SSI and some state Food Stamp and 

TANF programs also seek independent verification of fugitive felon status by using 

computer matching to compare arrest warrant and program recipient files. To date, 

110,000 beneficiaries have been identified as fugitive felons and dropped from the 

SSI, Food Stamp, and TANF rolls, and many have been apprehended. Computerized 

file matching has been responsible for the identification of most of these fugitive 

felons. Aggressive implementation of the Act’s fugitive felon provisions poses a 

number of challenges for programs. First, centralized and complete national and 

statewide arrest warrant data for computer matching are not readily available. 

Second, because direct access to arrest warrants and criminal records is limited to 

law enforcement personnel, computer matching requires what many state TANF and 

Food Stamp officials view as a burdensome and complex negotiation process to 

obtain these records. Third, the absence of information and guidance about how to 

conduct file matching and overcome its logistical challenges has also hindered 

aggressive implementation of the law. Finally, there is evidence that individuals with 

outstanding warrants for felonies, or probation or parole violations, may continue to 

collect benefits because there may be differences in the interpretation of what 

constitutes a fugitive felon within the Food Stamp and TANF programs. 
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VETERANS/DOD ISSUES 

DOD and VA Pharmacy: Progress and Remaining Challenges in Jointly Buying 

and Mailing Out Drugs (GAO-01-588, 25-MAY-01) 

The Department of Veterans Affairs (VA) and the Department of Defense (DOD) have 

made important progress, particularly during the past year, in their efforts to jointly 

procure drugs to help control spiraling prescription drug costs. Although their 

collaborative efforts have been impressive, the two agencies have largely targeted 

generic drugs, which comprise less than 10 percent of their combined expenditures. 

More dramatic cost reductions could be achieved through procurements of high-cost 

brand-name drugs, although doing so can be more complex and time consuming to 

garner the necessary clinical support and provider acceptance on therapeutic 

interchangeability. Nonetheless, DOD’s greatly expanded retiree drug benefit and the 

formularies being developed by both agencies should provide added joint 

procurement opportunities for such drugs. Also, VA and DOD have shown that 

flexible approaches to developing joint solicitations can take into account differences 

in their health systems while still maximizing drug discounts. In GAO’s view, their 

joint activities could be further enhanced by periodically conferring with private 

managed care pharmacy experts and reporting to Congress on their joint 

procurement activities. Top management at DOD and VA need to stay focused on 

their joint procurement and distribution activities as leadership changes continue at 

the two agencies. VA and DOD have also made progress in their efforts to conduct a 

consolidated mail outpatient pharmacy pilot. The sooner the pilot proves feasible, the 

sooner DOD can begin to realize the financial and quality of care benefits associated 

with the transfer of its refill workload. 

Financial Management: Department of Defense Regulations Establishing Methods 

to Calculate Amounts To Be Transferred from Department of Defense Medicare 

Eligible Retiree Health Care Fund (GAO-02-1061R, 30-AUG-02) 

GAO reviewed regulations issued by the Department of Defense (DOD) to cover 

transfers from a new fund created by Congress to finance the cost of expanded health 

care programs’ benefits for Medicare-eligible uniformed services retirees and their 

eligible dependents. These health care programs include pharmacy benefits and 

coverage of the deductible portion of Medicare benefits. The Floyd D. Spence 

National Defense Authorization Act for Fiscal Year 2001 established the Department 

of Defense Medicare Eligible Retiree Health Care Fund in the U.S. Treasury. 

Beginning on October 1, 2002, the fund will finance DOD's liabilities under the 

uniformed services retiree health programs for Medicare-eligible beneficiaries. The 

legislation requires that (1) the Secretary of Defense establish by regulation the 

methods for calculating amounts to be transferred periodically from the fund to 

applicable appropriations that incur the programs' cost and (2) the Comptroller 

General report to the Secretary of Defense and to Congress on the adequacy and 

appropriateness of these regulations within 30 days of receiving them from the 

Secretary. GAO found that regulations establishing the methods for calculating 

transfers from the fund to finance eligible health care costs were issued in July 2002, 
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in sufficient time to begin making transfers upon activation of the fund on October 1, 

2002. DOD regulations for establishing the methods for calculating transfers from the 

fund are adequate and appropriate, and they provide a framework for the transfers to 

be implemented upon activation of the fund. Under these regulations, there are to be 

daily transfers from the fund to cover amounts disbursed to non-DOD providers, such 

as civilian health care providers and retail pharmacies, based on claims transactions. 

The regulations also provide the methodology for calculating transfers to cover the 

cost of military treatment facilities care to the intended beneficiaries. However, the 

reliability of the underlying cost and patient clinical data could limit DOD’s ability to 

reliably assign costs and bill DOD for services to DOD Medicare-eligible retirees and 

their eligible dependents. 

VA Drug Formulary: Better Oversight Is Required, but Veterans Are Getting Needed 

Drugs (GAO-01-183, 29-JAN-01) 

During the last three years, the Department of Veterans Affairs (VA) has made 

significant progress in establishing its national drug formulary, which has generally 

met with prescriber acceptance. Most veterans are receiving the drugs they need. 

However, VA oversight has not been sufficient to ensure that the Veterans Integrated 

Service Networks (VISN) and medical centers comply with formulary policies and 

that the flexibility given to them does not compromise VA’s goal of formulary 

standardization. Contrary to VA formulary policy, some facilities omitted national 

formulary drugs or modified the closed drug classes. Although a limited number of 

drugs to supplement the national formulary is permitted, formulary differences 

among facilities are likely to become more pronounced, as more drugs are added by 

VISNs, decreasing formulary standardization. VA recognizes the trade-off between 

local flexibility and standardization, but it lacks criteria for determining the 

appropriateness of adding drugs to supplement the national formulary and therefore 

may not be able to determine whether the decrease in standardization is acceptable. 

VA Health Care: Allocation Changes Would Better Align Resources with Workload

(GAO-02-338, 28-FEB-02) 

The Department of Veterans Affairs (VA) spent $21 billion in fiscal year 2001 to treat 

3.8 million veterans--most of whom had service-connected disabilities or low 

incomes. Since 1997, VA has used the Veterans Equitable Resource Allocation 

(VERA) system to allocate most of its medical care appropriation. GAO found that 

VERA has had a substantial impact on network resource allocations and workloads. 

First, VERA shifted $921 million from networks located primarily in the northeast and 

midwest to networks located in the south and west in fiscal year 2001. In addition, 

VERA, along with other VA initiatives, has provided an incentive for networks to 

serve more veterans. VERA’s overall design is a reasonable approach to allocate 

resources commensurate with workloads. It provides a predetermined dollar amount 

per veteran served to each of VA's 22 health care networks. This amount varies 

depending upon the health care needs of the veteran served and local cost 

differences. This approach is designed to allocate resources commensurate with each 

network’s workload in terms of veterans served and their health care needs. GAO 
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identified weaknesses in VERA’s implementation. First, VERA excludes about one 

fifth of VA’s workload in determining each network's allocation. Second, VERA does 

not account well for cost differences among networks resulting from variation in 

their patients’ health care needs. Third, the process for providing supplemental 

resources to networks through VA’s National Reserve Fund has not been used to 

analyze how the need for such resources is caused by potential problems in VERA’s 

allocation, network inefficiency, or other factors. 

VA Health Care: Expanded Eligibility Has Increased Outpatient Pharmacy Use 

and Expenditures (GAO-03-161, 08-NOV-02) 

The Department of Veterans Affairs (VA) spent about $3.0 billion on its outpatient 

pharmacy benefit in fiscal year 2001. After VA implemented the Veterans’ Health Care 

Eligibility Reform Act in 1999, more veterans could use VA outpatient care, including 

the pharmacy benefit, than before. Increased eligibility contributed to a doubling of 

the number of Priority 7 veterans using VA health care. Priority 7 veterans are 

primarily veterans with higher incomes and no service-connected disability. GAO was 

asked to report on Priority 7 veterans' use of the outpatient pharmacy benefit and 

VA’s expenditures to provide this benefit. To do this, GAO reviewed VA pharmacy 

data on use and costs from fiscal years 1999 through 2001. 

VA spent $418 million on the outpatient pharmacy benefit for Priority 7 veterans in 

fiscal year 2001. VA pharmacy expenditures for Priority 7 veterans in this year were 

offset by copayments for drugs. In fiscal year 2001, VA collected approximately $41 

million in drug copayments from Priority 7 veterans by charging $2 for a 30-day or 

less supply. This reduced VA’s net expenditures to $377 million. After VA 

implemented eligibility reform in 1999, Priority 7 veterans' use of the pharmacy 

benefit increased rapidly from about 11 million 30-day equivalents of drugs or 

supplies in fiscal year 1999 to about 26 million 30-day equivalents in fiscal year 2001. 

This resulted in more than a doubling of VA’s net pharmacy expenditures for these 

veterans. Yet, net pharmacy expenditures for Priority 7 veterans remain a relatively 

small share of VA’s total net spending for outpatient drugs and supplies. Most of VA’s 

increased pharmacy spending during this period was for all other veterans--those 

with service-connected disabilities, low incomes, or certain other recognized statuses 

such as former prisoners of war. In fiscal year 2001, 87 percent of VA’s net pharmacy 

expenditures were for these veterans. 

VA Health Care: Implementation of Prescribing Guideline for Atypical 

Antipsychotic Drugs Generally Sound (GAO-02-579, 29-APR-02) 

The Department of Veterans Affairs (VA) provides health care services to veterans 

who have been diagnosed with psychosis--primarily schizophrenia, a disorder that 

can substantially limit their ability to care for themselves, secure employment, and 

maintain relationships. These veterans also have a high risk of premature death, 

including suicide. Effective treatment, especially antipsychotic drug therapy, has 

reduced the severity of their illnesses and increased their ability to function in 

society. VA's guideline for prescribing atypical antipsychotic drugs is sound and 
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consistent with published clinical practice guidelines used by public and private 

health care systems. VA’s prescribing guideline recommends that physicians use their 

best clinical judgment, based on clinical circumstances and patients’ needs, when 

choosing among the atypical drugs. Most Veterans Integrated Service Networks 

(VISN) and facilities use VA’s prescribing guideline; however, five VISNs have 

additional policies and procedures for prescribing atypical antipsychotic drugs. 

Although these procedures help manage pharmaceutical cost, they also have the 

potential to result in more weight given to cost than clinical judgment, which is 

inconsistent with the prescribing guideline. 

VA Health Care: More National Action Needed to Reduce Waiting Times, but Some 

Clinics Have Made Progress (GAO-01-953, 31-AUG-01) 

In fiscal year 2000, roughly four million patients made 39 million outpatient visits to 

more than 700 health care facilities nationwide, run by the Department of Veterans 

Affairs (VA). However, excessive waiting times for outpatient care have been a longstanding problem. To ensure timely access to care, VA established a goal that all 

nonurgent primary and specialty care appointments be scheduled within 30 days; 

clinics were to meet this goal by 1998. Yet, three years later, reports of long waiting 

times persist. Waiting times at the clinics in the 10 medical centers GAO visited 

indicate that meeting VA’s 30-day standard is a continuing challenge for many clinics. 

Although most of the primary care clinics GAO visited (15 of 17) reported meeting 

VA’s standard for nonurgent, outpatient appointments, only one-third of the specialty 

care clinics visited (18 of 54) met VA’s 30-day standard. For the remaining two-thirds, 

waiting times ranged from 33 days at one urology clinic to 282 days at an optometry 

clinic. Although two-thirds of the specialty clinics GAO visited continued to have long 

waiting times, some were making progress in reducing waiting times, primarily by 

improving their scheduling processes and making better use of their staff. These 

successes were often the result of collaborative efforts with the Institute for 

Healthcare Improvement (IHI) a private contractor VA retained in July 1999—to 

develop strategies to reduce patient waiting times. Medical centers and clinics 

participating in VA’s IHI project have received valuable information and strategies for 

successfully reducing waiting times. However, VA has only recently contracted with 

IHI to disseminate best practices agency-wide and VA has not established a national 

set of referral guidelines that could alleviate waiting times for specialty care. 

VA Long-Term Care: Implementation of Certain Millennium Act Provisions Is 

Incomplete, and Availability of Noninstitutional Services Is Uneven (GAO-02-510R, 

29-MAR-02) 

The Department of Veterans Affairs (VA) spent about $3.1 billion on long-term care in 

fiscal year 2001. This amount is likely to increase as the veteran population ages. VA 

provides or pays for long-term care in institutional settings, such as nursing homes, or 

in veteran's own homes and other community locations. The Veterans Millennium 

Health Care and Benefits Act of 1999 required VA to offer long-term care services to 

eligible veterans, including in noninstitutional settings. More than two years after the 

act's passage, VA has not completely met the act's requirement that all eligible 
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veterans be offered adult day health care, respite care, and geriatric evaluation. 

Although VA published draft regulations that would make these three services 

available, the regulations were not finalized as of March 2002. To respond to the act’s 

requirements before its draft regulations were finalized, VA issued a policy directive 

making these three services available in noninstitutional settings. At the time of 

GAO’s review, however, access to these services was far from universal. Moreover, 

the availability of all VA noninstitutional long-term care services, including the newly 

required services, is uneven across the VA system. 

VA Long-Term Care: Oversight of Community Nursing Homes Needs Strengthening

(GAO-01-768, 27-JUL-01) 

The Department of Veterans Affairs (VA) spent about $1.9 billion—or about 10 

percent of its health care budget—to provide nursing home care to veterans in fiscal 

year 2000. VA will likely see increasing demand for nursing home care during the next 

decade. The number of veterans age 85 and older is expected to triple—from 422,000 

veterans in 2000 to nearly 1.3 million in 2010. Among the very old, the prevalence of 

chronic health conditions and disabilities increases markedly. In addition, VA is 

required to provide long-term care to some veterans, which may further increase 

veterans' demand for nursing home care. Almost 73 percent of VA's nursing home 

care in fiscal year 2000 went to VA’s 134 nursing homes; the rest went to state-owned 

and operated veterans' nursing homes (15 percent) or to community nursing homes 

under local or national contract to VA (12 percent). VA generally requires its medical 

center staff to conduct annual inspections of state veterans’ homes and community 

nursing homes; it also requires monthly staff visits to veterans in community nursing 

homes. GAO found that VA’s adherence to its oversight policies for state veterans’ 

homes and community nursing homes has been mixed because of a lack of VA 

monitoring and oversight. VA medical staff are required to inspect each state 

veterans’ home annually, and of the 86 inspections reviewed by GAO, about 85 

percent were done within the time frame or shortly thereafter. VA lacks a 

departmentwide approach to monitoring medical centers' community nursing home 

oversight activities and enforcing VA’s oversight policies--particularly regarding 

locally contracted homes, which make up about 75 percent of the community nursing 

homes under contract to VA—and individual medical centers vary in how well they 

have overseen community nursing homes. Under its planned policy change, VA would 

eliminate the requirement for annual inspections of community nursing homes and 

instead would rely on Medicare and Medicaid certification inspections. Local VA 

medical centers' staff will review state inspection reports and CMS data to evaluate 

community nursing homes. However, the quality of state inspections of nursing 

homes varies, and CMS is unable to accurately assess state inspection results in all 

cases. 

Medicare Subvention Demonstration: DOD Costs and Medicare Spending (GAO-02-

67, 31-OCT-01) 

The Balanced Budget Act of 1997 authorized the Department of Defense (DOD) to 

conduct the Medicare subvention demonstration for a three-year period. Under this 
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demonstration, DOD formed Medicare managed care organizations—collectively 

called TRICARE Senior Prime—at six sites that provided the full range of Medicarecovered services as well as additional DOD-covered services, notably prescription 

drugs. The Medicare program was to pay DOD for Medicare-covered care of the 

enrolled military retirees if DOD continued to spend on all aged military retirees at 

least as much as it had historically. Under the subvention demonstration, Senior 

Prime enrollees' care in 1999 cost DOD far more than the Medicare capitation rate 

that was established for the demonstration. This mainly resulted from enrollees’ 

heavy use of medical services, but DOD coverage of prescription drugs—not included 

in the Medicare benefit package—also contributed to its high costs. Without the 

demonstration, Medicare spending in 1999 for retirees who enrolled in Senior Prime 

would have been, on average, about 55 percent of the Senior Prime capitation rate. 

This was partly because Senior Prime enrollees were somewhat healthier than 

comparable Medicare beneficiaries, but mainly because Medicare would have paid 

for only part of the enrollees’ care. DOD would have provided much of their care, 

which would not have been reflected in Medicare’s spending on their behalf. The 

Balanced Budget Act’s payment rules resulted in no Medicare payment to DOD in 

1999. This was because they were designed to prevent the government from paying 

twice for the same care—once through DOD appropriations and again through 

Medicare. The rules also required that the payment be adjusted to account for Senior 

Prime enrollees' health status. Together, these two requirements resulted in Medicare 

paying nothing for care provided in 1999. Even without these two requirements, 

Medicare would have paid DOD less than the monthly capitation rate of $320 per 

person, because Congress had capped the Medicare payment for all enrollees at $60 

million for 1999. 

Medicare Subvention Demonstration: DOD's Pilot HMO Appealed to Seniors, 

Underscored Management Complexities (GAO-01-671, 14-JUN-01) 

This interim report reviews the implementation of the Department of Defense (DOD) 

Medicare Subvention Demonstration. GAO found that the demonstration sites were 

successful in operating Medicare managed care plans. Officials put substantial effort 

into meeting Medicare managed care requirements and, according to Health Care 

Financing Administration reviewers, were generally as successful as other new 

Medicare managed care plans in this regard. Most sites reached the enrollment limits 

they had established for retirees already covered by Medicare. DOD officials 

indicated that the demonstration's effect was positive. Enrollees received a broader 

range of services from DOD than in the past, when they got care only when space was 

available in DOD facilities. Officials also noted that providing more comprehensive 

care to seniors helped sharpen the skills of military clinical staff, which contributed 

to their readiness for supporting combat or other military missions. Some challenges 

encountered in the demonstration reflect larger DOD managed care issues and may 

have implications for DOD managed care generally. Although access to care was 

generally good, the demonstration experienced some problems in maintaining 

adequate clinical staff. 
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Medicare Subvention Demonstration: Greater Access Improved Enrollee 

Satisfaction but Raised DOD Costs (GAO-02-68, 31-OCT-01) 

In the Balanced Budget Act of 1997, Congress established a three-year demonstration, 

called Medicare subvention, to improve the access of Medicare-eligible military 

retirees to care at military treatment facilities (MTF). The demonstration allowed 

Medicare-eligible retirees to get their health care largely at MTFs by enrolling in a 

Department of Defense (DOD) Medicare managed care organization known as 

TRICARE Senior Prime. During the subvention demonstration, access to health care 

for many retirees who enrolled in Senior Prime improved, while access to MTF care 

for some of those who did not enroll declined. Many enrollees in Senior Prime said 

they were better able to get care when they needed it. They also reported better 

access to doctors in general as well as to care at MTFs. Enrollees generally were 

more satisfied with their care than before the demonstration. However, the 

demonstration did not improve enrollees' self-reported health status. In addition, 

compared to nonenrollees, enrollees did not have better health outcomes, as 

measured by their mortality rates and rates of "preventable" hospitalizations. 

Moreover, DOD's costs were high, reflecting enrollees' heavy use of hospitals and 

doctors. 

Medicare Subvention Demonstration: Pilot Satisfies Enrollees, Raises Cost and 

Management Issues for DOD Health Care (GAO-02-284, 11-FEB-02) 

The Department of Defense's (DOD) Medicare subvention demonstration tested 

alternate approaches to health care coverage for military retirees. Retirees could 

enroll in new DOD-run Medicare managed care plans, known as TRICARE Senior 

Prime, at six sites. The demonstration plan offered enrollees the full range of 

Medicare-covered services as well as additional TRICARE services, with minimal 

copayments. During the demonstration period, the program parameters were 

changed, allowing military retirees age 65 and older to become eligible for TRICARE 

coverage as of October 1, 2001, and Senior Prime was extended for one year. The 

demonstration showed that retirees were interested in enrolling in low-cost military 

health plans and that DOD was able to satisfy its Senior Prime enrollees. By the close 

of the initial demonstration period, about 33,000 retirees were enrolled in Senior 

Prime, and more were on waiting lists. When nonenrollees were asked why they did 

not join Senior Prime, more than 60 percent said that they were satisfied with their 

existing health coverage; few said that they disliked military care. Although the 

demonstration had positive results for enrollees, it also highlighted three challenges 

confronting the military health system in managing patient care and costs. First, care 

needs to be managed more efficiently. Although DOD satisfied enrollees and gave 

them good access to care, it incurred high costs. Second, DOD's efforts were 

hindered by limitations in its data and data systems. Finally, the demonstration 

illustrated the tension between the military health system's commitment to support 

military operations and promote the health of active-duty personnel and its 

commitment to provide care to dependents of active-duty personnel, retirees and 

their families, and survivors. 
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OTHER ISSUES

Electronic Transfers: Use by Federal Payment Recipients Has Increased but 

Obstacles to Greater Participation Remain (GAO-02-913, 12-SEP-02) 

In 2001, the Department of the Treasury made 764 million payments valued at $549 

billion to beneficiaries of federal programs, primarily programs administered by the 

Social Security Administration. Of these payments, 76 percent were made using 

electronic funds transfers (EFTs), potentially saving the government millions of 

dollars in costs associated with disbursing paper checks. In 1996, Congress passed 

legislation, which required that federal payments except tax refunds be made 

electronically as of January 1999. The act also required that each person affected by 

this mandate have access to an account at a financial institution at a reasonable cost 

and with certain consumer protections. To meet this requirement, Treasury 

developed the Electronic Transfer Account (ETA). Most recipients of federal benefits 

have their payments deposited electronically. The number of recipients using EFT 

climbed steadily throughout the 1990s, rising from around half to more than threequarters of all beneficiaries. Treasury and the Social Security Administration (SSA) 

have undertaken activities to increase the use of direct deposit, including developing 

marketing material and directly notifying check recipients of the advantages of using 

EFT, particularly safety and convenience. Although information describing the 

characteristics of these EFT users is limited, GAO determined that participation rates 

are highest for those 65 and older. The primary obstacle to using EFT was that many 

federal check recipients did not have a bank account. GAO's analysis of the Survey of 

Income and Program Participation's 1998 data indicated that 11 million benefit 

recipients, over half of all federal benefit check recipients in 1998, were unbanked. 

The ETA has not been widely accepted by banks or unbanked beneficiaries despite 

Treasury's efforts to promote it. Since initiation of the program in 1999, 36,000 ETAs 

have been opened, representing fewer than 1 percent of unbanked beneficiaries. 

Based on discussions with representatives from Treasury, SSA, financial institutions, 

and consumer groups, GAO identified several approaches that Treasury could 

consider to increase the use of electronic transfers. These approaches include 

increasing cooperation between banks and local SSA offices to more effectively 

enroll beneficiaries for ETAs; exploring other electronic payment options besides the 

ETA to deliver benefits; partnering with banks to provide information on the general 

availability of low cost banking products, especially in areas with low ETA coverage; 

and conducting further research to determine why certain states have low direct 

deposit participation rates. 

Information Technology Management: Social Security Administration Practices 

Can Be Improved (GAO-01-961, 21-AUG-02) 

The Social Security Administration (SSA) needs to identify strengths and weaknesses 

within its agency-wide operational and managerial capabilities to enable the delivery 

of high-quality customer service in the face of increases in both workloads and in the 

number of retirements from its experienced workforce. Evaluating SSA’s 

management of information technology (IT) is critical to assess whether the agency is 
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adequately addressing these capabilities. This report reviews SSA’s IT policies, 

procedures, and practices in the following five areas: investment management, 

enterprise architecture, software acquisition and development, information security, 

and human capital. GAO found that SSA had many important IT management policies 

and procedures in place in each of these five key areas but did not always implement 

them consistently. In some areas, SSA had not established key policies, procedures, 

or practices essential to ensure that its IT was effectively managed. GAO found 

weaknesses in all of the five key areas of IT management—particularly in investment 

management and human capital management. 

Record Linkage and Privacy: Issues in Creating New Federal Research and 

Statistical Information (GAO-01-126SP, 01-APR-01) 

This study focuses on privacy issues related to record-linkage—a computer-based 

process that combines multiple of existing data on individual persons. Federally 

sponsored linkage projects conducted for research and statistical purposes have 

many potential benefits, such as informing policy debates; tracking program 

outcomes; or contributing knowledge that, in some cases, might benefit millions of 

people. Examples of record linkage in GAO’s study include the use of administrative 

and survey data on the aging to provide a better understanding of health care and 

income security issues relevant to this population. Despite these benefits, concerns 

about personal privacy are relevant because linkages often involve data on 

identifiable persons. GAO describes (1) how record linkage can create new research 

and statistical information related to the aging and other populations, (2) why linkage 

heightens certain privacy issues, and (3) how data stewardship might be enhanced. 
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HEALTH ISSUES 

Flu Vaccine: Steps Are Needed to Better Prepare for Possible Future Shortages

(GAO-01-786T, 30-MAY-01) 

Until the 2001 flu season, the production and distribution of influenza vaccine 

generally went smoothly. Last year, however, several people reported that they 

wanted but could not get flu shots. In addition, physicians and public health 

departments could not provide shots to high-risk patients in their medical offices and 

clinics because they had not received vaccine they ordered many months in advance, 

or because they were being asked to pay much higher prices for vaccine in order to 

get it right away. At the same time, there were reports that providers in other 

locations, even grocery stores and restaurants, were offering flu shots to everyone--

including younger, healthier people who were not at high risk. This testimony 

discusses the delays in production, distribution, and pricing of the 2000-2001 flu 

vaccine. GAO found that manufacturing difficulties during the 2000-2001 flu season 

resulted in an overall delay of about six to eight weeks in shipping vaccine to most 

customers. This delay created an initial shortage and temporary price spikes. There is 

no system in place to ensure that high-risk people have priority for receiving flu shots 

when supply is short. Because vaccine purchases are mainly done in the private 

sector, federal actions to help mitigate any adverse effects of vaccine delays or 

shortages need to rely to a great extent on collaboration between the public and 

private sectors. 

Health Insurance: Proposals for Expanding Private and Public Coverage (GAO-01-

481T, 15-MAR-01) 

Various approaches have been proposed to increase private and public health care 

coverage of uninsured persons. The success of these proposals will depend on 

several key factors. The impact of tax subsidies on promoting private health 

insurance will depend on whether the subsidies reduce premiums enough to induce 

uninsured low-income individuals to buy health insurance and on whether these 

subsidies can be made available at the time the person needs to pay premiums. The 

effectiveness of public program expansions will depend on states' ability and 

willingness to use any new flexibility to cover uninsured residents as well as develop 

effective outreach to enroll the targeted populations. Although crowd-out is a 

concern with any of the approaches, some degree of public funds going to those 

currently with private health insurance may be inevitable to provide stable health 

coverage for some of the 42 million uninsured Americans. 

Testimonies: Calendar Years 2001 and 2002, Issues Affecting Older Americans
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Health Products for Seniors: Potential Harm From ‘Anti-Aging’ Products (GAO-01-

1139T, 10-SEP-01) 

Dietary supplements marketed as anti-aging therapies may pose a potential for 

physical harm to senior citizens. Evidence from the medical literature shows that a 

variety of frequently used dietary supplements can have serious health consequences 

for seniors. Particularly risky are products that may be used by seniors who have 

underlying diseases or health conditions that make the use of the product medically 

inadvisable or supplements that interact with medications that are being taken 

concurrently. Studies have also found that these products sometimes contain harmful 

contaminants or much more of an active ingredient than is indicated on the label. 

Although GAO was unable to find any recent, reliable estimates of the overall 

economic harm to seniors from these products, it did uncover several examples that 

illustrate the risk of economic harm. The Food and Drug Administration (FDA) and 

the Federal Trade Commission (FTC) have identified several products that make 

advertising or labeling claims with insufficient substantiation, some costing 

consumers hundreds or thousands of dollars apiece. The potential for harm to senior 

citizens from health products making questionable claims has been a concern for 

public health and law enforcement officials. FDA and FTC sponsor programs and 

provide educational materials for senior citizens to help them avoid health fraud. At 

the state level, agencies are working to protect consumers of health products by 

enforcing state consumer protection and public health laws, although anti-aging and 

alternative products are receiving limited attention. This testimony summarized a 

September report (GAO-01-1129). 

Health Workforce: Ensuring Adequate Supply and Distribution Remains 

Challenging (GAO-01-1042T, 01-AUG-01) 

This testimony discusses (1) the shortage of healthcare workers and (2) the lessons 

learned by the National Health Service Corps (NHSC) in addressing these shortages. 

GAO found that problems in recruiting and retaining health care professionals could 

worsen as demand for these workers increases. High levels of job dissatisfaction 

among nurses and nurses aides may also play a crucial role in current and future 

nursing shortages. Efforts to improve the workplace environment may both reduce 

the likelihood of nurses and nurse aides leaving the field and encourage more young 

people to enter the nursing profession. Nonetheless, demographic forces will 

continue to widen the gap between the number of people needing care and the 

nursing staff available. As a result, the nation will face a caregiver shortage very 

different from shortages of the past. More detailed data are needed, however, to 

delineate the extent and nature of nurse and nurse aide shortages to assist in 

planning and targeting corrective efforts. Better coordination of NHSC placements, 

with waivers for foreign U.S.-educated physicians, could help more needy areas. In 

addition, addressing shortfalls in the Department of Health and Human Services 

(HHS) systems for identifying underservice is long overdue. HHS needs to gather 

more consistent and reliable information on the changing needs for services in 

underserved communities. Until then, it will remain difficult to determine whether 
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federal resources are appropriately targeted to communities of greatest need and to 

measure their impact. 

Long-Term Care: Aging Baby Boom Generation Will Increase Demand and Burden 

on Federal and State Budgets (GAO-02-544T, 21-MAR-02) 

As more and more of the baby boomers enter retirement age, spending for Medicare, 

Medicaid, and Social Security is expected to absorb correspondingly larger shares of 

federal revenue and threatens to crowd out other spending. The aging of the baby 

boomers will also increase the demand for long-term care and contribute to federal 

and state budget burdens. The number of disabled elderly who cannot perform daily 

living activities without assistance may double in the future. Long-term care spending 

from public and private sources--about $137 billion for persons of all ages in 2000--

will rise dramatically as the baby boomers age. Without fundamental financing 

changes, Medicaid--which pays more than one-third of long-term care expenditures 

for the elderly--can be expected to remain one of the largest funding sources, 

straining both federal and state governments. 

Long-Term Care: Baby Boom Generation Increases Challenge of Financing Needed 

Services (GAO-01-563T, 27-MAR-01) 

The confluence of the aging baby boom generation, longer life expectancies, and 

evolving options for providing and financing long-term care services will require 

substantial public and private investment in long-term care and the development of 

sufficient capacity to serve this growing population. Spending for long-term care was 

about $134 billion in 1999. Medicaid and Medicare paid for nearly 58 percent of these 

services, contributing about $59 billion and $18 billion, respectively. Private long-term 

care insurance is viewed as a possible way to reduce catastrophic financial risk for 

the elderly needing long-term care and to relieve some of the financing burden now 

shouldered by public long-term care programs. Yet private insurance represents only 

about 10 percent of long-term care spending. Questions remain about the 

affordability of policies and the value of the coverage relative to the premiums 

charged. Although many states have adopted standards for long-term care policies, it 

is uncertain whether these standards have bolstered consumer confidence in the 

reliability of long-term care insurance. If long-term care insurance is to have a more 

significant role in addressing the baby boom generation's upcoming chronic health 

care needs, consumers must view the policies being offered as reliable, affordable 

products with benefits and limitations that are easy to understand. 

Long-Term Care: Elderly Individuals Could Find Significant Variation in the 

Availability of Medicaid Home and Community Services (GAO-02-1131T, 26-SEP02) 

As the baby boomers age, spending on long-term care for the elderly could nearly 

quadruple by 2050. The growing demand for long-term care will put pressure on 

federal and state budgets because long-term care relies heavily on public financing, 

particularly Medicaid. Nursing home care traditionally has accounted for most 
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Medicaid long-term care expenditures, but the high costs of such care and the 

preference of many individuals to stay in their own homes has led states to expand 

their Medicaid programs to provide coverage for home- and community-based longterm care. GAO found that a Medicaid-eligible elderly individual with the same 

disabling conditions, care needs, and availability of informal family support could 

find significant differences in the type and intensity of home and community-based 

services that would be offered for his or her care. These differences were due in part 

to the very nature of long-term care needs--which can involve physical or cognitive 

disabling conditions--and the lack of a consensus as to what services are needed to 

compensate for these disabilities and what balance should exist between publicly 

available and family-provided services. The differences in care plans were also due to 

decisions that states have made in designing their Medicaid long-term care programs 

and the resources devoted to them. The case managers GAO contacted generally 

offered care plans that relied on in-home services rather than other residential care 

settings. However, the extent of in-home services offered varied considerably. 

Long-Term Care: Implications of Supreme Court's Olmstead Decision Are Still 

Unfolding (GAO-01-1167T, 24-SEP-01) 

In the Olmstead case, the Supreme Court decided that states were violating title II of 

the Americans with Disabilities Act of 1990 (ADA) if they provided care to disabled 

people in institutional settings when they could be appropriately served in a home or 

community-based setting. Considerable attention has focused on the decision's 

implications for Medicaid, the dominant public program supporting long-term care 

institutional, home, and community-based services. Although Medicaid spending for 

home and community-based service is growing, these are largely optional benefits 

that states may or may not choose to offer, and states vary widely in the degree to 

which they cover them. The implications of the Olmstead decision--in terms of the 

scope and the nature of states' obligation to provide home and community-based 

long-term care services--are still unfolding. Although the Supreme Court ruled that 

providing care in institutional settings may violate the ADA, it also recognized that 

there are limits to what states can do, given the available resources and the obligation 

to provide a range of services for disabled people. The decision left many open 

questions for states and lower courts to resolve. State programs also may be 

influenced over time as dozens of lawsuits and hundreds of formal complaints 

seeking access to appropriate services are resolved. 

Medicare: Cost Sharing Policies Problematic for Beneficiaries and Program (GAO01-713T, 09-MAY-01) 

Medicare provides valuable and extensive health care coverage for beneficiaries. 

Nevertheless, significant gaps leave some beneficiaries vulnerable to sizeable 

financial burdens from out-of-pocket expenses. Medigap is a widely available source 

of supplemental coverage. This testimony discusses (1) beneficiaries' potential 

financial liability under Medicare's current benefit structure and cost-sharing 

requirements, (2) the cost of Medigap policies and the extent to which they provide 

additional coverage, and (3) concerns that Medigap's so-called "first dollar" coverage 
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undermines the cost control incentives of Medicare’s cost-sharing requirements. GAO 

found that Medicare’s benefits package and cost-sharing requirements leave 

beneficiaries liable for high out-of-pocket costs. Medigap policies pay for some or all 

Medicare cost-sharing requirements but do not fully protect beneficiaries from 

potentially significant out-of-pocket costs such as prescription drug coverage. 

Medigap first-dollar coverage eliminates the ability of Medicare's cost-sharing 

requirements to promote prudent use of services. 

Medicare: Financial Outlook Poses Challenges for Sustaining Program and Adding 

Drug Coverage (GAO-02-643T, 17-APR-02) 

The lack of outpatient prescription drug coverage may leave Medicare’s most 

vulnerable beneficiaries with high out-of-pocket costs. Recent estimates suggest that, 

at any given time, more than a third of Medicare beneficiaries lack prescription drug 

coverage. The rest have some coverage through various sources--most commonly 

employer-sponsored health plans. Recent evidence indicates that this coverage is 

beginning to erode. The short- and long-term cost pressures facing Medicare will 

require substantial financing and programmatic reforms to put future Medicare on a 

sustainable footing. In the absence of a drug benefit, many Medicare beneficiaries 

obtain coverage through health plans, public programs, and the Medigap insurance 

market. The price, availability, and level of such coverage varies widely, leaving 

substantial gaps and exposure to high out-of-pocket costs for thousands. Despite 

pressures to adopt a prescription drug benefit, the rapidly rising cost of current 

obligations argues for careful deliberation and extreme caution in expanding benefits. 

GAO’s long-term simulations show that the aging of the baby boomers and rising per 

capita health care spending will, absent meaningful reform, lead to massive fiscal 

challenges in future years. 

Medicare: New Spending Estimates Underscore Need for Reform (GAO-01-1010T, 25-

JUL-01) 

Although the short-term outlook of Medicare's hospital insurance trust fund 

improved in the last year, Medicare's long-term prospects have worsened. The 

Medicare Trustee's latest projections, released in March, use more realistic 

assumptions about health care spending in the years ahead. These latest projections 

call into question the program's long-term financial health. The Congressional Budget 

Office also increased its long-term estimates of Medicare spending. The slowdown in 

Medicare spending growth in recent years appears to have ended. In the first eight 

months of fiscal year 2001, Medicare spending was 7.5 percent higher than a year 

earlier. This testimony discusses several fundamental challenges to Medicare reform. 

Without meaningful entitlement reform, GAO's long-term budget simulations show 

that an aging population and rising health care spending will eventually drive the 

country back into deficit and debt. The addition of a prescription drug benefits would 

boost spending projections even further. Properly structured reform to promote 

competition among health plans could make Medicare beneficiaries more cost 

conscious. The continued importance of traditional Medicare underscores the need to 

base adjustments to provider payments on hard evidence rather than on anecdotal 
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information. Similarly, reforms in the management of the Medicare program should 

ensure that adequate resources accompany increased expectations about 

performance and accountability. Ultimately, broader health care reforms will be 

needed to balance health care spending with other societal priorities. 

Medicare: Use of Preventive Services is Growing but Varies Widely (GAO-02-777T, 

23 -MAY-02) 

Preventive health care services can extend lives and promote the well being of the 

nation’s seniors. Medicare now covers 10 preventive services—three types of 

immunizations and seven types of screenings—and legislation has been introduced to 

cover additional services. However, not all beneficiaries avail themselves of 

Medicare's preventive services. Some may simply choose not to use them, but others 

may be unaware that these services are covered by Medicare. Although the use of 

Medicare preventive service is growing, it varies from service to service and by state, 

ethnic group, income, and level of education. To ensure that preventive services are 

delivered to those who need them, the Centers for Medicare and Medicaid Services 

(CMS) sponsors activities to increase their use. CMS now funds interventions to 

increase the use of three services—breast cancer screening and immunizations 

against the flu and pneumonia--in each state. CMS also pays for interventions to 

increase use of services by minorities and low-income beneficiaries with low usage 

rates. CMS is evaluating the effectiveness of current efforts and expects to have the 

evaluation results later in 2002. 

Medicare Hospital and Physician Payments: Geographic Cost Adjustments 

Important to Preserve Beneficiary Access to Services (GAO-02-968T, 23-JUL-02) 

This testimony discusses Medicare program payment adjustments to hospitals and 

physicians that account for geographic differences in costs. Because Medicare’s 

hospital and physician payment systems are based on national rates, these 

geographic cost adjustments are essential to account for costs beyond providers’ 

control and to ensure that beneficiaries have adequate access to services. If these 

adjustments are not adequate, this could affect providers’ financial stability and their 

ability or willingness to continue serving Medicare patients. Medicare’s payments to 

hospitals vary with the average wages paid in a hospital's labor market. Yet, some 

hospitals believe that the labor cost adjustment applied does not reflect the average 

wage in their labor market area. Medicare’s labor cost adjustment does not 

adequately account for geographic differences in hospital wages in some areas 

because a single adjustment is applied to all hospitals in an area, even though it may 

encompass multiple labor markets or different types of communities within which 

hospitals pay significantly different average wages. Geographic reclassification 

addresses some inequities in Medicare’s labor cost adjustments by allowing some 

hospitals that pay wages enough above the average in their area to receive higher 

labor cost adjustments. However, some hospitals can reclassify even though they pay 

wages that are comparable to the average in their area. To help ensure that 

beneficiaries in all parts of the country have access to services, Medicare adjusts its 

physician fee schedule on the basis of indexes designed to reflect cost differences 
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among 92 geographic areas. The adjustment is designed to help ensure that the fees 

paid appropriately reflect the cost of living and operating a practice in that area. 

Medicare Management: Current and Future Challenges (GAO-01-878T, 19-JUN-01) 

Medicare is a popular program that millions of Americans depend on for covering 

their essential health needs. However, the management of the program has fallen 

short of expectations because it has not always appropriately balanced or satisfied 

the needs of beneficiaries, providers, and taxpayers. For example, stakeholders 

expect that Medicare will price services prudently; that providers will be treated 

fairly and paid accurately; and that beneficiaries will clearly understand their 

program options and will receive services that meet quality standards. In addition, 

there are expectations that the agency will be prepared to implement restructuring or 

added benefits in the context of Medicare reform. Today’s Medicare, although 

successful in some areas, may not be able to meet these expectations effectively 

without further congressional attention to its multiple missions, capacity, and 

flexibility. The program will also need to do its part by implementing a performancebased approach that articulates priorities, documents resource needs, and holds 

managers accountable for accomplishing program goals. 

Medicare Outpatient Drugs: Program Payments Should Better Reflect Market Prices

(GAO-02-531T, 14-MAR-02) 

In some cases, Medicare pays significantly more for covered outpatient drugs than 

the actual costs to the physicians and pharmacy suppliers. Attempts to reduce these 

payments have been met with provider claims that overpayments for the drugs are 

needed to cover underpayments for administering or delivering them. Medicare’s 

method for establishing drug payments is flawed. Medicare pays 95 percent of the 

average wholesale price (AWP), which, despite its name, is neither an average nor a 

price that wholesalers charge. Instead, it is a number that manufacturers derive using 

their own criteria. There are no requirements or conventions that AWP reflect the 

price of actual drug sales. Widely available prices for drugs in 2001 were substantially 

below AWP. For both physician-billed drugs and pharmacy supplier-billed drugs, 

Medicare payments often far exceeded widely available prices. Physicians and 

pharmacy suppliers contend that the excess payments for covered drugs are 

necessary to offset what they claim are inappropriately low Medicare payments or no 

such payments for services related to the administration or delivery of these drugs. 

Although physicians receive an explicit payment for administering drugs, Medicare’s 

payment policies for delivering pharmacy supplier-billed drugs and related equipment 

are uneven. Pharmacy suppliers billing Medicare receive a dispensing fee for one 

drug type--inhalation therapy drugs--but not for other covered drugs, such as infusion 

therapy or covered oral drugs. Other payers and purchasers, such as private health 

plans and the Department of Veterans Affairs (VA), use different approaches to pay 

for or buy drugs that may be instructive for Medicare. In particular, VA uses the 

leverage from the volume of federal drug purchases to secure verifiable data on 

actual market transactions, and it uses the prices paid by manufacturers' best 

customers to set Federal Supply Schedule prices. 
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Medicare Physician Payments: Spending Targets Encourage Fiscal Discipline, 

Modifications Could Stabilize Fees (GAO-02-441T, 14-FEB-02) 

Congress implemented a physician fee schedule and a fee update formula to 

moderate spending growth relative to specified Medicare spending targets. These 

spending targets increase annually to reflect higher costs for physician services, the 

growth in the overall economy, and changes in the number of Medicare beneficiaries. 

Physician fees are adjusted for changes in the costs of providing services and on 

actual cumulative spending compared to the cumulative targets. The annual update 

may increase or decrease fees depending on whether actual spending fell below or 

exceeded the targets. In November 2001, the Centers for Medicare and Medicaid 

announced that Medicare's fees would decline 5.4 percent from what was paid in 

2001, despite an estimated 2.6 percent increase in the cost of physician inputs. This 

reduction occurred because historical cumulative spending exceeded the target by 

$8.9 billion, or 13 percent of estimated 2002 spending. Several factors contributed to 

the disparity between actual and targeted spending, including the correction of 

substantial errors in past spending estimates and the revision of targets for prior 

years. The current update mechanism could be modified to moderate fluctuations in 

physician fees and to ensure adequate payments, while retaining the fiscal discipline 

created by a spending target. Such modifications would need to balance concerns 

about preserving fiscal discipline on physician spending with the need to maintain 

adequate payment rates to ensure that beneficiaries have access to physician 

services. Because the paramount consideration in setting payment rates is ensuring 

appropriate beneficiary access to services, timely and detailed data on Medicare 

beneficiary service use are essential to achieving this balance. 

Medicare Reform: Modernization Requires Comprehensive Program View (GAO-01-

862T, 14-JUN-01) 

Medicare faces many challenges. The overarching issue is how to sustain the program 

for future generations. Meeting that challenge will require difficult decisions that will 

affect beneficiaries, providers, and taxpayers. However, the financing issue should 

not obscure other important challenges. Medicare’s current cost-sharing 

arrangements do not encourage the efficient use of services without discouraging 

necessary care. Moreover, the lack of catastrophic coverage can leave some 

beneficiaries liable for substantial Medicare expenses. Finally, some aspects of 

Medicare’s program management are inefficient and lag behind modern private sector 

practices. Changes in Medicare's program management could improve both the 

delivery of health care to beneficiaries and the program’s ability to pay providers 

appropriately. Some view restructuring of the relationship between parts A and B as 

an important element of overall Medicare reform. Fundamentally, assessing the 

program as a whole is an important first step in addressing Medicare’s challenges. 

Solutions to many of these challenges could be crafted without restructuring. 

However, restructuring may provide opportunities to implement desired reforms--

with or without unifying the Hospital Insurance and Supplemental Medical Insurance 

trust funds--while undoubtedly raising issues that will have to be considered. 
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Medigap: Current Polices Contain Coverage Gaps, Undermine Cost Control 

Incentives (GAO-02-533T, 14-MAR-02) 

Medicare provides valuable and extensive health care coverage for 40 million elderly 

and disabled beneficiaries. Nevertheless, significant gaps leave some beneficiaries 

vulnerable to sizeable out-of-pocket expenses. Medicare provides no limit on out-ofpocket spending and no coverage for most outpatient prescription drugs. Most 

beneficiaries have supplemental coverage that helps to fill Medicare coverage gaps 

and pay some out-of-pocket expenses. Privately purchased Medigap policies are a 

widely available source of supplemental coverage. The other sources—employersponsored policies, Medicare + Choice plans, and Medicaid—are not available to all 

beneficiaries. Medigap policies help to fill in some of Medicare’s gaps but also have 

shortcomings. In 1999, premiums paid for Medigap policies averaged $1,300, with 

more than 20 percent going to administrative costs. Medigap plans typically cover 

Medicare’s required deductibles, coinsurance, and copayments but do not fully 

protect beneficiaries from potentially significant out-of-pocket costs. Medigap 

policies offering prescription drug coverage can be inadequate because beneficiaries 

still pay most of the cost and the Medigap benefit is capped. 

Nursing Homes: Many Shortcomings Exist in Efforts to Protect Residents from 

Abuse (GAO-02-448T, 04-MAR-02) 

Often suffering from multiple physical and mental impairments, the 1.5 million elderly 

and disabled Americans living in nursing homes are a highly vulnerable population. 

These individuals typically require extensive help with daily living, such as such as 

dressing, feeding, and bathing. Many require skilled nursing or rehabilitative care. In 

recent years, reports of inadequate care, including malnutrition, dehydration, and 

other forms of neglect, have led to mounting scrutiny from state and federal 

authorities. Concerns have also been growing that some residents are abused--

pushed, slapped, or beaten--by the very individuals to whom their care has been 

entrusted. GAO found that allegations of physical and sexual abuse of nursing home 

residents are not reported promptly. Local law enforcement officials said that they 

are seldom summoned to nursing homes to immediately investigate allegations of 

abuse and that few allegations are ever prosecuted. Some agencies use different 

policies when deciding whether to refer allegations of abuse to law enforcement. As a 

result, law enforcement agencies were never told of some incidents or were notified 

only after lengthy delays. GAO found that federal and state safeguards intended to 

protect nursing home residents from abuse are inadequate. No federal statute 

requires criminal background checks for nursing home employees. Background 

checks are also not required by the Centers for Medicare and Medicaid Services, 

which sets the standards that nursing homes must meet to participate in the Medicare 

and Medicaid programs. State agencies rarely recommend that sanctions be imposed 

on nursing homes. Although state agencies compile lists of aids who have previously 

abused residents, which can prevent an aide from being hired at another nursing 

home, GAO found that delays in making these identifications can limit the usefulness 

of these registries. This testimony summarizes a March report (GAO-02-312). 
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Nursing Workforce: Multiple Factors Create Nurse Recruitment and Retention 

Problems (GAO-01-912T, 27-JUN-01) 

While comprehensive data are lacking on the nature and extent of current difficulties 

recruiting and retaining nurses, current evidence suggests an emerging shortage. 

Several factors, including nurses’ decreased levels of job satisfaction, are combining 

to constrain the current supply of nurses. Furthermore, like the general population, 

the nurse workforce is aging, and the average age of a registered nurse (RN) 

increased from 37 years in 1983 to 42 in 1998. Additionally, enrollments in registered 

nursing programs have declined over the past 5 years, shrinking the pool of new 

workers to replace those who are leaving or retiring. The problem is expected to 

become more serious in the future as the aging of the population substantially 

increases the demand for nurses. 

Retiree Health Insurance: Gaps in Coverage and Availability (GAO-02-178T, 01-

NOV-01) 

In 1999, about 10 million Americans aged 55 and older relied on employer-sponsored 

health benefits until they became eligible for Medicare or to pay for out-of-pocket 

expenses not covered by Medicare. However, the number of employers offering these 

benefits has declined considerably during the past decade. Despite the recent strong 

economy and the relatively low increases in health insurance premiums during the 

late 1990's, the availability of employer-sponsored health benefits for retirees has 

declined. Two widely cited surveys found that only about one-third of large 

employers and less than 10 percent of small employers offer such benefits. 

Alternative sources of health care coverage for retirees may be costly, limited, or 

unavailable. Retirees not yet 65 may be eligible for coverage from a spouse's 

employer or continuation coverage, known as “COBRA,” from their former employer. 

Other retirees not yet 65 may seek coverage in the individual insurance market, but 

these policies can be expensive or may offer more limited coverage, especially for 

those with existing health problems. Nearly one-third of retirees eligible for Medicare 

have employer-sponsored supplemental coverage, but many others buy private 

supplemental coverage known as “Medigap." It costs an average of $1,300 per year 

and more for Medigap policies that include prescription drug coverage. Neither 

Medicare nor private insurance covers a significant share of long-term care expenses. 
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INCOME SECURITY ISSUES 

Private Pensions: Key Issues to Consider Following the Enron Collapse (GAO-02-

480T, 27-FEB-02) 

The collapse of the Enron Corporation and the resulting loss of employee retirement 

savings highlighted several key vulnerabilities in the nation's private pension system. 

Asset diversification was a crucial lesson, especially for defined contribution plans, in 

which employees bear the investment risk. The Enron case underscores the 

importance of encouraging employees to diversify. Workers need clear and 

understandable information about their pension plans to make sound decisions on 

retirement savings. Although disclosure rules require plan sponsors to provide 

participants with a summary of their plan benefits and rights and to notify them when 

benefits are changed, this information is not always clear, particularly in the case of 

complex plans like floor-offset arrangements. Employees, like other investors, also 

need reliable and understandable information on a company's financial condition and 

prospects. Fiduciary standards form the cornerstone of private pension protections. 

These standards require plan sponsors to act solely in the interest of plan participants 

and beneficiaries. The Enron investigations should determine whether plan 

fiduciaries acted in accordance with their responsibilities. 

Social Security: Issues in Evaluating Reform Proposals (GAO-02-288T, 10-DEC-01) 

This testimony discusses the long-term viability of the Social Security program. Social 

Security's Trust Funds will not be exhausted until 2038, but the trustees now project 

that the program's cash demands on the rest of the federal government will begin 

much sooner. Aiming for sustainable solvency would increase the chance that future 

policymakers would not have to face these difficult questions on a recurring basis. 

GAO has developed the following criteria for evaluating Social Security reform 

proposals: financing sustainable solvency, balancing adequacy and equity, and 

implementing and administering reforms. These criteria seek to balance financial and 

economic considerations with benefit adequacy and equity issues and the 

administrative challenges associated with various proposals. GAO's recent report on 

Social Security and income adequacy (GAO-02-62) makes three key points. First, no 

single measure of adequacy provides a complete picture; each measure reflects a 

different outlook on what adequacy means. Second, given the projected long-term 

financial shortfall of the program, it is important to compare proposals to both 

benefits at currently promised levels and benefits funded at current tax levels. Third, 

various approaches to benefit reductions would have differing effects on adequacy. 

Social Security: Long-Term Financing Shortfall Drives Need for Reform (GAO-02-

845T, 19-JUN-02) 

Social Security not only represents the foundation of our retirement income system; 

it also provides millions of Americans with disability insurance and survivor's 

benefits. Although the Social Security Trustees now project that under the 

intermediate or "best estimate" assumptions the combined Social Security Trust 
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Funds will be exhausted 3 years later than in last year's estimates, the magnitude of 

the long-term funding shortfall is virtually unchanged. Without reform, Social 

Security, Medicare, and Medicaid are unsustainable, and the long-term impact of 

these entitlement programs on the federal budget and the economy will be dramatic. 

Social Security reform is part of a larger and significant fiscal and economic 

challenge. Absent reform, the nation will ultimately have to choose between 

persistent, escalating federal deficits, significant tax increases, or dramatic budget 

cuts. Focusing on trust fund solvency alone is not sufficient. Aiming for sustainable 

solvency would increase the chance that future policymakers would not have to face, 

on a recurring basis, the difficult questions of whether the government will have the 

capacity to pay future claims or what else will have to be squeezed to pay those 

claims. Comparing the beneficiary impact of reform proposals solely to current Social 

Security promised benefits is inappropriate since all current promised benefits are 

not funded over the longer term. Reform proposals should be evaluated as packages. 

If the focus is on the pros and cons of each element of reform, it may prove 

impossible to build the bridges necessary to achieve consensus. Acting sooner rather 

than later helps to ease the difficulty of change. Waiting until Social Security faces an 

immediate solvency crisis will limit the scope of feasible solutions and could reduce 

the options field to only those choices that are the most difficult and could also delay 

the really tough decisions on Medicare and Medicaid. 

Social Security Administration: Systems Support Could Improve Processing 

Attorney Fee Payments in the Disability Program (GAO-01-710T, 17-MAY-01) 

To ensure that people claiming disability insurance program benefits can obtain legal 

representation at a fair price, the Social Security Administration (SSA) is required to 

regulate the fees that attorneys charge people to represent their disability claims 

before the agency. Balancing the needs of the claimants with those of their attorneys, 

the law limits the amount of fees that attorneys can charge claimants, but also 

guarantees that those fees will be paid from the claimants' past-due benefits. 

Inefficiencies in the current process increase both the time it takes to pay the 

attorney fees and the cost of administration. One segment of attorney fee processing--

the fee approval process--was substantially simplified in 1991. Systems support could 

streamline the second segment of the processing--the fee payment--thus lowering the 

annual administrative costs and cutting processing time. Automation of this final 

segment of the fee process could help improve customer service for both claimants 

and their attorneys. 
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VETERANS/DOD ISSUES 

VA and Defense Health Care: Potential Exists for Savings through Joint 

Purchasing of Medical and Surgical Supplies (GAO-02-872T, 26-JUN-02) 

The Department of Veterans Affairs (VA) spent $500 million and the Department of 

Defense (DOD) spent $240 million for medical and surgical supplies in fiscal year 

2001. To achieve greater efficiencies through improved acquisition processes and 

increased sharing of medical resources, VA and DOD signed a memorandum of 

agreement in 1999 to combine their buying power. VA and DOD saved $170 in 2001 by 

jointly procuring pharmaceuticals, agreeing on particular drugs to be purchased, and 

contracting with the manufacturers for discounts based on their combined larger 

volume. However, VA and DOD have not awarded joint national contracts for medical 

and surgical supplies as envisioned by their memorandum of agreement, and it is 

unlikely that the two departments will have joint national contracts for supplies 

anytime soon. The lack of progress in jointly contracting for medical and surgical 

supplies has, in part, been the result of different approaches VA and DOD have taken 

to standardizing medical and surgical supplies. Other impediments to joint 

purchasing have been incomplete procurement data and the inability to identify 

similar high-volume, high-dollar purchases. Nevertheless, a few VA and DOD 

facilities have yielded modest savings through local joint contracting agreements. 

VA and DOD Health Care: Factors Contributing to Reduced Pharmacy Costs and 

Continuing Challenges (GAO-02-969T, 22-JUL-02) 

The Department of Veterans Affairs (VA) and the Department of Defense (DOD) 

pharmacy expenditures have risen significantly, reflecting national trends. The 

increase in pharmacy costs would have been even greater if not for the efforts taken 

by VA and DOD. GAO identified four important factors that have contributed to 

reduced pharmacy spending by VA and DOD. First, the two departments have used 

formularies to encourage the substitution of lower-cost drugs that are determined to 

be just as effective as higher-cost drugs. Second, VA and DOD have been able to 

effectively employ different arrangements to pay for or purchase prescription drugs 

at substantial discounts. Third, VA has significantly reduced the cost of dispensing 

prescription refills by using highly automated and less expensive consolidated mail 

outpatient pharmacy (CMOP) centers to handle a majority of the pharmacy workload. 

Fourth, VA and DOD have reduced costs by leveraging their combined purchasing 

power through joint procurement of generic prescription drugs. Nevertheless, one of 

the most important challenges is the joint procurement of brand name drugs. 

Although brand name drugs account for the bulk of prescription drug expenditures, 

most of VA/DOD joint contracts have been for generic drugs. Generic drugs are easier 

to contract for because these products are already known to be chemically and 

therapeutically alike. Contracting for brand name drugs is more difficult because of 

the scientific reviews needed to gain clinical agreement on therapeutic equivalence of 

competing drugs. Joint purchasing of brand name drugs is also more difficult due to 

the significant differences between the VA and DOD health care systems in patient 
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populations, national formularies, and prescribing patterns of providers, some of 

whom are private physicians. 

VA Health Care: Changes Needed to Improve Resource Allocation (GAO-02-685T, 30-

APR-02) 

The Veterans Equitable Resource Allocation (VERA) system allocated $17.8 billion of 

its $20.3 billion health care budget to 22 regional health care networks in fiscal year 

2001. Before VERA resources were allocated to facilities on the basis of their 

historical expenditures. By aligning resources with workloads VERA shifted 

about$921 million among VA's networks in fiscal year 2001. VERA's design is 

reasonable for equitably allocating resources, but improvements could better allocate 

comparable resources for comparable workloads. VERA's allocations are based 

primarily on network workload, with adjustments made for factors beyond the 

control of network management. These include the health care needs of veterans and 

some local cost differences. VERA's design also protects patients from the effects of 

network budget shortfalls. However, GAO found that $200 million annually that could 

be reallocated to better align network resources with workloads. First, VERA's 

measurement of network workload is not accurate enough to determine each 

network's allocation because VERA excludes most veterans with higher incomes who 

do not have service-connected disabilities--about one-fifth of VA's workload. Second, 

VERA does not accurately adjust for cost differences among networks for differences 

in patients' health care needs or case mix across networks. GAO also found that the 

Veterans Administration has not analyzed whether the networks' need for 

supplemental resources--provided through the National Reserve Fund--is the result of 

potential problems in VERA, network inefficiency, or other factors. Without such 

information, VA can neither ensure the appropriateness of supplemental funding nor 

take corrective action. 

VA Health Care: Changes Needed to Improve Resource Allocation to Health Care 

Networks (GAO-02-744T, 14-MAY-02) 

The Department of Veterans Affairs (VA) spent $21 billion in fiscal year 2001 to treat 

3.8 million veterans--most of whom had service-connected disabilities or low 

incomes. Since 1997, VA has used the Veterans Equitable Resource Allocation 

(VERA) system to allocate most of its medical care appropriation. GAO found that 

VERA has had a substantial impact on network resource allocations and workloads. 

VERA shifted $921 million from networks primarily in the northeast and midwest to 

networks in the south and west in fiscal year 2001. VERA, along with other VA 

initiatives, has provided an incentive for networks to serve more veterans. In GAO's 

view, VERA's overall design is a reasonable approach to allocating resources 

according to workloads. It provides a predetermined dollar amount per veteran 

served to each of VA's 22 health care networks. This amount varies depending upon 

the health care needs of the veteran served and local cost differences. However, GAO 

identified weaknesses in VERA's implementation. First, VERA excludes about one 

fifth of VA's workload in determining each network's allocation. Second, VERA does 

not account well for cost differences among networks resulting from variation in 
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their patients' health care needs. Third, the process for providing supplemental 

resources to networks through VA's National Reserve Fund has not been used to 

analyze how the need for such resources is caused by potential problems in VERA's 

allocation, network inefficiency, or other factors. This testimony is based on an April 

report (GAO-02-338). 

VA Health Care: Community-Based Clinics Improve Primary Care Access (GAO-01-

678T, 02-MAY-01) 

This testimony discusses the Veterans Health Administration's (VHA) efforts to 

improve veterans' access to health care through its Community-Based Outpatient 

Clinics Initiative. Overall, through its clinics, VHA is steadily making primary care 

more available within reasonable proximity of patients who have used VHA's system 

in the past. However, the uneven distribution of patients living more than 30 miles 

from a VHA primary care facility suggests that access inequities across networks may 

exist. Also, the improvements likely to result from VHA's planned clinics indicate that 

achieving equity of access may be difficult. In addition, GAO's assessment suggests 

that new clinics may have contributed to, but are not primarily responsible for, the 

marked rise in the number of higher-income patients who have sought health care 

through VHA in recent years. Although the clinics have undoubtedly attracted some 

new patients to VHA, GAO's analysis suggests that new patients would have sought 

care at other VHA facilities in the absence of the new clinics. Enhanced benefits and 

access improvements afforded by eligibility reform may have attracted more new 

patients, including those with higher incomes. 

VA Health Care: Continuing Oversight Needed to Achieve Formulary Goals (GAO01-998T, 24-JUL-01) 

Although the Department of Veterans Affairs (VA) has made significant progress 

establishing a national formulary that has generally met with acceptance by 

prescribers and patients, VA oversight has not fully ensured standardization of its 

drug benefit nationwide. The three medical centers GAO visited did not comply with 

the national formulary. Specifically, two of the three medical centers omitted more 

than 140 required national formulary drugs, and all three facilities inappropriately 

modified the national formulary list of required drugs for certain drug classes by 

adding or omitting some drugs. In addition, as VA policy allows, Veterans Integrated 

Service Networks (VISN) added drugs to supplement the national formulary ranging 

from five drugs at one VISN to 63 drugs at another. However, VA lacked criteria for 

determining the appropriateness of the actions networks took to add these drugs. In 

addition to problems standardizing the national formulary, GAO identified 

weaknesses in the nonformulary approval process. Although the national formulary 

directive requires certain criteria for approving nonformulary drugs, it does not 

prescribe a specific nonformulary approval process. As a result, the processes health 

care providers must follow to obtain nonformulary drugs differ among VA facilities 

on how requests are made, who receives them, who approves them, and how long it 

takes to obtain approval. GAO found that the length of time to approve nonformulary 

drugs averages nine days, but it can be as short as a few minutes in some medical 
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centers. Some VISNs have not established processes to collect and analyze data on 

nonformulary requests. As a result, VA does not know if approved requests meet its 

established criteria or if denied requests are appropriate. This testimony summarizes 

the December 1999 report, HEHS-00-34 and the January 2001 report, GAO-01-183. 

VA Long-Term Care: The Availability of Noninstitutional Services Is Uneven (GAO02-652T, 25-APR-02) 

Noninstitutional long-term care services are delivered by the Department of Veterans 

Affairs (VA) to veterans in their own homes and other community locations. The 

Veterans Millennium Health Care and Benefits Act requires VA to offer long-term care 

services to eligible veterans, including services provided in noninstitutional settings. 

More than two years after the act's passage, VA has yet to offer eligible veterans adult 

day health care, geriatric evaluation, or respite care. Although VA published proposed 

regulations that would make these services available in noninstitutional settings to 

eligible veterans, the regulations had not been finalized as of April 17, 2002. To be 

responsive before its draft regulations were made final, VA issued a policy directive 

requiring that these three services be available in noninstitutional settings. GAO 

found, however, that both the services required by the act and VA's other 

noninstitutional services were unevenly available across the VA system. 

Veterans' Health Care: Observations on VA's Assessment of Hepatitis C Budgeting 

and Funding (GAO-01-661T, 25-APR-01) 

The Department of Veterans Affairs (VA) requested and received $195 million for 

Hepatitis C screening and treatment in fiscal year 2000. VA's budget documentation 

showed that it had spent $100 million on Hepatitis C screening and treatment, leaving 

a difference of $95 million between its estimated and actual expenditures. However, 

GAO's review revealed that the difference was actually much larger--$145 million. 

VA's documentation showed that only $50 million was used for budgeted activities 

and $50 million was used for an activity not included in its original budget--treatment 

of conditions related to Hepatitis C. It appears that VA is unable to develop a budget 

estimate that can reliably forecast its Hepatitis C funding needs at this time. However, 

VA's Veterans Health Administration (VHA) appears to be taking reasonable steps to 

improve future budget estimates and thereby minimize the potential for large 

differences. Such steps include developing a Hepatitis C patient registry that could 

provide the critical data needed to improve budgetary estimates. However, this 

registry could take as long as 15 months to become operational, which suggests that 

it may not provide budgetary data in time to formulate the 2004 budget. In the 

meantime, VHA's ongoing efforts to upgrade its data collection systems should help 

improve budget estimates for fiscal year 2002. These efforts, however, have provided 

only minimal help in the development of VA's 2002 budget for Hepatitis C spending. 

As a result, it is not possible to conclude with certainty whether VA's fiscal year 2002 

spending estimate of $171 million is appropriate. 
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Page 57 GAO-04-275R Calendar Years 2001/2002 Summation on Aging 

Veterans' Health Care: Standards and Accountability Could Improve Hepatitis C 

Screening and Testing Performance (GAO-01-807T, 14-JUN-01) 

Three years ago, the Department of Veterans Affairs (VA) characterized hepatitis C as 

a serious national health problem that needs early detection to reduce transmission 

risks, ensure timely treatment, and prevent progression of liver disease. In a 1988 

letter, VA outlined the process clinicians should use when (1) screening veterans for 

known risk factors for exposure to hepatitis C and (2) ordering tests to detect 

antibodies and diagnose hepatitis C infection as part of a plan to evaluate and assess 

risk factors for VA patients. This testimony discusses VA's progress in screening and 

testing veterans for hepatitis C during fiscal years 1999 and 2000. GAO found that VA 

missed opportunities to screen as many as three million veterans when they visited 

medical facilities during fiscal years 1999 and 2000, potentially leaving as many as 

200,000 veterans unaware that they have hepatitis C infections. Of those screened, an 

unknown number likely remain undiagnosed because of flawed procedures. Although 

the pace of screening and testing appears to be improving, many currently 

undiagnosed veterans may not be identified expeditiously unless VA (1) establishes 

early detection of hepatitis C as a standard for care and (2) holds facility managers 

accountable for timely screening and testing of veterans who visit VA medical 

facilities. 
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OTHER ISSUES

Budget Issues: Long-Term Fiscal Challenges. (GAO-02-467T, 27-FEB-02) 

Combating terrorism and ensuring homeland security have created urgent claims on 

the nation's attention and on the federal budget. At the same time, the fiscal 

pressures created by the retirement of the baby boomers and rising health care costs 

continue unchanged. Because the longer-term outlook is driven in large part by 

known demographic trends, the outlook 20 years from now is surer than the forecast 

for the next few years. The message of GAO’s updated simulations remains the same: 

absent structural changes in entitlement programs for the elderly, persistent deficits 

and escalating debt will overwhelm the budget in the long term. Both longer-term and 

new commitments undertaken after September 11 sharpen the need for careful 

scrutiny of competing claims and new priorities. A fundamental review of existing 

programs and activities is necessary both to increase fiscal flexibility and to make 

government fit the modern world. Stated differently, there is a need to consider the 

proper role of the federal government in the 21st century and how government should 

do business. The fiscal benchmarks and rules that moved the country from deficit to 

surplus expire this fiscal year. Any successor system should include a debate about 

reprioritization today and a better understanding of the long-term implications of 

different policy choices. Many things that the nation may be able to afford today may 

not be sustainable in the future.

Homelessness: Improving Program Coordination and Client Access to Programs. 

(GAO-02-485T, 06-MAR-02) 

Many people are homeless for only a short time and get back on their feet with 

minimal assistance, but others are chronically homeless and need intensive and 

ongoing assistance. Fifty federal programs exist to help the homeless with housing. 

Sixteen of these are targeted exclusively to the homeless, and the others are 

mainstream programs. Targeted programs were funded at $1.7 billion in fiscal year 

2001. GAO found that the Department of Housing and Urban Development (HUD) has 

been unable to ensure that adequate coordination occurs among the programs 

without creating undue administrative burdens for the states and communities. Steps 

have been taken to improve the coordination of homeless assistance programs within 

communities and to reduce some of the administrative burdens caused by separate 

programs. Although low-income populations face barriers to obtaining services 

provided by mainstream programs, these barriers are compounded by homelessness. 

In addition, the underlying structure and operations of federal mainstream programs 

do not ensure that the special needs of homeless people are met. Consolidating 

HUD's McKinney-Vento programs could help reduce the administrative burden. 

However, to end chronic homelessness in 10 years, federal agencies must strive to 

eliminate the barriers that homeless people encounter as they seek services from 

mainstream programs. 

(130333)