January 2001 Major Managem

Challenges and 

Program Risks

Department of Health a

Human Services

GAO-01-247

Page 1 GAO-01-247 

Letter 

Overview 

Major 

Performance 

and 

Accountability 

Challenges

Related GAO 

Products

Performance 

and 

Accountability 

Series
Page 2 GAO-01-247 HH
of th

Page 3 GAO-01-247 

United States General Accounting Office

Washington, D.C. 20548

January 2001

The President of the Senate

The Speaker of the House of Representati

This report addresses the major performa

accountability challenges facing the Depa

Health and Human Services (HHS) as it se

“enhance the well-being of Americans by 

effective health and human services and b

strong, sustained advances in the science

medicine, public health, and social service

a summary of actions that HHS has taken 

under way to address these challenges. It 

further actions that GAO believes are nee

analysis should help the new Congress an

administration carry out their responsibil

improve government for the benefit of the 

people.

This report is part of a special series, first 

January 1999, entitled Performance and A

Series: Major Management Challenges and 

Risks. In that series, GAO advised the Con

planned to reassess the methodologies an

to determine which federal government o

functions should be highlighted and which 

designated as “high risk.” GAO completed 

assessment, considered comments provid

publicly available exposure draft, and pub

guidance document, Determining Perform

Accountability Challenges and High Risks 

159SP), in November 2000.

This 2001 Performance and Accountabilit

contains separate reports on 21 agencies—

each cabinet department, most major inde
Page 4 GAO-01-247 HH

agencies, and the U.S. Postal Service. The se

includes a governmentwide perspective on p

and management challenges across the fede

government. As a companion volume to this 

is issuing an update on those government op

and programs that its work identified as “hig

because of either their greater vulnerabilitie

fraud, abuse, and mismanagement or major c

associated with their economy, efficiency, or 

effectiveness.

David M. Walker

Comptroller General 

of the United States
Page 5 GAO-01-247 
Page 6 GAO-01-247 

The Department of Health and Human Ser

with a $376-billion budget, presents one o

massive and complex management and pr

challenges in the federal government. The 

and social programs it oversees tangibly a

and well-being of virtually all Americans a

some of the most costly issues facing the 

According to the mission stated in its fisc

performance plan, the Department “seeks 

the well-being of Americans by providing 

health and human services and by fosterin

sustained advances in the sciences underl

public health, and social services.” With s

mission, HHS’ performance involves many 

This report focuses on the performance o

programs and services in certain key miss

received heightened congressional attenti

past 2 years.

• Provide current and future generations wit

well-designed and well-administered Med

program

• Better safeguard the integrity of the Medic

program

• Improve oversight of nursing homes so th

residents receive quality care 

• Ensure the safety and efficacy of medical 

products

• Enhance the economic independence and 

well-being of children and families
Page 7 GAO-01-247 

Medicare 

Governance

One key HHS mission—the effective adm

the $200-billion-plus Medicare program—h

forefront of congressional scrutiny. In HH

Care Financing Administration (HCFA) ad

Medicare, which provides health care to ab

individuals 65 years and older and some d

individuals. At issue is how to make the pr

efficiently now and ultimately become fis

sustainable when the tidal wave of baby-b

Americans becomes eligible for Medicare

agree that the program as currently design

administered will be unable to effectively 

health care needs of future generations of 

While Medicare’s fiscal sustainability and 

inherent difficulties in managing the prog

totally within HCFA’s control, we testified 

that HCFA faces structural problems that 

addressed. One problem is that, even thou

a complicated program for the agency to a

through its more than 50 contractors, HCF

devote all its attention to Medicare becau

responsible for administering Medicaid an

centered programs. In addition, frequent c

HCFA leadership make it difficult for the 

develop and implement a consistent long-

Finally, constraints on HCFA’s ability to ac

capital expertise and shortcomings due to 

information systems limit the agency’s cap

modernize Medicare’s existing operations 

the program’s growing responsibilities. El

recent Medicare reform proposals, togeth

alternatives from existing federal agencies

of addressing focus, leadership, and capac

Medicare Program 

Integrity

As policymakers face the challenges of M

term sustainability, HCFA’s day-to-day res

ensuring program integrity also remains a 

1990, Medicare was designated one of GA
Page 8 GAO-01-247 HH

areas and remains so today because of its vu

to waste, fraud, abuse, and mismanagement. 

years, some of the companies that contract w

government to pay physicians, hospitals, and 

providers that bill Medicare had defrauded t

or had not rigorously safeguarded the progra

payments. Breakdowns in payment safeguar

partly to HCFA’s weak efforts to monitor and 

contractors’ performance and partly to the la

information on how providers responded to 

various payment policies. For fiscal year 199

Inspector General estimated that about $14 b

nearly $170 billion in Medicare’s fee-for-servi

payments were improper. We made several 

recommendations to strengthen HCFA’s over

Medicare’s claims administration contractor

agency has taken steps in this direction.1

 Alth

attention has been focused on ensuring the a

Medicare’s fee-for-service payments, other 

vulnerabilities exist, suggesting that this esti

understates the program’s exposure. New pr

payment methods, along with Medicare’s me

paying managed care plans, are designed to 

providers’ incentives to deliver unnecessary 

may result in providers achieving gains by 

inappropriately reducing patient care. HCFA 

been able to generate data that are timely, ac

useful on payment and service use trends es

effective program monitoring. This will likel

problem for some time to come, as HCFA’s e

modernize its information systems are still la

early stages.2

1

Medicare Contractors: Despite Its Efforts, HCFA Canno

Effectiveness or Integrity (GAO/HEHS-99-115, July 14, 1

Medicare Contractors: Further Improvement Needed in 

and Regional Office Oversight (GAO/HEHS-00-46, Mar. 

2

Medicare: HCFA Faces Challenges to Control Improper 

(GAO/T-HEHS-00-74, Mar. 9, 2000).
Page 9 GAO-01-247 

Nursing Home 

Oversight

Another key HHS mission is to oversee th

provided by the nation’s 17,000 nursing ho

July 1998 report on the quality of nursing 

California and subsequent reports on fede

oversight efforts nationwide, we noted tha

minority of nursing homes have had serio

problems that harmed residents or put the

jeopardy. In these reports, we made a num

recommendations to improve the identific

problems, secure their correction, and im

oversight of state efforts. HCFA generally 

with our recommendations, and in respon

Administration introduced a series of initi

on federal and state efforts to improve nu

care quality. Certain of the initiatives seek 

the rigor with which states conduct their 

annual surveys of nursing homes. Others 

timeliness and reporting of complaint inve

the use of management information to gui

state oversight efforts. The states are in a 

transition with regard to the implementat

initiatives, partly because HCFA is phasin

partly because states did not begin their e

common starting point. HCFA’s efforts tow

the oversight of states’ quality assurance a

begun but are unfinished or need refinem

Drug and Medical 

Device Safety

HHS is also responsible for ensuring the s

drugs, and other medical products. In HH

and Drug Administration (FDA) regulates 

devices, biological products, certain food

cosmetics to ensure their safety and effica

this effort, FDA inspects facilities that ma

medical products to ensure their complian

federal standards for safety, purity, and qu

years, however, the number of inspections 

FDA has been far fewer than the number 

statute. To target its resources, FDA adop
Page 10 GAO-01-247 HH

approach to inspect facilities based on their 

record of compliance with federal manufactu

standards. Because of our concern that this s

not ensure sufficient follow-up at problem fa

overseas, in 1998 we recommended that FDA 

strategy for inspecting foreign manufacturer

pharmaceutical products. However, the agen

agree to adopt the recommendation, citing it

preference to wait until its inspection strateg

fully implemented. With regard to monitorin

products already on the market, FDA’s system 

unable to reliably identify patient deaths or i

caused by the use of drugs and medical devi

respond to these shortcomings, FDA has beg

implement targeted approaches intended to 

its resources. 

Child and Family 

Well-Being

HHS also plays a major role in overseeing th

implementation of the landmark 1996 welfar

legislation. Key features of welfare reform p

limits on cash aid, emphasized the importan

employment for needy adults with children, 

states increased flexibility to design their ow

In response to this increased flexibility and o

legislative changes, states are making sweep

to the nation’s safety net programs, including 

child support enforcement, child welfare ser

child care subsidies. These changes heighten 

importance of having adequate information s

place to manage programs and provide data 

determine the effectiveness and efficiency o

approaches. With the broad range of program

multiple partners (including states and local 

private agencies) involved, HHS faces the ch

holding its partners accountable for the use 

funds to ensure the well-being of children an
Page 11 GAO-01-247 

y g

HHS has an annual budget of $376 billion—

any federal department—and a direct wor

59,000 individuals. It is responsible for so

programs, which differ in purpose, design

delivery. Among the Department’s key mis

administer Medicare, including anti-fraud

activities; oversee nursing homes; monito

and efficacy of medical products; and enh

economic independence of needy families

Provide Current 

and Future 

Generations With a 

Well-Designed and 

Well-Administered 

Medicare Program

Medicare spending growth has become on

pressing and complex issues facing the Co

the nation. In 1999, Medicare program exp

were $213 billion, accounting for about 1 

federal dollars spent that year. Based on th

Medicare Trustees’ 2000 Annual Report, M

expected to double its share of the econo

crowding out other spending and econom

value. Yet the general consensus is that M

benefit package has become obsolete and 

expanded at least to cover prescription dru

add billions to the program’s cost. Thus, t

spending while revamping benefits, the C

considering proposals to fundamentally re

Medicare. Our work has focused on the is

faces in administering Medicare today and 

embodied in proposed reforms or alternat

ensure the program’s solvency and sustain

longer term.

Multiprogram 

Focus, Leadership 

Tenure, and 

Capacity 

Constraints Weaken 

Medicare’s 

Management 

Medicare is an inherently difficult program 

ranks second only to Social Security in fe

expenditures, covers about 40 million ben

has contractors that annually process abo

claims submitted by nearly 1 million hosp

physicians, and other health care provide

factors compound this challenge. 
Page 12 GAO-01-247 HH

First, despite Medicare’s size and complexity

official whose sole responsibility it is to run 

program. Among Medicare’s numerous and w

activities, HCFA must monitor the 50-some c

administration contractors that pay claims a

medical coverage policies; set hundreds of th

payment rates for different providers of Med

covered services, including physicians, hosp

outpatient and nursing facilities, home healt

and medical equipment suppliers; and admin

consumer information and beneficiary prote

activities for the traditional program compon

managed care program component (Medicar

plans), and Medicare supplemental insuranc

(Medigap). In addition to Medicare, the HCF

Administrator and top-level management hav

enforcement, and credentialing responsibiliti

major health-related programs and initiative

programs require time and attention that wo

otherwise be spent meeting the demands of 

Medicare program (see table 1).

Table 1: HCFA Runs Major Programs and Activities Other Than Medicare

Frequent changes in HCFA leadership have a

inhibited the implementation of long-term M

initiatives or the pursuit of a consistent man

strategy. The maximum term of a HCFA admi

Additional responsibilities HCFA’s role

50-plus Medicaid programs Oversight and administration share

50-plus State Children’s Health Insurance Programs Oversight and administration share

Health Insurance Portability and Accountability Act Ensures compliance with federal st

states that have not adopted confor

legislation

Medicare and Medicaid-certified hospitals, nursing 

homes, home health agencies, hospice providers, 

and managed care plans; all clinical laboratories. 

Credentialing and oversight activitie
Page 13 GAO-01-247 

as a practical matter, only as long as that 

President who appointed him or her. Histo

terms have been even shorter. In the 24 ye

HCFA’s inception, there have been 19 adm

acting administrators, whose tenure has b

average, little more than 1 year. About 10 

time, HCFA has had an acting administrato

tenures have not been conducive to carry

whatever strategic plans or innovations an 

may have developed for administering Me

efficiently and effectively.

In addition to leadership constraints, the a

capacity to manage Medicare is limited re

multiple, complex responsibilities. In Janu

February 1999, we reported that HCFA wa

overwhelmed in its efforts to handle the n

complexity of requirements in the Balanc

of 1997 (BBA). For example, BBA expand

plan options in which Medicare beneficiar

enroll. However, HCFA’s staff had no prev

experience overseeing these diverse optio

preferred provider organizations, private 

plans, and medical savings accounts. Acc

HHS Inspector General, many staff lacked 

dealing with health maintenance organiza

existing managed care option. Few region

assigned to managed care oversight had t

experience in data analysis, which is key t

internal trends in plan performance over t

assessing plan performance against local 

norms.1

1

Medicare’s Oversight of Managed Care: Implication

Staffing (OEI-01-96-00191, Apr.1998).
Page 14 GAO-01-247 HH

At the same time, HCFA faces the loss of a si

number of staff with valuable institutional kn

February 2000, the HCFA Administrator test

more than one-third of the agency’s current w

was eligible to retire within the next 5 years 

HCFA was seeking to increase “its ability to 

right skill mix for its mission.” As we and oth

reported, too great a mismatch between the 

administrative capacity and its designated m

could leave HCFA unprepared to handle Med

future population growth and medical techn

advances.2

 To assess its needs systematically

conducting a four-phase workforce planning 

that includes identifying current and future 

competencies needed to carry out the agenc

and analyzing the gaps between them.3

 HCFA 

this process using outside assistance to deve

comprehensive database documenting the ag

employee positions, skills, and functions. HC

capital problems can be seen as part of a bro

pattern of human capital shortcomings that h

mission capabilities across the federal gover

our High-Risk Series Update (GAO-01-263, Ja

for a discussion of human capital as a newly 

governmentwide high-risk area. 

Medicare Reform 

Proposals Address 

Program Governance 

Issues

Elements of recent Medicare reform proposa

alternative models drawn from other federal 

suggest ways to address focus, leadership, a

issues. Options proposed include creating an 

would administer Medicare without any non

2

Gail Wilensky et al., “Crisis Facing HCFA and Millions o

Health Affairs, Vol. 18 (Jan.-Feb. 1999).

3

HCFA’s workforce planning efforts to date have been in 

guidance on this subject, as articulated in Human Capit

Assessment Checklist for Agency Leaders (GAO/GGD-9

1999).
Page 15 GAO-01-247 

responsibilities; establishing tenure for th

administrator that, at a minimum, would o

presidential terms; and granting the entity 

Medicare greater operational flexibility.

At hearings in February and May 2000, we 

leading reform proposals,4

 and while neith

addressed Medicare’s governance shortco

provided potential building blocks of adm

reform. Under the reform proposed by the 

Administration, HCFA would continue to 

Medicare+Choice plans and administer th

program in addition to its other responsib

However, HCFA would be given some new 

personnel, contracting, and purchasing pr

reforms proposed by Senators Breaux, Fri

an independent Medicare Board would m

competition among plans; traditional Med

exist as one of the competing health plans

would also divide HCFA into two parts: on

would administer the traditional Medicare 

other would carry out HCFA’s non-Medica

responsibilities.

Creating a new board to oversee Medicare

would not likely be quick or easy to imple

HCFA experience suggests that a new age

several hundred staff may be needed to m

an independent board with the proposed 

responsibilities. Before HCFA was reorga

one of its units—the Office of Managed C

performed some of the functions envision

4

One proposal, The Medicare Modernization Act of 2

also known as the President’s proposal. The other p

known as Breaux-Frist, is the Medicare Preservation 

Act of 1999, S. 1895. Senators John B. Breaux and B

the proposal; Senators J. Robert Kerrey, Chuck Hage

Bond, Judd Gregg, and Mary L. Landrieu are cospon
Page 16 GAO-01-247 HH

proposed Medicare board.5 The unit was staf

nearly 150 individuals in a central location a

supported by another 120 regional office sta

unknown number of employees in other HCF

units such as personnel, training, contracting

and budget, and computer systems. Experien

suggests that the period needed to establish 

agency and make it fully functional could be 

longer, depending on the number of staff dev

planning such an enterprise. 

In the past, the Congress addressed governa

for certain programs by separating their adm

from a larger body. In 1995, for example, the 

Security Administration (SSA) was reestabli

independent agency outside HHS,6

 and in so 

Congress strengthened the role of the Comm

SSA’s agency head. The Commissioner is app

the President and confirmed by the Senate, b

agency became independent, the President c

remove the Commissioner for any reason at 

The independence law provided for a fixed 6

and protection from arbitrary removal. The 

Commissioner can now be removed by the P

only for cause—neglect of duty or malfeasan

The Congress has acted in the past to fix the 

other agency heads and thus help insulate th

immediate political pressures. In 1976, the te

Director of the Federal Bureau of Investigati

5

After the reorganization, the functions of the Office of 

were distributed among three new HCFA units: the Cen

Plans and Providers, the Center for Beneficiary Service

Center for Medicaid and State Operations.

6

The impetus for SSA’s independence stemmed from co

expressed in congressional hearings and reports about 

issues, including, among others, the need to improve ma

continuity of leadership at SSA and make SSA more acc

public and the Congress. 
Page 17 GAO-01-247 

was set at 10 years. Since 1978, there have 

directors and acting directors, serving on 

years. Within their 10-year terms, howeve

Directors remain accountable to the Presi

not completely insulated from the politica

The President can remove a director and 

when the Director faced allegations of eth

The Congress has also created advisory b

guide an agency’s operations. In 1998, for 

Congress passed legislation that provided 

Revenue Service (IRS) oversight board an

other changes in agency governance.7

 The 

intended to help bring accountability, con

expertise to executive governance and ov

agency and to give the Congress more con

day-to-day operations.8

Most Medicare reform proposals recogniz

meet the financing challenges caused by a

population and increasingly expensive me

technology—the program must be moder

fundamental concern is to find a balance b

the administering entity adequate flexibili

prudently and ensuring that the entity can 

accountable for its decisions and their im

No single approach offers a complete solu

combination of elements may be worth co

Key Contacts William J. Scanlon, Director

Health Care Issues

(202) 512-7114

scanlonw@gao.gov

7

Internal Revenue Service Restructuring and Reform 

8

National Commission on Restructuring the Internal 

A Vision for a New IRS, June 25, 1997.
Page 18 GAO-01-247 HH

Laura A. Dummit, Director

Health Care—Medicare Payment Issues

(202) 512-7119

dummitl@gao.gov

Better Safeguard 

the Integrity of the 

Medicare Program

Because of the program’s vast size and comp

structure, we designated Medicare as a high-

program—that is, at risk of considerable loss

fraud, abuse, and mismanagement—and it re

today. Each year, we have reported on system

difficulties in safeguarding Medicare paymen

such difficulty is the production of reliable m

information, which has had an impact on pay

denying Medicare claims appropriately, deve

payment methods for post-acute care, paying 

managed care (Medicare+Choice) plans app

and implementing sound financial managem

practices. 

In Medicare’s traditional fee-for-service comp

HCFA does not have a clear picture of the in

relative performance of the program’s claims 

administration contractors, which are respo

safeguarding Medicare’s fee-for-service paym

fiscal year 1999, these payments totaled abo

billion. HCFA also lacks sufficient informatio

designed payment systems to determine whe

providers are being paid appropriately for th

they deliver. As for Medicare+Choice, HCFA 

lacks the data needed to monitor the approp

payments made to health plans and the servi

Medicare enrollees receive. Due to a failed a

the 1990s to modernize Medicare’s multiple i

systems, HCFA’s current systems remain seri

outmoded. Without effective systems, the ag

well positioned for sound financial or progra

management.
Page 19 GAO-01-247 

In Traditional 

Medicare, Problems 

Ensuring Appropriate 

Claims Payment 

Remain

HCFA contracts with private companies, m

insurance companies, to review and pay p

claims for health care delivered to progra

beneficiaries. These contractors run the d

operations of Medicare’s traditional, fee-fo

program component, which accounts for 

percent of the program. Although the cont

front-line of defense against provider frau

and erroneous Medicare payments, in the 

contractors defrauded the government or 

alleging fraud for hundreds of millions of 

HCFA rarely uncovered these cases throu

oversight efforts. The reason is, in part, th

relied on contractors’ self-certifications o

controls and contractors’ self-reported da

performance and seldom made independe

of contractor-provided information. This i

with federal standards that require the mo

internal controls to assess the quality of p

over time and ensure that identified probl

promptly resolved.9

Our July 1999 report on HCFA’s efforts to 

Medicare’s claims administration contract

many weaknesses. For years, HCFA’s cont

evaluation process lacked the consistency 

reviewers need to make comparable asses

contractor performance. HCFA reviewers 

measurable performance standards and li

agencywide direction on monitoring cont

payment safeguard activities. Under these 

circumstances, the reviewers in HCFA’s 10 

9

The Comptroller General’s Standards for Internal C

Federal Government (GAO/AIMD-00-21.3.1, Nov. 199

framework for agencies to establish and maintain int

identify and address major performance and manag

in areas at greatest risk of fraud, waste, abuse, and m
Page 20 GAO-01-247 HH

offices, who were responsible for conducting 

evaluations, had broad discretion to decide w

how much to review as well as what disciplin

to take against contractors with performanc

This highly discretionary evaluation process 

key program safeguards to go unchecked an

inconsistent treatment of contractors with si

performance problems. In addition, responsi

various aspects of contractor activities was s

across many central office components, whi

staff who conducted day-to-day oversight we

directly accountable to any particular centra

As a result of these findings, we made a num

recommendations to improve HCFA’s manag

oversight of Medicare claims administration 

contractors. In summary, we recommended 

enforce contractors’ compliance with existin

while developing better standards for assess

contractor performance; strengthen account

evaluating contractor performance and agen

oversight; and require verification of contrac

internal controls and contractor-reported da

response to our recommendations, HCFA

• has begun using national review teams to 

contractor evaluations. The teams combi

expertise and dual perspective of central 

regional office staff.

• established an executive-level position at 

office with ultimate responsibility for con

oversight and recently established four p

the field reporting directly to that executi

reflecting the 4 groupings of its 10 region
Page 21 GAO-01-247 

• hired several public accounting firms t

overall internal control design and the 

of financial controls at 26 Medicare co

required contractors with control wea

develop plans to correct them.10

HCFA is also seeking to enhance the usefu

Medicare national fee-for-service claims e

developed by the HHS Office of the Inspe

(OIG). Each year, from reviewing a sampl

claims, the OIG estimates how many claim

error because they lacked appropriate do

were not for Medicare-covered services, o

services deemed not medically necessary. 

error rate does not distinguish between b

paperwork mistakes and abusive billing p

does it identify the volume of erroneous p

each contractor. Thus, to improve the erro

a management tool, HCFA has an initiativ

separate error rate for each contractor. It 

“validation” contractor that will randomly 

processed claims and recheck the process

payment decisions made. From the result

intends not only to measure contractor pe

also to identify which categories of servic

types are the source of improper billing p

targeting specific areas that need improve

Improved Payment 

Methods Can Still Be 

Exploited

In addition to monitoring the contractors’ 

activities to ensure that only appropriate 

paid, HCFA faces challenges in establishin

prices to pay for covered services. Most r

had the challenge of ensuring the integrity 

payment methods mandated by the Congr

10For fiscal year 2001, HCFA is planning to have effe

information technology, claims processing, financial

collection controls tested at 13 Medicare contractor
Page 22 GAO-01-247 HH

example, the Balanced Budget Act of 1997 in

several payment reforms, calling for HCFA t

and implement new methods to pay for post

care—the care provided principally by skille

facilities, home health agencies, and outpatie

rehabilitation facilities. Under the old payme

post-acute care providers were reimbursed t

(within certain limits) for all the services del

Congress changed this payment approach to 

rapid spending growth for post-acute care th

during most of the 1990s.

Under the new approach, known as prospec

payment (currently in place for home health 

and skilled nursing facilities), post-acute car

are paid rates fixed in advance for units of ca

a day in a skilled nursing facility or an episod

health care) rather than for the costs of each 

Providers face the risk of loss if their costs e

payments, while those that can furnish care f

the prospective payment rate will retain the 

However, a new opportunity for providers to 

revenues inappropriately exists under this ap

providers could skimp on services and comp

patient’s quality of care. HCFA does not have 

analytic tools available to identify and docum

underservice. 

Major gaps in information make prospective 

systems vulnerable to manipulation, thus un

the systems’ potential to constrain Medicare 

protect taxpayer dollars, HCFA needs the inf

ensure that claims payments are accurate an

payment rates are set at the appropriate leve

beneficiaries, HCFA needs information on pa

health status and use of services to guard ag

providers’ withholding needed services. Our 

the prospective payment method for home h

services illustrate the problem and support o

recommendation, as shown in table 2.
Page 23 GAO-01-247 

Table 2: Risk-Sharing Could Mitigate Potential Problems in Home Health Paymen

Medicare+Choice 

Has Its Own Set of 

Integrity Issues

Medicare’s managed care component kno

Medicare+Choice is also subject to impro

problems. In fiscal year 1999, payments to 

Medicare+Choice plans totaled $37 billion

17 percent of all program spending. The fa

Medicare+Choice plan receives a fixed m

payment for each beneficiary it enrolls rat

each service delivered raises another set o

integrity challenges involving excessive p

enrollees and failure to deliver necessary 

Plans may be overpaid when they attract 

healthy and low-cost beneficiaries. It beco

Design of home health 

prospective payment system

Selected design features include the following:

• Home health agencies receive one payment for each 

of care, regardless of the services provided. There are 

number of episodes a home health agency may prov

• Rates are based on pre-BBA use levels, which are wid

excessive.

Vulnerability to payment 

abuses

To increase revenues, a provider could

• treat beneficiaries for more episodes than necessary, 

• reduce the number of visits provided during an episod

GAO recommendation To mitigate beneficiary and financial risk, we recomme

adopt a risk-sharing provision whereby the governmen

home health agency’s excessive losses but protects the 

an agency’s excessive gains. 

Agency response HCFA did not agree to implement our recommendation

concerned that any additional change to payment polic

confusing for home health agencies at this time. Howev

and believe that the absence of any constraint on paym

Medicare’s new home health payment system open to 
Page 24 GAO-01-247 HH

program integrity issue when plans purposel

enroll these individuals. Plans may also be o

when their reported data used to establish p

levels are erroneous or misreported. Program 

also compromised when plans fail to deliver 

that enrolled beneficiaries need. Table 3 prov

specific examples of these issues.

Table 3: Program Integrity Issues in Medicare+Choice

Reliable information about plan enrollees wi

even more critical in the future as Medicare 

Favorable selection of 

healthier beneficiaries

Through their marketing practices or provider incentive arrangeme

plans may attract healthier beneficiaries and have more of their si

disenroll. Plans gain financially because healthy beneficiaries cost 

than chronically or acutely ill beneficiaries. Whether intentional or 

however, favorable selection results in huge excess Medicare cost

2000, we reported that, in 1998, Medicare+Choice plans were pai

estimated $3.2 billion more than if the plans’ enrollees had receive

traditional Medicare program. In reports and testimony, we have c

discussed the need to adjust Medicare+Choice payments to reflec

health status. However, in 1999, the Congress slowed implementa

HCFA’s health-status-based payment adjuster and mandated addit

on HCFA’s adjustment methods.

Misreported or 

erroneous data that 

increase payments

The HHS OIG found cases in which Medicare paid plans for dece

beneficiaries and beneficiaries receiving services in traditional Me

OIG also found that some plans erroneously reported some of the

as having institutional status, which allowed them to receive inapp

enhanced payments. In 1998, we reported that some plans took a

an overly broad Medicare definition to classify healthy beneficiarie

retirement communities as living in “institutions,” thereby increasin

Medicare payments substantially. HCFA has since adopted our 

recommendation to tighten the definition of an institution for payme

but the extent to which the new definition is being enforced is unce

Failure to deliver 

required services

In April 1999, we reported that a large Medicare+Choice plan prov

prescription drug benefit with less coverage than it agreed to in its 

HCFA. This case was discovered in our review of plan marketing m

which found that several plans distributed misleading, inaccurate, o

information about covered benefits. In a separate April 1999 repor

that several plans failed to adequately inform beneficiaries that the

appeal a plan’s decision to deny services or payment for services

made several recommendations addressing HCFA’s need to devel

and content standards for plan marketing and appeals process lite

has implemented some of our recommendations and has establis

groups to consider others. 
Page 25 GAO-01-247 

new risk adjustment methodology that wi

the basis of their enrollees’ expected care 

this new methodology, payment rates will 

largely by patient utilization data submitte

Any errors in the patient data will thus res

inaccurate plan payments. 

Inadequate 

Information Systems 

and Financial 

Management 

Continue to 

Undermine Efforts to 

Safeguard Medicare

A major weakness underlying HCFA’s effo

proper payments of Medicare claims is th

information systems are outmoded and m

financial management procedures are not 

Although HCFA has taken steps to begin m

systems and strengthening its financial m

many challenges remain. 

In the early 1990s, HCFA launched a syste

initiative to replace Medicare’s multiple, c

operated claims processing systems with 

technologically advanced system. It was e

such a system would have information for 

traditional Medicare and Medicare+Choic

program administration, save on administ

and better ensure proper payment by grea

HCFA’s ability to spot improper billing pra

Although based on a sound notion, this sy

acquisition failed due to a series of planni

implementation missteps. Thus, Medicare 

numerous aging information systems that 

2000 renovation. To its credit, HCFA made 

efforts to ensure that the agency’s system

its business partners were prepared, with 

HCFA reported few significant year 2000 p

These system renovations, however, put b

modernization plans on the back burner u

To date, initial work on some of its system

but completion of its systems modernizat

years away. 
Page 26 GAO-01-247 HH

Similarly, HCFA’s first step toward improving 

financial management procedures met with s

much work in this area remains to be done. I

of its fiscal year 1999 financial statements, H

received for the first time an unqualified, or 

opinion. The agency achieved this, in part, b

recognized the need to address long-standin

about the accuracy of Medicare accounts rec

primarily overpayments made to providers t

be recouped. Assisted by the HHS OIG and a

from an independent public accounting firm

conducted an extensive effort to validate rep

receivables, which resulted in a one-time wr

billion. 

However, HCFA has a long way to go to achi

financial management—that is, systems, pro

controls that routinely generate reliable, use

timely information for managers and other 

decisionmakers. Since the audit of the fiscal 

financial statements, subsequent annual aud

other reviews have found numerous weakne

internal controls in HCFA’s financial activitie

heart of its problems, the agency does not ha

integrated financial accounting system that c

to track and report financial activities, includ

receivables. Instead, HCFA and its contracto

several fragmented and overlapping systems 

adequately verify the accuracy of reported ac

balances, which increases the risk of errors 

misstatements. For example, Members of Co

were concerned that millions of dollars were 

Medicare by Texas home health agencies tha

paid too much for services provided to Medi

beneficiaries and were no longer in business

usefulness of the information HCFA develop

response to this concern was limited, howev

HCFA was not able to determine the correct 

owed. In part, this was because HCFA’s Prov

Overpayment Report system, which it uses t
Page 27 GAO-01-247 

certain overpayments, had incorrect infor

situation and problems with the adequacy 

internal controls indicate that extraordina

will be needed to maintain a clean opinion 

annual financial statements until these pr

remedied. 

The fragmentation of accounting systems 

without being reconciled makes generatin

reliable information a major challenge. Fo

even after the $3 billion write-off of accou

HCFA was left with significant amounts o

receivables. At the end of fiscal year 1999

accounts receivable balance of $7.3 billion

percent was more than 6 months delinque

efforts under the Debt Collection Improve

1996 to refer delinquent debt for collectio

Treasury Department in a timely manner h

confounded, in part, because of the work 

contractors to validate each debt before it 

referred to Treasury.11 Such validation is p

because of the unreliability of the agency’

tracking and recording overpayments.

We, the OIG, and independent auditors ha

numerous recommendations to strengthe

financial management. Because of the seri

challenge, we recommended that HCFA d

comprehensive strategy to address financ

management and accountability issues. To 

HCFA has initiated a number of efforts, in

working to develop a set of integrated fina

management information systems. Howev

systems are not expected to be fully opera

2004 at the earliest. In the meantime, usin

11The act generally requires that debts delinquent mo

be transferred to Treasury or, in certain cases, a Tre

center for debt collection.
Page 28 GAO-01-247 HH

systems, HCFA and its contractors must take 

steps to put adequate controls in place. With

controls, HCFA is not in a position to genera

consistent and accurate data needed to ensu

integrity of the agency’s financial manageme

operations.

Key Contacts Leslie G. Aronovitz, Director

Health Care—Program Administration and 

Integrity Issues

(312) 220-7600

aronovitzl@gao.gov

Linda M. Calbom, Director

Financial Management and Assurance

(202) 512-9508

calboml@gao.gov

Joel C. Willemssen, Managing Director

Information Technology

(202) 512-6408

willemssenj@gao.gov

Improve Oversight 

of Nursing Homes 

So That Residents 

Receive Quality 

Care

Between 1998 and 2000, the Congress held a 

hearings on nursing home care. Our reports 

testimony during this period painted a grim p

1999, we estimated that about 15 percent of 

17,000 nursing homes were being cited in co

years for serious care problems, which are th

classified as causing “actual harm” to residen

those placing residents’ health, safety, or live

“immediate jeopardy.” (Serious care problem

malnutrition, dehydration, and pressure sore

other conditions.) Complaints by residents, f

members, or facility staff alleging harm to re

remained uninvestigated for weeks or month

serious deficiencies were identified, federal 
Page 29 GAO-01-247 

enforcement policies did not ensure that t

deficiencies were addressed and remaine

The federal government’s stake in nursing 

large, amounting to an estimated $39 billio

year 1999. Thus, as the hearings of the Sen

Committee on Aging focused national atte

quality of nursing home care, the Adminis

launched a set of initiatives to address the 

and others identified.

Quality Initiatives 

Are Designed to 

Address Weaknesses 

in Federal and State 

Oversight of Nursing 

Homes 

Oversight of nursing homes is a shared fed

responsibility. On the basis of statutory re

HCFA defines standards that nursing hom

to participate in the Medicare and Medica

and contracts with states to certify that ho

these standards through annual inspectio

complaint investigations. The “annual” ins

which states must conduct at each home 

every 12 months, is called a standard surv

standard survey entails a team of state su

spending several days in the home to dete

care and services meet the assessed need

residents. When a home does not meet th

embodied in federal standards, it is cited 

deficiencies. If the deficiencies are serious 

officials refer the home to HCFA for disci

measures. The investigation of complaints 

state-administered process, with HCFA re

serious complaints be investigated within 

frames. 

Our work over the past 2 years showed th

state oversight of nursing home care was 

following areas. 

• Annual standard surveys. State survey

identify serious care deficiencies or cl
Page 30 GAO-01-247 HH

as less serious than was appropriate. One 

that the approach surveyors used to spot 

lacked sufficient rigor. Another reason w

homes had time to prepare for surveyors

visits. Because the annual inspections oft

at roughly the same time each year, home

anticipate when surveyors were coming. 

Accordingly, they could make cosmetic c

add staff beforehand, thus misrepresentin

home’s typical routines and care practice

• Lax approach toward sustained complian

stated goal is to have nursing homes sust

compliance with federal requirements ov

However, the results of several years of a

surveys show that some of the nation’s nu

homes during these years are “repeat offe

that is, they have been cited in at least tw

consecutive annual surveys for actual har

immediate jeopardy deficiencies. Until re

there was little to deter such poor perform

because few referrals for disciplinary act

as fines or termination, ever went into eff

• Handling of complaints. Another major p

that some states did a poor job of handlin

complaints against facilities. Complainan

difficulty filing complaints, the state surv

understated the seriousness of complaint

serious complaints were not investigated 

As a result of our work, we have made a num

recommendations to improve the quality of a

surveys, keep repeat offenders from escapin

disciplinary action, and ensure that complain

promptly investigated. HCFA has generally a

our recommendations. Because these proble

surfaced dramatically with our 1998 report o

nursing homes, which included several 

recommendations for action, the Administra

to address the problems cited by introducing 

a series of initiatives focused on nursing hom
Page 31 GAO-01-247 

Some initiatives are being phased in, whil

been added since 1998, concurrent with o

additional problems and recommendation

congressional hearings on nursing home c

initiatives focus on strengthening the perf

standard surveys, adding more teeth to H

enforcement policies, and improving state

to handling complaints. To implement the

the states and HCFA are engaged in a rang

that include, among others, the following:

• States are adopting improved methods 

classify deficiencies found during a ho

inspection; HCFA is developing additio

in this area. 

• Following a recommendation that we 

required states to schedule more visits 

weekends in an attempt to make the su

more of a surprise. However, this mea

not addressed the problem we identifi

occurring close to the same date each 

• HCFA strengthened the enforcement o

available to impose sanctions on nursi

are cited for actual harm and immedia

violations by requiring that states refer 

sanction any home found on successiv

have a pattern of harming one or more 

• To reflect a new emphasis on the more 

investigation of serious complaints, sta

additional experienced surveyor staff, 

upgrading automated tracking systems

unit management changes. 

Better Use of 

Management 

Information Would 

Improve Nursing 

Home Oversight

HCFA intends to intensify its use of mana

information to verify and assess states’ ov

activities and view nursing home perform

closely. As one step, it plans to enhance th

friendliness of the central database—the 

Survey, Certification, and Reporting (OSC
Page 32 GAO-01-247 HH

that compiles, among other types of informa

results of every state survey conducted on M

and Medicaid-certified facilities nationwide. 

OSCAR provides extensive information abou

surveys—such as their timing, the deficienci

and the time spent conducting various surve

activities—computer programming knowled

typically needed to obtain these data in a usa

When analyzed, such information can provid

complete picture of an individual facility’s pe

record. Refinements will allow users to acce

information with much greater ease. 

In addition, HCFA recently directed its regio

to prepare various tracking reports on indica

and regional office oversight performance. E

report topics include facilities whose Medica

Medicaid funding may be terminated becaus

noncompliance with federal requirements, su

facilities under special scrutiny, deadlines m

reporting information through OSCAR, tallie

surveys that find homes free of deficiencies, 

analyses by state of the most frequently cited 

deficiencies. Preparing these reports using a 

format will enable HCFA to compare perform

within and across states and help identify wh

federal intervention is needed. 

One instance of HCFA’s failure to use such in

illustrates the potential for the information t

kind of internal control. For a recent cycle o

surveys in one state, surveyors found no def

84 homes inspected. Had HCFA oversight off

checked each deficiency-free home’s history 

complaint allegations, they would have seen 

When we did such a cross-check during our 2

we found that the state’s supposedly deficien

homes had received 605 complaints. One of t

had 39 complaints; 19 homes had 10 or more 
Page 33 GAO-01-247 

Significant numbers of these complaints w

substantiated when investigated.

Overall, many of the new policies and pra

implement the quality initiatives have only 

instituted and will need time to take hold. 

better detection and classification of serio

deficiencies through the standard survey 

require further methodological developm

efforts will be required to reduce the oppo

homes to predict the timing of, and prepa

inspections. More time must elapse to kno

strengthened federal enforcement policie

the incentives and environment that disco

care and ensure permanent corrections. S

to expedite complaint investigations and s

reporting of investigation results are at va

completion. Similarly, with respect to imp

oversight, the effectiveness of HCFA’s man

information reporting enhancements can 

in the months to come. 

Vigilance by both state and federal officia

unrelenting to ensure the safety and well-

nation’s nursing home residents. The perf

oversight can neither be taken for granted 

which means that neither HCFA nor the s

afford to lose their current momentum. Th

too, plays an important role in keeping th

oversight agencies and the nursing home 

achieve quality improvements.

Key Contact Kathryn G. Allen, Director

Health Care—Medicaid and

Private Health Insurance Issues

(202) 512-7118

allenk@gao.gov
Page 34 GAO-01-247 HH

Ensure the Safety 

and Efficacy of 

Medical Products

FDA regulates products with annual sales of 

trillion that touch the lives of virtually every 

FDA seeks to ensure that human and animal 

medical devices, and vaccines, among other 

are safe and effective and that the nation’s fo

resources and blood supply are safe. FDA re

manufacturers of drugs and devices to seek 

before their products are marketed. Once pr

marketed, FDA continues to periodically ver

quality of manufacturing processes and cont

monitors product safety by collecting and an

hundreds of thousands of reports of adverse 

related to medical product use each year. To 

this broad mandate, FDA has about 9,000 em

These include approximately 2,100 scientists 

evaluate new product applications and abou

inspectors who ensure that the country’s alm

FDA-regulated businesses comply with mini

and quality standards. 

The speed of FDA’s premarketing review and 

new drugs has improved in recent years, larg

the Prescription Drug User Fee Act of 1992 a

to collect fees from the sponsors of new dru

applications for the purpose of hiring more m

officers to review the applications. In additio

Modernization Act of 1997 established clear 

performance goals and focused attention on 

products with the most risk. However, FDA’s 

monitor the quality and safety of marketed p

have been less successful. The focus on redu

product review times has slowly shifted reso

from other activities amid a general increase 

medical products by the American public. 
Page 35 GAO-01-247 

FDA’s Efforts to 

Monitor Medical 

Product 

Manufacturing Need 

Improvement

To ensure that medical products are manu

accordance with standards for safety, puri

FDA periodically inspects facilities that m

prescription drugs and medical devices, a

facilities that process blood and blood pro

inspections ensure that the products are p

conformance with good manufacturing pr

federal standards for ensuring that produ

quality and produced under sanitary cond

In recent years, FDA has not met its requi

inspect, every 2 years, domestic pharmac

blood manufacturing facilities, as well as 

device manufacturing facilities. For exam

required by law to annually inspect 50 per

manufacturers of medical devices such as 

which pose the greatest potential risk to p

However, it was able to inspect only 26 pe

facilities in fiscal year 1999.12 Similarly, we 

FDA was unable to identify and locate all 

device reprocessing facilities that it was s

inspect. FDA maintained that it had to red

number of planned inspections of drug an

manufacturers by almost 40 percent beca

receive a requested increase in funding in 

2000. 

To target its resources, FDA has adopted 

approach to setting medical product inspe

priorities. Under this approach, facilities a

the basis of their previous inspections. Fac

to meet good manufacturing practice stan

inspected more frequently than facilities w

deficiencies. Because this approach has b

12In its fiscal year 2001 budget request, FDA stated th

insufficient inspection resources and the growth in h

manufacturing facilities, the agency will not meet its 

requirement to inspect one-half of these facilities.
Page 36 GAO-01-247 HH

only for a short time, it is unclear whether it 

sufficient inspection coverage to ensure that 

products are being manufactured in a safe an

appropriate manner. However, there are alre

indications that it may be difficult for FDA to 

facilities that pose the highest risk. For exam

found that FDA was unable to even identify 

all the medical device reprocessing facilities 

pharmaceutical facilities that it was suppose

In a March 1998 report, we raised questions 

application of FDA’s risk-based strategy for i

foreign pharmaceutical facilities. According 

much as 80 percent of the bulk pharmaceuti

chemicals used by U.S. manufacturers to pro

prescription drugs are imported, and the num

finished drug products manufactured abroad 

market is increasing. However, we found tha

based inspection strategy would not ensure 

follow-up inspections were conducted for al

manufacturers that had been identified as hav

manufacturing deficiencies and that had pro

take corrective action. Omitting these proble

from timely reinspection raises questions ab

ability to ensure that American consumers ar

from contaminated or adulterated drug prod

recommended that FDA revise its risk-based 

inspecting foreign pharmaceutical manufact

ensure that the problem facilities would rece

follow-up inspections. However, FDA said it 

make any revisions until after the strategy ha

implemented.

FDA’s Surveillance 

Systems for Marketed 

Medical Products 

Need Strengthening

FDA attempts to monitor the risks of market

medical products, vaccines, and blood produ

throughout their life cycles. To do this, FDA 

difficult tasks: (1) establishing the number a

illnesses and injuries caused by drugs and m

devices and (2) determining that such advers
Page 37 GAO-01-247 

are caused by the medical product rather 

patient’s underlying illness or some other 

medical treatment. These tasks are compl

increasingly high exposure of the America

medical products; for example, roughly 3 

prescriptions were filled in the United Sta

number that has increased about 6 percen

since 1992. The inadequacies of FDA’s pos

surveillance system can have important re

health consequences. For example, in rec

has been unable to determine the number 

to liver failure in patients taking a drug fo

whether the suicide rate among adolescen

acne medication is unusually high, and wh

of adverse events caused by reprocessed 

devices is higher than that for new device

FDA’s approach to monitoring adverse eve

certain flaws. To begin with, FDA estimat

receives reports for only 1 to 10 percent o

adverse events. Second, partly because FD

postmarketing surveillance staff is relativ

has difficulty sifting through the many adv

reports it does receive to determine if the 

injuries caused by medical products and i

events present a pattern that requires furt

investigation. FDA has begun implementin

strategy to address these limitations. First

testing a “sentinel” system that uses a sma

health care institutions and charges them 

frequent and detailed reports of adverse e

than trying to increase the number of repo

larger health care community. Second, FD

increase its information processing capab

among other things, encouraging the elect

submission of adverse event reports and a

statistical software with improved algorith

identifying important adverse events from 

report databases. 
Page 38 GAO-01-247 HH

Key Contact Janet Heinrich, Director

Health Care—Public Health Issues

(202) 512-7118

heinrichj@gao.gov

Enhance the 

Economic 

Independence and 

Well-Being of 

Children and 

Families

The Personal Responsibility and Work Oppo

Reconciliation Act of 1996 and subsequent le

made fundamental changes to the nation’s sa

needy families with children. It replaced the 

welfare entitlement program with block gran

called Temporary Assistance for Needy Fam

(TANF), which has a key goal of ending the d

of needy parents on government benefits by 

work. The new welfare law gave states incre

flexibility over the design and implementatio

welfare programs and at the same time requi

impose work requirements and enforce a 5-y

limit on the receipt of TANF cash assistance

Administration for Children and Families (A

oversees state implementation of welfare ref

law also ended automatic Medicaid eligibility 

assistance recipients, instead creating a sepa

Medicaid eligibility category, with states free 

different criteria for TANF eligibility, includin

preapplication requirements not allowed und

Medicaid.
Page 39 GAO-01-247 

However, concerns that about one-third o

than 40 million low-income people who h

automatically eligible for Medicaid could 

gave rise to congressionally enacted prote

continued Medicaid coverage. Of particula

the possibility that children might unnece

coverage because, before welfare reform, 

gained access to Medicaid on the basis of 

of cash assistance than through other ave

eligibility, such as low family income, disa

special medical needs. In addition to estab

separate Medicaid eligibility category to p

and their older teenaged children, program 

for children that were mandated by the M

were left unchanged. Also, 1 year after the 

welfare reform, as part of the Balanced B

1997, the Congress established the State C

Health Insurance Program (SCHIP), an op

insurance program for children in families 

income level is too high to qualify for Med

or below 200 percent of the federal pover

In addition to overseeing the sweeping ch

welfare and health programs for low-inco

with children, HHS oversees a number of 

programs, such as child support enforcem

welfare services, Head Start, and child ca

These programs have also undergone cha

federal, state, and local levels. In the wak

changes, HHS faces significant challenges 

that states have adequate service delivery 

place that meet federal objectives efficien

effectively.

13Due to the varying eligibility requirements across s

programs, the SCHIP legislation allows the state to e

up to 50 percentage points above its existing Medica

standard. Therefore, in Connecticut, children in fam

up to 300 percent of the federal poverty level are eli
Page 40 GAO-01-247 HH

Better Information 

Systems and Data 

Collection Needed to 

Improve Program 

Management 

State and local welfare agencies have made 

progress in implementing key aspects of welf

but significant challenges remain. As states h

refocused their efforts on moving people int

employment rather than qualifying them for 

cash assistance, they draw on an array of oth

and state programs to support families’ work 

shown in figure 1.
Page 41 GAO-01-247 

Figure 1: Many Programs in Separate Departments Can Enhance Family Indepen

Being

One challenge involves having adequate in

systems to manage these efforts. In our A

review of states’ automated systems, we f

while these systems supported welfare re

ways, they also had major limitations. For 
Page 42 GAO-01-247 HH

result of separating cash assistance from Med

officials in five of the six states we reviewed 

automated system glitches that sometimes o

enrolling families in Medicaid or ensuring th

continued enrollment. In addition, a number 

systems do not provide enough information 

enforcement of the 5-year TANF time limit. O

underlying causes of state systems’ limitatio

with myriad programs involved in supportin

reform, automated systems were generally d

meet the particular needs of each program, r

the cross-program needs of the clients they s

As the federal agency with primary responsi

welfare reform, HHS is well positioned to lea

coordinated federal effort to facilitate states

improve their automated systems. State and 

welfare officials have many such efforts und

face a number of obstacles in moving forwar

obstacles include the difficulties inherent in s

managing large information technology proje

complexity of obtaining federal approval and 

systems projects that involve multiple agenc

Because of the importance of adequate auto

systems to the success of welfare reform, we 

recommended that HHS work with other fed

agencies, including the Department of Agricu

which oversees food stamps, and the Depart

Labor, which oversees employment and train

services, to facilitate states’ efforts by

• disseminating information on best practic

managing information technology genera

practices specific to automated systems t

welfare reform,

• reviewing, and modifying as needed, the 

process for systems procurement to ensu
Page 43 GAO-01-247 

meets federal needs for state accounta

unnecessarily hindering state developm

• facilitating links among the automated 

by different state and local agencies th

means as supporting demonstrations d

promote better partnerships between 

agencies and coordinating data reporti

requirements for different federal prog

• working with the Congress to ensure t

system is in place for tracking time lim

TANF, as some families will be reachin

this year. 

Officials from ACF and HCFA, Agriculture

have begun meeting regularly to address t

Sustained high-level attention will be need

forward in this important area. 

Improvements in states’ automated system

help HHS as it attempts to measure the pro

partners are making to increase the econo

independence and well-being of children a

our assessment of HHS’ fiscal year 1999 p

report and fiscal year 2001 performance p

that HHS had completed considerable effo

consensus with its state partners on appro

performance measures and targets in the 

child care programs. However, the agency 

fiscal year 1999 results for only 5 of the 25 

associated with the outcomes. HHS ackno

time lags in obtaining and validating data f

was, and would continue to be, a problem

that there is a concerted effort under way 

departmentwide Data Council to assess d

the major programs administered by ACF 

to deal more aggressively with data collec

reliability problems.
Page 44 GAO-01-247 HH

Although much remains to be accomplished

made progress in developing new systems an

sources in some areas. In its child support en

program, HHS has met the deadline for getti

national databases—the mandated National D

New Hires and the Federal Case Registry—u

running for use by states. These systems pro

states that can be used to locate noncustodia

identify existing child support orders, and se

withholding notices to employers. In additio

enhanced information sharing with IRS has a

increases in child support collections, which 

increase families’ financial well-being and re

dependence on government support. 

In addition to working with its multiple partn

improve automated systems and data, HHS n

improve its internal systems related to finan

management. ACF received a clean opinion 

year 1999 financial statements. However, a m

weakness was reported related to the prepar

analysis of financial statements.14 The audito

that ACF does not have a fully functional, int

accounting system to produce financial state

timely and efficient manner. In addition, reco

procedures were not performed consistently 

year, which resulted in delayed reconciliatio

several accounts. 

Efforts Needed to 

Ensure State 

Accountability and 

Program 

Effectiveness 

With the day-to-day administration of HHS’ m

programs for low-income children and famil

hands of so many partners, the agency faces 

challenges in holding partners accountable f

federal goals while allowing them the flexibi

14HHS Office of Inspector General, Report on the Finan

Audit of the Administration for Children and Families fo

1999, Report #A-17-99-00003.
Page 45 GAO-01-247 

need to meet state and local needs. With t

granted them, program partners implemen

approaches to accomplishing program go

variety in program approaches and servic

methods can complicate HHS’ efforts to d

effectiveness of its programs. This variety

also create opportunities for HHS to deter

effective and efficient approach among nu

alternatives and then share that informati

program administrators and policymakers

Our work has shown that HHS needs to d

ensure accountability. In foster care, state

occasion claimed reimbursement for juve

placements at facilities that were not eligi

reimbursement and that may not have me

requirements intended to protect the welf

children. While states have primary respo

making foster care facility eligibility decis

meeting procedural requirements in juven

placements, HHS, as the ultimate steward 

funds, has to exercise closer oversight of 

those funds. We also found that HHS had 

method in place to review states’ progress 

youths live on their own—through the fed

Independent Living Program—after leavin

care system. We recommended that HHS d

reporting system and concrete measures 

effectiveness to better ensure states’ acco

this program. 

We also found inadequate internal control

one component of the Medicaid program. 

third of Medicaid eligible individuals are s

children, which makes schools an importa

delivery and outreach point for Medicaid. 

date, there have been poor controls in pla

varied approaches to submitting claims fo

reimbursement for school-based health se

administrative activities. Such controls m
Page 46 GAO-01-247 HH

appropriate balance between the states’ nee

flexible, administratively simple systems and 

that federal funds are being used for their in

purposes. HCFA’s current oversight practices 

to provide that assurance, resulting in confu

inconsistent guidance across the regions and 

prevent improper practices and claims in som

In addition to ensuring that adequate interna

are in place, HHS needs to have information 

effectiveness of its programs. In recent years

made progress in collecting the data needed 

program outcomes for Head Start, which ser

830,000 children in fiscal year 1999 through p

private nonprofit agencies. As we recommen

required by the Congress, HHS is now also ta

to assess the effectiveness of Head Start by u

control groups to ascertain the extent to wh

outcomes can be attributed to Head Start pa

HHS has also continued a long-term research 

predates welfare reform on the relative effec

different welfare-to-work approaches. HHS h

updated its research efforts, supporting stud

areas of interest under welfare reform, inclu

best to help former welfare recipients retain 

and advance in the workplace. 

The variety of program delivery approaches 

states and localities makes it essential that H

with state and local agencies to ensure that e

individuals are made aware of the benefits to 

are entitled. For example, “transitional Medi

entitles certain families who are losing Medi

result of employment or increased income to 

additional year of coverage. However, as not

September 1999 report, in at least one state, 

eligible individuals participated in the transit

program. Moreover, some states did not even 

program’s participation rates. As a result, we 

recommended that HCFA provide states with 
Page 47 GAO-01-247 

or other appropriate technical assistance 

approaches for implementing transitional 

that eligible beneficiaries could benefit fr

entitlement. Concurring with our recomm

HCFA has taken steps to work with each s

and address states’ eligibility and enrollm

States’ experience implementing the SCH

also illustrates the importance of federal l

coordinating the various agencies’ efforts 

beneficiaries. In working with the states o

implementation, HCFA used a variety of m

communicate changes and state program 

For example, HCFA helped states develop 

plans by devising a template that identifie

information required. HCFA also provided 

guidance to the states in the form of letter

Medicaid directors and, on an ongoing ba

answers to questions frequently raised by 

Letters, guidance, and questions and answ

posed on the Internet for easy access. HC

worked with the states and other interest

develop reporting requirements for key pr

indicators such as expenditures and enrol

the short implementation period and the r

challenges of establishing programs distin

Medicaid, the states and the federal gover

considerable progress in getting SCHIP up 

and in just over 1 year, reported enrollmen

million children in 42 states and territorie

HHS can also work to improve program o

effectiveness by making full use of its stra

and annual performance planning process 

Government Performance and Results Ac

Under GPRA, each federal agency is to id

that it will collaborate with other federal a

cross-cutting program goals. For example

year 2001 performance plan noted the nee

coordinate with the Department of Educa
Page 48 GAO-01-247 HH

concerning Head Start and the goal of increa

quality of early childhood development and c

being. This performance plan discussed in m

detail than the 1999 plan Head Start’s role in 

education-related aspects of the early childh

development goals that cut across both HHS 

Education. However, HHS’ plan did not defin

coordination with Education will be accomp

the means by which performance in meeting 

cutting goals will be measured. This is in con

Education’s fiscal year 2001 performance pla

describes its new coordination effort with H

childhood programs. This effort includes for

task force to improve collaboration between 

agencies and develop common program outc

indicators and measures. The absence of this 

in HHS’ performance plan limits its value in 

agency management and assisting the Congr

oversight role.

Key Contacts Cynthia M. Fagnoni, Managing Director

Education, Workforce, and

Income Security Issues

(202) 512-7215

fagnonic@gao.gov

Kathryn G. Allen, Director

Health Care—Medicaid and

Private Health Insurance Issues

(202) 512-7118

allenk@gao.gov
Page 49 GAO-01-247 

Medicare 

Governance

Medicare: 21st Century Challenges Promp

Thinking About Program’s Administrative 

(GAO/T-HEHS-00-108, May 4, 2000). 

Medicare Reform: Issues Associated With 

Revenue Financing (GAO/T-AIMD-00-126, 

Medicare Reform: Leading Proposals Lay 

While Design Decisions Lie Ahead

(GAO/T-HEHS/AIMD-00-103, Feb. 24, 2000

Medicare: Program Reform and Moderniz

Needed But Entail Considerable Challeng

(GAO/T-HEHS/AIMD-00-77, Feb. 8, 2000).

HCFA Management: Agency Faces Multip

in Managing Its Transition to the 21st Cen

(GAO/T-HEHS-99-58, Feb. 11, 1999).

Medicare Program 

Integrity 

Medicare Improper Payments: While Enha

Hold Promise for Measuring Potential Fra

Challenges Remain (GAO/AIMD/OSI-00-28

2000).

Medicare Home Health Care: Prospective 

System Could Reverse Recent Declines in 

(GAO/HEHS-00-176, Sept. 8, 2000).

Medicare: HCFA Could Do More to Identi

Overpayments (GAO/HEHS/AIMD-00-304, 

Medicare+Choice: Payments Exceed Cost 

Service Benefits, Adding Billions to Spend

(GAO/HEHS-00-161, Aug. 23, 2000). 
Page 50 GAO-01-247 HH

Medicare: Health Care Fraud and Abuse Con

Program Financial Reports for Fiscal Years 1

1999 (GAO/AIMD-00-257R, July 31, 2000).

Federal Health Care: Comments on H.R. 4401

Care Infrastructure Investment Act of 2000

(GAO/T-AIMD-00-240, July 11, 2000).

Medicare Home Health Agencies: Overpaym

Hard to Identify and Even Harder to Collect

(GAO/HEHS/AIMD-00-132, Apr. 28, 2000).

Medicare Home HealthCare: Prospective Pay

System Will Need Refinement As Data Becom

(GAO/HEHS-00-9, Apr. 7, 2000).

Medicare Contractors: Further Improvement 

Headquarters and Regional Office Oversight

(GAO/HEHS-00-46, Mar. 23, 2000).

Medicare Financial Management: Further Imp

Needed to Establish Adequate Financial Con

Accountability (GAO/AIMD-00-66, Mar. 15, 2

Medicare: HCFA Faces Challenges to Contro

Payments (GAO/T-HEHS-00-74, Mar. 9, 2000)

Year 2000 Computing Challenge: Leadership 

Partnerships Result in Limited Rollover Disr

(GAO/T-AIMD-00-70, Jan. 27, 2000.)

Medicare Contractors: Despite Its Efforts, HC

Ensure Their Effectiveness or Integrity

(GAO/HEHS-99-115, July 14, 1999).

Medicare+Choice: New Standards Could Imp

Accuracy and Usefulness of Plan Literature

(GAO/HEHS-99-92, Apr. 12, 1999).
Page 51 GAO-01-247 

Medicare Managed Care: Greater Oversigh

Protect Beneficiary Rights (GAO/HEHS-99

1999).

Nursing Home 

Quality

Nursing Homes: Sustained Efforts Are Es

Realize Potential of the Quality Initiatives

(GAO/HEHS-00-197, Sept. 28, 2000).

Nursing Home Care: Enhanced HCFA Ove

Programs Would Better Ensure Quality

(GAO/HEHS-00-6, Nov. 4, 1999).

Nursing Home Oversight: Industry Examp

Demonstrate That Regulatory Actions We

Unreasonable (GAO/HEHS-99-154R, Aug. 

Nursing Homes: Proposal to Enhance Ove

Poorly Performing Homes Has Merit 

(GAO/HEHS-99-157, June 30, 1999).

Nursing Homes: Complaint Investigation P

Often Inadequate to Protect Residents

(GAO/HEHS-99-80, Mar. 22, 1999).

Nursing Homes: Additional Steps Needed 

Enforcement of Federal Quality Standard

(GAO/HEHS-99-46, Mar. 18, 1999).

California Nursing Homes: Care Problems 

Despite Federal and State Oversight (GAO

July 27, 1998).

Medical Product 

Safety and Efficacy

Single-Use Medical Devices: Little Availab

Harm From Reuse, but Oversight Warrant

(GAO/HEHS-00-123, June 20, 2000).
Page 52 GAO-01-247 HH

Adverse Drug Events: The Magnitude of Hea

Uncertain Because of Limited Incidence Dat

(GAO/HEHS-00-21, Jan. 18, 2000).

Medical Devices: FDA Can Improve Oversigh

Tracking and Recall Systems (GAO/HEHS-98

Sept. 24, 1998).

Food and Drug Administration: Improvemen

in the Foreign Drug Inspection Program

(GAO/HEHS-98-21, Mar. 17, 1998).

Medical Device Reporting: Improvements Ne

FDA’s System for Monitoring Problems With 

Devices (GAO/HEHS-97-21, Jan. 29, 1997).

Economic 

Independence for 

Low-Income 

Families

Benefit and Loan Programs: Improved Data 

Could Enhance Program Integrity (GAO/HEH

Sept. 13, 2000).

Welfare Reform: Work-Site-Based Activities 

Important Role in TANF Programs (GAO/HE

July 28, 2000).

Foster Care: HHS Should Ensure That Juven

Placements Are Reviewed (GAO/HEHS-00-42

2000).

Welfare Reform: Improving State Automated 

Requires Coordinated Federal Effort (GAO/H

Apr. 27, 2000).

Medicaid and SCHIP: Comparisons of Outrea

Enrollment Practices, and Benefits (GAO/HE

Apr. 14, 2000).
Page 53 GAO-01-247 

Preschool Education: Federal Investment 

Income Children Significant but Effective

(GAO/T-HEHS-00-83, Apr. 11, 2000).

Medicaid in Schools: Improper Payments 

Improvements in HCFA Oversight

(GAO/HEHS/OSI-00-69, Apr. 5, 2000).

Welfare Reform: State Sanction Policies a

Families Affected (GAO/HEHS-00-44, Mar

Foster Care: Effectiveness of Independen

Services Unknown (GAO/HEHS-00-13, No

Medicaid Enrollment: Amid Declines, Stat

Ensure Coverage After Welfare Reform Va

(GAO/HEHS-99-163, Sept. 10, 1999).

Children’s Health Insurance Program: Sta

Implementation Approaches Are Evolving

(GAO/HEHS-99-65, May 14, 1999).

Welfare Reform: Information on Former R

Status (GAO/HEHS-99-48, Apr. 28, 1999).

Results Act: Using Agency Performance P

Oversee Early Childhood Programs

(GAO/T-HEHS-99-93, Mar. 25, 1999).

Child Support Enforcement: Information o

State Databases (GAO/AIMD-99-42R, Dec

Welfare Reform: States Are Restructuring 

Reduce Welfare Dependence (GAO/HEHS

June 17, 1998).
Page 54 GAO-01-247 

Major Management Challenges and Progr

Governmentwide Perspective (GAO-01-24

Major Management Challenges and Progr

Department of Agriculture (GAO-01-242)

Major Management Challenges and Progr

Department of Commerce (GAO-01-243)

Major Management Challenges and Progr

Department of Defense (GAO-01-244)

Major Management Challenges and Progr

Department of Education (GAO-01-245)

Major Management Challenges and Progr

Department of Energy (GAO-01-246)

Major Management Challenges and Progr

Department of Health and Human Service

(GAO-01-247)

Major Management Challenges and Progr

Department of Housing and Urban Develo

(GAO-01-248)

Major Management Challenges and Progr

Department of the Interior (GAO-01-249)

Major Management Challenges and Progr

Department of Justice (GAO-01-250)

Major Management Challenges and Progr

Department of Labor (GAO-01-251)

Major Management Challenges and Progr

Department of State (GAO-01-252)
Page 55 GAO-01-247 

Major Management Challenges and Progr

Department of Transportation (GAO-01-25

Major Management Challenges and Progr

Department of the Treasury (GAO-01-254)

Major Management Challenges and Progr

Department of Veterans Affairs (GAO-01-2

Major Management Challenges and Progr

Agency for International Development (G

Major Management Challenges and Progr

Environmental Protection Agency (GAO-0

Major Management Challenges and Progr

National Aeronautics and Space Administ

(GAO-01-258)

Major Management Challenges and Progr

Nuclear Regulatory Commission (GAO-01

Major Management Challenges and Progr

Small Business Administration (GAO-01-2

Major Management Challenges and Progr

Social Security Administration (GAO-01-2

Major Management Challenges and Progr

U.S. Postal Service (GAO-01-262)

High-Risk Series: An Update (GAO-01-263
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