Medicare: Program Remains at High Risk Because of Continuing Management Challenges
Published: 2011-03-02T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In the February 2011 High-Risk Series update, GAO continued designation of Medicare as a high-risk program because its complexity and susceptibility to improper payments, combined with its size, have led to serious management challenges. In 2010, Medicare covered 47 million people and had estimated outlays of $509 billion. The Centers for Medicare & Medicaid Services (CMS) has estimated fiscal year 2010 improper payments for Medicare fee-for-service and Medicare Advantage of almost $48 billion. This statement focuses on the nature of the risk in the program, progress made, and specific actions needed. It is based on GAO work developed by using a variety of methodologies--including analyses of Medicare claims, review of policies, interviews, and site visits--and information from CMS on the status of actions to address GAO recommendations.
section_title: What GAO Found
paragraphs: As GAO reported in its 2011 High-Risk Series update, Medicare remains on a path that is fiscally unsustainable over the long term. This fiscal pressure heightens CMS's challenges to reform and refine Medicare's payment methods to achieve efficiency and savings, and to improve its management, program integrity, and oversight of patient care and safety. CMS has made some progress in these areas, but many avenues for improvement remain. Reforming and refining payments. Since January 2009, CMS has implemented payment reforms for Medicare Advantage and inpatient hospital and other services, and has taken other steps to improve efficiency in payments. The agency has also begun to provide feedback to physicians on their resource use, but the feedback effort could be enhanced. CMS has taken steps to ensure that some physician fees recognize efficiencies when certain services are furnished together, but the agency has not targeted the services with the greatest potential for savings. Other areas that could benefit from payment method refinements include oxygen and imaging services. Improving program management. CMS's implementation of competitive bidding for medical equipment and supplies and its transfer of fee-for-service claims workload to new Medicare Administrative Contractors have progressed, with some delays. Of greater concern is that GAO found pervasive internal control deficiencies in CMS's management of contracts that increased the risk of improper payments. While the agency has taken actions to address some GAO recommendations for improving internal controls, it has not completely addressed recommendations related to clarifying the roles and responsibilities for implementing certain contractor oversight responsibilities, clearing a backlog of contacts that are overdue for closeout, and finishing its investigation of over $70 million in payments GAO questioned in 2007. Enhancing program integrity. CMS has implemented a national Recovery Audit Contractors (RAC) program to analyze paid claims and identify improper overpayments for recoupment, set performance measures to reduce improper payments, issued regulations to tighten provider enrollment, and created its Center for Program Integrity. However, the agency has not developed an adequate process to address vulnerabilities to improper payments identified by RACs, nor has it addressed three other GAO recommendations designed to reduce improper payments, including one to conduct postpayment reviews of claims submitted by home health agencies with high rates of improper billing. Overseeing patient care and safety. The agency's oversight of the quality of nursing home care has increased significantly in recent years, but weaknesses in the survey methodology and guidance for surveillance could understate care quality problems. In addition, CMS's current approach for funding state surveys of facilities participating in Medicare is ineffective. However, CMS has implemented, or is taking steps to implement, many recommendations GAO has made to improve nursing home oversight. CMS needs a plan with clear measures and benchmarks for reducing Medicare's risk for improper payments, inefficient payment methods, and issues in program management and patient care and safety. Further, CMS's effective implementation of recent laws will be critical to helping reduce improper payments. CMS also needs to take action to address GAO recommendations, such as to develop an adequate corrective action process, improve controls over contracts, and refine or better manage payment for certain services.

section_title: Letter
paragraphs: I am pleased to be here today to discuss GAO’s 2011 High-Risk Series  update on the Medicare program. My testimony today will focus on  information in our 2011 update on the nature of the risk in the Medicare  program, progress made since our last high-risk update in 2009, and the  specific actions CMS needs to take to make additional progress.
We have designated Medicare as a high-risk program because its  complexity and susceptibility to improper payments, combined with its  size, have led to serious management challenges. An improper payment is  any payment that should not have been made or that was made in an  incorrect amount (including overpayments and underpayments) under  statutory, contractual, administrative, or other legally applicable  requirements. In 2010, Medicare covered 47 million elderly and disabled  beneficiaries and had estimated outlays of $509 billion. The Centers for  Medicare & Medicaid Services (CMS)—the agency in the Department of  Health and Human Services that administers Medicare—has estimated  improper payments for Medicare of almost $48 billion for fiscal year 2010.  However, this improper payment estimate did not include all of the  program’s risk since it did not include improper payments in its Part D  prescription drug benefit, for which the agency has not yet estimated a  total amount.
CMS is responsible for implementing payment methods that encourage  efficient service delivery, managing the program to serve beneficiaries and  safeguard it from loss, and overseeing patient safety and care. However,  CMS faces growing challenges in coming years resolving issues that put  the program at risk, given the rapid growth expected in the number of  Medicare beneficiaries and program spending.
Our 2011 High-Risk Series update on Medicare is based on a body of work  comprising more than 11 products that were developed by using a variety  of methodologies, including analyses of Medicare claims, review of  relevant policies and procedures, interviews with agency officials and  other stakeholders, and site visits. It also includes information CMS has  provided on the status of its actions to address recommendations made in  these and prior reports on Medicare. Our work was performed in  accordance with generally accepted government auditing standards. Those  standards require that we plan and perform the audit to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings and conclusions  based on our audit objectives.
subsections: section_title: 2011 High-Risk Series Update on the Medicare Program
paragraphs: As we report in our 2011 High-Risk Series update, Medicare remains on a  path that is fiscally unsustainable over the long term. This fiscal pressure  heightens the need for CMS to reform and refine Medicare’s payment  methods to achieve efficiency and savings, and to improve its  management, program integrity, and oversight of patient care and safety.  CMS has made some progress in these areas, but many avenues for  improvement remain.
subsections: section_title: Reforming and Refining Payments
paragraphs: Since January 2009, CMS has implemented payment reforms for Medicare  Advantage (Part C) and inpatient hospital, home health, and end-stage  renal disease services. The agency has also begun to provide feedback to  physicians on their resource use and is developing a value-based payment  method for physician services that accounts for the quality and cost of  care. Efforts to provide feedback and encourage efficiency are crucial  because physician influence on use of other services is estimated to  account for up to 90 percent of health care spending.
In addition, CMS has taken steps to ensure that some physician fees  recognize efficiencies when certain services are furnished together, but  the agency has not targeted the services with the greatest potential for  savings. Under the budget neutrality requirement, the savings that have  been generated have been redistributed to increase physician fees for  other services. Therefore, we recommended in 2009 that Congress  consider exempting savings from adjusting physician fees to recognize  efficiencies from budget neutrality to ensure that Medicare realizes these  savings.
Our examination of payment rates for home oxygen also found that  although these rates have been reduced or limited several times, further  savings are possible. As we reported in January 2011, if Medicare used the  methodologies and payment rates of the lowest-paying private insurer of  eight private insurers studied, it could have saved about $670 million of the  estimated $2.15 billion it spent on home oxygen in 2009. Additionally, we  found that Medicare bundles its stationary equipment rate payment for  oxygen refills, but refills are required only for certain types of equipment,  so a supplier may still receive payment for refills even if the equipment  does not require them. Therefore, we suggested that Congress should  consider reducing home oxygen payment rates and recommended that  CMS remove payment for portable oxygen refills from payment for  stationary equipment, and thus only pay for refills for the equipment types  that require them.
Our work has also shown that payment for imaging services may benefit  from refinements. Specifically, CMS could add more front-end approaches  to better ensure appropriate payments, such as requiring physicians to  obtain prior authorization from Medicare before ordering an imaging  service. CMS also has opportunities to improve the way it adjusts  physician payments to account for geographical differences in the costs of  providing care in different localities. We have recommended that the  agency examine and revise the physician payment localities it uses for this  purpose by using an approach that is uniformly applied to all states and  based on the most current data. CMS agreed to consider the  recommendation but was concerned about its redistributive effects. The   agency subsequently initiated a study of physician payment locality  adjustments. The study is ongoing, and CMS has not implemented any  change.
section_title: Improving Program Management
paragraphs: CMS’s implementation of competitive bidding for medical equipment and  supplies and its new Medicare Administrative Contractors (MAC) have  progressed, with some delays. Congress halted the first round of  competitive bidding and required CMS to improve its implementation. In  regard to contracting reform, because of delays resulting from bid protests  filed in connection with the procurement process, CMS did not meet the  target that it set for 2009 and 2010 in transferring workload to MACs. As of  December 2010, CMS transferred Medicare fee-for-service claims  workload to the new MACs in all but six jurisdictions. For those six  jurisdictions, CMS is transferring claims workload in two jurisdictions and  has ongoing procurement activity for the remainder. Some new MACs had  delays in paying providers’ claims, but overall, CMS’s contractors  continued to meet the agency’s performance targets for timeliness of  claims processing in 2009.
Regarding Medicare Advantage, CMS has not complied with statutory  requirements to mail information on plan disenrollment to beneficiaries,  but it did take steps to post this information on its Web site. In addition,  the agency took enforcement actions for inappropriate marketing against  at least 73 organizations that sponsored Medicare Advantage plans from  January 2006 to February 2009.
Of greater concern is that we found pervasive internal control deficiencies  in CMS’s management of its contracting function that put billions of  taxpayer dollars at risk of improper payments or waste. We recommended  that CMS take actions to address them. Recently, CMS has taken several  actions to address the recommendations and correct certain deficiencies  we had noted, such as revising policies and procedures and developing a  centralized tracking mechanism for employee training. However, CMS has  not made sufficient progress to complete actions to address  recommendations related to clarifying the roles and responsibilities for  implementing certain contractor oversight responsibilities, clearing a  backlog of contacts that are overdue for closeout, and finishing its  investigation of over $70 million in payments we questioned in 2007.
section_title: Enhancing Program Integrity
paragraphs: New directives, implementing guidance, and legislation designed to help  reduce improper payments will affect CMS’s efforts over the next few  years. The administration issued Executive Order 13520 on reducing  improper payments in 2009 and related implementing guidance in 2010. In  addition, the Improper Payments Elimination, and Recovery Act of 2010  amended the Improper Payments Information Act of 2002 and established  additional requirements related to accountability, recovery auditing,  compliance and noncompliance determinations, and reporting.
CMS has already taken action in some areas—for example, as required by  law, it implemented a national Recovery Audit Contractors (RAC) program  in 2009 to analyze paid claims and identify overpayments for recoupment.  CMS has set a key performance measure to reduce improper payments for  Parts A and B (fee-for-service) and Part C and is developing measures of  improper payments for Part D. CMS was not able to demonstrate sustained  progress at reducing its fee-for-service error rate because changes made to  improve the methodology for measurement make current year estimates  noncomparable to any issued before 2009. Its 2010 fee-for-service payment  error rate of 10.5 percent will serve as the baseline for setting targets for  future reduction efforts. However, with a 2010 Part C improper payment  rate of 14.1 percent, the agency met its target to have its 2010 improper  payment rate lower than 14.3 percent. For Part D, the agency is working to  develop a composite improper payment rate, and for 2010 has four non- addable estimates, with the largest being $5.4 billion. Other recent CMS  program integrity efforts include issuing regulations tightening provider  enrollment requirements and creating its Center for Program Integrity,  which is responsible for addressing program vulnerabilities leading to  improper payments.
However, having corrective action processes to address the vulnerabilities  that lead to improper payments is also important to effectively managing  them. CMS did not develop an adequate process to address the  vulnerabilities to improper payments identified by the RACs and we  recommended that it do so. Further, our February 2009 report indicated  that Medicare continued to pay some home health agencies for services  that were not medically necessary or were not rendered. To help address  the issue, we recommended that postpayment reviews be conducted on  claims submitted by home health agencies with high rates of improper  billing identified through prepayment review and that CMS require that  physicians receive a statement of home health services that beneficiaries  received based on the physicians’ certification. In addition, we  recommended that CMS require its contractors to develop thresholds for  unexplained increases in billing by providers and use them to develop  automated prepayment controls as a way to reduce improper payments.  CMS has not implemented these four recommendations. The agency  indicated it had taken other actions; however, we believe these actions  will not have the same effect.
CMS’s oversight of Part D plan sponsors’ programs to deter fraud and  abuse has been limited. However, CMS has taken some actions to increase  it. For example, CMS officials indicated that they had conducted expanded  desk audits and were implementing an oversight strategy.
section_title: Overseeing Patient Care and Safety
paragraphs: CMS’s oversight of the quality of nursing home care has increased  significantly in recent years, but weaknesses in surveillance remain that  could understate care quality problems. Under contract with CMS, states  conduct surveys at nursing homes to help ensure compliance with federal  quality standards, but a substantial percentage of state nursing home  surveyors and state agency directors identified weaknesses in CMS’s  survey methodology and guidance. In addition to these methodology and  guidance weaknesses, workforce shortages and insufficient training,  inconsistencies in the focus and frequency of the supervisory review of  deficiencies, and external pressure from the nursing home industry may  lead to understatement of serious care problems. CMS established the  Special Facility Focus (SFF) Program in 1998 to help address poor nursing  home performance. The SFF Program is limited to 136 homes because of  resource constraints, but according to our estimate, almost 4 percent (580)  of the roughly 16,000 nursing homes in the United States could be  considered the most poorly performing. CMS’s current approach for  funding state surveys of facilities participating in Medicare is ineffective,  yet these surveys are meant to ensure that these facilities provide safe,  high-quality care. We found serious weaknesses in CMS’s ability to   (1) equitably allocate more than $250 million in federal Medicare funding  to states according to their workloads, (2) determine the extent to which  funding or other factors affected states’ ability to accomplish their  workloads, and (3) guarantee appropriate state contributions. These  weaknesses make assessing the adequacy of funding difficult.
However, CMS has implemented many recommendations that we have  made to improve oversight of nursing home care. Of the 96  recommendations made by GAO from July 1998 through March 2010, CMS  has fully implemented 45, partially implemented 4, is taking steps to  implement 29, and did not implement 18. Examples of key  recommendations implemented by CMS include (1) a new survey  methodology to improve the quality and consistency of state nursing home  surveys and (2) new complaint and enforcement databases to better  monitor state survey activities and hold nursing homes accountable for  poor care.
What Remains to Be Done  When legislative and administrative actions result in significant progress  toward resolving a high-risk problem, we remove the high-risk designation  from the program. The five criteria for determining whether the high-risk  designation can be removed are (1) a demonstrated strong commitment to,  and top leadership support for, addressing problems; (2) the capacity to  address problems; (3) a corrective action plan; (4) a program to monitor  corrective measures; and (5) demonstrated progress in implementing  corrective measures.
CMS has not met our criteria for removing Medicare from the High-Risk  List—for example, the agency is still developing its Part D improper  payment estimate and has not yet been able to demonstrate sustained  progress in lowering its fee-for-service and Part C improper payment  estimates. CMS needs a plan with clear measures and benchmarks for  reducing Medicare’s risk for improper payments, inefficient payment  methods, and issues in program management and patient care and safety.
One important step relates to our recommendation to develop an adequate  corrective action process to address vulnerabilities to improper payments.  Without a corrective action process that uses information on  vulnerabilities identified by the agency, its contractors, and others, CMS  will not be able to effectively address its challenges related to improper  payments. CMS has implemented certain recommendations of ours, such  as in the area of nursing home oversight. However, further action is  needed on our recommendations to improve management of key activities.  To refine payment methods to encourage efficient provision of services,  CMS should take action to    ensure the implementation of an effective physician profiling system;    better manage payments for services, such as imaging;    systematically apply payment changes to reflect efficiencies achieved by  providers when services are commonly furnished together; and  refine the geographic adjustment of physician payments by revising the  physician payment localities using an approach uniformly applied to all  states and based on current data.
In addition, further action is needed by CMS to establish policies to  improve contract oversight, better target review of claims for services with  high rates of improper billing, and improve the monitoring of nursing  homes with serious care problems.  – – – – –  Mr. Chairman, this concludes my prepared statement. I would be happy to  answer any questions you or other members of the subcommittee may  have.
section_title: Contacts and Acknowledgments
paragraphs: For further information about this statement, please contact Kathleen M.  King at (202) 512-7114 or kingk@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this statement. Sheila Avruch, Assistant Director; Kelly Demots; and  Roseanne Price were key contributors to this statement.
section_title: Related GAO Products
paragraphs: High-Risk Series: An Update. GAO-11-278. Washington, D.C.: February  2011.
Medicare Home Oxygen: Refining Payment Methodology Has Potential  to Lower Program and Beneficiary Spending. GAO-11-56. Washington,  D.C.: January 21, 2011.
Medicare Recovery Audit Contracting: Weaknesses Remain in  Addressing Vulnerabilities to Improper Payments, Although  Improvements Made to Contractor Oversight. GAO-10-143. Washington,  D.C.: March 31, 2010.
Medicare Contracting Reform: Agency Has Made Progress with  Implementation, but Contractors Have Not Met All Performance  Standards. GAO-10-71. Washington, D.C.: March 25, 2010.
Nursing Homes: Addressing the Factors Underlying Understatement of  Serious Care Problems Requires Sustained CMS and State Commitment.  GAO-10-70. Washington, D.C.: November 24, 2009.
Medicare: CMS Working to Address Problems from Round 1 of the  Durable Medical Equipment Competitive Bidding Program. GAO-10-27.  Washington, D.C.: November 6, 2009.
Centers for Medicare and Medicaid Services: Deficiencies in Contract  Management Internal Control Are Pervasive. GAO-10-60. Washington,  D.C.: October 23, 2009.
Medicare Physician Payments: Fees Could Better Reflect Efficiencies  Achieved When Services Are Provided Together. GAO-09-647. Washington,  D.C.: July 31, 2009.
Medicare: Improvements Needed to Address Improper Payments in  Home Health. GAO-09-185. Washington, D.C.: February 27, 2009.
Medicare Advantage: Characteristics, Financial Risks, and  Disenrollment Rates of Beneficiaries in Private Fee-for-Service Plans.  GAO-09-25. Washington, D.C.: December 15, 2008.
Medicare Part B Imaging Services: Rapid Spending Growth and Shift to  Physician Offices Indicate Need for CMS to Consider Additional  Management Practices. GAO-08-452. Washington, D.C.: June 13, 2008.
Medicare: Focus on Physician Practice Patterns Can Lead to Greater  Program Efficiency. GAO-07-307. Washington, D.C.: April 30, 2007.
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