Medicare Secondary Payer: Improvements Needed to Enhance Debt Recovery Process
Published: 2004-08-20T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Last year, employer-sponsored group health plans (EGHP) were responsible for most of the nearly $183 million in outstanding Medicare secondary payer (MSP) debt. MSP debts arise when Medicare inadvertently pays for services that are subsequently determined to be the financial responsibility of another. The Centers for Medicare & Medicaid Services (CMS) administers Medicare with the assistance of about 50 contractors that, as part of their duties, are required to recover MSP debt. GAO was asked to determine whether Medicare contractors are appropriately recovering MSP debt. GAO (1) assessed the cost-effectiveness of the current debt recovery system and (2) identified CMS's plans to enhance the recovery process. GAO analyzed workload and budget information and assessed plans to develop a new debt recovery system--the Recovery Management and Accounting System (ReMAS).
section_title: What GAO Found
paragraphs: Medicare's system for recovering MSP debt from EGHPs is no longer cost-effective, with CMS recovering only 38 cents for every dollar it spent on recovery activities in fiscal year 2003. This is largely due to workload and budgetary factors. While the number of new debt cases referred to contractors has declined by more than 80 percent since fiscal year 2000, CMS's budget for contractor recovery activities has remained relatively unchanged. As a result, contractors were funded at a level that exceeded their workload. Almost half of the contractors that CMS funded to process the 7,634 cases associated with the fiscal year 2003 workload were assigned fewer than 50 cases--and eight were not assigned any. The current system is also constrained by procedures that prevent contractors from maximizing recoveries. For example, CMS has instructed contractors not to pursue cases in which the amount of mistaken payments made on behalf of the same beneficiary is less than $1,000. In addition, CMS neglected to transmit more than 2,000 cases to the contractors--which depend on these transmittals to initiate recoveries--during fiscal years 2000, 2001, and 2003. CMS is developing a new recovery system--ReMAS--to enhance the MSP recovery process. This system has the potential to help increase savings, provide CMS with greater flexibility in distributing the workload, and simplify the collection of MSP debt. ReMAS is designed to identify relevant mistaken payments and will generate a case that can be assigned to any contractor for recovery--not only the contractor that processed the mistakenly paid claims. However, ReMAS has been under development for over 6 years and is currently only being used for liability and workers' compensation recoveries by a fraction of the contractors. Pilot testing of ReMAS on EGHP cases will not begin until October 2004.

section_title: Letter
paragraphs: Medicare—the federal health insurance program that serves the nation’s  elderly and disabled—paid over $271 billion for the health care of  approximately 41 million aged and disabled beneficiaries in fiscal year  2003. The Centers for Medicare & Medicaid Services (CMS)—the federal  agency within the Department of Health and Human Services that  administers the Medicare program—has a strong interest in protecting  Medicare’s fiscal integrity. To safeguard funds, CMS must pay only for  those services that are the responsibility of the Medicare program. In some  instances, beneficiaries have other insurance—such as employer- sponsored group health plans, automobile or other liability insurance  plans, or workers’ compensation—that has the primary responsibility to  pay their claims. In these cases, Medicare would be the secondary payer,  responsible for meeting beneficiaries’ health care costs not covered by the  primary insurer.
CMS and the contractors that assist the agency in administering the  program are charged with determining whether Medicare beneficiaries  have other health insurance coverage. In fiscal year 2000, CMS estimated  that about 8 percent of Medicare beneficiaries had health care claims that  appeared to be the primary responsibility of another insurer. Because  Medicare does not always know whether a beneficiary has other primary  insurance, it may inadvertently pay for services that are subsequently  determined to be the financial responsibility of another payer. These  mistaken payments represent money owed to Medicare and are known as  Medicare secondary payer (MSP) debt.
Employer-sponsored group health plans (EGHP) are responsible for the  majority of outstanding MSP debt, accounting for about $134 million of the  almost $183 million in outstanding MSP debt in fiscal year 2003. Liability  insurers, workers’ compensation plans, and other types of coverage  accounted for the remaining $49 million. Because of your interest in  protecting the integrity of Medicare funds, you asked that we determine  whether Medicare contractors are appropriately recovering payments  from other health care insurers, specifically from EGHPs.
To evaluate the MSP debt recovery process, we assessed (1) the cost- effectiveness of the current system for recovering MSP debt from EGHPs,  (2) the performance of CMS’s contractors in recovering MSP debt from  EGHPs, and (3) the agency’s plans to enhance the MSP recovery process.
To perform our work, we analyzed information from two CMS databases— the Contractor Administrative-Budget and Financial Management (CAFM)  System and the Mistaken Payment and Recovery Tracking System  (MPaRTS)—which together contain budget, workload, and recovery data  related to MSP claims. We also visited four CMS contractors that  processed a high volume of MSP debt recovery cases in fiscal years 2000  and 2001 and reviewed supporting documentation for over 100 closed  cases at each contractor. These cases consisted of potentially mistakenly  paid claims for beneficiaries who appeared to be covered by an EGHP.  Because contractors close the majority of cases without making  recoveries, we specifically focused on such cases to determine whether  contractors followed appropriate procedures and made sufficient efforts  to recover MSP debt. We excluded cases involving liability, workers’  compensation, and other forms of coverage from our review.
To further assess contractor performance, we examined whether the  contractors’ private health insurance businesses influenced their recovery  efforts. In some EGHP debt recovery cases, the contractor’s private health  insurance business sold coverage to the employer that was responsible for  the MSP debt. Because this creates a potential conflict of interest requiring  the contractor to collect funds from the private side of its business, our  examination included an assessment of whether contractors were diligent  in recovering debt in such circumstances. In addition, we reviewed CMS  program guidelines and memoranda, interviewed CMS and contractor  officials, and examined the results of CMS’s fiscal years 2001 and 2002  Contractor Performance Evaluations pertaining to contractors’ MSP  operations. (See app. I for additional information on our scope and  methodology and an assessment of the reliability of CMS data used in this  report.) We conducted our work from December 2002 through July 2004 in  accordance with generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: CMS administers the Medicare program with the assistance of about 50  claims administration contractors. As part of their duties, contractors  deny claims that are the responsibility of other insurers. In addition, they  are required to recover mistaken payments that were made before it could  be determined that the beneficiary had other insurance—such as an  EGHP, an automobile or other liability insurance plan, workers’  compensation, or other types of coverage.
To ensure that contractors adequately perform these tasks, CMS  periodically monitors and evaluates their performance. Contractors are  required to record recovery information pertaining to EGHP debt cases in  the MPaRTS database. MPaRTS tracks the status of each EGHP case and  provides CMS with information on the amount of mistaken payments  identified, the amount demanded to be repaid, the amount recovered, and  whether the case is currently open or closed. Although CMS does not have  a database for tracking liability and workers’ compensation cases that is  comparable to MPaRTS, CMS requires contractors to submit quarterly  accounts receivable reports for these and other types of cases. These  reports show the aggregate amount of outstanding debt, but do not  provide detail at the individual case level.
To prevent mistaken MSP payments, Medicare claims administration  contractors match beneficiaries’ health care claims against information  contained in Medicare’s Common Working File (CWF)—a repository of  claims and beneficiary enrollment data—to determine whether Medicare is  the primary or secondary payer. Claims are paid if the CWF indicates that  Medicare is the primary payer. However, the CWF may not always contain  accurate information. The MSP status of some beneficiaries is sometimes  in a state of flux—for example, a retired beneficiary may return to the  workforce and receive coverage under an EGHP for 6 months, and then  leave that job. This information may not be recorded in a timely manner,  leading to mistaken payments. In addition, the CWF can also contain  inaccurate information if beneficiaries do not notify CMS of their  insurance status when they become eligible for Medicare or if they provide  incorrect insurance information. Furthermore, although the CWF is  periodically updated with new insurance information, there is a lag  between the time beneficiaries obtain coverage and when CMS learns of  this coverage. In the interim, contractors may mistakenly pay  beneficiaries’ claims.
To identify mistaken MSP payments when an EGHP is the primary payer,  claims administration contractors use information provided by CMS and  the Coordination of Benefits Contractor (COBC). The COBC is a  specialized contractor that does not process Medicare claims. Instead, the  COBC is charged with developing information on beneficiaries who may  have other primary health insurance through a process known as the data  match. The purpose of the data match is to identify beneficiaries or their  spouses who are employed and thus may be covered by an EGHP. To  facilitate data matching, the Social Security Administration sends the  Internal Revenue Service a list containing the Social Security numbers of  Medicare beneficiaries. The Internal Revenue Service then matches the list  against beneficiary income tax return data and sends the results to the  COBC for further analysis. For example, if tax records show that an  employer paid a beneficiary at least $10,000 during the previous year, the  COBC would contact the beneficiary’s employer to determine whether he  was covered by that employer’s group health plan.
CMS compares information developed by the COBC to the national claims  history file, the most comprehensive source of paid claims information.  This comparison allows CMS to determine whether Medicare may have  mistakenly paid claims on behalf of the beneficiary. If the mistakenly paid  claims total at least $1,000, CMS assigns the case to the claims  administration contractor that processed and paid the claims.
Upon receipt of the EGHP debt case, claims administration contractors  have 60 days to perform certain tasks to determine whether an attempt  should be made to recover the debt. The contractor must first verify that  the information being used as a basis for recovering the debt is correct and  that it has not already recouped the mistaken payments. If the case passes  this initial validation process, the contractor will initiate recovery by  sending a demand letter to the beneficiary’s employer and insurance  company or third-party administrator, requesting payment within 60 days.  If there is no response to the demand letter within 60 days, interest begins  to accrue on the debt. Contractors then send a second letter explaining  that if a response or payment is not received within another 60 days, the  matter will be referred to the Department of the Treasury for collection.  Responses to these letters can include repayment with interest or an  explanation as to why the employer and associated health insurer are not  responsible for the debt. This explanation may include documentation  indicating that the employee retired and thus discontinued health coverage  or never obtained coverage through the employer.
The procedures followed by contractors to recover mistaken payments  from liability insurers and workers’ compensation plans differ from those  used when the primary payer of an MSP debt is an EGHP. In a liability or  workers’ compensation case, mistaken payments made on behalf of a  beneficiary are not related to a period of insurance coverage, but to a  particular incident—for example, an automobile accident or workplace  injury. The task of the contractor in such cases is to identify all paid  medical claims related to the incident and to inform the beneficiary or the  beneficiary’s attorney of the responsibility to repay Medicare in the event  that they receive an insurance settlement for their medical expenses.  Because beneficiaries may require protracted medical treatment for their  injuries, it may take several years before the total amount of payments  related to the injury is known. In the interim, a contractor may repeatedly  review the beneficiary’s claims history to determine whether Medicare has  paid new claims related to the injury.
We previously reported that CMS maintained a substantial backlog of  uncollected debt in fiscal year 2000. Although the Debt Collection  Improvement Act of 1996 required that agencies refer debt delinquent for  more than 180 days to the Department of the Treasury, CMS still had not  fully implemented this requirement. Prior to 2000, CMS did not instruct  claims administration contractors to refer delinquent EGHP cases to the  Department of the Treasury for collection. As a result, CMS maintained a  substantial backlog of older cases that remained open, but inactive, for  many years.
CMS’s administration of the Medicare program will undergo significant  changes over the next several years as the Medicare Prescription Drug,  Improvement, and Modernization Act of 2003 (MMA) is implemented.  MMA provides CMS with increased flexibility in contracting with new  entities to assist it in operating the Medicare program. While CMS has  relied primarily on the claims administration contractors to perform most  of the key business functions of the program, the new law authorizes  CMS to enlist a variety of contractors to perform these tasks. For example,  CMS could use new contractors to process and pay claims and to perform  financial management and payment safeguard activities. CMS is just  beginning to develop plans to implement MMA’s contracting reform  provisions. Phase-in of the amendments to contracting reform takes effect  on October 1, 2005. The competitive bidding of all contracts is required for  contract periods that begin on or after October 1, 2011. The agency  expects to issue its implementation plan for contracting by October 1,  2004.
section_title: EGHP Debt Recovery Process No Longer Cost-Effective
paragraphs: Since fiscal year 2000, the cost-effectiveness of EGHP recovery activities  has significantly declined. The decline in cost-effectiveness occurred  because the volume of EGHP debt cases significantly decreased—in fiscal  year 2003, almost half of the contractors were assigned fewer than 50  cases—while, at the same time, the cost to CMS for maintaining debt  collection capabilities at all claims administration contractors increased  slightly. Moreover, CMS funded eight contractors who were not assigned  any EGHP debt cases. The recovery process is also constrained by  procedures that prevent contractors from maximizing their recoveries of  mistaken payments. Because contractors have access only to claims that  they have paid, they cannot identify, and thus collect, mistaken payments  made by other contractors. In addition to these structural problems, we  found that in 3 of the last 4 years CMS did not transmit a substantial  number of EGHP cases to the claims administration contractors, resulting  in missed recoveries.
subsections: section_title: CMS Contractor Funding Has Not Decreased Despite Declining Workload
paragraphs: EGHP recovery activities are no longer cost-effective. To measure cost- effectiveness, we compared the amount that CMS spent on contractor  recovery activities for a given fiscal year with the amount recovered from  all cases that were opened during the same year—regardless of when the  funds were recovered. While Medicare recovered about $2.49 for each  dollar it spent on EGHP recovery activities in fiscal year 2000, this ratio  declined to $1.80 in 2001. Although there are no comparable data for fiscal  year 2002 because CMS did not open any new EGHP cases that year, thus  allowing contractors time to reduce their backlog of old cases, the  decline in cost-effectiveness continued in fiscal year 2003 when CMS  resumed opening new EGHP cases. In that year, Medicare lost money on  EGHP recovery activities, recovering only 38 cents for every dollar spent.  (See table 1.)
The lack of cost-effectiveness of the EGHP recovery process resulted  partly from a declining workload, which limited the potential for recovery.  The number of new MSP EGHP debt cases has decreased by more than   80 percent in recent years, from 49,240 cases in fiscal year 2000 to 7,634  cases in fiscal year 2003. CMS officials told us that improvements in  identifying beneficiaries with other insurance before a claim is paid have  reduced the number of mistakenly paid MSP claims. Consequently,  according to CMS officials, this has lessened the need to recover these  payments via the EGHP recoveries. These officials also projected that the  number of EGHP cases assigned to contractors could continue to decline.
Not only have the number of EGHP cases declined since fiscal year 2000,  but the complexity of these cases and the resources required to process  many of them have also decreased. Since fiscal year 2000, the claims  administration contractors closed more than half of the cases during their  initial computer screening process. That is, they often found that the  mistaken payments totaled less than $1,000, another insurer voluntarily  paid the claims, or the COBC updated the CWF to show that the  beneficiary did not have other primary coverage, such as an employer- sponsored group health plan, during the time the services were delivered.  In such instances, contractors are not required to correspond with  employers and insurers. It is only a relatively smaller number of cases— those that pass the initial screening process—that require significant  contractor resources to send demand letters, process the responses, and  archive file materials. As shown in figure 1, of the 49,240 EGHP cases  processed by contractors in fiscal year 2000, 20,487—about 42 percent— were resource-intensive cases that entailed sending a demand letter. In  contrast, only 1,276 cases—about 17 percent—involved a demand letter in  fiscal year 2003.
CMS’s payments to contractors for recovery activities have not reflected  the sharp decline in the number of EGHP debt cases that occurred in fiscal  year 2003. For example, in fiscal year 2000, the three contractors with the  largest workloads received a combined budget of less than $1 million and  processed 7,708 EGHP cases. The workload of those three contractors was  larger than the entire fiscal year 2003 workload, for which CMS spent  almost $10 million on contractors’ EGHP debt recovery activities.
This disparity between workload and budget in fiscal year 2003 is even  more apparent at the individual contractor level. As shown in table 2, 8 of  the 51 claims administration contractors processed 400 or more EGHP  cases—representing about 52 percent of the total EGHP workload of 7,634  cases. However, almost half of the contractors were assigned fewer than  50 cases. Despite their small combined workload—4 percent of all EGHP  cases in fiscal year 2003—CMS allocated to these contractors more than a  quarter of its EGHP budget, about $2.5 million, to support EGHP and  certain other recovery activities. Moreover, CMS funded 8 contractors  that were not assigned any EGHP debt cases.
CMS’s budget process does not efficiently match funding for contractor  recovery activities to contractors’ actual workloads. CMS pays each  contractor to maintain an infrastructure to support the recovery of EGHP  debt, regardless of the number of cases the contractor processes during  the year. In order to process EGHP cases forwarded to them by CMS, the  claims administration contractors maintain an infrastructure that results in  costs such as wages, equipment, and records. Typically, this includes a  staff of MSP examiners who review EGHP cases, contact other potential  insurers, evaluate explanations from insurers as to why the MSP debt may  not be valid, make referrals to the Department of the Treasury when a debt  is not paid within 180 days, and archive case files. Each contractor must  also maintain screening software to identify and exclude EGHP debt cases  that do not meet the $1,000 threshold. As a result, some contractors may  receive funding for their infrastructures even though they process few or  no cases during the year, as occurred in fiscal year 2003.
In comparison to other MSP activities performed by contractors—such as  maintaining computer programs that automatically identify and deny MSP  claims—EGHP recoveries are expensive to conduct and no longer provide  a return on investment. In fiscal year 2003, the return on investment for all  types of MSP activities combined was 48 to 1. That is, Medicare  contractors spent an estimated $95.6 million for all MSP activities and  produced identifiable savings of approximately $4.6 billion, resulting in  $48 saved for every dollar spent.
section_title: Operational Constraints Reduce Potential MSP Savings
paragraphs: We found that several system limitations create barriers to recovering  mistaken payments and reduce program savings. Some mistakenly paid  claims may be missed because beneficiaries received medical services in  more than one state, and thus had their claims processed by more than  one contractor. Because contractors have access only to claims records  that they process, they are unable to identify claims processed by other  contractors. In addition, beneficiaries whose total MSP claims exceed  $1,000, but are split among two or more contractors, may not have all of  their mistaken payments recovered if the payments made by any single  contractor total less than the $1,000 threshold. Although CMS officials  could not quantify the effect of these constraints on recoveries, they told  us that they believe that these limitations have significantly reduced MSP  savings.
For example, a beneficiary who lives in the Midwest but spends the winter  in the South and receives health care services in both locations will have  claims processed by different contractors. If mistaken payments for $2,000  were made for services the beneficiary received during the year—for  example, $1,200 in one location and $800 in the other—only the contractor  with payments exceeding the threshold would pursue a recovery.  Therefore, although the primary payer would be responsible for the entire  $2,000 in services, Medicare would attempt to recover only a portion of the  amount owed.
A similar inefficiency occurs when beneficiaries receive inpatient services  covered by Part A of Medicare and physician services covered by Part B.  Different contractors typically process Part A and Part B claims, but they  are not required to coordinate EGHP recoveries with one another. This  lack of coordination also results in missed savings opportunities when  neither the Part A nor Part B claims individually meet the $1,000 threshold.  Even if both the Part A and Part B claims exceed this threshold, greater  administrative costs are incurred by both CMS and private employers, as  two different contractors attempt to recoup payments from the same  payer.
Finally, the success of the current system depends on CMS distributing  EGHP cases to the claims administration contractor that processed the  mistaken payments. Our review of EGHP debt cases revealed that, during  fiscal years 2000, 2001, and 2003, CMS neglected to transmit 2,364 cases to  the contractors, representing more than $28 million in potential mistaken  payments. CMS officials told us that the accurate referral of EGHP cases  has grown more difficult in recent years as some contractors have left the  Medicare program and other contractors subsequently assumed their  existing workload. They explained that they suspected that these EGHP  cases were overlooked when one contractor processing claims for  beneficiaries in several states left the program and the related cases were  never assigned to the replacement contractors. As a result, no recovery  action was ever initiated for these cases. By using the percentage of  potential mistaken payments that are typically recovered—7 percent—we  estimate that CMS’s failure to transmit these cases to contractors for  potential recovery cost the Medicare program approximately $2 million.
section_title: Contractors’ Performance in Recovering EGHP Debt Is Inconclusive
paragraphs: We were unable to fully evaluate the effectiveness of the EGHP debt  recovery efforts of the claims administration contractors we visited  because three of the four contractors were unable to produce all of the  case files we requested. Although the files we examined indicated that  these contractors were appropriately managing their EGHP workload, the  volume of unavailable files precluded us from reaching an overall  conclusion on their performance. CMS’s recent contractor performance  evaluations found similar records management deficiencies and raised  additional questions about contractors’ effectiveness.
subsections: section_title: Poor Records Management Results in Inconclusive Assessment of Contractors’ Performance
paragraphs: We found it difficult to thoroughly assess the performance of all of the  contractors we visited. At each contractor, we randomly selected a sample  of cases to review. The number selected varied by contractor and totaled  644 cases for all contractors combined. However, 78 case files could not  be located. Although one contractor was able to produce the files and  supporting documentation for all the cases we requested, the other three  contractors poorly managed their records and were unable to provide all  of the files and supporting documentation we had requested in advance of  our visits. The percentage of missing cases at these contractors ranged  from 4 to 24 percent. Because these files were not available, we were  unable to fully assess whether the contractors made sufficient efforts to  collect MSP debt. For example, without supporting documentation for  those cases, we could not conclusively determine that the contractors had  followed all the appropriate recovery procedures.
Of the 566 cases available for review, we found that contractor files were  complete and contained appropriate documentation to support the  contractor’s decision to close each case without making a recovery. We  reviewed two types of cases: those that were closed during the initial  screening process after the contractor determined that the $1,000  threshold was not met, and those that were closed after the contractor  sent a demand letter to the employer requesting payment. Together, these  two types of cases constituted about 65 percent of the EGHP workload  during fiscal years 2000 and 2001. For cases that were closed because  they did not meet the $1,000 threshold, contractors provided us with  adequate supporting documentation showing that the involved claims  totaled less than this amount. Other cases were properly closed because  the employers provided valid reasons as to why they were not responsible  for the MSP debt. For example, if a beneficiary had retired and was not  covered by the employer’s insurance at the time the claims were  submitted, contractor case files contained correspondence from the  employer documenting this fact. In about a third of the MSP cases we  selected for review, the private side of the contractor’s business sold  insurance to the employer that was initially identified as having  responsibility for MSP debt. Although this situation creates a potential  conflict of interest for the contractor because it must collect funds from its  private business side, we did not find evidence that contractors closed  such cases inappropriately or treated them differently from others.
Our review also found that one contractor made errors entering  information into CMS’s MPaRTS system, which tracks the status of EGHP  cases. Although such errors do not mean that the contractor had  inappropriately processed cases, they make it difficult for CMS to monitor  the cases’ status. The tracking system uses different codes to describe the  status of MSP cases. For example, there is a code to indicate that the case  was closed after a demand letter was sent, and another to indicate that the  case was closed because the $1,000 recovery threshold was not met. This  contractor did not correctly apply these two codes and miscoded about   18 percent of the cases we reviewed.
section_title: CMS Contractor Evaluations Highlight Other Problem Areas
paragraphs: CMS’s recent contractor performance evaluations of MSP recovery  activities support our finding of poor records management. CMS evaluated  the MSP activities of 12 contractors in fiscal year 2001 and another 12  contractors in fiscal year 2002. During these evaluations, CMS reviewed  EGHP case files from contractors. These evaluations are based on a  relatively small number of case files—10 to 20—and therefore do not  provide in-depth assessments of contractors’ performance. However, the  evaluations conducted in 2001 and 2002 highlighted contractor  performance problems similar to those we identified. That is, CMS found  that several contractors, which included some that were not part of our  review, had missing case files and entered inaccurate information into the  CMS tracking database. For example, during a review of one contractor,  CMS requested 20 EGHP case files, but the contractor was able to locate  only 12 files. In addition, CMS found tracking-system coding errors—in  2001, 5 of the 12 contractors reviewed did not use the correct status code  when entering information into the CMS computer system that tracks the  status of EGHP cases.
CMS evaluations identified additional problems in fiscal years 2001 and  2002, suggesting other weaknesses in contractors’ MSP recovery activities,  as illustrated by the following examples:    Staffing problems. One contractor discontinued processing data match  cases for 3 months when the sole staff member performing this task took  an extended leave of absence. At another contractor, CMS determined that  the number of staff assigned to MSP recoveries was insufficient to process  the contractor’s large workload. CMS also noted that a contractor had  recently changed the educational requirements for MSP staff. Because  most of the current staff did not possess a college degree as required by  the contractor’s revised standard, the contractor retained an almost  entirely new MSP staff. The new staff told CMS reviewers that their  training was inadequate to prepare them for processing the workload.
Delays in processing correspondence. In examining documentation at one  contractor, CMS reviewers identified a significant backlog of  correspondence. According to CMS’s estimate, there were over 2,400  pieces of mail awaiting action—including checks and correspondence  from employers, insurers, and other contractors. The oldest  correspondence awaiting action was more than 2 years old—well beyond  CMS’s requirement that contractors match incoming mail with established  cases and respond to such correspondence within 45 days.
Failure to appropriately document case determinations. At one contractor,  CMS reviewers found several case files where the contractor did not  document whether the action was necessary. For example, the contractor  closed a case and indicated that a full recovery was made; however, the  file did not show that a check was received from either an employer or  insurer. At another contractor, CMS reviewers examined cases that were  inappropriately closed without recovery because the contractor had not  promptly notified the EGHP of the debt, as required. In this instance, CMS  found that once the contractor recognized its own untimeliness, it erred  again by closing these cases without confirming that the health plan’s time  limit for accepting claims had, in fact, expired.  Inadequate security measures. Because the recovery process partially  relies on Internal Revenue Service tax information, contractors are  required to take certain precautions to prevent unauthorized access. At  one contractor, CMS found that the workstation of the person responsible  for processing the EGHP workload was situated next to the workstations  of staff who did not have authorization to access restricted tax  information. Reviewers found that files were stored in unlocked file  cabinets and that sensitive printed materials were left in plain view in a  general work area, rendering the information easily accessible to anyone  in the facility.
section_title: Efforts to Improve MSP Management Have Not Focused on EGHP Debt Cases
paragraphs: Recognizing the need to improve the coordination of its MSP recovery  efforts, CMS contracted for the development of a new recovery system— the Recovery Management and Accounting System (ReMAS)—in 1998. The  purpose of ReMAS is to improve the identification, tracking, and recovery  of mistaken payments. ReMAS was designed to enhance the MSP recovery  process by automating some tasks performed manually and by reducing  the time required to collect MSP debt. As of May 2004, CMS has deployed  the liability insurance and workers’ compensation component of ReMAS  to nine contractors.
subsections: section_title: Designed to Enhance MSP Recoveries, ReMAS Offers Promising Features
paragraphs: ReMAS is designed to receive and evaluate leads from CWF electronically,  a function that is now performed in separate steps by CMS staff and  individual claims administration contractors. These leads consist of  information suggesting that a beneficiary has other coverage that should  be primary. CMS officials claim that ReMAS will streamline other  functions as well. For example, when new information on a beneficiary’s  MSP status is added to CWF, ReMAS is expected to determine, on a daily  basis, whether mistaken payments were made on his or her behalf.  Currently, the contractors review the occurrence of mistaken payments at  varying intervals ranging from quarterly to semiannually. Once ReMAS  determines that Medicare has paid claims that were the primary  responsibility of another insurer, it will generate a case that can be  assigned to any contractor for recovery. It will no longer be necessary for  the contractor that processed the mistakenly paid claims to perform  recovery activities.
CMS officials told us that they believe that ReMAS will have several  advantages over the current process. First, efficiencies gained through  ReMAS would enable contractors to pursue MSP debt that involves  amounts less than the current $1,000 threshold, resulting in additional  recoveries. Second, ReMAS could facilitate the consolidation of MSP debt  recovery efforts among a handful of contractors, as each contractor would  have access to all paid claims. CMS officials indicated that ReMAS would  enable them to reduce administrative costs, provide contractors with a  more consistent and predictable workload, and simplify contractor  oversight activities. (See app. II for more information comparing ReMAS to  the present recovery system).
section_title: Implementation of ReMAS for EGHP Debt Cases Is Uncertain
paragraphs: Although CMS has spent $7 million on the development of this system,  which has now spanned 6 years, ReMAS’s implementation is progressing  slowly. It remains in the early implementation stages—testing on EGHP  cases started in June 2004. Several critical tasks related to ReMAS’s  implementation have taken several years to complete. To date, only the  initial software testing and validation for the liability and workers’  compensation components have been completed.
CMS’s initial plans for implementing ReMAS have focused on recovering  liability insurance and workers’ compensation debt. Thus far, 17  contractors have received training in the use of ReMAS. CMS officials told  us that as of May 2004, the liability and workers’ compensation  components of ReMAS have been deployed to nine contractors. The  remaining contractors that process MSP liability cases are scheduled to  implement ReMAS by October 2004. ReMAS also has the potential to  recover mistaken payments associated with EGHPs—currently handled  through the data match process. CMS recently expanded the scope of  ReMAS to include employer-sponsored group health plans, but details  related to incorporating EGHP cases in the system are unclear. Unlike  liability and workers’ compensation cases, which are related to specific  accidents or injuries, EGHP cases are based on a beneficiary’s dates of  employer-sponsored coverage. This distinction requires enhancements to  the ReMAS system, to ensure that it can address and process this key  difference. According to CMS’s timetable, preliminary tasks such as  computer testing, validation, and documentation of the EGHP component  of ReMAS will be completed in September 2004. While CMS expects to  pilot test the EGHP component with two contractors in October 2004, it  has not specified when it will implement ReMAS for EGHP cases at all  contractors.
section_title: Conclusions
paragraphs: As Medicare’s primary steward, CMS should make a concerted effort to  recoup funds owed the program. However, recovery efforts should be  planned and executed with cost-effectiveness in mind. CMS’s efforts to  recover MSP debt from cases that involve EGHPs were cost-effective as  recently as a few years ago, but CMS is now operating a recovery system  that is losing money. Although funding for contractors’ EGHP debt  recovery activities has slightly increased since fiscal year 2000, contractor  workloads have decreased by 80 percent. In addition, funding for these  activities is not always related to contractors’ workloads—in fiscal year  2003, almost half of the contractors received fewer than 50 cases to  process while 8 of these, which had a collective budget of more than   $1.8 million, received no cases at all. As recently as fiscal year 2000, three  contractors collectively processed a workload that exceeded the entire  EGHP workload of all contractors in fiscal year 2003, suggesting that  consolidation of debt recovery activities among a smaller number of  contractors is feasible. The current system, with over 50 contractors  involved in EGHP recovery activities, is cumbersome to administer, and  poor record-keeping makes it difficult to determine whether contractors  are doing all they can to recover debt.
One of the keys to improving the cost-effectiveness of MSP debt  recoveries may rest with CMS’s new ReMAS system. Plans to expand the  scope of ReMAS to recover debt associated with employer-sponsored  group health plans could ultimately address current operational  weaknesses, such as an inefficient distribution of workload and limited  coordination among contractors. Now that CMS has been given new  authority to contract with a variety of entities to assist it with managing  the Medicare program, it should take advantage of ReMAS’s capability to  consolidate debt recovery efforts with a smaller number of contractors  and thereby improve the efficiency of the program.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the administrator of CMS:    develop detailed plans and time frames for expanding ReMAS to include  EGHP cases, and expedite implementation of the EGHP component of  ReMAS and  improve the efficiency of MSP payment recovery activities by  consolidating the EGHP workload under a smaller number of contractors  and ensuring that contractor budgets for EGHP recovery activities more  closely reflect their actual workloads.
section_title: Agency Comments
paragraphs: In written comments on a draft of this report, CMS agreed with our  recommendations. CMS said it recognizes the importance of improving the  cost-effectiveness of its debt collection process and has taken steps to  expedite implementation of the EGHP component of ReMAS. CMS stated  that operational efficiencies gained through the implementation of ReMAS  make it feasible to consolidate recovery activities. CMS’s comments are  reprinted in appendix III. CMS also provided us with technical comments,  which we incorporated as appropriate.
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section_title: Appendix I: Scope and Methodology
paragraphs: To assess the cost-effectiveness of the current system for recovering  Medicare Secondary Payer (MSP) debt, we analyzed information from two  CMS databases—the Contractor Administrative-Budget and Financial  Management (CAFM) system and the Mistaken Payment and Recovery  Tracking System (MPaRTS). CAFM provided information on CMS’s  budgets for contractors and MPaRTS provided information on the number  of potential MSP recovery cases processed by contractors and the amount  of savings from recovery activities.
To evaluate contractor performance in recovering MSP debt, we focused  on cases that involved beneficiaries and their spouses who may have been  employed and covered by an employer-sponsored group health plan  (EGHP). These cases consisted of potentially mistakenly paid claims for  services a beneficiary appeared to have received while covered by an  EGHP. We selected 4 geographically dispersed contractors that processed  a high volume of EGHP debt cases—all 4 were among the top 10  contractors that processed the highest number of such cases in 2000 and  2001. At each contractor, we randomly selected a sample of cases that  were opened in 2000 and 2001 for review—the number of cases selected at  each contractor varied, ranging from 136 to 207. Of the 644 cases selected,  566 were available for review. Contractors were unable to provide  documentation for 78 cases. Because contractors close the majority of  cases without making recoveries, we specifically focused on such cases in  order to determine whether contractors made sufficient effort to recover  MSP debt and followed appropriate procedures. Our inspection of these  files consisted of reviewing contractor adherence to CMS’s detailed  procedures for steps taken during the recovery process and the sufficiency  of the contractor’s documentation for closing data match cases without  recovering funds or referring cases to the Department of the Treasury for  collection.
All four of the Medicare contractors we examined sold private health  insurance. Because of the possibility that the private side of their  businesses could have been responsible for reimbursing Medicare for MSP  debt, our examination included an assessment of whether this potential  conflict of interest affected contractors’ actions in collecting this debt.  Using insurer information available from MPaRTS and contractor case  files, we identified cases that involved the contractor’s private health  insurance business and compared them to the other cases. Our analysis  found little difference between the two types of cases in terms of missing  documentation—12.0 percent of cases that involved the contractor’s  private side health insurance business were not documented, compared  with 12.1 for the other cases. To assess CMS efforts to oversee and  improve MSP debt recovery, we reviewed program guidelines and  memoranda and interviewed officials from CMS and Medicare contractors.  To identify contractor performance problems, we also examined the  results of CMS’s fiscal years 2001 and 2002 contractor performance  evaluations pertaining to contractors’ MSP operations.
Although we did not validate CMS’s CAFM and MPaRTs information, CMS  has procedures in place to ensure the accuracy of these databases. The  MPaRTs database, which tracks MSP debt recoveries from EGHPs,  contains internal logic checks that prevent contractors from incorrectly  entering certain types of information. In addition, CMS periodically  reviews MPaRTs records as part of its contractor performance  evaluations. CAFM is a financial management system established to enable  CMS to control the national budget for the Medicare contractors. It  contains a small number of system checks that ensure that expenditure  information provided by contractors is totaled correctly. The reliability of  the data is ensured through independent audits. In addition, CMS  personnel also review the data throughout the year.
To identify the agency’s efforts to enhance the MSP process, we reviewed  documents and interviewed CMS officials on CMS’s planned Recovery,  Management and Accounting System (ReMAS), a new CMS system for  MSP debt recovery activities that is under development. We conducted our  work from December 2002 through July 2004 in accordance with generally  accepted government auditing standards.
section_title: Appendix II: Comparison of Current System for Recovering EGHP Debt with ReMAS
paragraphs: The following table highlights differences between the way MSP case  development, validation, and recovery are implemented under the present  data match recovery system and how they will be implemented under  ReMAS.
section_title: Appendix III: Comments from the Centers for Medicare & Medicaid Services
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: Major contributors to this report were Richard M. Lipinski, Barbara  Mulliken, Enchelle Bolden, Shaunessye Curry, and Kevin Milne.