Improper Payments: Reported Medicare Estimates and Key Remediation Strategies
Published: 2011-07-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: GAO has designated Medicare as a high-risk program because of its size, complexity, and susceptibility to improper payments. In 2010, Medicare covered 47 million elderly and disabled beneficiaries and had estimated outlays of $516 billion. The Centers for Medicare & Medicaid Services (CMS) is the agency in the Department of Health and Human Services (HHS) responsible for administering the Medicare program and leading efforts to reduce Medicare improper payments. This testimony focuses on estimated improper payments in the Medicare program for fiscal year 2010 and the status of CMS's efforts to implement key strategies to help reduce improper payments. This testimony is primarily based on previous GAO reporting related to governmentwide improper payments, Medicare high-risk challenges and program integrity efforts, and CMS's information technology systems intended to identify improper payments. GAO supplemented that prior work with additional information on the nature and extent of Medicare improper payments reported by HHS in its fiscal year 2010 agency financial report. GAO also received updated information from CMS in February 2011 and, in select cases, as of July 2011, on its actions related to relevant laws, regulations, guidance, and open recommendations pertaining to key remediation strategies.
section_title: What GAO Found
paragraphs: For fiscal year 2010, HHS reported an estimate of almost $48 billion in Medicare improper payments, representing about 38 percent of the total $125.4 billion estimate for the federal government. However, this Medicare improper payment estimate is incomplete because HHS has yet to develop a comprehensive estimate for the Medicare prescription drug benefit. The improper payment estimate includes both overpayments and underpayments. Causes cited include inadequate documentation, medically unnecessary services, coding errors, and payment calculation errors. It is important to recognize that the $48 billion is not an estimate of fraud in Medicare. Because the improper payment estimation process is not designed to detect or measure the amount of fraud that may exist, there may be fraud that is not reflected in HHS's reported estimate. CMS faces challenges in designing and implementing internal controls to effectively prevent or detect and recoup improper payments. In 2010, CMS established the Center for Program Integrity to serve as its focal point for all national Medicare program integrity issues. Based on past work, GAO identified five key strategies to help reduce fraud, waste, and abuse and improper payments in Medicare, which CMS has reported initiating actions to address.
section_title: What GAO Recommends
paragraphs: GAO has made recommendations to strengthen CMS's implementation of these strategies, some of which the agency has not implemented. (1) Strengthen provider enrollment standards and procedures. Strong standards and procedures can help reduce the risk of enrolling providers intent on defrauding the program. CMS has taken action to implement provisions of the Patient Protection and Affordable Care Act by screening providers by levels of risk and providing more stringent review of high-risk providers, but has yet to implement certain GAO recommendations in this area. (2) Improve prepayment reviews. Prepayment reviews of claims help ensure that Medicare pays correctly the first time. According to CMS, as of July 1, 2011, CMS has begun applying predictive modeling analysis to claims and plans to expand Medicare prepayment controls. CMS has not implemented GAO's recommendation to improve prepayment reviews. (3) Focus postpayment reviews on vulnerable areas. Postpayment reviews are critical to identifying payment errors and recouping overpayments. In March 2009, CMS began instituting a national recovery audit contractor (RAC) program to help the agency supplement its postpayment reviews. CMS has also developed information technology to help it better identify claims paid in error, but GAO recently reported that the systems are not being used to the extent originally planned and made several recommendations to address the issues. (4) Improve oversight of contractors. CMS has taken action to improve oversight of prescription drug plan sponsors' fraud and abuse programs, which addresses GAO's recommendation, but is still developing specific performance statistics. (5) Develop a robust process to address identified vulnerabilities. Having mechanisms in place to resolve vulnerabilities that lead to improper payments is critical. While CMS has begun actions in this area, it has not developed a robust corrective action process for vulnerabilities identified by Medicare RACs as GAO recommended.

section_title: Letter
paragraphs: Thank you for the opportunity to be here today to discuss improper  payments in the Medicare program, as well as the Centers for Medicare &  Medicaid Services’ (CMS) efforts to remediate them. In 2010, Medicare  covered 47 million elderly and disabled beneficiaries and had estimated  outlays of $516 billion, making it one of the largest federal programs.  Medicare consists of four parts: A, B, C, and D. Medicare Parts A and B  are known as Medicare fee-for-service. Part A covers hospital and other  inpatient stays. Medicare Part B covers hospital outpatient, physician, and  other services. Part C is Medicare Advantage, under which beneficiaries  receive benefits through private health plans. Part D is the Medicare  outpatient prescription drug benefit. CMS is the agency in the Department  of Health and Human Services (HHS) responsible for administering the  Medicare program and leading efforts to reduce Medicare improper  payments.
GAO has designated Medicare as a high-risk program because of its size,  complexity, and susceptibility to improper payments. As defined by the  Improper Payments Elimination and Recovery Act of 2010 (IPERA), 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. For fiscal year 2010, federal agencies  reported an estimated $125.4 billion in improper payments, of which  Medicare accounts for nearly $48 billion—the highest estimated amount  of improper payments in a single program. The Medicare improper  payment estimates do not reflect all of the program’s risk because HHS  did not report a total improper payment estimated amount for its Medicare  prescription drug benefit program (Part D). Despite progress made by  CMS, reducing improper payments in the program is a continuing  challenge for CMS due to the size and scope of Medicare.
Fiscal year 2010 marked the 7th year of implementation of the Improper  Payments Information Act of 2002 (IPIA). IPIA requires executive branch  agencies to annually review all programs and activities to identify those  that are susceptible to significant improper payments, estimate the annual  amount of improper payments for such programs and activities, and  report these estimates along with actions taken to reduce improper  payments for programs with estimates that exceed $10 million. IPERA,  enacted July 22, 2010, amended IPIA by expanding the previous  requirements for identifying, estimating, and reporting on programs and  activities susceptible to significant improper payments and expanding  requirements for recovering overpayments across a broad range of  federal programs. IPERA provisions generally became effective in fiscal  year 2011. The Office of Management and Budget (OMB) has since  issued updated guidance for federal agencies on reporting, reducing, and  recovering improper payments. In addition, the Patient Protection and  Affordable Care Act (PPACA), as amended by the Health Care and  Education Reconciliation Act of 2010, contains provisions designed to  help reduce improper payments in the Medicare program. See appendix I  for additional information about recent congressional and executive  branch actions related to Medicare improper payments.
Today, my testimony will focus on two areas:    HHS reported estimated improper payments in the Medicare program  for fiscal year 2010, and  the status of CMS’s efforts to implement key strategies to help  remediate improper payments in the Medicare program.
My statement today is based primarily on previous GAO reporting related  to governmentwide improper payments, Medicare high-risk challenges  and program integrity efforts, and CMS’s information technology systems  intended to help identify improper payments. We supplemented that prior  work with additional information on the nature and extent of Medicare  improper payments reported by HHS in its fiscal year 2010 agency  financial report (AFR). We also received updated information from CMS in  February 2011 and, in select cases, as of July 2011, on its actions related  to relevant laws, regulations, guidance, and open recommendations  pertaining to the key remediation strategies discussed later in this  statement. A list of related GAO products is included at the end of this  statement. Our prior work was conducted 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: Improper Payments in the Medicare Program
paragraphs: HHS annually reports on improper payments in its AFR. For fiscal year  2010, HHS reported improper payment estimates for several programs,  including Medicare. Collectively, HHS reported an estimate of almost $48  billion in improper payments in Medicare. The $48 billion in estimated  improper payments reported for fiscal year 2010 is attributable to  Medicare fee-for-service and Medicare Advantage. As shown in figure 1,  the Medicare program represents about 38 percent of the $125.4 billion  improper payment estimated amount reported by 20 federal agencies  covering 70 programs. Further, Medicare’s estimated improper payment  amount is the highest among all federal programs that reported an  estimated amount.
HHS’s estimated amount of improper payments for Medicare is  incomplete because it has yet to report a comprehensive improper  payment estimate for the Medicare prescription drug benefit program,  which had reported outlays of about $59 billion in fiscal year 2010.  However, HHS has taken some steps to develop a comprehensive  improper payment error rate. Specifically, for fiscal year 2010, HHS  calculated error rates for the four components of the Medicare  prescription drug benefit program, with the estimates ranging from $45  million to $5.4 billion for each component. However, HHS reported that  the four estimates overlap and consequently cannot be totaled. HHS  reported that it expects to report a comprehensive estimate for the  prescription drug benefit program in fiscal year 2011.
It is important to recognize that the $48 billion in estimated improper  payments reported by HHS in fiscal year 2010 is not an estimate of fraud  in Medicare. Reported improper payment estimates include many types  of overpayments, underpayments, and payments that were not  adequately documented. In addition, because the improper payment  estimation process is not designed to detect or measure the amount of  fraud in Medicare, there may be fraud that exists in the Medicare program  that is not included in the reported improper payment estimate.
In addition to inadequate documentation, HHS cited a number of other  causes for the estimated $48 billion in reported improper payments,  including the provision of services that were found not to be medically  necessary, coding errors, incorrect interpretation of data, and payment  calculation errors. HHS reported that its analysis showed most Medicare  fee-for-service improper payments were for medically unnecessary  durable medical equipment and inpatient hospital services. For Medicare  Advantage, HHS reported that the majority of the improper payment  estimate resulted from insufficient documentation to support the  diagnoses submitted by private health plans for payment.
CMS’s methodology for estimating improper payments has evolved.  Beginning in 1996, HHS’s Office of Inspector General (OIG) estimated  improper payments in the Medicare fee-for-service program as part of its  annual financial statement audit. In fiscal year 2003, CMS assumed  responsibility for estimating Medicare fee-for-service improper payments  and modified the methodology to improve error detection and provide  more detailed information on the errors. During fiscal year 2009, HHS  revised its methodology for calculating the Medicare fee-for-service  improper payment error rate based on HHS OIG audit reports and input  from CMS advisory medical staff. According to HHS, the revised  methodology is more stringent. Using this revised methodology for a  limited number of claims reviewed in fiscal year 2009, HHS reported  estimated Medicare fee-for-service improper payments of $24.1 billion in  its fiscal year 2009 AFR, representing an error rate of 7.8 percent.  However, HHS subsequently restated the fiscal year 2009 improper  payment estimate for Medicare fee-for-service by applying the results of  the revised methodology to the entire year and reported a revised  estimate of $35.4 billion and an error rate of 12.4 percent.
CMS set key performance measures to reduce improper payments for  Medicare fee-for-service and Medicare Advantage. For fiscal year 2010,  HHS reported error rates of 10.5 percent and 14.1 percent for Medicare  fee-for-service and Medicare Advantage, respectively. HHS reported that  it met its improper payment error rate target for Medicare Advantage in  fiscal year 2010 by achieving a 14.1 percent error rate, which was better  than its goal of 14.3 percent. However, CMS was not able to demonstrate  sustained progress in reducing its Medicare fee-for-service improper  payment rate. As discussed previously, HHS reported that it made  changes to improve the estimation methodology, which meant that  previous estimates were not comparable to those HHS made in fiscal  year 2010. For fiscal year 2012, CMS reported that it set improper  payment reduction targets as part of the strategic plan prepared under the  Government Performance and Results Act of 1993. The 2012 target  error rates are 6.2 percent for Medicare fee-for-service and 13.2 percent  for Medicare Advantage.
Further, in response to Executive Order 13520, HHS designated the  Assistant Secretary for Financial Resources and Deputy Administrator for  Program Integrity at CMS as the accountable officials responsible for  efforts to reduce improper payments and establish improper payment  reduction targets for Medicare fee-for-service and Medicare Advantage as  shown in figure 2.
In 2010, CMS created the Center for Program Integrity (CPI) to serve as  its focal point for all national Medicare program integrity issues. CPI is  responsible for addressing program vulnerabilities leading to improper  payments, including collaborating with other CMS components to develop  and implement a comprehensive strategic plan, objectives, and measures  to carry out the agency’s program integrity mission and goals. According  to CMS documentation describing the program, CPI was designed to  promote Medicare integrity through the following activities:        providing support and assistance to states;    conducting provider and contractor audits and policy reviews;  identifying and monitoring program vulnerabilities;  collaborating on the development and advancement of new legislative  initiatives and improvements to deter, reduce, and eliminate fraud,  waste, and abuse;    overseeing all CMS interactions and collaboration with key  stakeholders related to program integrity (e.g., the Department of  Justice, HHS OIG, and state law enforcement agencies) for the  purposes of detecting, deterring, monitoring, and combating fraud and  abuse; and  taking action against those who commit or participate in fraudulent or  other unlawful activities.
section_title: Status of CMS’s Efforts to Implement Key Strategies to Help Remediate Improper Payments
paragraphs: CMS has begun a number of initiatives related to the five strategies  identified in our previous reporting that are key to reducing Medicare  improper payments. However, CMS still faces significant challenges in  designing and implementing internal controls to effectively prevent or  detect and recoup improper payments and to prevent fraud, waste, and  abuse. In March 2011, we testified that effective implementation of GAO  recommendations, provisions in recently enacted laws, and recent  guidance related to five key strategies could help remediate fraud, waste,  abuse, and improper payments in the Medicare program. Figure 3  provides an overview of those key strategies.
We testified in March 2011 that PPACA had a number of provisions that,  if effectively addressed, could aid CMS in its efforts to minimize improper  payments.  Specifically, PPACA included provisions related to  strengthening provider enrollment and improving contractor oversight.  CMS had issued final rules implementing some of these provisions. In  addition, in June 2011, we reported on challenges CMS has faced in  implementing information technology systems to help it identify potentially  fraudulent or abusive claims that had been paid.
The following sections provide an overview of CMS reported actions  related to each of the five strategies we identified in our prior reporting as  key to helping reduce Medicare improper payments. GAO has made  recommendations to strengthen CMS’s actions to address these  strategies, some of which have not been implemented.
Strengthening provider enrollment standards and procedures. As  discussed in our March 2011 testimony, strengthening the standards  and procedures for provider enrollment could help reduce the risk of  enrolling providers intent on defrauding or abusing the program. CMS has  previously identified two types of providers whose services and items are  especially vulnerable to improper payments—home health agencies  (HHA) and suppliers of durable medical equipment, prosthetics, orthotics,  and supplies (DMEPOS). In our 2009 report on HHAs, we found problems  with the enrollment procedures—for example, CMS’s contractors were  not requiring HHAs to resubmit enrollment information (including  information about key officials, operating capital, and practice location) for  reverification every 5 years as required by CMS. CMS implemented one  of the recommendations from that report but did not implement a  recommendation to revoke billing privileges from HHAs engaged in pattern of improper billing practices. In a 2005 report on DMEPOS  suppliers, we found that CMS had not taken sufficient steps to prevent  entities intent on defrauding Medicare from enrolling, and we reported  that more effective screening and stronger enrollment standards were   Partl needed to ensure that new suppliers were legitimate businesses. in response to our recommendation to improve the provider enrollment  process, CMS took steps to implement new supplier quality standards a part of an accreditation rule issued in August 2006 and proposed new  supplier enrollment standards in January 2008. It proposed that supplie would be required to meet these new accreditation standards in 2009.  However, the new supplier enrollment standards were not finalized until  August 2010.
Several requirements in PPACA focus on strengthening provider  enrollment procedures, which could help prevent Medicare from making  improper payments and address some of our previous concerns and  recommendations. For example, PPACA requires the Secretary of HHS,  in consultation with the HHS OIG, to establish procedures for screenin providers enrolling in Medicare, including assessing the risk levels o fraud, waste, and abuse by categories of providers. At a minimum,  PPACA requires all providers to be subject to licensure checks, which may include checks across state lines. Further, PPACA provides for  enhanced oversight of new providers for specific periods of time and of   the  initial claims of DMEPOS suppliers. On February 2, 2011, CMS and HHS OIG published a final rule to implement these new screening  procedures. In addition, PPACA imposes specific requirements for  providers to disclose any current or previous affiliation with a provider th has uncollected debt; has been or is subject to a payment susp under a federal health care program; has been excluded from  participation under Medicare, Medicaid, or the Children’s Health  Insurance Program or has had its billing privileges denied or revoked. The law allows CMS to deny enrollment to any such provider whose previou affiliations pose an undue risk. In February 2011, CMS officials told us  s  that they were drafting a proposed rule to implement this authority.  Further, providers that order home health services must have a face-to- face encounter with the beneficiary before the services can be ordered.  CMS issued a final rule regarding this requirement in November 2010. To  reduce spending for durable medical equipment and related supplies, the  Medicare Prescription Drug, Improvement, and Modernization Act of 2 (MMA) required that CMS phase in, with several rounds of bidding, a   CMS  large scale competitive bidding program for certain DMEPOS. began to implement a Medicare competitive bidding program for durable medical equipment and supplies with prices that took effect in January  2011 from the first round of bidding. This program has the potential to  help reduce fraud, waste, and abuse because it requires CMS to se DMEPOS suppliers based in part on new scrutiny of their financial  documents and other application materials, among other things. PPA required CMS to expedite implementation of the competitive bidding  program for durable medical equipment, expanding the number of areas  to be included in the second round of bidding from 70 to 91 by the end of  2011. CMS told us that it was working on round 2 of the competitive  bidding program, which is anticipated to be operational in summer 2013.
Improving prepayment review of claims. Our prior reporting on  Medicare found that prepayment reviews of claims are essential to he ensure that Medicare pays correctly the first time. Conducting these  reviews is challenging due to the volume of claims. Overall, less than 1   by  percent of Medicare’s claims are subject to a medical record review trained contractor personnel. Therefore, having robust automated  payment controls—called edits—in place to deny inappropriate claims o flag them for further review is critical. However, in our 2007 report, we  r  identified weaknesses in these prepayment controls. For example, we  found that contractors responsible for reviewing DMEPOS claims did not  have automated prepayment controls in place to identify questionable  claims, such as those associated with atypically rapid increases in billing  or for items unlikely to be prescribed in the normal course of medical  care. Since then, CMS has added computer edits to flag claims for  services unlikely to be provided in the normal course of medical care, but  has not implemented our recommendation to have edits in place based  on thresholds for unexplained increases in billing.
If implemented, several recent legislative requirements and administrative  directives could help CMS with its prepayment review to prevent improper  payments. First, the Small Business Jobs Act of 2010 requires CMS to  use predictive modeling and other analytic techniques—known as  predictive analytic technologies—both to identify and to prevent improper  payments under the Medicare fee-for-service program. These predictive  analytic technologies will be used to analyze and identify Medicare  provider networks, billing patterns, and beneficiary utilization patterns and  detect those that represent a high risk of fraudulent activity. Through such  analysis, unusual or suspicious patterns or abnormalities could be  identified that could be used to prioritize additional review of suspicious  transactions before payment is made. CMS published a solicitation in  December 2010 for these technologies and a case management system  to track findings. The legislation provides that the solicitation require  contractors that are selected to begin using these technologies on July 1,  2011, in the 10 states identified by CMS as having the highest risk of  fraud, waste, or abuse in Medicare fee-for-service payments. After the  initial year, based on the results of the predictive analytic technologies,  CMS reported that it plans to expand their use to other states beyond the  10 states identified as having the highest risk for fraud, waste, and abuse.  According to CMS, as of July 1, 2011, initial predictive modeling has been  used on claims prior to payment to identify their level of risk for being  improper and to focus investigative efforts.
Second, a June 2010 presidential memorandum directed agencies to  check certain databases—known as the “Do Not Pay List”—before  making payments, to ensure that payments do not go to individuals who  were deceased or excluded from receiving federal payments or to entities  that had been excluded from receiving federal payments. As of July 2011,  this governmentwide database was still under development. However,  CMS officials stated that, in response to the presidential memorandum,  the agency reviewed selected databases that it and its Medicare  contractors were using to determine payment eligibility for providers and  took action to ensure that the agency’s method of ensuring payment  eligibility was consistent with the intent of the “Do Not Pay List.”
Focusing postpayment claims review on most vulnerable areas. We  previously reported that postpayment reviews are critical to identifying  payment errors to recoup overpayments in Medicare. CMS’s claims  administration contractors conduct limited postpayment reviews.  Therefore, it is important that they target their postpayment review  resources on providers with a demonstrated high risk of improper  payments. Further, we previously reported that CMS could strengthen  postpayment home health claims review by focusing postpayment claims  review on the most vulnerable areas and increasing the amount of  postpayment review by using recovery audit contractors (RAC) for the  Medicare program. CMS has not acted to implement our recommendation  about focusing postpayment home health claims review based on high  rates of improper billing identified through prepayment reviews. CMS has  had efforts focusing on postpayment review of claims, most recently its  national RAC program, begun in March 2009, after completion of a 3-year  demonstration program in 2008. The national program was designed to  help the agency supplement the postpayment reviews conducted by  contractors other than RACs. The RACs review fee-for-service claims  after payment, but because RACs are paid a contingent fee based on the  dollar value of the improper payments identified, they have focused on  claims from inpatient hospital stays, which are generally more costly  services. PPACA expanded Medicare’s RAC program to Medicare  Advantage and the prescription drug benefit program. CMS published a  request for comments on the development of RACs for those programs in  December 2010. CMS awarded a Medicare prescription drug benefit RAC  task order for a 1-year base period that began January 2011 and included  4 option years.
In June 2011, we reported that CMS has also developed information  technology to help it better identify claims paid in error, but the systems  are not being used to the extent originally planned, and CMS has not  measured whether they have helped in reducing payment errors. To  integrate claims information and improve its ability to identify fraud, waste,  and abuse, CMS initiated two information technology system programs in  2006: the Integrated Data Repository (IDR)  and One Program Integrity  (One PI) to centralize and make more accessible the data needed to  conduct these analyses. The IDR was intended to provide a central  source of data related to Medicare and Medicaid claims, and the One PI  system is a web-based portal and suite of analytical software tools to be  used to extract data from IDR and enable complex analyses of these  data.
As we reported in June 2011, although CMS has developed and  implemented IDR and One PI for use by its program integrity analysts,  IDR did not include all the data the agency planned to have incorporated  by the end of 2010. For example, IDR includes most types of Medicare  claims data, but did not include data from other CMS systems that are  needed to help analysts identify improper payments. According to IDR  program officials, these data were not incorporated into IDR because  funding for the development of the software and acquisition of the  hardware needed to meet this requirement was not approved until the  summer of 2010. Since then, IDR program officials have developed  project plans and identified users’ requirements, and plan to incorporate  these additional data by November 2011.
In addition, CMS has developed and deployed One PI, but the system  has been used by a limited number of analysts—less than 7 percent of  the intended user community—and did not yet provide as many tools as  planned. According to agency officials, plans to train and deploy the  system to a broad community of users were disrupted when resources  dedicated to these activities were redirected to address a need to improve  the user training program. Further, as of June 2011, plans and schedules  for completing the remaining work had not been finalized, and CMS had  not identified risks and obstacles to project schedules that may affect its  ability to ensure broad use and full implementation of the systems.  Consequently, the agency may miss an opportunity to effectively use  these information technology solutions to enhance its ability to detect  fraud, waste, and abuse in the Medicare program. In our June 2011  report, we made seven recommendations to help ensure that the  development and implementation of IDR and One PI help CMS meet its  program integrity goals and objectives. CMS concurred with GAO’s  recommendations and agreed to act upon them.
Improving oversight of contractors. As called for in our Standards for  Internal Control in the Federal Government, monitoring the activities  used by an organization to address improper payments should be  performed continually and should be ingrained in the entity’s operations.  Over the years, we have found areas where CMS’s oversight of  contractor activities that provide services to Medicare beneficiaries had  been insufficient to ensure that required program control activities were  conducted and working well. For example, all Part D drug-plan sponsors  are required to have programs to prevent, detect, and correct fraud,  waste, and abuse—also referred to as fraud and abuse programs. CMS is  responsible for ensuring that sponsors are in compliance with this  requirement. However, in 2008 we found that CMS’s oversight of these  programs was limited. We recommended that CMS conduct timely  audits of sponsors’ fraud and abuse programs. CMS agreed with this  recommendation. In March 2010, we reported that CMS had completed  desk audits of selected sponsors’ programs and was beginning to  implement an expanded oversight strategy, including on-site audits to  assess the effectiveness of these programs more thoroughly. In  November 2010, CMS officials reported that the agency had conducted  on-site audits of 33 of the 290 sponsors in 2010 covering 62 percent of  the enrolled beneficiaries in 2010, which addresses our recommendation.  As a result of the on-site audits, CMS had taken formal enforcement  actions against several sponsors. In addition, CMS published a final rule  in April 2010 to increase its oversight efforts and ensure that sponsors  have effective programs in place. PPACA included provisions for CMS  to evaluate contractors receiving Medicare Integrity Program and  Medicaid Integrity Program funding every 3 years. In addition, PPACA  requires these contractors to provide performance statistics to HHS and  its OIG upon request. In February 2011, CMS officials told us that they  were taking action to implement these requirements for Medicare. At that  time, officials told us that CMS was tracking performance statistics and  adding to and refining these statistics and was also developing the  specific performance statistics for its Part D integrity contractors and  expected to finalize these statistics this year.
Developing a robust process for addressing identified  vulnerabilities. Having mechanisms in place to resolve vulnerabilities  that lead to improper payments is key to effective program management.  But our work has shown that CMS has not developed a robust process to  specifically address identified vulnerabilities that lead to improper  payments in Medicare. We have reported that an agency should have  policies and procedures to ensure that (1) the findings of all audits and  reviews are promptly evaluated, (2) decisions are made about the  appropriate response to these findings, and (3) actions are taken to  correct or resolve the issues promptly. We have also stressed the  importance of holding individuals accountable for achieving agency  objectives. However, as we reported in March 2010, CMS had not  established an adequate process during its recovery audit contracting  demonstration or in planning for the subsequent recovery audit national  program to ensure prompt resolution of identified improper payment  vulnerabilities in Medicare. During the demonstration, CMS did not  assign responsibility to agency officials or contractors for taking corrective  action. According to CMS officials, the agency took corrective action only  for vulnerabilities with national implications, and let the contractors that  processed and paid claims decide whether to take action for  vulnerabilities that might occur only in certain geographic areas.  Additionally, we reported that during the demonstration CMS did not  specify in a plan what type of corrective action was required or establish a  time frame for corrective action. We also found that the lack of  documented responsibility assignments impeded CMS’s efforts to  promptly resolve the vulnerabilities identified during the demonstration.
For the national Medicare RAC program, although CMS established a  corrective action team to compile, review, and categorize identified  vulnerabilities and discuss corrective action recommendations, the  corrective action process was still incomplete. CMS appointed the  Director of the Office of Financial Management to be responsible for the  day-to-day operations of the program, and the CMS Administrator to be  responsible for vulnerabilities that span agency components. However,  the corrective action process did not include any steps to either assess  the effectiveness of the corrective actions taken or adjust them as  necessary based on the results of the assessments. Further, the agency  had not developed time frames for implementing corrective actions.  Because of these weaknesses, we recommended that CMS develop and  implement a corrective action process that includes policies and  procedures to ensure that the agency promptly (1) evaluates findings of  RAC audits, (2) decides on the appropriate response and a time frame for  taking action based on established criteria, and (3) acts to correct the  vulnerabilities identified. CMS concurred with this recommendation.  Agency officials said they intended to review vulnerabilities on a case-by- case basis and were considering assigning them to risk categories to help  prioritize their actions. In February 2011, CMS reported that the agency  was still working to address the vulnerabilities identified during the  demonstration program. Specific to corrective actions, CMS officials told  us that its contractors were required to consider and evaluate  vulnerabilities identified by various entities, including the RACs. However,  as of March 2011, CMS had not yet implemented this recommendation.  We will continue to follow up with CMS on its progress in this area.
section_title: Concluding Observations
paragraphs: With the amount of estimated improper payments and the unknown  amounts of potential fraud, waste, and abuse in the Medicare program, it  is critical for CMS to act quickly and decisively to reduce them. As it  implements PPACA provisions concerning Medicare, CMS has an  opportunity to use new tools to help address fraud, waste, abuse, and  improper payments in the program. CMS has taken a number of actions  related to rule making and issuing guidance to implement recent  legislative and regulatory provisions, but because many efforts are in  process, it is too early to gauge their effectiveness. These requirements  will be critical in helping ensure integrity in Medicare operations, as will  additional evaluation and oversight to determine whether they are  implemented as intended and have the desired effect on ensuring that  payments are made for intended and proper purposes. Notably, we are  beginning new work to assess CMS’s efforts to strengthen the standards  and procedures for Medicare provider enrollment to reduce the risk of  enrolling providers that are intent on defrauding or abusing the program.  We are also examining the effectiveness of different types of prepayment  edits in Medicare systems and of CMS’s oversight of its contractors in  implementing those edits to help ensure that Medicare pays claims  correctly the first time. The level of importance CMS places on effectively  implementing our recommendations and the requirements established by  recent laws and guidance will be a key factor in reducing improper  payments and potential fraud, waste, and abuse in the Medicare program  and ensuring that federal funds are used efficiently and for their intended  purposes. In this regard, we plan to continue monitoring these issues.
Chairman Platts, Ranking Member Towns, this completes my prepared  statement. I would be happy to respond to any questions you or other  members of the subcommittee may have at this time.
section_title: GAO Contacts and Staff Acknowledgments
paragraphs: For more information regarding this testimony, please contact, Kay L.  Daly, Director, Financial Management and Assurance, at (202) 512-9312  or by e-mail at DalyKL@gao.gov or Kathleen M. King, Director, Health  Care, at (202) 512-7114 or by e-mail at KingK@gao.gov. Contact points  for our Offices of Congressional Relations and Public Affairs may be  found on the last page of this testimony.
Individuals making key contributions to this testimony included Valerie  Melvin, Director; Carla Lewis, Assistant Director; Sheila K. Avruch,  Assistant Director; Teresa Tucker, Assistant Director; Jacquelyn  Hamilton; Jim Healy; Jason S. Kirwan; Crystal Lazcano; and Chelsea  Lounsbury.
section_title: Appendix I: Recent Key Legislative and Executive Branch Efforts
paragraphs: Over the past couple of years, Congress and the executive branch have  taken a number of actions intended to heighten the attention given to the  issue of improper payments and to promote corrective actions. The  Centers for Medicare & Medicaid Services’ (CMS) efforts to identify and  remediate Medicare improper payments will be affected by these new  initiatives. Table 1 summarizes the recent legislative and executive  branch efforts intended to improve oversight and accountability over  improper payments governmentwide, as well as key actions specific to  Medicare.
In November 2009, Executive Order 13520, Reducing Improper  Payments, was intended to focus on increasing transparency and  accountability for reducing improper payments and creating incentives for  reducing improper payments. Under the Executive Order, the Office of  Management and Budget (OMB) designated 14 programs as high-priority  programs to focus attention on the programs that significantly contribute  to the federal government’s improper payments. Medicare fee-for-service,  Medicare Advantage, and Medicare prescription drug programs have  been designated as high-priority programs as part of the Executive  Order. Additionally, OMB established a Web site  (www.PaymentAccuracy.gov) on the 14 high-priority programs that  provides information on (1) the programs’ senior accountable officials  responsible for efforts to reduce improper payments; (2) current, targeted,  and historical estimated rates of improper payments; (3) why improper  payments occur in the programs; and (4) what federal agencies are doing  to reduce improper payments and recover overpayments.
To supplement program integrity efforts, the Medicare Prescription Drug,  Improvement, and Modernization Act of 2003 directed CMS to conduct a  3-year demonstration project on the use of a new type of contractors— recovery audit contractors (RAC)—in identifying underpayments and  overpayments, and recouping overpayments in the Medicare program.  The RAC demonstration program began in 2005. Subsequently, the Tax  Relief and Health Care Act of 2006 required CMS to implement a national  RAC program by January 1, 2010. CMS began implementing it in March  2009.
In March 2010, the President issued a memorandum intended to expand  agency efforts to recapture improper overpayments using recapture  audits. Also, the Patient Protection and Affordable Care Act (PPACA),  as amended by the Health Care and Education Reconciliation Act of  2010, contains provisions intended to improve accountability over  Medicare.  These provisions include:     establishing procedures for screening providers enrolling in Medicare,  including assessing the risk levels of fraud, waste, and abuse by  categories of providers;    expanding the Medicare RAC program to Medicare Advantage and  Medicare prescription drug benefit program;    adding requirements for providers to disclose any current or previous  affiliation with a provider that has uncollected debt; has been or is  subject to a payment suspension under a federal health care program;  has been excluded from participation under Medicare, Medicaid, or  the Children’s Health Insurance Program or has had its billing  privileges denied or revoked;    expanding the number of areas to be included in the competitive  bidding program for durable medical equipment; and  strengthening the Health Care Fraud and Abuse Control Program, a  joint effort of the HHS Inspector General and the Department of  Justice, which is designed to coordinate law enforcement activities  regarding health care fraud and abuse, including that in Medicare.
In June 2010, the President announced that the Administration would  reduce the error rate for the Medicare fee-for-service program by half by  fiscal year 2012. Also, the President directed agencies to check certain  databases—known as the “Do Not Pay List”—before making payments to  ensure payments did not go to individuals who were deceased or  excluded from receiving federal payments or to entities that had been  excluded from receiving federal payments.
In addition to amending the Improper Payments Information Act of 2002  (IPIA) improper payment estimation requirements, the Improper  Payments Elimination and Recovery Act of 2010 (IPERA) established  additional requirements related to (1) federal agency management  accountability; (2) recovery auditing aimed at identifying and reclaiming  payments made in error; (3) compliance and noncompliance  determinations based on an inspector general’s assessment of an  agency’s adherence to IPERA requirements, and reporting that  determination; and (4) an opinion on internal controls over improper  payments. OMB issued IPERA implementing guidance on April 14,  2011.
The Small Business Jobs Act of 2010 also contains a provision regarding  claims review to prevent improper payments. It requires CMS to use  predictive modeling and other analytic techniques—known as predictive  analytic technologies—both to identify and to prevent improper payments  under the Medicare fee-for-service program. The law requires these  predictive analytic technologies to be used to analyze and identify  Medicare provider networks, billing patterns, and beneficiary utilization  patterns and detect those that represent a high risk of fraudulent activity.  Through such analysis, unusual or suspicious patterns or abnormalities  could be identified that could be used to prioritize additional review of  suspicious transactions before payment is made.
section_title: Related GAO Products
paragraphs: Fraud Detection Systems: Additional Actions Needed to Support Program  Integrity Efforts at Centers for Medicare and Medicaid Services.  GAO-11-822T. Washington, D.C.: July 12, 2011.
Fraud Detection Systems: Centers for Medicare and Medicaid Services  Needs to Ensure More Widespread Use. GAO-11-475. Washington, D.C.:  June 30, 2011.
Improper Payments: Recent Efforts to Address Improper Payments and  Remaining Challenges. GAO-11-575T. Washington, D.C.: April 15, 2011.
Status of Fiscal Year 2010 Federal Improper Payments Reporting.  GAO-11-443R. Washington, D.C.: March 25, 2011.
Medicare and Medicaid Fraud, Waste, and Abuse: Effective  Implementation of Recent Laws and Agency Actions Could Help Reduce  Improper Payments. GAO-11-409T. Washington, D.C.: March 9, 2011.
Medicare: Program Remains at High Risk Because of Continuing  Management Challenges. GAO-11-430T. Washington, D.C.: March 2,  2011.
Opportunities to Reduce Potential Duplication in Government Programs,  Save Tax Dollars, and Enhance Revenue. GAO-11-318SP. Washington,  D.C.: March 1, 2011.
High-Risk Series: An Update. GAO-11-278. Washington, D.C.: February  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 Part D: CMS Oversight of Part D Sponsors’ Fraud and Abuse  Programs Has Been Limited, but CMS Plans Oversight Expansion.  GAO-10-481T. Washington, D.C.: March 3, 2010.
Improper Payments: Progress Made but Challenges Remain in  Estimating and Reducing Improper Payments. GAO-09-628T.  Washington, D.C.: April 22, 2009.
Medicare: Improvements Needed to Address Improper Payments in  Home Health. GAO-09-185. Washington, D.C.: February 27, 2009.
Medicare Part D: Some Plan Sponsors Have Not Completely  Implemented Fraud and Abuse Programs, and CMS Oversight Has Been  Limited. GAO-08-760. Washington, D.C.: July 21, 2008.
Medicare: Improvements Needed to Address Improper Payments for  Medical Equipment and Supplies. GAO-07-59. Washington, D.C.:  January 31, 2007.
Medicare: More Effective Screening and Stronger Enrollment Standards  Needed for Medical Equipment Suppliers. GAO-05-656. Washington,  D.C.: September 22, 2005.
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