Medicare Integrity Program: CMS Used Increased Funding for New Activities but Could Improve Measurement of Program Effectiveness
Published: 2011-07-29T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Medicare program makes about $500 billion in payments per year and continues to have a significant amount of improper payments--almost $48 billion in fiscal year 2010. The Centers for Medicare & Medicaid Services' (CMS) Medicare Integrity Program (MIP) is designed to identify and address fraud, waste, and abuse, which are all causes of improper payments. MIP's authorizing legislation provided funding for its activities and subsequent legislation provided additional funding. GAO was asked to report on how effectively CMS is using MIP funding to address Medicare program integrity. GAO examined (1) how CMS used MIP funding to support the program's activities from fiscal years 2006 through 2010, (2) how CMS assesses the effectiveness of MIP, and (3) factors CMS considers when allocating MIP funding. GAO analyzed CMS budget and other documents, interviewed CMS officials, and examined the agency's method of calculating return on investment (ROI), a performance measure used by CMS to measure the effectiveness of MIP activities.
section_title: What GAO Found
paragraphs: CMS used the increase in total MIP funding received, from $832 million in fiscal year 2006 to $1 billion in fiscal year 2010, to expand MIP's activities. The additional funding supported oversight of Medicare Part C (Medicare benefits managed through private plans) and Part D (the outpatient prescription drug benefit) and agency efforts to examine the claims of Medicare beneficiaries who also participate in Medicaid--a joint federal-state health care program for certain low-income individuals. CMS officials also reported that CMS was able to move some funding from activities, such as provider audit, to other activities because of savings achieved from consolidating contractors. The largest percentage increase from this redistribution went to benefit integrity activities, which aim to deter and detect Medicare fraud through proactive data analysis and coordination with law enforcement. Although CMS has reported that the agency measures MIP's performance with goals related to reductions in the improper payment rates for Medicare fee-forservice, Part C, and Part D, CMS officials with direct responsibility for MIP generally do not connect measurements of effectiveness of MIP activities with the CMS goals of reducing improper payments. These goals to reduce improper payments, which were reported as goals previously and for fiscal year 2012, are particularly important in light of the President's Accountable Government Initiative, which aims to reduce overall improper payments by $50 billion by the end of 2012. In interviews with GAO, CMS officials with direct responsibility for implementing MIP activities generally did not connect the measurement of effectiveness of MIP activities with these CMS goals to reduce improper payments and instead cited other measures of effectiveness. This suggests that CMS has not clearly communicated to its staff the relationship between the daily work of conducting MIP activities and the agency's improper payment reduction performance goals. Because MIP will be central to CMS's efforts to reduce Medicare improper payments, MIP staff need to understand how their work supports these goals. In addition, the Patient Protection and Affordable Care Act requires CMS to report annually on the use of funds for MIP and the effectiveness of the use of those funds. One way that CMS already measures MIP effectiveness is ROI, which CMS calculates as savings from an activity in relation to expenditures. CMS calculates ROI for most of its MIP activities, but the data it uses have two flaws. First, ROI calculations are not updated when program expenditure data, a key component in the ROI calculation, are updated, which may lead to an incorrect ROI. Second, CMS does not have reliable information to determine the amount of MIP spending by activity for one type of contractor that received about 22 percent of total MIP funding in fiscal year 2010. It will be important for CMS to correct these flaws to ensure reliability in ROI reporting. CMS considers a variety of factors when allocating MIP funding. Based on a review of the documents submitted to justify funding of specific MIP activities, CMS may consider the prior year's funding level, the consequence of not funding, and the performance goal that the activity is intended to meet.
section_title: What GAO Recommends
paragraphs: GAO recommends that CMS communicate the linkage between MIP activities and the goals for reducing improper payments and that CMS expeditiously improve the reliability of data used to calculate ROI. The Department of Health and Human Services concurred with these recommendations.

section_title: Letter
paragraphs: The Centers for Medicare & Medicaid Services’ (CMS) Medicare Integrity  Program (MIP) is designed to identify and address fraud, waste, and  abuse, which are all causes of improper Medicare payments. An  improper payment is any that should not have been made or that was  made in an incorrect amount under statutory, contractual, administrative,  or other legally applicable requirements. Medicare makes about   $500 billion in payments per year and continues to have a significant  amount of improper payments. For example, in fiscal year 2010, the  estimated improper payments for Medicare fee-for-service (Parts A   and B) were about $34.3 billion and for Medicare Advantage (Part C)  were about $13.6 billion. We have designated Medicare as a high-risk  program since 1990, in part because the program’s complexity and size  made it vulnerable to fraud, waste, and abuse. Since that time, Medicare  has grown, and in 2006 a new benefit—the Medicare prescription drug  benefit (Part D)—was added, making the task of addressing improper  payments in a program of Medicare’s size even greater.
The Office of Management and Budget (OMB) is leading a  governmentwide effort to reduce improper payments. MIP is important to  this effort because of the size of the Medicare program. In fiscal year  2010, Medicare improper payments represented about 38 percent of all  federal government improper payments. MIP was established, and  provided with a dedicated source of mandatory funding from the Federal  Hospital Insurance trust fund, in the Health Insurance Portability and  Accountability Act of 1996 (HIPAA) to enhance efforts to address  Medicare’s vulnerabilities to fraud, waste, and abuse.
MIP is designed to better ensure the integrity of the Medicare program by  identifying and addressing improper payments and helping to prevent and  stop fraud and abuse through several types of activities, such as  educating providers on proper billing practices, auditing reported costs  used to set payments for hospitals and other institutional providers, and  coordinating with law enforcement to target potential fraud. These  activities are generally conducted by contractors working for CMS.
In 2006, we reported that while funding for MIP had increased over time,  the approach CMS used to allocate funding among MIP activities had  weaknesses. Specifically, we found that allocations for MIP activities  were generally based on historical allocation levels, not on risk for  improper payments. We also noted that programmatic changes in  Medicare, particularly the prescription drug benefit and Medicare  contracting reform, would affect MIP funding allocations, and that the  allocation approach was not adequate to address the associated  emerging risks for improper payments. Finally, we found that CMS  tracked dollars saved in relation to dollars spent—a useful quantitative  measure that the agency calls return on investment (ROI)—to assess the  effectiveness of some MIP activities, but did not attempt to objectively  measure the effectiveness of all of its MIP activities. In our 2006 report,  we recommended that CMS develop a method of allocating MIP funding  based not only on the effectiveness of the program’s activities but also on  contractor workloads and risk for improper payments.
Since our 2006 report, there have been changes in the funding and scope  of MIP. Congress has appropriated discretionary MIP funding to  supplement existing mandatory funding, in part to address increased  responsibilities because of the addition of the Medicare prescription drug  benefit. You requested that we report on how effectively CMS is using its  MIP funding to address program integrity. Specifically, this report will  examine (1) how CMS used its MIP funding to support the program’s  activities from fiscal year 2006 through fiscal year 2010, (2) how CMS  assesses the effectiveness of MIP, and (3) the factors CMS considers  when allocating MIP funding.
To determine how CMS used its MIP funding to support the program’s  activities from fiscal year 2006 through fiscal year 2010, we analyzed  CMS budget documents and conducted interviews with officials from  CMS’s Office of Financial Management (OFM) and officials who manage  each of the MIP activities (whom we refer to as MIP activity managers).  To determine the reliability of the budget data, we interviewed officials in  OFM about the reconciliation process between CMS’s budget and the  accounting systems and reviewed an example of CMS’s monthly  reconciliation report. We determined that the data were sufficiently  reliable for our purposes.
To determine how CMS assesses the effectiveness of MIP, we  conducted interviews with the Deputy Administrator for CMS’s Center for  Program Integrity (CPI), the Director of the Medicare Program Integrity  Group, MIP activity managers, and officials from OFM and CPI. We also  interviewed officials from the Department of Health and Human Services  (HHS) responsible for departmentwide program integrity efforts. We  reviewed relevant documents that described specific processes CMS  employs for determining whether MIP and its individual activities have  been effective and compared these processes against GAO’s criteria on  agency strategic planning and performance measurement. We  examined CMS’s method for calculating the MIP ROI and interviewed  MIP activity managers and OFM officials about the data sources and  methods used to calculate the ROI figures.
To describe the factors CMS considers when allocating MIP funding, we  reviewed MIP budget request documents for funded subactivities within  the MIP activities for fiscal year 2010. We also interviewed CMS  officials, including those from OFM, as well as MIP activity managers, the  Director of the Medicare Program Integrity Group, and the Deputy  Administrator for CPI.
We conducted this performance audit from May 2010 through July 2011  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: Background
subsections: section_title: MIP Funding
paragraphs: CMS has indicated that the primary principle of program integrity is to pay  claims correctly. MIP is designed to address fraud, waste, and abuse,  including improper payments, by (1) preventing fraud through effective  enrollment of providers and through education of providers and  beneficiaries; (2) detecting potential improper billing early through, for  example, medical review and data analysis of claims; (3) coordinating  closely with partners, including contractors and law enforcement  agencies; and (4) implementing fair and firm enforcement policies.
HIPAA established mandatory funding for MIP that ensured a stable  funding source for Medicare program integrity activities from the Federal  Hospital Insurance trust fund not subject to annual appropriations. The  amount specified in HIPAA rose for the first few years and then was  capped at $720 million per year in fiscal year 2003 and future years. CMS  received increased and additional mandatory funding for MIP from the  Federal Hospital Insurance trust fund in fiscal year 2006 under the Deficit  Reduction Act of 2005 (DRA) and, in addition, received discretionary  funding beginning in fiscal year 2009.
On March 23, 2010, the Patient Protection and Affordable Care Act  (PPACA) was signed into law. It included provisions that will provide MIP  with a portion of an additional $350 million, to be shared with the  Department of Justice (DOJ) and HHS, for fiscal year 2011 through fiscal  year 2020 for health care fraud and abuse control efforts. It also  increases funding for MIP each year by the percentage increase in the  consumer price index for all urban consumers.
section_title: MIP Activities
paragraphs: MIP currently has eight activities, and each of these has multiple  subactivities. As we reported in 2006, CMS undertook five original MIP  activities required by HIPAA:    Benefit Integrity. Aims to deter and detect Medicare fraud by  conducting proactive data analysis of claims to identify patterns of  fraud and taking other steps to determine whether fraud could be  occurring. Potential fraud cases are documented and referred to law  enforcement agencies.    Provider Audit. Includes desk reviews, audits, and final settlement of  institutional provider cost reports, such as those submitted by  hospitals and skilled nursing facilities, which are used to establish  payment rates.    Medicare Secondary Payer (MSP). Identifies when beneficiaries  have primary sources of payment—such as employer-sponsored  health insurance, automobile liability insurance, or workers’  compensation insurance—that should pay claims that were  mistakenly billed to Medicare. MSP also involves recovering improper  payments associated with such claims.    Medical Review. Includes both automated and manual prepayment  and postpayment reviews of individual Medicare claims to determine  whether the services are provided by legitimate providers to eligible  beneficiaries and are covered, medically reasonable, and necessary.    Provider Outreach and Education. Provides training for providers,  such as hospitals and physicians that serve Medicare beneficiaries,  on appropriate billing practices to comply with Medicare rules and  regulations.
Since 2006, CMS has begun three additional MIP activities:    Medicare-Medicaid Data Match Project (Medi-Medi). Was added to  MIP by DRA. DRA provided this activity with its own dedicated  funding source through a separate appropriation. Medi-Medi is a joint  effort between CMS and states that participate voluntarily to identify  providers with aberrant Medicare and Medicaid billing patterns  through analyses of claims for individuals with both Medicare and  Medicaid coverage.    Part C and D Oversight. Consists of subactivities to address  improper payments in Medicare Parts C and D. CMS began this  activity in fiscal year 2006.    Other Medicare Fee-For-Service. Consists of a variety of  subactivities related to Medicare fee-for-service not captured by the  other activities, such as support for pilot programs and enhancements  to CMS data systems that CMS officials told us will allow for better  analysis. CMS began these subactivities in fiscal year 2009.
CPI is the CMS component responsible for oversight of all of CMS’s  program integrity efforts, including MIP, and is led by a deputy  administrator. Formed in April 2010, CPI was created to enable CMS to  pursue a more strategic and coordinated program integrity approach and  to also allow the agency to build on and strengthen existing program  integrity efforts. CPI has targeted several program areas to help identify,  evaluate, and focus resources and projects. These areas are prevention,  detection, recovery, and transparency and accountability. MIP is led by  the Director of the Medicare Program Integrity Group within CPI.  However, the MIP activity managers and their staff members are not all  located within CPI. There are MIP activity managers located in CPI, the  Center for Medicare, and OFM. For example, while the Benefit Integrity  activity is managed by CPI, the Medical Review activity is managed by  CMS’s Provider Compliance Group within OFM. See appendix I for an  organizational chart that identifies the CMS components responsible for  the oversight of MIP activities.
CMS uses a variety of contractors to perform MIP activities, including a  Comprehensive Error Rate Testing (CERT) contractor, an MSP  contractor, Medicare administrative contractors (MAC), Medicare drug  integrity contractors, the National Supplier Clearinghouse, program  safeguard contractors, and zone program integrity contractors (ZPIC). For  example, the MACs conduct provider audits, prepayment and  postpayment review of Medicare claims, and some provider outreach and  education. See appendix II for more information on these contractors and  appendix III for the activities they perform.
section_title: Funding Allocation Process
paragraphs: MIP’s activity managers and Director participate in a process to  recommend funding allocations for MIP’s activities through the Budget  Small Group. The MIP activity managers submit budget request  documents to the MIP Budget Small Group to help guide the funding  allocation process. The MIP Budget Small Group weighs each request  and submits a draft MIP budget request to the CMS Chief Financial  Officer and Chief Operating Officer. Following review by these officials,  the MIP budget request goes to the CMS Administrator, who reviews the  request and makes any desired changes. The MIP budget request is  integrated into the agency’s entire proposed budget, which is sent to the  Secretary of Health and Human Services. A proposed budget for the  entire department goes to OMB for consideration on the President’s  behalf. Adjustments may be made by OMB or the President before a final  version is submitted to Congress, thus beginning the congressional  appropriation process.
section_title: Performance Measurement
paragraphs: One way that agencies examine the effectiveness of their programs is by  measuring performance as mandated by the Government Performance  and Results Act of 1993 (GPRA), as amended by the GPRA  Modernization Act of 2010. GPRA is designed to improve the  effectiveness of federal programs by establishing a system to set goals  for program performance and to measure results. Specifically, GPRA  requires federal agencies to prepare multiyear strategic plans, annual  performance plans, and annual performance reports that provide  information on progress achieved. To meet GPRA requirements for fiscal  year 2011, CMS established the following:    Five high-level strategic objectives, which included the objective of  “accurate and predictable payments.”    Agencywide GPRA goals, which included three specific to MIP. An  agency’s goals should flow from its strategic objectives and be limited  to the vital goals that reflect the highest priorities of an agency.    Performance measures, which included three specific to MIP, such as  reducing the percentage of improper payments made under the  Medicare fee-for-service and Part C program. Performance measures  are generally more numerous than the GPRA goals and are used to  measure progress toward the goals and objectives.
PPACA established additional reporting requirements for MIP. PPACA  requires that MIP contractors provide the Secretary of Health and Human  Services or the HHS Inspector General, upon request, performance  statistics. These performance statistics may include the number and  amount of overpayments recovered, the number of fraud referrals, and  the ROI of activities the contractor undertakes. The act also requires the  Secretary to evaluate MIP contractors at least once every 3 years and  submit an annual report to Congress on the use of funds for MIP and the  effectiveness of the use of those funds.
section_title: Increased MIP Funding and Contractor Consolidation Have Enabled CMS to Expand the Program from Fiscal Year 2006 through Fiscal Year 2010
paragraphs: CMS used increased funding it received in fiscal years 2006 through 2010  to expand MIP. From fiscal year 2006 through 2010, CMS received  mandatory HIPAA funding along with new DRA funding, and additional  discretionary funding in some years, to supplement its existing program  integrity activities and support two new activities—Part C and D Oversight  activities and Medi-Medi. Additionally, the agency was able to realize  savings in some MIP activities, in part, because of the consolidation of  claims administration contracts. CMS redistributed some of these savings  to Part C and D Oversight and Benefit Integrity activities.
subsections: section_title: Increased Funding Enabled CMS to Provide Additional Support to Existing Program Integrity Activities and Fund New Oversight Activities
paragraphs: CMS received additional MIP funding during fiscal years 2006 through  2010 that was used to support new activities or existing activities not  previously supported by MIP. These activities included Part C and D  Oversight, Medi-Medi, and Other Medicare Fee-For-Service activities.  During fiscal year 2006 through fiscal year 2010, CMS received the  maximum amount of mandatory funding stipulated under HIPAA,   $720 million per year, as well as additional discretionary and DRA  mandatory funding. (See fig. 1.)
Prior to fiscal year 2006, CMS used mandatory HIPAA funding for the five  original program activities—Benefit Integrity, Provider Audit, Provider  Outreach and Education, Medical Review, and MSP. From fiscal year  2006 through fiscal year 2010, CMS continued to use mandatory HIPAA  funding predominantly to support the five existing program integrity  activities. In addition, beginning in fiscal year 2006, CMS received  mandatory DRA funding, which it used to support two new MIP  activities—Medi-Medi and Part C and D Oversight. DRA provided funding  for Medi-Medi activities of $12 million in fiscal year 2006, which increased  to nearly $60 million by fiscal year 2010. CMS officials told us that the  Medi-Medi funding was used to support the ZPICs that work directly with  the states on the Medi-Medi project. State participation is voluntary, and  states do not directly receive MIP funding.
Additional MIP funding also went toward Part C and D Oversight. DRA  provided CMS with a onetime amount of $100 million in fiscal year 2006,  part of which CMS used to perform new Part C and D Oversight. In fiscal  years 2007 and 2008, CMS requested but did not receive discretionary  funding to perform Part C and D Oversight. As a result, CMS officials told  us that mandatory HIPAA funding for MIP was moved from other MIP  activities in fiscal years 2007 and 2008 to the Part C and D Oversight  activity. In fiscal years 2009 and 2010, CMS received $147 million and  $220 million, respectively, in discretionary funding and used more than  half of that funding for Part C and D Oversight. In fiscal year 2009, CMS  used about $85 million of the discretionary funding (or 58 percent of the  $147 million) to perform Part C and D Oversight that addressed CMS’s  priority to deter fraud in the Medicare Part C and D programs. For  example, CMS contractors conducted reviews of health care plans  entering the Part C and D programs, and program and financial audits of  the health care plans participating in the Part C and D programs. In fiscal  year 2010, CMS used about $142 million (about 65 percent of the   $220 million) to continue performing Part C and D Oversight. CMS moved  the remaining discretionary funding, about $62 million (42 percent of   $147 million) in fiscal year 2009 and $45 million (20 percent of   $220 million) in fiscal year 2010, to the Other Medicare Fee-For-Service  activity. CMS used the funding in the Other Medicare Fee-For-Service  activity, in part, to fund the system that collects and stores enrollment  information for all Medicare providers and suppliers in a national  database.
section_title: Contractor Consolidation Enabled the Agency to Redistribute Mandatory Funding among MIP Activities
paragraphs: CMS officials stated that contractor consolidations resulted in some  workload efficiencies and cost savings, which enabled the agency to  redistribute some mandatory MIP funding to the Part C and D Oversight  and Benefit Integrity activities. The Medicare Prescription Drug,  Improvement, and Modernization Act of 2003 required CMS to transfer all  Part A and B claims administration work previously conducted by 51  claims administration contractors to MACs. As a result, from fiscal year  2006 through May 2011, CMS awarded contracts to 15 MACs, which  generally covered larger jurisdictions, and replaced most of the contracts  with previous claims administration contractors. CMS designed the MAC  jurisdictions to achieve operational efficiencies through consolidation.  Further, in response to one of our previous recommendations, CMS  also consolidated its postpayment recovery efforts into one MSP recovery  contractor in October 2006, thereby increasing the efficiency of the MSP  activity.
CMS officials stated that the operational efficiencies and cost savings  resulting from the contractor consolidations enabled the agency to  decrease mandatory MIP funding to four of the five existing MIP activities  and redistribute those funds to the Part C and D Oversight and Benefit  Integrity activities. Specifically, from fiscal years 2006 through 2009, CMS  redistributed MIP funding from the Provider Outreach and Education,  Medical Review, MSP, and Provider Audit activities because these  activities were less costly with fewer contractors performing the work. For  example, CMS officials told us that the Provider Outreach and Education  activity had less overhead and other administrative costs with fewer  contractors, which resulted in reduced program expenditures. Provider  Outreach and Education spending decreased from almost $65 million in  fiscal year 2006 to about $42 million in fiscal year 2010—about   35 percent. Provider Outreach and Education had the largest percentage  decrease in MIP funding. CMS officials stated that another factor in the  decrease in Provider Outreach and Education spending was a  realignment of some of its activities in fiscal year 2007. CMS officials also  told us that under the consolidation into MAC jurisdictions, CMS required  only one medical director for each MAC jurisdiction, instead of having one  medical director for each state, which lowered the cost to perform the  Medical Review activity. CMS officials stated that reduced costs allowed  CMS to use some of the newly available MIP mandatory funding to  address other priorities, such as funding Part C and D Oversight in fiscal  years 2007 and 2008, when the agency received no discretionary  funding. In addition, the MSP consolidation allowed CMS to reduce MIP  funding for the MSP activity beginning in fiscal year 2007, and the agency  used the savings to fund other MIP activities. Based on the funding  information provided by CMS, we estimated that the agency saved about  $86 million from fiscal year 2006 through fiscal year 2010 by  consolidating contracted functions within the MSP activity.
Benefit Integrity spending increased as a result of the redistribution  among program activities. For fiscal years 2006 through 2010, Benefit  Integrity had the largest percentage increase in mandatory HIPAA funding  among the original five MIP activities, in part, because of cost efficiencies  from contractor consolidation being redistributed to this activity. (See   fig. 2.) For this period, CMS increased the amount of mandatory MIP  HIPAA funds spent on the Benefit Integrity activity, from about   $125 million in fiscal year 2006 to about $166 million in fiscal year 2010— about 33 percent. Benefit Integrity funds, among other subactivities, the  work of a CMS contractor responsible for reviewing enrollment  applications from durable medical equipment suppliers and conducting  site visits to confirm these suppliers’ compliance with Medicare  regulations. This followed a period when we and HHS’s Office of  Inspector General (OIG) had highlighted problems with fraud in the  Medicare program, including problems with suppliers of durable medical  equipment. It also occurred during a period, starting in 2009, when HHS  and DOJ were increasing coordination on investigating and prosecuting  health care fraud through the Health Care Fraud Prevention and  Enforcement Action Team, an initiative that marshals resources across  the government to prevent health care fraud, waste, and abuse; crack  down on those who commit fraud; and enhance existing partnerships  between HHS and DOJ.
section_title: Not All MIP Officials Connect MIP Activities with CMS’s Goals of Reducing Improper Payments; Data Used to Calculate ROI Are Flawed
paragraphs: Although CMS measures MIP effectiveness by using the improper  payment rates for the Medicare fee-for-service, Part C Medicare  Advantage, and Part D prescription drug programs, CMS officials with  direct responsibility for MIP generally do not connect the MIP activities  and the CMS goals of reducing improper payments. CMS added two new  GPRA performance goals for MIP for fiscal year 2012 and is also  developing other performance metrics based on PPACA requirements.  One way that CMS measures MIP effectiveness is ROI, but the data the  agency currently uses to calculate this measure are flawed.
subsections: section_title: MIP Officials Generally Do Not Connect Program Activities with CMS’s Goals of Reducing Improper Payments
paragraphs: Three of CMS’s GPRA goals for MIP in fiscal year 2012 are to reduce the  improper payment rates in each part of the Medicare program, which  could contribute to the governmentwide effort to reduce improper  payments. The GPRA goals, which were also goals in previous fiscal  years, are to reduce the percentage of improper payments made in the  Medicare fee-for-service, Part C Medicare Advantage, and Part D  prescription drug programs. Each goal has a corresponding performance  measure. These goals and related measures are particularly important  because, as part of the Accountable Government Initiative, the President  set goals for federal agencies to reduce overall improper payments by  $50 billion and recapture at least $2 billion in improper contract payments  and overpayments to health providers by the end of 2012. Because of its  size, Medicare represented 38 percent of the governmentwide fiscal year  2010 improper payments. Therefore, CMS’s actions to reduce payment  errors in Medicare will affect the success or failure of the governmentwide  effort. To respond to the President’s goals, as stated in its performance  plan, CMS adopted a target to reduce its improper fee-for-service error  rate from 10.5 percent in fiscal year 2010 to 6.2 percent in fiscal year  2012 and the Part C error rate from 14.1 percent in fiscal year 2010 to   13.2 percent in fiscal year 2012.
Although CMS has established these GPRA goals as an important way to  measure the effectiveness of MIP, our interviews with CMS officials with  direct responsibility for MIP activities indicate that these officials generally  do not connect MIP activities with the CMS goals of reducing improper  payments. Only one of the five MIP activity managers stated that CMS  uses the improper payment rates to assess MIP’s overall effectiveness.  Some of the remaining four MIP activity managers told us that they were  not aware of any overall CMS measures of MIP effectiveness. In addition,  some MIP activity managers told us that the improper payment rates did  not clearly assess the work done in their activities. MIP activity managers  told us that they used a number of other performance measures to  assess the effectiveness of the activities for which they had responsibility,  including assessments of individual contractors, survey results measuring  customer satisfaction, feedback from provider associations, savings from  claims processing, funds recovered, and ROI.
The statements by agency officials indicate that CMS has not clearly  communicated to its staff the relationship between the daily work of  conducting MIP activities and the agency’s higher-level performance  measures for improper payment reduction. Our prior work has established  that responsibility for meeting performance measures should be linked  directly to the offices that have responsibility for making programs work. A  clearly communicated connection between performance measures and  program offices helps to reinforce program managers’ accountability and  ensure that managers keep in mind the outcomes their organization is  striving to achieve. Within MIP, however, activity managers generally  did not connect the activity-specific performance measures they use to  assess their activity’s effectiveness and the agencywide GPRA  performance goals for reducing improper payments. Our prior work found  that leading organizations try to link the goals and performance measures  for each organizational level to successive levels and ultimately to the  organization’s strategic goals. These leading organizations recognized  that without clearly communicated, hierarchically linked performance  measures, managers and staff throughout the organization will lack  straightforward road maps showing how their daily activities can  contribute to attaining organizationwide strategic goals.
section_title: CMS Added MIP Performance Goals for Fiscal Year 2012 and Is Developing Other Metrics Based on PPACA Requirements, but Their Linkage to Measures Used by MIP Activity Managers Is Not Clear
paragraphs: In its FY 2012 Online Performance Appendix, CMS added two new MIP  performance goals to the goals related to the improper payment rate for  Medicare fee-for-service, Part C, and Part D, but it is also not clear how  they link with performance measures currently used by MIP activity  managers. (See table 1.) The first new performance goal is related to  increasing the number of law enforcement personnel with training and  access to near real-time CMS data. The second new performance goal  aims to strengthen CMS’s provider enrollment actions to prevent  fraudulent providers and suppliers from enrolling in Medicare and ensure  that existing providers continue to meet enrollment requirements. The  performance measure associated with this goal will be an increase in the  percentage of Medicare enrollment site visits to “high-risk” providers and  suppliers that result in administrative actions. It is not clear how the  revised GPRA goals relate to the performance measures used by MIP  activity managers to assess the effectiveness of their activities because  CMS has not established such a linkage. Such linkage is helpful to  effectively communicate how performance is measured within the agency.
In addition to expanding the GPRA performance goals, CMS officials told  us that they hired a contractor to develop agencywide performance  metrics in response to PPACA requirements. The performance metrics  being developed by the contractor include performance metrics for MIP.  CMS officials did not provide a date when the new performance metrics  will be completed. According to the Director of the Medicare Program  Integrity Group, the PPACA performance metrics are broader than the  GPRA goals but generally are consistent with the GPRA goals.
In addition to the efforts at CMS to increase program integrity within the  Medicare program, HHS officials told us that they are developing a  departmentwide strategy to address program integrity in all HHS  programs. An official noted that measuring the effectiveness of any  program integrity effort is a challenge. She said it is difficult to quantify  instances where fraud or abuse was avoided because of program  integrity efforts. For instance, Provider Outreach and Education on proper  billing practices is a MIP activity, but it would be difficult to quantify how  much more improper billing would occur without this education.
section_title: CMS Calculates ROI for Most MIP Activities, but the Data CMS Uses in Its Calculation Have Flaws
paragraphs: PPACA requires CMS to report annually on the use of funds for MIP and  the effectiveness of the use of those funds. One way that CMS measures  program effectiveness is through calculation of ROI. CMS already  calculates ROI for each MIP activity, with the exception of Provider  Outreach and Education. An overall ROI for MIP is reported to Congress  annually in the agency’s budget justification. ROI is calculated as program  savings from the activity divided by program expenditures from the  activity. The Director of the Medicare Program Integrity Group told us that  the current methodology used by MIP for calculating ROI is likely the  method the agency will use to meet the PPACA reporting requirements.
The data CMS currently uses to calculate the ROI have two flaws. First,  CMS calculates the ROI for each activity in January of each year for the  prior fiscal year, but contractors can change expenditure data via the  submission of additional invoices or corrections through the time they are  audited, which can occur up to 2 years after the end of the fiscal year.  The ROI figures calculated based on this information are not  subsequently updated. When we compared the expenditure data used to  calculate activity-level ROIs and final expenditure data provided by OFM,  we found differences up to $9.7 million. Given that these dollar amounts  are used as the denominator for the ROI, the ROI amounts would likely  change if they were updated with final expenditure data. In the case of the  $9.7 million difference, for example, the difference represented a   6.4 percent increase in the program expenditures. Second, ROIs for  activities conducted by MACs are potentially inaccurate because MACs  have discretion to direct MIP funding among the activities they perform,  and CMS does not have reliable information to determine the exact  amount spent by each MAC on individual MIP activities. CMS officials  told us that they were aware of the issue and were making changes to the  data collection system so that CMS could calculate actual spending data.
As of May 2011, these officials were unable to estimate when the change  to the data collection system would be implemented.
section_title: CMS Considers a Variety of Factors, Including Potential Effect on Improper Payments, When Allocating Funding
paragraphs: Decisions about recommendations for how MIP funding should be  allocated among the various activities and subactivities are based on a  variety of factors. Based on the budget request documents we reviewed,  the CMS MIP Budget Small Group may consider any or all of the  following factors:    prior year’s approved funding levels and requested levels for the  current and following fiscal year;   rationale for the increase or decrease in requested funding;    description and justification of the subactivity;   agency performance goals, including the strategic objective and  GPRA goal, that the subactivity is intended to meet; and  consequence of not funding the subactivity.
We reviewed 36 budget request documents for subactivities funded in  fiscal year 2010 and found that 11 cited the reduction of the fee-for- service improper payment rate as the GPRA goal the subactivity was  intended to meet.
It is difficult to determine the factors CMS considers when allocating MIP  funds beyond those listed in the budget request documents. There is no  record of why submitted subactivities were funded or not funded. Also,  CMS has no policies or procedures in place that outline how decisions  about funding allocations should be made for MIP. CMS officials told us  that a subactivity’s effectiveness may be discussed orally at the meetings,  though there is no documentation substantiating this. A budget official in  CMS told us that when allocating MIP funds, the MIP Budget Small Group  tries to focus on where the problems are in each area and then  determines how to efficiently spend the money. For instance, he said that  in the past the process for allocating MIP funding within the Part C and D  Oversight activity had been difficult because the subactivities were new,  and consequently, there were no baseline ROI data available. This same  official said that he thought the allocation process for Part C and D  Oversight would become more data driven as program savings data  become available, which will allow the agency to calculate ROIs for the  Part C and D Oversight subactivities.
section_title: Conclusions
paragraphs: The administration has made reducing the governmentwide improper  payment rate a priority. CMS must play a strong role in this effort  because, even without Part D, Medicare’s improper payments constitute  more than a third of total federal government improper payments. As the  CMS program with the goal to reduce Medicare’s improper payments,  MIP will be central to the agency’s effort to reduce the Medicare improper  payment rates. CMS will need a strong, concerted effort on the part of  staff and contractors working on MIP activities to achieve the improper  payment reduction goals the agency has set for itself, and MIP staff will  need to understand how their work supports these goals and any  additional goals developed in response to PPACA requirements. Further,  a clear focus on reducing improper payments should be central to MIP  budget allocations. Because at least some information is presented orally  at the MIP Budget Small Group meetings, we cannot determine the extent  to which the risk of improper payments and effectiveness of MIP activities  in addressing that risk are discussed during the process. We continue to  believe that consideration of how MIP activities will reduce the risk of  improper payments and their effectiveness in doing so should be an  important part of the funding process and encourage CMS to make that a  priority.
As we noted in our 2006 report, ROI is a useful method for assessing the  effectiveness of MIP activities. However, such reporting is valuable only if  the ROI figures reported are reliable. Currently, the data used to calculate  the ROI are flawed because the ROI calculations are not updated beyond  the end of a fiscal year to account for changes in MIP expenditure data,  and CMS does not currently have a way to account for the exact amount  of MIP funds MACs spend on individual MIP activities. CMS officials  acknowledged the shortcomings of the MAC expenditure data and noted  that they were implementing changes to the applicable data collection  system to more accurately capture MAC expenditures. Expeditiously  completing this task and ensuring that final expenditure data are used to  update ROI calculations will be essential to ensuring reliability in ROI  reporting.
section_title: Recommendations for Executive Action
paragraphs: We are making three recommendations to CMS. To enhance  accountability and sharpen the focus of the agency on reducing improper  payments, we recommend that the Administrator of CMS clearly  communicate to staff the linkage between GPRA and PPACA  performance measures related to the reduction in improper payments and  other measures used to determine the performance of MIP activities.
To enhance the reliability of data used to calculate the MIP ROI, we  recommend that the Administrator of CMS take the following two actions    periodically update ROI calculations after contractor expenses have  been audited to account for changes in expenditure data reported to  CMS and publish a final ROI after data are complete and    expeditiously complete the implementation of data system changes  that will permit CMS to capture accurate MAC spending data, thereby  helping to ensure an accurate ROI.
section_title: Agency Comments
paragraphs: We provided a draft of this report to HHS for review, and in its written  comments, HHS concurred with our recommendations. (HHS’s written  comments are reprinted in app. IV.) HHS noted that CMS has expanded  its efforts to ensure that GPRA goals become an integral part of its overall  management culture, including management of MIP activities. In addition,  HHS stated that with the introduction of PPACA, the department is  developing performance metrics that are in addition to, and align with,  GPRA goals.
CMS concurred with our recommendation to clearly communicate to staff  the linkage between GPRA and PPACA performance measures related to  the reduction in improper payments and other measures used to  determine the performance of MIP activities. CMS stated that the agency  recently established the position of the Chief Performance Officer to  provide leadership, technical direction, and guidance in the development,  implementation, communication, and operation of a comprehensive,  CMS-wide performance management program. CMS also summarized  other agency activities under way to assess program effectiveness, such  as developing a new online data tool to report on the progress of key  performance indicators, including those related to program integrity.
CMS concurred with our recommendation to periodically update ROI  calculations after contractor expenses have been audited to account for  changes in expenditure data reported to CMS and publish a final ROI  after data are complete. According to CMS, the agency will update the  ROI when there has been a material change in the data used in the  calculation and, at a minimum, will revisit the ROI annually to account for  revisions in contractor cost reports and updated savings information.  CMS also highlighted the complexities of estimating cost data for the  MACs for purposes of the ROI.
CMS also concurred with our recommendation to complete the  implementation of data systems changes that will permit CMS to capture  accurate MAC spending data, thus helping to ensure the accuracy of the  ROI. CMS stated that the agency will convene an internal work group  consisting of staff from several components to explore more efficient  ways to accumulate MAC cost data and calculate ROI performance  statistics. CMS also noted that some changes to the cost reporting  system for contractor cost submissions have already been completed,  particularly in the area of medical review cost reporting. However, the  agency plans to pursue a full assessment of the costs reported across all  of the MIP functions performed by the MACs to ensure that any additional  changes are identified and implemented.
We are encouraged by CMS’s plans to implement our recommendations  and believe that doing so will lead to a better understanding by the  agency and Congress of MIP’s effectiveness.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies of this report to the  Secretary of Health and Human Services, Administrator of CMS,  appropriate congressional committees, and other interested parties. The  report also will be available at no charge on the GAO Web site at  http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me at (202) 512-7114 or kingk@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made major contributions to this report are  listed in appendix V.
section_title: Appendix I: Centers for Medicare & Medicaid Services (CMS) Oversight of the Medicare Integrity Program
section_title: Appendix II: Medicare Integrity Program (MIP) Contractors
paragraphs:   The Comprehensive Error Rate Testing (CERT) contractor  establishes error rates and estimates of improper payments for  Medicare, which the Centers for Medicare & Medicaid Services (CMS)  uses to assess the performance of MIP.    Medicare administrative contractors (MAC) perform medical  review of claims, identification and recovery of improper payments,  provider audits, provider education, and screening of beneficiary  complaints related to alleged fraud. MACs use information generated  by the CERT contractors to identify how to target their improper  payment prevention activities. In addition to performing these program  integrity activities, MACs process Medicare claims and conduct other  claims-related activities, such as answering provider inquiries and  recouping overpayments.    Medicare drug integrity contractors (MEDIC) are tasked with  identifying potential fraud and abuse in Part C and D of the Medicare  program and referring cases to the Department of Health and Human  Services’ Office of Inspector General (OIG) or Department of Justice  as necessary. MEDICs are also responsible for auditing the fraud,  waste, and abuse compliance programs that are a requirement for  participation as a Part D provider.    The Medicare secondary payer (MSP) contractors are responsible  for researching and conducting all MSP claim investigations. In  addition to this role in MIP, the MSP contractor identifies all health  insurance held by Medicare beneficiaries and coordinates the  payment process.    The National Supplier Clearinghouse is responsible for reviewing  enrollment applications from durable medical equipment suppliers and  conducting site visits to confirm these suppliers’ compliance with  Medicare regulations.    Program safeguard contractors (PSC) perform benefit integrity  subactivities for Parts A and B of Medicare to identify cases of  suspected fraud and take action to ensure that Medicare funding is  not inappropriately paid and that any mistaken payments are  identified. Cases of potential fraud are referred to the Department of  Health and Human Services’ OIG.    Zone program integrity contractors (ZPIC) will eventually be  responsible for performing benefit integrity subactivities for claims  under Parts A, B, C, and D of the Medicare program. CMS is currently  in the process of replacing the PSCs with ZPICs.
section_title: Appendix III: Contractor Types Performing Medicare Integrity Program Activities for Fiscal Year 2010
subsections: section_title: Comprehensive
paragraphs: Benefit Integrity includes subactivities designed to deter and detect Medicare fraud by conducting  data analysis of claims.  Provider Audit includes desk reviews, audits, and final settlement of institutional provider cost  reports.  Medicare Secondary Payer includes subactivities designed to identify claims that were mistakenly  billed to Medicare when beneficiaries have primary sources of payment that should have paid the  claims.  Medical Review includes both automated and manual prepayments and postpayment reviews of  individual Medicare claims to determine whether legitimate services are covered, medically  reasonable, and necessary.  Provider Outreach and Education includes training for providers, such as hospitals and physicians  that serve Medicare beneficiaries, on procedures to comply with Medicare rules and regulations.  Medicare-Medicaid Data Match Project is a joint effort between CMS and states that participate  voluntarily to analyze claims for individuals with both Medicare and Medicaid coverage to identify  providers with aberrant Medicare and Medicaid billing patterns.  Part C and D Oversight includes subactivities designed to address improper payments in the  Medicare private health plan program (Part C) and outpatient prescription drug benefit (Part D).  Other Medicare Fee-For-Service includes a variety of Medicare fee-for-service–related subactivities  not captured by other activities.
section_title: Appendix IV: Comments from the Department of Health and Human Services
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, key contributors to this report  were Kay L. Daly, Director; Sheila Avruch, Assistant Director;   Phillip McIntyre, Assistant Director; Sabrina Springfield, Assistant  Director; Lori Achman; Nicole Dow; Emily Loriso; Chelsea Lounsbury;  Roseanne Price; Andrea Richardson; and Jennifer Whitworth.