Medicare and Medicaid Participating Facilities: CMS Needs to Reexamine Its Approach for Funding State Oversight of Health Care Facilities
Released: 2009-03-19T00:00:00

Letter

Background

Under contract with CMS, states survey 13 types of health care facilities that participate in Medicare and Medicaid; in 2007, there were about 60,000 such facilities. State survey activities are primarily funded by the federal government. Other types of facilities that participate in Medicare and Medicaid are also subject to surveys, but the surveys are not always conducted by states or are not federally funded. For example, community mental health centers are surveyed by federal surveyors located in each of CMS’s 10 regional offices rather than state surveyors. Four facility types— ambulatory surgical centers, home health agencies, hospices, and hospitals—can choose to be surveyed by accrediting organizations, such as the Joint Commission, instead of states. However, facilities that choose this option are charged fees and are subject to state validation surveys that assess how well the accreditation process detects deficiencies in compliance with Medicare quality standards. Clinical labs are unique in that CMS collects fees from the labs to cover the cost of state surveys and federal oversight, including state validation surveys of a sample of accredited labs.

Survey Frequency

Survey frequencies for nursing homes, intermediate care facilities for the mentally retarded, and home health agencies are established by federal statute, range from about 1 to 3 years, and are defined as maximum time intervals between surveys. In contrast, CMS sets survey frequencies for the 10 other facility types that states survey as a matter of policy (see table 1). These frequencies are typically every 6 years or more and they have generally been defined as the average across all facilities of the same type (see app. II). As a result of CMS’s reliance on averages, some facilities could be surveyed earlier and others later and still meet the agency’s frequency standard. CMS distinguishes, however, between (1) its policies on survey frequency, and (2) the survey frequencies that it holds states accountable to meeting each year in its state performance reviews (discussed below), which may be less frequent than those established by policy. Although its policies on survey frequency change infrequently, CMS officials told us that nonstatutory survey frequencies are resource driven and depend on each year’s funding level. For example, CMS policy for most nonstatutory survey frequencies has been about 6 years since fiscal year 2001; based on available resources, however, the survey frequencies for which CMS has held states accountable have ranged from 3.5 years to 10 years from fiscal years 2006 through 2008 (see app. II). In fiscal year 2003, CMS introduced a 4-tier structure for prioritizing surveys with tier 1 being the highest priority—facilities with statutorily mandated survey frequencies—and tier 4 the lowest priority. CMS instructs states to ensure that tiers 1 and 2 will be completed as a prerequisite for planning surveys in subsequent tiers.

Survey Activities

States undertake a variety of survey activities, including standard and validation surveys, complaint investigations, revisits, and enforcement actions. Surveys and complaint investigations are conducted to determine facility compliance with federal quality and safety standards. The quality-of-care component of a survey focuses on assessing the facility’s compliance with all regulatory requirements, other than the requirements pertaining to protection from fire. It involves direct observation of the provision of care to a sample of patients or residents; interviews of a sample of patients or residents; and review of patient or resident medical records, as well as other facility documents. The safety component of a survey examines a facility’s compliance with federal fire safety standards. Complaint investigations allow state surveyors to intervene promptly if problems arise between standard surveys or at accredited facilities. Compared to surveys, complaint investigations are (1) more targeted because they focus on specific concerns, and (2) less predictable because they depend on the number and seriousness of the allegations. For example, some complaints involve potential immediate jeopardy to patient health and safety and must be investigated within 2 to 5 working days. Less serious complaints must be investigated promptly or, in the case of accredited facilities, within 45 calendar days. Moreover, when a complaint investigation identifies a serious deficiency at an accredited facility, an intermediate care facility for the mentally retarded, or a home health agency, a full or extended survey must be conducted.

Deficiencies identified during a survey or complaint investigation are categorized according to their severity. States conduct revisits to ensure that facilities correct any serious deficiencies identified by state surveyors; revisits may also be conducted to determine when a nursing home has returned to compliance and an enforcement action known as a sanction may be ended. On the basis of state recommendations, CMS may implement a sanction when surveyors identify serious deficiencies in a facility’s compliance with federal standards. The nature of the care provided by a facility influences the type of expertise needed to conduct surveys. For example, nursing home survey teams primarily consist of registered nurses (RN) and social workers. Surveys of intermediate care facilities for the mentally retarded, on the other hand, call for the skills of a developmental disabilities specialist.

Funding for State Survey Activities

In general, state survey activities are funded through a combination of Medicare, Medicaid, and non-Medicaid state funds. Typically, almost 60 percent of federal spending on survey activities comes from Medicare, with the remaining 40 percent funded by the federal Medicaid share. Salaries, particularly surveyor salaries, are the most significant cost component of state survey activities. Table 2 shows how the two programs fund survey activities for each type of facility. Nursing homes are the only facility type whose surveys are funded by both Medicare and Medicaid.

Medicare. Medicare funding for survey activities is requested and provided as part of a lump sum appropriation for the CMS Program Management Account, which generally funds CMS operations. For each fiscal year, CMS develops a budget request for that account, including an amount for survey activities, giving priority to funding for statutory requirements. In determining the amount for survey activities, CMS considers three factors: the number of facilities; the number of surveys states need to conduct, as determined by the established survey frequencies; and the cost of surveys, using the number of hours to complete them as a proxy. The request is submitted to Congress as part of the President’s proposed budget. In the annual appropriations act for HHS, Congress authorizes the transfer of a specific amount from the Medicare Trust Funds to CMS’s Program Management Account, which limits the amount of money that CMS can use for operations, including survey activities. Typically, tables within the conference report identify amounts for survey and other activities funded through the Program Management Account. According to a CMS official, the agency generally allocates the amounts specified in the conference report tables to the relevant activities. Funding for survey activities covers (1) state survey operations; (2) direct federal surveys, such as community mental health centers; and (3) support contracts, such as for training surveyors, developing a new nursing home survey methodology, and surveying psychiatric hospitals. The costs of managing survey activities, such as salaries for staff of CMS’s Survey and Certification Group and federal surveyors in each of CMS’s 10 regional offices, are also funded through CMS’s Program Management Account, but not as part of the funds designated in the conference report for survey activities.

Each August, CMS notifies states of their projected Medicare budget allocations for the federal fiscal year starting October 1, based on the President’s proposed budget. After enactment of the appropriations act, the agency notifies states of any changes in their Medicare allocations for survey activities. At the end of the federal fiscal year, CMS may provide supplemental funds to states that spent more than their initial Medicare allocations by redistributing funds from states that spent less than their allocations.

Medicaid. For surveys of facilities funded by Medicaid, states generally pay 25 percent of the costs and the federal government pays the remaining 75 percent. The President’s budget proposal provides Congress with an estimate of Medicaid spending for survey activities based on projected workload. The annual appropriations act for HHS includes an amount for the federal share of Medicaid expenditures, including states’ expenditures for survey activities. Funds are provided to states based on claims submitted for survey activities or state estimates of activities to be conducted.

Non-Medicaid state funding. While states contribute to survey activities by paying 25 percent of Medicaid-covered expenditures, states are also expected to contribute funds for (1) the benefit they derive from facilities meeting federal quality standards and (2) the survey costs associated with state licensing requirements. According to CMS guidance, if the survey of a Medicare facility covers 100 standards and the state has adopted 50 of them for licensing purposes, the state and Medicare would contribute equally to the survey costs of the 50 shared standards and Medicare would cover all the survey costs for the 50 Medicare-only standards. If state survey requirements are more stringent than federal requirements—for example, federal requirements call for a facility type to be surveyed every 3 years but a state mandates surveys every 18 months—the state is expected to pay for the additional surveys. Moreover, if a state has no licensing requirements for a facility type, the state still acquires a derived benefit from that facility’s having to adhere to federal standards because of its participation in Medicare and Medicaid.

Oversight of States’ Performance and Use of Funds

Through staff in its 10 regional offices, CMS oversees the extent to which states’ performance ensures that facilities participating in Medicare and Medicaid provide high-quality care in a safe environment. The agency’s primary oversight tools are annual performance reviews that measure states’ compliance with specific standards and statutorily required federal monitoring surveys of nursing homes to assess the adequacy of state surveys. CMS regional offices also monitor states’ use of federal funds provided for survey activities.

State performance reviews. CMS established state performance reviews in fiscal year 2001. Annually, the agency’s regional offices use the reviews to determine whether states are meeting federal requirements—both statutory and nonstatutory—and to identify areas for improvement in state program management. The reviews assess states’ performance across 18 standards, which generally focus on the timeliness and quality of surveys, complaint investigations, and enforcement actions. Since establishing the performance standards, CMS has continued to refine and expand their scope. For example, the standards originally focused on state nursing home survey activities, but now include ambulatory surgical centers, comprehensive outpatient rehabilitation facilities, end-stage renal dialysis facilities, home health agencies, hospices, hospitals, intermediate care facilities for the mentally retarded, and rural health clinics. However, only the survey frequency standards—whether states are completing surveys within statutory time frames or CMS-established survey priorities— encompass all 13 facility types surveyed by states. In fiscal year 2006, CMS began penalizing states that did not complete their entire tier 1 workload by reducing the states’ Medicare funding allocation for the following year.

Federal monitoring surveys of nursing homes. Regional office staff conduct statutorily required federal monitoring surveys annually in at least 5 percent of state-surveyed Medicare and Medicaid nursing homes in each state. Federal monitoring surveys, which can be either comparative or observational, provide an indication of the quality of state nursing home surveys. For a comparative survey, federal surveyors conduct an independent survey of a nursing home recently surveyed by a state in order to compare the findings. When federal surveyors identify a deficiency not cited by state surveyors, they assess whether the deficiency existed at the time of the state survey and should have been cited by state surveyors. In prior work, we used the results of federal comparative surveys as a benchmark for identifying when state surveys have failed to cite a deficiency altogether or cited a deficiency at too low a level. For observational surveys, federal surveyors accompany a state survey team to a nursing home to evaluate the team’s on-site survey performance and ability to document survey deficiencies. Observational surveys allow federal surveyors to provide more immediate feedback to state surveyors and to identify state surveyor training needs. In fiscal year 2007, 786 federal monitoring surveys were conducted, 170 of them comparative, 616 observational.

States’ use of federal funds for survey activities. CMS regional offices are responsible for reviewing state spending. This oversight has two key aspects. First, regional office staff monitor states’ Medicare spending during the fiscal year and states’ adherence to CMS policies and guidelines. If states request supplemental Medicare funds, regional offices evaluate the states’ requests and make recommendations to the CMS central office. Second, according to CMS’s State Operations Manual, a state must allocate the costs of a survey to Medicare, Medicaid, and state licensure based on the extent to which each of these programs benefit from the survey. According to CMS central office officials, regional office staff are responsible for working with states to establish the amount of non-Medicaid state funds that states contribute to cover the costs associated with their derived benefit and their licensing requirements that differ from federal requirements.

CMS Took Modest Steps to Address Recent Funding Trends and Manage Survey Funding Allocations

Federal funding for state surveys increased from fiscal years 2000 through 2002 but was nearly flat from fiscal years 2002 through 2007. In inflation- adjusted terms, funding fell 9 percent from fiscal years 2002 through 2007. CMS has taken incremental steps to address both the recent trend in funding levels and survey budget allocation weaknesses. CMS has placed a priority on funding state surveys at the expense of certain support contracts, such as the development of a new nursing home survey methodology. To ensure that states would have to conduct some surveys of every facility type each year, CMS distributed the survey requirements for several facility types across more than one tier, placing a higher priority on surveying the most problematic facilities. At the same time, it increased the average time between surveys for many facility types. Recognizing that its previous method for allocating Medicare funds for state survey activities resulted in over- and underfunding relative to state survey requirements, CMS developed a new budget analysis tool in 2005. However, use of the tool has been confined to making incremental adjustments, rather than baseline reallocations, to Medicare survey funding. In addition, the agency asked states to develop contingency plans to prepare for possible reductions in Medicare funding.

Federal Funding for Survey Activities Was Nearly Flat from Fiscal Years 2002 through 2007

Federal funding for state surveys increased from fiscal years 2000 through 2002 but was nearly flat from fiscal years 2002 through 2007. In inflation- adjusted terms, funding increased modestly by 4 percent over the entire 8 fiscal years, but fell 9 percent from fiscal years 2002 through 2007 (see app. III). In fiscal year 2008, Medicare funding for survey activities increased by about 7 percent after adjusting for inflation. Figure 1 compares overall federal funding for survey activities in actual and inflation-adjusted dollars for fiscal years 2000 through 2007.

For about 3 months in calendar year 2007, CMS charged and retained fees for revisits from Medicare facilities. In fiscal year 2007, Congress required CMS to charge user fees for revisit surveys and to use those fees to cover the costs of these surveys. That authority was extended through part of fiscal year 2008 through a series of continuing resolutions. According to CMS, the agency sought this authority to encourage Congress to fund requested increases in the Medicare survey budget, breaking what they perceived to be a cycle of inadequate funding for survey activities. The agency billed facilities about $8 million during the 3 months that the revisit user fee program was in effect. Although this authority was requested in the President’s Budget for fiscal year 2008, Congress did not provide it.

CMS Took Modest Steps to Address Budgetary Stress from Fiscal Years 2002 through 2007

In response to a decline in inflation-adjusted funding since fiscal year 2002, CMS modestly increased the amount of Medicare funds targeted for state surveys in fiscal years 2005 through 2007 by tapping into its support contract funds. For example, in fiscal year 2007, CMS cut Medicare funding for support contracts by about 17 percent ($2.7 million) and correspondingly increased states’ Medicare allocation for conducting surveys by 1.3 percent, ranging from about $9,000 to about $368,000 a state (see table 3). A CMS official also told us that the agency has decreased funding for and thus slowed the refinement and implementation of the new nursing home Quality Indicator Survey (QIS)—a project funded through a support contract initiated about 10-years ago that is intended to improve the consistency and efficiency of state surveys and provide a more reliable assessment of quality. CMS had intended to significantly expand implementation from the 5 pilot states, but has only added 3 of the 13 states interested in transitioning to the QIS. As of May 2008, CMS projected that the QIS would not be fully implemented nationally until 2014, at an estimated cost of about $20 million. According to CMS officials, further reductions in support contracts would adversely affect the activities funded through the contracts.

In fiscal year 2006, CMS adopted a risk-based approach for state survey requirements in response to declining inflation-adjusted funding since fiscal year 2002. This approach entailed distributing the survey requirements for several facility types across more than one tier, thus ensuring that states would have to conduct some surveys of every facility type each year. First, CMS required states to survey a targeted sample of the most problematic facilities as a tier 2 priority for many facility types. States select 5 percent or 10 percent of facilities, depending on the type, from a CMS list that identifies those most at risk of providing poor care. In addition, CMS moved the previous tier 3 requirement for many facility types to tier 4 and increased the average time between surveys for tier 3. By doing this, CMS effectively increased the average time between surveys in tier 3—for example, from every 6 years to every 8 years—for nine facility types whose survey frequencies are not set by statute (see app. II). For example, survey requirements for end-stage renal disease facilities—a tier 3 priority in fiscal year 2005—were spread across tiers 2, 3, and 4 in fiscal year 2006. States were required to survey a 10 percent sample of these facilities selected for tier 2, while surveying facilities for tiers 3 and 4 on an average of 3.5 and 3.0 years, respectively (see fig. 2). The 3-year average for tier 4 reflects CMS’s policy for end-stage renal disease facility surveys, but CMS acknowledges that Medicare funding may not be sufficient for most states to accomplish tier 4 survey priorities.

In fiscal year 2007, CMS further increased the average survey frequency in tier 3 for five facility types from 8 years to 10 years and for one facility type from 3.5 years to 4 years. Despite this, we found that from fiscal years 2000 to 2007 the increased average survey frequency had almost no impact on states’ required survey workload. Given the fiscal year 2008 increase in Medicare funding, CMS decreased the time between surveys for many facility types, returning them to approximately fiscal year 2000 levels (see app. II).

Despite CMS’s risk-based approach, some state-surveyed facilities have not been surveyed for many years. About 2,700 facilities (13 percent) whose survey frequencies are established by CMS had not been surveyed in 6 years or more as of September 30, 2007 (see table 4); about 900 (4 percent) had not been surveyed in 10 years or more. Officials from both CMS and most of the states we contacted told us that the time between surveys for facilities without statutory survey frequencies was too long, which can increase the risk for quality problems. For example, officials from several states told us that they cite deficiencies more often, or the deficiencies are more serious, at facilities that are surveyed infrequently. Officials from one state said that facility administrators might become complacent about meeting federal quality standards during the lengthy periods between surveys. Officials from another state told us that, in 2006, surveyors of hospices in their state cited serious deficiencies on four out of eight surveys. Many state officials said that the survey frequency for all facilities that are not set by statute should be every 2 to 3 years.

CMS’s Attempts to Increase the Effectiveness of the Survey Budget Allocation Process Have Had a Limited Impact

CMS’s attempts to make the survey budget allocation process more effective have had a limited impact. In fiscal year 2005, it began using a budget analysis tool to more equitably distribute funding to states. It also asked states to develop contingency plans to deal with the uncertainty about state funding due to the timing of the Medicare budget allocation process.

Budget Analysis Tool

The budget analysis tool was designed to address funding inequities resulting from CMS’s previous method for allocating Medicare funds for state survey activities, but its impact has been limited. Previously, CMS determined states’ allocations based on their past spending, but this method did not guarantee that funding levels accurately reflected state workloads—some states received too much funding given their survey workloads, others too little. For example, regional office staff told us that a state hiring freeze in the 1990s caused severe understaffing for one state in their region. One year, this state spent significantly less than its Medicare allocation because it was unable to hire staff. Consequently, the following year this state’s Medicare funding increases reflected the previous year’s low level of expenditures and the relatively low level of Medicare funding has been carried forward every year. CMS officials chose not to use the tool to recalculate states’ base allocations to avoid shifts that could result in layoffs of trained staff. CMS officials anticipated that over time the use of the budget analysis tool would incrementally align state funding with workload.

The budget analysis tool allows CMS to measure state survey workload against funding and compare the match of workload to funding across states. It uses both state-specific and national data to measure state survey requirements, such as hours needed to perform surveys, and states’ costs for conducting survey activities, such as salaries, as well as fringe benefits for those staff, training, and travel. While state-specific data are used to calculate workloads for nursing homes, national averages are used for other facilities because they are surveyed so infrequently. The tool makes final adjustments based on regional office analysis and other factors. The tool then scores each state from 1 (less well-funded, relative to other states) to 5 (better funded) given the state’s workload (see fig. 3). In 2005, 10 states scored 1 and 15 states scored 4 or 5. In 2008, 7 states had a score of 1 while 14 had a score of 4 or 5.

An agency official acknowledged that there are limitations in the tool’s effectiveness. First, state scores do not account for state enforcement activity or the fixed costs associated with administering survey activities. Second, CMS officials told us that they did not know how long an efficient survey should take and could not assess whether the considerable interstate variation in the length of surveys was appropriate. Third, state- specific data are limited for most facility types other than nursing homes because they are surveyed less frequently.

CMS has used the budget analysis tool five times: (1) twice to distribute annual increases in Medicare funds to states (after allocating a small across-the-board inflation increase), and (2) three times to redistribute Medicare funds at the end of the fiscal year to states that spent more than their initial allocations by using state funds and had requested supplemental funding. In fiscal year 2005, CMS used the tool to distribute a 3 percent increase in survey funding, which translated into a 0.5 percent to 9.5 percent increase depending on the state. In fiscal year 2008, average increases to states ranged from about 10 percent for states which scored 1 to about 6.5 percent for states which scored 5. In fiscal years 2005 through 2007, CMS used the tool to redistribute year-end supplemental funding to states, but the amount to be redistributed has shrunk in recent years. For example, CMS had about $6 million available to redistribute in fiscal year 2005 but only about $2.5 million in fiscal year 2007.

State Contingency Budget Plans

To help address uncertainty about federal Medicare funding levels, CMS asked states to develop a baseline budget and contingency plans for a specified reduction or increase to the baseline for fiscal years 2007 and 2008. In general, CMS communicates state-projected allocations in August, before the beginning of the next federal fiscal year. These projected allocations may be more or less than the final allocation and, for the past several years, CMS’s budget for state survey activities has not been finalized until 6 to 8 months later. CMS acknowledged the uncertainty that resulted from states not knowing their final Medicare allocations until well into the state fiscal year, which for most states begins on July 1.

Regional office and state officials identified several problems that can result from finalizing states’ Medicare allocations late in the state fiscal year. First, officials from one regional office told us that states had to conduct their survey work cautiously until they received their final Medicare allocations, which could be less than initially projected. In some cases, the uncertainty may cause states to defer some of their surveys until the end of the fiscal year, potentially causing them to spend less than their Medicare allocations. Second, officials from one state told us that if their Medicare allocation was less than initially projected, they would have to cut staff or other direct costs such as travel—all essential to completing their survey workload. Third, officials from another state said that the lag in receiving their final Medicare allocation further delayed hiring new staff.

Almost All States Were Unable to Complete Their Survey Workload, and Pinpointing the Cause Is Difficult

Only one state, Arkansas, was able to complete all surveys in tiers 1 through 3 in fiscal year 2006, but pinpointing the cause is difficult because (1) several factors such as workload, funding, staffing, and management could have had an impact and (2) distinguishing the extent to which each factor contributed to state completion rates and the quality of each states’ surveys is challenging. Overall, we found that states’ required survey workload—the workload that states would have to complete to meet statutory and CMS survey frequency requirements—decreased 4 percent from fiscal years 2000 to 2007. This decrease was due to a decline in the number of the most frequently surveyed facilities that also require more time to survey compared to other facilities. This decline offset the workload increase from the overall growth in the number and type of other facilities subject to surveys over the same time period. It is unclear how states’ complaint investigation workload changed over this same time period because CMS lacks reliable and consistent state data on complaints received and investigated. According to CMS, the agency adjusts the survey priorities in tiers 1 through 3 so that the workload is feasible given Medicare funding levels, but the states we contacted disagree. However, some of the states we contacted that spent significantly more than their initial Medicare allocations still did not complete all surveys in those tiers. Sixteen of the 28 states we contacted were unable to spend their entire Medicare allocations, most indicating that this was due to high surveyor attrition rates and hiring freezes. Though many states believe that noncompetitive surveyor salaries contribute to attrition, states, not CMS, establish those salaries. In two states, CMS concluded that poor management of the survey process had compromised the quality of state surveys, but acknowledged that in one of the states staffing levels, salaries, and other issues may have been a contributing factor.

Almost All States Were Unable to Complete CMS’s Survey Priorities Despite Decreases in the Required Survey Workload

CMS state performance reviews for fiscal years 2006 and 2007 found that few states were able to complete or nearly complete all surveys in tiers 1 through 3, despite decreases in the required survey workload from fiscal years 2000 to 2007. However, the impact of complaint investigations and revisits on state workloads during this time period is unclear because the data were not complete or reliable.

Completion of CMS Survey Priorities

Only one state, Arkansas, was able to complete its surveys in all three tiers in fiscal year 2006. Seventeen states did not complete their tier 1 surveys in fiscal year 2006 and, as a result, were assessed deductions totaling $298,200 from their fiscal year 2007 Medicare survey allocations (see table 5). Thirty-five states were unable to complete their tier 2 surveys and 46 states were unable to complete their tier 3 surveys. Some states narrowly missed completing surveys in one or more tiers, while others missed completion by a wide margin. For example, in fiscal year 2006 one state completed 99.9 percent of the surveys of intermediate care facilities for the mentally retarded, while another state completed only 33 percent of such surveys, but CMS rated both states as not meeting the survey workload. Counting the few states that narrowly missed the standards as passing had little impact on the results presented in table 5. These results were similar in fiscal year 2007—25 states were unable to complete their tier 1 surveys, 34 did not complete tier 2 surveys, and 41 did not complete tier 3 surveys. CMS officials believe that recent Medicare funding levels have been sufficient for states to complete surveys in tiers 1 through 3.

States’ required survey workload—the workload that states would have to complete to meet statutory and CMS survey frequency requirements— decreased nationally from fiscal year 2000 to fiscal year 2007, even though the number and type of facilities subject to surveys during that period increased. The decrease in the required survey workload was due primarily to the decline of more than 1,100 nursing homes and 300 intermediate care facilities for the mentally retarded (see app. IV). Declines in these two facility types offset overall increases in other facilities subject to surveys because nursing homes and intermediate care facilities for the mentally retarded are comparatively the most resource- intensive facilities to survey: (1) statute dictates that nursing homes and intermediate care facilities for the mentally retarded must be surveyed approximately every 12 months, and (2) their surveys take longer than most other facilities to complete. For example, even though the number of ambulatory surgical centers increased by 31 percent from fiscal year 2000 to fiscal year 2007, the increase had a small impact on the required survey workload because on average ambulatory surgical centers require 26 hours to survey and, as of fiscal year 2007, only had to be surveyed once every 10 years to meet tier 3 workload priorities; in contrast, nursing homes take 157 hours to survey and their surveys are tier 1 workload priorities that must occur an average of every 12 months. After factoring in both average survey hours and required frequencies, 1 less nursing home can offset the workload increase of 60 new ambulatory surgical centers (see fig. 4). Surveys of nursing homes and intermediate care facilities for the mentally retarded together accounted for about 93 percent of states’ required survey workload in fiscal year 2000 and 91 percent of states’ required survey workload in fiscal year 2007; all other surveyed facilities accounted for less than 10 percent of the workload in both years. When all facilities are considered, the required survey workload decreased by about 4 percent (see fig. 5). Almost all of the decrease was due to the decline in nursing homes and intermediate care facilities for the mentally retarded; the increase in the interval between surveys had a negligible impact.

The disproportionate impact of decreases in nursing homes and intermediate care facilities for the mentally retarded on states’ required survey workload is illustrated by Washington. From fiscal year 2000 to fiscal year 2007, the number of facilities subject to surveys in Washington increased by about 16 percent due largely to growth in ambulatory surgical centers, end-stage renal dialysis centers, and rural health centers. In fiscal year 2007, these facility types were subject to surveys on average every 10, 4, and 10 years, respectively. During the same period, however, Washington experienced decreases in the numbers of nursing homes and intermediate care facilities for the mentally retarded, which, on average, are surveyed every 12 months. As a result, the number of surveys that Washington was expected to conduct each year decreased about 9 percent; when average survey hours are taken into account, the state’s required survey workload decreased by 11 percent. Eleven states— Alabama, Alaska, Delaware, Florida, Georgia, Mississippi, New Jersey, North Carolina, Texas, Utah, and Virginia—experienced increases in their required survey workload, ranging from less than 1 percent to about 8 percent (see app. V).

Workload Impact of Complaints, Survey Process Improvements, and Revisits

In addition to changes in the number and type of facilities subject to surveys, two other survey activities as well as survey process improvements could have affected states’ overall workload, but the results for complaints and revisits were unclear because the data were not available or reliable. It is difficult to discern from the data whether survey process improvements contributed to the small increases from fiscal years 2000 to 2007 in average survey hours for most facility types.

Complaint investigations. Although complaint investigations represent a significant portion of state workload, CMS officials told us that the agency lacks complete and reliable data on complaints received and investigated. CMS implemented a new complaint database in 2004 but officials told us that the data are not reported consistently. First, a few states either do not report complaints in the CMS database or investigate complaints under state licensure, thus underreporting the number of complaints in the database. Second, states may not be consistently reporting complaints. According to CMS, the agency instructs states to differentiate between facility-reported incidents, which they can choose to investigate as complaints, and complaints received from residents, family members, or others. According to CMS, however, some states report few if any facility-reported incidents. Third, CMS believes that some states may be overestimating the number of complaints by reporting complaints received and investigated during standard surveys in the CMS complaints database. According to CMS, about 15 percent of complaints are investigated during standard surveys.

Although the changes in the complaint workload are difficult to quantify, both CMS and state officials told us that resource constraints have hampered complaint investigations. For example, according to both CMS and state officials, states may be bundling complaints—waiting until they receive two to three complaints about a particular facility and then investigating them all at the same time—resulting in less timely complaint investigations. One state now sends in one surveyor to investigate complaints rather than two or three, which had been a more typical team size. Officials from a different state expressed concern that complaint bundling may affect the adequacy of their investigations. State officials stressed that the unpredictable nature of complaint investigations can be disruptive to scheduling and completing standard and validation surveys.

State officials told us that CMS does not adequately fund complaint investigations and that CMS expects states to use their own funds. According to CMS officials, the amount identified for such investigations in the fiscal year 2008 President’s budget request does not fully fund all anticipated complaint investigations. We believe, however, that it is appropriate for states to cover the additional costs of completing complaint investigations within state time frames that are more stringent than federal requirements. For example, both California and Pennsylvania require all investigations to be initiated within 10 days, while CMS requires such rapid investigations only for complaints alleging immediate jeopardy or actual harm. In contrast, Florida requires all complaints to be investigated within 90 days. We believe that it is difficult to determine the appropriate federal funding level for complaint investigations without a complete estimate of the complaint workload.

Revisits. CMS does not have reliable and complete data on revisits from fiscal years 2000 to 2004 due to changes in how revisit survey activities were reported across states. As a result, it is not possible to fully account for the impact of revisits on states’ overall survey workload. However, CMS data for fiscal years 2005 to 2007 show that the revisit workload declined by 4 percent. Revisits for standard surveys accounted for approximately 8 percent of states’ survey workload in fiscal year 2007 and nursing homes and intermediate care facilities for the mentally retarded constituted about 85 percent of states’ revisit workload in 2007. We believe that the decline in revisits for fiscal years 2005 to 2007 is consistent with states’ overall decline in survey workload since fiscal year 2000.

Survey process improvements. To improve the quality of state surveys, CMS has implemented new directives and more stringent standards for surveys, which CMS believes have increased states’ survey workload. For example, CMS added new survey requirements for hospices and end-stage renal disease facilities and required states to include in their surveys home health and outpatient physical therapy locations (branches and extensions, respectively) that are under the supervision of a licensed facility. According to one state we interviewed, new requirements (1) increase the time required to conduct surveys and (2) require additional surveyor training, which decreases productivity and is not reflected in recorded survey hours. Although new requirements that result in additional time to conduct surveys should be reflected in the survey hours that states report, CMS expressed doubt that survey hours were actually increasing as a result of these initiatives because it believes that states lack adequate resources to carry them out. Data for fiscal years 2000 to 2007 show small increases in average survey hours for most facility types; however, it is difficult to determine whether these changes are due to the new requirements or to factors such as surveyor experience levels.

Multiple Factors May Affect States’ Ability to Complete Survey Workloads

Several other factors—funding, staffing, and management of the survey process—may have an impact on states’ ability to complete survey workloads and these factors also influence the quality of surveys. These factors are often interrelated and can play out differently in each state. States disagree with CMS’s position that there is sufficient funding to complete the workload in tiers 1 through 3, primarily because of workforce instability due to noncompetitive salaries. However, states, not CMS, establish these salaries and manage the workforce and the survey process.

Funding Sufficiency

CMS established the tiered survey priorities to ensure that Medicare funding was sufficient for states to complete surveys in tiers 1 through 3. While most of the states we contacted believe that CMS’s expectations are unreasonable, the data suggest the influence of factors other than the federal Medicare allocation. For example, 16 of the 28 states we contacted spent more than their fiscal year 2006 initial Medicare allocations, but none were able to complete all required surveys in these three tiers. Seven of these states were unable to complete even their tier 1 requirements— those that are statutorily mandated. For example, Missouri spent more than its fiscal year 2006 initial Medicare allocation and was able to complete all of its surveys in tiers 2 and 3 but failed to complete its entire tier 1 workload. On the other hand, 16 of the states we contacted spent less than their Medicare funding for fiscal years 2000 through 2006, 11 of these states spent less than their fiscal year 2006 allocations. For some of these states, the ability to spend Medicare allocations—not the Medicare funding level itself—affected their ability to complete the required surveys.

Officials from 23 of the states we contacted told us that an additional $35 million in cumulative Medicare funding was needed, primarily to increase surveyor salary levels so that states could fill staff vacancies and offer incentives to retain current staff, issues that they believe have significantly inhibited their ability to complete required surveys. Conversely, officials from 4 states told us they did not need any additional Medicare funding.

Workforce Instability

Officials from AHFSA and many of the 28 states we contacted told us that an unstable workforce had affected their ability to meet CMS survey priorities over the past several years. The workforce instability arises mostly from noncompetitive salaries, which result in the hiring of less qualified candidates, and hiring freezes. Salary levels, minimum qualifications, and decisions about when to hire or not hire surveyors are the result of state personnel policies that affect surveyor positions as well as positions for other state employees.

According to AHFSA and state officials, staff retention issues among states can be attributed primarily to noncompetitive salaries for RNs—the profession that comprises the largest proportion of surveyors nationally. In fiscal year 2006, the surveyor attrition rate among the 28 states we contacted ranged from 0 percent to about 46 percent, and 17 of these states reported attrition rates of 10 percent or higher. Officials from one state told us that the starting salary for their RN surveyors ranged from $30,000 to $35,000 and that trained RNs typically leave surveyor positions after a few years to seek jobs in the private sector for higher salaries. The average salary for RN surveyors in the 28 states we contacted was about $59,000 in fiscal year 2006 and ranged from about $37,000 to about $88,000. More recently, some states have been able to increase surveyor salaries from previous levels to compete with the private sector. For instance, in one state, the salaries of experienced surveyors increased by about 28 percent in fiscal year 2007. However, officials from 13 states are concerned that any increase in surveyor salaries may not be sustainable in the long-term without increases in state Medicare allocations. Without an increase, these states indicate that they may have to lay off staff, which would adversely affect their ability to complete the survey workload.

According to AHFSA officials, states have hired applicants that are less qualified for surveyor positions due to noncompetitive surveyor salaries. They told us that some states formerly hired RN surveyors with bachelor’s degrees, but given current salary levels, these positions may only be attractive to licensed practical nurses with 2-year rather than 4-year degrees. States are also hiring nurses with less nursing experience to fill the positions. Of the 28 states we contacted, 6 states offered surveyor positions to applicants with no prior experience. AHFSA officials believe that inexperienced surveyors tend to be less productive and require increased supervision and oversight.

Hiring freezes have also affected states’ abilities to manage their survey workloads. During the past few years, some states temporarily suspended the hiring of state employees due to state budget deficits. Consequently, states had to suspend hiring of surveyors, even though they may have had sufficient federal funding to support the additional staff. Of the 28 states we contacted, 16 states spent less than their Medicare budget allocations from fiscal years 2000 through 2006 and 14 of them identified hiring freezes or vacancies as the primary reason. With consistently high turnover rates among these states’ surveyors, the hiring freezes prevented states from filling vacant positions.

Survey Process Management

Given workforce instability, states told us that they have adjusted how they manage surveys to meet CMS priorities. Some states adjust the size of a survey team depending on the availability of staff. Of the 28 states we contacted, officials from 20 states indicated that they reduced the survey team size or restricted the time a surveyor is allowed to spend in a facility in fiscal year 2006. Officials from one of these states explained that, in the past, a survey team may have consisted of four surveyors plus a specialist, but now a survey team only consists of three surveyors. As noted earlier, they also told us that a state may send one surveyor to investigate several complaints whereas previously, multiple surveyors were sent to investigate complaints. Additionally, a state may limit or restrict the time a surveyor is allowed to spend in a facility to ensure that other facilities are surveyed and the state meets CMS performance measures. As a result, officials from 11 states told us that surveyors do not have enough time to conduct thorough surveys.

Quality of Surveys

Although states may complete surveys in a given tier, this does not ensure that the surveys are thorough. CMS’s 2006 state performance review indicated that Missouri, Oklahoma, New Mexico, South Carolina, South Dakota, Tennessee, and Wyoming completed all of their nursing home surveys within the statutorily required time frames. But, as we previously reported, more than 25 percent of federal comparative surveys conducted in these states from fiscal years 2002 through 2007 found that state surveyors had missed serious deficiencies. For example, South Carolina missed at least one serious deficiency on 6 of the 18 comparative surveys during those 6 fiscal years, with an overall total of 19 missed deficiencies that caused harm or placed residents in immediate jeopardy.

In one of these states, CMS told us that performance issues raised concerns about the management of survey activities. For example, 26 percent of federal comparative surveys conducted in Tennessee from fiscal years 2002 through 2007 found that state surveyors had missed serious deficiencies. Moreover, the results of federal observational surveys from this same time period indicated that the proportion of Tennessee surveyors with below satisfactory ratings in investigative skills and deficiency determination was more than double the national average. A new director took over the state survey agency in October 2007 and, due to the surveyor performance issues and staff turnover, brought in CMS regional office staff to assist in retraining all of the state’s surveyors.

Unlike these seven states, about 93 percent of Alabama’s nursing home surveys in fiscal year 2007 were not completed within the maximum 15.9 month interval. In a June 2007 letter to the state, CMS described these results as alarming and asked Alabama to develop an action plan in 2007 to address persistent weaknesses in state performance. The agency used both comparative and observational data from federal monitoring surveys to highlight persistent weaknesses in the survey process to Alabama state officials. Although CMS recognized that the state’s inability to complete surveys could be due to staffing levels, salaries, and other issues, CMS ultimately concluded that Alabama needed to improve organization, management, and oversight of all regulatory systems and functions.

CMS Oversight of States’ Use of Funds Is Limited

CMS oversight of states’ use of funds for survey activities is limited. To oversee how states spend federal funds, CMS regional offices we spoke with now rely primarily on off-site reviews of state reports documenting their expenditures and workload, but there are limitations to relying on such reports, including their accuracy. In eliminating the budget and financial standard from annual state performance reviews in 2006, CMS redefined these financial responsibilities as core state functions, but not all regional offices we reviewed are attempting to hold states accountable for ensuring the appropriate application of costs to Medicare, Medicaid, and state licensure programs. We also found that regional offices we spoke with had taken a variety of approaches to determining non-Medicaid contribution rates for the states in their regions. Most told us that these rates have not been reviewed in recent years, even though federal survey and state licensure requirements may have changed over time. Regional officials told us that they do not verify that states actually contributed funds in a manner consistent with their shares, noting limits on their authority to require state data and states’ refusal to provide it voluntarily. However, CMS assumes that the cost for a state to operate a survey program is higher than the amount CMS provides them and the agency is convinced that states were likely contributing more than their fair share to survey activities. Finally, most regional offices we spoke with do not require states to justify requests for supplemental Medicare funds. As a result, it is difficult for CMS to determine whether expenditures in excess of a state’s initial Medicare allocation represent the state’s non-Medicaid share of survey costs.

Regional Office Oversight Now Relies on State- Reported Data

To oversee states’ use of federal funds for survey activities, the five CMS regional offices we spoke with now rely primarily on the off-site review of reports on expenditures, workload, and survey hours that states submit during the fiscal year, but reliance on such reports for financial oversight has limits. CMS’s central office believes that the majority of the analyses regional offices are expected to perform as part of their oversight can now be accomplished using the reports states submit. In contrast, officials from four of the five CMS regional offices we spoke with generally told us that in the 1990s, they either conducted more formal, on-site reviews or more detailed reviews of systems, such as those used for time and effort reporting, which served as the basis for states’ allocations of survey costs to Medicaid, Medicare, and state licensure programs. This allowed regional offices to verify the accuracy of states’ expenditures and ensure that states complied with financial procedures established by CMS.

Effective fiscal year 2006, CMS eliminated the state performance review standard that focused on states’ budget practices and financial reporting and redefined these financial responsibilities as “core” functions that states were required to perform. As a part of the state performance review, the state’s budget practices were evaluated against 14 elements to determine if the state used acceptable methods for (1) charging the federal programs, and (2) monitoring the current rate of expenditures and planned workload. Two of these 14 elements dealt with the appropriate application of program contribution rates across Medicare, Medicaid, and state licensure programs. Specifically, states must provide reasonable assurances that survey and certification costs were appropriately applied to the Medicare, Medicaid, and state licensure programs for all items and costs in their budgets and across providers and suppliers and the various types of facilities. According to CMS, however, regional offices are still expected to ensure that states are fulfilling their responsibilities under the standards, but only one of the five regional offices we spoke with (San Francisco) determines whether or not it has reasonable assurances that survey and certification program costs are appropriately applied to Medicare, Medicaid, and state licensure programs. Two other regional offices (Chicago and Dallas) inspect state records regarding the application of program costs across the three programs, but do not determine reasonable assurance of this accounting. Two regional offices (Atlanta and New York) have not incorporated these two elements into a review of this standard and its oversight of state survey activities.

Relying primarily on state-reported expenditure data for federal financial oversight has limits. Since fiscal year 2002, states have been required to submit their financial information electronically through a Web-based, automated reporting system provided by CMS. Regional office officials have expressed concern regarding whether state expenditures are accurately reported through this system, as there have been instances where errors were discovered in states’ expenditure reports well after their submission. For example, Washington state officials told us that they identified a significant error on the state’s expenditure report for fiscal year 2006. In reporting the amount of staff time it took to complete its workload, the state provided the data in terms of months, though it was required to provide staff time in years. As a result, the information in the expenditure report was contradictory. In addition, officials from the Dallas regional office told us that Texas underreported its expenditures in fiscal years 2003 and 2004 due to errors that resulted as the state transitioned to a new accounting system. The error was not discovered until the Medicare funds the state appeared not to have spent had been reallocated to other states. Officials from the Chicago regional office told us that it is difficult to verify the figures presented on state expenditure reports because of delays by many states in entering information into OSCAR, which regional offices may use to verify states’ expenditures. Also, a lack of timeliness in reporting such information can limit regional office oversight efforts. For example, in its review of Delaware’s survey expenditures for fiscal years 1998 and 1999, HHS’s OIG found that, in addition to not having sufficient internal controls for preparing accurate reports of its Medicare and Medicaid expenditures, the state did not file its fiscal year 1999 expenditure reports on time.

Non-Medicaid State Contributions Are Based on Long-standing Rates That Are Not Reviewed and Vary Greatly by CMS Regional Office

The contribution rates for states in the five regions we spoke with were determined using different methodologies and in most cases have not been reviewed in recent years. Moreover, states are not required to report their non-Medicaid state expenditures to CMS and, as a result, the agency has no way of verifying that states are contributing their own funds appropriately. Nonetheless, CMS central office and regional office officials we spoke with generally assume that the cost of conducting survey activities is greater than the federal funds provided. Consequently, they believe states are contributing more than their fair share to the cost of survey activities and that the exact amount of the non-Medicaid state contribution is less important.

CMS guidance reflects the complexity of establishing equitable state shares and acknowledges that regional office staff must be knowledgeable about state licensure requirements to negotiate states’ non-Medicaid contribution rates. For 21 states, the non-Medicaid state share for nursing homes ranged from 12 to 48 percent (see table 6). Regional offices we spoke with have taken a variety of approaches to setting these rates. In some regions, regional office staff determined the rates, while in other regions the states determined the rates themselves.

Officials from the Chicago regional office told us that the methodology used by their staff to determine state contribution rates was complex and involved determining a separate state share for each facility type that was surveyed. Regional office staff took into consideration the number of surveys that each state needs to conduct in a given year, the average amount of time each survey should take, and how much of a benefit each state derived from having to conduct the survey.

Officials from the San Francisco regional office told us that contribution rates for the states in their region are mostly based on historical figures, as reported in states’ time and effort record keeping systems.

Officials from the New York regional office told us that their staff and state officials jointly determined that Medicare, Medicaid, and state licensure programs derived equal benefit from federal nursing home surveys conducted by states in the region. As a result, they concluded that each program should be responsible for one-third of the cost of these surveys. In contrast to what other regions told us, however, states in this region do not have a non-Medicaid state share for other facility types.

Officials from the Atlanta regional office told us that they played no role in establishing these rates and were unaware of the process states in their region used to determine them.

Officials from the Dallas regional office told us that, due to the complexity involved in determining an appropriate state share, states in their region do not have pre-established non-Medicaid state contribution rates. Instead, a staff person reviews state surveyor salaries and makes sure that states have apportioned them appropriately between federal and state licensure activity, based on the surveyors’ workload from the previous year.

Officials from four CMS regions indicated that the rates for states in their regions are not regularly reviewed and in one case have not been reviewed since they were established. CMS guidance does not prescribe how often the rates should be updated given changes in requirements for federal and state licensure surveys over time. A 2002 HHS OIG review also found that states in four of the five regions it reviewed allocated survey costs based on predetermined, historical contribution rates. Because these rates were established in prior years, documentation of the basis for the rates was not available.

CMS officials told us that the agency does not collect information from states on their non-Medicaid survey expenditures. As a result, CMS does not know if states are contributing their own funds appropriately (see fig. 6). CMS officials noted limits on the agency’s authority to collect state data, particularly regarding licensure activities. In addition, states are not willing to voluntarily disclose information on state funding. For example, officials from the Dallas regional office told us that Texas officials indicated the Dallas officials were not entitled to this information when they requested it. However, information on state expenditures could be relevant to federal oversight of state survey activities in certain situations. For example, if a state requests supplemental funding for shared survey activities—that is, those not exclusively conducted for purposes of state licensure—having information on the state’s expenditures for the non- Medicaid share could be relevant in evaluating whether survey costs are equitably shared and that Medicare is not paying more than its fair share for survey activities.

Most Regional Offices We Interviewed Do Not Require States to Justify Requests for Supplemental Medicare Funds

Though officials from CMS’s central office told us that regional offices should require states to justify any requests for supplemental Medicare funds they submit, three of the five regional offices we interviewed told us that they do not require states to do so. Without an examination of state justifications, it would be difficult for CMS to know if expenditures in excess of states’ initial Medicare allocations represent their non-Medicaid share of state costs.

According to CMS guidance, states can request supplemental Medicare funds in two ways. They can submit a memo to their regional office that includes the amount of funds requested and a detailed rationale for why the funds are needed. A second method is for states to include actual Medicare expenditures in excess of their allocation on the expenditure report they submit at the end of the fiscal year. The state is eligible to receive supplemental Medicare funding as reimbursement for the portion of these expenditures that exceeds the amount in Medicare funds CMS allocated to it during the fiscal year. According to CMS central office officials, both the memo and the amounts reported on states’ expenditure forms are subject to review and approval by the regional offices prior to the funding of states’ supplemental requests.

Central office officials told us that the amount of Medicare supplemental funds requested each year has been substantially more than the amount of funds available to redistribute. Consequently, CMS expects that regional offices will use their judgment regarding the intensity of reviews so that they are not spending time reviewing requests that will not be funded anyway. The level of review conducted by three of five regional offices we interviewed was limited. Officials from the New York regional office told us that their staff checks to see whether a state completed its workload and if the state’s expenditures reflect what was included in its budget plan. Officials from the Atlanta and Chicago regional offices said that they do not require documentation or conduct audits to verify these requests. However, officials from the Dallas and San Francisco offices told us that their staff follows up with states to verify their need for supplemental funding, such as asking states for documentation to justify their expenditures in excess of their initial Medicare allocations. On at least one occasion, the Dallas region told CMS that some of a state’s requested money should be disallowed because the state conducted tier 4 work before completing work in a higher priority tier.

Conclusions

The current approach for funding state surveys of facilities participating in Medicare and Medicaid is ineffective—yet these surveys are meant to ensure that these facilities provide safe, high-quality care. We found serious weaknesses in CMS’s ability to (1) equitably allocate more than $250 million in federal Medicare funding to states according to their workload, (2) determine the extent to which funding or other factors affected states’ ability to accomplish their workload, and (3) guarantee appropriate state contributions. These weaknesses make assessing the adequacy of funding difficult.

CMS has made limited progress in ensuring that federal Medicare allocations reflect state workloads. Since 2000, CMS has taken several steps in response to relatively flat, inflation-adjusted federal funding for state surveys, but these efforts have had little impact. Reducing funding for support contracts—such as one to develop and implement a new nursing home survey methodology to improve the consistency and efficiency of state surveys—provided only about 1 percent more funding to states in fiscal years 2006 and 2007. In our view, the delay in implementation of the QIS is problematic and CMS and beneficiaries would benefit from its implementation well before 2014. Increasing the time between surveys for many facility types had almost no impact on state workloads and state officials believed many facilities were already surveyed too infrequently. Asking states to develop funding contingency plans could not resolve the problem that states do not know their final Medicare allocations until late in the fiscal year, which can hamper efforts to effectively manage state resources. In addition, while Congress did not provide CMS authority to charge facilities for revisit surveys in fiscal year 2008, revisit fees could offer (1) Medicare Trust Funds savings if they result in reductions of amounts that would be otherwise transferred, and (2) somewhat more predictable funding to the extent the fees do not require annual appropriations. Oversight of clinical labs, which pay user fees, provides a precedent for facility contributions to defray the cost of survey activities.

CMS took these steps because it believed that Medicare funding had not kept pace with state workloads. But we found that the required survey workload actually decreased from fiscal years 2000 to 2007, suggesting that resources available in fiscal year 2007 were similar to or slightly greater than those in fiscal year 2000 given the modest 4 percent increase in inflation-adjusted federal funding. Nevertheless, because state allocations have been based on historical spending, CMS believes that some states have too much funding given their workload while others have too little. The budget analysis tool that CMS developed to align survey funding with state workloads has been used only incrementally to address state funding inequities, rather than adjusting the mismatch between federal allocations and states’ current survey workloads. We believe that CMS’s concerns about the instability that would be created if it changed baseline funding for state survey activities could be mitigated through other means. For example, CMS could limit the annual adjustments on states with shrinking baselines to a fixed percentage of each state’s historical funding baseline. In addition, CMS lacks adequate data on states’ complaint workloads, a significant weakness in its ability to ensure that it is requesting adequate Medicare funding. Moreover, agency officials believed that the amounts identified for complaint investigations in connection with the President’s budget request had not fully funded state complaint surveys.

It is difficult to determine the extent to which funding and other factors affected states’ ability to accomplish survey workloads. Twenty-three of the 28 states we contacted told us that more funding was needed and many of these states said that RN salaries were not competitive, which created workforce instability. Although states set surveyor salaries, Medicare allocations that do not support salary increases could result in states’ laying off staff, further limiting their ability to accomplish survey workloads. For some states that did not spend their initial allocations, the inability to spend their full allocations rather than the level of funding may interfere with workload completion. Most states told us that underspending was the result of insufficient staff due to retention problems or state hiring freezes. Other states spent more than their initial Medicare allocations and still failed to complete their survey workload. Even if states complete their workload, ensuring that facilities comply with federal quality and safety standards is not guaranteed. For example, seven states completed their nursing home surveys in fiscal year 2006, but CMS found that they missed serious deficiencies on more than a quarter of federal comparative surveys.

CMS lacks information on state contributions, which impedes an overall assessment of the resources available for state surveys. While CMS knows states’ Medicare and Medicaid spending, including requests for supplemental federal funding, it has no way to ensure that states contribute their fair share of non-Medicaid state funds. Non- Medicaid state shares for nursing homes vary widely across states, state contribution rates are not determined consistently, and CMS officials do not collect information on such state expenditures. But CMS officials said the agency assumes that the cost of conducting all required surveys is greater than the federal funds provided, so the exact amount each state contributes is less important. Further, states in most regions we interviewed were not required to justify supplemental funding requests. Without examining state justifications, CMS cannot be sure that spending above states’ initial Medicare allocations represents their non-Medicaid state share of survey costs.

The evidence is mixed on whether federal funding has kept pace with the changes in states’ required survey workload—the workload that states would have to complete to meet statutory and CMS survey frequency requirements. On the one hand, the required survey workload decreased nationwide. On the other hand, most states told us that survey frequencies of 6 to 10 years for many facilities could adversely affect beneficiaries.

Moreover, it is often difficult to distinguish the impact of funding, staffing, and management on state workloads overall. We believe that these and other limitations of the current funding approach will continue to frustrate CMS’s efforts to support and oversee state survey activities.

Recommendations for Executive Action

To address significant shortcomings in the current system for financing and conducting surveys of Medicare and Medicaid facilities, we recommend that the CMS Administrator take the following nine shorter- term actions.

To help ensure that those facilities that have not been surveyed in at least 6 years are in compliance with federal quality standards, we recommend that the CMS Administrator take the following two actions: Increase the survey priority assigned to such facilities in the annual instructions given to state survey agencies with the goal of surveying them as quickly as possible.

Monitor the progress made by state survey agencies that have a significant number of such facilities.

To ensure that Congress has adequate information on the impact of funding on facility oversight, we recommend that the CMS Administrator take the following two actions: Inform Congress of the projected cost of surveying all facilities that lack statutorily mandated survey frequencies a minimum of at least once every 3 years.

Include information in the President’s budget request on projected state complaints and the cost of completing the associated workload.

To help address state survey funding inequities, we recommend that the CMS Administrator: Use available tools to adjust the annual baseline Medicare allocations provided to each state.

To improve CMS’s ability to differentiate between funding and management issues and help ensure the quality of surveys, we recommend that the CMS Administrator take the following two actions: Identify appropriate methodologies to help evaluate the efficiency and effectiveness of state survey activities. One such methodology may be the new Quality Indicator Survey, developed to help ensure the consistency, efficiency, and effectiveness of state nursing home surveys. Explore the feasibility of using a similar methodology to survey other Medicare and Medicaid facilities.

Provide Congress with an estimate of the cost of implementing, over 3 years, the Quality Indicator Survey methodology for nursing homes.

To improve the oversight of state expenditures, we recommend that the CMS Administrator take the following two actions: Collect information about current state shares, including the methodologies used to determine them and the date that they were last reviewed.

Regularly review state shares to ensure that they are accurate, explore ways to obtain information from states on non-Medicaid expenditures where such information is relevant for ensuring that costs are actually shared on an equitable basis, and consider ways to simplify the process of determining state shares.

Over the longer term, we are also recommending that the CMS Administrator undertake a broad-based reexamination of the current approach for funding and conducting surveys of Medicare and Medicaid participating facilities. This reexamination should consider issues such as (1) the source and availability of funding, including possible imposition of user fees, and (2) ways of ensuring an adequate survey workforce with sufficient compensation to attract and retain qualified staff.

Agency and AHFSA Comments and Our Evaluation

We provided a draft of this report to HHS for comment. In response, the Acting Administrator of CMS provided written comments. We also received written comments from AHFSA. CMS’s and AHFSA’s comments are reproduced in appendices VI and VII, respectively. Although CMS disagreed with elements of our survey workload analysis, the agency concurred with 9 of our 10 recommendations. For 2 of these, we recommended that CMS provide Congress with certain information and the agency indicated that it would do so upon Congress’ request. CMS partially concurred with 1 of our 10 recommendations. While the agency agreed to produce special follow-up reports and have its regional offices contact states with a significant number of facilities that have not been surveyed for lengthy periods, it did not agree to increase the survey priority assigned to facilities that have not been surveyed in at least 6 years with the goal of surveying them as quickly as possible. Instead, CMS noted that the agency had expanded its risk-based approach in fiscal year 2008 such that the maximum tier 3 survey frequency is a 7-year interval (down from an 8-year average). Additionally, for those facilities that have not been surveyed in 7 years and that are identified with certain risk factors, CMS will consider these facilities as part of the tier 2 targeted surveys. As noted in our draft report, many state officials told us that the survey frequency for all facilities that are not set by statute should be every 2 to 3 years. CMS concurred with our recommendation to inform Congress of the projected cost of surveying these facilities a minimum of at least once every 3 years. We continue to believe that all 2,700 facilities that had not been surveyed in more than 6 years as of September 30, 2007 (900 in 10 years or more), should be inspected as soon as possible, regardless of their risk factors. Finally, AHFSA also disagreed with elements of our survey workload analysis, specifically our treatment of complaints and enforcement actions. CMS’s and AHFSA’s comments and our evaluation are summarized below.

Funding trends. CMS noted that surveys are the principal quality assurance system for Medicare and that the portion of the Medicare budget devoted to quality assurance decreased from 0.1 percent in fiscal year 2000 to 0.06 percent in fiscal year 2008. CMS commented that by combining Medicare and Medicaid federal funding in our draft report, we obscured the differences between the two funding sources and the different decisions that face the Congress and executive branch. We reported aggregate federal funding in our draft report because it is the total federal funding available to support state survey activities. However, we reported Medicare and Medicaid funding levels separately for fiscal years 2000 through 2007 in appendix III and described in the background section how both Medicare and Medicaid fund state survey activities.

Examining the change in states’ required survey workload. CMS commented that our basic approach to examining the change in states’ required survey workload from fiscal years 2000 through 2007 was sound, but disagreed with some elements of our analysis. AHFSA also disagreed with a few elements.

Use of tier 3 priorities. CMS commented that we understated the number of facilities subject to state surveys in fiscal year 2007 and omitted other survey activities, such as initial surveys of new providers, which are a tier 4 priority. As we noted in our draft report, however, the nationwide survey workload would still have declined from fiscal year 2000 to fiscal year 2007 if we included tier 4 surveys. Because CMS’s four-tier structure for prioritizing states’ survey workload did not exist in fiscal year 2000, we used the fiscal year 2000 survey frequencies required by CMS policy. For fiscal year 1999, CMS’s budget for survey activities was increased significantly and CMS expected states to complete all surveys. Our draft report pointed out that CMS subsequently established a system for distinguishing between (1) its policy on survey frequencies (essentially those for fiscal year 2000), and (2) the survey priorities, as reflected in its tier structure, to which it holds states accountable for meeting each year in its state performance reviews. For the latter, CMS officials told us that they based their reviews on the requirements in tiers 1 through 3 because they did not believe funding was adequate to survey facilities that were a tier 4 priority. CMS adopted priorities because of the concern that resources were insufficient to accomplish all of the survey workload but maintained its policy on survey frequencies. CMS’s comments indicate that states that conduct initial surveys of new providers (a tier 4 priority) before completing all surveys in tiers 1 through 3 may be required to submit a plan of correction and, in addition, there could be other consequences. As such, our workload analysis for fiscal year 2007 used the survey priorities for which CMS held states accountable in its state performance reviews during that fiscal year—tier 1 through 3 priorities.

Differentiating between Medicare and Medicaid. CMS attempted to replicate our survey workload analysis but separated it by the source of funding—Medicare and Medicaid. CMS concluded that the Medicare- funded workload increased by up to 20 percent from fiscal year 2000 to fiscal year 2007. First, because we were attempting to measure states’ overall required workload, we did not differentiate between funding streams. While the results of CMS’s analysis are not inconsistent with ours, the net effect remains a decrease in states’ required survey workload when the Medicaid workload is considered. Thus, we reported that the decline from fiscal year 2000 to fiscal year 2007 in the number of nursing homes and intermediate care facilities for the mentally retarded, whose surveys receive significant Medicaid funding, offset overall increases in other facilities, whose surveys are largely Medicare-funded, because the two facility types are comparatively the most resource-intensive facilities to survey. Second, in replicating our methodology to incorporate the effect of survey hours on workload, CMS used average survey hours by facility type for fiscal year 2000. As noted in our draft report, because the yearly CMS survey hour data were not consistent or reliable, we calculated national average survey hours for each facility type for all fiscal years from 2000 through 2007. We used these national averages in our analysis for both fiscal years 2000 and 2007. This could account for some of the difference between CMS’s and our results.

Inclusion of 2008 data. CMS commented that our analysis did not include data for fiscal year 2008 and, as such, may not accurately reflect states’ current workload. Our analysis was limited to the change in states’ required survey workload from fiscal year 2000 to fiscal year 2007 because fiscal year 2008 data were not available when we conducted our analysis. Wherever possible, we tried to note recent CMS initiatives or regulations that could potentially affect workload, including recent regulations requiring organ transplant center programs to be surveyed and new survey requirements for hospices and end-stage renal disease facilities. AHFSA commented on the costs associated with implementing additional CMS requirements, such as new survey protocols and data-entry time frames. However, CMS’s comments acknowledged that not all of the workload associated with its recent initiatives can be quantified.

States’ complaint workload. Both CMS and AHFSA commented that our analysis of the change in states’ required survey workload did not adequately account for the work associated with investigating complaints. AHFSA noted that when its members were surveyed, those states that responded indicated an overall increase in complaint growth over the last 5 years. AHFSA’s response did not quantify the increase. CMS commented that the number of complaints investigated on-site increased by about 13.1 percent from fiscal years 2005 to 2007. In our draft report, we acknowledged that complaint investigations represented a significant portion of states’ workload. Although CMS implemented a new complaint tracking system in fiscal year 2004, officials told us that the agency lacks complete and reliable data on complaints received and investigated. For example, in our draft report we noted that CMS believes some states may be overestimating by 15 percent the number of complaints investigated by reporting those complaints received and investigated during standard surveys in the complaints database. We included in our draft report a recommendation that the CMS Administrator include information in the President’s budget request on projected state complaints and the cost of completing the associated workload and the agency concurred with our recommendation.

Enforcement workload. AHFSA commented that our analysis did not account for the workload associated with enforcement activities. The association noted that decoupling states’ responsibilities to conduct surveys, complaint investigations, and enforcement follow up is impossible. As noted in our draft report, CMS (1) did not have reliable and complete data on revisit surveys from fiscal years 2000 through 2004 and (2) data for fiscal years 2005 through 2007 showed that the revisit workload declined by 4 percent. Because revisits are an indication of enforcement actions, we believe that states’ enforcement workload also decreased.

Length of an efficient survey. Finally, CMS commented that we did not address how long a survey should take to achieve a quality result. In its written comments, CMS noted that the only relevant hard data are for survey hours that CMS regional office staff devote to federal comparative surveys and that, for nursing homes, these surveys are typically 15 percent to 25 percent longer than the average state survey time. As noted in our draft report, CMS officials told us that they did not know how long an efficient survey should take and could not assess whether the considerable interstate variation in the length of surveys was appropriate. Comparative surveys may not be the best measure of how long a survey should take. Indeed, many officials from the states we contacted during the course of our work told us that comparative surveys were not a good measure. Moreover, our May 2008 report found that when the number of surveyors and time on-site are taken together, federal comparative surveys averaged 12.9 surveyor-days and the corresponding state surveys averaged 12.6 surveyor-days in fiscal year 2007.

CMS oversight and state performance standards. CMS commented that in fiscal year 2000, the base year of our analysis, there were few consequences for poor performance and few, if any, effective national measures of survey performance. CMS highlighted the improvements it had since made to its performance system, which we noted in our draft report. CMS commented further that its overall approach to accountability is to communicate workload priorities by organizing them into tiers, initiate consequences for unacceptable performance, and match the strength of consequences with the priority and importance of the work. We acknowledged CMS’s efforts to link states’ performance to workload priorities and, as a result, we focused on changes in the workload that CMS holds states accountable to complete.

Future trends. CMS believed that the Medicare-funded survey workload is likely to continue to increase and that, given the overall federal budget situation, it is imperative that the agency design survey methodologies that leverage resources to ensure maximum productivity and effectiveness. CMS highlighted examples of such productivity enhancements, including implementing the Quality Indicator Survey methodology for conducting nursing home surveys nationwide, targeting resources to surveys of the most at-risk facilities, and investing in methodologies that help states address their staffing barriers. AHFSA also noted staffing challenges, such as (1) vacant or frozen surveyor positions and (2) a lack of cross-trained surveyors who can survey more than one type of facility. We noted some of these initiatives and challenges in our draft report and, to the extent that we were able, we indicated how these issues might affect states’ survey workload. We also made specific recommendations to the CMS Administrator for improving the agency’s ability to differentiate between funding and management issues and to help ensure the quality of surveys.

CMS and AHFSA also provided technical comments, which we incorporated as appropriate.

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 to the Administrator of the Centers for Medicare & Medicaid Services and appropriate congressional committees. 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 dickenj@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 VIII.

Appendix I: Scope and Methodology

This appendix provides a more detailed description of our scope and methodology.

Centers for Medicare & Medicaid Services (CMS) budget and expenditure data. To identify the trends in federal funding for survey activities, we reviewed the President’s budget request and analyzed federal funding for survey activities CMS expended for survey activities from fiscal years 2000 through 2008. We selected fiscal year 2000 because of the significant increase in funding for survey activities for fiscal year 1999 to support an increased workload associated with the Nursing Home Oversight Improvement Program. We also analyzed data provided by CMS on state survey expenditures from fiscal years 2000 through 2007, including the provision of supplemental funds to states that spent more than their initial Medicare allocations by redistributing unspent state allocations. To understand the Medicare funding allocation process, we reviewed CMS’s State Survey and Certification Budget Call Letters or Mission and Priority Documents for fiscal years 2000 through 2008; CMS uses these documents to (1) provide instructions to states on preparing budget requests for federal funds, (2) communicate anticipated federal Medicare funding levels to states, and (3) communicate state survey priorities based on the requested funding. We also discussed the survey budget process with CMS officials, including their use of the Budget Analysis Tool, which the agency began using in 2005 to better calibrate federal funding with states’ survey workloads. Because of its limited use, we did not evaluate the tool’s effectiveness. To gain a state and regional office perspective on the budget process and how it had changed over time, we interviewed regional office officials as well as state officials in two states that spent more (Florida and New York) and two states that spent less (Ohio and Washington) than their initial Medicare allocations for fiscal years 2000 through 2006 and reviewed periodic state expenditure reports.

CMS databases on state survey activities. To determine the extent to which states completed their survey workloads, we analyzed CMS data on the results of the fiscal year 2006 state performance review, the most recent data available at the time we conducted our analysis. We subsequently compared state completion rates to those from the fiscal year 2007 review when that data became available. In addition, we used CMS’s On-Line Survey, Certification, and Reporting (OSCAR) system data to determine the number of facilities with survey frequencies established by CMS that states had not surveyed within 6 and 10 years.

We also used OSCAR and CMS documents for fiscal years 2000 and 2007 to examine changes in states’ required survey workload—the workload that states would have to complete to meet statutory and CMS survey frequency requirements. We then analyzed the effect of the following three factors on states’ required survey workload: (1) changes in the number of facilities subject to state surveys including state validation surveys of accredited facilities, (2) changes in intervals between surveys from fiscal year 2000 to fiscal year 2007 for facility types that lack statutory survey time frames, and (3) differences in the time devoted to surveys across facility types. First, we calculated the proportion of each facility type subject to standard and validation surveys in every state based on survey frequency requirements for fiscal years 2000 and 2007. Second, we multiplied this result by national average survey hours for each facility type to estimate survey workload in hours and computed the percentage change in the required survey workload between fiscal years 2000 and 2007 (see app. V). We used national average hours instead of state average survey hours for each facility type because surveys for many facility types were too infrequent at the state level to produce reliable data. We asked CMS to provide the survey hour data because OSCAR data on state- specific survey hours was incomplete for fiscal years 2000 through 2004. Because we used national average survey hours, our analysis does not reflect differences in average facility size across states; it also does not reflect any differences in survey hours over time. Although CMS survey hour data from fiscal years 2000 to 2007 showed an increase of about 4 percent overall, this increase was not gradual from year-to-year and the increases and decreases could not be explained. Therefore, we determined that the yearly survey hour data were not consistent or reliable. In assessing how states’ survey workload changed over this time period, we also considered state complaint investigations, survey process improvements that increased survey hours, and facility revisits required to ensure that serious deficiencies had been corrected. We did not attempt to incorporate these state survey activities into our workload analysis because the data lacked reliability and consistency and the increases in survey hours were modest for most facility types.

CMS oversight of states’ use of federal funds. To assess the effectiveness of CMS oversight of states’ use of survey funds, we reviewed CMS’s State Operations Manual, which sets expectations for both CMS regional offices and states on budgeting and expenditure reporting. We also examined CMS’s state performance review protocols, which included a standard on state budget practices and financial reporting, and several audits of states’ survey expenditures conducted by the Department of Health and Human Services (HHS) Office of Inspector General in fiscal years 2001 and 2002. We discussed expectations of how CMS regional offices should carry out oversight with central office officials and staff from five regional offices and also obtained the perspective of state officials.

State perspectives. During early data collection for this study, we interviewed state officials from Florida, New York, Ohio, and Washington on issues such as the survey budget process, reasons for over- or underspending federal Medicare allocations, completion of CMS workload priorities, state licensure requirements, and staff recruitment and retention. Subsequently, we sent e-mail questionnaires to 27 other states covering similar issues as well as questions on federal oversight, and we followed up with the 4 states already interviewed. We used five factors to select these additional states, which follow.

Expenditure of federal Medicare allocations. We selected states that spent at least 5 percent more or less than their total federal Medicare budget from fiscal years 2000 through 2006 and whose total over- or underspending was at least $500,000. At the time of our state selection, data for fiscal year 2006 were the most recent data available.

Accomplishment of CMS workload priorities. We selected states that accomplished 50 percent or fewer of CMS’s workload priorities in tiers 1 through 3 for fiscal year 2006. At the time of our state selection, data for fiscal year 2006 were the most recent data available.

Quality of nursing home surveys. To gauge the quality of states’ nursing home surveys which most states were able to complete, we analyzed the results of federal comparative surveys conducted from fiscal years 2002 through 2007 using CMS’s federal monitoring survey database. We reported the results of this analysis in May 2008. We selected states in which at least 25 percent of federal surveys found that state surveys had missed serious deficiencies.

Number of facilities. Using CMS’s OSCAR database, we selected states that had experienced an increase or decrease of at least 20 percent in the number of facilities from fiscal years 2000 through 2006. At the time of our state selection, data for fiscal year 2006 were the most recent data available.

Geographic distribution. We selected at least two states from each of the 10 CMS regions.

Twenty-four of the 28 additional states responded to our e-mail questionnaire; considering the 4 states contacted initially, we collected information from a total of 28 states. In addition, we also interviewed officials from the Association of Health Facility Survey Agencies, an organization that represents state survey agencies.

Data reliability. We verified the consistency and reliability of documentations and data that CMS provided through various means. On the basis of CMS’s documentation, we determined that CMS’s data on state survey expenditures from fiscal years 2000 through 2007 were reliable for examining state expenditures and the allocation of supplemental funds to states. We determined that CMS’s state performance reviews were reliable to understand states’ completion of CMS survey priorities because CMS uses this information for the same purpose. In addition, CMS generally recognizes OSCAR data to be reliable and throughout the course of our work we discussed our analysis of OSCAR data with CMS officials to ensure that the data accurately reflected state survey activities. We tested the data provided by CMS on survey hours for consistency and compared the data to survey data from OSCAR. We also interviewed CMS officials to learn about how they use the data and to clarify any data discrepancies. We reviewed state-reported data for consistency and plausibility and followed up with state officials to retrieve missing data and resolve data inconsistencies. In general, we determined that the data provided by the states were accurate for our purposes.

Appendix II: CMS Survey Frequency Changes for Facilities Surveyed by States, Fiscal Years 2000 through 2008

Table 7 shows the overall survey frequencies by facility type against which CMS measures each states’ completion of its survey workload. In fiscal year 2006, in response to available Medicare funding, the agency began adjusting survey frequencies for facility types that lack statutory survey time frames. According to CMS officials, these adjustments did not alter its policy on survey frequency, which remains at about every 6 years for most facilities with nonstatutory survey frequencies.

Appendix III: Federal Funding for Survey Activities in Actual and Inflation-Adjusted Dollars, Fiscal Years 2000 through 2007

Appendix III: Federal Funding for Survey Activities in Actual and Inflation-Adjusted Dollars, Fiscal Years 2000 through 2007 Change from 2000 to 2007 Change from 2000 to 2007 (9.0%)

Appendix IV: Number of and Percentage Change in Facilities Subject to State Standard and Validation Surveys, 2000 to 2007

Appendix IV: Number of and Percentage Change in Facilities Subject to State Standard and Validation Surveys, 2000 to 2007 (percentage change)

Facilities subject to state standard surveys 906 (31) 1,099 (28) 577 (27) 1,340 (20) 447 (13) 17 (3)

Outpatient physical therapy or outpatient speech pathology services 42 (1) 101 (5)

Intermediate care facility for the mentally retarded -324 (-5) -1,119 (-7) -125 (-19) 254 (N/A) 87 (N/A) 3,302 (7)

Facilities subject to state validation surveys 769 (138) 405 (614) 903 (534) 185 (N/A) -173 (-4) 2,089 (39) 5,391 (10)

The total number of organ transplant centers is as of January 2008; collectively these centers operated 844 organ transplant programs. Each transplant center may have more than one organ- specific program, each of which will be surveyed separately.

Appendix V: Change in States’ Required Survey Workload from Fiscal Year 2000 to Fiscal Year 2007

In order to determine how states’ required survey workload—the workload that states would have to complete to meet statutory and CMS survey frequency requirements—has changed from fiscal year 2000 to fiscal year 2007, we analyzed OSCAR and CMS data for fiscal years 2000 and 2007. First, we determined percentage changes in the number of facilities subject to state surveys, including state validation surveys of accredited facilities. Second, we combined the effects of the number of facilities subject to standard and validation surveys with the survey frequency requirements for fiscal years 2000 and 2007. Third, we incorporated the effect of survey hours for each facility type using average national survey hours to determine the change in states’ required survey workload between fiscal years 2000 and 2007. States are listed from highest to lowest based on the percentage change in the number of facilities subject to surveys.

Appendix VI: Comments from the Centers for Medicare & Medicaid Services

Appendix VII: Comments from the Association of Health Facility Survey Agencies

Appendix VIII: GAO Contact and Staff Acknowledgments

Acknowledgments

In addition to the contact named above, Walter Ochinko, Assistant Director; Kaycee M. Glavich; Leslie V. Gordon; Thomas Han; Keyla Lee; Jessica C. Smith; and Timothy J. Walker made key contributions to this report.

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