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

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