Prior to 2003, CMS was required by statute to select the two types of Medicare contractors it used at the time—fiscal intermediaries and carriers—from particular organization types. Congress limited the type of contractors CMS could use for claims administration activities when Medicare was enacted in 1965, in part because providers were concerned that the program would give the government too much control over health care. To increase providers’ acceptance of the new program and to assuage their concerns, Congress required that health insurers that already served as payers of health care services to physicians and hospitals become the Medicare claims administration contractors. Specifically, prior to 2003, CMS was required by law to select the first type of claims administration contractor, fiscal intermediaries—contractors that paid Part A and Part B claims for institutions such as hospitals—from among companies that were nominated by health care provider associations. Medicare law further required CMS to select the other type of contractor, carriers—contractors that paid the majority of Part B claims, such as for services provided by physicians and other providers—from among health insurers or similar companies. During this period, Medicare claims administration contracts were typically renewed every year, and CMS could not terminate the contracts unless the contractors were first provided with an opportunity for a public hearing. The contractors themselves could terminate their contracts and have their termination costs reimbursed by CMS irrespective of which party terminated the contract. In addition, the claims administration contractors were paid on the basis of their allowable costs, generally without financial incentives to encourage superior performance. The MMA requirement that CMS follow competitive procedures and the FAR in awarding contracts to MACs—except where MMA provisions explicitly differed—introduced key differences in how the agency would have to conduct its MAC contracting compared to how it had conducted its legacy contracting prior to 2003. Notably, under the FAR, agencies are generally required to conduct full and open competition for contracts and are permitted to contract with any qualified entity for any authorized purpose, with some exceptions; agencies are permitted to terminate contracts either for the government’s convenience or if they determine that the contractor is in default; and agencies are permitted to include financial incentives to contractors for meeting or exceeding performance goals. The MMA provided more specificity on certain aspects of CMS’s Medicare claims administration contracting processes. For example, CMS is to conduct a competition for MACs at least every 5 years, develop performance requirements and measurement standards for set forth the performance requirements in the MAC contracts, ensure the performance requirements and standards are used to evaluate MAC performance and are consistent with the MACs’ statement of work (SOW), and develop a measurement standard for provider and beneficiary satisfaction. CMS selected a contract type for the MACs that allows it to provide incentives tied to service and efficiency of operations. CMS opted to establish MAC contracts as cost-plus-award-fee contracts, a type of cost- reimbursement contract that allows an agency to provide financial incentives to contractors if they achieve performance goals. A MAC may earn an incentive, known as an award fee, based on performance, in addition to reimbursement for allowable costs and a base fee for the contract, which is fixed at the inception of the contract. The FAR provides additional guidance for performance-based contracts. If such a contract is used, the FAR requires that the agency establish methods that enable it to assess work performance against measurable performance standards. In addition, the FAR requires that the agency conduct performance evaluations and inform contractors about their performance and the areas in which improvement is expected. The FAR further states that agencies should prepare a quality assurance surveillance plan in conjunction with the SOW, which documents the agency’s approach to evaluating performance, and a review of the contractor’s quality control program. In the new contracting environment, MACs are responsible for most of the functions previously performed by the legacy contractors. They are responsible for processing and paying claims, handling the first level of appeal—redeterminations of denied claims, conducting medical review of claims, putting computerized edits into their portion of the claims- processing system to help ensure proper payment, serving as providers’ primary contact with Medicare by enrolling providers, conducting provider outreach and education, responding to provider inquiries, and auditing provider cost reports. In addition, MACs are responsible for coordinating with other CMS contractors that perform limited Medicare functions that serve beneficiaries and providers. For example, the 1-800-MEDICARE help line answers calls for general and claims-specific beneficiary inquiries and forwards a relatively small number of complex beneficiary inquiries to the MACs to respond. The MACs also are required to provide required reports and other documents, known as deliverables, to CMS within generally specified time frames. In its February 2005 report to Congress, Medicare Contracting Reform: A Blueprint for a Better Medicare, HHS outlined CMS’s plans for implementing contracting reform and highlighted anticipated improvements, including improved customer service, streamlined service delivery by integrating claims-processing functions, and savings from reducing program costs (see fig. 1). CMS designed the new MAC jurisdictions to achieve operational efficiencies by consolidating the number and types of contractors and better balancing workloads. In the legacy contracting environment, different contractors handled Part A and Part B claims in the majority of states, and multiple contractors were responsible for regions in which they processed claims across several—sometimes noncontiguous—states. In its 2005 report to Congress, CMS called the varying legacy contractors that processed Part A and Part B claims “a patchwork of responsibility and service,” a problem it hoped to solve with consolidation. Whereas in the legacy environment, a single state might have been served by multiple contractors handling Part A and B claims in their separate regions, in the MAC environment, CMS established MAC jurisdictions, which were based on contiguous state boundaries, such that a single A/B MAC handled all Part A and B claims—other than DME claims—in its jurisdiction. (See Part A and B claims—other than DME claims—in its jurisdiction. (See fig. 2.) fig. 2.) As of September 2009, CMS told us it had awarded and implemented 13 MAC contracts, worth at least $3 billion. Each contract is for 1 year (referred to as a base year), with up to 4 “option years,” should CMS choose to exercise them. During the MAC’s base year, the legacy contractors transitioned their workload over a period that generally lasted about 7 months for the 6 MACs in our study, ranging from 4 to 10 months. CMS instructed the MACs and legacy contractors to work together to transfer data and records and required the MACs to educate providers about the change. CMS also assigned responsibility to the MACs for consolidating computerized claims edits (used during processing to determine whether to accept, adjust, or reject a claim) that may have differed among the multiple legacy contractors into one consistent set of edits for each newly consolidated MAC jurisdiction. Furthermore, within their respective jurisdictions, A/B MACs were required to consolidate the legacy contractors’ policies that determine what services Medicare covers in a jurisdiction—called local coverage determinations—into one consistent set of policies within each jurisdiction. Two CMS components are principally responsible for Medicare contracting reform: the Office of Acquisition and Grants Management (OAGM) and the Center for Medicare Management (CMM). While the OAGM is responsible for awarding Medicare administrative contracts, divisions within the CMM are responsible for MAC program and operations management, development, and performance assessment, as well as for developing and executing both the Medicare contracting reform budget and the MAC operating budgets. (See app. IV for a CMS organizational chart of the components involved in Medicare contracting reform.) Other parts of CMS coordinate with these two components, such as the Office of Financial Management, which establishes many program requirements for MACs, including, but not limited to, financial reporting. To manage the complex transition and to conduct oversight of the MACs, CMS assembled a staff with experience in acquisitions, contract management, and program management, as well as technical advisors in areas such as information technology and claims processing. While CMS officials took numerous steps to facilitate Medicare contracting reform, we identified several CMS decisions that led to challenges. For example, we found that CMS underestimated the volume of appeals the MACs would inherit, which led to claims-payment delays and additional workload for incoming MACs. In some cases, CMS was able to make midcourse adjustments by incorporating lessons learned. CMS has taken steps to facilitate the complex process of implementing Medicare contracting reform, which we described as an inherently high- risk activity in our 2005 report. Medicare contracting reform represents the largest transition of claims administration workload since the inception of the Medicare program and was more complex than smaller- scale transitions CMS conducted in the past with legacy contractors. These earlier transitions were often “turnkey” operations, with incoming contractors retaining outgoing contractors’ staff and equipment. Furthermore, past transitions did not involve the transfer of as many Medicare Part A and B claims or the significant reconfiguration of the associated functional contractors and jurisdictions. This was also the first time that CMS awarded claims administration contracts under requirements for full and open competition. The agency faced the challenge of selecting contractors able to carry out complex activities critical to Medicare administration using procedures consistent with the FAR. In doing so, the agency decided to emphasize past experience and past performance with similar work of organizations that sought to become MACs. For the initial competition for 19 MAC contracts, only three of the organizations seeking contracts lacked Medicare experience. All awards as of September 2009 were made to organizations with previous Medicare experience. Recognizing its challenge to manage the complex transitions, CMS took steps to facilitate implementation activities in a number of areas, including developing an integrated implementation schedule, developing training, hiring support staff, documenting lessons learned, and making midcourse adjustments. In particular: CMS established a “cross-component” team to facilitate communication across the agency and developed an integrated implementation schedule. CMS reported that this team developed integrated schedule for the MAC implementation and other major Medicare initiatives, monitored implementation of cross-cutting initiatives, and identified effects that cut across initiatives. For example, CMS provided us with an integrated timeline the agency had developed that detailed important dates for each of these initiatives. This technical team was responsible for providing weekly updates to the directors of their respective components, who would then elevate issues as needed to CMS’s executive leadership. CMS developed training and manuals for agency staff, MACs, and legacy contractors. CMS held training classes to define the roles and responsibilities of contract administration staff, such as contracting officers and project officers, involved in the award and management of MAC contracts. The agency published a contract administration manual for staff with guidance on processing MAC deliverables and cost reports. In addition, CMS developed educational materials for MACs and legacy contractors, including handbooks that outlined CMS’s policies on issues, such as required meetings and deliverables, and interaction with functional contractors. CMS hired an Implementation Support Contractor to assist in A/B MAC implementation. CMS contracted with Chickasaw Nation Industries (CNI) to conduct various tasks such as monitoring implementation status, performing risk assessments, reviewing the completeness and timeliness of the MACs’ status reports and meeting minutes, and bringing issues and suggestions to CMS regarding the implementation. CMS required the MACs to provide detailed plans and reports to facilitate implementation in each jurisdiction and to submit reports of lessons learned. CMS required that each A/B MAC submit a Jurisdiction Implementation Project Plan to detail overall transition plans and a Segment Implementation Project Plan to delineate transition work more specifically for each part of the transition, and that each DME MAC submit an Implementation Project Plan. The MACs were required to update these plans on a biweekly basis during the transition, including details of how each MAC would accomplish the requirements in their SOWs and the time frames for taking these steps. The agency also required that the MACs and CNI submit reports of lessons learned to provide insight on how to improve future transitions, and it requested that legacy contractors submit such reports. Documenting lessons learned helped some aspects of later implementations. For example, lessons learned documents provided to CMS revealed challenges associated with transferring records from legacy contractors to the MACs. Two contractors we interviewed noted that they had to sort through over 100,000 boxes of paper files, as either a legacy contractor or the incoming MAC. One of these contractors reported that these files spanned multiple jurisdictions and estimated that it would cost $11 million to sort and move these records, which they described as unlikely to ever be needed. CMS told us that based on lessons learned documents they recognized a need to begin planning for file transfer as soon as possible. CMS began suggesting that the MACs bring a file transfer plan to their first meeting with the outgoing contractor, and the outgoing contractor bring descriptions of its current files, organization and volume, and file search and retrieval methods. CMS made midcourse corrections to facilitate its response to bid protests. As of July 2009, CMS reported that bid protests had been filed in 11 of the 19 jurisdictions and as of September 2009, 6 jurisdictions still had final award decisions pending. Bid protests delayed implementation of 3 of the 6 MAC jurisdictions that we reviewed. CMS indicated that responding to bid protests was very time consuming for staff. As CMS gained experience with MAC-related bid protests, the agency told us that it made changes to better respond to them. For example, because CMS initially assigned the same staff to work on procurements for several jurisdictions at a time, when a bid protest occurred in one jurisdiction, CMS shifted staff resources to manage the protest, ultimately delaying award decisions for other jurisdictions not under bid protest. In response, CMS established separate jurisdiction-based review panels, which allowed other staff to continue their work in jurisdictions that were not involved in bid protests. In addition, CMS identified a need to improve its management of MAC- related proposal evaluation documents. The agency has since hired an outside contractor that provided a tool to assist with managing the agency’s documentation of proposal assessments in Cycles 1 and 2 to help the agency respond more quickly should a bid protest occur. While MACs we interviewed generally described CMS’s facilitation steps as helpful, we identified certain agency decisions that led to challenges for the implementation of Medicare contracting reform. Some of these decisions, for example, caused delays in payments to providers. CMS sometimes, but not always, used lessons learned from MACs and legacy contractors to make midcourse adjustments to decisions that initially led to challenges. The decisions we identified include the following: CMS underestimated the number of appeals and provider call volumes, and the legacy contractors did not reduce their appeals workloads to target levels before the MAC transitions. Three of the six MACs we interviewed and CMS reported that some legacy contractors turned over a larger-than-expected appeals workload, resulting in delays in resolving appeals and, in some cases, higher customer service call volumes than CMS estimated. (See table 1.) CMS required all legacy contractors to set workload processing goals to reduce the number of appeals transferred to the MACs during the transition, and to submit weekly and monthly workload reports. CMS reviewed these reports to check whether the legacy contractors were meeting their workload processing goals. Despite regular workload monitoring during the MAC transitions, CMS underestimated the appeals and provider call volumes. As a result, three MACs we interviewed and CMS reported large appeals workload backlogs for several months, leading to delays in resolving appeals, which in some cases led to more calls from providers with unresolved appeals. CMS officials reported that, in some cases, they required the MACs to take corrective actions, such as hiring additional staff, which two contractors noted were most often temporary staff. The agency also reported having revised workload estimates for subsequent MAC transitions. According to CMS staff, concern that legacy contractors might terminate their contracts prior to the MAC transition and cause claims payment disruptions contributed to a decision by the agency to pay incentive bonuses to 15 legacy contractors, which as of July 2009 were worth a total of about $5 million. However, CMS officials reported that, as of July 2009, payment of these bonuses was not contingent upon legacy contractors meeting specific workload reduction metrics and therefore was not used as a mechanism to ensure that legacy contractors reduced their workloads to specified levels prior to the MAC transition. For example, a bonus was given to a legacy contractor in a jurisdiction we reviewed in which the new MAC reported inheriting larger-than-expected numbers of appeals from the legacy contractors. The concurrent implementation of the MAC transition with other Medicare initiatives caused payment delays and other operational challenges. CMS reported that it accelerated MAC implementation to prevent potential disruptions in claims processing if legacy contractors that were not awarded MAC contracts terminated their operations prematurely. We first noted concerns about CMS’s accelerated schedule in our 2005 report, including that CMS had not integrated the planning and scheduling of MAC implementations with other initiatives. CMS did not agree with our 2005 recommendation to extend its MAC implementation schedule to allow more time for planning and midcourse adjustments. Instead, CMS reported to us that it had established a team that developed integrated schedules for the MAC implementation and other major Medicare initiatives across the agency. (See fig. 3.) Overlapping initiatives that posed particular challenges for the MAC transition included the establishment of a new standard unique provider identification number, the National Provider Identifier (NPI), which providers had to use to be paid; CMS’s establishment of Enterprise Data Centers (EDC) to house Medicare claims-processing software systems beginning in March 2006; and CMS’s implementation of the Healthcare Integrated General Ledger Accounting System (HIGLAS), a new CMS financial management system designed to incorporate information from contractor and agency financial ial transactions, including claims payment, beginning in May 2005. transactions, including claims payment, beginning in May 2005. EDCs (3/2006–7/2009) EDCs (3/2006–7/2009) MAC mandated deadline (October 2011) CMS Action: Implement HIGLAS, CMS Action: Implement HIGLAS, CMS’s new financial management CMS’s new financial management and accounting system designed to and accounting system designed to incorporate information from incorporate information from contractor and agency financial contractor and agency financial transactions including claims transactions including claims payment. payment. CMS Action: Implement CMS Action: Implement NPI program, which assigns NPI program, which assigns a unique identification number that a unique identification number that is required for claims payment to is required for claims payment to health care providers. health care providers. CMS Action: Consolidate and CMS Action: Consolidate and transition the EDC, which are transition the EDC, which are data centers that house Medicare data centers that house Medicare claims processing software claims processing software systems, reducing the total systems, reducing the total number from more than 20 number from more than 20 different facilities to 2. different facilities to 2. HIGLAS is a major CMS initiative to modernize Medicare’s accounting and financial management systems by creating a single, integrated financial accounting system to be used by CMS and all Medicare contractors. CMS began planning the transition to HIGLAS in 2001 to satisfy the objectives of the Federal Financial Management Improvement Act and the Joint Financial Management Improvement Program, but implementation was delayed until the MAC implementation began in 2005. In particular, the concurrent MAC and NPI implementations led to provider enrollment workload backlogs and, subsequently, claims payment and processing challenges, as providers were not paid until provider enrollment applications were processed. According to CMS, three of the six MACs we studied inherited a backlog of unprocessed provider enrollment applications from the legacy contractors (see table 2), which led to claims payment delays. CMS officials told us they were aware that the mandated deadline for legacy contractors and MACs to enroll providers in the NPI program overlapped with the MAC transition schedule in five jurisdictions, but acknowledged that they did not initially understand the full effect that the overlap with the NPI implementation would have on the MAC transitions. To a lesser extent, CMS reported other MAC operational challenges implementing the EDCs and HIGLAS in conjunction with the MACs. According to CMS officials, implementing the EDCs in conjunction with the MACs was challenging, in part because each legacy contractor had unique claims-processing system features that either had to be consolidated in the broader MAC jurisdictions or discontinued. For example, a legacy contractor may have configured its claims-processing system with 150 to 200 unique computer applications, each with specialized functions. CMS reported establishing a workgroup that was responsible for reviewing these unique claims-processing system applications and determining whether or not the application would be transferred to the EDC for use by the new MAC. CMS officials said implementing HIGLAS in conjunction with the MACs was most problematic in MAC jurisdictions where some legacy contractors had transitioned to HIGLAS prior to the MAC transition and others had not. For example, in one case a MAC had to maintain two financial management systems temporarily until the entire jurisdiction was converted to HIGLAS. CMS’s HIGLAS timeline initially required legacy contractors to convert data into HIGLAS format just before cutover to the MAC. In response to these and other challenges, officials reported that the agency is now implementing HIGLAS on a jurisdiction-by-jurisdiction basis after the transition to each MAC is complete. Prior to the MAC transition, CMS did not adequately monitor legacy contractors’ implementation of mandated claims-payment policy changes, generating unanticipated work for the MACs and causing provider relations challenges. In four of the six MAC jurisdictions we studied, CMS or the MAC told us that the MACs discovered and corrected claims-processing errors made by legacy contractors, which, in some cases, had generated improper payments to providers and added additional work for the MACs in order to make the corrections themselves during the transition. These errors were largely due to legacy contractors not properly implementing certain CMS payment policies and revealed that CMS had not routinely checked to ensure that legacy contractors were making changes required by CMS to pay claims correctly. Although discovering and correcting these errors eventually led to more accurate Medicare payment, the errors generated unanticipated work for the MACs and caused provider relations challenges. For example, CMS reported that a legacy contractor had made improper payments to providers for scheduled, nonemergency ambulance transportation, a service covered by Medicare only under limited circumstances, which was discovered by the MAC. The MAC corrected the error, stopping improper payments to providers. A MAC in another jurisdiction told us that a legacy contractor had paid claims that should not have been paid for decades because it had not fully implemented requirements for certain edits related to rented equipment maintenance and service. In another example from the same jurisdiction, CMS reported that the MAC discovered the legacy contractor’s system was ineffective in ensuring that a provider had submitted documents required for payment. The HHS Office of Inspector General estimated that, because of this claims-processing error, Medicare paid approximately $127 million to providers who had not submitted the required documentation in 2006. Although CMS officials told us the agency monitored the legacy contractors through periodic reviews of contractor edits, it did not discover or correct these particular errors; instead, the MACs did. CMS allowed local Medicare coverage policy to be consolidated to a stricter standard in a region and did not require MACs to make this change clear, causing payment denials providers did not anticipate. Originally, CMS instructed MACs to select the “least restrictive” local coverage determination already in place in the jurisdiction. CMS later changed its guidance to advise MACs to implement the “most clinically appropriate” local coverage determination in place in the jurisdiction, because a legacy contractor may not have had a policy in place for some topics. This led some providers to face more restrictive coverage determinations than they had prior to the MAC transition. For example, one provider group we interviewed reported that the incoming MAC instituted documentation criteria for treating a type of skin lesion that had not been required by the legacy contractor. Two of the three provider groups we interviewed reported that there was a lack of clear communication about this change in guidance, which caused confusion once the local coverage determinations were finalized and claims were rejected. In addition, in two jurisdictions we studied where the MACs invited providers to comment on more than 100 draft policies, two provider groups we interviewed said draft policies would be clearer if they identified which areas were changes from old policies, and one provider group said physicians’ time constraints made it difficult to review such large volumes of information. CMS did not initially require Joint Operating Agreements (JOA) between MACs and all functional contractors, resulting in communication challenges between MACs and some key functional contractors. Initially, CMS did not require JOAs—agreements that establish roles and responsibilities—between MACs and all related contractors. CMS officials noted that in considering JOA requirements, the agency determined whether a JOA was appropriate for each particular MAC relationship. Specifically, CMS initially did not require JOAs between MACs and the EDCs, but did require JOAs between MACs and certain other contractors, such as the Beneficiary Contact Center, which runs the 1-800-MEDICARE help line for beneficiaries. One MAC we interviewed noted that it was unsuccessful in communicating directly with the EDC in its jurisdiction because there was no JOA in place. Instead, it had to direct all communication to CMS officials, who would then contact the EDC on behalf of the MAC. CMS made a midcourse correction to address this inefficiency, and required JOAs between MACs and all functional contractors (including EDCs) in implemented jurisdictions. CMS informed us that as of February 2009, these JOAs had been executed or were in progress. CMS has developed a performance assessment program for MACs that includes three reviews—the Quality Control Plan review, the Quality Assurance Surveillance Plan review (QASP), and the Award Fee Plan review. As of March 2009, CMS had completed all three reviews for three of the MACs in our sample. CMS’s on-site visits in 2007 and 2008 to review implementation of the MACs’ Quality Control Plans found that two of the three MACs’ plans required modification, which those MACs provided to CMS. Although CMS’s QASP evaluations indicated improvement from the first review period to the most recent review period we examined, the three MACs whose evaluations we examined did not meet all the QASP performance standards. Award Fee Plan reviews by CMS also indicated improved performance, based on the incentive metrics that the MACs met and the total award fee percentage they earned from the first review period to the most recent review period we examined. However, because the MACs did not meet all incentive metrics, they did not receive full award fees for which they were eligible. CMS developed the MAC Performance Assessment Program to include three reviews—the Quality Control Plan review, the QASP review, and the Award Fee Plan review. (See fig. 4.) CMS designed these reviews in part to reflect MMA and FAR requirements for assessing contractor performance. For example, CMS developed an annual Medicare Contractor Provider Satisfaction Survey in 2005 and used the survey results to develop a QASP performance standard in order to meet the MMA requirement for a performance standard related to provider satisfaction. CMS selects performance standards in accordance with the statement of work to develop the QASP for each MAC annually. CMS annually develops an Award Fee Plan for each MAC that contains incentives to achieve superior performance. In order to obtain the full amount of the potential award fee, a MAC must meet or exceed every metric. CMS conducts a review to assess MAC compliance with the QASP performance standards. CMS conducts a review to determine performance against metrics. CMS conducts an on-site visit to determine whether the MAC has operationalized its Quality Control Plan. The QASP has three parts: (1) the roles and responsibilities of CMS staff; (2) a summary of the performance standards and the methods CMS will use to determine whether a MAC is meeting them; and (3) an excerpt from the FAR that lists policies and procedures for contract quality assurance. CMS makes an award fee determination based on its review of the MAC’s performance. CMS officials told us that although they are conducting Award Fee Plan reviews annually as of April 2009, in previous years some reviews were conducted semiannually. The MAC Performance Assessment Program is supplemented by ongoing monitoring activities carried out by staff from various CMS divisions. These activities include communicating with MAC staff, such as conducting biweekly telephone meetings with MACs, and reviewing MAC audits and monthly status reports to oversee contractor performance. As noted in each MAC’s statement of work, MACs are required to submit monthly status reports that include information related to problems and risks encountered during the review period and the actions taken to address the problems. Quality Control Plan Review: A Quality Control Plan is submitted to CMS and is designed to describe the plans, methods, and procedures—or internal controls—that a contractor will use to meet performance standards in the statement of work such as those related to quality, quantity, time frames, responsiveness, and customer satisfaction. The plan details how the MAC intends to meet CMS’s seven required quality-control program elements outlined in the statement of work: (1) maintaining an inspection and audit system; (2) establishing a method of identifying deficiencies in services performed; (3) developing a formal system to implement corrective action; (4) documenting procedures and processes for services to ensure that services meet contractor performance requirements; (5) documenting a change-management program that ensures correct procedures and processes are followed when implementing CMS-required changes resulting from legislation, litigation, and policy; (6) providing a file to CMS of all quality records relating to inspections and audits conducted by the contractor and the corrective action implemented; and (7) providing for CMS inspections and audits. Lack of a fully functioning Quality Control Plan can potentially weaken a MAC’s internal controls. A MAC is required to submit its Quality Control Plan to CMS for review no later than 45 days after the contract is awarded. CMS is to conduct an on- site visit to examine implementation of the Quality Control Plan after the MAC has become fully operational to determine whether the MAC’s internal controls are in place. CMS reports the results of its review in the Quality Control Plan Review Report, and if the plan is deemed satisfactory, it is officially accepted by the agency. Quality Assurance Surveillance Plan (QASP) Review: The QASP has three parts: (1) an outline of the roles and responsibilities of CMS staff involved in the QASP review, (2) a summary of the QASP performance standards CMS developed in accordance with the statement of work and a description of the methods the agency will use to determine whether a MAC is meeting them, and (3) an excerpt from the FAR that lists policies and procedures for contract quality assurance. CMS categorizes the QASP performance standards according to several “functional areas,” or areas of Medicare operation. CMS has flexibility in choosing functional areas with applicable performance standards to use for each of the review periods, which have ranged from 6 months to 1 year. For example, CMS may choose performance standards in financial management, a functional area that relates to a MAC’s financial reporting activity, including ensuring the effective and efficient use of Medicare funds. CMS is to use the QASP review to evaluate a MAC’s performance against a subset of performance standards in accordance with the statement of work. According to CMS, if a MAC does not meet a performance standard, the agency requires an action plan to address the deficiency. The CMS project officer communicates the action plan request to the MAC. If the CMS project officer and other CMS staff agree that there are extenuating circumstances, the requirement for the action plan can be waived. However, a written justification for the waiver must be documented. (See app. V for additional information on the QASP review.) Award Fee Plan Review: The Award Fee Plan is CMS’s method for providing financial incentives to MACs based on their performance. CMS creates an Award Fee Plan for each MAC annually, for review periods that have ranged from 6 to 12 months. For each MAC Award Fee Plan, CMS develops incentive metrics. CMS officials explained that MAC award-fee incentive metrics are generally designed to be more challenging than the standards outlined in the statement of work in order to provide incentives for the MACs to exceed those standards. For example, the claims- processing timeliness metric states that the MAC will process 97 percent of clean claims within statutorily specified time frames, a level that is set higher than the standard in the statement of work, which states that the MAC must process 95 percent of clean claims in these time frames. CMS assigns a value to, or weights, each metric to determine what percentage of the award fee can be earned by the MAC for that metric. (See app. VI for a listing of the weights assigned to each incentive metric for the three MACs we studied.) CMS uses the Award Fee Plan review to assess a MAC’s performance against each metric to determine the amount of the award fee earned for that metric. If a MAC does not meet some of its incentive metrics, it may still receive an award fee for other metrics that it meets or partially meets. For example, if CMS assigned a value of 8 percent to the claims- processing timeliness metric, and this was the only metric the MAC met, then the MAC would receive 8 percent of the total award fee. According to CMS, agency officials can change incentive metrics every review period, depending on which aspects of the MAC’s performance need to be emphasized during that period. For example, CMS officials stated that one MAC may not initially have a provider enrollment incentive metric in its Award Fee Plan, but agency officials can incorporate it in a subsequent review period if they want the MAC to improve in this area. In determining the award fee, CMS also considers overall contract performance, such as the QASP results and other CMS monitoring activities. (See apps. V and VI for additional information on the Award Fee Plan review.) In examining implementation of the Quality Control Plans during its on- site visits to the MACs in 2007 and 2008, CMS found that the plans of two of the three MACs whose reviews we examined required modifications. For example, CMS’s Quality Control Plan Review Report for one MAC indicated an inconsistency in the contractor’s process for closing action plans in its Part B Overpayments Recovery area. The MAC management staff agreed to modify the action plan process and a CMS official confirmed that the MAC submitted a revised Quality Control Plan, which the agency accepted. CMS’s Quality Control Plan Review Report for the other MAC indicated that modifications were needed to help mitigate risks to the agency and its beneficiaries. For example, there were problems with its process for identifying and reporting deficiencies and managing corrective actions, such as the lack of a formal system for implementing corrective actions. A CMS official told us that the MAC submitted a revised Quality Control Plan, which the agency accepted. CMS’s QASP reviews for the three MACs showed that they had improved their performance from the first review period to the most recent review period we reviewed but did not meet all standards in any one review period. As of March 2009, CMS had completed two or three QASP reviews for each of the three MACs we studied. While the three MACs met from 41 to 67 percent of their performance standards in their first review periods, by the later review periods, each MAC had met a higher number of performance standards, achieving 52 to 75 percent of standards met. (See fig. 5.) None of the three MACs met all of its QASP performance standards in any review period, however. Specifically, CMS found that these MACs did not meet a number of QASP performance standards in six of the nine functional areas reviewed during those periods. (See app. VII for details on the QASP performance of the three MACs, including which functional areas were reviewed.) Performance was generally poorest in the functional areas of Appeals and Medicare Secondary Payer. For example, CMS indicated that one MAC experienced challenges in some functional areas, such as Appeals, that hindered its ability to meet relevant performance standards. The project officer requested an action plan that outlined how the MAC intended to work down the appeals backlogs. CMS’s Award Fee Plan reviews showed that each of the three MACs improved its performance on incentive metrics from its initial review period to its later review period. As is shown in figure 6, both the percentage of incentive metrics met and the percentage of the total award fee earned increased. Each MAC was paid less than half of the full award fee for which it was eligible in its first review period, but earned a higher percentage in subsequent periods for metrics it met. For example, MAC III met two of seven metrics, or 29 percent, and received 47 percent of the full award fee in the first review period. For its second review period, it met four of seven metrics, or 57 percent, and received 60 percent of the full award fee. By its last review period, the MAC met seven of eight metrics, or 88 percent, and was paid 86 percent of the full award fee. While all three MACs received a portion of the award fees for which they were eligible as a result of the incentive metrics they met in their Award Fee Plan reviews, they did not meet some incentive metrics, particularly metrics in areas related to beneficiary and provider service. All three of the MACs consistently met or partially met the Contract Administration metric—a measure that assessed the contractors’ service to CMS in contract management, such as providing quality deliverables on time. However, in some cases, they did not meet some beneficiary and provider service metrics for superior performance in areas CMS assessed, such as (1) Provider Relations—Accuracy, which assessed the accuracy of responses to providers’ Medicare policy questions; (2) Claims Processing Timeliness; (3) Appeals; (4) Beneficiary Inquiries, which measured the timeliness of responses to beneficiaries; and (5) support to the Qualified Independent Contractor, a contractor that handles the second-level appeals of denied claims. (See app. VIII for details on the award-fee performance of the three MACs, including which areas were reviewed.) For example, MAC II did not meet more than half of the incentive metrics it was assessed against in its first and second review periods in areas such as Appeals, Beneficiary Inquiries, and Provider Relations—Accuracy. CMS has not tracked and provided information on all of its costs and savings related to Medicare contracting reform, and so the total costs and savings for Medicare contracting reform are uncertain. The agency has provided information on its external costs associated with establishing and supporting contracts, but has not provided information on its internal costs for conducting contracting reform activities, such as salaries. Similarly, CMS has not provided information on the total savings related to contracting reform. The agency provided information on some savings due to reductions in operational spending that it attributes to contracting reform and other activities related to claims payment; however, it has not provided information on what it had previously estimated would be the major source of savings, reduced improper payments to providers resulting from contracting reform. CMS tracked and provided information on contracting reform costs of about $300 million from fiscal year 2004 through fiscal year 2008, but could not readily account for certain internal administrative costs for implementing the MAC program, such as agency staff salaries and overhead. In response to our request for total costs of Medicare contracting reform, CMS provided information on external costs beginning in fiscal year 2005 for areas such as contractor transition and termination costs, provider surveys, contract support activities, and technology associated with contracting reform, including information management systems and developing the EDCs. Of the approximately $300 million in external costs CMS indicated was spent for contracting reform from fiscal year 2004 through fiscal year 2008, most (approximately $260 million) were incurred in fiscal year 2007 and fiscal year 2008. (See table 3.) From fiscal year 2004 through fiscal year 2006, CMS paid contracting reform costs out of a lump-sum appropriation for program management, as CMS did not receive appropriations specifically for contracting reform until fiscal year 2007. Funds that were appropriated for contracting reform for fiscal years 2007 and 2008 were available for 2 fiscal years, instead of the usual 1 fiscal year; these are referred to in this report as “2-year funding.” For both fiscal year 2007 and fiscal year 2008, CMS indicated that it spent less than the amount appropriated for contracting reform and carried over the unused portion of the funding to the next fiscal year. The appropriations act for fiscal year 2009 made $108.9 million available for contracting reform and designated it as 2-year funding. CMS did not include certain internal expenses as part of its accounting of Medicare contracting reform costs, leading to uncertainty about the total cost of the effort. In response to our request, CMS was able to compile selected internal costs for contracting reform in fiscal year 2008 totaling almost $661,000 and told us that, in general, the internal costs associated with contracting reform are small compared to the external costs. (See table 4.) The contracting-reform-related internal costs CMS provided information on for fiscal year 2008 included categories such as travel, overtime, training, and supplies, but did not include internal costs for agency staff salaries, including legal services to address bid protests, and overhead. CMS said that internal costs comparable to those it provided information on for fiscal year 2008 were not readily available for other years. In addition, CMS officials told us that the agency does not routinely track the internal costs such as staff salaries related to initiatives like contracting reform, mainly because CMS’s accounting system does not allocate payroll costs by specific project. Although CMS estimated that it would achieve savings from two sources— reduced spending on administrative functions and savings from the Medicare trust funds related to better claims review leading to reduced improper payments—the agency has provided information only on administrative savings, making the total amount of any savings and the extent to which they are due to contracting reform uncertain. In 2005, we reported that CMS expected contracting reform to generate savings totaling over $1.9 billion from reduced spending on Medicare administration and from reduced improper payments. However, as of April 2009, CMS was unable to quantify and provide information on total savings realized. Most of the estimated savings were expected to occur from funds it could avoid spending from the Medicare trust funds by reducing improper payments for Medicare services, with fewer savings anticipated from reducing administrative spending. As of April 2009, CMS had indicated to us reduced spending on operational activities that it considered administrative savings due to contracting reform. However, it had not provided information on any savings to the Medicare trust funds based on a reduction in improper payments due to contracting reform. As of November 2008, the estimated percentage of Medicare fee-for-service payments that were improper had been declining since fiscal year 2004 and CMS attributed some of the reduction in improper payments to contracting reform activities. However, according to CMS, the agency is not tracking savings to the Medicare trust funds from contracting reform and therefore is unable to quantify total savings. Further, in November 2009, CMS reported that an estimated $24.1 billion fee-for-service payments from April 2008 to March 2009 were improper, which was higher than its November 2008 estimate of $10.4 billion for claims paid from April 2007 to March 2008. CMS also reported that it had changed its methodology for conducting the error-rate measurement, which could make a trend comparison with the past years’ estimates unreliable. These changes make it more uncertain what savings to the Medicare trust funds, if any, may be due to contracting reform. Incongruence between the spending categories CMS used in its estimated savings in 2005 and the categories CMS used to provide information on reduced spending for selected Medicare operational activities from fiscal year 2005 through fiscal year 2008 makes it impossible to directly compare CMS’s estimated and actual savings to date. CMS indicated that spending for certain Medicare operational activities began decreasing in fiscal year 2006 and continued decreasing through fiscal year 2008. (See fig. 7.) The agency provided information to show a decrease in the annual operating cost of these Medicare operational activities from fiscal year 2005 through fiscal year 2008, when spending reached just over $1.8 billion. According to CMS, the agency spent nearly $280 million less for these selected Medicare operational activities in fiscal year 2008 than it did in fiscal year 2005, the year with the highest level of spending for these activities during this period. CMS indicated that savings as a result of reduced spending for these selected Medicare operational activities are due to several factors, including efficiencies gained from Medicare contracting reform. For example, CMS officials said that consolidation of program functions as a result of contracting reform led to cost reductions. Specifically, the agency noted that consolidating data processing functions under the EDCs, which CMS includes as part of contracting reform, resulted in lower operating costs than data processing in the legacy environment. In addition, CMS noted that increased competition led contractors to implement cost- cutting measures, such as site closures, to achieve a competitive advantage in obtaining a MAC contract. However, the agency was unable to quantify these savings specifically and to isolate the effects of contracting reform on spending for operational activities from the effects of other activities related to claims payment. Therefore, it could not quantify the extent to which these and other examples of reduced spending were due to Medicare contracting reform, resulting in uncertainty about savings due specifically to contracting reform. We provided a draft of this report to HHS for comment and received written comments from the agency, which are reproduced in appendix IX. We also solicited comments on our draft report from representatives of the six MACs in our sample as well as the three provider associations we interviewed. Of those invited to review the draft report, three MAC representatives accepted and provided oral comments to us. In addition to the overall comments discussed below, we received technical comments from HHS and MAC representatives, which we incorporated as appropriate. We obtained written comments on our draft report from HHS, on behalf of CMS. HHS generally agreed with our draft report findings and praised GAO for recognizing the progress CMS has made in implementing Medicare fee-for-service contracting reform. In response to the draft report’s discussion on the implementation of Medicare contracting reform, HHS indicated that it agreed with our finding that CMS took several steps to implement contracting reform, particularly noting that it was one of the most complex operational initiatives that the agency has ever undertaken. HHS also generally agreed with our finding regarding CMS’s performance assessments of three MACs whose reviews we examined. In one of its technical comments, HHS noted that there are other performance-related reviews it considers when evaluating MAC performance that we did not highlight in the draft report. These reviews relate to a broader set of activities than those within the scope of the report; we focused specifically on the three key reviews administered through the MAC Performance Assessment Program because CMS officials reported to us that these reviews are the key components of the program. Finally, HHS generally agreed with our finding regarding the uncertainty of the total costs and savings for contracting reform. HHS noted, however, that CMS provided us with information supporting reduced spending on Medicare fee-for-service operations after 2005 that was not fully captured in the draft report. Our draft report included information that showed accrued savings due to reduced spending on Medicare fee-for-service operational activities after fiscal year 2005; however, we excluded fiscal year 2009 information because, at the time of our review, CMS reported fiscal year 2009 costs as estimates. We also noted that CMS was unable to isolate the effects of contracting reform spending for Medicare operational activities from the effects of other activities related to claims payment. The three MAC representatives who reviewed the draft report generally agreed that it accurately reflected challenges during the implementation of Medicare contracting reform. Two of the MAC representatives provided additional detail on the challenges created because CMS and the outgoing contractors did not accurately estimate workloads during the transitions. In addition, they elaborated on the challenges created by CMS’s concurrent implementation of the MAC transition with other Medicare initiatives, such as NPI and HIGLAS. One representative attributed some of the workload increase to a failure by providers to apply for their new NPIs by the national deadline. Another MAC representative indicated that once the transition challenges began, CMS responded quickly and efficiently to address them. However, this representative also stated that he expected more discussion in the draft report of the MAC procurement process, particularly the delays and uncertainties resulting from the bid protests in some jurisdictions. Our report focused on the MAC jurisdictions where a final award had been made by June 2008 rather than on the procurement process leading up to the MAC awards. 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 and other interested parties. In addition, the report will be available at no charge on GAO’s Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114 or at kingk@gao.gov. Contact points for our Office of Congressional Relations and Office of Public Affairs can be found on the last page of this report. Other major contributors to this report are listed in appendix X. To determine how the Centers for Medicare & Medicaid Services (CMS) implemented Medicare contracting reform, we selected a sample of 6 Medicare Administrative Contractor (MAC) jurisdictions for in-depth review from among the 10 where a final award had been made by June 2008. The 6 MAC jurisdictions that we selected for review in this engagement were among the earliest to be implemented, and thus had the longest experience from which we could learn about implementation and performance assessment. Our criteria for selecting the 6 MAC jurisdictions were designed to ensure diversity in geographic region, in the volume of claims workload, in the complexity of transition (such as the number of legacy contractors in the region whose workloads had to be transitioned to a single MAC), bid protest experience, and CMS’s assessment of a jurisdiction’s risk for fraud. For example, we selected MAC jurisdictions based on areas CMS selected for its demonstration projects that targeted fraudulent business practices. The sample includes 2 MACs that process durable medical equipment claims (DME MAC) and 4 MACs that process both Part A and Part B Medicare claims (A/B MAC). We also examined documents and conducted interviews with CMS officials. Specifically, we reviewed documents including CMS’s acquisition strategy, requests for proposals, implementation handbooks, MAC monthly status reports, and CMS’s planning tools such as timelines and maps. We interviewed CMS staff responsible for coordinating the contract procurement for, and implementation of, the 6 MAC jurisdictions in our sample, as well as the Implementation Support Contractor CMS hired to assist it in implementing the A/B MACs. A division within GAO, separate from the division that conducted this review, is responsible for resolving certain federal contract protests. Given its role, we did not assess the solicitation or award of the MAC contracts. In addition, for the 6 jurisdictions we selected, we interviewed incoming MACs and certain legacy contractors. We also interviewed health care provider organizations located in three states within 2 of the 6 MAC jurisdictions in our sample, including three state medical organizations. We selected provider organizations for interviews based on whether contractors or CMS officials we interviewed specifically mentioned them as having raised concerns about the MAC implementation. In addition, to understand the national scope of contract reform implementation issues from the provider perspective, we gathered information from national medical, hospital, and other provider organizations, including the American Medical Association, the American Hospital Association, and the American Health Care Association. Finally, we analyzed documents and conducted interview understand what lessons CMS may have learned that may help inform future award cycles. CMS completed its pilot of the annual provider satisfaction survey in 2005. The survey is designed to measure provider satisfaction with key services performed by Medicare fee-for- service contractors, such as the accessibility of provider education and training from a MAC. MACs; however, we did analyze the results of CMS’s reviews that h conducted for DME and A/B MACs as of March 2009. To determine CMS’s c we reviewed and analyzed documents related to CMS’s budget, estimated costs, and estimated savings, and interviewed CMS officials. Specifically, we reviewed documents including CMS’s budget justifications for fiscal years 2005 through 2009; appropriations acts for fiscal years 2004 through 2009; and CMS data on estimated savings, transition and terminat and other costs associated with contracting reform. We also interviewed CMS officials responsible for development and oversight of contra reform budgets and estimates of potential costs and savings to understand CMS’s process for tracking and reporting the financial status of contracting reform. Further, we reviewed criteria for good governance practices to determine the importance of complete information on the costs of federal programs and activities for the effective management of government operations and for assisting Congress and internal and external users in assessing the operating performance and stewardsh program activities. To assess the reliability of CMS-reported internal an external cost data for contracting reform and CMS-reported spending d ata for selected Medicare operational activities, we conducted interviews withosts and savings for Medicare contracting reform, knowledgeable agency officials and reviewed for reasonableness the assumptions associated with the collection and compilation of the costs and savings data. Based on these reviews and discussions, we found the data reliable for the purposes of this report. We conducted this performance audit from May 2008 through March 2010 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The Medicare Administrative Contractor (MAC) Performance Assessment Program comprises three reviews—the Quality Control Plan review, the Quality Assurance Surveillance Plan (QASP) review, and the Award Fee Plan review. This appendix provides supplementary information about the QASP and Award Fee Plan reviews. In implementing a QASP review, Centers for Medicare & Medicaid Services (CMS) staff who interact with the project officer include business function leads and technical monitors. Business function leads are responsible for determining the QASP performance standards and for deciding whether the review will consist of an on-site visit or a desk review. They are subject matter experts in Medicare functional areas, such as claims processing. They inform project officers of performance-related issues and identify areas that require closer inspection at on-site visits. CMS officials told us that, for a given MAC, if there is a significant amount of data to be reviewed at the contractor site, they will make an on-site visit, or if the MAC’s performance information is available through a CMS system, they will do a desk review. Technical monitors are responsible for conducting the QASP reviews for their specialty functional area. According to CMS officials, technical monitors support project officers by assessing MAC performance and reporting their findings to the project officers. They summarize the results of their reviews in a report that outlines whether a MAC met the standards. The Award Fee Plans consist of subjective and objective incentive metrics. Subjective metrics can be classified as met, partially met, or not met, whereas objective metrics can be classified as met or not met. For the first contract year, each Award Fee Plan included a contract- administration metric—the only subjective incentive metric in the plan. This metric assesses the MAC’s efforts in contract management and providing service to CMS, such as maintenance of the appropriate level of staff to perform duties outlined in the statement of work, cost management, communication, and submission of deliverables like the Quality Control Plan to the agency on time. For this metric, the MACs can receive all, some, or none of the award fee specifically allocated for it, using a point scale the agency developed. In addition, agency officials tol us that they selected objective incentive metrics in functional areas they considered to be the most important for new MACs, such as claims- processing timeliness and beneficiary and provider relations. For each objective metric, a MAC can receive all or none of its award fee for that metric, but generally cannot receive a partial fee. The Centers for Medicare & Medicaid Services (CMS) assigns a value to, or weights, each metric in an Award Fee Plan to determine what percentage of the award fee can be earned by a Medicare Administrative Contractor (MAC) for that metric. Figure 8 of this appendix highlights the weights S assigned to the Award Fee Plan incentive metrics for three MACs CM assessed from 2006 through 2008. The Centers for Medicare & Medicaid Services’s (CMS) Quality Assurance Surveillance Plan (QASP) reviews for three Medicare Administrative Contractors (MAC) showed that they had improved their performance from the first review period to the most recent review period we reviewed but did not meet all standards in any one review period. Figure 9 of this appendix provides details on each MAC’s QASP performance assessed from 2006 through 2008, including which functional areas were reviewed. The Centers for Medicare & Medicaid Services’s (CMS) Award Fee Plan reviews for three Medicare Administrative Contractors (MAC) showed that they had improved their performance from the first review period to the most recent review period we reviewed, but because the MACs did not meet all incentive metrics, they did not receive full award fees. Figure 10 ludes information about the award fee earned by each of this appendix inc MAC and the incentive metrics the MACs were assessed against from 2006through 2008. In addition to the contact named above, Sheila K. Avruch, Assistant Director; Jennie F. Apter; La Sherri Bush; Jill Center; Helen Desaulniers; Sarah-Lynn McGrath; Roseanne Price; Kristal Vardaman; Ruth S. Walk; Jennifer Whitworth; and William T. Woods made key contributions to this report.

Summary: The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 significantly reformed contracting for payment of Medicare's $310 billion per year in fee-for-service claims. The Centers for Medicare & Medicaid Services (CMS) is transitioning claims administration to 19 new entities known as Medicare Administrative Contractors (MAC) and plans to complete the process ahead of October 1, 2011, the date required by law. In 2005, GAO reported that CMS's plan to accelerate the transition could create challenges and was based on estimated costs and savings that were uncertain. In this report GAO examined (1) how CMS has implemented Medicare contracting reform; (2) how CMS assessed the performance of the MACs and what the results of its assessments have been; and (3) what CMS's costs and savings have been for Medicare contracting reform. GAO selected a sample of 6 transitions to review from among the 10 MAC contracts awarded as of June 2008, based on factors such as geographic diversity, volume of claims workload, and transition complexity. GAO analyzed CMS documents related to the MAC transitions, including performance assessments for 3 of the 6 MACs in the sample that had results available for three types of reviews as of March 2009, and interviewed CMS officials, contractors, and provider groups. CMS took numerous steps to facilitate the complex implementation of Medicare contracting reform, but certain decisions led to challenges during the six MAC transitions we reviewed, such as payment delays to providers. For example, CMS's accelerated implementation schedule overlapped with other Medicare initiatives that affected claims processing, such as requiring that providers re-enroll in order to be paid, which resulted in claims payment delays. In addition, despite regular workload monitoring of the former contractors during the MAC transitions, CMS gave the MACs inaccurate workload estimates. For example, one MAC originally planned on receiving 15,000 appeals cases but actually inherited 46,500 cases, which led to processing backlogs and delayed payments to providers. However, CMS also incorporated lessons learned and made midcourse adjustments to address some of these challenges. CMS has assessed the MACs using a program it developed, and in the reviews we examined the MACs did not meet all standards and metrics. CMS's assessment program includes an initial review of each MAC's internal controls and two subsequent reviews to assess performance. One of these reviews compares a MAC's performance to standards in accordance with its contract and the other provides an incentive award fee if the MAC meets selected metrics that are designed to reflect high performance. Results available as of March 2009 from the assessments of three of the six MACs in GAO's sample show that the three MACs improved their performance over time but did not meet all metrics. For example, while the three MACs consistently met or partially met a metric that assesses contract management, they did not meet some beneficiary and provider service metrics. In addition, because they did not meet all incentive metrics, they did not receive full award fees. CMS's total costs and savings to date for Medicare contracting reform are uncertain because CMS does not track and provide information on all related costs and savings. The agency provided information on costs associated with contracts, which totaled a little over $300 million for fiscal years 2004 through 2008. It also provided information on some internal agency costs for conducting contracting reform, but did not track others, such as agency staff salaries. Although CMS expected contracting reform to generate substantial savings from reduced spending on administrative functions and savings to the Medicare trust funds due to improved claims review to detect payments that should not be made, as of April 2009, CMS was unable to provide information on total savings. CMSprovided some information on savings due to reductions in operational spending, but the extent to which these savings were attributable to contracting reform is uncertain. CMS did not track or provide information on savings to the Medicare trust funds due to reduced improper payments related to contracting reform activities. CMS reviewed a draft of this report and generally agreed with GAO's findings.