CMS administers the Medicare program with the assistance of about 50 claims administration contractors. As part of their duties, contractors deny claims that are the responsibility of other insurers. In addition, they are required to recover mistaken payments that were made before it could be determined that the beneficiary had other insurance—such as an EGHP, an automobile or other liability insurance plan, workers’ compensation, or other types of coverage. To ensure that contractors adequately perform these tasks, CMS periodically monitors and evaluates their performance. Contractors are required to record recovery information pertaining to EGHP debt cases in the MPaRTS database. MPaRTS tracks the status of each EGHP case and provides CMS with information on the amount of mistaken payments identified, the amount demanded to be repaid, the amount recovered, and whether the case is currently open or closed. Although CMS does not have a database for tracking liability and workers’ compensation cases that is comparable to MPaRTS, CMS requires contractors to submit quarterly accounts receivable reports for these and other types of cases. These reports show the aggregate amount of outstanding debt, but do not provide detail at the individual case level. To prevent mistaken MSP payments, Medicare claims administration contractors match beneficiaries’ health care claims against information contained in Medicare’s Common Working File (CWF)—a repository of claims and beneficiary enrollment data—to determine whether Medicare is the primary or secondary payer. Claims are paid if the CWF indicates that Medicare is the primary payer. However, the CWF may not always contain accurate information. The MSP status of some beneficiaries is sometimes in a state of flux—for example, a retired beneficiary may return to the workforce and receive coverage under an EGHP for 6 months, and then leave that job. This information may not be recorded in a timely manner, leading to mistaken payments. In addition, the CWF can also contain inaccurate information if beneficiaries do not notify CMS of their insurance status when they become eligible for Medicare or if they provide incorrect insurance information. Furthermore, although the CWF is periodically updated with new insurance information, there is a lag between the time beneficiaries obtain coverage and when CMS learns of this coverage. In the interim, contractors may mistakenly pay beneficiaries’ claims. To identify mistaken MSP payments when an EGHP is the primary payer, claims administration contractors use information provided by CMS and the Coordination of Benefits Contractor (COBC). The COBC is a specialized contractor that does not process Medicare claims. Instead, the COBC is charged with developing information on beneficiaries who may have other primary health insurance through a process known as the data match. The purpose of the data match is to identify beneficiaries or their spouses who are employed and thus may be covered by an EGHP. To facilitate data matching, the Social Security Administration sends the Internal Revenue Service a list containing the Social Security numbers of Medicare beneficiaries. The Internal Revenue Service then matches the list against beneficiary income tax return data and sends the results to the COBC for further analysis. For example, if tax records show that an employer paid a beneficiary at least $10,000 during the previous year, the COBC would contact the beneficiary’s employer to determine whether he was covered by that employer’s group health plan. CMS compares information developed by the COBC to the national claims history file, the most comprehensive source of paid claims information. This comparison allows CMS to determine whether Medicare may have mistakenly paid claims on behalf of the beneficiary. If the mistakenly paid claims total at least $1,000, CMS assigns the case to the claims administration contractor that processed and paid the claims. Upon receipt of the EGHP debt case, claims administration contractors have 60 days to perform certain tasks to determine whether an attempt should be made to recover the debt. The contractor must first verify that the information being used as a basis for recovering the debt is correct and that it has not already recouped the mistaken payments. If the case passes this initial validation process, the contractor will initiate recovery by sending a demand letter to the beneficiary’s employer and insurance company or third-party administrator, requesting payment within 60 days. If there is no response to the demand letter within 60 days, interest begins to accrue on the debt. Contractors then send a second letter explaining that if a response or payment is not received within another 60 days, the matter will be referred to the Department of the Treasury for collection. Responses to these letters can include repayment with interest or an explanation as to why the employer and associated health insurer are not responsible for the debt. This explanation may include documentation indicating that the employee retired and thus discontinued health coverage or never obtained coverage through the employer. The procedures followed by contractors to recover mistaken payments from liability insurers and workers’ compensation plans differ from those used when the primary payer of an MSP debt is an EGHP. In a liability or workers’ compensation case, mistaken payments made on behalf of a beneficiary are not related to a period of insurance coverage, but to a particular incident—for example, an automobile accident or workplace injury. The task of the contractor in such cases is to identify all paid medical claims related to the incident and to inform the beneficiary or the beneficiary’s attorney of the responsibility to repay Medicare in the event that they receive an insurance settlement for their medical expenses. Because beneficiaries may require protracted medical treatment for their injuries, it may take several years before the total amount of payments related to the injury is known. In the interim, a contractor may repeatedly review the beneficiary’s claims history to determine whether Medicare has paid new claims related to the injury. We previously reported that CMS maintained a substantial backlog of uncollected debt in fiscal year 2000. Although the Debt Collection Improvement Act of 1996 required that agencies refer debt delinquent for more than 180 days to the Department of the Treasury, CMS still had not fully implemented this requirement. Prior to 2000, CMS did not instruct claims administration contractors to refer delinquent EGHP cases to the Department of the Treasury for collection. As a result, CMS maintained a substantial backlog of older cases that remained open, but inactive, for many years. CMS’s administration of the Medicare program will undergo significant changes over the next several years as the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) is implemented. MMA provides CMS with increased flexibility in contracting with new entities to assist it in operating the Medicare program. While CMS has relied primarily on the claims administration contractors to perform most of the key business functions of the program, the new law authorizes CMS to enlist a variety of contractors to perform these tasks. For example, CMS could use new contractors to process and pay claims and to perform financial management and payment safeguard activities. CMS is just beginning to develop plans to implement MMA’s contracting reform provisions. Phase-in of the amendments to contracting reform takes effect on October 1, 2005. The competitive bidding of all contracts is required for contract periods that begin on or after October 1, 2011. The agency expects to issue its implementation plan for contracting by October 1, 2004. Since fiscal year 2000, the cost-effectiveness of EGHP recovery activities has significantly declined. The decline in cost-effectiveness occurred because the volume of EGHP debt cases significantly decreased—in fiscal year 2003, almost half of the contractors were assigned fewer than 50 cases—while, at the same time, the cost to CMS for maintaining debt collection capabilities at all claims administration contractors increased slightly. Moreover, CMS funded eight contractors who were not assigned any EGHP debt cases. The recovery process is also constrained by procedures that prevent contractors from maximizing their recoveries of mistaken payments. Because contractors have access only to claims that they have paid, they cannot identify, and thus collect, mistaken payments made by other contractors. In addition to these structural problems, we found that in 3 of the last 4 years CMS did not transmit a substantial number of EGHP cases to the claims administration contractors, resulting in missed recoveries. EGHP recovery activities are no longer cost-effective. To measure cost- effectiveness, we compared the amount that CMS spent on contractor recovery activities for a given fiscal year with the amount recovered from all cases that were opened during the same year—regardless of when the funds were recovered. While Medicare recovered about $2.49 for each dollar it spent on EGHP recovery activities in fiscal year 2000, this ratio declined to $1.80 in 2001. Although there are no comparable data for fiscal year 2002 because CMS did not open any new EGHP cases that year, thus allowing contractors time to reduce their backlog of old cases, the decline in cost-effectiveness continued in fiscal year 2003 when CMS resumed opening new EGHP cases. In that year, Medicare lost money on EGHP recovery activities, recovering only 38 cents for every dollar spent. (See table 1.) The lack of cost-effectiveness of the EGHP recovery process resulted partly from a declining workload, which limited the potential for recovery. The number of new MSP EGHP debt cases has decreased by more than 80 percent in recent years, from 49,240 cases in fiscal year 2000 to 7,634 cases in fiscal year 2003. CMS officials told us that improvements in identifying beneficiaries with other insurance before a claim is paid have reduced the number of mistakenly paid MSP claims. Consequently, according to CMS officials, this has lessened the need to recover these payments via the EGHP recoveries. These officials also projected that the number of EGHP cases assigned to contractors could continue to decline. Not only have the number of EGHP cases declined since fiscal year 2000, but the complexity of these cases and the resources required to process many of them have also decreased. Since fiscal year 2000, the claims administration contractors closed more than half of the cases during their initial computer screening process. That is, they often found that the mistaken payments totaled less than $1,000, another insurer voluntarily paid the claims, or the COBC updated the CWF to show that the beneficiary did not have other primary coverage, such as an employer- sponsored group health plan, during the time the services were delivered. In such instances, contractors are not required to correspond with employers and insurers. It is only a relatively smaller number of cases— those that pass the initial screening process—that require significant contractor resources to send demand letters, process the responses, and archive file materials. As shown in figure 1, of the 49,240 EGHP cases processed by contractors in fiscal year 2000, 20,487—about 42 percent— were resource-intensive cases that entailed sending a demand letter. In contrast, only 1,276 cases—about 17 percent—involved a demand letter in fiscal year 2003. CMS’s payments to contractors for recovery activities have not reflected the sharp decline in the number of EGHP debt cases that occurred in fiscal year 2003. For example, in fiscal year 2000, the three contractors with the largest workloads received a combined budget of less than $1 million and processed 7,708 EGHP cases. The workload of those three contractors was larger than the entire fiscal year 2003 workload, for which CMS spent almost $10 million on contractors’ EGHP debt recovery activities. This disparity between workload and budget in fiscal year 2003 is even more apparent at the individual contractor level. As shown in table 2, 8 of the 51 claims administration contractors processed 400 or more EGHP cases—representing about 52 percent of the total EGHP workload of 7,634 cases. However, almost half of the contractors were assigned fewer than 50 cases. Despite their small combined workload—4 percent of all EGHP cases in fiscal year 2003—CMS allocated to these contractors more than a quarter of its EGHP budget, about $2.5 million, to support EGHP and certain other recovery activities. Moreover, CMS funded 8 contractors that were not assigned any EGHP debt cases. CMS’s budget process does not efficiently match funding for contractor recovery activities to contractors’ actual workloads. CMS pays each contractor to maintain an infrastructure to support the recovery of EGHP debt, regardless of the number of cases the contractor processes during the year. In order to process EGHP cases forwarded to them by CMS, the claims administration contractors maintain an infrastructure that results in costs such as wages, equipment, and records. Typically, this includes a staff of MSP examiners who review EGHP cases, contact other potential insurers, evaluate explanations from insurers as to why the MSP debt may not be valid, make referrals to the Department of the Treasury when a debt is not paid within 180 days, and archive case files. Each contractor must also maintain screening software to identify and exclude EGHP debt cases that do not meet the $1,000 threshold. As a result, some contractors may receive funding for their infrastructures even though they process few or no cases during the year, as occurred in fiscal year 2003. In comparison to other MSP activities performed by contractors—such as maintaining computer programs that automatically identify and deny MSP claims—EGHP recoveries are expensive to conduct and no longer provide a return on investment. In fiscal year 2003, the return on investment for all types of MSP activities combined was 48 to 1. That is, Medicare contractors spent an estimated $95.6 million for all MSP activities and produced identifiable savings of approximately $4.6 billion, resulting in $48 saved for every dollar spent. We found that several system limitations create barriers to recovering mistaken payments and reduce program savings. Some mistakenly paid claims may be missed because beneficiaries received medical services in more than one state, and thus had their claims processed by more than one contractor. Because contractors have access only to claims records that they process, they are unable to identify claims processed by other contractors. In addition, beneficiaries whose total MSP claims exceed $1,000, but are split among two or more contractors, may not have all of their mistaken payments recovered if the payments made by any single contractor total less than the $1,000 threshold. Although CMS officials could not quantify the effect of these constraints on recoveries, they told us that they believe that these limitations have significantly reduced MSP savings. For example, a beneficiary who lives in the Midwest but spends the winter in the South and receives health care services in both locations will have claims processed by different contractors. If mistaken payments for $2,000 were made for services the beneficiary received during the year—for example, $1,200 in one location and $800 in the other—only the contractor with payments exceeding the threshold would pursue a recovery. Therefore, although the primary payer would be responsible for the entire $2,000 in services, Medicare would attempt to recover only a portion of the amount owed. A similar inefficiency occurs when beneficiaries receive inpatient services covered by Part A of Medicare and physician services covered by Part B. Different contractors typically process Part A and Part B claims, but they are not required to coordinate EGHP recoveries with one another. This lack of coordination also results in missed savings opportunities when neither the Part A nor Part B claims individually meet the $1,000 threshold. Even if both the Part A and Part B claims exceed this threshold, greater administrative costs are incurred by both CMS and private employers, as two different contractors attempt to recoup payments from the same payer. Finally, the success of the current system depends on CMS distributing EGHP cases to the claims administration contractor that processed the mistaken payments. Our review of EGHP debt cases revealed that, during fiscal years 2000, 2001, and 2003, CMS neglected to transmit 2,364 cases to the contractors, representing more than $28 million in potential mistaken payments. CMS officials told us that the accurate referral of EGHP cases has grown more difficult in recent years as some contractors have left the Medicare program and other contractors subsequently assumed their existing workload. They explained that they suspected that these EGHP cases were overlooked when one contractor processing claims for beneficiaries in several states left the program and the related cases were never assigned to the replacement contractors. As a result, no recovery action was ever initiated for these cases. By using the percentage of potential mistaken payments that are typically recovered—7 percent—we estimate that CMS’s failure to transmit these cases to contractors for potential recovery cost the Medicare program approximately $2 million. We were unable to fully evaluate the effectiveness of the EGHP debt recovery efforts of the claims administration contractors we visited because three of the four contractors were unable to produce all of the case files we requested. Although the files we examined indicated that these contractors were appropriately managing their EGHP workload, the volume of unavailable files precluded us from reaching an overall conclusion on their performance. CMS’s recent contractor performance evaluations found similar records management deficiencies and raised additional questions about contractors’ effectiveness. We found it difficult to thoroughly assess the performance of all of the contractors we visited. At each contractor, we randomly selected a sample of cases to review. The number selected varied by contractor and totaled 644 cases for all contractors combined. However, 78 case files could not be located. Although one contractor was able to produce the files and supporting documentation for all the cases we requested, the other three contractors poorly managed their records and were unable to provide all of the files and supporting documentation we had requested in advance of our visits. The percentage of missing cases at these contractors ranged from 4 to 24 percent. Because these files were not available, we were unable to fully assess whether the contractors made sufficient efforts to collect MSP debt. For example, without supporting documentation for those cases, we could not conclusively determine that the contractors had followed all the appropriate recovery procedures. Of the 566 cases available for review, we found that contractor files were complete and contained appropriate documentation to support the contractor’s decision to close each case without making a recovery. We reviewed two types of cases: those that were closed during the initial screening process after the contractor determined that the $1,000 threshold was not met, and those that were closed after the contractor sent a demand letter to the employer requesting payment. Together, these two types of cases constituted about 65 percent of the EGHP workload during fiscal years 2000 and 2001. For cases that were closed because they did not meet the $1,000 threshold, contractors provided us with adequate supporting documentation showing that the involved claims totaled less than this amount. Other cases were properly closed because the employers provided valid reasons as to why they were not responsible for the MSP debt. For example, if a beneficiary had retired and was not covered by the employer’s insurance at the time the claims were submitted, contractor case files contained correspondence from the employer documenting this fact. In about a third of the MSP cases we selected for review, the private side of the contractor’s business sold insurance to the employer that was initially identified as having responsibility for MSP debt. Although this situation creates a potential conflict of interest for the contractor because it must collect funds from its private business side, we did not find evidence that contractors closed such cases inappropriately or treated them differently from others. Our review also found that one contractor made errors entering information into CMS’s MPaRTS system, which tracks the status of EGHP cases. Although such errors do not mean that the contractor had inappropriately processed cases, they make it difficult for CMS to monitor the cases’ status. The tracking system uses different codes to describe the status of MSP cases. For example, there is a code to indicate that the case was closed after a demand letter was sent, and another to indicate that the case was closed because the $1,000 recovery threshold was not met. This contractor did not correctly apply these two codes and miscoded about 18 percent of the cases we reviewed. CMS’s recent contractor performance evaluations of MSP recovery activities support our finding of poor records management. CMS evaluated the MSP activities of 12 contractors in fiscal year 2001 and another 12 contractors in fiscal year 2002. During these evaluations, CMS reviewed EGHP case files from contractors. These evaluations are based on a relatively small number of case files—10 to 20—and therefore do not provide in-depth assessments of contractors’ performance. However, the evaluations conducted in 2001 and 2002 highlighted contractor performance problems similar to those we identified. That is, CMS found that several contractors, which included some that were not part of our review, had missing case files and entered inaccurate information into the CMS tracking database. For example, during a review of one contractor, CMS requested 20 EGHP case files, but the contractor was able to locate only 12 files. In addition, CMS found tracking-system coding errors—in 2001, 5 of the 12 contractors reviewed did not use the correct status code when entering information into the CMS computer system that tracks the status of EGHP cases. CMS evaluations identified additional problems in fiscal years 2001 and 2002, suggesting other weaknesses in contractors’ MSP recovery activities, as illustrated by the following examples: Staffing problems. One contractor discontinued processing data match cases for 3 months when the sole staff member performing this task took an extended leave of absence. At another contractor, CMS determined that the number of staff assigned to MSP recoveries was insufficient to process the contractor’s large workload. CMS also noted that a contractor had recently changed the educational requirements for MSP staff. Because most of the current staff did not possess a college degree as required by the contractor’s revised standard, the contractor retained an almost entirely new MSP staff. The new staff told CMS reviewers that their training was inadequate to prepare them for processing the workload. Delays in processing correspondence. In examining documentation at one contractor, CMS reviewers identified a significant backlog of correspondence. According to CMS’s estimate, there were over 2,400 pieces of mail awaiting action—including checks and correspondence from employers, insurers, and other contractors. The oldest correspondence awaiting action was more than 2 years old—well beyond CMS’s requirement that contractors match incoming mail with established cases and respond to such correspondence within 45 days. Failure to appropriately document case determinations. At one contractor, CMS reviewers found several case files where the contractor did not document whether the action was necessary. For example, the contractor closed a case and indicated that a full recovery was made; however, the file did not show that a check was received from either an employer or insurer. At another contractor, CMS reviewers examined cases that were inappropriately closed without recovery because the contractor had not promptly notified the EGHP of the debt, as required. In this instance, CMS found that once the contractor recognized its own untimeliness, it erred again by closing these cases without confirming that the health plan’s time limit for accepting claims had, in fact, expired. Inadequate security measures. Because the recovery process partially relies on Internal Revenue Service tax information, contractors are required to take certain precautions to prevent unauthorized access. At one contractor, CMS found that the workstation of the person responsible for processing the EGHP workload was situated next to the workstations of staff who did not have authorization to access restricted tax information. Reviewers found that files were stored in unlocked file cabinets and that sensitive printed materials were left in plain view in a general work area, rendering the information easily accessible to anyone in the facility. Recognizing the need to improve the coordination of its MSP recovery efforts, CMS contracted for the development of a new recovery system— the Recovery Management and Accounting System (ReMAS)—in 1998. The purpose of ReMAS is to improve the identification, tracking, and recovery of mistaken payments. ReMAS was designed to enhance the MSP recovery process by automating some tasks performed manually and by reducing the time required to collect MSP debt. As of May 2004, CMS has deployed the liability insurance and workers’ compensation component of ReMAS to nine contractors. ReMAS is designed to receive and evaluate leads from CWF electronically, a function that is now performed in separate steps by CMS staff and individual claims administration contractors. These leads consist of information suggesting that a beneficiary has other coverage that should be primary. CMS officials claim that ReMAS will streamline other functions as well. For example, when new information on a beneficiary’s MSP status is added to CWF, ReMAS is expected to determine, on a daily basis, whether mistaken payments were made on his or her behalf. Currently, the contractors review the occurrence of mistaken payments at varying intervals ranging from quarterly to semiannually. Once ReMAS determines that Medicare has paid claims that were the primary responsibility of another insurer, it will generate a case that can be assigned to any contractor for recovery. It will no longer be necessary for the contractor that processed the mistakenly paid claims to perform recovery activities. CMS officials told us that they believe that ReMAS will have several advantages over the current process. First, efficiencies gained through ReMAS would enable contractors to pursue MSP debt that involves amounts less than the current $1,000 threshold, resulting in additional recoveries. Second, ReMAS could facilitate the consolidation of MSP debt recovery efforts among a handful of contractors, as each contractor would have access to all paid claims. CMS officials indicated that ReMAS would enable them to reduce administrative costs, provide contractors with a more consistent and predictable workload, and simplify contractor oversight activities. (See app. II for more information comparing ReMAS to the present recovery system). Although CMS has spent $7 million on the development of this system, which has now spanned 6 years, ReMAS’s implementation is progressing slowly. It remains in the early implementation stages—testing on EGHP cases started in June 2004. Several critical tasks related to ReMAS’s implementation have taken several years to complete. To date, only the initial software testing and validation for the liability and workers’ compensation components have been completed. CMS’s initial plans for implementing ReMAS have focused on recovering liability insurance and workers’ compensation debt. Thus far, 17 contractors have received training in the use of ReMAS. CMS officials told us that as of May 2004, the liability and workers’ compensation components of ReMAS have been deployed to nine contractors. The remaining contractors that process MSP liability cases are scheduled to implement ReMAS by October 2004. ReMAS also has the potential to recover mistaken payments associated with EGHPs—currently handled through the data match process. CMS recently expanded the scope of ReMAS to include employer-sponsored group health plans, but details related to incorporating EGHP cases in the system are unclear. Unlike liability and workers’ compensation cases, which are related to specific accidents or injuries, EGHP cases are based on a beneficiary’s dates of employer-sponsored coverage. This distinction requires enhancements to the ReMAS system, to ensure that it can address and process this key difference. According to CMS’s timetable, preliminary tasks such as computer testing, validation, and documentation of the EGHP component of ReMAS will be completed in September 2004. While CMS expects to pilot test the EGHP component with two contractors in October 2004, it has not specified when it will implement ReMAS for EGHP cases at all contractors. As Medicare’s primary steward, CMS should make a concerted effort to recoup funds owed the program. However, recovery efforts should be planned and executed with cost-effectiveness in mind. CMS’s efforts to recover MSP debt from cases that involve EGHPs were cost-effective as recently as a few years ago, but CMS is now operating a recovery system that is losing money. Although funding for contractors’ EGHP debt recovery activities has slightly increased since fiscal year 2000, contractor workloads have decreased by 80 percent. In addition, funding for these activities is not always related to contractors’ workloads—in fiscal year 2003, almost half of the contractors received fewer than 50 cases to process while 8 of these, which had a collective budget of more than $1.8 million, received no cases at all. As recently as fiscal year 2000, three contractors collectively processed a workload that exceeded the entire EGHP workload of all contractors in fiscal year 2003, suggesting that consolidation of debt recovery activities among a smaller number of contractors is feasible. The current system, with over 50 contractors involved in EGHP recovery activities, is cumbersome to administer, and poor record-keeping makes it difficult to determine whether contractors are doing all they can to recover debt. One of the keys to improving the cost-effectiveness of MSP debt recoveries may rest with CMS’s new ReMAS system. Plans to expand the scope of ReMAS to recover debt associated with employer-sponsored group health plans could ultimately address current operational weaknesses, such as an inefficient distribution of workload and limited coordination among contractors. Now that CMS has been given new authority to contract with a variety of entities to assist it with managing the Medicare program, it should take advantage of ReMAS’s capability to consolidate debt recovery efforts with a smaller number of contractors and thereby improve the efficiency of the program. We recommend that the administrator of CMS: develop detailed plans and time frames for expanding ReMAS to include EGHP cases, and expedite implementation of the EGHP component of ReMAS and improve the efficiency of MSP payment recovery activities by consolidating the EGHP workload under a smaller number of contractors and ensuring that contractor budgets for EGHP recovery activities more closely reflect their actual workloads. In written comments on a draft of this report, CMS agreed with our recommendations. CMS said it recognizes the importance of improving the cost-effectiveness of its debt collection process and has taken steps to expedite implementation of the EGHP component of ReMAS. CMS stated that operational efficiencies gained through the implementation of ReMAS make it feasible to consolidate recovery activities. CMS’s comments are reprinted in appendix III. CMS also provided us with technical comments, which we incorporated as appropriate. As agreed with your office, unless you announce its contents earlier, we plan no further distribution of this report until 30 days after its issuance. At that time, we will send copies to the Administrator of CMS and other interested parties. We will then make copies available to others upon request. 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 call me at (312) 220-7600. An additional GAO contact and other staff who made contributions to this report are listed in appendix IV. To assess the cost-effectiveness of the current system for recovering Medicare Secondary Payer (MSP) debt, we analyzed information from two CMS databases—the Contractor Administrative-Budget and Financial Management (CAFM) system and the Mistaken Payment and Recovery Tracking System (MPaRTS). CAFM provided information on CMS’s budgets for contractors and MPaRTS provided information on the number of potential MSP recovery cases processed by contractors and the amount of savings from recovery activities. To evaluate contractor performance in recovering MSP debt, we focused on cases that involved beneficiaries and their spouses who may have been employed and covered by an employer-sponsored group health plan (EGHP). These cases consisted of potentially mistakenly paid claims for services a beneficiary appeared to have received while covered by an EGHP. We selected 4 geographically dispersed contractors that processed a high volume of EGHP debt cases—all 4 were among the top 10 contractors that processed the highest number of such cases in 2000 and 2001. At each contractor, we randomly selected a sample of cases that were opened in 2000 and 2001 for review—the number of cases selected at each contractor varied, ranging from 136 to 207. Of the 644 cases selected, 566 were available for review. Contractors were unable to provide documentation for 78 cases. Because contractors close the majority of cases without making recoveries, we specifically focused on such cases in order to determine whether contractors made sufficient effort to recover MSP debt and followed appropriate procedures. Our inspection of these files consisted of reviewing contractor adherence to CMS’s detailed procedures for steps taken during the recovery process and the sufficiency of the contractor’s documentation for closing data match cases without recovering funds or referring cases to the Department of the Treasury for collection. All four of the Medicare contractors we examined sold private health insurance. Because of the possibility that the private side of their businesses could have been responsible for reimbursing Medicare for MSP debt, our examination included an assessment of whether this potential conflict of interest affected contractors’ actions in collecting this debt. Using insurer information available from MPaRTS and contractor case files, we identified cases that involved the contractor’s private health insurance business and compared them to the other cases. Our analysis found little difference between the two types of cases in terms of missing documentation—12.0 percent of cases that involved the contractor’s private side health insurance business were not documented, compared with 12.1 for the other cases. To assess CMS efforts to oversee and improve MSP debt recovery, we reviewed program guidelines and memoranda and interviewed officials from CMS and Medicare contractors. To identify contractor performance problems, we also examined the results of CMS’s fiscal years 2001 and 2002 contractor performance evaluations pertaining to contractors’ MSP operations. Although we did not validate CMS’s CAFM and MPaRTs information, CMS has procedures in place to ensure the accuracy of these databases. The MPaRTs database, which tracks MSP debt recoveries from EGHPs, contains internal logic checks that prevent contractors from incorrectly entering certain types of information. In addition, CMS periodically reviews MPaRTs records as part of its contractor performance evaluations. CAFM is a financial management system established to enable CMS to control the national budget for the Medicare contractors. It contains a small number of system checks that ensure that expenditure information provided by contractors is totaled correctly. The reliability of the data is ensured through independent audits. In addition, CMS personnel also review the data throughout the year. To identify the agency’s efforts to enhance the MSP process, we reviewed documents and interviewed CMS officials on CMS’s planned Recovery, Management and Accounting System (ReMAS), a new CMS system for MSP debt recovery activities that is under development. We conducted our work from December 2002 through July 2004 in accordance with generally accepted government auditing standards. The following table highlights differences between the way MSP case development, validation, and recovery are implemented under the present data match recovery system and how they will be implemented under ReMAS. Major contributors to this report were Richard M. Lipinski, Barbara Mulliken, Enchelle Bolden, Shaunessye Curry, and Kevin Milne.

Summary: Last year, employer-sponsored group health plans (EGHP) were responsible for most of the nearly $183 million in outstanding Medicare secondary payer (MSP) debt. MSP debts arise when Medicare inadvertently pays for services that are subsequently determined to be the financial responsibility of another. The Centers for Medicare & Medicaid Services (CMS) administers Medicare with the assistance of about 50 contractors that, as part of their duties, are required to recover MSP debt. GAO was asked to determine whether Medicare contractors are appropriately recovering MSP debt. GAO (1) assessed the cost-effectiveness of the current debt recovery system and (2) identified CMS's plans to enhance the recovery process. GAO analyzed workload and budget information and assessed plans to develop a new debt recovery system--the Recovery Management and Accounting System (ReMAS). Medicare's system for recovering MSP debt from EGHPs is no longer cost-effective, with CMS recovering only 38 cents for every dollar it spent on recovery activities in fiscal year 2003. This is largely due to workload and budgetary factors. While the number of new debt cases referred to contractors has declined by more than 80 percent since fiscal year 2000, CMS's budget for contractor recovery activities has remained relatively unchanged. As a result, contractors were funded at a level that exceeded their workload. Almost half of the contractors that CMS funded to process the 7,634 cases associated with the fiscal year 2003 workload were assigned fewer than 50 cases--and eight were not assigned any. The current system is also constrained by procedures that prevent contractors from maximizing recoveries. For example, CMS has instructed contractors not to pursue cases in which the amount of mistaken payments made on behalf of the same beneficiary is less than $1,000. In addition, CMS neglected to transmit more than 2,000 cases to the contractors--which depend on these transmittals to initiate recoveries--during fiscal years 2000, 2001, and 2003. CMS is developing a new recovery system--ReMAS--to enhance the MSP recovery process. This system has the potential to help increase savings, provide CMS with greater flexibility in distributing the workload, and simplify the collection of MSP debt. ReMAS is designed to identify relevant mistaken payments and will generate a case that can be assigned to any contractor for recovery--not only the contractor that processed the mistakenly paid claims. However, ReMAS has been under development for over 6 years and is currently only being used for liability and workers' compensation recoveries by a fraction of the contractors. Pilot testing of ReMAS on EGHP cases will not begin until October 2004.