According to the 2011 Medicare Trustees report, total Medicare expenditures were $523 billion in 2010 for 47.5 million beneficiaries. The Centers for Medicare & Medicaid Services (CMS) Office of the Actuary projected overall Medicare spending will reach $557.4 billion in 2011. Due to a number of factors such as advances in health care delivery and technology, an aging population, and overall increases in medical costs, Medicare spending has been projected to grow more quickly than spending in the overall U.S. economy. As expenditures continue to rise in the nation's largest health insurance program, efforts to preserve Medicare's program integrity have attracted increased attention. As the agency responsible for administering Medicare, CMS contracts with a number of private entities to conduct program integrity activities. Program integrity includes the following six main activities: 1. Conducting provider audits. 2. Reviewing claims for medical necessity. 3. Identifying and investigating fraud. 4. Ensuring that Medicare pays only for services for which it has primary responsibility. 5. Educating providers on Medicare billing procedures. 6. Identifying improper billing practices that affect both Medicare and Medicaid. Once these contractors identify suspected fraud, they refer the cases to Medicare administrative contractors (MACs) to recover overpayments and, where appropriate, to the Department of Health and Human Services Office of the Inspector General (HHS/OIG) and the Department of Justice (DOJ) for further investigation and prosecution. The Health Insurance Portability and Accountability Act of 1996 (HIPAA, P.L. 104-191 ) amended the Social Security Act (SSA) Section 1817(k) to establish an appropriation from the Medicare Trust Fund to an expenditure account, called the Health Care Fraud and Abuse Control Account (HCFAC Account). The amount transferred from the Medicare Trust Funds is jointly certified by the Secretary of the Department of Health and Human Services (the Secretary) and Attorney General as necessary to finance anti-fraud activities. The maximum amounts available for certification are specified in law. HIPAA also established an additional annual Medicare Integrity Program (MIP) appropriation. Mandatory annual MIP appropriations are transferred from the Medicare Trust Funds to the HCFAC Account, and HIPAA specified the maximum amounts available for MIP. The maximum MIP appropriations are adjusted for inflation and are available until expended. HIPAA required that the HHS/OIG and the Attorney General submit an annual report to Congress on selected HCFAC activities, but not MIP activities. GAO submitted four biennial reports on HCFAC-funded activities (not MIP activities) as required by HIPAA. In FY2010 and FY2011 respectively, the HCFAC Account received mandatory appropriations of approximately $1.17 billion and approximately $1.4 billion. Beginning in FY2009, Congress approved additional discretionary investments of $198 million for FY2009, $311 million for FY2010, and $311 million for FY2011 to further enhance Medicare's program integrity efforts. This report presents an overview of Medicare program integrity activities including the following major areas: an introduction to Medicare health care fraud; a description of CMS's program integrity activities; a discussion of the roles played by private contractors and federal law enforcement agencies in maintaining Medicare program integrity; details on federal anti-fraud funding; analysis of CMS's Medicare program integrity activities; and a summary of recent program integrity initiatives. Medicare is the nation's health insurance program for most people age 65 and older and certain disabled individuals. Of Medicare's 47.5 million enrollees in 2010, approximately 85% are over 65 and the remaining 15% are disabled. Medicare consists of the following four distinct parts—Parts A, B, C, and D: Part A (Hospital Insurance) covers inpatient hospital, skilled nursing facility, home health, and hospice services. Part B (Supplementary Medical Insurance) covers other medical services, such as physician visits, outpatient hospital care, laboratory services, and durable medical equipment (DME). Part C refers to the option beneficiaries have to receive all Parts A and B services through a private Medicare Advantage (MA) health plan. Part D covers outpatient prescription drugs, which are provided by private prescription drug plans (PDPs). Many Medicare beneficiaries who enroll in private, Part C, health plans, choose MA-PD (Medicare Advantage – Prescription Drug) plans for combined Parts C and D coverage. The majority of beneficiaries, nearly 75%, receive benefits through Medicare's fee-for-service (FFS) program, known as "original" or "traditional" Medicare. The remaining beneficiaries, approximately 25%, chose to enroll in private health care plans under Medicare Part C, the Medicare Advantage (MA) program. Approximately 73% (34.6 million beneficiaries) of Medicare beneficiaries chose to enroll in Part D, the outpatient prescription drug program. CMS, one of the Department of Health and Human Services (HHS) operating divisions, has responsibility for oversight of all aspects of Medicare. In addition to Medicare oversight, CMS administers Medicare Parts A and B and operates Parts C and D through contracts with a number of private organizations. CMS funds Medicare administration through a discretionary budget request for program management, where program management includes activities such as paying Medicare Parts A and B claims processing contractors, quality reporting and incentive payments, health plan oversight, provider and beneficiary outreach, administrative simplification, and information technology infrastructure. Program management funds are transferred from the Medicare Trust Funds. Although some program management activities, such as provider enrollment and information technology infrastructure, can affect program integrity, in general program management does not include program integrity. CMS requests a separate annual discretionary appropriation for Program Management, which, like the program integrity appropriation, is transferred from the Medicare Trust Funds. This report focuses on CMS's main program integrity activities, not Medicare administration. In April 2010, CMS consolidated responsibility for administering and monitoring program integrity activities, including contractor oversight, under a newly created organizational entity, the Center for Program Integrity (CPI). In creating CPI, CMS established an organizational entity intended to have authority to better integrate all program integrity activities across the agency. CPI was designed to consolidate, coordinate, and strengthen existing program integrity activities, carry out new responsibilities created by legislative authority, and better position CMS to respond to emerging program integrity issues. CMS identified CPI's overarching mission to be "protecting the Trust Funds and other public resources against losses from fraud and other improper payments and to improve the integrity of the health care system." To achieve this mission, CPI identified the following four program areas and classified all program integrity efforts into one or more of these areas: Prevention . Current prevention activities include payment system operation, medical review, and provider and beneficiary education. CPI plans to expand prevention by better engaging beneficiaries and other stakeholders in fraud identification; strengthening provider/supplier safeguards; improving payment system accuracy; and better coordination with law enforcement. Detection . CPI plans to implement additional analytical pilots to detect improper payment trends, such as using provider/supplier enrollment risk-based predictive modeling, and geographic "heat" mapping based on 1-800-MEDICARE tips. Heat mapping is a process used to identify geographic areas with increased potential of fraud activity. CMS contractors analyze complaints to Medicare toll free numbers and tips from providers and beneficiaries to target certain areas and potential fraud schemes. Recovery . CPI plans to collaborate with program integrity partners, such as the HHS/OIG, DOJ, state survey and certification agencies, and state Medicaid agencies, to increase overpayment recoveries through utilization of restitution, fines, penalties, damages, program suspensions, and exclusions. Additional overpayment recovery tools available to CPI include field investigations, more use of Recovery Audit Contractors (RACs), more use of Medicare Secondary Payer activities, and better coordination with Medicare's Office of Hearings and Appeals. Transparency and Accountability . CPI plans to develop performance measures that can be used to evaluate outcomes and better track, report, and disseminate program integrity information. CPI launched an outreach initiative to build better relationships with other public and private partners and raise overall awareness of CMS's program integrity activities. The outreach effort included co-hosting a national health care fraud summit in Washington, DC (January 2010); local summits in other major cities—New York (November 2010), Detroit (March 2011), Los Angeles (August 2010), Boston (December 2010), Philadelphia (June 2011), and Miami (July 2010); and a fighting health care fraud industry day in Baltimore (October 2010). Increasing health care costs, increases in the number of Medicare beneficiaries, and other factors are contributing to push the cost of Medicare to unsustainable levels. These increasing costs as well as concern about proper stewardship of public resources have helped fuel additional interest in finding ways to control rising Medicare costs. Program integrity, particularly initiatives to identify and reduce fraud and abuse, have received substantial emphasis as a potential source of restraining the growth in federal Medicare expenditures. Several recently enacted new laws have provided additional tools and resources to help federal officials improve upon Medicare program integrity activities. These initiatives are discussed in more detail below. Estimates of fraud and abuse often are made separately from estimates of improper payments. Estimates of the dollar amount lost just to health care fraud vary. Fraud analysts and law enforcement officials estimate between 3% and 10% of health care expenditures (for all payers, including Medicare) are lost annually to fraud. CMS estimated that Medicare's FY2010 FFS improper payment error rate was 10.5% and accounted for $34.3 billion in overpayments. Not only do fraud and abuse contribute to rising health care costs, they also can harm patients, particularly when medically necessary services are withheld, or when medically unnecessary services are provided. Fraud and abuse often are integrated together into the discussion of program integrity or activities to protect the Medicare program from these threats.