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Medicare Program

This information appears as published in the 2015 High Risk Report.

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GAO designated Medicare as a high-risk program in 1990 due to its size, complexity, and susceptibility to mismanagement and improper payments. Addressing Medicare’s short-term and long-term challenges is vitally important, not only for the millions of aged and disabled individuals who depend upon the program for health care coverage, but also for the families of these individuals who might otherwise bear the cost of their health care, the taxpayers who finance the program, and the health care providers who depend upon receiving fair compensation for their services.  The aging of the population, coupled with the growth in per capita health care costs, will magnify these challenges over time.  Therefore, continued close attention will be necessary to ensure that Medicare is sustainable for generations to come. In addition, while the majority of these factors are inherent to the Medicare program’s design, the agency can continue to take actions to prevent or reduce improper payments—payments that either were made in an incorrect amount or should not have been made at all—which were estimated to total $60 billion in 2014.

Short-Term Challenges

Medicare is a high risk program, in part because its substantial size and scope results in the current program having wide ranging effects on beneficiaries, the health care sector, and the overall U.S. economy.  In 2014, Medicare was projected to spend $603 billion and provide health care coverage to over 50 million beneficiaries. Medicare pays about two-thirds of the health care costs of beneficiaries who do not reside in institutions.[1]  Hundreds of thousands of health care providers and suppliers—including private health plans, physicians, hospitals, skilled nursing facilities (SNF), durable medical equipment (DME) suppliers, ambulance providers, and many others receive payments from Medicare.  Every year, Medicare pays over a billion claims submitted by these health care providers. The program currently accounts for about 3.5 percent of the country’s gross domestic product (GDP). 

Medicare also has an outsize effect on the federal budget. CBO projects that in fiscal year 2014, Medicare outlays will total more than is projected to be spent on defense ($594 billion) and about double federal spending on Medicaid ($305 billion).  Medicare spending will account for approximately 17 percent of the approximately $3.5 trillion in federal outlays.

Consequently, Medicare must be closely monitored because even relatively small changes can have large short-term effects in the aggregate. For example, Medicare provider payment rates that are set too high unnecessarily financially burden beneficiaries—through higher premiums and cost sharing—taxpayers, and the federal budget.  Payment rates that are set too low may diminish providers’ willingness to treat Medicare beneficiaries and adversely affect their access to appropriate, high-quality health care.  

Long-Term Challenges

Medicare also poses substantial long term financial challenges.  Program spending is expected to increase significantly over time due to the growth in the number of beneficiaries and the increase in per capita health care costs.  CBO projects that in just 10 years (2024) Medicare spending will reach nearly $1.1 trillion—far surpassing projected defense spending of $719 billion. The Medicare Trustees 2014 report found that, under the projected baseline assumptions, Medicare’s share of GDP would rise to 5.6 percent by 2040.  As Medicare spending grows disproportionately to other federal spending and the economy, it will put increasing pressure on the federal budget and tend to squeeze out spending for other programs.  By 2088, Medicare spending could account for 6.9 percent or more of GDP. 

However, the Trustees have stated that Medicare spending projections, especially those stretching out over decades, are highly uncertain and cautioned that future Medicare spending could be substantially higher than indicated by the projected baseline estimates.[2]  In their 2014 report, they noted that some Medicare cost-reduction provisions may be difficult to sustain.  For example, one set of Medicare provisions affecting many types of health care providers reduces annual payment rate updates to account for economy-wide productivity growth.  However, the productivity growth rates historically achieved by health care providers have been lower than the economy-wide rates.  If health care providers do not realize sufficiently high productivity growth and these cost-reduction measures are not sustained, Medicare projected spending could rise to 6 percent of GDP in 2040 and 8.4 percent in 2088, according to the Trustees. 

Another uncertainty is whether advances in medical technology will tend to slow or accelerate Medicare spending growth.  Technological advances may enhance the ability of providers to diagnose, treat, or prevent health problems.  Examples include new drugs, devices, procedures, and therapies, as well as new applications of existing technologies.  Although new technologies may decrease or increase health care costs,[3]  in 2013 we reported that technological change had likely been the dominant cause (accounting for 36 to 55 percent) of the increases in overall U.S. health care per capita spending over the past several decades.[4] It should be noted, however, that a complete assessment of health care spending for new technologies should also consider the associated value for individuals, often measured by improved health functioning; increased life expectancy; or improved economic productivity.

In the past few years, the growth in Medicare spending, as well as health care spending in general, has slowed.  The reasons for this slowdown are not entirely clear and it is uncertain whether the effect will be transitory or longer lasting.  Nonetheless, Medicare’s historical trends, the aging of the population, the uncertainties associated with recent reforms and the effects of advances in medical technology, all underscore the need for continued efforts to moderate spending growth while ensuring that beneficiaries have appropriate access to high quality health care.  Achieving these goals will likely remain an important perennial challenge and require a continued sharp focus on the Medicare program.

Highlights of Key Legislation and Significant Reform Efforts

In March 2010, the Patient Protection and Affordable Care Act (PPACA) was enacted,[5] which among other things, makes numerous statutory changes to Medicare. CBO estimated that PPACA would reduce Medicare spending by about $400 billion over 10 years from fiscal year 2010 to fiscal year 2019.  Major savings were expected from constraining annual payment updates to certain Medicare providers, tying Medicare Advantage (MA)—Medicare’s private plan alternative to the original Medicare fee-for-service (FFS) program—maximum payment amounts to near or below FFS spending, reducing payments to hospitals that serve a large number of low-income patients (reflecting the expectation that PPACA’s health insurance expansion provisions would result in far fewer uninsured hospital patients), creating an Independent Payment Advisory Board to recommend changes in Medicare payment rates when spending growth exceeds specified thresholds, and modifying the high-income threshold for adjusting beneficiary Part B premiums, among other changes. 

Some PPACA provisions sought to establish financial incentives for providers to increase the efficiency and quality of Medicare services, or to test new ways of achieving those goals.  For example, PPACA required the establishment of a national, voluntary pilot program to bundle payments for physician, hospital, and post acute-care services to improve patient care and reduce spending.  Another provision modified payments to hospitals that experience patient readmissions related to certain potentially preventable conditions.  Certain PPACA payment changes seek to provide a strong financial incentive for health care providers to enhance productivity, improve efficiency, or otherwise reduce their costs per service. 

Several of PPACA’s changes seek to implement value-based purchasing of health care and transform the program into one that encourages efficiency and quality, instead of simply compensating providers for the volume of health care services.  It is too early to tell the extent to which such changes may help constrain Medicare spending over the long run.  Future Medicare spending may also depend on changes in the rest of the health care system.  For example, provisions of PPACA are designed to increase the number of individuals with health insurance and reduce the number of uninsured.  In 2013, we found that Medicare beneficiaries who had continuous health insurance coverage before enrollment in Medicare reported being in better health in the 6 years after Medicare enrollment and, in the first year of Medicare coverage, had significantly lower Medicare spending.[6]  Thus, changes that may occur outside of Medicare could influence future program spending.

Additional spending uncertainty stems from concerns raised by the Trustees, CBO, and the Office of the Actuary (OACT) about whether some of the Medicare cost-containment mechanisms included in PPACA, such as the provider productivity payment adjustment, can be sustained over the long term.   CBO and OACT both produced alternative projections of future spending that assume that certain cost-containment mechanisms are not fully maintained over the long-term.



[1] The remaining one-third of these health care costs are financed by beneficiaries’ direct spending, private supplements—such as Medigap—and other public sources.

[2] In reporting the results of our audit of the U.S. government’s fiscal years 2013 and 2012 consolidated financial statements, we noted that significant uncertainties, primarily related to the achievement of these projected reductions in Medicare cost growth reflected in the 2013, 2012, 2011, and 2010 Statements of Social Insurance, prevented us from expressing an opinion on those statements as well as on the 2013 and 2012 Statements of Changes in Social Insurance Amounts.   See Financial Audit: U.S. Government’s Fiscal Years 2013 and 2012 Consolidated Financial Statements, GAO-14-319R (Washington, D.C.: February 27, 2014).  Our audit of the U.S. Government’s Fiscal Year 2014 consolidated financial statements is currently in progress.

[3] In general, a technological change that enables providers to treat a previously untreatable disease will increase health care spending, while expanding disease management or shifting disease management to prevention or cure can lead to either increased or decreased health care spending.  However, the introduction of new treatments and technologies may result in increased health care spending due to the possibility that health complications may arise from a new treatment, or that patients survive one disease long enough and eventually are diagnosed with an additional disease with additional treatment costs. 

[4] Patient Protection and Affordable Care Act: Effect on Long-Term Federal Budget Outlook Largely Depends on Whether Cost Containment Sustained, GAO-13-281 (Washington, D.C.: January 31, 2013).

[5] Pub. L. No. 111-148, 124 Stat. 119 (2010), as amended by the Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029 (2010).  In this report, references to “PPACA” include amendments made by the Health Care and Education Reconciliation Act of 2010.

[6] Medicare: Continuous Insurance before Enrollment Associated with Better Health and Lower Program Spending, GAO-14-53 (Washington, D.C.: December 17, 2013).

We have not yet rated progress on the majority of the Medicare program’s challenges because of uncertainties surrounding the program and the evolving nature of reforms.  Instead, we identified five principal program areas where continued attention is needed.  One area of the Medicare program for which we were able to assess progress was improper payments.   We have determined that CMS has met our leadership commitment criterion and partially met each of the other criteria for removing Medicare improper payments from the high-risk list, but more needs to be done to fully meet our criteria. 

Medicare Program

Actions by CMS, such as the implementation of payment and health care delivery reforms envisioned in the Patient Protection and Affordable Care Act (PPACA),[1] may eventually help address Medicare’s fundamental financial challenge to remain sustainable over the long-term and improve the health care delivered to beneficiaries.  However, it is too soon to know whether, and to what extent, these various reforms may be successful and achieve the desired outcomes. In addition, the Medicare Trustees, the Office of the Actuary, and the Congressional Budget Office have raised concerns about whether some of the Medicare cost-containment mechanisms included in PPACA will be sustainable over the long term while maintaining provider participation in the program and appropriate beneficiary access to health care services. It is likely that lessons learned from the implementation of the Medicare reforms and cost-containment mechanisms, may, over time, suggest necessary modifications and the need for additional action by CMS or the Congress. Finally, our work suggests that continued attention from CMS is needed in five principal program areas: (1) provider payments and incentives in the traditional fee-for-service program; (2) payments to Medicare Advantage plans (the private health plans that serve Medicare beneficiaries), (3) financial and other program design effects on beneficiaries, (4) overall program management including oversight of contracts, and (5) oversight of patient care and safety.

(1) Payments and Provider Incentives in Original Medicare

Currently, Medicare largely rewards the volume and complexity of health care services provided to beneficiaries, rather than the value of those services.  This is beginning to change, as the Centers for Medicare & Medicaid Services (CMS) has implemented broad-based reforms to payment systems in the traditional Medicare FFS program. Many reforms have introduced financial incentives into payment structures to explicitly reward quality and efficiency. Important initiatives include steps toward transitioning Medicare’s FFS physician payment system from one that rewards volume of services to one in which value—as measured by quality and cost of care—is used to determine payment. As CMS progresses to full implementation of its value-based payment system, it will be important for the agency to use reliable quality and cost measures and methodological approaches that maximize the number of physicians for whom value can be determined.

Hospital Payment Adjustments.The Inpatient Prospective Payment System (IPPS) streamlines how Medicare pays hospitals and gives hospitals an incentive to economize by paying a fixed amount, set in advance. Over time, however, numerous statutory provisions have been enacted that provide, grandfather, or extend additional payments to IPPS hospitals. These changes are intended to address characteristics of the hospital market such as challenges to rural hospitals, and the need to support Medicare-participating hospitals in certain markets. However, this piecemeal approach has had the cumulative effect of most hospitals receiving modifications and add-ons to the basic payment formula, which increases Medicare spending. As a result, 30 years after the IPPS was implemented, the way Medicare currently pays hospitals may no longer ensure that the goals of the payment system—cost control, efficiency, and access—are being met.

Physician Feedback.CMS has also taken steps to help improve physician performance by providing them with annual feedback reports that compare their performance to the national average. We reported that physicians find that frequent feedback enables them to improve their performance more quickly. However, with only annual feedback from CMS, physicians may be missing an opportunity to improve their performance on a more frequent basis. While CMS officials cited concerns about the time it would take to generate more frequent feedback reports, with physicians’ continued adoption of advanced data reporting technology, CMS may eventually be able to generate reports more frequently.

Physician Self-referral.Our work has identified opportunities for CMS to introduce additional payment method refinements and controls in Medicare FFS to encourage appropriate use of services. For example, self-referral—when a provider refers patients to entities in which the provider or the provider's family members have a financial interest—continues to be a concern in relation to the rapid growth of Medicare FFS expenditures. In recent years, we found that certain services—including diagnostic imaging, certain cancer treatments, and diagnostic pathology services—performed by self-referring groups have increased dramatically. For one particularly costly prostate cancer treatment, these services have increased even though there are multiple effective, less costly treatment options available.  Until CMS takes steps to monitor physician self referral for these costly services, the Medicare FFS program and its beneficiaries will continue to be at risk for these rapid increases in expenditures.

High-expenditure Part B Drugs.In 2012, we found that 55 drugs accounted for about 85 percent of all Medicare spending on Part B drugs. The number of Medicare beneficiaries who received each of these drugs in 2010 ranged from 15.2 million receiving the influenza vaccines to 660 hemophilia A patients receiving a group of biologicals with the largest average annual cost per beneficiary—$217,000. Most of the 55 drugs increased in expenditures, prices, and average annual cost per beneficiary from 2008 to 2010, and the 5 drugs with the largest increase in expenditures also had the largest increase in the number of beneficiaries receiving each drug. CMS’s challenge moving forward will be to ensure that beneficiaries continue to have appropriate access to Part B drugs while controlling costs for both beneficiaries and the Medicare program.

End Stage Renal Disease (ESRD) Bundled Payments.CMS expanded the items and services included in its bundled payment rate for dialysis and related items and service in 2011 to improve the efficiency of these payments. However, the calculation was based on data that were four years old, and we found that utilization of these items and services actually decreased during that time period, resulting in Medicare overpaying for dialysis care in 2011 by up to $880 million. As a result, in the American Taxpayer Relief Act of 2012 (ATRA), Congress revised the Medicare ESRD bundled payment. However, because utilization of these items and services will change over time, it is vital that their bundled payment rates are monitored periodically in order to accurately reflect the expected costs of beneficiaries’ care to help ensure that any improvements in efficiency are not realized at the expense of beneficiaries’ access to and quality of care.

Low-volume Payment Adjustments.Medicare’s payment adjustment for low-volume dialysis facilities is one of several modifications in Medicare’s payment systems designed to help maintain beneficiaries’ access to care. Low-volume providers in areas where other care options are limited may warrant higher payments, and CMS intended this low volume payment adjustment (LVPA) to encourage small dialysis facilities to continue operating in areas where beneficiary access might be jeopardized if such facilities closed. However, in 2013 we found that, as designed, the LVPA does not effectively achieve this goal because it does not target all relatively low-volume, high-cost facilities that are in areas where beneficiaries may lack other dialysis care options, and it targets some facilities that appeared unnecessary for ensuring access to dialysis, such as dialysis facilities located in close proximity to other facilities.

(2) Medicare Advantage and Other Medicare Health Plans

Congress has taken a number of steps to introduce financial incentives to explicitly reward quality and efficiency in the MA program, but CMS has yet to take action to improve the accuracy of its payments to MA programs. For example, PPACA provided that MA plans with a quality rating of 4 or more stars—with 5 stars indicating the highest quality—receive bonus payments, and required MA maximum payment amounts to be adjusted to near or below FFS spending. Moreover, in January 2013, Congress enacted ATRA, which increased the statutory minimum for the annual MA coding intensity adjustment in order to account for differences in diagnostic coding. CBO estimated that this change alone would save Medicare about $1.4 billion over 5 years. However, we have identified additional opportunities to make improvements to the accuracy of MA payments, such as through methodology adjustments to account for diagnostic coding differences between MA and FFS.

MA Plan Payment Adjustments.Concerns remain about the discrepancy between FFS and MA payments because CMS has yet to improve the accuracy of the adjustment to account for excess payments due to differences in diagnostic coding. We have found that CMS’s risk adjustment model—which uses one year’s diagnoses to predict the following year’s health care costs for each MA enrollee—has led to overpayments to MA organizations because of different diagnostic coding patterns between the FFS and MA programs. In 2012, we recommended that CMS take steps to improve the accuracy of its risk score adjustments by, for example, accounting for additional beneficiary characteristics such as sex, health status, and Medicaid enrollment status, as well as including the most recent data available. While CMS has implemented the statutory minimum for the annual MA coding adjustment mandated in ATRA, it has yet to update its methodology to more accurately account for differences in diagnostic coding, resulting in excess payments of at least $3.2 billion in 2013. CMS has taken steps to collect encounter data—information on the services and items furnished to enrollees—that are more comprehensive than the beneficiary diagnosis data the agency currently uses to risk adjust payments to MA organizations, and has reported that it will use these data in calculating risk adjustments. However, CMS has not fully developed plans for validating and using MA encounter data.  We recommended that CMS fully validate the MA encounter data it is collecting before using these data for payment purposes.

Excess Payments to Special Needs Plans.Members of Congress and others have raised concerns about the profit margins of certain plans within the MA program that serve specific populations, such as those with specific chronic conditions—known as special needs plans (SNP). Payments to MA organizations are based, in part, on the projected expenses and profits that MA organizations submit to CMS, and we found that in recent years, SNPs have reported profits much higher than they had projected. These higher-than-projected profits were due primarily to higher-than-projected revenues from Medicare. Therefore, if MA organizations had more accurately projected both their revenues and expenses, they would have, on average, been able to provide beneficiaries with additional benefits or cost-sharing reductions, and still maintain the level of profits projected.

(3) Program Design Effects on Beneficiaries, Including those eligible for Medicaid

The Medicare Trustees have reported that the levels of beneficiary premiums and general revenues required to finance projected spending for supplementary medical services will impose a significant burden on Medicare beneficiaries and the U.S. economy over time. Because most Medicare beneficiaries pay their Part B premium by having it withheld from their monthly Social Security benefits, and growth in Medicare premiums and cost sharing has outpaced growth in Social Security benefits, beneficiaries and their families may increasingly need to draw on other income or resources to help pay for necessary medical care. Moving forward, it will be important to find approaches that help avert or mitigate this growing financial burden, particularly for those beneficiaries with high health care needs and few economic resources. For example, understanding how beneficiaries make medical decisions, and what information would help them identify and use providers that efficiently deliver appropriate, high-quality care, could lead to savings for both beneficiaries and taxpayers.

Care for Dual-eligible Beneficiaries.  Recently, Congress and CMS have placed greater emphasis on the coordination and integration of Medicare and Medicaid benefits for dual-eligible beneficiaries—those eligible for both Medicare and Medicaid—to improve health care, increase efficiencies, and realize cost savings.  For example, in 2011, CMS awarded contracts of up to $1 million to 15 states to design new models of care that integrate the two programs’ benefits. Later in 2011, CMS announced a financial alignment demonstration that is intended to further integrate the programs’ services. CMS expects that the demonstration will decrease incentives for cost shifting and increase care coordination, resulting in improved care for beneficiaries and savings to Medicare and Medicaid by reducing costly hospital and emergency room visits.

While coordination between these two programs is important to ensuring dual-eligible beneficiaries receive quality care, we have found that it may not necessarily translate into cost savings for Medicare because (1) high-users of Medicare services are not generally the same individuals who are high-users of Medicaid services, and (2) states with high Medicaid expenditures do not seem to spend less on Medicare. These results suggest that CMS’s expectations regarding the extent to which integration of benefits will produce savings through lower use of costly Medicare services may be optimistic. In addition, it is uncertain whether CMS and participating states will be able to improve quality without increasing overall program spending for disabled dual-eligible beneficiaries.

Dual-eligible Special Needs Plans.CMS and Congress have also taken steps to coordinate care for those enrolled in special needs plans designed to target dual-eligible beneficiaries in order to increase benefit integration and care coordination. For example, PPACA established a type of dual-eligible special needs plan (D-SNP), referred to as a Fully Integrated Dual Eligible (FIDE) SNP, which is designed to integrate program benefits for dual-eligible beneficiaries through a single managed care organization. In addition, D-SNPs that meet certain performance and quality-based standards may seek CMS approval to offer benefits beyond what other MA plans offer if such benefits would help bridge the gap between Medicare and Medicaid covered services. However, we found that FIDE-SNPs often meet criteria for high quality but relatively few high-quality FIDE-SNPs actually serve disabled dual-eligible beneficiaries or report lower costs for Medicare services. In addition, moderately better health outcomes for disabled dual-eligible beneficiaries in D-SNPs do not necessarily translate into lower levels of costly Medicare services—that is, inpatient stays, readmissions, and emergency room visits.

Access to Preventive Services.Over the past several years, researchers have found that certain preventive services are effective in early diagnosis or reduced prevalence of diseases that contribute to the growth in Medicare spending. To encourage beneficiary use, PPACA removed beneficiary cost-sharing requirements for many Medicare-covered preventive services. However, the use of preventive services could be improved by providing more information to both beneficiaries and providers. Furthermore, better use of preventive services is unlikely without appropriate Medicare coverage. Low use of some recommended services may result, in part, from limitations on which beneficiaries are covered or how frequently the service is covered. Conversely, the current absence of required cost sharing for certain services that are 100 percent paid by Medicare, but are not recommended, may contribute to the inappropriate use of those services.

(4) Program Management

CMS has overcome some challenges in managing the Medicare program as it implemented some program improvements in recent years, including a competitive bidding program for durable medical equipment (DME), as well as improvements to its guidance and oversight of payment contracts. However, more could be done to improve CMS’s management of the Medicare program.

Competitive Bidding Program.We had previously reported that Medicare sometimes overpaid for DME items relative to other payers, and CMS subsequently began implementing a competitive bidding program for DME suppliers in 2009. We found that beneficiary access and satisfaction appeared stable in early assessments, and the competitive bidding program has led to savings. Continued monitoring of the competitive bidding program experience is important to determine the full effects it may have on Medicare beneficiaries and DME suppliers. In addition, recent changes such as the program’s expansion into additional competitive bidding areas and the selection of the new contract suppliers for contracts beginning in 2014 will provide significant new data to further assess the impact of the program.

Guidance and Oversight of Contracts.CMS has improved its overall guidance and oversight of contracts, an area where we found pervasive internal control weaknesses in 2009 that put billions of taxpayers’ dollars at risk. Improvements include adding internal controls and testing the agency’s review of contract payments and enhancing its policies and procedures for tracking, investigating, and resolving contract audit and evaluation findings. However, we identified several CMS decisions that led to challenges. For example, we found that CMS underestimated the volume of appeals the new contractors would inherit, which led to claims-payment delays. In some cases, CMS was able to make midcourse adjustments by incorporating lessons learned, but unintended consequences such as this highlight the need for continued attention to this effort.

(5) Oversight of Patient Care and Safety

CMS has made progress in improving the health and safety of millions of Medicare beneficiaries, which represent a significant portion of the U.S. population.  In 2012, CMS reported that by implementing several recommendations from the Institute of Medicine, GAO, and members of Congress, the agency helped to ensure that Medicare beneficiaries experienced less pain while coping with chronic conditions, had fewer bed sores or pressure ulcers, and maintained their independence because restraints were used less frequently. However, improvements can still be made to CMS’s oversight of patient care and safety.

Clinical Data Registries.We identified key requirements that HHS could adopt in order to ensure that qualified clinical data registries (CDR)—which have the potential to improve the quality and efficiency of care for all Medicare beneficiaries by collecting extensive, standardized data and providing feedback to physicians on their performance based on their peers—actually improve the quality and efficiency of care that beneficiaries receive. For example, HHS can require CDRs to demonstrate improvements in key measures of quality and efficiency for its target population. HHS can also enhance the effect of qualified CDRs on quality and efficiency by taking steps to reduce barriers to their development by promoting the use of health information technology.

Vulnerable Populations.For some of the most vulnerable Medicare beneficiaries—those in nursing homes and long term care hospitals (LTCH)—significant weaknesses remain in the oversight of the quality of care. Because of the substantial vulnerabilities of this population, it is important that oversight of the quality of care delivered by LTCHs is monitored and, if shortcomings are identified, action is promptly taken. For example, CMS has found that states have had difficulties meeting some of its standards for their nursing home complaint processes. In addition, we found several limitations in the oversight of LTCHs that are cause for concern, including weaknesses that affect the availability of data to oversee the quality of care and the ability of CMS to hold both state survey agencies and accrediting organizations accountable for their survey activities.

Medicare Improper PaymentsMedicare Improper Payments

CMS has met our leadership commitment criterion and partially met each of the other criteria for removing Medicare improper payments from the high-risk list, but more needs to be done to fully meet our criteria.  For example, CMS has demonstrated leadership commitment by taking actions such as strengthening provider and supplier enrollment provisions, and improving its prepayment and postpayment claims review process in the fee-for-service (FFS) program.[2] However, all parts of the Medicare program are on the Office of Management and Budget’s list of high-error programs, suggesting additional actions are needed. By implementing our open recommendations, CMS may be able to reduce improper payments and progress towards fulfilling the four outstanding criteria to remove Medicare improper payments from our high-risk list. For example, CMS could establish core elements for provider and supplier compliance programs; ensure that the database used to track Recovery Auditors’ (RA) activities includes complete and accurate data; and address the identity theft risks associated with having Social Security numbers on Medicare beneficiaries’ health insurance cards.

Leadership Commitment: CMS has met our criterion for demonstrating strong commitment to—and top leadership support for—reducing the incidence of improper payments in the Medicare program.  HHS has continued to designate “strengthened program integrity through improper payment reduction and fighting fraud” as an HHS strategic priority and, through its dedicated Center for Program Integrity, CMS has taken multiple actions to improve in this area. For example, CMS

  • centralized the development and implementation of automated edits—prepayment controls used to deny Medicare claims that should not be paid—based on a type of national policy called national coverage determinations, which will help ensure greater consistency in paying only those claims that are consistent with national policies;
  • awarded a contract to a Federal Bureau of Investigation-approved contractor that will enable the agency to conduct fingerprint-based criminal history checks of high-risk providers and suppliers.

Capacity: CMS’s ability to maintain ongoing improper payment prevention and recovery activities, and to implement recommended initiatives to further address weaknesses could be challenged in an uncertain budgetary environment. As a result, CMS partially meets our criterion of having the capacity to demonstrate progress toward reducing improper payments in the Medicare program. For example, CMS officials told us the agency was able to limit the effects of the fiscal year 2013 sequestration, which slightly reduced funding for the Medicare integrity program, but could have difficulty responding to similar changes should they occur in future years.  The Medicare integrity program—along with other activities to detect, prevent, and combat factors that contribute to improper payments—is funded through the Health Care Fraud and Abuse Control (HCFAC) program.In fiscal year 2015, Congress provided more than double the prior year’s discretionary Medicare integrity funding.While the funding increase will greatly help CMS implement planned initiatives to protect Medicare dollars, sustained funding will be needed to maintain advances. CMS experienced less favorable funding in prior years, including a 6 percent decline in discretionary Medicare integrity funding from fiscal year 2011 to 2014. This drop indicates an uncertain budgetary environment. This is all the more reason for CMS to take advantage of new funding and maximize the impact of effective practices already underway by implementing our recommendations. These practices include requiring contractors to share information with each other about the underlying policies and savings related to their most effective edits.

Action Plan: CMS has partially met our action plan criterion.  Specifically, CMS has action plans that define root causes and steps to reduce improper payments in each part of Medicare.  However, it has yet to address some problems including those where we have recommended changes. HHS reports progress on corrective actions related to improper payments in its annual Agency Financial Report.  For example, in its 2014 report, HHS reported on corrective actions CMS took related to administrative, documentation, authentication, and medical necessity errors in the Medicare FFS program.  However, CMS has yet to implement all of the recommendations we made which could reduce improper payments, nor taken related actions authorized by the Patient Protection and Affordable Care Act (PPACA).[3]   For example CMS has not

  • required surety bonds—a three-party agreement in which a company, known as a surety, agrees to compensate the bondholder if the bond purchaser fails to keep a specified promise—for certain providers and suppliers, as authorized under PPACA;
  • required contractors to share information with each other about the underlying policies and savings related to their most effective edits; or
  • taken actions to address the identity theft risks associated with Medicare beneficiaries’ health insurance cards, which display beneficiaries’ Social Security numbers.

Monitoring: CMS has partially met our criterion for monitoring and independently validating the effectiveness of corrective measures.  For example, CMS continues to improve certain prepayment and postpayment controls. However, there are weaknesses in CMS’s ability to monitor and measure the effectiveness of certain activities. For example, CMS has not developed performance measures for its contractors that investigate fraud—known as Zone Program Integrity Contractors—that we recommended would better ensure that CMS's fraud prevention activities are effective. Further, while CMS has taken steps to prevent its contractors from conducting inappropriate duplicative claims reviews, more needs to be done to monitor those activities.  For example, CMS created a database to track RA activities, designed in part to prevent RAs, who conducted most of the postpayment reviews, from duplicating other contractors’ reviews.  However, the database was not designed to provide information on all possible duplication, and its data are unreliable because other postpayment contractors did not consistently enter information about their reviews.  As a result, Medicare postpayment claims review efforts may not be as efficient and effective as they could be. Finally, we have identified challenges with HHS’s ability to assess the effectiveness of the HCFAC program in combating factors that contribute to improper payments, such as fraud.

Demonstrated Progress: CMS has demonstrated some progress, but the annually reported improper payment rates for Medicare remain unacceptably high. Medicare FFS, Part C, and Part D were included on the Office of Management and Budget’s list of 13 high-error programs in fiscal years 2013 and 2014. In addition, while CMS’s rates of improper payments for Part C (9 percent) and Part D (3.3 percent) in fiscal year 2014 met the agency’s targets for that year (9 percent and 3.6 percent respectively), the estimated improper payment amounts remained high at more than $12 billion for Part C and nearly $2 billion for Part D. In addition, the rate of improper payments in Medicare FFS (12.7 percent) exceeded CMS’s target rate of 9.9 percent for that year. Thus, further sustained progress is needed to reduce improper payments in Medicare. In addition, better control over payments and program integrity management—including contractor oversight—is needed before Medicare improper payments can fully meet our criterion for demonstrated progress and be removed from our high-risk list. As measured by the annually reported improper payment rates for Medicare FFS, Part C, and Part D, further sustained progress is needed.



[1] Pub. L. No. 111-148, 124 Stat. 119 (Mar. 23, 2010), as amended by the Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029 (Mar. 30, 2010).  In this report, references to “PPACA” include amendments made by the Health Care and Education Reconciliation Act.

[2] Medicare consists of four parts. Parts A and B are known as Medicare FFS. Part A covers hospital and other inpatient stays and Part B covers hospital outpatient, physician, and other services. Part C, also known as Medicare Advantage, is the private plan alternative to Medicare FFS under which beneficiaries receive benefits through private health plans. Part D is the outpatient prescription drug benefit.

[3] In addition to provisions to expand health insurance coverage, PPACA provided CMS with certain authorities to combat fraud, waste, and abuse in Medicare.See, for example, Pub. L. No. 111-148, § 6402, 124 Stat. 119, 753 (2010).

Congress, HHS, and CMS have taken steps to improve the fiscal integrity of Medicare, and CMS has implemented some of our recommendations, such as improving monitoring of Medicare audit contractors and increasing the efficiency and effectiveness of inspections of Medicare participating facilities. However, continued federal improvements to the oversight of Medicare are warranted.

We have a number of Matters for Congressional Consideration and recommendations to HHS and CMS for addressing Medicare payments, beneficiary use of services and quality of care, and physician incentive payments and profiling.

Selected Key Matters for Congressional Consideration

  • Self-referring Physicians.To increase beneficiaries' awareness of providers' financial interest in a particular treatment, Congress should consider directing the Secretary of Health and Human Services to require providers who self-refer intensity-modulated radiation therapy services to disclose to their patients that they have a financial interest in the service.  
  •  Beneficiary Use of Preventive Services.To further align Medicare beneficiary use of preventive services with U.S. Preventive Task Force recommendations, Congress may wish to consider requiring beneficiaries who receive services that the Task Force recommends against to share the cost, notwithstanding that cost sharing may not be required for beneficiaries with different characteristics or under different circumstances.

Selected Key Recommendations to the Department of Health and Human Services and Centers for Medicare & Medicaid Services

  •  Feedback on Physician Performance.As CMS implements and refines its physician feedback and Value Modifier programs, to help ensure physicians can best use the feedback to improve their performance, the Administrator of CMS should consider disseminating performance reports more frequently than the current annual distribution—for example, semiannually.
  • ESRD Low Volume Payment Adjustments.To ensure that future LVPA payments are made only to eligible facilities and to rectify past overpayments, the Administrator of CMS should improve the timeliness and efficacy of CMS's monitoring regarding the extent to which Medicare contractors are determining LVPA eligibility correctly and promptly redetermining eligibility when all necessary data become available.
  • Medicare Advantage.To help ensure appropriate payments to MA plans, the Administrator of CMS should take steps to improve the accuracy of the adjustment made for differences in diagnostic coding practices between MA and Medicare FFS. Such steps could include, for example, accounting for additional beneficiary characteristics, including the most current data available, identifying and accounting for all years of coding differences that could affect the payment year for which an adjustment is made, and incorporating the trend of the impact of coding differences on risk scores.
  • Medicare Advantage Encounter Data.The Administrator of CMS should establish specific plans for using MA encounter data and thoroughly assess data completeness and accuracy before using the data to risk adjust payments or for other purposes. While in general agreement, HHS did not specify a date by which CMS will develop plans for all authorized uses of encounter data and did not commit to completing data validation before using the data for risk adjustment in 2015.
  • Quality Care for Vulnerable Populations.To increase the accountability of D-SNPs and ensure that CMS has the information it needs to determine whether these plans are providing the services needed by dual-eligible beneficiaries, especially those who are most vulnerable, the Administrator of CMS should conduct an evaluation of the extent to which D-SNPs have provided sufficient and appropriate care to the population they serve, and report the results in a timely manner.
  • Oversight of Long Term Care Hospitals.In order to improve CMS's oversight of survey activities at LTCHs, the Administrator of CMS should conduct traditional validation surveys at a sample of LTCHs each fiscal year and include an LTCH disparity rate—the extent to which an accredited organization has failed to cite one or more deficiencies during its routine survey that were later identified by a state survey agency during a traditional validation survey—in its annual financial report to Congress.

In addition, CMS has demonstrated effort to reduce improper payments in the Medicare program through the implementation of PPACA-authorized provider and supplier enrollment procedures and certain GAO recommendations. However, improper payment rates for Medicare FFS, Part C, and Part D remain unacceptably high. To achieve and demonstrate reductions to the amount of Medicare improper payments, CMS should fully exercise its PPACA authority related to strengthening its provider and supplier enrollment provisions and our open recommendations related to prepayment and postpayment claims review activities. It also should address program weaknesses that we’ve identified. In this uncertain budget environment, these actions should also help CMS maximize the effectiveness of important steps already taken and demonstrate progress towards its stated goal of reducing improper payments in the growing Medicare program. 

The following summarizes open recommendations and procedures authorized by PPACA that CMS should implement to make progress toward fulfilling the four outstanding criteria to remove Medicare improper payments from our high-risk list. CMS should

  • require a surety bond for certain types of at-risk providers and suppliers;
  • publish a proposed rule for increased disclosures of prior actions taken against providers and suppliers enrolling or revalidating enrollment in Medicare, such as whether the provider or supplier has been subject to a payment suspension from a federal health care program;
  • establish core elements of compliance programs for providers and suppliers;
  • improve automated edits that identify services billed in medically unlikely amounts;
  • develop performance measures for the Zone Program Integrity Contractors who explicitly link their work to the agency's Medicare FFS program integrity performance measures and improper payment reduction goals;
  • reduce differences between contractor postpayment review requirements, when possible;
  • monitor the database used to track RA activities to ensure that all postpayment review contractors are submitting required data and that the data the database contains are accurate and complete;
  • require Medicare administrative contractors to share information about the underlying policies and savings related to their most effective edits; and
  • efficiently and cost-effectively identify, design, develop, and implement an information technology solution that addresses the removal of Social Security numbers from Medicare beneficiaries’ health insurance cards.
Looking for our recommendations? Click on any report to find each associated recommendation and its current implementation status.
Medicare: Information on Highest-Expenditure Part B Drugs
http://www.gao.gov/products/GAO-13-739T

GAO-13-739T: Published: Jun 28, 2013. Publicly Released: Jun 28, 2013.
Medicare: High-Expenditure Part B Drugs
http://www.gao.gov/products/GAO-13-46R

GAO-13-46R: Published: Oct 12, 2012. Publicly Released: Nov 13, 2012.