Medicare Financial Management:

Further Improvements Needed to Establish Adequate Financial Control and Accountability

T-AIMD-00-118: Published: Mar 15, 2000. Publicly Released: Mar 15, 2000.

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Pursuant to a congressional request, GAO discussed its review of the Health Care Financing Administration's (HCFA) financial management activities for Medicare, focusing on challenges HCFA faces in establishing an adequate foundation for control and accountability over the Medicare program's financial operations.

GAO noted that: (1) financial statement audits have repeatedly cited claims contractors for internal control and financial reporting weaknesses, including failure to safeguard checks received from providers for overpayments and incorrectly recording billions of dollars owed to the Medicare program for such overpayments; (2) however, HCFA's procedures for following up on audit findings and evaluating corrective actions were insufficient; (3) HCFA's monitoring of contractor financial activities was also insufficient; (4) until recently, HCFA's oversight focused mainly on contractor compliance with administrative budgets, which total about $1.6 billion annually, instead of on the significant financial activities related to the approximately $170 billion expended annually to pay Medicare health benefit claims; (5) further, HCFA did not routinely analyze contractor financial data to detect irregularities and assess risk as part of day-to-day monitoring activities, nor had it issued complete and up-to-date instructions to contractors on key financial matters; (6) audit reports have also cited HCFA for inefficiencies in its internal financial reporting practices, including a lack of documented policies and procedures; (7) overall, these shortcomings in HCFA's financial operations mean that it could not adequately ensure the reliability of data that the agency and Congress used to track the cost of the Medicare program and to help make informed decisions about future funding; (8) HCFA's management has recognized the seriousness of these problems and has shown a commitment to improving financial management; (9) to address these issues, HCFA has started several initiatives designed to establish better control and accountability, such as hiring outside consultants to evaluate contractor internal controls; (10) HCFA has not yet developed a comprehensive strategy to ensure successful implementation of the initiatives, direct financial management activities, and sustain improvements in the long term; (11) in the absence of a comprehensive strategy, HCFA cannot effectively direct and monitor its many initiatives, potentially putting billions of dollars at risk for fraud and abuse and increasing the likelihood that financial management problems will continue; (12) HCFA has not yet completed ongoing assessments of financial management human capital needs; and (13) without sufficient staff who possess the necessary skills to perform the oversight, analytical, and other tasks that are needed to manage the complex Medicare program, the prospects for improving HCFA's financial management remain dim.

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