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Performance and Accountability Series:

January 2003:

Major Management Challenges and Program Risks:

Department of Health and Human Services:


A Glance at the Agency Covered in This Report

The Department of Health and Human Services is responsible for 


the health of all Americans and providing essential human services, 


for those who are least able to help themselves. The department 

includes the 

nation’s two largest individual health insurers and is the largest 


agency in the federal government. Its multiple activities include

* Medicare (health insurance for elderly and some disabled Americans);

* Medicaid (health insurance for low-income people);

* infectious disease prevention, including immunization services;

* food and drug safety;

* financial assistance and services for low-income families, including 

Head Start;

* comprehensive health services for Native Americans;

* substance abuse treatment and prevention; and

* medical and social science research.

The Department of Health and Human Service’s Budgetary and Staff 


[See PDF for Image]

[A] Budgetary resources include new budget authority (BA) and 

unobligated balances 

of previous BA.

[B] Budget and staff resources are actuals for FY 1998-2001. FY 2002 

are estimates 

from the FY 2003 budget, which

are the latest publicly available figures on a consistent basis as of 

January 2003. 

Actuals for FY 2002 will be contained in the President’s FY 2004 

budget to be released 

in February 2003.

[End of Figure]

This Series:

This report is part of a special GAO series, first issued in 1999 

and updated in

2001, entitled the Performance and Accountability Series: Major 


Challenges and Program Risks. The 2003 Performance and 

Accountability Series

contains separate reports covering each cabinet department, most 


independent agencies, and the U.S. Postal Service. The series also 

includes a

governmentwide perspective on transforming the way the government 


business in order to meet 21st century challenges and address long-

term fiscal

needs. The companion 2003 High-Risk Series: An Update identifies 

areas at high risk

due to either their greater vulnerabilities to waste, fraud, abuse, 


mismanagement or major challenges associated with their economy, 

efficiency, or

effectiveness. A list of all of the reports in this series is 

included at the end of

this report.

GAO Highlights:

Highlights of GAO-03-101, a report to Congress included as part of

GAO’s Performance and 

Accountability Series.


Department of Health and Human Services

Why GAO Did This Report:

In its 2001 performance and accountability report on the Department 

of Health and Human 

Services (HHS), GAO identified key management challenges faced by 

HHS and its constituent 

agencies associated with the Medicare program, oversight of nursing 

homes, medical product 

safety and efficacy, and ensuring the well-being of children and 

families. The information 

GAO presents in this report is intended to sustain congressional 

attention and a 

departmental focus on continuing to make progress in addressing 

these challenges—and others 

that have arisen since 2001. This report is part of a special 

series of reports on 

governmentwide and agency-specific issues.

What GAO Found:

Medicare program.  Medicare remains on GAO’s 2003 list of high-

risk programs due to the 

program’s size and complexity. The Centers for Medicare & 

Medicaid Services (CMS) continues 

to have difficulty refining Medicare’s payment methods in ways 

that reward fiscal discipline 

while ensuring beneficiary access to care. Since 2001, the agency 

has made progress in 

estimating improper payments, collecting overpayments and 

conducting other financial 

activities, and identifying information system needs, but further 

improvements are needed 

in payment safeguard, financial, and information management 


Medicaid program.  GAO has added Medicaid to its 2003 list of 

high-risk programs, owing to the 

program’s size, growth, diversity, and fiscal management 

weaknesses.  Limited oversight has 

afforded states and health care providers the opportunity to 

increase federal funding 


Medicare and Medicaid care oversight. CMS has taken steps to 

improve nursing home oversight, 

but efforts to ensure quality care at nursing homes, home health 

agencies, kidney dialysis 

facilities, and other providers continue to be jeopardized by 

problems in the performance of 

state inspections, complaint investigations, and enforcement 

of federal standards.

Public health emergency preparedness. Serious problems in 

coordination among federal, state, 

and local public health agencies and in hospital and laboratory 

capacity could limit emergency 

responses. HHS is also challenged to balance basic public 

health needs with critical homeland 

security priorities. 

Medical product safety and efficacy. While the Food and Drug 

Administration has stepped up 

the rigor of its biologics inspections, it faces several challenges in 

ensuring the availability, 

safety, and efficacy of marketed products, including vaccines, and 

struggles to retain its 

expert staff.

Economic independence and well-being of children and families. 

Oversight by HHS of the states’ 

implementation of social service program reforms has been encumbered 

by limitations in states’ 

information systems, program effectiveness measurement, and efforts 

to foster and disseminate 

research findings.

Financial management systems, processes, and controls.  HHS has 

improved its financial management, 

but its systems and processes do not routinely generate financial 

information that is timely or 

reliable.  Further, HHS cannot ensure that it can protect the 

confidentiality of sensitive information 

from unauthorized access or its systems from service disruption.

What Remains to Be Done:

HHS’s management challenges remain as profound as they are diverse: 

the effective management of 

the Medicare and Medicaid programs has significant fiscal implications 

for the longer term, while 

strengthening the nation’s public health infrastructure is critically 

important in the shorter 

term. HHS must further strive to obtain current and reliable data for 

effective program monitoring, 

conduct well-targeted oversight activities to safeguard billions of 

program dollars, and hire and 

retain a sufficiently skilled workforce.

To view the full report, click on the link above.

For more information, contact Leslie G. Aronovitz at (312) 220-7600 



Transmittal Letter:

Major Performance and Accountability Challenges:

GAO Contacts:

Related GAO Products:

Performance and Accountability and High-Risk Series:

This is a work of the U.S. Government and is not subject to copyright 

protection in the

United States. It may be reproduced and distributed in its entirety 

without further

permission from GAO. It may contain copyrighted graphics, images or 

other materials.

Permission from the copyright holder may be necessary should you 

wish to reproduce

copyrighted materials separately from GAO’s product.

Transmittal Letter January 2003:

The President of the Senate

The Speaker of the House of Representatives:

This report addresses the major management challenges and program risks 

facing the U.S. Department of Health and Human Services (HHS) as it 

works to carry out its multiple and highly diverse missions. The report 

discusses the actions that HHS has taken and that are under way to 

address the challenges GAO identified in its Performance and 

Accountability Series 2 years ago, and major events that have occurred 

that significantly influence the environment in which the department 

carries out its mission. Also, GAO summarizes the challenges that 

remain and further actions that GAO believes are needed.

This analysis should help the new Congress and the administration carry 

out their responsibility and improve government for the benefit of the 

American people. For additional information about this report, please 

contact Leslie G. Aronovitz, Director, Health Care, at (312) 220-7600 

or at

David M. Walker

Comptroller General of the United States:

Signed by David M. Walker:

[End of section]

Major Performance and Accountability Challenges:

The Department of Health and Human Services (HHS), with a $460 billion 

budget and a workforce of more than 65,000 people, presents one of the 

more massive and complex management challenges in the federal 

government. The more than 300 federal health and social programs it 

oversees tangibly affect the lives and well-being of virtually all 

Americans and encompass some of the most costly issues facing the 

nation. Among its many tasks, HHS provides health insurance for 

millions of individuals, is responsible for ensuring quality standards 

are met across a number of health care settings, regulates drugs and 

medical devices, and administers a multipronged effort to help low-

income children and families gain economic independence. HHS’s fiscal 

year 2003 budget presentation document is entitled “Ensuring a Safe and 

Healthy America,” and its role in this regard has been particularly 

significant in light of the events of September 11, 2001, and its 


With such varied and significant missions, the performance of HHS and 

its component agencies involves many dimensions. In our 2001 Series, we 

reported on the following key missions: the administration of Medicare, 

oversight of nursing homes, safety and efficacy of medical products, 

and the economic independence and well-being of children and families. 

These missions are principally addressed by HHS’s Centers for Medicare 

& Medicaid Services (CMS), the Food and Drug Administration (FDA), and 

the Administration for Children and Families (ACF). These agencies 

faced challenges in obtaining current and reliable data needed to 

monitor programs effectively, conducting well-targeted oversight 

activities needed to safeguard billions of program dollars, and hiring 

or retaining a sufficiently skilled workforce. For Medicare, which 

remained on our list of high-risk programs, CMS’s leadership and 

administrative capacity were stretched by its many responsibilities for 

other programs--such as oversight of Medicaid, the State Children’s 

Health Insurance Program, and survey and certification activities for 

nursing homes, home health agencies, and clinical laboratories. At the 

same time, implementing several new Medicare payment methods introduced 

additional challenges to safeguarding program payments. Our work on 

nursing home quality found that state surveyors continued to miss or 

understate the seriousness of care problems that harmed residents; this 

occurred during a period of transition in which federal and state 

initiatives for improving facility inspections were beginning to be 

implemented. Our work on oversight of medical devices and products 

found shortcomings in the FDA’s resource targeting strategy for 

inspecting device manufacturers and in monitoring adverse events that 

may occur after products are marketed. Our work on oversight of social 

service program reforms implemented by the states discussed the 

substantial challenges ACF and CMS faced in getting the information 

needed to hold multiple state and local government agencies accountable 

for the use of federal funds to ensure the well-being of children and 


Our 2003 Series considers these same missions while highlighting 

additional ones, as shown below.

[See PDF for image] - graphic text:

[End of figure] - graphic text:

Our discussions on the administration and safeguarding of Medicare, the 

safety and efficacy of medical products, and the well-being of children 

and families include issues of congressional interest in the past 2 

years and abiding challenges involving information, financial, and 

human capital management. New issues raised in this Series include 

CMS’s oversight of the Medicaid program, oversight of care delivered to 

Medicare and Medicaid beneficiaries, the preparedness of HHS agencies 

for public health emergencies, and needed improvements in HHS agencies’ 

financial systems, processes, and controls. In brief, we make the 

following observations:

* Design and administration of Medicare. In 2001, we reported that 

major gaps in information about patients’ health status and use of 

services make it difficult to set prospective payment rates at the 

appropriate level. CMS continues to lack adequate information to set 

rates and refine payment methods in ways that reward fiscal discipline 

while ensuring beneficiary access to care. The agency similarly lacks 

the information and flexible approaches needed to price medical 

services and products in line with market rates. We have made several 

recommendations to improve payment methods that the agency has not 

acted on.

* Medicare payment integrity safeguards. CMS has made improvements in 

assessing the level of improper payments, collecting overpayments from 

providers, and building the foundation for modernizing its information 

technology. Nevertheless, much work remains to be done, given the 

magnitude of its challenge to safeguard program payments. This includes 

more effectively overseeing Medicare’s claims administration 

contractors, managing the agency’s information technology initiatives, 

and strengthening financial management processes across multiple 

contractors and agency units. In light of these challenges and the 

program’s size and fiscal significance, Medicare remains on our list of 

high-risk programs.

* Fiscal and management oversight of Medicaid. Our growing concern 

about the difficulties CMS faces in managing a program of enormous 

size, growth, and diversity has led us to add Medicaid to our 2003 list 

of high-risk programs. Key problems we have identified in recent years 

include schemes by some states to inappropriately leverage federal 

funds, state waiver programs that inappropriately increase the federal 

government’s financial liability, and insufficient federal and state 

oversight to ensure that payments to health care providers are accurate 

and appropriate. Consistent with several of our recommendations, CMS 

and the Congress have taken several significant actions to curb states’ 

inappropriate leveraging of federal funds, but waiver program approvals 

remain questionable and states’ claims scrutiny activities are uneven.

* Oversight of care delivered to Medicare and Medicaid beneficiaries. 

In our 2001 Series, we recapped the problems identified and 

recommendations we made in earlier work on nursing home surveys and 

other oversight activities by CMS and the states. CMS has increased its 

attention to improving oversight of nursing homes, but it may have done 

so at the expense of adequate monitoring of home health agencies, 

kidney dialysis facilities, and other providers serving Medicare and 

Medicaid beneficiaries. Vulnerable beneficiaries are not assured of 

adequate protections, owing to problems with the conduct of state 

surveys, the timeliness of complaint investigations, the strength and 

use of federal sanctions for noncompliance with Medicare standards, 

federal monitoring of state survey activities, and the adequacy of 

numbers of skilled surveyors.

* Public health emergency preparedness. Following the events of 

September 11, 2001, we have added public health emergency preparedness 

to HHS’s key challenges. The department must find ways to coordinate 

programs that dually address critical homeland security priorities and 

basic public health needs and ensure that the nation’s fragile public 

health infrastructure is strengthened at the federal, state, and local 


* Oversight of medical product safety and efficacy. While FDA has 

stepped up the speed of its drug approvals, its guidance to biologics 

manufacturers on compliance with good practices has not been 

sufficiently clear or made readily available. This problem has 

significance for the manufacture of vaccines, which are currently in 

short supply. We have recently made recommendations to FDA that aim at 

producing safe vaccine products while mitigating the effects of supply 

disruptions. With respect to new drugs, the speed of FDA’s review and 

approval has improved in recent years, largely because the agency has 

hired more scientists to review applications, using fees collected from 

the drugs’ sponsors. However, FDA faces several challenges in its 

effort to monitor the availability, safety, and efficacy of marketed 

products, including the difficulty of retaining its expert staff.

* Economic independence and well-being of children and families. HHS 

continues to face the challenges associated with oversight of the 

states’ implementation of social service program reforms. These include 

facilitating states’ efforts to implement information systems, 

systematically measuring the extent to which programs are serving their 

intended beneficiaries, and fostering efforts to conduct research and 

disseminate findings on program effectiveness.

* Financial management systems, processes, and controls. While HHS’s 

financial statements are achieving unqualified, or “clean opinions”--

indicating that the statements fairly present their information--its 

financial systems and processes do not routinely generate information 

that is timely or reliable and do not ensure that the confidentiality 

of sensitive information is adequately protected from unauthorized 

access or service disruption.

In all, HHS’s management challenges are as profound as they are 

diverse. The long-term significance of effectively managing the 

Medicare and Medicaid programs cannot be overstated, as together they 

consume an enormous and growing share of the federal budget. Similarly 

compelling is the shorter-term importance of strengthening the nation’s 

public health infrastructure in light of recent historical events and 

looming threats to the nation’s domestic security.

Provide Current and Future Generations with a Well-designed and Well-

administered Medicare Program:

Medicare spending growth remains one of the most pressing and complex 

issues facing the Congress and the nation. The program provides health 

insurance for people aged 65 and older, some disabled people under age 

65, and people with end-stage kidney disease. In fiscal year 2001, 

Medicare program expenditures were about $241 billion, accounting for 

about 1 of every 8 federal dollars spent that year. Based on the 

Medicare Trustees’ 2002 annual report, spending on Medicare is expected 

to double as a share of the economy by 2035, which could crowd out 

other spending and other valuable economic activity. The program’s 

projected growth has focused congressional attention on the need to 

reform Medicare. At the same time, there is considerable public 

pressure to expand program benefits. Although a broad consensus exists 

to make program changes, there is much less agreement about what the 

changes should be and whether they should be comprehensive or 

incremental. Thus, until some agreement can be reached and reforms 

implemented--which could take a number of years--it is imperative to 

concentrate on making the existing program run as efficiently as 


An abiding challenge for the HHS agency that administers Medicare--CMS-

-is to design payment methods that reward fiscal discipline while 

maintaining access to quality care.[Footnote 1] CMS sets payment 

amounts for thousands of services and items, but the agency’s 

responsibility to run the program in a fiscally prudent manner can 

often leave an array of interested parties--hospitals, physicians, and 

other providers of health care services--discontented with payment 

policies. Payment rates that are too low can impair beneficiary access 

to services and products, while rates that are too high add unnecessary 

financial burdens to the program. Paying appropriately requires 

accurate cost data and current information on access to needed 


Paying Appropriately for Medicare Services Requires Frequent and 

Carefully Targeted Refinements:

Over the past two decades, at the Congress’s direction, Medicare has 

implemented a series of payment reforms designed to promote the 

efficient delivery of services and control program spending. Some 

reforms required establishing set fees for individual services; others 

required paying a fixed amount for a bundle of services. The payment 

methods introduced during this time were designed to include--in 

addition to incentives for efficiencies--a means to calibrate payments 

to ensure beneficiary access and fairness to providers.

A major challenge in administering payment methods--either through fee 

schedules or bundled payments--involves adjusting the predetermined 

amounts to better account for differences in patients’ needs and 

providers’ local markets to ensure that the program is paying 

appropriately and adequately. Providers adapting to Medicare’s payment 

methods have often raised concerns about payment adequacy. As Medicare 

has sought to set more efficient prices, payment adjustments for cost 

differences of providers and services become more important, and timely 

and accurate information about beneficiaries’ use of services becomes 


CMS has had mixed success in making refinements to payment methods. The 

agency’s difficulties stem, in part, from insufficient data on 

providers’ costs and beneficiaries’ use of services. Such information 

provides the systematic evidence needed to determine whether payments 

are adequate and care is accessible. Medicare’s experience with 

payments for home health agencies, skilled nursing facilities, and 

physicians’ fees illustrate the importance of current, robust data on 

which to base or support payment policies, as the following examples 


* Payments for skilled nursing facility services. After the 

implementation of the prospective payment system as required by the 

Balanced Budget Act of 1997 (BBA), skilled nursing facilities contended 

that Medicare’s new payments were not adequate and brought intense 

public pressure to undo BBA payment reforms. Our September 2000 study 

found that, in the aggregate, payments to facilities were adequate but 

that there was the potential for facilities serving a disproportionate 

share of high-cost patients to be disadvantaged.[Footnote 2] The 

payment methodology that CMS developed may not adequately target high-

cost patients and distribute payments accordingly. However, as CMS 

lacked the data needed to calibrate payments sufficiently in line with 

the expected needs of patients served, the Congress twice provided 

several increases in payments, requiring that some of the increases be 

temporary until CMS could make adequate refinements to the payment 

methodology and others expired on October 1, 2002. CMS does not expect 

to obtain the data needed to propose refinements before 2004.[Footnote 


* Payments for home health services. In previous work, we noted that 

the design of the prospective payment method for home health services 

contained flaws that would likely generate excessive payments for some 

home health agencies. In addition, it lacked a means to provide 

financial relief to other home health agencies that served a 

disproportionate share of high-cost patients. CMS did not adopt our 

2000 recommendation that would minimize excessive payments to some home 

health agencies and extreme losses for others.[Footnote 4] In their 

comments on our report, officials expressed concern that the industry 

needed time to adapt to the new payment method without further 

complications. We believe that adequate time has elapsed and that our 

recommendation is warranted, given the number of home health agencies 

and beneficiaries affected.

* Payments for physician services. Following a 5.4 percent reduction in 

Medicare’s payments to physicians in 2002--a reduction imposed by a 

statutorily mandated formula--representatives of the physician 

community voiced concerns about continued participation in the Medicare 

program. An official of the American Medical Association testified that 

the 2002 reduction could lead to serious beneficiary access problems, 

citing examples of physicians and nurse practitioners in various states 

who said they would no longer be able to accept Medicare patients. In 

our view, however, whether beneficiaries are experiencing problems 

getting access to physician care across localities cannot be determined 

through anecdotes. Rather, CMS needs the capacity to generate adequate, 

timely and relevant data regarding access to ensure that payment 

policies that impose fiscal discipline are not compromising 

access.[Footnote 5]

CMS Has Difficulty Calibrating Payments for Medical Products in Line 

with Market Prices:

Setting payments appropriately for medical products has also been 

challenging for CMS, because Medicare’s payment approaches lack the 

flexibility to keep pace with market changes.[Footnote 6] Medicare’s 

method of paying for medical equipment and supplies is through fee 

schedules that remain tied to suppliers’ historical charges to the 

program rather than market prices. Similarly, Medicare’s method of 

determining outpatient drug payments is based on list prices, not 

prices that purchasers actually pay for the drugs. Under these 

approaches, Medicare often pays higher prices than other payers for 

medical products.

Medicare Often Pays Higher Prices for Medical Products Than Other 


The Congress introduced fee schedules for medical equipment and 

supplies in 1987. Statewide fees were determined on the basis of 

average supplier charges from previous years and have been updated for 

inflation in some years, but not in others. However, mechanisms to 

adjust fees to reflect marketplace changes have been lacking, and 

disparities between some fee schedule amounts and market prices have 

developed over time. For example, until 1998, Medicare paid much more 

for home oxygen equipment and supplies provided to patients with 

pulmonary insufficiency than did the Department of Veterans Affairs 

(VA), even after accounting for differences between Medicare and the VA 

program. We estimated that Medicare could have saved over $500 million 

in fiscal year 1996 if it had paid rates for home oxygen comparable to 

those paid by VA.[Footnote 7] The BBA reduced Medicare’s home oxygen 

fees by 25 percent effective in 1998 and by an additional 5 percent in 


Medicare’s payments for the limited number of outpatient drugs that it 

covers have been similarly excessive, although the methodology used to 

determine payment amounts is somewhat different. Medicare’s 

supplementary medical insurance, called part B, covers roughly 450 

outpatient drugs--generally those that cannot be self-administered and 

are related to physicians’ services, such as cancer chemotherapy, or 

are provided in conjunction with covered durable medical equipment, 

such as inhalation equipment. The rates paid for most covered 

outpatient drugs are equal to 95 percent of the national average 

wholesale price (AWP). However, the term AWP is not defined in law or 

regulation. Essentially, drug manufacturers determine AWP, and there 

are no requirements or conventions that AWP reflect the price of any 

actual sale. Data have repeatedly demonstrated that the price 

manufacturers give to physicians and suppliers may be significantly 

lower than the AWP on the manufacturers list. As a result, Medicare’s 

payments often significantly exceed market prices--that is, the 

transaction prices actually paid by other purchasers.

Our September 2001 report documented the excess that Medicare paid in 

2001 for outpatient drugs compared to the prices widely available to 

physicians and pharmacy suppliers.[Footnote 8] For example, the 

physician-administered drugs we examined (which included drugs used in 

chemotherapy) had widely available discounts ranging from

13 to 34 percent of AWP. Two physician-administered drugs had discounts 

of 65 and 86 percent. Pharmacy suppliers also purchased drugs at prices 

considerably lower than Medicare payments. For example, two inhalation 

drugs accounting for most of Medicare payments to pharmacy suppliers 

had widely available discounts averaging 78 percent and 85 percent of 

AWP. In this report, we made several recommendations to improve drug 

pricing that CMS has not acted upon.

Medicare’s Ability to Adjust Payments for Medical Products Is Limited:

Despite instances of wide disparities between market prices and 

Medicare’s payment rates for equipment, supplies, and outpatient drugs, 

CMS is not in a position to take prompt action. To lower unreasonably 

high payment rates, the agency must follow a lengthy and complicated 

regulatory process for making payment adjustments. The BBA gave the 

agency authority to use a streamlined process to adjust payment rates 

for most medical equipment items, supplies, and outpatient drugs. 

However, the agency’s attempt to use this authority drew intense 

industry criticism, in part because the agency acted before it 

responded to public comment on how it would implement the authority. 

The Congress then prohibited use of either the original or streamlined 

regulatory process until the agency addressed public comments and 

issued a final rule. In our 2000 report on this subject, we made 

several recommendations regarding improved data collection for rate-

setting purposes.[Footnote 9] On December 13, 2002, CMS issued an 

interim final rule that included provisions related to our 

recommendations. The rule will become effective on February 11, 2003.

To experiment with other ways of setting Medicare’s payments for 

medical equipment, supplies, and outpatient drugs, the BBA provided 

authority for the agency to conduct demonstration projects using 

competitive bidding. Evidence from two competitive bidding projects 

suggests that, for most of the items selected, competition might 

provide a tool that facilitates setting more appropriate payment rates 

that result in program savings. By competing a small number of products 

and limiting the geographic area of competition, CMS took steps to 

manage the process, which included monitoring beneficiary access and 

product quality. To use competitive bidding outside of a demonstration, 

however, CMS would require not only new authority but substantial 

administrative preparations, as competing a larger number of products 

nationally would entail bidding in multiple markets and monitoring 

access and quality once prices had been set.

CMS Efforts Limited in Obtaining Data-Driven Feedback to Assess Payment 


Analyses of data on providers’ transaction costs and beneficiaries’ use 

of Medicare services can provide a window on the effectiveness or 

shortcomings of a given payment policy. When such information is 

lacking or when the data collected are not viewed as sufficiently 

reliable and timely, CMS has a difficult time defending its position to 

adjust payments downward. These adjustments can mean, in the aggregate, 

tens of millions of dollars or more annually to affected parties, so 

external pressures to maintain or raise payments are substantial.

Our work on payments for covered outpatient drugs illustrates the value 

of accurate information for determining appropriate payments. For 

example, the Congress has used the leverage of state Medicaid programs 

and other public purchasers to allow VA to secure verifiable 

information on actual market transactions by private purchasers--

specifically, the prices that drug manufacturers charge their “most-

favored” private customers. To enable VA to determine the most-favored 

customer price, by statute, manufacturers that wish to sell their 

products to the public agencies involved are required to provide 

information on price discounts and rebates offered to domestic 

customers and the terms and conditions involved, such as length of 

contract periods and ordering and delivery practices. The manufacturers 

provide this information and agree to offer VA and other government 

purchasers drugs at these prices, subject to a VA audit of their 

records[Footnote 10] in order to have state Medicaid programs--which, 

jointly with the federal government, pay for health care for about 44 

million low-income Americans each year--cover their drugs. The way 

Medicare pays for drugs likely makes it inappropriate for the program 

to seek the most-favored customer prices as VA does. However, detailed 

information on market prices that is available to VA would assist 

Medicare in setting appropriate, efficient payment amounts for covered 


No matter how payments are set, monitoring to ensure that beneficiaries 

continue to have access to items and services is a critical management 

activity. CMS’s monitoring of access in its small competitive bidding 

demonstration was required by statute and is not routinely done when 

the agency makes fee schedule revisions. As with physician payments, 

the importance of using current and reliable data to make payment 

policy decisions cannot be overstated because of the impact such 

decisions have on beneficiaries, providers, and taxpayers alike.

Safeguard the Integrity of the Medicare Program:

Medicare was among the first programs that we designated in 1990 to be 

at high risk of considerable losses to waste, fraud, abuse, and 

mismanagement because of the program’s vast size and complex 

administrative structure. It remains among the programs that we 

consider high-risk. In fiscal year 2001, Medicare paid about $241 

billion for a wide variety of inpatient and outpatient health care 

services for 40 million elderly and disabled Americans. To help 

administer claims for the traditional program, CMS--the agency within 

HHS responsible for Medicare--contracts with about 38 health insurance 

companies. These claims administration contractors process about 900 

million claims submitted each year by nearly 1 million hospitals, 

physicians, and other health care providers. For the 5 million 

beneficiaries enrolled in Medicare’s managed care option--

Medicare+Choice--CMS has 155 contracts with managed care plans, which 

are paid a fixed monthly fee to provide needed Medicare services to 

enrolled beneficiaries.

CMS has an important responsibility to safeguard fee-for-service and 

Medicare+Choice payments and ensure that beneficiaries receive needed 

program services. It must effectively oversee the claims administration 

contractors that run the day-to-day operations of Medicare’s 

traditional program and the managed care plans that provide services to 

beneficiaries enrolled in Medicare+Choice.

In recent years, our work has cited various weaknesses in CMS oversight 

of contractors and managed care plans. The agency has addressed some of 

them, but considerable oversight and other agency management challenges 

remain. These include the need to reduce improper payments costing the 

government billions of dollars annually; improve communication with 

Medicare providers; monitor managed care plans to ensure that services 

are provided as promised and payments made are appropriate; improve 

financial management processes and controls; modernize the agency’s 

information technology to carry out basic management functions 

effectively; and make adequate preparations in the event that the 

Congress grants CMS new contracting authority.

Better Contractor Performance Information Could Help CMS Oversee 

Efforts to Address Improper Claims Payments:

Since 1996, annual audits by HHS’s Office of the Inspector General 

(OIG) have found that Medicare contractors have improperly paid claims 

worth billions of dollars. These claims successfully passed through 

Medicare’s highly automated claims processing systems because the 

claims appeared valid on their face; the claims were disputed only 

after pertinent patient medical records were reviewed or when requested 

medical record documentation was not provided to the auditors. Such 

improperly paid claims may not be spotted by contractors, because they 

appear to be properly billed, and it is neither practical nor efficient 

for a contractor to request and conduct detailed reviews of medical 

records for more than a tiny fraction of claims, given the volume 

Medicare processes.

The magnitude of estimated improper payments (over $12 billion in 

fiscal year 2001), coupled with the difficulty in detecting them, 

underscores the importance of having the agency and its contractors 

implement effective strategies to address improper payments. The OIG 

reports on Medicare’s aggregate payment errors have spurred CMS to 

improve its efforts to safeguard Medicare payments by developing more 

targeted payment accuracy information. To do so, the agency instituted 

the Comprehensive Error Rate Testing (CERT) program, which is designed 

to measure the accuracy of payment decisions made by each contractor. 

The CERT benchmark will allow CMS to hold the contractors accountable 

for their claims payment performance and help them target remedial 

actions to address certain problematic billing practices of the 

providers in their jurisdictions. CMS currently has comparative 

information on the payment accuracy of the four carriers that pay 

claims for durable medical equipment. CERT information on all of the 

claims processing contractors is expected to be available by June 2003.

CERT is expected to provide a much needed measure of contractor 

performance. The agency’s previous oversight of its contractors had 

several failings, including reliance on unverified contractor-supplied 

performance information, limited checking of contractors’ internal 

management controls, and oversight staff developing inconsistent 

evaluation reviews and conducting uneven follow-up. In recent years, 

the agency has responded to our work by improving contractor oversight 

and adopting several of our recommendations. The agency has developed a 

more consistent and strategic oversight approach that is directed by a 

management board composed of senior executives. The agency has also 

assigned additional staff to monitor the contractors. It has created 

teams responsible for evaluating contractors, to ensure more 

consistency, and has separated that function from day-to-day 

responsibilities for managing contractors. In addition, CMS contracted 

for a more intensive review of selected contractors’ management 

controls and has increased its oversight of financial management 


Balance Needed to Reduce Provider Burden While Guarding Program 


While the agency has focused on specific contractor activities that it 

believes need improvement, other activities, such as communication with 

providers, may also need attention.[Footnote 11] Claims administration 

contractors play a major role in communicating with physicians and 

other providers who have raised concerns that Medicare’s efforts to 

provide information on billing rules fall short of their needs for 

clear explanations. Our February 2002 report on Medicare’s 

communication with physicians found that physicians often do not 

receive complete, accurate, clear, or timely guidance on Medicare 

billing and payment policies.[Footnote 12] At the contractors we 

studied, we found significant shortcomings in the printed materials, 

Web sites, and telephone help lines that contractors use to provide 

information and respond to physicians’ questions. (See table 1.) CMS 

agreed that it needed to improve communications with physicians. While 

it elaborated on initiatives it currently has under way, it has not 

taken action on our specific recommendations.

Table 1: Problems Identified in Medicare’s Communications With 


Contractor bulletins were unclear and difficult to use: [Empty].

Contractors’ communications: Contractor bulletins were unclear and 

difficult to use; CMS relies heavily on contractors’ bulletins to 

officially notify physicians of their responsibilities and requirements 

under Medicare law, regulations, and guidelines. Our review of 

bulletins issued in March through July 2001 by 10 randomly selected 

contractors found many were unclear and poorly organized, requiring 

physicians or their staff to scan each article to determine whether it 

was relevant. Bulletins sometimes provided information too late for 

physicians to comply with new rules in a timely manner--overall, 6 of 

10 contractors did not communicate at least one billing change before 

its scheduled implementation date..

Contractors’ communications: Contractor call centers provided 

incomplete or incorrect answers; We made 61 calls to provider inquiry 

lines at 5 call centers and asked 3 questions from the “frequently 

asked questions” on contractors’ Web sites. We reported that only 15 

percent of the call center answers were complete and accurate after 

validating our findings with CMS. Lack of standardization of the 

technological resources available at the call centers affected staff 

ability to quickly retrieve appropriate information to help answer the 


Contractors’ communications: Contractor Web sites varied in usability 

and content; Most of the Web sites we reviewed lacked features that 

would allow physicians to quickly and directly obtain the information 

they needed--such as search engines. Only 2 of the 10 Web sites that we 

reviewed complied with all of CMS’s content requirements..

Contractors’ communications: CMS’s management and oversight; [Empty].

Contractors’ communications: CMS has set few standards for 

communications with physicians; CMS has not established substantive 

requirements regarding the content and readability of bulletins to 

physicians, the completeness and accuracy of call center responses, or 

the clarity and timeliness of Web-based communications..

Contractors’ communications: CMS monitoring is not sufficient; The 

agency has not undertaken comprehensive reviews of the quality and 

usefulness of carriers’ bulletins or Web sites. In 2001, it began to 

evaluate provider call centers, but the team we observed focused on 

performance standards that addressed procedures--such as how long the 

physician was left on hold--rather than the quality of the answers 

provided. CMS attributed some of its monitoring shortcomings to lack of 


[End of table]

Source: GAO analysis.

Physicians have also raised questions about whether the program’s 

enforcement of payment rules has imposed too great an administrative 

burden on those billing Medicare. Our May 2002 report on Medicare 

claims scrutiny found that the vast majority of physician practices--at 

least 90 percent in fiscal year 2001--had no claims selected for 

medical review by their contractor.[Footnote 13] Medical reviews 

involve a detailed examination of a sample of claims by clinically 

trained staff and require that physicians submit medical records to 

substantiate their claims. For the relatively few practices that had 

any claims reviewed, the contractors typically requested patients’ 

medical records for no more than two claims during the year. In an 

independent assessment that we sponsored, carriers’ reviews were found 

to be highly accurate in their decisions to deny, reduce, or pay claims 

in full. The overall level of accuracy was consistent across the three 

carriers at about 96 percent.

Adequate Monitoring of Medicare+Choice Plans Needed to Ensure Adherence 

to Program Rules:

Medicare+Choice, the program designed to allow beneficiaries to enroll 

in different types of health plans, is subject to different program 

integrity challenges from those of the traditional fee-for-service 

program because the payment methods differ. Managed care organizations 

(MCO) that offer Medicare+Choice health plans receive a fixed monthly 

payment for each beneficiary enrolled rather than for each service 

delivered. CMS must ensure that MCOs provide the services to enrollees 

that are required by their Medicare contracts and are paid 

appropriately for the beneficiaries enrolled.

If Medicare’s payments are expected to exceed an MCO’s costs of 

providing Medicare-covered services combined with the amount of profit 

or additional revenue that it would normally earn on non-Medicare 

contracts, the MCO must use the difference either to provide additional 

services, reduce beneficiary cost sharing, save in a noninterest-

bearing escrow account to maintain benefit or cost-sharing levels in 

future years, or a combination of these. Beginning in 2003, an MCO may 

pay all or part of a beneficiary’s Medicare part B premium. For each 

Medicare+Choice health plan that an MCO intends to offer, an MCO must 

annually submit a benefit package proposal--called the adjusted 

community rate proposalæ for CMS review and approval. The rate proposal 

identifies the health services an MCO will provide to enrollees, the 

estimated costs of providing these health services, and the estimated 

payments the MCO will receive. This information is used to ensure that 

Medicare-covered services will be provided and that excess payments 

will be used as intended.

The Balanced Budget Act of 1997 required CMS to annually audit the 

Medicare rate proposals and supporting financial records of at least 

one-third of the participating MCOs and required that we monitor these 

audit activities. In October 2001, we reported that, according to CMS, 

the rate proposal audits showed that 59 of 80 health plans had 

misreported key financial data or had accounting records too unreliable 

to support their estimates, but that CMS did not have a follow-up 

mechanism in place to resolve the issues identified in the 

audits.[Footnote 14] Misreporting these data can affect the benefits 

provided to enrollees, the amounts enrollees must pay in cost sharing, 

or the amounts the MCO contributes to an escrow account used to 

maintain benefit or cost-sharing levels in the future. Even small 

dollar amounts can have a major impact at the MCO level. For example, 

by underestimating its expected revenue by only $0.61 per member per 

month, one MCO with three health plans failed to spend over $500,000 

that could have been used to provide additional benefits, lower 

enrollee cost sharing, or help maintain future benefit or cost-sharing 

levels. We recommended that CMS (1) calculate the net effect of errors 

identified by plans and the overall impact of rate proposal audit 

findings and adjustments, (2) develop and implement a mechanism to 

address audit findings in a timely manner, and (3) communicate to each 

MCO the corrective actions needed for future rate proposal submissions.

CMS disagreed with our finding that the audit program lacked a formal 

resolution process, stating that we had not given the agency sufficient 

credit for efforts to develop an audit follow-up process. CMS also 

stated, in response to our recommendation for better communication with 

MCOs, that it had adequately communicated by providing MCOs copies of 

the audit reports. Subsequently, CMS developed a draft action plan to 

establish a follow-up mechanism for the rate proposal audits. 

Informally, we provided the agency feedback on areas that we believed 

would strengthen its draft plan. We will continue to monitor CMS 

actions in this area.

Financial Management Has Improved, But Considerable Work Remains:

As we have reported previously, the agency’s and its contractors’ 

financial management procedures for payment of Medicare claims, 

recovery of overpayments, and recording of financial transactions had 

certain weaknesses,[Footnote 15] but the agency has made progress in 

reducing them. Since the audit of its fiscal year 1999 financial 

statements, CMS has received an unqualified or “clean” opinion from its 

auditors each year and has taken significant steps to implement our 

recommendations for financial management improvements. CMS has 

developed a comprehensive financial management plan, improved its 

reviews of contractors’ financial management activities, made financial 

management procedural guidance available to Medicare contractors 

through an Internet-accessible database, and improved procedures for 

handling audit findings. The agency is also assessing the skills and 

competencies needed to manage Medicare’s finances. Despite this 

progress, CMS needs to take further steps to better analyze contractor 

financial data to ensure it is accurately reported and to develop 

financial systems, processes, and controls that routinely generate 

reliable, useful, and timely information for agency decisionmakers.

CMS’s efforts to collect Medicare overpayments illustrate both its 

successes and its challenges. We reported previously that the agency 

and its claims administration contractors had not been effective at 

collecting some of the money owed to Medicare, which generally resulted 

from overpayments made to providers. At the end of fiscal year 1999, 

over $7 billion of debt had accumulated on contractors’ books as 

receivable that were neither collected nor written off. Responding to 

our recommendation to comply with the terms of the Debt Collection 

Improvement Act of 1996,[Footnote 16] Medicare contractors have 

referred over two-thirds of the $6 billion in reported delinquent debts 

eligible for referral to the Department of the Treasury or its designee 

for collection by the third quarter of fiscal year 2002. Nevertheless, 

as we reported in February 2002, CMS has difficulty ensuring that 

contractors consistently make these referrals, as the agency lacks a 

comprehensive database tracking all its debts, has inaccurate 

information on the debts its limited database contains, and has not 

developed a comprehensive debt referral plan.[Footnote 17] To help 

ensure that CMS promptly refers all eligible delinquent Medicare debts 

to Treasury or its designee for collection, we made a number of 

additional recommendations to CMS. The agency is currently addressing 

most of these recommendations.

At the heart of its financial management problems, CMS does not have a 

single integrated financial accounting system that contains information 

to track its financial activities. Lack of such integrated information 

impedes efforts to monitor contractors’ activities, safeguard payments, 

and prepare yearly financial statements. CMS has begun to develop a 

project to integrate its financial management systems, but the 

complexity of this project has been challenging, involving information 

from over a billion transactions a year and multiple claims contractor 

systems and data centers. Recognizing the complexity of this project, 

CMS has established a separate program management office and has hired 

a systems integrator contractor with expertise to oversee software 

development and system integration. A pilot test running the new 

software parallel to the old is scheduled to begin at two claims 

administration contractors in April 2004, with full implementation of 

the integrated system scheduled for September 2007.

We have identified other financial management issues, which are 

addressed in a separate HHS management challenge discussed in this 

report--”Improve Financial Systems, Processes, and Controls.”:

Information Technology and Management Challenges Undermine Efforts to 

Strengthen Program:

Financial management is not the only Medicare function hampered by 

information technology (IT) shortcomings. CMS officials are in the 

process of modernizing the technology that supports Medicare’s core 

missions of claims processing and payment, program oversight, and 

administration of participating health plans. The agency’s information 

systems are of central importance in carrying out these missions, but 

the major systems are aged and often incompatible with one another. 

Because of their design, these systems do not assemble or maintain data 

in a user-friendly format and are therefore difficult to query. Quick 

answers are largely unavailable to such questions as the effects of 

payment policies on beneficiaries’ access to services, the adequacy of 

payments to providers, or the status of debt owed the program because 

of uncollected overpayments. Further, auditors of CMS’s fiscal year 

2001 financial statements noted numerous weaknesses in the security of 

Medicare information systems that could result in unauthorized access 

to sensitive Medicare data. These weaknesses are not only troublesome 

from a data integrity standpoint but also because of the potential 

financial loss that could occur through security breaches.

CMS’s IT planning and management processes--intended to increase the 

likelihood that systems development and implementation will be cost 

effective and successful--have certain shortcomings that increase the 

risk that some of its modernization efforts could fail to achieve 

agency mission goals. In September 2001, we reported that CMS had 

developed a blueprint documenting its existing and planned IT 

environments--also known as its enterprise architecture--but this 

blueprint was missing essential detail.[Footnote 18] We also found that 

the agency’s process for managing its IT investments was missing key 

review, approval, and evaluation steps to ensure that CMS invests in 

projects that succeed in supporting Medicare program management needs. 

On the basis of these findings, we recommended that CMS fully develop 

its architecture and strengthen its IT management process.

Agency officials reported that they have begun implementing guidance 

for an improved IT management process. This process will require 

additional review of the benefits, risks, and technical appropriateness 

of all projects, except ongoing operations. Officials also reported 

conducting additional IT development activities, making further 

progress on detailing the agency’s IT architecture, and assessing human 

capital needs and skill gaps. To address weaknesses in the security 

controls of the agency’s and its contractors’ ongoing system 

operations, CMS has implemented additional requirements for contractors 

to document compliance with security requirements, increased its 

scrutiny of contractor internal management controls related to IT 

systems security, and begun an agencywide mandatory training effort for 

CMS staff on IT security procedures. Despite CMS’s progress, strong and 

continued management attention will be needed as the agency strives to 

maintain current program services while working to build more effective 

and secure information support.

Medicare Contracting Reform Looms as a Potentially Large Management 


Managing Medicare effectively depends on finding a balance between 

flexibility and accountability--that is, granting the agency adequate 

flexibility to act prudently while ensuring that it can be held 

accountable for its decisions. CMS has lacked some of the ability to 

act prudently in managing claims administration because, under 

Medicare’s statute and regulations, its contracting authority and 

practices differ from those embodied in standard federal contracting 

regulations. There is generally no full and open competition for 

entities to obtain contracts to process Medicare claims; CMS is limited 

to choosing among health insurers to process Medicare claims; apart 

from some recent exceptions, contractors must cover the full range of 

claims processing and related activities; and the agency is limited in 

its ability to terminate contracts.

Over the years, the agency repeatedly proposed legislation to obtain 

new contracting authority and flexibility. In June 2001, we testified 

that Medicare could benefit from Congress removing CMS’s contracting 

limitations and from use of full and open competition in the selection 

of claims administration contractors.[Footnote 19] In June 2002, the 

U.S. House of Representatives passed a bill that would amend the 

Medicare statute to require competitive contracting and allow CMS 

greater flexibility in its contracting arrangements.

Should CMS be granted more flexible contracting authority that relies 

on competition, effectively managing the transition to a different 

contracting environment will be a major new challenge for the agency in 

the coming years. As we reported in our 2001 assessment of high-risk 

federal programs, federal agencies that manage large procurements of 

contracted services--such as the departments of Energy and Defense--

have had difficulties with contract acquisition and 

management.[Footnote 20] These have included problems such as cost and 

schedule overruns and failure to oversee contractors and hold them 

accountable. CMS would need to carefully plan and manage its own 

contracting efforts, while being attentive to best practices in the 

field, to avoid some of the pitfalls experienced by other agencies.

Enhance the Fiscal and Management Oversight of the Medicaid Program:

Medicaid is a program jointly funded by the federal government and the 

states that pays for both acute health care and long-term care services 

for over 44 million low-income Americans, about half of whom are 

children and over one-quarter of whom are aged, blind, or disabled. The 

program’s day-to-day administration is conducted by the states and is 

overseen at the federal level by CMS in HHS. The challenges inherent in 

overseeing a program of Medicaid’s size, growth, and diversity, 

combined with the open-ended nature of the program’s federal funding, 

puts the program at high risk for waste and exploitation and we have 

added Medicaid to our 2003 list of high-risk programs. Consider the 

following program characteristics:

* Size. In fiscal year 2001, federal and state Medicaid expenditures 

totaled $228 billion. The federal share was about 57 percent, 


7 percent of all federal outlays. Medicaid is the third largest social 

program in the federal budget (after Social Security and Medicare) and 

the second largest budget item for most states (after education), 

accounting for about 20 percent of states’ total expenditures.

* Growth. The Congressional Budget Office projects that Medicaid 

spending will grow each year on average by 8.8 percent, which would 

more than double total Medicaid spending in 9 to 10 years. Recent 

Medicaid expenditure growth has been fueled in part by escalating 

prescription drug and hospital costs, as well as by “creative” state 

financing schemes that inappropriately increase the federal share of 

Medicaid expenditures without increasing the states’ contribution. 

Future program spending will also be significantly affected by the 

growth of the population aged 65 and older, which is expected to more 

than double by 2040. Individuals who are aged, blind, or disabled 

already incur significantly higher Medicaid expenditures than those in 

other eligibility categories. These individuals represent 27 percent of 

all Medicaid beneficiaries, but they account for 66 percent of 

expenditures, as shown in figure 1. As the share of the population that 

is aged grows, so too will associated long-term care expenditures, thus 

exerting additional financial pressures on future federal and state 


Figure 1: Medicaid Expenditures Are Disproportionately for Individuals 

Who Are Aged, Blind, or Disabled:

[See PDF for image] - graphic text:

[A] Total Medicaid fiscal year 2000 expenditures were $209.6 billion; 

expenditures in the figure do not include administrative expenses 

($10.6 billion) and other expenses that could not be attributed to 

particular beneficiary populations.

[End of figure] - graphic text:

* Diversity. Within broad federal guidelines, states have considerable 

flexibility in how they administer their Medicaid programs. Each state 

determines the amount, duration, and scope of covered services; 

establishes eligibility guidelines; sets payment rates; and develops 

its own administrative and delivery system structure. While federal 

statute requires states to cover certain populations and services under 

Medicaid, states may choose to expand eligibility or add benefits that 

the statute defines as optional.[Footnote 21] About two-thirds of total 

Medicaid expenditures are attributable to services for optional 

populations and benefits. The resulting variation across states in 

populations covered and benefits offered makes Medicaid less like a 

single program than like 56 separate programs--the 50 states, the 

District of Columbia, Puerto Rico, and U.S. territories--thus posing 

significant complexities for federal oversight.

* Open-ended federal funding. Under Medicaid, the federal share of each 

state’s expenditures, also called the federal match, is based on a 

formula that is linked to each state’s per capita income and its total 

program spending. The federal liability for program expenditures is 

open-ended, as there is no limit on state spending for services that 

are covered under a CMS-approved state Medicaid plan. In 2001, the 

federal shares ranged from 50 to 77 percent of a state’s total Medicaid 


Our concerns about the program’s risks have been heightened by our work 

in recent years, which confirms the program’s vulnerability to 

exploitation and mismanagement. Through this work we have identified 

key problems, including:

* schemes by some states to inappropriately leverage federal funds,

* state waiver programs that inappropriately increase the federal 

government’s financial liability, and:

* insufficient federal and state oversight to ensure that payments to 

health care providers are accurate and appropriate.

We have also identified consistent weaknesses with federal oversight of 

the quality of care in nursing homes, which receive billions of dollars 

annually in Medicaid funds. These issues are addressed in a separate 

section in this report entitled “Improve Oversight of Care Delivered to 

Medicare and Medicaid Beneficiaries.”:

State Financing Schemes Often Inappropriately Increase Federal Medicaid 


For more than a decade, states have used various financing schemes to 

inappropriately generate excessive federal Medicaid matching funds 

while their own share of expenditures has remained unchanged or 

decreased. Using statutory and regulatory loopholes, some states have 

created the illusion that they have made large Medicaid payments to 

certain providers, such as county health facilities, in order to 

generate federal matching payments. In reality, generally through 

electronic funds transfers, the states have only momentarily made 

payments to these providers, as states have required the payments to be 

returned. In some cases, states have used these federal payments for 

purposes other than Medicaid. Figure 2 illustrates a financing 

arrangement under which a state can inappropriately increase federal 

matching funds with no outlay of state funds.

Figure 2: One State’s Arrangement to Increase Federal Medicaid Payments 


[See PDF for image] - graphic text:

[End of figure] - graphic text:

In figure 2, a state makes Medicaid payments totaling $277 million to 

certain county health facilities; the total includes $155 million in 

federal funds at a matching rate of 56 percent (step 1). On the same 

day that the county health facilities receive the funds, they transfer 

all but $6 million of the payments back to the state, which retains 

$271 million--a net gain of $149 million over the state’s original 

outlay of $122 million (steps 2 and 3).

Although the Congress and CMS have repeatedly acted to curtail abusive 

financing schemes when they have come to light, states have 

consistently developed new variations to this basic approach. Each 

variant has the same result: the state’s share of program expenditures 

is shifted to the federal government, while federal Medicaid payments 

escalate, with no assurances that the excessive federal payments are 

used for valid Medicaid expenditures for covered beneficiaries. Table 2 

describes various abusive Medicaid financing arrangements used by 

states and the actions taken by the Congress and CMS to curtail them.

Table 2: Federal Actions to Address Inappropriate State Financing 


Financing arrangement: Payments to state health facilities; 

Description: States made excessive Medicaid payments to state-owned 

health facilities, which subsequently returned these funds to the state 

treasury.; Action taken: In 1987, HCFA issued regulations that 

established payment limits specifically for inpatient and institutional 

facilities operated by states..

Financing arrangement: Provider taxes and donations; Description: 

Revenues from special taxes on hospitals and other providers and from 

provider “donations” were matched with federal funds and paid to the 

providers, which returned most of the federal payment to the state.; 

Action taken: The Medicaid Voluntary Contribution and Provider-Specific 

Tax Amendments of 1991 essentially banned provider donations and placed 

a series of restrictions on provider taxes..

Financing arrangement: Disproportionate share hospital (DSH) payments; 

Description: DSH payments compensate hospitals that care for a 

disproportionate number of low-income patients. Unusually large DSH 

payments were made to certain hospitals, which returned the bulk of the 

state and federal payments to the state.; Action taken: The Omnibus 

Budget Reconciliation Act of 1993 placed limits on which hospitals 

could receive DSH payments and capped both the amount of DSH payments 

states could make and that individual hospitals could receive..

Financing arrangement: DSH payments to state mental hospitals; 

Description: A large share of state DSH payments were paid to state-

operated psychiatric hospitals, where they were used to pay for 

services not covered by Medicaid or were returned to the state 

treasury.; Action taken: The Balanced Budget Act of 1997 limited the 

proportion of a state’s DSH payments that can be paid to state 

psychiatric hospitals..

Financing arrangement: Payments to local government health facilities; 

Description: In an effort to ensure that Medicaid payments are 

reasonable, the federal statute and regulations prohibit Medicaid from 

paying more than what Medicare would pay for comparable services. This 

upper payment limit (UPL) applies to total payments and not individual 

services. As a result of the aggregate upper limit, states were able to 

make large supplemental payments to a few local public health 

facilities, such as hospitals and nursing homes. The local government 

health facilities then returned the bulk of the state and federal 

payments to the state.; Action taken: The Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection Act of 2000 required HCFA to issue 

a final regulation that established a separate payment limit for each 

of several classes of local government health facilities. In 2002, CMS 

issued a regulation that further lowered the payment limit for local 

public hospitals..

[End of table]

Source: GAO analysis.

Financing schemes that some states use to inappropriately generate 

federal payments can spread quickly to other states. For example, from 

1990 to 1992, payments that compensate hospitals that care for a 

disproportionate number of low-income patients--called DSH payments--

spiked from 

$1 billion to over $17 billion. After limits were put on DSH payments, 

states found that they could exploit the upper payment limit (UPL) on 

Medicaid payments to conduct other financing schemes. From 1999 to 

2000, the number of states using UPL-related schemes grew from 12 to 

28, accounting for an estimated $5.8 billion in excessive federal 


The savings estimated to result from curbing states’ exploitative 

practices demonstrate the enormous impact state financing schemes can 

have on the federal budget. Prompted by our testimony,[Footnote 22] 

CMS’s 2001 regulation reducing the federal government’s financial 

liability under the UPL provision is estimated to save $55 billion over 

10 years, and the related 2002 CMS regulation is estimated to yield an 

additional $9 billion over 5 years.

While the Congress and CMS have often acted promptly to address 

Medicaid financing schemes once they become apparent, new variations 

continue to emerge and recommendations to reduce problems remain open. 

Consequently, we recommended that the Congress consider legislation to 

prohibit making Medicaid payments to a government-owned facility that 

exceed the facility’s costs. Additionally, CMS has responded, in part, 

to recommendations made by OIG regarding UPL-related payments, but CMS 

requirements do not provide for the capture of information to determine 

whether local government health facilities transfer the federal funds 

they receive back to the state.

States that have relied on abusive practices to maximize federal funds 

as a staple for state financing are feeling the budgetary pressure from 

the loss of these funds. Experience shows that some states are likely 

to look for other creative means to supplant state financing, making a 

compelling case for the Congress and CMS to sustain vigilance over 

federal Medicaid payments.

Waiver Demonstration Programs May Increase Federal Liability for 

Program Expenditures:

HHS oversight responsibilities include ensuring that states’ 

demonstration programs do not put the federal government at risk for 

spending more on Medicaid than it would without such programs. The 

Secretary of HHS has broad authority under section 1115 of the Social 

Security Act to waive certain statutory provisions and allow states to 

conduct Medicaid research and demonstration projects that test new 

ideas for delivering services and covering more people. Specifically, 

HHS can grant section 1115 waivers to provide federal funds for 

services and populations not otherwise eligible for federal matching 

payments. States have commonly used section 1115 waivers to provide 

health care coverage to Medicaid beneficiaries by enrolling them in 

managed care plans. An estimated 20 percent of all Medicaid funds are 

now spent under section 1115 waivers. Historically, HHS and the Office 

of Management and Budget (OMB) have required that the demonstration 

projects be budget neutral--that is, the demonstration’s cost to the 

federal government should be no more than it would have been without 

the waiver.

Since the mid-1990s, however, adherence to budget neutrality 

requirements has eroded, as HHS and OMB have permitted states to use 

questionable methods that in our view do not demonstrate budget 

neutrality. The section 1115 waivers of two states, approved in 2002, 

are estimated to cost the federal government at least $330 million more 

than if the waivers had not been approved. For one state’s waiver, HHS 

and OMB continued a practice that we first identified and objected to 

in 1995, which allows states to disregard substantial new costs that 

would be incurred under the waiver, thus making it easier to 

demonstrate budget neutrality. For the other state’s waiver, HHS and 

OMB allowed the state to include impermissible costs to raise the level 

of costs estimated without the waiver, thus making it easier to claim 

that the demonstration was budget neutral and, in turn, inflating the 

share for which the federal government would be liable. Our concern is 

that additional states have requested similar waivers that are 

currently under review. In 2002, we recommended that HHS ensure that 

only valid methods are used to demonstrate budget neutrality,[Footnote 

23] but the department and OMB continue to allow states to disregard 

significant amounts of waiver costs when demonstrating budget 


Shortcomings in Routine Oversight and Financial Management Practices 

Leave Program Dollars Ill-Protected:

One of CMS’s major challenges is to balance state flexibility with 

accountability by providing adequate oversight of states’ Medicaid 

financial transactions. Our work shows that CMS falls short in 

providing the level of oversight required to ensure accountability. In 

particular, CMS lacks important policies and procedures to guide either 

its own or states’ financial oversight activities, and it has not 

provided consistent guidance to the states on appropriate payment 


Our studies of federal and state agencies’ controls over payments have 

identified systemic weaknesses in both federal and state oversight of 

Medicaid expenditures.[Footnote 24] Our February 2002 report on federal 

oversight of state claims for reimbursement found that CMS’s general 

policies and systems for financial oversight of state Medicaid programs 

were limited. For example, CMS did not (1) have a sound method for 

identifying areas at high risk for improper payments, (2) have 

performance standards for review of state expenditures, or (3) conduct 

analyses of trend information on the amount and type of Medicaid 

expenditures deferred or disallowed to monitor performance of this 

oversight activity. To address these weaknesses, we recommended a range 

of approaches to strengthen internal controls and target limited 

resources. In response, CMS has initiated steps to improve financial 

reviews of Medicaid, which are in the planning and early implementation 


In examining states’ controls over improper payments to providers, we 

found that states’ efforts to identify billing errors and abusive 

billing practices have been generally limited and only modestly funded. 

In our June 2001 review, half the states reported spending no more than 

one-tenth of 1 percent of program expenditures on activities to 

safeguard program payments. No state had requested the full amount of 

federal funds available for antifraud efforts because they would have 

had to increase their own spending to receive the full federal match.

The potential benefit of improving oversight has been demonstrated by 

individual state efforts. In our June 2001 study, we reported that, 

since July 1999, California had identified $58 million in fraudulent 

billings by 115 providers and pharmaceutical and durable medical 

equipment wholesalers and suppliers; it was investigating an additional 

300 entities for suspected fraud that could exceed $250 million. 

Kentucky’s analysis of claims payment data identified $137 million in 

overpayments to providers between January 1995 and June 1998.

Our review of certain Medicaid services provided to children through 

their schools also demonstrates the importance of heightened scrutiny 

over Medicaid expenditures.[Footnote 25] In one state alone, there were 

$324 million in disallowed claims involving school-based services for 

three-and-a-half years ending in fiscal year 2001.[Footnote 26] Some 

claims were for services not covered by Medicaid or for services 

provided to non-Medicaid-eligible children. Our work also showed that, 

in some states, very little of the federal reimbursement went directly 

to schools where the services were provided. Some schools ended up with 

as little as $7.50 for every $100 that the state claimed for 

reimbursement, once states retained a portion of federal reimbursements 

and private consulting firms were paid contingency fees.

Our review of Medicaid reimbursement in schools further illustrated 

CMS’s weaknesses in providing the states sufficient program guidance 

and oversight. Schools in some states conduct outreach for the Medicaid 

program and perform certain diagnostic, screening, and therapy 

services. States that provide school-based Medicaid services must 

establish procedures for determining Medicaid’s payment rates within 

broad federal guidelines.[Footnote 27] Under these procedures, the 

costs identified for schools’ administrative services claims must be 

directly attributable to supporting the Medicaid program. Our analysis 

found that some CMS regions failed to (1) provide clear and consistent 

guidance to schools and state agencies or (2) exercise adequate 

controls over the approval of claims for school-based services. Our 

recommendations to CMS on school reimbursement were aimed at improving 

the agency’s oversight and establishing more consistent policies about 

what constitutes appropriate payment. CMS has taken action to clarify 

reimbursement policies addressing administrative activities performed 

by certain medical personnel in schools. Additionally, CMS is 

developing more consistent guidance for its regions, states, and 

schools regarding what is allowable in submitting claims for 

reimbursement for school-based administrative costs from Medicaid.

Improve Oversight of Care Delivered to Medicare and Medicaid 


CMS and the states share oversight responsibility for thousands of 

health care providers that deliver care directly to Medicare and 

Medicaid beneficiaries. (See table 3.) In response to congressional 

requests, in recent years we have reviewed oversight efforts for three 

of these types of providers--nursing homes, home health agencies, and 

kidney dialysis facilities--that provide critical and often life-saving 

care to nearly 

4.5 million vulnerable individuals and that receive over $70 billion 

annually in Medicare and Medicaid payments. Providers become eligible 

for federal reimbursement for services provided by adhering to federal 

quality standards, including statutory, regulatory, and other 

requirements designed to help ensure that patients receive appropriate 

care or treatment and are protected from harm. To ensure that providers 

remain eligible for federal funding, CMS contracts with state agencies 

to conduct periodic inspections, called surveys, of the providers’ 

services. CMS, in turn, is charged with overseeing the adequacy of 

states’ activities in monitoring providers’ performance.

Table 3: Providers Required to Meet Federal Quality Standards, Survey 

Frequency, and Budgeted Federal Survey Expenditures:

Provider: Nursing homes; Number of

 providers: 16,582; [Empty]; Survey frequency (as required by statute 

or CMS): Every year (statute); Budgeted federal survey expenditures, 

fiscal year 2003: $352,100,492.

Provider: Home health agencies; Number of

 providers: 6,944; [Empty]; Survey frequency (as required by statute or 

CMS): Every 3 years (statute); Budgeted federal survey expenditures, 

fiscal year 2003: 25,469,304.

Provider: Intermediate care facilities for the mentally retarded; 

Number of

 providers: 6,693; [Empty]; Survey frequency (as required by statute or 

CMS): Every year (CMS); Budgeted federal survey expenditures, fiscal 

year 2003: 38,623,812.

Provider: Accredited hospitals; Number of

 providers: 4,461; [Empty]; Survey frequency (as required by statute or 

CMS): 1% per year (CMS); Budgeted federal survey expenditures, fiscal 

year 2003: 5,528,523.

Provider: Kidney dialysis facilities; Number of

 providers: 4,266; [Empty]; Survey frequency (as required by statute or 

CMS): Every 3 years (CMS); Budgeted federal survey expenditures, fiscal 

year 2003: 8,049,312.

Provider: Ambulatory surgical centers; Number of

 providers: 3,532; [Empty]; Survey frequency (as required by statute or 

CMS): Every 6 years (CMS); Budgeted federal survey expenditures, fiscal 

year 2003: 2,482,379.

Provider: Rural health clinics; Number of

 providers: 3,296; [Empty]; Survey frequency (as required by statute or 

CMS): Every 6 years (CMS); Budgeted federal survey expenditures, fiscal 

year 2003: 1,285,470.

Provider: Outpatient physical therapy; Number of

 providers: 2,930; [Empty]; Survey frequency (as required by statute or 

CMS): Every 6 years (CMS); Budgeted federal survey expenditures, fiscal 

year 2003: 1,430,167.

Provider: Hospices; Number of

 providers: 2,316; [Empty]; Survey frequency (as required by statute or 

CMS): Every 6 years (CMS); Budgeted federal survey expenditures, fiscal 

year 2003: 3,977,717.

Provider: Nonaccredited hospitals; Number of

 providers: 1,551; [Empty]; Survey frequency (as required by statute or 

CMS): Every 3 years (CMS); Budgeted federal survey expenditures, fiscal 

year 2003: 7,615,329.

Provider: Portable X-ray suppliers; Number of

 providers: 645; [Empty]; Survey frequency (as required by statute or 

CMS): Every 6 years (CMS); Budgeted federal survey expenditures, fiscal 

year 2003: 157,029.

Provider: Comprehensive outpatient rehabilitation facilities; Number 


 providers: 564; [Empty]; Survey frequency (as required by statute or 

CMS): Every 6 years (CMS); Budgeted federal survey expenditures, fiscal 

year 2003: 293,220.

Provider: Other direct survey costs[A]; Number of

 providers: [Empty]; [Empty]; Survey frequency (as required by statute 

or CMS): [Empty]; Budgeted federal survey expenditures, fiscal year 

2003: 10,359,246.

Provider: Total; Number of

 providers: [Empty]; [Empty]; Survey frequency (as required by statute 

or CMS): [Empty]; Budgeted federal survey expenditures, fiscal year 

2003: $457,400,000[B].

[End of table]

Source: CMS.

Note: Other providers, including organ procurement organizations, 

community mental health care centers, and psychiatric residential 

treatment facilities, require surveys by either CMS or state surveyors, 

but funding for these surveys is not included in the survey budget. In 

addition, a small proportion of the roughly 160,000 clinical 

laboratories are required to be surveyed, but these laboratories pay 

for the surveys themselves through fees instead of federal 

appropriations and are therefore not included in budgeted federal 

survey expenditures.

[A] Other direct survey costs are funds provided to state survey 

agencies, but CMS is unable to allocate these costs among specific 

provider types.

[B] Total does not reflect the sum of the provider amounts because of 


In response to our recent findings and recommendations on the need to 

improve the quality of care provided by nursing homes, home health 

agencies, and kidney dialysis facilities, CMS has increased its 

attention to improving oversight of survey activities, especially for 

nursing homes. While this additional attention to nursing home 

oversight is warranted, CMS may have shifted its focus and resources to 

nursing homes at the expense of adequate oversight of home health 

agencies, kidney dialysis facilities, and other providers serving 

Medicare and Medicaid beneficiaries. As such, CMS confronts significant 

management challenges--first, ensuring that its monitoring of 

compliance with federal quality standards by myriad providers is 

effective and consistent across its 10 regional offices, and second, 

ensuring that the 51 state survey agencies take appropriate actions to 

enforce federal quality standards and protect beneficiaries. 

Specifically, our work on federal and state oversight of survey 

activities points to problems with the conduct of state surveys, the 

timeliness of complaint investigations, the strength and use of federal 

sanctions for providers’ noncompliance with Medicare standards, federal 

monitoring of state survey activities, and survey staffing.[Footnote 


Quality of Care Is Uncertain Because Some Providers Are Surveyed 

Infrequently and Deficiencies Are Understated:

State survey problems we have noted frustrate efforts to determine 

quality of care. Some providers are surveyed very infrequently and, 

while state surveyors identified a disturbing prevalence of quality 

problems in nursing homes, we have noted repeatedly that the 

seriousness of deficiencies was understated. During our reviews of the 

home health agency survey process, we reported similar problems with 

understated deficiencies. We noted flaws in the following areas for the 

three providers:

* Nursing homes. Because of weaknesses in the survey process, state 

surveyors often missed or understated serious deficiencies, masking the 

actual extent to which residents are harmed or placed in danger. The

1.6 million elderly and disabled nursing home residents, often very 

dependent or incapacitated, may be totally reliant on nursing home 

staff for medical care as well as assistance with basic activities of 

daily living, such as dressing, grooming, and eating. Our work since 

1998 has demonstrated that state surveyors failed to identify serious 

nursing home care deficiencies or classified such deficiencies, 

including weight loss, dehydration, pressure sores, and incontinence, 

at an inappropriately low severity level. In independent reviews 

conducted to evaluate the quality of state survey agencies’ 

performance, CMS’s surveyors often identified serious deficiencies 

where state surveyors did not. Factors contributing to the 

understatement of deficiencies included lack of sufficient rigor in the 

survey process and nursing homes’ ability to predict the timing of 

their surveys so that, if a home chooses to do so, it may conceal 

problems. In response to our recommendations, CMS has introduced 

strengthened survey methods to spot serious deficiencies, but is still 

developing important additional steps. To reduce survey predictability, 

CMS has varied the starting times of surveys, but this change has had 

limited effectiveness.

* Home health agencies. Patients receiving home health care are 

homebound, may have little contact with anyone except home health 

staff, and are therefore often isolated and vulnerable to poor care. 

Surveys of home health agencies are required less frequently than those 

of nursing homes--a minimum of once every 3 years as opposed to 

annually--and branch offices, constituting about one-quarter of home 

health locations, generally escape routine scrutiny. Some agencies must 

be surveyed annually if, for example, they have had prior serious 

deficiencies, but about half of these agencies did not receive required 

annual surveys. A home health agency survey is less comprehensive than 

a nursing home survey in that CMS does not require surveyors to review 

about half of the conditions for participating in Medicare, including 

assessing the quality of skilled nursing care. Although state surveyors 

identified a small proportion of home health agencies with deficiencies 

that either harmed or could harm patients, we found evidence that such 

problems also were understated. Moreover, two states accounted for over 

two-thirds of serious deficiencies reported nationwide, suggesting that 

states have disparate survey practices that may not consistently 

capture the actual status of quality. We found deficiencies in some 

states documented at a lower level of seriousness than similar 

deficiencies in other states that were documented as harming or 

potentially harming patients. In July 2002, we recommended several 

steps CMS could take to improve the home health agency survey process, 

including strengthening reviews of branch offices. The following month 

CMS began assigning these offices identification numbers to improve 


* Kidney dialysis facilities. Dialysis facilities treat more than 

280,000 patients suffering from end-stage renal disease, an 

irreversible state of kidney impairment that requires either a 

transplant or regular dialysis. If performed improperly, dialysis can 

cause serious complications or even death; many dialysis patients are 

especially vulnerable because they are elderly and have other 

conditions, such as diabetes. No statutory requirements exist for the 

frequency of state surveys of dialysis facilities, and the number of 

facilities surveyed each year declined steadily during the 1990s. For 

instance, in 1999, only 

11 percent of existing facilities received a recertification survey, 

compared with 52 percent in 1993. The limited frequency of surveys made 

it impossible for us to determine the exact extent to which dialysis 

facilities were in compliance with federal quality requirements. 

However, 15 percent of the most recent surveys conducted at the time of 

our 2000 review identified deficiencies severe enough, if uncorrected, 

to warrant terminating participation in Medicare. In fiscal year 2001, 

CMS received additional funding that resulted in its increasing the 

number of facilities surveyed annually to one-third and indicated that, 


15 percent of the facilities surveyed had at least one deficiency 

severe enough to lead to termination, if uncorrected.

Many States’ Complaint Intake and Investigation Processes Are 


Complaint investigations are an important opportunity for state survey 

agencies to intervene promptly when care problems are reported. This is 

especially true given the varying frequency with which surveys are 

conducted for different types of providers. The ability to lodge 

complaints against providers--whether by patients, family members, or 

caregivers themselves--and to have them resolved promptly is an 

essential aspect of protecting patient health and safety. Our reviews 

of nursing home and home health agency oversight revealed continuing 

weaknesses with complaint investigation practices in many states, 

including problems with the filing of complaints and the timeliness of 

state investigations.

In reviewing the nursing home and home health agency complaint 

investigation processes for several states, we identified numerous 

shortcomings, including complaint hotlines that were not easily 

accessible, not publicized, limited to in-state callers, or that had no 

voice mail capability; states that required or encouraged written 

complaints over telephone calls; investigations of apparently serious 

complaints that were delayed because they were assigned a low 

investigation priority; and information systems that were inadequate 

for properly monitoring the status of complaint investigations. CMS 

currently has a complaint improvement project under way that is 

designed to strengthen and improve the nursing home complaint process. 

CMS expects to determine how the findings from this project can be 

applied to other providers as well and to issue guidance for states’ 

complaint investigation processes.

CMS’s Use of Sanctions Does Not Ensure Provider Compliance:

Although sanctions can be an important enforcement tool, CMS does not 

use the full array of sanctions available. CMS uses a broad array of 

sanctions to penalize nursing homes that repeatedly harm residents or 

fail to correct deficiencies within certain time frames. Sanction 

options for nursing homes include, among others, assessing monetary 

penalties and denying Medicare payments for new admissions, in addition 

to termination from the program. In contrast, CMS limits its sanctions 

for home health agencies and kidney dialysis facilities to termination 

from the program, despite statutory authority and direction to do more. 

Termination--or, in reality, the threat of termination--is an all-or-

nothing option that is limited in effectiveness. Under this sanction, a 

provider can avoid termination by taking short-term corrective action 

to show compliance when a surveyor revisits the facility, thus stopping 

the termination process. Deficient facilities often temporarily return 

to, but do not necessarily remain in, compliance.

We believe that using termination as the sole sanction option does not 

prevent a cycle of recurring noncompliance. In many states, we found 

home health agencies that had corrected their deficiencies, but were 

found to have serious problems shortly afterward. Some of these home 

health agencies had serious deficiencies cited in the same quality-of-

care category on three of four surveys, yet were still participating in 

Medicare. Although the length of time between surveys of dialysis 

facilities makes it difficult to determine how quickly and how often 

they slip out of compliance, the results of our review suggested a 

similar pattern. For instance, almost 

40 percent of dialysis facilities with deficiencies on their most 

recent survey also had a deficiency with at least one of the same 

requirements on their last survey. More than half of them had two or 

more such repeat deficiencies.

Since 1987, CMS has had statutory authority to use an array of 

sanctions other than termination for home health agencies comparable to 

those used for nursing homes. However, CMS has not implemented this 

authority, as it was required to do by 1989, nor followed our 1997 

recommendation to implement additional sanctions for home health 

agencies that are repeatedly out of compliance with Medicare 

participation requirements. Thus, we suggested in 2002 that the 

Congress consider giving CMS a new deadline for implementing additional 

sanctions for home health agencies. Although CMS also has broad 

authority to implement most sanctions for dialysis facilities, it does 

not have the authority to assess civil monetary penalties, except under 

one specific condition. In 2000, we suggested that the Congress 

consider authorizing CMS to assess similar monetary penalties on 

dialysis facilities as are imposed on nursing homes that have severe or 

repeated deficiencies. For its part, CMS is in the process of 

developing a rule and procedures to strengthen sanction procedures for 

one quality standard associated with dialysis care.

CMS Oversight of State Survey Agencies Is Inadequate to Identify 

Systemic Problems:

CMS and its 10 regional offices are responsible for ensuring that state 

survey agencies effectively identify and resolve problems with provider 

quality of care. Our work has consistently identified weaknesses in 

CMS’s monitoring efforts. Although CMS had data available to assist in 

monitoring state performance of nursing home surveys, it instead relied 

heavily on states’ self-evaluation--essentially allowing states to 

write their own report cards on the adequacy of surveyors’ inspections 

or complaint investigations. CMS has responded to our recommendations 

to strengthen its state nursing home oversight by initiating annual 

assessments of each state’s compliance with specific performance 

requirements and by making greater use of survey data. Additional 

management attention would further strengthen these efforts and ensure 

greater consistency across CMS’s regional offices. CMS’s oversight of 

home health agencies has been less stringent, with limited use of the 

numerous tools it has available for monitoring states’ nursing home 


To improve its monitoring of state nursing home survey activities, in 

2001, CMS began producing and using reports from its numerous databases 

and established an annual state performance review process. As part of 

the annual performance review, it identified seven specific performance 

standards that states are required to meet, for example, survey timing, 

deficiency documentation, and complaint investigation criteria, and 

assessed each state’s compliance with each standard. Our ongoing work 

is examining the results of this review, and we will comment on it in a 

future report.

Another important component of CMS’s oversight activities is monitoring 

its new January 2000 requirement that states refer to CMS for immediate 

sanction those nursing homes that were found on successive surveys to 

have harmed one or more residents. This policy was implemented at our 

recommendation to eliminate the practice of continually allowing such 

homes a grace period to correct deficiencies and thus escape sanctions 

indefinitely. Our ongoing work also will address the extent to which 

CMS has monitored states’ compliance with this new policy.

CMS’s oversight of states’ home health agency surveys is particularly 

important because a new prospective payment system introduced in 

October 2000 not only encouraged home health agencies to provide care 

more efficiently but also created a situation in which reducing 

services increases net revenues. Yet, CMS does not routinely review 

whether states are complying with key statutory, regulatory, or other 

requirements, such as annually surveying home health agencies with 

serious deficiencies and ensuring that sample sizes of medical records 

and patient visits meet minimum federal standards. Moreover, CMS does 

not assess the adequacy of state agency surveys of home health agencies 

by conducting its own on-site comparative survey at a sample of 

agencies shortly after the state’s survey. CMS is statutorily required 

to perform such surveys for nursing homes and is currently planning to 

more than double the number of these surveys. We recently suggested to 

the Congress that it require CMS to perform similar surveys of home 

health agencies. Although CMS is poised to conduct annual reviews of 

state compliance with federal home health survey requirements, the 

limited areas it selected for its first such review in 2002 did not 

focus on critical issues requiring more immediate attention, such as 

ensuring that home health agencies with serious deficiencies are 

surveyed annually and that states assign complaints to appropriate 

categories so that investigations are timely. In response to our 

recommendations, CMS has proposed taking some limited steps to improve 

oversight of home health agency surveys.

Staffing Issues Create Human Capital Challenges to Meeting Survey 

Quality Requirements:

CMS and state survey agencies face an increasingly difficult challenge 

to ensure that experienced survey staff--generally registered nurses--

are available to assess quality of care across the multitude of 

providers serving Medicare and Medicaid beneficiaries. Some states 

indicated that the numbers of their survey staff were inadequate to 

meet expanding survey requirements, including complaint 

investigations, and therefore planned to hire additional surveyors. 

However, we were informed that it could take as long as 3 years for 

newly hired surveyor staff to gain sufficient knowledge and experience 

to perform their jobs well and independently. We found that, for home 

health agencies, a substantial number of surveyors assigned during 2000 

in some states we reviewed had neither taken the basic training course 

that CMS offers nor acquired substantial on-the-job experience by 

conducting home health agency surveys.

State officials cited surveyor turnover as a reason they must often 

rely on relatively inexperienced surveyors to conduct surveys. In 

addition, CMS has expressed concern that the economic downturn in the 

past 2 years may have affected state budgets, to the extent that states 

are unable to ensure that sufficient numbers of skilled staff are 

available to survey providers as required. We have ongoing work that 

addresses, among other things, states’ ability to maintain a well-

trained and experienced surveyor workforce in order to meet their 

obligations to the federal government to assess the quality of care 

provided to public beneficiaries.

Strengthen Preparedness for Public Health Emergencies, Including 


Enhancing preparedness for public health emergencies has become an 

important national and local priority since the attacks of September 

11, 2001, and the subsequent anthrax incidents. Federal, state, and 

local governments and the private sector share responsibility for 

improving emergency preparedness. While responding to a public health 

emergency, such as a natural disaster or a bioterrorist attack, is 

initially a local responsibility, the federal government helps support 

these efforts. The private sector also plays an important role in 

preparedness because many clinical laboratories and hospitals are 

privately owned and the blood industry is privately managed.

HHS, among other federal agencies, provides funding and assistance to 

state and local jurisdictions to improve their emergency preparedness 

and response capabilities. This includes funding and assistance to 

conduct laboratory testing to identify biological agents and ensure 

adequate treatment space in hospitals for a sudden increase in 

patients. The department also supports research related to emergency 

response and preparedness. These preparedness efforts are administered 

through several different agencies within HHS--the Centers for Disease 

Control and Prevention (CDC), which is responsible for health 

surveillance and coordination of response to infectious diseases, the 

Health Resources and Services Administration (HRSA), which provides 

health resources to local areas, FDA, which is responsible for the 

safety and efficacy of drugs and biologics such as blood, and the 

National Institutes of Health (NIH), which supports medical research.

Ensuring that every community, and each of the approximately 2,850 

local public health agencies across the nation, meets a basic standard 

of preparedness is a significant challenge. It requires sustained 

funding and attention, as well as substantial cooperation and 

coordination among multiple federal, state, local, and private sector 

agencies. Our reports have found significant weaknesses in key elements 

of the public health infrastructure that are critical to emergency 

response at the state and local levels. In addition, we have noted a 

lack of coordination among programs with responsibility for public 

health emergency preparedness at the local, state, and federal levels. 

With the recent influx of additional federal funds, responsiveness at 

the state and local level is changing. Although the creation of a 

Department of Homeland Security has the potential to streamline overall 

funding and oversight responsibilities for preparedness and response 

for certain types of emergencies, some key preparedness functions that 

are basic to HHS’s public health and research mission remain with HHS. 

Therefore, HHS continues to have coordination challenges.

Public Health Infrastructure Needs Strengthening:

The nation’s public health infrastructure, as well as related aspects 

of the private sector health care system, needs to be strengthened in 

the following areas:

* Laboratory capacity. Many states’ public health laboratory systems 

were overwhelmed by the volume of testing during the initial outbreaks 

of West Nile virus in the northeast in the fall of 1999 and during the 

fall 2001 anthrax attacks.[Footnote 29] The 1999 West Nile virus 

outbreak, which was relatively small, taxed the federal, state, and 

local laboratory resources to the point that officials told us that CDC 

would not have been able to respond to another outbreak had one 

occurred at the same time. In the West Nile outbreak of 2002, many 

laboratories ceased some testing because of the large volume. During 

the anthrax attacks in 2001, over 70,000 samples were tested in 

laboratories across the country. Even states in which no anthrax was 

found conducted emergency testing; officials in these states told us 

that their state laboratories were overwhelmed and that they could not 

have sustained the testing effort for long without their other work 

suffering. CDC was forced to keep its anthrax-testing laboratory 

operating 24 hours a day, 7 days a week, and open another laboratory to 

meet the demand for testing.

* Infectious disease surveillance. States collect data to monitor the 

incidence of infectious diseases, which are then reported to CDC. Some 

states still rely on traditional, paper-based surveillance systems that 

suffer from underreporting and significant time delays between 

diagnosis and reporting. Reliance on such outdated systems could cause 

delays in the recognition of a public health emergency and adversely 

affect its management.

* Hospital surge capacity. Federal, state, and local officials are 

concerned that the nation’s hospitals and associated treatment 

facilities do not have enough capacity to treat a large, sudden influx 

of patients as might be seen in an emergency. Capacity can be limited 

by insufficient space in facilities such as emergency departments and 

intensive care units, insufficient numbers of personnel, and a lack of 

equipment such as ventilators. Some local officials report that they 

often do not have enough capacity to treat patients on a typical Friday 

night, much less in a large-scale emergency.

* Blood supply. The high volume of blood collected immediately after 

the September 11, 2001, attacks put a strain on the collection system 

and resulted in a surplus of blood.[Footnote 30] The survivors needed 

little of the blood: an amount equal to one-third of the additional 

units of blood expired and was discarded. Although the blood supply is 

generally adequate, lessons learned from blood collection and usage 

after the September 11 attacks have prompted HHS and the blood industry 

to examine ways to improve how blood suppliers respond to public health 

emergencies.[Footnote 31] Maintaining an adequate supply year-round is 

key to preparing for emergencies where blood is needed immediately. The 

demand for blood is increasing at the same time that new screening for 

additional contaminants and donor eligibility policies in response to 

emerging concerns about blood-borne disease transmission may reduce the 

pool of potential donors. Therefore, more comprehensive, long-term 

monitoring of the safety and adequacy of the blood supply by HHS may be 


* Communications. Serious communication problems exist between and 

among federal, state, and local government agencies. For example, 

during the West Nile virus outbreak, the CDC and New York State 

Department of Health databases were not linked to those in New York 

City, requiring laboratory results to be manually entered. Physicians, 

local health departments, and laboratory officials indicated that it 

was sometimes difficult to determine the status of patients’ samples 

and laboratory results.

* Human capital. Increasing staffing of public health departments and 

laboratories is a top priority for enhancing preparedness in many 

areas. Officials told us that they did not have enough trained 

epidemiologists, laboratory technicians, and other professionals to 

respond to the anthrax incidents while meeting normal, day-to-day 

responsibilities such as preventing the transmission of sexually 

transmitted diseases.

* Research and development. The experiences with anthrax and the 

possibility of future bioterrorist attacks drew attention to a number 

of public health needs. These include new antibiotics and antivirals to 

treat infectious diseases, a next generation of vaccines to prevent 

infections, and tests to determine earlier in the infection cycle 

whether individuals have been infected.[Footnote 32]

HHS has a number of programs designed to enhance these key elements of 

the public health infrastructure and increase preparedness. At the 

federal level, HHS has invested in expanding capacity at CDC, and NIH 

has launched an expanded program to develop new ways to detect, treat, 

and prevent diseases caused by biological agents likely to be used by 

terrorists. HHS also manages three efforts to provide assistance to 

state and local governments--CDC’s Bioterrorism Preparedness and 

Response Program, HRSA’s Bioterrorism Hospital Preparedness Program, 

and the Metropolitan Medical Response System in the Office of Emergency 

Response. These programs provide funds to state health departments and 

hospitals to improve the public health infrastructure at the state and 

local level for activities such as making capital improvements and 

purchasing equipment so hospitals can be better prepared for a public 

health emergency. These three programs alone provided a total of $1.1 

billion to state and local governments in fiscal year 2002. An 

additional $1.2 billion has been requested for this purpose for fiscal 

year 2003. State and local officials stressed that it is important that 

funding for these efforts be sustained over the long term in order to 

make meaningful improvements. The President’s budget for fiscal year 

2003 requests a total of $4.3 billion for HHS’s efforts to address 


Coordination of Public Health Emergency Preparedness Efforts Remains a 

Significant Challenge:

Federal, state, and local government officials, as well as significant 

partners in the private sector, must work together to ensure that 

communities and the nation as a whole are prepared for a public health 

emergency. Our reports over the last 2 years have repeatedly found that 

coordination among the federal departments and agencies that have a 

role in preparing for emergencies, including terrorist attacks, is 

fragmented.[Footnote 33] In October 2001, the Office of the Assistant 

Secretary for Public Health Emergency Preparedness (originally named 

the Office of Public Health Preparedness) was created in HHS to serve 

as the focal point within the department for activities relating to 

public health emergencies. Specifically, its mission is to direct HHS’s 

efforts to prepare for, protect against, respond to, and recover from 

all acts of bioterrorism and other public health emergencies that 

affect the civilian population. However, coordination across 

departments remains a challenge; for example, vaccine research and 

development programs conducted by NIH require careful coordination with 

efforts under way at the Department of Defense to avoid duplication of 

the capabilities that currently exist in the federal 

laboratories.[Footnote 34]

The new Department of Homeland Security has the potential to repair 

this fragmentation in certain areas and to reduce some of the overlap 

and duplication in federal programs.[Footnote 35] However, some 

programs that have aspects that deal with preparedness will remain at 

HHS and will need to be carefully coordinated with activities of the 

new department. Just as with the West Nile virus outbreak in New York 

City--which initially was feared to be the result of bioterrorism--when 

an unusual case of disease occurs, public health officials must 

investigate to determine whether it is naturally occurring or 

intentionally caused. Although the origin of the disease may not be 

clear at the outset, the same public health resources are needed to 

investigate, regardless of the source.

Ensure the Safety and Efficacy of Medical Products:

FDA regulates medical products with annual sales of roughly $1 trillion 

that touch the lives of virtually every American. One of the agency’s 

missions is to ensure that human and animal drugs, medical devices, and 

vaccines, among other products, are safe and effective. In overseeing 

the safety of these products, FDA requires manufacturers of drugs and 

devices to obtain approval before marketing their products. Once 

products are marketed, FDA continues to monitor product safety by 

collecting and analyzing hundreds of thousands of reports of adverse 

events related to medical product use each year. To carry out this 

broad mandate, FDA has about 9,000 employees. These include 

approximately 2,100 scientists who evaluate new product applications 

and about 1,100 inspectors, who ensure that the country’s almost 95,000 

FDA-regulated businesses comply with minimum safety and quality 


Over the past 2 years, our work has focused on drug review and approval 

issues. The speed of FDA’s review and approval of new drugs has 

improved in recent years, largely because the Prescription Drug User 

Fee Act of 1992 allowed FDA to collect fees from the sponsors of new 

drug and biologic applications for the purpose of hiring more medical 

officers and other scientists to review the applications. Further, FDA 

has increased the rigor of its biologics industry inspections. However, 

FDA faces several challenges in its effort to monitor the availability, 

safety, and efficacy of marketed products. These include ensuring that 

the supply of childhood vaccines is adequate, that new drugs are 

adequately tested on the individuals who will use them, and that the 

drug approval process works efficiently without jeopardizing safety.

FDA Faces Difficulties in Regulating Production of Childhood Vaccines:

Immunizations are widely considered one of the leading public health 

achievements of the 20th century. Mandatory immunization programs have 

eradicated polio and smallpox in the United States and have reduced the 

number of deaths from several childhood diseases, such as measles, to 

near zero. A consistent supply of many different vaccines is needed to 

support this effort. However, recent childhood vaccine shortages have 

prompted federal authorities to recommend deferring some immunizations 

and have caused states to reduce immunization requirements.

FDA’s role in licensing and regulating the manufacture of all vaccines 

sold in the United States involves monitoring the clinical trials 

conducted to demonstrate that a vaccine is safe and effective and 

conducting periodic inspections of vaccine production facilities. FDA 

recently announced that it is examining its regulatory standards 

governing the manufacturing process to determine if reform is needed. 

In considering such reforms, the agency seeks to balance the need for 

requirements that will ensure product safety against the need to 

prevent unnecessary disruptions of vaccine supply.

Part of the problem is that relatively few vaccine manufacturers 

produce routine childhood vaccines.[Footnote 36] Five of the eight 

recommended childhood vaccines have only one manufacturer each. Because 

long lead times are needed to produce vaccines and alter production 

volumes, even short-term disruptions in manufacturers’ production have 

created significant shortages of several childhood vaccines during the 

last 2 years. In our recent report on vaccine shortages, we recommended 

that FDA take the following measures to help mitigate the effects of 

future disruptions on vaccine supply:

* Provide guidance on compliance with good manufacturing practices. In 

1997, FDA began tightening its biologics industry inspections, 

including those of vaccine manufacturers. In a phased approach, FDA 

grew more rigorous in assessing manufacturers’ compliance with 

requirements, which included, among other things, quality assurance, 

recordkeeping, personnel qualifications, equipment cleaning, and 

laboratory controls. At the same time, manufacturers reported problems 

with how well FDA communicated the changes in approach and expectations 

for compliance. In October 1999, FDA issued a compliance program 

guidance manual for its own staff, which could have provided 

manufacturers a better understanding of the scope of the inspections. 

However, the manual was available only on request; 3 years after its 

issuance, it is still not available on line, nor is it included in 

FDA’s annual comprehensive list of guidance documents published in the 

Federal Register.

* Reconsider including certain vaccines as eligible for expedited 

review. A substantial number of vaccines are in the development 

pipeline, but the clinical trials that need to be conducted prior to 

obtaining a license to sell vaccine products in the United States can 

take years, even when the products are licensed for use in other 

countries. FDA’s expedited review process cannot be used for most 

vaccines under development because the agency’s policy to use this 

process generally applies only to the approval of new products that 

address an unmet medical need or represent a significant improvement in 

the safety and efficacy of treatment. Childhood vaccines under 

development usually involve an existing vaccine or a combination of 

existing vaccines. In our view, the recent shortages indicate a 

substantial unmet medical need.

FDA Could Strengthen Its Drug Oversight For Specific Populations:

FDA approves drugs for sale in the United States based on its 

determination that they are safe and their clinical benefits outweigh 

potential health risks. To make this decision, FDA reviews supporting 

data collected from several thousand patients during a drug’s 

development. Once a drug is approved for marketing and used by 

potentially hundreds of thousands of patients, however, the type, rate, 

and severity of adverse events caused by the drug can be much different 

from those detected during the drug’s development. In some cases, FDA 

or drug manufacturers have acted to remove drugs from the market that 

have been shown to have unacceptable health risks once they were in 

widespread use. Because the reaction of children and women to drugs can 

differ from the adult male population, it is critical that children and 

women continue to be included in clinical drug trials and that FDA 

monitor the trials for safety, efficacy, and compliance with 

documentation requirements.

Labeling Drugs for Children:

As directed by the Federal Food, Drug, and Cosmetic Act, FDA gives 

considerable attention to manufacturers’ labeling of drugs, as label 

approval is FDA’s chief means for ensuring that a drug’s risks and 

benefits are adequately communicated to health care professionals and 

the public. The role of labeling is particularly important in treating 

children with drugs that have been approved for adults. Only about 25 

percent of drugs in use today have been studied and labeled for 

pediatric patients.

The Congress recognized the importance of learning more about how drugs 

work in children by including in the FDA Modernization Act of 1997 a 

financial incentive for pharmaceutical manufacturers and drug sponsors 

to conduct pediatric studies and submit the results to FDA. The so-

called “pediatric exclusivity provision” offered manufacturers an 


6 months to be a drug’s exclusive marketer in exchange for having the 

drug tested for use in children. In May 2001, we reported that 

pediatric drug studies had increased substantially since the 1997 

legislation’s enactment, but many manufacturers had not made the 

labeling changes detailing the appropriate dosages, risks, and benefits 

for children.[Footnote 37] Such label changes provide more specific 

guidance regarding the effective dose for children, additional warnings 

about adverse events in children, and information on related 

medications. Of the 60 drugs that had been granted marketing 

exclusivity extensions, as of August 2002, only 35 of these drugs had 

their labels changed to incorporate findings from the research 

conducted to obtain the extensions.

The Congress addressed this problem when it reauthorized the pediatric 

exclusivity provision in the Best Pharmaceuticals for Children Act, 

which was signed into law in January 2002. The act created a process 

whereby FDA can determine that a drug is misbranded and essentially 

remove it from the market, if the drug manufacturer fails to make the 

agency’s requested labeling changes. Under the act, FDA has the 

authority to ensure that drug manufacturers relabel the 25 remaining 

drugs that were granted marketing extensions and any such drugs in the 

future. However, the agency is still trying to reach agreement with 

drug manufacturers on label changes for several of the drugs granted 

marketing extensions more than a year ago.

Monitoring the Inclusion of Women in Clinical Trials:

Potential sex differences in the safety and efficacy of new drugs 

underscore the importance of including women and men in all stages of 

drug development and analyzing the data for these differences. For 

example, in January 2001, we reported that 3 of the 10 prescription 

drugs withdrawn from the U.S. market in recent years induced 

potentially fatal cardiac arrhythmias in women more often than in 

men.[Footnote 38]

In a July 2001 report, we found that FDA did not know how many women 

were included in clinical trials for new drugs, despite regulations in 

1998 and 2000 requiring that safety and efficacy data be separately 

presented for men and women in applications for approving new drugs. In 

conducting our own analysis, we found that women were sufficiently 

represented in new drug testing, but the agency itself lacks a 

management system to record and track such information or monitor 

compliance with regulations for conducting clinical drug 

trials.[Footnote 39] Such monitoring is needed to ensure that drug 

developers are in compliance with regulations for presenting outcome 

data by sex and tabulating the number of women included in clinical 


When clinical trials included women, neither drug developers nor FDA 

took full advantage of the data available to learn more about the 

tested drug’s effects on women and to explore potential sex differences 

in dosing. FDA internal documents compiled on each new drug application 

are not required to include analyses of sex differences. Our study 

noted that, although about one-third of new drug applications specified 

that the concentrations of the drug in the bloodstream were greater in 

people who weighed less, such as women, FDA reviewers did not comment 

on the lack of dose adjustments based on sex. The potential for higher 

drug concentration or exposure can lead to an increased risk of adverse 

events for women. While FDA has taken some promising initial steps to 

address these deficiencies, it is important that the agency finalizes 

the pilot programs it has under way and give sustained attention to 

these management issues.

FDA Efforts to Reduce Drug Approval Safety Risks and Retain Expert 

Staff Pose New Challenges:

With added resources provided through the Prescription Drug User Fee 

Act of 1992 and its extensions, the speed of FDA’s review and approval 

of new drugs and biologics has increased, but the rate at which drugs 

have been withdrawn from the market for safety-related issues has 

increased as well. Our September 2002 study found that the share of 

drugs approved from 1997 to 2000 that have since been withdrawn has 

risen to 5.34 percent, up from 1.56 percent of the drugs approved from 

1993 to 1996.[Footnote 40] While differences in time periods may 

account in part for this change, the rise in the number of newly 

approved drugs entering the U.S. market increases the probability of 

individuals experiencing adverse drug events and puts additional 

pressure on FDA to ensure the safety of these products.

To address this issue, the agency plans to establish a more rigorous 

safety monitoring system of newly approved drugs and increase the 

resources devoted to tracking adverse effects from drugs already on the 

market. It plans to use about $71 million over 5 years in funds 

permitted by the User Fee Act reauthorization for this purpose. The 

success of FDA’s approach will likely depend on the establishment of 

best practices or other guidance for pharmaceutical and biotechnology 

industries to conduct risk assessment, risk management, and 

surveillance activities and the agency’s ability to react promptly to 

the information companies are providing on risks and adverse effects.

FDA’s success will also depend on how well it faces the challenge of 

recruiting and retaining its expert workforce, who are key to ensuring 

the timely review of drugs and biologics. Our September 2002 study 

found that, in recent years, with the exception of chemists, FDA’s 

attrition rates for employees in its drug review process are higher 

than the comparable attrition rates for the same disciplines at CDC, 

NIH, and similar disciplines governmentwide. Specifically, FDA’s 

studies of staff turnover found that toxicologists, pharmacologists, 

pharmacokinetists, and statisticians were leaving FDA to work in 

private industry and academia for higher salaries. The loss of staff is 

aggravated by the time the agency needs to hire and train replacement 

reviewers. FDA maintains that hiring a replacement can take up to 6 

months and training a reviewer to be fully functional, from 

12 to 24 months. The agency’s currently employed reviewers have been 

forgoing training and professional development to meet statutory drug 

review time frames. FDA has implemented a number of initiatives to 

reduce reviewer attrition, including the payment of retention bonuses 

to expert staff. Such initiatives are intended to help FDA maintain the 

science base it needs to review increasingly complex applications for 

new drugs.

Enhance the Programs That Target the Economic Independence and Well-

being of Children and Families:

The Personal Responsibility and Work Opportunity Reconciliation Act of 

1996 significantly changed federal welfare policy by ending the federal 

entitlement to cash assistance and creating a new program, designed to 

serve as a transition to help welfare recipients enter and remain in 

the workforce. Under the new federal welfare program, which provides 

states with a block grant called Temporary Assistance for Needy 

Families (TANF), states were afforded wide flexibility to design 

programs to help needy families find, obtain, and retain jobs. In the 

years following the enactment of welfare reform, welfare caseloads 

declined dramatically and the proportion of single mothers in the 

workforce greatly increased, helped in part by a period of strong 

economic growth (see fig. 3).

Figure 3: Single Mothers’ Work and Welfare Status, 1987-2000:

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The transformation of the federal welfare program affected more than 

just welfare caseloads; it fundamentally altered the social safety net 

by refocusing federal social service programs on their role as work 

supports. The 1996 welfare legislation ended automatic eligibility 

previously available for cash assistance recipients for Medicaid, a 

jointly funded federal and state program that provides health insurance 

for eligible low-income individuals. Instead, the legislation created a 

separate Medicaid eligibility category not tied to recipients’ 

eligibility for TANF. To ease their entrance into the workforce, 

certain families losing Medicaid as a result of employment or increased 

income may be eligible for up to 1 year of transitional Medicaid 

assistance. In April 2002, we testified on the role this benefit can 

play in supporting transitions from welfare to work.[Footnote 41] In 

1997, a new health insurance program--the State Children’s Health 

Insurance Program (SCHIP)--was established to provide coverage to 

children living in low-income families whose incomes exceed the 

eligibility requirements for Medicaid.

Many other programs that HHS oversees have also undergone substantial 

changes at the federal, state, and local levels in recent years to help 

them better support working families. The 1996 law that created TANF 

also provided authority and funding for the Child Care and Development 

Fund, designed to promote maximum flexibility for states to subsidize 

low-income working families. The law also mandated changes to child 

support enforcement and child welfare. In addition to these programs 

administered by HHS, other federal agencies oversee a variety of 

programs that complement the new TANF focus on moving people into 

employment and enhancing family independence and well-being, as shown 

in figure 4.

Figure 4: Many Programs in Separate Departments Can Enhance Family 

Independence and Well-Being:

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Although caseloads were declining during the early years of welfare 

reform, more recently, as the economy has weakened and recent federal 

and state budget constraints have increased, caseload declines have 

slowed. Some states have seen increased demand for a range of social 

service programs. These changes have renewed management challenges for 

HHS and its agencies--principally the Administration for Children and 

Families (ACF) and CMS--to develop information and information systems 

to help states administer these programs and ensure program 

accountability and effectiveness. HHS’s role is complicated by the need 

to balance accountability and effectiveness while allowing states the 

flexibility to tailor these programs to their individual circumstances.

Improvements in Information Systems Needed to Strengthen Programs:

The major changes in the social safety net since 1996 have led to 

demands for different types of information from state and local 

agencies’ information systems. Agencies’ information systems are no 

longer used simply to determine eligibility for aid, but are also 

needed to facilitate and track aid recipients’ progress toward 

employment and to assess program performance. To this end, information 

is needed on recipients’ use of a wide array of safety net services, 

including TANF, childcare, and other work supports.

Despite their importance, our work on states’ information systems shows 

that state and local systems typically do not meet the changing needs 

of the new welfare environment. In addition, opportunities for more 

effective use of state information systems to identify erroneous 

payments to individuals and reduce program costs are not being fully 

realized. HHS has a role to play in the following areas:

* Facilitating states’ efforts to improve information systems. Because 

of the importance of adequate automated systems to the success of 

welfare reform and HHS’ role as the key federal agency overseeing 

reform, we recommended in April 2000 that HHS establish an interagency 

group with other federal agencies, including the Department of 

Agriculture, which oversees food stamps, to facilitate states’ efforts 

to improve their automated information systems.[Footnote 42] Officials 

from ACF, CMS, and the Department of Agriculture have since met 

regularly to improve the burdensome approval process for federal 

funding of systems’ development and operations, one area we identified 

as hindering states’ efforts. However, the group’s progress over the 

last 2 years has been stymied by a lack of agreement among the agencies 

about what changes should be made to the approval process.

* Sharing information to reduce program costs. In 1997, staff at ACF 

initiated the Public Assistance Reporting Information System (PARIS), 

an information-sharing project that can help states reduce program 

costs by identifying individuals who may be erroneously receiving 

benefits from more than one state simultaneously. However, only a third 

of the states participate in the project, and efforts by federal 

agencies to increase participation in PARIS have been minimal. ACF 

devotes very few resources to PARIS; and CMS, the federal agency that 

stands to reap the greatest savings from the project by identifying 

duplicate Medicaid payments made by states, has made no effort to 

encourage state Medicaid agencies to participate. In our 2001 report, 

we recommended that the Secretary of HHS direct the Administrators of 

ACF and CMS to formally support PARIS and provide guidance to 

participating states.[Footnote 43] Although HHS agreed with the 

recommendation’s intent, it has not taken any substantive action, 

arguing that the states were better able to determine procedures for 

engaging this system.

Efforts Needed to Ensure State Accountability:

Many of HHS’ programs for low-income families and children are funded 

through grants and administered by states, localities, and other 

entities. This allows administrators the flexibility to tailor their 

programs to meet state and local needs, but poses challenges to federal 

efforts to maintain fiscal accountability and appropriate programmatic 


HHS could do more to ensure fiscal accountability among the many 

players involved in the new welfare environment. For example, while a 

system to develop annual state audit reports--designed to meet federal 

audit needs while minimizing the burden on states--is in place, we 

found that HHS does not use the reports systematically to assess 

accountability among the nongovernmental contractors that state and 

local TANF offices use to provide TANF services. In our June 2002 

report, we recommended that HHS make better use of these audit reports 

to determine contractor problems and take actions that could help 

prevent and correct such problems.[Footnote 44] Fiscal accountability 

for states’ TANF programs would also be increased if HHS worked with 

the states to develop more informative and transparent reporting on 

unspent TANF balances. Improved reporting on these balances could 

enhance congressional oversight of how federal funds are being used to 

meet the goals of the program. We also recommended in an earlier report 

that HHS take steps to gather data that would allow it to monitor 

changes in the federal-state fiscal balance, given the dramatic changes 

from the welfare entitlement program to the TANF block grant and 

states’ increased flexibility in spending decisions.[Footnote 45] HHS 

agreed that such data would be essential during TANF reauthorization 

but expressed reservations about its ability to collect this 

information and has not acted to implement this recommendation.

HHS could also improve accountability by having performance measures 

and data in place to adequately assess its progress in meeting program 

goals. For example, in our March 2002 review of Head Start and Even 

Start programs, we found that one of these programs’ goals is to 

increase literacy in families of children enrolled, but the programs 

did not measure their progress in this area. We recommended that HHS 

coordinate with the Department of Education to develop performance 

outcome measures for adult education and literacy programs similar to 

those developed for children’s programs.[Footnote 46] To date, no 

action has been taken to coordinate the agencies’ efforts. In other 

work, we found that data integral to efforts to improve federal 

programs are not always collected. Our June 2002 review of the Adoption 

and Safe Families Act showed that important information to assess the 

actís impact on children in foster care is still unavailable, despite 

federal and state efforts to improve it[Footnote 47] As a result, we 

recommended that HHS review the feasibility of collecting data on 

statesí use of provisions that aim to place children in permanent 

situations as quickly as possible. We noted that more information could 

help HHS better target its limited resources to key areas where the 

states may need assistance in achieving the act’s goals. ACF concurred 

and reported establishing a team to review data issues.

In some instances, HHS has used performance data to better inform 

resource allocation decisions. In our 2002 review of how ACF used 

performance information to guide resource allocation decisions, we 

found several examples of ways in which the agency strengthened the 

link between program performance and budgeting.[Footnote 48] For 

example, regional staffs were able to allocate training and technical 

assistance funds and organize staff resources based on program 

performance and needs. To improve the link between performance and 

budgeting, ACF told us that it collaborated with grantees to focus its 

resources on areas where grantee and federal performance goals 


Efforts Needed to Ensure Program Effectiveness:

HHS faces considerable challenges ensuring that its programs reach 

eligible children with services that improve their well being, in part 

because responsibility for enrollment and service delivery policies and 

practices largely reside at the state level. HHS must rely on states 

and localities to develop effective outreach and enrollment methods, as 

well as ensure that services are available for program participants. 

However, HHS can work with states to better identify program 

shortcomings and correct them.

One shortcoming of HHS’s health insurance programs is that they do not 

always reach individuals who may need them. Although Medicaid and SCHIP 

provide insurance coverage to millions of low-income individuals, many 

eligible children are not enrolled and remain uninsured. Our September 

2001 review of state Medicaid and SCHIP enrollment policies showed that 

differences in enrollment practices within states affect the ability of 

children to obtain and keep health insurance coverage.[Footnote 49] 

Differing application requirements and processing times can lead to 

delayed coverage--and in some cases, to no coverage--if families do not 

return to complete additional application requirements. Well-

coordinated programs, however, can minimize the effect of such 

differences and facilitate enrollment and continuity of care for 


Once enrolled, beneficiaries in some states may face difficulty getting 

health care because service availability is largely dependent on 

providers’ willingness to participate in the programs. Since physicians 

decide whether to participate in Medicaid and SCHIP partly on the basis 

of the payment rates, lower Medicaid payments relative to other payers 

continue to be a source of concern. Additionally, the extent to which 

states set specific requirements for--and routinely monitor--access to 

care for Medicaid and SCHIP beneficiaries often differs according to 

their service delivery approach, such as managed care or fee-for-

service.[Footnote 50] Moreover, federal and state governments often 

have limited knowledge about the extent to which enrolled individuals 

are getting care from Medicaid or SCHIP. For example, under Medicaid, 

states must provide children and adolescents under age 21 with 

comprehensive, periodic assessments of health, developmental and 

nutritional status, as well as treatment for conditions identified--

called Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) 

services. Despite their importance, our July 2001 review of EPSDT found 

that states had unreliable and incomplete data on the extent to which 

children in Medicaid are receiving these services, particularly for 

children enrolled in managed care.[Footnote 51]

Federal efforts to ensure that children are receiving EPSDT services 

have focused largely on changing the format and specificity of state 

reports so that states can collect more reliable data on the extent to 

which children are screened. While a positive step, this did not 

adequately address the difficulty states face in obtaining service 

information. Therefore, we recommended that CMS work with states to 

develop criteria and a timetable for assessing and improving the 

reporting and provision of EPSDT services. Further, although some 

states may have taken effective actions to improve the delivery of 

EPSDT services, CMS has not taken steps to identify them. Therefore, we 

also recommended that CMS develop mechanisms for identifying and 

highlighting state EPSDT service delivery practices that could be used 

as models for other states.

In addition to improving its health insurance programs, HHS could also 

take steps to improve the effectiveness of the child support program, 

which provides income for many children who do not live with both 

parents. Although total collections from parents who owe support money 

have increased in recent years, collections remain low relative to the 

amount owed, as shown in figure 5. Our work shows that collecting 

social security numbers from all drivers’ license applicants, as 

required under federal law, and providing the information to the 

responsible child support agencies can result in increased collection 

from parents who owe child support. This is especially true for some 

particularly difficult-to-collect payments--those that are overdue and 

that are from noncustodial parents who are self-employed or who work 

informally for cash. Yet, at the time of our February 2002 review, six 

states did not enforce this requirement.[Footnote 52] We recommended 

that the Office of Child Support Enforcement in ACF more effectively 

track, and take formal steps to bring about, compliance with this 

requirement. In response, HHS has since begun a review of its processes 

to track agency compliance and guidance on this issue. We also found 

that, despite the demonstrated effectiveness of wage withholding as an 

enforcement tool, the withholding form and related guidance developed 

by the Office of Child Support Enforcement make it difficult for 

employers to determine whether it is proper to begin withholding wages. 

This can result in instances in which employees’ wages are 

inappropriately withheld. We recommended that the form and related 

guidance be improved;[Footnote 53] since then, the office has begun 

drafting revisions to the form and agency guidance.

Figure 5: Child Support Owed and Collected in Fiscal Years 1996 and 


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In addition to other steps to improve effectiveness of programs, HHS 

could also better identify where research on its programs’ effects is 

lacking, conduct or support the needed research, and coordinate and 

disseminate its research findings. In some of our recent work we have 

identified specific information gaps and recommended that HHS devote 

resources to increasing the information available on the effects of the 


* State child care quality improvement initiatives on children’s 

development. Although little evidence exists on the effectiveness of 

states’ child care quality improvement initiatives, some literature 

suggests that there is a link between child care quality attributes and 

children’s developmental progress. We recommended that HHS include this 

analysis in its planned multiyear evaluation of the net impact and 

benefits of state child care policies.[Footnote 54] In response, HHS 

expressed optimism that this type of analysis would be included in the 

multistate evaluation.

* Coordinated service delivery on outcomes of TANF clients. In looking 

at coordination between Workforce Investment Act and TANF services, we 

found that little is known about the effect of such coordination 

efforts on recipient outcomes. We recommended that HHS, either alone or 

jointly with the Department of Labor, promote research in this area, 

while HHS contended that designing such research may not be 

feasible.[Footnote 55]

* Federal programs that provide counseling and mental health services 

for children who have experienced traumatic events. The effectiveness 

of federal programs that could help children who have experienced 

trauma remains largely unknown. For example, in examining the long-

standing federal Crisis Counseling Assistance and Training Program 

administered by the Federal Emergency Management Agency (FEMA) in 

collaboration with HHS’s Substance Abuse and Mental Health Services 

Administration (SAMHSA), we found that the agencies had not conducted 

an evaluation of the program’s effectiveness. Therefore, we recommended 

that the Director of FEMA work with the Administrator of SAMHSA to 

evaluate the effectiveness of the program, including its assistance to 

children who need mental health services as the result of a disaster. 

While both agencies agreed that program evaluation is important, FEMA 

did not indicate whether it intends to coordinate with SAMHSA to 

conduct such an evaluation.

Improve Financial Systems, Processes, and Controls:

HHS sustained the important achievement of an unqualified, or “clean,” 

opinion on its fiscal year 2001 financial statements, making this the 

third consecutive year it received such an opinion. An unqualified, or 

“clean,” opinion indicates to financial statement users that the 

information included in the statements is fairly presented as of the 

date of the financial statements--the last day of the fiscal year. 

While this is an important milestone, a clean audit opinion does not 

provide assurances about the effectiveness and efficiency of financial 

systems used to prepare the statements or the quality of internal 

control. The ultimate goal for effective agency financial management is 

achieving accountability, which is having major systems and controls in 

place to provide accurate, timely, and useful financial information to 

manage the department and its component agencies on a day-to-day basis.

HHS continues to have two weaknesses in its control over financial 

management that auditors have identified as significant--deemed 

material weaknesses--and that impair its ability to establish sound 

financial accountability.[Footnote 56] First, the department and its 

component agencies have ineffective financial systems and processes 

that hamper preparation of timely and reliable financial statements. 

Because HHS and its agencies lack integrated financial systems capable 

of automating all internal and external financial reporting needs, 

their current systems are not in compliance with requirements in the 

Federal Financial Management Improvement Act of 1996 (FFMIA).[Footnote 

57] In addition to these system issues, HHS and its agencies have 

weaknesses in oversight and the conduct of key financial processes. 

Auditors have identified problems with analysis and reporting of 

Medicare financial data by HHS’s contractors and of NIH’s and ACF’s 

grant accounting.

HHS’s second material weakness is having ineffective controls over 

Medicare information systems, particularly relating to system security. 

CMS relies on information systems operations at both its central office 

and Medicare contractors to administer the Medicare program. Weaknesses 

in security controls for these systems increase the risk that sensitive 

program and financial data processed is not being adequately protected 

from unauthorized access or service disruption. Controls over these 

operations are essential to ensure the integrity, confidentiality, and 

reliability of critical data while reducing the risk of errors, fraud, 

or other illegal acts.

For more information on financial management in relation to Medicare, 

see the section entitled “ Safeguard the Integrity of the Medicare 


Improvements in Financial Systems And Processes Are Needed to Help 

Ensure Financial Accountability:

Preparing financial statements that provide accurate and timely 

information is a key aspect of accountability. In preparing its 

financial statements for fiscal year 2001, the lack of integrated 

financial systems made it difficult for HHS and its agencies to prepare 

reliable, timely financial statements. HHS had to rely on extensive, 

time-consuming manual spreadsheets and adjustments at year-end in order 

to report accurate financial information. These year-end efforts helped 

HHS prepare statements that were materially and fairly presented. 

Nevertheless, such efforts are expensive; prone to errors, mistakes, 

and inaccuracies; and cannot be sustained.

Auditors reported problems in financial systems at some of the HHS 

agencies that are responsible for their own financial management 

systems and accounting functions--CMS, NIH, CDC, and FDA--as well as 

some that are not, such as ACF. Agencies that are not responsible for 

their own financial management systems rely on the Program Support 

Center’s Division of Financial Operations (DFO) for financial systems 

and accounting.[Footnote 58]

Examples of systems weaknesses reported by auditors follow:

* CMS did not have an integrated accounting system to capture 

expenditures at the Medicare contractor level and thus was not in 

compliance with federal system requirements under FFMIA. CMS’s systems 

did not have capabilities necessary to properly process and record data 

on accounts receivable activity. As a result, CMS paid for extensive 

consultant time to establish reliable balances for its financial 


* System inadequacies at NIH resulted in the agency developing 

financial data necessary for the financial statements through a 

substantial year-end process. This included creating and posting new 

balances to the correct standard general ledger accounts. Through this 

process, NIH generated about 19,000 nonstandard accounting entries with 

an absolute value of about $348 billion. Posting nonstandard entries of 

this size and magnitude is a concern because of the increased risk that 

they could bypass normal accounting controls.

* ACF and CDC both used manually intensive processes and numerous 

adjusted journal entries to prepare accurate financial statements. The 

process used by these agencies often resulted in the untimely reporting 

of financial information supporting management decision-making.

Auditors also reported that HHS’s ability to ensure financial 

accountability was hampered by weaknesses in key financial processes, 

including financial analysis and reporting and grant accounting. At 

present, HHS and some of its agencies do not routinely perform analysis 

and reconciliation of financial data to ensure that program dollars are 

properly accounted for. Financial analysis and reconciliation is key to 

ensuring accurate, timely financial information because it helps to 

detect unusual variances and fluctuations in data and pinpoint problems 

and inconsistencies in reporting. Auditors reported the following 

problems in financial analysis and reporting at HHS:

* CMS did not use adequate analysis procedures in overseeing Medicare 

contractors and the financial data that they manage. Specifically, CMS 

analysis did not detect errors in the amount of debt owed to the 

Medicare program as reported by contractors. Also, while some analysis 

procedures were implemented by CMS to help detect unusual variances and 

fluctuations, the benefit of this analysis was lost because CMS did not 

consistently follow up to determine the cause of inconsistencies in 

financial data.

* At NIH and ACF, insufficient analysis was done to determine if 

transactions were processed and recorded properly. Both agencies had to 

make significant adjustments to accounts several months after their 

financial statements were provided to auditors because they had not 

analyzed account balances in time, including those for program 

expenditures and accounts payable. NIH and ACF also failed to conduct 

timely periodic reconciliations that would have detected errors in 

amounts reported for accurate grant accounting. For example, auditors 

reported that NIH’s reconciliation process failed to detect and resolve 

a $193 million difference between the amounts recorded in its 

supporting accounting ledger and main accounting ledger for a liability 


* Auditors reported many differences between the grant data that NIH 

and ACF records showed as reported to the HHS component responsible for 

centralized grant accounting services--the Program Support Center 

(PSC)--and the data in PSC’s Payment Management System. In one case, 

ACF failed to properly review expenditures reported in the Payment 

Management System before they were released for other use. Once 

reviewed, the agency decreased the amount that the grantee was 

authorized to receive by $58 million, and as a result, by the time the 

mistake had been rectified, the grantee exceeded its authorized 

expenditures by $29 million.

It is especially important for HHS and its agencies to replace existing 

financial systems and eliminate their manual efforts, given OMB’s new 

financial reporting requirements. OMB now requires agencies to prepare 

interim financial statements and has accelerated their year-end 

financial statement deadlines. For fiscal year 2002, the deadlines have 

been accelerated by about 1 month--to February 1--and OMB plans to 

significantly accelerate the deadlines for fiscal year 2004 when 

financial statements will have to be submitted by November 15, 2004. 

Failure to meet these deadlines could undermine HHS’s financial 

management achievements, including the clean audit opinion on its 

financial statements. HHS will need to provide continued management 

attention and funding to maintain current financial systems and 

processes while working to develop major systems and controls that 

provide accurate, timely, and useful information to manage the 

department and its agencies on a day-to-day basis.

Improved Controls over Medicare Information Systems Needed To Protect 

Data Security Integrity:

Controls over the information systems that process Medicare program and 

financial data are essential to ensure data integrity and reduce the 

risks of illegal access. Auditors noted weaknesses in almost every 

aspect of the controls established for Medicare information systems. 

Most of the problems cited related to controls that could allow 

unauthorized system access, including the ability to make software 

changes, but others could also prevent service continuity in case of 

disaster. Poor control over system access compromises CMS’s ability to 

ensure security over sensitive programmatic and financial data. 

Although most of the problems cited by auditors were at Medicare 

contractors, some were also identified in the systems maintained by 

CMS’s central office, as the following examples illustrate.

* Access to sensitive data. Medicare contractors’ staff had access to 

sensitive data, including patient information, although it was not 

required for their job duties. Their access could result in 

unauthorized changes to Medicare information.

* Access to Medicare facilities. At several Medicare contractors and 

CMS’s central office, auditors noted that data centers did not have 

sufficient procedures for continuously monitoring staff activities 

within the centers. The data centers also lacked procedures to prevent 

access to sensitive areas by staff whose job duties did not require 

such access.

Auditors found no evidence of an actual compromise of security as a 

result of the lax controls. Nevertheless, the integrity of Medicare 

program and financial data remains at risk until CMS corrects these 

control weaknesses.

HHS Efforts Under Way to Correct Weaknesses in Financial Systems, 

Processes, and Controls:

HHS and its agencies have started to implement corrective actions to 

address weaknesses in financial systems, processes, and controls. For 

example, the department implemented an internet-based Automated 

Financial System (AFS) to reduce the manually intensive spreadsheets 

that had been used in the past to consolidate component financial 

statements. Recognizing that AFS does not fully address the financial 

system weaknesses that affect its ability to quickly generate accurate 

and timely financial information, HHS has developed plans to replace 

various existing and antiquated financial systems with a Unified 

Financial Management System (UFMS). This unified system will consist of 

two major subcomponents. One subcomponent--the Healthcare Integrated 

General Ledger System (HIGLAS)--will be for CMS and the Medicare 

contractors that CMS has begun developing and anticipates implementing 

by 2007. The other subcomponent will be for all other HHS component 


HHS and its agencies are implementing other corrective actions to 

address weaknesses in financial processes and Medicare information 

systems controls, as the following examples illustrate.

* Financial processes. NIH developed plans to implement numerous 

additional analyses and reconciliations to ensure that financial 

statement balances are accurate. CMS made significant improvements in 

its financial processes including (1) updating policies for contractors 

on financial matters such as debt collection and cost reporting and

(2) publishing an accounting procedures manual to help ensure that its 

staff process financial transactions properly.[Footnote 59]

* Medicare information systems controls. CMS has undertaken several 

actions to improve security controls. CMS revised the information 

security requirements for contractors based on a synthesis of 

requirements as promulgated by several federal agencies including OMB 

and GAO.[Footnote 60] CMS began requiring contractors to document their 

compliance with the new security requirements and has also committed to 

providing funding to establish controls where gaps are identified in 

contractors’ compliance with security requirements--to the extent that 

funds are available.

These and other actions that HHS and its agencies have taken to improve 

financial management are positive steps towards resolving their major 

management challenges in this area. Sustaining financial management 

achievements while implementing the major system enhancements needed to 

improve financial accountability will require long-term management 

commitment and follow-through.

[End of section]

GAO Contacts:

Subject(s) covered in this report: Medicare Program Design and 

Administration; Contact Person: Laura A. Dummit, Director

Health Care--Medicare Payment Issues

(202) 512-7119

Subject(s) covered in this report: Medicare Program Integrity 

Safeguards; Contact Person: Leslie G. Aronovitz, Director

Health Care--Program Administration and Integrity Issues

(312) 220-7600

Subject(s) covered in this report: Medicaid Fiscal and Management 

Oversight/Medicare and Medicaid Care Oversight; Contact Person: Kathryn 

G. Allen, Director

Health Care--Medicaid and Private Health Insurance Issues

(202) 512-7118

Subject(s) covered in this report: Public Health Emergency 

Preparedness/Medical Product Safety and Efficacy; Contact Person: Janet 

Heinrich, Director

Health Care--Public Health Issues

(202) 512-7119

Subject(s) covered in this report: Economic Independence and Well-Being 

of Children and Families; Contact Person: Cynthia M. Fagnoni, Managing 


Education, Workforce, and Income Security Issues

(202) 512-7215

Subject(s) covered in this report: Financial Management Systems, 

Processes, and Controls; Contact Person: Linda M. Calbom, Director

Financial Management and Assurance

(202) 512-9508

[End of table]

[End of section]

Related GAO Products:

[End of section]

Medicare Program Design and Administration:

Skilled Nursing Facilities: Providers Have Responded to Medicare 

Payment System by Changing Practices. GAO-02-841. Washington, D.C.: 

August 23, 2002.

Medicare: Challenges Remain in Setting Payments for Medical Equipment 

and Supplies and Covered Drugs. GAO-02-833T. Washington, D.C.: June 12, 


Medicare Physician Payments: Spending Targets Encourage Fiscal 

Discipline, Modifications Could Stabilize Fees. GAO-02-441T. 

Washington, D.C.: February 14, 2002.

Medicare: Payments for Covered Outpatient Drugs Exceed Providers’ Cost. 

GAO-01-1118. Washington, D.C.: September 21, 2001.

Medicare: Higher Expected Spending and Call for New Benefit Underscore 

Need for Meaningful Reform. GAO-01-539T. Washington, D.C.: March 22, 


Nursing Homes: Aggregate Medicare Payments Are Adequate Despite 

Bankruptcies. GAO/T-HEHS-00-192. Washington, D.C.: September 5, 2000.

Medicare Program Integrity Safeguards:

Medicare Financial Management: Significant Progress Made to Enhance 

Financial Accountability. GAO-03-151R. Washington, D.C.: October 31, 


Medicare+Choice: Selected Program Requirements and Other Entities’ 

Standards for HMOs. GAO-03-180. Washington, D.C.: October 31, 2002.

Medicare: Recent CMS Reforms Address Carrier Scrutiny of Physicians’ 

Claims for Payment. GAO-02-693. Washington, D.C.: May 28, 2002.

Medicare: Using Education and Claims Scrutiny to Minimize Physician 

Billing Errors. GAO-02-778T. Washington, D.C.: May 28, 2002.

Medicare: Communications With Physicians Can Be Improved.

GAO-02-249. Washington, D.C.: February 27, 2002.

Debt Collection Improvement Act of 1996: HHS’s Centers for Medicare & 

Medicaid Services Faces Challenges to Fully Implement Certain Key 

Provisions. GAO-02-307. Washington, D.C.: February 22, 2002.

Medicare+Choice Audits: Lack of Audit Follow-up Limits Usefulness. GAO-

02-33. Washington, D.C.: October 9, 2001.

Medicare: Information Systems Modernization Needs Stronger Management 

and Support. GAO-01-824. Washington, D.C.: September 20, 2001.

Medicare: Comments on HHS’ Claims Administration Contracting Reform 

Proposal. GAO-01-1046R. Washington, D.C.: August 17, 2001.

Medicare Management: CMS Faces Challenges to Sustain Progress and 

Address Weaknesses. GAO-01-817. Washington, D.C.: July 31, 2001.

Medicare: Successful Reform Requires Meeting Key Management Challenges. 

GAO-01-1006T. Washington, D.C.: July 25, 2001.

Medicare Contracting Reform: Opportunities and Challenges in 

Contracting for Claims Administration Services. GAO-01-918T. 

Washington, D.C.: June 28, 2001.

Medicare Management: Current and Future Challenges. GAO-01-878T. 

Washington, D.C.: June 19, 2001.

Medicare Reform: Modernization Requires Comprehensive Program View. 

GAO-01-862T. Washington, D.C.: June 14, 2001.

Regulatory Issues for Medicare Providers. GAO-01-802R. Washington, 

D.C.: June 11, 2001.

Medicare: Opportunities and Challenges in Contracting for Program 

Safeguards. GAO-01-616. Washington, D.C.: May 18, 2001.

Medicare Fraud and Abuse: DOJ Has Improved Oversight of False Claims 

Act Guidance. GAO-01-506. Washington, D.C.: March 30, 2001.

Major Management Challenges and Program Risks: Department of Health and 

Human Services. GAO-01-247. Washington, D.C.: January 2001.

High-Risk Series: An Update. GAO-01-263. Washington, D.C.: January 


Medicare: HCFA Could Do More to Identify and Collect Overpayments. 

HEHS/AIMD-00-304. Washington, D.C.: September 7, 2000.

Medicaid Fiscal and Management Oversight:

Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver 

Projects Raise Concerns. GAO-02-817. Washington, D.C.: July 12, 2002.

Medicaid: HCFA Reversed Its Position and Approved Additional State 

Financing Schemes. GAO-02-147. Washington, D.C.: October 30, 2001.

Medicaid: State Financing Schemes Again Drive Up Federal Payments. GAO/

T-HEHS-00-193. Washington, D.C.: September 6, 2000.

Medicare and Medicaid: Implementing State Demonstrations for Dual 

Eligibles Has Proven Challenging. GAO/HEHS-00-94. Washington, D.C.: 

August 18, 2000.

Medicaid in Schools: Poor Oversight and Improper Payments Compromise 

Potential Benefit. GAO/T-HEHS/OSI-00-87. Washington, D.C.: April 5, 


Medicaid in Schools: Improper Payments Demand Improvements in HCFA 

Oversight. GAO/HEHS/OSI-00-69. Washington, D.C.: April 5, 2000.

Medicare and Medicaid Care Oversight:

Skilled Nursing Facilities: Providers Have Responded to Medicare 

Payment System by Changing Practices. GAO-02-841. Washington, D.C.: 

August 23, 2002.

Medicare Home Health Agencies: Weaknesses in Federal and State 

Oversight Mask Potential Quality Issues. GAO-02-382. Washington, D.C.: 

July 19, 2002.

Nursing Homes: Quality of Care More Related to Staffing than Spending. 

GAO-02-431R. Washington, D.C.: June 13, 2002.

Nursing Homes: More Can Be Done to Protect Residents from Abuse. GAO-

02-312. Washington, D.C.: March 1, 2002.

Nursing Homes: Federal Efforts to Monitor Resident Assessment Data 

Should Complement State Activities. GAO-02-279. Washington, D.C.: 

February 15, 2002.

Nursing Homes: Sustained Efforts Are Essential to Realize Potential of 

the Quality Initiatives. GAO-HEHS-00-197. Washington, D.C.: September 

28, 2000.

Medicare Quality of Care: Oversight of Kidney Dialysis Facilities Needs 

Improvement. GAO-HEHS-00-114. Washington, D.C.: June 23, 2000.

Public Health Emergency Preparedness:

Homeland Security: CDC’s Oversight of the Select Agent Program. GAO-03-

315R. Washington, D.C.: November 22, 2002.

Public Health: Maintaining an Adequate Blood Supply Is Key to Emergency 

Preparedness. GAO-02-1095T. Washington, D.C.: September 10, 2002.

Public Health: Blood Supply Generally Adequate Despite New Donor 

Restrictions. GAO-02-754. Washington, D.C.: July 22, 2002.

Homeland Security: New Department Could Improve Coordination but 

Transferring Control of Certain Public Health Programs Raises Concerns. 

GAO-02-954T. Washington, D.C.: July 16, 2002.

Homeland Security: New Department Could Improve Biomedical R&D 

Coordination but May Disrupt Dual-Purpose Efforts. GAO-02-924T. 

Washington, D.C.: July 9, 2002.

Homeland Security: New Department Could Improve Coordination but May 

Complicate Priority Setting. GAO-02-893T. Washington, D.C.: June 28, 


Homeland Security: New Department Could Improve Coordination but May 

Complicate Public Health Priority Setting. GAO-02-883T. Washington, 

D.C.: June 25, 2002.

Bioterrorism: The Centers for Disease Control and Prevention’s Role in 

Public Health Protection. GAO-02-235T. Washington, D.C.: November 15, 


Bioterrorism: Review of Public Health Preparedness Programs.

GAO-02-149T. Washington, D.C.: October 10, 2001.

Bioterrorism: Public Health and Medical Preparedness. GAO-02-141T. 

Washington, D.C.: October 9, 2001.

Bioterrorism: Coordination and Preparedness. GAO-02-129T. Washington, 

D.C.: October 5, 2001.

Bioterrorism: Federal Research and Preparedness Activities. GAO-01-

915. Washington, D.C.: September 28, 2001.

West Nile Virus Outbreak: Lessons for Public Health Preparedness. GAO/

HEHS-00-180. Washington, D.C.: September 11, 2000.

Medical Product Safety and Efficacy:

Food and Drug Administration: Effect of User Fees on Drug Approval 

Times, Withdrawals, and Other Agency Activities. GAO-02-958. 

Washington, D.C.: September 17, 2002.

Childhood Vaccines: Ensuring an Adequate Supply Poses Continuing 

Challenges. GAO-02-987. Washington, D.C.: September 13, 2002.

Women’s Health: Women Sufficiently Represented in New Drug Testing, but 

FDA Oversight Needs Improvement. GAO-01-754. Washington, D.C.: July 6, 


Pediatric Drug Research: Substantial Increase in Studies of Drugs for 

Children, But Some Challenges Remain. GAO-01-705T. Washington, D.C.: 

May 8, 2001.

Drug Safety: Most Drugs Withdrawn in Recent Years Had Greater Health 

Risks for Women. GAO-01-286R. Washington, D.C.: January 19, 2001.

Economic Independence and Well-being of Children and Families:

Medicaid and SCHIP: States Use Varying Approaches to Monitor Children’s 

Access to Care. GAO-03-222. Washington, D.C.: January 14, 2003, 

available February 2003.

Mental Health Services: Effectiveness of Insurance Coverage and Federal 

Programs for Children Who Have Experienced Trauma Largely Unknown. GAO-

02-813. Washington, D.C.: August 22, 2002.

Human Services: Federal Approval and Funding Processes for States’ 

Information Systems. GAO-02-347T. Washington, D.C.: July 9, 2002.

Welfare Reform: Federal Oversight of State and Local Contracting Can Be 

Strengthened. GAO-02-661. Washington, D.C.: June 11, 2002.

Welfare Reform: Interim Report on Potential Ways to Strengthen Federal 

Oversight of State and Local Contracting. GAO-02-245. Washington, D.C.: 

April 23, 2002.

Medicaid: Transitional Coverage Can Help Families Move from Welfare to 

Work. GAO-02-679T. Washington, D.C.: April 23, 2002.

Welfare Reform: States Provide TANF-Funded Services to Many Low-Income 

Families Who Do Not Receive Cash Assistance. GAO-02-564. Washington, 

D.C.: April 5, 2002.

Head Start and Even Start: Greater Collaboration Needed on Measures of 

Adult Education and Literacy. GAO-02-348. Washington, D.C.: March 29, 


Child Support Enforcement: Clear Guidance Would Help Ensure Proper 

Access to Information and Use of Wage Withholding by Private Firms. 

GAO-02-349. Washington, D.C.: March 26, 2002.

Welfare Reform: States Are Using TANF Flexibility to Adapt Work 

Requirements and Time Limits to Meet State and Local Needs. 

GAO-02-501T. Washington, D.C.: March 7, 2002.

Child Support Enforcement: Most States Collect Drivers’ SSN and Use 

Them to Enforce Child Support. GAO-02-239. Washington, D.C.: February 

15, 2002.

Human Services Integration: Results of a GAO Cosponsored Conference on 

Modernizing Information Systems. GAO-02-121. Washington, D.C.: January 

31, 2002.

Welfare Reform: More Coordinated Federal Effort Could Help States and 

Localities Move TANF Recipients with Impairments Toward Employment. 

GAO-02-37. Washington, D.C.: October 31, 2001.

Medicaid and SCHIP: States’ Enrollment and Payment Policies Can Affect 

Children’s Access to Care. GAO-01-883. Washington, D.C.: September 10, 


Public Assistance: PARIS Project Can Help States Reduce Improper 

Benefit Payments GAO-01-935. Washington, D.C.: September 6, 2001.

Welfare Reform: Challenges in Maintaining a Federal-State Fiscal 

Partnership. GAO-01-828. Washington, D.C.: August 10, 2001.

Medicaid: Stronger Efforts Needed to Ensure Children’s Access to Health 

Screening Services. GAO-01-749. Washington, D.C.: July 13, 2001.

Health and Human Services: Status of Achieving Key Outcomes and 

Addressing Major Management Challenges. GAO-01-748. Washington, D.C.: 

June 15, 2001.

Welfare Reform: Moving Hard-to-Employ Recipients into the Workforce. 

GAO-01-368. Washington, D.C.: March 15, 2001.

Welfare Reform: Progress in Meeting Work-Focused TANF Goals.

GAO-01-522T. Washington, D.C.: March 15, 2001.

Welfare Reform: Data Available to Assess TANF’s Progress. GAO-01-298. 

Washington, D.C.: February 28, 2001.

Financial Management Systems, Processes, and Controls:

Medicare Financial Management: Significant Progress Made to Enhance 

Financial Accountability. GAO-03-151R. Washington, D.C.: October 31, 


Medicaid Financial Management: Better Oversight of State Claims for 

Federal Reimbursement Needed. GAO-02-300. Washington, D.C.: 

February 28, 2002.

[End of section]

Performance and Accountability and High-Risk Series:

Major Management Challenges and Program Risks: A Governmentwide 

Perspective. GAO-03-95.

Major Management Challenges and Program Risks: Department of 

Agriculture. GAO-03-96.

Major Management Challenges and Program Risks: Department of Commerce. 


Major Management Challenges and Program Risks: Department of Defense. 


Major Management Challenges and Program Risks: Department of Education. 


Major Management Challenges and Program Risks: Department of Energy. 


Major Management Challenges and Program Risks: Department of Health and 

Human Services. GAO-03-101.

Major Management Challenges and Program Risks: Department of Homeland 

Security. GAO-03-102.

Major Management Challenges and Program Risks: Department of Housing 

and Urban Development. GAO-03-103.

Major Management Challenges and Program Risks: Department of the 

Interior. GAO-03-104.

Major Management Challenges and Program Risks: Department of Justice. 


Major Management Challenges and Program Risks: Department of Labor. 


Major Management Challenges and Program Risks: Department of State. 


Major Management Challenges and Program Risks: Department of 

Transportation. GAO-03-108.

Major Management Challenges and Program Risks: Department of the 

Treasury. GAO-03-109.

Major Management Challenges and Program Risks: Department of Veterans 

Affairs. GAO-03-110.

Major Management Challenges and Program Risks: U.S. Agency for 

International Development. GAO-03-111.

Major Management Challenges and Program Risks: Environmental Protection 

Agency. GAO-03-112.

Major Management Challenges and Program Risks: Federal Emergency 

Management Agency. GAO-03-113.

Major Management Challenges and Program Risks: National Aeronautics and 

Space Administration. GAO-03-114.

Major Management Challenges and Program Risks: Office of Personnel 

Management. GAO-03-115.

Major Management Challenges and Program Risks: Small Business 

Administration. GAO-03-116.

Major Management Challenges and Program Risks: Social Security 

Administration. GAO-03-117.

Major Management Challenges and Program Risks: U.S. Postal Service. 


High-Risk Series: An Update. GAO-03-119.

High-Risk Series: Strategic Human Capital Management. GAO-03-120.

High-Risk Series: Protecting Information Systems Supporting the Federal 

Government and the Nation’s Critical Infrastructures. 


High-Risk Series: Federal Real Property. GAO-03-122.


[1] Until its name was officially changed July 1, 2001, CMS was called 

the Health Care Financing Administration (HCFA).

[2] U.S. General Accounting Office, Nursing Homes: Aggregate Medicare 

Payments Are Adequate Despite Bankruptcies, GAO/T-HEHS-00-192 

(Washington, D.C.: Sept. 5, 2000).

[3] U.S. General Accounting Office, Skilled Nursing Facilities: 

Providers Have Responded to Medicare Payment System by Changing 

Practices, GAO-02-841 (Washington, D.C.: Aug. 23, 2002).

[4] U.S. General Accounting Office, Medicare Home Health: Prospective 

Payment System Will Need Refinement as Data Become Available, GAO-HEHS-

00-9 (Washington, D.C.: Apr. 7, 2000) and U.S. General Accounting 

Office, Medicare Home Health Care: Prospective Payment System Could 

Reverse Recent Declines in Spending, GAO-HEHS-00-176 (Washington, D.C.: 

Sept. 8, 2000).

[5] U.S. General Accounting Office, Medicare Physician Payments: 

Spending Targets Encourage Fiscal Discipline, Modifications Could 

Stabilize Fees, GAO-02-441T (Washington, D.C.: Feb. 14, 2002).

[6] U.S. General Accounting Office, Medicare: Challenges Remain in 

Setting Payments for Medical Equipment and Supplies and Covered Drugs, 

GAO-02-833T (Washington, D.C.: June 12, 2002).

[7] U.S. General Accounting Office, Medicare: Comparative Information 

on Medicare and VA Patients, Services, and Payment Rates for Home 

Oxygen, GAO/HEHS-97-151R (Washington, D.C.: June 6, 1997).

[8] U.S. General Accounting Office, Medicare: Payments for Covered 

Outpatient Drugs Exceed Providers’ Cost, GAO-01-1118 (Washington, D.C.: 

Sept. 21, 2001).

[9] U.S. General Accounting Office, Medicare Payments: Use of Revised 

“Inherent Reasonableness” Process Generally Appropriate, GAO/HEHS-00-

79 (Washington, D.C.: July 5, 2000).

[10] VA negotiates prices for and purchases medical equipment, 

supplies, and drugs through the Federal Supply Schedule. Federal Supply 

Schedule prices are available to any federal agency that directly 

procures pharmaceuticals or medical equipment and supplies.

[11] U.S. General Accounting Office, Medicare Management: CMS Faces 

Challenges to Sustain Progress and Address Weaknesses, GAO-01-817 

(Washington, D.C.: July 31, 2001).

[12] U.S. General Accounting Office, Medicare: Communications With 

Physicians Can Be Improved, GAO-02-249 (Washington, D.C.: Feb. 27, 


[13] U.S. General Accounting Office, Medicare: Recent CMS Reforms 

Address Carrier Scrutiny of Physicians’ Claims for Payment, GAO-02-693 

(Washington, D.C.: May 28, 2002).

[14] U.S. General Accounting Office, Medicare+Choice Audits: Lack of 

Audit Follow-up Limits Usefulness, GAO-02-33 (Washington, D.C.: Oct. 9, 


[15] U.S. General Accounting Office, Major Management Challenges and 

Program Risks, Department of Health and Human Services, GAO-01-247 

(Washington, D.C.: January 2001).

[16] U.S. General Accounting Office, Medicare: HCFA Could Do More to 

Identify and Collect Overpayments, HEHS/AIMD-00-304 (Washington, D.C.: 

Sept. 7, 2000).

[17] U.S. General Accounting Office, Debt Collection Improvement Act of 

1996: HHS’s Centers for Medicare & Medicaid Services Faces Challenges 

to Fully Implement Certain Key Provisions, GAO-02-307 (Washington, 

D.C.: Feb. 22, 2002). 

[18] U.S. General Accounting Office, Medicare: Information Systems 

Modernization Needs Stronger Management and Support, GAO-01-824 

(Washington, D.C.: Sept. 20, 2001).

[19] U.S. General Accounting Office, Medicare Contracting Reform: 

Opportunities and Challenges in Contracting for Claims Administration 

Services, GAO-01-918T (Washington, D.C.: June 28, 2001). Also see U.S. 

General Accounting Office, Medicare: Comments on HHS’ Claims 

Administration Contracting Reform Proposal, GAO-01-1046R (Washington, 

D.C.: Aug. 17, 2001) and U.S. General Accounting Office, Medicare 

Contractors: Despite Its Efforts, HCFA Cannot Ensure Their 

Effectiveness or Integrity, GAO/HEHS-99-115 (Washington, D.C.: July 14, 


[20] U.S. General Accounting Office, High-Risk Series: An Update, GAO-

01-263 (Washington, D.C.: January 2001). 

[21] Mandatory services include inpatient and outpatient hospital care; 

physician services; nursing home care; lab and x-ray services; 

immunizations, and other early and periodic screening, diagnostic, and 

treatment services for children; family planning services; health 

center and rural health clinic services; and nurse midwife and nurse 

practitioner services. Services that are optional include outpatient 

prescription drugs, institutional care for persons with mental 

retardation, personal care, and dental and vision care for adults.

[22] U.S. General Accounting Office, Medicaid: State Financing Schemes 

Again Drive Up Federal Payments, GAO/T-HEHS-00-193 (Washington, D.C.: 

Sept. 6, 2000).

[23] U.S. General Accounting Office, Medicaid and SCHIP: Recent HHS 

Approvals of Demonstration Waiver Projects Raise Concerns, GAO-02-817 

(Washington, D.C.: July 12, 2002).

[24] U.S. General Accounting Office, Medicaid Financial Management: 

Better Oversight of State Claims for Federal Reimbursement Needed, GAO-

02-300 (Washington, D.C.: Feb. 28, 2002), and U.S. General Accounting 

Office, Medicaid: State Efforts to Control Improper Payments Vary, GAO-

01-662 (Washington, D.C.: June 7, 2001).

[25] U.S. General Accounting Office, Medicaid in Schools: Improper 

Payments Demand Improvement in HCFA Oversight, GAO/HEHS/OSI-00-69 

(Washington, D.C.: Apr. 5, 2000).

[26] This fiscal year 2001 figure updates the findings in our April 

2000 report.

[27] States must abide by the cost allocation principles described in 

OMB Circular A-87, which requires, among other things, that costs be 

“necessary and reasonable” and “allocable” to the Medicaid program.

[28] U.S. General Accounting Office, Nursing Homes: Sustained Efforts 

Are Essential to Realize Potential of the Quality Initiatives, GAO/

HEHS-00-197 (Washington, D.C.: Sept. 28, 2000); U.S. General Accounting 

Office, Medicare Home Health Agencies: Weaknesses in Federal and State 

Oversight Mask Potential Quality Issues, GAO-02-382 (Washington, D.C.: 

July 19, 2002); and U.S. General Accounting Office, Medicare Quality of 

Care: Oversight of Kidney Dialysis Facilities Needs Improvement, GAO/

HEHS-00-114 (Washington, D.C.: June 23, 2000). 

[29] U.S. General Accounting Office, West Nile Virus Outbreak: Lessons 

for Public Health Preparedness, GAO/HEHS-00-180 (Washington, D.C.: 

Sept. 11, 2000).

[30] U.S. General Accounting Office, Public Health: Maintaining an 

Adequate Blood Supply Is Key to Emergency Preparedness, GAO-02-1095T 

(Washington, D.C.: Sept. 10, 2002).

[31] U.S. General Accounting Office, Public Health: Blood Supply 

Generally Adequate Despite New Donor Restrictions, GAO-02-754 

(Washington, D.C.: July 22, 2002).

[32] U.S. General Accounting Office, Homeland Security: New Department 

Could Improve Coordination but May Complicate Priority Setting, GAO-02-

893T (Washington, D.C.: June 28, 2002).

[33] U.S. General Accounting Office, Bioterrorism: Federal Research and 

Preparedness Activities, GAO-01-915 (Washington, D.C.: Sept. 28, 2001).

[34] U.S. General Accounting Office, Homeland Security: New Department 

Could Improve Biomedical R&D Coordination but May Disrupt Dual-Purpose 

Efforts, GAO-02-924T (Washington, D.C.: July 9, 2002).

[35] U.S. General Accounting Office, Homeland Security: New Department 

Could Improve Coordination but May Complicate Priority Setting, GAO-02-

893T (Washington, D.C.: June 28, 2002).

[36] U.S. General Accounting Office, Childhood Vaccines: Ensuring an 

Adequate Supply Poses Continuing Challenges, GAO-02-987 (Washington, 

D.C.: Sept. 13, 2002).

[37] U.S. General Accounting Office, Pediatric Drug Research: 

Substantial Increase in Studies of Drugs for Children, But Some 

Challenges Remain, GAO-01-705T (Washington, D.C.: May 8, 2001).

[38] U.S. General Accounting Office, Drug Safety: Most Drugs Withdrawn 

in Recent Years Had Greater Health Risks for Women, GAO-01-286R 

(Washington, D.C.: Jan. 19, 2001).

[39] U.S. General Accounting Office, Women’s Health: Women Sufficiently 

Represented in New Drug Testing, but FDA Oversight Needs Improvement, 

GAO-01-754 (Washington, D.C.: July 6, 2001).

[40] U.S. General Accounting Office, Food and Drug Administration: 

Effect of User Fees on Drug Approval Times, Withdrawals, and Other 

Agency Activities, GAO-02-958 (Washington, D.C.: Sept. 17, 2002).

[41] See U.S. General Accounting Office, Medicaid: Transitional 

Coverage Can Help Families Move from Welfare to Work, GAO-02-679T 

(Washington, D.C.: Apr. 23, 2002). The transitional Medicaid provision, 

which was due to expire in September 2002, has been temporarily 

extended to allow eligible individuals to receive this benefit through 

March 31, 2003.

[42] U.S. General Accounting Office, Welfare Reform: Improving State 

Automated Systems Requires Coordinated Federal Effort, GAO/HEHS-00-48 

(Washington, D.C.: Apr. 27, 2000).

[43] See U.S. General Accounting Office, Public Assistance: PARIS 

Project Can Help States Reduce Improper Benefit Payments, GAO-01-935 

(Washington, D.C.: Sept. 6, 2001).

[44] U.S. General Accounting Office, Welfare Reform: Federal Oversight 

of State and Local Contracting Can Be Strengthened, GAO-02-661 

(Washington, D.C.: June 11, 2002).

[45] U.S. General Accounting Office, Welfare Reform: Challenges 

Maintaining a Federal-State Fiscal Partnership, GAO-01-828 

(Washington, D.C.: Aug. 10, 2001).

[46] U.S. General Accounting Office, Head Start and Even Start: Greater 

Collaboration Needed on Measures of Adult Education and Literacy, GAO-

02-348, (Washington, D.C.: 

Mar. 29, 2002).

[47] U.S. General Accounting Office, Foster Care: Recent Legislation 

Helps States Focus on Finding Permanent Homes for Children, but Long-

Standing Barriers Remain, GAO-02-585 (Washington, D.C.: June 28, 2002).

[48] U.S. General Accounting Office, Managing for Results: ACF’s Effort 

to Strengthen the Link Between Resources and Results, GAO-03-09 

(Washington, D.C.: December 2002).

[49] U.S. General Accounting Office, Medicaid and SCHIP: States’ 

Enrollment and Payment Policies Can Affect Children’s Access to Care, 

GAO-01-883 (Washington, D.C.: Sept. 10, 2001).

[50] See U.S. General Accounting Office, Medicaid and SCHIP: States Use 

Varying Approaches to Monitor Children’s Access to Care, GAO-03-222 

(Washington, D.C.: 

Jan. 14, 2003), available February 2003.

[51] U.S. General Accounting Office, Medicaid: Stronger Efforts Needed 

to Ensure Children’s Access to Health Screening Services, GAO-01-749 

(Washington, D.C.: July 13, 2001).

[52] U.S. General Accounting Office, Child Support Enforcement: Most 

States Collect Drivers’ SSNs and Use Them to Enforce Child Support, 

GAO-02-239 (Washington, D.C.: Feb. 15, 2002).

[53] U.S. General Accounting Office, Child Support Enforcement: Clear 

Guidance Would Help Ensure Proper Access to Information and Use of Wage 

Withholding by Private Firms, GAO-02-349 (Washington, D.C.: Mar. 26, 


[54] U.S. General Accounting Office, Child Care: States Have Undertaken 

a Variety of Quality Improvement Initiatives, but More Evaluations of 

Effectiveness Are Needed, GAO-02-897 (Washington, D.C.: Sept. 6, 2002).

[55] U.S. General Accounting Office, Workforce Investment Act: States 

and Localities Increasingly Coordinate Services for TANF Clients, but 

Better Information Needed on Effective Approaches , GAO-02-696 

(Washington, D.C.: July 3, 2002).

[56] A material weakness is a condition in which the design or 

operation of one or more of the internal control components does not 

reduce, to a relatively low level, the risk that errors or 

irregularities in amounts that would be material to the financial 

statements may occur and not be detected promptly by employees in the 

normal course of performing their duties.

[57]  FFMIA of 1996, Public Law 104-208, requires that the 24 major 

departments and agencies named in the Chief Financial Officers Act 

implement and maintain financial management systems that substantially 

comply with (1) federal financial management systems requirements, (2) 

applicable federal accounting standards, and (3) the United States 

Government Standard General Ledger at the transaction level. Except for 

the federal financial management systems requirements, HHS is in 

compliance with the act’s provisions. 

[58] DFO provides financial management services for ACF, HRSA, SAMSHA, 

the Indian Health Service and the Administration on Aging. 

[59] U.S. General Accounting Office, Medicare Financial Management: 

Significant Progress Made to Enhance Financial Accountability, GAO-03-

151R (Washington, D.C.: Oct. 31, 2002). 

[60] The core requirements are based on a syntheses of controls as 

included in OMB Circular A-130, PDD 63, General Accounting Office 

Federal Information System Controls Audit Manual, Internal Revenue 

Service Publication 1075, the Health Insurance Portability and 

Accountability Act of 1996, and new CMS requirements for systems 

architecture and security handbook. 

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