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entitled 'Medicare Secondary Payer: Improvements Needed to Enhance Debt 
Recovery Process' which was released on September 20, 2004.

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Report to the Ranking Minority Member, Subcommittee on Health, 
Committee on Ways and Means, House of Representatives:

United States Government Accountability Office:

GAO:

August 2004:

Medicare Secondary Payer:

Improvements Needed to Enhance Debt Recovery Process:

GAO-04-783:

GAO Highlights:

Highlights of GAO-04-783, a report to the Ranking Minority Member, 
Subcommittee on Health, Committee on Ways and Means, House of 
Representatives: 

Why GAO Did This Study:

Last year, employer-sponsored group health plans (EGHP) were 
responsible for most of the nearly $183 million in outstanding 
Medicare secondary payer (MSP) debt. MSP debts arise when Medicare 
inadvertently pays for services that are subsequently determined to be 
the financial responsibility of another. The Centers for Medicare & 
Medicaid Services (CMS) administers Medicare with the assistance of 
about 50 contractors that, as part of their duties, are required to 
recover MSP debt. 

GAO was asked to determine whether Medicare contractors are 
appropriately recovering MSP debt. GAO (1) assessed the cost-
effectiveness of the current debt recovery system and (2) identified 
CMS’s plans to enhance the recovery process. GAO analyzed workload and 
budget information and assessed plans to develop a new debt recovery 
system—the Recovery Management and Accounting System (ReMAS).

What GAO Found:

Medicare’s system for recovering MSP debt from EGHPs is no longer cost-
effective, with CMS recovering only 38 cents for every dollar it spent 
on recovery activities in fiscal year 2003. This is largely due to 
workload and budgetary factors. While the number of new debt cases 
referred to contractors has declined by more than 80 percent since 
fiscal year 2000, CMS’s budget for contractor recovery activities has 
remained relatively unchanged. As a result, contractors were funded at 
a level that exceeded their workload. Almost half of the contractors 
that CMS funded to process the 7,634 cases associated with the fiscal 
year 2003 workload were assigned fewer than 50 cases—and eight were 
not assigned any. The current system is also constrained by procedures 
that prevent contractors from maximizing recoveries. For example, CMS 
has instructed contractors not to pursue cases in which the amount of 
mistaken payments made on behalf of the same beneficiary is less than 
$1,000. In addition, CMS neglected to transmit more than 2,000 cases 
to the contractors—which depend on these transmittals to initiate 
recoveries—during fiscal years 2000, 2001, and 2003.

CMS is developing a new recovery system—ReMAS—to enhance the MSP 
recovery process. This system has the potential to help increase 
savings, provide CMS with greater flexibility in distributing the 
workload, and simplify the collection of MSP debt. ReMAS is designed 
to identify relevant mistaken payments and will generate a case that 
can be assigned to any contractor for recovery—not only the contractor 
that processed the mistakenly paid claims. However, ReMAS has been 
under development for over 6 years and is currently only being used 
for liability and workers’ compensation recoveries by a fraction of 
the contractors. Pilot testing of ReMAS on EGHP cases will not begin 
until October 2004.

Cost-Effectiveness of MSP Debt Recovery Activities by Contractors Has 
Declined: 

[See PDF for image]

Note: Savings data for each fiscal year relate to new EGHP cases 
opened in that year. CMS did not assign new EGHP debt cases to 
contractors in fiscal year 2002 to allow them time to reduce their 
backlog of old cases.

[End of figure]

What GAO Recommends:

We are recommending that the administrator of CMS (1) improve the 
efficiency of MSP payment recovery activities by consolidating efforts 
under a smaller number of contractors and ensuring that contractor 
budgets for EGHP recovery activities more closely reflect their actual 
workloads and (2) expedite implementation of the EGHP component of 
ReMAS. CMS agreed with our recommendations. 

www.gao.gov/cgi-bin/getrpt?GAO-04-783.

To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Leslie G. Aronovitz at (312) 220-7600.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

EGHP Debt Recovery Process No Longer Cost-Effective:

Contractors' Performance in Recovering EGHP Debt Is Inconclusive:

Efforts to Improve MSP Management Have Not Focused on EGHP Debt Cases:

Conclusions:

Recommendations for Executive Action:

Agency Comments:

Appendix I: Scope and Methodology:

Appendix II: Comparison of Current System for Recovering EGHP Debt with 
ReMAS:

Appendix III: Comments from the Centers for Medicare & Medicaid 
Services:

Appendix IV: GAO Contact and Staff Acknowledgments:

GAO Contact:

Acknowledgments:

Tables:

Table 1: Information on EGHP Debt Recoveries, Fiscal Years 2000, 2001, 
and 2003:

Table 2: EGHP Workload and Budget Information, Fiscal Year 2003:

Table 3: Comparison of Current Recovery System to ReMAS:

Figure:

Figure 1: EGHP Debt Cases, Fiscal Years 2000, 2001, and 2003:

Abbreviations:

CAFM: Contractor Administrative-Budget and Financial Management System: 
CMS: Centers for Medicare & Medicaid Services: 
COBC: Coordination of Benefits Contractor: 
CWF: Common Working File: 
EGHP: Employer-Sponsored Group Health Plan: 
MMA: Medicare Prescription Drug, Improvement, and Modernization Act of 
2003: 
MPaRTS: Mistaken Payment Recovery Tracking System: 
MSP: Medicare Secondary Payer: 
ReMAS: Recovery Management and Accounting System:

United States Government Accountability Office:

Washington, DC 20548:

August 20, 2004:

The Honorable Pete Stark: 
Ranking Minority Member: 
Subcommittee on Health: 
Committee on Ways and Means: 
House of Representatives:

Dear Mr. Stark:

Medicare--the federal health insurance program that serves the nation's 
elderly and disabled--paid over $271 billion for the health care of 
approximately 41 million aged and disabled beneficiaries in fiscal year 
2003. The Centers for Medicare & Medicaid Services (CMS)--the federal 
agency within the Department of Health and Human Services that 
administers the Medicare program--has a strong interest in protecting 
Medicare's fiscal integrity. To safeguard funds, CMS must pay only for 
those services that are the responsibility of the Medicare program. In 
some instances, beneficiaries have other insurance--such as employer-
sponsored group health plans,[Footnote 1] automobile or other liability 
insurance plans, or workers' compensation--that has the primary 
responsibility to pay their claims. In these cases, Medicare would be 
the secondary payer, responsible for meeting beneficiaries' health care 
costs not covered by the primary insurer.

CMS and the contractors that assist the agency in administering the 
program are charged with determining whether Medicare beneficiaries 
have other health insurance coverage.[Footnote 2] In fiscal year 2000, 
CMS estimated that about 8 percent of Medicare beneficiaries had health 
care claims that appeared to be the primary responsibility of another 
insurer. Because Medicare does not always know whether a beneficiary 
has other primary insurance, it may inadvertently pay for services that 
are subsequently determined to be the financial responsibility of 
another payer. These mistaken payments represent money owed to Medicare 
and are known as Medicare secondary payer (MSP) debt.

Employer-sponsored group health plans (EGHP) are responsible for the 
majority of outstanding MSP debt, accounting for about $134 million of 
the almost $183 million in outstanding MSP debt in fiscal year 
2003.[Footnote 3] Liability insurers, workers' compensation plans, and 
other types of coverage accounted for the remaining $49 million. 
Because of your interest in protecting the integrity of Medicare funds, 
you asked that we determine whether Medicare contractors are 
appropriately recovering payments from other health care insurers, 
specifically from EGHPs.

To evaluate the MSP debt recovery process, we assessed (1) the cost-
effectiveness of the current system for recovering MSP debt from EGHPs, 
(2) the performance of CMS's contractors in recovering MSP debt from 
EGHPs, and (3) the agency's plans to enhance the MSP recovery process.

To perform our work, we analyzed information from two CMS databases--
the Contractor Administrative-Budget and Financial Management (CAFM) 
System and the Mistaken Payment and Recovery Tracking System (MPaRTS)-
-which together contain budget, workload, and recovery data related to 
MSP claims. We also visited four CMS contractors that processed a high 
volume of MSP debt recovery cases in fiscal years 2000 and 2001 and 
reviewed supporting documentation for over 100 closed cases at each 
contractor. These cases consisted of potentially mistakenly paid claims 
for beneficiaries who appeared to be covered by an EGHP. Because 
contractors close the majority of cases without making recoveries, we 
specifically focused on such cases to determine whether contractors 
followed appropriate procedures and made sufficient efforts to recover 
MSP debt. We excluded cases involving liability, workers' compensation, 
and other forms of coverage from our review.

To further assess contractor performance, we examined whether the 
contractors' private health insurance businesses influenced their 
recovery efforts. In some EGHP debt recovery cases, the contractor's 
private health insurance business sold coverage to the employer that 
was responsible for the MSP debt. Because this creates a potential 
conflict of interest requiring the contractor to collect funds from the 
private side of its business, our examination included an assessment of 
whether contractors were diligent in recovering debt in such 
circumstances. In addition, we reviewed CMS program guidelines and 
memoranda, interviewed CMS and contractor officials, and examined the 
results of CMS's fiscal years 2001 and 2002 Contractor Performance 
Evaluations pertaining to contractors' MSP operations. (See app. I for 
additional information on our scope and methodology and an assessment 
of the reliability of CMS data used in this report.) We conducted our 
work from December 2002 through July 2004 in accordance with generally 
accepted government auditing standards.

Results in Brief:

The current system for recovering MSP debt from EGHPs is no longer 
cost-effective. Last year, Medicare recovered only 38 cents for every 
dollar it spent on recovery activities associated with EGHPs. This lack 
of cost-effectiveness is due, in part, to a decrease in the number of 
new debt cases, which have declined by more than 80 percent since 
fiscal year 2000. Despite the fact that almost half of the contractors 
were assigned fewer than 50 cases in fiscal year 2003, they were funded 
to support a much larger workload. Eight of these contractors 
collectively received more than $1.8 million for their anticipated EGHP 
workload, but were never assigned any cases to process. Further, 
operational constraints also prevent contractors from maximizing their 
recoveries of mistaken payments. For example, CMS has instructed 
contractors not to pursue cases in which the amount of mistaken 
payments made on behalf of the same beneficiary is less than $1,000. In 
addition, CMS lost an opportunity to recover debt when it neglected to 
transmit more than 2,000 cases to the claims administration 
contractors--which depend on these transmittals to initiate recoveries-
-during fiscal years 2000, 2001, and 2003.

Poor record keeping at three of the four contractors we visited 
prevented us from fully evaluating contractor effectiveness in 
processing MSP debt. These three contractors were unable to produce 
supporting documentation for some of the cases that we requested from 
them. The percentage of missing cases at these contractors ranged from 
4 to 24 percent. For the cases that we could examine, we found that 
contractor decisions were supported by appropriate documentation. This 
held true even in those instances where the private side of a 
contractor's business was identified as having responsibility for MSP 
debt. However, because these files were not available, we were unable 
to fully assess whether the contractors made sufficient efforts to 
collect MSP debt. Without supporting documentation, we could not 
conclusively determine in all cases that the contractors had followed 
appropriate recovery procedures, including diligently attempting to 
recover funds from the private side of their business. CMS's own 
contractor evaluations, conducted in fiscal years 2001 and 2002, 
identified similar problems with records and other problems related to 
contractors' management of MSP recovery efforts.

CMS has contracted for the development of a new recovery system--the 
Recovery Management and Accounting System (ReMAS)--to enhance the MSP 
recovery process by automating some tasks now performed manually. 
Because ReMAS was designed to use a national claims database to 
identify mistaken payments, it will be possible for CMS to assign an 
EGHP debt case to any contractor--not only the contractor that 
processed the mistaken payments, which is currently CMS's only option. 
These improvements have the potential to help increase savings, provide 
CMS with greater flexibility in distributing the workload, and simplify 
the collection of MSP debt. However, ReMAS has been under development 
for 6 years and is currently only used for liability and workers' 
compensation recoveries by a fraction of the contractors. While the 
agency indicated that it would start pilot testing ReMAS for recovering 
debt from EGHPs at two contractors in October 2004, it has not 
specified when it expects all contractors to implement ReMAS for EGHP 
cases.

We are recommending that the administrator of CMS (1) develop detailed 
plans and time frames for expanding ReMAS to include EGHP cases, and 
expedite implementation of the EGHP component of ReMAS; and (2) improve 
the efficiency of MSP payment recovery activities by consolidating MSP 
debt recovery efforts under a smaller number of contractors and 
ensuring that contractor budgets for EGHP recovery activities more 
closely reflect their actual workloads. CMS agreed with these 
recommendations and said it has begun taking action to expedite the 
EGHP component of ReMAS. It also said that it is considering options 
for consolidating EGHP recovery activities.

Background:

CMS administers the Medicare program with the assistance of about 50 
claims administration contractors.[Footnote 4] As part of their duties, 
contractors deny claims that are the responsibility of other insurers. 
In addition, they are required to recover mistaken payments that were 
made before it could be determined that the beneficiary had other 
insurance--such as an EGHP, an automobile or other liability insurance 
plan, workers' compensation, or other types of coverage.

To ensure that contractors adequately perform these tasks, CMS 
periodically monitors and evaluates their performance. Contractors are 
required to record recovery information pertaining to EGHP debt cases 
in the MPaRTS database. MPaRTS tracks the status of each EGHP case and 
provides CMS with information on the amount of mistaken payments 
identified, the amount demanded to be repaid, the amount recovered, and 
whether the case is currently open or closed. Although CMS does not 
have a database for tracking liability and workers' compensation cases 
that is comparable to MPaRTS, CMS requires contractors to submit 
quarterly accounts receivable reports for these and other types of 
cases. These reports show the aggregate amount of outstanding debt, but 
do not provide detail at the individual case level.

To prevent mistaken MSP payments, Medicare claims administration 
contractors match beneficiaries' health care claims against information 
contained in Medicare's Common Working File (CWF)--a repository of 
claims and beneficiary enrollment data--to determine whether Medicare 
is the primary or secondary payer. Claims are paid if the CWF indicates 
that Medicare is the primary payer. However, the CWF may not always 
contain accurate information. The MSP status of some beneficiaries is 
sometimes in a state of flux--for example, a retired beneficiary may 
return to the workforce and receive coverage under an EGHP for 6 
months, and then leave that job. This information may not be recorded 
in a timely manner, leading to mistaken payments. In addition, the CWF 
can also contain inaccurate information if beneficiaries do not notify 
CMS of their insurance status when they become eligible for Medicare or 
if they provide incorrect insurance information. Furthermore, although 
the CWF is periodically updated with new insurance information, there 
is a lag between the time beneficiaries obtain coverage and when CMS 
learns of this coverage. In the interim, contractors may mistakenly pay 
beneficiaries' claims.

To identify mistaken MSP payments when an EGHP is the primary payer, 
claims administration contractors use information provided by CMS and 
the Coordination of Benefits Contractor (COBC). The COBC is a 
specialized contractor that does not process Medicare claims. Instead, 
the COBC is charged with developing information on beneficiaries who 
may have other primary health insurance through a process known as the 
data match.[Footnote 5] The purpose of the data match is to identify 
beneficiaries or their spouses who are employed and thus may be covered 
by an EGHP. To facilitate data matching, the Social Security 
Administration sends the Internal Revenue Service a list containing the 
Social Security numbers of Medicare beneficiaries. The Internal Revenue 
Service then matches the list against beneficiary income tax return 
data and sends the results to the COBC for further analysis. For 
example, if tax records show that an employer paid a beneficiary at 
least $10,000 during the previous year, the COBC would contact the 
beneficiary's employer to determine whether he was covered by that 
employer's group health plan.

CMS compares information developed by the COBC to the national claims 
history file, the most comprehensive source of paid claims information. 
This comparison allows CMS to determine whether Medicare may have 
mistakenly paid claims on behalf of the beneficiary. If the mistakenly 
paid claims total at least $1,000, CMS assigns the case to the claims 
administration contractor that processed and paid the claims.

Upon receipt of the EGHP debt case, claims administration contractors 
have 60 days to perform certain tasks to determine whether an attempt 
should be made to recover the debt. The contractor must first verify 
that the information being used as a basis for recovering the debt is 
correct and that it has not already recouped the mistaken payments. If 
the case passes this initial validation process, the contractor will 
initiate recovery by sending a demand letter to the beneficiary's 
employer and insurance company or third-party administrator, requesting 
payment within 60 days.[Footnote 6] If there is no response to the 
demand letter within 60 days, interest begins to accrue on the debt. 
Contractors then send a second letter explaining that if a response or 
payment is not received within another 60 days, the matter will be 
referred to the Department of the Treasury for collection. Responses to 
these letters can include repayment with interest or an explanation as 
to why the employer and associated health insurer are not responsible 
for the debt. This explanation may include documentation indicating 
that the employee retired and thus discontinued health coverage or 
never obtained coverage through the employer.

The procedures followed by contractors to recover mistaken payments 
from liability insurers and workers' compensation plans differ from 
those used when the primary payer of an MSP debt is an EGHP. In a 
liability or workers' compensation case, mistaken payments made on 
behalf of a beneficiary are not related to a period of insurance 
coverage, but to a particular incident--for example, an automobile 
accident or workplace injury. The task of the contractor in such cases 
is to identify all paid medical claims related to the incident and to 
inform the beneficiary or the beneficiary's attorney of the 
responsibility to repay Medicare in the event that they receive an 
insurance settlement for their medical expenses. Because beneficiaries 
may require protracted medical treatment for their injuries, it may 
take several years before the total amount of payments related to the 
injury is known. In the interim, a contractor may repeatedly review the 
beneficiary's claims history to determine whether Medicare has paid new 
claims related to the injury.[Footnote 7]

We previously reported that CMS maintained a substantial backlog of 
uncollected debt in fiscal year 2000.[Footnote 8] Although the Debt 
Collection Improvement Act of 1996 required that agencies refer debt 
delinquent for more than 180 days to the Department of the Treasury, 
CMS still had not fully implemented this requirement. Prior to 2000, 
CMS did not instruct claims administration contractors to refer 
delinquent EGHP cases to the Department of the Treasury for collection. 
As a result, CMS maintained a substantial backlog of older cases that 
remained open, but inactive, for many years.

CMS's administration of the Medicare program will undergo significant 
changes over the next several years as the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (MMA) is implemented. MMA 
provides CMS with increased flexibility in contracting with new 
entities to assist it in operating the Medicare program.[Footnote 9] 
While CMS has relied primarily on the claims administration contractors 
to perform most of the key business functions[Footnote 10] of the 
program, the new law authorizes CMS to enlist a variety of contractors 
to perform these tasks. For example, CMS could use new contractors to 
process and pay claims and to perform financial management and payment 
safeguard activities. CMS is just beginning to develop plans to 
implement MMA's contracting reform provisions. Phase-in of the 
amendments to contracting reform takes effect on October 1, 2005. The 
competitive bidding of all contracts is required for contract periods 
that begin on or after October 1, 2011. The agency expects to issue its 
implementation plan for contracting by October 1, 2004.

EGHP Debt Recovery Process No Longer Cost-Effective:

Since fiscal year 2000, the cost-effectiveness of EGHP recovery 
activities has significantly declined. The decline in cost-
effectiveness occurred because the volume of EGHP debt cases 
significantly decreased--in fiscal year 2003, almost half of the 
contractors were assigned fewer than 50 cases--while, at the same time, 
the cost to CMS for maintaining debt collection capabilities at all 
claims administration contractors increased slightly. Moreover, CMS 
funded eight contractors who were not assigned any EGHP debt cases. The 
recovery process is also constrained by procedures that prevent 
contractors from maximizing their recoveries of mistaken payments. 
Because contractors have access only to claims that they have paid, 
they cannot identify, and thus collect, mistaken payments made by other 
contractors. In addition to these structural problems, we found that in 
3 of the last 4 years CMS did not transmit a substantial number of EGHP 
cases to the claims administration contractors, resulting in missed 
recoveries.

CMS Contractor Funding Has Not Decreased Despite Declining Workload:

EGHP recovery activities are no longer cost-effective. To measure cost-
effectiveness, we compared the amount that CMS spent on contractor 
recovery activities for a given fiscal year with the amount recovered 
from all cases that were opened during the same year--regardless of 
when the funds were recovered.[Footnote 11] While Medicare recovered 
about $2.49 for each dollar it spent on EGHP recovery activities in 
fiscal year 2000, this ratio declined to $1.80 in 2001. Although there 
are no comparable data for fiscal year 2002 because CMS did not open 
any new EGHP cases that year, thus allowing contractors time to reduce 
their backlog of old cases,[Footnote 12] the decline in cost-
effectiveness continued in fiscal year 2003 when CMS resumed opening 
new EGHP cases. In that year, Medicare lost money on EGHP recovery 
activities, recovering only 38 cents for every dollar spent. (See table 
1.)

Table 1: Information on EGHP Debt Recoveries, Fiscal Years 2000, 2001, 
and 2003:

Fiscal year case opened: 2000; 
Amount of EGHP debt recoveries[A]: $21,472,071; 
CMS budget for EGHP debt recoveries: $8,612,677; 
Savings per dollar spent on EGHP recovery activities: $2.49.

Fiscal year case opened: 2001; 
Amount of EGHP debt recoveries[A]: $15,062,024; 
CMS budget for EGHP debt recoveries: $8,351,940; 
Savings per dollar spent on EGHP recovery activities: $1.80.

Fiscal year case opened: 2003; 
Amount of EGHP debt recoveries[A]: $3,719,465[B]; 
CMS budget for EGHP debt recoveries: $9,786,510; 
Savings per dollar spent on EGHP recovery activities: $0.38. 

Source: GAO analysis of CMS's MPaRTS and CAFM data.

Note: CMS did not open any new EGHP cases in 2002.

[A] The recovered amount includes interest on the debt. Fiscal year 
recovery amounts include funds that were recovered the year the case 
was opened as well as any funds recovered in subsequent years.

[B] Because 28 percent of cases assigned to contractors in 2003 remain 
open, the recovered amount for 2003 was estimated. Using 2000 and 2001 
MPaRTS data, we calculated the total amount recovered as a percentage 
of all EGHP debt referred to contractors--which averaged about 7 
percent for these 2 years. We then applied this percentage to the total 
amount referred to contractors in 2003 to obtain our estimate. In 
fiscal year 2003, CMS referred $51,932,106 of debt to contractors. As 
of March 2004, contractors had recovered $1,094,176.

[End of table]

The lack of cost-effectiveness of the EGHP recovery process resulted 
partly from a declining workload, which limited the potential for 
recovery. The number of new MSP EGHP debt cases has decreased by more 
than 80 percent in recent years, from 49,240 cases in fiscal year 2000 
to 7,634 cases in fiscal year 2003.[Footnote 13] CMS officials told us 
that improvements in identifying beneficiaries with other insurance 
before a claim is paid have reduced the number of mistakenly paid MSP 
claims. Consequently, according to CMS officials, this has lessened the 
need to recover these payments via the EGHP recoveries.[Footnote 14] 
These officials also projected that the number of EGHP cases assigned 
to contractors could continue to decline.

Not only have the number of EGHP cases declined since fiscal year 2000, 
but the complexity of these cases and the resources required to process 
many of them have also decreased. Since fiscal year 2000, the claims 
administration contractors closed more than half of the cases during 
their initial computer screening process. That is, they often found 
that the mistaken payments totaled less than $1,000, another insurer 
voluntarily paid the claims, or the COBC updated the CWF to show that 
the beneficiary did not have other primary coverage, such as an 
employer-sponsored group health plan, during the time the services were 
delivered. In such instances, contractors are not required to 
correspond with employers and insurers. It is only a relatively smaller 
number of cases--those that pass the initial screening process--that 
require significant contractor resources to send demand letters, 
process the responses, and archive file materials. As shown in figure 
1, of the 49,240 EGHP cases processed by contractors in fiscal year 
2000, 20,487--about 42 percent--were resource-intensive cases that 
entailed sending a demand letter. In contrast, only 1,276 cases--about 
17 percent--involved a demand letter in fiscal year 2003.

Figure 1: EGHP Debt Cases, Fiscal Years 2000, 2001, and 2003:

[See PDF for image]

Note: Recovery and demand totals are based on the year the cases were 
assigned to contractors. CMS did not assign new EGHP cases to 
contractors in 2002, to allow them time to reduce their backlog of old 
cases. The number of recoveries for 2003 cases may increase, as the 
period for recovering debt is still open for about 28 percent of cases.

[End of figure]

CMS's payments to contractors for recovery activities have not 
reflected the sharp decline in the number of EGHP debt cases that 
occurred in fiscal year 2003. For example, in fiscal year 2000, the 
three contractors with the largest workloads received a combined budget 
of less than $1 million and processed 7,708 EGHP cases. The workload of 
those three contractors was larger than the entire fiscal year 2003 
workload, for which CMS spent almost $10 million on contractors' EGHP 
debt recovery activities.

This disparity between workload and budget in fiscal year 2003 is even 
more apparent at the individual contractor level. As shown in table 2, 
8 of the 51 claims administration contractors processed 400 or more 
EGHP cases--representing about 52 percent of the total EGHP workload of 
7,634 cases.[Footnote 15] However, almost half of the contractors were 
assigned fewer than 50 cases. Despite their small combined workload--4 
percent of all EGHP cases in fiscal year 2003--CMS allocated to these 
contractors more than a quarter of its EGHP budget, about $2.5 million, 
to support EGHP and certain other recovery activities.[Footnote 16] 
Moreover, CMS funded 8 contractors that were not assigned any EGHP debt 
cases.

Table 2: EGHP Workload and Budget Information, Fiscal Year 2003:

Number of EGHP cases assigned: 400 +; 
Number of claims administration contractors: 8; 
CMS budget for EGHP recovery activities: $3,295,191; 
Percentage of total EGHP budget for recovery activities: 34%; 
Percentage of total EGHP cases: 52%.

Number of EGHP cases assigned: 200-399; 
Number of claims administration contractors: 5; 
CMS budget for EGHP recovery activities: $1,379,049; 
Percentage of total EGHP budget for recovery activities: 14%; 
Percentage of total EGHP cases: 21%.

Number of EGHP cases assigned: 50-199; 
Number of claims administration contractors: 14; 
CMS budget for EGHP recovery activities: $2,595,844; 
Percentage of total EGHP budget for recovery activities: 27%; 
Percentage of total EGHP cases: 21%.

Number of EGHP cases assigned: 1-49; 
Number of claims administration contractors: 16; 
CMS budget for EGHP recovery activities: $648,651; 
Percentage of total EGHP budget for recovery activities: 7%; 
Percentage of total EGHP cases: 4%.

Number of EGHP cases assigned: 0; 
Number of claims administration contractors: 8; 
CMS budget for EGHP recovery activities: $1,867,775; 
Percentage of total EGHP budget for recovery activities: 19%; 
Percentage of total EGHP cases: 0%.

Total; 
Number of claims administration contractors: 51; 
CMS budget for EGHP recovery activities: $9,786,510; 
Percentage of total EGHP budget for recovery activities: 100%[A]; 
Percentage of total EGHP cases: 100%[A]. 

Source: GAO analysis of CMS's MPaRTS and CAFM data.

[A] Column percentages do not total to 100 due to rounding.

[End of table]

CMS's budget process does not efficiently match funding for contractor 
recovery activities to contractors' actual workloads. CMS pays each 
contractor to maintain an infrastructure to support the recovery of 
EGHP debt, regardless of the number of cases the contractor processes 
during the year. In order to process EGHP cases forwarded to them by 
CMS, the claims administration contractors maintain an infrastructure 
that results in costs such as wages, equipment, and records. Typically, 
this includes a staff of MSP examiners who review EGHP cases, contact 
other potential insurers, evaluate explanations from insurers as to why 
the MSP debt may not be valid, make referrals to the Department of the 
Treasury when a debt is not paid within 180 days, and archive case 
files. Each contractor must also maintain screening software to 
identify and exclude EGHP debt cases that do not meet the $1,000 
threshold. As a result, some contractors may receive funding for their 
infrastructures even though they process few or no cases during the 
year, as occurred in fiscal year 2003.

In comparison to other MSP activities performed by contractors--such as 
maintaining computer programs that automatically identify and deny MSP 
claims--EGHP recoveries are expensive to conduct and no longer provide 
a return on investment. In fiscal year 2003, the return on investment 
for all types of MSP activities combined was 48 to 1. That is, Medicare 
contractors spent an estimated $95.6 million for all MSP activities and 
produced identifiable savings of approximately $4.6 billion,[Footnote 
17] resulting in $48 saved for every dollar spent.

Operational Constraints Reduce Potential MSP Savings:

We found that several system limitations create barriers to recovering 
mistaken payments and reduce program savings. Some mistakenly paid 
claims may be missed because beneficiaries received medical services in 
more than one state, and thus had their claims processed by more than 
one contractor.[Footnote 18] Because contractors have access only to 
claims records that they process, they are unable to identify claims 
processed by other contractors. In addition, beneficiaries whose total 
MSP claims exceed $1,000, but are split among two or more contractors, 
may not have all of their mistaken payments recovered if the payments 
made by any single contractor total less than the $1,000 threshold. 
Although CMS officials could not quantify the effect of these 
constraints on recoveries, they told us that they believe that these 
limitations have significantly reduced MSP savings.

For example, a beneficiary who lives in the Midwest but spends the 
winter in the South and receives health care services in both locations 
will have claims processed by different contractors. If mistaken 
payments for $2,000 were made for services the beneficiary received 
during the year--for example, $1,200 in one location and $800 in the 
other--only the contractor with payments exceeding the threshold would 
pursue a recovery. Therefore, although the primary payer would be 
responsible for the entire $2,000 in services, Medicare would attempt 
to recover only a portion of the amount owed.

A similar inefficiency occurs when beneficiaries receive inpatient 
services covered by Part A of Medicare and physician services covered 
by Part B. Different contractors typically process Part A and Part B 
claims, but they are not required to coordinate EGHP recoveries with 
one another. This lack of coordination also results in missed savings 
opportunities when neither the Part A nor Part B claims individually 
meet the $1,000 threshold. Even if both the Part A and Part B claims 
exceed this threshold, greater administrative costs are incurred by 
both CMS and private employers, as two different contractors attempt to 
recoup payments from the same payer.

Finally, the success of the current system depends on CMS distributing 
EGHP cases to the claims administration contractor that processed the 
mistaken payments. Our review of EGHP debt cases revealed that, during 
fiscal years 2000, 2001, and 2003, CMS neglected to transmit 2,364 
cases to the contractors, representing more than $28 million in 
potential mistaken payments. CMS officials told us that the accurate 
referral of EGHP cases has grown more difficult in recent years as some 
contractors have left the Medicare program and other contractors 
subsequently assumed their existing workload. They explained that they 
suspected that these EGHP cases were overlooked when one contractor 
processing claims for beneficiaries in several states left the program 
and the related cases were never assigned to the replacement 
contractors. As a result, no recovery action was ever initiated for 
these cases. By using the percentage of potential mistaken payments 
that are typically recovered--7 percent--we estimate that CMS's failure 
to transmit these cases to contractors for potential recovery cost the 
Medicare program approximately $2 million.

Contractors' Performance in Recovering EGHP Debt Is Inconclusive:

We were unable to fully evaluate the effectiveness of the EGHP debt 
recovery efforts of the claims administration contractors we visited 
because three of the four contractors were unable to produce all of the 
case files we requested. Although the files we examined indicated that 
these contractors were appropriately managing their EGHP workload, the 
volume of unavailable files precluded us from reaching an overall 
conclusion on their performance. CMS's recent contractor performance 
evaluations found similar records management deficiencies and raised 
additional questions about contractors' effectiveness.

Poor Records Management Results in Inconclusive Assessment of 
Contractors' Performance:

We found it difficult to thoroughly assess the performance of all of 
the contractors we visited. At each contractor, we randomly selected a 
sample of cases to review. The number selected varied by contractor and 
totaled 644 cases for all contractors combined. However, 78 case files 
could not be located.[Footnote 19] Although one contractor was able to 
produce the files and supporting documentation for all the cases we 
requested, the other three contractors poorly managed their records and 
were unable to provide all of the files and supporting documentation we 
had requested in advance of our visits.[Footnote 20] The percentage of 
missing cases at these contractors ranged from 4 to 24 
percent.[Footnote 21] Because these files were not available, we were 
unable to fully assess whether the contractors made sufficient efforts 
to collect MSP debt. For example, without supporting documentation for 
those cases, we could not conclusively determine that the contractors 
had followed all the appropriate recovery procedures.

Of the 566 cases available for review, we found that contractor files 
were complete and contained appropriate documentation to support the 
contractor's decision to close each case without making a recovery. We 
reviewed two types of cases: those that were closed during the initial 
screening process after the contractor determined that the $1,000 
threshold was not met, and those that were closed after the contractor 
sent a demand letter to the employer requesting payment. Together, 
these two types of cases constituted about 65 percent of the EGHP 
workload during fiscal years 2000 and 2001.[Footnote 22] For cases that 
were closed because they did not meet the $1,000 threshold, contractors 
provided us with adequate supporting documentation showing that the 
involved claims totaled less than this amount. Other cases were 
properly closed because the employers provided valid reasons as to why 
they were not responsible for the MSP debt. For example, if a 
beneficiary had retired and was not covered by the employer's insurance 
at the time the claims were submitted, contractor case files contained 
correspondence from the employer documenting this fact. In about a 
third of the MSP cases we selected for review, the private side of the 
contractor's business sold insurance to the employer that was initially 
identified as having responsibility for MSP debt. Although this 
situation creates a potential conflict of interest for the contractor 
because it must collect funds from its private business side, we did 
not find evidence that contractors closed such cases inappropriately or 
treated them differently from others.

Our review also found that one contractor made errors entering 
information into CMS's MPaRTS system, which tracks the status of EGHP 
cases. Although such errors do not mean that the contractor had 
inappropriately processed cases, they make it difficult for CMS to 
monitor the cases' status. The tracking system uses different codes to 
describe the status of MSP cases. For example, there is a code to 
indicate that the case was closed after a demand letter was sent, and 
another to indicate that the case was closed because the $1,000 
recovery threshold was not met. This contractor did not correctly apply 
these two codes and miscoded about 18 percent of the cases we reviewed.

CMS Contractor Evaluations Highlight Other Problem Areas:

CMS's recent contractor performance evaluations of MSP recovery 
activities support our finding of poor records management. CMS 
evaluated the MSP activities of 12 contractors in fiscal year 2001 and 
another 12 contractors in fiscal year 2002. During these evaluations, 
CMS reviewed EGHP case files from contractors. These evaluations are 
based on a relatively small number of case files--10 to 20--and 
therefore do not provide in-depth assessments of contractors' 
performance. However, the evaluations conducted in 2001 and 2002 
highlighted contractor performance problems similar to those we 
identified. That is, CMS found that several contractors, which included 
some that were not part of our review, had missing case files and 
entered inaccurate information into the CMS tracking database. For 
example, during a review of one contractor, CMS requested 20 EGHP case 
files, but the contractor was able to locate only 12 files. In 
addition, CMS found tracking-system coding errors--in 2001, 5 of the 12 
contractors reviewed did not use the correct status code when entering 
information into the CMS computer system that tracks the status of EGHP 
cases.

CMS evaluations identified additional problems in fiscal years 2001 and 
2002, suggesting other weaknesses in contractors' MSP recovery 
activities, as illustrated by the following examples:

* Staffing problems. One contractor discontinued processing data match 
cases for 3 months when the sole staff member performing this task took 
an extended leave of absence. At another contractor, CMS determined 
that the number of staff assigned to MSP recoveries was insufficient to 
process the contractor's large workload. CMS also noted that a 
contractor had recently changed the educational requirements for MSP 
staff. Because most of the current staff did not possess a college 
degree as required by the contractor's revised standard, the contractor 
retained an almost entirely new MSP staff. The new staff told CMS 
reviewers that their training was inadequate to prepare them for 
processing the workload.

* Delays in processing correspondence. In examining documentation at 
one contractor, CMS reviewers identified a significant backlog of 
correspondence. According to CMS's estimate, there were over 2,400 
pieces of mail awaiting action--including checks and correspondence 
from employers, insurers, and other contractors. The oldest 
correspondence awaiting action was more than 2 years old--well beyond 
CMS's requirement that contractors match incoming mail with established 
cases and respond to such correspondence within 45 days.

* Failure to appropriately document case determinations. At one 
contractor, CMS reviewers found several case files where the contractor 
did not document whether the action was necessary. For example, the 
contractor closed a case and indicated that a full recovery was made; 
however, the file did not show that a check was received from either an 
employer or insurer. At another contractor, CMS reviewers examined 
cases that were inappropriately closed without recovery because the 
contractor had not promptly notified the EGHP of the debt, as required. 
In this instance, CMS found that once the contractor recognized its own 
untimeliness, it erred again by closing these cases without confirming 
that the health plan's time limit for accepting claims had, in fact, 
expired.

* Inadequate security measures. Because the recovery process partially 
relies on Internal Revenue Service tax information, contractors are 
required to take certain precautions to prevent unauthorized access. At 
one contractor, CMS found that the workstation of the person 
responsible for processing the EGHP workload was situated next to the 
workstations of staff who did not have authorization to access 
restricted tax information. Reviewers found that files were stored in 
unlocked file cabinets and that sensitive printed materials were left 
in plain view in a general work area, rendering the information easily 
accessible to anyone in the facility.

Efforts to Improve MSP Management Have Not Focused on EGHP Debt Cases:

Recognizing the need to improve the coordination of its MSP recovery 
efforts, CMS contracted for the development of a new recovery system--
the Recovery Management and Accounting System (ReMAS)--in 1998. The 
purpose of ReMAS is to improve the identification, tracking, and 
recovery of mistaken payments. ReMAS was designed to enhance the MSP 
recovery process by automating some tasks performed manually and by 
reducing the time required to collect MSP debt. As of May 2004, CMS has 
deployed the liability insurance and workers' compensation component of 
ReMAS to nine contractors.

Designed to Enhance MSP Recoveries, ReMAS Offers Promising Features:

ReMAS is designed to receive and evaluate leads from CWF 
electronically, a function that is now performed in separate steps by 
CMS staff and individual claims administration contractors. These leads 
consist of information suggesting that a beneficiary has other coverage 
that should be primary. CMS officials claim that ReMAS will streamline 
other functions as well. For example, when new information on a 
beneficiary's MSP status is added to CWF, ReMAS is expected to 
determine, on a daily basis, whether mistaken payments were made on his 
or her behalf. Currently, the contractors review the occurrence of 
mistaken payments at varying intervals ranging from quarterly to 
semiannually. Once ReMAS determines that Medicare has paid claims that 
were the primary responsibility of another insurer, it will generate a 
case that can be assigned to any contractor for recovery. It will no 
longer be necessary for the contractor that processed the mistakenly 
paid claims to perform recovery activities.

CMS officials told us that they believe that ReMAS will have several 
advantages over the current process. First, efficiencies gained through 
ReMAS would enable contractors to pursue MSP debt that involves amounts 
less than the current $1,000 threshold, resulting in additional 
recoveries. Second, ReMAS could facilitate the consolidation of MSP 
debt recovery efforts among a handful of contractors, as each 
contractor would have access to all paid claims. CMS officials 
indicated that ReMAS would enable them to reduce administrative costs, 
provide contractors with a more consistent and predictable workload, 
and simplify contractor oversight activities. (See app. II for more 
information comparing ReMAS to the present recovery system).

Implementation of ReMAS for EGHP Debt Cases Is Uncertain:

Although CMS has spent $7 million on the development of this system, 
which has now spanned 6 years, ReMAS's implementation is progressing 
slowly. It remains in the early implementation stages--testing on EGHP 
cases started in June 2004. Several critical tasks related to ReMAS's 
implementation have taken several years to complete. To date, only the 
initial software testing and validation for the liability and workers' 
compensation components have been completed.

CMS's initial plans for implementing ReMAS have focused on recovering 
liability insurance and workers' compensation debt. Thus far, 17 
contractors have received training in the use of ReMAS. CMS officials 
told us that as of May 2004, the liability and workers' compensation 
components of ReMAS have been deployed to nine contractors. The 
remaining contractors that process MSP liability cases are scheduled to 
implement ReMAS by October 2004. ReMAS also has the potential to 
recover mistaken payments associated with EGHPs--currently handled 
through the data match process. CMS recently expanded the scope of 
ReMAS to include employer-sponsored group health plans, but details 
related to incorporating EGHP cases in the system are unclear. Unlike 
liability and workers' compensation cases, which are related to 
specific accidents or injuries, EGHP cases are based on a beneficiary's 
dates of employer-sponsored coverage. This distinction requires 
enhancements to the ReMAS system, to ensure that it can address and 
process this key difference. According to CMS's timetable, preliminary 
tasks such as computer testing, validation, and documentation of the 
EGHP component of ReMAS will be completed in September 2004. While CMS 
expects to pilot test the EGHP component with two contractors in 
October 2004, it has not specified when it will implement ReMAS for 
EGHP cases at all contractors.

Conclusions:

As Medicare's primary steward, CMS should make a concerted effort to 
recoup funds owed the program. However, recovery efforts should be 
planned and executed with cost-effectiveness in mind. CMS's efforts to 
recover MSP debt from cases that involve EGHPs were cost-effective as 
recently as a few years ago, but CMS is now operating a recovery system 
that is losing money. Although funding for contractors' EGHP debt 
recovery activities has slightly increased since fiscal year 2000, 
contractor workloads have decreased by 80 percent. In addition, funding 
for these activities is not always related to contractors' workloads--
in fiscal year 2003, almost half of the contractors received fewer than 
50 cases to process while 8 of these, which had a collective budget of 
more than $1.8 million, received no cases at all. As recently as fiscal 
year 2000, three contractors collectively processed a workload that 
exceeded the entire EGHP workload of all contractors in fiscal year 
2003, suggesting that consolidation of debt recovery activities among a 
smaller number of contractors is feasible. The current system, with 
over 50 contractors involved in EGHP recovery activities, is cumbersome 
to administer, and poor record-keeping makes it difficult to determine 
whether contractors are doing all they can to recover debt.

One of the keys to improving the cost-effectiveness of MSP debt 
recoveries may rest with CMS's new ReMAS system. Plans to expand the 
scope of ReMAS to recover debt associated with employer-sponsored group 
health plans could ultimately address current operational weaknesses, 
such as an inefficient distribution of workload and limited 
coordination among contractors. Now that CMS has been given new 
authority to contract with a variety of entities to assist it with 
managing the Medicare program, it should take advantage of ReMAS's 
capability to consolidate debt recovery efforts with a smaller number 
of contractors and thereby improve the efficiency of the program.

Recommendations for Executive Action:

We recommend that the administrator of CMS:

* develop detailed plans and time frames for expanding ReMAS to include 
EGHP cases, and expedite implementation of the EGHP component of ReMAS 
and:

* improve the efficiency of MSP payment recovery activities by 
consolidating the EGHP workload under a smaller number of contractors 
and ensuring that contractor budgets for EGHP recovery activities more 
closely reflect their actual workloads.

Agency Comments:

In written comments on a draft of this report, CMS agreed with our 
recommendations. CMS said it recognizes the importance of improving the 
cost-effectiveness of its debt collection process and has taken steps 
to expedite implementation of the EGHP component of ReMAS. CMS stated 
that operational efficiencies gained through the implementation of 
ReMAS make it feasible to consolidate recovery activities. CMS's 
comments are reprinted in appendix III. CMS also provided us with 
technical comments, which we incorporated as appropriate.

As agreed with your office, unless you announce its contents earlier, 
we plan no further distribution of this report until 30 days after its 
issuance. At that time, we will send copies to the Administrator of CMS 
and other interested parties. We will then make copies available to 
others upon request. In addition, the report will be available at no 
charge on GAO's Web site at http://www.gao.gov.

If you or your staff have any questions about this report, please call 
me at (312) 220-7600. An additional GAO contact and other staff who 
made contributions to this report are listed in appendix IV.

Signed by: 

Leslie G. Aronovitz: 
Director, Health Care--Program Administration and Integrity Issues:

[End of section]

Appendix I: Scope and Methodology:

To assess the cost-effectiveness of the current system for recovering 
Medicare Secondary Payer (MSP) debt, we analyzed information from two 
CMS databases--the Contractor Administrative-Budget and Financial 
Management (CAFM) system and the Mistaken Payment and Recovery Tracking 
System (MPaRTS). CAFM provided information on CMS's budgets for 
contractors and MPaRTS provided information on the number of potential 
MSP recovery cases processed by contractors and the amount of savings 
from recovery activities.

To evaluate contractor performance in recovering MSP debt, we focused 
on cases that involved beneficiaries and their spouses who may have 
been employed and covered by an employer-sponsored group health plan 
(EGHP). These cases consisted of potentially mistakenly paid claims for 
services a beneficiary appeared to have received while covered by an 
EGHP. We selected 4 geographically dispersed contractors that processed 
a high volume of EGHP debt cases--all 4 were among the top 10 
contractors that processed the highest number of such cases in 2000 and 
2001. At each contractor, we randomly selected a sample of cases that 
were opened in 2000 and 2001 for review--the number of cases selected 
at each contractor varied, ranging from 136 to 207.[Footnote 23] Of the 
644 cases selected, 566 were available for review. Contractors were 
unable to provide documentation for 78 cases. Because contractors close 
the majority of cases without making recoveries, we specifically 
focused on such cases in order to determine whether contractors made 
sufficient effort to recover MSP debt and followed appropriate 
procedures. Our inspection of these files consisted of reviewing 
contractor adherence to CMS's detailed procedures for steps taken 
during the recovery process and the sufficiency of the contractor's 
documentation for closing data match cases without recovering funds or 
referring cases to the Department of the Treasury for 
collection.[Footnote 24]

All four of the Medicare contractors we examined sold private health 
insurance. Because of the possibility that the private side of their 
businesses could have been responsible for reimbursing Medicare for MSP 
debt, our examination included an assessment of whether this potential 
conflict of interest affected contractors' actions in collecting this 
debt. Using insurer information available from MPaRTS and contractor 
case files, we identified cases that involved the contractor's private 
health insurance business and compared them to the other cases. Our 
analysis found little difference between the two types of cases in 
terms of missing documentation--12.0 percent of cases that involved the 
contractor's private side health insurance business were not 
documented, compared with 12.1 for the other cases. To assess CMS 
efforts to oversee and improve MSP debt recovery, we reviewed program 
guidelines and memoranda and interviewed officials from CMS and 
Medicare contractors. To identify contractor performance problems, we 
also examined the results of CMS's fiscal years 2001 and 2002 
contractor performance evaluations pertaining to contractors' MSP 
operations.

Although we did not validate CMS's CAFM and MPaRTs information, CMS has 
procedures in place to ensure the accuracy of these databases. The 
MPaRTs database, which tracks MSP debt recoveries from EGHPs, contains 
internal logic checks that prevent contractors from incorrectly 
entering certain types of information. In addition, CMS periodically 
reviews MPaRTs records as part of its contractor performance 
evaluations. CAFM is a financial management system established to 
enable CMS to control the national budget for the Medicare contractors. 
It contains a small number of system checks that ensure that 
expenditure information provided by contractors is totaled correctly. 
The reliability of the data is ensured through independent audits. In 
addition, CMS personnel also review the data throughout the year.

To identify the agency's efforts to enhance the MSP process, we 
reviewed documents and interviewed CMS officials on CMS's planned 
Recovery, Management and Accounting System (ReMAS), a new CMS system 
for MSP debt recovery activities that is under development. We 
conducted our work from December 2002 through July 2004 in accordance 
with generally accepted government auditing standards.

[End of section]

Appendix II: Comparison of Current System for Recovering EGHP Debt with 
ReMAS:

The following table highlights differences between the way MSP case 
development, validation, and recovery are implemented under the present 
data match recovery system and how they will be implemented under 
ReMAS.

Table 3: Comparison of Current Recovery System to ReMAS:

Step: MSP Case Development; 
Current system: CMS's Coordination of Benefits contractor (COBC) 
evaluates information provided by the Internal Revenue Service and the 
Social Security Administration to identify instances where 
beneficiaries may have primary insurance coverage through an employer. 
The COBC updates the Common Working File (CWF) with this information 
if responses to the employer data match questionnaire or other analysis 
confirms that Medicare is the secondary payer; 
ReMAS: Same.

Step: MSP Case Development; 
Current system: Updated CWF information produces computer tapes that 
are transmitted to local contractors--usually quarterly or 
semiannually; 
ReMAS: Updated CWF information produces leads daily and triggers a 
search for mistaken payments. Because the COBC receives tax and 
employer information irregularly, leads will tend to be generated in 
clusters, but potentially more frequent than the quarterly or 
semiannual basis of the current system.

Step: Case Validation; 
Current system: CMS takes MSP leads from the data match. CWF updates 
and matches them against a national claims database to determine 
whether Medicare has paid claims for those individuals; 
ReMAS: Same.

Step: Case Validation; 
Current system: Performed quarterly or semiannually; 
ReMAS: Performed when new leads are generated.

Step: Case Validation; 
Current system: CMS must send the data match cases to the contractor 
that processed those claims; 
ReMAS: CMS selects a lead recovery contractor, regardless of whether 
that contractor processed the mistakenly paid claims.

Step: Case Validation; 
Current system: Contractor validates recovery claim amounts by 
comparison with its internal claims history; 
ReMAS: No manual validation is done. The recovery claim amount is 
identified within ReMAS.

Step: Case Validation; 
Current system: Recovery threshold of a minimum of $1,000 is used by 
each contractor for each recovery claim; 
ReMAS: No threshold for recovery.

Step: Recovery; 
Current system: Individual contractors use standardized software to 
generate demand letters requesting payment from debtors; 
ReMAS: ReMAS will interface with the CMS accounts receivable software, 
which will automatically generate demand letters requesting payment 
from debtors.

Step: Recovery; 
Current system: An employer or insurer can receive several demand 
letters if more than one contractor processed the mistakenly paid 
claims or if debt involves more than one beneficiary; 
ReMAS: One demand letter is sent. ReMAS identifies all claims for 
which the debtor is responsible. 

Source: CMS.

[End of table]

[End of section]

Appendix III: Comments from the Centers for Medicare & Medicaid 
Services:

DEPARTMENT OF HEALTH & HUMAN SERVICES: 
Centers for Medicare & Medicaid Services:

Administrator: 
Washington, DC 20201:

DATE: JUL 27 2004:

TO: Leslie G. Aronovitz:
Director, Health Care-Program Administration and Integrity Issues:

FROM: Mark B. McClellan, M.D., Ph.D. 
Administrator:

SUBJECT: General Accounting Office (GAO) Draft Report: "MEDICARE 
SECONDARY PAYER: Improvements Needed to Enhance Debt Recovery Process," 
(GAO-04-783):

Thank you for allowing the Centers for Medicare & Medicaid Services 
(CMS) to comment on the above GAO draft report. We concur with the 
recommendations contained in this report.

Like GAO, CMS has been concerned with Medicare Secondary Payer (MSP) 
debt that arises when the Medicare Program inadvertently makes primary 
payment for services that are later determined to be the financial 
responsibility of another payer. The CMS recognizes the necessity to 
streamline and otherwise bring efficiencies to its debt collection 
processes.

The CMS has begun taking action to expedite implementation of the 
Employer Group Health Plan (EGHP) function within the Recovery 
Management and Accounting System (ReMAS). The EGHP function within 
ReMAS has already been tested and will be implemented, along with the 
Healthcare Integrated General Ledger Accounting System (HIGLAS) 
functionality (debt management), at two Medicare contractor sites on 
October 1, 2004, and, in fiscal year 2005, at eight other contractor 
sites.

The CMS is confident that ReMAS will provide the efficiencies necessary 
to identify and recover mistaken and conditional payments in a more 
timely and consistent manner. Also, this new recovery system will 
afford CMS options for consolidation of recoveries. The CMS is 
considering these options in conjunction with authority contained in 
section 1893 (Medicare Integrity Program) of the Social Security Act, 
as amended.

The CMS is committed in its efforts to identify and implement new and 
efficient processes to ensure the timely and accurate recovery of 
mistaken and conditional Medicare primary payments. New tools, like 
ReMAS, will facilitate the recovery of monies owed the Trust Funds and 
improve CMS' responsiveness to its business partners. 

[End of section]

Appendix IV: GAO Contact and Staff Acknowledgments:

GAO Contact:

Geraldine Redican-Bigott, (312) 220-7678:

Acknowledgments:

Major contributors to this report were Richard M. Lipinski, Barbara 
Mulliken, Enchelle Bolden, Shaunessye Curry, and Kevin Milne.

FOOTNOTES

[1] Although persons age 65 or older are eligible for Medicare 
coverage, some are employed and may receive health insurance coverage 
for themselves and their spouses through an employer-sponsored group 
health plan. 

[2] CMS and its contractors are interested in determining whether 
beneficiaries have other insurance coverage that is responsible for 
paying their claims before Medicare. This insurance differs from 
Medicare supplemental insurance, which typically pays for expenses that 
Medicare does not pay. For example, supplemental insurance may pay for 
routine annual check-ups, an expense that Medicare does not cover.

[3] The amount of outstanding debt does not include approximately $272 
million in debt that is currently classified as "not collectible." 
CMS's financial reporting system does not track this debt by type of 
debtor--consequently, it is not possible to determine the percentage 
that is associated with EGHPs and other types of insurers.

[4] The Medicare fee-for-service program is divided into two parts--A 
and B. The claims administration contractors that process Part A 
claims--those covering inpatient hospital, skilled nursing facility, 
hospice, and certain home health services--are known as fiscal 
intermediaries. Contractors processing Part B claims--covering 
physician services, diagnostic tests, and related services and 
supplies--are referred to as carriers.

[5] The data match process is one of several ways that CMS, the COBC, 
and the claims administration contractors learn that a Medicare 
beneficiary has primary insurance coverage through another insurer. The 
processes include an initial beneficiary enrollment questionnaire, 
employer reports, and voluntary data-sharing agreements with some 
employers and insurers. 

[6] In addition to the demand letter, contractors will also include the 
employee's name, insurer, copies of the claims, and the dates on which 
services were provided, to assist the responsible party in verifying 
its liability for the debt. 

[7] Medicare may conditionally pay a beneficiary's claims if the 
contractor is aware that another payer may ultimately be found 
responsible for them. For example, Medicare may pay the claims of a 
beneficiary related to an incident that is the subject of a lawsuit. 
After a settlement or judgment is reached, it may then pursue a 
recovery from the liable party. 

[8] GAO, 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).

[9] Pub. L. No. 108-173, § 911, 117 Stat. 2066, 2378-2386.

[10] There are nine business functions: claims processing, beneficiary 
and provider customer service, appeals, provider education, financial 
management, provider enrollment, reimbursement, payment safeguards, 
and information systems security.

[11] We assigned the recovery amount to the year a case was opened 
because contractors perform the majority of their work shortly after 
they receive a case--that is, contractors must screen the case to 
determine whether the amount involved meets the $1,000 threshold and 
send letters requesting payment to the responsible party. Although 
contractors may receive payments in subsequent years, these recoveries 
are largely the result of work performed during the year the case was 
opened.

[12] The contractor budget for EGHP debt recovery activities in fiscal 
year 2002 was $6,237,056. Although no new EGHP debt cases were opened 
that year, these funds were used to close old cases, some of which had 
been inactive for more than 10 years. 

[13] In addition to EGHP debt recoveries initiated by the data match, 
contractors may independently initiate recoveries. However, because CMS 
does not have a database comparable to MPaRTS for tracking "nondata 
match" recoveries, information on the number and amount recovered is 
not directly available.

[14] According to CMS officials, several recent initiatives have 
enhanced the ability of contractors to correctly identify Medicare 
beneficiaries with other coverage before paying claims. For example, 
CMS consolidated MSP case development activities with the COBC. CMS has 
also encouraged employers and insurance companies to share health 
insurance information on Medicare beneficiaries with CMS on an ongoing 
basis.

[15] Although these eight contractors processed significantly more EGHP 
cases than other contractors in fiscal year 2003, their recovery 
efforts were still not cost-effective--the estimated recovery amount of 
$1,331,118 was significantly less than their budget of $3,295,191.

[16] EGHP budgets also include funds for contractors to perform certain 
other tasks related to MSP debt recovery, such as responding to 
incoming correspondence and pursuing recoveries that they have 
identified independently of the data match. 

[17] There are several sources that contributed to these savings, 
including the amount of denied claims, recoveries (from EGHP debt, 
liability, and workers' compensation cases), and voluntary repayments 
from providers.

[18] The provider's geographic location determines where a 
beneficiary's claims are processed. For example, the claims of a 
beneficiary who maintains a residence in New York, but who receives 
medical services while vacationing in Florida, will be processed by the 
Florida claims administration contractor.

[19] Typically, support for such cases consists of paper files that are 
archived in a storage facility, or computer-generated reports from the 
contractors' claims systems, which are stored electronically.

[20] At each of the four contractors we visited, we reviewed from 136 
to 207 EGHP cases that were assigned in 2000 and 2001.

[21] The types of missing case files varied across contractors. For 
example, one contractor could not produce support for almost a third of 
the cases that were closed during the initial screening. This 
contractor told us that it had changed computer systems and the 
electronic versions of the reports stored on the previous computer 
system could no longer be retrieved. Although some of these reports had 
apparently also been printed at one time, the contractor could not 
locate those documents. Another contractor was unable to produce case 
files for about half of the cases that involved sending a demand letter 
to the employer. A contractor official speculated that the records 
might have been lost when it assumed the Medicare contract previously 
held by another insurance company. 

[22] The bulk of the remaining cases included those which remained 
open, those resulting in a recovery, and those referred to the 
Department of the Treasury for collection.

[23] We excluded EGHP debt cases that resulted in a recovery, cases 
that were currently open, and older cases that were still considered 
open but, because of their age, had been referred to the Department of 
the Treasury for collection. We also excluded liability, workers' 
compensation, and other nondata match cases.

[24] CMS requires contractors to retain documentation supporting their 
case determinations including copies of mistakenly paid claims, demand 
letters sent to employers or other insurers requesting payment, letters 
informing employers or other insurers that the case will be referred to 
the Department of the Treasury for collection if payment is not 
received, contractors' reports describing the beneficiary's enrollment 
and payment information, a worksheet summarizing the beneficiary's 
insurance history, and correspondence with employers and other 
insurers. 

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