Medicare Integrity Program:

Agency Approach for Allocating Funds Should Be Revised

GAO-06-813: Published: Sep 6, 2006. Publicly Released: Oct 6, 2006.

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Since 1990, GAO has considered Medicare at high risk for fraud, waste, abuse, and mismanagement. The Medicare Integrity Program (MIP) provides funds to the Centers for Medicare & Medicaid Services (CMS--the agency that administers Medicare--to safeguard over $300 billion in program payments made on behalf of its beneficiaries. CMS conducts five program integrity activities: audits; medical reviews of claims; determinations of whether Medicare or other insurance sources have primary responsibility for payment, called secondary payer; benefit integrity to address potential fraud cases; and provider education. In this report, GAO determined (1) the amount of MIP funds that CMS has allocated to the five program integrity activities over time, (2) the approach that CMS uses to allocate MIP funds, and (3) how major changes in the Medicare program may affect MIP funding allocations.

For fiscal years 1997 through 2005, CMS's MIP expenditures generally increased for each of the five program integrity activities, but the amount of the increase differed by activity. Since fiscal year 1997, provider education has had the largest percentage increase in funding--about 590 percent, while audit and medical review had the largest amounts of funding allocated. In fiscal year 2006, funding for MIP will increase further to $832 million, which includes $112 million in funds that CMS plans to use, in part, to address potential fraud and abuse in the new Medicare prescription drug benefit. CMS officials told us that they have allocated MIP funds to the five program integrity activities based primarily on past allocation levels. Although CMS has quantitative measures of effectiveness for two of its activities--the savings that medical review and secondary payer generate compared to their costs--it does not have a means to determine the effectiveness of each of the five activities relative to the others to aid it in allocating funds. Further, CMS has generally not assessed whether MIP funds are distributed to the contractors conducting each program integrity activity to provide the greatest benefit to Medicare. Because of significant programmatic changes, such as the implementation of the Medicare prescription drug benefit and competitive selection of contractors responsible for claims administration and program integrity activities, the agency's current approach will not be adequate for making future allocation decisions. For example, CMS will need to allocate funds for program integrity activities to address emerging vulnerabilities that could affect the Medicare prescription drug benefit. Further, through contracting reform, CMS will task new contractors with performing a different mix of program integrity activities. However, the agency's funding approach is not geared to target MIP resources to the activities with the greatest impact on the program and to ensure that the contractors have funding commensurate with their relative workloads and risk of making improper payments.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: In its comments on the report, the Centers for Medicare & Medicaid Services (CMS) generally agreed with the recommendation. To address the issue of allocation of MIP funds based on workload and risk, CMS indicated that with contracting reform and the introduction of new contracts for Medicare Administration Contractors (MAC), CMS is distributing workloads more evenly and will be establishing performance goals based on the Medicare fee-for-service error rate in each region. Further, CMS also indicated that it is committed to identifying and investigating better approaches to allocate resources, including using its new contracting authority to introduce incentives for contractors. For example, CMS officials indicated that the agency is developing a strategy to use the new contracting authority provided by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) to include incentives into the Medicare fee-for-service claims processing contracts and the use of recovery auditor contracts. CMS is also consolidating its Medicare Secondary Payer activities to further achieve program efficiencies. CMS has taken steps to expand its oversight efforts of the Medicare Part D program by contracting with program integrity contractors, the Medicare Drug Integrity Contractors (MEDICs). These contractors will perform data analysis related to fraud and abuse, conduct fraud complaint investigations and refer cases to the appropriate law enforcement agency as needed. CMS is also taking steps to improve targeting of the activities of the Program Safeguard Contractors (PSC), which are dedicated to program integrity and enhanced data capabilities. While the level of funding for PSCs has not changed significantly since FY 2006, CMS is taking steps to improve the effectiveness of the utilization of that funding. With the current contracting structure of the PSCs, workloads vary between task orders. PSC task orders may include the review of Part A claims that cover inpatient hospital, skilled nursing facility (SNF), hospice and certain home health services (RHHI). The task orders may also include the review of Part B claims that cover physician and outpatient services, diagnostic tests, and other medical services and supplies. Some task orders review claims for durable medical equipment while others are limited to conducting cost report audits. Given the varying workload among task orders, CMS has made improvements for the allocation of funds to each PSC task order. In the past, funds allocated to PSC task orders were based on the escalation clauses in the respective contracts. Now, to improve the effectiveness of the Medicare Integrity Program, funds are allocated based on PSC performance, workload and Medicare program vulnerabilities.

    Recommendation: To better ensure that MIP funds are appropriately allocated among and within the five program integrity activities, CMS should develop a method of allocating funds based on the effectiveness of its program integrity activities, the contractors' workloads, and risk.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services


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