Nearly 1 in 3 Americans relies on Medicare or Medicaid for services from hospital stays and lab tests to flu shots and prescription drugs. The Centers for Medicare and Medicaid Services uses an extensive network of private contractors to administer its programs.

In FY 2016, CMS spent about $7.2 billion on these contracts, an increase of about 40% since 2012. We found that 97% of this amount went to services, such as IT and administrative support. Additionally, since competition in government contracting generally saves money, CMS increased its use of competitive contracts from 78% to 96% during this same period.

CMS Contracts for Services and Products

Bar graph showing that CMS spends 40% more on contracts than it did in 2012, mostly for services.

What GAO Found

The Centers for Medicare and Medicaid Services (CMS) within the Department of Health and Human Services (HHS) increased contracting obligations by about 40 percent between fiscal years 2012 and 2016, with about 97 percent of obligations on contracted services. CMS officials attributed the increase in obligations to the implementation of the Patient Protection and Affordable Care Act (ACA) and the Medicare Access and Children's Health Insurance Program Reauthorization Act (MACRA) of 2015. In fiscal year 2016, CMS obligated approximately $7.2 billion through contracts--$6.97 billion for services such as information technology systems services; professional services; and assistance with governmental health insurance programs, including administering, overseeing, and auditing claims made under the Medicare program.

CMS's competition rate--the percentage of total obligations reported under competitive contracts--increased from 78 percent in fiscal year 2012 to 96 percent in fiscal year 2016. CMS officials attributed the increase to their leadership's commitment to promoting competition for all CMS contracts. CMS's fiscal year 2016 competition rate is higher than the government-wide rate of 63 percent and the civilian agency rate of 81 percent.

CMS obligated 78 percent of its fiscal year 2016 dollars on cost-reimbursement and time and material/labor hour contracts--consistent with fiscal year 2012 obligations. The Federal Acquisition Regulation provides for these types of contracts, stating they are appropriate to use when uncertainties in the scope of the work, cost of services, or level of labor effort needed prevent the use of contract types in which prices are fixed. However, the Office of Management and Budget considers these types of contracts high risk because they carry significant potential risk of overspending. CMS officials stated that they are looking for opportunities to use more fixed-price contracts to minimize financial risk, but noted that much of CMS's work is appropriate for cost-reimbursement contracts due to uncertainties in the requirements. 

Why GAO Did This Study

CMS uses an extensive network of private contractors to help carry out its responsibilities, including benefit delivery, program administration, management, and oversight. These contractors perform a variety of functions such as handling claims under the Medicare program and maintaining information technology systems.

GAO was asked to review contracting trends at CMS. This report identifies what federal procurement data show regarding recent CMS contracting in areas such as total spending, competition rates, and contract types.

GAO used data from the Federal Procurement Data System-Next Generation (FPDS-NG) to identify trends in CMS's procurement of products and services over the 5-year period from fiscal years 2012 through 2016, the most recent and complete data available at the time of GAO's review.

What GAO Recommends 

GAO is not making any new recommendations. However, since 2015, GAO has made nine recommendations related to CMS's use of contracts, including setting clear expectations in contract work statements. These recommendations remain unimplemented.

For more information, contact William T. Woods at (202) 512-4841 or woodsw@gao.gov.