Pursuant to a congressional request, GAO determined whether Medicare contractors participated in any improper or questionable practices that contributed to fraud, waste, or abuse in the Medicare federal health insurance program, focusing on: (1) recently completed cases of criminal conduct or False Claims Act violations committed by Medicare contractors; (2) the deceptive contractor activities set forth in those cases or alleged by investigating agents and former contractor employees; and (3) how these activities were carried out without detection by the Health Care Financing Administration (HCFA).

GAO noted that: (1) since 1993, criminal and civil actions have been taken against at least six Medicare contractors resulting from their performance under Medicare contracts; (2) the alleged contractor activities addressed in those actions occurred during the calendar years 1984 through 1997; (3) with respect to three of the six contractors, the contractors and some of their employees pled guilty to various criminal charges and agreed to pay criminal fines or civil penalties; (4) investigations of the three other contractors resulted in civil settlements only; (5) a total of over $261 million was assessed in criminal and civil penalties against these six contractors; (6) investigators from the Department of Health and Human Services Office of Inspector General and the Federal Bureau of Investigation, relators, and other former contractor employees told GAO that, contrary to their contractual requirements and obligations, contractors: (a) improperly screened, processed, and paid claims, resulting in additional costs to the Medicare program; (b) improperly destroyed or deleted claims; (c) failed to recoup overpayments to Medicare providers within the prescribed time and to collect required interest payments; (d) falsified documentation and reports to HCFA regarding their performance; and (e) altered or hid files that involved claims that had been incorrectly processed or paid and altered contractor audits of Medicare providers before HCFA's reviews; (7) the persons to whom GAO spoke also told GAO that these deceptions and improprieties became a way of doing business and continued for sustained periods without detection because HCFA, in its review of Medicare contractors, relied on information provided by contractors without independent verification; (8) HCFA also gave contractors advance notice of the files that it intended to review, thereby allowing contractors ample time to correct, delete, or hide claim-related documents or redo provider audits and related workpapers prior to HCFA's review; (9) this system also resulted in contractors deviating from their normal operating procedures during HCFA evaluations in order to deceive HCFA about their accuracy and efficiency in claims processing and customer service; (10) as a result, criminal and other improper activities were uncovered only after whistleblowers, or relators, filed qui tam complaints under the False Claims Act; and (11) Medicare--an approximately $200 billion, federally funded program--loses money when its contractors pay more than they should on claims and fail to properly recoup overpayments to providers.

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