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The Health Care Financing Administration (HCFA) chose 12 claims administration contractors in 1999 to act as program safeguard contractors (PSC) for Medicare. This report examines (1) HCFA's progress in implementing its PSC contracting authority and (2) whether HCFA could better manage the PSCs to ensure their most effective use. GAO found that HCFA is experimenting with different options for integrating the PSCs into Medicare's program safeguard activities. Between September 1999 and March 2001, HCFA issued 15 task orders that include different ways of using PSC services. HCFA lacks a long-term strategy to determine how best to use the PSCs. Instead, it has issued task orders in an ad-hoc manner, which has afforded HCFA certain flexibilities, such as targeting its task orders on known problem areas. Although this experimental approach may be prudent in the short-term, it does not represent a process for systematically testing different options for using PSC services in the long-term. Also, HCFA has not set formal criteria and timeframes for determining how the PSCs should be integrated into Medicare's existing program integrity efforts. Finally, HCFA has not established clear, measurable performance criteria to assess the PSCs' performance on individual task orders.

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Recommendations for Executive Action

Agency Affected Recommendation Status
Health Care Financing Administration 1. To assist HCFA in determining if the PSCs are an effective approach to safeguarding Medicare payments, the Acting Deputy Administrator of HCFA should define the strategic direction for future use of the PSCs. This should include setting goals and objectives for the PSC program, devising evaluation criteria for assessing the overall effectiveness of the PSCs in promoting program integrity, and establishing timeframes for evaluating the PSC program.
Closed - Implemented
CMS agreed that it should develop a long-term strategy for effectively utilizing the PSCs, and hired KPMG Consulting to help it develop its approach. On February 6, 2002, CMS announced its PSC implementation strategy with the objectives of promoting competition, innovation, and accountability. Its strategy was scheduled to be phased in between 2002 and 2003, and was intended to gradually shift responsibility for detecting fraud and abuse from the claims administration contractors to the PSCs. CMS has completed its implementation and has a long-term strategy for effectively using PSCs in place. It has also developed performance criteria for the PSCs, has been evaluating PSC performance, and has been routinely shifting fraud and abuse detection responsibility from claims administration contractors to PSCs.
Health Care Financing Administration 2. As HCFA gains experience with PSC performance, the Acting Deputy Administrator should begin to develop clear, quantifiable performance measures and standards tied to well-defined outcomes for each of the task orders.
Closed - Implemented
CMS agreed that development of clearly defined performance standards to assess the success of the PSCs' performance would enhance the agency's overall ability to enhance its program integrity activities. CMS retained KPMG Consulting to assist it in the development of these standards. In March 2002, KPMG reported to CMS on its assessment of several of these standards, particularly those relating to the medical review and benefit integrity functions. KPMG is continuing to assist in the development of these measures, which will become part of its final "Performance Measurement, Evolution, and Incentive Plan." In 2003, CMS reported that the PSCs have performance metrics tied to activities in their task orders, but noted that they are not evaluated on the dollar amount they identify for recovery because such an arrangement would result in an inappropriate ("bounty hunter") incentive.

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