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Medicaid: CMS Needs to Implement Risk-Based Oversight of Puerto Rico's Procurement Process

GAO-21-229 Published: Feb 05, 2021. Publicly Released: Feb 05, 2021.
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Fast Facts

A Spanish translation was issued after publication. Para la versión de esta página en español, ver a GAO-21-317SP.

States and U.S. territories paid contractors about half of their Medicaid spending for health care and other services in 2018. In the same year, Puerto Rico paid contractors almost all of its Medicaid spending—97 percent of $2.5 billion.

We found that the Centers for Medicare & Medicaid Services (CMS) does not oversee contracting in Puerto Rico, where former officials face allegations of contract fraud. We found that Puerto Rico did not always take steps to ensure competition or to lower the risk of fraud, waste, and abuse.

We recommended CMS begin risk-based oversight of contracting in Puerto Rico.

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Para la versión de esta página en español, ver a GAO-21-317SP.

What GAO Found

Like other U.S. territories and states, Puerto Rico implements major functions of its Medicaid program by procuring services from contractors, such as the delivery of managed care services to Medicaid beneficiaries. In 2018, procurement costs represented $2.4 billion of Puerto Rico's $2.5 billion in total Medicaid expenditures. A 2019 federal indictment alleging Puerto Rico officials unlawfully steered Medicaid contracts to certain individuals has raised concerns about Puerto Rico's Medicaid procurement process, including whether this process helps ensure appropriate competition.

The Centers for Medicare & Medicaid Services (CMS), within the Department of Health and Human Services, is responsible for overseeing the Medicaid program. CMS requires states and territories to use the same process for Medicaid procurements as they do for their non-federal procurements. However, CMS has not taken steps to ensure Puerto Rico has met this requirement. Instead, CMS has relied on Puerto Rico to oversee the territory's procurement process and to attest to its compliance. CMS approved Puerto Rico's attestation of compliance in 2004 and has not required subsequent updates. CMS officials told GAO that states and territories are in the best position to ensure compliance with their respective procurement laws.

GAO and others have found that competition is a cornerstone of procurement. Using competition can reduce costs, improve contractor performance, curb fraud, and promote accountability. GAO reviewed selected Puerto Rico Medicaid procurements against federal procurement standards designed to promote competition and reduce risks of fraud. States and territories are generally not required to meet such standards. However, GAO and others have found that such standards can indicate whether a state's or territory's procurement process includes necessary steps to achieve fair competition.

GAO found that seven of the eight selected Puerto Rico procurements did not include important steps to promote competition and mitigate the risk for fraud, waste, and abuse, underscoring the need for federal oversight.

  • Competitive procurements. The requests for proposals for two of the three competitive procurements GAO reviewed did not include certain information on factors used to evaluate proposals and make awards. In contrast, Puerto Rico's managed care procurement—the largest procurement reviewed—included this information.
  • Noncompetitive procurements. None of the five noncompetitive procurements GAO reviewed documented circumstances to justify not using competitive procurements, such as a lack of competition or an emergency. Puerto Rico officials explained that territorial law allows noncompetitive procurement for professional services regardless of circumstances.

Because CMS does not oversee Puerto Rico's procurement process, the agency lacks assurance that Puerto Rico's Medicaid program is appropriately managing the risk of fraud, waste, and abuse. Procurements that did not include important steps to promote competition could have unnecessarily increased Medicaid costs, reducing funding for Medicaid services to beneficiaries.

Why GAO Did This Study

States' and U.S. territories' Medicaid procurement processes can directly affect their ability to prevent fraud, waste, and abuse in the program. A 2019 federal indictment alleging fraudulent Medicaid procurements in Puerto Rico has raised questions about the program's oversight.

The Consolidated Appropriations Act, 2020 includes a provision for GAO to review oversight of Puerto Rico's Medicaid procurement process and its use of competition. This report examines CMS oversight of Puerto Rico's procurement process from its initial steps through the award, and how it helps ensure competition. GAO reviewed federal regulations, guidance, and Puerto Rico's December 2020 procurement reform plan; interviewed Puerto Rico and federal officials; and reviewed eight awards that represented about 97 percent of the costs of Puerto Rico's procurements in effect as of April 2020. These procurements were selected based on variation in cost, use of competition, and other factors. GAO assessed whether CMS addressed risks in Puerto Rico's procurement process by reviewing selected procurements against certain federal standards that apply to other non-federal entities and aim to mitigate the risk of fraud, waste, and abuse. GAO also assessed CMS's policies and procedures against federal internal control standards.


GAO recommends that CMS implement risk-based oversight of the Medicaid procurement process in Puerto Rico. The Department of Health and Human Services concurred with this recommendation.

Recommendations for Executive Action

Agency Affected Recommendation Status
Centers for Medicare & Medicaid Services The Administrator of CMS should take steps to implement ongoing, risk-based oversight of Medicaid procurement processes in Puerto Rico; such actions could include performing an assessment of competitive and noncompetitive procurement processes to identify risks and address them by promoting competition, as appropriate for the efficient operation of the Medicaid program. (Recommendation 1)
Open – Partially Addressed
CMS concurred with our recommendation and indicated a commitment to work with Puerto Rico to improve its procurement processes. As of December 2022, CMS provided evidence of feedback and technical assistance it had provided on Medicaid procurement processes in Puerto Rico. At this time, CMS was reviewing documentation of the Puerto Rico Medicaid Program's reformed procurement process and was awaiting similar documentation from Puerto Rico's Administracion de Seguros de Salud (Health Insurance Administration). In March 2024, CMS reported the agency would begin a risk-based assessment of Puerto Rico's reformed procurement process once implemented. When we confirm additional actions the agency has taken in response to this recommendation, we will provide updated information.

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Competitive procurementCompliance oversightFederal procurementGovernment procurementHealth careHealth care standardsManaged health careMedicaidMedicaid programTerritories and possessions