Medicare Contractors:

Despite Its Efforts, HCFA Cannot Ensure Their Effectiveness or Integrity

HEHS-99-115: Published: Jul 14, 1999. Publicly Released: Jul 14, 1999.

Contact:

Leslie G. Aronovitz
(312) 220-7767
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

Pursuant to a congressional request, GAO reviewed the Health Care Financing Administration's (HCFA) oversight of its claims administration contractors, focusing on: (1) whether there are weaknesses in HCFA's contractor oversight activities that may make Medicare more vulnerable to fraud, waste, or abuse; and (2) changes in HCFA's contracting authority that may improve its ability to manage its contractors.

GAO noted that: (1) despite its efforts, HCFA's oversight of Medicare claims administration contractors has significant weaknesses that leave the agency without assurance that contractors are paying providers appropriately; (2) since 1993, six contractors have settled civil and criminal charges following allegations that they did not check claims to ensure proper payment or allowed Medicare to pay claims that should have been paid by other insurers; (3) even though inadequate management controls and falsified data are a common theme in these cases, GAO found that HCFA still does not regularly check contractors' internal management controls, management and financial data, and key program safeguards to prevent payment errors; (4) furthermore, HCFA's headquarters office generally has not set oversight priorities, leaving such decisions almost entirely to regional office reviewers; (5) this has led to uneven contractor evaluations by regional reviewers, making it more difficult for HCFA to determine which contractors are performing effectively; (6) HCFA's organizational structure contributes to the problem by dividing responsibilities for contractor oversight between the regions and headquarters without assigning overall accountability to one office; (7) HCFA officials believe that increased competition among contractors could enhance contractor performance but that statute and regulations limit its authority to contract; (8) the statutory limitations were enacted for easier initial implementation of Medicare, but the program now has over 30 years of operational experience; (9) consequently, HCFA is seeking new or explicit authority from Congress that would allow it to: (a) choose its intermediaries, rather than having providers nominate them, and contract with non-health insurance companies; (b) contract separately for specific functions; and (c) use payment methods that would allow contractors to earn profits on their Medicare business, rather than reimbursing contractors only for their costs up to a present target; and (10) while these changes might broaden the pool of contractors HCFA could choose from and would increase its flexibility in contracting for specific functions, past experience with other efforts to change the program has shown that HCFA will need several years to carefully plan, properly implement, and conduct a postimplementation review of any new contracting initiatives.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Matters for Congressional Consideration

    Matter: In view of the possible advantages for managing the Medicare program, Congress may wish to consider amending the Social Security Act to repeal provider nomination and to allow the Secretary to choose the companies with which HCFA will contract.

    Status: Closed - Implemented

    Comments: The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, which was signed into law in December 2003, incorporated our suggestions for strengthening Medicare contracting. The act creates a competitive process for contracting for Medicare administrative functions, including the processing and paying of claims; allows HHS to select contractors without provider nomination; and permits companies besides insurance companies to compete for contracts.

    Matter: If Congress decides to grant HCFA any of the additional contracting authorities it is seeking, Congress should consider requiring HCFA to report on its implementation of this new authority with an independent evaluation to ensure that these administrative changes improve the efficiency and effectiveness of Medicare program operations.

    Status: Closed - Implemented

    Comments: The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, which was signed into law in December 2003, incorporated our suggestions for strengthening Medicare contracting. The act creates a competitive process for contracting for Medicare administrative functions. The act also requires that GAO evaluate CMS's plan for implementing contracting reforms and that CMS submit a status report on contracting reforms to the Congress by October 1, 2008.

    Matter: Congress may wish to consider giving HCFA explicit authority to award functional contracts for selected claims administration activities to any appropriate type of company and to offer other-than-cost contracts, both at the discretion of the Secretary of Health and Human Services.

    Status: Closed - Implemented

    Comments: The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, which was signed into law in December 2003, incorporated our suggestions for strengthening Medicare contracting. The act creates a competitive process for contracting for Medicare administrative functions--or parts of those functions--including the processing and paying of claims; permits companies besides insurance companies to compete for contracts; and allows Medicare contractors to earn a profit.

    Recommendations for Executive Action

    Recommendation: To improve oversight of Medicare's claims administration contractors, the Administrator, HCFA, should establish a contractor management policy that requires verification that each contractor has the internal controls necessary to ensure the adequacy of its operations, starting with the controls most critical for ensuring the financial integrity of the Medicare program; and where controls are weak or lacking, require contractors to strengthen or establish them.

    Agency Affected: Department of Health and Human Services: Health Care Financing Administration

    Status: Closed - Implemented

    Comments: In its fiscal year 2001 budget, HCFA reported strengthening internal controls at Medicare contractors. HCFA developed a new Medicare contractor oversight initiative and implemented a comprehensive program focused on improving Medicare contractor internal controls and financial accounting. HCFA used contracted services to: (1) develop standard review procedures and methodologies to evaluate contractor documentation in support of annual self-certification of internal controls; and (2) review provider audit quality at intermediaries and accounts receivable at a number of contractors. In September 2000, HCFA reported that it will review the documents supporting the annual contractor internal controls self-certification statements at 25 contractors and conduct more in-depth internal control audits to examine the adequacy of the contractors' internal control policies and documentation at 25 contractors.

    Recommendation: To improve oversight of Medicare's claims administration contractors, the Administrator, HCFA, should establish a contractor management policy that requires systematic validation of statistically significant samples of essential contractor-reported data.

    Agency Affected: Department of Health and Human Services: Health Care Financing Administration

    Status: Closed - Implemented

    Comments: CMS has taken several steps to address weaknesses in assessing contractor data--generally by getting data directly, rather than being processed by the contractors. CMS has initiated a process to independently check contractor claims adjudications and improve contractors' performance in paying claims accurately. Comparative payment accuracy data has been published for all of the Medicare claims administration contractors. In addition, CMS has implemented a new Contractor Management Information System (CMIS), which combines data from a variety of system sources, to provide more valid, complete, and timely data for contractor oversight and management. Further, CMS has implemented the PULSE system, that allows them to review real-time claims processing data. CMS reported that that it uses the CMIS to monitor contractors and highlight any data inconsistencies. Finally, as part of its effort to implement the new contracting reform requirements from Section 911 of the MMA, CMS is researching similar operations to benchmark best practices for contractor management.

    Recommendation: To improve oversight of Medicare's claims administration contractors, the Administrator, HCFA, should improve annual assessments of contractors by developing a comprehensive set of clearly defined and measurable performance standards, including measures to test how effectively contractors are safeguarding program dollars; these standards should include collecting comparable baseline data on each contractor's claims administration and related activities.

    Agency Affected: Department of Health and Human Services: Health Care Financing Administration

    Status: Closed - Implemented

    Comments: The fiscal year (FY) 2000 medical review, benefit integrity and provider enrollment Contractor Performance Evaluation (CPE) review protocols articulate national objectives, core standards to be reviewed, and a standard review methodology. The protocols were used by national, consortium, and regional review teams. Training was conducted for central office and regional office reviewers. FY2001 review protocols are under development. The Comprehensive Error Rate Testing (CERT) program produces national, contractor specific, and benefit category specific paid claim error rates. The program is being implemented and administered by nine Program Safeguard Contractors. The process began for Durable Medical Equipment Regional Carriers in August 2000. HCFA has developed a new management reporting system, Program Integrity Management Reporting (PIMR). This system uses data derived directly from contractor claims processing systems. The Pulse System collects workload statistics from each Medicare contractor on a daily basis using a pre-existing interface, tabulates them, and compares them against norms established by users to highlight potential contractor specific or systemic problems. Pulse was used initial to track performance during the Y2K initiative, and continues to be used for major initiatives, such as implementation of new prospective payment systems.

    Recommendation: To improve oversight of Medicare's claims administration contractors, the Administrator, HCFA, should improve annual assessments of contractors by assessing all contractors regularly on core performance standards and reviewing any other activities identified through the risk assessment at individual contractors.

    Agency Affected: Department of Health and Human Services: Health Care Financing Administration

    Status: Closed - Implemented

    Comments: In response to the recommendation, HCFA developed a new Medicare contractor oversight initiative, refocusing its contractor performance evaluation program on a risk-based, consistent national approach to contractor review that allocated resources to evaluating high-risk contractors and/or program benefits. Specifically, HCFA developed a risk assessment methodology in fiscal year 2000 to identify the contractors at greater risk and need of evaluation in specified functional areas. The central office issued risk assessment instructions, regional offices conducted the assessments, and the central office arrayed the data nationally and identified contractors for evaluation by central office-regional office review teams. HCFA reviewers used standardized plans or protocols for evaluating contractors in key areas, including accounts receivable, fraud and abuse, medical review, and the implementation of HCFA instructions.

    Recommendation: To improve oversight of Medicare's claims administration contractors, the Administrator, HCFA, should improve annual assessments of contractors by developing a performance report annually for each contractor that includes contractor performance on the core standards and other HCFA-assessed standards, using a uniform format that permits comparisons across contractors as well as longitudinal assessments of individual contractors.

    Agency Affected: Department of Health and Human Services: Health Care Financing Administration

    Status: Closed - Implemented

    Comments: To improve the consistency of its contractor performance evaluation (CPE) reviews and reporting, HCFA established national teams and plans to expand their use to conduct CPEs. Using national teams will facilitate consistency and cross-contractor performance comparisons because the same staff participate on teams and because these teams, by virtue of their membership, help bring a broader perspective to their reviews. HCFA also initiated an information system to monitor the plans of regional offices for conducting CPEs to ensure timeliness and comparability across the regions. In the fiscal year 1999 evaluation cycle, HCFA conducted training sessions, directed regional offices to review all contractors in 10 core evaluation areas, and provided standardized CPE reporting requirements. It also developed and provided to regional reviewers standardized plans or protocols for evaluating contractors in key areas, including accounts receivable, fraud and abuse, medical review, and the implementation of HCFA instructions to contractors. HCFA said that using protocols promotes consistency and facilitates comparison of performance across contractors.

    Recommendation: To improve oversight of Medicare's claims administration contractors, the Administrator, HCFA, should designate a HCFA unit to be responsible for evaluating the effectiveness of contractor oversight policy and procedural direction provided by headquarters staff to regional offices' staff.

    Agency Affected: Department of Health and Human Services: Health Care Financing Administration

    Status: Closed - Implemented

    Comments: HCFA's central office is improving its contractor evaluation infrastructure, policy, and procedures. These improvements are resulting in a more uniform and consistently-applied contractor performance evaluation (CPE) review process. Also, according to HCFA, these efforts create CPE internal management controls and will help to target future internal quality review efforts. In June 2000, HCFA restructured the central office Medicare Carrier and Intermediary Management Group into separate groups with distinct responsibility for contractor management and oversight. For fiscal year (FY) 2000, HCFA contracted with PricewaterhouseCoopers (PWC) to develop an operational framework for continuously improving CPEs. The agency is currently analyzing the report and will incorporate it into ongoing process improvements. HCFA is updating the Regional Office Manual to incorporate revised procedures for conducting CPEs. The revised manual should be issued in November 2000. The agency established uniform reporting requirements for CPE reports and contractor management evaluation reports. These reports are analyzed monthly in the central office and feedback is provided on an ongoing basis to the regional offices to ensure that all aspects of CPEs are completed timely. A CPE information database was developed in FY2000 to streamline reporting of CPE data by the regional offices and to enable production of query driven management reports. Training on the use of the database has been provided to all regional offices. The database will go live for the FY2001 review cycle. CPExtras are issued by central office to provide ongoing CPE operational policy guidance in response to lessons learned and best practices reported by CPE review teams. Eighteen Extras were issued during FY2000. A national CPE lessons learned conference was conducted in February, and provided opportunities for sharing of best practices and lessons learned. Over 125 central office and regional office staff participated. General CPE training was provided during this conference. HCFA plans to conduct a FY2001 conference, contingent upon availability of adequate travel dollars. Associate Regional Administrators served as contractor-focused Project Leaders for FY2000 national review teams. For FY2001, Project Leaders will lead teams reviewing a common business function. This is expected to facilitate enhanced communication between CPE and central office program offices.

    Recommendation: To improve oversight of Medicare's claims administration contractors, the Administrator, HCFA, should designate a HCFA unit to be responsible for evaluating regional office performance in conducting contractor oversight activities based on those policies and procedures.

    Agency Affected: Department of Health and Human Services: Health Care Financing Administration

    Status: Closed - Implemented

    Comments: HCFA appointed a high-level official in the central office with responsibility for consolidating contractor management within the agency and for heading up a unit that would evaluate the effectiveness of regional oversight of contractors. In addition, to improve the accountability within the regional offices and strengthen the reporting relationship between the regional offices and central office, HCFA consolidated the leadership responsibility for the regional office management of contractors by establishing the position of Consortium Contractor Management Officer. Within each consortium, this individual will be accountable for the management of assigned contractors. To ensure consolidation of responsibility for contractor activities and provide central office program direction, these individuals will report to their respective consortium administrators and to the Deputy Director for contractor management in the central office.

    Recommendation: To improve oversight of Medicare's claims administration contractors, the Administrator, HCFA, should designate a HCFA unit to be responsible for enforcing minimum standards for the conduct of oversight activities.

    Agency Affected: Department of Health and Human Services: Health Care Financing Administration

    Status: Closed - Implemented

    Comments: In June 2000, HCFA restructured the Medicare Carrier and Intermediary Management Group in the Center for Beneficiary Services into two groups charged with either the responsibility for contractor evaluation, Medicare Contractor Integrity and Performance Group (MCIPG), or the responsibility for contractor management (Medicare Contractor Management Group). MCIPG and its predecessor, the Medicare Carrier and Intermediary Management Group, have taken a variety of steps to strengthen contractor performance oversight and move toward greater consistency in the conduct and management of performance evaluations: (1) Review Protocols: (a) In FY99, HCFA components with responsibility for contractor business functions developed seven protocols used by central office-regional office review teams, (b) For FY00, HCFA developed and issued 14 protocols, and (c) Identified a technical advisor for each FY00 contractor performance evaluation (CPE) review protocol to help teams resolve issues; (2) HCFA Review Teams: (a) Established teams of central office and multi-regional staff to evaluate certain business functions at specified contractors, and (b) Identified Associate Regional Administrators as Project Leaders for the central office and multi-regional review teams, provided guidance and management to the teams, and reviewed and signed the CPE reports being issued to contractors to notify them of findings; (3) Instructions: (a) Provided guidance to central and regional office reviewers and managers on the conduct of reviews and preparation of reports through the issuance of CPExtras, (b) Presented guidance on the roles and responsibilities of reviewers, components' technical advisors, Project Leaders, and CPE staff, (c) Provided better guidance on sampling and preparing CPE reports, and (d) Reviewed CPE-related sections of the Regional Office Manual and prepared revisions of key sections for issuance as a CPE Manual; (4) Training: Provided basic CPE instruction and training on each protocol to all FY00 reviewers; (5) Managing CPE: (a) Issued instructions for regional office preparation and submittal to MCIPG in FY99 and FY00 of an annual CPE review plan, a monthly review plan status report, and status reports on contractor performance improvement plans developed to correct previous deficient performance, and (b) Tracked timeliness in completing reviews and issuing CPE reports to contractors; (6) Targeting Resources: (a) Developed a risk assessment methodology in FY00 to identify the contractors at greater risk and need of evaluation in specified areas, (b) MCIPG issued risk assessment instructions, regional offices conducted the assessments, and (c) MCIPG arrayed the data nationally and identified contractors for evaluation by CO-RO review teams; (7) Knowledge Management: Conducted a Lessons Learned/Best Practices Conference in February 2000, for over 125 regional and central office staff and managers. (b) Videotaped the Lessons Learned/Best Practices Conference and each protocol training session, providing copies of all tapes to all HCFA regional offices for viewing by staff unable to attend the conference or the training sessions, and (c) Set up an intranet website to be used to provide the overall FY CPE plan, protocols, guidance, CPExtras, formats, and other information for the FY01 CPE process; and (8) Quality Assurance: Provided feedback to regional office reviewers and managers on the quality of the CPE reports issued to contractors.

    Recommendation: To improve oversight of Medicare's claims administration contractors, the Administrator, HCFA, should ensure that all HCFA staff responsible for contractor oversight learn about contractor problems and best practices and that contractor review staff adopt best oversight practices.

    Agency Affected: Department of Health and Human Services: Health Care Financing Administration

    Status: Closed - Implemented

    Comments: CMS conducted a national Lessons Learned/Best Practices Conference in 2000 and in 2001, for regional and central office staff and managers and is in the process of planning its 2002 conference. In addition, CMS set up an intranet website which has been used to provide information to agency officials on CPE planning, protocols, guidance, formats, etc.

    Recommendation: To improve oversight of Medicare's claims administration contractors, the Administrator, HCFA, should develop a strategic plan for managing Medicare's claims administration contractors that would include how HCFA intends to use the new authorities it is seeking, the information it will gain by evaluating its efforts to contract for program safeguard activities, and the results of previous fixed-price and incentive contracting experiments. To do this, HCFA should (1) assess the feasibility of contracting for specific functions--that is, contracting separately for activities such as hearings and appeals, inquiries and complaints, and printing and mailing; (2) determine which functional contracts could be performed by entities other than health care payers; (3) determine the cost of each of the various contractor functions now performed by intermediaries and carriers; (4) determine which functional contracts would be conducive to the use of other-than-cost contracts; and (5) assess the feasibility of building in financial incentives for exceeding performance standards or for developing innovative practices that improve claims administration and can be replicated by other contractors.

    Agency Affected: Department of Health and Human Services: Health Care Financing Administration

    Status: Closed - Implemented

    Comments: CMS has developed a Medicare fee-for-service contractor business strategy. This strategy consists of 15 overarching agency goals for Medicare contractor operations and approximately 20 strategy elements or actions designed to achieve these goals in a balanced manner. These strategy elements address the consolidation of contractor workloads, the targeted use of functional and specialty contracts, key activities to improve CMS' management control over operations, the balancing of contractor rewards and risks, and more integration among Medicare Parts A and B. The new administration has made reform of the Medicare contracting environment one of its top priorities, and submitted draft legislation for this purpose to Congress on June 28, 2001. In June 2002, the House passed H.R. 4754, which requires CMS to begin to contract competitively for Medicare claims administration. As of September 3, 2002, the Senate had not passed a similar measure.

    Apr 18, 2014

    Apr 8, 2014

    Apr 2, 2014

    Mar 26, 2014

    Mar 24, 2014

    Mar 10, 2014

    Mar 7, 2014

    Mar 6, 2014

    Looking for more? Browse all our products here