oversight

Major Management Challenges and Program Risks: Department of Health and Human Services

Published by the Government Accountability Office on 2003-01-01.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

               United States General Accounting Office

GAO            Performance and Accountability Series




January 2003
               Major Management
               Challenges and
               Program Risks
               Department of Health
               and Human Services




GAO-03-101
               a
A Glance at the Agency Covered in This Report
The Department of Health and Human Services is responsible for protecting the
health of all Americans and providing essential human services, especially for
those who are least able to help themselves. The department includes the nation’s
two largest individual health insurers and is the largest grant-making agency in
the federal government. Its multiple activities include
●    Medicare (health insurance for elderly and some disabled Americans);
●    Medicaid (health insurance for low-income people);
●    infectious disease prevention, including immunization services;
●    food and drug safety;
●    financial assistance and services for low-income families, including Head Start;
●    comprehensive health services for Native Americans;
●    substance abuse treatment and prevention; and
●    medical and social science research.


The Department of Health and Human Service’s Budgetary and Staff Resources


Budgetary Resources a, b                                              Staff Resources b
Dollars in billions                                                    FTEs in thousands

800                                                                    80
                                                                                                                      65
                                                                                                          62
                                                  594                                            61
600                                    555                                   58        59
                                                                       60
                             508
         468       479

400                                                                    40


200                                                                    20


    0                                                                   0
        1998      1999      2000       2001       2002                      1998      1999     2000      2001         2002
        Fiscal year                                                         Fiscal year
Source: Budget of the United States Government.

a
    Budgetary resources include new budget authority (BA) and unobligated balances of previous BA.
b Budget and staff resources are actuals for FY 1998-2001. FY 2002 are estimates from the FY 2003 budget, which
    are the latest publicly available figures on a consistent basis as of January 2003. Actuals for FY 2002 will be
    contained in the President’s FY 2004 budget to be released in February 2003.




This Series
This report is part of a special GAO series, first issued in 1999 and updated in
2001, entitled the Performance and Accountability Series: Major Management
Challenges and Program Risks. The 2003 Performance and Accountability Series
contains separate reports covering each cabinet department, most major
independent agencies, and the U.S. Postal Service. The series also includes a
governmentwide perspective on transforming the way the government does
business in order to meet 21st century challenges and address long-term fiscal
needs. The companion 2003 High-Risk Series: An Update identifies areas at high risk
due to either their greater vulnerabilities to waste, fraud, abuse, and
mismanagement or major challenges associated with their economy, efficiency, or
effectiveness. A list of all of the reports in this series is included at the end of
this report.
                                                    January 2003


                                                    PERFORMANCE AND ACCOUNTABILITY SERIES

                                                    Department of Health and Human Services
Highlights of GAO-03-101, a report to
Congress included as part of GAO’s
Performance and Accountability Series




In its 2001 performance and
accountability report on the                        Medicare program. Medicare remains on GAO’s 2003 list of high-risk
Department of Health and Human                      programs due to the program’s size and complexity. The Centers for
Services (HHS), GAO identified key                  Medicare & Medicaid Services (CMS) continues to have difficulty refining
management challenges faced by                      Medicare’s payment methods in ways that reward fiscal discipline while
HHS and its constituent agencies                    ensuring beneficiary access to care. Since 2001, the agency has made
associated with the Medicare                        progress in estimating improper payments, collecting overpayments and
program, oversight of nursing                       conducting other financial activities, and identifying information system
homes, medical product safety and
                                                    needs, but further improvements are needed in payment safeguard, financial,
efficacy, and ensuring the well-
being of children and families. The
                                                    and information management activities.
information GAO presents in this
report is intended to sustain                       Medicaid program. GAO has added Medicaid to its 2003 list of high-risk
congressional attention and a                       programs, owing to the program’s size, growth, diversity, and fiscal
departmental focus on continuing                    management weaknesses. Limited oversight has afforded states and health
to make progress in addressing                      care providers the opportunity to increase federal funding inappropriately.
these challenges—and others that
have arisen since 2001. This report                 Medicare and Medicaid care oversight. CMS has taken steps to improve
is part of a special series of reports              nursing home oversight, but efforts to ensure quality care at nursing homes,
on governmentwide and agency-                       home health agencies, kidney dialysis facilities, and other providers continue
specific issues.                                    to be jeopardized by problems in the performance of state inspections,
                                                    complaint investigations, and enforcement of federal standards.

HHS’s management challenges                         Public health emergency preparedness. Serious problems in
remain as profound as they are                      coordination among federal, state, and local public health agencies and in
diverse: the effective management                   hospital and laboratory capacity could limit emergency responses. HHS is
of the Medicare and Medicaid                        also challenged to balance basic public health needs with critical homeland
programs has significant fiscal                     security priorities.
implications for the longer term,
while strengthening the nation’s                    Medical product safety and efficacy. While the Food and Drug
public health infrastructure is                     Administration has stepped up the rigor of its biologics inspections, it faces
critically important in the shorter                 several challenges in ensuring the availability, safety, and efficacy of
term. HHS must further strive to
obtain current and reliable data for
                                                    marketed products, including vaccines, and struggles to retain its expert
effective program monitoring,                       staff.
conduct well-targeted oversight
activities to safeguard billions of                 Economic independence and well-being of children and families.
program dollars, and hire and                       Oversight by HHS of the states’ implementation of social service program
retain a sufficiently skilled                       reforms has been encumbered by limitations in states’ information systems,
workforce.                                          program effectiveness measurement, and efforts to foster and disseminate
                                                    research findings.

                                                    Financial management systems, processes, and controls. HHS has
www.gao.gov/cgi-bin/getrpt?GAO-03-101.
                                                    improved its financial management, but its systems and processes do not
                                                    routinely generate financial information that is timely or reliable. Further,
To view the full report, click on the link above.   HHS cannot ensure that it can protect the confidentiality of sensitive
For more information, contact Leslie G.
Aronovitz at (312) 220-7600 or
                                                    information from unauthorized access or its systems from service
aronovitzl@gao.gov.                                 disruption.
Contents



Transmittal Letter                                                                                                1


Major Performance                                                                                                  2

and Accountability
Challenges

GAO Contacts                                                                                                      70


Related GAO Products                                                                                              71


Performance and                                                                                                   78
Accountability and
High-Risk Series




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                       Page i                                                         GAO-03-101 HHS Challenges
A
United States General Accounting Office
Washington, D.C. 20548
                                                                                          Comptroller General
                                                                                          of the United States




           January 2003                                                                                           T
                                                                                                                  ransmL
                                                                                                                       ta
                                                                                                                        ileter




           The President of the Senate
           The Speaker of the House of Representatives

           This report addresses the major management challenges and program risks facing the U.S.
           Department of Health and Human Services (HHS) as it works to carry out its multiple and highly
           diverse missions. The report discusses the actions that HHS has taken and that are under way to
           address the challenges GAO identified in its Performance and Accountability Series 2 years ago, and
           major events that have occurred that significantly influence the environment in which the department
           carries out its mission. Also, GAO summarizes the challenges that remain and further actions that
           GAO believes are needed.

           This analysis should help the new Congress and the administration carry out their responsibility and
           improve government for the benefit of the American people. For additional information about this
           report, please contact Leslie G. Aronovitz, Director, Health Care, at (312) 220-7600 or at
           aronovitzl@gao.gov.




           David M. Walker
           Comptroller General
           of the United States




                                     Page 1                                              GAO-03-101 HHS Challenges
Major Performance and Accountability
Challenges

              The Department of Health and Human Services (HHS), with a $460 billion
              budget and a workforce of more than 65,000 people, presents one of the
              more massive and complex management challenges in the federal
              government. The more than 300 federal health and social programs it
              oversees tangibly affect the lives and well-being of virtually all Americans
              and encompass some of the most costly issues facing the nation. Among its
              many tasks, HHS provides health insurance for millions of individuals, is
              responsible for ensuring quality standards are met across a number of
              health care settings, regulates drugs and medical devices, and administers a
              multipronged effort to help low-income children and families gain
              economic independence. HHS’s fiscal year 2003 budget presentation
              document is entitled “Ensuring a Safe and Healthy America,” and its role in
              this regard has been particularly significant in light of the events of
              September 11, 2001, and its aftermath.

              With such varied and significant missions, the performance of HHS and its
              component agencies involves many dimensions. In our 2001 Series, we
              reported on the following key missions: the administration of Medicare,
              oversight of nursing homes, safety and efficacy of medical products, and
              the economic independence and well-being of children and families. These
              missions are principally addressed by HHS’s Centers for Medicare &
              Medicaid Services (CMS), the Food and Drug Administration (FDA), and
              the Administration for Children and Families (ACF). These agencies faced
              challenges in obtaining current and reliable data needed to monitor
              programs effectively, conducting well-targeted oversight activities needed
              to safeguard billions of program dollars, and hiring or retaining a
              sufficiently skilled workforce. For Medicare, which remained on our list of
              high-risk programs, CMS’s leadership and administrative capacity were
              stretched by its many responsibilities for other programs—such as
              oversight of Medicaid, the State Children’s Health Insurance Program, and
              survey and certification activities for nursing homes, home health agencies,
              and clinical laboratories. At the same time, implementing several new
              Medicare payment methods introduced additional challenges to
              safeguarding program payments. Our work on nursing home quality found
              that state surveyors continued to miss or understate the seriousness of care
              problems that harmed residents; this occurred during a period of transition
              in which federal and state initiatives for improving facility inspections were
              beginning to be implemented. Our work on oversight of medical devices
              and products found shortcomings in the FDA’s resource targeting strategy
              for inspecting device manufacturers and in monitoring adverse events that
              may occur after products are marketed. Our work on oversight of social
              service program reforms implemented by the states discussed the



              Page 2                                                GAO-03-101 HHS Challenges
Major Performance and Accountability
Challenges




substantial challenges ACF and CMS faced in getting the information
needed to hold multiple state and local government agencies accountable
for the use of federal funds to ensure the well-being of children and
families.

Our 2003 Series considers these same missions while highlighting
additional ones, as shown below.




     Performance and
     Accountability
     Challenges
         Provide current and future generations with a well-designed and well-
         administered Medicare program

         Safeguard the integrity of the Medicare program

         Enhance the fiscal and management oversight of the Medicaid program

         Improve oversight of care delivered to Medicare and Medicaid beneficiaries

         Strengthen preparedness for public health emergencies, including bioterrorism

         Ensure the safety and efficacy of medical products

         Enhance the programs that target the economic independence and well-being of
         children and families

         Improve financial management systems, processes, and controls



Our discussions on the administration and safeguarding of Medicare, the
safety and efficacy of medical products, and the well-being of children and
families include issues of congressional interest in the past 2 years and
abiding challenges involving information, financial, and human capital
management. New issues raised in this Series include CMS’s oversight of
the Medicaid program, oversight of care delivered to Medicare and
Medicaid beneficiaries, the preparedness of HHS agencies for public health
emergencies, and needed improvements in HHS agencies’ financial



Page 3                                                          GAO-03-101 HHS Challenges
Major Performance and Accountability
Challenges




systems, processes, and controls. In brief, we make the following
observations:

• Design and administration of Medicare. In 2001, we reported that
  major gaps in information about patients’ health status and use of
  services make it difficult to set prospective payment rates at the
  appropriate level. CMS continues to lack adequate information to set
  rates and refine payment methods in ways that reward fiscal discipline
  while ensuring beneficiary access to care. The agency similarly lacks
  the information and flexible approaches needed to price medical
  services and products in line with market rates. We have made several
  recommendations to improve payment methods that the agency has not
  acted on.

• Medicare payment integrity safeguards. CMS has made improvements
  in assessing the level of improper payments, collecting overpayments
  from providers, and building the foundation for modernizing its
  information technology. Nevertheless, much work remains to be done,
  given the magnitude of its challenge to safeguard program payments.
  This includes more effectively overseeing Medicare’s claims
  administration contractors, managing the agency’s information
  technology initiatives, and strengthening financial management
  processes across multiple contractors and agency units. In light of these
  challenges and the program’s size and fiscal significance, Medicare
  remains on our list of high-risk programs.

• Fiscal and management oversight of Medicaid. Our growing concern
  about the difficulties CMS faces in managing a program of enormous
  size, growth, and diversity has led us to add Medicaid to our 2003 list of
  high-risk programs. Key problems we have identified in recent years
  include schemes by some states to inappropriately leverage federal
  funds, state waiver programs that inappropriately increase the federal
  government’s financial liability, and insufficient federal and state
  oversight to ensure that payments to health care providers are accurate
  and appropriate. Consistent with several of our recommendations, CMS
  and the Congress have taken several significant actions to curb states’
  inappropriate leveraging of federal funds, but waiver program approvals
  remain questionable and states’ claims scrutiny activities are uneven.

• Oversight of care delivered to Medicare and Medicaid beneficiaries. In
  our 2001 Series, we recapped the problems identified and
  recommendations we made in earlier work on nursing home surveys



Page 4                                              GAO-03-101 HHS Challenges
Major Performance and Accountability
Challenges




   and other oversight activities by CMS and the states. CMS has increased
   its attention to improving oversight of nursing homes, but it may have
   done so at the expense of adequate monitoring of home health agencies,
   kidney dialysis facilities, and other providers serving Medicare and
   Medicaid beneficiaries. Vulnerable beneficiaries are not assured of
   adequate protections, owing to problems with the conduct of state
   surveys, the timeliness of complaint investigations, the strength and use
   of federal sanctions for noncompliance with Medicare standards,
   federal monitoring of state survey activities, and the adequacy of
   numbers of skilled surveyors.

• Public health emergency preparedness. Following the events of
  September 11, 2001, we have added public health emergency
  preparedness to HHS’s key challenges. The department must find ways
  to coordinate programs that dually address critical homeland security
  priorities and basic public health needs and ensure that the nation’s
  fragile public health infrastructure is strengthened at the federal, state,
  and local levels.

• Oversight of medical product safety and efficacy. While FDA has
  stepped up the speed of its drug approvals, its guidance to biologics
  manufacturers on compliance with good practices has not been
  sufficiently clear or made readily available. This problem has
  significance for the manufacture of vaccines, which are currently in
  short supply. We have recently made recommendations to FDA that aim
  at producing safe vaccine products while mitigating the effects of supply
  disruptions. With respect to new drugs, the speed of FDA’s review and
  approval has improved in recent years, largely because the agency has
  hired more scientists to review applications, using fees collected from
  the drugs’ sponsors. However, FDA faces several challenges in its effort
  to monitor the availability, safety, and efficacy of marketed products,
  including the difficulty of retaining its expert staff.

• Economic independence and well-being of children and families. HHS
  continues to face the challenges associated with oversight of the states’
  implementation of social service program reforms. These include
  facilitating states’ efforts to implement information systems,
  systematically measuring the extent to which programs are serving their
  intended beneficiaries, and fostering efforts to conduct research and
  disseminate findings on program effectiveness.




Page 5                                               GAO-03-101 HHS Challenges
                        Major Performance and Accountability
                        Challenges




                        • Financial management systems, processes, and controls. While HHS’s
                          financial statements are achieving unqualified, or “clean opinions”—
                          indicating that the statements fairly present their information—its
                          financial systems and processes do not routinely generate information
                          that is timely or reliable and do not ensure that the confidentiality of
                          sensitive information is adequately protected from unauthorized access
                          or service disruption.

                        In all, HHS’s management challenges are as profound as they are diverse.
                        The long-term significance of effectively managing the Medicare and
                        Medicaid programs cannot be overstated, as together they consume an
                        enormous and growing share of the federal budget. Similarly compelling is
                        the shorter-term importance of strengthening the nation’s public health
                        infrastructure in light of recent historical events and looming threats to the
                        nation’s domestic security.



Provide Current and     Medicare spending growth remains one of the most pressing and complex
                        issues facing the Congress and the nation. The program provides health
Future Generations      insurance for people aged 65 and older, some disabled people under age 65,
with a Well-designed    and people with end-stage kidney disease. In fiscal year 2001, Medicare
                        program expenditures were about $241 billion, accounting for about 1 of
and Well-administered   every 8 federal dollars spent that year. Based on the Medicare Trustees’
Medicare Program        2002 annual report, spending on Medicare is expected to double as a share
                        of the economy by 2035, which could crowd out other spending and other
                        valuable economic activity. The program’s projected growth has focused
                        congressional attention on the need to reform Medicare. At the same time,
                        there is considerable public pressure to expand program benefits.
                        Although a broad consensus exists to make program changes, there is
                        much less agreement about what the changes should be and whether they
                        should be comprehensive or incremental. Thus, until some agreement can
                        be reached and reforms implemented—which could take a number of
                        years—it is imperative to concentrate on making the existing program run
                        as efficiently as possible.

                        An abiding challenge for the HHS agency that administers Medicare—
                        CMS—is to design payment methods that reward fiscal discipline while
                        maintaining access to quality care.1 CMS sets payment amounts for

                        1
                          Until its name was officially changed July 1, 2001, CMS was called the Health Care
                        Financing Administration (HCFA).




                        Page 6                                                         GAO-03-101 HHS Challenges
                             Major Performance and Accountability
                             Challenges




                             thousands of services and items, but the agency’s responsibility to run the
                             program in a fiscally prudent manner can often leave an array of interested
                             parties—hospitals, physicians, and other providers of health care
                             services—discontented with payment policies. Payment rates that are too
                             low can impair beneficiary access to services and products, while rates that
                             are too high add unnecessary financial burdens to the program. Paying
                             appropriately requires accurate cost data and current information on
                             access to needed services.



Paying Appropriately for     Over the past two decades, at the Congress’s direction, Medicare has
Medicare Services Requires   implemented a series of payment reforms designed to promote the efficient
                             delivery of services and control program spending. Some reforms required
Frequent and Carefully
                             establishing set fees for individual services; others required paying a fixed
Targeted Refinements         amount for a bundle of services. The payment methods introduced during
                             this time were designed to include—in addition to incentives for
                             efficiencies—a means to calibrate payments to ensure beneficiary access
                             and fairness to providers.

                             A major challenge in administering payment methods—either through fee
                             schedules or bundled payments—involves adjusting the predetermined
                             amounts to better account for differences in patients’ needs and providers’
                             local markets to ensure that the program is paying appropriately and
                             adequately. Providers adapting to Medicare’s payment methods have often
                             raised concerns about payment adequacy. As Medicare has sought to set
                             more efficient prices, payment adjustments for cost differences of
                             providers and services become more important, and timely and accurate
                             information about beneficiaries’ use of services becomes paramount.

                             CMS has had mixed success in making refinements to payment methods.
                             The agency’s difficulties stem, in part, from insufficient data on providers’
                             costs and beneficiaries’ use of services. Such information provides the
                             systematic evidence needed to determine whether payments are adequate
                             and care is accessible. Medicare’s experience with payments for home
                             health agencies, skilled nursing facilities, and physicians’ fees illustrate the
                             importance of current, robust data on which to base or support payment
                             policies, as the following examples illustrate.




                             Page 7                                                 GAO-03-101 HHS Challenges
Major Performance and Accountability
Challenges




• Payments for skilled nursing facility services. After the
  implementation of the prospective payment system as required by the
  Balanced Budget Act of 1997 (BBA), skilled nursing facilities contended
  that Medicare’s new payments were not adequate and brought intense
  public pressure to undo BBA payment reforms. Our September 2000
  study found that, in the aggregate, payments to facilities were adequate
  but that there was the potential for facilities serving a disproportionate
  share of high-cost patients to be disadvantaged.2 The payment
  methodology that CMS developed may not adequately target high-cost
  patients and distribute payments accordingly. However, as CMS lacked
  the data needed to calibrate payments sufficiently in line with the
  expected needs of patients served, the Congress twice provided several
  increases in payments, requiring that some of the increases be
  temporary until CMS could make adequate refinements to the payment
  methodology and others expired on October 1, 2002. CMS does not
  expect to obtain the data needed to propose refinements before 2004.3

• Payments for home health services. In previous work, we noted that
  the design of the prospective payment method for home health services
  contained flaws that would likely generate excessive payments for some
  home health agencies. In addition, it lacked a means to provide
  financial relief to other home health agencies that served a
  disproportionate share of high-cost patients. CMS did not adopt our
  2000 recommendation that would minimize excessive payments to some
  home health agencies and extreme losses for others.4 In their comments
  on our report, officials expressed concern that the industry needed time
  to adapt to the new payment method without further complications. We
  believe that adequate time has elapsed and that our recommendation is
  warranted, given the number of home health agencies and beneficiaries
  affected.


2
  U.S. General Accounting Office, Nursing Homes: Aggregate Medicare Payments Are
Adequate Despite Bankruptcies, GAO/T-HEHS-00-192 (Washington, D.C.: Sept. 5, 2000).
3
  U.S. General Accounting Office, Skilled Nursing Facilities: Providers Have Responded to
Medicare Payment System by Changing Practices, GAO-02-841 (Washington, D.C.: Aug. 23,
2002).
4
  U.S. General Accounting Office, Medicare Home Health: Prospective Payment System
Will Need Refinement as Data Become Available, GAO-HEHS-00-9 (Washington, D.C.: Apr.
7, 2000) and U.S. General Accounting Office, Medicare Home Health Care: Prospective
Payment System Could Reverse Recent Declines in Spending, GAO-HEHS-00-176
(Washington, D.C.: Sept. 8, 2000).




Page 8                                                       GAO-03-101 HHS Challenges
                           Major Performance and Accountability
                           Challenges




                           • Payments for physician services. Following a 5.4 percent reduction in
                             Medicare’s payments to physicians in 2002—a reduction imposed by a
                             statutorily mandated formula—representatives of the physician
                             community voiced concerns about continued participation in the
                             Medicare program. An official of the American Medical Association
                             testified that the 2002 reduction could lead to serious beneficiary access
                             problems, citing examples of physicians and nurse practitioners in
                             various states who said they would no longer be able to accept Medicare
                             patients. In our view, however, whether beneficiaries are experiencing
                             problems getting access to physician care across localities cannot be
                             determined through anecdotes. Rather, CMS needs the capacity to
                             generate adequate, timely and relevant data regarding access to ensure
                             that payment policies that impose fiscal discipline are not
                             compromising access.5



CMS Has Difficulty         Setting payments appropriately for medical products has also been
Calibrating Payments for   challenging for CMS, because Medicare’s payment approaches lack the
                           flexibility to keep pace with market changes.6 Medicare’s method of paying
Medical Products in Line
                           for medical equipment and supplies is through fee schedules that remain
with Market Prices         tied to suppliers’ historical charges to the program rather than market
                           prices. Similarly, Medicare’s method of determining outpatient drug
                           payments is based on list prices, not prices that purchasers actually pay for
                           the drugs. Under these approaches, Medicare often pays higher prices than
                           other payers for medical products.




                           5
                             U.S. General Accounting Office, Medicare Physician Payments: Spending Targets
                           Encourage Fiscal Discipline, Modifications Could Stabilize Fees, GAO-02-441T
                           (Washington, D.C.: Feb. 14, 2002).
                           6
                             U.S. General Accounting Office, Medicare: Challenges Remain in Setting Payments for
                           Medical Equipment and Supplies and Covered Drugs, GAO-02-833T (Washington, D.C.:
                           June 12, 2002).




                           Page 9                                                      GAO-03-101 HHS Challenges
                              Major Performance and Accountability
                              Challenges




Medicare Often Pays Higher    The Congress introduced fee schedules for medical equipment and supplies
Prices for Medical Products   in 1987. Statewide fees were determined on the basis of average supplier
Than Other Payers             charges from previous years and have been updated for inflation in some
                              years, but not in others. However, mechanisms to adjust fees to reflect
                              marketplace changes have been lacking, and disparities between some fee
                              schedule amounts and market prices have developed over time. For
                              example, until 1998, Medicare paid much more for home oxygen equipment
                              and supplies provided to patients with pulmonary insufficiency than did the
                              Department of Veterans Affairs (VA), even after accounting for differences
                              between Medicare and the VA program. We estimated that Medicare could
                              have saved over $500 million in fiscal year 1996 if it had paid rates for home
                              oxygen comparable to those paid by VA.7 The BBA reduced Medicare’s
                              home oxygen fees by 25 percent effective in 1998 and by an additional 5
                              percent in 1999.

                              Medicare’s payments for the limited number of outpatient drugs that it
                              covers have been similarly excessive, although the methodology used to
                              determine payment amounts is somewhat different. Medicare’s
                              supplementary medical insurance, called part B, covers roughly 450
                              outpatient drugs—generally those that cannot be self-administered and are
                              related to physicians’ services, such as cancer chemotherapy, or are
                              provided in conjunction with covered durable medical equipment, such as
                              inhalation equipment. The rates paid for most covered outpatient drugs are
                              equal to 95 percent of the national average wholesale price (AWP).
                              However, the term AWP is not defined in law or regulation. Essentially,
                              drug manufacturers determine AWP, and there are no requirements or
                              conventions that AWP reflect the price of any actual sale. Data have
                              repeatedly demonstrated that the price manufacturers give to physicians
                              and suppliers may be significantly lower than the AWP on the
                              manufacturers list. As a result, Medicare’s payments often significantly
                              exceed market prices—that is, the transaction prices actually paid by other
                              purchasers.




                              7
                                U.S. General Accounting Office, Medicare: Comparative Information on Medicare and VA
                              Patients, Services, and Payment Rates for Home Oxygen, GAO/HEHS-97-151R
                              (Washington, D.C.: June 6, 1997).




                              Page 10                                                    GAO-03-101 HHS Challenges
                                Major Performance and Accountability
                                Challenges




                                Our September 2001 report documented the excess that Medicare paid in
                                2001 for outpatient drugs compared to the prices widely available to
                                physicians and pharmacy suppliers.8 For example, the physician-
                                administered drugs we examined (which included drugs used in
                                chemotherapy) had widely available discounts ranging from
                                13 to 34 percent of AWP. Two physician-administered drugs had discounts
                                of 65 and 86 percent. Pharmacy suppliers also purchased drugs at prices
                                considerably lower than Medicare payments. For example, two inhalation
                                drugs accounting for most of Medicare payments to pharmacy suppliers
                                had widely available discounts averaging 78 percent and 85 percent of AWP.
                                In this report, we made several recommendations to improve drug pricing
                                that CMS has not acted upon.

Medicare’s Ability to Adjust    Despite instances of wide disparities between market prices and
Payments for Medical Products   Medicare’s payment rates for equipment, supplies, and outpatient drugs,
Is Limited                      CMS is not in a position to take prompt action. To lower unreasonably high
                                payment rates, the agency must follow a lengthy and complicated
                                regulatory process for making payment adjustments. The BBA gave the
                                agency authority to use a streamlined process to adjust payment rates for
                                most medical equipment items, supplies, and outpatient drugs. However,
                                the agency’s attempt to use this authority drew intense industry criticism,
                                in part because the agency acted before it responded to public comment on
                                how it would implement the authority. The Congress then prohibited use
                                of either the original or streamlined regulatory process until the agency
                                addressed public comments and issued a final rule. In our 2000 report on
                                this subject, we made several recommendations regarding improved data
                                collection for rate-setting purposes.9 On December 13, 2002, CMS issued an
                                interim final rule that included provisions related to our recommendations.
                                The rule will become effective on February 11, 2003.

                                To experiment with other ways of setting Medicare’s payments for medical
                                equipment, supplies, and outpatient drugs, the BBA provided authority for
                                the agency to conduct demonstration projects using competitive bidding.


                                8
                                  U.S. General Accounting Office, Medicare: Payments for Covered Outpatient Drugs
                                Exceed Providers’ Cost, GAO-01-1118 (Washington, D.C.: Sept. 21, 2001).
                                9
                                  U.S. General Accounting Office, Medicare Payments: Use of Revised “Inherent
                                Reasonableness” Process Generally Appropriate, GAO/HEHS-00-79 (Washington, D.C.: July
                                5, 2000).




                                Page 11                                                     GAO-03-101 HHS Challenges
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                         Evidence from two competitive bidding projects suggests that, for most of
                         the items selected, competition might provide a tool that facilitates setting
                         more appropriate payment rates that result in program savings. By
                         competing a small number of products and limiting the geographic area of
                         competition, CMS took steps to manage the process, which included
                         monitoring beneficiary access and product quality. To use competitive
                         bidding outside of a demonstration, however, CMS would require not only
                         new authority but substantial administrative preparations, as competing a
                         larger number of products nationally would entail bidding in multiple
                         markets and monitoring access and quality once prices had been set.



CMS Efforts Limited in   Analyses of data on providers’ transaction costs and beneficiaries’ use of
Obtaining Data-Driven    Medicare services can provide a window on the effectiveness or
                         shortcomings of a given payment policy. When such information is lacking
Feedback to Assess
                         or when the data collected are not viewed as sufficiently reliable and
Payment Policies         timely, CMS has a difficult time defending its position to adjust payments
                         downward. These adjustments can mean, in the aggregate, tens of millions
                         of dollars or more annually to affected parties, so external pressures to
                         maintain or raise payments are substantial.

                         Our work on payments for covered outpatient drugs illustrates the value of
                         accurate information for determining appropriate payments. For example,
                         the Congress has used the leverage of state Medicaid programs and other
                         public purchasers to allow VA to secure verifiable information on actual
                         market transactions by private purchasers—specifically, the prices that
                         drug manufacturers charge their “most-favored” private customers. To
                         enable VA to determine the most-favored customer price, by statute,
                         manufacturers that wish to sell their products to the public agencies
                         involved are required to provide information on price discounts and
                         rebates offered to domestic customers and the terms and conditions
                         involved, such as length of contract periods and ordering and delivery
                         practices. The manufacturers provide this information and agree to offer
                         VA and other government purchasers drugs at these prices, subject to a VA
                         audit of their records10 in order to have state Medicaid programs—which,
                         jointly with the federal government, pay for health care for about 44 million
                         low-income Americans each year—cover their drugs. The way Medicare


                         10
                           VA negotiates prices for and purchases medical equipment, supplies, and drugs through
                         the Federal Supply Schedule. Federal Supply Schedule prices are available to any federal
                         agency that directly procures pharmaceuticals or medical equipment and supplies.




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                          pays for drugs likely makes it inappropriate for the program to seek the
                          most-favored customer prices as VA does. However, detailed information
                          on market prices that is available to VA would assist Medicare in setting
                          appropriate, efficient payment amounts for covered drugs.

                          No matter how payments are set, monitoring to ensure that beneficiaries
                          continue to have access to items and services is a critical management
                          activity. CMS’s monitoring of access in its small competitive bidding
                          demonstration was required by statute and is not routinely done when the
                          agency makes fee schedule revisions. As with physician payments, the
                          importance of using current and reliable data to make payment policy
                          decisions cannot be overstated because of the impact such decisions have
                          on beneficiaries, providers, and taxpayers alike.



Safeguard the Integrity   Medicare was among the first programs that we designated in 1990 to be at
                          high risk of considerable losses to waste, fraud, abuse, and
of the Medicare           mismanagement because of the program’s vast size and complex
Program                   administrative structure. It remains among the programs that we consider
                          high-risk. In fiscal year 2001, Medicare paid about $241 billion for a wide
                          variety of inpatient and outpatient health care services for 40 million
                          elderly and disabled Americans. To help administer claims for the
                          traditional program, CMS—the agency within HHS responsible for
                          Medicare—contracts with about 38 health insurance companies. These
                          claims administration contractors process about 900 million claims
                          submitted each year by nearly 1 million hospitals, physicians, and other
                          health care providers. For the 5 million beneficiaries enrolled in Medicare’s
                          managed care option—Medicare+Choice—CMS has 155 contracts with
                          managed care plans, which are paid a fixed monthly fee to provide needed
                          Medicare services to enrolled beneficiaries.

                          CMS has an important responsibility to safeguard fee-for-service and
                          Medicare+Choice payments and ensure that beneficiaries receive needed
                          program services. It must effectively oversee the claims administration
                          contractors that run the day-to-day operations of Medicare’s traditional
                          program and the managed care plans that provide services to beneficiaries
                          enrolled in Medicare+Choice.

                          In recent years, our work has cited various weaknesses in CMS oversight of
                          contractors and managed care plans. The agency has addressed some of
                          them, but considerable oversight and other agency management challenges
                          remain. These include the need to reduce improper payments costing the



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                              government billions of dollars annually; improve communication with
                              Medicare providers; monitor managed care plans to ensure that services
                              are provided as promised and payments made are appropriate; improve
                              financial management processes and controls; modernize the agency’s
                              information technology to carry out basic management functions
                              effectively; and make adequate preparations in the event that the Congress
                              grants CMS new contracting authority.



Better Contractor             Since 1996, annual audits by HHS’s Office of the Inspector General (OIG)
Performance Information       have found that Medicare contractors have improperly paid claims worth
                              billions of dollars. These claims successfully passed through Medicare’s
Could Help CMS Oversee
                              highly automated claims processing systems because the claims appeared
Efforts to Address Improper   valid on their face; the claims were disputed only after pertinent patient
Claims Payments               medical records were reviewed or when requested medical record
                              documentation was not provided to the auditors. Such improperly paid
                              claims may not be spotted by contractors, because they appear to be
                              properly billed, and it is neither practical nor efficient for a contractor to
                              request and conduct detailed reviews of medical records for more than a
                              tiny fraction of claims, given the volume Medicare processes.

                              The magnitude of estimated improper payments (over $12 billion in fiscal
                              year 2001), coupled with the difficulty in detecting them, underscores the
                              importance of having the agency and its contractors implement effective
                              strategies to address improper payments. The OIG reports on Medicare’s
                              aggregate payment errors have spurred CMS to improve its efforts to
                              safeguard Medicare payments by developing more targeted payment
                              accuracy information. To do so, the agency instituted the Comprehensive
                              Error Rate Testing (CERT) program, which is designed to measure the
                              accuracy of payment decisions made by each contractor. The CERT
                              benchmark will allow CMS to hold the contractors accountable for their
                              claims payment performance and help them target remedial actions to
                              address certain problematic billing practices of the providers in their
                              jurisdictions. CMS currently has comparative information on the payment
                              accuracy of the four carriers that pay claims for durable medical
                              equipment. CERT information on all of the claims processing contractors
                              is expected to be available by June 2003.

                              CERT is expected to provide a much needed measure of contractor
                              performance. The agency’s previous oversight of its contractors had
                              several failings, including reliance on unverified contractor-supplied
                              performance information, limited checking of contractors’ internal



                              Page 14                                               GAO-03-101 HHS Challenges
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                           management controls, and oversight staff developing inconsistent
                           evaluation reviews and conducting uneven follow-up. In recent years, the
                           agency has responded to our work by improving contractor oversight and
                           adopting several of our recommendations. The agency has developed a
                           more consistent and strategic oversight approach that is directed by a
                           management board composed of senior executives. The agency has also
                           assigned additional staff to monitor the contractors. It has created teams
                           responsible for evaluating contractors, to ensure more consistency, and has
                           separated that function from day-to-day responsibilities for managing
                           contractors. In addition, CMS contracted for a more intensive review of
                           selected contractors’ management controls and has increased its oversight
                           of financial management activities.



Balance Needed to Reduce   While the agency has focused on specific contractor activities that it
Provider Burden While      believes need improvement, other activities, such as communication with
                           providers, may also need attention.11 Claims administration contractors
Guarding Program           play a major role in communicating with physicians and other providers
Payments                   who have raised concerns that Medicare’s efforts to provide information on
                           billing rules fall short of their needs for clear explanations. Our February
                           2002 report on Medicare’s communication with physicians found that
                           physicians often do not receive complete, accurate, clear, or timely
                           guidance on Medicare billing and payment policies.12 At the contractors we
                           studied, we found significant shortcomings in the printed materials, Web
                           sites, and telephone help lines that contractors use to provide information
                           and respond to physicians’ questions. (See table 1.) CMS agreed that it
                           needed to improve communications with physicians. While it elaborated
                           on initiatives it currently has under way, it has not taken action on our
                           specific recommendations.




                           11
                            U.S. General Accounting Office, Medicare Management: CMS Faces Challenges to
                           Sustain Progress and Address Weaknesses, GAO-01-817 (Washington, D.C.: July 31, 2001).
                           12
                             U.S. General Accounting Office, Medicare: Communications With Physicians Can Be
                           Improved, GAO-02-249 (Washington, D.C.: Feb. 27, 2002).




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Table 1: Problems Identified in Medicare’s Communications With Physicians



Contractors’ communications
Contractor bulletins were unclear and      CMS relies heavily on contractors’ bulletins to officially notify physicians of their
difficult to use                           responsibilities and requirements under Medicare law, regulations, and guidelines. Our
                                           review of bulletins issued in March through July 2001 by 10 randomly selected contractors
                                           found many were unclear and poorly organized, requiring physicians or their staff to scan
                                           each article to determine whether it was relevant. Bulletins sometimes provided information
                                           too late for physicians to comply with new rules in a timely manner—overall, 6 of 10
                                           contractors did not communicate at least one billing change before its scheduled
                                           implementation date.
Contractor call centers provided           We made 61 calls to provider inquiry lines at 5 call centers and asked 3 questions from the
incomplete or incorrect answers            “frequently asked questions” on contractors’ Web sites. We reported that only 15 percent of
                                           the call center answers were complete and accurate after validating our findings with CMS.
                                           Lack of standardization of the technological resources available at the call centers affected
                                           staff ability to quickly retrieve appropriate information to help answer the questions.
Contractor Web sites varied in usability   Most of the Web sites we reviewed lacked features that would allow physicians to quickly and
and content                                directly obtain the information they needed—such as search engines. Only 2 of the 10 Web
                                           sites that we reviewed complied with all of CMS’s content requirements.
CMS’s management and oversight
CMS has set few standards for              CMS has not established substantive requirements regarding the content and readability of
communications with physicians             bulletins to physicians, the completeness and accuracy of call center responses, or the clarity
                                           and timeliness of Web-based communications.
CMS monitoring is not sufficient           The agency has not undertaken comprehensive reviews of the quality and usefulness of
                                           carriers’ bulletins or Web sites. In 2001, it began to evaluate provider call centers, but the
                                           team we observed focused on performance standards that addressed procedures—such as
                                           how long the physician was left on hold—rather than the quality of the answers provided.
                                           CMS attributed some of its monitoring shortcomings to lack of resources.
Source: GAO analysis.


                                              Physicians have also raised questions about whether the program’s
                                              enforcement of payment rules has imposed too great an administrative
                                              burden on those billing Medicare. Our May 2002 report on Medicare claims
                                              scrutiny found that the vast majority of physician practices—at least 90
                                              percent in fiscal year 2001—had no claims selected for medical review by
                                              their contractor. 13 Medical reviews involve a detailed examination of a
                                              sample of claims by clinically trained staff and require that physicians
                                              submit medical records to substantiate their claims. For the relatively few
                                              practices that had any claims reviewed, the contractors typically requested


                                              13
                                                U.S. General Accounting Office, Medicare: Recent CMS Reforms Address Carrier
                                              Scrutiny of Physicians’ Claims for Payment, GAO-02-693 (Washington, D.C.: May 28,
                                              2002).




                                              Page 16                                                          GAO-03-101 HHS Challenges
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                         patients’ medical records for no more than two claims during the year. In
                         an independent assessment that we sponsored, carriers’ reviews were
                         found to be highly accurate in their decisions to deny, reduce, or pay claims
                         in full. The overall level of accuracy was consistent across the three
                         carriers at about 96 percent.



Adequate Monitoring of   Medicare+Choice, the program designed to allow beneficiaries to enroll in
Medicare+Choice Plans    different types of health plans, is subject to different program integrity
                         challenges from those of the traditional fee-for-service program because
Needed to Ensure         the payment methods differ. Managed care organizations (MCO) that offer
Adherence to Program     Medicare+Choice health plans receive a fixed monthly payment for each
Rules                    beneficiary enrolled rather than for each service delivered. CMS must
                         ensure that MCOs provide the services to enrollees that are required by
                         their Medicare contracts and are paid appropriately for the beneficiaries
                         enrolled.

                         If Medicare’s payments are expected to exceed an MCO’s costs of providing
                         Medicare-covered services combined with the amount of profit or
                         additional revenue that it would normally earn on non-Medicare contracts,
                         the MCO must use the difference either to provide additional services,
                         reduce beneficiary cost sharing, save in a noninterest-bearing escrow
                         account to maintain benefit or cost-sharing levels in future years, or a
                         combination of these. Beginning in 2003, an MCO may pay all or part of a
                         beneficiary’s Medicare part B premium. For each Medicare+Choice health
                         plan that an MCO intends to offer, an MCO must annually submit a benefit
                         package proposal—called the adjusted community rate proposal for
                         CMS review and approval. The rate proposal identifies the health services
                         an MCO will provide to enrollees, the estimated costs of providing these
                         health services, and the estimated payments the MCO will receive. This
                         information is used to ensure that Medicare-covered services will be
                         provided and that excess payments will be used as intended.




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The Balanced Budget Act of 1997 required CMS to annually audit the
Medicare rate proposals and supporting financial records of at least one-
third of the participating MCOs and required that we monitor these audit
activities. In October 2001, we reported that, according to CMS, the rate
proposal audits showed that 59 of 80 health plans had misreported key
financial data or had accounting records too unreliable to support their
estimates, but that CMS did not have a follow-up mechanism in place to
resolve the issues identified in the audits.14 Misreporting these data can
affect the benefits provided to enrollees, the amounts enrollees must pay in
cost sharing, or the amounts the MCO contributes to an escrow account
used to maintain benefit or cost-sharing levels in the future. Even small
dollar amounts can have a major impact at the MCO level. For example, by
underestimating its expected revenue by only $0.61 per member per month,
one MCO with three health plans failed to spend over $500,000 that could
have been used to provide additional benefits, lower enrollee cost sharing,
or help maintain future benefit or cost-sharing levels. We recommended
that CMS (1) calculate the net effect of errors identified by plans and the
overall impact of rate proposal audit findings and adjustments, (2) develop
and implement a mechanism to address audit findings in a timely manner,
and (3) communicate to each MCO the corrective actions needed for future
rate proposal submissions.

CMS disagreed with our finding that the audit program lacked a formal
resolution process, stating that we had not given the agency sufficient
credit for efforts to develop an audit follow-up process. CMS also stated, in
response to our recommendation for better communication with MCOs,
that it had adequately communicated by providing MCOs copies of the
audit reports. Subsequently, CMS developed a draft action plan to establish
a follow-up mechanism for the rate proposal audits. Informally, we
provided the agency feedback on areas that we believed would strengthen
its draft plan. We will continue to monitor CMS actions in this area.




14
  U.S. General Accounting Office, Medicare+Choice Audits: Lack of Audit Follow-up
Limits Usefulness, GAO-02-33 (Washington, D.C.: Oct. 9, 2001).




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Financial Management Has     As we have reported previously, the agency’s and its contractors’ financial
Improved, But Considerable   management procedures for payment of Medicare claims, recovery of
                             overpayments, and recording of financial transactions had certain
Work Remains                 weaknesses,15 but the agency has made progress in reducing them. Since
                             the audit of its fiscal year 1999 financial statements, CMS has received an
                             unqualified or “clean” opinion from its auditors each year and has taken
                             significant steps to implement our recommendations for financial
                             management improvements. CMS has developed a comprehensive
                             financial management plan, improved its reviews of contractors’ financial
                             management activities, made financial management procedural guidance
                             available to Medicare contractors through an Internet-accessible database,
                             and improved procedures for handling audit findings. The agency is also
                             assessing the skills and competencies needed to manage Medicare’s
                             finances. Despite this progress, CMS needs to take further steps to better
                             analyze contractor financial data to ensure it is accurately reported and to
                             develop financial systems, processes, and controls that routinely generate
                             reliable, useful, and timely information for agency decisionmakers.




                             15
                              U.S. General Accounting Office, Major Management Challenges and Program Risks,
                             Department of Health and Human Services, GAO-01-247 (Washington, D.C.: January 2001).




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CMS’s efforts to collect Medicare overpayments illustrate both its
successes and its challenges. We reported previously that the agency and
its claims administration contractors had not been effective at collecting
some of the money owed to Medicare, which generally resulted from
overpayments made to providers. At the end of fiscal year 1999, over
 $7 billion of debt had accumulated on contractors’ books as accounts
receivable that were neither collected nor written off. Responding to our
recommendation to comply with the terms of the Debt Collection
Improvement Act of 1996,16 Medicare contractors have referred over two-
thirds of the $6 billion in reported delinquent debts eligible for referral to
the Department of the Treasury or its designee for collection by the third
quarter of fiscal year 2002. Nevertheless, as we reported in February 2002,
CMS has difficulty ensuring that contractors consistently make these
referrals, as the agency lacks a comprehensive database tracking all its
debts, has inaccurate information on the debts its limited database
contains, and has not developed a comprehensive debt referral plan.17 To
help ensure that CMS promptly refers all eligible delinquent Medicare debts
to Treasury or its designee for collection, we made a number of additional
recommendations to CMS. The agency is currently addressing most of
these recommendations.

At the heart of its financial management problems, CMS does not have a
single integrated financial accounting system that contains information to
track its financial activities. Lack of such integrated information impedes
efforts to monitor contractors’ activities, safeguard payments, and prepare
yearly financial statements. CMS has begun to develop a project to
integrate its financial management systems, but the complexity of this
project has been challenging, involving information from over a billion
transactions a year and multiple claims contractor systems and data
centers. Recognizing the complexity of this project, CMS has established a
separate program management office and has hired a systems integrator
contractor with expertise to oversee software development and system
integration. A pilot test running the new software parallel to the old is
scheduled to begin at two claims administration contractors in April 2004,



16
 U.S. General Accounting Office, Medicare: HCFA Could Do More to Identify and Collect
Overpayments, HEHS/AIMD-00-304 (Washington, D.C.: Sept. 7, 2000).
17
  U.S. General Accounting Office, Debt Collection Improvement Act of 1996: HHS’s Centers
for Medicare & Medicaid Services Faces Challenges to Fully Implement Certain Key
Provisions, GAO-02-307 (Washington, D.C.: Feb. 22, 2002).




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                             with full implementation of the integrated system scheduled for September
                             2007.

                             We have identified other financial management issues, which are addressed
                             in a separate HHS management challenge discussed in this report—
                             “Improve Financial Systems, Processes, and Controls.”



Information Technology and   Financial management is not the only Medicare function hampered by
Management Challenges        information technology (IT) shortcomings. CMS officials are in the process
                             of modernizing the technology that supports Medicare’s core missions of
Undermine Efforts to
                             claims processing and payment, program oversight, and administration of
Strengthen Program           participating health plans. The agency’s information systems are of central
                             importance in carrying out these missions, but the major systems are aged
                             and often incompatible with one another. Because of their design, these
                             systems do not assemble or maintain data in a user-friendly format and are
                             therefore difficult to query. Quick answers are largely unavailable to such
                             questions as the effects of payment policies on beneficiaries’ access to
                             services, the adequacy of payments to providers, or the status of debt owed
                             the program because of uncollected overpayments. Further, auditors of
                             CMS’s fiscal year 2001 financial statements noted numerous weaknesses in
                             the security of Medicare information systems that could result in
                             unauthorized access to sensitive Medicare data. These weaknesses are not
                             only troublesome from a data integrity standpoint but also because of the
                             potential financial loss that could occur through security breaches.

                             CMS’s IT planning and management processes—intended to increase the
                             likelihood that systems development and implementation will be cost
                             effective and successful—have certain shortcomings that increase the risk
                             that some of its modernization efforts could fail to achieve agency mission
                             goals. In September 2001, we reported that CMS had developed a blueprint
                             documenting its existing and planned IT environments—also known as its
                             enterprise architecture—but this blueprint was missing essential detail.18
                             We also found that the agency’s process for managing its IT investments
                             was missing key review, approval, and evaluation steps to ensure that CMS
                             invests in projects that succeed in supporting Medicare program
                             management needs. On the basis of these findings, we recommended that



                             18
                               U.S. General Accounting Office, Medicare: Information Systems Modernization Needs
                             Stronger Management and Support, GAO-01-824 (Washington, D.C.: Sept. 20, 2001).




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                       CMS fully develop its architecture and strengthen its IT management
                       process.

                       Agency officials reported that they have begun implementing guidance for
                       an improved IT management process. This process will require additional
                       review of the benefits, risks, and technical appropriateness of all projects,
                       except ongoing operations. Officials also reported conducting additional
                       IT development activities, making further progress on detailing the
                       agency’s IT architecture, and assessing human capital needs and skill gaps.
                       To address weaknesses in the security controls of the agency’s and its
                       contractors’ ongoing system operations, CMS has implemented additional
                       requirements for contractors to document compliance with security
                       requirements, increased its scrutiny of contractor internal management
                       controls related to IT systems security, and begun an agencywide
                       mandatory training effort for CMS staff on IT security procedures. Despite
                       CMS’s progress, strong and continued management attention will be
                       needed as the agency strives to maintain current program services while
                       working to build more effective and secure information support.



Medicare Contracting   Managing Medicare effectively depends on finding a balance between
Reform Looms as a      flexibility and accountability—that is, granting the agency adequate
                       flexibility to act prudently while ensuring that it can be held accountable
Potentially Large      for its decisions. CMS has lacked some of the ability to act prudently in
Management Challenge   managing claims administration because, under Medicare’s statute and
                       regulations, its contracting authority and practices differ from those
                       embodied in standard federal contracting regulations. There is generally
                       no full and open competition for entities to obtain contracts to process
                       Medicare claims; CMS is limited to choosing among health insurers to
                       process Medicare claims; apart from some recent exceptions, contractors
                       must cover the full range of claims processing and related activities; and
                       the agency is limited in its ability to terminate contracts.




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                         Over the years, the agency repeatedly proposed legislation to obtain new
                         contracting authority and flexibility. In June 2001, we testified that
                         Medicare could benefit from Congress removing CMS’s contracting
                         limitations and from use of full and open competition in the selection of
                         claims administration contractors.19 In June 2002, the U.S. House of
                         Representatives passed a bill that would amend the Medicare statute to
                         require competitive contracting and allow CMS greater flexibility in its
                         contracting arrangements.

                         Should CMS be granted more flexible contracting authority that relies on
                         competition, effectively managing the transition to a different contracting
                         environment will be a major new challenge for the agency in the coming
                         years. As we reported in our 2001 assessment of high-risk federal
                         programs, federal agencies that manage large procurements of contracted
                         services—such as the departments of Energy and Defense—have had
                         difficulties with contract acquisition and management.20 These have
                         included problems such as cost and schedule overruns and failure to
                         oversee contractors and hold them accountable. CMS would need to
                         carefully plan and manage its own contracting efforts, while being attentive
                         to best practices in the field, to avoid some of the pitfalls experienced by
                         other agencies.



Enhance the Fiscal and   Medicaid is a program jointly funded by the federal government and the
                         states that pays for both acute health care and long-term care services for
Management Oversight     over 44 million low-income Americans, about half of whom are children
of the Medicaid          and over one-quarter of whom are aged, blind, or disabled. The program’s
                         day-to-day administration is conducted by the states and is overseen at the
Program                  federal level by CMS in HHS. The challenges inherent in overseeing a
                         program of Medicaid’s size, growth, and diversity, combined with the open-
                         ended nature of the program’s federal funding, puts the program at high


                         19
                           U.S. General Accounting Office, Medicare Contracting Reform: Opportunities and
                         Challenges in Contracting for Claims Administration Services, GAO-01-918T
                         (Washington, D.C.: June 28, 2001). Also see U.S. General Accounting Office, Medicare:
                         Comments on HHS’ Claims Administration Contracting Reform Proposal, GAO-01-1046R
                         (Washington, D.C.: Aug. 17, 2001) and U.S. General Accounting Office, Medicare
                         Contractors: Despite Its Efforts, HCFA Cannot Ensure Their Effectiveness or Integrity,
                         GAO/HEHS-99-115 (Washington, D.C.: July 14, 1999).
                         20
                           U.S. General Accounting Office, High-Risk Series: An Update, GAO-01-263 (Washington,
                         D.C.: January 2001).




                         Page 23                                                     GAO-03-101 HHS Challenges
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risk for waste and exploitation and we have added Medicaid to our 2003 list
of high-risk programs. Consider the following program characteristics:

• Size. In fiscal year 2001, federal and state Medicaid expenditures totaled
  $228 billion. The federal share was about 57 percent, representing
  7 percent of all federal outlays. Medicaid is the third largest social
  program in the federal budget (after Social Security and Medicare) and
  the second largest budget item for most states (after education),
  accounting for about 20 percent of states’ total expenditures.

• Growth. The Congressional Budget Office projects that Medicaid
  spending will grow each year on average by 8.8 percent, which would
  more than double total Medicaid spending in 9 to 10 years. Recent
  Medicaid expenditure growth has been fueled in part by escalating
  prescription drug and hospital costs, as well as by “creative” state
  financing schemes that inappropriately increase the federal share of
  Medicaid expenditures without increasing the states’ contribution.
  Future program spending will also be significantly affected by the
  growth of the population aged 65 and older, which is expected to more
  than double by 2040. Individuals who are aged, blind, or disabled
  already incur significantly higher Medicaid expenditures than those in
  other eligibility categories. These individuals represent 27 percent of all
  Medicaid beneficiaries, but they account for 66 percent of expenditures,
  as shown in figure 1. As the share of the population that is aged grows,
  so too will associated long-term care expenditures, thus exerting
  additional financial pressures on future federal and state budgets.




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Figure 1: Medicaid Expenditures Are Disproportionately for Individuals Who Are Aged, Blind, or Disabled

                                                                27% of beneficiaries                                                                          66% of expenditures



                                               9.7%
                                                                                                                                                   25.2%
                                                                                                                    25.2%
                                                         16.9%
                                                                                                               8.4%
                              73.4%
                                                                                                                                           41.2%



                      Enrollees = 44.3 million                                                                               Expenditures = $176.6 billiona

                                                                                   Children and other adults

                                                                                   Disproportionate share hospital (DSH) payments

                                                                                   Aged

                                                                                   Blind and disabled

Source: CMS enrollment and expenditure data, fiscal year 2000, the most recent year for which data are available by type of beneficiary.
                                                                         a
                                                                          Total Medicaid fiscal year 2000 expenditures were $209.6 billion; expenditures in the figure do not
                                                                         include administrative expenses ($10.6 billion) and other expenses that could not be attributed to
                                                                         particular beneficiary populations.




                                                                         Page 25                                                                                  GAO-03-101 HHS Challenges
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• Diversity. Within broad federal guidelines, states have considerable
  flexibility in how they administer their Medicaid programs. Each state
  determines the amount, duration, and scope of covered services;
  establishes eligibility guidelines; sets payment rates; and develops its
  own administrative and delivery system structure. While federal statute
  requires states to cover certain populations and services under
  Medicaid, states may choose to expand eligibility or add benefits that
  the statute defines as optional.21 About two-thirds of total Medicaid
  expenditures are attributable to services for optional populations and
  benefits. The resulting variation across states in populations covered
  and benefits offered makes Medicaid less like a single program than like
  56 separate programs—the 50 states, the District of Columbia, Puerto
  Rico, and U.S. territories—thus posing significant complexities for
  federal oversight.

• Open-ended federal funding. Under Medicaid, the federal share of each
  state’s expenditures, also called the federal match, is based on a formula
  that is linked to each state’s per capita income and its total program
  spending. The federal liability for program expenditures is open-ended,
  as there is no limit on state spending for services that are covered under
  a CMS-approved state Medicaid plan. In 2001, the federal shares ranged
  from 50 to 77 percent of a state’s total Medicaid expenditures.

Our concerns about the program’s risks have been heightened by our work
in recent years, which confirms the program’s vulnerability to exploitation
and mismanagement. Through this work we have identified key problems,
including

• schemes by some states to inappropriately leverage federal funds,

• state waiver programs that inappropriately increase the federal
  government’s financial liability, and

• insufficient federal and state oversight to ensure that payments to health
  care providers are accurate and appropriate.


21
  Mandatory services include inpatient and outpatient hospital care; physician services;
nursing home care; lab and x-ray services; immunizations, and other early and periodic
screening, diagnostic, and treatment services for children; family planning services; health
center and rural health clinic services; and nurse midwife and nurse practitioner services.
Services that are optional include outpatient prescription drugs, institutional care for
persons with mental retardation, personal care, and dental and vision care for adults.




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                            We have also identified consistent weaknesses with federal oversight of the
                            quality of care in nursing homes, which receive billions of dollars annually
                            in Medicaid funds. These issues are addressed in a separate section in this
                            report entitled “Improve Oversight of Care Delivered to Medicare and
                            Medicaid Beneficiaries.”



State Financing Schemes     For more than a decade, states have used various financing schemes to
Often Inappropriately       inappropriately generate excessive federal Medicaid matching funds while
                            their own share of expenditures has remained unchanged or decreased.
Increase Federal Medicaid   Using statutory and regulatory loopholes, some states have created the
Payments                    illusion that they have made large Medicaid payments to certain providers,
                            such as county health facilities, in order to generate federal matching
                            payments. In reality, generally through electronic funds transfers, the
                            states have only momentarily made payments to these providers, as states
                            have required the payments to be returned. In some cases, states have used
                            these federal payments for purposes other than Medicaid. Figure 2
                            illustrates a financing arrangement under which a state can inappropriately
                            increase federal matching funds with no outlay of state funds.



                            Figure 2: One State’s Arrangement to Increase Federal Medicaid Payments
                            Inappropriately

                                                    1 State combines state payment and federal match to
                                Federal               make a Medicaid payment to county health facilities
                                                                                                                State
                              government                  $155 million                    $122 million


                                                                         $277 million
                                                                                                 $271 million
                             2 County health facilities
                             retain $6 million                 County health facilities   3 County health facilities transfer
                                                                                          $271 million back to state
                            Source: GAO analysis.



                            In figure 2, a state makes Medicaid payments totaling $277 million to
                            certain county health facilities; the total includes $155 million in federal
                            funds at a matching rate of 56 percent (step 1). On the same day that the
                            county health facilities receive the funds, they transfer all but $6 million of
                            the payments back to the state, which retains $271 million—a net gain of
                            $149 million over the state’s original outlay of $122 million (steps 2 and 3).




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                                              Although the Congress and CMS have repeatedly acted to curtail abusive
                                              financing schemes when they have come to light, states have consistently
                                              developed new variations to this basic approach. Each variant has the
                                              same result: the state’s share of program expenditures is shifted to the
                                              federal government, while federal Medicaid payments escalate, with no
                                              assurances that the excessive federal payments are used for valid Medicaid
                                              expenditures for covered beneficiaries. Table 2 describes various abusive
                                              Medicaid financing arrangements used by states and the actions taken by
                                              the Congress and CMS to curtail them.



Table 2: Federal Actions to Address Inappropriate State Financing Arrangements

Financing arrangement      Description                                                     Action taken
Payments to state health   States made excessive Medicaid payments to state-owned In 1987, HCFA issued regulations that
facilities                 health facilities, which subsequently returned these funds to established payment limits specifically for
                           the state treasury.                                           inpatient and institutional facilities operated by
                                                                                         states.
Provider taxes and         Revenues from special taxes on hospitals and other              The Medicaid Voluntary Contribution and
donations                  providers and from provider “donations” were matched with       Provider-Specific Tax Amendments of 1991
                           federal funds and paid to the providers, which returned most    essentially banned provider donations and
                           of the federal payment to the state.                            placed a series of restrictions on provider
                                                                                           taxes.
Disproportionate share     DSH payments compensate hospitals that care for a               The Omnibus Budget Reconciliation Act of
hospital (DSH) payments    disproportionate number of low-income patients. Unusually       1993 placed limits on which hospitals could
                           large DSH payments were made to certain hospitals, which        receive DSH payments and capped both the
                           returned the bulk of the state and federal payments to the      amount of DSH payments states could make
                           state.                                                          and that individual hospitals could receive.
DSH payments to state      A large share of state DSH payments were paid to state-      The Balanced Budget Act of 1997 limited the
mental hospitals           operated psychiatric hospitals, where they were used to pay proportion of a state’s DSH payments that can
                           for services not covered by Medicaid or were returned to the be paid to state psychiatric hospitals.
                           state treasury.
Payments to local          In an effort to ensure that Medicaid payments are               The Medicare, Medicaid, and SCHIP Benefits
government health          reasonable, the federal statute and regulations prohibit        Improvement and Protection Act of 2000
facilities                 Medicaid from paying more than what Medicare would pay          required HCFA to issue a final regulation that
                           for comparable services. This upper payment limit (UPL)         established a separate payment limit for each
                           applies to total payments and not individual services. As a     of several classes of local government health
                           result of the aggregate upper limit, states were able to make   facilities. In 2002, CMS issued a regulation
                           large supplemental payments to a few local public health        that further lowered the payment limit for local
                           facilities, such as hospitals and nursing homes. The local      public hospitals.
                           government health facilities then returned the bulk of the
                           state and federal payments to the state.
Source: GAO analysis.


                                              Financing schemes that some states use to inappropriately generate federal
                                              payments can spread quickly to other states. For example, from 1990 to



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                        1992, payments that compensate hospitals that care for a disproportionate
                        number of low-income patients—called DSH payments—spiked from
                        $1 billion to over $17 billion. After limits were put on DSH payments, states
                        found that they could exploit the upper payment limit (UPL) on Medicaid
                        payments to conduct other financing schemes. From 1999 to 2000, the
                        number of states using UPL-related schemes grew from 12 to 28,
                        accounting for an estimated $5.8 billion in excessive federal payments.

                        The savings estimated to result from curbing states’ exploitative practices
                        demonstrate the enormous impact state financing schemes can have on the
                        federal budget. Prompted by our testimony,22 CMS’s 2001 regulation
                        reducing the federal government’s financial liability under the UPL
                        provision is estimated to save $55 billion over 10 years, and the related 2002
                        CMS regulation is estimated to yield an additional $9 billion over 5 years.

                        While the Congress and CMS have often acted promptly to address
                        Medicaid financing schemes once they become apparent, new variations
                        continue to emerge and recommendations to reduce problems remain
                        open. Consequently, we recommended that the Congress consider
                        legislation to prohibit making Medicaid payments to a government-owned
                        facility that exceed the facility’s costs. Additionally, CMS has responded, in
                        part, to recommendations made by OIG regarding UPL-related payments,
                        but CMS requirements do not provide for the capture of information to
                        determine whether local government health facilities transfer the federal
                        funds they receive back to the state.

                        States that have relied on abusive practices to maximize federal funds as a
                        staple for state financing are feeling the budgetary pressure from the loss of
                        these funds. Experience shows that some states are likely to look for other
                        creative means to supplant state financing, making a compelling case for
                        the Congress and CMS to sustain vigilance over federal Medicaid payments.



Waiver Demonstration    HHS oversight responsibilities include ensuring that states’ demonstration
Programs May Increase   programs do not put the federal government at risk for spending more on
                        Medicaid than it would without such programs. The Secretary of HHS has
Federal Liability for
                        broad authority under section 1115 of the Social Security Act to waive
Program Expenditures    certain statutory provisions and allow states to conduct Medicaid research

                        22
                          U.S. General Accounting Office, Medicaid: State Financing Schemes Again Drive Up
                        Federal Payments, GAO/T-HEHS-00-193 (Washington, D.C.: Sept. 6, 2000).




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and demonstration projects that test new ideas for delivering services and
covering more people. Specifically, HHS can grant section 1115 waivers to
provide federal funds for services and populations not otherwise eligible
for federal matching payments. States have commonly used section 1115
waivers to provide health care coverage to Medicaid beneficiaries by
enrolling them in managed care plans. An estimated 20 percent of all
Medicaid funds are now spent under section 1115 waivers. Historically,
HHS and the Office of Management and Budget (OMB) have required that
the demonstration projects be budget neutral—that is, the demonstration’s
cost to the federal government should be no more than it would have been
without the waiver.

Since the mid-1990s, however, adherence to budget neutrality requirements
has eroded, as HHS and OMB have permitted states to use questionable
methods that in our view do not demonstrate budget neutrality. The
section 1115 waivers of two states, approved in 2002, are estimated to cost
the federal government at least $330 million more than if the waivers had
not been approved. For one state’s waiver, HHS and OMB continued a
practice that we first identified and objected to in 1995, which allows states
to disregard substantial new costs that would be incurred under the waiver,
thus making it easier to demonstrate budget neutrality. For the other
state’s waiver, HHS and OMB allowed the state to include impermissible
costs to raise the level of costs estimated without the waiver, thus making it
easier to claim that the demonstration was budget neutral and, in turn,
inflating the share for which the federal government would be liable. Our
concern is that additional states have requested similar waivers that are
currently under review. In 2002, we recommended that HHS ensure that
only valid methods are used to demonstrate budget neutrality,23 but the
department and OMB continue to allow states to disregard significant
amounts of waiver costs when demonstrating budget neutrality.




23
  U.S. General Accounting Office, Medicaid and SCHIP: Recent HHS Approvals of
Demonstration Waiver Projects Raise Concerns, GAO-02-817 (Washington, D.C.: July 12,
2002).




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Shortcomings in Routine      One of CMS’s major challenges is to balance state flexibility with
Oversight and Financial      accountability by providing adequate oversight of states’ Medicaid financial
                             transactions. Our work shows that CMS falls short in providing the level of
Management Practices         oversight required to ensure accountability. In particular, CMS lacks
Leave Program Dollars Ill-   important policies and procedures to guide either its own or states’
Protected                    financial oversight activities, and it has not provided consistent guidance to
                             the states on appropriate payment practices.

                             Our studies of federal and state agencies’ controls over payments have
                             identified systemic weaknesses in both federal and state oversight of
                             Medicaid expenditures.24 Our February 2002 report on federal oversight of
                             state claims for reimbursement found that CMS’s general policies and
                             systems for financial oversight of state Medicaid programs were limited.
                             For example, CMS did not (1) have a sound method for identifying areas at
                             high risk for improper payments, (2) have performance standards for
                             review of state expenditures, or (3) conduct analyses of trend information
                             on the amount and type of Medicaid expenditures deferred or disallowed to
                             monitor performance of this oversight activity. To address these
                             weaknesses, we recommended a range of approaches to strengthen
                             internal controls and target limited resources. In response, CMS has
                             initiated steps to improve financial reviews of Medicaid, which are in the
                             planning and early implementation stages.

                             In examining states’ controls over improper payments to providers, we
                             found that states’ efforts to identify billing errors and abusive billing
                             practices have been generally limited and only modestly funded. In our
                             June 2001 review, half the states reported spending no more than one-tenth
                             of 1 percent of program expenditures on activities to safeguard program
                             payments. No state had requested the full amount of federal funds
                             available for antifraud efforts because they would have had to increase
                             their own spending to receive the full federal match.

                             The potential benefit of improving oversight has been demonstrated by
                             individual state efforts. In our June 2001 study, we reported that, since July
                             1999, California had identified $58 million in fraudulent billings by 115
                             providers and pharmaceutical and durable medical equipment wholesalers


                             24
                               U.S. General Accounting Office, Medicaid Financial Management: Better Oversight of
                             State Claims for Federal Reimbursement Needed, GAO-02-300 (Washington, D.C.: Feb. 28,
                             2002), and U.S. General Accounting Office, Medicaid: State Efforts to Control Improper
                             Payments Vary, GAO-01-662 (Washington, D.C.: June 7, 2001).




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and suppliers; it was investigating an additional 300 entities for suspected
fraud that could exceed $250 million. Kentucky’s analysis of claims
payment data identified $137 million in overpayments to providers between
January 1995 and June 1998.

Our review of certain Medicaid services provided to children through their
schools also demonstrates the importance of heightened scrutiny over
Medicaid expenditures.25 In one state alone, there were $324 million in
disallowed claims involving school-based services for three-and-a-half
years ending in fiscal year 2001.26 Some claims were for services not
covered by Medicaid or for services provided to non-Medicaid-eligible
children. Our work also showed that, in some states, very little of the
federal reimbursement went directly to schools where the services were
provided. Some schools ended up with as little as $7.50 for every $100 that
the state claimed for reimbursement, once states retained a portion of
federal reimbursements and private consulting firms were paid
contingency fees.

Our review of Medicaid reimbursement in schools further illustrated CMS’s
weaknesses in providing the states sufficient program guidance and
oversight. Schools in some states conduct outreach for the Medicaid
program and perform certain diagnostic, screening, and therapy services.
States that provide school-based Medicaid services must establish
procedures for determining Medicaid’s payment rates within broad federal
guidelines. 27 Under these procedures, the costs identified for schools’
administrative services claims must be directly attributable to supporting
the Medicaid program. Our analysis found that some CMS regions failed to
(1) provide clear and consistent guidance to schools and state agencies or
(2) exercise adequate controls over the approval of claims for school-based
services. Our recommendations to CMS on school reimbursement were
aimed at improving the agency’s oversight and establishing more consistent
policies about what constitutes appropriate payment. CMS has taken
action to clarify reimbursement policies addressing administrative


25
  U.S. General Accounting Office, Medicaid in Schools: Improper Payments Demand
Improvement in HCFA Oversight, GAO/HEHS/OSI-00-69 (Washington, D.C.: Apr. 5, 2000).
26
     This fiscal year 2001 figure updates the findings in our April 2000 report.
27
  States must abide by the cost allocation principles described in OMB Circular A-87, which
requires, among other things, that costs be “necessary and reasonable” and “allocable” to
the Medicaid program.




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                        activities performed by certain medical personnel in schools. Additionally,
                        CMS is developing more consistent guidance for its regions, states, and
                        schools regarding what is allowable in submitting claims for
                        reimbursement for school-based administrative costs from Medicaid.



Improve Oversight of    CMS and the states share oversight responsibility for thousands of health
                        care providers that deliver care directly to Medicare and Medicaid
Care Delivered to       beneficiaries. (See table 3.) In response to congressional requests, in
Medicare and Medicaid   recent years we have reviewed oversight efforts for three of these types of
                        providers—nursing homes, home health agencies, and kidney dialysis
Beneficiaries           facilities—that provide critical and often life-saving care to nearly
                        4.5 million vulnerable individuals and that receive over $70 billion annually
                        in Medicare and Medicaid payments. Providers become eligible for federal
                        reimbursement for services provided by adhering to federal quality
                        standards, including statutory, regulatory, and other requirements designed
                        to help ensure that patients receive appropriate care or treatment and are
                        protected from harm. To ensure that providers remain eligible for federal
                        funding, CMS contracts with state agencies to conduct periodic
                        inspections, called surveys, of the providers’ services. CMS, in turn, is
                        charged with overseeing the adequacy of states’ activities in monitoring
                        providers’ performance.




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Table 3: Providers Required to Meet Federal Quality Standards, Survey Frequency, and Budgeted Federal Survey Expenditures

                                                               Number of Survey frequency (as                          Budgeted federal survey
Provider                                                        providers required by statute or CMS)              expenditures, fiscal year 2003
Nursing homes                                                       16,582 Every year (statute)                                         $352,100,492
Home health agencies                                                 6,944 Every 3 years (statute)                                         25,469,304
Intermediate care facilities for the mentally retarded               6,693 Every year (CMS)                                                38,623,812
Accredited hospitals                                                 4,461 1% per year (CMS)                                                5,528,523
Kidney dialysis facilities                                           4,266 Every 3 years (CMS)                                              8,049,312
Ambulatory surgical centers                                          3,532 Every 6 years (CMS)                                              2,482,379
Rural health clinics                                                 3,296 Every 6 years (CMS)                                              1,285,470
Outpatient physical therapy                                          2,930 Every 6 years (CMS)                                              1,430,167
Hospices                                                             2,316 Every 6 years (CMS)                                              3,977,717
Nonaccredited hospitals                                              1,551 Every 3 years (CMS)                                              7,615,329
Portable X-ray suppliers                                                645 Every 6 years (CMS)                                               157,029
Comprehensive outpatient rehabilitation facilities                      564 Every 6 years (CMS)                                               293,220
Other direct survey costsa                                                                                                                 10,359,246
Total                                                                                                                                  $457,400,000b
Source: CMS.

                                                 Note: Other providers, including organ procurement organizations, community mental health care
                                                 centers, and psychiatric residential treatment facilities, require surveys by either CMS or state
                                                 surveyors, but funding for these surveys is not included in the survey budget. In addition, a small
                                                 proportion of the roughly 160,000 clinical laboratories are required to be surveyed, but these
                                                 laboratories pay for the surveys themselves through fees instead of federal appropriations and are
                                                 therefore not included in budgeted federal survey expenditures.
                                                 a
                                                  Other direct survey costs are funds provided to state survey agencies, but CMS is unable to allocate
                                                 these costs among specific provider types.
                                                 b
                                                 Total does not reflect the sum of the provider amounts because of rounding.




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                               In response to our recent findings and recommendations on the need to
                               improve the quality of care provided by nursing homes, home health
                               agencies, and kidney dialysis facilities, CMS has increased its attention to
                               improving oversight of survey activities, especially for nursing homes.
                               While this additional attention to nursing home oversight is warranted,
                               CMS may have shifted its focus and resources to nursing homes at the
                               expense of adequate oversight of home health agencies, kidney dialysis
                               facilities, and other providers serving Medicare and Medicaid beneficiaries.
                               As such, CMS confronts significant management challenges—first,
                               ensuring that its monitoring of compliance with federal quality standards
                               by myriad providers is effective and consistent across its 10 regional
                               offices, and second, ensuring that the 51 state survey agencies take
                               appropriate actions to enforce federal quality standards and protect
                               beneficiaries. Specifically, our work on federal and state oversight of
                               survey activities points to problems with the conduct of state surveys, the
                               timeliness of complaint investigations, the strength and use of federal
                               sanctions for providers’ noncompliance with Medicare standards, federal
                               monitoring of state survey activities, and survey staffing.28



Quality of Care Is Uncertain   State survey problems we have noted frustrate efforts to determine quality
Because Some Providers         of care. Some providers are surveyed very infrequently and, while state
                               surveyors identified a disturbing prevalence of quality problems in nursing
Are Surveyed Infrequently      homes, we have noted repeatedly that the seriousness of deficiencies was
and Deficiencies Are           understated. During our reviews of the home health agency survey
Understated                    process, we reported similar problems with understated deficiencies. We
                               noted flaws in the following areas for the three providers:

                               • Nursing homes. Because of weaknesses in the survey process, state
                                 surveyors often missed or understated serious deficiencies, masking the
                                 actual extent to which residents are harmed or placed in danger. The
                                 1.6 million elderly and disabled nursing home residents, often very
                                 dependent or incapacitated, may be totally reliant on nursing home staff
                                 for medical care as well as assistance with basic activities of daily living,


                               28
                                U.S. General Accounting Office, Nursing Homes: Sustained Efforts Are Essential to
                               Realize Potential of the Quality Initiatives, GAO/HEHS-00-197 (Washington, D.C.: Sept. 28,
                               2000); U.S. General Accounting Office, Medicare Home Health Agencies: Weaknesses in
                               Federal and State Oversight Mask Potential Quality Issues, GAO-02-382 (Washington, D.C.:
                               July 19, 2002); and U.S. General Accounting Office, Medicare Quality of Care: Oversight of
                               Kidney Dialysis Facilities Needs Improvement, GAO/HEHS-00-114 (Washington, D.C.:
                               June 23, 2000).




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   such as dressing, grooming, and eating. Our work since 1998 has
   demonstrated that state surveyors failed to identify serious nursing
   home care deficiencies or classified such deficiencies, including weight
   loss, dehydration, pressure sores, and incontinence, at an
   inappropriately low severity level. In independent reviews conducted to
   evaluate the quality of state survey agencies’ performance, CMS’s
   surveyors often identified serious deficiencies where state surveyors did
   not. Factors contributing to the understatement of deficiencies
   included lack of sufficient rigor in the survey process and nursing
   homes’ ability to predict the timing of their surveys so that, if a home
   chooses to do so, it may conceal problems. In response to our
   recommendations, CMS has introduced strengthened survey methods to
   spot serious deficiencies, but is still developing important additional
   steps. To reduce survey predictability, CMS has varied the starting times
   of surveys, but this change has had limited effectiveness.

• Home health agencies. Patients receiving home health care are
  homebound, may have little contact with anyone except home health
  staff, and are therefore often isolated and vulnerable to poor care.
  Surveys of home health agencies are required less frequently than those
  of nursing homes—a minimum of once every 3 years as opposed to
  annually—and branch offices, constituting about one-quarter of home
  health locations, generally escape routine scrutiny. Some agencies must
  be surveyed annually if, for example, they have had prior serious
  deficiencies, but about half of these agencies did not receive required
  annual surveys. A home health agency survey is less comprehensive
  than a nursing home survey in that CMS does not require surveyors to
  review about half of the conditions for participating in Medicare,
  including assessing the quality of skilled nursing care. Although state
  surveyors identified a small proportion of home health agencies with
  deficiencies that either harmed or could harm patients, we found
  evidence that such problems also were understated. Moreover, two
  states accounted for over two-thirds of serious deficiencies reported
  nationwide, suggesting that states have disparate survey practices that
  may not consistently capture the actual status of quality. We found
  deficiencies in some states documented at a lower level of seriousness
  than similar deficiencies in other states that were documented as
  harming or potentially harming patients. In July 2002, we recommended
  several steps CMS could take to improve the home health agency survey
  process, including strengthening reviews of branch offices. The
  following month CMS began assigning these offices identification
  numbers to improve oversight.



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                            • Kidney dialysis facilities. Dialysis facilities treat more than 280,000
                              patients suffering from end-stage renal disease, an irreversible state of
                              kidney impairment that requires either a transplant or regular dialysis.
                              If performed improperly, dialysis can cause serious complications or
                              even death; many dialysis patients are especially vulnerable because
                              they are elderly and have other conditions, such as diabetes. No
                              statutory requirements exist for the frequency of state surveys of
                              dialysis facilities, and the number of facilities surveyed each year
                              declined steadily during the 1990s. For instance, in 1999, only
                              11 percent of existing facilities received a recertification survey,
                              compared with 52 percent in 1993. The limited frequency of surveys
                              made it impossible for us to determine the exact extent to which dialysis
                              facilities were in compliance with federal quality requirements.
                              However, 15 percent of the most recent surveys conducted at the time of
                              our 2000 review identified deficiencies severe enough, if uncorrected, to
                              warrant terminating participation in Medicare. In fiscal year 2001, CMS
                              received additional funding that resulted in its increasing the number of
                              facilities surveyed annually to one-third and indicated that, again,
                              15 percent of the facilities surveyed had at least one deficiency severe
                              enough to lead to termination, if uncorrected.



Many States’ Complaint      Complaint investigations are an important opportunity for state survey
Intake and Investigation    agencies to intervene promptly when care problems are reported. This is
                            especially true given the varying frequency with which surveys are
Processes Are Ineffective
                            conducted for different types of providers. The ability to lodge complaints
                            against providers—whether by patients, family members, or caregivers
                            themselves—and to have them resolved promptly is an essential aspect of
                            protecting patient health and safety. Our reviews of nursing home and
                            home health agency oversight revealed continuing weaknesses with
                            complaint investigation practices in many states, including problems with
                            the filing of complaints and the timeliness of state investigations.

                            In reviewing the nursing home and home health agency complaint
                            investigation processes for several states, we identified numerous
                            shortcomings, including complaint hotlines that were not easily accessible,
                            not publicized, limited to in-state callers, or that had no voice mail
                            capability; states that required or encouraged written complaints over
                            telephone calls; investigations of apparently serious complaints that were
                            delayed because they were assigned a low investigation priority; and
                            information systems that were inadequate for properly monitoring the
                            status of complaint investigations. CMS currently has a complaint



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                           improvement project under way that is designed to strengthen and improve
                           the nursing home complaint process. CMS expects to determine how the
                           findings from this project can be applied to other providers as well and to
                           issue guidance for states’ complaint investigation processes.



CMS’s Use of Sanctions     Although sanctions can be an important enforcement tool, CMS does not
Does Not Ensure Provider   use the full array of sanctions available. CMS uses a broad array of
                           sanctions to penalize nursing homes that repeatedly harm residents or fail
Compliance
                           to correct deficiencies within certain time frames. Sanction options for
                           nursing homes include, among others, assessing monetary penalties and
                           denying Medicare payments for new admissions, in addition to termination
                           from the program. In contrast, CMS limits its sanctions for home health
                           agencies and kidney dialysis facilities to termination from the program,
                           despite statutory authority and direction to do more. Termination—or, in
                           reality, the threat of termination—is an all-or-nothing option that is limited
                           in effectiveness. Under this sanction, a provider can avoid termination by
                           taking short-term corrective action to show compliance when a surveyor
                           revisits the facility, thus stopping the termination process. Deficient
                           facilities often temporarily return to, but do not necessarily remain in,
                           compliance.

                           We believe that using termination as the sole sanction option does not
                           prevent a cycle of recurring noncompliance. In many states, we found
                           home health agencies that had corrected their deficiencies, but were found
                           to have serious problems shortly afterward. Some of these home health
                           agencies had serious deficiencies cited in the same quality-of-care category
                           on three of four surveys, yet were still participating in Medicare. Although
                           the length of time between surveys of dialysis facilities makes it difficult to
                           determine how quickly and how often they slip out of compliance, the
                           results of our review suggested a similar pattern. For instance, almost
                           40 percent of dialysis facilities with deficiencies on their most recent
                           survey also had a deficiency with at least one of the same requirements on
                           their last survey. More than half of them had two or more such repeat
                           deficiencies.

                           Since 1987, CMS has had statutory authority to use an array of sanctions
                           other than termination for home health agencies comparable to those used
                           for nursing homes. However, CMS has not implemented this authority, as it
                           was required to do by 1989, nor followed our 1997 recommendation to
                           implement additional sanctions for home health agencies that are
                           repeatedly out of compliance with Medicare participation requirements.



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                         Thus, we suggested in 2002 that the Congress consider giving CMS a new
                         deadline for implementing additional sanctions for home health agencies.
                         Although CMS also has broad authority to implement most sanctions for
                         dialysis facilities, it does not have the authority to assess civil monetary
                         penalties, except under one specific condition. In 2000, we suggested that
                         the Congress consider authorizing CMS to assess similar monetary
                         penalties on dialysis facilities as are imposed on nursing homes that have
                         severe or repeated deficiencies. For its part, CMS is in the process of
                         developing a rule and procedures to strengthen sanction procedures for
                         one quality standard associated with dialysis care.



CMS Oversight of State   CMS and its 10 regional offices are responsible for ensuring that state
Survey Agencies Is       survey agencies effectively identify and resolve problems with provider
                         quality of care. Our work has consistently identified weaknesses in CMS’s
Inadequate to Identify
                         monitoring efforts. Although CMS had data available to assist in
Systemic Problems        monitoring state performance of nursing home surveys, it instead relied
                         heavily on states’ self-evaluation—essentially allowing states to write their
                         own report cards on the adequacy of surveyors’ inspections or complaint
                         investigations. CMS has responded to our recommendations to strengthen
                         its state nursing home oversight by initiating annual assessments of each
                         state’s compliance with specific performance requirements and by making
                         greater use of survey data. Additional management attention would further
                         strengthen these efforts and ensure greater consistency across CMS’s
                         regional offices. CMS’s oversight of home health agencies has been less
                         stringent, with limited use of the numerous tools it has available for
                         monitoring states’ nursing home surveys.

                         To improve its monitoring of state nursing home survey activities, in 2001,
                         CMS began producing and using reports from its numerous databases and
                         established an annual state performance review process. As part of the
                         annual performance review, it identified seven specific performance
                         standards that states are required to meet, for example, survey timing,
                         deficiency documentation, and complaint investigation criteria, and
                         assessed each state’s compliance with each standard. Our ongoing work is
                         examining the results of this review, and we will comment on it in a future
                         report.

                         Another important component of CMS’s oversight activities is monitoring
                         its new January 2000 requirement that states refer to CMS for immediate
                         sanction those nursing homes that were found on successive surveys to
                         have harmed one or more residents. This policy was implemented at our



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                            recommendation to eliminate the practice of continually allowing such
                            homes a grace period to correct deficiencies and thus escape sanctions
                            indefinitely. Our ongoing work also will address the extent to which CMS
                            has monitored states’ compliance with this new policy.

                            CMS’s oversight of states’ home health agency surveys is particularly
                            important because a new prospective payment system introduced in
                            October 2000 not only encouraged home health agencies to provide care
                            more efficiently but also created a situation in which reducing services
                            increases net revenues. Yet, CMS does not routinely review whether states
                            are complying with key statutory, regulatory, or other requirements, such
                            as annually surveying home health agencies with serious deficiencies and
                            ensuring that sample sizes of medical records and patient visits meet
                            minimum federal standards. Moreover, CMS does not assess the adequacy
                            of state agency surveys of home health agencies by conducting its own on-
                            site comparative survey at a sample of agencies shortly after the state’s
                            survey. CMS is statutorily required to perform such surveys for nursing
                            homes and is currently planning to more than double the number of these
                            surveys. We recently suggested to the Congress that it require CMS to
                            perform similar surveys of home health agencies. Although CMS is poised
                            to conduct annual reviews of state compliance with federal home health
                            survey requirements, the limited areas it selected for its first such review in
                            2002 did not focus on critical issues requiring more immediate attention,
                            such as ensuring that home health agencies with serious deficiencies are
                            surveyed annually and that states assign complaints to appropriate
                            categories so that investigations are timely. In response to our
                            recommendations, CMS has proposed taking some limited steps to improve
                            oversight of home health agency surveys.



Staffing Issues Create      CMS and state survey agencies face an increasingly difficult challenge to
Human Capital Challenges    ensure that experienced survey staff—generally registered nurses—are
                            available to assess quality of care across the multitude of providers serving
to Meeting Survey Quality
                            Medicare and Medicaid beneficiaries. Some states indicated that the
Requirements                numbers of their survey staff were inadequate to meet expanding survey
                            requirements, including complaint investigations, and therefore planned to
                            hire additional surveyors. However, we were informed that it could take as
                            long as 3 years for newly hired surveyor staff to gain sufficient knowledge
                            and experience to perform their jobs well and independently. We found
                            that, for home health agencies, a substantial number of surveyors assigned
                            during 2000 in some states we reviewed had neither taken the basic training




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                         course that CMS offers nor acquired substantial on-the-job experience by
                         conducting home health agency surveys.

                         State officials cited surveyor turnover as a reason they must often rely on
                         relatively inexperienced surveyors to conduct surveys. In addition, CMS
                         has expressed concern that the economic downturn in the past 2 years may
                         have affected state budgets, to the extent that states are unable to ensure
                         that sufficient numbers of skilled staff are available to survey providers as
                         required. We have ongoing work that addresses, among other things,
                         states’ ability to maintain a well-trained and experienced surveyor
                         workforce in order to meet their obligations to the federal government to
                         assess the quality of care provided to public beneficiaries.



Strengthen               Enhancing preparedness for public health emergencies has become an
                         important national and local priority since the attacks of September 11,
Preparedness for         2001, and the subsequent anthrax incidents. Federal, state, and local
Public Health            governments and the private sector share responsibility for improving
                         emergency preparedness. While responding to a public health emergency,
Emergencies,             such as a natural disaster or a bioterrorist attack, is initially a local
Including Bioterrorism   responsibility, the federal government helps support these efforts. The
                         private sector also plays an important role in preparedness because many
                         clinical laboratories and hospitals are privately owned and the blood
                         industry is privately managed.

                         HHS, among other federal agencies, provides funding and assistance to
                         state and local jurisdictions to improve their emergency preparedness and
                         response capabilities. This includes funding and assistance to conduct
                         laboratory testing to identify biological agents and ensure adequate
                         treatment space in hospitals for a sudden increase in patients. The
                         department also supports research related to emergency response and
                         preparedness. These preparedness efforts are administered through
                         several different agencies within HHS—the Centers for Disease Control
                         and Prevention (CDC), which is responsible for health surveillance and
                         coordination of response to infectious diseases, the Health Resources and
                         Services Administration (HRSA), which provides health resources to local
                         areas, FDA, which is responsible for the safety and efficacy of drugs and
                         biologics such as blood, and the National Institutes of Health (NIH), which
                         supports medical research.

                         Ensuring that every community, and each of the approximately 2,850 local
                         public health agencies across the nation, meets a basic standard of



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                               preparedness is a significant challenge. It requires sustained funding and
                               attention, as well as substantial cooperation and coordination among
                               multiple federal, state, local, and private sector agencies. Our reports have
                               found significant weaknesses in key elements of the public health
                               infrastructure that are critical to emergency response at the state and local
                               levels. In addition, we have noted a lack of coordination among programs
                               with responsibility for public health emergency preparedness at the local,
                               state, and federal levels. With the recent influx of additional federal funds,
                               responsiveness at the state and local level is changing. Although the
                               creation of a Department of Homeland Security has the potential to
                               streamline overall funding and oversight responsibilities for preparedness
                               and response for certain types of emergencies, some key preparedness
                               functions that are basic to HHS’s public health and research mission remain
                               with HHS. Therefore, HHS continues to have coordination challenges.



Public Health Infrastructure   The nation’s public health infrastructure, as well as related aspects of the
Needs Strengthening            private sector health care system, needs to be strengthened in the following
                               areas:

                               • Laboratory capacity. Many states’ public health laboratory systems
                                 were overwhelmed by the volume of testing during the initial outbreaks
                                 of West Nile virus in the northeast in the fall of 1999 and during the fall
                                 2001 anthrax attacks.29 The 1999 West Nile virus outbreak, which was
                                 relatively small, taxed the federal, state, and local laboratory resources
                                 to the point that officials told us that CDC would not have been able to
                                 respond to another outbreak had one occurred at the same time. In the
                                 West Nile outbreak of 2002, many laboratories ceased some testing
                                 because of the large volume. During the anthrax attacks in 2001, over
                                 70,000 samples were tested in laboratories across the country. Even
                                 states in which no anthrax was found conducted emergency testing;
                                 officials in these states told us that their state laboratories were
                                 overwhelmed and that they could not have sustained the testing effort
                                 for long without their other work suffering. CDC was forced to keep its
                                 anthrax-testing laboratory operating 24 hours a day, 7 days a week, and
                                 open another laboratory to meet the demand for testing.




                               29
                                 U.S. General Accounting Office, West Nile Virus Outbreak: Lessons for Public Health
                               Preparedness, GAO/HEHS-00-180 (Washington, D.C.: Sept. 11, 2000).




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• Infectious disease surveillance. States collect data to monitor the
  incidence of infectious diseases, which are then reported to CDC. Some
  states still rely on traditional, paper-based surveillance systems that
  suffer from underreporting and significant time delays between
  diagnosis and reporting. Reliance on such outdated systems could cause
  delays in the recognition of a public health emergency and adversely
  affect its management.

• Hospital surge capacity. Federal, state, and local officials are
  concerned that the nation’s hospitals and associated treatment facilities
  do not have enough capacity to treat a large, sudden influx of patients as
  might be seen in an emergency. Capacity can be limited by insufficient
  space in facilities such as emergency departments and intensive care
  units, insufficient numbers of personnel, and a lack of equipment such
  as ventilators. Some local officials report that they often do not have
  enough capacity to treat patients on a typical Friday night, much less in
  a large-scale emergency.

• Blood supply. The high volume of blood collected immediately after the
  September 11, 2001, attacks put a strain on the collection system and
  resulted in a surplus of blood.30 The survivors needed little of the blood:
  an amount equal to one-third of the additional units of blood expired
  and was discarded. Although the blood supply is generally adequate,
  lessons learned from blood collection and usage after the September 11
  attacks have prompted HHS and the blood industry to examine ways to
  improve how blood suppliers respond to public health emergencies.31
  Maintaining an adequate supply year-round is key to preparing for
  emergencies where blood is needed immediately. The demand for blood
  is increasing at the same time that new screening for additional
  contaminants and donor eligibility policies in response to emerging
  concerns about blood-borne disease transmission may reduce the pool
  of potential donors. Therefore, more comprehensive, long-term
  monitoring of the safety and adequacy of the blood supply by HHS may
  be needed.




30
  U.S. General Accounting Office, Public Health: Maintaining an Adequate Blood Supply
Is Key to Emergency Preparedness, GAO-02-1095T (Washington, D.C.: Sept. 10, 2002).
31
 U.S. General Accounting Office, Public Health: Blood Supply Generally Adequate Despite
New Donor Restrictions, GAO-02-754 (Washington, D.C.: July 22, 2002).




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• Communications. Serious communication problems exist between and
  among federal, state, and local government agencies. For example,
  during the West Nile virus outbreak, the CDC and New York State
  Department of Health databases were not linked to those in New York
  City, requiring laboratory results to be manually entered. Physicians,
  local health departments, and laboratory officials indicated that it was
  sometimes difficult to determine the status of patients’ samples and
  laboratory results.

• Human capital. Increasing staffing of public health departments and
  laboratories is a top priority for enhancing preparedness in many areas.
  Officials told us that they did not have enough trained epidemiologists,
  laboratory technicians, and other professionals to respond to the
  anthrax incidents while meeting normal, day-to-day responsibilities
  such as preventing the transmission of sexually transmitted diseases.

• Research and development. The experiences with anthrax and the
  possibility of future bioterrorist attacks drew attention to a number of
  public health needs. These include new antibiotics and antivirals to
  treat infectious diseases, a next generation of vaccines to prevent
  infections, and tests to determine earlier in the infection cycle whether
  individuals have been infected.32

HHS has a number of programs designed to enhance these key elements of
the public health infrastructure and increase preparedness. At the federal
level, HHS has invested in expanding capacity at CDC, and NIH has
launched an expanded program to develop new ways to detect, treat, and
prevent diseases caused by biological agents likely to be used by terrorists.
HHS also manages three efforts to provide assistance to state and local
governments—CDC’s Bioterrorism Preparedness and Response Program,
HRSA’s Bioterrorism Hospital Preparedness Program, and the Metropolitan
Medical Response System in the Office of Emergency Response. These
programs provide funds to state health departments and hospitals to
improve the public health infrastructure at the state and local level for
activities such as making capital improvements and purchasing equipment
so hospitals can be better prepared for a public health emergency. These
three programs alone provided a total of $1.1 billion to state and local


32
  U.S. General Accounting Office, Homeland Security: New Department Could Improve
Coordination but May Complicate Priority Setting, GAO-02-893T (Washington, D.C.: June
28, 2002).




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                         governments in fiscal year 2002. An additional $1.2 billion has been
                         requested for this purpose for fiscal year 2003. State and local officials
                         stressed that it is important that funding for these efforts be sustained over
                         the long term in order to make meaningful improvements. The President’s
                         budget for fiscal year 2003 requests a total of $4.3 billion for HHS’s efforts
                         to address bioterrorism.



Coordination of Public   Federal, state, and local government officials, as well as significant
Health Emergency         partners in the private sector, must work together to ensure that
                         communities and the nation as a whole are prepared for a public health
Preparedness Efforts
                         emergency. Our reports over the last 2 years have repeatedly found that
Remains a Significant    coordination among the federal departments and agencies that have a role
Challenge                in preparing for emergencies, including terrorist attacks, is fragmented.33 In
                         October 2001, the Office of the Assistant Secretary for Public Health
                         Emergency Preparedness (originally named the Office of Public Health
                         Preparedness) was created in HHS to serve as the focal point within the
                         department for activities relating to public health emergencies. Specifically,
                         its mission is to direct HHS’s efforts to prepare for, protect against, respond
                         to, and recover from all acts of bioterrorism and other public health
                         emergencies that affect the civilian population. However, coordination
                         across departments remains a challenge; for example, vaccine research and
                         development programs conducted by NIH require careful coordination
                         with efforts under way at the Department of Defense to avoid duplication
                         of the capabilities that currently exist in the federal laboratories.34

                         The new Department of Homeland Security has the potential to repair this
                         fragmentation in certain areas and to reduce some of the overlap and
                         duplication in federal programs.35 However, some programs that have
                         aspects that deal with preparedness will remain at HHS and will need to be
                         carefully coordinated with activities of the new department. Just as with
                         the West Nile virus outbreak in New York City—which initially was feared

                         33
                          U.S. General Accounting Office, Bioterrorism: Federal Research and Preparedness
                         Activities, GAO-01-915 (Washington, D.C.: Sept. 28, 2001).
                         34
                           U.S. General Accounting Office, Homeland Security: New Department Could Improve
                         Biomedical R&D Coordination but May Disrupt Dual-Purpose Efforts, GAO-02-924T
                         (Washington, D.C.: July 9, 2002).
                         35
                           U.S. General Accounting Office, Homeland Security: New Department Could Improve
                         Coordination but May Complicate Priority Setting, GAO-02-893T (Washington, D.C.: June
                         28, 2002).




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                            to be the result of bioterrorism—when an unusual case of disease occurs,
                            public health officials must investigate to determine whether it is naturally
                            occurring or intentionally caused. Although the origin of the disease may
                            not be clear at the outset, the same public health resources are needed to
                            investigate, regardless of the source.



Ensure the Safety and       FDA regulates medical products with annual sales of roughly $1 trillion that
                            touch the lives of virtually every American. One of the agency’s missions is
Efficacy of Medical         to ensure that human and animal drugs, medical devices, and vaccines,
Products                    among other products, are safe and effective. In overseeing the safety of
                            these products, FDA requires manufacturers of drugs and devices to obtain
                            approval before marketing their products. Once products are marketed,
                            FDA continues to monitor product safety by collecting and analyzing
                            hundreds of thousands of reports of adverse events related to medical
                            product use each year. To carry out this broad mandate, FDA has about
                            9,000 employees. These include approximately 2,100 scientists who
                            evaluate new product applications and about 1,100 inspectors, who ensure
                            that the country’s almost 95,000 FDA-regulated businesses comply with
                            minimum safety and quality standards.

                            Over the past 2 years, our work has focused on drug review and approval
                            issues. The speed of FDA’s review and approval of new drugs has improved
                            in recent years, largely because the Prescription Drug User Fee Act of 1992
                            allowed FDA to collect fees from the sponsors of new drug and biologic
                            applications for the purpose of hiring more medical officers and other
                            scientists to review the applications. Further, FDA has increased the rigor
                            of its biologics industry inspections. However, FDA faces several
                            challenges in its effort to monitor the availability, safety, and efficacy of
                            marketed products. These include ensuring that the supply of childhood
                            vaccines is adequate, that new drugs are adequately tested on the
                            individuals who will use them, and that the drug approval process works
                            efficiently without jeopardizing safety.



FDA Faces Difficulties in   Immunizations are widely considered one of the leading public health
Regulating Production of    achievements of the 20th century. Mandatory immunization programs have
                            eradicated polio and smallpox in the United States and have reduced the
Childhood Vaccines
                            number of deaths from several childhood diseases, such as measles, to near
                            zero. A consistent supply of many different vaccines is needed to support
                            this effort. However, recent childhood vaccine shortages have prompted



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federal authorities to recommend deferring some immunizations and have
caused states to reduce immunization requirements.

FDA’s role in licensing and regulating the manufacture of all vaccines sold
in the United States involves monitoring the clinical trials conducted to
demonstrate that a vaccine is safe and effective and conducting periodic
inspections of vaccine production facilities. FDA recently announced that
it is examining its regulatory standards governing the manufacturing
process to determine if reform is needed. In considering such reforms, the
agency seeks to balance the need for requirements that will ensure product
safety against the need to prevent unnecessary disruptions of vaccine
supply.

Part of the problem is that relatively few vaccine manufacturers produce
routine childhood vaccines.36 Five of the eight recommended childhood
vaccines have only one manufacturer each. Because long lead times are
needed to produce vaccines and alter production volumes, even short-term
disruptions in manufacturers’ production have created significant
shortages of several childhood vaccines during the last 2 years. In our
recent report on vaccine shortages, we recommended that FDA take the
following measures to help mitigate the effects of future disruptions on
vaccine supply:

• Provide guidance on compliance with good manufacturing practices.
  In 1997, FDA began tightening its biologics industry inspections,
  including those of vaccine manufacturers. In a phased approach, FDA
  grew more rigorous in assessing manufacturers’ compliance with
  requirements, which included, among other things, quality assurance,
  recordkeeping, personnel qualifications, equipment cleaning, and
  laboratory controls. At the same time, manufacturers reported
  problems with how well FDA communicated the changes in approach
  and expectations for compliance. In October 1999, FDA issued a
  compliance program guidance manual for its own staff, which could
  have provided manufacturers a better understanding of the scope of the
  inspections. However, the manual was available only on request; 3 years
  after its issuance, it is still not available on line, nor is it included in
  FDA’s annual comprehensive list of guidance documents published in
  the Federal Register.


36
 U.S. General Accounting Office, Childhood Vaccines: Ensuring an Adequate Supply
Poses Continuing Challenges, GAO-02-987 (Washington, D.C.: Sept. 13, 2002).




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                              • Reconsider including certain vaccines as eligible for expedited review.
                                A substantial number of vaccines are in the development pipeline, but
                                the clinical trials that need to be conducted prior to obtaining a license
                                to sell vaccine products in the United States can take years, even when
                                the products are licensed for use in other countries. FDA’s expedited
                                review process cannot be used for most vaccines under development
                                because the agency’s policy to use this process generally applies only to
                                the approval of new products that address an unmet medical need or
                                represent a significant improvement in the safety and efficacy of
                                treatment. Childhood vaccines under development usually involve an
                                existing vaccine or a combination of existing vaccines. In our view, the
                                recent shortages indicate a substantial unmet medical need.



FDA Could Strengthen Its      FDA approves drugs for sale in the United States based on its
Drug Oversight For Specific   determination that they are safe and their clinical benefits outweigh
                              potential health risks. To make this decision, FDA reviews supporting data
Populations                   collected from several thousand patients during a drug’s development.
                              Once a drug is approved for marketing and used by potentially hundreds of
                              thousands of patients, however, the type, rate, and severity of adverse
                              events caused by the drug can be much different from those detected
                              during the drug’s development. In some cases, FDA or drug manufacturers
                              have acted to remove drugs from the market that have been shown to have
                              unacceptable health risks once they were in widespread use. Because the
                              reaction of children and women to drugs can differ from the adult male
                              population, it is critical that children and women continue to be included in
                              clinical drug trials and that FDA monitor the trials for safety, efficacy, and
                              compliance with documentation requirements.

Labeling Drugs for Children   As directed by the Federal Food, Drug, and Cosmetic Act, FDA gives
                              considerable attention to manufacturers’ labeling of drugs, as label
                              approval is FDA’s chief means for ensuring that a drug’s risks and benefits
                              are adequately communicated to health care professionals and the public.
                              The role of labeling is particularly important in treating children with drugs
                              that have been approved for adults. Only about 25 percent of drugs in use
                              today have been studied and labeled for pediatric patients.




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                              The Congress recognized the importance of learning more about how drugs
                              work in children by including in the FDA Modernization Act of 1997 a
                              financial incentive for pharmaceutical manufacturers and drug sponsors to
                              conduct pediatric studies and submit the results to FDA. The so-called
                              “pediatric exclusivity provision” offered manufacturers an additional
                              6 months to be a drug’s exclusive marketer in exchange for having the drug
                              tested for use in children. In May 2001, we reported that pediatric drug
                              studies had increased substantially since the 1997 legislation’s enactment,
                              but many manufacturers had not made the labeling changes detailing the
                              appropriate dosages, risks, and benefits for children.37 Such label changes
                              provide more specific guidance regarding the effective dose for children,
                              additional warnings about adverse events in children, and information on
                              related medications. Of the 60 drugs that had been granted marketing
                              exclusivity extensions, as of August 2002, only 35 of these drugs had their
                              labels changed to incorporate findings from the research conducted to
                              obtain the extensions.

                              The Congress addressed this problem when it reauthorized the pediatric
                              exclusivity provision in the Best Pharmaceuticals for Children Act, which
                              was signed into law in January 2002. The act created a process whereby
                              FDA can determine that a drug is misbranded and essentially remove it
                              from the market, if the drug manufacturer fails to make the agency’s
                              requested labeling changes. Under the act, FDA has the authority to ensure
                              that drug manufacturers relabel the 25 remaining drugs that were granted
                              marketing extensions and any such drugs in the future. However, the
                              agency is still trying to reach agreement with drug manufacturers on label
                              changes for several of the drugs granted marketing extensions more than a
                              year ago.

Monitoring the Inclusion of   Potential sex differences in the safety and efficacy of new drugs
Women in Clinical Trials      underscore the importance of including women and men in all stages of
                              drug development and analyzing the data for these differences. For
                              example, in January 2001, we reported that 3 of the 10 prescription drugs
                              withdrawn from the U.S. market in recent years induced potentially fatal
                              cardiac arrhythmias in women more often than in men.38

                              37
                                U.S. General Accounting Office, Pediatric Drug Research: Substantial Increase in
                              Studies of Drugs for Children, But Some Challenges Remain, GAO-01-705T (Washington,
                              D.C.: May 8, 2001).
                              38
                               U.S. General Accounting Office, Drug Safety: Most Drugs Withdrawn in Recent Years
                              Had Greater Health Risks for Women, GAO-01-286R (Washington, D.C.: Jan. 19, 2001).




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In a July 2001 report, we found that FDA did not know how many women
were included in clinical trials for new drugs, despite regulations in 1998
and 2000 requiring that safety and efficacy data be separately presented for
men and women in applications for approving new drugs. In conducting
our own analysis, we found that women were sufficiently represented in
new drug testing, but the agency itself lacks a management system to
record and track such information or monitor compliance with regulations
for conducting clinical drug trials.39 Such monitoring is needed to ensure
that drug developers are in compliance with regulations for presenting
outcome data by sex and tabulating the number of women included in
clinical trials.

When clinical trials included women, neither drug developers nor FDA
took full advantage of the data available to learn more about the tested
drug’s effects on women and to explore potential sex differences in dosing.
FDA internal documents compiled on each new drug application are not
required to include analyses of sex differences. Our study noted that,
although about one-third of new drug applications specified that the
concentrations of the drug in the bloodstream were greater in people who
weighed less, such as women, FDA reviewers did not comment on the lack
of dose adjustments based on sex. The potential for higher drug
concentration or exposure can lead to an increased risk of adverse events
for women. While FDA has taken some promising initial steps to address
these deficiencies, it is important that the agency finalizes the pilot
programs it has under way and give sustained attention to these
management issues.




39
 U.S. General Accounting Office, Women’s Health: Women Sufficiently Represented in
New Drug Testing, but FDA Oversight Needs Improvement, GAO-01-754 (Washington, D.C.:
July 6, 2001).




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FDA Efforts to Reduce Drug   With added resources provided through the Prescription Drug User Fee Act
Approval Safety Risks and    of 1992 and its extensions, the speed of FDA’s review and approval of new
                             drugs and biologics has increased, but the rate at which drugs have been
Retain Expert Staff Pose     withdrawn from the market for safety-related issues has increased as well.
New Challenges               Our September 2002 study found that the share of drugs approved from
                             1997 to 2000 that have since been withdrawn has risen to 5.34 percent, up
                             from 1.56 percent of the drugs approved from 1993 to 1996.40 While
                             differences in time periods may account in part for this change, the rise in
                             the number of newly approved drugs entering the U.S. market increases the
                             probability of individuals experiencing adverse drug events and puts
                             additional pressure on FDA to ensure the safety of these products.

                             To address this issue, the agency plans to establish a more rigorous safety
                             monitoring system of newly approved drugs and increase the resources
                             devoted to tracking adverse effects from drugs already on the market. It
                             plans to use about $71 million over 5 years in funds permitted by the User
                             Fee Act reauthorization for this purpose. The success of FDA’s approach
                             will likely depend on the establishment of best practices or other guidance
                             for pharmaceutical and biotechnology industries to conduct risk
                             assessment, risk management, and surveillance activities and the agency’s
                             ability to react promptly to the information companies are providing on
                             risks and adverse effects.

                             FDA’s success will also depend on how well it faces the challenge of
                             recruiting and retaining its expert workforce, who are key to ensuring the
                             timely review of drugs and biologics. Our September 2002 study found
                             that, in recent years, with the exception of chemists, FDA’s attrition rates
                             for employees in its drug review process are higher than the comparable
                             attrition rates for the same disciplines at CDC, NIH, and similar disciplines
                             governmentwide. Specifically, FDA’s studies of staff turnover found that
                             toxicologists, pharmacologists, pharmacokinetists, and statisticians were
                             leaving FDA to work in private industry and academia for higher salaries.
                             The loss of staff is aggravated by the time the agency needs to hire and train
                             replacement reviewers. FDA maintains that hiring a replacement can take
                             up to 6 months and training a reviewer to be fully functional, from
                             12 to 24 months. The agency’s currently employed reviewers have been
                             forgoing training and professional development to meet statutory drug

                             40
                               U.S. General Accounting Office, Food and Drug Administration: Effect of User Fees on
                             Drug Approval Times, Withdrawals, and Other Agency Activities, GAO-02-958
                             (Washington, D.C.: Sept. 17, 2002).




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                         Challenges




                         review time frames. FDA has implemented a number of initiatives to
                         reduce reviewer attrition, including the payment of retention bonuses to
                         expert staff. Such initiatives are intended to help FDA maintain the science
                         base it needs to review increasingly complex applications for new drugs.



Enhance the Programs     The Personal Responsibility and Work Opportunity Reconciliation Act of
                         1996 significantly changed federal welfare policy by ending the federal
That Target the          entitlement to cash assistance and creating a new program, designed to
Economic                 serve as a transition to help welfare recipients enter and remain in the
                         workforce. Under the new federal welfare program, which provides states
Independence and         with a block grant called Temporary Assistance for Needy Families
Well-being of Children   (TANF), states were afforded wide flexibility to design programs to help
and Families             needy families find, obtain, and retain jobs. In the years following the
                         enactment of welfare reform, welfare caseloads declined dramatically and
                         the proportion of single mothers in the workforce greatly increased, helped
                         in part by a period of strong economic growth (see fig. 3).



                         Figure 3: Single Mothers’ Work and Welfare Status, 1987-2000
                         90 Percent

                         80

                         70

                         60

                         50

                         40

                         30

                         20

                         10

                          0
                              1987   1988    1989     1990    1991     1992     1993   1994   1995   1996    1997   1998   1999   2000

                                      Percent who worked at any time during the year
                                      Percent who received AFDC/TANF during the year

                          Source: U.S. Census Current Population Survey data.




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The transformation of the federal welfare program affected more than just
welfare caseloads; it fundamentally altered the social safety net by
refocusing federal social service programs on their role as work supports.
The 1996 welfare legislation ended automatic eligibility previously
available for cash assistance recipients for Medicaid, a jointly funded
federal and state program that provides health insurance for eligible low-
income individuals. Instead, the legislation created a separate Medicaid
eligibility category not tied to recipients’ eligibility for TANF. To ease their
entrance into the workforce, certain families losing Medicaid as a result of
employment or increased income may be eligible for up to 1 year of
transitional Medicaid assistance. In April 2002, we testified on the role this
benefit can play in supporting transitions from welfare to work.41 In 1997,
a new health insurance program—the State Children’s Health Insurance
Program (SCHIP)—was established to provide coverage to children living
in low-income families whose incomes exceed the eligibility requirements
for Medicaid.

Many other programs that HHS oversees have also undergone substantial
changes at the federal, state, and local levels in recent years to help them
better support working families. The 1996 law that created TANF also
provided authority and funding for the Child Care and Development Fund,
designed to promote maximum flexibility for states to subsidize low-
income working families. The law also mandated changes to child support
enforcement and child welfare. In addition to these programs administered
by HHS, other federal agencies oversee a variety of programs that
complement the new TANF focus on moving people into employment and
enhancing family independence and well-being, as shown in figure 4.




41
  See U.S. General Accounting Office, Medicaid: Transitional Coverage Can Help Families
Move from Welfare to Work, GAO-02-679T (Washington, D.C.: Apr. 23, 2002). The
transitional Medicaid provision, which was due to expire in September 2002, has been
temporarily extended to allow eligible individuals to receive this benefit through March 31,
2003.




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Figure 4: Many Programs in Separate Departments Can Enhance Family
Independence and Well-Being

                                Education                         Housing and
                                                               Urban Development
                        • Early childhood education
                        • Higher education aid               • Housing subsidies


            Agriculture                               HHS                              Labor
                                            CMS             ACF
 • Food Stamp program                                                        • Employment and
 • Other food assistance                 • Medicaid    • TANF                  training programs
                                         • SCHIP       • Child care
                                                         subsidies
                                                       • Head Start
                                                       • Child support
                                                         enforcement
                                                       • Child welfare



                                         State and local agencies


                                            Families with children
                                       • Employment
                                       • Economic independence and
                                         well-being

Source: GAO analysis.



Although caseloads were declining during the early years of welfare
reform, more recently, as the economy has weakened and recent federal
and state budget constraints have increased, caseload declines have
slowed. Some states have seen increased demand for a range of social
service programs. These changes have renewed management challenges
for HHS and its agencies—principally the Administration for Children and
Families (ACF) and CMS—to develop information and information systems
to help states administer these programs and ensure program
accountability and effectiveness. HHS’s role is complicated by the need to
balance accountability and effectiveness while allowing states the
flexibility to tailor these programs to their individual circumstances.




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Improvements in        The major changes in the social safety net since 1996 have led to demands
Information Systems    for different types of information from state and local agencies’
                       information systems. Agencies’ information systems are no longer used
Needed to Strengthen   simply to determine eligibility for aid, but are also needed to facilitate and
Programs               track aid recipients’ progress toward employment and to assess program
                       performance. To this end, information is needed on recipients’ use of a
                       wide array of safety net services, including TANF, childcare, and other
                       work supports.

                       Despite their importance, our work on states’ information systems shows
                       that state and local systems typically do not meet the changing needs of the
                       new welfare environment. In addition, opportunities for more effective use
                       of state information systems to identify erroneous payments to individuals
                       and reduce program costs are not being fully realized. HHS has a role to
                       play in the following areas:

                       • Facilitating states’ efforts to improve information systems. Because
                         of the importance of adequate automated systems to the success of
                         welfare reform and HHS’ role as the key federal agency overseeing
                         reform, we recommended in April 2000 that HHS establish an
                         interagency group with other federal agencies, including the
                         Department of Agriculture, which oversees food stamps, to facilitate
                         states’ efforts to improve their automated information systems.42
                         Officials from ACF, CMS, and the Department of Agriculture have since
                         met regularly to improve the burdensome approval process for federal
                         funding of systems’ development and operations, one area we identified
                         as hindering states’ efforts. However, the group’s progress over the last
                         2 years has been stymied by a lack of agreement among the agencies
                         about what changes should be made to the approval process.




                       42
                        U.S. General Accounting Office, Welfare Reform: Improving State Automated Systems
                       Requires Coordinated Federal Effort, GAO/HEHS-00-48 (Washington, D.C.: Apr. 27, 2000).




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                           • Sharing information to reduce program costs. In 1997, staff at ACF
                             initiated the Public Assistance Reporting Information System (PARIS),
                             an information-sharing project that can help states reduce program
                             costs by identifying individuals who may be erroneously receiving
                             benefits from more than one state simultaneously. However, only a
                             third of the states participate in the project, and efforts by federal
                             agencies to increase participation in PARIS have been minimal. ACF
                             devotes very few resources to PARIS; and CMS, the federal agency that
                             stands to reap the greatest savings from the project by identifying
                             duplicate Medicaid payments made by states, has made no effort to
                             encourage state Medicaid agencies to participate. In our 2001 report, we
                             recommended that the Secretary of HHS direct the Administrators of
                             ACF and CMS to formally support PARIS and provide guidance to
                             participating states.43 Although HHS agreed with the recommendation’s
                             intent, it has not taken any substantive action, arguing that the states
                             were better able to determine procedures for engaging this system.



Efforts Needed to Ensure   Many of HHS’ programs for low-income families and children are funded
State Accountability       through grants and administered by states, localities, and other entities.
                           This allows administrators the flexibility to tailor their programs to meet
                           state and local needs, but poses challenges to federal efforts to maintain
                           fiscal accountability and appropriate programmatic performance.




                           43
                            See U.S. General Accounting Office, Public Assistance: PARIS Project Can Help States
                           Reduce Improper Benefit Payments, GAO-01-935 (Washington, D.C.: Sept. 6, 2001).




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HHS could do more to ensure fiscal accountability among the many players
involved in the new welfare environment. For example, while a system to
develop annual state audit reports—designed to meet federal audit needs
while minimizing the burden on states--is in place, we found that HHS does
not use the reports systematically to assess accountability among the
nongovernmental contractors that state and local TANF offices use to
provide TANF services. In our June 2002 report, we recommended that
HHS make better use of these audit reports to determine contractor
problems and take actions that could help prevent and correct such
problems.44 Fiscal accountability for states’ TANF programs would also be
increased if HHS worked with the states to develop more informative and
transparent reporting on unspent TANF balances. Improved reporting on
these balances could enhance congressional oversight of how federal funds
are being used to meet the goals of the program. We also recommended in
an earlier report that HHS take steps to gather data that would allow it to
monitor changes in the federal-state fiscal balance, given the dramatic
changes from the welfare entitlement program to the TANF block grant and
states’ increased flexibility in spending decisions.45 HHS agreed that such
data would be essential during TANF reauthorization but expressed
reservations about its ability to collect this information and has not acted
to implement this recommendation.




44
 U.S. General Accounting Office, Welfare Reform: Federal Oversight of State and Local
Contracting Can Be Strengthened, GAO-02-661 (Washington, D.C.: June 11, 2002).
45
  U.S. General Accounting Office, Welfare Reform: Challenges Maintaining a Federal-State
Fiscal Partnership, GAO-01-828 (Washington, D.C.: Aug. 10, 2001).




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HHS could also improve accountability by having performance measures
and data in place to adequately assess its progress in meeting program
goals. For example, in our March 2002 review of Head Start and Even Start
programs, we found that one of these programs’ goals is to increase literacy
in families of children enrolled, but the programs did not measure their
progress in this area. We recommended that HHS coordinate with the
Department of Education to develop performance outcome measures for
adult education and literacy programs similar to those developed for
children’s programs.46 To date, no action has been taken to coordinate the
agencies’ efforts. In other work, we found that data integral to efforts to
improve federal programs are not always collected. Our June 2002 review
of the Adoption and Safe Families Act showed that important information
to assess the actís impact on children in foster care is still unavailable,
despite federal and state efforts to improve it47 As a result, we
recommended that HHS review the feasibility of collecting data on statesí
use of provisions that aim to place children in permanent situations as
quickly as possible. We noted that more information could help HHS better
target its limited resources to key areas where the states may need
assistance in achieving the act’s goals. ACF concurred and reported
establishing a team to review data issues.

In some instances, HHS has used performance data to better inform
resource allocation decisions. In our 2002 review of how ACF used
performance information to guide resource allocation decisions, we found
several examples of ways in which the agency strengthened the link
between program performance and budgeting.48 For example, regional
staffs were able to allocate training and technical assistance funds and
organize staff resources based on program performance and needs. To
improve the link between performance and budgeting, ACF told us that it
collaborated with grantees to focus its resources on areas where grantee
and federal performance goals coincided.



46
 U.S. General Accounting Office, Head Start and Even Start: Greater Collaboration
Needed on Measures of Adult Education and Literacy, GAO-02-348, (Washington, D.C.:
Mar. 29, 2002).
47
  U.S. General Accounting Office, Foster Care: Recent Legislation Helps States Focus on
Finding Permanent Homes for Children, but Long-Standing Barriers Remain, GAO-02-
585 (Washington, D.C.: June 28, 2002).
48
  U.S. General Accounting Office, Managing for Results: ACF’s Effort to Strengthen the
Link Between Resources and Results, GAO-03-09 (Washington, D.C.: December 2002).




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Efforts Needed to Ensure   HHS faces considerable challenges ensuring that its programs reach
Program Effectiveness      eligible children with services that improve their well being, in part
                           because responsibility for enrollment and service delivery policies and
                           practices largely reside at the state level. HHS must rely on states and
                           localities to develop effective outreach and enrollment methods, as well as
                           ensure that services are available for program participants. However, HHS
                           can work with states to better identify program shortcomings and correct
                           them.

                           One shortcoming of HHS’s health insurance programs is that they do not
                           always reach individuals who may need them. Although Medicaid and
                           SCHIP provide insurance coverage to millions of low-income individuals,
                           many eligible children are not enrolled and remain uninsured. Our
                           September 2001 review of state Medicaid and SCHIP enrollment policies
                           showed that differences in enrollment practices within states affect the
                           ability of children to obtain and keep health insurance coverage.49
                           Differing application requirements and processing times can lead to
                           delayed coverage—and in some cases, to no coverage—if families do not
                           return to complete additional application requirements. Well-coordinated
                           programs, however, can minimize the effect of such differences and
                           facilitate enrollment and continuity of care for children.




                           49
                             U.S. General Accounting Office, Medicaid and SCHIP: States’ Enrollment and Payment
                           Policies Can Affect Children’s Access to Care, GAO-01-883 (Washington, D.C.: Sept. 10,
                           2001).




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Once enrolled, beneficiaries in some states may face difficulty getting
health care because service availability is largely dependent on providers’
willingness to participate in the programs. Since physicians decide
whether to participate in Medicaid and SCHIP partly on the basis of the
payment rates, lower Medicaid payments relative to other payers continue
to be a source of concern. Additionally, the extent to which states set
specific requirements for—and routinely monitor—access to care for
Medicaid and SCHIP beneficiaries often differs according to their service
delivery approach, such as managed care or fee-for-service.50 Moreover,
federal and state governments often have limited knowledge about the
extent to which enrolled individuals are getting care from Medicaid or
SCHIP. For example, under Medicaid, states must provide children and
adolescents under age 21 with comprehensive, periodic assessments of
health, developmental and nutritional status, as well as treatment for
conditions identified—called Early and Periodic Screening, Diagnostic, and
Treatment (EPSDT) services. Despite their importance, our July 2001
review of EPSDT found that states had unreliable and incomplete data on
the extent to which children in Medicaid are receiving these services,
particularly for children enrolled in managed care.51

Federal efforts to ensure that children are receiving EPSDT services have
focused largely on changing the format and specificity of state reports so
that states can collect more reliable data on the extent to which children
are screened. While a positive step, this did not adequately address the
difficulty states face in obtaining service information. Therefore, we
recommended that CMS work with states to develop criteria and a
timetable for assessing and improving the reporting and provision of
EPSDT services. Further, although some states may have taken effective
actions to improve the delivery of EPSDT services, CMS has not taken
steps to identify them. Therefore, we also recommended that CMS develop
mechanisms for identifying and highlighting state EPSDT service delivery
practices that could be used as models for other states.




50
 See U.S. General Accounting Office, Medicaid and SCHIP: States Use Varying
Approaches to Monitor Children’s Access to Care, GAO-03-222 (Washington, D.C.:
Jan. 14, 2003), available February 2003.
51
 U.S. General Accounting Office, Medicaid: Stronger Efforts Needed to Ensure Children’s
Access to Health Screening Services, GAO-01-749 (Washington, D.C.: July 13, 2001).




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In addition to improving its health insurance programs, HHS could also
take steps to improve the effectiveness of the child support program, which
provides income for many children who do not live with both parents.
Although total collections from parents who owe support money have
increased in recent years, collections remain low relative to the amount
owed, as shown in figure 5. Our work shows that collecting social security
numbers from all drivers’ license applicants, as required under federal law,
and providing the information to the responsible child support agencies
can result in increased collection from parents who owe child support.
This is especially true for some particularly difficult-to-collect payments—
those that are overdue and that are from noncustodial parents who are self-
employed or who work informally for cash. Yet, at the time of our February
2002 review, six states did not enforce this requirement.52 We
recommended that the Office of Child Support Enforcement in ACF more
effectively track, and take formal steps to bring about, compliance with this
requirement. In response, HHS has since begun a review of its processes to
track agency compliance and guidance on this issue. We also found that,
despite the demonstrated effectiveness of wage withholding as an
enforcement tool, the withholding form and related guidance developed by
the Office of Child Support Enforcement make it difficult for employers to
determine whether it is proper to begin withholding wages. This can result
in instances in which employees’ wages are inappropriately withheld. We
recommended that the form and related guidance be improved;53 since
then, the office has begun drafting revisions to the form and agency
guidance.




52
  U.S. General Accounting Office, Child Support Enforcement: Most States Collect Drivers’
SSNs and Use Them to Enforce Child Support, GAO-02-239 (Washington, D.C.: Feb. 15,
2002).
53
 U.S. General Accounting Office, Child Support Enforcement: Clear Guidance Would Help
Ensure Proper Access to Information and Use of Wage Withholding by Private Firms,
GAO-02-349 (Washington, D.C.: Mar. 26, 2002).




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Figure 5: Child Support Owed and Collected in Fiscal Years 1996 and 2000
120 Dollars in billions

                                107

100



 80



 60      57



 40



 20                                       18
                  12


     0
          FY 1996                 FY 2000

                Child support owed

                Child support collected

Source: HHS Office of Child Support Enforcement.



In addition to other steps to improve effectiveness of programs, HHS could
also better identify where research on its programs’ effects is lacking,
conduct or support the needed research, and coordinate and disseminate
its research findings. In some of our recent work we have identified
specific information gaps and recommended that HHS devote resources to
increasing the information available on the effects of the following.

• State child care quality improvement initiatives on children’s
  development. Although little evidence exists on the effectiveness of
  states’ child care quality improvement initiatives, some literature
  suggests that there is a link between child care quality attributes and
  children’s developmental progress. We recommended that HHS include
  this analysis in its planned multiyear evaluation of the net impact and
  benefits of state child care policies.54 In response, HHS expressed



54
  U.S. General Accounting Office, Child Care: States Have Undertaken a Variety of Quality
Improvement Initiatives, but More Evaluations of Effectiveness Are Needed, GAO-02-897
(Washington, D.C.: Sept. 6, 2002).




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                           optimism that this type of analysis would be included in the multistate
                           evaluation.

                      • Coordinated service delivery on outcomes of TANF clients. In looking
                        at coordination between Workforce Investment Act and TANF services,
                        we found that little is known about the effect of such coordination
                        efforts on recipient outcomes. We recommended that HHS, either alone
                        or jointly with the Department of Labor, promote research in this area,
                        while HHS contended that designing such research may not be
                        feasible.55

                      • Federal programs that provide counseling and mental health services
                        for children who have experienced traumatic events. The effectiveness
                        of federal programs that could help children who have experienced
                        trauma remains largely unknown. For example, in examining the long-
                        standing federal Crisis Counseling Assistance and Training Program
                        administered by the Federal Emergency Management Agency (FEMA)
                        in collaboration with HHS’s Substance Abuse and Mental Health
                        Services Administration (SAMHSA), we found that the agencies had not
                        conducted an evaluation of the program’s effectiveness. Therefore, we
                        recommended that the Director of FEMA work with the Administrator
                        of SAMHSA to evaluate the effectiveness of the program, including its
                        assistance to children who need mental health services as the result of a
                        disaster. While both agencies agreed that program evaluation is
                        important, FEMA did not indicate whether it intends to coordinate with
                        SAMHSA to conduct such an evaluation.



Improve Financial     HHS sustained the important achievement of an unqualified, or “clean,”
                      opinion on its fiscal year 2001 financial statements, making this the third
Systems, Processes,   consecutive year it received such an opinion. An unqualified, or “clean,”
and Controls          opinion indicates to financial statement users that the information included
                      in the statements is fairly presented as of the date of the financial
                      statements—the last day of the fiscal year. While this is an important
                      milestone, a clean audit opinion does not provide assurances about the
                      effectiveness and efficiency of financial systems used to prepare the
                      statements or the quality of internal control. The ultimate goal for effective


                      55
                        U.S. General Accounting Office, Workforce Investment Act: States and Localities
                      Increasingly Coordinate Services for TANF Clients, but Better Information Needed on
                      Effective Approaches , GAO-02-696 (Washington, D.C.: July 3, 2002).




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agency financial management is achieving accountability, which is having
major systems and controls in place to provide accurate, timely, and useful
financial information to manage the department and its component
agencies on a day-to-day basis.

HHS continues to have two weaknesses in its control over financial
management that auditors have identified as significant—deemed material
weaknesses—and that impair its ability to establish sound financial
accountability. 56 First, the department and its component agencies have
ineffective financial systems and processes that hamper preparation of
timely and reliable financial statements. Because HHS and its agencies
lack integrated financial systems capable of automating all internal and
external financial reporting needs, their current systems are not in
compliance with requirements in the Federal Financial Management
Improvement Act of 1996 (FFMIA).57 In addition to these system issues,
HHS and its agencies have weaknesses in oversight and the conduct of key
financial processes. Auditors have identified problems with analysis and
reporting of Medicare financial data by HHS’s contractors and of NIH’s and
ACF’s grant accounting.

HHS’s second material weakness is having ineffective controls over
Medicare information systems, particularly relating to system security.
CMS relies on information systems operations at both its central office and
Medicare contractors to administer the Medicare program. Weaknesses in
security controls for these systems increase the risk that sensitive program
and financial data processed is not being adequately protected from
unauthorized access or service disruption. Controls over these operations
are essential to ensure the integrity, confidentiality, and reliability of
critical data while reducing the risk of errors, fraud, or other illegal acts.



56
  A material weakness is a condition in which the design or operation of one or more of the
internal control components does not reduce, to a relatively low level, the risk that errors or
irregularities in amounts that would be material to the financial statements may occur and
not be detected promptly by employees in the normal course of performing their duties.
57
  FFMIA of 1996, Public Law 104-208, requires that the 24 major departments and agencies
named in the Chief Financial Officers Act implement and maintain financial management
systems that substantially comply with (1) federal financial management systems
requirements, (2) applicable federal accounting standards, and (3) the United States
Government Standard General Ledger at the transaction level. Except for the federal
financial management systems requirements, HHS is in compliance with the act’s
provisions.




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                            For more information on financial management in relation to Medicare, see
                            the section entitled “ Safeguard the Integrity of the Medicare Program.”



Improvements in Financial   Preparing financial statements that provide accurate and timely
Systems And Processes Are   information is a key aspect of accountability. In preparing its financial
                            statements for fiscal year 2001, the lack of integrated financial systems
Needed to Help Ensure       made it difficult for HHS and its agencies to prepare reliable, timely
Financial Accountability    financial statements. HHS had to rely on extensive, time-consuming
                            manual spreadsheets and adjustments at year-end in order to report
                            accurate financial information. These year-end efforts helped HHS prepare
                            statements that were materially and fairly presented. Nevertheless, such
                            efforts are expensive; prone to errors, mistakes, and inaccuracies; and
                            cannot be sustained.

                            Auditors reported problems in financial systems at some of the HHS
                            agencies that are responsible for their own financial management systems
                            and accounting functions—CMS, NIH, CDC, and FDA—as well as some
                            that are not, such as ACF. Agencies that are not responsible for their own
                            financial management systems rely on the Program Support Center’s
                            Division of Financial Operations (DFO) for financial systems and
                            accounting.58

                            Examples of systems weaknesses reported by auditors follow:

                            • CMS did not have an integrated accounting system to capture
                              expenditures at the Medicare contractor level and thus was not in
                              compliance with federal system requirements under FFMIA. CMS’s
                              systems did not have capabilities necessary to properly process and
                              record data on accounts receivable activity. As a result, CMS paid for
                              extensive consultant time to establish reliable balances for its financial
                              statement.

                            • System inadequacies at NIH resulted in the agency developing financial
                              data necessary for the financial statements through a substantial year-
                              end process. This included creating and posting new balances to the
                              correct standard general ledger accounts. Through this process, NIH
                              generated about 19,000 nonstandard accounting entries with an absolute

                            58
                              DFO provides financial management services for ACF, HRSA, SAMSHA, the Indian Health
                            Service and the Administration on Aging.




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   value of about $348 billion. Posting nonstandard entries of this size and
   magnitude is a concern because of the increased risk that they could
   bypass normal accounting controls.

• ACF and CDC both used manually intensive processes and numerous
  adjusted journal entries to prepare accurate financial statements. The
  process used by these agencies often resulted in the untimely reporting
  of financial information supporting management decision-making.

Auditors also reported that HHS’s ability to ensure financial accountability
was hampered by weaknesses in key financial processes, including
financial analysis and reporting and grant accounting. At present, HHS and
some of its agencies do not routinely perform analysis and reconciliation of
financial data to ensure that program dollars are properly accounted for.
Financial analysis and reconciliation is key to ensuring accurate, timely
financial information because it helps to detect unusual variances and
fluctuations in data and pinpoint problems and inconsistencies in
reporting. Auditors reported the following problems in financial analysis
and reporting at HHS:

• CMS did not use adequate analysis procedures in overseeing Medicare
  contractors and the financial data that they manage. Specifically, CMS
  analysis did not detect errors in the amount of debt owed to the
  Medicare program as reported by contractors. Also, while some
  analysis procedures were implemented by CMS to help detect unusual
  variances and fluctuations, the benefit of this analysis was lost because
  CMS did not consistently follow up to determine the cause of
  inconsistencies in financial data.

• At NIH and ACF, insufficient analysis was done to determine if
  transactions were processed and recorded properly. Both agencies had
  to make significant adjustments to accounts several months after their
  financial statements were provided to auditors because they had not
  analyzed account balances in time, including those for program
  expenditures and accounts payable. NIH and ACF also failed to conduct
  timely periodic reconciliations that would have detected errors in
  amounts reported for accurate grant accounting. For example, auditors
  reported that NIH’s reconciliation process failed to detect and resolve a
  $193 million difference between the amounts recorded in its supporting
  accounting ledger and main accounting ledger for a liability account.




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                            • Auditors reported many differences between the grant data that NIH
                              and ACF records showed as reported to the HHS component
                              responsible for centralized grant accounting services—the Program
                              Support Center (PSC)—and the data in PSC’s Payment Management
                              System. In one case, ACF failed to properly review expenditures
                              reported in the Payment Management System before they were released
                              for other use. Once reviewed, the agency decreased the amount that the
                              grantee was authorized to receive by $58 million, and as a result, by the
                              time the mistake had been rectified, the grantee exceeded its authorized
                              expenditures by $29 million.

                            It is especially important for HHS and its agencies to replace existing
                            financial systems and eliminate their manual efforts, given OMB’s new
                            financial reporting requirements. OMB now requires agencies to prepare
                            interim financial statements and has accelerated their year-end financial
                            statement deadlines. For fiscal year 2002, the deadlines have been
                            accelerated by about 1 month—to February 1—and OMB plans to
                            significantly accelerate the deadlines for fiscal year 2004 when financial
                            statements will have to be submitted by November 15, 2004. Failure to
                            meet these deadlines could undermine HHS’s financial management
                            achievements, including the clean audit opinion on its financial statements.
                            HHS will need to provide continued management attention and funding to
                            maintain current financial systems and processes while working to develop
                            major systems and controls that provide accurate, timely, and useful
                            information to manage the department and its agencies on a day-to-day
                            basis.



Improved Controls over      Controls over the information systems that process Medicare program and
Medicare Information        financial data are essential to ensure data integrity and reduce the risks of
                            illegal access. Auditors noted weaknesses in almost every aspect of the
Systems Needed To Protect
                            controls established for Medicare information systems. Most of the
Data Security Integrity     problems cited related to controls that could allow unauthorized system
                            access, including the ability to make software changes, but others could
                            also prevent service continuity in case of disaster. Poor control over
                            system access compromises CMS’s ability to ensure security over sensitive
                            programmatic and financial data. Although most of the problems cited by
                            auditors were at Medicare contractors, some were also identified in the
                            systems maintained by CMS’s central office, as the following examples
                            illustrate.




                            Page 67                                              GAO-03-101 HHS Challenges
                           Major Performance and Accountability
                           Challenges




                           • Access to sensitive data. Medicare contractors’ staff had access to
                             sensitive data, including patient information, although it was not
                             required for their job duties. Their access could result in unauthorized
                             changes to Medicare information.

                           • Access to Medicare facilities. At several Medicare contractors and
                             CMS’s central office, auditors noted that data centers did not have
                             sufficient procedures for continuously monitoring staff activities within
                             the centers. The data centers also lacked procedures to prevent access
                             to sensitive areas by staff whose job duties did not require such access.

                           Auditors found no evidence of an actual compromise of security as a result
                           of the lax controls. Nevertheless, the integrity of Medicare program and
                           financial data remains at risk until CMS corrects these control weaknesses.



HHS Efforts Under Way to   HHS and its agencies have started to implement corrective actions to
Correct Weaknesses in      address weaknesses in financial systems, processes, and controls. For
                           example, the department implemented an internet-based Automated
Financial Systems,
                           Financial System (AFS) to reduce the manually intensive spreadsheets that
Processes, and Controls    had been used in the past to consolidate component financial statements.
                           Recognizing that AFS does not fully address the financial system
                           weaknesses that affect its ability to quickly generate accurate and timely
                           financial information, HHS has developed plans to replace various existing
                           and antiquated financial systems with a Unified Financial Management
                           System (UFMS). This unified system will consist of two major
                           subcomponents. One subcomponent—the Healthcare Integrated General
                           Ledger System (HIGLAS)—will be for CMS and the Medicare contractors
                           that CMS has begun developing and anticipates implementing by 2007. The
                           other subcomponent will be for all other HHS component agencies.

                           HHS and its agencies are implementing other corrective actions to address
                           weaknesses in financial processes and Medicare information systems
                           controls, as the following examples illustrate.




                           Page 68                                             GAO-03-101 HHS Challenges
Major Performance and Accountability
Challenges




• Financial processes. NIH developed plans to implement numerous
  additional analyses and reconciliations to ensure that financial
  statement balances are accurate. CMS made significant improvements
  in its financial processes including (1) updating policies for contractors
  on financial matters such as debt collection and cost reporting and
  (2) publishing an accounting procedures manual to help ensure that its
  staff process financial transactions properly.59

• Medicare information systems controls. CMS has undertaken several
  actions to improve security controls. CMS revised the information
  security requirements for contractors based on a synthesis of
  requirements as promulgated by several federal agencies including OMB
  and GAO.60 CMS began requiring contractors to document their
  compliance with the new security requirements and has also committed
  to providing funding to establish controls where gaps are identified in
  contractors’ compliance with security requirements—to the extent that
  funds are available.

These and other actions that HHS and its agencies have taken to improve
financial management are positive steps towards resolving their major
management challenges in this area. Sustaining financial management
achievements while implementing the major system enhancements needed
to improve financial accountability will require long-term management
commitment and follow-through.




59
  U.S. General Accounting Office, Medicare Financial Management: Significant Progress
Made to Enhance Financial Accountability, GAO-03-151R (Washington, D.C.: Oct. 31,
2002).
60
  The core requirements are based on a syntheses of controls as included in OMB Circular
A-130, PDD 63, General Accounting Office Federal Information System Controls Audit
Manual, Internal Revenue Service Publication 1075, the Health Insurance Portability and
Accountability Act of 1996, and new CMS requirements for systems architecture and
security handbook.




Page 69                                                      GAO-03-101 HHS Challenges
GAO Contacts




               Subject(s) covered in this report         Contact Person
               Medicare Program Design and               Laura A. Dummit, Director
               Administration                            Health Care—Medicare Payment Issues
                                                         (202) 512-7119
                                                         dummitl@gao.gov
               Medicare Program Integrity Safeguards     Leslie G. Aronovitz, Director
                                                         Health Care—Program Administration and
                                                         Integrity Issues
                                                         (312) 220-7600
                                                         aronovitzl@gao.gov
               Medicaid Fiscal and Management            Kathryn G. Allen, Director
               Oversight/Medicare and Medicaid Care      Health Care—Medicaid and Private Health
               Oversight                                 Insurance Issues
                                                         (202) 512-7118
                                                         allenk@gao.gov
               Public Health Emergency                   Janet Heinrich, Director
               Preparedness/Medical Product Safety and   Health Care—Public Health Issues
               Efficacy                                  (202) 512-7119
                                                         heinrichj@gao.gov
               Economic Independence and Well-Being of Cynthia M. Fagnoni, Managing Director
               Children and Families                   Education, Workforce, and Income Security
                                                       Issues
                                                       (202) 512-7215
                                                       fagnonic@gao.gov
               Financial Management Systems,             Linda M. Calbom, Director
               Processes, and Controls                   Financial Management and Assurance
                                                         (202) 512-9508
                                                         calboml@gao.gov




               Page 70                                                    GAO-03-101 HHS Challenges
Related GAO Products



Medicare Program Design      Skilled Nursing Facilities: Providers Have Responded to Medicare
and Administration           Payment System by Changing Practices. GAO-02-841. Washington, D.C.:
                             August 23, 2002.

                             Medicare: Challenges Remain in Setting Payments for Medical
                             Equipment and Supplies and Covered Drugs. GAO-02-833T. Washington,
                             D.C.: June 12, 2002.

                             Medicare Physician Payments: Spending Targets Encourage Fiscal
                             Discipline, Modifications Could Stabilize Fees. GAO-02-441T.
                             Washington, D.C.: February 14, 2002.

                             Medicare: Payments for Covered Outpatient Drugs Exceed Providers’
                             Cost. GAO-01-1118. Washington, D.C.: September 21, 2001.

                             Medicare: Higher Expected Spending and Call for New Benefit
                             Underscore Need for Meaningful Reform. GAO-01-539T. Washington, D.C.:
                             March 22, 2001.

                             Nursing Homes: Aggregate Medicare Payments Are Adequate Despite
                             Bankruptcies. GAO/T-HEHS-00-192. Washington, D.C.: September 5, 2000.



Medicare Program Integrity   Medicare Financial Management: Significant Progress Made to Enhance
Safeguards                   Financial Accountability. GAO-03-151R. Washington, D.C.: October 31,
                             2002.

                             Medicare+Choice: Selected Program Requirements and Other Entities’
                             Standards for HMOs. GAO-03-180. Washington, D.C.: October 31, 2002.

                             Medicare: Recent CMS Reforms Address Carrier Scrutiny of Physicians’
                             Claims for Payment. GAO-02-693. Washington, D.C.: May 28, 2002.

                             Medicare: Using Education and Claims Scrutiny to Minimize Physician
                             Billing Errors. GAO-02-778T. Washington, D.C.: May 28, 2002.

                             Medicare: Communications With Physicians Can Be Improved.
                             GAO-02-249. Washington, D.C.: February 27, 2002.




                             Page 71                                         GAO-03-101 HHS Challenges
Related GAO Products




Debt Collection Improvement Act of 1996: HHS’s Centers for Medicare &
Medicaid Services Faces Challenges to Fully Implement Certain Key
Provisions. GAO-02-307. Washington, D.C.: February 22, 2002.

Medicare+Choice Audits: Lack of Audit Follow-up Limits Usefulness.
GAO-02-33. Washington, D.C.: October 9, 2001.

Medicare: Information Systems Modernization Needs Stronger
Management and Support. GAO-01-824. Washington, D.C.: September 20,
2001.

Medicare: Comments on HHS’ Claims Administration Contracting
Reform Proposal. GAO-01-1046R. Washington, D.C.: August 17, 2001.

Medicare Management: CMS Faces Challenges to Sustain Progress and
Address Weaknesses. GAO-01-817. Washington, D.C.: July 31, 2001.

Medicare: Successful Reform Requires Meeting Key Management
Challenges. GAO-01-1006T. Washington, D.C.: July 25, 2001.

Medicare Contracting Reform: Opportunities and Challenges in
Contracting for Claims Administration Services. GAO-01-918T.
Washington, D.C.: June 28, 2001.

Medicare Management: Current and Future Challenges. GAO-01-878T.
Washington, D.C.: June 19, 2001.

Medicare Reform: Modernization Requires Comprehensive Program
View. GAO-01-862T. Washington, D.C.: June 14, 2001.

Regulatory Issues for Medicare Providers. GAO-01-802R. Washington,
D.C.: June 11, 2001.

Medicare: Opportunities and Challenges in Contracting for Program
Safeguards. GAO-01-616. Washington, D.C.: May 18, 2001.

Medicare Fraud and Abuse: DOJ Has Improved Oversight of False
Claims Act Guidance. GAO-01-506. Washington, D.C.: March 30, 2001.

Major Management Challenges and Program Risks: Department of Health
and Human Services. GAO-01-247. Washington, D.C.: January 2001.




Page 72                                          GAO-03-101 HHS Challenges
                             Related GAO Products




                             High-Risk Series: An Update. GAO-01-263. Washington, D.C.: January
                             2001.

                             Medicare: HCFA Could Do More to Identify and Collect Overpayments.
                             HEHS/AIMD-00-304. Washington, D.C.: September 7, 2000.



Medicaid Fiscal and          Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver
Management Oversight         Projects Raise Concerns. GAO-02-817. Washington, D.C.: July 12, 2002.

                             Medicaid: HCFA Reversed Its Position and Approved Additional State
                             Financing Schemes. GAO-02-147. Washington, D.C.: October 30, 2001.

                             Medicaid: State Financing Schemes Again Drive Up Federal Payments.
                             GAO/T-HEHS-00-193. Washington, D.C.: September 6, 2000.

                             Medicare and Medicaid: Implementing State Demonstrations for Dual
                             Eligibles Has Proven Challenging. GAO/HEHS-00-94. Washington, D.C.:
                             August 18, 2000.

                             Medicaid in Schools: Poor Oversight and Improper Payments
                             Compromise Potential Benefit. GAO/T-HEHS/OSI-00-87. Washington, D.C.:
                             April 5, 2000.

                             Medicaid in Schools: Improper Payments Demand Improvements in
                             HCFA Oversight. GAO/HEHS/OSI-00-69. Washington, D.C.: April 5, 2000.



Medicare and Medicaid Care   Skilled Nursing Facilities: Providers Have Responded to Medicare
Oversight                    Payment System by Changing Practices. GAO-02-841. Washington, D.C.:
                             August 23, 2002.

                             Medicare Home Health Agencies: Weaknesses in Federal and State
                             Oversight Mask Potential Quality Issues. GAO-02-382. Washington, D.C.:
                             July 19, 2002.

                             Nursing Homes: Quality of Care More Related to Staffing than Spending.
                             GAO-02-431R. Washington, D.C.: June 13, 2002.

                             Nursing Homes: More Can Be Done to Protect Residents from Abuse.
                             GAO-02-312. Washington, D.C.: March 1, 2002.




                             Page 73                                          GAO-03-101 HHS Challenges
                          Related GAO Products




                          Nursing Homes: Federal Efforts to Monitor Resident Assessment Data
                          Should Complement State Activities. GAO-02-279. Washington, D.C.:
                          February 15, 2002.

                          Nursing Homes: Sustained Efforts Are Essential to Realize Potential of
                          the Quality Initiatives. GAO-HEHS-00-197. Washington, D.C.: September
                          28, 2000.

                          Medicare Quality of Care: Oversight of Kidney Dialysis Facilities Needs
                          Improvement. GAO-HEHS-00-114. Washington, D.C.: June 23, 2000.



Public Health Emergency   Homeland Security: CDC’s Oversight of the Select Agent Program. GAO-
Preparedness              03-315R. Washington, D.C.: November 22, 2002.

                          Public Health: Maintaining an Adequate Blood Supply Is Key to
                          Emergency Preparedness. GAO-02-1095T. Washington, D.C.: September 10,
                          2002.

                          Public Health: Blood Supply Generally Adequate Despite New Donor
                          Restrictions. GAO-02-754. Washington, D.C.: July 22, 2002.

                          Homeland Security: New Department Could Improve Coordination but
                          Transferring Control of Certain Public Health Programs Raises
                          Concerns. GAO-02-954T. Washington, D.C.: July 16, 2002.

                          Homeland Security: New Department Could Improve Biomedical R&D
                          Coordination but May Disrupt Dual-Purpose Efforts. GAO-02-924T.
                          Washington, D.C.: July 9, 2002.

                          Homeland Security: New Department Could Improve Coordination but
                          May Complicate Priority Setting. GAO-02-893T. Washington, D.C.: June 28,
                          2002.

                          Homeland Security: New Department Could Improve Coordination but
                          May Complicate Public Health Priority Setting. GAO-02-883T.
                          Washington, D.C.: June 25, 2002.

                          Bioterrorism: The Centers for Disease Control and Prevention’s Role in
                          Public Health Protection. GAO-02-235T. Washington, D.C.: November 15,
                          2001.




                          Page 74                                           GAO-03-101 HHS Challenges
                             Related GAO Products




                             Bioterrorism: Review of Public Health Preparedness Programs.
                             GAO-02-149T. Washington, D.C.: October 10, 2001.

                             Bioterrorism: Public Health and Medical Preparedness. GAO-02-141T.
                             Washington, D.C.: October 9, 2001.

                             Bioterrorism: Coordination and Preparedness. GAO-02-129T. Washington,
                             D.C.: October 5, 2001.

                             Bioterrorism: Federal Research and Preparedness Activities. GAO-01-915.
                             Washington, D.C.: September 28, 2001.

                             West Nile Virus Outbreak: Lessons for Public Health Preparedness.
                             GAO/HEHS-00-180. Washington, D.C.: September 11, 2000.



Medical Product Safety and   Food and Drug Administration: Effect of User Fees on Drug Approval
Efficacy                     Times, Withdrawals, and Other Agency Activities. GAO-02-958.
                             Washington, D.C.: September 17, 2002.

                             Childhood Vaccines: Ensuring an Adequate Supply Poses Continuing
                             Challenges. GAO-02-987. Washington, D.C.: September 13, 2002.

                             Women’s Health: Women Sufficiently Represented in New Drug Testing,
                             but FDA Oversight Needs Improvement. GAO-01-754. Washington, D.C.:
                             July 6, 2001.

                             Pediatric Drug Research: Substantial Increase in Studies of Drugs for
                             Children, But Some Challenges Remain. GAO-01-705T. Washington, D.C.:
                             May 8, 2001.

                             Drug Safety: Most Drugs Withdrawn in Recent Years Had Greater Health
                             Risks for Women. GAO-01-286R. Washington, D.C.: January 19, 2001.



Economic Independence        Medicaid and SCHIP: States Use Varying Approaches to Monitor
and Well-being of Children   Children’s Access to Care. GAO-03-222. Washington, D.C.: January 14, 2003,
                             available February 2003.
and Families
                             Mental Health Services: Effectiveness of Insurance Coverage and Federal
                             Programs for Children Who Have Experienced Trauma Largely
                             Unknown. GAO-02-813. Washington, D.C.: August 22, 2002.


                             Page 75                                            GAO-03-101 HHS Challenges
Related GAO Products




Human Services: Federal Approval and Funding Processes for States’
Information Systems. GAO-02-347T. Washington, D.C.: July 9, 2002.

Welfare Reform: Federal Oversight of State and Local Contracting Can Be
Strengthened. GAO-02-661. Washington, D.C.: June 11, 2002.

Welfare Reform: Interim Report on Potential Ways to Strengthen Federal
Oversight of State and Local Contracting. GAO-02-245. Washington, D.C.:
April 23, 2002.

Medicaid: Transitional Coverage Can Help Families Move from Welfare
to Work. GAO-02-679T. Washington, D.C.: April 23, 2002.

Welfare Reform: States Provide TANF-Funded Services to Many Low-
Income Families Who Do Not Receive Cash Assistance. GAO-02-564.
Washington, D.C.: April 5, 2002.

Head Start and Even Start: Greater Collaboration Needed on Measures of
Adult Education and Literacy. GAO-02-348. Washington, D.C.: March 29,
2002.

Child Support Enforcement: Clear Guidance Would Help Ensure Proper
Access to Information and Use of Wage Withholding by Private Firms.
GAO-02-349. Washington, D.C.: March 26, 2002.

Welfare Reform: States Are Using TANF Flexibility to Adapt Work
Requirements and Time Limits to Meet State and Local Needs.
GAO-02-501T. Washington, D.C.: March 7, 2002.

Child Support Enforcement: Most States Collect Drivers’ SSN and Use
Them to Enforce Child Support. GAO-02-239. Washington, D.C.: February
15, 2002.

Human Services Integration: Results of a GAO Cosponsored Conference
on Modernizing Information Systems. GAO-02-121. Washington, D.C.:
January 31, 2002.

Welfare Reform: More Coordinated Federal Effort Could Help States and
Localities Move TANF Recipients with Impairments Toward
Employment. GAO-02-37. Washington, D.C.: October 31, 2001.




Page 76                                          GAO-03-101 HHS Challenges
                          Related GAO Products




                          Medicaid and SCHIP: States’ Enrollment and Payment Policies Can
                          Affect Children’s Access to Care. GAO-01-883. Washington, D.C.:
                          September 10, 2001.

                          Public Assistance: PARIS Project Can Help States Reduce Improper
                          Benefit Payments GAO-01-935. Washington, D.C.: September 6, 2001.

                          Welfare Reform: Challenges in Maintaining a Federal-State Fiscal
                          Partnership. GAO-01-828. Washington, D.C.: August 10, 2001.

                          Medicaid: Stronger Efforts Needed to Ensure Children’s Access to Health
                          Screening Services. GAO-01-749. Washington, D.C.: July 13, 2001.

                          Health and Human Services: Status of Achieving Key Outcomes and
                          Addressing Major Management Challenges. GAO-01-748. Washington,
                          D.C.: June 15, 2001.

                          Welfare Reform: Moving Hard-to-Employ Recipients into the Workforce.
                          GAO-01-368. Washington, D.C.: March 15, 2001.

                          Welfare Reform: Progress in Meeting Work-Focused TANF Goals.
                          GAO-01-522T. Washington, D.C.: March 15, 2001.

                          Welfare Reform: Data Available to Assess TANF’s Progress. GAO-01-298.
                          Washington, D.C.: February 28, 2001.



Financial Management      Medicare Financial Management: Significant Progress Made to Enhance
Systems, Processes, and   Financial Accountability. GAO-03-151R. Washington, D.C.: October 31,
                          2002.
Controls
                          Medicaid Financial Management: Better Oversight of State Claims for
                          Federal Reimbursement Needed. GAO-02-300. Washington, D.C.:
                          February 28, 2002.




                          Page 77                                          GAO-03-101 HHS Challenges
Performance and Accountability and High-
Risk Series

              Major Management Challenges and Program Risks: A Governmentwide
              Perspective. GAO-03-95.

              Major Management Challenges and Program Risks: Department of
              Agriculture. GAO-03-96.

              Major Management Challenges and Program Risks: Department of
              Commerce. GAO-03-97.

              Major Management Challenges and Program Risks: Department of
              Defense. GAO-03-98.

              Major Management Challenges and Program Risks: Department of
              Education. GAO-03-99.

              Major Management Challenges and Program Risks: Department of
              Energy. GAO-03-100.

              Major Management Challenges and Program Risks: Department of
              Health and Human Services. GAO-03-101.

              Major Management Challenges and Program Risks: Department of
              Homeland Security. GAO-03-102.

              Major Management Challenges and Program Risks: Department of
              Housing and Urban Development. GAO-03-103.

              Major Management Challenges and Program Risks: Department of the
              Interior. GAO-03-104.

              Major Management Challenges and Program Risks: Department of
              Justice. GAO-03-105.

              Major Management Challenges and Program Risks: Department of
              Labor. GAO-03-106.

              Major Management Challenges and Program Risks: Department of State.
              GAO-03-107.

              Major Management Challenges and Program Risks: Department of
              Transportation. GAO-03-108.




              Page 78                                       GAO-03-101 HHS Challenges
Performance and Accountability and High-
Risk Series




Major Management Challenges and Program Risks: Department of the
Treasury. GAO-03-109.

Major Management Challenges and Program Risks: Department of
Veterans Affairs. GAO-03-110.

Major Management Challenges and Program Risks: U.S. Agency for
International Development. GAO-03-111.

Major Management Challenges and Program Risks: Environmental
Protection Agency. GAO-03-112.

Major Management Challenges and Program Risks: Federal Emergency
Management Agency. GAO-03-113.

Major Management Challenges and Program Risks: National
Aeronautics and Space Administration. GAO-03-114.

Major Management Challenges and Program Risks: Office of Personnel
Management. GAO-03-115.

Major Management Challenges and Program Risks: Small Business
Administration. GAO-03-116.

Major Management Challenges and Program Risks: Social Security
Administration. GAO-03-117.

Major Management Challenges and Program Risks: U.S. Postal Service.
GAO-03-118.

High-Risk Series: An Update. GAO-03-119.

High-Risk Series: Strategic Human Capital Management. GAO-03-120.

High-Risk Series: Protecting Information Systems Supporting the
Federal Government and the Nation’s Critical Infrastructures.
GAO-03-121.

High-Risk Series: Federal Real Property. GAO-03-122.




Page 79                                         GAO-03-101 HHS Challenges
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