oversight

Social Security Disability: Reviews of Beneficiaries' Disability Status Require Continued Attention to Improve Service Delivery

Published by the Government Accountability Office on 2003-07-24.

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

                             United States General Accounting Office

GAO                          Testimony
                             Before the Subcommittee on Social
                             Security, Committee on Ways and Means,
                             House of Representatives

For Release on Delivery
Expected at 10:00 a.m. EDT
Thursday, July 24, 2003      SOCIAL SECURITY
                             DISABILITY
                             Reviews of Beneficiaries’
                             Disability Status Require
                             Continued Attention to
                             Improve Service Delivery
                             Statement of Robert E. Robertson, Director
                             Education, Workforce, and Income Security Issues




GAO-03-1027T
                                                July 2003


                                                SOCIAL SECURITY DISABILITY

                                                Reviews of Beneficiaries’ Disability
Highlights of GAO-03-1027T, testimony           Status Require Continued Attention to
before the Chairman, Subcommittee on
Social Security, Committee on Ways and          Improve Service Delivery
Means, House of Representatives




The Social Security Administration              SSA will likely face a backlog of about 200,000 continuing disability review
(SSA) has had difficulty in                     (CDR) cases by the end of fiscal year 2003. SSA officials attribute the
conducting timely reviews of                    pending backlog to its decision to reduce the number of cases reviewed as a
beneficiaries’ cases to ensure they             result of the delay in obtaining fiscal year 2003 funding. In addition, the
are still eligible for disability               pending backlog resulted from putting more emphasis on initial applications
benefits. SSA has been taking
steps to improve the cost-
                                                over CDRs. To ensure CDRs receive adequate attention, SSA has requested
effectiveness of its review process.            some fiscal year 2004 funds be “earmarked” for these reviews. Given SSA’s
SSA has linked the review process               ability to eliminate its previous CDR backlog using targeted funds, this
to eligibility for a new benefit that           maneuver could help SSA. Over the next 5 years, SSA has estimated that 8.5
provides return-to-work services.               million CDRs, costing about $4 billion, are needed to stay current. If SSA
                                                generates another backlog, cost savings and program integrity may be
This testimony looks at SSA’s                   compromised by paying benefits to disability beneficiaries who are no longer
ability to stay current with future             eligible to receive them.
reviews, identifies potential
improvements to the review                      SSA is not making the best use of available information when conducting its
process, and assesses the review                CDRs, leaving opportunities for improvement. First, SSA’s decisions on the
process–return-to-work link.
                                                timing of CDRs are not based on systematic analysis of available
                                                information. Second, SSA’s process for determining which CDR method to
                                                use is not always based on the best available information. For example, SSA
                                                requires an in-depth review for all beneficiaries who, upon entering the
                                                program, are expected to medically improve even if current information on
                                                certain of those beneficiaries indicates that improvement is unlikely and that
                                                the review would be better handled through a shorter, less expensive
                                                method. Third, SSA has not fully pursued medical treatment data available
                                                from the Medicare and Medicaid programs despite their potential to improve
                                                SSA’s decisions regarding which review method to use. Fourth, SSA’s CDRs
                                                continue to be hampered by missing or incomplete information on
                                                beneficiaries’ case history.

                                                SSA delays the provision of new return-to-work benefits to beneficiaries
                                                expected to medically improve based on the assumption that such
                                                beneficiaries are least likely to need them. However, according to SSA
                                                data, about 94 percent of such beneficiaries are not found to have
                                                medically improved upon completion of a disability review. As a result,
                                                some individuals who might benefit from return-to-work services are
                                                initially denied access to them. SSA is reviewing this policy and while
                                                doing so, will need to consider how to best balance its financial
                                                stewardship and return-to-work goals.



www.gao.gov/cgi-bin/getrpt?GAO-03-1027T.

To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Robert E.
Robertson at (202) 512-7215 or
RobertsonR@gao.gov.
Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss SSA’s continuing disability review
(CDR) process. The Disability Insurance (DI) and Supplemental Security
Income (SSI) programs are the largest federal income programs for
disabled individuals, paying about $86 billion to about 10 million disabled
beneficiaries in 2002. These programs have been growing in recent years
and are poised to grow further as the baby boom generation ages. To help
ensure that only eligible beneficiaries remain on the rolls, the Social
Security Administration (SSA) is required by law to conduct CDRs for all
DI beneficiaries and some SSI disability recipients to determine whether
they continue to meet the disability requirements of the law. In addition, to
assist beneficiaries who want to return to work and leave the disability
rolls, SSA began implementing the Ticket to Work and Self-Sufficiency
Program in 2002. Under this program, beneficiaries are issued a “ticket,” or
voucher, which they can use to obtain vocational rehabilitation,
employment, or other return-to-work services from an approved provider
of their choice.

Both the CDR process and the ticket program are key aspects of SSA’s
effort to improve its service to the public. SSA’s Fiscal Year 2004 Service
Delivery Budget Plan highlights the importance of CDRs in achieving the
agency’s program stewardship objective of improving payment accuracy in
its disability programs. In particular, the plan discusses the cost-
effectiveness of CDRs and the need to keep current with the CDR
workload. The plan also notes SSA’s efforts to fully implement the ticket
to work program in order to achieve its objective of increasing the number
of people with disabilities who obtain employment.

My testimony today focuses on the results of our recently completed
review of SSA’s CDR process and of the relationship of this process to
determinations of beneficiary eligibility for assistance under the ticket
program. (In a report issued today,1 we discuss the results of our review in
greater detail and provide several recommendations to the Commissioner
of SSA for improving CDR cost-effectiveness.) More specifically, this
testimony discusses: (1) the impact that expiration of targeted funding for
CDR processing could have on SSA’s ability to remain current with the



1
  U.S. General Accounting Office, Social Security Disability: Reviews of Beneficiaries’
Disability Status Require Continued Attention to Achieve Timeliness and Cost-
Effectiveness, GAO-03-662 (Washington, D.C.: July 24, 2003).



Page 1                                                                      GAO-03-1027T
CDR caseload, and the level of funding that would be needed over the next
5 years to keep the workload current; (2) opportunities that exist for SSA
to improve the cost-effectiveness of the CDR process; and (3) whether
SSA’s rationale for delaying return-to-work and vocational services under
the ticket program for beneficiaries who are expected to medically
improve is supported by program experience. To examine these issues, we
reviewed SSA documents, including the agency’s budget request and
estimates of the cost and savings from conducting CDRs. Also, we
surveyed 52 Disability Determination Services (DDS)2 directors to assess
the potential effect of the expiration of CDR-targeted funding on DDS
operations. Moreover, we analyzed SSA data on CDR outcomes, reviewed
SSA-contracted studies of the CDR process, examined legislation,
regulations, and SSA policy guidance related to CDRs and the ticket
program, and interviewed SSA officials.

In summary, with the expiration of CDR-targeted funds at the end of fiscal
year 2002, SSA is at risk of generating another CDR backlog. As of March
2003, SSA was on track to complete about 200,000 less CDRs than needed
to keep its workload current. The expected shortfall is attributable to
several factors, including SSA’s decision to reduce the number of CDRs it
processed pending fiscal year 2003 funding decisions. Based on SSA’s cost
and workload projections, it would cost a total of about $4 billion or more
over the next 5 years to complete its CDR workload. Other factors that
could affect SSA’s ability to keep current with its CDR workload include
DDS staffing difficulties and the lower priority given to CDRs relative to
initial claims. If another large CDR backlog is generated, SSA is at risk of
foregoing cost savings and compromising the integrity of its disability
programs.

While SSA has taken a number of actions over the past decade to
significantly improve the cost-effectiveness of the CDR process,
opportunities remain for SSA to better use information in deciding when
beneficiaries should undergo a CDR and which method to use in
conducting a CDR—a mailed-out questionnaire (“mailer”) or a full medical
review. For example, SSA has not fully studied and pursued the use of
medical treatment data on beneficiaries available from the Medicare and
Medicaid programs despite the potential of these data to improve SSA’s
decisions regarding whether to use a mailer or full medical review to




2
    SSA contracts with state DDS agencies to determine whether applicants are disabled.



Page 2                                                                       GAO-03-1027T
              complete a CDR. Also, SSA continues to be hampered in its CDR decisions
              by missing or incomplete information on beneficiaries’ case history.

              In addition, SSA’s rationale for delaying issuance of a ticket to
              beneficiaries expected to medically improve, based on the premise that
              they will regain their capacity to return to work without SSA assistance, is
              not well-supported by program experience. As a result, some beneficiaries
              who might otherwise benefit from potentially valuable return-to-work
              assistance have to wait up to 3 years to access services through the ticket
              program. As SSA reexamines this policy, it will need to consider
              alternatives that better balance the agency’s program stewardship and
              return-to-work goals.

              The DI and SSI programs are the two largest federal programs providing
Background    cash assistance to people with disabilities.3 In addition to cash assistance,
              DI beneficiaries receive Medicare coverage after they have received cash
              benefits for 24 months, and in most cases, receipt of cash benefits makes
              SSI beneficiaries eligible for Medicaid benefits. In 2002, SSA paid about
              $60 billion to 5.5 million disabled workers.4 In addition, about 5.5 million
              people with disabilities received about $26 billion in federal SSI cash
              benefits.5


CDR Process   At the time beneficiaries enter the DI or SSI programs, DDSs determine
              when beneficiaries will be due for CDRs on the basis of their potential for
              medical improvement. Based on SSA regulations, DDSs classify
              individuals into one of three medical improvement categories, called
              “diary categories”: “medical improvement expected” (MIE), “medical



              3
                The DI and SSI programs use the same statutory definition of disability. To meet the
              definition of disability under these programs, an individual must have a medically
              determinable physical or mental impairment that (1) has lasted or is expected to last at
              least 1 year or to result in death and (2) prevents the individual from engaging in
              substantial gainful activity (SGA). Individuals are considered to be engaged in SGA if they
              have countable earnings above a certain dollar level. For 2003, SSA considers countable
              earnings above $800 a month to be substantial gainful activity for persons who are not
              blind and above $1,330 a month for persons who are blind.
              4
                Included among these 5.5 million beneficiaries are about 1.2 million beneficiaries who
              were dually eligible for SSI benefits because of the low level of their income and resources.
              In 2002, the DI program also paid about $6 billion in cash benefits to about 1.7 million
              spouses and children of disabled workers.
              5
                  About 3.9 million of these individuals were working age adults aged 18 to 64.



              Page 3                                                                         GAO-03-1027T
improvement possible” (MIP), or “medical improvement not expected”
(MINE). Based on the diary categories, DDSs select a “diary date” for each
beneficiary, which is the date that the beneficiary is scheduled to have a
CDR. The diary date is generally within 6 to 18 months if the beneficiary is
classified as MIE;6 once every 3 years if classified as MIP; and once every 5
to 7 years if classified as MINE. Upon completion of a CDR, DDSs reassess
the medical improvement potential of beneficiaries who remain eligible for
benefits to determine the most appropriate medical improvement category
and time frame for conducting the next CDR. Beneficiaries classified as
MIE are not eligible to receive Ticket to Work services until either the
completion of their first CDR, or until they have received benefits for 3
years.

While SSA uses diary categories to determine the timing of CDRs, it has
developed another method, called profiling, to determine the most cost-
effective method of conducting a CDR. Profiling involves the application
of statistical formulas that use data on beneficiary characteristics
contained in SSA’s computerized records—such as age, impairment type,
length of time on disability rolls, previous CDR activity, and reported
earnings—to predict the likelihood of medical improvement and,
therefore, of benefit cessation. Through its profiling formulas, SSA assigns
a “score” to beneficiaries indicating whether there is a high, medium, or
low likelihood of medical improvement. In general, beneficiaries with a
high score are referred for full medical reviews—an in-depth assessment
of a beneficiaries’ medical and vocational status—while beneficiaries with
lower scores are, at least initially, sent a questionnaire, known as a
“mailer.”7 The mailer consists of a short list of questions asking
beneficiaries to report information on their medical conditions,
treatments, and work activities. If beneficiaries’ responses to a mailer
indicate possible improvement in medical condition or vocational status,
SSA may refer these individuals for a full medical review. However, in
most cases, SSA decides that a full medical review is not warranted and
that benefits should be continued.




6
 Although SSA’s policy guidance indicates that CDRs for MIE beneficiaries should generally
be scheduled at intervals of 6 to 18 months, the guidance provides DDS personnel with
flexibility to establish a diary date for any time period between 6 and 36 months.
7
  While SSA uses mailers primarily for beneficiaries with low profile scores, the agency has
recently expanded its use of mailers to some beneficiaries with medium and high profile
scores.



Page 4                                                                       GAO-03-1027T
                         In contrast to mailers, full medical reviews are labor intensive and
                         expensive. These reviews generally involve an interview of beneficiaries at
                         SSA field offices, a review of beneficiaries’ medical records by DDS
                         personnel, and, if necessary, medical or psychological examinations with
                         consulting physicians outside the DDS.8

CDR Backlog              As of fiscal year 1996, about 4.3 million CDRs were due or overdue. In
                         response, the Congress, in the Contract with America Advancement Act of
                         1996 (Pub. L. No. 104-121), authorized a total of about $4.1 billion to fund a
                         7-year plan to eliminate the CDR backlog. In addition, the Personal
                         Responsibility and Work Opportunity Reconciliation Act of 1996 (Pub. L.
                         No. 104-193) required SSA to conduct CDRs on several beneficiary groups,
                         such as low birth weight babies and authorized an additional $250 million
                         for CDRs in fiscal years 1997 and 1998. The actual amount appropriated
                         during the 7-year period, about $3.68 billion, was less than the amount
                         authorized in 1996.

                         SSA reported to the Congress in its fiscal year 2000 CDR report that in that
                         year, the agency became current with the backlog of CDRs for all DI
                         beneficiaries. SSA officials indicated to us that although they are in the
                         midst of preparing the final statistics for its fiscal year 2002 CDR report, it
                         became current with the backlog of CDRs for all SSI beneficiaries by the
                         end of fiscal year 2002.


CDR Cost-Effectiveness   Since first implementing the profiling and mailer processes in the early
                         1990s, SSA has continued its efforts to improve the cost-effectiveness of
                         the CDR process. Most notably, SSA has refined the statistical formulas
                         used in profiling to identify which method—mailer or full medical
                         review—should be used to conduct the CDR. According to SSA officials
                         and studies of the profiling process, these improvements have led to some
                         beneficiaries receiving a mailer who otherwise would have received a full
                         medical review, thereby allowing SSA to reduce the overall cost of the
                         CDR process. Conversely, by improving SSA’s ability to identify
                         beneficiaries who are likely to medically improve, these refinements have
                         also helped the agency better ensure that it is conducting full medical




                         8
                          SSA field offices perform the initial processing of CDRs to determine if beneficiaries meet
                         nonmedical requirements. They then transfer the cases to DDSs for medical
                         determinations.



                         Page 5                                                                       GAO-03-1027T
                        reviews—and ceasing benefits—when appropriate.9 In addition to
                        improvements in its profiling process, SSA has also implemented other
                        CDR process improvements such as introducing an automated review of
                        mailers.


                        In the midst of its first year following the cessation of CDR-targeted funds,
End of Targeted         SSA appears to be developing another CDR backlog. By the end of fiscal
Funding and Other       year 2003, on the basis of SSA’s current projections, the agency will likely
                        face a backlog of 200,000 CDRs. SSA attributes the mounting backlog to
Issues Could            the management decisions it made at the beginning of the fiscal year
Contribute to Another   during budget deliberations, as well as the need to process a larger than
                        expected workload of initial disability applications. SSA has estimated that
Backlog, Threatening    it will need a total of about $4 billion to process its projected CDR
Cost Savings            workload over the next 5 years, although an updated estimate, expected to
                        be available later this year, will likely show a higher cost as the disability
                        rolls continue to expand. Aside from funding issues, DDSs reported that
                        challenges associated with processing initial disability applications and
                        maintaining enough disability examiners could jeopardize their ability to
                        stay current with the CDR workload over the next few years. If another
                        large CDR backlog is generated, SSA is at risk of foregoing cost-savings,
                        thereby compromising the integrity of its disability programs.


CDR Backlog Likely to   At the end of March 2003—six months after the expiration of separate
Reemerge                authorized CDR funding—SSA was on a pace to generate a CDR backlog
                        by the end of the current fiscal year. In its fiscal year 2003 budget
                        justification, SSA indicated that it needed to process about 1.38 million
                        CDRs during fiscal year 2003 to stay current with its CDR workload. Yet,
                        SSA expects to process a total of 1.18 million CDRs, if not more, by the
                        end of the fiscal year.10 By the end of March 2003—the midpoint of the
                        fiscal year—SSA had processed about 539,000 CDRs. To reach the 1.18



                        9
                          According to SSA’s study of its profiling model, the agency’s recent improvements in
                        statistical profiling have resulted in hundreds of millions of dollars in annual savings from
                        being better able to identify and cease the benefits of individuals who have a relatively high
                        likelihood of medical improvement.
                        10
                         On May 14, 2003, SSA released its revised final performance plan for fiscal year
                        2003. The plan projects that SSA will process 1,129,000 CDRs during fiscal year 2003. SSA
                        also expects to process an additional 20,000 CDRs initiated for reasons other than
                        maturation of the scheduled diary date (e.g., a third party reports that the individual may
                        no longer be disabled).



                        Page 6                                                                        GAO-03-1027T
million end-year revised total, SSA will need to process CDRs during the
second half of the fiscal year at a pace similar to that achieved during the
first 6 months of the fiscal year.11 Nevertheless, while it appears that SSA
should be able to achieve this outcome, by the end of fiscal year 2003, it
will have accumulated a backlog of 200,000 CDRs. However, according to
SSA officials, most of the backlogged claims will consist of SSI adult
CDRs, which lead to lower long-term savings than DI CDRs and do not
have the same stringent statutory requirements that apply to DI CDRs.

SSA officials attributed the delay in obtaining a fiscal year 2003 budget as
the main factor in hampering their ability to conduct all of the planned
CDRs for the fiscal year.12 Because of concerns that the fiscal year 2003
appropriations would not support CDR activity at the fiscal year 2002
level, SSA reduced the number of CDRs it sent to DDS officials for
processing as well as froze DDS hiring and overtime pay. SSA officials
recognize that a hiring freeze can have a longer-term impact because it
disrupts the normal replacement of disability examiners lost through
attrition. SSA officials explained that disability examiners generally do not
increase overall productivity when first hired and could, in fact, initially
decrease productivity because experienced examiners may devote some of
their time to training these new examiners. SSA officials noted that it
generally takes 1 to 2 years before disability examiners become proficient.

SSA’s management strategy to cut back on the number of CDRs it
processed during the delays in the fiscal year 2003 budget process reflects
the agency’s higher priority for processing of initial applications for
disability benefits. Specifically, while SSA cut back on the number of
CDRs, no similar action was reported with DI and SSI initial eligibility
decision making. SSA officials indicated that the application rate for
disability benefits increased during the beginning months of fiscal year
2003, further affecting its ability to stay current with CDRs. SSA officials
told us that although SSA sets a goal to process all CDRs and initial
applications, initial eligibility decisions are given highest priority due to
political pressure for getting disability benefits to people in a timely


11
 SSA indicated that 710,000 CDRs had been processed nearing the end of April 2003. This
year-to-date completion rate positions SSA to complete all 1.18 million CDRs.
12
  The federal government had operated under a series of continuing resolutions from the
beginning of the fiscal year through February 20, 2003. A continuing resolution is legislation
that may be enacted to provide budget authority for agencies to continue in operation
when the Congress and the President have not completed action on appropriations by the
beginning of the fiscal year.



Page 7                                                                        GAO-03-1027T
manner. DDSs, likewise, place a greater priority on processing initial
applications. Three-fourths (75 percent) of directors said processing initial
disability claims were a top priority relative to CDRs, whereas far fewer
directors (23 percent) said that processing initial claims and CDRs were
equal priorities.

SSA has recently proposed an approach to avoid this competition between
CDRs and initial claims. In SSA’s fiscal year 2004 budget request, the
Commissioner requested that almost $1.5 billion be earmarked for three
activities that could provide a return on investment—CDRs, SSI
nondisability redeterminations,13 and overpayment workloads. While we
did not review the sufficiency of the level of this request, the earmarking
of funds for activities such as CDRs could help SSA keep current with
these activities. For example, if the number of initial applications for
disability benefits continues to increase over the next several years,
holding apart the necessary funds for CDRs could be a prudent measure.

SSA has indicated in its annual CDR reports, as well as in its performance
and accountability report, that its ability to complete all CDRs as they
become due in the future is dependent upon adequate funding. In 2000,
SSA estimated that a total of about $4 billion was needed to process the
CDR workload during the 5-year period between fiscal year 2004 and 2008
(see table 1). SSA based these “rough estimates” on cost and workload
projections available at that time. SSA expects to release updated
workload and cost projections in the summer of 2003. The updated
numbers for the fiscal year 2004 to 2008 period will likely be higher than
the past estimate for this time period because of the recent growth in the
disability rolls.




13
  To determine whether beneficiaries remain financially eligible for SSI benefits after the
initial assessment, SSA conducts nondisability redeterminations to verify eligibility factors
such as income, resources, and living arrangements. Beneficiaries are reviewed at least
once every 6 years, but reviews may be more frequent if SSA determines that changes in
eligibility are likely.



Page 8                                                                        GAO-03-1027T
                          Table 1: Estimated CDR Activities, Fiscal Year 2004-08

                                                                      CDRs to be
                                                              processed during                   CDR expenses          Cessationsa
                              Fiscal year                    year (in thousands)            (dollars in millions)   (in thousands)
                              2004                                                  1,637                  $716                61
                              2005                                                  1,682                  $729                59
                              2006                                                  1,632                  $787                61
                              2007                                                  1,769                  $896                65
                              2008                                                  1,793                  $857                62
                          Source: SSA’s Office of the Chief Actuary, May 2000 estimates.
                          a
                          Estimated ultimate cessations after all appeals.


DDS Directors Expressed   Several of the issues that have contributed to the pending fiscal year 2003
Concerns about Their      CDR backlog will also appear, in the views of DDS directors, in the future.
Ability to Meet Future    First, nearly all directors expect the number of initial disability claims to
                          exceed those in the past. Most DDS directors have a strategy in place to
CDR Workload              deal with this rising initial claims workload, but still expect increased
                          initial claims to negatively affect their ability to process their CDR
                          workload (see table 2). Second, most directors expect to experience
                          difficulties in maintaining an adequate level of staffing, caused by many
                          examiners leaving and difficulties finding replacements. Most DDSs who
                          anticipate facing these staffing challenges reported that they have
                          strategies in place to manage them. Nevertheless, nearly all believe that
                          these staffing issues will negatively impact their ability to stay current with
                          their expected CDR workloads.




                          Page 9                                                                                    GAO-03-1027T
                           Table 2: DDS Directors’ Reported Likelihood, If Any, of Experiencing an Event That
                           Jeopardizes Meeting CDR Workload During Fiscal Year 2004 and 2005

                            Numbers in percent
                                                                                 Not at all   Somewhat           Very
                            Event                                                   likely        likely        likely
                            Higher number of initial disability claims than in
                            past (n=51)                                                  2             35           63
                            State budget shortfalls causing constraints (e.g.,
                            personnel restrictions) (n=49)                              25             29           47
                            Difficulties hiring disability
                            examiners (n=51)                                            28             31           41
                            High turnover of disability examiners due to
                            reasons other than retirement (n=51)                        35             51           14
                            Large number of disability examiner retirements
                            (n=51)                                                      39             39           22
                           Source: GAO survey of DDS directors, February 2003.




Cost Savings and Program   To the extent that funding, staffing, and other issues limit SSA’s ability to
Integrity Could Be         process its CDR workload, the full realization of CDR cost savings could
Jeopardized If CDR         be in jeopardy. SSA maintains that the return on investment from CDR
                           activities is high. In fact, SSA’s most recent annual CDR report to the
Backlog Grows Again        Congress summarizes its average CDR cost-effectiveness during fiscal year
                           1996 to 2000 at about $11 returned for every $1 spent on CDRs.14 SSA has
                           noted, however, that such rates of return are unlikely to be maintained
                           because as SSA works down the backlog and beneficiaries come up for
                           their second and third CDRs, the agency does not expect as many
                           cessations and, therefore, the cost-benefit ratio could decline.
                           Nevertheless, since the Congress’ provision of dedicated CDR funding
                           starting in fiscal year 1996, SSA has reported completing millions of CDRs




                           14
                            SSA calculated its annual cost-effectiveness ratios by dividing the estimated present value
                           of total lifetime benefits saved with respect to CDR cessations (including Old Age,
                           Survivors, and Disability Insurance, SSI, Medicare, and Medicaid savings) by the dollar
                           amount spent on periodic CDRs in a given year. SSA points out that the ratios should be
                           considered an approximation because, for example, costs do not include the costs of
                           appeals processed after the end of a given year. However, SSA officials also noted that the
                           administrative costs for CDRs in a given year include the costs of appeals of CDR
                           cessations in prior years which are processed in that year.



                           Page 10                                                                     GAO-03-1027T
                        that will lead to long-term savings ranging from about $2 billion to $5.2
                        billion.15

                        In addition to a favorable return on investment, SSA’s CDR activities help
                        protect DI and SSI program integrity. Keeping current with the CDR
                        workload can help build and retain public confidence that only qualified
                        individuals are receiving disability benefits. In addition, it helps protect the
                        programs’ fiscal integrity and allows SSA to meet its financial stewardship
                        responsibilities. To the extent the agency falls behind in conducting CDRs,
                        a CDR backlog undermines these positive outcomes.


                        While SSA has taken a number of actions over the past decade to
Further Opportunities   significantly improve the cost-effectiveness of the CDR process,
Exist for SSA to        opportunities remain for SSA to better use program information in CDR
                        decision making. While DDS personnel study available information on
Improve CDR Cost-       beneficiaries to decide when they should undergo a CDR, they do not
Effectiveness           conduct a systematic analysis of this information. As a result, CDRs may
                        not be conducted at the optimal time. Also, SSA’s process for determining
                        what method to use for a CDR—mailer or full medical review—is not
                        always based on the best information available. In addition, SSA has not
                        fully studied and pursued the use of medical treatment data on
                        beneficiaries available from the Medicare and Medicaid programs despite
                        the potential of these data to improve SSA’s selection of the most
                        appropriate CDR method. Finally, SSA continues to be hampered in its
                        CDR decisions by missing or incomplete information on beneficiaries’ case
                        history, which may prevent SSA from ceasing benefits for some individuals
                        who no longer meet eligibility standards.




                        15
                          Although we did not independently verify these savings estimates, we discussed how SSA
                        made its calculations and believe its approach is reasonable. To estimate long-term savings,
                        SSA calculated the value of the reduction in both cash and medical insurance coverage that
                        otherwise would have been provided to individuals whose benefits were ceased following
                        the completion of a CDR. SSA factored in the effect of appealed cases: SSA did not count
                        savings from those beneficiaries who were initially found ineligible for continued benefits
                        but whose cessations were later successfully appealed. Moreover, SSA officials told us that
                        to estimate savings over 10 years, they took into account the likelihood that some
                        individuals whose benefits were ceased through a CDR would likely have left the disability
                        rolls through death, retirement, and other reasons pertaining to eligibility.



                        Page 11                                                                     GAO-03-1027T
Decisions on Timing of   While DDS personnel review available information on beneficiaries to
CDRs Are Not Based on    establish a diary date indicating when beneficiaries should undergo a CDR,
Systematic Analysis of   they do not conduct a systematic analysis of this information. Diary
                         decisions are inherently complex because DDS personnel must assess a
Available Information    beneficiary’s likelihood of medical improvement and how such medical
                         improvement will affect that person’s ability to work. Based on these
                         judgments, beneficiaries are placed in a diary category indicating either
                         that medical improvement is “expected,” “possible,” or “not expected.”
                         DDS personnel then assign a diary date that corresponds with the diary
                         category; the more likely a beneficiary is to medically improve, the earlier
                         the diary date.

                         Although SSA has established guidance for DDS personnel on diary date
                         decisions, SSA officials told us that, ultimately, such decisions are difficult
                         to make and are based on the judgment of the DDS staff. An SSA
                         contracted study of the diary process found that this process is often
                         subjective and that the setting of diary categories and dates is “almost an
                         afterthought” once the case file is developed and a disability determination
                         has been made. SSA’s study identified shortcomings in the diary date
                         process. For example, most beneficiaries assigned to the diary category
                         indicating they are expected to medically improve are not found to have
                         improved when a CDR is conducted. Our analysis of SSA data indicates
                         that between 1998 and 2002, only about 5 percent of beneficiaries in the
                         MIE category16 were found to have medically improved to the point of
                         being able to work again.

                         SSA’s diary process study indicated that diary predictions of medical
                         improvement could be substantially improved through the use of
                         statistical modeling techniques similar to those used in the CDR profiling
                         process that SSA uses to determine whether a mailer or a full medical
                         review is needed. The study noted that this systematic, quantitative
                         approach to assigning diary categories and dates would likely enhance
                         disability program efficiency by reducing the number of CDRs that do not
                         result in benefit cessation.17 Another benefit derived from a more
                         systematic approach to diary categorization, according to SSA’s study, is



                         16
                          This figure includes all MIE beneficiaries—those who have already undergone a CDR as
                         well as those who have not yet had a CDR.
                         17
                           The study recommended that DDSs continue to assign diary categories because this
                         process is useful for indicating the severity of an impairment. The statistical formula would
                         then factor in this DDS diary category in developing an ultimate diary determination.



                         Page 12                                                                      GAO-03-1027T
                           improved integrity of the diary process resulting from more timely CDRs
                           and from actual medical improvement rates that more closely correlate
                           with the diary categories that SSA assigns to beneficiaries. For example,
                           SSA’s study indicates that the actual medical improvement rate for
                           beneficiaries assigned to the MIE diary category would increase to about
                           29 percent under this improved process.

                           SSA officials told us that, in response to the diary study recommendations,
                           the agency has begun to revise its diary process to introduce a more
                           systematic approach to selecting a CDR date. In particular, SSA is
                           developing a process that will use beneficiary data collected at the time of
                           benefit application, such as impairment type and age, in a statistical
                           formula to help determine when a CDR should be conducted. While this
                           change is likely to result in some improvements in the timing of CDRs, the
                           fundamental diary categorization process used by DDSs will remain the
                           same. Despite the study’s findings and recommendations, SSA officials
                           told us that they will not replace SSA’s current process for assigning diary
                           categories with a statistical process because of what they believe would be
                           significant costs involved in changing this system across DDSs. However,
                           SSA’s study acknowledged the potential cost of implementing a new
                           process in DDSs, and instead recommended that a revised diary process
                           be centrally administered in order to avoid such high costs. The officials
                           also said that such fundamental changes in the diary process would
                           require a change in regulations.

SSA’s Process for          SSA’s process for determining what method to use for a CDR is not always
Determining CDR Method     based on the best information available. In the 1990s, SSA introduced a
Not Always Based on Best   system that develops a “profile score” for each beneficiary, which
                           indicates the beneficiary’s likelihood for medical improvement based on a
Information Available      statistical analysis of beneficiary data. The purpose of the profile score is
                           to allow SSA to determine whether it is more cost-effective to send a
                           mailer or to conduct a full medical review. SSA’s own contracted studies
                           indicate that profiling results provide the best available indication of
                           whether a beneficiary is likely to medically improve. Nevertheless, for
                           some beneficiaries, SSA continues to use the diary category that was
                           judgmentally assigned by DDS personnel as the basis for their decision
                           about whether to send a mailer or conduct a full medical review.

                           SSA requires a full medical review for all beneficiaries whose diary
                           category indicates that medical improvement is expected (MIE) and who




                           Page 13                                                         GAO-03-1027T
have not yet undergone a CDR.18 This is the case even when the profile
score indicates that improvement is unlikely. In fiscal year 2002, about 14
percent of beneficiaries in the MIE diary category were assigned to the
“low” profile category, which indicates that medical improvement is not
likely. SSA officials acknowledged that their policy requiring full medical
reviews for all beneficiaries in this diary category departs from their usual
practice of using mailers for beneficiaries in the low profile category, but
they believe that this policy is reasonable given that these beneficiaries are
more likely to medically improve than those assigned to other diary
categories. However, SSA’s data from 1998 to 2002 shows that most
beneficiaries in this category—about 94 percent—do not medically
improve to the point of being able to work.

For other CDR cases, SSA may require that a mailer be sent even when the
profile score indicates that conducting a full medical review would be
most cost-effective. Specifically, SSA’s policy is to send a mailer to all
beneficiaries who were assigned a diary category that indicates medical
improvement is not expected (MINE),19 even if the profile score indicates a
relatively high likelihood of medical improvement.20 Whether or not these
beneficiaries subsequently receive a full medical review will be based on
the results of their mailer. SSA officials said that MINE beneficiaries with a
high profile score are more likely to receive a full medical review based on
their mailer responses because SSA conducts a more stringent review of
their mailer responses.21 However, it is not clear that sending mailers to
beneficiaries in the high profile category is the most cost-effective


18
  SSA applies a different process for MIE beneficiaries who have undergone one or more
CDRs. These beneficiaries may receive a mailer if their CDR profile score indicates that
they have a low likelihood of medical improvement. However, most beneficiaries assigned
to the MIE category have not yet undergone a CDR; in fiscal year 2002, about 88 percent of
all beneficiaries in this diary category had not had a CDR. When referring to MIE
beneficiaries in the remainder of our discussion in this section, we are describing only
those beneficiaries who have not yet had a CDR.
19
  SSA officials told us that while it is their intention to do mailers for all MINE
beneficiaries, they may be unable in some years to send mailers to all of these beneficiaries
if their overall funding for mailers is insufficient.
20
 In addition to sending mailers to high profile beneficiaries in the MINE diary category,
SSA has recently begun to send mailers to some high profile beneficiaries in the MIP diary
category.
21
  SSA also sends mailers to medium profile beneficiaries in the MINE diary category.
However, SSA has some evidence from its profiling studies indicating that issuing mailers
to medium profile beneficiaries is likely to be cost-effective. No similar evidence exists
regarding high profile beneficiaries.



Page 14                                                                      GAO-03-1027T
                            approach. SSA studies of the mailer process have indicated that, while this
                            process is effective, it does not provide the same assurance as full medical
                            reviews that medical improvement will be identified. As a result, the use of
                            mailers for beneficiaries whose profile scores indicate a high likelihood of
                            improvement could result in SSA identifying fewer benefit cessations.22


SSA Has Not Fully Studied   SSA has not fully studied and pursued the use of medical treatment data
and Pursued the Use of      on beneficiaries available from the Medicare and Medicaid programs
Medical Treatment Data      despite the potential of these data to improve SSA’s decisions regarding
                            whether to use a mailer or full medical review to complete a CDR. In 2000,
from Medicare and           an SSA contracted study found that the use of Medicare data from the
Medicaid                    Center for Medicare and Medicaid Services (CMS)—such as data on
                            hospital admissions and medical treatments—resulted in a significant
                            improvement in SSA’s ability to assess potential medical improvement
                            through CDR profiling. Based on these results, SSA, in fiscal year 2003,
                            implemented a process that uses CMS Medicare data in CDR profiling to
                            determine if DI beneficiaries who are initially identified as candidates to
                            receive a full medical review should instead receive mailers.23 SSA expects
                            that this will result in administrative savings due to the reduced number of
                            full medical reviews the agency must conduct. SSA has also initiated a
                            study to assess whether CMS Medicaid data can be used in the same way
                            to decide if SSI beneficiaries, scheduled to receive full medical reviews,
                            could instead be sent mailers.

                            But SSA’s efforts to obtain and use CMS Medicare or Medicaid data are
                            incomplete because the data will only be used to reclassify full medical
                            reviews to mailers but not to reclassify mailers to full medical reviews.
                            SSA officials told us that they have no plans to pursue this additional use
                            of the data because they believe their current profiling system is sufficient
                            for identifying beneficiaries who have a low likelihood of medical
                            improvement. While they agreed that the CMS data could potentially be



                            22
                              Although a relatively small proportion of beneficiaries have their benefits ceased based
                            on a CDR, the savings from these benefit cessations are substantial, as noted earlier in this
                            testimony.
                            23
                              SSA is using CMS Medicare data to reassess the prospects of medical improvement for
                            beneficiaries who, based on their initial CDR profiling results, are considered to have a
                            high or medium likelihood of medical improvement. Typically, SSA would conduct full
                            medical reviews for these beneficiaries. However, SSA’s reassessment may indicate that
                            some of these beneficiaries instead have a low likelihood of medical improvement and
                            therefore should receive mailers.



                            Page 15                                                                       GAO-03-1027T
                             useful for reclassifying mailers to full medical reviews, they noted that
                             they would need to first study this particular use of the data and would
                             need to develop another interagency agreement with CMS to authorize and
                             obtain data for this purpose. Also, they said that any action to reclassify
                             mailers to full medical reviews would require SSA to publish a Federal
                             Register notice describing this action.

                             SSA could potentially achieve substantial program savings from
                             conducting additional full medical reviews in cases where CMS data
                             indicate that beneficiaries originally identified as mailer candidates have a
                             relatively high likelihood of medical improvement. Using CMS Medicare
                             data for this purpose would be consistent with the results of an SSA study
                             that recommended that these data be used whenever it improves the
                             agency’s ability to accurately predict medical improvement. For example,
                             the study noted that the CMS data would be useful for enhancing SSA’s
                             profiling of beneficiaries with mental impairments, including those with a
                             low likelihood of medical improvement for whom SSA would usually send
                             a mailer. To the extent that CMS data improves SSA’s ability to identify
                             beneficiaries for full medical review, the program savings from reduced
                             lifetime benefit payments to those beneficiaries whose benefits are ceased
                             could easily exceed any increased administrative costs resulting from
                             additional full medical reviews.

Missing or Incomplete        SSA continues to be hampered in its CDR decisions by missing or
Case Folders May Result in   incomplete information on beneficiaries’ case history, which may prevent
Fewer Benefit Cessations     SSA from ceasing benefits for some individuals who no longer qualify for
                             benefits. To cease benefits based on a CDR, SSA must determine if the
                             beneficiary has improved by comparing information about the
                             beneficiary’s current condition to information from the agency’s previous
                             decision regarding the beneficiary’s medical condition. This previous
                             decision and the evidence supporting it are recorded by SSA and
                             maintained in case folders that are usually stored in SSA records storage
                             facilities. However, in conducting CDRs, DDSs sometimes have difficulty
                             retrieving the case folders or the key medical evidence that is maintained
                             in these folders.

                             Without the information contained in case folders, DDSs cannot establish
                             a comparison and, therefore, cannot determine if medical improvement
                             has occurred. As a result, SSA is legally required to keep the beneficiary on
                             the disability rolls even though the beneficiary may have been judged to no
                             longer qualify for benefits had the DDS been able to establish a
                             comparison. SSA’s inability to cease benefits in cases where folders are
                             missing or incomplete could result in a substantial cost to the federal

                             Page 16                                                         GAO-03-1027T
government arising from continued payments of benefits—cash and
medical—to people who no longer meet eligibility standards.24

Our discussions with SSA officials, survey of DDSs, and review of SSA
studies indicate that missing or incomplete folders present an obstacle to
effective processing of CDRs. However, evidence on the extent of this
problem is mixed. In responding to our survey on CDRs, about 72 percent
of DDSs informed us that missing or incomplete information from case
folders negatively impacted the quality or timing of CDR decisions to a
moderate or great extent. Recent SSA studies have also identified
problems with missing or incomplete case folders. For example, a study
contracted by SSA identified problems with disability case folder
management, such as misrouted or missing folders, and recommended
that SSA “analyze the reasons for missing folders and provide
recommendations for process and systems improvements.”

SSA headquarters officials we spoke with said that SSA has examined the
incidence of missing or incomplete case folders and found that the
problem is not as significant as claimed by DDSs. For example, in fiscal
year 2000, SSA investigated allegations of substantial numbers of missing
case folders in two DDSs. SSA officials told us that they were able to
locate many of the folders that had been reported as missing. The officials
attribute the discrepancy between their findings and the allegations of
DDSs, in part, to staff shortages and workload pressures at field offices,
which result in a failure of these offices to take further steps to look for
folders. However, our survey of DDSs indicates that regardless of SSA’s
ability to locate many case folders upon further investigation, DDSs are
still having difficulty obtaining the information they need to make CDR
decisions.

In a 2002 memorandum to SSA’s Inspector General, the SSA Commissioner
acknowledged that missing or incomplete case folders are a problem in
the CDR process, but noted that the problem had been overstated. The
memorandum cited data indicating a lost folder rate of about 0.5 percent
for DI CDRs and about 3 percent for SSI CDRs.25 The Commissioner also
said that SSA had taken a number of actions in recent years to reduce the


24
  Missing or incomplete case folders may also result in additional administrative costs to
the extent that SSA and DDS personnel spend time attempting to locate or reconstruct
missing information.
25
     Data are based on CDRs conducted from 1997 to 2001.



Page 17                                                                      GAO-03-1027T
                        incidence of lost folders, such as issuance of additional guidance and
                        training on this issue. In addition, the Commissioner noted that the agency
                        was committed to building a system of electronic folders26 that will
                        “virtually eliminate the incidences of lost folders.” While electronic folders
                        may be a key initiative in resolving SSA’s problems with missing or
                        incomplete case folders, SSA does not plan to fully implement this system
                        until mid-2005.27 In addition, these electronic folders will be established
                        only for new disability cases; cases established prior to implementation of
                        electronic folders will remain in a paper format. Therefore, problems in
                        handling these older case folders will likely continue.


                        SSA’s rationale for postponing issuance of a ticket to beneficiaries
SSA’s Rationale for     expected to medically improve—those who are assigned an MIE diary
Postponing Return-to-   category—is not well-supported by program experience. In issuing
                        regulations implementing the ticket act, SSA decided to postpone issuance
Work Services to        of tickets to MIE beneficiaries who have not yet had a CDR based on the
Some Beneficiaries Is   premise that these beneficiaries could be expected to regain their capacity
                        to work without SSA assistance.28 However, our analysis of SSA data
Not Well-Supported      indicates that the vast majority of MIE beneficiaries in the DI and SSI
by Program              programs—about 94 percent—are not found to have medically improved
Experience              upon completion of a CDR. As a result, some beneficiaries who might
                        otherwise benefit from potentially valuable return-to-work assistance must
                        wait up to 3 years to access services through the ticket program.29



                        26
                          SSA is currently developing a Disability Electronic Folder (EF) which, when completed,
                        will be the repository of all information used in the disability process and should eventually
                        replace the paper folders. As a result, processing components should not have to rely on a
                        paper folder to take adjudicative actions. The EF is planned to be linked to all existing and
                        future systems that support the disability case process. Information will be captured
                        electronically during the case intake process and transmitted to the EF. Documentation
                        and forms received from external sources (e.g., claimants, medical providers, third parties,
                        etc.) will be converted to an electronic format (e.g., scanning and imaging) and added to
                        the EF. Electronic documents received from medical providers will be indexed and added
                        to the EF.
                        27
                         SSA plans to begin rollout of electronic disability folders in January 2004 and plans to
                        achieve national implementation over an 18-month period.
                        28
                         The Ticket to Work Act gave the SSA Commissioner authority to determine which
                        disabled beneficiaries would be eligible to participate in the ticket program.
                        29
                         SSA’s policy on ticket eligibility states that any MIE beneficiary who has been on the
                        disability rolls for at least 3 years will be eligible for a ticket, even if they have not yet had a
                        CDR.



                        Page 18                                                                            GAO-03-1027T
Some disability advocacy groups and SSA’s own Ticket to Work and Work
Incentives Advisory Panel have questioned SSA’s policy of delaying the
issuance of tickets to MIE beneficiaries. In particular, they have
commented that delaying tickets to all MIE beneficiaries when only a
small proportion of these beneficiaries return to work underscores the
inherent weakness of relying upon the MIE category as a basis for granting
access to ticket services. In our prior work examining DI and SSI return-
to-work policies, we noted that delays in the provision of vocational
rehabilitation services can diminish the effectiveness of such return-to-
work efforts.30 Delaying services to some disability beneficiaries, therefore,
undermines SSA’s recent efforts to increase its emphasis on helping these
beneficiaries return to work.

SSA officials told us that they are examining the current policy of issuing
tickets to MIE beneficiaries to identify possible alternatives but they are
not sure when this assessment will be completed.31 However, they noted
that their policy of limiting ticket issuance reflects congressional interests
in striking an appropriate balance between program stewardship and
encouraging return to work. Moreover, they explained that reversing the
current policy would be costly. SSA’s actuaries have estimated that issuing
tickets to all MIE beneficiaries would cost an additional $822 million over
10 years because the ticket law prohibits SSA from conducting CDRs on
beneficiaries who are using a ticket. Therefore, SSA would continue to pay
DI and SSI benefits to some beneficiaries who might have otherwise had
their benefits terminated.

The drawbacks of SSA’s current policy of postponing issuance of tickets to
MIE beneficiaries and the potential costs associated with an alternative
policy that would allow immediate issuance of tickets to these
beneficiaries highlights the need for SSA, as part of its policy
reexamination, to consider other policy alternatives that might better
balance the agency’s program stewardship and return-to-work objectives.
While we did not conduct an in-depth assessment of potential alternatives


30
 U.S. General Accounting Office, SSA Disability: Program Redesign Necessary to
Encourage Return to Work, GAO/HEHS-96-62 (Washington, D.C.: Apr. 24, 1996).
31
  In May 2003, SSA announced in the Federal Register (Social Security Administration:
Semiannual Regulatory Agenda, 68 Fed. Reg. 31,240, May 27, 2003) that its long-term plans
include a proposal to revise its rules to allow the immediate issuance of tickets to MIE
beneficiaries. However, SSA’s Associate Commissioner responsible for reviewing the ticket
policy for MIEs told us that SSA has not made a final decision regarding any changes to the
current policy and that the agency’s review has not been completed.



Page 19                                                                    GAO-03-1027T
              to SSA’s current policy,32 our review of the CDR program and ticket
              provisions indicate that other options may exist that would achieve a
              better balance among SSA’s program objectives. For example, SSA could
              develop a better means of identifying beneficiaries who are expected to
              medically improve. Earlier in this testimony, we noted that an SSA-
              contracted study of the diary process recommended implementation of an
              improved system that, among other things, would better identify MIE
              beneficiaries through statistical modeling of diary decisions. One effect of
              such improved identification, according to the study, would be to
              substantially reduce the proportion of beneficiaries with an MIE diary
              category. For instance, the study found that although SSA, over the past
              decade, has assigned the MIE diary category to about 9 percent of DI
              beneficiaries, a statistically-based diary process would result in about 3
              percent of DI beneficiaries being assigned to the MIE category. This would
              potentially minimize the number of beneficiaries initially denied tickets
              and may also provide more assurance, within and outside SSA, that such
              beneficiaries can truly be expected to improve.

              SSA might also consider an option that provides for the issuance of tickets
              to all MIE beneficiaries while allowing CDRs to be conducted as scheduled
              for these beneficiaries. This policy would require a legislative change
              because, as we noted earlier, the Ticket to Work Act currently prohibits
              SSA from conducting a CDR while a person is using a ticket.33 While the
              ticket program’s prohibition on CDRs for ticket users was intended to
              remove a potential disincentive for beneficiaries to return to work, MIE
              beneficiaries currently get neither a ticket nor protection from a CDR. A
              policy allowing CDRs to be conducted on these beneficiaries while they
              use a ticket would at least give these beneficiaries immediate access to
              return-to-work services offered under the ticket program. In addition, SSA
              will still be able to achieve the cost savings that are derived from CDRs for
              beneficiaries that it considers most likely to medically improve.


              CDRs are a vital component of SSA’s efforts to strengthen the integrity of
Conclusions   its disability programs, an objective that will only increase in importance
              as the disability rolls continue to grow in the years ahead. As such, it is


              32
               Given the recent implementation of the ticket program, insufficient data were available
              during the period of our review to conduct the analysis necessary to fully evaluate such
              options.
              33
                   However, the prohibition on CDRs for all other ticket users could remain in effect.



              Page 20                                                                         GAO-03-1027T
                   important that SSA pursue and implement initiatives to prevent the
                   recurrence of CDR backlogs. SSA’s recent proposal for targeted funding of
                   program activities, including CDRs, that provide a return on investment as
                   well as efforts to further improve the cost-effectiveness of the CDR
                   process could positively contribute to SSA’s efforts to improve service
                   delivery. As SSA pursues such initiatives, it should also examine options
                   for better balancing its need to conduct CDRs with its responsibility for
                   providing return-to-work assistance under the ticket to work program to
                   beneficiaries who are expected to medically improve.


                   Mr. Chairman, this concludes my prepared statement. I will be happy to
                   respond to any questions you or other Members of the Subcommittee may
                   have.


                   For information regarding this testimony, please contact Robert E.
GAO Contacts and   Robertson, Director, or Shelia Drake, Assistant Director, Education,
Staff              Workforce, and Income Security at (202) 512-7215. Individuals making
                   contributions to this testimony include Brett S. Fallavollita, Mark Trapani,
Acknowledgments    Melinda L. Cordero, and Corinna A. Nicolaou.




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                   Page 21                                                        GAO-03-1027T