Proposed Legislation to Strengthen the Capability of the Government to Detect, Prosecute, and Punish Fraudulent Activities under the Medicare and Medicaid Programs

Published by the Government Accountability Office on 1977-03-10.

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

                          DOCUMENT RESUME
Oz-47 - (A1732734J

[Proposed Legislaticn to Strengthen the Capability of the
Government to Detect, Prosecute, and Punish Fraudulent
Activities under the Medicare and Medicaid Programs]. HRo-77-65;
B-142983. March 10, 1977. 7 pp.

Report to Rep. Harley O. Staggers, Chairman, House Committee on
Interstate and Foreign Commerce; by Robert F. Seller, Acting
Comptroller General.
Issue Area: Law Enforcement and Crime Prevention (s00); Health
    Programs (1200).
Contact: Human Resources Div.
Budget Function: Law Enforcement and Justice: Federal Law
    Enforcement and Prosecution (751); Health: General Health
    Financing Assistance (555).
Organization Concerned. Department of Health, Education, and
Congressional Relevance: House Committee on Interstate and
    Foreign Commerce.
Authority: Social Security Amendments of 1967, sec. 229 (P.L.
    90-243). Social Security Act. H.R. 3 (95th Cong.). H. Rept.
    90-544. S. hept. 90-744.

          Several revisions would improve H.R. 3, 95th Congress,
the purpose of which is to strengthen the capability of the
Government to detect, prosecute, and punish fraudulent
activities under the Medicare and Medicaid programs.
Findings/Conciusions: Sections 3 and 8 of the bill, which relate
to the disclosure of ownership and financial information and
disclosure, by providers or owners convicted of certain offenses,
should be conformed to apply to the same programs since they
appear to be applicable to many of the same providers and
organizations. Section 5, which rela'.es to changes in the
Professional Standards Review Organizations (PSROs), should be
modified to include a statement that the General Accounting
Office has access to all PSRO records for the purpose of any
audit, investigations examination, analysis, review, or
evaluation authorized by law ,ilth respect to titles V, XI,
XVIII, cr XIX of the Social Security Act. This section should
also be modified to require the annual report to Congress on the
DSRO program to report the results of PSRO effectiveness
assessments that were made by the Department of Health,
Education, and Welfare and the actions taken or proposed to be
taken to improve the effectiveness of the PSROs so assessed.
Section 11 of the proposed legislation should merely prohibit
Federal sharing in State Medicaid expenditures which result from
State laws or contracts which exclude or limit insurance
benefits because an individual is eligible for Medicaid. (SCI
-- 14298:                                      VAR
                                               MAR 1ยท W

-The Honorable Barley 0. Staggers
 Chairman, Committee on Interstate
   and Foreign Commerce
 House of Representatives
Dear Mr. Chairman:
     This is in response to your letter dated February 24,
1977, requesting our comments on H.R. 3, 95th Congress, the
purpose of which is to strengthen the capability of the
Government to detect, prosecute, and punish fraudulent
activities under the Medicare and Medicaid programs, and
for other purposes. Our comments on E.R. 3 follow.

Sections 3 and 8 -. Disclcsure of
Ownership atl, Financial Information
and Disclosure rD Providers of Ownerl
Convicted oi Certain Offenres

     These two sections appear to be closely related. They
would apply to many of the same providers and organizations
participating in one or more of the programs authorized by
the various titles of the Social Security Act. However,
section 3 applies to programs established under titles XVIII
(Medicare), XIX (Medicaid), and V (Maternal and Child Health
and Crippled Children's Services) while section 8 applies to
programs established under titles XVIII, XIX, and XX (Social
Services).  Thus, each section applies to a title not included
in the other section. The rationale for the differences in
the titles to which the two sections apply is not clear to us
since the provisions of both sections appear to be applicable
to many of the same providers and organizations.  Therefore,
we suggest tnat sections 3 and 8 be conformed to apply to
the same programs.

      Section 8(e) sets the effective date of the provisions
 relating to disclosure of criminal convictions of owners of
 providers. Section 8(e) states that tnese provisions apply
 to contracts, aareerents, and arrangements entered into and
 approvals aiven to applications or requests made after the
 first oay of the fourth month after enactment. Many providers,
 particularly institutional providers, nave aoreements with

                                                  HR.D-7 I -
B-14298 3

the programs which do not terminate until terminated by one
of the parties. Many of these providers must be periodically
recertified as eligible to participate in the program but do
not necessarily apply for or request recertification.     Be-
cause of these circumstances, it is possible   that providers
currently participating in one or more of the programs, whose
present or future owners ate subsequently convicted of an
applicable crime, might not have to disclose   this fact to
 the Secretary. Therefore, we  suggest  that section  8(e) be
modified to include language  requiring  disclosure  at the time
 of recertification.

Section 5 - Amendments Related to
Professional Statndards Review
      Section 5(b)(2) would amend section 1154 of the Social
 Security Act to allow the Secretary to extend the conditional
 designation of a PSRO for an additional period not to exceed
                                             PSRO has been un-
 24 months if he finds that the conditional requiLed
 able to satisfactorily perform all of its           duties
 and functions.
       On June 17, 1976, in a letter to the Secretary, Be
 questioned the legality, of HEW plans to extend the coindi-
 tional status of a PSRO beyond the existing legislatively
 mandated maximum 24-month period. This amendment would
 legalize the action taken by HEW in June 1976 to extend th,
 conditional status of 14 ?SROs beyond the 24-month period.
 The intent of section 5(b)(2) appears to be to allow condi-
 tional PSROr additional time in which to dL;elop so that
 they can meet requirements and be certified as qualified
 PSROs. Presumably, under present law, if the Secretary
 could not designate a PSRO as qualifieu after 24 months in
 conditional status, he would have to terminate the agree-
 ment with the PSRO and begin the selection process again.
  However, the law is silent as to the action HEW should
                                                    24 months
  if a PSRO cannot be designated as qualified after
  as a conditional PSRO. Tne proposed amendment is also
  silent as to what should be done after the 24-month extension.
       As pointed out above, HEW decided to extend tne period of
  conditional status of 14 PSROs when their 24-month conditional
  period expired in June 1976. We believe that the law should
  address the issue of what action HEW should take if, after the
  24-month extension, the Secretary cannot aesignate a PSRO as

                                -   2-

qualified and we suggest that section 5(b)(2) be modified
accordingly. Such a modification could prevent BEW fror
continuing a PSRO in conditional status for a numbe: of
years without it ever becoming aualified and fully meeting
the intent of the PSRO legislation.
     Section 5(e). would amend the Social Security Act to
make it clear that PSRO determinations regarding the medical
necessity of services and the appropriateness and quality of
medical servicers shall be final and binding on the Medicare
and Medicaid programs. We believe that section 5(e) will
clarify the existing PSRO legislation and emphasize the need
to prevent duplication of PSRO review activities by organi-
zations and agencies administering the Medicare and Medicaid
programs. If section 5(e) is enacted, providers and program
 recipients would retain their hearing and appeal rights con-
 cerning PSRO determinrations while the Federal and State
Governments would have to accept these determinations and
 could not overrule them. Since the States fund a substantial
 portion of their Medicaid programs, many of them nave expressed
 concern about having to accept PSRO determinations. In an
 effort to ease this concern, HEW has issued proposed recula-
 tions allowing the States and Medicare intermediaries ay-,
 carriers to utilize a monitoring system to evaluate condi-
 tion&l PSRO effectiveness and communicate their findings to
 ahe Secretary for his action. We believe that authority for
 such a monitoring system should be formalized in the law to
 make it clear that that course is available to the States ab
 a method of ensuring that State funds are properly expended.
      Section 5(i) would nmend the Social Security Act to
 clarify t.ie types of information PSROs can disclose and-the
 agencies to which the information can be disclosed. This
 section authorizes the Secretary (li to recognize Federal
 and State agencies responsible for identifying and investi-
 gating fraud and abuse under the act and agencies responsible
 for health planning'and (2) to establish the types of informa-
 tion PSROs should provide to these various agencies.
      During our study of the PSRO program, we have encountered
 some resistance from PSROs in providing us access to the records
 we need to evaluate tne efficiency, economy, and effectiveness
 of the program. The PSROs and HEW are apprenensive about pro-
 viding GAO witn medical records which identify any patient,
 physician, or nospital. We believe it-is necessary for GAO to

have access to all of the records of PSROs in order to fulfill
our responsibilities to the Congress. Therefore, we suggest
that section 5(i) be modified to include a statement-that the
Ge:neral Accounting Office has access to all PSRO records for the
putpose of any audit, investigation, examination, analysis, re-
view, or evaluation authorized by law with respect-to titles V,
XI, XVUII,-or XIX.df the Social Security Act.
      Al.o, such a moiudfication should make clear that the
 sanctions appli;.cable .u the improper disclosure of PSRO data
 by agencies receiving such data would also apply to the General
*Accounting Office except for referrals of any possible cases of
 illegal activity to tnose Federal and State agencies recognized
 by the Secretary as having responsibility for identifying and
 investigating cases or patterns of fraud and abuse.

     Section 5(1) would amend the Social Security Act by adding
a section which describes the types of information which must
be i:ncluded in the Secretary's annual report to the Congress on
the PSRO program. We believe that section 5(1) should be modi-
fied to include a requirement to report the results of PSRO
effectiveness assessments tiat were made by HEW and the actions
taken or proposed to be taken to improve the effectiveness of the
PSROs so assessed. This wo.ld provide the Congress with addi-
tional information on the effectiveness of the PSRO program.

 Section 11 - Medicaid as
 Pavor of Last Resort

       Section 11 of B.R. 3 would add section 1902(a)(38) to the
 act which would require a State's Medicaid plan to provide that
 no expenditure would be made under the plan for care or -services'
 which another party would have been obligated to pay under a
 State law or a contract, except that the State law or the con-
 tract liblits or excludes payment for care or services covered
 by Medicaid and provided to Medicaid eligibles     This proposed
 provision could have the effect of the State Medicaid plan
 overruling or at least conflicting with a Stace law or a con-
 tract. -In addition, if a State cnhooses r:ot to have such a
 conflict, the failure to include the provision re4uired by
 proposed section 1902(a)(38) in the State Medicaid plan could
 have the effect of precluding Federal participation in the'
 entire Medicaid program Decause tne Secretary could not approve
  the plan.

                             -   4-

      We believe it would be preferable to include such a
provision in section 1903, which deals with Federal payment.
to Statest prohibiting Pederal sharing in expenditures for
care or services which meet these circumstances. Tnis would
-eliminate tile possibility tnat a State plan would be required
to be in conflict with a State law and also eliminate the
possibility that a'State's inability to comply with the provi-
sion would prevent the Fecretary from approving the State's
Medicaid plan.

      Our concerns in this area are based on information de-
veloped in a review of HEE  and State compliance with rec-
tion 1902(a)(25) of the Social Security Act, which we expect
to report on shortly. Section 1902(a)(25) requires that State
plans must provide that the Etate or local agency administering
the Medicaid program take ali reasonable measures to ascertain
the legal liability of third parties to pay for care and services
provided to Medicaic recipients. The section &asorequires that
where the State or local agency knows 'chat a third party has such
a legal liability, the liability will be treated as a resource of
the individual receiving Medicaid benefiLs. In addition, when
third party liability is found to exist after Medicaid benefits
have been provided, the State or local agency must seek reim-
 bursement to the extent of such liability.
      Section 1902(a)(25) of the Social Security Act was added by
 section 229 of the Social Security Amendments of 1967 (Public
 Law 90-248).  The legislative history of the law, as contained
 in the reports of the Bouse Committee on Ways and Means (H.R.
 Report No. 90-544, August 7, 1967) and th-e Senate Committee on
 Finance (S. Report No. 90-744, November 14, 1967) indicates that
 the Congress did not want the Medicaid program to pay for the
 cost of medical care necessitated by injury or illness for which
 someone else was obligated to pay. Thus, we believe it was in-
 tended that liable third parties would be the primary resource
 for medical payments for eligible recipients and that Medicaid
 would be used when other resources were not available, or were
 exhausted. However, we have identified instances where States
 have allowed Medicaid to De treated as the primuary resource -for
 payments in lieu of insurance companies.
      Section 11 of H.R. 3 essentially seeks to address such
 situations.    For example, Hawaii nas a no-fault automobile
 insurance  law  which provides that no-fault medical benefits be
  aid secondarily to public assistance ,aws. As a result, the

B-14298 3

automobile medical insurance coverage in not treated as a
liable third party in BHawaii, and Medicaid is considered as
the primary resource.

      Bawaii's no-fault motor vehicle insurance statute was-
 enacted in 1974 and provided, in essence, that a person who
 is injured Ln an automobile accident is entitled to payment
 for the cost of his or her medical care, rehabilitation,The
 other benefits up to a maximum of $15,000  per person.
 State, however, had not taken steps to collect no-fault in-
 .surance benefits applicable to automobile accident victims
:who received Medicaid services on account of their injuries.
       Because the 1974 law did not clearly exclude the availa-
 bility of no-fault coverage to Medicaid recipients, we ques-
 tioned this practice. The Office of the State Attorney
 General, in March 1976, advised us that to guarantee that
 public assistance recipients obtain no-fauJ;. coverage as
 required by the State law, the State Legislature required
 that insurers provide policies to welfare recipients at no
 cost. In exchange for this free coverage, the legislature
 intended that benefits undcr the no-fault policies would be
 secondary to benefits available under the Social Security
 Act. According to the State Attorney General, the 1974
 State law was not an attempt to substitute Medicaid for exist-
  ing insurance liability because if the State, through Medicaid,
 had not continued to assume responsibility for medical care to
 welfare recipiepn-sr  the no-fault insurance contract would
  probably not nave existed.
       Apparently to resolve the problems raised by our questions,
  the Hawaii Legislature, in hay 1976, enacted a bill which amended
  the no-fault insurance law as it relates to public assistance re-
  cipients. In essence, Lne State law now specifically provides
 -that the medical coverage under no-fault insurance is not
  applicable to recipients of public assistance.

       In addition to the Bawaii situation, we noted that in
  Oklahoma, the State Insurance Commissioner ias approved health ..--
  insurance policies which contain a provision that limits the
  insurance Zompanies' liability to the amount not paid by
       Because the practice of States excluding or limiting third-
  party coverage for individuals eligible for public assistance
  can blunt the impact of HEW's recent initiatives to maximize

B-1429 83

                                               costs, we support
-third-party pavments and to redu)ce Medicaid our understanding
section  11 of i.R. 3 as a reaffi.rmation of
                                             third parties'rather
of the congressional intent that liable
                                      primary    resource for
than Medicaid De considered as   the
medical costs.
                                                      excluding Medi-
      Bowever, because State laws and contracts not.De   appropriate
 caid eligibles exist, we believe it             plans   to conflict
to require States to modify their Medicaid   We  believe   that if
 with such existing laws and contracts.        the  position  that
 the Committee wants to clearly establish
                                        resort,    it would  be
>Medicaid is to be the payor of last
                                          sharing in State Medi-
 preferable to merely prohibit-Federal         laws or contracts
 caid expenditures that result from State
 which exclude or limit  insurance benefits because an individual
 is eligible for Medicaid.
                                                       11 of the bill
       We also note that the language of section
                                           law or contract could be
 :suggests the possibility that a State
                           a direct reference to       a limitation or
 -drafted that would avoid         is  eligible    for  or receives
  exclusion bcause an individual              be  accomplished  by
  care under a Medicaid plan. This could
                                       on  entitlement    to benefits
 basing the limita:ion or exclusion Act Programs such as Sup-
  under other related Social Security Families with Dependent
  plemental Security Income or Aid to      the language on line 17
  Children. Therefore, we suggest that        "contract which has
  page 35 be revised to read as fellow;: such obligation because
  the effect of limiting or excluding
 *s **   *   p

       I trust that these commentsonwill be of assistance to the
                                     H.R. 3. We would be happy
  Committee in its deliberations             specific changes in
  to work with you or your staff to develop
 -the bill zeflecting our comments.
                                  Sin rely yours';"'

                               atdh   Comptroller General
                                      of the United States