oversight

Medicare: HCFA Oversight Allows Contractor Improprieties to Continue Undetected

Published by the Government Accountability Office on 1999-09-09.

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

                              United States General Accounting Office

GAO                           Testimony
                              Before the Subcommittee on Oversight and Investigations,
                              Committee on Commerce, House of Representatives




For Release on Delivery
Expected at 10:00 a.m.
Thursday, September 9, 1999
                              MEDICARE

                              HCFA Oversight Allows
                              Contractor Improprieties to
                              Continue Undetected
                              Statement of Leslie G. Aronovitz, Associate Director,
                              Health Financing and Public Health Issues, and Robert H.
                              Hast, Acting Assistant Comptroller General for Special
                              Investigations




GAO/T-HEHS/OSI-99-174
Medicare: HCFA Oversight Allows
Contractor Improprieties to Continue
Undetected
               Mr. Chairman and Members of the Subcommittee:

               We are pleased to be here today to discuss HCFA’s efforts to monitor the
               activities of Medicare fee-for-service claims administration contractors.
               These contractors pay more than $700 million in Medicare claims each
               business day on behalf of the Health Care Financing Administration
               (HCFA)—the primary steward of Medicare funds. HCFA paid these
               contractors $1.6 billion in fiscal year 1998 to serve as Medicare’s first line
               of defense against inappropriate and fraudulent claims. Findings of
               inappropriate Medicare payments to providers totaling billions of dollars
               each year have heightened concerns about the program’s management.
               Cases in which contractors themselves have engaged in improper
               activities and even defrauded Medicare dramatically compound the
               concerns.

               Our testimony today will expand on the testimony we provided to this
               Subcommittee this past July.1 Specifically, we will discuss how deceptive
               activities became a way of doing business at some of HCFA’s Medicare
               fee-for-service contractors; the details of Medicare contractor
               improprieties for which there have been criminal convictions, fines, or
               civil settlements; and the effect of these activities on the Medicare
               program.2 We will also discuss why HCFA did not detect these activities
               through its oversight. Finally, based on the findings of our report on HCFA’s
               oversight of its claims administration contractors, we will describe
               weaknesses in HCFA’s current monitoring process that could allow these
               types of activities to recur without detection.3

               In brief, following allegations that they engaged in fraudulent or otherwise
               improper activities, at least eight Medicare contractors have been
               convicted of criminal offenses, have been fined, or have entered into civil
               settlements since 1993. Over several years, some of these contractors’
               employees engaged in improprieties and covered up poor performance to
               allow contractors to keep their Medicare business. Admitted or alleged
               improper activities included, but were not limited to, improperly
               screening, processing, and paying Medicare claims; destroying claims; and
               failing to properly collect money owed to Medicare by providers. In

               1
                Medicare: HCFA Should Exercise Greater Oversight of Claims Administration Contractors
               (GAO/T-HEHS/OSI-99-167, July 14, 1999).
               2
                Medicare: Improprieties by Contractors Compromised Medicare Program Integrity (GAO/OSI-99-7,
               July 14, 1999).
               3
                Medicare Contractors: Despite its Efforts, HCFA Cannot Ensure Their Effectiveness or Integrity
               (GAO/HEHS-99-115, July 14, 1999).



               Page 1                                                                    GAO/T-HEHS/OSI-99-174
             Medicare: HCFA Oversight Allows
             Contractor Improprieties to Continue
             Undetected




             addition, contractors falsified their performance results and engaged in
             activities designed to deceive HCFA and circumvent its review of contractor
             performance. These fraudulent and improper activities have adversely
             affected taxpayers, providers, and beneficiaries. Because HCFA gave
             contractors too much advance notice of its oversight visits and the records
             that would be reviewed, it often failed to detect improper contractor
             activities. HCFA’s current oversight has other weaknesses that might allow
             the same types of improper contractor activities to continue undetected.


             To illustrate the significance of the contractors’ improprieties, I will first
Background   explain briefly what the insurance companies are required to do while
             processing claims and how HCFA determines whether the companies meet
             those requirements.

             Under their contracts with HCFA, Medicare contractors are required to
             process claims in accordance with HCFA guidelines and report their
             performance accurately to HCFA. The contractors are required to, among
             other activities, (1) properly screen and process claims to ensure that the
             claims are eligible for Medicare payment and that Medicare pays the
             correct amount; (2) process claims in a timely manner; (3) answer
             beneficiary and provider telephone calls in a timely fashion; (4) provide
             samples of claims, provider audit files, and related workpapers to HCFA;
             and (5) accurately report claims processing and payment errors to HCFA.

             During the 1980s and through fiscal year 1994, HCFA evaluated contractor
             performance through its Contractor Performance Evaluation Program
             (CPEP). During CPEP audits, HCFA examined sample files from various
             contractor units to score functions performed by each unit. HCFA used CPEP
             scores in several ways—for example, to determine whether contracts
             should be renewed, and sometimes to award incentive payments to
             contractors. HCFA terminated CPEP in 1994 because it found that
             contractors strove merely to maximize CPEP scores rather than improve
             their overall performance, and several contractors provided false
             information to HCFA to achieve higher CPEP scores. In fiscal year 1995, HCFA
             replaced CPEP with the Contractor Performance Evaluation, or CPE. The CPE
             process allows HCFA’s reviewers discretion to evaluate any contractor
             activity, including claims processing, customer service, payment
             safeguards, fiscal responsibility, and administrative activities.




             Page 2                                                    GAO/T-HEHS/OSI-99-174
                       Medicare: HCFA Oversight Allows
                       Contractor Improprieties to Continue
                       Undetected




                       As we reported on July 14, 1999,4 since 1993, criminal or civil actions have
Contractors Deceived   been taken against at least six Medicare contractors because of their
HCFA Concerning        performance. The criminal actions generally involved conspiracy,
Their Poor             obstruction of federal audits, and false statements. The civil actions
                       involved settlements related to qui tam5complaints filed by contractor
Performance            employees in which the federal government intervened. Over $235 million
                       in civil and criminal fines have been assessed against those six
                       contractors.6 On July 28, 1999, the Justice Department announced that two
                       additional contractors7 and a related company that the contractors jointly
                       owned8 have pleaded guilty to criminal felony counts related to their
                       Medicare business. Similar to the cases we discussed in our July reports
                       and testimony, the two Medicare contractors and the related company
                       pleaded guilty to conspiracy to obstruct a federal audit after admitting
                       they concealed evidence of poor performance from federal auditors. In
                       addition, the two contractors pleaded guilty to attempting to obstruct a
                       federal audit. The three companies agreed to pay a total of $1.5 million in
                       criminal fines to the government. Also, the two Medicare contractors have
                       entered into a civil settlement of nearly $12 million.

                       Our report on contractor improprieties focused primarily on three
                       contractors—Blue Cross Blue Shield (BCBS) of Illinois, Blue Shield of
                       California, and BCBS of Michigan. In all these cases, the contractors entered
                       into civil settlements and, in two, contractors pleaded guilty to multiple
                       counts of criminal fraud.

                       Employees at all levels of those contractors—including vice-presidents for
                       Medicare operations, their directors of operations, managers, supervisors,
                       and staff-level employees—had engaged, or were alleged to have engaged,
                       in fraudulent and other improper activities for prolonged periods of time.
                       These employees failed to properly conduct claims processing and
                       safeguard activities and then covered up their poor performance by

                       4
                        GAO/OSI-99-7, July 14, 1999.
                       5
                        Qui tam suits are filed under the False Claims Act, 31 U.S.C. sections 3729-3733. The act’s qui tam
                       provisions permit filers, often referred to as “relators” or whistleblowers, to share in financial
                       recoveries resulting from their cases.
                       6
                        In addition to the $235 million recovered from these companies as civil settlements and criminal fines
                       and penalties in civil and criminal fraud cases, at least three of these companies have also entered into
                       settlements in civil liability cases brought by HCFA for recovery of about an additional $30 million
                       owed to Medicare under the Medicare Secondary Payer program.
                       7
                       Rocky Mountain Hospital and Medical Service (doing business as Blue Cross and Blue Shield of
                       Colorado) and New Mexico Blue Cross and Blue Shield, Inc.
                       8
                        Rocky Mountain Health Care Corporation.



                       Page 3                                                                       GAO/T-HEHS/OSI-99-174
                          Medicare: HCFA Oversight Allows
                          Contractor Improprieties to Continue
                          Undetected




                          doctoring records that HCFA staff reviewed. The employees did so because
                          they feared losing their Medicare contracts and their jobs if they did not
                          meet HCFA’s expectations. Investigators and former contractor employees
                          told us that manipulating samples, covering up errors, and “fixing”
                          HCFA-selected records before HCFA’s review became a way of life at each of
                          the three contractors. Indeed, the contractors allegedly designed the
                          activities to deceive HCFA by creating the false appearance that they were
                          meeting HCFA’s criteria. According to three former contractor employees
                          and investigators in two of the cases, such activities spread as employees
                          at various levels and units taught each other how to commit improprieties.


Improper Contractor       Our report presents a number of examples of criminal and other improper
Activities Hid Poor       activities that contractors allegedly or admittedly engaged in to deceive
                          HCFA. In the three cases on which we focused, federal investigators
Performance
                          documented many of the activities alleged by the qui tam whistleblowers.
                          The five general categories of alleged improper activities illustrated by the
                          following examples were related to us by federal investigators, qui tam
                          whistleblowers and other former contractor employees, and one
                          whistleblower’s attorney, or were described in qui tam complaints, plea
                          agreements, or other public documents:

                      •   Improperly screening, processing, and paying Medicare claims. In an effort
                          to receive the maximum payment by maximizing the number of claims
                          processed, Blue Shield of California, according to the investigating agent,
                          rushed claims through the processing system, shutting off computer edits
                          designed to catch problem claims. Blue Shield of California, according to
                          the qui tam whistleblower, also paid claims without proper physician
                          signatures or backup documentation.
                      •   Improperly destroying or deleting claims. In order to eliminate backlogs of
                          unprocessed claims, BCBS of Illinois allegedly deleted some claims that
                          contained incomplete or incorrect information by using special computer
                          coding. Claimants were not notified that these claims would not be paid
                          nor told what information was needed to correctly process their claims
                          and then given an opportunity to provide it.
                      •   Failing to collect Medicare overpayments and interest, as required. While
                          not admitting to wrongdoing, BCBS of Michigan settled a civil suit for
                          $27.6 million. Among the allegations in that suit was that, from 1988
                          through 1993, BCBS of Michigan circumvented a requirement to collect
                          provider overpayments within 30 days of the overpayment determination
                          date by making it appear that payments were collected on time when, in




                          Page 4                                                  GAO/T-HEHS/OSI-99-174
                             Medicare: HCFA Oversight Allows
                             Contractor Improprieties to Continue
                             Undetected




                             fact, they were not. As a result, the contractor allegedly did not assess
                             interest on the overpayments as required.
                         •   Falsifying documentation and reports to HCFA regarding performance. BCBS
                             of Illinois and Blue Shield of California admitted in their plea agreements
                             with the government that they had falsified reports on which CPEP and CPE
                             performance evaluations were based in order to make their performance
                             appear acceptable to HCFA. These reports included information about
                             claims processing errors, claims processing timeliness, and timely
                             contractor response to incoming customer telephone calls.
                         •   Improperly altering or hiding files that involved incorrectly processed or
                             paid claims and inadequately performed contractor audits of Medicare
                             providers prior to HCFA’s review of such files. Blue Shield of California
                             improperly fixed claims that had been processed incorrectly and were to
                             be reviewed by HCFA. It did so, for example, by (1) stamping “signature on
                             file” on claims that had been paid without a signature; (2) detaching
                             documents, such as another insurance company’s Explanation of Benefits,
                             from improperly denied Medicare Secondary Payer claims9 to give the
                             appearance that the denials were correct; and (3) altering procedure codes
                             to make it appear that claims had been paid properly when they had not.
                             The whistleblower in the BCBS of Michigan case alleged that this
                             contractor, prior to HCFA’s review, redid original audit workpapers,
                             improperly altered audit records, did required audit work that had not
                             been completed, and obtained new information from providers that should
                             have been collected in the original audit. In some cases, according to the
                             whistleblower, the contractor steered HCFA away from problem audits by
                             lying about their status if the audits could not be adequately “fixed” in
                             time for HCFA’s review.


Improprieties Harm the       Medicare pays claims incorrectly when contractors improperly turn off
Medicare Program, Its        edits; fail to properly develop, process, or audit claims; or improperly deny
Providers, and               or delete claims. This can lead to additional costs to the Medicare
                             program. When contractors use evasive means to make it appear that
Beneficiaries                overpayments are collected on time, Medicare suffers not only from the
                             untimely repayment of such overpayments but also from the lost interest
                             that should have been assessed on overdue overpayments.

                             Customer service is also affected by improper contractor activities.
                             Providers and beneficiaries are forced to resubmit claims that are
                             improperly destroyed, deleted, or denied. This causes delays in payment,

                             9
                              Medicare is the secondary payer on claims involving beneficiaries who are also covered by Black
                             Lung, Veterans Health Administration, or employer-sponsored group health plans.



                             Page 5                                                                    GAO/T-HEHS/OSI-99-174
                           Medicare: HCFA Oversight Allows
                           Contractor Improprieties to Continue
                           Undetected




                           unnecessary duplication of effort, and additional administrative costs to
                           Medicare claimants. When claims are denied or deleted without the
                           claimants being notified of any underlying problems with the claims, the
                           claimants may file replacement claims containing the same mistakes.

                           Providing HCFA with false work-processing samples relative to their
                           performance under Medicare contracts resulted in contractors receiving
                           scores that were too high, leading to the false appearance of superior
                           performance. This allowed Medicare contractors to retain their contracts
                           even when their performance was deficient. BCBS of Illinois received over
                           $1 million in incentive payments as a result of its offenses.

                           In addition, providing false information led HCFA to make a poor
                           management decision in reassigning claims administration workload. In
                           1994, HCFA awarded BCBS of Illinois the intermediary and carrier contracts
                           for the state of Michigan, after alleged contractor improprieties by BCBS of
                           Michigan were revealed. In a March 1994 announcement of this workload
                           transfer, a former HCFA Administrator was quoted as saying, apparently
                           based on HCFA evaluations tainted by the contractor’s deceptive activities,
                           that the Health Care Service Corporation (BCBS of Illinois) “has a record of
                           outstanding performance in administering the Medicare program in
                           Illinois.” He was also quoted as saying that “the selection of Health Care
                           Service Corporation as the replacement contractor was based on a record
                           of integrity, cost-effective performance, claims-processing efficiency,
                           ability to assume the workload, and experience.” In 1998, BCBS of Illinois
                           pleaded guilty to improprieties similar to those allegedly committed by
                           BCBS of Michigan.



                           HCFA  did not detect fraudulent and improper activities in the three cases
Why HCFA Did Not           we reviewed in depth until former contractor employees brought them to
Detect Improprieties       light by filing qui tam complaints under the False Claims Act. The
                           individuals we interviewed—including federal investigators, qui tam
                           whistleblowers, and other former employees—gave the following reasons
                           why HCFA did not detect contractor improprieties:

                       •   HCFA notified contractors in advance concerning (1) the dates on which it
                           would conduct CPEP reviews and (2) the specific or probable records that
                           it would review. This gave contractors the time and opportunity to
                           manipulate samples and hide problems. HCFA officials sometimes had
                           contractors pull the records to be reviewed and relied on
                           contractor-provided documents that consisted largely of copies, not



                           Page 6                                                  GAO/T-HEHS/OSI-99-174
                                Medicare: HCFA Oversight Allows
                                Contractor Improprieties to Continue
                                Undetected




                                originals. Document copies could be, and were, altered and recopied
                                without detection.
                            •   Contractors allegedly circumvented HCFA’s review of their performance
                                and deceived HCFA about their efficiency in customer service. For example,
                                a former employee of BCBS of Illinois told us that he tracked HCFA’s
                                periodic, unannounced telephone calls, which HCFA had designed to check
                                the contractor’s response time. In doing so, he identified HCFA’s calling
                                pattern. The unit manager then used that pattern to circumvent HCFA’s
                                review by putting extra employees on the telephone lines during the
                                anticipated times until they received HCFA’s call.
                            •   Contractors also allegedly deviated from their normal procedures to
                                deceive HCFA. For example, according to former contractor employees,
                                BCBS of Illinois reassigned its two most experienced employees to conduct
                                claim reviews that occurred on the days that HCFA had scheduled for
                                review. Contractor managers instructed these employees to slow down the
                                review process and take their time to ensure that the reviews were done
                                with 100-percent accuracy and included proper documentation.


                                The fraud alleged in integrity cases such as those we have described today
Problems Could Be               began when CPEP was HCFA’s primary means of assessing
Continuing Under                contractors—from fiscal years 1980 to 1995. In some cases, the fraud
HCFA’s Current                  continued under HCFA’s current CPE oversight process. The CPE process has
                                a number of weaknesses that continue to make the program vulnerable to
Oversight Process               contractor fraud. HCFA places too much trust in its contractors by relying
                                on contractor self-certifications of management controls and contractors’
                                self-reported performance data—both of which it rarely checks. Further,
                                HCFA currently has few standards to measure contractors’ performance.
                                Until recently, it had not set evaluation priorities for its regional review
                                staff and still does not check on the quality of regional oversight to ensure
                                that HCFA staff are held accountable for providing adequate oversight.
                                Important program safeguards have received little scrutiny at some
                                contractors, and regional staffs have been inconsistent in dealing with
                                contractor performance problems.


HCFA Seldom Validates           Medicare contractors are required to certify annually that they have
Contractors’ Internal           established a system of internal management controls over all aspects of
Controls or Workload Data       their operations. This helps ensure that they meet program objectives,
                                comply with laws and regulations, and are able to provide HCFA with
                                reliable financial and management information concerning their
                                operations. However, we found that HCFA accepts Medicare contractors’



                                Page 7                                                  GAO/T-HEHS/OSI-99-174
                            Medicare: HCFA Oversight Allows
                            Contractor Improprieties to Continue
                            Undetected




                            self-certification of management controls without routinely checking that
                            the controls are working as intended. In April 1998, the Department of
                            Health and Human Services (HHS) Office of Inspector General (OIG)
                            reported that the regional offices were not evaluating the accuracy and
                            reliability of contractor internal control certifications. In response, HCFA
                            headquarters sent guidance to the regional offices reminding them to
                            validate contractors’ self-reports during the 1998 evaluation review cycle.
                            Our analysis of fiscal year 1998 reviews performed for seven contractors
                            found no case in which a self-report was validated. We believe systematic
                            validations of contractor internal controls would contribute significantly
                            to reducing the likelihood of contractor fraud.

                            An equally fundamental activity in overseeing contractor performance is
                            obtaining reasonable assurance that self-reported contractor performance
                            data are accurate. HCFA, however, has largely relied on unvalidated
                            contractor-submitted data to evaluate and monitor performance. We
                            analyzed 170 reports related to contractor performance for fiscal years
                            1995 through 1997 for the seven contracts we studied; only two of these
                            reports documented efforts to validate contractor-supplied performance
                            data. For 1998, staff in one of the three regions we visited validated
                            contractor data in five reports. Staffs of the other two regions did not
                            validate any performance data over the 4-year period for the contractors
                            we examined.


HCFA Sets Few               Except for standards mandated by legislation, regulation, or judicial
Performance Standards for   decision, HCFA’s current CPE process is more descriptive than evaluative.
Contractors                 There are only a few mandated standards, such as processing claims
                            within specific time periods. No standards require HCFA reviewers to
                            ensure that contractors adequately perform the most important program
                            safeguards—such as medical review of claims. There are few performance
                            standards to motivate contractors and no benchmarks for HCFA to use in
                            holding contractors accountable.

                            Even where statute or regulation requires HCFA to follow clearly defined
                            and measurable standards, we found that HCFA has not held its reviewers
                            accountable for checking contractor performance for these standards.
                            Reviewers have not always evaluated whether contractors met the
                            mandated standards even when the reviewers were required to do so. Our
                            analysis of CPE reports for three regional offices found that when HCFA
                            reviewers assessed claims processing activities, for example, they only
                            checked contractor compliance with about half of the applicable



                            Page 8                                                  GAO/T-HEHS/OSI-99-174
                          Medicare: HCFA Oversight Allows
                          Contractor Improprieties to Continue
                          Undetected




                          mandated standards. Furthermore, the three regions varied considerably
                          in their performance of this requirement, with one region checking less
                          than 15 percent of the standards, while another region checked over
                          80 percent.


HCFA Regions Provide      With limited headquarters guidance and little follow-up to ensure that
Uneven and Inconsistent   what guidance there is is followed, contractor oversight is highly variable
Reviews and Remedies      across regions. Without a set of common performance standards or
                          measures, reviewers and contractors lack clear expectations. This has
                          resulted in both uneven review of critical program safeguards—such as
                          checking how effective contractors are at identifying insurers primary to
                          Medicare—and inconsistencies in how HCFA reviewers handle contractor
                          performance problems. Uneven review continues to leave HCFA unable to
                          discriminate among contractors’ performance when it needs to reassign
                          workload.

                          One such critical program safeguard where oversight has been limited and
                          uneven is that of Medicare Secondary Payer—so-called MSP activities.
                          Contractor MSP activities seek to identify insurers that should pay claims
                          mistakenly billed to Medicare and to recover payments made by Medicare
                          that should have been paid by others. This program safeguard has saved
                          about $3 billion annually from 1994 through 1998. Our review of three
                          regions’ CPE reports shows that many of the key MSP activities most
                          germane to spotting claims covered by MSP provisions were not reviewed
                          at the seven contractors in our study. Also, the three regions varied
                          considerably in how often they reviewed MSP, with one region rarely
                          checking MSP activities at any of its contractors whose CPEs we reviewed.

                          The low level of review is particularly disturbing because the potential for
                          contractor fraud regarding MSP activities is significant as a result of an
                          inherent conflict of interest: the private insurance business of the
                          contractor can be the primary payer for some claims subject to the MSP
                          provisions. HCFA has had to pursue several insurance
                          companies—including some with related corporations that serve as
                          Medicare contractors—in federal court for refusing to pay before
                          Medicare when Medicare should have been the secondary payer. In such a
                          case filed by HCFA against BCBS of Michigan, the company agreed to a
                          $24 million settlement. Since 1995, almost $66 million in settlements have
                          been made in cases filed by HCFA in which a health insurance company
                          with private policies that were sometimes primary to Medicare was also a
                          Medicare carrier or intermediary. HCFA currently has filed an additional



                          Page 9                                                  GAO/T-HEHS/OSI-99-174
                            Medicare: HCFA Oversight Allows
                            Contractor Improprieties to Continue
                            Undetected




                            $98 million in claims against companies affiliated with current and former
                            contractors.

                            We also found that HCFA’s regions differ in their identification of contractor
                            problems and took dissimilar actions once a performance problem was
                            identified. For example, one region required Contractor A to take steps to
                            address deficiencies in its performance in fraud and abuse prevention and
                            detection. In contrast, another region, reviewing Contractor B, found many
                            more serious weaknesses with its fraud and abuse prevention and
                            detection activities. Contractor B was spending little or no time actively
                            detecting fraud and abuse, failed to use data to detect possible fraud,
                            failed to adequately develop large and complex cases, and was not
                            referring cases to the HHS OIG. Furthermore, Contractor B was performing
                            poorly in recovering overpayments, had not focused on the
                            highest-priority cases, prepared no fraud alerts, and was not suspending
                            payments to questionable providers. The reviewer concluded that
                            Contractor B failed to meet HCFA’s performance expectations, yet the
                            region did not even require the contractor to develop and follow
                            improvement plans. Because HCFA reviewers are not held accountable for
                            conducting adequate oversight, deficient contractor performance can
                            continue.


HCFA Has Started to         HCFA  has recognized that its oversight of contractors has been inadequate
Develop a More Structured   and issued guidance in fiscal year 1998 to have regional reviewers follow a
Evaluation Process          somewhat more structured evaluation process. In May 1998, citing
                            concerns raised by the HHS OIG and us regarding HCFA’s level of contractor
                            oversight, HCFA announced the “need to reengineer our current contractor
                            monitoring and evaluation approach and develop a strategy demonstrating
                            stronger commitment to this effort.” As a result, HCFA issued a contractor
                            performance evaluation plan specifying three evaluation priorities for
                            fiscal year 1998: year 2000 computer compliance activities, activities
                            focusing on a subset of financial management operations (accounts
                            receivable and payable), and activities focusing on a subset of medical
                            review activities.

                            In 1998, HCFA also emphasized the need for regions to follow its structured
                            CPE report format, including clearly stating whether the contractor
                            complied with HCFA’s performance requirements. In addition, the regions
                            were supposed to review certain activities at all contractors. Nonetheless,
                            we found that some of the 1998 reviews continued to lack a structured
                            format, making it difficult to compare contractor performance. Although



                            Page 10                                                 GAO/T-HEHS/OSI-99-174
                         Medicare: HCFA Oversight Allows
                         Contractor Improprieties to Continue
                         Undetected




                         regions were supposed to review contractors’ determinations of medical
                         necessity prior to payment, we found that two of the regions we reviewed
                         did not do so for all of the seven contractors included in our study. Plans
                         for this year’s CPE reviews include more central office involvement in the
                         assessment process, joint review teams from headquarters and the
                         regions, and multi-regional team reviews.


HCFA Lacks a Structure   HCFA’s organizational structure is not designed to ensure oversight
That Assures             accountability, with two aspects creating particular problems. First, HCFA
Accountability           reorganized its headquarters operations in 1997, dispersing responsibility
                         for contractor activities from one headquarters component to seven. This
                         functional dispersion was, in part, in response to concern that one office
                         should not oversee all contractor activities. Second, HCFA’s 10 regional
                         offices—the front line for overseeing contractors—do not have a direct
                         reporting relationship to headquarters units responsible for contractor
                         performance. Instead, they report to the HCFA Administrator through their
                         respective regional administrators and consortia directors.

                         In our July 1999 report, we found that these two aspects of
                         reorganization—dispersion of responsibility for contractor activities to
                         multiple headquarters components and regional office reporting
                         relationships—contribute to communications problems with contractors,
                         exacerbate the weaknesses of HCFA’s oversight process, and blur
                         accountability for (1) requiring regions to adopt best practices;
                         (2) routinely evaluating the regional offices’ performance of their
                         oversight; and (3) enforcing minimum standards for conducting oversight
                         activities, including taking action when a particular region may not be
                         performing well in overseeing contractors. In an effort to establish more
                         consistency and improve the quality of contractor management and
                         oversight, HCFA has recently modified its organizational structure once
                         again by consolidating responsibility for contractor management within
                         the agency and creating a high-level contractor oversight board. It is too
                         early, however, to tell how effective these changes will be in improving
                         accountability for ensuring sufficient and consistent contractor oversight.


                         To improve HCFA’s oversight of contractors, we made five
GAO’s Previous           recommendations to the Administrator in our July 14, 1999, report:
Recommendations to
the Administrator        1. Establish a contractor management policy that requires (a) verification
                         that all contractors have effective internal controls, and (b) systematic



                         Page 11                                                GAO/T-HEHS/OSI-99-174
    Medicare: HCFA Oversight Allows
    Contractor Improprieties to Continue
    Undetected




    validation of statistically significant samples of essential
    contractor-reported data.

    2. Improve annual contractor assessments by:

•   developing a comprehensive set of clearly defined and measurable
    performance standards, including measures for program safeguard
    activities;
•   assessing all contractors regularly on core performance standards and
    reviewing individual contractors on other activities identified by risk
    assessments; and
•   developing an annual report for each contractor that includes performance
    on the core standards and other HCFA-assessed standards, using a uniform
    format that permits comparisons among contractors and longitudinal
    assessments of individual contractors.

    3. Designate a HCFA unit to be responsible for:

•   evaluating the effectiveness of contractor oversight policy and direction
    from headquarters to regional offices;
•   evaluating regional office contractor oversight based on the headquarters’
    policy and direction; and
•   enforcing minimum oversight standards.

    4. Ensure that all relevant HCFA staff learns about contractor problems and
    best practices and that HCFA reviewers adopt best oversight practices.

    5. Develop a strategic plan for managing Medicare’s claims administration
    contractors.

    In written comments to a draft of our report, HCFA agreed with each of our
    recommendations and described how it plans to implement them. Overall,
    we believe that HCFA is planning to take a number of steps in response to
    these recommendations that—if properly designed and
    implemented—should help improve its management and oversight of
    Medicare’s claims administration contractors. While we do not believe that
    implementation of these recommendations will guarantee that contractors
    will no longer have integrity problems in their dealings with HCFA, we do
    believe that it will make the Medicare program less vulnerable to the types
    of abuses that have been described here today.




    Page 12                                                   GAO/T-HEHS/OSI-99-174
                   Medicare: HCFA Oversight Allows
                   Contractor Improprieties to Continue
                   Undetected




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


                   For future contacts regarding this testimony, please contact Leslie G.
GAO Contacts and   Aronovitz at (312) 220-7600 or Robert Hast at (202) 512-7455. Individuals
Acknowledgment     who made key contributions to this testimony included Sheila Avruch,
                   Mary Balberchak, Elizabeth Bradley, Stephen Iannucci, Bob Lappi, Don
                   Walthall, and Don Wheeler.




                   Page 13                                                GAO/T-HEHS/OSI-99-174
Page 14   GAO/T-HEHS/OSI-99-174
Page 15   GAO/T-HEHS/OSI-99-174
GAO Related Products


              Medicare: HCFA Should Exercise Greater Oversight of Claims
              Administration Contractors (GAO/T-HEHS/OSI-99-167, July 14, 1999)

              Medicare Contractors: Despite Its Efforts, HCFA Cannot Ensure Their
              Effectiveness or Integrity (GAO/HEHS-99-115, July 14, 1999)

              Medicare: Improprieties by Contractors Compromised Medicare Program
              Integrity (GAO/OSI-99-7, July 14, 1999).

              HCFAManagement: Agency Faces Multiple Challenges in Managing Its
              Transition to the 21st Century (GAO/T-HEHS-99-58, Feb. 11, 1999).

              Medicare Computer Systems: Year 2000 Challenges Put Benefits and
              Services in Jeopardy (GAO/AIMD-98-284, Sept. 28, 1998).

              Medicare: HCFA’s Use of Anti-Fraud-and-Abuse Funding and Authorities
              (GAO/HEHS-98-160, June 1, 1998).

              Medicare: Control Over Fraud and Abuse Remains Elusive
              (GAO/T-HEHS-97-165, June 26, 1997).

              High-Risk Series: Medicare (GAO/HR-97-10, Feb. 1997)

              Medicare: HCFA’s Contracting Authority for Processing Medicare Claims
              (GAO/HEHS-94-171, Aug. 2, 1994).

              Medicare: Inadequate Review of Claims Payments Limits Ability to Control
              Spending (GAO/HEHS-94-42, Apr. 28, 1994).

              Blue Cross And Blue Shield: Experiences of Weak Plans Underscore the
              Role of Effective State Oversight (GAO/HEHS-94-71, Apr. 13, 1994).

              Medicare Secondary Payer Program: Identifying Beneficiaries with Other
              Insurance Coverage Is Difficult (GAO/T-HRD-93-13, Apr. 2, 1993)

              Medicare: Contractor Oversight and Funding Need Improvement
              (GAO/T-HRD-92-32, May 21, 1992).

              Medicare: Existing Contract Authority Can Provide for Effective Program
              Administration (GAO/HRD-86-48, Apr. 22, 1986).




(101875)      Page 16                                                 GAO/T-HEHS/OSI-99-174
Ordering Information

The first copy of each GAO report and testimony is free.
Additional copies are $2 each. Orders should be sent to the
following address, accompanied by a check or money order
made out to the Superintendent of Documents, when
necessary. VISA and MasterCard credit cards are accepted, also.
Orders for 100 or more copies to be mailed to a single address
are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office
P.O. Box 37050
Washington, DC 20013

or visit:

Room 1100
700 4th St. NW (corner of 4th and G Sts. NW)
U.S. General Accounting Office
Washington, DC

Orders may also be placed by calling (202) 512-6000
or by using fax number (202) 512-6061, or TDD (202) 512-2537.

Each day, GAO issues a list of newly available reports and
testimony. To receive facsimile copies of the daily list or any
list from the past 30 days, please call (202) 512-6000 using a
touchtone phone. A recorded menu will provide information on
how to obtain these lists.

For information on how to access GAO reports on the INTERNET,
send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov




PRINTED ON    RECYCLED PAPER
United States                       Bulk Rate
General Accounting Office      Postage & Fees Paid
Washington, D.C. 20548-0001           GAO
                                 Permit No. G100
Official Business
Penalty for Private Use $300

Address Correction Requested