Civil Fines and Penalties Debt: Review of CMS' Management and	 
Collection Processes (31-DEC-01, GAO-02-116).			 
								 
This report summarizes the information presented in GAO's review 
of selected federal agencies' management and collection of civil 
fines and penalties debt. This work focused on the debt 	 
collection processes and procedures used by the Department of the
Treasury's U.S. Customs Service, the Department of Interior's	 
Office of Surface Mining, and the Department of Health and Human 
Service's (HHS) Centers for Medicare and Medicaid Services (CMS).
The primary reason for the growth of CMS' civil monetary	 
penalties (CMP) receivables was the expansion of fraud and abuse 
detection activities from fiscal year 1995 through fiscal year	 
1997  that significantly increased fraud and abuse debts in	 
fiscal year 1997. GAO's analysis of CMS' CMP receivable data	 
revealed similar financial accountability and reporting issues as
those identified for non-CMP receivables by CMS' external	 
financial statement auditors. GAO identified (1) unreconciled	 
differences of tens of millions of dollars in the CMP receivables
balances reported by HHS and CMS for fiscal years 1997 through	 
1999 and (2) an unreconciled net difference of about $22 million 
between the CMP receivables balance in CMS' general ledger and	 
the detailed subsidiary systems as of September 30, 2000. The	 
data reliability issue limited GAO from determining the overall  
adequacy of the CMP debt collection policies and procedures.	 
However, GAO's limited tests showed that debt collection policies
and procedures were followed for 11 of the 12 selected delinquent
debts. GAO could not determine whether debt collection policies  
and procedures were followed for any selected debt because	 
supporting documentation was not available. OMB and Treasury are 
provided with information useful in performing CMP debt oversight
roles. However, OMB stated that it has broad oversight		 
responsibility in monitoring and evaluating governmentwide debt  
collection activities.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-116 					        
    ACCNO:   A02626						        
  TITLE:     Civil Fines and Penalties Debt: Review of CMS' Management
and Collection Processes					 
     DATE:   12/31/2001 
  SUBJECT:   Debt collection					 
	     Collection procedures				 
	     Federal agencies					 
	     Internal controls					 
	     Reporting requirements				 
	     Strategic planning 				 
	     HHS/DOJ Fraud and Abuse Control Program		 
	     HHS Operation Restore Trust			 
	     CMS Civil Monetary Penalty Tracking		 
	     System						 
								 

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GAO-02-116
     
A

Report to the Ranking Minority Member, Permanent Subcommittee on
Investigations, Committee on

Governmental Affairs, U. S. Senate

December 2001 CIVIL FINES AND PENALTIES DEBT Review of CMS? Management and
Collection Processes

GAO- 02- 116

Letter 1 Results in Brief 2 Scope and Methodology 4 Background 5 Increase in
Fraud and Abuse Debt Is the Primary Reason for

Reported Growth in CMP Debt 9 CMP Receivables Have Similar Financial
Accountability and

Reporting Issues as Non- CMP Receivables 10 Incomplete and Unreliable CMP
Data Limited the Determination of

Overall Adequacy of CMP Debt Collection Policies and Procedures 13 OMB?s and
Treasury?s Roles in the Oversight and Monitoring of CMP

Debt 14 Conclusion 15 Recommendations 15 Agency Comments and Our Evaluation
16

Appendixes

Appendix I: Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs 18

Appendix II: Comments From the U. S. Department of Health and Human
Services? Centers for Medicare and Medicaid Services 68 GAO Comments 73

Lett er

December 31, 2001 The Honorable Susan M. Collins Ranking Minority Member
Permanent Subcommittee on Investigations Committee on Governmental Affairs
United States Senate

Dear Senator Collins: On December 14, 2001, we briefed your office on our
review of selected federal agencies? management and collection of civil
fines and penalties debt. 1 As agreed with your staff, this work focused on
the debt collection

processes and procedures used by the Department of the Treasury?s U. S.
Customs Service, the Department of Interior?s Office of Surface Mining, and
the Department of Health and Human Service?s (HHS) Centers for Medicare and
Medicaid Services (CMS). 2

This report summarizes the information presented in our December 14, 2001,
briefing related to CMS? collection of civil fines and penalties debt,
referred to as civil monetary penalties (CMP) debt. The briefing slides are
included in appendix I. We will separately report on our work on the U. S.
Customs Service and the Office of Surface Mining. As discussed with your
staff, our original objectives were to determine (1) the primary reasons for

the growth in CMS? reported CMP debt, (2) whether CMS? CMP receivables have
similar financial accountability and reporting issues as its non- CMP
receivables, (3) whether adequate processes exist to collect CMP debt, and
(4) what roles, if any, the Office of Management and Budget (OMB) and
Treasury play in overseeing and monitoring CMS? collection of CMP debt.

However, for the third objective, incomplete and unreliable CMP information
limited the determination of the overall adequacy of the CMP debt collection
policies and procedures. Instead, as agreed with your staff, we performed
limited tests of CMS? debt collection policies and procedures. Specifically,
we selected and reviewed all delinquent CMP

1 This work was part of a broad review that also looked at the management
and collection of criminal fines and penalties at the Department of Justice
and the U. S. Courts. See Criminal Debt: Oversight and Actions Needed to
Address Deficiencies in Collection Processes

(GAO- 01- 664, July 16, 2001). 2 Formerly the Health Care Financing
Administration (HCFA).

debts (over 60 days delinquent per CMS records) with a recorded receivables
balance as of September 30, 2000, greater than $2 million (12 debts). We
also analyzed long- term care CMP assessment and settlement data for fiscal
years 1999 and 2000 for all cases where the settlements were

reached at three selected CMS regional offices. These regional offices
accounted for 76 percent of the reported cases opened in this 2- year
period. Results in Brief The primary reason for the growth of CMS? CMP
receivables was the

expansion of fraud and abuse detection activities from fiscal year 1995
through fiscal year 1997 that significantly increased fraud and abuse debts
in fiscal year 1997. This is supported by CMS? accounting records, which
revealed that about $255 million of the $260 million CMP receivables balance
as of September 30, 2000, related to fraud and abuse debts. For the $255
million in receivables, about $172 million remained outstanding from fiscal
year 1997.

Our analysis of CMS? CMP receivables data revealed similar financial
accountability and reporting issues as those identified for non- CMP
receivables by CMS? external financial statement auditors. We found that CMS
does not have formal written policies and procedures for reconciling CMP
receivables, recording CMP receivables in the general ledger, and
determining the allowance for uncollectible accounts related to CMP
receivables. As a result, we identified (1) unreconciled differences of tens
of millions of dollars in the CMP receivables balances reported by HHS and

CMS for fiscal years 1997 through 1999 and (2) an unreconciled net
difference of about $22 million between the CMP receivables balance in CMS?
general ledger and the detailed subsidiary systems as of September 30, 2000.
We also found that certain long- term care CMP receivables were not being
recorded in the general ledger, which contributed to the unreconciled
difference between the general ledger and the subsidiary systems. In
addition, our testing of selected CMP debts as of September 30, 2000, found
that CMS incorrectly recorded certain CMP debts in the general ledger by not
removing debts paid in full and misclassifying current debts as delinquent.
We further found that CMS? allowance for uncollectible accounts is not
calculated based on a systematic analysis of the collectibility of the
outstanding receivables balance as required by Statement of Federal
Financial Accounting Standards (SFFAS) No. 1, Accounting for Selected Assets
and Liabilities. The data reliability issue noted above limited us from
determining the overall adequacy of the CMP debt collection policies and
procedures.

However, our limited tests showed that debt collection policies and
procedures were followed for 11 of the 12 selected delinquent debts. We
could not determine whether debt collection policies and procedures were

followed for one selected debt because supporting documentation was not
available. In addition, in analyzing long- term care CMP cases and
settlement data for fiscal years 1999 and 2000, we noted one debt collection
matter in which debt collection policies and procedures can be strengthened.
The matter relates to CMS often settling at amounts that exceeded the 35-
percent discount threshold established by CMS

management. We found that CMS reduced the assessed long- term care CMP
amounts by more than 35- percent for 89 out of 215 cases settled by three
selected regional offices in fiscal years 1999 and 2000, resulting in
reduced potential collections of about $2.9 million. According to CMS
officials, other matters can develop while a hearing is pending that can
affect the settlement amount, and, as such, it may be in CMS? best interests
to settle for less. However, CMS? policies and procedures do not require
that specific documentation be maintained to support that such settlements
were warranted. While not required, we noted that one out of

the three selected regional offices was maintaining documentation to support
such settlements. OMB and Treasury are provided with information useful in
performing CMP debt oversight roles. However, OMB stated that it has broad
oversight responsibility in monitoring and evaluating governmentwide debt
collection activities. OMB further stated that it is the specific
responsibility

of the agency to monitor, manage, and collect CMP debt and the
responsibility of the agency?s Office of Inspector General (OIG) to provide
oversight through audit of the agency?s debt collection activities. In

addition, Treasury stated that it relies on the agencies to determine what
debt should be referred to Treasury for collection action, as required by
the Debt Collection Improvement Act of 1996 (DCIA). However, not all
eligible CMP debts are currently being referred.

Our recommendations are designed to improve the accounting, reporting, and
collection of CMP receivables. In commenting on a draft of the briefing
slides, CMS agreed with all but one of our eight recommendations. CMS did
not agree with our recommendation to establish and implement debt collection
policies and procedures for long- term care CMP settlements in which a
discount greater than 35- percent is allowed. According to CMS, flexibility
is needed in the settlement process and issuing policies and procedures on
settlements would add rigidity to the process. It was not our intent that a
rigid process for determining

settlement amounts would be implemented. However, consistent with good
management practices and the Standards for Internal Control in the Federal
Government, 3 when exceptions to a stated management policy occur, typical
control practices are to document, review, and approve such exceptions to
ensure that management?s objectives are being met.

Scope and To determine the primary reasons for the growth in reported CMP
debt at Methodology CMS and whether CMS? CMP receivables have similar
financial accountability and reporting issues as its non- CMP receivables,
we

obtained and reviewed CMS? audited financial statements, HHS? accountability
reports, and other financial reports that relate to CMS? CMP and non- CMP
collection activities. We also analyzed CMS? reported CMP receivables and
related accounts and information for fiscal years 1997 through 2000 and
compared CMS? CMP accounting records to detailed subsidiary tracking
records. We did not independently verify the completeness or accuracy of the
subsidiary

system data or test information security controls over the systems used to
compile these data.

We interviewed officials in CMS, HHS OIG, and Department of Justice?s (DOJ)
Executive Office for U. S. Attorneys (EOUSA) to obtain explanations for
identified significant trends, similarities with non- CMP receivables,
material internal control weaknesses, findings and exceptions, as well as
unsupported/ unreconciled amounts.

To determine whether adequate processes exist to collect CMP debt, we
obtained an understanding of CMS? CMP debt collection policies and
procedures that relate to CMS? long- term care, HHS OIG, and DOJ cases, as
well as applicable federal laws and regulations. Because CMS could not
provide complete and reliable CMP information, a random sample was not
selected from CMP receivables as of September 30, 2000, and CMP

receivables cases closed in fiscal years 1999 and 2000. However, as agreed
with your staff, we performed limited tests of CMS? debt collection policies
and procedures.

3 GAO/ AIMD- 00- 21. 3. 1, November 1999.

Specifically, we selected and reviewed all delinquent CMP debts (over 60
days delinquent per CMS records) with a recorded receivables balance as of
September 30, 2000, greater than $2 million (12 debts). This represented

57 percent of the delinquent CMP debt balance and 27 percent of the total
CMP debt balance per CMS records. 4 We interviewed DOJ?s EOUSA officials to
obtain explanations for identified findings and exceptions.

We also analyzed long- term care CMP assessment and settlement data for
fiscal years 1999 and 2000 for all cases in which the settlements were
reached at three selected CMS regional offices. According to CMS? Civil
Monetary Penalty Tracking System, the long- term care cases opened at these
regional offices represented approximately 76 percent of all longterm

care CMP cases opened during this 2- year period. For identified findings
and exceptions, we developed and submitted questions to CMS? regional
offices. We obtained and analyzed the regional offices? written

responses to our questions. To determine what roles, if any, OMB and
Treasury play in overseeing and monitoring the government?s collection of
civil debt, we interviewed OMB and Treasury officials.

We performed our review in Washington, DC and Atlanta, GA from March 2001
through August 2001 in accordance with U. S. generally accepted government
auditing standards. Prior to our December 14, 2001, briefing to your office
on the results of our work, we provided CMS, HHS OIG, DOJ?s

EOUSA, Treasury, and OMB with a draft of our detailed briefing slides, which
contained recommendations to the Administrator of CMS, for review and
comment. The comments received are discussed in the ?Agency Comments and Our
Evaluation? section of this report and on the ?Agency

Comments? slide in Appendix I or incorporated into the report as applicable.
CMS? letter is reprinted in appendix II.

Background As of September 30, 2000, HHS reported that CMS? CMP receivables
totaled about $260 million. CMP debt results from deficiencies at long- term
care

nursing facilities or fraud and abuse and is collected by three separate
groups. CMS? regional offices are responsible for the long- term care debt,
and HHS OIG and DOJ are responsible for fraud and abuse debt. DOJ fraud

4 The 12 selected debts were fraud cases managed by DOJ.

debt accounted for about 88 percent of the reported $260 million receivables
balance as of September 30, 2000, while OIG fraud and abuse debt accounted
for approximately 11 percent and CMS? long- term care debt accounted for
about 1 percent of the reported balance.

For the long- term care debt, Sections 1819 (42 U. S. C. Sections 1395i- 3)
and 1919 (42 U. S. C. Section 1396r) of the Social Security Act establish
requirements for surveying nursing facilities to determine whether they meet
the requirements for participation in the Medicare and Medicaid

programs. A survey must be conducted at each nursing facility within 15
months of the previous survey by a state survey agency. In addition, the
statewide average interval between surveys must be 12 months or less.
Remedies, of which CMP is one, may be used when a nursing facility is not in
substantial compliance with the requirements for participation in the
Medicare and Medicaid programs.

A CMP is imposed either for the number of days ($ 50 to $10,000 per day) or
for each instance ($ 1,000 to $10, 000 per instance) that a nursing facility
is not in substantial compliance with the participation requirements. The

amount depends on the severity of the deficiency. A written notice of the
CMP is sent to the nursing facility. The facility has 60 days from the date
of the notice to either waive its right to an administrative hearing and
receive automatically a reduction of 35- percent in the CMP amount or
request an administrative hearing. At any time prior to an administrative
hearing, the

nursing facility may enter into a settlement of the CMP amount. Once there
is an administrative hearing decision or a settlement, the final CMP
receivable amount is determined.

According to CMS? State Operations Manual, if a decision is made to settle,
the settlement should not be for a better term than had the nursing facility
opted for a 35- percent reduction. To track assessments and collections,
CMS? regional offices use the Civil Monetary Penalty Tracking System for
fiscal year 1999 and later CMP cases and spreadsheets for fiscal year 1996
through fiscal year 1998 CMP cases. 5 In addition, CMS? regional offices use
the long- term care system to track CMP cases.

5 Regulations implementing the imposition of long- term care CMP were
effective July 1, 1995. The first long- term care CMP assessment was made at
the beginning of fiscal year 1996.

For civil health care fraud matters, DOJ generally uses the False Claims
Act, as well as common law fraud remedies, payment by mistake, unjust
enrichment, and conversion to recover amounts from those who have submitted
false or improper claims to the United States. Civil health care fraud
matters are referred directly from federal or state investigative agencies,
or result from filings by private persons known as ?relators,? who file
suits on behalf of the federal government under the 1986 qui tam amendments
to the False Claims Act. The False Claims Act (31 U. S. C. Sections 3729-
3733) provides that anyone who ?knowingly? submits a false

claim to the government is liable for a penalty from $5,000 to $10,000 plus
up to three times the amount of damages sustained by the government.

A court judgment or settlement establishes amounts due by violators. DOJ
prepares a Health Care Fraud Tracking Form, 6 which is submitted to HHS OIG
and CMS? Office of Financial Management, and establishes the debt in a
tracking system. If the health care violator does not pay the fraud debt,
DOJ?s U. S. Attorney Offices (USAO) have several options to pursue
collection, including contacting the debtor, securing or executing upon a
judgment, filing liens or garnishments, and referring the delinquent debt to
Treasury. To track assessments and collections of civil health care fraud

cases, DOJ?s USAOs use either the Tracking Assistance for the Legal Office
Network or the Collection Litigation Automated Support System, and DOJ?s
Civil Division uses the Debt Collection System.

HHS OIG also pursues fraud and abuse cases. According to HHS OIG data, since
1988, about 90 percent of its CMP assessments relate to the requirements of
Section 1867 of the Social Security Act (42 U. S. C. Section 1395dd). This
statute specifies that a hospital?s emergency department must provide an
appropriate medical screening examination within the

capability of the hospital?s emergency department to any individual who
comes to the department with a request for examination or treatment of a
medical condition. In addition, if the hospital determines that the
individual has an emergency medical condition, the hospital must either
stabilize the medical condition or transfer the individual to another
medical

facility. This statute provides for a maximum penalty of $50, 000 per
violation. According to HHS OIG data, since 1988, approximately 10 percent
of its CMP assessments relate to violations of the statutory

provisions applicable to false or fraudulent claims submitted to federal 6
In documenting a judgment or settlement, DOJ uses this form to note the
judgment or settlement amount and the recipients to be paid from the
collected debt.

health care programs in Section 1128A of the Social Security Act (42 U. S.
C. Sections 1320a- 7a). This law provides that for false, fraudulent, or
otherwise improper claims, HHS may impose a penalty of not more than $10,000
for each item or service and an assessment of no more than triple the amount
claimed for each item or service in lieu of damages. HHS OIG

uses spreadsheets to track assessments and collections of CMP cases. 7 CMS?
Office of Financial Management is responsible for the accounting and
reporting of CMP receivables in the general ledger using the Financial
Accounting Control System. This office is also responsible for determining
the allowance for uncollectible receivables. According to CMS, an allowance
is calculated as the amount of CMP debt delinquent for 60 days or longer
that is considered to be inactive and truly delinquent based on a

case- by- case review of each receivable. HHS OIG?s Office of Audit Services
stated that due to the immateriality of the CMP receivables balances in
relation to CMS? total accounts receivable balance, CMS? external financial
statement auditors have not performed

any detailed audit work on CMP receivables. However, these auditors have
identified various reporting, internal control, and accountability issues
related to Medicare (non- CMP) receivables. These issues resulted in a
qualified opinion on CMS? financial statements for fiscal year 1998 and a

material weakness on non- CMP receivables during fiscal years 1998 through
2000. 8 The external financial statement auditors reported that CMS? lack of
an integrated financial management system continues to

impair its ability to adequately support the reported non- CMP receivables
activity and balances. The external financial statement auditors also
identified deficiencies in the non- CMP receivables activity, including

 incorrectly reported activity by non- CMP contractors and

 inability of non- CMP contractors to reconcile reported ending balances to
the contractors? subsidiary records. 7 According to HHS OIG, collections
being received through payment plans for CMP assessments under Section 1128A
of the Social Security Act are sent directly to CMS. HHS OIG does not track
collections for these cases.

8 CMS? financial statements and related auditor reports referred to in this
report were issued under CMS? former name (HCFA).

The external financial statement auditors? recommendations included

 establishing an integrated financial management system for use by nonCMP
contractors and CMS? central and regional offices and  ensuring that all
non- CMP contractors develop and implement control procedures to provide
independent checks of the validity, accuracy, and

completeness of the amounts reported to CMS, including a reconciliation with
the contractors? supporting documentation, and periodic review of
contractors? control procedures over reconciliations.

Increase in Fraud and The primary reason for the growth of CMS? CMP
receivables was the

Abuse Debt Is the expansion of fraud and abuse detection activities from
fiscal years 1995

through 1997 that significantly increased fraud and abuse debts in fiscal
Primary Reason for year 1997. This is supported by CMS? accounting records,
which revealed

Reported Growth in that about $255 million of the $260 million CMP
receivables balance as of September 30, 2000, related to fraud and abuse
debts. 9 For the $255 million CMP Debt

in receivables, about $172 million remained outstanding from fiscal year
1997. In 1995, under authority to use trust fund money to develop or
demonstrate improved methods for investigating and prosecuting fraud, HHS
launched Project Operation Restore Trust. The project targeted fraud and
abuse in three high- growth areas of the health care industry: home health
agencies,

nursing homes, and durable medical equipment suppliers. In addition, the
passage of the Health Insurance Portability and Accountability Act (HIPAA)
in 1996 expanded funding for HHS? fraud and abuse detection activities by
establishing the Fraud and Abuse Control Program, a program designed to
combat fraud and abuse committed in the health plans (both public and
private). By January 1, 1997, HHS OIG and DOJ had jointly implemented the
Fraud and Abuse Control Program, as required by HIPAA.

HHS reported, in fiscal year 1996, that Project Operation Restore Trust
combined with the upgraded funding provided by HIPAA would enable HHS to
more aggressively detect and prevent fraud, waste, and abuse. In addition,
DOJ?s EOUSA stated that DOJ?s health care fraud activities were expanded in
fiscal years 1996 and 1997, and with the implementation of the Health Care
Fraud Tracking Forms in December 1996, DOJ began 9 DOJ is responsible for
collection activity for the majority of the fraud and abuse debt.

submitting health care fraud debts to CMS during fiscal year 1997. Prior to
this time, only fraud and abuse debts submitted by HHS OIG were recorded and
reported by CMS.

CMP Receivables Have As discussed above, no detailed audit work on CMP
receivables has been

Similar Financial performed by CMS? external financial statement auditors
due to the small balance of CMS? CMP receivables in relation to CMS? total
accounts

Accountability and receivables, which consist primarily of non- CMP Medicare
receivables. For Reporting Issues as

example, as of September 30, 2000, CMS? CMP receivables were reported to
Non- CMP Receivables be about $260 million, or 3 percent, of total reported
accounts receivables of approximately $8.1 billion, of which non- CMP
Medicare receivables totaled more than $7. 7 billion. Our analysis of CMS?
CMP receivables data revealed similar financial accountability and reporting
issues as those identified for non- CMP

receivables by CMS? external financial statement auditors. We found that CMS
does not have formal written policies and procedures for the reconciliation
of CMP receivables, recording CMP receivables in the general ledger, and
determining the allowance for uncollectible accounts related to CMP
receivables. As a result, we found (1) unreconciled differences between CMP
receivables amounts on HHS? accountability

reports and CMS? audited financial statements, (2) unreconciled differences
between CMP receivables amounts in CMS? general ledger and the detailed
subsidiary systems, (3) incorrect recording- not removing debts paid in full
and misclassifications between delinquent and current-

of CMP receivables in the general ledger, and (4) lack of an adequate
collectibility analysis for uncollectible accounts relating to CMP
receivables.  CMS does not have policies and procedures requiring it to
compare CMP

receivables reported in its audited financial statements and HHS?
accountability report. According to HHS, CMS is the only HHS component that
has CMPs. Therefore, the CMP receivable amounts reported in HHS?
accountability report and CMS? audited financial statements should be the
same. However, our work identified that yearend

CMP receivables balances for fiscal year 1997 through fiscal year 1999,
differed by tens of millions of dollars between HHS? accountability report
and CMS? audited financial statements.

For example, CMS? fiscal year 1997 financial statements reported a CMP
receivables balance of about $243 million; however, HHS? accountability

report for fiscal year 1997 reported approximately $191 million- a
difference of about $52 million. The beginning balance for CMP receivables
in HHS? fiscal year 2000 draft accountability report was adjusted by
approximately $50 million to agree with CMS? accounting records. As a result
of the adjustment, the fiscal year 2000 beginning balance in HHS? fiscal
year 2000 accountability report differed from the ending balance in its
fiscal year 1999 accountability report. After we brought this difference to
HHS? attention, a statement identifying the difference was added to HHS?
fiscal year 2000 accountability report?s overview; however, the statement
did not explain the cause of the difference.

 Similar to the accountability and reporting issues reported for non- CMP
receivables by CMS? external financial statement auditors, CMS also does not
have policies or procedures for reconciling CMP receivables balances in the
general ledger to detailed support maintained in the

subsidiary systems. As discussed above, three separate groups (CMS? long-
term care, HHS OIG, and DOJ) collect CMP debt. Each group maintains at least
one subsidiary system to track its CMP cases. As of September 30, 2000, the
CMP receivables balance in the general ledger and the detailed subsidiary
systems differed by a net of about $22

million, with the difference for each group ranging from what appears to be
an understatement of about $35 million to a possible overstatement of about
$29 million. The difference between the general ledger and the subsidiary
systems for the long- term care CMP debt totaled about $17 million. The
primary reason for the long- term care difference is that, beginning in
fiscal year 1999, all new long- term care CMP receivables are no longer
recorded in the general ledger until a collection is made. This practice is
not in

accordance with SFFAS No. 1, Accounting for Selected Assets and Liabilities,
and SFFAS No. 7, Accounting for Revenue and Other Financing Sources and
Concepts for Reconciling Budgetary and Financial Accounting. These
statements require a receivable to be recognized once amounts that are due
to the federal government are assessed, net of an allowance for
uncollectible amounts. CMS stated that the general ledger does not include
all potentially valid long- term care CMP receivables because of the
unreliability of the long- term care CMP accounts receivable amounts in the
Civil Monetary Penalty

Tracking System. CMS stated that the long- term care CMP receivables would
be reviewed for validity and recorded in the general ledger as part of the
planned upgrade of the subsidiary system.

In addition, according to CMS? accounting records, of the 12 selected
delinquent debts we reviewed, 2 totaling about $24 million were the
responsibility of HHS OIG. However, upon further research by DOJ, these
debts were actually the responsibility of DOJ and were included in DOJ?s
subsidiary system on September 30, 2000, as uncollected. This
misclassification appears to explain a portion of the difference between

the general ledger and HHS OIG?s and DOJ?s subsidiary systems.

 In addition to CMS? lack of policies and procedures relating to the
reconciliation of CMP information, CMS stated that Division of Accounting
staff responsible for the recording of information in the

general ledger use notes and knowledge gained during training provided by
staff previously responsible for the duties to record CMP receivables in the
general ledger. However, these informal policies and procedures do not (1)
contain specific guidance on recording due dates for payments being made
through payment plans or recording collections

against established receivables and (2) address control procedures to ensure
the accurate recording of CMP receivables in the general ledger, such as
review and approval of transactions by a supervisor. Our testing identified
instances, in addition to the above misclassification between HHS OIG and
DOJ receivables, in which CMP receivables were recorded in the general
ledger incorrectly.

For the 12 selected delinquent debts with receivable balances totaling about
$70 million, 7 debts totaling approximately $32 million were recorded
incorrectly in the general ledger. For four of the debts totaling

about $23 million, CMS failed to remove the debts from CMP receivables even
though collections of these debts were received prior to September 30, 2000.
In addition, CMS incorrectly classified three of the debts totaling about $9
million as delinquent, instead of current, even though

collections were being received in accordance with the due dates of the
respective payment plans. Further, for the 12 selected delinquent debts,
documentation supporting one of the debts with a balance of about $3 million
could not be located by DOJ. The status of receivables- current, delinquent,
or paid- should be properly noted since it affects the accuracy of the
allowance for uncollectible accounts, which is netted against gross CMP
receivables reported on HHS? and CMS? financial statements. In addition,
these errors could possibly have been

avoided if there was appropriate review and approval of such transactions.

 Lastly, CMS does not have formal written policies and procedures for
determining its allowance for uncollectible accounts. As previously noted,
CMS stated that its allowance for uncollectible accounts represents the
balance of all CMP debt delinquent for 60 days or longer that is considered
to be inactive and truly delinquent based on a case- bycase review of each
receivable. According to SFFAS No. 1, losses due to uncollectible amounts
should be measured through a systematic methodology with an analysis of both
individual accounts and a group of

accounts as a whole. Individual account analysis should be based on factors
such as the debtor?s ability to pay and the probable recovery of amounts
from secondary sources. Group analysis should be performed using a method
such as statistical estimation by modeling or sampling and should take into
consideration such factors as historical loss experience and recent economic
events. However, CMS? allowance for uncollectible accounts is not based on a
systematic analysis of the

collectibility of the outstanding receivables balance. Incomplete and

CMP debt collection policies and procedures have been established by
Unreliable CMP Data

CMS for the long- term care debt and by HHS OIG and DOJ for the fraud and
abuse debt. However, incomplete and unreliable CMP information limited
Limited the us from determining the overall adequacy of the CMP debt
collection

Determination of policies and procedures. As a result and as agreed with
your staff, we

Overall Adequacy of performed limited tests of CMS? debt collection policies
and procedures. We found that debt collection policies and procedures were
followed for 11

CMP Debt Collection of the 12 selected delinquent debts. We could not
determine whether DOJ

Policies and followed its debt collection policies and procedures for the
remaining selected debt because DOJ was unable to locate supporting

Procedures documentation.

In analyzing long- term care CMP cases and settlement data for fiscal years
1999 and 2000, we noted one debt collection matter in which debt collection
policies and procedures can be strengthened. The matter relates

to CMS often settling at amounts that exceeded the 35- percent discount
threshold established by management. At the three selected regional offices,
we found that CMS reduced the assessed long- term care CMP

amounts more than 35- percent for 89 out of 215 cases (41 percent), or about
$8. 4 million out of about $11.4 million (73 percent) in assessments settled
in fiscal years 1999 and 2000. For the 89 cases, a 35- percent discount on
approximately $8.4 million in assessments results in possible collections of
about $5.5 million. However, CMS actually discounted these cases in total by
about 69 percent, reducing potential collections by about

$2. 9 million. According to CMS officials, other matters can develop while a
hearing is pending that can affect the settlement amount, such as
unavailability of witnesses and new information related to the deficiencies.
In these cases, according to the officials, it may be in CMS? best interests
to settle for less, given the cost of litigation and the risk of not
collecting

anything. However, CMS does not have debt collection policies and procedures
for instances in which a discount greater than 35- percent is allowed. Of
the three selected regional offices, one regional office was

maintaining documentation to support that such settlements were warranted,
while two regional offices were not maintaining documentation. Consistent
with good management practices and the Standards for Internal Control in the
Federal Government, when exceptions to a stated management policy occur,
typical control practices are to document, review, and approve such
exceptions to ensure that management?s objectives are being met.

OMB?s and Treasury?s OMB and Treasury are provided with the information
useful in performing

Roles in the Oversight their debt oversight roles through the agencies?
reporting of CMP

receivables and referral of CMP debt to Treasury for collection. With and
Monitoring of CMP

respect to the reporting of CMP receivables, beginning with fiscal year Debt

1997, CMS and HHS have annually disclosed CMP receivables information in
their financial reports. 10 In accordance with requirements of DCIA and
Treasury guidance, CMS reports receivables information quarterly, which
includes CMP, to Treasury in the Report on Receivables Due from the Public.

However, in discussions with OMB officials, they emphasized that OMB?s
oversight is broad and consists of monitoring and evaluating governmentwide
credit management, debt collection activities, and federal agency
performance. OMB also stated that it is the specific responsibility of the
agency Chief Financial Officer and program managers to manage and

be accountable for the debt collection of their agency?s credit portfolios
in accordance with applicable federal debt statutes, regulations, and
guidance. OMB further added that it is the role of each agency to
specifically monitor and collect its civil penalty debt regardless of dollar
magnitude and the responsibility of each agency?s OIG to provide oversight
through audit of the agency?s debt collection activities. 10 The information
reported to OMB and Treasury needs to be considered in light of the
reliability issues we identified.

Regarding referral of CMP debt to Treasury, Treasury stated that it relies
on the agencies to determine what debt should be referred to Treasury for
collection as required by DCIA. DCIA requires federal agencies to transfer
eligible nontax debt or claims 11 over 180 days delinquent to Treasury for
collection actions. DOJ stated that referral to Treasury was one type of
debt collection tool used by USAOs when pursuing collection of fraud

cases. 12 However, CMS is not referring long- term care CMP debt to Treasury
for collection actions. CMS stated that it plans to refer eligible long-
term care CMP debts to Treasury in the future and is currently researching
the issue.

Conclusion The expanded fraud and abuse detection activities and resulting
growth in fraud and abuse debt is the primary reason for the increase in CMP
receivables over the last several years. In addition, our work found similar
financial accountability and reporting issues as those reported for nonCMP
receivables and that a CMP debt collection policy and procedure can be
strengthened. As long as CMP receivables continue to be considered
immaterial in the judgment of CMS? external financial statement auditors,

minimal audit coverage will be provided in this area. Therefore, CMS
management needs to take steps to improve the accounting and reporting of
CMP receivables.

Recommendations In order to improve CMS? accounting, reporting, and
collection of CMP receivables, we recommend that the Administrator of CMS
establish and

implement formal written accounting and reporting policies and procedures
for

 comparing CMP receivables reported in CMS? audited financial statements
and HHS? accountability report,

 reconciling CMP receivables between CMS? general ledger and the detailed
subsidiary systems, 11 Claims include debts owed to the United States or
debts being collected by the United States on behalf of others. 12 HHS OIG
stated that, as of September 30, 2000, it did not have any eligible
delinquent CMP debt for the cases in which the OIG tracks collections.

 recording of long- term care receivables in the general ledger since
longterm care CMP receivables currently are not recorded in the general
ledger until a collection is made, and

 ensuring the accurate recording of information into the general ledger. We
also recommend that the Administrator of CMS

 determine an approach for assessing the collectibility of outstanding
amounts so that a meaningful allowance for uncollectible accounts can be
reported and used for measuring debt collection performance and

 establish formal written policies and procedures to ensure that the
allowance for uncollectible CMP debts is properly determined using such an
approach.

We further recommend that the Administrator of CMS establish and implement
formal written debt collection policies and procedures for

 handling instances in which a discount greater than 35- percent is
allowed, including the documentation, review, and approval of such
settlements and

 referring eligible long- term care CMP debt to Treasury as required by
DCIA.

Agency Comments and A draft of the briefing slides was provided to CMS, HHS
OIG, DOJ?s

Our Evaluation EOUSA, OMB, and Treasury for their review and comment. CMS?
letter is

reprinted in appendix II. CMS, HHS OIG, DOJ?s EOUSA, OMB, and Treasury also
provided us with technical comments that we considered and addressed, as
appropriate. The following discussion addresses these agencies? comments and
our evaluation.

CMS agreed with all but one of our recommendations. CMS did not agree with
our recommendation to establish and implement debt collection policies and
procedures for instances in which a discount greater than 35- percent is
allowed. According to CMS, flexibility is needed in the settlement process
and issuing policies and procedures on settlements would add rigidity to the
process. It was not our intent that a rigid process for determining
settlement amounts would be implemented. However, consistent with good
management practices and the Standards for Internal Control in the Federal
Government, when exceptions to a stated management policy occur, typical
control practices are to document,

review, and approve such exceptions to ensure that management?s objectives
are being met.

CMS also stated that the non- CMP issues reported by CMS? external financial
statement auditors have no correlation to the CMP issues discussed in the
report. We disagree. Even though these are two different types of debt, the
underlying financial accountability and reporting issues are similar. For
example, as discussed earlier, the external financial

statement auditors reported that non- CMP contractors are unable to
reconcile reported ending balances to the contractors? subsidiary records.
Our review also found reconciliation problems with the CMP receivables. As
discussed in this report, as of September 30, 2000, the CMP receivables

balance in the general ledger and the detailed subsidiary systems differed
by a net of about $22 million.

We are sending copies of this report to the Chairman of the Permanent
Subcommittee on Investigations, Senate Committee on Governmental Affairs, as
well as the Chairman and Ranking Minority Member of the Senate Committee on
Governmental Affairs. We will also provide copies to the Secretary of Health
and Human Services; the Administrator, Centers for Medicare and Medicaid
Services; the Attorney General; the Inspector

General of the Department of Health and Human Services; the Secretary of the
Treasury; and the Director, Office of Management and Budget. Copies will
also be made available to others upon request. If you have any questions
about this report, please contact me at (202) 512-

3406 or Steven Haughton, Assistant Director, at (202) 512- 5999. Additional
contributors to this assignment were Dawn Simpson, Suzanne Murphy, Rathi
Bose, and Marshall Hamlett. Sincerely yours,

Gary T. Engel Director Financial Management and Assurance

Appendi xes Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on

Appendi x I

Governmental Affairs Financial Management and Assurance Team

Review of the Centers for Medicare and Medicaid Services Management and
Collection of Civil Monetary Penalties

Briefing to the Permanent Subcommittee on Investigations, Senate Committee
on Governmental Affairs

December 14, 2001 1

Contents Objectives Overview Background Scope and Methodology Increases in
Fraud and Abuse Debt is Primary Reason for Reported Growth

in CMP Deb CMP Receivables Have Similar Financial Accountability and
Reporting

Issues as Non- CMP Receivables Incomplete and Unreliable CMP Da a Limited
the De ermination of Overall

Adequacy of CMP Deb Collection Policies and Procedures OMB s and Treasury s
Roles in he Oversight and Monitoring of CMP Deb Conclusion Recommendations
Agency Comments

2

Objectives In discussions with you and your staff about reported material

weaknesses related to non- civil monetary penalties ( non- CMP) receivables
at the Centers for Medicare and Medicaid Services ( CMS) , 1 you also
expressed concern over the growth of reported CMP debt.

You requested that we determine the primary reasons for the growth in CMS
reported CMP debt, whether CMS CMP receivables have similar financial

accountability and reporting issues as its non- CMP receivables, 1 Formerly
the Health Care Financing Administration ( HCFA) .

3

Objectives ( cont d) whether adequate processes exist to collect CMP debt,
and what roles, if any, the Office of Management and Budget ( OMB) or

the Department of the Treasury play in overseeing and monitoring CMS
collection of CMP debt.

. 4

Overview We found the following.

Increases in fraud and abuse debt was the primary reason for the reported
growth in CMP debt.

CMS CMP receivables have similar financial accountability and reporting
issues as those identified for non- CMP receivables by its external
financial statement auditors.

Incomplete and unreliable CMP data limi ed the determination of overall
adequacy of CMP debt collection policies and procedures. Instead, as agreed
with your staff, we performed limited tests of CMS debt collection policies
and procedures and found that one policy and procedure, relating to settling
at amounts that exceed a 35- percent discount threshold, can be
strengthened.

5

Overview ( cont d) OMB and Treasury are provided with information useful in

performing CMP debt oversight roles. However, OMB stated that it has broad
oversight responsibility in monitoring and evaluating governmentwide debt
collection activities. OMB further stated that it is the specific
responsibility of the agency to monitor, manage, and collect CMP debt and
the responsibility of the agency s Office of Inspector General ( OIG) to
provide oversight through audit of the agency s debt collection activities.
In addition, Treasury stated that it relies on the agencies to determine
what debt should be referred to Treasury for collection action, as required
by the Debt Collection Improvement Act of 1996 ( DCIA) . However, not all
eligible CMP debts are currently being referred.

6

Background As of September 30, 2000, the Department of Heal h and Human
Services ( HHS) reported that CMS CMP receivables totaled about $ 260
million. CMP debt results from deficiencies at long- term care nursing
facilities ( LTC) or fraud and abuse and is collected by three separate
groups. CMS is responsible for the LTC debt and HHS Office of Inspector
General ( ( OIG) and the Department of Justice ( DOJ) are responsible for
fraud and abuse debt.

1% 11% CMS' LTC HHS' OIG DOJ

Source: CMS Account Receivable -

88%

Aging Report as of 9/ 30/ 00 7

Background ( cont d)

CMP receivables relate to two categories of violations: ( 1) LTC and ( 2)
Fraud and Abuse.

LTC

Sections 1819 ( 42 U. S. C. Sections 1395i- 3) and 1919 ( 42 U. S. C.
Section 1396r) of the Social Security Act require standard surveys of
nursing facilities to determine whether they meet the requirements for
participation in the Medicare and Medicaid programs.

A survey must be conducted at each nursing facility within 15 months of the
previous survey by a state survey agency. In addition, the statewide average
interval between surveys must be 12 months or less.

8

Background ( cont d)

Remedies, of which CMP is one, may be used when a nursing facility is not in
substantial compliance with the requirements for participation in the
Medicare and Medicaid programs.

CMP is imposed either for the number of days ( $ 50 to $ 10,000 per day) or
for each instance ( $ 1,000 to $ 10,000 per instance) that a nursing
facility is not in substantial compliance with the participation
requirements. The amount depends on the severity of the deficiency.

A written notice of the CMP is sent to the nursing facility. The facility
has 60 days from the date of the notice to either waive its right to an
administrative hearing and automatically receive a reduction of 35- percent
in the CMP amount or request an administrative hearing.

9

Background ( cont d)

At any time prior to an administrative hearing, the nursing facility may
enter into a settlement of the CMP amount. Once there is an administrative
hearing decision or a settlement, the final CMP receivable amount is
determined.

According to CMS State Operations Manual , if a decision is made to settle,
the settlement should not be for a better term than had the nursing facility
opted for a 35- percent reduction.

To track assessments and collections, CMS regional offices use the Civil
Monetary Penalty Tracking System ( CMPTS) for FY 1999 and later CMP cases
and spreadsheets for FY 1996 through FY 1998 CMP cases. 2 In addition, CMS
regional offices use the LTC system to track CMP cases.

2 Regulations implementing he imposition of LTC CMP were effective July 1,
1995. The first LTC CMP 10

assessment was made a the beginning of FY 1996.

Background ( cont d)

Fraud and Abuse

DOJ

For civil health care fraud matters, DOJ generally uses the False Claims
Act, as well as common law fraud remedies, payment by mistake, unjust
enrichment, and conversion to recover amounts from those who have submitted
false or improper claims to the United States.

Civil health care fraud matters are referred directly from federal or state
investigative agencies, or result from filings by private persons known as
relators, who file suits on behalf of the federal government under the 1986
qui tam amendments to the False Claims Act.

11

Background ( cont d)

The False Claims Act ( 31 U. S. C. Sections 3729- 3733) provides that anyone
who knowingly submits a false claim to the government is liable for a
penalty from $ 5, 000 to $ 10,000 plus up to three times the amount of
damages sustained by the government.

A court judgment or settlement establishes amounts due by violators. DOJ
prepares a Heal h Care Fraud Tracking Form, 3 which is submitted to HHS OIG
and CMS Office of Financial Management, and establishes the debt in a
tracking system.

3 In documenting a judgment or se lement, DOJ uses this form to note the
judgment or settlement amount and the recipients to be paid from the
collected debt.

12

Background ( cont d)

If the health care violator does not pay the fraud debt, DOJ s U. S.
Attorneys Offices ( ( USAO) have several options to pursue collection, such
as contacting the debtor, securing or executing upon a judgment, filing
liens or garnishments, and referring the delinquent debt to Treasury.

DOJ uses one of the following systems to track assessments and collections
of civil health care fraud cases.

USAOs use either the Tracking Assistance for the Legal Office Network or the
Collection Litigation Automated Support System.

The Civil Division uses the Debt Collection System. 13

Background ( cont d)

HHS OIG

According to HHS OIG data, since 1988, about 90 percent of its CMP
assessments relate to the requirements of Section 1867 of the Social
Security Act ( 42 U. S. C. Section 1395dd) . This statute specifies that a
hospital s emergency department must provide an appropriate medical
screening examination within the capability of the hospital s emergency
department to any individual who comes to the department with a request for
examination or treatment of a medical condition. In addition, if the
hospital determines that the individual has an emergency medical condition,
the hospital must either stabilize the medical condition or transfer the
individual to another medical facility. This statute provides for a maximum
penalty of $ 50,000 per violation.

14

Background ( cont d)

According to HHS OIG data, since 1988, approximately 10 percent of its CMP
assessments relate to violations of the statutory provisions applicable to
false or fraudulent claims submitted to federal health care programs in Sec
ion 1128A of the Social Security Act ( 42 U. S. C. Sections 1320a- 7a) .
This law provides that for false, fraudulent, or otherwise improper claims,
HHS may impose a penalty of not more than $ 10,000 for each item or service
and an assessment of no more than triple the amount claimed for each item or
service in lieu of damages.

15

Background ( cont d)

HHS OIG uses spreadsheets to track assessments and collections of CMP cases.
4

CMS Office of Financial Management is responsible for the accounting and
reporting of CMP receivables in the general ledger using the Financial
Accounting Control System ( FACS) . This office is also responsible for
determining the allowance for uncollectible receivables. According to CMS,
an allowance is calcula ed as the amount of CMP debt delinquent for 60 days
or longer that is considered to be inactive and truly delinquent based on a
case- by- case review of each receivable.

4 According to HHS OIG, collections being received through payment plans for
CMP assessments under Section 1128A of the Social Security Act are sent
directly to CMS. HHS OIG does not track collections

16 for these cases.

Background ( cont d)

HHS OIG s Office of Audit Services stated that due to the immateriality of
CMP receivables balances, no detailed audit work has been performed on CMP
receivables by CMS external financial statement auditors. However, these
auditors have identified various reporting, internal control, and
accountability issues related to Medicare ( non- CMP) receivables.

These issues resulted in a qualified opinion on CMS financial statements for
fiscal year 1998 and a material weakness on non- CMP receivables during
fiscal years 1998 through 2000. 5

The external auditors reported that CMS lack of an integrated financial
management system continues to impair its ability to adequately support the
reported non- CMP receivables activity and balances. 5 CMS financial
statements and related auditor reports referred to in the slides were issued
under 17 CMS former name ( HCFA) .

Background ( cont d)

The external auditors also identified deficiencies in non- CMP receivables
ac ivity, including the following:

incorrectly reported activity by non- CMP contractors and

inability of non- CMP contractors to reconcile reported ending balances to
the contractors subsidiary records.

.

The external auditors recommendations included ( 1) establishing an
integrated financial management system for use by non- CMP contractors and
CMS central and regional offices and ( ( 2) ensuring that all non- CMP
contractors develop and implemen control procedures to provide independent
checks of the validity, accuracy, and completeness of the amounts reported
to CMS, including a reconciliation with the contractors supporting
documentation, , and periodic review of contractors control procedures over
reconciliations.

. 18

Scope and Methodology To accomplish our objectives, we:

Obtained and reviewed CMS audited financial statements, HHS accountability
reports, and other financial reports that relate to CMS CMP and non- - CMP
collection activities.

Analyzed CMS reported CMP receivables and related accounts and information
for fiscal years 1997 through 2000.

Compared CMS CMP accounting records to detailed subsidiary tracking records.

19

Scope and Methodology ( cont d)

Obtained an understanding of CMS CMP debt collection policies and procedures
that relate to LTC, HHS OIG, and DOJ cases, as well as applicable federal
laws and regulations.

Did not select a random sample, due to incomplete and unreliable CMP
information, from CMP receivables as of September 30, 2000, and CMP
receivable cases closed in fiscal years 1999 and 2000. However, as agreed
with your staff, we performed limi ed tests of CMS debt collection policies
and procedures, , including the following.

20

Scope and Methodology ( cont d) Selected and reviewed all delinquent CMP
debts ( over 60 days

delinquent) with a recorded receivable balance as of September 30, 2000,
greater than $ 2 million ( 12 debts) , which represented 57 percent of the
delinquent CMP debt balance and 27 percent of the total CMP debt balance per
CMS records. 6

Analyzed LTC CMP assessment and settlement data for FY 1999 and 2000 for all
cases settled at three selected CMS regional offices. According to CMPTS,
the LTC cases opened at these regional offices represented approximately 76
percent of all LTC CMP cases opened during this 2- year period.

6 The 12 selected debts were fraud cases managed by DOJ. 21

Scope and Methodology ( cont d) Interviewed officials in CMS, HHS OIG, and
DOJ s Executive Office

for U. S. Attorneys ( EOUSA) to obtain explanations for identified
significant trends, similarities with non- CMP receivables material internal
control weaknesses, findings and exceptions, as well as unsupported/
unreconciled amounts.

Interviewed OMB and Treasury officials to determine what roles, if any, OMB
and Treasury play in overseeing and monitoring the government s collection
of civil debt.

22

Scope and Methodology ( cont d) Did not independently verify the
completeness or accuracy of the

subsidiary system data or test information security controls over the
systems used to compile these data.

Provided CMS, HHS OIG, DOJ s EOUSA, OMB, and Treasury with a draft of our
detailed briefing slides, which contained recommendations to the
Administrator of CMS, for review and comment. The comments received are
discussed on the Agency Comments slide or incorporated into the slides as
applicable.

.

Performed our review in Washington, DC and Atlanta, GA from March 2001
through August 2001 in accordance with U. S. generally accepted government
auditing standards.

23

Increases in Fraud and Abuse Debt is the Primary Reason for Reported Growth
in CMP Debt

Between FY 1995 and 1997, fraud and abuse detection activities were expanded
that significantly increased fraud and abuse debts in FY 1997. This was the
primary reason for the growth of CMS CMP receivables. 7

In 1995, under authority to use trust funds money to develop or demonstrate
improved methods for investigating and prosecuting fraud, HHS launched
Project Operation Restore Trust ( ORT) . ORT targeted fraud and abuse in
three high- growth areas of the health care industry: home health agencies,
nursing homes, and durable medical equipmen suppliers.

7 DOJ is responsible for collection activity for the majority of the fraud
and abuse debt. 24

Increases in Fraud and Abuse Debt is the Primary Reason for Reported Growth
in CMP Debt ( cont d)

In 1996, the passage of the Health Insurance Portability and Accountability
Act ( HIPAA) expanded funding for HHS fraud and abuse detection activities.
In FY 1996, HHS reported that ORT combined with the upgraded funding
provided by HIPAA would enable HHS to more aggressively detect and preven
fraud, waste, and abuse.

With the establishment of HIPAA, HHS OIG and DOJ jointly implemented, by
January 1, 1997, the Fraud and Abuse Control Program to combat fraud and
abuse committed in the health plans ( both public and private) .

25

Increases in Fraud and Abuse Debt is the Primary Reason for Reported Growth
in CMP Debt ( cont d)

A DOJ EOUSA official stated that health care fraud activities were expanded
in FY 1996 and FY 1997, and, with the implementation of the Heal h Care
Fraud Tracking Forms in December 1996, DOJ began submitting health care
fraud debts to CMS during FY 1997. Prior to this time, only fraud and abuse
debts submitted by HHS OIG were recorded and reported by CMS.

CMS accounting records revealed that about $ $ 255 million of the $ 260
million CMP receivables balance as of September 30, 2000, related to fraud
and abuse debts. Of the fraud and abuse debts, about $ 172 million remained
outstanding from FY 1997.

26

CMP Receivables Have Similar Financial Accountability and Reporting Issues
as Non- CMP Receivables

Our analysis of CMS CMP receivables data revealed similar financial
accountability and reporting issues as those identified for non- CMP
receivables by CMS external financial statement auditors.

Nonetheless, using HHS accountability reports, the following is a summary of
CMS key CMP financial information for FY 1997 through FY 2000:

CMS outstanding CMP receivables increased from about $ 41 million, as of
September 30, 1996, to about $ 260 million, as of September 30, 2000.

27

CMP Receivables Have Similar Financial Accountability and Reporting Issues
as Non- CMP Receivables ( cont d)

CMS annually reserved, in an allowance account, from 14 to 29 percent of the
outstanding CMP receivables balance for the estimated amounts that it deemed
collection was doubtful.

There were no write- offs of CMS CMP receivables during the 4- -

year period. 28

CMP Receivables Have Similar Financial Accountability and Reporting Issues
as Non- CMP Receivables ( cont d)

CMS does not have policies and procedures requiring it to compare CMP
receivables reported in its audited financial statements and HHS
accountability report. The following differences between such reported
balances have been identified.

According to HHS, CMS is the only HHS component that has CMP. However, FY
1997 through FY 1999 ending balances reported for CMP receivables differed
by tens of millions of dollars between HHS accountability reports and CMS
audited financial statements.

FY 2000 beginning balance for CMP receivables in HHS draft accountability
report was adjusted by approximately $ 50 million to agree with CMS
accounting records.

29

CMP Receivables Have Similar Financial Accountability and Reporting Issues
as Non- CMP Receivables ( cont d)

As a result of the adjustment, the beginning balance in HHS FY 2000
accountability report differed from the ending balance in its FY 1999
accountability report. After we brought this difference to HHS attention, a
statement identifying the difference was added to HHS FY 2000 accountability
report s overview; however, the statement did not explain the cause of the
difference.

According to HHS OIG s Office of Audit Services, no detailed audit work on
CMP receivables has been performed by CMS external financial statement
auditors due to the small balance of CMS CMP receivables in relation to CMS
total accounts receivables, , which consists primarily of non- CMP Medicare
receivables.

30

CMP Receivables Have Similar Financial Accountability and Reporting Issues
as Non- CMP Receivables ( cont d)

As of September 30, 2000, CMS reported CMP receivables were abou $ 260
million, or 3 percent, of total reported accounts receivables of
approximately $ 8.1 billion, of which non- CMP Medicare receivables totaled
more than $ 7. 7 billion.

Similar to the accountability and reporting issues reported for non- CMP
receivables by CMS external financial statement auditors, CMS also does not
have policies or procedures for reconciling CMP accounts receivables
balances to detailed support maintained in the subsidiary systems.

31

CMP Receivables Have Similar Financial Accountability and Reporting Issues
as Non- CMP Receivables ( cont d)

For FY 2000, the amounts reported in HHS and CMS financial reports differed
significantly from the underlying subsidiary ledgers. As of September 30,
2000, CMP receivables balance in FACS and the detailed subsidiary systems
differed by a net of about $ 22 million.

( Dollars in Subsidiary thousands) FACS Systems Difference LTC $ 3,687 $ 21,
109 ( $ 17,422) HHS OIG 28,922 87 28, 835 DOJ 226,443 261, 393 ( 34,950)
Interest 1,437 0 1, 437 Totals $ 260,489 $ 282,589 ( $ 22,100)

Sources: FACS: CMS Account Receivable - Aging Report as of 9/ 30/ 00
Subsidiary Systems: Data files provided by CMS, HHS OIG, and DOJ

32

CMP Receivables Have Similar Financial Accountability and Reporting Issues
as Non- CMP Receivables ( cont d) Statement of Federal Financial Accounting
Standards ( SFFAS) No. 1,

Accounting for Selected Assets and Liabilities , and SFFAS No. 7,

Accounting for Revenue and Other Financing Sources and Concepts for
Reconciling Budgetary and Financial Accounting , state that a receivable
should be recognized once amounts that are due to the federal government are
assessed, net of an allowance for uncollectible amounts.

However, CMS stated that beginning in FY 1999, all new LTC CMP receivables
are no longer recorded in FACS until a collection is made due to the
unreliability of the accounts receivable amounts in CMS subsidiary system- -
CMPTS. CMS stated that the LTC CMP receivables would be reviewed for
validity as part of the planned upgrade of CMPTS. As a result, FACS does not
include all potentially valid LTC CMP receivables. This appears to be the
primary reason for the LTC difference between FACS and the subsidiary
system.

33

CMP Receivables Have Similar Financial Accountability and Reporting Issues
as Non- CMP Receivables ( cont d)

Of the 12 selected delinquent debts that we reviewed, 2 totaling about $ 24
million were the responsibility of HHS OIG according to CMS accounting
records. However, upon further research by DOJ, these debts were actually
the responsibility of DOJ and were included in DOJ s subsidiary system on 9/
30/ 00 as uncollected. This misclassification appears to explain a por ion
of the difference between FACS and HHS OIG s and DOJ s subsidiary systems.

CMS does not have formal written policies and procedures for determining its
allowance for uncollectible accounts. CMS stated that the allowance
represents the balance of all CMP debt delinquent for 60 days or longer that
is considered to be inactive and truly delinquent based on a case- by- case
review of each receivable.

34

CMP Receivables Have Similar Financial Accountability and Reporting Issues
as Non- CMP Receivables ( cont d)

According to SFFAS No. 1, losses due to uncollectible amounts should be
measured through a systematic methodology with an analysis of both
individual accounts and a group of accounts as a whole. Individual account
analysis should be based on factors such as the debtor s ability to pay and
the probable recovery of amounts from secondary sources. Group analysis
should be performed using a method such as statistical estimation by
modeling or sampling and should take into consideration such factors as
historical loss experience and recent economic events.

However, CMS allowance for uncollectible accounts is not based on a
systematic analysis of the collectibility of the outstanding receivables
balance.

35

CMP Receivables Have Similar Financial Accountability and Reporting Issues
as Non- CMP Receivables ( cont d) For the 12 selected delinquent debts with
receivable balances totaling

about $ 70 million, 7 debts totaling approximately $ 32 million were
recorded incorrectly in FACS.

CMS failed to remove four of the debts totaling about $ 23 million from CMP
receivables even though collections of these debts were received prior to
September 30, 2000.

CMS incorrectly classified three of the debts totaling about $ 9 million as
delinquent, instead of current, even though collections were being received
in accordance with the due dates of the respective payment plans.

For the 12 selected delinquent debts, documentation supporting one of the
debts with a balance of about $ 3 million could not be located by DOJ.

36

CMP Receivables Have Similar Financial Accountability and Reporting Issues
as Non- CMP Receivables ( cont d)

CMS stated that Division of Accounting staff responsible for the recording
of information in FACS use notes and knowledge gained during training
provided by staff previously responsible for the duties to record CMP
receivables in the general ledger. However, these informal policies and
procedures do not ( 1) contain specific guidance on recording due dates for
payments being made through payment plans or recording collections against
established receivables and ( 2) address control procedures to ensure the
accurate recording of CMP receivables in the general ledger, such as review
and approval of transactions by a supervisor.

The status of receivables current, delinquent, or paid should be properly
noted since it affects the accuracy of the allowance for uncollectible
accounts, which is netted against gross CMP receivables reported on HHS and
CMS financial statements. In addition, these errors could possibly have been
avoided if there was appropriate review and approval of such transactions.

37

Incomplete and Unreliable CMP Data Limited the Determination of Overall
Adequacy of CMP Debt Collection Policies and Procedures

CMS ( LTC, HHS OIG, and DOJ) has established debt collection policies and
procedures. However, incomplete and unreliable CMP information limited us
from determining the overall adequacy of the CMP debt collection policies
and procedures. As a result and as agreed with your staff, we performed limi
ed tests of CMS debt collection policies and procedures and found the
following.

For 11 of the 12 selected delinquent debts, DOJ followed its debt collection
policies and procedures.

For four cases, DOJ had followed its procedures and had collected the debts
in full.

38

Incomplete and Unreliable CMP Data Limited the Determination of Overall
Adequacy of CMP Debt Collection Policies and Procedures ( cont d)

For three cases, DOJ was following its procedures for collecting the debts
in accordance with the respective payment plans.

Four cases remained delinquent, but DOJ was following its procedures for
pursuing collection of unpaid debt.

We were unable to determine whether DOJ followed its debt collection
policies and procedures for one case since DOJ was unable to locate
supporting documentation.

39

Incomplete and Unreliable CMP Data Limited the Determination of Overall
Adequacy of CMP Debt Collection Policies and Procedures ( cont d)

For LTC CMP debt collection policies and procedures, we noted one debt
collection matter in which such policies and procedures can be strengthened.
The matter relates to CMS often settling at amounts that exceeded the 35-
percent discount threshold.

At the three selected regional offices, CMS reduced the assessed LTC CMP
amounts more than 35- percent for 89 out of 215 cases ( 41 percent) , or
about $ 8.4 million out of about $ 11.4 million ( 73 percent) in assessments
settled in fiscal years 1999 and 2000.

For the 89 cases, a 35- percent discount on approximately $ 8. 4 million in
assessments results in possible collections of about $ 5. 5 million.
However, CMS actually discounted these cases in total by about 69 percent,
reducing potential collections by $ 2. 9 million.

40

Incomplete and Unreliable CMP Data Limited the Determination of Overall
Adequacy of CMP Debt Collection Policies and Procedures ( cont d)

According to CMS, other matters can develop while an administrative hearing
is pending that can affect the settlement amount, such as unavailability of
witnesses and new information related to the deficiencies. In these cases,
according to CMS, i may be in CMS best in erest to settle for less, given
the cost of litigation and the risk of no collecting anything. However, CMS
does not have debt collection policies and procedures for instances in which
a discount greater than 35- percent is allowed. Of the three selected
regional offices, one regional office was maintaining documentation to
support tha such settlements were warranted, while two regional offices were
not maintaining documentation. Consistent with good management practices and
8 the Standards for Internal Control in the Federal Government , when
exceptions to a stated management policy occur, typical control practices
are to document, review, and approve such exceptions to ensure that
management s objectives are being met.

8 GAO/ AIMD- 00- 21. 3. 1, November 1999. 41

OMB s and Treasury s Roles in the Oversight and Monitoring of CMP Debt

Reporting of CMP Receivables 9

Beginning with fiscal year 1997, CMS and HHS have annually disclosed CMP
receivables information in their financial reports.

In accordance with requirements of DCIA and Treasury guidance, CMS reports
receivables information quarterly, which includes CMP, to Treasury in the
Report on Receivables Due from the Public.

9 The informa ion reported to OMB and Treasury needs o be considered in ligh
of the reliability 42

issues we identified ( see slides 27- 37) .

OMB s and Treasury s Roles in the Oversight and Monitoring of CMP Debt (
cont d)

OMB and Treasury are provided with information useful in performing CMP debt
oversight roles. However, in discussions with OMB officials, they emphasized
that OMB s oversight is broad and consists of moni oring and evaluating
governmentwide credit management, debt collection activities, and federal
agency performance. OMB also stated that it is the specific responsibility
of the agency Chief Financial Officer and program managers to manage and be
accountable for the debt collection of their agency s credit portfolios in
accordance with applicable federal debt statutes, regulations, and guidance.
OMB fur her added that it is the role of each agency to specifically monitor
and collect its civil penalty debt regardless of dollar magnitude and the
responsibility of each agency s OIG to provide oversight through audit of
the agency s debt collection activities.

43

OMB s and Treasury s Roles in the Oversight and Monitoring of CMP Debt (
cont d)

Referral of CMP Debt to Treasury

DCIA requires federal agencies to transfer eligible nontax debt or claims
over 180 days delinquent to Treasury for collection action.

DOJ stated that referral to Treasury was one type of debt collection tool
used by USAOs when pursuing collection of fraud cases. 10

CMS stated that CMS is not referring LTC CMP debt to Treasury for collection
actions. CMS stated that it plans to refer eligible LTC CMP debts to
Treasury in the future and is currently researching the issue.

10 HHS OIG stated that, as of Sep ember 30, 2000, it did not have any
eligible delinquent CMP debt 44

for the cases in which the OIG tracks collections.

OMB s and Treasury s Roles in the Oversight and Monitoring of CMP Debt (
cont d)

Treasury stated that it relies on the agencies to determine what debt should
be referred to Treasury for collection action, as required by DCIA.

45

Conclusion

The expanded fraud and abuse detection activities and resulting growth in
fraud and abuse debt is the primary reason for the increase in CMP
receivables over the last several years. In addition, our work found similar
financial accountability and reporting issues as those reported for non- CMP
receivables and that a CMP debt collection policy and procedure can be
strengthened. As long as CMP receivables continue to be considered
immaterial in the judgment of CMS external financial statement auditors,
minimal audit coverage will be provided in this area. Therefore, CMS
management needs to take steps to improve the accounting and reporting of
CMP receivables.

46

Recommendations

We recommend that the Administrator of CMS take the following actions.

Establish and implement formal written accounting and reporting policies and
procedures for

( 1) comparing CMP receivables reported in CMS audited financial statements
and HHS accountability report,

( 2) reconciling CMP receivables between CMS general ledger and the detailed
subsidiary systems,

( 3) recording of LTC receivables in FACS since LTC CMP receivables
currently are not recorded in FACS until a collection is made, and

( 4) ensuring the accurate recording of information into FACS. 47

Recommendations ( cont d)

Determine an approach for assessing the collectibility of outstanding
amounts so that a meaningful allowance for uncollectible accounts can be
reported and used for measuring debt collection performance. In addition,
establish formal written policies and procedures to ensure that the
allowance for uncollectible CMP debts is properly determined using such an
approach.

Establish and implement formal written debt collection policies and
procedures for

( 1) handling ins ances in which a discount greater than 35- percent is
allowed, including the documentation, review, and approval of such
settlements, and ( 2) referring eligible LTC CMP debt to Treasury as
required by

DCIA. 48

Agency Comments

In commenting on these briefing slides, CMS agreed with all bu one of our
recommendations.

CMS did not agree with our recommendation to establish and implement debt
collection policies and procedures for instances in which a discount greater
than 35- percent is allowed. According to CMS, flexibility is needed in the
settlement process and issuing policies and procedures on settlements would
add rigidity to the process. It was not our intent that a rigid process for
determining settlement amounts would be implemented. However, consisten with
good management practices and the Standards for Internal Control in the
Federal Government , when exceptions to a stated management policy occur,
typical control practices are to document, review, and approve such
exceptions to ensure that management s objectives are being met.

49

Agency Comments ( cont d)

CMS also stated that the non- CMP issues reported by CMS external financial
statement auditors have no correlation to the CMP issues discussed in the
slides. We disagree. Even though these are two different types of debt, the
underlying financial accountability and reporting issues are similar. For
example, as discussed on slide 18, the ex ernal financial statement auditors
reported that non- CMP contractors are unable to reconcile reported ending
balances to the contractors subsidiary records. . Our review also found
reconciliation problems with the CMP receivables. As discussed on slide 32,
as of September 30, 2000, CMP receivables balances in FACS and the detailed
subsidiary systems differed by a net of about $ 22 million.

50

Comments From the U. S. Department of Health and Human Services? Centers for

Appendi x II

Medicare and Medicaid Services Note: GAO comments supplementing those in the
report text appear at the end of this appendix.

See comment 1.

See comment 1. See comment 2. See comment 3.

The following are our comments on the Centers for Medicare and Medicaid
Services? letter dated August 30, 2001.

GAO Comments 1. We subsequently combined recommendations 1 and 3 together
under recommendation 1 in order to group related topics. CMS agreed with
both recommendations. 2. Recommendation 4 was subsequently renumbered as
recommendation

3 due to the combining of recommendations 1 and 3. 3. See the ?Agency
Comments and Our Evaluation? section.

191021

a

GAO United States General Accounting Office

Page i GAO- 02- 116 CMS' Civil Monetary Penalties Debt

Contents

Page 1 GAO- 02- 116 CMS' Civil Monetary Penalties Debt United States General
Accounting Office

Washington, D. C. 20548 Page 1 GAO- 02- 116 CMS' Civil Monetary Penalties
Debt

A

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Appendix I

Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

Page 22 GAO- 02- 116 CMS' Civil Monetary Penalties Debt

Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

Page 23 GAO- 02- 116 CMS' Civil Monetary Penalties Debt

Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

Page 26 GAO- 02- 116 CMS' Civil Monetary Penalties Debt

Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Appendix I Briefing to the Permanent Subcommittee on Investigations, Senate
Committee on Governmental Affairs

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Page 68 GAO- 02- 116 CMS' Civil Monetary Penalties Debt

Appendix II

Appendix II Comments From the U. S. Department of Health and Human Services?
Centers for Medicare and Medicaid Services

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Appendix II Comments From the U. S. Department of Health and Human Services?
Centers for Medicare and Medicaid Services

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Appendix II Comments From the U. S. Department of Health and Human Services?
Centers for Medicare and Medicaid Services

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Appendix II Comments From the U. S. Department of Health and Human Services?
Centers for Medicare and Medicaid Services

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Appendix II Comments From the U. S. Department of Health and Human Services?
Centers for Medicare and Medicaid Services

Page 73 GAO- 02- 116 CMS' Civil Monetary Penalties Debt

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