Medicare Financial Management: Significant Progress Made to	 
Enhance Financial Accountability (31-OCT-02, GAO-03-151R).	 
                                                                 
Medicare provided health care coverage to 40 million people age  
65 and over and to qualifying disabled persons at a cost of $240 
billion in fiscal year 2001. In 1990, GAO designated the program 
as "high risk" for fraud and abuse because of its vast size,	 
complex structure, and program management weaknesses. GAO issued 
two reports in 2000 that discussed weaknesses in the Centers for 
Medicare and Medicaid Services' (CMS) oversight of Medicare	 
contractors' financial operations and the guidance it provides	 
contractors in carrying out Medicare financial activities. GAO	 
also cited CMS for deficiencies in its accounting procedures and 
improper payment measurement projects. GAO determined that CMS	 
implemented corrective actions to substantially address four of  
the eight recommendations included in the 2000 reports and has	 
made good progress in addressing the remaining four. Actions	 
taken by CMS include the implementation of more in-depth internal
control reviews at Medicare contractors as well as the		 
development of an accounting procedures manual to guide its	 
financial management staff in consistent accounting and reporting
for Medicare. CMS has also tested several innovative analysis	 
techniques for identifying improper payments. These actions have 
helped CMS address some significant, long-standing financial	 
management issues.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-151R					        
    ACCNO:   A05449						        
  TITLE:     Medicare Financial Management: Significant Progress Made 
to Enhance Financial Accountability				 
     DATE:   10/31/2002 
  SUBJECT:   Accounting procedures				 
	     Financial management				 
	     Managed health care				 
	     Internal controls					 
	     Program management 				 
	     Medicare Program					 

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GAO-03-151R

                                       A

October 31, 2002 The Honorable Stephen Horn Chairman, Subcommittee on
Government Efficiency,

Financial Management and Intergovernmental Relations Committee on
Government Reform House of Representatives

Subject: Medicare Financial Management: Significant Progress Made to
Enhance Financial Accountability

Dear Mr. Chairman: Medicare provided health care coverage to 40 million
people age 65 and over and to qualifying disabled persons at a cost of
about $240 billion in fiscal year 2001. In 1990, GAO designated the
program as *high risk* for fraud and abuse because of its vast size,
complex structure, and program

management weaknesses. 1 In March and September 2000, we issued two
reports, one on Medicare financial management and the other on Medicare
improper payments. 2 These reports discussed weaknesses in the Centers for
Medicare and Medicaid Services* (CMS) oversight of Medicare contractors*
financial operations and the guidance it provides contractors in carrying
out Medicare financial activities. We also cited CMS for

deficiencies in its accounting procedures and improper payment measurement
projects. We made eight recommendations for CMS to improve its performance
in these areas and establish better financial control over the Medicare
program.

At your request, we assessed CMS*s progress in addressing these
recommendations. This letter summarizes the information provided during
our briefing to your staff on September 6, 2002. The enclosed briefing
slides highlight the results of our work and the information provided at
the briefing.

1 U. S. General Accounting Office, High- Risk Series: An Update, GAO- 01-
263 (Washington, D. C: January 2001). 2 U. S. General Accounting Office,
Medicare Financial Management: Further Improvements Needed to Establish
Adequate Financial Control and Accountability, GAO- AIMD- 00- 66
(Washington, D. C.: Mar. 15, 2000) and Medicare Improper Payments: While
Enhancements Hold Promise for Measuring Potential Fraud and Abuse,
Challenges Remain, GAOAIMD/

OSI- 00- 281 (Washington, D. C.: Sept. 15, 2000).

Results in Brief CMS has implemented corrective actions to substantially
address four of the eight recommendations and has made good progress in
addressing the remaining four. Actions taken by CMS include the
implementation of more in- depth internal control reviews at Medicare
contractors as well as the development of an accounting procedures manual
to guide its financial management staff in consistent accounting and
reporting for Medicare.

CMS has also tested several innovative analysis techniques for identifying
improper payments. These actions have helped CMS address some significant,
long- standing financial management issues. Despite this progress, CMS
needs to take further steps to fully address the remaining

four recommendations. These steps include expanding its analysis of
contractor financial data, ensuring resolution of audit findings, and
enhancing detection of fraudulent and abusive Medicare payments. CMS is in
the process of developing and implementing such actions.

Scope and To fulfill our objectives of assessing CMS*s progress in
addressing our prior Methodology recommendations, we

 reviewed CMS*s audited financial statements for fiscal year 2000 and
2001, other financial reports, fiscal year 2001- 2003 Annual Performance
Plans, and the Comprehensive Plan for Financial Management to identify
initiatives that address previously identified financial management
weaknesses, determine if plans included actions to address our
recommendations, and determine if the actions included were sufficient to
address our recommendations;  obtained documentation on procedures
implemented to address our recommendations and observed CMS Office of
Financial Management staff while performing these procedures to determine
if the procedures were in place and operating effectively;

 performed tests of audit resolution activities to confirm that
procedures implemented to address our recommendations were in place and
operating effectively;

 used the Comptroller General*s Standards for Internal Control in the
Federal Government 3 to assess policies and procedures that CMS developed
to address our recommendations;  used our guide on Strategies to Manage
Improper Payments 4 to evaluate the three improper payment measurement
projects and other

initiatives that CMS had under way or planned; and

 held numerous interviews with the CMS Chief Financial Officer (CFO),
Deputy CFO, program integrity officials, and staff members in the
Department of Health and Human Services* Office of the Inspector General
to obtain an understanding of the actions taken to address our
recommendations.

We conducted our work from January 2002 through July 2002 in accordance
with generally accepted government auditing standards. We requested
comments on a draft of this report from the CMS CFO, Deputy

CFO, and senior Medicare program integrity officials. These officials
generally agreed with our findings as presented in the enclosed briefing
slides, and the oral comments that they provided have been incorporated,
as appropriate.

We are sending copies of this report to the Ranking Minority Member of
your Subcommittee and the Chairmen and Ranking Minority Members of the
Senate Committee on Governmental Affairs and House Committee on Government
Reform. We are also sending copies of this report to the Secretary of
Health and Human Services, Administrator of the Centers for Medicare and
Medicaid Services, and other interested parties.

This report is available at no charge on our home page at http:// www.
gao. gov. If you have any questions about this report, please contact me
at (202) 512- 8341 or Kimberly Brooks, Assistant Director, at (202) 512-
9038. You may also reach us by E- mail at calboml@ gao. gov or 3 U. S.
General Accounting Office, Standards for Internal Control in the Federal

Government, GAO/ AIMD- 00- 21. 3. 1 (Washington, D. C.: November 1999). 4
U. S. General Accounting Office, Strategies to Manage Improper Payments:
Learning from Public and Private Sector Organizations, GAO- 02- 69G
(Washington, D. C.: October 2001).

brooksk@ gao. gov. Key contributors to this assignment were Johnny Clark,
Lisa Crye, Suzanne Murphy, Cynthia Teddleton, and Lisa Willett.

Sincerely yours, Linda M. Calbom Director Financial Management and
Assurance

Enclosure

Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

Medicare Financial Management Significant Progress Made to Enhance

Financial Accountability Briefing to the staff of the Subcommittee on
Government Efficiency, Financial Management and

Intergovernmental Relations House Committee on Government Reform

September 2002 10/ 31/ 2002 1

Briefing Purpose

This briefing provides the results of our review based on your request
that we assess the Centers for Medicare and Medicaid Services ( CMS)
progress in establishing accountability for the Medicare program,
including progress in addressing our prior recommendations to

correct internal control weaknesses and other financial management issues,
and

enhance efforts for identifying and measuring Medicare fee- for- service
improper payments, including those attributable to potential fraud and
abuse.

10/ 31/ 2002 2

Re ults in Brief

In March and September 2000, we reported on Medicare financial management
and improper payments, finding weaknesses in oversight of contractor
financial activities, accounting procedures, and improper payment
measurement projects. We made eight recommendations for CMS to improve its
performance in these areas. CMS has implemented corrective actions to
substantially address four of the eight recommendations and has made good
progress in addressing the remaining four recommendations. These actions
have helped CMS correct some significant, long- standing financial
management issues. Additional actions are needed to fully address the
remaining recommendations and CMS has either developed or partially
implemented such actions. Our report recommendations and the specific
results of our review are included in table 1.

10/ 31/ 2002 3

Re ults in Brief Status of Recommendation

Table 1 Status of Recommendations Recommendations

Substantial Additional actions

progress made needed Medicare

GAO/ AIMD- 00- 66 Medicare Financial

financial

Management: Further Improvements Needed

management

to Establish Adequate Financial Control and Accountability ( March 2000)

Improve guidance to contractors for

*

executing financial activities. Refine and expand review procedures to

*

improve oversight of contractor financial activities.

Develop, document, and implement

*

procedures for evaluating and resolving audit findings and coordinate
implementation between central and regional staff.

Develop analysis and risk assessment

*

procedures. Develop comprehensive accounting policies

* and procedures. Develop a comprehensive strategy for

*

Medicare financial management. 10/ 31/ 2002 4

Results in Brief Status of Recommendation

Recommendations Substantial

Additional actions progress made needed Medicare

GAO/ AIMD/ OSI- 00- 281 Medicare Improper

improper

Payments: While Enhancements Hold Pro ise

payments

for Measuring Potential Fraud and Abuse, Challenges Re ain ( September
2000)

Experiment with incorporating additional techniques for detecting
potential fraud and abuse into methodologies used to identify improper
payments and evaluate their effectiveness.

*

Include sufficient scope and evaluation in the

* design of measurement methodologies to more effectively identify
underlying causes of improper payments, including potential fraud and
abuse, in order to develop appropriate corrective actions.

10/ 31/ 2002 5

Scope and Methodology

For this review we did the following: Reviewed CMS s audited FY 2000 and
FY 2001 financial statements;

Department of Health and Human Services ( HHS) accountability reports; and
GAO, HHS s Office of Inspector General ( OIG) , and other financial
reports to determine the status of previously identified financial
management weaknesses.

Reviewed CMS s FY 2001 through FY 2003 Annual Performance Plans and the
Comprehensive Plan for Financial Management to determine if the plans
included actions addressing our recommendations.

Performed tests of CMS s database of financial management procedures to
assess its effectiveness in providing guidance to contractors. 10/ 31/
2002 6

Scope and Methodology ( cont d)

Performed walk- throughs to observe Office of Financial Management
activities and tests of audit resolution activities to confirm that
procedures related to our recommendations were in place and operating
effectively.

Used the Comptroller General s Standards for Internal Control in the
Federal Government 1 to assess policies and procedures that CMS developed
to address our recommendations.

Used our guide on Strategies to Manage Improper Payments 2 to evaluate the
three improper payment measurement projects and other initiatives that CMS
had under way or planned. 1 U. S. General Accounting Office, Standards for
Internal Control in the Federal Govern ent, GAO/ AIMD- 00- 21. 3. 1 (
Washington, D. C. : Nov. 2001) 2 U. S. General Accounting Office,
Strategies to Manage I proper Pay ents: Learning fro Public and Private
Sector Organizations, GAO- 02

69G ( Washington, D. C. : Oct. 2001) 10/ 31/ 2002 7

Scope and Methodology ( cont d)

Held numerous interviews with CMS officials, including the Chief Financial
Officer ( CFO) , Deputy CFO, staff in the Office of Financial Management s
Accounting Management Group and the Program Integrity Group, CMS regional
financial management staff, and the HHS/ OIG staff to obtain an
understanding of the actions taken by CMS to address our recommendations.

Conducted our work from January 2002 through July 2002 in accordance with
generally accepted government auditing standards. We requested comments on
a draft of this briefing from the CMS Chief Financial Officer ( CFO) ,
Deputy CFO, and senior Medicare program integrity officials. These
officials generally agreed with our findings and the oral comments that
they provided have been incorporated.

10/ 31/ 2002 8

Background

Medicare Annually, provides health care coverage to about 40 million
people 65

and over and to qualifying disabled persons. Medicare costs were about $
240 billion in FY 2001.

Is a program designated by GAO as high risk for fraud and abuse because of
its vast size, complex structure, and program management weaknesses. 3

CMS Has primary responsibility for administering the Medicare program.

Employs about 50 Medicare claims contractors 4 that are responsible for
processing fee- for- service claims, managing the billions of dollars used
to pay those claims, and protecting Medicare from fraud and abuse.

3 U. S. General Accounting Office, High- Risk Series: An Update , GAO- 01-
263 (Washington, D. C: Jan. 2001).

4 There are 37 companies that CMS contracts with to process claims. CMS
counts them as 50 contractors because some have two contracts toprocess
both Part A and Part B Medicare claims.

10/ 31/ 2002 9

Background ( cont d)

Medicare Financial Management CMS received a clean opinion on its FY 2001
financial statements.

This was the third consecutive unqualified opinion. However, the audit of
CMS s financial statements cited material internal control weaknesses
including ineffective financial systems and processes, specifically the
lack of an integrated accounting system and inadequacies in CMS oversight
of contractors financial data

CMS oversees contractors financial operations annually through four types
of reviews:

Annual financial statement audits - which test expenditures and internal
controls for a sample of Medicare contractors.

10/ 31/ 2002 10

Background ( cont d)

Medicare Financial Management ( cont d) Accounts receivable reviews -
which validate completeness and

accuracy of contractors accounts receivable for the CFO audit. . Statement
of Auditing Standards ( SAS) # 70 reviews - which assess

contractors internal control environments and determine if stated controls
are in place and operating effectively.

Internal control certification reviews - which validate contractors
processes for annually assessing internal control and reporting results to
CMS.

10/ 31/ 2002 11

Background ( cont d)

Medicare Financial Management ( cont d) In March 2000, we reported on CMS
s financial management, finding

that CMS had not addressed long- standing weaknesses. Specifically, CMS
had not improved its oversight of contractor financial activities,
documented its accounting policies and procedures, resolved audit findings
in a timely manner, or developed a financial management strategy.

10/ 31/ 2002 12

Background ( cont d)

Medicare Improper Payments Since 1996, the OIG has estimated the level of
improper Medicare

payments. In fiscal year 2001, the OIG reported an estimated $ 12. 1
billion of improper payments, which is 6.3 percent of total fee- for-
service payments.

In 2000, CMS had three improper payment measurement projects designed to
enhance its ability to measure and reduce the rate of improper payments in
various stages of development.

The Comprehensive Error Rate Testing ( CERT) project and the Payment Error
Prevention Program ( PEPP) were designed to provide improper payment
estimates by provider, contractor, type of service, and geographic
location.

The Model Fraud Rate Project was designed to test the use of a variety of
investigative techniques and develop a methodology for measuring fraud and
abuse.

10/ 31/ 2002 13

Background ( cont d)

Medicare Improper Payments ( cont d) In September 2000, we reported on the
three measurement projects,

finding that CMS could improve its ability to determine underlying causes
of improper payments, including fraud and abuse, by incorporating certain
techniques such as data analysis that focuses on provider and beneficiary
billing histories, third party confirmations to validate claims data with
independent sources, and beneficiary and provider contacts.

10/ 31/ 2002 14

Review Results Financial Management

The Following Are Actions CMS Has Taken to Address Recommendations in our
March 2000 Report

Medicare Financial Management: Further Improvements Needed to Establish
Adequate Financial Control

and Accountability ( GAO/ AIMD- 00- 66) 10/ 31/ 2002 15

Review Results Financial Management Recommendation

To improve financial management and accountability in the Medicare
program, we recommended that the CMS Administrator:

Improve guidance to contractors for executing Medicare financial
activities by ensuring that financial management policies are updated and
issued.

CMS Action

Updated and issued 19 program memorandums since we last reported that
provide contractors with policy guidance on several long- standing
financial reporting problems.

FY 2001 financial statement audit findings, as compared to those of FY
2000, showed a reduction in findings related to untimely cost reporting,
untimely debt transfers, and inappropriate allocation of funds between
Medicare trust funds since guidance was issued.

10/ 31/ 2002 16

Review Results Financial Management CMS Actions ( cont d)

Developed an Internet- accessible database that consolidates all financial
management guidance, including recently issued program memorandums.

The database provides contractors with easier access to key financial
management regulations that were previously contained in several different
manuals.

Held conferences to issue and discuss new policies on financial issues.
Contractors reported that the conferences helped clarify existing and
proposed guidance and allowed them to provide comments before policies
were finalized.

10/ 31/ 2002 17

Review Results Financial Management Progress Assessment

Substantial progress made. Recommendation closed. 10/ 31/ 2002 18

Review Results Financial Management Recommendation

Refine and expand review procedures to improve oversight of contractor
financial activities.

CMS Action

Expanded the internal control objectives used in evaluating contractors
financial operations.

The revised internal control objectives provide CMS with more detailed
criteria for evaluating whether contractors properly record and document
financial transactions and clarify internal control requirements for
contractors.

10/ 31/ 2002 19

Review Results Financial Management CMS Actions ( cont d)

Refined the types of internal control reviews conducted annually.
Performed reviews at 13 of the 50 contractors that tested if internal

controls designed for Medicare activities were in place and operating
effectively as compared to previous reviews that only assessed the design
of internal controls.

Instituted a review to verify the process contractors follow in their
annual assessments of internal control. The number of internal control
weaknesses self- reported by contractors significantly increased after
this process was implemented.

Medicare contractors reported 42 material weaknesses and 308 reportable
conditions in their financial operations in FY 2000. After the validation
process, contractors reported 300 material weaknesses and 1,300 reportable
conditions in FY 2001.

10/ 31/ 2002 20

Review Results Financial Management Progress Assessment

Additional action is needed. Recommendation remains open. While CMS has
made significant improvements, its efforts to refine

and expand review of contractors financial activities have not included
ongoing review at all contractors of monthly expenditure reports that are
an important control for monitoring contractor financial operations.

The monthly expenditure report includes a reconciliation of funds expended
by each contractor that helps ensure that amounts reported to CMS by
contractors are accurate, supported, complete, and properly classified.

CMS has developed procedures for reviewing the monthly expenditure reports
and recently applied the procedures in reviews at six Medicare
contractors. CMS expects to expand reviews to more contractors in FY 2003.

10/ 31/ 2002 21

Review Results Financial Management Recommendation

Develop, document, and implement procedures for evaluating and resolving
audit findings and coordinate with central and regional staff to ensure
that corrective actions are implemented in a timely manner.

CMS Action

Developed and issued written procedures that provide staff with guidance
for evaluating audit findings from all financial- related reviews and
steps to follow in resolving the weaknesses identified.

The procedures clarify requirements that contractors must adhere to in
submitting corrective action plans that address identified weaknesses.
They also provide CMS staff with instructions on how to evaluate the
adequacy of the contractors plans.

10/ 31/ 2002 22

Review Results Financial Management CMS Actions ( cont d)

Developed and implemented systems to track findings from the four types of
contractor financial oversight reviews conducted annually. These systems
have helped ensure that all findings reported to CMS are being tracked.

Established a work group of central and regional staff to develop a
strategy for ensuring that contractors take action to address weaknesses
identified from audits. This work group is responsible for developing
procedures for monitoring contractors actions and designating the central
and regional staff to carry out the procedures.

10/ 31/ 2002 23

Review Results Financial Management Progress Assessment

Additional action is needed. Recommendation remains open. While
improvements have been made, the current process for

tracking audit findings is inefficient. Staff must manually enter audit
findings from different audits into s ability to obtain a comprehensive
summary of contractor problems and ensure resolution of all issues.

CMS recently began developing a combined system for tracking audit
findings and contractor corrective action plans that will address current
inefficiencies. Implementation is expected in 2003.

CMS continues to formulate an agreement between central and regional staff
on responsibility for overseeing contractors implementation of corrective
action plans. The work group that CMS formed to address this issue has not
yet implemented a strategy.

10/ 31/ 2002 24

Review Results Financial Management Recommendation

Develop analysis and risk assessment procedures to improve CMS s ability
to detect irregular financial activities and identify high- risk
contractors.

CMS Action

Developed analytical tools to perform trend analysis of critical financial
data, including Medicare accounts receivable. Identified several
overstatements that would have significantly affected the accuracy of the
financial statements, including a $ 198 million overstatement in one
contractor s accounts receivable balance.

Developed risk assessment factors to use in identifying high- risk
contractors. The risk factors include dollar value of expenditures, dollar
value of accounts receivable, and the number of outstanding audit
findings. These procedures helped CMS target limited resources to test
internal controls of high- risk contractors.

10/ 31/ 2002 25

Review Results Financial Management Progress Assessment

Additional action is needed. Recommendation remains open. The risk
assessment procedures that CMS developed have been

effective in identifying certain high- risk contractors. However,
deficiencies in CMS s financial/ trending analysis procedures have been
cited. For example, the HHS- OIG noted in the FY 2001 Financial Statement
Audit Report that CMS did not document its trending analysis results and
has not yet established mechanisms to archive results and historical data
for future analysis. CMS has already begun taking action intended to
improve it financial analysis by issuing detailed instructions to Medicare
contractors and regional office staff for performing financial/ trend
analysis procedures. The instructions were effective June 30, 2002.

10/ 31/ 2002 26

Review Results Financial Management Recommendation

Develop comprehensive accounting policies and procedures to improve
internal financial reporting.

CMS Action

Developed a comprehensive accounting and financial reporting procedures
manual.

Completed chapters of the manual related to accounting and reporting for
the Medicare program. These chapters are written in accordance with
federal accounting standards. As such, they help ensure that accounting
transactions are treated consistently and increase reliability in CMS
financial reporting. The procedures also help promote a uniform
understanding of accounting policy among CMS financial management staff.

10/ 31/ 2002 27

Review Results Financial Management CMS Actions ( cont d)

Drafted chapters of the manual related to accounting and reporting for the
Medicaid program. These chapters are being written in accordance with
federal accounting standards and should also improve the reliability of
CMS financial data. Final issuance is expected by September 30, 2002.

Progress Assessment

Substantial progress made. Recommendation closed. 10/ 31/ 2002 28

Review Results Financial Management Recommendation

Develop a comprehensive strategy for Medicare financial management that
clearly defines goals and objectives, requirements for an integrated
financial management system, and human capital needs.

CMS Action

Developed a Comprehensive Plan and Strategy for Financial Management and
issued its second update of the plan in 2002.

The plan defines financial management goals, objectives, and specific
corrective actions to address financial management weaknesses.

The plan is supported by annual project plans that identify milestones for
achieving goals and initiatives in the overall plan.

10/ 31/ 2002 29

Review Results Financial Management CMS Actions ( cont d)

Initiated a human capital needs assessment project that is scheduled to be
completed in 2003. This effort is supposed to determine the required
skills and competencies needed for Medicare financial management and
assist managers in developing a strategy for addressing deficiencies.

Developed a detailed systems architecture and project plans for the
Healthcare Integrated General Ledger Accounting System ( HIGLAS) , which
is designed to eliminate the ad hoc spreadsheet applications used to
record and report financial information and fully integrate Medicare
contractor and CMS accounting systems. Implementation is expected by 2007.

The HIGLAS project plans are being developed in accordance with Joint
Financial Management Improvement Program s Federal Financial Management
Systems Requirements. This should help ensure that the system is properly
designed and implemented to promote consistency and reliability in
Medicare financial information.

10/ 31/ 2002 30

Review Results Financial Management Progress Assessment

Substantial progress Made. Recommendation closed. 10/ 31/ 2002 31

Review Results Improper Payments

The Following Are Actions CMS Has Taken to Address Recommendations in our
September 2000 Report

Medicare Improper Payments: While Enhancements Hold Promise for Measuring
Potential Fraud and Abuse,

Challenges Remain ( GAO/ AIMD/ OSI- 00- 281) 10/ 31/ 2002 32

Review Results Improper Payments Recommendation

To improve the usefulness of measuring Medicare fee- for- service improper
payments, including those attributable to potential fraud and abuse, we
recommended that the CMS Administrator:

. Experiment with incorporating additional techniques for detecting
potential fraud and abuse into methodologies used to identify improper
payments and evaluate their effectiveness.

CMS Action

Implemented the Statistical Analysis Center ( SAC) pilot project that
employed experts in statistical analysis to identify suspicious Medicare
claims resulting from potentially fraudulent and abusive activities.

10/ 31/ 2002 33

Review Results Improper Payments CMS Actions ( cont d)

Evaluated the effectiveness of techniques used in the SAC project and
determined that they would yield substantial findings when applied to
other claims data in the future.

Accomplished the following through the SAC Project: Gained experience
aggregating Medicare claims for doctor visits,

hospital services, and medical equipment into one database claims are
usually maintained in separate databases by different claims contractors
across states.

Gained experience applying data mining techniques to the database to
identify questionable payments. Identified unusual billing patterns of
providers, claims that contain illogical data or conflicting identifying
information, and beneficiary claims for duplicate or similar services.

10/ 31/ 2002 34

Review Results Improper Payments CMS Actions ( cont d)

Gained experience using techniques such as data sharing to cross-
reference claims data with independent sources, including Social Security
Administration records. Identified claims for services provided after
beneficiary date of death.

Identified about $ 38.26 million in potentially fraudulent payments from
the data mining and data sharing techniques applied, and referred the
results of the analysis to claims contractors for further investigation
and collection.

Collected about $ 490,000 of the improper payment amounts identified by
the end of our field work.

Demonstrated the benefit of applying statistical analysis to rapidly
assess whether a potential pattern of abuse exists, according to program
integrity officials.

10/ 31/ 2002 35

Review Results Improper Payments CMS Actions ( cont d)

Added to CMS s experiences with employing companies that have expertise in
data mining, statistical analysis, and antifraud efforts.

In addition, CMS plans to continue the type of analysis performed in the
SAC

with Program Safeguard Contractors ( PSC) 4 that it plans to hire over the
next 2 years. PSCs are expected to have the data tools and capabilities
necessary to identify new program risks and expertise to conduct fraud
case development, follow up on tips, support law enforcement, and perform
innovative data analysis to combat fraud.

5 The Health Insurance Portability and Accountability Act of 1996 ( HIPAA)
authorized CMS to contract with entities to perform certain program
safeguard functions.

10/ 31/ 2002 36

Review Results Improper Payments Progress Assessment

Substantial progress made. Recommendation closed. Through the SAC pilot,
CMS successfully experimented with various

analysis techniques that we recommended for identifying claims resulting
from potentially fraudulent and abusive activities.

The knowledge and experience gained from the SAC pilot provides CMS with
proven techniques that can be incorporated into its measurement
methodologies to further analyze claims data and enhance future fraud and
abuse detection.

In addition, PSCs are to help ensure that the latest techniques are used
to identify potential fraud and that improper payments are investigated
and amounts inappropriately paid are collected.

10/ 31/ 2002 37

Review Results Improper Payments Recommendation

To improve the usefulness of measuring Medicare fee- for- service improper
payments, including those attributable to fraud and abuse, we recommended
that the CMS Administrator:

Include sufficient scope and evaluation in the design of the measurement
methodologies to more effectively identify underlying causes of improper
payments, including potential fraud and abuse, in order to develop
appropriate corrective actions.

CMS Action

Revised the scope of the Model Fraud Rate Project to include fraud
detection techniques that we recommended, such as provider and beneficiary
contacts and third party confirmations. Project implementation is planned
for FY 2003 pending approval of CMS s budget request.

10/ 31/ 2002 38

Review Results Improper Payments CMS Actions ( cont d)

Created databases of sampled claims through the Comprehensive Error Rate
Testing ( CERT) project and the Payment Error Prevention Program ( PEPP) .
These databases include over 120, 000 beneficiary claims for physician
services and medical equipment and over 60, 000 claims for inpatient
hospital services that CMS can use to expand evaluation of underlying
causes.

10/ 31/ 2002 39

Review Results Improper Payments Progress Assessment

Additional action is needed. Recommendation remains open. While the Model
Fraud Rate Project will include in its scope

techniques such as provider and beneficiary contacts and third party
confirmations to evaluate claims, this project has not been implemented.

The CERT and PEPP projects provide CMS with valuable databases for
applying data mining, data sharing, and statistical analysis techniques
similar to those proven effective by the SAC project. However, CMS has not
implemented procedures to perform additional evaluation and analysis of
the CERT and PEPP claims to enhance future fraud and abuse detection.

(190079)

10/ 31/ 2002 40

(190079)

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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Enclosure: September 2002 Briefing on Progress Made to Enhance Financial
Accountability

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