Aging Issues: Related GAO Products in Calendar Years 2001 and	 
2002 (21-NOV-03, GAO-04-275R).					 
                                                                 
The Senate Special Committee on Aging requested a compilation of 
GAO's calendar years 2001 and 2002 products pertaining to older  
Americans and their families.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-275R					        
    ACCNO:   A08918						        
  TITLE:     Aging Issues: Related GAO Products in Calendar Years 2001
and 2002							 
     DATE:   11/21/2003 
  SUBJECT:   Elderly persons					 
	     Federal social security programs			 
	     Future budget projections				 
	     Health care programs				 
	     Population growth					 
	     Population statistics				 
	     Retirement benefits				 
	     Census						 
	     Medicare Program					 
	     Social Security Trust Fund 			 

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GAO-04-275R

United States General Accounting Office Washington, DC 20548

November 21, 2003

The Honorable Larry E. Craig
Chairman
Special Committee on Aging
United States Senate

Subject: Aging Issues: Related GAO Products in Calendar Years 2001 and
2002

Dear Mr. Chairman:

This report responds to the Committee's request for a compilation of our
calendar years 2001 and 2002 products pertaining to older Americans and
their families.

We are in the midst of one of the most profound changes in American
history- America's population, estimated at over 288 million in 2002,1 is
growing older at a rapid pace. The number of Americans age 65 and older,
estimated at 35 million in 2000, is expected to grow to 70 million by 2030
and to about 82 million in 2050, according to Bureau of the Census
projections (fig. 1). Census projections also indicate that the fastest
growing segment within the older population is individuals age 85 and
older. This group, estimated at about 4 million in 2000, is expected to
grow to 19 million by 2050.

The nation's aging population promises to have major policy and budgetary
implications for the federal government. While there will be large
increases in the number of older people who will be active and in very
good health, there will also be growing numbers of older Americans
requiring increased medical and long-term care. Health care has been one
of the most rapidly rising elements of federal spending, growing at an
average annual rate twice that of the rest of the federal budget over the
last 10 years. Of particular concern is the growth in Medicare
expenditures, estimated to total about $264 billion in 2002. Without
changes, Medicare is expected to nearly double its share of the economy by
2030, crowding out other spending and economic activity of value.

1Population Division, U.S. Census Bureau, Table NA-EST2002-01-National
Population Estimates: April 1, 2000 to July 1, 2002 (Release Date:
December 31, 2002).

Figure 1: Total Number of Persons Age 65 or Older, by Age Group, 1900 to
2050 (in millions)

In addition, Social Security has long served as the foundation of the
nation's retirement income system. About 39 million people receive Social
Security retirement and survivor benefits. For one-fifth of the elderly,
Social Security is the sole source of income. The declining ratio of
workers to retirees will have fundamental implications for Social Security
and the economy. Although Social Security payroll tax revenues currently
exceed expenditures, projections suggest that beginning in 2017, spending
will exceed revenues by growing proportions and that in 2041, the Social
Security Trust Fund will be depleted. Addressing the needs of the elderly
will likely become increasingly challenging and require sufficient
knowledge about the issues facing this population.

One of our goals is to provide continued support of congressional and
federal efforts relating to the health needs of an aging and diverse
population and a secure retirement for older Americans. In striving to
meet this goal, our work on agingrelated programs and issues continues to
reflect the broad range and importance of federal programs for older
Americans. Our work during calendar years 2001 and 2002 primarily covered
issues concerning health, income security, and veterans. In the
compilation of work you requested, we describe two types of products that
relate to older Americans:

o  reports and correspondences (66 in total), and

o  congressional testimonies (36 in total).

The product summaries included were prepared shortly after the products
were issued and, therefore, reflect the results of our work at that time.
The issues addressed by these products are presented in table 1 and the
summaries themselves are in enclosure I.

Table 1: GAO Products Relating to the Elderly in Calendar Years 2001 and
2002

            Elderly issues        Reports and correspondence  Testimonies 
            Health issues                                 35           21 
        Income security issues                            15            4 
       Veterans/DOD issues                                13            9 
             Other issues                                  3            2 
                Total                                     66           36 

Source: GAO.

If you or your staff have any questions about the information in this
report, please contact me at (202) 512-7215 or [email protected]. Other
key contributors to this report were Shelia D. Drake and Gwendolyn M.
Adelekun.

Sincerely yours,

Barbara D. Bovbjerg Director, Education, Workforce, and Income Security
Issues

                                    CONTENTS

                                      Page

Reports and Correspondence: Calendar Years
2001 and 2002, Issues Affecting Older Americans 5

Health Issues 5

Income Security Issues 24

Veterans/DOD Issues 32

Other Issues 39

Testimonies: Calendar Years 2001 and 2002, Issues
Affecting Older Americans 41

Health Issues 41

Income Security Issues 51

Veterans/DOD Issues 53

Other Issues 58

Figure 1: Total Number of Persons Age 65 or Older,
by Age Group, 1900 to 2050, in Millions 2

Table 1: GAO Products Relating to the Elderly
in Calendar Years 2001 and 2002 3

         CALENDAR YEARS 2001 AND 2002, ISSUES AFFECTING OLDER AMERICANS

During calendar years 2001 and 2002, GAO issued 102 reports on issues
affecting older Americans. Of these, 56 were on health issues, 19 were on
income security issues, 22 were on veterans' issues, and 5 were other
issues related to older Americans.

Reports and Correspondence: Calendar Years 2001 and 2002, Issues Affecting
Older Americans

HEALTH ISSUES

Federal Employees' Health Plans: Premium Growth and OPM's Role in
Negotiating Benefits (GAO-03-236, 31-DEC-02)

Federal employees' health insurance premiums have increased at
double-digit rates for 3 consecutive years. GAO was asked to examine how
the Federal Employees Health Benefits Program's (FEHBP) premium trends
compared to those of other large purchasers of employer-sponsored health
insurance, factors contributing to FEHBP's premium growth, and steps the
Office of Personnel Management (OPM) takes to help contain premium
increases compared to those of other large purchasers. GAO compared FEHBP
to the California Public Employees' Retirement System (CalPERS), General
Motors, and a large private employer purchasing coalition in California as
well as data from employee benefit surveys.

FEHBP's premium trends from 1991 to 2002 were generally in line with other
large purchasers--increasing on average about 6 percent annually. OPM
announced that average FEHBP premiums would increase about 11 percent in
2003, 2 percentage points less than in 2002 and less than some other large
purchasers are expecting. FEHBP enrollees would likely have paid even
higher premiums in recent years if not for modest benefit reductions and
enrollees who shifted to less expensive plans. Increasing premiums are
related to the plans' higher claims expenditures. For FEHBP's three
largest plans, about 70 percent of increased claims expenditures from 1998
to 2000 was due to prescription drugs and hospital outpatient care. Most
of the increase in drug expenditures was due to higher plan payments per
drug, while the increase in hospital outpatient care expenditures was due
to higher utilization. OPM relies on enrollee choice, competition among
plans, and annual negotiations with participating plans to moderate
premium increases. Whereas some large purchasers require plans to offer
standardized benefit packages and reject bids from plans not offering
satisfactory premiums, OPM contracts with all plans willing to meet
minimum standards and allows plans to vary benefits, maximizing enrollees'
choices. Each year, OPM suggests cost containment strategies for plans to
consider and relies on participating plans to propose benefits and
premiums that will be competitive with other participating plans. OPM
generally concurred with our findings.

Fruits and Vegetables: Enhanced Federal Efforts to Increase Consumption
Could Yield Health Benefits for Americans (GAO-02-657, 25-JUL-02)

Fruits and vegetables are a critical source of nutrients and other
substances that help protect against chronic diseases. Yet fewer than one
in four Americans consumes the 5 to 9 daily servings of fruits and
vegetables recommended by the federal Dietary Guidelines for Americans.
Fruit and vegetable consumption by the general public as a whole has
increased by about half a serving under key federal nutritional policy,
guidance, and educational programs, as shown by the national consumption
data compiled by federal agencies. But key federal food assistance
programs have had mixed effects on fruit and vegetables consumption, as
shown by national consumption data. However, increasing fruit and
vegetable consumption is not a primary focus of these programs, which are
intended to reduce hunger and support agriculture. A number of actions the
federal government could take to encourage more Americans to consume the
recommended daily servings have been identified. These include expanding
nutrition education efforts, such as the 5 A Day Program; modifying the
special supplemental Nutrition Program for Women, Infants, and Children to
allow participants to choose from more of those fruits and vegetables;
expanding the use of the Department of Defense Fresh Fruit and Vegetable
Project in schools; and expanding farmers' market programs for food
assistance participants and the elderly. These options could require
additional resources or redirecting resources from other programs.

Health Care: Adequacy of Pharmacy, Laboratory, and Radiology Workforce
Supply Difficult to Determine (GAO-02-137R, 10-OCT-01)

Concerns have been growing about the supply of health care workers and the
future needs of an aging population. Shortages of nurses and nurse aides,
the two largest categories of health care workers, are of particular
concern. Although the number of pharmacists has grown during the past
decade, the increasing demand for pharmacy services is outpacing the
growth in supply, according to the Department of Health and Human
Services. Provider and professional associations have reported high
vacancy rates and a decline in new entrants to the laboratory and
radiologic fields. However, employment and earnings data for laboratory
and radiologic technologists and technicians do not indicate a clear
picture about the current balance of supply and demand for these workers.
Demographic changes, technological advances, and management decisions on
how staff and technology are used will affect the future demand for health
care workers.

Health Products for Seniors: `Anti-Aging' Products Pose Potential for
Physical and Economic Harm (GAO-01-1129, 07-SEP-01)

Evidence from the medical literature shows that a variety of frequently
used dietary supplements marketed as anti-aging therapies can have serious
health consequences for senior citizens. Some seniors have underlying
diseases or health conditions that make the use of the product medically
inadvisable, and some supplements can interact with medications that are
being taken concurrently. Furthermore, studies

have found that products sometimes contain harmful contaminants or much
more of an active ingredient than is indicated on the label. Unproven
anti-aging and alternative medicine products also pose an economic risk to
seniors. The Food and Drug Administration (FDA) and the Federal Trade
Commission (FTC) have identified several products that make advertising or
labeling claims with insufficient substantiation, some costing consumers
hundreds or thousands of dollars apiece. Federal and state agencies have
efforts under way to protect consumers of these products. FDA and FTC
sponsor programs and provide educational materials for senior citizens to
help them avoid health fraud. At the state level, agencies are working to
protect consumers of health products by enforcing state consumer
protection and public health laws, although anti-aging and alternative
products are receiving limited attention. GAO summarized this report in
testimony before Congress (GAO-01-1139T).

Long-Term Care: Availability of Medicaid Home and Community Services for
Elderly Individuals Varies Considerably (GAO-02-1121, 26-SEP-02)

As the baby boomers age, spending on long-term care for the elderly could
nearly quadruple by 2050. Medicaid, the joint federal state health
financing program for low income individuals is currently the largest
payer for long-term care services and is anticipated to face substantial
increases in spending as demand for long-term care increases. Nursing home
care traditionally has accounted for most Medicaid longterm care
expenditures, but the high costs of such care and the preference of many
individuals to stay in their own homes has led states to expand their
Medicaid programs to provide coverage for home- and community-based
long-term care. The case managers GAO contacted in four states for two
hypothetical elderly individuals generally offered care plans that relied
on in-home services rather than other residential care settings. However,
the in-home services offered varied considerably. The care that case
managers offered the two hypothetical individuals sometimes differed due
to state policies or practices that shaped the availability of their
Medicaid covered services. In two of the four states there was a waiting
list for home and community based services and some states had caps or
other practices that limited the amount of Medicaid in-home care that
could be offered.

Mammography: Capacity Generally Exists to Deliver Services (GAO-02-532,
19-APR-02)

Breast cancer is the second leading cause of cancer deaths among American
women. In 2001, 192,200 new cases of breast cancer were diagnosed and
40,200 women died from the disease. The probability of survival increases
significantly, however, when breast cancer is discovered in its early
stages. Currently, the most effective technique for early detection of
breast cancer is screening mammography, an X-ray procedure that can detect
small tumors and breast abnormalities up to two years before they can be
detected by touch. Nationwide data indicate that mammography services are
generally adequate to meet the growing demand. Between 1998 and 2000, both
the population of women 40 and older and the extent to which they were
screened increased by 15 percent. Although mammography services are
generally available,

women in some locations have problems obtaining timely mammography
services in some metropolitan areas. However, the greatest losses in
capacity have come in rural counties. In all, 121 counties, most of them
rural, have experienced a drop of more than 25 percent in the number of
mammography machines in the last three years. Officials from 37 of these
counties reported that the decrease had not had a measurable adverse
effect on the availability of mammography services. By contrast, in 18
metropolitan counties that lost a smaller percentage of their total
capacity, officials in half of the counties reported service disruptions.
Officials from six other urban areas, including Houston and Los Angeles,
reported that public health facilities serving low-income women had long
waiting times. However, most women whose clinical exam or initial
mammogram indicated a need for a follow-up mammogram were able to get
appointments within one to three weeks.

Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver Projects
Raise Concerns (GAO-02-817, 12-JUL-02)

States provide health care coverage to about 40 million uninsured,
low-income adults and children under two federal-state programs--Medicaid
and the State Children's Health Insurance Program (SCHIP). To receive
federal funding, states must meet statutory requirements, including
providing certain levels of benefits to specified populations. Under
section 1115 of the Social Security Act, the Secretary of Health and Human
Services (HHS) can waive many of the statutory requirements in the case of
experimental, pilot, or demonstration projects likely to promote program
objectives. From August 2001 through May 2002, HHS approved four waiver
proposals from states to either expand health insurance to uninsured
populations or extend pharmacy coverage to low-income seniors, consistent
with the new goals. Of the nine proposals that were under review as of
June 2002, five sought to expand coverage to uninsured populations, while
four sought to provide pharmacy benefits for low-income seniors. GAO has
both legal and policy concerns about the extent to which the approved
waivers are consistent with the goals and fiscal integrity of Medicaid and
SCHIP. The legal concern is that HHS has allowed Arizona to use unspent
SCHIP funding to cover adults without children, despite SCHIP's objective
of expanding health coverage to low-income children. GAO found that HHS'
approval of the waiver to cover childless adults is not consistent with
this objective, and it is not authorized. A related policy concern is that
HHS used its waiver authority to allow Arizona and California to use SCHIP
funds to cover parents of SCHIP and Medicareeligible children with no
regard to cost effectiveness when the statute provides that family
coverage may be provided only if it is cost-effective to do so--that is,
with no additional costs beyond covering the child. An opportunity for the
public to learn about and comment on pending waivers has not been
consistently provided in accordance with policy adopted by HHS in 1994. At
the federal level, since 1998 HHS has not followed established procedures
to publish notification of new and pending section 1115 waiver
applications in the Federal Register with a 30-day comment period.

Medicare: Beneficiary Use of Clinical Preventive Services (GAO-02-422,
10-APR-02)

Preventive medicine, including immunizations for many diseases and
screening for some types of cancer, holds the promise to extend and
improve the quality of life for millions of Americans. Medicare now covers
three preventive services for immunizations and seven for screenings, and
the Centers for Medicare and Medicaid Services (CMS) sponsors
"interventions" to increase the use of preventive services. GAO found that
the use of preventive services varies widely by service, state, ethnic
group, income, and education. The greatest differences among ethnic groups
were for immunization rates. Cancer screening rates tended to differ
according to income and education level. CMS pays for interventions that
promote breast cancer screenings and pneumonia and flu shots. Most of the
techniques being used, such as reminder systems that medical offices can
use to alert doctors and patients to needed cancer screenings, have been
effective. CMS is evaluating what its current efforts have accomplished
and expects the results later in the year.

Medicare: Communications with Physicians Can Be Improved (GAO-02-249,
27-FEB-02)

Unlike other federal programs that make expenditures under the direct
control of the government, Medicare constitutes a promise to pay for
covered medical services provided to its beneficiaries by about one
million providers. Given this open-ended entitlement, it is essential that
appropriate and effective rules and policies be specified so that only
necessary services are provided and reimbursed. Congress and the Centers
for Medicare and Medicaid Services (CMS) have promulgated an extensive
body of statutes, regulations, policies, and procedures on what shall be
paid for and under what circumstances. Information that carriers give to
physicians is often difficult to use, out of date, inaccurate, and
incomplete. Medicare bulletins that carriers use to communicate with
physicians are often poorly organized and contain dense legal language.
Similarly, other means of communicating with physicians, such as toll-free
provider assistance lines and websites, have problems with accuracy and
completeness. Although all carriers issue bulletins, operate call centers,
and maintain websites, each carrier develops its own communications
policies and strategies. This approach results in a duplication of effort
as well as variations in the quality of carrier communications. CMS
provides little technical assistance to help carriers develop effective
communication strategies. Neither CMS carrier oversight nor selfmonitoring
by the carriers is comprehensive enough to provide sufficiently detailed
information that could either pinpoint specific communication problems or
identify poorly performing carriers. CMS is working to improve its
physician communications by consolidating new instructions and regulations
and issuing them on a more predictable schedule to lessen the burden of
frequent policy changes that physicians cannot anticipate. CMS is also
enhancing its education programs for both physicians and carrier staffs
and expanding its efforts to obtain physician feedback. Finally, CMS is
improving its national website and intends to develop a single web-based
source of information for physicians.

Medicare: Orthotics Ruling Has Implications for Beneficiary Access and
Federal and State Costs (GAO-02-330, 22-MAY-02)

In the late 1980s and early 1990s, the Health Care Financing
Administration (HCFA), now called the Centers for Medicare and Medicaid
Services (CMS), became concerned that some suppliers were improperly
billing Medicare for items that attach to wheelchairs and other equipment.
Some suppliers were billing for such items using codes for orthodic
devices, including arm, back, and neck braces that provide support for or
immobilize weak or injured limbs, while others were billing using codes
for durable medical equipment, which includes equipment such as
wheelchairs and crutches that can withstand repeated use and is
appropriate for home use. Whether an item is billed as an orthotic or DME
device can affect whether such claims are paid. HCFA issued Ruling 96-1 to
clarify the circumstances under which certain items would be classified as
orthotics or as DME for Medicare part B payment purposes. A federal
appellate court found that HFCA had followed appropriate procedures to
issue the rule as an interpretation of Medicare policy, the interpretation
in the ruling was wholly supportable, and the treating of seating systems
as DME was consistent with congressional intent. HCFA's ruling that
attached bracing devices were in the DME benefits category and could no
longer be billed as orthotics affects beneficiaries residing in
Medicare-certified skilled nursing facilities and other institutions
primarily engaged in providing skilled nursing care (SNF). Because
Medicare part B does not cover DME in SNFs and other institutions
primarily engaged in providing skilled nursing care, claims for such items
are no longer paid for residents in nursing homes. If HCFA's ruling were
rescinded and Medicare's policy changed so that attached bracing devices
were classified as orthotics, how much Medicare and Medicaid would spend
for orthotics is uncertain. The distinction between DME and orthotics
would become less clear, which could lead to inappropriate billing.
Therefore, if the ruling were rescinded, additional controls, such as
closely monitoring billing and reviewing medical justification for
customized items prior to payment, would be vital to help curb potentially
inappropriate billing.

Medicare: Payments for Covered Outpatient Drugs Exceed Providers' Costs
(GAO01-1118, 21-SEP-01)

Physicians are able to obtain Medicare-covered drugs at prices
significantly below current Medicare payments, which are set at 95 percent
of average wholesale prices (AWP). The difference between these prices and
AWP for physician-administered drugs in GAO's sample varied by drug. For
most physician-administered drugs, the average discount from AWP ranged
from 13 percent to 34 percent; two physicianadministered drugs had
discounts of 65 percent and 86 percent. Other suppliers are also able to
buy drugs at prices that are considerably less than the AWP used to
establish the applicable Medicare payment with discounts ranging from 78
percent to 85 percent below AWP for two drugs in the sample. Also,
suppliers generally receive a payment from Medicare for the durable
medical equipment needed to administer the drug and supplies. Private and
other public payers use different payment methods for drugs and their
administration. Private health plans use their drug-purchase and

patient volume to negotiate favorable prices for drugs and physician and
supplier services related to supplying or delivering the drugs. Other
public payers also use their purchasing volume along with information
about actual transaction prices from private payers to lower their drug
payments.

Medicare: Program Designed to Inform Beneficiaries and Promote Choice
Faces Challenges (GAO-01-1071, 28-SEP-01)

The Balanced Budget Act of 1997 (BBA) established the Medicare+Choice
(M+C) program to expand health plan choices. BBA permitted Medicare
participation by preferred provider organizations, provider-sponsored
organizations, and insurers offering private fee-for-service plans or
medical savings accounts. It also encouraged the wider availability of
health maintenance organizations, which have long been an option for many
beneficiaries. To help beneficiaries understand and consider all of their
Medicare options, the National Medicare Education Program offers a
toll-free help line, informational mailings to beneficiaries, an Internet
site, and educational and publicity campaigns. During fiscal years 1998
through 2000, the Health Care Financing Administration (HCFA) spent an
average of $107.8 million on the program annually. Most of the money came
from user fees collected from M+C plans. Reaction to the program has
generally been positive among beneficiaries and beneficiary advocacy
groups, but representatives of M+C plans offered a mixed assessment.
Program activities have increased the information available to
beneficiaries on Medicare, the M+C program, and specific health plans.
However, the extent to which the program has motivated beneficiaries to
actively weigh their health plan options is unknown.

Medicare: Utilization of Home Health Care by State (GAO-02-782R,
23-MAY-02)

This report discusses the variation in Medicare home health use across
states. Using home health claims for the first 6 months of 2001 from the
Centers for Medicare and Medicaid, GAO compiled statistics on home health
users, home health visits, home health episodes, and the percentage of
home health users with multiple episodes for each state. A home health
episode, the basis for Medicare payment under the prospective payment
system, is up to a 60-day period of care during which any number of visits
may be provided.

Medicare + Choice: Recent Payment Increases Had Little Effect on Benefits
or Plan Availability in 2001 (GAO-02-202, 21-NOV-01)

The number of contracts under Medicare's managed care
program--Medicare+Choice (M+C)--fell from 340 to 180 between 1998 and
2001. The reduction reflected decisions by some managed care organizations
(MCOs) to terminate selected contracts or to discontinue service in some
covered areas. Although nearly all MCOs renewed at least some of their
Medicare contracts over this period, many reduced the geographic areas
served. As a result, 1.6 million beneficiaries had to switch MCOs or
return to Medicare's traditional fee-for-service program. Other MCOs plan
either to terminate or reduce their participation in M+C at the end of
2001. Concerned about MCO

withdrawals, Congress sought to make participation in the program more
attractive. As a result of the Benefits Improvement and Protection Act of
2000, aggregate Medicare+Choice payments in 2001 are estimated to have
increased by $1 billion. The act permitted three basic uses for the higher
payment. MCOs could (1) improve their health plans' benefit packages, (2)
set aside money for future years in a benefit stabilization fund, or (3)
stabilize or enhance beneficiary access to providers. Most MCOs reported
that additional money would be used to stabilize or enhance beneficiary
access to providers. A minority of MCOs reported that the money would go
toward benefit improvements or be placed in a benefit stabilization fund.
In 83 percent of M+C plans, MCOs stated that some or all of the additional
money would be used to stabilize or enhance beneficiary access. The
payment increases had little effect on the availability of M+C plans
during 2001. Following passage of the act, three MCOs reentered counties
they had dropped from their service areas, three MCOs expanded into
counties that they previously had not served, and one MCO both reentered
previously served counties and expanded into new ones.

Medicare+Choice: Selected Program Requirements and Other Entities'
Standards for HMOs (GAO-03-180, 31-OCT-02)

Since the early 1980s, health maintenance organizations (HMO) have entered
into risk-based contracts with Medicare and offered beneficiaries an
alternative to the traditional fee-for-service (FFS) program. By 1997, 5.2
million Medicare beneficiaries were enrolled in an HMO. Although Medicare
HMOs were available in most urban areas, they were often unavailable in
rural areas. Medicare+Choice (M+C) has HMO requirements pertaining to
benefit package proposals, the beneficiary enrollment process, marketing
and enrollee communication materials, and quality improvement, among other
areas. An HMO must annually submit a benefit package proposal to the
Centers for Medicare and Medicaid Services (CMS) for each M+C health plan
that the HMO intends to offer. M+C requirements for the beneficiary
enrollment process specify the information that an HMO must include in its
enrollment application and the checks that it must perform to ensure that
beneficiaries who submit applications are eligible to enroll in the HMO's
health plan. M+C marketing requirements prohibit HMOs from using
inaccurate or misleading language in advertisements or materials
distributed to enrollees. M+C requirements for quality improvements
specify that HMOs must undertake multiyear projects intended to improve
the quality of health care and must routinely gather and report
performance data to CMS.

Medicare Home Health: Clarifying the Homebound Definition Is Likely to
Have Little Effect on Costs and Access (GAO-02-555R, 26-APR-02)

Medicare's home health benefit provides skilled nursing and other services
to eligible beneficiaries who are homebound. The Department of Health and
Human Services (HHS) had a long-standing policy that beneficiaries who
regularly attend adult day care were not considered homebound,
particularly if the purpose of attending was to receive nonmedical or
custodial care. In 2000, Congress specified that Medicare beneficiaries
who attended adult day care could be considered homebound if they still
met the other homebound requirements. GAO found that this clarification
will

likely have little effect on program costs or access to services because
the number of affected individuals is probably small. On the basis of
National Long Term Care Survey data, GAO estimated that, as of 1999, 0.2
percent of elderly Medicare beneficiaries attended adult day care and had
mobility or cognitive impairments that might make some eligible for
Medicare home health services.

Medicare Home Health Agencies: Weaknesses in Federal and State Oversight
Mask Potential Quality Issues (GAO-02-382, 19-JUL-02)

The 6,900 Home Health Agencies (HHAs) that serve Medicare beneficiaries
must meet federal requirements, known as conditions of participation
(COP), to ensure that they have the appropriate staff, are following the
plan of care specified by a physician, maintain medical records to
document the care provided, and periodically reassess each patient's
condition. Although nationwide surveys done at HHAs since 1998 have
identified a small proportion of agencies with serious deficiencies, the
extent of the problem may be understated, and situations endangering the
health and well being of home health patients may occur more often than
documented. Shortcomings in the survey process and inconsistencies in
state surveys make it difficult to assess the quality of care delivered
and may mask potential problems. The ability to lodge complaints about an
HHA and have them resolved promptly is important to protecting patient
health and safety. HHA oversight by the Centers for Medicare and Medicaid
Services (CMS) has been too limited to identify the problems GAO found in
the survey process. CMS does not review state compliance with requirements
for conducting HHA surveys, such as whether HHAs with COP-level
deficiencies are surveyed annually rather than every 3 years or whether
minimum patient visit and medical record review samples are adhered to.

Medicare Home Health Care: OASIS Data Use, Cost, and Privacy Implications

(GAO-01-205, 30-JAN-0)

With the Health Care Financing Administration's (HCFA) implementation of a
prospective payment system, efforts to protect patients from potential
underprovision of care and to hold home health agencies (HHA) accountable
are essential. Instituting the collection and reporting of Outcome and
Assessment Information Set (OASIS) data is an important step in that
direction. The use of OASIS data enhances consistency in the performance
and documentation of patient assessments for home health services. As a
result, information on patient outcomes will become available for the
first time. Collecting such data is not without its costs. To varying
degrees, the requirement to collect OASIS data on all home health patients
increases the amount of staff time devoted to collecting and reporting
patient assessment information. HHAs have been compensated for some of
these costs through adjustments made to their payment rates. Moreover,
because prospective payment system episode payment rates are based on
historically high utilization levels, which have since declined, these
rates should allow the completion of OASIS assessments. Protecting the
privacy of home health care patients is also important. HCFA has made
progress in this area by enhancing protections in the collection and

transmission of the OASIS data. The effectiveness of these policies and
procedures will depend on how well they are implemented.

Medicare Home Health Care: Payments to Home Health Agencies Are
Considerably Higher than Costs (GAO-02-663, 06-MAY-02)

The Balanced Budget Act of 1997 significantly changed Medicare's home
health care payments to home health agencies (HHAs). Under a prospective
payment system (PPS), HHAs are paid a fixed amount, adjusted for
beneficiary care needs, for providing up to 60 days of care-termed a "home
health episode." The act also imposed new interim payment limits to
moderate spending until the PPS could be implemented. Although PPS was
designed to lower Medicare spending below what it was under the interim
system, GAO found that Medicare's payments for full home health care
episodes were 35 percent higher than estimated costs in the first six
months of 2001. These disparities indicate that Medicare's PPS overpays
for services actually provided, although some HHAs facing extraordinary
costs not accounted for by the payment system may be financially
disadvantaged.

Medicare Physician Fee Schedule: Practice Expense Payments to Oncologists
Indicate Need For Overall Refinements (GAO-02-53, 31-OCT-01)

Medicare's physician fee schedule establishes payments for more than 7,000
different services, such as office visits, surgical procedures, and
treatments. Before 1992, fees were based on charges physicians billed for
these services. Since then, the Health Care Financing Administration
(HCFA), which administers Medicare, has been phasing in a new fee schedule
on the basis of the amount of resources used to provide that service
relative to other services. The development of the resourcebased practice
expense component of the fee, which is intended to pay for the costs of
running a physician's practice, has been particularly controversial. HCFA
adjusted the underlying data and basic method for calculating
resource-based practice expense payments and payment changes were required
to be budget-neutral-which means that total Medicare spending for
physician services was to be the same under the new payment method as it
was under the old one. As a result, Medicare payments to some specialties
have increased while payments to other specialties have decreased.
Oncologists claim that their practice expense payments are particularly
inadequate for some office-based services, such as chemotherapy. Oncology
practice expense payments in 2001 are eight percent higher than they would
have been had charged-based payments continued. Oncology practice expense
payments compared to their estimated practice expenses are about the same
as the average for all physicians. HCFA's adjustments to the data and
basic method reduced payments to oncologists.

Medicare Physician Payments: Medical Settings and Safety of Endoscopic
Procedures (GAO-03-179, 18-OCT-02)

Every year millions of Americans covered by Medicare undergo endoscopic
medical procedures in a variety of health care settings ranging from
physicians' offices to

hospitals. These invasive procedures call for the use of a lighted,
flexible instrument and are used for screening and treating disease.
Although some of these procedures can be performed while the patient is
fully awake, most require some form of sedation and are usually provided
in health care facilities such as hospitals or ambulatory surgical
centers. Some physician specialty societies have expressed concern that
Medicare's reimbursement policies may offer a financial incentive to
physicians to perform endoscopic procedures in their offices and that
these procedures may be less safe because physicians' offices are less
closely regulated and therefore there is less oversight of the quality of
care. For the 20 procedures reviewed, there was no evidence to suggest
that there was any difference in the level of safety of
gastroenterological and urological endoscopic procedures performed on
Medicare beneficiaries in either physicians' offices or health care
facilities, such as hospitals and ASC's. There was also no evidence found
to suggest that the resourcebased site-of-service payment differential has
caused physicians to conduct a greater proportion of gastroenterological
or urological endoscopic procedures in their offices for Medicare
beneficiaries. If Medicare coverage for the office procedures in the study
were terminated, few access problems would occur in most of the country
because physicians perform the vast majority of the procedures that were
studied in health care facilities.

Medigap Insurance: Plans Are Widely Available but Have Limited Benefits
and May Have High Costs (GAO-01-941, 31-JUL-01)

To protect themselves against large out-of-pocket expenses and help fill
gaps in Medicare coverage, most beneficiaries buy supplemental insurance,
known as Medigap; contribute to employer-sponsored health benefits to
supplement Medicare coverage; or enroll in private Medicare+Choice plans
rather than traditional fee-forservice Medicare. Because Medicare+Choice
plans are not available everywhere and many employers do not offer retiree
health benefits, Medigap is sometimes the only supplemental insurance
option available to seniors. Medicare beneficiaries who buy Medigap plans
have coverage for essentially all major Medicare cost-sharing
requirements, including coinsurance and deductibles. Although various
proposals have been made to add a prescription drug benefit to Medicare,
relatively few beneficiaries buy standardized Medigap plans with this
benefit. Low enrollment in these plans may be due to the fact that fewer
plans are being marketed with these benefits; their relatively high cost;
and the limited nature of their prescription drug benefit, which still
requires beneficiaries to pay more than half of their prescription drug
costs. Most plans offering this coverage have a $3,000 cap on prescription
drug benefits. As a result, Medigap beneficiaries with prescription drug
coverage continue to incur substantial out-of-pocket expenses for
prescription drugs and other health care services.

Nursing Homes: Federal Efforts to Monitor Resident Assessment Data Should
Complement State Activities (GAO-02-279, 15-FEB-02)

Nursing homes that participate in Medicare and Medicaid must periodically
assess the needs of residents in order to develop an appropriate plan of
care. Such resident

assessments are known as the minimum data set (MDS). According to
officials in the 10 states with MDS accuracy review programs in operation
as of January 2001, these programs were established because of the
important role played by MDS data in setting Medicaid payments and
identifying quality of care problems. Nine of the 10 states conduct
periodic on-site reviews in all or a significant portion of their nursing
homes to assess the accuracy of the MDS data. These reviews sample a
home's MDS assessments to determine whether the basis for the assessments
is adequately documented in residents' medical records. These reviews
often include interviews of nursing home personnel familiar with residents
and observations of the residents themselves. States with separate MDS
review programs identified various approaches to improve MDS accuracy.
State officials highlighted the on-site review process itself and provider
education activities as their primary approaches. State officials also
reported such remedies as requiring nursing homes to prepare a corrective
action plan or imposing financial penalties on nursing homes when serious
or extensive errors in MDS data are found.

Following the 1998 implementation of Medicare's MDS-based payment system
the Federal government began building the foundation for its own separate
review program to ensure the accuracy of MDS data. In the course of
developing and testing various accuracy review approaches, widespread MDS
errors were found that resulted in a change in the Medicare payment level
for two-thirds of the resident assessments sampled. On site visits proved
to be a very effective method of assessing accuracy. However as currently
planned, federal MDS review activities are projected to involve roughly 1
percent of the estimated 14.7 million MDS assessments expected to be
completed with on site reviews in fewer than 200 of the nations 17,000
nursing homes each year. While the federal approach may yield some broad
sense of the accuracy of MDS assessments on an aggregate level, it appears
to be insufficient to provide confidence about the accuracy of MDS
assessments in the vast bulk of nursing homes nationwide. Given the
substantial level of effort and resources already invested at the state
and federal levels to oversee nursing home quality of care, including
periodic inspections at each home nationwide, we recommend that CMS
reorient its MDS accuracy program so that it complements and leverages
existing state review activities and its own established nursing home
oversight efforts.

Nursing Homes: More Can Be Done to Protect Residents from Abuse
(GAO-02-312, 01-MAR-02)

Often suffering from multiple physical and mental impairments, the 1.5
million elderly and disabled Americans living in nursing homes are a
highly vulnerable population. These individuals typically require
extensive help with daily living, such as such as dressing, feeding, and
bathing. Many require skilled nursing or rehabilitative care. In recent
years, reports of inadequate care, including malnutrition, dehydration,
and other forms of neglect, have led to mounting scrutiny from state and
federal authorities, which share responsibility for overseeing the
nation's 17,000 nursing homes. Concerns have also been growing that some
residents are abused-pushed, slapped, or beaten-by the very individuals to
whom their care has been entrusted.

GAO found that allegations of physical and sexual abuse of nursing home
residents are not reported promptly. Local law enforcement officials said
that they are seldom summoned to nursing homes to immediately investigate
allegations of abuse and that few allegations are ever prosecuted. Some
agencies use different policies when deciding whether to refer allegations
of abuse to law enforcement. As a result, law enforcement agencies were
never told of some incidents or were notified only after lengthy delays.
GAO found that federal and state safeguards intended to protect nursing
home residents from abuse are inadequate. No federal statute requires
criminal background checks for nursing home employees. Background checks
are also not required by the Centers for Medicare and Medicaid Services,
which sets the standards that nursing homes must meet to participate in
the Medicare and Medicaid programs. State agencies rarely recommend that
sanctions be imposed on nursing homes. Although state agencies compile
lists of aides who have previously abused residents, which can prevent an
aide from being hired at another nursing home, GAO found that delays in
making these identifications can limit the usefulness of these registries.
GAO summarized this report in testimony before Congress; see GAO-02448T.

Nursing Homes: Public Reporting of Quality Indicators Has Merit, but
National Implementation Is Premature (GAO-03-187, 31-OCT-02)

GAO was asked to review the Centers for Medicare & Medicaid Services (CMS)
initiative to publicly report additional information on its "Nursing Home
Compare" Web site intended to help consumers choose a nursing home. GAO
examined CMS's development of the new nursing home quality indicators and
efforts to verify the underlying data used to calculate them. GAO also
reviewed the assistance CMS offered the public in interpreting and
comparing indicators available in its six-state pilot program, launched in
April 2002, and its own evaluation of the pilot. The new indicators are
scheduled to be used nationally beginning in November 2002.

CMS's initiative to augment existing public data on nursing home quality
has considerable merit, but its planned November 2002 implementation does
not allow sufficient time to ensure the indicators are appropriate and
useful to consumers. CMS's plan urges consumers to consider nursing homes
with positive quality indicator scores, in effect, attempting to use
market forces to encourage nursing homes to improve the quality of care.
However, CMS is moving forward without adequately resolving important open
issues on the appropriateness of the indicators chosen for national
reporting or the accuracy of the underlying data. To develop and help
select the quality indicators, CMS hired two organizations with expertise
in health care data-Abt Associates, Inc. and the National Quality Forum
(NQF). Abt identified a list of potential quality indicators and tested
them to verify that they represented the actual quality of care individual
nursing homes provide. GAO's review of the available portions of the
report raised serious questions about the basis for moving forward with
national reporting at this time. NQF, which was created to develop and
implement a national strategy for measuring health care quality, was hired
to review Abt's work and identify core indicators for national reporting.
To allow sufficient time to review Abt's validation report, NQF agreed to
delay its

recommendations for national reporting until 2003. CMS limited its own
evaluation of its six-state pilot program for the initiative so that the
November 2002 implementation date could be met. Early results were
expected in October 2002, leaving little time to incorporate them into the
national rollout. Despite the lack of a final report from NQF and an
incomplete pilot evaluation, CMS has announced a set of indicators it will
begin reporting nationally in November 2002. GAO has serious concerns
about the potential for public confusion by the quality information
published, especially if there are significant changes to the quality
indicators due to the NQF's review. CMS's proposed reporting format
implies a precision in the data that is lacking at this time. While
acknowledging this problem, CMS said it prefers to wait until after the
national rollout to modify the presentation of the data. GAO's analysis of
data currently available from the pilot states demonstrated there was
ample opportunity for the public to be confused, highlighting the need for
clear descriptions of the data's limitations and easy access to impartial
experts hired by CMS to operate consumer hotlines. CMS has not yet
demonstrated its readiness to meet these consumer needs either directly or
through the hotlines fielding public questions about confusing or
conflicting quality data. CMS acknowledged that further work is needed to
refine its initiative, but believes that its indicators are sufficiently
valid, reliable, and accurate to move forward with national implementation
in November 2002 as planned.

Nursing Homes: Quality of Care More Related to Staffing than Spending
(GAO-02431R, 13-JUN-02)

Costs for nursing home care have almost doubled since 1990, from $53
billion to $92 billion in 2000. Much of that spending has been financed
with public monies. Under the Medicare and Medicaid programs, the federal
government financed 39 percent of the nation's nursing home spending in
2000, up from 28 percent in 1990. As federal outlays have grown, Congress
has focused attention on the quality of care delivered and the level of
staffing in nursing homes. GAO surveyed three states and found that
nursing home expenditures per resident day varied considerably across
Ohio, Mississippi, and Washington. Although the total level of spending
varied, the average share devoted to resident-care activities, such as
nursing care and medical supplies, was relatively stable. The share of
spending devoted to buildings and equipment, by comparison, was more
variable. Homes in Ohio and Washington that provided more nursing hours
per resident day, especially nurses' aide hours, were less likely than
homes providing fewer nursing hours to have repeated serious or
potentially lifethreatening quality problems. However, GAO found no clear
relationship between a nursing home's spending per resident day and the
number of serious quality problems.

Nursing Workforce: Emerging Nurse Shortages Due to Multiple Factors
(GAO-01944, 10-JUL-01)

The nation's hospitals and nursing homes rely heavily on the services of
nurses. Concerns have been raised about whether the current and projected
supply of nurses will meet the nation's needs. This report reviews (1)
whether evidence of a nursing

shortage exists, (2) the reasons for current nurse recruitment and
retention problems, and (3) what is known about the projected future
supply of and demand for nurses. GAO found that national data are not
adequate to describe the nature and extent of nurse workforce shortages,
nor are data sufficiently sensitive or current to compare nurse workforce
availability across states, specialties, or provider types. Multiple
factors affect recruitment and retention problems, including the aging of
the nurse workforce, resulting from reduced entry of younger people into
the profession and nurses' job dissatisfaction. A serious shortage of
nurses is expected in the future as demographic pressures influence both
demand and supply.

Private Health Insurance: Access to Individual Market Coverage May Be
Restricted for Applicants with Mental Disorders (GAO-02-339, 28-FEB-02)

About five percent of adults suffer from serious mental disorders.
Although health insurance carriers in 11 states guarantee coverage for
mental health treatment, in most states individuals with mental disorders
face restrictions in purchasing private health insurance for themselves
and their families. Eleven states require carriers to accept all
applicants regardless of health status, but coverage options vary. Eight
of these 11 states require all carriers to guarantee access to coverage
sold in this market. In three states, laws apply only to some carriers,
such as Blue Cross and Blue Shield, or certain periods of the year.
Carriers in nine of the 11 states are also required to limit the extent to
which premium rates vary between healthy and unhealthy individuals. In
states without guaranteed coverage in the individual market, the seven
carriers GAO reviewed would likely deny coverage more frequently for
applicants with mental disorders than for applicants with other chronic
health conditions. Specifically, for six mental disorders of generally
moderate severity, carriers said that they would likely decline applicants
52 percent of the time. Statesponsored high-risk pools are the primary
coverage option available to rejected applicants in most states. In 27 of
the 34 states where carriers may deny coverage to applicants with mental
disorders or other health conditions, high-risk pools offer coverage to
applicants denied individual market coverage. The pools are subsidized-
generally through assessments on carriers or state tax revenues-and
premium rates are generally capped at 125 to 200 percent of standard rates
for healthy individuals. Health benefits available under the pools are
generally comparable to those available in the individual market,
including similar restrictions on mental health benefits; however,
benefits for mental disorders or other health conditions are not
permanently excluded as they may be in the individual insurance market.

Retiree Health Benefits: Employer-Sponsored Benefits May Be Vulnerable to
Further Erosion (GAO-01-374, 01-MAY-01)

In 1999, about 10 million retired people aged 55 or older relied on
employersponsored health insurance as either their primary source of
coverage or as a supplement to their Medicare coverage. Some of these
persons are concerned about the continued availability of
employer-sponsored coverage. Premium increases and forecasts for a
potential economic slowdown could further erode employersponsored retired
health benefits. In the long term, these factors, coupled with the

potential for Medicare reforms and the rising number of aging baby
boomers, may produce even more uncertainty and cost pressures for
employers. Consequently, as an increasing number of retirees lack
employer-based coverage, those in poorer health may have difficulty
finding affordable alternative health coverage.

Retiree Health Benefits: Examples of Employer-Reported Obligations in
Selected Industries (GAO-02-639R, 29-APR-02)

In addition to providing an overview of a company's business operations,
the annual reports submitted to the Securities and Exchange Commission
present important information on an employer's estimated obligations for
postemployment benefits, including retiree health benefits. However, the
assumption used to estimate obligations for postemployment benefits vary
across companies and are not comparable. Financial Accounting Standards
Board guidelines give employers latitude in calculating these obligations.
Moreover, changes in companies' benefit offerings or financial stability
would likely alter companies' obligations for retiree health benefits.
Most employers also reserve the right to change or terminate retiree
health benefits.

Skilled Nursing Facilities: Available Data Show Average Nursing Staff Time
Changed Little after Medicare Payment Increase (GAO-03-176, 13-NOV-02)

The nation's 15,000 skilled nursing facilities (SNF) play an essential
role in our health care system, providing Medicare-covered skilled nursing
and rehabilitative care each year for 1.4 million Medicare patients who
have recently been discharged from acute care hospitals. In recent years,
many analysts and other observers, including members of Congress, have
expressed concern about the level of nursing staff in SNFs and the impact
of inadequate staffing on the quality of care. The Congress temporarily
increased the nursing component of the SNF Medicare payment rate by 16.6
percent. GAO's analysis of available data shows that, in the aggregate,
SNFs' nurse staffing ratios changed little after the increase took effect.
Overall, SNFs' average nursing time increased by 1.9 minutes per patient
day, relative to their average in 2000 of about 3 and one-half hours of
nursing time per patient day. For most SNFs, increases in staffing ratios
were small. Further, GAO found that the share of SNF patients covered by
Medicare was not a factor in whether facilities increased their nursing
time. Similarly, SNFs that had total revenues considerably in excess of
costs before the added payments took effect did not increase their
staffing substantially more than others.

Skilled Nursing Facilities: Medicare Payments Exceed Costs for Most but
Not All Facilities (GAO-03-183, 31-DEC-02)

This report addresses (1) the relationship between Medicare skilled
nursing facility (SNF) payments and the costs of treating Medicare
patients in freestanding SNFs, as well as the effect of Medicare SNF
payments on the financial condition of these facilities, and (2) the
relationship between Medicare SNF payments and the costs of

treating patients in hospital-based SNFs, as well as the factors that may
account for cost differences between hospital-based and freestanding SNFs.

Under the prospective payment system (PPS), most freestanding SNFs'
Medicare payments substantially exceeded the costs of caring for Medicare
patients, contributing to facilities' overall positive financial
condition. In 1999, the first full year under the PPS, the median
freestanding SNF Medicare margin-a measure that compares Medicare payments
with Medicare costs-was slightly over 8 percent. By 2000, when the
temporary payment increases authorized by the Congress started to take
effect, the median Medicare margin had risen to almost 19 percent.
However, nearly one-quarter of SNFs in 2000 had Medicare margins exceeding
30 percent, while about one-fifth had negative Medicare margins; that is,
the payments they received from Medicare did not cover their costs of
providing care. Medicare margins were higher for freestanding SNFs
affiliated with large, for-profit nursing home chains and for those with
high occupancy. The median SNF total margin-which reflects total revenues
and costs across all patients-was 1.3 percent in 1999 and 1.8 percent in
2000. A SNF's total margin tended to be higher when its Medicare margin
was higher despite the fact that, in most SNFs, Medicare's share of
patient days was small. The total margins for freestanding SNFs tended to
be lower when a higher proportion of a SNF's patients had their care paid
for by Medicaid. Unlike freestanding SNFs, about 90 percent of
hospital-based SNFs reported significantly negative Medicare margins after
Medicare's new SNF payment system was launched. The median hospital-based
SNF Medicare margin was -53 percent in 1999. Under the PPS, per diem
payments to hospital-based SNFs dropped considerably, reflecting the
change from payments based on a facility's own costs to fixed payments
based on average costs for all facilities. At the same time,
hospital-based SNFs reported per diem costs rose from 1997 through 1999.
This is in contrast to the experience of freestanding SNFs, which had
lower per diem Medicare costs than hospital-based SNFs prior to the PPS
and reduced their costs further after the shift to the PPS. The higher
Medicare costs reported by hospital-based SNFs may stem in part from
differences in services provided to patients. The higher costs may also
reflect the historical allocation of overhead costs to the SNF from the
hospital, an accounting practice that, while consistent with the payment
incentives under the prior cost-based reimbursement system, means that
hospital-based SNFs reported costs should be treated cautiously.

Skilled Nursing Facilities: Providers Have Responded to Medicare Payment
System By Changing Practices (GAO-02-841, 23-AUG-02)

In 1998, the Health Care Financing Administration implemented a
prospective payment system (PPS) for skilled nursing facility (SNF)
services provided to Medicare beneficiaries. The PPS is intended to
control the growth in Medicare spending for skilled nursing and
rehabilitative services that SNFs provide by providing a predetermined
payment for each day of care. The payment varies depending on the
patient's payment group classification, which reflects expected resource
use, but not the actual resource use. Two years after the implementation
of the PPS, the mix of patients across the payment groups has shifted, as
determined by the patients' initial assessments. More patients were
classified into the high and

medium rehabilitation payment group categories, which were believed to be
the most profitable, and fewer were initially classified into the most
intensive (highest paying) and least intensive (lowest paying)
rehabilitation payment group categories. The majority of patients in
rehabilitation payment groups received less therapy than was provided in
1999. This was true even for patients within the same rehabilitation
payment group categories. Across all rehabilitation payment group
categories, fewer patients received the highest amounts of therapy
associated with each payment group.

Skilled Nursing Facilities: Services Excluded From Medicare's Daily Rate
Need to be Reevaluated (GAO-01-816, 22-AUG-01)

Congress and the Health Care Financing Administration recognized that
certain services needed to be excluded from the skilled nursing facility
(SNF) prospective payment system (PPS) rate to help ensure beneficiary
access to appropriate care and to financially protect the SNFs that take
care of high-cost patients. The criteria used to identify services-high
cost, infrequently provided during a SNF stay and likely to be
overprovided--and the services currently excluded appear reasonable. Even
so, questions remain about whether certain other services should be
excluded and how to modify the exclusions over time. Current exclusion
policies raise three unintended consequences-beneficiary liability is
higher for excluded services; beneficiaries may be required to receive
excluded services in only certain facilities, which may be higher cost;
and the broad definition of excluded emergency services may result in more
care being classified as emergency. The Centers for Medicare & Medicaid
Services (CMS) does not plan to collect data on all services provided to
beneficiaries during their SNF stays. Without these data, CMS will have
difficulty updating the exclusions over time and limit efforts to refine
the payment system.

Title III, Older Americans Act: Carryover Funds Are Not Creating a Serious
Meal Service Problem Nationwide (GAO-01-211, 09-JAN-01)

Under Title III of the Older Americans Act, the Administration on Aging
(AoA) distributes grants to states on the basis of their proportional
share of the total elderly population in the United States. Most states
then disburse these grants to more than 600 area agencies nationwide. The
grants are further subdivided by these agencies to more than 4,000 local
service providers and are used to fund group and in-home meals, as well as
support services, including transportation and housekeeping. AoA requires
that states obligate these funds by September 30 of the fiscal year in
which they are awarded. Also, states must spend this money within two
years after the fiscal year in which it is awarded. During this time AoA
does not limit or monitor the amount of unspent funds that states may
carry over to the succeeding fiscal year. GAO examined whether states were
using Title III carryover funds to expand their meal service programs for
the elderly beyond a level sustainable by their annual allotments alone.
GAO found that the buildup and use of Title III carryover funds to support
elderly nutrition services does not appear to be a widespread problem.
However, AoA does not monitor the states' buildup of carryover funds. As a
result,

the agency has little assurance that it could identify meal service
problems that could emerge in the future.

INCOME SECURITY ISSUES

Answers to Key Questions about Private Pension Plans (GAO-02-745SP,
18-SEP-02)

This primer on private pensions provides information on the basic features
of the private pension plan system and the federal framework that governs
how private plans must operate. GAO answers questions about the types of
plans that private employers may sponsor, the benefits these plans
provide, and the basic requirements that govern how these plans are
administered.

Older Workers: Demographic Trends Pose Challenges for Employers and
Workers

(GAO-02-85, 16-NOV-01)

The impending retirement of the "baby boom" generation is receiving
considerable attention. The number of older workers will grow
substantially during the next two decades, and they will become an
increasingly significant share of the U.S. workforce. For example,
according to the 2001 Current Population Survey, there were 17.3 million
workers over age 55 in the laborforce, and this number is expected to
increase to 25.3 million or over 20 percent of the laborforce in 2015.
Although older workers are less likely than younger workers to lose a job,
when they do lose a job, they are less likely than younger workers to find
other employment. To retain older workers and extend their careers, some
public and a few private employers are providing options, including
flexible hours and financial benefits, reduced workloads through the use
of part-time or part-year schedules, and job-sharing. Most employers are
not yet facing labor shortages or other economic pressures that would
require them to consider flexible employment arrangements because the
retirement of the baby boom generation will occur gradually during the
next several decades.

Private Pensions: Improving Worker Coverage and Benefits (GAO-02-225,
09-APR

02)

Although pensions are an important source of income for many retirees,
millions of workers lack individual pension coverage. Only half of the
nation's workers have been covered by private employer-sponsored pensions
since the 1970s. Traditional reforms to the voluntary,
single-employer-based pension system have limited potential to expand
pension coverage and improve worker benefits. These pension reforms have
concentrated mainly on improving tax incentives and reducing the
regulatory burden on small employers. Furthermore, efforts to increase
retirement savings by restricting the use of lump-sum distributions could
limit worker participation in and contributions to pension plans. Three
categories of reform- pooled employer reforms, universal access reforms,
and universal participation reforms-go beyond the voluntary,
single-employer private pension system. Pooled employer reforms seek to
increase the number of firms offering pension coverage by creating
centralized third-party administration and increasing pension plan
portability. Universal access reforms seek to boost savings by offering
payroll-based accounts, albeit without mandating employer contributions.
Universal participation

reforms would mandate pension availability and participation for all
workers, similar to the existing Social Security system.

Private Pensions: IRS Can Improve the Quality and Usefulness of Compliance
Studies (GAO-02-353, 12-APR-02)

The Internal Revenue Service (IRS) studied 401(k) plan compliance with
Internal Revenue Code requirements for tax-qualified plans. GAO found that
IRS's estimates of noncompliance were inaccurate. The study, which audited
a sample of 401(k) plans, did not provide information on the severity of
the compliance violations identified and did not determine the number of
plan participants or the amount of assets associated with noncompliance
errors. Only 27 of the 73 study questions identified as compliance
indicators conclusively demonstrated whether a plan was compliant or not.
Consequently, the 44 percent reported to have one or more instances of
noncompliance is at best an upper limit on the extent of noncompliance
found. IRS has chosen specific types of private pension plans to study in
a manner similar to the one conducted on 401(k) pension plans. The data
that IRS collects will be analyzed to determine the prevalence and types
of noncompliance among the plans studied.

Private Pensions: Issues of Coverage and Increasing Contribution Limits
for Defined Contribution Plans (GAO-01-846, 17-SEP-01)

Proposals to expand pension coverage and promote pension savings have
recently received much attention. In the Economic Growth and Tax Relief
Reconciliation Act of 2001, for example, Congress raised statutory limits
on tax-deferred pension contributions and benefits and made other changes
to the law governing qualified pension plans. Some believe that increasing
these limits will encourage employers to start new plans and improve
existing plan coverage, especially for employees of small businesses.
Others contend that these measures will primarily benefit higher-paid
individuals and may not improve pension coverage for low-or
moderate-income workers. Forty-seven percent of all workers participated
in a pension plan, and 36 percent of all workers participated in a defined
contribution (DC) plan. Most pension plan participants had low or moderate
earnings (less than $40,000 per year) and were men. About eight percent of
all DC participants, or 3.1 million people, were likely direct
beneficiaries of a simultaneous increase in all the statutory contribution
limits GAO analyzed. Higher earners were more likely than low and moderate
earners, and men were more likely than women, to benefit directly from
such an increase; this was also true of increases in each of the separate
dollar limits on contributions. About 721,000 DC participants, or 11
percent of eligible DC participants, were likely to benefit from a
so-called "catch-up" provision allowing persons aged 50 or older to make
additional contributions to DC plans. Higher earners were more likely to
benefit directly from this option than were low and moderate earners.
However, neither male more female DC participants were significantly more
likely to benefit directly from this option.

Private Pensions: Participants Need Information on the Risks of Investing
in Employer Securities and the Benefits of Diversification (GAO-02-943,
06-SEP-02)

The financial collapse of large firms and the effects on workers and
retirees has raised questions about retirement funds being invested in
employer securities and the laws governing such investments. Pensions are
important source of income of many retirees, and the federal government
has encouraged employers to sponsor and maintain pension and savings plans
for their employees. The continued growth in these plans and their
vulnerabilities has caused Congress to focus on issues related to
participants investing in employer securities through employer-sponsored
retirement plans. GAO's analysis of the 1998 plan data for the Fortune
1,000 firms showed that 550 of those companies held employer securities in
their defined benefit plans or defined contribution plans, covering 13
million participants. Investment in employer securities through
employer-sponsored retirement plans can present significant risks for
employees. If the employees' retirement savings is largely in employer
securities in these plans, employees risk losing not only their jobs
should the company go out of business, but also a significant portion of
their savings. Even if employers do not declare bankruptcy, employees are
still subject to the dual risk of loss of job and loss of retirement
savings because corporate losses and stock price declines can result in
companies significantly reducing their operations. Under the Employee
Retirement Income Security Act and the Securities Acts, the Department of
Labor and Securities and Exchange Commission (SEC) are responsible for
ensuring that certain disclosures are made to plan participants regarding
their investments. Although employees in plans where they control their
investments receive disclosures under the act regarding their investments,
such regulations do not require companies to disclose the importance of
diversification or warn employees about the potential risks of owning
employer securities. SEC requires companies with defined contribution
plans that offer employees an opportunity to invest in employer stock to
register and disclose to SEC specific information about those plans. In
addition, in most cases the underlying securities of those plans must be
registered with SEC. However, SEC does not routinely review these company
plan filings because pension plans generally fall under other federal
regulation.

Retirement Savings: Opportunities to Improve DOL's SAVER Act Campaign
(GAO01-634, 26-JUN-01)

Many of today's workers may not be financially prepared for retirement
when they stop working. Many people are counting on Social Security alone,
without an additional retirement plan. The Savings Are Vital to Everyone's
Retirement (SAVER) Act of 1997 requires the Department of Labor (DOL) to
hold periodic national summits and run an outreach program to promote
retirement saving. This report (1) identifies major accomplishments of the
1998 summit and issues that might affect future summits, (2) describes
DOL's outreach program, and (3) determines what DOL knows about the
effectiveness of the summit and outreach program. GAO found that the 1998
National Summit made progress in identifying problems that workers face in
saving for retirement. DOL's Outreach Program--the Retirement Savings
Education Campaign--targets of small business owners, women, minorities,
and youth to change

the way they think about, and act on, their retirement saving needs. DOL
has not tried to assess the extent to which outreach efforts from the 1998
National Summit and Pension and Welfare Benefits Administration have
increased the public's knowledge and understanding of retirement savings.

Social Security: Program's Role in Helping Ensure Income Adequacy
(GAO-02-62, 30-NOV-01)

Before Social Security, being old often meant being poor. Today,
dependency on public assistance has dropped to a fraction of its
Depression-era levels, and poverty rates among the elderly are now lower
than for the population as a whole. At the same time, Social Security has
become the single largest source of retirement income for more than 90
percent of persons aged 65 and older. Automatic adjustments were
introduced in 1972 to reflect increases in the cost of living. Other
program changes gradually increased social security coverage to larger
portions of the workforce and extended eligibility to family members and
disabled workers. Other benefit programs, such as Supplemental Security
Income (SSI), Medicare, and Medicaid, have also been added over the years.
With regard to measuring income adequacy, various measures help examine
different aspects of this concept, but no single measure can provide a
complete picture. For various subgroups of beneficiaries that have lower
lifetime earnings, poverty rates have also declined. Although the Social
Security benefit formula favors lower lifetime earners, their lower
earnings and work histories can leave them with incomes below the poverty
level when they retire or become disabled. The outlook for future Social
Security benefit levels and income adequacy depend on how the program's
long-term financing imbalance is addressed, as well as on the measures
used. GAO concludes that reductions in promised benefits and increases in
program revenues will be needed to restore the program's long-term
solvency and sustainability. Possible benefit changes might include
adjustments to the benefit formula or reductions in cost-of-living
increases. Possible revenue sources might include higher payroll taxes or
transfers from the Treasury's general fund.

Social Security Administration: Information Systems Could Improve
Processing Attorney Fee Payments in Disability (GAO-01-796, 29-JUN-01)

To ensure that people claiming disability insurance benefits can obtain
legal representation at a fair price, the Social Security Act requires
that the Social Security Administration (SSA) regulate the fees that
attorneys charge people to represent their disability claims before the
agency. Inefficiencies in the current process increase both the time it
takes to pay the attorney fees and the costs of administration. One
segment of attorney fee processing-the fee approval process-was
substantially simplified in 1991. Systems support could streamline the
second segment of the processing-the fee payment-thus lowering the annual
administrative costs and cutting processing time. By automating this final
segment of the fee processing, SSA could help improve customer service for
both claimants and their attorneys. GAO found that despite internal
recommendations for a new system, SSA has repeatedly postponed its plans
to improve the attorney fee payment process. Indeed, even though these
improvements have been part of SSA's system's plans since 1998, SSA

has yet to establish a firm schedule for carrying out its plans.
Additionally, although SSA has a draft plan for improving the process,
agency officials told GAO that the details of the plan have not been
completed and SSA has yet to complete a cost estimate for the project.
There are also other gaps in the plan--such as not creating an attorney
master file or establishing an electronic connection between the payment
processing staff and the Office of Hearings and Appeals fee approval
staff-where taking additional actions could improve the process.
Furthermore, SSA's performance plan did not have goals related to attorney
fees-neither for cost reduction of the program nor payment timeliness. SSA
would need such goals as part of its current planning effort for improving
the attorney fee payment process as well as for its future operations.
Without such quantifiable goals, future efforts to track and oversee SSA's
progress in these areas will be difficult.

Social Security Administration: Revision to the Government Pension Offset
Exemption Should Be Reconsidered (GAO-02-950, 15-AUG-02)

Social Security benefits are payable to the spouses of retired, disabled,
or deceased workers. The benefits often provide income to wives and
husbands who have little or no Social Security benefits of their own.
Until 1977, workers receiving pensions from government positions not
covered by Social Security could receive their full pension benefit and
their full spousal benefits as if they were nonworking spouses. Since
then, a government pension offset has been in effect to equalize the
treatment of workers covered by Social Security and those with noncovered
government benefits. This report was prompted by a referral to GAO's
Fraudnet that questioned a practice in which individuals in Texas were
transferring to Social Security-covered positions for one day to avoid the
offset. GAO found no central data on the use of the offset exemption by
individuals, and time constraints did not permit in-depth audit work on
the 2,300 state and local government retirement plans. However, GAO did
establish that, as of June 2002, more than 4,800 persons in Texas and
Georgia worked for brief periods in jobs covered by Social Security to
qualify for the "last-day exemption." GAO estimates that the long-term
Social Security payments to these individuals could be as high as $450
million. Such abuses of the offset exemption could be prevented by (1)
changing the last-day provision to a longer minimum time period or (2)
using a proportional approach based on the number of working years as a
government employee spent in covered and noncovered employment to
determine the extent to which the government pension offset applies.

SSA Disability: SGA Levels Appear to Affect the Work Behavior of
Relatively Few Beneficiaries, but More Data Needed (GAO-02-224, 16-JAN-02)

The Social Security Administration's (SSA) Disability Insurance (DI)
program paid $50 billion in cash benefits to more than five million
disabled workers in 2000. Eligibility for DI benefits is based on whether
a person with a severe physical or mental impairment has earnings that
exceed the Substantial Gainful Activity (SGA) level. SSA terminates
monthly cash benefit payments for beneficiaries who return to work and
have earnings that exceed the SGA level-$1,300 per month for blind
beneficiaries and $780 per month for all other beneficiaries. GAO found
that the SGA

level affects the work patterns of only a small proportion of DI
beneficiaries. However, GAO also found that the SGA may affect the
earnings of some beneficiaries. About 13 percent of those beneficiaries
with earnings near the SGA level in 1985 still had earnings near the SGA
level in 1995, even though the level was increased during that period. The
absence of key information identifying the monthly earnings of
beneficiaries, their trial work period status, and whether they are blind
limited GAO's ability to definitively identify a relationship between SGA
levels and beneficiaries' work patterns. Data limitations also make the
effect of the SGA on DI program entry and exit rates difficult to isolate.
Although the rate of program entry increased in the years immediately
following a 1990 increase in the SGA level, it then gradually declined to
a level below the pre-1990 entry rates. Since 1990, DI exit rates continue
to be driven largely by beneficiary death and conversion to retirement
benefits. However, the percentage of all exits caused by improvements in
medical conditions or a return to work increased slowly, from 1.9 percent
in 1985 to 9.2 percent in 1996, and then rose dramatically to 19.9 percent
in 1997. A substantial increase in the number of continuing disability
reviews done by SSA may account, in part, for this 1997 upturn, but data
limitations preclude GAO from obtaining a full understanding of the link
between the SGA and exit behavior.

Social Security Programs: Scope of SSA's Authority to Deny Benefits to
Fugitive Felons and to Release Information About OASI and DI Beneficiaries
Who Are Fugitive Felons (GAO-02-459R, 27-FEB-02)

In response to concerns that individuals wanted in connection with a
felony or violating terms of their parole or probation could receive
benefits from programs for the needy, the Congress added provisions to the
Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA)
of 1996 that prohibit these individuals from receiving Supplemental
Security Income (SSI), Food Stamps benefits, Temporary Assistance for
Needy Families (TANF), and federal housing assistance. To assist in the
apprehension of fugitive felons, PRWORA also directs these programs to
provide law enforcement agencies with information about program recipients
for whom there are outstanding warrants. GAO was asked to determine if SSA
has the authority under these provisions (1) to deny Old Age and Survivors
Insurance (OASI) and Disability Insurance (DI) to fugitive felons, and (2)
to give law enforcements agencies the current addresses and Social
Security numbers of OASI or DI recipients who are fugitive felons. GAO
found that SSA currently lacks the authority to deny OASI and DI benefits
to fugitive felons who otherwise are eligible to receive them, and the
Privacy Act authorizes but does not require SSA to provide information it
collects about individuals, including OASI and DI recipients who are
fugitive felons, to law enforcement agencies.

Social Security Reform: Potential Effects on SSA's Disability Programs and
Beneficiaries (GAO-01-35, 24-JAN-01)

There has been little analysis of how the various Social Security reform
proposals might affect the Social Security Disability Insurance (DI)
program. This report assesses the potential impact of these proposals on
the solvency of the DI trust fund

and on the benefits disabled beneficiaries receive. GAO found that most
disabled beneficiaries would receive higher benefits under the various
Social Security reform proposals it reviewed than under a solvency
scenario that maintained payroll tax rates while reducing benefits.
However, most of the disabled beneficiaries GAO studied would receive
lower benefits under three of the reform proposals reviewed than under a
solvency scenario that maintained current-law benefits while raising
payroll taxes. The proposals GAO studied treat DI beneficiaries similar to
Old-Age and Survivor Insurance beneficiaries. However, the circumstances
facing disabled workers differ from those facing retired workers. The
differences between disabled workers and retired workers suggest that
Social Security reform proposals should be viewed not only in light of
their effects on retired workers but also explicitly for their effect on
disabled beneficiaries and their families.

Supplemental Security Income: Progress Made in Detecting and Recovering
Overpayments, but Management Attention Should Continue (GAO-02-849, 16-SEP

02)

The Supplemental Security Income (SSI) program is the nation's largest
cash assistance program for the poor. The program paid $33 billion in
benefits to 6.8 million aged, blind, and disabled persons in fiscal year
2001. Benefit eligibility and payment amounts for the SSI population are
determined by complex and often difficult to verify financial factors such
as an individual's income, resource levels, and living arrangements. Thus,
the SSI program tends to be difficult, labor intensive, and time consuming
to administer. These factors make the SSI program vulnerable to
overpayments. The Social Security Administration (SSA) has demonstrated a
stronger commitment to SSI program integrity and taken many actions to
better deter and detect overpayments. Specifically, SSA has (1) obtained
legislative authority in 1999 to use additional tools to verify
recipients' financial eligibility for benefits, including strengthening
its ability to access individuals' bank account information; (2) developed
additional measures to hold staff accountable for completing assigned SSI
workloads and resolving overpayment issues; (3) provided field staff with
direct access to state databases to facilitate more timely verification of
recipient's wages and unemployment information; and (4) significantly
increased, since 1998, the number of eligibility reviews conducted each
year to verify recipient's income, resources, and continuing eligibility
for benefits. In addition to better detection and deterrence of SSI
overpayments, SSA has made recovery of overpaid benefits a high priority.

Sustained management attention should continue to ensure progress towards
fully implementing crucial overpayment deterrence, detection, and recovery
tools. Despite these efforts, further improvements in overpayment recovery
are possible. The report includes recommendations that SSA address complex
SSI program rules to better prevent payment errors, reassess its policies
and procedures for imposing administrative penalties and sanctions, and
ensure that overpayment waiver policies are designed and implemented in a
way that maintains program integrity.

Welfare Reform: Implementation of Fugitive Felon Provisions Should Be
Strengthened (GAO-02-716, 25-SEP-02)

In response to concerns that individuals wanted in connection with a
felony or violating terms of their parole or probation could receive
benefits from programs for the needy, Congress added provisions to the
Personal Responsibility and Work Opportunity Reconciliation Act of 1996
that prohibit these individuals from receiving Supplemental Security
Income (SSI), Food Stamp benefits, and Temporary Assistance to Needy
Families (TANF) and make fugitive felon status grounds for the termination
of tenancy in federal housing assistance programs. In addition, the Act
directs these programs to provide law enforcement officers with
information about program recipients for whom there are outstanding
warrants to assist in their apprehension. Actions taken to implement the
Act's fugitive felon provisions have varied substantially by program. In
implementing provisions to prohibit benefits to fugitive felons, all but
housing assistance programs include, at a minimum, a question about
fugitive felon status in their applications. SSI and some state Food Stamp
and TANF programs also seek independent verification of fugitive felon
status by using computer matching to compare arrest warrant and program
recipient files. To date, 110,000 beneficiaries have been identified as
fugitive felons and dropped from the SSI, Food Stamp, and TANF rolls, and
many have been apprehended. Computerized file matching has been
responsible for the identification of most of these fugitive felons.
Aggressive implementation of the Act's fugitive felon provisions poses a
number of challenges for programs. First, centralized and complete
national and statewide arrest warrant data for computer matching are not
readily available. Second, because direct access to arrest warrants and
criminal records is limited to law enforcement personnel, computer
matching requires what many state TANF and Food Stamp officials view as a
burdensome and complex negotiation process to obtain these records. Third,
the absence of information and guidance about how to conduct file matching
and overcome its logistical challenges has also hindered aggressive
implementation of the law. Finally, there is evidence that individuals
with outstanding warrants for felonies, or probation or parole violations,
may continue to collect benefits because there may be differences in the
interpretation of what constitutes a fugitive felon within the Food Stamp
and TANF programs.

VETERANS/DOD ISSUES

DOD and VA Pharmacy: Progress and Remaining Challenges in Jointly Buying
and Mailing Out Drugs (GAO-01-588, 25-MAY-01)

The Department of Veterans Affairs (VA) and the Department of Defense
(DOD) have made important progress, particularly during the past year, in
their efforts to jointly procure drugs to help control spiraling
prescription drug costs. Although their collaborative efforts have been
impressive, the two agencies have largely targeted generic drugs, which
comprise less than 10 percent of their combined expenditures. More
dramatic cost reductions could be achieved through procurements of
high-cost brand-name drugs, although doing so can be more complex and time
consuming to garner the necessary clinical support and provider acceptance
on therapeutic interchangeability. Nonetheless, DOD's greatly expanded
retiree drug benefit and the formularies being developed by both agencies
should provide added joint procurement opportunities for such drugs. Also,
VA and DOD have shown that flexible approaches to developing joint
solicitations can take into account differences in their health systems
while still maximizing drug discounts. In GAO's view, their joint
activities could be further enhanced by periodically conferring with
private managed care pharmacy experts and reporting to Congress on their
joint procurement activities. Top management at DOD and VA need to stay
focused on their joint procurement and distribution activities as
leadership changes continue at the two agencies. VA and DOD have also made
progress in their efforts to conduct a consolidated mail outpatient
pharmacy pilot. The sooner the pilot proves feasible, the sooner DOD can
begin to realize the financial and quality of care benefits associated
with the transfer of its refill workload.

Financial Management: Department of Defense Regulations Establishing
Methods to Calculate Amounts To Be Transferred from Department of Defense
Medicare Eligible Retiree Health Care Fund (GAO-02-1061R, 30-AUG-02)

GAO reviewed regulations issued by the Department of Defense (DOD) to
cover transfers from a new fund created by Congress to finance the cost of
expanded health care programs' benefits for Medicare-eligible uniformed
services retirees and their eligible dependents. These health care
programs include pharmacy benefits and coverage of the deductible portion
of Medicare benefits. The Floyd D. Spence National Defense Authorization
Act for Fiscal Year 2001 established the Department of Defense Medicare
Eligible Retiree Health Care Fund in the U.S. Treasury. Beginning on
October 1, 2002, the fund will finance DOD's liabilities under the
uniformed services retiree health programs for Medicare-eligible
beneficiaries. The legislation requires that (1) the Secretary of Defense
establish by regulation the methods for calculating amounts to be
transferred periodically from the fund to applicable appropriations that
incur the programs' cost and (2) the Comptroller General report to the
Secretary of Defense and to Congress on the adequacy and appropriateness
of these regulations within 30 days of receiving them from the Secretary.
GAO found that regulations establishing the methods for calculating
transfers from the fund to finance eligible health care costs were issued
in July 2002,

in sufficient time to begin making transfers upon activation of the fund
on October 1, 2002. DOD regulations for establishing the methods for
calculating transfers from the fund are adequate and appropriate, and they
provide a framework for the transfers to be implemented upon activation of
the fund. Under these regulations, there are to be daily transfers from
the fund to cover amounts disbursed to non-DOD providers, such as civilian
health care providers and retail pharmacies, based on claims transactions.
The regulations also provide the methodology for calculating transfers to
cover the cost of military treatment facilities care to the intended
beneficiaries. However, the reliability of the underlying cost and patient
clinical data could limit DOD's ability to reliably assign costs and bill
DOD for services to DOD Medicare-eligible retirees and their eligible
dependents.

VA Drug Formulary: Better Oversight Is Required, but Veterans Are Getting
Needed Drugs (GAO-01-183, 29-JAN-01)

During the last three years, the Department of Veterans Affairs (VA) has
made significant progress in establishing its national drug formulary,
which has generally met with prescriber acceptance. Most veterans are
receiving the drugs they need. However, VA oversight has not been
sufficient to ensure that the Veterans Integrated Service Networks (VISN)
and medical centers comply with formulary policies and that the
flexibility given to them does not compromise VA's goal of formulary
standardization. Contrary to VA formulary policy, some facilities omitted
national formulary drugs or modified the closed drug classes. Although a
limited number of drugs to supplement the national formulary is permitted,
formulary differences among facilities are likely to become more
pronounced, as more drugs are added by VISNs, decreasing formulary
standardization. VA recognizes the trade-off between local flexibility and
standardization, but it lacks criteria for determining the appropriateness
of adding drugs to supplement the national formulary and therefore may not
be able to determine whether the decrease in standardization is
acceptable.

VA Health Care: Allocation Changes Would Better Align Resources with
Workload

(GAO-02-338, 28-FEB-02)

The Department of Veterans Affairs (VA) spent $21 billion in fiscal year
2001 to treat 3.8 million veterans--most of whom had service-connected
disabilities or low incomes. Since 1997, VA has used the Veterans
Equitable Resource Allocation (VERA) system to allocate most of its
medical care appropriation. GAO found that VERA has had a substantial
impact on network resource allocations and workloads. First, VERA shifted
$921 million from networks located primarily in the northeast and midwest
to networks located in the south and west in fiscal year 2001. In
addition, VERA, along with other VA initiatives, has provided an incentive
for networks to serve more veterans. VERA's overall design is a reasonable
approach to allocate resources commensurate with workloads. It provides a
predetermined dollar amount per veteran served to each of VA's 22 health
care networks. This amount varies depending upon the health care needs of
the veteran served and local cost differences. This approach is designed
to allocate resources commensurate with each network's workload in terms
of veterans served and their health care needs. GAO

identified weaknesses in VERA's implementation. First, VERA excludes about
one fifth of VA's workload in determining each network's allocation.
Second, VERA does not account well for cost differences among networks
resulting from variation in their patients' health care needs. Third, the
process for providing supplemental resources to networks through VA's
National Reserve Fund has not been used to analyze how the need for such
resources is caused by potential problems in VERA's allocation, network
inefficiency, or other factors.

VA Health Care: Expanded Eligibility Has Increased Outpatient Pharmacy Use
and Expenditures (GAO-03-161, 08-NOV-02)

The Department of Veterans Affairs (VA) spent about $3.0 billion on its
outpatient pharmacy benefit in fiscal year 2001. After VA implemented the
Veterans' Health Care Eligibility Reform Act in 1999, more veterans could
use VA outpatient care, including the pharmacy benefit, than before.
Increased eligibility contributed to a doubling of the number of Priority
7 veterans using VA health care. Priority 7 veterans are primarily
veterans with higher incomes and no service-connected disability. GAO was
asked to report on Priority 7 veterans' use of the outpatient pharmacy
benefit and VA's expenditures to provide this benefit. To do this, GAO
reviewed VA pharmacy data on use and costs from fiscal years 1999 through
2001.

VA spent $418 million on the outpatient pharmacy benefit for Priority 7
veterans in fiscal year 2001. VA pharmacy expenditures for Priority 7
veterans in this year were offset by copayments for drugs. In fiscal year
2001, VA collected approximately $41 million in drug copayments from
Priority 7 veterans by charging $2 for a 30-day or less supply. This
reduced VA's net expenditures to $377 million. After VA implemented
eligibility reform in 1999, Priority 7 veterans' use of the pharmacy
benefit increased rapidly from about 11 million 30-day equivalents of
drugs or supplies in fiscal year 1999 to about 26 million 30-day
equivalents in fiscal year 2001. This resulted in more than a doubling of
VA's net pharmacy expenditures for these veterans. Yet, net pharmacy
expenditures for Priority 7 veterans remain a relatively small share of
VA's total net spending for outpatient drugs and supplies. Most of VA's
increased pharmacy spending during this period was for all other
veterans--those with service-connected disabilities, low incomes, or
certain other recognized statuses such as former prisoners of war. In
fiscal year 2001, 87 percent of VA's net pharmacy expenditures were for
these veterans.

VA Health Care: Implementation of Prescribing Guideline for Atypical
Antipsychotic Drugs Generally Sound (GAO-02-579, 29-APR-02)

The Department of Veterans Affairs (VA) provides health care services to
veterans who have been diagnosed with psychosis--primarily schizophrenia,
a disorder that can substantially limit their ability to care for
themselves, secure employment, and maintain relationships. These veterans
also have a high risk of premature death, including suicide. Effective
treatment, especially antipsychotic drug therapy, has reduced the severity
of their illnesses and increased their ability to function in society.
VA's guideline for prescribing atypical antipsychotic drugs is sound and

consistent with published clinical practice guidelines used by public and
private health care systems. VA's prescribing guideline recommends that
physicians use their best clinical judgment, based on clinical
circumstances and patients' needs, when choosing among the atypical drugs.
Most Veterans Integrated Service Networks (VISN) and facilities use VA's
prescribing guideline; however, five VISNs have additional policies and
procedures for prescribing atypical antipsychotic drugs. Although these
procedures help manage pharmaceutical cost, they also have the potential
to result in more weight given to cost than clinical judgment, which is
inconsistent with the prescribing guideline.

VA Health Care: More National Action Needed to Reduce Waiting Times, but
Some Clinics Have Made Progress (GAO-01-953, 31-AUG-01)

In fiscal year 2000, roughly four million patients made 39 million
outpatient visits to more than 700 health care facilities nationwide, run
by the Department of Veterans Affairs (VA). However, excessive waiting
times for outpatient care have been a longstanding problem. To ensure
timely access to care, VA established a goal that all nonurgent primary
and specialty care appointments be scheduled within 30 days; clinics were
to meet this goal by 1998. Yet, three years later, reports of long waiting
times persist. Waiting times at the clinics in the 10 medical centers GAO
visited indicate that meeting VA's 30-day standard is a continuing
challenge for many clinics. Although most of the primary care clinics GAO
visited (15 of 17) reported meeting VA's standard for nonurgent,
outpatient appointments, only one-third of the specialty care clinics
visited (18 of 54) met VA's 30-day standard. For the remaining two-thirds,
waiting times ranged from 33 days at one urology clinic to 282 days at an
optometry clinic. Although two-thirds of the specialty clinics GAO visited
continued to have long waiting times, some were making progress in
reducing waiting times, primarily by improving their scheduling processes
and making better use of their staff. These successes were often the
result of collaborative efforts with the Institute for Healthcare
Improvement (IHI) a private contractor VA retained in July 1999-to develop
strategies to reduce patient waiting times. Medical centers and clinics
participating in VA's IHI project have received valuable information and
strategies for successfully reducing waiting times. However, VA has only
recently contracted with IHI to disseminate best practices agency-wide and
VA has not established a national set of referral guidelines that could
alleviate waiting times for specialty care.

VA Long-Term Care: Implementation of Certain Millennium Act Provisions Is
Incomplete, and Availability of Noninstitutional Services Is Uneven
(GAO-02-510R, 29-MAR-02)

The Department of Veterans Affairs (VA) spent about $3.1 billion on
long-term care in fiscal year 2001. This amount is likely to increase as
the veteran population ages. VA provides or pays for long-term care in
institutional settings, such as nursing homes, or in veteran's own homes
and other community locations. The Veterans Millennium Health Care and
Benefits Act of 1999 required VA to offer long-term care services to
eligible veterans, including in noninstitutional settings. More than two
years after the act's passage, VA has not completely met the act's
requirement that all eligible

veterans be offered adult day health care, respite care, and geriatric
evaluation. Although VA published draft regulations that would make these
three services available, the regulations were not finalized as of March
2002. To respond to the act's requirements before its draft regulations
were finalized, VA issued a policy directive making these three services
available in noninstitutional settings. At the time of GAO's review,
however, access to these services was far from universal. Moreover, the
availability of all VA noninstitutional long-term care services, including
the newly required services, is uneven across the VA system.

VA Long-Term Care: Oversight of Community Nursing Homes Needs
Strengthening

(GAO-01-768, 27-JUL-01)

The Department of Veterans Affairs (VA) spent about $1.9 billion-or about
10 percent of its health care budget-to provide nursing home care to
veterans in fiscal year 2000. VA will likely see increasing demand for
nursing home care during the next decade. The number of veterans age 85
and older is expected to triple-from 422,000 veterans in 2000 to nearly
1.3 million in 2010. Among the very old, the prevalence of chronic health
conditions and disabilities increases markedly. In addition, VA is
required to provide long-term care to some veterans, which may further
increase veterans' demand for nursing home care. Almost 73 percent of VA's
nursing home care in fiscal year 2000 went to VA's 134 nursing homes; the
rest went to state-owned and operated veterans' nursing homes (15 percent)
or to community nursing homes under local or national contract to VA (12
percent). VA generally requires its medical center staff to conduct annual
inspections of state veterans' homes and community nursing homes; it also
requires monthly staff visits to veterans in community nursing homes. GAO
found that VA's adherence to its oversight policies for state veterans'
homes and community nursing homes has been mixed because of a lack of VA
monitoring and oversight. VA medical staff are required to inspect each
state veterans' home annually, and of the 86 inspections reviewed by GAO,
about 85 percent were done within the time frame or shortly thereafter. VA
lacks a departmentwide approach to monitoring medical centers' community
nursing home oversight activities and enforcing VA's oversight
policies--particularly regarding locally contracted homes, which make up
about 75 percent of the community nursing homes under contract to VA-and
individual medical centers vary in how well they have overseen community
nursing homes. Under its planned policy change, VA would eliminate the
requirement for annual inspections of community nursing homes and instead
would rely on Medicare and Medicaid certification inspections. Local VA
medical centers' staff will review state inspection reports and CMS data
to evaluate community nursing homes. However, the quality of state
inspections of nursing homes varies, and CMS is unable to accurately
assess state inspection results in all cases.

Medicare Subvention Demonstration: DOD Costs and Medicare Spending
(GAO-0267, 31-OCT-01)

The Balanced Budget Act of 1997 authorized the Department of Defense (DOD)
to conduct the Medicare subvention demonstration for a three-year period.
Under this

demonstration, DOD formed Medicare managed care organizations-collectively
called TRICARE Senior Prime-at six sites that provided the full range of
Medicarecovered services as well as additional DOD-covered services,
notably prescription drugs. The Medicare program was to pay DOD for
Medicare-covered care of the enrolled military retirees if DOD continued
to spend on all aged military retirees at least as much as it had
historically. Under the subvention demonstration, Senior Prime enrollees'
care in 1999 cost DOD far more than the Medicare capitation rate that was
established for the demonstration. This mainly resulted from enrollees'
heavy use of medical services, but DOD coverage of prescription drugs-not
included in the Medicare benefit package-also contributed to its high
costs. Without the demonstration, Medicare spending in 1999 for retirees
who enrolled in Senior Prime would have been, on average, about 55 percent
of the Senior Prime capitation rate. This was partly because Senior Prime
enrollees were somewhat healthier than comparable Medicare beneficiaries,
but mainly because Medicare would have paid for only part of the
enrollees' care. DOD would have provided much of their care, which would
not have been reflected in Medicare's spending on their behalf. The
Balanced Budget Act's payment rules resulted in no Medicare payment to DOD
in 1999. This was because they were designed to prevent the government
from paying twice for the same care-once through DOD appropriations and
again through Medicare. The rules also required that the payment be
adjusted to account for Senior Prime enrollees' health status. Together,
these two requirements resulted in Medicare paying nothing for care
provided in 1999. Even without these two requirements, Medicare would have
paid DOD less than the monthly capitation rate of $320 per person, because
Congress had capped the Medicare payment for all enrollees at $60 million
for 1999.

Medicare Subvention Demonstration: DOD's Pilot HMO Appealed to Seniors,
Underscored Management Complexities (GAO-01-671, 14-JUN-01)

This interim report reviews the implementation of the Department of
Defense (DOD) Medicare Subvention Demonstration. GAO found that the
demonstration sites were successful in operating Medicare managed care
plans. Officials put substantial effort into meeting Medicare managed care
requirements and, according to Health Care Financing Administration
reviewers, were generally as successful as other new Medicare managed care
plans in this regard. Most sites reached the enrollment limits they had
established for retirees already covered by Medicare. DOD officials
indicated that the demonstration's effect was positive. Enrollees received
a broader range of services from DOD than in the past, when they got care
only when space was available in DOD facilities. Officials also noted that
providing more comprehensive care to seniors helped sharpen the skills of
military clinical staff, which contributed to their readiness for
supporting combat or other military missions. Some challenges encountered
in the demonstration reflect larger DOD managed care issues and may have
implications for DOD managed care generally. Although access to care was
generally good, the demonstration experienced some problems in maintaining
adequate clinical staff.

Medicare Subvention Demonstration: Greater Access Improved Enrollee
Satisfaction but Raised DOD Costs (GAO-02-68, 31-OCT-01)

In the Balanced Budget Act of 1997, Congress established a three-year
demonstration, called Medicare subvention, to improve the access of
Medicare-eligible military retirees to care at military treatment
facilities (MTF). The demonstration allowed Medicare-eligible retirees to
get their health care largely at MTFs by enrolling in a Department of
Defense (DOD) Medicare managed care organization known as TRICARE Senior
Prime. During the subvention demonstration, access to health care for many
retirees who enrolled in Senior Prime improved, while access to MTF care
for some of those who did not enroll declined. Many enrollees in Senior
Prime said they were better able to get care when they needed it. They
also reported better access to doctors in general as well as to care at
MTFs. Enrollees generally were more satisfied with their care than before
the demonstration. However, the demonstration did not improve enrollees'
self-reported health status. In addition, compared to nonenrollees,
enrollees did not have better health outcomes, as measured by their
mortality rates and rates of "preventable" hospitalizations. Moreover,
DOD's costs were high, reflecting enrollees' heavy use of hospitals and
doctors.

Medicare Subvention Demonstration: Pilot Satisfies Enrollees, Raises Cost
and Management Issues for DOD Health Care (GAO-02-284, 11-FEB-02)

The Department of Defense's (DOD) Medicare subvention demonstration tested
alternate approaches to health care coverage for military retirees.
Retirees could enroll in new DOD-run Medicare managed care plans, known as
TRICARE Senior Prime, at six sites. The demonstration plan offered
enrollees the full range of Medicare-covered services as well as
additional TRICARE services, with minimal copayments. During the
demonstration period, the program parameters were changed, allowing
military retirees age 65 and older to become eligible for TRICARE coverage
as of October 1, 2001, and Senior Prime was extended for one year. The
demonstration showed that retirees were interested in enrolling in
low-cost military health plans and that DOD was able to satisfy its Senior
Prime enrollees. By the close of the initial demonstration period, about
33,000 retirees were enrolled in Senior Prime, and more were on waiting
lists. When nonenrollees were asked why they did not join Senior Prime,
more than 60 percent said that they were satisfied with their existing
health coverage; few said that they disliked military care. Although the
demonstration had positive results for enrollees, it also highlighted
three challenges confronting the military health system in managing
patient care and costs. First, care needs to be managed more efficiently.
Although DOD satisfied enrollees and gave them good access to care, it
incurred high costs. Second, DOD's efforts were hindered by limitations in
its data and data systems. Finally, the demonstration illustrated the
tension between the military health system's commitment to support
military operations and promote the health of active-duty personnel and
its commitment to provide care to dependents of active-duty personnel,
retirees and their families, and survivors.

OTHER ISSUES

Electronic Transfers: Use by Federal Payment Recipients Has Increased but
Obstacles to Greater Participation Remain (GAO-02-913, 12-SEP-02)

In 2001, the Department of the Treasury made 764 million payments valued
at $549 billion to beneficiaries of federal programs, primarily programs
administered by the Social Security Administration. Of these payments, 76
percent were made using electronic funds transfers (EFTs), potentially
saving the government millions of dollars in costs associated with
disbursing paper checks. In 1996, Congress passed legislation, which
required that federal payments except tax refunds be made electronically
as of January 1999. The act also required that each person affected by
this mandate have access to an account at a financial institution at a
reasonable cost and with certain consumer protections. To meet this
requirement, Treasury developed the Electronic Transfer Account (ETA).
Most recipients of federal benefits have their payments deposited
electronically. The number of recipients using EFT climbed steadily
throughout the 1990s, rising from around half to more than threequarters
of all beneficiaries. Treasury and the Social Security Administration
(SSA) have undertaken activities to increase the use of direct deposit,
including developing marketing material and directly notifying check
recipients of the advantages of using EFT, particularly safety and
convenience. Although information describing the characteristics of these
EFT users is limited, GAO determined that participation rates are highest
for those 65 and older. The primary obstacle to using EFT was that many
federal check recipients did not have a bank account. GAO's analysis of
the Survey of Income and Program Participation's 1998 data indicated that
11 million benefit recipients, over half of all federal benefit check
recipients in 1998, were unbanked. The ETA has not been widely accepted by
banks or unbanked beneficiaries despite Treasury's efforts to promote it.
Since initiation of the program in 1999, 36,000 ETAs have been opened,
representing fewer than 1 percent of unbanked beneficiaries. Based on
discussions with representatives from Treasury, SSA, financial
institutions, and consumer groups, GAO identified several approaches that
Treasury could consider to increase the use of electronic transfers. These
approaches include increasing cooperation between banks and local SSA
offices to more effectively enroll beneficiaries for ETAs; exploring other
electronic payment options besides the ETA to deliver benefits; partnering
with banks to provide information on the general availability of low cost
banking products, especially in areas with low ETA coverage; and
conducting further research to determine why certain states have low
direct deposit participation rates.

Information Technology Management: Social Security Administration
Practices Can Be Improved (GAO-01-961, 21-AUG-02)

The Social Security Administration (SSA) needs to identify strengths and
weaknesses within its agency-wide operational and managerial capabilities
to enable the delivery of high-quality customer service in the face of
increases in both workloads and in the number of retirements from its
experienced workforce. Evaluating SSA's management of information
technology (IT) is critical to assess whether the agency is

adequately addressing these capabilities. This report reviews SSA's IT
policies, procedures, and practices in the following five areas:
investment management, enterprise architecture, software acquisition and
development, information security, and human capital. GAO found that SSA
had many important IT management policies and procedures in place in each
of these five key areas but did not always implement them consistently. In
some areas, SSA had not established key policies, procedures, or practices
essential to ensure that its IT was effectively managed. GAO found
weaknesses in all of the five key areas of IT management-particularly in
investment management and human capital management.

Record Linkage and Privacy: Issues in Creating New Federal Research and
Statistical Information (GAO-01-126SP, 01-APR-01)

This study focuses on privacy issues related to record-linkage-a
computer-based process that combines multiple of existing data on
individual persons. Federally sponsored linkage projects conducted for
research and statistical purposes have many potential benefits, such as
informing policy debates; tracking program outcomes; or contributing
knowledge that, in some cases, might benefit millions of people. Examples
of record linkage in GAO's study include the use of administrative and
survey data on the aging to provide a better understanding of health care
and income security issues relevant to this population. Despite these
benefits, concerns about personal privacy are relevant because linkages
often involve data on identifiable persons. GAO describes (1) how record
linkage can create new research and statistical information related to the
aging and other populations, (2) why linkage heightens certain privacy
issues, and (3) how data stewardship might be enhanced.

HEALTH ISSUES

Flu Vaccine: Steps Are Needed to Better Prepare for Possible Future
Shortages

(GAO-01-786T, 30-MAY-01)

Until the 2001 flu season, the production and distribution of influenza
vaccine generally went smoothly. Last year, however, several people
reported that they wanted but could not get flu shots. In addition,
physicians and public health departments could not provide shots to
high-risk patients in their medical offices and clinics because they had
not received vaccine they ordered many months in advance, or because they
were being asked to pay much higher prices for vaccine in order to get it
right away. At the same time, there were reports that providers in other
locations, even grocery stores and restaurants, were offering flu shots to
everyone-including younger, healthier people who were not at high risk.
This testimony discusses the delays in production, distribution, and
pricing of the 2000-2001 flu vaccine. GAO found that manufacturing
difficulties during the 2000-2001 flu season resulted in an overall delay
of about six to eight weeks in shipping vaccine to most customers. This
delay created an initial shortage and temporary price spikes. There is no
system in place to ensure that high-risk people have priority for
receiving flu shots when supply is short. Because vaccine purchases are
mainly done in the private sector, federal actions to help mitigate any
adverse effects of vaccine delays or shortages need to rely to a great
extent on collaboration between the public and private sectors.

Health Insurance: Proposals for Expanding Private and Public Coverage
(GAO-01481T, 15-MAR-01)

Various approaches have been proposed to increase private and public
health care coverage of uninsured persons. The success of these proposals
will depend on several key factors. The impact of tax subsidies on
promoting private health insurance will depend on whether the subsidies
reduce premiums enough to induce uninsured low-income individuals to buy
health insurance and on whether these subsidies can be made available at
the time the person needs to pay premiums. The effectiveness of public
program expansions will depend on states' ability and willingness to use
any new flexibility to cover uninsured residents as well as develop
effective outreach to enroll the targeted populations. Although crowd-out
is a concern with any of the approaches, some degree of public funds going
to those currently with private health insurance may be inevitable to
provide stable health coverage for some of the 42 million uninsured
Americans.

Health Products for Seniors: Potential Harm From `Anti-Aging' Products
(GAO-011139T, 10-SEP-01)

Dietary supplements marketed as anti-aging therapies may pose a potential
for physical harm to senior citizens. Evidence from the medical literature
shows that a variety of frequently used dietary supplements can have
serious health consequences for seniors. Particularly risky are products
that may be used by seniors who have underlying diseases or health
conditions that make the use of the product medically inadvisable or
supplements that interact with medications that are being taken
concurrently. Studies have also found that these products sometimes
contain harmful contaminants or much more of an active ingredient than is
indicated on the label. Although GAO was unable to find any recent,
reliable estimates of the overall economic harm to seniors from these
products, it did uncover several examples that illustrate the risk of
economic harm. The Food and Drug Administration (FDA) and the Federal
Trade Commission (FTC) have identified several products that make
advertising or labeling claims with insufficient substantiation, some
costing consumers hundreds or thousands of dollars apiece. The potential
for harm to senior citizens from health products making questionable
claims has been a concern for public health and law enforcement officials.
FDA and FTC sponsor programs and provide educational materials for senior
citizens to help them avoid health fraud. At the state level, agencies are
working to protect consumers of health products by enforcing state
consumer protection and public health laws, although anti-aging and
alternative products are receiving limited attention. This testimony
summarized a September report (GAO-01-1129).

Health Workforce: Ensuring Adequate Supply and Distribution Remains
Challenging (GAO-01-1042T, 01-AUG-01)

This testimony discusses (1) the shortage of healthcare workers and (2)
the lessons learned by the National Health Service Corps (NHSC) in
addressing these shortages. GAO found that problems in recruiting and
retaining health care professionals could worsen as demand for these
workers increases. High levels of job dissatisfaction among nurses and
nurses aides may also play a crucial role in current and future nursing
shortages. Efforts to improve the workplace environment may both reduce
the likelihood of nurses and nurse aides leaving the field and encourage
more young people to enter the nursing profession. Nonetheless,
demographic forces will continue to widen the gap between the number of
people needing care and the nursing staff available. As a result, the
nation will face a caregiver shortage very different from shortages of the
past. More detailed data are needed, however, to delineate the extent and
nature of nurse and nurse aide shortages to assist in planning and
targeting corrective efforts. Better coordination of NHSC placements, with
waivers for foreign U.S.-educated physicians, could help more needy areas.
In addition, addressing shortfalls in the Department of Health and Human
Services (HHS) systems for identifying underservice is long overdue. HHS
needs to gather more consistent and reliable information on the changing
needs for services in underserved communities. Until then, it will remain
difficult to determine whether

federal resources are appropriately targeted to communities of greatest
need and to measure their impact.

Long-Term Care: Aging Baby Boom Generation Will Increase Demand and Burden
on Federal and State Budgets (GAO-02-544T, 21-MAR-02)

As more and more of the baby boomers enter retirement age, spending for
Medicare, Medicaid, and Social Security is expected to absorb
correspondingly larger shares of federal revenue and threatens to crowd
out other spending. The aging of the baby boomers will also increase the
demand for long-term care and contribute to federal and state budget
burdens. The number of disabled elderly who cannot perform daily living
activities without assistance may double in the future. Long-term care
spending from public and private sources--about $137 billion for persons
of all ages in 2000-will rise dramatically as the baby boomers age.
Without fundamental financing changes, Medicaid--which pays more than
one-third of long-term care expenditures for the elderly--can be expected
to remain one of the largest funding sources, straining both federal and
state governments.

Long-Term Care: Baby Boom Generation Increases Challenge of Financing
Needed Services (GAO-01-563T, 27-MAR-01)

The confluence of the aging baby boom generation, longer life
expectancies, and evolving options for providing and financing long-term
care services will require substantial public and private investment in
long-term care and the development of sufficient capacity to serve this
growing population. Spending for long-term care was about $134 billion in
1999. Medicaid and Medicare paid for nearly 58 percent of these services,
contributing about $59 billion and $18 billion, respectively. Private
long-term care insurance is viewed as a possible way to reduce
catastrophic financial risk for the elderly needing long-term care and to
relieve some of the financing burden now shouldered by public long-term
care programs. Yet private insurance represents only about 10 percent of
long-term care spending. Questions remain about the affordability of
policies and the value of the coverage relative to the premiums charged.
Although many states have adopted standards for long-term care policies,
it is uncertain whether these standards have bolstered consumer confidence
in the reliability of long-term care insurance. If long-term care
insurance is to have a more significant role in addressing the baby boom
generation's upcoming chronic health care needs, consumers must view the
policies being offered as reliable, affordable products with benefits and
limitations that are easy to understand.

Long-Term Care: Elderly Individuals Could Find Significant Variation in
the Availability of Medicaid Home and Community Services (GAO-02-1131T,
26-SEP

02)

As the baby boomers age, spending on long-term care for the elderly could
nearly quadruple by 2050. The growing demand for long-term care will put
pressure on federal and state budgets because long-term care relies
heavily on public financing, particularly Medicaid. Nursing home care
traditionally has accounted for most

Medicaid long-term care expenditures, but the high costs of such care and
the preference of many individuals to stay in their own homes has led
states to expand their Medicaid programs to provide coverage for home- and
community-based longterm care. GAO found that a Medicaid-eligible elderly
individual with the same disabling conditions, care needs, and
availability of informal family support could find significant differences
in the type and intensity of home and community-based services that would
be offered for his or her care. These differences were due in part to the
very nature of long-term care needs--which can involve physical or
cognitive disabling conditions--and the lack of a consensus as to what
services are needed to compensate for these disabilities and what balance
should exist between publicly available and family-provided services. The
differences in care plans were also due to decisions that states have made
in designing their Medicaid long-term care programs and the resources
devoted to them. The case managers GAO contacted generally offered care
plans that relied on in-home services rather than other residential care
settings. However, the extent of in-home services offered varied
considerably.

Long-Term Care: Implications of Supreme Court's Olmstead Decision Are
Still Unfolding (GAO-01-1167T, 24-SEP-01)

In the Olmstead case, the Supreme Court decided that states were violating
title II of the Americans with Disabilities Act of 1990 (ADA) if they
provided care to disabled people in institutional settings when they could
be appropriately served in a home or community-based setting. Considerable
attention has focused on the decision's implications for Medicaid, the
dominant public program supporting long-term care institutional, home, and
community-based services. Although Medicaid spending for home and
community-based service is growing, these are largely optional benefits
that states may or may not choose to offer, and states vary widely in the
degree to which they cover them. The implications of the Olmstead
decision--in terms of the scope and the nature of states' obligation to
provide home and community-based long-term care services--are still
unfolding. Although the Supreme Court ruled that providing care in
institutional settings may violate the ADA, it also recognized that there
are limits to what states can do, given the available resources and the
obligation to provide a range of services for disabled people. The
decision left many open questions for states and lower courts to resolve.
State programs also may be influenced over time as dozens of lawsuits and
hundreds of formal complaints seeking access to appropriate services are
resolved.

Medicare: Cost Sharing Policies Problematic for Beneficiaries and Program
(GAO01-713T, 09-MAY-01)

Medicare provides valuable and extensive health care coverage for
beneficiaries. Nevertheless, significant gaps leave some beneficiaries
vulnerable to sizeable financial burdens from out-of-pocket expenses.
Medigap is a widely available source of supplemental coverage. This
testimony discusses (1) beneficiaries' potential financial liability under
Medicare's current benefit structure and cost-sharing requirements, (2)
the cost of Medigap policies and the extent to which they provide
additional coverage, and (3) concerns that Medigap's so-called "first
dollar" coverage

undermines the cost control incentives of Medicare's cost-sharing
requirements. GAO found that Medicare's benefits package and cost-sharing
requirements leave beneficiaries liable for high out-of-pocket costs.
Medigap policies pay for some or all Medicare cost-sharing requirements
but do not fully protect beneficiaries from potentially significant
out-of-pocket costs such as prescription drug coverage. Medigap
first-dollar coverage eliminates the ability of Medicare's cost-sharing
requirements to promote prudent use of services.

Medicare: Financial Outlook Poses Challenges for Sustaining Program and
Adding Drug Coverage (GAO-02-643T, 17-APR-02)

The lack of outpatient prescription drug coverage may leave Medicare's
most vulnerable beneficiaries with high out-of-pocket costs. Recent
estimates suggest that, at any given time, more than a third of Medicare
beneficiaries lack prescription drug coverage. The rest have some coverage
through various sources--most commonly employer-sponsored health plans.
Recent evidence indicates that this coverage is beginning to erode. The
short- and long-term cost pressures facing Medicare will require
substantial financing and programmatic reforms to put future Medicare on a
sustainable footing. In the absence of a drug benefit, many Medicare
beneficiaries obtain coverage through health plans, public programs, and
the Medigap insurance market. The price, availability, and level of such
coverage varies widely, leaving substantial gaps and exposure to high
out-of-pocket costs for thousands. Despite pressures to adopt a
prescription drug benefit, the rapidly rising cost of current obligations
argues for careful deliberation and extreme caution in expanding benefits.
GAO's long-term simulations show that the aging of the baby boomers and
rising per capita health care spending will, absent meaningful reform,
lead to massive fiscal challenges in future years.

Medicare: New Spending Estimates Underscore Need for Reform (GAO-01-1010T,
25-JUL-01)

Although the short-term outlook of Medicare's hospital insurance trust
fund improved in the last year, Medicare's long-term prospects have
worsened. The Medicare Trustee's latest projections, released in March,
use more realistic assumptions about health care spending in the years
ahead. These latest projections call into question the program's long-term
financial health. The Congressional Budget Office also increased its
long-term estimates of Medicare spending. The slowdown in Medicare
spending growth in recent years appears to have ended. In the first eight
months of fiscal year 2001, Medicare spending was 7.5 percent higher than
a year earlier. This testimony discusses several fundamental challenges to
Medicare reform. Without meaningful entitlement reform, GAO's long-term
budget simulations show that an aging population and rising health care
spending will eventually drive the country back into deficit and debt. The
addition of a prescription drug benefits would boost spending projections
even further. Properly structured reform to promote competition among
health plans could make Medicare beneficiaries more cost conscious. The
continued importance of traditional Medicare underscores the need to base
adjustments to provider payments on hard evidence rather than on anecdotal

information. Similarly, reforms in the management of the Medicare program
should ensure that adequate resources accompany increased expectations
about performance and accountability. Ultimately, broader health care
reforms will be needed to balance health care spending with other societal
priorities.

Medicare: Use of Preventive Services is Growing but Varies Widely
(GAO-02-777T, 23 -MAY-02)

Preventive health care services can extend lives and promote the well
being of the nation's seniors. Medicare now covers 10 preventive
services-three types of immunizations and seven types of screenings-and
legislation has been introduced to cover additional services. However, not
all beneficiaries avail themselves of Medicare's preventive services. Some
may simply choose not to use them, but others may be unaware that these
services are covered by Medicare. Although the use of Medicare preventive
service is growing, it varies from service to service and by state, ethnic
group, income, and level of education. To ensure that preventive services
are delivered to those who need them, the Centers for Medicare and
Medicaid Services (CMS) sponsors activities to increase their use. CMS now
funds interventions to increase the use of three services-breast cancer
screening and immunizations against the flu and pneumonia--in each state.
CMS also pays for interventions to increase use of services by minorities
and low-income beneficiaries with low usage rates. CMS is evaluating the
effectiveness of current efforts and expects to have the evaluation
results later in 2002.

Medicare Hospital and Physician Payments: Geographic Cost Adjustments
Important to Preserve Beneficiary Access to Services (GAO-02-968T,
23-JUL-02)

This testimony discusses Medicare program payment adjustments to hospitals
and physicians that account for geographic differences in costs. Because
Medicare's hospital and physician payment systems are based on national
rates, these geographic cost adjustments are essential to account for
costs beyond providers' control and to ensure that beneficiaries have
adequate access to services. If these adjustments are not adequate, this
could affect providers' financial stability and their ability or
willingness to continue serving Medicare patients. Medicare's payments to
hospitals vary with the average wages paid in a hospital's labor market.
Yet, some hospitals believe that the labor cost adjustment applied does
not reflect the average wage in their labor market area. Medicare's labor
cost adjustment does not adequately account for geographic differences in
hospital wages in some areas because a single adjustment is applied to all
hospitals in an area, even though it may encompass multiple labor markets
or different types of communities within which hospitals pay significantly
different average wages. Geographic reclassification addresses some
inequities in Medicare's labor cost adjustments by allowing some hospitals
that pay wages enough above the average in their area to receive higher
labor cost adjustments. However, some hospitals can reclassify even though
they pay wages that are comparable to the average in their area. To help
ensure that beneficiaries in all parts of the country have access to
services, Medicare adjusts its physician fee schedule on the basis of
indexes designed to reflect cost differences

among 92 geographic areas. The adjustment is designed to help ensure that
the fees paid appropriately reflect the cost of living and operating a
practice in that area.

Medicare Management: Current and Future Challenges (GAO-01-878T,
19-JUN-01)

Medicare is a popular program that millions of Americans depend on for
covering their essential health needs. However, the management of the
program has fallen short of expectations because it has not always
appropriately balanced or satisfied the needs of beneficiaries, providers,
and taxpayers. For example, stakeholders expect that Medicare will price
services prudently; that providers will be treated fairly and paid
accurately; and that beneficiaries will clearly understand their program
options and will receive services that meet quality standards. In
addition, there are expectations that the agency will be prepared to
implement restructuring or added benefits in the context of Medicare
reform. Today's Medicare, although successful in some areas, may not be
able to meet these expectations effectively without further congressional
attention to its multiple missions, capacity, and flexibility. The program
will also need to do its part by implementing a performancebased approach
that articulates priorities, documents resource needs, and holds managers
accountable for accomplishing program goals.

Medicare Outpatient Drugs: Program Payments Should Better Reflect Market
Prices

(GAO-02-531T, 14-MAR-02)

In some cases, Medicare pays significantly more for covered outpatient
drugs than the actual costs to the physicians and pharmacy suppliers.
Attempts to reduce these payments have been met with provider claims that
overpayments for the drugs are needed to cover underpayments for
administering or delivering them. Medicare's method for establishing drug
payments is flawed. Medicare pays 95 percent of the average wholesale
price (AWP), which, despite its name, is neither an average nor a price
that wholesalers charge. Instead, it is a number that manufacturers derive
using their own criteria. There are no requirements or conventions that
AWP reflect the price of actual drug sales. Widely available prices for
drugs in 2001 were substantially below AWP. For both physician-billed
drugs and pharmacy supplier-billed drugs, Medicare payments often far
exceeded widely available prices. Physicians and pharmacy suppliers
contend that the excess payments for covered drugs are necessary to offset
what they claim are inappropriately low Medicare payments or no such
payments for services related to the administration or delivery of these
drugs. Although physicians receive an explicit payment for administering
drugs, Medicare's payment policies for delivering pharmacy supplier-billed
drugs and related equipment are uneven. Pharmacy suppliers billing
Medicare receive a dispensing fee for one drug type--inhalation therapy
drugs--but not for other covered drugs, such as infusion therapy or
covered oral drugs. Other payers and purchasers, such as private health
plans and the Department of Veterans Affairs (VA), use different
approaches to pay for or buy drugs that may be instructive for Medicare.
In particular, VA uses the leverage from the volume of federal drug
purchases to secure verifiable data on actual market transactions, and it
uses the prices paid by manufacturers' best customers to set Federal
Supply Schedule prices.

Medicare Physician Payments: Spending Targets Encourage Fiscal Discipline,
Modifications Could Stabilize Fees (GAO-02-441T, 14-FEB-02)

Congress implemented a physician fee schedule and a fee update formula to
moderate spending growth relative to specified Medicare spending targets.
These spending targets increase annually to reflect higher costs for
physician services, the growth in the overall economy, and changes in the
number of Medicare beneficiaries. Physician fees are adjusted for changes
in the costs of providing services and on actual cumulative spending
compared to the cumulative targets. The annual update may increase or
decrease fees depending on whether actual spending fell below or exceeded
the targets. In November 2001, the Centers for Medicare and Medicaid
announced that Medicare's fees would decline 5.4 percent from what was
paid in 2001, despite an estimated 2.6 percent increase in the cost of
physician inputs. This reduction occurred because historical cumulative
spending exceeded the target by $8.9 billion, or 13 percent of estimated
2002 spending. Several factors contributed to the disparity between actual
and targeted spending, including the correction of substantial errors in
past spending estimates and the revision of targets for prior years. The
current update mechanism could be modified to moderate fluctuations in
physician fees and to ensure adequate payments, while retaining the fiscal
discipline created by a spending target. Such modifications would need to
balance concerns about preserving fiscal discipline on physician spending
with the need to maintain adequate payment rates to ensure that
beneficiaries have access to physician services. Because the paramount
consideration in setting payment rates is ensuring appropriate beneficiary
access to services, timely and detailed data on Medicare beneficiary
service use are essential to achieving this balance.

Medicare Reform: Modernization Requires Comprehensive Program View
(GAO-01862T, 14-JUN-01)

Medicare faces many challenges. The overarching issue is how to sustain
the program for future generations. Meeting that challenge will require
difficult decisions that will affect beneficiaries, providers, and
taxpayers. However, the financing issue should not obscure other important
challenges. Medicare's current cost-sharing arrangements do not encourage
the efficient use of services without discouraging necessary care.
Moreover, the lack of catastrophic coverage can leave some beneficiaries
liable for substantial Medicare expenses. Finally, some aspects of
Medicare's program management are inefficient and lag behind modern
private sector practices. Changes in Medicare's program management could
improve both the delivery of health care to beneficiaries and the
program's ability to pay providers appropriately. Some view restructuring
of the relationship between parts A and B as an important element of
overall Medicare reform. Fundamentally, assessing the program as a whole
is an important first step in addressing Medicare's challenges. Solutions
to many of these challenges could be crafted without restructuring.
However, restructuring may provide opportunities to implement desired
reforms-with or without unifying the Hospital Insurance and Supplemental
Medical Insurance trust funds--while undoubtedly raising issues that will
have to be considered.

Medigap: Current Polices Contain Coverage Gaps, Undermine Cost Control
Incentives (GAO-02-533T, 14-MAR-02)

Medicare provides valuable and extensive health care coverage for 40
million elderly and disabled beneficiaries. Nevertheless, significant gaps
leave some beneficiaries vulnerable to sizeable out-of-pocket expenses.
Medicare provides no limit on out-ofpocket spending and no coverage for
most outpatient prescription drugs. Most beneficiaries have supplemental
coverage that helps to fill Medicare coverage gaps and pay some
out-of-pocket expenses. Privately purchased Medigap policies are a widely
available source of supplemental coverage. The other
sources-employersponsored policies, Medicare + Choice plans, and
Medicaid-are not available to all beneficiaries. Medigap policies help to
fill in some of Medicare's gaps but also have shortcomings. In 1999,
premiums paid for Medigap policies averaged $1,300, with more than 20
percent going to administrative costs. Medigap plans typically cover
Medicare's required deductibles, coinsurance, and copayments but do not
fully protect beneficiaries from potentially significant out-of-pocket
costs. Medigap policies offering prescription drug coverage can be
inadequate because beneficiaries still pay most of the cost and the
Medigap benefit is capped.

Nursing Homes: Many Shortcomings Exist in Efforts to Protect Residents
from Abuse (GAO-02-448T, 04-MAR-02)

Often suffering from multiple physical and mental impairments, the 1.5
million elderly and disabled Americans living in nursing homes are a
highly vulnerable population. These individuals typically require
extensive help with daily living, such as such as dressing, feeding, and
bathing. Many require skilled nursing or rehabilitative care. In recent
years, reports of inadequate care, including malnutrition, dehydration,
and other forms of neglect, have led to mounting scrutiny from state and
federal authorities. Concerns have also been growing that some residents
are abused-pushed, slapped, or beaten--by the very individuals to whom
their care has been entrusted. GAO found that allegations of physical and
sexual abuse of nursing home residents are not reported promptly. Local
law enforcement officials said that they are seldom summoned to nursing
homes to immediately investigate allegations of abuse and that few
allegations are ever prosecuted. Some agencies use different policies when
deciding whether to refer allegations of abuse to law enforcement. As a
result, law enforcement agencies were never told of some incidents or were
notified only after lengthy delays. GAO found that federal and state
safeguards intended to protect nursing home residents from abuse are
inadequate. No federal statute requires criminal background checks for
nursing home employees. Background checks are also not required by the
Centers for Medicare and Medicaid Services, which sets the standards that
nursing homes must meet to participate in the Medicare and Medicaid
programs. State agencies rarely recommend that sanctions be imposed on
nursing homes. Although state agencies compile lists of aids who have
previously abused residents, which can prevent an aide from being hired at
another nursing home, GAO found that delays in making these
identifications can limit the usefulness of these registries. This
testimony summarizes a March report (GAO-02-312).

Nursing Workforce: Multiple Factors Create Nurse Recruitment and Retention
Problems (GAO-01-912T, 27-JUN-01)

While comprehensive data are lacking on the nature and extent of current
difficulties recruiting and retaining nurses, current evidence suggests an
emerging shortage. Several factors, including nurses' decreased levels of
job satisfaction, are combining to constrain the current supply of nurses.
Furthermore, like the general population, the nurse workforce is aging,
and the average age of a registered nurse (RN) increased from 37 years in
1983 to 42 in 1998. Additionally, enrollments in registered nursing
programs have declined over the past 5 years, shrinking the pool of new
workers to replace those who are leaving or retiring. The problem is
expected to become more serious in the future as the aging of the
population substantially increases the demand for nurses.

Retiree Health Insurance: Gaps in Coverage and Availability (GAO-02-178T,
01-NOV-01)

In 1999, about 10 million Americans aged 55 and older relied on
employer-sponsored health benefits until they became eligible for Medicare
or to pay for out-of-pocket expenses not covered by Medicare. However, the
number of employers offering these benefits has declined considerably
during the past decade. Despite the recent strong economy and the
relatively low increases in health insurance premiums during the late
1990's, the availability of employer-sponsored health benefits for
retirees has declined. Two widely cited surveys found that only about
one-third of large employers and less than 10 percent of small employers
offer such benefits. Alternative sources of health care coverage for
retirees may be costly, limited, or unavailable. Retirees not yet 65 may
be eligible for coverage from a spouse's employer or continuation
coverage, known as "COBRA," from their former employer. Other retirees not
yet 65 may seek coverage in the individual insurance market, but these
policies can be expensive or may offer more limited coverage, especially
for those with existing health problems. Nearly one-third of retirees
eligible for Medicare have employer-sponsored supplemental coverage, but
many others buy private supplemental coverage known as "Medigap." It costs
an average of $1,300 per year and more for Medigap policies that include
prescription drug coverage. Neither Medicare nor private insurance covers
a significant share of long-term care expenses.

INCOME SECURITY ISSUES

Private Pensions: Key Issues to Consider Following the Enron Collapse
(GAO-02480T, 27-FEB-02)

The collapse of the Enron Corporation and the resulting loss of employee
retirement savings highlighted several key vulnerabilities in the nation's
private pension system. Asset diversification was a crucial lesson,
especially for defined contribution plans, in which employees bear the
investment risk. The Enron case underscores the importance of encouraging
employees to diversify. Workers need clear and understandable information
about their pension plans to make sound decisions on retirement savings.
Although disclosure rules require plan sponsors to provide participants
with a summary of their plan benefits and rights and to notify them when
benefits are changed, this information is not always clear, particularly
in the case of complex plans like floor-offset arrangements. Employees,
like other investors, also need reliable and understandable information on
a company's financial condition and prospects. Fiduciary standards form
the cornerstone of private pension protections. These standards require
plan sponsors to act solely in the interest of plan participants and
beneficiaries. The Enron investigations should determine whether plan
fiduciaries acted in accordance with their responsibilities.

Social Security: Issues in Evaluating Reform Proposals (GAO-02-288T,
10-DEC-01)

This testimony discusses the long-term viability of the Social Security
program. Social Security's Trust Funds will not be exhausted until 2038,
but the trustees now project that the program's cash demands on the rest
of the federal government will begin much sooner. Aiming for sustainable
solvency would increase the chance that future policymakers would not have
to face these difficult questions on a recurring basis. GAO has developed
the following criteria for evaluating Social Security reform proposals:
financing sustainable solvency, balancing adequacy and equity, and
implementing and administering reforms. These criteria seek to balance
financial and economic considerations with benefit adequacy and equity
issues and the administrative challenges associated with various
proposals. GAO's recent report on Social Security and income adequacy
(GAO-02-62) makes three key points. First, no single measure of adequacy
provides a complete picture; each measure reflects a different outlook on
what adequacy means. Second, given the projected long-term financial
shortfall of the program, it is important to compare proposals to both
benefits at currently promised levels and benefits funded at current tax
levels. Third, various approaches to benefit reductions would have
differing effects on adequacy.

Social Security: Long-Term Financing Shortfall Drives Need for Reform
(GAO-02845T, 19-JUN-02)

Social Security not only represents the foundation of our retirement
income system; it also provides millions of Americans with disability
insurance and survivor's benefits. Although the Social Security Trustees
now project that under the intermediate or "best estimate" assumptions the
combined Social Security Trust

Funds will be exhausted 3 years later than in last year's estimates, the
magnitude of the long-term funding shortfall is virtually unchanged.
Without reform, Social Security, Medicare, and Medicaid are unsustainable,
and the long-term impact of these entitlement programs on the federal
budget and the economy will be dramatic. Social Security reform is part of
a larger and significant fiscal and economic challenge. Absent reform, the
nation will ultimately have to choose between persistent, escalating
federal deficits, significant tax increases, or dramatic budget cuts.
Focusing on trust fund solvency alone is not sufficient. Aiming for
sustainable solvency would increase the chance that future policymakers
would not have to face, on a recurring basis, the difficult questions of
whether the government will have the capacity to pay future claims or what
else will have to be squeezed to pay those claims. Comparing the
beneficiary impact of reform proposals solely to current Social Security
promised benefits is inappropriate since all current promised benefits are
not funded over the longer term. Reform proposals should be evaluated as
packages. If the focus is on the pros and cons of each element of reform,
it may prove impossible to build the bridges necessary to achieve
consensus. Acting sooner rather than later helps to ease the difficulty of
change. Waiting until Social Security faces an immediate solvency crisis
will limit the scope of feasible solutions and could reduce the options
field to only those choices that are the most difficult and could also
delay the really tough decisions on Medicare and Medicaid.

Social Security Administration: Systems Support Could Improve Processing
Attorney Fee Payments in the Disability Program (GAO-01-710T, 17-MAY-01)

To ensure that people claiming disability insurance program benefits can
obtain legal representation at a fair price, the Social Security
Administration (SSA) is required to regulate the fees that attorneys
charge people to represent their disability claims before the agency.
Balancing the needs of the claimants with those of their attorneys, the
law limits the amount of fees that attorneys can charge claimants, but
also guarantees that those fees will be paid from the claimants' past-due
benefits. Inefficiencies in the current process increase both the time it
takes to pay the attorney fees and the cost of administration. One segment
of attorney fee processing-the fee approval process--was substantially
simplified in 1991. Systems support could streamline the second segment of
the processing--the fee payment--thus lowering the annual administrative
costs and cutting processing time. Automation of this final segment of the
fee process could help improve customer service for both claimants and
their attorneys.

VETERANS/DOD ISSUES

VA and Defense Health Care: Potential Exists for Savings through Joint
Purchasing of Medical and Surgical Supplies (GAO-02-872T, 26-JUN-02)

The Department of Veterans Affairs (VA) spent $500 million and the
Department of Defense (DOD) spent $240 million for medical and surgical
supplies in fiscal year 2001. To achieve greater efficiencies through
improved acquisition processes and increased sharing of medical resources,
VA and DOD signed a memorandum of agreement in 1999 to combine their
buying power. VA and DOD saved $170 in 2001 by jointly procuring
pharmaceuticals, agreeing on particular drugs to be purchased, and
contracting with the manufacturers for discounts based on their combined
larger volume. However, VA and DOD have not awarded joint national
contracts for medical and surgical supplies as envisioned by their
memorandum of agreement, and it is unlikely that the two departments will
have joint national contracts for supplies anytime soon. The lack of
progress in jointly contracting for medical and surgical supplies has, in
part, been the result of different approaches VA and DOD have taken to
standardizing medical and surgical supplies. Other impediments to joint
purchasing have been incomplete procurement data and the inability to
identify similar high-volume, high-dollar purchases. Nevertheless, a few
VA and DOD facilities have yielded modest savings through local joint
contracting agreements.

VA and DOD Health Care: Factors Contributing to Reduced Pharmacy Costs and
Continuing Challenges (GAO-02-969T, 22-JUL-02)

The Department of Veterans Affairs (VA) and the Department of Defense
(DOD) pharmacy expenditures have risen significantly, reflecting national
trends. The increase in pharmacy costs would have been even greater if not
for the efforts taken by VA and DOD. GAO identified four important factors
that have contributed to reduced pharmacy spending by VA and DOD. First,
the two departments have used formularies to encourage the substitution of
lower-cost drugs that are determined to be just as effective as
higher-cost drugs. Second, VA and DOD have been able to effectively employ
different arrangements to pay for or purchase prescription drugs at
substantial discounts. Third, VA has significantly reduced the cost of
dispensing prescription refills by using highly automated and less
expensive consolidated mail outpatient pharmacy (CMOP) centers to handle a
majority of the pharmacy workload. Fourth, VA and DOD have reduced costs
by leveraging their combined purchasing power through joint procurement of
generic prescription drugs. Nevertheless, one of the most important
challenges is the joint procurement of brand name drugs. Although brand
name drugs account for the bulk of prescription drug expenditures, most of
VA/DOD joint contracts have been for generic drugs. Generic drugs are
easier to contract for because these products are already known to be
chemically and therapeutically alike. Contracting for brand name drugs is
more difficult because of the scientific reviews needed to gain clinical
agreement on therapeutic equivalence of competing drugs. Joint purchasing
of brand name drugs is also more difficult due to the significant
differences between the VA and DOD health care systems in patient

populations, national formularies, and prescribing patterns of providers,
some of whom are private physicians.

VA Health Care: Changes Needed to Improve Resource Allocation
(GAO-02-685T, 30-APR-02)

The Veterans Equitable Resource Allocation (VERA) system allocated $17.8
billion of its $20.3 billion health care budget to 22 regional health care
networks in fiscal year 2001. Before VERA resources were allocated to
facilities on the basis of their historical expenditures. By aligning
resources with workloads VERA shifted about$921 million among VA's
networks in fiscal year 2001. VERA's design is reasonable for equitably
allocating resources, but improvements could better allocate comparable
resources for comparable workloads. VERA's allocations are based primarily
on network workload, with adjustments made for factors beyond the control
of network management. These include the health care needs of veterans and
some local cost differences. VERA's design also protects patients from the
effects of network budget shortfalls. However, GAO found that $200 million
annually that could be reallocated to better align network resources with
workloads. First, VERA's measurement of network workload is not accurate
enough to determine each network's allocation because VERA excludes most
veterans with higher incomes who do not have service-connected
disabilities--about one-fifth of VA's workload. Second, VERA does not
accurately adjust for cost differences among networks for differences in
patients' health care needs or case mix across networks. GAO also found
that the Veterans Administration has not analyzed whether the networks'
need for supplemental resources--provided through the National Reserve
Fund--is the result of potential problems in VERA, network inefficiency,
or other factors. Without such information, VA can neither ensure the
appropriateness of supplemental funding nor take corrective action.

VA Health Care: Changes Needed to Improve Resource Allocation to Health
Care Networks (GAO-02-744T, 14-MAY-02)

The Department of Veterans Affairs (VA) spent $21 billion in fiscal year
2001 to treat 3.8 million veterans--most of whom had service-connected
disabilities or low incomes. Since 1997, VA has used the Veterans
Equitable Resource Allocation (VERA) system to allocate most of its
medical care appropriation. GAO found that VERA has had a substantial
impact on network resource allocations and workloads. VERA shifted $921
million from networks primarily in the northeast and midwest to networks
in the south and west in fiscal year 2001. VERA, along with other VA
initiatives, has provided an incentive for networks to serve more
veterans. In GAO's view, VERA's overall design is a reasonable approach to
allocating resources according to workloads. It provides a predetermined
dollar amount per veteran served to each of VA's 22 health care networks.
This amount varies depending upon the health care needs of the veteran
served and local cost differences. However, GAO identified weaknesses in
VERA's implementation. First, VERA excludes about one fifth of VA's
workload in determining each network's allocation. Second, VERA does not
account well for cost differences among networks resulting from variation
in

their patients' health care needs. Third, the process for providing
supplemental resources to networks through VA's National Reserve Fund has
not been used to analyze how the need for such resources is caused by
potential problems in VERA's allocation, network inefficiency, or other
factors. This testimony is based on an April report (GAO-02-338).

VA Health Care: Community-Based Clinics Improve Primary Care Access
(GAO-01678T, 02-MAY-01)

This testimony discusses the Veterans Health Administration's (VHA)
efforts to improve veterans' access to health care through its
Community-Based Outpatient Clinics Initiative. Overall, through its
clinics, VHA is steadily making primary care more available within
reasonable proximity of patients who have used VHA's system in the past.
However, the uneven distribution of patients living more than 30 miles
from a VHA primary care facility suggests that access inequities across
networks may exist. Also, the improvements likely to result from VHA's
planned clinics indicate that achieving equity of access may be difficult.
In addition, GAO's assessment suggests that new clinics may have
contributed to, but are not primarily responsible for, the marked rise in
the number of higher-income patients who have sought health care through
VHA in recent years. Although the clinics have undoubtedly attracted some
new patients to VHA, GAO's analysis suggests that new patients would have
sought care at other VHA facilities in the absence of the new clinics.
Enhanced benefits and access improvements afforded by eligibility reform
may have attracted more new patients, including those with higher incomes.

VA Health Care: Continuing Oversight Needed to Achieve Formulary Goals
(GAO01-998T, 24-JUL-01)

Although the Department of Veterans Affairs (VA) has made significant
progress establishing a national formulary that has generally met with
acceptance by prescribers and patients, VA oversight has not fully ensured
standardization of its drug benefit nationwide. The three medical centers
GAO visited did not comply with the national formulary. Specifically, two
of the three medical centers omitted more than 140 required national
formulary drugs, and all three facilities inappropriately modified the
national formulary list of required drugs for certain drug classes by
adding or omitting some drugs. In addition, as VA policy allows, Veterans
Integrated Service Networks (VISN) added drugs to supplement the national
formulary ranging from five drugs at one VISN to 63 drugs at another.
However, VA lacked criteria for determining the appropriateness of the
actions networks took to add these drugs. In addition to problems
standardizing the national formulary, GAO identified weaknesses in the
nonformulary approval process. Although the national formulary directive
requires certain criteria for approving nonformulary drugs, it does not
prescribe a specific nonformulary approval process. As a result, the
processes health care providers must follow to obtain nonformulary drugs
differ among VA facilities on how requests are made, who receives them,
who approves them, and how long it takes to obtain approval. GAO found
that the length of time to approve nonformulary drugs averages nine days,
but it can be as short as a few minutes in some medical

centers. Some VISNs have not established processes to collect and analyze
data on nonformulary requests. As a result, VA does not know if approved
requests meet its established criteria or if denied requests are
appropriate. This testimony summarizes the December 1999 report,
HEHS-00-34 and the January 2001 report, GAO-01-183.

VA Long-Term Care: The Availability of Noninstitutional Services Is Uneven
(GAO02-652T, 25-APR-02)

Noninstitutional long-term care services are delivered by the Department
of Veterans Affairs (VA) to veterans in their own homes and other
community locations. The Veterans Millennium Health Care and Benefits Act
requires VA to offer long-term care services to eligible veterans,
including services provided in noninstitutional settings. More than two
years after the act's passage, VA has yet to offer eligible veterans adult
day health care, geriatric evaluation, or respite care. Although VA
published proposed regulations that would make these services available in
noninstitutional settings to eligible veterans, the regulations had not
been finalized as of April 17, 2002. To be responsive before its draft
regulations were made final, VA issued a policy directive requiring that
these three services be available in noninstitutional settings. GAO found,
however, that both the services required by the act and VA's other
noninstitutional services were unevenly available across the VA system.

Veterans' Health Care: Observations on VA's Assessment of Hepatitis C
Budgeting and Funding (GAO-01-661T, 25-APR-01)

The Department of Veterans Affairs (VA) requested and received $195
million for Hepatitis C screening and treatment in fiscal year 2000. VA's
budget documentation showed that it had spent $100 million on Hepatitis C
screening and treatment, leaving a difference of $95 million between its
estimated and actual expenditures. However, GAO's review revealed that the
difference was actually much larger--$145 million. VA's documentation
showed that only $50 million was used for budgeted activities and $50
million was used for an activity not included in its original
budget--treatment of conditions related to Hepatitis C. It appears that VA
is unable to develop a budget estimate that can reliably forecast its
Hepatitis C funding needs at this time. However, VA's Veterans Health
Administration (VHA) appears to be taking reasonable steps to improve
future budget estimates and thereby minimize the potential for large
differences. Such steps include developing a Hepatitis C patient registry
that could provide the critical data needed to improve budgetary
estimates. However, this registry could take as long as 15 months to
become operational, which suggests that it may not provide budgetary data
in time to formulate the 2004 budget. In the meantime, VHA's ongoing
efforts to upgrade its data collection systems should help improve budget
estimates for fiscal year 2002. These efforts, however, have provided only
minimal help in the development of VA's 2002 budget for Hepatitis C
spending. As a result, it is not possible to conclude with certainty
whether VA's fiscal year 2002 spending estimate of $171 million is
appropriate.

Veterans' Health Care: Standards and Accountability Could Improve
Hepatitis C Screening and Testing Performance (GAO-01-807T, 14-JUN-01)

Three years ago, the Department of Veterans Affairs (VA) characterized
hepatitis C as a serious national health problem that needs early
detection to reduce transmission risks, ensure timely treatment, and
prevent progression of liver disease. In a 1988 letter, VA outlined the
process clinicians should use when (1) screening veterans for known risk
factors for exposure to hepatitis C and (2) ordering tests to detect
antibodies and diagnose hepatitis C infection as part of a plan to
evaluate and assess risk factors for VA patients. This testimony discusses
VA's progress in screening and testing veterans for hepatitis C during
fiscal years 1999 and 2000. GAO found that VA missed opportunities to
screen as many as three million veterans when they visited medical
facilities during fiscal years 1999 and 2000, potentially leaving as many
as 200,000 veterans unaware that they have hepatitis C infections. Of
those screened, an unknown number likely remain undiagnosed because of
flawed procedures. Although the pace of screening and testing appears to
be improving, many currently undiagnosed veterans may not be identified
expeditiously unless VA (1) establishes early detection of hepatitis C as
a standard for care and (2) holds facility managers accountable for timely
screening and testing of veterans who visit VA medical facilities.

OTHER ISSUES

Budget Issues: Long-Term Fiscal Challenges. (GAO-02-467T, 27-FEB-02)

Combating terrorism and ensuring homeland security have created urgent
claims on the nation's attention and on the federal budget. At the same
time, the fiscal pressures created by the retirement of the baby boomers
and rising health care costs continue unchanged. Because the longer-term
outlook is driven in large part by known demographic trends, the outlook
20 years from now is surer than the forecast for the next few years. The
message of GAO's updated simulations remains the same: absent structural
changes in entitlement programs for the elderly, persistent deficits and
escalating debt will overwhelm the budget in the long term. Both
longer-term and new commitments undertaken after September 11 sharpen the
need for careful scrutiny of competing claims and new priorities. A
fundamental review of existing programs and activities is necessary both
to increase fiscal flexibility and to make government fit the modern
world. Stated differently, there is a need to consider the proper role of
the federal government in the 21st century and how government should do
business. The fiscal benchmarks and rules that moved the country from
deficit to surplus expire this fiscal year. Any successor system should
include a debate about reprioritization today and a better understanding
of the long-term implications of different policy choices. Many things
that the nation may be able to afford today may not be sustainable in the
future.

Homelessness: Improving Program Coordination and Client Access to
Programs. (GAO-02-485T, 06-MAR-02)

Many people are homeless for only a short time and get back on their feet
with minimal assistance, but others are chronically homeless and need
intensive and ongoing assistance. Fifty federal programs exist to help the
homeless with housing. Sixteen of these are targeted exclusively to the
homeless, and the others are mainstream programs. Targeted programs were
funded at $1.7 billion in fiscal year 2001. GAO found that the Department
of Housing and Urban Development (HUD) has been unable to ensure that
adequate coordination occurs among the programs without creating undue
administrative burdens for the states and communities. Steps have been
taken to improve the coordination of homeless assistance programs within
communities and to reduce some of the administrative burdens caused by
separate programs. Although low-income populations face barriers to
obtaining services provided by mainstream programs, these barriers are
compounded by homelessness. In addition, the underlying structure and
operations of federal mainstream programs do not ensure that the special
needs of homeless people are met. Consolidating HUD's McKinney-Vento
programs could help reduce the administrative burden. However, to end
chronic homelessness in 10 years, federal agencies must strive to
eliminate the barriers that homeless people encounter as they seek
services from mainstream programs.

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