Medicaid Integrity: Implementation of New Program Provides	 
Opportunities for Federal Leadership to Combat Fraud and Abuse	 
(28-MAR-06, GAO-06-578T).					 
                                                                 
Today's hearing concerns fraud, waste, and abuse control in	 
Medicaid, a program that provides health care coverage for over  
56 million eligible low-income people and is jointly financed by 
the federal government and the states. In fiscal year 2004,	 
Medicaid had benefit payments of $287 billion, with a federal	 
share of about $168 billion. The states are primarily responsible
for ensuring appropriate Medicaid payments through provider	 
enrollment screening, claims review, overpayment recovery, and	 
case referral to law enforcement. At the federal level, the	 
Centers for Medicare & Medicaid Services (CMS) is responsible for
supporting and overseeing state fraud, waste, and abuse control  
activities. Congress requested information on how CMS and the	 
states can better serve taxpayers and beneficiaries by reducing  
Medicaid fraud. This statement will focus on existing concerns	 
about CMS's efforts to help states prevent and detect fraud,	 
waste, and abuse; how provisions in recent legislation providing 
for a Medicaid Integrity Program will help CMS expand its current
efforts; and challenges CMS needs to address as it implements new
Medicaid Integrity Program efforts.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-578T					        
    ACCNO:   A50157						        
  TITLE:     Medicaid Integrity: Implementation of New Program	      
Provides Opportunities for Federal Leadership to Combat Fraud and
Abuse								 
     DATE:   03/28/2006 
  SUBJECT:   Federal/state relations				 
	     Fraud						 
	     Health care programs				 
	     Internal controls					 
	     Medicaid						 
	     Program abuses					 
	     Program evaluation 				 
	     Program management 				 
	     Strategic planning 				 
	     Government agency oversight			 
	     Medicaid Integrity Program 			 

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GAO-06-578T

     

     * Background
     * CMS Committed Few Resources and Had No Strategic Plan to Add
     * CMS Has New Authority, Resources, and Responsibilities to Ad
     * Developing CMS's Plan Is a Critical First Step
     * Concluding Observations
     * Contact
     * Acknowledgments
     * GAO's Mission
     * Obtaining Copies of GAO Reports and Testimony
          * Order by Mail or Phone
     * To Report Fraud, Waste, and Abuse in Federal Programs
     * Congressional Relations
     * Public Affairs

Testimony

Before the Subcommittee on Federal Financial Management, Government
Information, and International Security, Committee on Homeland Security
and Governmental Affairs, U.S. Senate

United States Government Accountability Office

GAO

For Release on Delivery Expected at 2:30 p.m. EDT

Tuesday, March 28, 2006

MEDICAID INTEGRITY

Implementation of New Program Provides Opportunities for Federal
Leadership to Combat Fraud, Waste, and Abuse

Statement of Leslie G. Aronovitz

Director, Health Care

GAO-06-578T

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today as you discuss the control of fraud, waste,
and abuse in Medicaid, the program that provided health care coverage for
over 56 million low-income individuals in fiscal year 2004, including
children and the aged, blind, and disabled. Medicaid is jointly financed
by the federal government and the states. In fiscal year 2004, Medicaid's
benefit payments totaled $287 billion, of which the federal share was
about $168 billion. Medicaid is administered directly by the states and
consists of 56 distinct state-level programs.1

In 2003, GAO added Medicaid to its list of high-risk programs, owing to
the program's size, growth, diversity, and fiscal management weaknesses.2
We noted that insufficient federal and state oversight put the Medicaid
program at significant risk for improper payments. Improper payments may
be due to mistakes, abuse, or fraud.3 Because, by their nature, fraud and
abuse are not apparent until detected, the amount of Medicaid funds lost
through health care providers' inappropriate billings cannot be precisely
quantified. A nationwide rate of improper payments for Medicaid has not
been estimated, but even a rate as low as 3 percent would have resulted in
a loss of about $5 billion in federal funds in fiscal year 2004. To put
this hypothetical figure in perspective, it is more than the amount that
the federal government spent in fiscal year 2004 on the State Children's
Health Insurance Program (SCHIP).4 Further, Medicaid can be subject to
waste, or extravagant and unnecessary expenditures. Because Medicaid
represents a large and growing share of state budgets-more than 20 percent
of state expenditures-funds lost to improper payments and waste can impact
states' abilities to serve beneficiaries in need.

1The 56 Medicaid programs include one for each of the 50 states, the
District of Columbia, Puerto Rico, and the U.S. territories of American
Samoa, Guam, Northern Mariana Islands, and the Virgin Islands. Hereafter,
all 56 entities are referred to as states.

2GAO, Major Management Challenges and Program Risks: Department of Health
and Human Services, GAO-03-101 (Washington, D.C.: January 2003).

3Improper payments can result from inadvertent errors as well as intended
fraud and abuse. Unlike inadvertent errors, which are often due to
clerical errors or a misunderstanding of program rules, fraud involves an
intentional act or representation to deceive with knowledge that the
action or representation could result in gain, while abuse typically
involves actions that are inconsistent with acceptable business and
medical practices that result in unnecessary cost. See, e.g., 42 CFR S:
455.2 (2005).

4SCHIP is a jointly funded federal-state program that provides health
insurance to children in low-income families who do not qualify for
Medicaid and are not covered by other insurance.

Fraud, waste, and abuse drain vital program dollars in ways that hurt both
taxpayers and beneficiaries. Seeking and receiving reimbursement for
services not provided squanders public funds that could have been used for
beneficiaries' health care. For example, in 2005, a North Carolina
pharmacist was sentenced to 33 months in prison and ordered to pay more
than $2 million in restitution for defrauding the Medicaid program by
submitting claims for long-term care patients' prescriptions that had not
been refilled, delivered, or even requested by their caregivers.
Similarly, a New York hospital agreed to pay $76.5 million to resolve
allegations that it overbilled the Medicaid program for services provided
in its clinics. In addition, when providers receive payment for
unnecessary services, it can have a negative impact on health care
quality. For example, consider the case in 2004 against 20 dentists in
California who were charged with conspiracy to defraud the state's
Medicaid program of $4.5 million. The dentists are alleged to have billed
Medicaid for unnecessary or inappropriate services that placed patients at
risk of pain, infection, loss of teeth, and bodily injury-including
reusing dental instruments without sterilizing them, performing dental
surgeries without adequate anesthesia, and developing treatment plans that
called for unnecessary root canals and fillings.

States are the first line of defense against Medicaid fraud, waste, and
abuse. Specifically, they must comply with federal requirements to ensure
the qualifications of the providers who bill the program, detect improper
payments, recover overpayments, and refer suspected cases of fraud and
abuse to law enforcement authorities. At the federal level, the Centers
for Medicare & Medicaid Services (CMS), an agency within the Department of
Health and Human Services (HHS), is responsible for supporting and
overseeing state fraud, waste, and abuse control activities. Last year, we
testified that CMS had initiatives to assist states in combating fraud and
abuse in their Medicaid programs but that its oversight of states'
activities and commitment of federal dollar and staff resources were
limited.5 Since then, the Deficit Reduction Act of 2005 (DRA)6 provided
for creation of a Medicaid Integrity Program and included other provisions
designed to increase CMS's level of effort to support state activities to
address fraud, waste, and abuse in Medicaid.

5GAO, Medicaid Fraud and Abuse: CMS's Commitment to Helping States
Safeguard Program Dollars Is Limited, GAO-05-855T (Washington, D.C.: June
28, 2005).

6See Pub. L. No. 109-171, S: 6034, 120 Stat. 3, 74-78 (2006).

The Subcommittee requested information on ways that CMS and the states can
better serve taxpayers and Medicaid recipients by reducing or eliminating
fraud in the program. My remarks today will focus on (1) existing concerns
regarding CMS's efforts to help states prevent and detect fraud and abuse
in the Medicaid program, (2) how provisions in the DRA will help CMS
expand current efforts to address Medicaid fraud, waste, and abuse, and
(3) challenges CMS faces as it implements new Medicaid Integrity Program
efforts. To address these issues, we reviewed agency documents on Medicaid
program integrity and oversight activities, relevant provisions of the
DRA, and our issued reports on CMS's and states' efforts to address
Medicaid fraud, waste, and abuse. (Related GAO products are listed at the
end of this statement.) We also interviewed CMS officials. We conducted
our work in March 2006 in accordance with generally accepted government
auditing standards.

In summary, we testified last year that while CMS has activities to
oversee and support state efforts to address fraud and abuse in the
Medicaid program, the agency has not devoted the staff and financial
resources to its efforts that are commensurate with the risks involved. In
addition, CMS has lacked plans to guide federal and state agencies that
were working to prevent or deter Medicaid fraud and abuse. Enacted in
February 2006, the DRA provided for the creation of a new Medicaid
Integrity Program, with specified appropriations to fund it. DRA also
requires CMS to devote an additional 100 full-time-equivalent staff to
combating Medicaid provider fraud and abuse; develop a comprehensive plan
for the Medicaid Integrity Program every 5 fiscal years; and report
annually on its use, and the effectiveness of its use, of the appropriated
funds. In implementing the DRA provisions related to the Medicaid
Integrity Program, CMS faces a major challenge-to develop a comprehensive
plan that provides strategic direction for CMS, the states, and law
enforcement partners. In developing its plan, CMS will need to focus on
how it intends to allocate resources among activities to reduce program
risk to the greatest extent possible and how to effectively deploy program
integrity staff within the agency. Planning for, and implementing, the DRA
provisions provide CMS with a unique opportunity to strengthen its
leadership of state and federal efforts to control fraud, waste, and abuse
in the Medicaid program.

                                   Background

Within broad federal guidelines, each state's Medicaid program establishes
its own eligibility standards; determines the type, amount, duration, and
scope of covered services; and sets payment rates. In general, the federal
government matches state Medicaid spending for medical assistance
according to a formula based on each state's per capita income. In fiscal
year 2006, the federal contribution ranges from 50 to 76 cents of every
state dollar spent on medical assistance. For most state Medicaid
administrative costs, the federal match rate is 50 percent.7

As program administrators, states have primary responsibility for
conducting program integrity activities that address provider enrollment,
claims review, and case referrals. Specifically, federal statute or CMS
regulations require states to

           o  collect and verify basic information on potential providers,
           including whether the providers meet state licensure requirements
           and are not prohibited from participating in federal health care
           programs;
           o  have an automated claims payment and information retrieval
           system-intended to verify the accuracy of claims, the correct use
           of payment codes, and patients' Medicaid eligibility-and a claims
           review system-intended to develop statistical profiles on
           services, providers, and beneficiaries to identify potential
           improper payments;8 and
           o  refer suspected overpayments or overutilization cases to other
           units in the Medicaid agency for corrective action, and potential
           fraud cases to law enforcement-generally to the state's Medicaid
           Fraud Control Unit for investigation and prosecution.9

           As noted in our 2004 report,10 states use a variety of controls
           and safeguards to stem improper provider payments. For example,
           states reported using information technology to integrate
           databases containing provider, beneficiary, and claims information
           and to increase the effectiveness of their utilization reviews.
           Various states individually attributed cost savings or recoupments
           to these efforts, valued in the millions of dollars.

           In contrast, CMS's role in curbing fraud, waste, and abuse in the
           Medicaid program is largely one of support to the states. As we
           reported in 2004,11 CMS administers two pilot projects, one
           focused on measuring the accuracy of a state's Medicaid claims
           payments-Payment Accuracy Measurement (PAM)-and the other focused
           on improper billing detection and utilization patterns by linking
           Medicare12 and Medicaid claims information (Medi-Medi). CMS also
           sponsors general technical assistance and information-sharing
           through its Medicaid fraud and abuse technical assistance group
           (TAG). In addition, CMS performs oversight of states' Medicaid
           fraud and abuse control activities through its compliance reviews.
           (See table 1.)

           Table 1: CMS Activities to Support and Oversee States' Fraud and
           Abuse Control Efforts, Fiscal Year 2004

           Source: GAO-04-707 .

           aPub. L. No. 107-300, 116 Stat. 2350.

           CMS also has a significant role in curbing fraud, waste, and abuse
           in Medicare. Through its Medicare Integrity Program, CMS contracts
           with companies to conduct program integrity activities, such as
           reviewing claims and ensuring that Medicare pays the appropriate
           amount when beneficiaries have other health insurance.

           As we testified last year, a wide disparity exists between the
           level of staff and financial resources that CMS has expended to
           support and oversee states' fraud and abuse control activities and
           the amount of federal dollars at stake in Medicaid benefit
           payments.13 In fiscal year 2005, CMS dedicated an estimated 8.1
           full-time-equivalent employees to support and oversee states'
           anti-fraud-and-abuse operations. In contrast, the federal
           government spent over $168 billion for Medicaid benefits in fiscal
           year 2004. Further, some of the promising efforts to support and
           oversee states were at risk of being cut back or terminated, and
           CMS lacked a strategic plan to direct its anti-fraud-and-abuse
           efforts.

           Funding for some of CMS's most promising anti-fraud-and-abuse
           activities declined in recent years, which threatened the
           continuity of these efforts. The amount of funding for the project
           to estimate state improper payment rates, PAM/PERM, and the
           project to match Medicare and Medicaid claims, Medi-Medi, declined
           from $7.8 million in fiscal year 2004 to $3.6 million in fiscal
           year 2005. Both of these projects are important. Measuring
           improper payments in Medicaid and other programs is required by
           statute, while Medi-Medi is uncovering significant billing
           problems. As of March 31, 2005, seven states with fully
           operational Medi-Medi projects reported a total of $133.1 million
           in returns to the Medicaid and Medicare programs, $59.7 million in
           program vulnerabilities identified, and $2 million in overpayments
           to be recovered. However, because of anticipated unmet funding
           needs, we testified that existing Medi-Medi projects were at risk
           of being scaled back considerably or eliminated entirely. Last
           year, agency officials noted that several other states were
           interested in participating in the program but that CMS would not
           expand the program without a new allocation or realigment of
           funds.

           Further, we testified that the HHS budget appropriations for CMS's
           Medicaid compliance reviews had decreased each year from fiscal
           year 2002 through fiscal year 2004. Since 2000, CMS staff from the
           regional offices and headquarters had conducted compliance reviews
           of seven to eight states a year. These reviews proved to be
           effective. However, at that pace, CMS would review states'
           programs once every 7 years, preventing the agency from having
           up-to-date knowledge on more than a handful of states at any given
           time.

           Resource shortages also have severely limited CMS's activities to
           provide technical assistance and disseminate information on
           states' best practices. These activities had demonstrated positive
           results. However, CMS has not sponsored a national conference with
           state program integrity officials since 2003 and has not sponsored
           any fraud and abuse workshops or training since 2000.

           In addition to devoting limited staff and financial resources, CMS
           lacked a strategic plan to direct its anti-fraud-and-abuse
           efforts.14 Neither HHS nor CMS had produced a public document that
           included long-term goals in the area of supporting states' efforts
           to address fraud and abuse in the Medicaid program and specific
           plans for achieving these goals.

           The DRA has added substantially to CMS's authority, resources, and
           responsibilities to address Medicaid fraud, waste, and abuse.15 It
           established a new program that is solely focused on promoting the
           integrity of Medicaid and provides specified appropriations that
           CMS can use to fund activities to support state efforts to combat
           fraud, waste, and abuse. To conduct the new Medicaid Integrity
           Program, the law specified an appropriation of $5 million in
           fiscal year 2006, $50 million in each of fiscal years 2007 and
           2008, and $75 million in each of the subsequent fiscal years. As
           part of the Medicaid Integrity Program, CMS is given authority to
           contract with eligible entities to conduct activities to address
           fraud, waste, and abuse in the state programs through activities
           such as audits of consulting contracts and reported costs of
           nursing home services.16 In addition, CMS is required to increase
           by 100 its full-time-equivalent employees whose duties consist
           solely of protecting the integrity of the Medicaid program by
           providing effective support and assistance to the states.17 The
           authorization of funds for the Medicaid Integrity Program is
           similar to that of the Medicare Integrity Program, which was also
           established with specified appropriations and the authority for
           CMS to contract with companies to conduct integrity activities.
           CMS credits the Medicare Integrity Program with helping the agency
           measure and reduce payment errors in the Medicare fee-for-service
           program.

           The DRA also provides for a national expansion of the Medi-Medi
           program. The statute appropriates funds for CMS to contract with
           third parties to identify program vulnerabilities in Medicare and
           Medicaid through examining billing and payment abnormalities. The
           funds also can be used in connection with the Medi-Medi program
           for two other purposes. First, the funds can be used to coordinate
           actions by CMS, the states, the Attorney General, and the HHS
           Office of Inspector General to protect Medicaid and Medicare
           expenditures. Second, the funds can be used to increase the
           effectiveness and efficiency of both Medicare and Medicaid through
           cost avoidance, savings, and recouping fraudulent, wasteful, or
           abusive expenditures. For Medi-Medi, the statute appropriates $12
           million for fiscal year 2006, $24 million for fiscal year 2007,
           $36 million for fiscal year 2008, $48 million for fiscal year
           2009, and $60 million for fiscal year 2010 and each subsequent
           fiscal year.

           Beginning in fiscal year 2006 and every 5 fiscal years thereafter,
           the DRA requires CMS to establish a comprehensive plan for
           ensuring the integrity of the Medicaid program by combating fraud,
           waste, and abuse. CMS is required to develop the plan in
           consultation with the Attorney General, the Director of the
           Federal Bureau of Investigation, the Comptroller General, the HHS
           Office of Inspector General, and state officials responsible for
           controlling Medicaid provider fraud and abuse. Developing a plan
           in consultation with other agencies with responsibilities to
           address fraud, waste, and abuse issues will encourage additional
           dialogue on the overall direction of federal and state efforts. In
           addition, CMS is required to submit an annual report to Congress
           no later than 180 days after the end of each fiscal year, which
           identifies the agency's use, and the effectiveness of the use, of
           the Medicaid Integrity Program funds it has expended. This
           reporting mechanism can help CMS focus on making the wisest
           investment of its new resources.

           CMS faces a key implementation challenge early on-to develop a
           comprehensive plan for Medicaid program integrity. A properly
           developed plan will provide strategic direction for CMS, its
           contractors, the states, and law enforcement partners. Key areas
           that the plan should address include the allocation of financial
           resources among activities to reduce program risk to the greatest
           extent possible and the effective deployment of program integrity
           staff within the agency. CMS's plan-if well thought out and
           formulated-could provide a blueprint for ensuring that new DRA
           funding is appropriately invested and that CMS staff devoted to
           Medicaid program integrity efforts are most effectively deployed.
           CMS is still in the beginning stages of formulating its plan and
           has not received final departmental approval for some of its
           initial implementation steps. As a result, agency officials were
           not at liberty to discuss their planning efforts with us in much
           detail.

           A comprehensive plan for program integrity is not a new concept
           for CMS. In February 1999, CMS issued such a plan for the Medicare
           and Medicaid programs.18 Most of the material in this plan focused
           on Medicare, and the plan has not been updated since 1999.
           However, it could serve as a possible template for communicating
           updated information on Medicaid efforts. In addition to
           communicating information about the goals that CMS hoped to
           achieve and proposed strategies for achieving them, the plan
           described an iterative program integrity process that focused on
           identifying and assessing risk, developing and implementing
           approaches to addressing risk, and monitoring and measuring
           progress. Further, the process described in the 1999 program
           integrity plan is similar to strategies that we have highlighted
           in the past as being used by public and private sector
           organizations to manage improper payments.19

           Structured analysis of risk and meaningful measures of performance
           are an integral part of any plan, but will prove challenging to
           develop in the Medicaid program. The difficulty stems from CMS's
           having limited information on the extent of improper payments in
           the state programs. In addition, because state programs vary in
           their design, the intensity of their risks of fraud, waste, and
           abuse may differ. While a comprehensive plan cannot deal with the
           issues of each state, it can articulate a strategy for states to
           address the vulnerabilities in their programs. Further, developing
           meaningful measures of the impact of the Medicaid Integrity
           Program will require a long-term investment of resources, and
           these measures will not be available for CMS's first comprehensive
           plan. Medicare has taken years to develop and refine its
           error-rate testing program, under which CMS conducts an annual
           study to estimate Medicare improper payments.

           CMS is in the early stages of developing a similar measure for
           Medicaid. The agency recently completed its 3-year PAM pilot, so
           the results of payment error studies are available from the 27
           participating states. CMS is transitioning from PAM to PERM. Under
           PERM, states will be expected to ultimately reduce their payment
           error rates over time by better targeting program integrity
           activities in their Medicaid and SCHIP programs. When fully
           implemented, PERM should allow CMS to compile data about Medicaid
           improper payments on the state and national levels, which could
           allow CMS to track progress, as well as identify states that may
           require special assistance, in reducing improper payment error
           rates. CMS expects to have its first PERM results in 2008. In
           addition to assessing progress toward reducing improper payments,
           CMS will also need to develop other methods of measuring the
           effectiveness of program integrity activities. One such measure,
           used in the Medicare program, is calculating a return on
           investment, which measures the dollars saved for each dollar
           spent.

           In developing its plan, CMS must decide how to most appropriately
           invest new resources. In the past, CMS has invested a substantial
           amount of its resources in the oversight of states' financial
           management activities, such as state claims for federal matching.
           For more than a decade, states have used various financing schemes
           to inappropriately cause the federal government to pay an
           excessive share of reported Medicaid costs.20 While financial
           oversight of these schemes was needed, states also needed
           encouragement and support to address fraud committed by providers
           against the state Medicaid program.

           Now, in light of new funds provided through the Medicaid Integrity
           Program, CMS will be faced with the goal of prudently investing
           millions of dollars each year to address fraud by providers and
           others-such as managed care plans-in Medicaid. In order to spend
           its new funds appropriately, CMS must weigh its options and
           consider both the costs and benefits of various activities, such
           as educating providers as compared with conducting reviews to help
           identify potential fraud. Nevertheless, CMS does have some
           flexibility in investing its new Medicaid Integrity Program
           resources. If CMS does not spend all the funds appropriated for
           the Medicaid Integrity Program in one year, the agency will be
           allowed to spend them in succeeding years.21 However, the
           requirement to annually report on its use of funds will provide
           information on whether CMS is generally using the funding, as
           opposed to continually rolling funding forward.

           CMS may also be able to use some of its DRA funds to help
           facilitate communication and coordination with states through
           conferences and the TAG. According to a CMS official, such
           information-sharing and technical assistance activities would not
           be expensive to support and could result in returns that would
           exceed the relatively low investment. Similarly, the TAG has
           served as a forum to share expertise and best practices; advise
           CMS on policies, procedures, and program development; and make
           recommendations on federal policy and legislative changes. CMS
           might be able to further facilitate state participation through
           additional support for this forum.

           Another key planning area for CMS involves deciding how best to
           deploy Medicaid program integrity staff within the agency. This is
           a particularly critical issue as CMS ramps up its Medicaid
           Integrity Program with the hiring of new employees. A CMS official
           told us that the agency is already developing position
           descriptions as a precursor to hiring new employees to help
           address the DRA requirement to increase by 100 the number of
           full-time-equivalent employees devoted to assisting states in
           efforts to combat Medicaid provider fraud and abuse. In addition,
           the agency has made some preliminary decisions about placement of
           staff within the central office and its regional offices. It will
           take considerable time and effort for CMS to hire qualified staff
           and train them to perform the various activities that ensure good
           stewardship of the program. CMS could not provide us with a
           definitive schedule for when the bulk of its hiring will be
           completed. Also consistent with a new focus on fraud, waste, and
           abuse prevention, the agency is considering the steps it will need
           to take to competitively select contractors to conduct reviews to
           help identify fraudulent and abusive billing behavior by
           providers. CMS is currently exploring how it will use these
           contractors, either to support state efforts or to identify
           problems across states.

           CMS has also decided to establish a new group to house the
           Medicaid Integrity Program. This group will be composed of both
           central and regional office staff and report directly to the
           director of the Center for Medicaid and State Operations (CMSO).
           CMSO, which is responsible for most other Medicaid activities,
           currently staffs the state compliance reviews and TAG activities.
           However, the Medi-Medi and PAM/PERM projects are the
           responsibility of CMS's Office of Financial Management, which also
           staffs the Medicare Integrity Program. In the past, we have raised
           concerns that Medicaid anti-fraud-and-abuse staff at headquarters
           have not been a part of the agency's office responsible for
           conducting other key anti-fraud-and-abuse activities, including
           those for the Medicare program. The staff at CMSO have the most
           experience working with Medicaid issues, although the staff at CMS
           with experience in Medicare program integrity contracting are
           located in the Office of Financial Management. As CMS establishes
           the Medicaid Integrity Program and new employees come on board, it
           will be important to ensure that the agency is in an optimal
           position to leverage the expertise and experience of its existing
           staff. For example, CMS will need to ensure that staff with
           expertise in developing strategies for combating Medicare fraud,
           waste, and abuse work in a closely coordinated fashion with staff
           that are familiar with states' Medicaid plans and fraud control
           officials and activities.

           Implementing the Medicaid Integrity Program and developing a
           comprehensive plan gives CMS a unique opportunity to provide
           leadership to states and law enforcement in their fraud, waste,
           and abuse control efforts. Having dedicated resources also
           presents challenges to ensure that CMS spends wisely as it starts
           new initiatives and ensures the continuity of current beneficial
           activities. Using this opportunity to develop an iterative process
           of working with states to identify risks, develop strategies to
           address them, and measure the results through assessing improper
           payment rates and potential recoveries can help ensure that the
           Medicaid Integrity Program funding is targeted to an optimal
           effect. CMS has expertise in addressing fraud, waste, and abuse
           within the Medicare program and in the state programs that can be
           leveraged to benefit the Medicaid Integrity Program. Properly
           leveraging this expertise will require effective coordination and
           communication within CMS, with states, and with their law
           enforcement partners.

           We discussed the facts in this statement with a CMS Medicaid
           official, who stated that the agency is pleased to have new
           resources to address fraud, waste, and abuse in the Medicaid
           program. He indicated that CMS had developed proposals for
           implementing the Medicaid Integrity Program, but he was not in a
           position to discuss them in detail because they are undergoing
           review within HHS. CMS is presently deciding on the skills needed
           by the 100 additional full-time-equivalent employees required by
           the DRA; exploring options for contracting; and developing its
           comprehensive plan.

           Mr. Chairman, this concludes my prepared remarks. I would be happy
           to answer any questions that you or other Members of the
           Subcommittee may have.

           For further information regarding this statement, please contact
           Leslie G. Aronovitz at (312) 220-7600.

           Sheila K. Avruch, Assistant Director, Susan E. Barnidge, Sandra D.
           Gove, Kevin Milne, and Elizabeth T. Morrison contributed to this
           statement.

           Medicaid Fraud and Abuse: CMS's Commitment to Helping States
           Safeguard Program Dollars Is Limited. GAO-05-855T . Washington,
           D.C.: June 28, 2005.

           High-Risk Series: An Update. GAO-05-207. Washington, D.C.: January
           2005.

           Medicaid Program Integrity: State and Federal Efforts to Prevent
           and Detect Improper Payments. GAO-04-707 . Washington, D.C.: July
           16, 2004.

           Major Management Challenges and Program Risks: Department of
           Health and Human Services. GAO-03-101. (Washington, D.C.: January
           2003).

           Strategies to Manage Improper Payments: Learning from Public and
           Private Sector Organizations. GAO-02-69G . Washington, D.C.:
           October 2001.

           Medicaid: State Efforts to Control Improper Payments Vary.
           GAO-01-662 . Washington, D.C.: June 7, 2001.

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7For skilled professional medical personnel engaged in program integrity
activities, such as those who review medical records, 75 percent federal
matching is available.

8CMS requires that states have certain information processing
capabilities, including a Medicaid Management Information System and a
Surveillance and Utilization Review Subsystem.

9Medicaid Fraud Control Units can, in turn, refer some cases to the HHS
Office of Inspector General, the Federal Bureau of Investigation, and the
Department of Justice for further investigation and prosecution.

10GAO, Medicaid Program Integrity: State and Federal Efforts to Prevent
and Detect Improper Payments, GAO-04-707 (Washington, D.C.: July 16,
2004).

11 GAO-04-707 .

12Medicare is the federal program that helps pay for a variety of health
care services and items on behalf of about 42 million elderly and disabled
beneficiaries.

CMS initiatives         Description                                        
PAM/ Payment Error Rate CMS conducted a 3-year pilot called PAM to develop 
Measurement (PERM)      estimates of states' accuracy in paying Medicaid   
                           claims. During fiscal year 2006, PAM will become a 
                           permanent program-to be known as the PERM          
                           initiative-in order to measure improper payments   
                           in Medicaid, to fulfill a requirement of the       
                           Improper Payments Information Act of 2002.a Under  
                           PERM, states will be expected to ultimately reduce 
                           their payment error rates over time by better      
                           targeting program integrity activities in their    
                           Medicaid and SCHIP programs.                       
Medi-Medi               Under this pilot program, CMS facilitates the      
                           sharing of health benefit and claims information   
                           between the Medicaid and Medicare programs.        
                           Medi-Medi is a data match pilot designed to        
                           identify improper billing and utilization patterns 
                           by matching Medicare and Medicaid claims           
                           information on providers and beneficiaries to      
                           reduce fraudulent schemes that cross program       
                           boundaries.                                        
TAG                     Through telephone conferencing, CMS provides a     
                           forum for states to discuss issues, solutions,     
                           resources, and experiences on fraud and abuse      
                           issues. Any state may participate; roughly         
                           one-third do so regularly. States have also used   
                           the TAG to propose policy changes to CMS.          
Compliance reviews      CMS conducts on-site reviews to assess whether     
                           state Medicaid fraud and abuse control efforts     
                           comply with federal requirements, such as those    
                           governing provider enrollment, claims review,      
                           utilization control, and coordination with each    
                           state's Medicaid Fraud Control Unit. If reviewers  
                           find a state that is significantly out of          
                           compliance, they may encourage it to develop a     
                           corrective action plan and revisit the state to    
                           verify actions taken.                              

CMS Committed Few Resources and Had No Strategic Plan to Address Medicaid Fraud
                                   and Abuse

13 GAO-05-855T . We did not address issues regarding waste in this
testimony.

CMS Has New Authority, Resources, and Responsibilities to Address Fraud, Waste,
                                   and Abuse

14 GAO-05-855T .

15While the DRA vests the Secretary of Health and Human Services with
authority to implement the Medicaid Integrity Program, in general,
administration of the Medicaid program is delegated to CMS.

16The activities for which CMS can contract with entities under the
Medicaid Integrity Program are (1) review of Medicaid providers or
others-such as managed care plans-to determine whether their actions have
led, or could lead, to waste, fraud, or abuse; (2) audit of claims for
payment for items, services, or administrative services rendered,
including audits of reported costs and consulting and other contracts; (3)
identification of overpayments to individuals or entities receiving
Medicaid payments; and (4) education of providers of services, managed
care entities, beneficiaries, and other individuals on payment integrity
and quality of care.

17The DRA did not establish a date for CMS to complete its hiring of
full-time-equivalent staff.

                 Developing CMS's Plan Is a Critical First Step

18Health Care Financing Administration, Comprehensive Plan for Program
Integrity, HCFA-02142 (Baltimore, Md.: February 1999). Until July 1, 2001,
CMS was called the Health Care Financing Administration.

19GAO, Strategies to Manage Improper Payments: Learning from Public and
Private Sector Organizations, GAO-02-69G (Washington, D.C.: October 2001).
Strategies include creating a culture of accountability by establishing a
positive and supportive attitude toward improving program integrity;
assessing the nature and extent of risks; taking action to address
identified risk areas; using and sharing information to manage improper
payments; and monitoring activities to address improper payments over
time.

20GAO, Medicaid Financing: States' Use of Contingency-Fee Consultants to
Maximize Federal Reimbursements Highlights Need for Improved Federal
Oversight, GAO-05-748 (Washington, D.C.: June 28, 2005); Medicaid: States'
Efforts to Maximize Federal Reimbursements Highlight Need for Improved
Federal Oversight, GAO-05-836T (Washington, D.C.: June 28, 2005); and
Medicaid: Improved Federal Oversight of State Financing Schemes Is Needed,
GAO-04-228 (Washington, D.C.: Feb. 13, 2004).

21See Social Security Act S: 1936(e), as added by Pub. L. No. 109-171, S:
6034, 120 Stat. at 76.

                            Concluding Observations

                                    Contact

                                Acknowledgments

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Highlights of GAO-06-578T , a testimony before the Subcommittee on Federal
Financial Management, Government Information, and International Security,
Committee on Homeland Security and Governmental Affairs, U.S. Senate

March 28, 2006

MEDICAID INTEGRITY

Implementation of New Program Provides Opportunities for Federal
Leadership to Combat Fraud, Waste, and Abuse

Today's hearing concerns fraud, waste, and abuse control in Medicaid, a
program that provides health care coverage for over 56 million eligible
low-income people and is jointly financed by the federal government and
the states. In fiscal year 2004, Medicaid had benefit payments of $287
billion, with a federal share of about $168 billion.

The states are primarily responsible for ensuring appropriate Medicaid
payments through provider enrollment screening, claims review, overpayment
recovery, and case referral to law enforcement. At the federal level, the
Centers for Medicare & Medicaid Services (CMS) is responsible for
supporting and overseeing state fraud, waste, and abuse control
activities.

The Subcommittee requested information on how CMS and the states can
better serve taxpayers and beneficiaries by reducing Medicaid fraud. This
statement will focus on existing concerns about CMS's efforts to help
states prevent and detect fraud, waste, and abuse; how provisions in
recent legislation providing for a Medicaid Integrity Program will help
CMS expand its current efforts; and challenges CMS needs to address as it
implements new Medicaid Integrity Program efforts.

As GAO testified in 2005, there has been a wide disparity between the
level of staff and financial resources that CMS has expended to support
and oversee state activities to control fraud and abuse and the amount of
federal dollars at risk in Medicaid benefit payments. In fiscal year 2005,
CMS dedicated an estimated 8.1 full-time equivalent employees to support
states in their anti-fraud-and-abuse operations. In contrast, the federal
government spent over $168 billion for Medicaid benefits in fiscal year
2004. Further, resource shortages severely limited two efforts that had
shown potential to help states prevent and detect fraud, waste, and abuse.
In addition to devoting limited staff and financial resources, CMS lacked
a strategic plan to direct its anti-fraud-and-abuse efforts.

Enacted in February 2006, the Deficit Reduction Act of 2005 (DRA) provided
for creation of the Medicaid Integrity Program and includes specific
appropriations that CMS can use to fund activities to support
anti-fraud-and-abuse efforts. It also included provisions that will
address the agency's staffing and planning limitations related to Medicaid
program integrity. For example, the law requires CMS to add 100 employees
to work with states in support and oversight of their Medicaid program
integrity efforts and to develop a comprehensive plan to explain how the
agency will address Medicaid fraud, waste, and abuse. In addition, the DRA
provided funds to expand a program that is designed to identify program
vulnerabilities in Medicaid and Medicare-the federal health insurance
program for the elderly and some disabled people-by examining billing and
payment abnormalities in both programs.

In implementing the DRA provisions related to the Medicaid Integrity
Program, CMS has a unique opportunity to strengthen its leadership of
state and federal efforts to control fraud, waste, and abuse in the
Medicaid program. The most immediate challenge will be to develop its
comprehensive plan that will provide strategic direction for CMS, the
states, and law enforcement partners.
*** End of document. ***