Office of Budget

Plan for Improvement in the GAO High Risk Area of Medicare

July 2008

High Risk Area: Medicare

In its 2007 report on High Risk areas, the GAO used a typology of risk for the Medicare program that focused on several areas. The GAO focused on:

• Reforming and refining payments
• Enhancing program integrity, with specific reference to
  • Improper payments
  • Durable medical equipment
• Improving program management, with specific reference to
  • Contractor practices and reform
  • Managing IT and IT Security
  • Part D and MA start-up problems
• Overseeing patient safety and care

Focus Area: Reforming and Refining Payments

Background

Description of Problem: Medicare faces increasing financial pressure. One of the most effective tools to restrain spending growth is to adjust provider payments through reforms that target payments more closely to the actual costs of providing high value services and that reduce the ability to �game� the system to maximize revenues without improving services. The GAO report compliments CMS on �promising steps� that it has taken in recent years.

Corrective Action Plan/Accomplishments/ Milestones/ Impediments/Metrics: To ensure that Medicare payments are accurate, CMS has made refinements that are believed to result in significant savings to the Medicare Trust Fund, while assuring that Medicare beneficiaries receive medically reasonable and necessary items and services.

The CMS has performed a systematic review on several Medicare payment systems and has proposed a number of significant payment refinements. Included among these refinements are:

• Improving the Home Health Prospective Payment System (HH PPS),
• Establishing a Competitive Bidding process for Durable Medical Equipment and Supplies,
• Updating Practice Expense inputs for the Physician Fee Schedule (PFS),
• Updating Malpractice data inputs,
• Improving payment accuracy under the Hospital Outpatient Prospective Payment System (OPPS)
• Revising the Ambulatory Surgical Center payment system,
• Establishing severity-based Diagnosis Related Groups (DRG) for the Hospital Inpatient Prospective Payment System (IPPS),
• Studying charge compression under the IPPS,
• Revising the Long-Term Care Hospital Prospective Payment System (LTCH PPS), and
• Testing potential program changes through demonstrations, including the Post-Acute Care Payment Reform Demonstration.

These, as well as other Medicare payment refinements should produce savings for the Medicare Trust Funds and are expected to address several areas where Medicare payments have been at risk. The following sections discuss in more detail each of the proposed Medicare payment refinements. Additionally, CMS is currently beginning our 2009 rulemaking cycles and expect to address additional program improvements, including those announced in the President�s budget, in those vehicles. We will use our usual clearance processes to keep OMB updated throughout the regulation cycle.

Refinements for Home Health Agencies for CY 2008

The Medicare HH PPS is a prospective payment system designed to make payment on the basis of a national 60-day episode payment for covered home health services, adjusted for case mix and geographic variation using a wage index. CMS conducted comprehensive research aimed at refining the system. This work identified several areas for possible improvement. In addition to the annual update, the CY 2008 final rule implemented important refinements to the HH PPS resulting in more accurate payments under Medicare for home health services. This rule includes refinements to the case-mix model to reflect the different resource costs between early and later home health episodes and to expand the case mix variables included in the payment model. The final rule also replaces the single therapy visit threshold with three therapy visit thresholds, and phases in adjustments for changes in coding that are unrelated to changes in underlying health status.

Competitive Acquisition for Certain Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS)

The final regulation for competitive bidding, published on April 10, 2007, establishes requirements for a new competitive bidding program for certain DMEPOS as required by the Medicare Modernization Act (MMA) of 2003. This program drastically changes the way that Medicare pays for these items under Part B through the use of bids submitted by DMEPOS suppliers. These bids will form the basis for establishing payment amounts for selected DMEPOS items. The statute requires that competition under the program begin in 10 of the largest MSAs in 2007, in 80 of the largest MSAs in 2009, and in other areas after 2009. Using a formula-driven methodology for selecting MSAs, CMS identified the MSAs with the highest Medicare allowed charges for DMEPOS items among MSAs with the largest total populations. The statute also requires that DMEPOS suppliers be accredited in order to participate in the competitive bid process. When fully implemented, the program is projected to save Medicare about $1 billion annually and provide greater value for beneficiaries through reduced coinsurance and improved quality of service. Contract suppliers for the first phase of bidding were announced in the spring of 2008, and prices for the first phase went into effect on July 1, 2008. CMS announced the product categories and MSAs for the second phase on January 8. 2008. The recent passage of the Medicare Improvement for Patients and Providers Act of 2008 (MIPPA) delayed rounds one and two of the DME competitive bidding program from competition occurring in 2007 and 2009 to 2009 and 2011, respectively.

Practice Expense Data Inputs under the Physician Fee Schedule

In addition to finalizing a new practice expense (PE) methodology which uses a bottom�up methodology for direct costs and supplementary survey data for indirect costs and transitioning the changes over a four-year period, CMS is also in the process of a major procurement to acquire new practice expense survey data The American Medical Association (AMA) has a contract to conduct a multi-specialty PE survey of physicians and non-physician practitioners. The AMA will use the survey data to calculate a new PE per hour for each physician specialty. We anticipate receiving the data in early 2009 and intend to include the updated information in the CY 2010 NPRM. Our methodology for computing resource-based PE RVUs has utilized data from the AMA�s Socioeconomic Monitoring System (SMS) survey. The SMS survey was last conducted in 2000, thereby necessitating new survey data. This will improve the accuracy of the data used to establish payment rates under the PFS.

Malpractice Data Inputs under the Physician Fee Schedule

In 2008, CMS updated the malpractice geographic practice cost index with more recent malpractice premium data. Further, we intend to conduct a malpractice 5 year review for 2010 that will provide additional refinement to the malpractice RVUs.

Improve Payment Accuracy under the Hospital Outpatient Prospective Payment System

CMS has revised the Ambulatory Payment Classification (APC) payment and coding structure for drug administration services, allowing hospitals to report the same CPT codes for drug administration used by physicians and other payers, and to be paid separately for additional hours of infusion, in addition to their payment for the initial hour of infusion. As a result, hospitals will be paid more accurately for complex and lengthy drug administration services, while also receiving more appropriate payments for individual services when provided separately.

Additionally, in the OPPS Final Rule for CY 2008, CMS increased the packaging of services under the OPPS. This increased packaging promotes efficiencies within the OPPS payment structure by providing larger payment bundles for many OPPS services. These larger payment bundles improve payment accuracy and will provide hospitals with greater flexibility in managing their resources.

Revise the ASC Payment System

The MMA required CMS to implement a revised ASC payment system by no later than January 1, 2008. Additionally, the MMA required the Secretary to take into account the recommendations contained in a GAO report, on the subject, when implementing this revised payment system. On August 23, 2006, CMS published the ASC payment system and calendar year 2008 payment rates proposed rule. In that rule we proposed that the revised ASC payment system that would generally be based on the OPPS. The GAO issued its report in November, 2006. CMS reviewed the GAO recommendations and found that they were consistent with the CMS proposal. The Final Policy Rule, finalizing payment policies for the revised ASC payment system, was published on August 2, 2007. The revised payment system was implemented on January 1, 2008.

2008 IPPS Final Rule

We have issued a final rule that takes significant steps to improve the accuracy of Medicare�s payment under the IPPS. The payment reforms include the adoption of a restructuring of the inpatient diagnosis related groups (DRGs) to account more fully for the severity of the patient�s condition. The new severity-based DRGs, called the Medicare Severity (MS)-DRGs, represent one of the most significant improvements to the hospital inpatient payment system since the institution of the prospective payment system in 1983. The work involved for this refinement included a systematic review of all 13,549 diagnosis codes, the development and adoption of the MS-DRGs, recalibration of DRG weights, and an analysis of appropriate adjustments to payments for expected improvements in documentation and coding (current law mandates the level of this adjustment to the IPPS payment rates for FYs 2008 and 2009 but provides the authority to make additional adjustment in FYs 2010, 2011 and 2012 if warranted). These refinements to the hospital payment system are expected to significantly improve the predictability, reliability and fairness of Medicare payments.

In the final rule, 745 newly created severity-adjusted DRGs (that is, the MS-DRGs) were adopted to replace the previously existing 538 DRGs. Projected aggregate spending from the reforms will not change. However, payments are expected to increase for hospitals serving more severely ill patients and decrease for serving patients who are less severely ill, thus improving payment accuracy.

The final rule also included provisions to implement a policy under which, beginning 10/1/2008, Medicare will no longer pay hospitals a higher MS-DRG amount when selected conditions (including selected infections) are acquired during the hospitalization, and includes an expanded list of publicly-reported quality measures. The FY 2009 IPPS proposed rule proposed to expand the list of conditions to which this policy would apply. The final rule also reduced payment for a DRG involving the implantation of a device, when a hospital replaces a device and the replacement is supplied to the hospital at no or reduced cost.

Charge Compression Study

In 2006, CMS awarded a contract to RTI International to study methods of improving estimates of the cost of Medicare inpatient hospital discharges used in constructing the DRG relative weights. RTI focused on methods of improving the accuracy of the adjustment of charges to cost to account for the fact that hospitals tend to markup high cost items to a lesser extent than they markup low cost items, a phenomenon known as charge compression. In a report issued in January 2007, RTI recommended expanding the number of cost-to-charge ratios (CCRs) from 13 to 19 through statistical adjustments to the supplies, radiology, and pharmacy cost centers and direct disaggregation of the blood and emergency department cost centers from the residual �other� category. RTI also recommended a number of short and long term ways of improving the accuracy of the Medicare cost report data used to construct CCRs. In 2008, CMS implemented the blood and emergency department CCRs, but deferred a decision on adopting CCRs based on statistical adjustments. CMS also expressed support for the industry�s educational initiative to encourage hospitals to report their costs and charges consistently with how the data are used to determine DRG relative weights.

In August 2007, CMS expanded RTI�s analysis of charge compression to incorporate outpatient services. CMS asked RTI to evaluate the cost estimation process for the Outpatient Propsective Payment System (OPPS) relative weights, including a reassessment of the regression-based CCR models using both hospital outpatient and inpatient charge data. RTI�s final report on this expanded analysis became available in July 2008. RTI made several recommendations addressing short-term accounting changes to the current cost report data, short-term regression-based CCR adjustments, and longer-term accounting changes to the cost report form. RTI again recommended expanding the number of through statistical adjustments to the supplies, radiology, cardiology, and pharmacy cost centers.

In the FY 2009 IPPS proposed rule, we proposed to modify the Medicare cost report to create one cost center for reporting low cost medical supplies, and one cost center for reporting higher cost, implantable devices. We will address comments in the IPPS final rule (to be issued around August 1, 2008). In addition, CMS engaged the RAND Corporation in a second contract to analyze how relative weights would change if CMS were to adopt regression-based CCRs. RAND found that relative weights using regression-based CCRs result in significant redistributions in payments among hospital groupings but would not necessarily result in improved payment accuracy.

In the CY 2009 OPPS proposed rule, we proposed to modify the Medicare cost report to create two new cost centers, one for drugs with high overhead costs and one for drugs with low overhead costs, to replace the current cost center for all drugs. In addition, we explicitly invited comment on several of RTI�s recommendations to include new standard cost centers for CT Scanning, MRI, and Cardiac Catheterization; new nonstandard cost for common services; and revisions to the OPPS crosswalk used to link claims and cost report data to estimate cost. We will consider the comments and address them in the OPPS final rule (to be issued around November 1, 2008).

Refine the Payment System for Long-Term Care Hospitals (LTCHs)

We have made numerous changes to assure that Medicare provides for appropriate payment for services furnished to severely ill patients and patients with medically complex conditions while providing incentives to long-term care hospitals to furnish more efficient care to Medicare beneficiaries. These changes address payments to LTCHs for patients admitted to the LTCH by a hospital that is effectively treating the LTCH as a unit of its hospital. We have also made a change to address payments for patients treated by a LTCH with a length of stay (LOS) that is comparable to the LOS of a patient in the same DRG treated by a hospital paid under the IPPS.

CMS has recently adopted severity-adjusted MS-DRGs for acute care hospitals paid under the IPPS and MS-LTC�DRGs for LTCHs to better recognize severity under those payment systems in the FY 2008 Inpatient Hospital PPS final rule. CMS also recently issued a proposed rule that would make appropriate adjustments to the LTCH PPS payment rates for the 2009 rate year that would result in more accurate payments.

On December 29, 2007 the Medicare, Medicaid, and SCHIP Extension Act (MMSEA) (Pub. L. 110-173) was enacted. Section 114 of Pub. L. 110-173 made a number of changes affecting payments to long term care hospitals (LTCHs) for inpatient services which effectively overturn some of these regulatory initiatives. This legislation provides statutory relief for three years from the following policies: the �IPPS-comparable� payment option for the shortest LTCH stays under the short-stay outlier policy; exemption of �grandfathered� LTCH hospitals-within hospitals (HwHs) and �free-standing� LTCHs from the 25 percent patient threshold; increase from a 25 to a 50 percentage threshold for co-located LTCHs and satellites and from a 50 to a 75 percentage threshold for rural, MSA-dominant, and urban single co-located LTCHs; and a delay in application of the one-time adjustment to Federal payment rates. We published two interim final rules in May 2008 to implement these provisions.

Evaluation of DRG Classification Systems

CMS also awarded a contract to the RAND Corporation to evaluate alternative severity-adjusted DRG classifications systems. The systems to be evaluated are all variants of the Yale severity of illness system developed under contract with CMS in 1989. Among many evaluation criteria, RAND assessed:

• The variation in the level of resource use, and the resulting improvement in homogeneity within DRGs,
• The manageability of a system as shown by the number of classification groups, how it is understood by hospitals, physicians, and beneficiaries, and how it is the same or differs from classifications in the current DRG system,
• How each system can be modified to capture new technologies and merge them into the basic DRG structure as needed, and
• The availability of each system�s clinical logic in the public domain.

Although all systems performed reasonably well on most criteria, no one system clearly outperformed all others on all criteria. In the second phase of the project, RAND compared the severity approach developed by CMS and presented in the 2008 IPPS Proposed Rule (MS-DRGs) to the severity systems evaluated in the earlier phase of the project. RAND found that the MS-DRGs were an improvement over the then current CMS-DRGs and performed comparably with other severity systems.

Post Acute Care Payment Reform

CMS has two major activities related to reforming payment for post acute settings. First, in response to Congressional mandate, CMS has established the Post Acute Care Payment Reform Demonstration, a research project to produce payment reform suggestions for the post acute settings paid under a PPS: Long Term Care Hospitals, Inpatient Rehabilitation Facilities, Skilled Nursing Facilities and Home Health Agencies. The project has developed a uniform patient assessment instrument which will provide comparable information across Post Acute Care (PAC) settings and in acute care hospitals. Data collection begins in Spring 2008. The primary analysis of the effort is to predict cost and resource use based on patient assessment information to develop payment groups applicable to multiple PAC settings. A Report to Congress, to be submitted in 2011, will include research findings and recommendations for revising the four prospective payment systems. Recommendations are expected to result in more consistent payment for similar patients receiving similar services, and reduce incentives created by the current systems for placement based on payment considerations. Second, the President�s FY2009 package of legislative proposals includes a move towards site-neutral payments for five conditions commonly treated in both skilled nursing facilities and inpatient rehabilitation facilities (e.g., certain knee replacement cases). Under this proposal, CMS would establish a base payment rate for Inpatient Rehabilitation Facilities that takes into account comparable Skilled Nursing Facility payments for these five conditions, with appropriate adjustments for case mix and facility-level differences recognized in the existing PPS.

IRFs and the 75 Percent Rule

The Medicare, Medicaid, SCHIP, and Extension Act (MMSE) of 2007 reduced the compliance threshold for IRFs from 75 percent to a compliance rate no greater than 60 percent. In accordance with the MMSE, CMS proposed to reduced the compliance percentage to 60% in the FY 2009 IRF PPS proposed rule. CMS will monitor activity to ensure that IRFs follow appropriate admission practices so that they are treating those patients that require the higher level of intensive rehabilitation. This analysis will be incorporated into a broader analytic structure needed to prepare a report to Congress that was mandated under the MMSE.

FY 2009 President�s Budget Legislative Proposals

The FY 2009 President�s Budget includes several additional proposals to reform and refine Medicare payments:

• Explicitly prohibit hospitals from billing Medicare for certain �never events��egregious events that should never happen during the course of treatment, such as wrong-site surgery�and reduce hospital payment updates by 2 percent for failure to report the occurrence of these events.
• Expand competitive bidding to all Medicare clinical laboratory services.
• Establish a new post-hospital payment rate for five conditions that are commonly treated in both skilled nursing facilities and inpatient rehabilitation facilities � unilateral knee replacement, unilateral hip replacement, unilateral hip fracture, chronic obstructive pulmonary disease, and other pulmonary.
• Create a bundled End-Stage Renal Disease (ESRD) payment methodology that would include dialysis services, drug treatment costs, and other ancillary costs, eliminating incentives to overuse separately billable items.
• Implement, value-based purchasing for hospitals in which a portion of hospitals� payments would be based on their performance on certain quality measures.
• Adjust indirect medical education payments disproportionate share hospital payments, and capital payments for inpatient hospital services to help ensure the payments are appropriately aligned with costs.
• Modify policy for power wheelchair and oxygen equipment rentals to better align payments with patients� needs and necessary equipment costs.
• Adjust providers� annual payment updates to recognize providers who reach efficiencies that restrain costs.

FY 2009 President�s Budget Administrative Proposals

• Modify the threshold that determines when hospital payments are adjusted for certain �transferred� discharges.
• Improve the accuracy of payment weighting for skilled nursing facilities.
• Phase out the hospice-specific wage index adjustment over three years.

Focus Area: Enhancing Program Integrity�Improper Payments

Background

Description of Problem: During 2008, CMS estimates that Medicare contractors will process well over one billion claims (1.2 billion) from providers, physicians, and suppliers for items and services that Medicare covers. Given the staggering size of these programs� expenditures, even small amounts of payment error can represent a significant impact to both Federal and State treasuries and taxpayers. For this reason, CMS, as part of a sound financial management strategy, has a relatively long history of using improper payment calculations as a tool to preserve the fiscal integrity of the Medicare program. CMS uses improper payments calculations to identify the amount of money that has been inappropriately paid, identify and study the causes of the inappropriate payments, and focus on strengthening internal controls to stop the improper payments from continuing.

Corrective Action Plan: CMS is taking actions to safeguard Federal funds and prevent improper payments by measuring improper payments through CMS� error rate programs, performing program and fiscal oversight, and detecting and preventing fraud, waste and abuse. Attached is a copy of CMS� most recent Comprehensive Error Rate Testing (CERT) Corrective Action Plan (CAP), which contains a very detailed set of actions and milestones and goals to reduce error rates.

Expected Outcomes: The CERT program assesses and measures improper payments in the Medicare Fee-For-Service program. The CERT program not only produces a national paid claims error rate, but also very specific improper payment rates. We expect that the actions outlined in the attached CAP will help ensure that CMS meets its future error rate reduction targets of 3.8 percent in 2008, 3.7 percent in 2009, and 3.6 percent in 2010.

Accomplishments

Milestones

Impediments/Challenges

Metrics

Focus Area: Enhancing Program Integrity�Durable Medical Equipment

Background

Description of Problem: The root cause of this problem is unscrupulous suppliers inventing new ways to defraud the Medicare program. With Medicare fraud and abuse activities increasing in certain high risk geographic and benefit areas, CMS has undertaken and is implementing several aggressive actions including the following corrective actions:

• tightening the Medicare provider enrollment process to help ensure that Medicare only does business with qualified and scrupulous suppliers;
• limiting Medicare program�s risk by requiring all suppliers of durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) to furnish CMS with a surety bond;
• requiring providers and suppliers to receive payment via electronic funds transfer when enrolling or making a change in their enrollment information ;
• providing more rigorous oversight and monitoring to providers/suppliers once they are enrolled in the program;
• requiring all existing Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) suppliers to obtain an accreditation by September 30, 2009 (note: newly enrolling DMEPOS suppliers were required to obtain an accreditation before seeking enrollment into the Medicare program on March 1, 2008.);
• establishing a provider enrollment demonstration for DMEPOS suppliers in Miami-Dade, Broward and Palm Beach counties in Florida and the following California counties: Los Angeles, Orange, Riverside and San Bernardino;
• establishing a provider enrollment demonstration for home health agencies in Harris County, Texas and the following California counties: Los Angeles, Orange, Riverside and San Berandino; and
• strengthening the Agency�s ability to revoke suppliers� Medicare billing privileges if they do not meet CMS� enrollment and quality standards,

Expected Outcomes: CMS expects that these actions will result in the prevention of questionable business from entering the Medicare program, improved identification of problem providers and suppliers once they are enrolled in the program, and the revocation of the Medicare billing privileges of fraudulent and problem providers.

FY 2009 President�s Budget Proposals

The FY 2009 President�s Budget includes proposals that will revise payment methods to address inappropriate spending in the DME area:

• Establish a 13-month rental period for power wheelchairs, similar to other DME capped rental items, to ensure that Medicare and its beneficiaries no longer pay for the purchase of equipment that is used for less than 13 months. After the 13-month rental period, beneficiaries will own the equipment. Once the equipment is no longer necessary, title for the equipment would transfer back to the supplier.
• Reduce the number of monthly rental payments for most oxygen equipment from 36 months to 13 months and reduce the monthly payment amount for stationary equipment. After 13 months, beneficiaries will own the equipment, and Medicare will pay for delivery and filling of oxygen contents, reasonable and necessary maintenance, servicing and repairs, and supplies and accessories. Once the equipment is no longer necessary, title for the equipment would transfer back to the supplier.

Accomplishments

Milestones

Impediments/Challenges

Metrics

Focus Area: Improving Program Management�Fee-For-Service Contracting Practices and Reform

Background

Description of Problem: The statutorily imposed constraints on Medicare contracting, and the attendant difficulty in paying and rewarding efficient and effective contractors through an effective competitive bidding process, has impeded Medicare management for decades. While costs per beneficiary for claims processing and related activities have been low, error rates and inappropriately large payments have been substantial.

Corrective Action Plan/Accomplishments/ Milestones/ Impediments/Metrics: The implementation of Medicare contracting reform will contribute to improved management of the Medicare fee-for-service program by providing performance incentives to contractors, increasing payment accuracy, utilizing standardized administration services, and enhancing the information technology platform of the program.

Since the inception of Medicare, the Centers for Medicare & Medicaid Services (CMS) has contracted out vital fee-for-service benefit program operational functions (i.e., claims processing, provider and beneficiary services, appeals, etc) to a set of contractors known as Medicare Fiscal Intermediaries (FIs) and Carriers. In FY 2005, these contractors processed approximately 1.2 billion claims and performed their other Medicare provider and beneficiary service responsibilities, as well as a number of Medicare program safeguard functions, within a total budget of approximately $1.6billion.

Nearly all of the FI agreements and Carrier contracts were initiated on a non-competitive basis at the beginning of the Medicare program, and the original contracting provisions contained in the Social Security Act allowed CMS to renew the contracts annually based on satisfactory contract performance. The original Medicare legislation specified requirements for an entity to serve as a FI or carrier, limiting CMS� flexibility in using full and open competition to procure new contracts or shift work.

On December 8, 2003, the President signed the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. Section 911 of the Act establishes Medicare Contracting Reform. Under this provision, CMS is to replace the current Medicare FI and Carrier contracts, using competitive procedures, with new Medicare Administrative Contractors (MAC) contracts by October 2011. The new MAC contracts may be renewed annually based on performance for a period of 5 years, but they must be re-competed every 5 years. The Federal Acquisition Regulations (FAR) will apply to the new MAC contracts except to the extent that any provisions in them are inconsistent with a specific Medicare requirement, and the new MAC contracts may provide for performance incentives.

In accordance with the new legislation, CMS plans to transfer 100 percent of the Medicare FFS claims workload to the new MACs by 2010. In February of 2005, CMS presented an implementation plan in its report to Congress on Medicare Contracting Reform. CMS also developed an acquisition plan, a procurement strategy, and a MAC statement of work as part of its early implementation activities.

In keeping with MMA requirements, CMS has consulted with providers, beneficiary organizations, and others on the development of performance requirements and standards for the MACs. CMS evaluated all industry feedback and used the applicable feedback when drafting the final procurement documents. CMS also conducted various forms of market research to prepare for the anticipated award of FFS workload under the new MAC authority in FY 2006.

• On January 6, 2006, CMS awarded four contracts for durable medical equipment (DME) claims. CMS has successfully implemented all four of these contracts.

• On July 31, 2006, CMS awarded the A/B MAC contract for (Arizona, Montana, North Dakota, South Dakota, Utah and Wyoming). The Jurisdiction 3 A/B MAC has completed all implementation activities and is operating under the terms of the new contract.

• On September 29, 2006, CMS issued a request for proposals (RFP) for three additional primary A/B MAC contracts. The RFP covers Jurisdiction 4 (Colorado, New Mexico, Oklahoma, and Texas), Jurisdiction 5 (Iowa, Kansas, Missouri, and Nebraska), and Jurisdiction 12 (Delaware, District of Columbia, Maryland, New Jersey, and Pennsylvania).

  • On August 2, 2007, CMS announced the award of Jurisdiction 4, the second contract for a Part A/Part B Medicare Administrative Contractor (A/B MAC), to Trailblazer Health Enterprise LLC.
  • On September 5, 2007, CMS announced the award of Jurisdiction 5, the third contract for a Part A/Part B Medicare Administrative Contractor (A/B MAC) to Wisconsin Physicians Service Insurance Corporation (WPS).
  • On October 24, 2007, Highmark Medicare Services, Inc., (HMS) was selected to be the A/B MAC for Jurisdiction 12. Another bidder filed a protest against this award with the Government Accountability Office (GAO) on November 5, 2007. In response, CMS initiated corrective action and GAO dismissed the protest. CMS has subsequently re-awarded the Jurisdiction 12 contract to HMS.
  
  

• On December 15, 2006, CMS issued a RFP for four primary A/B MAC contracts. The RFP covers Jurisdiction 1 (American Samoa, California, Guam, Hawaii, Nevada, and Northern Mariana Islands), Jurisdiction 2 (Alaska, Idaho, Oregon, and Washington), Jurisdiction 7 (Arkansas, Louisiana, and Mississippi), and Jurisdiction 13 (Connecticut and New York).

  • On October 24, 2007, CMS selected Palmetto GBA to be the A/B MAC for Jurisdiction 1. Another bidder filed a protest with the GAO, which placed a stay of performance on the award. In February of 2008, GAO dismissed the protest and ruled to uphold CMS�s initial award of the contract to Palmetto GBA.
  • On March 19, 2008, CMS announced that National Government Services would serve as the A/B MAC for Jurisdiction 13.
  • On May 7, 2008, CMS selected National Heritage Insurance Company to be the A/B MAC for Jurisdiction 2. Two unsuccessful bidders filed protests with the GAO, which has placed a stay of performance on this award until September 2, 2008.
  • On June 12, 2008, CMS selected Pinnacle Business Solutions, Inc. to be the Jurisdiction 7 A/B MAC. One unsuccessful bidder filed a protest with the GAO, placing the contract under a stay of performance until October 10, 2008.
  
  

• On August 31, 2007, CMS posted the two solicitations for a second cycle of A/B MAC contracts � seven MAC contracts altogether - on the official federal procurement website. The first solicitation is for Jurisdictions 8, 9, and 10. The second solicitation is for Jurisdictions 6, 11, 14 and 15. The solicitations for Jurisdictions 6, 11, 14 and 15 also include Medicare�s home health and hospice claims administration work.

  • CMS anticipates that these seven remaining MAC contracts, completing the first full round of implementation of MMA Section 911, will be awarded by the end of calendar 2008.
  
  

• CMS will initiate re-competition of the MAC contracts in FY 2010.

Focus Area: Enhancing Program Management�Managing IT and IT Security

Background

Description of Problem: CMS� internal planning, and two GAO reports, have identified potential problems in IT management and security. While these problems have not resulted in any consequential breach or breakdown, they pose potential risks.

CMS relies on a contractor owned and operated network to facilitate communication and data transmission among CMS business-related entities. GAO assessed the effectiveness of information security controls over the communication network used by CMS. This study summarizes the vulnerabilities and information control weaknesses identified and suggested recommendations to help strengthen and improve the communication network. The report number is GAO-06-750.

In the report, GAO concluded that the security controls over the communication network were ineffective in protecting the confidentiality and availability of information and information resources. Although the report acknowledged that CMS had many information security controls in place designed to safeguard the communication network, key information security controls were not in operation in the system. The recommendation of the study was for CMS to take steps to ensure that information security policies and standards are fully implemented.

GAO also issued a report in October 2005 recommending CMS establish critical investment management capabilities (GAO-06-12) to strengthen its internal IT investments. Recommended actions included updating the agency�s IT Investment Management (ITIM) policy and guidance, utilizing an updated Strategic Plan to align investments with business needs, ensure the IT Investment Review Board (ITIRB) periodically evaluates alignment of IT projects with strategic goals, fully document procedures and criteria for selecting and reselecting investments, define, document and implement procedures for ITIRB oversight of IT projects and systems, and implement processes to use investment information to fully support investment decisions.

Corrective Action Plan:Root Cause � CMS did not always ensure that its security and ITIM policies, procedures, and standards were implemented effectively.

Summary and Status of Communications Network Corrective Action Plan � CMS tracked and reported on the communications network corrective action plan using the Office of Management and Budget- approved Plan of Action and Milestone (POA&M) process until each milestone was completed for the identified weaknesses. The corrective actions were independently validated as being addressed, and all weaknesses were closed in accordance with the POA&M process. In addition, CMS has updated and reissued the CMS Policy for the Information Security Program and the Acceptable Risk Safeguards in accordance with OMB and NIST guidance. All of the findings in this report have been closed.

Summary and Status of ITIM Corrective Action Plan � CMS has addressed all of the recommendations in the GAO report by establishing robust investment management policies, procedures and practices, and by maturing the ITIRB. CMS has implemented processes to use investment information to fully support investment management decisions. All of the findings in this report have been closed.

Accomplishments

Milestones; Impediments/Challenges; Metrics

None

Remarks

Corrective actions of findings from the original GAO report for the communication network have been reported and are being aggressively managed as part of the CMS Plan of Actions and Milestones process.

Focus Area: Improving Program Management�Part D Start-up Problems

Background

Description of Problem: In Spring 2007, the GAO completed a study of CMS� implementation of the Medicare Prescription Drug Benefit Program, with a specific focus on the challenges involved in enrolling the Medicare/Medicaid dual eligible population into prescription drug plans and making sure they have effective coverage. The GAO found that a majority of new dual-eligible beneficiaries � generally those on Medicare who have not yet signed up for a prescription drug plan (PDP) and who become eligible for Medicaid � may be unable to smoothly access their drug benefit for at least 5 weeks, given the time it takes to enroll them in PDPs and communicate information to beneficiaries and pharmacies. In addition, while CMS pays PDPs to provide these beneficiaries with several months of retroactive coverage, it does not monitor these payments or the amounts that PDPs have reimbursed dual-eligible beneficiaries.

Corrective Action Plan/Accomplishments/ Milestones/ Impediments/Metrics

CMS has taken a series of steps to address challenges associated with enrolling dual-eligible beneficiaries in PDPs and making sure that they can readily access this drug benefit. Late in 2006, the agency implemented a policy to facilitate seamless prescription drug coverage for those new dual-eligible beneficiaries whose Part D eligibility is predictable � Medicaid beneficiaries who subsequently qualify for Medicare. (This group is estimated to represent about one-third of new dual eligible beneficiaries.) Under this process, CMS worked with the states to identify prospective Medicare beneficiaries in advance, allowing the agency and its Part D partners time to complete the enrollment processes and notify these beneficiaries of their enrollment before their enrollment becomes effective. In addition, in mid-June 2008, CMS began accepting and processing states� information about their dual eligibles more frequently than once a month, deeming them eligible for the low-income subsidy, and assigning them to a Part D plan sooner, thereby further reducing the time lags cited in the GAO report.

CMS has also established a process whereby Part D sponsors must provide access to Part D drugs at the correct LIS cost-sharing level when presented with evidence of LIS eligibility, even if the sponsor�s systems and CMS� systems do not yet reflect that eligibility. This �best available evidence� (BAE) could include a copy of the beneficiary�s Medicaid card or other state document that confirms the individual was eligible for Medicaid during a month after June of the previous calendar year. Sponsors must update their own systems to reflect the individual�s LIS status indicated by the best available evidence and, if necessary, submit a request to CMS so that, for the deemed population, the agency�s systems can be updated as well.

CMS has also taken steps to ensure that beneficiaries are reimbursed for services received during retroactively covered months. Medicare Part D plan sponsors have an obligation to reimburse their members (or another payer) for costs incurred retroactively and we have made it clear to plans on several occasions that they have an obligation to cover these retroactive claims. CMS has modified its beneficiary auto-enrollment notices, as well as the notices sent by PDPs, to include language that explicitly informs beneficiaries that they are eligible for reimbursement for costs incurred during retroactive eligibility periods. Additionally, the Explanation of Coverage (EOC), which is provided to every Part D enrollee from his/her plan, informs the beneficiary of the right to seek reimbursement from the plan for claims they paid for during the retroactive period. CMS is also making changes to improve the efficiency of key information systems involved in the enrollment process, including making sure that plans use the latest available information to establish a beneficiary�s low-income subsidy level.

Consistent with another GAO recommendation, CMS is looking at the potential magnitude of payments to plans during periods of retroactive enrollment, as well as the amounts paid out by plans in drug reimbursement for the retroactively enrolled individuals. Based on this review, we will consider how best to address the issue while maintaining full, uninterrupted, and cost-effective coverage for these beneficiaries.

Call Centers

CMS takes seriously its role in monitoring and managing the Medicare Prescription Drug Benefit program. Our monitoring efforts have been significantly enhanced since the beginning of the implementation of the drug benefit. Beginning in 2006 we began collecting and evaluating Part D plans on a variety of performance metrics, with particular attention to ensuring the accuracy and usefulness of information provided to the public on Part D plans. These metrics were further expanded in 2007 for the 2008 annual election period.

Areas that were tracked for 2006 and 2007 fell into five categories: Customer Service, Complaints, Appeals, Data Systems, and Drug Pricing. Several measures were tracked within each category. Specific measures focused on beneficiary and pharmacy call center wait times, call center disconnection rates, complaint rates as captured in CMS� Complaints Tracking Module (CTM), failure to make timely coverage determination or re-determination decisions, completeness of beneficiary information provided to the pharmacist (or 4Rx data) and the stability of drug pricing data as displayed on the Medicare Prescription Drug Plan Finder. Part D sponsors that were identified as outliers or that were not meeting an established standard were contacted by CMS staff who worked with the sponsors to help them improve their performance.

The President signed an Executive Order on August 22, 2006 to ensure that health care programs administered by the Federal Government promote quality and efficient delivery of health care through the use of health information technology, transparency regarding health care quality and price, and better incentives for program beneficiaries, enrollees, and providers. To support the President�s Agenda on health care transparency, the performance monitoring of plans was enhanced to include new metrics for all Part D plans. This expansion of performance measures was integrated with an evaluation of quality measures on Medicare Advantage plans. These data were posted publicly on the Medicare Prescription Drug Plan Finder for Part D measures and the Medicare Options Compare website for Part C Measures to provide information for beneficiaries to utilize in making a more informed decision about plan selection. These expanded measures were released November 15, 2007, during the open enrollment period for the 2008 program year. Measures were grouped into three categories on: Customer Service, Using Your Plan to Get Your Prescriptions Filled, and Drug Pricing Information. Some of the measures in addition to the previous measures identified focused on member satisfaction (through the Part D CAHPS survey) and information plans have about beneficiaries who qualify for extra help.

In 2008, during the open enrollment period for 2009, efforts are already underway to begin measuring plans on patient safety by reporting quality measures on high risk medication use. This data will be expanded as more drug related measures are industry tested and validated.

Focus Area: Overseeing Patient Safety and Care�Clinical Laboratories

Background

Description of Problem: The GAO (report GAO-06-416) found weaknesses in CMS oversight of clinical laboratories. Potential problem areas include assessing the quality of laboratory testing; the effectiveness of surveys, complaint investigations, and enforcement actions in detecting lab problems; and the adequacy of CMS oversight of the Clinical Laboratory Improvement Amendments (CLIA) program.

Corrective Action Plan: In response to GAO�s recommendations to improve the quality of laboratory testing CMS committed to taking steps to:

• Promote more meaningful comparisons of exempt-state programs and accrediting organizations� citation of condition-level deficiencies vs. CLIA requirements.
• Ensure that the advance notice of upcoming surveys provided to laboratories by accrediting organizations is consistent with CMS� policy for advance notice provided by State survey agencies.
• Develop protocols or refinements to surveyor guidance to ensure a consistent and appropriate balance between the enforcement and educational functions of the survey process.
• Monitor citations of repeat deficiencies to ensure that laboratories with true repeat deficiencies have appropriate enforcement actions imposed, if the deficiencies are not corrected expeditiously and effectively.
• Promote greater awareness of the opportunity and methods to file a complaint with CMS, State survey agencies, and accreditation organizations regarding the quality of laboratory services.
• Ensure that evaluation of exempt State and accrediting organization inspection requirements takes place prior to expiration of the period for which they are approved.
• Ensure that changes to the inspection requirements of exempt states and accrediting organizations are reviewed prior to implementation.
• Establish CLIA staffing levels consistent with workload and available CLIA revenues.
• Ensure that CLIA Federal Monitoring Surveys are performed annually in each State in numbers sufficient to allow a reasonable estimate of State agency performance, including increasing the number of �independent� reviews.
• Take steps to improve the performance of accrediting organizations.
• Develop an enforcement database to track and monitor labs that have lost their accreditation status for any potential federal enforcement actions.

Expected Outcomes: Strengthen the consistency and effectiveness of standards application and increase the quality of laboratory services by:

• Improving Quality Control requirements for and oversight of, all laboratory testing being performed for the diagnosis, treatment or prevention of disease.
• Implementing cytology proficiency testing for individuals who examine Pap smears.
• Designing, implementing, and refining a complaint tracking system.
• Implementing and monitoring a national system of performance metrics for State survey agency performance.
• Developing and implementing a system for accrediting organization performance evaluation.

Accomplishments

Milestones

Impediments/Challenges

Metrics

Focus Area: Overseeing Patient Safety and Care�Nursing Homes

Background

Description of Problem: Assess CMS�s progress in addressing oversight weaknesses in the nursing home survey and certification program by reviewing trends in nursing home quality, evaluating the extent to which CMS�s initiatives have addressed survey and oversight problems identified by GAO and CMS, and identifying key challenges to continued progress in ensuring resident health and safety. Two recent GAO studies have addressed these issues (GAO-07-241 and GAO-06-117).

Corrective Action Plan: In response to GAO�s recommendations to ensure nursing home resident health and safety, CMS committed to taking steps to:

• Ensure annual nursing home surveys.
• Ensure prompt investigation of nursing home complaints.
• Reduce the incidence of fires in nursing homes.
• Increase enforcement actions on nursing homes determined to be most at risk of quality breakdowns.
• Increase effectiveness of surveys and enforcement of the quality of care requirements.
• Improve information available to consumers on the CMS Web site.
• Through Quality Improvement Organizations (QIOs), increase the availability of technical assistance to help nursing homes improve their care.
• Improve consistency in how States conduct surveys and their ability to identify deficiencies.

Expected Outcomes: Ensure quality of life and quality of care in our nation�s nursing homes through improved oversight of the nursing home survey and certification program by:

• Surveying all nursing homes at least once every 15 months.
• Initiating processes for prompt and effective investigation of nursing home complaints.
• Ensuring better fire-safety policies and procedures.
• Identifying and working with those nursing homes most at risk for quality breakdowns to improve care.
• Providing accurate and reliable key information about every nursing home, including quality measure data and deficiencies identified during a certification survey, to consumers, families and others.
• Providing technical assistance via the QIOs to help nursing homes improve their care.

Accomplishments

Milestones (Accomplishments Pending)

Impediments/Challenges

Metrics

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