This is an archive page. The links are no longer being updated.

Audit review of HHS financial statements is carried out by the Office of Inspector General, acting as independent auditor under the Government Management Reform Act.

"HHS agencies have made major progress in the last four years in providing reliable financial data, and I'm pleased that the Inspector General has recognized this hard work with her clean audit opinion," Secretary Shalala said. "HCFA, in particular, is working hard to demand proper documentation from its contractors and to clean up accounts receivable and debt collection issues that are many years old."

In the past two years, HHS and most of its agencies have received "qualified" audit opinions, meaning annual financial statements were not sufficiently supportable to provide reliability under auditing standards. Under the Government Management Reform Act, federal agencies were required as of 1996 for the first time to produce annual financial statements comparable to those used by major private sector corporations.

In her report providing a clean opinion to the Health Care Financing Administration, the Inspector General said financial management and accountability continued to improve for the Medicare program, which represents 53 percent of HHS spending.

At the same time, however, the OIG said significant further action is needed by HCFA and its Medicare contractors to improve financial management and payment systems. And in a separate report, the OIG found that improvements in the Medicare fee-for-service error rate were maintained without significant change in 1999, following a dramatic reduction in 1998. The estimated 1999 improper payment rate was 7.97 percent, compared with 7.13 percent in 1998. This difference is not statistically significant, and the OIG urged HCFA to continue efforts to reduce the payment error rate, which had declined each year from a high of 14 percent in 1996, the first year the error rate was reported. The 1999 rate meets HCFA's long-range target for the year, which was 9 percent.

HHS Inspector General June Gibbs Brown said the "clean" audit opinion was a significant achievement, especially for HCFA. "Our unqualified audit opinion this year is an important milestone for HCFA, and we are pleased that they have achieved it," Brown said. "HCFA is engaged in an unprecedented, multi-year initiative to improve the Medicare program's financial reporting and day-to-day accounting and payment systems, and we encourage HCFA to remain focused on these issues."

HCFA Administrator Nancy Ann DeParle said, "Make no mistake -- we are cleaning house in the Medicare financial area. This is a process that began several years ago, and will take more time to complete. But we are committed, and we have a plan of action."

DeParle said HCFA undertook an intensive special initiative during the past year to identify erroneous and questionable financial items, especially on the books of the contractors who process and pay Medicare claims submitted by health care providers. HCFA hired two private accounting firms and worked with the OIG to carry out the efforts.

The effort was especially focused on Medicare's "accounts receivable," which are debts owed to Medicare. As a result of this initiative, HCFA identified $2.7 billion in outstanding receivables that were either older debt or claims that should have been paid by other health insurers. These receivables are as much as 10 years old.

Pursuant to the Debt Collection Improvement Act, HCFA will continue to aggressively pursue this debt and will refer cases to the Department of the Treasury for further collection and litigation efforts. At the same time, in accordance with the policy adopted by the federal Chief Financial Officers Council, HCFA also is removing these receivables from its financial statements so the statements reflect accurate economic value.

HCFA also removed about $300 million from its financial statements involving receivables as much as 10 years old, with no potential for collection. Some of these debts exceed the statute of limitations for collection.

In addition, DeParle said, the special effort undertaken last year identified a total of $1.3 billion in undocumented entries and accounting adjustments on the books of Medicare contractors. These entries and errors were also removed from HCFA's financial statements. To prevent a recurrence of these problems, HCFA is taking steps to ensure that Medicare contractors comply with generally accepted accounting principles in their financial systems.

"The result of this work is a reliable reporting of Medicare finances, and that is why we can get a clean audit opinion today," DeParle said. "This is part of the government-wide effort to put our federal programs on sound financial footing. I am determined that Medicare and its contractors must meet the same high standards of accounting that would be required of private sector corporations."

In reporting on the rate of improper Medicare fee-for-service payments in fiscal year 1999, the OIG said the plateauing in the overall error rate includes an increase in documentation problems, which offset improvements in other areas. By law, Medicare providers must maintain patient medical records documenting that they performed the services submitted for payment. Despite repeated attempts to obtain adequate documentation from providers, the OIG calculated that missing or insufficient documentation accounted for about 41 percent, or $5.5 billion of the total $13.5 billion in projected improper payments in 1999. This was an increase from $2.1 billion in the documentation category for 1998.

"The rate of improper payments by Medicare has been reduced substantially since 1996, and HCFA appears to have maintained the improvements achieved previously. But we hope to see further progress next year," Brown said.

According to the OIG, virtually all the claims examined in the review were paid correctly by Medicare based on the information that was submitted in providers' claims. The errors were identified by medical review staff who "looked behind" the claims at the patient medical records. These errors included problems in the documentation that should back up the claims, as well as the coding for the actual services provided, the medical need for the services, or Medicare non-coverage of the services provided. While some of the errors in the claims could be due to fraud, it is not possible to estimate the portion of the error rate that might be attributable to fraud.

The OIG calculated the improper payment rate by examining a valid statistical sample of 600 beneficiaries nationwide with 5,223 claims valued at $5.4 million. OIG auditors reviewed the medical records supporting the claims with the assistance of medical experts and then projected the sample findings over the universe of Medicare fee-for-service benefit payments, which totaled $169.5 billion during fiscal year 1999. The 7.97 percent error rate, or $13.5 billion in improper payments, represents the mid-point (at the 95 percent confidence level) in the estimated range of improper payments. The range was 5.4 percent to 10.6 percent, or $9.1 billion to $17.9 billion, in improper Medicare fee-for-service payments.

This year's result met HCFA's Government Performance and Results Act goal of lowering the error rate to 9 percent by 1999, and DeParle said HCFA is working aggressively to meet its 2002 goal of a 5 percent error rate. In addition to continuing and expanding existing activities, DeParle said HCFA has begun several new initiatives for fiscal year 2000 to further reduce the error rate:

• Contractor-specific error rates. HCFA is developing error rates to measure and track the payment accuracy for each claims-processing contractor and guide efforts to lower those rates. HCFA will begin this summer by determining error rates for the companies that process medical equipment claims nationally.

• Revised documentation guidelines. HCFA this year expects to begin testing new guidelines for physicians who provide evaluation and management services. The guidelines are intended to ensure Medicare pays claims appropriately while minimizing the paperwork burden on doctors.

• Expanded provider education campaign. In November, HCFA awarded a special contract to survey health-care providers, analyze data and perform other research to develop new education strategies. This work will supplement Medicare's existing education investment.

"The object is to get accurate claims from providers, with proper documentation, and to pay them correctly," DeParle said. "We are working with our contractors, and developing new avenues, to achieve these goals. They are part of our larger initiative to improve the integrity of claims and payments in Medicare."

DeParle said extensive new efforts are also being put in place to improve day-to-day financial management of Medicare, especially at the contractor level. She said the objective is "better systems for measuring our financial status and identifying problems quickly." Improvements include:

• Using national teams to review performance. In 1999, HCFA created national review teams to evaluate contractors' fraud and abuse efforts, medical review activities, and other key functions, using standardized reporting and evaluation protocols.

• New Medicare Secondary Payer contractor. Medicare recently hired its first-ever national contractor to better ensure Medicare does not pay claims owed by other insurers. This effort will build on the $3 billion Medicare saves each year through its Medicare Secondary Payer efforts.

• Contractor audits. For fiscal year 2000, Medicare hired accounting firms to analyze the financial controls at 25 of its largest claims-processing contractors. The review will ensure that those contractors take steps to eliminate any weaknesses that are found.

• Additional financial managers. The President's Fiscal Year 2001 budget proposes funding for new positions at the contractors to tighten financial controls and ensure a swift, coordinated response to waste, fraud and abuse.

###