In addition, CMS uses MIP funds to support the activities of PSCs, which  perform medical review of claims and identify and investigate potential  fraud cases; a coordination of benefits (COB) contractor, which  determines whether Medicare or other insurance has primary  responsibility for paying a beneficiary’s health care costs; the National  Supplier Clearinghouse (NSC), which screens and enrolls suppliers in the  Medicare program; and the data analysis and coding (DAC) contractor,  which maintains and analyzes Medicare claims data for durable medical  equipment (DME), prosthetics, orthotics, and supplies. MIP Funding for All Five Activities Has Generally Increased over Time

For fiscal years 1997 through 2005, CMS generally increased the amount of  funding for each of its five program integrity activities, but the amount of  the funding provided and the percentage increase have varied among the  activities. Provider education received the largest percentage increase in  funds, while audit and medical review received the largest amount of  funds overall. CMS increased its allocation for provider  education by about 590 percent from fiscal year 1997 through fiscal year  2005. CMS will be able to further  increase expenditures for program integrity in fiscal year 2006. CMS plans to use some of the  $112 million to address potential fraud, waste, and abuse in the new  Medicare prescription drug benefit. Furthermore, CMS has not fully assessed whether MIP funds  are appropriately allocated within the audit, medical review, benefit  integrity, and provider education activities. CMS officials told us that  they may also consider the agency’s high-level priorities. CMS does not have a means to compare quantitative data or qualitative  information on the relative effectiveness of MIP activities that it could use  in allocating funds. CMS’s Current MIP Allocation Approach Is Not Adequate to Address Emerging Risks

CMS’s current allocation approach will not be adequate to address  Medicare’s emerging program integrity risks related to the prescription  drug benefit. Because the Medicare prescription drug benefit is in the early stages of  implementation, CMS does not yet have data to estimate the level of  improper payments or information to determine the level of program  integrity funds needed to address emerging vulnerabilities. Contracting reform will affect MIP funding allocations because  of (1) changes in contractors’ responsibilities for program integrity  activities and their jurisdictions, (2) the potential for operational  efficiencies, and (3) increasing use of MIP funds for contractor award  payments. Conclusions

We designated the Medicare program as high risk for fraud, waste, abuse,  and mismanagement in 1990, and the program remains so today. Recommendation for Executive Action

To better ensure that MIP funds are appropriately allocated among and  within the five program integrity activities, we recommend that CMS  develop a method of allocating funds based on the effectiveness of its  program integrity activities, the contractors’ workloads, and risk. Appendix I: Objectives, Scope, and Methodology

To provide information on the amount of funds allocated to the five  Medicare Integrity Program (MIP) activities over time, we interviewed  officials from the Centers for Medicare & Medicaid Services (CMS). In addition, we interviewed CMS officials regarding changes in the  Medicare program that may affect MIP funding allocations, including  CMS’s plans to support activities to detect fraud and improper billing for  the new Part D prescription drug benefit and MIP activities to be  performed by contractors in the future.
Why GAO Did This Study

Since 1990, GAO has considered Medicare at high risk for fraud, waste, abuse, and mismanagement. The Medicare Integrity Program (MIP) provides funds to the Centers for Medicare & Medicaid Services (CMS--the agency that administers Medicare--to safeguard over $300 billion in program payments made on behalf of its beneficiaries. CMS conducts five program integrity activities: audits; medical reviews of claims; determinations of whether Medicare or other insurance sources have primary responsibility for payment, called secondary payer; benefit integrity to address potential fraud cases; and provider education. In this report, GAO determined (1) the amount of MIP funds that CMS has allocated to the five program integrity activities over time, (2) the approach that CMS uses to allocate MIP funds, and (3) how major changes in the Medicare program may affect MIP funding allocations.

What GAO Found

For fiscal years 1997 through 2005, CMS's MIP expenditures generally increased for each of the five program integrity activities, but the amount of the increase differed by activity. Since fiscal year 1997, provider education has had the largest percentage increase in funding--about 590 percent, while audit and medical review had the largest amounts of funding allocated. In fiscal year 2006, funding for MIP will increase further to $832 million, which includes $112 million in funds that CMS plans to use, in part, to address potential fraud and abuse in the new Medicare prescription drug benefit. CMS officials told us that they have allocated MIP funds to the five program integrity activities based primarily on past allocation levels. Although CMS has quantitative measures of effectiveness for two of its activities--the savings that medical review and secondary payer generate compared to their costs--it does not have a means to determine the effectiveness of each of the five activities relative to the others to aid it in allocating funds. Further, CMS has generally not assessed whether MIP funds are distributed to the contractors conducting each program integrity activity to provide the greatest benefit to Medicare. Because of significant programmatic changes, such as the implementation of the Medicare prescription drug benefit and competitive selection of contractors responsible for claims administration and program integrity activities, the agency's current approach will not be adequate for making future allocation decisions. For example, CMS will need to allocate funds for program integrity activities to address emerging vulnerabilities that could affect the Medicare prescription drug benefit. Further, through contracting reform, CMS will task new contractors with performing a different mix of program integrity activities. However, the agency's funding approach is not geared to target MIP resources to the activities with the greatest impact on the program and to ensure that the contractors have funding commensurate with their relative workloads and risk of making improper payments.