In fiscal year 1997, contractors processed about 900 million Medicare claims. In 1994, HHS proposed a program safeguard funding arrangement similar to that in HIPAA, saying that it would improve program safeguards by creating “a stable level of funding from year to year so that HCFA and its contractors could plan and manage the function on a multi-year basis.” HHS went on to say that “ast fluctuations in funding have made it difficult  to retain experienced staff who understand the complexities of the program.” Appendix II summarizes program safeguard funding for fiscal years 1994 through 1998, by type of program safeguard activity. That delay has hindered contractors’ ability to expand their program safeguard activities. Despite HCFA’s concerns, its contractors are required to use Medicare Integrity Program funding only for program safeguard activities. HIPAA Provides New Contracting Authority

In addition to providing an assured and increasing source of funding for HCFA’s program safeguard activities, HIPAA directs HHS to contract for program safeguard activities separately from claims processing and payment activities to better ensure the integrity of the Medicare benefit payments. The benefits that can be achieved through these contracts include the following: enabling the review, by a single entity, of all services to a beneficiary by centralizing program safeguard activities now divided among several types of contracts: carriers, intermediaries, durable medical equipment regional carriers, and regional home health intermediaries; eliminating the competing interests of timely payment of claims and achieving better price and contractor performance through competition; reducing the number of program safeguard units from the current level of more than 60 to simplify oversight, achieve more consistent contractor performance, and achieve economies of scale; and allowing HCFA to more aggressively mitigate conflicts of interest arising when contractors enter into new health care lines of business. HCFA plans to contract with one program safeguard specialist by January 1999. However, this contract will be very limited in scope and will not provide many of the important benefits envisioned for such a contractor. It will also not reduce HCFA’s reliance on its current contractors for program safeguard activities. Initially, the first contract will not cover all of the tasks in HCFA’s statement of work. HCFA officials do not know when the scope of the first contract might be expanded or when additional specialist contracts might be awarded. Scope and Methodology

To determine what additional resources and authorities the Congress provided to the Health Care Financing Administration (HCFA) through the Medicare Integrity Program, we reviewed the Health Insurance Portability and Accountability Act of 1996 (HIPAA). To determine how HCFA has used these resources and authorities to improve the protection of Medicare funds, we reviewed HCFA data on the distribution of funding. To determine how HCFA plans to use these authorities and resources in the future, we reviewed relevant documentation, including the draft statement of work for program safeguard contracts, HCFA’s Government Performance and Results Act of 1993 performance plan, and HCFA’s annual work plan.
Why GAO Did This Study

Pursuant to a legislative requirement, GAO reviewed: (1) the Health Care Financing Administration's (HCFA) progress in implementing the Medicare Integrity Program; (2) what additional resources and authorities Congress provided to HCFA through the Medicare Integrity Program; (3) how HCFA has made use of these resources and authorities to improve the protection of Medicare funds; and (4) how HCFA plans to use these authorities and resources in the future.

What GAO Found

GAO noted that: (1) the Health Insurance Portability and Accountability Act of 1996 (HIPAA) established the Medicare Integrity Program to subsume the program safeguard activities of HCFA and its current claims processing contractors; (2) rather than fund safeguard activities as part of HCFA's annual administrative budget appropriation, HIPAA appropriates safeguard funding for each year beginning in fiscal year (FY) 1997; (3) the Department of Health and Human Services (HHS) proposed this type of funding arrangement in 1994 so that HCFA and its contractors could better plan and manage program safeguard efforts; (4) the Medicare Integrity Program also provides HCFA the authority to contract with specialists in program safeguards, to separate these functions from current claims processing and payment contracts; (5) the new contracts with program safeguard specialists are intended to make important improvements in HCFA's program safeguard efforts; (6) these improvements will make it possible to review all of the claims for a single beneficiary in one place, reduce the number of contractor safeguard units to increase consistency and simplify HCFA's oversight, and better manage the conflicts of interest that develop when Medicare contractors expand into new health care businesses; (7) for FY 1998, HIPAA significantly increased program safeguard funding over the FY 1997 level; (8) although this funding increase for 1998 was assured when HIPAA became law, HCFA did not notify contractors of their funding until one-third of FY 1998 was past; (9) contractors reported that, because of this delayed notification, they delayed plans to increase their program safeguard staff; (10) HCFA is progressing slowly in contracting with safeguard specialists; (11) the first contract, to be awarded by January 1999, will be limited in scope, covering only part of the work envisioned for program safeguard contracts; (12) this first contract will therefore not provide many of the benefits ultimately expected, nor will it reduce HCFA's reliance on its current contractors for program safeguards; and (13) HCFA has no firm plans regarding when it will expand the scope of this contract or award a second safeguard specialist contract.