CMS Did Not Properly Audit Private Medicare Plans Or Try To Recover Overpayments, GAO Report Finds

Main Category: Medicare / Medicaid / SCHIP
Article Date: 12 Sep 2007 - 4:00 PDT

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Private insurers participating in Medicare have been allowed to keep tens of millions of dollars that should have been passed on to beneficiaries or returned to the government, and CMS has not properly audited the companies or attempted to recover the excess payments, according to the Government Accountability Office, the New York Times reports.

Under federal law, Medicare officials are required to audit the financial records of at least one-third of insurance companies participating in Medicare annually. However, the report found that the mandate has never been met by the Bush administration. In 2001, federal officials audited 24% of participating private insurers, and that rate declined to 14% of participating companies in 2006 despite a steady increase in Medicare payments to private insurers.

Payments to private insurers -- which offer Medicare Advantage plans and Medicare prescription drug plans -- account for about one-fifth of all Medicare spending, totaling $75 billion per year. Federal audits are intended to determine whether insurers' bids correctly calculate their costs and premiums. If costs exceed expectations, insurers can receive extra payments, but they are expected to share some of the savings with beneficiaries and the government if costs fall below expectations.

According to GAO, federal officials found significant errors at 41 of the 49 organizations that were audited in 2003, but no action was taken on the findings, which uncovered $59 million in excess payments. There were 220 plans participating in the program that year. GAO investigators said the money should have been used to help beneficiaries by reducing premiums or providing additional benefits.

Meanwhile, CMS said that it identified significant errors in bids from 18 private insurers out of 80 audited last year. However, GAO in its report said that "there is a low probability of the audits identifying intentional misrepresentations" because Medicare relies on the actuaries who prepare the bids to ensure their accuracy.

Authority Unclear
CMS claims it does not have the legal authority to require insurers to return money when auditors find "errors, incorrect or unreasonable assumptions or other misstatements" in bids. However, GAO states that federal officials "had the authority to pursue financial recoveries" but did not use it. A 2001 law requires every federal agency to recover "any amounts erroneously paid to contractors."

Bush administration officials told GAO that "general federal contract laws do not apply to the payments made under Medicare contracts." The Times reports that CMS often hires private firms to conduct audits. Insurers contend that those outside firms are not familiar with the intricacies of Medicare and that CMS has not provided adequate guidance on how to define items such as administrative costs.

The Times also notes that the Bush administration is "vigorously pursuing money that it says is owed to insurance companies by Medicare beneficiaries." CMS has sent letters to 135,000 beneficiaries informing them that they owe premiums for drug coverage provided in 2006.

Comments
Acting CMS Administrator Kerry Weems said, "I am intently focused on this matter and will make it a priority to correct the errors and minimize them in the future." CMS CFO Tim Hill said, "We welcome constructive suggestions for improving the audit process."

Senate Finance Committee ranking member Chuck Grassley (R-Iowa) said, "Congress required audits for good reason. There's a lot of taxpayer money being spent, and we need to know where it goes. We also need consequences for spending that isn't proven to serve beneficiaries." He said CMS officials have done "a poor job of bringing accountability here," adding, "I want to see concrete action to fix this."

Rep. Pete Stark (D-Calif.), chair of the House Ways and Means Subcommittee on Health, said the agency "is not doing its job to protect beneficiaries."

Paul Caban, assistant director of the financial management team at GAO, said, "What is the value of conducting these audits if you do not act on the findings?" (Pear, New York Times, 9/10).

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