This section discusses several “management tools” such as workforce planning and training, information technology  (IT), and customer service.  All of these tools help the Department of Health and Human Services (HHS) achieve its strategic goals and objectives.  For example, building on IT tools to build greater consistency and efficiency into information technology management across the Department, and reducing threats to computer security contributes directly to Objectives 2.1 and 8.5.  In addition, it contributes to all the strategic objectives in direct or indirect ways.

The Department has committed itself to achieve results that improve the lives of Americans.  Thus, all of the strategic goals of HHS are programmatic goals.  At the same time, the Department recognizes that these goals will not be achieved without paying attention to the means or management methods that are employed to carry them out.  Just as the Congress is instrumental in the development of strategies that support the achievement of programmatic goals, in the last ten years, the Congress has worked with the Executive Branch to provide an extensive array of management tools to help federal agencies improve program performance.

HHS resolved long ago to take full advantage of the tools that the Congress, the Executive Branch, and others have provided to improve the management and administration of our program responsibilities.  In this appendix, we have summarized the HHS efforts to make use of a variety of management tools to support the improvement of program results.  It is important to the Department that this strategic plan identifies in a broad way how these functional management tools can and will influence program improvement over the term of the plan.  The Congressional and Executive Branch oversight staff who have contributed significantly to the development and utilization of these tools are important stakeholders and partners of the Department in our efforts to improve program results.  The information that follows illustrates that their efforts will continue to influence the performance of HHS programs.

• The Government Performance and Results Act (GPRA) is the principal tool that compels federal programs to focus on results.  In addition to this Strategic Plan, HHS will continue to use performance measures from its Annual GPRA Performance Plans and Reports to inform its decision making processes.
• The financial management tools provided by the Chief Financial Officers (CFO) Act and the Federal Financial Management Improvement Act (FFMIA), in conjunction with the Federal Managers Financial Integrity Act (FMFIA) and the Debt Collection Improvement Act (DCIA), will continue to produce greater financial accountability across HHS for years to come. 
• The Clinger-Cohen Act has provided a solid and consistent basis for the planning and management of technology resources and policy issues.  Presidential Decision Directive 63 (PDD63): Critical Infrastructure Development is a tool that recognizes that addressing computer-based risks to the nation’s critical infrastructures requires an approach that involves coordination and cooperation across federal agencies and among public and private-sector entities and other nations. 
• The Executive Branch also provides for the development and sharing of best management practices and tools through the President’s Management Council (PMC), the President’s Council for Integrity and Efficiency (PCIE), and the Chief Financial Officers’ Council. 
• The Office of Federal Procurement Policy Act and Executive Order 12931 seek to improve procurement efficiency in support of the mission accomplishments of federal agencies, and instruct agencies to establish clear lines of contracting authority and accountability.  The Act promotes electronic commerce in the administration of procurement systems.  The Presidential Directive on Electronic Commerce states that government must adopt a market-oriented approach to electronic commerce, one that facilitates the emergence of a global, transparent, and predictable environment to support business and commerce.
• The Federal Acquisition Streamlining Act (FASA) broke new ground in acquisition methodology and embodies key principles of acquisition reform.  FASA was designed to simplify and streamline the federal procurement process, offering reforms for more cost-effective government and the ability of businesses to compete for government contracts. 
• The private sector has offered tools that provide innovative methods for federal agencies to improve the accountability of their management functions.  HHS recently converted to the Harvard Balanced Scorecard Business Tool for use in federal agencies (we won a Hammer Award for application of the tool) for procurements. 
• Formal, ongoing measurement of employee satisfaction is the basis for continuous improvement under the Quality of Worklife Initiative.  The programmatic goals and objectives that have been set forth in this HHS Strategic Plan cannot be achieved without attention to management.  The Department uses the tools that the Congress and others have provided to improve management in support of our program policy goals.
• Through the ongoing development of Major Management Challenges, the General Accounting Office (GAO) and the HHS Office of Inspector General (OIG) offer the Department an additional tool, through their reports, to assist us in identifying and defining management challenges which can affect the ability of HHS components to effectively achieve important program objectives.

Leadership and Coordination

HHS will continue to employ management strategies that support and coordinate program activities across the Department.

In line with the structure and diversity of the Department and its program activities, HHS management strategy is focused on creating “One HHS” by consolidating functions, coordinating program delivery, and enhancing coordination of research, information exchange, and other functions.  HHS Agencies are encouraged to collaborate in program administration for health and human services.  Staff units should engage in activities that facilitate program coordination, prevent duplication of effort, and ensure consistent attention to the mission, goals, and objectives of the Department and the priorities of the Administration and the Secretary.

Consistent with HHS’ organizational philosophy, the focus of management issues within the Department will be on substantive, policy issues as well as formal, organizational management processes.  Methods of decision making in HHS will be collaborative and will engage high levels of interaction among program and staff executives.  In the Department’s budget process, for example, the Secretary and senior executives throughout HHS will develop the budget based on themes that reflect Departmental priorities.  Each year, the HHS leadership will establish a manageable number of initiatives that call for collaborative efforts across separate Operating Divisions (OPDIVs) and the Office of the Secretary (OS).  Collaborative management does not preclude regular high-level Departmental interest and guidance in the management of HHS components.  To ensure and foster the kind of performance-based management that GPRA has prompted, the Deputy Secretary, along with the Chief of Staff, the Assistant Secretary for Planning and Evaluation, the Assistant Secretary for Budget Technology and Finance, the Assistant Secretary for Administration and Management, and other senior executives of the Office of the Secretary, will continue to meet with the head and senior staff of each HHS Operating Division to ensure that we are undertaking the strategies set out in the Strategic Plan intended to reach our objectives.  Performance plans for senior executives will be linked to the strategic goals and objectives, and HHS officials will be held accountable for results.

Performance Measurement

As performance measures mature and performance trends emerge, HHS GPRA performance data will inform and support budget decision-making in HHS.

The GPRA is a valuable tool that enhances the Department’s efforts to improve programs that serve the American people.  With the continued refinement of performance measures for approximately 300 programs, HHS provides objective performance information for managers, Congress, and the public.  Such data will become increasingly important to HHS leadership and program coordination efforts.  Although the Department consists of large agencies with many and disparate functions, HHS coordinates the focus and direction of its program activities through Departmental initiatives developed by the Secretary’s office using the GPRA strategic planning process and carried out in the annual HHS budget decision-making processes.  Performance measurement will steadily strengthen these processes as data on program performance trends become available and serve as indicators to support the persistent cultivation of strategies and objectives to improve programs across the Department.  In particular, performance measurement will inform the following:

• The budget process in which HHS develops coordinated Departmental initiatives and uses the annual performance plans to improve programs and support the achievement of HHS’ long-term goals.
• Program evaluation, to assist HHS in providing programs with a deeper assessment of program effectiveness than can be provided by performance data, and to inform the development of improvements in ongoing performance measurement.
• The Strategic Plan, in which HHS sets out long-term goals and objectives for its program components and the external entities that engage in the day-to-day administration of HHS programs across the country. 

Budget decision-making in HHS is key to Departmental coordination of program activity and performance measurement in HHS.  In recent years, HHS modified its Departmental budget formulation processes specifically to better bring together information and leaders from throughout the Department to define the program initiatives that move HHS toward the accomplishment of its mission.  Performance information will enhance this decision-making process.  As performance measurement continues to mature, program executives and managers throughout HHS will increasingly be able to use trend data to seek the coordinated improvement of HHS programs on an ongoing basis, specifically by: 1) assessing performance activity and results, 2) engaging in program evaluation activity where deeper assessment is required,            3) redefining program strategies to produce improved results, and 4) modifying future performance targets to be consistent with available resources and up-to-date priorities and policy decisions.

Program Evaluation

HHS is committed to ensuring that its evaluations yield valuable knowledge, and that this knowledge is used to complement annual performance planning and reporting.

In the era of results-oriented management, evaluations are playing an increasingly important role in strategic planning, performance management, and program improvement.  Evaluations conducted by HHS agencies generally serve one or more of the following purposes:  to evaluate program effectiveness, develop performance measurements, assess environmental impacts on health and human services (i.e., external factors affecting program performance), and improve program management.

The results of these evaluations are increasingly being used by HHS program managers to inform the annual performance planning process and the interpretation and reporting of annual performance data.  Program effectiveness provides a way to determine the impact of HHS programs on achieving intended goals and objectives.  Performance measurement is the primary mechanism used to monitor annual progress in achieving departmental strategic and annual performance goals.  To support performance measurement, we are investing evaluation funds to develop and improve performance measurement systems and improve the quality of the data that support those systems.  We use environmental assessment to monitor and forecast changes in the health and human services environment that will influence the success of our programs and the achievement of our goals and objectives.  In turn, this understanding allows us to adjust our strategies and continue to deliver effective health and human services.  Program management evaluations provide program managers with the necessary information or data helpful for effectively designing and managing a program. These evaluations generally focus on developmental or operational aspects of program activities and provide understanding of services delivered and populations served.

Financial Management

All HHS resources are used appropriately, efficiently, and effectively.  Decision makers should have timely, accurate, and useful program and financial information.

The HHS CFO Financial Management Five Year Plan highlights the functions that will affect the financial condition and resources of HHS programs for the next five years.  This financial planning document, updated, and published every year, puts forth two strategic financial management goals for the Department (highlighted immediately above) that are focused on a vision where managers at all levels work with program partners to provide services to the American people.

Under the auspices of the Government Management Reform Act (GMRA), HHS continues to improve the financial management of its programs and supporting activities.  Individual agency and HHS financial statements and audits are key tools for determining how well the Department manages taxpayer funds.  It is important that we continue to maintain our efforts to receive unqualified “clean” audit opinions from auditors for its accounts.  The financial integrity of the Medicare  program is an important Department objective.  Although the Department has achieved a “clean” audit opinion for the program, we are continuing to improve the financial management system underlying the program.  This includes validating the financial management systems of all Medicare claims processing contractors and evaluating commercial off-the-shelf software for development of an integrated general ledger system to standardize the accounting systems used by contractors (see Objective 8.4).

The annual HHS Performance and Accountability Report integrates financial information with key GPRA program performance results and other management reports.  The report provides HHS managers, the Congress, and the public with information, including the cost of HHS programs, that is important to decision making.

One of the management reports included in the HHS Performance and Accountability Report presents the actual results of the performance measures and targets established in the HHS CFO Financial Management Five Year Plan.  These measures track and report on the many functions that affect the financial condition and resources of HHS, and support the Department’s financial management goals.

Five management priorities have been identified to achieve these goals: 

• Decrease erroneous payments
• Financial management improvement
• Financial systems enhancements
• Improve accountability
• Integrate financial and performance management systems

For more information regarding HHS’ financial management performance and achievements, visit the Office of Finance web site at www.hhs.gov/of/reports/account.

Business Management for Grants and Acquisition

HHS will better focus grant and contract resources toward achieving the Department’s program objectives.  We will support the Administration’s goal of developing and utilizing the nation’s small business capacity.

Another vital component of the Department’s corporate strategy involves intense management of its relationships with the external contractor and grantee communities.  These relationships play a crucial role in the delivery of HHS’s mission objectives and account for the spending of over $155 billion annually.  Our objectives, summarized immediately above, seek to focus grant and contract resources toward achieving the Department’s program objectives and to support the Administration’s goal of developing and utilizing the nation’s small business capacity.

Prominent among the Department’s strategies are the HHS Scorecards for acquisition and grants that strive to achieve balance among various perspectives and goals, such as efficient business processes, innovative leadership, empowered employees, satisfied customers, and dedicated grantees and vendors.  This cost-effective grants and acquisition performance management approach will help HHS to:

• Gauge the overall health of its grants and acquisition systems.
• Target opportunities for organizational improvement.
• Achieve its program missions.
• Give grants and acquisition executives a useful risk management and decision-making tool.
• Promote the sharing of successful practices.
• Gauge our progress in implementing grants and acquisition reform initiatives. 

HHS recently converted to the Harvard Balanced Scorecard Business Tool for use in federal agencies (we won a Hammer Award for application of the tool) for procurements.  The balanced scorecard strategies that have been devised by the Office of Grants and Acquisition Management in the Office of the Assistant Secretary for Administration and Management are being implemented by HHS Operating Divisions.

To further improve results through the objectives of the HHS grants and acquisition management enterprise, the Department will employ additional implementation strategies, such as:

• Departmental business managers will team with OPDIV counterparts to develop creative policy guidance, techniques, and best practices.
• Departmental training programs will develop and certify business managers throughout the OPDIVs.
• Participatory balanced scorecard improvement systems will allow OPDIV business offices to oversee and continually benchmark operations.
• HHS corporate business managers will team with the Office of Management and Budget (OMB) and counterparts in sister agencies to improve policies and develop new initiatives to manage and improve the government’s business processes.
• HHS leadership in the Inter-Agency Electronic Grants Committee will result in a “Federal Commons” designed to provide all types of grantee organizations, with a common “face” for conducting grants business electronically.  As the largest grant-making component in the federal government, HHS plays a key role in the federal grants management arena.
• HHS has developed systems to streamline, target, and improve the accountability of its partners consistent with Single Audit Act Amendments and various legislative initiatives.  Systems will ensure that all grantees that are required to submit federal Single Audits do so.
• For Electronic Government/Electronic Commerce (E-Gov/EC), HHS has set forth three goals to meet a Departmental E-Gov/EC vision.  HHS’s vision is for an enterprise-wide electronic environment where best business practices and enabling technologies are used to facilitate the most efficient exchange of business information resulting in streamlined and rapid response to the customer and supporting the HHS mission.  The E-Gov/EC goals supporting this vision are:
• Achieve flexibility, increased productivity, and a dynamic working environment through the application of E-Gov/EC.
• Achieve efficient and effective responses to changing environments by the introduction of business process improvements or reengineering and the exploitation of E-Gov/EC technologies.
• Achieve cultural changes from the current business practices through guidance and the attainment of necessary skills for the implementation of E-Gov/EC.

Human Resources Management

Mission accomplishment in HHS, as everywhere, means developing and keeping a workforce with the capacity for today’s jobs and the dedication to learn to do tomorrow’s.

Strategic Management of Human Capital encompasses the vast array of activities that help us align our workforce with our mission.  A variety of Departmental initiatives support overall human capital management efforts.  Workforce planning points the way to change, identifying workforce skills and needs, analyzing skills gaps and surpluses, and putting into operation strategic plans to address those gaps and surpluses.  Building Successful Organizations, the Department’s guide to workforce planning, provides the Department’s model for workforce planning, from workforce analysis to developing and implementing workforce transition plans. The Department’s recruitment and retention plan focuses on cross-cutting initiatives to recruit, hire, and keep employees with the skills needed for the future.  The Emerging Leaders Program provides a high profile, Department-wide program to attract and develop our next generation of managers.

The Department’s efforts to find and hire the talent we will need are complemented by efforts to reduce turnover and keep our employee talent.  HHS has developed and put in place programs to strengthen workplace learning, providing the means for employees to keep up with their field or to develop new skills and abilities to prepare them for more challenging positions.  Technology has allowed us to deliver training to the employee’s desktop, providing cost effective individualized training opportunities.  A retention study is examining factors that influence employees to stay in a job, information that will reduce turnover by allowing the Department concentrate on job satisfiers.  This project dovetails with an exit interview project that is gathering data on why employees leave.  Taken together with the Department’s ongoing Quality of Work Life program, these efforts are aimed at making HHS an employer of choice.

Property Management

HHS will prudently manage the personal and real property assets owned by HHS.  To ensure high-quality stewardship over the Department’s investment in property, HHS will continue to improve the accuracy of accounting for real and personal property. 

HHS has a newly created Real Property “czar” to coordinate and track property acquisitions and allocation.  For real property tracking, HHS will continue the implementation of the Foundation Information for Real Property Management (FIRM) database, an automated tool provided by the General Services Administration to enhance accountability for real property across the federal government.  FIRM will ensure consistent, automated management and accounting for real property Department-wide.  To assure high-quality stewardship over the Department’s investment in property, HHS will continue to improve the accuracy of accounting for real and personal property.

Program Integrity Partnership with the HHS Office of Inspector General

The detection and elimination of health care fraud and abuse is a top priority of federal law enforcement.

Although by design the Office of Inspector General (OIG) is an independent entity to ensure the objectivity of its findings and reports, HHS and the OIG have established an unprecedented partnership to reduce fraud and abuse and improve program integrity, especially in the large Medicare and Medicaid programs.  For this purpose, the Congress and the Administration have provided the tools that have made this partnership possible, and they have extended the partnership to include the Department of Justice.  The Health Insurance Portability and Accountability Act of 1996 (HIPAA) will continue to allow for the consolidation and coordination of HHS, OIG, and Department of Justice efforts to combat fraud through prosecutions and other enforcement actions, through collaboration and information sharing, and through prevention and outreach to the business community.

Customer Service

Customer service is a prominent element of HHS accountability and self-assessment.

HHS plans an enhanced focus on customer service over the next five years.  In addition to an extensive array of programmatic initiatives focused on customer service throughout HHS, the Department will continue to work with the White House in its use of customer service tools such as customer satisfaction surveys and public conversations with Americans to identify and act on feedback from HHS beneficiaries and customers.  HHS will collaborate with other federal agencies in their efforts to encourage federal agencies to look to the customer service features offered by the Balanced Scorecard method for their programs, particularly as an element that underlies agency and employee performance assessment.

GAO and OIG Designated “Major Management Challenges”

HHS performance plans are a prominent tool for addressing the management challenges identified by the General Accounting Office and the HHS Office of Inspector General.

The Office of Inspector General (OIG) and the General Accounting Office (GAO) have served HHS and other federal agencies through ongoing review and analysis of high-risk areas and major management challenges. The OIG and GAO have identified a number of important management issues that can affect overall performance, or are linked to fraud, waste, and abuse.

HHS uses GAO and OIG findings to improve the management of its programs.  HHS GPRA annual performance plans and reports address a number of important management issues that can affect overall performance, or are linked to fraud, waste, and abuse.  Below are some of the most important challenges identified in the OIG’s list of Top Management Challenges, which identifies the issue and summarizes progress.  In addition, another perspective of overall Department management issues is detailed in GAO-01-748, Health and Human Services - Status of Achieving Key Outcomes and Addressing Major Management Challenges. 

Bioterrorism Preparedness

Events of and since the September 2001 terrorist attacks have underscored the need for the necessary infrastructure and tools to respond to potential future terrorist events, including bioterrorism and other public health emergencies.  HHS is responsible for much of the nation’s federal health care resources and programs.  CDC has specific, key responsibilities to help protect the nation from, and respond to, acts of bioterrorism.

The OIG’s concern centers on HHS’ vulnerabilities to outside threats, and the readiness and capacity of responders at all levels of government to protect the public health.  The OIG is evaluating the effectiveness of CDC’s bioterrorism effectiveness efforts, and plans to continue security and health system preparedness studies.

Federal, state, and local health departments are working cooperatively to ensure that bioterrorist attacks are detected early and responded to appropriately.  As part of this effort, CDC has taken steps to increase the supply of pharmaceuticals needed in the event of chemical, biological, or radiological attacks. CDC has funded five state environmental health laboratories to provide additional surge capacity in the event of a major chemical terrorism incident. CDC has expanded the existing bioterrorism cooperative agreements to fund all states, four localities, and eight territories.  All jurisdictions now receive funding for each of the key elements of bioterrorism preparedness and response, which are: preparedness planning and readiness assessment; surveillance and epidemiology; laboratory capacity; communications and information technology; health risk communication and information dissemination; and education and training.

Grants Management

Departmental discretionary grants were estimated to total over $35 billion in FY 2002.  Those discretionary grant programs are numerous and diverse, and vigilance is required to assure that monitoring systems are established to assess whether grants are administered in accordance with applicable laws, regulations, terms, and conditions.  In addition, monitoring systems must be sufficient to assess achievement of targeted goals, objectives, and outcomes. 

The OIG has initiated a two-part grant management review plan and is studying grant-making and oversight processes in several HHS agencies.  Reviews are also assessing individual grantee program activities and stewardship of funds.

A wide variety of Departmental activities are currently underway which focus on assessing grantee-progress in achieving grant outcomes and monitoring grantee compliance with grant requirements.  Specifically, HHS agencies are continuing their efforts to establish performance goals in various grant programs by requiring applicants, as part of their grant application proposals, to identify performance targets to be achieved by the end of each budget period.  In addition, targeted reviews of specific grant operations within the Department are currently underway or being planned.  These reviews examine a variety of pre-award and post-award activities performed by an HHS awarding agency.  HHS agencies also administer a Grants Management Balanced Scorecard enabling operating divisions to assess perceptions of performance by soliciting feedback from a variety of internal and external users/customers.  The results provide indicators as to how well an operating division is performing a variety of pre-award and post-award grant award activities enabling operating divisions to develop and implement action plans to address areas targeted for improvement.

Pricing Prescription Drugs

Because prescription drugs are such a significant part of 21^st century medical care to help ensure proper treatment and maximum wellness, it is important that Medicare and Medicaid beneficiaries’ access to pharmaceuticals is not hindered by disproportionate overpricing.

The OIG has found that HHS pays too much for prescription drugs for both Medicare and Medicaid.  For example, Medicare payments for 24 leading drugs in CY 2000 were $887 million higher than actual wholesale prices available to physicians and suppliers, and they were $1.9 billion higher than prices available through the Federal Supply Schedule.  OIG reports have indicated that the average wholesale price that Medicare has used to establish drug prices bore little resemblance to actual prices available elsewhere.

CMS continues analyzing data on drug pricing and the costs to physicians to administer these drugs.  For example, CMS is studying non-Medicare drug pricing of selected drugs covered under Medicare part B to determine the feasibility of other approaches to more accurately determine an Average Wholesale Price.  In addition, CMS has begun to utilize a single contractor to determine payment rates to eliminate variation in contractor prices. 

Protection of Critical Infrastructure

HHS is addressing the security of its information systems, data, and critical assets as one of its top management priorities.  IT security is a prominent part of the HHS Enterprise Information Technology Strategic Plan (FY2003-FY2008), which establishes an enterprise approach to IT in support of fulfilling the HHS mission.  Since providing health care to the elderly and the disabled, facilitating research, preventing and controlling disease, and other critical missions all depend on information technology, the IT Strategic Plan outlines IT goals, objectives, and enterprise initiatives that enable the fulfillment of those missions.

Recent OIG assessments found weaknesses in entity-wide security, access controls, service continuity and segregation of duties.  While the OIG has not found any evidence that these weaknesses have been exploited, they leave the Department potentially vulnerable to unauthorized access to sensitive information, malicious changes, improper payments, and disruption of critical operations.

HHS is addressing information security as one of its top priorities (see also Appendix F, “Information Technology in Support of the HHS Mission”).  IT security is a prominent part of the HHS Enterprise Information Technology Strategic Plan.  Based on plan priorities, contracts were awarded in FY 2002 to install multi-tier virus protection across HHS, implement vulnerability scans of critical HHS systems, and to provide perimeter protection for all Internet access points.  For FY 2003, contracts are in place to establish round-the-clock monitoring of security alerts, to provide certification and accreditation for all Critical Infrastructure Protection assets, reduce Government Information Security Reform Act corrective action items and continue the Project Matrix process through the implementation of a Phase 2 Analyses of Critical Assets.  The HHS CIO and CIO Council will continue to provide Departmental oversight for the Security Program to ensure that all HHS security and privacy requirements are met.

Nursing Facilities

Nursing facilities provide residents skilled nursing care and related services for the rehabilitation of injured, disabled, or sick persons, or on a regular basis, health related care services above the level of custodial care to other than mentally retarded individuals.

The OIG continues to review financial controls and quality of care provided in nursing homes.  The OIG has found some services that were paid for twice, and it has examined overutilization and underutilization of Part B therapy in nursing homes. 

CMS has made significant gains in assuring that services being paid under the skilled nursing facility prospective payment system (SNF PPS) by fiscal intermediaries are not also billed to and paid by carriers.  In April 2002, CMS implemented common working file (CWF) edits that will detect and deny cases in which carriers are being billed for services that the CWF shows to be in a Medicare covered Part A stay during the period in which the supplier billed the carrier for the service.  In July 2002, CMS also implemented edits that will detect and mark payments that were made by carriers for persons in the course of a Medicare covered SNF stay where the SNF claim did not post to the CWF record before the carrier claim was paid, thus resulting in an incorrect payment.  In January 2003, CMS implemented CWF edits that will detect similar incorrect cases in the fiscal intermediary claims processing system.  In addition, CMS has developed a website application that can be used by a physician, practitioner, or supplier to determine if a service at the Common Procedure Coding System (HCPCS) level should be billed to the SNF or to the carrier.  Finally, CMS is seeking to improve its oversight of the SNF PPS through a program safeguard contract that examines the minimum data set 2.0 resident assessment data, including some on-site reviews at nursing homes. 

Medicaid Payment System

Accuracy in the federal share of Medicaid costs is important to help ensure fairness across all state Medicaid programs as well as to assure that these federal health care dollars reach and achieve their maximum intended health care purposes. 

The OIG found that some States inappropriately inflated the federal share of Medicaid by requiring public providers to return Medicaid payments to the state governments through intergovernmental transfers.  Once the payments were returned, the states used the funds for other purposes, some of which were unrelated to Medicaid. 

To curb abuses and ensure that state Medicaid payment systems promote economy and efficiency, CMS issued a final rule, effective March 13, 2001, which modified upper payment limit regulations in accordance with the Benefits Improvement and Protection Act of 2000.  The regulatory action created three aggregate upper payment limits—one each for private, state, and non-state government-operated facilities.  The new regulations will be gradually phased in and become fully effective on October 1, 2008.  The CMS projected that these revisions would save $55 billion in federal Medicaid funds over the next 10 years. 

Accuracy of Medicare Fee-for-Service Payments

To help ensure the financial integrity of the Medicare program, continued access to Medicare benefits, as well as the long-term viability of the Medicare trust fund, it continues to be essential that documented and accurate bills are submitted for correct payment for properly rendered health care services. 

Based on a statistical sample, the OIG estimated that improper Medicare benefit payments made during FY 2001 totaled $12.1 billion, or about 6.3 percent of the $191.8 billion in processed fee-for-service payments reported by CMS.  While progress is being made, the OIG’s analysis indicates that challenges remain, and more remains to be done.

CMS reported that the FY 2001 error rate was less than half of the 13.8 percent reported for FY 1996.  Corrective actions enhanced internal pre- and post-payment controls, targeted vulnerable program areas, and educated providers regarding documentation guidelines and common billing errors.  In FY 2003, CMS fully implemented the Comprehensive Error Rate Testing (CERT) program.  The CERT program will produce national, contractor specific, and benefit category specific fee-for-service paid claims error rates.  With CERT, CMS has set a target to reduce the national error rate to 4 percent by FY 2008 and developed two new performance goals for FY 2004.  The goals are Provider Compliance Rate-to be reduced 20 percent per year and to reduce the Medicare Contractor Specific Error Rates-all would be at 5 percent or less by FY 2008.

Medicare Contractors

Because of the crucial role Medicare contractors play in helping facilitate efficient and effective health care delivery to Medicare beneficiaries, it is important that they be held accountable for their role in the health care financing and delivery system. 

The OIG expressed an unqualified opinion on the CMS FY 1999 through 2001 financial statements largely because CMS continued to contract for validation and documentation of accounts receivable.  However, OIG’s FY 2001 financial statement audit disclosed that the lack of a fully integrated financial management system continued to impair the reporting of accurate financial information. 

To address these challenges, CMS has made significant improvements in this area over the last few years, as evidenced by the unqualified opinions on the CMS 1999, 2000, 2001, and 2002 financial statements.  CMS has begun to implement the Healthcare Integrated General Ledger Accounting System, expected to be fully operational at the end of FY 2007.  CMS has also continued to revise and clarify financial reporting and debt collection policies and procedures based on audit and review findings.

Note:  The Departmental Management GPRA Annual Performance Plans will reflect new, updated (annually) approaches to these challenges and the plans discuss specific performance measures to address them.

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