--We hired special contractors to focus solely on preventing improper payments.
--We greatly strengthened contractor oversight through tighter performance evaluation standards, national evaluation teams, and mandatory corrective action plans.
--And we continue to seek contracting reform legislation so we can use the same contracting rules as other government agencies and expand the range of firms capable of serving Medicare and protecting taxpayer dollars.

--increasing the level of claims review and the number of physician medical directors who lead claims review activities for contractors;
--expanding the number and scope of computer "edits--that identify improper claims before they are paid;
--developing stricter enrollment safeguards to keep illegitimate providers from billing Medicare; and
--organizing a national fraud, waste, and abuse conference and using lessons learned to begin developing a comprehensive program integrity plan.

--made further increases in the level of claims reviews;
--began conducting site visits nationwide to ensure that durable medical equipment providers were in fact, legitimate businesses; and
--set stricter enrollment criteria to keep unscrupulous medical equipment providers and home health agencies out of the program.

--implemented our comprehensive program integrity plan, which details our overall strategy to reduce waste, fraud and abuse;
--hired independent Certified Public Accounting firms to analyze internal control systems at 25 of the largest and highest-risk Medicare contractors, representing 80 percent of Medicare fee-for-service payments;
--created standardized reporting and evaluation protocols and used national review teams to evaluate contractors' fraud and abuse efforts and other key functions;
--directed each contractor to implement corrective action plans to ensure that they can track funds more accurately;
--notified the contractors of our intent to amend our contracts with them to require details and time frames for correction of each deficiency identified;
--hired our first-ever national contractor to ensure Medicare does not pay claims that private insurance companies should pay;
--initiated steps to develop an integrated general ledger system to standardize the accounting systems used by all contractors; and
--created and filled a new high-level management position to coordinate the agency's business plans to further strengthen financial controls.

--Strengthening contractor oversight. The President's Fiscal Year 2001 budget requests $48 million for new positions at the contractors and HCFA to tighten financial controls and ensure a swift, coordinated response to waste, fraud, and abuse. The budget also includes a provision for HCFA to competitively contract with a qualified entity to audit and evaluate financial management systems.
--Issuing contractor report cards. We are working with the IG to create report cards on each contractor's performance against specific goals and criteria. Contractors that perform poorly and fail to improve risk losing their Medicare business.
--Requiring corrective action plans. We have already requested corrective action plans from contractors for problems identified in the fiscal 1999 audit. We have developed written procedures for requesting, tracing, and disseminating such corrective action plans, including time frames for evaluating them. Each contractor must include a detailed description of each problem, specify details of actions and time frames to resolve them, and submit quarterly reports on their progress. We plan to hire a Certified Public Accounting firm to evaluate how effective these corrective actions are. And, we will include review of corrective action plan effectiveness in our standardized Contractor Performance Evaluation process.
--Strengthening Regional Office coordination. We are consolidating responsibility for contractor management among our 10 regional offices by establishing four Consortium Contractor Management Officers. They will be accountable for management of specific contractors and oversee staff with primary responsibility for contractor management.
--Seeking contracting reform. We continue to seek contracting reform legislation to allow Medicare to use all firms capable of processing claims and protecting program integrity. Existing law requires Medicare to use only health insurance companies to process claims, and allows some providers to choose their claims processor. This has hampered our program integrity efforts, as the commitment to these efforts has varied widely among these contractors. And some of these insurance companies themselves have been convicted of violating Medicare program integrity. The IG and GAO have agreed that we need to create an open marketplace so we do not have to rely on a steadily shrinking pool of insurance companies and can bring Medicare contracting in line with standard contracting procedures used throughout the Federal government.

Financial Management

We are also taking several steps to address financial management issues. These include:

--Developing an integrated financial management system. We continue to work towards an integrated financial management system to standardize the accounting systems used by all contractors. The project, which will make it easier to coordinate and reconcile data, is scheduled for completion by 2004, pending the results of the assessment phase currently underway. The President's Fiscal Year 2001 budget requests $7 million to support this essential project.
--Consolidating accounting functions. We are consolidating all accounting and CFO Act reporting functions in one organization. And we are establishing a new division to concentrate on internal controls and risk adjustment, and ensure that procedure guidelines and accounting policies are written, designated, and implemented.
--Assessing staff needs. We are engaged in an agency-wide planning effort to assess staffing needs, including those for financial management. We also will consult with outside experts to help us develop staff skills in financial analysis and other pattern analysis techniques that can help identify potential problems. In the meantime, we have initiated a short-term project to organize regional office staff currently involved with contractor oversight in order to facilitate better national coordination of efforts. And we are assessing other resource needs for optimal contractor oversight.
--Improving guidance to contractors. We are developing a financial management internal control manual with standards for evaluating contractors' financial management performance. We are working with an outside consultant who plans to seek further input from contractors, and then create a database that we can post on the Internet with all our financial management guidance and instructions for contractors. We expect this to be completed by September. In the meantime, we will clarify for contractors our instructions for allocating cash receipts between the two Medicare trust funds. We also will update our manual of instructions for contractors on a yearly basis to incorporate results from oversight and evaluation efforts by us, the IG, and GAO.
--Developing comprehensive financial management plan. We are developing a comprehensive financial management business plan to identify the strategies that will achieve our objectives. This is being led by our newly created position of Associate Director for CFO Audits and Internal Controls, and should be completed this summer.

--We are moving aggressively to address all audit findings concerning security vulnerabilities and expect these problems to be resolved by October 1, 2000.
--We have established a Beneficiary Confidentiality Protection Board to develop and enforce a comprehensive privacy policy
--We are developing a robust security architecture that will provide a solid foundation for building security into all of our systems development and maintenance activities, both internally and at our contractors.
--We are assessing new technology for securing internet-based transactions.
--We are providing security awareness training for all employees and ensuring that there are security and contingency plans for all of major systems and applications.
--We are working closely with other HHS components to develop a department-wide strategy for implementing Presidential Decision-Directive 63, which requires federal agencies to take aggressive measures to protect critical information infrastructure from cyber-terrorism.

--Ensuring proper payment. We will continue to aggressively work to reduce the payment error rate to below 5 percent by fiscal 2002 through our comprehensive program integrity plan and other efforts. Although Medicare pays virtually all claims correctly based on the information submitted, improper payments occur for reasons such as insufficient documentation, lack of medical necessity, and improper coding by providers. The error rate does not measure fraud, but can include improper payments related to fraudulent conduct.
--Focusing on inpatient care. Medicare's physician-led Peer Review Organizations are working with hospitals to investigate, correct, and prevent claims that are improperly coded, insufficiently documented, or for unnecessary or uncovered services. Our new contracts with them include strong financial incentives for them to reduce improper payment rates for inpatient care.
--Hiring special program integrity contractors. Using specific contracting authority provided by HIPAA, we last year chose 13 companies, including financial management and technology companies, as our first-ever contractors devoted to protecting the Medicare Trust Fund. These contractors, who have health care expertise, will help us tackle key tasks, including audits, medical reviews, data analysis, site visits, and provider education.
--Expanding the correct coding initiative. We will continue to expand the correct coding initiative, which uses roughly 100,000 computer edits to identify improper claims before Medicare pays them. Begun in 1994, the initiative prevents more than $250 million in improper payments each year.

--Testing new documentation guidelines. We will this year begin testing new guidelines for physicians on how to document evaluation and management services, which constitute the majority of Medicare claims. The guidelines will help ensure Medicare pays claims correctly while minimizing the paperwork burden for doctors.
--Expanding provider education. We will expand efforts to help doctors, hospitals, and other providers learn how to properly file and document claims. This includes innovative computer courses on our web site on the proper filing and documentation of claims, as well as satellite broadcasts and other efforts.
--Contacting key providers. We will directly contact all physicians, home health providers, and durable medical equipment suppliers in the Medicare program to address documentation problems and explain how to avoid common errors.
--Initiating Progressive Corrective Action. We are undertaking a new initiative in which we will share more feedback with providers, both on an individual and community level, about how to correct and prevent the types of errors identified in medical review of claims. We believe this can have a substantial impact in reducing improper claims among the vast majority of providers who make only honest errors.