Medicare Financial Management

Although the Health Care Financing Administration (HCFA) is supposed to ensure that the billions of dollars spent on Medicare each year are managed in a fiscally responsible way, it has yet to establish adequate accountability and control over the program's financial operations. HCFA's financial management activities--from evaluation and follow-ups on audit findings to contractor monitoring and financial reporting--fall short in addressing weaknesses repeatedly cited in audits and other reviews. Unless these weaknesses are resolved, the government is at risk of substantial losses. Financial statement audits have long criticized claims contractors for internal control and financial reporting weaknesses, including failure to safeguard checks received from providers for overpayments and incorrectly recording billions of dollars owed to Medicare for such overpayments. However, HCFA's procedures for following up on audit findings and evaluating corrective actions remain insufficient. Poor monitoring of contractors' financial activities is another problem. Audit reports have also cited HCFA for inefficiencies in its internal control financial reporting practices, including a lack of documented policies and procedures. These deficiencies call into question the reliability of the data that Congress and HCFA use to track Medicare program costs and make decisions about future funding. HCFA officials have launched several initiatives to strengthen the agency's control and accountability, such as hiring outside consultants to evaluate the contractors' internal controls. However, the agency still lacks a comprehensive strategy to ensure successful implementation of these initiatives, direct financial management activities, and sustain improvements in the long term. Without such a strategy, billions of dollars will remain vulnerable to fraud and abuse and HCFA's financial management problems will likely persist. This testimony summarizes the March 2000 GAO report, GAO/AIMD-00-66.

GAO noted that: (1) financial statement audits have repeatedly cited claims contractors for internal control and financial reporting weaknesses, including failure to safeguard checks received from providers for overpayments and incorrectly recording billions of dollars owed to the Medicare program for such overpayments; (2) however, HCFA's procedures for following up on audit findings and evaluating corrective actions were insufficient; (3) HCFA's monitoring of contractor financial activities was also insufficient; (4) until recently, HCFA's oversight focused mainly on contractor compliance with administrative budgets, which total about $1.6 billion annually, instead of on the significant financial activities related to the approximately $170 billion expended annually to pay Medicare health benefit claims; (5) further, HCFA did not routinely analyze contractor financial data to detect irregularities and assess risk as part of day-to-day monitoring activities, nor had it issued complete and up-to-date instructions to contractors on key financial matters; (6) audit reports have also cited HCFA for inefficiencies in its internal financial reporting practices, including a lack of documented policies and procedures; (7) overall, these shortcomings in HCFA's financial operations mean that it could not adequately ensure the reliability of data that the agency and Congress used to track the cost of the Medicare program and to help make informed decisions about future funding; (8) HCFA's management has recognized the seriousness of these problems and has shown a commitment to improving financial management; (9) to address these issues, HCFA has started several initiatives designed to establish better control and accountability, such as hiring outside consultants to evaluate contractor internal controls; (10) HCFA has not yet developed a comprehensive strategy to ensure successful implementation of the initiatives, direct financial management activities, and sustain improvements in the long term; (11) in the absence of a comprehensive strategy, HCFA cannot effectively direct and monitor its many initiatives, potentially putting billions of dollars at risk for fraud and abuse and increasing the likelihood that financial management problems will continue; (12) HCFA has not yet completed ongoing assessments of financial management human capital needs; and (13) without sufficient staff who possess the necessary skills to perform the oversight, analytical, and other tasks that are needed to manage the complex Medicare program, the prospects for improving HCFA's financial management remain dim.