Debt Collection Improvement Act of 1996
HHS's Centers for Medicare & Medicaid Services Faces Challenges to Fully Implement Certain Key Provisions Gao ID: GAO-02-307 February 22, 2002The Debt Collection Improvement Act (DCIA) of 1996 requires that agencies refer eligible debts delinquent more than 180 days that they have been unable to collect to the Department of the Treasury for payment and offset and to Treasury or a Treasury-designated debt collection center for cross-servicing. The Centers for Medicare and Medicaid Services (CMS) made progress in referring eligible delinquent debts for collection during fiscal year 2001. Much of the referral volume was late in the year, however, and substantial unreferred balances remained at the end of the fiscal year. Inadequate procedures and controls hampered prompt identification and referral of both eligible non-Medicare Secondary Payer (MSP) and MSP debts. The delayed referral of non-MSP debts resulted from problems with the CMS debt-referral system and insufficient CMS monitoring of contractor referrals. The low level of MSP debt referrals resulted primarily from limited contractor efforts and insufficient CMS monitoring of contractor performance. Although GAO did not test whether selected CMS debts had been reasonably excluded from referral and reached no overall conclusion about the appropriateness of CMS exclusions, GAO found that CMS did not report reliable Medicare debt information to the Treasury Department as of September 30, 2000.
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Director: Team: Phone:GAO-02-307, Debt Collection Improvement Act of 1996: HHS's Centers for Medicare & Medicaid Services Faces Challenges to Fully Implement Certain Key Provisions
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United States General Accounting Office:
GAO:
Report to the Chairman, Subcommittee on Government Efficiency,
Financial Management and Intergovernmental Relations, Committee on
Government Reform, House of Representatives:
February 2002:
Debt Collection Improvement Act Of 1996:
HHS's Centers for Medicare & Medicaid Services Faces Challenges to
Fully Implement Certain Key Provisions:
GAO-02-307:
Contents:
Letter:
Results in Brief:
Background:
Objectives, Scope, and Methodology:
CMS Did Not Promptly Refer All Eligible Medicare Debts in Fiscal Year
2001:
CMS Lacked Effective Processes and Controls to Promptly Refer Eligible
Medicare Debts:
CMS Faces Challenges in Effectively Managing Future Medicare Debt
Referrals:
CMS Does Not Provide Reliable Medicare Debt Information to Treasury:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix:
Appendix I: Comments from the Centers for Medicare & Medicaid Services:
Table:
Table 1: CMS Medicare Debts Eligible for Referral as of September 30,
2000:
[End of section]
United States General Accounting Office:
Washington, D.C. 20548:
February 22, 2002:
The Honorable Stephen Horn:
Chairman:
Subcommittee on Government Efficiency, Financial Management and
Intergovernmental Relations:
Committee on Government Reform:
House of Representatives:
Dear Mr. Chairman:
On October 10, 2001, we testified before your subcommittee on
agencies' implementation of the Debt Collection Improvement Act (DCIA)
of 1996.[Footnote 1] One of the major purposes of DCIA is to maximize
collection of billions of dollars of nontax delinquent debt owed to
the government. Toward this end, DCIA requires that agencies refer
eligible debts delinquent more than 180 days that they have been
unable to collect to the Department of the Treasury for payment offset
and to Treasury or a Treasury-designated debt collection center for
cross-servicing. Treasury performs payment offset through its Treasury
Offset Program (TOP), which includes the offset of certain benefit
payments, vendor payments, and tax refunds. Cross-servicing involves
such actions as locating debtors, issuing demand letters, and
referring debts to private collection agencies.
As you know, we testified on (1) problems we identified in selected
federal agencies' processes and controls for identifying and referring
eligible debts to Treasury's Financial Management Service (FMS) for
collection action, (2) obstacles that hampered agencies from promptly
referring eligible debts, and (3) problems we identified related to
the appropriateness of exclusions from referral requirements.
This report provides additional detail on the Centers for Medicare &
Medicaid Services' (CMS)[Footnote 2] progress in implementing the debt-
referral requirements of DCIA to collect delinquent Medicare debts and
includes several recommendations.[Footnote 3] Collection of delinquent
Medicare debts is particularly critical because they represented a
significant portion”about 9 percent”of the approximately $58 billion
of reported delinquent nontax debts governmentwide as of September 30,
2000, and continue to represent a large amount.
In September 2000, we reported that the Health Care Financing
Administration (HCFA), now known as CMS, had not fully implemented the
referral provision of DCIA.[Footnote 4] The agency had implemented
pilot referral projects for its two major types of Medicare debt: (1)
Medicare Secondary Payer (MSP) debts, for which insurance or other
entities are primarily financially responsible and CMS is seeking
reimbursement, and (2) other debts, referred to as non-MSP debts. CMS
was referring delinquent Medicare debts to the Department of Health
and Human Services' (HHS) Program Support Center (PSC), a Treasury-
designated debt collection center for certain HIS debts. However, we
reported that under the pilot projects, contractors referred only
older, large-dollar-value Medicare debts, thereby excluding from
referral a significant amount of debt and, in particular, more recent,
lower-dollar-value claims. Collection industry statistics indicate
that low-dollar-value and current debts are typically easier to
collect than large-dollar-value and older debts. In the September 2000
report, we recommended that CMS (1) immediately refer all Medicare
debts to PSC as soon as they become more than 180 days delinquent and
are determined to be eligible for referral and (2) refer the backlog
of eligible debts as quickly as possible.
For this report, we were to follow up to determine whether (1) CMS was
promptly referring eligible Medicare debts for collection action, (2)
any obstacles were hampering CMS from referring eligible Medicare
debts, and (3) CMS was appropriately using exclusions from referral
requirements.[Footnote 5] At the time of our review, the HHS Office of
Inspector General (OIG) was conducting detailed testing of CMS's
implementation of DCIA and the effectiveness of CMS's debt collection
and debt management activities. According to an OIG official, the
OIG's report on its findings is scheduled for release in March 2002.
As part of its work, the OIG tested selected debts to determine
whether CMS appropriately categorized their status, including their
exclusion status (e.g., in bankruptcy, under appeal). Therefore, as
agreed with your office, we did not test whether selected CMS debts
had been reasonably excluded from referral, and we reached no overall
conclusion about the appropriateness of CMS exclusions. During the
course of our review, however, we did make several observations
concerning the accuracy of the exclusion and debt-eligible amounts
that CMS reported to Treasury as of September 30, 2000.
Results in Brief:
CMS made progress in referring eligible delinquent debts for
collection during fiscal year 2001. Much of the referral volume was
late in the year, however, and substantial unreferred balances
remained as of September 30, 2001. PSC records indicate that in fiscal
year 2001 CMS referred about $2.1 billion of non-MSP debts, out of
approximately $2.6 billion of non-MSP debts reported as eligible for
referral as of September 30, 2000. The vast majority of the referrals
were made from June through September 2001. CMS made far less progress
in its referral of eligible MSP debts, despite the fact that PSC has
been more successful in collecting MSP debts than nonMSP debts. In
fiscal year 2001, PSC records indicate that CMS referred only about
$47 million, or about 3 percent, of the approximately $1.8 billion of
MSP debts that were reported as eligible for referral as of September
30, 2000.
Inadequate procedures and controls hampered prompt identification and
referral of both eligible non-MSP and MSP debts. The delayed referral
of non-MSP debts resulted from problems with the CMS debt-referral
system and insufficient CMS monitoring of contractor referrals. The
low level of MSP debt referrals resulted primarily from limited
contractor efforts and insufficient CMS monitoring of contractor
performance. Further, many of the MSP debts will never be referred to
PSC because CMS instructed its Medicare contractors to methodically
close out MSP debts delinquent more than 6 years and 3 months. CMS
also lacks procedures for reporting such closed-out debts to the
Internal Revenue Service (IRS) as taxable income.
With the expansion of the referral program during fiscal year 2001 to
include all of CMS's Medicare contractors, CMS faces challenges to its
ability to effectively manage Medicare debts in the future. The agency
lacks a comprehensive database for all MSP debts, accurate information
in the non-MSP debt-tracking systems, and a comprehensive written
referral plan for all eligible Medicare debts.
In addition, although as noted above we did not test whether selected
CMS debts had been reasonably excluded from referral and reached no
overall conclusion about the appropriateness of CMS exclusions, we
found that CMS did not report reliable Medicare debt information to
Treasury as of September 30, 2000. The agency inadvertently overstated
the amount of debt referred for collection action and incorrectly
reported the delinquency aging for certain debts and the amount of
debt excluded from referral requirements.
While CMS has taken positive steps to increase referrals of delinquent
Medicare debts, substantial room for improvement remains. The
recommendations in this report urge CMS to more stringently administer
delinquent Medicare debt consistent with DCIA, Treasury expectations,
and the agency's fiduciary responsibilities.
CMS agreed with five of the six recommendations in this report but did
not agree to assess the collectibility of older closed-out debts. In
support of its position, CMS said further collection work would not be
cost-effective in light of the age of these debts and the efforts and
associated costs of our recommended follow-up work. We continue to
believe that this assessment should be performed because CMS did not
complete adequate collection work to justify discontinuing collection
activity on these debts.
Background:
CMS, an operating division of HHS, administers Medicare, Medicaid, and
the State Children's Health Insurance Program. As administrator of
Medicare, which paid about $215 billion in benefits to approximately
39.5 million Medicare beneficiaries in fiscal year 2000, CMS is the
nation's largest health insurer. Although most participating providers
comply with Medicare billing rules, inadvertent errors or intentional
misrepresentations that result in overpayments to providers do occur.
These overpayments represent money owed back to Medicare. According to
the HCFA Financial Report for Fiscal Year 2000,[Footnote 6] about $8.0
billion out of $8.1 billion of the debts reported owed to CMS
originated in the Medicare program.
MSP and Non-MSP Medicare Debts:
CMS Medicare debts consist largely of overpayments to hospitals,
skilled nursing facilities, physicians, and other providers of covered
services and supplies under Part A (hospital insurance) and Part B
(supplemental medical insurance) of the Medicare program. We examined
two types of Medicare debts:
* Medicare secondary payer (MSP) debts. MSP debts arise when Medicare
pays for a service that is subsequently determined to be the financial
responsibility of another payer. Cases that result in MSP debts
include those in which beneficiaries have (1) other health insurance
furnished by their employer or their spouse's employer (or, in certain
instances, another family member) that covers the medical services
provided, (2) occupational injuries, illnesses, and conditions covered
by workers' compensation, and (3) injuries, illnesses, and conditions
related to a liability or no-fault insurance settlement, judgment, or
award.
* Non-MSP debts. Although Medicare is phasing out this payment method,
Medicare has paid certain institutional providers interim amounts
based on their historical service to beneficiaries. Medicare
contractors retrospectively adjust these payments based on their
review of provider costs. When a provider's cost-reporting year is
over, the provider files a report specifying its costs of serving
Medicare beneficiaries. Cost report debts arise when the cost report
settlement process, which includes audits and reviews by Medicare
contractors, determines that the amount an institution was paid based
on its cost report exceeds the final settlement amount. Another type
of non-MSP debt related to cost reporting is unfiled cost report debt.
If an institutional provider fails to submit a timely cost report, CMS
establishes an unfiled cost report debt. The amount of the debt equals
the full amount disbursed for the year in which the provider failed to
submit a timely report. Most providers have an ongoing business
relationship with the Medicare program; therefore, contractors are
able to collect most non-MSP debts by offsetting subsequent Medicare
payments to providers. However, if offsetting subsequent payments does
not fully liquidate the debt (e.g., because the provider has left the
Medicare program), unpaid balances more than 180 days delinquent are
subject to DCINs debt-referral requirements.
Collection Services for CMS Medicare Debts:
CMS refers its eligible MSP and non-MSP debts to PSC, which provides
debt management services for certain HHS operating divisions. Under
DCIA, federal agencies are required to refer all eligible debts that
are more than 180 days delinquent to Treasury or a Treasury-designated
debt collection center. In 1999, Treasury designated PSC a debt
collection center for HHS, allowing PSC to service certain debts,
including MSP and unfiled cost report debts. PSC is responsible for
attempting to collect MSP debts, obtaining cost reports for unified
cost report debts, reporting MSP and unfiled cost report debts to TOP,
and referring other types of Medicare debts to Treasury's FMS for
cross-servicing.
Prior Findings on CMS's Implementation of DCIA:
In September 2000, we reported that CMS was slow to implement DCIA but
could increase Medicare overpayment collections if it fully
implemented the referral requirements of the act. We recommended, and
CMS agreed, that CMS fully implement DCIA by transferring Medicare
debts to PSC or Treasury for collection as soon as they became
delinquent and were determined to be eligible. We also recommended
that CMS refer the backlog of eligible Medicare debts to PSC as
quickly as possible.[Footnote 7]
We noted in the report that CMS had two pilot projects under way that
were designed to expedite the transfer of delinquent Medicare debts
for collection action. One pilot covered certain MSP debts valued at
$5,000 or more, and the other covered certain non-MSP debts, primarily
related to cost report audits, of $100,000 or more.[Footnote 8]
Contractors participating in the pilots were to (1) verify the amount
of a delinquent debt and ensure that it was still uncollected, (2)
issue a DCIA intent letter indicating that nonpayment would result in
the debt's referral to PSC, and (3) record the debt in a central CMS
database used to transmit the debt to PSC for collection.[Footnote 9]
CMS's goal is to have referred all eligible Medicare debts for
collection action by the end of fiscal year 2002.
CMS Medicare Debts Eligible for Referral as of September 30, 2000:
As shown in table 1, CMS reported that about $6.6 billion of Medicare
debts were more than 180 days delinquent or classified as currently
not collectible (CNC) as of September 30, 2000. This information was
reported in the Medicare Trust Fund Treasury Report on Receivables Due
from the Public (TROR), which contained the most recent agency-
certified information available during our review. Debts classified as
CNC are written off the books for accounting purposes”that is, they
are no longer carried as receivables. A write-off does not extinguish
the underlying liability for a debt, and collection actions may
continue to be taken on debts classified as CNC.
Of the $6.6 billion of Medicare debts reported as more than 180 days
delinquent or classified as CNC, CMS reported that it had referred
approximately $2 billion of debts and had excluded from referral
approximately $1.8 billion of debts. CMS also reported in the TROR
that about $1.6 billion in unfiled cost reports were delinquent more
than 180 days. Because CMS does not recognize amounts associated with
unfiled costs reports as receivables for financial reporting purposes,
the agency reports unfiled cost report debts more than 180 days
delinquent as a separate, additional item in the TROR.[Footnote 10]
With these exclusions and additions, CMS reported about $6.4 billion
of Medicare debts eligible for referral to PSC for collection action
as of September 30, 2000.
Table 1: CMS Medicare Debts Eligible for Referral as of September 30,
2000 (Dollars in millions):
Debts more than 180 days delinquent and debts classified as CNC:
Debt amounts: $6,604.
Plus: other delinquent debts (unfiled cost reports):
Debt amounts: $1,591.
Less: debts excluded from referral because of bankruptcy, appeals,
litigation:
Debt amounts: $1,809.
Debts eligible for referral for collection action 6,386 Debts
referred[A] for collection action:
Debt amounts: $2,046.
Debts eligible but not referred for collection action:
Debt amounts: $4,340.
[A]PSC reported that CMS had referred about $1.65 billion of
delinquent debt as of September 30, 2000. We noted that CMS
inadvertently overstated debt referrals by $67 million because of a
data-entry error. In addition, during our review, a PSC official
stated that PSC was reconciling the debts reported as referred by CMS
to the debts reported as being received by PSC for collection action.
Source: Medicare Trust Fund Treasury Report on Receivables Due from
the Public for fourth quarter 2000 (September 30, 2000).
[End of table]
Of the approximately $6.4 billion of Medicare debts that CMS had
reported as eligible for referral by the end of fiscal year 2000, the
agency reported that about $4.3 billion of the debts had not been
referred to Treasury or a Treasury-designated debt collection center.
About $2.6 billion of the unreferred amount was non-MSP debt, and the
remainder was MSP debt.
CMS's goal for fiscal year 2001, which the agency met, was to refer an
additional $2 billion of unreferred eligible debts. CMS's goal for
fiscal year 2002 is to refer the remainder of eligible Medicare debts.
Objectives, Scope, and Methodology:
Our objectives were to determine whether (1) CMS was promptly
referring eligible Medicare debts for collection action, (2) any
obstacles were hampering CMS from referring eligible Medicare debts,
and (3) CMS was appropriately using exclusions from referral
requirements.
Although CMS also administers Medicaid and the State Children's Health
Insurance Program, we limited our review to Medicare debts because the
Medicare program is the source of the vast majority of CMS's reported
delinquent debt.
To address our objectives, we obtained and analyzed the Medicare Trust
Fund TROR for the fourth quarter of fiscal year 2000, which was the
most recent agency-certified report available at the completion of our
fieldwork, and other financial reports prepared by CMS. The most
recent year-end TROR should contain the most reliable information
available because Treasury requires that agency chief financial
officers (or their designees) certify year-end data as accurate. We
interviewed CMS and PSC officials to obtain an understanding of the
debt-referral process and any obstacles that may be hampering referral
of eligible debts. In addition, we reviewed CMS policies and
procedures on debt referrals and examined current and planned CMS
efforts to refer eligible delinquent debts.
We also met with representatives from 4 selected CMS contractors that
process and pay Medicare claims, and we discussed how they identified
and referred eligible Medicare debts to PSC. At the time of our
review, CMS had 55 Medicare contractors that processed claims and
collected on overpayments. We used two criteria to select the 4
contractors: (1) the size of their debt portfolio and (2) whether the
contractor participated in the CMS pilot projects. Specifically, 1 of
the selected contractors had the largest amount of debt overall and
the largest amount of Part A debt, 1 other selected contractor had the
largest amount of Part B debt, and another of the selected contractors
had the largest amount of MSP debt. We selected the fourth contractor
to ensure that our review covered at least one-third of all the debt
maintained at the CMS contractors. Three of the 4 contractors that we
selected participated in the MSP pilot project, and 2 participated in
the non-MSP pilot project.
As agreed with your office, we did not test selected debts that were
excluded from referral because the HHS OIG was performing detailed
testing of CMS's implementation of DCIA and the effectiveness of its
debt collection and debt management activities. As part of its work,
the OIG tested selected debts at CMS and its Medicare contractors to
determine whether the status of debts had been appropriately
categorized. We also did not independently verify the reliability of
certain information that CMS and PSC provided (e.g., debts reported as
more than 180 days delinquent).
We performed our work from November 2000 to September 2001 in
accordance with U.S. generally accepted government auditing standards.
We requested written comments on a draft of this report from the
administrator of CMS or his designated representative. CMS's letter is
reprinted in appendix I. We also considered, but did not reprint, the
technical comments provided with CMS's letter and have incorporated
them throughout this report, where appropriate.
CMS Did Not Promptly Refer All Eligible Medicare Debts in Fiscal Year
2001:
Overall, CMS did not promptly refer all of its reported eligible
Medicare debts in fiscal year 2001. Although CMS referred
approximately $2.1 billion of Medicare debts during the year, almost
all were non-MSP debts primarily related to cost report audits.
Further, the vast majority of these debt referrals”about $1.9 billion”
occurred late in the fiscal year, from June through September. While
approximately $1.8 billion of eligible MSP debts were reported as
eligible for referral as of September 30, 2000, CMS referred only
about $47 million of MSP debts in fiscal year 2001.
CMS Referred a Significant Amount of Non-MSP Debts in Fiscal Year
2001, but Not Promptly:
CMS made progress in referring non-MSP debts to PSC during fiscal year
2001, but most of the progress occurred late in the fiscal year.
Problems with the debt-referral system contributed to the late
referral of non-MSP debts. Although CMS reached its $2 billion
referral goal for fiscal year 2001, both the prospects for collection
during the year and the collectibility of the debts were likely
diminished by the referral delays.
At the end of fiscal year 2000, about $2.6 billion of non-MSP debts
remained to be referred. Throughout most of fiscal year 2001, CMS made
little progress in referring these debts. It was not until June 2001,
approximately two-thirds of the way through the fiscal year, that CMS
began making substantial referrals of non-MSP debts to PSC. Of the
approximately $2.1 billion of non-MSP debts reported as being referred
during fiscal year 2001, CMS referred about $1.9 billion of the debts
from June through September.
CMS officials stated that they were not significantly concerned by the
low level of non-MSP debt referrals during the first two-thirds of
fiscal year 2001 because they met their goal of referring $2 billion
of eligible Medicare debts in fiscal year 2001 and they intend to meet
their goal of referring the remaining eligible debts by the end of
fiscal year 2002. However, the prompt referral of delinquent debts is
critical because, as industry statistics indicate, the likelihood of
recovering amounts owed on delinquent debts decreases dramatically as
the age of the debt increases.
CMS Made Little Progress in Referring MSP Debts in Fiscal Year 2001:
CMS made little progress in referring the approximately $1.8 billion
of MSP debts that were reported as eligible for referral as of
September 30, 2000. Limited contractor efforts, coupled with
inadequate monitoring of contractor performance by CMS, contributed to
the slow progress. In addition, many existing MSP debts will never be
referred because in February 2001 CMS instructed its Medicare
contractors to close out MSP debts delinquent more than 6 years and 3
months, thereby terminating all collection efforts on such debts.
Unreferred MSP debts represented about 40 percent of the approximately
$4.3 billion of reported eligible Medicare debts that had not been
referred for collection as of September 30, 2000. PSC collection
reports show that the center has had comparatively more success in
collecting MSP debts than it has had in collecting non-MSP debts. By
the end of fiscal year 2001, PSC reported collecting almost as much on
delinquent MSP debts as on delinquent non-MSP debts, even though the
total dollar amount of MSP referrals was a small fraction, about 2
percent, of the total dollar amount of non-MSP referrals.[Footnote 11]
CMS began referring MSP debts to PSC in March 2000. PSC records
indicate that through September 30, 2001, CMS had referred only about
$83 million, or 5 percent, of the approximately $1.8 billion of MSP
debts eligible for referral to PSC as of September 30, 2000. Of this
amount, about $47 million was referred in fiscal year 2001. These
limited referrals were likely the only collection action taken on most
of the eligible MSP debts from March 2000 through September 2001. In
most cases, CMS instructed its contractors only to send initial demand
letters to MSP debtors and follow up on any resulting inquiries.
CMS Lacked Effective Processes and Controls to Promptly Refer Eligible
Medicare Debts:
CMS did not establish and implement effective controls to promptly
refer eligible Medicare debts to PSC for collection action. CMS failed
to promptly refer non-MSP debts because the agency had problems with
its debt-referral system. Limited contractor efforts, coupled with
inadequate CMS monitoring of contractor performance, were primarily
responsible for the slow progress in referring MSP debts. Because of a
CMS policy to close out debts delinquent more than 6 years and 3
months, some debts will never be referred for collection action. In
addition, CMS has not developed a process to report closed-out debts
to IRS, even though discharged debt is considered income and may be
taxable.
Problems with the Debt-Referral System Delayed the Referral of Non-MSP
Debts:
Non-MSP debt referrals were delayed until late in fiscal year 2001
primarily because CMS suspended its debt-referral system in November
2000. According to a CMS official responsible for non-MSP debt
referrals, the agency suspended the system in order to identify and
correct numerous discrepancies found in the system's data (e.g.,
duplicate debt entries, inconsistencies between debt amounts in the
referral system and debt amounts in the tracking system) and to place
additional edits in the system to prevent such errors in the future.
CMS did not resume referring nonMSP debts to PSC through the debt-
referral system until June 2001.
Not only did CMS's suspension of the debt-referral system limit the
debt-referral activities of the 5 contractors participating in the non-
MSP pilot, it also delayed CMS's planned October 2000 expansion of the
debt-referral program to all contractors. CMS did not issue updated
instructions for referring non-MSP debts to each of its 55 contractors
until April 2001. The guidance, revised in response to our September
2000 recommendation that all CMS debt be transferred to PSC as soon as
it becomes delinquent and is eligible for transfer, expanded the
criteria for referring non-MSP debts by including Part B debts, as
well as Part A debts, and lowering the referral threshold from $600 to
$25.[Footnote 12]
After the debt-referral system began operating again and the referral
requirements were expanded and extended to all contractors, CMS
increased its referrals of non-MSP debts to PSC by about $1.9 billion
from June through September 2001.
Limited Contractor Efforts and Inadequate Monitoring of Contractor
Performance Impeded Referral of MSP Debts:
The low referral of MSP debts in fiscal year 2001 occurred partly
because for most of the year, until May 2001, only the 15 contractors
participating in the pilot project were authorized to identify
eligible Part A debts and refer them to PSC. According to information
from CMS, as of September 30, 2000, these 15 contractors held a total
of about $542 million of Part A debts that were more than 180 days
delinquent, representing about 31 percent of MSP debts eligible for
referral as of that date.
In response to our September 2000 recommendation, CMS issued a program
memorandum in May 2001 extending to all MSP contractors the
requirement to identify delinquent MSP debts and refer them to PSC.
CMS also expanded the referral criteria to include Part B debts, as
well as Part A debts. The dollar threshold for referral is to be
reduced in phases, from $5,000 to $25.[Footnote 13] The phased
reduction is intended both to eliminate the backlog of higher-dollar
debts and to ensure referral of current debts, thereby avoiding a
continuing backlog. A CMS official stated that the memorandum was not
issued sooner partly because CMS had to respond to contractors'
concerns that they needed additional funding to automate their debt-
referral processes to comply with the new referral requirements. The
CMS official stated that after much consideration, CMS concluded that
referrals could be performed manually and that seeking additional
funding for automation would likely cause further delays in referring
MSP debts to PSC.
Another factor that contributed to the low amount of MSP debt referred
to PSC was the failure of certain pilot project contractors to
promptly refer eligible debts. Under the MSP pilot project,
contractors were required to identify eligible Part A debts, send DCIA
intent letters (which state CMS's intention to refer a debt for
collection action if it is not paid within 60 days) to those debtors,
and enter the debt information into the debt-referral system. We
selected and reviewed the work of 3 large Medicare contractors that
participated in the MSP pilot project and found that none of the 3
promptly identified and referred all eligible MSP debts.
One of the contractors held $255 million of Part A MSP debt more than
180 days delinquent as of September 30, 2000. As of May 2001, the
contractor reported that it had identified and sent out DCIA intent
letters for only about $33 million, or about 13 percent, of the debt.
The contractor official responsible for MSP debts stated that the
contractor was under the impression that the pilot project required it
to make only two file queries, in February 2000, to identify eligible
debts and that the queries were to cover only debts incurred from
March 1997 through August 1998. However, our review of the
implementing instructions for the pilot project found that it was to
cover all MSP debts that were not more than 6 years old, and CMS
officials responsible for MSP debts advised us that they had never
instructed the contractor to limit its file queries.
Another of the 3 contractors whose work we reviewed held about $61
million of Part A MSP debt delinquent more than 180 days as of
September 30, 2000. The contractor official responsible for MSP debts
stated that the contractor believed that the MSP pilot project had
ended in August 2000. As such, from September 2000 through December
2000, the contractor did not review its debt portfolio to identify
additional MSP debts eligible for referral. The contractor
subsequently began identifying and referring debts again in January
2001. In addition, the contractor's records indicated that as of April
2001, about $6.2 million, or 48 percent, of the $12.8 million of debt
for which it had sent DCIA intent letters prior to September 2000 had
not been referred to PSC. These debts remained at the contractor even
though they were well beyond the 60-day time frame CMS specified for
referring debts to PSC after a DCIA intent letter is sent. The
responsible contractor official was unable to explain why the debts
had not been referred for collection action.
Before our review, CMS had not developed or implemented policies and
procedures for monitoring contractors' referral of MSP debts. As a
result, CMS did not monitor the extent to which contractors referred
specific MSP debts to PSC and did not identify specific contractors,
such as those mentioned above, that failed to identify and refer all
eligible debts. Without such monitoring, CMS could not take prompt
corrective action. This lack of procedures for monitoring contractors
and the resulting lack of monitoring are inconsistent with the
comptroller general's Standards for Internal Control in the Federal
Government. The standards state that internal controls should be
designed to assure that ongoing monitoring occurs in the course of
normal operations and that it should be performed continually and
ingrained in agency operations.[Footnote 14]
In response to our work, CMS officials stated that in June 2001 they
had begun to review selected contractors' MSP debt referrals. A CMS
official said that the 10 CMS regional offices would assume a more
active role in ensuring that contractors promptly refer eligible MSP
debts to PSC. As of September 2001, CMS had not developed formal
written procedures for monitoring contractors, but agency officials
stated that they planned to develop such procedures.
CMS Policy to Close Out Older MSP Debts Also Limited Referrals of MSP
Debts:
Many MSP debts will never be referred to PSC because of a CMS decision
to close out older MSP debts. In February 2001, CMS issued guidance to
its contractors directing them to methodically terminate collection
action on or close out MSP debts delinquent more than 6 years and 3
months.[Footnote 15] CMS officials stated that the agency selected
this delinquency criterion because the statute of limitations prevents
the Department of Justice from litigating to collect debts more than 6
years after they become delinquent. Also, these debts, because they
are closed out, will never be reported to FMS for TOP, which has been
FMS's most effective debt collection tool.[Footnote 16] For fiscal
year 2000, Treasury found that the collection rate for the small
amount of MSP debt that had been reported to TOP was about 10.5
percent, which is higher than TOP's average collection rate. The
February 2001 guidance was a continuation of CMS policy set forth in
the agency's instructions to contractors at the start of the MSP pilot
project in fiscal year 2000, which authorized contractors to identify
and refer only debts up to 6 years old.
A CMS official stated that older MSP debts were closed out because it
was not cost-effective to collect them. However, CMS could not provide
any documentation to support the assertion that it is not cost-
effective to attempt to collect older MSP debts, and CMS did not test
this assumption in its MSP pilot project.
Age alone is not an appropriate criterion for terminating collection
action on a debt. The agency should pursue all appropriate means of
collection on a debt and determine, based on the results of the
collection activity, whether the debt is uncollectible. According to
discussions with contractor officials, collection activity prior to
the termination of the debts likely involved only the issuance of
demand letters, as required by CMS's Budget and Performance
Requirements for contractors.
The CMS official said she was not aware of any assessment performed to
determine the total dollar amount of debts that will be designated as
eligible for close-out because of this age threshold. During our
review, CMS had already approved close-out of about $86 million of MSP
debts at the contractors we visited. About $85 million of these debts
were less than 10 years old and therefore could have been referred to
PSC for collection action, including reporting to TOP.[Footnote 17]
In a related matter, CMS has not established a process, including
providing authorization to PSC, to report closed-out MSP debts to IRS.
The Federal Claims Collection Standards and Office of Management and
Budget (OMB) Circular No. A-129 require that agencies, in most cases,
report closed-out debt amounts to IRS as income to the debtor, since
those amounts represent forgiven debt, which is considered income and
therefore may be taxable at the debtor's current tax rate. Thus,
reporting the discharge of indebtedness to IRS may benefit the federal
government, through increased income tax collections. CMS stated that
agency officials and the CMS Office of General Counsel are discussing
the reporting of closed-out MSP debts to IRS but did not specify when
actions, if any, would be taken to report such debts to IRS.
CMS Faces Challenges in Effectively Managing Future Medicare Debt
Referrals:
Even with CMS's non-MSP debt-referral system operating again and its
MSP and non-MSP referral requirements extended to all of its
contractors, the agency still faces obstacles to effectively managing
its Medicare debt referrals. As mentioned earlier, in fiscal year 2001
CMS expanded debt-referral requirements from the pilot projects to
include all 55 Medicare contractors. CMS lacks complete and accurate
debt information, however, and this shortcoming will likely hamper the
agency's ability to adequately monitor contractors' debt referrals. In
addition, CMS's referral instructions to contractors currently do not
cover some types of Medicare debts, including MSP liability debts.
Without a comprehensive plan in place that covers all types of
Medicare debts, CMS faces significant challenges to be able to achieve
its goal of referring all eligible Medicare debts by the end of fiscal
year 2002.
Lack of Complete and Accurate Debt Information Hampers CMS's Ability
to Monitor Debt Referrals:
All Medicare contractors are now responsible for identifying eligible
debts from their debt portfolio, sending out DCIA intent letters to
debtors, and referring eligible debts to PSC. To help ensure that all
eligible Medicare debts are promptly identified and referred for
collection, CMS must monitor contractors' debt-referral practices. To
monitor effectively, the agency needs comprehensive, reliable debt
information from its contractors, but CMS systems currently do not
contain complete and accurate information on all CMS Medicare debts.
CMS Lacks a Centralized Database for MSP Debts:
One of CMS's most daunting financial management challenges continues
to be the lack of a financial management system that fully integrates
CMS's accounting systems with those of its Medicare contractors.
Because CMS does not have a fully integrated accounting system, each
MSP debt is maintained only in the internal system of the specific
contractor that holds the debt. CMS has no centralized database that
includes all MSP debts held by contractors. As a result, the agency
cannot effectively monitor the extent to which its various contractors
are promptly identifying eligible MSP debts and referring them to PSC
for collection. CMS is developing a system that is to include a
database containing all MSP debts. However, the agency plans to phase
the system in, and it is not scheduled to be fully implemented at all
contractors until the end of fiscal year 2006.
CMS's Non-MSP Debt-Tracking Systems Contain Inaccurate Information:
CMS has two debt-tracking systems for its non-MSP debts, one for Part
A debts and one for Part B debts. Medicare contractors are responsible
for entering non-MSP debts into the systems and updating the debts'
status (with respect to bankruptcy, appeals, etc.) as appropriate.
According to CMS officials, the agency intends to use these systems to
monitor contractors to ensure that they are promptly identifying and
referring eligible debts to PSC.
Accurate tracking information is critical for monitoring debt-referral
practices. CMS found, however, that its non-MSP debt-tracking systems
contain inaccurate information because a significant number of
contractors have not been adequately updating information in the
systems. CMS performed contractor performance evaluations for fiscal
year 2000 on 25 contractors and found that 19 were not adequately
updating information in the non-MSP debt-tracking systems. For 5 of
the 19 contractors, CMS considered the problems to be significant
enough to require the contractors to develop written performance
improvement plans.
Our work at the 2 selected contractors involved in the non-MSP pilot
project corroborated CMS's own findings. CMS periodically sent non-MSP
pilot contractors a list of eligible Part A debts from the agency's
debt-tracking system for possible referral to PSC. For the 2 non-MSP
contractors we reviewed, CMS selected $1.3 billion of debts from the
Part A non-MSP debt-tracking system. The contractors determined that
$289 million of the debts, or about 23 percent, were actually
ineligible for referral because they were in bankruptcy, under appeal,
or under investigation for fraud. In addition, we identified $21
million of debts that 1 of the 2 non-MSP pilot contractors had
misclassified on the CMS debt-tracking system as bankruptcy debt and
ineligible for referral. These debts had actually been dismissed from
the bankruptcy proceedings and therefore should have been reported in
the debt-tracking system as eligible for referral. In this case, the
contractor had not updated its own internal system for $8 million of
the debts and was therefore not pursuing postdismissal collection
actions on them. For the remaining $13 million, the contractor had
updated its internal system and was pursuing collection but had failed
to properly update the CMS debt-tracking system.
CMS's Non-MSP Debt-Tracking Systems Do Not Enable the Agency to
Monitor Promptness of Debt Referral:
To effectively monitor contractor performance, CMS must have the
ability to determine whether contractors are referring debts promptly.
However, CMS's non-MSP debt-tracking systems lack the capacity to
indicate whether contractors are promptly entering non-MSP debts into
the debt-referral system after they mail DCIA intent letters because
the systems do not track the date of status code changes (e.g., the
date when the DCIA letter was issued). We found that CMS's non-MSP
debt-tracking system for Part A debts did not identify $5.2 million of
debts that had been pending referral for at least 9 months at one of
the two non-MSP contractors that we reviewed. In response to our work,
CMS officials stated that they are in the process of modifying the non-
MSP debt-tracking systems to allow the agency to monitor how promptly
contractors are referring debts in the future.
CMS Lacks a Comprehensive Referral Plan That Covers All Types of
Eligible Debt:
CMS has not developed a comprehensive plan that covers all types of
Medicare debt eligible for referral. The agency lacks information on
the total dollar amount of eligible debts not covered by its current
referral instructions to the Medicare contractors, and it has not
developed a detailed plan or specific time frame for referring these
debts. Without a comprehensive plan in place, CMS faces significant
challenges to be able to achieve its goal of referring 100 percent of
eligible debts in fiscal year 2002.
Types of debt for which CMS has not yet established a referral plan
include, but are not limited to, the following:
* MSP liability. MSP liability debts arise when Medicare covers
expenses related to accidents, malpractice, workers' compensation, or
other items not associated with group health plans that are
subsequently determined to be the responsibility of another payer.
* Part A claims adjustments. Part A claims receivables are created
when previously paid claims are adjusted. Reasons for claims
adjustments include duplicate processing of charges or claims, payment
for items or services not covered by Medicare, and incorrect billing.
The CMS debt-tracking system does not track these debts. Debts
resulting from claims adjustments are generally offset from subsequent
Medicare payments and require no further collection action. Should
subsequent Medicare payments be unavailable for offset, however, no
requirements exist for Medicare contractors to perform any other
collection actions, such as issuing a demand letter.
We found that as of September 30, 2000, the four contractors we
reviewed held about $9.6 million of MSP liability debts and about
$10.7 million of debts related to Part A claims adjustments. CMS
officials stated that the agency intends to refer both types of debt
to PSC in the future.
CMS Does Not Provide Reliable Medicare Debt Information to Treasury:
The amounts of eligible debt CMS reported in the September 30, 2000,
Medicare Mist Fund TROR were not reliable. CMS did not properly report
the delinquency aging for certain debts, including debts previously
transferred to regional offices for collection. CMS also did not
properly report its exclusions from referral requirements. For
example, the agency inappropriately reported as excluded $149 million
of non-MSP debts that had been referred to CMS regional offices for
collection.[Footnote 18] In addition, CMS did not report any exclusion
amounts for MSP debts, even though we noted that certain MSP debts
were involved in litigation, or for non-MSP debts under investigation
for fraud. Finally, because of a data-entry error, CMS inadvertently
overstated debt referrals by $67 million.
It is imperative that CMS provide Treasury with reliable information
on eligible Medicare debt. Treasury uses the information to monitor
agencies' implementation of DCIA. In addition, the TROR is Treasury's
only comprehensive means of periodically collecting data on the status
and condition of the federal government's nontax debt portfolio, as
required by the Debt Collection Act of 1982 and DCIA. CMS's delinquent
Medicare debts represent a significant portion of delinquent debts
governmentwide. Therefore, they must be reported accurately if
governmentwide debt information is to be useful to the president, the
Congress, and OMB in determining the direction of federal debt
management and credit policy.
According to CMS officials, the agency is revising its method for
determining eligible debt amounts. For example, CMS officials stated
that the agency no longer reports debts referred to regional offices
as exclusions and is in the process of identifying and reporting
exclusion amounts for MSP debts.
Conclusions:
Although CMS made progress in referring eligible Medicare debts to PSC
in fiscal year 2001 and met its referral goal for the year, a
substantial portion of Medicare debts”particularly MSP debts”are still
not being promptly referred for collection action. Inadequate
contractor monitoring, resulting partly from CMS's debt system
limitations, has contributed to the slow pace of MSP debt referrals.
In addition, CMS has not begun referring certain types of eligible
Medicare debts, such as MSP liability debts, and those debts will
continue to age until CMS completes and implements a comprehensive
referral plan. Since recovery rates decrease dramatically as debts
age, CMS cannot accomplish DCINs purpose of maximizing collection of
federal nontax debt unless it refers eligible debts promptly.
CMS's policy of closing out eligible MSP debts solely on the basis of
their age, without performing a quantitative study to determine
whether collection action would be cost-effective, has also reduced
referrals and eliminated opportunities for potential collections on
those debts. In addition, by not reporting closed-out debts to IRS,
the federal government may be missing an opportunity to increase
government receipts.
Medicare debts are a significant share of delinquent debt
governmentwide, and CMS's inaccurate reporting to Treasury on
exclusion amounts, debt aging, and referrals may distort
governmentwide debt information used to determine the direction of
federal debt management and credit policy. CMS's inaccurate reporting
of eligible debt amounts also impedes Treasury's ability to monitor
the agency's compliance with DCIA.
Recommendations for Executive Action:
To help ensure that CMS promptly refers all eligible delinquent
Medicare debts to PSC, as we recommended in September 2000, and that
all benefits from closed-out debts are realized, we recommend that the
administrator of CMS:
* establish and implement policies and procedures to monitor
contractors' implementation of CMS's May 2001 instructions to ensure
the prompt referral of eligible MSP debts;
* implement changes to CMS's non-MSP debt tracking systems so that CMS
personnel will be better able to monitor contractors' referral of
eligible non-MSP debts as required by CMS's April 2001 instructions to
contractors;
* develop and implement a comprehensive referral plan for all eligible
delinquent Medicare debts that includes time frames for promptly
referring all types of debts, including MSP liability and Part A
claims adjustments debts;
* perform an assessment of MSP debts being closed out because they are
more than 6 years and 3 months delinquent to determine whether to
pursue collection action on the debts, and document the results of the
assessment;
* establish and implement policies and procedures for reporting closed-
out Medicare debts, when appropriate, to IRS; and;
* validate the accuracy of debt-eligible amounts reported in the
Medicare Trust Fund TROR by establishing a process that ensures, among
other things, (1) accurate reporting of the aging of certain
delinquent debts, (2) accurate and complete reporting of debts
excluded from referral requirements, and (3) verification of data
entry for referral amounts.
Agency Comments and Our Evaluation:
In written comments on a draft of this report, CMS agreed with five of
our six recommendations and summarized actions taken or planned to
address those five. CMS expressed confidence that it would attain its
goal of referring all eligible debt to Treasury by year-end as part of
its overall financial plan.
Regarding our recommendation to assess closed-out MSP debts that were
more than 6 years and 3 months delinquent to determine whether to
pursue collection action on them, CMS stated that further collection
efforts would not be cost-effective. According to CMS, medical
services at issue in these MSP debts are typically from the early
1990s and often involve Medicare services from the mid- to late 1980s.
CMS indicated that the costs of validating the debts and the costs and
fees associated with DCIA cross-servicing and TOP were too great to
justify additional collection efforts. However, as we stated in the
report, CMS could not provide any documentation to support its
position that it is not cost-effective to attempt to collect older MSP
debts, and CMS did not test this assumption in its MSP pilot project.
CMS's efforts to collect this debt prior to close-out were not
adequate. The Federal Claims Collection Standards require that before
terminating collection activity, agencies are to pursue all
appropriate means of collection and determine, based on the results of
the collection activity, that the debt is uncollectible. According to
discussions with Medicare contractor officials, the collection
activity for many of these MSP debts was limited to issuance of demand
letters, which does not satisfy the requirement that all appropriate
means of collection action be pursued on debts. In addition, most of
the closed-out MSP debts at the Medicare contractors we visited were
less than 10 years delinquent and therefore could have been referred
to PSC for collection action, including reporting to TOP. As such, we
continue to believe that CMS should assess MSP debt to determine
whether additional collection activity is appropriate in light of the
minimal prior collection activity.
As agreed with your office, unless you announce its contents earlier,
we plan no further distribution of this report until 30 days after its
issuance date. At that time, we will send copies to the chairmen and
ranking minority members of the Senate Committee on Governmental
Affairs and the House Committee on Government Reform and to the
ranking minority member of your subcommittee. We will also provide
copies to the secretary of health and human services, the inspector
general of health and human services, the administrator of the Centers
for Medicare & Medicaid Services, and the secretary of the treasury.
We will then make copies available to others upon request.
If you have any questions about this report, please contact me at
(202) 512- 3406 or Kenneth Rupar, assistant director, at (214) 777-
5600. Additional key contributors to this assignment were Matthew
Valenta and Tanisha Stewart.
Sincerely yours,
Signed by:
Gary T. Engel:
Director:
Financial Management and Assurance:
[End of section]
Appendix I: Comments from the Centers for Medicare & Medicaid Services:
Department Of Health & Human Services:
Centers for Medicare & Medicaid Services:
Administrator:
Washington, DC 20201:
Date: January 30, 2002:
To: Gary T. Engel, Director:
Financial Management and Assurance:
General Accounting Office:
From: [Signed by] Thomas A. Scully:
Administrator:
Centers for Medicare & Medicaid Services:
Subject: General Accounting Office (GAO) Draft Report, Debt Collection
Improvement Act of 1996: HHS' Centers for Medicare & Medicaid Services
Faces Challenges to Fully Implement Certain Key Provisions (GAO-02-
307):
Thank you for the report on our progress in implementing the major
provisions of the Debt Collection Improvement Act (DCIA) of 1996. We
are continually striving not only to improve our debt management
policies and recover monies owed to us but also to ensure that
taxpayer monies are only spent for their intended purpose.
We are extremely proud of our work in referring delinquent debt to the
Department of the Treasury (Treasury). Early on, we developed an
aggressive plan to implement the DCIA and have faithfully followed it
with great success, having referred more than $4 billion in delinquent
debt that is more than 180 days old during the past 2 years. In order
to accomplish this task, we hired additional staff, developed new
procedures, and held extensive nationwide training sessions for both
the Centers for Medicare & Medicaid Services' (CMS)'s staff and more
than 50 Medicare contractors. Accomplishments have not come easily as
debts needed to be validated, procedures implemented, and systems
tested in order to integrate and reconcile our debt with the even
larger Department of Health and Human Services' (HHS)'s debt portfolio.
We created a centralized debt referral system enabling all of our
contractors to access one centralized database. This system was then
linked with HHS' Program Support Center to ensure an orderly flow of
delinquent debt for cross servicing and offset. While referrals began
slowly through a number of pilot programs, it was a necessary process
which allowed us to identify and to work through and resolve issues
that inevitably arise in any new Government-wide program before
expanding it on a nationwide basis. Our training program continues on
an ongoing basis with monthly teleconferences, annual conferences, and
the identification and adoption of best practices. We are confident
that we will attain our goal of having all eligible debt referred to
Treasury by the end of this year as part of our overall financial
management plan.
We appreciate your staff's work and recommendations to improve our
referral process in a very complex and complicated debt management
arena. We agree with five of the six recommendations in the report and
have already started work on their implementation. However, we do not
believe that referring Medicare Secondary Payer (MSP) debts that are
over 6 years old will result in any significant amount of recoveries.
We also agree with your assessment that CMS's challenge continues to
be the lack of a financial management system that fully integrates
CMS's accounting systems with those of the Medicare contractors. This
makes the debt referral process resource intensive. As you are aware,
we are committed to also meet this challenge and are in the process of
developing an integrated accounting system under our Healthcare
Integrated General Ledger Accounting System project. Our first pilots
are scheduled for early next year.
We will continue to work with GAO and Congress to refer all eligible
debt and increase our efforts to prevent debt from occurring in our
programs.
Attachments:
Appendix I:
GAO Recommendation:
To help ensure that CMS promptly refers all eligible delinquent
Medicare debts to program safeguard contractor (PSC), as we
recommended in September 2000, and that all benefits from closed-out
debts are realized, we recommend that the Administrator of CMS:
Establish and implement policies and procedures to monitor
contractors' implementation of CMS' May 2001 instructions to ensure
the prompt referral of eligible MSP debts.
CMS Response:
The CMS agrees with this recommendation and plans to issue a letter to
our regional offices by the end of January providing them with
guidance related to the ongoing monitoring of contractor MSP debt
referral activities. In addition the contractor performance evaluation
protocol for MSP has been revised to include the review of MSP debt
referral activities.
GAO Recommendation:
Implement changes to CMS's non-MSP debt tracking systems so that CMS
personnel will be better able to monitor contractors' referral of
eligible non-MSP debts as required by CMS's April 2001 instructions to
contractors.
CMS Response:
The CMS agrees with this recommendation. The CMS has identified system
enhancements required to better monitor contractors' progress in
referring eligible nonMSP debts. The request for these system changes
has been forwarded to the appropriate CMS programming staff.
GAO Recommendation:
Develop and implement a comprehensive referral plan for all eligible
delinquent Medicare debts that includes timeframes for promptly
referring all types of debts, including MSP liability and Part A claim
adjustments debts.
CMS Response:
The CMS agrees with this recommendation and is currently finalizing
its comprehensive debt referral plan. This plan includes activities
and timeframes for the referral of all eligible delinquent Medicare
debt. The CMS has in place a financial management plan outlining the
complete referral of eligible delinquent debt by the end of fiscal
year 2002. The CMS has consistently met the goals established in this
plan.
GAO Recommendation:
Perform an assessment of all MSP debts being closed out because they
are more than 6 years and 3 months delinquent to determine whether to
pursue collection action on the debts, and document the results of the
assessment.
CMS Response:
The CMS disagrees with this recommendation. Once CMS is current on its
DCIA referral activities, debts will routinely have been referred to
the PSC under the CMS MSP DCIA referral process before they qualify
for "write-off--closed." The medical services at issue in the MSP
debts which currently qualify for "write-off closed" are routinely
from the early 1990s and often involve Medicare services from the mid-
to late 1980s. Further collection efforts on these debts is not cost
effective due to the cumulative effect of the following factors: the
average percentage of valid documented defenses in response to
demands, the costs involved in contractor review and validation of
these debts (particularly if the debtor disputes the debt), and the
fees/costs associated with DCIA cross servicing and Treasury offset
program.
GAO Recommendation:
Establish and implement policies and procedures for reporting closed-
out Medicare debts, when appropriate, to IRS.
CMS Response:
The CMS agrees with this recommendation. We have met with staff from
the Office of General Counsel and are in the process of determining
appropriate actions to take on reporting closed out Medicare debt to
the Internal Revenue Service (IRS) under revised Federal Claims
Collection Standards, revised OMB Circular A-129, and IRS regulations.
GAO Recommendation:
Validate the accuracy of debt-eligible amounts reported on the
Medicare Trust Fund Treasury Report on Receivables Due From the Public
by establishing a process that ensures, among other things, (1)
accurate reporting of the aging of certain delinquent debts, (2)
accurate and complete reporting of debts excluded from referral
requirements, and (3) verification of data entry for referral amounts.
CMS Response:
The CMS agrees with this recommendation. We have modified our current
process to further ensure the accurate reporting of the aging of
delinquent debts and the accurate reporting of debts excluded from
referral. In addition, we plan to establish a process for the
verification of referral amounts.
[End of section]
Footnotes:
[1] U.S. General Accounting Office, Debt Collection Improvement Act of
1996: Agencies Face Challenges Implementing Certain Key Provisions,
[hyperlink, http://www.gao.gov/products/GAO-02-61T] (Washington, D.C.:
Oct. 10, 2001).
[2] CMS was formerly the Health Care Financing Administration (HCFA).
HCFA was renamed on June 14, 2001.
[3] We are also issuing separate reports on certain federal agencies'
implementation of administrative wage garnishment, the Rural Housing
Service's implementation of key provisions of DCIA, the Farm Service
Agency's implementation of key provisions of DCIA, and certain federal
agencies' delinquent debt reporting practices.
[4] U.S. General Accounting Office, Medicare: HCFA Could Do More to
Identify and Collect Overpayments, [hyperlink,
http://www.gao.gov/products/GAO/HEHS/AIMD-00-304] (Washington, D.C.:
Sept. 7, 2000).
[5] DCIA and Treasury regulations exclude certain debts from referral
for collection action, including debts under appeal or at the
Department of Justice for litigation, and debtors in bankruptcy.
[6] U.S. Department of Health and Human Services, Health Care
Financing Administration, HCFA Financial Report for Fiscal Year 2000
(Baltimore, Md.: 2001).
[7] [hyperlink, http://www.gao.gov/products/GAO/HEHS/AIMD-00-304].
[8] In the report, CMS stated that it planned to reduce the non-MSP
referral threshold to $600. In December 2000, CMS instructed Medicare
contractors to identify and send intent letters for non-MSP debts
greater than $600.
[9] Before the pilot projects were initiated, the referral process was
as follows: (1) contractors referred delinquent debts to the
appropriate CMS regional office for review to verify that appropriate
collection actions had been taken; (2) if regional office staff found
that appropriate actions had been taken, the contractor transferred
the receivable to CMS, which assumed accountability for collection
through its regional offices; and (3) CMS, through its regional
offices or headquarters, was responsible for referring the debts to
PSC.
[10] Unfiled cost reports are not recognized as receivables because
the failure to file a cost report does not complete the earnings
process; thus, no accounting event occurred from which a receivable
can be established. Also, without a cost report, CMS cannot reasonably
estimate the amount of the receivable, as required by federal
accounting standards.
[11] As of the end of fiscal year 2001, PSC reported collecting about
$3.8 million during fiscal year 2001 of the approximately $83 million
of MSP debts referred. For non-MSP debts, PSC reported that it and
Treasury had collected about $4.1 million during fiscal year 2001 of
the approximately $3.7 billion of non-MSP debts referred.
[12] As we reported in September 2000, CMS planned to reduce the non-
MSP referral threshold from $100,000 to $600. In December 2000, CMS
instructed Medicare contractors to identify and send intent letters
for non-MSP debts greater than $600. In April 2001, CMS reduced the
threshold to $25 and instructed Medicare contractors to begin
referring all eligible non-MSP debts that are $25 or greater.
[13] To address the existing backlog of delinquent debt, CMS
established a workload standard for MSP contractors. The standard
specifies that each contractor is to issue 200 "intent to refer"
letters or to resolve 500 selected debts each month, as long as the
contractor has sufficient delinquent debts to meet this requirement.
If a contractor has insufficient debts greater than $5,000 to meet the
workload standard, the contractor then selects debts greater than
$250. If the contractor has insufficient debts greater than $250 to
meet the workload standard, the contractor then selects debts greater
than $25.
[14] U.S. General Accounting Office, Standards for Internal Control in
the Federal Government, [hyperlink,
http://www.gao.gov/products/GAO/AIMD-00-21.3.1] (Washington, D.C.:
Nov. 1999).
[15] Certain categories of debts were excluded from close-out,
including debts in litigation, in bankruptcy, and under investigation
for fraud.
[16] According to documents provided by Treasury, during each of the
last 3 calendar years FMS has collected more than $1 billion of
federal nontax debt through TOP by offsetting tax refund payments.
This amount far exceeds the amount collected through any other FMS
debt collection tool.
[17] For most types of debt, DCIA provides that administrative offset
is available for claims that have not been outstanding for more than
10 years. TOP is available to collect nontax debts referred within 10
years after the agency's right of action accrued.
[18] Before implementation of the DCIA referral process, contractors
were required to transfer receivables to CMS regional offices for
collection.
[End of section]
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