Medicare
Program Remains at High Risk Because of Continuing Management Challenges
Gao ID: GAO-11-430T March 2, 2011
In the February 2011 High-Risk Series update, GAO continued designation of Medicare as a high-risk program because its complexity and susceptibility to improper payments, combined with its size, have led to serious management challenges. In 2010, Medicare covered 47 million people and had estimated outlays of $509 billion. The Centers for Medicare & Medicaid Services (CMS) has estimated fiscal year 2010 improper payments for Medicare fee-for-service and Medicare Advantage of almost $48 billion. This statement focuses on the nature of the risk in the program, progress made, and specific actions needed. It is based on GAO work developed by using a variety of methodologies--including analyses of Medicare claims, review of policies, interviews, and site visits--and information from CMS on the status of actions to address GAO recommendations.
As GAO reported in its 2011 High-Risk Series update, Medicare remains on a path that is fiscally unsustainable over the long term. This fiscal pressure heightens CMS's challenges to reform and refine Medicare's payment methods to achieve efficiency and savings, and to improve its management, program integrity, and oversight of patient care and safety. CMS has made some progress in these areas, but many avenues for improvement remain. Reforming and refining payments. Since January 2009, CMS has implemented payment reforms for Medicare Advantage and inpatient hospital and other services, and has taken other steps to improve efficiency in payments. The agency has also begun to provide feedback to physicians on their resource use, but the feedback effort could be enhanced. CMS has taken steps to ensure that some physician fees recognize efficiencies when certain services are furnished together, but the agency has not targeted the services with the greatest potential for savings. Other areas that could benefit from payment method refinements include oxygen and imaging services. Improving program management. CMS's implementation of competitive bidding for medical equipment and supplies and its transfer of fee-for-service claims workload to new Medicare Administrative Contractors have progressed, with some delays. Of greater concern is that GAO found pervasive internal control deficiencies in CMS's management of contracts that increased the risk of improper payments. While the agency has taken actions to address some GAO recommendations for improving internal controls, it has not completely addressed recommendations related to clarifying the roles and responsibilities for implementing certain contractor oversight responsibilities, clearing a backlog of contacts that are overdue for closeout, and finishing its investigation of over $70 million in payments GAO questioned in 2007. Enhancing program integrity. CMS has implemented a national Recovery Audit Contractors (RAC) program to analyze paid claims and identify improper overpayments for recoupment, set performance measures to reduce improper payments, issued regulations to tighten provider enrollment, and created its Center for Program Integrity. However, the agency has not developed an adequate process to address vulnerabilities to improper payments identified by RACs, nor has it addressed three other GAO recommendations designed to reduce improper payments, including one to conduct postpayment reviews of claims submitted by home health agencies with high rates of improper billing. Overseeing patient care and safety. The agency's oversight of the quality of nursing home care has increased significantly in recent years, but weaknesses in the survey methodology and guidance for surveillance could understate care quality problems. In addition, CMS's current approach for funding state surveys of facilities participating in Medicare is ineffective. However, CMS has implemented, or is taking steps to implement, many recommendations GAO has made to improve nursing home oversight. CMS needs a plan with clear measures and benchmarks for reducing Medicare's risk for improper payments, inefficient payment methods, and issues in program management and patient care and safety. Further, CMS's effective implementation of recent laws will be critical to helping reduce improper payments. CMS also needs to take action to address GAO recommendations, such as to develop an adequate corrective action process, improve controls over contracts, and refine or better manage payment for certain services.
GAO-11-430T, Medicare: Program Remains at High Risk Because of Continuing Management Challenges
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United States Government Accountability Office:
GAO:
Testimony:
Before the Subcommittee on Oversight and Investigations, Committee on
Energy and Commerce, House of Representatives:
For Release on Delivery:
Expected at 10:00 a.m. EST:
Wednesday, March 2, 2011:
Medicare:
Program Remains at High Risk Because of Continuing Management
Challenges:
Statement of Kathleen King:
Director, Health Care:
GAO-11-430T:
GAO Highlights:
Highlights of GAO-11-430T, a testimony before the Subcommittee on
Oversight and Investigations, Committee on Energy and Commerce, House
of Representatives.
Why GAO Did This Study:
In the February 2011 High-Risk Series update, GAO continued
designation of Medicare as a high-risk program because its complexity
and susceptibility to improper payments, combined with its size, have
led to serious management challenges. In 2010, Medicare covered 47
million people and had estimated outlays of $509 billion. The Centers
for Medicare & Medicaid Services (CMS) has estimated fiscal year 2010
improper payments for Medicare fee-for-service and Medicare Advantage
of almost $48 billion.
This statement focuses on the nature of the risk in the program,
progress made, and specific actions needed. It is based on GAO work
developed by using a variety of methodologies”-including analyses of
Medicare claims, review of policies, interviews, and site visits-”and
information from CMS on the status of actions to address GAO
recommendations.
What GAO Found:
As GAO reported in its 2011 High-Risk Series update, Medicare remains
on a path that is fiscally unsustainable over the long term. This
fiscal pressure heightens CMS‘s challenges to reform and refine
Medicare‘s payment methods to achieve efficiency and savings, and to
improve its management, program integrity, and oversight of patient
care and safety. CMS has made some progress in these areas, but many
avenues for improvement remain.
Reforming and refining payments. Since January 2009, CMS has
implemented payment reforms for Medicare Advantage and inpatient
hospital and other services, and has taken other steps to improve
efficiency in payments. The agency has also begun to provide feedback
to physicians on their resource use, but the feedback effort could be
enhanced. CMS has taken steps to ensure that some physician fees
recognize efficiencies when certain services are furnished together,
but the agency has not targeted the services with the greatest
potential for savings. Other areas that could benefit from payment
method refinements include oxygen and imaging services.
Improving program management. CMS‘s implementation of competitive
bidding for medical equipment and supplies and its transfer of fee-for-
service claims workload to new Medicare Administrative Contractors
have progressed, with some delays. Of greater concern is that GAO
found pervasive internal control deficiencies in CMS‘s management of
contracts that increased the risk of improper payments. While the
agency has taken actions to address some GAO recommendations for
improving internal controls, it has not completely addressed
recommendations related to clarifying the roles and responsibilities
for implementing certain contractor oversight responsibilities,
clearing a backlog of contacts that are overdue for closeout, and
finishing its investigation of over $70 million in payments GAO
questioned in 2007.
Enhancing program integrity. CMS has implemented a national Recovery
Audit Contractors (RAC) program to analyze paid claims and identify
improper overpayments for recoupment, set performance measures to
reduce improper payments, issued regulations to tighten provider
enrollment, and created its Center for Program Integrity. However, the
agency has not developed an adequate process to address
vulnerabilities to improper payments identified by RACs, nor has it
addressed three other GAO recommendations designed to reduce improper
payments, including one to conduct postpayment reviews of claims
submitted by home health agencies with high rates of improper billing.
Overseeing patient care and safety. The agency‘s oversight of the
quality of nursing home care has increased significantly in recent
years, but weaknesses in the survey methodology and guidance for
surveillance could understate care quality problems. In addition,
CMS‘s current approach for funding state surveys of facilities
participating in Medicare is ineffective. However, CMS has
implemented, or is taking steps to implement, many recommendations GAO
has made to improve nursing home oversight.
What Remains to Be Done:
CMS needs a plan with clear measures and benchmarks for reducing
Medicare‘s risk for improper payments, inefficient payment methods,
and issues in program management and patient care and safety. Further,
CMS‘s effective implementation of recent laws will be critical to
helping reduce improper payments. CMS also needs to take action to
address GAO recommendations, such as to develop an adequate corrective
action process, improve controls over contracts, and refine or better
manage payment for certain services.
View [hyperlink, http://www.gao.gov/products/GAO-11-430T] or key
components. For more information, contact Kathleen M. King at (202)
512-7114 or kingk@gao.gov.
[End of section]
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to discuss GAO's 2011 High-Risk Series
update on the Medicare program.[Footnote 1] My testimony today will
focus on information in our 2011 update on the nature of the risk in
the Medicare program, progress made since our last high-risk update in
2009, and the specific actions CMS needs to take to make additional
progress.
We have designated Medicare as a high-risk program because its
complexity and susceptibility to improper payments, combined with its
size, have led to serious management challenges. An improper payment
is any payment that should not have been made or that was made in an
incorrect amount (including overpayments and underpayments) under
statutory, contractual, administrative, or other legally applicable
requirements.[Footnote 2] In 2010, Medicare covered 47 million elderly
and disabled beneficiaries and had estimated outlays of $509 billion.
The Centers for Medicare & Medicaid Services (CMS)--the agency in the
Department of Health and Human Services that administers Medicare--has
estimated improper payments for Medicare of almost $48 billion for
fiscal year 2010.[Footnote 3] However, this improper payment estimate
did not include all of the program's risk since it did not include
improper payments in its Part D prescription drug benefit, for which
the agency has not yet estimated a total amount.[Footnote 4]
CMS is responsible for implementing payment methods that encourage
efficient service delivery, managing the program to serve
beneficiaries and safeguard it from loss, and overseeing patient
safety and care. However, CMS faces growing challenges in coming years
resolving issues that put the program at risk, given the rapid growth
expected in the number of Medicare beneficiaries and program spending.
Our 2011 High-Risk Series update on Medicare is based on a body of
work comprising more than 11 products that were developed by using a
variety of methodologies, including analyses of Medicare claims,
review of relevant policies and procedures, interviews with agency
officials and other stakeholders, and site visits.[Footnote 5] It also
includes information CMS has provided on the status of its actions to
address recommendations made in these and prior reports on Medicare.
Our work was performed in accordance with generally accepted
government auditing standards. Those standards require that we plan
and perform the audit to obtain sufficient, appropriate evidence to
provide a reasonable basis for our findings and conclusions based on
our audit objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit
objectives.
2011 High-Risk Series Update on the Medicare Program:
As we report in our 2011 High-Risk Series update, Medicare remains on
a path that is fiscally unsustainable over the long term. This fiscal
pressure heightens the need for CMS to reform and refine Medicare's
payment methods to achieve efficiency and savings, and to improve its
management, program integrity, and oversight of patient care and
safety. CMS has made some progress in these areas, but many avenues
for improvement remain.
Reforming and Refining Payments:
Since January 2009, CMS has implemented payment reforms for Medicare
Advantage (Part C) and inpatient hospital, home health, and end-stage
renal disease services. The agency has also begun to provide feedback
to physicians on their resource use and is developing a value-based
payment method for physician services that accounts for the quality
and cost of care. Efforts to provide feedback and encourage efficiency
are crucial because physician influence on use of other services is
estimated to account for up to 90 percent of health care spending.
In addition, CMS has taken steps to ensure that some physician fees
recognize efficiencies when certain services are furnished together,
but the agency has not targeted the services with the greatest
potential for savings. Under the budget neutrality requirement, the
savings that have been generated have been redistributed to increase
physician fees for other services. Therefore, we recommended in 2009
that Congress consider exempting savings from adjusting physician fees
to recognize efficiencies from budget neutrality to ensure that
Medicare realizes these savings.
Our examination of payment rates for home oxygen also found that
although these rates have been reduced or limited several times,
further savings are possible. As we reported in January 2011, if
Medicare used the methodologies and payment rates of the lowest-paying
private insurer of eight private insurers studied, it could have saved
about $670 million of the estimated $2.15 billion it spent on home
oxygen in 2009. Additionally, we found that Medicare bundles its
stationary equipment rate payment for oxygen refills, but refills are
required only for certain types of equipment, so a supplier may still
receive payment for refills even if the equipment does not require
them. Therefore, we suggested that Congress should consider reducing
home oxygen payment rates and recommended that CMS remove payment for
portable oxygen refills from payment for stationary equipment, and
thus only pay for refills for the equipment types that require them.
Our work has also shown that payment for imaging services[Footnote 6]
may benefit from refinements. Specifically, CMS could add more front-
end approaches to better ensure appropriate payments, such as
requiring physicians to obtain prior authorization from Medicare
before ordering an imaging service. CMS also has opportunities to
improve the way it adjusts physician payments to account for
geographical differences in the costs of providing care in different
localities. We have recommended that the agency examine and revise the
physician payment localities it uses for this purpose by using an
approach that is uniformly applied to all states and based on the most
current data. CMS agreed to consider the recommendation but was
concerned about its redistributive effects. The agency subsequently
initiated a study of physician payment locality adjustments. The study
is ongoing, and CMS has not implemented any change.
Improving Program Management:
CMS's implementation of competitive bidding for medical equipment and
supplies and its new Medicare Administrative Contractors (MAC) have
progressed, with some delays. Congress halted the first round of
competitive bidding and required CMS to improve its implementation. In
regard to contracting reform, because of delays resulting from bid
protests filed in connection with the procurement process, CMS did not
meet the target that it set for 2009 and 2010 in transferring workload
to MACs. As of December 2010, CMS transferred Medicare fee-for-service
claims workload to the new MACs in all but six jurisdictions. For
those six jurisdictions, CMS is transferring claims workload in two
jurisdictions and has ongoing procurement activity for the remainder.
Some new MACs had delays in paying providers' claims, but overall,
CMS's contractors continued to meet the agency's performance targets
for timeliness of claims processing in 2009.
Regarding Medicare Advantage, CMS has not complied with statutory
requirements to mail information on plan disenrollment to
beneficiaries, but it did take steps to post this information on its
Web site. In addition, the agency took enforcement actions for
inappropriate marketing against at least 73 organizations that
sponsored Medicare Advantage plans from January 2006 to February 2009.
Of greater concern is that we found pervasive internal control
deficiencies in CMS's management of its contracting function that put
billions of taxpayer dollars at risk of improper payments or waste. We
recommended that CMS take actions to address them. Recently, CMS has
taken several actions to address the recommendations and correct
certain deficiencies we had noted, such as revising policies and
procedures and developing a centralized tracking mechanism for
employee training. However, CMS has not made sufficient progress to
complete actions to address recommendations related to clarifying the
roles and responsibilities for implementing certain contractor
oversight responsibilities, clearing a backlog of contacts that are
overdue for closeout, and finishing its investigation of over $70
million in payments we questioned in 2007.
Enhancing Program Integrity:
New directives, implementing guidance, and legislation designed to
help reduce improper payments will affect CMS's efforts over the next
few years. The administration issued Executive Order 13520 on reducing
improper payments in 2009 and related implementing guidance in 2010.
In addition, the Improper Payments Elimination, and Recovery Act of
2010 amended the Improper Payments Information Act of 2002 and
established additional requirements related to accountability,
recovery auditing, compliance and noncompliance determinations, and
reporting.
CMS has already taken action in some areas--for example, as required
by law, it implemented a national Recovery Audit Contractors (RAC)
program in 2009 to analyze paid claims and identify overpayments for
recoupment. CMS has set a key performance measure to reduce improper
payments for Parts A and B (fee-for-service) and Part C and is
developing measures of improper payments for Part D. CMS was not able
to demonstrate sustained progress at reducing its fee-for-service
error rate because changes made to improve the methodology for
measurement make current year estimates noncomparable to any issued
before 2009. Its 2010 fee-for-service payment error rate of 10.5
percent will serve as the baseline for setting targets for future
reduction efforts. However, with a 2010 Part C improper payment rate
of 14.1 percent, the agency met its target to have its 2010 improper
payment rate lower than 14.3 percent. For Part D, the agency is
working to develop a composite improper payment rate, and for 2010 has
four non-addable estimates, with the largest being $5.4 billion. Other
recent CMS program integrity efforts include issuing regulations
tightening provider enrollment requirements and creating its Center
for Program Integrity, which is responsible for addressing program
vulnerabilities leading to improper payments.
However, having corrective action processes to address the
vulnerabilities that lead to improper payments is also important to
effectively managing them. CMS did not develop an adequate process to
address the vulnerabilities to improper payments identified by the
RACs and we recommended that it do so. Further, our February 2009
report indicated that Medicare continued to pay some home health
agencies for services that were not medically necessary or were not
rendered. To help address the issue, we recommended that postpayment
reviews be conducted on claims submitted by home health agencies with
high rates of improper billing identified through prepayment review
and that CMS require that physicians receive a statement of home
health services that beneficiaries received based on the physicians'
certification. In addition, we recommended that CMS require its
contractors to develop thresholds for unexplained increases in billing
by providers and use them to develop automated prepayment controls as
a way to reduce improper payments. CMS has not implemented these four
recommendations. The agency indicated it had taken other actions;
however, we believe these actions will not have the same effect.
CMS's oversight of Part D plan sponsors' programs to deter fraud and
abuse has been limited. However, CMS has taken some actions to
increase it. For example, CMS officials indicated that they had
conducted expanded desk audits and were implementing an oversight
strategy.
Overseeing Patient Care and Safety:
CMS's oversight of the quality of nursing home care has increased
significantly in recent years, but weaknesses in surveillance remain
that could understate care quality problems. Under contract with CMS,
states conduct surveys at nursing homes to help ensure compliance with
federal quality standards, but a substantial percentage of state
nursing home surveyors and state agency directors identified
weaknesses in CMS's survey methodology and guidance. In addition to
these methodology and guidance weaknesses, workforce shortages and
insufficient training, inconsistencies in the focus and frequency of
the supervisory review of deficiencies, and external pressure from the
nursing home industry may lead to understatement of serious care
problems. CMS established the Special Facility Focus (SFF) Program in
1998 to help address poor nursing home performance. The SFF Program is
limited to 136 homes because of resource constraints, but according to
our estimate, almost 4 percent (580) of the roughly 16,000 nursing
homes in the United States could be considered the most poorly
performing. CMS's current approach for funding state surveys of
facilities participating in Medicare is ineffective, yet these surveys
are meant to ensure that these facilities provide safe, high-quality
care. We found serious weaknesses in CMS's ability to (1) equitably
allocate more than $250 million in federal Medicare funding to states
according to their workloads, (2) determine the extent to which
funding or other factors affected states' ability to accomplish their
workloads, and (3) guarantee appropriate state contributions. These
weaknesses make assessing the adequacy of funding difficult.
However, CMS has implemented many recommendations that we have made to
improve oversight of nursing home care. Of the 96 recommendations made
by GAO from July 1998 through March 2010, CMS has fully implemented
45, partially implemented 4, is taking steps to implement 29, and did
not implement 18. Examples of key recommendations implemented by CMS
include (1) a new survey methodology to improve the quality and
consistency of state nursing home surveys and (2) new complaint and
enforcement databases to better monitor state survey activities and
hold nursing homes accountable for poor care.
What Remains to Be Done:
When legislative and administrative actions result in significant
progress toward resolving a high-risk problem, we remove the high-risk
designation from the program. The five criteria for determining
whether the high-risk designation can be removed are (1) a
demonstrated strong commitment to, and top leadership support for,
addressing problems; (2) the capacity to address problems; (3) a
corrective action plan; (4) a program to monitor corrective measures;
and (5) demonstrated progress in implementing corrective measures.
CMS has not met our criteria for removing Medicare from the High-Risk
List--for example, the agency is still developing its Part D improper
payment estimate and has not yet been able to demonstrate sustained
progress in lowering its fee-for-service and Part C improper payment
estimates. CMS needs a plan with clear measures and benchmarks for
reducing Medicare's risk for improper payments, inefficient payment
methods, and issues in program management and patient care and safety.
One important step relates to our recommendation to develop an
adequate corrective action process to address vulnerabilities to
improper payments. Without a corrective action process that uses
information on vulnerabilities identified by the agency, its
contractors, and others, CMS will not be able to effectively address
its challenges related to improper payments. CMS has implemented
certain recommendations of ours, such as in the area of nursing home
oversight. However, further action is needed on our recommendations to
improve management of key activities. To refine payment methods to
encourage efficient provision of services, CMS should take action to:
* ensure the implementation of an effective physician profiling system;
* better manage payments for services, such as imaging;
* systematically apply payment changes to reflect efficiencies
achieved by providers when services are commonly furnished together;
and:
* refine the geographic adjustment of physician payments by revising
the physician payment localities using an approach uniformly applied
to all states and based on current data.
* In addition, further action is needed by CMS to establish policies
to improve contract oversight, better target review of claims for
services with high rates of improper billing, and improve the
monitoring of nursing homes with serious care problems.
Mr. Chairman, this concludes my prepared statement. I would be happy
to answer any questions you or other members of the subcommittee may
have.
Contacts and Acknowledgments:
For further information about this statement, please contact Kathleen
M. King at (202) 512-7114 or kingk@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this statement. Sheila Avruch, Assistant Director;
Kelly Demots; and Roseanne Price were key contributors to this
statement.
[End of section]
Related GAO Products:
High-Risk Series: An Update. [hyperlink,
http://www.gao.gov/products/GAO-11-278]. Washington, D.C.: February
2011.
Medicare Home Oxygen: Refining Payment Methodology Has Potential to
Lower Program and Beneficiary Spending. [hyperlink,
http://www.gao.gov/products/GAO-11-56]. Washington, D.C.: January 21,
2011.
Medicare Recovery Audit Contracting: Weaknesses Remain in Addressing
Vulnerabilities to Improper Payments, Although Improvements Made to
Contractor Oversight. [hyperlink,
http://www.gao.gov/products/GAO-10-143]. Washington, D.C.: March 31,
2010.
Medicare Contracting Reform: Agency Has Made Progress with
Implementation, but Contractors Have Not Met All Performance
Standards. [hyperlink, http://www.gao.gov/products/GAO-10-71].
Washington, D.C.: March 25, 2010.
Nursing Homes: Addressing the Factors Underlying Understatement of
Serious Care Problems Requires Sustained CMS and State Commitment.
[hyperlink, http://www.gao.gov/products/GAO-10-70]. Washington, D.C.:
November 24, 2009.
Medicare: CMS Working to Address Problems from Round 1 of the Durable
Medical Equipment Competitive Bidding Program. [hyperlink,
http://www.gao.gov/products/GAO-10-27]. Washington, D.C.: November 6,
2009.
Centers for Medicare and Medicaid Services: Deficiencies in Contract
Management Internal Control Are Pervasive. [hyperlink,
http://www.gao.gov/products/GAO-10-60]. Washington, D.C.: October 23,
2009.
Medicare Physician Payments: Fees Could Better Reflect Efficiencies
Achieved When Services Are Provided Together. [hyperlink,
http://www.gao.gov/products/GAO-09-647]. Washington, D.C.: July 31,
2009.
Medicare: Improvements Needed to Address Improper Payments in Home
Health. [hyperlink, http://www.gao.gov/products/GAO-09-185].
Washington, D.C.: February 27, 2009.
Medicare Advantage: Characteristics, Financial Risks, and
Disenrollment Rates of Beneficiaries in Private Fee-for-Service Plans.
[hyperlink, http://www.gao.gov/products/GAO-09-25]. Washington, D.C.:
December 15, 2008.
Medicare Part B Imaging Services: Rapid Spending Growth and Shift to
Physician Offices Indicate Need for CMS to Consider Additional
Management Practices. [hyperlink,
http://www.gao.gov/products/GAO-08-452]. Washington, D.C.: June 13,
2008.
Medicare: Focus on Physician Practice Patterns Can Lead to Greater
Program Efficiency. [hyperlink,
http://www.gao.gov/products/GAO-07-307]. Washington, D.C.: April 30,
2007.
[End of section]
Footnotes:
[1] GAO, High-Risk Series: An Update, [hyperlink,
http://www.gao.gov/products/GAO-11-278] (Washington, D.C.: February
2011).
[2] This definition includes any payment to an ineligible recipient,
any payment for an ineligible good or service, any duplicate payment,
any payment for a good or service not received (except where
authorized by law), and any payment that does not account for credit
for applicable discounts. Pub. L. No. 111-204, § 2(e), 124 Stat. 2224,
2227 (2010) (codified at 31 U.S.C. § 3321 note).
[3] Department of Health and Human Services, Fiscal Year 2010 Agency
Financial Report, (Washington, D.C.: November 2010).
[4] Medicare consists of four parts. Medicare Parts A and B are known
as original Medicare or Medicare fee-for-service. Part A covers
hospital and other inpatient stays. Medicare Part B covers hospital
outpatient, physician, and other services. Part C is Medicare
Advantage, under which beneficiaries receive benefits through private
health plans. Part D is the Medicare prescription drug benefit.
[5] For more detailed information on the methodologies used in our
work, please consult the list of GAO products at the end of this
statement.
[6] Medical imaging is a noninvasive process used to obtain pictures
of the internal anatomy or function of the anatomy using one of many
different types of imaging equipment and media for creating the image.
Examples of imaging services include x-rays, computed tomography, and
magnetic resonance imaging scans.
[End of section]
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