Health Reform WK-EDGE CMS still needs to work on contractor selection, oversight
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Monday, September 25, 2017

CMS still needs to work on contractor selection, oversight

By Vanessa M. Cross, J.D., LL.M.

Following an audit of CMS’ federal procurement for contracting trends related to its administration of the Medicare and Medicaid programs, the Government Accountability Office (GAO) stood by its previous recommendations for examining disenrollment in Medicare Advantage (MA) contracts, modify contract selections for audits, and set clear expectations for contract work. The GAO maintains that CMS can strengthen its processes for selecting and overseeing contractors (GAO Report, GAO-17-735SP, September 12, 2017).

Background. In administering the Medicare program, CMS uses an extensive network of federal contractors to carry out is responsibilities. This includes procurement of products and services related to benefits delivery, program administration, management, and oversight. Private contractors deliver core CMS services such as handling Medicare claims and maintaining information technology systems. Based on a request from the U.S. Senate’s Committee on Finance, the GAO conducted an audit of CMS contracting data from May 2017 to September 2017, which led to its issuance of a series of GAO reports of its findings and recommendations to CMS.

Outstanding GAO recommendations. The recent GAO report provides a summary of key outstanding GAO recommendations to CMS related to its audit of CMS contracting data. The current GAO report notes that CMS has concurred with all of the recommendations that are currently outstanding from its prior reports.

  • GAO-17-393: a recommendation to strengthen oversight of Medicare Advantage contracts by examining data related to disenrollment by health status and the reason for a beneficiary’s disenrollment.
  • GAO-16-76: five recommendations were made, summarized as a recommendation that CMS modify its selection of contracts for audit by focusing on those that have the greatest potential for improper payments recovery, and enhancing the timeliness of the audits, among other things.
  • GAO-15-633: three recommendations were made, summarized as a recommendation that, in preparation for solicitation of recovery audit contract(s), that CMS set clear expectations in contract work statements; improve annual recovery audit contractors’ performance evaluations; and review the process for developing new audit issues.

Increased contracting obligations. Between fiscal years 2012 and 2016, CMS contracting obligations increase by about 40 percent, according to the GAO report, with about 97 percent of the increased related to services in fiscal year 2016. CMS reply to the report was that the increase was attributed in great part to the implementation of two laws: Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) and the Medicare Access and Children’s Health Insurance Program (CHIP) Reauthorization Act (MACRA) (P.L. 114-10).

In 2016, CMS procured about $7.2 billion in contracts. The bulk of these obligations, assessed by the GAO report as $6.97 billion, related to services such as IT systems, professional services, and assistance with governmental health insurance programs. The remaining $221 million contract obligations were largely contributed to procurement of IT-related products.

Competition rates. CMS’s competition rate increased from 78 percent in fiscal year 2012 to 96 percent in fiscal year 2016. Competition rate is the percentage of total obligations associated with contracts awarded competitively, in contrast with non-competitive obligations. The GAO report noted that CMS’s fiscal year 2016 competition rate is higher than the government-wide rate of 63 percent and the civilian agency rate of 81 percent.

Procurement methods. According to the GAO report, CMS obligated 78 percent of its fiscal year 2016 dollars on cost-reimbursement and time and material/labor hour contracts, which was consistent with fiscal year 2012 obligations. The GAO report noted that the Office of Management and Budget considers cost-reimbursements and time and material/labor hour contracts high risk because cost controls are not incentivized, resulting in the risk of overspending. The GAO deemed these types of contracts appropriate for the CMS to use instead of fixed-price contracts because they hedge against the uncertainties associated with the scope of the work, cost of services, or level of labor effort needed.

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