Kusserow on Compliance: GAO enrolled fictitious applicants through the Marketplace

The U.S. Government Accountability Office (GAO) is an independent “congressional watchdog” agency that investigates federal government expenditures. The Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) provides for the establishment of health insurance exchanges, or Marketplaces, where consumers can compare and select private health insurance plans. The ACA also expands the availability of subsidized health care coverage. The Congressional Budget Office (CBO) estimates the cost of subsidies and related spending under the ACA at $28 billion for fiscal year (FY) 2015. The ACA requires verification of applicant information to determine eligibility for enrollment or subsidies. Filing a federal income tax return is a key control element, designed to ensure that premium subsidies granted at time of application are appropriate based on reported applicant earnings during the coverage year.

The GAO was asked to examine controls for application and enrollment for coverage through the federal Marketplace and, thereafter, it conducted a review to assess the enrollment controls of the federal Marketplace. On July 16, 2015, the agency reported the results of undercover testing of the Marketplace application, enrollment, and eligibility verification controls using 18 fictitious identities. The GAO submitted or attempted to submit applications through the Marketplace in several states by telephone, online, and in person. There were 18 undercover tests performed in 2014, 12 of which focused on phone or online applications. The GAO found that the Marketplace approved subsidized coverage for 11 of the 12 fictitious GAO applicants who obtained a total of about $30,000 in annual advance premium tax credits, plus eligibility for lower costs due at time of service.

For seven of the 11 successful fictitious applicants, GAO intentionally failed to submit all required verification documentation, but the Marketplace did not cancel subsidized coverage for these applicants. The agency also found errors in information reported by the Marketplace for tax filing purposes for three of its 11 fictitious enrollees, such as incorrect coverage periods and subsidy amounts. The GAO shared details of its observations with CMS during the course of its testing, to seek agency responses to the issues raised. Other observations of the Marketplace included:

  • that all inconsistencies between applicant information submitted and information available from verification sources were not recorded;
  • unresolved inconsistencies based on fictitious documentation that GAO submitted;
  • failure to terminate coverage for several types of inconsistencies, including social security number data or incarceration status; and
  • automatically reenrolled coverage for all 11 fictitious enrollees for 2015.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2015 Strategic Management Services, LLC. Published with permission.


Medicare, Medicaid, and ACA Contribute to $195B Deficit

Due to both outlays and revenues that increased by 8 percent in January of 2015 as compared to those outlays and revenues at the same time in 2014, the Congressional Budget Office estimated that the first four months of the 2015 fiscal year (FY) showed a budget deficit of $195 billion. CBO highlighted significant increases in outlays for Medicare and Medicaid and explained how changes under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) contributed to those and other increased outlays in the CBO’s monthly budget review for January 2015.

CBO Report, In General

The CBO estimates of the budget deficit for the first four months of FY 2015 at $195 billion represents, as the CBO describes it, “$12 billion more than the shortfall recorded in the same span last year.” As such, as the CBO notes, “if lawmakers enact no further legislation affecting spending or revenues, the federal government will end [FY] 2015 with a deficit of $468 billion.” This would be a reduction of the deficit from 2014, which was $483 billion, or 2.8 percent of the gross domestic product (GDP).

Major Outlays

Outlays for the first four months of FY 2015 increased $91 billion since the same period of time in the preceding year and totaled $1.236 trillion. The CBO attributed that increase, in part, to a shift in the timing of certain payments from February to January this year, but still estimated that without that shift an $88 billion rise in outlays would have remained. For each of the three largest mandatory programs—Medicare, Medicaid, and Social Security—outlays rose. In particular, the CBO found that Medicaid outlays increased by $21 billion or 23 percent and Medicare outlays increased by $14 billion, or 8 percent. The increase in Medicare payments was explained by the CBO as due to “a large payment made to prescription drug plans in November of 2014 to account for unanticipated spending increases in calendar year 2014.”

Role of ACA

In regard to the 23 percent increase in Medicaid spending, the CBO noted that this significant rise was due in large part to the provisions of the ACA, which did not go into effect until January of 2014. The CBO report also focused on spending in January of 2015, which totaled an estimated $320 billion and which was $14 billion more than the outlays in the same month in 2014. A $5 billion, or 21 percent increase, in Medicaid spending contributed to that amount. The CBO also highlighted how the subsidies for health insurance coverage purchased through Health Insurance Exchanges contributed to outlays and spending for the January 2015 review. Specifically, subsidy payments were said to increase outlays by $2 billion according to the CBO. The agency explained, “those subsidies first began in January 2014; payments in January 2015 $2 billion, whereas they were only $40 million in January 2014.”

ACA’s Changes to Medicaid and Medicare Could Drastically Alter the Practice and Financing of Medicine

By: Neil Issar, Vanderbilt Law School-

The Patient Protection and Affordable Care Act (ACA) incentivizes adoption of a model in which healthcare providers reduce costs by shifting to value-based reimbursement, such that delivery of the highest quality outcomes at the lowest possible cost becomes the public standard.

One of the ACA’s most significant efforts to control costs is the creation of the Independent Payment Advisory Board (IPAB), an entity housed within the executive branch of government and consisting of 15 full-time members appointed by the President and confirmed by Senate. The creation of the IPAB has been trumpeted as a critical mechanism for slowing increases in healthcare spending, but it is also controversial due to concerns about its unrestricted power and its potential to arbitrarily limit patient access to necessary care.

Beginning in 2015, if healthcare expenditure growth exceeds set targets, the IPAB will make obligatory recommendations to cut spending in Medicare. The recommendations made by the IPAB will then be sent to Congress, and if Congress does not agree with the recommendations, it must pass alternative cuts of the same proportion within a narrow time frame. If Congress does not move to pass legislation, the Secretary of the Department of Health and Human Services is legally required to implement the IPAB’s recommendations.

The IPAB’s lack of public accountability and its intention to curb Medicare spending have been points of concern. For example, if the IPAB recommends reducing physician reimbursement rates to decrease Medicare expenditures, it could create a sizeable gap between private rates and Medicare rates, possibly driving physicians out of Medicare and exacerbating the access problem. This could be especially alarming for surgeons, and the American Academy of Orthopaedic Surgeons (AAOS), for example, is concerned about the impact that IPAB-directed cuts will have on patient access to musculoskeletal care and about the ability of the Board to focus on long-term delivery system reforms due to the yearly spending targets that must be met.

While the IPAB’s methods are limited by other ACA provisions, including restrictions on rationing of healthcare, raising costs of beneficiaries, modifying eligibility criteria, or cutting payments to hospitals or hospices before 2020, orthopaedic surgeons and other specialists are concerned about drastic changes to their clinical practices as the first of IPAB’s recommendations are produced in 2014, with implementation to start in 2015.

The ACA also includes provisions to reduce payments under the Medicare and Medicaid Disproportionate Share Hospital (DSH) programs beginning in 2014. These programs, which pay out approximately $22 billion every year, partially reimburse many hospitals for otherwise uncompensated care provided to low-income and uninsured patients. The reductions are based on the premise that the ACA’s expansion of coverage should significantly reduce the number of uninsured Americans, which, in turn, should result in a substantial decrease in the uncompensated care provided at acute care hospitals.

Scheduled reductions to the Medicaid DSH program will total $18.1 billion between 2014 and 2020, with additional laws extending DSH reductions to 2021 and 2022. Conversely, reductions to the Medicare DSH program will be determined by a new statutory formula that begins with a 75% decrease from current levels and then reimburses funds on the basis of the percentage decreases in states’ uninsured rates. Under this formula, a hospital in a state that sees its uninsured rate decrease by 50%, for example, could see a reduction of over a third of its Medicare DSH payments.

Without further amendments to health reform laws, DSH reductions could create considerable financial deficits for hospitals in states that forgo the ACA’s Medicaid expansion. This is especially troublesome for physicians that treat many uninsured and low-income patients. In addition, a coverage gap will remain in many such states, as the insurance exchanges created by the ACA were intended to serve patients who have incomes greater than 100% of federal poverty level (FPL) (since patients making less would be eligible for Medicaid under the law’s expanded eligibility criteria). States opting out of Medicaid expansion could thereby have many patients with incomes less than 100% of FPL uncovered by Medicaid and simultaneously ineligible to purchase discounted insurance through the exchanges. These patients would remain uninsured and become the primary beneficiaries of uncompensated hospital care.

In other words, hospitals in non-expansion states could face an alarming decline in DSH funding despite seeing little or no change in the amount of uncompensated care provided, which would directly affect the clinical practice of physicians responsible for the provision of this care.

Overall, the ACA marks the beginning of a shift from producer-centered, volume-driven payment models to patient-centered, outcomes-driven models. This goes hand-in-hand with an increased focus on decreasing healthcare costs while improving the quality and value of care. Healthcare spending continues to outpace economic growth and is expected to account for 25% of the US economy in less than two decades. By comparison, in 2010, other OECD nations spent on average about 9.3% of their GDP on healthcare. This will only be exacerbated by the ACA’s expansion of coverage unless physicians embrace the law’s changes to their clinical practice while simultaneously attempting to reduce expenditures and maintain high-quality patient care.

Neil Issar resides in Nashville, Tennessee, and is a student at the Vanderbilt School of Law. He is expected to graduate in the summer of 2016. He attended McGill University prior to law school, earning a B.Sc in 2010. He is the co-President of the Health Law Society, a Vanderbilt Law School Chancellor’s Scholar, and Deans Scholar.

Former CMS Administrators Call for a 5 Year Suspension of SGR Updates

Two former CMS Administrators voiced support for a 5 year suspension of the sustainable growth rate (SGR) formula used to update the payment rate for physicians who provide services to Medicare beneficiaries at an Alliance for Health Reform Briefing held on January 24, 2014.   Mark McClellan, MD, PhD, and CMS Administrator from 2004 to 2006,  suggested that a five  year suspension of the SGR would be a better solution than the 10 year suspensions proposed in current legislation.  Gail Wilensky, PhD. who was CMS’ administrator from 1990 to 1992, agreed.  “You could do the first steps of what all that legislation does, which is provide a known piece of stability for several years and put in place some specific activities to try to move forward with performance metrics,” said Wilensky.   Both thought that this suspension would shift the focus of the debate away from the negative cuts the SGR system requires and towards evaluating payment systems that reward value and quality.

Value-Based Payments

Their main concern was that the proposals for a 10-year break from the SGR would cost in the neighborhood on $150  billion according to a Congressional Budget Office Report.  McClellan thought that if that cost were cut in half the legislation might get more support. In addition,  both thought that the five year time frame would be sufficient to get results from and analysis of  a variety of different payment models being tested across the country.

The real problem with the physician reimbursement system is not so much the SGR formula, but the fact that it is based on payment for services. Gail Wilensky said, “the relative values scales as it exists with billings for some eight to 9000 different codes, rewards volume rather than value.”  Stu Guterman, Vice President of Medicare and Cost Control at the Commonwealth Fund, which co-sponsored the briefing  said, “One of the problems is that the [SGR] formula cuts payment rates across the board, no matter how appropriate or inappropriate the service is and no matter what kind of physician is providing a service and how effective they are.” All three thought that simply suspending the SGR was not enough and that the physician reimbursement system needs to be moved from fee-for-service structure to one that pays for value and quality of care.


The SGR was designed as a mechanism for adjusting the total growth in spending on physician services.  The SGR is linked to changes in the U.S. gross domestic product. It is based on a formula at Soc. Sec. Act sec. 1848 (f)(2) that includes the following factors; (1) the estimated weighted average percentage increase in the fees for all physicians’ services; (2) the estimated percentage change in the average number of Part B beneficiaries from the previous year; (3) the estimated percentage growth in the real per capita GDP from the previous year; and (4) the estimated percentage change in expenditures for all physicians’ services that are attributable to changes in laws and regulations. The result being that in 2002, and every year since, the SGR has produced a negative update, or a reduction in spending on physician services from the previous year.  “The problem being,” said Guterman, “is as spending continues to exceed the target that is set under the formula, the formula produces large cuts in fees.”

Both Wilensky and McClellan noted several different payment methodologies for physicians from medical homes to accountable care organizations and a variety of other models that are being tested.  Both felt that it was too early in the process to come up with a payment system that would replace the fee-for-service system, but that by repealing the SGR for a five year period the focus of the debate would be taken off the annual cut to the physician fee system and focused on developing a physician reimbursement system based on value of care provided.