CMS Exceeded Legal Authority in $8 Billion Boondoggle

In an extraordinary letter attached here, the US General Accountability Office’s General Counsel wrote Secretary Sebelius sharply questioning CMS’ legal authority for an $8 billion Medicare Advantage (MA) Quality Bonus Payment “Demonstration” program and rejecting CMS’ defense of the spending.  By way of background, the GAO letter stated:

In March 2012, GAO reported that the demonstration’s reliance on predemonstration performance data, the absence of an appropriate comparison group of MA plans, and the demonstration’s design make it unlikely that the demonstration will produce meaningful results. These facts, in combination with the demonstration’s $8 billion cost, resulted in our recommendation that HHS cancel the demonstration.

GAO further stated:

Our findings during the course of our evaluation of the demonstration also raised concerns about whether the demonstration falls within HHS’s section 402 authority, and resulted in our solicitation, by letter of January 10, 2012, of the views of the General Counsel of HHS regarding this issue.

With respect to CMS’ response to GAO and defense of the Medicare Advantage Bonus program, GAO’s General Counsel opined:

CMS’s response, however, does not explain how the MA Quality Bonus Payment Demonstration comports with its section 402 authority. To the contrary, as discussed in detail below, we remain concerned about the agency’s legal authority to undertake the demonstration.

GAO concluded that even though CMS’ discretion is broad, it has limits.

Section 402(a)(1)(A) provides the Secretary broad authority to modify methods of payment under Medicare to establish additional incentives to increase the economy and efficiency of services provided under the program by carrying out experiments and demonstration projects. This authority, however, is not unlimited.

Moreover, GAO’s General Counsel explained that,

demonstrations under which these payment changes are initiated must meet the criteria set forth in the statute, which include providing additional incentives to MA plans to increase the efficiency and economy of Medicare services and enabling the agency to determine whether these changes in payment methods increase the efficiency and economy of Medicare services. However, CMS has not established that either of these elements is present in the MA Quality Bonus Payment Demonstration.

CMS’ $8 billion demonstration program is part of a pattern and practice of poor judgement and likely exceedance of legal authority.  For example, HHS’ Office of Inspector General recently found rampant conflicts of interest in CMS’s Zone Program Integrity Contractors (ZPIC) where 1,919 business and contractual relationships were identified as potential conflicts of interest and 16 actual conflicts.  The HHS OIG report is discussed on CRE’s Competitive Bidding blog here.

CMS has also demonstrated extremely poor judgement and management skills with regard to the agency’s competitive bidding program for durable medical equipment which resulted in the agency designing a federal auction that was described by over 240 eminent academicians as the “antithesis of science.”  Whether CMS exceeded their legal authority by accepting non-binding bids in the DMEPOS program remains an open issue.

GAO-Sebelius_Letter.July11_2012