HHS OIG Blasts CMS Contractor Conflicts of Interest — Has Implications for Agency Management of Competitive Bidding

Attached below is a report from the Department of Health and Human Service’s Inspector General concerning CMS “uses Zone Program Integrity Contractors (ZPIC) to perform program integrity activities designed to fight fraud, waste, and abuse in the Medicare program.”

The IG found that:

Offerors and their subcontractors often had business and contractual relationships with CMS and with other offerors, but rarely considered them to be actual conflicts. They reported having relationships with CMS or contractors of CMS that provide Medicare Parts C and D plans, claims processing, program integrity, and/or quality improvement services. Offerors, subcontractors, and CMS identified 1,919 business and contractual relationships as possible conflicts and 16 as actual conflicts. CMS does not have a written policy for reviewing conflict and financial interest information submitted by offerors, and submitted information was not always consistent or complete. Specifically, some offerors and subcontractors failed to provide all the requisite information regarding financial interests in other entities.

CMS’ failure to properly manage the ZPIC program has direct implications for another area in which the agency has avoided transparency: the competitive bidding program for durable medical equipment.  CMS’ lack of transparency in how they assess bids raises the specter of conflicts of interest and other improprieties in the agency’s decisions regarding which contractors receive contract offers and which do not.

CMS’ lack of transparency in the DMEPOS competitive bidding program has been noted by over 240 economists, including Nobel laureates.  In a letter to President Obama, the academicians stated:

The CMS competitive bidding program violates all of the principles [in President Obama’s Executive Order 13563], especially the principles of transparency and of basing regulations on the best available science. Indeed, the current program is the antithesis of science and contradicts all that is known about proper market design.

Since reseachers at the California Institute of Technology, in an article published in the Quarterly Journal of Economics concluded that the “CMS auction fails to generate competitive prices of goods and fails to satisfy demand” the agency’s lack of transparency is a direct threat to the health of Medicare beneficiaries across the country.  The question of whether the program will be reformed remains open.

See, HHS OIG report attached here:  oei-03-10-00300