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GAO says CMS mismanaged Part D funding

A new report by the Government Accountability Office questions some $90 million in payments to federal contractors under the Medicare Part D prescription drug program.

The misappropriation of the funding used by the Centers for Medicare and Medicaid Services to pay contractors to provide administrative services for the Medicare Prescription Drug program, may have resulted in lack of internal oversight mechanisms, GAO said.

The Dec. 20 report conducted for Sen. Charles Grassley (R-Iowa), ranking member of the Senate Finance Committee, said CMS did not take measures to avoid waste and prevent improper payments. GAO recommended that CMS improve internal controls and accountability in its contracting practices

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According to GAO, from Jan. 2004 through Dec. 2006, CMS paid out over 90 percent of the $1 billion set aside for the Medicare drug program. The majority of the funds, about $735 million, were paid to contractors and vendors for a variety of services, GAO said.

In addition, CMS spent $234 million to support a hotline to answer beneficiary questions and paid other federal agencies to provide printing and mailing services and state agencies to fund public education programs. The payments also included CMS employee payroll and travel costs and purchase of office supplies, equipment, and outreach materials.

"CMS management has not allocated sufficient resources, both staff and funding, to keep pace with recent increases in contract awards and adequately perform contract and contractor oversight," GAO said. "This operating environment created vulnerabilities in the contracting process."

The report also said CMS did not adequately work with contractors to establish indirect cost rates and did not ensure contracts were closed within required deadlines. GAO found CMS had a backlog of approximately 1,300 contracts as of Sept. 30, 2007.

Kerry Weems, acting administrator of CMS, defended the agency, saying it conducts business with its contractors with "the highest degree of integrity" and disagreed with the $90 million in questionable payments. CMS has been exemplary in its management of federal contracts in 2007, Weems said. However, CMS will "take action" on GAO's recommendations, he added.

The Dec. 20 GAO report follows a November study by Georgetown University, which said the Part D program, though in its third year, is still fraught with implementation difficulties, including access issues and too much complexity for seniors.