July 11,2012

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Julia Lawless, Antonia Ferrier, 202.224.4515

In Letter to HHS Secretary, GAO Questions Legal Authority for Medicare Advantage Demonstration Program

Utah Senator Says, “What GAO found is a rebuke of how the Obama Administration tried to use this demonstration program to divert attention away from cuts to the popular Medicare Advantage program.”

WASHINGTON – In a letter to Health and Human Services (HHS) Secretary Kathleen Sebelius, the Government Accountability Office (GAO) said HHS failed to show that it had the legal authority for its $8.3 billion Medicare Advantage quality bonus demonstration program (MA QBP), the largest project ever undertaken by the Centers for Medicare & Medicaid Services (CMS).

In response, Senate Finance Committee Ranking Member Orrin Hatch (R-Utah), who has long raised concerns about the legality of this program, said, “What GAO found is rebuke of how the Obama Administration used this demonstration program to divert attention away from cuts to the popular Medicare Advantage program.  Lacking the legal authority to undertake a project of this magnitude shows how the Obama Administration tried to use a technicality to side step Congress and write itself a blank check to spend more money for political purposes leading into this year’s elections.  This is simply unacceptable.  The White House does not have the authority to green light spending on whatever program it wants.  American taxpayers and America’s seniors deserve the truth about how Obama's health law harmed access to the Medicare Advantage program.”

In its letter to Secretary Sebelius, GAO wrote:

•    “These facts, in combination with the demonstration’s $8 billion cost, resulted in our recommendation that HHS cancel the demonstration.  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.  BY letter of February 10, 2012, the Deputy Director of the Center for Medicare within the Centers for Medicare & Medicaid Services (CMS) responded to our inquiry.  …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.”

•    “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… CMS has not established that [the necessary]… elements [are] present in the MA Quality Bonus Payment Demonstration.”

Demonstration programs typically do not cost any additional money and are intended to test new ways health care providers are paid under the Medicare program.  In a report released earlier this year, GAO found that the MA QBP is the most costly demonstration programs, involving $8.3 billion for insurance companies, ever undertaken by HHS.  Furthermore, it will fail to produce any meaningful data for the Center for Medicare and Medicaid Services (CMS) to evaluate, which is central to the goal of any demonstration program.