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This audit assessed the effectiveness of the Department of Human Services’ management of Medicare compliance audits.

Audit objective, criteria and scope

The objective of the audit was to assess the effectiveness of the Department of Human Services’ management of Medicare compliance audits.

To form an opinion against the audit objective, the ANAO examined the design and operation of departmental processes against the following high‑level criteria:

  • Human Services effectively identifies, selects and prioritises potential cases of non‑compliance for compliance audits.
  • Compliance audits are conducted in accordance with legislative and operational requirements.
  • Non‑compliance actions are managed and the information is used to inform future compliance activities.

The ANAO interviewed Human Services staff involved in the conduct of Medicare compliance audits and key stakeholders, and reviewed key guidance materials and documents, including departmental reports that capture Medicare compliance performance information. The ANAO also reviewed a sample of Medicare compliance audits.

Overall conclusion

Medicare is a long‑standing publicly funded program which aims to make affordable health care accessible for Australians and other eligible persons. The integrity and sustainability of the Medicare program, which features a high volume of transactions, is supported by Human Services’ ongoing monitoring of claims by health professionals against the Medicare Benefits Schedule (MBS) and a program of compliance activities, including audits of billing by health professionals. The 2008–09 Budget measure—Increased Medicare Compliance Audits initiative (IMCA initiative)—provided Human Services with enhanced legislative powers and substantial additional funding to support an expanded program of Medicare compliance audits.

Overall, the effectiveness of Human Services’ management of Medicare compliance audits has been mixed. Human Services has delivered a program of compliance audits and related compliance activities, which has helped reinforce health professionals’ awareness of their compliance obligations. However, the department’s administration of Medicare compliance audits and its implementation of the Budget measure, the IMCA initiative, demonstrated a range of shortcomings that detracted from the department’s performance in delivering these elements of its broader Compliance Program.

Human Services largely determines its program of Medicare compliance audits in response to compliance risks identified through a mix of environmental scans (such as monitoring MBS claiming patterns), tip‑offs and stakeholder input. The ANAO’s review of a targeted sample of Medicare compliance audits indicated that for the most part, key compliance audit processes were followed, and audit outcomes, such as the number of health professionals assessed as non‑compliant and the total amount of debts raised, are appropriately documented. The department has also captured operational lessons learned and identified recommendations for action that have the potential to contribute to the conduct and improvement of future compliance activities.

However, there remain a number of areas where Human Services can improve its administration of Medicare compliance audits, to the benefit of the broader Compliance Program. While the department has processes in place to identify risks to the Medicare program, historically it has not routinely undertaken preliminary analysis of emerging risks in a timely way. Consequently, a large number of identified risks have not been substantively analysed to determine whether their treatment should be given priority and factored into Human Services’ compliance planning. The department has very recently taken some steps to consider such a process. The ANAO’s review of a sample of Medicare compliance audits also identified inconsistent approaches within Human Services to calculating debts, with variability in the standards of proof accepted by different compliance officers in calculating debts. There would be merit in Human Services finalising and implementing a debt calculation policy, to address inconsistencies and strengthen the department’s overall management of non‑compliance.

Since 2008–09, the department has administered an expanded program of Medicare compliance audits funded through the IMCA initiative. The initiative, which was a measure funded by the Budget, provided $76.9 million to Human Services to conduct an additional 8000 Medicare compliance audits over four years and return an estimated $147.2 million in savings, thus anticipating net savings of $70.3 million. However, between 2008–09 and 2012–13, Human Services only raised a total of $49.2 million in debts and recovered $18.9 million from Medicare compliance audits. The available Human Services’ data shows that there was a $128.3 million shortfall in the savings achieved by the department, in the form of monies actually recovered, against the target set by the budget initiative—some 87 per cent less than the $147.2 million in expected savings. From the performance information available, the ANAO’s analysis indicates that since the introduction of the budget measure, the compliance audits performed by the department, including those performed under the department’s enhanced legislative powers, were delivered at a net cost to government.

The responsible Minister (the then Minister for Human Services) and the policy Minister (the then Minister for Health and Ageing) had been asked by the Expenditure Review Committee (ERC) of Cabinet in 2008 to report back to government on achievements against the IMCA Budget measure in 2011–12. In this context, Human Services did not develop or implement its proposal to monitor and report on savings to support this reporting requirement; an opportunity missed, given ministerial expectations of a significant return on the government’s investment.

As mentioned above, the IMCA initiative funded Human Services to deliver a substantially increased audit program. The department only met its key performance indicator—2500 completed Medicare audit and review cases per year—once in 2011–12, when it reported completing 2549 Medicare audits and reviews. While the annual target had been agreed by Ministers in the 2008–09 Budget context, during 2012–13 Human Services altered the mix of compliance activities it counted towards the target, by including 500 less onerous ‘targeted feedback letters’, as well as compliance activities directed towards members of the public rather than health professionals. The department subsequently reported completing a total of 2819 Medicare compliance cases in 2012–13, against the revised activity mix. If the additional compliance activities were excluded, the number of Medicare compliance audits and reviews completed in 2012–13 (against the Ministerially agreed target) was 2073. While acknowledging the department’s advice that targeted feedback letters were a valid compliance treatment intended to encourage voluntary compliance, their inclusion resulted in inaccurate performance reporting for the budget measure, as well as inaccurate and inflated internal reporting of its compliance coverage rate. There would have been merit in Human Services informing their Minister of the proposal to change the compliance activities to be conducted and reported against publicly.

The audit highlights the need for agencies to meet government expectations and effectively monitor and report on the delivery of intended outcomes, including the realisation of expected savings. The department’s failure to implement its proposed monitoring and reporting arrangements for the IMCA initiative restricted its capacity to demonstrate whether it had delivered the expected return on the Government’s significant investment in an expanded program of Medicare compliance audits. The ANAO has made two recommendations to strengthen Human Services’ management of its Compliance Program for Medicare. The recommendations focus on strengthening the department’s assessment of Medicare compliance risks and its capacity to effectively target resources by better capturing and reporting on the benefits realised from Medicare compliance audits, in the context of the broader Compliance Program.

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