CMS Shows Increasing Reliance on Contracted Goods and Services

Published: September 28, 2017

CMSContracting Trends

CMS has shown a 40% increase in contracted obligations from FY 2012 to FY 2016, according to a recent GAO analysis.

The Senate Finance Committee asked GAO to review CMS contracting trends. GAO looked at Federal Procurement Data System contracting actions from FY 2012 to FY 2016. 

CMS is responsible for administering the Medicare program and the Medicaid program, in conjunction with the states. In order to carry out its mission, CMS uses contractors for services such as benefit delivery, program administration, management, and oversight. These contractors perform a variety of functions such as handling claims under the Medicare program and maintaining IT systems. Each year, CMS procures billions in products and services to carry out its mission to strengthen and modernize the nation’s health care system, and to provide high quality health care and improved health to its beneficiaries at a lower cost. CMS carries out its acquisition functions through the Office of Acquisition and Grants Management.

In FY 2016, CMS obligated approximately $7.2B on contracts, representing 30% of total HHS contract obligations. CMS increased contracting obligations by 40% from FY 2012 to FY 2016.  About 97% of obligations are for services. Much of the contract growth can be attributed to implementation of the Affordable Care Act (ACA) and the Medicare Access and Children’s Health Insurance Program (CHIP) Reauthorization Act (MACRA) of 2015.

ACA and MACRA have increased CMS’s need for support services. In FY 2016 $6.97B of contract obligations were devoted to services, such as IT systems services, professional services, and assistance with governmental health insurance programs, including administering, overseeing, and auditing claims made under the Medicare program. $221M for FY 2016 went to purchase products, most of which were IT-related.

CMS is increasingly using competitive contracting methods, as opposed to sole source or other non-competitive acquisition methods. In FY 2012, CMS competed 78% of its contract obligations, but in FY 2017, CMS competed 96% of its contract obligations.  CMS officials attribute this increase to leadership’s commitment to promoting competition for all CMS contracts. CMS’s FY 2016 competition rate is higher than the government-wide rate of 63% and the civilian agency rate of 81%.

GAO also analyzed contract type and found that CMS obligated 68% of its FY 2016 dollars on cost-reimbursement contracts. OMB considers cost-reimbursement, and time and material/labor hour contracts high risk because they do not directly incentivize contractors to control costs and thus carry significant potential risk of overspending.

CMS only obligated 22% of its contracted spending to fixed-price contracts as opposed to the government-wide civilian agency average of 56%.  CMS officials told GSA that they are looking for opportunities to use more fixed-price contracts to minimize financial risk, but noted that much of CMS’s work is appropriate for cost-reimbursement contracts due to uncertainties in the requirements.