Federal Workforce: Talent Management Strategies to Help Agencies Better Compete in a Tight Labor Market

The federal workforce is critical to federal agencies' ability to address the complex social, economic, and security challenges facing the country. However, the federal government faces long-standing challenges in strategically managing its workforce. We first added federal strategic human capital management to our list of high-risk government programs and operations in 2001. Although Congress, OPM, and individual agencies have made improvements since then, federal human capital management remains a high-risk area because mission-critical skills gaps within the federal workforce pose a high risk to the nation.

This testimony focuses on (1) key hiring and other human capital management challenges facing federal agencies, and (2) talent management strategies identified from GAO's prior work that agencies can use to be more attractive employers in a tight labor market.

This testimony is based on GAO's large body of work on federal human capital management issued primarily between July 2014 and July 2019. To conduct these studies, GAO reviewed government-wide employment data and interviewed officials from OPM and subject matter specialists from think tanks, academia, government employee unions, and other areas.

Outmoded approaches to personnel functions such as job classification, pay, and performance management are hampering the ability of agencies to recruit, retain, and develop employees. At the same time, agency operations are being deeply affected by a set of evolving trends in federal work, including how work is done and the skills that employees need to accomplish agency missions.

Given these challenges and trends, federal agencies will need to apply talent management strategies such as the following:

Align human capital strategy with current and future mission requirements. Agencies need to identify the knowledge and skills necessary to respond to current and future demands. Key practices include identifying and assessing existing skills, competencies, and skills gaps.

Acquire and assign talent. To ensure the appropriate capacity exists to address evolving mission requirements, agencies can use internships, cultivate a diverse talent pipeline, highlight their respective missions, and recruit early in the school year.

Incentivize and compensate employees. While agencies may struggle to offer competitive pay in certain labor markets, they can leverage existing incentives that appeal to workers' desire to set a schedule and to work in locations that provide work-life balance.

Engage employees. Engaged employees are more productive and less likely to leave, according to the Office of Personnel Management (OPM). Agencies can better ensure their employees are engaged by managing their performance, involving them in decisions, and providing staff development.

Of the 29 recommendations to OPM that GAO has designated as priorities for implementation, 21 are aimed at improving strategic human capital management efforts government-wide. OPM agreed or partially agreed with most of these recommendations, of which 11 are still open. GAO will continue to monitor OPM's progress in addressing them.

Thank you for the opportunity to participate in today’s hearing on making  federal employment more competitive in a tight labor market, especially to  the next generation of federal workers. Today’s hearing is especially  timely because next month marks the 70th anniversary of the act that  currently organizes federal positions for purposes of pay and other  activities: the Classification Act of 1949. This law was created for a type  of federal work and workforce of a different era, and is one of several  building blocks of the federal personnel system that are outmoded and  hampering agencies’ talent management efforts.

The federal workforce is critical to federal agencies’ ability to address the  complex social, economic, and security challenges facing the country.  However, across government, mission critical skill gaps are undermining  the ability of federal agencies to carry out their missions. Last week, for  example, we testified on how difficulties in recruiting and retaining skilled  health care providers and human resource staff at the Veterans Health  Administration’s (VHA) medical centers led to mission-critical skill gaps  that make it difficult to meet the health care needs of veterans. We first  added federal strategic human capital management to our list of high-risk  government programs and operations in 2001. Although Congress,  OPM, and individual agencies have made improvements since then,  federal human capital management remains a high-risk area because  mission-critical skills gaps within the federal workforce pose a high risk to  the nation.

My remarks today focus on (1) key hiring and other human capital  management challenges facing federal agencies, and (2) talent management strategies we have identified from our prior work that  agencies can use to be more attractive employers in a tight labor market.  The bottom line is that while agencies’ efforts to recruit and retain the staff  needed to carry out their missions face a number of hurdles, agencies still  have a number of strategies they can leverage within their existing  authorities and flexibilities to be more competitive for top talent.

This testimony is based on our large body of work on federal human  capital management issued primarily between July 2014 and July 2019.  We reviewed government-wide employment data and interviewed officials  from the Office of Personnel Management (OPM) and subject matter  specialists from think tanks, academia, government employee unions,  and other areas. More detailed information on our objectives, scope, and  methodology for that work can be found in the issued reports.

We conducted the work on which this statement is based in accordance  with generally accepted government auditing standards. Those standards  require that we plan and perform audit to obtain sufficient, appropriate  evidence to provide a reasonable basis for our findings and conclusions  based on our objectives. We believe that the evidence obtained provides  a reasonable basis for our findings and conclusions based on our audit  objectives.

The federal government faces long-standing challenges in strategically  managing its workforce. As shown in table 1, in addition to strategic  human capital management, skills gaps played a role in 16 of the 34 other  high-risk areas on our 2019 High-Risk List, including information  technology management and acquisitions, and veterans’ health care.

We have also designated as priority 29 of our prior recommendations to  OPM because, upon implementation, they may have an especially  significant impact on OPM’s operations. Twenty-one of these priority  recommendations are aimed at addressing government-wide human  capital challenges, including some of the ones discussed above. OPM  agreed or partially agreed with most of these recommendations. OPM has  implemented 10 of these priority recommendations to date, but needs to  take additional action on the other 11. For example, OPM should continue  to streamline hiring authorities to strengthen the government’s ability to  compete in the labor market for top talent and improve the federal hiring  process. We will continue to monitor OPM’s progress in implementing our  recommendations.

Federal Human Capital Management Challenges are Long- Standing and Systemic

The government’s system of current employment policies was designed  generations ago for a workforce and types of work that largely no longer  exist. Much has changed since the Civil Service Reform Act of 1978 and  the Classification Act of 1949 laid the foundation of today’s federal  personnel system. We have identified several structural challenges  within the federal human capital system that impede the ability of  agencies to recruit, retain, and develop employees, both today and in the  future. For example:

Classification system. The General Schedule classification  system—which defines and organizes federal positions, primarily to  assign rates of pay—has not kept pace with the government’s  evolving requirements.

Recruiting and hiring. Federal agencies need a hiring process that is  applicant friendly and flexible, and meets policy requirements.

Pay system. Employees are compensated through an outmoded  system that (1) rewards length of service rather than individual  performance and contributions, and (2) automatically provides across- the-board annual pay increases, even to poor performers.

Performance management. Federal agencies have faced long- standing challenges developing modern, credible, and effective  employee performance management systems and dealing with poor  performers.

Additionally, the changing nature of federal work and high percentage of  employees eligible for retirement could produce gaps in leadership and  institutional knowledge. It could also threaten to aggravate the problems  created from existing skills gaps. For example, 31.6 percent of permanent  federal employees who were on board as of September 30, 2017 will be  eligible to retire in the next five years, with some agencies, such as the  Department of Housing and Urban Development and the Environmental  Protection Agency, having particularly high levels of employees eligible to  retire.

In March 2019, we identified key trends in agency operations and  attitudes toward work that are affecting how federal work is done and  consequently, the skills and competencies that workers will need to  accomplish agency missions (see fig. 1). Agencies will need to apply  talent management strategies that are adapted to these trends to recruit,  develop, and retain a high-performing workforce and better meet their  missions.

Key Talent Management Strategies Can Help Agencies Be More Competitive in a Tight Labor Market

In light of trends and other challenges facing the government’s human  capital management efforts, our prior work has identified actionable  strategies that agencies may be able to use to effectively manage the  future federal workforce in key talent management areas (see table 2).  We noted that while these strategies are not an exhaustive list,  collectively they suggest basic steps that agencies can take within  existing authorities to position themselves to meet their talent needs.  These practices are based on our review of related reports, group  interviews with federal Chief Human Capital Officers (CHCO), and  interviews with selected private organizations and foreign governments.

For each strategy, we highlight examples of the challenges agencies  face, actions OPM can take to implement related recommendations from  our prior work, and practices that may help agencies implement the  strategy.

Align human capital strategy with current and future mission  requirements. With shifting attitudes toward work, technological  advances, and increased reliance on nonfederal partners, agencies need  to identify the knowledge and skills necessary to respond to current and  future demands. Key practices include identifying and assessing existing  skills, competencies, and skills gaps.

In May 2014, we reported that agencies should be aware of existing skills  and competencies in their workforce to help inform workforce planning.  As one example, the Department of the Treasury CHCO told us that,  following the Puerto Rico debt crisis—where it needed to be able to  identify the necessary skills to manage the crisis—the agency decided to  implement an Integrated Talent Management System to facilitate  workforce and succession planning as well as learning and performance  management.

Acquire and assign talent. To ensure agencies have the talent capacity  to address evolving mission requirements and negative perceptions by  some of federal work (e.g., that it is too bureaucratic), agencies can  cultivate a diverse talent pipeline through strategic partnerships with  academic and other institutions, highlight their respective missions, recruit  early in the school year, support rotations, and assign talent where  needed.

As one example, consulting firm representatives that we interviewed for  our prior work stated that their internship programs are among their most  successful practices for cultivating a talent pipeline because the firms can  offer full-time positions to rising seniors during the internship. A  representative from one consulting firm said that, after experiencing  challenges in recruiting on college campuses, the firm built a competitive  internship program to promote the firm’s brand and reputation.  Participants in the firm’s 10-week program are paid and assigned  challenging projects, and successful participants are given job offers upon  completion. According to the representative, approximately a quarter of  the firm’s workforce is former interns. Similarly, CHCOs and federal  employee and management group representatives we interviewed noted  that internships are important for establishing a pipeline for recruitment.

The federal government’s Pathways Programs, which consist of the  Internship Program, the Recent Graduates Program, and the Presidential  Management Fellows Program, were designed to promote employment  opportunities for students and recent graduates by providing distinct  paths to federal internships and potential careers in government. The  Internship Program provides paid opportunities for students (high school,  vocational, technical, undergraduate, and graduate) to work in agencies  and explore federal careers while still in school. Students who  successfully complete academic and program requirements may be  eligible for non-competitive conversion to a term or permanent position in  the civil service.

In our prior work, we have also reported on the importance of cultivating a  diverse talent pipeline through active campus recruiting which includes  developing long-term institutional relationships with faculty, administrators  and students, and by building a “brand” on campus. Other strategies to  expand a talent pool include developing strategic partnerships with such  entities as trade schools, apprentice programs, and affinity organizations  from across the country.

Another strategy for attracting strong candidates is for agencies to  highlight their missions and innovative work, which, according to our  expert and CHCO interviews, can help counter negative perceptions of  federal employment. For example, the Department of Homeland Security  (DHS) provides “Day in the Life” information on its work to promote public  awareness of how its everyday tasks tie in with its mission of protecting  the United States, according to the DHS CHCO. The DHS CHCO stated  that promoting agency mission can be done while cultivating a talent  pipeline and assessing applicants’ abilities. The department holds  recruitment events where potential candidates can participate in law  enforcement-related activities such as fitness testing. The CHCO noted  that these events both promote homeland security careers and help  prospective candidates determine if a position is a good fit for them.

Incentivize and compensate employees. While federal agencies may  struggle to offer competitive pay in certain labor markets, they can  leverage existing incentives that appeal to workers’ desire to set a  schedule and to work in locations that provide work-life balance.  However, agencies do not always promote these benefits and incentives  as part of a total compensation package, in part because managers are  not always aware of the importance of doing so. Some agencies are  addressing this issue by advertising and helping employees use available  benefits, work-life balance programs, and other resources. For example,  the National Science Foundation offers employees many opportunities to  learn about existing benefits, according to the foundation’s CHCO. These  opportunities include triannual retirement seminars where employees  receive personalized retirement estimates, quarterly financial planning  seminars where employees receive a free 1-hour consultation, and  annual benefit fairs where employees can learn about various health care  providers, the work-life programs, and the employee assistance program.

Our prior analysis of CHCO and expert interviews also found that  employees may value different benefits and incentives depending on their  stage in life. By better understanding the desires of the workforce at  various life stages, agencies can better tailor benefits packages and  incentives to their employees. For example, the Social Security  Administration’s CHCO said that the agency’s younger workers value  work-life and wellness programs, so the agency implemented a health- tracking program and a fitness discount program for all employees.  CHCOs also suggested identifying and incorporating the benefits that  would be most useful to various groups of employees, such as  sabbaticals for midlevel employees or paid parental leave for employees  starting families. One CHCO found that her cybersecurity workforce  values subsidies for training and additional certifications more than bonus  pay.

Further, OPM’s 2018 Federal Work-Life Survey Governmentwide Report  found that the number of respondents who anticipate adult dependent  care responsibilities in the next 5 years (31 percent) is double the number  of respondents with current adult dependent care needs (15 percent).  OPM officials stated in light of this change, agencies may need to provide  greater workplace flexibilities and other support services to retain talent.  Some CHCOs we interviewed for prior work said that they believe that  paid parental leave could be a powerful retention tool for federal workers.  Representatives from consulting firms that we interviewed said that they  have observed positive impacts from these types of benefit programs. For  example, representatives from one firm said that providing employees  with peace of mind when managing life events helps them feel more  committed to the organization.

Engage employees. Engaged employees are more productive and less  likely to leave, according to OPM. Agencies can better ensure their  workforces are engaged by managing employee performance, involving  employees in decisions, and developing employees.

Experts we interviewed for prior work said that employees desire an  environment where they can collaborate with their peers and feel a sense  of comradery. In contrast, even a small number of poor performers can  negatively affect employee morale and agencies’ capacity to meet their  mission, according to CHCOs and our previous work. In the 2017 Federal  Employee Viewpoint Survey (FEVS), 64 percent of federal employee  respondents agreed that their supervisor provides them with constructive  suggestions to improve job performance and 31 percent agreed that  steps are taken to deal with poor performers.

Without effective performance management, agencies risk not only losing  the skills of top talent, they also risk missing the opportunity to effectively  address increasingly complex and evolving mission challenges. Agencies  can make performance management more effective by improving the  selection and training of supervisors and managers, creating a “line of  sight” between individual performance and organizational results, and  implementing meaningful reward programs.

Our prior analysis found that employees seek autonomy in the workplace,  meaningful work, and opportunities to achieve results by developing  creative and innovative solutions. Also, experts noted that in some  cases, connecting federal employees to a sense of inclusion and meaning  can compensate for the opportunity to make higher salaries in other  sectors. Creating an inclusive work environment is one practice that can  help increase employee involvement in decisions.

CHCOs and federal employee and management group representatives  said that more can be done to prioritize training, even in an era of  resource constraints. In 2017, only 55 percent of FEVS respondents were  satisfied with training. As an example of an agency prioritizing training  efforts, the Social Security Administration has national and regional  development programs that offer 12 to 18 months of training and rotations  for entry-, mid-, and senior-level employees to strengthen foundational,  technical, and leadership knowledge and skills, according to the agency’s  CHCO. For example, its Leadership Development Program assigns  selected GS-9 through GS-12 employees to developmental assignments  in new areas of work, and provides leadership training that broadens their  perspective of the agency’s mission.

Chairman Connolly, Ranking Member Meadows, and Members of the  Subcommittee, this completes my prepared statement. I would be  pleased to respond to any questions you may have at this time.

If you or your staff have any questions about this testimony, please  contact Robert Goldenkoff, Director, Strategic Issues, at (202) 512-2757  or GoldenkoffR@gao.gov. Contact points for our Offices of Congressional  Relations and Public Affairs may be found on the last page of this  statement. GAO staff who made key contributions to this testimony are  Shirley Hwang (Assistant Director), Shelby Kain (Analyst-In-Charge),  Sarah Green, Allison Gunn, and Alexander Ray.

This is a work of the U.S. government and is not subject to copyright protection in the  United States. The published product may be reproduced and distributed in its entirety  without further permission from GAO. However, because this work may contain  copyrighted images or other material, permission from the copyright holder may be  necessary if you wish to reproduce this material separately.

Technology, demographics, and attitudes toward work are evolving. But federal government employment policies were designed generations ago. As a result, the government may struggle to compete for talented workers—which is one reason why federal human capital management is on our High Risk list.

We testified on talent management strategies. For example, agencies can:

Assess skills gaps to ensure they’re getting and keeping the people with the skills they need

Use existing work-life balance incentives such as flexible scheduling

Engage employees by involving them in decisions and developing them


Social Security and Medicare: Improved Schedule Management Needed for More Timely Trust Fund Reports

The Social Security Act requires boards of trustees to issue reports to Congress by April 1 each year on the financial status of the Social Security and Medicare trust funds. Policymakers and others can use these reports to understand the programs' finances, conduct oversight, and consider legislative proposals for the programs. GAO was asked to review the timeliness of these reports.

This report (1) describes how the boards of trustees develop the annual Trustees reports, and (2) examines the extent to which the boards of trustees have provided the reports to Congress by the April 1 deadline since 1995, and what factors account for any delays.

GAO reviewed boards of trustees meeting minutes from 1995-2018, working group agendas from 2011-2018, and report development schedules and the annual Trustees reports from 1995-2019; as well as relevant federal law. GAO also interviewed agency working group officials from SSA and CMS; the Departments of Health and Human Services, Labor, and the Treasury; and eight former public trustees who served since 1995.

Annual reports on the status of Social Security and Medicare trust funds are developed through a collaboration between agency officials and trustees, which include relevant Cabinet members and public members nominated by the President (if confirmed). Offices of the Chief Actuaries from the Social Security Administration (SSA) and the Centers for Medicare & Medicaid Services (CMS) submit data and draft reports to a working group of agency officials representing trustees and any public trustees. The working group reviews the information and, after gaining consensus, submits it to the boards of trustees for final approval. The boards of trustees send the final reports to Congress.

The trustees missed the April 1 statutory deadline for submitting the reports to Congress in 17 of the 25 years from 1995 to 2019, and have issued them more than 2 months late in 6 of the last 10 years (see figure). According to agency officials and former public trustees GAO interviewed, factors that may account for delays include late-breaking changes to assumptions or data, and difficulty scheduling the boards' meetings. Additionally, contrary to GAO's guide on best practices for project schedules, officials have not taken steps to update the report-development schedules to reflect actual progress, maintained a formally documented baseline schedule to incorporate lessons learned from prior years, or notified Congress of their progress. Without taking steps to improve report-development schedule management, these trust fund reports will likely continue to be untimely, missing the April 1 statutory deadline. Also, without improved efforts to keep congressional committees informed, Congress will be unaware of when the reports will be issued, potentially hindering oversight of the trust funds.

GAO recommends that Treasury take steps to work with the other trustees to improve schedule management for developing the annual Trustees reports, and to establish a policy to inform congressional committees of jurisdiction about expected delays in issuing the reports. Treasury agreed with the recommendations.

The Social Security and Medicare programs receive funding from trust  funds that generally receive payroll taxes from current workers and  employers, among other sources, and pay out benefits to current  beneficiaries. Most Americans have a stake in the financial condition of  the trust funds. At the end of 2018, approximately 176 million people  contributed to the Social Security and Medicare trust funds through  payroll taxes, about 63 million people received Social Security benefit  payments, and about 60 million people were covered by Medicare.  Information on the financial condition of the trust funds can be used by  policymakers, agencies, researchers, and the public to understand the  programs’ finances and evaluate any policy changes to the programs.

Boards of trustees manage the Social Security and Medicare trust funds  and report annually to Congress on their financial status, under the Social  Security Act, which requires the boards of trustees to provide the reports  (Trustees reports) to Congress each year by April 1. The boards have six  trustees: four from federal agencies and two who are members of the  public, when confirmed. The boards issue one report on Social Security  and one on Medicare.

Given the importance of these programs and the responsibility of  Congress to oversee them, you asked us to review the timeliness of the  reports. This report (1) describes how the boards develop the annual  Social Security and Medicare Trustees reports, and (2) examines the  extent to which the boards have provided the Trustees reports to  Congress by the April 1 deadline since 1995, and what factors account for  any delays.

To determine how the boards developed the Trustees reports, we  examined documentation from the boards and their working group,  interviewed agency officials and former public trustees, and reviewed  relevant federal law and the boards’ bylaws. Since the current bylaws for  the boards were adopted in 1995, we reviewed documentation from 1995- 2018. Documentation included the meeting minutes of the boards from  1995-2018, and meeting agendas of the boards’ working group from  2011-2018. Additionally, we spoke with officials involved in developing or  reviewing the reports since 1995. We interviewed officials from the  agencies represented on the boards: the Departments of Health and  Human Services (HHS), Labor (DOL), and the Treasury (Treasury), as  well as the Social Security Administration (SSA). In addition, we  interviewed officials from the Social Security Advisory Board (SSAB), an  independent federal agency that reviews the policies and programs  administered by SSA and makes recommendations for their  improvement. We also interviewed the eight former public trustees who  served since 1995.

To determine the extent to which the boards have met the statutory  deadline, we identified the transmittal dates of the Trustees reports from  1995 to 2019. To identify the factors accounting for any delays in reports  issuance, we reviewed report development schedules from 1995 to 2019  and board meeting minutes from 1995 to 2018 and interviewed agency  officials and former public trustees. We then evaluated the process  agency officials used to maintain a baseline schedule and update the  report development schedule using GAO’s guide on best practices for  schedule management.

We conducted this performance audit from September 2018 to July 2019  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

The boards that oversee the Social Security and Medicare trust funds are  technically separate entities under the Social Security Act, but the same  set of trustees have served as board members for each trust fund and the  boards meet concurrently. For each board, four of the trustees are ex  officio, i.e. members by virtue of their office and position: the Secretary of  the Treasury, Secretary of Labor, Secretary of Health and Human  Services, and the Commissioner of Social Security. The remaining two  trustees are members of the public, nominated by the President,  confirmed by the Senate, and the public trustees must not be from the  same political party as one another. The public trustee positions were  established in 1983; they have been vacant since 2015.

The boards issue two separate Trustees reports each year, one on the  Social Security trust funds and one on the Medicare trust funds. Under  the Social Security Act, these reports are due by April 1 of each year. The  Trustees reports provide information on the present and projected  statuses of the trust funds, including their projected balances over the  next 10 years (short-term), the next 75 years (long-term), and the  assumptions and methods used to make these projections. The reports  provide estimates of the projected costs and incomes of the trust funds,  and any dates that the boards project the trust funds’ reserves to become  depleted, among other information about the programs. Because  projections are inherently uncertain, the reports include three projection  scenarios: intermediate, low-cost, and high-cost alternatives, along with  other information about uncertainty. The intermediate scenario is based  on assumptions that reflect the boards’ best estimate of future  experience. The low-cost scenario makes assumptions that are relatively  more favorable with respect to the projected statuses of the trust funds,  while the high-cost scenario does the opposite. For example, the low-cost  scenario assumes more workers will pay into the trust funds and fewer  beneficiaries will receive benefits, while the high-cost scenario assumes  fewer workers and more beneficiaries.

Agency Officials and Trustees Follow a Collaborative Process Each Year to Develop the Trustees Reports

Agency Officials and Trustees Determine the Economic, Demographic, and Programmatic Assumptions Prior to Drafting the Trustees Reports

Officials in the Social Security Administration Office of the Chief Actuary  (SSA OCACT) and the Centers for Medicare & Medicaid Services Office  of the Actuary (CMS OACT) work with other agency officials and trustees  to develop assumptions and draft and revise the Trustees reports in an  annual cycle, according to agency officials and the board meeting  minutes and report development schedules we reviewed (see fig. 1). At  the end of each cycle, the boards have established a working group that  is largely responsible for overseeing the day-to-day development of the  next year’s report. This working group consists of officials in the four  agencies that are led by the ex officio trustees (Treasury, DOL, HHS, and  SSA), officials from SSA OCACT and CMS OACT, and the public  trustees, when confirmed. All of the working group’s discussions and  agreements are subject to the approval of the boards. The Secretary of  the Treasury serves as the Managing Trustee and Chairperson of the  boards. Treasury staff has historically coordinated the report  development process, including organizing the development schedule  and hosting the working group and boards’ meetings. The reports are  drafted by SSA and CMS.

SSA OCACT and CMS OACT officials we interviewed said they work to  update the assumptions—both long-term and short-term—they propose  as the basis for the trust fund projections in the reports. Assumptions are  the demographic, economic, and program-specific factors that the  actuaries use to model the future financial status of the trust funds (see  appendix I). For each assumption, SSA OCACT and CMS OACT go  through a process of updating the values for the 75-year projection period  as needed and use those updated values as inputs in their models to  project future costs and income for the trust funds. As a part of this  process, the working group discusses issues that inform the assumptions  proposed by SSA OCACT and CMS OACT.

The work on assumptions is divided according to the specializations and  expertise of the two actuarial offices, and is developed by staff from a  range of disciplines, including actuaries, demographers, and economists.  SSA OCACT develops the demographic and economic assumptions that  are common to both reports, including rates for fertility, mortality, and  growth in gross domestic product. SSA OCACT also prepares the  programmatic assumptions for Social Security, such as the numbers of  retirement and disability beneficiaries and the anticipated income into the  trust funds from payroll taxes. CMS OACT prepares the programmatic  assumptions that are specific to Medicare, such as the number of  Medicare beneficiaries and expected growth in health care costs.

SSA OCACT and CMS OACT officials update assumptions and revise  their methodologies based on recent data, if a change is warranted. For  example, the 2017 Social Security Trustees report projected an increase  in the total fertility rate. Information collected in the subsequent year  showed that fertility rates had not risen as expected, so officials reduced  the fertility rate assumptions for the 2018 report. SSA OCACT officials  told us that they look at both the reasonableness of the assumptions  individually and in the aggregate, as some assumptions interrelate.  According to agency officials we interviewed, the assumptions generally  undergo gradual or no changes from year to year, unless there are  significant policy changes. SSA OCACT and CMS OACT also update  their models by incorporating more recent data into them. For example, in  the 2017 Social Security Trustees report, the model for projecting  average age benefit levels of retired worker and disabled worker  beneficiaries who are newly entitled to benefits used a sample of these  beneficiaries from 2013. In the 2018 report, this model was updated to  use a sample from 2015.

The Working Group Discusses and Works Toward Consensus on Assumptions

The working group considers and works towards consensus on the  assumptions proposed by SSA OCACT and CMS OACT. Members of the  working group meet periodically to discuss the assumptions and come to  an agreement on the values for them. In these meetings, the working  group often hears presentations from internal or external experts on  specific topics. For example, in one meeting, SSA staff led a presentation  and discussion on Disability Insurance, and DOL staff led a presentation  and discussion on how globalization might affect long-term economic  trends. To inform their discussions, the working group may also review  reports from technical panels or invite panel members to discuss their  findings and recommendations at a working group meeting. For  example, in September 2012, the working group discussed a Medicare  technical panel recommendation that the board continue to present  alternative projections in which average Medicare spending per  beneficiary rises faster than the current law baseline; the working group  and board agreed to implement this recommendation. Throughout the  working group’s activities, the members representing the ex officio  trustees generally serve as a liaison between the trustee for their agency  and the working group. When confirmed, public trustees participate  directly on the working group.

After consideration, the working group finalizes long-term assumptions at  a fall board meeting. The long-term assumptions serve as the basis for  the short-term assumptions and the 75-year trust fund projections. For  each long-term assumption, the boards set the “ultimate value”, i.e. the  constant rate or number that is projected to be met in a particular year  (within 10 years in most cases) and then continued through the remainder  of the 75-year projection period. For example, for the 2019 Trustees  reports, the boards set the ultimate value for the annual change in  covered earnings as a percent of total labor compensation for each year  beginning in 2028 and continuing through 2093. In most cases, according  to agency officials we interviewed, the working group achieves consensus  on the assumptions before the fall board meeting. However, when the  working group is unable to reach consensus, the boards settle any  outstanding issues and tend to either make no changes or incremental  changes over time to avoid major swings in year-to-year projections,  according to some agency officials we interviewed.

Once the long-term ultimate values are set by the boards, the working  group then discusses the short-term assumptions that bridge the gap  between current data and the ultimate values. The working group first  considers and works toward agreement on the short-term economic  assumptions and then the health assumptions. Short-term economic  assumptions can vary during the early years of the projection period. The  projection of Medicare’s HI Trust Fund depletion date is based on detailed  short-term growth rate assumptions for individual types of Medicare  services, such as inpatient hospital care.

SSA OCACT and CMS OACT Draft the Trustees Reports

Once the assumptions are set, officials at SSA OCACT develop the  projections that determine the actuarial status and then draft the Social  Security Trustees report, and officials at CMS OACT do the same for the  Medicare Trustees report. The reports include information on and values  of the assumptions, projected financial statuses of the trust funds and  programs, actuarial analyses and estimates, and technical information on  the methodologies and projections. In addition, the reports note changes  to the assumptions, methodology, and projections from prior reports, and  explain the implications for the trust funds. The reports also include  statements of opinion by the relevant agency’s Chief Actuary regarding  whether the techniques and methodologies used are generally accepted  within the actuarial profession and whether the assumptions used and the  resulting actuarial estimates are reasonable.

The Working Group Comments and Develops Consensus on Reports

When the drafts are completed, SSA OCACT and CMS OACT circulate  them to the working group for comments and agreement. According to  one former public trustee, these comments are mostly related to the  presentation of the information, such as word choices, as members have  previously agreed to the assumptions. SSA OCACT or CMS OACT  officials respond to these comments, and make revisions to the reports in  several rounds, engaging with the working group for comment on each  new version of the reports. As with the earlier round when the working  group worked toward consensus on the assumptions, the working group  members that represent the ex officio trustees can brief the trustee from  their agency and bring any input back to the working group to help ensure  that the trustees agree with the reports.

The Boards Approve and Issue Trustees Reports

The final drafts of the Trustees reports are presented and approved at the  annual spring meeting of the boards. Under the boards’ bylaws,  members of the boards must be present at these meetings to approve the  reports. During the meeting, agency officials provide an overview of the  reports to the trustees and other attendees, and explain changes in the  overall projections from the previous year’s reports. For those trust funds  with an estimated depletion date, agency officials explain the estimated  dates of depletion and the potential implications for beneficiaries. After  any discussion, the trustees sign the reports and the boards formally  issue them to Congress.

Public Trustees Can Play Unique Roles in Developing and Presenting the Trustees Reports

Public trustees, when confirmed, play unique roles as members of the  boards and also the working group that develops the Trustees reports.  Former public trustees we interviewed said their role was to represent the  public in the report development process, independent of the ex officio  trustees and other agency officials in the administration. To become  members of the board, public trustees must be nominated by the  President and confirmed by the Senate, and the public trustee cannot  both be from the same political party. Those we interviewed stressed the  importance of not allowing personal and political opinions to influence  their work on the Trustees reports. As a result, according to both agency  officials and former public trustees, having public trustees in place lends  credibility to the reports. Former public trustees stated that they worked  closely with their counterpart public trustee to coordinate their comments  and input to the working group.

Historically, public trustees sometimes questioned or encouraged  changes to some assumptions used in the reports, according to former  public trustees and some agency officials. When in place, public trustees  regularly attend working group meetings, whereas ex officio trustees do  not. According to the former public trustees we interviewed, they saw part  of their role as facilitating conversations as leaders and moving the group  towards consensus on assumptions. Additionally, former public trustees  and some agency officials said trustees are more hesitant to change the  assumptions in the reports when there are no public trustees in place, out  of concern that any change could be viewed as politically motivated. For  example, in 2017 the boards discussed whether or not to change the  long-range real interest rate assumption from the rate used in the  previous year’s Trustees reports. The boards decided to keep the  assumptions unchanged, in part because there were no public trustees in  place.

When they are in place, public trustees can also help communicate the  message of the Trustees reports to policy makers and the public. As an  example, the Trustees reports can be technical and difficult to  understand; to address this, the public trustees introduced a summary of  the reports in 1991, which presented the reports’ findings in a way that is  more accessible to the general public. Former public trustees said they  were able to inform policy makers on the contents of the reports through  congressional testimony and direct conversations with congressional  staff. One former public trustee reported that he was a resource for the  media, spending hours on the phone providing his perspective and  explaining the reports’ implications for policy decisions. In addition, public  trustees published a separate message that allowed them to present what  they believe to be the main idea of the reports.

The Boards Have Frequently Missed the Statutory Deadline and Have Not Effectively Managed the Report- Development Schedule

Trustees Reports Have Been Issued Late in Part to Allow More Time for Updating Reports and Due to Scheduling Issues

The boards issued the Trustees reports to Congress after the April 1  statutory deadline in 17 of the 25 years from 1995 to 2019, including  every year from 2009 through 2019 (see fig. 2). Since 2009, the boards  have issued the reports at least 2 months late six times; they only issued  the reports this late one time in the 14 years from 1995 to 2008.

Agency officials and former public trustees provided a number of reasons  why the Trustees reports have been late in recent years. Agency officials  and former public trustees said they may delay reports in order to include  the impact of late-breaking legislation or policy changes on the  assumptions or data. SSA OCACT told us that this decision is based on  (1) if the policy change results in substantial changes to assumptions and  (2) if the policy change affects a policy that is directly governing a trust  fund. For example, agency officials and former public trustees stated that  the Patient Protection and Affordable Care Act (PPACA), enacted on  March 23, 2010, significantly contributed to the 2010 reports being issued  August 5, 2010, over 4 months past the deadline. PPACA significantly  affected many of the factors that were the basis for the Medicare Trustees  report projections, such as reducing projected Medicare expenditures  through various policy changes, including a change to the payment  formula for the Medicare Advantage program—the private health plan  alternative to traditional Medicare. According to one former public trustee,  if the boards had issued a report that did not reflect the changes made by  PPACA, it would not have been applicable to the current outlook of the  Medicare trust funds and therefore not as useful to Congress and the  public.

Agency officials have also reported that there have been instances of  waiting for more complete or recent data sets to become available before  calculating the actuaries’ projections. According to CMS officials, a  tradeoff exists between updating data and meeting the deadline. For  example, Treasury officials told us that because the working group  decided that CMS OACT should not wait for January 2019 Medicare  Advantage enrollment data, the 2019 Trustees reports were issued earlier  (April 22) than they would have been if they had waited for the complete  end of year data, as they had in previous years.

Agency officials and public trustees also cited difficulties in scheduling the  spring board meetings as a factor that contributed to delays in issuing the  Trustees reports. The boards’ bylaws require the annual reports to be  adopted by a majority of the trustees who are present and voting.  However, sometimes Treasury staff experienced difficulty scheduling the  meeting. According to Treasury officials responsible for scheduling the  meeting, they generally wait until the first drafts of the Trustees reports  are completed before they schedule the spring board meeting to avoid  having to reschedule the meeting if the draft reports are provided after the  working group’s internal deadline. For the last 15 years (2005-2019),  report development schedules from SSA OCACT indicated that the draft  reports were provided to the working group after the internal deadline 12  times. In the other 3 years, the report development schedules did not  show the actual date that the draft reports were provided. As a result of  scheduling the meeting later in the process, Treasury staff has sometimes  not been able schedule a meeting that all of the Trustees can attend prior  to the statutory deadline of April 1.

Other challenges that contribute to delays include government shutdowns  and staff having conflicting concurrent responsibilities, according to some  agency officials or former public trustees. When the government shut  down for 11 business days in October 2013, the board meeting minutes  show that it affected the timelines for the 2014 Trustees reports.  However, according to HHS, government shutdowns have never  materially delayed the release dates for the Trustees reports. Some  former public trustees and one agency official we spoke to stated that  agency officials involved in the report process sometimes had other  duties competing for their time, which could result in delaying their work  on the Trustees reports, while other agency officials stated this was not a  factor.

The Process for Managing the Schedule for Developing the Trustees Reports Does Not Reflect Best Practices

Agency officials’ scheduling process is inconsistent with GAO’s guide on  best practices for schedule management. Agency officials and former  public trustees said they attempted to meet the statutory deadline each  year, but did not believe issuing the report after the deadline created  serious negative consequences. As a result, agency officials and former  public trustees involved with developing the reports in recent years said  they developed a schedule designed to meet the deadline knowing it  would most likely not be met. Several agency officials and former public  trustees described the schedule as “ambitious” and difficult to achieve. If  the schedule is unrealistic from the start of the process, and if involved  parties view it as an unlikely goal, rather than the expected outcome, then  the schedule does not serve as a useful tool for managing the timely  development of the Trustees reports.

In addition to designing an unrealistic Trustees reports schedule, agency  officials did not always document actual progress in meeting scheduled  dates or modify the schedule in a way that would allow them to overcome  early setbacks. Treasury officials, who organize the schedule for  developing the Trustees reports, stated that the initial proposed schedule  is updated only once during the report process, after the first drafts of the  reports are completed. According to best practices, the schedule should  be updated regularly with actual progress and remaining work. Without  doing so, it could be difficult to respond to actual events while still meeting  set deadlines.

Treasury has not regularly archived the final version of the schedule with  the dates that milestones were actually met. According to best practices,  the final iteration of the schedule that was actually followed should be  archived and used to inform and improve future schedules. Treasury  officials were able to provide us with the archived, updated schedules for  only 6 of the last 25 years, and these schedules were incomplete. While  these updated schedules showed the actual dates that the draft reports  were provided and the planned dates for later milestones, they did not  include the dates for milestones before the draft reports were provided or  the actual dates for the later milestones, including the reports’ issuance  dates.

Further, although the boards have regularly missed the statutory  deadline, the initial report-development schedules have not significantly  changed in recent years. Based on the proposed schedules for the  Trustees reports that are presented in the spring board meeting minutes  we reviewed, the initial schedules for each milestone in the report  development process, such as obtaining agreement on assumptions or  circulating drafts, has not significantly changed in the last 6 years,  although the schedules have consistently proven difficult to meet (see  table 1). Without recording the actual report production schedule that was  followed, participating officials do not have the historical data that would  assist them in making meaningful and effective changes to future  schedules.

Finally, according to best practices, it is important that stakeholders,  including decision makers, have access to information on the progress of  the project. Agency officials and former public trustees stated that they  do not have a policy or practice of informing Congress of delays or  changes to the schedules for the Trustees reports, even in years when  the board issues the reports months after the deadline. Given this,  Congress, the recipient of the Trustees reports, remains uninformed of  the reports’ release date or the factors contributing to a delay in any given  year. This uncertainty may hinder Congress from planning legislative  sessions in advance that would use the findings of the Trustees reports.  For example, congressional committees of jurisdiction may be hindered in  scheduling hearings on or around the time of the reports’ release date  and having access to the latest data from the reports to inform their  oversight.

Trustees and agency officials set out at the start of each report cycle with  a schedule to meet the statutory deadline to issue the Social Security and  Medicare reports each year by April 1. However, over the past 25 years,  they have mostly issued the reports after the deadline. Some of the  factors contributing to the boards delivering the reports late may seem  reasonable to agency officials and trustees. For example, investing time  to make the report consistent with new legislation impacting Social  Security or Medicare programs, or waiting for end of year data to be  available, may make the report more useful than if it contained older  information. However, other factors related to the management of the  schedule for developing the reports, such as not formally tracking the  reports’ progress or adjusting the schedule based on lessons learned in  prior years, may have contributed to delays.

Taking steps to improve the management of the report-development  schedule would better position the trustees and agency officials to  anticipate and plan for scheduling the spring boards meeting and to meet  the statutory deadline in future years. Additionally, recognizing that there  may continue to be instances in which the issuance of the reports will be  delayed, establishing a policy to inform Congress of potential delays and  factors contributing to those delays would enhance Congress’s ability to  conduct oversight and make decisions about these important programs.

We are making the following two recommendations to the Secretary of  the Treasury:  The Secretary of the Treasury, as Chairperson of the Boards of Trustees,  should work with the other trustees to take steps—in consultation with the  chief actuaries of SSA and CMS—to improve the management of the  report development schedule in order to provide the Trustees reports to  Congress by the statutory deadline. These steps could include regularly  updating the schedule using actual progress and archiving the final  iteration of the schedules. (Recommendation 1)

The Secretary of the Treasury, as Chairperson of the Boards of Trustees,  should work with the other trustees to establish a policy to inform  Congressional committees of jurisdiction when the trustees determine  that the reports are expected to miss the issuance deadline. This  outreach should include 1) the factors that are contributing to delays, and  2) the reports’ expected issuance dates. (Recommendation 2)

We provided a draft of this report to the Secretary of the Treasury, the  Secretary of Health and Human Services, the Secretary of Labor, and the  Commissioner of Social Security for review and comment. Treasury and  SSA provided formal written comments, and both agencies agreed with  our recommendations. (See appendixes II and III.) Treasury, SSA, and  HHS provided technical comments, which we incorporated as  appropriate. DOL had no comments.

As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the appropriate  congressional committees, the Secretary of the Treasury, the Secretary of  Health and Human Services, the Secretary of Labor, the Commissioner of  Social Security, and other interested parties. In addition, the report will be  available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  Elizabeth Curda at (202) 512-7215 or curdae@gao.gov or James  Cosgrove at (202) 512-7114 or cosgrovej@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this report. GAO staff who made key contributions to  this report are listed in appendix IV.

Appendix I: Assumptions Discussed in the 2019 Social Security and Medicare Trust Fund Reports

Appendix II: Comments from the Department of the Treasury

Appendix III: Comments from the Social Security Administration

Appendix IV: GAO Contacts and Staff Acknowledgments

In addition to the contact named above, Mark Glickman (Assistant  Director), Gregory Giusto (Assistant Director), Paul Schearf (Analyst-in- Charge), Christie Enders, and Samuel Gaffigan made key contributions to  this report. Additional assistance was provided by Bill Boutboul, Juana  Collymore, Robert Dacey, Alex Galuten, Yvette Gutierrez, Janice Latimer,  Emei Li, Sheila R. McCoy, Art Merriam, Mimi Nguyen, Stacy Ouellette,  Oliver Richard, Joseph Silvestri, Dawn Simpson, Ardith Spence, Almeta  Spencer, Frank Todisco, and Walter Vance.

Workers and employers pay into Social Security and Medicare trust funds, which pay out to current beneficiaries. Federal law requires the trust fund boards of trustees to report fund financial outlook to Congress each year by April 1. We found the trustees have missed the deadline in 17 of the last 25 years, and were over 2 months late in 6 of the last 10 years.

The reports can be delayed for many reasons, including late-breaking changes and trouble scheduling board meetings.

We recommended that the Treasury Department work with trustees to improve schedule management for these reports and to establish a policy to inform Congress of delays.


Substance Use Disorder: Prevalence of Recovery Homes, and Selected States' Investigations and Oversight

Substance abuse and illicit drug use, including the use of heroin and the misuse of alcohol and prescription opioids, is a growing problem in the United States. Individuals with a substance use disorder may face challenges in remaining drug- and alcohol-free. Recovery homes can offer safe, supportive, drug- and alcohol-free housing to help these individuals maintain their sobriety and can be an important resource for recovering individuals. However, as GAO reported in March 2018, some states have conducted investigations of potentially fraudulent practices in some recovery homes.

This statement describes (1) what is known about the prevalence of recovery homes across the United States; and (2) investigations and actions selected states have undertaken to oversee such homes. It is largely based on GAO's March 2018 report (GAO-18-315). For that report, GAO reviewed national and state data, among other things, and interviewed officials from the Department of Health and Human Services, national associations, and five states—Florida, Massachusetts, Ohio, Texas, and Utah. GAO selected these states based on their rates of opioid overdose deaths, their rates of dependence or abuse of alcohol and other drugs, and other criteria.

In March 2018, GAO found that the prevalence of recovery homes (i.e., peer-run or peer-managed drug- and alcohol-free supportive homes for individuals in recovery from substance use disorder) was unknown. Complete data on the prevalence of recovery homes were not available, and there was no federal agency responsible for overseeing recovery homes that would compile such data. However, two national organizations collected data on the prevalence of recovery homes for a subset of these homes.

The National Alliance for Recovery Residences (NARR), a national nonprofit and recovery community organization that promotes quality standards for recovery homes, collected data only on recovery homes that sought certification by some of its state affiliates. As of January 2018, NARR told us that its affiliates had certified almost 2,000 recovery homes, which had the capacity to provide housing to over 25,000 individuals.

Oxford House, Inc. collected data on the number of individual recovery homes it charters. In its 2018 annual report, Oxford House, Inc. reported that there were 2,542 Oxford Houses in 45 states.

The number of recovery homes that were not affiliated with these organizations was unknown.

In March 2018, GAO also found that four of the five states in its review—Florida, Massachusetts, Ohio, and Utah—had conducted, or were in the process of conducting, investigations of potentially fraudulent recovery home activities in their states. Activities identified by state investigators included schemes in which recovery home operators recruited individuals with substance use disorder to specific recovery homes and treatment providers, and then billed those individuals' insurance for extensive and unnecessary drug testing for the purposes of profit. For example, officials from the Florida state attorney's office told GAO that, in some instances, substance use disorder treatment providers were paying $300 to $500 or more per week to recovery home operators for every individual the operators referred for treatment. Then, in one of these instances, the provider billed an individual's insurance for hundreds of thousands of dollars in unnecessary drug testing over the course of several months. Further, these officials told GAO that as a result of these investigations at least 13 individuals were convicted and fined or sentenced to jail time.

To increase oversight, officials from three of the five states—Florida, Massachusetts, and Utah—said they had established state certification or licensure programs for recovery homes in 2014 and 2015. Officials from the other two states—Ohio and Texas—had not established such programs, but were providing training and technical assistance to recovery homes.

I am pleased to be here today to discuss our recent report on recovery  homes. Substance abuse and illicit drug use, including the use of heroin  and the misuse of alcohol and prescription opioids, is a growing problem  in the United States. Individuals recovering from substance use disorder  (SUD) face challenges remaining alcohol or drug free. Recovery homes  can offer safe, supportive, stable living environments to help individuals  recovering from SUD maintain an alcohol- and drug-free lifestyle. The  Substance Abuse and Mental Health Services Administration (SAMHSA)  within the Department of Health and Human Services (HHS) is  responsible for promoting SUD prevention, treatment, and recovery  services to reduce the impact of SUD on communities, which includes  some activities to support recovery homes.

We have a growing body of work examining policies and oversight of  SUD-related services, including recovery homes. We reported in March  2018 that some states have conducted criminal investigations into  recovery home operators and associated SUD treatment providers within  their states who have engaged in potential health insurance fraud and  exploited residents for the purpose of profit. These investigations included  potential fraud that involved Medicaid—which is one of the largest payers  of SUD treatment in the United States.

My testimony today focuses on  1.  what is known about the prevalence of recovery homes across the  2.  investigations and actions selected states have undertaken to oversee  recovery homes.

My statement today is largely based on our March 2018 report describing  information on recovery homes. For the report, we reviewed available  federal and state information and interviewed officials from national  organizations that provide or have missions related to recovery homes as  well as federal agencies, including SAMHSA and the Centers for  Medicare & Medicaid Services—the agency within HHS that is  responsible for overseeing Medicaid. For our March 2018 report, we  selected a non-generalizable sample of five states for review: Florida,  Massachusetts, Ohio, Texas, and Utah. We selected these states based  on a variety of criteria, such as the rates of opioid overdose deaths and  rates of dependence on or abuse of illicit drugs and alcohol, among  others. In each state, we interviewed officials from the state substance  abuse agency, state Medicaid agency, state Medicaid Fraud Control Unit,  state insurance department, and others. Our March 2018 report includes  a full description or our scope and methodology. Further, this statement  reflects the most recent publicly available data on recovery homes from  two national nonprofits dedicated to recovery homes—the National  Alliance for Recovery Residences (NARR) and Oxford House, Inc. We  conducted the work on which this statement is based in accordance with  generally accepted government auditing standards. Those standards  require that we plan and perform the audit to obtain sufficient, appropriate  evidence to provide a reasonable basis for our finding and conclusions  based on our audit objectives. We believe that the evidence obtained  provides a reasonable basis for our findings and conclusions based on  our audit objectives.

SAMHSA and other organizations recognize recovery homes—peer-run  and peer-managed supportive homes—as an important step in SUD  treatment and recovery. Definitions of and terms for recovery homes can  vary, and recovery homes may differ in the types of services offered and  resident requirements. Alcohol- and drug-free homes for individuals  recovering from SUD may be referred to as “recovery residences,” “sober  homes,” or other terms. For the purposes of our March 2018 report, we  used the term “recovery homes” to refer to peer-run, nonclinical living  environments for individuals recovering from SUD in general.

Recovery homes generally are not considered to be residential treatment  centers, are not eligible to be licensed providers for the purposes of billing  private insurance or public programs—such as Medicaid—and residents  typically have to pay rent and other home expenses themselves.  Recovery home residents may separately undergo outpatient clinical SUD  treatment, which is typically covered by health insurance. In addition,  recovery homes may encourage residents to participate in mutual aid or  self-help groups (e.g., 12-step programs such as Alcoholics Anonymous)  and may require residents to submit to drug screening to verify their  sobriety. Residents may be referred to recovery homes by treatment  providers, the criminal justice system, or may voluntarily seek out such  living environments.

Nationwide Prevalence of Recovery Homes Was Unknown

In our March 2018 report, we found that the prevalence of recovery  homes nationwide was unknown, because complete data were not  available. We found these data are not collected at the federal level to  provide a nationwide picture, in part, because there was no federal  agency responsible for overseeing them. However, as we reported in  March 2018, two national organizations with missions dedicated to  recovery homes collect data on the prevalence and characteristics for a  sub-set of recovery homes and the number of homes that were not  affiliated with these organizations was unknown.

NARR collected data on recovery homes that sought certification by  one of its 15 state affiliates that actively certify homes. As we  previously reported, as of January 2018, NARR told us that its  affiliates had certified almost 2,000 recovery homes, which had the  capacity to provide housing to over 25,000 individuals.

Oxford House, Inc. collected data on the prevalence and  characteristics of its individual recovery homes (known as Oxford  Houses). In its 2018 annual report, Oxford House, Inc. reported that  there were 2,542 Oxford Houses in 45 states.

Most Selected States Had Investigated Potential Fraud Related to Recovery Homes and Taken Steps to Enhance Oversight

Four of Five Selected States Had Conducted Investigations of Recovery Homes

Officials from four of the five selected states we reviewed for our March  2018 report (Florida, Massachusetts, Ohio, and Utah) told us that since  2007, state agencies had conducted, or were in the process of  conducting, law enforcement investigations of unscrupulous behavior and  potential insurance fraud related to recovery homes. According to the  state officials, the outcomes of some of these investigations included  criminal charges and changes to health insurance policies.

Across the four states, officials told us that the potential insurance fraud  may have relied on unscrupulous relationships between SUD treatment  providers (including laboratories that perform tests to check for substance  use) and recovery home operators. Officials explained that recovery  home operators establish these relationships, because they cannot  directly bill health insurance themselves due to the fact that recovery  homes are not considered eligible providers for the purposes of billing  health insurance. For example, treatment providers may form  relationships with recovery home operators who then recruit individuals  with SUD in order to refer or require residents to see the specific SUD  treatment providers. This practice is known as patient brokering, for which  recovery home operators receive kickbacks, such as cash or other  remuneration from the treatment provider, in exchange for patient  referrals. The extent of potential fraud differed across the four states, as  discussed below.

Officials from several state agencies and related entities described  investigations into fraud related to recovery homes in southeastern  Florida as extensive, although the scope of the fraud within the industry is  unknown. In 2016, the state attorney for the 15th judicial circuit (Palm  Beach County) convened a task force composed of law enforcement  officials tasked with investigating and prosecuting individuals engaged in  fraud and abuse in the SUD treatment and recovery home industries. The  task force found that unscrupulous recovery home operators or  associated SUD treatment providers were luring individuals into recovery  homes using deceptive marketing practices. These practices included  online or other materials that willfully misdirected individuals or their  family members to recruiters with the goal of sending these individuals to  specific treatment providers so that the recruiters could receive payments  from those treatment providers for each referral. According to officials  from the Florida state attorney’s office, these individuals—often from out  of state—were lured with promises of free airfare, rent, and other  amenities to recover in southern Florida’s beach climate. Recruiters  brokered these individuals to SUD treatment providers, who then billed  their private insurance plans for extensive and medically unnecessary  urine drug testing and other services. Officials from the Florida state  attorney’s office told us that SUD treatment providers were paying $300  to $500 or more per week to recovery home operators or their staff  members for every individual they referred for treatment. In addition,  these officials cited one case in which a SUD treatment provider billed an  individual’s insurance for close to $700,000 for urine drug testing over a  7-month period. Officials from the state attorney’s office noted that the  recovery homes that the task force investigated were not shared homes  in the traditional, supportive sense, but rather existed as “warehouses”  intended to exploit vulnerable individuals.

As a result of these investigations, as of December 2017, law  enforcement agencies had charged more than 40 individuals primarily  with patient brokering, with at least 13 of those charged being convicted  and fined or sentenced to jail time, according to the state attorney’s office.  In addition, the state enacted a law that strengthened penalties under  Florida’s patient brokering statute and gave the Florida Office of  Statewide Prosecution, within the Florida Attorney General’s Office,  authority to investigate and prosecute patient brokering.

An official from the Massachusetts Medicaid Fraud Control Unit told us  that the unit began investigating cases of Medicaid fraud in the state on  the part of independent clinical laboratories associated with recovery  homes in 2007. The unit found that, in some cases, the laboratories  owned recovery homes and were self-referring residents for urine drug  testing. In other cases, the laboratories were paying kickbacks to  recovery homes for referrals for urine drug testing that was not medically  necessary. According to the Medicaid Fraud Control Unit official, as a  result of these investigations, the state settled with nine laboratories  between 2007 and 2015 for more than $40 million in restitution. In  addition, the state enacted a law in 2014 prohibiting clinical laboratory  self-referrals and revised its Medicaid regulations in 2013 to prohibit  coverage of urine drug testing for the purposes of residential monitoring.

At the time of our March 2018 report, Ohio had begun to investigate an  instance of potential insurance fraud related to recovery homes, including  patient brokering and excessive billing for urine drug testing. Officials  from the Ohio Medicaid Fraud Control Unit told us that the unit began  investigating a Medicaid SUD treatment provider for paying kickbacks to  recovery homes in exchange for patient referrals, excessive billing for  urine drug testing, and billing for services not rendered, based on an  allegation the unit received in September 2016. Officials from other state  agencies and related state entities, such as the state’s substance abuse  agency and NARR affiliate, were not aware of any investigations of  potential fraud on the part of recovery home operators or associated  treatment providers when we interviewed with them. According to these  state officials, this type of fraud was not widespread across the state.

In our March 2018 report, we reported that officials from the Utah  Insurance Department told us that the department was conducting  ongoing investigations of private insurance fraud similar to the activities  occurring in Florida, as a result of a large influx of complaints and  referrals the department had received in 2015. These officials told us that  the department had received complaints and allegations that SUD  treatment providers were paying recruiters to bring individuals with SUD who were being  released from jail to treatment facilities or recovery homes; billing private insurance for therapeutic services, such as group or  equine therapy, that were not being provided, in addition to billing  frequently for urine drug testing; and encouraging individuals to use drugs prior to admission to qualify  them and bill their insurance for more intensive treatment.

In addition, insurance department officials told us that they believed  providers were enrolling individuals in private insurance plans without  telling them and paying their premiums and copays. According to these  officials, when doing so, providers may lie about the individuals’ income  status in order to qualify them for more generous insurance plans.  Officials found that providers were billing individuals’ insurance $15,000  to $20,000 a month for urine drug testing and other services. Officials  noted that they suspect that the alleged fraud was primarily being carried  out by SUD treatment providers and treatment facilities that also own  recovery homes. The officials said the department had not been able to  file charges against any treatment providers, because it had been unable  to collect the necessary evidence to do so. However, according to the  officials, the state enacted legislation in 2016 that gave insurers and state  regulatory agencies, such as the state’s insurance department and  licensing office, the authority to review patient records and investigate  providers that bill insurers. As we noted in our March 2018 report, this  authority may help the insurance department and other Utah regulatory  agencies better conduct investigations in the future.

Three Selected States Have Established Oversight Programs, and Two Selected States Are Taking Other Steps to Support Recovery Homes

In addition to actions taken in response to state investigations, our March  2018 report described steps taken by three of the five selected states  (Florida, Massachusetts, and Utah) to formally increase oversight of  recovery homes by establishing state certification or licensure programs.  Florida enacted legislation in 2015 and Massachusetts enacted legislation  in 2014 that established voluntary certification programs for recovery  homes. Further, Florida established a two-part program for both recovery  homes and recovery home administrators (i.e., individuals acting as  recovery home managers or operators). According to officials from the  Florida state attorney’s office and Massachusetts Medicaid Fraud Control  Unit, their states established these programs, in part, as a result of state  law enforcement investigations. Utah enacted legislation in 2014 to  establish a mandatory licensure program for recovery homes. According  to officials from the Utah substance abuse agency and the state licensing  office, Utah established its licensure program, in part, to protect residents’  safety and prevent their exploitation and abuse.

In our March 2018 report, we found that although state recovery home  programs in Florida and Massachusetts are voluntary, there are  incentives for homes to become certified under these states’ programs,  as well as incentives to become licensed under Utah’s programs.  Specifically, all three states require that certain providers refer patients  only to recovery homes certified or licensed by their state program;  therefore, uncertified and unlicensed homes in the three states are  ineligible to receive patient referrals from certain treatment providers.  Further, state officials told us that state agencies are taking steps to  ensure providers are making appropriate referrals. For example,  according to officials from the Florida substance abuse agency, treatment  providers may refer individuals to certified recovery homes managed by  certified recovery home administrators only and must keep referral  records.

To become state-certified or licensed, recovery homes in Florida,  Massachusetts, and Utah must meet certain program requirements,  including training staff, submitting documentation (such as housing  policies and a code of ethics), and participating in onsite inspections to  demonstrate compliance with program standards. However, specific  requirements differ across the three states. For example, while all three  state programs require recovery home operators or staff to complete  training, the number of hours and training topics differ. In addition, for  recovery homes to be considered certified in Florida, they must have a  certified recovery home administrator. Similar to Florida’s certification  program for the homes, individuals seeking administrator certification  must meet certain program requirements, such as receiving training on  recovery home operations and administration, as well as training on their  legal, professional, and ethical responsibilities. Features of the state- established oversight programs also differ across the three states,  including program type, type of home eligible for certification or licensure,  certifying or licensing body, and initial fees.

As we noted in our March 2018 report, the state-established oversight  programs in Florida, Massachusetts, and Utah also include processes to  monitor certified or licensed recovery homes, and take action when  homes do not comply with program standards. For example, an official  from the Florida Association of Recovery Residences—the organization  designated by the state to certify recovery homes—told us that the entity  conducts random inspections to ensure that recovery homes maintain  compliance with program standards. State-established oversight  programs in the three states also have processes for investigating  grievances filed against certified or licensed recovery homes. Further,  officials from certifying or licensing bodies in all three states told us their  organizations may take a range of actions when they receive complaints  or identify homes that do not comply with program standards, from  issuing recommendations for bringing homes into compliance to revoking  certificates or licenses. According to officials from Florida’s certifying  body, the entity has revoked certificates of recovery homes that have  acted egregiously or have been nonresponsive to corrective action plans.  Officials from the certifying and licensing bodies in Massachusetts and  Utah told us that they had not revoked certificates or licenses, but had  possibly assisted homes with coming into compliance with certification  standards or licensure requirements.

Officials from Ohio and Texas told us that their states had not established  state oversight programs like those in Florida, Massachusetts, and Utah,  but said their states had provided technical assistance and other  resources to recovery homes in an effort to increase consistency,  accountability, and quality.

Officials from the Ohio substance abuse agency told us that since  2013 the state has revised its regulatory code to define recovery  homes and minimum requirements for such homes. Officials also told  us that the agency did not have authority to establish a state  certification or licensure program for recovery homes. According to  these officials, the state legislature wanted to ensure that Ohio’s  recovery homes community maintained its grassroots efforts and did  not want a certification or licensure program to serve as a roadblock  to establishing additional homes. However, officials from the Ohio  substance abuse agency told us that the agency encourages recovery  homes to seek certification by the state’s NARR affiliate—Ohio  Recovery Housing—to demonstrate quality. In addition, these officials  told us that the state substance abuse agency also provided start-up  funds for Ohio Recovery Housing, as well as continued funding for the  affiliate to provide training and technical assistance, and to continue  certifying recovery homes. According to officials from Ohio Recovery  Housing, the NARR affiliate regularly provides the state’s substance  abuse agency with a list of newly certified recovery homes, as well as  updates on previously certified homes as part of ongoing efforts to  develop a recovery home locator, under its contract with the agency.

Officials from the Texas substance abuse agency told us that  establishing a voluntary certification program would be beneficial.  However, the state legislature had not enacted legislation establishing  such a program at the time of our review. At the time of our report, the  agency was in the process of developing guidance for providers on  where and how to refer their patients to recovery housing, which  includes a recommendation to send patients to homes certified by the  Texas NARR affiliate.

Chairman Grassley, Ranking Member Wyden, and Members of the  Committee, this concludes my prepared statement. I would be pleased to  respond to any questions that you may have at this time.

If you or your staff members have any questions concerning this  testimony, please contact me at (202) 512-7114 or  deniganmacauleym@gao.gov. Contact points for our Office of  Congressional Relations and Public Affairs may be found on the last page  of this statement. Other individuals who made key contributions to this  testimony include Tom Conahan (Assistant Director), Kristin Ekelund  (Analyst-in-Charge), Drew Long, Sarah Resavy, and Emily Wilson. Other  staff who made key contributions to the report cited in the testimony are  identified in the source product.

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Recovery homes allow people recovering from addiction to live together in a supportive, alcohol- and drug-free environment. However, some home operators exploit residents to profit from them—for example, by sending them to doctors who bill insurance for unneeded tests and share insurance payments with the operators.

Based on our earlier report, we testified on state investigations and oversight of recovery homes. Officials in 4 of the 5 states we reviewed said they conducted or were conducting investigations on recovery homes, and 3 states had established oversight programs. We also found no reliable tally of recovery homes nationwide.