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SECTION I: MANAGEMENT’S DISCUSSION AND ANALYSIS

Topics in this Section: About the Department of Health and Human Services | Performance Goals, Objective, and Results | Looking Ahead to 2019 | Systems, Legal Compliance, and Internal Control | Management Assurances | Financial Summary and Highlights

About the Department of Health and Human Services

Our Mission

The mission of the United States (U.S.) Department of Health and Human Services (HHS or the Department) is to enhance the health and well-being of Americans, by providing for effective health and human services and by fostering sound, sustained advances in the sciences, underlying medicine, public health, and social services.

Our Vision

The vision of HHS is to provide the building blocks that Americans need to live healthy, successful lives.

Who We Are

HHS is the U.S. government’s principal agency for protecting the health of all Americans and providing essential human services, especially for those who are least able to help themselves.  HHS accomplishes its mission through programs and initiatives that cover a wide spectrum of activities, serving and protecting Americans at every stage of life, from conception to natural death. 

HHS is responsible for more than a quarter of all federal outlays and administers more grant dollars than all other federal agencies combined.  HHS’s Medicare program is the nation’s largest health insurer, handling more than one billion claims per year.  Medicare and Medicaid together provide health care insurance for 1 in 3 Americans.

What We Do

Did you know?

On August 16, 2018, the Food and Drug Administration approved the first generic version of EpiPen and EpiPen Jr (epinephrine) auto-injector for the emergency treatment of allergic reactions, including those that are life-threatening (anaphylaxis), in adults and pediatric patients who weigh more than 33 pounds.

HHS works closely with state, local, and tribal governments, and state or county agencies, private sector grantees, tribes, tribal organizations, or Urban Indian organizations provide many HHS-funded services at the local level.  The HHS Office of the Secretary and its 11 Operating Divisions (OpDivs) administer more than 300 programs covering a wide spectrum of activities.  In addition to the services they deliver, HHS programs provide for equitable treatment of beneficiaries nationwide and enable the collection of national health and other data.  While HHS is a domestic agency working to protect and promote the health and well-being of the American people, the interconnectedness of our world requires that HHS engage globally to fulfill its mission.

HHS, through its programs and partnerships:

  • Provides health care coverage to more than 100 million people through Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP);
  • Promotes patient safety and health care quality in health care settings and by health care providers, by assuring the safety, effectiveness, quality, and security of foods, drugs, biologics, and medical devices;
  • Conducts health, social science, and medical research while creating hundreds of thousands of jobs for scientists in universities and research institutions in every state across America and around the globe;
  • Leverages health information technology to improve the quality of care and to use HHS data to drive innovative solutions to health care, public health, and human services challenges;
  • Improves maternal and infant health; promotes the safety, well-being, and healthy development of children and youth; and supports young people’s successful transition to adulthood;
  • Supports wellness efforts across the life span, from protecting mental health, to preventing risky behaviors such as tobacco use and substance abuse, to promoting better nutrition and physical activity;
  • Prevents and manages the impacts of infectious diseases and chronic diseases and conditions, including the top causes of disease, disability, and death;
  • Serves as responsible stewards of the public’s investments; and
  • Prepares Americans for, protects Americans from, and provides comprehensive responses to health, safety, and security threats, both foreign and domestic, whether natural or man-made.

Did you know? Hurricane Damage

Several natural disasters impacted the U.S. and its territories in 2017-2018. The Substance Abuse and Mental Health Services Administration’s Disaster Distress Helpline is a 24/7, 365-day-ayear, national hotline dedicated to providing immediate crisis counseling for people who are experiencing emotional distress related to any natural or human-caused disaster. Trained crisis counselors can be reached at 1-800-985-5990.

Organizational Structure

HHS’s organizational structure is designed to accomplish its mission and provide a framework for sound business operations and management controls.  The Office of the Secretary, with the Secretary, provides the overarching vision and strategic direction for the Department, and leads HHS and its 11 OpDivs to provide a wide range of services and benefits to the American people.  The HHS organizational chart, which consists of the Office of the Secretary and the noted StaffDivs and OpDivs, is available at HHS/About HHS/Organizational Chart.

HHS Organizational Chart

 

Each OpDiv contributes to our mission and vision as follows:

ACF logo.

Administration for Children and Families (ACF)
ACF is responsible for federal programs that promote the economic and social well-being of families, children, individuals, and communities.  ACF programs aim to empower families and individuals to increase their economic independence and productivity, and encourage strong, healthy, supportive communities that have a positive impact on quality of life and the development of children.  Visit ACF for more information.

ACL logo.

Administration for Community Living (ACL)
ACL was created around the fundamental principle that all people, regardless of age or disability, should be able to live independently, and fully participate in their communities.  By advocating across the federal government for older adults, people with disabilities, and families and caregivers; funding services and supports primarily provided by networks of community-based organizations; and investing in training, education, research, and innovation, ACL helps make this principle a reality for millions of Americans.  Visit ACL for more information.

AHRQ logo.

Agency for Healthcare Research and Quality (AHRQ)
AHRQ produces evidence to make health care safer, higher quality, more accessible, equitable, and affordable, and works within HHS and with other partners to make sure that the evidence is understood and used.  This mission is supported by focusing on:  (1) improving health care quality; (2) making health care safer; (3) increasing accessibility; and (4) improving health care affordability, efficiency, and cost transparency.  Visit AHRQ for more information.

ATSDR logo.

Agency for Toxic Substances and Disease Registry (ATSDR)
ATSDR is charged with the prevention of exposure to toxic substances and the prevention of the adverse health effects and diminished quality of life associated with exposure to hazardous substances from waste sites, unplanned releases, and other sources of pollution present in the environment.  Visit ATSDR for more information.

CDC logo.

Centers for Disease Control and Prevention (CDC)
CDC collaborates to create the expertise, information, and tools that people and communities need to protect their health through health promotion, prevention of disease, injury and disability, and preparedness for new health threats.  CDC works to protect America from health, safety, and security threats, both foreign and domestic.  Whether diseases start at home or abroad, are curable or preventable, due to human error or deliberate attack, CDC fights diseases and supports communities and citizens to do the same.  Visit CDC for more information.

CMS logo.

Centers for Medicare & Medicaid Services (CMS)
CMS administers Medicare, Medicaid, CHIP, and the Health Insurance Exchanges, which together provide health care coverage for more than 100 million people.  CMS acts as a catalyst for enormous changes in the availability and quality of health care for all Americans.  In addition to these programs, CMS has the responsibility to ensure effective, up-to-date health care coverage, and to promote quality care for beneficiaries.  Visit CMS for more information.

FDA logo.

Food and Drug Administration (FDA)
FDA is responsible for protecting the public health by assuring the safety, efficacy, and security of human and veterinary drugs, biological products, medical devices, our nation’s food supply, cosmetics, and products that emit radiation.  FDA is also responsible for advancing the public health by helping to speed innovations that make medicines more effective, safer, and more affordable, and by helping the public get the accurate, science-based information it needs to use medicines and foods to maintain and improve their health.  FDA is also responsible for regulating the manufacturing, marketing, and distribution of tobacco products to protect the public health and to reduce tobacco use by minors.  Finally, FDA plays a significant role in the nation’s counterterrorism capability.  FDA fulfills this responsibility by ensuring the security of the food supply and by fostering development of medical products to respond to deliberate and naturally emerging public health threats.  Visit FDA for more information.

HRSA logo.

Health Resources and Services Administration (HRSA)
HRSA is responsible for improving access to quality health care and services, strengthening the health care workforce, building healthy communities, and achieving health equity.  HRSA’s programs provide health care to people who are geographically isolated, and economically or medically vulnerable.  Visit HRSA for more information.

IHS logo.

Indian Health Service (IHS)
IHS is responsible for providing federal health services to American Indians and Alaska Natives.  The provision of health services to members of federally recognized tribes grew out of the special government-to-government relationship between the federal government and Indian tribes.  IHS is the principal federal health care provider and health advocate for the Indian people, with the goal of raising Indian health status to the highest possible level.  IHS provides a comprehensive health service delivery system for approximately 2.3 million American Indians and Alaska Natives who belong to 573 federally recognized tribes in 37 states.  Visit IHS for more information.

NIH logo.

National Institutes of Health (NIH)
NIH is the primary agency of the U.S. government responsible for biomedical and public health research.  NIH provides leadership and direction to programs designed to improve the health of the nation by seeking fundamental knowledge about the nature and behavior of living systems and the application of that knowledge to enhance health, lengthen life, and reduce illness and disability.  Visit NIH for more information.

SAMHSA logo.

Substance Abuse and Mental Health Services Administration (SAMHSA)
SAMHSA is responsible for reducing the impact of substance abuse and mental illness on America’s communities.  SAMHSA accomplishes its mission by providing leadership, developing service capacity, communicating with the public, setting standards, and improving behavioral health practice in communities, in both primary and specialty care settings.  Visit SAMHSA for more information.

In addition, the following Staff Divisions (StaffDivs) report directly to the Secretary, managing programs and supporting the OpDivs in carrying out the Department’s mission.  The primary goal of the Department’s StaffDivs is to provide leadership, direction, and policy and management guidance to the Department.  The StaffDivs are:

Immediate Office of the Secretary (IOS)
IOS oversees the Secretary’s operations and coordinates the Secretary’s work.

  • The Executive Secretariat (ES)
    ES manages the Department’s policy review and decision-making processes, coordinating the development, clearance, and submission of all policy documents for the Deputy Secretary and Secretary’s review and approval.
  • Office of Intergovernmental and External Affairs (IEA)
    IEA represents both the government and external perspective in federal policymaking and clarifies the federal perspective to government officials and external parties.
  • Office of the Chief Technology Officer (CTO)
    CTO harnesses the power of data, technology, and innovation to create a more modern and effective government that works to improve the health of our nation.

Office of the Assistant Secretary for Administration (ASA)
ASA provides leadership for HHS departmental management, including human resource policy and departmental operations.

  • Program Support Center (PSC)
    PSC is a shared services organization dedicated to providing support services to help its customers achieve mission-oriented results.

Office of the Assistant Secretary for Financial Resources (ASFR)
ASFR provides advice and guidance to the Secretary on budget, financial management, acquisition policy and support, grants management, and small business programs.  It also directs and coordinates these activities throughout the Department.

Office of the Assistant Secretary for Health (OASH)
OASH advises on the nation’s public health and oversees HHS’s U.S. Public Health Service for the Secretary.

Office of the Assistant Secretary for Legislation (ASL)
ASL provides advice on legislation and facilitates communication between the Department and Congress.

Office of the Assistant Secretary for Planning and Evaluation (ASPE)
ASPE advises on policy development and contributes to policy coordination, legislation development, strategic planning, policy research, evaluation, and economic analysis.

Office of the Assistant Secretary for Preparedness and Response (ASPR)
ASPR leads the federal public health and medical preparedness; response and recovery to disasters and public health emergencies; and coordinates the nation’s medical and public health capabilities to save lives and protect Americans during emergencies and disasters, whatever their cause.

Office of the Assistant Secretary for Public Affairs (ASPA)
ASPA provides centralized leadership and guidance on public affairs for HHS’s StaffDivs, OpDivs, and regional offices.  ASPA also administers the Freedom of Information and Privacy Act.

Office for Civil Rights (OCR)
OCR enforces federal laws that prohibit discrimination on the basis of race, color, national origin, disability, sex, age, religion, or conscience by health care and human services providers that receive funds from HHS as well as the federal laws and regulations governing the privacy and security of health information and the rights of individuals with respect to their health information.

Departmental Appeals Board (DAB)
DAB provides impartial review of disputed legal decisions involving HHS.

Office of the General Counsel (OGC)
OGC provides quality representation and legal advice on a wide range of highly visible national issues.

Office of Global Affairs (OGA)
OGA provides leadership and expertise in global health diplomacy and policy to protect the health and well-being of Americans.

Office of Inspector General (OIG)
OIG protects the integrity of HHS programs as well as the health and welfare of the program participants.

Office of Medicare Hearings and Appeals (OMHA)
OMHA administers nationwide hearings for the Medicare program.

Office of the National Coordinator for Health Information Technology (ONC)
ONC provides counsel for the development and implementation of a national health information technology framework.

For more information regarding our organization, components, and programs, visit our website.

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PERFORMANCE GOALS, OBJECTIVES, AND RESULTS

Overview of Strategic and Agency Priority Goals

Every 4 years HHS updates its strategic plan, which describes its work to address complex, multifaceted, and evolving health and human services issues, as required by the Government Performance and Results Act of 1993 (GPRA) and the GPRA Modernization Act of 2010.  The Department’s Strategic Plan defines its mission, goals, and the means by which the Department will measure its progress in addressing specific national issues over a 4-year period.  Each of the Department’s OpDivs and StaffDivs contributes to the development of the Strategic Plan, as reflected in the strategic goals, and associated objectives, strategies, and performance goals.  Performance goals require regular monitoring and measurement to track progress toward achieving the Strategic Plan’s objectives.  In addition, HHS engages in a variety of efforts to support the President’s Management Agenda (PMA) and Cross-Agency Priority (CAP) Goals. 

The following graphic illustrates how different operational levels of goals and objectives relate to and support efforts at individual agencies and government-wide.  The graphic also illustrates the cyclical process of developing strategic plans, monitoring performance at achieving stated goals, and reporting performance to the Department’s stakeholders through agency performance and financial reports.  More information is provided on the following pages.

Federal Performance Life Cycle

*Source:  Office of Management and Budget (OMB) Circular A-11, Preparation, Submission, and Execution of the Budget

Strategic Goals

The HHS Strategic Plan Fiscal Year (FY) 2018 – 2022 is comprised of five strategic goals, representing input from all HHS OpDivs and StaffDivs as well as over 13,000 public comments.  The Department’s five strategic goals are:

  1. Reform, Strengthen, and Modernize the Nation’s Healthcare System
  2. Protect the Health of Americans Where They Live, Learn, Work, and Play
  3. Strengthen the Economic and Social Well-Being of Americans Across the Lifespan
  4. Foster Sound, Sustained Advances in the Sciences
  5. Promote Effective and Efficient Management and Stewardship

Strategic Goal 1Strategic Goal 1:  Reform, Strengthen, and Modernize the Nation’s Healthcare System

For a nation to thrive, the population must be healthy both physically and mentally.  To improve the nation’s health, the Department is working with its public and private partners to make health care more affordable, higher quality, and more accessible.  Improving access to health care goes beyond affordabilty.  HHS is working to overcome access issues which  exacerbate health problems, increase costs, and prevent better health outcomes.  The Department is also making investments to strengthen and expand the health care workforce.  This Strategic Goal seeks to improve health care outcomes for all people across the lifespan, including the unborn, children, youth, adults, and older adults across diverse health care settings.

Strategic Goal 2Strategic Goal 2:  Protect the Health of Americans Where They Live, Learn, Work, and Play

HHS aims to protect and improve the health of Americans by promoting health and wellness knowledge, preparing for fatal outbreaks or natural disasters, and improving accessibility to health care.  HHS programs help Americans take control of their health.  Healthy living involves more than avoiding risky behavior and disease; health and wellness improves with healthy eating, regular physical activity, preventive care, and positive relationships.  Mental illness and substance abuse create health risks and place a heavy burden on affected individuals and their families.  HHS invests in programs focused on prevention, screening, and early detection of these risks, including those related to opioid misuse.  HHS also focuses on environmental health and reducing the burden caused by disease and other conditions.

Strategic Goal 3Strategic Goal 3:  Strengthen the Economic and Social Well-Being of Americans Across the Lifespan

A core component of the HHS mission commits to improving the well-being of Americans, from conception to natural death, including those individuals and populations who are at high risk of social and economic challenges.  Overall wellness goes beyond physical health, it entails a positive social and economic development.  HHS focuses on maximizing the opportunities to foster environments for individuals and families to be socially and economically independent.  A strong family can lead to many positive outcomes for the health, social, and economic status of both adults and children.  Financial and emotional support can encourage children and young adults to continue education and make healthier decisions as they mature.  HHS is also working to expand partnerships and strategies to reduce injuries and violence against the population.  Older Americans and those with disabilities also face a number of obstacles that may threaten their independence.

Strategic Goal 4Strategic Goal 4: Foster Sound, Sustained Advances in the Sciences

HHS’s success is contingent on scientific advances and discovery.  Scientific investments through foundations, charities, private industry, and government entities strive to unlock mysteries that improve health and well-being; reduce the death tolls, disease, and disability; and extend and improve quality of life.  These types of decisions rely on data acquired through surveillance, epidemiology, and laboratory services.  Achievements in science tie to the other strategic goals, such as protecting Americans from disease outbreaks or reaching advances in public health care.  Success in this domain starts with a high caliber workforce devoted to achieving award-winning breakthroughs.  HHS aims to expand the capacity of the research workforce, equipping them with the tools to make discoveries of the future.  To be effective, HHS must share, adopt, and implement scientific discoveries with fidelity.  The Department is working to promote evidence-informed practices that improve health and human service fields.  As a steward of public trust, HHS is responsible for promoting approaches that will improve health and well-being.

Strategic Goal 5Strategic Goal 5:  Promote Effective and Efficient Management and Stewardship

HHS promotes sound stewardship and responsibility for the financial resources the American taxpayers and Congress entrust to the Department through support and cultivation of top talent, development of robust and responsive information management systems, and creating a safe and secure environment for human, digital, and physical assets.  Efforts such as ReImagine HHS effectively improve efficiency and accountability of the Department.  As the nation’s largest grant-awarding agency, HHS is responsible for almost a quarter of federal outlays, and administers more grant dollars than all other federal agencies combined.  HHS prioritizes the integrity of expenditures by maintaining effective risk and internal controls for payments, grants, contracts, and other financial transactions, and by developing a financial management workforce with the expertise to comply with legislative mandates and requirements.

HHS aligns its focus, strategies, and activities to achieve these strategic goals and objectives.  Shorter-term Agency Priority Goals (APGs) and performance goals further focus efforts that direct activities for the next 24 months.

 

Agency Priority Goals

HHS uses APGs to improve performance and accountability.  HHS develops APGs by collaborating across the Department to identify activities that reflect HHS priorities and strategic goals that benefit from the focus of the APG process.  These goals are a set of ambitious but realistic performance objectives that the Department will strive to achieve within a 24-month period.  The Department has completed work on multiple rounds of APGs, and is currently in the process of fulfilling the APGs for FY 2018 – 2019.  These new APGs use the knowledge gained through collaboration and data-driven reviews of past processes to deliver results to the public.  The FY 2018 – 2019 APGs are:

  • Increase capacity to prevent health threats originating abroad from impacting the United States
  • Reduce opioid-related morbidity and mortality
  • Increase combined data analysis of disparate datasets in order to achieve better insights
  • Improve treatment for individuals with Serious Mental Illness

For more information on HHS’s APGs, visit Performance.gov.  HHS performance initiatives continue to influence plans and policies as demonstrated in the Strategic Plan, which guides our efforts and investments into the future.

HHS also contributes to government-wide CAP Goals identified in the graphic below.  CAP Goals drive the implementation of the PMA and align inter-agency efforts to tackle critical government-wide challenges through concrete goals and trackable metrics for accountability.  The PMA provides a long-term vision for modernizing the federal government in key areas that will improve the ability of agencies to deliver mission outcomes, provide excellent service, and effectively steward taxpayer dollars on behalf of the American people. 

HHS aligns its efforts to support the CAP Goals, and senior accountable officials within the Department facilitate oversight and ensure effective progress toward goal accomplishment.  HHS shares a government-wide leadership role on several CAP Goals, including Results-Oriented Accountability for Grants, and Getting Payments Right.

For more information on HHS performance and contributions to the PMA and CAP Goals, visit Performance.gov.

President's Management Agenda

*Source: President’s Management Agenda on Performance.gov

Performance Management

HHS continues to engage with individuals across the federal performance management community to implement best practices and refine processes.  These refinements and lessons learned have also influenced future plans and priorities.  Refer to the “Looking Ahead to 2019” section for further details.  HHS is working to achieve our APGs and is actively monitoring progress through quarterly data-driven reviews and other mechanisms. 

Performance Results

The performance results in this section represent a small sample of key HHS measures across the Department.  For more detailed performance information built around the FY 2018 – 2022 Plan, refer to the FY 2020 Annual Performance Plan and Report, to be released with the FY 2020 President’s Budget.

Global Health Security.  An infectious disease threat anywhere, particularly if it is novel or spreads rapidly through international travel, can threaten Americans’ health, security, and prosperity.  It may not be possible to completely prevent infectious disease or other threats from entering the U.S., and threats may not immediately and obviously reveal themselves, increasing risk to Americans.  HHS is leveraging all of its expertise to evaluate current partner country capacity (i.e., skilled workforce to prevent, detect, and respond to biological threats, laboratory capacity, disease detection, and monitoring), jointly plan activities with these partner countries and other U.S. Government partners, provide technical assistance, and monitor progress towards achieving improved health security capabilities.  HHS will maintain the capability to rapidly provide personnel and operational resources to support investigations of, and responses to, health threats in and with partner countries.  For example, CDC’s International Field Epidemiology Training Programs (FETP) are recognized worldwide as an effective means to strengthen countries’ capacity in surveillance, epidemiology, and outbreak response.  Graduates of these programs strengthen public health capacity so individual countries are able to transition from U.S.-led global health investments to more long-term host country ownership.

Increase epidemiology and laboratory capacity within global health ministries through the FETP New Residents
Unit of Measurement: New Residents

  FY 2014 FY 2015 FY 2016 FY 2017 FY 2018
Target 430 430 430 430 400
Result 402 483 470 403 June 2019
Status Target Not Met but Improved Target Exceeded Target Exceeded Target Not Met 1 Pending

Opioid Morbidity and Mortality.  Opioid misuse and overdose present a nationwide public health challenge.  Death by drug overdose is the leading cause of injury death in the U.S., with deaths from opioids increasing precipitously in the twenty-first century, leading to the declaration of a nationwide public health emergency in October 2017.  Overdose deaths from prescription opioids, such as oxycodone, hydrocodone, and morphine, have more than quadrupled over the period 1999 – 2013.  Overdose deaths involving heroin have increased significantly in recent years, more than tripling from 2010 – 2014, while the surge of fentanyl use has been the main driver in increasing synthetic opioid deaths.  OpDivs and StaffDivs across HHS recognize the urgency of halting the rise of opioid abuse and overdose, and are working to develop and implement the most effective interventions, from prevention through treatment, including making sure first responders are equipped with naloxone to use in emergencies.  OpDivs made progress toward reducing the number of Americans initiating heroin usage and increased the number of people who received treatment for substance use disorder from 2016 to 2017.

Decrease the total morphine milligram equivalents (MMEs) dispensed2
Unit of Measurement: MMEs

  FY 2014 FY 2015 FY 2016 FY 2017 FY 2018
Target N/A N/A 179,242,504,449 169,808,688,426 142,179,191,774
Result 200,662,735,355 188,676,320,473 181,069,596,249 162,490,504,885 December 2018
Status Historical Actual Historical Actual Target Not Met Target Exceeded Pending

Increase the number of prescriptions dispensed for naloxone2
Unit of Measurement: Prescriptions

  FY 2014 FY 2015 FY 2016 FY 2017 FY 2018
Target N/A N/A 19,151 20,487 365,073
Result 4,455 17,815 100,769 280,825 December 2018
Status Historical Actual Historical Actual Target Exceeded Target Exceeded Pending

Increase the number of unique patients receiving prescriptions for buprenorphine (average monthly) in a retail setting2
Unit of Measurement: Patients

  FY 2014 FY 2015 FY 2016 FY 2017 FY 2018
Target N/A N/A 491,796 515,215 637,475
Result 414,413 468,377 507,369 566,644 December 2018
Status Historical Actual Historical Actual Target Exceeded Target Exceeded Pending

HHS enhanced the 5-Point Opioid Strategy

Serious Mental Illness.  Individuals with serious mental illness are a high-need, high-cost population.  They frequently use emergency departments and have high readmission rates to inpatient care, especially when co-occurring substance use disorders are present.  In addition, people with serious mental illness often have co-morbid physical health conditions and shorter life expectancies than people without serious mental illness, primarily due to co-occurring physical health conditions that too often go unaddressed.  Individuals with serious mental illness often experience barriers to treatment, including difficulty accessing and initiating treatment.  Significant delays in the identification and treatment of serious mental illness are common; research has repeatedly found that individuals with psychosis in the U.S. often do not receive appropriate treatment for that condition for 1 to 3 years.  HHS’s Serious Mental Illness Initiative builds on activities that are currently underway in various HHS agencies; these activities are coordinated through the HHS Behavioral Health Coordinating Council.

Number of evidence-based coordinated specialty care programs that have been implemented nationally
Unit of Measurement: Programs

  FY 2014 FY 2015 FY 2016 FY 2017 FY 2018
Target N/A N/A N/A N/A N/A3
Result 37 Programs 53 Programs 140 Programs 214 Programs December 2018
Status Historical Actual Historical Actual Historical Actual Historical Actual Pending

Reduction in Head Start Grantees Receiving a Low Score on the Classroom Assessment Scoring System (CLASS:  Pre- K). In support of the President’s Cross-Agency Goal 8  and the HHS Strategic Goal 3, ACF focuses on the results of the Head Start Grantee program by striving to increase the percentage of Head Start children in high-quality classrooms.  The Head Start Grantee program measures progress by reducing the proportion of grantees that score in the low range on any of the three domains of the CLASS:  Pre-K, a research-based tool that measures teacher-child interaction on a seven-point scale in three broad domains: Emotional Support, Classroom Organization, and Instructional Support.  An analysis of CLASS scores for FY 2017 indicates that 16 percent of grantees scored in the “low” range, exceeding the target of 24 percent.  All low-range scores were in the Instructional Support domain and, overall, Head Start classrooms regularly score above a five in Emotional Support and Classroom Organization. 

ACF continues to invest in building its CLASS-related resources and making those resources available to grantees.  ACF provides more intentional targeted assistance to those grantees that score in the low range on CLASS.  ACF continues to analyze the specific dimensions that are particularly challenging for grantees, such as concept development and language modeling, and tailors the technical assistance for grantees based on their specific needs.

Children in a Head Start classA recent analysis of data from the Family and Child Experience Survey (FACES), a federally funded nationally representative survey of Head Start programs, provides some evidence that grantee scores on domains of the CLASS have improved over time.  This analysis demonstrates that over time fewer classrooms scored in the “low” range and more classrooms scored in the “mid” to “high” range on Instructional Support.  For example, FACES data shows a statistically significant increase in the average score and the percentage of Head Start classrooms scoring three or higher on Instructional Support between 2006 and 2014.  The FACES data also shows that over time fewer classrooms scored in the “mid” range and more classrooms scored in the “high” range on Emotional Support.  The FACES data also includes another measure of classroom quality using the Early Childhood Environment Rating Scale where items are also rated on a seven-point scale, but this one ranges from inadequate to excellent.  There was a statistically significant increase of classrooms moving into the good and excellent category on the Teaching and Environments and Provisions to Learning items from 2006 to 2014.  For example, the percent of classrooms in the good and excellent category in Teaching and Environments item moved from 13 percent in 2006 to 54 percent in 2014.

Reduce the proportion of Head Start grantees receiving a score in the low range on the basis of CLASS:  Pre-K
Unit of Measurement: Percent

  FY 2014 FY 2015 FY 2016 FY 2017 FY 2018
Target 27% 26% 25% 24% 15%
Result 23% 22% 24% 16% January 2019
Status Target Exceeded Target Exceeded Target Exceeded Target Exceeded Pending

Medicare Fee-For-Service (FFS), Medicaid, and CHIP Improper Payment Rates.  Aligning with the President’s Cross-Agency Priority Goal 9, one of HHS’s key goals is to pay Medicare claims properly the first time.  This means paying the right amount, to legitimate providers, for covered, reasonable, and necessary services provided to eligible beneficiaries.  Paying correctly the first time saves resources required to recover improper payments and ensures the proper expenditure of valuable dollars.  The decrease in the reported Medicare FFS improper payment estimate of 9.51 percent in FY 2017 to 8.12 percent in FY 2018 was driven by a reduction in improper payments for home health and Skilled Nursing Facility (SNF) claims.  Although the improper payment rate for these services and the national Medicare FFS improper payment rate decreased, improper payments for home health, Inpatient Rehabilitation Facility, SNF, and hospital outpatient claims were the major contributing factors to the FY 2018 Medicare FFS improper payment rate.  While the factors contributing to improper payments are complex and vary by year, the primary causes of improper payments continue to be insufficient documentation and medical necessity errors.  HHS uses data from the Comprehensive Error Rate Testing program and other sources of information to address improper payments in Medicare FFS through various corrective actions, such as policy clarifications and simplifications, when appropriate, as well as Targeted Probe and Educate reviews.  These reviews include more individualized education through smaller probe reviews, followed by specific education based on the findings of these reviews.  HHS is also continuing prior authorization initiatives, as appropriate, which help to ensure that applicable coverage, payment, and coding rules are met before services are rendered, while ensuring access to and quality of care. 

Since one-third of the states are measured each year to calculate the Medicaid and CHIP improper payment rates, these measures are calculated as a rolling rate that includes the reporting year and the previous 2 years.  Similar to recent years, state difficulties coming into compliance with provider screening, enrollment, and National Provider Identifier requirements was the driver of each rate.  HHS is working with states to address all errors that contributed to the improper payment rates and improve compliance with the requirements to develop and submit corrective action plans.  Refer to the “Other Information” section of this AFR, under “Payment Integrity Report” for further details.

Reduce the Percentage of Improper Payments Made Under the Medicare FFS Program
Unit of Measurement: Percent

  FY 2014 FY 2015 FY 2016 FY 2017 FY 2018
Target 9.9% 12.50% 11.50% 10.40% 9.40%
Result 12.7% 12.09% 11.00% 9.51% 8.12%
Status Target Not Met Target Exceeded Target Exceeded Target Exceeded Target Exceeded

Reduce the Improper Payment Rate in the Medicaid Program
Unit of Measurement: Percent

  FY 2014 FY 2015 FY 2016 FY 2017 FY 2018
Target 5.6% 6.70% 11.53% 9.57% 7.93%
Result 6.7% 9.78% 10.48% 10.10% 9.79%
Status Target Not Met Target Not Met Target Exceeded Target Not Met Target Not Met

Reduce the Improper Payment Rate in CHIP
Unit of Measurement: Percent

  FY 2014 FY 2015 FY 2016 FY 2017 FY 2018
Target   6.50% 6.81% 7.38% 8.20%
Result 6.80% 7.99% 8.64% 8.57%
Status   Target Not Met Target Not Met Target Not Met Target Not Met

Did you know?

Medicare is composed of different parts that cover specific services.

Medicare Part A (Hospital Insurance)
Part A covers inpatient care in hospitals, including critical access hospitals, and skilled nursing facilities (not custodial or long-term care). It also helps cover hospice care and some home health care. Beneficiaries must meet certain conditions to get these benefits. Most people do not pay a premium for Part A because they or a spouse already paid for it through their payroll taxes while working.

Medicare Part B (Medical Insurance)
Part B covers doctors’ services and outpatient care. It also covers some other medical services that Part A does not cover, such as services of physical and occupational therapists, and some home health care. Part B helps pay for these covered services and supplies when they are medically necessary. Most people pay a premium for Part B.

Medicare FFS
Often referred to as the “Original Medicare,” Medicare FFS is a federal health insurance program that provides Medicare Part A and Medicare Part B to eligible citizens.

Medicare Part C (Medicare Advantage)
Medicare pays a fixed amount to approved private companies to offer Part C Medicare Advantage Plans. Part C provides the same coverage benefits as Part A and Part B, and may offer Part D coverage or other extra coverage options (e.g., vision, hearing, dental and/or health and wellness programs). Private Medicare Advantage companies must follow requirements set by Medicare; however, Part C plans can have varying amounts of out-of-pocket costs or qualification rules based on the coverage provider.

Medicare Part D (Prescription Drug Coverage)
Medicare prescription drug coverage is available to everyone with Medicare. To get Medicare prescription drug coverage, people must join a plan approved by Medicare that offers Medicare drug coverage. Most people pay a monthly premium for Part D.

Visit Medicare.gov to find more information.

Looking Ahead to 2019

HHS is the U.S. Government’s principal agency for protecting the health of all Americans and providing essential human services, especially for those who are least able to help themselves.  While HHS is a domestic agency, the interconnectedness of our world requires that HHS engage globally to fulfill its mission.  Our 11 OpDivs, including 8 agencies in the U.S. Public Health Service and 3 human services agencies, administer HHS’s programs.  In addition, StaffDivs provide leadership, direction, and policy guidance to achieve the Department’s strategic goals and objectives.

Through the guidance of the HHS Strategic Plan, in 2019 HHS will address important health care, public health, and human services issues that impact all Americans.

HHS Strategic Goal 1:  Reform, Strengthen, and Modernize the Nation’s Healthcare System

Drug Pricing:  HHS will continue its efforts to lower the list prices of prescription drugs through competition, negotiation, and pricing incentives to ensure that Americans have access to affordable prescription drugs.  We will continue reforms to increase competition in areas such as approval of generic drugs and biosimilars, as well as pursue payment policies to help patients take advantage of this competition.

Insurance Reform:  HHS will focus on the cost and availability of health insurance to ensure Americans have access to affordable insurance that meets their needs.  In addition, we will continue our efforts to restore balance and enhance sustainability in the Medicaid program to eliminate barriers for people looking to move from dependence on Medicaid to independence.

Value Based Care:  HHS is putting patients at the center of the health care system, making sure they have the information they need to determine value and make choices.  We will address the value of health care services by moving from a system where payments are made based on the volume of services provided to a system where payments are based on outcomes and value. 

Improving the Healthcare Workforce and Infrastructure:  HHS will identify and address gaps in the health care workforce to enhance the capacity of the existing workforce, and identify opportunities to maximize health care productivity.

HHS Strategic Goal 2:  Protect the Health of Americans Where They Live, Learn, Work, and Play

The Opioids Crisis:  The Department will continue to empower local communities on the frontlines of the opioids crisis by implementing its 5-Point Opioid Strategy.  The Department will advance efforts to increase access by addressing workforce shortages and treatment coverage including medication-assisted treatment; increasing the timeliness and accuracy of data to monitor opioid use, misuse, and overdose; and improving pain management with a focus on increasing the availability of effective non-opioid alternatives.

Rural Health:  HHS will continue to improve access to, and the quality of, care in rural and underserved areas by identifying policies and models that deliver the right care at the right place, at the right time in rural America.

HHS Strategic Goal 3:  Strengthen the Economic and Social Well-Being of Americans Across the Lifespan

Dependence to Independence:  To build self-sufficiency and move families from dependence to independence, HHS will strive to fully engage all Americans and move them from the economic sidelines into work.  We will continue promoting innovation in the Temporary Assistance for Needy Families (TANF) program to advance the objective of helping families in need find stability and support through the employment and economic independence of adult participants and the healthy development of children whose families receive assistance.

Child Welfare and Adoption:  HHS will work to increase child and family well-being by putting greater emphasis on preventing child maltreatment.  We will also look to increase adoptions, an underutilized option in the U.S., for teens and women facing a crisis pregnancy, and to achieve permanency for children in the child welfare system, especially older children.

HHS Strategic Goal 4:  Foster Sound, Sustained Advances in the Sciences

Data and Evidence:  HHS strives to create, use, and analyze the best science and evidence possible for informed decision-making.  Efforts across the Department are ongoing to ensure better access to HHS data for lower-cost analysis; to use evaluation and performance management data to drive learning, improvement, and analysis for better decision-making; and translate science into practice to ensure the best outcomes possible for the people served by HHS programs and policies.

HHS Strategic Goal 5:  Promote Effective and Efficient Management and Stewardship

In 2017, HHS launched ReImagine HHS, an agency-wide effort to transform operations and culture across the Department to become more effective, efficient, and accountable.  ReImagine HHS is a robust program led by HHS staff for HHS staff.  HHS staff collaborated to identify six strategic shifts to drive the transformation.  In FY 2018, ReImagine HHS launched a portfolio of 10 initiatives within the 6 strategic shifts, each with a focus on improving our programs and reimagining how HHS serves the American people.  The initiatives drive accomplishment in innovation, cost and efficiency savings, operational and programmatic improvements, and a transition to new and enhanced infrastructure.  The ReImagine HHS initiatives are leading innovation in acquisitions and grants across the government, and align and contribute to the goals of the 2018 President’s Management Agenda.  ReImagine HHS will enable the Department to advance technology, enhance internal and external collaborations, and institutionalize continuous improvement.

Strategic Shifts and Initiatives

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Systems, Legal Compliance, and Internal Control

Systems

Financial Systems Environment
HHS’s Chief Financial Officer (CFO) Community strives to enhance and sustain a financial management environment that supports the HHS mission by promoting accountability and managing risk.  To support this vision, the HHS financial systems environment forms the financial and accounting foundation for managing the $1.8 trillion in budgetary resources entrusted to the Department in FY 2018.  These resources represent more than a quarter of all federal outlays and encompass more grant dollars than all other federal agencies combined.

The robust financial systems environment sustains HHS’s diverse portfolio of mission-oriented programs as well as business operations.  Its purpose is to:  (1) efficiently process financial transactions in support of program activities and HHS’s mission; (2) provide complete and accurate financial information for decision-making; (3) improve data integrity; (4) strengthen internal control; and (5) mitigate risk. 

The HHS financial systems environment consists of a core financial system (with three instances) and two Department-wide reporting systems used for financial and managerial reporting that together support the Department’s financial accounting and reporting needs. 

The figure below graphically depicts the current financial systems environment.

Reporting Systems chart

Core Financial System
HHS’s core financial system’s three instances all operate on the same commercial off-the-shelf (COTS) platform to support data standardization and facilitate Department-wide reporting.

Three Instances of the Core Financial System
Instance Description
Healthcare Integrated General Ledger Accounting System (HIGLAS) HIGLAS supports CMS by serving CMS’s Medicare Administrative Contractor organizations, Administrative Program Accounting, and the Center for Consumer Information and Insurance Oversight.  It processes an average of five million transactions daily.
NIH Business System (NBS) NBS combines NIH administrative processes and financial information under one centralized component, supporting NIH’s diverse biomedical research program; and business, financial, acquisition and logistics requirements for 27 NIH Institutes and Centers.  NBS supports grant funding to more than 300,000 researchers at over 2,500 universities, medical schools, and other research institutions in every state and around the world.
Unified Financial Management System (UFMS) UFMS serves 10 OpDivs (including the Office of the Secretary) and 14 StaffDivs across the Department.  The following Accounting Centers utilize UFMS:  CDC, FDA, IHS, and PSC.  PSC provides shared service accounting support for all other OpDivs and StaffDivs utilizing UFMS.

Reporting Systems
Reporting components within the HHS financial systems environment consist of two Department-wide applications that facilitate data reconciliation, financial and managerial reporting, and data analysis.

HHS Reporting Systems
System Description
Consolidated Financial Reporting System (CFRS) CFRS systematically consolidates information from all three instances of the core financial system.  It generates Departmental quarterly and year-end consolidated financial statements on a consistent and timely basis while supporting HHS in meeting regulatory reporting requirements.
Financial Business Intelligence System (FBIS) FBIS is the financial enterprise business intelligence application that supports the information needs of HHS stakeholders at all levels by retrieving, combining, and consolidating data from the core financial system.  It provides tools for analyzing data and presenting actionable information, including metrics and key performance indicators, dashboards with graphical displays, interactive reports, and ad-hoc reporting.  FBIS enables executives, managers, and operational end users to make informed business decisions to support their organization’s mission.

Relevant Legislation and Guidance
The HHS financial systems environment must comply with all relevant federal laws, regulations, and authoritative guidance.  In addition, HHS must conform to federal financial management and systems requirements including:

Federal Managers' Financial Integrity Act of 1982

Financial Systems Environment Improvement Strategy

HHS continues to implement a Department-wide strategy to advance its financial systems environment through the Financial Systems Improvement Program (FSIP) and Financial Business Intelligence Program (FBIP).  The portfolio of projects within these programs addresses immediate business needs and positions the Department to take advantage of state-of-the-art tools and technology.  The goals of the strategy are to improve the effectiveness and efficiency of the Department’s financial management capabilities, mature the overall financial systems environment, and strengthen accountability and financial stewardship.  This is a multi-year initiative, and the Department continues to make significant progress in each of the following key strategic areas. 

Financial Systems Modernization

  • Strategy:  HHS began FSIP by successfully completing foundational projects that included a major core financial system upgrade and transition of key financial systems to a cloud service provider for hosting and application management.  With those major initiatives completed successfully, HHS is now directing resources towards incrementally improving the efficiency and effectiveness of the modern financial system.  Taken together, the design of these projects will significantly mature the HHS financial systems environment, offering benefits that include: safeguarding system security and privacy; enhancing information access; complying with and implementing evolving federal requirements; achieving efficiencies and promoting standardization; eliminating security and control vulnerabilities; and maximizing the return on existing system investments. 
  • Progress:  While the Department focused FY 2017 efforts on strengthening the financial system security and control environment, FY 2018 modernization projects concentrated on improving system capabilities.  Core financial system instances were successfully upgraded to the latest version of their COTS software (Oracle E-Business Suite 12.2.6/7) – reducing the cost and effort required to maintain systems by ensuring continued vendor support and also addressing multiple existing defects from the previous E-Business Suite version, as well as improving business user productivity by eliminating workarounds and effort required for HHS to develop custom solutions.  HHS also made significant progress implementing a long-term solution for Digital Accountability and Transparency Act of 2014 (DATA Act) reporting, coordinating extensively across the financial, acquisition, and grants management and systems communities to develop a more sustainable, system-based approach for connecting data across systems.  When complete, this solution will enable the Department to reliably and efficiently connect financial data to corresponding data in grants, financial assistance, and acquisition systems, including both future awards and historical records.  CFRS capabilities were also enhanced with multiple pieces of functionality added to improve the efficiency of the financial statement development process.  This included automating processes to load files and configure data, reducing the demand on resources during quarter and year-end; as well as developing solutions to eliminate the need for downstream manual processing and improve auditability of the system.  Maturing the financial system infrastructure, applications, and security controls has provided HHS with a strong foundation.  Current FSIP projects – such as planning for implementation of a Department-wide electronic invoicing solution – build on this foundation, improving business functionality, and enhancing the effectiveness and efficiency of the Department’s financial management capabilities.

Business Intelligence and Analytics

  • Strategy:  Leveraging the FBIS platform, HHS is expanding the use of business intelligence and analytics across the Department to establish an information-driven financial management environment in which stakeholders at all levels have access to timely and accurate information required for measuring performance, increasing transparency, and enhancing decision-making.  This will allow the Department to more effectively and sustainably meet evolving information demands for fiscal accountability, performance improvement, and external compliance requirements. 
  • Progress:  Since first deployed in FY 2012, FBIS has been providing operational and business intelligence to users across the HHS financial management community.  FBIS offers accurate, consistent, near real-time data from UFMS and NBS (together comprising five of HHS’s six Accounting Centers) and summary data from HIGLAS, supporting over 1,500 users across the Department.  In FY 2018, key accomplishments included developing new, insight-driven FBIS reports and dashboards:  (1) an Accounts Payable Dashboard provides users a central location to draw intuitive insights on payables performance and throughput, enabling prioritization and timely intervention; (2) a Central Accounting Reporting System Reconciliation and Reclassification Dashboard consolidates and aggregates reconciled/reclassified data from the financial system, enabling users to validate that transactions are reconciled by Schedule Numbers and Treasury Account Symbols (TAS), immediately see any discrepancies, and take action, as needed, to resolve issues; and (3) a Control Monitoring Dashboard extends the FY 2017 UFMS security redesign and strengthens segregation of duties controls implemented.  FBIS is also playing a central role in the Department’s DATA Act long-term solution, consolidating financial files from UFMS, NBS, and HIGLAS and integrating acquisition and financial assistance files (i.e., Files D1 and D2, respectively) to enable more efficient analysis and reporting.  As FBIS continues to expand to include new users and business domains, HHS also focuses on optimizing the underlying solution architecture to improve performance and take full advantage of the cutting-edge capabilities of the FBIS commercial cloud hosting environment.

Systems Policy, Security, and Controls

  • Strategy:  The reliability, availability, and security of HHS’s financial systems are of paramount importance.  HHS places a high-priority on enhancing its financial systems security and controls environment, strengthening policy, proactively monitoring emerging issues, and ensuring progress toward remediating identified weaknesses.  HHS continues to implement a comprehensive, enterprise-wide financial systems policy, security, and controls program to mature and decrease risk across the environment.
  • Progress:  HHS strengthens its security and control environment by analyzing internal and external audit findings, identifying root causes, and implementing solutions collaboratively.  Based on the significant progress made in recent years, in FY 2018 HHS refined its overall strategy to strengthen oversight, improve risk management, and enhance information and communication.  Persistent weaknesses are being addressed with fewer than 5 percent of open Federal Information System Controls Audit Manual (FISCAM) findings aged 3 years or more.  Targeted efforts are continuing to further reduce risk across the financial management systems portfolio as the annual closure rate of findings in high-risk control areas (access controls, configuration management, and segregation of duties) continues to increase year-over-year.  Initiatives in FY 2018 significantly matured the Department-wide security and control environment, with system owners having completed corrective actions for 87 percent of FISCAM weaknesses identified in the prior year (FY 2017) audit.  Beyond simply tracking closure of individual weaknesses to assess progress, HHS also developed a comprehensive management framework – including evaluation criteria and target measurements – to better inform HHS leadership and other stakeholders of overall progress made, the current maturity level of the security and control environment, and the associated level of risk.  The FY 2018 assessment highlights HHS’s demonstrated year-over-year progress since FY 2015 in remediating control deficiencies, institutionalizing governance and oversight, and strengthening the IT controls environment – providing management a holistic view of HHS’s security and control posture, as well as aggregating data to substantiate assurances.

To lead and sustain these efforts, in FY 2015 the Financial Management Governance Board (FGB) chartered the IT Material Weakness Working Group (MWWG), with members from OpDiv CFO, Chief Information Officer (CIO), and Chief Information Security Officer Communities.  The IT MWWG meets monthly and is executing against its planned roadmap to address pervasive issues, recommend comprehensive remediation approaches, and monitor implementation progress.  Working on two fronts – coordinating responsive efforts to address current audit findings as well as proactive efforts to mature the security and controls environment going forward – HHS is managing a portfolio of projects to address and minimize vulnerabilities and risks related to data and system security, access management, configuration management, and segregation of duties.

Governance           

  • Strategy:  The Department established the FGB as an executive-level forum to address enterprise-wide issues, including those related to financial management policies and procedures, financial data, and technology.  In addition, the board serves in an advisory capacity on Departmental-wide initiatives that may have a financial management impact.  The FGB’s goals include establishing HHS financial management governance; providing people, processes, and technology to support governance; engaging stakeholders through effective communication and management strategies; and supporting project alignment with federal and HHS mandates and priorities.
  • Progress: The FGB convenes monthly to facilitate executive-level oversight of financial management-related areas.  Its role and impact continues to grow since its inception 5 years ago.  It promotes collaboration among stakeholders from the different disciplines within the financial management community by engaging senior leadership from HHS OpDivs and StaffDivs and across functions such as finance, budget, acquisitions, grants, human resources, and IT.  The FGB has effectively transformed the way in which financial management initiatives and activities are accomplished in HHS, moving from a Division-specific, vertical focus to a more enterprise-wide approach to solving problems and implementing standards for financial management excellence.  Beyond improving collaboration and strengthening oversight across HHS’s financial management and systems environment, the FGB serves as an advisory body, providing actionable recommendations to support project teams and guide future initiatives.  Recent areas of focus have included key initiatives and federal mandates, such as the continued modernization of the Department’s financial accounting systems, the implementation of the DATA Act interim and long-term solutions, and efforts to continuously enhance governance throughout the enterprise.  Additionally, the Board anticipates focusing on key topics that will inform strategic planning and enable the HHS financial management community to effectively address evolving opportunities and challenges – this includes supporting the PMA CAP Goals, as well as the ReImagine HHS effort.

Program Management

  • Strategy:  To support FSIP and FBIP, HHS established a Department-wide financial systems program management framework to facilitate effective implementation of projects and to enhance collaboration across project teams.  This includes the Financial Systems Consortium:  a body of federal project managers, contractors, and federal contracting officers representing NBS, UFMS, and HIGLAS, that fosters communication and implementation of program and project management best practices.
  • Progress:  Department-wide program management and the Financial Systems Consortium continue to play critical roles in support of major system enhancements.  In FY 2018, this included completing technical financial system upgrades, supporting planning and implementation of the DATA Act long-term solution, enhancing FBIS, and developing standards for project management and execution.  Within this program management framework, project teams are able to share industry best practices, lessons learned, and risks identified, while minimizing overall costs.  As the Department’s business needs evolve, the Enterprise Program Management Office and the Financial Systems Consortium continue to mature and support ongoing collaboration and coordination across the financial systems environment and modernization initiatives.

Sharing Opportunities

  • Strategy:  As a key FSIP component, HHS is actively pursuing multiple initiatives to generate efficiencies and improve effectiveness through implementing shared solutions.  The Department has an established framework to continuously identify sharing opportunities in its financial systems environment.
  • Progress:  Examples of sharing opportunities pursued to date include transitioning key financial systems to a cloud service provider; the use of shared acquisition contracts and streamlining of system operations and maintenance contracts; the implementation of a Department-wide Accounting Treatment Manual; consolidation of three legacy managerial reporting systems into FBIS; and sharing solutions across the HHS financial community.  Currently, the HHS finance, acquisition, and IT communities are collaboratively pursuing a Department-wide solution for electronic invoicing, supporting compliance with OMB direction as well as specific business needs identified across HHS.  The FGB continues to assess future sharing opportunities across the enterprise to further align with financial management and system policies, business processes and operations, and the overall financial system vision and architecture.

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Legal Compliance

Anti-Deficiency Act

The Antideficiency Act (ADA) prohibits federal employees from obligating in excess of an appropriation, or before funds are available, or from accepting voluntary services.  As required by the ADA, HHS notifies all appropriate authorities of any ADA violations.  ADA reports can be found on GAO - ADA.  

HHS management is taking necessary steps to prevent violations.  On August 1, 2016, the Director of OMB approved HHS’s updated Administrative Control of Funds policy, as required by United States Code, Title 31, Money and Finance, Section 1514, “Administrative Division of Apportionments.”  This policy provides HHS’s guidelines to follow in budget execution and to specify basic fund control principles and concepts, including the administrative control of all funds for HHS and its OpDivs, StaffDivs, and Accounting Centers.  With respect to two possible issues, HHS is working through investigations and further assessment where necessary.  HHS remains fully committed to resolving these matters appropriately and complying with all aspects of the law.

Improper Payments Information Act of 2002, Improper Payments Elimination and Recovery Act of 2010, and Improper Payments Elimination and Recovery Improvement Act of 2012
An improper payment occurs when a payment should not have been made, federal funds go to the wrong recipient, the recipient receives an incorrect amount of funds, or the recipient uses the funds in an improper manner.  In addition, when an agency’s review is unable to discern whether a payment was proper as a result of insufficient or lack of documentation, this payment should also be considered an error.  The Improper Payments Information Act of 2002 (IPIA), as amended by the Improper Payments Elimination and Recovery Act of 2010 (IPERA) and the Improper Payments Elimination and Recovery Improvement Act of 2012 (IPERIA), requires federal agencies to review their programs and activities to identify programs that may be susceptible to significant improper payments, test for improper payments in high risk programs, and develop and implement corrective action plans for high risk programs.  HHS works to better detect and prevent improper payments through close review of our programs and activities using sound risk models, statistical estimates, and internal controls.

HHS has shown tremendous leadership in the improper payments arena.  HHS has a robust improper payments estimation and reporting process that has been in place for many years and has taken many corrective actions to prevent and reduce improper payments in our programs.  In compliance with the IPIA as amended, HHS completed 22 improper payment risk assessments in FY 2018 (representing risk assessments of programs and charge cards) and determined that these programs were not susceptible to significant improper payments.  In addition, HHS is publishing improper payment estimates and associated information for seven high risk programs in this year’s AFR, of which six programs reported lower improper payment rates in FY 2018 compared to FY 2017.  Lastly, HHS also utilizes the Do Not Pay portal to check payments and awardees to identify potential improper payments or ineligible recipients.  In FY 2018, HHS screened more than $436.9 billion in Treasury-disbursed payments through the Do Not Pay portal; HHS identified only two improper payments.  A detailed report of HHS’s improper payment activities and performance is presented in the “Other Information” section of this AFR, under “Payment Integrity Report.”

Patient Protection and Affordable Care Act
The Patient Protection and Affordable Care Act (PPACA) established Health Insurance Exchanges through which qualified individuals and qualified employers can purchase health insurance coverage.  Many individuals who enroll in Qualified Health Plans through individual market Health Insurance Exchanges are eligible to receive a premium tax credit (PTC) to reduce their costs for health insurance premiums.  PTCs can be paid in advance directly to the consumer’s Qualified Health Plan insurer.  Consumers then claim the PTC on their federal tax returns, reconciling the credit allowed with any advance payments made throughout the tax year.  HHS coordinates closely with the Internal Revenue Service on this process.

The PPACA also included provisions that address fraud and abuse in health care by toughening the sentences for perpetrators of fraud, employing enhanced screening procedures, and enhancing the monitoring of providers.  These authorities have facilitated the government’s efforts to reduce improper payments.  For detailed information on improper payment efforts, see the “Other Information” section of this AFR, under “Payment Integrity Report.”

Digital Accountability and Transparency Act of 2014
The Digital Accountability and Transparency Act of 2014 (DATA Act) expands the Federal Funding Accountability and Transparency Act of 2006 to increase accountability and transparency in federal spending, making federal expenditure information more accessible to the public.  It directs the federal government to use government-wide data standards for developing and publishing reports, and to make more information, including award-related data, available on USAspending.gov.  Among other goals, the DATA Act aims to improve the quality of the information on USAspending.gov, as verified through regular reviews of posted data, and to streamline and simplify reporting requirements through clear data standards.

Under the DATA Act, HHS is required to generate a group of files, each in accordance with the DATA Act Information Model Schema, set by Treasury as the reporting data standards.  These files include those generated from HHS systems and those generated by Treasury’s DATA Act Broker on our behalf for procurement and financial assistance activity.  Financial and award files are subject to validations within the Treasury submission system to ensure alignment with the intent of the rules in place at the time of the submission.  In addition, HHS conducts a series of reconciliations, validations, and reasonableness tests to ensure the completeness, accuracy, and timeliness of the files submitted for Treasury validations. 

Since May 2017, HHS has successfully submitted financial and award-level data for quarterly certification to Treasury’s DATA Act Broker.  The submissions to date have largely been successful due to the highly efficient, but manual, interim solution as the system configurations to include award data in the financial system are not yet in production.  Not only are the quarterly submissions consistently over $300 billion in award-level obligations, but using the interim solution, HHS has reconciled up to 99.9 percent of the financial records to the award records.  The legislatively-required DATA Act audit over the second quarter (Q2) FY 2017 submission yielded a 0 percent error rate on sampled records.  HHS’s OIG conducted a voluntary follow-on audit over the Q2 FY 2018 submission to ensure consistency and promote continuous improvement.  The Department looks to transition to the long-term solution by Q2 FY 2019.  This integrated solution will leverage the Department’s system capabilities – such as business intelligence and analytics in its FBIS – to streamline the reporting process and enable HHS’s financial stewards to allocate more focus to analysis and management. 

In addition to compliance with the original legislation and subsequent guidance from OMB over the DATA Act, a revised Appendix A to Circular A-123 was released in June 2018.  The revised Appendix was accompanied with a cover letter that requires DATA Act reporting agencies to create Data Quality Plans.  Consideration of this plan must be included in agencies' existing annual assurance statement for internal controls over reporting beginning in FY 2019 and continuing through the assurance statement covering FY 2021 at a minimum, or until agencies determine that they can provide reasonable assurance over the data quality controls that support achievement of the reporting objectives in accordance with the DATA Act.  HHS’s Data Quality Plan was finalized on October 1, 2018, and contains the framework and methodology for executing the plan in accordance with preliminarily specified milestones.  HHS will update the plan in accordance with continuous monitoring activities and the results of quality assessments of HHS spending data.

Federal Information Technology Acquisition Reform Act
The Federal Information Technology Acquisition Reform Act (FITARA), enacted on December 19, 2014, established an enterprise-wide approach to federal IT investments and provides the CIO of CFO Act agencies with greater authority over IT investments, including authoritative oversight of IT budgets and budget execution, and IT-related personnel practices and decisions. 

In June 2017, HHS policy leadership set forth the vision for Department-wide collaboration to improve HHS’s implementation of FITARA and its rating against the House Oversight and Government Reform Committee’s FITARA scorecard.  Recognizing HHS’s May 2017 “D-“ score was a foundation that provided ample opportunity for growth, HHS embraced a framework of data, dialogue and delivering real change to engage cross-community stakeholders inside and external to the Department, to strengthen understanding of FITARA requirements and ensure more robust implementation of the law.  HHS’s “A by May” Initiative delivered four “A’s” and one “C” against the FITARA 5.0 scorecard metrics and changed the way IT, acquisition, financial, and programmatic communities viewed the value and importance of the law.  The May 2018 FITARA 6.0 Scorecard gave HHS a numeric score of 3.33; its final grade was downgraded due to the CIO’s reporting relationship to the Secretary and Deputy Secretary.

Fraud Reduction and Data Analytics Act of 2015
The Department continues to engage in various fraud reduction efforts, including activities to meet the requirements under the Fraud Reduction and Data Analytics Act of 2015 (FRDAA).  Since FRDAA’s enactment in 2016, HHS has participated in the required OMB-led interagency working group.  As part of this working group, HHS worked in FY 2018 to develop a fraud taxonomy that agencies can use to identify potential fraud vulnerabilities.  Also in FY 2018, HHS participated in other interagency discussions around disaster recovery and fraud risk management.  These meetings shared best practices and relevant, real-time information to assist agencies in identifying and preventing fraud among recent disaster recovery funding.  In addition, HHS worked with the Government Accountability Office (GAO) on a government-wide review of FRDAA implementation (GAO’s review is examining policies and procedures that agencies have implemented, and challenges that agencies face in implementing the law), and with the Department of the Treasury on the development of the Program Integrity Antifraud Playbook.  HHS will continue working with OMB and other agencies to implement FRDAA and to further advance fraud risk management activities.

HHS continues to take steps, at both the Department and OpDiv/StaffDiv levels, to implement FRDAA, and to adopt leading practices in fraud risk management, as presented in GAO’s Fraud Risk Management Framework and Selected Leading Practices published in July 2015.  Select fraud risk management activities at the Department include:

  • HHS is drafting a Fraud Risk Management Implementation Plan that outlines actions taken or planned in order to enhance financial and administrative controls relating to fraud.  HHS expects to complete this implementation plan in FY 2019;
  • In accordance with the law and OMB Circular A-123, Management’s Responsibility for Enterprise Risk Management and Internal Control, HHS’s internal control assessments include the consideration of fraud and financial management risks, as well as the control activities designed to mitigate these risks; 
  • Starting in FY 2018, HHS’s improper payment risk assessments also include consideration of fraud risk in individual programs or payment activities, and HHS is working to analyze the data; and 
  • HHS continually reviews and updates its financial policies, and provides relevant and timely training sessions.  For example, in FY 2018 HHS began a monthly Training and Enrichment Webcast Series on grants and acquisitions and included trainings specific to fraud (e.g., “Fraud and Civil Monetary Penalties” as it pertains to grant awards and “Suspension and Debarment” for all awards). 

HHS OpDivs and StaffDivs generally manage fraud risk within other scopes of responsibility (e.g., yearly internal control reviews and audits; reviews of allegations involving misuse of grant or contractor funds, conflicts of interest, or other misconduct or misuse cases; continuous monitoring of grant recipients [audit resolution, special conditions/drawdown restrictions, site visits, performance reports, etc.]; the use of SAM.gov [e.g., Do Not Pay/Suspension and Debarment]); and other activities.  Some specific efforts at one Division are described below:

Following the GAO’s Fraud Risk Framework, CMS assessed the federally facilitated exchange’s fraud risk in FY 2017, as recommended by GAO.  In FY 2018, CMS initiated a fraud risk assessment for some programs in Medicare, including the Medicare Diabetes Prevention Program expanded model.  CMS is also continuing to draft Fraud Risk Profiles for four other areas, including:  (1) the Comprehensive End Stage Renal Disease Care model; (2) the Comprehensive Primary Care Plus model; (3) the permanent Medicare Shared Savings Program; and (4) the new Medicare Beneficiary Identifier.  CMS is also assessing the Quality Payment Program, established by the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), utilizing the GAO fraud risk assessment.  The fraud risk assessments will help HHS identify vulnerabilities in CMS’s programs and payment systems, and develop mitigation strategies to proactively help reduce the risk of fraud.  Lastly, CMS is developing a training video, module, and curriculum to train staff agency-wide on fraud risks.

Federal Managers’ Financial Integrity Act of 1982 and Federal Financial Management Improvement Act of 1996
The Federal Managers’ Financial Integrity Act of 1982 (FMFIA) requires federal agencies to annually evaluate and assert the effectiveness and efficiency of their internal control and financial management systems.  Agency heads must annually provide a statement on whether there is reasonable assurance that the agency’s internal controls are achieving their intended objectives and the agency's financial management systems conform to government-wide requirements.  Section 2 of FMFIA outlines compliance with internal control requirements, while Section 4 dictates conformance with systems requirements.  Additionally, agencies must report any identified material weaknesses and provide a plan and schedule for correcting the weaknesses.

In September 2014, GAO released an updated edition of its Standards for Internal Control in the Federal Government, effective FY 2016.  The document takes a principles-based approach to internal control, with a balanced focus over operations, reporting, and compliance.  In July 2016, OMB released revised Circular A-123, Management’s Responsibility for Enterprise Risk Management and Internal Control.  The revised Circular complements GAO’s Standards, and it implements requirements of the FMFIA with the intent to improve accountability in federal programs and increase federal agencies’ consideration of Enterprise Risk Management.  The Department, with its OpDiv and StaffDiv stakeholders, are working together to implement these requirements.

The Federal Financial Management Improvement Act of 1996 (FFMIA) requires federal agency heads to assess the conformance of their financial management information systems to mandated requirements.  FFMIA expanded upon FMFIA by requiring that agencies implement and maintain financial management systems that substantially comply with federal financial management systems requirements, applicable federal accounting standards, and the U.S. Standard General Ledger at the transaction level.  Guidance for determining compliance with FFMIA is provided in OMB Circular A-123, Appendix D, Compliance with the FFMIA of 1996.

HHS is fully focused on the requirements of FMFIA and FFMIA through its internal control program and a Department-wide approach to Enterprise Risk Management.  Based on thorough ongoing internal assessments and FY 2018 audit findings, HHS provides reasonable assurance that controls are operating effectively.  For further information, see the “Management Assurances” section.  We are actively engaged with our OpDivs to correct the identified material weaknesses through a corrective action process focused on addressing the true root cause of deficiencies, and supported by active management oversight.  More information on the Department’s internal control efforts and the HHS Statement of Assurance follows.

Internal Control

FMFIA requires agency heads to annually evaluate and report on the internal control and financial systems that protect the integrity of federal programs.  This evaluation aims to provide reasonable assurance that internal controls are achieving the objectives of effective and efficient operations, reliable reporting, and compliance with applicable laws and regulations. The safeguarding of assets is a subset of these objectives. HHS performs rigorous, risk-based evaluations of its internal controls in compliance with OMB Circular A-123, Management’s Responsibility for Enterprise Risk Management and Internal Control.  HHS is also continuing to make progress toward adopting Enterprise Risk Management and integrating with Internal Control.

HHS management is directly responsible for establishing and maintaining effective internal controls in their respective areas of responsibility.  As part of this responsibility, management regularly evaluates internal control and HHS executive leadership provides annual assurance statements reporting on the effectiveness of controls at meeting objectives.  The HHS Risk Management and Financial Oversight Board evaluates the OpDivs’ management assurances and recommends a Department assurance for the Secretary’s consideration and approval, resulting in the Secretary’s annual Statement of Assurance.

HHS aims to strengthen its internal control assessment and reporting process to more effectively identify key risks, develop effective risk responses, and implement timely corrective actions.  The HHS FY 2018 OMB Circular A-123 assessment recognizes one material noncompliance with IPIA regarding Error Rate Measurement and one material noncompliance with the Social Security Act related to the Medicare appeals process.  Based on the results of this assessment, HHS provides reasonable assurance that its overall financial management systems substantially comply with the FFMIA.

Maintaining integrity and accountability in all programs and operations is critical to HHS’s mission and demonstrates responsible stewardship over assets and resources.  It also promotes responsible leadership, ensures the effective delivery of high quality services to the American people, and maximizes desired program outcomes.

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Management Assurances

Statement of Assurance

Management Assurances HHS Letterhead image

The Department of Health and Human Services’ (HHS or the Department) management is responsible for managing risks and maintaining effective internal control to meet the objectives of Sections 2 and 4 of the Federal Managers’ Financial Integrity Act of 1982 (FMFIA)These objectives are to ensure (1) effective and efficient operations; (2) reliable reporting; and (3) compliance with applicable laws and regulations.  The safeguarding of assets is a subset of these objectives.

HHS conducted its assessment of risk and internal control in accordance with OMB Circular A-123, Management’s Responsibility for Enterprise Risk Management and Internal Control.  Based on the results of the assessment, the Department provides reasonable assurance that internal controls over operations, reporting, and compliance were operating effectively as of September 30, 2018, with the exception of two material noncompliances:  one involving noncompliance with the Improper Payments Information Act (IPIA) related to Error Rate Measurement, and the second involving noncompliance with the Social Security Act related to the Medicare appeals process.

HHS is taking steps to address the material noncompliance related to the Medicare appeals process, as described in the “Corrective Action Plans” section.  Remediation for the material noncompliance related to Error Rate Measurement relies on a modification to legislation to require states to participate in an improper payment rate measurement.

The Federal Financial Management Improvement Act of 1996 (FFMIA) requires agencies to implement and maintain financial management systems that substantially comply with federal financial management system requirements, federal accounting standards, and the United States Standard General Ledger (USSGL) at the transaction level.  HHS conducted its evaluation of financial management systems for compliance with FFMIA in accordance with OMB Circular A-123, Appendix D. Based on the results of this assessment, HHS provides reasonable assurance that its overall financial management systems substantially comply with the FFMIA and substantially conform to the objectives of FMFIA, Section 4.

HHS will continue to ensure accountability and transparency over the management of taxpayer dollars, and strive for the continuing progress and enhancement of its internal control and financial management programs.

/Alex M. Azar II/

Alex M. Azar II
Secretary
November 14, 2018

Summary

1. Error Rate Measurement

HHS has identified one process limitation relating to the Temporary Assistance for Needy Families (TANF) program that results in a material noncompliance with IPIA.  HHS identified this process limitation in a prior year and it continues to exist in FY 2018.  The TANF program is unable to report an error rate for FY 2018 due to statutory limitations precluding HHS from requiring states to participate in a TANF improper payment measurement.

2. Medicare Appeals Process

Several factors, including the growth in Medicare claims – partially driven by the aging population – and HHS’s continued investment and focus on ensuring program integrity, have led to more appeals than Levels 3 and 4 of the Medicare appeals process can adjudicate within contemplated time frames.

From FY 2010 through FY 2018, the HHS Office of Medicare Hearings and Appeals (OMHA) and the HHS Departmental Appeals Board (DAB) experienced a large increase in the number of Medicare related appeals received.  As a result, at the end of FY 2018, 417,198 appeals were waiting to be adjudicated by OMHA and 17,863 appeals were waiting to be reviewed at the DAB Medicare Appeals Council.  This has led to the inability to meet statutory decisional timeframes of 90 days at Levels 3 and 4 of the Medicare appeals process.

Under current resources and continuing ongoing administrative actions (and without any additional appeals), it would take 4 years for OMHA and 8 years for the DAB Medicare Appeals Council to process their respective backlogs.

Corrective Action Plans for Material Weaknesses 

1. Error Rate Measurement

Since TANF is a state-administered program, corrective actions to reduce improper payments would be implemented at the state level.  Since HHS cannot require states to participate in a TANF improper payment measurement, the Department is also unable to compel states to collect the required information to implement and report on corrective actions.  Despite these limitations, HHS uses a multi-faceted approach to support states in improving TANF program integrity and preventing improper payments, including efforts such as: conducting and using results of a detailed risk assessment to mitigate payment risks at the federal level; promoting and supporting innovation using TANF data to better understand how states ensure program integrity; and monitoring compliance with the final regulations regarding “State Reporting on Policies and Practices to Prevent the Use of TANF Funds in Electronic Benefit Transfer Transactions in Specified Locations” (81 FR 2092, January 15, 2016).

2. Medicare Appeals Process

HHS has a strategy to improve the Medicare appeals process through investing new resources at all levels of appeal to increase adjudication capacity and implement new strategies to alleviate the current backlog; taking administrative actions to reduce the number of pending appeals and encourage resolution of cases earlier in the process; and proposing legislative reforms that provide additional funding and new authorities to address the appeals volume.

HHS has undertaken, and continues to explore, new administrative actions expected to have a favorable impact on the Medicare appeals backlog.  The FY 2019 President's Budget request includes a comprehensive legislative package aimed at both helping the Department process a greater number of appeals and reducing the number of appeals that reach OMHA.  Based on projected impacts of current administrative actions, and the proposed funding increases and legislative actions outlined in the FY 2019 President’s Budget, HHS projects that the backlog would be approximately 50,000 appeals by the end of FY 2021 and would be on a path to being resolved in subsequent years.

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Financial Summary and Highlights

HHS received an unmodified audit opinion on the principal financial statements and notes4 for the year ended September 30, 2018.  This is the 20th year for an unmodified opinion.  HHS takes pride in the preparation of the financial statements, yet it can sometimes be difficult to draw the relationships between the information in the statements and the overall performance of an agency.  This section is presented as an interpretation of the principal financial statements, which include the Consolidated Balance Sheets, Consolidated Statements of Net Cost, Consolidated Statement of Changes in Net Position, Combined Statement of Budgetary Resources, Statement of Social Insurance, and the Statement of Changes in Social Insurance Amounts, as well as selected notes to the principal financial statements.  HHS presents these in the “Financial Section” of this report.  Included in this analysis is a year-over-year summary of key financial balances, nature of significant changes, and highlights of key financial events to assist readers in establishing the relevance of the financial statements to the operations of HHS. 

As a federal entity, HHS’s financial position and activities are significant to the government-wide statements.  Based on the FY 2017 Financial Report of the United States Government, HHS’s net operating cost was larger than any single agency across the entire federal government5.  A similar relationship exists within HHS, where the Department is significantly represented by one OpDiv, CMS.  CMS alone consistently stewards the largest share of HHS’s resources.  Therefore, noteworthy changes in HHS balances are primarily related to fluctuations in CMS program activity.

Balance Sheets

To communicate performance for HHS at fiscal year-end, the Consolidated Balance Sheets show the resources available to HHS (Assets) and claims against those assets (Liabilities).  The remainder represents the equity retained by HHS (Net Position).  The table below summarizes the major components of the FY 2018 and FY 2017 year-end balances of HHS’s assets available for use, the liabilities owed by HHS, and the equity retained by HHS.

Financial Condition Summary (in Billions)

Assets

Assets by TypeThe total Assets for HHS were $604.5 billion at year-end, representing the value of what HHS owns and manages.  This is an increase of approximately $37.7 billion or 7 percent over September 30, 2017.  Fund Balance with Treasury (FBwT) and Investments, Net comprise $557.3 billion or 92 percent of HHS’s total assets, which increased $72.0 billion or 15 percent. 

The FBwT line contains the largest net change between FY 2018 and FY 2017 with a $40.4 billion or 19 percent increase.  This primarily consists of a $20.6 billion increase in Medicaid due to the FY 2017 return on indefinite authority was higher, $6.0 billion in CHIP due to the Child Enrollment Contingency fund not yet invested, $3.7 billion for Child Care Program and Children and Family Services, $1.5 billion for Substance Abuse Treatment program, $1.2 billion for collections in risk adjustment program and the Market User Fees under the PPACA, and $0.9 billion for National Institute of Aging.

Assets by OpDivInvestments had an increase of $31.6 billion mostly due to CMS increases in Supplementary Medical Insurance (SMI) of $27.7 billion and Medicare Hospital Insurance (HI) of $4.9 billion.  These increases are offset by $1.1 billion in the Children’s Health Insurance Program Reauthorization Act contingency, the available funds were not invested at the end of the FY 2018.

The HHS “Assets by OpDiv” chart demonstrates asset distribution within HHS, excluding eliminations.  The OpDiv asset balances ranged from $344.6 million at AHRQ (shown in All Other OpDivs) to $467.4 billion at CMS.  CMS had the largest percentage and dollar value asset increases at $23.2 billion or 5 percent over FY 2017 mostly due to the changes in FBwT and Investments, Net mentioned above.

Liabilities by TypeLiabilities

The total Liabilities for HHS were $157.3 billion at year-end, representing the amounts HHS owes from past transactions or events.  This is a decrease of approximately $6.6 billion or 4 percent over September 30, 2017.  The majority of the decrease is in the Entitlement Benefits Due and Payable line.  This decrease of $9.2 billion or 8 percent from FY 2017, is based on the HHS’s position that the agency’s obligation for the Risk Corridors program was limited to the sum of payments that were made into the program of $12.3 billion.  This position has been upheld by the courts in Moda Health Plan, Inc. v. United States, 892 F.3d 1311, 1323, 2018 U.S. App. LEXIS 16028, *23-24.  This decrease is offset by increases in HI of $1.5 billion, and Medicaid of $1.5 billion.

Liabilities by OpDIvThe HHS “Liabilities by OpDiv” chart shows liability distribution within HHS, excluding eliminations.  The OpDivs with the largest and smallest asset balances are also the OpDivs with the largest and smallest liabilities.  With the majority share, CMS reports $123.5 billion or 78 percent of the HHS liabilities, while AHRQ (shown in All Other OpDivs) has liabilities of $30.2 million.  IHS had the largest OpDiv dollar value increase in liabilities over FY 2017 of $3.9 billion.

 

Statement of Changes in Net Position

HHS Gets the Money From... (in Billions)The Consolidated Statement of Changes in Net Position displays the activities affecting the difference between the beginning net position and ending net position, as shown on the HHS Consolidated Balance Sheets.  This is also represented as the difference between assets and liabilities.

Changes in assets are shown by identifying where HHS gets the money from, known as financing sources.  Financing sources include both the Total Financing Sources and Total Budgetary Sources lines from the Statement of Changes in Net Position.

HHS receives the majority of the funding through Congressional appropriations and reimbursement for the provision of goods or services to other federal agencies.  The “HHS Gets the Money From…” chart shows the largest financing source, General Funds and Other, increased since FY 2017 by $94.8 billion or 12 percent.  The fluctuations in tax revenue of $4.9 billion or 2 percent is related to the Federal Insurance Contributions Act (FICA) and Self Employed Contributions Act (SECA).

 

HHS Used the Money For... (in Billions)Statements of Net Cost

The Consolidated Statements of Net Cost represents how HHS spent the money.  This can also be stated as the difference between the costs incurred by HHS’s programs less associated revenues.  The Net Cost of Operations for the year ended September 30, 2018, totaled approximately $1.1 trillion.  The “HHS Used the Money For …” chart shows consolidating costs by major budget function6, which are the categories displayed in the Federal Budget.  Most agencies have one or two budget functions, where HHS has many.

The table below presents FY 2018 Consolidated Net Cost of Operations, which breaks costs into Responsibility Segments between CMS and the remaining OpDivs in Other Segments.  Net cost for CMS increased by $45.4 billion or 5 percent over FY 2017.  The majority of this increase relates to SMI expenses of $44.9 billion, which includes $29.3 billion in benefit expenses, $15.0 billion in Part D benefit expenses.  HI and Medicaid expenses also increased by $15.3 billion and $10.7 billion, respectively.  These expenses are offset by SMI premium of $10.7 billion.  Additionally, as noted, the Risk Corridor program costs decreased by $12.3 billion.  There was an increase in total Net Cost of Operations for the remaining HHS segments at $11.1 billion or 9 percent over FY 2017.

Net Cost of Operations
(in Billions)

  2018 2017 $ Change
(2018-2017)
% Change
(2018-2017)
Responsibility Segments:
CMS Gross Cost $ 1,115.2 $ 1,060.8 $ 54.4 5%
CMS Exchange Revenue (106.3) (97.3) 9.0 9%
       CMS Net Cost of Operations $ 1,008.9 $ 963.5 $ 45.4 5%
Other Segments:
Other Segments Gross Cost $ 140.2 $ 128.3 $ 11.9 June 2019
Other Segments Exchange Revenue (5.8) (5.0) 0.8 16%
       Other Segments Net Cost of Operations $ 134.4 $ 123.3 $ 11.0 9%
Net Cost of Operations $ 1,141.3 $ 1,086.8 $ 56.5 5%

HHS classifies costs by major budget functions such as Medicare, Health, Income Security, and Education, Training, and Social Services.  This is shown on the Consolidating Statement of Net Cost by Budget Function in the “Other Information” section of this report.  The graph below shows the two-year cost trends for these major budget functions7.  In FY 2018, total net costs for Medicare of $616.8 billion and Health of $470.7 billion account for 95 percent of HHS’s annual net costs.

Cost by Major Budget Function (in Billions)

Statement of Budgetary Resources

The Combined Statement of Budgetary Resources displays the budgetary resources available to HHS throughout FY 2018 and FY 2017, and the status of those resources at the fiscal year-end. The primary components of HHS’s resources, totaling approximately $1.8 trillion for FY 2018, are appropriations from Congress, resources not yet used from previous years (unobligated balances from prior year budget authority), and spending authority from offsetting collections and borrowing authority. This represents an increase of $75.2 billion or 4 percent, over FY 2017. The following graph highlights trends in these balances over the past two fiscal years.

Total Budgetary Resources (in Billions)

The increase in appropriations is primarily related to increases in Medicaid of $20.7 billion, SMI of $16.3 billion, and Payments to the Trust Funds of $14.1 billion.  For further details, see the Combining Statement of Budgetary Resources in the “Financial Section” of this report.

The increase of $18.8 billion in unobligated balance from prior year budget authority is primarily due to changes in unobligated balance of $41.2 billion reflecting an increase in Payment to the Trust Fund for repayment made in FY 2018 for the Federal Matching SMI Repayment Loan that was established in FY 2016 and an increase in Medicaid for the refund collections on PY Medicaid grant awards from the states.  These increases are offset by the unobligated balance brought forward from prior year balance decrease of $22.9 billion.

Schedule of Spending

HHS has elected to present the trends in spending in the audited notes to the principal financial statements titled, Combined Schedule of Spending.  The chart below illustrates spending as of September 30, 2018, and 2017 for the top four TAS.  The remaining TAS are presented in Other Agency Budgetary Accounts.

The New Obligations and Upward Adjustments line on the Combined Statement of Budgetary Resources is the same as Total Amounts Agreed to be Spent line on the Combined Schedule of Spending.  Total obligations for FY 2018 were approximately $1.7 trillion or 2 percent increase over FY 2017.

Spending by Treasury Symbol (in Billions)The HHS’s total spending is once again significantly represented by four of CMS’s TAS (Medicaid, Medicare HI, Medicare SMI, and Payments to Trust Funds) at 83 percent of HHS total obligations.

As the American public will soon be able to see more clearly on the USAspending.gov website, the majority of HHS spending was made through Grants, Subsidies, and Contributions at $840.7 billion or 50 percent.  HHS is the largest grant-making agency in the federal government.  Additionally, HHS has incurred obligations for Insurance Claims and Indemnities totaling $707.3 billion or 42 percent.  HHS classifies obligations by items or services provided into categories known as object classes.  For more information refer to Note 21, Combined Schedule of Spending in the “Financial Section” of this report.

Statement of Social Insurance 

Did you know?

Health care is taking up an increasing share of the U.S. economy, and by 2026 the CMS Office of the Actuary projects that one in every five dollars spent in America will be spent on health care.

The Statement of Social Insurance presents the 75-year actuarial present value of the income and expenditures of the HI and SMI Trust Funds. Future expenditures are expected to arise for current and future program participants. This projection is considered to be important information regarding the potential future cost of the program. These projected potential future obligations are not included in the Consolidated Balance Sheets, Statements of Net Cost and Changes in Net Position, or Combined Statement of Budgetary Resources.  

Actuarial present values are computed under the intermediate set of assumptions specified in the 2018 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds (Trustees Report).

 The Statement of Social Insurance presents the following estimates:

  • The present value of future income (income excluding interest) to be received from or on behalf of current participants who have attained eligibility age and the future cost of providing benefits to those same individuals;
  • The present value of future income to be received from or on behalf of current participants who have not yet attained eligibility age and the future cost of providing benefits to those same individuals;
  • The present value of future income less future cost for the closed group, which represents all current participants who attain age 15 or older in the first year of the projection period, plus the assets in the combined HI and SMI Trust Funds as of the beginning of the valuation period;
  • The present value of income to be received from or on behalf of future participants and the cost of providing benefits to those same individuals;
  • The present value of future income less future cost for the open group, which represents all current and future participants (including those born during the projection period) who are now participating or are expected to eventually participate in the Medicare program, plus the assets in the combined HI and SMI Trust Funds as of the beginning of the valuation period; and
  • The present value of future cash flows for all current and future participants over the next 75 years (open group measure) decreased from $(3.5) trillion, determined as of January 1, 2017, to $(4.7) trillion, determined as of January 1, 2018.

Including the combined HI and SMI Trust Fund assets increases the present value, as of January 1, 2018, the future cash flow for all current and future participants was $(4.4) trillion for the 75-year valuation period.  The comparable closed group of participants, including the combined HI and SMI Trust Fund assets, is $(11.6) trillion.

HI TRUST FUND SOLVENCY

Pay-as-you-go Financing
The HI Trust Fund is deemed to be solvent as long as assets are sufficient to finance program obligations.  Such solvency is indicated, for any point in time, by the maintenance of positive trust fund assets.  In recent years, current expenditures have exceeded program income for the HI program, and thus, the HI Trust Fund assets have been declining.  The following table shows that HI Trust Fund assets, expressed as a ratio of the assets at the beginning of the fiscal year to the expenditures for the year.  This ratio has steadily dropped from 77 percent at the beginning of FY 2014 to 66 percent at the beginning of FY 2018.

Trust Fund Ratio Beginning Fiscal YearShort-Term Financing
The HI Trust Fund is deemed adequately financed for the short term when actuarial estimates of trust fund assets for the beginning of each calendar year are at least as large as program obligations for the year.  Estimates in the 2018 Trustees Report indicate that the HI Trust Fund is not adequately financed over the next 10 years.  Under the intermediate assumptions of the 2018 Trustees Report, the HI Trust Fund ratio is estimated to decline steadily until the fund is depleted in calendar year 2026.  Assets at the end of calendar year 2017 were $202 billion and are expected to decrease steadily until depleted in 2026.

Long-Term Financing
The short-range outlook for the HI Trust Fund has deteriorated compared to what was projected last year.  The trust fund ratio declines until the fund is depleted in 2026, three years earlier than the date projected last year.  HI financing is not projected to be sustainable over the long term with the projected tax rates and expenditure levels.  Program cost is expected to exceed total income in all years.  When the HI Trust Fund is exhausted, full benefits cannot be paid on a timely basis.  The percentage of expenditures covered by tax revenues is projected to decrease from 91 percent in 2026 to 78 percent in 2042 and then to increase to about 85 percent by the end of the projection period. 

The primary reasons for the projected long-term inadequacy of financing under current law relate to the fact that the ratio of the number of workers paying taxes relative to the number of beneficiaries eligible for benefits drops from 3.1 in 2017 to about 2.1 by 2092.  In addition, health care costs continue to rise faster than the taxable wages used to support the program.  In present value terms, the 75-year shortfall is $4.5 trillion, which is 0.8 percent of taxable payroll and 0.3 percent of Gross Domestic Product (GDP) over the same period.  Significant uncertainty surrounds the estimates for the Statement of Social Insurance.  In particular, the actual future values of demographic, economic, and programmatic factors are likely to be different from the near-term and ultimate assumptions used in the projections.  For more information, please refer to the Required Supplementary Information:  Social Insurance disclosures required by the Federal Accounting Standards Advisory Board.

SMI TRUST FUND SOLVENCY

The SMI Trust Fund consists of two accounts – Part B and Part D.  In order to evaluate the financial status of the SMI Trust Fund, each account needs to be assessed individually, since financing rates for each part are established separately, and their program benefits are quite different in nature. 

While differences between the two accounts exist, the financing mechanism for each part is similar in that the financing is determined on a yearly basis.  The Part B account is generally financed by premiums and general revenue matching appropriations determined annually to cover projected program expenditures and to provide a contingency for unexpected program variation.  The Part D account is financed by premiums, general revenues, and transfers from state governments.  Unlike the Part B account, the appropriation for Part D has generally been set such that amounts can be transferred to the Part D account on an as‑needed basis; under this process, there is no need to maintain a contingency reserve.  In September 2015, a new policy was implemented to transfer amounts from the Treasury into the account five business days before the benefit payments to the plans.  As a result, the Trustees expect the Part D account to include a more substantial balance at the end of most months to reflect the new policy.

Since both the Part B and Part D programs are financed on a yearly basis, from a program perspective, there is no unfunded liability in the short or long-range.  Therefore, in this financial statement the present value of estimated future excess of income over expenditures for current and future participants over the next 75 years is $0.  However, from a government wide perspective, general fund transfers as well as interest payments to the Medicare Trust Funds and asset redemption, represent a draw on other federal resources for which there is no earmarked source of revenue from the public.  Hence, from a government wide perspective, the corresponding estimate of future income less expenditures for the 75-year projection period is $(33.0) trillion.

Even though from a program perspective, the unfunded liability is $0, there is concern over the rapid increase in cost of the SMI program as a percent of GDP.  In 2017, SMI expenditures were 2.1 percent of GDP.  By 2092, SMI expenditures are projected to grow to 3.9 percent of the GDP.

The following table presents key amounts from CMS’s basic financial statements for fiscal year 2016 through 2018.

Table of Key Measures8

  2018 2017 2016
Net Position (End of Fiscal Year)
Assets $ 467.3 $ 444.2 $ 446.0
Less Total Liabilities    123.5    137.5    137.39.0
Net Position (assets net of liabilities) $ 343.8 $ 306.7 $ 308.7
Costs (end of fiscal year)
Net Costs $ 1,009.1 $ 963.3 $ 953.1
Total Financing Sources    1,017.7    984.6    960.1
Net Change in Cumulative Results of Operations $ 8.6 $ 21.3 $ 7.0
Statement of Social Insurance (calendar year basis)
Present value of estimated future income (excluding interest) less expenditures for current and future participants over the next 75 years (open group), current year valuation (as of 1/1/2018) $ (4,708) $ (3,532) $ (3,822)
Present value of estimated future income (excluding interest) less expenditures for current and future participants over the next 75 years (open group), prior year valuation (as of 1/1/2017) $ (3,532) $ (3,822) $ (3,187)
Change in Present Value $ (1,176) $ 290 $ (636)

Statement of Changes in Social Insurance Amounts

The Statement of Changes in Social Insurance Amounts reconciles the change (between the current valuation period and the prior valuation period) in the present value of future tax income less future cost for current and future participants (the open group measure) over the next 75 years.  This reconciliation identifies those components of the change that are significant and provides reasons for the changes.  In general, an increase in the present value of net cash flow represents a positive change (improving financing), while a decrease in the present value of net cash flow represents a negative change (worsening financing). 

The present value as of January 1, 2018, decreased by $168 billion due to advancing the valuation date by one year and including the additional year 2092, by $921 billion due to changes in projection base, and by $535 billion due to change in legislation.  However, the present value increased due to changes in demographic assumptions, and economic and health care assumptions, by $434 billion and $14 billion, respectively.

Required Supplementary Information 

As required by Statement of Federal Financial Accounting Standards (SFFAS) 17, Accounting for Social Insurance (as amended by SFFAS 37, Social Insurance: Additional Requirements for Management Discussion and Analysis and Basic Financial Statements), HHS has included information about the Medicare Trust Funds – HI and SMI.  The Required Supplementary Information (RSI) presents required long-range cash-flow projections, the long-range projections of the ratio of contributors to beneficiaries (dependency ratio), and the sensitivity analysis illustrating the effect of the changes in the most significant assumptions on the actuarial projections and present values.  The SFFAS 37 does not eliminate or otherwise affect the SFFAS 17 requirements for the supplementary information, except that actuarial projections of annual cash flow in nominal dollars are no longer required; as such, it will not be reported in the RSI.  The RSI assesses the sufficiency of future budgetary resources to sustain program services and meet program obligations as they come due.  The information is drawn from the Trustees Report, which represents the official government evaluation of the financial and actuarial status of the Medicare Trust Funds.

Limitation of the Principal Financial Statements

The principal financial statements in the “Financial Section” have been prepared to report HHS’s financial position and results of operations, pursuant to the requirements of 31 U.S.C. §3515(b).  Although the statements have been prepared from HHS’s books and records in accordance with generally accepted accounting principles for federal entities and the formats prescribed by the OMB, the statements are in addition to the financial reports used to monitor and control budgetary resources, which are prepared from the same books and records.

The statements should be read with the realization that they are for a component of the U.S. Government, a sovereign entity.  One implication of this is that liabilities cannot be liquidated without legislation providing HHS with resources and budget authority.

 

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  • 1. This decline is due to CDC reducing the number of FETP fellows trained in order to accommodate a more targeted approach for priority countries. As such, the targets moving forward are smaller.
  • 2. HHS has recalculated the data retroactively to remove data collected on opioids and naloxone used in long-term care. These uses are for standard medical procedures and do not reflect opioid misuse and naloxone provision made to prevent overdose outside a hospital setting.
  • 3. This measure is an APG with a 2-year FY 2019 target of 280 Programs.
  • 4. Due to the uncertainty of the long-range assumptions used in the Statement of Social Insurance model, the auditors were not able to express an opinion on the Statement of Social Insurance, the Statement of Changes in Social Insurance Amounts, and associated footnotes.
  • 5. HHS’s net cost is 24 percent of the federal government’s total costs, Social Security Administration’s net cost is 22 percent, Department of Defense’s net cost is 15 percent, Department of Veterans Affairs’s net cost is 11 percent, and Treasury’s Interest on Treasury Security Held by the Public’s net cost is 6 percent. All remaining agencies combined only represent 22 percent. Source: FY 2017 Financial Report of the United States Government fiscal.treasury.gov/fsreports/rpt/finrep/fr/fr_index.html
  • 6. Totals in the chart are exclusive of Intra-HHS eliminations from the Consolidating Statement of Net Cost by Budget Function. This statement can be found in Section III, Other Information
  • 7. Totals in the chart are exclusive of Intra-HHS Eliminations from the Consolidating Statement of Net Cost by Budget Function.
  • 8. The table or other singular presentation showing the measures described above. Although, the closed group measure is not required to be presented in the table or other singular presentation, CMS presents the closed group measure and open group measure.
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Content last reviewed on November 29, 2018