Federal Aviation Administration: Stakeholders' Perspectives on Potentially Moving the Office of Commercial Space Transportation

The Office of Commercial Space Transportation, which regulates and promotes the U.S. commercial space launch industry, was established in 1984 within the Office of the Secretary of Transportation and transferred to FAA in 1995. In 2015, GAO reported that the Office of Commercial Space Transportation faced challenges associated with the growth of the commercial space launch industry such as licensing more launches. To help meet these and other challenges such as updating regulations, some industry stakeholders and others suggested that the Office of Commercial Space Transportation should be moved back to the Office of the Secretary of Transportation.

GAO was asked to review issues regarding transferring the Office of Commercial Space Transportation from FAA to the Office of the Secretary of Transportation. This report addresses: (1) selected stakeholders' and officials' perspectives on transferring the Office of Commercial Space Transportation from FAA to the Office of the Secretary of Transportation, (2) what steps would be required to make this transfer, and (3) key practices and considerations GAO has previously identified for organizational changes that could be instructive for such a transfer. GAO interviewed industry stakeholders and FAA and DOT officials, reviewed the steps taken during the office's 1995 transfer, and reviewed prior reports on key practices and questions to consider regarding organizational changes.

GAO is making no recommendations in this report.

Representatives from commercial space launch companies and spaceports GAO interviewed described advantages and disadvantages of moving the Office of Commercial Space Transportation to the Office of the Secretary of Transportation, but most of them favored moving the office. Conversely, most Federal Aviation Administration (FAA) officials GAO interviewed did not favor the idea. A senior official in the Office of Commercial Space Transportation said that there are advantages and disadvantages to moving the office and that whether such an action would be beneficial depends on the implementation details and the administration's preferences. Officials from the Office of the Secretary of Transportation said they currently do not have plans to move the office. Stakeholders' and officials' perspectives are based on what they perceive could occur as a result of a move, for example:

Communication and coordination: Department of Transportation (DOT) officials said that a possible advantage of moving the office would be having a unified point of contact for the industry in communicating about commercial space launch issues, while FAA officials said that moving the office could make it more difficult for FAA offices to coordinate on commercial space activities.

Regulations: Some stakeholders said that moving the office could help accelerate the pace of commercial space regulatory reform, but DOT officials said that moving the office would not necessarily do so.

Resources: According to some stakeholders and a senior official in the Office of Commercial Space Transportation, moving the office out of FAA could give commercial space launch issues a higher profile and more resources because FAA is focused on aviation as opposed to commercial space. However, officials from the Office of the Secretary of Transportation said that it is uncertain whether the office would receive more resources if it were moved to the Secretary's office.

The Secretary of Transportation could move all or part of the office through a delegation of responsibilities for commercial space, as was the case in the prior move in 1995. If the office were moved, other necessary steps would include addressing the differences in pay scales between FAA and the Office of the Secretary of Transportation, obtaining support services and office space, and establishing new coordination and communication processes and procedures.

GAO's prior work has identified key practices and questions for consideration when evaluating proposals for or implementing organizational changes such as a consolidation or merger. These key practices include: (1) focusing on a key set of principles and priorities at the outset of the transformation, (2) setting implementation goals and a timeline to build momentum and show progress, and (3) establishing a communication plan. Questions to consider when evaluating consolidation proposals include (1) What are the goals of the consolidation? and (2) What will be the likely costs and benefits of the consolidation?

The Office of Commercial Space Transportation, which regulates and  promotes the U.S. commercial space launch industry, was established in  1984 within the Office of the Secretary of Transportation and transferred  to the Federal Aviation Administration (FAA) in 1995. In 2015, we  reported that the Office of Commercial Space Transportation faced  challenges associated with the growth of the commercial space launch  industry, including licensing more launches as well as new types of  vehicles and technologies, licensing more and complex launch sites, and  responding to emerging business plans. To help meet these and other  challenges such as updating regulations, some industry stakeholders and  others have suggested that the Office of Commercial Space  Transportation should be moved back to the Office of the Secretary of  Transportation.

You requested that we review issues regarding transferring the Office of  Commercial Space Transportation from FAA to the Office of the Secretary  of Transportation. This report addresses: (1) selected stakeholders’ and  officials’ perspectives on transferring the Office of Commercial Space  Transportation from FAA to the Office of the Secretary of Transportation,  (2) what steps would be required to make this transfer, and (3) key  practices and considerations we have identified for organizational  changes that could be instructive for such a transfer.

To obtain selected stakeholders’ perspectives on transferring the Office of  Commercial Space Transportation from FAA to the Office of the Secretary  of Transportation, we interviewed representatives from four selected  commercial space launch companies that have conducted launches and  other activities under a permit within the last 5 years in the United States  and that represent different sectors of the industry such as orbital  launches and space tourism. In addition to these companies and to  obtain the perspectives of companies that have different types of licenses  and are in different stages of the licensing process, we also interviewed  representatives from (1) a company that indicated it is working with FAA  on a launch license application, (2) a licensed spaceport, and (3) an  airport in the launch site licensing process. Furthermore, to obtain the  perspective of an industry association that represents a range of  commercial space companies—including commercial spaceflight  developers, operators, and spaceports—we interviewed a representative  from the Commercial Spaceflight Federation, an association representing  the commercial space industry. Within FAA, we interviewed officials in  offices that FAA identified as being involved in commercial space  transportation issues, including the Office of the Administrator, the Office  of Commercial Space Transportation, the Air Traffic Organization, and the  Office of Airports. We also received written answers to our questions from  FAA’s Office of Aviation Safety. To obtain perspectives from the  Department of Transportation (DOT), we interviewed officials from the  Office of the Secretary of Transportation. In addition, we interviewed a  former DOT official who served in a senior position when the Office of  Commercial Space Transportation was transferred to FAA in 1995.  Because there is no formal plan to move the office, stakeholders’  perspectives are based on what they perceive could occur as a result of a  move. Moreover, whether an effect of moving the office would be an  advantage or disadvantage may vary depending on a stakeholder’s or  official’s perspective and what would actually occur from a move.

We also reviewed available documentation, including a 1992 report  prepared by the National Academy of Public Administration that included  organizational options for the Office of Commercial Space Transportation  and the FAA Air Traffic Organization’s Roadmap for Integration of Space  Operations in the National Airspace System.

To determine what would be required to move the Office of Commercial  Space Transportation from FAA back to the Office of the Secretary of  Transportation, we reviewed the steps taken regarding DOT’s transfer of  the Office of Commercial Space Transportation from the Office of the  Secretary of Transportation to FAA in 1995. In addition, we reviewed the  legislative histories for the Commercial Space Act of 1984 and legislation  introduced in 1994 to require the transfer of the Office of Commercial  Space Transportation from DOT to FAA. We also interviewed current and  former officials from the Office of the Secretary of Transportation.

To determine what we have previously identified as key practices for  successful transitions that might be instructive, we reviewed our prior  reports on key practices for mergers and organizational transformations  and questions to consider for consolidations. For this prior work, we  developed these key merger and transformation practices by convening a  forum to identify and discuss useful practices and lessons learned from  major private and public sector organizational mergers, acquisitions, and  transformations; interviewing knowledgeable officials; reviewing relevant  literature and agency documentation; and reviewing the status of high risk  issues. To identify key questions that federal agencies should consider  when evaluating whether to consolidate physical infrastructure or  management functions, we reviewed prior GAO work that identified and  reviewed relevant literature on public sector consolidations produced by  academic institutions, professional associations, think tanks, news  outlets, and various other organizations, and reviewed examples of  agency consolidations. This information complemented our review of  GAO’s extensive body of work on government reform.

We conducted this performance audit from May 2017 to October 2017 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

In 1984, the Commercial Space Launch Act gave DOT the authority,  among other things, to license and monitor the safety of commercial  space launches and to promote the industry. Executive Order 12465  designated DOT as the lead federal agency for enabling private-sector  launch capability. The Office of Commercial Space Transportation and  its responsibilities, which were originally within the Office of the Secretary  of Transportation, were transferred to FAA in 1995.

The U.S. commercial space launch industry has achieved several  milestones since 1984. For example, in recent years SpaceX, a  commercial space launch company, has successfully tested reusable  elements of expendable launch vehicles and landed them back on land  and on an off-shore landing vessel called a drone ship. In addition, the  industry is changing with the emergence of some suborbital launch  vehicles that are capable of being launched into space more than once  and can enable space tourism. For example, Blue Origin has  successfully launched and landed the vehicle it intends to use in the  future for space tourism. By adding an expendable upper stage,  suborbital vehicles can also be used to transport small satellites to orbit.  Furthermore, although licensed launches historically took place at federal  launch sites such as Cape Canaveral Air Force Station and the National  Aeronautics and Space Administration’s Kennedy Space Center, launch  sites now can be private spaceports or FAA-licensed launch sites. One  launch site is co-located at an airport that has scheduled commercial  airline flights and other spaceports are used for general aviation. As of  August 2017, there were 10 licensed launch sites in the United States.

The Office of Commercial Space Transportation works with other FAA  lines of business such as:  the Air Traffic Organization on integrating licensed launches and  permitted activities in the national airspace,  the Office of Airports regarding airports that seek to be or already are  licensed launch sites, and  the Office of Aviation Safety on launch vehicles that follow aircraft  rules and can be used for commercial space activities.

In fiscal year 2017, the Office of Commercial Space Transportation had  104 full-time equivalent positions and an operations budget of $19.8  million—an increase of 20 full-time equivalent positions and $2 million  over fiscal year 2016. FAA has a staff of over 40,000 people and a budget  of $16.4 billion in fiscal year 2017. According to the Office of Commercial  Space Transportation, its workload has increased significantly in recent  years, particularly regarding pre-application consultations for launch and  launch site licenses.

The Office of the Secretary of Transportation has offices that are  responsible for policy, legal, and government affairs among other issues.

In 1987, the House Appropriations Committee recommended that DOT  perform a comprehensive organization and management study of the  Office of Commercial Space Transportation with the objectives of  eliminating duplication of activities carried out by offices within the Office  of the Secretary and DOT modal administrations, and determining  potential areas for streamlining operations. In 1991, DOT asked the  National Academy of Public Administration to analyze and evaluate the  key organizational and management issues facing the Office of  Commercial Space Transportation which at that time was located in the  Office of the Secretary of Transportation. The report considered  organizational options for the office including establishing an independent  regulatory office, merging the office into an existing operating  administration such as FAA, transferring this office to bureau status in  DOT, or creating a new operating administration in DOT. According to the  report, three of the study’s five panel members stated that they believed  that the office should be removed from the Office of the Secretary of  Transportation and established as an operating administration because  its mission was inconsistent with the broad and cross-cutting  organizations within the Secretary’s Office that are focused on policy,  budget, and administrative issues.

Stakeholders Cited Various Perspectives on Moving the Office of Commercial Space Transportation

Representatives from the commercial space launch companies and  spaceports we spoke to described both potential advantages and  disadvantages of moving the office, but most of them favored moving the  office. On the other hand, most FAA officials we interviewed did not favor  the idea. A senior official in the Office of Commercial Space  Transportation said that there are advantages and disadvantages to  moving the office and that whether such an action would be beneficial  depended on the implementation details and the administration’s  preferences. Officials from the Office of the Secretary of Transportation  said they currently do not have plans to move the office. Stakeholders  and officials provided perspectives on what they believe might result from  a move including discussions regarding communicating with the industry  and coordinating within FAA, program operations, updating regulations,  and obtaining resources for the office, and other issues.

Stakeholder Perspectives on Advantages and Disadvantages of a Move

Officials in the Office of the Secretary of Transportation said a possible  advantage of moving all or part of the office would be having a unified  point of contact for communicating with the industry on commercial space  launch issues. Representatives from a commercial space launch  company also said that rather than working with various FAA offices, they  would like there to be a “one-stop shop” for commercial space launch  issues and a senior official in the Office of Commercial Space  Transportation indicated the office’s original purpose was to fulfill that  role. Some company representatives further explained that although  they generally work with the Office of Commercial Space Transportation  on licensing issues and with the Air Traffic Organization on airspace  access, in some cases, the lines of responsibility between the two offices  are not clearly defined. Furthermore, a spaceport official said that in  addition to working with the Office of Commercial Space Transportation  he also needs to work with FAA’s Office of Airports, which reviews the  effects of spaceports on airports, among other responsibilities.

In discussing these issues with the senior official involved in the Air Traffic  Organization’s emerging technologies integration efforts, the official said  that although there is overlap and a need for more communication  between the Office of Commercial Space Transportation and the Air  Traffic Organization, coordination between the two offices is improving.  He also said that later this year or early next year, FAA plans to start an  aviation rulemaking advisory committee that will help to determine  airspace access priorities for all national airspace users. Similarly, an  official from the Office of Airports said the office is developing standard  operating procedures and a memorandum of understanding with the  Office of Commercial Space Transportation to resolve issues. A  spaceport official who has been working on a launch site operator’s  license application for several years confirmed that coordination among  various FAA offices on commercial space launch issues has significantly  improved during the last 6 months.

Furthermore, several FAA senior officials said that moving the office could  make it more difficult for FAA offices to coordinate on commercial space  activities. For example, a senior official involved in the Air Traffic  Organization’s emerging technologies integration efforts said that  although such a move may increase the visibility of the Office of  Commercial Space Transportation, it would not necessarily improve  airspace integration. In addition, written responses to our questions from  the Office of Aviation Safety indicated that their ability to interact with the  Office of Commercial Space Transportation at an internal agency level  may be less cumbersome than having to go through the additional  communication protocols at the level of the Office of the Secretary of  Transportation. Similarly, officials from the Office of Airports indicated that  coordinating airspace review is an inherently FAA function that uses the  experience and knowledge of subject matter experts located within the  FAA, and that moving the commercial space office to the Office of the  Secretary of Transportation could affect the efficiency of these reviews.  Officials from the Office of the Secretary of Transportation also said that  even if the commercial space transportation office were moved to their  office, they would still need to work with FAA on airspace access issues  and that they would not necessarily favor the industry regarding airspace  issues.

Moreover, FAA officials we interviewed said they are working on  improving commercial space coordination through various working  groups, particularly through the Commercial Space Transportation  Executive Working Group that was formed earlier this year to coordinate  on commercial space issues. This group is chaired by the official directing  commercial space integration in the Office of Commercial Space  Transportation and is comprised of executives from across the agency,  including the Air Traffic Organization, the Office of Airports, and the Office  of Aviation Safety. According to the group’s chairman, this group was  formed to formalize coordination on commercial space launch issues  across the agency because there was confusion among commercial  space stakeholders and across the agency, and commercial space  launch companies were hearing different things from different FAA lines  of business. The group’s chairman said that the Executive Working Group  reports to FAA’s New Entrants Board, a group formed to provide status  updates on activities and events as well as decide how to move forward  on specific initiatives associated with new entrants to the airspace such  as drones and commercial space launch vehicles and is comprised of the  principal leaders of FAA lines of business working on these issues. An  FAA senior official told us that he believes commercial space coordination  issues will be resolved as launches become more routine. In addition, the  Air Traffic Organization has formed an Emerging Technologies Integration  Office to focus on integrating commercial space operations and  unmanned aircraft system activities within the national airspace system. A  senior official in that office said that for decades, the Air Traffic  Organization was focused on airplanes and that any deviation in airplane  flow was viewed as an impediment, but that his office’s goal is to shift the  understanding within the organization from an airplane-only focus to the  idea that several types of vehicles can use the national airspace system.

A representative from one commercial space launch company said that  an advantage of moving the Office of Commercial Space Transportation  and thereby making space transportation its own mode, is that it could  facilitate a more “level playing field” for space activities operating in and  through the national airspace system. The representative noted that the  Air Traffic Organization is a much larger office than the Office of  Commercial Space Transportation and is focused on aviation safety  which is regulated differently than space activities. As a result, the  representative said that companies perceive an unequal playing field  between these two offices and the risk of negative effects if aviation  standards are imposed on space, including airspace closures during  launch and reentry. According to the representative, because of the Air  Traffic Organization’s lack of familiarity with space launch operations and  the mechanics of placing a spacecraft into orbit or on a trajectory to  another celestial body, the office has suggested launch times be limited to  certain times of day and certain days of the month as dictated by the  amount of air traffic. The representative said that the Air Traffic  Organization’s proposed approach is “untenable” for commercial space  launches because launch times are dictated by orbital mechanics and  that the Air Traffic Organization has imposed airspace restrictions during  the holidays that have required launches to be rescheduled. A  representative from another commercial space launch company said that  an unequal playing field between these two offices results in the Office of  Commercial Space Transportation not having the practical authority  commensurate with its responsibility. According to this representative, the  impact of this mismatch results in confusion over authority and negatively  affects when commercial space companies are able to launch as well as  excessive time and volume of airspace closed during a launch. A  representative from a third company said that there are multiple variables  to consider about moving the office. The representative said that while  moving the Office of Commercial Space Transportation to the Office of  the Secretary of Transportation would provide it with much more visibility,  the office may still be at a disadvantage when it disagrees with larger  offices in the FAA. In addition, the representative said that most launch  companies would still have to work with FAA on air traffic control issues  as well as hybrid vehicles and experimental aircraft licenses. Moreover,  a representative from the Commercial Spaceflight Federation said that  although the association does not have a consensus position on moving  the Office of Commercial Space Transportation, its members are  concerned that the Air Traffic Organization is attempting to treat the  rapidly developing area of commercial space similarly to how it treats the  mature commercial aviation industry.

In response to these comments, an Air Traffic Organization official told us  that the airspace is restricted to commercial space launches for about 15  days per year during the holidays because a launch can affect hundreds  of flights and that they prefer that launches occur when there are fewer effects on the national airspace system, for example, at night. However,  an official said that the Air Traffic Organization has only denied one  launch request over the last 5 years. An Air Traffic Organization official  also said that they do not regulate the commercial space launch industry  and focus on providing safe access to the airspace by all users of the  national airspace system. In addition, an official involved with commercial  space integration in the Office of Commercial Space Transportation and a  spaceport representative told us they expect that technology will allow for  more efficient use of the national airspace in the future by reducing the  amount of time that the airspace will need to be shut down for launches.

Some stakeholders said that moving the Office of Commercial Space  Transportation could help accelerate the pace of updating regulations to  reflect new technology, which they said was proceeding too slowly. A  senior official in the Office of Commercial Space Transportation said that  instead of competing with other FAA offices for rulemaking approval  within the agency, moving the Office of Commercial Space Transportation  to the Office of the Secretary might give the commercial space office a  higher priority with regard to rulemaking. However, officials from the  Office of the Secretary of Transportation also said that the regulatory  rulemakings are not allocated by office but are set according to the  priorities of each administration, so moving the office would not  necessarily affect regulatory reform efforts.

According to some stakeholders and a senior official in the Office of  Commercial Space Transportation, moving the office out of FAA could  give commercial space launch issues a higher profile and more resources  because FAA is focused on aviation as opposed to commercial space.  One stakeholder also said moving the office out of FAA would make the  office a priority as an independent organization within DOT. Furthermore,  a senior official in the Office of Commercial Space Transportation said  that the office has reached the limits of what it can accomplish with  existing resources, policies, and authorities, and that moving the office  could enable industry growth. In addition, a company representative  said that the primary possible advantage of moving the office would be to  have an Assistant Secretary for Commercial Space Transportation who  would be in a leadership position to represent the growing industry  directly to the Secretary of Transportation. However, officials from the  Office of the Secretary of Transportation said that it is uncertain whether  the Office of Commercial Space Transportation would receive more  resources if it were moved to the Secretary’s office. In addition, some  stakeholders said that if moved, the office would have to pay for support  services that are currently available within FAA, such as legal, regulatory,  human resources, and administrative support.

Other Issues Noted by Stakeholders and Officials

A commercial space launch company representative suggested that the  Office of Commercial Space Transportation’s promotional responsibilities  should be separate from its regulatory responsibilities to avoid even the  appearance of a conflict of interest between regulating safety and  promoting a company interest, but did not suggest that its promotional  responsibilities had affected safety. In addition, a senior FAA official said  that it would make sense to move the Office of Commercial Space  Transportation’s promotion duties out of FAA because of an inherent  conflict with the office being both a promoter and a regulator. Officials  from the Office of the Secretary said transferring the policy and promotion  aspects of the Office of Commercial Space Transportation’s work to the  Secretary’s office, but not the launch licensing responsibilities, is one of  various options regarding the office but that they have not advanced a  specific proposal. A senior official in the Office of Commercial Space  Transportation said there is no specific office within the Office of  Commercial Space Transportation that promotes the industry and that the  office’s promotional functions are part of its overall responsibilities, so  moving only the promotional responsibilities would not be feasible.

A former DOT official who served in a senior position when the Office of  Commercial Space Transportation was transferred to FAA in 1995 noted  that one reason the office was moved was because of the belief that the  Office of the Secretary of Transportation should not be involved in  programmatic activities that belong in the operating agencies. However,  in 2014, Congress moved a programmatic office, the Research and  Innovative Technology Administration (RITA), to the Office of the  Secretary of Transportation. This former DOT official also said that the  Office of Commercial Space Transportation would benefit from the  technological and engineering support available within FAA.

Finally, representatives from commercial space launch companies and an  FAA official had different perspectives on whether the Office of  Commercial Space Transportation would or should be its own modal  agency within DOT or part of the Office of the Secretary of  Transportation. For example, a company representative who favored  moving the office said that commercial space could easily be considered  its own transportation mode and not as part of aviation. Another  company’s representative expected that the Office of Commercial Space  Transportation, if it were moved out of FAA, would start out as its own  modal agency. A third stakeholder suggested that eventually space  transportation will become its own independent mode of transportation  such as air, sea, rail, and roads and that moving the Office of Commercial  Space Transportation out of the FAA is an inevitable first step in that  direction. A senior official from the Office of Commercial Space  Transportation said that moving the Office of Commercial Space  Transportation would be a step toward considering commercial space  transportation as a mode similar to rail or highway transportation.

Steps Can Be Taken through DOT’s Rulemaking Process to Move the Office of Commercial Space Transportation

All or part of the Office of Commercial Space Transportation can be  transferred back to the Secretary’s office through a rulemaking process  as was used in 1995 to amend the existing DOT delegation regulation.  This process, which does not require congressional approval, was used  when the Secretary of Transportation delegated the office’s  responsibilities from DOT to FAA in 1995. FAA officials and the former  Deputy Secretary of Transportation said moving the Office of Commercial  Space Transportation from the Office of the Secretary of Transportation to  FAA in 1995 was a “seamless” process. FAA and DOT officials said the  following steps would need to be taken to move the office:

Equivalent salaries would need to be determined for employees who  are transferring because FAA and DOT have different pay scales.

Legal, human capital, and administrative support currently provided by  FAA would need to be obtained from DOT.

New physical space for the office would likely need to be obtained, as  FAA and the Office of the Secretary of Transportation are in different  buildings.

New processes and procedures for coordination and communication  would need to be established.

Key Practices and Considerations for Organizational Changes

Our prior work has identified key practices and questions for  consideration when evaluating proposals for or implementing  organizational changes such as a consolidation or merger. We have  previously found that implementing large-scale change management  initiatives, such as mergers and organizational transformations, are not  simple endeavors and require the concentrated efforts of both leadership  and employees to realize intended synergies and to accomplish new  organizational goals. We have found that mergers and transformations  that incorporate strategic human capital management approaches will  help to sustain agency efforts and improve the efficiency, effectiveness,  and accountability of the federal government. These key merger and  transformation practices include focusing on a key set of principles and  priorities at the outset of the transformation, setting implementation goals  and a timeline to build momentum and show progress, and establishing a  communication plan. Questions to consider when evaluating  consolidation proposals include (1) What are the goals of the  consolidation? and (2) What will be the likely costs and benefits of the  consolidation?

Based on these key practices and considerations, DOT and FAA, for  example, would need to determine the purpose of moving the Office of  Commercial Space Transportation and the costs and benefits of such a  move. Furthermore, to ensure employee and management support, DOT  and FAA would need to obtain the buy-in of various FAA offices involved  in commercial space launch issues such as the Air Traffic Organization.  In addition, to assess the costs of the transformation, DOT and FAA  would need to determine the costs of any additional support that would be  needed by moving to the Office of the Secretary such as legal and  administrative support. Moreover, DOT could consider the risk of  unintended consequences of moving the office such as incurring  additional costs. In addition, a spaceport representative told us that he is  more concerned about the execution of moving the office than its  placement. The representative said that although conceptually moving the  office to the Office of the Secretary of Transportation could bring it more  visibility and resources, the move would be futile if it is executed poorly.  Therefore, if a decision were made to move the office, an implementation  plan would be needed, consistent with our key mergers and  transformation practices. Implementing a large-scale organizational  transformation requires the concentrated efforts of both leadership and  employees to accomplish new organizational goals. Agencies should  have an implementation plan that includes essential change-management practices such as active, engaged  leadership of executives at the highest possible levels; a dedicated implementation team that can be held accountable for a strategy for capturing best practices, measuring progress toward the  established goals of the consolidation, retaining key talent, and  assessing and mitigating risk, among others.

Table 1 of appendix I lists the key practices and implementation steps  that we have previously identified for mergers and organizational  transformations. Table 2 of appendix I provides the key questions we  have identified for evaluating proposals to consolidate physical  infrastructure and management functions. Although moving the office  does not involve a consolidation, we believe that many of these questions  would apply to other organizational changes such as an office move.

We provided a draft of this report to DOT for review and comment. DOT  provided technical comments via email which we incorporated as  appropriate.

We are sending copies of this report to the Secretary of Transportation,  the Administrator of the Federal Aviation Administration, and other  interested parties. In addition, the report will be available at no charge on  the GAO website at http://www.gao.gov.

If you or your staff have questions concerning this report, please contact  me at (202) 512-2834 or dillinghamg@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix II.

Appendix I: Key Practices for Mergers and  Organizational Transformations and Questions  to Consider for Consolidations Key Questions  What are the goals of the consolidation? What opportunities will be addressed through  the consolidation and what problems will be solved? What problems, if any, will be  created?

What will be the likely costs and benefits of the consolidation? Are sufficiently reliable  data available to support a business-case analysis or cost-benefit analysis?

How can the up-front costs associated with the consolidation be funded?

Who are the consolidation stakeholders, and how will they be affected? How have the  stakeholders been involved in the decision, and how have their views been considered?  On balance, do stakeholders understand the rationale for consolidation?

To what extent do plans show that change-management practices will be used to  implement the consolidation? (Please see table 1 for the key merger and transformation  practices.)

Appendix II: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Cathy Colwell (Assistant  Director); Bob Homan (Analyst-in-Charge); Maureen Luna-Long; Dave  Hooper; SaraAnn Moessbauer; and Sarah Veale made key contributions  to this report.


Medicaid Assisted Living Services: Improved Federal Oversight of Beneficiary Health and Welfare is Needed

The number of individuals receiving long term care services from Medicaid in community residential settings is expected to grow. These settings, which include assisted living facilities, provide a range of services that allow aged and disabled beneficiaries, who might otherwise require nursing home care, to remain in the community.

State Medicaid programs and CMS, the federal agency responsible for overseeing the state programs, share responsibility for ensuring that beneficiaries' health and welfare is protected. GAO was asked to examine state and federal oversight of assisted living services in Medicaid. This report (1) describes state spending on and coverage of these services, (2) describes how state Medicaid agencies oversee the health and welfare of beneficiaries in these settings, and (3) examines the extent that CMS oversees state Medicaid agency monitoring of assisted living services.

GAO surveyed all state Medicaid agencies and interviewed officials in a nongeneralizeable sample of three states with varied oversight processes for their assisted living programs. GAO reviewed regulations and guidance, and interviewed CMS officials.

State Medicaid agencies in 48 states that covered assisted living services reported spending more than $10 billion (federal and state) on assisted living services in 2014. These 48 states reported covering these services for more than 330,000 beneficiaries through more than 130 different programs. Most programs were operated under Medicaid waivers that allow states to target certain populations, limit enrollment, or restrict services to certain geographic areas.

With respect to oversight of their largest assisted living programs, state Medicaid agencies reported varied approaches to overseeing beneficiary health and welfare, particularly in how they monitored critical incidents involving beneficiaries receiving assisted living services. State Medicaid agencies are required to protect beneficiary health and welfare and operate systems to monitor for critical incidents—cases of potential or actual harm to beneficiaries such as abuse, neglect, or exploitation.

Twenty-six state Medicaid agencies could not report to GAO the number of critical incidents that occurred in assisted living facilities, citing reasons including the inability to track incidents by provider type (9 states), lack of a system to collect critical incidents (9 states), and lack of a system that could identify Medicaid beneficiaries (5 states).

State Medicaid agencies varied in what types of critical incidents they monitored. All states identified physical, emotional, or sexual abuse as a critical incident. A number of states did not identify other incidents that may indicate potential harm or neglect such as medication errors (7 states) and unexplained death (3 states).

State Medicaid agencies varied in whether they made information on critical incidents and other key information available to the public. Thirty-four states made critical incident information available to the public by phone, website, or in person, while another 14 states did not have such information available at all.

Oversight of state monitoring of assisted living services by the Centers for Medicare & Medicaid Services (CMS), an agency within the Department of Health and Human Services (HHS), is limited by gaps in state reporting. States are required to annually report to CMS information on deficiencies affecting beneficiary health and welfare for the most common program used to provide assisted living services. However, states have latitude in what they consider a deficiency. States also must describe their systems for monitoring critical incidents, but CMS does not require states to annually report data from their systems. Under federal internal control standards, agencies should have processes to identify information needed to achieve objectives and address risk. Without clear guidance on reportable deficiencies and no requirement to report critical incidents, CMS may be unaware of problems. For example, CMS found, after an in-depth review in one selected state seeking to renew its program, that the state lacked an effective system for assuring beneficiary health and welfare, including reporting insufficient information on the number of unexpected or suspicious beneficiary deaths. The state had not reported any deficiencies in annual reports submitted to CMS in 5 prior years.

GAO recommendations to CMS include clarifying state requirements for reporting program deficiencies and requiring annual reporting of critical incidents. HHS concurred with GAO's recommendations to clarify deficiency reporting and stated that it would consider annual reporting requirements for critical incidents after completing an ongoing review.

Medicaid, a federal-state program for low-income and medically needy  individuals, is the nation’s primary payer of long-term care services for  older adults and people with disabilities. Medicaid spending on long-term  care is significant, representing about one quarter of Medicaid spending  annually and is expected to grow with an aging population. In recent  years, most states have expanded their Medicaid long-term care options  to include more home and community-based services (HCBS), which may  include services provided by assisted living facilities. Federal and state  Medicaid spending on HCBS exceeds the amount spent on nursing home  and other institutional care and, in 2015, totaled $87 billion.

Assisted living facilities provide a residential alternative to nursing home  care for individuals who prefer to live independently but need assistance  to maintain their independence. They may provide residents with a variety  of services to assist with activities of daily living, such as bathing and  dressing. Medicaid beneficiaries receiving assisted living services  include older adults and individuals with physical, developmental, or  intellectual disabilities, some of whom can be particularly vulnerable to  abuse, neglect, and exploitation.

The federal government and states both have responsibilities for the  health and welfare of beneficiaries receiving assisted living services and  other types of HCBS covered by Medicaid. Under broad federal  requirements, each state administers Medicaid under the oversight of the  Centers for Medicare & Medicaid Services (CMS), an agency within the  U.S. Department of Health and Human Services (HHS). States must  obtain CMS approval to establish HCBS programs including those that  cover assisted living services, and are then responsible for administering  their approved programs, establishing policies and procedures to monitor  the service providers, and safeguarding beneficiaries’ health and welfare.  CMS has important oversight responsibilities to ensure states are  effectively administering and monitoring Medicaid HCBS programs,  including those that cover assisted living services. With approval from  CMS, states can provide Medicaid HCBS under one or more Medicaid  authorities, including several state plan and waiver authorities. States  most frequently provide assisted living services under the HCBS waiver  program, which allows states to target certain populations, limit  enrollment, or restrict services to certain geographic areas.

The demand for assisted living services is expected to increase as a  result of the aging of the nation’s population, increased life expectancy,  and increased opportunities to remain in the community for individuals  with disabilities and older adults—those 65 and older, generally referred  to as aged individuals. Providing these services to individuals can be cost  saving for the Medicaid program because the cost of nursing home care  for an individual generally exceeds the cost of assisted living facility  services.

Although the federal government has comprehensive information on  nursing homes providing Medicaid services, not much is known about  Medicaid beneficiaries in assisted living facilities. Current information on  the amount spent by Medicaid on assisted living services and number of  beneficiaries receiving services provided by assisted living facilities is not  available.

In light of the expected increase in demand for assisted living services,  the vulnerability of some Medicaid beneficiaries receiving these services,  and limited information on the varied state programs under which they are  provided, you asked us for information on Medicaid coverage of assisted  living services and state and federal oversight of the health and welfare of  beneficiaries receiving these services. This report  1.  describes state Medicaid programs covering assisted living services,  including spending, beneficiaries served, and services covered;  2.  describes how state Medicaid agencies oversee the health and  welfare of beneficiaries receiving assisted living services in their  largest programs; and  3.  examines the extent to which CMS oversees state Medicaid agencies’  monitoring of the health and welfare of beneficiaries receiving  assisted living services under HCBS waivers.

To describe state Medicaid programs providing assisted living services,  we administered a survey to all states and the District of Columbia  (hereafter referred to as “states”). As part of this survey we asked states  to report information for all of their programs that provided such services  in 2014. Information requested included Medicaid spending for such  services in 2014, enrollment, type of beneficiaries served, services  provided, and federal authority used to cover the different assisted living  programs. We conducted the survey from December 2016 through  March 2017, and received a response from all states. We did not  independently verify the information reported by the states in the survey,  but reviewed responses and followed up with state officials when reported  information appeared inconsistent or needed clarification. On that basis  we believe the data are reliable for the purposes of our reporting  objectives.

To describe how state Medicaid agencies oversee the health and welfare  of beneficiaries receiving assisted living services, we relied on information  obtained from our survey of states. Because a state may have multiple  programs covering assisted living services within the state, and these  programs may be overseen in different ways, we focused our work on  examining states’ oversight of their largest programs. In particular, we  asked each state to report 2014 information only for its largest HCBS  program in terms of number of aged beneficiaries receiving services  provided by assisted living facilities. These results cannot be generalized  to all HCBS program types within a state or nationally. Assessing whether  states’ oversight activities were compliant with federal requirements was  not within the scope of this review.

To examine the extent to which CMS oversees state Medicaid agencies’  monitoring of the health and welfare of Medicaid beneficiaries receiving  assisted living services through HCBS waiver programs, we reviewed  relevant federal laws, regulations, and guidance; reviewed key  documents submitted by states to CMS regarding their HCBS waiver  programs; and interviewed CMS officials. We reviewed HCBS waiver  programs because they are the most common type of program states use  to cover assisted living services. To obtain more detailed information on  CMS oversight of state monitoring, we selected a nongeneralizable  sample of three states: Georgia, Nebraska, and Wisconsin. We selected  these states because they were overseen by three different CMS  Regional Offices and provided coverage for assisted living services to a  large number of Medicaid beneficiaries using different administrative  models. For these states, we reviewed documentation of CMS oversight  activities, interviewed state Medicaid officials and officials in CMS’s  central office and the respective regional offices that have direct oversight  of the states’ programs and review documentation submitted by the  states. We also obtained and reviewed other reports on Medicaid HCBS,  including federal oversight of these services. In addition, we compared  CMS’s oversight process and activities to the relevant standards for  internal control in the federal government.

We conducted this performance audit from March 2016 to January 2018  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

Federal and state Medicaid spending on long-term care continues to  increase; for example it increased from $146 billion in 2013 to $158 billion  in 2015. Individuals seeking long-term care generally need care that is,  by definition, longer term in nature and more costly than other types of  care. Spending on long-term care services provided in home and  community settings, including assisted living facilities, exceeds the  amount spent on institutional settings such as nursing homes. State  Medicaid programs may cover certain medical and non-medical services  that assisted living facilities provide; however, the Medicaid statute does  not provide for coverage of room and board charges of an assisted living  facility.

In their federal-state partnership, both CMS and states play important  roles in the oversight of Medicaid. CMS is responsible for oversight of  state Medicaid programs. To conduct this oversight, CMS issues program  requirements in the form of regulations and guidance, approves changes  states make to their programs, provides technical assistance to states,  collects and reviews required information and data from states and, in  some cases, reviews individual state programs. States are responsible for  the day-to-day administration of their Medicaid programs, including  monitoring and oversight of the different HCBS programs through which  they cover assisted living services, within broad federal rules and  requirements. Each state is required to identify and designate a single  state agency to administer or supervise the administration of its Medicaid  program. The state Medicaid agency may partially or fully delegate the  administration and oversight of the state’s HCBS programs to another  state agency or other entity, such as a state unit on aging, a mental  health department, or other state departments or agencies with  jurisdiction over a specific population or service. However, the state  Medicaid agency is ultimately accountable to the federal government for  compliance with the HCBS requirements.

Under different authorizing provisions of federal law, states have  considerable flexibility to establish multiple HCBS programs including  those covering assisted living services. A state Medicaid program can  have multiple HCBS programs operating under different federal  authorities. CMS is responsible for ensuring that states meet the  requirements associated with their HCBS programs under these different  authorities.

Key to states’ monitoring of the health and welfare of Medicaid  beneficiaries is their tracking of, and response to, incidents that may  cause harm to a beneficiary’s health or welfare, such as abuse, neglect,  or exploitation—commonly referred to as critical incidents. Such  monitoring is required for most HCBS programs; however, we previously  found that requirements for states related to oversight of the health and  welfare of beneficiaries in different types of HCBS programs varied, and  recommended that CMS take steps to harmonize those requirements  across programs.

The most common HCBS programs with the most stringent federal  requirements are HCBS waiver programs. These programs serve  beneficiaries who are eligible for an institutional level of care; that is,  beneficiaries must have needs that rise to the level of care usually  provided in a nursing facility, hospital, or other institution. CMS oversees  states’ HCBS waiver programs specifically by reviewing and approving  applications and reviewing HCBS program reports that states submit.  HCBS waiver program applications include specific requirements  implementing various statutory and regulatory provisions. (See text box  below.) One requirement is that states have the necessary safeguards in  place to protect the health and welfare of beneficiaries receiving services  covered by HCBS waiver programs. For each of their HCBS waiver  programs, states must demonstrate to CMS that they are meeting various  requirements CMS has established regarding beneficiary health and  welfare.

The Six Requirements States Must Demonstrate for Home-   and Community-Based Services Waiver Programs  1.  Administrative authority: The Medicaid agency retains ultimate  administrative authority and responsibility for the operation of the  waiver program by exercising oversight of the performance of  waiver functions by other state and local/regional non-state  agencies (if appropriate) and contracted entities.  2.  Level of care: The state demonstrates that it implements the  processes and instrument(s) specified in its approved waiver for  evaluating/re-evaluating an applicant’s/waiver participant’s level of  care consistent with care provided in a hospital, nursing facility, or  intermediate care facility.  3.  Qualified providers: The state demonstrates that it has designed  and implemented an adequate system for assuring that all waiver  services are provided by qualified providers.  4.  Service plan: The state demonstrates it has designed and  implemented an effective system for reviewing the adequacy of  service plans for the waiver participants.  5.  Health and welfare: The state demonstrates it has designed and  implemented an effective system for assuring waiver participant  health and welfare.  6.  Financial accountability: The state must demonstrate that it has  designed and implemented an adequate system for insuring  financial accountability of the waiver program.

CMS also provides ongoing oversight of state HCBS programs through  annual reports that states must submit for each of their HCBS waiver  programs as well as renewal reports submitted about two years before an  HCBS waiver is scheduled to end. The state reports are intended to  provide CMS with information on the operation of state HCBS waiver  programs.

In contrast to long-term care services provided in nursing facilities, less is  known at the federal level about the oversight and quality of care in  assisted living facilities. Generally, states establish their own licensing  and oversight requirements for assisted living facilities. As a result, the  requirements for assisted living facilities and the type and frequency of  oversight can vary across states.

In contrast, nursing homes must meet a comprehensive set of federal  requirements in order to receive payment for long-term care services for  Medicaid and Medicare beneficiaries in addition to state requirements.  CMS contracts with state entities to regularly inspect nursing facilities and  investigate complaints to assess whether nursing homes meet these  federal quality requirements. Annually CMS publishes a comprehensive  report on nursing homes that serve Medicaid and Medicare beneficiaries,  including the extent that beneficiaries are at risk for harm, based on these  investigations and inspections. In addition, CMS publicly reports a  summary of each nursing home’s quality data using a five-star quality  rating based on health inspection results, staffing data, and quality  measure data. The goal of this rating system is to help consumers make  meaningful distinctions among high- and low-performing nursing homes.

This type of standardized framework for oversight, investigation and  inspections, and reporting on quality of care concerns does not exist for  assisted living facilities and other types of HCBS providers.

States Reported Spending $10 Billion on More than 130 Programs Covering Assisted Living Services in 2014

Forty-Eight States Reported Spending $10 Billion on Assisted Living Services for More than 330,000 Medicaid Beneficiaries in 2014; Spending per Beneficiary Varied Widely by State

Forty-eight state Medicaid agencies reported collectively spending about  $10 billion in state and federal Medicaid funds for assisted living services  in 2014, according to our survey. The other 3 states reported that they did  not pay for assisted living services. We estimate that this spending for  services provided by assisted living facilities represents 12.4 percent of  the $80.6 billion Medicaid spent on HCBS in all settings that year. More  than 330,000 Medicaid beneficiaries received assisted living services,  based on data reported to us by the 48 states.

Nationally, the average spending per beneficiary on assisted living  services in the 48 states in 2014 was about $30,000; states provided  these HCBS services through fee-for-service and managed care delivery  models. Fee-for-service spending comprised 81 percent of total  spending on assisted living services and managed care spending was  about 19 percent of the total. The cost per beneficiary reported by  surveyed states also varied based on payment type; average per  beneficiary cost was $31,000 for fee-for-service and $27,000 for  managed care. About 21 percent of Medicaid assisted living enrollment  was for beneficiaries receiving these services under a managed care  delivery model. (See table 1.)

Average per-beneficiary spending varied significantly across the states.  For example, for the nine states with the lowest spending per beneficiary,  average Medicaid spending ranged from about $1,700 to about $9,500  per beneficiary. In contrast, in the nine states with the highest per- beneficiary spending, the average spending ranged from about $43,000  to $108,000 per beneficiary. (See Figure 1.) For more information on each state’s enrollment, total spending, and average per beneficiary  spending on assisted living services, see appendix I.

Forty-Eight States Administered More than 130 Programs That Covered Assisted Living Services, Mainly under HCBS Waiver Authority

The 48 states that reported covering assisted living services in 2014 said  they did so through 132 different programs. The majority of the states, 31  of the 48, reported administering more than one program that covered  assisted living services. As illustrated in table 2 below, of the different  types of HCBS programs under which states can provide coverage for  assisted living services, HCBS waivers were the most common type of  program they used. Specifically, 39 states and 69 percent of the  programs that provided assisted living services, were operated under the  HCBS waiver program. (See appendix II for additional details on each  state’s number of programs by program type and total number of HCBS  programs that covered assisted living facility services in 2014.)

States Reported Offering Assisted Living Services to Certain Aged and Disabled Beneficiaries, and Most Reported Covering Common Services

Almost all of the 48 states that covered assisted living services did so for  two groups of Medicaid beneficiaries eligible through their programs. In  45 of 48 states, aged beneficiaries received services provided by assisted  living facilities. Similarly, in 43 of 48 states, physically disabled  beneficiaries received services. (See Figure 2.)

In 38 or more of the 48 states that covered assisted living services, six  types of services were provided. For example, 45 states covered  assistance with activities of daily living, such as bathing and dressing; 44  states covered medication administration; and 41 states covered  coordination of meals. (See Figure 3.)

State Approaches for Overseeing Health and Welfare of Beneficiaries in Assisted Living Services Varied, Including Monitoring Incidents of Beneficiary Harm

Oversight by State Medicaid Agencies Varied in the Functions Delegated to Other Agencies, the Information Used, and the Actions Taken to Correct Any Identified Problems

State Medicaid agency approaches for oversight of assisted living  services varied widely in terms of who provided the oversight for their  largest programs, according to their responses to our survey. Thirteen  of the 48 state Medicaid agencies reported delegating administrative  responsibilities, including oversight of beneficiary health and welfare, to  other state or local agencies. State Medicaid agencies may delegate the  administration of programs to government or other agencies through a  written agreement; however, state Medicaid agencies retain the ultimate  oversight responsibility for those delegated functions. For example,  among the 13 states that delegated HCBS program administration, the  administering agencies were those that provided services to the aged,  disabled, or both of these populations, such as the states’ Departments of  Aging. (See text box, below, for examples of states’ delegation.)

Examples of State Medicaid Agencies’ Delegation of Authority   for Administration of Home- and Community-based Services’  Programs Covering Assisted Living Services  Georgia’s Elderly & Disabled Waiver Program was operated in 2014  by the Georgia Department of Human Services Division of Aging  Services, a separate agency of the state that was not a division/unit of  the Medicaid agency. The Georgia Medicaid Agency maintained a  formal interagency agreement with the Division of Aging Services which  describes by function the required deliverables to support compliance  and a schedule for delivery of reports.

Nebraska’s Waiver for Aged and Adults and Children with  Disabilities is operated by the state Medicaid agency Division of  Medicaid and Long Term Care. The majority of services are provided  by independent contractors in order to allow service delivery in the rural  and frontier areas of the state. The state Medicaid agency contracts  with the Area Agencies on Aging, Independent Living Centers, and  Early Development Network agencies to perform a variety of  operational and administrative functions including authorizing services  and monitoring the delivery of services.

States also varied in the types of information they reported reviewing as  part of the oversight of assisted living services, and the extent to which  state Medicaid agencies review the information when another agency is  responsible for administration. For example, other entities outside the  state Medicaid agency—such as the agency delegated to administer an  HCBS program, or a contractor that manages provider enrollment—may  check to ensure a provider is allowed to deliver services to Medicaid  beneficiaries; in such cases, however, the state Medicaid agency might  not be aware of the results of such checks.

As illustrated in table 3, in all 48 states the types of information generally  reviewed by either the state Medicaid agency, the agency delegated  administrative responsibilities, or other agencies were: critical incident  reports, the HHS Office of Inspector General’s list of excluded providers,  patient service plans, and information on concerns about care received  directly from patients, relatives, caregivers or the assisted living facility  itself. In many cases, the state Medicaid agency did not review all  information sources reviewed by other agencies. For example, although  all critical incident reports were reviewed in the 48 states by either the  state Medicaid agency, the agency delegated administrative  responsibilities, or another agency; in 16 of those states, the state  Medicaid agency was not involved in those reviews, according to  responses to our survey. Instead, the critical incident reports were  reviewed by another entity designated responsible for the HCBS program  in the state or another state entity with regulatory responsibility over the  assisted living facility. Such reviews, including any critical incidents found,  may not have been communicated back to the state Medicaid agency,  according to responses to our survey.

State Medicaid agencies also varied in reporting the extent to which they  were made aware or notified when enforcement actions were taken as a  result of concerns with beneficiary care identified by other entities.  Various oversight actions may be taken by the state Medicaid agency, the  agency delegated to administer an HCBS program, or a state regulatory  agency, such as a state agency responsible for licensing and inspecting  various types of HCBS providers. When delegated agencies or other  licensing agencies take corrective action, the state Medicaid agency may  not be aware unless notified by the agencies taking that action. For  example, in 23 states, the investigation of potential incidents related to  beneficiary health and welfare was delegated to another agency but in  only 6 of these states was the state Medicaid agency always notified of  such an investigation based on our survey. (See table 4 and text box  below.)

Example of a Collaborative Approach to Monitoring and Ensuring  Quality Care Specifically for Assisted Living Facilities  In 2009, the Wisconsin Coalition for Collaborative Excellence in  Assisted Living was formed to redesign the way quality is ensured and  improved for individuals residing in assisted living communities. This  public/private coalition utilizes a collective impact model approach that  brings together the state, the industry, the consumer, and academia to  identify and implement agreed upon approaches designed to improve  the outcomes of individuals living in Wisconsin assisted living  communities. The core of the coalition is the implementation of an  association developed, department approved, comprehensive quality  assurance, quality improvement program.

State Medicaid Agencies Varied in How They Monitored Incidents of Potential or Actual Harm to Medicaid Beneficiaries Receiving Assisted Living Services

For their largest HCBS programs that covered assisted living services,  the 48 states varied in how they monitored “critical incidents” that caused  actual or potential harm to Medicaid beneficiaries in assisted living  facilities. Specifically, the 48 states varied in their ability to report the  number of critical incidents; how they defined incidents, and the extent to  which they made information on such incidents readily available to the  public.

These states varied in whether they could provide us the number of  critical incidents involving beneficiaries for their largest programs covering  assisted living services, and for those that could report, the number of  incidents they reported varied widely. In 26 of the 48 states the Medicaid  agencies were unable to report, for their largest program covering  assisted living services, the number of critical incidents that had occurred  in assisted living facilities in 2014. The remaining 22 states reported a  total of 22,921 critical incidents involving Medicaid beneficiaries in their  largest programs covering assisted living services. The number of  critical incidents reported in these states ranged from 1 to 8,900. For six  of these states the number of critical incidents reported was more than  1,000, (See text box, below, for examples of selected state processes  managing critical incidents.)

Selected States’ Processes for Managing Beneficiary Harm or  Potential Harm in Assisted Living Facilities

Georgia: According to state officials in 2014 there was no  centralized or comprehensive system for capturing and tracking the  data on actual and potential violations. State officials acknowledged  the lack of a centralized system prevents the Division of Community  Health  from tracking the status of each problem.

Nebraska: According to state officials, Nebraska’s Adult Protective  Services operates an electronic system that coordinates across  state social service programs. When Adult Protective Services  initiates an investigation of reported harm to an assisted living  resident, the state Medicaid agency is automatically notified.

Reasons state Medicaid agencies reported for being unable to provide us  with the number of critical incidents included limitations in the data or data  systems for tracking them. Nine states reported an inability to track  incidents by provider type, and thus distinguish critical incidents in  assisted living facilities from other providers of home and community  based services. States also cited lacking a system to collect critical  incidents (9 states), and that the system for reporting could not identify  whether a resident was a Medicaid beneficiary (5 states). Even in the 32  states where the state Medicaid agencies reported reviewing information  about critical incidents, 20 states were unable to provide the actual  number of critical incidents that occurred in assisted living facilities.

State Medicaid agencies’ definitions of critical incidents also varied. As  illustrated in Figure 4, all 48 states cited physical assault, emotional  abuse, and sexual assault or abuse as a critical incident in their largest  programs providing assisted living services in 2014. However, for other  types of incidents, several states did not identify the incident as critical, including discharge and eviction from the facility (not a critical incident in  24 states), medication errors (not a critical incident in 7 states), and  unauthorized use of seclusion, (not a critical incident in 6 states). For  other serious incidents, a relatively small number of states did not identify  the incident as critical, such as unexplained death (not a critical incident  in 3 states) and missing beneficiaries (not a critical incident in 2 states).  See appendix IV for a full list of the beneficiary-related incidents and the  number of states that identify each as critical.

Although half of the 48 states that cover assisted living services did not  consider discharges or evictions to be critical incidents, according to state  responses to our survey, 42 states offered certain protections related to  involuntary discharge of Medicaid residents who live in assisted living  facilities. The majority of protections consisted of a lease agreement  requirement that applied to other housing contracts in the state, such as  providing residents with eviction notices. Other protections included an  appeals process (10 states) and a requirement for the facility to find an  alternative location for the resident (10 states).

State Medicaid agencies also varied in whether they made information on  critical incidents and other key information readily available to the public.  (See table 5.) Beneficiaries seeking care in an assisted living facility may  want to know the number of critical incidents related to a particular facility.  Through our survey we found that states differed in the availability of  information related to health and welfare that was available to the public.  For example, 34 of the 48 states reported that they made critical incident  information available to the public by phone, website, or in person, and  the remaining 14 states did not have such information available at all.  Although all 48 states had information in some form on which assisted  facilities accepted Medicaid beneficiaries, 8 states could not provide this  information by phone and 22 states could not provide the information in  person.

CMS Has Taken Steps to Improve Oversight of the Health and Welfare of Medicaid Beneficiaries in Assisted Living and Other Community Settings, but Gaps Remain

In recent years, CMS has taken steps to improve oversight of beneficiary  health and welfare in HCBS programs by adding new HCBS waiver  application requirements for state monitoring of beneficiary health and  welfare. CMS requires state waiver applications to include specific  requirements that implement various statutory and regulatory provisions,  including a provision that states assure that they will safeguard the health  and welfare of Medicaid beneficiaries. In March 2014, CMS added  unexplained death to the events that states must be able to identify and  address on an ongoing basis, as part of their efforts to prevent instances  of abuse, neglect, and exploitation, and added four new requirements for  states to protect beneficiary health and welfare. (See table 6.) In its  guidance implementing the 2014 requirements, CMS noted that state  associations and state representatives’ work groups had agreed that  “health and welfare is one of the most important assurances to track, and  requires more extensive tracking to benefit the individuals receiving  services, for instance by using data to prevent future incidents.” As a  condition for approval of their HCBS waiver applications for each of the  requirements, states must identify and agree with CMS on the type of  information they will collect to provide as evidence that they will meet the  requirements. However, according to CMS officials, each state Medicaid  agency has wide discretion over the information it will collect and report to  demonstrate that it is meeting the health and welfare requirements and  protecting beneficiaries.

Although CMS added the additional requirements in 2014 for  safeguarding beneficiary health and welfare, the agency generally did not  change requirements for how it oversees state monitoring efforts once  HCBS waivers are approved. We found a number of limitations in CMS’s  oversight of approved HCBS waivers that undermine the agency’s ability  to effectively monitor state oversight of HCBS waivers. These limitations  include: unclear guidance on what states should identify and report  annually related to any identified program deficiencies; lack of  requirements on states to regularly provide CMS information on critical  incidents; and CMS’s inconsistent enforcement of the requirement that  states submit annual reports.

Unclear guidance on what states should identify and report annually  related to any identified program deficiencies. Federal law requires  states to provide CMS with information annually on an HCBS waiver’s  impact on (1) the type and amount, and cost of services provided and (2)  the health and welfare of Medicaid beneficiaries receiving waiver  services. CMS reporting requirements give states latitude to determine  what to report as health and welfare deficiencies found through state  monitoring of their HCBS programs.

With respect to health and welfare, CMS’s State Medicaid Manual directs  states when preparing their annual reports to “check the appropriate  boxes regarding the impact of the waiver on the health and welfare” of  beneficiaries and to describe relevant information. States are required to  provide a brief description of the state process for monitoring beneficiary  safeguards, use check boxes to indicate that beneficiary health and  welfare safeguards have been met, and identify whether deficiencies  were detected during the monitoring process. If states determine that  deficiencies were identified through monitoring, states are required to  “provide a summary of the significant areas where deficiencies were  detected” and an explanation of the actions taken to address deficiencies  and ensure the deficiencies do not recur.

CMS’s written instructions for completing the HCBS annual report do not  provide further guidance regarding reporting of deficiencies. For example,  the reporting instructions do not describe or identify 1) what states are  supposed to report as deficiencies, 2) how they are to identify which  deficiencies are most significant, and 3) the extent to which states need to  explain the steps taken to ensure that deficiencies do not recur. The lack  of clarity is inconsistent with federal internal control standards, in  particular, the need for federal agencies to have processes that identify  information needed to achieve objectives and address risk. Without  clear instructions as to what states must report, states’ annual reports  may not identify deficiencies with states’ HCBS waiver programs that may  affect the health and welfare of beneficiaries.

States may determine that issues or problems they identified through  monitoring do not represent reportable deficiencies and therefore may not  report those deficiencies to CMS, increasing the risk that problems are  not elevated to CMS’s attention.

In the case of one of the selected states we reviewed, no problems were  included on the annual reports submitted to CMS between 2011 and  2015. However, when CMS completed its review in the fourth year of the  state’s waiver— for purpose of renewing the waiver—it determined the  state was not assuring beneficiary health and welfare. CMS found that the  information the state submitted for purpose of renewal suggested a  “pervasive failure” by the state to assure the health and welfare of  beneficiaries receiving services, including assisted living services. In  particular, CMS noted the state provided insufficient information regarding  the number of unexpected or suspicious beneficiary deaths. CMS  concluded that the state failed to demonstrate that it has effective  systems and processes for ensuring the health and welfare of  beneficiaries.

Lack of requirements on states to annually provide CMS information  on critical incidents. Despite the importance of state critical incident  management and reporting systems to protecting the health and welfare  of beneficiaries, CMS lacks written requirements that states provide  information needed for the agency oversight of state monitoring of critical  incidents. According to CMS, a critical element of effective state oversight  is the operation of data systems that support the identification of trends  and patterns in the occurrence of critical incidents to identify needed  improvements. Such a system is also consistent with federal internal  controls standards which specify, in particular, the need for federal  agencies to have processes that identify information needed to achieve  objectives and address risk.

CMS requires states to operate a critical incident reporting system. On  their waiver applications states must check a box indicating they operate  a system and also describe their system—including who must report and  when, and what must be reported. Despite this requirement for states to  have critical incident reporting systems, CMS does not require states to  report to CMS any data from these systems on critical incidents as part of  their required annual reports. Specifically, states are not required to  include, in their annual reports, the number of critical incidents reported or  substantiated that involve Medicaid beneficiaries. As a result, CMS does  not have a method to confirm what states describe about critical incident  management systems, which is a required component of states’ waiver  applications or to assess the capabilities of states’ systems. For example,  CMS cannot confirm whether the state systems can report incidents by  location or type of residential provider, such as assisted living facilities;  the type and severity of critical incidents that occurred; and the number of  incidents that involved Medicaid beneficiaries. Without annual critical  incident reporting, CMS may be at risk of (1) not having adequate  evidence that states are meeting CMS requirements to have an effective  critical incident management and reporting system and of (2) being  unaware of problems with states’ abilities to identify, track, and address  critical incidents involving Medicaid beneficiaries.

Our prior work has shown that the lack of explicit reporting requirements  on critical incidents not only impacts HCBS waiver programs but also  impacts other types of Medicaid long-term services programs as well.  Specifically,  In a November 2016 report, we found that CMS requirements for  states to report on their critical incident monitoring systems for the  HCBS waiver program were more stringent than those for other types  of HCBS programs, potentially leaving those other programs at even  greater risk. We recommended that CMS take steps to harmonize  requirements across different types of HCBS programs. HHS  concurred with the recommendation stating it would seek input from  states, stakeholders, and the public regarding harmonizing  requirements across programs.

In an August 2017 report we found similar issues in critical incident  reporting requirements for other types of long term services programs,  particularly those used to provide HCBS and other long term services  under managed care. We found that CMS was not always requiring  states that contracted with managed care organizations to provide  long term services and supports to report to CMS sufficient  information on critical incidents and other key areas needed to  monitor beneficiary access and quality. We recommended that CMS  take steps to identify and obtain key information needed to better  oversee states’ efforts to monitor beneficiary access to quality  services in their managed long-term services and supports programs.  HHS concurred with this recommendation and stated that the agency  would take this recommendation into account as part of an ongoing  review of its 2016 Medicaid managed care rule.

We continue to believe that the implementation of our prior  recommendations is needed to help improve CMS oversight of states  monitoring of beneficiary safety.

CMS’s inconsistent enforcement of the requirement that states  submit annual reports. States must prepare and submit an annual  report for each HCBS waiver as a condition of waiver approval. According  to CMS guidance, the agency’s review of the annual report is part of the  ongoing oversight of HCBS waiver programs and not submitting an  annual report jeopardizes the states renewal of HCBS waiver programs.  However, some states have not been timely in submitting the required  annual reports for their HCBS waivers. A review of 2013 HCBS annual  reports by a CMS contractor, published in 2016, found that annual reports  were missing for 29 HCBS waivers and multiple years’ of annual reports  were missing for 8 waivers.

In 2014, CMS adopted new strategies to ensure compliance with HCBS  waiver requirements, including the requirement that states submit annual  reports on a timely basis. These strategies include withholding federal  funding, placing a moratorium on enrollment in the waiver, or other  actions the agency determines necessary. CMS officials reported that  the agency had not used these new strategies with states that were  delinquent in submitting their annual reports. Officials said they were in  the process of reviewing how to implement these new strategies in the  case of one state; however, as of August 2017 officials had not finalized a  decision. CMS’s ability to provide effective oversight of state programs  and protect beneficiary health and welfare is undermined by the lack of  enforcement and receipt of required annual waiver reports.

Effective state and federal oversight is necessary to ensure that the  health and welfare of Medicaid beneficiaries receiving assisted living  services are protected, especially given the particular vulnerability of  many of these beneficiaries to abuse, neglect, or exploitation. CMS has  taken steps to strengthen beneficiary health and welfare protections in  states’ HCBS waiver programs, the most common type of program that  covers assisted living services and one that serves the most vulnerable  beneficiaries. In particular, CMS now has multiple requirements for states  to safeguard beneficiaries’ health and welfare, including requirements to  operate an effective critical incident management and reporting system to  identify, investigate, and address incidents of beneficiary abuse, neglect,  exploitation, and unexplained death.

However, CMS’s ability to effectively monitor how well states are assuring  beneficiary health and welfare is limited by gaps in state reporting to  CMS. CMS has not provided clear guidance to states on what information  to include in annual reports on deficiencies they identify. As a result, CMS  lacks assurance that it is receiving consistent, complete, and relevant  information on deficiencies that is needed to oversee beneficiary health  and welfare. Lacking clear guidance on the reporting of deficiencies may  result in a delayed recognition of problems that may affect beneficiary  health and welfare. Further, for years, states have been required to check  a box attesting that they operate a critical incident management system,  but have not always been required to report information on incidents of  potential or actual harm to beneficiaries. Given the increasing prevalence  of assisted living facilities as a provider of services to Medicaid  beneficiaries, it is unclear why more than half of states responding to our  survey could not provide us information on the number of critical incidents  that occurred in these facilities in their states. Reporting data from their  critical incident systems, such as the number of incidents, the type and  severity of the incidents, or the location or type of facility in which the  incident occurred would provide evidence that an effective system is in  place, provide information on the extent beneficiaries are subject to actual  or potential harm, and allow for tracking trends over time.

Finally, CMS has not ensured that all states submit annual reports on  their HCBS waiver programs as required. Without improvements to state  reporting, CMS cannot ensure states are meeting their commitments to  protect the health and welfare of Medicaid beneficiaries receiving assisted  living services, potentially jeopardizing their care.

We are making the following three recommendations to CMS:  The Administrator of CMS should provide guidance and clarify  requirements regarding the monitoring and reporting of deficiencies that  states using HCBS waivers are required to report on their annual reports.  (Recommendation 1)

The Administrator of CMS should establish standard Medicaid reporting  requirements for all states to annually report key information on critical  incidents, considering, at a minimum, the type of critical incidents  involving Medicaid beneficiaries, and the type of residential facilities,  including assisted living facilities, where critical incidents occurred.  (Recommendation 2)

The Administrator of CMS should ensure that all states submit annual  reports for HCBS waivers on time as required. (Recommendation 3)

We provided a draft of this report to HHS for review and comment. HHS  provided written comments, which are reproduced in Appendix V. The  department also provided technical comments, which we incorporated as  appropriate. In its written comments, the department concurred with two  of our three recommendations, specifically, that CMS will clarify  requirements for state reporting of program deficiencies and ensure that  all states submit required annual reports on time. HHS did not explicitly  agree or disagree with our third recommendation to require all states to  report information on critical incidents to CMS annually. The department  noted it has established a workgroup to learn more about states’ health  and welfare systems and that it will use the results of this workgroup to  determine which additional reporting requirements would be beneficial.  The workgroup’s review will continue through calendar year 2018. In  technical comments, HHS indicated that after the workgroup’s review is  complete it will consider annual reporting of critical incidents. We believe  establishing the workgroup is a positive first step towards improving  oversight and state reporting and encourage HHS to require annual  reporting on critical incidents when developing additional reporting  requirements.

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

If you or your staff members have any questions about this report, please  contact me at (202) 512-7114 or at iritanik@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this report. GAO staff that made key contributions to  this report are listed in appendix VI.

Appendix I: State Reported Enrollment and Spending on Assisted Living Services

State North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington Wisconsin Wyoming

Appendix II: State Reported Home- and Community-Based Services (HCBS) Programs Covering Assisted Living Services

Appendix III: Information Regarding Medicaid Beneficiaries’ Access to Assisted Living Services

Our survey of state Medicaid agencies regarding coverage, spending,  enrollment, and oversight of assisted living services in 2014, obtained  information on challenges for Medicaid beneficiaries to access assisted  living services in their states. States provided information related to  factors that create challenges for Medicaid beneficiaries’ ability to access  and receive assisted living services and the extent states had policies to  help beneficiaries with the cost of room and board.

A number of states in our survey cited common factors as creating the  greatest challenges to a beneficiary’s ability to access assisted living  services, including  the number of assisted living facilities willing to accept Medicaid  beneficiaries (13 states or 27 percent of the 48 states) program enrollment caps (9 states or 19 percent of the 48 states) beneficiaries’ inability to pay for assisted living facility room and board  (9 states or 19 percent of the 48 states), which Medicaid typically  does not cover  low rates the state Medicaid program paid assisted living facilities (8  states or 17 percent of the 48 states).

A number of states reported that they had policies to assist Medicaid  beneficiaries with the costs of room and board charged by assisted living  facilities, which Medicaid does not typically cover. Two common policies,  cited by at least half of the states, were aimed at limiting how much  assisted living facilities could charge Medicaid beneficiaries for room and  board. For example, 30 of 48 states, limited the amount facilities could  charge for room and board to the amount of income certain beneficiaries  receive as Supplemental Security Income. The other commonly cited  policies focused on providing financial assistance to the beneficiaries to  defray the room and board costs. (See table 9.)

Appendix IV: Events That States Defined as Critical Incidents

Appendix V: Comments from the Department of Health and Human Services

Appendix VI: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Tim Bushfield and Christine  Brudevold (Assistant Directors), Jennie Apter, Shirin Hormozi, Anne  Hopewell, Kelsey Kreider, Perry Parsons, Vikki Porter, and Jennifer  Whitworth made key contributions to this report.

Older people and people with disabilities receiving Medicaid assisted living services—over 330,000 in 2014—can be vulnerable to abuse, neglect or exploitation. The Centers for Medicare & Medicaid Services oversees how states monitor such incidents, but its guidance has been unclear.

More than half of the 48 states providing these services couldn’t tell us the number or nature of critical incidents in assisted living facilities. In addition, states may not be monitoring things you might expect them to. For example, 3 states don’t monitor unexpected or unexplained deaths.

We recommended that CMS take steps to improve state reporting.