Defense Contracts: Improved Information Sharing Could Help DOD Determine Whether Items Are Commercial and Reasonably Priced

DOD buys goods and services from the commercial market to take advantage of new innovations and save on acquisition costs. However, the department's process for determining whether an item can be purchased commercially—and, at a fair and reasonable price—can be long and challenging in certain situations.

GAO was asked to review this process. This report identifies (1) factors that influenced DOD's commercial item and price reasonableness determinations, and (2) the extent to which DOD has taken steps to make information available to facilitate these determinations.

To conduct this work, GAO examined federal regulations and guidance and selected case studies, which included a non-generalizable sample of 15 contracts awarded between fiscal years 2010 and 2018. GAO identified the case studies based on input from multiple sources that those contracts involved commercial item or price reasonableness determination challenges. GAO interviewed government and contractor officials responsible for those contracts.

The Department of Defense (DOD) has a process to determine if an item is available for purchase in the commercial marketplace at a reasonable price. Among selected case studies, GAO found four interrelated factors, each with its set of challenges that influenced how and whether DOD determines if an item is commercial and if its price is reasonable. These factors are:

Availability of marketplace information : Market research is a key component that informs commercial item and price reasonableness determinations. However, GAO found that obtaining market-related information can be challenging because the products DOD requires may not be widely available in the commercial marketplace.

Ability to obtain contractor data : When adequate market information is not available, DOD officials turn to the contractor for information to support the commercial item determination or data to make a price reasonableness determination. In the case studies GAO reviewed, most contractors provided relevant information, but not without delays and challenges. For example, while pricing data is key to DOD's ability to determine price reasonableness, several contracting officers reported that contractors were less willing to provide this data once an item was determined commercial.

Extent of modifications to an item : When a commercial item must be modified to meet DOD's requirements, DOD officials may have to take additional steps, such as completing a comparative analysis of commercial items to the modified item. For example, in one case, a commercial navigation system had to be modified to withstand an explosion. To make the commercial item determination DOD officials had to make an on-site visit to the manufacturer to gain in-depth understanding of the services provided and to ensure they met DOD requirements.

Reliability of prior commercial item determinations : Contracting officers may presume that an item is commercial if a DOD component had previously made that determination. However, GAO found that, in some cases, contracting officers reviewing a prior determination discovered that it was based on inaccurate information.

DOD has taken steps to share more information across the department to inform these determinations, but efforts are in early stages of development or informal. No comprehensive information sharing strategy exists. In 2016, DOD established the Commercial Item Group within the Defense Contract Management Agency to provide recommendations on commercial item determinations. This group created a publicly available database to centralize commercial item information across DOD. However, this effort is incomplete. Also, according to DOD officials, they have not yet established who is responsible for the funding and upkeep of the information. Additionally, GAO case studies included instances where informal information sharing resulted in better outcomes, such as a lower price. Creating more opportunities to share information internally is crucial for DOD to facilitate a timely and efficient process in making these determinations and ensuring the best financial outcome for the government.

GAO recommends that DOD develop a strategy for how information related to commerciality and price reasonableness determinations should be shared across the department, including making improvements to the existing database and determining responsibilities for its funding and upkeep. DOD agreed with GAO's recommendation and stated that actions will be taken starting in 2018 to address it.

The Department of Defense (DOD) purchases commercial items to meet  many of its requirements in fulfilling its mission. In fiscal year 2017, the  department spent $53 billion on commercial item contracts plus an  unknown amount through subcontracts. Generally, items are considered  commercial if they—or something similar—already exist in the  marketplace or require few modifications to meet DOD’s specific needs.  Purchasing commercial items enables DOD to take advantage of market  innovations, increase its supplier base, and reduce acquisition costs.  Contractors also prefer to sell products and services as commercial items  because there are fewer government-specific contractual requirements,  reduced costs and risks associated with government-unique  specifications, and fewer auditing requirements than for other types of  procurements.

The process to purchase commercial items can be relatively  straightforward when the item or service procured is clearly commercial  and a robust market of competitors exists, such as when buying a  computer. However, some commercial item procurements can be more  involved, such as buying a computer that has a case ruggedized for use  in harsh conditions. This report focuses on these more complex  procurements, and the issues that arise with them. Contractors and DOD  have noted that in some cases, for instance when the item must be  modified for DOD’s use and is not competitively procured, the acquisition  process has presented challenges. As we found in July 2017, companies  that have not traditionally done business with DOD view DOD’s workforce  as inexperienced in making commercial item and price reasonableness  determinations and view this as a challenge to entering the DOD arena.  The DOD Office of Inspector General has reviewed the process of  determining a fair and reasonable price on selected sole-source  commercial spare parts contracts and found that on these contracts  contracting officers accepted the contractors’ pricing without performing a  sufficient price analysis.

You asked us to review DOD’s process for acquiring commercial items. In  this report we (1) identify factors that influenced DOD’s process for  making commercial item and price reasonableness determinations, and  (2) assess the extent to which DOD has taken steps to make information  available to help make these determinations.

To identify factors that influenced DOD’s process for acquiring  commercial items and to assess what DOD has done to make information  available, we examined the Federal Acquisition Regulation (FAR), the  Department of Defense Federal Acquisition Regulation Supplement  (DFARS), and associated DOD guidance. We also reviewed a  nongeneralizable sample of 15 contracts awarded between fiscal years  2010 and 2018, and interviewed government officials involved with these  contracts at the Air Force, Army, Navy, and the Defense Logistics Agency  (DLA) as well as contractors. These contracts represent both products  and services, and were selected because they had been previously  identified as contracts that involved difficulties in making commercial item  determinations by one or more of the following entities: the military  services, the Defense Contract Management Agency (DCMA),  contractors, or through previous GAO work. We selected these contracts  to gain insight into why these difficulties occurred. We interviewed officials  from the DCMA Commercial Item Group and reviewed the group’s  publicly available database that centralizes commercial item information.

Additionally, we discussed the management and funding of the database  with the Office of Defense Procurement and Acquisition Policy. See  appendix I for more details on our objectives, scope, and methodology.

We conducted this performance audit from July 2017 to July 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.

The Federal Acquisition Streamlining Act of 1994 established a  preference within the federal government to procure commercial items  rather than items developed exclusively for the government. Between  fiscal years 2013 and 2018, Congress passed additional legislation to  address various aspects of how DOD defines and purchases commercial  items, and how DOD makes commercial item and price reasonableness  determinations. For example, legislation passed in 2015 included a  provision stating DOD contracting officers may presume that previously  established commercial item determinations shall serve as determinations  for future procurements of an item. The law further stipulated that if a  prior determination is not used for an item previously determined to be  commercial, the contracting officer must request a review by the head of  the contracting activity to either confirm that it is still valid or issue a  revised determination.

In January 2018, DOD revised its regulations and corresponding  procedures, guidance, and information related to the procurement of  commercial items to reflect recent legislative changes. The DFARS was  updated to provide guidance to contracting officers for making price  reasonableness determinations, promote consistency in making  commercial item determinations (including updating guidance regarding  the use of prior determinations), and expand opportunities for  nontraditional defense contractors to do business with DOD. The  department also updated its Guidebook for Acquiring Commercial Items,  which includes information on how to define, determine, and price  commercial items, to reflect the regulatory changes. Also in January  2018, a DOD advisory panel established to help streamline the defense  acquisition process released a report with recommendations to revise  definitions related to commercial buying and minimize government-unique  terms applicable to commercial buying.

DOD Process for Making Determinations When Acquiring Commercial Items

During the pre-award process for commercial procurement actions over  $1 million, two distinct determinations take place:  1.  a contracting officer must determine in writing whether a product or  service being procured is commercial, and  2.  the contracting officer must determine if the offered price is fair and  reasonable.

According to the DOD Guidebook for Acquiring Commercial Items, the  government’s ability to acquire affordable products and services  significantly improves when contracting officers have in-depth knowledge  of the market. The guidebook establishes that market research should be  an ongoing effort throughout the commercial item procurement process  to: (1) identify the industry and market for capabilities or technologies; (2)  identify prices at which the capabilities or technologies have been sold or  offered for sale; and, (3) continuously capture market information at  different points to ensure the best acquisition. When determining a fair  and reasonable price, market research should be conducted in order to  compare the proposed price to market pricing. Figure 1 illustrates the  process contracting officers generally follow to make commercial item and  price reasonableness determinations for more complex procurements.

The contracting officer is ultimately responsible for making these  determinations, but, as appropriate, he or she may seek the assistance of  the Defense Contract Audit Agency (DCAA), military service  organizations such as the Navy Price Fighters or the Air Force Pricing  Center of Excellence, or the DCMA Commercial Item Group.

The DCMA Commercial Item Group, which became operational in 2016,  provides recommendations on commercial item determinations within  DOD. It has created six Commercial Item Centers of Excellence, each of  which has its own area of market expertise, to assist contracting officers  in making timely and consistent commercial item determinations. These  centers are staffed with engineers and price/cost analysts who advise and  make recommendations on commerciality based on market analysis,  commercial item reviews and determinations, and commercial pricing  analysis. Additionally, the centers provide training and assistance to the  DOD acquisition community on various techniques and tools used to  evaluate commercial items and commercial item pricing.

In order to make a commerciality determination, contracting officers may  need information specifying whether the items have been sold or offered  for sale to the general public. And, as noted above, the contracting officer  must determine that the government is getting a fair and reasonable  price. Some of this information may be acquired through market research;  however, as appropriate, the contracting officer may require or request  that the contractors submit information, such as price lists and sales  invoices, with their offers or during the evaluation. For more details on the  information and data required for commercial item and price  reasonableness determinations at different times in the procurement  process, see appendix II.

Case Studies Identified Four Interrelated Factors That Influenced Commercial Item and Price Reasonableness Determinations, but Generally Did Not Delay Awards

In the case studies we examined, we found four interrelated factors that  influenced how DOD determines if an item is commercial and whether the  price is fair and reasonable, and that each factor had its own set of  challenges:

Extent of modifications to an item needed to satisfy DOD

Reliability of prior commercial item determinations  Despite these challenges, contract award was not typically delayed. In  other cases where DOD was not able to obtain the information or data it  needed to make a determination, the department’s options, such as not  awarding the contract or exploring other suppliers, were often not feasible  because DOD was working in a sole-source environment and not  procuring the item was not an option.

Limited Market Information Can Complicate Contracting Officers’ Commercial Item and Price Reasonableness Determinations

When there is a healthy marketplace of items and services that the  government wants to buy, contracting officers can more readily support  their commerciality and price reasonableness determinations. However,  in our review, we identified cases in which limited market information  made such determinations more involved. For example, the Army was  working with a contractor to acquire repair and upgrade services for  navigation systems. The contractor said the services were commercial,  but when the contracting officer conducted market research to determine  the commerciality of the services, she found no similar services available  in the commercial market. According to a contracting official, the Army’s  particular units had to be nuclear hardened to withstand an explosion and  needed some functional interfaces added, which made finding a similar  commercial service difficult. In the end, the DCMA’s Commercial Item  Group officials completed an on-site review of the manufacturing process  to gain an in-depth understanding of the services provided. Using this  additional information, the contracting officer deemed the services  commercial.

In contrast, for a previous report on commercial item acquisitions, we  reviewed selected Air Force contracts for information technology services  and video teleconferencing design and installation. Because these items  and services are available in the commercial marketplace, the availability  of information helped the contracting officers efficiently determine that the  items were commercial and that the prices were fair and reasonable.

Obtaining Information from Contractors and Subcontractors Can Be Challenging

Contracting officials from our case studies had difficulty obtaining  information from contractors after they could not find adequate  information in the marketplace. This difficulty occurred for a number of  reasons, including the contractor’s own challenges in obtaining  information from their subcontractors. While several of the contracts we  reviewed showed that either the prime contractor or subcontractor  eventually provided sufficient information, obtaining this information was  not without difficulties. For example:  In a $1.7 billion Army sole-source contract for helicopter engines, the  prime contractor asserted that two small engine parts—provided by a  subcontractor—were commercial, but did not provide any documents  to support its assertion. After several requests for information on  commercial sales data, the prime contractor provided invoices for a  commercial engine that contained similar engine parts. The prime  contractor representative told us the reason it took so long to provide  the requested information was because the subcontractor would not  provide commercial sales data. As a result, the prime contractor  needed to research commercial engines that used similar parts in  order to support the commerciality assertion.

In an $873 million Air Force sole-source contract for aircraft engines,  the contracting officer had difficulty obtaining commercial sales data  through market research for engine castings. The prime contractor did  not initially provide support for its assertion that the castings were  commercial, stating that it had difficulty obtaining supporting  information from its subcontractor. Air Force officials visited the  subcontractor’s facility to determine that the item was a modified  version of a commercial item and was therefore commercial.

In a $53 million Navy sole-source contract for KC-130J aircraft  propeller engineering and sustainment services, the contracting officer  told us she had difficulty determining if the proposed prices for these  commercial services were fair and reasonable because the contractor  provided invoices with the prices redacted. After several months of  back and forth, the contractor provided unredacted invoices for similar  services, which the contracting officer used to determine price  reasonableness. A contractor representative told us that the  contractor initially provided the redacted invoices in order to quickly  respond to the Navy’s request for information, but that additional time  was needed to evaluate if releasing the unredacted price information  would violate a contractual agreement the contractor had with its  suppliers.

In other cases, the contractor provided information or data that the  contracting officer considered insufficient to support a commercial item or  price reasonableness determination. For example:  In an F-15 aircraft production contract, Air Force contracting officials  had difficulty determining whether the prices of oil bypass valves were  fair and reasonable due to redactions in data the subcontractor  provided. The subcontractor’s proposed price was four times more  than it had previously charged the government for the same item,  according to contracting officials. To support its prices, the  subcontractor provided a commercial price list and customer invoices  with redacted customer information, which the subcontractor  considered to be proprietary. According to contracting officials, the  redacted invoices did not provide enough detail to confirm whether  non-governmental end users were paying a price similar to the  proposed price in the Air Force contract. The subcontractor  subsequently provided a customer list associated with the redacted  invoices. Also, while the subcontractor showed that its proposed price  was lower than its commercial price list, contracting officers did not  consider subcontractor-provided support sufficient to explain why the  proposed price was higher than what the government had previously  paid. According to contracting officials, the prime contractor absorbed  the price difference between the subcontractor’s proposed price and  what the Air Force paid for the valves.

On a $2 million Army task order for navigation software upgrades on  Global Positioning System (GPS) units used in missiles, the DCMA  Commercial Item Group obtained redacted invoices and quotes from  a subcontractor to determine commerciality. But this information did  not provide enough detail to substantiate the commerciality  determination. A subcontractor representative told us that the  company provided redacted information to the government because  contractual agreements with its customers required them to not reveal  the customer name. After evaluating multiple factors, the DCMA  Commercial Item Group concluded that the GPS units did not match  the form, fit, or function of the commercial ones, and recommended  that this service and item were not commercial.

Contractor representatives cited multiple reasons why they were unable  to provide data (see text box).

Examples of Reasons Contractors Cited for Not Providing Data:

One prime contractor told us that some subcontractors are  unwilling to provide information, such as unredacted invoices, to  them and therefore prime contractors cannot provide this  information to the government.

Some subcontractors we interviewed explained that certain  information, such as customer names and prices paid in invoices,  is considered proprietary data.

One subcontractor representative said that while the company  cannot provide unredacted invoices to a prime contractor, it is  willing to provide this information directly to the government, such  as the DCMA Commercial Item Group, which can verify the  content of the invoices at the contractors’ facilities.

Additionally, one contractor representative told us that when a previously  determined commercial item is later determined noncommercial, specific  cost or pricing data can be difficult to gather for companies that operate  primarily in the commercial market. This is because these companies  were not previously required to collect and provide this cost or pricing  data to the government. For example, the subcontractor that produces an  item for the Army told us that this item had been previously purchased by  the government on a commercial basis under an agreement that was later  canceled in 2014. When the government later determined this item was  noncommercial, the subcontractor had difficulty providing detailed cost  data for the government’s units because they are procured on the same  manufacturing line as their commercial units. According to contractor  officials, the costs for subcomponents and labor hours for engineers that  work on these units are pooled together with cost for the commercial  business.

A contracting officer’s ability to obtain data is further affected once an  item has been deemed commercial. Several contracting officers told us  that once an item is determined commercial, contractors are less willing  to provide any pricing data. While certified cost and pricing data cannot  be required, the government can request uncertified data if needed to  make a price reasonableness determination. As previously noted, we  found cases in which contractor-provided information included redacted  invoices as evidence that an item was commercial. When the government  later requested uncertified cost and pricing data to determine price  reasonableness—after exhausting government and public market  research resources—the contractors were not willing or able to provide  the data. In most cases contractors eventually provided data after  multiple requests.

Our case studies showed that determining commerciality and price  reasonableness for items that are modified from the commercial variant  can be difficult, in part, because what can be deemed ‘a minor  modification’ is subject to interpretation. The commercial item definition  includes some types of commercial items that have minor modifications  not customarily available in the commercial marketplace, but that are  made to meet federal government requirements. For our case studies,  when prime contractors or subcontractors claimed a modified item was  commercial, contracting officers had to take extra steps to determine  whether the commerciality assertions appropriately met the commercial  item definition, such as completing a comparative analysis of commercial  items to the modified item. However, determinations in our case studies  were challenging to make because the items were generally acquired  through sole-source procurements and had no identified commercial  market. This made it more difficult for the contracting officer to make a  determination based on market research.

In one of our case studies, there was a difference of opinion within  DOD as to whether a modified item was commercial. The prime  contractor for an Army sole-source contract procuring modified fuel  systems to meet military safety, crashworthiness, and ballistic  tolerance requirements for Blackhawk helicopters claimed that its  modified fuel system was a commercial item. However the contracting  officer found no commercial market existed for this item so the  contracting officer had to take additional steps. To make a  commerciality determination, the contracting officer sought assistance  from the DCMA Commercial Item Group, which recommended that  the fuel system was not commercial. The contracting officer submitted  a request to waive the requirement for certified cost or pricing data.  The DOD official reviewing the waiver request discovered that the fuel  system had previously been determined commercial for another  helicopter program and the Director of Defense Pricing concurred with  that commerciality determination.

Contracting Officers Found Prior Commercial Item Determinations Not Always Accurate

Some of our case studies exhibited challenges related to prior  commercial item determinations:

The Navy contracted for a radio used in a variety of aircraft throughout  DOD. The contracting officer stated that the radio had been  considered commercial for 20 years. However, for the most recent  follow-on contract the contracting officer, who was new to the  program, reviewed the prior determination and found it to be in error.  In the prior determination the radio was compared to another radio  considered noncommercial. As part of his review for the new  determination, the contracting officer consulted with Air Force officials  because they procure the same radio for some of their aircraft  programs. The contracting officer ultimately determined that the radio  was, in fact, commercial by comparing it—at the suggestion of the Air  Force—to a different radio with similar features that is sold  commercially to the public. According to the contracting officer, the  Navy also benefited because the radio they had purchased for 20  years was also cheaper and more capable than the one that was sold  commercially, to which it was compared.

For a $2.5 billion Air Force sole-source contract, the prime contractor  asserted that a cargo part, called a winch—which had previously been  sold to the government as a commercial item—was commercial.

However the contracting officer reviewed the support for the prior  commercial item determination and found it was based on sales to a  holding company for a foreign government. Additional information  requested and received included catalog prices and the invoice to the  foreign holding company. The contracting officer determined this  support was not sufficient for determining commerciality because  sales to foreign governments were not considered commercial sales.  Additionally, market research did not yield any commercial sales or  evidence that the part was sold in the commercial marketplace. The  part was determined noncommercial.

The National Defense Authorization Act for Fiscal Year 2016 states  contracting officers may presume a prior commercial item determination  made by a DOD component shall serve as a determination for  subsequent procurements of an item. In fact, if a previous determination  is not used, a contracting officer must request that the head of the  contracting activity review the prior determination and either confirm its  validity or issue a revised determination. Most contracting officers with  whom we spoke indicated that prior determinations should be reviewed to  determine if they were made under similar terms and conditions and  whether circumstances have changed since the determinations were  made. We found diverse opinions among contracting officers on whether  they would elevate concerns about a previous determination to the head  of the contracting activity. Some contracting officers said they would  elevate the determination if they had supporting data while others would  be hesitant under most circumstances due to the extensive process  involved.

Challenges in Making Commercial Item and Price Reasonableness Determinations Did Not Typically Delay Contract Award

Despite the different factors involved, for most of our case studies,  challenges in making the commercial item and price reasonableness  determinations did not ultimately affect the government’s ability to award  the contract as planned. The time it took for the contractor to provide  information to the government and the government to make a  determination ranged from a few days to over a year. In most of our case  studies, contracting officials said that this time did not solely affect the  contract award because other factors, such as staff changes or awarding  multiple contracts at the same time, also delayed the process.

However, in two of our 15 cases, contracting officers told us they were  delayed in awarding contracts when the contractor did not provide the  requested information in the anticipated timeframe. In one example, an  Army contracting official told us that a contract award was delayed when  a subcontractor did not provide information to the contractor to support its  commerciality assertion. The contracting officer noted that this delay also  placed the program at risk of a funding loss because the service  reallocated funding to another program that it viewed as less risky.

Finally, contractors told us that they have taken steps to improve how  they assert the commerciality of their items. For example, several  contractors now use standardized forms to make commercial item  assertions and keep prior assertions in a centralized place. Several  contractor representatives we spoke with also told us that they have an  internal panel of experts review commercial item and price  reasonableness assertions to ensure consistency and that the assertions  meet federal regulations. The contractors’ hope is that these forms and  processes will help reduce the back and forth in requesting information  among the government, prime contractor, and subcontractors. In addition,  some contractor representatives told us that they work with the DCMA  Commercial Item Group to better understand what information contracting  officers are requesting and to obtain assistance with subcontractors that  are unwilling to provide information to the prime contractor.

When Information Needed to Make Commercial Item and Price Reasonableness Determinations Is Not Readily Available, Contracting Officers’ Options Are Limited

Some contracting officials told us that they have few options at their  disposal when they have difficulty obtaining information from the  contractor to make a commercial item or price reasonableness  determination in a sole-source environment. For example:

For a $2 million Army task order for engineering services to upgrade  navigation software and several GPS units with these upgrades, the  contracting officer stated that procuring from an alternative source  was not an option because this GPS was unique to the program and  qualifying a different GPS would cost an estimated $50 million.

In a nearly $2 million sole-source delivery order for Blackhawk  helicopter fuel tanks, the Army contracting official told us that the  program needed this fuel tank because the tank’s configuration was  specific to the helicopter. As a result, the contracting official said they  could not walk away from the contractor. The contracting official  further noted that certifying an item from a second source would be  cost and time prohibitive for the government.

Although in most of our sole-source case studies other options (e.g.,  contracting with a different vendor) were not viewed as being feasible, we  did have one case where DOD made the choice to not award a contract,  when the government and contractor could not agree on a reasonable  price. DLA wanted to negotiate a long-term contract for night vision  goggles, but after the contracting officer made repeated attempts to  obtain data from the contractor, they could not agree on a fair and  reasonable price. The prices were over 45 percent higher than prices that  DLA had previously paid for the same item. As a result, the acquisition  was canceled, and according to the contracting officer, the government  plans to buy quantities as needed through an existing vehicle.

Another option is to elevate issues to DOD management, which can make  a determination on whether an item is commercial and is being offered at  a fair and reasonable price.

One example from our case studies includes a $1.7 billion Army sole  source contract for helicopter engines. The contractor asserted  commerciality for the engines, which had historically been procured as  a noncommercial item. After extensive market research, the  contracting officer asked for information from the contractor to support  its commerciality assertion, but had difficulty obtaining it. According to  the contracting officer, the Army discussed the possibility of not  awarding this contract, but this was not considered feasible since the  engine is used in multiple aircraft. After months of back and forth  between the contracting officer and contractor, this commerciality  issue was elevated to the Director of Defense Pricing, who agreed  with the contracting officer’s assessment that the engines were not  commercial and procured them on that basis.

Both Formal and Informal Information Sharing Efforts Exist, but With No Comprehensive Strategy

DOD has taken steps to share more information across the department to  inform commercial item and price reasonableness determinations, but  efforts to date are in early stages of development or happening informally  across the department. Despite these efforts, contracting officers still face  challenges in obtaining adequate information to make informed  commercial item and price reasonableness determinations, in part  because no comprehensive information sharing strategy exists to outline  responsibilities and funding of these efforts. DOD officials told us they  plan to explore other options for the sharing of commercial item  information, such as communities of practice, but have not made any  formal plans.

One information sharing effort still in its early stages is the DCMA  Commercial Item Group’s publicly available database, created in 2017 to  centralize commercial item information across DOD. The database,  however, has not been fully established as an effective tool. In its current  form it consists of a spreadsheet primarily listing items that contracting  officers have determined to be commercial. According to DCMA  Commercial Item Group officials, the database contains fewer items than  expected because not all DOD contracting officers have submitted their  commercial item determinations. The Office of Defense Procurement and  Acquisition Policy updated its Guidebook for Acquiring Commercial Items  in January 2018 to state that a commercial item determination is not  complete until the contracting officer submits it to the DCMA Commercial  Item Group along with a summary of pricing information. These  submissions are meant to improve consistency and efficiency in making  commercial item determinations. On February 22, 2018, the Air Force  Deputy Assistant Secretary for Contracting issued a memorandum that  reminded its contracting officers of this responsibility.

We found that the database has limitations. For example, it includes only  a list of items evaluated and not the results of recommendations made on  commerciality by the DCMA Commercial Item Group. These  recommendations can be obtained by contacting the office directly.  DCMA officials stated results of their recommendations are specifically  not included in the public database because of concerns that a prime  contractor may prefer a subcontractor with a commercial item  determination over another without one.

Most commercial item determinations included in the database go back  only to 2016, since this is when the DCMA Commercial Item Group began  collecting them. Additionally, DCMA Commercial Item Group officials said  they have no funding to support the database. Officials plan to meet with  DOD’s Office of Defense Procurement and Acquisition Policy to discuss  funding and other potential systems to maintain the information as well as  provide DOD officials with direct access to copies of previous  determinations and related information. Defense Procurement and  Acquisition Policy and DCMA officials acknowledged that DOD has not  yet determined who is responsible for the funding and upkeep of this  information. Internal control standards promote assigning responsibility  and delegating authority to key roles to achieve an organization’s  objectives. Without appropriate funding and clearly defined roles and  responsibilities for management and upkeep of the database, its  effectiveness as a tool to provide contracting officers with information to  help make commercial item determinations will continue to be limited.

While the database serves as a means to formally share information to  help contracting officers make commercial item and price reasonableness  determinations, contracting officers in our case studies noted instances  where informal sharing of information between programs and services led  to improved outcomes, such as a lower price. For example,  In a $257 million sole source MQ-9 aircraft contract, the Air Force  contracting team questioned whether a modified commercial engine  being provided by a subcontractor was offered at a fair and  reasonable price. While the Air Force contracting team relied on  uncertified cost and pricing data provided by the subcontractor, a  contracting official told us that the team also relied on information  shared by Air Force officials in other programs that were procuring  similar commercial items at the same time. The contracting team  discovered that another contracting official obtained a lower price for a  similar commercial item, and as a result, used this information to  negotiate a lower price.

In the procurement for radios used in a variety of aircraft, as  discussed earlier, Navy contracting officials used informal information  sharing to make a commercial item determination. The Navy obtained  information from the Air Force, which was procuring the same radio  and which had performed a review in January 2017 that it shared with  the Navy. The review noted that other similar commercial radios  existed and that a comparison of this radio to these other commercial  radios could help determine that the radio is commercial. Navy  contracting officials, using the Air Force’s review as well as their own  technical analysis, determined the radios were a modified commercial  item.

Despite the creation of the database and the informal information sharing  that occurs, contracting officers still face challenges in obtaining adequate  information to make informed commercial item and price reasonableness  determinations. Specifically, DOD lacks a strategy for improving the  sharing of commercial item and price reasonableness information across  the department, such as efforts like the DCMA Commercial Item Group’s  database. Internal control standards promote effective sharing of  information to ensure managers have the information they need to make  informed decisions. In addition, internal control standards state that  management should communicate information internally and assign  responsibilities for key roles while also considering the cost necessary to  communicate the information. In an environment where information is  difficult to obtain from the contractor, as we have outlined in this report,  the ability for contracting officers to have easy access to all necessary  commerciality and pricing information within DOD is critical. If DOD does  not have such information easily available, contracting officers will  continue to struggle with obtaining all the information they need to make  informed and efficient commercial item and price reasonableness  determinations.

When dealing with a limited marketplace and price data, determining  commerciality and price reasonableness can be challenging for DOD’s  contracting staff. Ultimately, the effectiveness of determining  commerciality and fair and reasonable prices will depend on what  meaningful information the government successfully obtains to conduct its  analysis. Therefore, information sharing within the department is critical in  helping DOD’s contracting officers determine commerciality and  reasonable prices on DOD’s acquisitions. As our findings show, DOD has  made some efforts to facilitate the sharing of information, such as  establishing the DCMA Commercial Item Group. This group, in turn, set  up a database to increase the accessibility and utility of commercial and  pricing data. But the database is not yet robust enough to eliminate the  need for more sharing of information—formal or informal—across the  department. Enhancing information sharing efforts could address some of  the challenges we identified. Further, clearly defining the roles and  responsibilities for management of the database and identifying viable  funding sources to support the upkeep of the database will help ensure it  becomes a useful resource for contracting officials.

We are making the following recommendation to DOD:  The Director of Defense Procurement and Acquisition Policy should work  with the Defense Contract Management Agency to develop a strategy for  sharing information related to commerciality and price reasonableness  determinations across DOD, including a plan to increase the information available in the Commercial Item alternative mechanisms to share information, either formal or informal;  and assignments of roles and responsibilities with regard to sharing  commercial item information, including how the database should be  funded, supported, and maintained.

We provided a draft of this report to DOD for review and comment. In its  written comments, reproduced in appendix III, DOD concurred with our  recommendation, stating that it plans to issue a policy memo requiring all  commercial item determinations made after September 30, 2018 to be  included in the existing commercial item database. DOD further stated  that it will update its commercial item determination form to enhance  informal information sharing. In addition, DOD stated that the Director of  Defense Pricing within the Defense Procurement and Acquisition Policy  office and the Director of DCMA will enter into a memorandum of  agreement specifying roles and responsibilities in determining commercial  item policy and funding the commercial item database.

DOD also provided technical comments, which were incorporated as  appropriate.

We are sending copies of this report to the appropriate congressional  committee, the Secretary of Defense, and the Director of Defense  Procurement and Acquisition Policy. In addition, the report is available at  no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-4841 or woodsw@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix IV.

Appendix I: Objectives, Scope, and Methodology

Our objectives were to: (1) identify the factors that influenced the  Department of Defense’s (DOD) commercial item and price  reasonableness determinations and (2) assess the extent to which DOD  has taken steps to make information available to help make these  determinations.

To identify factors that influence the process and what DOD has done to  address them, we reviewed relevant sections of the Federal Acquisition  Regulation (FAR); Department of Defense Federal Acquisition Regulation  Supplement; DOD memorandums; policy, guidance, and instructions  related to the acquisition of commercial items, including the Guidebook  for Acquiring Commercial Items Part A: Commercial Item Determination  and Part B: Price Reasonableness Determination; and service-specific  guidance regarding commercial items.

To assess challenges in making commercial item and price  reasonableness determinations, we identified a non-generalizable sample  of contracts which were reported by DOD officials and contractors as a  contract where it was difficult to make commercial item determinations,  price reasonableness determinations, or both, from a variety of sources.  Due to limitations of the Federal Procurement Data System-Next  Generation (FPDS-NG) we could not identify all DOD commercial item  acquisitions in the data system, specifically contracts that had been  coded as having used procedures other than FAR Part 12, Acquisition of  Commercial Items. Additionally, contracts which had issues in making  commercial item or price reasonableness determinations would not be  identifiable in FPDS-NG. Due to these limitations, we requested that three  DOD services – Air Force, Army, and Navy – and the Defense Logistics  Agency (DLA) each provide us with five contracts that had points of  contention with the commercial item determination or the price  reasonableness determination, either at the prime contract or subcontract  level. We also identified contracts by asking officials at the Defense  Contract Management Agency (DCMA) Commercial Item Group and the  Navy Price Fighters for contracts as well as identified contracts through  previous GAO work. Additionally, we asked contractors to identify  contracts they believed had issues in determining commerciality and/or  price reasonableness. One contractor identified two contracts, which we  reviewed, but did not find to have any issues concerning commerciality or  price reasonableness. From these requests we collected a non- generalizable sample of 56 contracts for commercial items.

From the non-generalizable sample of 56 contracts, we selected 15  contracts awarded between 2010 and 2018 that met various criteria as  case studies. We selected 4 case studies from the Air Force, 4 from the  Army, 5 from the Navy, and 2 from DLA. The 15 case studies were  selected to represent: (1) multiple services; (2) a variety of issues with  commercial item or price reasonableness determinations, (3) reoccurring  prime contractors or subcontractors, and (4) a mix of product and  services acquired. We conducted an in-depth review of these contracts  and selected related orders to assess what challenges occurred when the  contracting officer was determining whether an item was commercial and  whether the price was fair and reasonable, and why these challenges  occurred.

To assess challenges in making commercial item and price  reasonableness determinations, we reviewed the contract file  documentation for the 15 case studies, and interviewed contracting and  pricing officials. We reviewed documentation including commercial item  determinations, price negotiation memorandums, market research, and  DCMA Commercial Item Group and Defense Contract Audit Agency  reports. We also interviewed contracting officials and contractors to obtain  perspectives on how an item was determined to be commercial and then  subsequently, determined to be offered at a fair and reasonable price. We  interviewed contracting officers to obtain their views on the effect the new  Guidebook for Acquiring Commercial Items and recently passed  legislation would have on these challenges, and how they might affect  contracts in the future. We interviewed officials from the DCMA  Commercial Item Group to understand how they assist contracting  officers in making determinations, and about the publicly available  database that centralizes commercial item information. We also reviewed  this database to understand what types of information it contained.  Additionally, we discussed the management and funding of the database  with the Office of Defense Procurement and Acquisition Policy. We  interviewed contractors to discuss commercial item and price  reasonableness issues on the selected contracts, discuss general areas  of concern with regard to commercial item and price reasonableness  determinations, and identify other contentious contracts.

We conducted this performance audit from July 2017 to July 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 audit objectives.

Appendix II: DOD General Process for Making Commercial Item and Price Reasonableness Determinations

Appendix II: DOD General Process for Making  Commercial Item and Price Reasonableness  Determinations applicable to most of the contracts in our case studies because all but one of the contracts were  awarded before the DFARS changes were implemented. Furthermore, where the Federal Acquisition  Regulation (FAR) and DFARS differed in terminology (e.g., the FAR noted a requirement for “data” to  determine price reasonableness but the DFARS noted a requirement for “information”), the table and  report use the DFARS terminology.

Appendix III: Comments from the Department of Defense

In addition to the contact named above, Tatiana Winger (Assistant  Director), Emily Bond, Jared Dmello, Lorraine Ettaro, Julie Hadley, Julia  Kennon, Timothy Moss, Miranda Riemer, Raffaele (Ralph) Roffo, and  Carmen Yeung made key contributions to this report.

DOD contracting officers buy products "off the shelf" to take advantage of innovations and save money. But at times they must navigate a complex process to determine if an item is available commercially and at a fair price.

Required market information on specialized products may be hard to find

Contractors may be slow to provide information

Additional steps may be needed to determine if a commercial item needs modification before it is DOD-ready

Earlier determinations on products may not be valid

We recommended DOD develop a strategy for sharing information on determining commerciality and price reasonableness across DOD.


Medicaid: CMS Action Needed to Ensure Compliance with Abortion Coverage Requirements

While federal law prohibits federal funding for abortions in most circumstances, state Medicaid programs are required to cover abortions in limited circumstances. CMS is responsible for monitoring state compliance with federal requirements. However, concerns have been raised about challenges women may face obtaining Medicaid coverage for abortions eligible for federal funding, as well as with abortion access more broadly.

GAO was asked to review issues related to abortion access. This report examines (1) factors that may present challenges to women, including Medicaid beneficiaries, accessing abortions; and (2) federal and state information on the number of abortions eligible for federal Medicaid funding. GAO reviewed federal laws, regulations, and data sources; surveyed and received responses from Medicaid program officials in all 50 states and the District of Columbia; conducted a literature review; and interviewed CMS officials and eight abortion providers selected based on factors such as variation in Medicaid abortion coverage and geography.

Women could face various challenges accessing abortions depending on where they live, and Medicaid beneficiaries may face additional challenges in some states. GAO identified seven key factors that could pose challenges to women accessing abortions, based on its interviews with providers and review of the literature: gestational limits, mandatory counseling, out-of-pocket costs, parental involvement requirements, provider availability, stigma and harassment, and waiting period requirements. The presence of these factors and their effect on abortion access—such as delays in care or increased costs—varied by state.

GAO also found that state variation in Medicaid abortion coverage and payment requirements could further complicate access for program beneficiaries. State Medicaid programs are generally required to cover abortions and can seek federal funding for such coverage when the pregnancy is the result of an act of rape or incest, or the life of the pregnant woman would be endangered unless an abortion is performed. States may also cover abortions under other circumstances, but federal funds may not be used. In GAO's survey, one state reported not covering abortions in cases of rape or incest, and 14 states reported not covering the drug used in medical abortions, which they are generally required to cover if the abortion is otherwise eligible for federal funding. Officials from the Centers for Medicare & Medicaid Services (CMS), the federal agency that oversees Medicaid, were unaware that these states were not covering the drug, and thus, have not taken any actions to address states' non-compliance.

Federal information on the number of abortions eligible for federal Medicaid funding is incomplete, limiting CMS's ability to ensure proper payments and states' coverage of such abortions. For example, the form CMS-64, which states use to report Medicaid expenditures, does not collect information on the number of abortions paid for by managed care—the delivery system serving most Medicaid beneficiaries. It also does not include this information from 8 states that GAO identified as incorrectly reporting abortion costs on the form. While also not complete, state information reported in GAO's survey was more comprehensive, and showed a wide range in the number of abortions eligible for federal funding covered across the 42 states that reported such information.

GAO is making three recommendations to CMS to ensure state compliance with federal requirements for Medicaid abortion coverage, including coverage of the drug used for medical abortions. The Department of Health and Human Services concurred with these recommendations.

Medicaid, a joint federal-state health financing program, is one of the  nation’s largest sources of coverage for medical and other health-related  services. In fiscal year 2017, Medicaid covered acute health care, long- term care, and other services for an estimated 74 million low income and  medically needy individuals. While federal law prohibits federal funding  for abortions in most circumstances, state Medicaid programs are  required to cover an abortion if the pregnancy is the result of rape or  incest, or the life of the pregnant woman would be endangered unless an  abortion is performed. In these circumstances, abortions are eligible for  federal funding. In addition, states can, at their own expense, choose to  cover this procedure beyond the circumstances outlined in federal law.

The Centers for Medicare & Medicaid Services (CMS), the agency within  the Department of Health and Human Services (HHS) that oversees  Medicaid, has a critical role in monitoring states’ compliance with federal  requirements, including ensuring that federal funding is provided only for  eligible abortions and that state Medicaid programs cover abortions  eligible for such funding. However, members of Congress and others  have raised concerns about women’s access to abortions across states,  including for Medicaid beneficiaries in circumstances eligible for federal  funding. For example, concerns have been raised about the availability of  facilities providing abortions, which could affect women’s access. A recent  study found that the number of abortion clinics varied greatly across the  country with the Northeast having nearly three times more clinics than the  Midwest based on regional population size. Another study found that the  number of abortion clinics has declined over time and that more than a  third of women across the country live in a county without an abortion  clinic.

You asked us to examine issues related to women’s access to abortions.  This report examines  1.  factors that may present challenges to women, including Medicaid  beneficiaries, accessing abortions; and  2.  federal and state information on the number of abortions eligible for  federal Medicaid funding.

To examine factors that may present challenges to women, including  Medicaid beneficiaries, accessing abortions, we reviewed federal laws  and regulations, and surveyed Medicaid officials in all 50 states and the  District of Columbia (hereafter, states) regarding their scope of abortion  coverage, including coverage of medical abortions, and their  requirements for Medicaid payment for abortions eligible for federal  funding. All states responded to the survey. In addition, we interviewed  eight abortion providers about access challenges women may face.  These eight providers offered services in 21 states that represented more  than 40 percent of the total national Medicaid population, but varied in  terms of their Medicaid abortion coverage and geography. Our findings  from these interviews are not generalizable. We also conducted a  literature review to identify peer-reviewed studies that examined factors  that could present challenges to women accessing abortions. We  searched multiple reference databases for relevant studies published  between January 2007 and September 2017, and identified 637 studies  that were potentially relevant. To further refine our search, we reviewed  the abstract of each study to ensure the articles met certain criteria. For  the studies remaining, we examined their methodologies to determine  whether they were sufficiently reliable for the purposes of our reporting  objectives. As a result of these efforts, we identified 52 studies to include  in our review. For more details on the literature review and a list of  studies we reviewed, see appendix I. We also interviewed officials from  CMS and other relevant organizations representing a range of  perspectives on women’s access to abortions.

To examine federal information on the number of abortions eligible for  federal Medicaid funding, we reviewed available federal data sources,  such as the form CMS-64, which states use to report Medicaid  expenditures to CMS for the purpose of determining federal funding, and  interviewed CMS officials. To examine state information, we obtained  responses through our survey to questions regarding the number of  abortions eligible for federal funding that state Medicaid programs  covered and denied for fiscal years 2013 through 2017. We asked states  to report information by delivery system type and by the circumstance  eligible for federal funding (rape, incest, or life endangerment). We did not  independently verify state-reported information, but did follow up with  states to clarify inconsistencies or outliers we identified. On that basis,  we determined that the state-reported information was sufficiently reliable  for the purposes of our reporting objectives.

We conducted this performance audit from May 2017 to January 2019, in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

In 1973, the U.S. Supreme Court concluded in Roe v. Wade that a  woman has a fundamental right protected by the U.S. Constitution to  decide whether to terminate her pregnancy. However, the Court also  recognized that a state may have an interest sufficient to regulate  abortion after the first trimester of the pregnancy or proscribe abortion  after the fetus reaches viability, the point at which the fetus could live  outside the womb. Over time, states have adopted a range of abortion- related laws or policies, including the following examples.

Gestational limits: Prohibiting abortions after a specified gestational  age.

Insurance limitations: Limiting insurance coverage of abortions to  certain circumstances in either publicly or privately funded insurance  plans.

Laws regulating abortion providers: Requiring abortion providers to  meet certain standards, such as standards that specify facility room  size or corridor widths.

Mandatory counseling: Requiring specific information, including  information on fetal development or gestational age of the fetus, be  provided to a woman prior to an abortion.

Parental involvement: Requiring the consent or notification of one or  both parents for minors seeking an abortion.

Waiting periods: Requiring a certain amount of time to elapse  between informed consent—which may include mandatory  counseling—and having an abortion.

Since Roe v. Wade was decided, many of these state laws have been  challenged, and the Court, in reviewing these laws, has considered  whether they impose an undue burden on a woman’s right to choose an  abortion. Most recently, in 2016, the Court found that two Texas laws  regulating abortion providers offered few, if any, health benefits and  posed a substantial obstacle to women seeking abortions. Therefore,  the Court found that these two Texas laws constituted an undue burden  and were unconstitutional.

The number of abortions performed in the United States has steadily  declined over the past 30 years, with the abortion rate reaching its lowest  point in 2014—the most recent year data were available—at 14.6  abortions per 1,000 women of reproductive age, according to a 2017  study. This study attributed this decline primarily to a decrease in the  number of unintended pregnancies and to a lesser extent, laws or policies  that may limit women’s access to abortions.

Abortions are typically performed in a clinic or other nonhospital setting  and involve one of two methods: medical abortion or surgical abortion.  Medical abortions involve using prescription drugs to terminate a  pregnancy. The prescription drug mifepristone, sold under the brand  name Mifeprex, in combination with the prescription drug misoprostol, is  the only Food and Drug Administration (FDA) approved medication for  medical abortions in the United States, and is approved for use through  10 weeks gestation. FDA has restricted the administration of Mifeprex to  patients in certain healthcare settings under the supervision of a certified  prescriber; thus, the drug cannot be sold in retail pharmacies. According  to Danco Laboratories, the manufacturer of Mifeprex, there is at least one  certified Mifeprex provider in every state. Surgical abortions, which can  involve different procedures depending on the stage of a women’s  pregnancy, account for the majority of abortions in the United States.  However, according to a recent study, the incidence of medical abortions  increased 7 percent from 2011 to 2014, with medical abortions  accounting for 31 percent of all nonhospital abortions in 2014.

Medicaid expenditures are financed by both the federal government and  the states. In order to receive federal funding for Medicaid expenditures,  states must adhere to a broad set of federal requirements and administer  their programs consistent with individual state plans approved by CMS.  However, Medicaid, by design, allows significant flexibility for states to  design and implement their programs. States have some discretion in,  among other things, setting Medicaid eligibility standards and provider  payment rates; determining the amount, scope, and duration of covered  benefits; and developing their own administrative structures. For example,  states must cover certain mandatory populations and services—including  abortions in cases of rape, incest, or life endangerment—but may impose  certain requirements on that coverage, such as requiring authorization  before a service is provided. States may also opt to cover other optional  populations and services, including abortions for which federal funding is  not available.

States may also decide how Medicaid-covered services provided to  beneficiaries will be delivered. For example, states may pay health care  providers for each service they provide—referred to as fee-for-service  (FFS)—or contract with managed care organizations (MCO) to provide a  specific set of Medicaid-covered services to beneficiaries and pay them a  set amount per beneficiary, typically per month. While most states use  both delivery systems, the percentage of beneficiaries served through  comprehensive MCOs has grown in recent years, and represented nearly  70 percent of all Medicaid beneficiaries in 2016.

Oversight of the Medicaid program is also shared by the federal  government and the states, and is aimed, in part, at ensuring that funds  are used appropriately and that beneficiaries have access to covered  services. With respect to abortion coverage, federal law and CMS  guidance outline specific requirements for federal funding to be available.  For example, states that claim federal funding for abortions in the case of  life endangerment must obtain a physician’s certification that the abortion  is necessary for this purpose. While there is not a similar certification  requirement for federal funding of abortions in cases of rape or incest,  CMS guidance specifies that states may impose certain additional  requirements on providers and beneficiaries as a condition of Medicaid  payment for abortions eligible for federal funding, provided such  requirements are reasonable and do not deny or impede coverage for  such abortions.

In the case of medical abortions, federal law does not specifically require  Medicaid coverage of the prescription drugs used to terminate a  pregnancy. However, state Medicaid programs that opt to cover  prescription drugs—which is the case in all 51 states—are generally  required to cover outpatient drugs of any manufacturer participating in the  Medicaid Drug Rebate Program. Danco Laboratories has a rebate  agreement for Mifeprex, and, as result, states should generally cover it for  abortions in the circumstances eligible for federal funding. In determining  states’ compliance with this requirement, CMS guidance states that the  agency will consider several factors, including a state’s authority to set  limitations on covered outpatient drugs under relevant state laws.

To inform its oversight of Medicaid, CMS relies on state-reported data  that contain information on multiple aspects of the program. States  claiming federal funding for Medicaid services, including abortions, are  required to report quarterly expenditures to CMS on the form CMS-64.  CMS uses these data to pay states for the federal share of program  spending and the agency is responsible for ensuring that federal  payments are made appropriately. Additionally, states submit Medicaid  expenditure and utilization data that can be linked to individual  beneficiaries to CMS on a monthly basis through the agency’s new  Transformed Medicaid Statistical Information System (T-MSIS).

Multiple Factors Could Present Challenges to a Woman’s Access to Abortions Depending on Where She Lives

Through provider interviews, we identified multiple factors that could  present challenges to women accessing abortions, but the extent to which  these factors were present in a state varied, as did their effect on access.  In addition, the studies we reviewed examined some of these factors  more than others, but often pointed to the challenges they could pose.  Medicaid beneficiaries may experience further challenges accessing  abortions in some states due to variation in Medicaid abortion coverage  and related payment requirements.

Providers and Literature Pointed to Multiple Factors that Could Present Challenges to Women Accessing Abortions across States

We identified seven key factors as potential challenges to women  accessing abortions based on our interviews with eight selected  providers: (1) gestational limits; (2) mandatory counseling; (3) out-of- pocket costs; (4) parental involvement; (5) provider availability; (6) stigma  and harassment; and (7) waiting periods. (See table 1.)

The extent to which these factors are present in a state varies. For  example, one provider who did not identify stigma and harassment as a  factor affecting women in the state it operates in noted that women from  all over the country come to its clinics. The provider said this was  because women see its clinics as a safer place to obtain an abortion than  seeking care in their own state, where they would likely be stigmatized or  harassed. Additionally, providers in some states told us that they were  able to cover the entire cost of the abortion and pay for associated costs,  such as transportation, for women who could not afford to pay, while  providers in other states said that they could not cover the entire cost of  the abortion due to funding limitations. See figure 1 for an example of  differences in factors present in two states.

In addition, a factor could be more challenging in one state versus  another, depending on the details of the factor and other factors present.  For example, one provider noted that the 24-hour waiting period in one  state it serves poses a minimal challenge, because women can complete  part of the process online and only make one visit to the abortion  provider. Conversely, a provider in another state said that the state’s 72- hour waiting period requires two in-person visits and that the same doctor  be present at both, which can create delays in care and increase costs,  particularly if the woman needs to travel a long distance for her  appointments. Differences in access can also exist within a state. Most  notably, some selected providers pointed out that women in a state’s rural  areas typically have more limited access to abortion providers than those  who live in the state’s urban areas.

The 52 studies we reviewed examined the key abortion access factors  identified through our interviews with selected providers, though some  factors were studied more than others. (See app. I.) Most of the  reviewed studies conducted statistical analyses to evaluate the effects of  a factor on abortion access and often identified access challenges. For  example, nearly two-thirds of the statistical studies for the three most  commonly studied factors—out-of-pocket costs, parental involvement,  and provider availability—found that the factor adversely affected a  measure of abortion access. (See table 2.)

The other factors identified by providers—gestational limits, stigma and  harassment, mandatory counseling, and waiting periods—were less  frequently examined in the reviewed studies, and the findings from these  studies were more mixed. For example, gestational limits and stigma and  harassment were the least studied of all the factors with only three and  two studies, respectively, and the reviewed studies found both adverse  effects on access, as well as effects that were statistically insignificant.  While there were more studies on waiting periods, the results were  similarly mixed, with at least one study suggesting that the type of waiting  period could change the effect on access. This study found that while a  waiting period requiring two in-person visits could delay care, the effect of  waiting periods that required fewer in-person visits was not significant.  Finally, for mandatory counseling, the studies we reviewed rarely found  that the factor had a statistically significant effect on a measure of  abortion access (2 of 10 studies).

Variation in State Coverage and Payment Requirements Could Further Challenge Medicaid Beneficiaries’ Access to Abortions

In responding to our survey, 29 states reported limiting abortion coverage  for Medicaid beneficiaries to the three circumstances required under  federal law—rape, incest, and life endangerment—while 21 states  reported broader abortion coverage. The remaining state, South Dakota,  reported that it limits abortion coverage for Medicaid beneficiaries to  circumstances when the pregnancy endangers the life of the woman, and  does not cover abortions in cases of rape or incest. CMS confirmed that  South Dakota’s Medicaid state plan does not include coverage of  abortions in cases of rape or incest, and shared a letter it sent to the state  in 1994 outlining that the state’s coverage did not comply with federal law  and expressing CMS’s intent to work with the state on possible solutions.  However, according to CMS officials, the agency has not taken any action  since that time to ensure South Dakota’s compliance, and does not have  plans to do so. As a result, Medicaid beneficiaries in South Dakota do  not have Medicaid coverage for abortions in cases of rape or incest.

States also varied in the extent to which their Medicaid programs covered  Mifeprex, the prescription drug most commonly used for medical  abortions. (See fig. 2.) As previously noted, state Medicaid programs that  opt to cover prescription drugs—which is the case in all 51 states—are  generally required to cover outpatient drugs of any manufacturer  participating in the Medicaid Drug Rebate Program, subject to a few  statutory exceptions. CMS officials told us that Mifeprex, which became  a covered outpatient drug in 2001, does not meet any of the exceptions  for categorical exclusion from coverage. However, 14 states reported  that they do not cover Mifeprex. Without such coverage, Medicaid  beneficiaries seeking abortions in these states would have to find another  way to pay for the drug or undergo a surgical abortion instead. CMS  officials were not aware that these states did not cover Mifeprex, and thus  the agency had not taken any action to address states’ non-compliance.

Beyond differences in the scope of their abortion coverage, states varied  in the types of requirements they imposed as a condition of Medicaid  payment for abortions eligible for federal funding, which could also affect  women’s access to the procedure. Provider certification that the abortion  met the circumstances of rape, incest, or life endangerment was the most  common requirement reported by states. Other commonly reported  requirements included provider certification of counseling, beneficiary  certification of rape or incest, documentation of rape or incest, and prior  authorization by the state Medicaid agency. (See table 3.)

The details of particular requirements also varied across states. For  example, among the 32 state Medicaid programs that claimed federal  funding for abortions, we reviewed available documents implementing the  federal requirement that physicians certify the abortion is necessary in the  case of life endangerment and found differences among the states. In  particular, some states’ documents incorporated the statutory wording of  the life endangerment exception, others incorporated the wording of the  related federal regulation, and others used different wording.  Additionally, CMS officials told us that the agency does not require that  physicians fill out a specified form to meet the certification requirement,  and the 32 states varied in whether or not they had such a form. In  another example, of the 14 states that required documentation of cases of  rape or incest, some states specifically required a police report, and other  states allowed the beneficiary the option of either filing a police report or  filing a report with another public agency, such as a public health agency.

Finally, states also varied in terms of the number of requirements they  imposed specific to Medicaid payment of abortions eligible for federal  funding. For example, some states had no requirements specifically for  these abortions, while one state had all five of the requirements most  commonly reported. In general, states that used state-only funds to  cover abortions in circumstances beyond those eligible for federal funding  had fewer requirements. (See fig. 3.)

Our interviews with the eight selected providers suggest that the scope of  a state’s Medicaid abortion coverage and related payment requirements  could affect abortion access. For example, six selected providers said  that they rarely submit abortion claims to state Medicaid programs that  limit abortion coverage to circumstances eligible for federal funding, in  part, because obtaining payment is challenging; involves multiple, often  unclear requirements; and frequently results in denied claims. One of  these providers noted that not obtaining Medicaid payment puts additional  pressure on already strained resources, affecting its ability to cover  abortions for women in general. Conversely, two providers operating in  states with broader Medicaid abortion coverage stated that they  frequently submit claims for abortions and receive payment.

State-reported information on denied abortion claims suggests that the  difficulty the selected providers faced in obtaining Medicaid payment for  abortions eligible for federal funding in certain states could exist in other  states. Specifically, among the 15 states reporting information on  denials of payment for abortions in circumstances eligible for federal  funding, denial rates ranged from 4 percent to nearly 90 percent, with  about half of the 15 states reporting denial rates of 60 percent or more.  While we did not ask states to report on their reasons for denying  Medicaid payment for abortions, some states provided this information.  For example, one state said that its high denial rate is due to the initial  denial of all claims for abortions in cases of life endangerment that do not  have the recipient’s address, as required by federal regulation. In  addition, 7 states reported having no payment denials, 4 of which did not  receive any claims for abortions eligible for federal funding over the 5- year period.

Findings from the studies we reviewed also highlight the potential effect of  states’ Medicaid coverage and payment requirements on a woman’s  access to abortions. Eight studies that examined the effect of limiting  Medicaid abortion coverage to those eligible for federal funding found that  such coverage limits were associated with a reduction in the number of  women having abortions. For example, one of these studies analyzed  national data from 1985 to 2005 and found that limiting Medicaid  coverage to abortions eligible for federal funding reduced a state’s  abortion rate by 8 to 9 percent. In addition, six studies that examined  providers’ experiences obtaining Medicaid payment for abortions  corroborated many of the concerns raised by our selected providers. For  example, one study examining abortion provider experiences in six states  found that many providers choose not to bill Medicaid for abortions,  because obtaining payment for the procedure requires a significant time  commitment, and when states do pay, the amount is typically lower than  the cost of providing the abortion.

Information on Abortions Eligible for Federal Medicaid Funding Is Incomplete, but Showed a Wide Range in the Number of Procedures Covered across States

The usefulness of federal information—namely CMS-64 data—for  identifying the number of abortions eligible for federal Medicaid funding is  limited, which could hamper CMS’s efforts to ensure proper payments  and states’ coverage of abortions in cases of rape, incest, or life  endangerment. In particular, the CMS-64 does not include the following  information.

Abortions states paid for through MCOs. The CMS-64 does not  include information on abortions eligible for federal funding provided  to Medicaid beneficiaries through MCOs, because states are not  required to identify expenditures for individual managed care services  on the form. In our survey, 23 states reported claiming federal  Medicaid funding for abortions from fiscal years 2013 through 2017  that were, at least in part, paid for through MCOs.

Abortions in states reporting FFS abortions incorrectly. The  CMS-64 is also an incomplete information source, because of  inaccurate state reporting. CMS requires states to report FFS  abortions for which they claim federal funding on line 14 of the form.  However, in our survey, eight states reported that they include the  costs of such abortions on other lines of the CMS-64, such as on the  lines for outpatient hospital or physician services. According to  agency officials, CMS conducts quarterly reviews of the CMS-64 data  states report. CMS officials also said that reviewers are not required  to confirm whether states that report no abortions on line 14 have  accurately reported the information, which means that reviewers may  not identify states reporting abortions elsewhere. As a result,  information from the CMS-64 does not accurately reflect the number  of FFS abortions for all states that may be claiming federal Medicaid  funding.

In addition, because state Medicaid programs use the CMS-64 to claim  federal funding for services provided, the form does not include  information from states that covered abortions for Medicaid beneficiaries  in circumstances of rape, incest, or life endangerment, but did not seek  federal funding for those costs. In our survey, 15 states—accounting for  nearly half the Medicaid population nationwide—reported that, from fiscal  years 2013 through 2017, they did not claim federal funding for abortions  covered by their programs.

In comparison with the CMS-64 data, the information states reported  through our survey was more comprehensive. For example, 16 states  claiming federal Medicaid funding provided us information on the number  of abortions paid for through MCOs, information that was not captured on  the CMS-64 as individual services, but often represented a significant  portion of the abortions covered by these states. Similarly, the 8 states we  identified as incorrectly reporting their FFS abortions on the CMS-64  reported the number of such abortions to us, and these states accounted  for half of all FFS abortions for which states reported claiming federal  funding in our survey. As a result, the number of abortions for which  states claimed federal funding that was reported to us was substantially  higher than the number in CMS’s annual reports to Congress on such  abortions, which are based on CMS-64 data. From fiscal year 2013 to  fiscal year 2016—the latest year of data available from CMS’s annual  reports—our survey identified nearly 5,000 abortions for which states  claimed federal funding versus the approximately 550 identified in the  agency’s reports.

However, the information on abortions eligible for federal funding that  states reported to us was also incomplete.

Nine states, accounting for about one-third of total Medicaid  enrollment, were unable to provide any information. These states  use only state funds to pay for abortions, and, for example, do not  require providers to report the circumstance for the abortion when  requesting Medicaid payment, including those eligible for federal  funding.

Six states provided only FFS information, though they also reported  paying for abortions through MCOs. Because over 60 percent of  Medicaid beneficiaries in five of these states are enrolled in MCOs,  information was not available for a significant portion of their  beneficiaries.

There were also other, smaller gaps in the states’ information. For  example, six states were not able to provide information for at least 1 year  of the survey time frame, and one state was not able to provide  information on abortions in the case of life endangerment, which, based  on information provided by other states, typically accounts for the majority  of abortions eligible for federal Medicaid funding.

While not always complete, 42 states reported information to us on  abortions eligible for federal Medicaid funding, which showed a wide  range in the number of procedures covered across states. Most of these  states (37 of 42) reported covering 15 or fewer abortions eligible for  federal funding per year, on average, from fiscal years 2013 through  2017, though this number may be understated in some states due to the  data limitations discussed above. However, during this same time  frame, 3 states (Iowa, South Dakota, and Wyoming) reported covering no  abortions eligible for federal funding, and 2 states (Nevada and  Pennsylvania) reported annually covering an average of more than 300  and 700 such abortions, respectively. (See app. II.)

Additionally, when excluding Nevada and Pennsylvania, states reporting  information showed an aggregate decrease in the number of abortions  eligible for federal Medicaid funding they covered during the fiscal year  2013 through fiscal year 2017 time period (from 383 to 200). When data  from these two states were included, there was an aggregate increase  (from 876 to 1,544), as the number of abortions covered by Nevada and  Pennsylvania was much higher in later years.

T-MSIS could be a potential future source of more complete information  on the number of abortions eligible for federal Medicaid funding.  However, in two reports issued in January 2017 and December 2017, we  examined T-MSIS implementation and identified issues with the  completeness and comparability of T-MSIS data across states, as well as  uncertainty with respect to how CMS will ensure the quality of the data or  use them for oversight purposes. Based on our findings, we  recommended that CMS expedite efforts to ensure the quality of T-MSIS  data and articulate its plan and associated time frame for using these  data for oversight. CMS agreed with these recommendations, but as of  October 2018, the agency had not fully implemented them, and we  continue to believe that these recommendations remain valid. Further,  due to ongoing concerns regarding the quality of T-MSIS data and the  small number of abortion services relative to other Medicaid services,  CMS officials said that the agency has focused its oversight efforts in  other areas.

CMS has a central role in monitoring states’ compliance with federal  requirements for coverage of abortions eligible for federal funding in the  Medicaid program. However, our work identified limitations in CMS’s  oversight. In the case of South Dakota, CMS is aware that the state does  not cover abortions in cases of rape or incest, as required by federal law,  but has not taken any action in 25 years to ensure the state’s compliance.  CMS was not aware of the14 states that reported not covering Mifeprex  despite the requirement to do so under federal law. Without such  coverage, Medicaid beneficiaries seeking abortions in these states would  have to find another way to pay for the drug or undergo a surgical  abortion. Finally, incomplete federal data on the number of abortions  eligible for federal Medicaid funding—in part, due to inaccuracies that we  identified in the reporting of these expenditures by eight states—limit the  agency’s ability to ensure that states are covering such abortions and that  federal payments are made appropriately.

We are making the following three recommendations to the Administrator  of CMS.

CMS should take action to ensure South Dakota’s Medicaid state plan  provides coverage for abortions in cases of rape and in cases of  incest, in addition to life endangerment, to comply with federal law,  which currently requires such coverage. (Recommendation 1)

CMS should determine the extent to which state Medicaid programs  are in compliance with federal requirements regarding coverage of  Mifeprex and take actions to ensure compliance, as appropriate.  (Recommendation 2)

CMS should determine the extent to which state Medicaid programs  are accurately reporting fee-for-service abortions on line 14 of the  CMS-64 and take actions to ensure accuracy, as appropriate.  (Recommendation 3)

We provided a draft of this product to the Department of Health and  Human Services for comment. In its written comments, HHS concurred  with our recommendations and indicated a commitment to working with  states to address them. In doing so, HHS noted that while CMS  encourages states to design their Medicaid programs to meet the needs  of local beneficiaries, states must operate their programs consistent with  all applicable federal laws, including those referenced in our report. HHS  also provided technical comments, which we incorporated as appropriate.   HHS’s comments are reprinted in appendix III.

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

If you or your staff have any questions about this report, please contact  me at (202) 512-7114 or yocomc@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs can be found on the last  page of this report. Major contributors to this report are listed in appendix  IV.

To identify studies examining factors that may present challenges to  women, including Medicaid beneficiaries, accessing abortions, we  conducted a literature review of recently published studies. Specifically,  we searched for relevant studies published from January 2007 through  September 2017. We searched various peer reviewed and industry  journals using databases, including ProQuest, CINAHL, Dialog, and  Scopus. Key terms included various combinations and iterations of  “abortion,” “access,” “challenge,” “limit,” “restrict,” “obtain,” “deny,” “state  regulation,” “state law,” “state rule,” “state policy,” “Medicaid,” “parental  consent,” “parental notification,” “counseling,” “waiting period,”  “ultrasound,” “ambulatory surgical,” “surgical center,” “admitting  privileges,” “hospital distance,” “hospital proximity,” “hospital miles,” “room  size,” “corridor,” “procedure room,” “transfer patient,” “targeted regulation  of abortion providers,” “TRAP law,” “stigma,” “violence,” “protest,” harass,”  “gestational limit,” “term limit,” “out-of-pocket,” “expense,” “provider  availability,” “provider shortage,” and “provider participation.” From our  search, we identified 637 studies.

We systemically reviewed the abstracts of these studies to determine  which ones examined factors that may present challenges to women  accessing abortions. In doing so, we excluded studies where the research  (1) was not focused on the United States; (2) was not empirically  analytical, such as theoretical articles and opinion pieces; (3) did not  directly analyze the effect of a factor on a woman’s ability to obtain an  abortion (i.e., analyzed the effect of a factor on mental health outcomes,  contraception use, or unintended birth); (4) did not focus on the civilian  population; (5) evaluated personal characteristics or issues that may  present challenges to obtaining abortions, such as income level or age;  and (6) analyzed a number of factors together so the individual effect of  any one factor could not be identified. For the studies remaining, we  examined their methodologies to determine whether they were sufficiently  reliable for the purposes of our reporting objectives. After taking these  steps, 52 studies remained.

The 52 studies were then reviewed and coded by analysts to determine  the type of abortion access factor identified. We focused our analysis on  key factors identified through interviews with selected abortion providers:  (1) gestational limits; (2) mandatory counseling; (3) Medicaid challenges;  (4) out-of-pocket costs, (5) parental involvement, (6) provider availability,  including certain state laws regulating abortion providers; (7) stigma or  harassment; and (8) waiting periods. Table 4 identifies these 52 studies  and summarizes the factors they examined.

Appendix II: State-Reported Information on the Number of Covered Abortions Eligible for Federal Medicaid Funding

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

Appendix IV: GAO Contact and Staff Acknowledgements

Carolyn L. Yocom, (202) 512-7114 or yocomc@gao.gov.

In addition to the contact named above, Susan Anthony (Assistant  Director), Rachel Svoboda, (Analyst-in-Charge), Marcia Crosse, Julianne  Flowers, Sandra George, Ashley Nurhussein, Sara Rizik, and Jennifer  Rudisill made key contributions to this report. Also contributing were  Sarah Gilliland, Kaitlin Farquharson, Drew Long, Vikki Porter, and Eric  Wedum.

To receive federal funding, state Medicaid programs are supposed to meet federal health care coverage requirements. These include coverage for abortion, but only in cases of rape, incest, or if the woman's life is endangered.

We found state-reported practices that did not comply with federal requirements.

1 state did not cover abortion in cases of rape or incest.

14 states did not cover the drug used in non-surgical abortions, even when the abortion was eligible for federal funding.

We made 3 recommendations to CMS, the Medicaid administrator, to ensure compliance with federal requirements for abortion coverage.