Experiments Have Not Demonstrated Success of Competitive Fixed-Price Contracting in Medicare

GAO reviewed three experimental fixed-price contracts in Medicare part B. The review focused principally on the experimental contract in Illinois and addressed the Health Care Financing Administration's (HCFA) progress in implementing contractor performance standards and carrying out previous GAO recommendations.

The results of Medicare's three fixed-price experiments have varied from state to state. Contractor performance has ranged from satisfactory in the Maine experiment to unsatisfactory in the Illinois experiment. Performance in upstate New York is now considered satisfactory after an initial 6-month period of unsatisfactory performance. Although much can be learned from these experiments, GAO believes that they are inconclusive as to whether the broad application of competitive fixed-price contracting in Medicare can produce administrative cost savings without unacceptable negative effects on program payments and services. To use competitive fixed-price contracting in the Medicare program, except in experiments, Congress would have to provide the Department of Health and Human Services with authorizing legislation. GAO believes that such a legislative change would be premature at this time. However, if and when a competitive fixed-price procurement approach can be designed and implemented to assure a consistently acceptable or improved level of performance in terms of beneficiary and provider services and accuracy of program payments, GAO would be willing to reexamine the issue. Neither the Illinois contractor nor HCFA devoted sufficient attention to pinpointing the causes of the overpayments and underpayments experienced in that program. Thus, the problems went undiscovered and continued to surface during the balance of the contract.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: Michael Zimmerman Team: General Accounting Office: Human Resources Division Phone: (202) 275-5365