Medicare

GAO found that $1.1 million of $2.6 million in administrative expenses claimed by the Hospital Corporation of America (HCA) in its Medicare cost report was either unallowable, questionable or unsupported. In a recently completed review of administrative expenses and employee fringe benefit costs claimed by hospitals and corporate offices in their Medicare cost reports, the Inspector General at the Department of Health and Human Services found more than $50 million in unallowable and questionable expenses. He concluded that a lack of explicit guidance in Medicare cost principles was at least a contributing factor to this problem. Similarly, the general nature of the Medicare cost principles was a major reason why HCA included inappropriate costs in its report. Medicare cost principles, for example, do not specifically address many of the costs that GAO questioned, such as liquor, flowers, gifts, entertainment, Christmas parties, and scholarships for employee children. In GAO's view, the cost principles contained in the Federal Acquisition Regulation and in Office of Management and Budget Circular A-21 provide useful guidance on allowable general and administrative expenses.

GAO found that: (1) of the $2.6 million HCA general and administrative expenses reviewed, $1.1 million were unallowable, questionable, or unsupported; (2) some HCA expenses were unallowable in accordance with Medicare cost principles, questionable due to the unclear relationship between costs and patient care services, and unsupported because of insufficient documentation; (3) reviews of other health care providers found about $50 million in unallowable or questionable Medicare costs; (4) the nature of the Medicare cost principles and HCA interpretation of these principles were the primary reasons HCA included unallowable and questionable costs in its Medicare report; and (5) although comparable federal guidelines specifically define cost allowance, Medicare cost principles lack sufficient guidance and clarity to ensure their consistent application.

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.

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