Medicare

Since 1989, the Health Care Financing Administration (HCFA) has tried to reduce administrative costs by urging Medicare contractors to share claims processing system software and hardware with other contractors. In October 1991, Blue Cross and Blue Shield of Maryland began using claims processing software developed by another contractor. For more than a year after the system conversion, Medicare payments to Maryland physicians were frequently late and often contained errors, resulting in unanticipated costs of more than $5 million. The Maryland contractor has yet to realize any of the anticipated annual savings of more than $600,000 in administrative costs. Poor management by Blue Cross and Blue Shield of Maryland and poor decisions by HCFA contributed to the contractor's costly and turbulent shared system conversion. In particular, HCFA and the Maryland contractors did not allow enough time to plan the effort and scheduled the conversion during a period of Medicare program changes requiring major computer system modifications. The Maryland contractor's experience provides valuable lessons for the future, especially given HCFA's plan to convert the 14 systems that the contractor now uses to a single automated claims processing system. HCFA needs to ensure that planning and testing time for major system changes are adequate and not compromised by its desire to achieve administrative savings.

GAO found that: (1) poor contractor management, HCFA planning, and system testing have contributed to claims processing problems and administrative cost increases; (2) disruptions in Medicare claims processing and the rise in erroneous payments have increased the contractor's unanticipated costs by more than $5 million and weakened its payment controls; (3) the contractor was required to pay interest to providers receiving late payments and claims that should have been paid by other insurers; (4) the Maryland Medicare contractor has not realized any of the anticipated annual savings from its reduced administrative costs; and (5) HCFA needs to ensure that sufficient planning and testing for major system changes are provided so that shared system conversion problems are not repeated.