Medicare

Since 1966, the Health Care Financing Administration (HCFA) has awarded most contracts to process claims under Medicare parts A and B without competition, has renewed them annually, and has compensated contractors on a cost-reimbursement basis. Periodically, the Congress has directed HCFA to experiment with other types of contracts in an effort to reduce administrative costs. Earlier experiments had mixed results, but current experiments indicate that different types of contracts may reduce costs. The Congress is now considering a legislative proposal requiring HCFA to study the feasibility of making the contracting process more competitive. While HCFA's current authority provides opportunities to achieve administrative efficiencies, it may be useful for the Congress to direct HCFA to evaluate new approaches that could lead to a more competitive environment. Any changes, however, should avoid problems that have occurred in the past. The role that the Blue Cross and Blue Shield Association (the national trade association for independent Blues plans) plays in coordinating part A contracting activities with individual Blues plans may limit the need for HCFA resources to perform these activities. However, HCFA has not evaluated the Association's performance since 1989, even though HCFA paid the Association over $21 million during that period. In GAO's view, HCFA needs to regularly assess the Association's performance, just as it does for other contractors, to ensure that the Medicare program is being managed efficiently.

GAO found that: (1) since 1966, HCFA has awarded most Medicare claims processing contracts without competition, renewed them annually, and paid contractors on a cost-reimbursement basis; (2) Medicare providers nominate contractors for Medicare Part A contracts while HCFA directly selects contractors for Medicare Part B contracts; (3) Congress is considering legislation to require HCFA to study the feasibility of making the contracting process more competitive and evaluate new approaches to reduce processing costs; (4) BCBS coordination and subcontracting of Medicare claims processing among its members could limit the need for HCFA resources to perform these activities, but HCFA has not evaluated the association's performance since 1989; (5) HCFA uses payment controls based on costs per claim to ensure that contractors do not exceed their budgets; (6) HCFA reduction of costs per claim could lead to cuts in funding for reviews that ensure that claims are being properly paid; (7) HCFA evaluates contractor performance against claims processing, customer service, and program efficiency standards and reviews inspector general audits of Medicare contractors; and (8) contractors can be reimbursed for their insurance association dues that help them provide better service to beneficiaries and providers, but not for lobbying costs that may be included in the dues.

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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