Medicare Contractors

The Health Care Financing Administration's (HCFA) intermediary and carrier contractors improperly paid an estimated $12 billion in 1998 for Medicare fee-for-service claims from hospitals, physicians, and others. Yet HCFA does only limited reviews of these contractors' activities, generally accepting financial and workload information as presented, without systematically validating it and without verifying contractors' self-certifications that internal controls are working effectively. HCFA should (1) establish measurable contractor performance standards, particularly in the program safeguard area; (2) set programwide priorities for assessing all contractors on core performance standards; and (3) develop a standardized report format that will facilitate comparisons of contractors' performance and the use of trend data for longitudinal assessments of individual contractor performance. HCFA also needs an organizational structure that will ensure that regions are evaluated on, and held accountable for, the quality of their oversight of contractors. It needs to regularly share best practices and ensure that regional oversight staff adopt them. Although HCFA contracts out claims administration to a shrinking pool of companies whose private interests are increasingly competing with their Medicare responsibilities, it is seeking legislative remedies, but it will need time, additional information, and experience to properly implement them. HCFA could benefit from a strategic plan for routinely conducting competitive procurements and managing claims administration contractors.

GAO noted that: (1) despite its efforts, HCFA's oversight of Medicare claims administration contractors has significant weaknesses that leave the agency without assurance that contractors are paying providers appropriately; (2) since 1993, six contractors have settled civil and criminal charges following allegations that they did not check claims to ensure proper payment or allowed Medicare to pay claims that should have been paid by other insurers; (3) even though inadequate management controls and falsified data are a common theme in these cases, GAO found that HCFA still does not regularly check contractors' internal management controls, management and financial data, and key program safeguards to prevent payment errors; (4) furthermore, HCFA's headquarters office generally has not set oversight priorities, leaving such decisions almost entirely to regional office reviewers; (5) this has led to uneven contractor evaluations by regional reviewers, making it more difficult for HCFA to determine which contractors are performing effectively; (6) HCFA's organizational structure contributes to the problem by dividing responsibilities for contractor oversight between the regions and headquarters without assigning overall accountability to one office; (7) HCFA officials believe that increased competition among contractors could enhance contractor performance but that statute and regulations limit its authority to contract; (8) the statutory limitations were enacted for easier initial implementation of Medicare, but the program now has over 30 years of operational experience; (9) consequently, HCFA is seeking new or explicit authority from Congress that would allow it to: (a) choose its intermediaries, rather than having providers nominate them, and contract with non-health insurance companies; (b) contract separately for specific functions; and (c) use payment methods that would allow contractors to earn profits on their Medicare business, rather than reimbursing contractors only for their costs up to a present target; and (10) while these changes might broaden the pool of contractors HCFA could choose from and would increase its flexibility in contracting for specific functions, past experience with other efforts to change the program has shown that HCFA will need several years to carefully plan, properly implement, and conduct a postimplementation review of any new contracting initiatives.

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: Team: Phone: