Medicare:

Existing Contract Authority Can Provide for Effective Program Administration

HRD-86-48: Published: Apr 22, 1986. Publicly Released: Apr 22, 1986.

Additional Materials:

Contact:

Michael Zimmerman
(202) 275-6195
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

GAO evaluated the Health Care Financing Administration's (HCFA) management of Medicare claims processing under noncompetitive cost reimbursement contracts and eight competitively bid fixed-price contracts to determine whether: (1) the advantages of fixed-price competition justify broader use of this method of contracting; and (2) the Department of Health and Human Services' (HHS) current authority is sufficient to achieve increased administrative efficiency without a change in contracting methods.

HHS was given legislative authority to experiment with fixed-price or incentive arrangements with contractors as a way of potentially reducing costs and improving program administration. The Deficit Reduction Act (DEFRA) gave HHS additional authority to use competition on a limited basis to remove poorly performing contractors from the program. GAO found that: (1) the competitive contracts have not demonstrated any clear advantage over cost contracts; (2) HHS has been successful in controlling administrative costs using cost contracts; (3) regular competition would probably increase contractor turnover and the problems associated with changing contractors, such as disrupted services and slower payments; and (4) competitive contracting requires more HHS management resources. However, GAO believes that limited use of competitive contracting would be useful, since it stimulates some cost contractors to improve performance and reduce costs. In 1985, because of budgetary shortfalls, HHS abandoned the traditional budget negotiation process and reduced the funds given to each contractor to carry out its claims processing functions. The cuts: (1) were made without consideration of individual contractor circumstances, since even the most cost-efficient contractors were required to reduce costs; (2) left inadequate funds to implement additional legislative requirements or process claims; and (3) were inconsistent with the congressional intent that cost-cutting measures not adversely affect program payments and the quality of service.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: The Omnibus Budget Reconciliation Act included a provision extending the authority for 3 years.

    Matter: DEFRA authority, allowing HHS to use a limited number of fixed-price competitions annually to remove poorly performing contractors, expires at the end of fiscal year 1986. Congress should consider extending this authority or making it permanent.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: HHS disagreed with this recommendation and plans no action.

    Recommendation: The Secretary of Health and Human Services should direct the Administrator, HCFA, to use a Medicare contractor budget development process that places more emphasis on the individual circumstances of contractors than the formula-based cost caps. The process should consider the input of the Medicare contractors in order to more realistically determine the funds needed to sufficiently support program safeguards, and ensure an adequate level of beneficiary and provider service activities.

    Agency Affected: Department of Health and Human Services

  2. Status: Closed - Not Implemented

    Comments: In commenting on the report, HHS agreed with this recommendation and indicated that action would be taken. HHS analyzed cost/benefit ratios of carrier prepayment edits, but decided not to establish specific performance standards.

    Recommendation: The Secretary of Health and Human Services should direct the Administrator, HCFA, to increase contractor incentives for saving program benefit dollars above the minimum performance standards during future revisions of the Contractor Performance Evaluation Program.

    Agency Affected: Department of Health and Human Services

  3. Status: Closed - Implemented

    Comments: In commenting on the report, HHS agreed with this recommendation and stated that multiyear performance measures would be used to identify consistently poor performing contractors, and that it would take appropriate action, including termination.

    Recommendation: The Secretary of Health and Human Services should direct the Administrator, HCFA, to use existing legislative authorities to remove consistently poor performing contractors from the Medicare program.

    Agency Affected: Department of Health and Human Services

 

Explore the full database of GAO's Open Recommendations »

Sep 15, 2016

Sep 14, 2016

Sep 12, 2016

Sep 9, 2016

Sep 6, 2016

Aug 31, 2016

Looking for more? Browse all our products here