HCFA's Contracting Authority for Processing Medicare Claims

HEHS-94-171: Published: Aug 2, 1994. Publicly Released: Aug 2, 1994.

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Pursuant to a congressional request, GAO reviewed how the Health Care Financing Administration (HCFA) contracts with insurance companies and the Blue Cross and Blue Shield Association (BCBS) to process Medicare claims, focusing on: (1) how HCFA sets contract prices and seeks to ensure that proper cost controls are in place; (2) how HCFA evaluates contractors' performance; and (3) whether payments for contractors' insurance association dues are permissible.

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.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: HHS did not concur with the recommendation. HHS stated that HCFA's financial oversight of the Blue Cross and Blue Shield Association (BCBSA) was sufficient. However, HHS did say that proposed contract reform legislation might impact the need for a prime contract with BCBSA. The Kennedy/Kassenbaum health care legislation passed by the 104th Congress allows HCFA to contract with non-insurance companies to serve as intermediaries and carriers. HCFA is writing regulations for this new contracting authority. According to HCFA, this new authority may reduce the number of Blue Cross and Blue Shield plans serving as contractors, and thereby may diminish the need for a prime contract with BCBSA.

    Recommendation: The Secretary of Health and Human Services should direct the Administrator, HCFA, to develop criteria and evaluate the performance of the Blue Cross and Blue Shield Association in its role as the part A prime contractor to ensure that the Medicare program is being managed efficiently.

    Agency Affected: Department of Health and Human Services


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