More Can Be Done To Achieve Greater Efficiency in Contracting for Medicare Claims Processing

HRD-79-76: Published: Jun 29, 1979. Publicly Released: Jun 29, 1979.

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Most Medicare benefits are administered by the Department of Health, Education, and Welfare (HEW) through contracts with private insurance companies called intermediaries, which pay bills for services provided by health care facilities, and other contractors called carriers, which pay claims for services from doctors and suppliers. These contracts have been on a cost reimbursable basis, with neither profit nor loss realized by the contractors. Congress directed GAO to conduct a comprehensive study of the claims processing system under Medicare and determine necessary modifications for more efficient administration.

There are 46 carriers and 77 intermediaries now administering Medicare. Past studies have shown that significant savings would result from merging their workloads and redistributing them among fewer contractors, which would also provide an opportunity to terminate the less efficient among them. While many organizations are both intermediaries and carriers, only rarely does one contractor perform both functions within a single region. Because of the similarity of the carrier and intermediary roles, combining their functions under one contractor could improve coordination of program benefits, eliminate duplication, and reduce overhead, chiefly by establishing an integrated claims processing system. HEW has announced that it will propose legislation to replace cost reimbursement contracts with competitive fixed-price contracts, a change which GAO concluded would reduce costs about 20 percent, but whose effects on the quality of service are unknown. A comparable Federal program has shown poor to adequate results. If the proposed contracting change is made, standards should be set and marginal contractors terminated. Incentive contracting is another possibility which HEW should explore. The functions of the Railroad Retirement Board (RRB), which processes Medicare claims for its client beneficiaries, could be shifted to HEW at an annual savings of about $6.6 million to the Government. The processing of crossover claims, with Medicare and Medicaid jointly liable for beneficiary services, includes costs and delays which could be cut by using integrated processing systems.

Matter for Congressional Consideration

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Matter: Congress should enact legislation to withdraw authority from RRB for the selection of a nationwide carrier to process part B Medicare claims and should transfer responsibility for claims processing and payment to the area carriers handling those claims for other Medicare beneficiaries. Congress should also amend the Social Security Act to require Medicare contractors to process Medicaid liability for crossover claims using integrated data processing systems unless a State can present the Secretary of HEW with evidence that another system is equally efficient and effective.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of HEW should direct the Administrator of the Health Care Financing Administration (HCFA) to evaluate experimental fixed-price contracts as to their advantages and disadvantages, incorporate performance standards in all Medicare contracts, implement a policy of contract termination for unsatisfactory performance, conduct experiments to test the feasibility of merging contractor functions under a single contractor and the effectiveness of an integrated software system, and evaluate the possible implementation of Medicare performance incentives. The Secretary should also reduce immediately the number of contractors in the Medicare program and determine which ones to eliminate by directing the HCFA Administrator to decide on the most efficient caseload and territorial configuration, based on an identification of the most competent contractors and those which can best handle large caseloads.

    Agency Affected:


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