Medicare Equalization Factor Payments to Group Practice Prepayment Plans Should Be Stopped

HRD-82-39: Published: Feb 18, 1982. Publicly Released: Feb 18, 1982.

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GAO reviewed Medicare Part B equalization factor payments to Group Practice Prepayment Plans (GPPP) to determine whether the GPPP are consistent with either the statutory definition of reasonable costs under the Social Security Act or Department of Health and Human Services (HHS) implementing regulations. GPPP's are organizations that have a formal arrangement with the equivalent of three or more fulltime physicians to provide certain health services, generally not on a fee-for-service basis,to the plans' members.

GPPP's that serve Medicare beneficiaries can elect to be reimbursed for medical services provided under Medicare Part B on a reasonable cost, rather than a reasonable charge basis. Organizations reimbursed on a reasonable cost basis are, under the law and regulations, to be paid on the basis of incurred costs. HHS has not issued regulations specifically implementing or defining what is meant by reasonable cost reimbursement for GPPP's. Consequently, GPPP's which elect to receive reimbursement for Part B services are subject to both the statutory definition of reasonable cost under the Act and the cost reimbursement principles of the HHS regulations. The equalization factor does not represent a cost actually incurred, but an allowance for a cost that may be incurred sometime in the future. Equalization factor payments made to GPPP's which receive Medicare reimbursement pursuant to the Act are not consistent with either the statutory definition of reasonable cost under the Act or implementing regulations. Over 6 years have passed since the Health Care Financing Administration was initially advised of this matter. Although a notice of proposed rulemaking to discontinue these payments was published, there is no assurance that the payments will be terminated.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Health and Human Services should act immediately to terminate equalization factor payments made to GPPP that receive Medicare reimbursement.

    Agency Affected: Department of Health and Human Services


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