Better Guidance Is Needed To Preclude Inappropriate General and Administrative Charges

NSIAD-94-13: Published: Oct 15, 1993. Publicly Released: Oct 15, 1993.

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GAO reviewed the Hospital Corporation of America's (HCA) general and administrative expenses for its fiscal year ended December 31, 1991, focusing on unallowable, questionable, and unsupported costs included in its Medicare cost report.

GAO found that: (1) of the $2.6 million HCA general and administrative expenses reviewed, $1.1 million were unallowable, questionable, or unsupported; (2) some HCA expenses were unallowable in accordance with Medicare cost principles, questionable due to the unclear relationship between costs and patient care services, and unsupported because of insufficient documentation; (3) reviews of other health care providers found about $50 million in unallowable or questionable Medicare costs; (4) the nature of the Medicare cost principles and HCA interpretation of these principles were the primary reasons HCA included unallowable and questionable costs in its Medicare report; and (5) although comparable federal guidelines specifically define cost allowance, Medicare cost principles lack sufficient guidance and clarity to ensure their consistent application.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: In December 1993, HCFA revised its Medicare cost principles to make alcoholic beverages, contributions, and lobbying activities expressly unallowable.

    Recommendation: The Secretary of Health and Human Services should direct the Administrator of the Health Care Financing Administration (HCFA) to revise the Medicare cost principles for general and administrative expenses to make them more specific, consistent with the basic Medicare cost rule that a cost must be reasonable, necessary, and related to patient care to be allowable. The cost principles contained in the Federal Acquisition Regulation (FAR) and Office of Management and Budget (OMB) Circular A-21 should be used as a guide regarding the allowability of general and administrative expenses.

    Agency Affected: Department of Health and Human Services


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