MCOs Accused of Diverting Funds From Patient Care

OIG staff examined audits for 10 MCOs for the year 2000. Two of the MCOs are located in Missouri; one each is located in Florida, Nevada, New Jersey, New York, Ohio, Pennsylvania, Texas, and Washington. All used the new ACR to determine reimbursable costs.

The report put a price tag of $97.1 million on total charges that would not meet the test of reasonable costs. Problems included charges that were not based on incurred costs; allocations of non-Medicare costs to Medicare; inappropriate calculation of indirect costs; and costs related to lobbying, legal expenses, bad debts, and public relations activities that are not permitted under federal contracting regulations.

Was anyone hurt? OIG staff said yes. In fact, they claim that the inflated costs drove the program cost up by an average charge of $32.74 a month for each beneficiary. Those funds, they alleged, would have been available to provide additional benefits or to reduce premiums.

The OIG issued its report at a time when the fate of the Medicare+Choice (M+C) program seems particularly uncertain because of withdrawals by insurance companies and lack of consensus about how and whether to salvage the troubled program.

The July-August 2001 issue of Health Affairs reported that the M+C program had resulted in a decrease in choice for beneficiaries, which was partially caused by the exit of MCOs from the program (Psychiatric News, December 21, 2001).

A November report from the General Accounting Office (GAO) found that higher payments to MCOs had not stopped the exodus from the M+C program (“Medicare+Choice: Recent Payment Increases Had Little Effect on Benefits or Plan Availability in 2001,” GAO-02-202).

Edward Gordon, M.D., chair of APA’s Medicare Advisory Committee, said, “The program is not worth saving. It’s ludicrous that the government wants to continue supporting companies that don’t want to provide care while cutting the fees of doctors who do.”

Jay Cutler, J.D., director of APA’s Division of Government Relations, expressed a similar sentiment. He said, “Given the Inspector General’s deeply disturbing report, it is difficult to rationalize why the Congress is intent on pumping even more federal dollars into a program that is collapsing.”

Rep. Bill Thomas (R-Calif.), chair of the Ways and Means Committee, and Rep. Nancy Johnson (R-Conn.), chair of the Ways and Means Subcommittee on Health, wrote CMS Administrator Thomas Scully last August that they plan to introduce legislation to move M+C to a “level playing field” with the traditional Medicare program and ultimately move to a competitive system in which plans would be paid what they bid. They also support payments to M+C explicitly for the provision of prescription drugs.

The subcommittee held a hearing on December 4 on the status of the program. At that time, Scully testified in support of M+C as “an important option. . .that enabled us to take advantage of private sector expertise to give Medicare beneficiaries more services for their premium.”

He described a number of actions CMS had taken to reduce the administrative burden on MCOs and said that increases in federal funding to M+C companies had failed to reflect rising health care costs.