Department of Health and Human Services

Office of Inspector General -- AUDIT

"Summary Results of Review of the Administrative Cost Component of the Adjusted Community Rate Proposal at Ten Medicare+Choice Organizations for the 2000 Contract Year," (A-03-01-00017)

November 21, 2001

Complete Text of Report is available in PDF format (485 KB). Copies can also be obtained by contacting the Office of Public Affairs at 202-619-1343.


As demonstrated in a previous review (A-03-98-00046), this final report points out that the Centers for Medicare & Medicaid Services’ (CMS) methodology for developing adjusted community rate proposals (ACRP) (developed by managed care organizations (MCO) to claim administrative costs) still results in Medicare paying a disproportionate share of such costs. Our audits of the ACRPs prepared by 10 MCOs in nine States showed that $97.1 million of base year costs would have been recommended for disallowance had the MCOs been required to follow the Medicare program’s general principle of paying only reasonable costs. Since there is no statutory or regulatory authority governing allowability of costs in the ACRP process, the MCOs were not required to adhere to this principle. As recommended in our prior report, we believe legislation is needed that would require MCOs to follow Medicare’s general principle of paying only reasonable costs.