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Department of Health and Human Services

Office of Inspector General -- AUDIT

"Results of Review of Administrative Costs Included in the Adjusted Community Rate Proposal for a Florida Medicare Managed Care Risk Plan," (A-04-98-01188)

August 16, 1999

Complete Text of Report is available in PDF format (727 kb). Copies can also be obtained by contacting the Office of Public Affairs at 202-619-1343.


Currently, there is no statutory or regulatory authority governing allowability of administrative costs included in the adjusted community rate (ACR) process for determining Medicare capitation rates under risk-based contracts with managed care organizations (MCO). At a Florida risk-based MCO we found that $2.5 million charged to administrative costs was not appropriate when compared to the Medicare program's general principle of paying only reasonable costs. The majority ($2.1 million) in questionable costs constituted commission payments to brokers who sold the Plan's commercial policies to outside individuals and companies. The remaining questionable costs related to travel and entrainment, public relations, office expense, repairs and maintenance, seminars, and auto allowances that did not benefit the Medicare program. The methodology which allows MCOs to apportion administrative costs to Medicare is flawed and results in Medicare covering a disproportionate amount of the MCO's administrative costs. Additional reviews are ongoing and results show similar problems at other MCOs. The results of these reviews are being shared with the Health Care Health Financing Administration so that appropriate legislative changes can be considered.