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Department of Health and Human Services

Office of Inspector General -- AUDIT

"Review of the 1997 Adjusted Community Rate Proposal for a Texas Risk-Based Managed Care Organization," (A-06-98-00046)

September 18, 1998

Complete Text of Report is available in PDF format (997 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 Texas MCO we identified millions in administrative costs that may be considered inappropriate and unallowable if considered in light of the Medicare program's general principle of paying only reasonable costs. Examples of such costs included unreasonable management fees and reinsurance expenses from a related organization, lobbying costs, entertainment, and charitable donations. Additional reviews are underway and preliminary results show similar problems at other MCOs. The results of these reviews will be shared with the Health Care Health Financing Administration in the coming months so that appropriate legislative changes can be considered.