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Department of Health and Human Services

Office of Inspector General -- AUDIT

"Review of the Administrative Cost Component of the Adjusted Community Rate Proposals for a Southwest Medicare+Choice Organization for Contract Year 2000," (A-09-00-00120)

July 19, 2001

Complete Text of Report is available in PDF format (557 KB). Copies can also be obtained by contacting the Office of Public Affairs at 202-619-1343.


Unlike other areas of the Medicare program, there is no statutory or regulatory authority governing the allowability of costs in determining adjusted community rates (ACRs) for Medicare+Choice organizations (M+CO). This review of six ACR proposals for 2000 submitted by a Southwest M+CO was made to determine if the administrative costs were reasonable, necessary, and allocable when compared to Medicare’s general principle of paying only reasonable costs. We found, however, that the ACRs included $35.4 million in costs that; (1) were in excess of the amount that would have been allocated on the basis of enrollment, (2) were not allocable to Medicare, (3) would not be allowable if existing Medicare regulations (either for cost HMOs or in the fee-for-service arena) were applied to M+COs, and (4) pertained to unsupported related-party transactions and other unsupported costs. The results of this review, along with the results of similar reviews of other M+CO organizations are being shared with the Centers for Medicare and Medicaid Services so that appropriate legislative changes can be considered.