Results of the Audit of Investment Income Earned by Managed Care Organizations with Risk-Based Contracts

EXECUTIVE SUMMARY:

This final report points out that risk-based managed care organizations (MCO) may have annually earned investment income in excess of $100 million on Medicare funds although under the Medicare fee-for-service system and many other Federal programs such income is usually limited due to financing arrangements, or required to be returned to the Federal Government, or used to benefit the program and its beneficiaries. We believe such should be the case with risk-based managed care organizations. Consequently, we are recommending that the Health Care Financing Administration (HCFA) pursue legislation to adjust the timing of Medicare's prepayments to MCOs to maximize the Health Insurance Trust Fund's earnings while minimizing the opportunity MCOs have to earn investment income on Medicare funds, or adjust the MCO payment rates to recognize the impact of investment income on the total funding available to MCOs for servicing their Medicare enrollees. The HCFA agreed that their policies should hold MCOs accountable for investment income earned on Medicare funds and should be used to benefit Medicare enrollees. However, HCFA officials stated they do not intend to pursue legislative changes at this time.