Review of the Administrative Cost Component of the Adjusted Community Rate Proposal for a Northwest Medicare+Choice Organization for Contract Year 2000

EXECUTIVE SUMMARY:

This report presents the results of our review of the administrative cost component of the adjusted community rate (ACR) proposal submitted to the Health Care Financing Administration by a Northwest Medicare+Choice organization (the Plan) for contract year (CY) 2000. The objective of our review was to determine if administrative costs submitted by the Plan on its ACR proposals were reasonable, necessary, and allocable when compared to the Medicare program's principle of paying only reasonable costs. This review is part of a nationwide review of administrative costs included in ACR proposals. This Plan's CY 2000 ACR proposal contained 1998 base year costs of $5.2 million of Medicare administrative costs. Based on our review of $2.7 million of these costs, we found (1) $132,471 of entertainment, travel, charitable contributions, and other costs that would not have been allowed if Medicare's reasonable cost reimbursement principles were applicable to M+COs; and (2) $120,888 of unsupported costs. We were unable to determine the reasonableness of these costs due to the lack of documentation.