Rollup Review of Impact on Medicare Program for Investment Income That Medicare Advantage Organizations Earned and Retained From Medicare Funds in 2007

If Federal requirements had been established to delay prepayments to Medicare Advantage organizations (MA organizations) until after the beginning of the beneficiary's coverage period by the same number of days that we estimated that MA organizations held Medicare funds, the Medicare Part A and Part B trust funds (which finance the Medicare Advantage program) could have earned approximately $450 million of interest income in calendar year (CY) 2007. Alternatively, if Federal requirements had been established to require MA organizations to reduce their revenue requirements in their bid proposals to account for anticipated investment income, the Medicare program could have saved an estimated $376 million that the 457 MA organizations that were included in our sampling frame earned in CY 2007.

In contrast to the Federal requirements that govern the Medicare Advantage program, the Federal Employees Health Benefits program limits the ability of companies to retain as additional revenue investment income earned from Federal funds. Based on our reviews of 50 MA organizations, the Medicare program loses potential savings associated with investment income that MA organizations earn between the time that they receive prepayments from CMS and the time that the MA organizations pay for medical services. In CY 2007 the MA organizations held Medicare funds for approximately 46 days before paying for medical services.

We recommended that CMS evaluate these audit results and either (1) pursue legislation to adjust the timing of Medicare's prepayments to MA organizations to account for the time that these organizations invest Medicare funds before paying providers for medical services or (2) develop and implement regulations that require MA organizations to reduce their revenue requirements in their bid proposals to account for anticipated investment income. CMS did not concur with our recommendation.