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Management Issue 8:
Ensuring Integrity in Medicare and Medicaid Benefits Delivered by Private Plans

Why This Is a Challenge

A health insurance claim form

Medicare Advantage, the Part D Prescription Drug Benefit, and Medicaid Managed Care are administered by private health care plans, operating within parameters established by the federal government (and, for Medicaid, the State governments). Most Medicare beneficiaries are enrolled in Part D plans, and as of December 2009, 24 percent of beneficiaries were enrolled in Medicare Advantage. Major enrollment growth for Medicare Parts C and D is anticipated in the years following FY 2012 as the baby boomer generation becomes eligible for Medicare. As of June 2008, 72 percent of all Medicaid beneficiaries were enrolled in some type of managed care delivery system. Effective administration and oversight of these programs require extensive coordination and information sharing between the federal and State governments, private health care plans, subcontractors, health care providers, and third-party payers. The Department must ensure the accuracy of payments to private plans, the plans' implementation of effective program integrity safeguards, and their implementation of adequate consumer protections.

Medicare and Medicaid make capitated payments to private health care plans to deliver a specified set of benefits to qualified beneficiaries. Although specific payment methodologies vary by program, in general, private plans submit bids to CMS or the States related to their expected costs for the upcoming plan year. The standard per beneficiary payment rate is usually risk-adjusted (increased or decreased) based on the health characteristics of individual enrolled beneficiaries. However, OIG has found that some Part D plans have submitted inaccurate and incomplete information in their bids and that CMS's review of Part D bids has been inadequate. As a result, Medicare has made higher payments to plans and beneficiaries have paid higher premiums than they would have if plans' bids had been more accurate. In addition, some Medicare Advantage plans have submitted inaccurate beneficiary health data used to calculate risk-adjustment payments, resulting in inflated Medicare payments.

In some States, Medicaid managed care plans are subject to limits on their administrative costs relative to their direct costs. OIG investigations have revealed that some Medicaid managed care plans have manipulated their finances and inflated their direct health care costs to circumvent these limits.

CMS and the States must also monitor private plans to ensure that they have implemented effective program safeguards. Private plans share risk with the Government and have incentives to detect and prevent fraud; however, not all plans have done so effectively. For example, we have found deficiencies in Part D plans' compliance with program requirements, including maintaining adequate compliance plans, monitoring to prevent payments on behalf of deceased beneficiaries, and paying claims with invalid prescriber numbers.

Finally, the Department must ensure that beneficiaries have sufficient access to the services that plans have agreed to provide, have accurate information about coverage and costs to make informed choices, and are protected from illegal or coercive marketing tactics and other inappropriate activities.

Progress in Addressing the Challenge

CMS has strengthened its oversight of Part D plans' compliance with program requirements and implementation of compliance plans by conducting audits and promoting effective compliance programs. It has also issued guidance to plans to identify and review drug claims with invalid prescriber identification numbers. CMS has also issued guidance and clarification regarding Medicare Advantage and Part D plans' responsibility to train all providers on ways to avoid fraud, waste, and abuse. In August 2011, CMS hosted its first annual program integrity conference and plans to deploy fraud, waste, and abuse training for Part C and Part D.

In 2010, CMS began implementing a broad set of Medicaid initiatives focused on assessing and improving States' performance in meeting regulatory requirements and ensuring that managed care systems deliver accessible, available and appropriate services to Medicaid beneficiaries. These initiatives include updating regulatory compliance checklists, developing new tools to assess the readiness of States to implement managed care, and disseminate written policy guidance to States and health plans.

What Needs To Be Done

Ensuring the accuracy of payments to private plans remains a challenge, and CMS should strengthen its oversight of bids and risk adjustment payments. CMS must also continue to monitor plans' implementation of integrity safeguards, provision of covered services to all eligible beneficiaries, and compliance with marketing rules. CMS will also need to oversee plans' compliance with medical loss ratios and ensure that plans are not inflating their direct health care costs.

Key OIG Resources

Management Issue 9: Avoiding Waste in Health Care Pricing Methodologies

Office of Inspector General, U.S. Department of Health and Human Services | 330 Independence Avenue, SW, Washington, DC 20201