Review of Blue Shield of California's Modifications to Its 2001 Adjusted Community Rate Proposal Under the Benefits Improvement and Protection Act of 2000

EXECUTIVE SUMMARY:

Under Part C (Medicare+Choice) of the Medicare program, Medicare+Choice organizations (MCOs) are responsible for providing all Medicare-covered services, except hospice care, in return for a predetermined capitated payment.  The Benefits Improvement and Protection Act (BIPA) of 2000 provided an estimated $11 billion in increased capitation payments to MCOs effective March 1, 2001.  BIPA required MCOs with plans for which payment rates increased to submit a revised proposal to show how they would use the increase during 2001.  According to section 604(c) of BIPA, MCOs were required to use the additional amounts to reduce beneficiary premiums or cost-sharing, enhance benefits, contribute to a stabilization fund for benefits in future years, or stabilize or enhance beneficiary access to providers.  Blue Shield revised proposal reflected an increase in Medicare capitation payments of about $17 million for contract year 2001.

Our objectives were to determine whether Blue Shield of California (Blue Shield) (1) used the additional capitation payments in a manner consistent with BIPA requirements and (2) supported the modifications to the 2001 proposal.  Of the $17 million capitation payment increase in Blue Shield's revised proposal, $12.5 million was used in a manner consistent with BIPA requirements and was properly supported.  However, Blue Shield could not document, nor could we determine, how much of the remaining $4.5 million for increased fee-for-service costs was used in a manner consistent with BIPA requirements.  Also, Blue Shield could not support the estimated $4.5 million increase for fee-for-service costs in its revised proposal.  We recommended that Blue Shield work with the Centers for Medicare and Medicaid Services (CMS) to determine how much of the $4.5 million increase for fee-for-service costs was used in a manner consistent with BIPA requirements.  Any funds not used in a manner consistent with BIPA requirements should be refunded to CMS or, as an alternative, deposited in a benefit stabilization fund for use in future years.  We also recommended that Blue Shield ensure that estimated costs in future proposals are properly supported.