Review of PacifiCare of Oklahoma's Modifications to Its 2001 Adjusted Community Rate Proposal Under the Benefits Improvement 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.  MCOs with plans for which payment rates increased were required to submit a revised proposal to show how they would use the increase during 2001.  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.

PacifiCare submitted a revised proposal that reflected an increase in Medicare capitation payments of about $16.4 million for 2001.  We found that about $5.2 million of the $16.4 million increase in PacifiCare's revised proposal was not used in a required manner or was not supported.  Approximately $4.2 million was not associated with stabilizing or enhancing access to providers because PacifiCare did not renegotiate its provider contracts to increase provider payment rates as indicated in its revised proposal.  A $1 million medical cost contingency did not comply with requirements and was unsupported.  We recommended that PacifiCare refund $5,204,042 to the Centers for Medicare and Medicaid Services or, as an alternative, deposit this amount in a benefit stabilization fund for use in future years.  We also recommended that PacifiCare ensure that estimated costs in future proposals are properly supported.