Medicare Could Benefit from Open Competition and Increased Flexibility

Medicare could benefit from various contracting reforms. Freeing the program to directly choose contractors on a competitive basis from a broader array of entities able to perform needed tasks would enable Medicare to benefit from efficiency and performance improvements related to competition. Authorizing Medicare to pay contractors based on how well they perform rather than simply reimbursing them for their costs, as well as allowing the program to terminate contracts more efficiently when program needs change or performance is inadequate, could also result in better program management. Subsequent regulations and decades of the agency’s own practices have further limited how the program contracts for claims administration services. Concluding Observations

Removing the contracting limitations imposed at Medicare’s inception to promote full and open competition and increase flexibility could help to modernize the program and lead to more efficient and effective management.
What GAO Found

Discussions about how to reform and modernize the Medicare Program have, in part, focused on whether the structure that was adopted in 1965 is optimal today. Questions have been raised about whether the program could benefit from changes to the way that Medicare's claims processing contractors are chosen and the jobs they do. Medicare could benefit from full and open competition and its relative flexibility to promote better performance and accountability. If the current limits on Medicare contracting authority are removed, the Centers for Medicare and Medicaid Services could (1) select contractors on a competitive basis from a broader array of entities capable of performing needed program activities, (2) issue contracts for discrete program functions to improve contractor performance through specialization, (3) pay contractors based on how well they perform rather than simply reimbursing them for their costs, and (4) terminate poor performers more efficiently.