	Medicare Modernization Act Reformed the Way CMS Contracts with Organizations to Process and Pay FFS Claims

From its inception, the process for selecting Medicare claims  administration contractors was stipulated by Congress and differed from  the process for awarding most other federal contracts in that, among  other things, the Medicare contractors were not selected through a  competitive process. CMS implemented the MMA contracting reform requirements by shifting  claims administration tasks from 51 legacy contracts to new entities called  Medicare Administrative Contractors (MACs). In the new contracting environment, MACs are responsible for a variety of  claims administration functions, most of which were previously performed  by the legacy contractors. Since the original implementation, CMS chose  to consolidate the 15 A/B MACs into 10 jurisdictions and is in the process  of that consolidation. While CMS has relied on contractors to conduct claims administration  functions since Medicare’s inception and has worked to consolidate these  contracts, the agency has been granted additional statutory authority in  recent years to award new types of contracts to conduct specialized tasks  within the Medicare program. In 2003, the MMA  directed CMS to develop a demonstration project testing the use of  contractors to conduct recovery audits in Medicare.known as recovery auditors, conduct data analysis and review claims that  have been paid to identify improper payments. Private Plans Administer Benefits for Beneficiaries Enrolled in Medicare Advantage, But CMS has an Important Administrative and Oversight Role

Unlike Medicare FFS, in which contractors process and pay claims, in  Medicare Part C, CMS contracts with private organizations, known as  Medicare Advantage organizations (MAOs), to offer MA health plans and  provide covered health care services to enrolled beneficiaries. CMS pays  MAOs a pre-determined, fixed monthly payment for each Medicare  beneficiary enrolled in one of the MAO’s health plans. MA plans must  provide coverage for all services covered under Medicare FFS, except  hospice care, and may also provide additional coverage not available  under Medicare FFS. Substantial changes in the law regarding contract requirements and other  parameters of the program—including payment rates—have contributed  to fluctuations in the number of contracts and enrolled beneficiaries over  the years. By 1979, the government had   33 contracts with organizations offering private plans. The accuracy of this adjustment was criticized by us and  other researchers. These changes to the program included new types of plans  that could be offered, the standards applied to the contracts, beneficiary  enrollment rules, and payment rules. For example, from 1999 through 2003, the number of  Medicare contracts with private plans fell from 309 to 154. While contract requirements for MAOs and  parameters of the program are largely derived from statute, CMS has  responsibility to implement the program and ensure compliance with  these requirements. The audits typically involve a combination of desk  reviews of documents submitted by MA plans, and at CMS’s discretion,  site visits. Private Plans Also Administer Prescription Drug Coverage Under Part D

Whereas MA offers beneficiaries an alternative way to access their Part A  and B benefits, Part D is structured to provide benefits only through  private organizations under contract to Medicare. Under the Part D  program, which began providing benefits on January 1, 2006, CMS  contracts with private organizations called plan sponsors.sponsors offer outpatient prescription drug coverage either through stand- alone prescription drug plans for those in original FFS Medicare, or  through MA prescription drug plans for beneficiaries enrolled in MA. Through the Part D contracts, plan sponsors offer prescription drug plans   Part D plan  which may have different beneficiary cost-sharing arrangements (such as  copayments and deductibles) and charge different monthly premiums. The Part D program also relies on sponsors to  generate prescription drug savings, in part, through their ability to  negotiate price concessions, such as rebates and discounts, with entities  such as drug manufacturers, pharmacy benefit managers, and  pharmacies. While CMS contracts with plan sponsors to offer the Part D benefit, the  agency has an oversight role. Given that final payments to plan sponsors are based, in part, on the  price concessions that plan sponsors have negotiated, CMS is  responsible for ensuring that data plan sponsors submit on price  concessions are accurate. use of generic drugs, and higher-than-expected rebates from  pharmaceutical manufacturers to the prescription drug plans.
Why GAO Did This Study

Since the enactment of Medicare in 1965, contractors have played a vital role in the administration of the program. The original FFS program was designed so that the federal government contracted with health insurers or similar private organizations experienced in handling physician and hospital claims to process and pay Medicare claims rather than having the federal government do so. CMS now also contracts with private organizations that provide covered services under the MA program and the Part D prescription drug program.
This statement provides an overview of the manner in which CMS has contracted with private organizations to administer benefits in (1) original FFS Medicare, (2) MA, and (3) the Part D prescription drug program. It is based primarily on products that GAO has issued regarding CMS contracting with claims administration contractors to administer the FFS program, and with other private organizations as part of MA and the Part D prescription drug benefit programs. These products were issued from November 1989 through January 2014 using a variety of methodologies, including reviews of relevant laws, policies, and procedures; data analysis; and interviews with contractors, stakeholders, and CMS officials. We have supplemented information from our prior products with publicly-available data on Medicare private plan contracts and enrollment, CMS-issued guidance for Medicare private plans, and a review of relevant literature. GAO has made numerous recommendations to CMS in these previous products and is not making any new recommendations at this time.

What GAO Found

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) reformed the way the Centers for Medicare & Medicaid Services (CMS), the agency that administers Medicare, contracts with claims administration contractors. From its inception, the process for selecting Medicare fee-for-service (FFS) claims administration contractors was stipulated by Congress and differed from most other federal contracts in that, among other things, the Medicare contracts were not awarded through a competitive process. The MMA repealed limitations on the types of contractors CMS could use and required that CMS use competitive procedures to select new contracting entities to process medical claims and provide incentives for contractors to provide quality services. CMS has implemented the MMA contracting reform requirements by shifting and consolidating all claims administration tasks to new entities called Medicare Administrative Contractors. CMS is currently in the process of further consolidating these contracts. The agency also uses other contractors to review claims to ensure payments are proper and investigate potential fraud.
CMS contracts with private organizations to administer benefits under Medicare Advantage (MA), but has an important administrative and oversight role. MA is the private plan alternative to FFS and differs from FFS in that CMS contracts with private entities, known as Medicare Advantage organizations (MAOs), to provide covered health care services to beneficiaries who enroll. MAOs are paid a predetermined monthly amount for each beneficiary enrolled in one of their health plans and must provide coverage for all FFS services (except hospice care), but may also provide additional coverage. The government first began contracting with private plans in 1973. Several laws since then have changed how the MAOs are paid and the types of plans that can participate. While contract requirements for MAOs and parameters of the program are largely derived from statute, CMS has responsibility to implement the program and ensure compliance with these requirements.
CMS also contracts with private organizations, called plan sponsors, to provide the outpatient prescription drug benefit under Part D. Through the Part D contracts, plan sponsors offer prescription drug plans which may have different beneficiary cost-sharing arrangements (such as copayments and deductibles) and charge different monthly premiums. The Part D program relies on sponsors to generate prescription drug savings through negotiating price concessions with entities such as drug manufacturers, pharmacy benefit managers, and pharmacies, and managing beneficiary use. While CMS contracts with plan sponsors to provide the Part D benefit, the agency has oversight responsibilities. For instance, CMS is responsible for making accurate payments to plan sponsors and ensuring the accuracy of information submitted by plan sponsors to the beneficiary-focused Medicare Plan Finder website. Medicare actuaries have attributed lower-than-projected expenditures in Part D to a combination of factors, including lower-than-projected Part D enrollment, slower growth of drug prices in recent years, greater use of generic drugs, and higher-than-expected rebates from pharmaceutical manufacturers to the prescription drug plans.