August 18, 2005

U.S. Medicare contract reform plan needs work: GAO

WASHINGTON (Reuters) - U.S. government reforms aimed at
saving Medicare and Medicaid $1.9 billion over six years by
updating its contract process with outside companies are
incomplete, according to a report released on Wednesday.

The agency that runs the U.S. insurance programs for the
elderly, disabled and poor should take more time to implement
changes to its bidding process, the Government Accountability
Office (GAO), said.

Medicare and Medicaid rely on about 50 contractors to
handle most of their reimbursement processes, such as paying
and reviewing claims from doctors, hospitals and others

Currently, the Centers for Medicare and Medicaid Services
(CMS), does not require a competitive bidding process. Under
the reforms, even current contractors would have to reapply to
win work.

Medicare officials estimated the new bidding process would
help curb fraud and payment errors, saving $1.4 billion of the
$1.9 billion total, the report said. These potential savings
led the agency to accelerate implementation of the plan, two
years ahead of GAO's suggested 2011 completion target.

Implementing the changes will cost $666 million, the CMS

The GAO questioned the timing and whether such large
savings would be realized. "While it is reasonable to assume
that contracting reform will result in savings, the actual
amount could differ greatly from the estimate," it said.

The GAO also said the plan lacked a detailed schedule and
did not include enough details about transferring workloads
from current contractors.

"CMS has never before undertaken a project of this scope
and magnitude -- one that affects more than 35 million
beneficiaries and 1 million health care providers," the report
said. "If transitions do not run smoothly, operational
disruptions could lead to delayed payments to providers and
increased improper payments by contractors."

Department of Health and Human Services officials, in
preliminary comments included with the report, said they
disagreed with the GAO.

CMS "believes that the potential savings to the Medicare
Trust Fund and the envisioned benefits to beneficiaries and
providers compel us to maintain our implementation schedule,"
HHS said.