August 17,2005

Grassley urges Medicare officials to take steps to achieve important contracting reforms

WASHINGTON — The investigative arm of Congress says that the government’s planfor reforming the Medicare contracting system is not complete and that more time is needed toimplement changes Congress mandated in 2003.

The Government Accountability Office (GAO) provided its new report today toCongressional leaders who crafted the Medicare modernization legislation, including Sen. ChuckGrassley of Iowa, chairman of the Senate Committee on Finance.

“It’s important for Medicare officials to take advantage of the timing of this assessmentby the Government Accountability Office,” Grassley said. “By taking responsible action now,officials can still achieve the important reforms that Congress said were needed when theMedicare prescription drug bill was passed. These reforms were intended to improve the programand save tax dollars. This is really a situation where an ounce of prevention is worth a pound ofcure.”

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 calls onthe Centers for Medicare and Medicaid Services (CMS) to begin conducting full and opencompetition for all of its claims-administration contracts and to transfer the work to Medicareadministrative contractors (MACs) by October 2011.

In the report released today, the GAO said the contracting reform plan developed so farby CMS “provides detailed information in some areas,” but “does not comprehensively address(1) contracting reform risks and how the agency plans to mitigate them; (2) the intendedapproach for implementing certain aspects of MAC contracting, including details on how CMSwill monitor MACs’ performance; and (3) coordination of contracting reform activities withother complex initiatives that CMS is implementing.” The agency has said that it intends totransfer all claims processing work to MACs by July 2009, which is more than two years aheadof the time frame identified in the 2003 Medicare law. The GAO also said that CMS estimatesfor costs and savings, based on Medicare contracting reform are based on “questionable evidenceand assumptions about a contracting environment that differs considerably from its current one.

“More specifically, the GAO notes that CMS’ estimate that the costs to implement contractingreform would total about $666 million, but that figure is more likely to be a ‘guesstimate.’ GAOwent on to say that CMS’ savings, along with CMS’ consultants’ savings, estimates are also“highly uncertain.” CMS staff members agreed with this assessment.

In response to its findings, the GAO recommended that CMS extend its implementationschedule from 2009 to 2011, “so it can be better prepared to manage contracting reform.”

This new GAO report is available at Search for GAO-05-873.