The Office of the Inspector General has reported that the Centers for Medicare & Medicaid Services' policy of prepayment to Medicare Advantage plans allowed the private insurers to earn and retain more than $450 million in interest income in 2007.
"Because federal requirements governing the Medicare Advantage program do not limit the ability of MA organizations to retain investment income earned on Medicare funds, the Medicare program loses potential cost savings," the OIG report stated. "Based on our reviews of 50 MA organizations, the Medicare program continues to lose potential savings because in CY 2007 the 457 MA organizations held Medicare funds for approximately 46 days before paying for medical services."
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The OIG issued a similar report on 2000 analyzing MA plans from 1997, finding the potential to save the program more than $100 million. At that time the OIG suggested a change in the law that would allow CMS to treat Medicare Advantage payers the same as insurance companies that participate in the Federal Employees Health Benefits (FEHB) program, which limits the ability of insurance companies participating in that program to generate and retain investment income.
Based on the findings, the OIG made two recommendations that could save the government money in its Medicare Advatnage programs. CMS should:
- Pursue legislation to adjust the timing of Medicare's prepayments to MA organizations to account for the time that these organizations invest Medicare funds before paying providers for medical services; or
- Develop and implement regulations that require MA organizations to reduce their revenue requirements in their bid proposals to account for anticipated investment income.
CMS officials said they don't agree with the assessment by the OIG that the interest income earned by insurers on the prepaid policies would directly lead to program cost savings.
In comments to the OIG based on its draft report, CMS contends that implementing either option would likely result in insurers raising their bids for MA contracts in order to recoup the investment income they would no longer receive, which would result in decreased saving to the program. Further, CMS officials said, it could create a precedent for how CMS administers Medicare Part C and Part D to private insurers, with CMS being asked to make interest payments on risk adjustment reconciliation payments it makes to MA organizations.
But the OIG is holding to its recommendations.
"After reviewing CMS' comments, we maintain that our findings and recommendation are valid," the agency concluded. "We agree with CMS' statement that if MA organizations were to increase their bid proposals, our estimated cost savings would be reduced. However, we disagree with CMS' assertion that implementing our recommendation would result in a decrease in most or all of the estimated cost savings."
"We agree that if CMS were required to pay interest on additional MA payments made after the risk adjustment reconciliation, the estimated savings we have identified would be reduced. However, it is not clear that Congress would enact legislation to require CMS to pay interest on these additional payments," the OIG added.