Administrative costs for managed care organizations (MCOs) varied between 3% and 32% among 232 such groups reviewed by the Office of the Inspector General (OIG) of the US Department of Health and Human Services. The finding prompted the Inspector General, June Gibbs Brown, to recommend that the Health Care Financing Administration (HFCA) support legislation that would establish a ceiling for administrative costs of 15% of total revenues. This could result in $1 billion being passed to beneficiaries in the form of additional benefits or reduced payments.
“The 15% was suggested because it represented the average rate noted during the period of review,” wrote Ms Brown in a letter to Nancy-Ann Minn DeParle, the HCFA administrator. “We believe a ceiling would result in beneficiaries being offered either more benefits or reduced premiums, co-pays, etc.” Ms Brown estimated the savings from such a move at $1 billion. She said exceptions could be granted to start-up MCOs, which would have increased administrative costs during their first 2 years of operation.
“At a minimum, the HCFA should aggressively review any administrative rate >15% and require MCOs to justify the excessive administrative amounts,” Ms Brown wrote.
In the Inspector General’s draft report, Ms Brown said that the HCFA agreed that more scrutiny should be directed to the adjusted community rate upon which such costs are based. However, she noted that the agency did not concur with the notion of establishing a ceiling on such costs. HCFA officials said a new methodology is in place for the adjusted community rate proposals and any plan to set a ceiling should be deferred until analysis of the new proposals is done.
“This review, similar OIG reviews, and other studies have shown that MCOs’ exorbitant administrative costs have been problematic and can be the source for abusive behavior,” wrote Ms Brown. “Therefore, we believe that the HCFA should be more proactive than reactive in addressing issues related to administrative costs.” The report is available at http://www.hhs.gov/progorg/oas/whatsnew.html.
- Copyright © 2000 by American Heart Association