October, 2001

The Centers for Medicare and Medicaid Services (CMS), formerly known as the Health Care Financing Administration, spent about $35 billion dollars in 2000 on Medicare+Choice, Medicare's managed care alternative to its fee for- service program. During this time, almost 6.3 million Medicare beneficiaries were enrolled in health plans offered by managed care organizations (MCO) that participate in the Medicare+Choice program. Annually, a MCO choosing to participate in the Medicare+Choice program must submit an Adjusted Community Rate Proposal (ACRP) for each plan that it intends to offer to CMS for its review and approval. The ACRP identifies the health services the MCO will provide to its Medicare members and the estimated cost of providing those services. It also shows the estimated payments that the MCO expects to receive for providing these services. According to CMS, the purpose of its review of the ACRPs is to ensure that the MCO benefit packages provide all Medicare covered benefits, and that any excess of estimated payments over the MCO plans estimated costs of providing the Medicare benefits are used by (1) providing additional services, (2) reducing beneficiary premiums or copayments, (3) distributing the excess to a benefit stabilization fund, or (4) using a combination of these.

The Balanced Budget Act of 1997 (BBA) enacted the Medicare+Choice program, which included several changes to the ACRP process. Among these, BBA required CMS to audit the ACRPs4 and supporting financial records of at least one-third of the participating Medicare+Choice organizations annually and required that we monitor these audit activities. To fulfill our responsibility under the act, we (1) evaluated CMS process for auditing the ACRPs to determine if it met BBA requirements and financial audit standards and (2) identified significant findings resulting from the audits and CMS plans and efforts for resolving them. This report summarizes our work and provides recommendations to the CMS Administrator that we believe will improve the ACRP process.