MEDICARE: HMOs Profiting From Medicare, HHS Report Says
Despite HMOs' protestations that they are not paid enough to care for Medicare patients, a new report reveals "that in some cases they" may actually "have been paid too much," the New York Times reports. The report, issued by June Gibbs Brown, inspector general of the Department of Health and Human Services, details between $3 billion and $4 billion in overpayments between 1994 and 1996. "Medicare is paying a disproportionate share of HMOs' administrative costs," more than its "fair share," the report said. Brown blames this on HMOs' practice of billing "administrative costs" to Medicare, which are used for their commercial patients as well as Medicare patients. Administrative costs are comprised of expenses such as "marketing, taxes and profits, salaries and fringe benefits for certain executives, rent, depreciation, interest expenses, data processing, legal fees and other overhead costs associated with the management and operation of an HMO." In 1996 alone, in which $1.9 billion was overpaid, Medicare paid 31.7% of administrative costs for all HMOs with which it contracted. Those HMOs, however, only received 8.9% of their enrollment from Medicare. In one case, Medicare paid $366 million to an HMO for administrative costs, while the HMO only reported $287 million in such costs, leaving Medicare with 127% of the bill. Brown also determined that HMOs charged Medicare three times as much for administration than for their private customers, "even though 'a large portion of administrative costs are fixed' and do not vary with a patient's age."
HMOs Plead Innocent
Brown emphasized that most of the companies were "aware that the amounts that they submit for administration are inaccurate and result in unjustified expenditures of Medicare funds." But Karen Ignagni, president of the American Association of Health Plans, said, "HMOs have not done anything wrong. We have followed the rules. The Medicare payments to HMOs were all reviewed and approved by the Health Care Financing Administration." At a time when the Medicare trust fund is in jeopardy, the overpayments are a particular cause for concern, the Times notes. While Sen. Chuck Grassley (R-IA), chair of the Special Committee on Aging, wants the administration to recover the funds, Health Care Financing Administration Administrator Nancy-Ann Min DeParle said no legislative attempt will be made to recover the payments, but that efforts would be made "to reduce overpayments in the future." She noted that "[i]n effect ... the overpayments help HMOs finance extra benefits for Medicare patients, and this is apparently what Congress intended." She did, however, "expres[s] concern about possible cutbacks in benefits." She said, "We have received reports that some HMOs have reduced benefit levels and increased premiums. ... [I]t is possible that beneficiaries will again experience reduced benefit levels" next year (Pear, 8/11).