Inspector General Demands Halt in Prepaying for Medicare Services

Is a new finding by the Office of the Inspector General (OIG) regarding prepayment of Medicare servicesa portent of how Medicare will handle bundled payment system for accountable care organizations (ACOs) and other new models of delivering healthcare?

Yesterday the OIG released a report that studied prepayments to insurers for Medicare Part D prescription programs. At the beginning of every month the Centers for Medicare and Medicaid Services (CMS) issues a payment to insurers to cover the prescription costs of beneficiaries for that month. In its investigation of the practice, the OIG found that insurers held Medicare funds on average 20 days before dispersing them to beneficiaries.

At issue is any investment income earned by insurers during that 20-day period, which by law belongs to the insurer.

CMS distributes the Medicare Part D payments ($45 billion in 2009) from its Supplementary Medical Insurance trust fund, which itself earns interest income via special-issue U.S. Treasury securities. OIG recommends that CMS hold onto those funds longer so that it will earn interest, not the insurers.

In its official response to the OIG report, CMS recommended against the proposal, “because, in CMS’s judgment, the implementation of either option would cause most Part D plans to increase their bid proposals to recoup the investment income that they would lose, which would result in a decrease in most or all of the estimated cost savings,” according to the OIG report. “CMS also stated that implementing either option could create an undesirable precedent that could result in CMS’s making additional payments to Medicare Part C and Part D plans. CMS added that it assumes that it would be asked to pay interest on the additional payments that CMS frequently makes to Part D plans after the completion of the risk adjustment reconciliation each year and said that ’[w]e believe a statutory change would be required to impose such an obligation on CMS ….’”

Accountable Care Organizations at Risk?

From the Inspector General’s viewpoint, any increase in bids by insurers would be offset by “the difference between the higher interest earned by the Medicare trust funds and the lower interest earned by Part D plans.” But what if this practice was extended to healthcare providers who are who soon will be participating in healthcare service models that involve similar advance payments.

The federal government already limits capitated payments via the Federal Employees Health Benefits Program to restrict the amount of interest insurers of the program can earn. But what if this practice were put in place for ACOs, where a centralized bureaucracy is created to distribute funds to providers for care of a group of patients. As providers will be at the end of the revenue chain, what risk would delaying ACO disbursements have upon providers, who already have billions in reimbursements locked up in federal coffers as a result of CMS Recovery Audit Contractors (RACs).

Read the report, “Impact on Medicare Program for Investment Income that Medicare Part D Plans Earned and Retained from Medicare Funds in 2009,” here.