OIG: Medicare Advantage Prepayments Cost CMS Millions

Cheryl Clark, January 24, 2011

The federal government could have saved $450 million in 2007, and more in subsequent years, if it had paid Medicare Advantage plans at the time the plans paid claims rather than paying for each enrollee in advance, at the beginning of each month.

That's according to a report from the Office of Inspector General, which says that Medicare Advantage plans are not legally prohibited from taking that prepaid money and earning interest on it, funds that are more appropriately retained by the Centers for Medicare and Medicaid Services.

For this report, the OIG reviewed $69 billion in prepayments made to 457 Medicare Advantage organizations in 2007. It found that the plans hold Medicare funds for approximately 46 days before paying for medical services.

The OIG recommended a change in payment policy for Medicare Advantage plans in the year 2000, but CMS rejected the idea saying that the plans would just raise rates to compensate for the loss of income.

"Medicare Advantage organizations and CMS officials have stated that if either of our previous legislative or regulatory recommendations were to be implemented, some Medicare Advantage organizations would increase their bid proposals to recoup investment income that they would lose," the OIG report says.

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