OIG questions Managed Care Organizations' investment income

The HHS Office of Inspector General (OIG) has recommended that HCFA pursue legislation to adjust the timing of Medicare prepayments to risk-based managed care organizations to minimize their opportunity to gain investment income from the prepayments and to optimize the Health Insurance Trust Fund's

earnings. The OIG made its recommendation in a recent audit report, Results of the Audit of Investment Income Earned by Managed Care Organizations with Risk-Based Contracts. In the report, the OIG also urged HCFA to adjust payment rates to managed care organizations to recognize the impact of the investment income on the total funding allotted to these organizations for providing services to Medicare enrollees. The OIG's audit found that managed care organizations with risk-based contracts may be earning more than $100 million in investment income annually on prepaid Medicare funds. In general, Medicare feefor-service and other Federal programs place limits on the extent to which providers or plans may invest Medicare funds.

The Federal government's financing arrangements with managed care organizations requires that the organizations return the investment income to the government or use it to benefit the Medicare program or its beneficiaries. The OIG is concerned that the language of current regulations allowing managed care organizations to put prepaid Medicare funds to beneficial use is nebulous and invites abuse.

In the report, the OIG notes that although HCFA agrees that a mechanism should be instituted to hold managed care organizations more accountable for investment income derived from Medicare prepayments, HCFA does not intend to pursue legislative remedies. To read the OIG audit report, go to http://www.hhs.gov/progorg/oas/ reports/region2/29801005.htm.