Review of the Administrative Cost Component of the Adjusted Community Rate Proposal

EXECUTIVE SUMMARY:

Currently, there is no statutory or regulatory authority governing allowability of administrative costs included in the adjusted community rate (ACR) process for determining Medicare capitation rates under risk based contracts with managed care organizations (MCO). At one MCO we identified over $700,000 in administrative costs that would be considered inappropriate and unallowable if considered in light of the Medicare program's general principle of paying only reasonable costs. Examples of such costs included political and charitable contributions. Additional reviews are underway and preliminary results show similar problems at other MCOs. The results of these reviews will be shared with the Health Care Health Financing Administration in the coming months so that appropriate legislative changes can be considered.

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