Electronic Data Systems Federal Corporation's Performance as a Medicare Contractor in Illinois

The Medicare program has three ongoing experiments which are testing competitive fixed-price procurement. Medicare contracts with carriers which process claims for physicians and other practitioner services (part B) and intermediaries which process claims for facility services (part A) have traditionally been on a cost reimbursement basis. In 1978, the Health Care Financing Administration (HCFA) used its authority to solicit fixed-price proposals to serve Illinois part B beneficiaries. The result has been disastrous. Beneficiaries and providers have experienced an entire year of poor performance by the Electronic Data Systems Federal Corporation (EDSF). Previous to the start of the experiment, GAO was asked to review the Illinois contract and two other experimental fixed-price contracts. GAO anticipated the potential for problems with the contract change. Not only was EDSF inexperienced in performing a number of carrier functions in Medicare, but simply changing from two contractors to one in a State wih a high claim volume could cause problems. GAO concluded that the experiments needed further evaluation before a broad change to competitive fixed-price contracting was legislatively authorized for Medicare. Unfortunately, the concerns proved to be valid. Three issues require immediate attention by HCFA. EDSF quality assurance reviews need to be improved so that the difference between EDSF and HCFA results are minimized. Improvements are needed in the area of beneficiary services, particularly with respect to the responsiveness and appropriateness of EDSF correspondence with beneficiaries. The reasonable charge update process should be utilized which bases reimbursements on claims data from the previous calendar year. Thus, the determination of amounts to be reimbursed for the year beginning July 1980 would be based on the claims processed during the calendar year 1979. It may not be in the best interest of the beneficiaries, providers, or the Government to permit this contract to run unchanged for 3 more years unless performance significantly improves. HCFA needs to develop a contingency plan for the whole or partial replacement of EDSF as the Medicare carrier for Illinois.