Guest Opinion

Contracting Measures Hold Key to Improved Medicare

By David Bryan

Health care and technology environments have changed dramatically over the last three decades, thus demanding new and revised skills for managing the Medicare program. Legislative and regulatory changes, along with these industry trends, only have increased the need for more flexibility and agility in meeting Medicare's needs.

The Health Care Financing Administration can capture economies of scale and access new sources of innovation by redefining its contracting partnerships.

Three management and contracting principles can help meet Medicare's growing administrative demands with improved service, yet at a better value for the taxpayer-financed program.

Medicare's administrative structure has evolved during the immense changes in the health care industry, information technology and the Medicare program itself. Now the program's administrative infrastructure must be revisited to leverage what already exists in the private sector.

HCFA has crafted an information technology architecture for the agency and its programs. This vision includes consolidating replicated functions, increasing modularity and standard interface and improving access to consistent information for better program analysis.

Part of this approach is the transition to standard, shared software systems. Electronic Data Systems Corp.'s claims processing software was selected competitively to process Medicare physician claims as one of these standard, shared systems. This approach is sound, and the agency should continue to advance the transition to selected, shared systems.

Additionally, consolidating the data centers supporting Medicare would yield great benefit. The program could realize lower costs, greater operational efficiencies and reduced risk by using one-tenth of the data centers the agency currently funds.

HCFA also could reduce the number of Medicare Part B (physician claims) contractors to one-tenth of what is being used today, creating even greater cost reductions, operational efficiencies and consistency in program administration.

Another principle involves purchasing decisions based on value rather than the allure of low cost. Low-cost administrative purchasing practices often create a higher cost to taxpayers and reduce the quality of services provided to beneficiaries.

Medicare's program management expenditures must be treated as public investments aimed at achieving clearly defined operating standards and outcomes. Administrative value must be defined by the quality of service, the protection provided to the Medicare Trust Funds and the unit cost of services.

Prudent purchasing demands clear, objective expectations and operating standards so goals are mutually understood and met by contractors. Standards and measures must be applied consistently across time and geographic areas.

Clear expectations for contractors will create price competition, increase innovation and foster improvements among them. Everyone involved with the program benefits from better service and savings.

HCFA's purchasing strategies should move away from cost-based contracts to providing partners with financial incentives to bring the best market innovations to bear on Medicare's needs. In a cost-based contracting environment, only the government is motivated to find cost reductions. Cost-based contracting insulates the Medicare program from the best technology and professional services the industry has to offer.

In the competitive private sector, best-in-class corporations are motivated by being recognized and rewarded for the value they bring their customers, and not by how much overhead expense can be allocated to a single contract.

It is essential that HCFA sets quantifiable measures that reflect Medicare's strategic and operational goals. Such measures will ensure that HCFA derives maximum value from its contracting arrangement and will promote contracting partnerships centered on shared understandings and expected results.

Several ongoing operational benefits also will accrue from defining objective, quantifiable measures. Developing and monitoring performance measures will encourage clear communication among HCFA and its partners. Improved communication will foster greater understanding of the challenges and risks among all parties.

In addition, such an environment will identify areas where HCFA perceives conflicts of interest among its partners. With better identification, such areas can be mitigated or corrected more rapidly. Similarly, with the ever-increasing emphasis on assuring Medicare's integrity, performance measures will clarify the roles and responsibilities of all parties.

A program as large and complex as Medicare can achieve the efficiency, effectiveness and integrity to sustain the trust of its beneficiaries and the taxpayers only when roles, responsibilities and expectations clearly are defined and measured. It is imperative that HCFA's contracting partners understand and share the vision for Medicare's future as expressed by Congress and the agency. These partners must deliver dynamic future needs and must achieve defined goals.

In today's environment, cost-based contracting arrangements prevent the Medicare program and its contractors from optimizing capabilities and flexibility to best serve beneficiaries and taxpayers. By providing appropriate financial incentives, HCFA will encourage innovation, and the end result will be the best market alternatives to meet Medicare's changing needs.


David Bryan is vice president of health care senior markets at Electronic Data Systems Corp.

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