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Benefit Cost Containment-Cash Management


Effective cash management has kept bank balances at less than 1 percent and and checks outstanding at 14 to 16 percent of funds expended. The gain over conventional yearly savings to the government is $14.5 million,


Beginning in 1970, BCA recognized that large sums of federal funds were being held unnecessarily in non-interest-bearing bank accounts. So it installed and monitored a system to control the amount of funds in such accounts. At the same time, BCA began a campaign with Plans to reduce positive Medicare book balance, reducing funds carried in the bank account. That reduced unnecessary float.

In April, 1970, BCA developed a delayed draw technique whereby Plans would delay deposit of Medicare funds until provider checks could be expected to clear their banks. The procedure was later refined to the “delayed installment draw” which used smaller, more frequent deposits of federal funds instead of larger monthly deposits.

The roadblock of negative bank balances was removed when BCA was able to get revised bank agreements through agreement with BHI and the Federal Reserve System that banks would cover overdrafts for a service charge.

After only one full year, those practices reduced bank balances (as a percentage of total funds expended) by 38 percent, equaling an annual saving of $1,000,000. Currently, data show a reduction since 1969 of 94 percent and an annual savings rate of $14,536,000.


The direct and indirect costs of these activities in FY 1975 were $97,000 or 1 percent of total BCA Medicare expenditures.

Efficiency of Claims Handling


Claims backlogs have decreased for Blue Cross Plans by 10% for the period FY 1972 through 9 months FY 1976, whereas commercials increased 58% and SSA by 14%. Variances between Plan high and low days' work on hand have decreased 6 percent since June, 1972.

BCA designed the tape-to-tape system in 1968 and currently more than 94 percent of the Plan Medicare claims are transmitted to the BHI via this method with 99.9 percent accuracy.

All applications of tape-to-tape mean more rapid payments to beneficiaries.

Through Plan assumption of responsibility for the reconsideration process and the consolidation of functions, total Plan reconsiderations pending dropped 79 percent and days' work on hand dropped 57 percent from June, 1973, through March, 1976. During the latest period for which data is available (6/73-12/74) SSA/DDR's total pending decreased 4 percent and days' work on hand dropped 22 percent. The commercials' total reconsideration pending dropped 22 percent; days' work on hand increased 37 percent.


Activities already listed in this report that related to cost control have additional meaning: They not only assured consistent and accurate processing of claims at lowest cost, but also made possible more rapid processing. Other activities were also important. Bill Control

BHI's original instructions regarding Plan control of bills were so cumbersome that claims backlogs developed as processing speed diminished. BCA agreed that bill control was important, but pointed out the need to allow Plans to return bills to providers to get necessary information. BHI agreed and revised its instructions. Training

The heart of fast claims processing is knowledgeable staff within Plans to handle claims.

With that in mind, in 1974 BCA established a Part A Claims Systems workshop to help Plans build and maintain an acceptable level of processing performance.

Plans were also schooled in the use of the claims processing performance profile generated by BCA each month. Each shows a Plan's performance compared with peer Plans and the national average. Unsatisfactory performance noted and each Director of Federal Programs is required to respond to the appropriate BCA performance consultant with his program to correct the situation. Model A and Tape-to-Tape

Not only had Model A affected the speed of processing, but it also has stabilized the cost and productivity of large Plans over an extended period of time (FY '70 and '76 third quarter).

Further, the availability of Model A's history files, screening data and utilization information has increased prompt and accurate service to beneficiaries as well as making sure that accurate claims are posted on BHI records.

The largest benefit gained through BCA's tape-to-tape program is rapid updating of BHI eligibility records. But everything it does comes down to more rapid payments to beneficiaries and providers. Reconsiderations

Before 1972, BHI kept the final reconsideration determination for itself. However, due to BHI backlogs, BHI asked BCA in 1972 to help investigate the feasibility of Plans' assuming responsibility for reconsideration with only a simple review by BHI.

That was done. In some cases, where Plan volume was low and where several Plans existed in a state, BCA consolidated the function in one Plan.


Costs of these activities are included under claims systems, and summarized at the bottom of page 17.

Management Activities


All of the results reported are related to a management system which focuses on current indices of performance with actions designed to deal with fundamental policy or operational problems. The outstanding achievements in cost, productivity and quality of operation are the result of this management approach.

ACTIONS Contract Management

Contract management activities of BCA assure that Plans comply with the technical terms of the contract. That includes meeting requirements for prior approval, leases, subcontracts, etc., and maintaining liaison with BHI regional offices to assure consistency in interpretation and application of policy throughout the country.

In addition, BCA has specifically directed management action to help Plans achieve goals of accuracy, lower cost and efficiency in the Medicare program.

Within this category are also such indirect costs as telephone, printing, communications, office services, human resources, manpower planning and employment, manpower education and development, switchboard, library, in-house printing, etc.

This management program was undertaken by the contract management department of BCA. The direct and indirect costs in FY 1975 were $1,405,210 or 19 percent of total BCA Medicare expenditures. Performance Management

Functions of this activity are essentially fourfold:

(1) To receive required BHI reports from Plans, assure their accuracy and send them to the government.

(2) To develop data techniques to identify Plans that are not performing in an acceptable manner.

(3) To identify those Plans and recommend to the corporation where resources should be committed.

(4) To publish management information reports for Plans. BCA has expanded the scope and frequency of management reports to chief Plan executives and operating managers covering all aspects of Plan Medicare performance, productivity, quality, cost and variance from budget and standards. BCA has developed and refined Medicare statistical performance ranges for use as a key management tool; through its use over the last year and a half, Plan performance has improved, ranges have narrowed and have moved in a favorable direction.

BCA performance personnel highlight Plan performance discrepancies and, when necessary, secure Plan analysis of performance and programs of action to correct them.

BCA has long had the managerial goal of establishing results-oriented standards and ranges of acceptable performance that are firm enough to allow objective evaluation of performance while recognizing differences in operations (cost of living, type of claim processed, geographic factors, etc.).

The direct and indirect costs of these activities in FY 1975 were $417,884 or 6 percent of total BCA Medicare expenditures. Since that time, expenditures were reduced to $300,000 or 4 percent. Reports to Plan Executives

In 1969, BCA recognized that although millions of bits of data were sent to th government, very few went back to Plans so their executives could assess performance. Therefore, BCA started a series of reports called Chief Plan Executive Profiles. They gave brief statements of each Plan's operating performance compared with its peer Plans and the nation as a whole in the key areas of claims processing, auditing and cost.

The documents grew and were refined to the point that now, in addition to the brief ones for chief Plan executives, more detailed reports are forwarded monthly to claims managers and the Plan director of Federal programs.

In 1971, BCĂ began to develop acceptable performance ranges to rank Plan Medicare performance and to make performance assessments in addition to the profiles already in existence. The ranges and performance indicators serve two functions: (1) They help BCA fulfill its prime contract responsibilities to assure a high level of performance by Plans; and (2) They provide a measure and guide for individual Plan assessment and control of performance.

In addition, BCA's performance staff routinely highlights performance discrepancies and asks Plans to respond with an analysis of performance and a plan of action to correct it, if necessary.

BCA performance profile reports have been a prime factor in BCA's leading Blue Cross Plans to a heightened sense of public accountability, documented through continually improving performance.

Summary: BCA Administrative Cost
As stated earlier, the Blue Cross organization in fiscal year 1975:

Served as intermediary for 19 percent of the hospitals, 52 percent of the skilled nursing facilities and 78 percent of the home health agencies participating in the program.

Paid out $9.6 billion in Medicare benefits.
Processed 23 million Medicare claims.

To do that job, we expended 7,565 equivalent man-years and spent $133,398,586 in administrative cost-1.4 percent of health care benefits paid.

Currently, 69 Plans subcontract with BCA for performance of Medicare functions. To supervise the activities of Plans in the Medicare functions; to provide technical and professional assistance to Plans when necessary; to provide information to BHI regarding policymaking and interpretation; to maintain the BCA telecommunication system; and to carry out all of the other activities catalogued in this statement, the Blue Cross Association spent $7.5 million in fiscal year 1975, representing 254 man-years of effort. The cost figure represent less than 6 percent of the Blue Cross organization's total administrative expense for the program.



Plans have experienced a rapid rate of growth since the inception of Medicare in 1966, both in their public and private business. Benefit dollars paid under Medicare doubled from 1966 to 1970 and doubled again from 1971 through 1975. Claims paid doubled in the first period and increased 65 percent during the second. In the same two periods, private business also doubled in both benefits paid and number of claims paid.

The rapid growth caused overcrowding in existing buildings and led to duplication of certain functions and services as new locations were added.

To provide more effective use of space and at the same time hold down cost, 30 Plans during the past five years acquired new buildings and additions either through purchase or construction. Of the 30 Plans, 60 percent used the services of space planning consultants. In

dition to the eight states which required prior approval of construction by the state insurance commissioner, three other Plans voluntarily sought and received commissioner approval. Construction Cost and Financing

Construction during the past five years totaled approximately $330 million, of which 8 percent was financed through mortgage loans. Interest rates range from 5% to 842 percent, very favorable in today's market. Where interest rates were prohibitive, Plans used investment funds and cash funds which were legally available to finance construction in the most cost-effective manner. Construction Cost per Square Foot

Cost of construction ranges from $17.25 per square foot to $54.23, with an average of $46.49. Occupany Cost per Square Foot of New Buildings

Occupancy cost of new buildings currently ranges from $3.41 to $10.58 per square foot, with an average of $6.50. That compares favorably with other locally available space considered adequate, which averages $7.71; and with other locally available space considered excellent, which averages $9.46. Use of Space

Of the 7.1 million square feet of new construction, 88 percent is occupied by Plans and their affiliates; 10 percent is rented to other tenants; and 2 percent is currently vacant. None of the vacant space is charged to Medicare. Benefits Resulting from New Space

By entering into building programs during the past five years, Plans were able to:

(1) Combine numerous locations into one building and eliminate duplicate services.

(2) Eliminate overcrowding of employees.
(3) Reduce operational cost.
(4) Improve employee morale.
(5) Reduce employee turnover.
(6) Achieve more effective staff communication.
(7) Achieve more effective work flow.
(8) Shorten processing cycles.
(9) Make more effective use of facilities.
(10) Reduce clerical support.



BCA-Blue Cross Association.

Plan(s)—Blue Cross Plan(s); subcontractor(s) for Medicare administration to the BCA.

Commercials-Commercial insurance companies which are Medicare intermediaries.

HEW-Department of Health, Education and Welfare.
SSA-Social Security Administration (of HEW).
BHI—Bureau of Health Insurance (of SSA).
DDR-Division of Direct Reimbursement (of SSA).
HHA-Home Health Agency.
SNF-Skilled Nursing Facility.
AB-Administrative Bulletin issued by BCA.

Mr. TRESNOWSKI. As we indicated; the Blue Cross Association is the prime contractor to the Social Security Administration for part A of the medicare program which includes, and I underscore this,

hospital services, skilled nursing care, and home health services. BCA in turn subcontracts with eligible Blue Cross plans which handle claims payment and provider audits. Our total organization, that is, the Blue Cross Association and our member plans, now serve as intermediary for the majority of the providers under the program.

Our most important function as prime contractor is to act as the single point of accountability for the performance of medicare responsibilities by the various plans. In our role as performance manager, BCA has expanded the scope and frequency of our management reports covering all aspects of performance including costs, productivity, and the quality of the job to be done. We have also developed standards of medicare statistical performance ranges for use as a very inportant managerial tool.

On the basis of those reports, we highlight plan performance discrepancies and, when necessary, ask for plan programs to correct them. BCA also conducts onsite reviews to insure that plans are performing in the most efficient manner and are applying all policy and program instructions correctly.

In this unique program-in many ways the first to combine public and private efforts on such a vast scale- our responsibilities as a part A intermediary are principally twofold: First, we are to assure that the program is run accurately, to see that medicare funds are spent only for services covered by the program, to see that services billed to the program were actually furnished, and to see that all covered services were necessary and appropriate for the diagnosis and the course of treatment.

Second, we are to assure that the program is run efficiently, to see that authorized payment is made to providers or reimbursed to beneficiaries without undue delay, to see that administrative costs are kept as low as possible, and to see that total costs are kept as low as possible while we fulfill our mission in the program.

Throughout the growth and evolution of the program, we have concentrated our efforts on results, that is, the systems and processes necessary to gain those results. Essentially, our approach has been practical. The most pressing needs and the main leverage points for targeted skills and available resources were focused on them.

Today, we feel we have established an outstanding record of effectiveness and efficiency in carrying out our intermediary responsibilities. If you use basic performance measures of results—costs and productivities, claims processing, provider audit, provider settlement—we have consistently been the best of any intermediaries serving the program. For example, provider audit cost per bill for commercial insurance intermediaries is 53 percent higher than ours. Net administrative costs per bill for commercial insurance intermediaries is 18 percent higher.

Mr. STARK. Excuse me there. In your more detailed statement, there is a lot of reference to that. Do you mean this is on the average that commercial insurance companies are higher or specifically? For instance—we have seen BHỈ statistics that there is one Blue Cross plan in Florida which is $3 more expensive per bill than the next intermediary, which is a commercial insurance company. In the bottom five plans, if you will, or the most expensive five, four of them are Blue Cross plans.

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