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Thursday, June 26, 2008
GAO Report Finds Private Medicare Providers Prefer Profits Over Providing Better Service
A recently released GAO report finds that (surprise!) Medicare Advantage providers predicted lower profit margins in 2005 than actually materialized.
[Medicare Advantage (MA)] organizations, on average, reported spending 85.7 percent of total revenue on medical expenses in 2005, but had projected medical expenditures of 90.2 percent of total revenue. Because organizations spent less revenue on medical expenses than projected, they earned higher average profits than projected. On average, MA organizations' self-reported actual profit margin was 5.1 percent of total revenue, which is approximately $1.14 billion more in profits in 2005 than MA organizations projected.
And while these MA providers would have been paid the same regardless of their projections, they would have been required to provide beneficiaries either more services or lower premiums had they accurately projected their profit margins.
File this one under "W" for "Well, Duh." A system that depends profit maximizing firms to divulge information that would result in lower profits will, time and time again, result in less-than-accurate information.
If you want to bring the Magic of the MarketplaceTM to government services, transparency matters -- it matters a lot. Just because the government pays a firm to provide services doesn't mean the government won't get taken.
Posted by Craig Jennings
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