Department of Health and Human Services 
OFFICE OF 
 
INSPECTOR GENERAL 
 
 
 
 
 
 
 
 
M A
E DICARE  DMINISTRATIVE 
 
C  P
ONTRACTORS   ERFORMANCE 
 
 
 
 
 
Daniel R. Levinson   
Inspector General  
 
January 2014 
OEI-03-11-00740   
   
EXECUTIVE SUMMARY:  Medicare Administrative Contractors Performance  
OEI-03-11-00740 
  
WHY WE DID THIS STUDY 
 
Given the billions of dollars awarded to Medicare Administrative Contractors (MACs) 
and the critical role they play in administering the Medicare program, effective oversight 
of MACs performance is important to ensure that they are adequately processing claims  
and performing other assigned tasks. 
 
HOW WE DID THIS STUDY 
 
We collected performance assessment information from the Centers for Medicare & 
Medicaid Services (CMS) and determined (1) the extent to which MACs met or did not 
meet performance requirements reviewed by CMS and (2) the extent of CMSs 
performance assessment and monitoring of MACs.  The study included 2 performance 
periods for 13 MACs.  The performance periods began and ended between 
September 2008 and August 2011.     
 
WHAT WE FOUND 
 
MACs met the majority of quality assurance standards reviewed by CMS.  However, 
MACs did not meet one-quarter of the standards reviewed, and MACs had not resolved 
issues with 27 percent of these unmet standards as of June 2012.  MAC standards have 
stringent performance requirements; a number of standards require 100-percent 
performance compliance.  CMS did not require action plans for 12 percent of unmet 
standards, and unmet standards without action plans were almost four times more likely to 
have issues go unresolved. MACs can earn award fees if their performance exceeds basic 
requirements, and metrics are included in MACs award fee plans to encourage improved 
performance.  However, certain areas identified as problematic through quality assurance 
reviews were not always included as metrics in MACs award fee plans.  Two MACs 
consistently underperformed across various CMS reviews, and CMSs reviews of MACs, 
while extensive, were not always completed timely.   
 
WHAT WE RECOMMEND  
 
We recommend that CMS (1) require action plans for all quality assurance standards not 
met, (2) use the results of quality assurance reviews to help select award fee metrics for 
review, (3) meet timeframes for completing quality assurance reports, (4) meet 
timeframes for completing award fee determinations, (5) establish reasonable timeframes 
for issuing contractor performance reports, and (6) seek legislative change to increase the 
time between MAC contract competitions to give CMS more flexibility in awarding new 
contracts when MACs are not meeting CMS requirements.  CMS concurred with all 
six recommendations.   
   
TABLE OF CONTENTS 
 
Objectives ....................................................................................................1 

Background..................................................................................................1 

Methodology................................................................................................7 

Findings......................................................................................................10 

MACs did not meet one-quarter of all quality assurance  

standards reviewed by CMS ..........................................................10 

MACs had not resolved issues with 27 percent of unmet  

standards ........................................................................................12 

Two MACs consistently underperformed across various CMS 

reviews ...........................................................................................13 

CMSs performance reviews of MACs, while extensive,  

were not always completed timely .................................................14 

Conclusion and Recommendations ............................................................17 

Agency Comments and Office of Inspector General Response .....19 

Appendixes ................................................................................................20 

A: MACs Coverage Areas and Performance Periods Reviewed  20 

B: Performance Areas in Quality Assurance Surveillance Plans ..21 

C: Information on Award Fees ......................................................24 

D: Agency Comments  ..................................................................28 

Acknowledgments......................................................................................31 

 
   
   
OBJECTIVES 
1. 	  To describe the extent to which Medicare Administrative Contractors 
(MACs) met or did not meet performance standards reviewed by the 
Centers for Medicare & Medicaid Services (CMS). 
2. 	  To determine the extent to which CMS assessed and monitored MACs  
performance. 
BACKGROUND 
Section 911 of the Medicare Prescription Drug, Improvement, and 
Modernization Act (MMA) of 2003 required CMS to implement Medicare 
contracting reform by replacing fiscal intermediaries and carriers with 
MACs.1  The MMA required that all MAC contracts be awarded through 
the Federal Acquisition Regulation (FAR) competitive bidding process.  
Additionally, the MMA required that MAC contracts be competed not less 
frequently than once every 5 years.  CMS began awarding MAC contracts 
in 2006 and initially awarded contracts for all 15 Part A and B (A/B) MAC 
jurisdictions and all 4 Durable Medical Equipment (DME) MAC 
jurisdictions.2  However, award protests and consolidation of some  
jurisdictions have prevented some of the original jurisdictions from  
becoming operational.  As of December 2013, 16 MACs (12 A/B MACs 
and 4 DME MACs) were operational and all Medicare claims were being  
processed by MACs. CMS awarded $4.3 billion over a 5-year period for 
these 16 contracts.3, 4    
Functions Performed by the MACs 
Through statements of work, CMS assigns specific functions to the MACs 
and outlines performance standards for those functions.  The functions 
performed by the MACs include, but are not limited to, claims processing, 
 
1 MMA, P.L. 108-173  911 (adding section 1874A of the Social Security Act,  42 U.S.C.  
 1395kk-1). 
2 CMS originally planned to  award 4 MAC contracts for processing  home health and 
hospice claims, in addition to  the 15 MAC contracts it awarded  for Parts A and B and the 
4 it awarded for DME.   However, in March 2007, CMS announced that it would 
consolidate the workloads of the home health and  hospice jurisdictions into four of the 
A/B MAC contracts. 
3 Each MAC contract consists of 1 base year (first year) with 4 option  years.  CMS 
can exercise its option to  renew the MACs contract for each of these 4 years. Effective 
September 3,  2013, the contracting officer can exercise options only after determining 
that the contractors performance on [the] contract has been acceptable, e.g., received 
satisfactory ratings.  78  Fed. Reg. 46783, 46788 (Aug. 1, 2013)  (adding  FAR 
17.207(c)(7)).    
4  CMS intends to consolidate 10  of the original A/B MAC jurisdictions into 
5 jurisdictions over the next  several years.  The consolidation  will result in a total of 
10 A/B MAC jurisdictions and  4  DME MAC jurisdictions. 
Medicare Administrative Contractors Performance (OEI-03-11-00740)   1 
   
   
provider enrollment, provider customer service, medical review, and 
appeals.5  
CMSs Oversight of MAC Performance 
Several divisions within CMSs Medicare Contractor Management Group 
are involved in MAC performance assessment, oversight, and monitoring.  
The Division of Performance Assessment serves as the central point for 
MAC performance assessment activities.  For each MAC contract, this 
division works with a contract administration team to carry out its 
performance assessment activities.  This team includes a contracting 
officer, a Contracting Officers Representative (COR), a contract 
specialist, MAC program analysts, business function leads, and technical 
monitors.6  The team monitors MACs performance to ensure they are 
providing the quality of service their contracts require. 
CMS oversees MAC performance through a number of internal and 
external audits as well as by (1) reviewing quality control plans, 
(2) reviewing Quality Assurance Surveillance Plans (QASPs), 
(3) determining award fees, (4) monitoring performance, and 
(5) evaluating MACs through Contractor Performance Assessment 
Reporting System (CPARS) reviews.  According to the MAC Contract 
Administration Guide, if CMS identifies deficient performance through its 
quality control plan reviews, QASP reviews, or performance monitoring, it 
requires the MACs to take corrective actions.  CMS uses the results of 
numerous external audits and reviewssuch as the 912 system security 
review, the Chief Financial Officer (CFO) audit, and the Statement on 
Standards for Attestation Engagements Number 16 (SSAE-16) auditto 
assist it in overseeing MAC performance.7  
Reviewing Quality Control Plans  
According to the MAC statement of work, CMS requires each MAC to 
develop and implement a quality control plan.  This plan specifies 
procedures to ensure that MAC services meet contract performance 
requirements.  For example, a MAC must have in place an inspection and 
audit system, a mechanism to identify deficiencies in the quality of its 
services, and a formal system to implement any necessary corrective 
 
5 The A/B MACs handle enrollment for non-DME  providers. DME MACs do  not  handle 
enrollment for DME suppliers; instead the National Supplier Clearinghouse handles their 
enrollment.  
6 CORs were previously known as Contracting Officers Technical Representatives.  
7 Section 912 of the MMA (adding subsection (e) to section  1874A of the Social Security  
Act, 42  U.S.C.  1395kk-1)  requires the annual evaluation of, testing of, and reporting on 
MACs information security programs.  CMS uses the CFO audit to identify  operational 
weaknesses and improve internal controls and financial management.  CMS uses the SSAE-16  
audit to review MACs internal controls.  
Medicare Administrative Contractors Performance (OEI-03-11-00740)   2 
   
   
action. The MAC is required to submit its quality control plan to CMS no 
later than 45 days after the contract is awarded.    
CMS policy requires a review of the quality control plan and verification 
of its implementation to ensure that the MAC is meeting the criteria 
provided in the statement of work.8 The business function lead for the 
quality control plan reviews the plan and recommends either acceptance or 
rejection of the plan. If the business function lead recommends rejection, 
he or she provides the COR with a statement of the reason(s) the plan is 
being rejected along with a recommendation to return the plan to the MAC 
for revision and resubmission by a specified date.  This process continues 
until CMS deems the plan satisfactory.   The CORs acceptance of the 
MACs quality control plan is contingent on an onsite validation review.  
To ensure sufficient review data, this review may be scheduled 
approximately 3 to 4 months after the date the MAC becomes operational.  
The MAC is required to submit an updated version of the quality control 
plan annually at contract renewal, as well as when substantive changes 
occur to the plan or when changes occur in the MACs quality operations.  
According to CMS staff, when the MAC submits an updated plan after the 
first contract year, CMS performs a desk review, i.e.,a review that 
does not involve a site visit.  CMS performs an additional onsite review 
only if there is a quality assurance issue that warrants it.  
Reviewing Quality  Assurance Surveillance Plans 
Medicare contracting reform provisions require CMS to adhere to the 
FAR, which requires agencies to develop QASPs when using 
performance-based acquisition methods.9  CMSs QASP for MACs 
contains specific standards and methods for evaluating MACs work 
against the performance requirements in the statement of work.  All of the  
performance requirements are provided to MACs during procurement; 
however, the MACs do not know which specific standards will be  
assessed during the QASP review.  According to CMS staff, CMS decided 
in May 2013 to begin providing QASP metrics to all MACs at the 
beginning of every fiscal year to promote transparency.   
CMS performs a QASP review for each MAC at the end of each 
performance period.10 CMS reviews standards within a core set of areas 
 
8 CMS, Medicare Administrative Contractor Quality Control Plan Review Protocol, 
pp. 12, July 2011, and CMS,  MAC Contract Administration Guide,  p. 57, June 2011.   
9 Section 1874A(a)(6) of Social Security Act, 42  U.S.C.   1395kk-1(a)(6) (requiring  
adherence to the FAR).  48 CFR  37.601.  
10 We use  the phrase performance period  to refer to the time period that is being  
evaluated by CMS.  The performance period  is typically 1 year and generally corresponds  
to the contract award date.   
Medicare Administrative Contractors Performance (OEI-03-11-00740)   3 
   
   
for all MACs. For example, within the provider customer service area, 
there are standards regarding the length of time it takes to answer calls and 
provide responses to inquiries. For each QASP performance standard, 
CMS determines whether the MAC met the standard.   
Within 30 days of the end of the performance period, CMS sends a draft 
QASP Summary Report to the MAC.11  This draft report includes each 
standard reviewed, a determination of whether each standard was met, and 
narrative support for the determination.  The MAC is given 7 days for 
rebuttal, and CMS then has 14 days to respond to the rebuttal. For each 
rebuttal submitted, the technical monitor, the business function lead, and 
the COR must agree whether to accept or reject the rebuttal.  CMS makes 
any necessary revisions to the draft QASP Summary Report, incorporates 
the MACs rebuttal and CMSs response, and generates the final QASP  
Summary Report.   
MAC Action Plans. If an action plan is required for an unmet standard, 
CMS requests it when the final QASP  Summary Report is sent to the 
MAC. CMS tracks the status of action plans through the MACs monthly 
status reports. CMS may consider a deficiency identified in an action plan 
to be corrected on the basis of self-reported or validated information in the 
monthly status reports, a subsequent review by a technical monitor or 
business function lead, or a subsequent QASP review. 
Determining Award Fees 
Medicare contracting reform provisions require CMS to provide MACs 
with incentives to promote efficiency and quality of services.12  CMS 
established MAC contracts as cost plus award fee contracts.  According 
to the FAR, such contracts provide a monetary incentive that the MAC 
may earn in whole or in part on the basis of its performance.13    
CMS and each MAC negotiate the dollar amount allocated for the MACs 
award fee pooli.e., the amount of the potential award fee.  The MAC 
may earn this award fee amount if it exceeds requirements in the statement 
of work. The MAC is not guaranteed to earn a minimum amount of its 
award fee pool; therefore, the MAC may earn none, some, or all of its 
award fee. 
The FAR requires each contract with an award fee to have an award fee 
plan.14   This plan outlines (1) a list of metrics that will be reviewed, (2) the 
 
11 CMS, Quality Assurance Surveillance Plan, Standard Operating Procedure, p. 6, 
 
May 2011.   

12 Section 1874A(b)(1)(D)  of the Social Security Act, 42 U.S.C.   1395kk-1(b)(1)(D). 

13 48 CFR   16.405-2. 

14 48 CFR   16.401(e)(3). 

Medicare Administrative Contractors Performance (OEI-03-11-00740)   4 
   
   
distribution of the award fee pool across the metrics, and (3) an 
explanation of how each metric will be reviewed.   
The MAC reviews a draft of the award fee plan that includes the metrics 
that CMS will use to evaluate performance.  CMS can include metrics in 
MACs award fee plans on the basis of past performance or other criteria.  
For example, if an area is deemed to be a critical function or is identified 
as a problem, an award fee metric can be included to encourage improved 
performance.15   
As well as determining which award fee metrics to include in a MACs 
award fee plan, CMS determines how to distribute the MACs award fee 
pool among metrics.  CMS considers a variety of factors when 
determining how to distribute the award fee pool among metrics, such as a 
MACs current and past performance in a given area.   
Within 90 days of the end of the performance period, CMS sends the 
MAC a determination letter containing the amount of award fee earned.  
The total award fee amount that a MAC earns depends on the amount 
assigned to each award fee metric and the MACs performance on each 
metric.  Depending on CMSs assessment of the MACs performance, 
MACs may earn none, some, or all of the award fee for each metric. 
Beginning in July 2009, CMS included language in each award fee plan 
stating that a MAC must receive a CPARS rating of satisfactory or higher 
in all areas to be eligible to earn any award fee.   
Monitoring Performance  
In addition to reviewing quality control plans and QASPs and determining 
award fees, CMS policy requires other performance monitoring 
throughout the MACs performance period.16  Members of the contract 
administration team compile MAC performance information related to 
their specific areas of Medicare operations.  The Division of Performance  
Assessment maintains the findings of  MAC-monitoring activities that are 
conducted across CMS, such as the CFO financial audit, the 
Comprehensive Error Rate Testing program, the SSAE-16 and SAS 70 
audits, and the section 912 information security reviews.17  To identify any 
MAC performance issues, team members also review the monthly status 
reports that MACs submit to CMS.  In addition, CMS may conduct the 
following types of reviews: 
 
15 CMS, MAC Contract Administration Guide,  p.  61, June 2011.  

16  Ibid., pp. 5355.  
  
17  The Comprehensive Error Rate Testing program  measures improper payments in the 

Medicare program.  SAS 70 (Statement on Auditing Standards No. 70:  Service 

Organizations) audits review an organizations internal controls.   

Medicare Administrative Contractors Performance (OEI-03-11-00740)   5 
   
   
Onsite Visits and Reviews. According to CMS policy, CMS staff typically 
visit a MAC for onsite reviews at least once every 2 months and 
participate in face-to-face meetings with MAC managers.18  Topics 
discussed during these meetings may include, but are not limited to, the 
most recent monthly status report, progress on significant and/or ongoing  
issues, new issues or concerns, and innovations.   
Data Validation Reviews. The MAC is responsible for reporting to CMS 
certain performance information, such as data on the timeliness of claims  
and appeals.  Occasionally, CMS will validate the data for accuracy and 
compliance with CMS instructions.  The results are forwarded to the 
Division of Performance  Assessment. 
Ad Hoc Reviews. CMS may conduct ad hoc reviews.  Any irregularity 
identified through CMSs performance monitoring and data validation 
may warrant an ad hoc review.  Staff within the Division of Performance 
Assessment or members of the contract administration team can 
recommend initiation of such a review.  However, each ad hoc review 
must be authorized and approved by the COR. 
According to CMS staff, if issues are identified through performance 
monitoring, staff work with the MAC to resolve the problems 
immediately.  If the issues identified are long-term in nature, the COR may 
request a plan from the MAC to address the issues.  These plans are 
documented separately from QASP action plans.   
Evaluating MACs through CPARS Reviews 
At the time of our review, the FAR required the preparation of 
performance evaluations at the completion of contracts.19  In addition, it 
required interim evaluations for contracts with a performance period, 
including option years, exceeding 1 year.20   Although the FAR did not 
specify the timing of these interim evaluations, Department of Health and 
Human Services (HHS) policy requires that for contracts of 3 years or 
more, agencies conduct interim assessments at 12-month intervals after the 
contract is awarded.21  CMS policy states that all MAC performance 
 
18 CMS, MAC Contract Administration Guide,  p.  101, June 2011. 
   
19  After our review period, the requirements for contractor performance information at 

FAR  subpart 42.15  were amended,  effective  September 3, 2013.  78 Fed. Reg. 46783 
 
(Aug. 1, 2013).  The amendments include requiring annual  performance evaluations, 
 
requiring all performance evaluations to be  entered electronically into CPARS, requiring 

award-fee performance ratings to be entered  into CPARS, and requiring  use of 

standardized evaluation factors and performance rating categories. 

20 48 CFR   42.1502(a). 

21 HHS, Acquisition Policy Memorandum 2009-07, December 23, 2009, p. 5.  Accessed 

at http://www.hhs.gov/asfr/ogapa/acquisition/policies/  on December 14, 2011.    
Medicare Administrative Contractors Performance (OEI-03-11-00740)   6 
   
   
evaluations shall be retained in the CPARS system.22 CMS monitors its  
compliance with CPARS reporting requirements on a monthly basis.  
According to CMS staff, the agency has a very high compliance rate for 
completing MAC CPARS reports in comparison to the rates for other HHS 
agencies completion of CPARS reports.  In addition, CMSs Medicare 
Contractor Management Group has developed and implemented a CPARS 
template to ensure the consistency of CPARS evaluations across MAC 
contracts. 
For the CPARS evaluation, the COR considers all the different reports, 
information, and individual experience that he or she has with the MAC 
and condenses it into the CPARS report format.  The COR rates the MAC 
on a five-point scale from unsatisfactory to exceptional in areas 
including quality of services, schedule, cost control, business relations, 
and management of key personnel.  The COR uses various sources of 
information to rate the MACs performance.  These include, but are not 
limited to, results from reviews of quality control plans and QASPs, 
monthly status reports, and performance monitoring information.  
According to CMS policy, the CORs draft evaluation is due 90 days after 
the end of a MACs base year and each option year, but may take longer 
depending on the availability of necessary information.23 Once all reviews 
of the draft report are completed, the  contracting officer enters the final 
report into the CPARS system.   
Related Work 
In March 2010, the Government Accountability Office (GAO) issued a 
report that described how CMS assessed MAC performance.24 According 
to this report, the MACs performance improved over time, but did not 
meet all standards.  GAO analyzed CMSs assessment of three MACs for 
which assessment results were available at the time.    
METHODOLOGY 
Scope 
We collected data for the 13 MACs (9 A/B MACs and 4 DME MACs) that 
had been operational for at least 2 years as of January 2012. For these 
13 MACs, we selected the 2 most recent performance periods for which 
the required performance reviews had been completed.  Across the MACs, 
the earliest 2-year performance period reviewed was from September 2008 
 
22 CMS, MAC Contract Administration Guide, p. 23, June 2011. 

23  Ibid., p. 114. 

24 GAO,  Medicare Contracting Reform:  Agency Has Made Progress with 

Implementation, but Contractors Have Not  Met All Performance Standards, GAO-10-71,  

March 2010. 

Medicare Administrative Contractors Performance (OEI-03-11-00740)   7 
   
   
to September 2010 and the latest 2-year performance period reviewed was 
from  August 2009 to August 2011.  CMS awarded $3.2 billion over a 
5-year period for these 13 contracts. Appendix A lists the MACs  
coverage areas and performance periods selected.   
Data Collection 
We requested all data from CMS.  We collected the following information 
on CMSs reviews of the 13 MACs performance for 2 performance 
periods: 
	   information on reviews of quality control plans, reasons for CMSs 
rejection of any of these plans, and the dates of any onsite validation 
reviews conducted; 
	   final QASP Summary Reports; the dates the QASP reviews were 
conducted; and CMSs determination of whether standards were met, 
action plans were required, and issues were resolved;   
	   letters containing award fee determinations and the dates these letters 
were sent to the MAC; 
	   information on performance monitoring, such as onsite reviews, 
ad hoc reviews, and data validation reviews; and 
	   CPARS evaluation reports and the dates the CPARS reports were 
finalized.25   
We followed up by telephone and email to clarify CMSs responses.  We  
collected data from March 2012 through November 2012.  
  
Data Analysis  
We reviewed the dates provided by CMS regarding its onsite validation 
reviews of MACs quality control plans to determine whether CMS 
conducted these reviews in the MACs base years.   
We reviewed the final QASP Summary Reports to identify the areas CMS 
reviewed, determine how many performance standards were evaluated, 
and calculate the number and percentage of standards that CMS 
determined were met and not met.  We compared the numbers and 
percentages of standards not met across MACs, performance periods, and 
performance areas.  We analyzed data provided by CMS to calculate the 
following for each MAC: (1) the time between the end of the performance 
period and the date CMS sent the draft QASP Summary Report,26   (2) the  
 
25 A CPARS evaluation report is considered finalized when the contracting  officer enters  
it into the CPARS system. 
 
26  We  used the end date  of the  QASP evaluation period in  our calculation, but for 
 
consistency, we use the phrase performance period in our report. 
 
Medicare Administrative Contractors Performance (OEI-03-11-00740)   8 
   
   
time between the date CMS submitted the draft version of this report and  
the date it completed the final version, (3) the number of action plans 
CMS required, (4) and the number and percentage of issues that CMS 
determined were resolved and not resolved.   
We reviewed the award fee determination letters to determine how many 
and which award fee plan metrics CMS assessed.  We calculated (1) the 
number and percentage of award fee plan metrics for which each MAC 
earned none, some, or all of its award fee; (2) the total award fee pool and 
the total amount earned; and, (3) the time between the end of the 
performance period and the date CMS sent the award fee determination 
letter to the MAC.27   We compared the numbers and percentages of metrics 
for which MACs earned award fees across performance periods and across 
MACs. 
We determined the extent to which CMS conducted performance 
monitoring throughout the performance periods.  We reviewed information 
on CMSs performance monitoring to determine whether CMS conducted 
onsite visits, ad hoc reviews, and data validation reviews.   
For each MAC, we calculated the time between the end of the 
performance period and the date CMS finalized the CPARS report.  For 
one CPARS evaluation, CMS was not able to provide the date the final 
report was entered into CPARS. 
To retain MACs anonymity, we randomly assigned a unique identifier 
(i.e., a letter) to identify each MAC throughout this report.   
Limitations 
Although we followed up with CMS to clarify information provided, we 
did not independently verify CMSs responses regarding its reviews of 
MACs performance. 
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspection and Evaluation issued by the Council of the Inspectors General 
on Integrity and Efficiency.     
 
27  We  used the end date  of the  award fee evaluation period in  our calculation,  but  for 
consistency, we use the phrase performance period in our report.  
Medicare Administrative Contractors Performance (OEI-03-11-00740)   9 
   
   
FINDINGS 
MACs did not meet one-quarter of all quality 
assurance standards reviewed by CMS  
There were 1,201 standards included in MACs QASP reviews for 
2 performance periods.  Overall, MACs did not meet 26 percent, or 
310, of these standards. CMS conducts QASP reviews to ensure that 
MACs are providing the quality of services required in their contracts.    
MACs are expected to comply with stringent performance requirements 
for QASP standards; a number of standards require 100-percent 
performance compliance.   
QASP reviews include standards in eight areas.28  Each area and examples 
of standards within each area are listed in Appendix B.  For example, 
QASP reviews evaluate whether MACs processes meet all CMS 
requirements in areas such as processing claims, managing appeals, 
handling claims for which Medicare is the secondary payer, and enrolling 
providers. The number of QASP standards CMS reviewed varied by 
MAC and by performance period.  
Of the 13 MACs in our review, 7 did not meet 25 percent or more of their 
QASP standards.  The percentage of unmet standards ranged from  
13 percent to 48 percent. One MAC did not meet one or more standards in 
all eight areas. 
Most MACs (10 of 13) performance improved over the two performance 
periods. Of the 534 standards included in QASP reviews for the first 
performance period, 158 (30 percent) were not met.  Of the 667 standards 
included in QASP reviews for the second performance period, 
152 (23 percent) were not met.  However, five MACs (38 percent) still did 
not meet over one-quarter of their QASP standards reviewed in the second  
performance period.  The percentage of standards not met in the second 
performance period ranged from  6 percent to 50 percent.  
MACs did not meet over 40 percent of QASP standards in 
three areas 
For three of eight QASP performance areas, MACs did not meet over 
40 percent of standards. Overall, MACs did not meet 51 percent of 
standards in the area of provider enrollment.  In this area, CMS evaluated 
MACs accuracy and timeliness in processing provider enrollment 
applications and revocations. For example, some MACs did not meet the 
requirement to accurately process 98  percent of provider applications in 
 
28 Two of the eight areasaudit and reimbursement and provider enrollmentare  
included only  in QASP reviews of  A/B  MACs.  
Medicare Administrative Contractors Performance (OEI-03-11-00740)   10 
   
   
accordance with instructions in CMSs Medicare Program Integrity 

Manual. Additionally, five of nine MACs did not meet one or more 

standards in this area for two performance periods.29 
   
Overall, MACs did not meet 45 percent of the standards in the Medicare 
secondary payer area. In this area, CMS evaluated MACs timeliness 
and accuracy in processing claims for which Medicare is not the primary 
payer. For example, some MACs did not meet the requirement to respond 
to 95 percent of inquiries regarding Medicare secondary payer claims  
within 45 days from receipt of the inquiry.  Additionally, 12 of 13 MACs  
did not meet 1 or more standards in this area for 2 performance periods.   
Overall, MACs did not meet 43 percent of standards regarding their 
appeals processes.  In this area, CMS evaluated MACs timeliness and 
accuracy in managing appeals.  For example, some MACs did not send 
100 percent of appeal decision notices within 60 days of receipt of appeals 
as required. Additionally, 12 of 13 MACs did not meet 1 or more 
standards in this area for 2 performance periods.  Table 1 shows the 
number and percentage of standards MACs did not meet in each area CMS 
reviewed. 
Table 1: Number and Percentage of Unmet QASP Standards in Each 
Performance Area 
Number of   Number of   Percentage of  
 Performance Area   Standards  Standards  Standards  
Reviewed   Not Met   Not Met  
Provider Enrollment  90  46  51%  
Medicare Secondary Payer   186  84  45%  
Appeals  183  79  43%  
Audit and Reimbursement   207  36  17%  
Medical Review  42  7  17%  
Provider Customer Service Program  196  32  16%  
Financial Management   178  23  13%  
Claims Processing  119  3  3% 
      Total   1,201   310  26%  
Source:  OIG analysis of  final QASP Summary Reports, 2012. 
 
 
29 As noted in the previous footnote, provider enrollment is one of the two areas 
included only  in QASP reviews of  A/B  MACs. 
Medicare Administrative Contractors Performance (OEI-03-11-00740)   11 
   
   
CMS did not always include areas identified as problematic 
through QASP reviews as metrics in MACs award fee plans   
MAC contracts include an award fee that a MAC may earn if its 
performance exceeds basic requirements, and metrics can be included in a 
MACs award fee plan to encourage improved performance.  The purpose 
of an award fee is, in general, to differentiate performance that is merely 
satisfactory from performance that demonstrates that a MAC has exceeded 
the requirements in its statement of  work.  As a result of changes that 
CMS made beginning in July 2009, MACs cannot earn any award fee if 
they do not attain a CPARS rating of satisfactory or higher in all areas.  
From an overall award fee pool of $39 million across two performance 
periods, MACs earned two-thirds, or $26 million.   
Regarding QASP reviews, MACs did not meet 45 percent of the QASP  
standards in the Medicare secondary  payer area.  However, CMS did not 
include any metrics from this area in any MACs award fee plans.  
Additionally, although issues with provider enrollment were identified 
through QASP and other reviews, CMS included provider enrollment 
metrics in the award fee plan for only one MAC.  Moreover, although 
MACs did not meet 51 percent of QASP standards regarding provider 
enrollment, metrics in this area made up less than 1 percent of award fee 
metrics that CMS assessed.  Appendix C describes the award fee metrics, 
the award fees earned by MAC, and the award fees earned by metric.   
MACs had not resolved issues with 27 percent of
unmet standards  
For the 310 QASP standards that MACs did not meet, CMS determined 
that, as of June 2012, MACs had not resolved issues with 83, or 27 percent, 
of the unmet standards.  MACs had not resolved issues with 18 standards 
that were not met in the first performance period and issues with 
65 standards that were not met in the second.  Of the 83 standards not met, 
over half involved provider enrollment (18), appeals (13), or audit and 
reimbursement (13).  
CMS did not require action plans for 12 percent of unmet 
standards, and unmet standards without action plans were 
almost four times more likely to have issues go unresolved    
When MACs do not meet a standard, CMS canbut does not always 
require the MAC to submit an action plan to resolve issues related to that  
standard.  For example, according to CMS staff, if the MAC had one error 
that caused it to not meet a standard but the MAC was in compliance for 
the rest of the performance period, CMS may choose not to require an 
action plan. Additionally, CMS may not require an action plan if it has 
Medicare Administrative Contractors Performance (OEI-03-11-00740)   12 
   
   
waived a contract requirement because of an issue beyond the MACs 
control, such as a CMS system failure.   
CMS did not require action plans for 37 of the 310 standards MACs did 
not meet.  When CMS did not require MACs to have action plans for 
unmet standards, the issues with those standards were almost four times 
more likely to go unresolved. Of the 37 standards for which CMS did not 
require action plans, issues with 76 percent were not resolved.  In contrast, 
of the 273 standards for which CMS required action plans, issues with 
20 percent were not resolved. 
Two MACs consistently underperformed across 
various CMS reviews 
Two MACs, designated as V and Y  in this report, consistently  
underperformed across various CMS reviews.  MAC Vs quality control 
plan was initially rejected because the document it submitted was not 
deemed a quality control plan.  Additionally, CMSs onsite validation 
review of MAC Ys quality control plan uncovered flaws regarding the 
MACs inspection and audit system, as well as its procedures for 
corrective action. 
Both MACs did not meet a high percentage of QASP standards.  MAC V  
had the highest percentage of unmet standards (48 percent) and MAC Y 
had the third-highest percentage of unmet standards (31 percent).  For 
MAC V, over half of the issues identified through its QASP reviews had 
not been resolved. 
CMS awarded the lowest percentage of award fees to these two MACs 
35 and 40 percent of their respective award fee pools.  For MAC V, CMS 
reduced the overall percentage of the MACs award fee earned to 
40 percent in one performance period because of its poor performance in 
key areas. CMS noted MAC Vs failure to make system changes; a high 
volume of complaints regarding its customer service program for 
providers; and its failure to meet basic performance requirements, such as 
those regarding appeals processing.  Additionally, MACs V and Y were 
the only two MACs that did not earn any award fee for the contract 
administration metric during one performance period.  This metric 
evaluates a MACs overall ability to manage its contract, specifically in 
areas such as communication, flexibility, staffing, and cost management.   
For MAC Y, concerns regarding a backlog in provider enrollment led 
CMS to increase oversight and monitoring activities, including putting the  
MAC under an ad hoc review for an entire performance period.  As part of 
this review, the MAC was required to send daily reports of provider 
enrollment to CMS and to have biweekly update calls with CMS 
Medicare Administrative Contractors Performance (OEI-03-11-00740)   13 
   
   
management.  MAC Y received onsite visits nearly twice a month in both 
performance periods we reviewed.   
When the contract for MAC Ys jurisdiction was recompeted, the contract 
was awarded to a different contractor. As of December 2013, MAC Vs 
contract was still in effect and the recompete for the jurisdiction had not 
yet been completed. 
According to CMS staff, the agency has considered not renewing contract 
option years for MACs performing at substandard levels.  However, it 
takes approximately 1 year for CMS to solicit and award a new contract.  
With only 4 option years for each contract, CMS reported that the 
resources and risk involved in conducting an unforeseen procurement to 
replace a poorly performing MAC made such a decision impractical.  
CMSs performance reviews of MACs, while 
extensive, were not always completed timely   
Overall, CMS conducted extensive activities to review MACs  
performance.  Because MAC reviews provide important performance 
information and can be used to support future award decisions, it is 
important that CMS complete these reviews timely.  However, CMS did 
not always do so.    
Quality Control Plan Reviews. CMS policy requires it to conduct an 
onsite review to determine whether MACs have implemented their quality 
control plans.30   This onsite review may be conducted within 3 to 4 months 
of the date the MAC becomes operational.31   According to CMS staff, 
CMS strives to complete the review during the MACs base year.  The 
performance periods we reviewed included the base year for three MACs.  
For one of the three, the onsite validation review was conducted in the 
base year.  For the remaining two MACs, there was no onsite validation 
review in the base year.  However, both of these MACs had an onsite 
validation review in the next year of the contract.  According to CMS 
staff, some onsite validation reviews that should have been conducted in 
the base year may not have been conducted because of a lack of travel 
funds or staff.    
QASP Reviews. As required, CMS completed a QASP review for each of 
the 13 MACs performance periods in our review.  CMSs QASP Standard 
Operating Procedure (SOP) establishes an internal timeframe of 51 days 
 
30 CMS, Medicare Administrative Contractor Quality Control Plan Review Protocol, 

pp. 12, July 2011. 
 
31  Ibid., p. 2.  
 
Medicare Administrative Contractors Performance (OEI-03-11-00740)   14 
   
   
for completing final QASP reports.32  However, none of the QASP reviews 
met that timeframe.  On average, final QASP reports were sent more than 
5 months after the end of the QASP performance period. 
According to the QASP SOP, the draft QASP Summary Report must be 
sent to the MAC within 30 days of the end of the performance period.   
CMS sent draft QASP reports between 34 and 155 days after the end of 
the performance period, with an average of 99 days after.   
The QASP SOP also states that once the draft report has been sent, the 
MAC has 7 days to provide a rebuttal and CMS has 14 days to respond to 
the rebuttal and generate the final QASP Summary Report.  However,  
CMS sent 24 of the 26 final QASP Summary Reports more than 21 days 
after the draft reports were sent. The average number of days between the 
date of the draft report and the date of the final QASP Summary Report 
was 62 days. 
CMS reported that, to improve timeliness, it revised QASP procedures in 
July 2012 so that all QASP reviews are begun 30 days before the end of 
the performance period.  In addition, CMS staff reported that in 
October 2012, the agency instituted a strategy to ensure compliance with 
internal due dates for QASP reports.   
Award Fee Determinations. According to CMS staff, award fee 
determinations are completed through an extensive process involving 
numerous staff, including members of the contract administration team, 
CMS managers, and an award fee determining official.  As required, CMS 
made award fee determinations for each of the 13 MACs performance 
periods in our review. According to timeframes set forth in the MAC 
Contract Administration Guide, CMS must send award fee determination 
letters to MACs within 90 days of the end of the performance period.  
However, CMS sent only one such letter to a MAC within 90 days. The 
number of days between the end of the performance period and the date 
the award-fee determination letter was sent ranged from 89 to 214.  On 
average, award fee determination letters were sent to MACs 135 days after 
the end of the performance period.  According to CMS staff, as of 
July 2013, CMS was in the process of updating the MAC Contract 
Administration Guide and intended to revise the award fee determination 
timelines in accordance with best practices.   
CPARS Evaluations.  As it does with award fee determinations, CMS goes 
through an extensive process to finalize MACs CPARS reports.  CPARS 
 
32 CMS must submit the draft QASP Summary Report to the MAC within  30 days of the 
end of the performance period.  The MAC then has 7 days  to provide a rebuttal, and CMS 
has 14  days to  respond and generate the final QASP Summary Report.  
Medicare Administrative Contractors Performance (OEI-03-11-00740)   15 
   
   
evaluations provide summaries of CMSs various performance reports and 
experiences with the MACs.  According to CMS guidelines, draft CPARS 
reports should be submitted for review to the Program Management 
Division Director within 90 days of the end of the performance period.33   
However, during our review timeframe, CMS did not track the submission 
date of the draft reports. CMS guidelines for completing CPARS 
evaluations do not include timeframes for finalizing reports.  CMS staff 
reported that in October 2012, the agency instituted a procedure to track 
the status of all CPARS evaluations. 
If CPARS reports are not completed timely, the information they contain 
cannot be used to support future award decisions.  For the 25 CPARS 
evaluations that had a final report date in CPARS, the time between the 
end of the performance period and the date the report was finalized ranged 
from 8 months to over 2 years.  The average amount of time between the 
end of the performance period and the date the CPARS report was 
finalized was over 14 months.   
 
33 CMS, MAC Contract Administration Guide,  p.  114, June 2011.  
Medicare Administrative Contractors Performance (OEI-03-11-00740)   16 
   
   
CONCLUSION AND RECOMMENDATIONS 
Given the billions of dollars awarded to MACs and the critical role they 
play in administering the Medicare program, effective oversight of these 
contractors by CMS is important to ensure that they are carrying out their 
assigned tasks. 
Although MACs met the majority of quality assurance standards reviewed 
by CMS, they did not meet one-quarter of them.  Additionally, CMS did 
not require action plans for some unmet standards, and unmet standards 
without action plans were almost four times more likely to have issues go 
unresolved. Moreover, certain areas identified as problematic through 
QASP reviews were not always included as metrics in MACs award fee 
plans. 
While CMSs performance reviews of MACs were extensive, they were 
not always completed timely.  If performance reviews are not completed 
timely, the information they contain may not be available to support future 
award decisions. Additionally, two MACs consistently underperformed 
across various CMS reviews. However, the 5-year timeframe under which 
CMS must recompete MAC contracts limits CMSs ability to solicit and 
award new contracts when MACs are not meeting the agencys  
requirements.   
It is important that CMS effectively oversee MACs to ensure that it is 
obtaining the level of performance expected.  Therefore, we recommend 
that CMS: 
Require action plans for all unmet QASP standards  
Unmet QASP standards that did not have an action plan were almost 
four times more likely to have issues go unresolved.  CMS should require 
action plans for all QASP standards not met to help ensure that MACs 
resolve the issues. 
Use QASP results to help select award fee metrics for review  
and to establish award fee metrics for the Medicare 
secondary payer area  
CMS should ensure that MACs QASP  performance informs the metrics it 
selects for MACs award fee plans.   The areas in which the MACs had the 
greatest percentage of unmet QASP standards were provider enrollment, 
Medicare secondary payer, and appeals.  Although there were award 
fee metrics for the provider enrollment and appeals areas, there were 
no award fee metrics for the Medicare secondary payer area.  
Additionally, provider enrollment metrics were included in only one 
MACs award fee plan.     
Medicare Administrative Contractors Performance (OEI-03-11-00740)   17 
   
   
Seek legislative change to increase the time between MAC 
contract competitions to give CMS more flexibility in awarding 
new contracts when MACs are not meeting CMS requirements 
MAC contracts are awarded for a base year and 4 option years.  The 
current law requires CMS to recompete MAC contracts at least every 
5 years. MAC contracts are awarded by jurisdiction, and the periods of 
performance for MAC contracts are staggered such that MAC contracts do 
not end at the same time.  According to CMS staff, this puts them in a 
perpetual procurement cycle and makes it impractical to recompete a 
MAC contract earlier than the mandatory 5-year recompete. 
CMS should seek legislative change to allow more time between MAC 
contract competitions.  The intent of this recommendation is not to extend 
the length of a contract for a poorly performing MAC.  Instead, because of 
the resources, time, and effort it takes to compete a contract, such a change  
would allow CMS to use its time and resources effectively in soliciting 
and awarding new contracts. By extending the overall contract term, the 
time and resources that would have been used for the mandatory 5-year 
recompete of a well-performing MACs contract could be used to conduct 
an unforeseen procurement to replace a poorly performing MAC.         
Meet timeframes for completing draft and final QASP summary  
reports 
CMSs procedures for QASP reviews state that the draft QASP Summary 
Report will be completed within 30 days of the end of the performance 
period (i.e., evaluation period); however, none of the draft reports in our 
review were completed within that timeframe.  The procedures also state 
that the final QASP Summary Report should be generated within 21 days 
from the issuance of the draft report; however, almost none of the final 
summary reports were issued within that timeframe.      
Meet timeframes for completing award fee determinations 
CMSs MAC Contract Administration Guide states that award fee 
determination letters will be sent to MACs within 90 days of the end of the 
performance period (i.e., evaluation period); however, CMS sent only one 
award fee determination letter within this timeframe.  
Establish reasonable timeframes for issuing final CPARS 
reports 
CMS guidelines for completing CPARS evaluations do not include 
timeframes for submitting the final reports; however, the average amount 
of time between the end of the performance period and the date of the final 
CPARS report was 428 days.  Without a timely CPARS report, award 
decisions may be made without comprehensive performance information.  
Medicare Administrative Contractors Performance (OEI-03-11-00740)   18 
   
   
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
CMS concurred with all six of our recommendations.  Regarding our first 
recommendation, CMS stated that effective June 19, 2013, it began 
requiring action plans for all QASP standards that were not met.  
However, CMS noted that a request for an action plan may change as the 
QASP report goes through the rebuttal process.  For example, CMS stated 
that sometimes corrective actions have already been taken after the issue 
has been identified. 
Regarding our second recommendation, CMS stated that it will continue 
to examine the feasibility of developing award fee metrics for provider 
enrollment and any other functional areas as warranted.  However, CMS 
added that when basic statement of work standards are not met, as for 
example, in the case of Medicare secondary payer, it focuses its resources 
on MACs achievement of basic standards prior to creating award fee 
metrics.   
Regarding our third recommendation, to increase the time between MAC 
contract competitions, CMS stated that it will consider this 
recommendation when it develops the next Presidents budget proposal.   
Regarding our fourth, fifth, and sixth recommendations, CMS stated that  
effective July 26, 2013, it has revised its timeframes for completing QASP  
summary reports, award fee determinations, and final CPARS reports.  
QASP summary reports are now due 60 days after the end of the contract 
year, award fee determinations are due 150 days after the end of the 
contract year, and CPARS reports are due 120 days after the end of the 
contract year.  CMS noted that while it agrees with the importance of 
meeting timeliness goals, it believes that the accuracy and completeness of 
performance documents take precedence over timeliness.  OIG agrees that  
accuracy and completeness are important, but also stresses the importance 
of timeliness.  If performance reviews are not completed timely, the 
information they contain may not be available to support future award 
decisions. 
For the full text of CMSs comments, see Appendix D.   
 
   
Medicare Administrative Contractors Performance (OEI-03-11-00740)   19 
   
   
APPENDIX A 
 
MACs Coverage Areas and Performance Periods Reviewed 
 
Table A-1 provides the 13 MACs coverage areas and the associated performance periods 
used for this review.  These MACs had been operational for at least 2 years as of 
January 2012. Performance periods ranged from 2008 to 2011.  
 
Table A-1: MACs Coverage Areas and Performance Periods Reviewed   
 
Base Contract  Amount  
Performance  Performance 
MAC    MAC Coverage  Area   Period 1   Period 2   for Two PerfoPremriaondcse1  
Palmetto GBA, LLC  Parts A and B for CA, HI, NV   1/25/09 1/24/10   1/25/10 1/24/11   $155,753,377  
Noridian Healthcare Solutions, LLC 
Parts A and B for AZ, MT, ND, 
(formerly Noridian Administrative  7/31/09  7/30/10  7/31/10  7/30/11  $79,288,901  
SD, UT, WY  
Services, LLC) 
Parts A and B for CO, NM, OK, 
TrailBlazer Health Enterprises, LLC  8/6/09  8/5/10   8/6/10  8/5/11   $170,778,910  
TX 
Wisconsin Physicians Services 
Parts A and B for IA, KS, MO, NE   9/10/08  9/9/09   9/10/09  9/9/10   $93,295,705  
Insurance Company 
First Coast Service Options, Inc.  Parts A and B for FL, PR, VI   9/16/08  9/15/09  9/16/09  9/15/10  $115,227,545  
Cahaba Government Benefit 
Parts A and B for AL, GA, TN   1/12/09  1/11/10  1/12/101/11/11   $104,328,164  
Administrators, LLC 
Novitas Solutions, Inc. (formerly   Parts A and B for DC, DE, MD, 
3/01/09  2/28/10  3/01/10  2/28/11   $196,705,470  
Highmark Medicare Services, Inc.)  NJ, PA 
National Government Services, Inc.  Parts A and B for CT, NY   3/18/09  3/17/10  3/18/10  3/17/11  $138,793,917  
Parts A and B for MA, ME, NH, 
RI, VT;  
NHIC, Corp.   11/14/08  11/13/09  11/14/09  11/13/10  $53,550,221  
Home Health and Hospice for CT, 
MA, ME, NH, RI, VT 
Durable Medical Equipment for 
NHIC, Corp.   DC, DE, CT, MA, MD, ME, NH,  12/30/08  12/29/09  12/30/09  12/29/10  $24,389,200  
NJ, NY, PA, RI, VT 
Durable Medical Equipment for IL,  
National Government Services, Inc.  12/30/08  12/29/09  12/30/09  12/29/10  $38,102,255  
IN, KY, MI, MN, OH, WI  
Durable Medical Equipment for 
CGS Administrators, LLC (formerly  AL, AR, CO, FL, GA, LA, MS, NC,  
12/1/08  11/30/09  12/1/09  11/30/10  $57,278,148  
CIGNA Government Services, LLC)   NM, OK, PR, TN, SC, VA, TX, 
WV 
Durable Medical Equipment for 
Noridian Healthcare Solutions, LLC 
AK, AZ, CA, HI, IA, ID, KS, MO, 
(formerly Noridian Administrative  12/30/08  12/29/09  12/30/09  3/31/11  $41,690,071  
MT, ND, NE, NV, OR, SD, UT, 
Services, LLC) 
WA, WY  
Source:  Documentation collected from CMS on MAC performance periods and contract amounts, 2012. 
1 Base  contract amount does not include the MACs award fee pool.  
Medicare Administrative Contractors Performance (OEI-03-11-00740)   20 
   
   
APPENDIX B 
Performance Areas in Quality  Assurance Surveillance Plans 
 
Table B-1 provides the QASP performance areas evaluated and a description of selected 
standards within those areas for the MACs in our review.  QASP standards are used to 
evaluate MACs performance against statement of work requirements. 
 
Table B-1: QASP Performance Areas Reviewed  and Description of Selected Standards  
Performance Area  Description of Selected Standards Within Each  Area  
The MAC shall reopen an initial determination or a redetermination to review a decision per 
regulation, the Medicare Claims Processing Manual, and statement of work requirements.  
Administrative Law Judge hearing decisions and Qualified Independent Contractor decisions 
Appeals  must be effectuated by the MAC within appropriate timeframes.   
Redeterminations are successful when all redetermination notices are processed and mailed 
within 60 calendar days.  
Cost report acceptance is timely if it is completed within 30 days from the receipt date of the 
providers cost report.  
Audit and  Cost reports are settled accurately when a CMS review determines compliance with Medicare 
Reimbursement   payment policy as defined in the Medicare Provider Reimbursement Manual. 
Cost reports that do not require an audit are settled timely  when the Notice of Program  
Reimbursement is issued within 12 months of the acceptance of a cost report.  
Claims are processed timely  when 95 percent of claims are processed within the claims  
payment floor and ceiling specified in the Medicare Claims Processing Manual. The contractor 
must meet this standard on a monthly basis. 
Communication is timely  when CMS receives notification within 24 hours or within the same 
Claims Processing  business day of identification, if the problem may cause disruption of benefit payments beyond 
a single provider. 
Medicare Summary  Notice (MSN) management is successful when the contractor accurately  
generates and mails 98 percent of MSNs in accordance with Medicare Claims Processing 
Manual instructions. 
Continued on next page 
 
   
Medicare Administrative Contractors Performance (OEI-03-11-00740)   21 
   
   
Table B-1: QASP Performance Areas Reviewed  and Description of Selected Standards 
(Continued)  
Performance Area  Description of Selected Standards Within Each  Area  
The contractors use of trust fund dollars is successful when it will not cause CMS to be cited for 
financial-management-related deficiencies on the CMS annual CFO audit. 
Financial  The contractors debt referral procedures are successful when its eligible delinquent debt has 
Management   been referred by  the 180th day of delinquency.  
The contractor is able to obtain an unqualified opinion (no material weakness) on annual 
SAS 70 reviews.   
The contractors medical review strategy is successful when problems targeted in the strategy  
are addressed during the fiscal year using the Progressive Corrective Action process and the 
contractor can demonstrate a change in billing behavior. 
Medical Review 
The contractors review is successful when it meets CMSs requirement that demand bills from 
skilled nursing facilities be processed accurately as referenced in the Medicare Program 
Integrity Manual. 
For Medicare secondary  payer prepayment, 95 percent of all inquiries regarding Medicare 
secondary payer claims shall be responded to within 45 calendar days  of receipt of the inquiry.  
Upon receipt of an incomplete primary payer notification, the contractor shall send a Medicare 
Medicare  secondary payer inquiry or assistance request transaction to the Coordination of Benefits 
Secondary Payer    Contractor within 1 business day of processing the claim.  
 
For Medicare secondary  payer postpayment, 95 percent of all Medicare secondary payer 
supplier inquiries shall be acknowledged or responded to within 45 days of receipt.  
All eligible debts are referred to the Department of the Treasury for cross-servicing when the 
debt becomes 180 days delinquent. 
Of all calls monitored for the quarter, the number of customer service representatives scoring as 
"Achieves Expectations" or higher for Knowledge Skills shall be no less than 93 percent.  This 
standard shall be measured quarterly and shall be cumulative for the quarter.  
Provider Customer  Telephone inquiries are successful when the corporate quarterly call completion rate is  
Service Program   95 percent for interactive voice responses and 80 percent for customer service representatives.  
The contractor shall maintain an average speed of answer of 60 seconds or less measured on a 
quarterly basis. 
Continued on next page  
Medicare Administrative Contractors Performance (OEI-03-11-00740)   22 
   
   
Table B-1: QASP Performance Areas Reviewed  and Description of Selected Standards 
(Continued)  
The paper enrollment applications described in the statement of work shall be considered timely  
processed when 80 percent of applications are processed within 60 calendar days of receipt or 
sooner, 90 percent within 120 calendar days of receipt or sooner, and 99 percent within  
180 calendar days of receipt. 
Provider  The contractor shall process 100 percent of all revocation actions in full accordance with all 
Enrollment  revocation instructions in the Medicare Program Integrity Manual. 
The contractor shall process 100 percent of all provider enrollment appeals in full accordance 
with all appeals instructions in the Medicare Program Integrity Manual. 
Source:  OIGs review of MACs final QASP Summary Reports, 2012. 
   
Medicare Administrative Contractors Performance (OEI-03-11-00740)   23 
   
   
APPENDIX C 
 
Information on Award Fees  
MAC contracts include an award fee that a MAC may earn if its performance exceeds 
basic requirements, and CMS can include metrics in MACs award fee plans to encourage 
MACs to improve their performance.  This appendix provides a description of the award 
fee metrics reviewed, the award fees earned by MAC, and the award fees earned by 
metric.  
Table C-1 shows the types of award fee metrics evaluated for the MACs in our review.   
Table C-1: Award Fee Plan Metrics and Description   
Metric  Description  
Measures timeliness in processing and sending 100 percent of redetermination notices 
within 60 calendar days of receipt.  
Appeals 
Measures the accuracy of Medicare Redetermination Notices issued by the contractor, 
fully or partially affirming denials of claims.  
Audit Quality  Measures the quality of desk reviews, audits, and/or reopenings.    
Measures the timeliness of responses to complex inquiries forwarded from the 
Beneficiary Inquiries 
Beneficiary Contact Center or CMS regional offices.  
Claims Processing  Measures the timeliness of processing clean electronic claims within the statutorily  
Timeliness  specified timeframes. 
Measures the contractors ability to reduce its error rate for improper Medicare payments.   
Comprehensive Error 
Rate Testing   Measures the contractors ability to achieve the Government Performance and Results 
Act goal for Comprehensive Error Rate Testing.   
Measures overall contract management.  When evaluating this metric, CMS considers 
Contract Administration  
cost, timeliness, staff, flexibility, deliverables, and communication.   
Decrease in Paper  Measures the contractors ability to decrease the number of paper  remittance advices  
Remittance  sent to providers in its jurisdiction.  
Increase in Electronic  Measures the contractors ability to increase the use of electronic funds transfer 
Funds Transfer   payments to existing Medicare providers.  
Evaluates the probe findings letter sent to the provider/supplier as a result of medical 
Medical Review 
review.  
Medicare Provider  Measures the contractors overall provider satisfaction as calculated by the Medicare 
Satisfaction Survey   Contractor Provider Satisfaction Survey.  
Continued on next page 
Medicare Administrative Contractors Performance (OEI-03-11-00740)   24 
   
   
  
 
Table C-1: Award Fee Plan Metrics and Description (Continued)   
Metric  Description  
Measures the timeliness of submitting overpayment information to the Program 
Safeguard Contractors (PSCs) or Zone Program Integrity Contractors (ZPICs).   
Program Integrity Support   Measures the contractors responsiveness to PSC or ZPIC requests for information.  
Measures the timeliness of adding a new provider to an established 
payments-suspension flag at the request of the PSC or ZPIC.  
Measures the accuracy  with which customer service representatives responded to 
Medicare policy  questions.   
Provider Customer  Measures the contractors ability to actively market and promote the benefits of being a 
Service  member of the provider listserv(s).  
Measures the contractors rating on the Medicare Contractor Website Customer 
Satisfaction Survey.  
Measures timeliness of processing paper applications for provider enrollment.   
Provider Enrollment 
Measures timeliness of processing Web-based applications for provider enrollment.   
Qualified Independent 
Measures timeliness of Qualified Independent Contractor support.   
Contractor Support  
Systems Security  Measures the contractors compliance with CMSs system security  standards.   
Source:  OIGs review of MACs award fee determination letters, 2012. 
 
Award Fees Earned by MACs  
 
From an overall award fee pool of $39 million across two performance periods, MACs 
earned two-thirds, or $26 million.  MACs earned between 35 percent and 86 percent of  
their respective award fee pools. MACs can earn none, some, or all of the award fee 
associated with each metric.  As shown in Table C-2, of the 314 award fee metrics CMS 
assessed across 2 performance periods, MACs did not earn any award fee for 22 percent 
of metrics.  MACs earned all of the award fee for 51 percent of metrics and some award 
fee for 27 percent of metrics.   
   
Medicare Administrative Contractors Performance (OEI-03-11-00740)   25 
   
   
 
 
Table C-2: Award Fees Earned by MAC 
 
  Percentage of   Percentage of   Percentage of  
Number of   Metrics 
  MAC1  Metrics  Metrics Not Met   Partially Met  Metrics Fully Met 
(No Award Fee  (All Award Fee 
  Assessed   Earned)  (Some Award  Earned) 
Fee Earned)  
 
V  27  22%   59%   19%  
 
Y  29  55%   14%   31%  
 
R  31  23%   39%   39%  
 
  X  17  29%   29%   41%  
  Z  17  24%   35%   41%  
 
Q  17  12%   41%   47%  
 
U  26  19%   23%   58%  
 
P  34  24%   18%   59%  
 
  T  25  20%   20%   60%  
  S  18  6%   33%   61%  
 
N  22  14%   23%   64%  
 
W  26  19%   12%   69%  
 
O  25  4%   20%   76%  
 
  Total  314  22%   27%   51%  
Source:  OIG analysis of award fee determination letters, 2012. 

 
1  We randomly assigned a unique identifier (i.e., a letter)  to each MAC in our review.   Percentages across 

  some rows do not total 100 percent because of rounding.  
 
 
Amount and Percentage of Award Fees Earned by  Metric   
As shown in Table C-3, MACs did not earn any award fee for 68 of 314 metrics.  Over two 
performance periods, the award fee pool for metrics ranged from $20,546 to over 
$14 million.  The metrics assessed varied by MAC and performance period (i.e., not all 
MACs were assessed on every metric).  The $39 million total award fee pool represented 
3 percent of the $1.3 billion in MAC contracts for the two performance periods reviewed.34   
The metric associated with systems security represented 25 percent of all metrics (17 of 68) 
for which MACs earned no award fee. All 13 MACs in our review did not earn any award 
fee for the systems security metric in at least 1 performance period.  Overall, MACs did not 
earn $2.4 million of the $2.9 million of the available award fee pool for this metric.  Appeals 
represented 22 percent of the metrics (15 of 68) for which MACs earned no award fee.  
Overall, MACs did not earn $2.4 million of the $4.7 million of the available award fee pool 
for this metric.  Two additional metricsaudit quality and Medicare provider satisfaction 
surveyhad a high percentage of award fees not earned; however, they were reviewed less 
often and were associated with smaller potential award fees.  Audit quality was assessed 
twice and had an award fee pool of $46,065; MACs did not earn any award fee for this 
 
34
 The $1.3 billion represents the MACs base contract amounts (i.e., it excludes any award fees).   
Medicare Administrative Contractors Performance (OEI-03-11-00740)   26 
   
   
metric.  The metric associated with the Medicare provider satisfaction survey was assessed 
eight times and had an award fee pool of $357,081; MACs did not earn $299,541 of the 
available award fee pool for this metric.   
The contract administration metric is always included in MACs award fee plans and 
represented over one-third of the total award fee pool ($14 million of $39 million) for the 
performance periods reviewed.  Overall, MACs did not earn 31 percent of the available 
award fee pool for contract administration.  
Table C-3: Amount and Percentage of Award Fees Earned by  Metric  
Number  Number of 
Award Fee  Percentage 
of Times   Times   Award Fee 
Metric  Not  of Award  
Metric  Award Fee  Pool  
Earned   Fee Earned  
Assessed  Not Earned 
Audit Quality  2  2  $46,065   $46,065   0%  
Medicare Provider Satisfaction Survey   8  5  $357,081   $299,541   16%  
Systems Security  23  17  $2,917,288   $2,441,707   16%  
Appeals  43  15  $4,735,906   $2,438,800   49%  
Contract Administration   26  2  $14,174,547   $4,326,992   69%  
Decrease in Paper Remittance   5  1  $304,808   $92,356   70%  
Provider Customer Service  51  10  $6,453,814   $1,864,434   71%  
Comprehensive Error Rate Testing   12  4  $750,599   $187,432   75%  
Program Integrity Support   47  6  $4,722,686   $733,245   84%  
Claims Processing Timeliness  22  0  $1,201,600   $182,850   85%  
Beneficiary Inquiries  43  4  $1,670,911   $161,458   90%  
Qualified Independent Contractor Support   27  2  $1,375,315   $115,250   92%  
Provider Enrollment  2  0  $164,757   $0  100%  
Medical Review  1  0  $20,546   $0  100% 
Increase in Electronic Funds Transfer   2  0  $128,602   $0  100%
   Total   314  68  $39,024,523   $12,890,130   67%  
Source:  OIG analysis of award fee determination letters, 2012. 
 
   
Medicare Administrative Contractors Performance (OEI-03-11-00740)   27 
  APPENDIX D 
Agency Comments 
( t 
r""'"".._
DEPARTMENT OF HEALTH & HUMAN SERVICES 
Cen1ers for Medicare & Medicaid Services 
~s~ 
Administrator 
Washington. DC 20201 
DATE:  NOV Z 1 2013 
TO: 	 Daniel R . Levinson 

!nspect.or General 

FROM: 	 Mar'flyn lta~nncr 

Administrator 

SlJBJECT: 	Office of Inspector General (OIG) Draft Report:  "Medicare Administrative 
Contractors' Performance" (OEI-03-11-00740) 
Thank you for the opportunity to review and respond on the above subject OIG Draft Report. 
Given the billions of dollars awarded to Medicare Administrative Contractors (MACs) and the 
critical role they play in the administration of the Medicare program, effective oversight of these 
contractors' performance is important to ensure that they are adequately processing claims and 
performing other assigned tasks. 
The OIG recommendations and CMS responses to those recommendations are discussed below. 
OIG Recommendation 
The OIG recommends that CMS require action plans for all unmet QASP standards. 
CMS Response 
'!be CMS concurs with the recommendation. Effective June 19, 2013, C!\IS began requiring 
action plans for all Quality Assurance Surveillance Plans (QASP) standards that were not met. 
However, we note that a request for an action plan may change as the QASP report goes through 
the rebuttal process. For example, sometimes corrective actions have already been taken after 
the issue has been identified.  Moreover, the CMS works closely with the Business Function 
Leads, Technical Monitors, and the Contracting Officer's Representative to determine ifan 
action plan is needed based on specific circumstances. For example, if the contractor did not 
meet a I 00 percent standard in only one month in a period of performance, an action plan may 
not be required for that period of performance. In those instances, CMS makes a determination 
if an action plan is needed. 
OIG Recommendation 
The OIG recommends that CMS use QASP results to help select award fee metrics for review 
and to establish award fee metrics for the " Medicare secondary payer" area. 
Medicare Administrative Contractors' Performance (OEl-03-11 -00740)  28   
   
 
 
 
   
Medicare Administrative Contractors Performance (OEI-03-11-00740)  29 
   
   
 
 
 
   
Medicare Administrative Contractors Performance (OEI-03-11-00740)  30 
   
   
ACKNOWLEDGMENTS 
This report was prepared under the direction of Robert A. Vito, Regional 
Inspector General for Evaluation and Inspections in the Philadelphia 
regional office, and Linda M. Ragone, Deputy Regional Inspector General.   
Tara Bernabe served as the team leader for this study.  Other Office of 
Evaluation and Inspections staff from the Philadelphia regional office who 
conducted the study include Nancy J. Molyneaux and Sunil Patel.  Central 
office staff who provided support include Scott Manley and 
Christine Moritz.   
Medicare Administrative Contractors Performance (OEI-03-11-00740)   31 
   
Office of Inspector General
http://oig.hhs.gov  
 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as  
amended, is  to protect the integrity of the Department of  Health and Human Services  
(HHS)  programs, as well as the health and welfare of beneficiaries  served by those 
programs.  This statutory mission  is  carried  out through  a nationwide network  of  audits, 
investigations, and inspections conducted by the  following operating components: 
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The Office  of  Audit Services  (OAS) provides auditing services  for HHS, either by  conducting  
audits  with its own audit resources or by  overseeing  audit work done by others.  Audits  
examine the performance of HHS programs and/or its grantees and contractors in carrying  
out their respective responsibilities and are intended  to provide independent assessments of 
HHS programs and operations.  These assessments help reduce waste, abuse, and  
mismanagement and promote economy and efficiency  throughout  HHS. 
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The Office  of  Evaluation and Inspections (OEI)  conducts national evaluations to  provide 
HHS, Congress, and the public with timely, useful, and reliable information on significant 
issues.  These evaluations focus on preventing fraud,  waste, or abuse  and promoting  
economy, efficiency, and effectiveness of departmental programs.  To promote impact, OEI 
reports also present practical recommendations for improving program operations.  
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The Office of Investigations (OI) conducts criminal, civil, and administrative investigations  
of  fraud and misconduct  related to HHS programs, operations, and beneficiaries.  With 
investigators working in all 50 States and the District of Columbia, OI  utilizes its resources 
by actively  coordinating with the Department  of Justice  and other Federal, State, and local 
law enforcement authorities.  The investigative efforts of OI often lead to  criminal 
convictions, administrative sanctions,  and/or  civil monetary  penalties.  
Office of Counsel to the Inspector General 
The Office of Counsel to the  Inspector  General (OCIG) provides general legal services to 
OIG, rendering  advice and opinions on HHS programs and operations and  providing all  
legal support for OIGs  internal operations.  OCIG represents  OIG in all civil and 
administrative fraud and abuse cases involving HHS programs,  including False Claims Act, 
program exclusion, and civil monetary penalty cases.  In  connection with these cases, OCIG 
also negotiates and monitors corporate integrity agreements.  OCIG renders advisory 
opinions, issues compliance program  guidance, publishes fraud alerts, and provides other  
guidance  to  the health care industry concerning the anti-kickback statute and other  OIG  
enforcement authorities.