Summary: The Department of Health and Human Services (HHS) submitted a legislative proposal that would modify Medicare's contracting authority. This report examines (1) the current law and practice in Medicare claims administration contracting, (2) provisions in the proposal that would increase HHS Centers for Medicare and Medicaid Services' (CMS) contracting flexibility, and (3) the provisions that deviate from standard federal contracting requirements for full and open competition and indemnification of contractors. Because of statutes and long-standing practices, Medicare claims administration contracting does not follow standard federal contracting rules in several ways. For example, federal agencies can generally terminate a contract at any time, but CMS cannot terminate contracts with Medicare claims administration contractors at the federal government's convenience. The proposed legislation would give CMS the same authority as other federal agencies to retain or terminate contractors. These provisions would increase the agency's flexibility to promote the contractor's performance and accountability. GAO is concerned, however, that the provisions would also allow CMS to bypass federal contracting rules for full and open competition. In addition, the proposal includes a provision that would require CMS to indemnify claims administration contractors from certain liabilities in a way that creates a potential open-ended liability for the government while reducing contractor accountability.
