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HRD-83-30 1 (1983-02-02)

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HUMAN RESOURCES
   DIVISION


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FEBRUARY 2 1983


The Honorable Robert Dole, Chairman
Committee on Finance
United States Senate


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The Honorable John Heinz
Chairman, Special Committee
  on Aging
United States Senate


     Subject: Response to Questions Concerning Percentage
               Contracts and Limited Service Contracts
               under Medicare (GAO/HRD-83-30)

     Your July 14, 1982, letter asked a number of questions
related to contracting by Medicare providers. Since then,
changes have been made in the Medicare law regarding percent-
age-type contracts by the Tax Equity and Fiscal Responsibility
Act of 1982 (Public Law 97-248, approved Sept. 3, 1982). We
agreed with your offices to address the questions related to
such contracts in light of those changes. We also agreed to
address the questions related to the need for Medicare's proce-
dures for determining the reasonableness of prices under limited
service contracts based on our prior report on management serv-
ice contracts and on the rationale behind the current reimburse-
ment requirements. In addition, we have begun a study designed
to address your questions related to the inclusion in full-
service management contracts of clauses calling for the contrac-
tor to do the purchasing for the provider. We will report to
you on the results of that study at a later date.

     In summary, we believe that Public Law 97-248 should, when
implemented, significantly reduce the use of percentage-type
contracts by providers under Medicare. Also, we believe that
Medicare's use of reasonableness tests on the amount paid under
limited service contracts is justified.


                                                         (106239)


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UNITED STATES GENERAL ACCOUNTING OFFICE
           WASHINGTON, D.C. 20548


                 RELEASED

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