became evident that Medicare is unlike other SSA programs and that SSA was not prepared to deal as effectively with this program as it had with others.

(3) While problems continue with the mechanistic processing of claims, the basic issues are turning more toward using the claims processing systems as a source of improved information, toward developing effective, operational definitions of reasonable costs and necessary services, and toward coordinating government actions with activities of the health professions and institutions.

(4) While Congress accommodated the private sector by bringing it into Medicare, Congress will not leave the role of the private sector unchanged if its performance does not measure up to the cost and quality expectations of the day.

(5) All parties are looking to Medicare as a prototype for use in designing national health plans. Some parts of the private sector do not now resist what they view as over-control out of fear of being left out of future health programs or a desire to avoid responsibility for determining future relationships.

(6) While the above is true, it is also a "fact" that extant patterns of Medicare administration are likely to be adopted in an expanded health insurance program.

(7) Congress is unlikely to change directions completely by not using contractors at all for the administration of health programs.

These "facts" provide two possible directions for the contractor relationship. The first would be the unchanged continuation of the present relationship of accommodation. In many respects this would be the easiest for both the government and the contractors because it is unlikely that Congress will force the health insurance industry out of the program, and a role in future national health programs for the industry would be reasonably assured. The private sector would be free to continue the verbiage surrounding its own use without having to live up to its promises. Flexibility and the advantages of decentralized delivery of administrative services could still be talked about without really being achieved. SSA could continue to describe the advantages of the private sector while, at the same time, increasing controls so that contractor organizations increasingly resemble a normal government bureaucracy. In essence, the original political accommodation would continue supporting certain myths about private sector participation, but the partnership would remain less a shared responsibility and more a dependency relationship. While the extension of health insurance for the aged to the population as a whole would probably mean an extension of that accommodation, the end result would be a captive industry much

like parts of the defense establishment. If this approach is followed, the basic public administration question, whether the private sector can improve the administration of this public program through participation, will remain unanswered.

The second alternative is for SSA and its contractors to develop a relationship which will enable the private sector to add its full capability to the administration of the Medicare program. This quite clearly would mean attention to ways and means to improve the quality as well as the efficiency of the delivery system and the satisfaction of the recipients. Several basic decisions would have to be made by SSA. Some of them are:

(1) SSA would have to rely on established standards with an emphasis on results rather than detailed regulations, with recognition of the possible consequences of such action.

(2) SSA would have to reorganize its Medicare administration policy processes,
giving the contractors an earlier and more significant role in establishing
policy and in formulating administrative procedures.

(3) Top management of the agency would have to make strong efforts to change
their own and their agency staff attitudes toward the contractors.
(4) To accomplish points (1), (2), and (3), top management must take a much
more active role in negotiations and decision-making with the contractors.
(5) SSA would have to coordinate closely its activities with other units of the
executive branch, recognizing that it is impossible to separate policy and
administration and that it may be necessary to change attitudes in other
parts of the government towards the administration of the Medicare
program.

The contractors would have to make equally important changes. In essence, they would need to stop talking about the virtues of the private sector and undertake to demonstrate them. This would mean:

(1) They would have to accept the idea of public accountability and disclosure, recognizing that the standards and operating policies which govern their private business are not necessarily appropriate for Medicare.

(2) They would have to be agents of the public interest in dealing with the providers of service.

(3) They would have to accept SSA as having the overall administrative responsibility for the program, including evaluation of contractor perfor

mance.

(4) They would weaken their option for appeal through the political system, in all but the most serious circumstances, as they increase their role in policy determination at the administrative level of government.

The Medicare Panel feels that the accommodation relationship should be abandoned and that the second alternative should be adopted. The Panel recognizes that

the necessary changes could not be accomplished overnight and that ultimate success will depend upon the good faith of all parties, the administrative skills of the participants, and a better understanding within and between the executive and legislative branches of government. However, the potential benefits of such an improved relationship are of great importance and the potential payoff tremendous. Some immediate things that can be done are:

(1) The Commissioner of Social Security, following the suggestions made at the Belmont Conference on the Administration of Medicare,* should supply the personal leadership to develop a means, formal and informal, for joint government-private sector consideration of contract policy issues, leading to a statement useful as a guideline for the multiplicity of actions and decisions of all parties. This policy cannot be successfully developed or implemented unilaterally. In the carrying out of the means developed, the continuing participation of the Commissioner and his Deputy will be essential if success is to be achieved.

(2) A joint review by SSA and the contractors should be made of the organization of Medicare administration to consider the number and jurisdiction of contractors and the systems of communication between them and SSA.

(3) A SSA-contractor system of cooperation on proposed legislative changes which bear on contractor relations should be developed. All parties should enter into discussions with the appropriate legislative committees so that the Congress is appraised of what is going on.

(4) A joint SSA-contractor study should be undertaken before the next series of contracts are signed, aimed at making recommendations for moving towards the goal of increasingly shared responsibility.

(5) Both SSA and the contractors should examine their internal management systems and the interfaces between and among them to see if they are consistent with increased responsibility and public accountability for the

contractors.

(6) Title XVIII Section 402 of the Social Security Act as amended provides encouragement for a variety of administrative experiments. This congressional direction should be vigorously pursued toward the SSAcontractor goal of a more effective private sector role.

See Summary of the Proceedings of the Belmont Conference on the Administration of the Medicare Program, National Academy of Public Administration, Washington, D.C., 1973.

MEDICARE PROJECT PANEL

Richard C. Brockway (Co-chairman)
Vice Chairman of the Board of

The National Health and Welfare Retirement Association

Phillip S. Hughes (Co-chairman)
Director, Office of Federal Elections
U.S. General Accounting Office

John A. Perkins

Vice President for Administration
University of California at Berkeley

Professor William B. Storm
School of Public Administration
University of Southern California

James E. Webb
Attorney-at-Law

STAFF

Neil Hollander
Project Director
Senior Research Associate

Robert G. Joyce
Research Assistant

Sarah Jo Melender

Donna Gallia
Winifred Roots
Secretaries

9

CHARTER

A Joint Project of the National Academy of Public Administration And the Social Security Administration for the Improvement of Contractor Operations in the Medicare Program

I. Background

The Medicare Program, now in its fourth year of operation, is administered by the Social Security Administration (SSA) under the provisions of Title XVIII of the Social Security Act, in large part, through contracts with intermediaries and carriers. These organizations, as contractual representatives of SSA, are charged with the responsibility of determining the coverage of services rendered to beneficiaries under the program and the payments due the providers of such health care and the suppliers of such medical services and of making such payments. They are also responsible for performing certain related administrative services such as disseminating program information to providers and auditing their records. The contractual relationship is complex in its service requirements and in its interface with SSA. With regard to Part A of the program, an intermediary, to be selected, must first be nominated by the providers of services and SSA must determine that the selection is administratively sound. With regard to Part B of the Program, no nomination is involved and SSA selects carriers to serve an assigned geographical area.

The Social Security Administration is concerned with optimizing the effectiveness of contractor operations, providing effective measures of contractor performance, and improving the relationship between contractors and the Administration. It is SSA's judgment that a concentrated examination of the experience of the past four years and of current issues and problems, and a careful search for innovations or new boundaries can be productive in defining improvement possibilities and accomplishing such improvements.

It is the further judgment of the Social Security Administration that a prestigious, disinterested, highly professional third party by reason of its great experience, knowledge, and objectivity could contribute greatly to furthering this effort by bringing an independent point of view to bear on how to achieve optimum effectiveness in the performance of the responsibilities assigned by statute and contract to contractors. At the level of competence and prestige we envisage, such a third party could be extremely helpful also in exploring new dimensions and directions, in developing new channels of exchange and communication, and in acting as an independent agent for the presentation of possible program innovations involving the roles or responsibilities of contracting organizations.

With these considerations in mind, the Deputy Commissioner of the Social Security Administration, the Assistant Commissioner for Administration, and the Director of the Bureau of Health Insurance engaged in an exploratory dialogue with the National Academy of Public Administration. The National Academy was represented by George A. Graham, Executive Director and Secretary; James E. Webb, Treasurer;