HHS Secretary Tommy G. Thompson today called on Congress to enact the Bush administration's proposed legislation to begin strengthening and modernizing Medicare by opening up the program's claims-processing contracts to competitive bidding. By law, Medicare must contract with private health insurance companies to process and pay Medicare claims without needed flexibility available under other government contracts.

"Reforming the processes that are used to select Medicare contractors will help us to serve our beneficiaries more efficiently," Secretary Thompson said. "Changing the law will allow us to better meet the needs of beneficiaries, physicians and healthcare providers, now and in the future."

Since Medicare was created in 1965, the Centers for Medicare & Medicaid Services (formerly the Health Care Financing Administration) has used private health insurance companies to process Medicare claims and perform related administrative services for beneficiaries and health care providers. Today, CMS uses 49 contractors, located all across the country, to process nearly a billion Medicare claims every year, from more than 1 million doctors and other health care providers.

"The current arrangement is one of the worst remnants of Medicare's original design," CMS Administrator Tom Scully said. "To move Medicare into the 21st century successfully, we must take aggressive action to reform the current contracting system."

The legislative proposal, unveiled at a hearing of the House Energy and Commerce Committee's subcommittees on Health and Oversight and Investigations, would allow the HHS Secretary more flexibility in contracting with the private companies that process Medicare claims under the Federal Acquisition Rules. The legislation would also increase CMS' ability to reward well-performing contractors.

Through this legislation, CMS hopes to accomplish the following:

* Provide flexibility to CMS and its contractors to work together more effectively and better adapt to changes in the Medicare program.

* Promote competition, leading to more flexible efficiency and greater accountability.

* Establish better coordination and communication between CMS, its contractors and health care providers.

* Promote CMS' ability to negotiate incentives for Medicare contractors to perform well.

"We must improve efficiency and the level of service to our beneficiaries and providers," Secretary Thompson said. "We would like to work cooperatively with our existing contractors to get to this goal - but the changes will require legislative action."