Reforming and Refining Medicare Payments

Absent reform, the Medicare program remains on a path that is fiscally unsustainable over the long term. This fiscal pressure heightens the need for the Centers for Medicare & Medicaid (CMS) to improve Medicare’s payment methods to achieve efficiency and savings. Since January 2009, CMS has implemented payment reforms for many parts of the program, such as Medicare Advantage, inpatient hospital, home health, and end-stage renal disease services.

• CMS continues its phased implementation of the Medicare Physician Feedback Program, which it developed to, among other things, identify physicians with inefficient practice patterns and help those physicians reduce their service costs.  CMS established the program in 2008 and is distributing feedback reports to an increasing number of physicians. These reports can help control costs in several ways, such as providing information to physicians on how their resource use compares to their peers’ and helping them develop strategies for reducing costs in their practices.  In September 2011, after GAO’s report was issued, CMS provided reports to 35 physician groups and plans to provide reports to over 20,000 individual physicians in early 2012 and to over 100,000 physicians later in 2012.  CMS plans to do further testing of the reports with the goal of providing feedback reports to all applicable physicians by 2017. However, in previous testing of the reports, CMS found that physicians did not generally access those reports.

Highlights of GAO-07-307 (PDF), Highlights of GAO-11-720 (PDF)

• In addition, CMS has taken steps to ensure that some physician fees recognize efficiencies when certain services are furnished together, but the agency has not targeted the services with the greatest potential for savings. Under the budget neutrality requirement, the savings that have been generated have been redistributed to increase physician fees for other services. Therefore, GAO recommended in 2009 that Congress consider exempting savings from adjusting physician fees to recognize efficiencies from budget neutrality to ensure that Medicare realizes these savings.

  Highlights of GAO-09-647 (PDF)

• GAO’s work has also shown that payment for imaging services may benefit from refinements. Specifically, CMS could add more front-end approaches to better ensure appropriate payments, such as requiring physicians to obtain prior authorization from Medicare before ordering an imaging service.

  Highlights of GAO-08-452 (PDF)

• CMS also has opportunities to improve the way it adjusts physician payments to account for geographical differences in the costs of providing care in different localities. GAO has recommended that the agency examine and revise the physician payment localities it uses for this purpose by using an approach that is uniformly applied to all states and based on the most current data. CMS agreed to consider the recommendation, but was concerned about its redistributive effects. The agency subsequently initiated a study of physician payment locality adjustments. The study is ongoing and CMS has not implemented any change.

  Highlights of GAO-07-466 (PDF)

Another major Medicare payment challenge involves the Medicare Advantage program (MA—or Medicare Part C), in which private health plans provide health care coverage to Medicare beneficiaries. Private health plans were originally introduced into Medicare as a potential cost-saving measure, but the Medicare Payment Advisory Commission estimates that in 2009, Medicare payments to MA organizations will amount to $12 billion more than would have paid if these beneficiaries were served in Medicare's traditional fee-for-service program. GAO's work has shown that MA plans have spent less of their total revenue on providing care than originally projected and that some beneficiaries can have higher out-of-pocket costs in MA plans than in the traditional Medicare program. In a study on risk adjustments for MA plans—a process whereby the amount CMS pays an MA plan to cover a beneficiary is adjusted to reflect beneficiary health status—GAO found that the proposed revisions CMS made to its principal risk-adjustment model, the community model, would have varied effects on payment accuracy for the high-risk groups that were studied. In addition, CMS’s new risk adjustment model for new enrollees in chronic condition special needs plans (C-SNP)—which targets beneficiaries with certain severe or disabling chronic conditions—substantially improved the accuracy of MA payment adjustments, on average, for new enrollees with C-SNP conditions as compared to the previous model, but considerable inaccuracy in the model’s estimates remains for certain groups.

Full report of GAO-08-827R (PDF), Highlights of GAO-09-25 (PDF), Highlights of GAO-08-359 (PDF), Highlights of GAO-12-52

Our examination of payment rates for home oxygen found that although these rates have been reduced or limited several times, further savings are possible. As we reported in January 2011, if Medicare used the methodologies and payment rates of the lowest-paying private insurer of eight private insurers studied, it could have saved about $670 million of the estimated $2.15 billion it spent on home oxygen in 2009. Additionally, we found that Medicare bundles its stationary equipment rate payment for oxygen refills, but refills are required only for certain types of equipment, so a supplier may still receive payment for refills even if the equipment does not require them.

Highlights of GAO-11-56 (PDF)

Beginning in 2011, CMS is required to use a single payment to pay for dialysis care for beneficiaries with end-stage renal disease (ESRD). The agency’s preliminary plans for monitoring the effects of this new payment system are built on existing initiatives, but it is unclear whether CMS will monitor the effects of quality or access to dialysis services for various beneficiary groups. In addition, CMS repeatedly delayed implementation of a new system to collect data for quality measures related to dialysis care, and we reported concerns about the reliability of data from this system. CMS officials recognized the importance of timely and reliable quality monitoring under bundled payment systems and told us that they intend to collect data using an alternative mechanism in 2011. CMS will make another payment change in 2014 when it incorporates certain oral dialysis-related drugs—used to treat mineral and bone disorder—into the single payment. However, to make this change, CMS is limited to using data on payments for these drugs that may understate the costs of providing them. This limitation raises questions about whether the single payment will be adequate in 2014 when these oral drugs are included. We and others have stated that inadequate payments could lead to access and quality of care issues for beneficiaries on dialysis.

Highlights of GAO-10-295 (PDF), Highlights of GAO-11-365

^ Back to topWhat Needs to Be Done

CMS should take further actions to refine Medicare's payment methods and the collection of data used as a basis for setting payment rates and assessing their effects, such as

• using methodological approaches that increase physician eligibility for reports, statistically analyzing the impact of its methodological decisions on report reliability, identifying and addressing factors that may have prevented physicians from reading reports, and obtaining input from a sample of physicians on the usefulness and credibility of reports

  Highlights of GAO-11-720

• reducing home oxygen payment rates and removing payment for portable oxygen refills from the payment for stationary equipment.
  

  Highlights of GAO-11-56 (PDF)

• establishing and implementing a formal plan to monitor the expanded home dialysis bundled payment system to determine whether home dialysis utilization rates increase as CMS expects and begin monitoring access to and quality of dialysis care for certain beneficiary groups as soon as possible after implementation of new payment system,
  

  Highlights of GAO-09-537 (PDF), Highlights of GAO-10-295 (PDF)

• examining and revising the physician payment localities using an approach that is uniformly applied to all states and based on the most current data,
  

  Highlights of GAO-07-466 (PDF)

• enhancing its new profiling system that identifies individual physicians with inefficient practice patterns by including in its system empirically-based standards that set the parameters of efficiency and financial or other incentives for individual physicians to improve the efficiency of the care they provide, and by developing methods for measuring the impact of physician profiling on Medicare spending, and use the results to improve the efficiency of care financed by Medicare, seeking legislation as necessary;
  

  Highlights of GAO-07-307 (PDF)

• improving management of approval of payment for imaging services;
  

  Highlights of GAO-08-452 (PDF)

• assessing payment adequacy when oral-only ESRD drugs are included in the bundled payment and ensuring availability of reliable data for monitoring treatment of mineral and bone disorder; and

  Highlights of GAO-11-365

• systematically reviewing services commonly furnished together and capturing those efficiencies in payments, focusing on those service pairs that have the greatest impact on Medicare spending.

In addition, Congress should consider exempting savings realized from payment changes for services commonly furnished together from budget neutrality, so that savings accrue to Medicare.

Full Report of GAO-09-647 (PDF)

^ Back to topKey Reports

Medicare Advantage

Medicare Physician Feedback Program

End-Stage Renal Disease

Medicare Home Oxygen

End-Stage Renal Disease

Medicare Physician Payments

Medicare Part B Imaging Services

More Reports