Medicare Spending:

Modern Management Strategies Needed to Curb Billions in Unnecessary Payments

HEHS-95-210: Published: Sep 19, 1995. Publicly Released: Sep 19, 1995.

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Pursuant to a congressional request, GAO examined Medicare's vulnerability to provider exploitation and ways to remedy Medicare fraud and abuse.

GAO found that Medicare is vulnerable to billions of dollars in unnecessary payments, since Medicare: (1) pays higher than market rates for certain services and supplies; (2) anti-fraud and abuse controls do not systematically prevent the payment of claims for improbably high charges or manipulated billing codes; and (3) checks on the legitimacy of providers do not adequately detect the potential for fraud. In addition, GAO found that: (1) Medicare has not used the health care management strategies that have helped private payers alleviate weaknesses; (2) Medicare pricing methods and utilization controls have not adapted to current health care financing and delivery changes; (3) the uncertain line between adequate managerial control and excessive government intervention explains the differences in the ways Medicare and private health insurers administer their respective plans; and (4) Medicare should implement a strategy to remedy its weaknesses that includes competitive payment rates, enhanced fraud detection, and more rigorous criteria for granting authorization to bill the program.

Matters for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: In a number of reports and testimony, GAO recommended that the Congress grant HCFA authority to adjust the prices the Medicare program pays for certain items to ensure that its payment rates reflect fair market prices. Partly as a result of GAO's recommendations, the Congress enacted section 4316 of the Balanced Budget Act of 1997 (Public Law 105-33, August 5, 1997), authorizing HCFA to adjust prices for all part B services (other than physician services) by up to 15 percent from the prior year's prices. HCFA issued implementing regulations on January 7, 1998, which became effective March 9, 1998.

    Matter: Given the urgency of expediting Medicare program changes that could lead to substantial savings, Congress may wish to consider directing the Secretary of Health and Human Services to develop a proposal seeking the necessary legislative relief that would allow Medicare to participate more fully in the competitive health care marketplace.

  2. Status: Closed - Implemented

    Comments: Funding increases are included in recently enacted legislation (Health Insurance Portability and Accountability Act of 1996).

    Matter: Congress may wish to consider options for granting relief for the funding declines in Medicare's anti-fraud-and-abuse activities.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Some, but not all, of these activities were incorporated in recently passed legislation (the Health Insurance Portability and Accountability Act of 1996).

    Recommendation: The Secretary of Health and Human Services should direct the Administrator, Health Care Financing Administration, to seek the authority necessary from Congress to carry out these activities.

    Agency Affected: Department of Health and Human Services

  2. Status: Closed - Implemented

    Comments: Section 4016 of the Balanced Budget Act of 1997 authorized a Medicare Coordinate Care Demonstration to evaluate the use of methods, such as case management, on individuals with chronic illnesses enrolled in the Medicare fee-for-service program, at nine or more demonstration sites. HCFA issued the design for this demonstration in the Federal Register on July 28, 2000, proposals were solicited in August, and are due by October 11, 2000. In addition, Section 202 of the Health Insurance Portability and Accountability Act of 1996 established a Medicare Integrity Program (MIP). Under MIP, the Secretary of HHS has contracted with entities referred to as Program Safeguard Contractors (PSCs) to undertake a variety of program safeguard activities to promote the integrity of the Medicare program. Utilization review of providers is performed by some of these PSCs, including the Western Integrity Center and the Year 2000 contractor.

    Recommendation: The Secretary of Health and Human Services should direct the Administrator, Health Care Financing Administration, to examine the feasibility of allowing Medicare's commercial contractors to adopt for their Medicare business such managed care features as preferred provider networks, case management, and enhanced utilization review.

    Agency Affected: Department of Health and Human Services

  3. Status: Closed - Implemented

    Comments: Two sections of the Balanced Budget Act allow CMS to price services and procedures more competitively. First, Section 4316 authorizes CMS to adjust prices for supplies and non-physician services by up to 15 percent under an "inherent reasonable process," without going through formal rule making. In July 2000, GAO reported that the inherent reasonableness process was implemented, and generally being used appropriately. However, CMS was required by the Balanced Budget Refinement Act to develop a final regulation before using this authority, and the final regulation has not yet been published. Second, Section 4319 of the Act directed HCFA to establish a demonstration project to test the impact of competitive acquisition. HCFA has an ongoing demonstration of competitive acquisition for durable medical equipment (DME) in Polk County, FL (begun in 1999) and in San Antonio, Texas,(begun in 2001.) HCFA claims average savings of 17 percent in the Polk County demonstration. HCFA, through the National Supplier Clearinghouse, has better scrutinized supplier credentials by instituting a licensing/certification verification process, increasing capability to perform background checks on questionable applicants, and conducting site visits to ensure that suppliers have an appropriate physical facility. HCFA is undertaking other actions that will address the rest of the provider community, including drafting a new provider enrollment regulation which will increase HCFA and contractor authority to scrutinize provider applications, and deny enrollment to parties that have criminal records.

    Recommendation: The Secretary of Health and Human Services should direct the Administrator, Health Care Financing Administration, to develop policies and revise practices so that Medicare can: (1) price services and procedures more competitively; (2) manage payments through state-of-the-art data analysis methods and use of technology; and (3) better scrutinize the credentials of vendors seeking to bill the program.

    Agency Affected: Department of Health and Human Services

 

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