Medicare:

Further Changes Needed to Reduce Program and Beneficiary Costs

HRD-91-67: Published: May 15, 1991. Publicly Released: Jun 14, 1991.

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Pursuant to a congressional request, GAO provided information on Medicare's efforts to reduce its program and beneficiary costs.

GAO found that: (1) the growth in Medicare hospital payments averaged 15.7 percent annually in the 3 years before it established the prospective payment system (PPS), resulting in 6.3-percent annual growth rate since 1983; (2) additional Medicare PPS payments would not necessarily guarantee rural hospitals' financial viability; (3) Medicare should reduce PPS payments to teaching hospitals by a third to more accurately reimburse hospitals for their indirect medical education costs; (4) the Health Care Financing Administration (HCFA) should continue to refine the diagnosis-related groups to reduce wide variations in treatment costs; (5) continued inadequate funding by the Medicare program could compromise the successful implementation of physician payment reform; (6) if HCFA eliminated the link between anesthesia time and payment levels, Medicare could save $50 million annually; (7) reducing payments for laboratory services could save Medicare $150 million annually; (8) to reduce Medicare costs, HCFA should consider developing a procedure for redetermining payments as new technologies mature and associated costs fall; (9) technical corrections to the payment calculation for ambulatory outpatient surgery would reduce Medicare payments and beneficiary costs; (10) despite some potential advantages, there were persistent problems with health maintenance organization (HMO) payment methods and program oversight; and (11) consideration should be given to modifying the method to fund increased expenditures for Medicare safeguard activities.

Matters for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: Congress has not yet taken action. Reforms for managed care initiatives are being considered in the context of broad-based health care reform.

    Matter: Congress may wish to consider directing HCFA to test and assess alternative ways to market HMO that serve Medicare beneficiaries. Specifically, Congress could direct that HCFA conduct demonstrations to test-market HMO through independent third-party organizations operating under HCFA direction.

  2. Status: Closed - Not Implemented

    Comments: Congress has not yet taken action. Reforms for managed care initiatives are being considered in the context of broad-based health care reform.

    Matter: Congress should consider broadening HCFA sanction authority, for example, by authorizing civil monetary penalties when HMO do not comply with peer review organization review requirements.

  3. Status: Closed - Implemented

    Comments: Recently passed legislation (Health Insurance Portability and Accountability Act of 1996) provides new funding mechanisms for program safeguard activities.

    Matter: Increasing funding for payment safeguard activities, and thereby preventing inappropriate program payments, could help lessen the need for the difficult across-the-board cuts to all providers that Congress is faced with annually. Consequently, Congress should consider appropriating additional funds for contractor safeguard activities.

  4. Status: Closed - Not Implemented

    Comments: Several bills have been introduced to implement this recommendation, but none have been enacted. Given rigorous budgetary constraints and competing demands, Congress is not likely to enact this recommendation.

    Matter: Because of the strong potential for a net reduction in federal spending, Congress should consider establishing a similar means of facilitating increased expenditures to fund Medicare administrative costs.

 

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