Medicare:

Excessive Payments Support the Proliferation of Costly Technology

HRD-92-59: Published: May 27, 1992. Publicly Released: Jun 30, 1992.

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Pursuant to a congressional request, GAO compared Medicare payment levels with providers' costs for such high-technology radiology services as magnetic resonance imaging (MRI) and Computed Tomography, to determine whether the Health Care Financing Administration (HCFA) has adjusted technical component payments to reflect cost decreases.

GAO found that: (1) Medicare's technical component payments for MRI services do not reflect technological advances, reduced equipment costs, and faster scans, all of which are expected to reduce costs and justify future reductions in reimbursement rates; (2) payment levels are primarily based on initial payment levels set by local Medicare carriers, charge-based payments, and fee schedule systems mandated by Congress; (3) in fiscal year (FY) 1990, MRI facilities had higher patient volumes and lower per-scan costs than in FY 1985, primarily since MRI machine upgrades have made them faster, and some providers do more scanning at a lower unit cost, especially in states with limited MRI proliferation; (4) in some geographic areas, such as Florida, there is a large number of MRI providers and much excess machine capacity, and high Medicare payment rates subsidize excess capacity by allowing providers to realize profits at low operational volumes; (5) some MRI machines are performing two to four times the 2,000 scans per year cited in HCFA guidance; (6) Congress has mandated changes to Medicare payment policies, including reducing technical component payments and the geographic variation in payment levels; and (7) in some localities, payments are still too high and are based in part on historical allowed charges instead of costs.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: HCFA contracted with a consulting firm to survey physicians and obtain detailed practice expense information, however the survey was abandoned due to a low response rate. Instead, HCFA is using alternate methodology to adjust the practice expense component of the physician fee schedule to reflect resources used rather than physicians' charges. The Balanced Budget Act of 1997 requires that HCFA delay implementation of the new resource-based practice expense fee schedule until 1999. The Congress also required that the revisions to the fee schedule be budget neutral and be based on actual data on equipment utilization.

    Recommendation: The Secretary of Health and Human Services (HHS) should require the Administrator, HCFA, to survey the technical component costs incurred by facilities providing radiology services and revise the fee schedule to more accurately reflect the unit costs incurred by high-volume, efficient providers.

    Agency Affected: Department of Health and Human Services

  2. Status: Closed - Implemented

    Comments: HHS agreed that periodic adjustments are needed, but did not support annual payment reviews for evolving technologies.

    Recommendation: The Secretary of Health and Human Services should require the Administrator, HCFA, to periodically adjust technical component payments to reflect changing costs, with annual payment reviews for procedures that use high-cost, evolving technologies.

    Agency Affected: Department of Health and Human Services

  3. Status: Closed - Implemented

    Comments: HHS stated that it must have the discretion to determine the methodology used in setting technical component allowances, but agreed that volume and efficiency should be among the major considerations.

    Recommendation: When new radiology services are approved for Medicare coverage, the Secretary of Health and Human Services should require the Administrator, HCFA, to set technical component payment rates that reflect the costs incurred by high-volume, efficient providers.

    Agency Affected: Department of Health and Human Services

 

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