Medicare and Managed Care Plans:

Payments and Costs for Selected Hospitals

HEHS-00-177R: Published: Sep 1, 2000. Publicly Released: Sep 1, 2000.

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Pursuant to a congressional request, GAO reviewed Medicare and managed care plan hospital costs and payments, focusing on: (1) the relationship between Medicare and managed care plan payments and costs; (2) managed care plan payments and the relative importance of managed care business; and (3) Medicare and managed care plan payments and costs by hospital teaching status.

GAO noted that: (1) for the average hospital responding to GAO's survey, payments from both managed care plans and Medicare covered their respective costs for all types of cases, although there was considerable variation across hospitals in the relationship between payments and costs; (2) average managed care plan payments per case for inpatient services were lower than average Medicare payments for the types of cases GAO examined; (3) however, average managed care plan costs per case were also lower than Medicare's; (4) the relationship between managed care plan payments and costs appeared to be associated with the level of managed care enrollment in the responding hospital's market area and the hospital's relative share of inpatient revenues from this payer; (5) responding hospitals in areas with low managed care plan enrollment or responding hospitals with more managed care plan business were more likely to have higher plan payments, relative to their costs, than other responding hospitals; (6) the average hospital with a large teaching program reported losses from its managed care business, but Medicare payments were well above its costs; and (7) managed care plan payments were more generous than Medicare's to the average responding hospital with a smaller teaching program, although Medicare payments still on average covered its costs.

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