Savings Available by Contracting for Medicaid Supplies and Services

HRD-78-60: Published: Jul 6, 1978. Publicly Released: Jul 6, 1978.

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Federal funds provided by the Medicaid program are used to purchase Medicaid supplies and services, including eyeglasses, oxygen, durable medical equipment, and clinical laboratory services. Each State has primary responsibility for administering its Medicaid program. Although the Social Security Act requires that State Medicaid programs provide certain basic services to all eligible persons, Medicaid coverage for miscellaneous supplies and services is not uniform.

The Medicaid program could realize considerable savings if the States used competitively bid or negotiated contracts to purchase medical supplies or services for Medicaid recipients. States using direct contract methods obtain supplies at lower prices than those States applying the criteria of usual and customary as permitted by regulations. In three Northeastern States, Medicaid was paying higher prices for clinical laboratory services than other purchasers even though the program was a large consumer of such services. Other purchasers take advantage of volume and professional discounts, lower fee schedules, and direct contracting to obtain better prices. The issue of whether direct contracting by States is consistent with freedom-of-choice provisions of the Act is unclear, but GAO believes that eyeglasses, oxygen, and other items of durable medical equipment can be purchased through competitively awarded contracts without conflicting with provisions of the Act.

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