Problems With Evaluating the Cost Effectiveness of Professional Standards Review Organizations

HRD-79-52: Published: Jul 19, 1979. Publicly Released: Jul 26, 1979.

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Professional Standards Review Organizations (PSRO) are designed to make sure that health care services provided under Medicaid and Medicare are delivered as effectively, efficiently, and economically as possible. Nine estimates of cost savings attributable to PSRO are overstated by $16.7 million for Medicare and Medicaid. All but one of the nine estimates were either prepared by a PSRO or prepared on information provided by a PSRO.

It is important that estimates of cost savings be accurate. There were several significant deficiencies in the data used to compute the nine estimates of cost savings. Data for eight of the nine were incomplete or included as savings days of care that were paid by Medicare or Medicaid. Various methods were used to compute these savings. GAO found deficiencies with all the methods but one, making the remaining savings highly questionable. Several problems were noted with the data obtained to compute changes in Medicare hospital use. Statistics included information on 20 hospitals that should not have been included in the evaluation and omitted information on 3 hospitals that should have been included. PSRO and hospital officials said that increases and decreases in Medicare hospital use were attributable to many factors, such as changes in medical services, medical practices, number and availability of home health care, availability of nursing home beds, and changes in Medicare population.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of Health, Education, and Welfare should require an extensive validation of its data. This should include onsite validation of the appropriateness of the hospitals and the reasonableness of the data to assure that the data are complete and accurate before they are used to evaluate the effectiveness of PRSO. The Secretary should direct the Administrator of the Health Care Financing Administration to provide technical assistance in preparing assessments of cost savings and develop standard methods that PSRO can use to measure their effectiveness in reducing hospital utilization.

    Agency Affected:


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