Need To Eliminate Payments for Unnecessary Hospital Ancillary Services

HRD-83-74: Published: Sep 30, 1983. Publicly Released: Sep 30, 1983.

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At 16 hospitals, GAO arranged for professional standards review organizations to examine the medical necessity of ancillary services provided to Medicare beneficiaries.

The professional standards review organizations found that about 6 percent of Medicare charges for ancillary services were for unnecessary care. The percentage of unnecessary care for laboratory, special services, and radiology was about 10 percent each. It was further found that 32 percent of all physical therapy services were unnecessary. The dollar amount of unnecessary care was sizeable: at least $255,000 in unnecessary care may have been incurred in 1981 at one hospital. This unnecessary care was paid for by Medicare because of the absence of effective medical necessity reviews. A new system will be phased in over 3 years that will reimburse hospitals prospectively on the basis of a flat rate established for each Medicare case. The rate paid generally will depend upon how the case is classified by a diagnosis-related group and where the hospital is located. When a prospective reimbursement system is established, there will be incentives for hospitals to eliminate unnecessary use of ancillary services. However, the database used to establish the prospective payment rates is inflated with costs incurred in providing unnecessary care.

Recommendation for Executive Action

  1. Status: Closed - Not Implemented

    Comments: The agency disagreed with the recommendation and intends to take no action. GAO continues to believe that the only way the agency can be sure that the cost of unnecessary ancillary services is removed from the database to be used to revise the prospective payment rates is to review the utilization of ancillary services from a medical necessity viewpoint.

    Recommendation: The Secretary of Health and Human Services should direct the Administrator of the Health Care Financing Administration to require professional review organizations to review and report on the medical necessity of hospital ancillary services and use the results as necessary to adjust the database, which will be used to establish the prospective payment rates for future years, starting in fiscal year 1986.

    Agency Affected: Department of Health and Human Services


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