Private Payer Strategies Suggest Options to Reduce Rapid Spending Growth

T-HEHS-96-138: Published: Apr 30, 1996. Publicly Released: Apr 30, 1996.

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GAO discussed strategies to curb Medicare spending, which has grown by over 10 percent a year since 1989, twice the rate of the national economy. GAO noted that: (1) Medicare has not used tools used by private health care payers to manage and improve its utilization, reimbursement, and claims policies and procedures; (2) Medicare's smaller categories of services, which are typically less managed and monitored, have displayed much higher growth than its larger categories of services; (3) the Health Care Financing Administration (HCFA) has been slow to address overpricing and overutilization problems, sometimes taking years to adjust excessively high payment rates; (4) strict statutory constraints and its own burdensome regulatory and administrative procedures hinder HCFA from using such private-sector management tools as case management, preferred providers, or discount negotiation; (5) in an effort to change its role from claims processor to prudent manager, HCFA has initiated demonstrations to explore its use of competitive bidding for certain supplies, case management, and preferred providers; and (6) proposed legislation could give HCFA the funding and flexibility it needs to better manage its contractors and services.

Matters for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: H.R. 3103 was passed as P.L. 104-191 and signed by the President on August 21, 1996.

    Matter: Congress should enact funding and contractor reform provisions similar to those contained in H.R. 3103. Such reforms would give HCFA the flexibility to hire the private-sector expertise necessary to apply the best health cost management practices.

  2. Status: Closed - Implemented

    Comments: In a number of reports and testimony, GAO recommended that the Congress grant HCFA authority to adjust the prices the Medicare program pays for certain items to ensure that its payment rates reflect fair market prices. Partly as a result of GAO's recommendations, the Congress enacted section 4316 of the Balanced Budget Act of 1997 (Public Law 105-33, August 5, 1997), authorizing HCFA to adjust prices for all part B services (other than physician services) by up to 15 percent from the prior year's prices. HCFA issued implementing regulations on January 7, 1998, which became effective March 9, 1998.

    Matter: Congress should give the Department of Health and Human Services (HHS) the flexibility to make prompt adjustments to fee schedules when overpriced services and supplies are identified.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: Section 4016 of the Balanced Budget Act of 1997 authorized a Medicare Coordinate Care Demonstration to evaluate the use of methods, such as case management, on individuals with chronic illnesses, enrolled in the Medicare fee-for-service program, at nine or more demonstration sites. In addition, Section 202 of the Health Insurance Portability and Accountability Act of 1996 established a Medicare Integrity Program (MIP). Under the MIP program, the Secretary of HHS has contracted with entities known as Program Safeguard Contractors to undertake a variety of program safeguard activities designed to promote the integrity of the Medicare program. One activity specifically mentioned as a potential subject of these contracts was an independent utilization review of service providers or other individuals furnishing items and services for Medicare.

    Recommendation: HCFA should target Medicare's high-cost, high-utilization areas for running demonstrations to apply such strategies as the use of case management and companies specializing in utilization review.

    Agency Affected: Department of Health and Human Services: Health Care Financing Administration


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