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GAO discussed ways in which the Medicare program could avoid excessive or unnecessary spending. GAO noted that: (1) although private payers increasingly use aggressive cost-management strategies to control health care costs, the Health Care Financing Administration (HCFA) often finds it difficult to use these strategies to control health care costs, since payment policies are established at the contractor level; (2) HCFA is not able to negotiate with providers for discounts, provide incentives to encourage beneficiaries to use preferred providers, or use preadmission review practices to curb spending for unnecessary or expensive procedures; (3) Medicare pays higher than market rates for some services, lacks state-of-the-art technology for checking questionable payments, and does not adequately screen providers for credibility; (4) Medicare program spending has remained high despite major cost-containment reforms due to increased inpatient hospital and physician spending; (5) inpatient hospital and physician spending accounts for about 73 percent of total Medicare spending; and (6) Medicare could save billions annually by adapting private health care management techniques.

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