Private payers, including large employers, use an aggressive management approach to control health care costs. Smaller categories of services, however, have displayed much more rapid growth through the 1990s, helping to drive total Medicare spending to double-digit inflation. HCFA has been aware of the rehabilitation therapy overcharging problem since 1990. This situation is consistent with HCFA’s past experience of taking years to adjust excessively high payment rates. Medicare Program Overdue for Change

Because of strict statutory constraints and its own burdensome regulatory and administrative procedures, HCFA is slow to address overpricing and overutilization problems. Not surprisingly, Medicare’s ability to emphasize cost efficiency in its dealings with suppliers, physicians, and institutions that habitually provide excessive services is limited, and for certain services Medicare pays higher prices than its private sector counterparts. The recognition that Medicare needs to change its role from largely a claims processor to prudent manager is beginning to take shape in HCFA itself as well as in pending legislation passed by the House of Representatives last month. Medicare Spending: Modern Management Strategies Needed to Curb Billions in Unnecessary Payments (GAO/HEHS-95-210, Sept. 19, 1995)

		Recommendations to the Secretary of HHS

We recommend that the Secretary of HHS direct the HCFA Administrator to develop policies and revise practices so that Medicare can (1) price services and procedures more competitively, (2) manage payments through state-of-the-art data analysis methods and use of technology, and (3) better scrutinize the credentials of vendors seeking to bill the program; examine the feasibility of allowing Medicare’s commercial contractors to adopt for their Medicare business such managed care features as preferred provider networks, case management, and enhanced utilization review; and seek the authority necessary from the Congress to carry out these activities.
Why GAO Did This Study

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.

What GAO Found

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.