United States General Accounting Office

GAO Testimony

Before the Subcommittee on Health, Committee on Ways

and Means, House of Representatives

For Release on Delivery

Expected at 2:00 p.m.,

Tuesday, April 30, 1996

MEDICARE

Private Payer Strategies

Suggest Options to Reduce

Rapid Spending Growth

Statement of Janet L. Shikles

Assistant Comptroller General

Health, Education, and Human Services Division

G O A

years

1921 - 1996

GAO/T-HEHS-96-138

Medicare: Private Payer Strategies Suggest

Options to Reduce Rapid Spending Growth

Mr. Chairman and Members of the Subcommittee:

We are pleased to be here today to discuss strategies to curb escalating

Medicare spending. There is no shortage of numbers to illustrate the

importance of controlling federal outlays for this program. On average,

Medicare spending has grown by over 10 percent a year since 1989—twice

the rate of the national economy. Medicare’s part A trust fund, which pays

for hospital and other institutional services, is projected to run out by

mid-2001—a year sooner than projected last year.1

Over the past few years we have reported in some detail on several of

Medicare’s flawed pricing and reimbursement policies and on weak

controls over utilization. We have noted how these problems amount to

bad business practices and that aspects of the Medicare program must be

modernized in today’s highly competitive health care market.2

 Today, I’d

like to summarize these findings and outline several basic steps that would

lead to a better managed, less costly health care program.

In brief, we believe that while the Congress considers long-term

restructuring efforts, immediate efforts to improve Medicare’s traditional

fee-for-service program could bring about much needed savings. This

program currently serves about 90 percent of beneficiaries and with better

management could run more efficiently while continuing to serve well the

nation’s elderly. This means allowing Medicare to use tools similar to

those used by private payers to manage health care costs. Negotiated

discounts, competitive bidding, preferred providers, case management,

utilization review—these and other tools enable private payers to use

market forces to control health care costs, but most are not authorized for

general use by the Department of Health and Human Services’ (HHS)

Health Care Financing Administration (HCFA), which administers Medicare.

This results in a publicly financed program that pays higher than market

rates for certain services and supplies, and sometimes pays without

question for improbably high levels of services. Recent HCFA initiatives and

pending legislation passed by the House of Representatives,3

 however,

offer promise for making some program improvements. In addition, HCFA

should test the feasibility of applying management strategies in high-cost,

1

Based on CBO’s March 1996 baseline projection for Medicare.

2

A list of related GAO products is at the end of this statement.

3

H.R. 3103, the Health Coverage Availability and Affordability Act of 1996, passed the House of

Representatives on March 28, 1996.

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high-utilization areas. Finally, the Congress needs to give HHS the flexibility

to make prompt price adjustments.

Background Medicare is the nation’s largest single payer for health care. In 1995, it

spent an estimated $177 billion, or 12 percent of the federal budget, on

behalf of more than 37 million elderly and disabled people. The

Congressional Budget Office (CBO) projects that, under current program

law, program spending will almost double in the next 6 years to an

estimated $332 billion by 2002. Approximately 90 percent of Medicare

beneficiaries obtained services on an unrestricted fee-for-service basis;

that is, patients chose their own physicians or other health care providers,

with bills sent to the program for payment. This set-up mirrored the

nation’s private health insurance indemnity plans, which prevailed until

the 1980s.

Since then, many changes have taken place in the financing and delivery of

health care. Large health care purchasers have used leverage on hospitals

and other providers to obtain lower prices. Private payers, including large

employers, use an aggressive management approach to control health care

costs. HCFA is Medicare’s health care buyer. HCFA’s pricing of services and

controls over utilization have been carefully prescribed by interrelated

statute, regulation, and agency policy.

HCFA contracts with about 70 companies—such as Blue Cross and

Aetna—to handle claims screening and processing and to audit providers.

Each of these commercial contractors works with its local medical

community to set coverage policies and payment controls in addition to

those that have been established nationally by HCFA. As a result, billing

problems involving waste, fraud, and abuse are handled, for the most part,

at the contractor level. This arrangement was prompted when the program

was established in the mid-1960s by concerns that the federal government,

which lacked extensive claims processing expertise and experience,

would prove incapable of providing service comparable to that of private

insurers.

The health care delivery system has become more complex since Medicare

began 30 years ago. In addition to physicians and hospitals, a greater

variety of providers bill Medicare, including multilayered corporations

providing clinical laboratory services, home health care, rehabilitation

therapy, and medical equipment and supplies. Even some of Medicare’s

claims processing contractors are investing in provider networks, which

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means that insurance companies responsible for reviewing the

appropriateness of Medicare claims are also, through the medical

networks they own, billing the program. At a time when the volume of

Medicare claims has exceeded 800 million a year, Medicare is being billed

increasingly by entrepreneurial entities rather than by medical

professionals.

Categories With

Fastest Growth Rates

Coincide With Those

Least Managed in

Medicare

Although growth rates for inpatient hospital and physician services have

moderated since the 1980s, Medicare spending remains high. Combined

spending for these services amounted in 1994 to $120 billion—nearly

three-fourths of total Medicare spending. The sheer size of these

categories means that each percentage point of growth represents

hundreds of millions of dollars.

Smaller categories of services, however, have displayed much more rapid

growth through the 1990s, helping to drive total Medicare spending to

double-digit inflation. Home health agency (HHA) and skilled nursing

facility (SNF) services each grew at an average annual rate of 28 percent

from 1990 through 1996.4

Table 1: Average Annual Growth Rates

for Selected Categories of Medicare

Spending

Numbers in percent

Years Total Inpatient Physician SNF HHA

1980-89 10.2 9.5 13.8 27.3 14.0

1990-96 11.3 5.9 7.0a 28.0 28.4

aPercentage is based on data through 1994.

Private insurers and employer purchasers have sought to stem such health

cost escalation by shifting from their role as passive payers to become

more prudent managers of health care costs. Some 90 percent of health

plans—from fee-for-service to managed care—actively manage costs

through price competition and negotiation and utilization monitoring

techniques. By contrast, Medicare’s reimbursement policies and claims

payment activities have not been adapted to the contemporary

marketplace and today’s demands for fiscal discipline in public programs.

4

This is based on the latest CBO baseline projections for 1995 and 1996, since actual data are not yet

available. From 1990 through 1994, the growth rate was even higher—over 35 percent per year.

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SNF and HHA

Categories Illustrate

Cost Consequences of

Unmanaged Health

Services

The home health and SNF spending categories, in particular, illustrate the

damaging effects of reimbursement policies that fail to incorporate

effective pricing and utilization management techniques.

Inadequate Monitoring of

HHA Payments

In the case of home health services, for example, Medicare pays HHAs on

the basis of costs but uses few tools to determine whether the costs are

reasonable. Also, physicians are not required to see the patients for whom

they sign plans of care and are not held accountable if they approve

inappropriate levels of service. Medicare does not require HHAs to provide

beneficiaries or physicians with information on the home health services

billed on their, or their patients’, behalf. The Medicare contractors,

moreover, pay 97 percent or more of home health claims without review.5

Even when reviews are done, Medicare claims processing contractors

rarely visit HHAs or beneficiaries to verify the actual and appropriate

provision of services. One consequence of such neglect is the escalation of

visits per Medicare beneficiary, which rose an average of about 20 percent

a year from 1989 to 1994.

In July 1995 we reported that the largest privately held HHA in the United

States, which was being investigated for fraud, obtained 95 percent of its

total revenues from Medicare.6

 Current and former employees told us

medical records were altered and forged to ensure continued or prolonged

home health care visits. Services were provided to patients who were not

homebound7

—for example, one who routinely drove a vehicle to go

grocery shopping and one who walked a few blocks alone daily to eat at

the local senior citizens’ center.

This company also visited patients more frequently than did most other

HHAs. Although wide variation in utilization rates is a key indicator that an

inappropriate level of services is being provided, Medicare contractors do

not have the capacity to manage home health payments by scrutinizing

agencies’ claims in markets showing utilization outliers. Our March 1996

report on home health utilization shows huge variations in the level of

5

Because of limited resources, contractors’ medical review of claims has declined from 62 percent of

all claims in fiscal year 1987 to about 3 percent in 1995.

6

Medicare: Allegations Against ABC Home Health Care (GAO/OSI-95-17, July 19, 1995).

7

42 U.S.C. 1395f(a) requires that, to qualify for home health services under Medicare, a beneficiary

must be confined to the home.

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services provided across geographic areas and provider types.8 For

example, in 1993 patients in southeastern states received on average more

than twice as many visits as patients in northwestern states. Furthermore,

diabetics received an average of about twice as many visits from

proprietary HHAs as from voluntary or government-run agencies.

Inadequate Monitoring of

SNF and Ancillary Service

Payments

Skilled nursing facilities represent another area in which Medicare’s

unguarded reimbursement policies have been exploited. In this setting, a

population with extensive health care needs grouped together at a single

location offers unscrupulous providers the opportunity for volume billing,

and Medicare often does not look for warnings of egregious overutilization

or rapid increases in billings. Under Medicare’s provisions for

reimbursement, providers can bill Medicare directly, without the SNF or

attending physician affirming whether the items were necessary or

provided as claimed. In other words, medical equipment suppliers,

providers of rehabilitation therapy, and providers of X rays and other

diagnostic tests can determine levels of services and bill Medicare with

little or no oversight. In addition, Medicare’s automated systems do not

capture data in a way that would practically allow them to flag indications

of improbably high charges or levels of services at individual facilities.

This is in part because the data are not organized to report which

beneficiaries are in nursing homes.

In January of this year we reported that a wide array of provider

types—including physicians, optometrists, psychiatrists, laboratories, and

medical equipment suppliers—have fraudulently or otherwise

inappropriately billed Medicare for services and supplies furnished to

nursing facility residents.9

 The wrongdoing has generally focused on

billing Medicare for unnecessary or undelivered services, or

misrepresenting a service to obtain reimbursement. The investigations we

reviewed probed activities in over 40 states, with many providers

operating in multiple states.

Not only are payments for the ancillary services provided to SNF patients

poorly policed, payments to SNFs themselves are difficult to monitor.

Medicare pays SNFs on the basis of costs. But as with home health care,

Medicare has only limited tools to determine whether the costs are

8

Medicare: Home Health Utilization Expands While Program Controls Deteriorate (GAO/HEHS-96-16,

Mar. 27, 1996).

9

Fraud and Abuse: Providers Target Medicare Patients in Nursing Facilities (GAO/HEHS-96-18, Jan. 24,

1996).

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reasonable. This is particularly pertinent to rehabilitation therapy, services

that account for 30 percent of SNF costs. Specifically, Medicare places no

absolute dollar limits on reimbursements for occupational or speech

therapy, and charges for therapy services are not linked through billing

codes to the amount of time spent with patients or the treatment provided.

In other words, Medicare has no easy way to limit the amount it will pay

for occupational or speech therapy or to determine whether a charge is for

15, 30, or 60 minutes of treatment. Absent any benchmarks, and with

limited resources available for auditing, it is largely infeasible for Medicare

contractors to judge whether therapy providers have overstated their

costs.

Last year we reported that Medicare had been charged as much as $600 for

an hour of therapy services.10 HCFA has acknowledged the problem and

recently estimated that implementing salary equivalency guidelines for

speech and occupational therapy, in conjunction with adjusting other

salary guidelines, could save $1.4 billion over the next 6 years. To date,

however, the salary guidelines have not been established. Although

occupational therapists in SNFs earn on average $23 per hour, we recently

found in one contractor’s files that more than 25 percent of submitted

charges for one unit (undefined) of occupational therapy exceeded $195,

and some approached $1,500 per unit.

Under Medicare rules for reimbursing SNFs, the problem of overpaying for

rehabilitation therapy services becomes compounded. That is, Medicare

pays SNFs a portion of their overhead expenses, based on the percentage of

their total Medicare-related business. The higher the Medicare-related

payments to rehabilitation agencies (or other outside contractors), the

more Medicare business an SNF can claim, and the higher the percentage of

its overhead that can be charged to the program. Further, as noted by the

Prospective Payment Assessment Commission (PROPAC), SNFs may cite

high use of ancillary services, such as therapy, to justify an exemption

from routine service cost limits, thereby increasing their payments for

routine (bed, board, nursing) services.11

10Medicare: Tighter Rules Needed to Curtail Overcharges for Therapy in Nursing Homes

(GAO/HEHS-95-23, Mar. 30, 1995).

11Report and Recommendations to the Congress (Washington, D.C.: PROPAC, Mar. 1, 1996).

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Medicare’s Response

to Long-Standing

Problems Too Slow to

Be Effective

Allowing payment problems to continue unchecked results in billions of

dollars of unnecessary spending. HCFA has been aware of the rehabilitation

therapy overcharging problem since 1990. In 1993 HCFA began studies to

develop averages for therapists’ salaries. Its most recent analysis is

expected to be completed some time this summer. Given the usual time

involved in the federal notification and publication requirements for

changing Medicare prices, salary equivalency guidelines—which are key to

Medicare’s determination of reasonable costs—are unlikely to be

implemented before the middle of 1997 at the earliest.

This situation is consistent with HCFA’s past experience of taking years to

adjust excessively high payment rates. It took almost 3 years to lower the

price of an item it paid up to four times more for than consumers paid at

the local drug store. HCFA can adjust prices that are inherently

unreasonable, but its authority to do so is very limited and involves a

complex set of procedures that take a long time to complete.12 Because of

the time and resources involved, HCFA only occasionally uses this process.

In an August 1995 report, we showed that Medicare paid higher than the

retail prices for 44 types of surgical dressings.13 Under the Omnibus

Budget Reconciliation Act (OBRA) of 1987, however, even the unwieldy

inherent reasonableness authority to change these prices was effectively

eliminated. Before 1987, individual Medicare contractors had the authority

to adjust prices to reflect local market conditions using a publication and

notification process that could be completed in less than 90 days. In a

letter to a congressional subcommittee, the HHS Inspector General last year

characterized as “absurd” the situation limiting HCFA’s ability to make

timely adjustments to payment levels.14

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. As we reported to the Congress last September,

many of the tools Medicare’s contractors use to manage their commercial

insurance plans are not authorized for use in the Medicare program.15

12The relevant statutory provision is 42 U.S.C. 1395m(a)(10)(B).

13Medicare: Excessive Payments for Medical Supplies Continue Despite Improvements

(GAO/HEHS-95-171, Aug. 8, 1995).

14Letter dated July 25, 1995, to the Chairman, Subcommittee on Oversight and Investigations,

Committee on Commerce, House of Representatives.

15Medicare Spending: Modern Management Strategies Needed to Curb Billions in Unnecessary

Payments (GAO/HEHS-95-210, Sept. 19, 1995).

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In stark contrast to private payers, HCFA and its contractors generally

cannot

• use such utilization controls as prior approval or case management to

coordinate and monitor expensive services and specialist care;

• encourage the use of “preferred providers”—those who meet utilization,

price, and quality standards; or

• negotiate with select providers for discounts, promptly change prices to

match those available in the market, or competitively bid prices.

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. (See app. I for details on

commonly used private sector strategies and their applicability to

Medicare. See also chapter 11 of the Physician Payment Review

Commission’s (PPRC) 1996 Annual Report to Congress.)16

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. For example, HCFA has planned, among several

new initiatives,

• a demonstration testing the concept of competitive bidding for certain

supplies, such as oxygen, hospital beds, and urological and incontinence

products;

• an improvement on earlier case management experiments by which

primary care physicians would, for example, provide comprehensive

management for beneficiaries with specific diagnoses, such as diabetes,

hypertension, or congestive heart failure, for which Medicare would

reimburse them with a bundled, capitated payment as is currently done on

a monthly basis for end-stage renal disease patients; and

• a demonstration in selected locations that allows beneficiaries to join

preferred provider organization health plans, which are not currently

available under Medicare.

HCFA has interpreted current law as precluding it from contracting with

entities other than insurance companies. Certain provisions in the Health

Coverage Availability and Affordability Act of 1996 would give HCFA the

funding and flexibility to make its contractor network better managers of

16Washington, D.C.: PPRC.

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Medicare: Private Payer Strategies Suggest

Options to Reduce Rapid Spending Growth

program dollars. In particular, HCFA17 would have the authority to contract

directly with companies specializing in utilization review and fraud

detection to monitor and adjudicate claims. In essence, HCFA could

contract with the companies best suited to perform medical, utilization,

and fraud reviews; audit cost reports; revisit payment decisions and

recover overpayments; provide education on payment integrity and benefit

quality assurance issues; and provide more specific guidance on coverage

of medical equipment and supplies. Increased flexibility and an

accompanying assured funding stream, such as that proposed in this

legislation, would significantly enhance HCFA’s ability to curb

overutilization and inappropriate billings.

Despite these initiatives, however, important tools would still be

unavailable to the Medicare program. For example, HCFA uses

profiling—that is, statistical analyses—to identify “outlier” providers

whose practice patterns differ markedly from those of their peers. While

the private sector is free to use profiling results to provide financial

rewards or penalties (in the form of exclusion from preferred provider

networks), HCFA lacks the authority to do so. In addition, HCFA and its

contractors have no viable statutory authority to require prior approval of

select procedures. Most important, HCFA does not have the authority

needed to promptly correct overpricing problems.

Conclusions The problems facing Medicare confront private insurers as well, but they

are equipped with a larger and more versatile inventory of health care

management strategies than HCFA currently has. These strategies may not

be deployable in every aspect, but in general they suggest ways to make

Medicare more cost effective. Commercial contractors, which play a key

role in administering Medicare, routinely employ management-of-care

approaches in their capacity as private insurers. If they applied similar

approaches to Medicare, the government might be able to avoid spending

substantial sums unnecessarily.

Medicare needs to redefine itself from being a passive payer of claims to

becoming a prudent manager of health care costs. Major reimbursement

reforms may be an ultimate solution, but HCFA needs to begin immediately

to manage Medicare’s high-growth-rate areas, such as home health and SNF

care. Reducing services and prices to appropriate levels is paramount

before locking in existing cost structures through payment system

reforms. This will entail several steps:

17Technically, the authority is granted to HHS, of which HCFA is a part.

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Medicare: Private Payer Strategies Suggest

Options to Reduce Rapid Spending Growth

1. The 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. HCFA needs to 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. For

example, HCFA could identify, as the focus of the demonstrations,

geographic areas with particularly high home health or SNF costs per

Medicare beneficiary.

3. The Congress should give HHS the flexibility to make prompt

adjustments to fee schedules when overpriced services and supplies are

identified. For example, Medicare should be able to reduce fee schedule

prices for surgical supplies within 90 days, similar to what was customary

before OBRA 1987.

We have included as appendix II a list of GAO recommendations recently

made to correct specific Medicare payment problems.

Mr. Chairman, this concludes my statement. I will be pleased to answer

any questions.

Contributors For more information on this testimony, please call Edwin P. Stropko,

Associate Director, at (202) 512-7119. Other major contributors included

Audrey Clayton, Patricia Davis, Hannah Fein, and Barry Tice.

Page 10 GAO/T-HEHS-96-138
Page 11 GAO/T-HEHS-96-138
Appendix I 

Common Private Sector Strategies and

Applicability to Medicare

Private sector strategy Description HCFA’s current practice HCFA explanation

Prompt reaction to market

prices

Change prices quickly when

paying more than competitively

necessary

Prices generally not adjusted for

declines in the price of product or

servicea

Pertinent statute generally permits

appropriate adjustments only

after a complex administrative

processb

Negotiate with select

providers

Selectively contract with providers

to deliver certain services, such

as hip replacements, at a specific

price

Same payments generally made

to any provider selected by

beneficiary to provide services

Statute does not permit providers

to be excluded unless they

engage in certain prohibited

practicesc

Competitive bidding and

negotiations

Set prices for services or service

packages based on competitive

process

Prices are set under complex

formulas, but demonstration

involving competitive procedures

is proposed

Statute generally provides only for

all area providers to be paid the

same amount for service;d

legislation prohibits proposed

demonstratione

Preferred provider network Promote use of a network of

selected providers meeting price,

practice style, and quality criteria

Payments generally made to any

provider selected by beneficiary

to provide medical services

Statute guarantees beneficiary

freedom to choose providers;f

statutory authority to contract with

health maintenance organizations

(HMOs) onlyg

Prior authorization Require prior approval of select

procedures

No prior approval of

hospitalizations or other

procedures

No viable statutory authority for

requiring prior approval; statute

prohibits interference with

practice of medicineh

Case management Assist high-cost patients in

selecting appropriate services

efficiently

Assistance not provided to

patients in selecting services

efficiently

Statute prohibits interference with

practice of medicinei

Contract with utilization

review companies

Use companies specializing in

utilization review to monitor and

adjudicate claims

HCFA contracts with private

entities—generally insurance

companies—to process claimsj

Statute provides no specific

authority for contracting with

utilization control organizationsk

Greater use of commercial

technology to detect

billing abuses

Use off-the-shelf software that

flags billing problems and

automatically adjusts payments

HCFA directs contractors to

develop system capabilities,

without guidance on use of

specific technologies

HCFA concerned about

adaptability and relevance to

Medicare

(Table notes on next page)

Page 12 GAO/T-HEHS-96-138
Appendix I 

Common Private Sector Strategies and

Applicability to Medicare

aFor example, although 42 U.S.C. 1395u(b)(8) and (9) provide HCFA with authority to adjust

payments when the established rates under a fee schedule are found to be inherently

unreasonable, detailed procedures are mandated that include a lengthy notice and comment

period.

bFor example, 42 U.S.C. 1395m(a)(10)(B) provides HCFA with authority to adjust prices for

durable medical equipment, excluding surgical dressings, but only after completion of a

cumbersome administrative process. The one time this process was used, it took 3 years to

complete.

c42 U.S.C. 1320a-7 provides for mandatory and permissive exclusion of providers who are, for

example, convicted of certain program-related crimes.

d42 U.S.C. 1395f establishes conditions of and limitations on payment for services.

eIn 1985, HCFA started the process to perform a demonstration of competitive bidding related to

laboratory services, and it was set to begin in 1987. That year and in several subsequent years,

however, provisions were included in the respective budget reconciliation laws specifically

prohibiting its implementation. Eventually, HCFA abandoned plans for the demonstration but has

since requested authority to introduce competitive bidding, without success.

f

42 U.S.C. 1395a, the so-called freedom of choice provision, expressly provides that beneficiaries

may obtain health services from any willing provider.

g42 U.S.C. 1395mm authorizes HCFA to contract with certain managed care entities to provide

care to Medicare beneficiaries under prescribed circumstances.

h42 U.S.C. 1395.

i

42 U.S.C. 1395.

j

These companies may arrange for utilization review to be done under subcontract.

k

42 U.S.C. 1395h provides detailed authorization for HCFA to contract with private entities without

competitive procedures to handle part A claims, and 42 U.S.C. 1395u provides similar authority

for part B claims.

Page 13 GAO/T-HEHS-96-138
Appendix II 

Specific Recommendations Made in Recent

GAO Reports

Cited below are our recommendations and matters for congressional

consideration addressing specific reimbursement system and payment

control problems.

Medicare: Home

Health Utilization

Expands While

Program Controls

Deteriorate

(GAO/HEHS-96-16,

Mar. 27, 1996)

Matters for Congressional

Consideration

The emphasis of Medicare’s home health benefit program has recently

shifted from primarily posthospital acute care to more long-term care. At

the same time, HCFA’s ability to manage the program has been severely

weakened by coverage changes mandated by court decisions and a

decrease in the funds available to review HHAs and the care they provide.

The Congress may wish to consider whether the Medicare home health

benefit should continue to become more of a long-term care benefit or if it

should be limited primarily to a posthospital acute care benefit. The

Congress should also consider providing additional resources so that

controls against abuse of the home health benefit can be better enforced.

Fraud and Abuse:

Providers Target

Medicare Patients in

Nursing Facilities

(GAO/HEHS-96-18,

Jan. 24, 1996)

Recommendation to the

Congress

To curtail the practice of giving providers unauthorized access to

beneficiary medical records, the Congress should authorize HHS OIG to

establish monetary penalties that could be assessed against nursing

Page 14 GAO/T-HEHS-96-138
Appendix II 

Specific Recommendations Made in Recent

GAO Reports

facilities that disclose information from patients’ medical records not in

accord with existing federal regulation.

Recommendations to the

Secretary of HHS

We recommend that the Secretary of HHS direct the Administrator of HCFA

to

• establish, for procedure billing codes by provider or beneficiary,

thresholds for unreasonable cumulative levels or rates of increase in

services and charges, and to require Medicare carriers to implement

automated screens that would suspend for further review claims

exceeding those thresholds and

• undertake demonstration projects designed to assess the relative costs

and benefits of alternative ways to reimburse nursing facilities for part B

services and supplies; these alternatives should include such options as

unified billing by the nursing facility and some form of capped payment.

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

Page 15 GAO/T-HEHS-96-138
Appendix II 

Specific Recommendations Made in Recent

GAO Reports

• seek the authority necessary from the Congress to carry out these

activities.

Matters for Congressional

Consideration

Given the urgency for expediting Medicare program changes that could

lead to substantial savings, the Congress may wish to consider directing

the Secretary of HHS to develop a proposal seeking the necessary

legislative relief that would allow Medicare to participate more fully in the

competitive health care marketplace. Such relief could include allowing

the Secretary of HHS to set maximum prices on the basis of market surveys,

or, if the formal rulemaking process is preserved, allowing the Secretary to

make an interim adjustment in fees while the studies and rulemaking take

place.

The Congress may also wish to consider options for granting relief from

the funding declines in Medicare’s anti-fraud-and-abuse activities.

Medicare: Excessive

Payments for Medical

Supplies Continue

Despite

Improvements

(GAO/HEHS-95-171,

Aug. 8, 1995)

Recommendations to the

Secretary of HHS

The Secretary should direct the Administrator of HCFA to

• require that bills submitted to fiscal intermediaries itemize supplies;

• develop and implement prepayment review policies as part of the process

of implementing any new or expanded Medicare coverage; and

• establish procedures to prevent duplicate payments by fiscal

intermediaries and carriers.

Matter for Congressional

Consideration

The fee-schedule approach to setting prices provides a good starting point

for setting appropriate Medicare prices. HCFA, however, needs greater

authority and flexibility to quickly adjust fee-schedule prices when market

Page 16 GAO/T-HEHS-96-138
Appendix II 

Specific Recommendations Made in Recent

GAO Reports

conditions warrant such changes. To allow Medicare to take advantage of

competitive prices, the Congress should consider authorizing HCFA or its

carriers to promptly modify prices for durable medical equipment and

other medical supplies. For this to work effectively, however, HCFA or the

carriers must devote adequate resources to routine price monitoring.

Medicare: Tighter

Rules Needed to

Curtail Overcharges

for Therapy in

Nursing Homes

(GAO/HEHS-95-23,

Mar. 30, 1995)

Recommendations to the

Secretary of HHS

The Secretary should direct the Administrator of HCFA to (1) set explicit

limits to ensure that Medicare pays no more for therapy services than

would any prudent purchaser; (2) strengthen certification requirements to

better ensure that those entities billing Medicare are accountable for the

services provided to beneficiaries; and (3) define billable therapy service

units so they relate to the time spent with the patient.

Page 17 GAO/T-HEHS-96-138
Appendix II 

Specific Recommendations Made in Recent

GAO Reports

Page 18 GAO/T-HEHS-96-138
Appendix II 

Specific Recommendations Made in Recent

GAO Reports

Page 19 GAO/T-HEHS-96-138
Related GAO Products

Medicare: Home Health Utilization Expands While Program Controls

Deteriorate (GAO/HEHS-96-16, Mar. 27, 1996).

Fraud and Abuse: Providers Target Medicare Patients in Nursing Facilities

(GAO/HEHS-96-18, Jan. 24, 1996).

Fraud and Abuse: Medicare Continues to be Vulnerable to Exploitation by

Unscrupulous Providers (GAO/T-HEHS-96-7, Nov. 2, 1995).

Medicare Spending: Modern Management Strategies Needed to Curb

Billions in Unnecessary Payments (GAO/HEHS-95-210, Sept. 19, 1995).

Medicare: Antifraud Technology Offers Significant Opportunity to Reduce

Health Care Fraud (GAO/AIMD-95-77, Aug. 11, 1995).

Medicare: Excessive Payments for Medical Supplies Continue Despite

Improvements (GAO/HEHS-95-171, Aug. 8, 1995).

Medicare: Adapting Private Sector Techniques Could Curb Losses to Fraud

and Abuse (GAO/T-HEHS-95-211, July 19, 1995).

Medicare: Allegations Against ABC Home Health Care (GAO/OSI-95-17,

July 19, 1995).

Medicare: Modern Management Strategies Needed to Curb Program

Exploitation (GAO/T-HEHS-95-183, June 15, 1995).

Medicare: Tighter Rules Needed to Curtail Overcharges for Therapy in

Nursing Homes (GAO/HEHS-95-23, Mar. 30, 1995).

High-Risk Series: Medicare Claims (GAO/HR-95-8, Feb. 1995).

Medicare: Inadequate Review of Claims Payments Limits Ability to Control

Spending (GAO/HEHS-94-42, Apr. 28, 1994).

Health Care Reform: How Proposals Address Fraud and Abuse

(GAO/T-HEHS-94-124, Mar. 17, 1994).

Medicare: Greater Investment in Claims Review Would Save Millions

(GAO/HEHS-94-35, Mar. 2, 1994).

(108275) Page 20 GAO/T-HEHS-96-138
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