Medicare: Private Payer Strategies Suggest Options to Reduce Rapid
Spending Growth (Testimony, 04/30/96, GAO/T-HEHS-96-138).

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) 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.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-HEHS-96-138
     TITLE:  Medicare: Private Payer Strategies Suggest Options to 
             Reduce Rapid Spending Growth
      DATE:  04/30/96
   SUBJECT:  Claims processing
             Medical expense claims
             Medical services rates
             Health care cost control
             Health resources utilization
             Health care programs
             Managed health care
             Questionable payments
             Health services administration
IDENTIFIER:  Medicare Program
             
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Cover
================================================================ COVER


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

GAO/T-HEHS-96-138

GAO/HEHS-96-138T


(108275)


Abbreviations
=============================================================== ABBREV

  HCFA - Health Care Financing Administration
  HHS - Department of Health and Human Services
  HHA - home health agency
  HMO - health maintenance organization
  OBRA - Omnibus Budget Reconciliation Act of 1987
  PPRC - Physician Payment Review Commission
  PROPAC - Prospective Payment Assessment Commission
  SNF - skilled nursing facility

MEDICARE:  PRIVATE PAYER
STRATEGIES SUGGEST OPTIONS TO
REDUCE RAPID SPENDING GROWTH
============================================================ Chapter 0

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,
high-utilization areas.  Finally, the Congress needs to give HHS the
flexibility to make prompt price adjustments. 


--------------------
\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. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:1

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 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
---------------------------------------------------------- Chapter 0:2

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)

                                        Inpati  Physic
Years                            Total     ent     ian     SNF     HHA
------------------------------  ------  ------  ------  ------  ------
1980-89                           10.2     9.5    13.8    27.3    14.0
1990-96                           11.3     5.9   7.0\a    28.0    28.4
----------------------------------------------------------------------
\a Percentage 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. 


   SNF AND HHA CATEGORIES
   ILLUSTRATE COST CONSEQUENCES OF
   UNMANAGED HEALTH SERVICES
---------------------------------------------------------- Chapter 0:3

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
-------------------------------------------------------- Chapter 0:3.1

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 homebound\7 --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 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. 


--------------------
\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. 

\8 Medicare:  Home Health Utilization Expands While Program Controls
Deteriorate (GAO/HEHS-96-16, Mar.  27, 1996). 


      INADEQUATE MONITORING OF SNF
      AND ANCILLARY SERVICE
      PAYMENTS
-------------------------------------------------------- Chapter 0:3.2

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 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


--------------------
\9 Fraud and Abuse:  Providers Target Medicare Patients in Nursing
Facilities (GAO/HEHS-96-18, Jan.  24, 1996). 

\10 Medicare:  Tighter Rules Needed to Curtail Overcharges for
Therapy in Nursing Homes (GAO/HEHS-95-23, Mar.  30, 1995). 

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


   MEDICARE'S RESPONSE TO
   LONG-STANDING PROBLEMS TOO SLOW
   TO BE EFFECTIVE
---------------------------------------------------------- Chapter 0:4

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


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

\13 Medicare:  Excessive Payments for Medical Supplies Continue
Despite Improvements (GAO/HEHS-95-171, Aug.  8, 1995). 

\14 Letter dated July 25, 1995, to the Chairman, Subcommittee on
Oversight and Investigations, Committee on Commerce, House of
Representatives. 


   MEDICARE PROGRAM OVERDUE FOR
   CHANGE
---------------------------------------------------------- Chapter 0:5

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

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 program dollars.  In particular, HCFA\17 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. 


--------------------
\15 Medicare Spending:  Modern Management Strategies Needed to Curb
Billions in Unnecessary Payments (GAO/HEHS-95-210, Sept.  19, 1995). 

\16 Washington, D.C.:  PPRC. 

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


   CONCLUSIONS
---------------------------------------------------------- Chapter 0:6

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: 

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. 


-------------------------------------------------------- Chapter 0:6.1

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


   CONTRIBUTORS
---------------------------------------------------------- Chapter 0:7

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. 


COMMON PRIVATE SECTOR STRATEGIES
AND APPLICABILITY TO MEDICARE
=========================================================== Appendix I

Private sector                             HCFA's current
strategy           Description             practice                HCFA explanation
-----------------  ----------------------  ----------------------  ----------------------
Prompt reaction    Change prices quickly   Prices generally not    Pertinent statute
to market prices   when paying more than   adjusted for declines   generally permits
                   competitively           in the price of         appropriate
                   necessary               product or service\a    adjustments only after
                                                                   a complex
                                                                   administrative
                                                                   process\b

Negotiate with     Selectively contract    Same payments           Statute does not
select providers   with providers to       generally made to any   permit providers to be
                   deliver certain         provider selected by    excluded unless they
                   services, such as hip   beneficiary to provide  engage in certain
                   replacements, at a      services                prohibited practices\c
                   specific price

Competitive        Set prices for          Prices are set under    Statute generally
bidding and        services or service     complex formulas, but   provides only for all
negotiations       packages based on       demonstration           area providers to be
                   competitive process     involving competitive   paid the same amount
                                           procedures is proposed  for service;\d
                                                                   legislation prohibits
                                                                   proposed
                                                                   demonstration\e

Preferred          Promote use of a        Payments generally      Statute guarantees
provider network   network of selected     made to any provider    beneficiary freedom to
                   providers meeting       selected by             choose providers;\f
                   price, practice style,  beneficiary to provide  statutory authority to
                   and quality criteria    medical services        contract with health
                                                                   maintenance
                                                                   organizations (HMOs)
                                                                   only\g

Prior              Require prior approval  No prior approval of    No viable statutory
authorization      of select procedures    hospitalizations or     authority for
                                           other procedures        requiring prior
                                                                   approval; statute
                                                                   prohibits interference
                                                                   with practice of
                                                                   medicine\h

Case management    Assist high-cost        Assistance not          Statute prohibits
                   patients in selecting   provided to patients    interference with
                   appropriate services    in selecting services   practice of medicine\i
                   efficiently             efficiently

Contract with      Use companies           HCFA contracts with     Statute provides no
utilization        specializing in         private entities--      specific authority for
review companies   utilization review to   generally insurance     contracting with
                   monitor and adjudicate  companies--to process   utilization control
                   claims                  claims\j                organizations\k


Greater use of     Use off-the-shelf       HCFA directs            HCFA concerned about
commercial         software that flags     contractors to develop  adaptability and
technology to      billing problems and    system capabilities,    relevance to Medicare
detect billing     automatically adjusts   without guidance on
abuses             payments                use of specific
                                           technologies
-----------------------------------------------------------------------------------------
\a For 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. 

\b For 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. 

\c 42 U.S.C.  1320a-7 provides for mandatory and permissive exclusion
of providers who are, for example, convicted of certain
program-related crimes. 

\d 42 U.S.C.  1395f establishes conditions of and limitations on
payment for services. 

\e In 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. 

\g 42 U.S.C.  1395mm authorizes HCFA to contract with certain managed
care entities to provide care to Medicare beneficiaries under
prescribed circumstances. 

\h 42 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. 


SPECIFIC RECOMMENDATIONS MADE IN
RECENT GAO REPORTS
========================================================== Appendix II

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)
-------------------------------------------------------- Appendix II:1


      MATTERS FOR CONGRESSIONAL
      CONSIDERATION
------------------------------------------------------ Appendix II:1.1

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)
-------------------------------------------------------- Appendix II:2


      RECOMMENDATION TO THE
      CONGRESS
------------------------------------------------------ Appendix II:2.1

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
facilities that disclose information from patients' medical records
not in accord with existing federal regulation. 


      RECOMMENDATIONS TO THE
      SECRETARY OF HHS
------------------------------------------------------ Appendix II:2.2

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)
-------------------------------------------------------- Appendix II:3


      RECOMMENDATIONS TO THE
      SECRETARY OF HHS
------------------------------------------------------ Appendix II:3.1

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. 


      MATTERS FOR CONGRESSIONAL
      CONSIDERATION
------------------------------------------------------ Appendix II:3.2

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)
-------------------------------------------------------- Appendix II:4


      RECOMMENDATIONS TO THE
      SECRETARY OF HHS
------------------------------------------------------ Appendix II:4.1

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
------------------------------------------------------ Appendix II:4.2

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 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)
-------------------------------------------------------- Appendix II:5


      RECOMMENDATIONS TO THE
      SECRETARY OF HHS
------------------------------------------------------ Appendix II:5.1

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. 



RELATED GAO PRODUCTS
=========================================================== Appendix 1

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). 


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