Summary: Testimony was given on a GAO report on Medicare's policies and prospective payment rates for cardiac pacemaker surgeries. GAO found that the data used to compute the cardiac surgery payment rates: (1) contained errors that could affect the rates' reasonableness; (2) were collected at a time when hospitals had little incentive to take full advantage of purchasing efficiencies or warranty benefits offered by pacemaker manufacturers; and (3) do not reflect the more recent shift toward the use of higher cost, more technologically advanced pacemakers. Because of these inaccuracies, GAO believes that the Department of Health and Human Services (HHS) should use current data to reevaluate the reasonableness of prospective payment rates for pacemaker surgeries. GAO found that hospitals could obtain larger discounts on pacemakers by: (1) getting physicians practicing at a hospital to agree to the use of specified types of pacemakers; and (2) consolidated purchasing of equipment by associated hospitals. In addition, GAO found that hospitals did not maximize the use of warranties for failed pacemakers because of the lack of incentives under the cost reimbursement system; therefore, GAO has recommended that HHS use the authorities it obtained under the Deficit Reduction Act to ensure that Medicare benefits from warranty credits when they are issued. GAO also found that Medicare may be making unnecessary expenditures on replacement of pacemakers which are later found to function within the manufacturer's specifications; therefore, GAO recommended that HHS review situations resulting in the replacement of properly functioning pacemakers and act to minimize unnecessary replacements. Finally, GAO found many problems with the data which HHS used to compute prospective payment rates for pacemaker surgeries, including: (1) the use of unaudited cost reports; (2) cases classified in the wrong diagnosis related group; and (3) hospital billing errors and placement of charges and costs in the wrong accounts.
