Summary: Pursuant to a congressional request, GAO provided information on Medicare's efforts to reduce its program and beneficiary costs.
GAO found that: (1) the growth in Medicare hospital payments averaged 15.7 percent annually in the 3 years before it established the prospective payment system (PPS), resulting in 6.3-percent annual growth rate since 1983; (2) additional Medicare PPS payments would not necessarily guarantee rural hospitals' financial viability; (3) Medicare should reduce PPS payments to teaching hospitals by a third to more accurately reimburse hospitals for their indirect medical education costs; (4) the Health Care Financing Administration (HCFA) should continue to refine the diagnosis-related groups to reduce wide variations in treatment costs; (5) continued inadequate funding by the Medicare program could compromise the successful implementation of physician payment reform; (6) if HCFA eliminated the link between anesthesia time and payment levels, Medicare could save $50 million annually; (7) reducing payments for laboratory services could save Medicare $150 million annually; (8) to reduce Medicare costs, HCFA should consider developing a procedure for redetermining payments as new technologies mature and associated costs fall; (9) technical corrections to the payment calculation for ambulatory outpatient surgery would reduce Medicare payments and beneficiary costs; (10) despite some potential advantages, there were persistent problems with health maintenance organization (HMO) payment methods and program oversight; and (11) consideration should be given to modifying the method to fund increased expenditures for Medicare safeguard activities.
