Summary: Given soaring U.S. health care costs and shrinking budgets for many government programs, Congress is concerned that Medicare pay only for appropriate medical services without compromising the quality of care provided to beneficiaries. One of the several ways that Medicare ensures proper payments is through the medical review function performed by contractors--called carriers--who process and pay claims for physician services, diagnostic tests, and other Medicare part B services. Review activities are designed to prevent spending on inappropriate, medically unnecessary, or excessive services. This report assesses a Health Care Financing Administration (HCFA) demonstration that involves medical review operations at five carriers: three of these were given added management flexibility and funding to enhance their medical review function and two served as comparisons. This report discusses whether (1) the improved medical review activities at the demonstration carriers produced measurable savings or benefits to the claims process; (2) more medical review funding for other carriers would be cost-effective; and (3) HCFA's medical review oversight needs improvement.
