Summary: The Comptroller General has repeatedly cautioned that, even without expanding program benefits, projected Medicare spending threatens to absorb ever-increasing shares of the nation's budgetary and economic resources. In the absence of meaningful reform, demographic and cost trends will drive Medicare spending to levels that will prove unsustainable. Under the Balanced Budget Act of 1997 (BBA) and the Balanced Budget Refinement act of 1999, providers have had to adjust their operations because of tightened payment policies. The adjustments have been particularly disruptive for providers that took advantage of Medicare's previous payment policies to finance inefficient and unnecessary care delivery. Industry representatives are advocating the partial restoration of payment cuts since the BBA's implementation developments have occured in the areas of home health services, skilled nursing facilities (SNF), and the Medicare+Choice program. Use of home health services has dropped substantially, well below what would have been required to remain within the BBA-imposed payment limits. The new Medicare payment system, scheduled for implementation in October, should generally provide agencies a comfortable cushion to deliver necessary services. Some corporate SNF chains have declared bankruptcy. The new Medicare payment system will adequately cover the cost of beneficiary services but not support extensive capital expansions or ancillary service business that the chains relied on to boost revenues. Many plans are withdrawing from Medicare because of the changes to the Medicare program and plans' business decisions. Ongoing GAO work shows that payments to plans for Medicare enrollees continue to exceed the expected fee-for-service costs. This finding is significant: Medicare managed care, although originally expected to achieve program savings, continues instead to add to program cost.
