Medicare:

Refinements Should Continue to Improve Appropriateness of Provider Payments

T-HEHS-00-160: Published: Jul 19, 2000. Publicly Released: Jul 19, 2000.

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Pursuant to a congressional request, GAO discussed the effects of recent Medicare payment reforms, focusing on the Balanced Budget Act of 1997 (BBA) payment reforms affecting home health agencies, skilled nursing facilities (SNF), and the health plans in Medicare's managed care program, known as Medicare Choice.

GAO noted that: (1) the reactions by providers serving Medicare beneficiaries to BBA and the Balanced Budget Refinement Act of 1999 payment reforms share a similar scenario; (2) tightened payment policies have required many providers to adjust their operations; (3) the adjustments have been particularly disruptive for providers that took advantage of Medicare's previous payment policies to finance inefficient and unnecessary care delivery; (4) industry representatives are advocating the partial restoration of payment cuts; (5) there are recent developments that have ensued since the BBA's implementation in the areas of home health services, SNF services and the Medicare Choice program; (6) home health utilization has dropped substantially, well below what would have been required to remain within the BBA-imposed payment limits; (7) GAO expects the new Medicare payment system for home health services, scheduled for implementation in October, to generally provide agencies a comfortable cushion to deliver necessary services; (8) some corporate chains have declared bankruptcy; (9) the new Medicare payment system for SNF services adequately covers the cost of beneficiaries' services but no longer supports the extensive capital expansions or the ancillary service business that corporate chains relied on to boost revenues; (10) many plans are withdrawing from Medicare; (11) the withdrawals are tied to a combination of Medicare program changes and plans' business decisions; (12) in addition, GAO's ongoing work shows that payments to plans for their Medicare enrollees continue to exceed the expected fee-for-service costs of these individuals; (13) the significance of this finding is that Medicare managed care, although originally expected to achieve program savings, continues instead to add to program cost; (14) the basis for potential changes to BBA reforms should be how they affect beneficiaries' access to necessary services and the long term outlook for this program; (15) therefore, progress needs to continue to better align provider payments with the expected costs of the beneficiaries served and to bring about the fiscal discipline needed to contain Medicare spending in these areas over the long term; and (16) GAO will continue to monitor the payment reforms' effects to help Congress ensure that beneficiary access is protected, providers are fairly compensated, and taxpayers do not shoulder the burden of excessive program spending.

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