Need To Eliminate Payments for Unnecessary Hospital Ancillary Services

At 16 hospitals, GAO arranged for professional standards review organizations to examine the medical necessity of ancillary services provided to Medicare beneficiaries.

The professional standards review organizations found that about 6 percent of Medicare charges for ancillary services were for unnecessary care. The percentage of unnecessary care for laboratory, special services, and radiology was about 10 percent each. It was further found that 32 percent of all physical therapy services were unnecessary. The dollar amount of unnecessary care was sizeable: at least $255,000 in unnecessary care may have been incurred in 1981 at one hospital. This unnecessary care was paid for by Medicare because of the absence of effective medical necessity reviews. A new system will be phased in over 3 years that will reimburse hospitals prospectively on the basis of a flat rate established for each Medicare case. The rate paid generally will depend upon how the case is classified by a diagnosis-related group and where the hospital is located. When a prospective reimbursement system is established, there will be incentives for hospitals to eliminate unnecessary use of ancillary services. However, the database used to establish the prospective payment rates is inflated with costs incurred in providing unnecessary care.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: Michael Zimmerman Team: General Accounting Office: Human Resources Division Phone: (202) 275-6195