Excessive Respiratory Therapy Cost and Utilization Data Used in Setting Medicare's Prospective Payment Rates

GAO examined the accuracy of the data used by the Department of Health and Human Services (HHS) to compute Medicare rates payed to hospitals.

Because of concern that the Medicare cost reimbursement system did not provide hospitals with incentives to hold down their cost increases, Congress enacted a payment system under which hospitals are paid a predetermined amount for each Medicare discharge based on the patient's diagnosis-related group (DRG). HHS used 1981 data on the costs of treating Medicare patients to establish the DRG payment rates. To get an idea of how accurate the database was, GAO reviewed cost and utilization data for respiratory therapy services provided by 33 hospitals in 1981. Although the results of the review cannot be projected to the universe of hospitals, the findings indicate that the database included unallowable costs related to respiratory therapy and the costs of unnecessary services and that the DRG payment rates were set at a level above that envisioned by the prospective payment system's methodology. GAO stated that, for HHS to meet its legal requirements, it will have to use the most current data available when updating DRG payment rates. GAO concluded that it is necessary for HHS to have programs for auditing hospital cost data and the use of services to help ensure that excessive costs included in the initial DRG rates are not perpetuated.