Further Changes Needed to Reduce Program Costs Gao ID: T-HRD-91-34 June 13, 1991

GAO discussed the actions needed to control rising Medicare costs, focusing on specific steps to address Medicare cost growth. GAO noted that: (1) over the next 5 years, Medicare outlays will increase by 70 percent; (2) Medicare payment rates for clinical diagnostic laboratory services were excessive; (3) rapid development and increased use of new medical technologies was a key factor driving health care cost inflation, and payment rates established for new technology were not systematically adjusted downward as costs declined; (4) for the Medicare prospective payment system to remain a factor in controlling hospital cost growth, payment rates must be closely monitored to ensure that they remain appropriate relative to hospitals' costs and that they provide incentives for efficient operations; (5) Medicare substantially overcompensated teaching hospitals for the indirect costs they incurred through their teaching programs; (6) effective implementation of volume growth goals that limit expenditures for physician services is essential to cost control; (7) Medicare was vulnerable to large losses through mismanagement, waste, and abuse; (8) cutbacks in safeguard activities resulted in large program losses; (9) failure to recover money from private insurers covering Medicare beneficiaries was a costly and pervasive problem; (10) proposed cutbacks in beneficiary and provider services could result in the delay of 7 million fraud and abuse cases; and (11) contractor budgets should be increased to fund payment safeguard activities.

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