Medicare

Have Medicare payments for sophisticated radiology services like magnetic resonance imaging (MRI) been adjusted to reflect declining costs for such technology? In some localities, GAO has found that Medicare payments for MRI do not take into account lower costs arising from faster scanning and broader diagnostic uses for the machines. Medicare payments generally do not take into account providers' costs and do not promote efficient use of expensive new technology. Even with legislatively imposed payment reductions in recent years, MRI payments in some areas are still too high relative to the costs incurred by high-volume providers. High Medicare payment rates encourage needless MRI proliferation by reimbursing providers for excess capacity. GAO believes that payment levels should be based primarily on the costs incurred by high-volume, efficient providers and should be updated periodically to reflect the economies achieved as the technologies evolve.

GAO found that: (1) Medicare's technical component payments for MRI services do not reflect technological advances, reduced equipment costs, and faster scans, all of which are expected to reduce costs and justify future reductions in reimbursement rates; (2) payment levels are primarily based on initial payment levels set by local Medicare carriers, charge-based payments, and fee schedule systems mandated by Congress; (3) in fiscal year (FY) 1990, MRI facilities had higher patient volumes and lower per-scan costs than in FY 1985, primarily since MRI machine upgrades have made them faster, and some providers do more scanning at a lower unit cost, especially in states with limited MRI proliferation; (4) in some geographic areas, such as Florida, there is a large number of MRI providers and much excess machine capacity, and high Medicare payment rates subsidize excess capacity by allowing providers to realize profits at low operational volumes; (5) some MRI machines are performing two to four times the 2,000 scans per year cited in HCFA guidance; (6) Congress has mandated changes to Medicare payment policies, including reducing technical component payments and the geographic variation in payment levels; and (7) in some localities, payments are still too high and are based in part on historical allowed charges instead of costs.

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.

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