Medicare

Private Payer Strategies Suggest Options to Reduce Rapid Spending Growth Gao ID: T-HEHS-96-138 April 30, 1996

Improvements to Medicare's traditional fee-for-service program could yield much-needed savings. With better management, this program, which now serves about 90 percent of beneficiaries, could run more efficiently while continuing to serve well the nation's elderly. This means allowing Medicare to use tools similar to those used by private payers to manage health care costs. Negotiated discounts, competitive bidding, preferred providers, case management utilization reviews--these and other tools allow private payers to use market forces to control health care costs. Most, however, are not authorized for general use by the Health Care Financing Administration (HCFA), which runs Medicare. This results in a publicly financed program that pays higher-than-market rates for some goods and services and sometimes pays without question for improbably high bills. Recent HCFA efforts and pending legislation to address these problems appear promising. In addition, HCFA should test the feasibility of applying management strategies in high-cost high-utilization areas. Finally, Congress needs to give the Department of Health and Human Services the flexibility to make prompt price adjustments.

Recommendations

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