Medicare

In 1996, Medicare part B (which generally covers non-hospital-based care) paid $4.6 billion for medical equipment, supplies, prosthetics, and orthotics--in other words, durable medical equipment (DME). Congress included provisions in the Balanced Budget Act of 1997 authorizing the Health Care Financing Administration (HCFA) to more quickly adjust Medicare's fee schedule allowances by up to 15 percent per year. This report reviews two problems that HCFA must overcome to use its new authority effectively. First, HCFA must better identify products billed to Medicare. The only product identifiers on the claims are HCFA billing codes that cover broad ranges of products, quality, and prices. For example, a single billing code is used for more than 200 different urological catheters, whose prices range from $1 to $18 each. The claim allowance is set at $11 for all catheters in this group; without better product identification, HCFA cannot know what it is paying for. The second problem with Medicare's DME payment system is that the fee schedule allowances are often out of line with current market prices. HCFA's new price-adjusting authority should help, but HCFA and its contractors do not have sufficient current product and price information for the thousands of DMEs covered. Another issue is that the fee schedule applies to individuals and to large institutional claimants, even though large institutions buy at significant discounts.

GAO noted that: (1) there are two underlying problems with Medicare's DME payment system; (2) the Health Care Financing Administration (HCFA) does not know specifically what products Medicare is paying for when its contractors process claims for DME; (3) the only product identifiers on the claims are the HCFA billing codes that cover a broad range of product types, quality, and market prices; (4) without more specific product identifiers on Medicare claims, HCFA cannot routinely determine what products are being billed under each billing code, which products should be grouped together under the same billing code, or whether the Medicare payment for all the products grouped under a billing code is reasonable; (5) the health care industry is increasingly using bar-coded, product-specific identifiers for medical products, but HCFA does not have any plans to require these identifiers on Medicare claims; (6) the second underlying problem with Medicare's DME payment system is that the fee schedule allowances for DME are often out of line with current market prices; (7) most Medicare fees are based on historical supplier charges updated using the consumer price index; (8) the Balanced Budget Act of 1997 (BBA) gave the Department of Health and Human Services (HHS) the authority to use a streamlined inherent reasonableness review process to adjust Medicare fees by as much as 15 percent in one year; (9) this streamlined authority should help HCFA bring the historical, charge-based fees into line with marketplace prices, but some obstacles remain; (10) HCFA and its contractors do not have sufficient, current product and pricing data for the thousands of DME items covered by Medicare; (11) another obstacle to appropriate reimbursement is that the fee schedule allowances are the same for individuals and for large institutional suppliers, even though large suppliers buy at substantial discounts; and (12) although the BBA gives HHS the authority to more quickly adjust fees, addressing these underlying problems may require additional statutory authority.

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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