Medicare

The Comptroller General has repeatedly cautioned that, even without expanding program benefits, projected Medicare spending threatens to absorb ever-increasing shares of the nation's budgetary and economic resources. In the absence of meaningful reform, demographic and cost trends will drive Medicare spending to levels that will prove unsustainable. Under the Balanced Budget Act of 1997 (BBA) and the Balanced Budget Refinement act of 1999, providers have had to adjust their operations because of tightened payment policies. The adjustments have been particularly disruptive for providers that took advantage of Medicare's previous payment policies to finance inefficient and unnecessary care delivery. Industry representatives are advocating the partial restoration of payment cuts since the BBA's implementation developments have occured in the areas of home health services, skilled nursing facilities (SNF), and the Medicare+Choice program. Use of home health services has dropped substantially, well below what would have been required to remain within the BBA-imposed payment limits. The new Medicare payment system, scheduled for implementation in October, should generally provide agencies a comfortable cushion to deliver necessary services. Some corporate SNF chains have declared bankruptcy. The new Medicare payment system will adequately cover the cost of beneficiary services but not support extensive capital expansions or ancillary service business that the chains relied on to boost revenues. Many plans are withdrawing from Medicare because of the changes to the Medicare program and plans' business decisions. Ongoing GAO work shows that payments to plans for Medicare enrollees continue to exceed the expected fee-for-service costs. This finding is significant: Medicare managed care, although originally expected to achieve program savings, continues instead to add to program cost.

GAO noted that: (1) the reactions by providers serving Medicare beneficiaries to BBA and the Balanced Budget Refinement Act of 1999 payment reforms share a similar scenario; (2) tightened payment policies have required many providers to adjust their operations; (3) the adjustments have been particularly disruptive for providers that took advantage of Medicare's previous payment policies to finance inefficient and unnecessary care delivery; (4) industry representatives are advocating the partial restoration of payment cuts; (5) there are recent developments that have ensued since the BBA's implementation in the areas of home health services, SNF services and the Medicare Choice program; (6) home health utilization has dropped substantially, well below what would have been required to remain within the BBA-imposed payment limits; (7) GAO expects the new Medicare payment system for home health services, scheduled for implementation in October, to generally provide agencies a comfortable cushion to deliver necessary services; (8) some corporate chains have declared bankruptcy; (9) the new Medicare payment system for SNF services adequately covers the cost of beneficiaries' services but no longer supports the extensive capital expansions or the ancillary service business that corporate chains relied on to boost revenues; (10) many plans are withdrawing from Medicare; (11) the withdrawals are tied to a combination of Medicare program changes and plans' business decisions; (12) in addition, GAO's ongoing work shows that payments to plans for their Medicare enrollees continue to exceed the expected fee-for-service costs of these individuals; (13) the significance of this finding is that Medicare managed care, although originally expected to achieve program savings, continues instead to add to program cost; (14) the basis for potential changes to BBA reforms should be how they affect beneficiaries' access to necessary services and the long term outlook for this program; (15) therefore, progress needs to continue to better align provider payments with the expected costs of the beneficiaries served and to bring about the fiscal discipline needed to contain Medicare spending in these areas over the long term; and (16) GAO will continue to monitor the payment reforms' effects to help Congress ensure that beneficiary access is protected, providers are fairly compensated, and taxpayers do not shoulder the burden of excessive program spending.