GAO Reports: Medicare and Medicaid

This page lists the most recent publications related to Medicare and Medicaid. It includes publications issued since October 2004.

Health Care Spending

http://gaonet.gov/docsearch/featured/healthcare_spending.html Thu, 09 Sep 2010 04:43:27 -0400 GAO http://www.gao.gov/images/title_object.jpg GAO logo http://www.gao.gov/ Feed provided by GAO. Click to visit. Medicare Payments to Federally Qualified Health Centers, July 30, 2010 http://www.gao.gov/new.items/d10576r.pdf To increase access to primary and preventive care services for individuals living in medically underserved communities, Congress authorized federally qualified health centers (FQHC) as a health care facility type and established requirements for Medicare coverage and payment as FQHCs under the Omnibus Budget Reconciliation Act (OBRA) of 1990. FQHCs are typically rural and urban safety net providers that provide primary and preventive care services to individuals regardless of their ability to pay. In general, a health center may qualify as a FQHC if it receives a federal grant under Section 330 of the Public Health Service Act; meets the requirements to receive such a grant; or is an outpatient health program/facility operated by certain tribal or urban Indian organizations. Currently, Medicare reimburses FQHCs for these services with an all-inclusive payment rate--resulting costs exceeding the maximum Medicare reimbursement under the upper payment limits every year from 1997 to 2004. The Medicare Improvements for Patients and Providers Act of 2008 required GAO to examine the payment structure that Medicare used to pay FQHCs for services provided to Medicare beneficiaries and to take into consideration the prospective payment methodology used by Medicaid to make payments to FQHCs. This correspondence examines the relationship between Medicare payments and the costs submitted by FQHCs for services provided to Medicare beneficiaries and provides information on how CMS established the Medicare FQHC payment structure. In this correspondence we also describe the preventive services added to or expanded within Medicare since the upper payment methodology was implemented in 1992 and the key features of the Medicaid PPS. We did not examine the PPACA prospective payment system or the impact it will have on FQHCs. Based on GAO analysis of Medicare cost reports submitted by FQHCs in 2007, Medicare payments to most FQHCs were less than FQHCs' submitted costs of services. About 72 percent of FQHCs had costs per visit that exceeded the upper payment limits. However, FQHCs varied greatly in their costs per visit, with FQHCs with the highest costs per visit having relatively fewer Medicare visits than FQHCs with the lowest costs per visit. The application of productivity guidelines reduced Medicare payments to 7 percent of FQHCs, which did not meet the minimum number of visits required by the productivity guidelines and had costs per visit that did not exceed the upper payment limits. Overall, application of the upper payment limits and productivity guidelines reduced FQHCs' submitted costs of services by about $72.8 million from about $504 million to about $431 million--about 14 percent--in 2007. Since Medicare pays 80 percent of the FQHCs' costs (beneficiary coinsurance is 20 percent), the application of these limits reduced Medicare FQHC payments by $58.2 million. We obtained written comments on a draft of this report from HHS. In its comments, HHS stated that the report provides helpful general background information on the Medicare FQHC program. HHS also raised concerns about the findings of the report because the Medicare cost report data that we analyzed have not been subject to a "comprehensive, full-scope" audit. Because CMS officials previously told us that the agency has not audited the cost reports, we took a number of steps to examine the reliability of the data, and we determined the Medicare FQHC cost report data to be reliable for the purposes of our analysis. Fri, 30 Jul 2010 00:00:00 -0400 Medicare Part D: Spending, Beneficiary Out-of-Pocket Costs, and Efforts to Obtain Price Concessions for Certain High-Cost Drugs, March 17, 2010 http://www.gao.gov/new.items/d10529t.pdf The Centers for Medicare & Medicaid Services (CMS) allows Part D plans to utilize different tiers with different levels of cost sharing as a way of managing drug utilization and spending. One such tier, the specialty tier, is designed for high-cost drugs whose prices exceed a certain threshold set by CMS. Beneficiaries who use these drugs typically face higher out-of-pocket costs than beneficiaries who use only lower-cost drugs. This testimony is based on GAO's January 2010 report entitled Medicare Part D: Spending, Beneficiary Cost Sharing, and Cost-Containment Efforts for High-Cost Drugs Eligible for a Specialty Tier (GAO-10-242) in which GAO examined, among other things, (1) Part D spending on these drugs in 2007, the most recent year for which claims data were available; (2) how different cost-sharing structures could be expected to affect beneficiary out-of-pocket costs; (3) how negotiated drug prices could be expected to affect beneficiary out-of-pocket costs; and (4) information Part D plan sponsors reported on their ability to negotiate price concessions. For the second and third of these objectives, this testimony focuses on out-of-pocket costs for beneficiaries responsible for paying the full cost-sharing amounts required by their plans. GAO examined CMS data and interviewed officials from CMS and 8 of the 11 largest plan sponsors, based on enrollment in 2008. Seven of the 11 plan sponsors provided price concession data for a sample of 20 drugs for 2006 through 2008. High-cost drugs eligible for a specialty tier commonly include immunosuppressant drugs, those used to treat cancer, and antiviral drugs. Specialty tier-eligible drugs accounted for 10 percent, or $5.6 billion, of the $54.4 billion in total prescription drug spending under Medicare Part D plans in 2007. Medicare beneficiaries who received a low-income subsidy (LIS) accounted for most of the spending on specialty tier-eligible drugs-- $4.0 billion, or 70 percent of the total. Among all beneficiaries who used at least one specialty tier-eligible drug in 2007, 55 percent reached the catastrophic coverage threshold, after which Medicare pays at least 80 percent of all drug costs. In contrast, only 8 percent of all Part D beneficiaries who filed claims but did not use any specialty tier-eligible drugs reached this threshold in 2007. Most beneficiaries are responsible for paying the full cost-sharing amounts required by their plans. For such beneficiaries who use a given specialty tier-eligible drug, different cost-sharing structures result in varying out-of-pocket costs only until they reach the catastrophic coverage threshold, which 31 percent of these beneficiaries did in 2007. After that point, beneficiaries' annual out-of-pocket costs for a given drug are likely to be similar regardless of their plans' cost-sharing structures. Variations in negotiated drug prices can also affect out-of-pocket costs for beneficiaries who are responsible for paying the full cost-sharing amounts required by their plans. Variations in negotiated prices can occur between drugs, across plans for the same drug, and from year to year. For example, the average negotiated price for the cancer drug Gleevec across our sample of plans increased by 46 percent between 2006 and 2009, from about $31,200 per year to about $45,500 per year. Correspondingly, the average out-of-pocket cost for a beneficiary taking Gleevec for the entire year could have been expected to rise from about $4,900 in 2006 to more than $6,300 in 2009. Plan sponsors reported having little leverage to negotiate price concessions from manufacturers for most specialty tier-eligible drugs. One reason for this limited leverage was that many of these drugs have few competitors on the market. Plan sponsors reported that they were more often able to negotiate price concessions for drugs with more competitors on the market--such as for drugs used to treat rheumatoid arthritis. Two additional reasons cited for limited negotiating leverage were CMS requirements that plans include all or most drugs from certain therapeutic classes on their formularies, limiting sponsors' ability to exclude drugs from their formularies in favor of competing drugs; and that the relatively limited share of total prescription drug utilization among Part D beneficiaries for some specialty tier-eligible drugs was insufficient to entice manufacturers to offer price concessions. CMS provided GAO with comments on a draft of the January 2010 report. CMS agreed with portions of GAO's findings and suggested additional information for GAO to include in the report, which GAO incorporated as appropriate. Wed, 17 Mar 2010 00:00:00 -0400 Group Purchasing Organizations: Research on Their Pricing Impact on Health Care Providers, January 29, 2010 http://www.gao.gov/new.items/d10323r.pdf Hospitals and other health care providers use purchasing intermediaries--group purchasing organizations (GPO)--as a way to control the cost of various medical products. Through GPO-negotiated contracts, hospitals and other health care providers can purchase everything from commodities, such as cotton balls and bandages, to high-technology medical devices, such as pacemakers and stents. By pooling the purchases of these products for their customers, GPOs are in a position to negotiate lower prices from manufacturers, distributors, and other suppliers, which may in turn benefit health care providers and, ultimately, consumers and payers of health care such as insurers and employers. Members of Congress and others have recently raised questions about the extent to which GPOs negotiate lower prices for health care providers. GPO and other trade associations have funded studies on the impact of GPOs. However, these studies have limitations. Congress asked us to review research on the impact of GPOs on pricing for hospitals and other health care providers. This report summarizes the peer-reviewed and nonpeer-reviewed literature on the impact of GPOs on pricing for hospitals and other health care providers that GAO identified in GAO's literature review. In our review, we identified one peer-reviewed article on the impact of GPOs on pricing for health care providers that was published between January 2004 and October 2009. The authors of this article concluded that according to hospital directors of materials management who are responsible for hospitals purchases of medical supplies, alliances between hospitals and GPOs can contain rising health care costs by reducing product prices, reducing transaction costs through commonly negotiated contracts, and increasing hospital revenues via rebates and dividends. The findings in the article are based on a national survey of hospital directors of materials management. While we did not assess the methodology of this article, the article identified some limitations to the analysis, including that the findings rely on the perceptions of materials managers identified through a survey and do not include empirical analyses of hospital cost savings. The article also stated that the survey yielded a low response rate of 16 percent. However, the article reported that, although the response rate was not high, the researchers found little evidence of survey bias introduced by the low level of response and employed additional techniques to correct for any potential bias. Fri, 29 Jan 2010 00:00:00 -0500 Medicare Part D: Spending, Beneficiary Cost Sharing, and Cost-Containment Efforts for High-Cost Drugs Eligible for a Specialty Tier, January 29, 2010 http://www.gao.gov/new.items/d10242.pdf The Centers for Medicare & Medicaid Services (CMS) allows Part D plans to utilize different tiers with different levels of cost sharing as a way of managing drug utilization and spending. One such tier, the specialty tier, is designed for high-cost drugs whose prices exceed a certain threshold set by CMS. Beneficiaries who use these drugs typically face higher out-of-pocket costs than beneficiaries who use only lower-cost drugs. GAO was asked to provide information about high-cost drugs eligible for a specialty tier. This report provides information on these drugs including spending under Medicare Part D in 2007, the most recent year for which claims data were available; how different cost-sharing structures could be expected to affect beneficiary out-of-pocket costs; how negotiated drug prices could be expected to affect beneficiary out-of-pocket costs; and information Part D plan sponsors reported on their ability to negotiate price concessions and to manage utilization. GAO examined CMS data, including 2007 claims data, negotiated price and out-of-pocket cost data for selected drugs--including the 10 highest-utilization specialty tier-eligible drugs in 2007--and plans from 2006 through 2009, and formulary information provided to CMS by plan sponsors. GAO interviewed officials from CMS and 8 of the 11 largest plan sponsors, based on enrollment in 2008. Seven of the 11 plan sponsors provided data including price concessions for selected drugs for 2006 through 2008. High-cost drugs eligible for a specialty tier commonly include immunosuppressant drugs, those used to treat cancer, and antiviral drugs. Specialty tier-eligible drugs accounted for 10 percent, or $5.6 billion, of the $54.4 billion in total prescription drug spending under Medicare Part D plans in 2007. Medicare beneficiaries who received a low-income subsidy (LIS) accounted for most of the spending on specialty tier-eligible drugs--$4.0 billion, or 70 percent of the total. Among all beneficiaries who used at least one specialty tier-eligible drug in 2007, 55 percent reached the catastrophic coverage threshold, after which Medicare pays at least 80 percent of all drug costs. In contrast, only 8 percent of all Part D beneficiaries who did not use a specialty tier-eligible drug reached this threshold in 2007. Differences in plans' cost-sharing structures--flat copayments or coinsurance rates--can be expected to result in varying out-of-pocket costs for non-LIS beneficiaries only until they reach the catastrophic coverage threshold, which 31 percent of non-LIS beneficiaries did in 2007. After that point, non-LIS beneficiaries' annual out-of-pocket costs for a given drug are likely to be similar regardless of their plans' cost-sharing structures. LIS beneficiaries' out-of-pocket costs are generally not affected by their plans' cost-sharing structures because Medicare sets fixed limits on the cost-sharing amounts for these beneficiaries and pays any difference between these fixed amounts and the amount required under the plans' cost-sharing structures. Variations in negotiated drug prices--between different drugs, across plans for the same drug, and over time--can affect out-of-pocket costs. For example, the average negotiated price for Gleevec across our sample of plans increased by 46 percent between 2006 and 2009, from about $31,200 per year to about $45,500 per year. Correspondingly, the average out-of-pocket cost for a non-LIS beneficiary taking Gleevec for the entire year could have been expected to rise from about $4,900 in 2006 to more than $6,300 in 2009. Plan sponsors reported having little leverage to negotiate price concessions from manufacturers for most specialty tier-eligible drugs, although sponsors were more often able to negotiate price concessions for drugs with more competitors on the market--such as for drugs used to treat rheumatoid arthritis. One factor sponsors cited for this limited leverage was CMS requirements limiting sponsors' ability to exclude drugs from their formularies in favor of competing drugs. Finally, plan sponsors employ practices such as prior authorization to manage beneficiaries' utilization of specialty tier-eligible drugs, and sponsors reported employing those practices somewhat more frequently for these drugs than for lower-cost Part D drugs. GAO provided a draft of this report to CMS. CMS agreed with portions of GAO's findings and suggested additional information for us to include in our report, which we incorporated as appropriate. Fri, 29 Jan 2010 00:00:00 -0500 Medicaid Outpatient Prescription Drugs: Second Quarter 2008 Federal Upper Limits for Reimbursement Compared with Average Retail Pharmacy Acquisition Costs, November 30, 2009 http://www.gao.gov/new.items/d10118r.pdf Medicaid--the joint federal-state program that finances medical services for certain low-income adults and children--spent $15.0 billion on outpatient prescription drugs in fiscal year 2007. Instead of directly purchasing drugs, state Medicaid programs reimburse retail pharmacies for dispensing them to Medicaid beneficiaries. The federal government provides matching funds to states to help cover the costs of their Medicaid programs, and states must pay the remaining costs to qualify for these federal funds. For certain outpatient prescription drugs, state Medicaid programs may only receive federal matching funds for reimbursements up to a maximum amount known as a federal upper limit (FUL). Designed to control drug spending, FULs are currently calculated as 150 percent of a drug's lowest published price in three national drug pricing compendia. State Medicaid programs can determine reimbursements to retail pharmacies for each drug, but the federal government will only provide matching funds to the extent that reimbursements for all drugs subject to FULs do not exceed established FULs in the aggregate. A 2005 report by the Department of Health and Human Services' (HHS) Office of Inspector General (OIG) found that FULs were ineffective at controlling outpatient Medicaid prescription drug spending. The Deficit Reduction Act of 2005 (DRA) included provisions--the implementation of which has been delayed by judicial and legislative action--that would change the methodology for calculating FULs. Under the DRA, FULs would be calculated as 250 percent of the average manufacturer price (AMP) for a drug's least costly therapeutically equivalent version. In 2006, the Congressional Budget Office estimated that the implementation of AMP-based FULs would reduce total Medicaid spending for prescription drugs by $11.8 billion from 2007 through 2015. However, retail pharmacies have raised concerns that AMP-based FULs would not be sufficient to cover their costs of acquiring drugs dispensed to Medicaid beneficiaries. Two retail pharmacy industry groups, the National Association of Chain Drug Stores (NACDS) and the National Community Pharmacists Association (NCPA), have claimed that AMP-based FULs would make some retail pharmacies unprofitable and thus limit certain Medicaid beneficiaries' access to retail pharmacies. A 2006 GAO report and a 2007 report by the HHS OIG both found that AMP-based FULs would have been lower than average pharmacy acquisition costs, on a drug-by-drug basis, for most drugs included in the respective samples. To implement the DRA provisions pertaining to prescription drugs in Medicaid, CMS published a final rule in July 2007. This rule includes provisions regarding the calculation of AMP-based FULs that might also affect how they compare to pharmacy acquisition costs. For example, FULs apply only to certain outpatient prescription drugs--known as multiple-source drugs--and the rule changed the definition of multiple-source drugs. Additionally, to minimize the effect of outliers, the final rule included a provision which would use the second-lowest AMP for a multiple-source drug to set the FUL if the lowest AMP is less than 40 percent of the second-lowest AMP. The final rule requires drug manufacturers to report AMP data on a monthly basis, and drug manufacturers and state Medicaid programs were expected to begin complying with the provisions of the final rule by October 1, 2007. If AMP-based FULs had been in place in the second quarter of 2008, they would have been lower than average retail pharmacy acquisition costs, in general, for most of the drugs in our sample and in the national aggregate. The median AMP-based FULs for the second quarter of 2008 would have been lower than average retail pharmacy acquisition costs for 54 of the 83 drugs in our sample; 44 drugs had FULs that would have been at least 25 percent below acquisition costs. In the aggregate, the FULs would have been 17 percent lower than acquisition costs, though the difference varied significantly by state, from 57 percent lower to 49 percent higher. However, 64 drugs had at least one therapeutically equivalent version with acquisition costs below the FUL, indicating that pharmacies may be able to substitute lower-priced therapeutic equivalents to bring their costs below the FUL. AMP-based FULs also varied significantly throughout 2008 for 38 drugs, in some cases exceeding the average retail pharmacy acquisition cost one month and falling below it in another month. While partly due to monthly increases or decreases in AMPs, variation also occurred because manufacturers did not report AMP data each month for 11 percent of the therapeutically equivalent versions of the drugs in our sample. If a manufacturer reports the AMP for the lowest-priced therapeutically equivalent version of a drug one month but does not report it the next month, the FUL may change. In its written comments on a draft of this report, CMS disagreed with our finding that if AMP-based FULs had been in place in the second quarter of 2008, they would have been lower than average retail pharmacy acquisition costs for most of the 83 drugs in our sample and in the national aggregate. In particular, CMS expressed concerns about our data source used to estimate average retail pharmacy acquisition costs, including that it does not take into account discounts and rebates that drug manufacturers may provide to retail pharmacies. CMS also expressed concerns about our methodology and inconsistencies between our finding and the findings of an HHS-OIG report, which the OIG shared with us because it has not been publicly issued as of November 2009. However, as we indicate in this report, data on discounts and rebates pharmacies receive are not readily available. We used the most complete, accurate, and verifiable data sources available at the time of our analysis to estimate average retail pharmacy acquisition costs. We believe that these data are sufficiently accurate to achieve the objective of our work. Furthermore, our methodology is sound and any inconsistencies between our finding and the findings of the HHS-OIG report, which was based on data from the fourth quarter of 2007, are largely due to significant fluctuations in drug prices over time. Mon, 30 Nov 2009 00:00:00 -0500 Private Health Insurance: Research on Competition in the Insurance Industry, July 31, 2009 http://www.gao.gov/new.items/d09864r.pdf Health care providers and members of Congress have raised concerns that consolidation in the private health insurance industry may be resulting in less competitive markets and contributing to rising health insurance rates paid by consumers and employers. However, measuring the extent of changes in market competition over time or the effects of changes is challenging. In particular, reliable, longitudinal data to measure concentration, that is, the number of competitors and their relative market share, are only available on health maintenance organizations (HMO) but not on preferred provider organizations (PPO) or other insurance products that may comprise the market. Further, data on health insurers are not available at all geographic levels. Despite these challenges, researchers have used the data available to study competition in health insurance markets, typically using one of two measures of competition: (1) HMO market concentration or (2) the number of HMOs in a market. Researchers acknowledge that market concentration and the number of competitors are not perfect measures of competition in private health insurance markets and that there are limits to the conclusions to be drawn from studies that rely on the available data. This report summarizes the findings of peer-reviewed research on concentration in private health insurance markets and the relationship between the level of competition and other variables, such as premium prices and provider reimbursement rates. Our review found articles that measured the extent of concentration in private health insurance markets or focused on the relationship between competition in these markets and other variables, though the findings of these studies should be interpreted with caution. Several articles identified through our review examined the extent of concentration in private health insurance markets, though this research had limitations including, for example, relying on state-level data when the more appropriate geographic focus may be at a more local level. One study found that the HMO industry became more consolidated nationally from 1994 to 1997. According to the study, several national consolidations occurred during this period and contributed to the market share of the top five national firms growing from 43.2 percent in 1994 to 49.9 percent in 1997. The study found that the effects of these national consolidations on concentration varied significantly, with some local markets experiencing no change and others facing increases significant enough to raise antitrust concerns. While no other studies measured the extent of changes in the concentration of markets over time, several studies measured the concentration of local health insurance markets (defined as a state, metropolitan statistical area (MSA), or county depending on the study) at a point in time. For example, one study measured commercial health insurance concentration at the state level. The study reviewed data on HMO and PPO products for insured and self-insured employer funding arrangements across 48 states and the District of Columbia. The study found that market concentration at the state level in 2003 was relatively high by federal standards11 and that the top three firms typically dominated each market. The study noted that data were available at the state level only, even though some states include multiple geographic markets and some geographic markets cross state lines, and that the study results should be interpreted with caution. In addition to measuring concentration, research we reviewed generally focused on examining the relationship between the level of competition in private health insurance markets (or "competition") and several variables--premium rates, rates paid to health care providers, utilization of medical services, quality of care, efficiency, and insurer profits. The results of this research should also be interpreted with caution because of data limitations and varying methodologies. For example, this research focused predominately on HMOs--and often did not include data on PPOs or other insurance products. Further, the research studies we reviewed defined geographic markets differently and controlled for different market characteristics. Fri, 31 Jul 2009 00:00:00 -0400 Highlights of a Forum: Health Care 20 Years From Now--Taking Steps Today to Meet Tomorrow's Challenges, September 7, 2007 http://www.gao.gov/new.items/d071155sp.pdf "Unless we fix our health care system--in both the public and private sectors--rising health care costs will have severe, adverse consequences for the federal budget as well as the U.S. economy in the future." This is one of the key messages that Comptroller General David M. Walker has been delivering across the country in town-hall style meetings, in speeches, and on radio and television programs. Using another format to explore issues with health care experts, Mr. Walker convened a forum at GAO on May 17, 2007. Attendees included health policy experts, business leaders, and public officials selected for their subject matter knowledge and representation of various perspectives. Participants examined health care cost, access, and quality challenges in discussion sessions led by distinguished economists Robert Reischauer and Mark Pauly and other leading health care authorities Carolyn Clancy and Suzanne Delbanco. Nationally known health insurance expert Leonard Schaeffer served as the keynote lunchtime speaker. At the conclusion of the forum, participants were polled for their views on points raised during the discussions. The poll was conducted using electronic voting technology that produced real-time, but confidential, results. The discussion sessions focused on three interrelated topics: cost and personal responsibility; coverage of the uninsured; and quality, standards, and outcomes. The keynote speech focused on related policy challenges. The following are highlights from these discussions and the participant poll. The proceedings are not intended to reflect the views of GAO. Health care spending. Participants did not reach agreement on whether the federal government should have an aggregate spending limit, such as a percentage of the federal budget, but supported other measures, such as federal value-based purchasing, reformed tax treatment of health care, and limits on direct-to-consumer advertising of prescription drugs. Health insurance coverage. There was near unanimity that ensuring the provision of health care coverage for all Americans should be a federal responsibility. The group also strongly agreed that the federal government should assure the existence of a well-functioning health insurance market, whereas they did not agree on whether the nation should continue to rely on employer-provided insurance as the dominant method through which most Americans obtain their health insurance coverage. Performance measures. Participants strongly supported the federal government's taking the lead in developing new indicators of health system outcomes and performance. The group also strongly favored having a broad-based independent body develop national, evidence-based practice standards. Policy challenges. The keynote speaker opined that a limited window of time--about 8 to 10 years--remains for the health care community to engage in effective reform. After that, he noted, budget and national security concerns will dominate. Because neither purely regulatory nor purely market-based approaches are politically viable, pragmatism rather than ideology should drive health policy. He concluded that we need a blended strategy, stating, "We have to shape our future now or be its victim." Fri, 07 Sep 2007 00:00:00 -0400 Health Care Spending: Public Payers Face Burden of Entitlement Program Growth, While All Payers Face Rising Prices and Increasing Use of Services, February 15, 2007 http://www.gao.gov/new.items/d07497t.pdf GAO testified about the challenges involved in financing health care. GAO has been particularly concerned about the federal government's long-term fiscal sustainability and the contribution of health care spending to this troubling picture. For the past several years, we have consistently reported that in just a few decades, the government will face a serious fiscal imbalance driven by known demographic trends and escalating health care cost growth. Over the next several decades, growth in spending on federal retirement and health entitlements will encumber an escalating share of the government's resources. These entitlement programs primarily include Social Security, which provides, among other things, retirement income to individuals aged 62 and older; Medicare, which provides health care coverage primarily for individuals 65 and older; and Medicaid, which is a joint federal-state program providing health care and long-term care for low-income individuals. Congress's concern about the challenges involved in financing health care is consistent with the fact that certain spending pressures faced by Medicare and Medicaid are faced by all health care payers, including the Departments of Veterans Affairs (VA) and Defense, as well as private payers of health care. To provide an overview of the situation, GAO discussed (1) the long-term outlook for the federal budget and implications for the national economy, (2) health care spending increases system-wide and drivers of spending growth, and (3) cost containment challenges health care payers face now and in the future. This testimony is based largely on issued GAO work and relevant literature on health care spending. In February 2007, we updated prior work by including more recent data from GAO's budget simulation model, the Centers for Medicare & Medicaid Services, and the U.S. Census Bureau. In summary, projections show that the federal budget is on a path that is fiscally unsustainable, in large part because of growth in spending for Medicare and Medicaid. Mandatory spending for these entitlements, together with spending for Social Security, threatens to crowd out discretionary spending for a vast array of domestic programs. It is largely the public payers who will bear the cost burden associated with the baby boom generation, whereas both public and private payers must contend with the escalating costs associated with medical technology, population risk factors leading to expensive chronic conditions, and an imperfect market in which consumers and providers lack the information and incentives needed to achieve the best value for the dollars spent. Thu, 15 Feb 2007 00:00:00 -0500 Federal Employees Health Benefits Program: Competition and Other Factors Linked to Wide Variation in Health Care Prices, August 15, 2005 http://www.gao.gov/new.items/d05856.pdf Congress is concerned about the health care spending burden facing the Federal Employees Health Benefits Program (FEHBP), the largest private health insurance program in the country. Health care spending per person varies geographically, and the underlying causes for the spending variation have not been fully explored. Understanding market forces and other factors that may influence health care spending may contribute to efforts to moderate health care spending. Health care spending varies across the country due to differences in its components, the utilization and price of health care services. A wide body of research describes extensive geographic variation in utilization. However, less is known about private sector geographic variation in prices. This report examined prices and spending in FEHBP Preferred Provider Organizations (PPOs) to determine (1) the extent to which hospital and physician prices varied geographically, (2) which factors were associated with geographic variation in hospital and physician prices, and (3) the extent to which hospital and physician price variation contributed to geographic variation in spending. We analyzed claims data from several large national PPOs participating in FEHBP. We used 2001 data, the most current data available at the time of the study. FEHBP PPOs paid substantially different prices for hospital inpatient and physician services across metropolitan areas in the United States. Hospital prices varied by 259 percent and physician prices varied by about 100 percent across metropolitan areas. While there were some areas with very high or low prices, most had prices that were closer to the average. The variation in prices appeared to be affected by market characteristics. Metropolitan areas with the least competition, areas with a higher percentage of hospital beds in the two largest hospitals or hospital networks, had hospital prices that were 18 percent higher and physician prices that were 11 percent higher than areas with the most competition. The percent of primary care physicians' reimbursement that was paid on a capitation basis in health maintenance organizations (HMO), a proxy for HMO price bargaining leverage, was also associated with geographic variation in prices. Metropolitan areas with the least HMO capitation tended to have hospital and physician prices that were about 10 percent higher than areas with the most HMO capitation. When GAO controlled for other factors that might be associated with geographic variation in prices, more hospital competition and HMO capitation were still associated with lower prices, but the effect was reduced. GAO did not find any evidence that price variation was due to cost shifting, where providers raise private sector prices to compensate for lower prices from other payers. Total health care spending per enrollee varied by over 100 percent across metropolitan areas. For hospital and physician services, price contributed to about one-third and utilization to about two-thirds of the variation in spending between metropolitan areas in the highest and lowest spending quartiles. Higher physician prices were also associated with lower physician utilization, but higher prices were still typical in higher spending areas. The Office of Personnel Management provided comments on a draft of this report and agreed with our findings. Mon, 15 Aug 2005 00:00:00 -0400