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HRD-84-90 1 (1984-09-28)

handle is hein.gao/gaobabnmp0001 and id is 1 raw text is: UNITED STATES GENERAL ACCOUNTING OFFICE WASHINGTON, D.C. 20548 HUMAN RZUOURCES DIVISION September 28, 1984 B-216611 The Honorable Margaret M. Heckler 125312 The Secretary of Health and Human Services Dear Madam Secretary: Subject: Excessive Respiratory Therapy Cost and Utilization Data Used in Setting Medicare's Prospective Payment Rates (GAO/HRD-84-90) Until October 1, 1983, Medicare paid hospitals their allow- able cost of providing covered services to program beneficiaries. Because of general concern that this cost reimbursement system did not provide hospitals with incentives to hold down their cost increases, the Congress enacted a prospective payment system under which hospitals are paid a predetermined amount, irrespec- tive of their costs, for each Medicare discharge based on the diagnosis related group (DRG)1 into which the patient falls. This system is designed to provide hospitals with incentives to hold down their costs because, if costs exceed the predetermined payment, the hospital suffers a loss while it makes a profit if its costs are less than the payment. The prospective payment system is being phased in over 3 years and when fully implemented in fiscal year 1987, all hospitals will receive the same payment (adjusted to reflect local wage differences, urban or rural loca- tion, and teaching status) for patients in the same DRG. To establish the DRG payment rates, the Department of Health and Human Service's (HHS') Health Care Financing Administration (HCFA) used 1981 data on the costs of treating Medicare patients. The accuracy of the computation of the payment rates was, there- fore, dependent on the accuracy of the Medicare data base. To get an idea of how accurate the data base was, we decided to review cost and utilization data for one type of service provided by hospitals in 1981. We selected 33 hospitals that contracted lEach DRG includes a number of diagnoses that are expected to require similar hospital resources to treat the patient. (106228'

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