Summary

Pursuant to a congressional request, GAO examined both Medicare and private programs' approaches to assessing the appropriateness of hospital care and reducing the level of inappropriate hospital care.

GAO found that: (1) both the Medicare and private programs conducted utilization review activities, typically involving nurses' examination of medical records and referral of suspected inappropriate cases to physicians for final determinations of appropriateness of care; (2) Medicare peer review organizations (PRO) under contract to the Health Care Financing Administration (HCFA) typically identified a lower rate of inappropriate care than independent contractors or researchers; (3) while private-sector utilization review activities primarily emphasized prospective reviews of proposed care, PRO generally retrospectively reviewed the appropriateness of past actions, forcing PRO to balance the need for positive collegial working relationships with physicians with the denial of payment for inappropriate care; (4) private-sector prospective reviewers also targeted potentially inappropriate hospital admissions, provided advisory guidance to physicians about the possible inappropriateness of proposed care, and penalized physicians who failed to obtain the required preadmission certification; (5) information on the cost-effectiveness of private-sector prospective reviews clearly indicated that review-related reductions in hospital use and expenditures more than offset review costs; and (6) HCFA had authority to expand PRO prospective review and improve targeting of reviews, but PRO lacked the ability to provide advisory guidance or penalties or incentives to encourage compliance with prospective review decisions.