Medicare is wasting more than $8 billion on an experimental program that rewards providers of mediocre health care and is unlikely to produce useful results, federal investigators say in a new report.
The report, to be issued Monday by the Government Accountability Office, a nonpartisan investigative arm of Congress, urges the Obama administration to cancel the program, which pays bonuses to health insurance companies caring for millions of Medicare beneficiaries.
Administration officials, however, defended the project and said they would not cancel it because it could improve the quality of care for older Americans.
In the 2010 health care law, Congress cut Medicare payments to managed care plans, known as Medicare Advantage, and authorized bonus payments to those that provide high-quality care. Investigators found that most of the money paid under the demonstration program went to “average-performing plans” rated lower than the benchmarks set by Congress.
The report said the project would cost $8.3 billion over 10 years, with 80 percent of the cost occurring in the first three years.
Federal investigators are trying to determine whether Medicare officials had the legal authority to make the changes.
Senator Orrin G. Hatch of Utah, the senior Republican on the Finance Committee, and Representative Dave Camp, Republican of Michigan and chairman of the Ways and Means Committee, said the report suggested that Medicare officials had abused their authority.
In a statement, Mr. Hatch and Mr. Camp said they were concerned that the government might be “using taxpayer dollars for political purposes, to mask the impact on beneficiaries of cuts in the Medicare Advantage program.” Administration officials denied that.
A separate federal panel, the independent Medicare Payment Advisory Commission, also criticized the project, saying it increases “spending at a time when Medicare already faces serious problems with cost control and long-term financing.”
The panel denounced Medicare’s “overly broad use of demonstration authority” and said “limited Medicare dollars should go to truly high-performing plans.” It said “the extension of quality bonuses to the vast majority of plans is likely to result in far greater program costs than the reward system enacted” by Congress, and that by spreading the rewards so broadly, “the demonstration lessens the incentive to achieve the highest level of performance.”
The G.A.O. said the project “dwarfs all other Medicare demonstrations” in its impact on the budget, but is so poorly designed that researchers could not tell whether the bonus payments led to improved care. As a result, it said, it is unlikely to “produce meaningful results.” Insurers can use the bonuses to offer extra benefits, like vision and dental care, or to lower premiums.
More than 12 million people are in Medicare Advantage plans. About one-third of them are in plans that would receive bonuses under the 2010 law. By contrast, under the demonstration program, 90 percent are in plans eligible for bonuses, the report said.
The administration said that by offering bigger bonuses to more health plans, it hoped to encourage larger, more rapid improvements in care. “All Medicare Advantage plans will be part of the demonstration,” a federal health official told James C. Cosgrove, the accountability office’s director of health care studies.
The Medicare commission said “demonstration authority is intended for smaller-scale projects” that test innovations in the way health care is financed and delivered.
The health care law cut payments to private Medicare Advantage plans after many studies found that they were being overpaid. President Obama said the private plans were getting “unwarranted subsidies” that “pad their profits but don’t improve the care of seniors.”
The commission said payments to private plans, including the bonuses, were still about 7 percent higher than what the government would pay for similar beneficiaries in the traditional Medicare program.