Medicare Lab Costs and Government Knows Best Price Setting ... How Much More Government Knows Best Behavior Can We Afford?

Most of us think federal government's Medicare payments for lab services rendered are considerably less than costs paid by private insurers and state run programs. Well, we're wrong about that. The facts are just the opposite. They're substantially higher.

Room for Savings Found in Medicare has the high cost Medicare story on lab tests:

"The federal government's Medicare program could have saved nearly $1 billion in 2011 if it had paid the lowest rate negotiated by private insurers for lab tests, federal investigators said in a report to be released Tuesday.

A review of rates on 20 of the most common lab tests showed Medicare paid $910 million more than it would have if it had paid the rates of some state Medicaid plans and private insurers, according to the report by the Department of Health and Human Services' Office of Inspector General.

Medicare pays a set rate for lab tests and is restricted by law from negotiating lower rates. While many states and insurers use Medicare's lab rate fees as a basis for establishing their own fees and payment rates, "most pay less" than that rate, government investigators found.

The study showed that Medicare paid anywhere from 18% to 44% more than state Medicaid plans or private insurers on lab fees. The total amount Medicare could have saved is likely significantly higher than the $1 billion estimate, since the study only examined 20 tests, including some of the most expensive. Medicare, which provides health insurance for people age 65 or older and some disabled people, covers the costs of more than 1,100 lab tests.

In response to the report, a spokesman for the Centers for Medicare and Medicaid Services, which oversee Medicare, said it is "exploring whether we have the authority under current statute to revise payments for lab tests consistent with [the inspector general's] recommendation."

For example, Medicare reimbursed labs $12.30 for a test that measures blood iron levels, while a private insurer paid $7.51 for it. If Medicare had paid the lower rate for all blood iron tests in 2011, it could have saved $9.2 million, investigators found. Other tests provided the potential for more savings, including one measuring a thyroid-stimulating hormone, which cost Medicare 40% more, for a total of $140.2 million more, than some private insurers.

Medicare is the largest customer of clinical lab services and spent about $8.2 billion on them in 2010. Although this is the first time federal investigators have compared Medicare reimbursement rates for labs, other government studies have suggested Medicare could save money if it revised its fee-reimbursement system—which hasn't been significantly revised in 29 years. Although Medicare adjusts its rates by a percentage every year, a thorough overhaul of its system would likely require congressional action, and that isn't considered likely this year.

Investigators also suggested Medicare could cut costs by requiring people in the fee-for-service program to provide some sort of co-pay or deductible for lab services, like most private insurers and 11 states."

Summing Up

Big Brother is taking care of us. At least some of us. And at the expense of the rest of us.

That's for sure.

Thanks. Bob.