By David Morgan
WASHINGTON (Reuters) - Medicare, the U.S. healthcare program for the elderly, is spending $8.3 billion on a test project that is supposed to improve the quality of private health coverage but has mainly rewarded mediocre insurance plans, a government watchdog said on Monday.
A report by the Government Accountability Office, a nonpartisan investigative arm of Congress, recommends canceling the Medicare Advantage quality bonus payment initiative. The three-year project is seen as the largest-scale test of an effort to improve Medicare services to date.
The watchdog agency said the U.S. administration should instead pursue quality improvement measures under the Patient Protection and Affordable Care Act, President Barack Obama's healthcare reform law.
Separately, the administration released its own report predicting that the entire Medicare program would save more than $200 billion through 2016 due to the effects of Obama's reforms. Beneficiaries in traditional Medicare would enjoy $59.4 billion in lower costs.
The two reports underscore an ongoing struggle between the administration and its critics to control the public message about government involvement in healthcare, as the Supreme Court considers whether to strike down the overhaul law in a ruling expected in June.
The GAO report calls into question Medicare's ability to improve care delivery, reduce costs and combat waste at a time when the $523 billion-a-year program, along with its 48 million elderly and disabled beneficiaries, face an uncertain future due to efforts in Congress to reduce the federal debt and deficit.
Senator Orrin Hatch, the top Republican on the Senate Finance Committee, said the study raised questions about whether the administration overstepped its authority in creating the program.
"The White House does not have the authority to green light spending on whatever program it wants. This report is just the beginning," Hatch said in a statement.
The administration defended the program as a necessary effort to determine how best to improve quality and reduce costs in Medicare Advantage, which provides about one-quarter of Medicare beneficiaries with coverage from private insurers.
"Without this demonstration, more than 550 plans serving the majority of those in Medicare Advantage would no longer have an incentive to improve the quality of their healthcare," the Department of Health and Human Services said in a statement.
MORE COSTLY THAN TRADITIONAL MEDICARE
The demonstration project, designed to promote quality by awarding performance bonuses to private insurers that offer coverage through Medicare, was undertaken to test whether annual quality improvements could be achieved more quickly than under Obama's healthcare overhaul.
Its aim is to provide strong incentives for Medicare Advantage plans with as few as three out of five stars to improve performance at various star rating levels. The program ensures that all qualifying plans receive bonuses at least as great as those that would occur under the healthcare law, rather than just the highest-performing ones.
Medicare Advantage was adopted under George W. Bush as a way to bring market efficiency to the sprawling government program. Some of the largest providers of Medicare Advantage plans are UnitedHealth Group and Humana Inc.
But Medicare Advantage has proved more expensive than traditional Medicare, with payments in private insurers equaling 114 percent of the fee-for-service program.
The administration said it remained on track to bring Medicare Advantage into line with traditional Medicare by 2020, despite the cost of demonstration.
GAO found that the program's design serves to undermine the administration's ability to achieve its stated goal.
"Rather than rewarding only high performing plans, most of the additional payments made under the demonstration will accrue to average performing plans," GAO healthcare Director James Gosgrove said in a letter to Senator Hatch.
"The design shortcomings of the demonstration may undermine its ability to achieve (the administration's) stated research goal," he added.
The GAO study circulated just ahead of an annual report by the Medicare trustees, which is expected to provide a new forecast for the program's long-term financial health.
(Editing by Maureen Bavdek)