Summary

Pursuant to a congressional request, GAO reviewed the impact of Medicare costs on: (1) pacemaker manufacturers' warranty policies; (2) pacemaker manufacturers' marketing policies; and (3) hospitals' procedures for acquiring and charging for pacemakers. In addition, GAO analyzed the impact of hospitals' and manufacturers' policies on the reasonableness of Medicare's new payment rates under the prospective payment system (PPS).

GAO found that, although pacemaker manufacturers offer discounts ranging from 5 to 40 percent, very few hospitals have obtained discounts because: (1) manufacturers do not advertise discounts; and (2) the cost reimbursement system used by Medicare in 1981, which was used as the base for reimbursement rates under PPS, did not provide incentive for hospitals to seek discounts. GAO also found that: (1) most hospitals do not enhance their ability to obtain discounts by coordinating pacemaker purchases with their practicing physicians or with affiliated hospitals; (2) it could not obtain enough data to determine whether hospitals generally take advantage of warranty credits for replacement pacemakers; (3) PPS provides an incentive for hospitals to take advantage of warranty credits; and (4) the data used by the Department of Health and Human Services (HHS) to compute prospective payment rates for pacemaker surgeries contained errors, including the use of unaudited hospital cost reports and classification of pacemaker cases under the wrong diagnostic-related groups (DRG). In addition, GAO stated that HHS may need to: (1) establish separate DRG for procedures involving dual-chamber pacemakers and guidance for the appropriate use of such pacemakers; and (2) require that all explanted pacemakers be returned to their manufacturers for testing.