Medicare Overpaid by $1 Billion With High Lab Rates

Medicare could have saved taxpayer more than $1 billion in 2011 had it negotiated lower rates for lab tests much the way state Medicaid plans and private insurers did, an inspector general's report has found.

According to The Wall Street Journal, a review of rates of 20 of the most common lab tests found that Medicare paid 18 percent to 44 percent more for lab fees for the elderly than state Medicaid plans and private insurers did, amounting to an additional cost of at least $910 million. Because the program covers more than 1,100 lab tests, the figure likely is to be significantly higher than $1 billion, the Journal reported Tuesday.

The discrepancy is due partially to a restriction against negotiating lower rates.

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

Medicare is the largest customer of clinical lab services and spent about $8.2 billion on them in 2010, the Journal reported. Other government studies have suggested Medicare could find savings by overhauling its 29-year-old fee-reimbursement system, though such a move likely would require congressional approval.

The report also suggested Medicare could cut costs by requiring fee-for-service beneficiaries to contribute with a co-pay or deductible for lab services, as is the case with most private insurers and 11 state Medicaid programs.