Medicare is unnecessarily spending more than $1 billion a year in reimbursements to health care providers because of a fee schedule that pays some types of providers more than others for performing the same procedure, according to a report issued yesterday by the inspector general of the Health and Human Services Department.

The report by HHS Inspector General Janet Rehnquist was the result of an examination of how much Medicare pays for identical outpatient services provided at a hospital outpatient department and at an ambulatory surgical center (ASC), which are clinic-type facilities not connected to a hospital.

It said that for almost two-thirds of the outpatient services that were examined, hospitals received a higher reimbursement than ASCs. Cutting the fees that hospitals are paid for these services to the lower amounts received by ASCs would save $1 billion a year, the report said.

For the other services for which ASCs receive the higher reimbursement, cutting these to the lower hospital rate would save another $100 million, Rehnquist said.

"In the absence of a compelling reason for a payment differential, the amount Medicare pays for a procedure should be based on the service and not the setting," Rehnquist said. She called for "immediate action to correct this imbalance by establishing greater parity in the payment rates."

Changing the reimbursement rates, however, would require enactment of legislation. According to HHS officials, the rates for hospitals and ASCs differ because they are based on different formulas in different sections of the law that governs Medicare, the health insurance program for the elderly.

Don May, vice president for policy at the American Hospital Association, said the recommendation, if implemented, would cause "a huge strain on hospital emergency rooms and outpatient departments."

"There are reasons why a hospital outpatient department should be paid more," May said. "They have more poor patients, they are open all the time and they are seeing sicker patients. Almost every hospital is already losing money providing care to Medicare patients. Further reducing it will only cause access problems, particularly in rural areas and inner cities."