Auditors call for end to Medicare Advantage experiment

GAO blasts an $8 billion Medicare program, a blow to the Obama's health agency, run by Secretary of Health and Human Services Kathleen Sebelius.

NEW YORK (CNNMoney) -- The nonpartisan Government Accountability Office urged the Obama administration on Monday to end a new $8 billion experiment aimed at improving a key Medicare program.

The three-year demonstration project by the Department of Health and Human Services, which began this year, is intended to speed up quality improvement in Medicare Advantage plans as called for under the 2010 health reform law.

Medicare Advantage serves as an alternative to the original Medicare program and covers about 25% of all Medicare beneficiaries. It is offered to seniors through private insurers under contract with the Centers for Medicare and Medicaid Services, which operate the government-sponsored health programs.

The health reform law set up a new bonus structure for highly-rated private insurers. The demonstration project widened eligibility for those bonuses.

But the GAO concluded that the program was badly designed and unlikely to provide "meaningful results."

Consequently, GAO said the project should be terminated and that HHS should allow the original Medicare Advantage quality measures under the health reform law to take effect.

Republicans, who have been criticizing the program for months, pounced on the report, accusing the Obama administration of abusing its power. They say the program merely sends extra money to providers to cushion against impending Medicare cuts expected under the new health care law.

Republicans say the program is a political move aimed at keeping seniors happy.

Sen. Orrin Hatch, a Utah Republican on the Senate Finance Committee, said the report calls into question whether HHS even has the authority to launch this program.

"The White House does not have the authority to green light spending on whatever program it wants," Hatch said in a statement.

The health department disagreed with the criticism and said the agency has no plans to end the program.

HHS Secretary Kathleen Sebelius said Monday that before the new health care reforms were passed, Medicare overpaid private insurers to the tune of 114% above Medicare rates, and lacked any power to assure the care was high quality.

She said that, with the program, Medicare is overpaying private insurers by 107% and more beneficiaries have been switching to higher-rated plans.

"With the demonstration, we're on track to reduce ovepayments," Sebelius said. "I think it's a basic win-win-win situation. We've got lower rates, we've got better-quality plans, and we're on track to reduce the overpayments in the long run."

In a written comments to the GAO, the health department said it disagrees with the criticism and does not plan to terminate the program.

"CMS believes the demonstration supports our national strategy to improve the delivery of health care services," the health department wrote. "Absent this demonstration, we believe many plans would not have an immediate incentive to improve the quality of care to [Medicare Advantage] enrollees."

The demonstration project would cost $8.35 billion over 10 years, according to the GAO report.

Separately, efforts under the 2010 health care law to reduce payments to private insurers that operate Medicare Advantage would save $68 billion over five years, the chief actuary for the Centers for Medicare and Medicaid Services said Monday.

Overall, the report estimates that Medicare will save more than $200 billion through 2016 due to the health reform law.

-- CNNMoney's Jennifer Liberto contributed to this report.