MEDICARE INSURANCE REIMBURSES HOSPITALS FOR FEES CHARGED BY BLOOD BANKS FOR BLOOD PROCESSING. MANY BLOOD BANKS ALSO CHARGE A NONREPLACEMENT FEE WHEN BLOOD USED BY A PATIENT IS NOT REPLACED OR DONATED ON A PATIENT'S BEHALF. THE GENERAL ACCOUNTING OFFICE (GAO) VISITED SIX BLOOD BANKS CHARGING NONREPLACEMENT FEES IN DIFFERENT GEOGRAPHICAL AREAS AND NINE HOSPITALS SERVED BY THESE BLOOD BANKS. REPRESENTATIVES FROM THE DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE (DHEW) AND FISCAL INTERMEDIARIES SERVING THESE FACILITIES WERE INTERVIEWED. THE INVESTIGATION SHOWED THAT COMMUNITY AND HOSPITAL REPLACEMENT PRACTICES DID NOT ALLOW MEDICARE PATIENTS THE SAME OPPORTUNITIES AS NON-MEDICARE PATIENTS TO ELIMINATE BLOOD FEES. BLOOD BANKS HAVE PREVENTED THE USE OF BLOOD REPLACEMENT CREDIT TO CANCEL BLOOD FEES WHICH MEDICARE COULD PAY, RESULTING IN OVERSTATED CHARGES AND SUBSTANTIAL OVERPAYMENTS. HOSPITALS HAVE NOT FOLLOWED MEDICARE BILLING INSTRUCTIONS BY CHARGING NONREPLACEMENT FEES TO MEDICARE FOR BLOOD SUPPLIED BY COMMUNITY BLOOD BANKS THAT CHARGE ONLY PROCESSING FEES. THEY HAVE ALSO FAILED TO SEND CORRECTED BILLS TO MEDICARE WHEN BLOOD CREDITS HAVE BECOME AVAILABLE AFTER THE ORIGINAL BILL HAS BEEN SUBMITTED. INTERMEDIARIES RESPONSIBLE FOR ADMINISTERING THE PROGRAM WERE GENERALLY UNAWARE OF THESE PRACTICES. MEDICARE INSTRUCTIONS NEED TO BE REVISED TO ALLOW MEDICARE PATIENTS EQUAL OPPORTUNITIES TO REDUCE BLOOD FEES AND TO PREVENT BILLING ABUSE. MONITORING ACTIVITIES OF DHEW AND INTERMEDIARIES SHOULD FOCUS ON BLOOD BILLING AND REPLACEMENT PRACTICES OF HOSPITALS AND BLOOD BANKS. DHEW SHOULD IDENTIFY THOSE INSTITUTIONS THAT HAVE ENGAGED IN IMPROPER PRACTICES AND SEEK RECOVERY OF FUNDS. (DHEW CONCURRED WITH THE REPORT'S RECOMMENDATIONS, BUT FELT THAT REMEDIAL LEGISLATION WAS THE BEST SOLUTION TO THE PROBLEM). THE APPENDIXES CONTAIN AN EXPLANATION OF THE IMPACT OF INCORRECT BLOOD BILLING AND REPLACEMENT PRACTICES FOLLOWED BY BLOOD BANKS AND HOSPITALS, AND CORRESPONDENCE BETWEEN DHEW OFFICIALS AND GAO. A GLOSSARY IS PROVIDED. (MJM - AUTHOR ABSTRACT MODIFIED)