The Bush administration violated the law by allowing private insurers to limit choices of some patients in a small trial program of managed health care under Medicare (search), congressional investigators said.

Preferred provider organizations (search), which offer members a network of discounted health care providers, have enrolled 105,000 Medicare beneficiaries in 19 states.

In some cases, insurers refused to pay claims for home health visits, nursing care, dental work, routine physicals and other services obtained from providers who were not part of the PPO network, the Government Accountability Office (search) said.

"By law, these plans should have been required to cover all services in their benefit packages even if those services were obtained from providers outside the plans' provider networks," GAO said.

The administration was wrong to waive the requirement, GAO said.

The PPO trial is intended to test the viability of this kind of managed care in Medicare. About 90 percent of Medicare's 41 million beneficiaries are in traditional Medicare, where they can choose their doctors.

But the administration is betting that PPOs under Medicare will become increasingly popular as more Americans who currently get their health care through PPOs reach 65 and enter the Medicare system.

Last year's Medicare prescription drug law included a prominent role for managed care plans, including PPOs, which the administration estimates will enroll up to a third of Medicare clients over the next 10 years. Supporters argued that the plans offer more comprehensive care than traditional Medicare and, in the long run, will save money for patients and taxpayers.

Investigators said it is too early to know how much the PPOs actually are costing the government, although Medicare's budget analysts predicted costs would be $650 to $750 higher for each patient because the government wanted to entice insurers to offer PPOs, the report said.

Dr. Mark McClellan, administrator of the federal Centers for Medicare and Medicaid Services (search), said the government will comply with GAO's recommendations.

"We learned a lot from the demonstrations about what worked best," McClellan said. "The main thing is we want to have voluntary coverage options available that people prefer."

Sen. Max Baucus, D-Mont., who requested the GAO report, said there is no evidence yet to back administration claims that managed care is cheaper than traditional Medicare.

"While I believe in choice, I also believe that private plan options, including PPOs, should be added to Medicare only if they bring value to beneficiaries and taxpayers," Baucus said.