. . 
I 
MEDICARE  CARRIER  ASSESSMENT 

OF  NEW  TECHNOLOGIES 

OF  INSPECTOR  GENERAL 
OFFICE  OF EVALUATION  AND INSPECTIONS 
APRIL  1990  MEDICARE  CARRIER  ASSESSMENT 

OF  NEW  TECHNOLOGIES 

Richard  I? Kusserow 
INSPECTORGENERAL 
APRIL  1990 

OEI-01-88-00010  EXECUTIVE  SUMMARY 
PURPOSE AND OBJECTIVES 
This inspection report reviews technology assessmentactivities by the Medicare carriers. We 
examined how the carriers identify  new technologies, and how they make decisions about 
coverage and pricing for new devices, diagnostic tests,procedures, and treatment modalities. 
Also, we addressedhow the carriers perceive their overall performance in carrying out 
technology assessmentactivities. 
BACKGROUND 
Total Medicare expenditures increased at an averageannual rate of 12 percent over the years 
1976 to 1988, but Medicare Part B expenditures increased at an annual rate of 18 percent over 
the same years. In dollar terms, the Part B payments made by Medicare carriers increased an 
averageof $1.8 billion  a year, to $26.1 billion  in 1988. Studies conducted by the Health Care 
Financing Administration  (HCFA) and the Office of Technology Assessmentindicate that new 
health care technologies account for a substantial portion of the annual increase. 
In their role asprocessorsof approximately 400 million  claims annually for health care items 
and services, the Medicare carriers are usually the programs first point of contact with 
technologies new to the medical marketplace. 
The carriers are called upon to identify  and to make coverage and pricing decisions about 
almost all new health care technologies. Ordinarily  the carriers decisions are final; HCFA 
catries out national assessmentson only 20 or 30 new technologies a year. 
METHODOLOGY 
We basedthis inspection on: 
. 	 structured interviews with representativesof all the Medicare carriers that were 
responsible for processing Part B claims during the summer of 1988; 
. 	 written information  provided by the carriers concerning their experiences in assessing 
five particular new technologies; 
. 	 discussions with outside observers,including representativesof manufacturers, 
insurance organizations, and national organizations active in assessinghealth care 
technology; and 
.  the HCFAs  Medicare Part B payment data records, from which we derived payment 
amounts for particular codes provided by the carriers. 
i  MAJOR  FINDINGS 
Our findings on carrier assessmentof new technologies reflect three major themes: 
(1) limited  information  about emerging technologies, (2) inconsistent coverage and pricing 
decisions,  and (3) economies not realized.  We reflect these themes in our findings: 
The HCFA  has moved to improve  carrier  coverage  and pricing.  However,  carriers 
desire additional  and more timely  information  on coverage  and pricing  matters. 
Carriers  are inconsistent  in coverage  and pricing  decisions  involving  new technologies. 
Some of the variations  are unwarranted  (particularly  in pricing). 
Carriers  have rw system for  ensuring  that payments for  new technologies  decrease  in 
response  co decreasing  costs for  delivering  an item or service. 
We organized our individual  findings according to the Medicare carriers process for 
assessmentof new technologies:  (1) identifying  the new technology as such, (2) deciding 
whether or not to include it as a Medicaxe covered item or service, and (3) deciding on the 
reimbursement amount, or price, to allow for it. 
Overall Performance 
. 	 The carriers self-rankings indicate substantial room for improvement  in the way they 
assessnew technologies.  In only one of four categories do a majority  rate the carrier 
performance as good. 
Identification 
. 	 More than one-third of all carriers have experienced major problems with the 
identification  of new technologies. Included among them are 6 of the 11 largest carriers. 
Coverage 
. 	 Most carriers use professional acceptanceas a major criterion when making coverage 
decisions about new technologies. Less than 10 percent of the carriers cite cost 
effectiveness as a major criterion. 
. 	 Respondentsat one-third of the carriers say that the carriers, as a group, are at most 
minimally  consistent in making coverage decisions about new technologies. 
. 	 When they make coverage decisions about new technologies, most carriers get input 
from such operationally related sourcesasHCFA, other carriers, or their own private 
businesssegments. 
ii  . 	 However, the carriers strongly support the concept of a national clearinghouse that 
would shareinformation  about coverage issuesamong carriers. 
Pricing 
. 	 Most carriers use more than one method to setreimbursement amounts for new 
technologies.  The method used by the most carriers is that of comparison to similar 
codes. 
. 	 Reimbursement amounts allowed for new technologies vary significantly  from one 
carrier to another. The variation is much greaterthan that accounted for by differences 
in per capita personal income acrossthe country. 
. 	 Although  about half the respondentsthink that the cost of providing  a new technology 
tends to decreaseduring the 2 or 3 years following  its introduction,  none identify  any 
special initiatives  to avoid overpayments by Medicare in such instances. 
RECOMMENDATIONS 
The HCFA should continue to improve its own capability and that of the carriers to identify 
.emerging technologies and to make more informed,  explicit, and consistent coverage and 
pricing  decisions concerning  new technologies. 
Toward this end HCFA should: 
(1) 	 continue to improve communication among the carriers through increased use of 
national and regional technical advisory groups, 
continue to improve carrier accessto comparative Medicare payment information  about 
ca 	
new technologies, 
(3) 	 review the performance of carriers in identifying,  covering, and pricing  specific new 
technologies, and 
(4) 	 cooperate with the Public Health Service in proactively and routinely  compiling  and 
rapidly  disseminating information  on new health care technologies through 
clearinghouses or other appropriate means. 
The HCFA should seek legislative authority  to broaden the basesupon which it can estab
lish reimbursement  amounts for  new and emerging technologies other than physician  ser
vices. This authority  should be available to HCFA both at the time of the initial  coverage 
decision and as the technology matures. 
. . .
111  The legislation should supplement current authorities by allowing  HCFA to: 
(1) 	 limit  initial  payments basedon a consideration of the cost of developing and delivering 
the technology, 
(2) 	 subsequently reduce the allowable chargesfor new technologies as they mature in order 
to take advantageof reduced costs, and 
(3) 	 establish regional or national reimbursement limits  basedon simple and easily verifiable 
criteria such as the mere existence of substantial variation in reimbursement rates. 
COMMENTS AND OIG RESPONSE 
In its written comments and at subsequentmeetings, the HCFA recognized that problems exist 
with the carrier assessmentof new technologies and noted that it has taken numerous recent 
initiatives tomprove  technology assessment. Some of the actions we recommended are 
included among the HCFA initiatives.  The fiCFA  was concerned that our findings, at least in 
part, may no longer be valid becauseof its recent efforts.  It asked the OIG to conduct an 
additional study aimed at assessingthe effectiveness of its recent initiatives. 
We agree that HCFA has moved to resolve the problems addressedin this study. For this 
reason we have removed from this report a statement, contained in the draft report, that the 
current procedures for carrier coverage and pricing of new technologies constitute a material 
internal control weakness within  the meaning of the Federal Managers Financial Integrity 
Act.  We have agreed to work with HCFA in evaluating the effectiveness of its efforts to 
improve carrier assessmentof new technology. 
The HCFA agreed that additional legislative authority would help it improve coverage and  * 
pricing decisions for nonphysician services. The HCFA believes that physician payment 
reforms recently enacted in the Omnibus Budget Reconciliation  Act of 1989 (OBRA-89)  will 
provide an appropriate framework  and sufficient authority to improve coverage and pricing 
decisions relating to physician payments. 
We agreeand we have modified  our legislative recommendations to focus exclusively on 
nonphysician services. But we are concerned about the practical aspectsof the new physician 
payment reform provisions.  In order to develop fee schedulesfor new and emerging treatment 
modalities, HCFA must identify  them  We believe that the ability  to identify  emerging new 
technologies is the area of greatest weakness in the current system. We are hopeful that 
HCFAs recent initiatives  will  be effective in addressing this weakness. We will  know more 
when our future evaluations, mentioned above, are completed. 
We also remain concerned that the many Part B payments for nonphysician services, such as 
durable medical equipment, prosthetics, and physiological  testing, are not covered by the 
payment reforms of OBRA-89  . We believe our legislative proposals arc particularly 
important for these nonphysician services. 
iv  The HCFA disagreed with our recommendation for disseminating coverage and pricing 
information  among carriers through a clearinghouse becauseit would not be cost effective, 
and becausecarriers do not use current clearinghouses. We continue to support this 
recommendation.  In our survey, the carriers themselvesasked for this kind of assistance. We 
believe the current clearinghouses are too passive and often impracticably  slow becausethey 
rely upon specific requestsfrom the carriers. What we have in mind is a more proactive and 
orderly dissemination of information.  We think that a more proactive clearinghouse would be 
an effective way to do this, but we would support any other technique provided it is 
aggressiveand systematic. We have modified  the wording of the recommendation to make 
our intent more clear. 
The Public Health Service and the Office of the Assistant Secretary for Planning and 
Evaluation both recognized the need to improve carrier coverage and pricing decisions. They 
both supported the idea of a clearinghouse to sharecoverage and pricing information. 
The Health Insurance Association of America and the Health Industry Manufacttirs 
Association also commented on our draft report.  They agreed with most of our findings and 
recommendations. 
The text of all comments and our detailed responsesto them are in appendix D. 
V  . 
TABLE  OF CONTENTS 

EXECUTIVE SUMMARY 
INTRODUCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 
FINDINGS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 
Carrier  Identification  Of New Technologies  . . . . . . . . . . . . . . . . . . . . . .6 
Carrier  Coverage  Of New Technologies.  . . . . . . . . . . . . . . . . . . . . . . . .8 
Carrier  Pricing  Of New Technologies.  . . . . . . . . . . . . . . . . . . ..c....  16 
Overall  Carrier  Performance  In-Assessment  Of New 

Technologies  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 

RECOMMENDATlONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 
Comments  And OIG Response  . . . . . . . . . . . . . . . . . . . . . . . . . ..i...  26 
APPENDIX A 
- Methodological  Notes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-l 
APPENDIX  B 
. 
Case Studies  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-l 
APPENDIX  C 
Glossary  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c-1 
. 
APPENDIX  D 
Comments  On The Draft  Report  And OIG Responses  . . . . . . . . . . . D-1 
APPENDIX 	 E 
Endnotes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-l  INTRODUCTION. 
BACKGROUND 
Basis  in the Law 
Medicare is a health insurance program for the aged an! disabled. Since enactment in 1965 it 
has provided coverage for broad categories of benefits.  Among thesebenefits are (1) 
services by physicians, and (2) supplies such as equipment and diagnostic testsordered by 
physicians.  All  of thesearc covered under supplementary medical insurance (Part B of 
Medicare).  Hospital insurance (Part A) covers servicesprovided by hospitals, skilled nursing 
facilities,  and home health agencies. 
Generally, Part B of Medicare covers aIl services ordinarily furnished by physicians licensed 
to practice medicine and those items or servicesfurnished by nonphysician suppliers under a 
physicians supervision or in responseto a physicians request. But coverageis not unlimited. 
The law provides a general exclusion that applies to every claim for benefits: 
...no  payment  may be made for  any expenses which...  are not reasonable  and 
necessary for  the diagnosis  or treatment  o  illness or injury  or to improve  the 
4 
function  of a malformed  body member.... 
Administration  by Carriers 
The law assignsto the Secretary of Health and Human Services(HHS) overall responsibility 
for administering Medicare.  Within HHS, the Health Care Financing .Administration (HCFA) 
has primary responsibility  for Medicare operations. The law authorizes the Secn%ary3toenter. 
into contracts with carriers for performance of payment and other program functions.  -Under 
Part B, thesecarriers are private insurance organizations that contract with the Secretary to 
make coverage determinations, set reimbursement amounts, and disburse payments in a local 
service area, most often a State. 
One of the essential functions that carriers perform is the making of coveragedecisions in 
responseto claims for benefits. Carriers do not rely on an all-inclusive list of Medicare 
covered items and services. In principle, each of the estimated 500 million  Medicare Part B 
claims filed annually is the subject of a coverage determination by a carrier. In practice, few 
individual  claims present serious coverage issues. Small numbers each year include new or 
unusual devices, tests, procedures, or treatment modalities which the carriers must assess,and 
for which they must make coverage and pricing decisions. 
Carriers are bound by policy  guidance that HCFA hasissuedon a specific new technology. 
When such guidance is not offered, each carrier is authorized to make decisions about what is 
reasonable and necessaryand to apply these decisions in making coveragedeterminations for 
individual  claims.4  Becausethey receive and adjudicate claims, carriers perform the bulk of assessmenton new 
technologies.  A small number of items and services(usually 20 to 30 a year) become the 
subjects of a nationally centralized technology assessmentprocess,either becausethey present 
broad national policy issuesor becauseit has become apparent that different carriers have 
made inconsistent coverage decisions. Carriers refer these issuesto HCFA, which coordinates 
the centralized assessmentand advisesthe carriers of the result. 
Trends in Medicare 
Total Medicare expenditures increased at an averageannual rate of 12 percent over the years 
1976 to 1988, but Medicare Part B expenditures increased at an annual rate of 18 percent over 
the same years (figure  1). In dollar terms, the Part B payments made by Medicare carriers 
increased an averageof $1.8 billion  a year, to $26.1 billion  in 1988. Studies conducted by 
HCFA and the Offke  of Technology Assessmentindicate that new health care technologies 
account for a substantial portion of the annual increase. 
FIGURE  1 

MEDICARE  PAYMENTB,TOTAL  AND  PART  B 

1976 - 1988 

B%LlON@ 
$100 
1876  1878  1080  1082  1084.  1888  1088 
YEAR 
- TOTAL  *  PART B 
SOURCE:  HEALTH CARE FINANCING 

ADMINISTfUTION.  OFFICE OF 

THE ACTUARY 

The increasinFmmber  of enrollees contributes about 13 percent of the increase for Part B 
expenditures.  Inflation,  the largest factor, contributes about  50 percent of the increase, and 
increasing use of servicescontributes the remaining 37 percent. The latter two factors reflect 
2 
 . 
the effects of technological innovation,  Both include the costs of developing and introducing 
new items and servicesand demand for new services. 
PURPOSE AND OBJECTIVES 
This study reviews technology assessmentactivities by the Medicate carriers. It examines 
how the carriers identify  new technologies and how they make decisions about coverageand 
pricing for new devices, diagnostic tests,procedures, and treatment modalities.  It also 
addresseshow the carriers perceive their overall performance in carrying out thesefunctions. 
METHODOLOGY 
We interviewed each of the 45 carriers about the processthey use to assessnew technologies 
and their evaluation of the assessmentactivity.  We spoke with medical directors of all 29 
carriers who had them. In the caseof 16 carriers that did not have medical directors, we 
interviewed responsible smff personswho were knowledgeable about Medicare operations. 
Our detailed, structured interviews followedimroductory  letters and preliinary 
conversations to identify  the respondentsat each carrier. We interviewed chief medical 
officers and those who overseedecisions about new technologies; as such thesepersonsam 
likely  to be highly knowledgeable about carrier assessmentactivity. 
Since all carriers participate in technology assessment,we chose to interview  all of them.  In 
analyzing their responses,we grouped the carriers by size, censusregion, type (Blue Shield 
plan or commercial carrier), and presenceof a medical director. 
In addition, we interviewed 12 observersoutside the carriers for independent perspectiveson 
how well  the carriers ate doing in assessingnew technologies and for recommendations on 
any improvements that might be made (appendix A). 
For a snapshot view of actual experiences,we asked the carriers about decisions they have 
made concerning a selection of new technologies. Through the introductory  letters we asked 
what procedure codes they used for 12 technologies during the years 1985 through 1987. For 
5 of these technologies we also asked for the carriers experience with the key elements in the 
assessment: identification,  coverage, and pricing  (appendix B). 
We reviewed HCFAs Part B payment records for these samefive technologies in order to 
determine the number of servicesreported by each carrier in the years 1985-1987 and the 
actual expenditures reported  Brief descriptions of the technologies can be found in appendix 
C. 
OTHER STUDIES AND ACTIONS 
In 1984 the Office of Technology Assessmentexplored;he dual relationship between 
Medicare and technology and identified policy options.  In 1985 the consulting firm of 
Lewin  and Associates, under a contract with the Assistant Secretary for Planning and 
3 
 I!  .  -, 

Evaluation,  examined the Medicare coverageprocessfor new technologies and recommended 
changesin five specific areasof policy-making.  And HCFA itself styd$s technology 
assessmentin its role as the source of policy guidance for the carriers. 
During  1987, in compliance with the terms of an agreement to settle a beneficiarys lawsuit, 
HCFA published in the Federal Register a notice and request for comments about procedures 
for medical services coverage decisions.  Many of thesecomments reflected opinions that 
Medicare is not consistent, particularly  in coverage decisions. 
In January of 1989, following  analysis of the comments, HCFA published a proposed rule on 
criteria and proc@res  for making medical servicescoverage decisions that relate to health 
care technology.  The proposed rule addressescriteria and procedures for HCFA decisions as 
to whether and under what circumstances specific health care technologies could be 
considered reasonable and necessaryand therefore covered under Medicare.  The rule would 
provide for more opennessand streamlining of the decision making process through increased 
public participation  and expedited review of new breakthrough technologies.  -
A second lawsuit,13 recently certified as a class action in U.S. District  Court in Massachusetts, 
seeksin effect an individual  technology assessmentby the carriers for each claim.  If 
successful, no claim could be denied on the basis of a centralized decision that an item or 
service is not reasonable or necessarywithin  the meaning of Medicare law. 
Along with the regulatory process,HCFA has moved with a number of administrative actions 
aimed at improving  the assessment.ofnew technologies, including  that done by the carriers. 
Among these actions are the following: 
. 	 All  carriers are required to submit a copy of all medical coverage policy.  This policy 
will  be reviewed to identify  carriers with widely  variant policy. 
.  Ail  carriers are required to have licensed physicians as medical directors. 
. 	 Medical directors conferences are to be held at least annually (in fact have been 
semiannual) and are to devote attention to technologyassessment. 
. 	 The Coverage and Payment Technical Advisory Group and the HCFA Physicians Panel 
both discuss emerging technology and coverage issues. 
. 	 The HCFA  is evaluating the reasonablenessof price levels for real time cardiac 
monitoring, 
In May 1988, the National Advisory  Cout$l  on Health Care Technology Assessment issued a 
report on the Medicare coverage process.  The report is organized in chronological  order of 
the stepsin the coverage and assessmentprocessthat applies to those technologies chosen for 
4 
 national assessment. It is exemplified by the progressof nine selected technologies.  The 
Council made 23 recommendations for improving the timeliness, openness,and quality of this 
assessmentprocess. National technology assessmentsare, of course, binding on carriers when 
incorporated into HCFA instructions.  Moreover, the national process provides a model for 
portions of the carriers own assessmentactivities. 
5 
 FINDINGS 
Our fmdings on carrier assessmentof new technologies reflect three major themes: (1) limited 
information  about emerging technologies, (2) inconsistent coverage and pricing decisions, 
and (3) economies not realized. We reflect these themes in our findings: 
The HCFA  has moved to improve  carrier  coverage  and pricing.  However, 
carriers  desire additional  and more timely  information  on coverage  and pricing 
matters. 
Carriers  are inconsistent  in coverage  and pricing  decisions  involving  new 
technologies.  Some of the variations  are unwarranted  (particularly  in pricing). 
Carriers  have no system for  ensuring  that payments for  new technologies 
decrease  in response to decreasing  costs for  delivering  an item or service.  _ 
We organized our individual  findings according to the Medicare carriers processfor 
assessmentof new technologies:  (1) identifying  the new technology as such, (2) deciding 
whether or not to include it as a Medicare covered item or service, and (3) deciding on the 
reimbursement amount, or price, to allow for it. 
CARRIER IDENTIFICATION OF NEW TECHNOLOGIES 
Caniers  rely primarily  upon claims submissions and physician  inquiries  to identify  new 
technologies. 
For the identification  of new technologies, carriers for the most part react to inputs from 
agents outside of Medicare.  Few caxriersactively seek to identify  new technologies, and they 
usually react to external sources. 
According  to 80 percent of the carriers, the claims processing department is the primary site 
for identification  of a new technology.  Significant  characteristics that trigger identification 
and review include claims submitted without  a procedure code, or claims for items or services 
the carrier has not seenbefore or that have no established pricing.  One carrier representative 
stated: The claim cannot be categorized or explained and we dont know how to processit. 
Thus, identification  takes plpce by exception- if the claim cannot be paid, it is passedon for 
further review. 
Fewer than 20 percent of the carriers have written guidelines to addressidentification  of new 
technologies.  Those who do include the guidelines in their claims processing manuals. 
Ordinarily,  a new technology is identified  not by its meeting a defined criterion, but by its 
failing  to fit payment instructions. 
6 
 At the larger carriers particularly,  departments other than claims processing, often professional 
relations or utilization  review, identify  new technologies. These departments are contacted by 
external sourcessuch as physicians, manufacturers, national associations, and beneficiaries. 
Physicians account for the substantial majority  of thesecontacts. They approach the carriers 
by telephone or letter or talk with carrier medical staff and advisersat professional meetings. 
Some physicians call a carrier before submitting a claim to learn if Medicare will  cover an 
item or service. Others question the reimbursement amount received on a new technology 
about which the carrier was unaware. 
Besidesinput from physicians, about one-third of the carriers identify  manufacturers as a 
sourcefor identification  of new technologies. Larger carriers tend to rely on larger numbers 
of sourcesto identify  new technologies.  Of the 11 largest carriers, 10 draw on 3 or more 
sources,but only  13 of the 34 smaller carriers rely on asmany. 
More than one-third  of all can+rs  have experienced major problems with the identification 
of new technologies.  Included  among them are 6 of the II  largest carriers.  -
Providers sometimes cause significant problems for carriers by giving inadequate descriptions 
of new technologies on claims submitted for payment.  If a claim carries a procedure code that 
does not accurately describe a new technology, this &lays  or defeats carrier identification. 
Intentionally  or not, providers can thus exploit a vulnerability  in the carrier identification 
process. Ten carriers report that a new technology billed under an established procedure code 
would not be recognized as new but would be paid as submitted. A carriers failure to 
recognize a new technology can lead to  severalproblems for beneficiaries, physicians, the 
health care industry, and program administrators.  Any Medicare overpayments are subject to 
recovery. These overpayments, if not corrected promptly, createan erroneous impression 
throughout the community  that Medicare now pays for the new technology.  This opens the 
way to still more incorrect bills and additional improper payments. A carrier that does not  . 
recognize a new technology is prevented from informing  providers at an early stage about 
Medicares assessmentof the technology.  The carriers claims processing department receives 
little or no guidance about the new technology, and the errors compound with each new claim 
submitted. 
Sometimes, manufacturers also create problems for the caniers by providing  data that are not 
relevant, objective, or complete. Many medical directors feel that promotional  material is of 
questionable value to their assessmenttask simply becauseit is used as a marketing tool.  One 
representativeof a large carrier went on to say: Technologies are presented initially  by 
manufacturers who send their own literature and reference material.  We have to follow  up 
with our own literature searchand often refute what is claimed by the manufacturer.* Some 
carriers have developed referral procedures that attempt to place constraints on submission of 
promotional material in connection with assessmentof new technologies. 
7 
 Six@ percent of carriers report that HCFA provides them with information  on the 
identifxation  of new technologies no more than occasionally. 
The HCFA provides policy  guidance to the carriers on allaspects of assessmentfor new 
technologies.  All  carriers receive the Coverage IssuesManual with information  about national 
coverage decisions.  However, a majority  of the carriers say that they receive information 
about other new technologies, that have not been subjects of a national decision, no more than 
occasionally.  Only one-third of the carriers repott receiving information  often or very often, 
and one-fourth say they receive it rarely or never. 
Most carriers describe the information  that HCFA supplies as guidelines (including  manuals) 
and alerts to new technologies that have been identified elsewhere. The HCFA usually 
transfers information  to the carriers formally, in manual instructions or written guidelines. 
These are the items carriers find most useful.  Somecarriers, however, say that they would 
like HCFA to provide more timely and specific information  on the experience of other carriers 
with new technologies, and on when such technologies ceaseto be investigational or become 
obsolete. 
CARRIER COVERAGE  OF NEW TECHNOLOGIES 
Most ca+ers  use professional  acceptance as a major criterion  when making  coverage 
decisions about new technologies.  Less than IO percent of the carriers cite cost 
eflectiveness as a major  criterion. 
In making coverage decisions, carriers use a small and consistent set of criteria, which include 
professional acceptance,patient benefit, safety and effectiveness (fiw  2).  These same 
criteria were identified  in other studies of coveragedecision making.  Guidelines issued by 
the Blue Cross and Blue Shield Association,16 comments submitted in response to HCFAs  . 
noticep  and responsesof the outside observerswe interviewed taken together reflect a 
consensusabout criteria for coverage. 
Acceptance by the profession, which is identified  by most medical directors as a major 
criterion, commonly  has four characteristics. A new technology is generally accepted if: 
.  research and investigation are complete, 
.  value for diagnosis or treatment is demonstrated, 
.  it is in general use for patient care, and 
.  it does not involve drugs or devices not cleared by government regulators. 
8 
 FIGURE  2 
CRITERIA  USED  BY  MEDICARE  CARRIERS 
IN  MAKING  COVERAGE  DECISIONS 
PROF. ACCEPTANCE 
PATIENT  BENEFIT 
SAFETY 
EFFECTIVENESS 
APPROPRIATE  SETTINQ 
OOST EF FEOTIVENESS 
COST 
20  - 40  80  80  ioo 
SOURCE:  AU  MEDICARE CARRIERS  PEROENT OF WRIER8 

AS REPOFiTED TO OFFICE OF 

INSPECTOR GENERAL, HHS. 1988 

Since each of the carriers interprets the meaning of demonstrated value and general use within 

its service area, coverage decisions can and do vary, reflecting differences in local practice 

patterns. These variations are of concern to some carrier representativeswho feel that health 

care has become a much more uniform  processnationally than it was in 1965 when Medicare 

was &acted.  One of the medical directors observes,the idea of local practice patterns that 

was accurate20 or 30 years ago no longer applies today. The carriers arelooking  for more 

coordination-some  even say uniformity-in  coverage decisions. 

The economic criteria, cost and cost effectiveness, are at the low end of the responsescale in 

figure 2.  Most canier representatives view them as criteria for pricing only.  They take the 

cost or cost effectiveness of a new technology into account only to limit  payment to that for an 

older item or service that provides the same patient outcome!. Among the remaining carriers 

that do not use the economic criteria, several dismiss them asirrelevant to health care 

decisions. 

Five of the 12 outside observers we interviewed, including 3 of 4 manufacturer representatives 

giving their own opinions, feel that cost effectiveq?ss should be considered as a major 

criterion in making Medicare coverage decisions.  One representativefeels that carriers do 

use cost effectiveness but do not admit to doing so. This observer feels that the practice 

impairs the credibility  of Medicare and suggeststhat HCFA publish a listing of coverage 

criteria that mandatesconsideration of cost effectiveness. On the other hand, six national 

organizations; including  the Health Industry Manufacturers Astociation,  expressconcern with 

useof cost effectiveness as a coverage criterion for Medicare. 

9 
 . 
One manufacturer proposes that the burden of demonstrating relative effkacy  should be 
assumedby the proponent of a new technology as an integral and routine part of researchand 
development.  According  to this observer, a new technology should be shown to be 
economically responsible in order to earn Medicare coverage. All  four of the manufacturer 
representativeswhom we interviewed accept that burden of proof as part of their development 
costs. 
When they make coverage decisions about new technologies, most carriers get input from 
such operationally  related sources as HCFA, other carriers, or their own private business 
segments. 
Carriers seek background and evaluation information  from external sourcesto add to the 
knowledge of medical practice and scientific literature that their medical advisers bring to the 
assessmenttask  For this they turn to familiar  organizations, primarily  HCFA (figure 3).  For 
instance, in our case study of tissue plasminogen activator, we found that 18 carriers (out of 27 
that reported decisions) d&w  input f&m  HCFA, and 16 from other carriers (seeappendix B). 
Likewise,  in the study by the OtZice of Technology Assessment,HCFA and othIy insurance 
companies are the two sourcesnamed most frequently by medical consultants. 
FIGURE  3 
EXTERNAL  SOURCES  USED  BY  CARRIERS 
IN  MAKING  COVERAGE  DECISIONS 
HWA 
OTHER  CARRIERS 
PRIVATE  BUS. 
TECH  ADVISORY  GROUP 
INSURANCE  ASSOOS. 
MANUFACTURERS 
MEDICAL  SOOlETlES 
SPEOIALTY  SOOIETIES 
BENEFlOlARlES 
.
;1  eb 
2;  4;  80  100 
SOURCE:  AU  MEDICARE CARRIERS  PEROENT OF OARRIERI 

AS REPORTED TO OFFICE OF 

INSPECTOR GENERAL,  HHS. 1988 

The HCFA supports a number of Technical Advisory Groups (TAGS) consisting of contractor 
(carrier or intermediary)  representatives and HCFA staff who meet to discuss and share 
information  on common concerns. Although  one carrier TAG centers its attention on 
coverage and payment issues, little more than one-fourth of the carriers identify  it as an 
external source for information.  Those who do so tend to be among the 10 or 12 carriers with 
10 
 active representation in the group.  All  the carriers are aware of the existence of this TAG and 
receive minutes or reports of meetings. However, the extent to which each carrier usesthe 
TAG discussions seemsto vary directly with the extent of participation by its staff. 
We learned of the Medical IssuesTechnical Advisory  Group (MITAG)  that includes the 
medical directors of all five carriers in HCFAs New York region.  The MITAG  meets twice a 
year, with the HCFA regional office providing  administrative and organizational support. 
Carrier medical directors and their staffs set the agenda, make presentations, and lead the 
discussions. All  the carriers in the region agree with HCFA that the M.lTAG facilitates 
exchange of important information, provides a forum for useful discussion of new 
technologies, and promotes consistency in carrier decisions. All  consider active involvement 
by the medical directors critical to the groups effectiveness. 
Carriers get less input from sourcesless closely associatedwith their own organizations and 
those less closely associatedwith Medicare administration.  Notable for their absenceas 
sourcesof input for coverage decision making are the Professional Review Organizations, 
State and Federal Government agencies,and suppliers of health care equipment.  Fewer than 
10 percent of the carriers draw upon local or State medical associations. None report any 
input from beneficiaries or beneficiary interest groups. 
About  half the can-iersfind  the support they get from  HCFA at least moderately helpful  in 
making  coverage decisions about new technologies.  An additional  40 percent view HCFA 
supporl as minimally  or not helpfur 
FIGURE  4 
.
HOW  CARRIERS  RECIEVE  HCFA  SUPPORT 
FOR  MAKING  COVERAGE  DECISIONS 
YODLRATEW  HELCf 
10s 
NO  EXCENILNCE 
YINIYALLY  HELPFUL 
IDS  NOT  HELPFUL 
SOURCE:  AU  MEDICARE CARRIERS 
AS REPORTED TO OFFICE OF 
INSPECTOR  GENERAL, HHS. 1968 
11 
 About half the carriers react positively  to the help they get from HCFA in making coverage 
decisions, and many of these find the support very helpful (figure 4).  Carriers find HCFA 
support helpful when it provides definite answers to specific questions. Included among the 
HCFA support that carriers find helpful are policy  guidelines in the Medicare Carriers Manual 
and the Coverage Issues Manual.  Several carriers single out the transmittal on magnetic 
resonanceimaging as an illustration  of how it should be done.20 This transmittal, they say, 
includes definitive  criteria and guidelines that are well researched,well documented, and well 
presented. Carriers also find helpful HCFAs sharing of experiencesthat other carriers have 
had with specific technologies.  They appreciate the opportunity to shareresponsesby HCFA 
central and regional offices to specific requests. 
Among those carriers who say that HCFA is not helpful, the theme of timeliness dominates; 
information  comes to them slowly.  Some carriers mentioned, too, that information  from 
HCFA is overly open to interpretation.  The guidelinesare not as specific as they could be. 
Each carrier is left to make its own coverage decisions, opening up the potential for 
inconsistency. The carriers want HCFA to provide more background, a better rationale for 
decisions, and prompter exchange of information  among carriers. 
A number of carriers ask that HCFA provide them with a senseof reasonablepricing ranges 
for new technologies, possibly by passing along reimbursement rates set by other carriers. 
They bring up this point while addressing coverage questions. Many carriers seepricing, or at 
least the setting of relative values, as an integral part of the coveragedecision process. Their 
perception is not unique to their role as carriers. A number of medical directors routinely 
include pricing recommendations along with their coveragedecisions for Medicare and for 
private businesssegments. 
At most carriers, physicians  have the key role in making coverage decisions about new 
technologies.  About one-fourth  of the carriers, howevet, involve nonphysicians extensively. 
in this process.
. 
Although  each carrier  approachesthe,assessmentof new technologies in its own way, the 
nature of the task leads to some common features among the different approaches. At each 
carrier one person has the key role in technology assessment.That person assemblesand 
evaluatesdata and opinions and prepares the carrier decision (which may still need to be 
ratified by responsible authority in the carrier organization).  The medical director has this key 
role at the 29 carriers that employ such a person. Other carriers involve nonphysicians 
extensively in the assessmentprocess. Nurses were the coveragedecision makers, for 
example, at 6 carriers out of 32 that covered the infusade pump, one of our casestudies 
described in appendix B. 
All  11 of the larger ca&iers have medical directors.  All  of them take the key role in 
technology assessmentat their carriers, and nine of them work with medical advisory 
committees on such matters. These committees can be structured or informal,  continuing  or 
task oriented, internal or inclusive of physicians from outside the carrier.  Many of the carriers 
that use committees think that the most objective committees involve more than one type of 
12 
 medical specialist on every issue. They seeconsultant bias as an important vulnerability  in 
technology assessmentand seekinput from other specialists as a check.  Some carriers extend 
the concepts of opennessand balance further by including the participation  of other health 
care professionals.  A few carriers allow for public input to the advisory committees. 
At  12 carriers, the medical directors report that in assessingnew technologies they work 
essentially alone. They frequently seekinformation  from colleagues, researchcenters, 
specialty groups, and other medical directors, but the core evaluation is theirs alone. In 
supporting this approach, some note that an individual  is better able to make a prompt 
decision than is a committee. 
Only 8 of the 17 smallest carriers have medical directors. Most carriers without medical 
directors draw upon consultant physicians and precedents,but they have no internal process 
for assessmentat the physician level.  Smaller carriers often look to larger neighbors for 
advice in the form of precedents.A catrier with one or more centers of medical researchin its 
service area is likely  to receive some of the first claims for new technologies.  Butknowledge 
now spreadsso quickly  that small carriers seeclaims for some new technologies at almost the 
same time as their larger counterparts. 
Nonphysicians who are involved extensively in the processfor coverage decision making: 
.  rarely have operating guides, 
.  have few explicit  limits  to discretion, and 
.  usually are subject to internal quality review of their work in assessingnew technologies. 
Beginning  in 1989 all carriers are required to have medical directors.  Still,  there may be a 
continuing role for experienced nonphysicians in support of the medical directors, and that 
role could be extensive in some situations. 
Respondents at one-third  of the carriers say that the carriers, as a group, are at most 
minimally  consistent in making coverage &&ions  about new technologies. 
The carriers split into three nearly equal groups in their opinions about consistency (figure 5). 
Many of the carrier representativeswho say that coveragedecisions are not consistent 
attribute this situation to a widespread lack of communication among the carriers. 
Representatives at other carriers say that more prompt, more effective, and mom frequent 
communication  between HCFA and the carriers would operate to increase consistency. Many 
of the respondents feel that regional medical meetings and a central coverage clearinghouse 
could open new possibilities for communication.  FIGURE  5 

HOW  CARRIERS  VIEW  THECONSISTENCY  OF 
THEIR  GROUP  IN MAKINNG  COVERAGE  DECISIONS 
MODERATELY  CONIllf 
888  INIYALLY  CONIIOT. 
818 
VERY 	 CONll8T. 
rs 
I 
SOURCE:  ALL MEDICARE CARRIERS  NO  OCINION 
AS REPORTED TO OFFICE OF  ass 
INSPECTOR GENERAL, HHS. 1988  I 
Almost  all of the respondentswho expressz& opinion regard consistency of carrier actions as 
a desirable attribute.  Although some of them attribute inconsistency to differences in local 
patterns of medical practice, most say that new medical knowledge diffuses quickly  through 
the health care delivery system today, much more quickly  than was true at the birth of 
Medicare a quarter century ago. Few agree with the medical director who seesvirtue in 
inconsistency, saying: Lack of variability  may not be an asset. What is to prevent all of us 
from going off in the wrong direction together? 
Those who say that the carriers are at least moderately consistent feel that by asking around 
they can get a fair exchangeof information.  In their view any reported examples of 
inconsistency representexceptions that have slipped through the system. These carriers cite 
their experiences with physicians who have moved from one carriers service areato another. 
Such physicians sometimes have reported to the new carrier broader coverage and higher 
payments by the previous carrier. When the new carrier called to check the report, it was not 
corlfirmed. 
Some medical directors believe that inconsistency gives the entire Medicare program a bad 
name, especially when durable medical equipment is covered by one carrier and not another. 
It is difficult  to make providers and beneficiaries seehow Medicare can be a national program 
but not be consistent on what is covered.  Experience with transtracheal oxygen in one of our 
case studies illustrates the point  During  1985,18 carriers used 8 procedure codes in 
processing claims for tube insertion and gas supplies; in 1987,25 carriers paid for the 
procedure and supplies under 10 codes (seeappendix B). 
14 
 The camers strongly  support the concept of a national  clearinghouse that would share 
information  about coverage issues among carriers. 
The coverage clearinghouse may be an idea whose time has come.21All  but six of the carriers 
(87 percent) regard it as a good idea (figure 6).  Many carriers are extremely positive about the 
notion, calling it an absolute necessity, or a long overdue development.  Those few 
carriers who do not consider the clearinghouse to be a good idea are troubled by its possible 
costs. It would entail creation of a new bureaucracy,they say,which would only add to the 
demands on their time and resources. 
FIGURE  6 
DO  CARRIERS  CONSIDER  THE  COVERAGE 
CLEARINGHOUSE  A  GOOD  IDEA 
DONT  KNOW 
7% 
0 
lb 
SOURCE:  ALl  MEDtCARE  CARRIERS 
AS REPORTED TO OFFICE OF 
INSPECTOR GENERAL.  HHS. 1988 
Those carriers who favor a clearinghouse cite the benefits of drawing on research already 
completed, thus eliminating  needlessduplication.  They also believe that a clearinghouse 
would speedup the flow  of information,  a significant point in light of the carriers desire for a 
faster flow  of information  from HCFA.  An effective clearinghouse provides information 
promptly.  Smaller carriers, with fewer resourcesfor doing research,anticipate that a 
clearinghouse would furnish more complete information  than they could obtain on their own. 
And finally,  becauseparticipation  I?; noncarriers could open accessto a larger baseof 
information,  two-thirds  of the carriers would welcome outsiders as contributors and as users. 
Some important efforts now taking place are aimed at providing centralized information 
resourcesfor health care technology assessment. Included among them are: 
. 	 American Medical  Association, Diagnostic and Therapeutic Technology Assessment 
Project (DAITA).  Uses consultants selectedfrom a panel of more than 1000 physicians 
and publishes assessmentsin the associations Journal. 
15 
 Blue Cross and Blue Shield Association, Technology Evaluation and Coverage Project 
(TEC).  Provides technical assistanceto member plans for their consideration along with 
other factors in making coveragedecisions. 
Health Insurance Association of America, Medical Practice Assessment Center (PAC). 
Began in 1987 with a report on underevaluated health care technologies. Included 
information  on obsolete technologies, and commissioned a study on quality assessment. 
National Academy of Science, Institute of  Medicine (IOM),  Council on Health Care 
Technology.  Developing an information  clearinghouse on technology and technology 
assessmentas mandated by Congressin 1984. Published an initial  directory in 1988. 
National Center for Health Services Researchand Health Care Technology Assessment 
through its Office of Health Technology Assessment(OHTA).  Evaluates the safety and 
effectiveness of new technologies and synthesizesthe results in an Assessment Report 
that is disseminated widely.  This Office was reorganized under the recently enacted 
Omnibus Budget Reconciliation Act of 1989 (OBRA-89). 
Few carriers draw on theseresourcesnow.  One-fourth of the 27 Blue Shield plan carriers 
include TEC as an external source from which they get information  for making coverage 
decisions. Just three carrier representatives,all of them medical directors, name DAmA  as a 
source, and only one mentions IOM 
CARRIER  PRICING OF NEW TECHNbLOGlES 
Mosi carriers use more than one method to set reimbursement amounts for  new 
technologies.  The method used by the most carriers is that of comparison  to similar  codes.. 
Carriers set the reimbursement amounts for items and servicescovered under Part B of 
Medicare, including  new technologies, by using a methodology called reasonablecharge 
determination.22  Ordinarily  this methodology means that carriers collect histories of billed 
chargesfor each item or service. They allow as a reasonablereimbursement amount the 
lowest of (a) the billing  providers customary charge, (b) the prevailing  charge for similar 
items or services in the locality, or (c) the actual charge. Sometimes it has proved difficult  to 
collect charge histories for truly innovative technologies. 
Moreover, the law places restrictions on the reimbursement amount allowed, additional to 
those derived for billed charge histories. Among these limitations  have been freezes in 
physician fees, adjustments for inherent reasonableness,restrictions on overpriced procedures, 
special limits  for cataract glassesand lenses,and controls on services by physician assistants 
and nurse anesthetists. 
More recently, as part of OBRA-89,  Congressamended the law to provide for payment of 
physician services according to a resource basedrelative value scale (RBRVS).  The new 
16 
 provisions addressphysician servicesonly.  They do notprovide  relative values for 
nonphysician services, nor do they extend to health care items covered by Medicare.  And 
OBRA-89  does not addressthe potential for expansion of HCFA or carrier authority to 
broaden the basesupon which they can make reasonablecharge determinations for the new 
and emerging technologies not covered by RBRVS. 
The Medicare CaxriersManual gives policy  guidance about the methods carriers should !:e  to 
set the reimbursement amounts for a new technology that does not have a billing  history. 
The carriers consider an averageof three methods when they are pricing a new technology. 
The most common methods seek to establish some relationship with prior experience (figure 
7). Almost  three-fourths of the carriers compare a new technology with similar codes. Often 
this comparison can be made by the carriers own staff of reasonablecharge specialists, using 
internal data. About one-half of the carriers seekprecedentsfrom providers or other carriers, 
and one-fifth  from their own private businesssegments. All  three of thesecommon pricing 
methods involve contacts outside the Medicare carrier. 
FIGURE  7 
METHODS  USED  BY  MEDICARE  CARRIERS 
FOR  PRICING  NEW  TECHNOLOGIES 
SIMILAR  CODES 
SURVEY  PROVlDERS 
SURVEY  CARRIERS 
RELATIVE  VALUE 
PRIVATE BUSINESS 
0AP  FILLINQ 
INHERENT  REASON. 
SWRCE:  ALL MEDICARE CARRIERS 

AS REPORTED TO OFFlCE OF  0 
 20  40  30  SO  100 
INSPECTOR GENERAL, HHS, 1988 
 PERCENTOFaRRIER8 
17  consultant bias. They would welcome a national fee scheduleor a set of relative values 
provided by HCFA. 
Although only  1 carrier reported a policy of simply paying submitted chargesfor a new 
technology, 13 set the reimbursement amount for plethysmography in this way (seeappendix 
B).  Some of these 13 pay submitted chargesuntil they have accumulated sufficient charge 
data (through as few as four claims) to perform a reasonablecharge analysis. 
Few carriers report that they use inherent reasonablenessto setprices for new technologies. 
Only two respondents in our carrier interviews include it as one of their pricing methods. In 
our casestudies an averageof four carriers report that they used inherent reasonablenessin 
setting the price for each of the five new technologies. The maximum is eight carriers for the 
infusade pump. 
Almost half of the carriers spoke of opportunities for making more clear the Medicare Carriers 
Manual instructions on calculation of reasonablecharges. The instructions for new 
technologies, in particular those which haveno prior charge history, could be made simpler. 
One respondent found that the instructions have become so complicated as to be almost 
unbelievable.  Another offered the opinion that A  Philadelphia lawyer could not figure it 
out.  And a third respondent suggestedthat the whole processreduces to a nonscientific wild 
guess. Usually, the price is on the high side. Almost always, it goes up. 
Theserespondents and their counterparts at other carriers repeatedly ask for a framework that 
would allow them to know that their pricing decisions ate not inconsistent with those of  other 
carriers or the national Medicare program.  They arc looking for a better way to make 
comparisons with other  carriers, non-Medicare payers, providers and suppliers, and most 
importantly  HCFAs own pricing information. 
Reimbursement amounts allowedfor  new technologies vary significantly  from  one carrier  * 
to another,  The va&tion  is much greater than that accountedfor  by differences in per 
capita personal income across the country. 
Not surprisingly, in view of the variety of methods that carriers are aIlowed to use to set 
reimbursement amounts, the averageamount allowed for the same new technology can differ 
by several hundred dollars from one carrier to another. The 1987 data for one of our case 
study technologies, real time cardiac monitoring, illustrates this discrepancy (figure 8). It 
shows that the average amount allowed for this service varies widely, from a low of $49.17 at 
one carrier to a high of  $25 1.10 at another. 
The two carriers which allowed (and presumably paid) the highest total amounts for real time 
cardiac monitoring  during1987  together accountedfor 81 percent of the national total allowed 
and 65 percent of the national total number of services. The averageamount allowed per 
service by these 2 carriers, $233.62, was 75 percent higher than the national averageof 
$132.26.  Yet the carrier which allowed the third highest total amount on averageallowed 
18 
 $82.67 per service, 62 percent of the national average. Higher volumes by themselvesdo not 
account for the variations in averageamounts allowed by the carriers.   
FIGURE  8 
AVERAGE  AMOUNTS  ALLOWED  BY  CARRIERS 
FOR  REAL  TlME  CARDIAC  MONITORING,  1987 
AVERAGE  AMOUNT  ALLOWED 
8160 
SOURCE:  HCFA. BUREAU OF DATA  CARRIERS 
MANAGEMENT  AND STATl!YlCS.  PART B 
MEDICARE ANNUAL DATA SYSTEM 
Neither is there a ready connection between average amounts allowed and economic 
circumstances in different parts of the country.  The second and fourth lowest average 
amounts allowed for real time cardiac monitoring  servicesduring 1987 occmred in large 
industrial Statesof the Northeast. These Statesare above the national averagein per capita 
personal income.%  The fourth highest averageamount allowed occurred in a rural southern  -
State ranked 42 for personal income.  It might seem that higher incomes would support, or 
even call for, higher averageamounts allowed.  This is not the case. 
Significant  variation in reimbursement amounts for new technologies seemsto be the rule 
more than the exception.  The samepattern appearedfor real time cardiac monitoring  services 
in 1985 and 1986. A similar pattern occurred each year for the other new technologies 
included in our casestudies (table B-3 in appendix B). 
We want to emphasize again that the data which show the price variations are the product of 
reporting by the carriers. The procedure codes for which we accumulated amounts allowed 
fi-om HCPAs Part B Medicare Annual Data System (BMAD)  are those codesreported to us 
directly by the carriers, as described in the methodological  notes of appendix A.  We can make 
no judgement about the possibility  for additional payments made under different codes. 
We also emphasize that BMAD  is a relatively  new data baseand some data may not have been 
reported accurately. For example, two of the largest carriers, together accounting for more 
\ 
19  than half of the national total amount allowed for real time cardiac monitoring during 1985 

and 1986, show no amounts allowed during 1987. Another carrier, third highest in total 

amount allowed and highest in averageamount allowed for real time cardiac monitoring 

during 1985, shows no such data for 1986. 

Despite possible limitations  on completeness of the data, the variation illustrated in figure 8 is 

real.  Variation occurs for each casestudy and each year. And the variation reflects something 

more than differing  economic circumstances acrossthe country. In fact, for our casestudies, 

the averageamounts allowed typically  vary by a factor of five.  This wellftceeds  the factors 

of 1 or 2pd  in ranges of compiled data on per capita personal income  or cost of living 

indexes  in different locations.  Even the ranges for reported physicians fees vary by less 

than a factor of 2 between censusregions.26 

The carrier representativeswith whom we spoke (for the most part medical directors) note that 

new technologies often come into use through the efforts of one or two innovative 

manufacturers operating nationwide. These observersnote that this can be true even if the 

actual delivery of the technology to a patient is completed by one of a large number of 

physicians operating in accord with local practice.  They seemuch lessreasonfor such a 

nationally  standardtechnology to vary in price than there is for an item produced locally, or 

for a traditional medical service such as a physician office visit. 

These carrier representatives,as well as the representativesof four manufacturers whom we 

interviewed, seemedical practice becoming more uniform  nationally.  They offer little basis 

for variation in the cost of delivering a new technology beyond what is neededto account for 

local costs of labor, rent and goods, asreflected in overall cost of living  indexes. 

Although  about half the respondents think  that the cost of providing  a new technology 

tends to &crease during  the 2 or 3 years following  its introduction,  none identify any  . 

special initiatives  to avoid overpayments by Medicare in such instances. 

Those canier respondentswho feel that the cost of providing  a new technology decreaseswith 

increasing utihzation (figure 9) attribute this to differing  factors associatedwith the 

particular technology.  For newly developed surgical procedures the respondentssay that 

demands on time and skill tend to decreasewith experience gained in practice. They seethis 

as the chief reason that the cost of providing  a new surgical procedure decreases.Moreover, 

they note that the surgical support team and any hospital or other facility  support resoulces 

tend to become more efficient over time.  This also contributes to decreasingthe cost of 

providing  the service. 

For manufactured items such as medical devices, the respondents seeeconomies of repeated 

production as the chief contributor to decreasesin the cost of providing  a new technology. 

Likewise,  they seethe promotion and distribution  organizations for the item asoperating more 

efficiently  after a few years of experience have been gained and the high cost of product 

introduction has been absorbed. 

3n  1
FIGURE  9 
DO  NEW  TECHNOLOGY  COSTS  TEND  TO  DECREASE 
WITH  USE  AND  ARE  THERE  MEDICARE  SAVINGS? 
NO  *Es 
47s 
DEOREASE?  WINDS? 
SOURCE:  ALL MEDICARE CARRIERS 
AS REPORTED TO OFFICE OF 
INSPECTOR  GENERAL. HHS. 1988 
If the cost of delivering  a new product decreases,and respondentsat half the carriers think it 
does, it might appear reasonable for carriers to reflect this lower cost in lower Medicare 
reimbursement amounts.  Yet, none of the respondentsidentifies any special initiatives  by the 
carriers to capture savings for Medicare when the cost of providing  a new technology 
decreases. The carriers are aware of only two major instanceswhere Medicare allowances 
decreasedto recognize economies of scale associatedwith new technology:  cataract 
extraction and coronary artery bypass grafts.27 
Carriers&o along with the marketplace becauseof the Medicare laws definition  of reasonable 
charges.  The carriers seethis marketplace as one in which fancy new procedures tend to 
command the highest prices, pulling  up all payment levels along with them  They see 
Medicares reasonable charge structure, basedon billed charge histories, furnishing an 
incentive for continuing  inflation.  Few carriers, as already noted, report using inherent 
reasonablenessas a basis for pricing decisions. The data needed to relate Medicare prices to 
the cost of providing  an item or service are trade protected and not often made available to the 
carriers.  Some carriers maintain simply that chargesare their only concern, and that the cost 
of providing  a new technology has no role to play in Medicare pricing. 
The medical marketplace can be perverse, notes the medical director at a large carrier. If  a 
new technology is successful, many providers acquire the capability to use it.  Because the 
fu<eddemand is spread over a larger number of providers, the number of servicesavailable to 
each decreases. One consequenceis an increasein prices in the attempt to maintain revenues 
in the face of decreasing volume.  This is not how the marketplace ought to work. 
21 
 Many carriers areioolcing to HCFA for guidance on the reasonablerange within  which their 
price for a new technology should fall. They want to know that their prices are not out of line 
with other regions of the country. 
OVERALL  CARRIER PERFORMANCE IN ASSESSMENT OF NEW 
TECHNOLOGIES 
The carriers  self-rankings  indicate that there is substantial room for  improvement in the 
way they assessnew technologies.  In only I  of 4 categories  do a majority  rate the canier 
performance  as good 
In appraising their own performance in handling new technologies, the carriers indicate that 
there is much room for improvement.  This, they suggest,is particularly  true with respect to 
their  objectiviry  in making decisions; openness to public input  tqtdaruztion  to benefXaries 
and providers about coverage and pricing decisions; and timeliness  in making such decisions 
(figure  10). The carriers perceptions of their limitations  inhese  areasare in accord with 
concerns raised in prior studies of technology assessment  and in public comments that 
HCFA received in responseto its April  29,1987  notice on Medicare coverage criterk4 
FIGURE  10 
CARRIER  SELF  RANKINGS  OF  PERFORMANCE 
IN  ASSESSING  NEW  TECHNOLOGIES 
.  OBJECTIVITY 
OPENNESS 
EXPLANATION 
TIMELINESS 
SOURCE:  AU  MEDICARE 
COAFRFIRCIEE ROSF  AINSS RPEEPCOTROTRE D TO o  10  20  30  40  60  60  70 
GENERAL,  HHS. 1988 
Among  the four aspectsof performance that we identified,  it is only with respect to the 
carriers use of objective criteria in making coverage and pricing decisions that a majority rate 
the carrier performance as good (figure 10). But even hem, it is apparent that there is 
considerable room for improvement  About one-fifth  of the carriers rate their performance in 
terms of objectivity  as no better than fair. 
22 
 . 
SimiIarly,  in appraising the effect of their technology assessmentactivity on innovation by 
providers and on beneficiary accessto new technologies, the carriers indicate that there is 
room for improvement.  About 40 percent of the carriers rated their effect on innovation as 
good. Only 25 percent rated their effect on beneficiary accessas good.  In this context it is 
pertinent to note that HCFAs annual carrier performance evaluation program (CPEP) reviews 
do not include a set of elements specifically addressingtechnology assessmentactivity.  About 
one-half of the carriers report that HCFA evaluates this activity either implicitly  in other CPEP 
elements or separately through ongoing monitoring.  About one-fourth of the carriers indicate 
that there is no HCFA evaluation of their technology assessmentactivity, and about one-fourth 
say they do not know if such evaluation takes place. 
23 
 . 
RECOMMENDATIONS 
2. 
Based upon the findings above, the time hascome for new national initiatives  that foster 
consistency in the administration of the Medicare program and in the identification,  coverage, 
and pricing of new technologies.  In this context we make the following  recommendations: 
The HCFA should continue to improve its own capability and that of the 
caniers  to identify, emerging technologies and to make more informed,  explicit, 
and consistent coverage and pricing  decisions concerning  new technologies. 
Toward this end HCFA should: 
1. 	 Continue to improve communication among the carriers through increased use of na
tional and regional technical advisory groups. 
At national and regional levels, HCFA should facilitate more frequent meetings ai which 
carrier officials  and HCFA officials  discussnew technologies and how to respond to them. 
Becauseof the information  sharedin such meetings, they can be quite effective in promoting 
greater consistency in coverage and pricing decisions. The Medical IssuesTechnical Advisory 
Group in Region II, which for some time has servedas a forum for discussion among HCFA 
officials  and carrier medical directors, appearsto be a good example of the kind of 
collaborative effort that should be replicated 
2. 	 Continue to improve carrier accessto comparative Medicare payment information  about 
new technologies. 
Recently, HCFA has given carriers accessto the carrier payment amounts that are stored in its 
files, such as in the Medicare Part B Annual Data Set (BMAD).  The HCFA should explore the 
best ways of making such data available.  Given the vast amount of data involved, it would 
probably bk preferable to disseminate the information  selectively, perhaps through a query 
facility  or as summaries, rather than through massdistribution to all carriers.  Selective 
distribution  would allow each carrier to give a more intensive review to the pricing decisions 
most relevant to its own experience. 
When carriers have the capacity to compare their payment amounts for particular new 
technologies with one another, those with unusually high or low amounts would quite likely 
reexamine the basesfor their payment determinations. Over time, the likely  effect would be 
greater consistency in payment levels. 
3. 	 Review the performance of carriers in identifying,  covering, and pricing  specific new 
technologies. 
The HCFA should carry out such a review through regional office monitoring  visits and 
through the annual Contractor Performance Evaluation Program. The HCFA should make 
24 
 clear to the carriers that identification,  coverage, and pricing of new technologies are essential 
parts of their role and that each will  be considered in evaluating their overall performance. 
4. 	 Cooperate with the Public Health Service in proactively and routinely  compiling  and 
rapidly  disseminating information  on new health care technologies through clearing
housesor other appropriate means. 
Any such clearinghouse should be established with input from the carriers and in a way that 
maximizes carrier accessto information  bearing on their identification,  coverage, and pricing 
of new technologies.  It should have clear operating parametersthat assureaccurate 
acquisition and rapid dissemination of data. 
To broaden the information  baseand reduce unnecessaryduplication, HCFA and PHS should 
also pursue thepossibility  of sharing the benefits and costs of the clearinghouse with other 
interested parties, such as the American Medical Association, Blue Cross and Blue Shield 
Association, Health Insurance Association of America, or the Institute of Medicine. 
The HCFA  should seek legislaave authority  to broaden the bases upon which it 
can establish reimbursement amounts for  new and emerging technologies other 
than physician  services. This authority  should be available to HCFA  both at 
the time of the initial  coverage decision and as the technology matures. 
. The legislation  should supplement current authorities by allowing  HCPA to: 
(1) 	 limit  initial  payments basedon a consideration of the cost of developing and delivering 
the technology, 
subsequently reduce the allowable chargesfor new technologies as they mature in order 
(2) 	
to take advantage of reduced costs,and 
(3) 	 establish regional or national reimbursement limits  basedon simple and easily verifiable 
criteria such as the mere existence of substantial variation in reimbursement rates. 
25 
 COMMENTS  AND OIG RESPONSE 
> 
In its written comments and at subsequentmeetings, the HCFA recognized that problems exist 
with the carrier assessmentof new technologies and noted that it has taken numerous recent 
initiatives to improve technology assessment. Some of the actions we recommended are 
included among the HCFA initiatives. The HCFA was concerned that our findings, at least in 
part, may no longer be valid becauseof its recent efforts.  It asked the OIG to conduct an 
additional study aimed at assessingthe effectiveness of its recent initiatives. 
We agree that HCPA has moved to resolve the problems addressedin this study. For this 
reason we have removed from this report a statement, contained in the draft report, that the 
current procedures for carrier coverage and pricing of new technologies constitute a material 
internal control weakness within  the meaning of the Federal Managers Financial Integrity 
Act.  We have agreed to work with HCFA in evaluating the effectiveness of its efforts to 
improve carrier assessmentof new technology. 
The HCFA agreed that additional legislative~authority would help it improve coverage and 
pricing decisions for nonphysician services. The HCFA believes that physician payment 
reforms recently enacted in the Omnibus Budget Reconciliation Act of 1989 (OBRA-89)  will 
provide an appropriate framework  and sufficient authority to improve coverage and pricing 
decisions relating to physician payments. 
We agree and we have modified  our legislative recommendations to focus exclusively on 
nonphysician services. But we ate concerned about the practical aspectsof the new physician 
payment reform provisions.  In order to develop fee schedulesfor new and emerging treatment 
modalities, HCFA must identify  them  We believe that the ability  to identify  emerging new 
technologies is the areaof greatest weakness in the current system  We are hopeful that 
HCFAs recent initiatives  will  be effective in addressingthis weakness. We will  know more  . 
when our future evaluations, mentioned above, are completed. 
We also remain concerned that the many Part B payments for nonphysician services, such as 
durable medical equipment, prosthetics, and physiological testing, are not covered by the 
payment reforms of OBRA-89  . We believe our legislative proposals are particularly 
important for thesenonphysician services. 
The HCFA disagreed with our recommendation for disseminating coverage and pricing 
information  among carriers through a clearinghouse becauseit would not be cost effective, 
and becausecarriers do not use current clearinghouses. We continue to support this 
recommendation.  In our survey, the carriers themselvesasked for this kind of assistance. We 
believe the current clearinghouses are too passive and often impracticably  slow becausethey 
rely upon specific requests from the caniers.  What we have in mind is a more proactive and 
orderly dissemination of information.  We think that a more proactive clearinghouse would be 
an effective way to do this, but we would support any other technique provided it is 
26 
 aggressiveand systematic. We have modified the wording of the recommendation to make 
our intent more clear. 
The Public Health Service and the Office of the Assistant Secretary for Planning and 
Evaluation both recognized the need to improve carrier coverage and pricing decisions. They 
both supported the idea of a clearinghouse to sharecoverageand pricing information. 
The Health Insurance Association of America and the Health Industry Manufacturers 
Association also commented on our draft report.  They agreed with most of our findings and 
recomme,ndations. 
The text of all comments and our detailed responsesto them are in appendix D. 
27 
 METHODOLOGICAL  NOTES 
CARRIERS 
_ 	 We held discussions with representativesof the 45 geographic carriers that processed 
Medicare Part B claims during the summer of 1988, when our data gathering was completed. 
In those instanceswhen a single Blue Shield plan held contracts for more than one area (as 
Arkansas Blue Shield servedArkansas and Louisiana), we aggregatedtheir activities in all the 
areasand regarded them as one carrier with one medical director.  For the commercial 
insurance organizations that held more than one contract, we regarded each field office (which 
may serve more than one State) as a separatecarrier. We did not interview the Railroad 
Retirement Board, whose function is primarily  oversight, although it is often termed a carrier. 
We treated the carrier responsesto our questions asdependent variables and an,al$ed them 
against four independent variables: size, reGon, carrier type, and presenceof a medical 
director.  We used the commercial software programs dBASE III  Plus andLotus l-2-3  to 
accumulate and sort responses. For analyseswe used the Stat-Packetssoftware package of 
statistical analysis programs on a microcomputer.  Using this software, we developed 
correlations and broke responsedata down into separatecategories for each independent 
variable. 
Size 
We ranked the carriers according to the aggregated total of Part B disbursementseach made in 
1986 as given in HCFA records. Using variance techniques, we identified  four clusters of 
carriers differentiated on the basis of payments: 
Total 
Cluster  Number  of Carriers  Disbursements* 
1 (SmalIest)  I7  $1.75 billion 
2  17  $5.29 billion 
3  8  $7.11 billion 
4 (Largest)  3  $4.49 billion 
*This total of disbursements differs from the Part B payments in figure  1 becausethey draw 
on two different data sources. This total may not be complete; figure  1 is accuratefor the 
amounts paid out.  The ranking of the carriers by size should not be affected by the difference. 
A-l  Region 
We used the categorization developed by the U.S. Department of Commerce, Bureau of the 
Census. The four geographic regions of the country were the Northeast, Midwest, South, and 
West. 
Type of Carrier 
Of the 45 total carriers asdefined above, 27 were Blue Shield plans and 18 were commercial 
insurance organizations. 
Medical Director 
In preliminary  discussions, we identified  the medical directors at 29 carriers. The remaining 
carriers either had no medical director or had none with responsibility for the Medicare 
segmentof their business. During  the course of this study we learned that HCFA has advised 
the carriers that each would be required to have a medical director for Medicare beginning in 
1989. 
OUTSIDE OBSERVERS 
We held discussions with representativesof organizations external to the carriers, each of 
them related to and concerned with carrier technology assessmentactivities.  These included: 
.  four manufacturers of new technologies that were included in our casestudies (see 
_appendix B), 
. 	 five insurance organizations (including  four medical directors not now active in 
Medicare work), and 
.  three national organizations active in health care technology assessment.  . 
A-2 
 APPENDIX  B 
CASE  STUDIES 
Following  telephone discussions with medical directors at 21 carriers (separatefrom the study 
interviews described in appendix A), and with physician consultants at Part A intermediaries, 
Professional Review Organizations, or in private practice, we developed a list of 50 
technologies that were characterized asrecent subjects of technology assessment.We reduced 
the list to 12 that included a balance among new devices, diagnostic tests, and surgical 
procedures. In making this reduction we included some highly innovative technologies along 
with some incremental improvements. 
In an introductory letter, we asked the carriers to give us the procedure codes they had used 
for eachof the 12 technologies during  1985-87. (Our request asked for 13 technologies, but 
the wording for one of thesewas ambiguous. We have excluded it from the analy_sis.)All 
carriers should use the sameHCFA Common Procedure Coding System (HCPCS).  Table 
B-la  summarizes the responses. Some, but not all and in no instance all 45, of the carriers 
reported definite codes they used in processing claims for the 12 technologies. Absence of a 
code could mean that the carrier had (a) not yet received a claim for the given technology, or 
(b) not yet assignedit a distinct code, or (c) had made an affirmative decision against coverage 
for the technology. 
Tables B-lb  and B-lc  in this appendix summarize the carrier responseson numbers of codes 
used. The number of codes for each technology indicates how closely the carriers adhere to 
HCPCS.  Subject to HCFA concurrence, carriers have within  HCPCS the option to assign a 
local code to an item or service in order to facilitate payment and utilization  reviews.  Carriers 
may want to use local codes for new technologies until billing  and use patterns have been 
established. 
. 
Following  a review of the procedure codesreported by the carriers, we obtained from HCFA 
the amounts paid during 1986 for &most  common codes. We selectedfor detailed case. 
studies five of the technologies that showed substantial volume of Medicare claims activity. 
To the extent possible with such a small group we balanced.our selection to include devices, 
tests,and techniques. We asked the carriers to identify: 
.  the source that brought the new technology to the carriers attention, 
.  the department that identified  the new technology, 
.  who made the coverage decision, 
.  the criteria used in making the coverage decision, 
B-l  .  the external sourcesdrawn upon in making the coverage decision, 
.  the methods used for setting a reasonablecharge, 
.  whether the reasonablecharge had been changed, and 
.  the methods used in setting the new reasonablecharge. 
Tables B-2a through B-2e in this appendix summarize the carrier responsesto questions about 
the coverage decision making process. The responsesin most categories total lessthan 45 
becausewe directed questions on any given technology only to those carriers who had 
identified  a procedure code in responseto our introductory letter (except tissue plasminogen 
activator, the subject of a national coverage decision in early 1988). Not all carriers answered 
all questions that were directed to them, and some gave multiple  answers,so the response 
totals are not necessarily the samefor different questions about any one technology. 
Table B-3 in this appendix lists averages,ranges, and standard deviations of the amounts 
allowed by the carriers for each of three new technologies included in our casestudies.We 
excluded tissue plasminogen activator from this listing becauseso few carriers reported 
payments during the years 1985-1987. We excluded infusade pumps becausesome of the 
available pricing data referred to surgical implantation  of the device and some referred to 
supplies used with the pump. 
B-2 
 TABLE  B-la 
NUMBER  OF CARRIERS  REPOR77NG  CODES  FOR EACH  TECHNOLOGY 

1985-1987 
TECHNOLOGY  1985  1986  1987 
Magnetic ResonanceImaging for  27  38  41 
Diagnosis of Stroke 
Extracorporeal Shock Wave  7  41  44 
Lithotrips y 
CochleaeDevice Implantation  6  38  41 
Intracardiac Electrophysiological  36  38  - 40 
Testing: Induction of Artythmia 
by Electrical Pacing 
Real Tiie  Cardiac Monitoring  23  29  43 
PllnctLml Plug Procedure:  27  31  35 
Laser Canaliculoplasty 
Plethysmography:  Noninvasive  41  43  44 
vascular Diagnostic Testing of 
the Lower Extremity  . 
Infusade Pumps: Implantation  and  36  38  43  . 
Supplies 
Transtracheal Oxygen:  Tube Insertion  18  19  25 
and Gas Supply 
Laser Surgery:  Trabeculoplasty  40  42  44 
Decompression of Median Nerve at  29  30  33 
Carpal Tunnel:  Arthroscopic or 
Laser Procedure 
Tissue Plasminogen Activator  14  17  19 
SOURCE:  Medicare  Carriers  as Reported  to O#ice  of Inspector  General.  HHS, 1988 
B-3 
 TABLE  B-lb 
NUMBER  OF HCPCS  PROCEDURE  CODES 
 USED  FOR  EACH  TECHNOLOGY 
19851987 

TECHNOLOGY  1985  1986  1987 

Magnetic ResonanceImaging for  2  2  2 

Diagnosis of Stroke 
Extracorpore~  Shock Wave  12  4  4 

Lithotripsy 
Cochlear Device Implantation  3  1  2 

Intracardiac Electrophysiological  8  8  - 10 

Testing:  Induction of Anythmia  -
by Electrical Pacing 
Real Time Cardiac Monitoring  *  16  14  18 

Punctum Plug Procedure: Laser  5  6  9 

Canaliculoplasty 
Plethysmography:  Noninvasive  4  3  3 

Vascular Diagnostic Testing of 
he  Lower Extremity 
Infusade Pumps:  Implantation  and  25  25  27  -

Supplies 
Transtracheal Oxygen:  Tube  8  8  10 * 

Insertion and Gas Supply 
Laser Surgery:  Trabeculoplasty  4  3  3 

Decompression of Median Nerve at  3  3  4 

Carpal Tunnel:  Arthroscopic or 
Laser Procedure 
Tissue Plasminogen Activator  8  9  12 

SOURCE:  Medicare  Carriers  as Reporred IO Ofice  Of Inspector  General,  HHS, 1988 

B-4 
 TABLE  B-lc 
NUMBER  OF LOCAL  PROCEDURE  CODES  USED  FOR  EACH  TECHNOLOGY 

19851987 

TECHNOLOGY  1985  1986  1987 

Magnetic ResonanceImaging for  0  0  0 
Diagnosis of Stroke 
Extracorporeal Shock Wave  9  4  3 
Lithotrips y 
Cochlear Device Implantation  0  0  1 
Intmcardiac Electrophysiological  3  5  .  4 
Testing:  Induction of Atrythmia 
by Electrical Pacing 
Real Time Cardiac Monitoring  2  1  0 
Punctum Plug Procedure: Laser  1  2  3 
Canaliculoplasty 
Plethysmography:  Noninvasive  0  0  0 
Vascular Diagnostic Testing of 
the Lower Extremity 
Infusade Pumps:  Implantation  and  6  7  8 
Supplies 
Transtracheal Oxygen:  Tube  1 
Insertion and Gas Supply 
Laser Surgery:  Trabeculoplasty  2 
Decompression of Median Nerve at  1 
Carpal Tunnel:  Arthroscopic or 
Laser Procedure 
Tissue Plasminogen Activator  0 
SOURCE: Medicare  Carriers  as Reported  To Office  of lnspecror  General.  HHS, 1988 
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TABLE B-3 

AVERAGE  AMOUNTS  ALLOWED  FOR NEW  TECHNOLOGIES  . 
NATIONAL  AVERAGESAND  RANGES,  19851987 
TECIiNOLOGY  AVERAGE  AMOUNT  ALLOWED 
I 
YEARS 	 NATIONAL  RANGE  STANDARD 
AVERAGE  LOW -HIGH  DEVIATION 
REAL  TIME  CARDIAC  MONITORING: 
1985  $94.40  $21.20-$  178.71  $42.45 
1986  $105.20  $23.82-$239.50  $52.5 1 
1987  $125.71  $49.17~$251.10  $56.95 
PUNCTUM  PLUG  PROCEDURE: 
1985  $173.91  $3X25-$774.36  . 	 $193.75 
I 
1986  $189.74  $3X38-$566.07  $168.68 
1987  $179.02  $34.34-$926.76  $176.16 
PLETHYSMOGRAPY,  VASCULAR: 
1985  $55.35  $18X-$  117.26  $24.50 
1986  $64.43  $12.13-$  151.86  $32.57 
1987  $62.7 1  $14.92-$  129.66  $30.85  . 
APPENDIX  C 
GLOSSARY 
The cochiear implant  is an electronic device that captures sound and converts it to an 
electrical signal. It improves hearing by stimulating  the auditory nerve. 
Decompression of the median  nerve at the carpal tunnel is a procedure to releasetight bands 
of tissue that may develop and presson the nerve where it passesunder the arch formed by the 
bones of the wrist 
Extracorporeal  shock wave lithotripsy  (ESWL) provides for the pulverization  of kidney or 
gall stonesby focused ultrasonic shock waves. It offers an alternative to invasive surgery or 
to drug maintenance therapies. 
Infusade  pumps are devices that dispensemedication slowly  and continuously into a blood 
vessel over extended periods of time.  Implanted in the body and reftlled  by injection, they 
allow  the patient to remain ambulatory and to control levels of medication. 
Intracardiac  electrophysiological  testing is an invasive diagnostic tool that stimulates the 
heart beating with an electrode introduced into a heart chamber. Electrical  signals am 
imposed out of phase with established rhythms to study the speed and quality of recovery to 
the hearts normal beats. 
Magnetic  resonance imaging  (MRI)  is a method of showing the size and shapeof body 
cavities and tissues. It is capable of demonstrating a wide variety of soft tissue lesions, and it. 
avoids use of potentially  harmful radiation or injected contrast media. 
PIethysmography  is measurement of changes in the size of a part of the body in responseto 
the circulation of blood.  It is often used to assessblood flow  in the veins of the legs.  . 
The punctum  plug procedure  places stoppers at the openings into the drainage tubes through 
which tear fluid runs out of the eye. It is used to retain fluid  in patients who experience dry 
eye. 
Real time cardiac  monitoring  records out-of-the-ordinary  episodes of heart activity  when the 
patient is in an ambulatory setting and about the normal tasks of ordinary life. 
Tissue plasminogen  activator  (PA)  is  a naturally occurring enzymatic protein that 
promotes breakup of blood clots.  It is  available as a genetically engineered drug for use in 
treating heart attack patients. 
C-l  lkabeculoplasty,  whether or not performed with a laser knife,  is a procedure to open the 
pores through which fluid  drains from the front part of the eye. It allows increased of 
flow 
fluid  (aqueoushumor) out of the eye, helping to relieve built-up  pressurein casesof glaucoma. 
Transtracheal  oxygen is delivered through an opening in the neck, instead of through the 
nose. The method can be more effective in getting oxygen to a patents tissues,and it can 
consume less oxygen in achieving the sameeffect. 
c-2  APPENDIX  D 

, 

COMMENTS  ON THE DRAfl  REPORTAND  O/G RESPONSES 
In this appendix we provide the verbatim comments on the draft report by the Health Care 
Financing Administration  (HCFA), the Public Health Service (PHS), the Assistant Secretary 
for Planning and Evaluation (ASPE), the Health Industry Manufacturers Association (HIMA), 
and the Health Insurance Association tif America @BAA).  In each case,after presenting the 
comments, we offer our response to the comments. 
With respect to HCFA, the operating agency to which each of our recommendations is 
directed, it is important to note that subsequentto receipt of its written comments we held 
meetings with HCFA to discuss the agencys concerns about the reports findings and 
recommendations.  At these meetings HeA  officials discussedproblems which exist with 
carrier  assessmentof new technologies, and indicated that the agency has taken recent 
initiatives to improve technology assessmenf 
Some of the actions we recommended are included among the HCFA initiatives.  The HCFA 
was concerned that our findings, at least in part, may no longer be valid becauseof its recent 
efforts.  It asked the OIG to conduct an additional study aimed at assessingthe effectiveness 
of its recent initiatives. 
We agree that HCFA has moved to resolve the problems addressedin this study. For this 
reason we have removed from this report a statement, contained in the draft report, that the 
current procedures for carrier coverage and pricing of new technologies constitute a material 
inter&l  control weakness within  the meaning of the Federal Managers Financial Integrity 
Act.  We have agreed to work with HCFA in evaluating the effectiveness of its efforts to 
improve carrier assessmentof new technology. 
The HCFA agreed that additional legislative authority would help it improve coverage and 
pricing decisions for nonphysician services. The HCFA believes that physician payment 
reforms recently enacted in the Omnibus Budget Reconciliation Act of 1989 (OBRA-89)  will  * 
provide an appropriate framework  and sufficient authority to improve coverage and pricing 
decisions relating to physician payments. 
We agree and we have modified  our legislative recommendations to focus exclusively on 
nonphysician services. But we are concerned about the practical aspectsof the new physician 
payment reform provisions.  In order to develop fee schedulesfor new and emerging treatment 
modalities, HCFA must identify  them.  We believe that the ability  to identify  emerging new 
technologies is the area of greatest weakness in the current system. We are hopeful that 
HCFAs recent initiatives  will  be effective in addressing this weakness. We will  know more 
when our future evaluations, mentioned above, are completed. 
! 
D.- 1  We also remain concerned that the many Part B payments for nonphysician services,such as 
durable medical equipment, prosthetics, and physiological  testing, are not covered by the 
payment reforms of OBRA-89  . We believe our legislative proposals are particularly 
important for thesenonphysician services. 
The HCFA disagreed with our recommendation for disseminating coverage and pricing 
information  among carriers through a clearinghouse becauseit would not be cost effective, 
and becausecarriers do not usecurrent clearinghouses. We continue to support this 
recommendation.  In our survey, the carriers themselves asked for this kind of assistance. We 
believe the current clearinghousesare too passive and often impracticably  slow becausethey 
rely upon specific requestsfrom the carriers. What we have in mind is a more proactive and 
orderly dissemination of information.  We think that a more proactive clearinghouse would be 
an effective way to do this, but we would support any other technique provided it is 
aggressiveand systematic. We have modified  the wording of the recommendation to make 
our intent more clear. 
Following  are the written comments we received on the draft report and our responsesto them. 
HEALTH CARE FINANCING ADMINISTRATION  (HCFA) COMMENTS 
We have reviewed the above draft report.  OIG statesthat its findings demonstrate the lack of 
an effective system to identify, track, and diffuse information  about new technologies and to 
decreaseMedicare payments to capture economies of scale when theseflow  from new 
technologies.  According to the report, this alleged deficiency constitutes a material internal 
control weaknesswithin  the meaning of the Federal Managers Financial Integrity  Act and the 
Office of Management and Budget Circular A-123. 
We do not agree with this conclusion.  We believe that the report does not offer sufficient  . 
evidence to support its major findings.  Also, the report does not reflect the statutory context 
within  which carrier assessmentof new technology is made. Finally,  the report does not 
addressthe recent significant changes.already affecting the technology assessmentprocess, 
even though thesewere discussedwith OIG stafTat an exit conference on August 2. 
More detailed comments on the reports findings and recommendations are attached. Thank 
you for the opportunity  to review and comment on this draft report. 
OIG statesin the report, the conditions identified  in our findings collectively  show a material 
internal control weakness.... The report has three major findings upon which this allegation 
of a material weaknessis based  Our comments on these findings follow: 
Finding  1 - Unwarranted  Variation 
Extensive and apparently unnecessaryvariation exists among the carriers in 
coverage and pricing decisions involving  new technologies. 
D-2 
 Response 
The mere existence of variation in coverage and pricing decisions does not necessarily 
indicate a problem.  The Medicare program was designed from the outset, in both statute and 
regulations, to reflect local practice and pricing  conditions.  Furthermore, basedon the data 
presentedin this report, it is difficult  to reach any conclusion regarding the degreeof variation 
(unwarranted or not) that exists among the carriers in covering or pricing new technologies. 
Thus, the extent of the alleged problem cannot be addressed. 
.  Coverage of New Technologies 
In terms of coverage decisions, the report does not give an example of any 
unwarranted variation, nor does it offer any evidence as to the scope of the 
variations between carriers. The report finds instead that, in responseto a survey 
question, respondents at one-third of the carriers say that the carriers, as a group 
-
are at most minimally  consistent in making coverage decisions about new 
technologies (Page 12). The report d&s  add that an equal number of cafriers 
statedthere was at least moderate consistency, and another equally sized group 
had no opinion.  The ambiguity  of this responsecalls into question the 
effectiveness of the survey, but, more fundamentally,  we would question the use 
of a survey as a substitute for an analysis of actual coveragedata. 
The only hard  data on carrier coverage of new technology are presentedin table 
II-A-l.  This table purports to show the number of carriers covering each of 12 
_s	 electedtechnologies from  19851987.  The figures presentedfor 1987 in this 
table appear to indicate that the carriers are relatively  consistent in their coverage 
decisions. 
Moreover, in the narrative which precedes this table, OIG describes its 
methodology for obtaining the coverage data, i.e., the carriers were asked to give 
the procedure codes used for each of the 12 technologies. From this information, 
OIG apparently inferred which carriers covered what technologies. However, 
coveragedecisions cannot necessarily be inferred from the presenceor absenceof 
a code. A catrier can decide not to cover an item for which a code already exists, 
or may cover an item or service for which no code exists by using one of several 
not other&ise specified codes available.  OIG may have gathered data on 
carrier coding, but it is not possible to know for sure what thesedata say about 
carrier coveragedecisions. 
.  Pricing of New Technologies 
The report does not identify  any overall financial  effect so that the significance of 
the problem can be evaluated. The only comparative figures arc found in table 
II-C.  This table hasdata for only three technologies, each of which shows a wide 
D-3 
 range of carrier payment levels. However, OIG does not disclose the array of 
payments. This makes it impossible to tell if the variation is causedby one or 
two aberrant carriers, with most of the payment levels clustered near the average, 
or whether the randomnessis broad based  Without this information,  it is not 
possible to evaluate the significance of the range. 
There are even more fundamental methodological problems with the data as 
presented. It would appear that OIG did not ask the carriers what their prevailing 
rates were for the technologies in question. Rather, according to the explanation 
given on page 17, they took the various procedure codesreported to OIG for the 
three technologies, then usedHCFAs Part B Medicare Annual Data System 
(BMAD)  to determine the allowed payments for thesecodes. However, 
according to table II-A-2,  there were several codesreported for each technology 
(18 for real time cardiac monitoring, 9 for punctum plug procedure, and 3 for 
plethysmography), and thesedifferent codes may not representprecisely the same 
service. There are different procedures that can group under each technology and 
different ScTvicesthat could be included in thesecodes (e.g.; technical component 
vs. physician services). It appearsthat OIG lumped the data from all the codes 
together. Thus, it is not possible to determine bow much the variation in allowed 
amounts reflects an inadvertent comparison of different items, or how much is 
actually due to variations in carrier pricing decisions. 
OIG Finding  2 -Economies Not Realized 
. Carriers have no system for ensuring that payments for new technologies 
decreasein responseto decreasing costs for delivering an item or service. 
Response 
As OIG makes no attempt to define the financial effect of this finding,  the significance of the 
problem is not clear. The evidence that economies have not been realized relies, fust, 
on the opinion of respondents at half the carriers that the cost of delivering a new product 
decreases(Page 19), and second on the fact that the actual pricing of the sample technologies 
did not decrease. There are no concrete and factual data presentedto show that the actual 
costs of thesetechnologies did in fact decreaseover the time period studied. 
The report criticizes the carriers for not taking special initiatives to capture savings for 
Medicare when the cost of providing  a new technology decreases(Page 19). OIG does not 
take into consideration the considerable statutory constraints that a carrier faces in taking such 
an initiative.  Medicare law statesthat the criteria for detetmining a reasonablecharge for a 
physician service are the customary chargesfor similar servicesmade by the person furnishing 
the service, and the prevailing chargesin the locality  for similar services. Thus, it does not 
generally follow  that the pricing of the sampled procedures would decline, as annual pride 
adjustments are necessarily basedon submitted charges. 
D-4 
 OIG also makes frequent reference to the fact that few carriers apply inherent,reasonableness 
to lower the pricing  of technologies. The OIG ignores the statutory realities.  Since 1985, 
Congress has acted to restrain the useof inherent reasonablenessas a pricing criterion. 
Carriers are no longer free to apply inherent reasonablenessto physician services, which 
would constitute the bulk of chargesfor new technologies.  If HCFA wishes to apply factors 
other than reasonable chargesin determining whether a charge is inherently reasonable,we 
must fmt  publish a notice in the Federal  Register  to that effect. 
Finding  3 -Little  Guidance to Carriers 
While HCFA has made strides in specifying overall proceduresfor coverage 
decisions, it gives little practical guidance to carriers on coverageand pricing 
matters. 
Response 
Medicare law authorizes the Secretary to enter into contracts with carriers for performance of 
payment and coverage functions.  This basic approach of Medicate operations appearsto be 
disregarded by OIG when discussing the relationship between HCFA and the carriers. The 
case studies in the repat  indicate that the carriers often seek and receive advice from HCFA. 
The report also statesthat HCFA will  make a national coverage decision binding on the 
carriers, when it  has become apparent that different carriers have made inconsistent coverage 
decisions (Page 2).  OIG has not produced evidence that HCFA has failed to fulfill  the 
objectives of the law in this regard-
The report also fails to take fully  into account the following  initiatives taken by HCFA to 
update the coverage processand to improve and.increasecommunication between HCFA and 
the carriers. 
. 	 On January 30,1989,  HCFA published a proposed rule in the Federal  Register  which 
describes the coverage processin detail and which makes explicit  the criteria that are to 
be applied when making coverage decisions. This important initiative,  which for the 
first time would include cost-effectiveness asa covemge criteria, was essentially 
relegated to a footnote in this report 
. 	 HCFA is requiring  that carriers must submit a copy of all medical coverage policy by 
September 30, 1989. This policy  will  be reviewed to identify carriers with widely 
variant policy. 
. 	 Effective October 1,1988, carriers were required to have licensed physicians as medical 
directors. 
* 	 HCFA is committed to holding an annual Medical Directors Conference, though in 
practice, these conferences have been held on a semiannual basis since December 1988. 
D-5 
 During the May  1989 conference, a half day was devoted to the subject of new 
technology assessment. 
. 	 HCFAs  Coverage and Payment Technical Advisory Group, which includes selected 
carrier physicians, and the HCFA Physicians Panel both discuss emerging technology 
and coverage issues. 
. 	 In recent years, there has been significant pricing guidance given to carriers on new 
technologies.  The instructions on magnetic resonanceimaging and the technical 
component of cardiac catheterization are two examples. We are in the processof 
carrying out an evaluation of the reasonablenessof price levels for real time cardiac 
monitoring.  When this is fmished, the results will  be communicated to the carriers. 
Comments on Specific Recommendations 
Recommendation  I 
HCFA and the Public Health Service (PI%)  should cooperatein establishing a clearinghouse 
devoted to the compilation  and dissemination of information  on new health care technologies. 
The clearinghouse could be established either within  the Department or through contract with 
a private entity. 
Response 
We do not concur with this recommendation.  The report does not demonstrate that this would 
be a cost-effective alternative to the recent initiatives we have described above. In addition, 
this recommendation appearsinconsistent with OIGs own findings, since the report itself  . 
suggeststhat carriers do not use information  already available from existing clearinghouses. 
In this regard, the report does not mention the clearinghouse function of the National Center 
of Health Services Researchand Health Care Technology Assessmentwithin  the PHS. 
Recommendation 2 
HCFA should foster greater consistency among the carriers in their coverage and pricing 
decisions concerning new technologies by:  , 
. 	 Improving  communications among the carriers by fostering increased use of national 
and regional technical advisory groups. 
. 	 Providing the carriers with selective accessto comparative Medicare payment 
information  about new technologies. 
D-6 
 . 	 Reviewing on a regular schedule the performance of carriers in identifying,  covering 
and pricing specific new technologies. 
Response 
We agree that we should constantly foster improvements in our carrier decisionmaking 
processwith regard to new technologies. It is becauseof this commitment that we have 
undertaken many of the initiatives listed above. Given the extent of theseinitiatives, we do 
not believe that the specific actions included in the OIG recommendation are necessaryat this 
time. 
Recommendiztion 3 
HCFA should seek legislative authority to broaden the basesupon which it can establish the 
reasonablecharge for a new technology, both at the time of initial  coverage and after the 
technologyhas assimilated into the marketplace. 
Response 
We do not concur with this recommendation.  This recommendation is largely a proposal that 
HCFA be given increased authority to apply inherent reasonableness. However, Congress has 
only recently stated its position, by acting to restrict further the Secretarys authority.  It is 
clear that Congress has no interest in easing the administrative burden that Congressitself 
imposed on applying inherent reasonableness. 
Also,.under pending legislation, the physician payment system will  change radically.  With a 
national fee schedule using a resource cost-basedrelative value system, carrier discretion to 
price physician services will  be virtually  eliminated.  Therefore, there would be little current  -
interest in Congress in making procedural adjustments in the reasonable charge system. 
OIG RESPONSE TO HCFA WRIT)-EN COMMENTS 
We believe that the report does offer sufficient evidence to demonstrate the lack of effective 
systemsto identify,  track, and diffuse information  about new technologies and the inability  of 
the system to decreaseMedicare payments to reflect economies that flow  from new 
technologies. 
Becausethe systems do not exist, the information  desired by HCFA is practically impossible 
to obtain.  We therefore collected information  using discussion guides and mail surveys of the 
very carriers who would operate any effective system  We also obtained new data about a few 
specific technologies to illustrate the points we raised. We believe that the carriers 
experiences and observations collected in the report, along with the casestudies, support the 
findings and recommendations. 
D-7 
 We agreewith HCFA that the report should reflect the statutory context within  which carrier 
assessmentof new technology is made. We did not mean to imply  that HCFA was  in 
rem& 
failing to use its statutory authority.  On the contrary, we believe that HCFA has been thwarted 
in its efforts by ambiguous statutesand complex procedural requirements. In the final report 
we havemade the context more explicit.  Also in the final report, we have recognized more 
completely HCFAs recent initiatives  to update the coverageprocessand improve 
communication.  These are significant steps. Our report recommends additional beneficial 
stepsderived from the carriers own experiencesand perceptions. 
Finding  1 - Unwarranted  Variation: 
The HCFA statesthat variation in coverage and pricing decisions does not necessarily indicate 
a problem; variation was designed into the program from its outset in 1965. But the OIG 
report speaksof unwarranted variation.  Neither OIG nor the respondentsto the survey finds 
any basisfor the extent of variation perceived by the takers.  Although  the extent of variation 
contemplated by the architects of Medicare is not defined for coverage and pricingactivities, 
there are some guides available that allow us-to place the variation in context: 
. 	 We found average amounts allowed for new technologies varying by factors of five 
among ctiers.  In contrast, economic indices such aspersonal income or cost price 
indices rarely vary by a factor as much as two between States. 
. 	 Carrier medical directors perceive the variation in coverageamong carriers as well in 
excessof the variation on medical practice among States. They observe that medical 
practice today in 1989 is much more uniform nationally than it was at the outset of 
-Medicare in 1965. 
. 	 Small and remote carriers report that they seenew technologies soon after general  -
professional acceptance. Any advantage for the major medical centers operatesduring 
the investigative phaseof the technology. 
. 	 Manufacturers of new technologies operate in a nationwide market.  Only rarely do 
manufacturers make new technologies available in limited areasof the country. 
The HCFA statesthat the survey question on consistency is a questionable substitute for 
analysis ot actual coverage data. As previously mentioned, we believe that the carriers 
perceptions and the casestudies provide ample basisfor a finding that coverage and pricing 
decisions are inconsistent. However, we modified  our finding to indicate that some, but not 
all, of the variations arc unwarranted.  We are particularly  concernedabout variations in 
pricing. 
The HCFA correctly statesthat the data in table n-A-1  (now table B-la)  of the draft report 
refer to codes used, not to coverage decisions. We haverevised the table and the discussion in 
D-8 
 the text to correct this en-or. But we should emphasize that the conclusion is not changed. 

The sameitem or service is treated differently  by different carriers. 

We found no evidence that carriers make decisions not to cover, they just do not make the 

decision to cover. If the data in table B-la  are taken at face value, they show extensive 

variation in what is supposedto be a uniform  national coding scheme,and raise a question as 

to how well the HCPCS applies to new technologies. If, however, the implication  drawn by 

the OIG is correct, and the absenceof a code indicates absenceof coverage for a new 

technology, that raises a question as to how equal is the accessdifferent Medicare 

beneficiaries have to what is supposedto be a nationally distributed new technology. 

The HCFA statesthat the draft report does not disclose arrays of allowed amounts in table II-C 

(now table B-3) and does not identify  any overall financial effect.  We agree that the 

dispersion in allowed amounts should be shown more completely than through the sample in 

figure 8. Accordingly,  we have added standard deviations to table B-3.  These clearly show 

that the variations are subs&n&I.  Since our choice of technologies and thereforethe data on 

averageallowed amount are illustrative,  we should not and do not project financial effects. 

We found that variation exists, and it exists for some critical new technologies.  We did not 

attempt to audit all new technologies: 

The HCFA statesthat there are fundamental methodological problems with the use of HCPAs 

Part B Medicare Annual Data System (BMAD)  and with lumping together the data for 

different  codes. We used BMAD  becausethat gives the best available measureof what was 

actually paid.  Prevailing charges would give what should have been paid under ideal 

conditions. 

Similarly,  the use of diffe.Ent codes by different carriers would have made any comparison by 

individual  code meaningless. We asked each carrier the samequestions, in the samewords,  -

and we used BMAD  to translate their responsesinto allowed amounts. Our averagesdo 

average  everything the carriers include under each new technology.  We recognize that there 

are different levels within  each technology but we choose to report each as a group. 

Finding  2 -Economies Not Realized: 

The HCFA statesthat no concrete and factual data are presented to show that the actual costs 

decreasedand that the financial effect is not defined.  However, since neither HCFA nor the 

carriers routinely  identify  new technologies or keep track of payment trends as these 

technologies mature, such data is practically  nonexistent. Nevertheless, we gathered the 

carriers own perceptions about cost trends for new technologies. We reported on the apparent 

contradiction between the Iarge number of respondentswho believe that costs decreaseand 

the absenceof any affirmative  effort to reflect theseperceived cost decreadesin Medicare 

reimbursement amounts. 

The HCFA statesthat the report does not take into account the criteria for determining a 

reasonablecharge and the statutory constraints on HCFA and the carriers in use of inherent 

D-9 
 : 
reasonableness. We agree, and we have modified  the background section of the final report 
accordingly.  Becauseof these factors we recommended, and continue to recommend, 
legislative action. 
Finding  3 - Little  Guidance  to Carriers: 
The HCFA statesthat the evidence in the report does not show HCFA to have failed to fulfill 
ihe objectives of the law in relation to carriers as Medicare contractors. The purposeof this 
study is to identify  ways for HCFA and the carriers to better achieve their objectives, changing 
the structure only when a change is needed  We found that the carriers collectively believe 
that they, and HCFA, can do better at assessmentof new technologies. Our recommendations 
addressthe carriers need in this axea. 
The HCFA statesthat the report does not take fully  into account HCFAs initiatives to update 
the coverageprocessand to improve communication  between HCFA and the carriers. We 
agree, and we have taken more complete note of these in the final repon  -
Recommend&ion  I  - Clearinghouse: 
The HCFA rejects our recommendation for a clearinghouse stating that it is not shown 
cost-effective, that carriers dont use existing clearinghouses, and that the clearinghouse 
function of the National Center of Health Services Researchand Health Care Technology 
Assessment(NCHSR/HaA)  is nqt mentioned. 
We continue to support our recommendation.  The carriers themselveswant something 
existing clearinghouses do not offer, prompt accessto coveragebackground and also pricing 
information.  The HCFA initiatives  dont give the carriers this kind of information.  The 
means to provide such information  promptly  to the caniers can and should be developed more 
strongly.  What we are advocating is a more active strategy for disseminating information  to 
take the place of one that relies on the carriers to request information.  We think that a 
clearinghouse can be an effective way to do this, but we would support any other technique 
provided it is aggressiveand systematic.  We have modified the wording of our 
recommendation to clarify  our intent. 
Limitations  of the existing clearinghouses make it all the more important for HCFA to 
exercise leadership in prompt sharing of information  that is useful to the carriers in assessing 
new technologies. If, as the carriers believe, information  sharing will  eliminate unnecessary 
duplication of effort, then carrier use of the clearinghouse would be cost beneficial.  The role 
of the NCHSR/HCTA clearinghouse function will  have to be reconsidered now that OBRA-89 
hasreplaced NCHSR/HCTA  with .theAgency for Health Care Policy and Research. 
Recommendation  2 - Foster  Consistency: 
The HCFA agreesthat they should constantly foster improvements in the carrier decision 
making processesfor new technologies.  We have statedabove that the HCFA initiatives are a 
D- 10 
 valuable beginning.  Regional meetings and Technical Advisory  Groups similar to the the New 
York Regions Medical IssuesTechnical Advisory Group (MITAG)  model hold promise as 
effective ways to foster active and ongoing communication among carriers, with HCFA in its 
proper oversight role.  We also recommend that HCFA continue to find ways to give caniers 
selective accessto pricing  information.  The recent initiative  of supplying BMAD  data is a 
good start. This is the very data we used for our casestudies. But, as HCFA has remarked, it 
has its limitations,  especially given the discretionary nature of coding of some services. 
Further, we recommend that HCFA, in reviewing the carriers performance, give special 
attention to new technology.  The respondentsto our survey (medical directors) either had no 
knowledge of the Conttactor Performance Evaluation Program (CPEP) process or little 
understanding of its function.  They reported that it did not relate at all to their technology 
assessmentactivities. 
Recommendation 3 - Seek Broad&  Basesfor  Pricing  in the Law: 
The HCFA rejects our recommendation, stating that it amounts to expansion of inlZrent 
reasonablenessauthority, which it goes on tostate the Congress wants to restrict.  Also, 
HCFA statesthat the recently enactedresource basedrelative value system for physician 
payment will  soon make this issue moot. 
We agreeand we have modified  our legislative recommendations to focus exclusively on 
nonphysician services. But we are concerned about the practical aspectsof the new 
provisions.  In order to develop fee schedulesfor new and emerging treatment modalities, 
HCFA must identify  them  We believe that the ability  to identify  emerging new technologies 
is the areaof greatest weaknessin the current system  We are hopeful that HCFAs recent 
initiatives will  be effective in addressingthis weakness. We will  know more when our future 
evaluations, mentioned above, are completed. 
We also remain concerned that the many Part B payments for nonphysician services, such as 
durable medical equipment, prosthetics, and physiological testing, ate not covered by the 
payment reforms of OBRA-89.  We believe our legislative proposals are particularly 
important for these nonphysician services. 
PUBLIC HEALTH SERVICE (PHS) COMMENTS 
General Comments 
Through the Office of Health Technology Assessment(OI-ITA), PHS is involved in the Health 
Care Financing Administration  (HCFA) processfor making national coverage decisions for 
health care technologies.  However, this relationship on the part of OHTA does not directly 
involve the activities of the Medicare carriers, particularly where pricing matters are 
concerned. 
A review and analysis of table II-A- 1, Number of Carriers Covering Each Technology 
1985-1987, in the OIG report indicates the usefulnessand necessity for technology activities. 
D- 11 
 While a clearinghouse is necessaryfor compiling  and disseminating information,  completed 
assessmentreports by PHS and subsequentMedicare Coverage Instructions make carrier 
coverage decisions easier and more consistent. For technologies assessmentby OHTA such as 
Trabeculoplasty, Cochlear Device Implantation  and Extracorporeal Shock Wave Lithotripsy 
most carriers were consistent in their coverage decisions. Also evident is the fact that even 
where a National Coverage Decision has been made by HCFA such as in the caseof Pacing, 
not all carriers are aware or consistent with the HCFA Position for that technology or 
procedure. 
The following  are our comments on the OIG recommendations. 
OIG Recommendation 
The Health Care Financing Administration  and the Public Health Service (PHS) should 
cooperate in establishing a clearinghouse devoted to the compilation and dissemination of 
information  on new health care technologies. Ihe clearinghouse could be establishedeither 
within  the Department or through a contracf with a private entity. 
PHS Comment 
We concur in general with this recommendation.  The OIG report makes reference to the 
PHS-supported Institute of Medicine (IOM),  Council on Health Care Technology 
clearinghouse function which is already operational  The report notes, however, that few 
carxiersdraw on this resoume aswell as other efforts providing technology information.  The 
availability  and Iocation of a clearinghouse devoted to the compilation  and dissemination of 
information  on new health care technologies may not be asmuch the issue as the needto get 
Medicare carriers to utilize the existing resources. Furthermore, the reliance of Medicare 
carriers on a national clearinghouse for their technical information  will  certainly addressthe -
concern raised in the OIG report for greater consistency among carriers in their coverage 
decisions. * 
Regardlessof the organizational location of the clearinghouse, the Department orIOM, 
adequatefunding for such an endeavor is paramount for a successfulprogram. 
Reorganization legislation being considered for the National Center for Health Services 
Researchand Health Care Technology Assessment(NCHSR) may place the IOM 
clearinghouse function within  the National Library  of Medicine.  PHS is in full agreement 
with the OIG report that there is a need for a national clearinghouse; however, the support for 
the clearinghouse functions already operational may be preferable to seeking the 
establishment of a clearinghouse within  the Department.  Should the Department be 
encouraged to established a clearinghouse then consideration and funding for the operation 
could be given to the Division  of ResearchDissemination and External Liaison (Division) 
within  NCHSR.  The Division  is responsible for disseminating the assessmentsof OHTA and 
has a mailing  list of approximately 25,000 people and organizations. 
D- 12 
 OIG Recommendation 
The Health Care Financing Administration  should foster greaterconsistency among the 
carriers in their coverage and pricing decisions concerning new technologies. 
PHS Comment 
Even though this recommendation is directed to HCFA, PHS concurs in general with it.  PHS 
is aware of the inconsistency in contractor coveragedecisions as well as HCFA proposals to 
addressthis issue. The stepsoutlined by HCFA in the Federal  Register,  January 30, 1989, (54 
FR 4302) regarding The Medicare Program:  Criteria and Proceduresfor Making Medical 
Services Coverage Decisions that Relate to Health CareTahnology  seem appropriate and 
adequatefor obtaining  g-resterconsistency in the coveragedecisions of Medicare Carriers. 
OIG RESPONSE  TO PHS COMMENTS 
We welcome PHS support for a clearinghouse and we agreethat there is a need to get 
Medicare carriers to utilize  existing resourcesmore effectively.  We encourageHCFA and 
PHS to atrange a meeting ofall  interested parties to discussoperating alternatives, including 
use and organizational location of the IOM  clearinghouse function.  We agreewith the PHS 
statement that, regardless of the organizational location of a clearinghouse, adequatefunding 
is paramount for a successful program. 
We note that PHS is aware of the inconsistency in contractor coveragedecisions as well as 
HCFAproposals  to addressthis issue. The proposed rule on coveragedecision making is an 
important first step, but this alone is not enough. The carriers are looking for more effective 
guidance from HCFA,  better.communications among themselves,and quicker more extensive 
sharing of national Medicare data with the carriers by HCFA.  The MITAG  discussions 
provide an attractive model for improving  communications. 
ASSISTANT SECRETARY  FOR PLANNING AND EVALUATION (ASPE) 
COMMENTS 
We have been concerned about HCFAs coverage determination processfor some time and 
welcome and support your recommendations to improve coveragedecision making. 
OIG Recommendation 
Establish a joint  HCFA/PHS  clearinghouse on new technologies. 
ASPE Comment 
We support a joint  clearinghouse, but would prefer it to be maintained within  the Department, 
rather than contracted out to a private entity.  We believe that an in-house clearinghouse would 
offer significant advantages in terms of cooperation and rapid dissemination of information. 
? 
D-13
:  In addition, we suggest that substantive linkage among the Effectiveness Initiative,  technology 
assessmentactivities of NCHSR, and the recommended HCPA/PHS clearinghouse could have 
synergistic effects on all three. 
Since carriers do not utilize existing national technology sources,it is imperative that the 
clearinghouse take the initiative  to communicate with the carriers and foster communication 
among carriers. 
OIG Recommendation 
HCPA should seek legislation to increaseits authority to make reasonable charge 
determinations for new technologies both at the time of initial  coverage and after the 
technology has been assimilated into the marketplace. 
ASPE Comment 
-
With the Congresslikely  to implement an RBRVS sometime in the near future, it becomes 
even more important that HCFA acquire and exercise authority to setreasonable charges (and 
presumably soon, relative values) for new technologies and other newly covered items and 
services as well as the authority to revise such chargesand relative values as circumstances 
WXElllt. 
Thank you for sharing your report with this office. 
OIG RESPONSE TO ASPE COMMENTS 
We welcome ASPE support for a clearinghouse which takes the initiative  to communicate 
with carriers and foster communication among carriers. We encourage HCFA and PHS to  * 
arrange a meeting of all interested parties to discuss operating alternatives, including whether 
an in-house clearinghouse would offer significant advantagesin terms of cooperation and 
rapid dissemination of information. 
We agree with ASPE that HCPA needsto acquire and exercise authority to set reasonable 
charges,and also the authority to revise charges. 
HEALTH INDUSTRY MANUFACTURERS ASSOCIATION (HIMA) COMMENTS 
Thank you for your August 16 letter transmitting a copy of your Medicare  Carrier 
Assessmentof New Technologies August draft report (Draft Report).  Medicare assessment 
of medical technologies, at both the national and local levels, has a significant  impact on our 
members-manufacturers  of medical devices, diagnostics and health cam information 
systems. Since 1986, HIMA  has been quite involved with the Medicare coverage and 
payment process. We appreciated your contacts with our organization during the research 
stagesof this Report and we welcome the opportunity  to comment on the Draft Report. 
D- 14 
 Your study is particulady  important in view of the unique challenges which technology 
innovation presents. Continual researchon medical devices and diagnostics makes innovation 
both rapid and incremental.  The assessmentprocessis often time consuming and results in a 
snapshotof medical practice.  Carriers face the difficult  task of keeping their policies 
up-to-date with current medical knowledge. 
The fohowing  comments addressissuesin your report in the sequencethey appear in the Draft 
Report. 
A.  HIMA COMMENTS ON IG FINDINGS 
1. 	 Technological  innovation  has not been the major  cause of Medicare  Part  B payment  in-
creases.  Rather, new devices have allowed many servicesto be performed  in a more 
cost-efficient location-the  outpatient setting-contributing  to Congressional and Ad-
ministration  goals under  the prospective payment system 
-. 
The Draft  Report statesthat HCFA and OTA studies show that new health cam 
technologies account for a substantial portion of the annual increasein Part B 
payments (page 2).  The data in the report attributed 50% of this increase to 
inflation  and 37% to increases-inutilization. 
A clear objective of Congressand the Administration  in implementing  the 
prospective payment system and the professional review organization program 
was to encourage a shift of medical servicesfrom more costly inpatient settings to 
the outpatient arena. Es  would save costs on inpatient care, but it would also 
trigger increased utilization  of outpatient services. 
Technology has helped to shift services and costs to less expensive outpatient 
settings. 
Additionally,  studies by ProPAC confirm  that technology has played a minimal 
role in hospital inpatient cost increases. 
Overall, the results suggestthat new technology and technological ad
vances account for only a small part of the annual increase in total Medi
care expenditures for hospital operating costs. (Medicare Prospective 
Payment and the American Health Care System, Report to the Congress, 
Prospective Payment Assessment Commission, June 1988, page 22.) 
A complete examination of the role of technology in terms of Medicare Parts A and B 
payments reveals that technology contributes only modestly to overall increases. 
2. 	 The section  dealing  with  other  studies  and actions  should  include  a description  of the 
September  14, 1985 report  and recommendations  of the Congressionally  mandated  Na
tional  Advisory  Council  on Health  Care  Technology  Assessment. 
D- 15 
 3. 	 improved  communications  between  manufacturers  and carriers  can make technology  as
sessment more  eficient. 
The Draft Report statesthat:  Manufacturers also createproblems for the carriers 
by providing data that are not relevant, objective, or complete.  (Page 6.) 
Manufacturers can provide better prepared materials for carriers if they know 
precisely what information  carriers need in order to make reasonablecoverage 
decisions. The information  requirements are rarely spelled out by carriers. Even 
coveragerequirements used at Medicares national level have only been issued in 
proposed form asrecently as January 30.1989.  (Seeproposed rule in Federal 
Register.) Carriers in some casesare quite reluctant to take the time to discuss 
their evaluations with manufacturers. HIMA  has someevidence of carriers 
refusing to respond to manufacturers inquiries.  Improving the communication 
between carriers and manufacturers would facilitate proper assessments. 
HIMA  has for three years been conducting seminarsto educateits membersabout 
Medicare concerns. We have featured-representativesfrom carriers and would 
like to continue and even expand theseprograms. (These conferenceshave also 
included representatives from the Inspector General Division  of the DHHS Offke 
of General Counsel.) 
4. 	 HIMA  and its members  have consistently  identified  the problems  with  cost-effectiveness 
as a coverage  criteria. 
The Draft Report (pages 8-9) implies an endorsementby manufacturers of 
cost-effectiveness as a coverage criterion.  HIMA  has underscoredthe legal, 
a methodological,  and policy problems associatedwith using cost-effectiveness as a 
Medicare criterion.  Some clarificationof  this section should be made. 
B.  HIMA COMMENTS ON IG RECOMMENDATIONS 
1. 	 A clearinghouse  to compile  and disseminate  information  on health  care technologies 
could  be an asset to carrier  decision-making  provided  the information  was regularly 
kept up to date and  that the sources  of data into  the clearinghouse  included  information 
from  a wide  range  of reliable  sources,  including  manufacNers  of medical  technology. 
HJMA would like to sound a note of caution that such a clearinghouse should not 
unduly complicate the coverage decision-making process. Creating a new entity 
might only add delay in decisions without improving the quality of decisions. 
Thus, it would be crucial, if such a clearinghouse was to be considered, that clear 
operating parameters be established that assurerapid and accurateacquisition and 
dissemination of data. 
2. 	 Greater  consistency,  to the extent it is needed, can be promoted  by finalizing  the Medi
care coverage  regulation. 
D- 16 
 The IG report recommends that HCFA should foster greater consistency among 
carrieIs in coverage and pricing decisions. HCFA has made a substantial step in 
this direction already with the publication of a proposed rule on January 30,1989, 
dealing with Medicare coveragecriteria.  The criteria would apply for both 
national and local decision-making.  Setting out the rules for coverage is the best 
first step in making decisions more consistent. 
The Medicare program was designed to operate in a decentralized fashion. The 
system of carriers and fiscal intermediaries was set up to taiceadvantageof the 
expertise held by operating insurance companies. The Draft Report proposes,in 
some respects,to reversethis principle.  The carriers would benefit from a 
binding national mechanism that imposes decisions on them becauseit would 
relieve them from the burden of making the decisions themselves. They could in 
fact shift this responsibility  to the federal government. 
Some improvements in carrier consistency should be expected, but not the-
federalization of technology assessment. The question of variation in practice 
patterns is a complex one. There are legitimate divergences in medical care when 
comparing research-intensive, teaching institutions to small rural hospitals. 
carriers should continue to have the responsibility, discretion, and flexibility  to 
apply coverage rules to their own unique situations.  This can assurethat 
decisions anzmade with the patients needs in mind, not just the need for national 
uniformity. 
The finalization  of HCFAs coveragerule, transmission of the rule to caniers, 
_ education of the carriers, and requiring compliance with the rule through HCFAs 
annual carrier performance evaluation program (CPEP) would improve 
performance without  creating a new layer of bureaucracy. 
3.  Sufficient  legislative  author@  clearly  exists for  Part  B payment  controk. 
The IG report suggestslegislative changes to allow HCFA to establish reasonable 
charges for a new technology, at the time of initial  coyerage and after the 
technology has been disseminated into the marketplace. HCFA currently has 
wide-ranging authority to establish payment amounts and to change those 
amounts. The legislation allowing  the use of inherent reasonablenessfor 
physician services and for other Part B items, the implementing  regulations, and 
the carrier instructions are quite detailed.  They afford caniers a high degreeof 
guidance in payment analysis. This is not to say that Part B payment mechanisms 
are not complex and could benefit from clarification.  However, no further 
legislative changesshould be contemplated until recent initiatives  have been fully 
understood by the carriers and providers. 
The Draft Report assumesthat costs will  inevitably  drop as familiarity  with a new 
technology increases. This assumption needsto be fully  explored to seeif in fact 
D- 17 
 economics of scale or knowledge  occur in the medical marketplace. The 
concept appearsto be driven by anecdotesand two procedures,cataract extraction 
and coronary artery bypass grafts, which may not representthe actual dynamics 
of technology-specific, system-wide efficiencies. 
C.  CONCLUSION 
The role of carrier coverage decision-making has been and will  continue to be an 
important part of the Medicare program.  The Draft Report identifies some areas 
where improvement is needed. HIMA  supports, as noted above, certain reforms 
that will  contribute to better and more efficient decisions. We are concerned that 
certain recommendations made in the Draft Report would not improve the 
process. 
We very much appreciate the opportunity  to review the Draft Report and share 
-. 
our comments with you. 
OIG  RESPONSE  TO HIMA  COMMENTS 
We agreethat certain reforms will  contribute to better and more efficient decisions and we 
welcome the support of HIMA  in those areaswhere improvement is needed. We continue to 
believe that the recommendations made in the draft report would improve the process. 
In responseto specific concerns expressedby HIMA: 
Al.  The report statesthat technology innovation accountsfor a substantial  portion  of the an
-nual increasein Part B payments, and cites studies by HCFA and OTA in support. We 
are not aware of more recent studies that estimate this portion more precisely. We did  -
not state,or imply,  that technological innovation is the major  cause of the annual in
crez~~ Indeed, we did state that inflation  is the largest factor. 
A2. 	 We have added a reference to the report of the National Advisory  Council on Health 
Care Technology Assessmentto the section dealing with other studies and actions. 
A3. 	 We recognize the initiative  of HIMA  in conducting seminars to educate its members 
about Medicare concerns. But we also recognize that manufacturers ordinarily  take the 
initiative  in approaching carriers about new technologies. Although we agree with 
HIMA  that improved communications can make technology assessmentmore efficient, 
we remain concerned that HCFA and the carriers need to take a more affmative  atti
tude in relating to manufacturers. 
A4. 	 The four manufacturers representativeswhom we interviewed gave their own opinions 
about cost effectiveness as a major criterion in making Medicare coverage decisions.  It 
should not be inferred that they are representative of the group of all manufacturers. We 
D- 18 
 have mod&d  the text to emphasize that theseare individual  opinions, and we have 
noted HIMA  stated concerns with cost effectiveness as a criterion. 
Bl.  We agree with HIMAs  concern that any clearinghouse provide information  promptly in 
order to expedite coverage and pricing decision making, and we have noted the impor
tance of time in the final report. 
B2.  We agree with HJMA that implementation of HCPAs proposed rule on coverage deci
sion making is an important first step, but this alone is not enough.  The carriers are ask
ing for more effective guidance from HCFA, better communications  among themselves, 
and quicker more extensive sharing of nationai Medicare data with  the carriers by 
HCPA.  The MITAG  discussionsprovide an attractive model for improving  communica
tions. 
B3.  We continue to believe that the statutory authorities HCPA now has for deciding the 
amounts Medicare pays for a new technology are so detailed and complex as to be effec
tively  unusable. The small number of-carriers reporting use of inherent reasonableness 
illustrates this situation.  We believe there is a need for a clearly stated statutory author
ity for HCFA to set national prices or price limits  in those exceptional situations where 
HCFA believes this action warranted. 
This authority should allow HCFA to go beyond charge histories (for example, to 
consider product development costs) in order to set a reimbursement amount that 
is fair to the provider of service,encouragesbeneficiary accessto the benefits of 
new technology, and supports innovation by the manufacturer or other innovator. 
_We should emphasize that we foresee this processoccurring about as frequently 
as do national coverage decisions now, approximately 20 time a year.  Carriers 
would continue to make almost all Part B coverage and pricing decisions. 
HEALTH INSURANCE  ASSOCIATION OF AMERICA (HIAA) COMMENTS 
Thank you for sharing with us the draft report entitled, Medicare  Carrier Assessment of New 
Technologies, which provides an overview of major issuesand challenges facing the 
Medicare Part B carriers in assessingnew health care technologies.  We have had an 
opportunity  to review this draft report and we have the following  comments: 
1) 	 We would  support the establishment of a clearinghouse on emerging and new technolo
gies in order to accessinformation bearing on the identification,  coverage and pricing of 
such technologies. 
The HIAA  has been discussing the desirability  and feasibility  of establishing such 
a clearinghouse for its members, and we would be very willing  to meet with 
representatives from HCFA and PHS in order to discuss a collaborative  effort. 
D- 19 
 We support the recommendation regarding HCFAs need to foster greater consistency 
2) 	
among carriers in their coverage and pricing decisions concerning new technologies and 
to go a step further, we would recommend that such information  should be shared with 
private sector third party payers. 
3) 	 We support the recommendation that HCFA should seek legislative authority to broaden 
the basis upon which it can establish the reasonablecharge for a new technology, both 
at the time of initial  coverage and after the technology has been assimilated into the mar
ket place. There are severalcoverage/payment level issuesthat commercial insurers 
must deal with on a daily basis, and if such information could be sharedwith private sec
tor payers, it would also create greater consistency. 
On page 15 of the report, it statesthat, HIAA  has established a Pm&e  AssessmentCenter 
which began in 1987, with preliminary  studies in small areaanalysis and reviews of obsolete 
technologies.  The formal name of the HIA4  technology assessmentactivity is called the 
Medical Practice AssessmentUnit, which has initially  developed a report on underevaluated 
health care technologies, which includes information  on obsolete technologies and 
commissioned a study on quality assessment.Further, the unit plans to convene rotating 
panels of experts by clinical  area,in order to identify emerging and new health care 
technologies, as well as technologies that may be becoming obsolete. 
In addition to this activity, the association plans to hold a seriesof conferences dealing with 
coveragepayment level issues,such as identifying  setsof criteria by delivery setting, e.g., 
hospital inpatient care, ambulatory cam, preventive services,etc. As mentioned, we are 
considering the establishment of a clearinghouse in order to assistour companies in 
identifying  emerging and new technologies. 
The unit does not plan to conduct any small area analysis studies at this time, and your final 
report should reflect that. 
I believe the recommendations offered in the report would dramatically  improve the 
operational aspectsof Medicare carrier identification  and assessmentof new technologies, and 
we would be pleased to work with the Inspector Generals office to improve the Medicare 
coverage decision-making process. 
OIG  RESPONSE  TO HIAA  COMMENTS 
We welcome HIAA  support for our three recommendations, and we encourage HCFA and 
PHS to arrange a meeting of all interested parties to discusscollaborative efforts with regard 
to a clearinghouse. 
We misunderstood some of the information  about the Medical Practice AssessmentUnit that 
was provided by HIAA  during our interviews.  We have changed the final report to recognize 
the activity of the unit as stated by HIAA. 
D - 20 
 APPENDIX  E 

ENDNOTES 

1. 	 Health  Insurance  for  the Aged  and Disabled,  Title XVIII  of the Social Security Act, 42 
USC.  1395 et seq. 
2.  Section 1862(a)(l)(A)  of the Social Security Act, 42 USC.  1395y(a)( l)(A). 
3.  Section 1842(a) of the Social Security Act, 42 U.S.C. 1395(u)(a). 
4. 	 U.S. Department of Health and Human Services,Health Care Financing Administration, 
Medicare  Program;  Procedures  for  Medical  Services Coverage  Decisions;  Request for 
Comments,  Notice, 52 Federal Register 15560, April  29.1987. 
5. 	 U.S. Department of Health and Human Services,Health Care Financing Administration, 
Health  Care  Financing  Notes,  September 1986. 
6. 	 U.S. Congress, Office of Technology Assessment(OTA), Medical  Technology  and 
Costs of the Medicare  Program,  Report OTA-H-227, July 1984, pp. 43ff. 
7. 	 Notes 4 and 5.  From  1980 to 1985, the Consumer Price Index for all urban consumers 
for all items rose from 246.8 to 322.2 (31 percent), and that for medical care rose from 
265.9 to 403.1 (52 percent).  Data from U.S. Department of Labor, Bureau of Labor 
statistics. 
8. 	 Note 6.  The OTA explored the dual relationship between Medicare and health care 
technology.  Medicare policies affect the adoption of technologies, and patterns and use 
of technologies affect Medicare costs. The OTA listed 18 major options, among them 
an option to mandate that Medicare coveragedecisions include cost considerations 
when appropriate and an option to move to fee schedulesfor physician payments under 
Medicare. 
9. 	 Lewin  and Associates, A Forward  Plan for  Medicare  Coverage  and Technology 
Assessment,  Washington, DC.,  1985. Among the changesrecommended by Lewin  are 
clarifying  and opening up to the public the coveragedecision making process and more 
narrow coverage decisions by HCFA. 
10. 	 U.S. Department of Health and Human Services,Growth  in the Volume and Intensity  of 
Physician  Services,  Washington, DC.,  1989. This report is in response to Section 
4056(c)(2) of Public Law  100-203, The Omnibus Budget Reconciliation  Act of 1987. 
11.  Jamesonv. Bowen, CA.  No. CV-F-83-547~REC (E-D. Cal). 
E-l  .. 
12.  Federal Register, January 31,1989,  Volume 54, Page4302. 
13.  Griffiths  et al. v. Bowen, U.S. District Court, D. Mass., C.A. 86-2556-Y. 
14. 	 U.S. Department of Health and Human Services,Office of the Assistant Secretary for 
Health, National Advisory Council on Health Care Technology Assessment,The 
Medicare  Coverage  Process,  Washington, D.C., 1988. 
15. 	 Blue Cross and Blue Shield of Massachusetts,Guidelines  for  Proper  Submission  of New 
ServicelProduct  Information  to Third  Party  Payers,  Boston, MA,  no date. 
16. 	 Blue Cross and Blue Shield Association, Coverage of New or Unusual Devices, 
Services and Procedures in the Absenceof Written Medicare Guidelines, Administrative 
Bulletin  1816, Chicago, IL, November 7,1985. 
17. 	 Similar comments about the role of cost effectivenesswere made in the comments 
received by the HCFA, note 4, and in the study by Lewin and Associates, note 9. 
18. 	 Joint letter to the Secretary of the U.S. Department of Health and Human Services, 
dated Match 30,1989. 
19. 	 See the OTA report on Medical Technology and Costs of the Medicare Program, note 6, 
appendix E, table E-4. 
20. 	 U.S. Department of Health and Human Strvices, Health Care Financing Administration, 
Coverage Issues Manual,  HCFA  Publication 6, Section 50-13, November 1985. 
21. 	 The idea of a clearinghouse to shareinformation  among carriers, particularly  on  . 
coverageissues, has been put forward before. Seethe discussion in appendix E of note 
6 for further comments by carriers. 
22.  Section 1842(b) of the Social Security Act, 42 U.S.C. 1395(b). 
23. 	 U.S. Department of Health and Human Services,Heahh Cam Financing Administration, 
Medicare  Carriers  Manual,  HCFA Publication  14, Part 3, Section 5000 ff, especially 
Section 5246, March 1987. 
24. 	 United StatesDepartment of Labor, Bureau of Economic Analysis, Survey  of Current 
Business,  68 (4) 75, April  1988. 
25. 	 American Chamber of Commerce ResearchersAssociation, Inter-City  Cost of Living 
Index, Fourth Quarter, 1987, Indianapolis, Indiana, 1988. 
26.  Kirchner, Merian, Medical  Economics,  October 3, 1988,page 126ff.  . 
E-2