Department of Health and Human Services

OFFICE 
INSPECTOR GENERAL

MEDICARE PREPROCEDURE

REVIEW

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Richard P. Kusserow 
INSPECTOR GENERAL 
JANUARY 1991 
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q"dm  EXECUTIVE  SUMMARY

PURPOSE 
The purpose of this report is to assess the cost-effectiveness of the Medicare Peer Review 
Organizations ' (PROs) CUITent preprocedure review process. 
BACKGROUND 
In each State, the Health Care Financing Administration (HCFA) contracts with a Utilization and 
Quality Control Peer Review Organization, commonly known as a PRO, to review the 
appropriateness and quality of surgery physicians perfonn on Medicare beneficiares. The 
HCFA renews or competitively rebids PROs ' contracts on a 3-year cycle. The HCFA administers 
the Medicare program and has regulatory oversight of PRO activities. As of April 1989 all PROs 
were operating under the third scope of work. 
The Consolidated Omnibus Budget Reconciliation Act of 1985 calls for 100 percent peer review 
of certain surgical procedures. Under the same Act, the PRO may require a second surgical 
opinion when it questions the reasonableness and necessity of a proposed surgery. Regulations 
to implement the second opinion provision are cUITently being fonnulated at HCFA. 
METHODOLOGY 
We obtained HCFA data on the preprocedure reviews PROs conducted under the third scope of 
work. The data included the total number of requests for preprocedure review, the percentage of 
denied requests, and the negotiated cost associated with the preprocedure review. We compared 
this data with the results of a companion OIG study of necessity and quality of outpatient surgery. 
We also obtained infonnation from PROs responsible for 28 States representing over 80 percent 
of both the Medicare physician expenditures and the eligible population. The infonnation 
requested included total number of preprocedure requests; number of preprocedure requests by 
procedure; number of requests forwarded to PRO physicians; overall percentage of denied 
requests; and denial percentage by procedure. We analyzed secondar data on the preprocedure 
review process and its effectiveness. Finally, we obtained PROs' views on the CUITent 
preprocedure review process, and suggestions to improve its effectiveness.  FINDINGS 
PRO preprocedure review for cataract extraction is not cost-effective. 
Cataract surgery comprises 52 percent of all preprocedure review requests at the PROs surveyed. 
Last year, we estimated PROs for 17 States representing over half of the Medicare eligible 
population paid $13.3 milion for preprocedure review of cataact surgery. The resulting PRO 
denials saved only $1.4 millon. 
Only 0.07 percent of cataract surgeries reviewed by the PROs were denied. By way of contrast 
a companion OIG study found, based on a review of records, that 1.7 percent of cataract 
extractions were not medically indicated. 
The cost-effectiveness of the preprocedure review process is doubtful for other 
procedures as welL 
Last year, the denial rate for all surgery reviewed was 0. 15 percent. Even this figure overstates 
denials based on medical necessity, because it includes technical denials for site of service. 
A targeted, more intensive approach could improve preprocedure review for cataract 
extraction. 
A targeted program would give the PROs the flexibility to perform their review in the way most 
suited to local conditions and practices. Two-thirds of the PROs stated a limited second opinion 
program would improve preprocedure review. Most indicated it would be effective for cataract 
extractions. 
More data could help PROs identify other procedures for a targeted, more intensive 
reVIew. 
The PROs would need local rather than national data to select procedures for a targeted, more 
intensive review program because practice patterns differ between and within States. Medicare 
carers routinely collect provider profie data. The PROs could use such data to focus a targeted 
program on paricular providers, procedures, or geographic areas. 
RECOMMENDATIONS 
The HCFA should: 
substitute a targeted, more intensive review for the current mandatory 
preprocedure review of cataract surgery. 
review the current preprocedure review process to determine whether it is 
other surgical procedures. 
cost-effective for  continue efforts to implement data exchange between PROs and Medicare 
carriers. 
HCFA COMMENTS AND OIG RESPONSE 
In its comments the HCFA took exception to the finding that PRO preprocedure review for 
cataract extraction is not cost-effective. The HCFA disagreed with the recommendation to 
substitute a targeted, more intensive review for the CUITent mandatory preprocedure review of 
cataract surgery. The HCFA did agree with the other two recommendations and is taking action 
to address them. 
The HCFA did not dispute the fact that preprocedure review for cataract extraction was not 
questioned only the negotiated rate used in the calculation. According to 
cost -effective. It 
HCFA' s Health Standards and Quality Bureau, the total cost of a preprocedure review was 
$25.70. The cost was composed of $9.00 in varable cost and $16.70 in fixed cost. The HCFA 
stated the national average negotiated rate per review was $9.00 which is only part of the total 
cost. 
The HCFA believes that they have no data to support targeting high volume ophthalmologists. 
We did not suggest that targeting be based solely on volume. Our examples of targeting options 
included not only high volume providers but also certn geographical areas as well as random 
selection. A targeted program would give the PROs the flexibilty to perform their review 
according to local conditions and practices. 
The HCFA also suggested that the sentinel effect be considered before implementing targeted 
reviews. A targeted program such as a second opinion program would stil provide a sentinel 
effect since physicians know that they could face peer review. In fact a targeted program would 
be more efficient since it would stil provide a sentinel effect without doing a 100 percent review. 
The full text of HCFA's comments and our detailed responses to them appear in Appendix C.  ..............,.......... ............. ."...."..."... ... ............... ..
................................ ........................................
...................................... ..
TABLE OF CONTENTS

EXECUTIVE SUMMARY 
INTRODUCTION.................................................... ..................................................

Preprocedure Review Overview.................................. ........................................ 

FINDINGS........................................ 

RECO MMEND A TIO 
NS 
ENDNOTES..............................................................................................................

APPENDIX A 
HCFA Procedure List - PRO Third Scope of Work...................................... A
APPENDIX B 
PRO Prior Authorization - Third Scope of Work Denial Rates........................

APPENDIX C

HCFA Comments .,.......... ..,...  ................ .............. ....................... C
 INTRODUCTION

PURPOSE 
The purpose of this report is to assess the cost-effectiveness of the Medicare Peer Review 
Organizations ' (PROs) CUITent preprocedure review process. 
BACKGROUND 
In each State, HCFA contracts with a Utilization and Quality Control Peer Review Organization 
commonly known as a PRO, to review the appropriateness and quality of surgery physicians 
perform on Medicare beneficiares. The HCFA admnisters the Medicare program and has 
regulatory oversight of PRO activities. The HCFA renews or competitively rebids PRO 
contracts on a 3-year cycle. The PRO contracts are renewed on a staggered basis. However, as 
of April 1989 all PROs were operating under the third scope of work. 
The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) calls for 100 percent 
peer review of certain surgical procedures. The COBRA also permts PROs to require a second 
surgical opinion when it questions the reasonableness and necessity of the proposed surgery. 
Regulations to implement the COBRA second opinion provision are cUITently being formulated 
at HCFA. 
CUITently, each PRO conducts 100 percent review of 10 diferent elective surgical procedures 
prior to surgery to determine reasonableness and medical necessity. The HCFA requires review 
of cataract extraction and carotid endarerectomy. Each PRO chooses eight other surgical 
procedures and submits documentation to support these selections. The PRO also reviews 5 
percent of the selected procedures retrospectively, veriying the information on which it based its 
preprocedure determinations. 
METHODOLOGY 
We obtained HCFA data on the preprocedure reviews conducted under the third scope of work 
through calendar year 1989. The data included the total number of requests for preprocedure 
review, the percentage of denied requests, and the negotiated cost associated with the 
preprocedure review. We compared this data with the results of a companion OIG study of the 
necessity and quality of outpatient surgery. 
We contacted the American Medical Peer Review Association (AMPRA), a trade association 
which represents PROs, to advise them of our review and solicit their help in facilitating contacts 
with the PROs.  We obtained data on the preprocedure review process from PROs responsible for 28 States 
(some PROs have contracts with more than one State). These PROs represent over 80 percent of 
both Medicare physician expenditures and the Medicare eligible population. 
We gathered inforn1ation from PROs about their preprocedure review process. The data 
requested included total number of preprocedure requests; number of preprocedure requests by 
procedure; number of requests forwarded to PRO physicians; overall percentage of denied 
requests; and percentage of denial rates by procedure. We also analyzed secondary data 
concerning the preprocedure review process and its effectiveness. Finally, we obtained PROs 
views on the current preprocedure review, as well as suggestions to improve its effectiveness. 
We did not analyze the deterrent or " " of preprocedure review due to lack of 
sentinel effect
historical data. The sentinel effect causes physicians to recommend fewer unnecessar surgeries 
because they know their recommendations face peer review. We understand that HCFA is now 
launching longitudinal studies to evaluate the sentinel effect.  PRO PRE PROCEDURE REVIEW PROCESS: OVERVIEW 
Surgical procedures 
The HCFA instructs PROs to select eight surgical procedures for review (in addition to cataract 
extractions and carotid endarterectomies) and submit documentation supporting their choices. 
The PROs select these 8 from a list of 11 procedures provided by HCFA (see Appendix A). The 
HCFA procedures are based on national data. They are high cost, high volume, or have a high 
nonconfirmation rate when subject to review. Most are performed on an inpatient basis. 
The PROs can, based on supporting documentation and subject to HCFA approval, select 
procedures not on the HCFA list. However, few PROs have done so. 
Review criteria 
Each PRO develops review criteria against which it screens preprocedure requests. Typically, 
PROs develop their criteria in consultation with State medical specialty societies representing the 
selected procedures. As a result, criteria can var from State to State. 
The PROs submit the criteria to the HCFA regional offce, which must review and approve them 
before they can be used. Once HCFA approves the criteria, the PROs must share them with 
providers. 
ReJ,iew process 
var 
The review process itself does not  significantly among PROs. Physicians initiate the 
review process when they recommend a Medicare beneficiar undergo 1 of the 10 procedures for 
which the PRO requires preprocedure review. Typically, the recommending surgeon, a staff 
member, or hospital staff, telephones the PRO to review the patient s condition and seek 
preprocedure approval. Most PROs also accept mail requests and a few accept them via 
facsimile machine. 
Initial review by registered nurses 
Registered nurses (RNs) review the initial preprocedure request, comparg the physician 
diagnosis and the patient s symptoms against the PRO criteria for that surgical procedure. The 
RN s can approve the request based on the information the physician (or physician 
represen tati ve) provides. 
However, if the request does not meet the criteria or if the physician proposes a setting the PRO 
believes is inappropriate, the RN refers the case to the PRO physician advisor for review. 
PRO physician review 
The PRO physician conducts a second review of the requests which have not met the criteria 
often contacting the recommending surgeon to discuss the case further. After the review, the  PRO physician has three choices: approve the procedure for inpatient surgery, approve the 
procedure for outpatient surgery, or deny the request altogether. 
When a PRO approves a preprocedure request, it assigns the case an approval number. When the 
PRO denies a request altogether, it typically infonns both the surgeon and the patient of the 
decision, the rationale, and an explanation of appeal rights. 
Retrospective validation review 
The HCFA requires PROs to retrospectively review the medical records from 5 percent of their 
preprocedure requests on a quarterly basis. The purpose of retrospective review is to verify the 
PRO' s preprocedure determination of medical necessity.  FINDINGS

PRO PREPROCEDURE REVIEW FOR CATARACT EXTRACTION IS NOT 
COST-EFFECTIVE. 
The PROs responsible for 17 States, representing over half of the Medicare eligible population 
provided detailed information which clearly demonstrate that preprocedure review for cataract 
extraction is not cost-effective. (The PROs responsible for the other 11 States in our review did 
not provide detailed information. ) From the beginning of the third contract cycle through 
January 30, 1990, those 17 PROs processed about 519,000 preprocedure requests for cataract 
1 By way of contrast
extractions. Only about 370 (0.07 percent) were denied.  , a companion OIG 
study to be released under separate cover found that, based on a review of patient records
, 1. 
percent of the cataract extractions were not medically indicated. 
Based on a HCFA-negotiated cost of $25.70 per preprocedure review and an average 
reimbursement amount from a lO-State sample of $3,695 for a cataract extraction, Medicare paid 
about $13.3 milion to save $1.4 millon from surgery denials. 
Our results are coIToborated by a recent study performed in Michigan, which reported the 
Michigan PRO denied only 14 of 38 008 preprocedure review requests for cataract extractions. 
This is a denial rate of less than 0.04 percent. According to this study, Medicare spent $980,000 
to deny $42,000 worth of cataact extractions. 
THE COST-EFFECTIVENESS OF THE PREPROCEDURE REVIEW PROCESS IS 
DOUBTFUL FOR OTHER PROCEDURES AS WELL. 
Our analysis of PRO data indicates very few preprocedure requests are reviewed by PRO 
physicians, and almost none are denied. 
out of each 10 000 preprocedure requests. Some of these are 
PROs deny fewer than  15 
technical denials. 
Virtually all PROs have denied less than 1 percent of their preprocedure requests since the 
third contracts began (see Appendix B). The overall denial rate is 0. 15 percent, but even 
this rate is misleading, because it includes technical denials for site of service. While we 
did not determine the actual number of technical denials, we were told by a number of 
PROs that many of their denials were for site of service. 
The overall denial rate for the third PRO contracts ' review of 10 procedures has dropped 
since the second contracts. The PROs reviewed five procedures under the second con
tracts, during which HCFA reported a denial rate of 0.6 percent.  Most PROs approve over 90 percent of pre procedure requests without physician 
review. 
The PROs representing 27 States provided information on the percentage of preprocedure 
requests which are approved without physician review (one PRO did not respond to this 
question). These PROs refeITed an average of 6 percent of preprocedure requests for phy
sician review. The PROs for 22 of these States refeITed an average of 2.4 percent of their 
preprocedure requests, while 5 PROs estimated their refeITal rates between 12 and 25 per
cent. 
The PROs doubt the current Medicare preprocedure review is cost-effective. 
The PROs representing 27 States responded to our inquiry on the cost-effectiveness of pre-
procedure review. Ten said the process is not cost-effective due to low denial rates. fif
teen others indicated they were unable to evaluate cost-effectiveness because they lack 
historical data. These 15 PROs also indicated, however, that the process is time consum
ing and labor intensive, and that their denial rates are very low. 
The two remaining PROs indicated that preprocedure review is cost-effective. The denial 
rates for each of these PROs were less than 1 percent. 
Some PROs offered alternative strategies to improve the process. Twenty-six said Medi
care carers should share provider profile data with PROs to help them identify problem 
providers or procedures. Six noted HCFA could target preprocedure review efforts where 
PROs have identified problem procedures and or providers. Thee PROs suggested a 
more focused retrospective review on specific procedures or settings. 
A TARGETED, MORE INTENSIVE APPROACH COULD IMPROVE 
PREPROCEDURE REVIEW FOR CATARACT EXTRACTION. 
A targeted program would give the PROs the flexibilty to perfonn their review in the way most 
suited to local conditions and practices. For example, targeting could be done on high volume 
providers, certain geographic areas, or on a random basis. For these cases, the PROs could 
require a second opinion and subject them to physician review. 
The volume of preprocedure requests for cataract extractions and resulting low denial rates have 
prompted some PROs to explore other ways to prevent unnecessar surgery. Three PROs with 
high volumes of cataract requests submitted unsolicited proposals to HCFA for a pilot cataract 
second opinion program. One State s Ophthalmology Society even agreed to pay the cost of 
second opinion consultations. Other PROs informed us they had considered proposing such a 
pilot program, but did not take action after they leared HCFA had not taken action on similar 
proposals.  Nineteen of the PROs contacted said a limited second opinion program would improve 
preprocedure review. Sixteen of these indicated it would be most effective for cataract 
extractions. The AMPRA also favors a focused elective surgery second opinion program 
coupled with Medicare s existing preprocedure review. 
The HCFA has recognized the need to allow PROs the flexibility to require second opinions for 
surgical procedures performed by certain physicians. The HCFA is exploring whether the 
current statute (COBRA) allows the PROs to require second opinions for physicians believed to 
be performing significant numbers of unnecessar procedures. 
MORE DATA IS NEEDED TO IDENTIFY OTHER PROCEDURES SUITABLE FOR 
TARGETED, INTENSIVE REVIEW. 
The PROs would need local rather than national data to select procedures for a targeted program 
because practice patterns tend to differ between and within States. Possible sources of local data 
are Medicare carers, which routinely collect and profie provider data. The PROs could use 
such data to focus a targeted program on paricular providers, procedures , or geographic areas. 
The HCFA has recognized that information exchange between PROs and carers can enhance 
the effectiveness of the review function and is cUITently working to implement this information 
exchange. 
While several PROs felt they could identify additional procedures for a second opinion program 
there was no consensus regarding which procedures they would select. Procedures mentioned 
most often include hysterectomy, major joint replacement, and prostatectomy.  RECOMMENDATIONS

The HCFA should: 
substitute a targeted, more intensive review for the current mandatory 
preprocedure review of cataract surgery. 
review the current preprocedure review process to determine whether it is 
other surgical procedures. 
cost-effective for 
continue efforts to implement data exchange between PROs and Medicare 
carriers. 
SUMMARY OF RECOMMENDATIONS AND AGENCY COMMENTS 
OIG Finding 
PRO preprocedure review for cataract extraction is not cost-effective. 
Agency Comments 
The HCFA takes exception to the $25.70 negotiated rate and would like the OIG to explain how 
it was derived. 
OIG Response 
The HCFA did not question the fact that preprocedure review for cataract extraction is not 
cost-effective. The HCFA questioned only the negotiated rate used in the calculation. The rate 
of $25.70 per preprocedure review was obtaned from HCFA's Health Standards and Quality 
Bureau, Offce of Peer Review, Division of Program Operations. The $25.70 is the total cost to 
perform a preprocedure review. The total cost represents $16.70 fixed cost and $9.00 in varable 
cost. We used the total cost figure in calculating the amount paid for the preprocedure review. 
However, the HCFA chose to use the varable cost of $9.00 per review. The $9.00 does not 
represent the fixed cost but would represent the cost savings per review if preprocedure review 
was eliminated. However, even if the $9.00 were used, Medicare would stil have paid about 
$4. 6 millon to save $1.4 milion from surgery denials. Preprocedure review is not cost-effective 
for cataract extractions whether the total cost or the varable cost is used.  OIG Recommendation 
The HCFA should substitute a targeted, more intensive review for the CUITent preprocedure 
review of cataract surgery. 
Agency Comments 
The HCFA disagrees with this recommendation. The HCFA believes that they have no data to 
support targeting high volume ophthalmologists. The HCFA also believes that the sentinel effect 
should be studied prior to making a final decision about the appropriateness of the 
recommendation. 
OIG Response 
The HCFA objects to targeting based solely on volume. However, this is not what we are 
suggesting. We provided examples on how targeting could be done. Our examples of targeting 
options included not only high volume providers but also certain geographic areas as well as 
random selection. Data analysis would reveal problem areas to be targeted. A targeted program 
would give the PROs the flexibility to perform their reviews in a way most suited to local 
conditions and practices. 
We recognize the importance of the sentinel effect. We believe if a targeted program such as a 
second opinion program were instituted, a sentiel effect would still be present, since physicians 
know that their recommendation for surgery would face peer review. A targeted review would 
also be more effcient since it would not be a 100 percent review. In fact, a targeted program 
could achieve the same or higher denial rate than the CUITent preprocedure review. 
OIG Recommendation 
The HCFA should review the CUITent preprocedure review process to determine whether it is 
cost -effective.

Agency Comment 
The HCFA agrees with this recommendation and is cUITently performing a study to assist in 
making accurate determinations of cost-effectiveness. 
OIG Recommendation 
The HCFA should continue efforts to implement data exchange between PROs and Medicare 
camers. 
Agency Comment 
The HCFA agrees with this recommendation and is actively working to establish regular 
systematic data exchanges.  , "

ENDNOTES

Twelve PROs provided cataract extraction data through Januar 31, 1990, and five PROs 
provided cataract extraction data through December 31 , 1989. 
Cataract extraction cost taen from Department of Health and Human Services, Office of 
Inspector General, Office of Evaluation and Inspections, Region IX study on Medicare 
outpatient surgery.

Dwight E.M. Angell  Cataract Surgeons Face a Critical Eye  Health Week April 23 
1990.  APPENDIX A

PRO Third Scope of Work
HCFA Procedure List 

Cholecystectomy

Major Joint Replacement

Coronar Artery Bypass Graft Surgery

Percutaneous Transluminal Coronary Angioplasty

Laminectomy

Complex Peripheral Revascularization

Hysterectomy

Bunionectomy

Inguinal Hernia Repair

10.  Prostatectomy 
11.  Pacemaker Insertion 
A- 1
 APPENDIX 

PRO Prior Authorization

Third Scope of Work

Denial Rates

PRO  Number of Cases  Percent Denied 
Alabama  848 
Alaska  808 
Arizona  20,035 
Arkansas  342 
California  151 134 
Colorado  706 
Connecticut  18,473 
Delaware  748 
Distrct of Columbia  876 
Florida  97,420 
249 
Georgia 3

Hawaii  076 
Idaho  690 
Ilinois  277 
Indiana  59,889 
Iowa  18,364  0.43 
Kansas  18,336 
Kentucky  30,448 
Louisiana  23,910 
Maine  5,415 
Mary land
 18,892 
Massachusetts  23,222  0.46 
Michigan  70,357 
Minnesota  20,287 
Mississippi  104 
Missouri  75,982 
Montana  679 
Nebraska  18,928 
Nevada  9,477 
New Hampshire  249 
New Jersey  238 
New Mexico  290 
New York  98,224 
568 
North Carolina

North Dakota  5,498 
Ohio  108,834 
Oklahoma  842  PRO  Cases  Percent Denied 
Number of 
Oregon  622 
Puerto Rico  987 
Rhode Island  763 
South Carolina  21, 133 
South Dakota  4,465 
Tennessee  36,072 
Texas  104 346 
Utah  972  1.23 
Vermont  896 
11.11 
Virgin Islands 
Virginia  23,965 
Washington  42,294 
West Virginia  663 
Wisconsin  33,523 
Wyoming  017 
National Total  590,442 
Thirteen States ' PROs began preprocedure review between October and December 1988: 
Delaware, Indiana, Kentucky, Missouri, Montana, Nebraska, Nevada, New Jersey, Oklahoma 
Rhode Island, South Carolina, Washington, and Wyomig. The remainder, except for 
Pennsylvania, began preprocedure review on April 1 , 1989. The Pennsylvania PRO began its 
contract on December 1 , 1989. Pennsylvania processed 10,000 requests and denied 11 during 
the first two months of their contract. 
National denial rate is based on a weighted average to account for differences in volume of 
requests between States. 
The Alaska, Idaho, and Washington State data we obtaied from HCFA was incoITect. The 
correct percentages we obtained from the PRO are used in this Appendix. 
th 
Source: HCFA report  1/29/90  APPENDIX 

HCFA COMMENTS

C - 1
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cl  Health 
DEPARTMENT OF HEALTH &. HUMAN 
SERVICES  Financing Administration 
vv 
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Memorandu 
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Date  OCT I 5 1990 
From 
Gai R.  D. 

Wilensky, Ph.
Administrator

Subject 
OIG Draft Report - "Medicare Preprocedure Review" (OEI-03-89-01520) 
Inspector General

The Offce of the Secretary

We have reviewed the subject draft report which examines the cost effectiveness 
of the Medicare Peer Review Organizations' (PROs) current pre 
procedure review 
process. 
The report questions the cost effectiveness of the preprocedure review process 
for all procedures and specifically concludes that PRO preprocedure review for 
cataract extraction is nOt cost effective. The report also concludes that a more 
targeted program of preprocedure review would give the PROs the flexibility to 
perform their review in a way more suited to local conditions and practices. The 
report contains three recommendations pertaining to these findings. Our comments 
on each of these recommendations are attached. 
Thank you for the opportunity to review and comment on this draft report. 
Please advise us whether you agree 
with our position on the report 
recommendations at your earliest convenience. 
Attachment 
PDIG 
DIG
DIG. 
DIG
AIG. 
OGC/IG 
EX SEC  c. . 
DATE SENT  101  5  , "
(2)

FACT SHEET 
OIG Draft Report 
Medicare Preprocedure Review

(OEI-03-89-01520) 
General Comments:

Background 
The Executive Summary and Introduction of the report state  Most PROs were in 
is not correct. The 
" This statement 
their third cycle of contracts in April 1989.
difference between contract cycle and scope of work requires clarification. Most 
PROs, at the time of the study, were performing under the third scope of work, but 
were nOt, however, in the third contract cycle. As a result of the Omnibus Budget 
, the length of PRO contracts was changed from 
Reconciliation Act of 1987
2 to 3 years and we were given the authority to renew contracts on a staggered 
basis. PRO contractOrs were broken down into four groups with contract renewals 
for the first group for the third cycle, beginning on O  tober 1, 1988. Contract 
renewals continued at 6 month intervals for each of the remaining three groups. 
Contracts of PROs not under the third contracting cycle on April 1, 1989, were 
the third scope of work. 
modified so that all PROs were under  Therefore, although 
all PROs were operating under the third scope of work as of April 1, 1989, most 
were not in the third 
cycle of contracts. 
Findings 
PRO preprocedure review for cataract extraction is not cost effective 
OIG found that Medicare expended about $13.3 millon (based upon an alleged 
HCFA-negotiated rate of $25.70 per pre procedure review) to realize savings of 
$1.4 millon due to surgery denials. HCFA takes exception to the negotiated rate 
used in OIG's projection. The national average negotiated rate per review for the 
ambulatOry reviews (which includes preprocedure 
third contract cycle paid for 
reviews) is $9.00. Since there is a significant difference betWeen the rate per review 
cited by OIG and that l,sed by HCF A, it would be helpful if OIG explained how it 
70 rate per preprocedure review. 
derived the $25.
Recommendation No. I 
HCF A should substitute a targeted. more intensive review for the current 
mandatory preprocedure review of cataract surgery.  (3 ) 
Review 
Page 2 - Medicare Preprocedure 
HCF A Response

We disagree with this recommendation. If we were to target high volume 
challenged for identifyng them for 
ophthalmologists, we believe that we could be 
We have no data to support 
targeting these
intensified review without justification. 

ophthalmologists for review. In fact, the opposite situation may exist. 
Ophthalmologists who have "average" or "below average" surgical rates and practice 
in an area where a high volume physician practices, may be performing unnecessary 
surgery to compensate for the loss of revenue. HCF A is currently studying the 
effectiveness of PRO review. We will decide how extensive a review of cataract 
studies are completed. An additional 
surgery should be performed after these 
factor that should be considered before implementing targeted reviews is the 
preprocedure review. The sentinel effect causes physicians to 
sentinel effect of the 
recommend fewer unnecessary surgeries because they know their recommendations 
recognizes the sentinel effect of preprocedure 
face peer review. Although OIG 
, we 
review was not considered in this report believe a study of this subject should 
be completed before HCFA makes a final decision about the appropriateness of the 
recommendation. In fact, HCF A is conducting a longitudinal study of the sentinel 
procedure review of cataract surgery which should clarify OIG' 
effect of the pre 
concerns regarding the cost effectiveness of the existing preprocedure review 
program. 
Recommendation No. 
HCF A should review the current pre procedure review process to determine whether 
it is cost effective for Other surgical procedures. 
Response 
We agree with this recommendation. HCF A is currently analyzing the data 
submitted by PROs to determine review levels and denial rates. In addition, HCF 
is performing a study which wil assist in making an accurate determination of cost 
effectiveness of the reviews being performed. Since the pre procedure review is 
making decisions about which 
Congressionally mandated. we are in the proce:ss of 
surgical procedures should be subjected to prior authorization and wil modify

review requirements as appropriate.
 (4 ) 
Page 3 - Medicare Preprocedure Review 
Recommendation No. 
HCF A should continue efforts to implement data exchange between PROs and 
Medicare carriers. 
Response 
We agree with this recommendation. HCFA is actively workig to establish regular 
systematic data exchanges between PROs and carrers. PROs and carrers were 
recently asked to make recommendtions concerning the .tyes of information to be 
exchanged. We are in the process of analyzng the results of our inquiries and will 
be issuing instructions that wil enhance information exchanges between the PROs 
and carrers.