. ,  ! ,
'& 
THE UTiliZATION 
AND QUALITY
CONTROL PEER REVIEW 
PRO  PROGRAM 
ORGANIZATION 
SANCTION ACTIVITIES 
t"ylt" 
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OFFICE OF INSPECTOR GENERAL 
OFFCE OF ANALYSIS AND INSPECTONS 
OCTOBER 1988  . .
..._. 
Office of j:iispector  enefral 
The mission of the Office of Inspector General (OIG) is to

promote the efficiency, effectiveness, and integrity of programs

in the United states Department of Health and Human Services 
(HHS). It does this by developing methods to detect and prevent
fraud , waste, and abuse. 
Created by statute in 1976, the 
Inspector General keeps both the Secretary and the Congress fully

cand courrenutly innformtedr aboyut pr.og rams or management problems and

recommends corrective action. The OIG performs its mission by

conducting audits, investigations, and inspections with

approximately 1, 
200 staff strategically located around the
Office of Analvsis and Inspections

This report is produced by the Office of Analysis and Inspections

(OAI), one of the three major offices within the OIG. The other

two are the Office of Audit and the Office of Investigations.

OAI conducts inspections which are typically short-term studies

designed to determine program effectiveness, efficiency, and

vulnerability to fraud or abuse.

This Report

Entitled "The Utilization and Quality Control Peer Review
Organization 
(PRO) Program: Sanction Activities " this report 
examines the sanction process followed by the PROs and the OIG 
concerning those physicians and providers who have failed to meet 
the obligations required under Title XVIII of the Social Security
Act. It is 
part of a broad-based study that examines the overall 
performance of the PRO program.

The study was carried out under the direction of Mark R. Yessian,
Ph.  , Regional Inspector General, Office of Analysis and
Inspections 
, Boston Region. Participating in the project were 
the following people:

Boston Reqion
 Headquarters 
Cynthia Piltch, M.
 Cathaleen Ahern

(Project Leader)
 Brian Rawdon

Martha Kvaal, M.

Joyce Greenleaf, M.

Lauren Smith

Thomas Nee
 . .
THE UTILIZATION AND QUALITY CONTROL 
PEER REVIEW ORGANIZATION (PRO) PROGRA: 
SANCTION ACTIVITIES 
RICHARD P. KUSSEROW 
INSPECTOR GENERAL 
OCTOBER 1988 
CONTROL # OAI-01-88-00571  . . ..  ....    ....    .....     ....    .....     .....     .......       ........        ........        ........        .......       ............            .............             .............             ...............               ..............              ...............               .................                 ................                ..................                  ...................                   ...............               ........        
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TABLE OF CONTENTS

SUMY 
EXECUTIVE 
INTRODUCTION 
BACKGROUND OF THE PRO PROGRA 
Creation of the PRO program. 
First Scope of Work (1984-1986) . 

Second Scope of Work (1986-1988). . . 

COBRA And OBRA 1986 Provisions. 

visibility and Vulnerability of the PRO Program.

Administration and Oversight of the PRO Program. 
The Pros I Quality Review and Intervention Procedures. 

The Sanction Process. . 

FINDINGS 
. . 10

Sanction referral authority strengthens the PROs 

ability to carry out their overall mission.  . 10

There is considerable variation among PROs in the 
number, quality, and type of sanction recommendations 
. . 12

referred. 
I sanction referral authority is the most

The PROs 
controversial aspect of their responsibilities.  . . 13

The current sanction process appears to have serious

flaws that undermine its effectiveness.  . " . 14

I process for
Most respondents thought that the PROs 
identifying quality of care problems is free from

systemic bias against rural physicians and providers.  . . 18

RECOMMENDATIONS . . 19

APPENDIX I
ENDNOTES.
APPENDIX II

BACKGROUND OF THE PRO INSPECTION. 
 . . 23

APPENDIX III

METHODOLOGICAL NOTES. 
 . 26

APPENDIX IV
SUMY 
OF PRO-RELATED STUDIES
 . . 31

APPENDIX V

THE PROS WITH MORE THAN ONE CONTRACT. . 
 . 34
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...   .....     .....     ....    .....     ......      .....     .......       .......       ......      .......       .....     .....     .......       ....    ....    .......       ....    
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"P._._ 
APPENDIX vt 
COMPARISON OF 1984 SCOPE OF WORK TO 1986 
SCOPE OF WORK. . 
. 35 
APPENDIX VII 
SANCTION PROCEDURES FOR CASES OF GROSS AND FLAGRANT 
AND SUBSTANTIAL NUBER OF SUBSTANTIAL VIOLATIONS. 
. 37 
APPENDIX VIII 
SUMRY OF RECENT PRO-RELATED 
LEGISLATIVE PROVISIONS. .  . . 40 
APPENDIX IX
MEMORABLE "PRO-ISMS" . 45 
APPENDIX X 
REVISED PRO SANCTION PROCEDURES. 
APPENDIX XI
INTRODUACTI-ODN . . . 52 
TABLES  . . : 53 
APPENDIX XII 
COMMENTS ON OIG DRAFT REPORT AND OIG RESPONSE TO 
COMMENTS. .  EXECUTIVE SUMRY 
PURPOSE AND OBJECTIVES: 
This is the second in a series of inspection reports assessing 
the performance of the Utilization and Quality Control Peer 
Review Organization (PRO) program. The purpose of this PRO
inspection is to promote a better understanding of the PROs 
mission and activities. The PROs' sanction authority is an
essential element of their mission to protect Medicare 
beneficiaries from abuse and substandard care. This report
focuses on a review of those activities within the context of the 
PROs ' overall quality assurance efforts. 
BACKGROUND 
The inspection grew out of the Inspector General' s desire to 
obtain a broad perspective on the PROs I performance during their 
second contract period (1986-1988). To that end, we pursued
three primary lines of inquiry: (1) interviews with 211
individuals associated with the PRO program , including all the
PRO Chief Executive Officers (CEOs) and representatives of other
Government, provider and consumer groups associated with the 
PROs , (2) site visits to 12 PROs selected for case study, and 
(3) review of pertinent literature and data bases. 
FINDINGS 
SANCTION REFERRL AUTHORITY STRENGTHENS THE PROS' ABILITY TO 
CARY OUT THEIR OVERALL MISSION. The vast maj ori ty of
respondents from all groups represented in this study 
I sanction authority. 
articulated the importance of the PROs 
Such authority gives the PRO program teeth and its sentinel
effect " 
gets people' s attention.  This facilitates the 
PROs I efforts to correct substandard medical practices 
without actually having to recommend a sanction. The 
majority of respondents also thought that the sanction 
process will be further strengthened by the recent 
procedural changes that grew out of discussions held by the 
Heal th Care Financing Administration (HCFA) and the Office
of Inspector General (OIG) with the American Association of
Retired Persons (AAP) and the 
American Medical Association
(AM). 
Those revised PRO sanction procedures are expected 
to help ensure adequate due process for all physicians and 
prov iders. 
THERE IS CONSIDERABLE VARIATION AMONG PROS IN THE NUBER, 
QUALITY AND TYPE OF SANCTION RECOMMENDATIONS REFERRED. Most 
sanction activity has come from a relatively small number of
PROs. Available data 
and evidence suggest that the level of 
the PROs ' sanction activity may be related to their 
organizational philosophies , quality review systems , and  degrees of association with their local medical societies. 
However, more information is needed before drawing 
conclusions about the reasons for and implications of the 
PROs I variations in sanction activity. 
THE PROS' SANCTION REFERRL AUTHORITY IS THE MOST CONTROVER 
SIAL ASPECT OF THEIR RESPONSIBILITIES. Despi te the rela 
tively small number of sanctions to date, the sanction 
process has engendered heated controversy, widespread 
publicity and extensive congressional attention because it 
pits the economic livelihood and due process rights of 
physicians and providers against the quality of care rights 
of Medicare beneficiaries. 
THE CURRENT SANCTION PROCESS APPEARS TO HAVE SERIOUS FLAWS 
THAT UNDERMINE ITS EFFECTIVENESS. These include: 
I problems in referring acceptable sanction 
the PROs 
recommendations to the OIG which are due in part to 
difficulties in (1) interpreting statutory and 
regulatory definitions and requirements related to
sanctions
, and in (2) providing adequate documentation 
of physicians I or providers I " unwillingness or lack of
ability
" to comply with their obligations under 
section 1156 of the Social Security Act; 
the lack of clarity, consistency, and coordination of 
sanction guidelines and interpretations given to the 
PROs by HCFA and the OIG and by the lack of consistent 
sanction data collected by the two agencies; 
I confusion and conflict inherent in their 
the PROs 
concurrent education and sanction enforcement roles;
and
the current lack of viability of the monetary penalty
as an al ternati ve method of sanctioning a physician or
provider. 
Evidence suggests that  such limitations may have had a 
chilling effect on the PROs I sanction activity over the last 
year.
MOST RESPONDENTS THOUGHT THAT THE PROS I PROCESS FOR 
IDENTIFYING QUALITY OF CAR PROBLEMS IS FREE FROM 
SYSTEMIC BIAS AGAINST RURAL PHYSICIANS AND PROVIDERS. 
Nonetheless, evidence to date seems to suggest that 
rural physicians have been sanctioned at a higher rate 
than those in urban settings. There are several 
possible explanations for such an anomaly, including a 
bias in the PROs' sampling or review methodologies, or 
an inability or unwillingness of rural physicians and  - .
provide-r:  t6 correct substandard medical practices
identified by the PROs. 
The information necessary to
determine why more rural than urban physicians have 
been sanctioned is currently unavailable. 
RECOMMENDATIONS 
In view of the issues raised by this report and by the OIG' 
experience with the sanction process , we offer two sets of
recommendations: one directed to the Department of Health and
Human services (DHHS) in general and the other to HCFA in
particular. 
The Department 
THE DEPARTMENT SHOULD SUBMIT A LEGISLATIVE PROPOSAL TO AMEND 
SECTION 1156 OF THE PRO STATUTE TO STRENGTHEN THE MONETARY 
PENALTY AS AN EFFECTIVE ALTERNATIVE SANCTION. THE LAW 
SHOULD BE AMENDED TO ALLOW FOR AN IMPOSITION OF A MONETARY 
PENALTY OF UP TO $10, 000 PER V!OLATION FOR SUBSTANDARD, 
CAR. 
UNNECESSARY, OR UNECONOMICAL  Currently, the law
provides that only the amount paid the physician or provider 
for rendering the care in question may be recouped as a 
penal ty. This measure would address the PROs' concerns 
related to ensuring that they have a viable sanction measure 
short of exclusion available to them. 
THE DEPARTMENT SHOULD SUBMIT A LEGISLATIVE PROPOSAL TO AMEND 
THE PRO STATUTE TO PROVIDE THAT THE FAILUR OF PHYSICIANS OR 
PROVIDERS TO COMPLY WITH THEIR PATIENT CARE OBLIGATIONS 
UNDER SECTION 1156, IN ITSELF, CONSTITUTES A SUFFICIENT 
BASIS FOR SANCTIONING. THUS, THE SEPARTE REQUIREMENT THAT,
IN ORDER TO BE SANCTIONED, PHYSICIANS OR PROVIDERS MUST 
DEMONSTRATE AN "UNWILLINGNESS OR LACK OF ABILITY" TO COMPLY 
SUBSTANTIALLY WITH THEIR OBLIGATIONS TO MEDICAR 
BENEFICIARIES SHOULD BE DELETED. This change would
eliminate the confusion over what constitutes "unwilling or
unable. " 
THE OFFICE OF INSPECTOR GENERAL WILL PROPOSE A REGULATORY 
CHAGE TO CLAIFY THE PROFESSIONALLY-RECOGNIZED STANDARDS OF 
HEALTH CARE TO WHICH PHYSICIANS AND PROVIDERS AR 
EXPECTED 
TO CONFORM. Such a change would help eliminate the
confusion of some PROs and administrative law judges 
concerning what constitutes health care that meets
professionally-
recognized standards which physicians and 
providers are obligated to uphold. 
iii  . .
The HCFA
THE HCFA SHOULD EXPLORE AND DOCUMENT THE REASONS FOR THE
CONSIDERABLE VARIATION IN SANCTION ACTIVITY AMONG THE PROS.
Such efforts should clarify what, if any, impact such varia 
tions have on the PROs I protection of Medicare benefi 
ciaries. As part of that effort, HCFA should carefully
examine the impact of enacting Section 4095 of the 1987
Omnibus Budget Reconciliation Act (OBRA) that requires pre-
exclusion hearings for physicians or providers "located in a
. rural health manpower shortage area (HMSA) or in a county
with a population of less than 70, 000.  Our study suggests
that enactment of this OBRA 1987 provision may further
inhibi t the PROs from making sanction referrals to the OIG
due to the added complexity and delay it brings to the
sanction process.
THE HCFA SHOULD EXPLORE AND DOCUMENT THE REASONS FOR THE
APPARENT HIGHER RATE OF SANCTION RECOMMENDATIONS PERTAINING
TO PHYSICIANS PRACTICING IN RURAL VERSUS URBAN SETTINGS. 
PART OF THIS EFFORT, HCFA SHOULD STUDY PRO REVIEW PROCEDURES
TO ENSURE THAT SANCTIONABLE ACTIVITIES BY URBAN PHYSICIANS
WH 
ARE BEING IDENTIFIED  APPROPRIATE. These actions by
HCFA will help clarify whether physicians practicing in
rural areas have greater problems effectively addressing 
quality problems through corrective actions or whether the
system for identifying such physicians is somehow biased
against them. INTRODUCTION 
The Office of Inspector General (OIG) has recently completed an 
inspection of the Utilization and Quality Control Peer Review
Organization 
(PRO) program. The primary purpose of this broad-
based study was to assess PRO performance and to promote a better 
understanding of the PROs' mission and activities. To that end
the study focused on the following factors: 
the implications of the changes in the PROs I scope of 
work from the first to second contract period; 
the major differences in perception among the PROs and 
other entities (e. g. , health providers, consumers 
Government officials, public interest advocates) 
regarding the PROs' mission and performance; 
the significant variations that exist among PROs in 
carrying out their scope of work responsibilities; 
the PRO practices that appeared to be exemplary;  and 
the potential weaknesses or vulnerabilities of the 
program. 
(See appendix II for a more detailed explanation of the back-
ground for this inspection. 
In the course of this OIG inspection of PRO performance, we 
conducted in-depth interviews with a wide range of individuals 
associated with the PRO program , including all PRO chief execu 
ti ve officers 
(CEOs), and a sample of other PRO staff , as well as 
national and local external entities. We visited 12 of the 44 
PROs who are conducting reviews in 16 of the 54 PRO jurisdic 
tions: California , Colorado, Florida, Georgia, Indiana, Iowa
Massachusetts 
, New York, Oregon, Rhode Island , Texas , and West 
Virginia (for the Delaware PRO area). We created a computer file 
to store and sort information gathered from our interviews. 
addition to this primary data, we collected and analyzed PRO-
related performance data from HCFA and other entities. (See 
appendix III for a more detailed description of our methodology. 
Because the PROs' sanction activities are central to the protec 
tion of Medicare beneficiaries , this inspection included a review 
of those activities within the context of the PROs' overall 
quality assurance efforts. This report focuses on the processes 
followed by the PROs and the OIG to sanction physicians or 
providers who fail to meet their patient care obligations under 
section 1156 of the Social Security Act. 
This report is the second in a series of three reports of our 
inspection findings. The first report focused on the PROs  ---. '--
quality review activities  . That report noted that such quality

review activities are central to the PROs I mission but have some

operational problems that limit their effectiveness. To address
some of those problems, we recommended that HCFA refine the 
generic quality screens and encourage the PROs to expand their

outreach efforts to Medicare beneficiaries and to have closer

coordination with other health care entities, particularly State

medical licensure boards.

A subsequent report of this PRO inspection will focus on an

overview of PRO performance, including a discussion of PRO

effectiveness and of HCFA' s oversight of the program.

BACKGROUND OF THE PRO PROGRA 
Creation of the PRO Proqram

The Utilization and Quality Control Peer Review Organization 
(PRO) program was created by the Peer Review Improvement Act of
1982 , TitIe I, Subtitle C of the Tax Equity and Fiscal Respon
sibility Act of 1982, Public Law 97-248. 
Peer Review Organizations 
(PROs) succeeded Professional Standards

Review Organizations (PSROs) in the provision of Medicare peer

review. The PSRO program had been established by Congress (in

Part B of Title XI of the Social Security Act) in 1972 to ensure

that health care services provided under the Medicare
, the

Medicaid, and the Maternal and Child Health and Crippled

Children I s programs were " 
medically necessary, conformed to
appropriate professional standards
, and were delivered in the
most efficient and economical manner possible. ,,2 The PSRO

program was a response to increasing Medicare and Medicaid costs

and the failure of existing utilization and claims review

mechanisms to deal with widespread inappropriate usage of health

care services. 
The congressional rationale for replacing the PSRO program with 
the PRO concept was based on the fact that the PSRO program had 
"been faced with certain structural problems: 
too detailed specification in laws  overregulation and
(had) restricted innovation in
new approaches to review. ,,3 
The PRO legislation emphasized greater accountability by requir

ing PROs to have performance-based contracts with specific

measurable objectives. The PRO legislation shortly preceded the

Prospective Payment System (PPS) legislation and the PROs were

expected to address concerns about the potential negative

incentives of the PPS for increases in hospitalizations and

reductions in the quality of care provided to Medicare

beneficiaries. 
Compared with former cost-reimbursement systems 
PPS gave hospitals much stronger incentives to increase Medicare  payments by increasing their numer of 
admissions and to reduce
costs by limiting services or discharging patients earlier.
Hence , the PROs were charged with monitoring the system to
protect against potential provider abuses such as unnecessary 
admissions, substandard care, and premature discharge. 
The Secretary of the Department of Health and Human Services 
(HHS) was mandated legislatively to enter into PRO contracts with
physician sponsored" or " 
physician-access" organizations. A
physician-
sponsored organization is composed of a substantial
number of physicians in the review area and is representative of 
those physicians. A 
physician-access organization has an
adequate number of available physicians practicing medicine or 
surgery in the review area. 
First Scope of Work (1984-19861 
The ,PRO program was implemented in 54 States and territories
through 2-year, fixed-price contracts with "
peer review
organizations. 
Each of the 50 States, the District of Columbia,
Puerto Rico, and the Virgin Islands was designated as a separate 
PRO area. Guam, American Samoa 
, the Northern Mariana Islands, and
the Trust Territory of the Pacific Islands were designated a 
single PRO area. 
The first contracts , which became effective over a 5-
month period
from July to November 1984 
, emphasized detection of inappropriate
utilization and payments under the new PPS system. 
To that end,
contract goals included reducing unnecessary admissions 
, ensuring
that payment rates matched the diagnostic and procedural 
information contained in patient records 
, and reviewing patients
transferred or readmitted wi thin 7 days of discharge to determine
whether readmission was for the same condition as the first 
hospital visit. In 
addition, each PRO contract included at least
five objectives: reducing unnecessary readmissions because of
substandard care during the prior admission, ensuring the 
provision of medical services critical to avoidance of 
unnecessary patient complications 
, reducing unnecessary surgery
or other invasive procedures, reducing the risk of mortality, and 
reducing avoidable postoperative or other complications. 
The
PROs were also expected to develop and analyze Medicare patient 
data to identify instances and patterns of poor quality. 
When the PROs identified problems with given physicians or
hospitals 
, they were expected to address those problems through
education and consultation, intensified review, or denial of 
payment for care that was not reasonable or was provided in an 
inappropriate setting. The PROs were also 
authorized to recom 
mend the sanction of physicians or providers in cases of a 
substantial violation" in a "substantial numer of cases" or a
gross and flagrant" violation even in a single case. 
Such cases
were referred to the Inspector General' 
s Office for review and  sanction determination; 
(A further discussion of the sanction

process appears later in this background.

Second Scope of Work (1986-1988\
During the first contract period, several entities, including the

General Accounting Office (GAO), the Inspector General of the

Department of Health and Human Services, and the Rand

Corporation, studied the PROs' performance and recommended that

their quality review be strengthened. 
(See appendix IV for a

summary of PRO-related studies.  In response to these findings

and general pressure from within and outside of the Department,

HCFA strengthened the quality review requirements in the second 
PRO contracts which began in July 1986. In those new contracts,
the 44 PROs that were responsible for review in the 54 PRO areas

(see appendix V for a summary of PROs with more than one

contract) had the  following requirements:

ithin
review of readmissions to the same hospital 
15 days;

review of a sample of discharges to assess whether

there was evidence of premature discharge or transfer;

review of hospitals with unexplained statistica

outliers in the PRO data on high mortality rates or

utilization patterns;

application of a standard set of quality-related

criteria (called generic quality screens) to all cases

selected for PRO review. These six generic quality

screens included: adequacy of discharge planning,

medical stability of patient at discharge, deaths

nosocomial infection, unscheduled return to surgery,

and trauma suffered in the hospital;

special review of short hospital stays; and

development and implementation of community

outreach programs.

Thus, the second scope of work intensified the PROs' review

requirements. In addition to 
generic quality screens, all

records selected for retrospective review for any reason were

also subj ected to admission review, DRG validation, coverage

review, and discharge review.

The Senate Finance Committee staff in a background paper,

I s Prospective 
Quality and Access to Health Care Under Medicare 
Payment System " noted that "these changes in the PRO review 
effort were designed to increase detection of premature dischar

ges; to improve review of care in the hospital, particularly the
 detection of situations where under-service may impact the 
quality of patient cases; and to improve the patients' under-
standing regarding their rights and appeals under the system. 
,,4 
(See appendix VI for a sumary of the differences 
between the
first and second scopes of work. 
COBRA and OBRA 1986 Provisions: 
The PROs' responsibilities were substantially increased through 
provisions of the Consolidated Omnibus Budget Reconciliation Act
of 1985 (P. 
L. . 99-272, commonly referred to as 
COBRA) and the
Omnibus Budget Reconciliation Act of 1986 (P. 
L. 99-509, commonly
referred to as OBRA 1986). The COBRA legislation 
required the
implementation of preadmission review for 10 surgical procedures 
and preprocedure review of any cases involving assistants at
cataract surgery. It also 
gave PROs the authority to deny
payment for quality of care concerns, with the expectation that 
this authority would complement rather than conflict with the 
PROs' sanction authority. The OBRA 1986 
legislation extended the
PROs ' review from only inpatient hospital settings to ambulatory 
and posthospital settings. Over the next 
several years , the PROs
will be expected to review care delivered in hospital outpatient 
departments, ambulatory surgical centers, skilled nursing
facilities 
, home health settings, and doctors' offices.
addition 
, in certain states, PROs are performing 
qulity review
of health maintenance organizations (HMOs) and competi ti ve
medical plans (CMPs). 
(See appendix VIII for a sumary of 
COBRA
and OBRA 1986 provisions. 
Visibilitv and Vulnerabilitv of the PRO Proqram 
As reflected in the legislative history, the scope of the PRO 
program significantly expanded after its inception. That 
expansion has been accompanied by extensive scrutiny from many 
oversight entities within Government and from proviner and 
consumer groups outside Government. To date, 
Congress has held
eight hearings related to the PRO program and numerous research 
and oversight entities have conducted PRO-
related evaluations.
(See appendix IV. 
The complex identity and inherent vulnerability of the PROs were 
summed up by one PRO spokesman: 
"It is clear from my vantage point that PROs are 
quickly becoming all things to all people... The
Inspector General of the Department of Health and Human 
Services is searching vigorously for a pOlicema of the
marketplace. The Executive Office of Managemen and
BUdget is looking hard for cost containment services 
particularly to hold the line on Medicare admissions. 
The Medicare beneficiary community earnestly desires a  protector of qual ty as the incentives of diagnosis
related group (DRG) payment and capitated arrangements
invi te under-
service. Heal th care consumers seek ready
access to the information that review activities can 
generate. How else will a competitive market place
work? 
Local practicing physicians remain wedded to a
responsibility to monitor and evaluate their own 
practice behavior. All this and 
more for one fifth of
1 percent of the Medicare hospital trust fund (the PRO 
budget for a single year)... Can there be any doubt 
that PROs will surely fail on someone' 
s scorecard?,,5 
Administration and Oversiqht of the PRO Proqram 
The Health Care Financing Administration 
(HCFA) is responsible
for administering and overseeing the PRO program through its 
Office of Medical Review in the Health Standards and Quality
Bureau 
(HSQB). These functions are 
shared by central and
regional office staff. The former 
group is responsible for
establishing the operational and evaluation policies and 
mechanisms for the program and for negotiating the PRO contracts. 
The latter group is responsible for implementing program require 
ments and providing regular oversight and technical assistance to
the PROs in their respective regions. 
since the inception of the PRO program, both HHS and HCFA
leadership have changed. In 
response to substantial concerns
raised about their predecessors I management of the program, the 
Secretary of HHS and the Administrator of HCFA have met periodi 
cally since 1986 with physician, hospital, consumer, and PRO 
representatives to hear their concerns about and suggestions for 
improving the PRO program. 
In response to those meetings, a "PRO
action plan" has been developed to improve both HCFA' 
s management
of the program and the PROs I performance and effectiveness. 
The
action plan has served as a resource for HCFA in its ongoing 
efforts to strengthen the PRO prog 
am. 
The HCFA has faced numerous challenges in overseeing the PRO 
program. Like the PROs , HCFA has responded to competing expecta 
tions from within and outside the Government. 
For instance, HCFA
has juggled pressures to make the PROs accountable for quantifi 
able outputs with those to give the PROs the proper flexibility 
to carry out their mission in an efficient and effective manner. 
In addition, HCFA has had to balance the expectation that 
addi tional PRO provisions (such as COBRA and OBRA) would be
implemented quickly with the pressures to follow formal mechan 
isms. All the 
while allowances had to be made for the limita 
tions of available quality review technology. 
The HCFA has also
had to juggle its mandates to carry out congressional intent for 
the PRO program and to operate within the  pportioned funding
levels prescribed by the Executive Office of Management and  Budget. A more detailed description of HCFA' s role in the PRO 
program will be included in our next inspection report. 
The PROs , Oualitv Review and Intervention Procedures 
As part of their ongoing quality assurance efforts, the PROs draw 
a sample of hospital records for a review of both quality and 
utilization elements. Those records are reviewed on a case-by-
case basis , using six HCFA-generated generic quality screens and
discharge criteria, as well as PRO-specific screens. The PROs 
employ nurse reviewers, or other health care professionals, to 
perform the initial review of records. They refer any potential
quali ty cases to physician reviewers for final determination. 
The PROs also identify potential quality problems though
profiling, 
" in which they use their data system to identify 
patterns of inappropriate care. 
Once the PROs have determined that a quality proble  exists,  they
are required to initiate corrective action which may include the 
following: intensified review , alternate timing of review
education 
, and sanctions. 
Intensified review involves sampling a larger percentage of a 
I s or provider' 
particular physician  s records (often 100 percent)
in the subsequent quarter to verify whether or not the identified 
problem has continued. Intensified review may also be used after
contact with the physician to ensure that the particular problem
has been corrected. 
Although most PRO review is done on a retrospective basis , the
PRO may choose to alter the timing of that review to address
particular problems. For 
instance, if a particular physician has
a large number of unnecessary admissions, the PRO might initiate 
preadmission review of the physician' s patients. 
The PRO may also require that a doctor enroll in continuing 
medical education. This could include the physician' staking
specialized courses or possibly retaining a physician consultant 
to review his or her cases. 
If the PRO determines that corrective action has failed to 
address the quality problem adequately, the PRO is exected to
recommend the physician or provider for sanction. 
The Sanction Process 
The Secretary of Health and Human Services is authorized to 
impose sanctions on Medicare-reimbursed physicians or providers 
substantially"
if they have " grossly and flagrantly" violated or " 
failed in a " 
substantial number of cases" to comply with their 
statutory obligations to provide (1) services which are provided 
economically and only when, and to the extent they are medically  necessary, " (2) services that are " 
of a quality which meets
professionally recognized standards of health care, 
" and 
(3)
services that are properly documented. 
The Secretary may impose
one of two sanctions: (1) a monetary penalty for no more than
the " 
actual or estimated cost of the medically improper or 
unnecessary services so provided" or 
(2) exclusion from the
Medicare program for a specified period of time. (For detailed
sanction provisions, see 42 U.  C. Sec. 1320C-5. 
The PRO must provide the practitioner or provider with

reasonable notice and opportunity for discussion" before making

its recommendation to the Secretary. Under 
the regulations,

(42 CFR part 1004) the provider or practitioner is entitled to an

opportunity to submit additional information and/or meet with the

PRO to discuss an allegation of "gross and flagrant" viola

tion(s). with an allegation of " 
substantial" violations, the 
physician or provider is entitled to submit additional informa
tion and to receive two notices of potential violation and two
opportunities to meet with the PRO. 
In either case, if the PRO
recommends the imposition of a sanction, the physician or

provider must be given 30 days' notice and an additional

opportunity to submit written comments to the Secretary.

The Secretary has delegated the authority for sanction determina

tions to the Office of Inspector General (OIG). Upon receipt of

the PRO' s sanction recommendation, the Inspector General must

determine whether he agrees with the recommendation and whether

the physician or provider has "demonstrated an unwillingness or 
lack of ability substantially to comply with statutory obliga
tions. " The Inspector General may accept , rej ect, or modify the
sanction recommendation forwarded by a PRO. 
In cases where the 
PRO has recommended exclusion, the OIG must act on that recommen
dation within 120 days or the exclusion automatically goes into

effect pending final determination by the OIG.

Within the Office of Inspector General, the Office of Investiga

tions is responsible for processing and reviewing each PRO

sanction referral. I f the OIG accepts the PRO' s recommendation,

the sanction goes into effect 15 days upon the relevant physi

cian' 
s or provider' s receipt of the OIG sanction notification. 
The physician or provider may appeal the sanction to an ad
ministrative law judge  de novo hearing
to review the facts of t(AhLJ)e, wh oc wiall csondeuct. a  
If dissatisfied with that 
appeal, the sanctioned party may then appeal to the Secretary I s 
n court. 
Appeals Council and may thereafter seek judicial review 

(See appendix VII for a detailed description of the process for 
addressing a case of "gross and flagrant violation" versus a case
of " 
substantial number of substantial violations. 
The peer review statute and implementing regulations related to 
the sanction process have attempted to balance, the competing
priorities to protect both the rights of Medicare beneficiaries  to receive high-
quality care and the rights of physirians and

providers to receive adequate due process. 
That delicate balance,

has meant that although a physician or provider has had an 
opportunity to have at least two administrative entities (the PRO 
and the OIG) review a case prior to the imposition of a sanction, 
the process has deferred a full evidentiary hearing 
 til after

the sanction has been imposed. 

The PROs' sanction procedures have precipitated ongoing debate 
among all parties associated with the PRO program. Organized
medicine has argued vociferously that the PROs should provide
physicians and providers with stronger due process protection. 
In response to such concerns, HCFA and the OIG held discussions

last spring with the American Association of Retired Persons

(AAP) and the 
American Medical Association (AM) ana developed
certain sanction procedures that were incorporated i 
o HCFA' s 
PRO Manual. (See appendix X for a copy of the revised PRO

sanction procedures.  The new PRO sanction instructions

strengthened PRO notice procedures, clarified the role of an

attorney for the physician or provider at the PRO discussions

ensured that physicians or providers would be provided records of

the PRO proceedings , and permitted expert witnesses to provide

relevant medical evidence at the PRO discussions with the

physician or provider. 
Over the last year, both organized medicine and Medicare benefi
ciaries from some affected communities have also argud that the
sanction process has adversely affected rural communi 
ies since

sanctioned physicians and providers have been excluded from the

Medicare program pending their ALJ hearings. 
Such ccncerns led

to a recent legislatively mandated requirement (SectiDn 4095 of
the Omnibus Budget Reconciliation Act of 1987 
, P. L. 1100-203 
commonly referred to as OBRA 1987) for ALJ review prier to the

imposition of an exclusion for any physician or provider who is
practicing in a " 
rural health manpower shortage area" 
(HMSA) or
in a county with a population of 70, 000 or less, unless it is 
determineCi that the physician or provider poses a "se:ious risk" 
to Medicare beneficiaries. In addition, Congress has directed
the Secretary of HHS to conduct a year-end study of hew the 
PROs'
new standardized due process procedures have impacted the PRO

program. 
Like other aspects of the PRO program
ocess has

, the sanction 
been dynamic--changing as the PROs, the HCFA
, and the OIG have

gained more experience and as particular groups have highlighted

its ambiguities and vulnerabilities. 
In addition to the afore-

mentioned changes, the OIG has recently proposed changs in the
current statutory fornla for
use of monetary penal ties. The 
th 
assessing monetary penal 
ties is outdated given that 
PROs I 
sanction provisions were enacted prior to the advent of the 
prospective payment system (PPS). For example, under PPS, it is
almost impossible to determine what Medicare Part A casts are for  ties 
improper or unnecessary care. Hence, the monetary penal 
imposed have generally been based on only Medicare Part B costs 
44. In 
and have resulted in amounts as low as $65. response to
that problem, the OIG issued a technical memorandum to all the 
PROs in July 1987 highlighting the lack of cost-effectiveness of
monetary penalties and suggesting new guidelines for forwarding

such recommendations to the OIG. In addition, the OIG submitted

a legislative proposal to the Department in the Fiscal Year 1989

legislative process to modify the current monetary penalty

provisions so that a penalty of up to $10, 000 would be set for

each instance in which medically improper or unnecessary health

care services were provided.

As of December 31, 1987 , the OIG had received 151 referrals from

38 of the 54 PRO areas. The status of those cases is as follows:

exclusions (60 physicians and 1 facility)

monetary penalties (24 physicians and 2

facilities) 
physician retired 
physicians expired
rej ections by the 
OIG 
cases still pending

A more thorough discussion of sanction issues and statistics

follows in the "Findings" section of this report.

FINDINGS 
Sanction referral authori tv strenqthens the PROs' abili 
tv to

carrv out their overall mission

The vast majority (87 percent) of the 154 respondents who were 
asked to comment on the PROs ' sanction authority thought that it 
strengthened the PROs' ability to carry out their mission. (See
figure I. 
) As one national external entity representative noted 
"It is a club that gets people' s attention. Most individuals are 
good candidates for educational peer review, but you have to have

a powerful weapon for the outliers.
 FIGURET
PERCEPTIONS OF THE EFFECT OF PROS' SANCTION 
AUTHORITY ON PROS' ABILITY TO PERFORM MISSION 
STRE  ENS= 87% 
WEAKENS= 2% 
HAS NO EFFECT= 7% 
DO NOT KNOW= 3% 
ote: N =, 54 respondents. 
Source; GIG Inspection Interviews 
It is worth noting that during our extensive interviews , none of 
the PRO CEOs flaunted their sanction statistics. In fact, most 
of them view sanctions as a step of last resort when other 
measures have failed. In addition, many of them mentioned that 
sanction authority gives the program teeth and that its sentinel
effect " 
gets people' s attention " thereby facilitating the PROs' 
efforts to correct substandard medical practices without actually 
hav ing to recommend sanctions. 
Approximately two-thirds of the PRO CEOs , and a corresponding 
percentage of other groups interviewed , thought that the revised 
PRO sanction procedures that grew out of discussions held by HCFA 
and the OIG with the AM and AAP would strengthen the sanction
process by improving cooperation between the PROs and the medical 
community. However , many PRO staff also mentioned that the new 
procedures are cumbersome and simply formalize their preexisting
practices.  There is considerable variation amonq PROs in the number.
qualitv. and tvpe of sanction recommendations referred
Through December 31, 1987 , 35 of the 44 PROs had referred 151
sanction cases to the OIG from 38 of the 54 PRO areas. The OIG
has accepted 87 of those recommendations, rejected 53 of them,
and closed 3 cases because of physician death or retirement; 
eight cases are still pending. Our analysis of the distribution
of sanction cases across PRO areas reflects that most sanction
activity has come from a relatively small number of areas.
fact 
, 30 percent of the 54 PRO areas have made no sanction 
referrals to the OIG, and 44 percent of them have had no sanc 
tions imposed by the OIG. (See figure II. For detailed a)n aIltyses 
of sanction activity for each PRO area, see appendix XI. 
I S data 
worth noting that we attempted to use HCFA  report on 
sanctions for our analysis. However, that report only included
sanction activity within the PROs' second contract period and
reflected inconsistencies with data obtained from the OIG' 
Office of Investigations. Therefore, in order to be consistent
in our various analyses related to sanctions, we relied on data
obtained from OIGjOI.
FIGURE II

SANCTION REFERRALS FROM 54 PRO AREAS TO
OFFICE OF INSPECTOR GENERAL, 1985-1987
NUM8ER OF SANCTION REFERRA
E: THAN 9 
6_2
:=-5 
NUMBER OF PRO AREAS
Source: OIG/ Office of Investigations. 
' dif 
The maj or reasons cited by the respondents for the PROs 
ferences in sanction activity included (in descending 
order of frequency) the PROs' variations in (1) their interpreta 
tion of when it is appropriate to sanction rather than to provide 
other corrective action, (2) their relative competence as  organizations 
, (3) their relative commitment to and comfort with
having sanctions as a part of their responsibilities, and 
(4) their reticence versus their aggressiveness as organizations. 
Our analysis of the interview responses, the quality review 
procedures and the sanction activity levels of our 12 case study 
sites suggests that the following factors may have contributed to 
stronger sanction records: 
an organizational philosophy of " patient advocacy" 
a relatively straightforward and minimally layered 
quality review process; 
an organizational consensus about sanction-related
definitions ; 
a degree of relative independence from the local 
medical society; and 
a relatively large geographic area. 
However , a more in-depth review of the factors 
affecting the
PROs I variation in sanction activity is needed before any
definitive conclusions can be drawn. 
I sanction referral authori 
The PROs  tv is the most controversial 
aspect of their responsibilities 
Given that approximately half a million physicians are involved 
in the Medicare program and that we are living in a time of 
increased quality assurance accountability, the level of sanction 
activity associated with the PRO program seems modest. 
In fact
several PRO areas with relatively large numers of physicians
show no sanction activity. (See appendix XI, table B.  Further-
more, according to recent congressional testimony, eight of the 
areas with no Medicare physician sanctions also have shown the 
lowest level of disci linary actions taken by their respective
State medical boards. 
Al though the 
number of sanctions have been relatively low 
, they
have engendered heated controversy, widespread publ ici ty. 
and
extensive congressional attention. Numerous newspapers (includ 
) 9 have written front-
ing  The New York Times  page stories about
PRO sanctions and several government 
, PRO , provider and consumer
spokespersons have provided impassioned congressional testimony 
about the sanction process. 
The sanction process is controversial because it embodies the 
inherent conflicts associated with the PROs' mandates to be "all
"lO More 
things to all people.  specifically, the process pits the
economic livelihood and due process rights of physicians and  providers 
against the quality of care rights of Medicare 
their
beneficiaries and forces the PROs to simultaneously balance 
educating and enforcing roles. 
Several PRO CEOs voiced frustration about the disproportionate 
share of public attention that their sanction activities receive 
compared with their myriad other quality intervention efforts. 
Our discussions with various national and local external entities 
reinforced that little information about the PROs' quality 
intervention efforts reaches the pUblic s attention. To address 
this concern , our recent report on the PROs' quality review 
activities recommended that HCFA "develop and widely disseminate 
information on the full range of educational corrective actions 
i ty of care problems. " 11 
being taken by the PROs to address qual 
The current sanction process appears to have serious flaws that 
undermine its effectiveness. 
Sixty- other 
eight percent of the PRO CEOs and a similar level of 
respondents thought that the current sanction process has
problems. 
(See figure III. 
FIGURE III
PERCEPTIO  S OF SANCTION PROCESS
f' PRO CHIEF EXECUTIVE
IL 
OFFICERS (CEOS) 
CASE STUDY PRO STAFF 
PROB  ::MS ::XIST 
AI-ID BOARD MEMBERS 
00 HCFA REGIONAl AND 
CENTRAl OFFICE STAFF 
17 
NATIONAL EXTERNAL 
1':0 PROBLEMS exiST 
ENTITIES 
f0 LOCAL EXTERNAL 
ENTITIES 
TOTAl FOR ALL 
DO NOT KNOW  RESPONDENTS 
100 
PERCENTAGE OF CATEGORY RESPONDING 
Note: N= 196 respondents. 
Soure e: OIG Inspee tion Interviews,  A majority (59 percent) of the PRO CEOs noted difficulty in
hen it is appropriate to sanction a given physician
determining 
or provider. Other major issues cited by the PROs (in descending
order of frequency) were as follows: 
the difficulty in interpreting the statutory and 
regulatory definitions of "gross and flagrant, 
" and
substantial number of substantial violations" 
the difficulty in understanding what support documenta 
tion is necessary to establish that a physician or
provider is " 
unwilling or unable" to change; 
the confusion over the appropriate method of handling 
gross and flagrant violation" 
one case of "
the lack of clarity, consistency, and coordination of 
sanction guidelines and interpretations given to the 
PROs by HCFA and the OIG; 
the lack of clarity about the appropriate conditions 
for recommending a monetary penalty, given the OIG I S 
recent determination that monetary penalties are often 
not cost-effective. The PROs, HCFA, and national
external entities all voiced a strong desire for an 
intermediate measure short of exclusion to be incor 
porated into the sanction process. However 
, no
consensus existed' about the appropriate guidelines for
penalty (i. e., 
impos ing such a  whether it is ap 
propriate to is!Sue a monetary "traffic ticket" for 
quali ty issues or just for fraudulent practices) 
the frustration related to the OIG overturning a
significant 
(37) percent of their sanction
recommendations; 
the frustrations related to the " 
cumbersomeness" of the 
I perceived 
due process procedures , including the PROs 
lack of preparation for and adequate representation at
administrative law judge 
(ALJ) hearings 
, and the
extensive time lag (average of 15 months) between the 
PROs' initial sanction referrals to the OIG and the
ALJs' appeal determinations; 
the lack of timely and adequate payment to the PROs for 
sanction-related work; 
the confusion and conflict inherent in their concurrent 
education and sanction enforcement roles;  . .
' ,
, .
. -
. . .. . . . . .
the confusion over their ability to share sanction and 
quality intervention information with other review
entities (i. 
e., state medical boards , hospital quality 
assurance committees , etc. ) given the confidentiality 
requirements of the Social Security Act , and 
the limited medical review provided by the OIG in its 
evaluation of PRO sanction referrals. 
The aforementioned issues were also raised by the other groups 
interviewed, although the frequency with which these issues were 
mentioned varied among the groups. The HCFA respondents focused
most on the def ini tional concerns 
, the lack of coordination 
between HCFA and the OIG, and the cumbersomeness of the due
process sanction procedures. The national and local external 
' confidentiality
enti ties focused most on concerns about the PROs 
restrictions and on definitional concerns. 
They were the only 
groups who voiced considerable concern about what they perceived
' be a lack of 
adequate due process in the sanction process. 
I confusion about their conf iden
In part, to address the PROs 
tiality requirements, our recent report on the PROs ' quality
review activities recommended that HCFA clarify those restric 
physician 
tions and require the PROs to report instances of " 
,,12 
misconduct or incompetence to State medical licensure boards. 
The myriad limitations of the current sanction process may have 
influenced its use. Over the last year, the PROs ' overall 
sanction referrals have decreased due , in large part, to the 
prev iously more active PROs submitting fewer sanction referrals.
(See figure IV. 
For a detailed breakout of sanction activity for 
1985 , 1986, and 1987 , by PRO area , see appendix XI , table C. 
FIGURE IV
SANCTION REFERRALS TO OIG , REJECTIONS AND
ACCEPTANCES BY OIG IN 1985 , 1986 AND 1987

NUMBER OF" SANCTIONS 
REFERRED TO DIG 
NUMBER OF SANCTIONS 
ACCEPTED BY DIG 
0.. 
----D'--
NUMBER OF' SANCTIONS 
REJECTED BY DIG 
-8--
1985 1986 
1987 
YEAR
Source: OIGI Office of Investigations
Nole: ('ghl cases referred in '987 ort! still 
pendmg decision in the OlG  The reduction in PRO referrals may mean that the PROs are 
successfully addressing all quality problems through the educa 
tional process. 
However, it may also reflect that because of the
enormous financial and political costs PROs must endure to 
sanction a physician that they have simply concluded that the 
juice just isn't worth the squeeze. 
In addition to fewer PRO referrals 
, as reflected in figure IV
the OIG' s rej ection of PRO cases has increased substantially over
time. Our Office of Investigations' analysis of the 53 rejec 
tions as of December 31, 1987 reflects the following reasons for
such action: 
cases rej ected 
because the PRO had failed to 
provide adequate information related to
physicians' or providers' " 
unwillingness 
" or
"inability" to meet their obligations under 
Section l156 of the Social Security Act 
cases rejected because the PRO had failed to 
provide adequate medical evidence to support its 
recommendation, and 
cases rej ected 
because the PRO had failed to 
follow proper regulatory procedures for sanctions 
(as outlined in appendix VII) 
If limitations of the sanction process have had a chilling effect 
on sanction activity, two recent developments are likely to 
exacerbate that effect. 
First, several ALJ decisions rendered
over the last year have either reversed or limited the sanctions 
imposed by the OIG. 
However, in a number of these cases, the OIG
is appealing those decisions to the Departmental Appeals 
Council.
Second , OBRA 1987 includes a provision requiring ALJ review prior
to exclusion from Medicare for any physician or provider located 
in a rural health manpower shortage area 
(HMSA) or in a county of.
less than 70 000 population. This provision 
dictates that such a
physician or provider cannot be excluded without an opportunity 
to request a preliminary hearing to determine whether that
physician' 
s or provider' s continued participation would place
beneficiaries at risk. The preliminary 
hearing will be to
determine the basis of the risk to patients. 
prevails  If the OIG
, the exclusion will be effectuated and remain in effect
during the course of the appeal. 
If the physician or provider
prevails 
, the exclusion will be stayed until a decision is
rendered by the ALJ. Because an 
ALJ decision takes an average of
10 months from the time the case is forwarded to the ALJ by the 
OIG , this policy change is likely to intensify the PROs 
frustrations with the length of the sanction process and there-
fore may make them less inclined to make sanction referrals.  ..._.,- ..-.
,~._ 
Most res  ondents thou  rocess for  ident i fv inq
ualit  ht that the PROs'  stemic bias  aqainst rural 
roblems is free from s 
of care 
phvsicians and providers 
Sixty-three percent of the 185 respondents saw no bias in the 
' process for identifying quality of care problems. 
PROs 
greater percentage of the PRO CEOs and staff found the system to

be free from rural bias. They believe that any dispro

portionately greater sanctioning of rural physicians results both

from the PROs ' application of one standard of care to all

physicians and providers and from the greater isolation of rural 
physicians from informal and formal quality assurance mechanisms
(i. 
, exchange with fellow physicians and active hospital
quality assurance committees). (See figure v. 
FIGURE V

PERCEPTIONS OF BIAS AGAINST RURAL PHYSICIANS 
AND PROVIDERS IN PRO QUALITY REVIEW PROCESS 
U:'-3!L.SED REVIEW--63%  DO NOT KNOW--13% 
BIASED REVIEW--24% 
I-Jot-e: N=185 respondents. 
Source: DIG Inspection Interviews. 
Those respondents (24 percent) who did think the system is biased 
against rural physicians and providers generally attributed that 
I 3 percent sampling methodology. They suggested 
bias to the PROs 
that because the 3 percent sample is hospital--rather than
physician--
specific, a physician practicing in a small rural 
hospital is more likely to be reviewed by the PRO than one

practicing in a large urban hospital because hospital discharges

are distributed among fewer physicians. However, HCFA has
 reviewed the sampling methodology and has concluded that it is 
free from bias. 
Al though there 
have been too few sanctions to draw definitive 
conclusions, our analysis of PRO-specific sanction data neverthe 
less suggests that rural physicians have been sanctioned at a
higher rate than urban ones. 
Using the 1980 census data, we
classified all sanctions according to whether the physicians 
addresses fell within Standard Metropolitan Statistical Areas
(SMSAs). Those 
falling within an SMSA were classified as urban
and those falling outside were classified as rural. ' We also
compared the percentage of rural and urban sanctions to the
states I percentages of rural 
and urban physicians. (See
appendix XI, table D. 
The reasons for the greater sanctioning of rural physicians are
unclear. Al 
though HCFA' s instructions to the PROs for drawing a
3 percent random sample seem free from bias 
, perhaps there are
problems with the PROs' application of that methodology. 
On the
other hand perhaps the greater sanctioning of physicians results 
from the fact that physicians in rural areas are more isolated 
and therefore may find it more difficult to correct those 
substandard medical practices identified by the PROs. 
Sanctions are the final step in a long process which includes a
range of possible interventions by the PROs. Therefore, defini 
tive conclusions about the potential systemic bias of the PROs' 
system for identifying quality of care problems cannot be drawn 
without analysis of the distribution of rural and urban 
physicians identified early in the process as having quality 
problems compared with the distribution of rural and urban 
physicians who have been subsequently sanctioned. Such informa 
tion is currently unavailable. 
RECOMMNDATIONS 
This study has generated important insights concerning the 
factors that inhibit PROs from making more effective use of their 
sanction referral activity. In view of these insights 
, we in the
Office of Inspector General have committed ourselves to two 
important lines of action. One is to increase 
the level of
communication with the PROs to provide them guidance regarding 
their statutory and regulatory sanction requirements. 
Such
increased communication, we expect, will provide the PROs greater 
opportuni ty to address sanction-related concerns such as 
definitional interpretations, compilation of necessary 
documentation and preparation for administrative hearings. 
The other line of action is to increase the medical input 
involved in reviewing the PROs ' sanction referrals to the OIG. 
We will do that by having a second level medical review in all  such cases. We have made arrangements with
 the Department of

Army and the Social Security Administration
 to provide the

input.
addi tional 
In addition, we have two sets of recommendations that, if carried

out
, will help PROs make more effective use of their sanction

referral authority. One set is directed to the Department of

Heal th and Human Services in general and the other to HCFA in

particular.
The Department

The Department should submit a leqislative proposal to amend

Section 1156 of the PRO statute to strenqthen the monetarv

an effective al ternati 
penal tv as  ve sanction. The law 
should be amended to allow for an imposition of a monetarv

penal tv of UP 
to $10. 000 per violation for substandard.

unnecessarv. or uneconomical care  Currently, the law

provides that only the amount paid the physician or provider

for rendering the care in question may be recouped as a

penal ty. This measure would address the PROs' concerns

related to ensuring that they have a viable sanction measure

short of exclusion available to them.

The Department should submit a leqislative proposal to amend

the PRO statute to provide that the failure of physicians or

providers to complv with their patient care obliqations

under Section 1156. in itself. constitutes a sufficient

basis for sanctioninq. 
Thus. the separate requirement that. 
in order to be sanctioned. physicians or providers must

demonstrate an " unwillinqness or lack of ability" to complv 
substantiallv with their obliaations to medicare

beneficiaries should be deleted  This change would

eliminate the confusion over what constitutes "unwilling or

unable.
The OIG will issue a requlatorv chanqe to clarifY the

professionallv-recoqnized standards of health care to which

phvsicians and providers are expected to conform. Such 

change would help eliminate the confusion of some PROs and

administrative law judges concerning what constitutes health

care that meets professionally-recognized standards which

physicians and providers are obligated to uphold.

The HCFA

The HCFA should explore and document the reasons for the

considerable variation in sanction activitv amonq the PROs

Such efforts should clarify what, if any, impact such

variations have on the PROs ' protection of Medicare

beneficiaries. As part of that effort, HCFA should

carefully examine the impact of enacting section 4095 of the
 beneTlc-ia:fies. , 
As part of that en'ort;. HCFA should
carefully examine the impact of enacting Section 4095 of the 
1987 Omnibus BUdget Reconciliation Act 
(OBRA) that requires
pre-exclusion hearings for physicians or providers "located 
in a rural health manpower shortage area 
(HMSA) or in a
county with a population of less than 70, 000.  Our study
suggests that enactment of this OBRA 1987 provision may

further inhibit the PROs from making sanction referrals to

the OIG due to the added complexity and delay it brings to

the sanction process.

The HCFA should explore and document the reasons for the

apparent hiqher rate of sanction recommendations pertaininq

to physicians practicinq in rural versus urban settinqs. 

part of this effort. HCFA should studY PRO review procedures

to ensure that sanctionable activities by urban physicians

are beinq identified when appropriate 
These actions by

HCFA will help clarify whether physicians practicing in

rural areas have greater problems effectively addressing

qual i ty problems through corrective actions or whether the
system for identifying such physicians is somehow biased 
against them.
 APPENDIX I 
ENDNOTES 
The Utilization and Oualitv Control peer Review Orqaniza 
tions 
(PRO) Proqram: Oualitv Review Activities 
, (Control
# OAI-01-88-00570), Office of Analysis and Inspections, 
Off ice of Inspector General, Department of Health and Human
Services 
, February 1988. 
Federal Reqister, Vol.. 49, No. 39, February 27 , 1984,
p. 7202.
Tax Equity and Fiscal Responsibility Act of 1982, Commerce
Clearing House, Inc. p. 37D. Senate Report, 97-494 at 41.
"Examination of Quality of Care Under Medicare'
s Prospective
Payment System, 
" Hearing before the Committee on Finance 
United States Senate, June 3, 1984, p. 44. 
Andrew Webber, "A PRO Report Card,  The Internist: Heal 
Policv in Practice , the American Society of Internal
Medicine, July 1986, pp. 7-9. 
Material on the PROs' quality review process was taken from 
Conqressional Research Service Report for Conqress: 
the  The
Peer Review Orqanization Proqram
, The Library of Congress,
October 23 , 1987 , pp. 20-21.
Material for the description of the sanction process was 
taken from the transcript of Inspector General Richard
Kusserow' s testimony at a hearing before the Subcommittee on 
Intergovernmental Relations and Human Resources, Committee
2cr, 1987. 
on Government Operations, United States House of Representa 
tives 
, October 
Transcript of testimony of Sidney M. Wolfe, M. D. 
, Director,
Public Citizens Health Research Group before the Subcommit 
tee on Heal th and the Environment, Committee on Energy and
Commerce, United States House of Representatives,
October 26, 1987 , p. 4.
Robert Reinhold, " 
Quality-care Reviews Hurting Rural
Doctors 
The New York Times, March 24, 1987. 
cit 
10. 
., Andrew Webber, p. 7. 
Q2. 
l1.	 cit 
., Office of Inspector General, Control 
Q2. 
# OAI-Ol-88-00570 , p. 24. 
l2.  Ibid. 
, p. 25.  APPENDIX II 
BACKGROUND OF THE PRO INSPECTION 
The Office of the Inspector General 
(OIG) is mandated by statute
to provide leadership and coordination within the Department of 
Health and Human Services (HHS). The OIG is charged with
ensuring the economy, efficiency, and effectiveness of HHS
program operations. 
Because of the PRO program' s vi tal role 
in protecting both the
quality of care of Medicare beneficiaries and the financial
integrity of the Medicare program 
, the OIG has taken a keen
interest in and had a close association with the PRO program 
since its inception. Among other 
activities, the OIG has
conducted preaward audits of the PRO and SuperPRO contracts and 
of sanction cost estimates for HCFA and has made sanction 
determinations on cases referred by the PROs. 
The impetus for this inspection of PRO performance grew out of 
the Inspector General' 
s personal interest in gaining a broad
perspecti ve on the PROs' performance during the second scope of
work. 
Al though several 
other entities had reviewed various elements of 
the PRO program (see 
appendix IV), no one had undertaken a broad
evaluation of it. 
Hence, in the fall of 1986 
, the Inspector
General asked the Office of Analysis and Inspections to conduct 
an inspection of the PRO program in the 
spring/sumer of 1987.
In addition, the OIG' s Office of Investigations asked us to
incorporate a review of the sanction process into our overall 
inspection. We designed 
the PRO inspection to integrate some
original PRO data collection and analysis with other existing 
PRO-related data collected from primary and secondary sources.
Due to other OIG priori ties 
, completion of the PRO inspection
field work wa  delayed until the fall of 1987. 
We designed this PRO inspection to provide the Inspector General 
and other departmental officials 
, policymakers, and the public
with a broad perspective on the PRO program and how it has
changed over time. 
In addition to this inspection, the OIG has done and continues to 
do other work related to the PRO program. 
sumary of  The following is a
some key audits and inspections. 
Past Work 
Review of Financial Operations of Peer Review Organiza 
tions (Audit No. 14-62158), which concluded that most
PROs made a sizable profit on their initial contracts 
and recommended administrative and fiscal procedures  for 
HCFA to incorporate into its management of the PRO 
program. 
Inspection of Inappropriate Discharges and Transfers 
March 1986, which concluded that many PROs had not 
effectively used the authorities or processes available 
to address poor quality of care associated with 
pdremaature rdisdcharg esc anda inaprproepria.te  tr ansfer. The 
report included recommendations regarding HCFA' 
reporting and evaluation systems and suggested that the 
PROs be given authority to deny payments for substan 
Report on Evaluation of California Medicare Review,
Inc. 
(CMRI) Price Proposal for Development of 43
Sanction Cases (Audit 
No. 09-61658), September 1986,
which concluded that HCFA failed to include reimbur 
sable sanction activities into its fixed-
price con-
tracts with the PROs. 
The report recommended that
HCFA: (1) provide 
guidance to all PROs on the
reporting of and accounting for sanction costs; (2)
require all PROs to establish adequate cost accounting 
systems for summarizing the costs of sanction 
acti vi ties; (3) ensure all PROs develop and implement 
bid estimating procedures that more reasonably reflect 
the estimated costs of performing sanction activity; 
(4) ensure that all PRO contracts contain the necessary 
cost-reimbursement provisions required by the Federal
acquisition regulations 
(FAR) before initiating any
reimbursement of. sanctions; and (5) require CMI to
provide an accounting of funds advanced for sanction 
activities and return any excess funds to the Federal 
Government. A subsequent report 
(Audit No. 09-8661662)
was issued in May 1987 on CMRI' s price proposals for
its first 117 sanction cases. That report reinforced
the recommendations of the first report and also recom 
mended that HCFA issue modifications to the PROs' 
fixed-
price contracts to make only the PROs' 
incremental sanction costs reimbursable. 
Current Work 
The Region VII Office of Audit is conducting a national 
cost-benefit analysis of five types of PRO review 
including retrospective admission, DRG validation, day 
outlier, cost outlier , and preadmission. The audit is
focusing on 14 PROs and is expected to be completed 
before the spring of 1988. 
The Office of Analysis and Inspections 
(OAI) is
coordinating the national DRG Validation Study, an 
analysis of medical record data collected from 239 PPS  hospitals (for the period October 1, 1984 to March 31, 
1985) for DRG validation and identification of quality 
of care problems. The OAI central office staff are 
coordinating the review but regional staff are respon
sible for analysis of the PRO-related data on DRG 
validation and quality. Those reports are expected to
be completed by the spring of 1988.  APPENDIX III
METHODOLOGICAL NOTES
Summarv of Interviews
Because we wanted to examine how both the PROs and HCFA viewed
themsel ves and were viewed by others 
, we conducted in-depth 
(approximately 2-hour) interviews with a variety of people
associated with the program. 
Those 211 individuals included the
following: 
PRO chief executive officers (i. e., all PRO CEOs as 8
of the 44 PROs manage 2 PRO areas and 1 PRO manages 3
areas; 
rs (i. 
other PRO staff and board memb  e., the medical
directors 
, program directors, review directors, board 
chairs, and consumer representatives from the 12 PROs
selected for case study site visits);
national external entity representatives (i. 
e., the 
American Association of Retired Persons, the American
Hospi tal Association, the American Medical Association,
the American Medical Peer Review Association, and the
Public Citizen Health Research Group as well as the
Department of Heal th and Human Services, Executive 
Office of Management and Budget, and congressional
committee staff);
local external entity representatives (i. 
e., State 
medical societies, medical licensure boards, hospital
associations, fiscal intermediaries, and the American
Association of Retired Persons chapters associated with
the 12 PROs selected for case study site visits) 
Heal th Care Financing Administration (HCFA) central
office staff (i. 
e., from the Health Standards and 
Quality Review Bureau, the Office of Management and
Budget, and the Bureau of Program Operations); and
HCFA regional office staff (i.e., all 10 Associate
Regional Administrators for Health Standards and
Quality, all lO branch chiefs and a sample of the
proj ect officers 
in the Medical Review Branch) 
Case Study Selection
In an effort to gain a first-hand perspective on the PROs 
operations, we made 3- to 4-day site visits to at least one PRO
from each of the 10 HCFA geographic regions. As part of that
case study effort, we planned to compare those case study I s PRO-
assessments to HCFA  specific evaluation documents (i. e. ,
PROMPTS and SuperPRO) for the second scope of work. 
Hence, we
eliminated those PROs with a November 1, 1987 contract start date
(i. 
e., Group 5 PROs) from the case study selection pool since we 
would be unable to obtain their corresponding HCFA evaluation 
documents in time for review. We also eliminated the Pennsyl
vania PRO from the selection pool since its second contract 
period only began on July 1, 1987. 
We then drew a judgmental sample of the PROs based on the 
following criteria: size (as reflected by funding level),
geographic location, and sanction activity level. We divided the 
PROs into four groups based on their Medicare contract awards
9 million or less 
($2. 
, $3-5. 9 million, $6-8. 9 million, and $9
million or more) and calculated the appropriate numer of 
PROs to 
select from each funding category. That selection of particular 
PROs focused on ensuring a group of PRO sites with a distribution
of geographic areas (i. e. 
, at least one PRO from each of the 10
HCFA regions) and of sanction activity levels and with at least 
some representation of PROs that had both Medicare and Medicaid
contraG:ts. 
The final group of 12 organizations selected for site visits in 
the 10 HCFA regions were as follows: 
HCFA Reqion  PRO Area  Orqanization 
Massachusetts  Massachusetts 
Peer Review
Organization  Inc. , 
Waltham, MA 
Rhode Island  Heal th Care Review, Inc. 
Providence, RI 
New York  Empire State Medical, Scientific and
Educational Foundation , Inc.
Lake Success, NY
Delaware 
West Virginia Medical
Insti tute, Inc. 
Charleston, WV
Florida  Professional 
Foundation for Health
Care, Inc.

Tampa, FL 
Georgia 
Georgia Medical Care Foundation 
Atlanta, GA  HCFA- Re  ion  PRO Area  Orqanization 
Indiana 
PEERVIEW " Inc. 
Carmel, IN 
Texas 
Texas Medical Foundation

Austin, TX

Iowa 
Iowa Foundation for Medical Care

West Des Moines, IA

Colorado 
Colorado Foundation for

Medical Care

Denver, CO

California 
California Medical Review
, Inc.

San Francisco, CA

Oregon 
Oregon Medical Professional Review

Organization 
Portland, OR

In the case study selection process, we opted to choose PROs

based on their individual contracts with HCFA, rather than

combining multiple contracts held by one PRO for different PRO

areas. We chose Delaware as a PRO site to visit, although the

West Virginia PRO actually holds the contract for Delaware.

Hence, we refer to the West Virginia PRO in listing the case

study PROs but note parenthetically that discussions focused on

the Delaware contract. On the other hand
, our site visit to the

Rhode Island PRO focused on its operation in that state, although

the Rhode Island PRO also holds the PRO contract for Maine.

Discussion Guides

We designed seven separate but interrelated discussion guides to

capture the perspectives of PRO executive directors
external entities  , national

, other PRO board and staff, local external 
enti ties and HCFA central and regional office staff. 
The
discussion guide questions were structured so that we could later

compare responses within and across groups. 
All discussion

guides grouped questions under three or four categories: 
PRO
assessment, quality review and sanctions
, descriptive material.  , HCFA oversight, and in
some cases 
The discussion guides included
about equal numers of closed 
and open-ended questions 
, but most
of the closed questions had an open-
ended probe following them.

Interview Approach

We conducted approximately half the 21l interviews by phone and
the other half in person. 
For methodological consistency, we
chose to interview all 44 PRO chief executive officers 
(CEOs) by  telephone and held subsequent additional on-site interviews with 
those CEOs associated with the 12 case study PRO sites. 
addition to the 12 case study PRO sites, we conducted on-site 
rather than telephone interviews with most of the national and 
local external entities and with HCFA central office staff. 
The primary PRO inspection team consisted of four individuals 
from Region I who conducted 95 percent of the telephone inter-
views and 80 percent of the on-site ones. 
Four additional field
team members (two from Region I and two from OAI' 
s central 
office) conducted the other interviews. At least two team 
mveimsbeirtss .p articipated in each of the 12 PRO case study site
Inspection interviews ranged up to 5 hours with an 
average length of 2 hours. We informed all participants
interviewed for this study that the confidentiality of their 
specific responses to questions would be maintained, unless 
otherwise cleared by them. 
As part of our quality control plan, the project lea 
er assigned
one person to be the project' s administrative coordinator. That 
individual developed and maintained a tracking system for all 
discussion guides, correspondence, supplementary materials 
, and a
master schedule of team interviews. 
Codinq and Anal vsis 
We designed three primary and six relational data files, using 
dBASE III PLUS, to store and tabulate interview responses. 
developed codes for all questions and one team member usually 
coded all questions in a given file to maximize coding
consistency. In 
addition, a different team member checked at 
least a 20 percent random sample of the files to ensure accuracy. 
As part of the PRO inspection team' s quality control plan, the
project leader assigned one team member to be the project' 
coordinator. In  s data
addition to having primary responsibility for
designing the PRO data base, that individual was also responsible 
for developing and enforcing data-related quality control
procedures. 
We used dBASE III PLUS to tabulate all interview data by respon 
dent group (i. e., 
PRO CEOs, other PRO staff and board, HCFA, 
entities 
national external  , and local external entities). 
Other PRO-Related Data 
In addition to interview data, we collected and analyzed other 
I S monthly and 
PRO-related data including HCFA 
quarterly data
I s 
summary reports for all PROs and HCFA  PROMPTS and SuperPRO
reports for the 12 PRO case study sites. Because complete and
accurate sanction data was unavailable from HCFA, the team used 
I s 
information provided by the OIG  Office of Investigations as a
basis for its sanction data analysis. The team classified rural  and urban sanctions based on whether the particular physician'
address fell wi 
thin a Standard Metropolitan Statistical Area 
(SMSA) as defined by the U. S. Bureau of Census. Information on 
the numbers of rural and urban physicians for 1985 was provided

by the Public Health Service, Bureau of Health Professions.

Information on the number of physicians eligible for Medicare

reimbursement as of January 1, 1987 was obtained from HCFA,

Bureau of Program Operations.

We also collected and reviewed a wide array of other materials

concerning PROs, including newspaper and journal articles,

congressional hearings, and GAO, Library of 
Congress, OIG, and

other studies and audits.

Methodoloqical Considerations in Interpretinq PRO Interview Data

The reader should keep three caveats in mind when reviewing this
report. First, 
because we wanted to give as co prehensive a view
of PROs as possible, we have integrated the case study data with 
the universal data. The case study data is generally used to

amplify broader-based findings, and such data is always clearly

labeled. Although we used a judgmental rather than random

sampling methodology for choosing the case study 
sites, it is

worth noting that those sites are broadly representative of PROs

by size, geographic location, and sanction activity level.

A second caveat to keep in mind is that although we interviewed a 
total of 2ll individuals, a given question may have been directed
to only a subset of that universe. 
Therefore, in this report, we
have sought to clarify the numer of people resp(oNndi=ng  to a given 
question by noting the universe of respondents  ) in all
relevant summary tables and figures. 

The third but perhaps most important consideration to highlight

is that much of the information gathered in this study came from

questions with both closed and open-ended parts (e.g., "Do you

have any recommendations to the Federal Government regarding

actions it might take that would help PROs be more effective in

addressing quality of care issues?" Explain. 
Because we chose

not to distribute the discussion guides prior to the interviews,

the open-ended questions required the respondent to spontaneously
formulate his or her answers. 
Therefore, the percentages of
people noting any particular answer vary much more than if the

respondents had been presented with limited response options or

had reviewed the discussion guides prior to the interviews.
 AP?ENDIX IV 
SUMRY 
OF PRO-RELATED STUDIES 
Because the PRO program is vital to the Medicare program and

exists within a highly visible political arena
, several entities

have evaluated the program. 
 e following is a sumary of some 
key studies related to the 
PROs:
Past Studies

The Congressional Research S 
-vice (CRS):

"The Peer Review .organization Program 
" October 2 3
1987: The study presented a sumary of the legislative
history, program fe tures, and relevant issues of the
PRO program. The 
CRS report was prepared at the
request of the House Committee on Energy and Commerce,

Subcommittee on Health and the Environment. 
It revised

a prior report prepared at the request of the Senate

Committee on Finance. 
The General Accounting Office 
(GAO): 
"Medicare: 
Improving Quality of Care Assessment and
Assurance 
" May, 1988: This study assessed current
systems for measuring and monitoring Medicare quality

of care and reviewed quality assessment research and

evaluation within the DHHS, analyzed its relationship

to ongoing quality assessment functions
ter  , and assessed

the need for long  changes. Among other
suggestions 
, the GAC recommended evaluations of the 
methods PROs use to review medical records, the utility

ooff c urrent methods for establishing the PROs I quality

care contract obj ecti ves 
, and the quality of care
in Medicare prepaid health plans. 
The GAO also recom
mended that formal guidelines be developed to

coordinate the reporting of possible quality problems

by carriers and interediaries to PROs and 
HCFA; that

studies be initiated to assess the strengths and

weaknesses of the division of responsibilities among

carriers, intermediaries and PROs for processing and

screening Medicare claims data and performing medical

reviews to identify quality of care problems and

substandard providers and suppliers; that PROs

intermediaries and cariers document and report

incidents of inaccurate data elements related to

quality of care; and, that data used to evaluate PRO

medical records include the information necessary to

generate national estimates of quality problems.
 "Medicare: 
Improved Patient outcome Analyses Could 
Enhance Quality Assessment " June, 1988: This study
explored how outcome data can be used to monitor 
quality of care and included a review of how PROs' use 
available data in their profiling of providers. 
strategies for Assessing Medicare Health Care 
Quali ty, " December 3 0, 1987: The study evaluated the 
systems for assessing quality of care in the Medicare 
(i. 
carriers, intermediaries, and PROs) and 
program 
identified short- and long-term strategies for measur
ing _and monitoring quality of care. Among other
suggestions, the GAO recommended that HCFA: review the 
PROs I methods for dealing with quality issues; evaluate

the spheres of responsibilities of the PROs, FIs, and

carriers to determine that their responsibilities are

appropriately divided; require the PROs, FIs, and

carriers to maintain data related to quality; require

that patient diagnoses be recorded on Medicare out-

patient Part B claims and develop HCFA data files of

that Part B information; and develop a mechanism to

allow SuperPRO to evaluate PRO cases that were selected

through both the PROs ' random sample and specific

samples of hospital records.

"Better Controls Needed for Peer Review Organizations'
Evaluations, 
" October 8, 1987: The study assessed
HCFA' s evaluation process for the 1986-1988 contract 
awards and concluded that HCFA' s process was fraught

wi th inconsistent and inadequate documentation and

improper application of instructions. Although GAO

found no evidence of inappropriate contract decisions,

it recommended that HCFA develop sufficient internal

controls for PRO evaluation, provide better ongoing

moni toring to the PROs and collect and use adequate

cost and performance data to set each PRO' s contract

funding level. 
"Reviews of Quality of Care at Participating
Hospitals, 
September 15, 1986: The study was based 
on a survey of california, Florida, and Georgia PROs 
and focused on the monitoring of inappropriate dischar
ges and profiling of hospital and physician quality of 
care problems. The GAO recommended that HCFA require 
PROs to include quality of care' review data available 
from the 1984-1986 contract period in their profiling 
of hospitals and physicians and that the PROs review 
the appropriateness of the discharge destinations as 
part of their discharge reviews to better ensure that 
patients needing skilled nursing care are allowed to 
the hospital while awaiting placement. 
remain  in  The Prospective Payment Assessment Commission (ProPAC): 
"Report and Recommendations to the Secretary, U. 
Department of Health and Human Services, " April 1,
1986: 
ProPAC, which is an independent commission 
established by Congress to analyze and recommend 
changes in the prospective payment system, recommended

in its second annual report that better information

about PPS be provided to beneficiaries, hospitals, and
physicians. 
ProPAC also recommended that PRO review be 
extended to the overall episode of care, including 
skilled nursing facilities, home health care and

outpatient surgery.

The Rand Corporation: 
Kathleen N. Lohr, "Peer Review Organization: Quality
Medicare  " July 1985: study focused
Assurance  in 
the first scope of work for PROs ' review of quality
during the first 2 years of PPS. 
Rand recommended that 
the quality objectives in the 1984-1986 PRO contracts 
be broadened to include the use of generic screens and

that quality review be given greater weight in the PRO

review activities. Rand also recommended that the

PROs I quality review be extended beyond the hospital to

include the Medicare beneficiary' s entire episode of

care. 
Current and Future Studies bv the GAO

The Financial Integrity Act Group at GAO is currently

reviewing the internal controls for payments by

Medicare intermediaries. As part of that 
study, the

group is assessing the effectiveness of the SuperPRO as

a control mechanism for PRO performance. 
A draft

report was issued July 22, 1988.

At the request of the House Ways and Means Committee, 
the PEMD is currently conducting a study to evaluate 
the PROs' effectiveness in handling of quality of care
issues. 
Preliminary descriptive findings are expected 
in late 1988.

The Human Resources Division (HRD) is undertaking a
review of two aspects of the PRO program: an analysis
of the reasons for the lack of information exchange 
between the PROs and other quality review entities and 
an examination of the DHHS/OIG' s criteria for accepting
and rejecting PRO recommendations for monetary 
penal ties. 
See appendix II for a summary of the OIG' 
s past and current work

related to the PRO program.
 . . . . . ..  ..  ..  ...   ....    ....    .......       .......       ......      .........         .....     
. . ....    ....
APPENDIX V

THE PROS WITH MORE THAN ONE CONTRACT*

Additional 
Orqanization Name/Location

PRO Areas Reviewed

Professional Review Organization. Alaska 
for Washington Idaho 
Seattle 
, WA 
West Virginia Medical Institute, Inc.
 Delaware 
Charleston, WV

Delmarva Foundation for Medical Care,

District of

Easton, MD
 Inc..  Columia 
Hawaii Medical Services Association.

Guam/American Samoa

Honol ul u, 

PEERVIEW , Inc..  Kentucky 
Carmel, IN 
Heal th Care Review,  Maine 
Providence  Inc..
, RI 
Iowa Foundation for Medical Care. 
 Nebraska 
West Des Moines, IA

New Hampshire Foundation for Medical Care. 

Vermont 
Dover, NH

Montana-Wyoming  Foundation for.  Wyoming 
Medical Care 
Helena, MT 
*Note:' Eight 
PROs hold two contracts; one PRO holds three contracts.  APPENDIX VI
COMPARISON OF 1984 SCOPE OF WORK TO 1986 SCOPE OF WORK

Review Area  1984  1986 
ves
Obj ect  3 Admission Objectives  5 Objectives

5 Quality Objectives  Based on PRO data

All proposed and vali from first 90 days

dated by PROs. 
Very. of generic quality

limi ted areas for screen review. 
focusing objectives  HCFA-identified
outliers. 
Broader objectives

Random Samples	 5% Admission Sample  3% random sample

DRG Sample ranging  (includes 1- and 2-

from 3% to 100% day stays) 
based on hospital
discharge size 
Preadmission Review  5 Procedures proposed
 Pacemakers plus 4

by PRO
 procedures pro-
posed by PRO

Pacemakers 
100% retrospective
 100% preadmission

(see above)

Transfers 
From PPS to another
 Same but lower

hospital, exempt
 level of review

uni t, swing bed

Readmissions 
All readmissions
 All readmissions

within 7 days
 within 15 days

Medicare Code
 100% of 9 diagnoses
 Same 
Edi tor

Focused 
468  468, 462, 088

DRGs  (462 added during 
contract period)

Outliers 
100% (reduced to 50%
 50% 
during contract
period) 
Percutaneous 
Not in contracts
 Review all cla

Li thotripsy 
for percutaneous

lithotripsy in 
hospitals which 
have an extra-
corporeal shock wave
li thotripter  Review Area  1984  1986 
Validation of 
contracts
Sample of one
Obj ecti ves  Not  in 
quarter' s dis
charges to validate
obj ecti ve performan 
Notices
Hospi tal  100% where patient  Same 
or physician dis
agrees. 
100% where
patient is liable. 
10% of remaining

Special ty Hospital  Proposed by each PRO 15% of discharges

Review 
Admission Pattern  Discontinued during
n Scope of Work 
Moni toring  contract  Not 
Intensified Review  Trigger:  Trigger: 
5% or 3 cases
 5% or 6 cases

(whichever is greater)
 (whichever is

of cases reviewed
 greater) of cases

Review increased to:
 reviewed. Review

100% or subsets
 increaed to: 50% or 
subsets (first quarter) 
100% or subsets (two

more consecutive 
quarters) 
outreach 
Communi ty  Not in contracts  All PROs to propose

program 
*All cases rev ewed 
are subject to generic 
quality screens,

discharge review, 
admission review
review. , DRG
validation 
, and coverage
Source: 
HCFA  APPENDIX VII

SANCTION PROCEDURES FOR CASES OF GROSS AND FLAGRANT 
AND SUBSTANTIAL NUBER OF SUBSTANTIAL VIOLATIONS 
The following chart summarizes the steps that a PRO and the

Department of Health and Human Services must follow in reviewing

the health care services rendered to Medicare beneficiaries by

individuals or entities and in determining whether statutory

violations have occurred. Because of the extreme seriousness of

gross and flagrant violations, " the two-tier review process 
treats those cases more expeditiously than cases of "substantial 
number of substantial violations.

SUBSTANTIAL VIOLATIONS IN A
 GROSS AND FLAGRAT VIOLATION

SUBSTANTIAL NUBER OF CASES

Definition 
- A violation of an 
Definition 
- A pattern of care  obligation has occurred in one 
has been provided that is  or more instances which presents

inappropriate, unnecessary, or
 an imminent danger to the

does not meet recognized profes
 health, safety or well-being of

sional standards of care,
 Medicare beneficiary or places

or is not supported by the
 the beneficiary in high risk

situations.
necessary documentation of care,

as required by the PRO.
 42 C.  R. Section 1004. l(b).
1(b). 
42 C.  R. Section 1004. 
wri tten notice 
of a potential
violation by the PRO. 
Step 1 - Written notice of a

Subj ect 
potential violation by the PRO.
 has 30 days to ask for a meeting 
Subject has 20 days to request a
 and/or submit additional
material to explain, clarify, 
meeting and/or submit additional

material to explain, clarify, or
 or resolve the potential

resol ve the potential violations.  violations. 
42 C.  R. section 1004. 40.  42 C.  R. Section 1004. 50. 
PRO review of additional 
Step 2 -
PRO review of additional material submitted and/or the 
material 
submitted and/or the meeting. On the basis of 
meeting. 
additional information

received, the PRO may affirm,

modify, or reverse its

determination. 
42 C.  R. Section 1004. 50(c). 
Step 3 - If the PRO determines
 PRO proceeds to Step 6.

that a violation has occurred, 

attempts to develop a corrective

action plan, which is agreed to

by the provider or practitioner,

to resolve the case.
 Step 4 - In those cases un
resol ved at Step 3 
, the PRO is 
to provide written notice to a

provider or practitioner that

possible violations have been

identified. 
Subject has 30 days 
to request a meeting and/or 
submi t additional material to

explain, clarify, or resolve the

potential violations. 
42 C.  R. section 1004. 50. 
step 5 - Second meeting between

the PRO and the provider or

practitioner and/or review or

additional material submitted.

Step 6 - At the conclusion of the above process and following 
consideration of all the information presented by provider or 
the PRO comes to the conclusion that a violation 
practi tioner,  if 
has occurred which should be the subject of a sanction action by

recommendation for 
the Department, it is required to send  its 
imposition of a sanction and a supporting report to the OIG for

independent review. The PRO must notify the individual or entity

that there is an additional opportunity to submit information

regarding the violations, and that this information should be

sent to the OIG. 42 C.  R. Sections 1004. 60-80. 
Step 7 - After reviewing the PRO' s recommendations and any

addi tional material submitted by the provider or practitioner,

the OIG must determine: (1) whether the statutory and 'regulatory
requirements have been complied with; (2) whether an adequate
legal and medical basis exists for imposing a sanction; 
(3) the
appropriate sanction to be imposed. 
can:  The OIG can exercise one of 
several options. It  (1) sustain the PRO I S recommendation 
in its entirety; (2) alter the recommendation; or (3) reject the

recommendation. If OIG 
n ex

fails to act within 120 days, 
clusion recommended by a PRO is automatically imposed.

The sanctions that the Secretary may impose on a provider or
practi tioner following a 
PRO I S recommendation are eithe ex
clusion from participation in the Medicare program or, in lieu of 
exclusion, the imposition of a monetary penalty as a conition 
for continued eligibility to receive reimbursement under the 
Medicare program. 42 C. F. R. Section 1004. 90. 
Step 8 - A provider or practitioner who wishes to appeal the 
imposition of a sanction has the right to a formal admnistrative 
hearing in accordance with Section 205(b) of the Act. 
(42 U.
405 (B).  accordance with specified
procedureThsis  hearing, conducted 
 in 
(42 C.  de novo, and the

R. Part 405, Subpart 0), is  (g) 
entire factual basis of the case is presented to a Departmental
administrative law judge 
(ALJ). Each side may present evidence
and witnesses 
, and each has the right to cross-examination. The 
ALJ is required to issue a decision sustaining, modifying, or 
dismissing the sanction, and setting forth findings of fact and
conclusions of law. 42 c.  R. Section 498. 74. 
step 9 - Subsequent to the administrative hearing, review of the 
ALJ decision by the Departmental Appeals Council may be re-
quested. 42 c.  Sections 498. 80-95. 
Step 10 - After the Appeals Council renders a decision
, a

provider or practitioner has a right to request judicial review

of the Department' s decision, in accordance with Section 205 

of the Act, 42 U.  C. 405(g).

(Source: Summary taken from the transcript of Inspector General

Richard P. Kusserow' s testimony before The House Committee on

Government Operations , Human Resources and Intergovernmental

Relations Committee, October 20 , 1987.
 ... , 
APPENDIX VIII

SUMY 
OF REcENT PRO-RELATED 
LEGISLATIVE PROVISIONS 
STATUS OF IMPLEMENTATION OF COBRA 1985 PROVISIONS

Assistants at Cataract Suraerv

Provides that no Medicare payment may be made for an

assistant surgeon at cataract surgery unless carrier or

PRO approves use of assistant before procedure is

performed. Also prohibits 
physician from knowingly and 
willfully billing Medicare beneficiary if he or she has

not obtained prior approval and where presence of

assistant surgeon has been found to be unnecessary.

Instructions for PRO review of this activity, effective 
with assistants proposed to be used after March 1,
1987 , were issued to PROs on December 30, 1986, and 
review has been implemented. 
PRO Denials for Substandard Care

Provides for denial of payment when a PRO determines

that the quality of health care services rendered to a

Medicare beneficiary fails to meet professionally

recognized standards of health care. Also specifies
that denials for care of substandard quality shall be 

made only on the basis of criteria which are consistent

with guidelines established by the Secretary.

Formal rule-making process is 
being followed. Regula
tions are in the final stages of Departmental clearance 
and will be published soon. 
PRO 100 percent Preprocedure Review

Requires peer review on a preadmission/preprocedure

basis of nonemergency cases for at least 10 surgical

procedures. Second opinion will be required if PRO

cannot make determination as to medical necessity of

services. 
Formal rule-making process will be followed. Proposed
regulations are still in process of Departmental

clearance.  STATUS OF IMPLEMENTATION OF OBRA 1986 PROVISIONS

Review of services provided 
 hospital outpatient
in 
departments and ambulatorv suraical centers  Effective
for PRO contracts entered into or renewed on or after 
January 1, 1987. This provision has been implemented
by the Pennsylvania PRO, which entered a new contract 
, 1987. It will 
period on July 1 
be implemented by
other PROs as they enter their next contract periods. 
Review of hospital denial notice 
Implemented on

December 1, 1986, as required by the statute.

FIs must provide PROs with "timelv" monthlv informa
or hospitals will be reauired to provide such 
tion. 
information directlv to the PROs  Effective 
April 1, 1987.

Review of at least a sample of readmissions occurrina

within 3l davs of discharae and anv intervenina post

care 
hospi tal  Effective for contracts entered into or 
renewed on or after January 1, 1987. 
This provision
has been implemented by the Pennsylvania PRO and will

be implemented by the other PROs as they enter their

next contract periods.

A reasonable proportion of PRO funds must be allocated

to review of aualitv of care provided in all sett

The HcFA has no plans for separate implementation of

this provision. It will be implemented as part of

other OBRA provisions.

Review of HMOs/cMPS  The HcFA published a listing of

States to be competitively bid in the  Federal Reaister

on January 6, 1987. Contracts 
have been awarded in 
those States where it is applicable. 
July  Review began
1, 1987. 
The Secretarv is to identifv and make available to PROs

methods of identifvinq those cases that are more likelv

than others to be associated with substandard aualitv

of care. and to provide at least 12 PROs with data and

data processina assistance to per 
orm small-area

anal vsis 
Both provisions effective upon enactment. 
The first is an ongoing activity. 
The HcFA has 
contracted with the American Medical Review Research

Center (AMc) for the 
small-area analysis which will
utilize feedback from 12 pilot PROs. Information is 
presently being gathered.
 PRO boards must include at least one consumer

representative 
Effective with contracts entered into 
or renewed on or after January 1 , 1987. Officially
implemented with new contracts
, but most PROs have

already implemented this provision.

PROs must respond to beneficiarv complaints about poor 
all sett~ 
Implemnted
Oauaclittv ocarbe eprorvi ded1 , 1987. PROs in had already been required to
respond to complaints referred to them and will

continue to do so. Clarifying 
regulations in process.

PROs will be reauired to share (when reauested)
information relatina to substandard care with state 
licensure or certification bodies and with national
accredi tina bodies 
Effective April 1, 1987. Clarify
ing regulations in process regarding exchange of
information with licensure boards. 
Clarifications 
regarding exchange with state Medicaid agencies have

been published. 
Hospi tals. ho e health aaencies. HMOs and skilled 
nursina facilities will be reauired to have aareements 
with PROs. under which costs of PRO review activities 
are to be paid bv the Secretarv to the PRO  Effective
October 1 , 1987. Will be implemented by 
the PROs as

they enter their next contract periods.

Source: HcFA/HSQB/OMR.

Other PRO-Relevant Leqislation

The Medicare and Medicaid Patient Program Protection 
Act of 1987 greatly expanded the sanction and civil 
monetary penalty authorities under the Medicare and 
licensure boards. 
Medicaid programs. The bill also required the report
ing of all disciplinary actions made by State Dedical
The recently enacted 1987 Omnibus Budget Reconciliation

Act has made the following PRO changes:

three-
year PRO contracts with staggered exiration
dates; 
a ban on informing Medicare beneficiaries of
substandard qual i ty 
payment denials before
offering providers the opportunity for 
recons ideration;

Federal Reaister 
publication in the 
 of the 
standards used for evaluating the PROs and any new
 -----.-....
policy or proced  e.---that substantially affects the 
performance of contract obligations; 
negotiation of appropriate contract modifications

before implementation of additional review

functions not included in the initial or renewed

contract; 
provisions by the Secretary of regular performance
its 
reports to each organization comparing 
performance with other PROs I ; 
a prohibition of automatic renewals of PRO

contracts held by out-of-State groups, provided

instate physician groups wish to compete;

requirement that the hospital notify the Medicare

patient when the hospital requests PRO review

because the hospital and the attending physician

do not agree that inpatient care is no longer

necessary; 
a ban on physicians billing Medicare patients for

assigned claims denied for payment on grounds of

substandard qual i ty ; 
a requirement that PROs, in establishing review

standards, take into account the special problems

associated with delivering care in remote rural

areas, the availability of service alternatives to

inpatient hospitalization, and social factors that

could adversely affect the safety or effectiveness

of outpatient treatment;

mandatory onsite review at 20 percent of rural 
a review area; 
hospitals  in 
requirement that PROs offer for PRO physician to

meet several times a year with medical and

administrative staff of hospitals in their review

area; 
requirement that PROs publish and distribute to

providers and practitioners, at least annually, a

report describing the types of cases the PROs

frequently determine involve inappropriate or

unnecessary care, services rendered in an inap

propriate setting, or substandard care;

assessment of access provided to Medicare

enrollees in risk-sharing HMOs and CMPs and
 mandatory beneficiary outreach to inform enrollees

about the role of the PRO and their rights;

a provision encouraging PROs to use physician 
specialists in initial review of psychiatric and 
tation cases; 
rehabil 
emphasis, when evaluating PRO performance, on the 
PROs ' activities in educating providers and
practi tioners, 
particularly those in rural areas, 
about PRO review and criteria;

demonstration projects for the instruction and

oversight of rural physicians, in lieu of imposing

sanctions, through video telecommunications

between Medicare teaching hospitals and rural

hospitals; 
entitlement of a provider or practitioner located 
a rural health manpower shortage area, or in a 
in 
county with a population of less than 70, 000 to an 
administrative law judge hearing prior to being 
excluded from the Medicare program, to determine 
whether the provider or practitioner poses a 
serious risk to his or her patients; 
a report to Congress to include an assessment of

sanction due process reforms agreed to by HHS, the

American Medical Association, and the American

Association of Retired Persons, as well as

physician and provider responses to the improved

procedures and an assessment of the appropriate

balance between procedural fairness and the need

for ensuring quality medical care.

Source:  conqressional Record--House, December 21, 1987.  APPENDIX IX 
MEMORABLE "PRO-ISMS"

We appreciated the candor and thoughtfulness with which in

dividuals responded to our questions about the PRO program. 
an effort to share more of those diverse opinions than could be

integrated into the main body of this report
, we offer the

following examples of memorable opinions that we heard related to

the PROs' quality review and sanction activities

e. "PRO-isms" 
(i. 
In regard to quality review:

"It'  like 
feeding the hungry--everyone agrees it is
important, 
but no one wants to go down to the mission
and do it" 
(from a PRO ,CEO). 
Quality review is carried out too much and too long on
the written record.. . 
the Government came in with a ball 
and chain and a meat ax" (from a medical community
representative) . 
In regard to the generic quality screens:

re so good it' 
They' 
s scary" (from a PRO medical
director) . 
"They' re so frustrating, they make me scream" (from a 
PRO medical director). 
In regard to the PROs ' upcoming review of care in nonhospital

settings: 
"They' re invading the last bastion of individuality"
(from a State medical board representative) . 
"They will see us like a lynching squad in the

community and we will meet with hostility" (from 
board chair).  a PRO

In regard to health care  in  rural versus urban settings: 
I re out 
"Just because you  in the sticks, doesn I t mean
you treat people differently" (from a PRO 
CEO). 
You simply cannot practice the same medicine in 
Muleshoe, Texas as Dallas, Texas. You can call that 
two-tier medicine or whatever you want" (from a medical 
representative). 
communi ty  ,._  .. . -_..._.,.. 
In regard to the use of sanctions:

It' 
s important to remember that most doctors are 
competent most of the time and all doctors are 
incompetent some of the time
" (from a medical community
representative) . 
"Once you get a sanction in doctors I hands,  their
hearts and minds will follow" (from a HcFA
representative) . 

"We have a moral obligation to underaccuse more than 
overaccuse" (from a PRO medical director). 
"The only way to affect physicians is through their

back pockets" (from a PRO board chair).

"They (sanctions) make us the most hated 
group in the
State.. . but they 
(physicians) read their mail now" 
(from a PRO staff person). 
"They require us to have a lot of intestinal fortitude"

(from a PRO CEO).
 !\'
y.!"..  , _  /.  .;:  ::  ' . "
PeerAPP E  DIX X  RE\ISED PRO  T10  PROCEDl'RES
eVlew 
I '  Oe-;'  1 Of MII 
O M  'Ta  S,..1"5
H..,, 
OrganizatiorP  FIr  ''v  Ca' a F1nan;,nQ
"l:m,n;llIaI10n 
lIe';;.re  Manual 
Tra  5""illal No, 
Oa.. MAY 1987

':r  A:"  :5!:  PJ.:!'S  !P:'  CED P  CES 
le of Contentl

Part 6
 6-1 Clp.  6-1 Clp. 
Se:tlon 6025
 6-12 -6-12.  (Cpp.  6-11 - 6-12 (2pp. 
le of Contents
 Clp.  I1p. 
12-1  12-1 
t 12

1bits 2-3
 12-7  - 12-8. C ClOpp.  12-5 - 12-8 (C pp. 
ib1t 5
 12-17 - 12-17. C (5 pp.  12-17 - 12-18 (2 pp. 
ibit 7
 12-23 - 12-23. 1 (2 pp.  12-23 - 12-2C (2 pp.

RtS - EffE:;JVr D ;E:  ey 12, 1967 
Section f:25, Pro;e  es fo  D;s:.ss;ons with Provj ers/Pre:tltloners
Fclloo ;n: ne 3  D... t;:tic  Letter S:oe:Hie  in C2 C.  R. SlOOC5C  his 
section 6efines the p:oce "res the PRO is re uire6 to follow when hol ing
is:  ssions with p:o..i 
er6/p:ectitioners subse "ent to .en 
ing the 30 
notice specifie  in C2 C.  R. 5100C. 50. 
ibits 2, 3, S, 7  el Letters  hese exhibits provi e the PRO with

eJ letters to use in the following instances:

Exhibit 2 - Initial Sanction Notice of . Substantial Violation in 8

Substantial Num er , of eases, 
Exhibit 3 - Secon  otlce of Substantial Violation in 8 
Sanction 
, Substantial Number of Caaes. 
Zxhiblt 5 - Initial Sanction Notice of Grols 8n 
Pl.grant Viol.tion.

Exhibit 7 - PRO San:tlon - "o el Final Notice of S.nction.

E R!  R!D TO USE THES! M DtL LETTERS

E:TA-P.. 
. 19  ~~~
6:25  PEER R vIE  TJO  OS-
:2, 
r 6' S FO, DJ SC SSIONS WJTH PROVIDERS/PRACTITIONERS' 
R. i 
FOLLO"JN  THE 30  iICE LEiiER SPECIFIED IN 42 C. 
The meetIng between the PR  and a provIder or practItioner under 42

50 Is Intended to be a discussIon between the members of the 
R, 
and the provider or practitIoner regardIng the medical Issues raIsed

by the PR  This medical dIalogue Is not desIgned to be a formal

ad,ersarlal hearing. but It should afford the provIder or practItIoner a 
portun\ty to present his/her vIews. The PRO has a 
full and fair o 
edlcare patIents and the Medicare program. but.

crucIal duty to protect 
gIven the serious nature 6f the sanction. It also has a duty to allow the

provider or practitioner to understand the basIs of the allegatIons and

to provide an explanation of the challenged conduct. The purpose of the 
discussion Is to allow the provIder or practitioner to present hIs/her

vlews'regarding the care rendered to Medicare benefIciarIes In the

Identified caseS. to discuss those views with the PRO, and to respond to

the PR  s Initial determInation that such care faIled to comply wIth the

42 U. 
statutor5y.  oIbtl Igations of 51156 of the Socl.l SecurIty Act. 
320c- Is also an opportunity for the provIder or practItIoner to 
address the Issue whether the provider or practitioner has the abIlIty

and wIllingness to comply wIth such statutory obligatIons.

The discussion between the PRO and the provider or practItIoner pursuant

to 42 C.  R. 51004,40 (followIng a 20-day notIce) Is Intended to serve

I lar purposes to those discussed above. However, the dIscussIon 
following ' the 20-day notice may, at the PRO's discretIon, be more 
Informal . sInce all providers and practItioners are entitled to a 
discussion under i1004,50. wIth the procedures Set out In this section of

the Manual . before I sanction can be recom ended to the Office of

Inspector General.

Rev. 1  ~~_~.--.._ ...
r- C';.- E 7  PEER REVJE  DRG  I2a1ID  MAN  6025 CCOMt, 
A full adver arlal hearIng before an administratIve 1a  hlch Is 
judge, 
not limited to the record created before the PRO, ts provided follo \ng 
the Im  ltlon of a sanction by OIG. At that time, the OIG. with the

assistance of the recommending PRO, has the burden of proof, and the

sanctioned provider or practitioner Is entitled to such procedures as the

right to reQuest that the ALJ subpoena  Itnesses whO are necessary  or a

full presentatIon of a case and reQuire that they appear, brtng

documents, and testify. CSee 42 C.  R. Part 405, Subpart 0.

tlce 
Prlor to a dIscussion with a provider or practItioner 
A. 
pursuant to 42 C.  100  50 the PRO should Insure that the provider or 
R. 
practItIoner has been IMformed of the PRO' s Initial findings. tncludlng a 
clear state ent Of the factual bases for those findings. the purpose of

the pro. sej meetln;. the p  tlal sanctions  hlch may be im osed, the
Im.  rtance of the dIscussion of the PRO sanction process, and the 
procedures appllcatle to the meeting, IncludIng the availability of the

procedures outlined In the model letters. The notice should inform the

provider or practitioner that he/she should bring to the meeting all

relevant documentation (Including office records) regarding the cases in

Question  \tnesses, tf destred. The written notice 
, and a la.yer and/or 
to be sent to the provider or practitioner pursuant to 42 C.  R. SIOO

should be sent by certified mal I , return receipt requested.

N01E: The 
moeel letters have been amended to conform with this 
section. See E.hlbits 2, 3, 5 and 7. 
Attornevs  The provider or practitioner ' 
may have an attorney present 
8, 
III be permitted to counsel the

at the discussion. The attorney 
provider or practitIoner , assist the provider or practitioner tn the

presentation of his/her witnesses, ask for clarification of PRO

procedures and Questions posed to the provider or practitioner or e.pert

witness, and present brief opening and closing statements. The attorney

may ask Questions designed to clarify the basis for the PRO'

conclusions. The PRO, however, may contr01 the scope, e.tent, and manner

of Questioning. as appropriate, tf the Questions are unproductive or

Irrelevant. ' 
are badgering, unduly prolonged, or otherwise tnapproprlate 
tone or nature. or for any other appropriate reason.

Schedul In  and Conduct of MeetinQ 
If a provider or practitioner requests a discussion pursuant to

42 C.  R, S100  SO. the PRO should attempt to schedule the

meeting within 30 days from the date of re e'pt of the request,

unless the PRO, In Its discretion , determines that good cause 
e.lsts to postpone the meeting, In the case of availability of
expert witnesses, -good cause " w\l1 require the provider or' 
Rev. 15  6- 12.  , .
OS-!7 
PEER REVJE  LNJLL 
:?: (C:;- :ZLTJDN 
pra:tltloner to dem nstrate that reasonable efforts have been

'tnesses available to testify wIthIn the 30 
e to have Such 
necessary duration 
day period. but that. delay. of the mInImum 
Is justIfIed, To aid In prompt preparatIon for the discussion
provider or practitioner 
, directly or through counsel 
Ithout
dlsclese patIent re:ords to potential expert witnesses 

disclosure requirements In the regulations.
violating any non-
The PRO shall seek to ensure that the objectIvity and judgment of 
all physlclan- ers of the panel making any final PRO 
l004 
determInation of a violation under 42 c,  R.  60 shall not 
be affe:ted by either personal bias against, or dire:t economic 
\th 
. the subject provider or practitioner. 
com;etitlon 
At the meetIng, the PRO shall afford the provider or pra:tltloner

\th the o  o.tunity to present expert testimony In either oral 
rltten form on the medical Issues presented with the
or 
assl stance of an attorney, but 
may reasonably limit the number of 
itnesses and length of such testimony. If such testimony Is

Irrelevant or repetitive. 
The PRO shall be required to prepare a record of the meeting and 
make a copy available to the provider or practitioner when the 
PRO' s re:o mended sanction (If any) Is sent to the 01G. The 
record shall Include a verbatim transcript. 
A physician who, at the last stage prior to the meeting betWten

the PRO and the provider or practitioner, was solely or primarily 
resp  nslble for making medical judgments and developing the 
record and Initial findIngs to be used at the discussion shall 
not vete on the PRO' s final determination about whether or not to 
recomend a sanction to the OIG. (This 
does not apply, for 
example. to a physician. such as a PRO medical director, whO 
sum  arlzes the views of other physicians In assembling the record 
and findIngs for use at the discussion. 
ay be helpful for the phys\clan

In the discretion of the PRO, It 
referred to In paragraph 5 to be present at the meeting In order

to have an efficient and full discussion of the Issues relat'ng

to the sanctIon recomendation.

7. 
The PRO has no oblIgatIon to consIder any addItional Inf?rmatlon 
provided by the provider or practitioner subsequent to the 
meeting, However , prior to the end of the meeting with the PRO, 
If the provider or practitioner believes that .ddltlonal

documentation exists which relates to the cases or Issues

12.  Rev, 15  6025 (CO 
C,- E7  PEE  REVI EW ORG  1 ZATIO 
discussed at the meeting. he/she may reQuest an additional period

of time, not to erceed S days. to submit the relevant Information

to the PRO, If the  concurs that the additional Information

to be proylded by the proYlder or practitioner Is relevraanntt  and

necessary to the Issues and cases discussed. It will v

additional perio: of time. not to exceed S days from the date of

the meeting. for the submissIon of this Information. The 
proYlder or practitioner Is always entitled to submit additional
General . within the
Information to the Office of Inspecto

60(b)(2). 
R. ,1004. 
tlmeframes authorized by 42 C. 
Basis fO" Reco  ende: Sanc  ;on  1f the PRO determines. after the 
D, 
d;scusslc  'il reco  enO a sanctIon to the 01G. It shall
. tnat ,t 
Include as an attachme"t to the Final Sanction Notice to the provider or
ractltlone" (e.  ;tit 7) , Its Own clear statement of the factual bases. 
fOr e  Y i 01 at \ on , 
a c 
12. 
RtY '  ---
... ---- .--_.,. 
-h. 
APPENDIX XI 
INTRODUCTION TO TABLES A - D

This appendix consists of four tables presenting analyses of 
sanction data for the PRO areas (herein referred to as States).
Each table includes detailed footnotes which explain and qualify

the data as appropriate. The reader is cautioned 
about com

ptarhiseon s samaonng tchet tiabolens  whidcha mtaya i.nc lu
de different subsets of

The following caveats are particularly important:

While tables A and C include sanction data for doctors

of medicine and osteopathy as well as for hospitals,

tables Band D contain only sanction data for doctors.
Therefore 
, the number of sanctions listed for each 
State will differ between the two sets of tables for 
those States that have referred hospitals for sanction. 
As of December 31, 1987, several States had referred 
sanction cases that were still pending action by the
OIG. 
Therefore, the sum of the cases accepted and 
rejected on table C will be less than the numer of
cases referred for sanction. 
All tables include two cases in which the physician

referred for sanction died prior to an OIG sanction

determination. These cases 
have been reflected as

rejections" in the tables
, but footnoted accordingly.

In tables Band D, the total numers of physicians
listed per State are different because: 
(1) they

represent different time periods
definitions of " , (2) include different

physician" 
, and (3) were obtained from
different data sources. We chose to use both 
sources
of physician data despite these limitations because

they are the most current data available.

Because approximately 15 percent of the numer of
physicians per State listed in table B are limited 
license practitioners (chiropractors
, podiatrists and

optometrists), the ratios of sanction referrals and

acceptances per 1000 physicians listed are underestima

tions of the actual ratios per 1000 medical doctors.

It was necessary to use such aggregated data because

figures including only medical doctors were

unavailable. 
The small numbers of sanction referrals and acceptances

tend to inflate the numbers reflected in the "Percent"

columns of tables A and D.
 APPENDIX XI: TABLE A 
NUBER OF PRO SANCTION REFERRLS AND NUBER 
AND PERCENT
OIG ACCEPTANCES, BY STATE, (1985-1987) 
PRO  OIG  PERCENT 
REFERRLS (1)
AGCCFEP TANCES ( 1) ACCEPTED 
ASTrAizToEn  a  GF (02)0 S 1NS.  0(30)  3T.OTAL SNS TOTAL  BY OIG

Arkansas  00 3. 00 9. 00 1.00 1.00  33. 
California  16. 00 3. 00 19. 12. 0000  12..  0000  3**. ***  7333..  
Colorado  00 0. 00 2.
District of  00  00 0. 00 2.  100. 
Columia  1. 00 0. 
Florida  00  1. 00 00 0. 00 0. 
1.00 3.
00 0. 00 2.  66. 
Georgia (4)  1. 00 1. 00 2.
Idaho  00  00 1.00 1.00
 50. 
1. 00 1. 
00 0. 00 0. 
Illinois (4)  00 2. 00 4. 00'
Indiana  00 1.00  00 1.00 1.00
 25. 
1.001.00
00  00 1.00 1.00
 100. 
Iowa 
00 1.00 
 56. 
Kansas  00 2. 00 5.
00 1.00 3. 
60. 
Kentucky  00 4. 00 7.
Louisiana  00 0. 00 1. 1. 00 1. 00 2.  28. 
Maine  00 1.00  00 0. 00 0. 
1.00
00  00 1.00 1.00
 100. 
Maryland  1. 00 1.
00 1.00 1.00
 100. 
Michigan (4)  00 1. 00 3.

00 1.00 1. 
Minnesota 1. 00 0. 00  33. 
1. 00 00 0. 00 0. 
Mississippi  00 1. 00 4.
Missouri  00 1. 00 3. 1. 00 0. 00 1. 00  25. 
Montana  1.00 0. 00  00 1. 00 1.  33. 
00 1.00 00 0. 00 0. 
Nevada  1. 00 0. 
00 1. 00 00 0. 00 0. 
New Hampshire  1.0000  0.  1.00 00 0. 00 0. 
New Jersey  1.00 4.
00 0. 00 2.  50. 
New York  00 0. 00 2.
North Carolina (4)  00 1.00 4.  00 0. 00 2.  100. 
00 1.00  1. 00 0. 00 1. 00  25. 
North Dakota  1.00 00 0. 00 0. 
Ohio  00 0. 00 6.
00 0. 00 3.  50. 
Oklahoma  00 2. 00 3.
1.00 0. 
00 1.00  33. 
Oregon  00 0. 00 1.
pennsyl vania  00 0. 00 2.  1. 00 0. 00 1. 00  100. 
00  00 0. 00 2.  100. 
South Dakota  1. 00 1.
00 1.00 1.00  100. 
Tennessee (4)  00 0. 00 3.
1.00 0. 
00 1.00  33. 
Texas  23. 00 0. 00 23. 20. 00 0. 
Utah (4)  00 1. 00 1. 00 *****  86. 
00 0. 00 0. 
Virginia  00 1. 00 5.
00 1.00 5. 
00  100. 
Washington  1.00 6. 
00 1.00 4. 
1.00  66. 
West Virginia  1.00 2.
1.00 1.00 2. 
Wisconsin  00  100. 
1. 0000  4.  00 0. 00 2.  50. 
TOTAL  ******36.  *151  68. 00 ***** *87  58. 
Source: OIG/ Office of Investigations.

(1) Referrals and acceptances for hospitals and doctors of medicine
and osteopathy through 12/31/87. Referrals include two 
cases
(CA and MO) in which the physician died before OIG decision.
(2)  Gross and flagrant violations.
(3)  Substantial number of substantial violations. 
(4) States with cases pending decision in OIG as of 12/31/87. 
TOTAL referrals and acceptances greater than sum of GF and SNS 
cases because referred and accepted cases include one (IA) for
lack of documentation. 
Note: No sanctions referred for: Alabama
, Alaska, American Samoa/
Guam , Connecticut, Delaware, Hawaii, Massachusetts, Nebraska
New Mexico, Puerto Rico
, Rhode Island, South Carolina, Vermont,
Virgin Islands 
, and Wyoming.  APPE"DIX XI:  TABLE B 
NUBER OF PHYSICIAN SANCTION REFERRLS  OIG ACCEPTANCES 
PER 1000 PHYSICIANS,  BY STATE  (1985-1987) 
NUBER  REFERRLS  NUBER  ACCEPTANCES 
NUBER OF  SANCTIONS  PER 1000  SANCTIONS  PER 1000 
STATE  PHYSICIANS (1)  REFERRD  PHYSICIANS  ACCEPTED  PHYSICIANS
816  1. 38 
656  1.04 
549
595
375
229
(3)  569
11, 266
914
977
055
110
50, 537 
2; 280 
057 
11, 922 
(3) 644 
382 
13, 895 
507 
(3)  10, 614 
346 
(3)  612 
24, 221 
10, 625 
(2)  11, 743 
(2)  92, 000 
555 
(3)  23, 654 
(3)  336 
521 
135 
10, 256 
11, 541 
38, 285 
50, 471 
56, 899 
924 
271 
132 
729 
773 
746 
29, 835 
718 
445 
519 
838 
593 
229 
698 
TOTAL  660, 599  139  _.,-
.- .
(COtTTINUED) 
APPENDIX XI: TABLE B 
Iii 
NUBER" OF PHYS1C SANCTION REFERRLS , OIG ACCEPTANCES,
PER 1000 PHYSICIANS, BY STATE (1985-1987) 
Source: OIG/ Office of Investigations and HCFA/ Bureau of Program

Operations.
(1) 
Includes doctors of medicine
, and osteopathy, and a limited
number of chiropractors
, pOdiatrists and optometrists eligible
for Medicare reimbursement as of 1/1/87. Physician data

unavailable for American Samoa/Guam, Puerto Rico, and the

Virgin Islands. 
(2) Sanction referrals for this state include one instance of

physician death before OIG decision.

(3) States with cases pending decision in OIG as of 12/31/87.
 APPEJDIX XI: TABLE C 
NUBER OF PRO SANCTION REFERRLS, OIG ACCEPTANCES 
AND REJECTIONS, !!Y STATE-- AND YEAR, (1985-1987) 
PRO  OIG  OIG
REFERRLS ( 1)  ACCEPTANCES (1)  REJECTIONS (1)
STATE  1985 1986 1987  1985 1986 1987  1985 1986 1987 
Arizona 
Arkansas 12 
California 
Colorado 
Dist. of Columbia

Florida 
Georgia(2)
Idaho 
Illinois (2)

Indiana 
Iowa 
Kansas 
Kentucky
Louisiana 
Maine 
Maryland
Michigan (2)
Minnesota
Mississippi
Missouri 
Montana 
Nevada 
New Hampshire

New Jersey

New York
North Carol ina (2)
North Dakota (2 )

Ohio
Oklahoma
o l 
Oregon
pennsyl vania
' 1 
South Dakota

Tennessee (2)
 14  14  ' 0 

Texas
Utah (2)

Virginia
Washington
West Virginia

Wisconsin
74  55  19 
TOTAL
Source: OIG/ Office of Investigations.
(1) 
Referrals, acceptances and rejections for hospitals and doctors 
of medicine and osteopathy through 12/31/87. 
Rejections include
two instances (CA and MO) of physician death before OIG decision.

(2) States with referrals pending decision in OIG as of 12/31/87. 

Note: No sanctions referred for: Alabama, Alaska 
, American Samoa/Guam,
Connecticut, Delaware, Hawaii, Massachusetts, Nebraska, New Mexico, 
Puerto Rico, Rhode Island, South Carolina, Vermont, Virgin Islands
and Wyoming.
 APPENDIX XI: TABLE D 
NUBER OF RURAL AND URBAN PHYSICIANS 
, PRO PHYSICIAN SANCTION REFERRLS
AND OIG  ACCEPTANCES, BY STATE AND PERCENT RURAL
, (1985-1987) (1) 
NUBER OF

PRO  OIG 
PHYSICIANS (2)
RURL  REFERRLS (3 )  ACCEPTANCES (3.) 
STATE  714 U5R BAN RURAL  RURL URBAN  RURL  RURL URBAN  RURL 
812
269 2, 
046
653 62,  100  100 
029
760 5, 
975 
106 22 
554 
99408 37,  
GA (4) 
868
100 
100
332 
IL  100 
(4)  852 22 475
455 6 
825
445 3,  100  100 
148
227 3 
752 3, 047 100 
100 
955
942 7 
024
821 1  100 
401
467 13, 
271
MI (4)  820 19, 
428
220 7  100  100
Y.N  596 1, 508 100 
533 
76181 98,   100  100
967
100 
100 
389
161 1, 
371 
100 
NA (5)
115  51, 601
NC (4) 83297 37  
712
ND (4) 
693 
089 19 
920
172 4 
174
166 4,  100 
262 
606 
257 26 
725
320 7, 352 19  100  17 
TN (4)  100
275 
100 
343  25, 798
320 2, 
UT (4) 
544
786 9 
379
059 7,  100 
100 
986
799 1, 
100
524
592 7  88  100  55  100
026
TOTAL  48, 355 383, 929 
Sources: OIG/ Office of Investigations
, PHS/ Bureau of Health

Professions 
, and U. S. Bureau of Census. 
(1) Rural areas defined as outside Standard Metropolitan Statistical Areas 
(SMSAs) listed in 1980 Census data. Urban areas defined as within SMSAs.
(2)  Includes doctors of medicine and osteopathy practicing in 1985. 
(3)  Referrals and acceptances only for doctors of medicine and 
osteopathy through 12/31/87. Referrals include two instances
(CA and MO) of physician death before OIG decision. 
(4) States with referrals pending decision in OIG as of 12/31/87.

(5) Data not available. 
Note: No sanctions referred for: 
Alabama, Alaska, American Samoa/ Guam
Connecticut 
, D. C., Delaware, Hawaii, Massachusetts, Nebraska, New
Hampshire 
, New Mexico, Puerto Rico, Rhode Island, South Carolina
Vermont , Virgin Islands, and Wyoming.  ----,--_... 
APPENDIX XII

COMMNTS ON OIG DRAFT REPORT AND OIG RESPONSE TO 
COMMNTS 
We received comments on the draft report from the Administrator

of the Health Care Financing Administration 
(HCFA); the Assistant

Secretary for Management and Budget 
(ASMB); the Assistant

Secretary for Planning and Evaluation 
(ASPE); the Director of

Program Evaluation and Methodology of the U. 
Office  S. General Accounting
(GAO); the Executive Vice President of the American 
Medical Peer Review Association 
American Hospital Associati(oADMP R(AA);H a)n. d the President of the

We made a numer of changes based on these comments. 
Most
notably, we eliminated a recomendation calling for the Secretary 
to be granted sole responsibility for determining the type and 
extent of sanctions to be imposed following PRO determination 
that the care in question is sanctionable. 
Below / we pre ent each of th  recommendations set forth in our

draft report. After each 
recommendation, we present all the

comments that were directed to that recommendation and then our
response to the comments. 
Subsequently, we include additional
comments by the reviewers ana, once again, our response. 
The Department should submit a legislative

proposal to amend Section li56 of the PRO

statute to strengthen the monetary penalty as

an effective alterntive sanction by allowing 
an imposition of a monetary penalty of up to
$10, 000 per violation for substandard, 
unnecessary, or uneconomical care. 
HCFA Comments 
We agree and we will assist the OIG in preparing such a legisla

tive proposal.

AHA Comments 
The AH is opposed to any efforts to increase the monetary

sanctions against physicians 
I hospitals, or other health care
entities (hereafter referred to as "providers" 
) for rendering
care which is determined to be substandard
, unnecessary or
uneconomical. The AH shares the desire 
that all patients
receive high quality care rendered in an efficient manner
, and

recognizes that instances arise where medical and hospital

services may be provided which are inappropriate in terms of

quality or efficiency. It is our position, however, that
monetary penal 
ties, at any level, are an ineffective mechanism to 
insure compliance with PRO standards.  There is no showing in the report that monetary sanctions could 
be expected to have a positive effect on the pr  am. In fact,
according to page 16 of the report, the OIG has apparently not
found monetary penal 
ties to be cost effective. Education and 
moonifto ricng ato ernseure .co mpMliancoe netary penal  is  the way to i  rove the quality
ties should be used only to reimburse 
HCFA for services which were unnecessarily or poorly performed. 
OIG Response:

ex
The authority to impose a monetary penalty instead of 
clusion from participation in Medicare was enacted prioan r to the 
advent of the prospective payment system for hospitals. Accord
is now difficult in many cases to determine the "actual 
ingly,  it 
or estimated cost" of substandard or unnecessary hospital-based

services for the purpose of imposing a monetary penalty.
Furthermore 
, because of the current statutory formula for 
assessing a monetary penalty, the amount of such penalty is 
frequently very small, appears to have little deterrent value, 
I s cost 
and is disproportionate to the Federal Government 
processing such a case. By authorizing a monetar penalty of up

to $10, 000, Congress would allow for a viable alternative to

exclusion from Medicare participation: the authority to impose
monetary penal ties commensurate with statutory vi lations. 
The Department should submit a legislative proposal to

amend the PRO statute to provide that the failure of

heir patient

physicians or providers to comply with  itself,
care obligations under Section 1156, iu 
consti tutes a sufficient basis for sanctioning. Thus 
the separate requirement that, in order to be sanc
tioned, physicians or providers must demonstrate an 
unwillingness or lack of ability" to coply substan
tially with their obligations to Medicare beneficiaries
should be deleted. 
HCFA Comments 
We agree and we will assist the OIG in preparing such a legisla

tive proposal.

AH 
Comments 
opposed to any efforts to weaken the standards used to 
The AH  is 
determine whether providers should be sanctioned. Removing the 
unwillingness or lack of ability" standard will result in a 
I s emphasis: from education
fundamental shift in the PRO program 
and corrective action to punishment. 
This is inconsistent with 
the fundamental purposes of the program and will serve to further 
weaken PRO credibility.  The report states that one ' reason to remove the "unwillingness or
lack of ability to comply" standard is to "
address the confusion
relating to what constitutes 'unwilling or unable. 
'" We believe
that this confusion would not exist however, if PROs were 
instructed to perform comprehensive fact finding of the par
ticular situation, resulting in a report detailing all relevant
facts 
, all discussions with witnesses and all conclusions 
reached, including whether the provider is "
willing and able" to
comply with the patient care obligations. 
OIG Response:

Under the prior PRO statute, a failure to comply with the

specified statutory violations was considered evidence of a

practioner' 
s or provider' s " unwillingness or lack of ability to
comply" with these requirements. Accordingly, the Department did 
not have to make a separate independent finding on the un
willingness/inabili ty issue. Under the current statutory
structure, the " 
unwillingness or lack of ability" requirement 
difficult 
mtahkes eit  
 AH cquitae  lls for,  , even with comprehensive fact finding as
for PROs and administrative law judges to
determine whether or not there is a sufficient basis for

sanction. By 
eliminating this requirement Congress would, we

still believe, allow for a more effective and efficient

administration of the sanction authority set forth in the

statute. 
The Department should submit a legislative

proposal redelegating to the Secretary the sole

responsibili ty for determining the 
type and extent

of sanctions to be imposed following a PRO

determination that the care in question is

sanctionable. 
HCFA Comments

We believe that this recommendation would weaken the authority

and credibility of PROs. 
The DIG study has not established that
inconsistencies in the type and extent of sanctions are a
problem. 
Redelegating this authority to the Secretary would only 
add an additional level to the sanction process and would not 
improve the consistency of decisions on whether or not to
sanction. 
ASMB Comments 
We would appreciate seeing additional 
information on the resource
and cost 
implications of the proposed 
legislation, for both the
PsaRnOcst iaonnd   tahcet iOvfift iiecse.  of the Secretary,  in the final report on AHA Comments

The report argues that removing PRO input into the sanction

process will alleviate the "inherent" frustration and conflict in

the concurrent roles of the PROs as educators and enforcers.

disagree. 
Local input is essential to the sanctioning process. PROs,

issue and the provision of medical 
familiar with the facts  in 
the relevant area, are in the best position to understand 
care  in 
the particular situation and reach a conclusion about the
seriousness of any offense. As 
such, they are best able to 
recommend any action which the OIG should take.

Further 
, we do not believe that removing the reconmendation 
function would alleviate any perceived conflict between the PRO' 
educative role and enforcement role. PROs would still be viewed 
as policemen, even if they were not viewed as district attorneys. 
Removing PRO input into the sanction decision will also fail to

advance greater nationwide consistency in the application of

sanctions. The current system vests final sanction authority

with the OIG, which is free to reject PRO recommendations.

Inconsistent application of sanctions, therefore, results from

not  PROs. 
Measures to assure 
inconsistencies endemic in the OIG, 
greater nationwide consistency in the application of sanctions 
can most appropriately be established by promulgating clear, 
consistent regulations which govern the sanctioning process and 
which can be understood and followed by all PROs and the OIG. 
Removing the recommendation function from PROs will only serve to
remove vi tal input into the sanctioning process. 
OIG Response:

In view of the points and concerns raised in the above comments, 
we have decided to eliminate this recommendation. While it 
would, we believe, tend to promote greater nationwide consistency 
in the application of sanctions, we recognize, as AH notes , that 
it could remove an important local component to the sanctioning 
process. 
The HCFA should explore and document the reasons 
sanction activity 
for considerable variation  in 
among the PROs. 
HCFA Comments

The changes to the next PRO scope of work should help to relieve

some of the variation that the OIG has identified. To this end

we have mandated a national quality intervention plan that must

be used by all PROs. The quality intervention plan will lead to

more consistency and uniformity in PRO interventions. After we
 , have the 
new scope of work  in  place for a period of time, we will
revisit this issue if the OIG, at that time, thinks it necessary. 
We believe that the OIG is the best entity to study the impact of

the Omnibus Budget Reconciliation Act (OBRA) of 1987 on sanction

activities because OIG retains the responsibility for pre-

exclusion hearings. We will be glad to cooperate in this

endeavor. 
AMPRA Comments 
AMPRA supports but would appreciate reviewing study design.

AH 
Comments 
Throughout the report the OIG  regarding the
exresses concern 
variation in sanction activities among the PROs. The AH 
supports further research into why this variation exists. 
Any
proposal for legislative change should follow such research and 
suggested legislative changes contained in the report are 
therefore, premature.

We suggest that one reason for any variations in sanction

activity is lack of clarity with respect to what constitutes a

sanctionable offense. As discussed below, the definition of

professionally recognized standards" is ambiguous. 
We believe 
that this and other flaws contained in the regulations and PRO
playa 
Manual 
large part in the differing degrees of sanction 
activity at the local level. 
We do not believe that the recent amendment contained in the OBRA

of 1987 , which requires pre-exclusion hearings for providers

located in rural health manpower shortage areas or in counties

with populations of less than 70, 000  further inhibit PROs 
will 
from making sanction referrals. The report states 
that" (oJur
study suggests that enactment of the OBRA 1987 provision may 
further inhibit the PROs from making sanction referrals to the

OIG due to the added complexity and delay it brings to the

sanction process.  (Report, p. iv) In fact, there is no data in

the report to support this conclusion. We believe that should

there be any reduction in sanction activities after the enactment

of this provision, it is most likely because additional fact-

finding has revealed that the particular offense is non

sanctionable. For this 
reason, we strongly urge pre-exclusion
hearings for all providers, regardless of the geographic or

demographic characteristics of the area. 

As table A to appendix XI of the report indicates, the OIG 
rejects 42 percent of all sanction recommendations. This 
indicates that still further safeguards are necessary to protect

providers from unnecessary subjection to the sanctioning process.

Pre-exclusion hearings for all providers will serve this purpose.
 OIG Response:

We have left this recommendation unchanged. 
For the reasons

stated in the text  as important to understand more
, we regard  it 
clearly the reasons behind the considerable variati 
n in PRO 
sanction activity. Moreover, we continue to feel that the 
responsibility for studying this recommendation rests more 
directly with HCFA than OIG. The HCFA has the responsibility for
developing and overseeing procedures concerning the identifica
tion of sanctionable activities. The OIG'
s responsibility is to
rener 
respond to the referrals once sent to us and to  assistance 
that can facilitate the referral process.

The HCFA should explore and document the reasons for

the apparent higher rate of sanction reccmendations

pertaining to physicians practicing in rual versus

urban settings. As part of this effort, HCFA should

study PRO review procedures to ensure that sanctionable

activities by urban physicians are being identified

when appropriate.

HCFA Comments

We have no reason to believe that PROs are not identfying
sanctionable activities by urban physicians. 
We also disagree
with your comment that the review (i.
e., its sampling techniques)

is biased against rural physicians.

The requirement that each PRO review a certain 
percetage of each

hospi tal'  th PRO 
s Medicare admissions does not result 
reviewing a greater percentage of each rural phiny  sicin I 
s Medicare 
admissions than a physician practicing in an urban 
hospital. The
PROs currently select a hospital-specific 3 percent random

sample. The random sampling 
sed by PROs

(selection) technique 
and required by HCFA does not discriminate against large or

small, rural or urban hospitals. Over time, the s  le would

resul t in a 3 percent sample of discharges for each physician.

As in all random samples, chance plays a role in the 
actual cases
selected. The likelihood of a physician appearing in a random
sample is based solely upon the numer 
of bills he or she submits 
not dependent upon the size of the hospital. 
and  is  It is 
possible that at a specific point in time
, the cases selected
could be more heavily weighted towards one physicia  while 
another physician may not have any cases in the s8mle. 
It is 
important to keep in mind, however, that this could occur whether

the physician practices in a small rural hospital or in a large

urban hospital. Thus, as the selection methodology is a purely

random sample without inherent biases, there is no reason to

discriminates against physicians with respect to 
assume that  it 
the location of their practice.  The probability of identifying an inadequacy in a physician' 
practice increases only when more of that physician'
s cases are
rev iewed. 
Obviously, if the case load of a physician in a rural 
hospital is greater than that of a physician in an urban hospi

tal, then the rural physician has more cases reviewed and thus

stands a better chance of having a problem discovered--if indeed

a problem exists. However, if a physician treats the same numer 
oof cfas ecs ases bin eiann ugrba nr heospvitail,e  wed.  it  would result in an equal numer
Thus, the probability of identification
of a problem is the same. 
If each physician treats fewer cases
then each physician has less chance of having a '
problem dis
covered simply because there are fewer cases reviewed, whether

the setting is urban or rural. 
Frankly, we do not see this 

giving advantage or disadvantage to urban or rural physicians. 

physician only stands a better chance of having a problem

identified or being subject to more review if he has a dispropor

any setting. The thrust of review
tionate number of cases  in 
to the numer and type of cases. The important fact to note is 
that the protection afforded to the patients will always be the 
same , regardless of the number of admissions each physician has, 
because the review is directed to the numer of total admissions 
or of admissions of a certain type.

We do not believe that the criteria used by PROs contribute to

more rural physicians' cases failing the criteria than urban

physicians 
' cases. The only criteria used by PROs are utiliza
tion 
criteria. We have begun an intensive review of the PROs'
criteria sets. Our review, thus far, has not demonstrated that

there is any inherent bias in the criteria. 
The criteria are

used by medical review coordinators to screen potentially

aberrant cases for intensive physician review.

For quality review, the PROs use HCFA' s generic quality screens
as the screening tool (i. 
e., criteria). If a case 
fails a 
generic quality screen, the case is referred to a PRO physician 
for review. As you know, PROs are required to use
, for final'

determinations about quality and utilization, a physician who

practices in a setting similar to the one in which the attending 
physician practices. In addition, the PRO criteria are furter
validated by HCFA' s independent contractor, the "SuperPRO.  The
"SuperPRO" is an organization of health care professionals whose

responsibility is to review the accuracy of PRO determinations

and provide HCFA with an independent, professionally recognized

evaluation of PRO medical determinations.

The OBRA of 1987 added certain provisions which should augment 
pthe PrRO roevievw proicesds as eit rrelastes .to  rural areas. The 
amendments include provisions that require
, if necessary, a
change in the PRO standards in remote rural areas and a 
particular emphasis on education of rural physicians and numer of 
As noted in the study, the actual  sanctions recommended 
too small to determine whether the apparent disproportion of 
is 
rural sanctions represents anything more serious than a statisti
cal artifact from a small sample. Given that the OIG was unable 
to identify a bias in the selection of PRO reviews and the 
numerous OBRA mandated changes related to the review of rural 
care and due process , any additional study of this issue would be 
premature and unlikely to reach reliable conclusions. 
AMPRA Comments 
AMPRA supports.

AHA Comments 
The AH is concerned about apparent disproportionate sanction 
rural settings. We support
activity for physicians practicing  in 
efforts to study whether the sanctioning process is somehow

biased against rural providers and practitioners. We are not

convinced 
, however, that urban providers and practitioners are 
somehow being reviewed in a more lenient manner, and that 
sanctions should be increased in these areas to bring them into 
line with a perceived "appropriate " level of sanctions in rural 
areas. 
We also will continue to strive to achieve uniformity between the

sanction regulations and the regulations that allow denial of

payment for substandard care. This does not mean, however, that

we are agreeing at this time to modify our position that the

beneficiary has to have an adverse outcome before a denial for

substandard care is effectuated.

DIG Response:

o the HCFA comments, we must note that we did not

In response 
report that the process for reviewing quality of care problems is

biased against rural physicians and providers. Indeed, we

reported that a majority of the respondents felt that the review

system was free of such bias.

However, on the basis of our analysis we did find and report that 
rural physicians have been sanctioned at a higher rate than urban
ones. For 
the reasons stated in the report, we continue to feel 
that such an inquiry is warranted. Moreover, for the same 
reasons stated in response to the previous recommendation, we

feel HCFA is best suited to initiate the inquiry.

A HCFA/OIG workgroup should be established to improve
communications about 
the PRO quality of care review and
sanction process. '  , .
HCFA Comments

While we agree with the recommendation, ' we do not agree with the
group' s charter as outlined in the draft report. We continue to 
believe that HCFA retains the responsibility for establishing the 
guidelines used by PROs in addressing quality of care problems.

As in the past, we will continue to seek and analyze input from
other sources (including the 
OIG) in defining and/or modifying 
these guidel ines for the PROs. 
AMPRA Comments 
AMPRA strongly supports.

AH 
Comments 
The AH is supportive of 
this effort directed towards impr  ving
the qu lity of care review and sanction process. 
OIG Response:

Upon further consideration, we have withdrawn our recommendation 
for a formal HCFA/OIG work group. We believe that ongoing
communication on the kind of issues stated in the recommendation
is vi tal to the 
placeeffec.tiv e performance of the PRO program. 
However, after discussing the matter with HCFA and OIG represen
tatives, it appears that improved communication can best be 
achieved in more informal ways, building on the links already in
The OIG should increase the number of regular

meetings and other communications with the PROs to

provide them guidance regarding their statutory

and regulatory sanction requirements.

HCFA Comments 
We agree with this recommendation and are ready to assist the OIG

in arranging these meetings.

AMPRA Comments 
AMPRA strongly supports. We are particularly  interested in 
improving communications between PROs and HHS Department lawyers
in preparing for administrative law hearings. 
AH 
Comments 
The AH supports this recommendation. We believe, however, that

any policies developed to provide the PROs with guidance regard

ing their sanction responsibilities should be promulgated via the

regulatory process to provide for input from interested parties.
 , '

OIG Response:

The OIG is committed to the meetings and communications called

for in the recommendations. In this final report, this commi

ment is stated as part of the introduction to the recomendations

rather than as a recommendation in itself.

The OIG should issue regulations that will clarify 
the scope of the PROs' authority to determine what
consti tutes professionally-recognized 
standards of 
heal th care wi thin their jurisdictions.

HCFA Comments

We disagree. We believe that national standards such as those

that would be developed by the OIG would need to be modified to

take, into account, for 
example, the setting in which the care was 
delivered, amount of resources available as support to the 
attending physician, etc. We think the guidelines proposed in

our regulation regarding denials for substandard care will

strengthen the authority for the PRO to determine what

constitutes professionally-recognized standards of health care in

its area.

GAO Comments 
. . . the tenuousness of the link between sanctions 
and health care quality makes the reader question 
whether the OIG should be involved, as you
recommend , in issuing "regulations that will 
clarify the scope of the PROs' authority to 
determine what constitutes professionally-
recognized standards of health care within their
jurisdictions. 
Normally, this would seem to be a 
function of the' relevant medical or professional
s i 
communi ty and the OIG'  vol vement, therefore, 
would have to be justified, I presume, on the 
knowledae  that a stronger sanctions 
grounds of 
process would cure the quality problems that have

been found. I would have felt more comfortable

with the recommendation if such knowledge had been

presented. As things stand, it seems to me that

this recommendation can be seen as going beyond

your data. 
AMPRA Comments 
AMPRA supports.
 AHA Comments

The AH supports any efforts which can be directed towards 
clarifying what constitutes "professionally-recognized standards
of health care.  Section 1154 of the Medicare Act (42 U. S.
S 1320C-3 (a) (6)) provides some guidance on this issue. 
states that PROs shall "apply professionally-developed norms of
care 
, diagnosis, and treatment based upon typical patterns of 
practice within the geographic area served by the organization... 
taking into consideration national norms where appropriate. 
The 
statute further states that such norms shall take into account

"differing but acceptable" modes of treatment
, methods of

ofragacniilziitnyg  aundn ddeleivrer icngo cnarse idande trhae ttiyopen o.f  health care

We believe that any efforts to clarify the definition of "profes
sionally-recognized standards of health care" must take into 
consideration regional variations in the provision of health care

services. Such consideration is mandated by the PRO statute, and 
by case law interpreting the statute.  See. e. a.. Greene v. 
D. Cal. 1986). 
Bowen , 639 F. SUppa 554 (E.  There, the court 
rejected the Department of Health and Human Service' s position
that the standard of care appropriate to a specific geographic

area was irrelevant to the determination of a gross and flagrant

violation. 
Therefore, while we support efforts to clarify the definition of
professionally-
recognized standard of health care, " such 
clarification must take into account regional variations concern
ing methods of practice. The AH stands ready to work ' wi th the 
OIG in developing requisite standards in this area. 
OIG Response:

In response to the comments, we have revised the recommendation

to make it clearer that what we are calling for is further
clari ty in the professionally-
recognized standards of health care
to which physicians and providers are expected to conform. 
recognize that this is a complex issue calling for careful

consideration but it is vital to provide further clarity on it.

Toward that end, we are developing a specific regulatory proposal

and will issue it shortly for review and comment.

The OIG should develop an independent medical

advisory panel of outside medical experts that OIG

physicians may consult with in reviewing the PROs

sanction referrals to the OIG.

HCFA Comments

We agree but believe that a PRO physician should be part of the

panel, as he/she can best explain why the PRO is recommending the
 . '
sanction action (including an explanation of the local practice
standards). If 
the OIG plans to use only a national panel, this 
would cause problems as far as local practice patterns are
concerned. In addition, the 
panel would have to contain 
specialists in all fields and the specialists would have to be

further divided into urban and rural groups.

AMPRA Comments 
AMPRA strongly supports.

AHA Comments 
The AH supports this 
recommendation. We believe that 
independent medical advisory panel will provide needed input into 
the sanctioning process, and will provide further expertise in 
evaluating situations referred by the PROs for sanction. 
OIG Response:

Here again, as with the draft recommendation concerning meetings 
between the OIG and PROs , we have recast the recommendation as a 
statement appearing in our introduction to the recommendations. 
Additional Comments bv ASMB

My staff and I are finding the series of OIG reports on Peer

Review Organizations (PROs) useful in helping us better under-

stand the PROs' mission and activities. We are also impressed

wtithh ethe  amtteenttiohn too ddeotaill oangd dyat a qsuaelicty tcointoroln fsoun.d  in


We recently reviewed the second draft report on sanction

activities. We concur with the report, but would like to
 request
that additional information on one of the recommendations

provided in the final report.

OIG Response:

The recommendation addressed by ASMB was the one calling for the

Secretary to be granted sole responsibility for determinig 
the 
type and extent of sanctions to be imposed following a PRO
determination that ,the care 
in question is sanctionable. As 
noted earlier, we have eliminated that recommendation. 
ASPE Comments

Thank you for the opportunity to review the draft report entitled 
"The Utilization and Quality Control Peer Review Organization 
(PRO) Program: Sanction Activities.  My primary concer is one
of format rather than substance. Specifically, over 50 percent
of this approximately 60 page report consists of appendices which  . ,
give background information on PROs and which are exactly

duplicative of the appendices in the OIG report we reviewed a few

ty review acti vi ties. 
weeks ago on PRO qual  This draft report on
sanction activities is the second in a series of three inspection
reports assessing the PRO program. 
Rather than issue three 
reports which are largely duplicative of each other, I recommend 
that the three reports be consolidated into one comprehensive
report which assesses the entire PRO program. 
This seems 
preferable to reiterating the same 30 pages of background 
of the three documents. 
information  in  each "  Further, consolidat
ing the reports makes particular sense given that the subject 
matters of the three reports are closely interrelated. For
example , both the first report (on quality review activities) and 
this report (on sanction activities) discuss issues related to 
sharing information with State Medical Boards.

Additionally, I have two minor suggestions with respect to this

report specifically: 
the third sentence of the first 
On page  iii, 
paragraph should be revised to refer to the 
or unwillinaness of rural physicians

"inabili ty 
and providers to correct substandard medical

practices identified by the PROs.  This proposed

change is in keeping with the statutory require

ment that in order to be sanctioned, providers

must demonstrate either an unwillingness or lack

of ability to comply with their obligations to

Medicare beneficiaries.

i v and v of the executive sumary 1 ist 
Pages  i ii, 
recommendations made by the OIG with respect to 
the sanction process. Pages 21, 22, and 23 of the 
report reiterate the same recommendations ver
batim, I recommend that they be put in the body of
. the report 
and then just summarized in the
executi ve summary. 
OIG Response:

We appreciate ASPE' s concern about format. We issued separate

reports rather than one comprehensive report because that

approach enabled us to present our findings and recommendations
in a more timely manner. 
Since each report was, therefore
, a
stand-alOne piece, we decided to include the same background 
information in each.

For those reading all three reports, we recognize that this

manner of presentation can be tedious.  For that reason, in our

third report, we have incorporated more of the background

information into the appendices.
 ._.  .- .
wi th respect to ASPE' s two other suggestions, we have made the

suggested addition in the recommendation concerning rural

physicians and providers, but have chosen not to present a more
abbreviated set of recommendations in the executive sumry.
Because the recommendations are somewhat complex, we feel that 
some explanation is important, even in the executive sumary. 
Additional GAO Comments

This letter responds to your request of April 5 for my comments

on your draft report, "The Utilization and Quality Control Peer

Review Organization (PRO) Program: Sanction Activities.

Overall, I found the paper interesting and useful. 
It was a good

idea to take a discrete look at sanctions in the PRO program, I

think 
, because it' s always uncertain what emphasis will in fact
be placed on deterrence mechanisms when they are housed together 
with service functions (e.g., when sanctions are located cheek by

jowl with education, as in the PRO program; or with incaBe

certain welfare programs; or with protection,
maintenance, as  in 
as in some police programs). 
So it seems very worthwhile to
examine this question separately. 
because  you' re looking at sanctions separately, it
However, 
becomes very important not to overestimate the value of deter
rence (and underestimate the value of other factors) in creating

quality. Can the case be made, as your report seems to assume it

tiaht 
can, that there is a  cause-and-effect relationship between
sanctioning physicians or providers generally, and quality of 
care? To make that case, wouldn't we need to know more about 
(1)
the actual distribution and kinds of quality-of-care problems 
that currently exist (so as to be able to infer whether sanctions

could solve them) and 
(2) the actual effects of a strong sanc
tions process on (a) PRO performance and (b) quality of care?
What we are given in the report is people'  opinions 
that the
sanctions process strengthens the PROs' ability to carry out 
their mission. But while I think most people would agree with

this 
, it nonetheless provides only weak support for one
 f your

recommendations. 
Indeed 
, the tenuousness of the link between sanctions and health

care quality makes the reader question whether the OIG should be

involved, as you recommend
, issuing "regulations that will

clarify the scope of the PROs' authority to determine what

consti tutes profp.ssionally-
recognized standards of health care
within their jurisdictions. 
Normally, this would seem to be a
function of the relevant medical or professional community and 
the OIG' s involvement, therefore, would have to be justified, I
presume  knowledae 
, on the grounds of  that a stronger sanctions
process would cure the quality problems that have been found. I
would have felt more comfortable with the recommendation if such  knowledge had been presented. As things 
stand, it seems to me

that this recommendation can be seen as going beyond your data.

In the same way that this recommendation would have been bolster

ed by more documentation of the specific quality problems PROs

have reported, I think your other recommendations would have been

helped if more distinctions had been made among respondents in

your presentations of data. 
In many cases, combining all the

responses masks important information which thereby gets lost.

The reader is interested not only in general results
, but also

wants to know, say, how the perceptions of PROs may differ from

those of the various external entities 
(p. 12), or how respon

dents may vary in citing reasons for differences in sanction

activity 
(pp. 13-14). Such a breakout  given in the report in
one case (pp. 16-17) and differences between groups were impor
tant to understand. figure V especially 
(p. 19), should be
desegregated and broken out by type of respondent.

Finally, two technical notes. 
First, you've probably corrected
this already but there is some inconsistency in the presentation 
of the numbers (given first on 
p. 11) as the reader proceeds
through the report. Second, you may want to update your

description of our work on p. 33 by a reference to the final
report, Medicare: 
Improving Quality of Care Assessment and
Assurance, GAO/PEMD-88-10. This is 
April 29.  scheduled to be published
Also, you could update your reference to our PRO 
effectiveness work by saying that PEMD' 
s evaluation of PRO 
quality and utilization review activities is underway and
preliminary descriptive findings are expected in late 
1988. 
OIG Response:

We accept the caution about overestimating the value of sanctions

and deterrence. We recognize that there is not necessarily a

tight cause-and-effect relationship between sanction activity and

quality of care. 
Indeed, we point out in the report that a
reduction in PRO referrals may mean that the PROs are 
successfully addressing quality problems through the education

process. It may also mean that the financial and political costs

associated with sanctions are too high. 
Clearly, this is an area

warranting further study.

On the matter of making more distinctions by type of respondent,

we recognize that further detail of this kind can be useful. 

the same time, we must impose some limitation in how much we

include on one report. Where significant 
differences appeared

among respondents, we did indicate those differences in the text.

On the two technical notes mentioned, we added brief

clarifications that explain the inconsistencies in sanction data

reported. Also in 
accord with GAO' s suggestion, we have made
updates to reflect the more recent GAO work.  Additional AMPRA Comments

On behalf of the American Medical Peer Review Association

(AMPRA), I appreciate the opportunity to comment on your draft
report entitled 
, "The Utilization and Quality Control Peer Review
Organization 
(PRO) Program: Sanction Activities. 
AMPRA concurs with the major findings of the report. 
We caution
against drawing conclusions about the variation in the 
numer of
sanction recommendations by PROs until further study. 
The
absence of a low number of sanction recommendations is not 
tsel f, an  , in
indicator of poor performance; it may indicate just
the reverse. AMPRA appreciates the report' 
s recognition of the
problems PROs face in interpreting statutory and regulatory

requirements 
, particularly the meaning of providers' "unwilling
ness or lack of ability" to comply with Medicare obligations. 
are pleased that most respondents in the study agreed with 
AMPRA I S long standing position that the PRO review process" is
free from systematic bias against rural physicians and
providers. " 
The report' 
s recommendations are, on the whole , well conceived
and may provide needed solutions to some 
remaining problems with 
sanction process. 
the  PRO 
OIG Response:

We agree on the need for further study on the reasons for the

considerable variation in sanction activity among the PROs.

Addi tional AHA Comments 
I want to thank you for the opportunity provided to the American

Hospital Association (AH) to comment on your 
entitled "  draft report

The Utilization of Quality Control Peer Review
Organization 
(PRO) Program: Sanction Activities" (the report).
The review activities of PROs are an issue of great concern to 
our members , and one which we are following closely. 
We agree
that the PRO review process is an important tool to ensure the 
provision of efficient, quality medical care to Medicare

beneficiaries. 
In order for the PRO sanction process to achieve its objectives

however  numer of significant 
, it appears that a 
changes will be
necessary. We agree with many of the findings and certain of the 
recommendations contained in the report, and believe that by

raising the subject and providing a framework for discussion, it

makes a useful contribution.

We have fundamental concerns 
and differences, however, with

various of the positions and
recommendations stated in the

document. Chief 
among these concerns is the apparent lack of
 ..,-_...  .- ,  -_.. 
co. 
sensitivity to the need for due process safeguards in the

sanction process. Given the 
severe nature of the sanctions which

may be imposed, the provision of such safeguards is essential.

The report, however, appears to take the opposite view
, seeking

ways to relieve the "cumbersomeness of the due process

procedure. " 
We are also concerned about what we perceive as an underlying

thrust of the report--to increase sanction activity as a goal in

itself. The AH believes that 
PROs can review the provision of 
a manner which is not punitive to practitioners and 
care  in 
providers rendering that care. 
The PRO program was established
in large part to educate providers about ways to render efficient
and high-
quality medical services. PRO concerns echoed through-
out the report regarding ways to emphasize this educative role 
are poorly served if PROs are urged to increase their sanction

statistics at all costs.

The report puts forth what we consider to be the false notion

that the PRO program can be improved by authorizing monetary

penal ties,  important functions in the Office of
Inspector Gceentrnal eiz ral, ainng d reducing procedural safeguards. 
believe that each of these actions would be counterproductive.

Instead, the AH 
believes the following to be essential for the
improved performance of the PRO program: 
that the educative role of PROs be re-emphasized,

including a restructuring of sanctions away from

punitive measures and towards corrective action;

that the authority to review cases and recommend

sanctions be retained by the individual PROs; and

that the PROs be given detailed guidelines in the

form of regulations setting forth standards

against which provider performance is judged, and

detailing the due process procedures to be used

throughout the review process.

These steps taken together will ensure that the reviews 
 and
sanctions are undertaken at the most appropriate level--the local

PRO--where the familiarity with each case and situation is the

greatest. They will provide both the PROs and those subject to

review with a clear understanding of their duties and rights
, and

will enable the PROs to undertake progressive, remedial actions

which can correct problems at an early stage
, rather than waiting

for them to reach maj or proportions. They will ensure that those
insti tutions 
and persons coming to the attention of the OIG and
facing, potentially severe 
reprisals will receive rights and
protection commensurate wi th the sanctions.  ---- 
These and other recommendations, as well as the comments of the 
the report, are contained in 
AHA to the recommendations made 
 in 
the attached document which is made a part of this letter. 
We believe that the opportunity is now at hand to discuss a wide

range of issues concerning PRO performance, and to initiate steps

which will ultimately lead to improved pa ient care. We look

forward to working cooperatively with you and the other inter

ested parties in this regard.

OIG Response:

We agree on the importance of educational efforts. We also 
believe that there is an important role for sanctions if PROs are 
protecting Medicare beneficiaries. Due 
to do an effective job  in 
process safeguards are vital in this process. At the same time 
it is , we believe  legitimate and important to identify 
quite 
ways in which the sanction process can be carried out more 
efficiently and effectively. 
It is important to recognize that the section 1156 implementing
regulations 
(42 C.  R. Part 1004) have been drafted to assure 
adequate due process for providers and physicians while 
protecting the right of Medicare beneficiaries to receive high 
ty health care. The existing sanction procedures have been
qual 
upheld , to date, by each U. s. Court of Appeals to review them. 
Varandani vs. Bowen  Cassim 
See  , 824-F. 2d 791 (9th Cir., 1987), 
vs. Bowen  Dovle vs. Secretarv 
824-F. 2d 791 (9th  cir.,  1987), and 
of Health and Human Services  (1st Cir., June 3, 
---- F. 2d  Cir.,
1988). See  Koespel vs. Heckler, 797 F. 2d 858 (loth 
also 
1986) and, Ritter vs. Cohen, 797 F. 2d 119 (3rd Cir., 1986).