Department of Health and Human Services 

. OFFICE OF 

— 

INSPECTOR GENERAL 

THE SANCTION REFERRAL AUTHORllY 

OF PEER REVIEW ORGANIZATIONS 

APRIL 1993 OEI-01-92-002S0 
— 

— 

— 

.-
EXECUTIVE SUMMARY


PURPOSE 

The purpose of this study is to assess the trends and problems associated with the 

Peer Review Organizations’ use of their sanction referral authority. 

BACKGROUND 

Since their establishment in 1982, the Peer Review Organizations (PROS) have 

reviewed millions of inpatient medical records to confirm the necessity, quality, and 

appropriateness of care rendered to Medicare beneficiaries. One controversial aspect 

of the PROS’ responsibilities has been their sanction referral authority, which requires 

them to recommend that the Office of Inspector General (OIG) sanction physicians 

and hospitals responsible for violating their Medicare obligations, as specified in 

section 1156(a) of the Social Security Act. If the OIG accepts a PRO’s 

recommendation, it can sanction physicians and hospitals by excluding them from 

participating in Medicare and all State health care programs or by imposing a 

monetary penalty. 

In this report, we provide an update on the extent to which the PROS have been using 

that authority and the difficulties they experience with it. We offer three options for 

policymakers to consider. We reviewed the PRO sanction referral data for FYs 1986 

through 1992 and intemiewed representatives of 10 pROs. Among those 10 were 

PROS that, during Fiscal Years 1990 and 1991, had made at least 1 referral leading to 

a sanction, PROS that had made referrals that were rejected by the OIG, and PROS 

that had made no referrals. . 

FINDINGS 

PRO sanctbn rejkn=ds have dwhdki 

�	 PRO sanction referrals to the OIG have fallen from a high of 72 in FY 1987 to 

a low of 12 in FY 1991 and 14 in FY 1992. 

�	 PROS for seven States have never referred a physician or hospital for sanction. 

Twenty-three of the 43 PROS have referred no physician or hospital for 

sanction in FYs 1991 and 1992. 

F	 OIG sanctions based on PRO referrals have fallen from a high of 50 in 

FY 1987 to a low of 6 in FY 1992. Only 1 monetary penalty has been imposed 

since FY 1988. 

i 
71iree major factom account for the drop h sanctiim rflemak 

E The statutory unwilling or unable requirement remains a significant barrier to 

sanction referrals. This requirement stipulates that even where physicians or 

hospitals have violated Medicare obligations, they cannot be sanctioned unless 

they have demonstrated an “unwillingness or lack of ability” to comply with 

those obligations. 

— 

F The PROS’ negative experiences with the sanction process deter referrals. 

They see the process as costly, complex, and contentious, and are unsure that 

their recommendations will be upheld. 

F The PROS see themselves increasingly as educators in addressing quality-of-care 

problems. 

Despite dwindlihg refemak, all the PRO oficiak we titetied belkve that the sanctiixz 

refemal authmity & important to achievikg their rniwion because it gives them kvemge 

with the medikal commun”w= 

POLICY OPTIONS 

Given our findings and the moribund state of the PROS’ sanction referral authority, 

we believe the authority needs reexamining. In that light, we offer three options for 

consideration by the Department of Health and Human Services, the Congress, 

interest groups, and other concerned parties. The options are not mutually exclusive. 

Any of the three could be adopted separately, but in combination they could 

substantially strengthen protection for Medicare beneficiaries under the PRO program. 

F Re~al or substantiidly modifi the unwillikg or unable requirement 

E Ihcrease the monetary penalty sanction substantidy. 

F Maihtaih PROS’ sanction referral authon”tyas it exiYtsnow, but mandatt? refmaik to 

State medical boanik when PROS confiim serious quality-of<are probkmx 

— 

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— 

— 

— 

CmiMJmm 

— 

We received comments on the draft report from the Health Care Financing 

Administration (HCFA), Public Health Service (PHS), and Assistant Secreta~ for 

Planning and Evaluation (ASPE) within the Department. The American Medical 

Association (AMA), American Medical Peer Review Association (AMPRA), and 

American Association of Retired Persons (AARP) also provided comments. The full 

text of the comments and our responses to each appear in appendix C. 

The HCFA and AMA oppose changes in the unwilling and unable requirement, while 

PHS, AMPR~ and AARP support its repeal or modification. The HCF~ PHS, 

ii 
ASPE, AMPIQ and HP support increases in the monetary penalty, while the 

AMA opposes it. 

With regard to the third policy option, HCFA indicates it will consider this option in 

its development of regulations that govern the sharing of confidential information 

between PROS and State medical boards. The PHS sees merit in requiring PROS to 

report serious quality-of-care cases to State medical boards, but cautions that this 

option could require that State boards add to their investigatory and monitoring 

capacity. The ASPE does not support this proposal, citing the pending fourth scope of 

work, and a potential for parallel investigation by pROs and medical boards. The 

AMA supports this option conceptually for “serious quality-of-care problems that have 

been confirmed by the PRO following specialty-specific physician review and 

completion of due process rights at the PRO level.” The AMPRA and AARP support 

mandating referrals to State medical boards when PROS confirm serious quality-ofcare problems. 

Each of the respondents, both within the Department and from outside organizations, 

expressed concerns that two of the options proposed in the draft report could have 

negative consequences: Elimination of the sanction referral authority and providing 

that authority directly to the PROS. In response to their comments, we eliminated 

these policy options from the final report. 

... 

111 

TABLE OF CONTENTS


Executive Summary 

Introduction . . . . . . . . ,. . ...0 � 00..., . . . . . . . . ...00. � ..**.* .0 ...00 � *


Findings 

Dwindling referrals . . . . . . . . . . . . . . � � ...0. . . ...00 . . . ...0 � *...** � 0


Factomaccounting forthe drop . . . . . . . . . . . . .. 00... . . . . . . . � 0000.. � 0


PRO suppoti for referral authority . . . .. 0.0.. . . . . . . . . ..*... .* ***=* � *


Poliqmptions. . . . . . . . . . . . . . . . . . . . � ..0... . . .. *O. .0 .00.. 9****** � O


Comments on the Draft Report . . . . . . . � ..0.0 � .0... . . ...0 � ..0.. � *****


Appendices


.
 A Statutory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..0.. ..0=0.


B: Overview of Data from the Office of Investigations . . . . . . . . . . . . . . . . .


c: Detailed Comments on the Draft Report . . . . . . . . . . . . . . . . . . . . . . . .


D: Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


. . 1 

. . 3 

� � 5 

.0 7 

,0 8 

. 10 

A-1 

B-1 

c-1 

D-1 
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--

INTRODUCTION 

PURPOSE 

The purpose of this study is 

Peer Review Organizations’ 

BACKGROUND 

Since their establishment in 

to assess the trends and problems associated with the 

use of their sanction referral authority. 

1982, the Peer Review Organizations (PROS) have 

reviewed millions of inpatient medical records to confi~m the necessity, quality, and 

appropriateness of care rendered to Medicare beneficiaries. Although at first PROS 

functioned primarily as cost controllers, legislative, regulatory, and contractual changes 

have shifted their focus increasingly toward quality assurance. 

The PROS’ Sanction Referral Authority 

One controversial aspect of the PROS’ responsibilities has been their sanction referral 

authority. This authority requires the P120s to recommend that the Office of 

Inspector General (OIG) sanction physicians and hospitals in two instances. One 

involves physicians and hospitals who substantially violate their Medicare obligations in 

a substantial number of cases, as specified in section 1156(a) of the Social Security Act 

(see appendix A).1 In this instance, the PRO must identi~ a pattern of inappropriate 

or unnecessary care. The other instance involves those who grossly and flagrantly 

violate their obligations, even in a single case. To find a gross and flagrant violation, 

the PRO must find that the violation placed the Medicare beneficiary in danger. 

To make either type of referral to the OIG, the PRO must also provide a 

recommendation that supports that the physician or hospital “has demonstrated an 

unwillingness or lack of ability substantially to comply”z with the Medicare obligations 

(hereafter referred to as the unwilling or unable requirement). If willingness or ability 

to comply is demonstrated, then that physician or hospital cannot be sanctioned. 

The Secretary of Health and Human Sex-vices,rather than the PROS, is authorized to 

impose sanctions against Medicare providers. The Secretary has delegated that 

authority to the OIG. Upon receiving a referral from a PRO, the Inspector General 

can accept, modi&, or reject the PRO’s recommendation. The Inspector General may 

exclude the physician or hospital from participating in Medicare for a period of time 

or may impose a monetary penalty that cannot exceed the cost of the medically 

unnecessary or improper services rendered. 

Sanctioned physicians and hospitals can appeal their sanction to administrative law 

judges (ALJs) within the Department, who conduct hearings and can affirm, reverse, 

or modi~ the sanction imposed by the OIG. AU decisions can be appealed to the 

Departmental Appeals Board, and then to Federal district courts. 

1 
In a prior report, we addressed issues concerning the J?ROS’ sanction referral 

authority.3 We noted the low level of sanction activity among the PROS, the conflict 

between the PROS’ educational and enforcement roles, and problems with interpreting 

the regulations and providing adequate due process protection. — 

In this report, we provide an update on the extent to which the PROS have been using 

their sanction referral authority and any difficulties they continue to experience with it. 

We conclude the report with three options for policymakers. 

Methodology 

We draw on three sources of information for this study: (1) analysis of the PRO 

sanction data from FY 1986 through Fy 1992 maintained by the OIG, (2) telephone — interviews with staff from a purposive sample of 10 PROS4 and other groups 

interested in sanction activity, including regional staff from the Health Care Financing 

Administration (HCFA) and OIG, and representatives of the American Medical Peer . 

Review Association, the American Medical Association, the American Hospital 

Association, and the American Association of Retired Persons, and (3) a review of the 

relevant literature. We chose the 10 PROS in such a way as to ensure that our sample 

contained PROS that, during FYs 1990 and 1991, had made at least 1 referral leading 

to a sanction, PROS that had made referrals that were rejected by the OIG, and PROS 

that had made no referrals. 

We conducted our review in accordance with the Interim Standards for Inspections 

issued by the President’s Council on Integrity and Efficiency. 

— 

. 

— 

— 

2 
FINDINGS


PRO sanctiim rejimuik huve dwindti 

F PRO sanction referrals to the OIG have fallen from a high of 72 in FY 1987 to 

alowof12in W1991and14ti FY 1992. 

FIGURE 1 

PRO SANCTION~ 

72 

60-


so-


40-


30-

la


!!20-


10-

o– 

1986 1987 

Sourux Officeof Investigations, Offii 

FY 1986-FY1992 

37 

1988 

ImcAYkR 

of Inspector General 

TO OIG 

29 

1990 1991 l!xn 

During the first 2 years of the program, the PROS referred 138 physicians and 

hospitals for sanction (figure 1). This was the peak level of activity. In the next five 

years, though the number of physicians in the United States rose steadily,b the PROS 

used the sanction referral authority much less often. In fact, by FY 1992 they were 

hardly using it at all. 

Throughout the seven-year period, the PROS have referred many more physicians 

than hospitals (see appendix B). All but 17 of the 252 PRO sanction referrals made 

between FYs 1986 and 1992 involved physicians. And all but 1 of the 55 referrals 

made in the last 3 fiscal years involved physicians. 

3

�	 PROS for seven States have never referred a physitim or hospital for sanction. 

Twenty-thr= of the 43 PROS have referral no physitia or hospital for 

sanction in FYs 1991 and 1992. 

Four of the seven States with no PRO sanction referrals are in New England: 

Connecticut, Massachusetts, Rhode Island, and Vermont. The others are Alaska, 

Wyoming, and Hawaii.’ 

The 23 PROS8 that made no referrals in FYs 1991 or 1992 are responsible for States 

having more than 160,000 patient-care physicians.g These States are scattered 

throughout the country. 

b	 OIG sanctions based on PRO referr~ have fallen horn a high of 50 in 

l?Y 1987 to a low of (j b Fy 1$)$)2. Ody 1 monc~ ~n~ty h= ~n im@ 

SiIICe FY 1988. 

FIGURE 2 

PRO-RE~ SANCI’IONSIMPOSEDBY OIG 

W 1986- FY 1992 

so 

— &gC&i 

— 

I l--’Y22 

w 

14 

11 12 

6 

1986 r I t I 1 1987 1988 1989 1990 1991 1992 FISCALYEAR 

Sourw Office of Invesugatbm, Office of Inspeuor General 

The drop in OIG sanctions reflects the drop in the PRO sanction referrals on which 

the OIG actions are based. The peak of activity occurred in the earliest years of the 

PRO program (figure 2). And as with referrals, more physicians than hospitals have 

been sanctioned.l” 

. 

— 

. 

4

— 

Each year, exclusions have outnumbered monetary penalties (see appendix B), which 

are limited to Medicare’s cost of that portion of the care deemed medically 

unnecessary or improper. The costs to the OIG and the PROS of pursuing monetary 

penalties usually have exceeded the amount of the fines. The fines have ranged from 

$65.44 to $17,512.11, but average less than $5,000.11 Exclusions have ranged from 

six months to permanent, with a mean length of three years.12 

l%ree major factom account for the dkop ih sanctin re$ewak 

� The statutory unwillingor unable requirement remains a significantbarrier to 

sanction referrals. This requirement stipulates that even where physiciansor 

hospitals have violated Medicare obligatio~ they cannot be sanctioned unless 

they have demonstrated an “unwillingnessor lack of ability”to comply with 

those obligations. 

In our 1988 study, we reported that the statutory unwilling or unable requirement was 

a major flaw that undermined the effectiveness of the PROS’ sanction referral 

authority. Drawing on interviews with all the PROS, we noted that they were confused 

over what documentation was necessary to establish unwillingness or inability.13 

Shortly after we issued that report, the Administrative Conference of the United 

States reached a similar conclusion based on its own review. In its 1989 report, it 

stated that the violations the PROS and the OIG find to be substantial or gross and 

flagrant “already serve as indicators of inability or unwillingness to comply.” It added 

that the requirement calls for the PROS and OIG to “prove what amounts to a 

speculative negative” and is an “inappropriate” burden of proof.14 

Despite an attempt to make the requirement more workable, it remains an obstacle. 

Congress, through the Omnibus Budget Reconciliation Act of 1990 (PL 101-508), 

attempted to clarify the unwilling or unable requirement. It specified that PROS could 

accept a physician’s failure to participate in a corrective action plan (CAP)15 as a 

demonstrated unwillingness or inability to comply. Despite that clarification, PRO 

officials told us that as long as a physician agrees to a CAP, it remains exceedingly 

difficult to proceed with a sanction referral. One PRO official noted that a physician’s 

lack of response to repeated calls and letters from the PRO was not considered 

evidence of unwillingness or inability. 

The PROS’ experiences with the unwilling or unable requirement have made them 

cautious in making sanction referrals. They remain keenly aware that it has accounted 

for more OIG rejections of PRO sanction referrals than any other reason. From FY 

1986 to FY 1992, 42 of the 106 sanction referrals rejected by the OIG have been 

because of the unwilling or unable requirement (see appendix B). Among the 10 

OIG-imposed sanctions that have been reversed by the ALJs, 3 were based on that 

requirement. 

5 
E	 The PROS’ negative experiences with the sanction process deter referrals. 

They see the process as costly, comple~ and contentio~ and are unsure that 

their recommendations willbe upheld 

PRO officials cited the high costs in staff, time, and funds in referring sanctions to the 

OIG. As they had in our earlier report,lG they noted contending with late and 

inadequate payments from the Health Care Financing Administration (HCFA) for 

sanction-related legal and expert witness fees. A PRO often spends many months 

preparing the referral, but receives supplemental reimbursement for legal fees only if 

and after a case is referred to the OIG. 

Interpreting instructions governing the sanction referral process from HCFA and the 

OIG has also confused the PROS. For example, PRO officials cited HCFA’S 

instruction “that corrective action plans (CAPS) be used in al] but the most egregious 

situations.”1’ The PROS expressed uncertainty on how to interpret “egregious.” That 

word never appears in the statute--which calls for CAPS only “if appropriate.” They 

also noted that HCFA’S requirement that they consider referring a physician or 

hospital for sanction based on a single quality-of-care problem conflicts with OIG 

guidance. 

PRO officials cited frustrations with the due process protection, which were designed 

to balance the physicians’ rights for due process and the beneficiaries’ need for quality 

care. Although recognizing their importance, the PROS noted that ensuring those 

protection complicates the referral process. Because the due process requirements for 

gross and flagrant violations differ from those for substantial violations,18 referrals 

involving both types become even more complex. And with expert witnesses and 

attorneys involved, the process often becomes contentious. 

From their experience with the sanction process over the years, the PROS understand 

that any of these factors can undermine the process. The OIG has rejected referrals 

not only on the ground of the unwilling or unable requirement but also on grounds 

that the PROS failed to follow regulato~ requirements, such as those that guarantee 

due process19 (42 rejections). And finally, the OIG has rejected referrals based on 

insufficient medical evidence (20 rejections) .20 The ALJs have overturned OIGimposed sanctions on similar grounds.21 Although most sanctions appealed to an 

~ (51 of 61) have resulted in some sanction being imposed, in many cases the 

sanction terms were reduced during settlement (see appendix B). 

The thrust of the PRO program has been increasingly educational rather than 

punitive. The move toward a more educational focus began with a shift from 

utilization to quality review in the PROS’ second contract period (1986-88).22 The 

third contract, which also stressed quality assurance, advanced this shift by adding 

— 

— 

b The PROS see themselves increasinglyas educators in addressing quality-of-e 

problems. 

6 
specific instructions for addressing quality-of-care problems with educational 

interventions. The HCFA has also expanded the use of educational CAPS over the 

years and now requires the PROS to use CAPS before making a sanction referral “in 

all but the most egregious situations.”u And the PROS’ educational slant is further 

bolstered in HCFA’S discussion of its emerging Health Care Quality Improvement 

Initiative in the fourth scope of work: 

In the Fourth SOW, HCFA begins a fundamental change in the way 

PROS carry out their responsibilities. PROS will place less emphasis on 

dealing with individual clinical concerns and focus more attention on 

helping physicians and providers improve the mainstream of care.x 

This shift toward education is in accordance with the continuous quality improvement 

movement emerging in the quality assurance field.x That movement stresses 

improving overall performance over identifying and correcting poor performers at the 

margin. 

The PROS consider sanction referrals as failures of their educational efforts, which far 

outnumber their sanction activities. According to HCF~27 4,140 physicians and 

1,327 hospitals received educational interventions from the PROS during the third 

scope of work, while they issued just 464 sanction notices.= 

— 

Despite dwindling rejiemdk, all the PRO o-k we interukwed bekkwe that the sanction 

rejimzl authaiiy k impatant to achievikg their znksiim because it giwx them kvemge 

with the mxikal community. 

. 

— 

The PRO officials stress that the value of their sanction referral authority is twofold: 

(1) it is available when they need it to deal with those providing dangerously poor 

quality care, and (2) it provides a threat that gives the PROS clout with physicians and 

hospitals. When the PROS’ preferred educational approaches fail, they need the 

“teeth” or “stick” that the sanction authority provides. That threat can be enough to 

convince a reluctant physician to cooperate with a CAP. Without the authority, the 

PRO officials question whether the medical community would take their interventions 

seriously enough. They believe it exerts a sentinel effect that contributes to their 

overall mission. 
POLICY OPTIONS 

As currently constituted, it is not at all clear that the PRO sanction referral authority 

is helping to protect the public from poor medical care. We do not advocate a target 

number of sanction referrals. Nevertheless, we are compelled to note that in FY 1992, 

when more than 400,000 physicians were practicing in the United States, the PROS 

made 14 sanction referrals. 

PRO officials told us that the authority is important to achieving their overall mission. 

The basic reason, as we have indicated, rests with the threat that the authority carries. 

But as the medical community becomes more aware of just how infrequently the 

sanction authority is used, that threat is likely to seem remote, even to the most — unskilled practicing physician. 

We believe that the findings of this report identi$ a need to reexamine the PRO — sanction referral authority. We do not make formal recommendations, but we offer 

three options as a starting point for discussion. The OIG has expressed support 

previously for each of these options. 29 Given the moribund state of the sanction 

referral authority, we believe that each option warrants serious consideration by the 

Department, the Congress, interest groups, and other concerned parties. 

E Repal or substantially modifi the unwilllng or unuble requirement 

Upon finding that a physician has violated statuto~ obligations for participating in 

Medicare, the PRO could make a sanction referral, without having to provide 

additional evidentiary proof of unwillingness or inability. We recommended this in a 

prior reportw and the OIG has developed a legislative proposal to delete the 

separate requirement of a determination of “unwillingness or lack of ability.” This 

proposal is under review in the Department. 

??ZW Would make the referral process less cumbersome. Would enable PROS to 

move more quickly on serious cases. Would base decisions on a physician’s 

demonstrated ability and quality rather than speculation about future actions. 

Cks: Could make PROS less eager to develop corrective action plans when 

appropriate. Could be seen as conflicting with PROS’ educational and quality 

improvement orientation. — 

� Iiacrease the monetary penalty sanction substantially. — 

Current law restricts monetary penalties to the cost involved for Medicare. These 

penalties meaningful 

recommended this in a prior report31 and the OIG has developed a legislative 

— 8 

could be increased to make them a more sanction. We 
— 

— 

— 

proposal to authorize penalties of Up to $25,000 in lieu of exclusion. This proposal is 

under review in the Department. 

-: Would provide an alternative to excluding a physician or hospital from 

participation in Medicare. Could help to reinforce the sanction threat. Could result 

in fewer appeals. Could help Government recover funds expended in sanctioning. 

Cons: Could appear as an inadequate sanction. Could further discourage PROS from 

recommending exclusions when warranted. 

� Maiktain PROS’ sandon refemal authdy as it && now, bti rnundate rejkrnzk to 

State medical boanik when PROS conjinn setius quality-of+are pmblenw 

The PROS would continue to refer cases to OIG as they currently do. This authority 

would be supplemented with a mandate to refer physicians responsible for serious 

quality-of-care problems to State medical boards, which would then investigate and 

take whatever action was necessary.32 Likewise, PROS could refer hospitals to their 

State licensure agencies. We recommend such a mandate in our recent report Z%e 

Peer Review Organizations and State Medical Boards: A V2talLink.33 

l%as: Adds its own threat apart from that of the sanction referral authority and its 

constraints. Allows PROS to concentrate more fully on their educational mission. 

Allows for increased State-level peer review. Recent experiences from Ohio suggest 

that the approach has potential.w 

Cbns: Directs to State medical boards responsibility for reviewing quality of care in 

individual cases, not part of many boards’ current practice. Could require additional 

investigatory and monitoring capacity. Raises possibility of PROS and boards taking 

conflicting approaches toward a physician. Could further discourage PROS from using 

their sanction referral authority. Board authority varies from State to State. 

9

COMMENTS ON THE DRAFT REPORT 

We received comments on the draft report from the Health Care Financing 

Administration (HCFA), Public Health Sex-vice (PHS), and Assistant Secretary for 

Planning and Evaluation (ASPE) within the Department. The American Medical 

Association (AMA), American Medical Peer Review Association (AMPRA), and 

American Association of Retired Persons (AARP) also provided comments. The full 

text of the comments and our responses to each appear in appendix C. 

We have included updated figures on the number of sanctions imposed through Fiscal 

Year 1992, because the more recent data are available. In the draft report, the data 

were presented only through FY 1991. ne FY 1992 data provide further support to 

our findings stated in the draft report. 

We have omitted from the final report two policy Options that appeared in the draft 

report--elimination of the sanction referral authority and providing that authority 

directly to the PROS. We agree with the comments we received from all of the 

respondents, both within the Department and from outside organizations, that 

adopting either of these options could have negative consequences. 

We discuss the remaining three options here. We wish to stress that these options are 

— 

not mutually exclusive. Any of the three could be adopted separately, but in 

combination they could substantially strengthen protection for Medicare beneficiaries 

under the PRO program. 

� Repeal or substantiallymodi& the unwillingor unable requirement 

The HCFA and AMA oppose changes in this 

AARP support its repeal or modification. 

Zhe unwilling and unable provision remains an 

requirement, while PHS, AMP~ and 

obstacle to sanction referrals Despite 

legislative changes in 1990 that attempted to clarifi the definition of unwilling or unable, 

experience since then leaves little reason to believe that they have eased the problem. In 

FY 1991, PROS referred 12 cases for sanction, and in W 1992 they refen-ed 14 cases. In 

our interviews, the PROS themselves cited the provision as a continuing obstacle. 

It k important that PROS have the capaci~ to use the sanction refen-al authority when it 

h appropn”ate to do so, in order to protect Medicare benefician”esfi-om harm. In those 

situations, the PROS should be able to move swiftly and effectively, without having to 

speculate on the future behavior of individual physicians. The evidence on the physician h 

past record should be su.cient to make this judgernent. 

— 

10 
� Increase the monetary penalties substantially. 

.— 

The HCF~ PHS, ASPE, AMPR~ and AARP support this option, while the AMA 

opposes it. 

This option has widespread suppon within the Depa~ment. Clearly, an increase in the 

monetary penalties k necessary if thzk is to become an effective sanction. As curently 

constituted, thti provision is virtually meaningless. me amount of money involved k so 

small, that the threat of monetary penalties has little if any detenent effect. Only one 

moneta~ penalty has been imposed since FY 1988. 

� Maintain PROS’ sanction referral authority as it exists now, but mandate 

referrals to State medical boards when PROS confirm serious quality-of-care 

problems. 

The HCFA indicates it will consider this option in its development of regulations that 

govern the sharing of confidential information between PROS and State medical 

boards. The PHS sees merit in requiring PROS to report serious quality-of-care cases 

to State medical boards, but cautions that this option could have implications for the 

boards: it could require additional capacity for investigation and monitoring, and may 

not provide a uniform standard because States vary in their sanctions, authority, and 

practices. The ASPE does not support this proposal, citing the pending fourth scope 

of work, and a potential for parallel investigation by PROS and medical boards. 

The AMA supports this option conceptually for “serious quality-of-care problems that 

have been confirmed by the PRO following specialty-specific physician review and 

completion of due process rights at the PRO level.” The AMPRA and *P SUppOrt 

the option to require this information exchange. 

X%k option would supplement the current provkion that PROS provide informahon to 

State medical boards after they have made a sanction referral to the OIG. The option 

presented in this report advocates that PROS share case information with medical boar~ 

in sen”ousquality-of-care cases before a formal recommendah’on for sanction. Still, these 

cases would not be minor problems--the case reportz”ngwould take place a_ftera physician 

has interacted with PRO physicians and after PRO physicians have determined that this ti 

a sen”ousquality of care problem that requires attenh’on. Once such a problem is 

con.nned, the PRO would be required to provide the case information to the State 

medical licensure board. l%e boards already receive informa~”onabout physicians on 

malpractice claims and hospital advezse actions. It clearly makes sense for the boards to 

receive information from the PROS when they con.rm sen”ousquality-of-care problems 

after medical review. 

l%e fourth scope of work contains substantial changes in the role of the PROS. Included 

among these changes, PROS will be required to develop wn”ttenmemoranda of agreement 

with State medical boards. The HCFA could provide guidance to the PROS on the timing 

11 
and content of thti information exchange. The agency could specifi that thti information 

sharing take place at the point when the PROS have conjirmed, after medical review, that 

a physician is responsible for medical mismanagement resulting in significant adve~e 

effects on the patient. Should it determine that legislation is necessa~ to effect thh 

change, HCFA could propose such legislation. 

We recognize, as PHS has pointed out, that implementing this option could require 

additional resources and skills for many State boards. We have added these points in the 

text that discusses th~ option. 

12 
—. 

— 

— 

. 

APPENDIX A


STATUTORY PROVISIONS 

Obligationsof Health Care Practitioners and Providers 

of Health Care Semice~ Sanctions and Penaltiw, 

Hearings and Review 

[42 U.S.C. 1320C-5] 

Sec. 1156. (a) It shall be the obligation of any health care practitioner and any 

other person (including a hospital or other health care facility, organization, or agency) 

who provides health care services for which payment may be made (in whole or in 

part) under this Act, to assure, to the extent of his authority that services or items 

ordered or provided by such practitioner or person to beneficiaries and recipients 

under this Act­

(1) will be provided economically and only when, and to the extent, medically


necessary;


(2) will be of a quality which meets professionally recognized standards of


health care; and


(3) will be supported by evidence of medical necessity and quality in such form


and fashion and at such time as may reasonably be required by a reviewing


peer review organization in the exercise of its duties and responsibilities.


(b)(1) If after reasonable notice and opportunity for discussion with the 

practitioner or person concerned, and, if appropriate, after the practitioner or person 

has been given a reasonable opportunity to enter into and complete a corrective 

action plan (which may include remedial education) agreed to by the organization, and 

has failed successfully to complete such plan, any organization having a contract with 

the Secretary under this part determines that such practitioner or person has­

(A) failed in a substantial number of cases substantially to comply with any


obligations imposed on him under subsection (a), or


(B) grossly and flagrantly violated any such obligation in one or more instances,


such organization shall submit a report and recommendations to the Secretary. If the 

Secretary agrees with such determination, and determines that such practitioner or 

person, in providing health care services over which such organization has review 

responsibility and for which payment (in whole or in part) may be made under this 

Act, has demonstrated an unwillingness or a lack of ability substantially to comply with 

such obligations, the Secretary (in addition to any other sanction provided under law) 

may exclude (permanently or for such period as the Secretary may prescribe) such 

A-1 
practitioner or person from eligibility to provide services under this Act on a 

reimbursable basis. In determining whether a practitioner or person has demonstrated 

an unwillingness or lack of ability substantially to comply with such obligations, the 

Secretary shall consider the practitioner’s or person’s willingness or lack of ability, 

during the period before the organization submits its report and recommendations, to 

enter into and successfully complete a corrective action plan. If the Secretary fails to 

act upon the recommendations submitted to him by such organization within 120 days 

after such submission, such practitioner or person shall be excluded from eligibility to 

provide services on a reimbursable basis until such time as the Secretary determines 

otherwise. 

(2) A determination made by the Secretary under this subsection to exclude a 

practitioner or person shall be effective on the same date and in the same manner as 

an exclusion from participation under the programs under this Act becomes effective 

under section 1128(c), and shall remain in effect until the Secretary finds and gives 

reasonable notice to the public that the basis for such determination has been 

removed and that there is reasonable assurance that it will not recur. 

(3) In lieu of the sanction authorized by paragraph (l), the Secreta~ may require 

that (as a condition to the continued eligibility of such practitioner or person to 

provide such health care services on a reimbursable basis) such practitioner or person 

pays to the United States, in case such acts or conduct involved the provision or 

ordering by such practitioner or person of health care services which were medically 

improper or unnecessary, an amount not in excess of the actual or estimated cost of 

the medically improper or unnecessary services so provided. Such amount may be 

deducted from any sums owing by the United States (or any instrumentality thereof) 

to the practitioner or person from whom such amount is claimed. 

(4) Any practitioner or person furnishing services described in paragraph (1) who 

is dissatisfied with a determination made by the Secretary under this subsection shall 

be entitled to reasonable notice and opportunity for a hearing thereon by the 

Secretary to the same extent as provided in section 205(b), and to judicial review of 

the Secretary’s final decision after such hearing as provided in section 205(g). 

(5) Before the Secretary may effect an exclusion under paragraph (2) in the case 

of a provider or practitioner located in a rural health manpower shortage area 

(HMSA) or in a county with a population of less than 70,000, the provider or 

practitioner adversely affected by the determination is entitled to a hearing before an 

administrative law judge (described in section 205(b)) respecting whether the provider 

or practitioner should be able to continue furnishing services to individuals entitled to 

benefits under this Act, pending completion of the administrative review procedure 

under paragraph (4). If the judge does not determine, by a preponderance of the 

evidence, that the provider or practitioner will pose a serious risk to such individuals if 

permitted to continue furnishing such sefices, the Secretary shall not effect the 

exclusion under paragraph (2) until the provider or practitioner has been provided 

A-2 
reasonable notice and opportunity for an administrative hearing thereon under 

paragraph (4). 

(6) When the Secretary effects an exclusion of a physician under paragraph (2), 

the Secretary shall notify the State board responsible for the licensing of the physician 

of the exclusion. 

(c) It shall be the duty of each utilization and quality control peer review 

organization to use such authority or influence it may possess as a professional 

organization, and to enlist the support of any other professional or governmental 

organization having influence or authority over health care practitioners and any other 

person (including a hospital or other health care facility, organization, or agency) 

providing health care services in the area served by such review organization, in 

assuring that each practitioner or person (referred to in subsection (a)) providing 

health care services in such area shall comply with all obligations imposed on him 

under subsection (a). 

A-3

— 

—. 
APPENDIX B


OVERVIEW OF DATA FROM THE OFFICE OF INVESTIGATIONS 

B-1. PRO Sanction Referrals to the OIG, FY 1986 through FY 1992 

A By Type of Violation 

Type of 

Violation: 

Gross & 

Flagrant 

Substantial 

Lack of 

Documentation 

Total 

B. By Type 

Type of 

Provider: 

Physicians 

(MD or DO) 

Hospitals 

Total 

FY86 FY87 FY88 

46 60 27 

I 19 I12I1O 

1 0 0 

66172137 

of Provider 

FY89 FY90 FY91 FY92 Total 

17 24 11 9 194 

5 I 5 I 1 I 5 I 57 

0 0 0 0 1 

22 29 12 14 252 

FY86 FY87 FY88 FY89 FY90 FY91 FY92 Total 

60 66 34 21 29 12 13 235 

6 6 3 1 0 0 1 17 

66 72 37 22 29 12 14 252 

B-1 
B-2. OIG Dispositionof Referrals from PROS, FY 1986 through FY 1992 

A Sanctions Imposed by the OIG 

Type of FY86 FY87 FY88 FY89 FY90 FY91 FY92 Total 

Sanction 

Exclusions 21 34 18 10 13 10 5 111 

Monetary 9 16 2 0 0 0 1 28 

Penalties 

Pre-exclusion 

Retirements* o 0 2 1 1 2 0 6 

Total 30 50 22 11 14 12 6 145 

*Pre-exclusion retirement results from an agreement among the PRO, the physician, 

and the OIG that the physician retire from practice rather than be excluded. Because 

the retirement would not have occurred without the sanction referral, the OIG counts 

these as actions taken. 

B. Referrals Rejected or Closed by the OIG without Sanction 

Rejection Based FY86 FY87 FY88 FY89 FY90 FY91 FY92 Total 

On: 

Unwilling or 

Unable o 19 11 4 4 2 2 42 

Requirement 

Failed to Follow 

Regulatory 4 10 12 6 2 1 7 42 

Process 

I_ack of Medical 

Evidence 6 5 0 2 2 5 0 20 

Closed Due to 

Physician’s 2 0 0 0 0 0 0 2 

Death 

Total 12 34 23 12 8 8 9 106 

B-2 
—. 

B-3. Outcomes of Sanction Appeals to AdministrativeLaw Judges 

FY 1986 through FY 1991 

Total number appealed to the ALJ 61 

Appeal withdrawn or settled** 32 

IIOIG decision upheld (concurrence) I 19 II 

IIOIG decision overturned I 10 II 

**Cases withdrawn or settled resulted in a sanction. 

Explanato~ Note: 

The data in Table B-1 are based on the date that a sanction referral was received by 

the OIG. The data in Table B-2 are based on the date on which a sanction was 

imposed. For example, a sanction referred by the pRO late in FY 1991 might not be 

have been acted on by the OIG until FY 1992. Consequently, the numbers of 

referrals and sanctions imposed in any single year are not equal, since they are 

referring to different actions. 

B-3 

APPENDIX C 

DETAILED COMMENTS ON THE DRAIW REPORT 

In this appendix we present the full comments on the draft report and the OIG 

response to each. The comments presented in this appendix are from: 

Page 

—— — — TheHealthCa reFinancingAd ministration . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

The Public Health Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

The Assistant Secretary for Planning and Evaluation . . . . . . . . . . . . . . . . . . . . 

The American Medical Association . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

The American Medical Peer Review Association . . . . . . . . . . . . . . . . . . . . . . . 

The American Association of Retired Persons . . . . . . . . . . . . . . . . . . . . . . . . . . 

c-2 

C-n 

C-17 

c-22 

C-25 

C-29 

c-1 

-— 

Date 

From 

Subject 

TO 

Heron Care 

Fh18~C!ngAd~lfIMUattOf7 

Acting Administrator 

Memorandum 

Of ice of Inspector General (OIG) Draft Report: ‘The Sanction Rcfemai 

Peer Review Organizations,” OE1-UI-92-0C)250 

Bryan B. 

Principal 

MitchelJ 

Deputy Inspector General 

Authority of 

We have reviewed the subject repro which msesses the trends and problems 

associated with the use of sanction refcrrd autiofiy by prof~iond I?etiew 

Organizations @ROs). ne ~~OS” sa~ti”on referral authority requires them to 

recommend that OIG sanction p~ysitia~ and hospitals ~es~nslhlc for violating their 

Medicare obligatic)n~ as spetied in section llS6(a) of the Social Setity Act. 

OIG found that the number of sanction referrals made by PROS amually have 

decreased. ~ ficaj year (~ ~9s7, PR~ refe~ed 72 ma for ~jlde sanction to 

OIG. nis number dropped to a kIw of ~2 h ~ IW1. p~~ for xvcn States have 

never referred a physician or hospital for sanctioIL In F’Ys 1~ and 1991, 24 of the 

43 PROS did not refer any physitim or hospitais for sanctiom C)IG presented the 

following major factors that might account for the drop in the number of sanction 

referrals: the statutory li.nwilling or mable requiremen~” PRO# negative experiences 

m“th the sanction process, and the pROS’ emp~~k on edttcational approaches to 

quaiiw d of =re problems.

OIG presented five policy options to be considered: 

o 

0 

0 

0 

0 

Repeai or substantially # modifi the unwilling or unable requirement, . 

Increase the monetary penalty sanction substantially, 

Eliminate the PROS’ sanction refemai authority, 

Protide sanction mthoxity directiy to the PROS, and 

,Maintain PROS’ sanction rcfemai authority as it efits now, but mandate 

referrals to State medical boards when PROS cotirrn seriousquaii~ of 

care problems. 

c-2 
Page 2- Principal Deputy inspector Gene::: 

HCFA’S smxific * comments on the options and our proposed soiution 

problem are a~:ached for ------ yuur curmucmwn. .-_ JA-_-.:-­

Thank vou for the 

Please advise is whether 

opportunity to review md cement on this draft rcpor~, 

you agree with our position an the options presented in the A 

repon at your earliest convenience. 

Attachmem 

C-3 
comments of the Health Care FinancingAdministration (HCFA\ 

on the office of Inspector Generti (OIG) Draft ReDon: 

The Sanction llefemd~uthotitv of Peer 

~anizations,” OEI-01.92-00250 

Repeai or substantiailv modifi the . 9 !mwiuing or unable requirement. 

HCFA ResDonse 

HCFA disagrees with this poiicv option. Under section l156(b)( 1) of the Social 

Security Act (the Act), the Sec;etq of the ~epmmc~t of Hea.ith and Human 

Sewices is requ~e~ tO emjuate w~ether a pro~der ~ti demamtratcd an unwillingness 

or inability to ~mect a qualityofwc ~rob]emide~fid bya peerRcticw 

Orgamzation (pRO). We rem~~e that iII past VCm the unwifig or unable 

reqwremcnt piaced a burden on PROS because t-he PROS had to determine if a 

provider was unwilling or unable to wmect a qualitv of wc problem during the 

informal retiew process. However, we beiieve tha; section 4205 of the Omnibus 

Budget ~e~onciliation Act (OB~) of 1~ h= ~p~ed tic determination of the 

unwilhg or tmable rcquirernent. PROS are now required to protide an opportunity to 

establish a comemive action plan (CAP) e~qt when a W would not be . 

appropriate. The p~actitioner’s or provider’s f~wc to comply with the CAP or 

correct the ~OJaliO~ after i~p~emc~tatio~ofa CAP wodcibc sufficient evidence tO 

support the PRO’S determination of unwilling or unable. 

Policv Option 2 

Increase the monetam penaltv sanction substantially. . , . 

HCFA Response 

HCFA suppons an increasein monetary penaitv ~uthority. However, in such cases, it 

is important tha~ the impact on Medicare beneficiaries’ health and well being be 

paramount in considering whether a physician should be ailowed to continue practicing* 

versus the imposition and collectionof a monetary 

PO1icvOption 3 

Eliminate the PROS’ sanction rcfcrrai authority. 

penalty. 

c-4 
HCFA Response 

HCFA does not agree with this option. PROS should retain their authority to 

recommend sanctiom to the Secretay when educariond effons have failed. We 

believe the PROS’ sanction refe~j autioti~ j,snc~~ for PROS to mfcguard the 

health and well being of Medicare beneficiaries. 

Policv Ontion 4 

Provide sanction authotity directiy to the PROS. 

HCFA Response 

HCFA does not agree with this option. We beiieve that the sanction authoriw 

requirement would place a signticmt burden on PROS. A resulting effect co~id be 

that PROS wouid be iess decisive in mating sanction dctefiatiom imowing that they 

must impose them. We also beiicve that PROS would find it extremely dficuit to 

achieve and maintti national consfitenq when imposing sanctiom at a State jevci. 

we aiso beiievc that it would be inappropriate to cede to gove~ent contractors the 

authority to exclude indtiduals and institutio~ born a gove~cnt progrm. For 

those reasons, HCFA beiieves that OIG should retain thisauthofi~ for uniformity and 

consistent in imposing sanctions. 

Policv OtXion 5 

Maintain PROS’ sanction refen=ai authority as it exists now, but mandate referrals to 

State medical boards when PROS confirm serious quality of care probIems. 

H_CFAllesDonse 

HCFA w“il consider this option. PROS currently have the authoti~ to disclose 

confirmed quaiity of care probJems to State mediczd boards. Tlc cumnt regulations 

at 42 CF2Z476.138 ailow PROS to prcx”de rekvant confidential information to State 

medicai boards on their own initiative and rquirc PROS to provide this information 

when the State medicd board requests it. These regulations, however, do not address 

mandatory disclosures without a request from the State medi~l board. We arc 

currently rcvking the PRO cofidentiali~ regulations and will consider including the 

requirement of mandato~ disclosure to State medi~i boards W“thouta request. 

Fu~hennore, the Fourth Scope of Work (SOW) WU1require PROS to develop Wriuen 

memoranda of agreement with State medical boards on what type of kiformation 

(including timeframes) to exchange ~“th boards. 

. 

— 

— 

— 

— 

— 

c-5 
Page 3 

HCFA iSafso in the process of implementing funher requirements for information 

exchanges between PROS and State~ede@ Iiceming tXXM. Section 4205(d) of 

OBRA 1990 added section 1154(a)(9)(B) to the ACL TM provision requires 

itiormation sharing with the approptiatc State mcdi~ board after tie PRO prow”des 

the physician with notice and opportun.i~ for a hetig and has made a final 

(negative) decision. We arc also developing regulations @Q-13$F) which will 

require a PRO to prw’de State/Fede~ licensing bodies with portions of any PRO 

sanction repoti forwarded toOIG which concerns practitioners that are subjectto the 

State/FederaJ licensing body’sjurisdiction. This W implement section HO@) 

of the Act. 

HCFA’S Solution 

In the foumh round of PRO ccmtrac~ we are beginning a Health Care @aiity 

Improvement Mtiat&e. Under t~ initiative, PROS ~ a~~e patte~ of health 

care and patient outcomes. PROS wiUshare this information with providers to heip 

them identi& ways to i~provcp~tie~tOutmmes md he c@@ ofWC. Under this 

initiative, HCFA is emphasizing cooperative efforts at UIntiuous quaiity improvement, 

rather than contiontation and punishmen~ We be~eve that ~nctions should be 

imposed on prtiders only as a last resort to protect beneficiaries from poor quality 

care. 

~owever, we believe that the PROS’ sanction rcfe~ au~oriy ~ necessa~ in cases 

where hospitah or p@ic~a~ fafl to mpemte with PROS to CGKeCt identified patterns 

of quality or utilization prO&Icm, Or fafitoimprovetheirpatterns of care despite 

repeated attempts to work with PROS through vohmtary action pians. 

The Fourth SOW incjudes an kte~ted strate~ for actions &at should be taken in 

such cases. PROS will have the ch-oice ofi ‘-

0 imposing a PRO-directed comective action plan; 

o directly negotiating an action p~an with the physician if a hospital 

cooperate w“th a PRO to improve a physician’s care; 

fails to 

o 

0 

0 

referring zhe case to the HCFA regionai office for an investigation of a 

hospitai’s possible noncompliance w“th its Medicare provider agreement; 

referring a case of physician utilization problems to the cartier for 

prepayment review; 

referring the case to the appropriate State medicd board; or 

C-6 
Page 4 

0 beginning the sanction prws’ 

Of the listed alternatives, PROS VA be required to take the least disruptive 

intemention necessa~ to comect the pattern of mntim. 

.Generai Comments 

Entire Renofl 

OIG should review the Fourth SOW before issuing the final of this rcpofl. 

Pages i and3- 1st and 3rd bullets 

Ae 12 referrais what OIG agreed to exclude? Did PROS subfit more than 12 cases? 

I%uzesi and 4- 2nd bullet 

OIG should citify the referen= to “43 PROS.” During fical years (FYs) 1~ and 

lWI, HCA had 53 PRO con~c~ in place. It should be noted that some 

organi=tions have more than one PRO contmct. 

PaEes — i and 3- Methodo!o~

The explanation of the methodology should have included the number of sanction 

actions bc~n and closed at the PRO leveL Also, the reasom why sanction actions 

were closed at the PRO level should also be included. 

A PRO is not nccessatily failing to utilize the sanction proces simply because it is not 

recommending sanctions. A factor in the decremed number of referrals could be that 

PROS have been successful in “educating” practitioners/protiders in~olve~” me abi~@ 

of a PRO to refer a practitioneriprotidcr for sanction is an added incentive tOthe “educated” duling the info~al review process by the 

practitioner/protider to become


PRO. Therefore, even if the PRO does not refer the practitioner/protider for


sanction. the abili~ of the PRO to refer them for sanction may enable the PRO ~0


correct many problemswithout actually utilting their sanction refemai authori~.


Paces B - 1- Awendix B - CME W lW1


Were there 20 refcrrais by PROS (8 rejected and 12 excluded)? -. 

— 

— 

— 

— 

. 

— 

c-7 
Page 5 

~C h sentence is ~a~uratc. PROS UC p~d for ~ ~ts they incur bcgirK@ w“th 

the issuance of a ~Ction notice. me fi~ outamc of the case, the rcfemd to OIG, 

does not affect thcti ability to recover their expenditures. 

C-8 
OIG RESPONSE TO HCFA COMMENTS 

We disagree with HCFA that the 1990 amendments have simplified the determination 

of the unwilling or unable requirement. We believe that the evidence is clear--l2 

sanction referral cases in FY 1991 and 14 cases in FY 1992. In those situations when 

it is appropriate to use the sanction referral authority, the PROS need to be able to 

move swiftly to protect beneficiaries from harm. The past record of the physician, 

rather than speculation about future behavior, should be sufficient to make that 

judgement. 

We welcome HCFA’S support for increased monetary penalties, which we called for in 

1988. We strongly agree that beneficiaries’ health and well-being should be 

paramount in any sanction consideration. 

We are encouraged that FICFA is willing to consider the option to mandate referrals 

to State medical boards when PROS confirm serious quality-of-care problems. The 

fourth scope of work contains substantial changes for the PROS, including a 

requirement that they develop written memoranda of agreement with State medical 

boards. We urge HCFA to take advantage of this opportunity to speci~ that this 

information sharing take place at the point when the PROS have confirmed, after 

medical review, that a physician is responsible for medical mismanagement resulting in 

significant adverse effects on the patient. Should it determine that legislation is 

necessary to effect this change, HCFA could propose such legislation. 

Based on the concerns that HCFA and other parties raise, we have omitted from the 

final report the two policy options that would have eliminated the PROS’ sanction 

referral authority and that would have provided that authority directly to the PROS. 

We will be watching HCFA’S implementation of the fourth scope of work with great 

interest. It is clear from our review of the request for proposals for the fourth scope, 

that it contains substantial changes in the role of the PROS, with its focus on pattern 

analysis and information sharing as a way of improving overall patient outcomes and 

the quality of care. We applaud broad-based efforts to improve the quality of care for 

Medicare beneficiaries and for the population at large. Notwithstanding this new 

approach, the PROS continue to have a critical responsibility to protect the health and 

well-being of Medicare beneficiaries. This responsibility may call for taking action 

against individual physicians who practice in a manner that is harmful to the 

beneficiary. 

We agree with HCFA that the threat of a sanction may enable the PRO to correct 

many problems. In this report, we are dealing with cases that were actually referred 

for sanction. As we indicate in the finding that appears on pages ii and 7, “Despite 

dwindling referrals, all the PRO officials we interviewed believe that the sanction 

referral authority is important to achieving their mission because it gives them greater 

leverage with the medical community.” 

c-9 
The HCFA requests clarification on the number of referrals and exclusions. The 

PROS referred a total of 12 cases to the OIG for sanction in FY 1991. The OIG also 

sanctioned a total of 12 physicians in that fiscal year. It is only coincidental that the 

numbers are the same. The 8 rejections include cases that were submitted prior to 

that year. 

The HCFA also questions our reference to 43 PROS, rather than 53 PRO contracts. 

While there are 53 PRO contracts in place, some PROS hold more than one contract. 

In fact, 3 of the 10 PROS with which we conducted our telephone interviews hold 2 

contracts each, and one holds 3 contracts. We chose to count the organizations, 

rather than the contracts. 

We also have modified the text on page 6 to reflect HCFA’S suggested change. 

c-lo 
— 
DEPARTMENT OF HEALTH AND HUMAN 

sgf!YlcE9 

Draft Report ‘The SazictLm 

Actixlfzxepofi. . 

w #S226 

C-II 
General Ccxmnents 

— 

— 

C-12 
---- -

2 

The PES supports this rucamdtim~ 

C-13 
3 

PES Cemmanke 

alxeady 

ta have 

G POJ3CY mti cm 

it exists 

PROs mnf Inn se.rf.ms ~U&y+f-case probkms. 

PES Comments 

This option wmlci provide the unifozty af a natAonal 

6~andazd and activate the State m~cal Xmxda’ $afet~ 

xnech.anisma. = additloxt, this option could W modified 

&ate the PROS to report titividtaah and Laatitittixks 

Eedexatiom of State Medfcal Bo~ ta -t aatioz’d 

aumre~~hnce and gzofU&q, and XLationaLc~ieuns. 

AMhough the repoti lacludes this policy opti.m ta make 

referrals to State mdicai bwmia, it does not indicate 

the FedezutLOn of State Medfcti Boards %mZSecm~act- to 

provide tiFUt. 

Under the oRtiwn af mandated ~f~als ts State medical 

the


that . 

bo=ds, Lt kuld be helpfti to have a bxief discussion of tht? 

C-14 — 
4 

— 

— 

C-15 
OIG RESPONSE TO PHS COMMENTS 

We appreciate PHS’S positive response to this report. The PHS is playing an 

important leadership role, particularly in its efforts to develop valid instruments for 

assessing the quality and appropriateness of medical decisions, and by assisting in the 

development of tools that could assist State medical boards and PROS in evaluating 

poor performance by physicians. 

The PHS finds merit in requiring PROS to report serious quality-of-care problems to 

State medical boards, but raises some important concerns about the boards’ capacity 

and focus with respect to review of cases that involve quality-of-care problems. 

Despite limited resources, some States are beginning to address these problems. We 

have recently released a report that examines some of these initiatives, State Medical 

Boards and Quality-of-Care Cases: Promising Approaches (OEI-01-92-OO050, February 

1993). 

The PHS also questions whether the decline in the number of sanction referrals 

occurred because of increased emphasis on educational activities. In this inspection, 

we did not examine the relationship between educational activities and the number of 

sanction referrals. In a previous report, however, we found that the educational value 

of PRO intementions was uncertain and that the interventions seldom reflect research 

findings concerning how physicians learn (Educating Physicians Responsible for Poor 

Medical Care: A Review of the Peer Review Organizations’ Efforts, 0EI-01-89-OO020, 

February 1992). 

Due to the concerns that PHS and other parties raise, we have omitted from the final 

report the two policy options that would have eliminated the PROS’ sanction referral 

authority and that would have provided that authority directly to the PROS. 

— 

— 

— 

We also have added to the text points raised by l?HS cm the implications of referrals 

to State medical boards. — 

C-16 
TO: 

FROM : 

Bryan Mitchell 

Principal Deputy Inspector General 

Assistant Secretary for 

Planning and Evaluation 

I offer the following comments on the two subject draft reports, 

which. I have Litiea due to the interrelatedness of their 

recommend.atiens. 

In the first report, you reviewed the sanction referral authority 

of peer review organizations (PROS), of whic~ referral to state 

medical boards is one element. You recommended several policy 

options for improvement, including a recommendation requirix2g 

that state medical boards be informed whenever a serious quality 

of care problem is confirmed through medical review; this is a 

lesser standard than is currently in place. In the second 

report, you specifically ~ined the low fre~ency with which 

PROS referred cases involving physicians cited for poor quality 

of care to state medical boards. You reiterated the 

recommendation concerning PRO-medical board contact contained in 

the first report. 

I agree with the obsemtions made in these reports that the 

formal sanction referral process is not often used. 

Nevertheless, Z feel that the process is critical and, with 

improvements, some of which you propose in your reports, I 

believe it will play an important role in the primarily 

educational efforts of the PROS under the Fourth Scope of Work 

(sow) . I have the following comments about the findings, policy 

options and recommendations of your reports. 

o ReD eal or substant iallv modifv the unwillinq or unable 

re auirement. (Policv ontion 1. Renort on the Sanction 

Referral Authoritv) I agree that the additional evidentiary 

hurdle for sanction of demonstrating.that a physician is 

either unwilling or unable to comply with a corrective 

action plan is, at present, vague. The report is written 

from the perspective of complete repeal, however, and does 

not idenc=~y how the requirement could be meaningfully 

modified. Z suggest that you clarify better why the recent 

legislative change -- defining a physician’s failure to 

participate in a corrective action plan (CAP) as 

C-17 
--

Page 

o 

2- Bryan Mitcke~L 

demonstrated unwillingness or inability to conqiy 1S 

inadequate. Also, Z urge you to clarify how due process 

protections would be preserved in the event that the 

requirement was modified or repealed. 

Increase the rnonetav nenaltv sanction substantially. 

(Policv ontion 2, Renort on the Sanction Referral .luth.orit’~j 

I agree that this is an important policy opticn, and believe 

that it would be a desirable alternative for the PROS, where 

patient safety would not be compromised. 

0	 Eliminate the PROS’ sanction referral authoritv. fPolicv 

OD tion 3, ReDor~ on the Sanction Referral Authoritv) This 

i8 a theoretical option only; without the tiility to impose 

sanctions in the face of aberrant or poor quality behavior, 

PROS would have little clout in certain circ~c~ces to 

0 

influence physician behavior. I would oppose this proposal. 

Provide s~nct:cn aut~.oritv directly to the PR09. ~Poiic’7 

ontion 4, IZeport on the Sanction Referral Authoritv) There 

are actually two alternatives to OIG atinistration of the 

sanctions process. The first is to decentralize and give 

the PROS the direct authority to impose sanctiors. The 

second is to move the authority from OIG to HCFI.. —

Decentralization would be undesirable for the reasons cited 

On page 10 of the Sanction Referral Authority report, with 

the additional concern that physician exclusion is too — 

serious an outcome to cede without central review to the 

PROS, who are merely the contractual agents of the Federal 

Government.


The second alte.mative, having HCFA pursue the sanction 

actions, ZISO may noc be desirable, but the report does not


provide sufficient information to evaluate whether the OIG 

‘bs been too consemative in its choice of which cases to 

pursue, and whether this restraint -- rejecting, for


examgle, 8 of 12 cases referred to it in ~ 1991 -- is 

itself contributing to the dwindling nuxnberof cases 

proposed for sanctions by the PROS. IE appears from t he 

statis tics in Appendix B that the PROS may be doing a bet n 

job at following the proper procedures for developing a 

solid case. No-justificatio~ or explanation is provided, 

however, for the increasing rate of cases rejected by the 

OIG — for lack ~f medical evidence from J?Y1988 to 1991. my 

is the OIG rejecting the medical advice of the PRO 

physicians? The report would be substantially strengthened 

by an objective evaluation of.the cases the OIG rejected, 

and by the discussion of the second alternative. 

o	 Maintain PROS’ 9anction referral authoritv ag it exists nOW,


but mandate referrais to State medical boards when PROS


C-18 
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— 

Page Bryan 

confi.m serious aualit’~-of-careDroblems. (Policv ontion 5, 

Reuort on the Sanct~m Referral Autkoritv and recommendation 

of ze~orc “The D==v Review Oraanizat:ans and State .Medical 

Boards: A Vi,talLink” ~ I do not support this proFosal 

for several reasons. I would agree that the PROS and the 

State medical boards (and hospital licensure authorities, 

etc.) shouid be in closer contact. The most =ecent versions 

of the PRO Fourth Scope of Work include re~irements that 

each PRO develop memoranda of agre~ent (MOAS) with such 

entities, within 60 days after the effective date of its 

contract, for the purpose cf mutual exchange of information 

and data. Such mutual exchange is far more likely to 

contribute to improvement of quality of care than a 

legislated re~irement for unilateral action. 

I understand that the provision of the 1990 Omnibus Budget 

Reconciliation Act re~irlng PROS to ghare case information 

With sc~te ~Letiicalboardg hag not been iqlme~~sd because 

it is unclear. I understand that a technical correction to 

require the PROS to inform boards when a sanction 

recommendation is sent to the OIG has been Sought but that 

it may not have been included among the OBRA technical in 

the tax bill that will be sent to the President soon. If no 

action has been taken on the technical change, it should be 

advanced again in the next session. 

It is not clear how the OIG’S proposal would differ from the 

technical correction being sought by HCFA. It would seem to 

require involvement of the state medical societies at an 

earlier stage, prior to issuance of the sanction 

recommendation to the OIG and prior to the physician having 

the full opportunity to review and respond to the concerns 

raised by a PRO. Except for clear instances where patients 

are in hmediate danger, it does not seem fair or 

appropriate to essentially initiaLa a paral~el investigation 

by the medical society until there has been confirmation of 

a problem. This is particularly a problem in those states 

that require all c~laints made to the state medical 

society to be made public, including reports from the PROS. 

I do not object to SUCh publicity where the physician has 

had ample opportunity to respond. to the PRO ud has been 

unwilling or unable to cooperate in the development and 

execution of a meaningful corrective action plan. However, 

such publicity is probably more useful as a potential 

sanction than as a context for obtaining physician 

cooperation for changed behavior. 

Furthermore, it is curious that the OIG is calling for 

mandato~ notification of the medical board prior to the 

issuance of the sanction recommendation to OIG. As 

noted above, the OIG refused to pursue 5 of 12 cases 

referred to it in FY 1991 because of inade~ate medical � 

C-19 

—.. 
Paqe 4 - Bryan Mitchell 

evidence from the PROS. me ~ep~r~= da nat explain Why it 

would be pro~ucc~ve or zpproDriate to engage the sczce 

medical Socieeies based on i~fo~tion that the OIG itself 

feels is inade~ate to justify a sanccion. 

Finally, the firgt three tales Of Appega& B of the report on 

the Sanction Referral AuthoriEy (sact=o~s referzed to the OIG, 

referrals rejected by OIG, sanctions iqoged by the OIG) do not 

agree and should be clarified. For FYs19E7, 1988, 1989 and 1991, 

the sum of the sanctions imposed and referrals rejected exceeds 

the sanctions referred (cases are reso~~ed in a later year than 

they are referred?). Similarly, the totals for all years 

involved do not agree. 

If you have any questions, please call Elise Smith at 690-6870. 

Z’ 

w 

. 

C-20 
— 

— 

OIG RESPONSE TO ASPE CO~ 

We appreciate the comments from ASPE. We agree that the additional evidentiary 

requirement imposed by the unwilling or unable provision is vague. We believe that 

the evidence is clear--l2 sanction referral cases in FY 1991 and 14 cases in FY 1992. 

In those situations when it is appropriate to use the sanction referral authority, the 

PROS need to be able to move swiftly to protect beneficiaries from harm. The past 

record of the physician, rather than speculation about future behavior, should be 

sufficient to make that judgement. -

We welcome ASPE’S support for increased monetary penalties, which we called for in 

1988. 

Based on ASPE’S concerns and those of other parties, we have omitted from the final 

report the two policy options that would have eliminated the PROS’ sanction referral 

authority and that would have provided that authority directly to the PROS. 

We believe that it is important to have in place memoranda of agreement between 

PROS and State medical boards regarding the exchange of information. Unless they 

require the exchange of meaningful and useful information, such memoranda, in and 

of themselves, may do little to address physicians with quality-of-care problems. It is 

clear that little information is exchanged at present. The option described in this 

report would require PROS to share information with the State medical boards only 

after they have confirmed serious quality-of-care problems through medical review 

involving the physician and the PRO physicians. 

We are concerned that ASPE’S comments may reflect some misunderstanding. We 

wish to clari~ that this reDort refers strictlv to the role of State medical boards, not to 1 d 

State medical societies. 

We have also added text in appendix B in response to ASPE’S request for clarification 

on the data. 

— 

C-21

—— __ 
— 

— 

.— 

— 

— 

.— 

.he~ican Nleciical .%soci~tion 

Phvslcjansaealca[ea co [he nealchofknenca 

JamesS. Todd. MD :15Nonh Stau?sulx?c 312464-5000 

ExecucweVice Resuient Chicago,ihlOIS 60610 212464-4184Fax


October Z2, 1992 

Bryan B. Mitchell


Princi@ Deputy inspector
 Genexai


Department ofHeaith
 andHumanSemites


Office ofInspector Generai


330Independence Avenue. S.W. 

Cohen~uikiing,I?oom5554 

Washiqgon.DC 20201


Dear Mr. Mitchell: 

Thankyou for prnvIciingtheAmericanMedicalAssoc~atton(AMA) wuhtheoppmmmtyto rewew 

andcornmen~on the Office of InspectorGenend’s(OIG) chit mspecuon report enmled “The 

&ixxmonReferraiAuthorityof PeerRev]ewOrgamxmons.”The AMAhas rewewedthe poiicy 

opttonssetforth intheOIG’S dtaft report
 and offers the following comments. taking into account 

the OIG’S recentM management advisory report ermtled “The Peer Rewew Orgamzattons and 

State Medical Boards: A Vital tit’ 

TheAMA supports keeping the “unwilling or unable” clause inthePRO statute. By inciuding
 the

specific recpirernent tha
theSecretary oftheDepartment ofHealth
 andHumanSemites 

demonstrate a physician’s i@iiity or unwillingness to compiy with pmgxarnobligations before 

being sanctioned. Congress expressed its beiieftl’lat itwouidbeinappropriate to exclude a 

physxcxanor other providerdm participationin the Medicare program unicss the physician or 

provider was cieariy unwilling or unable to compiy with rhe ~rogram obligations. 

The AMA opposes any legislative or regulatory change that wouid ailow PROS to impose punitive 

monetary fines m excess of the acmai Or es~ated cosrs of the medicdly unnecessary or 

inappropriate semlces pmvlded. ~cmrdin@y, tie AMA strongiy opposes any etfort to increase 

the monetq penalty beyond its cument statutory limits. 

With respect to the o~er po@ opjons proposed by the OIG. he A-MAfavo~ the position that 

PROS should maintain the sancdon referrai authority as it cumentiy exists. h addition. as 

indicated in my ietter dated Oct,okr 14 to yOU. the AMAConceptua,ilySUppOHS the OIG’Sposition 

@t PROS should refer to state medical boards any serious quaiity-of-c~ problems hat have been 

confhmed by the PRO followingSpeciaity-spectixcphysicianreviewandcompletionof due 

process tights at the PRO levei. This poiicy option. which is consistent with Sections C.9.7 and 

C.9.8 in tie PRO Foufi SCOpe ofWork.would allow state medicai bards 10 take action in 

response to the pmvisxon of cam Of allegedly questiomblequality that may not meet the threshold 

requred for a sanction refed under the PRO program. 

AS YOU know, the AMA is WOmg 10 cicvdopCmmuctive and innovative a~proac~es10 enhance 

professional Self-m-tiarion. The AMA is working to establish closer RiatioIQx benveen state 

hrds and state memcaiassociations. Forexample.the AMA isactiveiy pUWg with the

Federauon of State .NIedicai Boards m arrangement whereby voiumeer physicians from state 

c-22 
medicalassociations cotidperformpartofthexnvestigtive andreviewfuncdonson behalfof.and 

under the supervision of. tie state boards. Such an arrangement should permit the boards to 

process a greaternumberof cam@aims. 

At present. state medical associar.ions that conduct peer rcwiew can tak oniy iimited action against 

physicians. The u.itimatesancuon~t statemedicdassociations can@y ismvocafionf 

membershipin the association. which. of course. has limited effect on physicians who are not 

members of the association. Everypmcdcing@ysicianhas a ticense.however.and medicai 

associationscan broadenthe scope and increasethe reievanceof their peer review activitiesby 

assisting in the invetigafiom of state boards. h nun the actionsof the state boaxdscan be 

impmved if PROSrefer seriousquaiity-of-care@Xems. contkned by spec~-spectic nwiewers 

at the PRO levei. 10 the state baud for review. 

h closing, the AMA favors the OIG’S policy option of having PROS maintain their current 

sanction refermi aurhority and. consistent with &. PRO Founh Smpc mfWOX refer to state 

medicai boards any setiousqualky~f-cam pmbiemsconfixmedby the PRO folIowing speciaityspecific physician review and completion of due process rights at the PRO leveL 

Thank you again for pmwciing the AMA with the opporumity to rmnew and comment on your 

draft insptxmon repoK. We look fonvard to a continuingdiaiogue. 

Sincerdy, n / 

~ , ‘&__]~fl. ,.” /“- Jqes S. Todd.MD 

— 

-— 

— 

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C-23 

—- -—— 
OIG RESPONSE TO COMMENTS FROM ‘ITIE AMA 

We appreciate the AMA’s comments. We acknowledge their opposition to changes in 

the unwilling or unable clause and to increased monetary penalties for medically 

unnecessary or inappropriate services. 

Based on the concerns raised by the AMA and other parties, we have omitted from 

the final report the two policy options that would have eliminated the PROS’ sanction 

referral authority and that would have provided that authority directly to the PROS. 

We believe a full range of quality assurance approaches are required. One approach 

that would complement the efforts of the AMA and State medical societies is earlier 

information sharing between PROS and State medical boards. This exchange could 

take place when the PRO physicians have confirmed, after medical review, that a 

physician has been responsible for medical mismanagement resulting in significant 

adverse effects on the patient. 

— 

.— 

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C-24


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A1’iF?d AMEEIC~NMEDICAL. %: REWEAI ASS~CIATION

IVE. � Stijte41) . T’/asn\ngron, .~“0F rsI:i!re~;. !).C.20002 . 292)371-5610. FAX.(202)S71-6954 

November 10, 1992 

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Bryan B. MitcheU 

Principai Depurv Inspector General 

Depanment of Heaith & Human Services 

Office of the hspector General 

Wa@yoU DC 20201 

Dear Mr. MitcheU: 

Thank you for sending mea draft copy of the repo~ ‘The Sanction Referrai 

Authoti~ of Peer Re~iew Orgtitiom”. AMPIU appreciates the oppornmi~ m coxnrnent. ti” remarks focus on the rep~fi’s five pdic; options. . 

For several years now, the unwMng or I,UIMe stand~d - at the AIJ level -

has been a difficuit test to xnee~ Absent di.redo~ Ws vtied wide~y in


their interpretation. finding some physiti~ able became they possessed a


medical degree and ]ther willing even thou@ they retied interaction at the


PRO levei.


In essence, the ianWage passed in OBM 1990 shpiy citied the law


relating to PRO sactiom by provitig that in dete


practitioner or person is “untitig or unable”, tie Semew xmining whether thea
 shall consider 

practitioner’s or pemon’s Wilfingess or lack of abfi~, duxing the period 

before the PRO subtiT,s its report and reco~endatiom, to enter into and 

successfully complete a correaive action pl~ It fi imponat to note that 

development of a course of corrective action is no[ mmdato~ in every 

instance. Indeed, the stamto~ change contined iII OBRA 90 is prefaced by 

the ciause, “if appropriate”. MPW was supportive of this provision and worked with the Office of Inspector General and the Dep~ment of Heaith 

to assis~ in immediate com.muti=tion to AIJs, px=atitionem/protiders and 

peer review orgatitions. 

C-25

November 10, 1992 

Page Two 

Regarding your secondpoficv . optio~~~ ~Orn~e~ded in1990andstill

maintainsthatthePRO statute shouid be amended to increase ciyii monetary 

penalties fkomthe cost of the setice in question to up to $10,000. Present 

statue enables PROS to fine or exciude providers/practitioners for failure to 

coxnpiy with their Medicare obligations. me law stipulatesthat such civil 

monetary penalties shouid notbe “anamount in excessof theactuaior 

estimated cost of the medicdy improper or unnecessaq services so provided.” 

Ofte~ the cost of actual senice in question is minuscule and not an effective 

remedy to affect future physician behavior. Indee& thousands of 

atitrative dollars are spent by PROS in kk@@ and vekfi~ng 2 sefice 

thatwas improper or unnecessary. 

AMPW believes that PROS shouid have the flexibility to recommend hizher 

pcnaities than the cost of the semice in questim and-likewise, the Inspe-aor 

Cenerai shouid be empowered with the authority to fipose a fine of up to 

$10,000. This position is aiso endorsed by the Administrative Conference of 

the United States. A higher threshold is needed to gmer the attention of 

facilities/practitioners and to provide a meaningful alternative to exclusion 

tiom the Medicare program 

AMPRA opposes elimination of the PROS sanction referral authoritv. The 

PROS need sanction authority to: protect beneficiaries anti as leve;age tO 

motivate providers to take actiom 

MRA also opposes providing sanction authority directly to the PROS. The 

govemxnent as the sponsor of Medicare s~ou Id no? abdicaze their 

responsibility to make End decisions on sanction cases. Giving sanction 

authority directiy to PROS wouid also COnfiict witi the more educational role 

of PROS. 

AMPRA supports that the existing provisions relating to the exchange of 

itionnation between peer review organizations (PRC)S) and State medical 

Iicensing boards be amended to require information exchange eariier in the 

nwiew process and to remove administratively burdensome procedural 

barriers to such information exchange. Absent these changes, AMPM 

recommends repeai of the entire provisiom 

Once agai~ OBIU 90 included provisions relating to the exchange of cemin 

types of information between peer review organizations (PROS) and medical 

licensing boards. Changes in these provisions are needed, inciuding severai 

technical corrections. H.R. 1555, a technical corrections bilI passed by the 

House of Representatives at the end of 1991, includes a provision correcting 

C-26 
November 10, 1992 

Page ?hree 

severai drafting errors in OBIU 1990. However, the biii did not aiter the 

requirement that PROS notify State licensing boards oniy once they have 

submitted a form.ai sanctions rem~e~~~o~ 10 tie ~me~ and ody after 

“notice and a hearhg.” 

AMPRA continues to believe that PROS should no@ stite licemtig boards 

about problematic care earlier in tie pro~-i.eq tier a fit noti~ of 

proposed sanction is senq the practitioner or person involved K offered iuz 

opportunity to discuss the matter with the PRO, M@ the PRO ~ that 

a problem exists. In additio~ we believe that the provision requhg a PRO 

to hold a heaxing before noti&ing the State iicensing board is unnecessarily 

burdensome and not needed to &ord ade~~ due process to affected 

practitione~ and providers. AMPRA su~rts a peer discussion - not a kgai 

proceedin~ 

AMPRA wiii contiue to urge the COngrCSSto rno@ the PRO statute in a 

manner consistent with these views. How’kver, if such changes are not 

feasible, then MM recommends repcai of tile entire provisio~ 

Thank youfor the opportunity to comment on the draft reporL We recognize, 

of course, that the muitiple steps in tile PRO djud~tion prom designed 

to assure due process to di invoive~ are time-consumin g and may require 

considerable effort on the part of physi~ patients and others. We 

welcome suggestio~ for _ he p~CCSS more efiticnt and Is 

burdensome. U you have any 

Sincereiy, 

Liiiz@ 

— 

questions please contact me. 

Executive Vice President 

C-27 
OIG RESPONSE TO AMPRA COMMEIVIS 

We appreciate AMpMs positive response to this report. We wish to acknowledge 

the organization’s efforts over the years. The AMPRA has worked with the 

Department, the Congress, and the provider community to develop and improve 

methods for addressing quality-of-care problems. 

In response to the concerns raised by AMPRA and other parties, we have omitted 

from the fkal report the two policy options that would have eliminated the PROS’ 

sanction referral authority and that would have provided that authority directly to the 

PROS. 

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C-28 
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Af!!! 

Bringzng iaj’’timcs o~-cxpcrtcnct ani lcaarcrsnip lo serve niigcncrarions. 

October 23, 1992 

Bxyan B. Mitcheil 

Principal Deputv Inspector General 

Office of Inspector Generai 

Department of Heaith and Human Sexvices 

330 Independence Avenue, S.W. 

Washington, D.C. 20201 

Re: Comments on draft Peer Review 

Organization reports 

Dear Mr. .Mitcheil: 

Horace Deets has asked me to respond to your letters of September 3 and 15, 1992. 

The Office of Inspector General -- in its two draft repom “The Sanction Refemd 

Authority of Peer Review Organizations” and ‘The Peer Review Organizations and State 

Medical Boards: A Vital Link” - has pexformed an important service for Medicare 

beneficiaries in assessing the cument status of P~OS’ sanction activity and the degree of 

data exchange bemeen PROS and rnedicai licensure boards (MLBs). 

Because the two reports have arxived in tandem and deai Mth complementary issues, we 

are responding in one letter. 

In view of WP’S longstanding positions on PRO sanctions and pRO-MLB reiations. we 

are distressed, although not sux-pfised. by the OIG’S findings. ‘1’’hmu@investigation. 

statisticalanaiysis,and review of a Citizens Advocacy Center PRO-MLB survey, the 

findingsconfirm that 1) the PRO sanction authority has atrophied, and 2) the PRO-MLB 

data exchange, with one or two notabie exceptions,hasfailed to develop this despite 

legis~ative efforts in 1990 to address problems concerning both thuse areas. 

As the reports indicate, the PRO program moving into the fourth contractual scope of 

work is in the process of undergoing a shift in focus and methodology towards an 

educational, “continuous quaiity improvement” (CQ1) modei of interaction with doctors 

and hospitak. .WP has engaged in an extensive dialogue with lKFA with respect to 

this evoiution. Whiie supportive of the increased use of profig and feedback 

mechanisms to improve the quality of care, we remain convinced that PROS must have 

an ongoing ability to identi~ and act upon serious threats to patient care arising from 

incompetent performance. PROS’ abiiity to reso~ to sanction proceedings, as weil as 

their ability to interact with licensure boards in appropriate cases, remain essentiai 

eiements of PllOs’ mission to heip protect patients. 
--

Brvan B. Mitchell 

O&ober 23, 1992 

Page 2 

PRO-MLB Interaction 

Accordingly, we weicome vour current recommendation that PROS be mandated to 

“provide case information “tostate medical boards when they have co-ed, after 

medical review, that a physician is responsible for medical mismanagement resulting in 

significant adverse effects on the patient.” We would suggest that the proposal clearlv 

indicate that it is in addition to the information exchange contemplated by the 1990 � 

recommendation, and not a substitute. The goai is to ensure that PROS inform licensure 

boards not only about the most serious probiem cases those potentially “sanctionable” under the statuto~ definitions of the PRO law -- but also about those other prob~em 

performance cases that. whiie vexy setious, are addressed soieiv through comective action 

initiated accordtig to PROS’ contractual scope of work. “ 

Although your draft recommendation is for additional legislative action, we suggest that 

the data shining recommendation be stated in the aitemative, i.e., HCF’A shouid either 

pursue an amendment or use its ndemaking authority to achieve the desired result, 

whichever path appears to be the most expeditious. 

A reported in the draft, there have been some impressive instances of voiuntarv 

exchange along the lines of the proposai, in Ohio, particularity, where the PRO has used 

— 

— 

— 

. 

— 

1Under Section 1156 of thePRO law, sanctions may be pursued based upon a physician’s or provider’s 

failure in ‘a substantial number of cass subsuntiallv to compiy with” quaii~ of care obligations. or a -. physician or protider ‘grossly and flagrantly” violating such obligation “in one or more ins~anos.” 

C-30 
--

Bman B. Mitchell . October 23, 1992 

Page 3 

its current discretionary authotity under etisting regulations to share matefiai concerning 

ail “Ievel three” quality problem cases (the most serious cases).2 

The OIGS recommendation for a new data exchange mandate does involve addressing 

some impediments. Not the least of these is the major transformation of the third scope 

of work’s “Quaiity Intemention Pkm (QIP),” which, by elimination of the cument three 

levels of quality problems, necessitates development of a new “formula” for PRO-MU 

information exchange. As of the release of the October 1 fourth scope of work 

documen~ the precise elements of the new “QUaiityIleview Process,” inchxiing the 

contents of a new “Physician ileview &sessrnent I?orm” (PW and the “weighing” 

system for idenl~g problems andinstizut~ng CorrectieactionplaxM(CAPS),remained 

underdevelopment.intheongoingprocessoffleshingoutthefourthscopeofwork. 

&UU? intendstoseeka quaiitv 4 reviewsvstem d thatcouldfacilitate thekindofPRO-MLB

exchange contemplated by the OIG’S re~ort and recommendation. 

The PRO Sanction Referral Authoritv 

The “motibund” nature of the PRO sanction referral authority is strikingly 

your latest statistical findings. 

documented in 

Two of the three explanations the PROS’ cumulative unhappy experience with the 

sanctions process and the increasing emphasis on educational approaches to quality of 

care problems - appear well on target. A for the third, the statutoxy “unwiiling or 

unable” requirement, we beiieve the 1990 le@iative “M’3, ~ properiy constmed and 

aggressively implemented, would, infact? be a significant ixnprovexnent. This is not to say 

that outright deletion of the requirement wouid not have been a better legislative 

z Under the PRO data disclosure regulations, 42 CF.IZ.476.138 (a)(I)(ii) a PRO may provide 

“confidential” information to a state licensure body without a requ=t. 

3The language of OBRA-90, which represented a compromise, was intended to remove the most 

objectionable features of the “unwilling or unable” requirement. The 1990 amendment defined the 

“unwiiIing or unable” standard in terms of a physician’s failure to enter into and satisfactorily compietca 

correctiveactionpian (CM). The PRO, however, was left with discretion in ea~ case as to whether to 

offera ~. me resuit, as we read the revised section, is that a pRO’s judgement that a sanctionable 

offense was such as to necessitate an immediate sanction recommendation wouid enable the Secretary to 

consider the “unwiiling or unable” requirement mnstmctiveiy met and thereby move to implement the 

recommendation without fear of subsequent attack at the administrative hearing levei. 

In the early drafts of the foumh scqe of wor& HCF/Lin our view, fafled to accurately reflect this 

compromise approach by appearing to ignore PROS’ case-bv-case authority to decline to offer a CAP. The 

July and now October redrafts have been retied to embody the 1$390statutory sanctions language. 

C-31 
--

Bxyan B. Mitcheii 

October 23, 1992 

Page 4 

outcome; the Administrative 

and AARP supported it. 

Com”erence of the. United States urged this course in 1989, 

The overail issue of PROS’ use of their sanction authority, however, remains a criticai 

one. Your draft reportxnaicesa major contribution towarb our ~derstanding of the 

background of the problem. The repo~ makes a further cont~bution in its discussion of 

a number of possible “comectie” options ranging horn ourn@t e~ation of the PRO 

sanction authority to mtiten~ce of the status quo, supplemented by kcreased referrais 

to medicai boards. 

To begin with the negative: our current view is that neither elimination of PROS’ 

referral authority nor provision of c@ct sanction autmo them would be in the 

public interest. On the one hand, we agree with the PROS that the etitence of the 

authority, however sparingly used, is, in the words of your drafg “important to achieving 

their mission because it gives them ieverage w“th the medical community.” On the other 

hand, we beiieve it would be unwise tO vest p~ate peer re~ew orga~tions with what 

we perceive to be a govemme~tai (either federai or sate) ~c~on, nmeiy the power to 

actually impose financiai penaities or actually remove p~c~tionem horn practice. 

k our view the answer 10 the sanctions dile~a reqfies a combination of approaches. 

AARP is on record as favoring eiixnination of the “un~il~g or unable” requirement 

(although, again, the 1990 compromise amentient, K properiy implemented, couid go 

far towards resoiving that particular problem). ne ~socialion h= also stated its 

SUppOrtfor a substantial increase in the avaiiable monetay pen~ty. ~ noted, these two 

recommendations have been pending for years and have not been enacted. There~ore. 

we believethereisa ricedfor a new focus. nerefore, we endorse your fifth 

recommendation - to require PROS to send information to medicai licesure boards - as a 

workable approach. 

It is important, once and for ail, to establish a good wor~g relationship between PROS 

and licensure boards. The PRO pro~am is c]eariy at a crossroads as it prepares to enter 

a new worid of pattern anaiysis, outcomes research, education~ feedback and CQI 

activities. But as we have said in the past and continue to beiieve, there are some 

doctors and some institutions whose poor petio~ance wam~~ ciose oversight and/or 

interruption. K PROS’ new roie is to funher emphasize the educator over the sanctioner. 

then it is imperative that more information regarding such poor pe~o~ance be directed 

to the entity that can act as disciplinarian the medical licensure board. Xntheir recast 

roie, PROS’ abiiity, authority, and willingness to share info~ation with boards in 

appropriate cases and on a timeiy basis will be essentiai to the overail fulfillment of their 

patient protection mission. At the same time we beiieve a ve~ important additional 

element is the need for cioser cooperation and coordination be~een HCFA and OIG in 

— 

— 

. 

C-32 
Bman B. LMitcheli 

O&ober 23, 1992 

Page 5 

giving guidance to the PROS, facilitating their sanctions efforts, and enabling the 

Secretary to iqiement his statutory responsibilities. We tnxst that such coordination wiiI 

accompany any approach that is adopted. 

Conclusion 

We appreciate the opportunity to respond to your two draft reports on aspects of the

operationof the PRO program. Once again, the Office of Inspector Generai has focused 

on significant issues of concerm to the Medicare population and contributed thoughtful 

recommendations. If you have any questions or we can be 

contact Cheryi Matheis of our Federal Affairs Depamnent 

Sincerely, 

+= 

w 

John Rother 

Director 

Division of Legislation and Public Policy 

of funher assistance, piease 

(202/434-3770). 

c-33 
OIG RESPONSE TO COMMENTS FROM AARP 

We appreciate the AARP’s positive response to the draft report. We agree that the 

ability of the PROS to resort to sanction proceedings remains an essential element of 

their mission. 

With respect to AARP’s comment about the 1990 legislative change in the unwilling or 

unable standard, we note that experience since that date leaves little reason to believe 

that the problem has eased. In FY 1991, PROS referred 12 cases for sanction, and in 

FY 1992 they referred 14 cases. The PROS themselves also cite the unwilling or 

unable provision as a continuing obstacle to their use of the sanction referral authority. . 

Based on the concerns raised by the AARP and other parties, we have omitted from 

the final report the two policy options that would have eliminated the PROS’ sanction 

referral authority and that would have provided that authority directly to the PROS. 

— 

We agree that a good working relationship between PROS and medical boards is 

important. Enhanced information sharing between the two will not eliminate the need 

for the PROS to be involved in sanction activities. The PROS’ ability to sanction 

physicians who violate their Medicare obligations needs to be maintained even as they 

move toward an increasing emphasis on education. 

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c-34 
APPENDIX D 

ENDNOTES 

1. Medicare-reimbursed physicians and providers are required to comply with their 

statutory obligations to (1) provide services that are “economical and only when, and 

to the extent, medically necessary,” (2) provide setices that are “of a quality which 

meets professionally recognized standards of health care,” and (3) provide services that 

are “supported by evidence of medical necessity and quality” (42 U.S.C. Sec. 1320c-5, 

section 1156 of the Social Security Act). 

2. 42 U.S.C. Sec. 1320c-5. 

3. office of Inspector General, Z7ze utilization and Quality Control Peer Review 

Oganization (PRO) Program: Sanction Activities, 0AI-01-88-O0571, October 1988. 

4. These 10 PROS held contracts for peer review in 15 States: Alabama, Iowa (holds 

contract for Nebraska), Michigan, New Jersey, New York, North Carolina (holds 

contract for South Carolina), Oregon, Pennsylvania, Rhode Island (holds contract for 

Maine), and Washington (holds contract for Alaska and Idaho). 

5. The 235 sanction referrals against physicians since the inception of the PRO 

program involved 220 different physicians because the PROS referred some physicians 

more than once. 

6. Based on 439,580 non-Federal patient-care physicians in 1986 and 471,692 in 1989, 

the most recent data available (American Medical Association, Division of Survey and 

Data Resources, Physician Character&tics and Di+stn”bution,1990), Table A-8. 

7. The PROS for the Virgin Islands, American Samoa, and Guam also have made no 

referrals. 

8. The 23 PROS that made no sanction referrals in FYs 1991 and 1992 are Arizona, 

Colorado, Connecticut, Florida, Georgia, Hawaii (also holds the contract for American 

Samoa and Guam), Kansas, Louisiana, Massachusetts, Minnesota, Mississippi, 

Missouri, Montana (also holds the contract for Wyoming), New Hampshire (also holds 

the contract for Vermont), New Mexico, North Dakota, Oregon, Pennsylvania, Rhode 

Island (also holds the contract for Maine), South Dakota, Tennessee, Utah (also holds 

the contract for Nevada), and Virgin Islands. These PROS represent 26 States plus 

the Virgin Islands, American Samoa, and Guam. 

9. Based on non-Federal, patient-care physicians as of January 1, 1989 (Physician 

Charactetitics and Distribution, op. cit.). 

D-1 
10. From FYs 1986through 1992, the Office of Inspector General has sanctioned 142 

physicians and 3 hospitals (fined 2 and excluded 1). 

11. Office of Inspector General, PRO Technical Information Memorandum No. 2, 

July, 1987. Also in an undated paper, “Due Process in the Peer Review Organization 

(PRO) Sanctions Activities.” 

12. Calculation based on the length of exclusion prior to any appeal actions and 

excluding three exclusions fol an indefinite term and one permanent exclusion. 

13. lle Utilization and Quality Control Peer Review O~anization (PRO) Program: 

Sanction Activities, op. cit. 

14. Administrative Conference of the United States, Recommendation 89-1, “Peer 

Review and Sanctions in the Medicare Program” (Washington, DC: June 1989). 

15. A corrective action plan (CAP) is the PRO’s suggested method for correcting the 

violations the physician or hospital has made. The CAP can include coursework, 

refresher residencies, and reading assignments, among others. 

16. The Utilization and Quality Control Peer Review Organization Program: Sanction 

Activities, op. cit. 

17. Health Care Financing Administration, Directed Change Order (DCO) 91-4, 

“Implementation of a New Statutory Requirement Mandating the Use of Corrective 

Action Plans Prior to Recommending a Sanction Action.” 

18. The PRO is required to have at least two meetings with the physician before 

referring a sanction based on a substantial violation. One meeting is required before 

referring a sanction based on a gross and flagrant violation. 

19. For example, the PROS failed to send the requisite number of written notices to 

the physician or hospital or failed to offer the requisite opportunities for meetings with 

the PRO. 

20. The OIG rejected two referrals because the physicians died. 

21. Of the 61 sanctions appealed to an ALJ from FY 1986 through FY 1991, 12 were 

overturned. The OIG appealed 2 of those sanctions overturned by the ALJ and won. 

22. In a 1988 study, we found that the PROS considered their quality assurance 

activities to be more important than utilization review and to have received more 

focus during their second contract period (Office of Inspector General, Z?ie Utilization 

and Quality Control Peer Review (PRO) Organization Program: Quality Review 

Activities, 0AI-01-88-O0570, August 1988). 

23. Directed Change Order (DCO) 91-4, op. cit. 

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D-2

24. Health Care Financing Administration, Request for Proposal, Fourth Scope of 

Work, (October 1, 1992), p. C-1. 

25. G. R. Wilensky, “Medicare’s PROS Change Their Focus, Broaden Their Mission,” 

Journal of the American Medical Association 266, No. 20 (November 1991), p. 2810. 

26. Health Care Financing Administration, Results of the Peer Review O~anization 

Review for the Z%irdScope of Work (based on reports submitted through 4/30/91 and 

reviews completed through 3/3 1/91), July 25, 1991. 

27. Sanction notices are written letters from the PRO to the physician or hospital 

responsible for the violation and indicate the start of the sanction process. Notices 

must cite the Medicare obligations violated, describe how the obligation was violated, 

cite the PROS’ sanction referral authority, suggest a corrective action plan (at the 

PROS’ discretion), invite submission of additional information, and review information 

on which the PRO based its decision. 

28. See l%e Utilization and Quality Control Peer Review organization (PRO) Program: 

Sanction Activities, op. cit., and State Medical Boards and Medical Discipline (OEI-Ol89-00560, August 1990). 

29.	 In our 1988 report, 771eUtilization and QuaIity Control peer Review Oqanization 

(PRO) l?ogram: Sanction Activities, as part of a series of recommendations to 

strengthen the PROS’ sanction referral function, we called for congressional action to 

eliminate the unwilling or unable provision as a basis for a sanction referral. In 1989 

the Administrative Conference of the United States made the same recommendation. 

30. In our 1988 report we also called for the development of legislation to strengthen 

monetary penalties to make them an effective sanction. We recommended that a 

penalty of up to $10,000 per violation be imposed for substandard, unnecessary, or 

uneconomical care. 

31. State medical boards often are criticized as being ineffective quality assurance 

bodies. However, data from the Federation of State Medical Boards show that in 

calendar year 1991 they imposed 2,804 prejudicial actions against physicians, 959 of 

which involved a 10SSof license or license privileges, and 1,110 a restriction of license 

or license privileges. 

32. Office of Inspector General, Tile peer Review Organizations and State Medical 

Boards: A Vital Link, OEI-01-92-00530, April 1993. 

33. From May 1990 until April 1992, the Ohio pRO referred 75 cases to the Ohio 

medical board. The board dismissed 13 of these without any active investigation and 

another 37 after conducting some investigation. The remaining 25 are in various 

stages of review, with 8 at an advanced stage involving the initiation of a formal action 

against a physician. For more information, see our companion report Peer Review 

Organizations and State Medical Boards: A Wal Link. 

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D-3