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75–058–PS 2001

REDUCING REGULATORY AND PAPERWORK BURDENS ON SMALL HEALTHCARE PROVIDERS:

PROPOSALS FROM THE EXECUTIVE BRANCH

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

WASHINGTON, DC, JULY 25, 2001

Serial No. 107–23

Printed for the use of the Committee on Small Business

(

(II)

COMMITTEE ON SMALL BUSINESS

DONALD MANZULLO, Illinois, Chairman

LARRY COMBEST, Texas

JOEL HEFLEY, Colorado

ROSCOE G. BARTLETT, Maryland

FRANK A. LOBIONDO, New Jersey

SUE W. KELLY, New York

STEVE CHABOT, Ohio

PATRICK J. TOOMEY, Pennsylvania

JIM DEMINT, South Carolina

JOHN R. THUNE, South Dakota

MIKE PENCE, Indiana

MICHAEL FERGUSON, New Jersey

DARRELL E. ISSA, California

SAM GRAVES, Missouri

EDWARD L. SCHROCK, Virginia

FELIX J. GRUCCI, JR., New York

TODD W. AKIN, Missouri

SHELLEY MOORE CAPITO, West Virginia

BILL SHUSTER, Pennsylvania

NYDIA M. VELAZQUEZ, New York

JUANITA MILLENDER-MCDONALD,

California

DANNY K. DAVIS, Illinois

BILL PASCRELL, JR., New Jersey

DONNA M. CHRISTENSEN, Virgin Islands

ROBERT A. BRADY, Pennsylvania

TOM UDALL, New Mexico

STEPHANIE TUBBS JONES, Ohio

CHARLES A. GONZALEZ, Texas

DAVID D. PHELPS, Illinois

GRACE F. NAPOLITANO, California

BRIAN BAIRD, Washington

MARK UDALL, Colorado

JAMES R. LANGEVIN, Rhode Island

MIKE ROSS, Arkansas

BRAD CARSON, Oklahoma

ANIBAL ACEVEDO-VILA, Puerto Rico

DOUG THOMAS, Staff Director

PHIL ESKELAND, Deputy Staff Director

MICHAEL DAY, Minority Staff Director

(III)

C O N T E N T S

Page

Hearing held on July 25, 2001 ............................................................................... 1

WITNESSES

Scully, Hon. Thomas, Administrator, Department of Health & Human Services ......................................................................................................................... 3

Graham, Hon. John, Administrator, Office of Management and Budget ........... 7

Grob, George, Deputy Inspector General, Department of Health and Human

Services ................................................................................................................. 9

APPENDIX

Opening statements:

Manzullo, Hon. Donald .................................................................................... 44

Velazquez, Hon. Nydia ..................................................................................... 48

Tubbs Jones, Hon. Stephanie .......................................................................... 51

Ross, Hon. Mike ................................................................................................ 54

Millender-McDonald, Hon. Juanita ................................................................. 56

Prepared statements:

Scully, Hon. Thomas ........................................................................................ 58

Graham, Hon. John .......................................................................................... 73

Grob, George ..................................................................................................... 78

(1)

REDUCING REGULATORY AND PAPERWORK

BURDENS ON SMALL HEALTHCARE PROVIDERS: PROPOSALS FROM THE EXECUTIVE

BRANCH

WEDNESDAY, JULY 25, 2001

HOUSE OF REPRESENTATIVES,

COMMITTEE ON SMALL BUSINESS,

Washington, DC.

The Committee met, pursuant to call, at 10:05 a.m. in Room

2360, Rayburn House Office Building, Hon. Donald Manzullo

(chairman of the Committee) presiding.

Chairman MANZULLO. The Committee will come to order.

This is the Committee’s third hearing to examine the regulatory

problems at HCFA, which is now known as the Centers for Medicare and Medicaid Services (CMS). However, a new name does not

make a new organization.

While I appreciate that Secretary Thompson and Administrator

Scully are trying to bring a new attitude to the agency, personally

I am not going to recognize the new name until such time as I am

convinced that it has truly been transformed into a new organization that puts the interests of patients and healthcare providers before those of bureaucratic bean counters.

At the previous hearings, all the participants agreed that the

regulatory burdens are distracting from their primary business— delivering healthcare services. Today’s hearing asks the decision

makers from HCFA and the Office of Management and Budget

what administrative actions they can take to eliminate burdensome

and unnecessary regulatory requirements. My objective is to work

cooperatively with HCFA, and I will put a slash in there, slash

CMS, and OMB to reduce and even eliminate these regulatory burdens.

It appears that the recordkeeping and reporting requirements

provide little in the way of information and in fact may inhibit the

practice of good medicine. Similarly, the burden of regulation would

make sense if those covered by Medicare or the providers benefited

from the regulations. That does not appear to be the case.

Rather, the regulatory scheme appears to burden those who have

the fewest resources to wend their way through the Department’s

administrative maze, the small businesses. Regulations and record

keeping requirements appear to frustrate Medicare beneficiaries

and participating providers.

A regulatory morass exists at HCFA. Congress and the Executive

Branch need to work together to reduce the regulatory burdens on

2

small healthcare providers so they will stay in the Medicare program. If the Executive Branch cannot solve the problem by administrative action alone, then we are certainly willing to do whatever

is necessary for remedial legislation.

I would like to thank my colleagues, Mr. Toomey and Mrs. Berkley, for their leadership on this issue. I expect this hearing will be

the foundation of a fruitful partnership that will bring accountability to a system that for too long appears to have been accountable to no one.

I will now recognize the Ranking Member of the full Committee,

the distinguished gentlelady from New York, for her opening statement.

[Chairman Manzullo’s statement may be found in appendix.]

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman.

Today’s hearing is the third in a series on the Center for Medicare and Medicaid Services, the successor agency to the Health

Care Financing Administration. If these hearings have shown us

anything, it is that it will take more than a name change to reform

how HCFA operates.

To that end, the purpose of these hearings is to work with the

Administration to find solutions to the problems of a complicated

and growing system. Today’s hearing will focus on the role of OMB,

specifically the Office of Information and Regulatory Affairs, in enforcing the Paperwork Reduction Act.

In addition, we will look at how effectively OMB has monitored

and enforced federal agencies’ compliance with the Regulatory

Flexibility Act. As we know, reporting and regulatory burdens fall

disproportionately on small business. One of this Committee’s goals

is to level the regulatory playing field for our country’s entrepreneurs.

In our last two hearings, we heard about problems facing the

public healthcare financing system and small health service providers. In 1999, Congress tightened enforcement in order to cut

down on waste, fraud and abuse. That goal is close to being met,

but it has had unanticipated complications.

We learned about the burdensome and often contradictory CMS

paperwork endured by doctors simply to receive payment for their

services. Often complying with CMS paperwork takes more time

than the time they spend with their patients. The reporting requirements are complicated, often contradictory and prone to unintended errors. Then doctors must worry about unannounced audits

for the errors they did not mean to make.

Such a confusing and adversarial system is very discouraging

and has real consequences. When doctors are treated as suspects

instead of caring professionals, often the result is an avoidance of

Medicare and Medicaid patients, many of whom have the greatest

need for medical assistance.

Mr. Chairman, this burden of paperwork and scrutiny falls hardest on the small healthcare provider. Doctors in private solo practice or partnership want to serve the poor and elderly, but they

worry about complex reporting requirements that could just as easily result in an expensive audit as it could be a missed payment.

Today we continue to focus on solutions to problems that face

small healthcare providers, and we will hear then from the agenVerDate 11-MAY-2000 07:18 Sep 22, 2001 Jkt 075058 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 E:\HR\OC\A058.XXX pfrm01 PsN: A058
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cies responsible for running that system, CMS and OMB. I hope

they provide this Committee with useful and constructive proposals

that result in a solvent Medicare system providing quality services

to the poor and elderly, reduce waste and fraud and protects the

needs and interests of small healthcare providers.

In closing, Mr. Chairman, let me say that I look forward to hearing the agencies’ proposals for a fair and effective alternative to the

current way of doing business with the government.

Thank you.

[Ms. Vela ́zquez’s statement may be found in appendix.]

Chairman MANZULLO. Thank you very much.

We have a time clock here that is five minutes more or less, just

an idea to help us run along. Our first witness, Tom Scully, is the

administrator. His title is Administrator of the Centers for Medicare and Medicaid Services. That is his official title. We will recognize you by your official title.

Mr. Scully, we look forward to your testimony. I appreciate your

stopping by the office yesterday and informally going over some of

the many onerous burdens that you are facing. I appreciate the fact

that you had the courage to accept the appointment.

Please?

STATEMENT OF THOMAS SCULLY, ADMINISTRATOR, CENTERS

FOR MEDICARE AND MEDICAID SERVICES, DEPARTMENT OF

HEALTH AND HUMAN SERVICES

Mr. SCULLY. Thank you, Mr. Chairman and Mrs. Vela ́zquez and

other Members. I would be happy to go through all the wonders of

the former HCFA, and hopefully in the next few months I can convince you that we have changed enough to start calling it CMS.

There are a lot of challenges obviously with the Medicare and

Medicaid programs. As a first step, you talked of a change in the

name. We changed the name for a variety of reasons. Secretary

Thompson, before I even got confirmed, spent a week on what was

then called HCFA with me. One day on the way up to Baltimore

he said look, everybody hates HCFA. No senior knows what HCFA

is. HCFA has a lot of baggage. As the governor of Wisconsin, he

probably may have been tied with the Chairman for being the biggest HCFA hater.

What he found when he got up there, though, and I had already

known from a variety of roles, is that HCFA/CMS actually is filled

with a lot of people that actually do care about the programs, do

a pretty good job. They tend to be very insular and do not really

talk to the outside world enough, which I am committed to changing, but they really do a good job. But, people really, really did not

like HCFA.

It was his idea to change it to CMS. We spent a lot of time talking to employees and had an employee contest and focus groups.

We changed the name to CMS, even though some people have

given us a little bit of a hard time about it.

Our view is if you try to change attitudes and change the way

people look at you and change the way the employees think about

themselves and their own agency, changing the name at least gives

you a little bit of a new breath of fresh air to change attitudes, and

it is all about changing attitudes.

4

I can tell you, having overseen HCFA in a prior life—I was at

OMB and in various jobs in the White House for the first day and

the last day of the first Bush Administration. I was the person responsible for HCFA’s budget back then and for the Medicare and

Medicaid programs for four years, both as the Associate Director of

OMB and Deputy Domestic Policy Advisor in the first Bush Administration.

It is an unbelievably huge job. HCFA’s combined or CMS’ combined budget this year, if you look at Medicare and Medicaid together, is $467 billion. The Medicare program alone is $240 billion.

They are the biggest program in the federal government.

C.M.S. is a very complicated place, as we will probably get into

today. The Medicare program is run by CMS and managed by

CMS, but it is really run by 51 contractors around the county

largely by the Blue Cross plans, Mutual of Omaha and some other

contractors. We have about 5,000 employees.

I am not complaining about my budget. I would never question

what OMB gives us because I used to be there, but we do have

4,800 employees and a $2.5 billion roughly administrative budget

for $467 billion of spending, so it is a very, very large, very complex

program and very difficult to run.

There is no question there is need for changes in the rules and

need for changes in updating the way CMS does its job. Secretary

Thompson and I are planning to methodically and aggressively

change it. Changing the name was the first step. We have done a

lot of other things, which I will get into today.

You mentioned in your testimony—not in your oral testimony,

but in your written testimony, which I just saw this morning—the

855 enrollment form that was 30 pages long for new providers. Totally unrelated to your testimony, I think you are going to find Secretary Thompson will have an announcement about that tomorrow

that will hopefully be looked at as a first step towards convincing

you we were serious about change. I just saw that in your testimony. He has a number of changes tomorrow, one of which will be

that.

I have done a lot of things personally since I have been there in

seven weeks. Three things we announced on Thursday. One is, and

I will get into these more in a little bit. One is that we announced

that we are forming under the Secretary’s regulatory reform initiative three different things that we are going to do to initially try

to make CMS a more open and responsive place.

One is that we will have seven different groups. One, which they

first met for the first time on Thursday, is a group to deal with the

physician community, a group for hospitals and rural health, a

group for nursing homes, a group for health plans, a group for

nurses and allied health professionals, a group for home health and

hospice and a group for ESRD and dialysis centers.

Each of these groups, and I am chairing personally the long-term

care group with the executive director of the National Governors

Association, Ray Chapok, because the governors obviously spend

more money and the states spend more money on Medicaid and

long-term care than we do.

Each of these groups will be focused on getting everyone in the

community—unions, hospitals, in my case unions, nursing homes,

5

the governors, the AARP, who all came to the first meeting, but

every group in these areas—together once a month to talk about

our problems.

You can imagine the nursing home world. The nursing homes

and the unions are not always going to agree on the fixes, but I

found that there are a lot of common problems in nursing homes

we can fix, and we want to methodically get together with these

people once a month, identify the problems and fix them.

Until I took this job after I was tossed out of the government

eight years ago, my most recent job was running a hospital association. I know the hospitals sat around, and we talked regularly

about what needed to be fixed. Then someone would courageously

go approach HCFA about it.

What I am trying to do is get the CMS staff involved in every

one of these groups around the industry with consumers, with

unions, with hospitals, with nursing homes, with physicians, and

find out what their problems are, have them have a forum to come

tell us what their problems are and have the people who focus on

this every day inside the beltway focused on fixing problems day

to day. Not necessarily everything has to be a big healthcare

forum. There are a lot of day-to-day problems we can fix.

A second step is that I am going to go around the country, and

the Secretary will come on some of these as well, and have public

listening forums. I assume that some of those will happen to be in

congressional districts as well, so hopefully with some of you. I already have eight of them scheduled in the next two months. I think

the first one is with Montana with Chairman Baucus.

To the extent I can still keep my family, I spend a lot of time

traveling around the country trying to get outside the beltway and

find out what people’s problems are dealing with the Medicare program, Medicaid program and CMS.

The third step is that internally we have a lot of very smart people who have spent a lot of time working on Medicare and Medicaid. The Secretary directed me to put together an internal work

group of all the smartest, most creative people in CMS to fix our

program. Since that probably comes across as, you know, we are

from the government and we are here to help you, people will not

believe we will actually do that.

I recruited a fellow who the Chairman met yesterday, Bill Rodgers, who actually ran an emergency room, a doctor, a practicing

physician, ran the emergency room at Alexandria Hospital for

years, patched up my kids for years. He is now over at the emergency room in Winchester, Virginia. He is going to spend four days

a month coming in to chair this internal work group to actually

push our employees to come up with ideas that are actually going

to fix real problems for real people.

The reason I did that is he actually has to go back to the hospital

every day and deal with the other doctors and the other physicians

and the other nurses, and he has to deal with the real problems.

Sometimes I think it is helpful to have somebody who is operating

in the real healthcare world to help you fix those problems, so he

is going to chair that third group.

We are very focused on streamlining burden and paperwork. One

of the other things we announced with probably a little fanfare,

6

and hopefully it will make the lawyers’ jobs more easy too, is that

we announced—I used to be a healthcare lawyer in another life,

and I got paid outrageous fees to read the Federal Register and

identify regs that were coming out when I was at Patton Boggs and

Aiken Gump, two big law firms in town.

We announced a few weeks ago that we are going to have a compendium of all regulations coming out of the Medicare/Medicaid

programs once a quarter. We are going to publish it once a quarter,

and if it is not on that list of the menu of what we are going to

put out that quarter it will not come out.

In addition to that, when we put out regs once a quarter we are

going to put them in the Federal Register—assuming we can get

them to agree to this; I am working on that—only one day a month.

The reason for that is to give people in the healthcare world the

notice of what is coming. If we do not tell them that it is coming

in the fourth quarter of the year it is not going to be issued in the

fourth quarter of the year.

The regs will only come out one day a month so that not everybody has to hire a lawyer at a couple hundred bucks an hour to

go down and read the Federal Register so that they know what is

coming if you are a physician or a nursing home or home health

aid in hospice.

We are trying to make the regulations less burdensome, more

predictable and give people a lot more heads up of when they are

coming because I think the perception in the healthcare world, fair

or unfair, is that the HCFA regulatory process, CMS regulatory

process, tends to be just random strafing runs, and you have to

watch for these regulations to come out. I think you will find that

will make life a little simpler as well.

Another step that we are taking, which is important that I

talked to the Chairman about yesterday, is contract reform. As I

mentioned, when I was at OMB ten years ago we had 72 contractors, and we announced that we were going to get it down to ten

contractors. I came back ten years later, and we still have 51 contractors.

Our goal, and the Secretary has said this, is to get the number

of Medicare contractors down from 51 to about 18 to 20, and we

believe by finding the best contractors who can work with us cooperatively and run the program most efficiently, come up with common systems, that we can run the program more like an efficient

business.

The program was designed as a contractor structure in 1965, and

very little has changed. We are determined to fix that and make

it work better. We are already working voluntarily. We need legislative changes. We are working voluntarily with Blue Cross, who

represent most of the contractors, to fix that now.

Finally, since I know I have gone over, I will just tell you that

one of the other efforts that you will see this fall, and this is probably my personal biggest agenda item as I already went to the Appropriations Committees, and we have had $35 million reprogrammed for this fall. We are going to have a Medicare education

campaign because my view when I came in is that seniors do not

understand their own program. They do not understand where to

7

get nursing homes. They do not understand where to go to dialysis

clinics.

I picked $35 million because that is what a Presidential campaign spends in two months, and that was the level of information

and education effort that we wanted. We are going to spend $35

million between October 15 and December 15 educating seniors

about where to get information, where to get choices, where to get

more information about a nursing home where they want to put

their parents or their spouse, how to pick a health plan, how to

pick a dialysis center, just to get them to ask more questions and

answer more questions.

We know that is going to generate more questions, so our Medicare 1–800 number, which currently operates eight hours a day,

five days a week, as of October 1 will be running 24 hours a day,

seven days a week. We are going to triple the budget for it. We are

going to have people available to answer very specific questions.

If you are in New York City right now and you call up with a

specific question about New York City, you cannot get an answer

about New York City. You are referred to the state. We are going

to fix that, and hopefully as of this fall when seniors have questions, whether it is about the Medicare prescription drug card

which we announced last week or whether it is about picking a

nursing home, they will be able to get very specific answers about

their area and their town and where they should go for help.

We are going to make a very big effort not just to fix HCFA on

a regulatory basis and make it CMS so you can call it that in the

future, Mr. Chairman, but to also make seniors—they love Medicare. They are happy with the program. Most of the states generally like Medicaid, but to make people more aware of what their

options are and get better services through the program.

Thank you for having me. Sorry I went over my few minutes.

[Mr. Scully’s statement may be found in appendix.]

Chairman MANZULLO. That is okay. I appreciate it very much.

Our next witness is John Graham. He is the Administrator of the

Office of Information and Regulatory Affairs, OIRA, at OMB.

I look forward to your testimony, Mr. Graham.

STATEMENT OF JOHN GRAHAM, PH.D., ADMINISTRATOR, OFFICE OF INFORMATION AND REGULATORY AFFAIRS, OFFICE

OF MANAGEMENT AND BUDGET

Mr. GRAHAM. Good morning, Mr. Chairman, Ranking Member

and Members of the Committee. Thank you for the invitation to

testify. You invited me to speak about OMB’s role in reviewing information collection requirements pursuant to the Paperwork Reduction Act, as well as our review of regulations governing Medicare and Medicaid programs.

I was confirmed by the Senate last Thursday night. Prior to that

I was a professor at the Harvard School of Public Health, and I am

pleased that I have the opportunity to testify as the OIRA Administrator this morning.

I hope to leave this hearing today with a better understanding

of the issues that this hearing is addressing, of your concerns and

ideas for further action that may be taken by my office in concert

8

with Mr. Scully and the Centers for Medicare and Medicaid Services, which I also know as HCFA.

I have appreciated the opportunity to read the testimony from

the May 9 and July 11 hearings which constitutes a substantial

part of my knowledge base on this issue.

In your letter of invitation, you requested my views on the following issues: (1) administrative changes that OMB can make in

ensuring that it properly understands the impact of reporting and

record keeping requirements on small businesses; (2) the adequacy

of OMB’s review of reporting and record keeping requirements imposed by CMS contractors on small healthcare providers; (3) recommendations on necessary legislative changes in the Paperwork

Reduction Act; and (4) our opinion on OMB’s review of CMS regulations.

These are important questions, and I look forward to working

with the Committee and CMS to address the concerns that have

been raised about the paperwork burdens that are placed on small

healthcare providers. However, because I assumed the position at

OIRA less than a week ago, I am not in a position at the present

time to discuss what has happened in the past with respect to the

relationship between CMS contractors and small healthcare providers, nor can I offer at the present time any views or recommendations regarding what deficiencies may or may not exist or

how they can be remedied.

However, I can assure you that one of my priorities as OIRA Administrator is to reinvigorate the Executive Branch’s implementation of the Paperwork Reduction Act, and I am committed to working with OIRA staff and CMS and this Committee to look into this

matter in detail and to identify actions that need to be taken.

I would, however, like to briefly summarize the public and OIRA

review that must occur before an agency can receive OIRA approval to collect information from the public. The 1995 Paperwork

Reduction Act amendments mandate an extensive agency review

process and provide significant opportunity for public participation

in both the agency and OMB processes.

In accordance with the goals of the Paperwork Reduction Act, the

Act requires agencies to plan well in advance when they develop

new collections of information and they consider extending ongoing

collections of information. This advanced planning is necessary because agencies need to estimate potential burdens on respondents

and prepare to disclose certain additional information to the public.

Only after doing this and considering changes based on comments received do agencies submit their paperwork clearance packages to OMB for review and approval. OIRA then reviews each

agency information collection requirement before the agency can

collect it and reevaluates the collections for their continued use at

least once every three years. In cases where outstanding concerns

remain, OIRA may call meetings with CMS staff, other affected

agencies and other commentators.

Our objectives throughout this process are to: (1) determine

whether the agency’s collection is necessary for the proper performance of the functions of the agency; (2) assure that the collection

has practical utility; and (3) assess whether these benefits justify

the burden imposed on the public. If the agency cannot demVerDate 11-MAY-2000 07:18 Sep 22, 2001 Jkt 075058 PO 00000 Frm 00012 Fmt 6633 Sfmt 6602 E:\HR\OC\A058.XXX pfrm01 PsN: A058
9

onstrate to OIRA’s satisfaction that the collection’s need and practical utility justifies this burden, OIRA disapproves the collection,

and the agency may not go forward with the collection until it is

revised.

Through the PRA, OIRA must help agencies meet their obligations to the public by striking the proper balance. The Paperwork

Reduction Act should not be used as grounds for denying the government the ability to collect from the public what is necessary to

fulfill the mission that Congress has established. On the other

hand, collection of unnecessary and duplicative information imposes unjustified costs on the businesses or individuals, in this case

physicians, on the taxpayer and on the economy as a whole.

O.I.R.A. is continuing to make efforts in this area reviewing individual paperwork collection proposals and producing an annual information collection budget that identifies agency by agency the initiatives underway to reduce paperwork burden and improve the

quality of federal data collection. I plan to place renewed emphasis

on a coordinated effort to produce better results in this regard, and

I am happy to hear from Mr. Scully that efforts are being made

promptly to work in this area at the present time.

Thank you for this opportunity to testify. I look forward to working with you in the future.

[Mr. Graham’s statement may be found in appendix]

Chairman MANZULLO. Thank you very much.

Our third witness is George is it Grob?

Mr. GROB. Grob.

Chairman MANZULLO. Grob. Thank you. Where is the E?

Mr. GROB. It is missing.

Chairman MANZULLO. I think it should be on there.

Mr. GROB. Maybe the government could add an E, and it would

sound right.

Chairman MANZULLO. Mr. Grob is the Deputy Inspector General

for Evaluations and Inspections for the Department of Health and

Human Services. We look forward to your testimony.

I believe there is something a little bit unusual, Mr. Grob. When

I read your testimony last night, I was nothing less than—my

breath was taken away when I read on page 4 of your testimony,

the middle paragraph, where it says we recommend that Medicare

contractors and Administrative Law Judges apply the same standards.

Mr. GROB. Yes.

Chairman MANZULLO. You might want to mention that in your

regular testimony. I think that could be the rub of most of the

problems going on with the doctors that are having difficulty.

I appreciate your being here.

STATEMENT OF GEORGE GROB, DEPUTY INSPECTOR GENERAL FOR EVALUATIONS AND INSPECTIONS, DEPARTMENT

OF HEALTH AND HUMAN SERVICES

Mr. GROB. Thank you very much. I appreciate being here, too. I

was actually excited when I saw the invitation letter with the

words that asked us to please come up with ideas on how to

streamline the administration of the program without compromising program integrity.

10

The first thought that crossed my mind was that this is going to

be complicated. Now, I knew it would be complicated long before

we got the invitation from you because we work on this all the

time, and we are constantly thinking and doing studies about

things like the appeals system and the contractor system and all

those details of the programs that we work our way through day

after day and year after year.

If there were any doubt about it at all, when I reviewed in detail

the testimony in the two previous hearings that you held on this

subject it would remove all doubts that we are dealing with a very

complicated matter. It may be because the program is big. Medicare is the biggest insurance program in the world. That may have

something to do with it, but the fee for service parts and the Medicare Plus charts are essentially very complicated because of all the

people that are involved in this.

Now, I think you knew that when you asked us to answer the

question, and I am going to try to deal with this complexity by

dealing at several different levels; from a very general level and

then trying to get down to more and more specifics as we go. Five

minutes will not be enough to do it, but I will look for other opportunities to discuss things with you and your staff.

In one way, the question that you asked is actually the beginning

of the answer. I think it might be worthwhile for us to pause to

lay out a principle that we can use in dealing with these, and the

principle that I would like to articulate is the principle of balance.

Because the subject is so complicated, we need to get our bearing

from time to time. I think the correct bearing is this. I think anything we do has to balance the needs first of the beneficiaries, the

healthcare providers, and then the financial and program integrity

of the program.

A statement I think that on the surface sounds trite, but those

of us who have worked in the field know how hard it is, and every

once in a while when we get lost it is good to have something we

can grab back onto that sort of tells us where we should go. So I

think if we start with that we can always get our bearing when we

need to do it.

Now let me descend one level of generality here, and let me look

at the infrastructure. I think that nothing will help the healthcare

providers if the fundamental infrastructure of the program is not

there. There are lots of aspects to it, but I would like to single out

two. One is the Medicare contractors, and the other is the appeals

system that you mentioned earlier.

Now, Medicare has these 51 contractors that Mr. Scully referred

to, and we have actually found problems with the way these contractors work even with their own integrity. We have had 15 settlements with contractors for false representation of the work that

they do, for turning off the codes that they use to detect integrity

problems and a number of things like this amounting to $350 million ever since 1993. We have also had some problems with the effectiveness of their fraud units.

But there remain very fundamental problems with the contractors simply with accounting. The contractors to date do not have

integrated dual entry accounting systems, which is a fundamental

11

aspect of any large business in this country, as I am sure that you

know.

Above and beyond these procedural weaknesses, there are very

fundamental weaknesses in the way the contractors are chosen.

Only insurance companies can serve as carriers. As far as intermediaries are concerned, these are basically nominated by the National Blue Cross/Blue Shield Association, which chooses which

ones to nominate, and they do that by consulting with the various

provider groups. Only cost based reimbursement is possible, and no

specialization is allowed except for the anti-fraud contractors.

There is no business in this country that could possibly function

if its hands were tied with the same rules that Medicare has tied

the hands of its contractors. Now, when this started it made perfect

sense because we had to quickly muster the resources of large insurance companies to manage these programs. But right now the

CMS has very little flexibility in how to choose its contractors.

Secretary Thompson has announced that he is going to reform

this, as well as the reductions in the number of contractors that

Mr. Scully mentioned earlier. We completely support these reforms.

We think they are common sense, and they should be made as soon

as possible.

The second one is the appeals system. It is fundamentally broke.

Right now, for example, in Part B there are four levels of appeals.

At the first level, a carrier reconsideration takes 45 days on average. At the second level of a hearing it takes 120 days. At the ALJ

level it takes about a year, and then at the Departmental Appeals

Board it takes up to two years on average to handle these appeals.

It takes too long.

There is a very high reversal rate, which we believe is due to discordant standards at the different review levels, which is what you

had referred to earlier. There is, we believe, somewhat of a breakdown in the communication and understanding at all these levels,

and there is a very dysfunctional administrative system. If someone is worried about paperwork reduction, they ought to try to follow the files of an appeal as they work their way through the system and even across the country from office to office as they try

to resolve these matters.

We believe that the solution to this is first to provide enough resources for the system to work. If it is taking too much time, it may

be due to procedures, but it may be due to overload. If people

would like their appeals addressed, there should be enough people

involved in hearing the cases so that it can be resolved quickly.

We think the ALJs should be moved to the Department of Health

and Human Services. Right now they function out of the Social Security Administration. In a sense they focus a residual of their activities on Medicare after trying to satisfy the needs of social security. Now, there is a cadre of Judges which do specialize in Medicare, although they do not hear all the Medicare appeals. We believe that these should be moved to HHS.

Communication should be approved at every level. The system

should be subject to regulation. There should be a case precedent

system. There should be reasonable time frames set out for the various levels of appeal, and there should be representation of the DeVerDate 11-MAY-2000 07:18 Sep 22, 2001 Jkt 075058 PO 00000 Frm 00015 Fmt 6633 Sfmt 6602 E:\HR\OC\A058.XXX pfrm01 PsN: A058
12

partment at some of the appeals levels, where they are not currently represented.

Moving now to something more specific, which is the actual dealings with the providers and the beneficiaries of our program, I

think that we strongly endorse what everyone has been saying,

which is the need for outreach and education for the provider community.

Now, the primary responsibility for this lies with CMS. The Inspector General’s Office has gone out of its way, though, to try to

provide as much guidance as we can to the industry to respond to

needs that they have brought forward to us. I think many of you

are familiar with our voluntary compliance guidelines program,

which we have issued for nine segments of the healthcare industry,

including hospitals, home health, medical equipment, prosthetics,

hospices, Medicare Plus Choice, nursing facilities and more recently for the physician community.

We also issue by statute, which required it in the most recent

legislation, advisory opinions when questions are raised to our office to give an answer as to whether a particular service is allowed.

We issue fraud alerts, safe harbor guidelines, and our website contains every audit we perform. Every evaluation which my office

performs is on there. Our work plan is on there. Our hearing information is on there. Anyone who wants to know what we are doing

and what we are saying, they can go to our website, and they can

find it there.

Of course, CMS has also been aggressive in conducting education

and plans to do even more. This really works. In 1996, we conducted our first payment error reduction study, and we found that

the error in Medicare at that time was 14 percent, costing the government $23.3 billion. Last year, for the year 2000, it dropped in

half. It is 6.8 percent. It is about $12 billion right now, so it is half

of what it used to be, but it is still too high.

To show you that success is really possible here, I would tell you initially in the hospital community $1 billion worth of their error

was due to documentation problems. In the last several years, not

a penny of their error that we detected was due to documentation

problems. I think this demonstrates that the education and the effort to deal with problems once identified can be very successful.

My time is now over, and there will be plenty of opportunities

I think in dealing with your staff to answer other questions that

you may have. I would really look forward to the opportunity to do

that. I have gone through all of the material, and any way that we

can meet with you or your staff to go over those problems one by

one until we figure out how to do that would be most welcome to

me.

I will just end by saying obviously Medicare should not just be

the biggest healthcare program in the world. It should be the best.

Thanks.

[Mr. Grob’s statement may be found in appendix.]

Chairman MANZULLO. Thank you for that testimony.

I have a couple of questions here. Mr. Grob, I would refer to page

4 of your testimony.

You know, I practiced law for 22 years. I did a lot of social security disability. We had guidelines. We had a hearing here a couple

13

weeks ago with Dr. Michael Hulsebus, who was terrorized, along

with his brothers, by Wisconsin’s Physician Services, WPS. We

found out that that group does not know the difference between an

x-ray and the X files. The only way that you can qualitatively state

whether or not somebody needs an adjustment by a chiropractor is

to take a look at x-rays. They did not even look at x-rays.

As far as I am concerned, performance contracts are nothing

more than the same thing as telling a state trooper that he has a

quota of tickets that he has to write. The terrorizing that has gone

on by these contractors has got to come to an end.

What I do not understand is why? There is a local medical review policy and a contractor manual, which is what the so-called

carrier hearing officers are. They are a joke. The ALJs are bound

by statute, regulations and national coverage determination. In fact, Dr. Hulsebus, after he was fined $250,000 and we beat

it down to zero, then they came back with $40,000. We beat it

down to $1,500. Then they decided to appeal the $1,500 after the

Administrative Law Judge threw it out on its face. Again, they got

three more letters.

The latest from Wisconsin’s Physician Service, and I will mention

names and names of people on the record and publicly to bring

about accountability. They said well, here is your appeal. You can

send a letter, and somebody may or may not respond to it.

My question both to you and Mr. Scully would be, you know, why

are the contractors not bound by statute, regulation and national

coverage determination?

Before you answer that, I am also concerned over the fact that

the contractors are insurance companies. This is what answers the

questions of why the insurance companies in non-Medicare situations are trying to pay the same rate of Medicare reimbursement.

I just think it is a very cozy arrangement and that there should

be an end to that. This is an administrative function.

I would like your comments on that, but if you could first comment on the first, both you and Mr. Scully. Well, whoever wants

to comment on that.

Mr. GROB. On the first one I would say I think your point about

the performance contracting is very valid. I think there is a good

solution to that, and I think it is implied by what Secretary

Thompson has announced, which is you can change the basis upon

which you measure the performance of a contractor.

If the contractor is supposed to have timely appeals then their

performance can be based on how timely those appeals are. If the

contractor is supposed to handle appeals that are accurate and in

which people are treated with dignity then that can be what the

performance is based on.

I think that is a very good way to do it, which would be to structure those contracts so that there is a strong performance element

to it.

Mr. SCULLY. Maybe I will switch to a couple of the other subjects

you mentioned. The national versus regional coverage decisions.

That is an ongoing policy dilemma. Obviously with a $240 billion

insurance company, people can get coverage decisions that they do

not like regionally and want national coverage decisions and vice

versa. It is kind of like forum shopping as a lawyer.

14

Probably 80 percent of the coverage decisions about what Medicare covers are made locally by the carriers. Most people like that.

Most physicians like it. Most hospitals like it because it leaves a

lot of flexibility for local practice patterns and local decisions.

There has been a lot of pressure to push more of that to the local

areas.

On the other hand, big decisions like PT scanners, things like

that, MRIs, which I was involved in ten years ago, how much you

are going to cover on that, the bigger decisions tend to be in the

multi-billion dollar range and tend to get pushed up to the national

level and be national coverage decisions, but that is always going

to be a problem because when a local carrier and a local contractor

turn somebody down for coverage obviously those people are very

unhappy.

On the other hand, in many cases they prefer the local coverage

because they are more likely to get a more flexible decision locally

than they would if they pushed it up to Baltimore and had the decision made nationally on a national coverage decisions. That is

probably a pressure that is not going to go away, the balance between national and local coverage decisions. I have already spent

quite a bit of time on it.

I am not sure which other ones you wanted me to cover, but as

far as the fraud and abuse we discussed yesterday my views on

fraud and abuse have probably been shaped as much by my experience the last ten years out of government as they have been in government. I was the co-chair of the Fraud Task Force in the first

Bush Administration with the Deputy Attorney General when I

was at OMB and spent a lot of time on it. There were a lot of great

strides made in the last ten years on I think more aggressive Medicare fraud enforcement.

On the other hand, having been the chairman of the compliance

committee of two large public corporations, Oxford Health Plans in

New York City and Davida, as I mentioned to you yesterday, in

having to put together compliance programs and trying to push

large corporations to be compliant I think you could argue that

there was maybe not enough done ten years ago, and maybe the

last couple years the government has been arguably overzealous in

some areas, which you have focused on.

I think finding a happy balance where we find people that are

bad that are not partners that are big contractors and bad providers and go after them more aggressively while being more responsive to the people that are actually being good public partners

with us as contractors for Medicare is a tough balance to hit. I hope

working with the IG and the Justice Department in the next four

years we can pull that off.

Chairman MANZULLO. My time has expired. My point was simply

that the carriers should follow the laws, statutes and regulations.

The problem with HCFA is the fact that it is not predictable, and

that is why it is all screwed up.

Mrs. Vela ́zquez.

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman.

Mr. Scully, on July 16 the Administration published a notice of

publication in the Federal Register outlining their requirements for

participation in the President’s new Medicare prescription drug

15

card program. Is the Administration following the requirements

under the Administrative Procedures Act during this rule making?

Mr. SCULLY. We have, but it is not a rule making. Actually we

are not really making a rule. What we are effectively doing is putting together a consortium or cooperative and giving the Medicare

seal of approval to drug discount cards. They are going to use it

to hopefully draw more seniors, but that proposal is something that

was largely mine. If you want to spend a lot of time having me explaining it I can, but it was around in the last Administration. I

think there are a number of bills in the House and Senate.

Our view on that package was that no matter which Medicare

prescription drug reform proposal you look at, getting people into

organized purchasing cooperatives is from anywhere from one-third

to two-third of every reform bill savings, whether Democrat or Republican.

Ms. VELA ́ ZQUEZ. But are you not setting up a new program?

Mr. SCULLY. No. We are setting up a cooperative where the government is going to be a partner with private companies, and we

have the ability under current law to allow people—only CMS, the

Secretary of Health and Human Services, is allowed to give people

the ability to use the Medicare name, such as Medicare Select,

Medicare Plus Choice.

All we are basically doing is allowing our name to be used under

certain circumstances to market these cards. We are also putting

together a private cooperative to market them and then make sure

that the enrollment is coordinated, but it is not a new federal program by design.

Ms. VELA ́ ZQUEZ. Mr. Grob, many of the problems healthcare providers are facing is between themselves and the private sector

Medicare contractors. Now the President wants to implement a

prescription drug card program administered by the private sector.

Are we creating more new problems ahead where these contractors are out of control?

Mr. GROB. My office has not seen the specifications of the new

proposal, simply the general announcements that were made of it,

so at this time I am not prepared to talk about the ramifications

of the specifications of it.

Certainly there will be a new administrative arm here through

the private sector, and I think concerns like that need to be looked

at.

Ms. VELA ́ ZQUEZ. Mr. Grob, will you look at this new program and

get back to me with an answer?

Mr. GROB. I certainly will.

Ms. VELA ́ ZQUEZ. Mr. Scully, often times regulations that were

considered burdensome by a regulated community were not only required by statute, but required within a certain time frame.

Do you believe that the growing amount of CMS paperwork requirements are the result of recent Congressional mandates?

Mr. SCULLY. Well, they probably are. I was pretty involved in I

think the 1990 bill, the 1993 bill, the 1997 bill, the 1999 bill. Every

time you update and try to improve the program, obviously you get

much more guidelines both in Medicare and Medicaid.

I would say that one of the problems of CMS in the last few

years, in fairness to Nancy Min-Pearle, my predecessor, who hapVerDate 11-MAY-2000 07:18 Sep 22, 2001 Jkt 075058 PO 00000 Frm 00019 Fmt 6633 Sfmt 6602 E:\HR\OC\A058.XXX pfrm01 PsN: A058
16

pened to also be my successor at OMB and is a good friend, is that

through the 1997, 1998 and 1999 bills the agency was largely overwhelmed with work. I think I have had the good fortune of I would

not say it is a quiet time, but as a post-legislative period a relatively quiet time to come in and try to fix some things.

I think it is fair to say that the paperwork burden was overwhelming as a result of the legislation.

Ms. VELA ́ ZQUEZ. What is the difference between the BPA provisions that apply to the appeals and coverage process and the provisions contained in MERFA?

Mr. SCULLY. I am sorry. What?

Ms. VELA ́ ZQUEZ. Is there any difference between the BPA provisions that apply to the appeals and coverage process and the provisions contained in MERFA? This is the legislation that we just held

some hearings about.

Mr. SCULLY. I am not sure where they conflict. We have spent

a lot of time. I actually have not talked to them in two months, but

spent a fair amount of time talking to Mr. Toomey and other sponsors about MERFA. There are some things in there that we support and some we do not.

Ms. VELA ́ ZQUEZ. Mr. Grob.

Mr. GROB. A quick reaction is that they generally do not conflict

with one another, but rather they deal with different aspects of the

problem.

The BPA provisions on the appeal system are primarily intended

to constrain the amount of time that is taken at each level of the

appeal system so that things can move rapidly through it, whereas

the provisions in MERFA tend to deal with appeals that relate either to the status of the provider in the program, or they try to provide a more rapid hearing of matters that are related either to constitutional issues or to issues related to the authority of CMS.

Ms. VELA ́ ZQUEZ. Should we be giving the agency time to promulgate the BPA regs before we start reforming the system again?

Mr. GROB. It is my opinion, and I do not know that everyone

shares it, that with respect to the appeal system we really need to

look the whole thing over from top to bottom.

As you know, we have recommended that the ALJs be moved

into the Department, and I think if that should happen, and we believe that it ought to happen, that at the same time all the other

things should be considered.

I would agree with you that these things need to be looked at together. We are very much in favor of a much more rapid handling

of the appeals, but we do have some misgivings about the automatic raising of them to the next level because we are afraid that

if that is done either too soon or without adequate attention it

could actually have the opposite effect of basically encumbering the

higher levels of the appeal system with issues that have not been

fully reviewed yet, and it may not only move the backlog to a different place, but it may be more difficult then to deal with that

backlog at the place.

Having said that, I do not want anyone to misconstrue my remarks as saying that we do not want it to move faster. I just think

we need to look at it very carefully and make sure that it works

right.

17

Ms. VELA ́ ZQUEZ. Thank you.

Chairman MANZULLO. Thank you, Ms. Vela ́zquez.

I am going to go a little bit out of order here to accommodate

Congressman Christian-Christensen, who is an M.D. I want to

make sure her testimony gets in.

Mrs. CHRISTENSEN. Thank you, Mr. Chairman. I also might have

to leave to vote in another Committee.

I want to welcome you here. It is great to have you. You can

imagine as a physician of 20 odd years and having worked with

HCFA that this is a day that, you know, most physicians would relish having HCFA in front of me. I started to come here, you know,

in an attack mode to try to get even for all of the problems that

I have had, but maybe it is because I got stuck in an elevator this

morning. I have kind of changed my mode.

You know, we are having serious problems in my district. I used

to think it was just my district, but I see it is all over. We are pretty much facing a crisis in that physicians are opting out of the system. There have always been those physicians who have never

charged Medicare beneficiaries because it was just too horrendous

to go through the process, but now, because there is an option to

opt out, they are opting out. That is going to have a very terrible

effect on beneficiaries being able to get service in a small community as ours.

I am hoping that as we go through this morning through the

question and answer period you will help me to develop some confidence in the changes that are going to be taking place so that I

can go back and find some way to encourage my physicians not to

opt out, but to stay in the system. I am still looking for some of

that. In answering the questions I am going to pose, I hope you will

help me to develop that confidence so that I can go back and encourage my physicians and other providers.

I have gotten many complaints, and actually all of my providers

want to change the carriers, whether it is Part A or Part B. They

just want those carriers out of their lives. I met with providers before I came back this week, and nothing has changed in ten, 15,

20 years with our providers.

Could you, Mr. Scully, explain? You talked in your written testimony about flexibility and specialization and how that would improve the contractor relations with providers. Could you explain

how that is going to improve the relationship with the providers?

Mr. SCULLY. Well, I think the biggest thing that will improve the

relations with providers is incentivizing the contractors. I personally, and this is my own personal opinion, and I actually agree with

the IG on most of what they said about contract reform. Virtually

everything. I hate to start agreeing with the IG too early. That

could be dangerous.

We really do need to fix the program. There is no place in the

Medicare system we have had cost based programs that have

worked. I mean, basically with these contractors we pay them on

cost, which, as I said to some of my staff, anybody that thinks the

people are making money on a cost based program is silly. They

are charging their plant and equipment and their systems and

other things, but their incentives are not appropriate, so this is the

backwater of most Blue Cross plans.

18

Just even in my personal experience, when I was a lawyer I represented Blue Cross of California, which is chaired by Leonard

Schaefer a former HCFA administrator and friend of mine. They

had disastrous problems. One of the best run insurance companies

on the private side in the country, and maybe at that point—they

have gotten out of the Medicare contracting system. Maybe at that

point one of the worst run.

The reason was it was not profitable for the company because

they were non-incentivized. It was a cost based contract. It was a

way for them to cross subsidize their computer systems and their

building and equipment, but they had the worst people in the company running the Medicare program, at least at that time. It got

a little better. Blue Cross is not out of the Medicare program.

I believe, as with any other contractor system of the federal government, we have to incentivize them right. Part of the Secretary’s

contract reform proposal, and the IG supports this, is to start paying these people as other government contracts and incentivize

them appropriately and allow them to make a predictable government contractor profit so that they start looking at this as a good

business opportunity because they are not incentivized appropriately.

As a result, the Blue Cross plans and Mutual of Omaha and EDS

and the other people that run this program do not have appropriate incentives to focus their best people in the company in the

long term on running this program efficiently. We do have our

hands tied.

Mrs. CHRISTENSEN. Okay. Mr. Scully, you talked also about looking at the different areas, whether it is home healthcare, hospitals

and so forth. Are providers involved in that process on an ongoing

basis in looking at the reforms that are going to be taking

place——

Mr. SCULLY. Yes.

Mrs. CHRISTENSEN [continuing]. Of groups that are looking at

hospitals and other providers and home healthcare? Are the providers involved in that discussion?

Mr. SCULLY. That was the whole point of the groups that I announced on Thursday, as I obviously used to run a provider association, so I tend to be focused on that. In the nursing home area,

for instance, the group that I am chairing is the unions, the major

nursing home groups, the AARP, the other patient advocacy

groups.

The whole point is to get out to those groups and find things they

want to fix. Hopefully we will fix them fast enough that we can get

the Chairman to start calling us CMS sooner or later.

Mrs. CHRISTENSEN. If I could just throw in one last question? I

guess I would ask this of Mr. Grob, who talked about balance. We

are really looking forward to balance because from a provider point

of view we have shared most of the burden and the suffering in the

system, so we are looking forward to some balance.

Everybody acknowledges that the carriers are a big part of the

problem. You also acknowledge that when physicians are investigated or audited you do not find really fraud and abuse. You find

honest mistakes.

19

While you are reforming the system, while you are changing the

carrier, the way that the contractors are contracted with, would it

not be a good idea to put a moratorium on some of those investigations of the providers? We are really not involving ourselves in

criminal activity. They are honest mistakes. The system is so bad

that I am sure that it is responsible for a lot of the reasons why

they are audited, investigated, et cetera.

Mr. GROB. Okay. Let me address this one. I think I am going to

pick up the principle of complexity to answer this one because it

is very complex.

We have always said, and I will emphasize it now. I will say it

again a dozen times if we have to. Most providers are honest. They

are hard working. They are very concerned about their patients.

They come through for them all the time. There is a handful that

are not, and they besmirch the name of all the rest that do.

Having said that, however, I do not think that I could agree that

all the problems that we are having are simply due to mistakes.

On the other hand, I do not know that it is all due to fraud either.

What I really think is that there is a spectrum in there. It runs

from someone who made an innocent mistake to someone makes a

lot of innocent mistakes, to someone who does not care very much,

to someone who might just want to press it and just see what they

can get out of this program without crossing the fraud line, all the

way up to people who systematically sit down and say ‘‘let us see

if we can take this thing for all it is worth.’’ It really runs the

gamut like that.

Now, the error rate study that we produce every year is not capable of detecting what the underlying reason is. It can only detect

whether or not a payment was not made correctly. We are not able

to look underneath that to see whether it was due to fraud.

There is something about the statements that go around, and, as

I said, I would really like to take this opportunity to put it on the

table. I think that part of the reason for the fear that physicians

and others have about being investigated is that they do not understand that not all that many are. The number of physicians who

have been criminally convicted or for whom fines and administrative remedies have been taken is very small. For example, it has

averaged about 25 a year. Most people think it amounts to much

more than that.

I believe that there are several ways to handle the question of

the fear that people have of being criminalized, if you will. One is

to make sure that the systems do not do that wrong. We have always said we try to be very professional about this. We do not want

to cross that line. We are very open. As we have always said, if

anyone knows a specific case, anything they want to bring to us

where this has not worked right, let us know.

I think that another way to deal with the problem, though, is to

deal with the fear. I think part of the education and understanding

that we have to bring about is for everyone to gain an understanding as to what the limits of those authorities are and how

they are practiced, so that if there are any fears that are not justified we can take care of those.

Chairman MANZULLO. I appreciate your testimony.

Mr. Pence.

20

Mrs. CHRISTENSEN. Thank you.

Mr. PENCE. Thank you, Mr. Chairman. I want to thank Mr.

Scully for being with us, as well as our other distinguished guests

today in the Small Business Committee.

I would compliment you, Mr. Scully, already by saying that on

the House Floor yesterday, following your meeting with our Chairman of this Committee, you were responsible for the first reference

to HCFA that I have ever heard the Chairman make where I did

not feel that he was restraining himself from using expletives. I

congratulate you for that, for good first impressions, and I am confident that they will go forward with good actions.

My question more has to do with a process that has come to my

attention. I serve as Chairman of the Subcommittee of the Small

Business Committee on Regulatory Reform and Oversight, and I

am very encouraged to hear that the Centers for Medicare and

Medicaid Services recently announced the formation of in-house expert teams across its program areas to think innovatively about

new ways of doing business that will reduce the administrative

burdens and simplify rules and regulations, very much a goal I

know of the Chairman of this full Committee and very much part

of our vision for the Subcommittee that I chair.

I would like to congratulate you in this effort and encourage you

strongly as you pursue this process of innovation and reform. I

would also suggest, though, as you go forward that you establish

a team to investigate specifically the survey process for skilled

nursing facilities. I serve an east central Indiana district that is

home to many of these facilities that you have I think accurately

spoken well of today.

What I hear from the folks in east central Indiana is that in effect this system is broken, and the current survey process does not

really measure quality; that in fact they tell me that it only really

provides a snapshot of compliance on that particular day.

I would like to encourage you and just simply invite your comments, Mr. Scully, in particular on this recommendation. I want to

encourage you to review the process, including the frequency of

surveys, and take a hard look at the shortcomings of the survey

process itself.

I would also invite you beyond today’s hearing to share with me

in our Subcommittee capacity any of your thoughts going forward.

I would just invite you to comment in any way about this new process and specifically in the area of skilled nursing facilities.

Mr. SCULLY. Well, as I mentioned earlier, there are seven outreach groups, and I not by accident picked the long-term care and

nursing home group to chair myself. One, as a former hospital person I think I should do the hospital one.

The executive director of the National Governors Association,

Ray Chapok, one of the chief people at the AARP, a senior person

at the SCIU, the biggest union in the nursing home business, and

I met last Thursday to start working on this working group. It is

going to be expanded to virtually anybody in the nursing home

business that wants to be involved. And Chip Rodman—I am

sorry—the president of the American Association of Health Care

Associates, which is the largest nursing home group. We are going

to look at everything from top to bottom in the nursing homes.

21

I have already started working on the survey and cert process.

We are pretty much tied by statute. I personally think it is nutty

that every nursing home in the country is surveyed and certified

every 12 to 15 months, the best to the worst. My view is the really

bad ones we should be in every three or four months, and the really good ones we should be in every three years. It is not tied to

quality.

When I came in, at one of my first staff briefings I said are you

telling me we survey every nursing home. I picked one company’s

nursing homes with the exact same frequency as the bad ones? The

answer was yes. That is a statutory requirement.

I am hoping that we can convince Congress to change that based

on a quality initiative. I do not want to preempt the Secretary, but

we are working very, very, very aggressively and cooperatively with

a lot of different parts of the nursing home business on a nursing

home quality initiative that I think will be done this fall, and I

think it will significantly change the way we work with nursing

homes for the better.

I think you will find that hopefully we will come back to you

pretty quickly with an entire approach to refocus and restructure

the review and surveys and certification and overall regulation of

nursing homes. I mean, the good thing in a strange way about the

nursing homes—they have masked their problems in the last three

or four years. As you know, five of the top six chains are in bankruptcy. It has been a tough couple of years for nursing homes.

They are willing to look at a lot of the things, which has been

good for me, that they probably would not have talked about three

or four years ago. They have been very cooperative partners so far

in trying to get things changed. I hope to work with them and the

unions and others to get some significant regulatory forum for

nursing homes.

Mr. PENCE. Very good. Thank you. I will just reiterate my desire

in my Subcommittee chairmanship role to ask your forbearance in

keeping us informed as that goes forward—— Mr. SCULLY. Sure. Absolutely.

Mr. PENCE [continuing]. In how we can be helpful on this side

of the process. Thank you.

Mr. TOOMEY [presiding]. I think we have time for one more questioner before we return for the vote, so the gentleman from New

Jersey, Mr. Pascrell.

Mr. PASCRELL. Thank you, Mr. Chairman.

Mr. Grob, what part does the bureaucracy play in precipitating

fraud? We noticed a reduction in what we know of in fraud. What

part does the bureaucracy play in this? You started to touch upon

that.

Mr. GROB. I am not quite sure I understand your question, sir.

Mr. PASCRELL. Well, the fraud in Medicare. We talked about $25

billion reduced to about $12.5 billion.

Mr. GROB. Right.

Mr. PASCRELL. The $12.5 billion that still remains that we know

about, you know.

Mr. GROB. Yes.

Mr. PASCRELL. We are conjecturing here.

Mr. GROB. Yes.

22

Mr. PASCRELL. What leads to that fraud? Is it because we have

set up a system that is unmanageable, or is it because we just have

crooks out there?

Mr. GROB. Okay. I see what you are saying. Okay. Thank you.

I think if I could mention, this is a further extension of the answer

to the question previously raised about this. Again I would like to

emphasize that our error rate study does not measure fraud. In

other words, we do not have a six or seven percent fraud rate, but

it is an improper payment rate. I think that goes a long way to answering your question.

There is no doubt in my mind that a good part of that is that

people may have trouble understanding the rules in some cases, or

maybe their own management is just not tight enough, you know.

In other words, I believe that the weaknesses run the gamut from

something that is purely innocent, but also includes some things

like some management that may not be as tight as it should be.

That certainly would be exacerbated by complex program rules.

The frequency of change of program rules I think is something that

contributes to that as well.

Mr. PASCRELL. Much of it precipitated by us on this side of the

table.

Mr. GROB. Yes. It is interesting at several hearings that I have

participated in how readily various Members of Congress initiate

the discussion about the changes that have been due to the legislation that can make program management more difficult. I think

there is an overall general awareness of the fact that the frequency

of change does contribute to that.

Mr. PASCRELL. Do you think that all the agencies are in this

room to redesign a new delivery system for Medicare and Medicaid?

Mr. GROB. Well, I think going to remarks made earlier that certainly the provider community has to play a big role in that. I do

not think it would work very well if CMS, for example, were to design all the rules. I think it would get bogged down.

I actually think that a big step here is this listening process that

Mr. Scully has put into effect. I think that in looking at the questions that were raised in the testimony in the previous sessions, I

find that a lot of them go to the structure of the program they were

trying to manage, as well as to the structure of accounting and

hearings and things of this nature.

There really are underlying questions about who is eligible for

the benefit, how do you enroll in the program, what benefits are

covered, how well people know that, and so I really think a process

of continuous improvement or continuous engineering is what is

called for, and I think the idea of forming the groups with the different provider groups is probably a very critical and essential element of that.

Mr. PASCRELL. Would you, Mr. Scully, believe that in one year

if we put all those agencies and providers together, the representatives in a room, we could devise a system that was less bureaucratic and much more to our liking with a reflection to the questions that are being asked today and the last two times we have

met?

23

Could you envision a new system, a delivery system being put together that you could recommend to the Congress? I mean, otherwise we are spinning our wheels here.

Mr. SCULLY. Well, not to be a cynic, Congressman, but I have

been involved in every major health reform since 1986 I think.

RBRBS, which was the biggest, in 1989 was something I was negotiating on behalf of the first Administration.

I think it is a big program. Everything you do is politically controversial. Believe me, I am hopefully a big change agent, but I also

think that big change in Medicare comes slowly. We are very hopeful we get significant reform in Medicare. We are totally committed, the President is, to prescription drugs and Medicare reform

this year, but I also think that you have to look back a long ways

to find significant change in the healthcare system. Politically it

just does not happen.

I like to think that rather than give up, I try to go for small

changes. One of the reasons for taking this job was to get Medicare

reform and prescription drugs this year, and I am going to spend

a lot of time on it, but I also think smaller changes like RBRBS,

small changes like some of the things we did in 1993 and 1997, do

help. It is a big ship to turn. We are committed to doing whatever

we can to make small changes.

Mr. PASCRELL. I want to commend the Chair for offering legislation to begin that process. I think that is a very serious kind of

thing because part of the fallout is fraud. Part of the fallout is a

system where nobody really understands who is participating.

We do have to start someplace. It would seem to me that if we

had a full year of concentration that we could put a delivery system

together. I do not believe you are really a cynic at heart. I think

you have had enough experience perhaps, maybe too much. The

same thing for the folks on this side of the table. We can do something about this if we put our minds to it.

Thank you, Mr. Chairman.

Mr. TOOMEY. Thank you. We have probably six or seven minutes

left in this vote, so we will adjourn for the vote. There are three

votes. We will reconvene immediately following the last vote.

[Recess.]

Chairman MANZULLO [presiding]. We are going to proceed. If we

are suspended, it happens again.

I would recognize Congresswoman Millender-McDonald.

Ms. MILLENDER-MCDONALD. Thank you, Mr. Chairman.

I apologize for not being here through most of your opening

statements, but I certainly got the feel of the rhythm of this hearing with the questions that were raised by my colleagues.

The one thing that I guess I want to touch on is the education

outreach. Mr. Scully, in your presentation you spoke of wanting to

hear from local seniors and large and small providers, state workers and the people who really deal with Medicare and Medicaid in

the real world.

My question to you is what are you doing for an education outreach to those because those are the ones that we get a myriad of

complaints and concerns with and from with reference to the horrendous paperwork and regulatory processes that go along with

Medicare and Medicaid.

24

What is your education outreach, for a beginning question to you,

on trying to hear from these folks, you know, albeit through AARP,

older seniors or whatever? What are some of your outreach efforts?

Mr. SCULLY. Well, I mentioned in my statement there are three

basic things we are going to do, and we are certainly happy to do

more.

One is that I am going to, to the extent I can still stay married

and have a family, I am going to be traveling around the country

this year to do personal hearings probably with Members of Congress.

Ms. MILLENDER-MCDONALD. Starting with me, of course.

Mr. SCULLY. Well, I hate to say that I already have eight scheduled I think through the end of September as of this morning in

my staff meeting, almost one a week, with alternating Members of

each party in the House and Senate. I am getting somewhat

booked up, but we are planning to do a lot of those around the

country. The Secretary directed me to do those.

We also created last Thursday seven industry outreach groups so

that inside the—the hearings are basically intended to get input

from people around the country outside the beltway. We also created seven working groups which represent basically every sector

of healthcare.

I am chairing the one on long-term care and nursing homes with

the executive director of the National Governors Association, but in

that case we will have the unions, all the nursing home groups and

basically anybody that wants to come in. We are going to meet with

them once a month to try to methodically go through all the issues

that can be resolved and try to fix them all. One of them is hopefully survey and certification of nursing homes is the first one.

In the hospital sector, the first thing the Secretary committed to

doing the other day when we created these is to fix cost reports,

which if you know about hospitals we are determined to I do not

know if we can eliminate cost reports, but we are certainly determined to size them down to the absolute bare bones needed for us

to get information about managing hospital reimbursement.

We announced the other day that we are recalling and reconsidering the whole ENM payment guidelines for physicians, and we

are trying to go through and focus in every area of the health professions where we have serious problems and fix them.

The third effort that we are making is really an outreach effort.

The Secretary announced that he is putting together sector work

groups within my own agency to come up with new ideas to fix the

place and to make it work better. To make sure that we do not end

up being captives of our own agency, I appointed a fellow who actually runs an emergency room at a Winchester, Virginia, hospital.

He is going to work with us four days a month to come in and chair

this to actually make sure that the ideas my current staff come up

with actually work in the real world because he has to actually go

back and run an emergency room every day.

Those are the first steps, the hearings around the country, an effort within the beltway and an effort within the agency to try to

shake things up and change things.

Ms. MILLENDER-MCDONALD. Well, I do appreciate those outlines

that you have articulated to us, but I would certainly like to enVerDate 11-MAY-2000 07:18 Sep 22, 2001 Jkt 075058 PO 00000 Frm 00028 Fmt 6633 Sfmt 6602 E:\HR\OC\A058.XXX pfrm01 PsN: A058
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courage you to put any education outreach information inside of

journals that are endemic to these respective groups because that

is important and is key to providing the type of education and information. Communication is the key. Information to those groups.

The home healthcare folks came to see me last week, and part

of their problem were these over burdensome regulations with reference to Medicare and Medicaid. They are not really understanding a lot of its processes, so there lies one group that is critical for you to engage in.

Your sector work groups that you have outlined. Who do they

comprise? What is the composition of those groups and the persons

who work within the groups?

Mr. SCULLY. Well, they are chaired by senior people at CMS——

Ms. MILLENDER-MCDONALD. Right.

Mr. SCULLY [continuing]. Which is me in the nursing home case,

my deputy, Reuben Kinshaw, in the physician case and down the

line.

We are going to stagger those so that hopefully I can go to a lot

of them, but basically anybody that wants to participate. For instance, in the nursing home area I had an organizational meeting

last week, and it was the senior representative from the SCIU,

which is the biggest union of nursing homes, the head of the American Health Care Association, the biggest nursing home trade association, the executive director of the National Governors Association, one of the senior people at AARP and me.

Ms. MILLENDER-MCDONALD. So it is a plethora of folks?

Mr. SCULLY. We are trying to get everybody involved——

Ms. MILLENDER-MCDONALD. Absolutely.

Mr. SCULLY [continuing]. On all sides of politics, you know, in

every issue. I mean, we are not trying to—I have found, and I ran

a hospital association until seven weeks ago. I found that, you

know, 90 percent of the day-to-day operational problems are not political.

There are a lot of common problems we can fix. I think getting

people to identify those is a good first step. There are plenty of political things to fight over, but there are a lot of operational things

we can fix right away.

Ms. MILLENDER-MCDONALD. I think so, and I think it is critical

that we do that. Leave the politics to us, but try to fix the operational aspects of it.

You said you want to hear from rural offices and inner cities. I

do represent Watts and Willowbrook, Compton, some of the most

impoverished areas, as well as some of the suburban areas. I am

from the most impoverished to the affluent.

Given that stretch, we still have problems irrespective. I think as

you begin to schedule your time across this nation I certainly

would like for you to think of Watts. I would be more than happy

to receive you there to talk with persons from that region to come

in.

Mr. SCULLY. I am certain we will have a hearing at some point

in Los Angeles.

Ms. MILLENDER-MCDONALD. Okay. Fine.

26

Mr. SCULLY. I think I had 180 hospitals in California in my

former trade association, so I spent a lot of time there over the

years.

Ms. MILLENDER-MCDONALD. I understand. The cooperatives that

you talked about. You said that it is not a new culture. It is not

a new concept, but it is a complement to that that you have already

been engaged in. Can you explain that more to me?

Mr. SCULLY. I am not sure. Do you mean on the prescription

drug card or on the——

Ms. MILLENDER-MCDONALD. I think the Ranking Member spoke

about you are changing a whole new system, and you said no, you

are just integrating the existing system with some cooperatives.

Mr. SCULLY. I think I was talking about the Medicare prescription drug card.

Ms. MILLENDER-MCDONALD. Yes. That is right. It was that.

Mr. SCULLY. This is something that is not a new concept. Actually the way that developed, and I have said this publicly before,

is when I came in before I was confirmed by the Senate I asked

the staff at CMS why do you not give me the 20 crazy ideas that

have been sitting around here for years that nobody wanted to do.

They did it. Probably 19 of them were not things that I thought

were viable.

The one that I thought was a great idea that somebody should

have done years ago was the prescription drug discount card. Senator Hagel had a bill similar to this last year in the Senate. There

have been other people that have done it. I brought it to Secretary

Thompson, who also liked it. We brought it to the White House,

and the President liked it and so the President announced it.

For whatever reason, it seemed to get more press than our Medicare forums, which in some ways is unfortunate, but it seemed to

me to be an intuitively smart thing to do even if you look at Senator Graham’s bill, the leading Democratic bill for Medicare prescription drugs.

Thirty-five to 70 percent of those savings to seniors over the next

ten years come from organizing seniors into prescription purchasing cooperatives. The only people in the country right now that

walk into a pharmacy and pay over-the-counter costs for drugs are

the uninsured and seniors. I thought that was crazy.

We do not have the ability to subsidize seniors’ drug purchases,

though we will hopefully negotiate that with Congress this fall. We

do have the ability to do what most people, including all Members

of Congress and me do, which is belong to a pharmaceutical benefits manager who is going to negotiate prices for you and save you

a little money.

This is not the fix for all seniors, but we believe it is going to

save them between 15 and 25 percent on average on their prescriptions, and that will help.

Ms. MILLENDER-MCDONALD. But not all seniors have bought into

this concept, so we are still guarded to some extent.

Mr. SCULLY. We have not even started yet. It will not even be

in place until January 1.

Ms. MILLENDER-MCDONALD. I understand, but in even talking

about it I think there is a lot of concerns about this.

27

Mr. SCULLY. I really think it is not intended to be political. I happen to live in Jim Moran’s district. He is my Congressman from Alexandria. I have lived there for 20 some years. I went over and explained to a group of his seniors at his town hall meeting last week

how this worked. He is an old friend. He came in a little late and

started beating up the cook.

Ms. MILLENDER-MCDONALD. Again, it is an education.

Mr. SCULLY. I said that is my idea. Once I explained it to him

and his seniors and how it was going to work, I think generally— it is not intended to be political. I think it is going to help people.

I do not think it is going to be the be all and end all for all seniors.

I think it is going to be of marginal help. It is going to save them

money.

It is not a substitute for prescription drug reform. We are committed to doing that. It is going to save seniors money, and it is

going to work. I think that if you actually look at the details of how

we structured it it is a good idea, and it is kind of unfortunate it

has become political because I had hoped it would not.

Ms. MILLENDER-MCDONALD. The operative word is it is not a

substitute.

Mr. SCULLY. It is not a substitute.

Ms. MILLENDER-MCDONALD. That is the operative word. Again,

you have educated portions of the masses who are still guarded on

this whole concept. Then I think education is the key to all of this.

Mr. Chairman, I have just one more. I just have one more question, if I may.

Chairman MANZULLO. You have gone ten minutes. If you would

not mind?

Ms. MILLENDER-MCDONALD. Okay. Fine. I thank you.

Chairman MANZULLO. Thank you.

Ms. MILLENDER-MCDONALD. I have a statement for the record,

Mr. Chairman.

Chairman MANZULLO. All the statements will be put into the

record without objection.

Ms. MILLENDER-MCDONALD. Thank you.

Chairman MANZULLO. Mr. Shuster.

Mr. SHUSTER. Thank you, Mr. Chairman. I would like to thank

the panel for being here today. I appreciate your testimony.

My question is to Mr. Scully. There is a crisis in rural

healthcare, and that is due in large part to the reimbursement of

Medicare. It has been decreased, and I know that is a legislative

correction we need to make, as well as costs going up, those types

of things. I applaud your efforts to streamline the paperwork and

to make a change to make it more user friendly, your organization.

The question I have is another problem that is being caused, my

administrators are telling me, is, of course, the paperwork. The

nurses are saying for every hour of care they have about a half an

hour of paperwork. What I need to get from you is what is the goal

of I want to say HCFA? I have not got myself changed over yet.

What is the goal to reducing that amount of paperwork and

streamlining it, and what are the measurements we are going to

use? This measurement here, that hour and half hour that I have

put out to you. I do not know if you think that is accurate, but it

seems to me a measurement like that is something that we can put

28

out there that we can all see. Nurses can see. People on the ground

can use that as a measurement of how much you are going to decrease the paperwork from that half hour down to 25 minutes,

down to 15 minutes, something like that.

Mr. SCULLY. It is a complex program. I think the measurement is balance. I think the issue is we have a gigantic program, $240

billion. The last time I was in the government eight or nine years

ago we had 15 percent a year Medicare inflation. There were a lot

of factors behind that, but I do not have any desire, as I consistently tell my staff, to be back in the system of providing double

digit Medicare/Medicaid inflation.

A piece, and I do not think it is the biggest piece, but I think

a piece of getting that inflation, is Medicare inflation went from 15

percent in I think 1992 down to negative one percent in 1999. A

piece of that was more aggressive anti-fraud efforts to make sure

that people were not abusing the program. I do not think that is

the biggest piece. The biggest piece was the 1997 BBA, which probably took a little bit more out of the system than people expected.

My goal is to find the right balance between having not enough

regulation and having enough regulation where the program treats

taxpayer dollars responsibly, but not so much regulation that we

torture people in the outside world. We have seen instances where

there was clearly rampant fraud going on in the home health area.

There were a lot of people sending in home health bills that were

wrong. If you do not have appropriate billing rules and appropriate

structures, you have a disaster on your hands.

On the other hand, between 1997 and 2000 home health spend- ing went from $18 billion to $9 billion, so we racheted down on

them so fast that that was one of the reasons that home health has

become a huge political issue. We wiped out a lot of home health

providers, probably some good ones along with the bad ones.

My goal is to have a more gentle policy, a more rational progres- sion in home health spending from $3 billion to $9 billion without

the $18 billion in between. My goal is to find a rational policy balance where we spend taxpayer dollars wisely and have enough regulation and enough structure to make sure people do not cheat and

do not over bill the program, but to the point where nurses do not

want to get out of the profession and doctors do not want to get

out of the profession because they feel tortured by Medicare and

Medicaid regulations.

That is a tough balance to have in a gigantic public program, but

I think that is the goal.

Mr. SHUSTER. No number figure on that? Ten percent? Fifteen

percent?

Mr. SCULLY. It is hard.

Mr. SHUSTER. Can you quantify?

Mr. SCULLY. We are trying in home health. Believe me, I was on

the provider side for years, so I am highly sensitive to the regulations.

You know, cost reports in hospitals are largely a creature of the

past that needed reform. The OASIS guidelines for home health we

are trying to streamline. The regulatory burdens for nursing home

filings, which I think we are going to have an announcement on

soon so that nursing homes will file less information.

29

The goal is to collect enough information to make sure that we

can make sure that people are being paid correctly and to make

sure that we can track patient quality, which is a big focus of mine

as measuring and putting out information about patient quality,

without just correcting enough so that in a lot of cases you will

find, you know, like in hospital cost reports why did we require 25

percent of the information? Because somebody would like the data.

That is not to me a good reason to collect it because it is a convenient source of data for an academic. I mean, there are a lot of

ways to do it. It is an incredibly torturous process to go through

every area sector by sector and come up with this balance.

Mr. SHUSTER. I am a small businessman myself. Going about trying to make the organization more user friendly, it is a cultural

change. Do you have the ability, and this may sound cold-hearted,

but you can educate some people, and some people just do not want

to change.

Do you have the ability to remove those people so that the people

who are not going to be user friendly, and I see government agencies that do not have the will or do not have the ability to remove

people who just are not doing the job. Again, somebody would be

in there for 20 years. Some of them just do not want to change.

Mr. SCULLY. There are limits, and that probably calls for another

set of hearings, but there are limits of what you can do in the federal government. You know, in general I think, and Secretary

Thompson found this, the people at CMS are actually very good. I

have known that for years.

I guess my major goal is I was a hospital lobbyist for a number

of years when I was out of the government, and I spent a lot of

time going to Baltimore. I knew all the hospital people, and I

thought they were great. If you had asked me during that period

was CMS/HCFA responsive, they were, but it was because I knew

how to go up there and talk to the people. That was my job.

The average administrator in Harrisburg or Pittsburgh or Philadelphia thinks the place is a big black box. I think part of that is

because the agency got pummeled over the years by Congress and

people in the outside. The people tend to be I think very hard

working, very well intentioned, but very insular. They did not talk

to the outside world.

Part of what I have been trying to do is convince people in the

agency, and I think they are starting to do it. They should talk to

the outside world more. They should explain what they are doing.

My view is, and part of this comes from being a mean-spirited

OMB guy for all those years. Just joking. I firmly believe that if

you have the substantively correct answer it may not be popular,

but if you give it to people straight they are generally happier than

if they get yanked around.

My goal is, you know, you cannot run a $240 billion Medicare

program and a Medicaid program and tell everybody what they

want to hear all the time because we would have 50 percent inflation. You have to say no a lot. My preference is to push people to

give people a straight answer and give them a straight no if that

is the case because I think the perception is in the past that the

answer at CMS and HCFA has generally been to yank people

30

around as long as possible and not give them an answer because

they might get mad at you.

Chairman MANZULLO. Thank you.

Mr. Baird.

Mr. BAIRD. Thank you, Mr. Chairman.

Mr. Scully, I applaud your efforts. This is like cleaning the proverbial stables I am afraid. One of the biggest problems we have

in Washington state where I represent is the inequity in compensation formulas, both in fee-for-service compensation, but particularly

Medicare Plus Choice.

What thoughts have you got about ways we might remedy that?

It is a terrible problem for our hospitals actually in terms of how

it affects cost shifting, et cetera, and impacts small business as

well.

Mr. SCULLY. Well, Congressman, you may not know that I

worked for a Senator from Washington state for five years, so I am

pretty familiar with Washington state. It has been a long time. I

left in 1985. That shows how old I am.

I think it is a problem, and I think you are going to find a shifting of that with a shifting in Congress. I do not mean to cause any

political controversies, but in the hospital business if you sat down

purely on a public policy basis and looked at the formulas for how

hospital money is spent, it is not totally based on policy. A lot of

it is based on historical positioning and who was chairman of what

committee and what states were they from. I think you would find

there are certain parts of the country—Washington state was not

one of them—that probably did not benefit from that.

I do think it is an incredibly complicated program. There are new

chairmen, for instance, in the Senate that are from Montana and

Iowa, as opposed to where they used to be for years from other

parts of the country. I think you will see some of that policy be

more rationally redistributed.

Hopefully it will not be so irrationally redistributed that all the

urban areas will get hit and the rural areas will be overcompensated, but clearly there are a lot of different issues out there from

the hospital wage index, which is probably what you are referring

to, back to many, many, many other formulas in Medicare that I

think need to be reassessed on the merits. I think the IG has made

suggestions about that over the years. I think GAO has made suggestions about that over the years.

One of the surprising things to me in Medicare over the years

is that even though most Congressional districts probably get at

least as much financing for their people out of Medicare/Medicaid

as they do out of the Appropriations Committee is because the programs are so complicated rarely does Congress actually focus on

how they are delivered, but I hope to help restore some equity over

the years.

Mr. BAIRD. I applaud that. We were part of the Fairness Caucus

last Congress and worked hard to raise the floor, et cetera. Anything we can do to help on that we would surely pitch in on.

Let me ask kind of a theoretical question. I was looking at page

6 of some of the commentary for today. One of my questions was,

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ground. The tremendous amount of fraud that we have from these

contractors.

You know, the Administration and the Majority party spends an

awful lot of time bashing big government bureaucrats and talking

about contracting out, yet here we have private enterprise screwing

the people. I do not think that is very good. I just wonder what

your thoughts are on that and how we can correct that. Does it

teach us anything about whether contracting out is necessarily the

panacea it is often proposed to be?

Finally, when contractors do not make enough money, be they

these contractors here or HMOs, we say well, we have to throw

more federal money at it and incentivize them. When public employees are deemed to be not doing their job, we attack them as

faceless bureaucrats who do not want to serve the public. Could

you comment on that?

Mr. SCULLY. That is a tough one to comment on. I think realistically Medicare has a lot of problems. I mean, philosophically and

fundamentally I think Medicare is a wonderful program and seniors love it. I do not think that any person, Republican and Democrat, would have sat down today and said let us spend $240 billion

a year on 40 million seniors and design the program the way it

works.

I do not like price fixing any place. The federal government sets

prices in Medicare/Medicaid for every physician and for every hospital across the board. That is the only place in the economy we

do it. For 13 or 14 percent of the economy, I think if you sat down

and redid it again that is probably not the best way to start.

On the other hand, I think the contracting system, even though

I think it needs to be drastically reformed, has served pretty well

considering the fact that it is a giant program, $240 billion, and we

spend $2.5 billion a year administering it, including the contractors

and including my budget. It is kind of miraculous that it holds together. I think it barely holds together some days, but it holds together.

Generally the biggest response I get from Congressmen who visit

Baltimore, and even Secretary Thompson has said it, is where are

the people paying the claims? There are not any people paying the

claims. I do not think the government could possibly do it. I mean,

it is basically the Blue Cross plans that do it. I think they are

incentivized inappropriately, but I think generally the contracting

out system has worked reasonably well. For 35 years it has paid

a lot of Medicare claims.

Even though there are a lot of problems and a lot of angry docs

and a lot of angry hospitals and a lot of angry people out there,

generally they are angry at the appeals process, which tends to be

the ALJs and sometimes the fiscal intermediaries and the carriers

rather than the payers. I mean, if you talk to insurance companies

every day like I do—I have been trying to keep a lot of the Medicare Plus Choice plans from bailing out—and you talk to hospitals,

generally Medicare is one of their quickest and best payers.

The program clearly has problems, and fundamentally I am not

a big fan of the government price fixing anything. Given the system

we have, I think it works okay. There is certainly a lot of things

32

we can fix, but I think the contracting out system actually works

all right.

Mr. BAIRD. I appreciate that. I guess my fundamental question

was why is it that when there is a private enterprise that is found

to be not necessarily treating the public fairly and the solution to

that seems to be throw more money at them, but when government

workers are criticized the solution to that is lay off government

workers? It just seems paradoxal.

Mr. SCULLY. Well, I hope I have been supportive of my workers

at CMS. Everybody hates them, but I think generally most of them

are pretty dedicated.

Chairman MANZULLO. I have not been supportive of the people

at Wisconsin Physician Services because of the very unprofessional

way that they have handled working with my Medicare Part B providers in Illinois and Wisconsin.

I would hope that by mentioning Wisconsin Provider Services or

Wisconsin Physician Services that they would get their act in order

because they may be the next witnesses at a hearing. That hearing

is not going to be as gentle as this one.

They need a warning that when they send a letter to a doctor

with a carbon copy going to the patient accusing the doctor of fraud

and that doctor sends back a letter saying I would like an explanation and those clowns say well, you my or may not get an explanation, that has to stop.

Mr. Scully, I would like to have you personally contact those people at Wisconsin Physician Services and tell them to treat my constituents humanely.

Mr. SCULLY. I talked to them yesterday, and I will talk to them

a little more.

Chairman MANZULLO. Thank you.

Mr. SCULLY. Believe it or not, Secretary Thompson years ago

worked at that company, so I talked to him about it last night as

well.

Chairman MANZULLO. Mr. Toomey.

Mr. TOOMEY. Thank you, Mr. Chairman.

Let me start by saying, Mr. Scully, I am delighted you are in the

position that you are in. You have the exact kind of background

and perspective that we need at that agency that was formerly

known as HCFA.

As a very quick point, I would just like to also thank you for

working with us on the bill that I have co-authored with Shelley

Berkley. We call it MERFA, H.R. 868, which, as you know, attempted to make some modest but I think very important reforms

to the way HCFA does business.

I think you have indicated that there are some things about our

bill that you can probably support, some things that I know you

would like to do differently. I would like to touch on a couple of

those briefly, and if we could do it briefly because I have some

questions I would like to ask Mr. Grob also.

One, you mentioned improving education, and you emphasize a

program of improving education for seniors. I support that effort,

but I think it is also important, and I think you agree, that part

of this effort has to be improving physician and provider education.

Our bill does make an effort to do that, to require that there be

33

a greater effort to educate providers in the arcane rules and regulations of HCFA.

I think what is more important, frankly, is providing some due

process rights to healthcare providers and balancing what is now

an extremely unleveled playing field in which HCFA is enormously

powerful, enormously intimidating, and providers are often deemed

guilty before they are proven guilty and not given really the fair

hearing that they ought to have.

Specifically, I was hoping you would reflect on a couple of the

provisions in this bill, in my bill, that try to address this perceived

imbalance perceived on my part and certainly on the part of most

healthcare providers. One is that my bill would allow repayment

plans for overpayments, not require that physicians who make an

honest mistake and acknowledge that, that they not be required to

pay all the money at once, but rather could pay in a series of installments.

A second provision would prevent HCFA from unilaterally recouping alleged overpayments while the appeals process is still underway. That is something I want to discuss further with Mr. Grob

also, but the fact is that appeals very, very often go in favor of the

provider. It seems to me fundamentally unfair for HCFA to keep

the money when in fact most of the time HCFA is wrong when a

claim is in the appeals process.

Lastly, if you could comment on providing some kind of safe harbor for physicians who honestly discover that they have made a

mistake, and they want to pay the full amount of their mistake?

They would I think in that case deserve immunity from, you know,

punishment.

If you could comment on those three things? There are other features in the bill, but I think those are three of the most important

features.

Mr. SCULLY. Well, one thing I learned over the years is I cannot

take administrative positions with OMB, so subject to me not taking administrative positions I think as we discussed I guess a

month ago or so we are sympathetic to some of the ideas in

MERFA and certainly the concept, what you are trying to do with

MERFA.

The more specific details of what we do with repayment plans.

I have talked to Chairman Thomas, and Senator Grassley and Senator Baucus and others are working on taking your bill and looking

at it and overall reform bills about some other approaches that I

think, for instance, there are various issues about repayment plans.

Repayment plans can be troublesome I think if we stretch them out

too much. We have a history that we have allowed some providers

with bad histories to escape repaying the government.

On the other hand, I think we should treat people the same way

the IRS does. The IRS does it the other way around. Basically if

you lose you repay the government with interest. I think that is

something that we are going to look at. Right now what happens

is, as you say, you pay up front. If you end up being right later we

pay you back. That is it. You lose the time value of the money.

I think that we have looked at, and this is not the Administration’s position, but I have discussed with the other Committees who

are looking at kind of taking a lot of your provisions, as you know,

34

and trying to fold them into their bills, some middle ground ideas

that hopefully will be more workable. That is one of them.

I think the IRS basically allows you to withhold payment to tax

penalties, and if you lose you pay it with interest. I think that is

something we should look at. We require providers to pay things

up front immediately. Again, it is not the Administration’s position,

but it is discussions I know that are going on.

As far as safe harbors, as I said, I was a provider until recently.

I totally see the sense in creating some safe harbors, and there are

safe harbors in the law now. We want to make sure that we create

the appropriate safe harbors without creating safe harbors that are

going to allow people who really are not the two percent of bad providers to find ways to avoid any kind of FI carrier, IG or CMS enforcement activities. That is a concern. We are totally sensitive.

What you are trying to do in MERFA is absolutely right. I think

some of the provisions are overreaching, and we would look forward to trying to work with you this summer and this fall to get

the pieces of MERFA that we can work with the IG on and with

you and make sure that we make the system significantly more

friendly to the providers.

Mr. TOOMEY. Thank you.

Mr. Chairman, do I have time for one other question?

Chairman MANZULLO. Let me go first to Mr. Thune. I want to

make sure everyone gets in. Then perhaps we may have some more

time.

Mr. Thune.

Mr. THUNE. Thank you, Mr. Chairman. Thank you for holding

this hearing. I think it is important. This does have an impact on

a lot of people across the country.

I think if there is one thing I hear that is just uniform from providers across South Dakota it is we need to enact MERFA, so I congratulate Mr. Toomey and Ms. Berkley for introducing this. I think

it is high time that we look at what we can do to improve the function, the way that this work is done, the process that is used, because it is clear at least right now that there are just serious problems out there.

I am glad you changed your name the agency formerly known as

HCFA. I think it will buy a little time. When people figure out the

new acronym it might buy us a little bit of time, but then it will

be that blankety-blank whatever the next iteration is in terms of

an acronym because there is just a tremendous amount of, at least

in my state, maybe disgust is the right word in the way things operate.

The question I would have for you is how do you go about getting

at the bad actors without penalizing the good guys? I mean, we

have in South Dakota, partly because as a result of our ethic in our

state, we just do not have people who are trying to circumvent,

with rare exceptions. This is not something that is a common practice. We do not have people who are trying to beat the system. We

have people who want to play by the rules.

I am just curious to know in sort of a general philosophical way

what your thoughts are about being able to get at those people that

are chronic rule breakers and not at the same time penalize and

35

inordinately put burdens upon people who are trying to do things

by the book.

Mr. SCULLY. Well, I guess you want me to answer that one. That

is probably one of my I could not agree with you more on that——

Mr. THUNE. If you must.

Mr. SCULLY [continuing]. Having been on the other side of it

seven weeks ago and seeing some people I consider to be extremely

honest, decent providers be repeatedly pounded and some of them

run out of business for what I thought was not particularly legitimate reasons.

I think one of my frustrations, and I do not have any announcement to make today, but I have talked to the Secretary a lot about

it. The new Inspector General I hope will be confirmed soon. Janet

Rehnquist was here—I do not know if she is still here—who I have

known for quite a long time, since college actually, and the Justice

Department. Those are really the three prongs of making this thing

work better. We hope to work much more efficiently to find some

ways to fix these things.

My own frustration is that I think we need to come up with a

mechanism, and we are talking about a variety of them, where we

can basically find people who are doing the right things. I can give

you two examples. I spent $25 million when I was on the board of

Oxford Health Plans as the chairman of the board of the compliance committee, another $30 million at Davida Healthcare Dialysis

Company when I was chairman of the board of the compliance committee putting together very expensive compliance plans. Those

companies I think are about as compliant as you can possibly get

right now. Their shareholders made a big investment in it, but they

get nothing for it. I mean, they find out they have a problem.

In my view, when you find people who are trying to do the right

thing, whether it is a small hospital in South Dakota or a big HMO

or a physician practice group, there ought to be a way for them to

put together the appropriate compliance guidelines to make the IG

and to make the Justice Department and to make CMS show that

they are serious about it or they have some self-policing where they

get somewhat different treatment. That is a big structural challenge to come up with something like that. I personally feel strongly about it. As I said, I cannot do that alone.

The IG. I went in, and again I had a good relation with the IG.

I went in with Mack Thornton, who is the chief counsel at the IG’s

office. I brought the CEO of Oxford in. I brought the CEO of

Davida in. I said we are trying to do all the right things. They said

congratulations. You are doing the right things. That is great.

They do not have the staff to go through and certify compliance

plans or to go through and regulate everybody across the country,

so we need to come up with some hybrid way of telling people that

are trying to do the right thing that you are going to get some credit for doing the right thing so that we can focus our enforcement

actions on the bad actors that are out there.

Mr. THUNE. I appreciate your comments and also in looking

through your testimony the sort of user friendly, responsive tact

that you are taking in terms of the relationship with the provider

community.

36

I guess one follow up question would be, you know, as you look

at the way that we do things today the enormous amount of paperwork, the enormous amount of red tape which is always alluded to

irrespective of who you talk to, which provider group. It is the

same message over and over again, and that is that we cannot provide quality care for our patients because we spend all of our time

filling out forms and paperwork.

Is there a way that we can construct a different model in the

computer age—you talk about figuring out ways to comply where

it just literally is not consuming in terms of the time requirement

and commitment that is imposed upon providers who are just trying to do a good job, so it is sort of I guess again maybe of a more

general, philosophical question.

Mr. SCULLY. I think the biggest gain to me in fraud abuse activities, aside from the increased enforcement activities addressed in

the IG, is capitation. I mean, the thing that moves us forward the

most is moving towards capitated systems because in the past

when you have a government run fee-for-service system, let me just

tell you in the hospital business that when you come in a lot of the

‘‘fraud’’, and you can either call it fraud or people adjusting to

dumb rules. When you are in the hospital business and the government comes in and capitates your hospitals in 1993 with DRGs,

what do you do? You start building a nursing home on a cost basis

next door or a rehab hospital.

It is kind of wack-them-all system, or it has been over the years,

with finance. A lot of the stuff that was ‘‘fraud’’ was based on crazy,

poorly structured reimbursement systems. Part of this was the government chasing people around for doing what was marginally, you

know, probably unethical stuff, but was arguably legal.

Personally, the biggest advance in Medicare is going to a

capitated payment strategy where you do not have to oversee as

much, and there is not as much opportunity for abuse. For instance, we are putting out a reg shortly on capitating rehab hospitals, which I think will help in that area. We have one in the

works for long-term acute care hospitals.

We went to skilled nursing facility prospective payment last

year, which I think will do a lot to reduce fraud. It just provides

people with the right incentives, and I think the more you can get

towards capitated systems where you get the government out of the

micro managing of business and you give people prospective payment systems, you are moving in a big way towards incentivizing

rational behavior and getting the government out of micro managing and micro enforcing.

Mr. THUNE. I appreciate you comments.

Mr. SCULLY. Thank you.

Mr. THUNE. I obviously want to work with you. My time is expired, but we all want to try and solve some of these problems.

Thank you.

Chairman MANZULLO. Mrs. Kelly.

Mrs. KELLY. Thank you very much, Mr. Chairman. Thanks for

holding this hearing.

Mr. Scully, I found your testimony very interesting reading. On

page 5 you say you want input from folks like group practice managers, physician assistants and nurses and so on, and then you say

37

also CMS is going to conduct public listening sessions across the

country.

I invite you into the 19th Congressional District. I represent a

medical school plus an enormous amount of people who are practicing medicine north of New York City and have a lot to say on

this subject because they have been saying it to me. I hope that

you will come.

I really am very hopeful that you are going to try to do something to reduce this enormous paperwork load that every doctor

has to bear. My father was a doctor. One of the reasons he quit

being a doctor was the government was finally demanding just too

much. He was having to charge too much.

I lived in a town where he dealt with farmers and people who

were generally blue collar workers in factories. He could not charge

a great deal. He had to constantly be cutting back on services he

wanted to offer his patients because of the government demands.

He had to put his time into filling out forms. I think that is wrong.

I think doctors need to practice medicine and not worry about these

forms.

I agree with my colleague, Mr. Thune, that in the environment

we have today with the ability to electronically do things there certainly ought to be a way that we can construct some models that

are rather permanent and do not need to constantly be refilled out.

I would hope that would be something you would look at.

There are a couple of other things. I have had some serious concerns about the authority that the HCFA people have used with regard to declaring doctors to be fraudulent in their claims. It seems

to me to be an attitude of aha, gotcha, instead of working with the

doctors to find out what happened and to help them do whatever

they have done to take a look at it and see whether in fact it is

fraud or it is somehow a mistake on papers that have been filed

because sometimes that is what happens. It is reclassifications. It

is different kinds of things. I really hope that you will do something

to try to restructure the attitude in that particular department of

the new CMS.

One other thing that I am concerned about. There was a decision

that would allow the nurse anesthesia givers to be able to give anesthesia without medical support, without somebody standing

there, an M.D., overseeing what they are doing. These people have

been doing it for years. I do not understand why the HCFA anesthesia care final rule was not implemented.

I wonder if you would be willing to get back to me on that because I think that the idea was to remove a lot of restrictions and

reduce a lot of the regulatory burdens on the hospitals. The other

thing is it allows nurses to perform that function in greatly under

served areas where there is no anesthesiologist available. Nurse

anesthesiologists are very good at what they do. I would like, if you

do not mind, for you to get back to me on that.

Mr. SCULLY. I am extremely familiar with that issue. It is hard

to miss. It is kind of like watching Joe Frazier and Muhammad Ali

go after—— I was in the hospital business for the prior six years, and we

have obviously a lot of anesthesiologists and nurse anesthetists. I

think we wisely stayed out of that one, but that was obviously conVerDate 11-MAY-2000 07:18 Sep 22, 2001 Jkt 075058 PO 00000 Frm 00041 Fmt 6633 Sfmt 6602 E:\HR\OC\A058.XXX pfrm01 PsN: A058
38

troversial. It was a change to the regulations to allow nurse anesthetists to do that. It was in the proposed rule.

In the final rule, which that came out with I think an appropriate compromise, basically obviously, you know, we are federalists. We believe in states’ rights. We basically pushed it back to the

governors and said if a governor wants to certify that in his state

nurse anesthesiologists can appropriately provide the care the governor can effectively apply for a waiver.

I believe that is the final rule. I am not sure. I am pretty sure

that is what it is.

Mrs. KELLY. The governor can issue a waiver?

Mr. SCULLY. Can apply to us for a waiver. Yes.

Mrs. KELLY. And you would approve those waivers, I take it

then, from what you have just said?

Mr. SCULLY. I think they are under the reg all virtually presumptively approved. Yes.

Mrs. KELLY. Okay.

Mr. SCULLY. Obviously this was a hotly debated issue over many

years in the Medicare program. It was more interesting to be in the

hospital business watching it than it is to be at CMS having to

work it out.

Mrs. KELLY. Well, I would hope that this will all work out, and

I am just greatly relieved that you are there at the head of the

helm and going to make some changes. We need those changes desperately, the sooner the better.

Mr. SCULLY. And I apologize because I have looked into your

other hospital issue. I will call you about that later today.

Mrs. KELLY. Thank you very much.

Mr. TOOMEY [presiding]. Thank you.

I appreciate the cooperation of the witnesses. We would like to

have one more very brief round of questions, which will consist of

a question from Ms. Vela ́zquez, myself and Ms. ChristianChristensen, and then we will be finished for this hearing, which

has gone on some time.

Ms. Vela ́zquez.

Ms. VELA ́ ZQUEZ. Thank you.

Mr. Scully, we may disagree on whether or not the prescription

drug card initiative is a program, but are you willing to go back

and perform an impact assessment on the effect this program is

going to have on small businesses; for example, community pharmacists?

Mr. SCULLY. You know, to be honest with you, Congresswoman,

under the rules it is not a federal government program.

Certainly we are very sensitive to the concerns the community

pharmacists have. I have obviously been hearing from them virtually every day. The small pharmacists are very concerned. The

chain drugstores—my former boss in my former campaign life,

Craig Fuller, runs that. We are very sensitive to the concerns that

the chain drugstores and the small pharmacies have because they

are concerned the discounts are going to come out of them.

We hope and believe that we structured this so that the discounts—the entire intent of this program was to structure it to give

enough market clout to these purchasing negotiators that the disVerDate 11-MAY-2000 07:18 Sep 22, 2001 Jkt 075058 PO 00000 Frm 00042 Fmt 6633 Sfmt 6602 E:\HR\OC\A058.XXX pfrm01 PsN: A058
39

counts would come out of the manufacturers and not out of the

chain drugstores.

It is certainly within the ability of CMS to do it because it is not

a government program. We are certainly happy to go back and look

at it. We are highly sensitized to it. I am certainly happy to go

back and do a study on the impact of it.

Ms. VELA ́ ZQUEZ. I take very seriously the fact that you say we

want to hear from a broad range of providers, including—— Mr. SCULLY. We do.

Ms. VELA ́ ZQUEZ [continuing]. Community pharmacists. If there

are concerns that this is going to have an impact on them, I think

it would be sensitive for you to go and to listen to their concerns.

Mr. SCULLY. I am happy to meet with them. I have tried to talk

to as many as I can. I am happy to talk to them any time.

I will say that in a system where the only people in the world

paying over-the-counter pharmaceutical prices are seniors, the Administration’s number one concern is saving seniors money. Number two would be helping to make sure we do not hurt community

pharmacists. Number three, probably way, way, way down the line,

would be worrying about manufacturers appropriately making sure

everybody pays a reasonable price.

Clearly the goal here is to save seniors money. A number of people said this will not work. To be honest with you, it will not work.

It is going to work. If it does not work, there will probably be people mad at us, but we are clearly, clearly intending to do everything we can to make sure that the impact is not on the pharmacist.

Ms. VELA ́ ZQUEZ. Thank you.

Mr. TOOMEY. Thank you.

Mr. Grob, I would like to ask a couple of questions and actually

take issue with a statement that you made in your written testimony and ask a question in another area if I could.

In the area of immunity from investigation, you addressed that

on page 8 of your testimony. This has to do, of course, with the safe

harbor that we would provide a physician or another healthcare

provider who discovers an honest mistake and wants to correct it.

Mr. GROB. Yes.

Mr. TOOMEY. Your statement here on page 8, and I will quote,

says, ‘‘There is no need for such immunization. Physicians and

other healthcare providers are not subject to civil or criminal penalties for honest mistakes, errors or even negligence.’’ It seems to me the fact is that absent this immunity providers

face other tactics—audits, the use of extrapolation, a terrible appeals process—all of which can drive providers right out of Medicare, sometimes even out of their practice. These kinds of very onerous outcomes strike me as every bit as severe as civilian penalties.

I would cite a case—there are so many, but just one in particular—of AIDS patients in San Francisco whose clinic was closed

because the HCFA carrier refused to allow the alleged overpayments to be repaid in installments, or the Pittsburgh physician

whose carrier decided after the fact that the care he provided to

critically ill patients was not medically necessary and demanded

that he pay $339,000 within 30 days.

40

Now, neither of these medical practitioners were accused of

fraud. They were not convicted of any crimes, yet their practices

and their lives were torn apart. These are not rumors. These are

facts that happened to real people, and I believe it is because

HCFA’s practices lack sufficient due process and fairness.

I think the immunization we are talking about, first of all, would

only occur on the first audit. There is nothing to stop HCFA from

doing a subsequent audit. We did not amend the False Claims Act.

Any kind of fraud that is suspected or has been committed would

still be prosecuted.

Frankly, your suggestion that some doctors will use this provision to actually decide to commit fraud, risk losing their practice,

risk going to jail by deciding to systematically over bill Medicare,

knowing they are doing this, and then repay their over billing within a year, and also that they can collect interest from HCFA in the

meantime, strikes me as extremely implausible.

At the end of the day, I do not think this is a vehicle that is

going to facilitate or allow or encourage physicians or other providers to commit fraud. I think it is a measure of fairness for honest providers that discover a mistake.

My question for you actually is related to this, but it goes more

directly to the appeals process. In light of the fact that such a huge

percentage of appeals go in favor of the provider and in light of the

fact that it takes such a long process, do you not think it is reasonable and do you not think it is only fair that healthcare providers

be able to keep the alleged overpayment until the appeals process

is finished?

Mr. GROB. Okay. I would recommend against going all the way

to the end of the appeals process as a general matter of practice,

but I do think there are some good options that can be considered.

For example, we find that the longer the time period that you

take in trying to get the money back, if you will, where an overpayment is due, the more your ability to get the money back drops off.

I think some tradeoff needs to be taken with regard to the time

frame.

I think one of the things that could be considered, for example,

would be how far down that process do you want to go? Perhaps,

for example, having the money not paid back, say, until after the

first reconsideration—which results in agreement with about 70

percent, for example, of the appeals that occur at that time might

be a move in the right direction.

I also think that a remark that Mr. Scully made earlier is also

germane. I think the interest might even things out because right

now the interest is kind of a one-way street. So I think if the interest were paid back the other way that would tend to mitigate that

somewhat as well.

Mr. TOOMEY. Well, I think that would help, but I do not think

it is enough. I would cite the fact that in the carrier fair hearing

stage of the appeal process in fiscal year 2000 my figures show that

42 percent of cases appealed at that level were decided in the physicians’ favor.

At the final step in the process, the ALJ level, which occurs over

a year on average after that process begins—— Mr. GROB. That is correct.

41

Mr. TOOMEY [continuing]. Which is way too long——

Mr. GROB. Yes.

Mr. TOOMEY [continuing]. Sixty percent of those cases are decided in favor of the healthcare provider.

Mr. GROB. That is correct.

Mr. TOOMEY. I just do not understand how HCFA can justify

holding onto the money when 60 percent of the time they are

wrong.

Mr. GROB. Okay. Again, my remark would be that it has to do

with the numbers that we are talking about. There are actually

very few cases that go that far. Most of them are resolved at a

much earlier stage.

I think a concern that we would have, for example, is if holding

onto the money were an option all the way to the very end of the

process that that might in fact incentivize some additional appeals.

Mr. TOOMEY. But maybe they are justified when the providers

are winning 60 percent of them.

Mr. GROB. On the other hand, if a person could hold onto the

money longer, there may be more frivolous appeals.

Mr. TOOMEY. I think the evidence suggests so far that given the

outcomes they are obviously justifiable appeals.

I will yield the balance of my time and recognize Ms. ChristianChristensen.

Mrs. CHRISTENSEN. Thank you. If I could just follow up somewhat on your question? I would like to go to page 9 where I think

in H.R. 868 there is a provision whereby a payment plan could be

instituted. I think you are also opposed to that in the bill. Is that

correct?

Mr. GROB. We have been working with the staff on this bill for

quite a bit of time, and we have really appreciated the opportunity

to go back and forth on that.

In the bill, the part we had a problem with was the automatic

entitlement to a payment plan for a particular period of time no

matter what the circumstance, but I think that very much the idea

that a repayment plan could be developed for providers is certainly

very viable, and we think some attention ought to be paid to that.

Mrs. CHRISTENSEN. To me, the agency is trying to go in the direction of cooperation and working together. I think we should go a

little more to the side of really doing that and allowing for a payment plan and really to compare trying to get your money back

from an HMO, which has a lot of resources, or from a telephone

company is not the correct comparison when you are talking about

a physician’s office or a provider that does not have that kind of

money readily available.

Mr. SCULLY. The problem, Congresswoman, just to defend and to

help him out a little bit maybe because we have had even differences, and we are working together with Congress and the IG

to try to work out some of our views on MERFA.

I think repayment plans in a lot of cases may be appropriate, but

there are also cases, and not to pick on any one group, but there

are a lot of home health providers that had a lot of not particularly

legitimate claims four or five years ago that disappeared from the

face of the earth pretty quickly.

42

Part of the problem we have is a lot of bankruptcies. In a lot of

cases if you give people a repayment option where you know they

are not going to be around to repay it, they will have 15 different

shells, and they will go bankrupt.

There are a lot of really functional problems with giving everybody a guaranteed repayment option. There are certainly appropriate places that will happen, but there are an awful lot of cases,

and I am sure the IG has 1,000 more examples than I will have

where providers have provided numbers, over billed this, we went

after them, and then all of a sudden they have disappeared never

to be found again. We have hundreds and hundreds of millions of

dollars of outstanding claims like that.

I am totally supportive of what you are saying, but I think we

have to balance.

Mrs. CHRISTENSEN. And I appreciate the fact that you are working with the Congress on the bill and that we will be able to work

out something, but it just seems unfair.

I was trying to figure out where I saw the statistic about most

of the claims being accurate. Actually, Mr. Grob it was in your

testimony—— Mr. GROB. Yes.

Mrs. CHRISTENSEN [continuing]. In one of the other—— Mr. GROB. That is right.

Mrs. CHRISTENSEN. In the Senate, I believe. It talked mainly

about the payment, the request for payment, being free of error.

Mr. GROB. Yes.

Mrs. CHRISTENSEN. To go back to our previous conversation, I

would really like to see what the record really is on investigations

and audits and if we could get a more specific breakdown on those

and how many actually end up going to criminal prosecution—— Mr. GROB. Right.

Mrs. CHRISTENSEN [continuing]. Or some kind of a sanction.

Mr. GROB. Yes.

Mrs. CHRISTENSEN. I wanted to talk a bit about I am glad that

there is going to be an educational process for the beneficiaries because in my experience and in the experience of my providers a lot

of the information that goes out to the beneficiaries is just unintelligible to most beneficiaries, and in the case where there may be

a question of payment it almost makes the provider look like a

criminal.

It really sets up a bad situation in the case of a physician that

has a more personal relationship with their patient that the physician has done something wrong. It is really an interference with

the patient/physician relationship.

Mr. SCULLY. Can I put in my two cents on that?

Mrs. CHRISTENSEN. Sure.

Mr. SCULLY. Having lived through the last 15 years in Washington doing health policy, part of that is, and the IG is responding

to the pressure that is largely from the Hill, as was the former

HCFA, now CMS, as was the Justice Department, for most of the

late 1980s and early 1990s the perception on the Hill was that all

Medicare problems and reform problems could be solved if you

wiped out Medicare fraud, which I think was an overly simplified

view, so you had this clamoring to crack down on Medicare fraud,

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Medicare fraud, Medicare fraud, and everybody in the agency has

responded to that.

Now you are getting a little bit of a push back with Congress to

find a balance. I think that is appropriate, but all the provider notifications that go out to my mom and dad to tell them every time

there is a problem, those are all statutorily required. I think there

are an awful lot of things that Congress has pushed us to do that

may have been overcompensating.

I think again, as I said earlier, there probably was not enough

being done ten years ago. Arguably, there are a few things we

might rein back in a teeny bit now, and I think that is part of what

the MERFA process is all about.

Mrs. CHRISTENSEN. Thanks. I am very much interested in having

a listening session. I see that my time is up. A listening session in

my district.

Mr. SCULLY. Well, Congresswoman, if I have the choice of going

to a lot of other district or the Virgin Islands—— Mrs. CHRISTENSEN. I think you need to come back and see the

safer hospitals where your daughter was treated.

Mr. SCULLY. I have been there with my daughters. Yes, I have.

Mrs. CHRISTENSEN. Right.

Mr. SCULLY. They did a great job. Thanks.

Mrs. CHRISTENSEN. Thank you.

Mr. TOOMEY. I would like to thank the witnesses for their patience and their cooperation.

The hearing is adjourned.

[Whereupon, at 12:15 p.m. the Committee was adjourned.]

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