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74–213 2001

SECOND IN SERIES ON MEDICARE REFORM:

BRINGING REGULATORY RELIEF TO BENEFICIARIES

HEARING

BEFORE THE

SUBCOMMITTEE ON HEALTH

OF THE

COMMITTEE ON WAYS AND MEANS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

MARCH 15, 2001

Serial No. 107–12

Printed for the use of the Committee on Ways and Means

(

ii

COMMITTEE ON WAYS AND MEANS

BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois

E. CLAY SHAW, JR., Florida

NANCY L. JOHNSON, Connecticut

AMO HOUGHTON, New York

WALLY HERGER, California

JIM MCCRERY, Louisiana

DAVE CAMP, Michigan

JIM RAMSTAD, Minnesota

JIM NUSSLE, Iowa

SAM JOHNSON, Texas

JENNIFER DUNN, Washington

MAC COLLINS, Georgia

ROB PORTMAN, Ohio

PHIL ENGLISH, Pennsylvania

WES WATKINS, Oklahoma

J.D. HAYWORTH, Arizona

JERRY WELLER, Illinois

KENNY C. HULSHOF, Missouri

SCOTT MCINNIS, Colorado

RON LEWIS, Kentucky

MARK FOLEY, Florida

KEVIN BRADY, Texas

PAUL RYAN, Wisconsin

CHARLES B. RANGEL, New York

FORTNEY PETE STARK, California

ROBERT T. MATSUI, California

WILLIAM J. COYNE, Pennsylvania

SANDER M. LEVIN, Michigan

BENJAMIN L. CARDIN, Maryland

JIM MCDERMOTT, Washington

GERALD D. KLECZKA, Wisconsin

JOHN LEWIS, Georgia

RICHARD E. NEAL, Massachusetts

MICHAEL R. MCNULTY, New York

WILLIAM J. JEFFERSON, Louisiana

JOHN S. TANNER, Tennessee

XAVIER BECERRA, California

KAREN L. THURMAN, Florida

LLOYD DOGGETT, Texas

EARL POMEROY, North Dakota

ALLISON GILES, Chief of Staff

JANICE MAYS, Minority Chief Counsel

SUBCOMMITTEE ON HEALTH

NANCY L. JOHNSON, Connecticut, Chairwoman

JIM MCCRERY, Louisiana

PHILIP M. CRANE, Illinois

SAM JOHNSON, Texas

DAVE CAMP, Michigan

JIM RAMSTAD, Minnesota

PHIL ENGLISH, Pennsylvania

JENNIFER DUNN, Washington

FORTNEY PETE STARK, California

GERALD D. KLECZKA, Wisconsin

JOHN LEWIS, Georgia

JIM MCDERMOTT, Washington

KAREN L. THURMAN, Florida

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records

of the Committee on Ways and Means are also published in electronic form. The printed

hearing record remains the official version. Because electronic submissions are used to

prepare both printed and electronic versions of the hearing record, the process of converting

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process

is further refined.

iii

C O N T E N T S

Page

Advisory of March 8, 2001, announcing the hearing ............................................ 2

WITNESSES

U.S. Department of Health and Human Services, George F. Grob, Deputy

Inspector General for Evaluation and Inspections, Office of Inspector General ........................................................................................................................ 76

American Health Care Association, and Marriott Senior Living Services, Mary

K. Ousley .............................................................................................................. 23

American Hospital Association, and Northwestern Memorial Healthcare, Gary

Mecklenburg ......................................................................................................... 17

American Medical Association, Richard F. Corlin, M.D. ...................................... 12

Center for Medicare Advocacy, Inc., and National Citizens’ Coalition for Nursing Home Reform, Toby S. Edelman .................................................................. 64

Moffit, Robert E., Heritage Foundation ................................................................. 89

National Association for Home Care, Connecticut Association for Home Care,

and Visiting Nurse Association of Central Connecticut, Inc., Susan Wilson .. 30

Wilensky, Hon. Gail R., Project HOPE, and Medicare Payment Advisory

Commission ........................................................................................................... 98

SUBMISSIONS FOR THE RECORD

American Association of Homes and Services For the Aging, statement ........... 119

American College of Physicians—American Society of Internal Medicine,

statement .............................................................................................................. 123

American Occupational Therapy Association, Inc., Bethesda, MD, statement .. 126

American Physical Therapy Association, Alexandria, VA, statement ................. 129

Mayo Foundation, Bruce M. Kelly, letter and attachment .................................. 134

National Association of Chain Drug Stores, Alexandria, VA, statement ............ 135

(1)

SECOND IN SERIES ON MEDICARE REFORM:

BRINGING REGULATORY RELIEF TO BENEFICIARIES AND PROVIDERS

THURSDAY, MARCH 15, 2001

HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, SUBCOMMITTEE ON HEALTH, Washington, DC.

The Subcommittee met, pursuant to notice, at 10:10 a.m., in

room 1100 Longworth House Office Building, Hon. Nancy L. Johnson (Chairwoman of the Subcommittee) presiding.

[The advisory announcing the hearing follows:]

2

ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

SUBCOMMITTEE ON HEALTH

FOR IMMEDIATE RELEASE CONTACT: (202) 225–3943

March 8, 2001

HL–2

Johnson Announces Second Hearing in

the Series on Medicare Reform

Congresswoman Nancy L. Johnson (R–CT), Chairwoman, Subcommittee on

Health of the Committee on Ways and Means, today announced that the Subcommittee will hold the second day in the hearing series on Medicare reform. On

this occasion, the Subcommittee will examine ways to bring regulatory relief to

beneficiaries and providers and restructuring the Health Care Financing Administration (HCFA) in the context of efforts to improve the Medicare program. The

hearing will take place on Thursday, March 15, 2001, in the main Committee hearing room, 1100 Longworth House Office Building, beginning at

10:00 a.m.

In view of the limited time available to hear witnesses, oral testimony at this

hearing will be from invited witnesses only. Witnesses will include a panel of health

care providers representing doctors, hospitals, nursing homes, and home health

agencies. The second panel will include Dr. Gail Wilensky of Project HOPE and

other Medicare experts to discuss regulatory relief and to provide suggestions on

how HCFA can be more responsive to beneficiaries and providers, possibly through

agency restructuring. Any individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Committee and

for inclusion in the printed record of the hearing.

BACKGROUND:

This hearing will be the second in a series of Subcommittee hearings intended to

lay the groundwork for the development of legislation to improve and strengthen the

Medicare program, including the addition of a much needed prescription drug benefit to the program. The first hearing, held on February 28th, gave members a general overview of the reform debate. This and subsequent hearings will focus on particular areas in need of reform.

In announcing the hearing, Chairwoman Johnson stated: ‘‘Regulatory relief has

to be at the center of any effort to improve the Medicare program. Too many providers are spending too much time struggling with paperwork rather than treating

patients. It is time to introduce a little common sense into the HCFA bureaucracy.’’

FOCUS OF THE HEARING:

The March 15th hearing is not intended to convey that all regulation is inappropriate—in fact, many regulations addressing patient protections, financial accountability standards, and operational guidance are a vital part of the Medicare program. However, some of HCFA’s 130,000 pages of regulations place an unnecessary,

and oftentimes duplicative and cumbersome burden on providers that can negatively

affect the beneficiaries who rely on them for needed services. Witnesses will provide

specific examples of burdensome regulations—and specific suggestions for regulatory

changes that can be made to promote, rather than hinder, efforts to improve the

Medicare program. The Subcommittee will be presented with testimony on how the

government can do its job better, to ensure that beneficiaries are protected, and that

taxpayer dollars are used wisely and responsibly without placing undue burdens on

providers.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

Any person or organization wishing to submit a written statement for the printed

record of the hearing should submit six (6) single-spaced copies of their statement,

3

along with an IBM compatible 3.5-inch diskette in WordPerfect or MS Word format,

with their name, address, and hearing date noted on a label, by the close of business, Thursday, March 29, 2001, to Allison Giles, Chief of Staff, Committee on Ways

and Means, U.S. House of Representatives, 1102 Longworth House Office Building,

Washington, D.C. 20515. If those filing written statements wish to have their statements distributed to the press and interested public at the hearing, they may deliver 200 additional copies for this purpose to the Subcommittee on Health office,

room 1136 Longworth House Office Building, by close of business the day before the

hearing.

FORMATTING REQUIREMENTS:

Each statement presented for printing to the Committee by a witness, any written statement or exhibit submitted for the printed record or any written comments in response to a request for written comments must conform to the guidelines listed below. Any statement or exhibit not in compliance with these guidelines will not be printed, but will be maintained in the

Committee files for review and use by the Committee.

1. All statements and any accompanying exhibits for printing must be submitted on an IBM

compatible 3.5-inch diskette in WordPerfect or MS Word format, typed in single space and may

not exceed a total of 10 pages including attachments. Witnesses are advised that the Committee will rely on electronic submissions for printing the official hearing record.

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material not meeting these specifications will be maintained in the Committee files for review and

use by the Committee.

3. A witness appearing at a public hearing, or submitting a statement for the record of a

public hearing, or submitting written comments in response to a published request for comments

by the Committee, must include on his statement or submission a list of all clients, persons,

or organizations on whose behalf the witness appears.

4. A supplemental sheet must accompany each statement listing the name, company, address, telephone and fax numbers where the witness or the designated representative may be

reached. This supplemental sheet will not be included in the printed record.

The above restrictions and limitations apply only to material being submitted for printing.

Statements and exhibits or supplementary material submitted solely for distribution to the

Members, the press, and the public during the course of a public hearing may be submitted in

other forms.

Note: All Committee advisories and news releases are available on the World

Wide Web at ‘‘http://waysandmeans.house.gov’’.

The Committee seeks to make its facilities accessible to persons with disabilities.

If you are in need of special accommodations, please call 202–225–1721 or 202–226–

3411 TTD/TTY in advance of the event (four business days notice is requested).

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above.

Chairwoman JOHNSON. Thank you. Today

f’s Subcommittee holds

the second in a series of hearings designed to lay the groundwork

for the development of legislation to improve and strengthen the

Medicare Program, while adding a much needed prescription drug

benefit to that program.

The first hearing, held last week, gave Members a general overview of the reform debate. This and subsequent hearings will focus

on particular aspects of the Medicare Program in need of reform.

The purpose of this hearing is to examine the impact of the regulatory burden on beneficiaries and the providers that serve them

and to examine specific proposals to provide regulatory relief. Our

intent is to distinguish between unnecessary regulations and those

4

that are critical to program integrity and effectively deterring fraud

and abuse.

Our witnesses will provide us with specific examples of burdensome regulations and specific suggestions for regulatory changes

that can be made to promote efforts to improve the Medicare Program.

The Subcommittee will be presented with testimony on how the

Government can do its job better to ensure that beneficiaries are

protected and that taxpayer dollars are used wisely and responsibly, without placing undue burdens on providers.

I thought it was important to begin with this topic because, like

many of my colleagues, I hear every day from doctors and home

health agencies, from nursing home administrators and ambulance

companies, that the status quo is not only unacceptable, it is destructive. Not only is the tremendous explosion of payments diverting valuable nursing hours from patient care, but it is on the verge

of severely reducing seniors’ access to essential health care services. Indeed, if we cannot return common sense to the Health Care

Financing Administration (HCFA) bureaucracy, we will lose the

services of small nursing homes whose two Medicare patients are

imposing loads of paperwork for all patients, the services of small

home health care providers who will simply be unable to serve the

dual-eligible because delayed reimbursements cause such severe

cash flow problems, and the shower of paperwork imposes such significant new and unreimbursed costs.

The testimony today dramatizes the challenge this Committee

faces to preserve Medicare, to strengthen Medicare, to preserve it

for our seniors. As this Committee continues to prepare through

our hearings and our bipartisan seminars for the development of

Medicare improvement legislation, we need to keep what we will

hear today from witnesses in the forefront of our minds. We must

not, we simply cannot compound the regulatory problems we face.

We must instead make it a priority to improve administration responsiveness to beneficiaries and providers.

We will work closely with Secretary Thompson, whom we heard

from yesterday, to explore how HCFA can restructure as we work

to modernize Medicare. As we think about regulatory relief, however, it is vitally important that we not allow ourselves to believe

that all regulation is inappropriate. In fact, patient protections, financial accountability standards, and operational guidance are a

vital part of the Medicare Program.

Just last week, the Office of Inspector General reported that inappropriate Medicare claims had fallen to 6.8 percent from 14 percent in 1996. That is good news for beneficiaries who are paying

the bills and for taxpayers. However, simplifying HCFA’s 130,000

pages of regulations will bring these numbers down steeply, as the

testimony today clearly indicates, and at the same time protect

seniors’ access to quality care.

While we must balance accountability and relief, as we will hear

from witnesses today, we must move forward in developing legislation, and I am confident that as we work together, we will get it

right. No matter what shape a modernized Medicare Program ultimately takes, we all know that one of the most important measures

of success will be whether we can protect program integrity while

5

ensuring that health care providers can focus on patients rather

than paper.

I would like to recognize now Mr. Stark.

[The opening statement of Chairwoman Johnson follows:]

Opening Statement of the Hon. Nancy L. Johnson, a Representative in Congress from the State of Connecticut, and Chairwoman, Subcommittee on

Health

Today this Subcommittee holds the second in a series of hearings designed to lay

the groundwork for the development of legislation to improve and strengthen the

Medicare program while adding a much needed prescription drug benefit to the program. The first hearing, held last week, gave members a general overview of the

reform debate. This and subsequent hearings will focus on particular aspects of the

Medicare program in need of reform.

Today, there are more than 130,000 pages of Medicare regulations. That’s four

times the number of IRS! This regulatory burden is a consequence of Medicare’s administered pricing system, which requires government micro-management of health

care. Certainly, this is not all the fault of the Health Care Financing Administration

(HCFA). Indeed, Congress has enacted significant Medicare legislation in three of

the last four years.

The purpose of this hearing is to examine the impact of the regulatory burden

on beneficiaries and the providers that serve them, and to examine specific proposals to provide regulatory relief. Our intent is to distinguish between unnecessary

regulations and those that are critical to program integrity and effectively deter

fraud and abuse.

Our witnesses will provide us with specific examples of burdensome regulations—

and specific suggestions for regulatory changes that can be made to promote efforts

to improve the Medicare program. The Subcommittee will be presented with testimony on how the government can do its job better, to ensure that beneficiaries are

protected and that taxpayer dollars are used wisely and responsibly without placing

undue burdens on providers.

I thought it was important to begin with this topic because, like many of my colleagues, I hear nearly every day from doctors and home health agencies, from nursing home administrators and durable medical equipment providers, that the status

quo is unacceptable. Too many health care providers are spending too much time

struggling with paperwork rather than treating patients. It is time to introduce a

little commonsense into the HCFA bureaucracy.

As this Committee continues to prepare, through our hearings and bipartisan

seminars, for the development of Medicare improvement legislation, we need to keep

what we will hear from our witnesses today in the forefront of our minds. We must

not simply feed the regulatory monster—we must instead make it a priority to improve administrative responsiveness to beneficiaries and providers. We will work

closely with Secretary Thompson, who we heard from yesterday, to explore how

HCFA can be restructured as we work to modernize Medicare.

As we think about regulatory relief, however, it is vitally important that we not

allow ourselves to believe that all regulation is inappropriate—in fact, patient protections, financial accountability standards, and operational guidance are a vital

part of the Medicare program. Just last week, the Office of Inspector General reported that inappropriate Medicare claims had fallen to 6.8% from 14% in 1996.

That’s good news for taxpayers and beneficiaries who are paying the bills. However,

some of HCFA’s 130,000 pages of regulations clearly cross a line and place an unnecessary burden on providers—a burden that can negatively affect the beneficiaries

who rely on them for needed services.

We will have to be sensitive to this balance between accountability and relief as

we hear from our witnesses today and as we move forward in developing legislation.

But, I am confident that as we work together we will get it right. No matter what

shape a modernized Medicare program ultimately takes, we all know that one of the

most important measures of its success will be whether we can protect program integrity while ensuring that health care providers can focus on patients rather than

paper.

Mr. STARK. Thank you, Madam Chairman.

f

6

Just very quickly, as we begin studying possible reforms to

HCFA and its regulatory process, I think it is important that we

remember that we are responsible for providing the resources to

HCFA and the flexibility they need to fulfill their responsibilities.

So I am pleased that you are having these hearings and that Secretary Thompson agrees with this notion and said so, I think, in

this room just yesterday that he would work with us to see that

we get the resources to HCFA to carry out the responsibilities with

which we have charged them.

I think it is also important to note, most importantly, that Medicare regulations and policy guidance, as issued by HCFA, merely

implement the laws that we—and, actually, we on this Committee—have enacted and that the relative complexity and burden

of Medicare regulations rests with us, not HCFA. I also want to

congratulate the Chair because this Committee hasn’t met for over

6 years to review the regulations and the procedures at HCFA.

And, Madam Chair, you are to be commended because we should

have been doing this every year, as it used to be done years ago.

HCFA cannot operate with laws that have not been updated and

reviewed, and so you are to be credited with understanding this

process. HCFA can only promulgate regulations that we tell them

to promulgate. They have no independent authority, which means

we have to look at ourselves when we look at the problem.

I would also like to point out that, in regard to this burden of

paperwork that these poor, overburdened providers face, the physicians in this country continue to be the highest-paid profession in

the United States with median incomes of nearly $175,000 a year— exactly those people whom the new tax bill will help the most.

We say nothing about what we are doing to lift the burden on

children who don’t qualify for CHIP or the 42 million uninsured

Americans who are unable to see these well-to-do physicians who

are going to complain to us this morning about how tough it is to

make $175,000 to $600,000 or $700,000 a year. The same is true

of the hospitals. They have had the highest margins, some as high

as 45 percent, on their Medicare payments, and they are going to

be in here whining about it is so difficult to run a hospital. Boy,

if you could run the dotcom businesses with a 45-percent margin

today, the stock market would be doing a whole lot better.

We have, because of these regulations, I would like to point out,

significantly lowered the improper payment rate. That is not necessarily all illegal activity. That may be mostly mistakes. But the

improper payment level has dropped to 6.8 percent from 14 percent

5 years ago. That is a $12-billion saving since 1996. Madam Chair,

that these tough regulations have saved the taxpayer. That is a lot

of money.

Finally, I would suggest that I have heard from some physicians

that they are being harassed by HCFA. I suppose that could be a

good rap song, but there were fewer than 100 physicians arrested

for Medicare fraud last year; just 12 were convicted. That is out of

about 600,000 physicians in our country. My math shows me that

that is 0.02 of a percent. Now, I happen to be familiar with the one

Member of Congress that I know is under active criminal investigation. That is 0.23 of a percent for our group. So I am saying, Docs,

that you are doing a lot better than Congress in terms of those of

7

you who are subject to arrest for fraudulent behavior, and I would

count your blessings. When there are as many doctors in jail as a

percentage as there are Members of Congress, or former Members,

then you might have a reason to complain.

So I think that we do have to look to our own Committee and

our own actions to see how we can continually improve and upgrade Medicare, which is the finest, most efficient bill-paying system in the country today. And I thank you very much for beginning

these hearings, and I hope it will lead to some serious legislation

that will help make our system of Medicare and Medicare reimbursement to the providers continue to be the most efficient, lowest

overhead system in the United States.

Thank you, Madam Chair.

[The opening statements of Mr. Stark and Mr. Ramstad follow:]

Opening Statement of the Hon. Fortney Pete Stark, a Representative in

Congress from the State of California

As we begin deliberations on possible reforms to the Health Care Financing Administration (HCFA) and its regulatory process, it’s important to provide HCFA

with the resources and flexibility needed to fulfill its responsibilities. There seems

to be broad agreement among experts and stakeholders that HCFA’s resources need

to be dramatically increased. I hope we will hear from Gail Wilensky with respect

to that concern later this morning.

I am also pleased that Secretary Thompson agrees with this notion and has said

so in numerous public settings. We should not wait to increase HCFA’s administrative budget and staffing opportunities until there is consensus on whether or how

to restructure HCFA or reform Medicare. With the budget season upon us, there

should be a coordinated effort for a significant increase this year.

During the last five years, Congress has significantly increased HCFA’s responsibilities, without adding the commensurate, necessary resources to accomplish the

work.

In 1996, the Congress enacted the Health Insurance Portability and Accountability Act (HIPAA), the Mothers and Newborns Protection Act and mental health

parity legislation; in 1997, the Congress enacted the BBA of 1997; in 1999, the Congress enacted BBRA; and in 2000, the Congress enacted BIPA. These laws added

hundreds of new provisions for HCFA to implement. Yet Congress increased HCFA’s

administrative budget by only 2.6 percent since 1997; if you subtract out the earmarks for research projects, the increase was only 1.6 percent.

That leads directly into the point that it is also important to remember that the

Medicare regulations and policy guidance issued by HCFA implement the laws that

the Congress enacts, and the relative complexity and A burden of Medicare regulations reflect those laws.

In promulgating regulations, HCFA has only the regulatory authority that it is

given by the Congress; it has no other independent regulatory authority. As we examine these issues today, we should also examine the complexity and burden of the

Medicare statute.

There are steps we can take to improve HCFA’s ability to fulfill its responsibilities

under the law, while easing legitimate concerns about regulatory burden. But it is

critically important that we do not do so in a vacuum. Regulations and other guidance materials are needed to protect beneficiaries from abuse and to assure the financial integrity of the Medicare and Medicaid programs.

The Department of Health and Human Services (HHS) has very recently reported

that improper Medicare payments to doctors, hospitals and other health care providers declined in fiscal year (FY) 2000 to an estimated level of 6.8 percent. This

level compares favorably with an error rate of approximately 8 percent in FY 1999,

and is roughly half of the original FY 1996 rate of approximately 14 percent.

This continued decline in the Medicare payment error rate demonstrates the success of HCFA’s efforts to reduce billing errors in Medicare over the past five years.

According to the Inspector General, the significant, sustained improvement reflects

HCFA’s improved oversight, its efforts to clarify Medicare payment policies, and its

insistence that doctors and health care providers fully document the services that

they provide. Other factors have been new initiatives and resources to prevent, detect and eliminate errors and fraud in Medicare.

8

Many criticized HCFA when the payment error rate was 14 percent and demanded that HCFA reduce it. Now many criticize HCFA for the actions it has taken

to reduce payment errors and for insisting that providers file claims accurately. It

is my understanding that fewer than 100 physicians were arrested for Medicare

fraud last year B and only 12 were convicted. That is out of more than 600,000 physicians across the country. I say that we should praise HCFA for its efforts to reduce

Medicare payment errors, and we should ensure that HCFA does not diminish its

efforts to reduce those errors still further.

Finally, while I know today’s hearing is not specifically focused on HR 868, the

Medicare Education and Regulatory Fairness Act, many of the providers testifying

before us have endorsed that legislation. While I agree that there are some legitimate issues relating to provider regulation that need to be addressed, the over-reach

of MERFA as introduced undermines the credibility of its champions. And could easily return us to the days of 14% overpayment rates.

Attached is a much more detailed list of broad ideas and principles for consideration in the debate on HCFA reform. I look forward to hearing from our panelists

this morning.

1. First, do no harm

Along with Social Security, Medicare is the most effective and popular government program in existence today. It provides health and financial security for nearly

40 million persons with disabilities and senior citizens that was not available prior

to its enactment.

Every major poll reaffirms the popularity of Medicare among seniors and their

families. HCFA announced December 22nd that for the second year in a row, Medicare beneficiaries had rated the agency A excellent in the way it provides information, the usefulness of that information, and the courtesy and professionalism of its

staff.

In 2000, HCFA went up three points from last year’s score of 74 out of 100 on

the American Customer Satisfaction Index (above the average Federal score of 68.6).

In addition, surveys show that Medicare is more popular among providers, including physicians, than private insurance or Medicaid.

While improvements are needed in HCFA’s management of Medicare, Congress

should proceed with caution and with the acknowledgment that we are examining

ways to improve a program that already does well according to many objective

measures and has strong public support.

2. Increase HCFA resources B and give priority to information technology

(IT) modernization

We cannot discuss the problems associated with Medicare regulations and guidance without discussing the lack of resources given to HCFA to carry out its regulatory responsibilities, and to educate affected parties about the rules of the game.

In the January/February, 1999 issue of Health Affairs, 14 of our nation’s leading

Medicare policy analysts—ranging from conservative to liberal—published an open

letter titled, ‘‘A Crisis Facing HCFA & Millions of Americans,’’ regarding the lack

of resources allocated to administer Medicare. The Medicare Payment Advisory

Commission (MedPAC) agreed with that letter, and published it in their March 1999

Report to Congress.

In MedPAC’s March 2001 Report to Congress, MedPAC makes the following

points that are particularly relevent to this discussion:

A HCFA cannot do everything at once. The BBA required many changes in

Medicare’s payment policies within a very short period. . . . HCFA lacked the

staff resources and time to fully prepare new payment systems and make necessary changes in its administrative systems.

As a result of Congressional time deadlines, some tasks, such as delivery of

critical coding, patient assessment, and billing software to HCFA’s billing

agents and providers for pre-testing, and the development and dissemination of

edit standards—were often delayed until new payment systems were about to

go into effect. . . . leaving providers little time to prepare.

A second lesson is that you get what you pay for. Many of the data limitations

that cause problems in establishing accurate payments for some settings are due,

at least in part, to chronic under funding of HCFA’s administrative budget. Activities that help to improve the accuracy and reliability of providers’ reported

data—such as auditing cost reports or developing and disseminating coding instructions—have received inadequate support for many years. HCFA’s administrative expenses generally have accounted for less than 2 percent of total outlays

in recent years, well below the comparable proportion of private insurers’ expenses for similar activities. The lack of adequate monitoring tools and data is

9

1From Dr. Howard A. Rubin’s A Industry Watch, 1998.

a major problem. This problem will be difficult and costly to remedy. Consequently, additional resources will be needed.

While critics of HCFA may complain about HCFA’s performance, MedPAC and

other independent experts have pointed out that they have been tasked with the impossible under the circumstances.

Information technology (IT) systems

We need to undertake a ‘‘Manhattan Project’’ in Medicare information technology

(IT) to improve quality, fight fraud, and slash paperwork costs.

As we all know, HCFA’s IT systems are obsolete. HCFA has tried for more than

a decade to develop new IT systems, and we still haven’t achieved that goal.

Without modern information systems, HCFA cannot effectively and efficiently administer the Medicare program—regardless of administrative structure or process.

We cannot pay bills efficiently, we cannot limit paperwork hassles, we cannot monitor and assure coordination of services and quality, and we cannot identify fraud

and abuse.

Equipment alone won’t solve the problem. Information technology experts are

needed, too. Problems attracting and retaining good personnel to work on IT issues

are not limited to HCFA. Agencies and departments throughout the entire Federal

government are having difficulty hiring and keeping IT staff. Good computer personnel can make many times more in the private sector than we can pay in the Federal government. While we may never be able to pay enough to attract and retain

good computer professionals, we clearly need to do better than we are doing now.

Medicare is not alone in facing these challenges. The entire health sector needs

to make major advances in this area. In general, American business spends about

7.1% of its gross company revenue per year on IT improvement.1 The health care

sector spends about 3.2%, yet IT improvements are the key to error reduction, quality improvement, and paperwork savings.

HCFA provides FREE software to physicians via the Internet to enable electronic

claims filing. In addition, Medicare carriers help teach physicians how to file their

claims electronically. It costs Medicare an extra dollar to process each paper claim

that is filed. It’s not too much to make electronic filing the default for all providers,

while allowing those who may to file paper claims to do so for a fee consisting of

the extra dollar that it costs to process that claim.

I have asked GAO to review current HCFA activities to develop new IT systems

for Medicare, and to make recommendations on how to proceed in terms of hardware, software, and staffing. I expect the report later this Spring.

Direct Appropriations

We should consider funding HCFA’s administrative budget through a direct appropriation. Currently, HCFA staffing and administration must be approved

through the appropriations process, where HCFA resources must compete for scarce

resources with NIH, education, and other Congressional and Administration priorities.

However, for many years, Peer Review Organizations (PROs) have been funded

through a ‘‘direct appropriations’’ process, in which the Secretary of HHS (with

OMB approval) simply transfers funds from the Medicare Trust Funds to fund the

activities of the PROs.

We should consider this approach for all Medicare management functions and

needs, and not just the PROs. All funds for Medicare management already are appropriated from the Trust Funds, so the only change would be to shift the oversight

of funding from the Appropriations Committees to the authorizing committees.

3. Regulations Process

When Medicare began in 1965, Congress wrote:

‘‘No rule, requirement, or other statement of policy (other than a national coverage determination) that establishes or changes a substantive legal standard governing the scope of benefits, the payment for services, or the eligibility of individuals, entities, or organizations to furnish or receive services or benefits under this

title shall take effect unless it is promulgated by the Secretary by regulation under

paragraph (1).’’ (Section 1871(a)(2))

The statute requires HCFA to make policy changes through the regulatory process, which provides for public involvement. However, HCFA for years has made policy changes and issued guidance through ‘‘manual instructions’’. Manual instructions are not subject to a public comment process, which has frustrated some proVerDate 11-MAY-2000 08:25 Sep 25, 2001 Jkt 074213 PO 00000 Frm 00013 Fmt 6633 Sfmt 6621 E:\HR\OC\A213.XXX pfrm09 PsN: A213
10

viders. In addition, because manual instructions can be issued more easily than regulations, providers feel that HCFA is overwhelming them with new policies.

Too many directives have been issued that have had to be corrected and re-issued,

and I am sympathetic to rational efforts to improve coordination of the various components of policy guidance.

4. National v. Regional Policies

Throughout the history of Medicare, we have relied on contractors to establish

many Medicare policies B including Medicare coverage policies.

In addition, the 10 HCFA regional offices establish separate policies on many

issues, and often offer differing interpretation of national policies.

Although that approach worked well for many years, we should consider a move

toward more national policies in Medicare, and minimize B as appropriate— re- gional variations in policies.

Clearly, we need fewer contractors processing claims, and we need to separate

contractor activities along functional lines (e.g., bill paying, anti-fraud, quality, appeals, and beneficiary services) rather than geographic lines. In addition, we should

continue to move toward specialized contractors for specific services, such as the

four DME carriers and the five home health intermediaries.

The Congress needs to reform Medicare contracting rules, as supported by many

experts and repeatedly proposed by previous Administrations, including the previous Bush Administration. This Committee should pass that legislation.

5. Information and Education

We need to do more to help beneficiaries and providers understand the rules and

options under Medicare.

We must find a way to simplify and consolidate the information being provided

to physicians and other providers, and to provide adequate funding for these activities.

Funding and operating the recently reinstated toll-free telephone service for providers and physicians is but one step that we can take to help increase HCFA’s com- munication efforts.

6. Reduce Complexity of Medicare Laws

In large measure, regulatory burden is a direct result of legislative complexity.

Frequently when Members of Congress criticize HCFA, they are really criticizing

laws that Congress has passed and, in some case, that they have voted for.

As MedPAC has pointed out, the Congress should give HCFA more lead time to

implement changes, and should listen to technical experts about the feasibility of

legislated changes. For example, in the BBRA 1999, the Congress added legislation

creating the hospital outpatient department pass through provision for medical technology, which greatly added to the complexity of the Medicare payment system. In

BIPA 2000, the Congress added a new-technology DRG, making the inpatient hospital PPS more complex.

Too often, Congress legislates failure; yet, when the agency is unable to fulfill an

impossible demand on deadline, Members accuse the agency of incompetence.

7. Payment Errors/CFO Audit

Just last week Department of Health and Human Services (HHS) reported that

improper Medicare payments to doctors, hospitals and other health care providers

declined in fiscal year (FY) 2000 to an estimated level of 6.8 percent. This level compares favorably with an error rate of approximately 8 percent in FY 1999, and is

roughly half of the original FY 1996 rate of approximately 14 percent.

The FY 2000 payment error rate represents improper payments of $11.9 billion

out of total payments of $173.6 billion in the traditional fee-for-service Medicare

program.

This continued decline in the Medicare payment error rate demonstrates the success of HCFA’s efforts to reduce billing errors in Medicare over the past five years.

According to the Inspector General, the significant, sustained improvement reflects

HCFA’s improved oversight, its efforts to clarify Medicare payment policies, and its

insistence that doctors and health care providers fully document the services that

they provide. Other factors have been new initiatives and resources to prevent, detect and eliminate errors and fraud in Medicare.

Many criticized HCFA when the payment error rate was 14 percent and demanded that HCFA reduce it. Now many criticize HCFA for the actions it has taken

to reduce payment errors and for insisting that providers file claims accurately. I

say that we should praise HCFA for its efforts to reduce Medicare payment errors,

and we should ensure that HCFA does not diminish its efforts to reduce those errors

still further.

11

To achieve further reductions in Medicare payment errors, we must reduce the

complexity of Medicare payment rules and improve provider education, but we must

also continue to insist on the filing of accurate claims. HCFA should have additional

resources to help providers file their claims properly and to monitor claims for accuracy.

8. Simplifications for Beneficiaries

We need to look for simplifications not only for providers, but also for beneficiaries. As a result of the BBA, HCFA recently established the toll-free number,

1–800–MEDICARE, that has been a great success by all accounts. HCFA should

consider expanding it to become a single entry point to Medicare for beneficiaries.

For example, the latest national Medicare handbook includes 14 pages of telephone

numbers for beneficiaries to call with specific questions. It seems reasonable to

allow beneficiaries to call one number for triage to the appropriate person or department.

In addition, HCFA should establish or support caseworkers to help beneficiaries

with their Medicare problems. In the past, HCFA has relied on the contractors, but

many of the problems are with the contractors themselves. HCFA now relies on

State Health Insurance Counseling and Assistance Programs (HICAP) organizations

to help beneficiaries. While I am a strong supporter of these organizations, they are

underfunded, staffed by volunteers and cannot accommodate the demand for assistance. It is absurd for a huge public program the size of Medicare to rely on volunteers to be the main source of assistance for its beneficiaries.

We need only to look to Social Security to learn other ways to help beneficiaries—

for example, Social Security has regional teleservice centers to staff their national

toll-free line and help beneficiaries with their questions. SSA also has Program

Service Centers to perform casework for Social Security beneficiaries with specific

problems. We need a similar effort for Medicare beneficiaries.

Currently, Medicare casework is handled by Congressional offices, since no casework office exists in Medicare. We should consider whether to station Medicare staff

in Social Security field offices to help answer Medicare questions.

Opening Statement of the Hon. Jim Ramstad, a Representative in Congress

from the State of Minnesota

f Madam Chairwoman, thank you for calling this important hearing on regulatory

reform within the Medicare system.

In my meetings with health care providers in Minnesota, I hear every time about

the crushing paperwork burden imposed on providers by HCFA. Why should duplicative documents and redundant forms be necessary to treat patients and obtain reimbursements?

Too many providers are spending too much time struggling with paperwork rather

than treating patients. In my view, it is time to introduce a little common sense

into the HCFA bureaucracy. Clearly, 130,000 pages of rules and regulations are excessive and must be streamlined.

Too often, providers are considered guilty until proven innocent and it seems that

HCFA is more interested in enforcing arcane regulations than in patient care.

Our health care dollars should be spent on care not so heavily on administration.

A hospital or doctor’s office should spend their scarce resources on patients not on

excessive paperwork.

I also believe that this unreasonable regulatory burden is delaying and even denying new technologies to seniors. This is simply unacceptable.

I certainly believe it is a necessary to have a reasonable level of documentation

to prevent fraud and improve patient care. However, I believe it is time for HCFA

to start focusing on working with the health care industry in a collaborative way,

rather than working against honest providers in an adversarial way.

Of course, this requires a careful balancing act and I hope today’s hearing will

begin to shed light on this subject.

Thanks again, Madam Chairwoman for calling this important hearing. I look forward to today

Chairwoman J

’s testimony.

OHNSON. Thank you.

f

12

I would like to call the first panel forward: Dr. Richard Corlin

of the American Medical Association; Gary Mecklenburg, Northwestern Memorial Healthcare from Chicago for the American Hospital Association; Mary Ousley, the senior vice president of health

services for the Marriot Senior Living Services for the American

Health Care Association; and Susan Wilson, from my own hometown in New Britain, a person I have worked with many years on

home care issues and I am particularly pleased to welcome here

today for the National Association of Home Care.

Let me just say as you start that I do wholeheartedly agree with

Mr. Stark that this is an important time for us to try to do our

work fairly. We do seem to have the backing of the administration

in looking at both resources and legal authority for HCFA, and I

think we do need to do some serious work in that area.

Dr. Corlin, let me just remind you that because we have two long

panels, you do have 5 minutes each, and then the lights will go on,

as you can see there, and then we will have time for questioning.

Dr. Corlin.

STATEMENT OF RICHARD F. CORLIN, M.D., PRESIDENT-ELECT,

AMERICAN MEDICAL ASSOCIATION

Dr. CORLIN. Thank you. Good morning, Madam Chairman and

Members of the Subcommittee. My name is Richard F. Corlin, M.D.

I am president-elect of the American Medical Association, and I am

a practicing gastroenterologist from Santa Monica, California. On

behalf of the AMA, I would like to thank you, Madam Chairman,

for your commitment to making Medicare more effective and less

bureaucratic. Physicians want to spend time on what matters—patient care—and not on paperwork.

We welcome the opportunity to work with the Subcommittee on

regulatory relief, the need to modernize the Medicare Program, and

to create a prescription drug benefit. The AMA recognizes that one

of HCFA’s most important functions is to maintain program integrity. We also recognize that post-payments audits, if they follow

sincere education efforts, can ensure that improper payments do

not occur.

I want to emphasize that the AMA in no way condones the behavior of fraudulent providers. We support the government’s effort

to root out true causes of fraud from the system.

At the same time, it is becoming increasingly difficult for physicians to comply with Medicare rules. We have reached a point

where there are over 110,000 pages of Medicare rules, policies, and

regulations. In a recent AMA survey, more than one-third of the responding physicians reported spending an hour completing Medicare forms and administrative requirements for every 4 hours of

patient care.

We have also reached the point where physicians are creating

documentation in their patients’ charts not for the patient’s benefit,

but simply to meet the Government’s demands. Extraneous documentation in patients’ charts can lead to unnecessarily delayed

care for the critically ill.

Tuesday night I was on call. I spent all except 2 hours of it in

the hospital in Santa Monica, and the one patient who was in the

intensive care unit, hemorrhaging from an ulcer, it took me 20

13

minutes longer to go through an unnecessarily long chart to figure

out what was going on with that patient before I could get to the

patient to take care of him.

Medicare requirements are not only complex, but they are constantly changing so that even carrier employees are not aware of

all the current Medicare standards. In the AMA survey, 80 percent

of physicians stated that carriers do not give them clear guidance

on Medicare requirements with which they are expected to comply.

Physicians who call their carriers face personnel who give incorrect

answers, refuse to divulge what their names are, and refuse to

send physicians written confirmation of the conversations so that

they can be used as guidelines in that physician’s practice.

In my written statement, I have described in detail the situation

physicians face when a carrier alleges they have received an overpayment by mistake, and I want to stress that these situations involve carrier allegations regarding unintentional billing errors, not

fraud. When fraud is alleged, HCFA requires the carrier to refer

these cases directly to the OIG, and we strongly support the continuation of this policy.

To address these egregious situations, the AMA urges this Subcommittee to support the bipartisan Medicare Education and Regulatory Fairness Act (MERFA), which was recently introduced by

Representatives Pat Toomey and Shelley Berkley and which currently has nearly 60 cosponsors. Under MERFA, HCFA contractors

would educate physicians and providers on Medicare requirements

so that fewer billing errors occur.

On a separate note, we commend Representative Stark for his

recognition of the need for this education in his recent comments

before the National Academy of Social Insurance.

MERFA would also provide physicians and providers with greatly needed due process rights in these post-payment audit situations

and require HCFA to pilot test documentation guidelines to minimize the burden and focus on clinically relevant documentation before they are put into effect nationwide.

Recently, a cardiologist reported that when he made hospital

rounds, he found two nurses taking care of patients and six nurses

checking documentation, and this simply does not serve patients

well.

We also heard from a critical care physician whose practice group

staffs a local hospital on a 24-hour-a-day basis, and who was actually the advisor to the local carrier on coding issues. He is now

going through a post-payment audit because the carrier has denied

all of that physician’s nighttime critical care billing charges. The

idea that a patient may be critically ill during the day but not critically ill at night is an absurdity.

MERFA provides incremental, modest reforms that should provide immediate relief to physicians and providers who are extremely frustrated with the Medicare program. These changes

would help ensure that patients continue to have access to a wide

range of physicians and providers in the Medicare Program, and we

look forward to working with Congress and Secretary Thompson to

reform Medicare so that it effectively continues to meet the needs

of patients now and in the future.

Thank you.

14

[The prepared statement of Dr. Corlin follows:]

Statement of Richard F. Corlin, M.D., President-Elect, American Medical

Association

RE: Patient Care, Not Paperwork—the Need for Medicare Regulatory Relief

Good morning Chairwoman Johnson and members of the Subcommittee, my name

is Richard F. Corlin, M.D., and I am President-Elect of the American Medical Association (AMA). I am a practicing gastroenterologist from Santa Monica, California.

On behalf of the AMA, I would like to thank you for holding this hearing regarding

regulatory reform for physicians and providers. This issue is a top priority for America’s physicians, who want to spend time on what matters—patient care—rather

than paperwork.

We very much appreciate the new Administration’s recognition, during Secretary

Thompson’s confirmation hearings and in the President’s Budget Blueprint, that the

growing complexity of the Medicare program’s rules and policies is driving physicians from the program. We were gratified that one of the President’s first steps was

to place a 60-day stay on the numerous Department of Health and Human Services

(HHS) regulations impacting physicians that were issued in the final weeks of the

last Administration, pending a new review.

The AMA recognizes that one of the most important functions of the Health Care

Financing Administration is to maintain program integrity, and that post-payment

audits, if they follow sincere education efforts, can be a valid way of ensuring that

improper payments do not occur. In addition, the AMA wants to emphasize that it

in no way supports or condones the behavior of fraudulent providers. We support

Medicare’s efforts to root true fraud out of the system.

At the same time, we have several concerns regarding some the most recentlyissued regulations, as well as more longstanding regulatory burdens, which we have

shared with the new Administration, and which we would like to share with the

Subcommittee.

For example, we have reached the point where there are now over 110,000 pages

of Medicare rules, policies, and regulations. In a recent AMA survey, more than onethird of the 653 responding physicians report spending one hour completing Medicare forms and meeting administrative requirements for every 1–4 hours of patient

care.

We have also reached the point where physicians are creating documentation in

their patients’ charts often not for the benefit of the patient’s care, but purely to

meet the government’s demands. These regulatory requirements have resulted in

voluminous charts filled with layers and layers of extraneous information. All this

additional documentation in patients’ charts can actually result in unnecessarily delayed care for the critically ill while physicians are attempting to access the truly

relevant information.

Regulatory Overload Has Resulted in Allegations of Overpayments

Due to the overly complex nature of Medicare documentation requirements, physicians are often not entirely certain if they are submitting the correct information

to their carriers. Medicare requirements are constantly changing, so that even carrier employees are not aware of all the current Medicare requirements. Physicians

who try to contact their carriers are faced with carrier personnel who give incorrect

answers, refuse to divulge their true names, and refuse to send physicians written

confirmation of their conversations upon which they can rely. In the AMA survey,

‘‘80% of physicians believe that carriers do not give them clear guidance as to the

Medicare rules and requirements (with which) they are expected to comply . . .’’

Physicians with rural practices are 7% more likely than non-rural practices to experience this lack of communication from the carrier.

As a result, carriers and physicians understandably can disagree over the correct

coding, documentation, and billing requirements. At this point of disagreement, physicians have found that under the current system, they receive no education from

the carrier and that they have very few rights to contest these overpayment accusations.

Madam Chairman, I would like to give the Subcommittee an example of what

physicians are faced with when a carrier alleges that a physician has received an

overpayment by mistake. As background, I must stress that such situations involve

carrier allegations regarding unintentional billing errors—not fraud. When fraud is

alleged, the Health Care Financing Administration (HCFA) requires the carriers to

refer these cases directly to the Office of the Inspector General.

15

1 ‘‘Extrapolation’’ refers to the carrier/fiscal intermediary practice of using alleged overpayments amounts to assume that all similarly coded claims during the same time period were incorrectly submitted. It is analogous to the IRS assuming that a taxpayer has made the same

mistake on all of her past tax returns. 2 ‘‘Providers’’ is defined as hospital, critical access hospital, skilled nursing facility, comprehensive outpatient rehabilitation facility, home health agency, or hospice program. (Section 1861(u)

of the Social Security Act). Ambulance Service Providers are also covered by the MERFA provisions.

(1) The carrier identifies a suspected billing error involving significant payment

amounts. Without making an effort to educate Dr. Smith or other physicians about

the problem, the carrier sends Dr. Smith a request for records and documentation

surrounding 20–40 claims the carrier has selected. Dr. Smith sends the requested

documents to the carrier for review within the very short deadline provided by the

carrier.

(2) The carrier generally sends another letter (a consent settlement letter) to Dr.

Smith approximately one year later. Frequently, this letter will allege an ‘‘actual

overpayment amount’’ which the carrier uses to ‘‘extrapolate’’ 1 to arrive at a larger ‘‘projected overpayment amount.’’ As an example, a carrier could allege an ‘‘actual

overpayment’’ of $10,000 and then could extrapolate this amount to a $150,000 (or

even more) ‘‘projected overpayment.’’ (3) Once the carrier presents Dr. Smith with the consent settlement letter, Dr.

Smith has up to 60 days to choose one of three options:

Option One:

admit liability, waive appeal rights and pay the $150,000;

Option Two:

admit liability, waive appeal rights and submit additional information to ask the carrier to reduce the $150,000 to a lower projected overpayment; or

Option Three:

not admit liability and open up his/her practice to a statistically valid random

sample (SVRS) in order to maintain his/her appeal rights.

To address these egregious situations, the AMA urges this Subcommittee to support the bipartisan Medicare Education and Regulatory Fairness Act of 2001

(MERFA) (H.R. 868), which was recently introduced by Representatives Patrick

Toomey (R–PA) and Shelley Berkley (D–NV), and which currently has over 50 cosponsors. This bill would require HCFA contractors to educate physicians and providers as to coding, documentation and billing requirements, so that fewer billing

errors ultimately occur. Passage of this legislation, independent of any HCFA reform

efforts, would send a clear message to HCFA and its contractors that Congress

wants them to focus on educating physicians and providers about how to bill correctly rather than to conduct heavy-handed audits of already-submitted claims.

Such an approach would be a paradigm shift for Medicare contractors, whose focus

has been punitive rather than preventive.

MERFA would also provide physicians and providers 2 with greatly-needed due

process rights in these post-payment audit situations. MERFA would also address

problems with HCFA’s documentation requirements. Under MERFA, HCFA would

be required to undertake four pilot projects to test documentation guidelines prior

to any new guidelines being put into effect. A Section-by-Section Summary of the

legislation is attached to my written statement.

At a press conference held last week by the sponsors of MERFA, we heard the

following disturbing accounts of how medical care has been adversely affected by

this type of regulatory overload:

• A cardiologist recounted how when he made rounds on one of the hospital

floors, two nurses were taking care of patients, and the other six nurses were

checking documentation to make sure that it complied with regulations.

• The same cardiologist had been though prepayment review (when payment

is withheld pending review) for 793 claims. These claims were worth $50,000.

The costs to the practice of processing and producing documentation and reprocessing was $44,000. The eight denied claims (for which services were provided,

but for which the physician and his staff concluded that documentation did not

exist) were ultimately worth $356.

• A critical care physician whose practice staffs a local hospital 24 hours a

day, and who actually advises the carrier on coding issues, is now going through

a post-payment audit. In years past, the carrier has cited this physician as providing laudable care; however, the carrier has denied the physician’s nighttime

critical care claims. Since his practice staffs the hospital 24 hours a day/7days

16

a week, it is absurd to suggest that patients do not require care in the middle

of the night. In fact, this 24/7 staffing resulted in the practice being singled out

as substantially reducing the mortality rates in this hospital.

• In his audit, 29 records were originally requested. His alleged overpayment

was extrapolated from approximately $7,000 to $340,000. To maintain his appeal rights, the physician agreed to an SVRS, which reduced the overpayment

projection to $220,000, which the carrier gave his practice 30 days to pay. This

demand for payment would have put this critical care practice out of business,

and would have denied hospital patients access to this type of intensive care,

well before this physician had exercised his appeal rights. The OIG recently released a report stating that HCFA had been incorrectly denying payments to

critical care physicians. Even so, this physician was still faced with this audit

and an alleged overpayment demand that would have shut down his practice.

We hope to work with members of this Subcommittee during the coming months

to advance MERFA through the House. These are incremental, modest reforms that

should provide immediate relief to physicians and providers who are extremely frustrated with the Medicare program. These changes would help ensure that patients

continue to have access to a wide range of physicians and providers in the Medicare

program in the future.

The following are other substantial AMA regulatory concerns upon which we urge

the Subcommittee to take action:

Office of Civil Rights Policy Guidance on Persons with Limited English Proficiency

The AMA strongly disagrees with the ‘‘policy guidance’’ issued last August by the

previous Administration that would require physician practices treating Medicaid

patients and other public program beneficiaries to incur, at their own expense, the

cost of hiring trained clinical interpreters to assist the physician’s patients who have

limited English proficiency.

The cost of retaining an interpreter vastly exceeds the Medicaid payment for an

office visit. As an example, one physician reported recently that he had to pay $237

to hire an interpreter for a non-English speaking patient, while his Medicaid reimbursement for the visit amounted to $38. Such a policy, which also prohibits using

the services of family members (who are often most familiar with the patient’s history), is an unfunded mandate which is likely to discourage physicians from treating

Medicaid patients. It will have the opposite results of its intention by exacerbating

problems with patient access to needed physician services. There are other more appropriate ways to deal with this issue which include, but are not limited to: demonstration projects with community and faith-based organizations, allowing family

members to serve in this capacity, and providing full federal reimbursement for

these translator services.

This is an instance where HHS has issued a new directive without any physician

or provider input. This new requirement will have substantial negative consequences on the population it was intended to aid. The AMA recognizes that valid

and important issues exist regarding patients with limited English proficiency, but

we have called upon the new Administration to withdraw this ill-conceived initiative

and to work with the physician and provider communities to fashion a desired workable solution.

Pending Regulations Expanding the Scope of the Emergency Medical Treatment and

Labor Act (EMTALA)

HCFA has been attempting to expand the scope of EMTALA to reach well beyond

hospital emergency departments to encompass non-emergency inpatient facilities

and hospital outpatient department care. This expansion will result in extremely serious implications for hospital-owned physician practices and outpatient facilities,

which may have to maintain emergency personnel on site as a result of these guidelines and impending regulations. There are many additional issues surrounding follow-up care and transfer requirements that may also be addressed by these new

guidelines.

Congress expressed serious concerns last year regarding the direction and impact

of EMTALA on the physician and provider community. In fact, in the Beneficiary

Improvement and Protection Act, Congress required the General Accounting Office

(GAO) to conduct an important assessment of EMTALA by May of 2001. The Office

of the Inspector General (OIG) also recently published a report on EMTALA which

urged the HHS to create a multidisciplinary group of public and private sector representatives to address issues associated with EMTALA. This type of communication between the agency and physicians and providers is essential prior to the Agency moving forward with the promulgation of new regulations. We urge the SubVerDate 11-MAY-2000 08:25 Sep 25, 2001 Jkt 074213 PO 00000 Frm 00020 Fmt 6633 Sfmt 6621 E:\HR\OC\A213.XXX pfrm09 PsN: A213
17

committee to evaluate carefully HCFA’s efforts in this regard and the attendant,

disproportionate burdens being placed on the country’s physicians and providers.

HHS Rules on Administrative Simplification Provisions of the Health Insurance

Portability and Accountability Act (HIPAA)

The AMA strongly supports the principles of standardization embedded in the

HIPAA Administrative Simplification provisions. However, we have urged the Administration to create a uniform compliance date of two years after the last Administrative Simplification rule is published (with exception for the individual identifier

rule, which may be significantly delayed).

These HIPAA provisions are intended to address the multitude of conflicting rules

and requirements imposed by public and private payers which result in physicians

spending more time on the administrative requirements of their practices and allowing them less time for patient care. Initially, the volumes of regulations that comprise these HIPAA provisions will entail significant financial and staff expenditures.

To minimize this burden and to realize the goals of administrative simplification,

an orderly implementation process will be needed. Physicians need to know which

aspects of their administrative practices need to be modified, as well as how and

in what manner this should occur. Adjusting to moving targets with rolling deadlines is neither cost effective nor efficient for small physician practices.

HCFA Final Rule on Hospital Conditions of Participation for Anesthesia Services

HCFA issued a Final Rule late last year that would eliminate physician supervision of nurse anesthetists from the Medicare/Medicaid Conditions of Participation

for hospitals and ambulatory surgical centers. The AMA strongly supports the position of the American Society of Anesthesiologists and the Anesthesia Patient Safety

Foundation that revision of the current physician supervision requirement should

be considered only after the development and review of current scientific outcomes

data. We are deeply troubled by the position of the Department that the elimination

of physician supervision can be presumed to be safe—without scientific proof—especially in light of the overall improvement of anesthesia safety over the past several

years during which physician supervision has been required. We believe that Medicare and Medicaid beneficiaries deserve better than a mere presumption of safety

that has no basis in the scientific literature.

We appreciate the opportunity to testify before the Subcommittee, and we are

heartened that the Subcommittee has held this hearing to examine the regulatory

burdens on physicians and providers. We look forward to working with you to craft

solutions to these issues, and we believe that MERFA would provide an effective solution to physicians’ most immediate concerns.

[The attachments are being retained in the Committee files.]

Chairwoman J

Mr. Mecklenburg.

OHNSON. Thank you very much, Dr. Corlin.

f STATEMENT OF GARY MECKLENBURG, PRESIDENT AND

CHIEF EXECUTIVE OFFICER, NORTHWESTERN MEMORIAL

HEALTHCARE, CHICAGO, ILLINOIS, ON BEHALF OF AMERICAN HOSPITAL ASSOCIATION

Mr. MECKLENBURG. Madam Chairman, Members of the Subcommittee, my name is Gary Mecklenburg. I am CEO of Northwestern Memorial Hospital, a large teaching hospital in downtown

Chicago. But I am here today as chairman of the board of the

American Hospital Association, representing the AHA’s nearly,

5,000 hospital and health system members. Thank you for the opportunity to testify.

To be clear, the American Hospital Association does not believe

that all regulations are bad. But we do think government regulations should do at least one of three things: improve the delivery

of health care services to patients, enhance patient safety, or facilitate the timely and appropriate distribution of Federal funds to the

18

health care system. Our experience, however, shows that regulations often do not achieve the desired effect. We are subject to

132,000 pages of rules that govern the Medicare and Medicaid program. That is 3 times the size of the IRS Code and its Federal tax

regulations.

In addition to Medicare and Medicaid, we face rules from an alphabet soup of Federal agencies, from OSHA and the EPA, to the

FDA, the FAA, and the IRS, just to name a few. We have a chart

before you that helps show the more than 30 agencies hospitals

must answer to.

Complying with standards of this many agencies and so many

regulatory tasks is no small task, especially in our small and rural

hospitals. For example, I am told that Memorial Hospital in

Gonzales, Texas, a 33-bed hospital, has 20 billing staff. At my hospital, I can tell you we spend more than 3,200 staff hours per

month sorting through Medicare billing requirements alone. In

total, we employ more than 100 full-time staff solely to ensure compliance with a variety of regulatory requirements, 26 of whom have

been added just this year. This includes new staff hired to work exclusively on the Health Insurance Portability and Accountability

Act of 1996 (HIPAA) and new Medicare outpatient billing requirements.

But the impact of excessive regulation goes far beyond finances.

As you know, the health care system is facing a critical, long-term

shortage of nurses and other patient care personnel. We also know

that one of the significant factors driving staff away from hospitals

and making health care a less attractive field for students is the

diminished time for bedside care and increasing responsibility for

paperwork and compliance. If we are going to meet the future

needs of an aging population, we have to get a scarce number of

caregivers back to what they were trained for and want to do, that

is, patient care.

Excess regulations also affect our patients and families who become frustrated and confused when we can’t explain billing procedures or why they must answer the same question over and over

again.

To tackle these issues, the AHA Board of Trustees formed a 30-

member advisory committee. Allow me to share a few of our suggestions with you now.

First, implementation of regulations should be better coordinated. Hospitals have had to implement too many regulations at

the same time that have required wide-ranging impact on our operations. Therefore, we recommend enhancement of the duties of the

Office of Information and Regulatory Management at OMB to allow

for the more orderly release of regulations to ease these transitions.

Second, hospitals must be able to challenge attempts by HHS to

overstep their authority. Today, if hospitals wish to seek judicial

review of a regulation, they must knowingly violate Medicare law

and risk exclusion from the program. That is too high a price to

pay. We are not looking to bring every disagreement to court, but

when rulemaking procedures are not followed, hospitals deserve

due process. Congress should enact legislation to provide hospitals

and other providers with a specific opportunity to appeal decisions

made by HHS on questionable Medicare policies.

19

Third, MedPAC should be required to include hospitals’ compliance costs when recommending payment rates. Complex regulations are an increasing hospital cost. An AHA-commissioned study

found that the cost of implementing HIPAA could cost as much as

$22.5 billion over 5 years for just three of the rule’s proposed provisions.

Fourth, paperwork requirements should be streamlined. For example, patients must fill out the 25-question Medicare Secondary

Payor questionnaire every time they come to the hospital. We recommend altering this standard to require completion of the MSP

every 90 days for recurring services.

Finally, Congress should enact the Regulatory Fair Warning Act,

introduced by the 106th Congress. This bill would help stop the enforcement of ambiguous and conflicting regulatory pronouncements.

Though most of the examples I have given today come from my

hospital’s experience, I believe I speak for hospitals across the

country. We need to carefully examine the impact regulation is

having on our organizations. We pledge to work to make the health

care system better for patients, but need the assistance of the regulatory agencies and Congress to achieve this goal.

Thank you again for the opportunity to testify, and I look forward to answering your questions.

[The prepared statement of Mr. Mecklenburg follows:]

Statement of Gary Mecklenburg, President and Chief Executive Officer,

Northwestern Memorial Healthcare, Chicago, Illinois, on behalf of American Hospital Association

Madam Chairman, I am Gary Mecklenburg, president and CEO of Northwestern

Memorial Healthcare in Chicago. I am here today on behalf of the American Hospital Association’s (AHA) nearly 5,000 hospital, health system, network, and other

health care provider members. We are pleased to have the opportunity to testify on

the complexity and burden of Medicare’s regulations on providers.

Though Northwestern Memorial Hospital’s history dates back to the mid-1860s,

the Northwestern of today was created in 1972 when two leading Chicago hospitals,

Wesley Memorial and Passavant Hospital, consolidated their services. Today, Northwestern Memorial is the primary teaching hospital for the Northwestern University

Medical School and enjoys a national reputation as a strong, well-managed organization. The hospital is staffed by more than 5,000 caregivers, in addition to 1,200

physicians in 30 medical and surgical specialties, all dedicated to the organization’s

mission of putting ‘‘Patients First.’’ In 2000, Northwestern Memorial provided care

for more than 304,000 outpatients and admitted more than 35,000 patients. The

hospital has a diverse patient population in its urban locale, serving patients with

many ethnic and socioeconomic backgrounds.

MAZE OF REGULATIONS

As a large urban hospital, Northwestern Memorial is well acquainted with the

maze of regulations Medicare and Medicaid requires us to comply with on a daily

basis. Government regulations should improve the delivery of health care services

to patients, enhance safety, and facilitate the timely disbursement of federal funds

in the health care system. However, regulations can also have the opposite effect.

Regulations that miss the mark can force a wedge between patients and their caregivers. They divert limited resources to administrative paperwork and create a morass of complicated and duplicative requirements that confuse those they are supposed to guide.

Allow me to share with you the regulatory maze that hospitals, health systems

and other providers must navigate every day. In addition to Medicare and Medicaid,

hospitals and health systems face laws, regulations and guidance from the Occupational Safety and Health Administration (OSHA), the Environmental Protection

Agency (EPA), the Food and Drug Administration (FDA), the Federal Aviation Administration, Federal Communications Commission, the Internal Revenue Service

(IRS), and other regulatory agencies. The attached chart depicts the web of reguVerDate 11-MAY-2000 08:25 Sep 25, 2001 Jkt 074213 PO 00000 Frm 00023 Fmt 6633 Sfmt 6621 E:\HR\OC\A213.XXX pfrm09 PsN: A213
20

lators to whom hospitals must answer. There are at least 30 entities issuing some

type of rules, regulations or instructions to hospitals.

The Mayo Foundation estimates that we are subject to 132,720 pages of rules that

govern the Medicare and Medicaid programs—that’s three times the size of the IRS

Code and its federal tax regulations. Besides federal regulations, hospitals must

comply with state and local regulations, which can be complex and costly. For example, hospitals in California are required to meet sweeping seismic safety regulations

that require hospitals at risk for collapse during an earthquake to be retrofitted, rebuilt or closed by 2008. These requirements are estimated to cost $24 billion.

Complying with this many pages of regulation is clearly no small task. In fact,

some rural hospitals have almost as many billing clerks as they do beds. In

Gonzales, Texas, Memorial Hospital has 33 beds and a billing staff of 20 employees.

At Northwestern Memorial, our patient financial services department spends more

than 3,200 staff hours per month, or 38,400 staff hours per year sorting through

Medicare billing requirements alone. This year, Northwestern Memorial Hospital is

adding 26 new FTEs solely to ensure compliance with regulations. This includes

new staff hired to work exclusively on the Health Insurance Portability and Accountability Act (HIPAA) and our staff devoted to Quality Strategies and Management. Our estimated costs for these activities thus far, excluding space and support

expenses, is nearly $5 million annually.

Hospitals are drowning in this sea of government rules and regulations. Lost is

a sense of fairness, due process and common sense. And the real victims are patients, because regulatory burdens are impeding the efficient delivery of health care.

Hospitals are forced to direct more and more resources to paperwork—resources

that could be better used on direct patient care. It is time to make the regulatory

process make sense.

We are not the only ones who feel this way. Health and Human Services (HHS)

Secretary Thompson echoes our concerns. In his confirmation hearings, he expressed

strong views about Medicare’s regulatory overload. ‘‘Patients and providers alike are

fed up with excessive and complex paperwork . . . Complexity is overloading the

system, criminalizing honest mistakes and driving doctors, nurses and other health

professionals out of the program,’’ he said. It is important to note that the regulatory burden is a contributing factor to the health care staff shortage the United

States is experiencing—nurses, doctors and technicians are leaving health care professions in pursuit of other opportunities.

Earlier this year, the AHA Board of Trustees formed a 30-member Advisory Committee on Regulatory Reform and Relief to address the problems that hospitals face

in trying to comply with federal rules and regulations. To date, the AHA has identified five areas for process reform, and four instances for refinement of current regulations. Allow me to share these suggestions with you now.

PROCESS REFORMS

Improve coordination in the release of federal regulations. First, we urge

the government to better coordinate the release of regulations. In 2000, hospitals

received numerous complex regulations from the Health Care Financing Administration (HCFA), OSHA, HHS, EPA and FDA, several of which required sweeping

changes to our information systems. For example, to implement prospective payment systems for Medicare skilled nursing care, home health care, outpatient care,

and transfers of inpatients, hospitals have had to make significant changes to their

patient data collection, coding and billing systems. This is in addition to other regulations hospitals are currently in the midst of implementing, such as uniform electronic transactions standards, privacy standards and prospective payment for rehabilitation services. Such extensive and frequent systems updates are especially troublesome for small and rural hospitals that have limited information systems staff.

We believe that the implementation of regulations should be better coordinated

in and amongst the various federal agencies. To that end, we recommend enhancement of the duties of the Office of Information and Regulatory Management at the

Office of Management and Budget to allow for the orderly release of regulations so

that providers’ administrative and information systems are not overwhelmed.

Allow providers their day in court. Hospitals must also be able to challenge

in federal court any attempt by HHS to overstep its authority or to enforce questionable policy in the Medicare program without following established rulemaking procedures. Today, if hospitals wish to seek judicial review of a regulation, they must

knowingly violate Medicare law and risk exclusion from the program. That’s too

high a price to pay for the opportunity to question rules that so fundamentally affect

our operations. It’s interesting to note that regulations promulgated by any other

agency permit a challenge under the Administrative Procedures Act. Hospitals are

not looking to bring every disagreement to court. However, the law requires that

21

HHS issue a regulation and act within certain parameters. When these procedures

are not followed, hospitals deserve due process in court. Therefore, Congress should

enact legislation to provide hospitals and other providers with a specific opportunity

to appeal decisions made by HHS with respect to questionable Medicare policy.

Require MedPAC to include hospitals’ compliance costs when recommending payment rates. The cost of caring for patients continues to increase as

a result of complex regulations such as HIPAA and greater technological advances

in such areas as pharmaceuticals and blood products. An AHA-commissioned study,

looking at hospital costs alone, found that the cost of implementing HIPAA could

be as much as $22.5 billion over five years, for three of the rule’s proposed provisions. In addition, new advances in blood filtration are expected to increase the price

of blood by 50 percent.

The costs incurred by hospitals to comply with federal regulations and standards

are simply part of our costs to provide care to patients. Therefore, MedPAC should

be required to annually aggregate the estimated impact of a regulation on providers’

payments and costs, and to incorporate this aggregated impact into the Medicare

inflationary market basket update.

Consult health care professionals on rule development. Early in the development process, regulatory agencies should consult those affected by a regulation—

the caregivers—so practical implementation issues and problems can be identified

and resolved before a particular regulatory approach is locked in. An example of this

problem is last year’s ambitious implementation schedule of the outpatient prospective payment system. Despite providers’ warnings, late changes to the implementation caused updated software to be unavailable in time. Fiscal intermediaries (FIs)

were then unable to process outpatient claims for more than six months. For Northwestern, this meant $2.3 million in late reimbursement.

To facilitate improved rule development, agencies should be required to publicly

release databases, cost estimates, assumptions and methodologies at the time notice

is given of a proposed rule. Regulated entities could then conduct their own studies

and analyses, and possibly suggest alternate regulatory models that would be more

appropriate. We fully support Secretary Thompson’s recent recommendation that

HCFA pilot test new regulatory measures for feasibility and workability before requiring them of providers nationwide.

Enact the Regulatory Fair Warning Act. Today’s highly regulated health care

environment demands that federal rules and regulations are issued in a timely manner, and made available and understood not just by those who are regulated by

them, but also by those who enforce them. Passage of bipartisan legislation similar

to the Regulatory Fair Warning Act, introduced by Rep. George Gekas (R–PA) in

the 106th Congress and reported favorably by the House Judiciary Subcommittee

on Commercial and Administrative Law, would help stop ambiguous and conflicting

regulatory pronouncements. Specifically, the Regulatory Fair Warning Act would

prevent federal agencies from penalizing businesses or entities for alleged violations

if:

• the rule was not published in a public document;

• the agency did not give fair warning that a type of conduct is prohibited or required; or,

• the agency had already given specific guidance that contradicts an inspector’s

claim that the regulation had been violated.

CURRENT REGULATIONS IN NEED OF REFINEMENT

Streamline paperwork. Much time, effort and expense could be saved if paperwork requirements were streamlined. For example, patients must fill out the 25-

question Medicare Secondary Payor (MSP) questionnaire every time they come to

the hospital for recurring services, such as chemotherapy or blood work. Altering

this requirement to require completion of the MSP every 90 days for recurring services would be a substantial improvement. We commend Rep. Saxby Chambliss (R–

GA) for his efforts in convincing HCFA to no longer require a MSP questionnaire

be completed for every outpatient rehabilitation therapy encounter. However, the

agency has yet to implement this improvement and some FIs still require completion of the MSP.

In addition, hospitals to which doctors’ offices forward specimens for laboratory

analysis are required to contact a beneficiary whose specimen was submitted, and

collect information about possible secondary insurance coverage. Beneficiaries often

react with suspicion when contacted by a hospital lab asking them personal questions. They naturally assume that their physician is handling the lab tests. Independent labs are not required to collect this information. Hospital labs should be

treated no different than independent laboratories providing the same service.

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Fix the costly and needlessly burdensome HIPAA medical privacy regulation. Hospitals are encouraged by Secretary Thompson’s decision to re-open the privacy rule for comments and urge him to suspend the effective date and fix the rule.

We believe a better privacy rule would benefit patients and providers alike. Many

provisions in the final rule and the aggressive implementation schedule were written without consideration of the impact on patient care and the high costs of compliance. As I mentioned earlier, an AHA-study looking at hospital costs alone, found

that the cost of only three key provisions of the proposed rule could be as much as

$22.5 billion over five years.

The AHA has long supported the development of uniform national privacy rules.

However, HIPAA’s privacy rule, as currently written, is overly burdensome and its

implementation schedule too aggressive. We believe concerns about the rule’s com- plexity, costs and implementation timetable must be addressed prior to the rule’s effective date.

Emergency services needed to stabilize patients should not be denied

payment. As a participating provider in the Medicare program, Northwestern is required to screen any individual who comes to the emergency department to determine whether that person has an emergency medical condition or is a woman in

active labor and, if so, to stabilize him or her. To adequately screen and stabilize

the patient, we often employ ancillary services that are routinely available to the

emergency department. Medicare sometimes denies payment for the services furnished in the emergency department because they exceed the local medical review

policies (LMRPs) or utilization guidelines for coverage and frequency established by

the Medicare fiscal intermediaries. However, we are prohibited from billing beneficiaries for such services unless we notify patients in advance that the service may

not be covered (advanced beneficiary notice). Conversely, we cannot notify patients

in advance because the Inspector General interprets this advance notification of possible non-coverage as a delay in screening and stabilization. Hospitals, caught in a

Catch-22, are often left with an unpaid bill for emergency care.

To reconcile these conflicting requirements, services furnished in the emergency

department should be exempt from denials based on LMRPs, and Medicare should

pay for all services necessary to screen and stabilize patients.

Limit data collection to what is necessary for payment and quality. Prospective payment systems should be simple, predictable and fair. Unfortunately, the

patient assessment tools for skilled nursing, rehabilitation and home health are far

from ideal. In fact, HCFA has devised three separate instruments, the Outcome and

Assessment Information Set (OASIS), Minimum Data Set (MDS), and MDS–PAC,

which collect much extraneous information, lack statistical reliability, and are extremely burdensome on hospitals. We concur with MedPAC’s recommendation in its

annual report to Congress (March 2000) that ‘‘the secretary should review all postacute data collection requirements. Each item should have an explicit rationale, and

only information needed for accurate billing, risk adjustment, or quality measurement should be required.’’

COMPLIANCE COSTS ARE HIGH

Complying with this growing mountain of rules and regulations comes with a high

administrative price tag.

At Northwestern Memorial, we take corporate compliance seriously. We have committed a great deal of time and resources to ensure that we follow state and federal

regulations. We have a corporate compliance department headed by a corporate

compliance officer, who is also an experienced health care attorney. The hospital’s

corporate compliance committee includes 10 senior officers who meet monthly to discuss regulatory changes and compliance initiatives. We have an internal audit department with a staff of six, who actively focus an increasing amount of time on

Medicare-related compliance issues. Northwestern employs several outside consultants to help us prepare for review by HCFA and other agencies. In addition, we

have numerous internal cross-functional task forces dedicated to ensuring compliance with regulations covering the Emergency Medical Treatment and Active Labor

Act (EMTALA), coding, laboratory tests, patient observation and employee education, among others.

Besides the known expense of time and resources, burdensome regulations incur

hidden costs—a prime example being the toll they take on employee morale. People

choose to work at hospitals because they want to help others. The current regulatory environment buries dedicated employees in bureaucratic paperwork. In today’s tight job market and shrinking caregiver workforce, we face employee exodus

to jobs that involve less red tape and hold the potential for greater job satisfaction.

Constantly training and educating new staff in the intricacies of these burdensome

regulations is another hidden cost that hospitals must bear.

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CONCLUSION

Hospitals’ first priority is to provide high-quality care to our patients. Many regulations contribute to our efforts to provide quality patient care, but others simply

drain resources away from that goal, placing a financial strain on providers.

Madam Chairman, we all agree the health care industry should be regulated.

There are valid reasons why HCFA, the Joint Commission on Accreditation of

Healthcare Organizations, the IRS and OSHA should monitor hospitals’ activities.

However, the strain of 30 or more organizations issuing thousands and thousands

of pages of often conflicting and complex rules, instructions and laws is hurting the

health of our nation’s hospitals. There is no coordination among agencies that regulate providers, and rules appear to be issued in a vacuum with no regard to the fiscal consequences of compliance and the impact on our daily operations.

Though most of the examples I have given today come from Northwestern Memorial’s experience, I speak for hospitals across the country, large or small. The AHA

is ready and willing to continue our work with HHS, HCFA and other agencies to

improve the way rules and regulations are promulgated and implemented. We

pledge to do all we can to help make the regulatory system work better not just

for hospitals and health systems, but also for the patients and communities we

serve. But we need the assistance of the regulatory agencies and Congress to

achieve this goal.

I thank the Committee again for the opportunity to describe the regulatory difficulties hospitals face. I welcome any questions you may have.

Chairwoman J

Ms. Ousley.

OHNSON. Thank you very much, Mr. Mecklenburg.

f STATEMENT OF MARY K. OUSLEY, SENIOR VICE PRESIDENT,

HEALTH SERVICES, MARRIOTT SENIOR LIVING SERVICES,

BETHESDA, MARYLAND, ON BEHALF OF AMERICAN HEALTH

CARE ASSOCIATION

Ms. OUSLEY. Good morning, Madam Chairman and Members of

the Subcommittee. My name is Mary Ousley, and I am here today

24

on behalf of the American Health Care Association. I have been in

the caregiving profession for nearly three decades. I am a registered nurse and a licensed nursing facility administrator.

I would like to commend you, Madam Chairman, on your vision

for long-term care and for taking the time to know our profession

and the care needs of the beneficiaries we serve.

I have worked both formally and informally with the Health

Care Administration for many years, representing the long-term

care profession. I am not here to bash HCFA. I consider the individuals that I have worked with to be not only my colleagues but

also my friends.

However, there is a storm approach long-term care. We have a

demographic crisis brewing, and we need to address that today.

The baby boomers are retiring, the supply of care givers is dwindling, and recruitment has become virtually impossible.

Financially, nursing facilities are treading water. We are facing

dual fronts with government financing care at less than cost and

a staffing crisis of epidemic proportions. A primary contributor to

this crisis is the regulatory oversight system. The system demoralizes care givers, burdens them with endless paperwork, and perhaps far, far more importantly, affords the long-term care professional very little respect for their hard work and dedication to the

seniors of America.

I am not here today to ask for less government. I am here to ask

for smarter, more accountable government.

We all know that however well intended this system for oversight for nursing facilities has been, it has failed to measure or improve quality in our Nation’s nursing facilities. What was originally

envisioned by the Institute of Medicine in 1986 to be residence-centered, outcome-oriented, and consistent, there is little resemblance

today with what care givers deal with.

What has evolved is a regulatory system that is subjective, process oriented, a snapshot that focuses on punishment. After three

decades in this profession, I can absolutely tell you that we cannot

punish our way to improvement. We can only improve if we do that

internally and we do it collaboratively.

Let me be clear about one thing. Chronic poor providers, if they

are unable or unwilling to meet the standards, should be terminated from the program. But with such a failed system, how can

we know what is the right action?

The questions before us are: What is the role of government in

quality? And what reforms would garner the most meaningful improvements?

Number one, we believe that the Health Care Financing Administration must adopt new technologies that create an objective system that provides useful, real-time, accurate information to consumers and providers alike. Such technologies are being used today

by health care providers to improve our quality of care. The bottom

line is, as quality measurement has improved, HCFA’s inspection

system has stagnated.

I would like to highlight a few specific recommendations. Number one, as we move forward, allow and create a collaborative system so providers and regulators can work together. Investigators

and surveyors must respect the parameters of clinical practice for

25

both physicians and nurses. Prevent HCFA from closing nurse aide

training programs unless the deficiencies are tied directly to those

programs. And implement a fair and impartial system of appeals

that will dispose of grievances in an equitable way, quickly impose

citations that are merited, and do away with those that are not.

Allow additional care givers that can demonstrate competency to

perform such tasks, such as feeding and hydration, to meet the

needs of residents under the direction of a registered nurse. And

please stop the punitive approach that is driving care givers and

professionals out of long-term care and help us facilitate a system

back to what was originally envisioned of residence-centered.

Second, as we look to the future, I think that the Health Care

Financing Administration should grant waivers for States that

have innovative ways to improve better oversight.

My third recommendation for reform is broader restructuring

and, yes, focusing on resources. We do not believe that the Health

Care Financing Administration today has all the resources that

they need to get the job done as they are expected to do. And we

believe as we move forward that it is imperative that we move toward one primary objective: that policy and oversight of providers

be housed together with a distinct philosophy of partnership.

I have confidence that as we all work together in this new spirit

of partnership, we can establish a fresh start and provide positive

dialog with the interests of patients always first.

Thank you very much for the opportunity to testify.

[The prepared statement of Ms. Ousley follows:]

Statement of Mary K. Ousley, Senior Vice President, Health Services, Marriott Senior Living Services, Bethesda, Maryland, on behalf of American

Health Care Association

Good morning Madam Chairman, and Members of the subcommittee. Thank you

for inviting me here today to provide perspective on reform of the Health Care Financing Administration. I am honored to be here.

My name is Mary Ousley, and I am here today on behalf of the American Health

Care Association. The American Health Care Association is a non-profit association

representing more than 12,000 non-profit and for-profit skilled nursing, assisted living, subacute facilities, and facilities treating the developmentally disabled nationwide.

Let me briefly tell you about myself. I have been in the caregiving profession for

nearly three decades. I am a registered nurse, a licensed administrator, and someone with first-hand experience on the front lines of caregiving. I am not here to beat

up on HCFA. I have worked with them both informally and formally, in many capacities, and on many issues. However, it is critical that we enlist them as partners

in serving the beneficiaries through a more active role in quality improvement.

I would like to commend you, Madam Chairman, on your vision for long term

care, and for taking the time in the last few years to roll up your sleeves and get

to know the intricacies of the care needs—and care environment—of our nation’s frail, elderly and disabled population.

There is a storm approaching in long term care. We have a demographic crisis

brewing that, if not addressed today, will severely threaten the quality and availability of care for the baby boomers who are now entering retirement. While this

generational bubble begins to strain the long term care system, the supply of caregivers dwindles to crisis levels, and the oversight system serves to promote distrust

of providers, demoralizes caregivers, and scares families.

Financially, nursing homes are treading water. We appreciate the Medicare PPS

adjustments you made in BIPA last year because these adjustments are providing

some stability to our Medicare patients. But it is imperative to note that nearly 70%

of our residents are Medicaid beneficiaries, and that is where our real financial

trouble lies.

You spoke eloquently a few short month’s ago about the state of caregiving in this

country, and your words have been appreciated by those hard working women who

26

perform a very difficult and demanding job. You said, ‘‘We’re going to drive people

out of the caregiving environment—because they came there to give care, not to do

paperwork.’’ All I can say is, how right you were. We are facing a staffing crisis of epidemic

proportions in every part of the United States. Turnover rates in our profession are

more than 80%. Recruitment is nearly impossible. This crisis is compounded exponentially by a regulatory system that forces caregivers to focus an extraordinary

amount of time on cumbersome paperwork and complex, confusing regulatory requirements.

This burdensome system is having a negative impact on patient care by driving

good providers out of the business. Caregivers who enter this profession today quickly find themselves spending more time on paperwork describing their care, and justifying their actions on behalf of patients—than on actually delivering care.

I am not here today to ask for less government—I am here today to ask for smarter, more accountable government—government that works in the best interest of

promoting and maintaining quality care for beneficiaries.

Since the Institute of Medicine (IOM) study in 1986 and the Nursing Home Reform Act of 1987 (OBRA ’87), nursing facilities’ daily operations have been inextricably linked to the Health Care Financing Administration (HCFA). The system

of oversight that exists today—though well-intended—grew like a vine, and evolved

into an ineffective bureaucracy.

The result of this evolution is that what was originally envisioned by the IOM

to be a resident-centered, outcome-oriented, consistent system of oversight, was implemented in a manner that meets none of those criteria, and in many cases, does

just the opposite.

Today, providers face a system of oversight that is an entirely subjective, processoriented snapshot inspection system that focuses on punishment—not quality improvement. This system bears very little resemblance to what OBRA ’87 envisioned.

The current system is susceptible to political forces, and providers are caught in

the crossfire. The result of the current political climate is a type of ‘‘catch-22’’ sce- nario, in which a low number of citations is interpreted as poor oversight, while a

high number of citations are seen as poor care. Clearly the incentive for inspectors

is to cite more deficiencies.

The subjectivity of the survey system makes it unpredictable. This means that no

provider, even if they have done everything correctly, can predict whether they will

receive citations on any given inspection. This helps explain the wide variation in

the charts attached to my testimony.

The Institute of Medicine (IOM) in their December 2000 report ‘‘Improving the

Quality of Long Term Care,’’ discovered that ‘‘forty concurrent surveys in ten states

found that state surveyors were inconsistent in detecting problems related to outcomes of care . . .’’, and that ‘‘At the same time, states surveyors also cited some

facilities for deficiencies that appeared to be a function of their high prevalence of

seriously impaired residents rather than poor quality care.’’ In our view, a system

that consistently fails to measure quality has little hope of improving it.

Let me again be very clear about one point: We are not talking about less regulation, we are talking about better, more intelligent regulation.

We need regulation that holds, as its ultimate goal, the improvement of care quality we provide to our frail, elderly and disabled patients. We absolutely believe that

the underlying concepts in OBRA’87 are sound. Yet, we as providers know that it

has been the implementation and evolution of that statute— through HCFA regulation and related policy— that has missed the mark.

Dr. William Scanlon of the GAO, when asked by Senator Grassley last September

if the quality of the surveys and the data derived from them is reliable enough to

make judgements about the level of quality provided in nursing homes, answered:

‘‘I am afraid it is not.’’

Over four years ago, HCFA itself, when writing about the same subjective inspection system used in hospitals wrote, ‘‘. . . there are no data supporting the link between structure and process requirements, and positive patient outcomes. The combination of process-oriented requirements with an enforcement approach that focuses on identifying providers that do not have the required structures and procedures in place, no longer represents the best available method for assessing and improving hospital quality of care.’’

I would ask then, how could it represent the best available method for assessing

and improving nursing home quality of care?

So, the questions before us are: What is the role of government in quality? What

reforms would garner the most meaningful improvements? And, how can we ensure

these reforms will provide continuous improvement in quality of care while protecting residents?

27

First, let me state that chronic poor performers that are unwilling or unable to

improve the level of quality they provide should be closed. But this is extremely

hard to judge because as the GAO testified, our oversight system does not provide

a reliable measure of quality, only compliance with process requirements. It also

does not reward excellence in caregiving with incentives to providers that achieve

great outcomes.

HCFA must adapt to new technologies that create an objective system that provides useful, accurate information to consumers and providers alike.

In many states, the oversight bodies that contract with HCFA to inspect nursing

homes have applied for waivers from HCFA to use modern technology in quality

measurement, to use outcome measures, or provide a collaborative approach to quality improvement. Unfortunately, all of these waivers have been denied.

The American Health Care Association (AHCA) has also worked toward meaningful improvement of the oversight system for years. We have developed software that

gives providers information on their performance on key ‘‘quality indicators’’ (QIs)

measured against national and local benchmarks. As opposed to the current snapshot, this system monitors actual resident conditions continuously over time. We

have also developed customer satisfaction tools that measure residents’ and families

satisfaction with the care received.

However, these efforts have been stymied by HCFA’s refusal to share the aggregate data (MDS) that each provider transmits to them electronically every month.

Members of this subcommittee have called HCFA asking them to provide these data

to facilities to improve quality internally. We have even filed a Freedom of Information Act (FOIA) suit to get this quality information, with no response. This makes

little sense, and is emblematic of the overall problem where HCFA can not move,

and retards quality improvement.

The bottom line is that as quality measurement technology has advanced, and

HCFA’s inspection system has stagnated—As a result it has become out of date, a

more subjective and more punitive system.

It is imperative that the focus of HCFA oversight be changed to one of quality

improvement in which government becomes a true stakeholder in improved quality

for beneficiaries.

We urge you to adopt three types of reform of nursing home oversight:

One is making the much-needed incremental changes in the current regulatory system.

The second is to allow the regulators in the states to make advances in oversight without facing certain denial by Washington—to approve state waivers.

The third is broader restructuring of the role and responsibilities—and resources—of the HCFA. Yes, we believe they do not have adequate resources or

training to do what is expected of them adequately.

With regard to the incremental improvements to the current system, the following

are key areas in which minor changes could be made that would improve the quality

of regulation, and also the quality of care we can provide. Below are 10 recommended steps:

1. Allow Collaboration—Create a collaborative system so providers and regulators can work together to address problems. In such a system, providers

would retain responsibility to fix problems, but surveyors would play a supportive role to help providers achieve improvements. Currently, when surveyors

find a problem, they are not allowed to discuss possible causes, provide technical assistance, or to suggest solutions. This ‘‘no collaboration’’ policy is an obstacle to ongoing improvements in quality. This is directly opposite of the approach taken with other providers such as clinical laboratories. Solution: Guidance must be given to inspectors through the State Operations Manual (SOM)

to encourage collaboration and compliance-assistance toward quality improvement.

2. Allow providers to follow physician orders—All too often, providers

are cited for deficiencies for simply following the orders of the residents’ physician. Nursing home inspectors, who are rarely physicians and do not have medical training, often cite providers for giving medication as prescribed, but that

the inspector might not understand is appropriate and, in the physician’s judgement, is in the best interest of the patient. This is the only instance in health

care where less-skilled personnel are allowed to second guess the orders of physicians, and nursing home care providers get punished. This system has forced

providers to choose between government fines and the well being of those for

whom they care. Most of the time, they pay the fine and protect the resident,

but this system must be changed. Providers need to be allowed to follow the

patients’ doctor’s orders without fear of citation.

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3. Prevent HCFA from closing Nurse Aide Training Programs—We are

currently operating in a severe shortage of nursing home workers. This shortage

is predicted to rapidly escalate until there are far fewer caregivers than needed.

In this environment, HCFA is terminating the in-house nurse aide training programs for facilities with certain deficiencies or enforcement actions (even if completely unrelated to the training programs themselves). Clearly this ‘‘punishment’’ only hampers the providers’ ability to fix the problem and hire and train

adequate staff to improve quality. Termination of Nurse aide training must only

be an option when there is a deficiency directly related to the training program

itself.

4. Implement a fair and timely appeals process—Currently, providers

who want to dispute citations they believe have been issued in error first appeal

to the agency that issued the citation. This process is not objective, and more

often than not, a decision is rendered against the facility. Next, they must go

through an administrative process that takes, on average, 1 year and 2 months.

If appealed further, the next level, the Departmental Appeals Board (DAB)

takes, on average, 1 year and 6 months. We must establish a fast and impartial

system of appeal that will dispose of grievances in an equitable way, quickly

impose citations that are merited, and dismiss those that are not.

5. Enlist Resident Assistants—Allow additional caregivers to help meet

resident’s daily needs. Currently, HCFA allows untrained volunteers to perform

nursing-related tasks, but the paid staff of the facility can not help dress, feed,

or even push a wheelchair (even under direct RN supervision) unless trained

to become a full CNA. During this severe shortage of caregivers, and amid concern about nutrition and hydration, we need every caring hand we can find to

help meet resident needs. Legislation is being drafted by Members of this Committee to address this problem through a demonstration program, and we look

forward to working with you to pass this into law.

6. Remove disincentives to improving facilities—Allow new owners to

improve facilities without threats of closure due to previous problems. Today,

a new owner who purchases a troubled facility inherits the track record, fines,

enforcement penalties, and the termination status of the previous owner. In

some cases, facilities have been closed within months of the takeover due to

compliance problems that were cited before the turnover. This policy discourages companies from taking over problem homes and improving care. The government should work towards improving care for residents—not prevent it. A

positive step forward would be to allow a new owner to start with a chance to

improve care.

7. Spend fine money improving care for residents—Funds collected from

nursing facilities through fines for care problems should be spent on fixing the

problem, not sitting in state and federal coffers ready to be diverted to other

purposes. In the last 21⁄2 years, funds collected from nursing facilities by states

alone amounted to over $20 million—and this does not include a large amount

of federal fines. The overwhelming majority sits in state coffers and is not spent

on the improvement of care. This is a significant amount of money to take from

the facilities that need it most, and unconscionable to allow it to go unused for

care improvement. The federal government should mandate that fines collected

from troubled facilities be spent improving care in those facilities. HCFA must

review and find appropriate citation levels for fines. At what level is correction

less desirable than punishment?

8. Prevent mandatory termination—Current law dictates that if a facility

has been cited for substantial deficiencies, the clock starts running, and they

must be found in compliance within six months or face mandatory termination

of their Medicare certification. This may sound reasonable, but the effect has

been that homes fix all problems cited in the initial survey, but have very minor

new deficiencies in follow-up surveys—for which they are terminated. Most

homes cannot remain open without being paid, and therefore residents are

forced to give up their home. The statute must be changed to allow providers

and regulators to consider other options for the residents’ benefit, and to give

residents and their families more voice in those decisions.

9. Prevent the labeling of Chains—It is inappropriate to label all facilities

that have common ownership as poor performers just because of the shortcomings of one facility. This is misleading to consumers and in no way fosters

care improvement. ‘‘Guilt by association’’ should not be tolerated, nor allowed.

With regard to the second issue, I can be brief and keep it simple. The oversight

system works best when people closest to the beneficiary have a stake in the decision making process. HCFA does have the authority to grant Medicaid waivers to

states, and should approve good waivers. HCFA should also be granted similar auVerDate 11-MAY-2000 08:25 Sep 25, 2001 Jkt 074213 PO 00000 Frm 00032 Fmt 6633 Sfmt 6621 E:\HR\OC\A213.XXX pfrm09 PsN: A213
29

thority for oversight of dually-certified providers who serve Medicare beneficiaries

as well.

Lastly, in terms of broader HCFA restructuring, we feel it is imperative that any

new structures put in place be targeted toward achieving two major goals. The first

is that policy and oversight for providers of care be housed together, but with a distinct philosophy of partnership. That government be a real stakeholder, accountable

with providers and dedicated to working collaboratively to improve quality for beneficiaries.

The second major goal must be that the continuum of long term care be made

more seamless so that the mass of baby boomers needing benefits can access services in a clear, rational manner. As the needs of seniors shifts the benefits should

follow the individual without excessive paperwork and hand-offs between regulators.

In the final analysis Madam Chairman, it is imperative that the HCFA of the future have the resources and the structure to meet the needs of the millions of retiring seniors as the system meets the challenge of this demographic boom.

I have confidence that government and health care providers seek the same goal

of ensuring quality care. With a new Administration, new leadership at HHS,

HCFA, and even right here on this Committee, we look forward to establishing a

fresh start, and a new, positive dialogue in which caregiver and regulator alike always puts the interests of patients first.

Thank you.

30

Chairwoman J

Ms. Wilson.

OHNSON. Thank you very much.

f STATEMENT OF SUSAN WILSON, R.N., M.P.H., VICE PRESIDENT,

CLINICAL OPERATIONS, AND CHIEF OPERATING OFFICER,

VISITING NURSE ASSOCIATION OF CENTRAL CONNECTICUT,

INC., NEW BRITAIN, CONNECTICUT; PRESIDENT, BOARD OF

DIRECTORS, CONNECTICUT ASSOCIATION FOR HOME CARE;

AND MEMBER, NATIONAL ASSOCIATION FOR HOME CARE

Ms. WILSON. Thank you, Madam Chairman, Representative

Stark, and Committee members, for inviting me to present testimony today on behalf of Medicare beneficiaries and their home

health providers. I am Susan Wilson, vice president of clinical operations for VNA of Central Connecticut, president of Board of Directors for the Connecticut Association for Home Care, and a Member

of the National Association for Home Care.

In preparing for this testimony, we provided you with extensive

written testimony in reference to the issues that face us today. If

you refer to Attachment 1, it references the 8,000 pages of regulation under which home care is presently working, which was published just between June 1999 and March of this year. It primarily

addresses the two most significant regulations impacting home

health care today: the Outcome Assessment Information Set, or

31

OASIS, and the implementation of the prospective payment system.

I would like to just highlight a few areas, one of which, obviously, is the overall concern for the prospective payment system.

The stringent payment limits that we experienced under an interim payment system resulted in the closure of approximately

3,400 agencies, and NAHC’s preliminary PPS reveals that 45 percent of the remaining agencies are now reporting losses and difficulty in billing. It is understandable that with any new system

there are going to be problems; however, the extent of the problems

have created a huge impact on cash flow and an overwhelming environment of frustration. We literally have requested hundreds of

clarifications from HCFA in reference to the regulations, and essentially they have remained unresolved.

Under PPS, we are mandated to refer to a common working file

which was intended to provide us with information regarding the

beneficiaries and the benefits they have utilized. It is, however,

cumbersome to use, as some providers do not have access to the

common working file, and the information that is there is frequently difficult to access, untimely, and inaccurate.

Home health agencies also have difficulty in processing claims.

When subject to medical review, they may be denied in part or in

full, and HCFA has issued no instructions for what we are to do

with partial denials. Also, there are errors which occur, human errors which occur in the processing of claims, and it can take up to

an additional 30 days to resolve these, if not more.

Also, beneficiaries are now receiving Medicare summary notices

which explain the changes; however, we found that they often overstate the information by as much as 10 times. Notices have been

received in which the sum of the episodic payment and the charges

are lumped together, giving the appearance that the home health

agency has been overcharging or has been overpaid. Although

HCFA is in the process of correcting this information, there is no

plan to suspend these notices.

Just as the beneficiaries receive notice, we also receive a notice

called a remittance advice report. They are fraught with errors and

are often incomprehensible, leaving the reports of little value to the

providers.

Finally, the case mix adjustment system which is presently used

is difficult to use, at best, and found to be slightly better than 30

percent accurate. Changes are definitely needed in this to reflect

more in terms of clinical care and clinical factors rather than the

service provision itself.

In my own agency, we have had the great fortune of having a

highly skilled staff that provide acute clinical interventions and

also extensive coordination to the community. I bring to your attention an example of a 102-year-old woman in our community who

had pressure ulcers due to an ill-fitting brace. Our intervention

was requested twice a day, and the related supplies were extensive.

Today, that wound is healing, the family has once again resumed

the majority of her care, and inpatient care has been avoided. However, the average cost of supplies was $680 per episode, although

we were only reimbursed approximately $50. The agency sustained

an average loss on a total reimbursement of $1,410.

32

We have provided you with a list of recommendations that would

help in most of these regards. I do bring to your attention in particular the elimination of the mandatory 15-percent cut.

There are other issues which we face: an extensive assessment

form, which in combination can be upward of 20 pages and duplicative in nature. The other issue which we face has just come upon

us: the home health advanced beneficiary notice. This is primarily

intended for duly eligible clients. We have found that HCFA failed

to provide accurate instruction in a timely manner. It has been

very costly for agencies to provide, the forms are confusing, and, in

particular, we are asked to provide this information and submit

claims on services that we know full well are not provided, for example, home health aide services only. We also have to deal with

medical claims reviews, technical denials, and sampling methodology.

In conclusion, on behalf of the National and Connecticut Association for Home Care, we recognize the workload that HCFA presently faces, as we all do. However, it also indicates longstanding

operational weaknesses, but we look forward to working with the

Committee and with HCFA to help resolve these and would hope

in the future that we can work together. I am deeply honored today

by the opportunity to represent not only the work of home care providers throughout the Nation but, more importantly, the interests

and concerns of the sick, the frail, and the elderly. And I thank you

once again, Madam Chairman, and the Committee.

[The prepared statement of Ms. Wilson follows:]

Statement of Susan Wilson, R.N., M.P.H., Vice President, Clinical Operations, and Chief Operating Officer, Visiting Nurse Association of Central

Connecticut, Inc., New Britain, Connecticut; President, Board of Directors, Connecticut Association for Home Care; and Member, National Association for Home Care

Thank you, Madam Chairman, Representative Stark, Committee members, for inviting me to present testimony on ways to bring regulatory relief to beneficiaries

and providers and restructure the Health Care Financing Administration (HCFA).

My name is Susan Wilson. I am Vice President of Clinical Operations and Chief Operating Officer of the Visiting Nurse Association (VNA) of Central Connecticut. I am

also the President of the Board of Directors of the Connecticut Association for Home

Care (CAHC), the voice of homecare in Connecticut, and a member of the National

Association for Home Care (NAHC).

NAHC is the largest national organization representing home health care providers, hospices, and home care aide organizations. Among NAHC’s nearly 6,000-

member organizations is every type of home care agency, including nonprofit agencies like the VNA, for-profit chains, public and hospital-based agencies and freestanding agencies. CAHC represents 61 providers, delivering greater than 75 percent of all home health and hospice services provided in the state.

Home health care providers that participate in Medicare are required to be knowledgeable of and comply with a vast number of statutes, regulations and policies, including Medicare coverage rules, reimbursement guidelines, and quality of care

standards. However, for over the last two years, this burden has increased with a

proliferation of new requirements.

In preparing for this hearing, NAHC has compiled many of the regulatory directives governing the Medicare home health program. These include the Medicare

Conditions of Participation, coverage rules, standards for payment and appeals process (all found in Title 42, Code of Federal Regulations); Interpretive Guidelines

(HCFA Publication 7, Appendix B); Home Health Agency Medicare Manual (HCFA

Publication 11); as well as numerous HCFA Program Memoranda and Transmittals.

We have included for your review a listing of these regulations and notices comprising more than 8,100 pages of instructions (Attachment 1). The majority of the

listings published between the time period of June 19, 1999–March 5, 2001 principally address two most significant regulations impacting home health agencies—

33

the Outcome and Assessment Information Set (OASIS) for home health and the implementation of the home care prospective payment system (PPS).

In addition to the regulations and policies imposed by HCFA, home health agencies (HHAs) must comply with all other applicable federal, state and local laws and

regulations. Some examples of the federal laws include:

• Occupational Safety and Health Administration (OSHA) standards for:

• protection against illness due to bloodborne pathogens;

• prevention of needlesticks;

• prevention of transmission of tuberculosis; and

• recording of work-related injuries and illnesses.

• Department of Health and Human Services (HHS) standards for:

• Health Insurance Portability and Accountability Act of 1996;

• Culturally and Linguistically Appropriate Services; and

• Limited English Proficiency Guidelines.

• Food and Drug Administration (FDA) standards for:

• Medical devices.

For the purposes of this written testimony, I will highlight several Medicare regulations and policies that impact the home care provider’s ability to deliver efficient

patient care. These include the requirements associated with PPS, OASIS, Home

Health Advance Beneficiary Notice (HHABN) and demand billing, medical claims

review, appeal of technical denials, sampling procedures for post-payment and audit

reviews, branch office designation, and Medicare cost reporting.

REGULATORY BURDENS

A. PPS

Under the Balanced Budget Act of 1997 (BBA), Congress mandated a number of

dramatic changes in the Medicare home health benefit, including requiring that

home health move to a PPS, and imposed an interim payment system (IPS) until

PPS could be put in place. The stringent payment limits under IPS, which were in

place from October 1997 through September 2000, reduced home health outlays far

more than expected, resulting in widespread home health agency closures (approximately 3,400) and problems for beneficiaries in obtaining access to care. The implementation of PPS represented a dramatic change in billing and payments procedures for home health agencies under Medicare. Now, when a home health agency

admits a patient for services, the agency submits a request for anticipated payment,

or RAP, to Medicare and receives a portion of the full payment for the 60-day PPS

episode. At the conclusion of the episode of care, the HHA submits a final claim to

Medicare and receives the remainder of the episode payment. Payment is based

upon a series of OASIS assessment questions, which categorize a patient into one

of 80 categories that are intended to reflect differences in care needs.

While Congress has made several significant BBA modifications, many agencies

around the country continue to feel the financial constraints imposed by the BBA

coupled with the administrative adjustments required for adaptation to the PPS.

NAHC’s preliminary PPS survey of HHAs found that about 45 percent of the

agencies are reporting losses and difficulty with billing their regional home health

intermediary (RHHI), resulting in cash flow problems. Although it is understandable that some problems would occur in a new system, the extent of the problems

has created an overwhelming environment of frustration and increased stress within

the HHAs. At the same time, HHAs are experiencing record difficulty in recruiting

and retaining staff needed to adequately serve the growing population of disabled

and elderly patients. Financially burdened HHAs are hard-pressed to compete with

other employers that offer better wages, better benefits, lighter workloads, and better hours.

HCFA has worked with the home care community to facilitate the implementation

of these new regulations and policies through meetings, conference calls, Web site

postings and list serves. However, due to the breadth of these changes over the past

two years, these efforts have not been sufficient to ensure a smooth transition.

NAHC, state home care associations and HHAs have had to request literally hundreds of clarifications from HCFA since the implementation of PPS. These clarifications pertain to several areas, including information systems, common working file,

billing codes, claims review issues, explanation of benefits to beneficiaries, payment

remittances, and case-mix adjustment.

Common Working File (CWF)

The (CWF) is a database that allows agencies to access information about the enrollment status of Medicare beneficiaries and their utilization of Medicare benefits.

It is an important component of the Medicare reimbursement system for home

health agencies because PPS bundles payment for all services related to home care

34

during an episode of coverage. In order to avoid duplicate billing, it is necessary that

all providers of services have access to the CWF and that the CWF is actively updated. HCFA envisioned the CWF would provide accurate, up-to-the-minute information about Medicare beneficiaries, but there are problems. For example: —When a Medicare beneficiary is discharged with services completed from an

HHA prior to the 60th day of an episode, the CWF may still incorrectly show

them as being under a home health plan of care thus preventing other providers

(such as another HHA, medical supplier or outpatient therapy provider) from

being paid for services provided during the 60-day period. —Other providers whose services should never be considered bundled under

the home health PPS rate have had claims rejected due to a combination of instructional errors and system errors. —It takes about 10 days for the CWF, which primarily responds to regionalized queries, to verify a beneficiary’s admission status from the full national

database. —Certain providers and suppliers have no access to the CWF. As a result,

providers and suppliers report avoiding home care patients for fear of claims denials.

Claims Processing and Review

HCFA has been diligent in its efforts to work with home health agencies to resolve claims processing problems. In addition, HCFA has developed new procedures

for medical review under PPS. Nonetheless, a number of problems continue to negatively impact cash flow. —When claims are subject to medical review, they may be denied in full or

in part. HCFA has issued no instructions for partial denials under PPS and

some providers report claims being held in suspense. —Although HCFA reports that a fix is under way, RAPs submitted by an

agency that provided the initial care to a patient have been rejected when the

patient transfers to another agency, and the second agency happens to bill first. —When a provider makes a clerical error in the beneficiary’s Health Insurance Claim (HIC) number, payments can be delayed for an additional 30 days

in order for the erroneous information to be purged from the system.

Medicare Summary Notice Over Billing Errors

The Medicare Summary Notice (MSN), also known as an explanation of benefits,

is issued to Medicare beneficiaries every month explaining charges to Medicare. The

MSN is required to provide information about services and charges. However, the

current MSNs overstate charge information by as much as 10 times the actual

charges. Although HCFA is in the process of correcting MSN information, there is

no plan to suspend the erroneous notices, causing beneficiaries to complain about

excessive charges.

Some specific problems with MSNs are: —Issuing an MSN after a single visit to the beneficiary, based on a RAP submission. These MSNs include charge information for a full episode payment. —MSNs for final claims that erroneously report payments as the sum of episodic payments and charges, giving the appearance that the HHA has either

overcharged or been overpaid by Medicare. —MSNs include nonsensical statements and single-line listings of all services,

making them cumbersome and difficult to understand.

Remittance Advice Errors

The remittance advice (RA) was designed to provide detailed accounts receivable

information on Medicare payments and adjustments. Since the implementation of

PPS, HCFA altered the RA in order to accommodate the changes in payment methodology. HCFA has been working on correcting remittance advice information but

providers and fiscal intermediaries alike are still having problems using the RA to

reconcile payments. —Intermediaries have instructed HHAs to manually track payments since the

first payments under PPS but this is time consuming and is not an adequate

solution. Manual tracking does not allow agencies to determine how much they

have been paid for individual patients or what amounts have been withheld and

for what reasons. —There is no indication that HCFA has a plan to address the remittance advice problems that occurred in the first six months of PPS.

At the Visiting Nurse Association of Central Connecticut (VNACC), we have found

that the problems with remittance advices are further compounded because our

intermediary has told us that it can adjust the RAP despite the calculated case-mix

grouper. The RAP is then not reconciled until the final payment.

35

Case-Mix Adjustment

The home health PPS base rate is inadequate because of the budget neutrality

requirement compounded by a case-mix adjuster system that needs refinement. The

budget neutrality requirement for the first year of PPS artificially lowers PPS payment levels by requiring that they be based upon outlays for home health under the

disastrous interim payment system. As a result, there is widespread concern that

existing payment levels will fall short of agencies’ actual expenditures in serving patients. The PPS includes an 80-category system of case-mix adjuster groupings

(Home Health Resource Group or HHRG) that serves as the basis of determining

the episode payment. The system utilizes selected OASIS data elements and features three domains, clinical/functional/service utilization and therapy needs. The

reliability of the case-mix adjuster in explaining the variations in resource use by

patients is slightly better than 30 percent.

There are a number of refinements that need to be made to the case-mix adjuster. —More work must be done on diagnostic issues. Although the case-mix research only identified three diagnostic conditions (orthopedic, neurologic and diabetes), significantly impacting costs, more research is needed on other historically high-cost conditions, such as congestive heart failure, cancer and stroke. —Co-morbidities have not been taken into account. For instance, a patient

with diabetes, hypertension, and end-stage renal disease, is much sicker than

a patient with just diabetes. Also, a stroke patient with Alzheimer’s requires

much more care than a patient whose only condition is a stroke. —Caregiver availability is not included in the case-mix system. —HCFA did not identify sufficient clinical factors, which resulted in use of

proxy information, such as number of therapy visits and use of services prior

to home health admission. —Medical supplies, which can be very costly depending upon the medical condition and supply needs of the patient, are not case-mix adjusted. Instead, each

episodic payment contains approximately $50 for medical supplies, regardless of

patient needs. —PPS requires that home health agencies provide all supplies to the beneficiary during an episode of care, regardless of whether they are on the plan

of care or needed by home health agency staff to carry out the plan of care.

Many of these supplies were used by the patient prior to initiation of home

health services, resulting in a disruption between the patient and the prior

medical supplier.

Following are some examples of case-mix and supply concerns faced by the

VNACC:

The population served by VNACC is older and generally lives alone or with a caring spouse who suffers from an equal number of frailties. It is not unusual to admit

a client with five (5) or more co-morbid conditions, all which significantly impact

their well being, their safety and the intervention required by staff to meet professional standards of care. Under the present system of case-mix groupings, it is the

primary diagnosis alone that adjusts the level of reimbursement. Many of our clients have other primary diagnoses, such as congestive heart failure, hypertension,

chronic obstructive lung disease and atrial fibrillation, as co-morbidities. Because

these diagnoses are not in those three diagnostic categories that produce higher reimbursement in the case mix system, the reimbursement rate is not adequate to

meet the high costs of their care.

In addition, VNACC provides care to a demographically older population. Due to

the provision of highly intensive, skilled clinical interventions and the extensive coordination of community resources, this agency is very successful in maintaining our

older citizens in the comfort of their home rather than in an inpatient setting. One

such example is a 102-year-old woman and her 74-year-old daughter, both of whom

required extensive and prolonged intervention. Due to pressure ulcers induced by

an ill-fitting brace, our intervention was requested initially two times a day and the

related supplies were extensive. Today, that wound is healing, the family has once

again resumed the majority of her care, and inpatient care was avoided. On average,

the cost of supplies was $680.60 per episode and the agency sustained an average

loss on the total reimbursement of $1,410.04 per episode.

This client’s 74-year-old daughter is also a client of this agency. Her story is similar. While caring for her mother, this agency also cared for her. Under the PPS system, the financial loss to this agency was $1,934.22 inclusive of $395.03 in supplies

alone.

Recently, our agency admitted an elderly woman, status-post total hip replacement. Her plan of care for rehabilitation required the intervention of a physical

therapist only. In addition to her recent surgery, this woman had also had a colostomy several years prior. She was totally and proudly independent in her colostomy

36

care. While her additional health care needs were recognized and addressed, no further intervention was required by the staff of VNACC. Under the present system

of reimbursement, however, this agency became financially responsible for her

ostomy supplies throughout the course of the rehabilitation plan of care.

Legislative and Administrative Recommendations

Congress should safeguard the viability of the home health PPS by:

1. Directing HCFA to continually update the CWF and make this data available to all health care providers on an expedited basis.

2. Directing HCFA to maintain a listing of outstanding PPS problems/issues

complete with anticipated fixes for publication on their Web site and on NAHC’s home health list serve.

3. Establishing expedited payment schedules for Medicare home health services such that initial episode payments to agencies are equal to 90 percent of

the anticipated episode reimbursement amount and exempt home health agencies from the 14-day payment floor.

4. Directing HCFA to fix the errors on the Medicare remittance advice.

5. Ensuring an equitable PPS with an adequate case-mix adjuster by requiring ongoing, in-depth study and appropriate adjustments as necessary.

6. Developing a case-mix methodology to account for variation in costs of medical supplies.

7. Restricting the ability of HCFA to modify payment rates and revise the

PPS case-mix adjustment system so as to prohibit any adjustments without adequate advance notice.

8. Ensuring continued care access for high-cost and medically underserved patients under PPS by monitoring the adequacy of payments, adjusting overall

home health outlays as needed, and developing a more adequate system of

outlier payments.

9. Limiting the responsibility of the HHA for medical supplies to those that

directly relate to the patient’s current treatment plan.

10. Reimbursing agencies for costs incurred in complying with regulatory and

legislative requirements that were not included in the initial calculation of the

PPS rates.

11. Requiring HCFA to develop criteria for case-mix adjustment corrections

on a prospective basis through public rulemaking, as authorized under the Benefits Improvement and Protection Act of 2000 (BIPA).

12. Restoring the full market-basket updates for home health services that

were reduced under BBA and the fiscal year 1999 omnibus appropriations

measure.

13. Eliminating the mandatory 15 percent cut, in home health reimbursement

scheduled for October 1, 2001, and pass legislation introduced by Senator Susan

Collins (R–ME) and Representative Wes Watkins (R–OK) the ‘‘Home Health

Payment Fairness Act of 2001’’ (S.326 and H.R.975).

B. The Outcome and Assessment Information Set (OASIS)

In July 1999, HCFA implemented mandatory use of a uniform patient assessment

instrument, OASIS, for all patients served by home health agencies participating in

Medicare. Under the Medicare home PPS, episodic (60-day) payments include $4.32

for ongoing agency OASIS expenses, including telephone, computer hardware, editing and auditing data entry, and supplies. During fiscal year 2001, an additional

$5.50 is also added to the episodic rate for adapting OASIS forms to PPS use. The

HCFA OASIS User’s Manual consists of 700 pages of instructions.

This assessment instrument is required to be used for all patients regardless of

payor source. While there are valid reasons to use a uniform patient assessment instrument, the extensive administrative responsibilities with OASIS must be streamlined to reduce costs, increase direct patient care time, and improve staff satisfaction and retention. HCFA has now indicated that it will be issuing to home health

agencies patient-identifiable, adverse event reports and report cards on the agencies.

This planned action raises numerous concerns relative to patient privacy and report

accuracy. Home health agencies have had limited time to adjust to the OASIS method of patient assessment and uses of the report. Further, the use of a first generation adverse event report, which is not case-mix adjusted, is occurring without adequate training of providers and the state surveyors who will use these reports to

survey agencies.

Recently the General Accounting Office (GAO) published a report, ‘‘Medicare

Home Health Care: OASIS Data, Use, Cost, and Policy Implication, (GAO–01–205)

which was mandated by the Medicare, Medicaid, and SCHIP Refinement Act of

1999. GAO found that use of the OASIS has made documentation of home health

patient information more consistent, while adding approximately 40 minutes to the

37

start-of-care assessment. GAO also reported that previous studies did not capture

the additional 50 minutes per OASIS needed to check and edit collected data, enter

and transmit the information electronically, and train new staff. Eighty-four percent

of agency survey respondents disclosed that they provide, on average, eight hours

of training for newly hired staff. The GAO thinks, however, that agencies receive

adequate compensation for these activities. In their opinion, the episode payment

‘‘could provide an ample cushion for many agencies, which can be used to offset the

costs associated with the OASIS mandate.’’

With respect to privacy concerns, GAO stated that, while HCFA’s policies and procedures regarding disclosure of personally identifiable information were generally

consistent with the Privacy Act, they found weaknesses in HCFA’s implementation

of them. Among their concerns were some agencies failures to clearly inform beneficiaries of the purposes for which their information may be disclosed and failure

to routinely monitor contractors and researchers use of the information. Further,

GAO found little or no oversight of how effectively the state agencies and thirdparty payors are maintaining the privacy of OASIS information.

While the report correctly notes an underestimation of the burden of OASIS, the

GAO conclusion regarding adequate financing for OASIS is based on an incorrect

understanding of PPS rates. The GAO neglects to acknowledge that, while payment

rates are based on 1998 utilization, those payments are reduced significantly to

comply with the ‘‘budget neutrality’’ requirement in place during the transition to

the PPS, which reduced the base payment rate by approximately 25 percent. This

oversight leaves the public and policymakers with a mistaken impression regarding

the level of reimbursement provided under the PPS. Furthermore, with respect to

the GAO OASIS survey, the costs of newly instituted requirements, such as additional assessments beyond those required prior to OASIS, are not taken into account. These new requirements have added significant costs to agencies as they continue to comply with the burdensome and paper intensive OASIS mandate.

The VNACC incurred the following costs, which have not been recognized, other

than data entry costs, in the PPS payment rate:

Oasis Training Costs exceeded $9,000.00 for classroom training alone. This does

not include the 4 month preparation and implementation by administrative staff,

the individual conferencing and joint home visits after orientation to assure staff

competency in completing the assessment and ongoing education and updates.

External Printing Costs = $15,000.00. Note: When revisions were made to the assessment tools in preparation for PPS, all existing stock needed to be destroyed and

new tools set and printed.

Scanners/Software/Computers = $18,000.00

OASIS Data Entry Personnel Salaries = $25,000.00

OASIS Clinical Reviewer Salary— $47,000.00

Additional non-billable visits to complete OASIS assessments = 228

Legislative and Administrative Recommendations

1. Congress should appropriately compensate providers to cover the full cost

of OASIS data collection and reporting of Medicare home health skilled patients.

2. Congress should amend the Medicare Conditions of Participation for Home

Health and eliminate the requirement to collect OASIS data on non-Medicare

patients.

3. HCFA should provide training in the use of adverse event and outcomes

reports for quality improvements and focus on a supportive, rather than a punitive, approach.

4. HCFA should strengthen its oversight of state agencies and third-party

payors’ privacy maintenance of OASIS information.

C. Home Health Advanced Beneficiary Notices

Formal written notice is required to advise Medicare beneficiaries when the home

health services they need will not be covered under Medicare, either in whole or in

part. After several false starts, the Home Health Advance Beneficiary Notice

(HHABN) was implemented on March 1, 2001. The Medicare Conditions of Participation for home health mandate that agencies notify the patient, orally and in writing, about changes in Medicare coverage. The HHABN is HCFA’s mandatory form.

When a beneficiary is given a HHABN notifying them of non-coverage, the beneficiary has three options: (1) the patient wants the specified home health services,

agrees to be fully responsible for payment, and asks for an official Medicare decision

(demand bill); (2) the patient does not want to receive the service; or (3) the patient

wants home health services, agrees to be responsible for payment but does not want

the HHA to submit a demand bill.

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A HHA must submit a RAP when a patient requests that a demand bill be filed

with Medicare. Medicare pays the RAP even though the HHA considers the care to

be non-covered. Under PPS, a demand bill can only be submitted at the end of a

60-day episode of care. Some state Medicaid agencies have suggested that the

HHABN must be given every subsequent 60 days. Further, third party payers, such

as Medicaid or another insurance, refuse to pay until Medicare makes a payment

determination. This is a particular problem in the New England states. This process

for making the initial determination takes a minimum of 90 days, partly due to the

fact that a determination cannot be requested until the end of a 60-day episode or

discharge of the patient. In those states where the Medicaid agencies have taken

an aggressive approach to Medicare payment, the process will take longer because

the states exercise their appeal rights, including requests for reconsideration and

administrative law judge hearings. This process could take an additional 60 days

to two years. While Medicaid exercises its appeal rights, the home health agency

receives no payment for the care provided, since Medicare recoups the RAP payment

upon determinations of non-coverage.

The financial implications for beneficiaries and agencies could be enormous. Beneficiaries who do not have Medicaid or other insurance must pay out-of-pocket for the

services. Home health agencies must continue to provide care they believe to be noncovered. By the time the HHA receives Medicare’s official determination, the beneficiary may have already moved into a second, or third, episode of care.

Following are related HHABN issues and unresolved problems:

—The process imposes an additional paperwork burden on HHAs, which must

complete Medicare paperwork for patients who, in fact, are not eligible for

Medicare services or Medicare payment.

—Intermediaries initially issued incorrect instructions to providers resulting

in the development of HHABN forms that could not be used, and confusion regarding the scope of the notification process.

—Although HHABN requirements were implemented March 1, 2001, there

are still many unresolved concerns, including: (a) whether the HHABN must be

provided to patients receiving only personal care; (b) whether the HHABN must

be provided every 60 days to ongoing patients; and (c) whether beneficiary-requested demand bills must be submitted on an ongoing, 60-day cycle.

—If HHAs are directed to complete the notice every 60-days for ongoing patients, agencies will have to complete additional paperwork (e.g., discharge

OASIS and start of care OASIS forms) to discharge the patient from Medicaid

and readmit them to Medicare every 60 days. For VNACC, the two OASIS

forms that would be completed comprise 28 pages of documentation and 183 repetitive questions.

—Cash flow will be significantly impacted since the pre-demand bill RAP payment will be recouped and, in many cases, the HHA cannot pursue Medicaid

payment until an official denial is obtained from Medicare.

—During the time that a beneficiary’s coverage determination is under consideration by the intermediary, other providers such as outpatient therapy providers and medical supply vendors will have their claims rejected by Medicare

B.

—In addition, some state Medicaid agencies will refuse to pay for medical

supplies until the official Medicare coverage determination is obtained, because

of the consolidated billing requirement under PPS.

The VNACC found that HCFA failed to provide accurate instruction in a timely

manner, creating an environment that makes providers prone to errors. These can

be very costly, because agencies will be liable if proper notice is not given. The process and forms are confusing to Medicare beneficiaries, particularly in regard to their

failure to include other payer options, such as Medicaid. Other payers may exercise

the option to appeal adverse Medicare determinations to the highest level. In Connecticut, due to our experience with Medicaid third party liability (TPL) recovery

efforts, we know the delay to reach an administrative law judge (ALJ) could take

a year or more. Due to the delays in getting a determination, and then pursuing

the appeals process, along with the medical supply issues, many providers in Connecticut are considering whether they can afford to provide services to the Medicaid

population. In addition to the reduction of 32 (24%) of the agencies in Connecticut,

this creates a serious shortage for the clients.

Legislative and Administrative Recommendations

1. HCFA should clarify and simplify the HHABN and demand billing notice

procedures and allow for a single notice.

2. HCFA should, in an effort to decrease the paperwork burden on health care

providers, get states to honor single notices.

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3. HCFA should clarify expeditiously the outstanding issues and questions

from the HHAs.

4. HCFA should allow HHAs to submit a final claim for determination immediately after delivery of at least one visit rather than at the end of the episode.

D. Medical Claims Review

Home health providers are experiencing increasing difficulties in processing

claims through the RHHIs for services provided to Medicare beneficiaries. Problems

cited by agencies include increased inappropriate and excessive random and focused

medical reviews, medical review inconsistencies, and technical denials.

A wide variety of inconsistencies exist in payment decisions by the RHHIs reviewing medical claims. Differences in interpretation of homebound, technical requirements, and medical necessity requirements have resulted in confusion among many

home care providers. In addition, local medical review policies (LMRP) are often

more restrictive than the coverage policy dictates, complicating coverage decisions

further.

Given the current financial uncertainties related to intensified audits and disallowances and inconsistent medical reviews, coupled with the PPS billing problems,

thousands of Medicare claims are currently in dispute or on appeal. This has created severe cash flow problems for many providers. Agencies are under severe financial hardships when payments are delayed weeks or months while under review and

appeal.

Reduced payment levels have a direct impact on agency ability to respond to mandatory documentation and claims compliance. The costs to comply with Medicare

regulations are consuming a greater portion of the PPS base payment rate. In order

to keep losses to a minimum while meeting increased compliance pressures, HHAs

must implement more sophisticated information systems that can adapt to the everchanging regulatory environment. The need for systems upgrades to capture accurate data once for use by multiple users while protecting the confidentiality and security of patient information is acutely needed within HHAs. The long term viability

of HHAs hinges on their ability to file accurate and timely claims, treatment plans,

and outcome documentation.

At the VNACC, the business staff has shared that the increased level of medical

review and the financial constraints on agencies are compounded by the difficulty

in accessing intermediary staff, poor response time (as long as two weeks), and conflicting information from the intermediary. In addition, at a recent meeting between

the intermediary and Connecticut agencies, we were told that several errors in the

system have not been resolved. However, HHAs are responsible for tracking claims

and payments manually, because the intermediary is unable to do it at this time.

This would not be accepted in reverse. When providers are mandated to comply, no

excuses are tolerated.

Last April, the VNACC was notified that a focused medical review of 30 records

resulted in the denial of 20 home visits. The penalty was a 30% prepayment review

for a full quarter. Approximately 150 records were selected for review every month.

We had to copy each page of documentation, mail them to the intermediary and

wait for their determination. No payment was received until each record was reviewed and any appeal process finalized. During our ongoing communication with

the intermediary, their office made 18 errors ranging from sending lists of client denials and copies of final determinations belonging to other agencies, to claiming denial of visits previously reviewed and approved by their own medical review department. Our denials were reduced to 4 nursing and 4 home health aide visits, but we

remained on the 30% prepayment review.

Legislative and Administrative Recommendations

1. Congress should reform the home care provider’s claim review process by passing legislation that contains the following principles:

—Time limits should be imposed on intermediaries for review of claims.

—Additional Development Requests (ADRs) should be coordinated within the

intermediary systems to avoid duplication.

—HHAs should be provided with the standards by which the intermediary

initiates and discontinues focused medical review.

—Use of prepayment review should happen only after a provider has demonstrated non-compliance.

—Successful appeal determinations should be factored into decisions on continuing focused medical review.

—Sampling should be used only as a last resort.

2. Congress should authorize HHAs to utilize PPS payments in a flexible manner

in order to achieve system efficiencies without adverse consequences relative to payment, coverage, and compliance with the Conditions of Participation.

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3. Congress should enact legislation that reforms the claim audit process and sets

standards for providers that would diminish extensive prepayment claim reviews.

4. Congress should enact a temporary ‘‘technology’’ pass-through to upgrade and

modernize HHAs information systems.

5. Congress should enact the ‘‘Medicare Education and Regulatory Fairness Act

of 2001’’ introduced by Senator Frank Murkowski (R–AK) and Representative Pat

Toomey (R–PA) (S.452 and H.R.868).

E. Appeal of Technical Denials

Home health care benefits under Medicare involve a combination of technical and

substantive requirements. For example, as a substantive requirement, a patient

must be homebound in order to be entitled to benefits. A technical requirement includes that the patient’s physician must certify, in writing, that the patient meets

the homebound requirement. However, if the certification is not signed and dated

prior to the billing for coverage, a claim denial is issued. While the technical error

can easily be corrected, HCFA forces both types of denials into the time consuming

and expensive appeals process. This delays payment by at least three months and

as much as a year and a half in some cases.

The VNACC has found such excessive scrutiny of technical errors to be costly,

both in financial terms, as well as in administrative and staff time. The repeated

duplication of mountains of paper only scratches the surface. It is difficult enough

to hire staff to meet the needs of the community, much less dedicate staff to the

preparation of all of the documents necessary to appeal technical denials caused by

simple, clerical errors.

Legislative And Administrative Recommendations

1. HCFA should reject the technically non-compliant claims, but allow for resubmission when the claim is technically appropriate. Such approach would continue to encourage compliance while significantly reducing administrative burdens.

2. Congress should require HCFA to allow physician assistants (PAs) and

nurse practitioners (NPs) to certify and make changes to home health care

plans. PAs and NPs are oftentimes more familiar with a patient’s case and more

readily available than physicians to expedite the processing of paperwork, ensuring that home health agencies will be reimbursed in a timely manner and

that care to the beneficiary and cash flow to providers will not be interrupted.

F. Statistical Sampling Methodology For Post-Payment Audit and Review

In March 1999, HCFA published an RHHI manual update outlining new procedures for comprehensive medical review using statistical sampling (Transmittal

Number 1770). The updated instructions provide details for conducting comprehensive medical reviews, medical review audits, and for statistical sampling and overpayment projections.

The use of sampling procedures involves the RHHI identifying a specific portion

of claims from among an agency’s claims submitted during a specified period of

time. The proportion of denied claims in the sample would be extrapolated to all

claims for the period, resulting in denial of claims that were never reviewed individually.

Sampling imposes significant risks to agencies and eliminates some providers’ appeal rights. Under HCFA’s sampling policy, the overpayments projected through the

claims reviews are recouped by Medicare prior to any rights of appeals. Since the

projection can involve millions of dollars, home health agencies are unlikely to survive long enough to access the appeals process. Appeals are important because reversals of claims have routinely exceeded 80% over the years.

The HCFA Region V Associate Regional Administrator registered a protest alleging that the statistical methodology used is invalid and irresponsible. This claim is

supported by the Region V statistician and the statistical consultant to the Department of Justice in Chicago. Documents have been submitted to this committee regarding this allegation. With an improper sampling methodology, the risk of erroneous overpayment projection is dramatically heightened.

HCFA has rejected the majority of recommendations made by home care providers

to stop sampling and overpayment projections. In addition to opposing the use of

statistical sampling, NAHC objects to the manner in which HCFA implemented this

policy. At a minimum, policy changes of this nature should be subject to public review and comment, as required under the Administrative Procedures Act, before it

is finalized. NAHC recommends that HCFA suspend its instructions to the intermediaries on statistical sampling of home health claims until appropriate modifications are made in policy.

In March of 1998, the VNACC was randomly selected for a financial Medicare

audit. We were told in advance that several auditors would remain in our office for

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five days to scrutinize all aspects of our financial record as they relate to our cost

report. We asked if clinical records would be audited as well, and were told no. One

hour before the financial auditors were expected, two clinical surveyors arrived and

announced their intention to remain for three days to review records and meet with

clients. We provide the clinical records from their pre-determined list. Home visits

to randomly selected clients revealed that we had properly exercised the regulatory

provisions for home care. We were commended for the quality of care we provided.

However, the surveyors did announce that three visits, from the hundred reviewed,

would be denied. In their opinion, two home health aide visits represented more

homemaking activity than personal care. The third visit was clearly a human, billing error. The actual total of these home visits was less than $90.00. Medicare however extrapolated this figure ‘‘to the universe of claims’’ and demanded a $5,000.00

repayment, for which we had no recourse.

Legislative and Administrative Recommendations

1. HCFA should develop a sampling regulation through public notice and

comment.

2. HCFA should use sampling only as a last resort and only with statistically

supportable methods.

3. HCFA should not undertake recovery of payments until all appeals have

been exhausted.

G. Branch Office Designation

HCFA has established new criteria for branch offices that emphasize the distance

of the branch locations from the parent without reasonable consideration of the parent entity’s actual supervisory capabilities. The policy does not recognize the use of

modern methods of communication such as faxes, telephones, pagers and telecommunications that are used by every other business in the country as acceptable

methods of communications and supervision. HCFA’s branch office policies are contrary to regulatory reform initiatives and the proposed conditions of participation

which espouse the need to care. In many cases, agencies have closed branch offices

because of the added costs of complying with the conflicting and unnecessarily restrictive branch office policies, producing access problems for beneficiaries. NAHC

drafted a petition for rulemaking on behalf of Medicare-certified home health agencies, requesting HCFA to institute a new rulemaking procedure and establish a single set of national criteria for defining ‘‘branch office’’ of a home health agency under

the Medicare program. After two years, HCFA has failed to respond to this rulemaking petition. Last year the Congress prohibited use of time or distance as sole

criteria for determining branch office designation. Unfortunately, that falls short of

what is needed.

Legislative and Administrative Recommendations

Congress should amend the definition of branch office by:

1. Recognizing that technological advances provide efficient and effective ways

to ‘‘distance-manage’’ branch offices and workstations.

2. Eliminating the criteria of time and distance for designating branch offices.

H. Medicare Cost Reporting

The onset of the Medicare home health prospective payment system on October

1, 2000 did not end cost reporting responsibilities for home health agencies and audits of cost reports. It will be several years before cost reimbursement reaches its

effective end as there are thousands of home health agencies still subject to cost report audits and cost disallowances. It is reasonable to assume that it will be three

to five years before most of these issues are eliminated.

Cost reporting has long been a contentious area between the Medicare program

and affected health care providers. Differences regarding the interpretation of cost

reimbursement principles have existed for years. At the same time, the cost reporting and audit process has imposed needless administrative burdens on home health

agencies’ directing operational expenditures away from patient care and into paperwork. These administrative burdens continue today with home health transitioning

to PPS since HCFA has chosen to continue their requirement for cost reporting even

in the absence of cost reimbursement.

Listed below are the most notable of unnecessary administrative burdens.

—After nearly six months into PPS, HCFA has yet to finalize a revised cost

report and instructions. However, the proposed revisions require that home

health agencies maintain significantly different statistical information compared

to past years without providing any notice prior to the fiscal year that such information would be required. As such, home health agencies run the risk of providing unreliable data or need to retroactively construct a database to satisfy

the cost reporting demands.

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—The proposed revisions to the cost report provide for the use of inconsistent

standards regarding the rule that providers are paid the lesser of their costs

or charges. Under this proposed revision, aggregate costs are determined on a

full twelve-month basis while customary charges are based on the charges imposed only during the portion of the year during which Medicare cost reimbursement applies. As a result, home health agencies may face retroactive payment disallowances that were unpredictable and unforeseeable. —Auditors from Medicare intermediaries are requiring some home health

agencies to produce complete financial records that are under common ownership or control with the home health agency. These demands are made despite

the fact that the home health agency has no financial transactions or shared

operations with the other organizations. Medicare law requires access to the financial records of related organizations that do business with the home health

agency. However, there is no law requiring access to these records where there

is no business relationship.

—The audit process often leads to demands that home health agencies

produce documentation that is not specifically required by the Medicare program. For example, home health agencies have been requested to produce time

and function logs for staff in 15-minute increments even though the job description for the staff squarely fits within Medicare allowable cost standards. These

documentation demands have forced home health agencies to immediately create an expensive record keeping system.

Legislative and Administrative Recommendations

Congress should reduce the administrative burdens placed on home health agencies at cost reporting process by:

1. Directing HCFA to utilize pre-existing statistical reporting standards to

support revisions in the home health cost reporting process. Any changes in required data should be made prospectively.

2. Directing HCFA to utilize a consistent standard for the calculation and application of the lower of cost or charges rule during the transition from cost reimbursement to PPS.

3. Eliminate the inappropriate demands for documentation to support reimbursement claims by requiring fiscal intermediaries to adhere to professional

auditing standards and generally acceptable accounting principles.

4. Restricting HCFA’s ability to demand financial records from commonlyowned or controlled organizations that do not have financial transactions with

a Medicare home health agency.

Conclusion

The comments of the National Association for Home Care and the Connecticut Association for Home Care, as set forth above, should not be construed as critical of

the Health Care Financing Administration or its hard working staff. Instead, NAHC

and CAHC offer these comments with constructive intent and the recognition that

HCFA has been overwhelmed with an unprecedented workload that began with the

dramatic reforms of the Balanced Budget Act of 1997 and continued since that

point. Many of the concerns expressed herein could be alleviated if HCFA were provided with sufficient resources. However, there are others that indicate long-standing operational weaknesses within HCFA relating to the performance of in-depth

impact analyses and full consideration of alternative approaches prior to the implementation of new policies and procedures.

HCFA has routinely opened its doors to suggestions from NAHC and CAHC. We

hope that HCFA’s recognition of the value of provider input can be maintained, if

not enhanced, over the coming years. NAHC and CAHC look forward to the opportunity to work with the Subcommittee and with HCFA personnel to eliminate unnecessary administrative burdens and alleviate necessary ones where acceptable,

but more efficient alternatives exist to accomplish the same policy goals.

Supplemental Statement

This statement supplements testimony given on March 15, 2001, by Susan Wilson

of the Visiting Nurse Association of Central Connecticut, Inc. on behalf of the National Association for Home Care at a hearing before the Subcommittee on Health

of the House Ways and Means Committee. Chairwoman Nancy Johnson has requested the submission of this statement in response to the testimony and supplemental statement of Toby S. Edelman of the Center for Medicare Advocacy regarding its efforts to pursue Medicare payment on behalf of the state Medicaid program.

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MEDICARE: MAXIMIZATION: CAUGHT BETWEEN TWO PAYORS

The National Association for Home Care takes no issue with the bona fide beneficiary-related advocacy provided by the Center for Medicare Advocacy in Connecticut. However, NAHC disputes the claim of the Center for Medicare Advocacy

that it, as well as its client, Connecticut’s Department of Social Services, have undertaken reasonable efforts to avoid the use of costly, time-consuming, and paperwork-intensive methods of pursuing Medicare payment on behalf of Medicaid-eligible recipients of home health services in Connecticut. Instead, the 15-year history

of the so-called ‘‘Medicare maximization effort’’ in the state of Connecticut demonstrates a dominant interest in continuing to pursue Medicare payment through

retroactive demands for claim submission and high volumes of appeals. The inefficiencies of this method of pursuing potential payment from the Medicare program

fails to serve any patient related interest and only leads to higher administrative

costs that are borne by patients, providers of services, and the Medicaid and Medicare programs.

In its supplemental statement, the Center for Medicare Advocacy (CMA) touts its success in securing over $133 million from the Medicare program as a recovery of

funds originally paid by Connecticut’s Medicaid program for home health services

since 1988. It neglects to offer any reference as to the costs of the efforts, including

the costs of the state, Medicare, and the home health agencies. It is NAHC’s understanding that the Medicare program expends significant administrative monies to

process demand bills, reconsideration appeals and administrative law judge hearings. For example, NAHC believes that each reconsideration costs approximately

$300 and each hearing approximately $1000 to process from beginning to end. For

home health agencies, the costs of patient chart compilation, review, and copying

to respond to the demand bills of Connecticut Medicaid ranges from $50 to $100 for

each billing period. These costs, as well as the state’s own internal and contracted

costs must equal several millions of dollars each year.

At the same time, the Center references that ‘‘Connecticut’s activities to obtain

proper Medicare for dually eligible clients have always included efforts to obtain appropriate benefits in the first instance.’’ However, if there were a true interest in

avoiding unnecessary Medicaid payments, the Medicare maximization efforts of demand bills and appeals should be gradually shrinking over the past 13 years. Instead, the state of Connecticut and its contractor, the Center for Medicare Advocacy,

continue to push high levels of demand bills months after Medicaid payment has

been made, file hundreds of administrative appeals each year, and initiate litigation

to establish the state’s role as a party in interest in the Medicare appeals process.

In contrast, home health agencies in Connecticut have attempted to advance alternative, more efficient methods of insuring that Medicare meets its responsibility as

the primary payor of services, with Medicaid as a payor of last resort. It must be

understood, that home health agencies in Connecticut generally consider that the

level of Medicare payment for services rendered is preferable to the payment rates

made for the services under Medicaid. Home health agencies have no financial or

operational interest in receiving Medicaid payment over Medicare. The recent implementation of Medicare home health prospective payment (PPS) adds further complications since Medicaid maintains a per service payment method in contrast to the

60-day episodic payment under Medicare PPS. In addition, the current nursing

shortage is exacerbated by diverting clinical resources to paperwork. Home health

agencies have a strong interest in avoiding unnecessary administrative burdens that

in no way improve access to care or the quality of services.

In reality, home health agencies in Connecticut are simply victims in a fight between two huge bureaucracies, each of which may have an interest in shifting responsibility for necessary home health services to the other. Home health agencies

have not voluntarily chosen to take on the nearly impossible task of distinguishing

Medicare-covered home health services from that care covered under the state Medicare program. The role of an informal Medicare coverage decisionmaker has been

forced upon home health agencies with the threat that the home health agency

could be liable for the cost of care whenever it fails to determine that care, before

it is provided, is outside of Medicare coverage. Through the so-called limitation on

liability provision of Medicare law, 42 USC § 1395pp, the Health Care Financing Administration has created a system which shifts the financial liability for the cost of

home health services to the provider in most circumstances where Medicare is billed

for non-covered care. Using ambiguous Medicare coverage standards that are inconsistently applied within the Medicare intermediaries, the home health agency must

notify the patient that care is noncovered by Medicare before the services are rendered or end up assuming the liability for the cost of care. In such circumstances,

the home health agency will receive no payment from Medicare and is prohibited

from billing the patient or other third-party payors. With the current retrospective

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review method by Medicaid, home health agencies face double jeopardy—service

costs without payment from Medicare or Medicaid.

It is hoped that with the recent changes in Medicare’s criteria for determining

homebound status, as contained in the Benefit Improvement and Protection Act of

2000 (BIPA), that some of the difficulties experienced with this confusing concept

will be reduced. For example, under BIPA, Medicare patients regularly receiving

adult day facilities services may retain homebound status. Prior to BIPA these patients were generally disqualified from Medicare home health services coverage as

a result of their absences from the home. CMA had successfully appealed such cases

on behalf of Medicaid. However, these appeals did not alter the standard applied

by Medicare on its initial review of claims. Home health agencies are caught between a Medicare program that rejects the claims and a Medicaid program that pursues them.

THE INEFFICIENT DEMAND BILLING/APPEAL PROCESS

In the event where a dual eligible Medicare/Medicaid beneficiary receives home

health services paid under the state Medicaid program, Medicare payment is pursued through a process known as ‘‘demand billing.’’ This process entails a retrospective demand from the state Medicaid program to submit individual Medicare claims

on behalf of the dual eligible beneficiaries. Where that demand bill claim is not fully

paid by Medicare, an appeals process is utilized. That process involves three administrative appeals steps and the opportunity for a federal district court review. In circumstances where Medicare coverage is awarded, the state recoups Medicaid payment directly from the provider of services, which then receives the appropriate

Medicare payment. As a result of the timing of the process, home health agencies

are often required to submit revised annual cost reports to Medicare and await settlement of the cost report before payment is made.

The demand bill process for home health agencies encompasses the preparation

of Medicare claims for multiple time periods for each beneficiary, extensive medical

records review, a high volume of document copying and transmittal, and the management of a complex accounting and financial system to properly reconcile retroactive Medicare with earlier Medicaid payments. When a claim proceeds into the appeals process, the workload magnifies as duplicative documentation requests are

issued at each stage.

A central feature in the demand bill process is the new Home Health Advance

Beneficiary Notice (ABN). While NAHC fully supports timely and appropriate Medicare coverage notices, the integration of the ABN with the state’s Medicare maximization efforts has fostered improper payments, confused patients and providers,

and increased paperwork. The ABN may work with patients that have no potential

payer source other than Medicare, but it doesn’t fit for a patient that has access

to continued care and payment under Medicaid.

In the 13 years in which the state of Connecticut has pursued Medicare maximization on home health services through the Center for Medicare Advocacy, the

process has been essentially unchanged. In the beginning, the Center for Medicare

Advocacy made large-scale requests for demand billings to home health agencies at

certain points in the year while also pursuing a high volume of administrative appeals. A semblance of a claim selection process was utilized by the Center for Medicare Advocacy based upon the dollar amount involved and the volume of services

provided to the patient. In most respects, that same system is in place today. While

the efforts have recovered significant Medicare payments for the state Medicaid program, no advances have been made in reducing the administrative burden or preventing a Medicare disallowance in the first instance.

RECOMMENDATIONS

Over the years, home health agencies in Connecticut have made numerous recommendations as to steps that could be undertaken to significantly reduce the administrative burden related to dually-eligible patients. These recommendations require cooperation between the Health Care Financing Administration and the state

Medicaid program. Most can be undertaken under current authority. However, there

may be a need for legislative change to authorize some of the recommendations.

These recommendations include:

1. Eliminate the threat of shifted liability for a provider of services on dualeligible Medicare/Medicaid beneficiaries. In these circumstances, there is no

question as to the necessity of the services to the patient, only the identity of

the payor source.

2. Provide front-end billing of dual-eligibles to the Medicare program with any

residual claims transmitted from Medicare to Medicaid. This process would require structured and expedited time frames for claims processing in order to

maintain reasonable cash flow for home health agencies. To reduce the volume

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of dual eligible claims submitted in this process, selection criteria established

by the state Medicare program could be utilized to pre-screen claims.

3. Establish a reconciliation process between Medicare and Medicaid relative

to any disputed claims. Through this process, a sample of the claims in dispute

would be appealed and a financial reconciliation occurs between Medicare and

Medicaid. The home health agencies need not be part of the appeals process except for the potential of providing a copy of the patient’s record. There would

be no cost report adjustments or shuffling of payments between the provider,

Medicare, and Medicaid. The process would be similar to the subvention method

utilized to reconcile VA and Medicare obligations.

4. In Connecticut, those Medicaid services authorized through the state’s case

management contractor would be excluded from the process because they would

involve a pre-screening to determine whether the plan of care is, in full, or in

part, covered under the Medicare program.

In summary, NAHC supports an efficient and accurate process which properly assigns payment responsibility to Medicare or Medicaid. However, the concerns with

the Medicare maximization efforts is that they rely upon inefficient, burdensome,

and costly processes that do not include preventative action and instead utilize a

system designed for individual claims to pursue a high volume of disputes. The

home health community continues to recommend that a new process be established

to address these mass payment disputes as distinct from that process originally intended to address the small number of circumstances where an individual beneficiary requests the submission of a demand bill.

for the speed with which you were able to move through the high-

[The attachments are being retained in the Committee files.]

Chairwoman JOHNSON. I thank the panel for your testimony and

f lights. Indeed, I hope the Members of the Committee will take time

to read these papers in detail because they are very thoughtful.

They do focus on very real, practical problems that I think we really must tend to.

Dr. Corlin, I wanted to mention that the inspector general believes that the bill that you support introduced by Representative

Toomey would undermine his ability to eliminate fraud. How do

you respond to that?

Dr. CORLIN. We are aware of that interpretation, and we are a

bit surprised by it. Nothing could be further from the truth,

Madam Chairman.

In any case where fraud is suspected or alleged, that would have

to be referred immediately to the OIG, as it is now, and would not

be different in any way, shape, or form from the present situation.

Our concerns and the reason we support this legislation are to

deal with how inadvertent billing errors are dealt with. We want

fraud to be dealt with just as vigorously as it is now and would not

impede the OIG in any way in anything they do in a fraud investigation.

Chairwoman JOHNSON. Dr. Corlin, when an inspector general

comes into a physician’s office, do they differentiate between billing

errors that represent an undercoding and billing errors that represent an overcoding?

Dr. CORLIN. Initially, not at all. And what was happening is that

assessments were being made based just on overpayments rather

than the net of overpayments and underpayments.

Now, at least there is some net charge based on the two, but it

just strikes me that if I was an investigator and I went in and I

saw a pattern where most of the bills were correct but some of

46

them were wrong, and if all of them were wrong in the positive direction, I would have some real suspicions. But if all of them were

wrong and there was a pattern of some being overbilled and some

being underbilled, if that is fraud, that is the dumbest fraud I have

ever seen in my life. And to me, that should be evidence of the fact

that there are problems in lack of education and inefficiency in the

billing process, not a deliberate attempt to defraud.

Chairwoman JOHNSON. I don’t remember quite how long it took

for the inspector general to realize that he needed to offset underpayments and overpayments, but it did take a couple of years. I

just want to put on the record the experience of a physician in one

of my small towns who had the inspector general come in, and he

found $1,742 in overcharges. But through Medicare’s methodology,

this resulted in a demand to repay $74,000.

So there is a methodological problem there with the way they

move from the problems that they have seen and the conclusion

that they come to. There also is, I think, just for the Committee’s

knowledge, no way that a physician can even challenge a single review of a case and say to the overseer, the inspector general’s person, that actually this is what the case really was, challenge his

interpretation of that case. He really has to abdicate his right. As

this doctor says, ‘‘I had to choose to either abdicate my rights of

appeal and other due process protections, or challenge the Medicare to an adversarial conflict on their turf by their rules.’’

So there are some significant problems here.

Dr. CORLIN. Madam Chair, we agree absolutely and have seen

horror show after horror show take place. One group, if I may give

an instance——

Chairwoman JOHNSON. Actually, I don’t want to take too much

time as chairman, so I would appreciate it if I could just move on

to the others.

I just want to mention that I was interested that Northwestern

added 26 full-time employees this year solely to comply with new

regulations. True?

Mr. MECKLENBURG. That is correct. We added 16 additional utilization review staff and 10 additional billing coders this year, primarily for HIPAA and outpatient payment coding.

Chairwoman JOHNSON. And then I would like to ask Ms. Ousley

to comment just very briefly, because I would like to ask Ms. Wilson to comment very briefly.

On this issue of the turnover rates in the nursing homes, I know

it is almost impossible to recruit new nurses, but this turnover

rate, you say, of 80 percent, is that unusual? How many years ago

was it that you had a lower turnover rate? And what have been

the changes that have caused this?

Ms. OUSLEY. It is unusual and it is growing by unbelievable dimensions today. And as I said, I do believe that it is related very

much to the atmosphere in which we are asking our nurses to

work. They, again, are afforded so very little respect, and as I indicated, the oversight process that the nurses go through is just almost unbelievable.

There is such a demand for write it down, write it down, document it, that they are getting so frustrated that they absolutely

47

cannot do what they were trained to do, their profession, to provide

the care for residents.

A personal example. In one of my facilities just a few weeks ago

during the survey process, two of the nursing supervisors—and this

is a facility that has been essentially deficiency-free for the last 20

years. One of the nursing supervisors actually got physically sick

in the middle of the survey and said, ‘‘I have to go home.’’ Another

nursing supervisor said, ‘‘When it is over, I am done. I can’t stay

here anymore. I can’t go through this again. We work too hard to

have to deal with this.’’ Both those nurses, thank goodness, are still with us today because it is a good and it is a stable community, and the administrator was able to convince them. But that is the type of thing that

is happening that is driving good, caring people out of this profession. And I firmly believe that is one of the reasons that it is increasing.

Chairwoman JOHNSON. This is a very big issue, the change that

has happened in the survey and certification process over the last

5 or 6 years, and I urge members to go visit their nursing homes

and talk to the people who have been through these surveys, talk

about what the impact has been on the quality of care of this kind

of survey versus the kind of survey work we were doing in a more

collaborative environment a few years ago. You can only really get

the flavor of the change. There is no question in my mind but that

it is forcing people out of the business.

Ms. Wilson, let me just ask you—and thank you for your detailed

testimony. It was extremely useful. But one of the things that disturbed me the most is that Congress mandated that there be a case

mix adjuster. Now, in your testimony, you mentioned that

comorbidities were not taken into account. Could you just describe

to us what impact this had? And then save just 1 minute to also

describe what kinds of cases some to you that couldn’t possibly be

covered by Medicare, and yet you have to go through this time-consuming process that results in a delay for service payment of at

least 2 months, and often as much as year. So just would you comment on that comorbidity issue? Because it is astounding to me

that this would not have been built into case mix adjustment.

Ms. WILSON. On the issue of comorbidities, when the OASIS data

set is completed—and at the start of care, OASIS assessment is

comprised of about 83 separate questions. One of the very small

factors is, in fact, the diagnosis. There are only three primary diagnoses, which pertains to orthopedics, neurological issues, and diabetes, which are drivers of a differentiation in reimbursement.

Having a population in New Britain which is an older population, our agency primarily serves an older population. Of course,

we see people with comorbidities: congestive heart failure, chronic

obstructive lung disease, et cetera. It requires intensive intervention on the part of the clinicians. We have to organize many community resources, and obviously all of those factors impact the individual’s safety and well-being.

The cost in time and money is astronomical. However, it has absolutely no impact on the cost of reimbursement. Only if, in fact,

a primary diagnosis of diabetes, an orthopedic, or a neurological diagnosis were primary would that have any impact whatsoever.

48

Chairwoman JOHNSON. So the bottom line is that there is very

little relationship between the cost of care that senior needs and

actually your reimbursement level?

Ms. WILSON. Correct.

Chairwoman JOHNSON. Let me move on now and not go to the

other question and give Mr. Stark an opportunity.

Mr. STARK. Thank you, Madam Chair. Just a couple of issues

here because I need a little more data from some of our witnesses.

I think, Dr. Corlin, you indicated—and we are going to have a

little difference, I suspect—in the testimony today that Medicare’s

rules and policies are driving physicians from the program.

Now, what we are finding, for example, is that in every State except Missouri, the participating physician rate is higher in 2000

than it was in 1999; MedPAC did a study of physicians, and they

found, in questioning physicians about the difficulty of finding a referral, that only 4 percent of the physicians said it was very difficult to find a referral for a Medicare patient, but 3.7 percent had

the same difficulties finding referrals for privately insured patients.

So there is almost no difference in finding a referral for a Medicare

patient. If we were driving the docs out, one would suspect that it

would show up there.

By the way, this is a 1999 survey; there is another one in the

works. When they surveyed physicians about their attitudes about

Medicare and comparisons to Medicaid—which I think is probably

the worst in terms of physicians’ preference-fee-for-service, PPOs,

and private HMOs, Medicare does pretty well. In other words, 54

percent felt that the billing paperwork was a very serious problem

for patients served by HMOs, and only 29 percent gave this answer

for Medicare. So one could say Medicare is doing better than private HMOs, which should not come as any surprise because the

physicians have been supporting our efforts to get the Patient’s Bill

of Rights passed. That has sort of fallen off.

Dr. CORLIN. No, sir, it has not.

Mr. STARK. OK, good. But what I guess I am saying is that,

while I am perfectly willing to urge my colleagues to move efficiently and to improve Medicare, I think it is fair to say Medicare

is—in your own practice, I will bet you—one of the two best or

least hassling payers you have got. And I find this is true from

many physicians. In Connecticut, for example, the AMA affiliate

there is suing Aetna for paying claims slowly.

Now, let’s say that a doctor’s practice grosses 2 million bucks.

That is before it pays all the nurses and rent and everything else.

We pay—we, being HCFA-clean claims in 30 days. You are lucky

if you could tell me with a straight face that managed care plans

pay you in under 120 days.

I am suggesting that you get to float a half a million bucks with

us that you are not getting out of these other plans. And if you can

earn 6 or 8 or 10 percent on that. You don’t do so badly. Again,

I am not suggesting that we can’t improve, but I think you have

got to compare us to the others. I don’t think, Doctor, that you

would ask me to turn Medicare over to Aetna without any change

in regulation and let them pay you under their plan for all your

patients. I just think that you would probably have trouble getting

re-elected as president. I might have trouble getting re-elected——

49

Dr. CORLIN. I am only allowed to serve one term, sir.

[Laughter.]

Mr. STARK. Don’t mention that to the good folks in the 13th District of California, please.

There is no business operation—and that is what HCFA is—that

can’t stand improvement and doesn’t need constant revision to see

that we are using current technology. In fact, we are offering you

a buck off, I think, if you will file electronically. Maybe we should

charge you a buck—you being your group and other participating

doctors—if you don’t file electronically to urge you to get out and

buy that laptop and help us be more efficient.

There are a lot of ways we can cooperate, but the MERFA may

very well completely eliminate any ability to enforce our laws and

regulations. It is not the way to go. And I would urge you to— which is unlike previously, 10 years ago with the AMA—continue

to be in the tent with us as we write any improved legislation, and

I think we can go a long way together.

But, please, you know, for a lot of the guys who work hard, this

argument 135,000 pages of regulations is baloney. We have counted

them. There are about 35,000, which is maybe too many, but it

isn’t 135,000. That number came from Mayo, who have refused to

send us any documentation of where it came from. But, believe me,

I want to stay out of the Mayo Clinic if they can’t tell the difference

between 135,000 and 35,000, or when they read my cholesterol

level, I am going to have a real problem.

So thank you for your organization’s support to stop smoking, to

get kids insured, to reform managed care. But remember that one

of the complaints you have that are fixed in the Patients’ Bill of

Rights is that you get paid by the private insurers on time. At least

we do that. We may come back after you later, and maybe we have

to change that. But be careful what you wish for. It could come to

pass. And I look forward to working with you.

Now, if I have misstated any of your position or the difference— if you want to shed any light on the difference in our statistics,

please do. Sorry, Madam Chair.

Dr. CORLIN. Thank you, Mr. Stark—— Chairwoman JOHNSON. Dr. Corlin, if you will be quite brief, as

the red light is already on.

Dr. CORLIN. Yes, I will. I would be pleased to respond.

We are not here today to talk about specifically just payment

issues. I can tell you that in virtually every community in which

I speak, there are at least one or two of the senior internists who

have said, ‘‘I have had it with the kind of audit process that they

have put me through, and I am not going to see Medicare patients

anymore,’’ and that is a shame.

I would like to respond by giving two very, very brief responses

which focus on our concerns today, and one has to do with a sixperson group dealing in one subspecialty with internal medicine.

And I have seven lines that I want to read you about what they

went through. They are recognized in the entire area in which they

practice as being the most high-quality group in that specialty.

The carrier audited 80 claims from their practice—this is six doctors in a very active practice—and demanded all the supporting

documentation within 45 days, which they sent. The carrier then

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extrapolated from those 80 claims and said that that practice owed

somewhere between $99,000 and $285,000, and they would accept

the $99,000, but it had to be paid within 30 days, and they had

to admit liability.

Also, if they wanted to try to get an extended payment system,

they would have to provide financial documents that they were

turned down for loans at the bank in order to do it.

The physicians appealed the audit finding after paying the $99,000, with interest, and 3 years later after the initial audit was

done, the administrative law judge held that the carrier was wrong

and that there was no overpayment and ordered their $99,000 returned to them, without interest.

The other issue we find ourselves in is we are told repeatedly

that if you contact the carrier and ask a question and get an answer, you can only rely on that answer if you are subsequently audited, as we did it the way the carrier told us, if you are given a

written confirmation of the answer. We are never able to get those.

I would love to be able to tell you that I can go to 300 physicians

around the country, ask them to ask the same question of their carrier 10 times each over 3 months, and get 3,000 answers the same.

I suspect we would have 1,200 different answers to that same question.

Help us with those issues, and the financial factors that we are

concerned about will not be as great.

Mr. STARK. And just a follow on, Madam Chair, a quick comment. We have about 50 different carriers across the country. They

are not government employees. Generally, they are Blue Cross or

Aetna employees who contract with the Government, and each one

has a different set of standards. And we recognize that as do you.

This is not ‘‘the government.’’ This is 50 different contractors. It is

like dealing with 50 different banks around the country chasing

you for your visa card bill. And we and HCFA recognize that we

don’t have common computers.

I mean, I could go on——

Chairwoman JOHNSON. Mr. Stark, we do need—— Mr. STARK. The Chair knows this—— Dr. CORLIN. HCFA, when they say they can’t control the

carriers—— Chairwoman JOHNSON. I believe the whole point of this hearing

is to get this kind of problem on the record, because while in the

old days you might be able to tolerate it, now with the incredibly

complex cases, the variety of diagnostic treatment and technologies,

you cannot put people through this and expect them to participate

in the program, and we really have an obligation to hear this and

deal with is constructively. Mr. McCrery.

Mr. MCCRERY. Thank you.

I think Mr. Stark does raise a legitimate question, though, and

I would like for you, Dr. Corlin, and maybe Mr. Mecklenburg to

elaborate.

What is the difference in paperwork requirements or the burden

of compliance between HCFA and Medicare and the private sector

in your private-pay patients? Dr. Corlin?

Dr. CORLIN. Thank you, Mr. McCrery. It is all across the board

with the private payers. Some are very good and respond very

51

quickly and are very efficient. Others, the situation is terrible. And

I think probably if you want to characterize managed care, the best

thing you can say is if you have seen one managed care plan, you

have seen one managed care plan. Some of them work through a

delegated model, either fee-for-service or capitation, and work very

efficiently with minimal disruption to the practice. We are fortunate in our community that that is the way we work. I have never

had a circumstance where I have had to do anything more, if I got

a rejection, than call and speak to a medical director over the

phone and got it taken care of very quickly. I am talking about authorization, not payment. And many of ours in our own practice are

capitated. Some are not. We are much more fortunate than some.

It ranges from very good to very bad.

The Medicare payments themselves, the payment system, at

least for physicians, is not the problem. We are not complaining

that there is slow pay for Medicare.

Now, we had in southern California 4 months of slow pay, and

many physicians didn’t get paid at all for 3 months when they

switched from one intermediary to another. That is a specific issue.

It is not likely to happen again.

But our concern is we want the auditing process that it is the

carriers that do to be efficient, appropriate, and businesslike. I

would love to be able to come back here near the end of my presidency and congratulate you for making HCFA the Nordstrom of

Government agencies.

Mr. MECKLENBURG. Mr. McCrery, I would concur with the assessment that we have problems with most of our payers in terms

of slow pay, burdensome requirements, added paperwork. I think

in terms of Medicare and Medicaid, in our own organization right

now we have had two major impacts by example: one, implementation of new outpatient payment regulations that have been very

difficult for us to get to a completed and clean claim; second, we

have had a change in intermediaries, which has already been discussed, with dramatically different paperwork requirements, dramatically different interpretations of Medicare payment restrictions, that have led to dramatic increases in receivables and in our

allowance for bad debts.

Mr. MCCRERY. Well, generally, though, can you help me with my

question, which is: How does the burden of complying with Medicare compare with the burden of complying with the private sector

in general?

Dr. CORLIN. That burden is much, much worse in the standpoint

of having——

Mr. MCCRERY. What burden is worse?

Dr. CORLIN. The burden regarding Medicare.

Mr. MCCRERY. Is worse than the private sector?

Dr. CORLIN. It is much worse based upon the uncertainty and inexactitude of knowing what to do. At least with managed care

plans, whether we like it or not, we know exactly what has to be

done. And if we call and ask a question, chances are we are going

to get the same answer time after time. We may not like the consistency, but there is consistency and we know the rules.

There are circumstances in dealing with the Medicare intermediaries where the rules are confusing, the wording is confusing,

52

and when we call we get different answers without the substantiation.

Mr. MCCRERY. So you disagree with Mr. Stark’s characterization

that the private sector is just as bad as Medicare in terms of the

burden it places on you for paperwork and compliance?

Dr. CORLIN. Absolutely. With regard to those aspects of it, I do.

Mr. MCCRERY. Mr. Mecklenburg, how about hospitals?

Mr. MECKLENBURG. I would agree with that conclusion. If I can

give you one simple example of a difference between Medicare and

many of our other payers, every time a Medicare patient receives

service, we are required to ask a series of questions about secondary payers. It has 25 questions on it. We have to ask it every

single time a patient receives services, whether it is a physician

service or a laboratory test. That is not only a burden for our

personnel—— Mr. MCCRERY. Private payers don’t require that.

Mr. MECKLENBURG. Not this kind of questioning. The first question I have to ask a patient every time is: Are you receiving black

lung benefits and will services being performed be paid by black

lung? A patient that is seeing us every couple weeks for a lab test

gets very tired of answering that question.

Mr. MCCRERY. Well, Madam Chair, evidently these witnesses,

who are from the health care sector, disagree with the information

that Mr. Stark provided us. Maybe we should ask Mr. Stark to provide some witnesses to substantiate the claims that he is making

so we could clear this up.

Mr. STARK. If the gentleman would yield?

Mr. MCCRERY. Sure.

Mr. STARK. Most of that comes from MedPAC, and we will hear

from them, and they are doing another study. So I think that is

right on. We should find out. We will have MedPAC as a witness

later.

Mr. MCCRERY. Good.

Ms. WILSON. May I add a comment in reference to your question

as it pertains to home care?

Mr. MCCRERY. Sure.

Ms. WILSON. Certainly in terms of the private sector, we definitely have our problems, and there is definitely a financial burden

that comes with contracts at substandard pay rates, et cetera.

However, when it comes to the coverage, very often, as has been

said, we can call, we can discuss what the situation is, and seek

some resolution. There is also a very clear process in terms of appeal, and we have utilized that.

One example that we have had with our agency is that the fiscal

intermediary routinely does focused medical reviews, and we are

not aware of when those are taking place. In April 1999, we were

notified that our agency had undergone a focused medical review

of 30 records which resulted in—now, 30 records can total hundreds and hundreds and hundreds of visits. It resulted in a denial

of 20 home visits. The penalty was a 30 percent prepayment review

for a full quarter, which is going to total about 450 records for our

agency.

What that meant was we needed to copy each and every record,

send it to the intermediary, have it reviewed, wait for their deterVerDate 11-MAY-2000 08:25 Sep 25, 2001 Jkt 074213 PO 00000 Frm 00056 Fmt 6633 Sfmt 6602 E:\HR\OC\A213.XXX pfrm09 PsN: A213
53

mination, appeal if necessary. This is a process that goes on for

weeks, months, and sometimes could last for a year or more.

However, during that process, what we found was that the intermediary made 18 errors ranging from sending lists of client denials

and copies of final determinations belonging to other agencies to

claiming denial of visits previously reviewed and already approved

by their own medical review department. When this was clarified,

what they originally said was 20 home visits was actually a total

of eight. However, we still were subjected to the 30 percent prepayment review. There was no getting away from that process.

That I don’t believe would have occurred with the private sector.

Ms. OUSLEY. If I could also add, just on behalf of the nursing

facilities——

Chairwoman JOHNSON. Very brief, Ms. Ousley. That red light is

on.

Ms. OUSLEY. For Medicare, for us, in justifying the 44 category

claims requires, again, tremendous documentation, and like my colleagues, with review many times comes numerous denials for paperwork reasons.

Chairwoman JOHNSON. Thank you very much. Mr. Kleczka.

Mr. KLECZKA. Thank you, Madam Chair.

Mr. Mecklenburg, the form that you refer to that has to be asked

of every patient coming into the hospital, is that a verbalized form

or is it given to the patient and you just check the various questions?

Mr. MECKLENBURG. Depending on the patient, it may be done either way.

Mr. KLECZKA. But for the most part, it is given to them and they

will just go and check it off? Then also there is another form: Do

you use insulin? Are you allergic to anything? Have you seen a doctor? You know, that type of info is also requested, right?

Mr. MECKLENBURG. Yes, there is a variety of information——

Mr. KLECZKA. All right. So on the 25 questions, that is probably

just given to the patient and they check yes or no, and so that, you

know, isn’t an overly—I think the presentation here is overly exaggerated on that.

Madam Chair, I think it is important that we look at the regulatory burden of the program. I know full well there are 40 millionplus people getting the services of the program. So, naturally, it is

going to be somewhat cumbersome. But to blame all the woes in

the medical profession on the regulations of the Medicare program

I think is going a little above and beyond where we should be going

today. The only thing I haven’t heard from this panel is blaming

the recent demise of the stock market on the Medicare burdens,

but that may come maybe from the second panel, Gail.

Nevertheless, the point I wanted to make is if, in fact, we are

going to talk about the issue, I think we better get some facts

straight and start with the database that we somewhat agree with.

And I think Mr. Stark brought up the fact that there are not

132,000 pages of regulation. That sounds good to the public, and

they will scratch their head and say, oh, my gosh, we have got to

do something about it. But I am told by the former HCFA Administrator Nancy Ann DeParle that the actual pages, including the

54

manuals, comes out to be about 35,000 pages, which is no small

number but, nevertheless, a lot less than 132,000.

Do you agree with that, Mr. Mecklenburg, or not?

Mr. MECKLENBURG. I don’t know that I do agree with that, but

I would be happy to get back to you on that.

Mr. MCCRERY. Where did the 132,000 come from?

Mr. MECKLENBURG. I think as Mr. Stark said, it came from a

study at the Mayo Clinic.

Mr. MCCRERY. OK. And are you aware that Nancy Ann DeParle

wrote the Mayo Clinic to ask for justification, which they never responded to?

Mr. MECKLENBURG. Not until—— Mr. MCCRERY. It is nice to use the number, but I would just

make sure we use it with some accuracy.

Dr. Corlin, you indicated a recent situation with your practice,

we had to do some paperwork before attending to the patient. I

can’t find that in your printed statement. Could you just re-relate

that to the Committee real quick?

Dr. CORLIN. The circumstance occurred that—and it was Tuesday

night. It was one of the three hemorrhaging patients that I got

called to see. It was someone who had been in the intensive care

unit for several days, and because of the requirements to have each

and every physician who sees the patient put documentation that

is unnecessary and repetitive, instead of about four or five pages

of progress notes, there were 33 pages of progress notes. Simply to

find out what had gone on with that patient in the last 72 hours,

those had to be read before I could—— Mr. MCCRERY. But the inference was that you were filling out

this paperwork while the patient was bleeding. Was that—— Dr. CORLIN. No, no. I didn’t say that. I was called in and I had

to go over that patient’s chart. Prior to a couple of years ago, the

same amount of medical information would have all been on the

chart in probably four or five or six pages. Now it is over 30 pages.

I would invite you, if you ever come to Southern California, I will

take you on rounds with me for a day, and we can go through some

of the charts, after I cover the patient’s name for their confidentiality, and you can——

Mr. MCCRERY. And you are saying those numerous pages are because of the Medicare rules and regulations?

Dr. CORLIN. Absolutely.

Chairwoman JOHNSON. If the gentleman will yield?

Mr. MCCRERY. Sure.

Chairwoman JOHNSON. We will provide you with a list that the

Mayo Clinic actually did of Medicare regulations and supporting

documents.

Mr. MCCRERY. OK.

Chairwoman JOHNSON. And all of the coding books and those

kinds of things that are absolutely essential, plus the laws, and

that 137,000 does come from that study.

Mr. MCCRERY. OK. Well, I haven’t seen that, and I would like

to take a gander at it. But I am told there are 900 pages of statutes, so Congress is not bashful by any stretch. To implement those

statutes, there are 1,700 pages of Medicare regulations, and then

we do have some HCFA program manuals, and that totals about

55

32,000. And I am told that is the sum and substance of the Medicare regs that you folks have to adhere to.

But, again, Madam Chair, it is something we should look at. But

to blame all the woes, including nursing shortages, on the paperwork I think is a real stretch. I have a niece who is an RN—in fact,

I have a couple nieces who are RNs back in Milwaukee, and one

is a critical care RN. And the shortage there is a shortage in the

nursing profession and not paperwork. And when these nurses

have to mandatorily work either another half shift or another full

shift at the expense of the family, that gets pretty burdensome.

And that is not a Medicare problem.

So I think what we have to do as a nation and possibly as a Congress is look into the actual nursing shortage, which is, I think,

more dominant than paperwork having nurses quit the business.

Thanks.

Chairwoman JOHNSON. I think certainly our goal here in this

hearing is not to claim that the change of administrative burden

is the whole problem or solving it the whole answer. But it is important, and it is the first time in my experience—and I have been

on this Subcommittee for 12 years—that we have ever had a panel

like this. It is the first time, I think, that we have ever faced the

dimension of problems and, therefore, needed to have this. So it

isn’t the whole answer, but it certainly is one of our obligations to

deal with, Jerry. I didn’t mean to imply that it was the only thing.

But I think their testimony does help you to see that it is an element in the nursing——

Mr. KLECZKA. Madam Chair, again, I agree with you for the most

part that it is something we should look at. The program is getting

bigger, and it is going to double in size in our lifetime. But to

blame everything in the world on HCFA, I am just not ready to do

that.

Chairwoman JOHNSON. I would hope that you would take from

this—go visit your nursing homes, go visit doctors who——

Mr. KLECZKA. Oh, I am there all the time.

Chairwoman JOHNSON. Talk with them firsthand. Mr. Ramstad.

Mr. RAMSTAD. Thank you, Madam Chair, and thank you for your

leadership in this area. If anything needs to be changed, it is the

overregulation of HCFA.

I wish my good friend from California, Mr. Stark, were still here.

I would remind him that the Mayo Clinic is recognized as one of

the foremost medical centers in the world by virtually everyone in

medicine, and I certainly respect and take seriously their concerns

with regard to overregulation by HCFA and the overly burdensome,

cumbersome Medicare regulations. I meet ever week, virtually,

with health care providers in Minnesota. I am home every week.

And I hear virtually every time about the crushing paperwork burden imposed on providers by HCFA, as has been testified to here

today, duplicative documents, redundant forms that are unnecessary to treat patients, unnecessary for quality health care. Too

many providers are spending too much time struggling with paperwork rather than treating patients, and it is time, I believe, to introduce common sense into the HCFA bureaucracy; 130,000 pages

of rules and regulations are clearly excessive.

56

For the first 6 or 8 years I was in office, the IRS managed to garner the most complaints among my constituents. Over the last several years, it has certainly been HCFA.

I just was at a nursing home several weeks ago where the administrator explained to me they just hired two new nurses to do

nothing but fill out forms. Two new nurses that could be helping

patients, working on health care issues, to do nothing but fill out

Medicare forms.

This regulatory burden is unacceptable. Certainly it is necessary

to have a reasonable level of documentation to prevent fraud, to

improve patient care, but it is time, Madam Chair, for HCFA to

start focusing on working with patients, working with the health

care industry in a collaborative way, rather than working against

health providers in an adversarial way. And from your testimony

and from the firsthand accounts of providers in Minnesota in my

district, it is certainly the consensus, if not the unanimous feeling,

of my providers that they are burdened, overly so, by paperwork.

And certainly they corroborate your testimony today, every one of

you, despite what some of my friends who sometimes—and they are

my friends on the other side. Sometimes I think they are operating

on a different planet. I couldn’t believe what I was hearing, and I

wish they were still here to respond.

But I want to thank you, all four of you here, for telling it like

it is. Congress needs to hear from you who are operating in the

real world and who deal with patients, who represent the best in

providers, and I appreciate your coming forward and being helpful

to this Committee, because this Committee is very serious about

changing the overly bureaucratic, overly burdensome regulatory

scheme, regulatory regime of HCFA. This must change because the

current regime is totally unacceptable to quality and cost-effective

health care. As you suggest, too many people are being driven out

of health care because of HCFA.

Let me just ask Mr. Mecklenburg, if I could, do you have any

idea—have you quantified this? What percentage of administrative

staffs employed in hospitals today deal for the most part, for most

of their time, with Medicare reimbursement issues and regulations? Can you estimate the number or the percentage and/or the

cost of the Medicare regulations?

Mr. MECKLENBURG. I don’t know that I can give you that number. I would be happy to try and find that for you and get back to

you.

I would just go back to my testimony. In my organization alone,

which is a large teaching hospital, we can identify specifically 100

employees—that ranges from utilization review coordinators, billing coders, corporate complaint staff, internal auditors, various billing folks—that are full-time in compliance. That does not include

the staff nurse, the management staff who spend some part of their

day. So it is a significant amount of the effort. And what is unfortunate, I think what you can look at, if you are looking at a hospital like mine or many others across the country, if you look at

where staff have been added over the years, the high proportion

has been made in administrative services, mostly to comply with

regulation.

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Mr. RAMSTAD. Just like the two nurses just hired by that Dakota

County, Minnesota, facility to do nothing but paperwork.

Mr. MECKLENBURG. That is correct.

Mr. RAMSTAD. Thank you again. I see my time has expired.

Thank you, Madam Chair.

Chairwoman JOHNSON. Thank you.

I am going to recognize Mr. McDermott, and you see people leaving because we have a vote on. I, too, am going to go and vote, but

after Mr. McDermott questions, it is my hope that one of the other

Members who has not had a chance to question will have returned

so we can proceed promptly and move on to the next panel. Mr.

McDermott.

Mr. MCDERMOTT. It is kind of a weird experience sitting up here

by myself, nobody listening to what I ask.

[Laughter.]

Mr. MCDERMOTT. In listening to this debate here today, one

could come down only, it seems like, in extremes, on one side or

the other. Either there is an enormous amount of fraud, waste, and

abuse out there, and, by God, we are going to find it; or else we

are all doing just fine, and why are you being so intrusive. As a

practitioner myself, I can feel for what that is like.

I have a couple of questions that I have been thinking about. One

is, it seems to me that in 1995 HCFA put out some rules for evaluation and management documentation guidelines, and they barely

got those in, and then in 1997 we started with another provision,

and in 1998 another set of rules came out, and we are doing it

again.

It seems to me that one of the problems may well be that we

haven’t taken the time to let anything settle in and for people to

actually figure out how it works. But I was reading in the MedPAC

recommendations where they suggest that HCFA should pilot test

documentation guidelines for evaluation and management services

before their implementation and/or pilot test any alternative method.

It seems to me that that is partly what is missing here. I was

in medicine when we put on the DRG system. It just came out of

nowhere, boom. And it was a research tool at Rutgers or some

place, and they were looking for something in the Congress on how

to deal with costs, so, bang, that is the answer.

When you do it to the whole system without testing, it seems to

me that there is a real problem, and I wonder if my perception is

correct. And if it is, what kind of pilot test do you think would give

HCFA the capacity to figure out what they want to know without

running over the doctor-patient relationship and setting the IG at

encouraging senior citizens to call in when you find somebody who

has mis-paid a bill?

We have created an atmosphere in medicine which I don’t—and

in health care in general. It is also with hospitals and with home

health and so forth, and in nursing homes, that I don’t think is a

very healthy one. I don’t think it is good for the patients.

I wonder what kind of pilot testing you think, starting with you,

Dr. Corlin, and perhaps others have some ideas.

Dr. CORLIN. Thank you, Dr. McDermott. And I very much appreciate your comments and that kind of an attitude. I think it is a

58

thing that we look forward to working with and cooperating with.

And unlike Mr. Kleczka’s comments, we are not blaming everything in the world on this. HCFA does a lot of things very, very

well, but it does some things not well and some things that we

think are really counterproductive. And we would like to see those

things corrected so that there can be better focusing of HCFA’s resources as to where the problems are.

With regard to the specific question you ask, first, I think there

has to be the realization that, whatever the regulations are, while

there has to be clear uniformity and equality in how they are applied, there also has to be a realization that in dealing with medical practices and in patients, this is not a one-size-fits-all situation.

We would like to see one pilot done in a teaching setting where

you have physicians in training supervised by staff physicians, to

see what kind of requirements are appropriate there.

We would like to see one pilot done in a far rural setting where

there are much more limited resources, both on the practitioners

there and the patients having fewer resources in terms of do I go

to this practitioner or that practitioner or the other practitioner.

They may only have one source that they can go to, and we would

like to see one setting done there.

We would like to see one pilot done which is the result of a peerreviewed development, almost a clinical vignette setting: Is this the

right way to get the documentation?

I think there has to be the realization that while the public and

the Government clearly have the right to say we need to prove that

when something is billed for it was actually done, by the same

token the patients and the physicians have the right to say, you

know, this is not just an accounting exercise where you do doubleentry bookkeeping and make sure the numbers add up. It has to

be relevant to the medical practice, it has to be clinically appropriate, and it has to not interfere with what the patients need.

We would love to be able to sit down out of the glare of lights

and cameras and say: How can we work out these pilot studies?

And let’s put them into working for a while and have people who

are, you know, disinterested and are not biased on either side

evaluate the results and see what we come up with.

Mr. MCDERMOTT. Did I misunderstand? Did not the AMA and

HCFA work together in putting these E&M criteria together or this

classification together?

Dr. CORLIN. The AMA urged a lot of the classification and criteria to be developed. We did not work with the development of a

lot of the overly burdensome ones. And in many cases, we will come

forth and I believe—I am going to have to check with staff because

I was not personally involved with that. We may well have been

involved in requesting some of the general category to be addressed, but were not involved in the development of the details.

Now, many of the specialty societies put forth individual items

for it, and we coordinated some of that. But we were most distressed, particularly with the 1997 guidelines, because of how clinically inappropriate they were in comparison with what has to be

on the chart meeting HCFA’s requirements versus what has to be

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on the chart to document good medical care that is easily retrievable the next time that chart is picked up.

Mr. CRANE. The time of the gentleman has expired.

Mr. MCDERMOTT. Would you extend it for just 1 second?

Mr. CRANE. All right. One second. One thousand one.

Mr. MCDERMOTT. One of the cases that—the fraud and abuse initiative started in 1998, and an example used as an unsupported

service for physician payment was ‘‘a routine physical exam.’’ And

to put that into the improper payments implies it is bad or fraudulent. How do we get around that? I mean, the IG says he is looking

for improper payments.

Dr. CORLIN. I think, sir, that right now there is a reasonably

good understanding on everybody’s part as to what fraud is. When

fraud occurs, fall on them like a ton of bricks, and we will be there

clapping. No question about it.

Beyond that, there are the inadvertent billing errors that occur

by people who they or their office staff may not know the proper

way to do it, and then there is a third thing, which I think, Dr.

McDermott, gets to the point you raise, which is the coverage issue.

If a routine physical is not a covered benefit—and I am a gastroenterologist; up until July 1st, when, fortunately, it will change— routine colonoscopy may not be a covered benefit, if it is done, if

it is needed by the patient for good medical care, if it is documented that it was done but it is not a covered benefit, then simply

reject that as not being a covered benefit, send back an EOB saying

it is not a covered benefit, and the issue is done with. That is a

different category of situation.

Mr. MCDERMOTT. Did I understand, then, they wouldn’t have

paid for the routine physical exam?

Dr. CORLIN. They shouldn’t have. Whether they did or not may

be another matter.

Mr. MCDERMOTT. Is there any way it could have gotten paid for?

I mean, it would seem to me that the intermediary would have a

screen that said any time that comes up, no.

Dr. CORLIN. Well, they probably do and I hope they do. And,

again, being a gastroenterologist, let me get back to one example

that has caused a lot of confusion in people’s minds with regard to

the issue of screening colonoscopy, which has gotten a lot more

publicity because of Katie Couric and the tragedy of her husband.

In the long run, it is going to help people enormously.

People consider screening colonoscopies and don’t know what it

really means. That doesn’t mean a patient who has had, say, an

episode of rectal bleeding and comes in to a doctor. That is not a

screening test. That is in regard to a specific symptom. A screening

test is somebody who is completely healthy, who has no family history of colon cancer, who says I am 50 and I want the test just because I think it is good to have it when I am 50, good medical care

says, yes, that is right. Is that a covered benefit of any given program? That is another issue completely, and we would—you know,

the coverage issues are the coverage issues. But that is just for

screening, not for when someone has symptoms, and one of the difficulties we have had—and I am sure Mr. Mecklenburg can relate

the same thing—is confusion in the part of a lot of reviewers’

minds of care given on a truly screening or surveillance basis as

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opposed to the same care given in response to someone who has

some history or symptoms that indicate it is specifically necessary.

Mr. MCDERMOTT. If a patient—I am stretching my——

Mr. CRANE. Two seconds.

Mr. MCDERMOTT. Two seconds. With respect to a patient who

would come in and say, ‘‘I feel bad and I don’t know what it is, I

just don’t feel right,’’ you would so a physical exam. Would that be

considered a routine physical exam?

Dr. CORLIN. To my way of thinking, no. A routine exam of any

sort, whether it be a general physical, a colonoscopy, a mammogram, a Pap smear, this is something that someone says I am well,

I have learned either from my physician or from the media, or

whatever, that it is good to have this test every so often, and I

want to have mine to be sure I don’t have a problem, that is routine screening.

When a patient comes in with any symptoms, that is not routine

screening anymore.

Mr. MCDERMOTT. Thank you.

Chairwoman JOHNSON. Mr. Crane.

Mr. CRANE. Thank you, Madam Chairman.

Dr. Corlin, just last week the Office of Inspector General reported that nearly $12 billion in Medicare spending was lost last

year to improper payments. And while this represents a welcome

improvement over the previous years, it remains unacceptably

high.

The OIG has claimed that this bill substantially undermines the

program’s integrity. How do you respond to that assertion?

Dr. CORLIN. First, let me say that I agree with your initial statements. We are glad the amount is down, it is still far too high, and

would support any reasonable efforts to get it even lower. We

would disagree with the OIG’s conclusion because nothing in this

bill would in any way deter or interfere with the investigation of

suspected fraud, whether that is the most blatant of fraudulent billings or even—there are certain provisions in the bill that would

say if the physician or the practice brings forth concerns about

claims that may have been paid improperly, that they cannot be

held accountable on fraud for that since they brought it forth.

The OIG complained that, well, the physician could just take all

their bills for the year, bring them forth, and say, gee, I may have

done it wrongly, can you help me, get the advantage of the float,

the way Mr. Stark described it, and immunize themselves on all

their claims. That is not true because that pattern of behavior in

itself is fraudulent. That clause is given to the physician who finds

in an occasional case or, gee, in this one code I just realized I may

have been billing it wrong, and I want to get it corrected.

We in no way want to do anything to limit their investigation or

prosecution of fraud when it occurs. And if there is anything in this

bill that inadvertently would have that result, we would look forward to be supportive of changing language to see to it that that

doesn’t occur.

Mr. CRANE. And, I don’t know, Gary, should I call you ‘‘Mr. President’’?

Mr. MECKLENBURG. Whatever you wish, Mr. Crane.

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Mr. CRANE. All right. You mentioned several burdensome operational processes that hospitals are required to do by Medicare. Do

other payers, private insurance companies or HMOs, ask you to do

the same task but in a less onerous way? And if so, could you

elaborate a little?

Mr. MECKLENBURG. I think as we talked a little bit before, I

think the requirements of each payer can be highly variable. That

is another operational problem that we have of inconsistency in the

forms, in the data, in the way that we must submit claims.

I would submit that the regulations that come from Medicare

and Medicaid are often longer, more onerous, more subject to interpretation perhaps by a variety of people than we experience with

most of our payers.

Mr. CRANE. In your testimony, you suggest that hospitals must

be able to challenge in Federal court any attempt by HHS to

overstep its authority or to enforce questionable policy. Could you

please tell us specifically what you are referring to and what sort

of questionable Medicare policy have you encountered? And why

should your provider seek legal rather than regulatory or legislative remedies?

Mr. MECKLENBURG. The problem that we have with this part of

the Medicare regulations is that, in order for us to exhaust the administrative processes under Medicare, we have to first be in violation of the Medicare rules or law. And if we are in violation, then

we risk being banned from participation in the program. We certainly think that that is not the proper way for us to go about determining whether or not a specific rule or a specific regulation is

appropriate or inappropriate inside the law. So we simply think we

ought to have the opportunity from time to time to be able to challenge in a due process sense what has been proposed.

Mr. CRANE. Thank you for your testimony, and I yield back the

balance of my time, Madam Chairman.

Chairwoman JOHNSON. Thank you very much, Mr. Crane. Miss— Mrs. Thurman from Florida. Sorry about that.

Mrs. THURMAN. It is OK. It has already been a long morning.

I want to add my thanks to the chairwoman for bringing this

particular issue to the forefront, because we have all seen this to

be a problem.

Dr. Corlin, one of the interesting things, though, that I did notice

in one of the responses was that you mentioned that you had gone

from about six pages to 33 pages in the last 5 to 6 years. Was that

correct? In the paperwork that you were doing?

Dr. CORLIN. Actually, it is probably a more recent timeframe. It

is probably within about the last 3 or 4 years.

Mrs. THURMAN. So we could actually say that some of this has

coincided with the major changes that have been happening here

in Congress through the BBA, the buybacks, and then again over

the last couple of years where these regulations have actually gone

up.

Dr. CORLIN. I think probably related to the 1997 HCFA regulations. If there is any one point that they are key to, it is probably

more the 1997 E&M guidelines than anything else, yes.

Mrs. THURMAN. One of the things that I would just caution with

this Committee is that we have just also done one this last year,

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again, and, you know, it is probably apropos that we are talking

about this now, because there is probably going to be a whole other

set of guidelines out there that potentially will also have an impact

on what you are doing, plus the information I know that we are

asking from all of the providers now because we, you know, stopped

some of the things that have been put in place so that we could

gather additional information, so that we could make a better decision on how we might implement any of that. I mean, I think that

is true.

So the question that I would ask all of you then is: In the time

that we have gone through these transitions, have you used the

process of, you know, when the rules are set out there, and are you

using the process to give your comments on review as to where you

think there are problems? And if you can, can you cite some of

those for us so that we can find out potentially from this Committee what has happened to those rule suggestions and how they

have been implemented that have not been, you know, what you

might have put down as the providers?

Mr. MECKLENBURG. I think we consistently comment on various

rules and regulations that come out, and we would be happy to provide you back with very specific examples of where we have done

so and where we believe the outcome hasn’t been appropriate.

Ms. OUSLEY. Certainly, we spend a lot of time commenting on

the rules and regulations as it pertains to nursing facilities. One

of the issues that we have faced over these last several years, especially with the implementation of the Medicare prospective payment system for nursing facilities, is that we essentially implemented the system with an interim final rule. So it can be said

that we were actually flying the airplane as it was being built. So

as we would train our nurse aides, train others on exactly what

would be required, as we were getting them trained and getting

one process implemented, then the process would start to change.

So that was very, very difficult, and it really has contributed tremendously to the burdens and some of the issues that we have

talked about today.

HCFA certainly listened to our comments and worked with us to

try to accomplish all of that under a very short time frame, but it

was very, very difficult to accomplish.

Mrs. THURMAN. But they also were given directive by the

Congress——

Ms. OUSLEY. Correct.

Mrs. THURMAN. To, in fact, do certain things to have an outcome,

which has created—even with the comments sometimes, you know,

was maybe not the outcome that you wanted, but certainly might

have been the outcome that Congress wanted, I would suggest.

Ms. Wilson, I want to say that you all do have an awful lot of

paperwork, and I think probably of all of the areas that beneficiaries see that, more is from your particular area of the visiting

nurses or home health care, because I can tell you from just sitting

down with my mother, you know, up here and then in Florida, I

did the same paperwork ten times. There was no difference. And

I was just transferring her from, you know, here to there, and, you

know, you do 2, 3 hours as the caregiver to the person who is going

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to be responsible for taking care of them in your home. And I found

that just incredibly——

Ms. WILSON. Well, thank you for mentioning that, because not

only am I an administrator of a home health agency, I am also a

daughter and a daughter-in-law of aging parents, and it has been

astronomical to sit down and try to explain what it is that we are

presenting.

One of the common complaints that we have from our clients is

that there are too many questions, there are too many papers, I

have to sign my name too many times, and I don’t know what I

am signing.

Mrs. THURMAN. And I heard that from your nurses as well, and

they have said to me, if you could do one thing, do that. However,

in saying all of that, the other thing that I would ask from all of

you is, you know, part of the problem that I think has come to our

attention and one of the problems that we face is that at the same

time that all of these issues were going on, we were having Operation Trust out there, we had all of this fraudulent activity just recently in Florida under Medicaid. We have now found payments

that, you know, could average up to as much as $10 million in the

Medicaid fund because people who have died have actually still—

Medicaid is still being billed for them.

So I think one of the things that, as we go through any of these

changes, is that you have to understand I believe from our side

over here that we are also responsible for the dollars that are coming in and that are being spent. You are taxpayers. You understand that. And over the years it has been our responsibility to

hold that accountability and to make sure those things aren’t happening. And we constantly see from every organization, from all of

our constituents, saying I know there is fraud, you know, I have

been here, I have done that, we have started programs. And so we

are, you know, trying to be helpful, but on the same side of it, we

are the protectors of the taxpayers’ dollars, and they demand a certain amount of accountability from us to show that we are not allowing these kinds of actions to take place.

Ms. WILSON. May I comment in reference to that? I absolutely

agree with you. I do believe that there needs to be oversight. I do

believe that there needs to be protection. I absolutely believe that

regulations that are in place are there for a purpose.

We did go through a period of time where certainly fraud and

abuse was on the front page of every single newspaper in the country. However, in speaking particularly about the Northeast, many

of the surveys that were done, the audits that were done, found

very, very little. However, agencies continue to be under scrutiny.

Our agency alone, within a period of 18 months, had 12 to 13 different surveys. Every single one of them came out perfectly clean.

We turned around and the next proverbial knock would be at the

door.

I had one of the staff people say that it got to the point where,

while we absolutely agree with zero tolerance as far as fraud and

abuse is concerned, that we are now in a system where the best

is never enough and everything you do is suspect. And that the

staff find intolerable.

64

Mrs. THURMAN. If I could just say, Madam Chairman, one of the

things that I would think that, as Secretary Thompson said yesterday, that we certainly needed to be giving more money to HCFA,

that one of the things that I think that we should look into—and

I don’t want to mandate anything more to HCFA, but is to look at

what is happening in the training aspects of both those that are

going out to inspect and those that are doing the coding.

I remember in the early 1980s when every government agency

started going on computers, and we spent all this money on computers, but we spent no money on training. So a lot of the computers would sit there because people couldn’t use them. And I

think we have got a similar situation going on here, and maybe we

should be putting a moratorium on any kind of regulations until

we can figure out where we are today.

Chairwoman JOHNSON. Thanks very much, Congresswoman

Thurman. I thank the panel very much for your excellent testimony and for your patience in answering questions.

We will move on to the next panel now: Toby Edelman, attorney

for the Center for Medicare Advocacy; George Grob, the Deputy Inspector General, the Office of the Inspector General; and Bob

Moffit, the director of Domestic Policy Studies at the Heritage

Foundation; and the Honorable Gail Wilensky, Project HOPE.

As is our usual procedure, you will each have 5 minutes, and

then we will turn to questions. As soon as you are ready, Ms.

Edelman, if you will proceed.

STATEMENT OF TOBY S. EDELMAN, ATTORNEY, HEALTHCARE

RIGHTS PROJECT, CENTER FOR MEDICARE ADVOCACY, INC.,

AND MEMBER, BOARD OF DIRECTORS, NATIONAL CITIZENS’

COALITION FOR NURSING HOME REFORM

Ms. EDELMAN. Good morning. I am Toby Edelman, an attorney

with the Center for Medicare Advocacy, and a Member of the Board

of Directors of the National Citizens’ Coalition for Nursing Home

Reform. Thank you for the invitation to testify on behalf of Medicare beneficiaries and their advocates. I would like to summarize

my written testimony and three points and then elaborate briefly

on each of them.

First, Medicare beneficiaries and advocates view HCFA’s rules

and the regulatory process somewhat differently from the providers

who have testified this morning. We see the rules promulgated by

HCFA as helping to assure that beneficiaries have full access to

high-quality health care.

Second, we know that law and regulations can work. In the area

of nursing homes, the nursing home reform law and Federal rules

have improved the quality of care for residents in some important

respects. The good care practices mandated by the reform law and

rules are also cost-effective and save Medicare dollars.

We have seen other examples where HCFA’s rules and guidelines

are criticized by providers, including this morning the home health

advanced beneficiary notice. But these give beneficiaries important

information that helps them get the health care they need and are

entitled to receive under Medicare.

65

Third, we believe that HCFA is often overly deferential to the

health care industries it regulates and that beneficiaries can be seriously harmed as a result.

Medicare beneficiaries see the rulemaking process, at its best, as

both open and highly democratic. The process allows all sectors of

the public to participate, to express their views, and to be heard.

Beneficiaries as well as providers can influence HCFA’s rules and

guidelines. The rulemaking process also requires HCFA to respond

to these public comments and to explain its rationale in making

regulatory decisions.

The reform law enacted in 1987 and its implementation by

HCFA are a clear example of how law and regulation work effectively. They established a high level of care as the Federal standard and helped improve the quality of care for residents.

The reform law was based in large part on good practices that

had been tried and proven effective in States and facilities, and I

would like to discuss just two of the practices this morning: reduction in the use of restraints and resident assessment.

When the law was enacted, nursing practice and the nursing

home industry in general believed that restraints would protect

residents from injuries and falls. As a result, in the late 1980s an

estimated 41 percent of all residents in the country were physically

restrained. The reform law changed that paradigm. Based on practices of facilities that had demonstrated that removing restraints

was a better and safer way to provide care, Congress and HCFA

made restraint reduction a priority concern. In 1999, only 11.2 percent of residents were physically restrained.

The Institute of Medicine report on long-term care that was

issued earlier this year called restraint reduction ‘‘the greatest improvement in nursing home care.’’ And the Institute of Medicine

credited HCFA’s regulations and oversight for this tremendous improvement. Being restraint-free is better for residents and it is

cheaper for government payers.

The second example is the requirement from the law that all facilities assess residents using a comprehensive, standardized, reproducible assessment instrument. The minimum data set, or

MDS, was developed by HCFA through an intensive public process

that involved all sectors of long-term care, and I would add parenthetically that, although the nursing home reform law explicitly

authorizes States to develop their own assessment instrument, all

States in the country have chosen to use the MDS process that

HCFA developed.

An evaluation in 1996 found that MDS improved care outcomes

for residents. There were more positive outcomes—more residents

had hearing aids; more of them were involved in meaningful activities—and fewer negative outcomes—fewer residents had catheters,

for example.

Not only was care better, it cost less. Hospitalizations were reduced by 26 percent, reflecting an annual estimated savings to the

Medicare Program of $2 billion in hospital costs in 1992 alone.

As I describe in my written testimony, clinical staff and administrators continue to resist using the MDS and have complained

about it, even as they acknowledge that it gave them better information about residents and helped them provide better care.

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Despite improvements, we know that serious and unconscionable

care problems remain in too many nursing homes. Many of these

problems were documented by Senators Grassley and Breaux in the

extraordinary series of hearings they held in the Senate Special

Committee on Aging between July 1998 and September of last

year. But these hearings also demonstrated that the care problems

resulted primarily from lack of strong public enforcement of the

care standards and not from the statutory and regulatory standards themselves. And the recent IOM report agreed with this analysis.

I would like to turn briefly to my third point, that HCFA is too

timid in exercising its rulemaking authority and overly deferential

to health care providers. In the nursing home area, HCFA at first

had difficulty implementing the strong enforcement approach of the

reform law in the face of fierce and aggressive opposition by the industry. The weak enforcement system initially established by

HCFA’s guidelines tolerated high levels of facility non-compliance

with care standards. The General Accounting Office reported in

July 1998 that 99 percent of facilities that had deficiencies were

not subject to any remedy at all. The GAO called this an amnesty

program for providers and said they were given a chance to correct

their problems.

The weak enforcement of the care standards was a major cause

of the care crisis that Senators Grassley and Breaux’s hearings vividly documented. Strong congressional oversight and the administration’s nursing home initiative have now helped redirect the

agency’s approach to enforcement to some extent. The enforcement

system is now more consistent with Federal law and more likely

to achieve its purposes of assuring correction of deficiencies, sustained compliance by facilities, and, of course, most important, high

quality of care for residents.

Nevertheless, many beneficiaries have been hurt by what the

GAO described as the lax and overly tolerant enforcement system

that HCFA at first created in deference to the industry.

I would just like to say something very briefly about benefits of

other HCFA rules beyond nursing home care. This morning we

heard criticism of the new home health advanced beneficiary notice, which requires home health agencies to use a standard form

in notifying beneficiaries when they believe the Medicare Program

will not cover particular home health benefits. I have three comments about that.

First, this requirement is not new. HCFA has required home

health agencies to provide beneficiaries with notice of non-coverage

since at least 1975. What is new is the requirement that home

health agencies use a form specified by HCFA.

But the second point is that home health agencies had been informed in advance that HCFA intended to mandate use of the

HHABNs, and they have been fully involved in the regulatory process since September 1999 in developing that form.

Finally, and I think most importantly, receiving notice about

non-coverage of care is critical to beneficiaries. Once beneficiaries

receive such a notice, they can require that their home health provider submit what is called a demand bill to the Medicare Program.

This is the first step in the appeals process. But even at this early

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step, more than half the beneficiaries who submit demand bills win

their claims and get coverage for home health care from the Medicare program. In other words, the home health agencies were

wrong in more than half the cases in saying that the services needed by beneficiaries would not be covered by Medicare. The HCFAmandated notice from the provider and the demand——

Chairwoman JOHNSON. If you would please conclude?

Ms. EDELMAN. Yes, thank you. That——

Chairwoman JOHNSON. I know how important this is to you, and

we will get back to it in the question period.

Ms. EDELMAN. Yes, well, thank you very much. The final point

about this is that this notice helps beneficiaries pursue their right

to Medicare coverage, and without the notice and without the system, beneficiaries would not receive the Medicare coverage of home

health care that Congress intended.

Thank you very much.

[The prepared statement of Ms. Edelman follows:]

Statement of Toby S. Edelman, Attorney, Healthcare Rights Project, Center

for Medicare Advocacy, Inc., and Member, Board of Directors, National

Citizens’ Coalition for Nursing Home Reform

INTRODUCTION

Good morning. I am Toby Edelman, an attorney with the Healthcare Rights

Project of the Center for Medicare Advocacy, Inc. and a member of the Board of Directors of the National Citizens’ Coalition for Nursing Home Reform. Thank you for

the invitation to testify before the Subcommittee on behalf of Medicare beneficiaries

and their advocates.

OVERVIEW

Rules promulgated by the Health Care Financing Administration to implement federal Medicare legislation have helped to assure that Medicare

beneficiaries have access to high quality health care. In the area of nursing

homes, the nursing home reform law and federal rules have improved aspects of quality of care for residents. In addition, the good care practices

mandated by the reform law and rules are cost-effective and save Medicare

dollars.

However, while HCFA can and does play an important role in protecting

beneficiaries’ access to high quality care, too often, the agency is timid and

overly deferential to the health care industries it regulates. Beneficiaries

can be harmed as a consequence.

THE PURPOSE OF THE MEDICARE PROGRAM IS TO PROVIDE HEALTH

CARE SERVICES TO BENEFICIARIES, NOT PAYMENTS TO HEALTH

CARE PROVIDERS

Congress enacted the Medicare program in order to provide health care benefits

to older people and people with disabilities. Courts have repeatedly recognized and

stated that the program is designed for beneficiaries, not providers. Home Health

Services, Inc. v. Currie, 531 F. Supp. 476, 479 (D.S.C. 1982), aff’d 706 F.2d 497 (4th

Cir. 1983) (‘‘[T]he statute was obviously not enacted primarily for the benefit of the

provider of services, but rather for the recipients of medical care benefits.’’);

Gartman v. Secretary of the United States Department of Health and Human Services, 633 F. Supp. 671, 679 (E.D.N.Y. 1986); Mays v. Hospital Authority of Henry

County, 582 F. Supp. 425 (N.D. Ga. 1984).

THE ADMINISTRATIVE RULEMAKING PROCESS ENABLES BENEFICIARIES AS WELL AS HEALTH CARE PROVIDERS TO PRESENT

ISSUES AND CONCERNS TO THE HEALTH CARE FINANCING ADMINISTRATION

Due to the complexity of health care programs and the expertise needed to administer them, Congress delegates responsibility to the Department of Health and

Human Services to provide the details for its legislative enactments. The Health

Care Financing Administration is the component within the Department that has

expertise and is given the authority to implement the Medicare statute. HCFA

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1The Institute of Medicine’s 2001 report Improving the Quality of Long-Term Care also identified ‘‘serious deficiencies’’ in assessment and enforcement of care standards as the cause of continuing serious care problems in nursing homes. Institute of Medicine, Improving the Quality

of Long-Term Care, 251 (2001) [hereafter IoM, Improving the Quality of Long-Term Care].

meets its duty to implement federal legislation, including Medicare, through a public rulemaking process.

While the rulemaking process is lengthy and time-consuming, it is also, at its

best, both open and highly democratic. The rulemaking process allows all sectors of

the public to express their views and to be heard. Beneficiaries and their advocates,

as well as health care providers, participate in the rulemaking process in order to

bring their experiences and concerns to the attention of HCFA. Through their comments on rules, they explain the impact of rules on all segments of the public and

offer suggestions to improve or strengthen rules to achieve their statutory goals.

When HCFA publishes final rules, it is required to respond to these public comments and to explain its rationale in making regulatory decisions. HCFA is publicly

accountable for its decisions.

MEDICARE BENEFICIARIES AND THEIR ADVOCATES SEE RULES AND

THE RULEMAKING PROCESS AS HELPING TO ASSURE BENEFICIARIES’ FULL ACCESS TO HIGH QUALITY HEALTH CARE

While providers may see various aspects of the laws and rules as burdensome and

excessive, beneficiaries often view these same laws and rules quite differently. Beneficiaries see the laws and rules as establishing a system that protects their rights

and interests in receiving full access to high quality health care.

NURSING HOME CARE

The nursing home reform law enacted by Congress in December 1987 and its implementation by HCFA are a clear example of how law and regulation work effectively both to establish a high level of care as the federal standard of care and to

help improve the actual quality of care that residents receive. I follow nursing home

law closely, having spent nearly 25 years advocating on nursing home issues on behalf of residents, particularly Medicare and Medicaid beneficiaries.

The 1987 reform law was the most comprehensive revision to federal nursing

home law since the Medicare and Medicaid programs were enacted in the 1960s.

Congress based the detailed legislation on a series of hearings in 1987 in the three

committees with legislative responsibility for the Medicare and Medicaid programs;

on the 1986 report of the Institute of Medicine, Improving the Quality of Care in

Nursing Homes, which itself was the result of several years of exhaustive research;

and on recommendations of the Campaign for Quality Care, an ad hoc coalition of

nursing home provider associations, health care professionals working in nursing

homes, and residents’ advocates, convened by the National Citizens’ Coalition for

Nursing Home Reform to identify areas of consensus about how best to translate

the IoM’s recommendations into federal law.

The nursing home reform law was based in large part on good practices that had

been tried and proven effective in states. Requiring the training of nurse aides (who

provide the majority of direct care to residents) and comprehensive assessment and

care planning, guaranteeing residents’ rights, and authorizing a broad range of intermediate sanctions that survey agencies could impose against facilities that failed

to meet care standards were among the innovations of the legislation. These good

practices involved both the care practices that nursing homes had developed and

used with success as well as survey and enforcement practices that states had successfully used. The reform law made these good practices mandatory for all states

and all facilities that chose to participate in the Medicare and Medicaid programs.

The Law and Implementing Regulations Promulgated by HCFA Have

Promised Residents High Quality of Care and Have Led to Some Significant Improvements in Care.

The nursing home reform law and regulations and guidelines published by HCFA

to implement the law have led to demonstrable improvements in the care that residents receive. While the series of hearings held by Senators Charles Grassley and

John Breaux in the Senate Special Committee on Aging, between July 1998 and

September 2000, documented that grave and unconscionable problems remain in the

quality of care provided by too many nursing homes, the hearings demonstrated

that these problems result primarily from the lack of strong public enforcement of

the care standards, not from the statutory and regulatory standards themselves.1

The Reform Law Required Reduction in the Use of Physical and

Chemical Restraints.

The requirement to reduce the use of physical and chemical restraints was based

on good care practices in some nursing homes that had reduced or entirely elimiVerDate 11-MAY-2000 08:25 Sep 25, 2001 Jkt 074213 PO 00000 Frm 00072 Fmt 6633 Sfmt 6621 E:\HR\OC\A213.XXX pfrm09 PsN: A213
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2 Id. 79. 3 Charlene Harrington, et al, Nursing Facilities, Staffing, Residents, and Facility Deficiencies,

1993 Through 1999, 85 (Oct. 2000), at http://www.hcfa.gov/medicaid/nursingfac/nursfac99.pdf. 4 Joani Latimer, ‘‘The Essential Role of Regulation to Assure Quality in Long-Term Care,’’ Generations, Vol. XXI, No. 4, 13 (Winter 1997–1998) [hereafter Latimer, ‘‘The Essential Role of

Regulation’’]. 5 IoM, Improving the Quality of Long-Term Care, supra note 1, 79. 6 Id. 77. 7 Charles D. Phillips, Hawes, C., and Fries, B., ‘‘Reducing the Use of Physical Restraints in

Nursing Homes: Will It Increase Costs?’’ American Journal of Public Health, Vol. 83, 342–348

(Mar. 1993). 8 HCFA, Transmittal No. 10 (Jul. 1999). The survey protocol is at http://www.hcfa.gov/

pubforms/pub07pdf/part-07.pdf. 9 Charles D. Phillips, Hawes, C., Mor, V., Fries, B.E., and Morris, J.N., ‘‘Geriatric Assessment

in Nursing Homes in the United States: Impact of a National Program,’’ Generations (Journal

of the American Society on Aging), Vol. XXI, No. 4, 15, 16 (Winter 1997–1998) [hereafter Phillips, ‘‘Geriatric Assessment’’].

nated restraints. At the time the law was enacted, however, a more common view

in the nursing profession and the nursing home industry was that restraints would

protect residents from injuries and falls. As a consequence, in the late 1980s, an estimated 41% of all residents were physically restrained.2

The reform law adopted the best practice from the restraint-free movement (which

recognized that restraints in fact caused more injuries to residents than restraintfree care), changed the paradigm of care on a national scale, and led to a reduction

in restraint use for residents. The most recent national data indicate that in 1999,

11.2% of residents were restrained.3 Freeing residents from restraints was documented to be not only better from residents’ perspective, but also a less costly way

of providing care.

As Joani Latimer, a nursing home residents’ advocate, wrote in the Journal of the

American Society on Aging, ‘‘good law takes everyone to a higher standard.’’ 4 The

reform law set a new standard regarding restraints. When the New York-based

Commonwealth Fund supported a project several years ago on restraint reduction

in nursing homes, project staff asked facility staff why they participated in the research. Many answered that since the reform law now required reduction of restraints and facilities would be evaluated by the survey agency by this different

standard of care, they were motivated to learn how to comply with the new rules

most effectively. The project gave them that opportunity.

In a report issued this year, the Institute of Medicine attributed the reduction in

the use of physical and chemical restraints nationwide, which it called ‘‘the greatest

improvement in nursing home care,’’ 5 to the requirements of the reform law:

[M]any facilities have successfully reduced the inappropriate use of physical

and chemical restraints. The focus of increased regulatory scrutiny on these two

areas of care was a major contributing factor in reductions in both of these.6

Reducing the use of restraints is good care; it is also a less expensive way to provide care to residents.7

The new survey process that was put in place in July 1999 included six new investigative protocols addressing adverse drug reactions, pressure sores/ulcers, hydration, unintended weight loss, dining and food service, and sufficient nursing services.8 With the restraint experience as a model, it can be hoped and expected that

the new regulatory attention on these care areas will also lead to improvements in

care outcomes for residents.

The Reform Law Required Standardized Resident Assessments.

Another beneficial aspect of the 1987 reform law was the requirement that all facilities assess residents using a comprehensive, standardized, reproducible assessment instrument. The assessment would identify ‘‘potentially treatable or reversible

causes of functional impairment’’ and would be used to plan each resident’s care in

the individualized care-planning process.9

The new resident assessment instrument, known as the minimum data set, or

MDS, was developed through an intensive public process that involved all sectors

of long-term care and included extensive testing. Although the nursing home reform

law explicitly permitted states to develop their own assessment instruments, all

states have chosen to use the assessment instrument and process that were developed by HCFA.

An evaluation of the impact of the MDS in 1996 found that the new assessment

process improved care outcomes for residents. The study found, among other

changes:

• ‘‘a 24 percent increase in the accuracy and comprehensiveness of information in the residents’ nursing home records.’’

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10 Catherine Hawes, ‘‘Assuring Nursing Home Quality: The History and Impact of Federal

Standards in OBRA 1987,’’ 6–8 (Commonwealth Fund, Dec. 1996). 11 Id. 8. 12Phillips, ‘‘Geriatric Assessment,’’ supra note 9, 16. 13 Id. 16–17.

• ‘‘a 17 percent increase in the number of problems that are addressed in

residents’ care plans.’’ • ‘‘a 30 percent increase in the use of hearing aids for persons with hearing

difficulty.’’ • ‘‘a 27 percent increase in the use of behavior management programs for

residents who wander, display physical aggression, or resist nursing care.’’ • ‘‘Residents with bowel incontinence were almost twice as likely to receive

a toileting program.’’ • ‘‘a 29 percent decrease in the use of indwelling urinary catheters.’’ • ‘‘a 28 percent decrease in the proportion of residents with little or no activity.’’ 10

The increase in positive care outcomes and decline in negative care outcomes that

resulted from implementation of the MDS had a price tag—they saved Medicare dollars. Providing good care to residents and more accurately identifying and meeting

residents’ care needs also led to reduced instances of hospitalization. Dr. Catherine

Hawes reported that introduction of the MDS led to a 26% reduction in hospitalization of residents, resulting in an annual estimated savings to the Medicare program

of two billion dollars in hospital costs in 1992 alone.11

While use of the MDS led to an increase in positive health outcomes for residents

and, at the same time, significantly reduced costs to the Medicare program, administrators and nurses who were questioned about the MDS reported mixed feelings

about the new assessment tool. Dr. Charles Phillips, et al., reported that 43% of

clinical staff were ‘‘resistant’’ to using the MDS and that 68% of administrators complained about the ‘‘excessive paperwork burden.’’ 12

However, a majority of both administrators and nursing directors agreed that

the RAI had positive effects on quality: some 59 percent of nursing directors reported that the RAI improved the quality of residents’ clinical assessments, 69

percent that their staff’s assessment of residents’ functional status improved,

and 75 percent acknowledged that the RAI was more useful than the assessment system used in the past. Finally, 78 percent of nurses reported that the

RAI improved their ability to detect clinically meaningful changes in resident

functioning.13

Health care providers may find fault with regulations even when they recognize

the improved health care for beneficiaries (and cost savings to the Medicare program) that result.

ACCESS TO CARE

Some of the Medicare regulations that health care providers complain about are

intended to assure that beneficiaries receive the health care benefits that Congress

mandated.

In the area of home health care, for example, home health agencies have recently

been critical of the home health advance beneficiary notice (HHABN) issued by

HCFA through a program memorandum. Effective March 1, 2001, HCFA requires

home health agencies to use a standard form to notify beneficiaries when they believe that the Medicare program will not cover particular home health benefits. This

substantive requirement is not new. In fact, HCFA has required home health agencies to provide beneficiaries with notices under these types of circumstances since

at least 1975. The recent program memorandum is different from prior notices only

in its specification of the actual language that home health agencies must use in

the HHABNs that they give to beneficiaries to advise them of their rights under the

Medicare law.

Home health agencies were well-informed in advance that HCFA intended to

mandate use of the HHABNs and were fully involved in the process. The model notice was issued through the Paperwork Reduction Act process, which requires public

comment and review by the Office of Management and Budget. Beginning in September 1999, transmittals and draft notices were issued and withdrawn several

times, in large part, in response to comments from home health agencies. OMB and

HCFA held a public hearing in July 2000, in which representatives of the home

health industry actively participated and expressed their concerns about the burden

imposed by the HHABNs.

Receiving notices about non-coverage of care is critical to beneficiaries, however,

and outweighs the minimal burden imposed by using a standard notice form. Beneficiaries who are able and willing to pay for home health services can do so after

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14 Healey v. Shalala, 2000 WL 303439, at 4, 68 Social Security Reporter Service 212 (D.Conn.

Feb. 11, 2000). This statistic does not include beneficiaries who were successful in getting coverage at later stages of the appeals process. 15 Id. 16Office of Inspector General, Department of Health and Human Services, Balance Billing for

Medical Equipment and Supplies, ii, OEI–07–99–00510 (Jan. 2001). 17 Id. i. 18 Id. i–ii. 19Latimer, ‘‘The Essential Role of Regulation,’’ supra note 4, 10.

receiving a notice of non-coverage from their home health agency. If they choose,

they can also require their home health provider to submit what is called a ‘‘demand

bill’’ to the Medicare program. Once the Fiscal Intermediary receives a demand bill,

it makes a formal determination whether a particular home health service is covered by the Medicare program.

Beneficiaries who request that a home health agency submit a demand bill are

often successful in getting Medicare coverage of their home health services. According to HCFA data, between 1994 and the first three months of 1998, beneficiaries

who had demand bills submitted on their behalf were fully or partially successful

at the initial claims stage in getting home care coverage in 50.2% of the cases.14

Without the HCFA-mandated notice from the provider and the demand bill process that enables them to request that Fiscal Intermediaries review their health care

needs, beneficiaries would be unable to pursue their rights to receive their statutory

entitlement to home health care under the Medicare program. As the court said in

Healey v. Shalala, ‘‘A demand bill is the key to the administrative process.’’ 15

A second example illustrates the importance of the Medicare program’s providing

information to beneficiaries about their rights under the Medicare statute. A recent

report by the Office of Inspector General recommends that HCFA ‘‘educate beneficiaries on the options and consequences of assigned and non-assigned claims and

purchasing medical equipment and supplies from participating and non-participating suppliers.’’ 16

Under Part B of the Medicare program, suppliers of medical equipment may

choose to submit assigned or non-assigned claims. For assigned claims, where suppliers agree to accept the amount allowed by Medicare as payment in full, Medicare

pays 80% of the allowed amount and the beneficiary pays 20% of the allowed

amount (plus any outstanding deductible). For non-assigned claims, Medicare pays

80% of the allowed amount, but sets no limit on the charge that the supplier may

charge the beneficiary. The beneficiary must pay all the supplier’s charges after

Medicare pays its amount. Balance billing is the term used to define ‘‘the portion

of the charge in excess of the Medicare allowed amount.’’ 17 Suppliers may also ‘‘participate’’ in Medicare or not. Participating suppliers submit assigned claims for all

items and services provided to beneficiaries; non-participating suppliers submit either assigned or non-assigned claims to Medicare, decided on a case-by-case basis.

The Inspector General’s recent report indicated that Medicare beneficiaries paid

$41 million above the Medicare-allowed amounts for equipment and supplies and

that most beneficiaries are unaware of the cost implications of purchasing equipment and supplies from participating and non-participating suppliers.18 Informing

beneficiaries about the cost implications of their purchases could help beneficiaries

reduce their health care costs. Since non-participating suppliers are unlikely to advise beneficiaries that they could purchase the same supplies for less money elsewhere, only the government is likely to inform beneficiaries of their rights under

the Medicare law.

QUALITY OF HEALTH CARE

Rules and regulatory systems also require and promote high quality of care for

beneficiaries. This purpose of the regulatory system is also of critical importance to

beneficiaries.

Ms. Latimer reports that regulation is necessary in the health care area, particularly in long-term care, because market forces may be unable, alone, to assure high

quality of care for beneficiaries.19 The factors that may make the marketplace work

as a mechanism assuring high quality of products are largely absent in health care.

Health care consumers may be inadequately informed; may have little choice among

health care providers (because of insurance limitations or provider discrimination

against program beneficiaries); and may be required to make decisions at a hurried,

stressful time. Moreover, the consequences of their decisions often cannot be reversed. People can choose to buy a different television set if the one they buy breaks.

Similar opportunities are unlikely in health care. Health care that is denied or inadequately provided may not be able to be fixed or corrected.

72

20 Committee on Nursing Home Regulation, Institute of Medicine, Improving the Quality of

Care in Nursing Homes 5 (Mar. 1986). 21 IoM, Improving the Quality of Long-Term Care, supra note 1, 141. 22 California Association of Health Facilities v. Department of Health Services, 16 Cal.4th 284,

940 P.2d 323, 336, 65 Cal. Rptr.2d 872, 885 (1997). 23 ‘‘Health Policy 2001: The Implications of the 2000 Election,’’ The New England Journal of

Medicine, Vol. 344, No. 9, 679, 681 (Mar. 1, 2001).

The Institute of Medicine’s 1986 report on nursing home quality rejected reliance

solely on market forces to improve the quality of long-term care:

[H]istorical experience hardly supports an optimistic judgment about the effects on quality of care of allowing market forces to exert the primary influence

over nursing home behavior. Nursing homes were essentially unregulated in

most states prior to the late 1960s. Their operations were governed almost entirely by market forces, and the quality of care was appalling.20

As noted above, the IoM’s report was the blueprint for the nursing home reform

law that Congress enacted in December 1987. Fifteen years later, the Institute of

Medicine reiterated its support for a regulatory model to assure quality in long-term

care.21

The value of a regulatory system to assure quality of care for nursing home residents was also firmly recognized by the California Supreme Court. In a 1997 decision, the Court recognized that regulatory systems are intended to prevent avoidable bad outcomes for residents: ‘‘the very purpose of the statutory scheme’’ is ‘‘preventing injury from occurring.’’ 22

Public support for regulation of nursing homes to address quality continues. The

New England Journal of Medicine reported this month that a strong majority of Republican voters (57%) and Democratic voters (68%) in 2000 supported increasing

regulation of nursing home quality.23

AT TIMES, HCFA HAS BEEN TOO TIMID IN EXERCISING ITS RULEMAKING AUTHORITY AND OVERLY DEFERENTIAL TO THE HEALTH

CARE PROVIDERS IT REGULATES

Although Medicare beneficiaries and their advocates recognize HCFA’s ability to

implement federal legislation in ways that improve access and quality of care, we

are concerned that the agency at times defers excessively to the health care providers it regulates.

In the nursing home area, HCFA had difficulty implementing the strong enforcement approach of the nursing home reform law in the face of fierce and aggressive

opposition by the nursing home industry. The weak enforcement system initially established by HCFA’s guidelines tolerated high levels of facility non-compliance with

federal standards of care, leading to the care crisis that Senator Grassley’s and Senator Breaux’s hearings vividly documented. Strong Congressional oversight and the

Administration’s Nursing Home Initiative have now redirected the agency’s approach to enforcement, making it more consistent with the law and more likely to

achieve its goals of assuring correction of deficiencies and sustained compliance by

facilities.

While beneficiaries and their advocates would not disagree that HCFA has experienced problems and delays in implementing federal legislation, we would contend

that some of the agency’s difficulties result from the increased numbers of mandates

from Congress and inadequate resources to meet those mandates. HCFA and the

state regulatory agencies need more money to do their jobs well. HCFA should not

be asked to do more work with insufficient funding and then be criticized for not

doing it well. The agency needs adequate financial support to do its work.

HCFA underwent an extensive reorganization just a few years ago. Another reorganization would consume considerable agency resources without sufficient benefit.

Any organizational structure is always inherently artificial to some extent because

of the agency’s extensive and overlapping areas of responsibility. What is needed is

good coordination within the agency and adequate support for the staff who work

there.

Thank you for the opportunity to appear before you today.

SUPPLEMENTAL STATEMENT

This statement supplements testimony given on March 15, 2001 by Toby S.

Edelman of the Center for Medicare Advocacy, Inc. (the Center) on behalf of Medicare beneficiaries and their advocates. At the hearing, Chairwoman Nancy Johnson

expressed considerable dissatisfaction with the work of the Center. The Chairwoman’s comments reflected a misunderstanding of the Center’s work on behalf of

Medicare beneficiaries and Connecticut’s Department of Social Services and about

the Medicare demand bill process. Since the Center was not allowed an opportunity

73

at the hearing to respond to the Chairwoman’s concerns, this Supplemental Statement is submitted to explain both the work of the Center in Connecticut and the

Medicare demand bill process.

About the Center for Medicare Advocacy

Since 1986, the Center for Medicare Advocacy has been providing legal assistance

and education on behalf of Medicare beneficiaries and their community. Our work

is focused on frail elderly people, individuals who are disabled or chronically ill, and

those who need Medicare coverage in order to receive home care, long-term care,

and rehabilitative services. The Center’s goals are to: • Increase proper Medicare coverage, and, therefore, access to health care, for

beneficiaries who are most vulnerable and most in danger of unfair Medicare

denials; • Promote the ability of Medicare beneficiaries themselves and those who

care about them to advocate effectively for proper Medicare coverage.

Our Medicare advocacy services, which are available at no cost to all Connecticut

residents, include a toll-free telephone line, dozens of educational and self-help materials, brochures, manuals, and training and legal support for Connecticut’s ‘‘CHOICES’’ health insurance and assistance program. Each quarter our attorneys,

paralegals, and nurses respond to approximately 2,000 calls from Medicare beneficiaries, their family members, and the community. We staff the toll-free line each

day from 9:00 a.m. until 5:00 p.m. and provide assistance ranging from information

to advocacy materials to direct legal representation.

The Center offers information and training sessions throughout the state for older

people, health care providers, case managers, Area Agencies on Aging staff, advocates, and others in the Connecticut elder network. On many occasions, we have responded to requests from members of the Connecticut Congressional delegation to

participate in health fairs and to provide assistance to constituents on questions involving Medicare-covered services.

The Center produces two quarterly newsletters, the Center News and the

Healthcare Rights Review, and maintains a web site at www.medicareadvocacy.org.

Last quarter alone, we had 15,450 ‘‘visitors’’ to the web site and 12,113 requests for

printed information.

In 1997 the Center was recognized by the Health Care Financing Administration

(HCFA) for its Medicare advocacy when it received HCFA’s Beneficiary Service Certificate of Merit award. In March 2001, the Connecticut General Assembly issued

an official citation commending the Center for its fifteen years of advocacy on behalf

of Connecticut’s elders and people with disabilities.

The Center is a small business located in northeastern Connecticut where we employ 23 Connecticut residents. The Center is staffed by attorneys, paralegals,

nurses, computer experts, and administrative support personnel. Funding is secured

largely from competitively-awarded contracts with the Connecticut Department of

Social Services, and from writing, consulting, and training.

Work on Behalf of Medicare Beneficiaries Who Are Not Also Entitled

to Medicaid

Pursuant to grants, won competitively from the Connecticut Department on Aging

and its successor agency, the Department of Social Services, the Center designed a

Medicare advocacy and education project, which we currently implement.

Through our Medicare Advocacy Project, from 1986 through February 2001, the

Center responded to more than 69,910 WATS calls, formally opened 3,772 cases,

and recovered more than $12,512,476 in previously-denied Medicare benefits. This

work was all performed on behalf of individuals who are not entitled to Medicaid

and who rely upon Medicare as their primary source of health insurance.

Work on Behalf of Dually-Eligible Medicare Beneficiaries

Since 1988, the Center has also worked with the State of Connecticut to assure

that dually-eligible Connecticut residents have full access to the Medicare benefits

to which they are legally entitled. By virtue of their low income, dually-eligible

beneficiaries are entitled to Medicaid as well as to Medicare. Federal law makes

Medicaid the payer of last resort and requires state Medicaid programs to assure

that other payers, including Medicare, pay for health care services first. 42 U.S.C.

§ 1396a(a)(25)(A); 42 C.F.R. § 433.138.

Under contract with the State of Connecticut, the Center pursues Medicare coverage for certain skilled nursing facility, chronic disease hospital, and home health

care services which were provided to dually-eligible beneficiaries and paid for by

Medicaid. The Center chooses cases for Medicare appeals on the basis of a selection

process that involves careful analysis of legal merit and medical facts. These cases

are identified from a larger set of dually-eligible cases referred to the Center by the

Department of Social Services. Another group of cases has been considered coverable

by the providers and is submitted by them for Medicare coverage. The process for

74

home health care appeals was reviewed and approved by the United States District

Court in Connecticut:

. . . . Given the reversal rate to which the defendant [Secretary of the US

Department of Health and Human Services] admits, . . . the steps taken by

plaintiffs to ascertain liability meet the standard of ‘‘all reasonable measures.’’

Therefore, plaintiffs are not barred from administrative review of these claims

by reason of failure to abide by third party liability provisions of Medicaid.

. . . Medicare must provide the administrative review necessary to determine

ultimate liability . . ., if its providers choose not to submit claims for payment

and if the state reasonably determines that there is a high likelihood their

Medicare coverage was improperly denied.

DIM v. Shalala, CA No. 2:91CV00546, 25–26 (AHN) (D. Conn. 1994).

Connecticut’s efforts to obtain proper coverage for dually-eligible beneficiaries

have been extremely successful. Significantly, in the majority of cases, benefits are

won at the initial stage of review, which is performed by the Fiscal Intermediary.

From the inception of the Center’s dually eligible work through February 28, 2001,

the organization’s Medicare appeal efforts have resulted in recovery of $162,246,776.

These were funds originally paid by Connecticut’s Medicaid program. Of this total,

$133,277,840 are attributable to home health cases. According to figures from the

Connecticut Department of Social Services, the sources of the favorable decisions resulting in these recoveries are as follows:

80% from Fiscal Intermediaries

20% from Administrative Law Judges

In addition, Connecticut’s activities to obtain proper Medicare for dually-eligible

clients have always included efforts to obtain appropriate benefits in the first instance. Through provider education, the advocacy programs described above, and

the long-standing CHOICES program, the State of Connecticut and the Center have

taken many steps to assure that Medicare meets its legal obligation to Connecticut’s

dually-eligible population. For example, in 2000–2001, the Center and the Department of Social Services provided three Medicare coverage training seminars, one for

home health agencies and two for skilled nursing facility staff. Another seminar is

scheduled for May 2001.

The ultimate goal of the Department’s Medicare maximization efforts is to increase the number of cases properly submitted for Medicare initially, thereby reducing the need for a Medicare advocacy effort. It is our hope that training efforts and

a history of successful appeals will serve to change provider claims submission practices. Since so many of the cases are covered at the Fiscal Intermediary review

stages, providers should feel increasingly comfortable submitting similar cases for

Medicare coverage themselves, making appeals in those cases unnecessary.

Connecticut’s Medicare advocacy has meant very significant financial savings for

the State’s Medicaid program and has increased access to Medicare and to medically

necessary care for Connecticut’s elders and disabled citizens.

As in the past, the Center for Medicare Advocacy is ready to do all it can to provide training and to help increase the proper submission and initial coverage of meritorious claims for Medicare. When pursuing Medicare coverage remains necessary

and appropriate, the Center will continue to make every effort to perform these

tasks as effectively and efficiently as possible. We welcome the opportunity to work

with providers and HCFA towards accomplishing these goals.

Demand bill process

The federal Medicare statute and implementing regulations require

providers to give beneficiaries advance notice of non-coverage.

When a Medicare health care provider makes a determination that a particular

home health service will not be covered by the Medicare program, the Medicare statute requires that the provider give the beneficiary notice. 42 U.S.C.

§ 1395bbb(a)(1)(A) (Medicare beneficiaries have ‘‘the right to be fully informed in advance of any changes in the care or treatment to be provided by the agency that

may affect the individual’s well-being . . .’’).

In implementation of the Medicare statute, HCFA requires that providers give

beneficiaries advance notice of changes in care. 42 C.F.R. § 484.10(c)(1). The notice

must be ‘‘fair and reasonable.’’ Healey v. Shalala, 68 Soc. Sec. Rep. Ser. 212, 2000

WL 303439 (D.Conn. Feb. 11, 2000).

Official Medicare coverage decisions are made by Medicare’s Fiscal

Intermediaries and can only be made upon submission of claims, including demand bills.

Only a Medicare Fiscal Intermediary can decide whether a particular service is

covered by the Medicare program; the provider’s determination of non-coverage is

not conclusive. However, in order for a Home Health Fiscal Intermediary to review

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a home health care claim that the provider believes is not covered by the Medicare

program, a bill must be submitted to the Intermediary.

Only health care providers can legally submit claims to Medicare for payment.

Therefore, in order to obtain an official Medicare determination, beneficiaries must

depend upon their health care providers to submit claims. Medicare regulations and

policy require Medicare providers to submit claims and documentation when requested by a beneficiary. Beneficiaries are said to request submission of a ‘‘demand

bill.’’ The demand bill process is the vehicle that is used to obtain official review

of beneficiary-initiated coverage and claims disputes.

A further limitation on the demand bill process is that beneficiaries can request

that a demand bill be submitted to an Intermediary only if they pay for the health

care service. Beneficiaries cannot appeal provider denials of coverage unless they

first receive and pay for the health care service. Reimbursement to beneficiaries

under the Medicare program is made only on a retrospective basis.

The requirement for health care providers to give beneficiaries advance notice of

non-coverage, which informs them of the demand bill process, has existed since at

least 1975.

Success rates are high when demand bills are submitted to Fiscal

Intermediaries.

When demand bills are submitted to Fiscal Intermediaries, beneficiaries are often

successful. According to data from the Health Care Financing Administration, between 1994 and the first three months of 1998, ‘‘the success (full or partial) rate

for all demand bills submitted at the request of home health care beneficiaries was

50.2%.’’ Healey v. Shalala, 68 Soc. Sec. Rep. Ser. 212, 2000 WL 303439, page 4

(D.Conn. Feb. 11, 2000), approved by the judge March 7, 2000.

Health care providers frequently fail to give beneficiaries advance notice of non-coverage.

Although the requirement for health care providers to give beneficiaries advance

notice of non-coverage has existed for more than 25 years, the available evidence,

from beneficiaries themselves, complaint logs, contact reports, and deficiency reports, indicates that providers frequently fail to give beneficiaries written advance

notice and often give no notice at all.

Moreover, since beneficiaries must pay for the health care services in order to request submission of a demand bill, relatively few beneficiaries request that demand

bills be submitted. Demand bills are a minuscule portion of claims processed for

home health beneficiaries. From 1994 through 2000, demand bills represented less

than one-half of one percent of claims submitted to Fiscal Intermediaries.

Successful litigation by the Center for Medicare Advocacy assures that

Medicare beneficiaries receive notice of their right to have demand bills

submitted on their behalf.

A nationwide class of homebound elderly and disabled Medicare beneficiaries, represented by the Center for Medicare Advocacy, the National Senior Citizens’ Law

Center, AARP, Greater Boston Legal Services, and Northern California Lawyers for

Civil Justice, filed a lawsuit in 1998 alleging that beneficiaries did not receive

meaningful notice and appeal rights when their home health care benefits were reduced or terminated. Healey v. Shalala, supra.

The court granted plaintiffs a declaratory judgment stating that

. . . plaintiffs have a legal right to a written: ‘‘(1) pre-deprivation statement

why the HHA believes Medicare may not or may no longer cover their services;

(2) explanation of the circumstances in which a beneficiary has the right to have

a demand bill submitted, and (3) disclosure of information regarding a patient’s

right to appeal . . .’’

Id. 2.

The court also recognized that a ‘‘demand bill is the key to the administrative

process.’’ Id. 4.

The court declined to issue an injunction because the Secretary of the Department

of Health and Human Services advised the court that she was ‘‘‘in the process of

developing and implementing mandatory notice language which all HHAs will be required to use and which will provide beneficiaries with all the information that even

plaintiffs insist is required as a constitutional mandate.’’’ Id. 9.

The home health advance beneficiary notice (HHABN) clarifies health

care providers’ Medicare notice responsibilities and makes the specific

text of the notice mandatory, but creates no new obligations on providers.

HCFA has been developing the mandatory notice language for the home health

advance beneficiary notice (HHABN) since September 1999. Home health agencies

have been fully involved in the public process of developing the text of the notice.

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On September 29, 2000, HCFA published its proposed HHABNs in the Federal

Register (65 Fed. Reg. 57,821). HCFA solicited public comments through the public

process required by the Paperwork Reduction Act. On December 1, 2000, the Office

of Management and Budget, exercising its authority under the Paperwork Reduction

Act, approved the HHABNs.

During this period, HCFA also continued to affirm home health agencies’ obligation to provide beneficiaries with advance notice of changes or termination of benefits. For example, on September 29, 2000, HCFA sent the Regional Home Health

Intermediaries a memorandum clarifying that home health agencies remain obligated to provide advance beneficiary notices, including an explanation of the demand bill process as set forth in HCFA Program Memorandum Transmittals A–99– 52 and A–99–54. HCFA provided additional clarification on this obligation at 65

Federal Register 58,858 (Oct. 6, 2000).

Conclusion

The Center has a 15-year history providing effective assistance and representation

to Medicare beneficiaries in Connecticut and nationwide. The demand bill process

is the method that enables Medicare beneficiaries to receive appropriate Medicare

coverage of their health care services.

STATEMENT OF GEORGE F. GROB, DEPUTY INSPECTOR GENChairwoman JOHNSON. Mr. Grob.

f ERAL FOR EVALUATION AND INSPECTIONS, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Mr. GROB. Madam Chairman, thank you so much for the invitation to come before this Committee and to present our views on a

daunting challenge that you placed before us, which was to make

specific recommendations on how to make the Medicare program

better, without increasing, and possibly simultaneously decreasing

the burden on our medical care providers. We have taken your

charge seriously, and my testimony contains many such specific

recommendations. Let me highlight just a few for you right now.

The first recommendation that we have concerns the payment

error rate, a subject which you yourself raised in introducing the

subject of this hearing. Our office has just reported that the Medicare payment error rate for the year 2000 was approximately $11.9

billion, with a 6.8-percent error rate, a quite significant reduction

from the first year in which we prepared the study, where we had

a $23.2 billion problem and a 14-percent rate. And I would like to

emphasize—I think I said it in my testimony, but you said it, too—

that the best way to solve that problem is to reduce the error. And

where we have made this kind of accomplishment, the hassle has

gone down along with the reduction, and let me give you one example from that.

Out of the 5 years in which we conducted that study, in the last

two we did not detect in the hospital industry any payment error

that was due to improper documentation. It did not happen that we

detected in the last 2 years that the hospital industry was deprived

of one dime because their documentation wasn’t correct. They got

all the money that was due to them, and Medicare did not have

to hassle anybody about that. It was a savings to Medicare, and the

hassle factor was reduced. And I am absolutely convinced that if

we could reduce that hospital error rate by half, and if we can solve

the documentation problem through education and discussion with

the hospital industry, then we can solve each and every one of the

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problems that we have identified for that payment error rate, and

that will reduce a lot of hassle for everyone and save us all a lot

of money.

We also raised in our report some severe problems with the accounting systems that are used by the contractors. Elementary accounting systems, such as double-entry accounting and use of integrated supporting documents, are missing for this very expensive

program. That should be fixed. This controls perhaps $8 billion a

year of expenditures, which are not under the control that they

should be placed under.

If these accounting systems were fixed, there would be much better control, and that kind of control and that kind of professionalism would not create a single more moment of hassle for any

Medicare provider, but it would greatly improve the Medicare Program.

Another thing which I would like to call attention to that has

come up in the testimony of several of our speakers has been problems with the appeals process, and in legislation now before the

Committee, there are different provisions, and in recent legislation

to put tighter time periods on the time that it would take to consider appeals at various levels of appeal, different processes for perhaps skipping a step in order to get things looked at.

We really believe that a major problem in the Medicare program

right now is the appeals process, and in my testimony you will see

that we lay forth some rather major reforms to that appeals process that go far beyond the changes that are advocated in the legislation that you have before you. And, in fact, they go in a somewhat different direction.

We believe that the major problem with the appeals process right

now is that there are not adequate resources to consider the appeals, that the administrative law judges who are responsible for

that do not even work for the Medicare program; they work for the

Social Security Administration. The guidance that they follow is

not as uniform as it should be. The way patients are treated in

their appeals and the way providers are treated should not be the

same, and currently it is. And there are other such reforms that

need to be made.

We believe that what the appeal system needs right now is not

more deadlines. The problem isn’t lack of deadlines. The problem

is its inability to meet the deadlines. And if we can meet the deadlines with understandable and more uniform provisions, then the

hassle will go away, and then the payments will be made right,

and everyone will be in much better shape.

We also believe that HCFA ought to have much more flexibility

in how it chooses its contractors and how it manages them.

I would like to raise now a more fundamental issue which has

to do with the infrastructure. I do believe that we should not skimp

on the infrastructure as we look at reforms to be made, and I believe that there has been some skimping on that, particularly in

the field of survey and certification. I believe that there has never

been enough resources for the reviews of the nursing homes to be

carried out as well as it should, or home health or other providers.

In fact, nursing homes are reviewed every year, as they should be.

But in order to make that happen, we had to reduce the reviews

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of home health agencies from every year to every 3 years, for example. And in the nursing home field, there are often delays in conducting follow-up visits to nursing homes after deficiencies have

been found.

I believe that the best thing to do to reduce the hassle in the

nursing home arena is not to provide more venues for appeals and

more litigation but, rather, to establish better standards and training for the people who conduct the reviews so that there is not as

much dispute about them to begin with, to find those deficiencies,

to raise them quickly, to resolve them rapidly, and then to have the

survey teams get back in there and find out if they have been corrected. It is like the payment error rate. The best way to reduce

the hassle is to eliminate the deficiencies, to correct the ones that

are there, and to resolve problems as they arise quickly.

There are other problems with the infrastructure as well which

I will not have time to discuss in the 5 minutes that I have.

I would like to make one matter of clarification now with regard

to the pending legislation. I had planned to spend more time in the

time that I have right now to go over the pending bill, because we

were asked to please give our comments on that bill, and our comments are there. But perhaps it would be better if I were to use

this opportunity to introduce to you the notion of what we were trying to do in our comments.

With the Inspector General’s Office, we do, in fact, have an obligation to look at fraud, waste, and abuse. But we have broader responsibilities in there, too. Our responsibilities include—and they

are in the Inspector General Act—to evaluate the various processes

which the Medicare Program and other programs use to be managed and integrity processes that we ourselves don’t run but that

others do run. We are obligated to review them and evaluate them

and make sure that they work very well.

A lot of the studies that we do then, and a lot of the comments

that we have, don’t go so much to our own authority as they do to

our evaluation of what is happening in the Department. And some

of the comments that you will see in there about our concerns

about granting people immunity and not being able to get the return of money we have is not simply because of the investigations

that we conduct, but we are worried that that immunity may be

lost in the appeals process for the contractors as well.

Perhaps with more time or in another circumstance we can provide much more detail and explanation here to solve a problem

which I think we all see as a common one.

Thank you so much.

[The prepared statement of Mr. Grob follows:]

Statement of George F. Grob, Deputy Inspector General for Evaluation and

Inspections, Office of Inspector General, U.S. Department of Health and

Human Services

Good morning, Madam Chairman. I want to thank you for your invitation to address this panel on Medicare reform. You asked us to discuss how the government

can do its job better, to ensure that beneficiaries are protected and that tax payer

dollars are used wisely and responsibly without placing undue burdens on providers.

I am very pleased to do so.

Medicare is a national treasure. But it would be even more valuable if it were

operating more efficiently and effectively. Despite herculean efforts to modernize it

and recent success in doing so, there is a sentiment, especially among health care

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providers, that it is not as efficient as it should be. In fact, discussions in policy circles and in the national and professional media emphasize its administrative burdens, inefficiencies, and aggravations. There is some talk of major reforms.

The Medicare program has been evolving since its creation. It has been ‘‘reformed’’ and modernized many times—including the gradual abandonment of cost and

charge based reimbursement in favor of prospective payment systems and fee schedules, and the introduction of managed care. The Balanced Budget Act of 1997, with

its new payment systems for nursing homes, home health agencies, and hospital

outpatient departments and the new beneficiary options and protections in

Medicare+Choice, is the most recent and substantial reflection of these movements.

The program as it is, including the most recent reforms, which are not yet fully implemented, is our starting point for further reforms.

It is with this history in mind, and with insights drawn from more than twenty

years of audits, program evaluations, and investigations conducted by the Office of

Inspector General (OIG) that I would like to offer our own suggestions on where to

go from here.

First, I will identify facets of Medicare program administration which require immediate and continuing attention; then I would like to address some concerns which

have been raised about recent initiatives to address waste, fraud, and abuse.

PROGRAM ADMINISTRATION

Following are the recommendations of the Office of Inspector General (OIG) to

promote the efficient and effective operations of the Medicare program. We believe

that these proposals will also reduce administrative burdens and frustrations for

providers. You asked us to be specific; I hope this is helpful.

Further Reduce and Control Improper Payments. Continue, even intensify,

ongoing efforts to help further reduce improper Medicare fee-for-service payments.

Billions of dollars are at stake, and years of Medicare solvency will be lost if oversight is reduced. As we announced last week in our most recent annual report on

this subject, Medicare made $11.9 billion in improper payments in FY 2000, 6.8 percent of all Medicare fee-for-service payments. This is down substantially from the

$23.2 billion, or 14 percent, first reported for 1996. But it is still too high. Then as

now, most of the error is due to unsupported services and lack of medical necessity

for services rendered.

The reasons for these improper payments could range from inadvertent mistakes

to outright fraud and abuse. We cannot quantify what portion of the error rate is

attributable to fraud. The vast majority of health care providers are honest, hard

working professionals dedicated to the care of their patients. I will repeat this later

in my testimony, since it deserves emphasis.

Reducing errors would be one of the best ways to turn down the frustration and

sense of hassle felt by health care providers and the Medicare contractors who administer the program. For example, our annual reports show that hospital documentation errors have been completely eliminated for the last two years. This not

only shows that such improvements can be made, but it also illustrates how one

source of controversy and irritation can be minimized for all parties involved. To

further achieve such improvements, we recommend more training for providers, further refinement of Medicare guidelines and regulations where needed, concerted efforts to reduce errors with respect to specific codes most frequently found in error,

selected surveillance by peer review organizations (PROs) of high risk areas, and

adoption by health care providers of compliance plans that promote adherence to

Medicare program requirements.

Overhaul Medicare Contractor Structures and Authorities. Allow the

Health Care Financing Administration (HCFA) greater flexibility in the methods it

uses to select, organize, and supervise the contractors who handle the day-to-day operations of the Medicare program. This includes authorities to use entities other

than insurance companies, select them competitively, pay them on other than a cost

basis, organize them according to functions or benefits areas, and hold them accountable for performance.

The Medicare program is administered by the Health Care Financing Administration with the help of 50 contractors (Part A intermediaries and Part B carriers) that

handle claims processing and administration.

Over the years we have detected serious problems with contractor operations, including fundamental problems with accounting, electronic data processing, and

fraud control. We have even uncovered integrity problems with some of the contractors themselves—altering documents and falsifying statements that specific work

was performed. In some cases, contractors prepared bogus documents to demonstrate superior performance, which Medicare then rewarded with bonuses and additional contracts. Our investigations have resulted in 15 civil settlements and

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criminal convictions since 1993, with total settlement amounts exceeding $350 million. Two contractors pled guilty to obstruction of Federal audits. A number of investigations are ongoing. HCFA has been working to correct problems with contractors.

However, some serious concerns remain.

Under the Health Insurance Portability and Accountability Act of 1996 (HIPPA),

HCFA was granted new authority and flexibility in contracting for program integrity functions. It may enter into contracts or work orders for specific program safeguard functions, such as medical review, fraud detection, cost report audits, and reviews to identify primary payers to whom Medicare is the secondary payer. We support this authority and look forward to the changes in Medicare contracting that are

taking place under the new Medicare Integrity Program.

In contrast to these new and promising developments for integrity functions, the

Medicare statute places substantial limits on how HCFA obtains contractor assistance to administer the Medicare program. For example, it limits HCFA to choosing

only insurance companies to process Part B claims. As for intermediaries, most of

them are selected by the National Blue Cross/Blue Shield Association from companies nominated by providers (e.g., hospitals). All contracts must be cost based; other

reimbursement methods such as firm fixed price cannot be used. Furthermore, beyond the program integrity functions mentioned above, HCFA is not allowed to let

contractors specialize according to function.

HCFA has proposed broader, more flexible contracting authority in the past, but

these proposals were not approved. Intrinsically, more flexibility makes sense and

we support it. So does the General Accounting Office.

Another promising development is the designation of specialty contractors such as

the durable medical equipment regional carriers. They review and pay all claims for

medical equipment and supplies. There are only four of them, which appropriately

concentrates their expertise in this complex area. They are bolstered by a data analysis unit, staffed by one of these carriers but supporting them all. This enables them

to analyze payment and usage patterns which may suggest possible improper or

questionable conduct. They are also able to effectively collaborate on the formulation

of national coverage policies and payment control systems. A recent OIG evaluation

found that these entities are effective. This approach, however, has not been used

elsewhere, except for home health and hospice care. However, even these specialized

intermediaries are not supported by the kind of data analysis unit that the medical

equipment carrier utilize. We believe that specialty contractors, with a supporting

analytic unit, would make sense for problematic areas and recommend that they be

more widely used.

More flexibility and specialization will, we believe, bring greater expertise and efficiency to contractor operations. This will, in turn, improve their relations with providers and facilitate provider education and understanding of Medicare rules and

regulations.

Improve Accounting Systems. Speed up current efforts to establish a modern,

integrated, dual entry accounting system for accounts receivable to accurately portray and control the billions of dollars in transactions in this category annually.

Medicare accounts receivable primarily represent overpayments owed by health

care providers to the Health Care Financing Administration and funds due from

other insurers when Medicare is the secondary payer. For FY 2000, HCFA reported

a net accounts receivable balance of $3.8 billion, comprised of gross outstanding receivables of $8.1 billion and an aggregate allowance for uncollectible accounts of

$4.3 billion.

In FY 1998, we had to qualify our audit opinion on the Department-wide financial

statements, primarily because of serious problems in Medicare contractors’ ability

to report accounts receivable. For example, they could not support beginning accounts receivable balances; they reported incorrect activity and collections; and they

could not reconcile reported ending balances with subsidiary records. We reported

Medicare accounts receivable as a material internal control weakness because Medicare contractors used rudimentary, single-entry accounting systems that lacked general ledger capabilities for Medicare program activity and reported receivable activity to HCFA based on ad hoc spreadsheets.

In collaboration with the Office of Inspector General, HCFA initiated a major effort in FY 1999 to address these deficiencies. As a result of this effort, the receivables balance was fairly presented as of the end of FY 1999. However, internal controls are still not adequate to ensure that future receivables would be properly reflected in Medicare financial reports. The contractors still use ad hoc, single-entry

accounting systems, do not accrue liabilities in accordance with generally accepted

accounting principles, and do not use proper cutoff procedures.

A project team, formed under the guidance of HCFA’s Chief Financial Officer and

Chief Information Officer, expect to complete the development and implementation

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of an integrated system by the year 2007. Every effort should be made to advance

this expected completion date.

Improving the accounting systems will reduce financial errors, thereby improving

the soundness of the trust funds, with no additional burden on providers.

Adequately Support the Infrastructure. Do not skimp on resources needed to

ensure efficient and effective claims processing, policy development and regulation,

and quality assurance. Make a top-to-bottom review of the adequacy and use of currently available resources, seek realistic budgets for the Medicare infrastructure,

and maintain reliable funding in the future. Establish reasonable time frames for

implementing new reforms to balance the need for consultation with stakeholders

and timely introduction of new systems and benefits. Some areas deserving special

attention are:

Policy Development and Regulation. The Medicare program has always been

subject to considerable legislative change as it has evolved over the years. But the

legislative changes in the last several years, particularly those in the Balanced

Budget Act of 1997 and the two subsequent years of amendments, have been especially extensive and complex. The HCFA staff scrambled to implement regulations

timely, consulting with industry and beneficiary representatives in the process.

Their achievements in meeting this work load is impressive. But their limited resources will always place them in an unenviable dilemma. To issue the regulations

timely they may have to curtail consultation; to carefully consider industry and beneficiary concerns they may have to miss deadlines. The third alternative is to fall

behind on other administrative responsibilities. No matter which path they choose,

frustrations will abound among all parties. Ironically, HCFA’s requests for staff increases are sometimes portrayed as wasteful bureaucratic layering. Clearly, adequate resources need to be provided and effectively utilized.

Quality Assurance Reviews. More troubling, perhaps, has been the unreliability of resources for quality assurance. There have never been adequate resources to

meet the needs for State run but federally supplemented survey and certification

reviews of nursing homes, home health agencies, end stage renal dialysis facilities,

and the 20 percent of Medicare certified hospitals not accredited by the Joint Commission. Only nursing homes are generally reviewed yearly. But this has been at

the expense of the other institutions whose reviews have been curtailed in order to

shift survey and certification resources to address the severe problems that were becoming apparent there. For example, home health agencies which were once reviewed annually are now reviewed every three years. This change occurred at the

same time that the payment system was being reformed. We have documented gaps

in the reviews of psychiatric hospitals and dialysis facilities. Even for nursing

homes, which get the annual reviews, follow-up visits when deficiencies are found

are often delayed. And above and beyond periodic reviews, resources to investigate

complaints in all types of facilities are inadequate.

Patient Care Data Sets. The introduction of prospective payment as the method

that Medicare will use for paying skilled nursing homes adds incentives and complications to the medical care system. For example, the calculation of the prospective payment is derived from a patient assessment tool called the Minimum Data

Set. This tool has been under development for many years, primarily as a patient

care planning system. Now that it is being used to calculate Medicare payments,

a financial incentive to control data entry is now present. We recently studied this

system and found a significant number of coding problems which could adversely

affect both care planning and reimbursement. Nevertheless, nursing homes seem to

be trying to learn to use the system, which if properly implemented will be quite

useful. A commitment to the refinement and implementation of this system and

other systems like it is needed to improve patient care and ensure accurate billing

and payment.

Claims Processing Systems. Additional improvements are needed for HCFA

data systems used to process claims. For example, studies by our office have found

excessive numbers of unused but un-retired provider identification numbers, which

increase Medicare’s vulnerabilities to false claims. Routine maintenance of data systems could remove such vulnerabilities, but such ‘‘household’’ chores are naturally

accorded low priority and are not tended to.

Providing HCFA with the staff that is needed to operate the program will not result in more hassle for providers. It will enable HCFA to respond better to their

needs. Improving the critical data systems will reduce payment errors, improve patient care, and make program operations more efficient.

Fully Implement Recently Enacted Payment Reforms. Do not let the growing interest in new reforms distract Departmental policy makers and program administrators from systematically completing the implementation of Medicare+Choice

and other reforms, such as those related to nursing homes and home health care.

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Monitor, and take appropriate actions to correct, any deficiencies discovered along

the way regarding payment integrity and beneficiary protections, including access

to services.

While providers worry about being swamped by Medicare rules, beneficiaries and

their advocates worry about barriers to service access and poor quality care. This

concern stems partially from the growth of managed care (discussed later) and from

the new prospective payment systems for nursing homes, home health agencies, and

hospital outpatient departments. They also fear that the fixed rates discourage

treatment of individuals with complex, expensive medical problems. Structural

shifts in the health care industry, including the withdrawal of thousands of home

health agencies from the program and announcement of actual or pending bankruptcies in the nursing home industry, have added to the concerns of all parties.

It is overly simplistic to put all the blame on the Medicare program. Prior to the

reform of the home health payment system, OIG studies had found a steep rate of

improper payments (40 percent) in Medicare home health payments, and investigations had turned up massive fraud involving millions of dollars among some home

health agencies at that time. The industry, through its own actions, coupled with

reforms of the Medicare payment method and actions taken by HCFA, has done

much to address this problem, although the percent of services for which improper

payments are made is still too high at 19 percent.

The nursing home industry’s financial problems were due, in part, to imprudent,

and excessive purchases of nursing homes by private chains. They were expecting

continued high profits under predecessor Medicare payment systems. Thus, many

of the industry problems resulted from actions taken prior to the reforms taking

place. Furthermore, Medicare pays only about 10 percent of the cost of the nation’s nursing home care. The remaining 90 percent is funded through Medicaid and private pay sources.

In response to concerns about availability of care under these circumstances, we

undertook systematic studies in the last two years to measure access to care. These

studies found that few Medicare patients being discharged from hospitals were unable to get home health care or nursing care when they needed it. There was no

evidence of patients backing up in hospitals waiting for a home health or nursing

home treatment slot. However, some patients with complex and expensive medical

conditions did experience some delays. In the last two sessions of Congress, legislation was enacted to increase payment rates for these programs.

Overall, the nursing home and home health program reforms enacted by the Balanced Budget Act of 1997 seem well suited to the problems they attempted to address. For both programs, payments for patients with expensive, complex problems

are higher than those for patients with less severe problems. Home care is paid on

a 60 day cycle, so there is no limit to the care of individuals with longer term problems. For nursing homes, the payment is made on a daily rate basis, again providing adaptation for patients with longer term needs. The new payment systems

reduce vulnerabilities inherent in the previous systems, which promoted unnecessary care in some cases. But these reforms are not yet fully implemented. The danger to avoid is that with new policy initiatives on the front burner, policy makers

and administrators may get distracted from the management of previously legislated reforms.

HCFA needs to monitor these changes carefully, particularly to insure that payments are made timely and correctly. We will continue and even expand our own

annual reviews, particularly those intended to ensure that beneficiaries have access

to nursing home and home health care and receive quality services while the new

payment systems take hold. We will report what we find, one way or the other, so

that the Congress, HCFA, and the medical care industries involved can respond accordingly.

The most chaotic phase of program implementation—the initial one—is now nearly over. Methodical completion of implementation can be done smoothly if the health

care industry and Medicare program administrators monitor developments and are

open to adjustments when needed.

Follow Through on Quality of Care Initiatives. In particular, carefully monitor nursing home reforms to insure a safe environment and high quality of care

for residents.

Not all quality of care problems are related to recent changes in payment systems.

The Omnibus Budget Reconciliation Act of 1987 contained a major section on nursing home reforms intended to address longstanding patient care issues. Unfortunately, ten years later the Office of Inspector General as well as the General Accounting Office continue to expose serious quality of care problems. We found increases in the incidence of bed sores, nutrition problems, and conditions conducive

to accidents. The survey and certification system was found to be fundamentally

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flawed, allowing nursing homes with serious deficiencies to continue operations despite repeated violations. The methods used to schedule visits eliminated the element of surprise, making it possible for nursing homes to prevent discovery of deficiencies.

Quality of care problems are not limited to nursing homes. Recent national studies identified troubling levels of medical errors in hospitals. Our own program evaluation studies revealed weaknesses in the review system used by the Joint Commission on Accreditation of HealthCare Organizations (JAHCO), which Medicare relies

on for quality oversight of 80 percent of participating hospitals. We found that their

surveys are unlikely to detect substandard patterns of care or individual practitioners with questionable skills. There were few random, unannounced reviews and

little opportunity for surveyors on site to probe hospital conditions or practices. The

whole review process was more collegial than independent and objective. For the 20

percent of Medicare certified hospitals which are not accredited by JAHCO, we

found that half had gone without a State survey for more than 3 years (the industry

standard) and some for as long as 8 years. Troubling shortcomings have also been

discovered in quality oversight systems for psychiatric hospitals, again highlighted

in OIG reports.

The Department and the Joint Commission have prepared responsive initiatives

to correct the problems identified. However, the corrective actions are complex and

have not yet been fully implemented. Furthermore, these problems are the kind that

require constant vigilance.

For nursing homes, this means more unannounced onsite reviews, more frequent

and intensive reviews of repeat offenders, more follow-up on serious deficiencies, imposition of fines and penalties for serious offenders, with fewer ‘‘second chances’’ to

correct their problems, special initiatives to focus on selected serious problems like

bedsores, and general improvements in training of State reviewers. For hospitals

this means public accountability for JAHCO and State agencies for their performance and determining the minimum appropriate cycle for conducting surveys of nonaccredited hospitals and special reviews by contracted psychiatric review teams for

psychiatric hospitals.

Continuous quality oversight does not burden providers the way inconsistent, sporadic, infrequent, and unfamiliar oversight does. Patient care is enhanced, reducing

disputes between providers, advocacy groups, and Medicare administrators on the

most fundamental aspects of the program.

Restructure Appeals and Grievance Systems. Overhaul Medicare appeals

and grievance systems by establishing a dedicated corps of Medicare Administrative

Law Judges (ALJs); providing adequate resources to handle current and projected

caseload; making guidelines more uniform; adopting separate procedures for beneficiaries and providers; making Departmental Appeals Boards decisions precedential; and improving timeliness of reviews.

Current Medicare appeals and grievances systems are not sufficiently responsive

to the needs of beneficiaries, health care providers, or the Medicare program itself.

Originally designed with beneficiaries in mind, most appeals are now generated by

providers. The non-adversarial nature of the procedures, which were originally intended to simplify matters for beneficiaries, leaves the Medicare program with no

representative once the appeal process starts.

The current system was started when the program first began. At that time,

Medicare was in the same Department as the Social Security Administration (SSA)

and was relatively small in comparison to the Social Security program. It made perfect sense to use the appeals and grievance system of SSA to handle Medicare’s

needs. Since then, the SSA became an independent agency, and Medicare has grown

in size and complexity. But the ALJs who handle Medicare are still attached to SSA

with only a small corps dedicated to Medicare. Many ALJs who handle Medicare

cases do so in addition to their duties as SSA judges.

These two features of the original appeals and grievance system—its focus on beneficiary complaints, and its status as an adjunct to SSA—have left it ill prepared

to deal with the growth and complexity of Medicare and the prominent role, needs,

and expectations of providers. As a result, providers experience delays and inconsistent rulings. Medicare has a very limited role in representing the interests of the

program.

Compounding the intrinsic weakness of the system is a recent significant growth

in workload. For example, the number of ALJ hearings increased from 28,515 in

1996 to 49,253 in 1998. The Departmental Appeals Board reports that appeals to

it rose from 46 in 1994 to 670 in 200. Yet, minimal resources have been allocated

to this hearing function.

Overall, the system has few champions and needs a top to bottom overhaul.

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The recently enacted Benefits Improvement and Protection Act of 200 (BIPA)

modified the appeals process by establishing time limits on earlier stages of the appeals process which, if breached, provided for automatic referral to the next higher

level. These new provisions, which will go into effect on October 1, 2002, could lead

to inappropriate decisions due to unrealistic time spans to address complex questions, a clogging of the appeals channels, and an inability to prioritize decision making.

The BIPA provisions were intended to address legitimate concerns of providers to

get prompt answers to their appeals and coverage questions. However, these new

procedures are likely to cause additional rather than fewer burdens and aggravations by overwhelming the appeals and review channels. While well intended, they

do not address the weaknesses in the fundamentals of the appeals and grievance

systems—resources, guidance and standards, organizational locus of ALJs, rules of

precedence, appropriate adaptation of procedures to beneficiaries and providers, and

timeliness of reviews. A better approach, we believe, would be to conduct a more

comprehensive study of the entire process with input from all the affected parties.

New recommendations can be considered and implement before the BIPA provisions

take effect. The latter can be modified through legislation based on the results of

the study.

Build the Monitoring and Assessment Tools Into Future Reforms. Specify

the cost and encounter data that the Department, the Congress, and health care industry and Medicare beneficiary stakeholders will need to annually assess the cost,

effectiveness, and efficiency of any new reforms enacted. Establish a new independent body, or use an existing one, to analyze and periodically make public reports and recommendations regarding adjustments needed for new programs.

Managed care options have been available to Medicare beneficiaries in some areas

since 1982. The original ideas behind this concept were that a single organization

being responsible for a patient’s care, with financing in the form of capitation payments, would create incentives for preventive care, elimination of unnecessary services, and more efficient administration. Managed care providers would compete for

Medicare business by offering Medicare beneficiaries additional benefits beyond

those available under the regular fee-for-service Medicare program. The result

would be better health care and improved health status, at lower costs.

At the end of each of the last three years, a significant number of health maintenance organizations (HMOs) have withdrawn from the program or reduced their

coverage areas. Many have also restructured their benefit and coinsurance provisions. For example, at the end of the year 2000, 65 HMOs chose not to renew their

contracts and 53 reduced service areas, affecting more than 934,000 beneficiaries.

Approximately 83 percent of affected beneficiaries were able to enroll in another

HMO; the remainder had no choice but to return to Medicare-fee-for-service coverage.

There are other issues connected with managed care options, including shortcomings in the understandability of marketing materials and handbooks of information provided to beneficiaries, and issues surrounding appeals and grievance processes.

The Medicare+Choice legislation improved data and information collection aimed

at assessing the costs of managed care. Managed care plans are now reporting actual costs in a way that for the first time makes it possible to assess the reasonableness of their cost rates and benefit packages.

Some of the key lessons learned from the current Medicare managed care program

are that: market forces alone cannot be depended upon to ensure reliable benefits

at reasonable cost; accurate cost is essential for the analysis of proposed new contracts; and reliable, easy to understand member materials are essential to ensure

intelligent choice by beneficiaries. Any future Medicare reforms designed to offer additional flexibility to Medicare beneficiaries will need to provide similar transparency about costs and benefits to both beneficiaries and Medicare administrators.

This will enable Medicare to avoid the kind of turmoil recently experienced in

managed care, thereby preventing administrative burdens and aggravations for both

providers and beneficiaries.

PAYMENT CONTROLS: PROVIDERS’ CONCERNS

As previously noted, the OIG annual Medicare payment error rate audit does not

determine whether an inappropriate provider payment request is the result of an

innocent error, a misunderstanding of Medicare coverage, pricing, or payment rules,

carelessness, mismanagement, or outright fraud. It is not a ‘‘fraud error’’ rate and

should not be construed as such.

Despite our best and continued efforts to emphasize the nature of the payment

error rate and our respect for the integrity of health care providers, some of them

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have become more vocal in their objections to what they regard as overzealous scrutiny. Particularly in the physician community, some providers express fear that they

will be prosecuted as criminals for making honest billing errors while trying to interpret regulations of an increasingly complex Medicare program.

Let me repeat what I said earlier. The vast majority of physicians and other

health care providers are honest, dedicated individuals who work hard for their patients. Their concerns deserve our attention. I would like to take advantage of this

opportunity to respond to them. To do so, I must first explain the nature of the Federal fraud and abuse control program, and I need to put it into the context of broader reforms that have been occurring in the Medicare program.

Fraud and Abuse Control Program. To address fraud and abuse, a Health

Care Fraud and Abuse Control Program (HCFAC), jointly administered by the Secretary of the Health and Human Services (HHS) through the Office of Inspector

General and the Justice Department, was enacted into law as part of the Health

Insurance Portability and Accountability Act of 1996. That same law provided

HCFA with increased funding for a Medicare Integrity Program (MIP).

The Act provided both new authorities and critical resources to enable HHS, the

Justice Department, and the many Federal, State, and local programs and agencies

engaged in health care fraud enforcement to better detect, investigate, prosecute,

and prevent fraud and abuse. In Fiscal Year 2000 alone, the Federal Government

won or negotiated more than $1.2 billion in judgments, settlements, and administrative impositions in health care fraud cases. Actual collections for the year in health

care cases exceeded $715 million, with more than $577 million returned to the Medicare Trust Fund. Since inception of the program in October 1997, over $2.1 billion

has been returned to the Trust Fund.

The program has also enabled this Department to step up its efforts to exclude

from Medicare, Medicaid, and other Federal health care programs providers and

suppliers that engage in certain prohibited conduct. During Fiscal Year 2000, over

3,300 individuals and entities were excluded from program participation. Exclusions

were based on criminal convictions for crimes related to Medicare or other health

care programs, patient abuse or neglect, license revocation, and other misconduct.

Program Structure and Controls. Perhaps more important than fraudulent

billings are large but unnecessary payments stemming from perverse incentives and

weak controls. For example, much of the historical double digit growth rates of hospital payments in the late 1970’s was the product of government policy to pay on

the basis of costs and charges, not the result of provider misconduct. Those excessive growth rates were curbed not so much by audits and payment controls but by

changing to a new reimbursement model, the prospective payment system. More recently, the Balanced Budget Act of 1997 mandated prospective payment systems for

home health care, nursing home services, and hospital outpatient services. These

program reforms, along with tougher scrutiny of providers seeking to enroll in the

program, increased audit and medical necessity reviews, and provider education reduced Medicare payments by tens of billions of dollars. For example, home health

expenditures dropped from $18 billion in 1996 to $9.5 billion in FY 1999.

Provider Concerns. Continued participation of health care providers of all

kinds—physicians and other health care professionals, hospitals, nursing homes,

home health agencies, laboratories, equipment manufacturers and suppliers—is crucial to the success of the Medicare program. All of them have been profoundly affected by recent Medicare reforms. They are also affected by current regulations and

administrative procedures.

However, provider concerns relating to inappropriate investigations are unfounded

and both HCFA and the Office of Inspector General are reaching out to physician

groups to reassure them. First, under the law, physicians and other health care providers are not subject to civil or criminal penalties for honest mistakes, errors, or

even negligence. The government’s primary enforcement tool, the civil False Claims

Act, covers only offenses which are committed with actual knowledge, reckless disregard, or deliberate ignorance of the falsity of the claim.

The False Claims Act simply does not cover mistakes, errors, or negligence. The

other major civil remedy available to the Office of Inspector General, the Civil Monetary Penalties law, has exactly the same standard of proof. For a criminal case,

the standard is higher. The Office of Inspector General is very mindful of the difference between negligent errors and mistakes on one hand, and reckless or intentional misconduct on the other. As a result of the relatively high standards of proof

needed to establish liability, the number of civil and criminal penalty actions initiated against physicians is fairly small, averaging less than 50 penalty actions per

year. Last year, as a result of OIG efforts, only 12 of the more than 600,000 physicians who participate in the Medicare program were convicted of health care related

crimes.

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Both HCFA and the Office of Inspector General have also been engaging health

care providers to join in a national effort to eliminate fraud and abuse and have

undertaken numerous outreach efforts to help the medical care industry avoid getting into trouble. The cornerstone of OIG efforts has been the publication of voluntary compliance program guidances (developed with industry input) to assist and

encourage the various sectors of the private health care industry to voluntarily fight

fraud and abuse. In addition, we issue special fraud alerts and advisory bulletins

advising medical care providers on topics that warrant their attention. All this information, as well as the results of our audits, investigations, and evaluations, are routinely made available through public presentations and on our web site.

HCFA too has enhanced its provider education efforts and has expedited its process for issuing new regulations, such as those required by numerous program

changes mandated by the Balanced Budget Act and subsequent legislation. Their

web site has been upgraded to make program information more widely and quickly

available than ever before. And they use numerous technical advisory boards made

up of health care professionals to advise on policy. In addition, HCFA has organized

a ‘‘Physician Regulatory Issues Team’’ to assess the weight of Medicare regulatory

burden on physicians. Its goal is to recommend changes to reduce administrative

burden.

Program Complexity. Providers are concerned about the complexity of Medicare, even without reference to their potential liability for fraudulent or abusive behavior. Since the inception of Medicare, numerous legislative changes have been

made and amendments added to the Social Security Act which have led to substantial changes to the Medicare program. With each addition, HCFA is required to develop new regulations as well as update its contractor and provider rules and guidelines. For example, the Balanced Budget Act of 1997 contained 335 provisions related to Medicare programs, which required the development of a substantial number of new regulations.

Much of the complexity in the Medicare program is not inherent in the program

itself, but rather it parallels the ever increasing complexity of our health care system. For example, the development of various forms of managed care and new kinds

of vertical and horizontal integration have led to the need for Medicare rules and

regulations to evolve along with them.

As noted earlier, the way Medicare pays for health care has changed, through

time, from primarily cost/charge based payment systems to new fee-schedule and

prospective based arrangements. For example, hospital inpatient, physician, then

lab and durable medical equipment services were the first areas of the program to

switch to prospective payment or fee-schedule based payment systems. More recently, skilled nursing facility, home health, and hospital outpatient services have

moved or are moving to prospective payment systems as well. This transitioning

from one payment system to another inevitably involves an intensive and somewhat

uncomfortable learning period. In the long run, it is hoped that these new payment

systems will simplify and reduce the administrative burdens of providers.

Is the Medicare payment system too difficult to understand? In some cases, our

audits and evaluations do indicate that some rules are unnecessarily complex and

burdensome. In such cases, we make recommendations for simplification. However,

our recent error rate review indicates that providers are doing a very good job of

negotiating their way through Medicare payment systems, and we estimated 93 percent of all Medicare payments to health care providers were free of error. In the

substantial majority of cases, legitimate providers are billing for legitimate services.

Nevertheless, providers remain concerned. Their legitimate concerns about program complexity, inconsistency, burdens, and hassles need to be considered. Providers need high level reassurances that they will not be assessed penalties for honest errors. At the same time, regulations to implement new programs need to be

issued in a timely manner, and program integrity concerns need to be addressed.

PROPOSED LEGISLATION

The Medicare Education and Regulatory Fairness Act of 2001 (HR 868) has just

been introduced to address some of the concerns of providers which were discussed

in the previous section. I was asked to comment on this bill in my testimony, and

appreciate the opportunity to do so.

Given what I just said about our appreciation of providers’ concerns, we would

support some action by HCFA and possibly the Congress to address valid problem

areas. However, the Office of Inspector General cannot support this bill as written.

While its objectives are worthy, we are concerned that many of the provisions will

subject the Medicare Trust Funds to a high level of risk and possibly result in harm

to beneficiaries. I will provide summary comments here, but hope that our staffs can

meet to discuss these provisions in greater detail. Hopefully, we can find ways to

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address the concerns that this bill was meant to address without endangering the

integrity of the Medicare program, as this bill would.

First, I will identify the provisions which we believe are most problematic. Then

I will identify some provisions which appear to us to be more promising and which

merit additional consideration. Our primary concerns are related to:

Judicial and Regulatory Challenges

The bill would nullify longstanding legal doctrines requiring ‘‘exhaustion of administrative remedies’’ and a ‘‘case or controversy’’ in order to appeal matters to

Federal court. It would eliminate these requirements for cases challenging the constitutionality and statutory authority of HCFA regulations. This would clutter the

Federal courts with hypothetical, possibly trivial cases and deny the courts the advice, insight, and judgement of Federal agencies and administrative appeals bodies

in making decisions.

The bill would establish of unreasonable timeframes for hearings by ALJs and the

Departmental Appeals Board. While the goal of this proposal may be to expedite the

review process, it is highly unlikely that this result will be achieved. In all likelihood, the result will be the premature elevation of appeals to the Departmental Appeals Board and Federal courts, which are not in a position to conduct ‘‘de novo’’

fact finding hearings on an expedited basis.

The bill also requires an additional layer of review or reconsideration if a provider

is dissatisfied with a finding that the provider is out of compliance with a particular

standard or condition of participation. This would delay the imposition of sanctions

and would increase the risk of jeopardizing the health and safety of Medicare beneficiaries.

Repayment Period

The bill would entitle providers to a three year repayment period for overpayments. While repayment plans make sense in some cases (and are already allowed

under current law), they could greatly reduce the ability of Medicare to recover overpayments in others. An exception for cases where the Secretary finds clear and convincing evidence of fraud would be difficult to administer and could allow offenders

to flee, declare bankruptcy, or otherwise place funds out of reach until such a determination can be made.

Repayments During Appeal

The bill would prohibit recovering past overpayments if appeal is pending. This

has the same risks as the previous provision.

Document Requests

The bill would prohibit the carriers from requesting the production of records or

documents prior to payment absent cause. This would prevent review of documents

supporting the claim prior to payment, even in programmatic areas where past histories of abuse are present. Without this well established and recognized tool the

integrity of the Medicare program would be seriously jeopardized.

Voluntary Repayment

The bill would establish an unprecedented new form of immunity from investigations to a provider who voluntarily returns overpayments. The intent of this provision is understandable. Providers who make unintentional errors or discover overpayments which they had not sought should be encouraged, not penalized, for voluntarily returning them without fear of penalty or prosecution. However, there is no

need for new legislation in this regard. As I mentioned earlier, physicians and other

health care providers are not subject to civil or criminal penalties for honest mistakes, errors, or even negligence. However, those relatively few providers who would

deliberately and fraudulently steal from the Medicare program would not hesitate

to use this provision to immunize themselves from investigation and prosecution,

and, in essence, obtain interest free loans from Medicare.

Extrapolation

Extrapolation is the scientifically valid method of statistical sampling, and has

been fully accepted by the Federal courts as a method of estimating liability for

overpayments. The bill would prohibit recoupments or offset payment amounts

based on extrapolation for the first time that a provider is alleged to have received

overpayments or when a provider submits a claim for advice of suitability (as provided for later in the bill in the section on education components). These provisions

would eliminate an important tool in evaluating overpayments and deprive the trust

fund of the full amount owed to it. Ironically, the bill would greatly increase the

burden on providers if, instead of using scientifically drawn samples of claims to deVerDate 11-MAY-2000 08:25 Sep 25, 2001 Jkt 074213 PO 00000 Frm 00091 Fmt 6633 Sfmt 6621 E:\HR\OC\A213.XXX pfrm09 PsN: A213
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termine the amount of overpayment, carriers and intermediaries would be required

to review the entire universe of suspect claims of a provider. This would also increase Medicare’s administrative costs. The provisions would also increase the

amount the provider would have to repay, since when scientific samples are used

instead of universe reviews, the amount of the overpayment to be collected is often

based on the lower end of the sample’s confidence level rather than the midpoint,

the most likely estimate of the overpayment amount. Most importantly, it provides

an inappropriate ‘‘safe harbor’’ immunizing a provider from full liability. Finally, the

few fraudulent providers that there are would not hesitate to use these provisions

to protect their ill gotten gains from recovery and themselves from surveillance or

prosecution.

Claims Processing Screens

The bill would require HCFA to reveal claims processing screens to providers.

Honest providers do not need to know the screens. Explaining them to dishonest

providers is the equivalent of instructing them how to avoid detection and successfully exploit the program. Fraud detection through prepayment review would be nullified.

Advisory Services

The bill would give providers immunization from investigation as a result of seeking advice on billing and cost reporting provisions of the Medicare program. It is

reasonable for honest providers to be able to seek advice about their claims without

fear of investigation or prosecution. However, this provision would provide a dishonest provider immunization from investigation, a result which is not at all desirable.

Long Term Care

The various provisions relating to appeals in connection with long term quality

improvements cause us to have many of the same kinds of concerns raised in the

sections above—unnecessary, additional levels of review, unrealistic timeframes for

moving to the next higher level of review, and suspension of remedies. All of these

could seriously jeopardize patient safety and quality of care.

Promising Proposals

It is obvious that parts of the proposed bill are intended to assure honest providers that they will not be subject to investigation, prosecution, or harassment as

a result of good faith efforts to comply with Medicare requirements. Unfortunately,

many of these same provisions would play into the hands of the small number of

unscrupulous individuals who use sophisticated means to exploit weaknesses in the

Medicare program. Honest providers do not need the additional protections provided

here. However, they certainly deserve practical assurances that their good efforts

will not result in their being punished.

While I believe that most providers concerns can be addressed through administrative rather than legislative means, those sections of the bill relating to educational programs, advisory services, deferral of penalties until exhaustion of appeals, repayment periods, and appeals and grievances are worthy of additional review.

More provider education would be especially valuable. We have already seen the

beneficial effects of HCFA educational initiatives. They have a lot to do with the

substantial drop in the payment error rate and clarification of documentation standards. Our own efforts in working with the provider community in developing compliance guidelines have convinced us of the usefulness of outreach and education.

Similarly, providers ought to be able to get answers when they have questions

about submitting their bills. A program through which HCFA can provide them advisory services would be very useful. Our own experience in administering such a

program has convinced us of the benefits. We urge that any such initiative be fully

funded. As noted earlier, however, we would not support the granting of immunity

in connection with requests for advice.

Other provisions of the bill could be helpful if substantial changes were made to

them. For example, extended payback periods would make sense if they were necessary to prevent bankruptcy or severe hardship to a provider who received overpayments innocently. However, an automatic three year privilege would not be appropriate in all cases. Similarly, while deferral of penalties until final determinations

are made could be reasonable in many cases, this would not be desirable if patient

care were placed at risk. For both of these provisions, consideration should be given

to the payment of interest to the Medicare Trust Funds—for example, for overpayment amounts sustained after appeal and during a repayment period.

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As noted earlier, the Office of Inspector General fully understands the need to improve the appeals and grievance system. However, we propose a thorough overhaul

of this system. Simply specifying time limits for review, especially unrealistic ones,

will not correct the underlying problems, as described earlier.

Finally, I would also point to the various recommendations which are included in

the first part of my testimony. Their implementation would reduce frustrations and

improve Medicare payment systems.

I hope that we can find ways, primarily through education and communication,

to provide the honest providers with the understanding and assurance they deserve

in their medical practice. We look forward to working with the medical care community in finding ways to do this.

CONCLUSION

Medicare is important to all of us. I hope that the suggestions provided here from

the Office of Inspector General will be useful in streamlining the program, reducing

frustrations of providers and administrators alike, and making the program better

for Medicare beneficiaries. We are ready to help this committee and all parties involved to find a better way to manage this program. Thank you for the opportunity

to present these ideas to you.

Chairwoman J

Dr. Moffit.

OHNSON. Thank you.

f STATEMENT OF ROBERT E. MOFFIT, PH.D., DIRECTOR,

DOMESTIC POLICY STUDIES, HERITAGE FOUNDATION

Dr. MOFFIT. Madam Chair, my name is Robert Moffit. I am the

director of Domestic Policy Studies at the Heritage Foundation. I

want to express my sincere appreciation to you for the honor to testify before the House Ways and Means Subcommittee on Health.

I want to stress that the views that I am expressing today are entirely my own and should not be construed as representing any official position of the Heritage Foundation.

My professional interest in Medicare and the delivery of health

care services is more than academic, although I spend an awful lot

of time studying health care policy. I served as Deputy Assistant

Secretary for Legislation at the Department of Health and Human

Services during the Reagan administration, and I also served as

Congressional Relations Director at the Office of Personnel Management, the agency that runs the Federal Employee Health Benefits Program, which, as you know, is a prominent model for Medicare reform. So I have practical experience in dealing with both

programs and responding to congressional inquiries on problems in

both health care systems.

I want to make a few observations on this conversation we are

having this morning. One of them is obvious. It is that Medicare’s

regulatory complexity is not the fault of the Health Care Financing

Administration, the agency that administers Medicare. On this I

agree with Congressman Stark. Parenthetically, it is a Historic occasion when the Heritage Foundation and Congressman Stark find

themselves in agreement. Perhaps a solar eclipse will shortly follow. But the criticism of the Medicare regime should not be a criticism of the career staff of HCFA or HCFA as an agency of the Federal government.

The reason why we are having these discussions is because of the

structure of the Medicare Program. Medicare is an entitlement program. More importantly, it is a defined benefits program. If you

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have a defined benefits program, Congress must determine what

benefits Medicare patients will get, and subsequent to congressional authority, HCFA and its contractors determine what is or is

not covered for purposes of reimbursement, and what specific medical services, treatments, and procedures Medicare patients will get

and how and under what circumstances they will get them.

This is endemic to today’s Medicare Program. It means that

HCFA must write increasingly detailed rules to the extent to which

medical benefits modify or change. If Congress doesn’t want to

change this structure, there is no simple way around these regulatory problems.

A second observation: HCFA is overwhelmed by the size and

scope of its current regulatory responsibilities and is in a state of

managerial crisis. HCFA also has responsibilities beyond Medicare:

for Medicaid, the State Children’s Health Insurance Program, and

enforcing provisions of the Health Insurance Portability and Accountability Act. HCFA oversaw a total estimate payment of about

$370 billion for health services last year. As GAO and others have

noted, it is becoming progressively harder for HCFA to fulfill all of

these responsibilities.

This managerial crisis has been developing over time. Our colleague, Lynn Etheredge, at George Washington University, wrote

in the October 2000 edition of Health Affairs that the management

crisis at HCFA has arrived.

A third observation: Medicare’s regulatory complexity is compromising the quality and delivery of medical services and insurance

products. In my written testimony, I detail this. But this is becoming evident in at least two areas: the access to medical technology

and the use of private plans in the Medicare Plus Choice program.

Fourth: Medicare’s regulatory complexity is bound to get worse.

With the rising demand for medical services by a rapidly aging

population, a Medicare-eligible population that will double over the

next three decades, the pressures to accommodate those increased

demands and increased costs within the existing framework of administrative pricing and benefit setting will intensify. Congressional debates over physician and hospital payment or reimbursement for home health care or skilled nursing facilities or prescription drugs, or how to cover or whether to cover new medical devices

or procedures, is going to require even more congressional time and

attention and will require even greater administrative effort and

even more detailed rule-making on the part of the Health Care Financing Administration.

Finally, the expansion of Medicare benefits, including the addition of a prescription drug benefit, without addressing the managerial and regulatory problems plaguing the program, I think, would

be a profound mistake. We have managerial problems in Medicare

part A, B, and C right now. If you had a prescription drug benefit,

without dealing with the current regulatory regime, you are asking

for much more trouble.

My colleagues at the Heritage Foundation think that the best

way to solve this problem is to change the program’s structure, and

the way to do that is to go to a tested model that has been proposed by the President and by the Bipartisan Commission, and

that is the Federal Employee Health Benefits Program (FEHBP).

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I just would like to make one observation before I close on the

governance of the FEHBP. Students of the Federal employee program have found that among its most attractive features is the

brevity and simplicity of its statutory authority. The program is

characterized by a notable absence of heavy regulatory control, the

relative ease with which the program adopts new health care benefits and absorbs new medical technologies, its relative flexibility in

benefit setting. From the standpoint of governance, the Federal employees’ system also enjoys a relative freedom from the bitter politics of administrative pricing, the medical income redistribution,

and the attendant congressional micromanagement that afflicts the

traditional Medicare Program. And the major reason is, in stark

contrast to the Medicare Program, the Federal Employees Program

is largely a market-driven system, which relies on private sector

plans to structure their offerings each year to satisfy consumer demand and compete with each other directly in promoting patient

satisfaction. This is in sharp contrast to Medicare. The crucial decisionmaking in the FEHB is not centralized; it is diffuse.

While there are negotiations between OPM staff and major

plans, and hundreds of routine transactions between OPM and private plans in the several States, there are literally millions of decision points in the system governed by the diverse wants and needs

of Federal employees and their families and the dynamic conditions

of supply and demand.

I would close, Madam Chairman, by emphasizing that you are

going to have a major political challenge with Medicare reform. But

there are going to be technical difficulties no matter what you do.

If you decide that you do not want to reform the Medicare system,

that is your decision. But all of these regulatory and managerial

problems that you heard about this morning are going to intensify

and they are going to get worse. If you decide to go to a new system, you are going to have new problems. But you are also going

to have a lot of new opportunities as well.

Thank you very much.

[The prepared statement of Dr. Moffit follows:]

Statement of Robert E. Moffit, Ph.D., Director, Domestic Policy Studies,

Heritage Foundation

Madame Chair, Members of the Subcommittee:

My name is Robert E. Moffit. I am Director of Domestic Policy Studies at the Heritage Foundation. I wish to express my sincere appreciation to you and Members

of the Subcommittee for the opportunity to testify on the subject of Medicare regulations. I must stress, however, that the views I express are entirely my own, and

should not be construed as representing any official position of the Heritage Foundation.

My professional interest in Medicare regulation, and how to improve the financing

and delivery of medical services to American citizens, is far from academic. During

the Reagan Administration, I not only served as Deputy Assistant Secretary for legislation at the Department of Health and Human Services (1986–1989), handling

congressional requests and constituent problems related to Medicare, but I also

served as the Director of Congressional Relations at the United States Office of Personnel Management (1981–1986), the agency that administers the Federal Employees Health Benefits program (FEHBP), the model for reform embraced by the Bush

Administration, the majority of the National Bipartisan Commission on the Future

of Medicare and the model embodied in the legislative reform proposals recently introduced by Senators John Breaux (D–LA) and Bill Frist (R–TN). I have thus had

a practical experience in monitoring and responding to congressional inquiries on

both programs.

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Concerning the Medicare’s regulatory problems, I have several observations.

First, Medicare’s regulatory complexity is not the fault of the Health Care

Financing Administration (HCFA), the agency that administers Medicare.

Criticism of the Medicare’s regulatory regime should not be a criticism either of the

career staff or HCFA as an agency of the federal government. This is not to exonerate the agency or its officials from some serious mistakes, or lapses in judgment.

But much of the understandable anger directed at HCFA by doctors and medical

specialists, and even Members of Congress is too often misplaced.

Growing dissatisfaction among providers over Medicare’s regulatory burdens is

not merely attributable to HCFA’s managerial efficiency, or its lack of managerial

efficiency. Rather, it is attributable to the seemingly incessant Congressional delegation of ever greater regulatory responsibilities to the agency, and, more importantly,

to the very structure of the Medicare program itself. Medicare is an entitlement program; it is a defined benefits program, where Congress determines what benefits

Medicare patients will get; and, subsequent to Congressional authority, HCFA and

its contractors, determines what is or is not covered for purposes of reimbursement,

and what specific medical services, and treatments and procedures Medicare patients will get and how, and under what circumstances they will get them. HCFA,

again subject to Congressional authority, determines what is or is not appropriate

or medically necessary. This is formidable regulatory authority. But it is difficult to

imagine how Medicare, given its current structure, could function otherwise. Surely,

HCFA’s most severe critics would not want to surrender to the agency unlimited

flexibility to carry out its mandate. If Congress wishes to retain this structure, then

Congress must authorize, and HCFA must implement and enforce increasingly detailed regulations that guarantee universal access to a set of legislatively or administratively defined benefits, medical treatments or procedures.

Given this structure and this process, there will be numerous disagreements, powerful and angry dissents, and strong objections from medical providers, seeking exceptions or expansions to these rules. The regulatory exceptions simply complicate

the regulatory environment.

So, HCFA’s problems are not rooted simply in the absence of a superhuman wisdom, or any inherent deficiencies in HCFA staff to do the necessary regulatory job,

or because the agency suffers from an absence of information technology specialists,

or aging and outdated information systems unable to cope with the rapidly changing

conditions. It is rooted in a work overload that, given the Congressional authorization, is unavoidable. These problems are not going to be solved simply by appropriating funds so that HCFA can acquire the right software or the right hardware,

or the right specialists in whatever field of health care policy that is required. Given

the current structure of the Medicare program, there is simply no way to avoid

these difficulties.

Congress specifies what it will pay for benefits and services, and authorizes HCFA

to make any adjustments in accordance with its legislative determinations, or the

formulas, that govern Medicare’s complex system of administrative pricing plus

price caps, including the Prospective Payment System (PPS) for hospital payment

and the Resource Based Relative Value Scale (RB–RVS) for physician reimbursement. As my colleague Dr. Len Nichols, a senior economist and health care policy

analyst at the Urban Institute has noted, the task imposed on HCFA is to set

roughly 10,000 prices in 3000 counties across the United States, a task which it

does not, and cannot, do very efficiently or effectively.

On payment issues, as on the benefit issues, as Members of this Subcommittee

know, far better than I would even be able to imagine, there are intense pressures

to readjust constantly this formula driven Medicare payment system; carve out exceptions; and revise and refine the reimbursements upward. These pressures are invariably intensified after Congress has taken actions to reformulate reimbursements

downward, in perennial attempt to control costs in the program. This annual political process also invariably adds to the growing complexity of the system, and makes

it progressively less comprehensible for doctors, hospitals and other providers, and,

of course, patients.

For the most part, Medicare patients are the passive recipients of this arcane and

complicated decision-making process. Medicare’s regulatory regime directly impacts

only doctors, hospitals and other providers. Compared with the private sector, Medicare’s administrative costs, as a percentage of payment for benefits, appears very

low, roughly between 1 and 2 percent. But this calculation does not take into account the transactional costs of health providers in complying with this regulatory

regime. A major econometric analysis of these costs, and their impact on patients,

would be welcome.

Altogether, this process not only frustrates providers—doctors, hospital administrators or home health care officials—but also yields some very odd economic reVerDate 11-MAY-2000 08:25 Sep 25, 2001 Jkt 074213 PO 00000 Frm 00096 Fmt 6633 Sfmt 6621 E:\HR\OC\A213.XXX pfrm09 PsN: A213
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sults. The General Accounting Office has done a number of studies on the subject,

which make for interesting reading. Once again, if Congress retains the current

structure of Medicare, there is simply no way around these problems or political

pressures.

Second, HCFA is overwhelmed by the size and scope of its regulatory responsibilities, and is in a state of managerial crisis. Once again, the regulatory

responsibilities of HCFA are not, of course, generated by HCFA; they are imposed

by Congress. And, as noted, they are elemental to the very structure of Medicare

as a defined benefit entitlement program. Medicare today covers almost 40 million persons, at an estimated cost of $220 billion. As the General Accounting Office and others have pointed out, HCFA also administers the Medicare Plus Choice program with over 300 managed care plans, and

contracts out for the services of others, particularly intermediaries or insurance carriers, in every state in the union. HCFA pays approximately 6000 hospitals, and

roughly 700,000 physicians and other providers. Moreover, HCFA must write standards, as a condition for participating in the Medicare program for a variety of institutions and specialties, such as hospitals, home health care agencies, clinical laboratories, nursing homes, skilled nursing facilities, among others. And beyond Medicare, HCFA also has responsibilities for running Medicaid, overseeing the State

Children’s Health Insurance Program, and enforcing certain provisions of the

Health Insurance Portability and Accountability Act. Altogether, HCFA oversaw a

total estimated payment of almost $370 billion for health care services last year. As

GAO and others have also noted, it is progressively harder for HCFA to fulfill all

of these responsibilities.

This managerial crisis has been developing over time. The General Accounting Office (GAO) told Congress in 1998 that ‘‘. . . substantial program growth and greater

responsibilities appear to be outstripping HCFA’s capacity to manage its existing

workload.’’ In 1999, 14 prominent health care policy experts, including Dr. Stuart

M. Butler, my superior at the Heritage Foundation, and three former directors of

HCFA published an open letter to Congress and the White House in the 1999 Winter issue of Health Affairs warning of an impending management crisis at HCFA.

While these analysts differed on what was the best approach to Medicare reform,

they were all agreed on one point: HCFA is, as an institution, in very serious trouble. Following up on this notice, in the October 2000 edition of Health Affairs, Dr.

Lynn Etheredge of George Washington University, wrote, ‘‘The management crisis

has arrived. . . It is now widely recognized that HCFA has many problems. Reformers are frustrated, whether their goals are a successful Medicare + Choice Market,

modernization of fee for service Medicare, enrollment of eligible children in SCHIP,

improved computer systems, new chronic care programs, or better staff morale.

Nearly everyone who works with the Medicare or Medicaid programs now understands that something needs to be done about HCFA.’’ While there is an urgent

need for action, there is an even more urgent need to do it right.

Third, Medicare’s regulatory complexity compromises the quality and delivery of medical services and insurance products. This is becoming evident

in at least two areas: access to medical technology and in the use of private plans

in the Medicare + Choice program.

In the area of medical technology, there is solid evidence that Medicare’s processes are painfully slow and compromising patient access to technology that is available to patients in the private sector. Last year, the Lewin Group, a Virginia based

econometrics firm modeling health care policy initiatives, conducted a major study

on behalf of the Advanced Medical Technology Association that found that Medicare’s processes of coverage, coding and payment decisions delay patient access to

medical technology. The study found that it takes between 15 months to over 5

years or more to add new medical technologies to Medicare program. Moreover, according to the Lewin study, Medicare’s processes for coverage, coding and payment

is time consuming and complicated, and impedes patient access and discourages innovation in breakthrough medical technologies.

Likewise, the current regulatory regime has damaged the Medicare + Choice program. In their 2000 analysis of the Medicare + Choice program, The Medicare +

Choice Program: Is It Code Blue? Janice Ziegler and Bruce Fried, a former Director

of the Center for Health Plans and Providers at HCFA, wrote, ‘‘The regulatory complexity of the M+C program has taken on mammoth proportions and made it difficult for M+Cos to comply with all of the many program requirements. Moreover

the breadth and depth of regulatory requirements have imposed a level of micromanagement that significantly hampers—or, in some instances, restricts altogether—the ability of M+COs to make essential business decisions regarding how

care should be financed and operations structured. This level of micro-management,

when coupled with constantly changing nature of the program requirements and

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conflicting directions from HCFA, creates a significant disincentive for M+COs to remain in the program or become new entrants.’’ As Fried and Ziegler report, beyond the issuance of detailed regulations and ‘‘guidance’’ and Medicare manual changes, HCFA has already issued well over 100 ‘‘operational policy letters’’ (OPLs), the specific directives governing various aspects

of plan administration. Moreover, plans have had to meet HCFA’s tight deadlines

for compliance as well as various state regulatory standards, while wrestling with

conflicting federal and state rules. Fried and Ziegler further note that HCFA issues

these rules and letters often with little or no thought about how they will impact

costs. But, of course, every dollar required to comply with HCFA’s increasingly complex administration of the program means one less dollar for drug benefit increases

or premium reductions for senior citizens.

Fourth, Medicare’s regulatory complexity must get worse. With the rising

demand for even more specialized and complex medical procedures within the current framework of the defined benefits system, the regulatory complexity will worsen. With the rising demand for medical services by a rapidly aging population, a

Medicare eligible population that will double over the next three decades, the pressures to accommodate those increased costs within the existing framework of administrative pricing will intensify. Congressional debates over physician or hospital payment or reimbursement for home health or skilled nursing facilities, or whether or

how to cover new medical devices or procedures, prescription drugs will require

more Congressional time and attention and even greater administrative effort on

the part of HCFA.

Fifth, the addition or expansion Medicare benefits, including a prescription drug benefit, without addressing the managerial and regulatory problems plaguing the program would be a profound mistake. HCFA already

faces serious challenges in running the traditional Medicare program and the beleaguered Medicare + Choice program, which is processing roughly a billion claims

each year. The addition of a Medicare prescription drug benefit to the current structure, whatever merits that may have, would also dramatically increase the number

of transactions HCFA must oversee and thus add to the program’s already formidable managerial burdens.

WHY STRUCTURAL REFORM EQUALS REGULATORY REFORM

If Congress wants to strike at the root of the regulatory problems that affect the

current Medicare program, then the remedy of choice is choice itself; a structural

reform that preserves a Medicare entitlement to a basic or core set of health benefits, but transfers the lion’s share of decision-making in the system over to Medicare

patients and the private plans that they personally choose for themselves.

The best working model for such a structural reform, as the majority of the National Bipartisan Commission on The Future of Medicare have advised, is a program

that is older than the Medicare program: the Federal Employees Health Benefits

Program (FEHBP), which has been serving federal workers and retirees and their

families since 1960. Because the government contributes to the cost of the enrollees

premium, rather than trying to pay medical providers directly or determine the details of health benefits or the precise level of medical services, the FEHBP is the

quintessential ‘‘premium support’’ program.

Having been enrolled in the program personally and having been associated with

the program professionally in my capacity as an Assistant Director at the United

States Office of Personnel Management, I am acutely aware of the weaknesses of

that program, specifically, a lack of variation in premiums or government contributions for younger workers and older workers and retirees or the absence of any risk

adjustment mechanism to cope with periodically troublesome problems of adverse

selection. Moreover, FEHBP does not yet accommodate flexible spending accounts,

widely available to workers in the private sector, and OPM has had an institutional

bias against lower cost, high deductible options for employees who might want

them. There are also irrational statutory restrictions on market entry of fee for service plans, even though these plans tend to be more popular than HMOs.

Nonetheless the 40 year record of the FEHBP has been exceptionally good. This

is particularly so in the area of governance. In 1989, in perhaps the most comprehensive analysis of the FEHBP ever undertaken, the Congressional Research

Service noted that historically, the OPM has governed the FEHBP in a fashion that

is best described as ‘‘passive management’’. While some might object to such managerial passivity, a positive by-product of OPM’s historically light touch has been a

progressive evolution of benefits packages, that have become richer and more varied

with the passage of time.

Other students of the program—ranging from Professor Alain Enthoven of the

University of California to analysts from the Progressive Policy Institute—have

found that among its most attractive features is the brevity and relative simplicity

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of its statutory authority. The program is also characterized by the notable absence

of heavily prescriptive regulation, the relative ease with which the program adopts

new health benefits and absorbs new medical technologies, and its relative flexibility in benefit setting. From the vantage point of governance, the FEHBP also enjoys a relative freedom from the bitter politics of administrative pricing, the medical

income redistribution and attendant Congressional micro-management that afflicts

the traditional Medicare program. The major reason: In stark contrast to the Medicare program, the FEHBP is a largely market driven system, which relies on private

sector plans to structure their offering each year to satisfy consumer demand and

compete with each other directly in promoting patient satisfaction. Thus, in sharp

contrast to Medicare, the crucial decision-making in the FEHBP is diffuse. While

there are negotiations between OPM staff and major plans, and hundreds of routine

transactions between OPM and private plans in the several states, there are literally millions of decision points in the system, governed by the diverse wants and

needs of federal employees and their families and the dynamic conditions of supply

and demand. Consider the main features of the program: • Broad Choice of Plans. Over 300 plans are competing for consumers’ business. Unlike the rest of working Americans, federal workers and retirees

will have a broad choice of private plans from which to choose. These plans may

be fee for service plans, preferred provider plans, (PPOs) or health maintenance

organizations (HMOs). Unlike many workers in private sector, federal workers

are not forced into one type of coverage, such as HMOs, on a ‘‘take or leave it’’ basis, and federal workers and their families can normally choose between a

dozen and a dozen and a half plans in most places in America. Unlike Medicare

enrollees, their private plans include prescription drug and catastrophic coverage. In fact, virtually all plans cover between 80 and 90 percent of prescription drug costs.

HMOs attract federal employees and retirees, and they are not forced into

them. Consider the pattern of choices among federal retirees, many of whom are

covered by Medicare as well. In a recent presentation on FEHBP for the National Academy of Social Insurance, Dr. Kenneth Thorpe and Dr. Curtis Florence, found that 83.3 percent of single retirees chose fee for service plans, while

only 16.7 percent chose HMOs; for retired couples, 84.2 percent chose fee for

service plans, while 15.8 percent chose HMOs.

Paradoxically, the pluralistic system of competing private plans in the

FEHBP is operationally simpler for enrollees than the current Medicare program. Unlike the overwhelming majority of Medicare beneficiaries, Federal

workers do not have to go outside of the system to buy supplemental coverage

for drugs and catastrophic protection, and pay two premiums for two different

plans. Medicare beneficiaries, unlike enrollees in the FEHBP, will end up

spending roughly half of their health bills in out of pocket costs.

• Rational Financing. While the government spends about $220 billion for

the Medicare program, covering almost 40 million retirees, the same government spends about $20 billion for the FEHBP, covering 9 million persons. But

FEHBP is a program with a more rational payment system, a form of premium

support for individuals and families, and a richer, more progressive and more

varied health benefits package than Medicare. Under current law, the government pays 75 percent of the cost of any plan up to a maximum amount, set by

formula. For 2001, that amount is up to $2250 for single individuals or $5090

for families. If individuals or families want to buy a more expensive plan, they

can, but they will pay more for the richer plan. If they want to buy a less expensive plan, they can do that also. It’s their choice.

• Less Bureaucracy, More information, and Higher Satisfaction. Unlike Medicare, which spells out in detail what benefits, treatments or procedures are to be covered, and what prices is to be paid for each medical service,

the FEHBP is far less bureaucratic. Within the framework of annual negotiations, private plans present their combinations of benefits and premiums and

co-payments to the federal workforce. Plans only do well when they sell a package of benefits at a price people want. Within statutory requirements and OPM

approval, plan benefit packages differ, and so do their premiums, co-payments,

co-insurance and deductibles. The government does not make everybody pay the

same for the same package of benefits. Persons can enroll in any plan they

wish; they have access to solid information, not only from the federal government, but also from a variety of private sector sources beyond the plans themselves.

Not surprisingly, levels of consumer satisfaction in the FEHBP are high. According to a 1997 survey of FEHBP policy holders who rated their plans as

good, very good or excellent, 87 percent of fee for service policyholders described

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their plans this way, but 84 percent of HMO enrollees also did so. Not surprisingly, also, enrollees tend to stick with their plans. Based on previous experience, it is likely that no more than 5 percent of FEHBP enrollees will change

their plans in a typical year. They pick plans they like, and tend to stay with

them, as long as their plans perform on the market basis of price, quality and

performance.

HOW SYSTEMIC CHANGE CAN LEAD TO REGULATORY RELIEF

At least for new retirees, there is no reason why Congress could not improve upon

the record of the FEHBP and create a superior system for America’s senior citizens,

largely free of the regulatory complexities that trouble the current Medicare program. At the same time, recognizing there are significant differences between the

Medicare population and the current federal workforce, the Congress would want to

make sure that the transition to such a system should be undertaken carefully. In

the creation of such a system, Congress should consider taking the following steps:

1. Make sure that the newly created administrative agency that oversees a reformed Medicare program—whether it is an independent

board or an agency of the Executive branch of the federal government—functions in a fashion broadly similar to the Office of Personnel

Management, which administers the FEHBP. The agency should negotiate

rates and benefits on behalf of retirees; guarantee that plans offer the statutorily required benefits package; make sure that plans meet fiscal solvency requirements; make sure that plans comply with any statutorily prescribed underwriting rules, including guaranteed issue or renewability requirements; make

sure that plans meet consumer protection requirements, including protections

against fraud and misleading advertising, and ensure that competing plans provide plan information in plain English. For the FEHBP, OPM performs these

functions today, and acts as a referee in setting and enforcing the ground rules

among plans. Competing plans themselves do not have to wrestle with an overly

burdensome regulatory system in complying with this consumer protection regime.

If Congress should decide to adopt a new competitive system, Congress may

wish to protect the system itself from regulatory erosion. Regulatory creep can

undermine legislative intent. In order to prevent the devolution of a competitive

system into a powerful regulatory regime like that administered today by

HCFA, Congress should consider enacting statutory prohibitions against any

such agency from imposing government fee schedules, price controls, or premium caps on plans or providers participating in the new competitive system.

Moreover, the Congress should make it statutorily clear that practice guidelines

on doctors and hospitals, the adoption of quality standards, or the provision of

lawful benefits or medical procedures that private plans may offer, over and

above any statutorily required benefits package, are issues to be resolved in the

competitive private market.

2. Promote Plan Flexibility in Benefit Setting. There are a variety of

ways to do this. First, Congress could adopt the model that currently exists in

the FEHBP. The Office of Personnel Management (OPM) sends out a call letter

in the Spring of each year, outlining what it wants to see included in the plan

benefit submission for the coming Fall ‘‘Open Season’’, when federal workers

and retirees make their plan choices. OPM often specifies what benefit additions it would like to see in the plan submissions. And these plan submissions

are the subject of sensitive and confidential negotiations between the representatives of the private plans and OPM officials during the summer of each year.

While OPM has broad authority to negotiate rates and benefits for each year,

OPM is governed by specific statutory requirement in Title V of the United

States Code that spells out the categories of benefits-such as physician and hospital services—that must be included by law in private plan offering. The law

does not specify, however, the precise level of benefit, the duration of medical

treatments or procedures, or the mix of premiums, co-payments, coinsurance

and deductibles. All of these items are subject to negotiation, and OPM historically, has been flexible on these matters. In creating a new competitive system,

instead of setting forth detailed benefits in legislation, Congress could replicate

the FEHBP model, and confine itself to setting forth the broad categories of

benefits, including catastrophic and prescription drug coverage that private

plans competing in the new system must offer.

There are other possible options. Congress could set forth a core package of

benefits that must be required, say, based on the current Medicare benefits

package, with a further requirement for catastrophic and prescription drug coverage. But then, Congress could authorize the new administrative agency to

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allow the plans to offer the actuarial equivalent of that benefits package, with

a differing mix of medical treatments or a different combination of benefits, copayments or, deductibles. Congress could also authorize the new administrative

agency to accept automatically, (assuming the inclusion of catastrophic or prescription drug coverage), a new retiree’s employment based plan as an approved

plan in the new competitive system, thus allowing workers to take their state

or ERISA certified employer based plans with them into retirement as their primary coverage and get a government contribution to offset its cost, assuming

that the employer would also be amenable to such an arrangement.

3. Authorize sophisticated information collection. Before entering

into negotiations with private plans, the new administrative agency

should conduct regular surveys among enrollees to get a clearer idea

of what Medicare patients want in their insurance packages. With the

coming eligibility of the 77 million strong baby boom generation for Medicare

coverage, there is likely to be a rich diversity of demand for new and increasingly varied medical services. The new administrative agency should take advantage of sophisticated information technology to assess more accurately the

precise nature of this demand, discerning what, precisely, individual enrollees

want in terms of access to physicians and specialists, different types of coverage, and different types of benefits and different levels of premium payment

and co-payment. This would help the officials to negotiate solid benefits on behalf of retirees at an affordable price. These information programs are already

coming to fruition in the private sector. Just as they can be of immense value

to employers in fashioning their own health insurance offerings, they could also

be invaluable to a new government agency administering a pluralistic system

of competing private plans for senior citizens. In this new environment, consumer based information would be the touchstone of all administration decisionmaking; and persuasion and friendly negotiation would replace regulation.

4. Ensure a smooth transition to a new competitive system by phasing

it in, allowing plenty of time for mid-course corrections, and enabling

private plans to adjust to the enrollment of new retirees. If there is any

lesson that could be drawn from the damaged ‘‘Medicare+Choice’’ experiment,

it is the crucial need for a well planned transition. There should be a high level

of predictability for private plans, who must develop business plans to accommodate the changes in the system, without the fear that what they are attempting

to do will be undercut by precipitous changes in federal regulatory policy. Perhaps the best way to accomplish this objective is to make sure that any new

competitive system would be open only to new retirees, allowing it to grow on

a year by year bases, and enabling the market to respond and mature. If, after

a few years, when the system is up and running, the inevitable wrinkles have

been ironed out, the Congress could open the new system up to enrollees in the

traditional Medicare program.

5. Stop overloading HCFA. If Congress does create a new competitive system, HCFA should not be tasked with administering it. Given the culture of

HCFA as a regulatory agency, it is not in any case the best candidate for

partnering with private firms and administering a new market driven system.

HCFA should be confined to administering the traditional Medicare program,

and given the managerial flexibility to compete with private plan options for the

allegiance of retirees. Congress should also consider creating alternative managerial structures for the administration of Medicaid, SCHIP and enforcement responsibilities under the Health Insurance Portability and Accountability Act.

A final thought. Reforming the Medicare program will be technically difficult, particularly in developing a transition to a new competitive system, and it will be politically challenging. But the alternative is to continue to manage Medicare through an

increasingly complex body of statutory law, expanded judicial decision-making, and

increasingly detailed regulation. Meanwhile, Medicare will face an unprecedented

demand for medical services within this decade from an increasingly well educated,

diverse and rapidly growing retiree population. Insisting on the status quo, and

nourishing the inevitable regulatory growth of a fundamentally unchanged Medicare

program could prove even more difficult and politically challenging.

Thank you.

Members of The Heritage Foundation staff testify as individuals discussing their

own independent research. The views expressed are their own, and do not reflect

an institutional position for The Heritage Foundation or its board of trustees.

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Chairwoman JOHNSON. Thanks very much, Dr. Moffit.

Hon. Ms. Wilensky.

STATEMENT OF THE HON. GAIL R. WILENSKY, PH.D., JOHN M.

OLIN SENIOR FELLOW, PROJECT HOPE, BETHESDA, MARYLAND; CHAIR, MEDICARE PAYMENT ADVISORY COMMISSION;

AND FORMER ADMINISTRATOR, HEALTH CARE FINANCING

ADMINISTRATION

Ms. WILENSKY. Thank you, Madam Chair and Members of the

Subcommittee. I am here as a senior fellow from Project HOPE and

a former HCFA Administrator. Listening to today’s discussion

makes me glad to emphasize the former.

I am not here, however, to bash HCFA. What I would like to do

is to share with you ways in which I believe the regulatory environment might be changed so as to reduce some of the burdens that

we have been hearing about on providers without abdicating the fiduciary responsibility of HCFA to be prudent stewards of the Medicare trust funds.

We need to recognize that there is a fundamental tension inherent in HCFA’s roles. HCFA needs to establish a user-friendly environment, making sure that seniors get access to high-quality health

care, but HCFA also needs to be financially prudent with the taxpayers’ moneys.

You have been hearing about the increased levels of frustration

that have been reported by providers regarding billing complexities

and fears of the billing complexities compounded by integrity activities.

Recently, there has been some empirical evidence that, after

years of upcoding—that is, billing for more services than was provided—there is now some indication of downcoding—that is, billing

for less intense services that were actually provided. This is not a

good sign for the program or for the seniors that are served by

Medicare.

What I would like to do is share with you a few strategies that

I believe could help reduce provider frustration and also some steps

that would help HCFA be able to deliver services, by restructuring

the agency, and, finally, to discuss how to get from here to there.

In the first place, I think it is clear we need to have better education for providers; we need to have clearer billing procedures and

protocols; and we need to have billing procedures and protocols

changed less frequently and on a more regularized basis.

The second area that I want to mention relates to the presumption as to how bills are paid. We have heard this morning about

some of the variations that are used by the carriers and the fiscal

intermediaries. But, in general, there is a presumption or default

that bills are not being submitted accurately. That is a presumption that could be changed in much the way that there was a

change in the Peer Review Organization. The presumption would

become that bills are properly submitted. Then there would be a

search for patterns of abuse based on statistical analyses.

Prior to the early nineties, the PROs used to perform a case-bycase, retrospective analysis, looking for bad outcomes. But once

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they found one, it was very difficult to figure out what it meant.

As a result, and in an effort to focus more on quality improvement,

there was a movement to looking to patterns of care and patterns

of outcome that differed from what their peers experienced. It is

precisely this, that kind of a change that I think would go a long

way to reducing the kinds of frustration that we have heard described this morning.

Finally, I believe that HCFA needs to be more mindful of the

time and burden imposed on providers from its various assessment

and data collection efforts. We heard some mention made of the

minimum data set, the MDS. There is a new data set now called

the minimum data set post-acute care, MDS–PAC. The MDS has

350 items. The MDS–PAC has more than 400 items, with seven

different timeframes for patient assessment. The MedPAC report

that was recently delivered to the Congress, indicated MedPAC’s

concern about the amount of time taken away from patient care

that these assessments tools would require and has suggested that

for inpatient rehabilitation that the primary assessment tool, the

functional independence measure (FIM), continue to be used. The

FIM is much shorter and has been used for a number of years.

Second, restructuring HCFA so that it can focus on Medicare.

That would mean taking some of the current enforcement functions, the survey and certification, the clinical lab certification, and

the conditions of participation and putting them either with the

CDC or with the FDA. Second, moving either all of Medicaid, or at

least that portion relating to moms and kids, and the Children’s

Health Insurance Program with the agency that runs welfare.

These are all State-based, income-related programs. Whether or

not to move the long-term care portion of Medicaid is a little more

complicated.

Whether or not the section of HCFA that runs the Medical Plus

Choice Program should be moved depends somewhat on the kind

of Medicare reform the Congress chooses to do. As you know, I am

also a supporter of a Federal Employees Health Care model as a

reform for Medicare. This would require a number of administrative changes. If Medicare does not begin to move toward an FEHBP

model, the Medicare Plus Choice might remain a direct part of

HCFA. If the reform does not occur, the administration of the

Medicare+Choice program should be moved to another agency that

is within HHS or an expanded part of the Office of Personnel Management although there would clearly need to be some coordination

with HCFA.

Third, if you choose to use PBMs, the pharmacy benefit management groups, to run a pharmacy program for seniors, there will

have to be much greater clarity about how much independent

power PBM’s are to have, where their oversight should be lodged,

and resolve many other administrative issues.

Fourth, a word about getting from here to there. Phase-ins for

Medicare usually occur over some time when they relate to changes

in payment and coverage. My advice is that any restructuring of

Medicare should also be phased in. It is best to restructure at the

beginning of a term or at the end of a term. Moving relatively separable parts of HCFA is less disruptive than reorganizing all the

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people within the agency. But even moving separable parts will be

disruptive.

And, finally, Congress and the administration need to recognize

that there has been a serious mismatch between HCFA responsibilities and HCFA resources. HCFA clearly needs to do better, but

with all due respect, Congress needs to do better with HCFA as

well.

Thank you.

[The prepared statement of Ms. Wilensky follows:]

Statement of the Hon. Gail R. Wilensky, Ph.D., John M. Olin Senior Fellow,

Project HOPE, Bethesda, Maryland; Chair, Medicare Payment Advisory

Commission; and former Administrator, Health Care Financing Administration

Madam Chairwoman and members of the subcommittee: Thank you for inviting

me to appear before you. My name is Gail Wilensky. I am the John M. Olin Senior

Fellow at Project HOPE, an international health education foundation and I chair

the Medicare Payment Advisory Commission. I am also a former Administrator of

the Health Care Financing Administration. My testimony today primarily reflects

my experiences as a HCFA Administrator as well as my views as a health economist. I am not here in any official capacity and should not be regarded as representing the positions of either Project HOPE or MedPAC.

I am here today to discuss ways in which the regulatory environment might be

changed so as to reduce some of the regulatory burdens on providers without abdicating the fiduciary responsibility of HCFA to be prudent stewards of the Medicare

trust funds. I would also like to discuss possible ways to reallocate some of the functions that historically have been assigned to HCFA in order to make the agency

function more effectively. I believe such a reallocation would be desirable, irrespective of reforms to the Medicare program but would be particularly important with

some of the reforms under consideration. It would also allow HCFA to concentrate

its energies on running Medicare more efficiently and effectively.

Fundamental Tensions Faced by HCFA

HCFA faces certain fundamental tensions with its goals of establishing a userfriendly Medicare, and assuring that seniors can get access to high quality health

care while also being financially prudent with the taxpayers’ monies. The frustration being reported by many physicians and other health care providers because of

confusion about billing procedures and fears of being charged by HCFA and/or the

Inspector General with submitting false claims is, in part, a reflection of these tensions. Some of the tensions are inherent to a program as large and complicated as

the current Medicare program, but if left unchecked, can mean an important diversion of time away from patient care and ultimately, become a threat to the future

availability of high quality care.

Last year, MedPAC reported evidence of some ‘‘down-coding’’ in both the hospital

and physician settings. This finding is consistent with reports by various types of

providers regarding their uncertainty about how to bill Medicare appropriately and

their concerns about being charged with making false claims against the Medicare

program. While government officials should not countenance abusive behavior by

providers, it should be equally worrisome to the Government that providers may be

deliberately under-billing Medicare in an attempt to stay clear of the HCFA or the

IG. Such behavior will not be to the long-term benefit of Medicare or the seniors

it serves.

Strategies to Reduce Provider Frustrations

Among the many complaints raised by providers, uncertainty about proper billing

and coding and discrepancies in treatment by various contractors seem to be at the

top of most lists. Better education sessions, clearer billing procedures and protocols,

less frequent and more regularized periods for changing billing procedures would

represent important steps in reducing these legitimate frustrations. As is true for

many aspects of HCFA reform, some of these changes will require greater flexibility

from the Congress than has usually been granted to HCFA and may require additional resources as well.

The tension between the desirability of national uniformity for a Federal program

like Medicare and the importance of allowing for some local discretion to reflect the

different ways medicine is practiced around the country has been a part of Medicare

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since the program began. The granting of limited discretion to local contractors with

regards to coverage and payment was also a part of the original Medicare legislation. This discretion makes Medicare less conservative with regard to the coverage

of new treatments and technology than would occur with a program requiring national uniformity.

While local discretion in payment and coverage may be the cause of some provider

frustration, the more significant source of frustration comes from discrepancies in

the program integrity portion of Medicare. Theses tensions occur because of the discrepancies in policies and behavior between HCFA central-office, the ten regional

offices and the more than fifty private contractors that carry out the actual payment, claims processing and audit operations for Medicare. Unlike discrepancies in

coverage, which are actually quite limited, these discrepancies primarily involve differences in the amount, duration and scope of covered benefits. They produce little

gain and a lot of provider confusion and frustration.

The importance of the program integrity activities has clearly increased, partly as

a result of recommendations from the OIG audit on financial management and partly as a result of the Health Insurance Portability and Accountability Act (HIPAA)

and the Balanced Budget Act (BBA). Both HIPAA and BBA focused attention on

fraud and abuse and provided increased resources for program integrity. But the increased emphasis on program integrity didn’t have to have produced the level of

frustration that has resulted. This frustration is more a reflection of the prevailing

attitude towards Medicare providers, namely that they are not to be trusted.

The default position of the current environment presumes billing may be incorrect

or inappropriate. In such an environment, program integrity requires heavy reliance

on documentation. This presumption combined with limited funding for contractors

has led contractors to develop a series of automated strategies that deny claims.

This has limited the amount of editing that needs to be done after-the-fact and also

reduces the need to ‘‘pay and chase.’’ But it has also led to an explosion of medical

review polices, policies that differ from contractor to contractor and with it, a heavy

reliance on documentation.

A different strategy, reflecting a different attitude and default position, would be

to pay properly submitted bills and search for patterns of abuse based on statistical

analyses. This change in focus would mirror a change that began taking place with

the Professional Review Organizations (PRO’s) in the early to mid 1990’s. Prior to

that time, activities by the PRO’s focused on a case-by-case, retrospective review of

medical records. The problem was that when a ‘‘bad’’ or undesirable outcome occurred, it was very difficult to tell whether it was a single, idiosyncratic occurrence

or whether it indicated a problem worthy of pursuit. This behavior limited the effectiveness of the PRO’s and made them intensely disliked by the physicians.

As part of a more general emphasis on quality improvement, PRO’s began to focus

on patterns of care and patterns of outcomes, rather than individual case review.

Physicians and institutions that have patterns of care and patterns of outcomes that

differ from their peers are more readily identifiable as potential problems and can

be dealt with more directly. A move to this type of model would have the statisticalanalyst contractors become the focus of program integrity rather than the medical

directors and carriers and have the medical directors refocused on quality improvement efforts.

Another way to reduce provider frustration is for HCFA to be more mindful of the

time and burden imposed on providers by various assessment and data collection

efforts. The Beneficiary Improvement and Protection Act (BIPA) required the development of patient assessment instruments that use common data elements. This requirement provides HCFA with an opportunity to focus on the development of instruments that emphasis brevity and simplicity, collecting only those data elements

needed for payment or quality monitoring. It is not obvious this requirement has

driven past efforts. As an example, the MDS (Minimum Data Set), developed to

guide care planning for nursing home resident care planning, has more than 350

items to be filled out. Instruments of this nature may not only compromise data accuracy and take valuable time away from patient care, but are also likely to increase provider frustration.

In a similar vein, concern has been raised in MedPAC’s March 2001 report about

use of the Minimum Data Set for Post-Acute Care (MDS–PAC) as the basis for collecting data for quality monitoring and payment purposes across all post-acute care

settings. While this instrument has the advantage of potentially providing a more

coordinated approach across all post-acute care settings, which is clearly a plus, it

has the disadvantage of being lengthy and complex. MDS–PAC covers more than

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ing on the precise purposes for which the data will be used and defining the minimum set of information needed to accomplish this goal is equally important.

HCFA’s Current Functions

Reviewing HCFA’s current responsibilities and reallocating some of these functions to other parts of HHS represents another strategy that may help HCFA focus

on efforts to reduce provider burden and frustration.

HCFA’s foremost responsibility is administering the Medicare program. Medicare

covers 39 million people and is expected to cost around $240 billion in FY2001. The

agency employs approximately 4200 individuals in central and regional offices but

has contracted indirectly for the services of about 38,000 FTEs through its network

of over 50 private contractors who act as its fiscal intermediaries and carriers.

These include the people referenced earlier that actually pay the bills and provide

financial oversight for the services provided. In addition, HCFA manages the participation of more than 260 plans involved in the Medicare+Choice program. This

makes HCFA bigger than most cabinet level departments in terms of both money

and personnel.

The proper oversight and administration of Medicare is a full-time job for any

agency. The problem is that HCFA is also responsible for providing oversight to the

Medicaid program, conducting surveys and certification of certain types of health facilities, approving the Children’s Health Insurance Program (CHIP) proposals submitted by the states, enforcing federal health insurance portability laws and some

fraud and abuse prevention activities. These activities require a wide variety of talents, skills and experience and present a management problem for even the most

talented administrator. HCFA’s problems will only get worse as the baby-boomers

start to retire and the number of people on Medicare increases dramatically, making

the world’s largest insurance company, HCFA, even more difficult to manage.

Administrative Issues Supporting a Reformed Medicare with Prescription

Drugs

There are a variety of administrative issues that need to be considered prior to

the implementation of Medicare reform. What functions should be included in a reorganized HCFA? How should HCFA be restructured so that it can effectively manage a modernized fee-for-service Medicare program? What type of administrative

structure makes sense for the private plans that participate in Medicare, either as

Medicare+Choice or potentially as separate prescription drug programs? What role

will PBM’s have in a reformed Medicare program and how will they be administered?

The first step, at least in principle, should be to move non-Medicare related functions as well as some quality assurance functions currently in HCFA elsewhere

within the Department of Health and Human Services. The functions relating to

conditions of participation and quality assurance such as the survey and certification of nursing homes, the conditions of participation for hospitals, and the certification of clinical labs should be housed either in CDC or FDA or potentially, a new

authority that houses both of these agencies.

The oversight of the Medicaid program, which has always been somewhat the

stepchild of HCFA, should be moved elsewhere and given appropriate resources and

leadership. Where coordination with Medicare is needed, such as for the dually eligible population, interagency agreements can provide the needed exchanges of information and coordination. Putting Medicaid and the approval of proposals submitted

by the states under CHIP together also makes sense. One consideration would be

to put these programs together with the Administration for Children, Youth and

Families, the agency that runs the welfare program. Another consideration would

be to put all of these programs together in a new entity that also included other

state health programs like HRSA (Health Resources and Services Administration),

and SAMSA (Substance Abuse and Mental Services Administration).

HCFA needs to focus on running a modernized fee-for-service program. A series

of changes would be needed to modernize the traditional Medicare program. These

include the authority to use selective contracting, centers of excellence, disease management programs, best-practice programs and other changes commonplace in better-run private sector plans. The question is whether HCFA will be allowed to administer a modernized fee-for-service program. Will Congress allow HCFA the flexibility that will be needed to run such a program and will Congress and the Administration provide HCFA with the resources needed to carry out such a task. History

is not encouraging on either of these issues.

If HCFA or any governmental agency is to run a modernized fee-for-service program, Congress will need to change its relationship with HCFA and retreat from

it very micro-prescriptive directives. Changes in attitude and behavior will also be

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required from HCFA employees. HCFA has been slow to undertake demonstrations

or adopt promising ideas from the private sector. If HCFA is to run a modernized

fee-for-service program, the organization will need to be more responsive, more

pragmatic and more creative in its behavior than it has been in the past.

The appropriate administrative structure for the private plans that participate in

Medicare in part depends on how Congress chooses to further reform Medicare. I

believe that the current combination of a Medicare+Choice program, which provides

a highly regulated environment, with payments set independent from the traditional

program and a traditional Medicare program, is not a stable, long-term option. I am

already on record as supporting a reform modeled after the Federal Employees

Health Benefits Program. This type of program, particularly if some provisions were

made to protect the frailest and most vulnerable seniors, would allow seniors to

choose between competing private plans and a modernized fee-for-service Medicare

program for the plan that best suits their needs.

I am well aware that the FEHBP model remains controversial among some Members of the subcommittee. However, I think it’s important that committee members

recognize that many of the most vexing issues that need to be resolved for a premium support program must also be resolved with Medicare as it is currently structured. These issues include risk adjustment, providing understandable and userfriendly information to seniors, assuring that quality care is being delivered, providing safeguards for frail and vulnerable populations and given the strong interest

in prescription drug coverage, the design of a prescription drug benefit that doesn’t

depend on administered pricing to moderate spending.

Some attention has been given to the potential use of a Medicare Board to provide

oversight for private plans and to negotiate with private plans as well as to provide

the administrative structure for a premium-support type of reform, if that is the direction of reform Congress chooses to take. However, potential problems of accountability of a board plus the difficulties of using a board-structure for an entity that

has significant administrative and operational responsibilities make the Board concept a less attractive administrative structure. A better choice would be a separate

agency within HHS, such as was proposed last year in H.R. 4680 or an expanded

version of the Office of Personnel Management, which negotiates with health plans

on behalf of the Federal Employees and resides in the executive office of the President. The most important functions of this new entity would be to review and approve benefit packages, make payment modifications (to reflect risk adjustment,

etc.), direct open enrollment periods, provide information about plan choices and either structure competitive bids or be empowered to negotiate premiums.

I recognize this type of structure would divide the responsibility of administering

the overall program between two entities but I believe this is far preferable than

lodging both with HCFA. HCFA has little experience in negotiating with outside entities. The functions and role for government in running and monitoring competing

private plans are fundamentally different from the experiences and mind-set of

HCFA employees. Also, separating these function would help HCFA focus on administering a more modernized fee-for-service program.

Finally, we need to be clearer about the role PBM’s will play in administering the

prescription drug program for traditional or modernized Medicare and the type of

leadership that will be needed to manage such a program. Almost all of the prescription drug proposals have invoked the concept of PBM’s as the appropriate administrative structure to administer an outpatient drug benefit. In large part, this

reflects the belief that administered pricing, the main instrument of cost-containment for other parts of traditional Medicare, will not be used for prescription drugs.

Since PBM’s have had some success historically in moderating spending in the private sector, it has been assumed that they will be able to do so in the public sector

as well.

But many unanswered questions remain about how the PBM’s will function, how

much independent power they will be granted and where the government oversight

function of the PBM’s will be lodged. Will there be competing PBM’s within an area,

how will they be chosen, how much power will they have to devise formularies, encourage generics, impose tiered co-payments, will they be allowed to take financial

risk, will they be encouraged to take financial risk and so forth. If there is a new

administrative agency providing oversight for private health plans, that would be

the logical place to provide oversight for the drug benefit as well. In any case, the

management of this benefit will require leadership and private sector experience not

currently available in HCFA.

Getting From ‘‘Here’’ to ‘‘There’’

Historically, changes in Medicare reimbursement policy and structure have been

phased in over several years. This has helped to cushion the disruption that abrupt

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changes could cause. It also makes sense to consider phasing-in changes in the

structure or organization of a reformed Medicare program that requires substantially different roles for government or substantially different roles for the administrative institutions supporting the program. Any interest in experimenting with various strategies for reform or the administrative structures supporting reform makes

it important that we begin the process.

But the Congress needs to be clear that there are risks and potential costs involved with any restructuring of HCFA. The reorganization of HCFA several years

ago affected most individuals within the agency and caused significant disruptions

in workflow. Reorganizing HCFA would best be done at the beginning of a new administration or at the end of a presidential term. Reorganizations that move relatively separable parts of the agency will be less disruptive than reorganizations

that move large numbers to new positions.

Whatever the decision on reorganizing and restructuring HCFA, Congress needs

to recognize that there has been a serious mismatch between the responsibilities

given to HCFA and the resources the agency has been granted. HCFA needs to find

ways to reduce the burdens being placed on providers and to function better as an

administrative agency. Congress needs to be more realistic in terms of the demands

it places on the agency and with the support it provides. Both need to happen together; neither is likely to happen alone.

testimony. It has been very helpful, and some of it will require, as

Chairwoman JOHNSON. Thank you very much, everyone, for your

f some of you have noted, further discussion beyond this morning’s

endeavors.

I did want to ask you, Ms. Edelman, aren’t there some home care

services that our home health agencies provide that are clearly, absolutely not covered by Medicare?

Ms. EDELMAN. Yes, that certainly would be true. But there are

so many instances where the home health care agencies are making incorrect assumptions or incorrect determinations that coverage

is not there. More than 50 percent of the time, they are incorrect.

That is very troubling. The only way that beneficiaries can get into

the appeals process is through a demand bill. And so people do

need an opportunity to do that.

Chairwoman JOHNSON. I appreciate that, but there are whole

categories of services that Medicare doesn’t cover at all: services to

families with psychiatric problems, home health aides.

Now, there is a category, a group of patients, about which there

is no possible controversy. I understand the gray-line area. But I

don’t know that you really understand what it means to an agency

to now give out a form and the choices on the form are: you pay,

you stop the services, or you ask for a demand bill.

Now, anybody in their right mind, any senior, is going to ask for

a demand bill. So it means that agencies have to go through the

demand bill process and submit the bill to Medicare—no, submit to

Medicare knowing that they are not ever going to get paid by Medicare. And so it involves not only the paperwork going to Medicare,

waiting for Medicare’s decision. In Connecticut, it involves your

agency then challenging that bill, and most all of them get challenged. This is a 2-month, 4-month, 6-month, 8-month, year, yearand-a-half process.

And all that time the agency gets paid partially by Medicare,

then Medicare decides that they aren’t going to pay, so they get

their money back. And then the agency is bare and unable to bill

any other payer, especially Medicaid, which is the primary payer

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for the dual eligibles, until the thing is resolved, which may be

many, many months.

Now, for a small agency, this cash flow problem—never mind the

volume of just xeroxing is extraordinary. And I think if you sat

down and sat with our agencies—although, actually, in Connecticut, I hate to say that your organization seems more interested in money than patient care. It is just appalling what has

gone on. But it is different than other States. I appreciate that.

But we really have to look at the patient getting service. And

when our agencies—now, it is true, the intermediary gave us different direction than the rest of the country. But, truthfully, there

are services, there are patients in which there is absolutely a clearcut case that Medicare won’t cover it. And yet to have no line at

all, no way for the agency to move ahead, is in my estimation an

example of Medicare not being able to be rational.

Now, truthfully, when we talked with them about this, we hoped

to draw some of those lines, but I think you underestimate both the

burdensomeness in terms of sheer cost of time and money and the

irrationality of this process for small agencies that serve a lot of

dual eligibles.

Unfortunately, I have to let you comment on that later because

I need to just mention to Mr. Grob, I like very much what I hear

you saying, and I think most of what you said I don’t disagree

with. I do think in your comments about the appeals process, you

are not noticing that there is a whole level of dialog that needs to

go on between you and the people you are overseeing so that we

don’t have appeals for certain reasons.

There should be a way that a physician can say, wait a minute,

you are coding it this way and I am coding it this way and this

is why. There should be a level of collaborative discussion before

you come to your final conclusions. And certainly when you look at

the appeals process, it currently takes a year to have an appeal adjudicated under Part A, and 557 days to have it adjudicated under

Part B.

Now, that is what we were trying to address in that bill, and I

can’t believe you would think that tighter time frames than that

would be a problem for anyone.

Mr. GROB. First of all, I absolutely agree with what you are saying about the need for the discourse. And as far as the tighter timeframes are concerned, I think that there certainly can be tighter

time frames, with two things in mind. One, would there really be

adequate resources for dedicated and professional people to meet

those time lines? And, second, would the time lines be reasonable?

I think the ones that are in there now might be a little too tight,

just given, you know, what the normal process is. But the concept

of time lines is not at all bothersome. The question is: Are they reasonable? Are there resources to meet it? And then going back to

your point about the discourse so that we don’t have so many arguments, I really agree with that.

Chairwoman JOHNSON. Then we would like—probably you

wouldn’t want to comment right now, but if you would comment on

Gail Wilensky’s recommendations, it would be very helpful. I think

this kind of view of the system could be far more fruitful to us than

some of the activities we are involving ourselves in.

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Mr. GROB. I would welcome the opportunity, and I really have to

tell you that just in listening to all the testimony that I have heard

today, I was impressed on how thoughtful it was, covering a wide

range of issues. Many subjects that we have been studying in our

office have come out on the table, and I am just delighted to see

that they are out here on the table.

Chairwoman JOHNSON. Mr. Stark.

Mr. STARK. Thank you, Madam Chair.

Gail, I think we agree and the Committee agrees that there are

changes that need to be made, and I am aware of changes that

were made when you ran HCFA and changes before that, and I

suppose subsequent to that. In many instances, what we do in

HCFA leads to changes in the private insurance market. I believe

that you were there, I think, when we did physician reimbursement. Right?

Ms. WILENSKY. Correct.

Mr. STARK. And I think most private insurance companies now

take that and use it as a physician reimbursement structure—not

the rates, obviously—in their fee-for-service payment, for better or

for worse. And I don’t know whether imitation is a form of flattery

or not.

But, on the other hand, it seems to me that HCFA sometimes follows along. Arguably, the way the intermediaries pay is kind of left

over from the way Blue Cross used to pay before Medicare came

into existence. They tend in the different areas of the country to

pay for the procedures in much the way they used to.

In your experience, either with Project HOPE or at MedPAC,

could you say that there is any one major program-Medicare, Medicaid, private insurance? And I will mention the names, but I don’t

know as you have to. But Aetna, one of the—I can’t think of the

largest one now in California, Physician Care, or whatever the heck

their name is, HCFA. Medicaid I think is generally considered to

be more frustrating to the hospitals and physicians and doesn’t pay

enough.

But is there any one that stands out as being outstandingly better or worse than another in terms of reimbursing hospitals and

physicians and clinical labs, in your opinion?

Ms. WILENSKY. I think it depends on what level. When it comes

to payment, the payment level—— Mr. STARK. I am thinking of the procedure. I think mostly we are

talking here about hassle factor——

Ms. WILENSKY. Because I think actually Medicare pays pretty

well. I think Medicare is one of the better payers when it comes

to the level of payment.

My sense is that in the hassle factor there is at least one clear

difference with the private sector, and that is the local discretion

that is granted to the carriers and intermediaries, which means

how rules are interpreted differs significantly among carriers.

When it is for coverage of some new medical procedure or technology, there are both positives and negatives. When it comes to interpreting amount, duration, and scope, which goes to a lot of program integrity and billing activity, I don’t see much value to discretion. This type of variation is quite different for private plans. Private plans may have good rules or bad rules, but they don’t vary

107

the interpretation. This is an example where Medicare causes a lot

of uncertainty and frustration.

Another source of frustration is that HCFA makes amendments

on a far more frequent basis, sometimes in response to congressional legislation, sometimes just as a way to roll out these

changes, far more than private plans. Private plans tend to make

changes in line with their benefit year, unless a major employer

comes in midyear and negotiates a different package. Frequent billing changes are very disruptive and confusing. It is very hard on

small physician’s offices in rural areas. These practices don’t have

a lot of administrative support. And it is also disruptive in very

large institutions.

On the other hand, I am not sure that Medicare pays slower.

Mr. STARK. Well, to follow along, you recognize the resources that

we have at our disposal, and it would seem to me that we could

not fulfill our responsibilities by letting the American Hospital Association or the AMA write the rules. They certainly should be able

to help us. But if we follow along, as the chairman I think is doing

correctly, to set up a program of reforms—I think you are advising

us that maybe we ought to take a piece at a time.

Could you suggest, a format that we might follow? For example,

could we give temporarily additional resources to MedPAC or to

CRS or to GAO or a consortium who have the technicians. We don’t

have the capacity here—even the majority doesn’t have that much

staff, I don’t think—to come back to us with suggestions? Can you

suggest a procedure we might follow to get at taking the most critical reforms first and going down the line? Where do we turn to

learn that?

Ms. WILENSKY. I think you need to have the individuals who are

actively involved in actually running practices or institutions involved, which is unlikely to be the chairman/CEO of major institutions. It will be somebody within the organization. It may take a

bit of searching to designate the right person to bring them together, working perhaps with a consortium of CRS, MedPAC, or

GAO individuals.

Mr. STARK. Could MedPAC take the lead on that with additional

resources?

Ms. WILENSKY. I should probably check whether our executive director thinks he has the talent, and the expertise.

There is some operational expertise in MedPAC, but I will certainly be glad to get back to you.

Mr. STARK. OK, yes.

Ms. WILENSKY. I have found it difficult in the past to get specific

recommendations from provider groups that complain about the

regulatory burden. I will be eager to read the testimony from the

previous panel to see if you have been able to get more specific

ideas. It was why I tried working with some senior career employees at HCFA to see if they could come up with two or three very

specific ideas. That is why you need to have people who are involved in the working operations working to try and attack various

pieces of the problem.

I do think there is a lot of complexity inherent to traditional

Medicare. The Federal government needs to decide on the definition of the benefit, the appropriate price for the unit or the bundle,

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the quality and whether it should have occurred. The amount of

change that resulted from BBA, BBRA, and then the Beneficiary

Improvement and Protection Act has been extraordinary. I don’t

know whether it is correct, but I have heard that there were 700

specific directives to HCFA over those pieces of legislation.

Mr. STARK. From us.

Ms. WILENSKY. From you.

Mr. STARK. Yes. I have heard that it is a large amount, too.

May I extend for one question to Mr. Grob, Madam Chair?

Chairwoman JOHNSON. I thought maybe I would let the other

two question, and then I am going to come back and you can come

back.

Mr. STARK. OK. Thank you.

Chairwoman JOHNSON. Mr. McCrery.

Mr. MCCRERY. Dr. Moffit, you have said that this burden or hassle factor is going to intensify if the basic structure of Medicare is

not changed.

Dr. MOFFIT. Correct.

Mr. MCCRERY. I think you were here earlier, and you heard the

testimony of the earlier panel, and you have heard Dr. Wilensky

kind of give a middle road of, well, some things could be better,

but, you know, private sector is not so hot, either.

Where do you get your conclusion that HCFA and Medicare is

just really worse than the private sector in terms of the hassle factor?

Dr. MOFFIT. Well, in terms of the testimony this morning, you

have heard testimony from private sector providers who have told

you that Medicare is, in fact, more burdensome than private insurance. In my capacity as a policy analyst, I hear from doctors almost

every week who complain about Medicare. Now, they complain

about managed care, too, but they also complain about Medicare.

And in having an opportunity to speak and debate about this subject across the country, I have opportunities to talk before forums

sponsored by Members of the medical profession or hospital staffs.

My concern is, after talking to them, that there is a profound sense

of demoralization among Members of the medical profession. That

is to say, they feel that they are losing control over major decisions

that affect their professional lives. And they are also concerned

about the requirements that they have to comply with just the

sheer volume of Medicare rules and regulations.

I am not certain, however, that Medicare should be isolated from

the general private health insurance system. Our colleague Professor Uwe Reinhardt, at Princeton University, has said it best:

that we right now have perhaps the most bureaucratic health care

system perhaps in the world. And the reason: you have large employer-based health insurance arrangements as well. But the real

difficulty is that individual patients have less and less control in

this system.

Of course, you can go to any doctor that you want in Medicare,

assuming he takes Medicare. But that doctor is constrained by the

rules and regulations of Medicare, and that is what the physicians

have been complaining about this morning.

Medicine is undergoing a rapid change. We are seeing a dramatic

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nology is also advancing rapidly. And this is going to mean that the

pressures on Medicare are going to increase to accommodate these

changes; and at the same time, Congress is going to have to deal

with the addition of new benefits reflecting scientific changes, but

at the same time add such new benefits in a cost-effective manner.

And the way Congress is going to do this is to establish a new administrative payment systems or adapt old payment systems to

these new medical technologies or services. There will be a resulting political response by physicians or providers that these new

payment applications are inequitable, and there will be a tendency

either for Congress or the Health Care Financing Administration,

to be under new pressures to make more exceptions. The more exceptions you make, the more complex the regulatory system becomes.

My view of the Medicare regulatory system is that it resembles

the reproductive behavior of rabbits. The rules will continue to

multiply.

Mr. MCCRERY. And is it your conclusion that, left unchanged and

allowing the hassle factor to intensify, providers, particularly physicians, will find it less and less attractive to practice medicine and

that that may discourage bright young people from even going to

medical school? I mean, do you see it as precipitating that kind of

reaction?

Dr. MOFFIT. Congressman Stark said this morning that there is

no solid statistical evidence that doctors are dropping out of Medicare. The real concern that I have is that doctors will not give up

Medicare patients, their current Medicare patients, but they are

going to be loathe to take on new Medicare patients.

In the past, we have been able to stem that. We have been able

to prevent that from happening by readjusting the payment systems. But we are in the midst of a demographic revolution unlike

anything we have ever seen. Within the next 10 years, 77 million

baby boomers are going to start to retire, and the demand for medical services is going to be unlike anything we have ever seen before.

Now, certainly physicians depend heavily on Medicare simply because of the size of the Medicare population. So I don’t expect a

mass exodus. What I do see, and what I am really concerned about,

is the consequence of this demoralization that I talked about. I submit to you, at least from my personal experience, that it is very

real. Frankly, I think it is one of the more serious problems facing

the Medicare system, and I think it is one of the more serious problems facing the country. We have to take this very, very seriously.

What happens when, the medical profession is demoralized? I

think you can tolerate some demoralization in many professions.

Among health care economists or policy wonks, that is fine. Among

college professors, it is a shame, but if they are demoralized, that

is not catastrophic. I don’t think you can afford demoralization on

the police force or in the Marine Corps or in surgery. This is something that this Committee is going to have to address.

Mr. MCCRERY. Thank you.

Chairwoman JOHNSON. That was a very, very excellent answer,

according to the demoralization, and it is frankly why we are having this hearing. I think the demoralization is profound. I think it

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is a very much bigger part of the nursing shortage than we are

going to be able to document or that we are willing to acknowledge.

You cannot treat people whose job it is to provide love and skilled

care the way we are treating medical personnel from bottom to top.

Mrs. Thurman.

Mrs. THURMAN. Madam Chairman, let me also say from somebody who is from the State of Florida, where we have a higher population of seniors, that, you know, part of the thing that we are

seeing—and maybe it is not going into the practice, maybe it is because of Medicare choice. I mean, I think there are a lot of other

issues going on out there besides Medicare. But, you know, we are

seeing in many cases where we just don’t have the physicians to

take on new patients. It doesn’t have anything to do with that they

are stopping to see them. It is just there is no room in their practices left because of the overburden and the demographic shifts

that are happening in this country. And I think that is part of the

issue.

Ms. Wilensky, let me ask you a couple of questions, because I

think it is important having you here, both in what you have done

with health care but also as a former HCFA Administrator.

In your time, did we have hearings like this about overburdened

regulations? And do you remember any time when you served that,

in fact, we had as much change, the 700 ideas that were talked

about, rules and regulations that had to be put in, or that policies

were being driven because we were cutting budgets? I am just kind

of curious to know. This is a framework that, you know, I don’t believe has always not been there, but I do think we have added

some burden on it in this last years.

Ms. WILENSKY. I think you have characterized it well. HCFA is

and always has been a very difficult job. You are under intense

pressure. Providers—the nature of the program is to have pressure

to have more payment and less regulation and to make sure that

seniors feel like they are getting good care. That tension is inherent in the program.

The amount of complaint, the frustration by hospitals and physicians, the fact that we were able to document some evidence of

downcoding and billing by hospitals is really quite extraordinary,

and I think it has to do with the pace of change that has occurred

since 1997. I think it has to do with very grave concern by physicians and institutions over being charged with civil monetary penalties and with potential criminal penalties, very aggressive moves

to try to go after undocumented billing. I think it is partly an attitude, it is partly a level of change, and it is the pace of changing

regulations and the inconsistency.

When you put all of those together, what you are hearing now

is a level of frustration that is quite extraordinary, and the fact

that you have as much interest being expressed by various Committees of the Congress is very different. There was always some

level of interest in this issue by this Committee and by the Finance

Committee in the Senate, but the level of interest among a wide

variety of Subcommittees in the Congress is extraordinary.

Mrs. THURMAN. Why do you think that is true today than it was

before?

Ms. WILENSKY. I think it is——

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Mrs. THURMAN. I mean, there has got to be a key reason.

Ms. WILENSKY. I think that it is the amount of change that has

gone on in the last 3 years, and I believe it is very aggressive efforts by the inspector general, by HCFA itself in terms of program

integrity, by the—— Mrs. THURMAN. Directed by—— Ms. WILENSKY. Department of Justice, by the State attorneys

general in going after abusive practices, in some cases unclear

practices. I think there is the belief on the provider community

that they are being charged as being criminals in what is a very

complex and unclear program, and it has raised levels of frustration. But the sheer enormity of the change and the regulations and

the billing procedures that that has engendered is different from

anything that existed.

Mr. Stark mentioned when I was at HCFA we were focusing on

changing the way physicians were reimbursed, and we worked very

hard to make sure that that occurred on time, January 1, 1992,

reasonably accurately. But when BBA came through, HCFA had to

worry about having prospective payment for skilled nursing facilities or home care or outpatient and doing all the other changes

that went along at a time where what I have been told is the administrative budget increased approximately 5 percent during a period when the demands were just enormous.

Mrs. THURMAN. And if I remember correctly, there was very little

time given to HCFA—— Ms. WILENSKY. Very little.

Mrs. THURMAN. To do those regulations before they were going

to be brought back up here as to why aren’t these things being

done. And it is my understanding from past situations we have actually tried to give HCFA the amount of time to actually implement.

The reason I go along this line of questioning is because I don’t

want us to be misled that HCFA and Medicare are in trouble. I

mean, I actually think they have done some pretty good jobs. I

think Medicare, whether you all believe it or not, has done a good

job, and I think people depend on it, and they like the program.

And, in fact, HCFA has gotten great reviews through some surveys

saying that beneficiaries have been happy with the explanations

that they have been given, and they felt like they were courteous

and got answers.

But, you know, I am worried that we are setting a stage here

that is doing something for Medicare reform, maybe just in the

name of Medicare reform to change the system, that while there

may be some problems in it and, yes, we have to look at it, but we

also need to be careful that we don’t undo a system out there that

people are comfortable with in the most part. Problems? Absolutely. I mean, we just got done voting on paperwork reduction on

the floor for small businesses. So we know that that is a problem

throughout the system. But I just want us to be careful that we

are not totally throwing out something to put something else in

and building the case here.

Ms. WILENSKY. I think there is a real—one of the things that I

worry about is I think there is a major morale problem at HCFA,

in part because HCFA bashing has been very popular.

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Mrs. THURMAN. Absolutely.

Ms. WILENSKY. And I think as much as I have recommended restructuring, I hope very carefully, the fact that HCFA had just

gone through an enormous restructuring before BBA occurred

meant that the agency was in a very difficult position to respond

to what was the biggest workload it had ever had placed on it.

But having said that, Medicare is a very important program. I

believe it can be made better. I believe that it can better suit the

78 million baby boomers that are going to start to retire. We just

have to make sure it is done in a way that doesn’t put the existing

seniors at risk.

Mrs. THURMAN. And the last comment is I know that in both

BBA and the last one, we have also asked MedPAC to do some

studies. And we probably ought to also give them the opportunity

to respond to some of this.

Ms. WILENSKY. MedPAC has been impressed by the number of

new assignments from BBRA and BIPA.

Chairwoman JOHNSON. Thank you, and I appreciate the gentlelady from Florida pointing out that this is not about HCFA. We

have some very, very good people at HCFA. It is also, to some degree, about Congress responding to the problems the program faced

in 1997 with a very, very big bill.

I think the other thing here—and I think it is important for us

to acknowledge—we did not anticipate the unintended consequences of putting in place criminal penalties, and especially putting them in place at a time when loads of new regulations were

going to come out, where judgments were going to be very difficult

to make. So now you have people trying to make very difficult judgments. They are bound to commit errors, and the penalties are

their license, their livelihood, and their reputation in the community.

So I think in the 1997 legislation, which we passed and I helped

write—and I recognize the problems. I remember when Sam Gibbons proposed the $800 million more for fraud and abuse, and we

were able with that money to set up a center in every State. We

needed to do that. God knows we needed to do that. But I don’t

think we had a chance to really think through what was going to

be the interaction.

Now, that leads me to a question I do want to ask, and we will

do a second round now. In the area of workplace safety, some

States have used a method where OSHA comes in and can do an

inspection with you, tell you exactly what you need to do, and then

they come back in a month or two, and if you have done it, fine,

there are no penalties.

Given the enormous complexity of the laws at this time, do you

think there is any role for an OSHA-type education process that

would do an inspection, go around with a nursing home or work

with a home health agency on their billing and so on, and then if

they clean it up, then that is fine?

Now, clearly, if you came in successive years and found exactly

the same problems, you know, that would be a problem. But this

is a variant of what Dr. Wilensky has talked about. And it also

picks up on the incredible lack of education that we do out there.

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Do you think there is a role for this kind of an oversight process

as a program integrity component?

Mr. GROB. I really appreciate your asking that question. I absolutely do think there is room—in fact, I actually think that for

nursing homes, for example, the current rules that pertain to the

discovery of deficiencies in treatment is very much along those

lines. And I think where it has fallen short is that they simply

have not had the resources to meet the kind of deadlines that you

are talking about and get back out there right away—— Chairwoman JOHNSON. No, no. The spirit of what has gone on in

nursing homes is not along the line that I am suggesting at all.

That is not a problem.

Mr. GROB. Could I address the question then of spirit, since the

question of demoralization and the question of criminalization has

frequently arisen? I really do think it is vital, and could I take a

minute on that?

Chairwoman JOHNSON. Sure.

Mr. GROB. I do think that there is concern—and I have heard it

over and over—that physicians are afraid and other health care

providers are very much afraid of criminalization. But I do wish to

emphasize that the word can mean many things to many people.

Last year, 12 physicians were found guilty of a crime. One of

them performed operations, cataract surgery, on people who didn’t

need it.

Chairwoman JOHNSON. I am not denying the important role of

oversight in criminal prosecution.

Mr. GROB. Agreed. But a lot of what happens is that other things

that are done get brushed with that brush of criminalization. And

if I could, I would like to give you an example or two.

Mr. McDermott is not here, but he did ask a question, and he

was wondering why the inspector general turned down a claim for

a preventive health office visit. And it was explained, of course,

that this is not covered by Medicare. But throughout that discussion, it never was said that the inspector general did not turn down

that claim—this was an audit that we did to determine the error

rate—nor did the inspector general’s office ever classify any action

like that as being criminal. But Mr. McDermott thought we did.

People are finding that when we have our error rate study that we

are saying that this is all criminal. No. Every time we issue it we

say that it is not, that it could be a mistake, or it could be criminal.

The thing that I am afraid of is that we are seeing here a selffulfilling—not prophecy but assessment.

Chairwoman JOHNSON. But that is true. I agree with you absolutely. There has never been any willingness, from the very first

time you put out the $34 billion, to talk about what the $34 billion

really—but that tells you, you must change your process so that

the message that goes out will be more accurate.

Mr. GROB. Yes. We agree with that, and we have been trying

very hard to find the words to do that. What I think we would like

to do is ask for help. We would like everybody here to be saying

that we are not talking about criminal behavior when we check the

payment error rate. We would like others to join us in saying we

are not trying to get you from a criminal point of view. We are trying to make the Medicare Program work better.

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And I think if everybody begins talking about it like that, that

will diminish the feeling that somehow police are looking out to

find a doctor making a mistake. I think all of us really need to help

just tone that down. That is a plea that I would make in coming

before the panel today.

Chairwoman JOHNSON. Just let me ask you briefly, why is it that

HCFA has not used the dual-entry accounting system? In one word

or less.

Mr. GROB. I am sorry. I could not hear.

Chairwoman JOHNSON. Why is it that HCFA has not adopted a

dual-entry accounting system?

Mr. GROB. We are amazed at that. We have been raising this

point since, I think, the early 1990s. We know that it is a very complex matter, but it is just one of these anomalies that is very

strange. There is not a reputable business in the country that

wouldn’t have it.

Chairwoman JOHNSON. Thank you. Mr. Stark.

Mr. STARK. Well, I think Mr. Grob touched on the issue that I

wanted to ask him to repeat. I am looking at a letter from a county

medical society, which probably I should not identify, but they are

complaining to me about methods used to go after fraud. Do your

guys wear black leather coats when they go in?

Mr. GROB. Today, I wore my best——

Mr. STARK. This letter says they stormed in and arrested some

physicians. It uses inflammatory language but, as a practical matter, it goes on to say that they were arrested and they were not

aware they were committing a crime, as indicated by their attorneys.

Now, I understand, in checking on this, that there was a group

of physicians here, and several of them have already been convicted

of a crime. And I don’t believe you could convict somebody of a

crime if there isn’t intent. I am not a lawyer, but I somehow remember that intent is required to these charges.

Mr. GROB. We cannot do that. The law will not allow it. The intent must be proven.

Mr. STARK. And I don’t think that happens a lot, but we do have

the Prudential Life Insurance Co. who paid hundreds of millions of

dollars of felony fines for copping a plea of stealing billions of dollars from their clients, or Columbia HCA who paid, I think, about

$300 million in fines for stealing from the Government.

Crime is not something that we should be shocked about when

it happens. But it does seem to me that—just like, I suppose, for

those of us who have been audited by the IRS, rarely is there a

criminal element, but often they want a lot of money out of us. And

they may start out a little higher than what they expect to get.

That seems to be aggressive but, I gather, successful in most cases.

I guess what I want to know, and you touched on it, are the facts

on arrests. There are arrests from time to time. But there has to

be a criminal indictment, right?

Mr. GROB. Yes, a warrant.

Mr. STARK. You have got to go to either a Federal grand jury

or—you have got to turn it over the Justice Department. Is that

not correct?

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Mr. GROB. That is right. We do the investigation and coordinate

with the Justice Department as far as—— Mr. STARK. So, basically, you don’t arrest anybody?

Mr. GROB. We do, with deputation.

Mr. STARK. So this is like the Attorney General.

Mr. GROB. The Attorney General, FBI.

Mr. STARK. Who has decided that based on the evidence—— Mr. GROB. Yes.

Mr. STARK. So if the doctors are upset, or the hospitals, about

being, quote, arrested as it were, their beef is with the Attorney

General—— Mr. GROB. Well, I think there are many law enforcement agencies involved. It could even include local law enforcement agencies.

Mr. STARK. OK.

Mr. GROB. But I think the point you are trying to make is the

very same point that I was making. I think that when our office,

the inspector general’s office, becomes involved, people think that

what we are doing is a criminal kind of thing. We also have auditors, and they do auditing.

Also, if I could comment, a lot of times when the carriers take

action, they think that the inspector general has shown up in their

office. Compared to the carriers, the inspector general rarely shows

up in the physician’s office to examine a claim, for example. And

they are rarely involved in determining how much the physician

owes that should be paid back to the Medicare Program. That is

almost always done by the carriers.

But, yet, people will report that these happen, and they will say,

well, the inspector general came—I am not trying to distinguish

our office from all the others. That is not my intent. My intent is

to show that in the telling of the stories, we are adding to the

story, that the story-telling itself is part of the process of criminalizing things, and all I am wishing is—I think we can do it all. I

think we can do the crime part. I think we can do the accounting

mistakes. And I think we can do the education.

I really do think that all of us can do it, and we can all keep the

crime issue separate. I am just hoping that we all talk like we all

know that we can keep it separate.

Mr. STARK. I think that there is this misunderstanding, and I

hope that we can, both from our side of the podium and your side

and the providers’ side, not decide that each anecdote is an indication that we are becoming heavy-handed. It is complex, and everybody has added to the complexity, in my opinion. The providers

have added to the complexity, happily, because they have got all

kinds of exciting new treatments, much of which is new to HCFA,

and you have to figure out how to pay for it or whether to pay for

it. Indeed, how many claims are processed each year?

Ms. WILENSKY. I think it is close to a billion. I think about a billion.

Mr. GROB. Eight hundred million.

Ms. WILENSKY. It is close to a billion.

Mr. STARK. Eight hundred million.

Ms. WILENSKY. More than 800 million.

Mr. STARK. I mean, that is a lot of claims to grind through, and

we are probably talking about a million out of—if that, 500,000,

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maybe, where they go awry. So I look forward—and thank you,

again, Madam Chairman. I think we can do something, and I think

that if we just decide we are going to make the system——

Mr. GROB. Mr. Stark, could I quickly clarify a statement I made?

We do participate in making the arrests, the IG’s Office.

Mr. STARK. Do you carry a gun?

Mr. GROB. I do not carry a gun.

Mr. STARK. OK.

Mr. GROB. But our agents do when the proper procedures have

been followed.

Mr. STARK. Is that true? You really do? That is scary. You ought

to get hazard pay, it seems to me, but OK. I stand corrected. Thank

you.

Chairwoman JOHNSON. Mr. McCrery.

Mr. MCCRERY. Well, the physicians that I have talked with—and

there are numerous physicians—don’t just zero in on the criminality element. The hassle factor includes a lot more than just the

criminal penalties that are in the law.

Much of it is just the paperwork that they have to do. They have

to hire people to do the paperwork, or they have to assign nurses

to do it, and that takes them away from the patient care. So it is

a lot more than just the criminal element.

Mr. GROB. Yes. I completely agree.

Mr. MCCRERY. And I think Mr. Stark hit on part of the problem,

and so did Dr. Moffit, which is just the sheer size of Medicare and

the tremendous burden that HCFA has in administering that size

program. Even though it is dispersed somewhat among a number

of intermediaries, still, it is probably not as dispersed as the private sector, as Dr. Moffit pointed out. And that is why I want to

get back to Dr. Moffit’s idea that we can’t solve this problem within

the current structure, we need to change the structure.

I am sure, Dr. Moffit, you have given some thought as to how

we transition from the current system to the new system that

would be more private sector oriented and all these decisions would

be much more greatly dispersed around the country.

Can you share with us some of your thoughts on how we transition to that?

Dr. MOFFIT. Yes, I can, Congressman. In my testimony, I have

outlined certain steps that we ought to take if we pursue Medicare

reform. The most important is to create a structure, as I said, that

broadly resembles that of the Federal Employee Health Benefits

Program, with which I am intimately familiar. That system works

extremely well.

However, having said that, I think that because of the enormous

technical and political challenges that are involved in moving toward a reform of the Medicare system, as envisioned by Senator

Breaux and President Bush and many Members of Congress, this

ought to be done in a phased-in fashion. If there is any lesson we

have learned from the Medicare Choice experiment, it is that this

cannot be rushed; it cannot be turned over to an agency whose

whole institutional culture is to regulate; but, rather, we have to

create a relationship where there is a culture of friendliness toward

private firms as competing interests.

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But to answer your specific question, there are two ways, to do

this. One, is basically insulate the entire current Medicare population from Medicare reform; in other words, just basically confine

Medicare reform to the next generation of retirees. Those people

who are currently in the Medicare system should be treated entirely different than the future generation. We should then phase

the new system in on a year-by-year basis, enabling people when

they retire to make a decision about whether or not they want to

go into a new competitive system that looks like the Federal Employee Health Benefits Program.

In that transition, they could make a decision about whether

they want to pick and choose one of the competing plans in the new

competitive system or whether, they would want to keep their current employment-based retirement coverage and bring it with them

into retirement as their primary coverage and get a Government

contribution to help offset the cost.

This approach is very non-threatening. It is the least disruptive.

But by moving toward a phase-in like that, it would enable the new

administrative agency— I don’t think that HCFA should run a new

competitive system—to make the mid-course corrections over time

that are going to be necessary. There is going to be a lot of wrinkles in moving to a new competitive system. But at the same time,

with a smaller and growing number of people in the system, it

would give a new agency an opportunity to properly manage without a great deal of disruption. This way we can avoid the kinds of

problems we have had in the past with the ‘‘Medicare+Choice’’ program.

You talked earlier about fraud and abuse. There is nothing in the

Federal Employee Health Benefits Program in terms of those problems—the size of the problems in fraud and abuse— that you have

had in Medicare. You do not have the same kinds of problems with

claims disputes that you have in Medicare. You don’t have the

same kinds of grievance difficulties. And, as a former Congressional

Relations Director for the Office of Personnel Management, I dealt

with probably the most highly educated and sensitive constituency

in the world, Federal retirees and Federal employees, who know

how the system works and who write their Members of Congress.

And I can tell you from my experience, I very rarely was summoned to a congressional office where a Congressman sat me down

and said, ‘‘Moffit, you better do something about the Federal Employee Health Benefits Program because it is not delivering the

kinds of services that my constituents want.’’ Rarely did that conversation happen.

We had a lot of debates about retirement. We had a lot of debates about labor-management relations. We had a lot of questions

in those areas. But the point is, if you want consumer satisfaction

and you want good administration, move into the new system slowly; phase it in year by year, and give the new administrative agency the flexibility to make the mid-course corrections that will be

necessary.

Mr. MCCRERY. Well, the fact is that under FEHBP, each individual insurance company providing those benefits is going to provide the fraud and abuse protection.

Dr. MOFFIT. That is right.

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Mr. MCCRERY. It is in their own selfish interest to do that, and

they do it.

Dr. MOFFIT. That is right.

Mr. MCCRERY. I can assure you they do.

Dr. MOFFIT. They police it very closely, Congressman.

Mr. MCCRERY. And whether they do a better job than HHS or

HCFA, I don’t know. We could have a hearing on that.

Dr. MOFFIT. I think that is an excellent idea. Let me just make

the point, though, that one of the problems you have here is that

the very structure of the Medicare system does not have the same

incentives on the part of the carriers to root out fraud and abuse

in the same way that private sector companies competing for consumers’ dollars have.

Mr. MCCRERY. Right.

Dr. MOFFIT. I mean, that is the point. You have Medicare contractors, 55 of them around the country. If there is fraud and

abuse, they don’t actually lose the money on their bottom line.

Mr. MCCRERY. Right. I agree. And I also want to point out, Dr.

Moffit, that there are certainly in the private insurance industry

complaints and grievances. As a former practicing attorney, I can

tell you that there are people who don’t think they are being treated fairly by a private sector insurance company, and there are

grievances. Fortunately, they do have procedures to go through,

and often we can resolve those. But to say that there is not any

of those I think is probably an overstatement. There are a lot——

Dr. MOFFIT. Let me offer a point, a response to that, though,

Congressman. In most private insurance, the employer picks your

insurance. The employer owns the policy, and if you don’t like the

employer’s policy, you cannot do anything about it.

Mr. MCCRERY. Right.

Dr. MOFFIT. In the Federal employees’ system, if you do not like

the rates or the benefits or the premiums or the payments or the

deductibles or the way in which a plan handles your claims, you

can fire that insurance plan.

Mr. MCCRERY. That is right. Absolutely. Your points about the

value of consumer choice are well taken, and if we had a better

health care system in terms of delivering and paying for health

care than we do—and you know my views on that—then I think

we would solve a lot of the problem that physicians are concerned

about and prompts them to push us to do more regulation on the

Patient’s Bill of Rights and things like that. Those problems would

be solved by the consumer and by physicians working with consumers. But that is another hearing and another day I hope we

will eventually have to restructure the entire health care system,

but not today. Thanks.

Chairwoman JOHNSON. Thanks, Mr. McCrery.

I did read that recommendation in your testimony, Dr. Moffit,

about phasing this in slowly. The question that occurred to me was

that insurance plans depend on a certain volume of premium in

order to stably offer coverage. If you open this as slowly as you are

recommending, only to incoming seniors, will we have the same

kinds of problems we had with Medicare Plus Choice? Because that

was one of the problems, that the Choice programs had no rampVerDate 11-MAY-2000 08:25 Sep 25, 2001 Jkt 074213 PO 00000 Frm 00122 Fmt 6633 Sfmt 6602 E:\HR\OC\A213.XXX pfrm09 PsN: A213
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up time, no consideration for the period when they would not have

enough enrollees to cover their obligations.

So how do you ramp it up as slowly as you are recommending?

Dr. MOFFIT. Well, I agree that is a technical problem, and we

have to address it.

Chairwoman JOHNSON. Well, we can talk about this later, I

guess.

Dr. MOFFIT. Let me say this. I have talked to the Blue Cross/

Blue Shield people. I have talked to insurance representatives from

the American Association of Health Plans. And the one thing that

they stressed to me in terms of the Medicare Plus Choice program

and Medicare reform is that, if we are going to have a Medicare

reform, what they need most is they need predictability. They need

to know how many people are going to come on. They want to be

able to absorb them. And at the same time, they want a sound

business relationship with the government which is stable, where

they can make sound business planning decisions.

So the question is how you phase it in. I suggested perhaps on

a year-by-year basis. That is also, of course, linked to a suggestion

that I had made earlier in my testimony, which is give Americans

who have employer-based health insurance that they like the opportunity to take that into a new competitive system with them as

their primary coverage in retirement, if they wish to do so.

Chairwoman JOHNSON. Thank you. Well, we do look forward to

working with all of you as we move ahead. As should be very clear

by now, we are keenly aware that the explosion of changes in the

law since 1997 and the remarkable changes in medicine in the last

5 or 6 years are all part of having created some new problems. But

we do need to understand these new problems because they are

very significant. They are going to put small providers out of business, without question in my mind. I don’t think little can survive

with this level of regulatory weight. And that would actually have

a terrible impact for seniors.

So this is about senior access to care. It is about the quality of

care the seniors have access to. And if we don’t deal with the structural, bureaucratic problems of Medicare and don’t begin to think

about what kind of system can serve the retirees as the number

doubles, then we will not have done our duty.

So this is not about blame. There is plenty of that to go around

in life. This is about the prospects of strengthening Medicare for

the future. And I thank you for your very good testimony and look

forward to working with you all as we move through these issues.

Thank you.

[Whereupon, at 1:15 p.m., the hearing was adjourned.]

[Submissions for the record follow:]

Statement of American Association of Homes and Services For the Aging

The American Association of Homes and Services for the Aging appreciates the

opportunity to submit this statement for the record of the Subcommittee’s hearing

on March 15, 2001 on essential regulatory relief for health care providers who participate in the Medicare program.

AAHSA is a national organization whose more than 5,600 not-for-profit providers

serve over 1,000,000 individuals on a daily basis. Approximately seventy-five percent of AAHSA members are affiliated with religious organizations; the other are

sponsored by private foundations, fraternal organizations, government agencies, and

community groups. Our members include not only nursing facilities, but also indeVerDate 11-MAY-2000 08:25 Sep 25, 2001 Jkt 074213 PO 00000 Frm 00123 Fmt 6633 Sfmt 6621 E:\HR\OC\A213.XXX pfrm09 PsN: A213
120

pendent senior housing, assisted living, continuing care retirement communities,

and providers of home health care, adult day care, respite care, meals on wheels,

and other services. AAHSA members are characterized by long-standing ties to their

communities and a firm commitment to quality.

Although AAHSA’s membership spans the continuum of long term care, the majority of our members continue to provide nursing care to residents, either alone or

in combination with other services. We actively participated in the development of

federal quality standards for nursing home care under the Omnibus Budget Reconciliation Act of 1987 (OBRA), and we continue to support these standards. We

were one of the initial members of the Campaign for Quality Care, the coalition of

organizations coordinated by the National Citizens’ Coalition for Nursing Home Reform (NCCNHR), that worked to reach consensus on twelve key areas of nursing

home reform. AAHSA has continued to serve on various committees and workgroups

convened by the Health Care Financing Administration to work toward a reasonable

and equitable implementation of the regulations and interpretive guidance resulting

from the OBRA requirements.

AAHSA has several concerns, however, about the ways in which these standards

have been implemented under regulations promulgated by the Health Care Financing Administration (HCFA) and have been enforced under the joint state and federal

survey and certification system.

Assessments for purposes of Medicare reimbursement

OBRA ’87 requires a full assessment of a resident’s condition upon entry and at

specific intervals thereafter, recorded on the minimum data set (MDS). The prospective payment system instituted under the Balanced Budget Act requires additional

assessments for Medicare payment purposes.

HCFA has determined that these additional assessments must be done according

to the full MDS, rather than just according to the specific treatments for which reimbursement is claimed. HCFA developed a short form of the MDS specifically for

the RUG–III prospective payment system. It is a subset of the full MDS, and it has

every item needed to calculate the appropriate RUG class under the Medicare regulations. HCFA should permit facilities to use this shorter MDS, instead of completing the entire MDS, which means filling out items that are not needed for reimbursement and are not collected for reasons of quality assurance.

The full MDS is a detailed and time-consuming process, as it should be, and requiring the full MDS for Medicare payment purposes when it is not required or

needed for care planning is an excessive paperwork burden that does not contribute

in any way to quality of care. The current requirements are such that facilities with

average Medicare volume are forced, as a practical matter, to dedicate the equivalent of a full-time RN to completing assessments rather than providing care if the

facilities are to get all of the paperwork completed and submitted on the time schedule required.

Solution: Allow nursing homes to file the short-form MDS for reimbursement

purposes under the prospective payment system, while continuing to complete the

full MDS for care planning and quality assurance purposes.

Posting of staffing levels

The recent requirement in Section 941 of the Benefits Improvement and Protection Act, that nursing facilities post numbers of nursing staff for each shift, is potentially misleading and administratively burdensome. The new law requires nursing

homes to post daily for each shift the current number of licensed and unlicensed

nursing staff, in a uniform manner to be designated by HCFA and in a clearly visible place.

AAHSA members are acutely aware of consumers’ need for information on indicators of quality care; however, the posting requirement provides information that is

of minimal to no actual value to the consumer. Without any reference to the acuity

of the residents being served, or an established criterion for appropriate staffing levels based on resident acuity, simple staff numbers are meaningless. The assumption

that quality can be determined by numbers of nursing staff rather than by the efficient use of nursing staff and resident outcomes is both simplistic and potentially

deceptive. Such a policy runs completely counter to the philosophy of outcome-based

measurement of the quality of care.

Solution: AAHSA strongly urges the repeal of the staff posting requirements

under BIPA.

Other regulatory agency requirements

In addition to regulations promulgated by OBRA, nursing facilities must comply

with worker protection regulations issued by the Occupational Safety and Health

Administration, wage and hour laws enforced by the Department of Labor, environVerDate 11-MAY-2000 08:25 Sep 25, 2001 Jkt 074213 PO 00000 Frm 00124 Fmt 6633 Sfmt 6621 E:\HR\OC\A213.XXX pfrm09 PsN: A213
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mental requirements promulgated by the Environmental Protection Agency, and

with regulations imposed by a variety of state agencies. All of these regulations do

not necessarily coordinate with one another, and there may even be conflicts among

them.

As an example, OBRA restricts the use of physical or chemical restraints on nursing home residents. The Food and Drug Administration defines a restraint as something that is attached to the body, while HCFA defines a restraint as something attached to or adjacent to the body. These differing definitions have created an issue

with respect to bed siderails. HCFA views siderails as a restraint, while manufacturers see no need to label siderails as restraints or provide instructions or warnings about their use, since siderails do not fit the FDA’s definition of a restraint.

Solution: AAHSA is working with the Medicare Payment Advisory Commission

(MEDPAC), which is studying the combined impact of federal regulations on health

care providers, including nursing facilities.

Survey and enforcement

Besides paperwork reduction, nursing facilities need a more balanced and

thoughtful system for recognizing and encouraging excellence. The current survey

system that has developed under OBRA forces oversight authorities to expend the

same amount of time and resources on facilities with exemplary records as they do

on those demonstrating chronic or serious quality of care problems. Given the limitations on resources available for enforcement, the mandate that all nursing homes

receive surveys of equal frequency and intensity effectively means that facilities

that consistently fail to provide quality care do not receive the attention they need

from state and federal regulators.

In addition, the system is plagued with inconsistencies in survey results and the

imposition of remedies, which nursing facilities have only a limited right to appeal.

Determinations of the severity and scope of an OBRA violation are subjective and

vary from state to state and from region to region. Nursing homes in one area of

the country may be severely penalized for infractions that bring far lighter remedies

in other regions. This subjectivity and inconsistency prevent the survey process from

serving as an accurate measurement of the quality of nursing home care.

Furthermore, the present regulatory system has developed into an adversarial

process that pits surveyors against nursing homes, rather than allowing them to

work together to improve quality. HCFA and state survey agencies actively discourage surveyors from discussing their findings with nursing facilities or advising facilities how care might be improved. Even a deficiency-free survey is no longer necessarily accepted as a sign that a nursing home is providing good care. Instead, the

assumption often is made that the surveyor simply didn’t try hard enough to find

out what the facility was doing wrong. In the current environment, it has become

almost impossible for a good surveyor and a good facility to coexist.

This negative environment damages employee morale and makes it all the harder

for nursing facilities to recruit and retain qualified staff at every level. As will be

discussed below, nursing facilities in all areas of the country face a crisis in attracting sufficient numbers of certified nursing assistants, who provide the bulk of

hands-on care to nursing home residents. Moreover, nursing homes are losing substantial numbers of directors of nursing, and the decline in new administrators is

equally alarming. In the last two years the numbers of candidates sitting for the

nursing home licensure examination in many states have dropped by as much as

25%. If nursing homes are unable to recruit and keep dedicated professional staff,

the quality of care for residents is bound to suffer.

Our present regulatory system recognizes only adequate levels of care, not excellence. A perfect inspection simply means that no mistakes or violations of the law

were observed. It says nothing about whatever positive actions the facility is taking

for its residents or any innovative programs it may have put in place for residents

or staff. Our current inspection and enforcement system for nursing homes cannot

give consumers the information they want and need on which are the best facilities,

and there is no consideration being given to developing better measures. To the contrary, the answer to every question about quality in nursing homes now is more regulation and greater penalties.

In the short term, a more collaborative approach to surveys needs to be developed,

one that allows surveyors and caregiving staff to work not only on promoting and

achieving sustained compliance, but on meeting individual care needs and expectations to improve care. In the long term, we must create a new system; one focused

on outcomes and continuous quality improvement, rather than process. The focus

of the survey and enforcement process should be on fixing problems and offering expert guidance rather than on punishment.

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Solutions: AAHSA recommends the following changes in the nursing home survey

and certification process:

• Less frequent or less intense surveys for good-performing facilities: Flexibility

is needed to allow facilities with good records to be surveyed at intervals beyond

the current fifteen-month statutory limit. States should also be given the option of

doing shorter, less intense surveys of facilities that have demonstrated good quality

care on previous surveys. This would allow over-sight authorities to better target

their resources on facilities with chronic or serious quality of care problems. • Alternative approaches to enforcement of nursing home quality standards:

States should be given greater flexibility to develop and explore innovative approaches to measuring quality of care through state waivers for demonstration

projects. These efforts should be directed toward increased use of outcome measures,

greater incorporation of quality of life, and improving consistency in deficiency determinations and survey results. • Informal dispute resolution process: Since severity and scope determinations ultimately lead to the imposition of remedies, the inability to challenge these determinations under the informal dispute resolution process unfairly limits a nursing

facility’s ability to obtain redress for inappropriate penalties. This process must be

open to consideration of severity and scope for any deficiency as well as to the existence of a deficiency. Facilities should also have the right to review before an independent, impartial decision-maker and the opportunity to request a face-to-face review for those deficiencies that cannot be adequately addressed by telephone or in

writing.

• Civil Monetary Penalties should be used to enhance quality care: States are required to use funds to improve resident care, yet many states have not adopted programs to use the funds. In addition, HCFA maintains that states cannot use CMPs

to provide technical assistance or consultation. Funds should be allowed for surveyor

training, consultation and technical assistance to facilities in developing and implementing quality improvement or resident care protocols.

Nursing assistant training lockout

Medicare and Medicaid prohibit nurse aide training by or in a nursing facility if

the facility within the last two years has: (1) operated under a (staffing) waiver; (2)

has been subject to an extended or partial extended survey; (3) has been assessed

a civil money penalty of $5000 or more; or (4) has been subject to certain remedies

(i.e., denial of payment for new admissions, or temporary management, termination

of provider agreement due to a finding of immediate jeopardy, and/or closure of a

facility, transfer of residents, or both). These provisions are severely restricting the

ability of nursing facilities to train nurse aides and have proved counterproductive

to improving quality of care.

There is little argument for approval of a nurse aide training program by a facility

that is providing substandard quality of care. However, the prohibition on training

once compliance has been achieved and demonstrated is problematic for providers

and residents alike. The two-year duration of the nurse aide training ‘‘lock-out’’ severely impedes the facility’s ability to recruit and retain adequate and qualified

staff, and to assure provision of quality care.

Opportunities to access alternative training programs are frequently limited and

many facilities, even after achieving and demonstrating compliance, find it difficult,

if not impossible, to secure training for their aides. The end result can be either new

compromises to quality of care or a recurrence of the problems that initiated the

disqualification from training. The effect of this particular sanction is counterproductive to the improvement of quality, and to the intent of the law that facilities

achieve and maintain sustained compliance.

Facilities that correct their deficiencies and demonstrate compliance should be

permitted to resume their nurse aide training programs. Elimination of the 2-year

prohibition on providing nurse aide training will preserve the ability of the facility

to assure the ongoing provision of required training and competency evaluation of

its nurse aides.

Solution: AAHSA urges the elimination of the present two-year prohibition on

nurse aide training by or in nursing facilities that are found to be out of compliance

with certain federal long term care requirements [Section(s) 1819 and

1919(f)(2)(B)(iii)(I)(b) of the Act]. Once facilities have corrected their deficiencies and

demonstrated compliance, they should be permitted to resume their nurse-aide

training programs.

Single task workers

Nursing facilities across the country are experiencing a staffing crisis. Insufficient

numbers of staff—licensed vocational nurses (LVNs), licensed practical nurses

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(LPNs) and registered nurses (RNs)—can endanger quality care for residents. However, one of the greatest challenges currently faced by nursing facilities in assuring

quality of life and care outcomes to residents is the ongoing shortage of nursing assistants (CNAs). Higher acuity levels among nursing facility residents as well as

projected aging demographics point to a demand for paraprofessional staff in nursing facilities that will continue to escalate. Cornell University’s Applied Gerontology

Research reports that some 600,000 new nursing assistants will be needed within

the next 10 years.

Current law defines a nursing assistant as ‘‘any individual providing nursing or

nursing-related services to residents in a skilled nursing facility or a nursing facility.’’ The statute requires that nurse aides successfully complete a training and competency evaluation program. The law does not define which specific tasks are considered to be ‘‘nursing or nursing-related’’; HCFA has determined, under its State

Operations Manual, which tasks should be so designated. According to the State Operations Manual, assisting residents with eating or drinking is considered to be a

nursing-related task.

In the nursing home environment, many employees who are neither nurse aides

nor licensed health professionals also have frequent and regular contact with residents. Permitting these individuals to be trained to perform certain tasks determined to present little or no risk to the resident can offer partial relief to the nurse

aide shortage and provide more individual attention to residents.

The area where trained non-nursing assistance is most needed is assistance with

eating. In addition to providing assistance at regular mealtimes, examples include

a dietary aide who might be permitted to help residents eat birthday cake at a

party, or office personnel and activity assistants who might assist with eating during a special event or outing. The ability to provide assistance would be based on

a comprehensive assessment of the needs and potential risks to the resident. The

personnel performing these tasks could be required to complete in-service training

in dining skills and assistance with eating, and demonstrate competence in the duties assigned.

Solution: AAHSA supports legislation to permit nursing facilities to provide specialized or ‘‘single-task’’ training to personnel other than certified nursing assistants. These employees should augment, but not replace existing staff and be allowed

to perform certain specific resident-centered tasks without having to complete the

full nurse aide training and competency evaluation program. The interdisciplinary

team responsible for the care of the resident should determine resident appropriateness and employee competence and ability to perform these tasks. The training programs should be reviewed and approved by the state regulatory authority.

Conclusion

AAHSA appreciates the Subcommittee’s willingness to explore regulatory relief

that would continue to ensure high quality care while allowing nursing homes to

maximize the financial and human resources devoted to caring for their residents.

We want to continue working with the Subcommittee on regulatory reform that will

recognize the high-quality care that already is being provided in many nursing

homes and use them as models for what this field can become.

Statement of the American College of Physicians

f —American Society of

Internal Medicine

The American College of Physicians—American Society of Internal Medicine

(ACP–ASIM) which, representing 115,000 physicians and medical students, is the

largest medical specialty society and the second largest medical organization in the

United States, congratulates the Subcommittee for holding this hearing. Internists

provide care for more Medicare patients than any other medical specialty. The most

frequent complaint received by the organization is that internists are subject to too

much paperwork and, as a result, do not have enough time to devote to patients.

Impact of Medicare Paperwork on Clinical Practice

Time is the most valuable resource in diagnosing and caring for older adults, but

it’s in short supply due to unnecessary paperwork. Research breakthroughs, new

pharmaceuticals and improved diagnostic equipment are of limited value if doctors

lack the time to spend with patients.

Visits from Medicare patients typically begin with a surprisingly complex and

time-consuming paperwork process. Medicare requires that the physicians and their

staffs complete a claim form with diagnosis and service codes and authorizations for

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items such as wheelchairs and services such as home health care. The Medicare program assumes physicians know what it will and will not cover. There is no single

place to find Medicare’s rules, however. The regulations are more than 100,000

pages long and different carriers, who process paperwork for Medicare across the

country, have their own rules.

Once a claim is filed, Medicare might hold it because it tripped some random criteria. If Medicare finally pays the claim, carriers have four years to change their

minds and demand that the physician repay it. Appeals require more paperwork

and time to present the case.

Medicare can sample physician’s records to determine if certain services, such as

office visits, were paid incorrectly. If a certain percentage were paid wrong, the carrier will demand repayment for similar claims—without looking at the records.

To keep their practices running, many internists simply repay these claims. Opening their practices to a post-payment audit can tie them up for days—essentially

shutting down patient care activities.

Medicare patients are the ones who suffer when physicians and their office staff

are diverted from patient care activities to unnecessary paperwork. The result can

be longer waiting time before being seen by the physician, because he or she is busy

answering a demand from Medicare for more information at a time that could have

been spent with patients. It can result in the physician seeing fewer patients each

day—meaning a longer time for a patient to get an appointment. It can mean having less time with elderly patients and less time to answer questions and discuss

new treatments with them. And in the worst cases, it can literally shut down a

practice for days. Is it any wonder that more physicians are deciding that they will

no longer see new Medicare patients?

The Need for Legislative Relief

Fortunately, bipartisan legislation, the Medicare Education and Regulatory Fairness Act of 2001 (MERFA), H.R. 868/S. 452, has been introduced in both houses of

Congress that would greatly improve this state of affairs. ACP–ASIM has strongly

endorsed the MERFA legislation and urges Congress to give it prompt and favorable

consideration. The bill, introduced by Representatives Toomey and Berkley and Senators Murkowski and Kerry would address these problems by better targeting current Medicare education dollars to provide needed outreach and education to physicians and by instituting common-sense reforms:

1. Medicare rules and policies and answers to frequently asked questions would

be made more accessible. The bill would require that carriers respond in writing to

requests for guidance on how to bill for services. The written advice provided by the

carrier would be binding in any subsequent reviews. (This means that if the carrier

told a physician how to bill a service correctly, it couldn’t later deny payment or

audit the physician’s practice because he or she did it wrong based on the carrier’s

original advice). Similarly, the bill would allow physicians to voluntarily send medical records to the carrier to get a ruling from the carrier on whether or not the

documentation is adequate to support the billed service, and carriers could not use

this to subsequently target the physician for review. Carrier employees would also

be required to give their true names (first and last) when answering questions to

assure accountability. HHS would be required to post responses to ‘‘frequently asked

questions’’ submitted by health associations in a way that is readily accessible to

physicians. Carriers would be required to make prepayment review criteria (screens)

and other coverage and audit criteria available to physicians. Physicians would be

given a minimum of 30 days advance notice about changes in rules.

2. Medicare would be required to pay claims, without demanding more paperwork,

unless there is evidence that the bill is incorrect. Random audits and pre-payment

screens that trigger further review would be prohibited.

3. For a first time post-payment audit, Medicare would be required to actually

look at the records, rather than making an assumption that some claims were billed

incorrectly based on a statistical sample. (Carriers would be allowed to use statistical sampling—or extrapolation—for subsequent reviews of the same physician.)

4. Medicare and its carriers would be required to invest substantially more money

in physician education and outreach.

5. Medicare’s ability to investigate fraudulent claims would be preserved—the bill

specifically applies only to audits in which there is no allegation of fraud. Inadvertent overpayments due to errors or misunderstanding of the rules would be reduced by educating physicians on how to prevent mistakes in the first place, rather

than auditing them after the fact.

6. Medicare would be prohibited from collecting alleged overpayments until all appeals are exhausted and a final determination is made. Physicians would also have

the option of entering into several different type of re-payment plans if a final deterVerDate 11-MAY-2000 08:25 Sep 25, 2001 Jkt 074213 PO 00000 Frm 00128 Fmt 6633 Sfmt 6621 E:\HR\OC\A213.XXX pfrm09 PsN: A213
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mination is made that they billed incorrectly for certain services (rather than automatically having to pay the money all at once within 30 days, or alternatively, having the money taken out as a reduction in payments for future claims).

7. Medicare would be required to conduct at least four pilot tests of the evaluation

and management documentation guidelines that would include a variety of settings.

The bill specifies that one of the goals of the pilot tests should be to reduce the need

to document non-clinically relevant information.

The Need for Administrative Relief

There are other changes that can and should be made by the administration to

reduce administrative red tape, changes that can be implemented by HHS—directly

or through instructions to its contractors—without the need for new legislation. The

following is a list of recommendations that fall outside the scope of MERFA and can

be implemented by HHS Secretary Thompson:

1. The Secretary of the Department of Health and Human Services should create

a single source document explaining Medicare regulations that combines the Medicare provider manual, Medicare operational policy letters, and other regulatory documents to clearly communicate to physicians and other medical providers the rules

of the Medicare program. This document should be made publicly available via the

internet and contain links to local Medicare carrier policies as well.

2. The Secretary of the Department of Health and Human Services should develop

a clear mechanism to assess complaints about Medicare policies, make the complaints subject to public scrutiny, and address these complaints in a timely manner.

The complaints should be cataloged by type and regulatory response to measure frequency of problems and their solutions.

3. The Secretary of the Department of Health and Human Services should change

the regulations governing Medicare post-payment review to reflect the following:

• Review procedures should provide the audited physician the right to review the

post-payment audit sample with the actual personnel responsible for the review.

• HCFA should encourage Medicare carriers to utilize as Hearing Officers, licensed physicians of the same specialty and in the same geographical area as that

of the physician who requests a Fair Hearing, and to make known to the requesting

physician prior to the Fair Hearing the educational and medical credentials of the

Hearing Officer.

• HCFA should prohibit carriers from seeking recoupments on ‘‘overpayments’’

made more than two years earlier except in cases of fraud.

4. HCFA should establish a single Medicare liaison office in each region for medical societies and consumer organizations to work with in order to facilitate communication within the existing Medicare regions.

5. State medical societies and Medicare Carrier Advisory Committees (CACs)

should be invited to place items on the agendas for CAC meetings—sufficiently in

advance of the CAC meeting—to allow for sufficient discussion and resolution of

valid physician problems with their Medicare carrier’s application of medical review

criteria and related issues.

6. Carriers should provide a 60-day public comment period for all proposed policy

changes. (The comment period provided by carriers is now limited to 45 days.) Once

the comment period is over, the carrier should be required to state, in writing, its

reasons for accepting or rejecting the comments made in making the final policy.

The written rationale should be shared with the CAC and be made publicly available via the internet.

7. Once a policy is made final, the carrier should release it to the medical community before it takes effect and conduct educational forums, when necessary, to ensure proper implementation of the new policy. Adequate notice (a minimum of 90

days) also should be given before the policy is effective.

8. If local medical review policies (LMRPs) continue to be proposed, they should

be required to go through Carrier Advisory Committees to allow for proper input

of practicing physicians.

9. HCFA should create a mechanism to coordinate information sharing between

the regional Medicare Carrier Advisory Committees. All CAC meeting agendas and

minutes should be posted to a single HCFA-maintained website within five business

days of the publication of the written materials. This website should also give CAC

members in different regions the ability to query each other about carrier policies.

10. The Health Care Financing Administration (HCFA) must ensure that its carriers are held accountable to established Medicare criteria and standards, especially

in the areas of claims processing and customer satisfaction, after carrier responsibilities for claims processing and payment safeguards (program integrity) are split

under the Medicare Integrity Program (MIP).

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11. HCFA should increase surveillance and monitoring of the performance of carriers to assure their accountability to questions and concerns raised by patients and

physicians about coverage and other issues.

12. HCFA should enforce its power to penalize carriers for failing to meet established criteria and standards

13. HCFA should solicit local physician input on the adequacy of carrier performance—for both claims processing and program integrity.

14. Physicians should be allowed to request and receive an administrative law

hearing to challenge carrier performance of administrative and other policy requirements if earlier resolution attempts cannot solve the problem.

15. Carriers should use color-coded communications. (e.g. red envelop for extremely urgent requests that require a response).

16. Carrier staff must be better trained; HCFA should consider mandating that

claims processors be required to be certified and pass a course in applying HCFA

payment rules.

ACP—ASIM will be seeking an opportunity to discuss our proposals for

administratrative relief with Secretary Thompson, and once confirmed, a new HCFA

administrator. We are encouraged that Secretary Thompson has expressed agreement on the need for HCFA to reduce unnecessary red tape.

Conclusion

ACP—ASIM is pleased that the subcommittee is addressing the serious problems

that the Medicare regulatory burden poses for physicians and others attempting to

care for patients. We strongly urge the Subcommittee to report MERFA to the full

Ways and Means Committee for action. We also urge the Subcommittee to exercise

oversight over HCFA to assure that necessary administrative changes are also

made.

Statement of American Occupational Therapy Association, Inc., Bethesda,

fMaryland

The American Occupational Therapy Association (AOTA) represents nearly 50,000

occupational therapists, occupational therapy assistants, and students of occupational therapy to promote the interests of the profession and patients. AOTA submits this statement for the record of the hearing on March 15, 2001 on Medicare

reform and ways to bring regulatory relief to beneficiaries and providers and restructuring the Health Care Financing Administration (HCFA) in the context of efforts to improve the Medicare program.

AOTA focuses these comments on the issue of the inconsistency of local medical

review policies (LMRPs) and the processes by which they are developed and interpreted by fiscal intermediaries and carriers across the nation. AOTA has experienced considerable difficulties with the variability of these local policies, in the context of Medicare being a national program with national standards and goals. We

urge the Committee to consider these concerns and as part of the effort to modernize the Medicare program and improve the efficiency of HCFA and its contractors. We believe this issue has significant impact on both providers and, more importantly, beneficiaries who are unsure of coverage from one area to the next and

therefore suffer unequal treatment.

COVERAGE OF OCCUPATIONAL THERAPY IN LAW AND REGULATIONS

Occupational therapy is covered under Medicare Part A and under Medicare Part

B as an outpatient service. Under both Part A and Part B, occupational therapy is

provided based on coverage criteria which allow for the provision of therapy which

is ‘‘medically prescribed treatment concerned with improving or restoring functions

which have been impaired by illness or injury or, where function has been permanently lost or reduced by illness or injury, to improve the individual’s ability to perform those tasks required for independent functioning.’’ (Carriers Manual, Sec 2217,

Intermediary Manual (Sec. 3101.9). Further, occupational therapy is considered reasonable and necessary only where an expectation exists that the therapy will result

in a significant practical improvement in the individual’s level of functioning within

a reasonable period of time. Where an individual’s improvement potential is insignificant in relation to the extent and duration of occupational therapy services required to achieve improvement, such services would not be considered reasonable

and necessary and would thus be excluded from coverage by Sec. 1862(a)(1) of the

Social Security Act.

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LOCAL AUTHORITY, LIMITED HCFA OVERSIGHT

While this coverage criteria is established by HCFA, the fiscal intermediaries and

carriers have authority from HCFA to develop more explicit local medical review

policies (LMRPs). Many attribute this approach to a view that there are regional

differences in medical care that should not be overruled by national coverage policy.

HCFA is also supposed to review and approve LMRPs for appropriateness and

adequacy. HCFA has not, in our view, exercised sufficient oversight and regulation

of the activities of its contractors in the medical review area. AOTA believes that,

at a minimum, the authority and latitude of the fiscal intermediaries or other contractors should be supervised and monitored to make these LMRPs consistent.

AOTA understands that the fiscal intermediaries and contractors have the authority to develop LMRPs to describe when and under what circumstances an item or

service(s) will be covered and to clarify or provide guidance on national coverage

guidelines. Conferring this discretion upon contractors does not, we believe, vest

them with the authority to supplant pertinent statutory provisions, regulations, and

national coverage policies (which include manual issuances) with informal presumptions. Yet HCFA’s oversight and willingness to overrule or moderate LMRP’s is limited. AOTA has had many discussions and meetings with HCFA and its contractors

over LMRPs to try to assure that the process and resulting products adhere to the

overarching principles laid out in Medicare law for benefits and coverage criteria.

HCFA’s laissez faire attitude has been attributed both to an interest in allowing

local variation as well as to an historical limit on HCFA staffing capacity. However,

if HCFA would adopt national guidelines, the redundant (and inadequate) work of

fiscal intermediaries in developing these LMRPs would be eliminated. Cost savings

in administration should accrue from such streamlining.

RESULTS: INCONSISTENT COVERAGE

In addition, beneficiaries would be assured that occupational therapy is the same

service under Medicare in Connecticut as it is in Louisiana as it is in California.

Today, this is not the case.

An example that is clear is the coverage of rehabilitation services for individuals

who have vision impairments. Coverage for these services is not allowed under

many LMRPs around the country, despite the fact that as recently as the Balanced

Budget Refinement Act Congress has reaffirmed, by extending referral privileges for

these services to optometrists, that coverage for rehabilitation for diagnoses of vision

impairment are allowed.

As an example of a broad set of problems with LMRPs, we offer the example of

a recently issued LMRP from the Noridian Mutual Insurance Company, Fargo,

North Dakota. At present AOTA is developing comments on a draft policy put forward by Noridian, a Medicare contractor. In reviewing the proposed policy, many

of the problems that have occurred in other policies are evident:

The LMRP does not use current research and state of the art information. Some

of the language used in Noridian’s OT LMRP is confusing or does not reflect current

OT practice. This may be due, in part, to use of out-of-date sources of information,

as listed in the document. Using materials that are not state of practice results in

inappropriate terminology and focus of the LMRP, not reflecting a clear picture of

contemporary OT practice.

Furthermore, this proposed LMRP does not even reference Medicare manual citations that are correct. Reference to obsolete Medicare policies is absurd coming from

a Medicare contractor bound to implement the program under current guidelines.

In addition, the Noridian LMRP, like many others is overly prescriptive. It uses

diagnosis codes that do not appropriately recognize the difference between the underlying condition (e.g., stroke) and the therapy treatment diagnosis (e.g., limitations in self-care and toileting skills), it leaves out coverage for certain diagnoses

(e.g., Alzheimer’s disease and dementia) for which Medicare coverage of occupational

therapy is allowed, and generally presents a narrow area of interpretation of individual condition for the practitioner, be it a physician prescribing treatment or a

therapist providing treatment.

NATIONAL LEADERSHIP NEEDED

The problems presented by Noridian’s policy are not isolated. AOTA has

seen many cases in which the LMRPs contain significant and unsupported deviations from the national medical review guidelines contained in the Medicare Intermediary Manual. AOTA has worked to correct many policies’ inappropriate and arbitrary restrictions on access to therapy and other services but this should be corrected with a national approach for fairness and consistency. AOTA recognizes the

importance of defining scope of benefits and appropriate interpretations of Medicare

allowances of coverage, but this patchwork system wastes time and money and does

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not serve a national program. We believe the LMRP’s should be replaced with a

broad and open public process to establish more detailed national coverage criteria.

HCFA should be required to set a national standard to assure beneficiaries consistent coverage wherever they live or receive services. A national standard would

assist occupational therapists to furnish skilled occupational therapy services based

on an evaluation of individual need and rehabilitation potential within the reasonable and necessary guidance of the Social Security Act.

Such national coverage criteria would assure Medicare beneficiaries equal access

to services across the nation. National coverage criteria would replace the process

now in which contractors ‘‘adopt’’ other contractors policies, even if those policies

conflict with overall Medicare requirements. Thus, an erroneous and improper ‘‘national’’ policy can become established merely by the spread of LMRPs from one contractor to another, by entities that are not publicly accountable, with limited public

review and without sufficient intervention or oversight by HCFA. While the Medicare Intermediary Manual does provide LMRP development guidelines, AOTA’s experience is that these are not always followed. Relief is limited.

Furthermore, while AOTA may be able to intervene in some of these, many beneficiaries and beneficiary advocates find the existence of multiple LMRPs and standards hinder appropriate access to services.

Even if a national policy is not developed, HCFA could oversee and regulate the

activities of its contractors in the medical review area far more than is currently

the practice. For instance, HCFA should narrow the fiscal intermediaries’ latitude

to develop broad, wide-ranging LMRPs without oversight by HCFA. This is rarely

done at present.

Indeed, HCFA has contracted under its program integrity efforts for a contractor

to review local medical review policies to determine variations. This is being done

as part of HCFA’s efforts to investigate coverage limitations that could be developed

to substitute for the annual cap placed on outpatient rehabilitation by the Balanced

Budget Act. AOTA supports efforts of any kind to make these policies consistent and

appropriate.

APPEALS

Furthermore, HCFA has just issued the following which further constrains provider and beneficiary rights to consistent policy:

HCFA Pub. 60AB, Trans. No. AB–01–44, March 15, 2001— Binding Effect

of LMRP’s

(Intermediaries/Carriers),

CHANGE REQUEST 1540

SUBJECT: Binding Contractor Hearing Officers to Local and Regional Medical Review Policies (L/RMRP)

This Program Memorandum (PM) serves to bind contractor hearing officers (HOs)

to contractor—issued L/RMRP). This PM is being issued to expedite distribution of

the instructions and will be incorporated permanently through revisions to the

Medicare Carrier Manual (MCM), the Medicare Intermediary Manual (MIM) and

the Medicare Program Integrity Manual (PIM).

HOs must comply with L/RMRP. (See Chapter 1 of PIM, 2.3.2.3 for procedures

for developing and adopting L/RMRPs.) Binding an HO to L/RMRP means that the

HO must apply pertinent L/RMRP to the facts of a given claim and that the HO

may not disregard or override an applicable L/RMRP. This PM affects MCM 12016

and MIM 3794.4. Authority for this PM is found at 42CFR 405.836, the regulation

delineating the authority of HOs.

The effective date for this PM is March 15, 2001.

The implementation date for this PM is March 15, 2001.

These instructions should be implemented within your current operating

budget.

This PM may be discarded after December 31, 2002.

If you have any questions, contact Rosalind Little at (410) 786–6972, email RLittle@hcfa.gov or Steve Miller at (410) 786–6656, e-mail

SMiller1@hcfa.gov.

This policy is in effect a ‘‘gag rule’’ on hearing officers. It further harms both beneficiaries and providers by preventing a full examination of the facts with regard to

coverage denials. This memorandum creates unreasonable and unfair practices restricting the purview of an administrative hearing officer. This is demonstrable administrative overreaching, especially when this procedural restraint serves to further compound the problems in the LMRPs content as discussed earlier.

129

MAKE MEDICARE A NATIONALLY CONSISTENT PROGRAM

In legislation introduced in the 106th Congress, (now) Chairman Bill Thomas,

with (now) Subcommittee Chairwoman Nancy Johnson among others, sought to assure that coverage policy determinations were made more consistent, equitable and

efficient. We believe the goals of H.R. 2356 of 1999 remain important and ought to

be considered by the Subcommittee on Health and the Ways and Means Committee

as part of efforts to reform Medicare.

Beneficiaries and providers deserve consistency in the benefits and providers deserve fair guidance in all areas of the country. The reasonableness and necessity of

services should be largely determined by national coverage criteria and should not

vary significantly from one region to another. We have also found that many

LMRPs, especially in the amount, frequency and duration parameters, are so prescriptive as to impinge upon the ability of professionals to provide care that addresses the medical condition, functional level and rehabilitation possibilities of individual beneficiaries.

We thank the Subcommittee for the opportunity to express our concerns and look

forward to aiding efforts to correct these problems and improve the effectiveness of

the Medicare program.

Statement of American Physical Therapy Association, Alexandria, Virginia

Madam Chairwoman and members of the Subcommittee, the American Physical

f Therapy Association (APTA) is pleased to provide written comment for your consideration regarding the important task of reforming the Medicare program. APTA sincerely appreciates your efforts this Congress to explore this issue in greater detail

and hold necessary hearings to ensure all views are heard on the matter.

Tommy Thompson, the newly appointed Secretary of Health and Human Services,

summarized the feelings of the physical therapy community in a speech given to the

American Association of Health Plans on February 26, 2001. The former governor

of Wisconsin stated, ‘‘Patients and providers alike are fed up with excessive and

complex paperwork. Rules are constantly changing. Complexity is overloading the

system, criminalizing honest mistakes and driving doctors, nurses and other health

care professionals out of the program.’’

There are a number of regulations that are unnecessary and take away vital time

and resources from patient care. These regulations impact physical therapists working in a variety of settings, which include: hospitals, skilled nursing, facilities, home

health agencies, comprehensive outpatient rehabilitation facilities, rehabilitation

agencies, and physical therapy private practice offices. If necessary deregulation can

take place, physical therapists will be able to provide care to Medicare patients in

these settings in a more timely manner, which will speed recovery.

The following are problematic regulations and policies under the Medicare program that impact physical therapy. APTA has notified HCFA that these regulations

and policies need to be eliminated, revised, or clarified. In most cases, we are still

awaiting action.

Certification/Recertification

Section 1861 (p) of the Social Security Act requires that outpatient physical therapy, occupational therapy, or speech-language pathology services be furnished only

to an individual who is under the care of a physician. According to Medicare regulations, for outpatient physical therapy services furnished in rehabilitation agencies,

physical therapist private practice offices, outpatient hospital departments, and

skilled nursing facilities (Part B), there must be evidence in the patient’s clinical

record that he or she has been seen by the physician every 30 days. In addition,

the clinical record must show that the physician reviewed the plan of care and recertified the need for that care every 30 days. For home health agencies and comprehensive outpatient rehabilitation facilities, the physician is required to review

the plan of care and recertify the need for care every 62 days.

The need for a physician visit every 30 days is problematic. In many instances,

it takes a week or two before the patient goes to receive his or her outpatient physical therapy treatment. After receiving two weeks of treatment, the 30 days expires,

and the patient then needs to see the physician again in order to continue treatment. Returning to the physician’s office in this time frame is an inconvenience to

the patient and the physician. It is particularly problematic in rural areas, where

the patient may have to travel a long distance to get to a physician’s office.

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Physician signature on plan of treatment

Medicare requires that the physician recertify the need for therapy services every

30 days. Because this policy is not written clearly in HCFA’s manuals, there is considerable confusion with respect to when the 30-day time frame begins and at what

point the physician signature has to be on the plan of care. It is not clear whether

the 30-day time frame begins after the physical therapist conducts an evaluation,

after the initial physician visit, or when the physical therapy treatment actually begins. It is also not clear whether the physician signature has to be on the plan of

treatment before therapy begins, before the claim is submitted to Medicare, or

shortly after therapy begins.

APTA has tried unsuccessfully to obtain clarification from HCFA on these issues.

Because there has been no clarification, carriers and fiscal intermediaries throughout the country are interpreting this provision differently. APTA’s recommends that

the 30-day time frame begin when the therapist sees the patient, and that the physician signature be on the plan before the claim is submitted to Medicare. Because

it can often be difficult to obtain physician signatures, requiring the signature before treatment begins would result in delays in needed patient care.

Home Health Agency Prospective Payment System and Medicare Part B

On October 1, 2000, HCFA implemented the Medicare home health agency (HHA)

prospective payment system (PPS). The HHA PPS includes a consolidated billing requirement, which mandates that home health agencies must bill and receive payment for all home health services, including physical therapy services, during a 60-

day episode of care. Once the patient is discharged from the home health plan of

care and is no longer eligible for the home health benefit, an outpatient rehabilitation provider may treat and bill for the services under Medicare Part B.

Since the inception of the HHA PPS, physical therapists have had numerous problems receiving payment under Medicare Part B for services provided to patients recently discharged from a home health plan of care. This is due to the fact that

HCFA is unable to track patient discharges until final payment claims have been

submitted by the HHA. As a result, the carriers and intermediaries are rejecting

Part B claims because the computer edits flag the file as being open under the Part

A HHA PPS.

At a meeting with APTA, HCFA staff indicated that there is no immediate solution to this problem. Therefore, APTA respectfully requests that the home health

consolidated billing provision be suspended until this computer problem can be corrected. It is unfair to penalize providers because HCFA does not have the adequate

resources to operationally implement the consolidated billing policy.

‘‘In Room’’ Supervision Requirement of Physical Therapist Assistants in

Physical Therapist Private Practice Offices

HCFA’s final rule, published in the November 2, 1998 Federal Register, HCFA required that a licensed physical therapist in private practice (PTPP) must personally

supervise the physical therapist assistants and physical therapy aides. HCFA defines personal supervision to mean the physical therapist must be in the room during the performance of the service. Prior to that date, the standard for supervision

was ‘‘direct supervision.’’ In our view, the ‘‘in the room’’ supervision requirement is

too strict and unnecessary. PTAs are state regulated practitioners, who can safely

and effectively furnish therapy services under a less stringent supervision standard.

The personal supervision requirement imposes a level of supervision higher than

that required for PTAs furnishing services in other Medicare settings.

APTA has provided written opposition to the ‘‘in-the-room’’ requirement in its

comments on the Medicare physician fee schedule for the last 2 years, and in numerous other correspondences. APTA has also had several meetings with HCFA on

this issue. Most recently, HCFA stated in the final physician fee schedule rule that

they are carefully examining the issue. We are still awaiting action.

Correct Coding Initiative Edits

On January 1, 1996, the Health Care Financing Administration (HCFA) implemented a national Medicare policy involving more than 80,000 coding edits that restricted certain coding combinations. AdminaStar Federal developed these code edits

under a contract with HCFA. These code pair edits are combinations of two CPT

codes that cannot be billed together because either the code pair represents services

that are considered mutually exclusive or one code in the pair is considered a component of a more comprehensive procedure code. The CCI edits are applied to servVerDate 11-MAY-2000 08:25 Sep 25, 2001 Jkt 074213 PO 00000 Frm 00134 Fmt 6633 Sfmt 6621 E:\HR\OC\A213.XXX pfrm09 PsN: A213
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ices furnished in physical therapist private practice offices and in outpatient hospitals.

APTA recognizes the need for HCFA to create edits in their systems to detect inappropriate billing. However, HCFA has created a number of edits that do not make

clinical sense, and therefore are inappropriate. APTA has requested that HCFA delete the problematic code pair edits, but is still awaiting such deletion.

Clarification of Use and Documentation of Timed Codes

In March of 2000, HCFA issued program memorandum AB–00–14, ‘‘Questions

and Answers Regarding the Prospective Payment System (PPS) for Outpatient Rehabilitation Services and Physical Medicine Current Procedural Terminology (CPT)

Coding Guidance.’’ This program memorandum answers questions related to Medicare outpatient therapy policies and provides guidance regarding coding therapy

services. Because most physical medicine and rehabilitation codes are 15 minute

timed codes, the memorandum defines how to bill for a 15 minute unit and how to

determine what services count as time. Specifically, in AB–00–14, HCFA states that

when billing units of therapy, one unit is equal to or greater than 8 minutes but

less than 23 minutes of care. Two units are equal to or greater than 3 minutes but

less than 38 minutes, and so on. Providers are instructed not to bill for anything

less than 8 minutes of care. HCFA also states ‘‘pre-and post—delivery services are

not to be counted in determining the treatment service time.

The language regarding counting minutes of therapy has caused considerable confusion. APTA, along with other rehabilitation organizations, met with HCFA in

June 2000, to discuss the policy and clarify any confusion associated with it. At that

meeting, HCFA agreed to develop a question and answer program memorandum

that would further clarify how to determine what time counts as a 15-minute unit

and how to bill for units of service. In this program memorandum, HCFA would respond to questions developed by the organizations. The questions were submitted

to HCFA on July 21, 2000, and APTA is still waiting for HCFA to issue this program memorandum.

Stark II law

HCFA published an interim final rule (66 Fed. Reg. 856) on January 4, 2001,

which incorporates into regulations the provisions in paragraphs (a), (b), and (h) of

section 1877 of the Social Security Act. This law, referred to as the ‘‘Stark II’’ law,

prohibits physicians from referring Medicare and Medicaid patients for designated

health services’’ to health care entities in which they have a financial relationship,

unless an exception applies. According to the law, physical therapy is a ‘‘designated

health service.’’

APTA was pleased to see that HCFA published a final rule and supports the intent of the Stark II regulations. Physical therapists and patients needing physical

therapy services are adversely impacted by physicians that obtain financial gain by

referring patients to their own clinic for physical therapy services.

Although we are pleased to see that these issues are being addressed in HCFA’s

regulations, we are seriously concerned that some of the provisions in the interim

final rule weaken the Stark II law and open the door for physician abuses in the

provision of physical therapy services.

HIPAA: Final Rule on Privacy of Individually Identifiable Health

Information

The Department of Health and Human Services released the long awaited final

privacy regulations on December 20. The Final rule implements the privacy provisions of the Health Insurance Portability and Accountability Act (HIPAA) and sets

forth complex limitations on the use of individually identifiable health information

by most health care providers (including physical therapists), health plans, and

clearinghouses.

While APTA supports the protection of individually identifiable health information, the regulation that was issued is extremely cumbersome for our membership.

For example, providers have to ensure the compliance of their business associates

and have a new duty to mitigate known privacy violations by third party contractors. Many of our members are small business providers and the cost for implementing the requirements of the privacy regulations will be too onerous.

132

Reimbursement for Physical Therapy Students

There is considerable confusion regarding HCFA’s policy on supervision and reimbursement for therapy student services under Medicare in the outpatient therapy

setting. The American Physical Therapy Association (APTA), American Speech Language Hearing Association (ASHA), and American Occupational Therapy Association (AOTA) met with HCFA to discuss this problem in March 2001. After this

meeting, HCFA began working on a program memorandum regarding reimbursement of services for students under Medicare Part B. The therapy associations are

still awaiting issuance of this program memorandum. We are hoping that the

issuance can be expedited. It is our hope that HCFA’s policies will ensure that students can continue to obtain the clinical training they need to better serve Medicare

beneficiaries in the future.

Provider Education

Many physical therapists have difficulty finding the ‘‘right’’ answer to questions

regarding Medicare requirements. Carriers and intermediaries often give incorrect

information to providers. There appears to be a lack of communication of information between HCFA national and the carriers and fiscal intermediaries.

In addition to receiving incorrect information from carriers and fiscal intermediaries, providers find that carriers and fiscal intermediaries are interpreting

HCFA regulations and policies differently throughout the country. As a result, providers in different regions are subject to different standards for Medicare coverage

and reimbursement. There is a need for uniformity. Physical therapists are trying

to provide good patient care while complying with Medicare regulations, but because

of the confusing and conflicting information they are provided, this has become more

difficult.

There is a need for HCFA national to provide clear, concise guidance on its Medicare policies to its fiscal intermediaries and carriers, to national associations, and

to providers. This guidance would ensure providers receive accurate and timely information to assist them in complying with Medicare requirements.

HCFA recently contracted with DynCorp to examine inconsistencies throughout

the country with respect to Medicare coverage and reimbursement of occupational

therapy, physical therapy, and speech-language pathology services. It is our hope

that DynCorp and HCFA can remedy this problem through their work on this

project.

Alternative Payment Methodology

The Balanced Budget Act of 1997 mandated an alternative payment policy be implemented for outpatient therapy services. Originally, a $1500 limit was placed on

outpatient therapy services until an alternative payment policy was developed and

implemented. This arbitrary limitation on services proved to have an adverse impact

on patients, and in 1999, Congress placed a 2-year moratorium on the $1,500 limit.

HCFA is still required to develop the alternative payment policy for outpatient therapy services and report to Congress on an alternative by January 1, 2001.

Due to a provision in the BBA of 1997, beginning January 1, 1999 all outpatient

therapy providers, are reimbursed according to the physician fee schedule instead

of a cost-based system. Therefore, APTA does not believe its necessary to develop

an alternative payment methodology because the needed savings are achieved under

the physician fee schedule.

Practice Expense Methodology

In determining payment under the physician fee schedule, there are three relative

values: 1) relative value (RVU) for clinical work, 2) RVU for practice expense, and

3) RVU for malpractice expense. In January 1999, the practice expense RVU was

revised to be resource based rather than charge based. In the November 1998 Medicare Fee Schedule rule, HCFA discussed its methodology for developing these resource based practice expenses. We believe that the methodology used to determine

the physical therapy practice expenses is flawed.

APTA believes that the administrative payroll, office, and other practice expenses

per hour used by HCFA in computing the practice expense component of RBRVS

under the Medicare Physician Fee Schedule is not sufficient to reflect expenses of

physical therapists in private practice. APTA urges HCFA to adopt data from a survey conducted by the APTA during 2000. In the alternative, APTA believes that the

‘‘all physician’’ category more accurately reflects practice expense costs for physical

therapists in private practice.

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Medical Review and Audits

There are many problems with the current medical review and audit process. In

many instances, the auditors do not understand the regulations that apply to physical therapy providers, and thus inappropriately seek overpayments. In addition,

providers find that they are not given a reason for the overpayment determination,

and carriers and intermediaries are unwilling to answer provider questions about

the overpayment determination. Therefore, providers are forced to devote considerable time and resources to defend themselves.

In a number of cases, carriers and fiscal intermediaries seek overpayments based

on a ‘‘technicality’’. For example, the physical therapy service was provided, was

medically necessary, there is documentation in the file to support the medical necessity of the service provided, and a physician signed the order for services. Despite

proof of medical necessity in the clinical record, the auditor still seeks the overpayment because the physician did not date the order. Thus, the provider is required

to pay the money back to the Medicare program, because of this missing information.

APTA recommends that HCFA educate its auditors about its policies and regulations pertaining to physical therapy services, and ensure that providers are given

sufficient rationale for the overpayment determinations.

Appeals

Approximately, 85% of the appeals that come before the Administrative Law

Judges are overturned. When Medicare determines that there is an overpayment,

the provider often must pay the overpayment before the appeal is heard. Many

physical therapy providers who have received overpayment determinations are

small business owners. To require the return of the overpayment when the provider

believes the determination was made in error is extremely costly and a violation of

due process. Therefore, APTA recommends that HCFA prohibit recovery of alleged

overpayments until appeals have been exhausted.

Additionally, APTA believes that HCFA should permit physical therapists to appeal an alleged overpayment without waiving their administrative appeal rights. In

many instances, a therapist will receive a consent letter informing them of an overpayment determination. The letter provides three choices: pay back the money and

forego any appeal rights; provide additional documentation and forego any appeal

rights; or appeal the overpayment determination but subject the company to a full

blown investigation. APTA believes that these choices are unfair and deny providers

due process.

Conclusion

We appreciate your serious consideration of APTA’s concerns and recommendations. We recognize that HCFA has numerous regulations that need to be implemented as a result of the Balanced Budget Act of 1997, the Balanced Budget Refinement Act (BBRA), and BIPA. Because of the major impact of these regulations on

the provision of critical rehabilitation services to Medicare beneficiaries, it is our

hope that HCFA addresses these issues expeditiously.

We frequently hear from physical therapists that they can no longer provide services to Medicare patients because of the onerous regulations and unfair review processes. The purpose of the Medicare program is to provide access to quality health

care services for senior citizens. Unfortunately, due to the number and complexity

of Medicare regulations, beneficiaries may have difficult getting access to the rehabilitation services that they need.

The APTA looks forward to working with you and the rest of the Committee members to address these concerns on behalf of the physical therapy community and the

patients they serve. For more information, please contact Patrick Cooney at (703)

769–0020. Thank you for your consideration of these comments.

APTA represents more than 68,000 physical therapists, physical therapist assistants, and students of physical therapy. The goal of APTA is to foster physical therapy

practice, education, and research.

f134

MAYO FOUNDATION

WASHINGTON, DC 20036

March 23, 2001

Representative Nancy L. Johnson

Chair, Subcommittee on Health

House Committee on Ways and Means

1136 Longworth House Office Building

Washington, DC 20515–6349

Dear Representative Johnson:

On behalf of Mayo Foundation, I would like to submit this information for the

record of the Health Subcommittee hearing of March 15, 2001: ‘‘Medicare Reform:

Bringing Regulatory Relief to Beneficiaries and Providers.’’

At the hearing, Representatives Stark and Kleczka raised questions relating to

the number of pages of Medicare rules and regulations. The source of the numbers

referenced in the testimony of several witnesses is an estimate made by Mayo in

1998. The original breakdown of the numbers of pages of regulations and supporting

documents, as estimated by Mayo, is attached for the record. This estimate was

made in 1998, so it does not include most of the thousands of pages of rules implementing the Balanced Budget Act of 1997. Nor does the total include any number

for some of the listed categories for which we were unable to make estimates. We

therefore believe this estimate significantly underestimates the real number.

Questions were raised at the hearing concerning the accuracy of the Mayo numbers, and it was stated that HCFA estimated a much smaller number of pages—

in the range of 35,000. We stand by the accuracy of our estimate, noting as we have

in the past that we are including all Medicare rules, manuals, and other guidance

documents that are necessary for providers to deal with the Medicare program. We

have circulated our list publicly, and in fact it was included in a publication of the

House Budget Committee in May 2000 (‘‘Budget Committee Task Force on Health:

Medicare’s Regulatory Burden on Providers’’, Hearing Press Kit, May 18, 2000).

We also believe that there is no point in engaging in an argument with HCFA

or anyone else over the definitions of ‘‘rules’’ or the exact number of pages of such.

The important points we intended to raise with this count are:

(1) There is a major regulatory overload in Medicare.

(2) The rules are spread out over numerous sources, making it even more difficult

to know all the rules that may apply.

(3) Many carrier and intermediary rules vary among the different areas of the

country.

Rather than debating the numbers, we believe it is time to move forward to finding solutions to these problems. For that reason, we salute your efforts in holding

the hearing: ‘‘Medicare Reform: Bringing Regulatory Relief to Beneficiaries and Providers.’’ We are ready to assist you and the Health Subcommittee in any way to improve the Medicare program for beneficiaries and providers alike.

Sincerely,

BRUCE M. KELLY

Director of Government Relations

Medicare Regulations and Supporting Documents

Medicare Laws and Related Laws (SSA and 350 Amendments) ................. 706

Fraud and Abuse Regulation .......................................................................... 14,500

BBA of 1997 (statute only) .............................................................................. 800

Medicare Regulations (42 CFR) ...................................................................... 3,574

21 HCFA Manuals ........................................................................................... 10,500

HCFA Federal Registers ................................................................................. 30,000

(’94-’98)

(’87-’93) ...................................................................................................... 2,000

(’82-’86) ...................................................................................................... 2,000

Carrier Part B Manuals .................................................................................. 500

Correct Coding Manual ................................................................................... 340

Carrier Newsletters ......................................................................................... 4,320

Intermediary Communicators ......................................................................... 2,880

Intermediary Medicare Bulletins ................................................................... 2,250

Medicare Administrative Bulletins ................................................................ 5,000

BCA Administrative Bulletins ........................................................................ 2,500

HCFA Intermediary Letters

135

HCFA Carrier Letters

HCFA Intermediary/Carrier Letters

DMERC Manuals ............................................................................................. 418

HCFA Rulings

PRRB Decisions ............................................................................................... 24,000

HCFA Administrator Decisions ...................................................................... 2,000

Court Decisions ................................................................................................ 1,000

HCFA Correspondence

Carrier Correspondence

OIG Federal Registers (’94-’98) ...................................................................... 1,000

OIG Workplan and Compliance Program Guidance ..................................... 170

RHC Billing Carrier Instruction manual ....................................................... 300

HCFA Advisory Opinions

TOTAL ...................................................................................................... 110,758

Non-HCFA HHS

ICD9–Code Book .............................................................................................. 1,680

AHA Coding Clinics for ICD ........................................................................... 1,920

CPT Coding Book ............................................................................................. 588

DRG Guidebook ............................................................................................... 558

CPT Assistant .................................................................................................. 480

State Department of Health Interpretive Guidelines ................................... 30

GAO Reports on Medicare .............................................................................. 2,000

UB92 ................................................................................................................. 600

HCPCS .............................................................................................................. 276

CLIA

JCAHO

TOTAL ...................................................................................................... 8,132

Other Government Agencies

Laws, Regulations, Manuals, State Registers, Enrollment Agreements

CHAMPUS ....................................................................................................... 7,500

VA

Medicaid ........................................................................................................... 6,000

FDA

PHS

TOTAL ...................................................................................................... 13,500

GRAND TOTAL ......................................................................................

f 132,390

Statement of National Association of Chain Drug Stores, Alexandria,

Virginia

Madam Chairman and Members of the Subcommittee. The National Association

of Chain Drug Stores (NACDS) appreciates the opportunity to submit a statement

for the record regarding reform of the Health Care Financing Administration

(HCFA), and the agency’s major programs, policies, and operations.

We hope that this review will result in a more streamlined administration of the

Medicare, Medicaid and S-CHIP programs, and improve the quality of health care

delivered to these programs’ beneficiaries, eliminate the onerous bureaucracy at the

agency, and modernize HCFA’s infrastructure. We support your goals, and pledge

to work with you to see that the agency begins the process of being more responsive

to the needs of beneficiaries and providers.

NACDS represents about 170 chain pharmacy companies that operate about

33,000 retail pharmacies all across the United States. Chain pharmacy is the single

largest segment of pharmacy practice. We filled about 60 percent of the 3.1 billion

prescriptions provided across the nation last year. Chain community pharmacy has

extensive interaction with programs that are administered by HCFA, and is significantly affected by the agency’s policies and procedures. Thus, we have a vested interest in the outcome of any major HCFA review and restructuring. Here’s how community retail pharmacy participates in these programs.

• Medicaid: Community retail pharmacies provide prescription services to

millions of Medicaid recipients each year. In fact about 15 percent of all retail

pharmacy prescriptions are paid for by Medicaid. Even though many specific

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Medicaid policies are controlled by states, HCFA has an important role in setting and enforcing broad policies and procedures through Federal law, regulation, and the state plan amendment (SPA) process. For example, HCFA sets

maximum Medicaid reimbursement rates for generic drugs through their Federal Upper Limit (FUL) program, which can have a significant impact on the

utilization of lower-cost generic drugs throughout the entire market. All providers, including pharmacies, are significantly affected by state-based waivers

approved by HCFA, including those that expand health care services to low-income populations that are not traditionally Medicaid recipients. We will elaborate more on this and other Medicaid program issues later in this statement. • Medicare: While Medicare does not yet have a prescription drug benefit,

many community pharmacies already serve as suppliers of Medicare-covered

items. For example, pharmacies provide select prescription drugs, such as immunosuppressive and oral cancer drugs; provide durable medical equipment,

such as canes, walkers, crutches and ostomy supplies; and provide important diabetic care items, such as test strips and glucose meters. Upon enactment of

a prescription drug benefit for seniors, HCFA may have some role in the administration of the benefit. Policies and procedures adopted by HCFA in this regard

will have a substantial impact on chain community pharmacy. • State-Based Children Health Insurance Program: Community pharmacies also provide prescription drugs to parents and children enrolled in state

S-CHIP programs.

We appreciate the responsiveness of many HCFA staff to our ongoing questions

and concerns regarding the operations of these programs. However, we wanted to

offer our perspectives on how we believe the agency can improve the administration

of certain programs under its jurisdiction to make them more valuable for patients,

reduce costs for the system, and facilitate participation of pharmacy providers.

Medicaid Prescription Copays

Some states impose prescription copays as a way of reducing their Medicaid pre- scription drug expenditures. While these copays only range from 50 cents to $3 per

prescription (and some eligible groups are exempted from paying these copays), they

can create burdens on Medicaid recipients with limited means, especially those taking multiple prescriptions. Sometimes, the recipient cannot afford the copay, but the

pharmacist is obligated under law to provide the prescription anyway. In some

states, however, recipients are being actively told to just say that they cannot afford

the copay, and that the pharmacist will still have to provide the prescription. HCFA

has restricted states’ ability to compensate pharmacies for these uncollected copays.

This is unfair to pharmacies, and essentially represents a reimbursement reduction, since the state is not allowed by HCFA to compensate the pharmacist for the

value of the uncollected copays. In addition, these unpaid copays represent unfunded mandates on pharmacies, and a reduction in reimbursement to provide the

prescription. In some states, these uncollected copays could cost the average pharmacy thousands of dollars each year.

These copay losses are obviously higher for pharmacies in areas that serve a significant number of Medicaid recipients. We believe that the Medicaid program

should compensate pharmacies for the value of these lost copays.

Medicaid Federal Upper Limits (FULs) for Generic Pharmaceuticals

Community retail pharmacy was significantly frustrated with HCFA this past

year as the agency attempted to develop a credible, reliable, valid Federal Upper

Limit (FUL) list for generic drugs. This list represents the maximum amount of

Federal matching funds that states will receive for a marketbasket of generic drugs

that meet certain Federal criteria.

Not all generics have an FUL, but the accuracy and integrity of this list is important because almost all private third party prescription payors use this list to set

their maximum reimbursement amounts for generics. Moreover, more than half the

states use these Federal FULs to set their own ‘‘maximum allowable costs’’ for generic drugs in their own Medicaid programs. Thus, the impact of the list extends

well beyond Medicaid. If the list is not accurate, and does not reflect current market

realities, it will discourage utilization of lower-cost generics in favor or higher-priced

brand name drugs.

HCFA is supposed to publish an updated and current FUL list every six months.

However, the first major substantial overhaul to the list in almost two years was

published by the agency in April 2000. The two-year lag between updates was a serious problem. That is because there were substantial price increases on many generic drugs during this time, which were not reflected on the outdated FUL list, and

significant changes in the number of manufacturers in the generic marketplace.

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Unfortunately, the April list contained hundreds of inaccuracies, and several more

iterations were needed over a period of eight months before the agency published

a final list in December that appears to be reasonably accurate. Many of the FULs

on the original April list were determined with the prices of products that had been

discontinued for many years.

We believe that many of these problems could have been avoided had the agency

been more diligent in collecting the appropriate data and assessing the realities of

the generic drug marketplace.

Nevertheless, we believe that the agency did work in good faith with Medicaid directors, pharmacy providers, and other affected parties, in identifying and correcting

errors with the list. We appreciate that the agency delayed implementation of the

list until such a time that most of the problems were corrected.

Assuring the accuracy of this list is critical. In addition to providing the pricing

‘‘reference source’’ that HCFA used to set the FUL, we believe that HCFA should

also be required to release the corresponding National Drug Code (NDC) numbers

used to establish the FUL. In our opinion, this is the only way that the accuracy

and the integrity of the list can be validated. Without this information, there is absolutely no way for providers to know if HCFA is using reliable, valid information

to set its FULs.

Medicaid State Plan Amendment Approvals

The federal government gives billions of dollars to state Medicaid programs, and

federal law requires HCFA to review state Medicaid plans to ensure that state Medicaid programs are spending that money in accordance with federal law. Unfortunately, HCFA has repeatedly refused to conduct thorough reviews of amendments

to state Medicaid plans to make sure that they comply with federal law.

HCFA simply accepts assurances from a state Medicaid agency without investigating whether those assurances are accurate. The result is that HCFA approves

clearly illegal state plan amendments. For example, last year a federal court ruled

a HCFA-approved state plan amendment discriminating against chain pharmacies

to be in violation of the US Constitution, federal statutes, and HCFA’s own regulations.

Moreover, Federal law requires Medicaid payment rates to be consistent with efficiency, economy, and quality of care. States cannot arbitrarily reduce Medicaid

pharmacy reimbursement to balance their Medicaid prescription drug budgets.

States have to comply with several Federal standards when setting Medicaid pharmacy reimbursement. For example, Federal Medicaid law establishes standards for

payment rates to providers in state Medicaid programs. See 42 U.S.C.

§ 1396a(a)(30)(A).

Payments have to be ‘‘consistent with efficiency, economy, and quality of care . . .

and sufficient to enlist enough providers so that care and services are available

under the plan at least to the extent that . . . they are available to the general public

...’’. In addition, a 1994 memo from HCFA to state Medicaid directors requiring

states to justify whether payment rates to pharmacies are ‘‘reasonable’’ and in compliance with Federal law, said:

States wishing to modify their EAC (Estimated Acquisition Cost) levels may,

among other methods of verification, audit an appropriate number of pharmacies to determine current acquisition costs before making modifications to

the EAC levels. . . . we still expect that States will continue their present activities to establish a reasonable dispensing fee level and will document them

in their State Plan. Such activities could include: (1) audits and surveys of

operational costs; (2) compilation of data regarding professional salaries and

fees; and (3) analysis of compiled data regarding pharmacy overhead costs,

profits, etc. . . . The methods or standards they utilize to establish such fees

are at the discretion of the individual State but should be documented in

support of the State plan.

Yet, we have seen case after case where HCFA simply approves pharmacy payment reductions proposed by the states for budgetary reasons, or the agency fails

to adequately assess the evidence presented by the state to justify the reimbursement change. Many of the studies that are submitted to HCFA are deeply

flawed, yet the agency relies on these studies to approve state plan amendment

changes.

Adding insult to injury is the fact that these pharmacy reimbursement reductions

do little to control escalating Medicaid prescription drug program expenditures. Expenditures for prescription drugs in the U.S. Medicaid program increased from $8

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billion to about $13.5 billion, or about 69 percent in the last five years (1993–1998).

Reasons include:

• More Prescription Use per Medicaid Recipient: The number of prescriptions used by each Medicaid recipient increased by 23 percent from 1993

through 1998.

• Medicaid Recipients Using Higher-Priced Prescription Drugs: The

average Medicaid prescription price increased 70 percent between 1993 and

1998. However, of this amount, there was an 85 percent increase in the pharmacist’s cost of purchasing the drug from the manufacturer. In real dollar

terms, the amount that the state pays the pharmacist to dispense the prescription increased by only 0.6 percent—which did not even keep pace with the rate

of inflation, which was about 13 percent.

None of these factors can be addressed by reducing pharmacy reimbursement.

Yet, HCFA continues to approve these SPAs, knowing full well that experience has

shown that pharmacy reimbursement reductions have negligible impact on reducing

Medicaid prescription drug spending. The process by which HCFA assess and approves SPAs must change.

Inappropriate Use of Medicaid as Leverage for Pharmacy Price Controls

We are also seriously concerned that states are using pharmacy’s Medicaid participation as leverage to extend retail prescription pricing discounts to populations

that are not Medicaid eligible. For example, some states, such as California, have

added a new material requirement to a pharmacy’s participation in the state’s Medicaid program. That is, pharmacies are required to charge all Medicare beneficiaries

no more than the Medicaid prescription rate, regardless of the beneficiary’s income,

if they want to participate in Medicaid.

We understand the states’ interest in reducing the cost of prescription drugs to

seniors. However, we strongly object to arbitrary controls on our prices, especially

since these programs do nothing to reduce our cost of buying the drug, which is the

overwhelming major cost factor in any prescription. Thus, pharmacies must absorb

the entire cost of this discount.

Furthermore, NACDS opposes state efforts to tie participation in these price control discount programs to the Medicaid program. No pharmacy that agreed to participate in the Medicaid program did so with the expectation that it would be required to offer a discounted retail price to populations that were not originally covered by Medicaid.

We also question whether a pharmacy’s willingness to provide discounts to senior

citizens is germane to its overall fitness to participate in the state’s Medicaid program. NACDS recognizes that states have an interest to ensure pharmacy providers

are legitimate businesses, are unlikely to engage in fraud, and employ pharmacists

and other personnel who are qualified to safely dispense medications and counsel

Medicaid recipients. However, requiring pharmacies to provide prescription drugs at

discounts to senior citizens, which may jeopardize their long-term viability, does not

seem to be reasonable criteria for participation in state Medicaid programs.

HCFA apparently is unaware that states are tying pharmacy participation in

Medicaid to participation in non-Medicaid programs. We find it difficult to believe

that HCFA is not aware of how states are using the Medicaid program in ways that

are unconventional or inappropriate. We believe that the agency should unequivocally tell states that participation in the Medicaid program should not be used as

leverage to force pharmacies to participate in programs that do not serve Medicaid

populations. If states want to increase access to prescription drugs for seniors, they

should establish meaningful prescription drug coverage programs, not retail pharmacy price controls.

Medicaid Prescription Drug Waiver Programs

We are concerned about certain Federal Medicaid waivers that have been approved that extend Medicaid prescription pricing—including drug manufacturers’ rebates—to certain low-income populations. Once again, we understand the states’ interest in providing reduced priced prescription drugs to low income seniors. We continue to support prescription drug coverage programs as the best method to achieve

this goal.

However, these programs simply require the pharmacy to discount the retail prescription price by the cumulative Medicaid manufacturer rebate amount and the

Medicaid pharmacy reimbursement discount amount. Pharmacies are then compensated for the retail price reduction amount equal to the manufacturers’ rebate

by the state, who collects these rebates from the manufacturers.

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We do not believe that pharmacies should be required to participate in these programs as a condition of Medicaid participation. We are also concerned about requiring pharmacies to pass along the additional manufacturers’ discount at the retail

pharmacy counter, without some assurance from the state that they will be able to

collect all the rebates from the manufacturer, and provide them to the pharmacies

in a timely and consistent manner to compensate for this price reduction.

Medicare Diabetes Education and Training Program

The 1997 Balanced Budget Act (BBA) created a new diabetes education and training benefit for ambulatory Medicare beneficiaries. The intent of the new benefit was

to allow ambulatory Medicare beneficiaries with adult-onset (Type II) diabetes to receive important education and training from health professionals, on such aspects

as diet, exercise, glucose monitoring and drug therapy—to help them better manage

their condition.

These preventive health care services have been proven to improve quality of life

and reduce health care costs. Many community pharmacies provide diabetes selfmanagement benefits. These pharmacy-based programs work. NACDS members provided HCFA extensive evidence during the regulation’s comment period with significant evidence of patient satisfaction with these programs. Private payors are increasingly recognizing pharmacy’s role in diabetes management programs, and studies have demonstrated the value of these programs.

The BBA allowed pharmacy providers to participate as providers in this program

by virtue of the fact that pharmacies already provide diabetic supplies and products

to Medicare beneficiaries. Unfortunately, the final rule that HCFA promulgated in

December 2000—over three years after the enactment of BBA—did not recognize

the value of pharmacy-based diabetes self-management services. The rule established restrictive, onerous, and unnecessary standards for provider participation.

The result is that community pharmacies will most likely be unable to provide diabetes self-management benefits to Medicare beneficiaries. The many senior citizens

with diabetes who could have been helped by visiting their conveniently-located

community pharmacy will now have to find an outpatient hospital or a clinic that

can comply with the HCFA regulations.

Many community pharmacies that currently do not provide such benefits viewed

the BBA reforms as an opportunity to expand the services they provide may not initiate diabetes self-management programs. There is no logical reason why the most

accessible health care professionals—pharmacists—and the provider from which diabetics purchase most of their supplies should be logistically excluded from participating in this program. It is a disservice to Medicare beneficiaries and community

pharmacies.

Medicare Supplier Issues

Community pharmacies are suppliers of Medicare Part B covered durable medical

equipment (DME) and select prescription drugs. NACDS members’ frustration with

HCFA’s inability to administer these benefits knows no bounds. The Agency has

been unwilling to adopt computerized on-line systems that almost every other

health care payor has used for years.

These on-line claims adjudication systems save health care payors money by assuring eligibility and coverage; preventing fraud, abuse, and over-utilization; and

improving customer service by allowing the pharmacy to more efficiently process

their claims. Yet HCFA refuses to even consider the value of an on-line claims adjudication system.

HCFA currently contracts with four durable medical equipment regional carriers

(DMERCs) to process Medicare Part B claims. The customer service that the

DMERCs provide leaves much to be desired. ‘‘Provider relations’’ staff members are

often difficult to reach, may not return phone calls, and deliver inconsistent directions to community pharmacies. Moreover, the DMERCs do not communicate

changes to the program in a prompt and effective manner.

The recent requirement that Medicare Part B suppliers accept assignment for all

covered prescription drugs is a case in point. The requirement went into effect on

February 1, 2001. Yet, the DMERCs did not directly communicate this change to

our members. In fact, when several chain pharmacies called DMERC staff after February 1, many did not know of this change in policy. In addition, because Medicare

does not operate an ‘‘on line’’ claims system, it is impossible for the pharmacy provider to know if the beneficiary has reached their $100 annual Part B deductible,

or the ‘‘Medicare allowable’’ amount for a particular product being provided. It is

extremely difficult for pharmacies to comply with changes in Medicare policy when

DMERC staff are so poorly informed, and when the technology is such that simple,

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basic information cannot be provided to pharmacies to help them better serve Medicare beneficiaries.

If the DMERCs operated in the private marketplace, these failures would not be

tolerated. HCFA would have replaced the insurance companies that perform the

DMERC function years ago. Yet, despite the concerns NACDS and other provider

groups have expressed to HCFA, the problems with the DMERCs persist. HCFA

needs to be reformed to be more responsive to provider-related concerns.

Conclusion

NACDS supports Congressional action to evaluate HCFA policies and programs,

and how the agency’s administration of these programs impacts beneficiary access

to quality health care and the ability of providers to effectively and efficiently participate in the programs.

HCFA often times appears to make decisions contrary to its own rules and regulations. Moreover, it often fails to understand, or simply ignores, the impact of its decisions on the health care marketplace. Or, more critically, it just doesn’t understand the marketplace. We recognize that HCFA may be overworked and understaffed. Congress and the Administration will have to decide how best to structure

the agency for the 21st century, and the role that HCFA might have in administering any new prescription drug benefit for seniors. We look forward to working

with you in addressing these issues in this Congress to make HCFA more responsive to the patients and providers that it serves. Thank you.

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