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[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]

 
               MEDICARE REGULATORY AND CONTRACTING REFORM
=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 13, 2003

                               __________

                              Serial 108-4

                               __________

         Printed for the use of the Committee on Ways and Means

                       U. S. GOVERNMENT PRINTING OFFICE
87-019                         WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512-1800  
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001

                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
E. CLAY SHAW, JR., Florida           FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut        ROBERT T. MATSUI, California
AMO HOUGHTON, New York               WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM MCCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota               GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa                     JOHN LEWIS, Georgia
SAM JOHNSON, Texas                   RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington            MICHAEL R. MCNULTY, New York
MAC COLLINS, Georgia                 WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio                    JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania           XAVIER BECERRA, California
J.D. HAYWORTH, Arizona               KAREN L. THURMAN, Florida
JERRY WELLER, Illinois               LLOYD DOGGETT, Texas
KENNY C. HULSHOF, Missouri           EARL POMEROY, North Dakota
SCOTT MCCINNIS, Colorado             MAX SANDLIN, Texas
RON LEWIS, Kentucky                  STEPHANIE TUBBS JONES, Ohio
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia

                    Allison H. Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                         Subcommittee on Health

                NANCY L. JOHNSON, Connecticut, Chairman

JIM MCCRERY, Louisiana               FORTNEY PETE STARK, California
PHILIP M. CRANE, Illinois            GERALD D. KLECZKA, Wisconsin
SAM JOHNSON, Texas                   JOHN LEWIS, Georgia
DAVE CAMP, Michigan                  JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota               LLOYD DOGGETT, Texas
PHIL ENGLISH, Pennsylvania
JENNIFER DUNN, Washington

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.

                            C O N T E N T S

                               __________
                                                                   Page
Advisory of February 6, 2003, announcing the hearing.............     2

                               WITNESSES

Centers for Medicare & Medicaid Services, Hon. Thomas A. Scully, 
  Administrator..................................................     7

                                 ______

Alliance of Specialty Medicine, and American College of Emergency 
  Physicians, Michael Carius, M.D................................    74
American Health Care Association, and Evangelical Lutheran Good 
  Samaritan Society, Judith A. Ryan..............................    68
American Hospital Association, and Province Healthcare Company, 
  Tony Fay.......................................................    42
American Medical Association, J. Edward Hill, M.D................    46
Center for Medicare Advocacy, Inc., Vicki Gottlich...............    79
Mayo Clinic and Foundation, Douglas L. Wood, M.D.................    16
National Association for Home Care & Hospice, Michigan Home 
  Health Association, and Munson Home Health, Janet B. Wolf......    52
Verizon Information Technologies, Inc., Michael Luebke...........    39

                       SUBMISSIONS FOR THE RECORD

AdvaMed, statement...............................................    90
Alliance to Improve Medicare, statement..........................    93
American Association for Homecare, Alexandria, VA, statement.....    95
American Association of Health Plans, statement..................   100
Association of Administrative Law Judges, Milwaukee, WI, Hon. 
  Ronald G. Bernoski, statement..................................   100
Emergency Department Practice Management Association, McLean, VA, 
  statement and attachment.......................................   105
National Association of Chain Drug Stores, Alexandria, VA, 
  statement......................................................   110

               MEDICARE REGULATORY AND CONTRACTING REFORM

                              ----------                              

                      THURSDAY, FEBRUARY 13, 2003

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 12:10 p.m., in 
room B-318 Rayburn House Office Building, Hon. Nancy L. Johnson 
(Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
February 06, 2003
HL-1

                 Johnson Announces Hearing on Medicare

                   Regulatory and Contracting Reform

    Congresswoman Nancy L. Johnson (R-CT), Chairman, Subcommittee on 
Health of the Committee on Ways and Means, today announced that the 
Subcommittee will hold a hearing on the progress of regulatory reform 
since House passage of the bipartisan ``Medicare Regulatory and 
Contracting Reform Act of 2001.'' The hearing will take place on 
Thursday, February 13, 2003, room B-318 Rayburn House Office Building, 
beginning at 12:00 noon.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. 
Witnesses will include the Honorable Tom Scully, Administrator of the 
Centers for Medicare and Medicaid Services (CMS); Dr. Douglas L. Wood 
from the Mayo Clinic, Chairman of the Secretary's Advisory Committee on 
Regulatory Reform; and representatives from provider and beneficiary 
groups. However, 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:

      
    On August 2, 2001, Chairman Nancy Johnson and Ranking Member Pete 
Stark (D-CA), joined by every Member of the Subcommittee, introduced 
H.R. 2768, the ``Medicare Regulatory and Contracting Reform Act of 
2001,'' the first major bipartisan Medicare legislation developed by 
the Committee on Ways and Means in the 107th Congress. This package 
would have extended important regulatory relief to our nation's health 
care providers and modernized Medicare's contracting processes, while 
protecting the program and taxpayers from potential fraud and abuse. A 
modified version of the bill, H.R. 3391, passed the House unanimously 
on December 4, 2001. Additionally, most of the provisions were included 
in H.R. 4954, the ``Medicare Modernization and Prescription Drug Act of 
2002,'' which passed the House on June 28, 2002.
      
    The Medicare Regulatory and Contracting Reform Act would improve 
provider compliance with Medicare policies through provider education 
and technical assistance. It would create time frames for issuance of 
new regulations, prohibit retroactive application of the issuance of 
new regulations, improve provider appeals, reform recovery of 
overpayments, and improve new technology integration. The 
Administration has adopted a number of the provisions in the Act, such 
as the process for prepayment review of claims and giving notices to 
beneficiaries and providers when a claim is rejected due to a local 
medical review policy.
      
    The Secretary also has taken on the important task of bringing 
together a task force comprised of beneficiaries and providers, as well 
as experts from the Office of the Secretary, the Centers for Medicare 
and Medicaid Services, and the Food and Drug Administration, to create 
the Secretary's Advisory Committee on Regulatory Reform. This task 
force focused on solutions that could be implemented immediately, and 
would reduce both obstacles to patients' access to care and the amount 
of time that doctors, nurses, and other providers spend on paperwork, 
which, in turn, reduces time spent on patient care. The November report 
included 255 recommendations, 26 of which have already been 
implemented.
      
    In announcing the hearing, Chairman Johnson stated, ``Good, 
responsible professionals are frustrated by a system that seemingly 
emphasizes policing providers rather than helping them deliver better 
care to our seniors. Our bill was designed to refocus oversight, and we 
are making progress. We want health care providers to spend their time 
with patients, rather than filling out piles of paperwork, and we want 
to make it easier to be a Medicare provider. Program integrity must be 
protected--and so must the ability to deliver quality care.''
      

FOCUS OF THE HEARING:

      
    The hearing will give the Administration and other witnesses an 
opportunity to comment on the Medicare regulatory and contracting 
reform legislation passed by the House last Congress, and the 
Subcommittee's subsequent work on these issues. We will also hear from 
health care providers who would be affected by the proposed reforms in 
the legislation.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Due to the change in House mail policy, any person or 
organization wishing to submit a written statement for the printed 
record of the hearing should send it electronically to 
[email protected], along with a fax copy to 
(202) 225-2610, by the close of business, Thursday February 27, 2003. 
Those filing written statements that wish to have their statements 
distributed to the press and interested public at the hearing should 
deliver their 200 copies to the Subcommittee on Health in room 1136 
Longworth House Office Building, in an open and searchable package 48 
hours before the hearing. The U.S. Capitol Police will refuse sealed-
packaged deliveries to all House Office Buildings.
      

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. Due to the change in House mail policy, all statements and any 
accompanying exhibits for printing must be submitted electronically to 
[email protected], along with a fax copy to 
(202) 225-2610, in Word Perfect or MS Word format and MUST 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. Any statements must include a list of all clients, persons, or 
organizations on whose behalf the witness appears. A supplemental sheet 
must accompany each statement listing the name, company, address, 
telephone and fax numbers of each witness.
      

    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.

                                 

    Chairman JOHNSON. The hearing will convene. Today this 
Subcommittee holds the first hearing, our first hearing of the 
108th Congress, to improve the operations of the Medicare 
program and reduce the regulatory burdens for seniors and 
Medicare providers.
    In December 2001, we unanimously passed the bipartisan 
Medicare Regulatory and Contracting Reform Act, and we included 
most of its provisions in the Medicare Modernization and 
Prescription Drug Act of 2002, which passed the House in June 
of that year.
    However, because the Senate did not act, regulatory and 
contracting reform is still before us. I might remind you, it 
would still be before us anyway because that bill was a start, 
not an end; but indeed, 2 years later, we start from the same 
point. If there is one thing I hope to accomplish this year, it 
is passage of a strong, thoughtful, Regulatory and Contracting 
Reform act. We certainly need it.
    Medicare regulations consume more than 130,000 pages, three 
times the number of pages of the Tax Code and the tax 
regulations. This complexity has not only meant that Medicare 
answered, as the U.S. General Accounting Office (GAO) study 
from a couple of years ago showed the power of complexity to 
destroy a system, Medicare themselves answered 85 percent of 
the questions called in wrong or incompletely. They did not 
even look at whether the answers, where they were not actually 
wrong, were right and complete. These were boilerplate 
questions. These were the frequently asked questions. These 
were not complex or serious questions about a unique exception 
to the rule.
    I make that point, and it is an old point, because this 
system is destroying itself. We are still increasing the 
problem.
    If any of you have met with your nursing homes about 
compliance with the Health Insurance Portability and 
Accountability Act of 1996 (HIPAA), you will know that 
probably, as in my State, they all collaborated. They went 
through this long process, and now they are proud to say they 
have a notebook this thick about compliance with HIPAA.
    If you are a nursing home administrator out in some rural 
area, some small town, or in some tough neighborhoods of a 
city, you have all you can do to keep quality care and nurses 
on the floor, and personnel out there and people cared for. You 
have payor regulations and all these other regulations, and now 
you have this notebook full.
    The consequence of this system is going to be twofold. We 
need to understand it. We are going to destroy small providers. 
Think who cares for our seniors in the small cities and small 
towns across America, particularly in the rural areas: only 
small providers.
    Health care has been a wonderful opportunity for women to 
become entrepreneurs because they are such skilled caregivers. 
Many of them care for family members, and then end up working 
for a home health agency. They then end up founding their own 
home health agency. We are destroying small business in the 
health service area if we continue down this track, because 
there will be no way that they can understand what is going on.
    So, complexity and hyper-regulation, are barriers to the 
presence of health care providers in our small cities. It is a 
barrier to even patients getting the care they need. It has 
become a barrier to quality developments.
    I just want to thank each one of you that are giving 
testimony today, because some of you point out that 
relationship between the regulatory structure that we put on 
Medicare and our inability to improve quality. It is 
catastrophic that the only sector that is not in continuous 
improvement is health. With all the modern technology, new 
medicines, and all the new diagnostic techniques, we are not 
focused on continuous improvement. We are focused on silos and 
tiny silos; how much are we going to pay for this one thing?
    You can't do continuous improvement, you can't improve 
quality, you can't keep small people in, and you can't give 
seniors access to health care if we don't do something about 
the regulatory burdens, and problems, and the complexity of all 
those things in Medicare.
    Our first witness is the Administrator of the Centers for 
Medicare & Medicaid Services (CMS), Mr. Tom Scully. I want to 
thank you, Tom, for your responsiveness to our concerns, and 
for your initiative in this area. We have not been able to pass 
one dribble-drop of legislation, but you have moved forward 
aggressively in many of these areas. I commend you for this.
    It could have been done before you. This has been a 
longstanding problem. You have taken the initiative to care 
about the regulatory complexity and burden of paperwork in 
Medicare. If you look at that study done by 
PriceWaterhouseCoopers for the American Hospital Association 
(AHA) a couple of years ago, there was no sector in which the 
paperwork time was not at least 50 percent of the patient care. 
In some sectors, it was 100 percent.
    Pay attention. All of you out there have to stand up 
stronger. We have to work together more. We can't tolerate 
this.
    I really commend you, Tom, for your aggressive leadership. 
I want to thank our first Chairman, Dr. Douglas wood, who is 
the Chair of the task force developed by Secretary Thompson and 
Tom Scully to go at this issue. I am very pleased he is here to 
testify. So, many of those testifying have the experience of 
that task force behind them, because they sat with people face 
to face and listened, which we have very little time to do. No 
one else does at all.
    So, of the 255 recommendations, about 26 have been 
implemented and others are on the way. However, we have to move 
faster on that, and we have to see how we can work with CMS to 
move faster. I know they need legislation in some areas. It is 
not hard to make the case for the urgency of regulatory relief. 
If we can't hear it ourselves, we should not be sitting on this 
Subcommittee and we shouldn't be sitting in Congress, because 
our colleagues are now coming up to us.
    So, I look forward to working with you all to not only pass 
the provisions in the bill that are needed, but to pass new 
provisions. I thank so many of you in your testimony for 
bringing new ideas to the table, and for using this exercise to 
unveil some of the underlying and more serious problems in the 
Medicare structure that are preventing us from moving forward 
on quality care systems. Mr. Stark.
    [The opening statement of Chairman Johnson follows:]
 Opening Statement of the Honorable Nancy L. Johnson, Chairman, and a 
        Representative in Congress from the State of Connecticut
    Today this Subcommittee holds its first hearing of the 108th 
Congress. We will take another look at improving the operations of the 
Medicare program and reducing the regulatory barriers for seniors and 
health care providers. In December 2001, we unanimously passed the 
bipartisan Medicare Regulatory and Contracting Reform Act. We included 
almost all these provisions in H.R. 4954, the Medicare Modernization 
and Prescription Drug Act of 2002, which passed the House in June 2002. 
Because the Senate did not act, regulatory and contracting reform is 
still before us. Today, Mr. Stark and I introduced the Medicare 
Regulatory and Contracting Reform Act of 2003, as a placeholder 
recognizing we will receive a lot of good suggestions at this hearing.
    I hear about the need for regulatory reform from my constituents in 
Connecticut nearly every day. This is not surprising. Medicare 
regulations consume more than 130,000 pages. That's four times the 
number of IRS!
    The purpose of this hearing is to re-examine the impact of 
regulatory burden on seniors, doctors, hospitals, nursing home and home 
health care agencies. As part of working to reduce regulatory burden, 
the Medicare Regulatory and Contracting Reform Act would improve 
provider compliance with Medicare by improving provider education and 
technical assistance. It would limit when new regulations could be 
issued, prohibit retroactive application of new regulations, improve 
provider appeals, change the recovery of overpayments, and improve new 
technology integration. The bill also will modernize the process for 
selecting Medicare administrative contractors through utilizing 
competition to attract the best the private sector has to offer.
    Witnesses on our first panel--CMS Administrator Tom Scully and the 
task force chair Dr. Douglas Wood--will help us to understand the 
progress that has been made at the Department on providing regulatory 
relief. The Administration has adopted a number of the provisions in 
our bipartisan bill, such as the process for prepayment review of 
claims or giving notices to beneficiaries so that they understand when 
their claim is rejected due to a local medical review policy.
    The Secretary of Health and Human Services established the 
Secretary's Advisory Committee on Regulatory Reform to focus on 
solutions that could be implemented immediately. The goal was to reduce 
obstacles to patients' access to care, and to reduce the amount of time 
that doctors, nurses, and other providers spend on paperwork, which, in 
turn, reduces time spent on patient care. The task force's November 
report included 255 recommendations, 26 of which have already been 
implemented.
    However, despite the considerable progress you have made, too many 
health care providers are spending too much time struggling with 
paperwork rather than treating patients.
    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. So 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 refining our 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. It sure looks like we have our work cut out for 
us, Madam Chair.
    Just a few things. I doubt if any of the testimony we hear 
today will do anything but put money in the pockets of 
providers, and I suspect we won't hear anything about helping 
the patients or the beneficiaries, who, if they had one or two 
Members on that commission you are talking about, they were 
lucky.
    Also, if there was--I will spot you 140,000 pages of 
regulation--I don't know where you are picking them out, but if 
that is where they are, they are worth $100,000 a page a year. 
Because if we have had 14 billion of fraudulent payments a 
year, for every page you throw out you are costing $100,000 a 
year to the government. So, I would say let us keep them and 
let us enforce some of the rules.
    I have no interest myself in creating unnecessary 
paperwork, but I would suggest to you that--and to the 
witnesses who will testify--that I would like them to compare 
the paperwork they have to providers for wellpoint or Aetna or 
anybody else when they are collecting money, or BlueCross, at 
any place they are going to provide for non-Medicare 
beneficiaries or for Medicaid; in many States, just as much 
paperwork.
    I am sure that my constituents would be overjoyed to hear 
that you want to reduce the paperwork on the hospitals and the 
doctors, but they would be 10 times more overjoyed if you all 
would come forth with a prescription drug plan, or a way to 
include the 40,000 uninsured in this country, or the children 
who you are cutting off the rolls this year with your welfare 
reform, because they are much more concerned about whether the 
hospitals and doctors will continue to get rich, and they would 
like to see our beneficiaries get some decent medical care.
    I look forward to hearing from the witnesses as to what 
they are going to do to improve care for the beneficiaries. 
That would be an interesting bit of testimony.
    Chairman JOHNSON. Thank you, Mr. Stark.
    Mr. STARK. You are welcome.
    Chairman JOHNSON. Mr. Scully.

  STATEMENT OF THE HONORABLE THOMAS A. SCULLY, ADMINISTRATOR, 
            CENTERS FOR MEDICARE & MEDICAID SERVICES

    Mr. SCULLY. Thank you, Chairman Johnson and Congressman 
stark, for having me today to talk about Medicare's regulatory 
and contracting reform issues. The Committee has been 
incredibly supportive of everything we have been trying to do 
the last couple of years to streamline and improve Medicare. It 
is obviously a huge priority for the Administration and for the 
Department.
    Before I walked over here, Secretary Thompson said to 
please tell you that this is probably his top priority to 
finally get this done. He said, Scully, you had better get 
contract reform done this year. So, I am under direct orders.
    I certainly understand the scrutiny of our regulations. 
When I came here 2 years ago--I certainly try never to take any 
shots at my predecessors, and Nancy-Ann Min Deparle is a good 
friend of mine. She had other things to focus on, including a 
lot of legislative mandates in 1997 and Y2K. I came in at a 
quieter time legislatively. I have been able to focus more of 
my efforts on trying to change some of the things at the Health 
Care Financing Administration (HCFA) and turn it into a warmer, 
friendlier, more responsive agency.
    The first step was to change the name, which some people 
thought was not necessary, but I think it has worked out very 
well. I think it has changed the attitude of the employees and 
of the people who work in the agency. Sometimes as I somewhat 
jokingly say, my guess is when Enron comes out of bankruptcy, I 
think they will have a new name.
    I think we had a similar perception problem in HCFA. The 
new name has helped change the attitude. It is a huge, complex 
agency, administering a huge, complex program. We are never 
going to completely tame the monster, but I think we have done 
a good job at trying to get started.
    One of the things that I initiated 2 years ago which I 
think has helped--we created 12 what we call open-door policy 
groups. We have had meetings at least once each month with each 
one. I Chair three of them. One of the senior people at CMS 
Chairs each one. There is one for minority involvement, there 
is one addressing the disabled, for hospitals, doctors, nursing 
homes; virtually every group we deal with.
    I hope it has provided--we will hear from providers and 
beneficiary groups--provided a much greater access to the 
agency. It has also created, I believe, the correct approach 
from the staff, that it is okay to talk to them on the outside, 
explain what you are doing, and justify the policies.
    I don't expect everybody to like our policies. I expect 
them to be fair, thoroughly explained, thoroughly vetted. If we 
are doing the right thing, I am happy to back up the staff and 
defend them. We have had 135 of those open-door policy meetings 
in the last year and a half. We have had 14,000 people in the 
health care community involved in those meetings. I think they 
have been very successful.
    I also think we probably were not particularly popular with 
Congress. I have attended 47 open-door town hall meetings with 
Members of Congress on both sides of the aisle in the last year 
and a half. I think going out and talking to your own providers 
in the community and trying to give them the impression that 
CMS is open and available to talk to them, we are trying to be 
a lot more responsive, has helped. It has helped change the 
perception of the Agency.
    Also, one of the major concerns, fair or unfair, we have 
heard in the last couple of years is about enforcement, 
unfairly picking on doctors and providers. I think we are every 
bit as fair as we have been in the past, but I also think we 
have changed our approach to be less aggressive and more 
reasonable with people who are first-time offenders and don't 
have a long track record.
    We have adopted some new standards. We will get into those 
in a second. I hope you will find from the provider community--
we should be extremely aggressive with bad providers. There are 
some out there. I think we should also be reasonable with 
providers who made marginal mistakes that don't have a long 
track record.
    In addressing this whole issue when Secretary Thompson came 
in 2 years ago, he created the secretary's Advisory Committee 
on Regulatory Reform, which has been chaired by Dr. Wood. We 
have spent a lot of time with Dr. Wood. He is not only Chair of 
the Committee, he is also on the Practicing Physician Advisory 
Council, which is CMS's Physician's Advisory Committee. I am 
not sure if he ever gets back to Minnesota, since I see more of 
him than his family does. He has been extremely involved and 
unbelievably helpful to the Secretary and me in the last year 
and a half as we try to address these issues.
    Madam Chairman and Congressman Stark, there are a whole 
variety of what I call HCFA frustration bills over the last 
couple of years to deal with problems that were perceived and 
real at CMS/HCFA to try to change the way we do business. There 
are huge issues, I will try to go through some in my allotted 
time, that are very big.
    The first one is transferring the Administrative Law Judge 
(ALJ) function from Social Security to CMS, to the U.S. 
Department of Health and Human Services (HHS). Many people 
don't realize that since the beginning of the program, Social 
Security has heard our appeals--provider appeals. If you are a 
beneficiary--excuse me--and you have a concern about your bills 
being paid, you don't go to HHS, you go to Social Security. It 
hears 90,000 appeals a year. We process about 1 billion 
Medicare claims a year. Social Security has a backlog of about 
440 days to complete a case. Obviously, that is unacceptable.
    As you know, you and Chairman Thomas and many others pushed 
through some pretty significant reforms in sections 521 and 522 
of the Beneficiary Improvement Protection Act (BIPA) 2 years 
ago. Secretary Thomas has been pretty angry with me, as you 
know, that we have not carried it out yet. We are anxious to do 
that. We think we need to significantly reform the process. We 
were frustrated Congress did not appropriate money to do it the 
last couple of years. I spent a lot of time trying to get the 
appropriators to get started this last year and we did not get 
any.
    We got $129 million in the 2004 budget that just came out. 
It is not as much as we think is necessary to do the job, but 
we do think we get some modest changes to sections 521 and 522 
to get some changes. We can go forward with fixing the provider 
appeals process and the beneficiary appeals process to make 
them smoother, faster, fairer, and more efficient. It is going 
to take a lot of work.
    Our current budget assumes we are going to do this on 
October 1 of this year. I think it is going to be very 
difficult. I have spent a lot of time talking to Jo Anne 
Barnhart, the Social Security Administrator. I think, with 
Social Security's help and cooperation, we can get started in 
moving forward on that. I can tell you that we are committed to 
doing that because I think both providers and beneficiaries 
have been extremely frustrated, with some justification, about 
the slowness and inefficiency of the Medicare appeals process.
    We have made, as you know, Madam Chairman, a number of 
suggestions for modest changes that we think will in fact 
improve sections 521 and 522 and make it easier and faster for 
us to carry out and basically meet the spirit and targets of 
what you were trying to do when you tried to--when you very 
rationally tried to reform those programs.
    Just to run through a couple of other regulatory issues 
that we have also taken on that Dr. Wood has looked at, in most 
of the bills in the House you have required us to consolidate 
promulgation of rules to once a month. We are already doing 
that in the vast majority of cases. We did that starting last 
year. We put out a compendium on the fourth Friday of every 
month of all the rules to come out. We put out a quarterly 
provider update that basically gives a heads-up as to what 
regulations are coming during the quarter, ahead of time, so 
people can follow them.
    The goal here, which I think we've met, is to not require 
every hospital and physician group and provider in the country 
to have to hire a lawyer to comb through the Federal Register 
to follow these rules. It is an incredibly time-consuming 
process. I used to get paid a lot to do that myself when I was 
a lawyer. It is a very time-consuming process. I hope the 
provider groups will tell you that we have significantly 
simplified that and made it much easier.
    We have also come up with a much more simple way of 
tracking our error rates, which is the Comprehensive Error Rate 
Testing Program. That is also in many of the bills. Also, most 
of the bills require prompt responses to Medicare contractors. 
We are already doing that as of now within 45 business days, 
which most of the bills have, to respond to contractor 
inquiries. Random prepayment review--most of the bills in the 
House and Senate has prohibited this. We have already adopted a 
policy where we only use random prepayment reviews where there 
is a contractor-wide program for doing so, which most of the 
bills require.
    Non-random prepayment review, which most bills also suggest 
should not be done in the future, has been limited under our 
new policy to where we can show a very aggressive track record 
of particular billing and a high level of payment problems.
    I could go on for others, but the bottom line is, most of 
the provisions in the bill that I think were listed in most of 
the CMS/HCFA reform bills in the last 2 years I think we have 
addressed pretty aggressively. We are getting there as quickly 
as we can.
    On contracting reform, a big, big issue for us--and I know 
I am already over my 5 minutes but I will do this quickly. When 
I went to the Office of Management and Budget (OMB) in 1989 we 
had over 100 fiscal intermediaries (FI) and carriers. Our goal 
was to get it down to 10. When I came back 10 years later, we 
still had 51. In the last year and a half we have gotten the 
number of carriers and FIs, down to 46. We really think to 
manage the program--the hospital, still, theoretically picks 
their hospital intermediaries, we are allowed to pick the 
carriers--but generally we still have mostly local BlueCross 
plans that do a great job around the country, but we have 71 
percent of the work, both in Part A and B, done by the eight 
biggest contractors.
    We believe we could move more work to contractors who are 
in this in the long haul, incentivize them, and they can be 
partners of the government in the long haul. We can manage the 
resources better and be more efficient. We already, as I 
mentioned, have the bulk of the work done by eight contractors 
in both parts of the program. We believe contractor reform will 
allow us to manage the program more effectively and 
efficiently.
    As I mentioned, theoretically in Part A, BlueCross is the 
contracting entity. While that has worked well over the years, 
we think we should have the flexibility to hire other non-Blue 
contractors and to contract directly. Now there are only two 
non-BlueCross contractors or fiscal intermediaries: EDS 
heritage, and mutual of Omaha. We believe there might be many 
other people that might have the technology and expertise in 
paying claims that can help us.
    Many of the BlueCross plans have done a terrific job, they 
are committed to being good partners in the long run, but in 
the modern era where there are many people that can pay health 
care claims we should have a competitive system to have the 
best contractors to be our partners in the long run.
    To wrap up, Madam Chairman, I will say we spent $540 
billion as our budget this year for Medicare, Medicaid, and the 
State Children's Health Insurance Program (SCHIP). We run that 
on a $2.5 billion administrative budget, which about $1.5-$1.6 
billion goes to the contractors. It is a very big program to 
run. Trying to do it while we minimize fraud and only have the 
minimum amount of harassment necessary to providers and be more 
open and effective is obviously our goal.
    It is a big program. We spend a lot of taxpayer money. We 
need to be aggressive in enforcing those regulations, and we 
will be. Secretary Thompson and I also believe that, in tandem 
with being aggressive on the regulatory side, we need to push 
out much more quality information.
    As you know, we have been very aggressive with work in the 
nursing homes on quality information. We have a new program 
coming out with home health agencies that is similar to the 
nursing home quality measures in about 2 weeks. We have worked 
very well with the hospitals so far in doing voluntary hospital 
measurements. Our goal is to move forward with the hospitals to 
have really good quality measurements. We can start really 
measuring what every hospital provides quality-wise.
    We believe in addition to aggressive regulation, giving 
patients and consumers more information to make their choices 
is every bit as important a regulatory tool as putting out 
hundreds of thousands of pages of regulations.
    We also believe it is a very important regulatory tool to 
work with the Federal Trade Commission (FTC) on antitrust 
enforcement. If you really want physicians and hospitals and 
health care plans to have the right balance in every local 
market to make sure the market does not get out of whack with 
any of the major provider sectors, they need to be working with 
the FTC. The FTC needs to work with many of our big programs to 
make sure there is a rational balance in each local market 
between hospitals, physicians, and managed care plans. In a 
well-functioning market, they should all be working with each 
other almost every day. That is the way we believe it should 
work.
    We believe it is our duty, also, and we are working very 
closely with the FTC to make sure that the antitrust laws are 
aggressively enforced in health care. That is as important to 
us as the regulatory roles.
    That is as fast as I can talk, Madam Chairman. Thank you 
very much.
    [The prepared statement of Mr. Scully follows:]
Statement of the Honorable Thomas A. Scully, Administrator, Centers for 
                      Medicare & Medicaid Services
    Chairman Johnson, Congressman Stark, distinguished Subcommittee 
members, thank you for inviting me to discuss Medicare regulatory and 
contracting reform. We all want to improve our ability to serve our 
nation's elderly and disabled, and I want to thank you for your 
continued interest in increasing the efficiency and quality of the 
Medicare program. Over the past two years, I have appreciated your 
support of our efforts to eliminate unnecessary regulatory burdens and 
improve contractor oversight at the Centers for Medicare & Medicaid 
Services (CMS). I applaud your commitment to these important issues. 
Building on these efforts, there is now a clear opportunity to improve 
Medicare even further in this legislative session.
    As you know, strengthening and improving the Medicare program 
remains one of the Administration's top priorities. Additionally, the 
Administration remains committed to updating and streamlining 
Medicare's regulations and administrative procedures to reduce the time 
devoted to paperwork and encourage high-quality health care for all 
seniors. The Secretary's Advisory Committee on Regulatory Reform, which 
my fellow witness today, Dr. Wood, chaired and for which he traveled 
all over the country, heard from patients and providers about the 
Department's regulations and opportunities to improve them. I would 
like to personally thank Dr. Wood for his hours of work chairing the 
Committee, as well as his service on the Practicing Physicians Advisory 
Council (PPAC). Even before this report was complete, we had begun 
working on many of the changes the Committee recommended. These 
recommendations, along with a host of other efforts within CMS and the 
Department, have led to great strides in making CMS a better business 
partner and in making Medicare a more efficient program. We are 
reviewing all of the Committee's recommendations to identify those that 
can be implemented quickly, and those that will require more 
significant development and resources.
    In some cases, reform requires legislation. H.R. 3391, the Medicare 
Regulatory and Contracting Reform Act, includes reforms that are vital 
to streamlining Medicare's administrative processes and reducing 
regulatory burden. While we do have some concerns with this 
legislation, most of them are largely technical in nature and we look 
forward to working with you and your staff to resolve them quickly.
SECRETARY'S ADVISORY COMMITTEE ON REGULATORY REFORM
    First, I want to take this opportunity to convey my gratitude for 
Dr. Wood and the members of the Secretary's Advisory Committee on 
Regulatory Reform that developed more than 250 specific 
recommendations, a majority of which pertain to CMS. President Bush, 
Secretary Thompson, Assistant Secretary for Planning and Evaluation 
Bobby Jindal and I share the view that, in an effort to protect public 
health and safety, federal regulations must be crafted to ensure access 
to high quality health care. The Secretary asked Bobby Jindal to lead 
the initiative and established a steering committee on which other HHS 
officials and I participated to provide guidance and direction to an 
ongoing review of HHS regulations. We are addressing a significant 
portion of the Committee's report by reducing the burden of 
inefficient, as well as unnecessarily complex and confusing 
regulations. As you know, we have already implemented recommendations 
made by the Committee that will reduce the burden of data collection on 
beneficiaries and providers. These are common-sense solutions to ensure 
that health care professionals can spend more time with patients and 
less time with paperwork. For example:

         LMedicare reduced the frequency that hospitals must 
        gather detailed information from Medicare beneficiaries about 
        other insurance. Hospitals will now be able to gather this 
        Medicare Secondary Payer information--used to make sure the 
        correct insurer pays each health care claim--once every 90 
        days. This change means hospitals will not have to ask patients 
        repeatedly for the same data.
         LWe have launched a new effort to streamline 
        Medicare's paperwork requirements for home health nurses and 
        therapists so that they can focus more on providing quality 
        care to their patients. The Outcomes and Assessment Information 
        Set (OASIS) requirements were reduced by approximately 27 
        percent, and these changes will streamline Medicare's home 
        health patient assessment requirements to include only those 
        elements needed to promote quality of care and to ensure proper 
        payment.
         LMedicare has streamlined its paperwork requirements 
        for nurses and other clinical staff caring for Medicare 
        beneficiaries in nursing homes. While certain longer 
        assessments are still required, nursing homes caring for 
        Medicare beneficiaries can now use a shorter assessment form to 
        gather information needed to pay Medicare claims. The change 
        cuts the time it takes to complete the assessment form from 90 
        minutes to 45 minutes, while continuing to collect data needed 
        to measure quality of care in nursing homes.

    I also want to mention, in addition to the Secretary's Advisory 
Committee, we have been inviting nursing homes, home health agencies, 
physicians, hospitals, other providers, and beneficiaries to 
participate in ``Open Door Forums'' to discuss their ideas for 
simplifying Medicare regulations. We have had 135 of these meetings, 
with more than two thousand in-person participants and over eleven 
thousand participants on our toll-free call-in lines. We have been able 
to make many improvements based on their concerns, as well as based on 
other activities that we are pursuing. Most importantly, it has helped 
change the image of CMS as an ``impenetrable bureaucracy.''
LLEGISLATIVE OPPORTUNITIES FOR REGULATORY AND CONTRACTING REFORM
    Clearly, we have worked diligently toward eliminating unnecessary 
regulatory burdens in Medicare and improving our management of the 
private-sector contractors that process and pay Medicare claims. We 
need to make the Medicare contracting system more consistent with 
standard federal government contracting procedures, which are typically 
governed by the Federal Acquisition Regulation (FAR). The President's 
FY2004 budget includes provisions to implement Medicare appeals reform, 
to continue pursuing contracting reform, to address provider education, 
and for program integrity efforts to ensure that the Medicare program 
pays appropriately for covered services. We remain committed to these 
activities--they are integral to strengthening and improving the 
Medicare program so we can better serve America's seniors and disabled 
citizens.
    While H.R. 3391 addresses many important issues that respond to the 
concerns of our partners, in a number of these areas, we believe that 
some of the proposed legislative changes have been overtaken by our 
current administrative practices, and could prove duplicative or 
counterproductive. In addition, codifying these areas could prevent CMS 
from administratively making further improvements in the future--by 
reducing management flexibilities and constraining our ability to 
manage taxpayer dollars as efficiently as possible.
Appeals
    One area where we have concerns with the legislation is in Medicare 
appeals. As required by law, we provide a multi-level process for 
Medicare beneficiaries, providers, and suppliers to appeal when they 
disagree with a Medicare contractor's decision to deny Medicare claims 
for items or services. We recognize the need to make this process more 
efficient and accurate. As I speak, we are working aggressively to 
implement the Medicare appeals reform as required by the Medicare, 
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 
(BIPA). The President's budget includes a request for funding to cover 
implementation costs. We are proceeding toward the transfer to CMS of 
the Medicare hearing function currently performed by the Administrative 
Law Judges (ALJ) in the Social Security Administration (SSA). We have 
already had extensive discussions with SSA to explore administratively 
transferring the Medicare hearing function to CMS.
    There are several technical areas that we consider priorities in 
making the BIPA appeals provisions more efficient. We are moving 
forward and have published Notices of Proposed Rulemaking on both 
sections 521 and 522. However, we are concerned that the current BIPA 
section 521 timeframes for decision-making at each level of the appeals 
process are not viable. Extending these timeframes for review at each 
appellate level would create a more workable timetable and would reduce 
the number of cases that proceed to higher and more costly levels of 
adjudication. Specifically, I would recommend that the timeframes at 
the contractor level should remain at 45 days for Medicare Part B 
reviews and 90 days for Medicare Part A reconsiderations. In addition, 
the timeframes might be extended to 60 days at the qualified 
independent contractor (QIC) level and to 180 days at both the ALJ and 
Departmental Appeals Board levels. Finally, we have asked for 
consideration of legislation that would reduce the current number of 
QICs from 12 to ``not fewer than 4.'' This number would do the job, but 
be far more efficient and faster to implement. If needed, the Secretary 
could add more QICs in the future.
    We truly need to implement sections 521 and 522 and, with your 
support, we expect to make great headway this year.
Regulations
    In addition to improving the appeals process, we are committed to 
reducing regulatory burden on providers so that they can spend more 
time taking care of patients and less time filling out unnecessary 
paperwork. As I mentioned, we have already undertaken numerous actions 
to reduce burden and streamline administrative processes. For instance, 
in October 2001, we began publishing regulations on the fourth Friday 
of every month (except in cases where a statutory deadline or 
extenuating circumstances demand otherwise), and we began issuing a 
quarterly publication that I am extremely proud of, called the 
Quarterly Provider Update. It lists all the regulations that CMS plans 
to publish in the coming quarter, as well as the publication date and 
page reference to all regulations published in the previous quarter. 
The Quarterly Provider Update is available on the CMS website with 
links to the complete text of published regulations. One year later, on 
October 1, 2002, we implemented a ``subscriber service'' that allows 
the public to receive automatic updates to the Quarterly Provider 
Update. Less than five months later, we have nearly five thousand 
subscribers, and that number grows daily. Now, instead of providers 
hiring regulatory experts to comb through thousands of pages of the 
Federal Register every day, they can simply subscribe and receive 
updates as they occur.
    We are committed to both of these endeavors--they are integral to 
providing our partners the information they need to serve seniors and 
disabled citizens. Of course, some regulations have statutorily imposed 
publication dates or other extenuating circumstances that do not lend 
themselves to a one-day-a-month publication schedule, but the bulk of 
our activities have been simplified. We believe this flexibility is 
critical. In addition, we also are including in the Quarterly Provider 
Update all program memoranda, manual changes, and any other instruction 
that could affect providers in any way. All of these instructions are 
included one quarter prior to their effective date to allow providers 
time to react before new requirements are placed on them. Since we have 
already taken administrative steps to streamline this part of the 
regulatory process and be more accountable to beneficiaries, providers, 
and the public, such provisions do not need to be included in 
legislation.
Provider Education
    Another integral part of our regulatory reform efforts is our work 
to improve performance through provider education and outreach. We have 
expanded our Local Provider Education and Training program (LPET). This 
year we doubled funding for LPET, which is targeted to respond to 
problems identified through the review of claims. Providers are 
receiving more education related to their claims submission. Clinicians 
deliver most of the education, and respond to specific coverage or 
coding issues. Contractors meet with providers in group settings, 
individually, or communicate using the Internet. As a result, our 
contacts with the provider community are more collaborative and 
productive.
    In another step to address provider education, H.R. 3391 would 
require contractors to provide general written responses to specific 
provider and supplier billing and cost reporting questions within 45 
business days of receipt of inquiries. I take some pride in reporting 
to you that since May 2000, CMS contractors have been required to do 
this, and so it need not be included in legislation.
Comprehensive Error Rate Testing
    H.R. 3391 would also require the Secretary to develop a methodology 
to assess the specific claims payment error rate of contractors. 
However, we currently have a practice in place to assess specific 
claims payment error rates of contractors, and to codify a procedure 
might limit our flexibility to make further improvements in the future. 
We developed the Comprehensive Error Rate Testing (CERT) program to 
improve the processing and medical decision making involved with 
payment of Medicare claims. The CERT program, which began in August 
2000, will produce national, contractor, provider-type and benefit 
category specific paid claims error rates. Unlike the former improper 
payment calculation, the CERT program will allow CMS to estimate 
specific error rates for individual contractors, providers and 
benefits. The new information will continue to be aggregated to produce 
national level estimates like those calculated by the Office of the 
Inspector General (OIG), but with much greater precision, because so 
many more claims will be reviewed. The CERT system will examine 24 
times more claims than the current process has been able to review. 
This will give us greater ability to see how well the Medicare 
contractors are performing and allow us to pinpoint problems, fix them, 
and ensure that our rules are being followed. Our intention has been 
and will continue to be that the Medicare Trust Funds benefit from 
improved claims accuracy and payment processes.
Review, Recovery and Enforcement
    Regarding review, recovery and enforcement, I am also happy to 
report that in many of the instances to follow, we are already 
performing to the intent of your legislative provisions.
    For example, H.R. 3391 would prohibit random prepayment review, 
except to develop a contractor-wide or program-wide claims payment 
error rate, or under additional circumstances that may be provided 
under regulation. Currently, we only use random prepayment review to 
develop contractor-wide or program-wide claims payment error rates. 
However, this important tool may offer other benefits to the Medicare 
program in the future and we believe that the flexibility to determine 
the appropriate use of random review is integral to managing our 
programs effectively.
    Also included in H.R. 3391, is a provision stating that contractors 
may not initiate non-random prepayment review of a provider based on 
the initial identification by that provider of an improper billing 
practice--unless there is a likelihood of sustained or high level of 
payment error. Currently, the only time CMS contractors initiate non-
random prepayment review is when there is a high level of payment error 
or the documented educational interventions have failed to correct the 
problem. Our contractors perform the medical review through a process 
called Progressive Corrective Action. In this process, contractors 
perform data analysis to determine whether patterns of provider claims 
submission and payment indicate potential problems. If through data 
analysis a potential problem is detected, a contractor may perform a 
``probe'' sample. Only when the probe review reveals that there is a 
major error will a contractor perform high level prepayment review.
    In fact, in a recent study, the General Accounting Office examined 
three Medicare carriers and determined that the Progressive Corrective 
Action policy has reduced medical reviews of claims and has increased 
carrier education to individual physicians. According to the report, 90 
percent of physician practices had no claims selected for complex 
medical review by carriers. For the few practices that were reviewed, 
typically the carriers requested documentation to support no more than 
two claims for the year.
    Additionally, under our Progressive Corrective Action policy, we 
currently perform several activities that are included in provisions in 
H.R. 3391. First, when a contractor audits a provider or supplier, 
under H.R. 3391, the contractor would be required to:

         LGive the provider and supplier an opportunity to 
        provide additional information and take into account 
        information provided on a timely basis;
         LGive the provider or supplier a full review and 
        explanation of the findings of the audit; and
         LInform the provider or supplier of their appeal 
        rights.

    Second, H.R. 3391 would require the Secretary to establish a 
standard methodology for Medicare contractors to use in selecting a 
sample of claims for review in the case of an abnormal billing pattern. 
Both activities are current practice under our Progressive Corrective 
Action policy, and do not need to be included in legislation.
Contracting Reform
    As you know, the Administration's primary goals for Medicare 
contracting reform include providing CMS with more flexibility to adapt 
its business model to meet the evolving needs of the Medicare program 
and bringing competitive discipline to the world of Medicare 
administrative contracting. We also believe that contracting reform 
will provide opportunities to improve communication between CMS, 
contractors and providers, and will promote our ability to reward 
contractors that perform in an excellent manner. I want to thank this 
Committee for its sustained interest in and support for Medicare 
contracting reform.
    We have been working to consolidate contractor functions for some 
time. When I went to OMB in 1989, we had well more than 100 fiscal 
intermediary and carrier contracts and our target was to get that to 
ten. Thirteen years later, I came to CMS and there were still more than 
50 separate intermediary and carrier contracts. Over the past decade, 
we have seen a substantial consolidation in the number of these 
contractors, so that, at present, we are at 46 and counting: Medicare 
claims are processed by 27 fiscal intermediaries (4 of which also 
specialize in the handling of home health and hospice bills) and 19 
carriers (4 of which specialize in the handling of DME claims). My goal 
is to find the best contractors, incentivize them appropriately, and 
work with about 20 to 25 who are in it for the long haul.
    While H.R. 3391 certainly addresses many important contracting 
reform issues, I have several additional suggestions I would like to 
present to you regarding certain policy and technical details. We would 
be pleased to work with you and your staff on these issues.
    For example, the legislation prescribes definite time periods for 
re-competition of Medicare administrative contracts--every 5 years, 
provided that the contractor has met or exceeded all applicable 
performance requirements. We are concerned that these contract period 
limitations may be too short in some circumstances.
    Currently, Medicare contractors are reimbursed for their claims 
processing and benefit administration activities on a cost-
reimbursement basis, which leaves little financial incentive for the 
contractors to excel in their performance. This is not realistic in 
today's business environment, given the magnitude of these contracts. 
The contracting reform legislation would provide us with the ability to 
address this issue on a broad scale.
    Moreover, we are moving forward to test the effectiveness of 
performance-based payment mechanisms for Medicare contractors on a 
pilot basis under current law. For fiscal year 2003, for example, we 
are using a demonstration authority to conduct performance-based 
contracting pilots with three significant Medicare contractors: CIGNA, 
UGS and Palmetto. If these efforts prove successful in defining 
outcomes and achieving some efficiencies, the demonstration could be 
expanded to include additional Medicare contractors. In addition, we 
have effectively implemented contracting reform as part of the Medicare 
Integrity Program. All Program Safeguard Contractors are under 
performance-based contracts containing award fee plans. These endeavors 
will give the Agency valuable experience in applying new contracting 
tools that will become broadly available under HR. 3391.
CONCLUSION
    From my experiences in the hospital sector and in health care 
generally, I know how important it is that Medicare work more 
efficiently, and that its regulations be less burdensome. Time and 
again, this Administration has confirmed its commitment to regulatory 
and contracting reform. I want to thank you for your unflagging efforts 
to pursuing these reforms and for your interest in increasing the 
efficiency of the Medicare program. Improvements in our efficiency 
result in improvements and speed in paying providers for treating their 
patients, our Medicare beneficiaries. We have already made great 
strides in this area, and we strongly encourage your legislative 
efforts to that end while allowing us to retain the flexibility to 
continue improving administratively. We look forward to working with 
you, Chairman Johnson, Mr. Stark and this Subcommittee, to enact needed 
reforms as soon as possible. We owe it to Medicare beneficiaries and 
all of Medicare's partners--providers, contractors, and others, to 
achieve these reforms. Thank you for the opportunity to discuss this 
important topic with you today. I look forward to answering your 
questions.

                                 

    Chairman JOHNSON. For you, that is some statement. Thanks 
very much. Dr. Wood.

 STATEMENT OF DOUGLAS L. WOOD, M.D., VICE CHAIR, DEPARTMENT OF 
   MEDICINE, MAYO CLINIC AND FOUNDATION, ROCHESTER, MINNESOTA

    Dr. WOOD. I will see if I can go as fast.
    Chairman Johnson, Congressman Stark, and other 
distinguished Members of the Subcommittee, I am privileged to 
have this opportunity to share with you my insights about 
regulatory reform.
    I am a practicing cardiologist and Vice-Chair of the 
Department of Medicine at the Mayo Clinic. It was my honor to 
serve Secretary Thompson as Chair of his Advisory Committee on 
Regulatory Reform.
    I appreciate your interest in our work. I hope in the very 
short time that I have with you today I can leave you with a 
better understanding of how we did our work and what we tried 
to do. I hope it will be helpful for you in thinking about 
legislative proposals that you might continue to undertake in a 
way that would improve the Medicare program for its 
beneficiaries as well as for those providers who care for our 
older Americans. The statement that I provided has additional 
detailed information.
    Our group represented all sectors of health care, including 
consumers. We did not organize along industry lines as we 
conducted our work but, rather, we tried to take the 
perspective of consumers and beneficiaries as they encountered 
the Medicare program and the health care system.
    We worked hard to be able to accomplish the large task to 
evaluate Medicare and Medicaid and the Food and Drug 
Administration (FDA) for opportunities to improve the 
regulatory burden. In that, we visited hospital emergency 
rooms, we went to inner-city clinics, we went to rural clinics 
where nurse practitioners were trying their hardest to care for 
patients in the face of what they considered to be stifling and 
suffocating regulatory limitations.
    We carefully studied the original intent of law and 
regulation. We heard testimony from providers and the public 
about how regulations worked in everyday application. 
Everyplace we went, we took time to listen to people. We had 
open-comment sessions where anyone from the public could come 
and share with us their particular insights.
    We learned that the regulations in the program have become 
so complex that beneficiaries now are being denied services 
that they should be receiving. In some circumstances, the 
regulations are so difficult that rural health care providers 
decided not to avail themselves of resources that are available 
to them because the regulations that govern the programs make 
it so complicated to apply that it is almost equivalent to 
applying for a research budget in the National Institutes of 
Health.
    We approached our work with a clear vision of direction and 
set of principles for selection of issues and actions. We 
concentrated on those areas that we thought would have the most 
adverse effect on the patient/provider relationship, which 
indeed is the most important aspect of health care.
    We were asked by the Secretary to identify potential 
solutions to regulatory problems as quickly as possible, and we 
worked hard at that. The Secretary and Mr. Scully announced 
recommendations of their own to address some of the suggestions 
that we had made at our meetings, including some improvements 
to the Medicare card that gave Medicare beneficiaries an easy 
number to follow to call for help, and a Web site that they 
could then also access for help.
    I am pleased to say that both the Secretary and Mr. Scully 
have remained actively engaged in the evaluation of our 
remaining recommendations and the execution of improvements in 
those regulations.
    During our work we studied areas of concern by developing 
panel discussions for an in-depth analysis of issues, and those 
panels have been summarized on page 7 of my written statement 
to give you a sense of some of the major areas that we 
discussed. Those were derived from the perspective of listening 
to beneficiaries as well as listening to people in the field.
    The recommendations that were made, as noted by Mr. Scully, 
number 255 specific recommendations. There were also a series 
of long-term recommendations. Some of the themes of these 
adopted recommendations, along with a number of recommendations 
in each theme area, can be found on page 8 of the written 
testimony.
    Now, I would call your attention to the fact that more than 
50 of these recommendations are actually aimed at specifically 
helping beneficiaries. There are more than 80 of them that in 
some way or another refer to improvement of communication in 
the Medicare program. In its work already, HHS has accomplished 
about 30 of these recommendations and has started work on some 
of the others. I know that the Secretary has commissioned a new 
strike force in HHS to continue the implementation.
    Now, there are some other things that could be done. If you 
look in appendix C, Unfinished Business, you will find some 
opportunities to help us make the program work better, with 
some legislative support; in particular, finding ways that we 
can integrate data across programs to eliminate the barriers 
and the silos that provide barriers not only to access but to 
the ability to provide quality information that helps consumers 
make the best choices about their health care.
    My group actually failed the mother-in-law test. My mother-
in law, when she heard about my activity, said, I want you to 
fix one thing. Can you please find a way that I can get the 
same thing paid for in Missouri that I get in Minnesota, or 
vice versa? Her biggest concern is that when she comes to Mayo, 
she can't get certain things paid for that she can get paid for 
in Missouri. She couldn't quite understand that. That is the 
advanced beneficiary notice problem and need for prior coverage 
determination in Medicare. We are pleased there are some 
provisions that are in legislation that will in fact address 
that.
    There are some other opportunities. They will be 
highlighted by other folks today as they provide their 
testimony. We are certainly interested in doing all we can to 
help you understand where those opportunities might be.
    Again, thank you for the opportunity to come today. 
Obviously, the Secretary's Advisory Committee is interested in 
all of the support that you and your colleagues have in helping 
to improve the Medicare program for its beneficiaries across 
the country. Thank you.
    Chairman JOHNSON. Thank you very much.
    [The prepared statement of Dr. Wood follows:]
Statement of Douglas L. Wood, M.D., Vice Chair, Department of Medicine, 
            Mayo Clinic and Foundation, Rochester, Minnesota
    Chairwoman Johnson, Mister Stark and members of the Subcommittee, I 
am privileged to have this opportunity to share with you my insights 
about regulatory reform. I am a practicing cardiologist and Vice-Chair 
of the Department of Medicine at the Mayo Clinic in Rochester, 
Minnesota. I was honored to serve Secretary Thompson as Chair of the 
Secretary's Advisory Committee on Regulatory Reform. I appreciate your 
interest in our work and hope that in my short time with you today I 
can leave you with a better understanding of our work and 
recommendations. I especially hope that the information I have for you 
will be helpful in your work to improve the Medicare program for its 
beneficiaries and the providers who care for older Americans. This 
written statement provides more detailed supplemental information for 
my oral comments.
Schedule of Work
    The Secretary's Advisory Committee was chartered by Secretary 
Thompson in August 2001, but its start was delayed by the terrorist 
attacks on this great nation and the subsequent anthrax exposures here 
in Washington. We began our work in earnest in January, 2002 and 
provided a final report \1\ to Secretary Thompson by November of 2002. 
Our report included more than 250 specific recommendations to the 
Secretary as well as some thoughts about long term changes in the way 
that HHS conducts its business.
---------------------------------------------------------------------------
    \1\ Bringing Common Sense to Health Care Regulation, Report of the 
Secretary's Advisory Commit on Regulatory Reform, 2002.
---------------------------------------------------------------------------
Work Process
    Our group represented all sectors of health care, including 
consumers. We worked in subcommittees to be able to accomplish the 
large task we were given, specifically to evaluate Medicare, Medicaid 
and the FDA for opportunities to reduce regulatory burden in health 
care and improve regulatory processes in the Department of Health and 
Human Services. We solicited written comments, electronic comments on 
our web site,\2\ and we conducted listening sessions with CMS and FDA 
staff as well as beneficiary advocates and contractor executives. We 
visited different parts of the country to understand the impact of 
regulations on the process of care. In our work, we visited urban 
hospital emergency rooms and inner city clinics, we went to rural 
hospitals and clinics, we went to nursing homes and we went on home 
health nurse visits. We carefully studied the original intent of law 
and regulation and we heard testimony from providers and the public 
about how regulations worked in everyday application. At every meeting, 
there were multiple sessions for public comment where any interested 
person could come and share comments with us.
---------------------------------------------------------------------------
    \2\ http://regreform.hhs.gov.
---------------------------------------------------------------------------
Regulatory Complexity Is a Barrier to Beneficiaries
    We learned that the regulations in the Medicare program have become 
so complex that beneficiaries have been denied services they were 
entitled to receive. We learned of contractor medical director 
decisions that persons near death and entitled to hospice benefits 
could not receive them as intended. We learned that providers and 
patients in rural areas did not take advantage of programs intended to 
help them because the procedures to apply for resources and to sustain 
them required nearly the amount of work to apply for a NIH sponsored 
research award.
Committee Mission
    We approached our work with a clear vision of our direction and 
principles for selection of issues for action.

        Mission
        To improve the level of services for patients and consumers. We 
        will do this by:

          (1) cutting red tape,
          (2) removing obstacles to smoothly functioning relationships 
        in the health care system, and
          (3) reducing burden appropriately so time and resources 
        currently devoted to program requirements can be redirected 
        towards patient care.

        We recognize the need to enhance the trust of Americans that 
        they will be well-cared for, served, and protected.

    We concentrated on those areas that appeared to have the most 
adverse effect on the patient-provider relationship, the most important 
aspect of health care.
Principles for Issue Identification
    Early in the planning for the committee work, it was apparent that 
we would have limited time and many opportunities. It would be 
important to prioritize our efforts if we were ultimately going to be 
successful in our work. Thus, at our first meeting, we discussed and 
adopted principles for identification of issues that the Committee 
would address. These principles were:

         LDevelop recommendations about issues that have the 
        most significant and direct effect on improving care and 
        service to patients and consumers
         LSelect issues for deliberation on which meaningful 
        progress can be made during the year, but that may not be 
        entirely resolved, in addition to identifying and ``fixing'' 
        several concrete problems. The Committee will identify a mix of 
        immediate fixes (what can be done now), short-term fixes (what 
        can be done in 6 to 12 months), and long-term fixes (beyond one 
        year).
         LAttempt to identify problems that are likely to 
        persist even in a period of program stability. For example, 
        much of the burden in the past few years has stemmed from the 
        extraordinary pace at which Congress has been modifying the 
        Medicare program, along with confusion and delays in 
        implementing the changes.
         LConcentrate on existing programs and focus on 
        solutions to remove impediments to realizing current goals

What We Did Not Do
         LPursue new policy goals (i.e., find new places to 
        regulate).
         LPrioritize or make recommendations on issues that are 
        anecdotal or relevant only to specific special interests. 
        Assess the adequacy of payment levels or the fairness or 
        accuracy of payment methodologies
         LEngage in ``what-if'' scenarios about program 
        function (e.g., effect of changes in fee-for-service, Medicare 
        + Choice or provider participation rates)

    We were asked by Secretary Thompson to identify potential solutions 
to regulatory problems as soon as possible and not to wait for the 
preparation of a final report to make recommendations for solutions to 
regulatory problems. HHS staff members were actively engaged in our 
work, attending every meeting, listening to all the testimony and to 
the thoughts and recommendations of the Committee. Indeed, the staff 
members began work on several of our recommendations as soon as they 
were identified and had completed some of these tasks even before we 
prepared our final report. Secretary Thompson and Administrator Scully 
announced solutions to some of these problems at our meetings, 
including improvements to the Medicare card to make it easier for 
beneficiaries to find contact phone numbers for information. Secretary 
Thompson and Mr. Scully remain actively engaged in the evaluation of 
our remaining recommendations and execution of improvements in 
regulation.
SACRR Panels
    During our work, we studied areas of concern in detail by 
developing panel discussions for in-depth study of significant issues. 
In this approach, we asked HHS staff with responsibility for a specific 
area to provide the Committee with a summary of the legislative and 
regulatory history of an area of regulation. We then invited people 
with specific expertise and experience in each of the areas to share 
their real world experience with the impact of regulation on their work 
with beneficiaries. Wherever possible, we also sought to identify best 
practices among CMS regional offices, Medicare-Medicaid coordination 
activities and FDA and CMS activities that we could use as a basis for 
recommendations for future improvements. The Panels were developed to 
address major concerns identified in public comment and early 
deliberations of the Committee. The panels explored the following 
areas:

         EMTALA
         OASIS and Home Health
         MDS and Nursing Homes
         Beneficiary Communications/Limited English Proficiency
         Beneficiary Education
         FDA
         FDA-CMS Interaction
         Dual Eligibles
         Rural Health Care
         Multiple Reviews
         HIPAA Privacy
         HIPAA Transactions/Security
         Administrative Simplification
         Medicare + Choice
         Provider-Patient Relationships
         Federal-State Coordination
         Adverse Events
         Provider Enrollment/Forms
         Advanced Beneficiary Notices
         CLIA

    After each panel discussion, the Committee identified specific 
areas for evaluation, and assigned these to subcommittees for more 
detailed analysis and recommendations. The subcommittees then presented 
the Committee with issue statements that could be evaluated by HHS 
staff to better understand the potential implications of possible 
recommendations.
Recommendations of the Committee
    The Secretary's Advisory Committee on Regulatory Reform adopted 255 
specific recommendations. Some themes of adopted recommendations (along 
with the number of recommendations in that area in parentheses) are 
listed below.

 
------------------------------------------------------------------------
                  EMTALA                                 13
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Beneficiary Education & Communications                                33
------------------------------------------------------------------------
OASIS                                                                 14
------------------------------------------------------------------------
MDS                                                                   22
------------------------------------------------------------------------
Medicare + Choice                                                     15
------------------------------------------------------------------------
HIPAA Privacy                                                         17
------------------------------------------------------------------------
Rural Health                                                          10
------------------------------------------------------------------------
Multiple Reviews/Audits                                               65
------------------------------------------------------------------------
HIPAA Transactions                                                     8
------------------------------------------------------------------------
Federal-State Coordination                                            19
------------------------------------------------------------------------
Adverse Events                                                         6
------------------------------------------------------------------------
Contractor Relations                                                  29
------------------------------------------------------------------------
Provider Enrollment/Forms                                             11
------------------------------------------------------------------------
ABNs                                                                   7
------------------------------------------------------------------------
CLIA                                                                  12
------------------------------------------------------------------------
Cost Reports                                                           5
------------------------------------------------------------------------

    HHS has already accomplished 30 of the recommendations and has 
started initial work on about half the rest. The Secretary has 
commissioned a new strike force in HHS to continue implementation of 
the Committee's recommendations.
Long Term Recommendations
    The Committee also made several recommendations for the Secretary 
to improve the regulatory function at HHS to achieve better service to 
beneficiaries, improved coordination between groups within HHS and 
better communication with the industry.
    While health care innovation has progressed rapidly, rules that 
govern federal health care programs have not kept pace. We encouraged 
the adoption of technology to improve access to care, streamline 
enrollment processes for beneficiaries and providers, better serve 
beneficiaries and providers with information about benefits and claim 
status, streamline program operation, and most important, improve the 
quality of care for beneficiaries. The savings that would accrue from 
streamlining program function and improving quality of care could be 
reinvested in extending benefits or reducing costs to beneficiaries and 
taxpayers.
Areas Requiring Legislative Solutions
    During the course of our work, we encountered problems that could 
not be solved on a regulatory level, but instead would require a 
legislative solution. These are identified with asterisks in Appendix B 
of our report, but I will highlight some of them for you. I have also 
prepared an analysis that shows a relationship between our 
recommendations and provisions of House resolutions.
    One of the most vexing problems faced by Medicare beneficiaries is 
their inability to determine whether a physician's service, or a 
laboratory or x-ray test, or a specific procedure or technology is 
covered by Medicare. This is an excessively complicated process for 
patients and providers alike, and it was our recommendation that 
Medicare should provide an advance coverage determination for its 
beneficiaries. This will require legislative authority and your 
resolution is consistent with the Committee's recommendations.
    For the long term, the Secretary's Advisory Committee suggested:

         Lthe creation of a public-private partnership to 
        establish quality standards that would strengthen the safety of 
        services and reduce unnecessary or duplicative services
         La new emphasis on changes in the statutory basis for 
        reimbursement within existing expenditure constraints that 
        would reward quality outcomes, recognize the need to balance 
        acute care services with the growing need for services provided 
        to the chronically ill and those requiring long-term care
         La more global system of payment within governmental 
        program that gives patients more choice and greater ability to 
        be prudent users of public resources
         Lintegration of information systems to be patient or 
        beneficiary oriented rather than program oriented.

Conclusion
    The Secretary's Advisory Committee on Regulatory Reform provided 
255 recommendations for easing the burden of regulation and improving 
service to Medicare beneficiaries and others. And, we made specific 
suggestions for future operations within HHS. The Committee members 
recognized that effective delivery of health care resources requires a 
balance of regulation, financing and a societal expectation. While our 
group effectively addressed the regulatory aspects of this complex 
relationship, we did not address financing nor did we carefully study 
or try to articulate a societal expectation. For this, we are grateful 
for the leadership of the members of this subcommittee. We appreciate 
your interest in the work of the Secretary's Advisory Committee on 
Regulatory Reform. In the report of the Secretary's Advisory Committee, 
those recommendations that might require congressional legislative 
action are denoted with an asterisk by the recommendation number.

     Comparison of Regulatory Reform Provisions of H.R. 4954 and the
           Secretary's Advisory Committee on Regulatory Reform
------------------------------------------------------------------------
                                                Secretary's Advisory
     H.R. 4954 Provisions and Section         Committee on Regulatory
                                            Reform Recommendation Number
------------------------------------------------------------------------
Establishment of coordinated survey                            116, 117
 demonstration project
------------------------------------------------------------------------
Extension of outpatient payment                                     119
 protection for certain rural hospitals
------------------------------------------------------------------------
Hold harmless payments for outpatient                               119
 departments in small rural hospitals
------------------------------------------------------------------------
OASIS Task Force                                                  54-64
------------------------------------------------------------------------
Required issuance of guidance concerning                            134
 discrimination against limited English
 proficient persons
------------------------------------------------------------------------
Information Technology Demonstration                            224-226
 Project
------------------------------------------------------------------------
Local Coverage Determinations                                   69, 163
------------------------------------------------------------------------
Issuance of regulations                                     16, 97, 185
------------------------------------------------------------------------
Regular timeline for publication of final                   16, 97, 185
 rules
------------------------------------------------------------------------
Communication with providers                               25-27, 30-31
------------------------------------------------------------------------
Small provider technical assistance                                 157
 program
------------------------------------------------------------------------
Use of central toll-free number                       25-27, 30-31, 128
------------------------------------------------------------------------
Prior determination of coverage                                     163
------------------------------------------------------------------------
Development of evaluation and management                             99
 guidelines
------------------------------------------------------------------------
Improved coordination between the FDA and              241-243, 236-237
 CMS
------------------------------------------------------------------------
Covering and paying for new technology                          241-243
 and laboratory tests
------------------------------------------------------------------------
EMTALA                                                       17-24, 164
------------------------------------------------------------------------

                                 

    Chairman JOHNSON. Administrator Scully, I was very pleased 
you discussed the forums that you have had. I think that has 
been very important to opening up the process for all of us. 
Your quarterly provider update has been very helpful, and begun 
to strengthen the give and take between the government and the 
people who provide the services.
    Your Progressive Corrective Action Program is a help. I 
think we would have a ways to go in that regard. I would call 
your attention to page 6 of the American Medical Association 
(AMA) testimony. You don't have to look at it right now. Bottom 
line, the issue is that when government people come in and draw 
a sample, a physician ought to be able to give additional 
information so that the interpretation of those cases is 
accurate. If the interpretation--it is a matter of 
interpretation anyway, and I understand there are some gray 
areas--but for physicians to say, wait a minute, you did not 
notice this part of the chart--that should be there.
    For a consent decree process to get going without some 
evaluation of the base initial data is really a terrible 
frustration and a great unfairness in the current process. 
While you move towards addressing that, I do think the bill 
addresses it more accurately. That will be one point of 
discussion for us.
    My question to you is--and I want you to answer briefly 
because I have one question for Dr. Wood and then we will move 
on--I think you need to tell us a little more clearly why you 
think we need to extend the time frames for the review process, 
because the time frames are really quite long. If you want us 
to extend this, I think you ought to direct yourself to that 
portion of your testimony for a minute.
    Mr. SCULLY. I think the reality is that the time frames for 
the review process--right now we are looking at 440 days. 
Realistically, I don't think we can pull them off, to be honest 
with you. In the current bill you kick the next process--for a 
certain number of days the entire process is going to backlog, 
in my opinion, right back up to the Provider Review Board. The 
best intentions of speeding up the process, it just 
functionally cannot be done. We don't have enough money to pull 
it off.
    Right now, in theory, I am supposed to take the $89 million 
that Social Security spends right now--they get $89 million 
from our budget directly, the trust funds, to do 8 to 10 
percent of their caseload, which is Medicare. They have ALJs 
all around the country doing that.
    We are supposed to take this on with exactly the same type 
of money as of October 1, do the same types of hearings, put 
all these processes in place and speed it up. I just don't 
think it is feasible at this point. I think the bill has 
obviously very good intentions of streamlining and speeding up 
the process. I just don't think the targets are, at this point, 
remotely doable.
    If we can put this in place, get it up and running--
essentially, outside of putting together a prescription drug 
benefit--which I hope I have the opportunity to do in the next 
couple of years--this is by far the biggest administrative 
challenge for this Agency, taking over Medicare appeals and 
making it work hopefully more smoothly than Social Security on 
essentially no budget now.
    We would like to get it up and running, but with the 
timetables we have right now it is almost certain to just back 
up in the entire system and essentially backfire and possibly 
make it worse rather than better.
    So, I hope we can put it in place with some more realistic 
time lines and it turns out we can actually do it efficiently 
and we can look at tightening them up in the future. I think 
realistically--the two major concerns I have are the time 
lines, and also the legislation requires us to put together 12 
Quality Improvement Contractors. As I discussed, we could 
probably do four, have exactly the same functions, spend less 
money, and consolidate the operations. I think there are some 
technical changes that make it much easier for us to pull this 
off. It is a massive management job. We are taking on a whole 
new appellate process that has not existed in the Agency 
before. I hope with Social Security's help, I hope we can do 
it.
    We are going to have more focus and energy and attention on 
Medicare. It is a relatively small part of their portfolio. In 
some cases, it has been a stepsister to their core function.
    Chairman JOHNSON. We will talk further with you about it 
because 422 days is a long time. We will look at that more 
closely. Dr. Wood, thank you for your testimony and the time 
you have given to this process in the last year and a half in 
your Commission.
    I was disappointed that you did not make more progress with 
the Outcomes Assessment Information System (OASIS). I 
appreciate there has been a 27-percent cut. Would you talk a 
little bit about my concern with OASIS and those things 
actually reflected in your comments in your summary. 
Particularly, I would like to hear about some of your broader 
statements, like the emphasis on changes in the statutory basis 
for reimbursement with existing constraints. It would reward 
quality outcomes and recognize the need for the balance of 
acute services with the growing need for services provided to 
the chronically ill and those providing long-term care.
    That kind of recommendation, that kind of view, is embedded 
in your comments about where we need to go in the future, and 
it strikes me that my frustration with OASIS is part of that.
    Dr. WOOD. I would agree. Actually, when we consider how 
some of these data sets were created, they were oriented 
towards specific programs or silos. The OASIS form could be 
considerably shortened if we had a way we could track 
beneficiaries throughout the system.
    I will give a specific example. A patient who might have a 
fractured hip would be hospitalized, where there would be then 
a gathering of data that would be covered in Part A and 
separate data in the Part B payment system. If they then go to 
a nursing home, they might in fact have some data in the 
minimum data set (MDS). If they then go to home health, there 
would be something in OASIS.
    None of those systems actually talk to each other. None of 
the providers have an opportunity to see what the providers 
before them have done. You could eliminate a substantial 
additional amount of information from OASIS if in fact there 
was a single data set that followed a patient through all of 
their specific interactions.
    I think CMS operations could be improved as well in that 
regard. It would be particularly more effective in managing 
quality because you could then find opportunities for things 
that might happen in a hospital that have an impact, for 
example, on home health, or have an impact on nursing homes.
    We have a hard time doing that. We are certainly 
appreciative of the emphasis on quality at CMS, but we just 
don't think the current systems are capable of providing that 
additional functionality. That is the basis of how we would 
approach that.
    We had a short time, and there were a number of things we 
would like to finish. That would be one of our major 
objectives.
    Chairman JOHNSON. Thank you.
    Mr. SCULLY. I just want to jump in on OASIS, because I am 
not sure we discussed this. Knowing your concern about OASIS, I 
think OASIS is a great system. It was created by a contract 
that CMS/HCFA had with the University of Colorado. Months ago, 
I had people who wrote it and spent a day with me. They had to 
trim it back by two-thirds, I told them, or I was going to do 
it myself essentially. I spent a whole day with them. I was 
just asking because it got approved this week.
    Some of the stuff that was in the OASIS requirements I 
think was done because somebody wanted it for their doctoral 
thesis. These people created this thing over years. This was 
their baby and they did not want to reduce any of it. I went 
through and we reduced it by 27 percent. I think we got the 
number of questions down from 96 to about 60. I spent a lot of 
time. I am pretty convinced we got it back to what you actually 
need for patient care.
    The one complaint I still have and I'm thinking about 
changing is that we collect OASIS on every patient in the 
country. We actually use it for Medicare and Medicaid, but for 
the private sector patients we collect it and don't use it. I 
am saying we either have to find a way to use and disseminate 
it or quit collecting it. We spent a lot of time on OASIS. I 
think in the next few weeks you will see the fruition of the 
first level of work, a significant ratcheting back of the data 
collection on OASIS.
    Chairman JOHNSON. Thank you very much. Mr. Stark.
    Mr. STARK. Thank you.
    Madam Chairman, Mr. Scully, sometime before or after dinner 
today, we are all going to have to vote on an omnibus 
appropriations bill which I am informed includes $54 billion 
over 10 years to ``fix'' the physician reimbursement question.
    Can you tell us what you are going to do?
    Mr. SCULLY. Well, it is not totally up to me, Congressman 
Stark. As you know, I have been saying from the first day that 
I discovered this glitch in the system--and you and I worked 
very much on this in 1989 when it was passed, so I have some 
pride in the Resource Based Relative Value Scale because I 
think it was worked pretty well. With the best of intentions, 
some changes remained in 1997 that limited our ability to fix 
the formula and it backfired. I discovered this last year in 
September.
    Mr. STARK. Do you have a plan to take this $54 billion we 
are about to vote on and fix the system?
    Mr. SCULLY. I have to get a ruling from Justice as to 
whether I have the power to do it. My sure intent, if I am told 
I am allowed to do it by Justice, I will do it as of March 1.
    Mr. STARK. What will you do?
    Mr. SCULLY. I don't actually believe it is the correct 
update--it is an OMB scoring matter.
    Mr. STARK. The $54 billion will correct it if you are 
allowed to follow up----
    Mr. SCULLY. The resulting update this year, instead of 
being negative 4.4, it will be plus 1.6 as of March 1.
    Mr. STARK. So, if the U.S. Department of Justice doesn't 
let you do this----
    Mr. SCULLY. Essentially the last version I saw of the 
omnibus bill is it basically keeps us from being sued over 
making the change. I always thought this was a mistake. I 
wanted to fix it from the beginning.
    Mr. STARK. The fix you have in mind would take care of it 
for next year with the----
    Mr. SCULLY. If I have the authority to fix it, it would I 
believe correct some flaws in the formula that originated in 
1998 and 1999 and get it back on the correct track for the next 
10 years. You will still get, because of a variety of factors, 
most likely a negative update next year, but it would be 
smaller.
    Mr. STARK. Have you determined what your prescription drug 
benefit plan will be?
    Mr. SCULLY. No, we have not. I hope we are going to have 
something out soon.
    Mr. STARK. The Secretary, the 26th of February, is coming 
to the House Committee on the Budget, and on February 27 is 
going to testify before the Senate Committee on Finance. Will 
you have your pharmaceutical plan by then?
    Mr. SCULLY. The Secretary sure hopes so. We are working on 
it.
    I will tell you that I think--I know there are a lot of 
disagreements between the House and Senate, the different 
parties, about where to go. It is pretty significant that the 
President has committed $400 billion over the next 10 years to 
spending on prescription drugs. Some people would like to spend 
more, but it is more than double what was in last year's 
budget. It is a strong signal coming from the President to work 
with Congress to get this done this year.
    Mr. STARK. The advisory Committee recommended a number in 
their recommendation 192 that you have an interagency advisory 
committee to identify and enroll Medicare beneficiaries who are 
eligible for State assistance. Has that occurred?
    Mr. SCULLY. Do we have an advisory committee? Yes.
    Mr. STARK. That you have an interagency working group to 
identify eligible beneficiaries. Is that true?
    Mr. SCULLY. I spent an awful lot of time on dual eligibles. 
We have spent a significant amount of time increasing 
enrollment. I am not sure what interagency task force.
    Mr. STARK. Could you let us know?
    Dr. WOOD. Yes.
    [The information follows:]

Recommendation #192 reads:
    Convene by September 1, 2002, with recommendations by July 1, 2003, 
and have a pilot ready to implement by September 1, 2003, an 
interagency working group consisting of CMS, State Medicaid Directors, 
and the Social Security Administration (SSA) to work on an improved 
system for timely and accurate identification, enrollment, and 
notification of dual eligibles.
    The Secretary's Advisory Committee on Regulatory Reform adopted 
Recommendation #192 in June 2002 along with several other 
recommendations addressing dual eligibles. We are in the process of 
addressing these recommendations.
    In addition to addressing notification, application, and enrollment 
of dual eligibles through the Secretary's Advisory Committee on 
Regulatory Reform, our evaluations of the Qualified Medicare 
Beneficiary (QMB) and Specified Low Income Beneficiary (SLMB) programs 
have taught us many things including the importance of personal 
assistance in the enrollment process. We are always looking for ways to 
improve these processes for our Medicare and Medicaid beneficiaries.

                                 

    Mr. STARK. Dr. Wood, you had a number of recommendations to 
improve outreach and identify dual-eligibles. The President's 
proposal this year suggests that we require more, not less, 
documentation from lower-income individuals. As a matter of 
fact, they even are going to require more identification from 
second-graders to get the school lunch program. My son, when he 
goes to second grade, is going to have to take my income tax 
return along with his buddies to see whether or not he 
qualifies for assistance in his school lunch program.
    You also recommended the State-based volunteer-run health 
insurance counseling program, SCHIP. Are you familiar with 
that?
    Dr. WOOD. Yes.
    Mr. STARK. Are you aware that CMS this year has deleted 
from the Medicare new handbook the telephone numbers to contact 
SCHIP? Is that the kind of progress that you think we should 
continue to make?
    Dr. WOOD. No. In fact when we talked about some of these 
issues in our Committee, our concern was finding a way to make 
the enrollment processes simpler, especially for those who----
    Mr. STARK. The quarrel is not with your Committee, but the 
Administration is not following your advice.
    Dr. WOOD. That would not be consistent with the 
recommendations.
    Mr. STARK. Okay. Further, your Committee's goal was not to 
address payment methodologies; is that correct?
    Dr. WOOD. That is right.
    Mr. STARK. In number 127, with the highest number of 
dissenting votes I might add, you specifically advocated 
changes to the Medicare+Choice payments. Now, while I was 
pleased to see you include risk adjustors in there, which the 
Administration disagrees with, why in that issue did you 
violate your principle?
    Dr. WOOD. Actually, I think if you look at 127, we also 
identified that that was an area that would require 
considerable discussion and work at a legislative level, and it 
could not be readily fixed from a regulatory perspective. 
Indeed, the effort here is again to try to find a way that you 
can expand access and choice. That was the discussion that 
occurred at the Advisory Committee.
    Mr. STARK. Thank you.
    Mr. SCULLY. Mr. Stark, I spent a lot of time on SCHIPs. 
They do a great job. The decision was because we spent so much 
time and effort on trying to generate focus with seniors on 1-
800-Medicare, which we frequently refer calls to SCHIPs, some 
of the consumer testing showed we confused people with so many 
phone numbers. I sat on those lines for hours. I think the 
SCHIPs do a great job. I meet with them regularly.
    If we think that is somehow inhibiting the SCHIPs work, I 
would be more than willing to look at putting them back in the 
handbook. It was not done to discourage people from using 
SCHIPs.
    Mr. STARK. Like the memo to the intermediaries----
    Mr. SCULLY. I was not happy with that one. That was not 
accurate either. The way that was written, I could have sworn 
that somebody was writing it for publication in a newspaper. 
The way the memo was written, it said to spend all beneficiary 
education. That is in fact exactly not what happened; we didn't 
spend any for education. We told the contractors not to 
undertake--if you look at the category it fell into, they could 
not do any new things like health affairs, any new outreach 
initiatives.
    We did not do anything as far as not taking phone calls. 
Because we were operating under a continuing resolution and a 
funding freeze, we said no new health fairs in the communities, 
but we always took the phone calls, always answered the mail, 
always took responses.
    I think it was a significant misrepresentation of what we 
are doing.
    Chairman JOHNSON. Thank you. Mr. Ramstad.
    Mr. RAMSTAD. Thank you, Madam Chair.
    I want to thank both our distinguished witnesses for your 
testimony. I certainly want to welcome you, Dr. Wood, a friend 
from the Mayo Clinic in the great State of Minnesota. I want to 
thank you for your work as Chair of the Secretary's Advisory 
Committee on Regulatory Reform. You have performed valuable 
public service, and your recommendations are certainly 
important: 255 unfunded mandates. In total.
    I commend the reading of the full transcript of Dr. Wood to 
every colleague on the Subcommittee. It is very, very well 
written, very informative, and I think can be very helpful as 
we seek to change some regulatory policy.
    Dr. Wood, in your testimony you laid out some areas that 
require legislative solutions, really, for needed long-term 
changes. Two of the recommendations involve changing the 
statutory basis for reimbursement within existing expenditure 
restraints that would reward quality outcomes--which is music 
to our ears--and a more global system of payments that gives 
patients more choices and a greater ability, really, to be 
prudent in their health care choices as health care consumers.
    It seems to me--and I have certainly discussed this a 
number of times with Administrator Scully and with colleagues 
here--the poster child for these needed changes is the highly 
flawed reimbursement formula for Medicare managed care. 
Improvements have been made, I realize, but the current 
adjusted average per capita cost formula is still based on the 
history of fee-for-service costs in different counties. It is 
arcane, archaic. I think it is unfair. It rewards high cost and 
inefficiency, and certainly penalizes States like ours, the 
State of Minnesota, that deliver high quality care in a cost-
effective way.
    I assume, Dr. Wood--and I don't mean to be presumptuous, 
but I assume that you agree that the current system for managed 
care reimbursement is flawed.
    If so, what would your recommendations be, in 4 minutes or 
less, for reform?
    Dr. WOOD. That is a pretty tall order, but I agree that 
there are very fundamental problems. The Committee's focus here 
was not to try to come up with a scheme of financing that would 
solve some of these problems, although our vision for the 
future is that we have to find a circumstance where we can 
provide information to beneficiaries so that they can make 
appropriate choices to meet their specific needs. Then, every 
beneficiary is somewhat different. You can't have everybody 
trying to follow one program and only one set of rules and 
regulations, regardless of where you might be.
    From our perspective, we have thought of a number of 
different ways that you could provide that choice. 
Fundamentally, having a way to get good, reliable, useful 
information in the hands of beneficiaries so they can make 
decisions about what options they had, what plan, whether it 
would be a managed care plan or an insurance plan or whatever; 
what gave them the access to physicians, the access to other 
services, drug benefits or whatever, and what gave them the 
range of services that would meet their particular health 
needs.
    We are particularly concerned that as many seniors with 
chronic conditions get older, we have not organized a system to 
deliver very good chronic care or to help make the decisions 
about where you can get certain resources. We have to be able 
to do that.
    Now, we are quite happy that there is a group of folks like 
you who can wrestle with the financing circumstances, and we 
were quite happy to think about just the delivery issues. As we 
get to those ultimately, coming back to Chairman Johnson's 
earlier question of why didn't we do more, in some areas we got 
to a point where it became apparent that we would have to do 
some fundamental change of the delivery system that would have 
some reimbursement implications.
    That would have been something that would have simply been 
hard for us to overcome and would have delayed our ability in 
getting the recommendations in place. So, that is the reason we 
did not go into great detail in that regard.
    Mr. RAMSTAD. It seems to me that the reimbursement 
implications are so pervasive in the system and that they 
certainly are part and parcel of reform, and certainly any 
recommendations that would be forthcoming from you or your 
group would be very much appreciated. Thank you again for your 
leadership on the important Advisory Committee on Regulatory 
Reform.
    In the remaining couple of minutes I have, I just want to 
ask Administrator Scully, we have talked many times about the 
unconscionably long coverage, coding payment, and appeals 
decision process with respect to medical devices, medical 
technology, the bureaucratic delays, and the poor interagency 
coordination, which certainly don't serve the patient or the 
system well.
    I am just again asking that you will work with us on the 
Medicare Innovation Responsiveness Act to streamline the system 
and better coordinate the various functionaries, those who work 
on these issues. We really need to improve accountability, 
openness, and coordination. So, I am hopeful that you will work 
with me on this legislation this year, and we can get even more 
of it passed than we did last year.
    Mr. SCULLY. Absolutely. I also hope you will find that the 
people--and this is our chief doctor on the staff--have been 
much more open and willing to meet with people on the outside. 
I have pushed them to do that. People are not always going to 
make our decisions. We have to make tough coverage decisions.
    Mark McClellan is a new administrator and a good friend. We 
have talked a lot about one of the frustrations we have is 
where FDA would spend a couple of years looking at a product or 
device, and then they would have to start all over again with 
CMS. Some of that is statutory. FDA cannot share all their 
information with us. We have started talking and getting ahead.
    For example, we actually approved drug-eluting stents, 
something Secretary Thompson and I got very involved with. The 
FDA still has not approved it, but we actually went ahead and 
approved it. We felt that was a device that was going to 
improve the delivery of health care in a major way, so we 
actually went ahead and created a code to pay for it as of 
April 1, on the assumption that FDA will approve it. I don't 
think they have, but I think they will in the next month or so.
    We have tried to answer the critics about some of the slow-
moving bureaucracy, of having to wait a couple of years with 
FDA and then start again from scratch with CMS. I think we have 
made some significant changes. We have to make a lot of tough 
calls on drugs, devices, international classification of 
diseases, which we discussed before the hearings. They are 
complicated issues that involve billions of dollars and lots of 
patients, and we take them very seriously. I think we have 
gotten much faster and better.
    Mr. RAMSTAD. Thank you. Just a final comment, Madam Chair, 
if I may.
    You have created, Administrator Scully, an atmosphere of 
openness and optimism at CMS. For that we are grateful. There 
is hope that even more changes can be made to streamline the 
process. You have made significant steps under your leadership. 
Thank you for that.
    Mr. SCULLY. Thank you.
    Mr. RAMSTAD. Thank you, Madam Chair.
    Chairman JOHNSON. Thank you. Ms. Tubbs Jones has yielded to 
Mr. Kleczka because he has to go back to Florida. Mr. Kleczka.
    Mr. KLECZKA. Thank you. I concur in the remarks of Mr. 
Ramstad when it comes to your service, Mr. Scully. I have 
really enjoyed working with you since you have taken over the 
helm of CMS. You have been responsive, even though I recognize 
that you are not exactly a cheerleader for the Medicare 
program, but you have been very responsible.
    With that being said, let me attack you now. Congressman 
Stark talked a little about the physician payment fix, the $54 
billion in the bill we are going to be taking up today. Do you 
anticipate that the Administration is going to come back for 
some further legislative fix later this year?
    Mr. SCULLY. On the physician payment thing specifically?
    Mr. KLECZKA. Right.
    Mr. SCULLY. I don't think that has been decided. I think 
the update would be 1.6 for the rest of the year if we make the 
change. It would put the formula back on the right track, I 
believe.
    It obviously depends a lot on many complicated factors, 
including gross domestic product growth, physician spending. 
The reason we enacted it in 1989--and I was then the OMB guy 
who spent a lot of time with Mr. Stark passing it--was because 
physician spending was growing 15 percent a year. The idea was 
to control volume and tie volume to performance and various 
categories together.
    I think a negative 5.4-percent update last year was 
incorrect and should never have happened. This year a negative 
4.4 percent would have been unconscionable. I worry about it. I 
have six physicians in my family, and I worry about it because 
we would have had access problems with patients. I think we had 
not seen them yet, but I have no doubt they were coming.
    I was very concerned that we would start seeing physicians 
not taking Medicare patients. If physicians want to be our 
partners in the long run for the program, they have to expect a 
reasonable reimbursement. I think it was not a provider 
giveback, in my opinion. It was a mistake. I don't believe 
anyone ever really expected us to have negative updates in 
payments for physicians.
    Mr. KLECZKA. Clarify in my mind why you need a Justice 
Department ruling. Do you feel that there are going to be some 
lawsuits emanating from this change?
    Mr. SCULLY. There have been lawsuits. In the Clinton 
Administration, there was a series of lawsuits between the AMA 
and the Administration over this exact issue. It was decided 
that the interpretation at the time was correct, however, we 
misinterpreted it.
    Essentially I have wanted to fix this for a year and a 
half. The Justice Department's ruling, correctly I believe, was 
that we did not have the administrative authority to do it. 
When the statute was changed in 1997, it was tightened in a way 
I did not have the administrative authority to change it.
    What the language in the omnibus bill says essentially is 
that our decisions are not reviewable. It does not say we 
should do it, it says we cannot be sued if we do it. I have not 
yet gotten the ruling from Justice but my anticipation, having 
discussed it with them, is that if it does pass that we will be 
putting in a reg.
    I actually had to tell the contractors yesterday what the 
rate was, and I have held off as long as I can. I am hopeful it 
is going to be 1.6, not minus 4.4. I expect if it passes they 
will let me go ahead.
    Mr. KLECZKA. Is the language in the bill we are voting on 
today going to do the job, or are you still in doubt?
    Mr. SCULLY. It will probably do the job, in my opinion.
    Mr. KLECZKA. Probably?
    Mr. SCULLY. I have every expectation when it passes out and 
we get a final rule from the Justice Department, I have the 
expectation we will do a positive update.
    Mr. KLECZKA. I will leave questions on prescription drugs 
to my colleague, Ms. Tubbs Jones. Let me ask one question on 
your testimony. On page 6, you talk about the Local Provider 
Education and Training (LPET) Program. You indicate that this 
year's funding will be doubled. Can you give us a figure? What 
dollar amount are we talking about? The bottom of page 6, Tom.
    Mr. SCULLY. Give me one second to put my--I didn't need 
this last year. I am trying to look at my budget.
    Mr. KLECZKA. This year we doubled funding for the LPET.
    Mr. SCULLY. It is not a chart I have. I think it has been 
doubled. The overall contractor budget in the 2004 budget is 
$1.776 billion, and I believe the provider education amount is 
somewhere around $100 million. I will have to get that for you.
    Mr. KLECZKA. Is that the doubled amount?
    Mr. SCULLY. The doubled amount. I am not certain. I will 
have to check.
    Mr. KLECZKA. The quote here, Mr. Scully, is, ``this year we 
doubled funding.''
    Mr. SCULLY. Yes. We doubled funding in the budget for 
provider education and training.
    Mr. KLECZKA. That amount is $100 million?
    Mr. SCULLY. I believe that is about right. I should know 
that off the top of my head. I apologize.
    [The information follows:]

    As part of our efforts to improve performance through provider 
education and outreach, we have expanded our Local Provider Education 
and Training Program, also known as the L-PET program. Contractors 
spent $17,779,500 on L-PET activities in FY 2002. In FY 2003, we have 
distributed $35,243,000 to the Fiscal Intermediaries and Carriers. L-
PET is targeted to be a response to problems identified through the 
review of claims. Providers are receiving more education related to 
their claims submission. Clinicians deliver most of the education, and 
respond to specific coverage or coding issues. Contractors meet with 
providers in group settings, individually, or communicate using the 
Internet. As a result, our contacts with the provider community are 
more collaborative.
    In addition to L-PET, we have taken many other steps to improve 
provider education, such as through interactive websites like MedLearn, 
satellite broadcasts, conferences and town hall meetings, and Open Door 
Forums.

                                 

    Mr. KLECZKA. The last question is on the contracting. You 
indicated the 5-year rebidding might not be the best time 
frame. Do you have a suggestion other than that?
    Mr. SCULLY. Some of this is a blend of the institution's 
views and mine. I am not actually uncomfortable with the 5- to 
6-year rebidding.
    I think because of the financing, the staff is concerned 
that some of the contracts--there may be some States that have 
done a great job over the years. The staff is concerned you 
have to rebid every contract every 5 or 6 years, including the 
ones that have done a terrific job and stayed, relatively 
smaller States. It might be better to have the flexibility to 
do it every 7 or 8 years. It is more a matter of resources. If 
we are forced to rebid a contract every 5 years, it might not 
be the best prioritization of resources.
    I personally want to tell you, I am not uncomfortable with 
doing it every 5 to 6 years. I think rebidding contracts is a 
good idea.
    Mr. KLECZKA. You are trying to reduce the number of 
intermediaries. How are we going to go about doing that, just 
with the contracting price, the lowest type of system?
    Mr. SCULLY. Yes. We bid them out and we would pay them 
differently and we would try to make them compete for contracts 
regularly, and try to get the number down to 20 or 25.
    A lot of our contractors are in Wisconsin; Wisconsin 
physicians and United Government Services, which is a subset of 
BlueCross Wisconsin or Cobalt. They happen to be two of our 
biggest and best. My guess is they get a lot more work out of 
this because they have been two of our best contractors.
    I think what is happening now, because a lot of the 
BlueCross plans are going for profit, as you know in your 
State, they don't look at the contract business as being such a 
great business. A lot are getting out of it. What you have 
found is a consolidation of BlueCross programs, and other 
people who want to be in this for the long haul. Fortunately, 
United Government Services seems to be one of them. We would 
like to find people who want to be partners for 20 years. We 
would like to give them work, have better consistency, and run 
the program more efficiently. We think the best number is 
between 20 and 25 contractors, not 47.
    Mr. KLECZKA. Dr. Wood, do you have a comment on that?
    Dr. WOOD. From a personal perspective, I would share that 
observation. There are some of my colleagues who believe we 
have to remain fragmented into small areas. The overall 
objective should be a high quality of service. I happen to be 
an area covered by Wisconsin Physician Services. I deal with 
medical directors that are in different States, but it works 
reasonably well.
    Mr. KLECZKA. With two major contractors coming from 
Wisconsin, and I coming from Milwaukee, Wisconsin, home of 
Cobalt, I happen to agree with both you gentlemen. Thank you, 
Madam Chair.
    Chairman JOHNSON. Mr. Crane.
    Mr. CRANE. Tom, in the short time that you have been with 
the Agency, you have made considerable progress in giving 
beneficiaries information, nursing homes and other providers. 
Can you highlight one of the changes that you believe made a 
significant difference in the lives of seniors?
    Mr. SCULLY. Well, the one we made the most traction on so 
far is nursing homes. I think it is not just seniors. I really 
believe that probably the number one place I got complaints 
about quality and about senior concerns were nursing homes, 
coming to the job.
    We also have extensive data on every nursing home patient 
in the country through MDS. It wasn't easy, it was difficult, 
but we had the data to put together fair tracking of quality 
between nursing homes.
    I also think, in the last year, when I started out, I think 
the Service Employees International Union has been great--which 
is the biggest union--the nursing homes, for profit and non-
profit, and the consumer groups did not have great relations, 
did not talk to each other much. In the process of doing these 
quality measures, they worked together incredibly well. They 
came with a consensus on quality measures. We got them done in 
less than a year. We now have all 50 States with published 
quality measures. I think it has dramatically, in my opinion, 
improved the relations between the various groups involved in 
nursing homes.
    I guess the criticism I got to begin with is, no senior 
would ever understand the article in the Chicago paper rating 
nursing homes. Maybe they don't. What it has created is an 
enormous buzz, in my opinion, around the nurses, around the 
employees, around the community, in the nursing homes, to talk 
about quality, and who has the best bed sore problem or the 
worst bed sore problem, the worst activities of daily living 
problems. It has created a whole level of discussion around 
nursing home quality that I think has dramatically improved the 
awareness of the people that are in the nursing homes and their 
families.
    I think it has had a big impact already, and I think it has 
just completely changed the dynamics between the patients, the 
nurses and their unions, the nursing homes, much for the 
better. I think it has worked out very well.
    Mr. CRANE. We understand that both CMS and the Secretary's 
task force supported elimination of local intermediary 
utilization restrictions for emergency visits. When will that 
important change for beneficiaries take place?
    Mr. SCULLY. Local intermediary restrictions on emergency 
room visits?
    Mr. CRANE. Yes.
    Mr. SCULLY. Mr. Crane, I am not sure. I will have to check 
on that and get back to you. I apologize. I wasn't aware that 
we still had local intermediaries making restrictions on 
emergency room visits.
    [The information follows:]

    The Secretary's Advisory Committee on Regulatory Reform did not 
address local intermediary utilization of emergency services.
    On December 20, 2002, in response to a request by state officials, 
CMS sent a letter to state Medicaid directors to make sure states 
understood managed care plans could only place the same restrictions on 
beneficiaries--related to utilization of emergency services--as those 
in fee-for-service programs.
    Medicaid law requires that enrollees in Medicaid managed care plans 
can get emergency care using the ``prudent layperson'' standard, and 
the right to post-stabilization services when the patient goes to a 
hospital that is not in the managed care organization's network. States 
may limit the numbers of emergency room visits paid for, but the 
Emergency Treatment and Active Labor Act (EMTALA) requires hospitals 
and emergency rooms to screen and treat all individuals, including 
Medicaid enrollees, who come to an emergency room for health care 
services.
    The law does not distinguish between health care services provided 
in emergency rooms to Medicaid beneficiaries in either fee-for-service 
or managed care. States do have the authority to set the limits on how 
much and how often Medicaid will pay for someone to get care in an ER. 
Five states have established limits in their Medicaid fee-for-service 
programs, to encourage patients not to use the emergency room as their 
doctor's office. To ensure uniformity and equality for beneficiaries, 
they may also include such limits in Medicaid managed care plans. 
However, no one who is in need of emergency care will be turned away 
from an emergency room.
    CMS's December 20 letter is consistent with those provisions. 
Hospitals and emergency rooms must continue to provide care for 
emergency services. If an emergency service exceeds the limit that is 
established in a state's benefit package, the service will still be 
furnished but the state may not have to pay for that service. This is 
the identical policy available to Medicaid beneficiaries who are not 
covered by a managed care plan.

                                 

    Mr. CRANE. Dr. Wood, the task force under your direction 
covered an extensive amount of ground and made many specific 
recommendations. What overarching theme or conclusion would you 
draw from your experience?
    Dr. WOOD. I think it would be most important to recognize 
that many of the problems that exist probably reflect that 
there are a number of different programs that have developed in 
almost a silo-like fashion, and that as you make law and 
regulation for one, you then create barriers to access and 
transition between them.
    If we would go at it the other way and think about what do 
you need to do to provide the spectrum of services for 
beneficiaries so that they can use them when they need to, and 
that there is almost a seamless integration, we could 
substantially improve the functioning of the system.
    I think we would also find not also operational but quality 
savings as well, because you could get back an ability to 
understand what is in the data about where are the best places 
to get things done, and we could identify opportunities for 
improvement in the system; coming back to a concern that I know 
Chairman Johnson has, that we have not been good at continuous 
improvement. That requires good measurement and data systems to 
be able to do that.
    Mr. CRANE. Thank you.
    Chairman JOHNSON. Ms. Tubbs Jones, welcome to our 
Subcommittee.
    Ms. TUBBS JONES. Thank you, Madam Chair, for allowing me to 
participate in the Subcommittee. Good afternoon, Dr. Wood, Mr. 
Scully.
    My first Committee hearing on health care. I come from the 
great city of Cleveland, Ohio, home of the Cleveland Clinic, 
University Hospitals, Metro Hospital, St. Vincent's, and the 
list goes on. So, even though I am not on the Subcommittee, it 
is a very, very important issue for my constituency, and I am 
going to try and be quick.
    Let me ask you, Dr. Wood, in the course of the work that 
you did at the study, what did people say to you about a 
prescription drug benefit?
    Dr. WOOD. Going around the country and listening to public 
comment, that was often one of the most significant issues that 
arose. The perspective of people that would come and talk with 
us really reflected what they considered to be their specific 
needs.
    If you consider that most older Americans have one or more 
chronic conditions, it is hard for them to get successful 
treatment of those chronic conditions when they don't have 
access, or they have limited access, or they are having to make 
choices about prescription drugs which are an important part of 
the care of chronic conditions.
    We also heard concerns about access to providers, rules 
that would limit opportunities to get even things like durable 
medical equipment in an easier fashion. Those are all very 
complex circumstances, but I think they reflect that we haven't 
probably been as good as we could be in keeping the Medicare 
problem modernized to meet the needs of a growing number of 
people who have chronic conditions that require considerably 
more support than was the case when the program was designed 
many years ago and we were dealing mostly with acute illnesses.
    Ms. TUBBS JONES. What would you recommend?
    Dr. WOOD. Well, actually if you go back to the long-term 
recommendations of our Committee, and look at some of the 
unresolved issues, I think that you would see that we would 
like to see a reorganization of the program that would allow 
you to meet those ongoing chronic conditions. I might ask you--
--
    Ms. TUBBS JONES. Specifically with regard to a prescription 
drug benefit. I am sorry.
    Dr. WOOD. Well----
    Chairman JOHNSON. This hearing is not on the prescription 
drug bill. It really is on how the regulatory aspect of 
Medicare can be used to improve the quality.
    Ms. TUBBS JONES. Clearly, in his own testimony, Madam 
Chair, if you would allow me, he said that was the largest 
concern of the people that he talked to as he was out there. I 
just thought that since he was an expert, that I might make use 
of his experience on the issue. If you want to restrict me, so 
be it.
    Chairman JOHNSON. I am not going to restrict you. The point 
is that we are going to have lots of hearings on that subject, 
but the testimony on this hearing was really excellent. 
Proceed, Dr. Wood, any way you want. I don't want to get too 
far off.
    Ms. TUBBS JONES. That is my last question of him.
    Dr. WOOD. I would simply answer that we heard that as a 
Subcommittee. In fact, the testimony is on the Web site. That 
was not a subject that was in our charge. So, we simply marked 
that as something that would need to be covered by a 
legislative solution.
    Ms. TUBBS JONES. If I can be clear on my question. You are 
a physician. You practice law.
    Dr. WOOD. Yes.
    Ms. TUBBS JONES. What would most benefit your clients?
    Dr. WOOD. Not only my clients, but the people who came to 
talk to us; they would like a prescription drug benefit.
    Ms. TUBBS JONES. Okay. I am going to leave that alone. Mr. 
Scully, how are you, sir?
    Mr. SCULLY. Great. You can ask me that.
    Ms. TUBBS JONES. I am looking forward to having the 
opportunity--you haven't had time. You all haven't figured that 
out yet from last week. That is the answer I kept getting. You 
haven't worked it out yet.
    Mr. SCULLY. We are getting close.
    Ms. TUBBS JONES. Who do I contact in your office to set up 
some programs for the nursing homes and health care providers 
and so forth in my congressional district if I wanted to help 
facilitate responses to questions with regard to providing--to 
dealing with Medicare issues and Medicaid issues?
    Mr. SCULLY. You can certainly talk to me. I have mentioned 
I have been in 47 congressional districts in the last year. Not 
quite. I am happy to go to Cleveland whenever it works out. I 
have done a lot of both sides of the aisle. I think that I have 
a number of special assistants, Marty Corry, who is here today 
who works with me and will be happy to help you out.
    Ms. TUBBS JONES. I don't have but a second left, but let me 
ask one other question of you. In this appellate process--in 
one of my prior lives, I was a judge. I am curious are there 
expedited appeals for emergency situations, or is there a 
process?
    Mr. SCULLY. There is a process. I think there is a way for 
them to be sped up through Social Security, but there is no 
specific process for that. It is one of the reasons, to be 
honest with you, why we are interested in taking it over in 
Medicare, because I think we will be much more sensitive to 
Medicare appeals.
    I have inserted myself in a bunch of them. There doesn't 
seem to be a process beyond that for people with acute 
problems.
    Ms. TUBBS JONES. Real quickly, Madam Chair. In some of the 
other Federal agencies, what they have done is fast-tracked 
certain types of cases. I used to work for the Equal Employment 
Opportunity Commission, and we did a fast track on certain 
types of cases. As you are going through the process, I would 
ask you to maybe consider what types of cases might be fast 
tracked or expedited in some way. I thank you, Madam Chair.
    Chairman JOHNSON. I thank the panel for their comments. 
There will be a lot of discussion of particularly some of the 
contractor issues and the medical director concerns. There is a 
difference between the technology issues and the other aspects 
of regional administration, or at least some of the other 
aspects of regional administration that may not yield 
themselves to quite such large groupings as ultimately four or 
five contractors.
    So, we are going to get into that. I hope that your people 
will look carefully at some of the testimony that we are going 
to hear today from the emergency physicians, from the home 
health agencies, and some of the small ones where repayment 
takes a little different situation and it takes on a different 
color than in some of the other areas.
    The physicians are going to testify that the extrapolation 
issue isn't consistent across the country, to say the least. 
So, we do have a lot of work before us, both on implementing 
the recommendations that have been made and dealing with the 
provisions in the bill, but also enlarging on them. We must not 
miss this opportunity to enlarge upon them. Thank you very 
much.
    Mr. SCULLY. Can I say one thing, because I didn't know 
this. There is an expedited appeals process for discharges from 
a hospital, for someone to appeal the hospital discharge. It is 
expanded in the HCFA provisions that Chairman Johnson worked on 
for discharges from nursing homes and home health.
    Chairman JOHNSON. I think Mrs. Tubbs Jones's underlying 
comment that as we look at the appeals issue, we should look 
for a way we can break it up, or have certain kinds of 
processes at the beginning so that so many don't go to appeals. 
This 422 days is really a question--you know. Untimely justice 
is often not justice at all. So, we will talk with you about 
that much more extensively.
    It is a point of considerable difference between the bill 
and the Agency, I wanted to at least bring it up at the 
hearing. Thank you very much.
    Mr. SCULLY. Thank you.
    [Question submitted to Mr. Scully from Chairman Johnson, 
and his response follows:]

                          Centers for Medicare & Medicaid Services,
                                        200 Independence Avenue, SW
                                               Washington, DC 20201
Functional Equivalence
    Q: I understand it is current agency policy is not to introduce new 
matter in final regulations. In the oupatient final rule, you 
established new criteria called ``functional equivalence'' (same price 
for drugs that serve the same biological process). When did CMS allow 
for public comment on this new standard?
    A: Functional equivalence is a term CMS developed as a result of 
comments received during the comment period on the notice of proposed 
rulemaking on the 2003 update for Medicare's outpatient prospective 
payment system to describe the relationship between Aranesp and 
Procrit. As we explain in the final rule, it became apparent that 
darbepoetin alfa, while not structurally identical to epoetin alfa, 
uses the same biological mechanism to create the same clinical effect 
in the body. To encapsulate this phenomenon, we used the term 
``functional equivalence.''
    The term ``functional equivalence'' is not a criteria or a 
standard, but a descriptive term used to capture a relationship between 
two drugs. As you may know, the comment period is a vital part of the 
process we use to issue every regulation. We place high value on all 
comments we received from interested parties. In fact, it was through 
comments received during the comment period on the proposed rule 
regarding the relationship between Aranesp and Procrit that led us to 
employ the term ``functional equivalence.''

                                 

    Chairman JOHNSON. Now we will convene the concluding panel. 
I have read your testimony. It is really excellent. I hope some 
of the other Members will be able to get back. If not, I am 
pleased to know that their staff are here, because you do raise 
in your testimony a lot of very fundamental questions and make 
some very good suggestions as to how to go forward.
    We do have quite a long panel. We are going to give each 
person 5 minutes. You know the rules. Your whole testimony gets 
submitted for the record. You get 5 minutes and then we get to 
question.
    I do want to say that if there aren't more Members to 
question, I am going to invite you to comment on one another's 
testimony too, because this isn't about silos, this is about a 
system. So, a number of things that some of you are saying in 
one area, the others might want to comment on as well. Michael 
Luebke, President of Verizon Information Technologies. I am 
going to take you in the order that you are at the desk. Mr. 
Luebke.

  STATEMENT OF MICHAEL LUEBKE, PRESIDENT, VERIZON INFORMATION 
               TECHNOLOGIES, INC., TAMPA, FLORIDA

    Mr. LUEBKE. Good afternoon, Chairman Johnson, Ranking 
Member Stark, and distinguished Members of the Committee. I 
would like to thank Congresswoman Johnson for the opportunity 
to contribute to the process of continuing to improve upon and 
build a better health care system for our citizens.
    My name is Mike Luebke, and I am President of Verizon 
Information Technologies, a wholly owned subsidiary of Verizon 
Communications. My organization is responsible for the 
commercial sales and marketing of select Verizon 
telecommunications, information technology, and health care 
products and services. Our parent company, Verizon 
Communications, is a premier data, video, and voice network 
services company. We employ nearly 250,000 people in 40 
Nations.
    Today I would like to take a few moments to tell you why we 
support your contract reform initiative and why it is 
beneficial to Medicare administration.
    Frequently I hear people say, I didn't realize Verizon was 
in the health care business. The fact is it is a very natural 
fit for us. The information technology demands of a 
telecommunications company are very similar to the information 
technology demands of the health care industry. Verizon's 
extensive health care experience is derived from providing 
information technology services to Medicare carriers and 
intermediaries, commercial managed care insurers, and State 
government Medicaid programs.
    Verizon is one of the largest and most efficient technology 
companies in the United States and a leader in information 
processing and security. We have enjoyed lengthy relationships 
with our health care customers. Some of them have been 
leveraging our information technology solutions for nearly 15 
years. We have a successful track record of providing 
information technology services to many premier health care 
organizations.
    Our data centers process nearly 1 billion health care 
transactions a year. In addition, we are responsible for 
processing the transactions for close to 20 percent of all 
Medicare Part B claims. We are considered throughout the health 
care industry as a quiet and effective leader for information 
technology services, security, and efficiency.
    Verizon has been following the development of contractor 
reform since its inception, and I applaud Representative 
Johnson for her ongoing efforts.
    Verizon supports the Committee's Medicare Regulatory and 
Contractor Reform initiatives. These initiatives will create a 
competitive environment that encourages innovative companies 
like Verizon to offer their significant core competencies in 
information technology to the government.
    The result of opening competition and focusing on core 
competencies brings with it the best in commercial practices 
and pricing, continuous technology innovation, and an overall 
lowering of administrative overhead.
    Recent world events have placed, very appropriately, a 
renewed focus on security and, in particular, information 
security. Through contractor reform, companies like Verizon 
will be able to compete to offer to CMS and all Medicare 
beneficiaries the benefits of a secure environment for their 
data. For example, Verizon has in place for its own business a 
hardened data center environment, protected from power outages, 
natural disasters, and unauthorized access. In addition, our 
data center security already exceeds the proposed HIPAA 
requirements. These two examples demonstrate how CMS could take 
advantage of features that Tier I data centers such as Verizon 
have put in place to gain cost efficiencies.
    We are anxious to bring the Federal Government the very 
best in proven commercial practice. With contractor reform, I 
strongly believe that Verizon, along with other qualified 
companies, will be able to dramatically enhance CMS's ability 
to efficiently and effectively provide state-of-the-art claims 
processing and information security.
    For example, the contractor reform initiative would allow 
the government to consider the viability of carving out and 
consolidating information technology and data center functions. 
This is consistent with the trend in the commercial sector and 
has accounted for significant savings and process improvements.
    I believe that this legislation will provide more companies 
like Verizon with a significant opportunity to contract 
directly with CMS. The CMS will then have access to the leading 
companies in information technology and security. The passage 
of this legislation will allow companies to assist the 
government to meet or exceed the goals set forth by Congress 
and HHS over the next several decades.
    Opening the doors for competition will unleash the power 
and skills of the private sector, resulting in the application 
of state-of-the-art technology and lower administrative costs, 
and will allow more commercial companies to participate and 
bring the best commercial practices in information technology 
to the government.
    The passage of contractor reform initiatives will be one of 
the most significant contributions to reforming Medicare. The 
opening up of competition to organizations that have the 
ability to converge and integrate a multitude of technology 
advances will allow and provide incentives for future progress 
and cost efficiencies.
    I thank you for the opportunity to speak with you today. I 
look forward to any questions that you may have. Thank you.
    [The prepared statement of Mr. Luebke follows:]
      Statement of Michael Luebke, President, Verizon Information 
                   Technologies Inc., Tampa, Florida
    Good morning, Chairwoman Johnson, Ranking Member Stark and 
distinguished members of the Committee. I would like to thank 
Congresswoman Johnson for the opportunity to contribute to the process 
of continuing to improve upon and build a better healthcare system for 
our citizens.
    My name is Mike Luebke and I am President of Verizon Information 
Technologies, a wholly owned subsidiary of Verizon Communications, Inc. 
My organization is responsible for the commercial sales and marketing 
of select Verizon telecommunications, information technology, and 
health care products and services. Our parent company, Verizon 
Communications Inc., is a premier data, video, and voice network 
services company. We employ nearly 250,000 people in 40 nations.
    Today I would like to take a few moments to tell you why we support 
your contractor reform initiative and why it is beneficial to Medicare 
administration.
    Frequently, I hear people say, ``I didn't realize Verizon was in 
the healthcare business.'' The fact is, it's a natural fit for us. The 
information technology demands of a telecommunications company are very 
similar to the information technology demands of the healthcare 
industry. Verizon's extensive healthcare experience is derived from 
providing information technology services to Medicare carriers and 
intermediaries, commercial managed care insurers, and state government 
Medicaid services. Verizon is one of the largest and most efficient 
technology companies in the United States and a leader in information 
processing and security.
    We have enjoyed lengthy relationships with our healthcare 
customers, some of which have been leveraging our information 
technology solutions for nearly 15 years. We have a successful track 
record of providing information technology services to many premier 
healthcare organizations. Our data centers process nearly 1 billion 
healthcare transactions a year. In addition, we are responsible for 
processing the transactions for close to 20 percent of all Medicare 
Part B claims. We are considered throughout the healthcare industry as 
a quiet and effective leader for information technology services, 
security, and efficiency.
    Verizon has been following the development of contractor reform 
since its inception and I applaud Representative Johnson for her 
ongoing efforts.
    Verizon supports the committee's Medicare Regulatory and Contractor 
Reform initiatives. These initiatives will create a competitive 
environment that encourages innovative companies like Verizon to offer 
their significant core competencies in information technology to the 
government. The result of opening competition and focusing on core 
competencies brings with it the best in commercial practices and 
pricing, continuous technology innovation, and an overall lowering of 
administrative overhead.
    Recent world events have placed--very appropriately--a renewed 
focus on security and, in particular, information security. Through 
contractor reform, companies like Verizon will be able to compete to 
offer to CMS and all Medicare beneficiaries the benefits of a secure 
environment for their data. For example, Verizon has in place for its 
own business a hardened data center environment, protected from power 
outages, natural disasters, and unauthorized access. In addition, our 
data center security already exceeds the proposed HIPAA requirements. 
These two examples demonstrate how CMS could take advantage of features 
that tier one data centers such as Verizon have put in place to gain 
cost efficiencies.
    We are anxious to bring to the federal government the very best in 
proven commercial practice. With contractor reform, I strongly believe 
that Verizon, along with other qualified companies, will be able to 
dramatically enhance CMS's ability to efficiently and effectively 
provide state-of-the-art claims processing and information security. 
For example, the contractor reform initiative would allow the 
government to consider the viability of carving out and consolidating 
information technology and data center functions. This is consistent 
with the trend in the commercial sector and has accounted for 
significant savings and process improvements.
    I believe that this legislation will provide more companies like 
Verizon with a significant opportunity to contract directly with CMS. 
CMS will then have access to the leading companies in information 
technology and security. The passage of this legislation will allow 
companies to assist the Government to meet or exceed the goals set 
forth by the Congress and the Department of Health and Human Services 
over the next several decades.
    Opening the doors for competition will unleash the power and skills 
of the private sector, resulting in the application of state-of-the-art 
technology and lower administrative costs. It will allow more 
commercial companies to participate and bring the best commercial 
practices in information technology to the government.
    The passage of contractor reform initiatives will be one of the 
most significant contributions to reforming Medicare. The opening up of 
competition to organizations that have the ability to converge and 
integrate a multitude of technology advances will allow and provide 
incentives for future progress and cost efficiencies.
    I thank you for this opportunity to speak with you today. I look 
forward to answering any questions that you may have.

                                 

    Chairman JOHNSON. Very impressive. Mr. Fay.

  STATEMENT OF TONY FAY, VICE PRESIDENT, GOVERNMENT AFFAIRS, 
PROVINCE HEALTHCARE COMPANY, BRENTWOOD, TENNESSEE, ON BEHALF OF 
               THE AMERICAN HOSPITAL ASSOCIATION

    Mr. FAY. I am Tony Fay, Vice President of Government 
Affairs for Province Healthcare Company in Brentwood, 
Tennessee. I am here today on behalf of the American Hospital 
Association's nearly 5,000 hospital, health system and health 
care provider members. Thank you very much for this opportunity 
to discuss regulatory relief for the health care providers of 
America.
    Province Health Care owns and operates 20 acute care 
hospitals in rural markets in 13 States. We also provide 
management services to 36 primarily non-urban hospitals in 14 
States, and we are deeply committed to developing hospitals and 
health care systems that serve the unique needs of rural and 
nonurban communities.
    We are very pleased that again this Congress, you and your 
colleagues, recognize the dilemma that health care providers 
face in complying with the myriad of health care rules and 
regulations. During the 107th Congress, the House 
overwhelmingly passed H.R. 3391, the Medicare Regulatory and 
Contracting Improvement Act. This included a number of 
recommendations from the AHA's Regulatory Reform Task Force.
    Thanks to your efforts and those of HHS Secretary Tommy 
Thompson, we are making great progress in relieving some of the 
regulatory burdens facing health care providers and Medicare 
beneficiaries. I had the deep pleasure of serving on Secretary 
Thompson's Advisory Committee on Regulatory Reform, a Committee 
which the AHA fully supported. This provided the opportunity 
for a firsthand look at the impact that the regulatory burden 
has on patient care and beneficiaries.
    The Committee's report to the Secretary included 255 
detailed recommendations, some of which are currently being 
implemented by CMS and HHS. A number of these were heartily 
endorsed this AHA. Just to enumerate a few:
    One, adopting recommendations on the Emergency Medical 
Treatment and Active Labor Act (EMTALA), such as creating an 
advisory committee and amending the local medical review policy 
as it relates to emergency department services.
    Two, streamlining the Minimum Data Set on OASIS, thus 
reducing the amount of staff time spent on these assessments; 
and, conversely, increasing the amount of time spent on patient 
care.
    Three, revising policy for collecting and using Medicare 
Secondary Payer information.
    Four, amending the HIPAA privacy rule and changing certain 
consent regulations which would have hindered patient care.
    Five, addressing key concerns of rural providers.
    These revised policies are helping to alleviate the burden 
on caregivers. Madam Chair, working with you and your 
colleagues and the HHS, we can go further to reduce the red-
tape burden on caregivers while strengthening our basic health 
care system.
    We urge this body to consider the following additional 
areas for regulatory reform:
    First, reduce the size and complexity of the Medicare Cost 
Report and modify or eliminate its Medicare cost-specific 
accounting principles. The Cost Report is a relic of a bygone 
era, used prior to the implementation of the current 
Prospective Payment System (PPS).
    Second, recognize that EMTALA should not apply to 
inpatients. Once a person is admitted as an inpatient, the 
hospital has actually taken on responsibility far more than is 
required under EMTALA.
    Third, allow providers direct access to court to challenge 
decisions made by CMS. While I am not an attorney, I can tell 
you that currently the only way to appeal decisions made by CMS 
is to fail to follow the rules, become terminated from the 
program, and then appeal to the courts for relief. No other 
Federal agency operates in this manner.
    Fourth, further simplify the data collection process that 
uses the OASIS and MDS forms, and try to harmonize the forms so 
that they can be used interchangeably between sites of service.
    Fifth, establish commonsense guidelines for regulations. 
Regulations should be clear, they should be unambiguous, and 
they should be well documented. They should also enable better 
communications between all parties involved--regulators, health 
care providers and patients--and they should be cost effective.
    Last, regulations and the related interpretive guidance 
that often follows them should meet the following criteria. 
They should establish a safe haven for innovation and encourage 
the pursuit of excellence through best practices. They should 
be applied prospectively with no disruption to patient care 
activities, and they should include updated interpretive 
guidance and CMS manuals which are updated on a commonsense 
publication cycle.
    Madam Chair, our first priority is to our patients. While 
some regulations contribute to this goal, others drain away 
much needed resources, placing a strain on our hospitals and 
the men and women who work there. We believe the health care 
field should be regulated, but in a commonsense fashion that 
allows health care providers to do what they have been trained 
to do: care for the ill and injured of our communities.
    Thank you very much for your time today. On behalf of the 
members of the American Hospital Association and its members, 
we look forward to working with you and your colleagues further 
to provide relief from regulatory burden.
    [The prepared statement of Mr. Fay follows:]
  Statement of Tony Fay, Vice President, Government Affairs, Province 
  Healthcare Company, Brentwood, Tennessee, on behalf of the American 
                          Hospital Association
    Good morning, Madam Chairman. I am Tony Fay, vice president of 
government affairs for the Province Healthcare Company in Brentwood, 
Tennessee. 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're pleased to be able to testify 
on proposed regulatory relief and reforms for the health care field.
    Province Healthcare owns and operates 20 acute-care hospitals in 
non-urban markets in 13 states. We also provide management services to 
36 primarily non-urban hospitals in 14 states. At Province, we are 
committed to the development of hospitals and health care systems that 
serve the unique needs of non-urban communities.

Regulatory Progress

    Patients are the priority--no matter the time, no matter the 
condition and no matter the hospital. Our facilities are open 24 hours 
a day to provide health care services to our friends and neighbors in 
the communities where we work and live.
    But every time the nurses, physicians and other health care workers 
care for a patient, a host of regulations and statutes govern their 
very actions, especially if the patient is a Medicare or Medicaid 
recipient. More than 30 agencies oversee some aspect of that health 
care delivery process--and that's just at the federal level. State 
agencies add yet another layer--or two. More than 130,000 pages govern 
the Medicare system--a sheaf of paper three times larger than the IRS 
Code and its federal tax regulations.
    Unfortunately, these regulations and statutes do not always enhance 
the patient care experience. In fact, quite the opposite. They absorb 
valuable time and resources--time that could be spent caring for the 
next patient to come through the emergency department doors.
    We are gratified, Madam Chairman, that again this Congress, you and 
your colleagues recognize this dilemma and are examining the regulatory 
maze that health care providers face. During the 107th Congress, the 
House unanimously passed H.R. 3391, the Medicare Regulatory and 
Contracting Improvement Act, which included a number of regulatory 
relief initiatives proposed by the AHA's own Regulatory Reform and 
Relief Advisory Committee. While the Senate introduced similar 
legislation, it did not pass.

HHS Advisory Committee on Regulatory Reform

    But we're still a long way ahead of where we started, thanks in 
part to you and your colleagues and the interest you've taken in an 
issue that directly impacts our patients, and thanks in part to Health 
and Human Services (HHS) Secretary Tommy Thompson and his own Advisory 
Committee on Regulatory Reform.
    His committee, on which I served, consisted of health care 
professionals, academics and others committed to ensuring quality 
patient care with less burdensome regulations. The AHA fully supported 
this committee, and with our member hospitals, provided opportunities 
for the Advisory Committee and HHS to see first-hand the consequences 
of regulatory burden on patient care. The Advisory Committee's report 
to Secretary Thompson included 255 recommendations, many of which were 
adopted--some of which are currently being implemented. And a number of 
these recommendations were heartily endorsed by the AHA, such as:

         LAdopting recommendations on the Emergency Medical 
        Treatment and Labor Act (EMTALA), including establishing an 
        advisory committee and ensuring that local medical review 
        policies for outpatients services are not applied to emergency 
        department services.
         LStreamlining the Minimum Data Set (MDS) for most 
        nursing homes by convincing the Centers for Medicare & Medicaid 
        Services (CMS) to reduce the size of the MDS, and thereby 
        reducing by half the staff time spent on completing it.
         LConvincing CMS to streamline the OASIS form by 
        eliminating 27 percent of the information items currently 
        reported by home health agencies and two of the 10 assessments 
        currently required, reducing the time spent by nurses on OASIS 
        data reporting by 25 percent.
         LUrging CMS to revise its policy for collection of 
        Medicare Secondary Payer information from every 30 days to 
        every 90 days for recurring outpatients services in hospitals, 
        and from every 60 days to every 90 days for hospitals serving 
        as reference labs.
         LChanging the Health Information Portability and 
        Accessibility Act privacy rule so that patients will no longer 
        have to wait to receive care until a consent form is signed, 
        and providers will have ready access to needed patient 
        information in order to continue to provide timely, quality 
        care.
         LAddressing key concerns of rural providers. The 
        committee recommended consolidating the definition of rural to 
        one definition. In the past, ``rural'' meant something 
        different for hospitals versus health clinics. The committee 
        also recommended focusing on investing in best practices, as 
        well as providing more information to rural providers about the 
        more than 200 HHS programs that affect rural communities and 
        their health care entities.

What Needs to Be Done

    We've made great strides in addressing the burdens dealt with by 
hospitals and caregivers every day. But by continuing the collaborative 
working partnership between hospitals, HHS and Congress, we can make 
even bigger strides to reduce the red-tape burden on caregivers and 
strengthen our ability to continue providing the world class medical 
care that is the hallmark of our health care system.
    Specifically, we would urge you and your colleagues to examine 
additional areas for reform.

         LThe Medicare Cost Report--This is a relic of a 
        previous cost-based payment system, which was used prior to the 
        current prospective payment system. This should be evaluated 
        and overhauled to reduce its size and complexity, and modify or 
        eliminate the arcane Medicare-specific cost accounting 
        principles.
         LEMTALA--We believe that EMTALA provisions should not 
        apply to inpatients. Congress enacted EMTALA to ensure that 
        people have access to emergency services regardless of their 
        ability to pay. Once a person is admitted as an inpatient, the 
        hospital has taken responsibility for more than is required 
        under EMTALA. At that point, the usual hospital-patient and 
        doctor-patient relationships exist, creating duties of care for 
        the hospital and physicians, and giving patients legal recourse 
        if those duties aren't met. In addition, keeping all hospital 
        staff current on EMTALA--not just the statute and formal 
        requirements, but the continually evolving informal guidance--
        takes additional time away from providing direct patient care.
         LAllow providers direct access to courts to challenge 
        decisions--Unlike other federal agencies, Medicare program 
        policy decisions made by the Secretary are insulated from 
        judicial review. Health care providers are required to exhaust 
        all administrative processes and remedies before they can file 
        suit against HHS. However, there is effectively no such process 
        to exhaust on questions about whether the Secretary has 
        exceeded his authority or failed in his duty.

          LUnder Shalala v. Illinois Council on Long-Term Care, 120 S. 
        Ct. 1084 (2000), the Supreme Court held that all matters 
        arising under the Medicare Act must be channeled through the 
        Secretary and that court review was available only following 
        the administrative process. This continues to permit HHS to 
        rebuff any and all lawsuits against the Secretary for failing 
        to channel a claim, even when there is no administrative 
        process available. This means that the Secretary can act 
        outside the scope of his authority, without following required 
        procedures and be insulated from judicial review--unlike other 
        federal agencies.

    The only time an administrative process is available to hospitals 
is if they are terminated from the program. Consequently, as currently 
interpreted, the only means for hospitals to challenge an unlawful 
action by the Secretary is to fail to follow or ``violate'' the rules 
in order to be terminated from the program.

         LSimplify data collection process--Currently OASIS and 
        MDS use very similar data collection tools, but they are unable 
        to communicate with one another and share data.
         LEstablish Guiding Principles for Regulation--
        Regulation is essential to protecting patients and building 
        public trust and confidence in the system. But unnecessary, 
        poorly targeted or poorly implemented regulations may be of 
        little benefit to the public, often frustrates health care 
        providers and the patients they serve, and can even interfere 
        with appropriate care delivery. We would suggest that the 
        following be used as guiding principles for the promulgation of 
        health care regulation:

           LThe need to regulate behavior and the underlying 
        objective of a regulation must be clear, unambiguous and well 
        documented. For hospitals, regulations should be used to 
        protect patients from harm, ensure that quality and other care 
        and safety standards are met, inform the public about their 
        care, prevent fraud and abuse, control expenditures under 
        government programs and ensure fair functioning of the market 
        for competing providers.
           LRegulation should facilitate channels of 
        communication between regulators and providers, and 
        accountability of providers to their patients and communities.
           LRegulation should be cost effective. It should be 
        linked to specific objectives and regularly assessed as to 
        whether it achieves its objectives; should be based on sound 
        scientific, technical, economic and other relevant information; 
        minimize the cost of compliance assessment for both the 
        regulated and regulators; and embody the greatest degree of 
        simplicity and understandability possible.
         LRegulations should establish a safe haven for 
        innovation and encourage the pursuit of excellence through best 
        practices.
         LRegulations should be applied prospectively and their 
        implementation appropriately staged to avoid disrupting patient 
        care activities, unnecessary costs and overwhelming 
        administrative functions and information systems.
         LInterpretive guidance and CMS manuals should be kept 
        up to date and harmonized with underlying regulations. All too 
        often, the guidance and manuals are out of date and thus 
        present conflicting rules for providers and patients.

Conclusion

    Our first priority is to provide high quality care to our patients. 
While some regulations contribute to this goal, others drain away much 
needed resources, placing a strain on our hospitals and the men and 
women who work there.
    We believe the health care field should be regulated--but in a 
common sense fashion that allows health care providers to do what 
they've been trained to do--care for the ill and injured of our 
communities.
    Thank you for your time today. On behalf of the American Hospital 
Association and its members, we look forward to working with you and 
your colleagues further to provide relief from overly burdensome 
regulations.

                                 

    Chairman JOHNSON. Thank you. Dr. Hill.

STATEMENT OF J. EDWARD HILL, M.D., CHAIRMAN, BOARD OF TRUSTEES, 
                  AMERICAN MEDICAL ASSOCIATION

    Dr. HILL. Good afternoon. My name is Edward Hill, and I am 
Chair of the Board of Trustees of the American Medical 
Association. I am a practicing family doctor in Tupelo, 
Mississippi. Of course I am very pleased to be here.
    I would like to thank Chairman Johnson and Ranking Member 
Stark for all of their work on regulatory reform in the 
Medicare program and for advancing the Medicare Regulatory and 
Contracting Reform Act, MRCRA, last year. The AMA was a strong 
supporter of that bill, and we believe that physicians still 
need the regulatory relief in the MRCRA bill.
    The AMA was pleased to participate in the HHS Regulatory 
Reform task force headed by Dr. Wood also. We were very 
supportive of his recommendations, especially those on EMTALA 
and Evaluation and Management (E&M) documentation guidelines.
    We also appreciated the efforts of the Physicians 
Regulatory Initiative Team (PRIT). They have led to important 
clarifications in CMS policy. For example, in my practice, 
preoperative visits had been routinely denied prior to the PRIT 
action. However, the AMA believes that regulatory reform as 
outlined in MRCRA is still needed as many Medicare carriers 
have not altered their overpayment audit practices relating to 
extrapolation, to appeals, and to repayment schedules.
    The AMA believes that the need to educate physicians has 
not diminished since the House last considered MRCRA. The GAO 
highlighted this problem in 2002. It found that contractors 
gave inaccurate or incomplete answers 85 percent of the time, 
and these were answers to frequently asked questions that were 
posted on the carrier's Web site.
    The AMA was pleased to learn about the new CMS carrier 
manual changes on physician education. The new standards for 
Web pages and frequently asked questions will be very useful. 
We urge CMS and the Subcommittee to closely monitor whether 
these changes are actually occurring. The CMS should also 
incorporate these education requirements in its annual 
evaluation of carriers. However, even with these changes, 
physicians still cannot call their carriers with billing or 
coding questions and receive clear, accurate, written answers 
nor can physicians rely on live telephone conversations or 
enhanced carrier Web sites when they are audited. Physicians 
can face punitive overpayment demands even when they follow 
carriers' advice.
    The MRCRA would allow physicians to rely on carriers' 
advice if they were audited. Physicians still need the 
extrapolation reforms in MRCRA. The AMA believes that these 
reforms have not occurred uniformly at the carrier level.
    For example, carriers still use extrapolation to magnify 
alleged overpayments. Problems found in a very small sample of 
claims are extrapolated to all similar claims over a 1- to 2-
year period. This is not statistically valid, and it is often 
the first indication that a physician has of a billing problem. 
The MRCRA would have allowed CMS contractors to use 
extrapolation only when there was a high error rate or when 
documented education efforts had failed.
    Administrator Scully testified last year that physicians 
and providers should have the same rights as taxpayers when 
they are audited by the Internal Revenue Service. That is, as 
long as interest accrues, taxpayers do not repay alleged 
overpayments that are on appeal. Unfortunately, at this point, 
physicians do not have these rights. Currently physicians must 
remit alleged overpayments within 30 days, even if they are 
appealing an overpayment audit finding.
    According to HHS statistics, it takes 3 years to get to the 
highest administrative appeal level. The MRCRA would have 
required payment of alleged overpayments after the first level 
of appeal. This was a solid compromise between repayment after 
all appeals are exhausted and the current situation where 
physicians must remit all alleged overpayments prior to appeal.
    Finally, CMS has withdrawn proposed E&M documentation 
requirements. However, it is working with AMA and national 
medical specialty organizations to develop clinical examples 
and standards for new guidelines. As this progresses, any new 
guideline must be tested to ensure their accuracy prior to 
implementation. The MRCRA is needed to ensure that the 
guidelines increase clinical pertinent documentation and 
decrease irrelevant documentation.
    The MRCRA would also establish pilot projects to test the 
viability of the guidelines. It would ensure that a sufficient 
number of physicians were participating in the pilot projects 
by prohibiting audits that target those physicians.
    So, we appreciate the Subcommittee's consideration of the 
AMA's concern, and we appreciate your work on a number of 
issues that have already improved patient access and quality of 
care. We very much value the Subcommittee's work on regulatory 
reform issues and CMS's efforts to improve physician education.
    We believe, working together, we can ensure that physicians 
obtain more complete due process rights and billing and coding 
answers that can be relied upon. So, we thank you for your time 
and particularly the time that the Subcommittee staff has 
devoted to this issue. Thank you.
    [The prepared statement of Dr. Hill follows:]
    Statement of J. Edward Hill, M.D., Chairman, Board of Trustees, 
                      American Medical Association
    The American Medical Association (AMA) would like to thank the Ways 
and Means Health Subcommittee, Chairwoman Johnson, and Ranking Member 
Stark for holding this hearing on the continuing need for regulatory 
reform in the Medicare program and the impact that certain burdensome 
regulations are having on physician practices.

Background

    The AMA is very appreciative of last year's findings by the 
Secretary of Health and Human Services (HHS) Regulatory Reform Task 
Force. We were pleased to participate in the Task Force's efforts, and 
we were very supportive of its recommendations. In particular, HHS 
adoption of the Task Force recommendations on EMTALA, evaluation and 
management documentation guidelines, advance beneficiary notices and 
communications with physicians and providers would significantly 
decrease the regulatory burdens that physicians currently face. Even 
before the Task Force report was finalized, the Centers for Medicare 
and Medicaid Services (CMS) initiated several changes in the area of 
simultaneous and continuous call for emergency care that the AMA had 
strongly advocated, and we are awaiting publication of final 
regulations to determine the extent to which EMTALA regulatory burdens 
will be improved.
    The AMA has also been pleased with several CMS-generated reforms 
that have recently occurred. As a result of the Physicians Regulatory 
Initiative Team (PRIT), CMS has lengthened the period of time before 
prescriptions for diabetes tests strips must be renewed from six months 
to one year. In addition, successful PRIT efforts resulted in CMS 
clarifying its policies so carriers now know that preoperative 
physician visits are covered under Medicare. These changes, while 
seemingly minor, are decreasing the regulatory red tape for significant 
numbers of chronically or acutely ill patients and for their 
physicians.
    At the same time, other significant areas remain where the AMA 
believes that regulatory reform is still needed. In particular, the AMA 
continues to hear from physicians regarding onerous audits and 
overpayment demands. Many Medicare carriers simply have not altered 
their overpayment audit practices related to extrapolation, appeals, 
and repayments of alleged overpayments. For example, one nine-person 
pathology practice continues to be subject to repeated audits of the 
same surgical pathology service, even though the carrier has never 
identified any billing errors or demanded overpayments. This practice 
is considering discontinuing the provision of surgical pathology 
consultation services to the hospital's Medicare patients, simply 
because of the time, expense and hassle factor associated with these 
audits. For the most recent of these audits, the carrier demanded 
charts on 200 patients.
    The AMA believes that enactment of the Medicare regulatory reform 
bill that the House passed in both sessions of the 107th Congress would 
impose uniform standards on carriers. Such standards would ensure that 
physicians maintain due process rights during overpayment audits.
    The AMA was a strong supporter of the ``Medicare Regulatory 
Contracting Reform Act,'' (MRCRA), and we very much appreciate the work 
of this Subcommittee and in particular Chairwoman Johnson's and Ranking 
Member Stark's efforts in advancing MRCRA. Indeed, the House approved 
the MRCRA provisions twice, and we strongly urge it to do so again this 
year either separately or as part of overall Medicare reform.

Education

    The AMA believes that a pressing need to educate physicians exists 
which has not decreased since the House of Representatives last 
considered MRCRA. This education deficiency was detailed in the 
February 2002 General Accounting Office (GAO) report ``Medicare: 
Communications with Physicians Can Be Improved,'' which found that when 
GAO called contractors (callers identified themselves as calling from 
the GAO), contractor employees gave inaccurate or incomplete answers to 
questions 85% of the time. GAO further reported that these questions 
had been previously identified by the contractors as ``frequently asked 
questions'' and posted on the carriers' Web sites.
    In its report to this Committee a year ago, the GAO also noted that 
CMS defined an accurate response as being any response that was not 
inaccurate. In other words, as long as the carrier did not provide the 
wrong information to the questioner, the response was considered 
``accurate,'' even if the carrier did not provide necessary and 
complete information to allow correct billing. To exacerbate matters, 
the carriers would not give physicians written answers to their billing 
and coding questions, even though answers given via the telephone were 
often incorrect. The GAO report stated:

          Information given to physicians by carriers is often 
        difficult to use, out of date, inaccurate, and incomplete. 
        Medicare bulletins that carriers use as the primary means of 
        communicating with physicians are often poorly organized and 
        contain dense legal language . . . Although CMS is tasked with 
        assuring that carriers are responsive to physicians, the agency 
        has established few standards for carriers to meet in their 
        physician communications activities. CMS provides little 
        technical assistance to help carriers develop effective 
        communication strategies.

    CMS has taken certain steps to improve its communications with 
physicians. In this regard, the AMA was very pleased to learn that CMS 
issued carrier manual changes on January 24, 2003, on Provider/Supplier 
Education and Training. These strong measures have the potential to 
significantly improve carriers' communications with physicians. The 
carrier manual standards related to web page content and frequently 
asked questions are very strong and will be helpful to physicians 
seeking information. However, the AMA urges CMS and the Subcommittee to 
monitor closely the carriers' abilities to effectively complete these 
new functions without commensurate funding increases. In addition, the 
AMA strongly urges CMS to incorporate implementation of these education 
requirements in its annual evaluation of carrier performance.
    Despite the improvements made by the carrier manual, physicians are 
still not able to call their carriers with billing or coding questions 
and be assured that they will receive clear, concise and accurate 
answers, or written answers. Nor does it allow them to rely on answers 
generated by live telephone conversations or through the enhanced 
carrier Web sites when they are audited. Physicians have expressed 
concern that they face punitive overpayment demands even when they 
adhere to advice given to them by their carriers, and that carrier 
personnel are unwilling to provide their names so that physicians can 
contact them to follow-up on information that has been provided. MRCRA 
would have allowed this type of reliance, which the AMA believes is 
essential for physicians seeking to treat Medicare patients.

Extrapolation

    Physicians are still in need of the extrapolation reforms that 
MRCRA offered, and the AMA believes that these reforms have not 
occurred uniformly at the carrier level. Although GAO reported in May 
2002 on a study of three carriers' auditing practices, and found that 
they had decreased dramatically their use of extrapolation due to CMS' 
Progressive Corrective Action Plan, this reduction has not been 
uniform, permanent, nor has it occurred at the consent settlement 
level. In consent settlements, carriers continue to use 
``extrapolation'' to magnify the alleged overpayments found in a very 
small probe sample of claims to all of these type of claims submitted 
by a physician or provider of services over a one-to-two year period. 
This technique lacks any semblance of statistical validity, but it can 
lead to overpayment demands in the hundreds of thousands of dollars. 
Even more egregious, the letter demanding repayment of these huge sums 
is often the first indication physicians have that there are problems 
with their billing practices. MRCRA would have remedied this situation 
by allowing CMS contractors to use extrapolation to project an 
overpayment only in instances where there was a high error rate or 
where documented education efforts had failed. The AMA was gratified 
that the House recognized that carriers' use of extrapolation was a 
serious problem, and we urge the Subcommittee to address these 
extrapolation issues through legislation.

Repayment Plans

    CMS has not instituted changes that would establish uniform 
repayment plans for physicians. Currently, carriers require complete 
repayment of alleged overpayments by physicians within 30 days unless 
physicians demonstrate that immediate repayment would create financial 
hardship. Demonstrating hardship often involves showing that the 
practice has no access to the money and cannot borrow it. Anyone who 
has applied for a loan is likely to understand how difficult it can be 
to complete an application, assemble the requisite documentation, and 
attempt to get a ``yes'' or ``no'' answer from the bank within 30 days.
    Carrier overpayment demands for almost immediate repayment have 
harmed certain physician practices' viability, resulting in them being 
unable to provide an adequate level of service to their patients. The 
AMA urges the Subcommittee to consider provisions to ensure that if the 
overpayment represents more than ten percent of the physician's 
Medicare revenue, then the physician would be able to repay the program 
over a three-year period. When alleged overpayments represent a high 
proportion of practice revenues, immediate repayment demands can pose a 
major economic hardship to the practice.

Evaluation and Management (E&M) Documentation Guidelines

    Although CMS has withdrawn proposed documentation requirements, it 
is currently working with the AMA and national medical specialty 
organizations to develop new clinical examples and standards for new 
guidelines. As this process progresses, any new proposed guidelines 
must be tested to ensure their accuracy prior to national 
implementation. The AMA believes that legislation like MRCRA is needed 
to establish that the guidelines must meet important objectives, such 
as increasing clinically pertinent documentation and decreasing 
irrelevant documentation, and to establish pilot projects to test the 
viability of any proposed evaluation and management documentation 
guidelines. In addition, MRCRA would have also ensured that a 
sufficient number of physicians participated in the pilot projects by 
prohibiting audits for documentation that occurred as part of the pilot 
project.

Consent Settlements--Due Process

    Carriers continue to employ the consent settlement process which 
does not permit physicians to contest the validity of a probe sample 
without being forced to submit to a statistically valid random sample 
(SVRS) of 200-400 claims, which is very disruptive to a physician 
practice. CMS has indicated that 90 percent of settlement offers are 
accepted. The AMA believes that this high acceptance rate is not a true 
measure of ``consent,'' but instead is evidence that the only other 
options available to physicians are even more onerous than repaying the 
large sums that are often demanded. Physicians should not be forced to 
agree to an SVRS in order to maintain their appeal rights. Physicians 
should be permitted to submit additional justifications of billing 
claims and to engage in constructive discussions with their carriers to 
argue that an initial overpayment allegation is incorrect. If the 
physician decides not to submit justifications for a claim, then he or 
she would either have to pay the alleged projected overpayment or agree 
to an SVRS. This ability to justify the claim is an essential due 
process right that should be afforded to physicians--especially in 
light of the probe sample's use in determining projected overpayments.

Repayment During Appeals

    Currently, physicians must remit alleged overpayments in full 
within 30 days even if they are in the process of appealing an 
overpayment audit finding. The AMA strongly supported the 
Subcommittee's efforts to permit physicians, providers of services, and 
suppliers to repay an alleged overpayment after a reconsideration has 
occurred. Administrative law judge (ALJ) decisions took an average of 
389 days in the first quarter of 2001 and departmental appeals board 
decisions (DAB) took an average of 661 days to complete. If the 
physician, provider of services, or supplier is successful at the DAB 
level, it is likely that three years have elapsed since the physician's 
payment of an alleged overpayment to the CMS contractor. MRCRA was a 
solid compromise between not requiring repayment until all appeals were 
exhausted and the current untenable situation where physicians must 
remit all overpayments prior to appealing a finding.
    CMS Administrator Scully testified last year that physicians, 
providers of services, and suppliers should have the same rights that 
taxpayers have when they are audited by the IRS; that is, as long as 
interest accrues, taxpayers do not have to repay alleged overpayments 
while administrative appeals are pending. Unfortunately, at this point, 
physicians do not have the same rights as taxpayers when they are faced 
with an IRS fine, but are forced to repay alleged overpayments within 
30 days.

Provider Enrollment

    Under current law, physicians, providers of services, and suppliers 
cannot appeal a contractor's decision to deny or revoke a Medicare 
provider number. For most health care practitioners, the denial or 
revocation of a provider number is an extremely serious occurrence that 
prohibits them from submitting any claims for reimbursement to the 
Medicare program. Physicians can request that the carrier reconsider 
their application, and then can request a hearing by an entity or 
person appointed by the Secretary of the Department of Health and Human 
Services, but beyond this level, there is no recourse.
    This issue may be further exacerbated by the new requirement that 
CMS has instituted (without a public notice and comment period) that 
contractors must revalidate enrollment information every three years. 
As contractors have been given neither uniform standards nor funding to 
conduct these revalidations, this could lead to an avalanche of 
experienced physicians and providers being suddenly rejected from the 
Medicare program.

Additional Provisions

    The Secretary has not, at this point, established standards for 
random prepayment audits, as would have been required under MRCRA. 
MRCRA's proposed standardization of random prepayment audits would have 
ensured that contractors no longer have unlimited discretion as to the 
circumstances that would trigger random prepayment audits. Under the 
bill, prepayment audits would have had defined endpoints, instead of 
placing an enormous strain on practices' cash flow as claims are held 
up for payment while audits continue. Without the legislation, there 
are no existing procedures to remove physicians from prepayment review 
once their billing practices are sufficiently compliant with Medicare 
policies.
    The AMA also appreciates the additional resources that MRCRA would 
have directed towards administrative law judges. This funding would 
have increased the number of administrative law judges and improved 
education and training opportunities for the judges and their staffs. 
None of this has occurred.
    Within the context of contractor reform, we are concerned that CMS 
is reducing its reliance on the services of carrier medical directors. 
In particular, the Arkansas carrier has decided that the Louisiana 
medical carrier will serve not only as the medical director for 
Louisiana, but also for Oklahoma and New Mexico (aforementioned states 
are under the Arkansas carrier's purview). The Arkansas carrier's 
medical director will be serving in this capacity for both Arkansas and 
Missouri.
    The AMA believes that each state should have the benefit of a 
state-specific, full-time medical director. As we stated in a letter 
co-signed by over 130 national and state medical organizations, ``A 
single carrier medical director (CMD) serving multiple states 
undermines the effectiveness of the CMD . . . and CMDs provide unique 
access to the local physician community that is difficult, if not 
impossible, to replace by contractor non-physician personnel.''
    We appreciate the Subcommittee's consideration of the AMA's 
concerns. We very much value the Subcommittee's work on regulatory 
reform issues and the efforts that CMS has undertaken to improve 
physician education. However, the AMA believes that we can work 
together to ensure that physicians obtain more complete due process 
rights and billing and coding answers that can be relied upon by the 
physician. We thank you for the time that your Subcommittee, and 
particularly, the Subcommittee staff has devoted to this issue.

                                 

    Chairman JOHNSON. Thank you very much. Ms. Wolf.

  STATEMENT OF JANET B. WOLF, PRESIDENT, MUNSON HOME HEALTH, 
     TRAVERSE CITY, MICHIGAN, AND PAST PRESIDENT, BOARD OF 
DIRECTORS, MICHIGAN HOME HEALTH ASSOCIATION, OKEMOS, MICHIGAN, 
 ON BEHALF OF THE NATIONAL ASSOCIATION FOR HOME CARE & HOSPICE

    Ms. WOLF. Thank you, Madam Chair, Representative Stark, and 
Subcommittee Members for inviting me to testify on the value of 
Medicare regulatory reform to beneficiaries and providers. My 
name is Janet Wolf. I am president of Munson Home Health, a 
not-for-profit subsidiary of Munson Health Care, a northern 
Michigan health system based in Traverse City. Munson Home 
Health provides services to 32 rural counties.
    Madam Chair and Members of the Subcommittee, you are to be 
commended for developing H.R. 3391 that unanimously passed the 
House. Unfortunately, it did not become law. Once again, you 
are taking a leadership role in redrafting and advancing new 
legislation to simplify the highly regulated and often 
burdensome Medicare program.
    As a home care provider, I join the Munson Home Health 
Association (MHHA) and the National Association for Home Care 
(NAHC) in supporting the provisions of your bill to prohibit 
retroactive application of substantive changes in regulations 
or policies, extend protection against compliance actions 
related to changes until 30 days after the change is issued, 
protect providers against sanction in cases where they have 
followed written guidance from a Medicare contractor, improve 
Medicare contractor compliance, improve provider education, and 
establish a provider ombudsman.
    Regarding Medicare appeal reform, NAHC strongly supports 
many of the modifications to the Medicare appeals process as 
set out in BIPA. The NAHC submitted extensive comments in 
response to that proposal. For the Committee's reference, a 
copy of those comments is attached.
    Recommendations include preserving the independence of the 
ALJs, ensuring a speedy appeal process, ensuring that recovery 
of overpayments is not initiated before the conclusion of the 
first step in the appeal process.
    In reference to recovery of overpayments, we would like to 
recommend that the Subcommittee protect providers from 
retroactive overpayment recovery when the overpayment is caused 
by administrative action more than 1 year previous, and include 
consideration for extended repayments under hardship criteria 
standards, such as no greater than 10 percent of the Medicare 
revenue per year, and permit minor errors or omissions to be 
corrected without formal appeals process.
    Concerning the issue of flexibility in applying the 
Medicare conditions of participation (COPs), NACH recommends 
the Subcommittee consider three potential approaches to this 
overregulation:
    One, amend Medicare law to clearly provide that the COPs 
apply only to Medicare patients.
    Two, instruct the Secretary of HHS to take steps to tailor 
the COPs to the various type of patients served by a home 
health agency distinguishing the Medicare-type patients from 
those receiving just personal care or private duty shift 
nursing service.
    Third, support enactment of a provision that would allow a 
home health agency to operate with several internal divisions, 
with Medicare certification applying to distinctly designated 
divisions, similar to the process used in nursing facilities.
    The broad-based application of the Medicare COPs to all 
patients creates extra cost, bureaucracy, and paperwork burdens 
and ultimately we all pay for these costs.
    Madam Chair and Subcommittee Members, with regards to 
OASIS, over the last couple of years, NACH has been actively 
engaged in pursuing the streamlining and reduction of the OASIS 
instrument through the submission of testimony and 
recommendations to this Subcommittee, as well as working with 
the HHS Secretary's Advisory Committee on Regulatory Reform and 
with CMS Administrator Tom Scully.
    Most of this effort was triggered by this Subcommittee's 
encouragement to CMS. I refer you to attachment 2 for more 
details.
    In December 2002, several of these changes were implemented 
by CMS, including elimination of 2 of the OASIS collection time 
points and 17 data items. This is a good beginning. We have 
listed 15 of the Secretary's Advisory Committee recommendations 
in the testimony. Many of these recommendations, however, have 
not been implemented.
    Madam Chair, we support these recommendations and ask that 
the Subcommittee intervene in this process and press for full 
and immediate implementation. While there is industry-wide 
support for an outcome-based assessment, home care agencies 
have consistently requested that CMS eliminate the nonessential 
and redundant OASIS components. OASIS must be quickly 
streamlined to reduce agency costs and improve staff 
satisfaction.
    The OASIS continues to be the number one reason for nurses 
leaving the home health setting and the only reason nurses 
leave my agency. This is also a major problem for patients.
    The NAHC recommends that the Subcommittee also instruct the 
Secretary to implement nine additional items for OASIS 
simplification. You can see these in your testimony, and I 
welcome questions on why any of them are important.
    Finally regarding hospice regulatory reform, we urge you to 
direct CMS to move forward and publish the conditions of 
participation through a notice of proposed rulemaking. The 
hospice conditions have not been updated since 1983.
    In closing, I cannot thank you enough, Madam Chair, for 
your longstanding efforts on behalf of our Nation's home health 
providers and the patients and families they serve.
    This concludes my formal remarks, but I would be happy to 
answer any questions.
    [The prepared statement of Ms. Wolf follows:]
  Statement of Janet B. Wolf, President, Munson Home Health, Traverse 
 City, Michigan, and Past President, Board of Directors, Michigan Home 
    Health Association, Okemos, Michigan, on behalf of the National 
                  Association for Home Care & Hospice
    Thank you, Madame Chairman, Representative Stark, and Subcommittee 
members, for inviting me to present testimony on ways to bring 
regulatory relief to beneficiaries and providers, and specifically to 
discuss the many benefits that would result from enactment of Medicare 
regulatory reform legislation. My name is Janet Wolf. I am President of 
Munson Home Health, a not-for-profit subsidiary of Munson Healthcare, a 
northern Michigan health system based in Traverse City. Munson Home 
Health provides services in 32 rural (non-MSA) counties. I am also the 
Past President of the Board of Directors of the Michigan Home Health 
Association (MHHA), a voice for home care in Michigan, and a member of 
the National Association for Home Care and Hospice (NAHC).
    NAHC is the largest national organization representing home health 
care providers, hospices, and home care aide organizations. Among the 
nearly 6,000 organizations NAHC represents are every type of home care 
agency, including nonprofit agencies like the VNA, for-profit chains, 
public and hospital-based agencies, and free-standing agencies. MHHA 
represents some 300 providers including Medicare-certified home health 
agencies, hospice agencies, private-duty provider organizations, home 
medical equipment and pharmacy infusion providers in Michigan.
    In September 2001, NAHC had the honor of being called before this 
panel to provide testimony on a number of the regulations and policies 
that impact a provider's ability to deliver high-quality patient care 
in an efficient manner. We are pleased to be back here today to 
personally extend our most sincere thanks for the many efforts that 
you, members of this Subcommittee, your staff, and others have made to 
ease burdens on home care and other providers.
    Madame Chairman, you and all of the members of the Subcommittee 
particularly, are to be commended for developing HR 3391, the 
``Medicare Regulatory and Contracting Reform Act of 2001.'' In 2001, 
this bipartisan legislation unanimously passed the House 408-0. 
Unfortunately, there was no action by the Senate to conference the 
differences between their bill and your unified House bill--HR 3391. We 
are glad that you are once again taking a leadership role in redrafting 
and advancing new legislation to simplify the highly regulated and 
often burdensome Medicare program. Medicare regulatory reform 
legislation will go a long way toward easing the impact of some of the 
most troublesome policies of the Medicare program. In reviewing HR 
3391, you have included a number of provisions that address specific 
problems that hospices and home health agencies have struggled with in 
recent years, including:
New Requirements for Regulatory and Policy Issuances
    Among the changes that would have been enacted as part of HR 3391, 
you have included several provisions related to regulatory or policy 
issuances that will be of tremendous help to providers. First, the 
legislation prohibits any provision published in a final regulation 
that is not a logical outgrowth of the proposed regulation from taking 
effect until after appropriate opportunity for public comment. 
Additionally, your bill generally prohibits retroactive application of 
substantive changes in regulations or other policies, and extends 
protection against compliance actions relative to the change until 30 
days after issuance of the change. Home care has faced great 
difficulties in the past with policy issued with retroactive impact, 
such as the revision in standards for allowable branch offices. The 
bill should prevent this in the future.
    The bill also protects providers against sanction in cases where 
they have followed written guidance from one of Medicare's contractors. 
Home health agencies have followed written guidance from intermediaries 
on cost reporting only to find the intermediary later rejecting its own 
approval. This has led to unfounded allegations of overpayments. NAHC 
is appreciative of your actions with respect to this particular 
provision in clarifying what constitutes a sanction. We are pleased 
that providers shall not be subject to any sanction, including any 
penalty or requirement for repayment of any amount if the provider 
received and relied on written guidance from the intermediary.
Contractor Accountability
    NAHC applauds your efforts as part of HR 3391 to improve Medicare 
contractor compliance and accountability through development of 
specific performance measures. We also believe that the emphasis you 
have placed on provider education is a sound foundation for improved 
provider relations with the contractors and greater understanding of 
the Medicare program. Of particular note is the bill's provision for 
technical assistance and program information to providers as one of the 
contractors' key functions. The availability of program information is 
so vital to the ability of providers to operate in compliance with the 
program that NAHC recommends inclusion of a similar provision 
applicable to Medicare's contractors for survey and certification, the 
state survey offices. An educational role for state survey offices is a 
key way to secure quality of care for patients.
    Section 302 of HR 3391 establishes a Small Provider Technical 
Assistance Demonstration Program. We believe that this is an excellent 
approach for evaluating billing and other practices of small providers 
to ensure compliance with Medicare law. As you know, Madame Chairman 
and members of the Subcommittee, the vast majority of home health 
agencies and hospices are small businesses that could greatly benefit 
from participation in such a demonstration. We support this effort 
wholeheartedly.
Medicare Provider Ombudsman
    Your establishment, under Section 303, of a Medicare Provider 
Ombudsman is a concept that NAHC has long advocated, and is very much 
in keeping with the spirit of your efforts and those of others who are 
working to ease regulatory burdens.
Medicare Appeal Reform
    NAHC strongly supports many of the modifications to the Medicare 
appeals process as set out in the Medicare, Medicaid, and SCHIP 
Benefits Improvement and Protection Act of 2000 (BIPA) and in Title IV 
of HR 3391. Currently, the Centers for Medicare and Medicaid Services 
(CMS) have issued proposed rules to implement the BIPA provisions. NAHC 
submitted extensive comments in response to that proposal. For the 
Committee's reference, a copy of these comments is attached (Attachment 
1).
    In considering further refinements on Medicare appeals, NAHC 
suggests that the Committee consider three goals in that reform. First, 
the independence of the administrative law judges (ALJ) that preside 
over fair hearings should be preserved. Of particular concern is the 
proposal by CMS to require ALJs to abide by informal policy guidelines 
unless the ALJ can explain why those guidelines should not be followed. 
These guidelines do not have the force and effect of law and should not 
be afforded presumptive validity. Second, it is crucial that the 
appeals process operate within reasonable and structured time deadlines 
as current delays may often mean that the appeals process survives 
longer than the patient or provider. Third, the Subcommittee should 
preserve the non-adversarial nature of the appeals process. CMS 
proposes to allow its contractors to act as parties in the appeals 
process with full rights to be represented by counsel, present evidence 
and argument, and pursue further appeals. In many of the administrative 
appeals, the cost of such action would outweigh the value of the matter 
in controversy.
Recommendations
        1. Congress should ensure that the independence of ALJs is 
        maintained.
        2. Congress should ensure that there is a speedy appeals 
        process.
        3. Congress should prohibit the institution of an adversarial 
        appeals process.
Recovery of Overpayments and Prepayment Review
    In Section 405 of HR 3391, several protections were made available 
to providers of health services under Medicare in relation to the 
recovery of overpayments. NAHC strongly supported the efforts to 
establish these protections. In particular, the amendment that would 
prohibit any recoupment of an overpayment until after a decision had 
been rendered through the first step in the appeals process provided a 
reasonable mechanism to insulate providers of services from wrongful 
payment recoveries. Under the home health and hospice programs, many 
denied claims are reversed on appeal. By delaying any recoupment until 
after the close of the first appeals step, providers of services can 
avoid unnecessary financial jeopardy where there is an error in the 
overpayment determination.
    The bill also appears to limit the postponement of the overpayment 
recovery to circumstances where the provider has initiated the appeal. 
While providers are afforded improved appeal rights under the pending 
CMS proposal, currently a provider does not have a direct appeal right 
and must proceed as the beneficiary's representative in order to have 
the dispute reviewed. For example, a claim denial based on an alleged 
failure to submit a document can only be appealed by the beneficiary 
even though the provider suffers the financial consequences. We would 
suggest that the language of this provision be modified to provide the 
pre-recovery protection in all instances where the issue in dispute is 
under appeal.
    HR 3391 also established standards for the approval of an extended 
repayment plan on overpayments allowing for up to three years for 
repayment in cases of hardship and up to five years for circumstances 
involving an extreme hardship. Home health agencies are just now 
completing repayment of the significant amounts of money that the 
Medicare program considered an overpayment under the former 
reimbursement system known as the Interim Payment System (IPS). During 
that recovery action, it became apparent that even a 36-month repayment 
plan was too short a time if home health agencies were expected to 
continue access to care. Last year's legislative proposal would have 
helped home health agencies to secure further needed protection. NAHC 
encourages the Subcommittee to continue support for this necessary 
improvement in Medicare administration. At the same time, we strongly 
recommend that the definition of ``hardship'' be amended. The bright 
line test for ``hardship'' to qualify for a repayment plan is set at 10 
percent of the provider's Medicare income. While that standard may make 
it administratively simple to apply, it does not adequately address the 
financial jeopardy faced by home health agencies and hospices with 
overpayment obligations at less than 10 percent. With most of the cost 
of delivery of home health and hospice services related to labor, 
immediate repayment of an overpayment at a level less than 10 percent 
would have significant impact on cash flow and wage payment 
obligations. We would urge that some discretionary authority be 
extended so that special circumstances are considered as exceptions to 
that rule.
    Under the Subcommittee's bill, Medicare contractors would be 
permitted to request the periodic production of records or supporting 
documentation for a limited sample of submitted claims to ensure that 
the previous practice is not continuing. Madame Chairman, the 
duplication of records can be costly and time consuming. It is our hope 
that this particular provision was designed to encourage contractors to 
limit their requests to what is absolutely necessary, rather than to 
affirm some of the contractors' current practices.
    Use of statistical sampling by Medicare's contractors has been a 
significant problem for home health agencies at times, and we applaud 
your efforts to limit its use only to cases in which there is a 
sustained or high level of payment error or where documented 
educational interventions have failed to correct the payment error. 
This should ensure that sampling is used only in appropriate 
circumstances.
    We would urge the Subcommittee to include an additional provision 
in its regulatory reform proposal. That provision would provide 
protection to health care providers where the ``overpayment'' relates 
to an error in the administration of the Medicare benefits by the 
Medicare program itself. Currently, home health agencies are facing a 
liability of an unknown amount as a result of Medicare's inability to 
appropriately process a Medicare home health PPS claim. Specifically, 
Medicare home health PPS rules require a payment adjustment when a 
patient is admitted to another home health agency or readmitted to the 
same home health agency within the 60-day episode period following a 
discharge. The payment adjustment involves a ``partial episode 
payment'' adjustment for the first episode of care within the 60-day 
period. CMS determined over a year ago that its system failed to make 
these payment adjustments from the beginning of home health PPS, 
October 1, 2000, for many partial episodes. Home health agencies were 
unable to account for many of these adjustments since they were unable 
to track an individual's post discharge home health services provided 
by a different agency. Furthermore, even when providers became aware of 
the need for adjustments, they were unable to submit corrected claims 
due to system problems. CMS now intends to retroactively make 
significant payment adjustments.
    NAHC recommends that the Subcommittee include legislation that 
would limit the ability of CMS to institute retroactive payment 
adjustments on any claims from more than one year previous. Providers 
cannot maintain financial integrity by carrying a financial liability 
of an unknown amount from one fiscal year into another. Equities 
dictate that providers of services should be held harmless for payment 
process errors of CMS that extend over a long period of time.
Recommendations
        1. LCongress should enact overpayment recovery process 
        protections as set out in HR 3391 with modification to address 
        providers with overpayments equal to less than 10 percent of 
        total Medicare annual revenue.
        2. LCongress should enact a provision to protect providers of 
        services from retroactive payment recovery when the overpayment 
        is caused by an error of the Medicare administration and the 
        error involves an action from more than one year previous.
Ability to Correct Minor Errors and Omissions on Claims
    Section 407 of HR 3391 establishes a process for correction of 
minor errors and omissions on claims without pursuing an appeals 
process. The vast majority of home health and hospice claims that are 
denied are rejected because they do not meet one or more of the 
technical requirements set out by the Medicare program. Under current 
practice, if an agency fails to meet a technical requirement in 
developing and filing claims--examples of which are failure to record 
the verbal order date on the plan of care, secure physicians' 
signatures on all verbal orders prior to billing (including minor 
treatment changes), or date the receipt of signed orders if the 
physician has not dated his or her signature--the claim is denied and 
the agency's only recourse is to undergo a costly and lengthy appeals 
process. This can delay payment to the agency for up to a year and a 
half, and unnecessarily burden providers and intermediaries. Your 
legislation would address this long-standing problem by establishing a 
process under which health care providers would be given an opportunity 
to correct these minor errors or omissions without having to initiate 
an appeal. We consider this change in the law as a significant advance 
for providers, patients, and the Medicare program that will achieve 
great savings while providing timely Medicare payment for necessary 
care.
LProvide Flexibility in the Application of Medicare Conditions of 
        Participation to Non-Medicare Patients
    CMS, and its predecessor, the Health Care Financing Administration, 
has long held to the position that the Conditions of Participation for 
Medicare home health agencies should apply equally to all patients 
served by the home health agency regardless of payor source or the 
nature of services provided. This position has failed to address the 
wide variation in home care services provided to individuals served by 
a home health agency. The range of services may begin with personal 
care and homemaker services and extend to high tech infusion therapy 
and private duty nursing for technologically dependent patients. The 
Medicare Conditions of Participation are designed around the concepts 
within the Medicare home health benefit that focus on part-time or 
intermittent services for patients requiring skilled care while 
confined to the home.
    NAHC recommends that the Subcommittee consider three potential 
approaches to this over-regulation.
        1. LAmend Medicare law to clearly provide that the Conditions 
        of Participation apply only to Medicare patients. It should be 
        noted that Medicaid home health services must be provided by a 
        provider that meets the Conditions of Participation under 
        Medicare.
        2. LInstruct the Secretary of HHS to take steps to tailor the 
        Conditions of Participation to the various types of patients 
        served by a home health agency distinguishing the Medicare-type 
        patient from those patients receiving personal care only or 
        private-duty-shift nursing services.
        3. LSupport the enactment of a provision that would allow a 
        home health agency to operate with several internal divisions 
        with Medicare certification applying to distinctly designated 
        divisions. This approach would mirror that allowed for nursing 
        facilities where distinct part Medicare certification is 
        permitted. Currently, CMS allows for a home care organization 
        to operate with separate home care entities if such elements as 
        separate incorporation, separate staff, and separate consumer 
        identity are established. These separations should be 
        unnecessary.

    The broad-based application of Medicare Conditions of Participation 
to all patients of a home care organization creates needless cost, 
administrative bureaucracy, and unjustifiable paperwork burdens. 
Ultimately, these costs are absorbed by individual patients, Medicare, 
and non-Medicare payors of service.
The Outcome and Assessment Information Set (OASIS)
    Over the last couple of years, NAHC has been actively engaged in 
pursuing the streamlining and reduction of the OASIS instrument through 
the submission of testimony and recommendations to this Subcommittee, 
as well as working with the Department of Health and Human Services' 
Secretary's Advisory Committee on Regulatory Reform and with CMS 
Administrator Tom Scully (Attachment 2). Much of this effort was 
triggered by this Subcommittee's encouragements to CMS. I am pleased to 
report that the Secretary's Advisory Committee has recently submitted 
recommendations to not only reduce regulatory burdens on home health 
and hospice providers but has also provided recommendations to 
streamline and modernize OASIS. The following recommendations were 
adopted by the Secretary's Advisory Committee.

         1. LExpand the time for completion of the OASIS instrument, 
        from 5 days to 7 days. Has not been implemented by CMS.
         2. LChange the lock-in time for the OASIS instrument, from 7 
        days to 14 days. Has not been implemented by CMS.
         3. LDelete elements that are duplicative or not used for 
        payment, outcome, quality management, or survey purposes. CMS 
        should particularly scrutinize data elements, MO190, MO340, 
        MO640-680, and MO780. Has been partially implemented by CMS.
         4. LEliminate separate forms for significant change in 
        condition when it occurs in the five-day window of the follow 
        up assessment. Has not been implemented by CMS.
         5. LEliminate OASIS encounters that are not used for payment, 
        outcome quality management, or survey purposes. Has been 
        partially implemented by CMS.
         6. LCreate the option to use one form for all situations of 
        care or change in status. Has not been implemented by CMS.
         7. LShare OASIS risk-adjustment methodology with all users. 
        Make the information available on the CMS website. Has not been 
        implemented by CMS.
         8. LProvide access to the studies on the validity of OASIS 
        data, adverse event measurements, and OASIS quality and 
        outcomes. Has been implemented by CMS.
         9. LEnsure data collection efforts facilitate the development 
        of care plans. Has not been implemented by CMS.
        10. LConsider the impact of the Health Insurance Portability 
        and Accountability Act (HIPAA) on home health agencies with 
        respect to the timing of any changes to OASIS. Will require 
        ongoing oversight by CMS.
        11. LAdopt a continuous quality improvement process to keep 
        OASIS current with medical practice and changing delivery 
        systems. CMS has organized a 3-year technical expert panel for 
        this purpose.
        12. LEstablish a scientific and technical advisory panel to 
        guide OASIS use (measure work-ups, interpretation of data 
        quality, interpretation of results, quality reporting, and 
        assessment of need for new measures). CMS has selected members 
        to serve on the technical advisory panel.
        13. LConduct field tests of new OASIS measures before they are 
        put into use. CMS has added one new OASIS measure for HIPAA 
        compliance but it has not been tested.
        14. LClarify the definition of ``significant change.'' Consider 
        using re-hospitalization as a proxy for ``significant change.'' 
        Has not been implemented by CMS.
        15. LConduct an independent evaluation of the cost-benefit of 
        using the OASIS form. Has not been implemented by CMS.

    As of December 2002, CMS implemented a few changes aimed at 
decreasing the burden of OASIS data collection. These changes included 
elimination of two OASIS collection time points and seventeen data 
items. Thirteen of the seventeen data items consist of demographic 
information which have been moved to a ``tracking sheet'' to be 
completed by agency office staff. NAHC sees these changes as an 
excellent first step in the OASIS streamlining process and will 
continue to work with CMS to promote adoption of additional refinements 
to reduce OASIS items that are unnecessary for quality outcomes or for 
payment purposes.
    Madame Chairman, we also support the Secretary's Advisory 
Committee's recommendations and ask that the Subcommittee intervene in 
this process and press for full and immediate implementation. While 
there is industry-wide support for an outcome-based assessment, home 
care agencies have consistently requested that CMS eliminate the non-
essential and redundant OASIS components and requirements. OASIS must 
be quickly streamlined to reduce agency costs, increase direct patient 
care time, and improve staff satisfaction. OASIS continues to be the 
number one reason for nurses leaving the home health setting.
    NAHC also recommends that the Subcommittee instruct the Secretary 
to immediately implement the following additional items for OASIS 
simplification. These recommendations can be implemented by policy 
changes or incorporated into the soon-to-be-published Conditions of 
Participation.
         1. LAmend the Medicare Conditions of Participation for Home 
        Health and eliminate the requirement to collect OASIS data for 
        skilled non-Medicare patients and non-Medicaid patients because 
        this data is not being submitted to the CMS data repository for 
        outcome measures.
         2. LInstruct the Secretary of HHS to take steps to make OASIS 
        electronic program specifications and the risk adjustment 
        methodology available to the public.
         3. LRequest that CMS lengthen the definition for ``inpatient 
        stay'' from 24 hours to 72 hours.
         4. LRequest that CMS move to expand the time for completion of 
        the OASIS instrument from 5 days to 7-10 days.
         5. LInstruct CMS to change the lock-in time for the OASIS 
        instrument from 7 days to 14 days.
         6. LInstruct CMS to widen the recertification window from 5 
        days to 7-10 days, allowing for greater flexibility for agency 
        scheduling the OASIS assessment during a scheduled patient 
        visit.
         7. LInstruct CMS to eliminate the SCIC assessments since they 
        are not used for any outcome measurements and unfairly penalize 
        providers when exclusively used for payment purposes.
         8. LRequest that CMS only use the 23 payment questions along 
        with an agency assessment form for all LUPA episodes, including 
        one-time-only Medicare visits.
         9. LEliminate the requirement that an RN must complete the SOC 
        assessment in all instances where RN services are not the 
        primary service ordered.
Hospice Regulatory Reform
    Madame Chairman and members of the Subcommittee, the hospice 
conditions of participation have not been updated since 1983. In 1995, 
CMS began the process of drafting new language that would streamline 
the Conditions of Participation. We urge you to direct CMS to move 
forward and publish the Conditions of Participation through a Notice of 
Proposed Rulemaking. Furthermore, we would also request that you 
consider a couple of regulatory changes that would help to simplify the 
Medicare hospice program. We are supportive of the provision within 
Title VIII Subtitle E--Miscellaneous Provisions, Section 846 of HR 
4954, the ``Medicare Modernization and Prescription Drug Act of 2002,'' 
which authorizes the use of arrangements with other hospice programs to 
provide core hospice services. This provision provides the flexibility 
needed to allow hospices to contract with other hospices during periods 
of high patient loads, staffing shortages, or temporary travel of a 
patient outside of the primary service area of their hospice. We 
suggest that you go one step further and allow hospices to make 
arrangements for highly-specialized clinical services. In the best 
interest of patient care, it is sometimes appropriate for hospices to 
utilize high technology treatments to achieve efficient and effective 
pain management. Some high-technology pain management interventions 
require highly specialized clinicians to administer such treatments. 
These incidents are infrequent and therefore it is impractical and 
prohibitively expensive for hospices to have such specialized 
caregivers on staff.
Conclusion
    Madame Chairman and members of the Subcommittee, the issues 
addressed by your legislation may seem quite technical in nature, but 
they will make a tremendous difference in day-to-day operations of all 
types of providers. We in the home health and hospice world have sought 
a number of these solutions for many years and will work diligently for 
their enactment.
    In closing, I cannot thank you enough, Madame Chairman, for your 
long-standing efforts on behalf of our nation's home health providers 
and the patients and families they serve.
    This concludes my formal remarks but I would be happy to answer any 
questions that any members of the panel might have.
                                 ______
                                 
ATTACHMENT 1
LNAHC COMMENTS TO CMS REGARDING CHANGES TO THE MEDICARE

CLAIMS APPEAL PROCEDURES
January 14, 2003
Centers for Medicare and Medicaid Services
Department of Health & Human Services
Hubert H. Humphrey Building
200 Independence Avenue, S.W.
Room 445
Washington, D.C. 20201
Re: CMS-4004-P, Changes to the Medicare Claims Appeal Procedures
To Whom It May Concern:
    Thank you for the opportunity to provide comments to the Proposed 
Rule for Changes to the Medicare Appeals Process implementing Section 
521 of the Medicare, Medicaid and SCHIP Benefits Improvement and 
Protection Act of 2000 (BIPA), Public Law 106-554. The National 
Association for Home Care & Hospice (NAHC) is the largest trade 
association in the country representing home health agencies, hospice 
programs and home medical equipment providers. Overall, the proposed 
changes to the appeal process are reasonably consistent with the BIPA 
requirements. In addition, the proposed rules address some longstanding 
confusion regarding Medicare appeals that results from the 
``bootstrapping'' of many of the Social Security Administration appeals 
rules. While NAHC's general evaluation of the proposed rules is 
positive, these comments focus on areas of concern.

Qualified Independent Contractor

    The changes enacted in BIPA require the creation of an entirely new 
entity in the Medicare claims review process, the ``qualified 
independent contractor (QIC).'' NAHC believes that it is necessary for 
the Centers for Medicare and Medicaid Services (CMS) to restrict the 
organizations eligible to qualify as a QIC. Specifically, NAHC believes 
that it is necessary to establish independence of the QIC from the 
fiscal intermediaries and carriers that issue initial determinations 
and redeterminations.

Recommendation

    Prohibit fiscal intermediaries and carriers or parties related to 
intermediaries and carriers from becoming a QIC.

The Role of Contractors in ALJ and MAC Proceedings

    CMS proposes to allow Medicare contractors to participate in 
Administrative Law Judge (ALJ) and Medicare Appeals Council (MAC) 
proceedings. Further, CMS proposes to allow the contractors to obtain 
``party'' status at these stages of appeal and to have authority to 
obtain MAC review of any unfavorable ALJ decisions.
    The proposal to provide participation and party status for Medicare 
contractors is a significant alteration of the appeals process, 
changing it from a non-adversarial proceeding that has existed from the 
beginning of the Medicare program into an adversarial process that is 
only likely to increase costs and heighten controversies.

Recommendation

    Eliminate party and participation status for Medicare contractors, 
specify that the ALJ reviews are de novo, and allow ALJ and MAC 
consideration of contractor actions and reviews only for purposes of 
establishing appellate level jurisdiction. In the event that this 
recommendation is not accepted, specify that prevailing party 
attorneys' fees are available under the Equal Access to Justice Act in 
any appeals in which the contractor participates or achieves party 
status.

Limitation on New Evidence

    The proposed rules significantly restrict the opportunity to offer 
additional and new evidence before an ALJ, requiring a full and early 
presentation of evidence at the QIC level. NAHC is aware that CMS has 
held to a longstanding belief that the high reversal rates on appeal 
are primarily due to the presentation of new evidence to the ALJs. 
However, the introduction of any new evidence at any step in the 
appeals process is designed to secure a fair and accurate 
determination. It is in the best interests of Medicare beneficiaries 
and providers of services to get that full and fair determination as 
soon as possible. As such, there is no indication that material 
evidence is withheld at any stage of the appeals process in hopes of 
improving chances of success months and months later down the line with 
succeeding appellate levels.
    CMS should distinguish between the submission of new evidence that 
involves readily available clinical documentation from the provider of 
services directly implicated in the Medicare claim in dispute from 
other evidence such as expert opinion, clarifying treating physicians' 
opinion, and documentary evidence from providers of services not 
directly involved in the disputed claim. Most often, the new evidence 
submitted is done so to address issues raised by the preceding 
appellate level or to clarify matters that have been determined to be 
somewhat confusing.

Recommendation

    Eliminate restriction on the submission of new evidence. 
Alternatively, apply the restriction on new evidence only to clinical 
documentation from the provider of services directly involved in the 
disputed claim.

The Role of LCDs, LMRPs, CMS Program Guidance, and Manual Instructions

    CMS proposes to require that QICs ``give deference'' to local 
coverage determinations, local medical review policies, and CMS program 
guidance, including manual instruction. CMS proposes that QIC be 
required to follow these instructions ``unless the appellant questions 
the policy and provides a reason that the QIC finds persuasive as to 
why the policy should not be followed.'' The effect of this standard is 
to provide informal policy positions of CMS and its contractors with 
the force and effect of law. It also requires appellants to directly 
challenge the application of these informal polices in circumstances 
where they may not be fully aware of the application of these policies 
to the issues in dispute nor have full access to these informal 
policies.

Recommendation

    Eliminate requirement that QICs ``give deference'' to informal CMS 
and contractor policies. Alternatively, require that decisions issued 
by contractors specifically reference any informal policies applied in 
the decision making and provide information as to how the affected 
individual or provider can obtain copies of those policies. Further, 
require the QIC to inform the appellant of its intention to apply a 
particular informal policy to the issue in dispute and allow the 
individual an opportunity to challenge the application of that policy.

QIC Reviewer Competency

    CMS proposes that QIC reviewers ``have sufficient training and 
expertise in medical science and/or legal matters.'' 42 CFR 
Sec. 405.968(c). This standard does not sufficiently set out a 
qualification that requires knowledge and experience in the area of 
healthcare that is in dispute. For example, training and expertise in 
medical science does not necessarily entail a knowledge of clinical 
necessity and medical appropriateness in a particular health setting, 
the ability to evaluate the terminal illness of a patient seeking 
hospice coverage, or the application of the ``confined to home'' 
standard under the Medicare home health benefit.

Recommendation

    CMS revise the proposed rule to require sufficient knowledge and 
expertise in the area of health care in dispute.

Claim Reopening

    CMS proposed to clarify rules and require that reopening of 
determinations at any level within the process be available only after 
a party's appeal rights have been exhausted or the time limit for 
appealing expired. In doing so, CMS indicates that clerical errors must 
be handled through the reopening process. As such, it appears that 
human and mechanical mistakes, such as clinical, mathematical, 
computational or inaccurate data entry must be addressed through the 
appeals process before any reopening action and correction can occur. 
Alternatively, reopenings for these corrections of minor errors and 
omissions would have to await the exhaustion or expiration of any 
appeal rights. Hopefully, this is a misreading of the proposed rule.
    The reopening authority also improperly distinguishes between 
reopening requests from Medicare beneficiaries and providers of 
services and those reopening actions by the contractor on its own 
initiative. The same time frames and standards for reopening should 
apply to all parties and participants in the Medicare decision-making 
process. The reopening standards should provide for a reasonable level 
of finality with limited authority of the contractor to initiate 
reopening of its own decisions to address any perceived errors that 
have come through its own lack of diligence and effective claim review. 
If a contractor seeks to reopen a claim, it should be required to 
establish good cause for that reopening with a notice of intent to all 
affected parties and a right of appeal on the finding of good cause. 
For example, if a contractor reopens a series of claims two years after 
the original adjudication, the affected provider should be able to 
challenge that the contractor does not have good cause for the delayed 
action.

Recommendation

    Eliminate any restrictions on reopenings that are designed to 
correct minor errors and omissions allowing such a reopening request to 
be made prior to the exhaustion or expiration of appeal rights. 
Further, CMS should modify the reopening standards to establish rights 
and responsibilities on an equal basis for Medicare beneficiaries, 
providers of services, and Medicare contractors.

Expedited Proceedings

    The proposed rules implement an important new right of appeal set 
out in the BIPA provisions regarding an expedited appeal process 
available to beneficiaries subject to service terminations or 
discharge. It is important that CMS recognizes that the expedited 
appeals proceedings do not include reductions in an ongoing course of 
service. However, the proposed rules need additional clarification to 
address terminations of services where there are no physicians' orders 
or appropriate certifications to continue care. The BIPA provisions and 
the proposed rules properly require that a physician certify the 
failure to continue services is likely to place the beneficiary's 
health at risk, but do not directly explain that other technical 
requirements for the continuation of services and coverage must be in 
place as well. For example, a strict reading of the proposed provision 
would allow for a right of expedited appeal even in situations where 
the physician has ordered the discontinuation of home health services 
or refused to certify the patient as confined to the home. Allowing an 
expedited appeal in such circumstances would raise serious questions 
regarding the authority of the home health agency to continue to 
deliver care during the pendency of the appeal or the right to secure 
Medicare coverage thereafter.
    The proposed rules on the expedited appeals process also indicate 
that the provider cannot bill a beneficiary for the disputed stay of 
services until the beneficiary has received an expedited QIC 
determination. While such an approach may be necessary to fairly 
effectuate the expedited appeal rights of Medicare beneficiaries, it 
places providers of services at financial risk without any 
consideration of that risk within current reimbursement rates.

Recommendation

    CMS should clarify that other technical requirements for Medicare 
coverage be in place, such as physicians' orders for continued care and 
certification of homebound status, in order to trigger any expedited 
appeal rights. Further, CMS should require that Medicare beneficiaries 
be informed through the initial determination that financial liability 
for noncovered care will exist in unsuccessful expedited appeals. 
Finally, CMS should adjust payment rates to those providers whose 
existing payment rates do not include any bad debts resulting from the 
inability to collect after a beneficiary's unsuccessful expedited 
appeal.

Representative Fees

    The proposed rules indicate that no award of attorneys' fees may be 
made against the Medicare Trust Fund and that a provider acting as a 
representative beneficiary may not charge the beneficiary with any fee 
associated with representation. These proposed rules do not address the 
application of the Equal Access to Justice Act to adversarial 
administrative proceedings that may occur under the new rules allowing 
CMS or its contractors to achieve party status. Further, these rules do 
not address representation of beneficiaries by non-provider individuals 
or entities. It appears the only rule governing representative's fees 
to beneficiaries allows for fees to be limited to no more than 25 
percent of past due benefits, a standard applicable to Social Security 
cases.

Recommendation

    The proposed rule should be revised to reference the availability 
of fees under the Equal Access to Justice Act under those circumstances 
where the administrative proceeding is adversarial. Further, the 
proposed rules should be modified to specifically address any fee 
limitations applicable to a Medicare appeal by a non-provider 
representative or Medicare beneficiary.

New Issues on Appeal

    The proposed rules address the introduction of new issues at the 
ALJ stage of appeal. However, the rules do not address those 
circumstances where the contractor or QIC raise new issues distinct 
from that originally in dispute. The initiation of new issues for 
review at other steps in the appeals process have often created great 
confusion for Medicare beneficiaries and health care providers while 
forcing the introduction of new evidence that is otherwise not 
contemplated as necessary.

Recommendation

    Prohibit Medicare contractors and QICs from raising new issues 
during an appeal. Any issues distinct from those in dispute should be 
raised through the reopening process.

Failure to Meet Time Limits for Review

    The rule establishes timelines for completions of all levels of 
review as required by BIPA. While the parties are given rights to 
accelerate the appeal in the event of the appellate level failure to 
meet timeliness standards, CMS should consider the imposition of 
additional contractor penalties where they fail to comply with required 
time limits.

Recommendation

    Implement penalties, including payment of interest, when CMS 
contractors fail to complete appellate review within the established 
timeframes.
    NAHC wishes to extend the thanks of the entire home health and 
hospice community for CMS' efforts to issue this proposed rule. The 
difficulties attendant to a wholesale restructuring of the appeals 
process are readily recognized and NAHC appreciates CMS good faith 
efforts to implement these important BIPA provisions and to modernize 
the appeals structure otherwise. We look forward to the publication of 
the final rule.
            Very truly yours,
                                                   William A. Dombi
                                             Vice President for Law
                       National Association for Home Care & Hospice
                                 ______
                                 
ATTACHMENT 2
LOASIS SIMPLIFICATION RECOMMENDATIONS BY THE HOME HEALTH

INDUSTRY TO CMS ADMINISTRATOR THOMAS A. SCULLY
October 12, 2001
Mr. Thomas A. Scully
Administrator
Centers for Medicare and Medicaid Services
U.S. Department of Health and Human Services
314G Hubert H. Humphrey Building
200 Independence Avenue, S.W.
Washington, D.C. 20201

Dear Mr. Scully:

    All of our organizations (listed below) representing home health 
care thank you for the opportunity to submit recommendations for 
streamlining the Outcomes and Assessment Information Set (OASIS) data 
set and related requirements. We understand that the Centers for 
Medicare and Medicaid Services (CMS) is currently considering reducing 
paperwork and streamlining patient assessment requirements for home 
health providers as was done previously for other Medicare providers. 
Our purpose is to provide input to that process.
    Because our focus was on reviewing OASIS from clinical, practical 
and consumer viewpoints, we did not address OASIS case mix payment 
issues, which we believe should be reviewed separately by CMS and 
provider representatives within the context of case-mix reform. 
However, we did address the costs that providers have incurred--and 
continue to incur--for meeting OASIS regulatory mandates.
    The formation of this task force was in response to the hundreds of 
letters, e-mails and phone calls that the provider organizations have 
received from their memberships. While there is industry-wide support 
for an outcome-based assessment process, members have consistently 
requested that CMS eliminate the non-essential and redundant OASIS 
components and requirements. They continue to plead for OASIS reform 
because of the toll that the increased OASIS paperwork is having on 
their ability to recruit and retain nurses and because of the 
staggering costs involved in implementing and maintaining OASIS 
regulatory compliance.
    OASIS is often cited as the number one reason why nurses are 
leaving home health care. As a result, it has exacerbated the already 
scarce supply of available and qualified nurses nationwide. A home 
health nurse typically must spend more time complying with federal 
paperwork requirements than providing hands-on care during one 60-day 
episode of patient care. In addition, the cost of OASIS far exceeds the 
reimbursement since home health agencies are not compensated for the 
cost of professional staff time or for the technology that has been 
necessary for OASIS and PPS implementation.
    Finally, since the OASIS data set is not a comprehensive 
assessment, home health agencies are required to incorporate OASIS into 
the individual agency's comprehensive assessment process. However, 
surveyors have adopted a punitive approach toward agencies whose 
comprehensive assessments do not fit into their subjective view of how 
a comprehensive assessment should appear.
GENERAL RECOMMENDATIONS
     1. LThe requirements to collect and transmit OASIS information 
should only apply to Medicare patients because:

           LThe policy of requiring OASIS for all patients does 
        not comport with CMS' goal to move home care oversight from the 
        current process-driven orientation to an outcome-driven 
        orientation. We believe that collecting OASIS data from only 
        Medicare patients (and measuring their outcomes) is likely to 
        be the best and most efficient process for determining an 
        agency's overall level of quality care because it is a clean 
        set of data from a more homogenous patient population. If an 
        agency is consistently achieving good outcomes for its Medicare 
        case load, it would be highly unlikely that the same agency 
        would provide less quality care to its non-Medicare patients 
        (especially in light of requirements to comply with all other 
        Medicare conditions of participation for all patients.)
           LCMS's primary rationale for mandating OASIS 
        requirements--as stated in the OASIS final regulation--is to 
        use this information for payment purposes for Medicare 
        beneficiaries:

              L  The immediate publication of rules requiring the 
        collection and reporting of OASIS data and OMB approval of 
        these requirements (OASIS) pursuant to the Paperwork Reduction 
        Act of 1995 are essential because these data are required for 
        the development of the home health prospective payment system, 
        required by statute in October of 2000 (Page 3765 of the 
        January 25, 1999 Federal Register).

        In other words, OASIS was mandated for payment purposes before 
        its original intended use for measuring patient outcomes (i.e. 
        quality of care). Collecting only Medicare data now is 
        consistent with the current use of OASIS.

           LLimiting OASIS to Medicare patients is especially 
        important because nurses and patients alike are experiencing 
        difficulties due to the length and frequency of assessments. 
        This is particularly true in cases where patients have minimum 
        to moderate health care needs. Limiting OASIS to Medicare 
        patients will help alleviate stress on patients and nurses and 
        reduce the cost of OASIS administration for home health 
        agencies.
     2. LAllow home health providers to have access to the studies on 
the validity and reliability of OASIS data and adverse event 
measurements, which are now being used to evaluate home health agencies 
with potential negative consequences.
     3. LProvide rationale for why many of the items (that are 
indicated below by a ``*'') were determined by CMS to be good 
indicators of quality care. For these items, and for changes to OASIS 
in general, we also strongly recommend that CMS develop a process to 
evaluate the suitability of any OASIS items whose need is not readily 
apparent. The process should include providers, researchers and 
consumer advocates and contain a general public comment phase. Each 
item on the form should be required to have above average inter-rater 
reliability and should be judged by its incremental performance in 
patient classification systems or outcome risk adjustment 
methodologies, or be necessary as an outcome measure. Any review 
process must be designed to explicitly balance the natural desire for 
more information with the need for efficient data collection and 
patient privacy.
     4. LAllow agencies to use a single, universal form for all OASIS 
data collection time points (i.e., start of care, transfer/discharge, 
resumption/change of care and recertification). Questions specific to a 
particular assessment would be easily identified on the universal form. 
A universal form would prevent the confusion over what form to use for 
a particular visit. If a nurse mistakenly fills out the wrong form, 
which may be nearly identical to other OASIS forms, he or she must 
complete the minimum 45 minutes of OASIS paperwork again.
     5. LEliminate the current OASIS assessment requirement for 
significant change in condition. The ambiguity of what is considered to 
be ``a significant change in condition'' has essentially forced each 
home health agency to establish its own significant change policy, 
particularly involving cases where there is not a hospitalization. This 
subjectivity leads to questionable validity and usefulness of the data 
for outcome measurements.
     6. LEliminate the requirement to perform an OASIS assessment in 
cases where it is known that a patient will require only a single visit 
or is a predictable LUPA patient.
     7. LAllow any practitioner of a qualifying service to conduct the 
initial assessment and comprehensive assessment regardless of whether 
skilled nursing is included on the plan of care.
     8. LAmend the required ``complete and lock dates'' as follows: 10 
calendar days to complete OASIS and 14 calendar days from the day of 
completion to enter and lock the data.
     9. LRevise the guidelines for the OASIS resumption of care (ROC) 
assessment so that it is only required for patients who have been 
hospitalized for more than 72 hours. The need for a ROC could serve as 
a proxy for what is considered to be ``a significant change in 
condition'' until a better definition is developed and agreed on by CMS 
and national provider representatives.
    10. LIncrease reimbursement to home health agencies to reflect the 
true costs of OASIS, including the cost of professional time spent 
training and completing forms, and the cost of technology systems 
necessary to implement OASIS for OASIS and PPS compliance. A recent 
report by the General Accounting Office (GAO) clearly identified ``an 
increase in time spent for patient assessments after the implementation 
of OASIS mandate. These HHAs also reported additional costs associated 
with verifying and transmitting data to HCFA, as well as with training 
new hires to collect OASIS data.'' (OASIS Data Use, Cost and Privacy 
Concerns, GAO, January, 2001). It is important to point out that the 
GAO study only focused on the extra time associated with start-of-care 
assessments. Although we disagree with GAO's assessment that HHAs will 
be able to finance these extra costs from PPS payments, we do generally 
agree with the additional magnitude of the extra costs as identified in 
the GAO study. CMS' before-the-fact assertion that agencies will have 
no additional costs after the going through the learning curve is 
erroneous and needs to be re-examined in light of the significant 
actual experience to the contrary.
    11. LInform home health agencies and surveyors that basic 
demographic data is not required on the comprehensive assessment form 
if available elsewhere on the agency record for formatting and 
reporting to the State Agency.
    12. LEliminate the requirements to perform two or more assessments 
when those particular assessments fall within a close proximity of time 
(e.g. cases involving a change in payer) and when the additional 
assessment is performed to accommodate the CMS systems rather than for 
clinical purposes.
    13. LEliminate requirements to make home health visits that are 
``non billable'' solely for the purpose of fulfilling CMS OASIS time 
frames. Allow completion of the assessment on the next billable visit. 
These requirements have increased the cost to the Medicaid waiver 
programs for long-term and chronic patients.
    14. LRequire CMS compliance with coding rules, including ICD-9 
coding, as mandated by HIPAA.
    15. LEliminate duplication and inconsistency between OASIS and the 
485 (plan of care) forms.
RECOMMENDATIONS FOR INDIVIDUAL OASIS ASSESSMENT ITEMS
    The task force identified the following assessment items as items 
that should be either: (1) deleted for identified reason; (2) deleted 
unless it is determined after examination that the item is useful for 
casemix and/or risk adjustment; (3) revised; or (4) redefined to 
improve the item's comprehension by nurses and therapists (several of 
these questions and options are so intricate that precision is lost in 
the collection of the data).

 
------------------------------------------------------------------------
              MOOOO                   Description        Action/Reason
------------------------------------------------------------------------
M0140*                            Race/Ethnicity      Examine and
                                                       determine the
                                                       usefulness of
                                                       this item for
                                                       casemix and/or
                                                       risk adjustment;
                                                       delete item if it
                                                       is determined to
                                                       be not useful.
------------------------------------------------------------------------
M0160*                            Financial Factors   Examine and
                                                       determine the
                                                       usefulness of
                                                       this item for
                                                       casemix and/or
                                                       risk adjustment;
                                                       delete item if it
                                                       is determined to
                                                       be not useful.
------------------------------------------------------------------------
M0190                             Inpatient           Delete
                                   diagnosis           (unnecessary and
                                                       unreliable
                                                       responses).
------------------------------------------------------------------------
M0200*                            Treatment change    Examine and
                                                       determine the
                                                       usefulness of
                                                       this item for
                                                       casemix and/or
                                                       risk adjustment;
                                                       delete item if it
                                                       is determined to
                                                       be not useful.
------------------------------------------------------------------------
M0210                             Changed diagnosis   Delete (unreliable
                                                       responses).
------------------------------------------------------------------------
M0220*                            Prior conditions    Examine and
                                   or inpatient stay   determine the
                                                       usefulness of
                                                       this item for
                                                       casemix and/or
                                                       risk adjustment;
                                                       delete item if it
                                                       is determined to
                                                       be not useful.
------------------------------------------------------------------------
M0260*                            Overall prognosis   Examine and
                                                       determine the
                                                       usefulness of
                                                       this item for
                                                       casemix and/or
                                                       risk adjustment;
                                                       delete item if it
                                                       is determined to
                                                       be not useful. In
                                                       addition, the
                                                       item is already
                                                       documented on the
                                                       485 form.
------------------------------------------------------------------------
M0270*                            Rehab prognosis     Examine and
                                                       determine the
                                                       usefulness of
                                                       this item for
                                                       casemix and/or
                                                       risk adjustment;
                                                       delete item if it
                                                       is determined to
                                                       be not useful. In
                                                       addition, the
                                                       item is already
                                                       documented on the
                                                       485 form.
------------------------------------------------------------------------
M0280                             Life expectancy     Delete (inherently
                                                       subjective).
------------------------------------------------------------------------
M0290*                            High risk factors   Examine and
                                                       determine the
                                                       usefulness of
                                                       this item for
                                                       casemix and/or
                                                       risk adjustment;
                                                       delete item if it
                                                       is determined to
                                                       be not useful.
------------------------------------------------------------------------
M0310-M0330                       Living              Limit item to only
                                   arrangements        start-of-care
                                                       (SOC) assessment.
                                                       Complete
                                                       thereafter only
                                                       if a change in
                                                       living
                                                       arrangement
                                                       occurs.
------------------------------------------------------------------------
M0340-M0360                       Living              Retain and
                                   arrangements        simplify to
                                                       ``yes'' ``no''
                                                       responses.
------------------------------------------------------------------------
M0400                             Hearing             Simplify to
                                                       general terms
                                                       that clinicians
                                                       can easily
                                                       understand.
------------------------------------------------------------------------
M0420-M0430                       Pain                Examine other more
                                                       reliable pain
                                                       scales.
------------------------------------------------------------------------
M0440                             Skin lesions        Redefine to
                                                       identify active
                                                       pathology and
                                                       specify the types
                                                       of lesions that
                                                       would be
                                                       considered ``skin
                                                       lesions'' in a
                                                       manner that is
                                                       understandable to
                                                       the nurse and
                                                       eliminates his/
                                                       her subjectivity.
------------------------------------------------------------------------
M0460                             Most problematic    Redefine using
                                   wound               medical
                                                       terminology that
                                                       is understandable
                                                       to the nurse and
                                                       eliminates
                                                       subjectivity.
                                                       This is
                                                       especially
                                                       important because
                                                       a ``most
                                                       problematic
                                                       wound'' may be a
                                                       different wound
                                                       for each
                                                       assessment.
------------------------------------------------------------------------
M0468                             Stasis ulcers       Redefine to
                                                       include arterial,
                                                       venous diabetic
                                                       and neuropathic
                                                       ulcers.
------------------------------------------------------------------------
M0560-M0620                       Neuro/Emotional/    Redefine to
                                   Behavioral          improve
                                                       reliability of
                                                       assessment by
                                                       simplifying
                                                       options in a
                                                       manner that is
                                                       understandable to
                                                       the nurse,
                                                       eliminates
                                                       subjectivity, and
                                                       facilitates a
                                                       level of trust
                                                       between provider
                                                       and patient who
                                                       may have issues
                                                       related to
                                                       depression. In
                                                       addition, the
                                                       items should be
                                                       optional if the
                                                       patient reserves
                                                       his/her right to
                                                       privacy.
------------------------------------------------------------------------
M0630                             Psychiatric         Delete (very
                                   Nursing Services    limited provision
                                                       of psychiatric
                                                       nursing in home
                                                       care).
------------------------------------------------------------------------
M0640-M0800                       ADLs/IADLs/         Delete ``prior''
                                   Medications         column
                                                       (unreliable and
                                                       non-verifiable
                                                       responses).
------------------------------------------------------------------------
MO720-MO770                       Instrumental        Delete ``current''
                                   Activities of       column
                                   Daily Living        (unreliable
                                   (IADLs)             responses).
------------------------------------------------------------------------
M0830-M0840*                      Emergent Care       Examine and
                                                       determine the
                                                       usefulness of
                                                       this item for
                                                       casemix and/or
                                                       risk adjustment;
                                                       delete item if it
                                                       is determined to
                                                       be not useful.
------------------------------------------------------------------------
M0890-M0900*                      Inpatient Reason/   Examine and
                                   Reason for          determine the
                                   Nursing Home        usefulness of
                                                       this item for
                                                       casemix and/or
                                                       risk adjustment;
                                                       delete item if it
                                                       is determined to
                                                       be not useful.
------------------------------------------------------------------------

    The OASIS Provider Task Force would appreciate the opportunity to 
discuss our recommendations with you and your staff in person. Such a 
meeting would facilitate collaboration between CMS and constituent 
organizations thus maintaining the spirit of CMS' ``open door'' 
initiatives, which have been deeply appreciated by the home health care 
and hospice communities.
    Contact persons for the task force are Kathy Thompson, Visiting 
Nurse Association of America (VNAA) (202/737-3707), and Mary St. 
Pierre, National Association for Home Care. (NAHC) (202/547-7424).
    Thank you again for your consideration of our recommendations.
            Sincerely,
                                      American Hospital Association
                                     American Home Care Association
                                  American Association for Homecare
                              Connecticut Association for Home Care
                                            Gentiva Health Services
                               Medstar Health VNA, Washington, D.C.
                                 National Association for Home Care
                             Visiting Nurse Associations of America
cc:
Dallas R. Sweezy, Director of Public Affairs, CMS
Rob Foreman, Director of the Office of Legislation, CMS
Tom Hoyer, Director of the Chronic Care Purchasing Policy Group, CMS
Bob Wardwell, Director of the Division of Community Post-Acute Care, 
CMS
Pat Bousliman, Professional Staff Member, Senate Finance Committee
Susan Christensen, Legislative Assistant, Office of Congresswoman Nancy 
Johnson (R-CT)
Deborah Williams, Professional Staff Member, House Ways and Means' 
Health Subcommittee

                                 

    Chairman JOHNSON. Thank you very much, Ms. Wolf. Dr. Ryan.

    STATEMENT OF JUDITH A. RYAN, PH.D., PRESIDENT AND CHIEF 
EXECUTIVE OFFICER, EVANGELICAL LUTHERAN GOOD SAMARITAN SOCIETY, 
  SIOUX FALLS, SOUTH DAKOTA, ON BEHALF OF THE AMERICAN HEALTH 
                        CARE ASSOCIATION

    Dr. RYAN. Good morning. Thank you for inviting me to 
provide perspective on the progress of regulatory reform in 
long-term care. I am Dr. Judith Ryan, President and Chief 
Executive Officer of the Evangelical Lutheran Good Samaritan 
Society.
    It has been my privilege and experience to watch the 
evolution of regulation in long-term care for more than 45 
years now from a number of perspectives: as a community health 
nurse; as executive director of the American Nurses 
Association; and as the chief quality officer of Lutheran 
General Health System; the associate director for the 
University of Iowa Hospitals and Clinics; and now I lead the 
Good Samaritan Society, which is a long-term care organization, 
deeply rural. We have grown large not by marketing plans, but 
by responding with over 80 years of service to small rural 
communities who have needed help in providing older adult 
services for the elders who are there.
    Over that period of time we have become the largest not-
for-profit provider of long-term care in the country. We have 
250 sites of care, and care for 27,000 residents across 25 
States. We employ nearly 24,000 people.
    I speak today on behalf of the members of the American 
Health Care Association, and testify today not to ask for less 
or for more regulation, but to ask for a more accountable 
regulatory process in long-term care. We believe that such a 
process will benefit providers of care as well as their 
residents and staff.
    I would like to comment in three major areas: regulatory 
solutions that we think need to be addressed in long-term care 
oversight; legislative improvements that we still think are 
necessary; and to share strides in quality improvement we 
believe that the long-term care profession is making.
    With regard to regulatory reform, as you know, in 1986 it 
was the Institute of Medicine's Committee on Nursing Home 
Regulations, in its final report, that provided the impetus for 
Congress to enact major regulatory reform in long-term care. 
Passage of the Omnibus Budget Reconciliation Act of 1990 (OBRA) 
ushered in an era of change in nursing facilities' approach to 
resident care.
    The OBRA was intended to move long-term care in new 
directions. It has moved it in a lot of new good directions. 
However, OBRA enactment did not modify the basic Federal 
regulatory approach to quality, and that omission has forced 
perpetuation of a system that is based on external standards 
and measures of quality that were current in the 1980s.
    We know much more about improving quality now and have 
better tools to measure that quality, and we believe that the 
regulatory process must be updated to allow and to encourage us 
to use them. In fact, in three of the States in which Good 
Samaritan has a large presence, these States have asked for 
Federal Government waivers to allow them to test outcome-based 
measures of quality, and to increase their oversight of poor-
performing facilities.
    Those waiver requests have been denied by HHS because there 
is not that authority under the Medicare waiver. I have brought 
a graphic depiction, which you can see up here, which looks at 
the external regulators with which each nursing home must 
comply. I have seen similar graphs in acute care, but they are 
different kinds of graphs. Those charts in hospitals focus on 
voluntary accreditation by Joint Commission, on accreditation 
and certification by the various professional societies, etc.
    You will note that in long-term care it is the Justice 
Department that sometimes oversees matters of clinical care and 
treats them in criminal matters. We also have the State survey 
process which works under contract with CMS, and a number of 
direct regulations that relate to public reporting, and to the 
payment systems for long-term care that are under CMS directly.
    It is a regulatory maze and it is many times duplicative 
and punitive. It has been said that in acute care we talk about 
medical error, and in long-term care we talk about fraud and 
abuse. In reality, acute and long-term care include a continuum 
of services that we must provide to our older adults. We don't 
suggest that regulations be eliminated, we just suggest that 
they be made smarter. There are legislative solutions that 
would help, and this Committee has given leadership by paying 
attention to a good number of them.
    The long-term care profession supported the Medicare 
Regulatory and Contract Reform Act in the last session of 
Congress and will do so again in the 108th. Your legislation 
will reduce the appeals backlogs. The payment appeals and 
information-sharing provisions of your legislation will help 
providers better navigate the maze of guidance from CMS fiscal 
intermediaries, and you address other important program 
changes. We applaud your leadership and will urge the Senate to 
follow your lead.
    Another area we urge you to address are instances where the 
nursing home regulatory and enforcement system actually impedes 
quality improvement. I think there are three examples I would 
like to lift up:
    One is the nature of the relationship between the 
government as regulator and the providers of service. 
Government inspectors are forbidden from providing consultative 
services to nursing facilities, from sharing best practices, 
making suggestions to improve care.
    Second, nursing homes are often fined for following the 
orders of a patient's physician, forcing them to choose between 
a regulatory fine or the liability that comes with disregarding 
the orders of the patient's doctor.
    A third example occurs when nursing homes are automatically 
forced to terminate their training programs for certified 
nursing aides for 2 years. These regulations usually hurt 
quality improvement more than they help.
    These and several other impediments to quality improvement 
are corrected in the Medicare and Medicaid Nursing Home Quality 
Improvement Act that was introduced last year by Congressman 
Camp on this Committee. I would like to thank you, Congressman 
Camp, for that work, and Congressman McDermott, and urge other 
Members of the Committee to cosponsor that bill when introduced 
this session. We believe it will help us to focus the nursing 
home oversight system on quality improvement.
    Providers of care are taking initiative. Leaders in long-
term care have known for a long time that we have got to remove 
our focus from regulatory compliance and focus rather on making 
remarkable improvements in the quality of long-term care and 
services. Two major initiatives have grown out of early 
discussions among leaders in long-term care, leaders of both 
the profession and the trade and legislative advocacy groups: 
CMS's Nursing Home Quality Initiative and the Quality First 
Initiative. Commissioner Scully referenced the first. That work 
has really enabled us to identify measures of quality, data 
that we already have, that we think go a long way to helping 
inform consumers about the quality that a facility is offering. 
Those measures have been validated by CMS and a system for 
reporting them has been developed, tested, and rolled out. An 
ongoing system of professional consultation to nursing 
facilities is being put in place under CMS's quality 
improvement organizations. That work is going forward very 
effectively.
    The second initiative has been the long-term care 
profession's Quality First Initiative, which was announced last 
year, with an objective of building a covenant to promote 
healthy, affordable, accountable, and ethical long-term care. 
That commitment is on the part of the providers and 
professionals themselves.
    I think these two quality initiatives give pretty good 
evidence that the government, the professionals, the providers, 
are working more effectively together.
    One other comment. I was privileged to serve on Secretary 
Thompson's Advisory Committee on Regulatory Reform, chaired by 
Dr. Doug Wood, and have great respect for that undertaking.
    We discovered that there is great potential for containing 
costs and improving quality if we can better align both the 
payment and regulation of Medicare and Medicaid programs. Many 
of the Secretary's Committee recommendations focus on that. 
There is one piece of unfinished business that will take 
legislative action that can't be accomplished by the regulatory 
authority the Secretary has. That is described in Appendix C of 
the Secretary's Advisory Committee on Regulatory Reform report 
as the number one piece of unfinished business.
    The Secretary's Advisory Committee on Regulatory Reform 
chose to report those things that we discussed but couldn't 
reach closure because of time constraints. The wording of that 
is in my written testimony. It encourages demonstration of 
unified service delivery to those persons dually eligible for 
both Medicare/Medicaid; testing of regulations in limited 
geographic areas before implementation; greater flexibility in 
testing the efficacy of alternative ways to survey nursing 
facilities; and stimulating use of information systems across 
the Medicare and Medicaid programs.
    I thank you for the time to be with you, and for the time 
you serve on the Committee, and I hope that you will take these 
things to mind.
    [The prepared statement of Dr. Ryan follows:]
   Statement of Judith A. Ryan, Ph.D., President and Chief Executive 
  Officer, Evangelical Lutheran Good Samaritan Society, Sioux Falls, 
    South Dakota, on behalf of the American Health Care Association
Introduction of the Speaker

    Good morning, Madam Chairman and members of the subcommittee. Thank 
you for inviting me to provide perspective on the progress of 
regulatory reform in long-term care.
    I am Dr. Judith Ryan, President and Chief Executive Officer of The 
Evangelical Lutheran Good Samaritan Society. The Society is a 
membership organization of men and women collectively engaged in 
building communities of care for older adults and others in need across 
the country. I have watched the evolution of regulation in long-term 
care for forty five years in various capacities--as a community health 
nurse, executive director of the American Nurses Association, senior 
vice president and chief quality officer for Lutheran General Health 
Systems and Associate Director of the University of Iowa Hospitals and 
Clinics.
    I now lead a long-term care organization that is deeply rural. We 
have grown over the 80 years of our history by partnering with 
communities who have recognized the need for help to provide 
facilities, programs and services for older adults. Over 80 years of 
service, the Society has become the largest not-for-profit provider of 
long-term care and senior services in the country. We offer senior 
housing and skilled nursing options in more than 250 sites of care 
across 25 states, serve 27,000 residents and employ nearly 24,000 
staff. Our sites of care are linked together by cutting-edge 
communications technology: by voice and telecommunications, Intranet 
and satellite.
    I speak today on behalf of all members of the American Health Care 
Association, the national organization representing over 12,000 
providers of long term care who serve over 2 million elderly and 
disabled people annually and employ over 1.5 million people. We are 
testifying today not to ask for less or for more regulation, but to ask 
for a more accountable regulatory process. We ask for a process through 
which all stakeholders can work together to promote and maintain 
quality care for all Americans. Such a process will benefit providers 
of care as well as their patients and their staff.
    I am here to discuss three areas:

        1. Regulatory solutions in long term care oversight
        2. Legislative improvements to long term care oversight
        3. Strides in quality improvement made by the long term care 
        profession

Regulatory Reform in Long-Term Care

    In long term care, as in the other sectors of our health care 
system, we labor under the inequities of very difficult payment and 
review policies, and we are deluged with paperwork as you will hear 
from the other witnesses. In fact many of our best nurses leave long 
term care to work in hospitals or other settings where the paperwork 
burden is less. Nevertheless, we have an additional regulatory problem 
that is unique to long term care, and causes even more difficulty in 
patient quality than the other two problems combined. That difficulty 
comes when the regulations start impeding the quality of care that our 
patients are receiving.
    Twenty years ago this year, the Institute of Medicine's Committee 
on Nursing Home Regulation was convened to ``serve as the basis for 
adjusting federal (and state) policies and regulations governing the 
certification of nursing homes so as to make those policies and 
regulations as appropriate and effective as possible.'' The final 
report, ``Improving the Quality of Care in Nursing Homes'' issued in 
1986, provided the impetus for Congress to enact major regulatory 
reform in long-term care. Passage of the Omnibus Budget Reconciliation 
Act in 1987 (OBRA '87) ushered in an era of change in nursing 
facilities' approach to patients' care. Congress made the care mandate 
very clear: All certified facilities must: ``. . . attain or maintain 
the highest practicable physical, mental and psychosocial well being of 
each resident.''
    The OBRA '87 mandate was intended to move care in new directions, 
and it did. However, the statute did not modify the basic federal 
regulatory approach to
quality. That omission has forced perpetuation of a system that is 
based on expec-tations and measures of quality that were current in the 
1980's. We know much more now about promoting quality and have better 
tools to measure it than we did back then. The regulatory process must 
be changed to allow and encourage us to use them. Today both regulators 
and facilities must be involved in a dynamic system of quality 
improvement, using the same principles of continuous quality 
improvement. It is time to move to such a system and regulatory reform 
will take us there.
    In fact, Madam Chairman, each of the three states in which the Good 
Samaritan Society has the largest presence have asked the federal 
government for a waiver to allow them to test outcome-based measures of 
quality, and to increase their oversight on poor performing facilities. 
Those waivers from the States of North Dakota, South Dakota, and 
Minnesota were denied by HHS due to lack of Medicare authority. This is 
but one example of how static statute and regulation has prevented 
quality measurement and improvement from moving forward.
    For the past 15 years, those of us most accountable for providing 
quality services to patients in long-term care--physicians, nurses, 
social workers, therapists, pharmacists, certified nursing assistants, 
administrators, residents, families and consumer advocates--have had to 
become increasingly focused on compliance with external expectations of 
quality and static regulations. This occurs at the expense of 
continuous quality improvement and attention to individual patients' 
needs. For example, nursing homes are regulated by dozens of agencies, 
and from all sides. I have brought a graphic depiction of the external 
regulators with whom each nursing home must comply. It is difficult to 
see how staff have time for caregiving. Here are just a few of the 
responsibilities we are focused on daily:

         LState survey, licensure and accreditation 
        requirements
         LRegulations related to certification for 
        participation in government payment systems (Medicaid and 
        Medicare)
         LRegulations related to assessment and documentation 
        of the resident's functional status, related plans of care, and 
        quality measures.
         LCMS reimbursement policy that tailors patient 
        assessment to payment levels.
         LStandards for privacy, patient rights, and business 
        transactions under HIPAA.
         LOffice of Inspector General (OIG) policies and 
        programs pertaining to fraud and abuse.
         LCMS' mandatory program of reporting quality measures 
        to the public.

    This is not to suggest that regulations be eliminated but that they 
be made ``smarter.'' We are asking that the processes used to determine 
compliance and judge quality and patients' outcomes be modified and 
updated.

Legislative solutions

    Your Committee, Madam Chairman, has taken important steps forward 
toward this end. It is now my hope that your committee can provide the 
impetus to make these reforms a reality.
    This is why the long-term care profession strongly supported the 
Medicare Regulatory and Contracting Reform Act (MRCRA) in the last 
session of congress, and do so again in the 108th Congress. Our 
subjective and inflexible oversight system necessitates that providers 
constantly appeal erroneous citations that in turn creates backlogs of 
appeals at the Administrative Law Judge (ALJ) and Departmental Appeals 
Board (DAB) levels. Furthermore, because our oversight system is 
punitive in nature, and because the first level of appeals is before 
the very people who issued the citation in the first place, the ALJ is 
really the first impartial appeal we face. Your legislation will reduce 
this backlog by increasing ALJ and DAB resources to hear these cases. 
The payment appeals and information sharing provisions of your 
legislation will help providers better navigate the maze of guidance 
from the CMS, the FIs, and other program changes. We applaud your 
leadership and will urge the Senate to follow your lead. Another area 
we urge you to address are the several instances where the nursing home 
regulatory and enforcement system actually impedes quality improvement. 
Let me discuss three examples. First, government inspectors are 
forbidden from helping care providers improve quality by suggesting 
best practices, or even praising good care. Second, nursing homes are 
often fined for following the orders of the patient's physician--
forcing them to choose either a regulatory civil monetary penalty 
(CMP), or the liability that comes with disregarding the orders of the 
patient's doctor. A third example occurs when nursing homes that are 
fined $5000 or more are automatically forced to terminate their 
training programs for certified nurses aides--for two years. Even if 
the deficiency is cleared up within a day, the provider's ability to 
train more staff is gone for two years. This usually hurts quality 
improvement more than it helps, especially in rural areas where there 
are no training programs nearby.
    These and several other impediments to quality improvement are 
corrected in the Medicare and Medicaid Nursing Home Quality Improvement 
Act (HR 4030) that was introduced last year by Congressman Dave Camp on 
this committee. I'd like to thank Congressman Camp, Congressman 
McDermott, and the other cosponsors for their leadership in quality 
improvement and urge the other members of the committee to cosponsor 
the bill and help us make the nursing home oversight system more 
focused on improving quality.

Providers of care take the initiative

    In the late 1990s, leaders in long-term care recognized that we had 
to recapture a sense of professional and individual accountability to 
make remarkable improvement in the quality of long-term care and 
services. These leaders met to consider how we might align our 
individual organizational quality initiatives and work more effectively 
with government to manage change.
    Two major initiatives grew out of those early discussions:

1. CMS's Nursing Home Quality Initiative, in which:

         LMeasures of quality have been defined and validated 
        by CMS;
         LA system for reporting these measures to the public 
        has been developed, tested and rolled out; and
         LAn ongoing system of professional consult in 
        continuous quality improvement is currently being put in place 
        by the Quality Improvement Organizations.

2. The long-term care profession's Quality First Initiative, which was 
announced in 2002 with the objective of building a covenant by and 
among all representatives within the profession to promote healthy, 
affordable, accountable and ethical long-term care. Quality First is a 
comprehensive, measurable commitment to quality that we believe nursing 
homes will embrace. It is, in essence, a promise from providers to 
patients and their families that nursing homes will deliver the high 
quality care that America's seniors deserve.
    Quality First consists of seven principles that have been jointly 
endorsed by AAHSA, the Alliance, and the American Health Care 
Association (AHCA).
    The seven core principles are as follows:

         LContinuous Quality Assurance and Quality Improvement;
         LPublic Disclosure and Accountability;
         LPatient/Resident and Family Rights;
         LWorkforce Excellence;
         LPublic Input and Community Involvement;
         LEthical Practices; and
         LFinancial Stewardship

    Quality First further calls for the creation of a National 
Commission on Nursing Home Quality that will report progress toward 
achieving improved quality. The panel will identify opportunities for 
quality improvement; recommend annual quality improvement goals; and 
assess the impact of the voluntary quality initiative on care and 
services.
    In addition to achieving a uniform commitment to quality, the goal 
of Quality First is to build consumer trust through achieving 
excellence in care and service delivery.
    I believe these two quality initiatives indicate the desire on the 
part of the government and provider community to work toward a common 
goal of improving quality; however, more needs to be done.

Regulatory Reforms

    Madam Chairman, I was privileged to serve on Secretary Thompson's 
Advisory Committee on Regulatory Reform (SACRR), chaired by Dr. Douglas 
Wood, and have great respect for this undertaking. During the eleven 
months of work of this Committee, I have seen first hand how well 
intended regulations can have the effect of impeding quality. During 
our work together, Committee members learned that consumers, consumer 
advocates, beneficiaries, providers, suppliers, the business community, 
researchers and public officials all reject the current regulatory and 
payment frameworks for long-term care. This overwhelming vote of ``no 
confidence'' provides the necessary societal and political mandate for 
Congress to seriously consider meaningful reform.
    We also found great opportunities for streamlining programs and 
making them more beneficiary focused. For example: The elderly and 
persons with disabilities need both medical care, and help with 
personal needs and activities of daily living. Medicare pays for the 
former, and Medicaid pays for part of the latter. The two programs are 
administered as separate programs. Six million people are eligible for 
both programs.
    There is tremendous potential for containing cost and improving 
quality of care and services if we can better align both payment and 
regulation in the Medicare and Medicaid programs. Many of the 255 SACRR 
recommendations address this issue.
    Madam Chairman, the Medicare Regulatory and Contracting Reform Act 
passed by the House during the 107th Congress addressed many of the 
reforms embraced by the SACRR. The Centers for Medicare and Medicaid 
Services, (CMS) can implement many of SACRR's recommendations through 
administrative action and we strongly encourage the agency to take this 
step. However, there is unfinished business that warrants Congressional 
action. Appendix C of SACRR's report contains unfinished Committee 
business--recommendations that were proposed by SACRR and either 
formally discussed or put forth for Committee consideration, but not 
brought to closure because of time constraints.
    The #1 piece of unfinished Committee business reads as follows:

    ``Expand Medicare waiver authority, selectively, beyond the current 
limited authority to waive coverage and reimbursement, to accomplish 
several high priority goals of the Committee, including but not limited 
to:

         LDemonstrations of unified service delivery to 
        Medicaid/Medicare dual eligibles.
         LTesting of regulations in limited geographic areas 
        before requiring national implementation.
         LAllowing greater flexibility to test the efficacy of 
        alternative State survey protocols for skilled nursing 
        facilities/nursing facilities, as per recommendation #213 
        (Multiple Reviews);
         LEnabling providers to access government data for the 
        purpose of improving quality of care, while retaining system 
        security and patient privacy protections.''

    Madam Chairman, in the name of regulatory reform in long-term care, 
we strongly urge that SACRR's #1 piece of unfinished business be 
introduced as legislation in the 108th Congress.

Concluding Comments:

    In conclusion, all of us--beneficiaries, providers, suppliers, 
lawmakers, regulators and consumer advocates--need to make a 
disciplined commitment to remarkable improvement in the quality of 
long-term care:

         LThe consumer and consumer advocate must commit to 
        systems that will enable residents and families to exercise 
        informed choice.
         LThe government must commit to avoid unintended 
        consequences of regulation, and to observe and continuously 
        improve the impact of regulation in the real world.
         LProviders and suppliers must make a disciplined 
        commitment to adhere to principles of continuous improvement, 
        conduct formal programs of continuous quality improvement, and 
        to report outcomes publicly.
         LAnd finally, all stakeholders must make a joint 
        commitment to using technology to share data that is patient 
        specific across sites of care and time in order to integrate 
        the patient's experience with episodes of acute care, skilled 
        nursing care, home health care, and community-based long-term 
        care.

    While these challenges are formidable, Madam Chairman, your 
legislation, Congressman Camp's legislation, and the ideas put forth by 
the Secretary's Commission give us hope and the tools to achieve 
meaningful reform in the regulation of long-term care. We pledge to 
work with you to bring about these important changes. Thank you for 
your leadership.

                                 

    Chairman JOHNSON. Thank you very much. Dr. Carius.

 STATEMENT OF MICHAEL CARIUS, M.D., IMMEDIATE PAST PRESIDENT, 
AMERICAN COLLEGE OF EMERGENCY PHYSICIANS, NORWALK, CONNECTICUT, 
      AND FOUNDING MEMBER, ALLIANCE OF SPECIALTY MEDICINE

    Dr. CARIUS. Thank you, Chairman Johnson, Ranking Member 
Stark, and Members of the Subcommittee for the opportunity to 
testify here today. I am Dr. Michael Carius, Immediate Past 
President of the American College of Emergency Physicians 
(ACEP), and a Founding Member of the Alliance of Specialty 
Medicine. I am here today representing nearly 23,000 emergency 
physicians, and more than 160,000 physician specialist members 
of the 13 medical specialty societies and associations that 
comprise the Alliance.
    I am here today to discuss the Medicare regulatory reform 
provisions in H.R. 4954, the actions CMS has taken towards 
regulatory relief, and what remains to be done in the future. I 
will also address the Emergency Medical Treatment and Labor 
Act.
    Today, liability costs and reimbursement reductions have 
taken their toll on the practice of medicine. Government 
regulation has compounded our paperwork, which is demoralizing 
for physicians who are in the business of patient care. 
Ultimately, patient care is jeopardized when physicians are 
forced to spend hours filling out a blizzard of bewildering 
paperwork to comply with enormous and complex Federal health 
care regulations, particularly those of Medicare, Medicaid, and 
now HIPAA.
    We applaud the Committee's efforts during the last Congress 
to reduce and streamline Medicare regulations, and encourage 
you to continue your effort this year.
    The ACEP and the Alliance have long supported the goal of 
EMTALA to prevent discrimination in the delivery of emergency 
medical care. Since 1986, EMTALA's impact on health care has 
been great, but over the years, regulations, guidance and court 
decisions have caused this law to be increasingly problematic 
for emergency care. We are encouraged by the draft regulations 
published in May 2002 which indicate that CMS has thoughtfully 
reviewed the regulatory language and guidance it has 
promulgated. From this, we anticipate comments from physician 
and hospital groups will lead to further improvements to the 
final regulation.
    However, additional steps need to be taken. The ACEP and 
the Alliance support section 844, which contains additional 
EMTALA improvements. We believe payment for medical screening 
examination and stabilizing treatments should be based on the 
presenting condition, not on the final diagnosis, which has 
been used by both the public and private payers to deny payment 
and which is inconsistent with the EMTALA duty to screen and 
stabilize.
    Enforcement actions have been inconsistent, driven by poor 
patient outcomes, questionable complaints, and adversarial 
attitudes. The ACEP and the Alliance recognize that EMTALA 
definitions are legal, not clinical, and urge that 
investigations focus on whether the medical screening 
examination process was discriminatory and not on clinical or 
quality-of-care concerns. We view heavy-handed and uneven 
enforcement as one of the greatest threats to a collapsing 
emergency medical care system.
    Section 844 also addresses the role of peer review in 
EMTALA investigations. Currently, if peer review is obtained, 
CMS recommends but does not require agencies or regional 
offices to use board-certified physicians. However, peer review 
often does not occur because of short review times required by 
CMS.
    The ACEP and the Alliance urge Congress to mandate early 
peer review and require reviewers to be board-certified 
physicians practicing in the specialty related to the alleged 
violation. In addition, peer reviewers should also be trained 
in the EMTALA law and regulations applicable to medicine. The 
ACEP and the Alliance support quality EMTALA enforcement and 
peer review participation and would willingly participate as 
peer reviewers.
    The uncertainty surrounding both initiation and closure of 
an EMTALA investigation is one of the most vexing aspects for 
physicians. We believe quality improvement organizations' peer 
review reports should be provided to the hospitals and to 
physicians being investigated concurrently with their delivery 
to CMS, and we support the notification of providers when the 
investigation is closed.
    The ACEP and the Alliance support the provisions found in 
section 845. Provider experience, expertise, and input into CMS 
decision-making regarding interpretation and enforcement of the 
law would avoid conflict and decision error, and improve 
compliance consistent with congressional intent.
    Emergency departments face a dwindling supply of medical 
specialists who need to maintain their own practice obligations 
while endeavoring to provide on-call services to several 
different hospitals where they may have privileges. This crisis 
was highlighted recently during President Bush's recent visit 
to Scranton, where he found only one neurosurgeon who covers 
two hospitals and a trauma center. One surgeon clearly cannot 
cover three facilities simultaneously.
    Unfortunately, the proposed rule further confuses and 
increases emergency departments' on-call problems. How will 
emergency physicians, who urgently need the services of an on-
call specialist, find one who is able to come to the emergency 
department?
    The lack of payment for treating and stabilizing uninsured 
EMTALA-related cases is an underlying problem, and it threatens 
the viability of our Nation's health care safety net, emergency 
departments, and trauma centers. The proposed EMTALA technical 
advisory group must examine this problem.
    In conclusion, Federal policy must acknowledge today's 
environment and develop broader-based approaches to on-call 
coverage. It also must address funding EMTALA-mandated 
services, expansion of the EMS infrastructure, and development 
of a more consistent and pragmatic EMTALA enforcement program.
    We believe that the proposed composition of the EMTALA 
technical advisory group in section 845, which includes broad 
representation from CMS, including its regional offices as well 
as the Office of Inspector General (OIG), State reviewers, peer 
reviewers, and consumers will adequately protect public 
interest without a Federal Advisory Committee Act requirement, 
while promoting frank and open discussion of today's difficult 
issues surrounding EMTALA implementation and enforcement.
    This concludes my testimony. I will be happy to provide 
additional testimony to the Committee as needed. I thank you 
for the opportunity.
    [The prepared statement of Dr. Carius follows:]
 Statement of Michael Carius, M.D., Immediate Past President, American 
  College of Emergency Physicians, Norwalk, Connecticut, and Founding 
                 Member, Alliance of Specialty Medicine
    Thank you, Chairman Johnson and Ranking Member Stark and Members of 
the Subcommittee for the opportunity to testify. I am Dr. Michael 
Carius, immediate past president of the American College of Emergency 
Physicians and a founding member of the Alliance of Specialty Medicine. 
I am here today representing over 22,000 emergency physicians and more 
than 160,000 physician specialist members of the 13 medical specialty 
societies and associations that comprise the Alliance.
    You have asked me to speak about the Medicare regulatory reform 
provisions in H.R. 4954, The Medicare Modernization and Prescription 
Drug Act passed by the House last year, the actions CMS has taken 
toward regulatory relief and what remains to be done. You also have 
asked me to specifically address Emergency Medical Treatment and Labor 
Act (EMTALA).
    I would like to begin by making a few comments about the 
environment in which American medicine is practiced today. We are 
practicing in a time when much of the control of our private practice 
has been taken away by governmental requirements and private sector 
cost cutting. Liability costs and reimbursement reductions have taken 
their toll. Government regulation of the practice of medicine and the 
additional paperwork burden it causes is one of the most wearisome 
aspects of today's medical practice environment. Chairman Johnson is 
absolutely correct when she states, ``that physicians are frustrated 
that today's system seemingly is oriented toward and emphasizes 
policing providers rather than helping them deliver better care.''
    The enormity and complexity of Federal health care regulations 
particularly Medicare, Medicaid, and HIPAA regulations make it 
difficult for physicians to spend time with patients. Instead, 
physicians and their staff spend hours filling out a blizzard of 
bewildering paperwork. It is nearly impossible for physicians to recoup 
the patient care time that compliance with these requirements imposes. 
We applaud the Committee's efforts during the last Congress to reduce 
and streamline Medicare regulation and encourage you to continue your 
efforts this year.
    ACEP and the Alliance have long supported the goals of EMTALA. We 
believe in the intent of EMTALA as an anti-discrimination law. Since 
1986, EMTALA requirements have affected us all, but with several 
versions of the regulations, guidance, and court decisions, EMTALA has 
had a unique and increasingly troubling impact on emergency medical 
practice.
    It is clear from the draft regulations published in May 2002 that 
CMS has engaged in a thoughtful review of the regulatory language and 
guidance promulgated over the years. We are generally pleased with most 
of the common sense proposals that clarify and refine definitions and 
demonstrate CMS' efforts to respond to physician and hospital concerns 
regarding EMTALA compliance. We look forward to the final regulations 
and anticipate further improvements based on comments from physician 
and hospital groups.
    Legislation passed by the House last year would be largely 
complementary to CMS' efforts, and passage by the Congress in 2003 
would improve physician practice environment. However additional steps 
need to be taken, and I'd like to focus my comments on a few of the 
provisions in the Chairman's bill.

LACEP and the Alliance actively support Sec. 844, which contains 
        additional EMTALA improvements.

    We believe that the payment for a medical screening examination and 
stabilizing treatment be based on the presenting condition and services 
ordered/performed to make a determination of whether or not an 
emergency medical condition exists. Payment based on the final 
diagnosis, which has been used by both public and private payers is 
inappropriate and is inconsistent with EMTALA duty to screen and 
stabilize.
    Currently, enforcement is very unevenly applied across the country. 
While not addressing enforcement in the draft regulations, CMS has 
recognized the problems and has a contractor assessing the process 
disparities across states and regional offices. ACEP and the Alliance 
recognize that EMTALA definitions are legal rather than clinical, and 
urge investigators to focus on whether the medical screening 
examination process is applied in a discriminatory manner, not whether 
the reviewer has clinical or quality of care concerns. Enforcement 
actions have been inconsistent, driven by poor patient outcomes, 
erroneous complaints and adversarial attitudes. Given the fragile and 
overloaded condition of our emergency safety net including the 
specialists it relies on, ACEP and the Alliance view heavy handed and 
inaccurate enforcement as one of the greatest threats to our already 
collapsing emergency care system. We believe that Sec 844 will help 
alleviate these concerns.
    Sec. 844 also addresses the role of peer review in EMTALA 
investigations. Currently, if peer review is obtained, CMS recommends 
but does not require that the state agencies or regional offices use 
Board Certified physicians, peer review does not occur often because of 
the tight review time mandated by CMS. ACEP and the Alliance urge 
Congress to make early peer review mandatory and that the physician 
reviewer be a Board Certified physician and actually practicing in the 
appropriate specialty related to the alleged violation. ACEP and the 
Alliance believe that peer reports should be made available to the 
hospitals and physicians involved at the same time the Quality 
Improvement Organization (QIO) is sending them to CMS.
    Physicians involved in peer review should be specifically trained 
in the EMTALA law and regulations applicable to the practice of 
medicine. EMTALA violations are legal determinations; they are not 
medical care violations. Unfortunately, most QIO reviewing physicians 
understand standards of care related to medical liability rather than 
the legal nuances of EMTALA. ACEP and the Alliance are very supportive 
of quality EMTALA enforcement and peer review participation, and would 
be readily available to participate in peer review at all stages in the 
process. One of the most vexing aspects of EMTALA enforcement for 
providers is the uncertainty surrounding the closure of the 
investigation. ACEP and the Alliance support the notification of 
providers when the investigation is closed (as found in Sec. 844).

LACEP and the Alliance enthusiastically support Sec. 845. EMTALA 
        Technical Advisory Group.

    Provider experience, expertise, and input into CMS's decision 
making regarding interpretation and enforcement of the law would avoid 
conflict, decision error, and improve compliance consistent with 
Congressional intent.
    After more than 15 years, the resiliency of the emergency care 
system and good will of specialty providers is in jeopardy. The lack of 
payment for treating and stabilizing uninsured EMTALA related cases 
threatens the fabric of a critical component of our nation's health 
care safety net of emergency departments and trauma centers. The 
problems with the ``on-call'' regulations highlight this issue.
    The practical limitations in today's environment are evident. There 
is a dwindling supply of medical specialists who need to maintain their 
own practice obligations while endeavoring to provide on-call services 
to several different hospitals where they may have privileges.
    This crisis situation was underscored recently during the 
President's visit to Scranton, where there is only one neurosurgeon 
covering two hospitals and a trauma center. One surgeon cannot be in 
all three places at once. In addition, he cannot continually cancel his 
scheduled patients or work continuously without a day off.
    The proposed regulation provides new and increased flexibility for 
the surgeon to be on call for more than one hospital simultaneously. 
Unfortunately, this does not resolve the problem. The proposed CMS 
regulation requires hospitals to continue to ``maintain an on-call list 
of physicians on its medical staff in a manner that best meets the 
needs of the hospital's patients.''
    What does this mean? Does it mean the hospitals must provide on-
call physicians services or simply maintain an on-call list? What does 
this mean to emergency physicians trying to find an urgently needed 
specialist? The current rules, while enhancing flexibility for certain 
specialists, create uncertainty and ambiguity in how the rules will 
actually work to provide timely coverage in EDs. A technical expert 
group can begin to address this, and other serious problems in delivery 
of emergency care created by EMTALA.
    The fundamental underlying question that Congress must answer is 
how does the federal government propose that hospitals, emergency 
physicians and other specialists continue to provide uncompensated 
EMTALA related services in light of the current practice environment? 
How this issue is resolved will have enormous ramifications to the 
availability of emergency services in this country, particularly in 
smaller community hospitals.
    Federal policy must acknowledge today's environment and develop 
broader-based approaches to on-call coverage. Funding for uncompensated 
care with respect to EMTALA-mandated services, expansion of EMS 
infrastructure, and more consistent and pragmatic EMTALA enforcement 
must be addressed also.
    Given the sensitivity of many of these issues, we believe there is 
a more appropriate model to engender frank discussions and generate the 
compromise needed on these seemingly intractable issues than the FACA 
model. We note that since the proposed composition of the EMTALA 
Technical Advisory Group in Sec. 845 includes representatives from CMS 
including the CMS regional offices, the OIG, State reviewers, peer 
reviewers as well as consumer representation, the public interest will 
be well-protected even without a FACA requirement.
    ACEP and the Alliance also support Sec. 821, 823, 834, Provider 
Education, Medicare Ombudsman, Prepayment review respectively and will 
provide more detailed written comments on Title VIII to the Chairman.
    This concludes my testimony. Again I wish to thank you for the 
opportunity to testify before the Subcommittee. Thank you.
    The American College of Emergency Physicians is a national 
specialty society representing emergency medicine. With nearly 23,000 
members, ACEP is committed to improving the quality of emergency care 
through continuing education, research and public education. 
Headquartered in Dallas, Texas, ACEP has 53 chapters representing each 
state, as well as Puerto Rico and the District of Columbia. A 
Government Services Chapter represents emergency physicians employed by 
military branches and government agencies.
    The Alliance of Specialty Medicine, is comprised of medical 
organizations representing over 160,000 specialty care physicians in 
the United States. The Alliance's mission is to improve access to 
quality medical care for all Americans through a unified voice of 
specialty physicians promoting sound federal policy
    American Academy of Dermatology Association, American Association 
of Neurological Surgeons/Congress of Neurological Surgeons, American 
Association of Orthopaedic Surgeons, American College of Cardiology, 
American College of Emergency Physicians, American College of 
Osteopathic Surgeons, American College of Radiology, American 
Gastroenterological Association, American Society of Cataract and 
Refractive Surgery, American Urological Association, National 
Association of Spine Specialists, and Society of Thoracic Surgeons.

                                 

    Chairman JOHNSON. Thank you very much, Dr. Carius. Ms. 
Gottlich.

   STATEMENT OF VICKI GOTTLICH, ATTORNEY, HEALTHCARE RIGHTS 
          PROJECT, CENTER FOR MEDICARE ADVOCACY, INC.

    Ms. GOTTLICH. I am Vicki Gottlich from the Center for 
Medicare Advocacy. I thank Chairman Johnson, Mr. Stark, and the 
Members of the Committee for the opportunity to testify before 
you as the lone representative of beneficiaries in a very long 
hearing.
    I came prepared to discuss the need for a prior 
determination process using Advance Beneficiary Notices, and 
the need for a beneficiary ombudsman in HHS. Based on the 
comments of Mr. Scully and the questions about the appeals 
process, I rewrote my testimony, because I want to focus on the 
appeals issues.
    Beneficiary representatives across the country do not 
support CMS's efforts to weaken the appeals protections that 
were initiated by Mrs. Johnson, Congressman Thomas, and 
supported in a bipartisan way by this Subcommittee. Those of us 
who actually represent beneficiaries in the Medicare appeals 
process know that the problems lie with the contractors and 
they do not lie with the ALJs, as CMS would have you believe.
    Like providers, beneficiaries get inappropriate, 
conflicting, inaccurate information from contractors. We 
believe that some of the recommendations made by CMS will only 
make this provision worse and that they will weaken the role of 
the ALJ.
    The delays at the contractor level are unconscionable. We 
oppose any effort to extend the time periods from the BIPA time 
periods. We would like you to know that CMS, in its proposed 
regulations to implement BIPA, even said that they aren't 
prepared to enforce the time periods. So, no matter how much 
extra time you give to contractors, as CMS requests, CMS isn't 
going to do anything if the delays continue.
    I want to give you two examples that show the problems with 
contractors that have occurred recently. In response to a 
request by a paralegal for the laws relied upon in denying a 
claim for ambulance services, a carrier sent two pages from an 
OIG report citing fraud and abuse in ambulance claims. An OIG 
report is not a law upon which a carrier or anyone else may 
base a decision that care is not medically necessary for an 
individual.
    This example illustrates why both beneficiaries and 
providers have such problems with early levels of appeals at 
the carrier and fiscal intermediary stage, and why they have 
such high success rates at the ALJ hearing level. The ALJs make 
their decisions based on the laws that govern Medicare, not on 
OIG reports, other non-legal interpretations, or the confusing 
and sometimes inaccurate contractor bulletins we see issued and 
upon which contractors rely in making decisions.
    The ALJs are independent, external reviewers who provide 
beneficiaries with the fair hearing rights required by due 
process of law. Yet hidden in the budget proposal, CMS is 
proposing to weaken the ALJ level of review by using 
alternative mechanisms in lieu of ALJs. These mechanisms will 
deprive beneficiaries of the first real independent review of 
the law and facts relating to their claims that they receive.
    Moving the ALJs from the Social Security Administration to 
HHS is opposed by every single beneficiary advocate in this 
country. We are fearful that ALJs will lose their independence 
and be beholden to the agency in which they are housed. The 
ALJs before whom we have appeared in administrative hearings 
are familiar with Medicare laws and regulations. They 
understand the legal and Medicare issues and medical issues 
that are involved.
    I want to give you another example that arose yesterday 
after I submitted my testimony. We received a copy of a 
confusing and inconsistent fiscal intermediary bulletin that 
may violate both the CMS skilled nursing facility (SNF) manual, 
and the Federal court settlement of a case called Sarasatt 
against Boeing. The SNF provider is using the fiscal 
intermediary bulletin to try to collect money from the resident 
beneficiary in violation of the Sarasatt settlement. If we 
appeal this case, the fiscal intermediary is going to rely on 
its bulletin, and so it will be a bogus, worthless appeal on 
behalf of the beneficiary.
    At the ALJ hearing, we would be able to submit the law, the 
SNF manual, and the ALJ would rely on the law and the SNF 
manual to determine whether or not the beneficiary is entitled 
to relief. The problem is with the carriers and the fiscal 
intermediaries that don't rely on real law.
    The other problem with the CMS regulations is that they are 
making it harder for beneficiaries to use the appeals process. 
Congressman Thomas instituted the BIPA changes because he 
wanted to make it easier for beneficiaries.
    What we see in CMS's proposed regs is a process which would 
require beneficiaries to have an attorney in order to put 
together the legal documents and the medical records that CMS 
would require. Ironically, it would be harder and require more 
detail to file an appeal to the ALJ level of review than it is 
to file an appeal in Federal court.
    I want to say one other thing. That is, if you want to save 
money in the appeals process, eliminate the quick levels of 
review. Beneficiary representatives believe that the quicks 
will be another bureaucratic level of review which will hinder 
their access to care. The quicks will be contractors who are 
beholden to the entity with whom they contract, and we are 
concerned that as part of their contract analysis, CMS will 
look to see how many of the appeals they upheld.
    We thank you for the opportunity to testify on behalf of 
your beneficiary constituents who are not represented 
adequately on the Regulatory Reform Committee and do not have a 
stronger voice at CMS or even before Congress as provider 
organizations. I ask your help in ensuring that regulatory and 
contractor reform efforts do not undermine the laws this 
Committee initiated and enacted and court decisions designed to 
protect beneficiary rights and access to care. Thank you.
    [The prepared statement of Ms. Gottlich follows:]
   Statement of Vicki Gottlich, Attorney, Healthcare Rights Project, 
                   Center for Medicare Advocacy, Inc.
    Good afternoon. I am Vicki Gottlich, an attorney with the 
Healthcare Rights Project of the Center for Medicare Advocacy, Inc. I 
appreciate the opportunity to address the Subcommittee on Health 
concerning Medicare regulatory and contractor reform. We, like you, are 
concerned with the important issue of assuring that Medicare provides 
older people and people with disabilities basic protection against the 
cost of medical services.
LUsing Advance Beneficiary Notices to Establish a Prior Determination 
        Process
    One of the few pro-beneficiary provisions included in HR 3391, the 
Medicare Regulatory Relief and Contracting Bill that passed the House 
in the 107th Congress, builds upon the use of successful model notices 
developed by CMS--in this instance the Advance Beneficiary Notices 
(ABN)--to establish a prior determination process for certain items and 
services covered by Medicare. We urge you to include this provision in 
any future legislation, with the modifications discussed below.
    Current regulations mandate that ABNs be provided to beneficiaries 
by physicians who believe that Medicare is likely to deny payment for a 
particular service. See 42 CFR Sec. Sec. 411.408(d)(2). The notice 
serves two purposes: to inform a beneficiary that she may request that 
the claim for the service be submitted to Medicare for an official 
determination of Medicare payment, and to inform the beneficiary that 
she could potentially be liable financially for the service if Medicare 
denies payment for the claim. If the claim is not submitted to 
Medicare, and no official decision is received from Medicare, then the 
beneficiary has no access to the appeals system. In order to appeal a 
denial of a claim, a beneficiary must both receive the service and have 
Medicare, rather than the provider, determine that it will not 
reimburse the provider for the service.
    Though the ABN serves as a beneficiary protection, informing the 
beneficiary of rights and potential responsibility, the ABN also 
creates barriers to care. Many beneficiaries, fearing that Medicare 
will not pay for a service, and concerned that they will be unable to 
pay for the service out of their own pockets, decide to forgo treatment 
when faced with an ABN. These beneficiaries are relying on the 
provider's interpretation of Medicare coverage. By forgoing the 
service, they forgo the right to get an official Medicare determination 
on whether the claim will be paid, and they lose the right to appeal 
the unfavorable decision.
    Beneficiaries who can afford to pay for the service after receiving 
an ABN, and who request that the claim be submitted to Medicare, are 
likely to fair well. Approximately 70% of claims for which an ABN was 
issued to the patient are paid by Medicare. Thus, beneficiaries who 
decline a service because they cannot afford to pay are in all 
probability foregoing a service that would have been covered by 
Medicare.
    Section 408 of HR 3391 creates a remedy for beneficiaries who want 
a determination from the carrier about whether Medicare will pay for a 
service for which they received an ABN, but who cannot afford to pay 
for the service themselves. The process established in that section 
would allow doctors and patients to request a prior determination from 
Medicare about whether care will be covered in cases in which an ABN 
was delivered. The section requires the decision to be made within 45 
days of the submission, and allows for a redetermination of an 
unfavorable prior determination to be issued within 30 days. A 
beneficiary who receives an unfavorable prior determination may still 
go through the claims and appeals process after obtaining the service.
    What we currently have is a two-tiered Medicare system. Those 
beneficiaries who receive an ABN and can afford to pay for the 
services, receive the services, the Medicare claim is filed, and in 70% 
of cases, Medicare pays the claim. Those beneficiaries who receive an 
ABN and CANNOT afford to pay for services, do not receive the services, 
no Medicare claim is filed and they are denied medical care. This 
provision will rectify this inequity.
    While Section 408 creates an important right for beneficiaries, it 
needs to be strengthened in two ways. First, the 45 day time period for 
making a determination is too long for some treatments and diagnostic 
tests. Conditions may worsen while beneficiaries wait for a decision 
from Medicare. Second, as part of the provider education which plays an 
important part of regulatory and contractor reform, Medicare 
contractors should instruct providers on the proper use of ABNs. 
Beneficiary advocates find that some providers are distributing ABNs 
routinely for all services, and not just for services in which there is 
a question about Medicare payment. As a result, beneficiaries are 
declining care for services for which there is no doubt that Medicare 
would make a payment.
Medicare Beneficiary Ombudsman
    The other beneficiary provision in HR 3391 is Section 303. That 
section establishes the position of Medicare Beneficiary Ombudsman 
within the Department of Health and Human Services to assist with 
complaints, grievances, requests for information, appeals, and 
disenrollment from Medicare+Choice plans. Currently, there is no 
central place within HHS or CMS for beneficiaries to go and seek 
information and assistance. The sources and resources available to 
beneficiaries are spotty at best. Thus, creation of the Beneficiary 
Ombudsman would fill a void that is getting increasingly worse.
    Much confusion still remains over whether Medicare carriers and 
fiscal intermediaries have eliminated their beneficiary outreach and 
education specialist positions. CMS and HHS have recently stated that 
press reports concerning the elimination of this position are 
incorrect. Yet individuals who served as outreach and education 
specialists at carrier and fiscal intermediaries have told beneficiary 
representatives that they will no longer serve in that capacity. 
Beneficiary representatives also were told at the February 6, 2003 
monthly CMS Advocates Meeting that, because of the cut-backs, carriers 
would no longer be doing beneficiary outreach about Medicare-covered 
preventive services at health fairs or providing information about 
preventive services in consumer newsletters. Although CMS states that 
beneficiary outreach and education services remain, beneficiary 
advocates still question the extent to which such assistance will be 
provided.
    The telephone hot-line services also do not provide the kind of 
assistance that a Beneficiary Ombudsman would provide. They do not 
assist with appeals, nor are they capable of answering more than the 
most perfunctory questions. When I asked a representative two weeks ago 
for the citation to the law upon which she based her response to me, 
she told me she did not know. When I asked where I could find the law, 
she told me the Library of Congress. She did not know that the Medicare 
statute and regulations and CMS policy manuals are all available 
through the CMS web site.
    In order for the Medicare ombudsman to be an effective resource for 
beneficiaries, the Ombudsman must work closely with State Health 
Insurance and Assistance Programs (SHIPs). These programs provide the 
direct, face-to-face assistance that beneficiaries require when working 
on appeals or trying to decide among Medigap policies, long-term care 
policies, or Medicare+Choice plans. The Ombudsman should serve to 
assist the SHIPs in gathering medical records and Medicare policies 
that are needed to help review a claim or to process an appeal.
    Of course, the most effective assistance for beneficiaries would be 
to fund the existing SHIP programs adequately, and to promote, not 
undermine, their activities. Again, local SHIPs provide the one-on-one 
assistance that beneficiaries require in complicated cases. They 
provide assistance that cannot be provided by a hotline operator with 
no intimate knowledge of the issues and without the time to spend 
unraveling a beneficiary's complaint.
    One additional point needs to be made. Section 303 would require 
the Secretary to include only the 1-800 Medicare phone number in the 
Medicare & You handbook. CMS partially implemented this provision by 
eliminating the phone numbers for the SHIPs but including phone numbers 
for some of the other contractors. Unfortunately, advocates around the 
country have found that the 1-800 Medicare hotline cannot effectively 
assist beneficiaries with more complicated questions than how to get a 
new Medicare card or how to order publications. The hotlines do not 
always refer beneficiaries to the SHIP programs, which are the only 
entities that provide direct, individualized assistance to 
beneficiaries.
    Further, the other Medicare contractors do not consistently provide 
the correct referrals to beneficiaries who need help, and they often 
have telephone trees that are daunting to even the most competent of 
younger, English-speaking adults. For example, I recently called the 
fraud hotline to report what I considered to be fraudulent activity by 
an ambulance supplier. The operator told me the issue wasn't fraud 
against Medicare--though it is surely fraud against the beneficiary--
and gave me the phone number of the Durable Medical Equipment Regional 
Carrier. When I said that DMERCs don't handle ambulance claims, she 
hung up on me. Medicare beneficiaries and their families deserve 
correct information and more polite treatment. They deserve an 
Ombudsman to whom they can turn when they receive the treatment I 
received.
Other Potential Beneficiary Protections
    Congress can and should direct CMS to take other steps to provide 
beneficiaries with the information they need to get the Medicare-
covered care they require.
    1. SNF Notices: After hospitalization, Medicare covers up to 100 
days of skilled nursing facility (SNF) care. Some times, residents of 
SNFS are unaware that their Medicare coverage is ending, and they are 
unaware of the need to secure other means of paying for their nursing 
home care. CMS should be required to inform residents about the number 
of days used sufficiently in advance of the end of the 100 days of 
care. The notices should inform residents about the right to apply for 
Medicaid and the phone number of the Medicaid office. The notice should 
also inform residents of the right to appeal if they dispute the 
calculation of the 100 days.
    2. Life-time hospital reserve days: Similarly, beneficiaries who 
use up their 60 life-time hospital reserve days should receive advance 
notice informing them that they are depleting their days, that their 
Medicare coverage is ending, and that they need to find another means 
of paying for continued hospitalization. Again, the notice should also 
inform patients of their right to appeal the number of days utilized. 
Although few beneficiaries ever need such extensive hospitalization, 
those who do are often unaware that Medicare will stop paying for their 
care.
    3. Hospital discharge information: The Medicare statute requires 
hospitals to assist patients with discharge planning. As part of this 
requirement, hospitals should provide a list of Medicare-certified 
skilled nursing facilities and their financial relations with these 
facilities. We have heard from advocates around the country that some 
hospitals discharge patients who would otherwise be eligible for the 
Medicare-SNF benefit to facilities that are not Medicare-certified 
without informing them that they would not receive Medicare coverage 
for their care or that other, Medicare-certified facilities may be 
available.
    4. Medicare+Choice denial notices: Initial determinations and other 
notices in original Medicare must state the specific reason for the 
denial, state whether a Medicare policy formed the basis for the denial 
and explain how to get the policy, and tell beneficiaries how to file 
an appeal. While current regulations require Medicare+Choice plans to 
explain the specific reason for the unfavorable determination, few 
plans state the reasons in a way that is useful to beneficiaries or 
advocates. Plans should be instructed on providing proper information; 
CMS should develop model notice language for this use.
Contractor Reform Issues
    In 1999 and in 2000, I testified before this subcommittee in 
support of a bill introduced by then-Subcommittee Chairman Thomas to 
reduce the time frames by which Medicare contractors, administrative 
law judges, and the Departmental Appeals Board must issue decisions on 
Medicare appeals. These important beneficiary protections, along with 
other appeals reforms, were enacted as Section 521 of the Beneficiary 
Improvement and Protection Act of 2000.
    We appreciate the bi-partisan work of this committee last year to 
urge CMS to implement Section 521 and ask your assistance again to ward 
off the efforts by CMS to undermine the protections you enacted for 
beneficiaries.
    The proposed rules to implement Section 521 issued by CMS on 
November 15, 2002 create loopholes that would allow contractors at all 
levels of review to avoid compliance with the statutory time frames. 67 
Fed. Reg. 69312 (Nov. 15, 2002). CMS in the preamble indicates that it 
would not take enforcement action against carriers and fiscal 
intermediaries which fail to meet deadlines. Although Congressman 
Thomas worked to establish a new appeals system to assist 
beneficiaries, the CMS proposed regulations would make it almost 
impossible for a beneficiary to pursue a claim without legal 
representation. Some of the requirements for appealing to a higher 
level of review proposed by CMS are more onerous than the requirements 
for filing a federal court appeal.
    We have also learned that CMS is proposing through the budget 
process to weaken Section 521 protections. They plan to seek 
legislation to increase time frames for making decisions, without 
proposing any remedies for beneficiaries when, as now, contractors do 
not comply.
    Most importantly, they are seeking to replace administrative law 
judges (ALJs) with some other mechanism of review that will not provide 
the independence and impartiality of ALJs. Beneficiaries rely on ALJs 
to apply Medicare coverage laws fairly. ALJs look to and interpret the 
real Medicare law as contained in the statute and regulations in 
determining whether Medicare should pay for a service. They provide the 
primary opportunity to obtain a full and honest appraisal of the right 
to Medicare coverage. We ask your assistance in assuring that the 
statutory right to a fair hearing before an administrative law judge--a 
right which stems from basic constitutional right to due process--not 
be eroded.
Cautions About Regulatory Reform
    The Center for Medicare Advocacy and other beneficiary 
representatives do not agree with the other witnesses who testified 
today that the voluminous Medicare regulations make it impossible to 
provide services under the program and impede access to care. Medicare 
regulations are issued by CMS to implement the changes in the laws 
passed by Congress, to protect the rights of Medicare beneficiaries to 
receive medically necessary services, and to assure accountability of 
providers and of CMS. For example:

         LThe Balanced Budget Act of 1997 included a specific 
        statutory section, 42 U.S.C. Sec. Sec. 1395w-26, that directed 
        CMS (a) to establish standards for financial solvency of 
        Medicare+Choice plans, and (b) to establish other standards to 
        carry out the new Medicare Part C, the Medicare+Choice program. 
        Other statutory sections relating to Part C directed CMS to 
        address specific substantive issues, for example, standards for 
        exercising choice and electing a Medicare+Choice plan, 
        guidelines for post-stabilization care, and time periods for 
        appeals of adverse determinations, and included details about 
        what should be included in the regulations. Thus, the 
        approximately 100 pages of regulations added to the Code of 
        Federal Regulations to implement the Medicare+Choice program 
        were done so at the explicit direction of Congress to help with 
        the administration of a new and complex program.
         LFederal Medicare and Medicaid rules promulgated by 
        CMS to implement the Nursing Home Reform Law of 1987 have led 
        to reduced use of physical and chemical restraints in many 
        skilled nursing and nursing facilities nationwide, allowing 
        facilities to provide better care for residents at lower cost. 
        They also led to a 30% increase in the use of hearing aids; an 
        increase in the use of toileting programs for incontinent 
        residents; a 28% decrease in the proportion of residents with 
        little or no activity; and a 26% reduction in hospitalizations 
        of residents (resulting in an annual estimated savings to the 
        Medicare program of $2 billion in hospital costs in 1992 
        dollars). See, Dr. Catherine Hawes, Assuring Nursing Home 
        Quality: The History and Impact of Federal standards in OBRA-
        1987 (Commonwealth Fund, December 1996).

    Medicare regulations and other guidance developed by CMS help 
assure that beneficiaries receive the services they need and to which 
they are entitled. Form notices developed by CMS to explain what 
services have been covered, what services have been denied, why they 
have been denied, and what a beneficiary can do about a denied service 
provide accurate information and consistency. Beneficiary vulnerability 
increases when CMS does not mandate forms or does not include all of 
the pertinent information in forms.
Advisory Committee on Regulatory Reform
    The Center for Medicare Advocacy is one of the many beneficiary 
organizations that expressed disappointment in the make-up of the 
Advisory Committee on Regulatory Reform. We believe that the committee 
was heavily biased against consumers and did not represent the 
interests of the many groups for whom the health programs administered 
by DHHS were intended. A review of committee proceedings shows the 
effect of this bias. Most of the witnesses who testified before the 
committee were providers. Many of the recommendations may not have been 
passed had more beneficiary representatives participated as committee 
members. Indeed, the proceeding records indicate that most of the votes 
against committee recommendations were cast by the consumer 
representatives. We ask that you keep this bias in mind when reviewing 
the proposed recommendations.
    Rather than raise objections anew to committee recommendations in 
this testimony, I have attached comments filed by the Center for 
Medicare Advocacy on two controversial issues. The Center disagrees 
with the recommendations concerning OASIS; OASIS is an important 
quality assessment tool that should apply to all home health consumers. 
The Center also disagrees with the recommendations concerning 
enforcement of nursing home laws; many of the recommendations made by 
the committee undermine and conflict with the Nursing Home Reform Law.
    Although we did not file specific comments on the committee's 
recommended changes to EMTALA, the Emergency Medical Treatment and 
Active Labor Act, we are concerned that the recommendations undermine 
the effectiveness of that provision. EMTALA protects patients by 
requiring hospitals to screen and stabilize patients in an emergency 
situation before transferring the patient or asking about insurance 
coverage. We fear that the recommendations will result in individuals 
with emergency care needs being turned away from certain locations, 
just as they were before EMTALA was enacted.
    Thank you for the opportunity to testify on behalf of beneficiaries 
at this hearing.

                                 

    Chairman JOHNSON. Thank you very much, Ms. Gottlich. I 
thank the panel for their comments. There are a couple of 
things that I will follow up on, and then we will move forward.
    First of all, Ms. Ryan, I wanted you to go into this issue 
a little bit more. You mentioned it in the waiver section of 
your testimony. I believe it was the substance of the last page 
that you really didn't get to go into as well. The waivers were 
denied by the Federal Government to test outcome-based measures 
of quality.
    In fact, let's just confine your answer to that, because I 
would like to know really more about this. Why do you think 
outcome-based measures are applicable to nursing home care? If 
they are applicable, why were the waivers denied?
    Dr. RYAN. As I understand it, the Medicare waiver authority 
is more limited than some of the waiver authority under 
Medicaid in which the States and local communities have been 
able to look at alternative ways to provide care across 
separately regulated and paid-for programs.
    The State survey process has set standards for the quality 
of care in nursing homes for purposes of licensure. There are 
standards that are likewise set that are external for 
participation in Medicare and Medicaid. Those standards have 
been external and fairly inflexible in a quickly evolving care 
setting. Our residents are older, they are more frail, they are 
suffering co-morbidities. There are many more issues of 
multiple drugs and a number of things that are part of that 
care.
    Chairman JOHNSON. Can you think of a way to give Members a 
little clearer understanding why a regulatory system that looks 
at outcomes is going to work?
    Our regulatory system has in the past looked at individual 
instances; such as: is the bed too high, and all of these 
little things. In many ways, the outcome does not count. They 
don't even look at the outcome.
    It is hard to grasp this. If you would talk about that?
    Dr. RYAN. A patient's overall experience in terms of 
quality of life and quality of care is impacted by many, many 
things, many specific instances. If we can identify measures 
that are valid, measures of both quality of life and quality of 
care, there ought to be flexibility with regard to the 
processes that help you achieve that outcome. That is the work 
that we are trying to do, with the advice of the quality 
improvement organizations within long-term care under CMS's 
National Nursing Home Quality Initiative.
    How do we begin to grasp the principles of continuous 
improvement? How do we give persons at the site of care the 
information that they need to make decisions? Then how do we 
aggregate that information at the level of the facility and the 
level of the patient care so we know what their outcomes are?
    This is a mindset shift that takes us away from focus on 
process and structure to one of the individual resident's 
outcome and the collective outcome at the facility level. This 
is a paradigm shift for both long-term care and for acute care.
    Chairman JOHNSON. It is a paradigm shift. Would anybody 
else want to comment on that issue? Otherwise, I will go on to 
Mr. Fay.
    Mr. Fay, on the Cost Report, you mentioned that it requires 
arcane Medicare-specific cost accounting principles. Now, are 
those different than the cost accounting principles you use 
across the rest of your patients and for other payors?
    Mr. FAY. Yes, ma'am, they are. The accounting principles in 
use by hospitals, as well as just about every enterprise in 
this country, are based on generally accepted accounting 
principles. Medicare has over the years developed Medicare cost 
reporting principles to recognize costs which are generally 
lower than total cost.
    So, long as we had a cost-based system, those rules were 
necessary in order to be sure that Medicare paid its claims in 
accordance with the intent of Congress and the directives of 
the Administration. As we move away from a cost-based system 
into a fully prospective system--and I recognize that we still 
have a few vestiges of cost-based reimbursement left in the 
system--but once we totally transition to a PPS, it would at 
least appear to me that we would no longer need a Medicare 
cost-based system.
    Chairman JOHNSON. This has been suggested, and I think it 
is something we have to look into and discuss more fully. It is 
expensive to keep different accounting systems up and running.
    Mr. FAY. It is. The OMB's conservative estimate is that it 
takes about 650 hours per year per provider--that includes SNFs 
and hospitals--to do the Medicare report. We think it is much 
higher. We have heard for an academic medical center it could 
be 4,000 hours a year. That is time and energy we would rather 
see directed towards patient care services.
    Chairman JOHNSON. Mr. Stark.
    Mr. STARK. Mr. Fay, would you then support a uniform set of 
accounts and accounting practices for all hospitals?
    Mr. FAY. Mr. Stark, personally I would. The committee's 
recommendation in this regard was to simplify the existing Cost 
Report, because we recognize that we still had cost-based 
reimbursement.
    Mr. STARK. It is my understanding that the American 
Hospital Association for years has fought uniform accounting 
forms, which I would prefer. I would be willing to drop all the 
government's if we could just have one set; so if we are 
dealing in Tennessee or Wisconsin or California, all hospitals 
or all providers are using the same accounting format. Then we 
could build a database and begin to understand better.
    They don't. Each one wants to have their own cost 
accounting system because they dreamed it up, for whatever 
reason. They may be valid reasons, but I am suggesting that if 
your group would be willing to be a little more flexible, I 
think we could come to an agreement.
    I do think it would then require a standardized set of 
accounting reports. That would be one of the solutions.
    Mr. FAY. If I may follow up, sir, the Committee did make 
that as a long-term recommendation, to go to mandatory, 
consistent GAP-based reporting formats, whether it is down to a 
chart or a higher level; but it would still give the Federal 
Government, and, most importantly, Medicare Payment Advisory 
Commission access to real-time data that could be used to 
measure the health of hospitals.
    Mr. STARK. Absolutely. I have to think it would help your 
industry. In other words, although you want to talk about 
competition all the time, which is okay, but nonetheless, it 
would seem to me it would be helpful if you could see in a 
sanitized version what other hospitals were doing. What does 
the laundry cost per patient in a certain State or a certain 
area? If you can't pull that information out easily, it is 
harder for management to make decisions. I hope you would work 
with us on that.
    Dr. Hill, I have the same problem with docs. I don't think 
if a physician's practice--it is a small percentage--has been 
identified as having the possibility of over-billing or 
overcharging, that they can settle. You suggest that it is 
disruptive to a practice. One would assume we have jackbooted, 
helmeted people coming into your office and pawing through your 
medical records and leaving them in a pile on the floor, and I 
don't think that is really true.
    It is not your people. They may have to pull the records 
out and leave them in a pile someplace. I will tell you, it 
cannot be any worse than a bank examination or an IRS audit. 
There are procedures that cause people who have overcharged 
us--we just had the Federal Bureau of Investigation in my 
State, and I submit to you it is a lot simpler to just have a 
random couple of hundred exams.
    Again, it would go--and I know your membership is fighting 
hammer and tongs against standardized patient benefits. Now, 
someday I think we are going to have to get there. My sense is 
that the sooner we can get there, the sooner Mr. Luebke can 
make a fortune selling all the software to do it.
    There is a certain independence on the part of your members 
that doesn't fit very well with having everybody come into a 
cookie-cutter sort of procedure. I just hope that we can move 
to it more closely, because if we don't do that we are not 
going to be able to use all the electronic technology we have, 
which I think would make all of our lives simpler.
    I have to suggest to you that while I have no brief for the 
government's enforcement as being a lot of fun, that your 
membership could move us to making it easier, too.
    Dr. HILL. I totally agree with that. I think you are behind 
on what we think now at the AMA about electronic medical 
records particularly, and standardized procedures and 
processes.
    Our problem is the immediate payment up front before 
appeals processes are started or completed. That is our only 
issue. We absolutely would like any overpayment problems or 
fraudulent problems to be taken care of, but it is just that 
up-front unfairness we consider in the payment. That is the big 
issue. Our autonomy as the profession is one of the great 
things about American medicine, as you well know.
    Mr. STARK. I believe it. Dr. Ryan, if I may say, that 
chart--and again, I hate to be put on the side of encouraging 
all kinds of regulation. Having just tried to add a bathroom to 
my house, I can tell you, I understand it.
    An awful lot of that up there would be required of an auto 
dealer or a McDonald's in any city. In other words, all of the 
State government stuff and the local government stuff and the 
U.S. Department of Labor stuff and all of the U.S. Department 
of Transportation, U.S. Department of Justice, all of that is 
not unique to a medical care provider.
    I am sympathetic to people having to fill out forms these 
days, but I just wanted to suggest that--CMS and this Committee 
are not responsible for all of those, okay?
    Dr. RYAN. Mr. Congressman, I really do understand that. I 
think one thing which is unique is the degree to which the 
Justice Department now is regulating the abuse piece and CMS 
the clinical piece, and we are beginning to see dysfunctional 
crossover between those two systems.
    Mr. STARK. Let me put it this way. At least with the 
Justice Departmen, as long as you don't become a Muslim and 
they sock you away without a lawyer, you are in good shape.
    Chairman JOHNSON. We only have 12 minutes left. I would 
like to recognize Mr. McCrery.
    Mr. MCCRERY. Thank you, Madam Chair.
    Mr. Luebke, you have made an eloquent pitch for the 
competitive process in contracting. Can you give us some areas 
or some examples that you think can be done more efficiently in 
the administrative process, and the magnitude of any savings 
that might be realized?
    Mr. LUEBKE. I am not prepared to talk about magnitude of 
savings, but I will give some examples. The bill really allows 
for a specific focus on things like claims processing, so it 
really can focus on the efficiency of that. In fact, Mr. 
Scully's testimony also talks about putting some pricing 
mechanisms in place that really incentivize providers to gain 
efficiencies and drive down costs. So, I think there are some 
real opportunities here to drive down costs.
    What will happen by focusing on that is it will bring 
technology, innovation, and commercial best practices, and by 
applying some of the--like in our case, the very, very highly 
efficient data centers that--we are continually bringing new 
innovations, and have almost a fanatical focus on how do we 
drive down costs, how do we bring new innovations and drive 
down costs per transaction.
    Some specific examples from the past of some things we have 
done: We do the processing for the claims for the State of 
Missouri for Medicaid. We have worked with them to 
significantly drive down the number of medical claims 
processed, to automate and have electronic claims processing, 
and streamline the process by bringing Internet technologies so 
the providers can easily enter their transactions via the 
Internet.
    We have brought point-of-service capabilities for pharmacy 
claims so the pharmacies can again enter the claims very, very 
easily, but, even more importantly, can see in real time 
whether the person wanting to get the prescription--whether 
they are eligible or not. So, you get real-time availability of 
information.
    During the period of time we have done that, we have more 
than doubled the number of claims, but we have reduced the 
absolute number of people who are doing it; so at least a 
doubling of the efficiency of it, and some other important 
things. We have reduced the time for payment from an average of 
12 days to payment down to 2 days, so there are some very, very 
significant improvements.
    Mr. MCCRERY. While you don't have any estimated magnitude 
of savings, you are convinced savings are possible through 
these kinds of efficiencies?
    Mr. LUEBKE. That is something that I really have not 
studied in terms of looking at specifically what could we drive 
as a result of this. That would be something that would take 
some more detailed study.
    Mr. MCCRERY. Mr. Fay, just quickly, you recommend that 
EMTALA not apply for hospital in-patients that are transferred 
or sent home in an unstable condition. What conditions are 
there in existing procedures that would guard against the 
patient--or the care deteriorating?
    Mr. FAY. Yes, sir. The way I understand it, under the 
current Medicare participation for a hospital, including 
various State rules and so forth, once a patient is in the 
hospital you have an obligation, a separate obligation and a 
stronger obligation, to treat the patient; either stabilize the 
patient or transfer the patient if needed.
    We think those in-patient obligations actually exceed 
EMTALA, and we are afraid if we have both obligations, EMTALA 
and the existing in-patient requirement, you are going to have 
a layering of regulations which could conflict and could cause 
problems and confusion among doctors, patients, and hospitals.
    Mr. MCCRERY. So, you think without EMTALA there is 
sufficient direction under the law to make sure that the 
patient is stable?
    Mr. FAY. Yes, I do.
    Mr. MCCRERY. Dr. Hill, you testified that the AMA continues 
to hear from physicians about onerous audits and overpayment 
demands. I know that is true because I hear from my physicians.
    Will the provisions in the bill that we are considering 
solve those problems, or do you think there are some more 
things that we could put in the bill to provide more relief?
    Dr. HILL. We are very pleased with the provisions of the 
bill. If they are implemented, and monitored so we know they 
are implemented, we think it would solve a problem. We thought 
that last year and we still think that. We think that would 
correct the problem greatly. The only other issue would be the 
appeals process, which also I think would improve.
    Mr. MCCRERY. Thank you, Madam Chair.
    Chairman JOHNSON. Thank you very much. I thank the panel. 
We do have a vote, and Members were not able to come back, so 
we will conclude our hearing. I do want you to know two things. 
First of all, I appreciate the quality of your testimony.
    Ms. Gottlich, one thing that you could help us look at is 
what are the ways that we can prevent so many cases from coming 
into the system. That seems to be the Administrators' real 
problem is how does he manage this volume.
    There have to be ways we can reduce that volume. One of 
them seems to be that at the initial level not to have the 
carrier have the first hearing, since they are already biased. 
That struck me as absolutely bizarre that was the case. I have 
seen problems with that over the years. We need to look at 
whether there are ways we can change it that will have volume 
impact so we will be able to meet those time frames.
    I also would not underestimate the impact on patients and 
quality that some of these system changes can have. Just the 
technology example you gave and speediness of response and 
payment is important, particularly for small providers.
    I do want you all to think about what else could be 
recommended if the task force were to continue, and what, of 
the business it did not get to, should it be focusing on; what 
are the data issues?
    Many of you said we have the same steps in OASIS and MDS 
and the hospital, it is dumb to be re-collecting. We know that. 
Be thinking about ways we could improve the performance, better 
integrate the system, because we certainly have the technology 
capability to do that. Unless we start doing it, we will never 
also improve quality.
    Thank you very much for being here today. We appreciate 
this good start.
    [Whereupon, at 2:27 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]
                          Statement of AdvaMed
    AdvaMed is pleased to provide this testimony on behalf of our 
member companies and the patients and health care systems we serve 
around the world. AdvaMed is the largest medical technology trade 
association in the world, representing more than 1100 medical device, 
diagnostic products, and health information systems manufacturers of 
all sizes. AdvaMed member firms provide nearly 90 percent of the $71 
billion of health care technology products purchased annually in the 
U.S. and nearly 50 percent of the $169 billion purchased annually 
around the world.
    AdvaMed would like to thank Chairwoman Johnson, Ranking Member 
Stark, and the members of the Subcommittee for their bipartisan effort 
to make the Medicare program more efficient and effective for providers 
and Medicare beneficiaries. Medicare is a critical program for some 41 
million Americans, and we greatly appreciate the way that the Committee 
reached out to the health care community last Congress to develop 
legislation to make the program easier to understand, comply with, and 
participate in.
    In his State of the Union Address in January, the President 
described our health care system as the model of skill and innovation 
for the world. The President noted that the pace of discovery in 
advanced health care and preventive care in our country is ``adding 
good years to our lives'' and ``transforming'' health care.
    We believe it is in the best interest of patients and the Medicare 
program to have the Medicare system capitalize on advanced 
technologies, which have revolutionized the U.S. economy and driven 
productivity to new heights and new possibilities in many other 
sectors. Significant advances in health care technologies--from health 
information systems that monitor patient treatment data to innovative 
diagnostics tests that detect diseases early and lifesaving implantable 
devices--improve the productivity of the health care system itself and 
vastly improve the quality of the health care delivered. New 
technologies can reduce medical errors, make the system more efficient 
and effective by catching diseases earlier--when they are easier and 
less expensive to treat, allowing procedures to be done in less 
expensive settings, and reducing hospital lengths of stays and 
rehabilitation times.
    Our concern, however, is that Medicare is often too slow to 
incorporate technologies and methods of delivering care. We appreciate 
the Committee's past efforts to address these problems legislatively 
because unnecessary time delays frustrate the program's ability to 
provide the most cost-effective, high-quality care to America's seniors 
and individuals with disabilities.
LCongressional Efforts to Improve Medicare Beneficiary Access to 
        Technology
    AdvaMed applauds Congress for the steps it took in the Balanced 
Budget Refinement Act of 1999 (BBRA) and the Benefits Improvement and 
Protection Act (BIPA) of 2000 to begin to make the Medicare coverage, 
coding and payment systems more effective and efficient. In addition, 
the Centers for Medicare and Medicaid Services (CMS) has recently made 
some changes to modernize its coverage and payment systems.
    Despite these efforts, however, current policies still fail to keep 
up with the pace of new medical technology. Serious delays continue to 
plague Medicare in its efforts to make new medical technologies and 
procedures available to beneficiaries in all treatment settings.
    As demonstrated by a Lewin Group report provided by AdvaMed to the 
Congress in 2000, Medicare delays can total from 15 months to five 
years or more because of the program's complex, bureaucratic procedures 
for adopting new technologies. Keep in mind that all this is after the 
two to six years it takes to develop a product and the year or more it 
takes to go through the Food and Drug Administration (FDA) review. In 
addition, the impact of the delays is even more pronounced when you 
consider that the average life cycle of a new technology can be 18 
months.
    These delays stem from the fact that for a new technology to become 
fully available to Medicare patients, it must go through three separate 
review processes to obtain coverage, and receive a billing code and 
payment level. Serious delays in all three of these areas create 
significant barriers to patient access.
    Last Congress, AdvaMed strongly supported provisions based on 
language from the Medicare Innovation Responsiveness Act (MIRA) 
introduced by Representative Ramstad (R-MN) and incorporated in HR 
2768, the Medicare Regulatory and Contracting Reform Act, that would 
have created a council for technology and innovation within CMS to 
oversee and coordinate Medicare coverage, coding and payment decisions 
on new technologies and require the General Accoutning Office to report 
on ways CMS can make better use of external sources of data to expedite 
hospital inpatient payment updates. We request that the Committee 
include them again in legislation it crafts this year.
Improving the Reimbursement Process for New Clinical Laboratory Tests
    Innovative diagnostic tests help save lives and reduce health care 
costs by detecting diseases earlier when they are more treatable. With 
today's advanced technology, testing can be performed in a variety of 
settings from large clinical reference laboratories to hospital 
outpatient labs, to physician offices, and even in patient's nursing 
homes.
    Although BIPA substantially improved the processes for setting 
reimbursement rates for advanced diagnostic tests, serious flaws still 
exist, making it difficult for beneficiaries to gain access to many 
innovative technologies. That's why AdvaMed strongly supports H.R. 569, 
the Medicare Patient Access to Preventive and Diagnostic Tests Act 
recently introduced by Reps. Dunn (R-WA), McDermott (D-WA) and Ramstad. 
Provisions from this bill were incorporated in H.R. 2768 last Congress 
to establish much needed procedures and criteria for determining 
reimbursement for new clinical laboratory tests. We are hopeful that 
similar provisions will be included again, along with additional 
provisions from H.R. 569.
Maintaining the Local Coverage Process under Contractor Reforms
    While some reforms to the contracting process are warranted, 
AdvaMed strongly believes that reforms should not result in changes in 
local carriers or consolidated jurisdiction for carriers should 
maintain a process for making coverage decisions locally, and for 
securing input from the local medical community.
    AdvaMed strongly supports Medicare's local coverage process as a 
vital route for timely patient access to the vast majority of 
innovative medical technologies. The local coverage process offers an 
important alternative to national coverage decision-making by the 
Centers for Medicare and Medicaid Services (CMS), which runs Medicare 
and oversees local contractors. Currently, the Medicare national 
process causes delays of 15 months to five years or more for patients 
who need access to technologies that are subject to a national review.
    Consolidation of the number of local Medicare contractors that make 
coverage decisions would severely constrict or eliminate the local 
coverage process and create significant new delays in patient access to 
important new medical technologies and services. AdvaMed appreciates 
the work of Congress and CMS to examine Medicare contractor operations 
in areas such as accountability and performance incentives. However, as 
Congress addresses this issue, we urge it to avoid steps that would 
undermine the local coverage process as a route to early patient access 
to new medical technologies.
    The local coverage process provides the flexibility and timeliness 
needed to keep pace with rapid advances in medical technology. Current 
flexibility at the local level very efficiently incorporates the 
majority of new procedures and technologies into the existing Medicare 
payment systems. This flexibility includes timely access to local 
contractor decision-makers; an active relationship with the local 
medical community and understanding of local medical practice, and the 
ability to make case-by-case determinations. Local decision-making 
authority provides Medicare beneficiaries access to new procedures and 
technologies without having to wait until these innovations have been 
disseminated nationally.
    A report by the Lewin Group, a prominent health care policy 
research firm, also highlighted the value of the current local Medicare 
coverage process. According to the Lewin Group, ``the local coverage 
process remains a critical avenue for obtaining coverage.'' In fact, 
only about 12 services per year are reviewed through a national 
coverage process.
    Preservation of the local coverage process is particularly 
important, the Lewin Group found, because it offers a way for patients 
to gain access to many innovative technologies that otherwise would 
encounter significant coverage delays at the national (CMS) level. 
Lewin cites the example of a breakthrough technology in women's health, 
dual x-ray absiorptiometry, which is used to diagnose osteoporosis. It 
took Medicare more than seven years to cover this technology at the 
national level. However, coverage decisions by local Medicare 
contractors during that time enabled many women to gain access to this 
technology who otherwise would not have been able to receive it.
    AdvaMed strongly believes that, despite any contracting reforms, a 
process for making coverage decisions locally, and for securing input 
from the local medical community (through local coverage advisory 
committees) should be maintained. We strongly support provisions that 
will be included in the Medicare Innovation Responsiveness Act of 2003, 
which will soon be reintroduced this Congress by Rep. Ramstad, that 
would:

         LRequire contractors to designate at least one 
        individual to serve as a medical director for every two states 
        (or portions thereof) to perform local medical review 
        functions;
         LRequire the continuance of local carrier advisory 
        committees (CACs) in each state to ensure that local medical 
        review policy reflects the consensus of the local physician 
        community. Changes in local coverage decisions should be 
        subjected to the normal review and comment process with the 
        local CAC.
         LTo address the need for rapid creation of codes for 
        emerging technologies, require CMS to establish a process for 
        automatically issuing national temporary codes in response to 
        requests from local Medicare contractors. Timely assignment of 
        national codes is more critical than ever to patient access 
        with the recent elimination of the ``local codes'' that were 
        used by Medicare contractors.
Additional Steps to Improve Patient Access to Technology
    Congress and CMS already have told America's Medicare beneficiaries 
that they will make key reforms to expand access to promising medical 
technologies in clinical trials, provide a meaningful opportunity to 
appeal claims denials, and reduce barriers to innovative medical 
technologies in the hospital inpatient setting. Unfortunately, none of 
these reforms have been meaningfully implemented.
    That's why AdvaMed also supports the following provisions that will 
be included in the Ramstad bill, the Medicare Innovation Responsiveness 
Act of 2003, that will:

         LSet 6-12 month deadlines for Medicare to implement 
        coverage, coding and payment for new medical technologies 
        subject to a national coverage decision;
         LDirect CMS to provide reimbursement for the routine 
        costs of care for breakthrough medical technologies for 
        Medicare beneficiaries. Current Medicare policy is impeding 
        developing of potentially life-saving technologies like heart 
        assist devices because it does not provide reimbursement of 
        routine costs of care during clinical trials. While CMS issued 
        a memo two-and-a-half years ago announcing its intention to 
        implement a presidential executive order to provide 
        reimbursement for the routine costs of care for these 
        technologies, the Agency has not yet finalized the policy. This 
        policy would have a minimal impact on Medicare spending (as 
        breakthroughs represent only six percent of FDA-approved 
        studies) but a huge impact on Medicare patients awaiting 
        emerging breakthroughs like implantable artificial hearts, 
        bioartificial livers and kidneys and ``bionic eyes'' to treat 
        blindness;
         LEnsure that Medicare appeals rulings apply to similar 
        cases. Congress passed legislation to require CMS to address 
        the problem, but Medicare patients remain caught in an appeals 
        system that is badly broken. Delays that often stretch longer 
        than a year and many seniors and people with disabilities 
        effectively are denied the ability to appeal claims that are 
        denied by Medicare;
         LRequire Medicare to accept and consider valid 
        external data on resources associated with new medical 
        technologies to reduce delays in providing adequate 
        reimbursement for these innovations and update codes on a 
        quarterly basis; and
         LBuild on the provisions in BIPA to reduce the current 
        two or more year delays in updating inpatient reimbursement 
        rates to reflect changes in medical technology. BIPA 
        established special transitional payments for new medical 
        technologies used in the inpatient setting. However, CMS 
        implemented this legislation so narrowly it failed to fulfill 
        Congressional intent. In fact, only one new medical technology 
        has qualified for the temporary payments. Last year, the House 
        passed legislation to ensure that, whenever possible, new 
        technologies are placed into existing inpatient payment 
        categories (DRGs) that provide payment levels that cover 
        average costs of care that most closely approximate the cost of 
        care using the new technology. If no appropriate DRG exists, 
        Medicare should provide a temporary additional payment to cover 
        the costs of a new technology. The Ramstad bill repeats the 
        House-passed language of last year, and we support its 
        inclusion in a bill crafted by the Committee again this year.
         LRequire that CMS exercise its Inherent Reasonableness 
        authority in a more open, transparent, and fair process, both 
        nationally and regionally, including a notice of intent to 
        conduct an IR study, and publication of the results. DMERCs 
        should be required to follow the national process. An appeals 
        mechanism for IR determinations should be established that is 
        similar to the mechanism available for appealing a national 
        coverage determination.
Conclusion
    AdvaMed thanks the Subcommittee members again for their 
collaborative efforts to improve and strengthen the Medicare program. 
We look forward to working with this Committee, the Congress and the 
Administration on this important legislation again this Congress, as 
well as additional ways to improve the quality of care available to 
seniors through Medicare and foster the delivery of innovative 
therapies for patients.

                                 

             Statement of the Alliance to Improve Medicare
    The Alliance to Improve Medicare (AIM) is pleased to submit this 
statement for the hearing record to the Ways & Means Subcommittee on 
Health. We applaud the Subcommittee's continued attention to the issue 
of reforming burdensome Medicare regulations.
    Medicare regulatory burdens adversely affect both beneficiaries and 
providers. AIM believes that the current rigid and outdated Medicare 
benefit structure and bureaucracy must be replaced. Program 
administrators must be provided with the flexibility to make new health 
care innovations and technologies more readily accessible to Medicare 
beneficiaries. Medicare administrators have recently taken solid steps 
to reduce excessive program complexity and bureaucracy caused by the 
more than 110,000 pages of federal rules, regulations, guidelines and 
mandates but more can be done to streamline current Medicare 
requirements on both beneficiaries and providers.
``The Medicare Regulatory and Contracting Reform Bill''
    AIM applauds the bipartisan efforts of Subcommittee Chairwoman 
Nancy Johnson and Ranking Member Pete Stark to develop this important 
legislation. While we have not yet reviewed the final text of the 
legislation introduced today, AIM members support efforts to create a 
more collaborative relationship between CMS and the providers who serve 
Medicare beneficiaries, to address provider concerns, and to improve 
beneficiary and provider education.
    Similar legislation was approved twice in the 107th Congress, once 
by unanimous vote and again as part of the ``Medicare Modernization and 
Prescription Drug Act of 2002.'' That legislation sought to extend 
important regulatory relief to health care providers and to modernize 
Medicare's contracting processes. The 107th legislation also sought to 
consolidate promulgation of CMS regulations and to create specific time 
frames for progression of new regulations. AIM members support these 
provisions and look forward to working with the Subcommittee on this 
legislation in the 108th Congress.
HHS Activities
    HHS Secretary Tommy Thompson established the Secretary's Advisory 
Committee on Regulatory Reform in 2001 to examine the regulatory 
burdens placed on beneficiaries and providers in the Medicare program. 
The Committee held a series of meetings across the country to receive 
comments and recommendations from consumers and providers on ways to 
streamline regulatory requirements and lessen regulatory burden within 
the Medicare program. The Advisory Committee's final report, released 
in November 2002, represents an excellent step toward improving the 
Medicare program for both health care providers and beneficiaries.
    The Committee's final report contained over 250 recommendations to 
reduce obstacles to care, reduce paperwork requirements, improve 
communications, and expand the use of technology to ensure quality 
care. Specifically, the Advisory Committee considered and adopted many 
of the reform recommendations submitted by AIM including reducing 
extensive data collection requirements and providing better information 
on beneficiary eligibility and covered services.
    AIM is especially pleased that Secretary Thompson announced the 
creation of an ``internal strike force'' to continue the work of the 
Committee and to review and implement many of the Advisory Committee's 
remaining recommendations. To date, HHS has already implemented more 
than two dozen recommendations contained in the Advisory Committee's 
final report. AIM members will continue to work with the HHS staff to 
recommend and comment on efforts to further reduce regulatory burdens 
on beneficiaries and providers. Specifically, we hope HHS will consider 
ways to further improve the timely availability of advanced medical 
technologies through better coordination between CMS, FDA, and 
technology innovators. Further, HHS should adopt and implement the 
Advisory Committee's recommendations to ensure consistent 
communications between the CMS central office and the regional offices, 
particularly with regard to beneficiary education materials. Finally, 
AIM members will work with HHS to further reduce extensive data 
collection efforts.
Key Principles for Improving Medicare
    AIM is the only organization focused solely on fundamental, 
bipartisan modernization of the Medicare program to ensure that senior 
citizens have more health care coverage choices, better benefits 
(including prescription drug benefits), and access to the latest in 
innovative medical practices, treatments and technologies. AIM 
coalition members include organizations representing seniors, 
hospitals, small and large employers, insurance plans and providers, 
doctors, medical researchers and innovators, and others.
    AIM's key principles to improve and strengthen Medicare address 
both the administration of the Medicare program and the benefits 
provided to program beneficiaries. Most importantly, AIM believes 
prescription drug benefits should be offered to all Medicare 
beneficiaries as an integral part of Medicare health coverage. AIM 
members believe any new drug benefit should be added as part of 
comprehensive, market-based improvement efforts, including efforts to 
streamline and reduce regulatory burdens.
    AIM also seeks to ensure the long-term financial integrity and 
solvency of the Medicare program. The program's existing financial and 
structural systems must be strengthened to ensure adequate long-term 
financial stability to meet the challenges presented by the retirement 
of the baby boom generation and the projected doubling of the Medicare 
population.
    Additionally, AIM believes Congress and the Administration must 
address the financial crisis facing health plans and providers. 
Ensuring access and choice for senior citizens should be a primary goal 
of the Medicare program but both are threatened by inadequate provider 
reimbursements. Health plans have left the Medicare+Choice program and 
some providers have stopped accepting new Medicare patients because the 
program's reimbursement rates are inadequate to cover even the costs of 
basic care.
    AIM supports increased consumer choice in health care coverage 
options and believes that all Medicare beneficiaries should have the 
option to choose from a range of coverage options similar to those 
available to Members of Congress, federal employees and retirees, and 
millions of working Americans under 65 years of age who are covered by 
private plans. Unfortunately, excessive regulation and inadequate 
reimbursement of private sector providers participating in 
Medicare+Choice have seriously constrained coverage areas.
    Finally, AIM supports improvement of health care coverage through 
better coordination of care including health promotion and disease 
prevention efforts. The traditional Medicare program has not kept pace 
with private sector benefits and plans offering preventive health care 
and screening measures such as annual physicals, hearing and vision 
tests, and dental care. Medicare beneficiaries, more so than other 
population age groups, can benefit from these preventive measures which 
can help reduce long-term costs and ensure appropriate, early treatment 
of health problems.
Conclusion
    Complexity in Medicare's rules governing beneficiary and provider 
participation has resulted in increasingly bipartisan support to 
improve the fairness of the system for all participants. AIM applauds 
Subcommittee Chairwoman Nancy Johnson and ranking member Pete Stark for 
their bipartisan efforts in the discussion of necessary regulatory 
reforms to the Medicare program.
    AIM appreciates the opportunity to provide these comments to the 
Health Subcommittee and applauds the Subcommittee's work toward 
improving Medicare. AIM urges the Subcommittee to consider sensible, 
long-term solutions to the problems confronted by the Medicare program 
and by Medicare beneficiaries and we urge Members to work together on a 
bipartisan basis to achieve comprehensive Medicare reform. We look 
forward to working with the Subcommittee and other members to further 
reduce Medicare regulatory burdens and complexity.

                                 

    Statement of the American Association for Homecare, Alexandria, 
                                Virginia
    The American Association for Homecare (AAHomecare) would like to 
take this opportunity to thank the Ways and Means Health Subcommittee, 
Chairwoman Johnson, and Ranking Member Stark for their continued 
involvement in Medicare Regulatory Reform. AAHomecare is a national 
association whose members represents a continuum of home healthcare 
including suppliers of durable medical equipment (DME), orthotics and 
prosthetics, home health agencies (HHAs) and suppliers of re/hab and 
assistive technology. As a representative of both DME suppliers and 
HHAs, AAHomecare supports the Subcommittee's effort to improve the 
regulatory, appeals and contracting processes under the Medicare 
Program. However, we would like to take this opportunity to express 
some of our concerns regarding specific provisions in H.R. 3391, which 
we believe may affect a provider's or supplier's due process rights.
CORRECTION OF MINOR ERRORS AND OMISSIONS
    H.R. 3391 establishes a process for correcting minor errors and 
omissions on claims without requiring the provider or supplier to go 
through the expense of an appeals process. Currently, most claims are 
denied because the claims failed to comply with one or two technical 
requirements. For instance, a provider or supplier may have failed to 
secure the physician's signature on all verbal orders prior to billing, 
or may have failed to include any minor treatment changes. These 
omissions or errors are easily correctible, but because supplier or 
provider are required to appeal claims, payment can be delayed for up 
to a year. This can put a substantial amount of financial stress on a 
provider or supplier and can severely interfere with their capacity to 
continue their business operation.
    AAHomecare strongly supports the Subcommittee's position that 
providers and suppliers should not have to undergo an appeal simply 
because of a minor error or omission. By allowing them to correct 
discrepancies in claims submitted to a carrier, without an appeal, the 
Subcommittee is ensuring a more efficient and cost-effective Medicare 
system. Furthermore, this provision is a useful tool in ensuring, not 
only that a provider or supplier will not undergo economic hardship, 
but also that a beneficiary will have continued access to services. We 
urge that any regulatory reform should include a provision such as this 
for correction of minor errors and omission.
NEW EVIDENCE AND ALJ HEARINGS
    While we are supportive of the general intent behind the regulatory 
reform provisions of H.R. 3391, we are extremely concerned by Section 
403(a)(3). Under Section 403(a)(3) a supplier or provider may not 
introduce evidence in an appeal that was not presented at the 
reconsideration hearing conducted by the Qualified Independent 
Contractor (QIC), unless there is good cause which precluded the 
admittance of such evidence before or during reconsideration.
    The Centers for Medicare and Medicaid Services (CMS) are adopting a 
similar stance to the one potentially created by Section 403(a)(3). On 
November 15, 2002, CMS issued its proposal for the implementation of 
BIPA, which included a provision that would severely curtail evidence 
presented by a supplier or provider during an ALJ hearing. 
Specifically, the proposed rule 405.1019 states submission of any new 
evidence that was not presented to the QIC must be accompanied by a 
written statement. Under this proposed rule the statement must explain 
why the evidence was not previously submitted to the QIC, and the ALJ 
can only admit the evidence if good cause exists.
    Both Section 403(a)(3) and the CMS proposed Section 405.1019 
significantly restrict the opportunity a provider or supplier has to 
offer additional and new evidence during a ALJ hearing, in effect 
requiring a full and early presentation of evidence at the QIC level. 
CMS has based this proposed regulation, on its long held belief that a 
high reversal rate on appeals is due to the presentation of new 
evidence at the ALJ level. While it is true that many claims have been 
reversed at the ALJ level, the decisions to reverse denials are not 
arbitrary but rather are founded on the new evidence substantiating a 
provider's contention that the overpayments is unfounded.
    Furthermore, a provider's and supplier's right to introduce new 
evidence should be safeguarded by any regulatory reform. Often, the ALJ 
will reverse a denial based on evidence that was unavailable to the 
interest party during the QIC review.
    For example, the probe sample data and methodology used by the 
carrier is not available to a supplier or provider before the ALJ 
hearing. A supplier or provider will have to request the probe sampling 
methodology from the carrier after the reconsideration decisions has 
been rendered. Therefore, the interested party does not have immediate 
access to this information from the carrier, but must wait for the 
information to be turned over. Once the interested party received the 
information, he or she would need to consult with experts and expend a 
significant amount of resources to review the sample methodology after 
receiving it, so as to determine whether the contractor's sample lacks 
statistical weight or whether the methodology used was erroneous.
    We strongly urge this Committee to make sure that any regulatory 
reform allows providers and suppliers to introduce evidence of 
erroneous sampling techniques during an ALJ hearing. Many cases that 
reaches the ALJ have been reversed after the interested party presented 
evidence showing that the sampling methodology was biased or that a 
sample was incorrectly taken. In order to maintain due process and 
ensure fairness, a provider or supplier should be allowed to introduce 
this type of evidence.
    Currently, providers and suppliers can provide live testimony and 
may introduce new evidence during an ALJ hearing. They are not required 
to provide good cause or submit a statement by explaining why the 
information was not included. In fact, the ALJs have come to rely on 
provider and supplier testimony as an aid when deciding whether the 
interested party did have a reasonable basis to believe that the claim 
would be covered. This has helped to ensure fairness and due process 
during appeals. Both H.R. 3391 and 67 CFR 405.1019 would prohibit live 
testimony that has repeatedly helped exemplify why the contractors 
denial was incorrect.
    In on case, the fiscal intermediary has denied $20,000 in home 
health claims representing an entire year of services for a patient who 
suffered from Multiple Sclerosis (MS). The reason given for the denial 
was that the patient's physician had not prescribed the commonly used 
medicine for MS. The denial stated that the drug Athcar was not 
identified by the Physicians Desk Reference for treatment of MS, 
despite other references that list it as an alternative. In this case 
the physician had prescribed it as an alterative because the patient 
could not afford the commonly prescribed Interferon. At the ALJ level, 
the HHA introduced evidence from the treating physician and relied on 
other authoritative reference to show why the Athcar had been used 
instead of Interferon. The physician was also able to show how the 
alternate medication had been effective. Based on this testimony, the 
ALJ was able to reverse the denial.
    Conversely, H.R. 3391 and 67 CFR 405.1012 would allow contractors 
to present any additional evidence, change the basis of their denial of 
the claims and present additional testimony that they believe is 
pertinent. Under both H.R. 3391 and CMS' proposed rule, contractors 
would be required to provide the ALJ with any additional information 
requested by the ALJ, so as to aid it in understanding the contractor's 
position and helping it formulate its decision. Allowing contractor's 
to testify and present new evidence during the appeals process while 
denying the same opportunity to an interested party would severely go 
against due process and fairness. In essence, this would severely 
undermine the position of suppliers and providers because they would 
not be allowed to present evidence to contradict the contractor's new 
arguments, and would not be allowed to adapt their position to reflect 
contractor changes in arguments during an appeal.
    AAHomecare urges the Subcommittee to establish a standard that does 
not limit the type of information presented during an ALJ hearing. We 
recommend that any regulatory reform should allow suppliers and 
providers to present testimony of a treating physician opinions, expert 
opinions, and provider and supplier testimony, as necessary, to the 
ALJ. Furthermore, a supplier or provider should be allowed to present 
evidence which was previously not available, or which at the time was 
not relevant to the claim set forth by the contractor. It is important 
to ensure that regulatory reform legislation should distinguish between 
new evidence that involves readily available clinical documentation 
from the provider or supplier from other Medicare evidence such as 
expert opinion, clarifying treating physician opinions and documentary 
evidence from providers or suppliers that are not directly involved in 
a disputed claim, if due process is to be maintained.
LIMITED USE OF EXTRAPOLATION
    The use of extrapolation can often lead to significant problems for 
both DME suppliers and HHAs. Often the sampling methodology used during 
extrapolation lacks any semblance of statistical validity, which in 
turn can result in a significant expenditure of resources by providers 
and suppliers. Furthermore, the use of extrapolation often results in 
the drastically inflated overpayment. This large inflation will force 
many providers and suppliers to pay hundreds of thousands of dollars, 
and forces some into bankruptcy.
    In one instance, the ALJ ruled in favor of an HHA after throwing 
out the denials as well as finding the extrapolation and the sampling 
methodology used by the physical intermediary as erroneous. While the 
HHA received a favorable verdict, it had suffered irreparable harm, 
leading to its bankruptcy even before the decision was rendered. This 
case is of particular concern, given that the home health agency was 
the only provider in that area for medically complex home health 
patients.
    Currently, the Durable Medical Equipment Regional Carriers (DMERCs) 
also use extrapolation in determining overpayments. Not unlike HHAs, 
DMEs are faced with inflated overpayments that are based on erroneous 
sampling methodology. However, what is particularly disturbing is that 
the DMERCs use extrapolation and base their denials on rules that have 
not come into effect at the time the service was rendered. For these 
reasons, AAHomecare strongly urges that the use of extrapolation and 
sampling methodology should be curtailed.
    AAHomecare believes that H.R. 3391 addresses many of the concerns 
shared both by HHAs and DME suppliers. We support limiting the 
circumstances in which a Medicare contractor can request a provider or 
supplier to produce records or supporting documentations, to those two 
circumstances delineated in Section 405(f)(3):

         1. Lwhere either there is a sustained high level of payment 
        error, or
         2. Lwhere documented education intervention has failed in 
        correcting the payment error.

    Despite the limited use created by Section 405(f)(4), there is 
still a great room for Medicare contractors to interpret Section 405 
which may lead to unjustified used of extrapolation. Therefore, 
AAHomecare urges that the Subcommittee clearly define the phrase ``high 
level of payment error.'' The Subcommittee needs to provide contractors 
with guidance (preferably a detailed written guidelines within this 
bill) as to what constitutes a high payment error. If this term is not 
defined, the contractor could apply his own subjective definition of 
``high level of payment error.'' By clearly defining what constitutes a 
``high level of payment error'' the Subcommittee can prevent the 
inconsistent application of extrapolation by different Medicare 
contractors, as well as by the same contractor when reviewing different 
health supplier or provider claims.
    We would further urge the Subcommittee to add a provision that 
would state that any payment errors will not be deemed to exist where 
the provider can show that there exists some basis in the law to 
support the claim as submitted. In this instance, we feel that it is 
important create a sense of security amongst providers and suppliers, 
that they can in fact rely on existing laws and regulations when 
submitting a claim. We strongly believe that a supplier or provider 
should not be required to second guess the law, nor be penalized for 
submitting claims based on a reasonable interpretation of law. Under 
such a provision, the Medicare contractor would be allowed to deny 
individual claims, but the provider or supplier could rely on law 
relied on when appealing.
LREGULATORY REFORM SHOULD NOT INCLUDE CONSENT SETTLEMENTS
    Section 405(f)(5) of H.R. 3391 grants to the Secretary the power to 
settle a projected payment with a provider or supplier by the use of a 
consent settlement. Before offering a consent settlement, the Secretary 
is required to inform the suppliers or providers of the contractors 
finding of overpayment. The supplier or provider is then given the 
opportunity to either accept the consent settlement or undergo 
statistical valid random sampling.
    Routinely, Medicare contractors have used consent settlement 
agreements to strong arm a provider into waiving their right to appeal, 
despite their honest and usually well-founded belief that the denial 
was an error. Often, a home health provider will settle its claims with 
the contractor, not because it supports the contractor's finding, but 
rather because of the costs they will incur if they fail to accept. 
Providers and suppliers who do not settle will be forced to incur 
greater costs associated with appealing the decision as illustrated in 
the example below.
    In one post payment audit, the fiscal intermediary denied 56% of a 
sample of claims submitted by one small HHA. This percentage was 
extrapolated to a $65,000 overpayment. In this case, the provider 
refused to accept a consent settlement agreement and appealed all 
claims to the ALJ. The ALJ in turn reversed over 95% of the denials. 
Although, the HHA did receive a favorable outcome, it incurred 
substantial costs associated with the appeal over the four years that 
it took from the time of denial to the time of reversal.
    If a provider or supplier chooses not to accept a proffered 
settlement, then the contractor may apply the Statistically Valid 
Random Sample (SVRS). An SVRS examines a larger number of claims, 
usually consisting of 200-400 claims. Such an investigation by its very 
nature is largely disruptive to the operation of home health agencies 
and DME providers, and may force the business to cease all business 
activity. Therefore, it is not surprising that many providers and 
suppliers feel the need to settle, despite their honest belief that the 
initial probe sample findings where inaccurate because of the 
exorbitant costs associated with SVRS.
    AAHomecare urges the Subcommittee to reconsider including consent 
settlements in H.R. 3391 or any other regulatory reform legislation. 
While the Subcommittee has addressed at least one problem associated 
with consent settlements, i.e. limiting the use of extrapolation, we 
believe that the detrimental effects associated with consent agreements 
outweigh any potential benefits. If the Subcommittee allows the use 
consent settlements, it will unwittingly provide contractors with a 
tool by which it may strong-arm service providers into settling, even 
if consent settlements are used only in a fraction of reviewed claims. 
Those providers who challenge, the sampling methodology may be forced 
into economic hardship associated with a SVRS or a lengthy appeal. The 
Subcommittee may unwittingly place the provider or supplier in a 
position in which it can no longer provide any services. This is of 
particular concern where the home health provider or DME supplier 
provide a specialized type of service in an area.
    AAHomecare further recommends that if the Subcommittee decides to 
include consent settlements in H.R. 3391, it should create a provision 
that allows a provider to settle, while still maintaining the right to 
appeal the sample probe methodology used by the provider. A provider or 
supplier should be allowed to appeal the probe method without 
undergoing an SVRS, otherwise they may be subjected to unjust financial 
burdens.
DEFFERING RECOUPMENT DURING APPEAL
    H.R. 3391 prohibits any recoupment of overpayment until the 
conclusion of the reconsideration hearing. We applaud this 
Subcommittee's continued effort to create an insulating mechanism to 
protect providers from wrongful payment recoveries. Currently, 
providers and suppliers are required to make payment before going forth 
in their appeals process, causing many of these companies to undergo 
substantial financial hardship for a claim where an error exists in the 
overpayment determination.
    While AAHomecare agrees that the Secretary should not be allowed to 
recoup overpayments until the conclusion of a reconsideration hearing, 
we believe that this Subcommittee should further extend this provision 
by limiting recovery until the claim has run its full course throughout 
the appeals process and a final and binding decision has been rendered. 
As Tom Scully testified last year, physicians, providers and suppliers 
should have the same rights taxpayers enjoy. A taxpayer who is audited 
has the right to withhold payment, as long as interest accrues, while 
an appeal is pending. Both suppliers and providers should be entitled 
to the same right throughout their entire appeal process. Instead, HHAs 
and DME suppliers are required to pay the amount after the 
reconsideration hearing, not allowing the party to avail himself of the 
benefits of an ALJ hearing.
    AAHomecare fully appreciates that a substantial controversy exists 
concerning further delaying recoupment beyond reconsideration. However, 
we base this recommendation on two well-founded premises. First, 
recoupment of an extrapolated amount often results in eliminating an 
opportunity for a provider or supplier to seek an appeal. If a provider 
or supplier is forced to make payment of potentially hundreds of 
thousands of dollars, they will undergo a severe financial burden if 
they continue to incur the cost associated with an appeal. Second, it 
is administratively difficult to recompute the amount of the 
extrapolated overpayment after each level of appeal where some of the 
sample claims are usually reversed.
    We also recommend that any extrapolation should be dropped if the 
provider or supplier obtains a reversal of 10% or more of the sample 
claim denial on appeal. In such a case, the sample denials would seem 
to not be a statistically valid representation of denied claims in the 
universe of claims. If the overpayment represents more than 10% of the 
provider or supplier revenue, we believe that the interested party 
should be able to repay the amount during a three year period. By this 
means, the Subcommittee could ensure that companies will not suffer 
financial hardship that will cause the HHA or DME supplier to either 
cut back on the services it provider or file for bankruptcy.
    AAHomecare would further recommend that an additional provision be 
added to H.R. 3391. We believe that the Subcommittee should establish a 
provision that would protect home health providers where overpayment 
relates to an error in the administration of benefits by Medicare 
itself. HHAs are susceptible to unknown amounts of liability due to 
Medicare's own inability to appropriately process Medicare home health 
PPS claim. A year ago, CMS determined that its system failed to make 
the payment adjustment when a patient was admitted to another home 
health agency or readmitted to the same agency within 60 days of 
discharge.
    AAHomecare recommends that the Subcommittee include legislation 
that would limit the ability of CMS to institute retroactive payment 
adjustments on any claims to more than one year previous. Financial 
integrity cannot be maintained by a provider or services who is 
required to carry on a indeterminate amount of financial liability from 
one year to the next.
OASIS:
    As of December 2002, CMS have instituted changes aimed at 
decreasing the burdens associated with the collection of information 
under the Outcome and Assessment Information Set (OASIS). CMS 
eliminated two OASIS collection time point and seventeen data items. 
Thirteen of the seventeen data items consist of demographic 
information, which have been moved to the tracking sheet and should be 
completed by agency office staff.
    AAHomecare supports the implication of OASIS and the reduction of 
paperwork. AAHomecare recommends that certain policy changes should be 
incorporated as soon as possible. We believe that the Subcommittee 
should also instruct the secretary to request CMS to lengthen the 
definition of ``in patient stay'' from 24 hours to 72 hours. We also 
feel that it is important to instruct the CMS to widen the 
recertification window from 5 day to at least 10 days to ensure greater 
flexibility among for an agency to schedule assessment during the 
patient scheduled visits. Lastly, we urge the Subcommittee to instruct 
the Secretary take steps to make OASIS electronic program specification 
and the risk adjustment methodology readily available to the public and 
allow the public to submit comments on any program specification 
changes.
GUIDANCE BY SECRETARY OR AGENT:
    We strongly support limiting any sanctions on providers or 
suppliers if they reasonably rely on the guidance of Section 102(c) of 
H.R. 3391. Providers and suppliers should not be subject to repayment 
of amounts that they received in reasonable reliance on the guidance 
from the Secretary or an agent of the Secretary.
CONCLUSION:
    We appreciate this opportunity to express our concerns and present 
our suggestions to the Subcommittee. We greatly value your continued 
effort on these matters. AAHomecare strongly believes that there is 
much at stake in regulatory reform, and recommend that any legislation 
adopted should maintain due process and fairness. H.R. 3391 is a good 
starting point for Medicare appeal and regulatory reform. We hope that 
these comments and suggestions are helpful and look forward to working 
with you to pass a regulatory reform legislation that will further the 
objective of efficiency and fairness.

                                 

         Statement of the American Association of Health Plans
     AAHP Commends House Ways and Means Subcommittee for Advancing 
                           Regulatory Reforms
    The American Association of Health Plans (AAHP) and our member 
plans are pleased to have had the opportunity to contribute to the 
important work of the Secretary of Health and Human Services' (HHS) 
Advisory Committee on Regulatory Reform. Last year, we were pleased to 
contribute to the Advisory Committee's work on several fronts:

         LTwo health plan representatives served as members of 
        the Advisory Committee: Heidi Margulis, senior vice president 
        for government relations of Humana; and Leonard Schaeffer, 
        chairman and CEO of Wellpoint Health Networks.
         LIn March 2002, AAHP submitted comments to the 
        Advisory Committee outlining proposed solutions for reducing 
        regulatory burdens associated with Medicare, Medicaid, and the 
        privacy and administrative simplification provisions of the 
        Health Insurance Portability and Accountability Act (HIPAA).
         LIn March 2002, four AAHP member plans testified 
        before the Advisory Committee regarding opportunities for 
        improving the administration of the Medicare+Choice program. 
        The health plans that testified were Blue Shield of California, 
        Group Health Cooperative, PacifiCare Health Systems, and Sun 
        Health.

    AAHP and our member plans applaud Secretary Thompson for his strong 
commitment to improving the administration of HHS programs on behalf of 
health care consumers. At his direction, the Advisory Committee 
outlined more than 250 recommendations for streamlining HHS regulatory 
requirements in its November 2002 report. This report lays a foundation 
for concrete changes that will reduce unnecessarily burdensome and 
duplicative regulations while at the same time making HHS rules more 
effective in promoting high quality care for consumers.
    The steps HHS has taken in recent months to implement the Advisory 
Committee's recommendations are clear evidence of the department's 
commitment to simplifying federal regulations and maintaining 
accountability in order to better serve consumers. We look forward to 
working with HHS as it continues to implement reforms designed to 
restore common sense to the regulatory system by striking a balance 
between the vital goals of efficiency and accountability. The Advisory 
Committee's recommendations represent an important starting point in 
that effort.

                                 

 Statement of the Honorable Ronald G. Bernoski, President, Association 
           of Administrative Law Judges, Milwaukee, Wisconsin
    Mr. Chairman and Members of the Subcommittee:
    Thank you for the opportunity to submit this statement. My name is 
Ronald G. Bernoski. I am an Administrative Law Judge (``ALJ'') who has 
been hearing Social Security disability cases at the Office of Hearings 
and Appeals (``OHA'') of the Social Security Administration (``SSA'') 
in Milwaukee, Wisconsin, for over 20 years.
    This statement is presented in my capacity as the President of the 
Association of Administrative Law Judges (``AALJ''), which represents 
the ALJs employed in the SSA OHA and the Department of Health and Human 
Services (``DHHS''). One of the stated purposes of the AALJ is to 
promote and preserve full due process hearings in compliance with the 
Administrative Procedure Act for those individuals who seek 
adjudication of program entitlement disputes under the Social Security 
Act.
    We strongly oppose the Medicare Appeals item in the 2004 
President's Budget that would authorize the Secretary of the DHHS to 
``use alternate mechanisms in lieu of Administrative Law Judge review'' 
for processing Medicare appeals under Title XVIII of the Social 
Security Act. This budget item is a stealth attack on the American 
public's due process rights to an appellate administrative hearing and 
decision by an ALJ appointed pursuant to the Administrative Procedure 
Act (``APA'') after a denial of Medicare benefits by the DHHS Centers 
for Medicare & Medicaid Services (``CMS''). These due process rights 
are provided by the Social Security Act and the APA.
    The CMS Administrator, Honorable Thomas Scully, said that ``[t]he 
President's FY2004 budget includes provisions to implement Medicare 
appeals reform,'' when he testified before the Subcommittee on Health 
of the House Committee on Ways and Means at the February 13 Hearing on 
Medicare Regulatory and Contracting Reform. He also testified that CMS 
is ``proceeding toward the transfer to CMS of the Medicare hearing 
function currently performed by the Administrative Law Judges (ALJ) in 
the Social Security Administration (SSA). We have already had extensive 
discussions with SSA to explore administratively transferring the 
Medicare hearing function to CMS.''
    However, the CMS Administrator did not inform the Subcommittee that 
the Medicare Appeals item buried in the 2004 President's Budget would 
permit CMS to strip away the Medicare beneficiaries' and providers' due 
process rights under the Social Security Act and APA to a hearing and 
decision on appeal before an APA ALJ. The CMS Administrator also did 
not tell the Subcommittee that, on October 22, 2002, he signed an 
agreement with the Connecticut Department of Social Services to test a 
two-step non-APA Medicare administrative appeals process that provides 
a review of an appealed Intermediary's reconsidered determination by an 
unspecified CMS official followed by a private sector arbitration as 
the final administrative step. CMS' reliance upon 42 U.S.C. Sec. 1395b-
1, which authorizes the DHHS to conduct ``demonstration projects'' to 
test cost saving techniques in specified processes, as authority to 
test a change in the appellate process is questionable. There also is a 
question whether it is lawful for the federal government to permit 
private binding arbitration to supplant federal sovereignty by 
privately resolving disputes involving rights to public benefits 
without access to the due process of law and equal protection in a 
public forum.
    The proposed regulations recently published by the CMS entitled 
``Changes to the Medicare Claims Appeal Procedures'' include a note 
that the Medicare appeals function now performed by SSA ALJs is 
expected to be transferred back to HHS by October 1 of this year. 
Proposed regulations are published by federal agencies pursuant to the 
APA to inform the public in advance of agencies' contemplated actions. 
However, nothing is said to the public in the proposed Medicare 
regulations promulgated by CMS Administrator Scully that suggests CMS 
is contemplating a non-APA ALJ appeals process for Medicare 
beneficiaries and providers. 67 FR 69182 (November 15, 2002).
    Any plan to deny Medicare beneficiaries and service providers the 
right to a full due process hearing under the APA before an ALJ will 
result in a denial of basic procedural due process rights to the 
American people. Without APA due process, Medicare beneficiaries and 
service providers would have no recourse to an independent 
decisionmaker during the administrative process.
    If CMS is permitted to take these steps over 60 years backward from 
procedural due process, hundreds of thousands of Americans who appeal 
from denials of Medicare benefits under the Social Security Act will 
find themselves left with a process that undermines administrative 
fairness and the public's confidence in that fairness. Our citizens and 
lawful permanent residents deserve to keep their well-established right 
to full due process before an independent decisionmaker.
    The APA was adopted by Congress in 1946 to ensure that the American 
people were provided hearings that are not prejudiced by undue agency 
influence. The securing of fair and competent hearing adjudicators was 
viewed as the heart of the APA. The APA presently is codified at 5 
U.S.C. Sec. Sec. 551-559, 701-706, 1305, 3105, 3344, 4301(2)(E), 
5335(a)(B), 5372, and 7521.
    The APA was enacted to achieve reasonable uniformity and fairness 
of the federal administrative process for members of the American 
public with claims pending before federal agencies. The APA sets forth 
a due process administrative procedure for the hearing and decision by 
ALJs of cases brought before the federal agencies to which the APA 
applies. The APA provides the minimum standards for federal 
administrative due process in the Executive Branch, and delineates 
procedures for adjudicative administrative proceedings, namely 
individual case decisions about rights or liabilities as an agency's 
judicial function. This includes uniform standards for the conduct of 
adjudicatory proceedings including the merit appointment of ALJs.
    By APA mandate, the ALJ is an independent, impartial adjudicator in 
the administrative process and there is a separation of the 
adjudicative and prosecutorial functions of an agency. The ALJ is the 
only impartial, independent adjudicator available to a claimant for 
benefits in the federal administrative process, and the only person who 
stands between the claimant and the whim of agency bias and policy. If 
CMS ends the APA process for Medicare appeals and returns to using 
subordinated employees who would decide benefits appeals as an 
instrument and mouthpiece for CMS, we will have returned to the days 
when the agency was both prosecutor and judge.
    The decisionmaking independence provided by the APA is not for the 
benefit of the ALJ but instead is provided for the protection of the 
American people. The protections are intended to ensure that the 
American people receive a full and fair due process hearing with a 
decision based on the evidence in the hearing record without agency 
pressure.
    The Supreme Court recently reaffirmed the applicability of the APA 
to federal administrative adjudications, ``the numerous common features 
shared by administrative adjudications and judicial proceedings,'' 
``the similarities between the role of an ALJ and that of a trial 
judge,'' and the importance of the APA structure that ensures the ALJs' 
independence of agency influence in deciding cases. Federal Maritime 
Commission v. South Carolina State Ports Authority, 535 U.S. 743, 122 
S. Ct. 1864, 1872-1873 (2002). In FMC, the Supreme Court relied upon 
its language in Butz v. Economou, 438 U.S. 478, 513-514 (1978), which 
is stated here directly from Butz:
    [F]ederal administrative law requires that agency adjudication 
contain many of the same safeguards as are available in the judicial 
process. . . . They are conducted before a trier of fact insulated from 
political influence. See [5 U.S.C. Sec. 554(d)]. A party is entitled to 
present his case by oral or documentary evidence [5 U.S.C. Sec. 556 
(d)], and the transcript of testimony and exhibits together with the 
pleadings constitute the exclusive record for decision. [5 U.S.C. 
Sec. 556(e)]. The parties are entitled to know the findings and 
conclusions on all of the issues of fact, law, or discretion presented 
on the record. [5 U.S.C. Sec. 557(c)].
    There can be little doubt that the role of the modern federal 
hearing examiner or administrative law judge within this framework is 
``functionally comparable'' to that of a judge. His powers are often, 
if not generally, comparable to those of a trial judge: He may issue 
subpoenas, rule on proffers of evidence, regulate the course of the 
hearing, and make or recommend decisions. See [5 U.S.C. Sec. 556(c)]. 
More importantly, the process of agency adjudication is currently 
structured so as to assure that the hearing examiner exercises his 
independent judgment on the evidence before him, free from pressures by 
the parties or other officials within the agency.
    In Butz, the Supreme Court elaborated upon the reasons that 
Congress enacted the APA's many protections to assure the decisional 
independence of ALJs and enumerated those protections. 438 U.S. at 513-
514:

          Prior to the Administrative Procedure Act, there was 
        considerable concern that persons hearing administrative cases 
        at the trial level could not exercise independent judgment 
        because they were required to perform prosecutorial and 
        investigative functions as well as their judicial work, see,
        e.g., Wong Yang Sung v. McGrath, 339 U.S. 33, 36-41 (1950), and 
        because they were often subordinate to executive officials 
        within the agency, see Ramspeck v. Federal Trial Examiners 
        Conference, 345 U.S. 128, 131 (1953). Since the securing of 
        fair and competent hearing personnel was viewed as ``the heart 
        of formal administrative adjudication,'' Final Report of the 
        Attorney General's Committee on Administrative Procedure 46 
        (1941), the Administrative Procedure Act contains a number of 
        provisions designed to guarantee the independence of hearing 
        examiners. They may not perform duties inconsistent with their 
        duties as hearing examiners. 5 U.S.C. Sec. 3105 (1976 ed.). 
        When conducting a hearing under Sec. 5 of the APA, 5 U.S.C. 
        Sec. 554 (1976 ed.), a hearing examiner is not responsible to, 
        or subject to the supervision or direction of, employees or 
        agents engaged in the performance of investigative or 
        prosecution functions for the agency. 5 U. S. C. Sec. 554(d)(2) 
        (1976 ed.). Nor may a hearing examiner consult any person or 
        party, including other agency officials, concerning a fact at 
        issue in the hearing, unless on notice and opportunity for all 
        parties to participate. [5 U.S.C. Sec. 554 (d)(1)]. Hearing 
        examiners must be assigned to cases in rotation so far as is 
        practicable. [5 U.S.C. Sec. 3105]. They may be removed only for 
        good cause established and determined by the Civil Service 
        Commission [now OPM] after a hearing on the record. [5 U.S.C. 
        Sec. 7521]. Their pay is also controlled by the Civil Service 
        Commission. [5 U.S.C. Sec. 5372].

    There is a close relationship between the APA and the Social 
Security Act. The Supreme Court has stated that the APA ``is modeled 
upon the Social Security Act.'' Richardson v. Perales, 402 U.S. 389, 
409 (1971).
    It is clear that Congress intended the APA to apply to 
adjudications conducted under the Social Security Act, including 
Medicare adjudications. That the APA applies to the Social Security Act 
hearing process is stated extensively in Adjudications by 
Administrative Law Judges Pursuant to the Social Security Act also Are 
Adjudications Pursuant to the Administrative Procedure Act, Robin J. 
Arzt, 22-2 J. NAALJ ______ (Fall 2002), and Are You Willing to Make the 
Commitment in Writing? The APA, ALJs, and SSA, Jeffrey Scott Wolfe, 55 
Okla. L. Rev. 203 (Summer 2002).
    The Medicare program (the ``Medicare Act''), which provides 
federally funded hospital and supplementary medical insurance for 
elderly and disabled people, was established in 1965 as Title XVIII of 
the Social Security Act. 42 U.S.C.Sec. Sec. 1395-1395ggg, as amended. 
The Medicare Act provides, in pertinent part, that an individual who is 
``dissatisfied with any determination under [42 U.S.C. Sec. 1395ff(a)] 
as to [entitlement to Medicare Part A or Part B benefits]. . ., shall 
be entitled to a hearing thereon by the Secretary to the same extent as 
is provided in section 205(b) [42 USCS Sec. 405(b) of Social Security 
Act Title II]. . . .'' 42 U.S.C. Sec. 1395ff(b)(1).
    Accordingly, if Social Security Act Title II adjudications are APA 
adjudications, then the APA necessarily also applies to Medicare 
adjudications. The first part of Social Security Act Title II, which 
provided for old age and survivors insurance benefits, was enacted in 
1935. Social Security Act of 1935, 49 Stat. 620, 627 (1935). A 
claimant's right to a hearing in the event of a denial of his claim for 
old age and survivors insurance benefits first was created by the 1939 
amendments to the Act. A denied reconsideration entitled a claimant to 
a hearing, Pub. L. No. 76-379, 53 Stat. 1360 (1939): ``Upon request by 
[an applicant for benefits or certain relatives of the applicant] . . . 
who makes a showing in writing that his or her rights may be prejudiced 
by any decision the Commissioner of Social Security has rendered, the 
Commissioner shall give such applicant and such other individual 
reasonable notice and opportunity for a hearing with respect to such 
decision.'' 42 U.S.C. Sec. 405(b). This is the only Social Security Act 
hearing process that existed at the time that the APA was enacted.
    In the Attorney General's Manual on the Administrative Procedure 
Act (the ``Manual''), which is part of the APA legislative history, the 
Attorney General expressly and unequivocally stated that the 
determinations of claims under Title II of the Social Security Act are 
adjudications covered by the APA: ``[T]he residual definition of 
``adjudication'' in section 2(d) was intended to include such 
proceedings as the following: . . . [t]he determination of . . . claims 
under Title II (Old Age and Survivor's Insurance) of the Social 
Security Act. . . .'' U.S. Justice Dept., Attorney General's Manual on 
the Administrative Procedure Act 14-15 (1947) (emphasis added), citing, 
Senate Judiciary Committee Hearings on the APA (1941) at 657, 1298, 
1451 and S. Rep. No. 752 at 39; 92 Cong. Rec. 5648.
    According to the Supreme Court, the Manual is an important part of 
the legislative history of the APA. The Manual is ``a contemporaneous 
interpretation'' of the APA, Vermont Yankee Nuclear Power Corp. v. 
Natural Resources Defense Council, 435 U.S. 519, 546 (1978), that has 
been `` `given some deference by [the Supreme] Court because of the 
role played by the Department of Justice in drafting the legislation, 
and Justice [Tom C.] Clark was Attorney General both when the APA was 
passed and when the Manual was published.' '' Steadman v. SEC, 450 U.S. 
91, 102, n. 22 (1981), quoting, Vermont, 435 U.S. at 546. ``In prior 
cases, [the Supreme Court has] given some weight to the Attorney 
General's Manual on the Administrative Procedure Act (1947), since the 
Justice Department was heavily involved in the legislative process that 
resulted in the Act's enactment in 1946.'' Chrysler Corp. v. Brown, 441 
U.S. 281, 302, n. 31 (1979), citing, Vermont, supra. Justice Scalia has 
described the Manual as ``the Government's own most authoritative 
interpretation of the APA. . . . That document . . . was originally 
issued `as a guide to the agencies in adjusting their procedures to the 
requirements of the Act.' '' Bowen v. Georgetown University Hospital, 
488 U.S. 204, 218 (1988) (concurring op.), quoting, Manual, p. 6, and 
citing, Steadman, Chrysler and Vermont.
    Therefore, Social Security Act Title II old age and survivors 
insurance benefits program adjudications are APA adjudications.
    The Supreme Court implicitly held in Bowen v. Georgetown University 
Hospital that the APA generally applies to the Medicare Act when it 
expressly affirmed the decision by the U.S. Court of Appeals for the 
District of Columbia that both the APA and the Medicare Act barred the 
Secretary of Health and Human Services from issuing a rule that 
retroactively sets new cost-limits for Medicare payments for health 
services: ``The [circuit] court based its holding on the alternate 
grounds that the APA, as a general matter, forbids retroactive 
rulemaking, and that the Medicare Act, by its specific terms, bars 
retroactive cost-limit rules. We . . . now affirm.'' Bowen v. 
Georgetown University Hospital, 488 U.S. 204, 208 (1988), affirming, 
821 F.2d 750 (D.C. Cir. 1987). The Supreme Court did not discuss the 
APA further because it found that the Secretary's retroactive cost-
limit rule was invalid on the threshold issue of whether the Medicare 
Act permitted retroactive rulemaking. Id. at 208, 215-216.
    In 1976, Congress expressly ended what it described as the 
confusion during the preceding few years regarding the applicability of 
the APA to the parts of the Social Security Act enacted after the APA 
by enacting Public Law No. 94-202, which is entitled ``An Act to amend 
the Social Security Act to expedite the holding of hearings under 
titles II, XVI and XVIII by establishing uniform review procedures, and 
for other purposes.'' Pub. L. No. 94-202, 89 Stat. 1135-1137 (1976). 
Congress enacted Public Law No. 94-202 in connection with the SSI 
program to reiterate that it intends the APA to apply to all 
adjudications of Social Security Act claims that have been denied by 
the SSA. The provisions of ``[Public Law No. 94-202] clearly placed all 
social security cases (OASDI, SSI, and medicare) under the APA.'' 
Conversion of Temporary Administration Law Judges, H.R. Doc. No. 617, 
95th Cong., 1st Sess. 4-5 (1977) (emphasis added).
    Therefore, Congress expressly intended that the APA apply to the 
Medicare administrative adjudication process, just the same as Congress 
intended for Title II and all other Social Security Act adjudications.
    In addition, since the APA applies to Medicare adjudications, the 
enactment of the 2004 President's Budget item that would authorize the 
use of a non-APA ALJ hearing process for Medicare appeals is not 
sufficient to override the APA requirements. The APA provides that a 
``[s]ubsequent statute may not be held to supercede or modify [the 
APA], except to the extent that it does so expressly.'' 5 U.S.C. 
Sec. 559. The Supreme Court repeatedly has held that ``[e]xemptions 
from the terms of the Administrative Procedure Act are not lightly to 
be presumed in view of the statement in Sec. 12 of the Act [now 
codified at 5 U.S.C. Sec. 559] that modifications must be express . . 
.'' Marcello v. Bonds, 349 U.S. 302, 310 (1955), citing, Shaughnessy v. 
Pedreiro, 349 U.S. 48, 51 (1955) (The APA ``is to be given a 
`hospitable' interpretation.''). Ardestani v. INS, 502 U.S. 129, 134 
(1991); Brownell v. Shung, 352 U.S. 180, 185 (1956). An exemption from 
the APA will not be found unless the subsequent statute expressly 
supercedes the provisions of the APA and/or the Congressional intent to 
override the APA or any of its provisions is sufficiently clear to 
overcome the presumption that the APA applies. Id. The legislative 
intent of Congress is clear: ``Subsequent legislation is not to modify 
the bill except as it may do so expressly.'' Senate Judiciary Committee 
Report on the APA, S. Rep. No. 752, 79th Cong., 1st Sess. 29 
(1945); H.R. Rep. No. 1980, 79th Cong., 2nd Sess. 47 (1946).
    Finally, in a letter dated January 9, 2001, SSA Commissioner 
Kenneth S. Apfel affirmed the relationship between the APA and the 
Social Security Act for Social Security hearings:

          The Social Security Administration (SSA) has a long 
        tradition, since the beginning of the Social Security programs 
        during the 1930s, of providing the full measure of due process 
        for people who apply for or who receive Social Security 
        benefits. An individual who is dissatisfied with the 
        determination that SSA has made with respect to his or her 
        claim for benefits has a right to request a hearing before an 
        Administrative Law Judge, an independent decisionmaker who 
        makes a de novo decision with respect to the individual's claim 
        for benefits. As the Supreme Court has recognized, SSA's 
        procedures for handling claims in which a hearing has been 
        requested served as a model for the Administrative Procedure 
        Act (APA). Congress passed the APA in 1946 in part to establish 
        uniform standards for certain adjudicatory proceedings in 
        Federal agencies, in order to ensure that individuals receive a 
        fair hearing on their claims before an independent 
        decisionmaker. SSA always has supported the APA and is proud 
        that the SSA hearing process has become the model under which 
        all Federal agencies that hold hearings subject to the APA 
        operate. SSA's hearing process provides the protections set-
        forth in the APA, and SSA's Administrative Law Judges are 
        appointed in compliance with the provisions of the APA.

    Any retreat by CMS from SSA's long and proud tradition by which SSA 
conducts Medicare hearings will have a substantial adverse effect on 
Medicare beneficiaries and providers and will deny them basic due 
process rights. American citizens will have fewer procedural due 
process rights than they had prior to the enactment of the APA.
    We urge you to protect the due process rights of the American 
people by continuing to provide Medicare beneficiaries and providers 
the full range of rights to an appellate administrative due process 
hearing and decision by an APA ALJ under both the APA and the Social 
Security Act. APA due process offers the best protection to our 
citizens in their dealings with the federal government.
    Most Americans first see the face of the United States government 
when they seek Social Security Act benefits. How people view that face 
depends upon the quality of justice they receive. The current hearing 
procedure provided by the Social Security Act and APA allows for high 
quality due process and a sense of fair play. Full APA due process must 
be preserved in Medicare cases for the benefit of our citizens.

                                 

Statement of the Emergency Department Practice Management Association, 
                            McLean, Virginia
    On behalf of the Emergency Department Practice Management 
Association (EDPMA), we would like to thank Chairman Johnson and 
Ranking Member Stark for their hard work on Medicare regulatory reform. 
We appreciate the opportunity to present this written statement about 
Medicare issues that affect EDPMA members. We would be happy to work 
with you on this important topic.
Background
    EDPMA represents emergency department (ED) medical groups, ED 
billing companies, consultants, and vendors who support ED medical 
groups. EDPMA members provide patient care and ED management services 
to approximately 25% of the estimated over 100 million emergency 
department patients in the U.S. EDPMA supports regulatory reform to the 
Medicare program. EDPMA submitted comments to the Department of Health 
and Human Services (HHS) on March 5, 2002 (see attached). We have 
highlighted our main concerns below. While we are pleased by the 
recommendations of the Secretary of HHS' Regulatory Reform Task Force, 
and progress made by HHS to date, we also believe that there are 
several areas where additional reforms are necessary.
CMS' Reassignment Policies
    Many hospitals in the U.S. contract with outside medical groups to 
provide physician services in their EDs. Unlike private payors, CMS 
policy does not currently allow ED medical groups that use independent 
contractors to obtain a Medicare group enrollment number. However, CMS 
has recognized that many physician independent contractors are needed 
to staff EDs and established a compliance scenario (the ``lockbox'' 
arrangement) to permit these physicians to continue to provide services 
to Medicare beneficiaries and stay affiliated with the ED medical 
group.
    The current compliance scenarios create a process that is labor-
intensive, expensive, and actually decreases the integrity of the 
Medicare program as multiple individual provider numbers are created 
and the program has a more difficult time spotting billing trends or 
flagging any questionable practices that might be common to physicians 
affiliated with the same group. In contrast, if the medical group could 
obtain a number, there would be a direct relationship between the group 
and the Medicare program, thereby enhancing program accountability.
    EDPMA believes that CMS should permit ED medical groups to enroll 
with the Medicare program and receive direct payments for physician 
services whether those services are rendered by employees or 
independent contractors. We urge Congress to include in any regulatory 
reform measures a provision to explicitly permit ED medical groups to 
enroll with the Medicare program and receive direct payment for 
physician services whether those services are rendered by employees or 
independent contractors.
855 Enrollment Forms
    As noted above, EDPMA believes that ED medical groups should be 
able to enroll with the Medicare program and receive direct payments 
for physician services whether those services are rendered by employees 
or independent contractors. In addition to this policy concern, EDPMA 
also supports other changes to the enrollment process. We believe the 
enrollment form (the ``855'') and the process used by the CMS 
contractors in reviewing the applications could be streamlined. EDPMA 
continues to emphasize the importance of Internet-based electronic 
provider enrollment, and EDPMA has detailed its reasons supporting the 
creation of such an Internet-based enrollment process in previous 
written comments filed with CMS. Congress passed an electronic 
signature law and many state laws support electronic signature and 
verification. EDPMA strongly believes now more than ever that an 
Internet-based enrollment process could save both CMS and the provider 
community millions of dollars over what is today almost entirely a 
paper-based system for provider/supplier enrollment.
    EDPMA also recommends continued refinement to the 855 form to make 
it user-friendly. EDPMA urges the Committee to take steps to ensure 
that enrollment applications are processed fairly, consistently, and in 
a timely fashion. Providers should be able to complete and submit the 
applications electronically and to check on the status of the 
applications electronically.
    EDPMA is also concerned that the contractors are not held to a 
tough standard regarding the processing time. Under the current 
process, EDPMA is concerned that the majority of enrollment delays do 
not result in discovery of an applicant who is not eligible to 
participate in the Medicare program. Rather, the delays are often due 
to mere contractor inaction and/or inefficiency, and the provider gets 
its enrollment number, albeit much delayed. ED physicians must see all 
patients due to the federal EMTALA requirements. They do not have the 
option of not seeing Medicare patients while they await their number. 
Therefore, the amount of Medicare payments postponed by the delay in 
issuance of numbers is not insignificant.
    EDPMA suggests that CMS continue to modify the 855 forms to make 
them straightforward, establish electronic filing, and coordinate the 
filing of the 855 with the filing of EDI, and EFT agreements.
EMTALA
    EDPMA members have many concerns related to the effect of the 
Emergency Medical Treatment and Active Labor Act, 42 U.S.C. 
Sec. 1395dd, (EMTALA) on hospitals and emergency physicians. EDPMA 
supports the formation of an EMTALA industry advisory group as EDPMA is 
concerned that HHS' current interpretation of EMTALA has extended 
beyond the law's initial intention to prevent patients from being 
refused treatment or inappropriately transferred. Two general problems 
have many implications. First, requiring hospitals to provide services 
without a corresponding requirement for payment leads to an unstable 
and untenable financial situation for hospitals and for physicians. 
Second, the divergence between legal and medical definitions of key 
EMTALA terms (e.g., ``stable'') has led to much confusion in the field 
as to appropriate practices. We support comments made by the American 
College of Emergency Physicians (ACEP) to the Committee on this matter 
as well.
Documentation Guidelines for Evaluation and Management Services
    It is EDPMA's understanding that CMS is currently working with the 
American Medical Association (AMA) to revise the Documentation 
Guidelines (``DGs'') for physician evaluation and management services. 
In the past, EDPMA has provided a number of comments in this area. In 
general, EDPMA supports the use by CMS of DGs so that CMS can verify 
that objective standards were provided before paying claims. We believe 
the 1995 documentation guidelines are a good example of objective 
standards. EDPMA also believes that physician use of appropriately 
structured DGs promotes quality care for all patients, including 
Medicare beneficiaries. EDPMA supports the use of objective criteria to 
avoid confusion for physicians and their coders. CMS should work 
closely with providers in making sure that any DGs are workable from 
the provider's perspective.
    Once again, EDPMA appreciates this opportunity to provide input to 
the Committee. We would be happy to provide additional materials in any 
of the areas noted above.
                                 ______
                                 
Christy Schmidt
Executive Coordinator, Regulatory Reform Initiative
Office of the Assistant Secretary for Planning and Evaluation
Department of Health and Human Services
200 Independence Avenue, SW
Washington, DC 20201
    Dear Ms. Schmidt:
    EDPMA submits these comments to the Secretary's Advisory Committee 
on Regulatory Reform (the Committee) in response to the January 4, 2002 
request for public input set forth in the Federal Register, 67 Fed. 
Reg. 599. EDPMA represents emergency department (ED) medical groups, ED 
billing companies, consultants, and vendors who support ED medical 
groups. EDPMA members provide patient care and ED management services 
to approximately 25% of the estimated over 100 million emergency 
department patients in the U.S. EDPMA supports the efforts by the 
Department of Health and Human Services (HHS) to reduce regulatory 
burdens imposed by HHS regulations, and we look forward to working with 
the Committee in this area.
EMTALA
    EDPMA members have many concerns related to the effect of the 
Emergency Medical Treatment and Active Labor Act, 42 U.S.C. 
Sec. 1395dd, (EMTALA) on hospitals and emergency physicians. EDPMA 
supports the formation of an EMTALA industry advisory group as EDPMA is 
concerned that HHS' current interpretation of EMTALA has extended 
beyond the law's initial intention to prevent patients from being 
refused treatment or inappropriately transferred. Two general problems 
have many implications. First, requiring hospitals to provide services 
without a corresponding requirement for payment leads to an unstable 
and untenable financial situation for hospitals and for physicians. 
Second, the divergence between legal and medical definitions of key 
EMTALA terms (e.g., ``stable'') has led to much confusion in the field 
as to appropriate practices.
    EDPMA believes the statute's requirements have been inappropriately 
extended through regulations, the interpretive guidelines and the 
enforcement policies of state surveyors, CMS, and the HHS Office of 
Inspector General (OIG). Most recently, HHS expanded the reach of 
EMTALA to non-ED settings through the requirements for provider-based 
entities. The application of EMTALA in these settings is outside the 
scope of the statute, and we believe applying these requirements to 
non-ED settings may tax the already thin resources of many hospital 
Eds. CMS has stated that it intends to re-examine the provider-based 
EMTALA requirements. EDPMA applauds this decision and urges CMS to 
expeditiously revisit these regulations, and other important EMTALA 
issues.
    General review of current EMTALA policies is necessary as the 
EMTALA regulations, the interpretive guidelines, and the positions of 
state surveyors are often extremely complicated and confusing. Two OIG 
reports issued in January 2001 highlighted the confusion that surrounds 
implementation of the EMTALA regulations and the inconsistency in 
application and enforcement of EMTALA among the CMS regions. A 
particular area of confusion relates to the responsibility of hospitals 
to provide ``on-call'' physicians. In many communities, specialist 
physicians are refusing to be on-call, and hospital EDs are concerned 
that patient care could suffer.
    Recommendations: EMTALA's regulatory scope should be modified to be 
consistent with the statute. CMS should establish a technical advisory 
group, as both the OIG and General Accounting Office (GAO) recommended 
last year. CMS should also seek to ensure that the Medicare and 
Medicaid programs pay for medical screening examinations and 
stabilizing treatment for all patients who are treated pursuant to the 
EMTALA mandate.
2002 Medicare Physician Fee Schedule
    The 2002 Medicare physician fee schedule included cuts of 
approximately 8% to emergency physicians. While the negative update 
affects most physicians, the cut particularly affects emergency 
physicians as emergency medicine was already facing cuts in the 
practice expense/work values. This Medicare cut comes at a time when 
many emergency physicians are experiencing more than 20% annual premium 
increases in the costs of medical malpractice insurance. Unlike other 
physicians who can decide whether or not to participate in Medicare, 
emergency physicians are compelled under EMTALA to see all patients who 
present to the emergency department.
    Recommendations: EDPMA recognizes that CMS faced statutory 
limitations in calculating the update. However, EDPMA believes CMS 
could make changes within the current statutory framework to reflect 
some of the particular expenses borne by emergency physicians providing 
the nation's safety net. Specifically, EDPMA believes CMS should 
recognize the high level of uncompensated care provided in the ED and 
the standby costs.
CMS' Reassignment Policies
    Many hospitals in the U.S. contract with outside medical groups to 
provide physician services in their EDs. Unlike private payors, CMS 
policy does not currently allow ED medical groups that use independent 
contractors to obtain a Medicare group number. However, CMS has 
recognized that many physician independent contractors are needed to 
staff EDs and establish a compliance scenario (the ``lockbox'' 
arrangement) to permit these physicians to continue to provide services 
to Medicare beneficiaries and stay affiliated with the ED medical 
group.
    The current compliance scenarios create a process that is labor-
intensive, expensive, and actually decreases the integrity of the 
Medicare program as multiple individual provider numbers are created 
and the program has a more difficult time spotting billing trends or 
flagging any questionable practices that might be common to physicians 
affiliated with the same group. In contrast, if the medical group could 
obtain a number, there would be a direct relationship between the group 
and the Medicare program, thereby enhancing program accountability.
    Recommendations: CMS should permit ED medical groups to enroll with 
the Medicare program and receive direct payments for physician services 
whether those services are rendered by employees or independent 
contractors. CMS can modify its enrollment procedures to permit group 
enrollment by providing guidance to the Medicare contractors in written 
instructions and/or by adding an appropriate exception to the Medicare 
Carriers Manual. EDPMA believes this policy change can be effected 
without statutory or regulatory change, and in fact, CMS has done so in 
the past. In 1999, CMS added a reassignment exception to the Medicare 
Carriers Manual for faculty practice plans without a statutory or 
regulatory modification. Implementation of a new group enrollment 
process could include important safeguards for the Medicare program. 
Possible safeguards include assumption of group responsibility for any 
overpayments.
855 Enrollment Forms
    As noted above, EDPMA believes that ED medical groups should be 
able to enroll with the Medicare program and receive direct payments 
for physician services whether those services are rendered by employees 
or independent contractors. In addition to this policy concern, EDPMA 
has concerns with the 855 enrollment forms currently in use by CMS and 
its carriers. The new forms went into effect on November 1, 2001, with 
a transition period until January 1, 2002. EDPMA applauds CMS on its 
approach to fine-tuning these forms by reaching out to the affected 
community for comments. EDPMA believes, however, that a number of 
concerns remain.
    The 855 forms and the process used by the CMS contractors in 
reviewing the applications remain cumbersome, confusing, and require 
multiple manual submission of documents. In addition, the current 
approach results in significant delays in receipt of Medicare 
enrollment numbers. EDPMA continues to emphasize the importance of 
Internet-based electronic provider enrollment, and EDPMA has detailed 
its reasons supporting the creation of such an Internet-based 
enrollment process in previous written comments filed with CMS. 
Congress passed an electronic signature law and many state laws support 
electronic signature and verification. EDPMA strongly believes now more 
than ever that an Internet-based enrollment process could save both CMS 
and the provider community millions of dollars over what is today 
almost entirely a paper-based system for provider/supplier enrollment.
    EDPMA also recommends continued refinement to the 855 form to make 
it user-friendly. EDPMA urges the Committee to take steps to ensure 
that enrollment applications are processed fairly, consistently, and in 
a timely fashion. Providers should be able to complete and submit the 
applications electronically and to check on the status of the 
applications electronically.
    EDPMA is also concerned that the contractors are not held to a 
tough standard regarding the processing time. EDPMA members frequently 
receive last-minute requests for supporting documentations. Often, the 
matter could have been resolved by a phone call as soon as the question 
came up. Instead, contractors often send out a form requesting 
additional information that does not clearly identify the cause for 
regarding the earlier submitted documentation as inadequate. Under the 
current process, EDPMA is concerned that the majority of enrollment 
delays do not result in discovery of an applicant who is not eligible 
to participate in the Medicare program. Rather, the delays are often 
due to mere contractor inaction and/or inefficiency, and the provider 
gets its enrollment number, albeit much delayed. ED physicians must see 
all patients due to the federal EMTALA requirements. They do not have 
the option of not seeing Medicare patients while they await their 
number. Therefore, the amount of Medicare payments postponed by the 
delay in issuance of numbers is not insignificant.
    Recommendations: EDPMA suggests that CMS continue to modify the 855 
forms to make them straightforward, establish electronic filing, and 
coordinate the filing of the 855 with the filing of EDI, and EFT 
agreements.
Documentation Guidelines for Evaluation and Management Services
    It is EDPMA's understanding that CMS is currently revising the 
Documentation Guidelines (``DGs'') for physician evaluation and 
management services. In the past, EDPMA has provided a number of 
comments in this area. In general, EDPMA supports the use by CMS of DGs 
so that CMS can verify that medically necessary services were provided 
before paying claims. EDPMA also believes that physician use of 
appropriately structured DGs will promote quality care for all 
patients, including Medicare beneficiaries. EDPMA supports the use of 
objective criteria (e.g., ``scoring'' systems) to avoid confusion for 
physicians and their coders. Scoring systems help physicians 
understand, in advance, the standards that will be used by CMS, the OIG 
and other payers in reviewing claims. Unfortunately, the currently 
constituted work group for the DGs lacks any representatives from 
emergency medicine.
    Recommendations: EDPMA recommends that as CMS moves forward in this 
area, CMS should work closely with providers in making sure that any 
DGs are workable from the provider's perspective and emphasize the use 
of objective criteria. We believe that emergency medicine should be 
represented in the DG work group. EDPMA, and particularly its billing 
company members, may be able to assist CMS in any pilot testing of new 
DGs.
Use of Physician Assistants
    EDPMA is concerned regarding CMS recent policy affecting the 
flexibility of emergency groups to use physician assistants (PAs) in 
the ED. The use of PAs is critical to many EDs given the 24-7 demands 
of hospital EDs and the difficulty recruiting enough physicians. CMS' 
contractors have denied enrollment in Medicare to PAs that work for ED 
medical groups on a contractual basis (as opposed to as employees). The 
refusal to enroll 1099 PAs with their medical group is despite the 1997 
Balanced Budget Act (``BBA 97'') that states the PA may be either an 
employee or independent contractor, provided he/she reassigns the 
Medicare reimbursement to his/her group. CMS' policy appears to be 
directly contrary to both the Congressional intent to make allied 
health professionals more accessible and the express provisions of the 
statute.
    CMS has also recently stated that PAs will not be permitted to 
enroll with Medicare under a medical group provider number if the PA 
has an equity interest in the medical group. Many state laws permit a 
PA to have ownership in their medical group, e.g., North Carolina. The 
ownership of the group must be disclosed on the group's Medicare 
enrollment application. Medicare contractors have denied group Medicare 
enrollment where there is a PA with ownership interest in the group.
    Recommendations: We believe that CMS should permit entities that 
employ or contract with PAs to enroll with the Medicare program, as 
long as the entities are legal entities established in accordance with 
state law and the services provided by PAs meet the relevant Medicare 
requirements (e.g., appropriate physician supervision).
HIPAA Privacy Regulations
    In December 2000, HHS issued Final Standards for the Privacy of 
Individually Identifiable Health Information, 42 C.F.R. Parts 160 and 
164, (the HIPAA Privacy Regulations). EDPMA shares the concerns of many 
entities affected by the HIPAA Privacy Regulations. In particular, 
EDPMA is concerned with reconciling the apparent requirement of 
obtaining the patient's consent to use or disclose protected health 
information (``PHI'') with the restrictions of EMTALA. Specifically, 
the OIG/HCFA December 1999 Notice of Special Advisory Bulletin 
interprets possible delays in patients receiving their medical 
screening exams as grounds for an EMTALA violation. ED providers are 
concerned that a requirement to obtain the patient's consent for use or 
disclosure of PHI could cause delays. Consent forms used in EDs will be 
longer, and may prompt more patient questions in light of HIPAA. 
Separately, the ``minimum necessary'' standard suggests an overly 
subjective standard for judging whether the use or disclosure was 
appropriate.
    EDPMA is also concerned regarding the timeline for implementation 
of the HIPAA Privacy Regulations and any modifications that are made 
before the compliance date. Many EDPMA members could be both covered 
entities (as providers of physician services) and business associates 
to covered entities (hospitals). Therefore, EDPMA members are assessing 
their own compliance strategies as well as working with others to see 
what other covered entities may be requiring of their business 
associates.
    Recommendations: EDPMA suggests that HHS provide additional 
guidance to covered entities and issue any modifications to the HIPAA 
Privacy Regulations as soon as possible so that covered entities can 
move forward in their compliance strategies.
    EDPMA appreciates this opportunity to provide input to the 
Committee. We would be happy to provide additional materials in any of 
the areas noted above.
            Sincerely,
                                              Edward R. Gaines, III
                                                       Chair, EDPMA

                                 

Statement of the National Association of Chain Drug Stores, Alexandria, 
                                Virginia
    The National Association of Chain Drug Stores (NACDS) appreciates 
the opportunity to provide comments to the Subcommittee on Health of 
the Committee on Ways and Means on Medicare Regulatory and Contracting 
Reform. NACDS represents more than 200 chain pharmacy companies that 
operate almost 35,000 community retail pharmacies. NACDS members 
provide almost 70 percent of all retail pharmacy prescriptions.
    Community retail pharmacies provide prescription services and 
health care-related products to millions of Medicare and Medicaid 
recipients each year. For example, many pharmacies provide durable 
medical equipment (DME) and prescription drugs to Medicare 
beneficiaries. Pharmacies also provide prescription services to 
millions of Medicaid recipients. Each program has its own complex set 
of rules and regulations, which can often result in inefficiency, 
redundancy, and interfere with the ability of health care providers to 
deliver quality care.
    NACDS supports initiatives by Congress and the Department of Health 
and Human Services to reform many of these rules and regulations. For 
example, Congress has considered several bills over the last few years 
that would begin the process of regulatory reform. The November 2002 
report of the Secretary's Advisory Committee on Regulatory Reform 
suggested ways to reduce some of the burdens imposed on pharmacies--and 
the patients they serve--by existing HHS regulations, policies, and 
procedures. NACDS suggests that the following changes be made to 
existing laws and regulations that would facilitate participation in 
these programs.
    Medicaid Prescription Copays: NACDS supports the use of reasonable 
cost sharing to encourage the appropriate use of prescription services. 
In the Medicaid program, however, the law prohibits pharmacies from 
denying services to recipients who are unable to pay their copayments 
or coinsurance. Additionally, Federal regulation prohibits states from 
compensating pharmacies for uncollected copays. For pharmacies, this 
means that Medicaid prescriptions are often dispensed at an economic 
loss if the patient cannot or will not pay the copay. As state Medicaid 
drug budgets escalate, more states are increasing copays, further 
placing pharmacies at economic risk, and threatening the participation 
of pharmacies in Medicaid.
    The Federal regulation prohibiting states from compensating 
pharmacies for uncollected prescription copays should be repealed, and 
states should be required to reimburse pharmacies for these uncollected 
copays. As a matter of fairness and equity, retail pharmacies should 
not be forced to bear the burden of uncollected prescription drug 
copayments. Moreover, CMS should further clarify the circumstances 
under which an ``inability'' to pay applies, so that recipients are 
aware that they must demonstrate true economic hardship in order for 
the provider to be required to provide the prescription without the 
copay.
    Medicare/Medicaid Coordination of Benefits for Dual Eligibles: 
Coordination of benefits (COB) is a major issue for NACDS members who 
participate as Medicare Part B suppliers and as Medicaid providers. 
Neither Medicare nor Medicaid provides adequate beneficiary information 
to providers to determine how payors should be billed.
    The absence of an online adjudication system in the Medicare 
program adds to the problem, as most Medicare claims have to be 
submitted manually. NACDS' goal is to improve cost avoidance efforts 
without increasing the COB responsibilities of pharmacies. These 
problems have only worsened because of recent changes in Medicare 
program requirements for diabetic supplies claims, and Medicaid cost 
savings recoupment endeavors by some states.
    Pharmacy Enrollment as Medicare Suppliers: Many NACDS members are 
already enrolled in the Medicare program as DMERC suppliers, but are 
facing problems with completion of enrollment/re-enrollment forms. 
Consequently, NACDS members may face delayed enrollment or interruption 
in their status as suppliers. An unintended consequence is interruption 
of service to Medicare beneficiaries. The 855S form requires suppliers 
to submit information and documentation that have not always been 
necessary for enrollment using the old enrollment applications. For 
many items, extensive paperwork and disclosure of specific information 
is required.
    Completion of the application is compounded for members that have 
hundreds or thousands of stores, and are required to complete a 
separate application for each of their individual stores--despite the 
fact that most of the information is identical for each of the stores. 
The application has resulted in the submission of hundreds of thousands 
of pages of information that could easily be formatted electronically 
and submitted as a single file. This would reduce the overwhelming 
paperwork burden that Nation Supplier Clearinghouse (NSC) will 
encounter when reviewing the applications. On occasion, NSC and CMS 
have agreed to waive certain requirements, but this has been on a case-
by-case basis, and only after numerous phone calls to both NSC and CMS. 
Both CMS and suppliers would benefit from an overall streamlined 
application process and acceptance of a uniform documentation standard.
    Medicare Diabetes Education and Training Program: Under the 1997 
BBA law creating this program, Medicare ``suppliers'' such as 
pharmacies are able to provide diabetes education and training services 
to Medicare beneficiaries. In fact, several NACDS members have received 
American Diabetes Association (ADA) accreditation for their Medicare 
diabetes education programs.
    However, there are two operational obstacles to broader pharmacy 
participation. First, there are other diabetes education and training 
programs that meet the same qualifications and standards as the ADA 
program, and pharmacies should also be able to obtain accreditation if 
they complete these other programs. In addition, some members continue 
to have problems obtaining provider numbers from Medicare to bill for 
the services they provide. NACDS has determined that one barrier in 
obtaining provider numbers is the contractors' misunderstanding of 
pharmacy participation. NACDS will work with CMS to raise contractors' 
understanding of this issue, and will work with Members of Congress to 
assure that the program is implemented consistent with Congressional 
intent.
    HIPAA Privacy Protections and Administrative Simplification: To 
assure maximum patient privacy, as well as administrative 
simplification in the processing of prescription drug claims, HHS 
should initiate rulemaking to adopt the Community Pharmacy Based 
Pharmacy Claims Transaction Standard rather than the current standard 
that is set to be used under HIPAA, the NCPDP Version 5.1 standard. The 
NCPDP standard does not assure patient privacy because it still 
contains many fields for ``optional'' patient information.
    That is, the insurance company or pharmacy benefit manager (PBM) 
can request this information from the pharmacy--such as address or 
phone number--this is not necessary to process the prescription claim, 
and can use this information for purposes unrelated to health care, 
such as marketing. The pharmacy, which does not want to disclose this 
information, may have no choice if the payor will not pay the claim 
without this information.
    Moreover, the fact that different payors may request different 
information for different optional fields can result in several 
different pharmacy transaction standards, rather than one standard, 
which was the goal of HIPAA administrative simplification.
    In order for beneficiaries to receive the best possible quality of 
care, all providers, including pharmacies, should be relieved of the 
burdens associated with participating in federal health care programs. 
HHS should work with community pharmacy to adopt many of the 
recommendations made here regarding participation in Medicare and 
Medicaid. Additionally, Congress should work to address those 
administrative burdens that require statutory corrections. We 
appreciate the opportunity to submit this statement for the record.

                                
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