U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

87–019 2003

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

(

ii

COMMITTEE ON WAYS AND MEANS

BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois 

E. CLAY SHAW, JR., Florida 

NANCY L. JOHNSON, Connecticut 

AMO HOUGHTON, New York 

WALLY HERGER, California 

JIM MCCRERY, Louisiana 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

JIM NUSSLE, Iowa 

SAM JOHNSON, Texas 

JENNIFER DUNN, Washington 

MAC COLLINS, Georgia 

ROB PORTMAN, Ohio 

PHIL ENGLISH, Pennsylvania 

J.D. HAYWORTH, Arizona 

JERRY WELLER, Illinois 

KENNY C. HULSHOF, Missouri 

SCOTT MCCINNIS, Colorado 

RON LEWIS, Kentucky 

MARK FOLEY, Florida 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

ERIC CANTOR, Virginia 

CHARLES B. RANGEL, New York 

FORTNEY PETE STARK, California 

ROBERT T. MATSUI, California 

WILLIAM J. COYNE, Pennsylvania 

SANDER M. LEVIN, Michigan 

BENJAMIN L. CARDIN, Maryland 

JIM MCDERMOTT, Washington 

GERALD D. KLECZKA, Wisconsin 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

MICHAEL R. MCNULTY, New York 

WILLIAM J. JEFFERSON, Louisiana 

JOHN S. TANNER, Tennessee 

XAVIER BECERRA, California 

KAREN L. THURMAN, Florida 

LLOYD DOGGETT, Texas 

EARL POMEROY, North Dakota 

MAX SANDLIN, Texas 

STEPHANIE TUBBS JONES, Ohio 

ALLISON H. GILES, Chief of Staff 

JANICE MAYS, Minority Chief Counsel

SUBCOMMITTEE ON HEALTH

NANCY L. JOHNSON, Connecticut, Chairman

JIM MCCRERY, Louisiana 

PHILIP M. CRANE, Illinois 

SAM JOHNSON, Texas 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

PHIL ENGLISH, Pennsylvania 

JENNIFER DUNN, Washington 

FORTNEY PETE STARK, California 

GERALD D. KLECZKA, Wisconsin 

JOHN LEWIS, Georgia 

JIM MCDERMOTT, Washington 

LLOYD DOGGETT, Texas

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

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

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

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

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

is further refined. 

iii

C O N T E N T S 

Page 

Advisory of 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

(1)

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:]

2

ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

SUBCOMMITTEE ON HEALTH

FOR IMMEDIATE RELEASE CONTACT: (202) 225–1721

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 

3

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 hearingclerks.waysandmeans@mail.house.gov, 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 hearingclerks.waysandmeans@mail.house.gov, 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.

f

4

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 

5

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:]

6

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.

Madam Chair. 

Mr. STARK. It sure looks like we have our work cut out for us, 

f 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. 

7

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, 

8

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/

9

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 

10

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 

11

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 

12

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 rec- ommendations 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:

• Medicare 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. 

• We 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. 

• Medicare 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 purVerDate Jan 31 2003 22:45 May 30, 2003 Jkt 087019 PO 00000 Frm 00016 Fmt 6633 Sfmt 6621 E:\HR\OC\B019.XXX B019
13

suing. Most importantly, it has helped change the image of CMS as an ‘‘impenetrable bureaucracy.’’

LEGISLATIVE 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 

14

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 iniVerDate Jan 31 2003 22:45 May 30, 2003 Jkt 087019 PO 00000 Frm 00018 Fmt 6633 Sfmt 6621 E:\HR\OC\B019.XXX B019
15

tiate 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:

• Give the provider and supplier an opportunity to provide additional information and take into account information provided on a timely basis; 

• Give the provider or supplier a full review and explanation of the findings of 

the audit; and 

• Inform 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: 

16

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.

very much. Dr. Wood. 

Chairman JOHNSON. For you, that is some statement. Thanks 

f

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 

17

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 

18

1 Bringing Common Sense to Health Care Regulation, Report of the Secretary’s Advisory Commit on Regulatory Reform, 2002. 2http://regreform.hhs.gov. 

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. 

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 

19

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. 

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 wellcared 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:

• Develop recommendations about issues that have the most significant and direct effect on improving care and service to patients and consumers 

• Select 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). 

• Attempt 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. 

• Concentrate on existing programs and focus on solutions to remove impediments to realizing current goals

What We Did Not Do 

• Pursue new policy goals (i.e., find new places to regulate). 

• Prioritize 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 

• Engage 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 

20

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.

21

EMTALA 13

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:

22

• the creation of a public-private partnership to establish quality standards 

that would strengthen the safety of services and reduce unnecessary or duplicative services 

• a 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 

• a more global system of payment within governmental program that gives patients more choice and greater ability to be prudent users of public resources 

• integration 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.

23

Comparison of Regulatory Reform Provisions of H.R. 4954 and the Secretary’s Advisory 

Committee on Regulatory Reform 

H.R. 4954 Provisions and Section 

Secretary’s Advisory Committee on Regulatory Reform 

Recommendation Number 

Establishment of coordinated survey demonstration project 116, 117

Extension of outpatient payment protection for 

certain rural hospitals 119

Hold harmless payments for outpatient departments in small rural hospitals 119

OASIS Task Force 54–64

Required issuance of guidance concerning discrimination against limited English proficient 

persons 134

Information Technology Demonstration Project 224–226

Local Coverage Determinations 69, 163

Issuance of regulations 16, 97, 185

Regular timeline for publication of final rules 16, 97, 185

Communication with providers 25–27, 30–31

Small provider technical assistance program 157

Use of central toll-free number 25–27, 30–31, 128

Prior determination of coverage 163

Development of evaluation and management 

guidelines 99

Improved coordination between the FDA and 

CMS 241–243, 236–237

Covering and paying for new technology and laboratory tests 241–243

EMTALA 17

f –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 inVerDate Jan 31 2003 22:45 May 30, 2003 Jkt 087019 PO 00000 Frm 00027 Fmt 6633 Sfmt 6602 E:\HR\OC\B019.XXX B019
24

terpretation 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 takVerDate Jan 31 2003 22:45 May 30, 2003 Jkt 087019 PO 00000 Frm 00028 Fmt 6633 Sfmt 6602 E:\HR\OC\B019.XXX B019
25

ing 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. 

26

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 

27

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.

f

28

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 

29

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. 

30

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, 

31

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 

32

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. 

33

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.

cated the 5-year rebidding might not be the best time frame. Do 

Mr. KLECZKA. The last question is on the contracting. You indif 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 

34

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. 

35

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 

ered an extensive amount of ground and made many specific recmanaged care plan.

Mr. CRANE. Dr. Wood, the task force under your direction covf ommendations. 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 silolike 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 

36

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. 

37

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 conVerDate Jan 31 2003 22:45 May 30, 2003 Jkt 087019 PO 00000 Frm 00041 Fmt 6633 Sfmt 6602 E:\HR\OC\B019.XXX B019
38

tractor 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.’’

f39

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. 

40

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-ofthe-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 

41

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 busi- ness.’’ 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 

42

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. 

f 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. 

43

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. 

44

[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:

• Adopting 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. 

• Streamlining 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. 

• Convincing 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. 

45

• Urging 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. • Changing 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. • Addressing 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.

• The 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. • EMTALA—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 doctorpatient 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. • Allow 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.

Under 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.

• Simplify 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. • Establish 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 

46

would suggest that the following be used as guiding principles for the promulgation of health care regulation:

• The 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. • Regulation should facilitate channels of communication between regulators 

and providers, and accountability of providers to their patients and communities. • Regulation 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. • Regulations should establish a safe haven for innovation and encourage the 

pursuit of excellence through best practices. • Regulations should be applied prospectively and their implementation appropriately staged to avoid disrupting patient care activities, unnecessary costs 

and overwhelming administrative functions and information systems. 

• Interpretive 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. 

f 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 

47

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 clinVerDate Jan 31 2003 22:45 May 30, 2003 Jkt 087019 PO 00000 Frm 00051 Fmt 6633 Sfmt 6602 E:\HR\OC\B019.XXX B019
48

ical 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 standVerDate Jan 31 2003 22:45 May 30, 2003 Jkt 087019 PO 00000 Frm 00052 Fmt 6633 Sfmt 6621 E:\HR\OC\B019.XXX B019
49

ards 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 

50

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 

51

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, fulltime 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. 

f

52

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 notfor-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. 

53

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 

54

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 Medicarecertified 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 

55

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 

56

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. Congress 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. Congress 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 

57

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. 

Provide 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. Amend 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. Instruct 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. Support 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. Expand the time for completion of the OASIS instrument, from 5 days to 

7 days. Has not been implemented by CMS. 

2. Change the lock-in time for the OASIS instrument, from 7 days to 14 days. 

Has not been implemented by CMS. 

3. Delete 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. Eliminate 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. 

58

5. Eliminate OASIS encounters that are not used for payment, outcome quality management, or survey purposes. Has been partially implemented 

by CMS.

6. Create the option to use one form for all situations of care or change in status. Has not been implemented by CMS. 

7. Share OASIS risk-adjustment methodology with all users. Make the information available on the CMS website. Has not been implemented by 

CMS. 

8. Provide access to the studies on the validity of OASIS data, adverse event 

measurements, and OASIS quality and outcomes. Has been implemented 

by CMS.

9. Ensure data collection efforts facilitate the development of care plans. Has 

not been implemented by CMS. 

10. Consider 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. Adopt 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. Establish 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. Conduct 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. Clarify the definition of ‘‘significant change.’’ Consider using re-hospitalization as a proxy for ‘‘significant change.’’ Has not been implemented by 

CMS. 

15. Conduct 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. Amend 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. Instruct the Secretary of HHS to take steps to make OASIS electronic program specifications and the risk adjustment methodology available to the 

public. 

3. Request that CMS lengthen the definition for ‘‘inpatient stay’’ from 24 

hours to 72 hours. 

4. Request that CMS move to expand the time for completion of the OASIS 

instrument from 5 days to 7-10 days. 

5. Instruct CMS to change the lock-in time for the OASIS instrument from 7 

days to 14 days. 

6. Instruct 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. 

59

7. Instruct 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. Request 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. Eliminate 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

NAHC 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.

60

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 persuaVerDate Jan 31 2003 22:45 May 30, 2003 Jkt 087019 PO 00000 Frm 00064 Fmt 6633 Sfmt 6621 E:\HR\OC\B019.XXX B019
61

sive 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 § 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 decisionmaking 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 

62

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 

63

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

OASIS 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, emails 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. 

64

GENERAL RECOMMENDATIONS 

1. The requirements to collect and transmit OASIS information should only 

apply to Medicare patients because:

• The 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.) 

• CMS’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:

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.

• Limiting 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. Allow 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. Provide 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. Allow 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. Eliminate 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. Eliminate 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. 

65

7. Allow 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. Amend 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. Revise 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. Increase 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 reexamined in light of the significant actual experience to the contrary. 

11. Inform 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. Eliminate 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. Eliminate 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. Require CMS compliance with coding rules, including ICD–9 coding, as mandated by HIPAA. 

15. Eliminate 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.

66

MOOOO Description Action/Reason 

M0190 Inpatient diagnosis Delete (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 or inpatient 

stay 

Examine and 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 arrangements Limit item to only start-of-care (SOC) 

assessment. Complete thereafter 

only if a change in living arrangement occurs.

M0340–M0360 Living arrangements Retain and 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.

67

MOOOO Description Action/Reason 

M0460 Most problematic wound Redefine using 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/Behavioral Redefine to 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 Nursing Services Delete (very limited provision of psychiatric nursing in home care).

M0640–M0800 ADLs/IADLs/Medications Delete ‘‘prior’’ column (unreliable and 

non-verifiable responses).

MO720–MO770 Instrumental Activities of 

Daily Living (IADLs) 

Delete ‘‘current’’ column (unreliable 

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/Reason for 

Nursing Home 

Examine and determine the 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 

68

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

Ryan. 

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

f

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 

69

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 

70

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 surVerDate Jan 31 2003 22:45 May 30, 2003 Jkt 087019 PO 00000 Frm 00074 Fmt 6633 Sfmt 6602 E:\HR\OC\B019.XXX B019
71

vey 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 longterm 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.’’

72

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 expectations 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:

• State survey, licensure and accreditation requirements 

• Regulations related to certification for participation in government payment 

systems (Medicaid and Medicare) 

• Regulations related to assessment and documentation of the resident’s functional status, related plans of care, and quality measures. 

• CMS reimbursement policy that tailors patient assessment to payment levels. 

• Standards for privacy, patient rights, and business transactions under 

HIPAA. 

• Office of Inspector General (OIG) policies and programs pertaining to fraud 

and abuse. 

• CMS’ 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 

73

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:

• Measures of quality have been defined and validated by CMS; 

• A system for reporting these measures to the public has been developed, tested and rolled out; and 

• An 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 longterm 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:

• Continuous Quality Assurance and Quality Improvement; 

• Public Disclosure and Accountability; 

• Patient/Resident and Family Rights; 

• Workforce Excellence; 

• Public Input and Community Involvement; 

• Ethical Practices; and 

• Financial 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’’ proVerDate Jan 31 2003 22:45 May 30, 2003 Jkt 087019 PO 00000 Frm 00077 Fmt 6633 Sfmt 6621 E:\HR\OC\B019.XXX B019
74

vides 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:

• Demonstrations of unified service delivery to Medicaid/Medicare dual 

eligibles. 

• Testing of regulations in limited geographic areas before requiring 

national implementation. 

• Allowing greater flexibility to test the efficacy of alternative State survey protocols for skilled nursing facilities/nursing facilities, as per 

recommendation #213 (Multiple Reviews); 

• Enabling 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:

• The consumer and consumer advocate must commit to systems that will enable residents and families to exercise informed choice. 

• The government must commit to avoid unintended consequences of regulation, and to observe and continuously improve the impact of regulation in the 

real world. 

• Providers 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. 

• And 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 longterm 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. 

f

75

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 recVerDate Jan 31 2003 22:45 May 30, 2003 Jkt 087019 PO 00000 Frm 00079 Fmt 6633 Sfmt 6602 E:\HR\OC\B019.XXX B019
76

ommends 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. 

77

[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.

ACEP 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. 

78

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).

ACEP 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 

79

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.

Gottlich. 

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

f 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 

80

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 

81

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. 

Using 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 §§ 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. 

82

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 opVerDate Jan 31 2003 22:45 May 30, 2003 Jkt 087019 PO 00000 Frm 00086 Fmt 6633 Sfmt 6621 E:\HR\OC\B019.XXX B019
83

erator 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 MedicareSNF 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. 

84

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:

• The Balanced Budget Act of 1997 included a specific statutory section, 42 

U.S.C. §§ 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. 

• Federal 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 

85

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 the panel for their comments. There are a couple of things 

Thank you for the opportunity to testify on behalf of beneficiaries at this hearing.

Chairman JOHNSON. Thank you very much, Ms. Gottlich. I 

f 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 outcomebased 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. 

86

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. 

87

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 cookiecutter 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. 

88

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 alVerDate Jan 31 2003 22:45 May 30, 2003 Jkt 087019 PO 00000 Frm 00092 Fmt 6633 Sfmt 6602 E:\HR\OC\B019.XXX B019
89

most 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? 

90

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 

91

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. 

Congressional 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. 

92

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 decisionmaking 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 caseby-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:

• Require 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; 

• Require 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. 

• To 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 barVerDate Jan 31 2003 22:45 May 30, 2003 Jkt 087019 PO 00000 Frm 00096 Fmt 6633 Sfmt 6621 E:\HR\OC\B019.XXX B019
93

riers 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:

• Set 6–12 month deadlines for Medicare to implement coverage, coding and 

payment for new medical technologies subject to a national coverage decision; • Direct 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; • Ensure 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; • Require 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 • Build 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 Housepassed language of last year, and we support its inclusion in a bill crafted 

by the Committee again this year. 

• Require 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 

f 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 

94

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 

95

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 

f 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. 

96

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 

97

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. where either there is a sustained high level of payment error, or 

2. where 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 preVerDate Jan 31 2003 22:45 May 30, 2003 Jkt 087019 PO 00000 Frm 00101 Fmt 6633 Sfmt 6621 E:\HR\OC\B019.XXX B019
98

vent 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. 

REGULATORY 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. 

99

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. 

100

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 

f 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:

• Two 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. 

• In 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). 

• In 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

Statement of the Honorable Ronald G. Bernoski, President, Association of 

’s recommendations represent an important starting point in that effort.

f 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 

101

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. § 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. §§ 551–559, 701–706, 1305, 3105, 

3344, 4301(2)(E), 5335(a)(B), 5372, and 7521. 

102

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. 

§ 554(d)]. A party is entitled to present his case by oral or documentary evidence 

[5 U.S.C. § 556 (d)], and the transcript of testimony and exhibits together with the 

pleadings constitute the exclusive record for decision. [5 U.S.C. § 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. § 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. § 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. § 3105 

(1976 ed.). When conducting a hearing under § 5 of the APA, 5 U.S.C. § 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 

103

investigative or prosecution functions for the agency. 5 U. S. C. § 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. § 554 

(d)(1)]. Hearing examiners must be assigned to cases in rotation so far as 

is practicable. [5 U.S.C. § 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. § 7521]. Their pay is also controlled 

by the Civil Service Commission. [5 U.S.C. § 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 lll (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.§§ 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. § 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 § 405(b) of Social Security Act Title II]. . . .’’ 42 U.S.C. § 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. § 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. GeorgeVerDate Jan 31 2003 22:45 May 30, 2003 Jkt 087019 PO 00000 Frm 00107 Fmt 6633 Sfmt 6621 E:\HR\OC\B019.XXX B019
104

town 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. § 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 

§ 12 of the Act [now codified at 5 U.S.C. § 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 

105

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 

fAssociation, 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. 

106

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 Internetbased 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 Internetbased 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 userfriendly. 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. § 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 

107

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. § 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. 

108

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 userfriendly. 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. 

109

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. 

110

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 

f 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. 

111

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.

Æ