Department of Health and Human Services


OFFICE 

INSPECTOR GENERAL


MEDICARE PREPROCEDURE


REVIEW


.ff,IIVICESO

l.Richard P. Kusserow 

INSPECTOR GENERAL 

'0 JANUARY 1991 

q"dm 
EXECUTIVE SUMMARY


PURPOSE 

The purpose of this report is to assess the cost-effectiveness of the Medicare Peer Review 

Organizations ' (PROs) CUITent preprocedure review process. 

BACKGROUND 

In each State, the Health Care Financing Administration (HCFA) contracts with a Utilization and 

Quality Control Peer Review Organization, commonly known as a PRO, to review the 

appropriateness and quality of surgery physicians perfonn on Medicare beneficiares. The 

HCFA renews or competitively rebids PROs ' contracts on a 3-year cycle. The HCFA administers 

the Medicare program and has regulatory oversight of PRO activities. As of April 1989 all PROs 

were operating under the third scope of work. 

The Consolidated Omnibus Budget Reconciliation Act of 1985 calls for 100 percent peer review 

of certain surgical procedures. Under the same Act, the PRO may require a second surgical 

opinion when it questions the reasonableness and necessity of a proposed surgery. Regulations 

to implement the second opinion provision are cUITently being fonnulated at HCFA. 

METHODOLOGY 

We obtained HCFA data on the preprocedure reviews PROs conducted under the third scope of 

work. The data included the total number of requests for preprocedure review, the percentage of 

denied requests, and the negotiated cost associated with the preprocedure review. We compared 

this data with the results of a companion OIG study of necessity and quality of outpatient surgery. 

We also obtained infonnation from PROs responsible for 28 States representing over 80 percent 

of both the Medicare physician expenditures and the eligible population. The infonnation 

requested included total number of preprocedure requests; number of preprocedure requests by 

procedure; number of requests forwarded to PRO physicians; overall percentage of denied 

requests; and denial percentage by procedure. We analyzed secondar data on the preprocedure 

review process and its effectiveness. Finally, we obtained PROs' views on the CUITent 

preprocedure review process, and suggestions to improve its effectiveness. 
FINDINGS 

PRO preprocedure review for cataract extraction is not cost-effective. 

Cataract surgery comprises 52 percent of all preprocedure review requests at the PROs surveyed. 

Last year, we estimated PROs for 17 States representing over half of the Medicare eligible 

population paid $13. 3 milion for preprocedure review of cataact surgery. The resulting PRO 

denials saved only $1.4 millon. 

Only 0.07 percent of cataract surgeries reviewed by the PROs were denied. By way of contrast 

a companion OIG study found, based on a review of records, that 1.7 percent of cataract 

extractions were not medically indicated. 

The cost-effectiveness of the preprocedure review process is doubtful for other 

procedures as welL 

Last year, the denial rate for all surgery reviewed was 0. 15 percent. Even this figure overstates 

denials based on medical necessity, because it includes technical denials for site of service. 

A targeted, more intensive approach could improve preprocedure review for cataract 

extraction. 

A targeted program would give the PROs the flexibility to perform their review in the way most 

suited to local conditions and practices. Two-thirds of the PROs stated a limited second opinion 

program would improve preprocedure review. Most indicated it would be effective for cataract 

extractions. 

More data could help PROs identify other procedures for a targeted, more intensive 

reVIew. 

The PROs would need local rather than national data to select procedures for a targeted, more 

intensive review program because practice patterns differ between and within States. Medicare 

carers routinely collect provider profie data. The PROs could use such data to focus a targeted 

program on paricular providers, procedures, or geographic areas. 

RECOMMENDATIONS 

The HCFA should: 

substitute a targeted, more intensive review for the current mandatory 

preprocedure review of cataract surgery. 

review the current preprocedure review process to determine whether it is 

cost-effective for other surgical procedures. 
continue efforts to implement data exchange between PROs and Medicare 

carriers. 

HCFA COMMENTS AND OIG RESPONSE 

In its comments the HCFA took exception to the finding that PRO preprocedure review for 

cataract extraction is not cost-effective. The HCFA disagreed with the recommendation to 

substitute a targeted, more intensive review for the CUITent mandatory preprocedure review of 

cataract surgery. The HCFA did agree with the other two recommendations and is taking action 

to address them. 

The HCFA did not dispute the fact that preprocedure review for cataract extraction was not 

cost -effective. It questioned only the negotiated rate used in the calculation. According to 

HCFA' s Health Standards and Quality Bureau, the total cost of a preprocedure review was 

$25.70. The cost was composed of $9.00 in varable cost and $16.70 in fixed cost. The HCFA 

stated the national average negotiated rate per review was $9.00 which is only part of the total 

cost. 

The HCFA believes that they have no data to support targeting high volume ophthalmologists. 

We did not suggest that targeting be based solely on volume. Our examples of targeting options 

included not only high volume providers but also certn geographical areas as well as random 

selection. A targeted program would give the PROs the flexibilty to perform their review 

according to local conditions and practices. 

The HCFA also suggested that the sentinel effect be considered before implementing targeted 

reviews. A targeted program such as a second opinion program would stil provide a sentinel 

effect since physicians know that they could face peer review. In fact a targeted program would 

be more efficient since it would stil provide a sentinel effect without doing a 100 percent review. 

The full text of HCFA's comments and our detailed responses to them appear in Appendix C. 
........................................................................................... .,.... .... 

...... ............ ...................... ...................................... ..

TABLE OF CONTENTS


EXECUTIVE SUMMARY 

INTRODUCTION.................................................... ..................................................


Preprocedure Review Overview.................................. ........................................ 


FINDINGS........................................ 


RECO MMEND A TIO NS 

ENDNOTES..............................................................................................................


APPENDIX A 

HCFA Procedure List - PRO Third Scope of Work...................................... AAPPENDIX B 

PRO Prior Authorization - Third Scope of Work Denial Rates........................


APPENDIX C


HCFA Comments .,.......... ..,... ................ .............. ....................... C­

INTRODUCTION


PURPOSE 

The purpose of this report is to assess the cost-effectiveness of the Medicare Peer Review 

Organizations ' (PROs) CUITent preprocedure review process. 

BACKGROUND 

In each State, HCFA contracts with a Utilization and Quality Control Peer Review Organization 

commonly known as a PRO, to review the appropriateness and quality of surgery physicians 

perform on Medicare beneficiares. The HCFA admnisters the Medicare program and has 

regulatory oversight of PRO activities. The HCFA renews or competitively rebids PRO 

contracts on a 3-year cycle. The PRO contracts are renewed on a staggered basis. However, as 

of April 1989 all PROs were operating under the third scope of work. 

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) calls for 100 percent 

peer review of certain surgical procedures. The COBRA also permts PROs to require a second 

surgical opinion when it questions the reasonableness and necessity of the proposed surgery. 

Regulations to implement the COBRA second opinion provision are cUITently being formulated 

at HCFA. 

CUITently, each PRO conducts 100 percent review of 10 diferent elective surgical procedures 

prior to surgery to determine reasonableness and medical necessity. The HCFA requires review 

of cataract extraction and carotid endarerectomy. Each PRO chooses eight other surgical 

procedures and submits documentation to support these selections. The PRO also reviews 5 

percent of the selected procedures retrospectively, veriying the information on which it based its 

preprocedure determinations. 

METHODOLOGY 

We obtained HCFA data on the preprocedure reviews conducted under the third scope of work 

through calendar year 1989. The data included the total number of requests for preprocedure 

review, the percentage of denied requests, and the negotiated cost associated with the 

preprocedure review. We compared this data with the results of a companion OIG study of the 

necessity and quality of outpatient surgery. 

We contacted the American Medical Peer Review Association (AMPRA), a trade association 

which represents PROs, to advise them of our review and solicit their help in facilitating contacts 

with the PROs. 
We obtained data on the preprocedure review process from PROs responsible for 28 States 

(some PROs have contracts with more than one State). These PROs represent over 80 percent of 

both Medicare physician expenditures and the Medicare eligible population. 

We gathered inforn1ation from PROs about their preprocedure review process. The data 

requested included total number of preprocedure requests; number of preprocedure requests by 

procedure; number of requests forwarded to PRO physicians; overall percentage of denied 

requests; and percentage of denial rates by procedure. We also analyzed secondary data 

concerning the preprocedure review process and its effectiveness. Finally, we obtained PROs 

views on the current preprocedure review, as well as suggestions to improve its effectiveness. 

We did not analyze the deterrent or " sentinel effect" of preprocedure review due to lack of 

historical data. The sentinel effect causes physicians to recommend fewer unnecessar surgeries 

because they know their recommendations face peer review. We understand that HCFA is now 

launching longitudinal studies to evaluate the sentinel effect. 
PRO PRE PROCEDURE REVIEW PROCESS: OVERVIEW 

Surgical procedures 

The HCFA instructs PROs to select eight surgical procedures for review (in addition to cataract 

extractions and carotid endarterectomies) and submit documentation supporting their choices. 

The PROs select these 8 from a list of 11 procedures provided by HCFA (see Appendix A). The 

HCFA procedures are based on national data. They are high cost, high volume, or have a high 

nonconfirmation rate when subject to review. Most are performed on an inpatient basis. 

The PROs can, based on supporting documentation and subject to HCFA approval, select 

procedures not on the HCFA list. However, few PROs have done so. 

Review criteria 

Each PRO develops review criteria against which it screens preprocedure requests. Typically, 

PROs develop their criteria in consultation with State medical specialty societies representing the 

selected procedures. As a result, criteria can var from State to State. 

The PROs submit the criteria to the HCFA regional offce, which must review and approve them 

before they can be used. Once HCFA approves the criteria, the PROs must share them with 

providers. 

ReJ,iew process 

The review process itself does not var significantly among PROs. Physicians initiate the 

review process when they recommend a Medicare beneficiar undergo 1 of the 10 procedures for 

which the PRO requires preprocedure review. Typically, the recommending surgeon, a staff 

member, or hospital staff, telephones the PRO to review the patient s condition and seek 

preprocedure approval. Most PROs also accept mail requests and a few accept them via 

facsimile machine. 

Initial review by registered nurses 

Registered nurses (RNs) review the initial preprocedure request, comparg the physician 

diagnosis and the patient s symptoms against the PRO criteria for that surgical procedure. The 

RN s can approve the request based on the information the physician (or physician 

represen tati ve) provides. 

However, if the request does not meet the criteria or if the physician proposes a setting the PRO 

believes is inappropriate, the RN refers the case to the PRO physician advisor for review. 

PRO physician review 

The PRO physician conducts a second review of the requests which have not met the criteria 

often contacting the recommending surgeon to discuss the case further. After the review, the 
PRO physician has three choices: approve the procedure for inpatient surgery, approve the 

procedure for outpatient surgery, or deny the request altogether. 

When a PRO approves a preprocedure request, it assigns the case an approval number. When the 

PRO denies a request altogether, it typically infonns both the surgeon and the patient of the 

decision, the rationale, and an explanation of appeal rights. 

Retrospective validation review 

The HCFA requires PROs to retrospectively review the medical records from 5 percent of their 

preprocedure requests on a quarterly basis. The purpose of retrospective review is to verify the 

PRO' s preprocedure determination of medical necessity. 
FINDINGS


PRO PREPROCEDURE REVIEW FOR CATARACT EXTRACTION IS NOT 

COST-EFFECTIVE. 

The PROs responsible for 17 States, representing over half of the Medicare eligible population 

provided detailed information which clearly demonstrate that preprocedure review for cataract 

extraction is not cost-effective. (The PROs responsible for the other 11 States in our review did 

not provide detailed information. ) From the beginning of the third contract cycle through 

January 30, 1990, those 17 PROs processed about 519,000 preprocedure requests for cataract 

extractions. Only about 370 (0.07 percent) were denied. 1 By way of contrast, a companion OIG 

study to be released under separate cover found that, based on a review of patient records , 1. 

percent of the cataract extractions were not medically indicated. 

Based on a HCFA-negotiated cost of $25.70 per preprocedure review and an average 

reimbursement amount from a lO-State sample of $3,695 for a cataract extraction, Medicare paid 

about $13. 3 milion to save $1.4 millon from surgery denials. 

Our results are coIToborated by a recent study performed in Michigan, which reported the 

Michigan PRO denied only 14 of 38 008 preprocedure review requests for cataract extractions. 

This is a denial rate of less than 0.04 percent. According to this study, Medicare spent $980,000 

to deny $42,000 worth of cataact extractions. 

THE COST-EFFECTIVENESS OF THE PREPROCEDURE REVIEW PROCESS IS 

DOUBTFUL FOR OTHER PROCEDURES AS WELL. 

Our analysis of PRO data indicates very few preprocedure requests are reviewed by PRO 

physicians, and almost none are denied. 

PROs deny fewer than 15 out of each 10 000 preprocedure requests. Some of these are 

technical denials. 

Virtually all PROs have denied less than 1 percent of their preprocedure requests since the 

third contracts began (see Appendix B). The overall denial rate is 0. 15 percent, but even 

this rate is misleading, because it includes technical denials for site of service. While we 

did not determine the actual number of technical denials, we were told by a number of 

PROs that many of their denials were for site of service. 

The overall denial rate for the third PRO contracts ' review of 10 procedures has dropped 

since the second contracts. The PROs reviewed five procedures under the second contracts, during which HCFA reported a denial rate of 0.6 percent. 
Most PROs approve over 90 percent of pre procedure requests without physician 

review. 

The PROs representing 27 States provided information on the percentage of preprocedure 

requests which are approved without physician review (one PRO did not respond to this 

question). These PROs refeITed an average of 6 percent of preprocedure requests for physician review. The PROs for 22 of these States refeITed an average of 2.4 percent of their 

preprocedure requests, while 5 PROs estimated their refeITal rates between 12 and 25 percent. 

The PROs doubt the current Medicare preprocedure review is cost-effective. 

The PROs representing 27 States responded to our inquiry on the cost-effectiveness of preprocedure review. Ten said the process is not cost-effective due to low denial rates. fifteen others indicated they were unable to evaluate cost-effectiveness because they lack 

historical data. These 15 PROs also indicated, however, that the process is time consuming and labor intensive, and that their denial rates are very low. 

The two remaining PROs indicated that preprocedure review is cost-effective. The denial 

rates for each of these PROs were less than 1 percent. 

Some PROs offered alternative strategies to improve the process. Twenty-six said Medicare carers should share provider profile data with PROs to help them identify problem 

providers or procedures. Six noted HCFA could target preprocedure review efforts where 

PROs have identified problem procedures and or providers. Thee PROs suggested a 

more focused retrospective review on specific procedures or settings. 

A TARGETED, MORE INTENSIVE APPROACH COULD IMPROVE 

PREPROCEDURE REVIEW FOR CATARACT EXTRACTION. 

A targeted program would give the PROs the flexibilty to perfonn their review in the way most 

suited to local conditions and practices. For example, targeting could be done on high volume 

providers, certain geographic areas, or on a random basis. For these cases, the PROs could 

require a second opinion and subject them to physician review. 

The volume of preprocedure requests for cataract extractions and resulting low denial rates have 

prompted some PROs to explore other ways to prevent unnecessar surgery. Three PROs with 

high volumes of cataract requests submitted unsolicited proposals to HCFA for a pilot cataract 

second opinion program. One State s Ophthalmology Society even agreed to pay the cost of 

second opinion consultations. Other PROs informed us they had considered proposing such a 

pilot program, but did not take action after they leared HCFA had not taken action on similar 

proposals. 
Nineteen of the PROs contacted said a limited second opinion program would improve 

preprocedure review. Sixteen of these indicated it would be most effective for cataract 

extractions. The AMPRA also favors a focused elective surgery second opinion program 

coupled with Medicare s existing preprocedure review. 

The HCFA has recognized the need to allow PROs the flexibility to require second opinions for 

surgical procedures performed by certain physicians. The HCFA is exploring whether the 

current statute (COBRA) allows the PROs to require second opinions for physicians believed to 

be performing significant numbers of unnecessar procedures. 

MORE DATA IS NEEDED TO IDENTIFY OTHER PROCEDURES SUITABLE FOR 

TARGETED, INTENSIVE REVIEW. 

The PROs would need local rather than national data to select procedures for a targeted program 

because practice patterns tend to differ between and within States. Possible sources of local data 

are Medicare carers, which routinely collect and profie provider data. The PROs could use 

such data to focus a targeted program on paricular providers, procedures , or geographic areas. 

The HCFA has recognized that information exchange between PROs and carers can enhance 

the effectiveness of the review function and is cUITently working to implement this information 

exchange. 

While several PROs felt they could identify additional procedures for a second opinion program 

there was no consensus regarding which procedures they would select. Procedures mentioned 

most often include hysterectomy, major joint replacement, and prostatectomy. 
RECOMMENDATIONS


The HCFA should: 

substitute a targeted, more intensive review for the current mandatory 

preprocedure review of cataract surgery. 

review the current preprocedure review process to determine whether it is 

cost-effective for other surgical procedures. 

continue efforts to implement data exchange between PROs and Medicare 

carriers. 

SUMMARY OF RECOMMENDATIONS AND AGENCY COMMENTS 

OIG Finding 

PRO preprocedure review for cataract extraction is not cost-effective. 

Agency Comments 

The HCFA takes exception to the $25.70 negotiated rate and would like the OIG to explain how 

it was derived. 

OIG Response 

The HCFA did not question the fact that preprocedure review for cataract extraction is not 

cost-effective. The HCFA questioned only the negotiated rate used in the calculation. The rate 

of $25.70 per preprocedure review was obtaned from HCFA's Health Standards and Quality 

Bureau, Offce of Peer Review, Division of Program Operations. The $25.70 is the total cost to 

perform a preprocedure review. The total cost represents $16.70 fixed cost and $9.00 in varable 

cost. We used the total cost figure in calculating the amount paid for the preprocedure review. 

However, the HCFA chose to use the varable cost of $9.00 per review. The $9.00 does not 

represent the fixed cost but would represent the cost savings per review if preprocedure review 

was eliminated. However, even if the $9.00 were used, Medicare would stil have paid about 

$4. 6 millon to save $1.4 milion from surgery denials. Preprocedure review is not cost-effective 

for cataract extractions whether the total cost or the varable cost is used. 
OIG Recommendation 

The HCFA should substitute a targeted, more intensive review for the CUITent preprocedure 

review of cataract surgery. 

Agency Comments 

The HCFA disagrees with this recommendation. The HCFA believes that they have no data to 

support targeting high volume ophthalmologists. The HCFA also believes that the sentinel effect 

should be studied prior to making a final decision about the appropriateness of the 

recommendation. 

OIG Response 

The HCFA objects to targeting based solely on volume. However, this is not what we are 

suggesting. We provided examples on how targeting could be done. Our examples of targeting 

options included not only high volume providers but also certain geographic areas as well as 

random selection. Data analysis would reveal problem areas to be targeted. A targeted program 

would give the PROs the flexibility to perform their reviews in a way most suited to local 

conditions and practices. 

We recognize the importance of the sentinel effect. We believe if a targeted program such as a 

second opinion program were instituted, a sentiel effect would still be present, since physicians 

know that their recommendation for surgery would face peer review. A targeted review would 

also be more effcient since it would not be a 100 percent review. In fact, a targeted program 

could achieve the same or higher denial rate than the CUITent preprocedure review. 

OIG Recommendation 

The HCFA should review the CUITent preprocedure review process to determine whether it is 

cost -effective.


Agency Comment 

The HCFA agrees with this recommendation and is cUITently performing a study to assist in 

making accurate determinations of cost-effectiveness. 

OIG Recommendation 

The HCFA should continue efforts to implement data exchange between PROs and Medicare 

camers. 

Agency Comment 

The HCFA agrees with this recommendation and is actively working to establish regular 

systematic data exchanges. 
, 

ENDNOTES


Twelve PROs provided cataract extraction data through Januar 31 , 1990, and five PROs 

provided cataract extraction data through December 31 , 1989. 

Cataract extraction cost taen from Department of Health and Human Services, Office of 

Inspector General, Office of Evaluation and Inspections, Region IX study on Medicare 

outpatient surgery.


Dwight E.M. Angell Cataract Surgeons Face a Critical Eye Health Week April 23 

1990. 
APPENDIX A


HCFA Procedure List 
 PRO Third Scope of Work

Cholecystectomy


Major Joint Replacement


Coronar Artery Bypass Graft Surgery


Percutaneous Transluminal Coronary Angioplasty


Laminectomy


Complex Peripheral Revascularization


Hysterectomy


Bunionectomy


Inguinal Hernia Repair


10. Prostatectomy 

11. Pacemaker Insertion 

A- 1

PRO 

Alabama 

Alaska 

Arizona 

Arkansas 

California 

Colorado 

Connecticut 

Delaware 

Distrct of Columbia 

Florida 

Georgia 3


Hawaii 

Idaho 

Ilinois 

Indiana 

Iowa 

Kansas 

Kentucky 

Louisiana 

Maine 

Mary land


Massachusetts 

Michigan 

Minnesota 

Mississippi 

Missouri 

Montana 

Nebraska 

Nevada 

New Hampshire 

New Jersey 

New Mexico 

New York 

North Carolina


North Dakota 

Ohio 

Oklahoma 

APPENDIX 


PRO Prior Authorization


Third Scope of Work


Denial Rates


Number of Cases 

848 

808 

20,035 

342 

151 134 

706 

18,473 

748 

876 

97,420 

249 

076 

690 

277 

59,889 

18,364 

18,336 

30,448 

23,910 

5,415 

18,892 

23,222 

70,357 

20,287 

104 

75,982 

679 

18,928 

9,477 

249 

238 

290 

98,224 

568 

5,498 

108,834 

842 

Percent Denied 

0.43 

0.46 
PRO Number of Cases Percent Denied 

Oregon 622 

Puerto Rico 987 

Rhode Island 763 

South Carolina 21, 133 

South Dakota 4,465 

Tennessee 36,072 

Texas 104 346 

Utah 972 1.23 

Vermont 896 

Virgin Islands 11.11 

Virginia 23,965 

Washington 42,294 

West Virginia 663 

Wisconsin 33,523 

Wyoming 017 

National Total 590,442 

Thirteen States ' PROs began preprocedure review between October and December 1988: 

Delaware, Indiana, Kentucky, Missouri, Montana, Nebraska, Nevada, New Jersey, Oklahoma 

Rhode Island, South Carolina, Washington, and Wyomig. The remainder, except for 

Pennsylvania, began preprocedure review on April 1 , 1989. The Pennsylvania PRO began its 

contract on December 1 , 1989. Pennsylvania processed 10,000 requests and denied 11 during 

the first two months of their contract. 

National denial rate is based on a weighted average to account for differences in volume of 

requests between States. 

The Alaska, Idaho, and Washington State data we obtaied from HCFA was incoITect. The 

correct percentages we obtained from the PRO are used in this Appendix. 

Source: HCFA report th 1/29/90 
APPENDIX 


HCFA COMMENTS


C - 1

(.

. ;. 

7""""''"'- . cl Health 

DEPARTMENT OF HEALTH &. HUMAN SERVICES vv Financing Administration 

;t.eC/ , 3 ( 11

.t""..a Memorandu 

Date OCT I 5 1990 

From 

Gai R. Wilensky, Ph.D. 


Administrator
 Subject 

OIG Draft Report - "Medicare Preprocedure Review" (OEI-03-89-01520) 

Inspector General


The Offce of the Secretary


We have reviewed the subject draft report which examines the cost effectiveness 

of the Medicare Peer Review Organizations' (PROs) current pre procedure review 

process. 

The report questions the cost effectiveness of the preprocedure review process 

for all procedures and specifically concludes that PRO preprocedure review for 

cataract extraction is nOt cost effective. The report also concludes that a more 

targeted program of preprocedure review would give the PROs the flexibility to 

perform their review in a way more suited to local conditions and practices. The 

report contains three recommendations pertaining to these findings. Our comments 

on each of these recommendations are attached. 

Thank you for the opportunity to review and comment on this draft report. 

Please advise us whether you agree with our position on the report 

recommendations at your earliest convenience. 

Attachment 

PDIG 

DIGDIG. 

DIGAIG. 

OGC/IG 

EX SEC c. . 

DATE SENT 101 5 ­
, 

(2)


FACT SHEET 

OIG Draft Report 

Medicare Preprocedure Review


(OEI-03-89-01520) 

General Comments:


Background 

The Executive Summary and Introduction of the report state Most PROs were in 

their third cycle of contracts in April 1989." This statement is not correct. The 

difference between contract cycle and scope of work requires clarification. Most 

PROs, at the time of the study, were performing under the third scope of work, but 

were nOt, however, in the third contract cycle. As a result of the Omnibus Budget 

Reconciliation Act of 1987, the length of PRO contracts was changed from 

2 to 3 years and we were given the authority to renew contracts on a staggered 

basis. PRO contractOrs were broken down into four groups with contract renewals 

for the first group for the third cycle, beginning on O tober 1, 1988. Contract 

renewals continued at 6 month intervals for each of the remaining three groups. 

Contracts of PROs not under the third contracting cycle on April 1, 1989, were 

modified so that all PROs were under the third scope of work. Therefore, although 

all PROs were operating under the third scope of work as of April 1, 1989, most 

were not in the third cycle of contracts. 

Findings 

PRO preprocedure review for cataract extraction is not cost effective 

OIG found that Medicare expended about $13.3 millon (based upon an alleged 

HCFA-negotiated rate of $25.70 per pre procedure review) to realize savings of 

$1.4 millon due to surgery denials. HCFA takes exception to the negotiated rate 

used in OIG's projection. The national average negotiated rate per review for the 

third contract cycle paid for ambulatOry reviews (which includes preprocedure 

reviews) is $9.00. Since there is a significant difference betWeen the rate per review 

cited by OIG and that l,sed by HCF A, it would be helpful if OIG explained how it 

derived the $25.70 rate per preprocedure review. 

Recommendation No. I 

HCF A should substitute a targeted. more intensive review for the current 

mandatory preprocedure review of cataract surgery. 
(3 ) 

Page 2 - Medicare Preprocedure Review 

HCF A Response


We disagree with this recommendation. If we were to target high volume 

ophthalmologists, we believe that we could be challenged for identifyng them for 

We have no data to support targeting these intensified review without justification. 


ophthalmologists for review. In fact, the opposite situation may exist. 

Ophthalmologists who have "average" or "below average" surgical rates and practice 

in an area where a high volume physician practices, may be performing unnecessary 

surgery to compensate for the loss of revenue. HCF A is currently studying the 

effectiveness of PRO review. We will decide how extensive a review of cataract 

surgery should be performed after these studies are completed. An additional 

factor that should be considered before implementing targeted reviews is the 

sentinel effect of the preprocedure review. The sentinel effect causes physicians to 

recommend fewer unnecessary surgeries because they know their recommendations 

face peer review. Although OIG recognizes the sentinel effect of preprocedure 

review was not considered in this report, we believe a study of this subject should 

be completed before HCFA makes a final decision about the appropriateness of the 

recommendation. In fact, HCF A is conducting a longitudinal study of the sentinel 

effect of the pre procedure review of cataract surgery which should clarify OIG' 

concerns regarding the cost effectiveness of the existing preprocedure review 

program. 

Recommendation No. 

HCF A should review the current pre procedure review process to determine whether 

it is cost effective for Other surgical procedures. 

Response 

We agree with this recommendation. HCF A is currently analyzing the data 

submitted by PROs to determine review levels and denial rates. In addition, HCF 

is performing a study which wil assist in making an accurate determination of cost 

effectiveness of the reviews being performed. Since the pre procedure review is 

Congressionally mandated. we are in the proce:ss of making decisions about which 

surgical procedures should be subjected to prior authorization and wil modify


review requirements as appropriate.

(4 ) 

Page 3 - Medicare Preprocedure Review 

Recommendation No. 

HCF A should continue efforts to implement data exchange between PROs and 

Medicare carriers. 

Response 

We agree with this recommendation. HCFA is actively workig to establish regular 

systematic data exchanges between PROs and carrers. PROs and carrers were 

recently asked to make recommendtions concerning the .tyes of information to be 

exchanged. We are in the process of analyzng the results of our inquiries and will 

be issuing instructions that wil enhance information exchanges between the PROs 

and carrers.