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76–025 2001

H.R. 2768, THE ‘‘MEDICARE REGULATORY AND

CONTRACTING REFORM ACT OF 2001’’

HEARING

BEFORE THE

SUBCOMMITTEE ON HEALTH

OF THE

COMMITTEE ON WAYS AND MEANS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

SEPTEMBER 25, 2001

Serial No. 107–45

Printed for the use of the Committee on Ways and Means

(

ii

COMMITTEE ON WAYS AND MEANS

BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois

E. CLAY SHAW, JR., Florida

NANCY L. JOHNSON, Connecticut

AMO HOUGHTON, New York

WALLY HERGER, California

JIM MCCRERY, Louisiana

DAVE CAMP, Michigan

JIM RAMSTAD, Minnesota

JIM NUSSLE, Iowa

SAM JOHNSON, Texas

JENNIFER DUNN, Washington

MAC COLLINS, Georgia

ROB PORTMAN, Ohio

PHIL ENGLISH, Pennsylvania

WES WATKINS, Oklahoma

J.D. HAYWORTH, Arizona

JERRY WELLER, Illinois

KENNY C. HULSHOF, Missouri

SCOTT MCINNIS, Colorado

RON LEWIS, Kentucky

MARK FOLEY, Florida

KEVIN BRADY, Texas

PAUL RYAN, Wisconsin

CHARLES B. RANGEL, New York

FORTNEY PETE STARK, California

ROBERT T. MATSUI, California

WILLIAM J. COYNE, Pennsylvania

SANDER M. LEVIN, Michigan

BENJAMIN L. CARDIN, Maryland

JIM MCDERMOTT, Washington

GERALD D. KLECZKA, Wisconsin

JOHN LEWIS, Georgia

RICHARD E. NEAL, Massachusetts

MICHAEL R. MCNULTY, New York

WILLIAM J. JEFFERSON, Louisiana

JOHN S. TANNER, Tennessee

XAVIER BECERRA, California

KAREN L. THURMAN, Florida

LLOYD DOGGETT, Texas

EARL POMEROY, North Dakota

ALLISON GILES, Chief of Staff

JANICE MAYS, Minority Chief Counsel

SUBCOMMITTEE ON HEALTH

NANCY L. JOHNSON, Connecticut, 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

KAREN L. THURMAN, Florida

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

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

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

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

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

is further refined.

iii

C O N T E N T S

Page

Advisories announcing the hearing ........................................................................ 2

WITNESSES

Centers for Medicare & Medicaid Services, Hon. Thomas Scully, Administrator ..................................................................................................................... 9

U.S. General Accounting Office, Leslie G. Aronovitz, Director, Health CareProgram Administration and Integrity Issues ................................................... 39

American College of Physicians-American Society of Internal Medicine, William J. Hall, M.D. ................................................................................................ 47

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

and VNA of Central Connecticut, Inc., Susan Wilson ....................................... 53

SUBMISSIONS FOR THE RECORD

Advanced Medical Technology Association, statement ......................................... 66

Alliance to Improve Medicare, statement and attachment .................................. 67

American Academy of Physician Assistants, Alexandria, VA, statement ........... 76

American Clinical Laboratory Association, statement ......................................... 78

American Medical Association, Chicago, IL, statement and attachment ............ 82

American Osteopathic Association, Chicago, IL, statement ................................. 87

Association for Ambulatory Behavioral Healthcare, Alexandria, VA, Patricia

L. Scheifler, statement ......................................................................................... 90

Blue Cross and Blue Shield Association, statement ............................................. 94

Medicare Administration Committee, Silver Spring, MD, statement ................. 99

Power Mobility Coalition, statement ...................................................................... 101

(1)

H.R. 2768, THE ‘‘MEDICARE REGULATORY AND

CONTRACTING REFORM ACT OF 2001’’

TUESDAY, SEPTEMBER 25, 2001

HOUSE OF REPRESENTATIVES,

COMMITTEE ON WAYS AND MEANS,

SUBCOMMITTEE ON HEALTH,

Washington, DC.

The Subcommittee met, pursuant to notice, at 10:08 a.m., in

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

[The advisory and revised advisory announcing the hearing follow:]

2

ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

SUBCOMMITTEE ON HEALTH

FOR IMMEDIATE RELEASE CONTACT: (202) 225–3943

September 4, 2001

No. HL–10

Johnson Announces Hearing on H.R. 2768,

the ‘‘Medicare Regulatory and Contracting

Reform Act of 2001’’

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 H.R. 2768, the bipartisan ‘‘Medicare Regulatory and Contracting

Reform Act of 2001.’’ The hearing will take place on Tuesday, September 11,

2001, in the main Committee hearing room, 1100 Longworth House Office

Building, beginning at 2:00 p.m.

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

hearing will be from invited witnesses only. Witnesses will include the Honorable

Tom Scully, Administrator of the Centers for Medicare and Medicaid Services

(CMS), independent program experts, and representatives of provider 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 on Health, introduced H.R.

2768, the ‘‘Medicare Regulatory and Contracting Reform Act of 2001,’’ the first

major bipartisan Medicare legislation developed in the Committee on Ways and

Means in the 107th Congress. This package would extend important regulatory relief to our nation’s health care providers and modernize Medicare’s contracting processes, while protecting the program and taxpayers from potential fraud and abuse.

H.R. 2768 is intended to create a more collaborative relationship between the

CMS and the providers who serve Medicare beneficiaries. The legislation was developed through months of bipartisan consultation with health care providers and with

the officials at the U.S. Department of Health and Human Services responsible for

protecting the financial integrity of the Medicare program. The bill includes provisions related to the issuance of regulations and compliance with changed policies,

contracting reform, provider education and technical assistance, a small provider

technical assistance demonstration program, the appeals system, recovery of overpayments and prepayment review, a beneficiary assistance demonstration, and evaluation and management guidelines.

In announcing the hearing, Chairman Johnson stated, ‘‘Health care providers

have been overwhelmed by paperwork requirements that have nothing to do with

taking care of patients. Good, responsible professionals are frustrated by a system

that seemingly emphasizes policing providers rather than helping them comply with

Medicare’s rules and regulations. Our bill is designed to change all of that. We want

health care providers to spend their time with patients, rather than paperwork, and

we want to make Medicare simpler. Program integrity must be protected—and so

must provider time.’’

3

FOCUS OF THE HEARING:

The hearing will give the Administration and other witnesses an opportunity to

comment on H.R. 2768. We will hear from independent program experts as well as

health care providers who would be directly impacted by the bill’s reforms.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

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

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

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

with their name, address, and hearing date noted on a label, by the close of business, Tuesday, September 25, 2001, to Allison Giles, Chief of Staff, Committee on

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

Building, Washington, D.C. 20515. If those filing written statements wish to have

their statements distributed to the press and interested public at the hearing, they

may deliver 200 additional copies for this purpose to the Subcommittee on Health

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

FORMATTING REQUIREMENTS:

Each statement presented for printing to the Committee by a witness, any written statement

or exhibit submitted for the printed record or any written comments in response to a request

for written comments must conform to the guidelines listed below. Any statement or exhibit not

in compliance with these guidelines will not be printed, but will be maintained in the Committee

files for review and use by the Committee.

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

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

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

2. Copies of whole documents submitted as exhibit material will not be accepted for printing.

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material

not meeting these specifications will be maintained in the Committee files for review and use

by the Committee.

3. A witness appearing at a public hearing, or submitting a statement for the record of a public hearing, or submitting written comments in response to a published request for comments

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

or organizations on whose behalf the witness appears.

4. A supplemental sheet must accompany each statement listing the name, company, address,

telephone and fax numbers where the witness or the designated representative may be reached.

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

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

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

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

other forms.

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

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

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

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

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

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

4

* * * NOTICE—HEARING RESCHEDULED * * *

ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

SUBCOMMITTEE ON HEALTH

FOR IMMEDIATE RELEASE CONTACT: (202) 225–3943

September 17, 2001

No. HL–10–Revised

Hearing Rescheduled for Subcommittee

Hearing on H.R. 2768, ‘‘the ‘‘Medicare

Regulatory and Contracting Reform Act

of 2001’’ Tuesday, September 25, 2001

Congresswoman Nancy L. Johnson, Chairman of the Subcommittee on Health of

the Committee on Ways and Means, today announced that the Subcommittee hearing on H.R. 2768, the ‘‘Medicare Regulatory and Contracting Reform Act of 2001,’’

previously scheduled for Tuesday, September 11, 2001, will now be held on Tuesday, September 25, 2001, at 10:00 a.m., in the main Committee hearing

room, 1100 Longworth House Office Building.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

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

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

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

with their name, address, and hearing date noted on a label, by the close of business, Tuesday, October 9, 2001, to Allison Giles, Chief of Staff, Committee on Ways

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

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

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

the hearing.

All other details for the hearing remain the same. (See Subcommittee press release No. HL

Chairman J

The Democratic Caucus is not quite over, and they will be along

–10, dated September 4, 2001.)

OHNSON. The hearing will come to order.

f shortly, so I will start with my opening statement and provide Pete

a chance when he arrives.

Before we start, it is important to acknowledge that today’s hearing on regulatory relief was supposed to have taken place 2 weeks

ago today. As we all know, on that day, our country suffered an extraordinary tragedy, disrupting not only the business of governing,

but so much more importantly, the lives of so many Americans—

those tragically killed by terrorists, their bereft families and

friends, and all Americans.

5

While we continue to grieve and prepare to respond to the evils

of terrorism, it is a sign of the strength of this great Nation that

we can also move forward with the work of governing. I want to

thank our witnesses for coming back today to give us the benefit

of their expertise.

Over the past several months, members of this Subcommittee

have been working together closely to better understand the challenges facing providers who serve Medicare beneficiaries, and on

March 15, we held a hearing on the need to extend relief from burdensome regulations to Medicare providers.

At that hearing, we heard from doctors and hospitals, from home

health agencies and nursing homes. Although examples differed,

the basic message from each group was the same—providers are

overwhelmed with paperwork. Instead of caring for patients, health

care providers are spending too much time filling out forms.

These are good people; yet they are inundated with paperwork,

second-guessing, and heavy-handed oversight. If we do not act, we

risk losing the providers we need to ensure that seniors have access to high-quality care.

Indeed, the U.S. General Accounting Office (GAO) study documents the loud cries for help that we have been hearing. Medicare

is now such a complicated program that endless directives and long

explanations and articles are necessary to explain facet after facet.

Not only does the GAO report document the volume of paper doctors and hospitals must digest monthly, but the complexities are so

great that even the government cannot give clear answers.

In GAO’s sample, only 15 percent of the answers to physicians’

questions were complete and accurate—15 percent. Thirty-two percent were entirely incorrect. Having chaired the Subcommittee that

led the reform of the Internal Revenue Service (IRS), I can tell you

this is an absolutely shocking, abominable, and unacceptable record

of performance, although just as the IRS problems did, it has its

fundamental base in the complexity of the law we passed and the

rapidity with which we have imposed changes on the system.

Nonetheless we must do better than providing only 15 percent

accurate answers to physician questions.

So the challenge is great to those of us in the Congress, to Administrator Scully, and to Secretary Thompson. We have, however,

as you well know, been working hard. Pete and I wrote the Secretary, making a number of suggestions regarding regulatory improvements the Department could make using existing administrative authority, and many of those changes they have made.

At the same time, we began developing a legislative package

which is the underlying substance of this hearing, and we will have

a chance to examine its provisions this morning and look forward

to your comments on how it can be altered or improved to be made

stronger or to serve better.

In addition, the Secretary has given the tools to manage the

Medicare Program operations more efficiently. For the first time,

the Centers for Medicare & Medicaid Services (CMS) will be able

to competitively contract with the best entities available to process

claims, make payments, and answer questions. The Secretary will

be free to promote quality through incentives for Medicare adminisVerDate 11-MAY-2000 14:37 Dec 03, 2001 Jkt 076025 PO 00000 Frm 00009 Fmt 6633 Sfmt 6602 E:\HR\OC\A025.XXX pfrm01 PsN: A025
6

trative contractors to provide outstanding services to seniors and

health care providers.

It is a pleasure to welcome Tom Scully here, the Administrator

of CMS. Mr. Scully will set forth the administration’s view on H.R.

2768 and talk to us about the Department’s current efforts to extend regulatory relief to providers.

This is Mr. Scully’s first appearance before the Subcommittee in

his capacity as administrator, and Tom, we welcome you and look

forward to working with you in the months ahead. Mr. Stark.

[The opening statement of Chairman Johnson follows:]

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

Health

Before we start today, it seems important to me to acknowledge that today’s hearing on regulatory relief actually was supposed to have taken place two weeks ago

today. As we all know, history intervened, in the form of unspeakable tragedy, disrupting not only our hearing but, so much more importantly, the lives of so many

American heroes. While we continue to mourn, and to grieve, and to respond to the

evils of terrorism, it is a sign of the strength of this great nation of ours that we

can also move forward with the business of governing. I want to thank our witnesses for coming back today to give us the benefit of their expertise.

Over the past several months, members of this Subcommittee have been working

together closely to better understand the challenges facing providers who serve

Medicare beneficiaries. On March 15, we held a hearing on the need to extend relief

from burdensome regulations to Medicare’s providers.

At that hearing, we heard from doctors and hospitals, from home health agencies

and nursing homes. Although examples differed, the basic message from each group

was the same. Providers are overwhelmed. Instead of caring for patients, health

care providers are spending too much time filling out forms. These are good people.

And yet they are inundated by paperwork, second-guessing, and heavy handed oversight. If we do not act, we risk losing the providers we need to ensure that seniors

have access to high quality care.

After that hearing, we got to work. In May, Pete Stark and I wrote Secretary

Thompson making a number of suggestions regarding regulatory improvements the

Department could make using existing administrative authority. Many of those

changes have already been accepted.

At the same time, we began developing a legislative package to address problems

that could not be corrected administratively. We examined the proposals set forth

by Representatives Toomey and Berkley in their bill, H.R. 868. They make important suggestions—many of which we adopted. But we also were sensitive to objections raised by the Office of Inspector General to provisions in H.R. 868 that put

program integrity at risk. We tried to assemble a bill that extends relief to providers

but protects taxpayers from waste, fraud, and abuse.

On August 2, Pete Stark and I introduced our bill, the Medicare Regulatory and

Contracting Reform Act of 2001. I am extremely pleased that every member of the

Health Subcommittee has joined us in cosponsoring H.R. 2768, along with many of

our colleagues from the full committee.

The basic goal of H.R. 2768 is to create a more collaborative, less confrontational

relationship between providers and the Centers for Medicare and Medicaid Services.

Our bill will diminish the paperwork load required to meet complex and technical

regulatory requirements and immediately free up for patient care time that providers now spend completing and filing federal forms. H.R. 2768 streamlines the

regulatory process, enhances education and technical assistance for doctors and

other health care providers, and protects the rights of providers in the audit and

recovery process to ensure that the repayment process is fair and open.

In addition, the Secretary is given the tools to manage Medicare program operations efficiently. For the first time, the Centers for Medicare and Medicaid Services

will be able to competitively contract with the best entities available to process

claims, make payments and answer questions. The Secretary will be free to promote

quality through incentives for the Medicare Administrative Contractors to provide

outstanding service to seniors and health care providers. Contractor reform initiatives will eliminate artificial distinctions between Medicare’s Part A and Part B

with regard to contracting practices.

7

Since introducing H.R. 2768, we have received useful input and technical suggestions from a range of interested groups, and we will be carefully evaluating those

suggestions to see what good ideas we can incorporate into our bill as we move to

markup. In particular, I continue to be interested in finding ways to allow providers

to challenge audit findings and the validity of probe samples before they have to

formally pursue an appeal.

Today, we will hear from Tom Scully, Administrator of CMS. Mr. Scully will set

forth the Administration’s views on H.R. 2768 and talk to us about the Department’s efforts to extend regulatory relief to providers. This will be Mr. Scully’s first

appearance before our subcommittee in his capacity as Administrator. Tom, we look

forward to working with you at CMS.

On our second panel, providers will comment on the bill, and we will hear from

the General Accounting Office about its recent work on physician documentation requirements. Again, I thank you all for being here today.

today on H.R. 2768, the Medicare Regulatory and Contracting ReMr. STARK. Madam Chairman, thank you for calling the hearing

f form Act of 2001 (MRCRA).

As I know you have said, this legislation shows that when we do

work together, we can accomplish some legislation. There are, of

course, other areas on which we disagree—Medicare reform, payment to Health Maintenance Organizations, the Bush discount

card program, known as the ‘‘rocket ranger prescription card’’—but

when there is some agreement, we can improve Medicare for beneficiaries, taxpayers, and providers.

As I understand it, this bill was written to address two problems

in Medicare—first, to improve outreach and assistance to beneficiaries and to respond to certain other concerns raised by physicians and other providers; second, some long overdue contracting

reforms that should improve beneficiary and provider services and

permit the consolidation of Medicare claims processing.

I emphasize that because our legislation does not compromise the

government’s ability to protect taxpayer dollars from being inappropriately spent. Let me say that I am concerned about several

issues, however, raised by the Office of Inspector General (OIG)

concerning our bill, and I hope we can resolve those before we proceed.

I do not think that CMS needs additional legislative authority to

improve its education and information for providers. Instead, I

think the agency needs additional administrative resources. The

GAO will testify today on serious contractor oversight problems.

These management problems need to be addressed regardless of

whether we enact this legislation or provide additional resources.

While this legislation would reform Medicare administrative contracting, permitting Part A and Part B contractors to be combined,

I want to emphasize that we in no way would agree that this would

imply any support for combining the Part A and Part B trust funds

or any other efforts to combine Medicare Part A and Part B. And

I am sure this side of the aisle strongly opposes such consolidation.

To improve services to Medicare beneficiaries, we have proposed

that Medicare staff be stationed in Social Security field offices.

The demonstration program will allow us to examine the value

of placing Medicare staff in all of those field offices, and I hope it

can be expanded; I hope it will work and can be made permanent.

Thank you.

8

[The opening statement of Mr. Stark follows:]

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

Congress from the State of California

Madam Chairman, thank you for calling the hearing today on the Medicare Regulatory and Contracting Reform Act of 2001 (H.R. 2768). I look forward to hearing

what the witnesses have to tell us about our bill and ways to improve it.

Madam Chairman, as you know, you and I and other Members of the Subcommittee introduced this bill to address two problems in Medicare. First, the bill

takes important steps to improve outreach and assistance to beneficiaries and providers, and to respond to certain other legitimate concerns raised by physicians and

other providers. And second, it includes long overdue contracting reforms that will

improve beneficiary and provider services and permit the consolidation of Medicare

claims processing.

Importantly, our legislation does not compromise the government’s ability to protect taxpayer dollars from being inappropriately spent under Medicare. On this

point, however, let me say that I am concerned about several issues raised by the

Office of Inspector General concerning our bill, and I hope we can resolve those

issues before we proceed.

Madam Chairman, we need to improve the education and information processes

for providers. It is hard for even the most seasoned Medicare analyst to keep track

of all the payment and policy changes that have occurred in Medicare in the last

few years. We need to do a much better job of educating and assisting physicians

and other providers about these changes.

But, Madam Chairman, CMS does not need additional legislative authority to improve its education and information for providers. Instead, CMS needs additional

administrative resources. Two years ago, in the January/February 1999 issue of

Health Affairs, 14 of our nation’s leading Medicare policy analysts—ranging from

conservative to liberal—published an open letter titled, ‘‘Crisis Facing HCFA & Millions of Americans.’’ The crisis they spoke about was the lack of resources to administer Medicare. Their letter is even more relevant today. As its administrative workload has increased, CMS (formerly, HCFA) resources have not kept pace. The

changes that we propose in our legislation are important, but by themselves, they

are not sufficient. We simply must get more resources into Medicare administration.

Madam Chairman, important reforms of the Medicare appeals processes were included in legislation enacted last year. However, our bill includes additional improvements that are needed. Our bill would provide an expedited review process

similar to the one now used for Provider Reimbursement Review Board (PRRB) decisions to permit providers to seek judicial review when a review panel does not have

legal authority to make a decision. Our bill would also transfer administrative law

judges (ALJs) from the Social Security Administration to the Department of Health

and Human Services in order to improve their expertise on Medicare issues. However, lengthy delays in appeals will not be curtailed unless additional resources are

provided to hire more ALJs.

Madam Chairman, Medicare contracting processes have become outdated in the

face of all of the changes that have occurred in Medicare and in information technology. Every President since President Carter has proposed reforms to the administrative contracting provisions in Medicare, yet they have never been enacted. I hope

we succeed this time.

Our bill reforms the Medicare contracting processes by consolidating the contracting functions for Part A and Part B of Medicare, permitting the Secretary to

contract with separate Medicare Administrative Contractors to perform discrete

functions, making use of the Federal Acquisition Rules (FAR) in Medicare contracting, eliminating the requirements for cost contracting, and expanding the kinds

of entities eligible for contracting. Our bill would permit consolidation of claims

processing with fewer contractors, and it would permit separate contracting along

functional lines—for beneficiary services, provider services, and claims processing.

But let me be clear, my support for combining the administrative contracting

functions of Part A and Part B in no way implies my support for combining the Part

A and Part B trust funds, or other efforts to combine the Part A and Part B. In

fact, I strongly oppose such a consolidation.

Last, Madam Chairman, to improve services to Medicare beneficiaries, we have

proposed that Medicare staff be stationed in Social Security field offices to help answer questions and provide assistance for Medicare beneficiaries. There are 1291

SSA field offices around the world, and I would like to see Medicare staff in most,

if not all, of them. I am pleased that the legislation we are introducing today authorizes a demonstration program to examine the value of placing Medicare staff in

9

SSA field offices, and I hope it will be expanded and made permanent if it is found

to aid beneficiaries.

STATEMENT OF THE HON. THOMAS SCULLY, ADMINISTRATOR,

Chairman JOHNSON. Thank you, Mr. Stark. Mr. Scully.

fCENTERS FOR MEDICARE & MEDICAID SERVICES

Mr. SCULLY. Thank you, Madam Chairman and Mr. Stark.

Thank you for having me here today. First, going back to the

subject of New York, since I have the opportunity, I would like to

thank all the health care providers in New York City, especially

Lower Manhattan. In the last couple of weeks, I think a lot of people were unaware of the fact that in the disabled community, people did not get home health services; there were a lot of problems

in Lower Manhattan beyond the obvious ones from the World

Trade Centers. I think the providers there did a tremendous job of

making sure that seniors who did not have home health below 14th

Street, disabled folks who did not have their home health aides,

and a lot of other people got wonderful services. I think the hospitals did a great job, and in particular the Visiting Nurse Association of New York City. So I just want to publicly thank them for

doing a terrific job.

Thank you for inviting me here today. I have just one other issue

before I jump into regulatory streamlining, which I want to flag for

the Committee, because I am going to start putting it at the front

of all my speeches for the next year and all my Committee appearances, and that is the Health Insurance Portability and Accountability Act 1996 (HIPAA).

In my first 3 months on the job, I probably was not focused as

much on HIPAA as I should have been; in the last couple of weeks,

I have become totally aware that as of next October, we have to

have a standard billing and coding system nationwide between all

private and public insurers. And I have not seen a lot of evidence

that Congress is interested in changing the law, so I have the responsibility to get it done by next October.

The agency needs to step up to the plate; we need to focus on

it a lot more. We are creating a HIPAA Task Force in CMS. And

we are determined that absent other legislative guidance, we will

do our best to have the entire insurer and provider world ready for

HIPAA next fall. So I just wanted to flag that as an issue of increased importance and increased focus for the agency.

That said, let me turn to MRCRA. I want to thank you, Mrs.

Johnson and Mr. Stark, for introducing this legislation. I would

also like to thank your staff, who spent an awful lot of time working with us to make sure it was drafted effectively and worked out

well. In particular, Jennifer Baxendell, Cybele Bjorklund and Deb

Williams spent a lot of time on this and I think produced a terrific

work product. And as Mr. Stark said, when we work on these

things in a bipartisan way, we frequently get good results, and I

think that generally this is a very, very good bill. We have a couple

of minor concerns that I will express later, but they are very minor.

Clearly we have to balance at CMS the impact of Medicare’s laws

and regulations on physicians and other providers with the acVerDate 11-MAY-2000 14:37 Dec 03, 2001 Jkt 076025 PO 00000 Frm 00013 Fmt 6633 Sfmt 6602 E:\HR\OC\A025.XXX pfrm01 PsN: A025
10

countability that we have for $240 billion in Medicare payments.

In many areas, we can be a lot less intrusive to providers, a lot

more responsive to beneficiaries, and in many cases, we can make

these changes administratively. I will go through some of those

that we have tried to do.

However, there are a lot of important areas where we cannot

change things without your help. The Medicare contracting system,

which I think is antiquated and has been screaming for reform for

the last 20 years, is one, and we are very appreciative of your efforts in this bill to fix it.

We have to fundamentally change our relationship with Medicare’s fee-for-service contractors. When I got in the first Bush administration 12 years ago, we had around 90 contractors, and everybody wanted to get those reformed and get them down to 10. We

have made some progress, but 12 years later, coming back in, we

still have 51. It is a unwieldy process. The reins between the agency and its contractors who are running the program are not exactly

tight, and I think a major goal this year of both the Secretary and

myself is to reform the contractor system.

So far this year, actually, we have been very pleased, working

with the Committee and with the Blue Cross plans, who tend to

be our predominant contractors, that we have actually worked out

a lot of the issues that we had with the existing 51 contractors, and

I think most of them are actually very supportive of your reforms

and the reforms that you have in this bill, as are we.

In June, the President forwarded his proposal to Congress. The

goal in that CMS reform proposal was to provide CMS with the

flexibility to work with its contractors more effectively, to promote

greater competition among contractors, to give us greater flexibility

to negotiate contracts, with appropriate incentives to reward our

contractors. And basically, when you look at your bill, I think it

meets virtually all of those goals and is soundly based on the bill

we sent up, with some significant improvements.

What have we done in addition to your bill to try to make our

relationships with contractors and carriers and providers and beneficiaries better?

The first thing we did to improve agency responsiveness outside

legislation with internal CMS efforts is that I created eight open

door policy groups, two of which I chair—long-term care and nursing homes, and rural health. There are also policy groups for physicians, hospitals, health plans, nurses and allied health professionals, home health and hospice, and End-Stage Renal Disease

and dialysis centers.

These groups basically meet with all the outside interested

groups once a month in person and once a month through a nationwide conference call to find out what the problems are around the

country with beneficiary groups and providers and try to do the

best we can to work them out.

For example, in the nursing home group, which I chair because

I have a particular interest in fixing some of our problems in longterm care, we have the for-profit and non-profit nursing homes. It

is co-chaired with me by the executive director of the National Governors’ Association; the Service Employees International Union is

involved—there are many parties who do not always agree on

11

things, but I think we have found that there are a lot of common,

nuts-and-bolts, day-to-day problems in the program, and that if we

focus on them, we can fix them, and we are determined to do that.

The goal of these groups is not to overhaul Medicare. The goal

is to find a way to make our program work better on a day-to-day

basis and to solve the day-to-day operational problems that we

have.

On beneficiary education efforts and outreach, as you know, we

are launching a $30 million advertising campaign this fall. We are

significantly increasing the 1–800–MEDICARE number budget,

and it will operate 24 hours a day, 7 days a week, with a great deal

of local information. The ad campaign has been delayed a little bit,

obviously, by the disaster last week, but I think you will see it up

and running in mid-October.

Establishing key contacts for the States—this is more relevant to

Medicaid than Medicare—but we have appointed one person in the

Baltimore office and one person in each region to be responsible to

the Governors, so when the States and Governors have problems

with Medicaid, we have folks with direct responsibility in the

States who are responsible to me and the Medicaid operation to

make sure the Governors and the States get quick turnaround and

quicker response in the Medicaid program.

The Secretary has also formed a new regulatory reform group to

identify regulations that prevent hospitals and providers and physicians from serving Medicare beneficiaries in the most effective possible way. To support this group, I have started to go around and

do public listening sessions around the country. Yesterday I was in

Kentucky; I have already gone to Chicago with Mr. Crane—I hope

that was a good trip—and also to Montana and Arkansas, and we

are determined to go around the country and meet with more of the

providers and beneficiary groups and really try to drive the agency,

both in Washington and Baltimore and also in the regional offices,

to be much more responsive.

In addition to these efforts, we are taking concrete steps to

streamline Medicare’s regulatory process. We have developed a

quarterly compendium of all changes in Medicare that we will send

out to all physicians and providers. As of January 1, we will have

a listing of each quarter; before the quarter begins, we will put out

a listing of all regulations. And our goal, at least for now, working

with the Federal Register—we are trying to get them to agree to

let us publish all our regs 1 day a month, so every reg coming out

of CMS would come out and be in a compendium at the beginning

of the quarter—if it is not on there, it will not come out—and then,

once a month, you will see all the regs coming out of the agency

on 1 day. The goal here is to try to make the process more predictable and manageable for the providers who perceive our regulatory

process to be kind of random. We are trying to fix that as best we

can.

We have a significantly enhanced effort on both physician and

provider education and also on beneficiary education.

So in summary, in addition to your bill, we are doing the best

we can internally to try to educate providers and beneficiaries and

be more responsive all across the program.

12

If I could just for a second raise a couple of very minor concerns

that we have with the bill that we would like to work with you on

in the next couple of weeks, one is that there is a provision in the

bill—and there are really only two things that I have any concerns

about—there is a provision in the bill that says that after CMS

promulgates a new policy, there can be no enforcement for 30 days.

While I understand that from the providers’ point of view, from our

point of view, we are concerned that if we have no enforcement for

30 days, most providers are wonderful, honorable people, but if we

cannot have any enforcement for 30 days, it is an invitation for

people to take advantage of the program from a billing perspective

for the first 30 days after a new policy is issued.

Second, from the point of view of the Blue Cross plans, which we

have spent a lot of time working on this bill with, current liability

for the Medicare carriers and Fiscal Intermediaries (FI), the standard is gross negligence, and the bill changes that to negligence,

which is a much lower standard and would subject them to much

greater liability.

At least in the 11th Circuit, in fact, right now, they have found

that there is no liability for carriers for Medicare problems. So I

think gross negligence is an appropriate standard—as I said, in the

11th Circuit, there is no liability—but lowering that to negligence

would open the door to a lot more legal issues for carriers. We are

trying to draw in new carriers and better carriers and FIs, and I

think it would present a significant problem for us if you actually

raised the level of liability for the carriers. So we would like to

work with you on that as well.

In summary, Madam Chairman, we think the bill is excellent; we

are very supportive of it. We would like to work with you, and we

are very, very grateful that, on a bipartisan basis, the Subcommittee has moved forward on this bill.

Thank you for having me.

[The prepared statement of Mr. Scully follows:]

Statement of the Hon. Thomas Scully, Administrator, Centers for Medicare

& Medicaid Services

Chairman Johnson, Representative Stark, distinguished Subcommittee members,

thank you for inviting me to discuss our efforts to streamline the Medicare program.

Many physicians, health plans, providers, and Members of Congress, have raised

concerns about Medicare, particularly Medicare’s regulatory and paperwork burden

and the cost of doing business with the Medicare program. We appreciate these concerns, and are making every effort to identify and address areas where improvements can be made. Physicians and other health care providers play a critical role

in ensuring that Medicare beneficiaries receive quality health care. We know that in

order to ensure beneficiaries continue to receive the highest quality care, we must

streamline Medicare’s requirements, bring openness and responsiveness into the

regulatory process, and make certain that regulatory and paperwork changes are

sensible and predictable. In addition, we must reform the way we contract with the

private entities that process and pay Medicare claims.

We also know how important these issues are to this Subcommittee. We have

worked with you for months now to make Medicare a more ‘‘user-friendly’’ program.

I especially want to commend you, Chairman Johnson and Representative Stark, as

well as the other members of Subcommittee, for your leadership and dedication to

improving the Medicare program. Your demonstrated commitment to the best interests of our nation’s seniors and disabled is laudable, and I applaud the bipartisan

manner in which you have approached modernizing Medicare’s management. In particular, I appreciate your introduction of the bipartisan Medicare Regulatory and

Contracting Reform Act of 2001 (H.R. 2768), which is intended to streamline the

Medicare program. This Subcommittee has clearly dedicated a great deal of thought

13

and energy toward these issues, and this bill represents a good first step toward

improving Medicare and reforming the way Medicare contracts with entities to process and pay claims. I look forward to continuing to work with you to achieve this

critical goal. As we discuss legislative efforts to improve Medicare, I also appreciate

the chance to discuss the aggressive administrative actions that we have already

begun taking to improve the program. As we work to reduce Medicare’s regulatory

and paperwork burden and further improve our provider education efforts, we look

forward to our continued partnership with Congress and the physician and provider

community.

BACKGROUND

This year, Medicare will pay approximately $240 billion for the health care of

nearly 40 million beneficiaries, involving nearly one billion Medicare claims from

more than one million physicians, hospitals, and other health care providers. CMS

strives to ensure that Medicare pays only for the services allowed by law, while

making it as easy as possible for qualified health care providers to treat Medicare

beneficiaries. We have to carefully balance the impact of Medicare’s laws and regulations on physicians and other providers with our accountability for billions of dollars of Medicare payments.

Medicare’s requirements, as outlined in the law, generate many of the concerns

that our constituents bring to your attention and to mine. Of course, there is a genuine need for clear rules in a program this large and complex. But rules should exist

to help, not hinder, our efforts to assist seniors and the disabled, help control costs,

and ensure quality, while remaining consistent with our obligation and commitment

to prevent fraud and error. When regulations, mandates, and paperwork unnecessarily hinder the services providers are trying to give, those rules should be

changed. And so I am working with the Secretary to reform the way Medicare

works, making it simpler and easier for everyone involved. We are listening closely

to Americans’ concerns and learning how we can do a better job of meeting patients’

and providers’ needs to serve beneficiaries in the best way we can. In many areas,

we can be less intrusive to the providers who participate in Medicare and more responsive to the beneficiaries who depend on Medicare. Many of these changes can

be achieved administratively; however, there are other important areas, such as reforming Medicare’s contracting system, where we need your help.

REFORMING MEDICARE’S CONTRACTING SYSTEM

I am pleased that the Medicare Regulatory and Contracting Reform Act of 2001

includes provisions to improve Medicare’s outdated contracting requirements, which

make it more difficult for providers and beneficiaries to work effectively with the

Medicare program. In order to continue to manage the Medicare program efficiently

and effectively and to fully implement our business strategy, we must fundamentally change our relationship with the Medicare fee-for-service contractors. I firmly

believe that the Medicare fee-for-service contracting work should be awarded competitively to the best-qualified entities, using performance-based service contracts

that include appropriate payment methodologies. This is something that current law

does not allow.

I believe these contracts should result in contractors receiving returns that reflect

their relative performance. We must be able to maximize economies of scale and improve the level of service to our beneficiaries and providers. We are working cooperatively with our existing contractors to get to this goal, but these changes still require legislative action. I know you recognize this, too, and I want to work with this

Committee and the contractors, including the Blue Cross plans, who have been very

responsive to our requests for reform, to reach a consensus for a better contracting

system.

In June, we forwarded our contracting reform proposal to Congress. Through

these legislative changes, CMS hopes to accomplish the following:

• Provide flexibility to CMS and its contractors to work together more effectively and better adapt to changes in the Medicare Program.

• Promote competition for contractors, leading to more efficiency and greater

accountability.

• Establish better coordination and communication between CMS, contractors,

and providers.

• Provide CMS flexibility to negotiate contracts with incentives that reward

Medicare contractors that perform well.

These changes will enhance the Agency’s ability to more effectively manage claims

processing for the Medicare program in the future, and ensure that the future

changes to the Medicare program’s operating structure are free from unnecessary

14

constraints. The Medicare Regulatory and Contracting Reform Act of 2001 is designed to accomplish these same goals.

We are continuing to proceed with the implementation of our long-range business

strategy under our current authority. To capture the benefits of integrated data

processing, we have begun to consolidate our claims processing workload among our

existing contractors, and are moving to consolidate and standardize contractor

claims systems. Our goal is to have one system for intermediary claims, one for carrier claims, and one for durable medical equipment claims. And we will continue

to establish more direct control of our data centers, which should reduce costs and

improve efficiency. This consolidation will allow us to make changes efficiently and

consistently, and help streamline our information technology infrastructure. As we

implement this long-range plan, I look forward to continuing to work with you to

achieve this important legislative goal.

IMPROVING AGENCY RESPONSIVENESS

The other major elements of the Medicare Regulatory and Contracting Reform Act

of 2001, is to provide regulatory reforms to the Medicare program while ensuring

accurate and timely payments to providers and preserving our ability to collect overpayments and pursue fraud. I also share this goal of regulatory reform, and I believe changes in how we time the development and publication of regulations can

best be addressed through administrative flexibility. As I mentioned, we already are

taking aggressive steps to improve CMS’s responsiveness. In June, Secretary

Thompson announced that, as a first step in reforming the Medicare program, we

were changing the Agency’s name to the Centers for Medicare & Medicaid Services.

The name-change is only the beginning of our broader effort to raise the service

level of the Medicare program and bring a culture of responsiveness to the Agency.

These are not hollow words: creating a ‘‘culture of responsiveness’’ means ensuring

high-quality medical care for beneficiaries, improving communication with providers, beneficiaries and Congress, and redoubling our education efforts. To promote

improved responsiveness, the Agency is:

• Creating Open Door Policy Forums to interact directly with beneficiary

groups, plans, physicians, providers, and suppliers, to strengthen communication and information sharing between stakeholders and the Agency. I recently

designated senior CMS staff members as the principal points-of-contact for eight

‘‘Open Door Policy Forums,’’ including physicians, hospitals, rural health, nursing homes, health plans, nurses and allied health care professionals, home

health and hospice, and ESRD and dialysis centers. These open forums will facilitate information sharing and enhance communication between the Agency

and its partners and beneficiaries. I chair two of these forums, nursing home

and rural health, and they will focus on fixing obvious problems.

• Enhancing Outreach and Education to beneficiaries, providers, plans, and

practitioners, by building on the current educational system with a renewed

spirit of openness, mutual information sharing, and partnership. We will start

by educating seniors through a $30 million advertising campaign this fall to engage seniors in the program, combined with a massive enhancement of the 1– 800–MEDICARE number. The toll-free lines will be expanded to 24 hours a day,

seven days a week and the information available by phone will be enhanced,

so that beneficiaries can obtain specific information about the health plan

choices and costs. The Agency also is developing and improving training for

physicians and providers on new program requirements and payment system

changes, increasing the number of satellite broadcasts available to health care

industry groups, and making greater use of web-based information and learning

systems across the country.

• Establishing Key Contacts for the States at the regional and central office

level. Paralleling the senior staff contacts for industry and beneficiary groups,

these staff members are assigned to work directly with the Governors and top

State officials to help eliminate Agency obstacles in obtaining answers, feedback, and guidance. Each State now has one Medicaid staff member assigned

to their region, and another in Baltimore, both of whom are accountable for

each State’s specific issues. • Responding More Rapidly and Appropriately to Congress and External Partners by promptly responding to their inquiries. We are developing an intraAgency correspondence routing system, and timeliness standards, to respond

more efficiently and promptly to congressional inquiries. We also are also exploring ways to make data, information, and trend analyses more readily available to our partners and the public in a timely manner. In addition, CMS will

make explicit, and widely publicize, the requirements for obtaining data and

analyses from us, including protecting the confidentiality of the data.

15

EASING THE REGULATORY & PAPERWORK BURDEN

A culture of responsiveness alone will not alleviate the regulatory and related paperwork burdens that for too long have been associated with the Medicare program.

Thus, the Secretary has formed a new regulatory reform group to identify regulations that prevent hospitals, physicians, and other health care providers from serving Medicare beneficiaries in the most effective way possible. This group will determine what rules need to be better explained, what rules need to be streamlined, and

what rules need to be dropped altogether, without increasing costs or compromising

quality. To support this group, we have developed a program, focusing on listening

and learning, to get us on the right track. This methodical, sector-by-sector approach will enable us to administer our health care programs as effectively and efficiently as possible.

Under the first aspect of the plan, CMS will conduct public listening sessions

across the country. We want to hear directly from physicians and health care providers away from Washington, DC, and away from Baltimore—out in the areas

where real people live and work under the rules we produce and with people who

do not have easy access to policymakers to voice their legitimate concerns. Most of

you in Congress have these kinds of regular listening sessions with your constituents. We want to hear from local seniors, large and small providers, State workers,

and the people who deal with Medicare and Medicaid in the real world. We want

to get their input so we can run these programs in ways that make sense for real

Americans in everyday life. We hear from some of these people now, but we want

to get input from many, many more.

The second aspect of the plan, as I have already discussed, is to meet in open forums with the various health-sector representatives and beneficiary groups here in

Washington. These forums provide us with an opportunity to hear ideas about how

we can improve our interactions with physicians and providers and reduce regulatory complexity and burden. Regular input from providers can help to improve our

oversight and management of Medicare, so that health care professionals can spend

more time delivering the care for which they were trained, and so that beneficiaries

can spend more time with their doctors and other caregivers.

Like the physicians, providers, and beneficiaries who live and work with Medicare

every day, CMS staff have worked with managing the system for years, and they

too have suggestions about how Medicare can operate more simply and effectively.

So, the third aspect of our plan is to form a group of in-house experts from the wide

array of Medicare’s program areas. I have asked a full-time practicing emergency

room physician to chair this group and challenge our in-house experts to suggest

meaningful changes. We will ask them to think innovatively about new ways of

doing business, reducing administrative burdens, and simplifying our rules and regulations, without increasing costs or compromising quality. The complexity of the

program even makes it difficult for those of us who administer it to keep up. It is

difficult to educate beneficiaries, providers, and our business partners when there

is so much complex information to explain. This group of in-house experts will look

to develop ways that we can reduce burden, eliminate complexity, and make Medicare more ‘‘user-friendly’’ for everyone.

This will in no way diminish our interest in fighting waste, fraud, and error in

the Medicare program. The vast majority of physicians and other health care providers are honest and want only to be fairly reimbursed for the quality care they

provide. But for the small percentage of those who take advantage of the system,

we will continue our aggressive efforts to protect the funds that taxpayers have entrusted to our use. It is important that the provisions of this legislation remain consistent with our efforts against fraud, waste, and abuse.

These outreach efforts will allow us to hear from all types of people who deal with

our programs. We are going to listen and we are going to learn. But we also are

going to take action. I am committed to making common-sense changes and ensuring that the regulations governing our program not only make sense, but also are

plain and understandable. This will go a long ways in alleviating providers’ fears

and reducing the amount of paperwork that, in the past, has all too often been an

unnecessary burden on providers.

In addition to these efforts, we are taking concrete steps to streamline Medicare’s regulatory processes. We have developed a quarterly compendium of all changes to

Medicare that affect physicians, and other providers, to make it easier for them to

understand and comply with Medicare regulations and instructions. The compendium will be a useful document for predicting changes to Medicare’s instructions to

physicians and providers, and will contain a list of all regulations we expect to publish in the coming quarter, as well as the actual publication dates and page references to all regulations published in the previous quarter. By publishing changes

in the compendium, physicians and other providers will no longer be forced to sift

16

through pages and pages of the Federal Register—or pay someone to do it for

them—for proposed rules, regulations, and other changes that may affect them.

There will be more notice and predictability. The compendium will generally include

all program memoranda, manual changes, and any other instructions that could affect providers in any way. Additionally, we are moving towards the publication of

all our regulations once a month, barring statutory deadlines. This monthly publication, along with the quarterly compendium, will provide predictability and ensure

that physicians and other providers are fully aware of Medicare’s changes so they

have time to react before new requirements are placed on them.

We also are looking into developing a system of electronic rulemaking to make

the rulemaking process more efficient and to reduce the flow of paper between providers and CMS. Today, in an effort to make updated regulations more readily accessible, we routinely post them on our website, www.cms.gov.

These postings coincide with the display of these documents in the Federal Register and have been well received by providers and other interested parties. Over

the next six months, we will further explore the use of emerging technologies and

the electronic exchange of information, such as posting proposed rules and taking

comments on-line. We will work closely with beneficiaries, physicians, providers,

and plans, as well as with Congress and other parts of the executive branch, to better understand their needs as we move towards an electronic rulemaking environment.

IMPROVING PHYSICIAN AND PROVIDER EDUCATION

As part of our efforts to reinvigorate the Agency and bring a new sense of responsiveness to CMS, we are enhancing our provider education activities and improving

our contractors’ communications with physicians and providers. The Medicare program primarily relies on private sector contractors, who process and pay Medicare

claims, to educate physicians and providers and to communicate policy changes and

other helpful information to them. We have taken a number of steps to ensure the

educational information our contractors share with physicians and providers is consistent, unambiguous, timely, and accurate.

We recognize that the decentralized nature of our educational efforts has, in the

past, led to inconsistency in the contractors’ communications with physicians and

providers, and we have recently taken a number of steps to improve the process.

We have centralized our educational efforts in our Division of Provider Education

and Training, whose primary purpose is to educate and train the contractors and

the provider community regarding Medicare policies. We also are providing contractors with in-person instruction and a standardized training manual for them to use

in educating physicians and other providers. These programs help ensure consistency so that our contractors speak with one voice on national issues. For example,

in coordination with the Blue Cross/Blue Shield Association, we developed train-thetrainer sessions for implementing both the Hospital Outpatient and Home Health

Prospective Payment System regulations, which included a satellite broadcast that

was rebroadcast several times prior to the effective date of the regulation. Following

these sessions, we held weekly conference calls with regional offices and fiscal intermediaries to enable us to monitor progress in implementing these changes. We are

continuing to refine our training on an on-going basis by monitoring the training

sessions conducted by our contractors, and we will continue to work collaboratively

to find new ways of communicating with and getting feedback from physicians and

providers.

We also are working to improve the quality of our contractors’ customer service

to physicians and providers. Last year, our Medicare contractors received 24 million

telephone calls from physicians and providers, and it is imperative that the contractors provide correct and consistent answers. Now that we have toll-free answer-centers at all Medicare contractors, the need is even more pressing. We have performance standards, quality call monitoring procedures, and contractor guidelines in

place to ensure that contractors know what is expected and so that we can be satisfied that the contractors are reaching our expectations. This year, for the first time,

Medicare contractors’ physician and provider telephone customer service operations

are being reviewed against these standards and procedures separately from our review of their beneficiary customer service. During these weeklong contractor performance evaluation reviews, we identify areas that need improvement and best

practices that can be shared among our other Medicare physician and provider call

centers. As a result of the reviews, performance improvement plans will be instituted when needed, and CMS staff in our Regional Offices will continue to monitor

the specific contractor throughout the year.

We also want to know about the issues and misunderstandings that most affect

provider satisfaction with our call centers so that we can provide our customer servVerDate 11-MAY-2000 14:37 Dec 03, 2001 Jkt 076025 PO 00000 Frm 00020 Fmt 6633 Sfmt 6621 E:\HR\OC\A025.XXX pfrm01 PsN: A025
17

ice representatives with the information and guidance to make a difference. To improve our responsiveness to the millions of phone calls our call centers handle each

year, we are collecting detailed information on call center operations, including frequently asked provider questions, the call centers’ use of technology, and the centers’ training needs. We will analyze this information so we can make improvements

to the call centers and share best practices among all our contractors. We also developed a new Customer Service Training Plan to bring uniformity to contractor training and improve the accuracy and consistency of the information that contractor

service representatives deliver over the phone. In addition, we are holding regular

meetings and monthly conference calls with contractor call center managers to ensure Medicare’s customer service practices are uniform in their look, feel, and quality.

Just as we are working with our contractors to improve their provider education

efforts, we also are working directly with physicians and other health care providers

to improve our own communications and ensure that CMS is responsive to their

needs. We are providing free information, educational courses, and other services,

through a variety of advanced technologies. We are:

• Expanding our Medicare provider education website, www.hcfa.gov/medlearn.

The Medicare Learning Network homepage, medlearn, provides timely, accurate, and relevant information about Medicare coverage and payment policies,

and serves as an efficient, convenient provider education tool. The MedLearn

website averages over 100,000 hits per month, with the Reference Guides, Frequently Asked Questions and Computer-Based Training pages having the greatest activity. I encourage you to take a look at the website and share this resource with your physician and provider constituents. We want to hear feedback

from you and from your constituents on its usefulness so we can strengthen its

value. In fact, physicians and providers can email their feedback directly to the

medlearn mailbox on the site.

• Providing free computer and web-based training courses to doctors, providers,

practice staff, and other interested individuals can access a growing number of

web-based training courses designed to improve their understanding of Medicare. Some courses focus on important administrative and coding issues, such

as how to check-in new Medicare patients or correctly complete Medicare claims

forms, while others explain Medicare’s coverage for home health care, women’s health services, and other benefits.

• Creating a more useful Agency website through a new website architecture

and tailoring it to be intuitive and useful to the physician user. We want the

information to be helpful to physicians and their office and billing needs. The

same design is being used in creating a manual of ‘‘Medicare Basics’’ for physicians. We just completed field-testing the first mock-ups for the project at the

recent American Medical Association House of Delegates meeting. Once this

new website is successfully implemented, we will move to organize similar web

navigation tools for other Medicare providers.

IMPROVING AND EXPANDING BENEFICIARY EDUCATION

As Medicare requirements frustrate plans, physicians, and providers, beneficiaries

also have difficulty understanding the program’s benefits and options. We know,

from our research and focus groups, that far too many Medicare beneficiaries have

a limited understanding of the Medicare program in general, as well as their

Medigap, Medicare Select, and Medicare+Choice options. We firmly believe that we

must improve and enhance existing outreach and education efforts so beneficiaries

understand their health care options. In addition, we will tailor our educational information so that it more accurately reflects the health care delivery systems and

choices available in beneficiaries’ local areas. We know that educating beneficiaries

and providing them more information is vital to improving health care and patient

outcomes.

With that goal in mind and in an effort to ensure that Medicare beneficiaries are

active and informed participants in their health care decisions, we will expand and

improve the existing Medicare & You educational efforts with a new advertising

campaign. We will launch a multimedia campaign using television, print, and other

media, to reach out and share information and educational resources to all Americans who rely on Medicare, their families, and their caregivers. We are also:

• Increasing the Capacity of Medicare’s Toll-Free Lines so that the new wave

of callers to 1–800–MEDICARE generated by the advertising campaign receives

comprehensive information about the health plan options that are available in

their specific area. By October 1, 2001, the operating hours of the toll-free lines

will be expanded and made available to callers 24 hours a day, seven days a

18

week. The information available by phone also will be significantly enhanced,

so specific information about the health plan choices available to beneficiaries

in their state, county, city, or town, can be obtained and questions about specific

options, as well as costs associated with those options, can be answered. Call

center representatives will be able to help callers walk through their health

plan choices step-by-step and obtain immediate information about the choices

that best meet the beneficiary’s needs. For example, a caller from New Britain,

Connecticut could call 1–800–MEDICARE and discuss specific Medigap options

in Connecticut. Likewise, a caller from Fremont, California, could call and get

options and costs for Medigap or Medicare+Choice alternatives in their areas.

If requested, the call centers will follow up by mailing a copy of the information

discussed after the call.

• Improving Internet Access to Comparative Information and providing a new

decision making tool on the Agency’s award winning website,

www.medicare.gov. These enhanced electronic learning tools will allow visitors,

including seniors, family members, and caregivers, to compare benefits, costs,

options, and provider quality information. This expanded information is similar

to comparative information already available, such as Nursing Home Compare

and ESRD Compare websites. With these new tools, beneficiaries will be able

to narrow down by zip code the Medicare+Choice plan options that are available

in their area based on characteristics that are most important to them, such as

out-of-pocket costs, whether beneficiaries can go out of network, and extra benefits. They also will be able to compare the direct out-of-pocket costs between all

their health insurance options and get more detailed information on the plans

that most appropriately fit their needs. In addition, the Agency will provide

similar State-based comparative information on Medigap options and costs.

CONCLUSION

Physicians and other providers play a crucial role in caring for Medicare beneficiaries, and their concerns regarding the program’s regulatory and paperwork burden must be addressed. We share these concerns. We have already taken some critical first steps to address these concerns and bring openness and responsiveness

into the process. We also must make certain that regulatory changes and requirements are sensible and predictable. I want to commend the efforts of this Subcommittee in developing the Medicare Regulatory and Contracting Reform Act of

2001. This legislation represents a good first step in improving Medicare and reforming Medicare’s contracting system. We look forward to continuing to work with

Congress and we will continue to seek input from the health care community, our

beneficiaries, and partners in reaching our goals. I appreciate the opportunity to discuss these issues with you today, and I am happy to answer your questions.

Chairman J

I appreciate your concern about the 30-day no-enforcement polOHNSON. Thank you very much, Tom.

f icy. Unfortunately, we are the prisoner of our own past, and the

past has seen extraordinarily complex regulatory provisions coming

down very, very frequently, with very unclear information.

I was very interested in the GAO’s testimony that looked at how

much paper flowed into various practices, and only 12 percent of

the paper is from Medicare, but it is so unclear that the providers

have to rely on others to interpret it.

So while one could say that they could ignore 88 percent of the

paper, they cannot, because the directives coming down are so unclear. So I am very pleased that you are moving ahead on some of

the things you talked about at the very beginning, putting regulations out at a set time, and the task forces. Through those means,

I think we can improve the clarity of the directives to the point

where there will not have to be so many industries that spend their

time clarifying and interpreting the directives.

But the 30-day delay in enforcement is specifically related to the

lack of clarity in the directives and the massive numbers that are

19

coming down and the situation of particularly small providers in

trying to integrate that material.

So I would be happy to talk about this with you and your staff

further, but there is a very significant problem that is going to be

pretty clearly documented in the GAO testimony that we are trying

to respond to.

Mr. SCULLY. Well, I would hope that maybe we can come up with

some slightly higher standard for the first 30 days, but my concern

is that obviously, if everybody in the provider world knows—and as

I have said repeatedly, I think 98 percent of providers are trying

to be good partners to the program, but if the 2 percent who may

not be are aware that for the first 30 days after a program change,

there is not going to be any enforcement, it is a problem.

Chairman JOHNSON. I do appreciate that. Unfortunately, I think

we have been legislating to the small number who are bad actors,

and that, in my estimation in the long term, will have the effect

of killing off the small providers. So we will talk about that further.

I just want to ask you one more question and then I will move

on to the rest of the panel, because I am very pleased that we have

almost the full Subcommittee here.

We have really struggled with the issue of trying to help physicians deal with the normal audit process. Extrapolation has been

an issue, and there are many other aspects to the issue. But one

way in which our bill does not go far enough, in my estimation, in

reflecting upon this since we have written it, I just want to mention to you. That is, it requires that your auditor explain to the

physician his evaluation of the cases.

Not so long ago, I and Jim McDermott and some of the staff had

a conversation with some of your staff, and we were talking about

the difference between a Level 5 office visit and a Level 3 office

visit. The Level 5 office visit requires documentation of a comprehensive physical. The Level 3 office visit requires documentation

of a detailed physical. No one can clearly tell you the difference between those physicals.

So this is an underlying problem, and it is the kind of problem

that requires more than that the auditor just explain to the physician why he thinks their coding was off, or the mistake was there,

or whatever the problem is. It really requires that the physician

have some level of right of appeal at that point, because if the sample is wrong, the extrapolation is going to be very wrong, and ordinary practices simply cannot tolerate the alternative of a full review of everything. It closes down their office for a week, and so

on. It is very, very difficult to bear.

So particularly small practices in rural areas simply do not have

that choice. So I am looking at strengthening that provision in the

bill, and I have not talked with Pete about this yet, either, so I am

putting this before the whole Committee at the same time. But our

goal in requiring the auditor to explain his interpretation of the

chart to the physician was to allow the physician to then bring information. But the physician has to have the right to say before

some neutral body, ‘‘This is a Level 5. This is not a Level 3.’’ And

this issue of down-coding has been just as bad on both sides of the

issue—both the administrative people coming in and looking at

things with hindsight, and physicians coding inaccurately.

20

So I do want to strengthen that point because it is such an important point and has so many ramifications through the rest of

the system that I think physicians deserve more than simply an explanation of why they are wrong. They are sitting there saying,

‘‘Yes, but you are wrong.’’ So that sometimes, there is going to need

to be a right of appeal of that sample so the sample is agreed to

at some level.

That is just something that I am thinking about and wanted to

lay out to you, because I think this business of moving ahead without a good base of information is one reason why providers are getting terribly discouraged with the Medicare system.

Mr. SCULLY. I agree with you. It is a tough balance to find, and

we are certainly happy to sit down and try to fine-tune that provision. We have already spent a lot of time talking to your staff

about it.

Chairman JOHNSON. Yes. Pete, would you like to proceed?

Mr. STARK. I have just a couple of issues. The OIG is concerned

about giving up the right to conduct random prepayment reviews.

Do you share their concern?

Mr. SCULLY. I think that is tied closely to what Chairman Johnson is talking about. We agree that we need to have prepayment

reviews. I think the issue is really under what circumstances, and

what are the provider rights. But I think that giving up prepayment reviews altogether would be a mistake, yes.

Mr. STARK. OK. We have talked about major problems with the

information and assistance provided by the contractors, and I think

we will hear testimony about these monthly bulletins which are

close to undecipherable or hard to understand.

Do we have any reason to believe that the contractors are providing any more clear information to the beneficiaries? And as we

are looking at the information that is given to providers by these

contractors, would it be in order for you to review the information

given to beneficiaries, which might be equally complex and bureaucratic in its nature?

Mr. SCULLY. It is complex, and our stated goal is to get down to

20 to 22 good, solid contractors in 4 or 5 years that are reliable and

that are more predictable and are giving more common information

out. One of the goals there is to make sure that—— Mr. STARK. What I am talking about is that in the bulletins that

we are talking about, the providers are given so much information

about rule changes all the time, and the GAO is going to suggest

that all of this information is sent out in complex language, poorly

written. But we would anticipate that most providers can read

without moving their lips and get to 20 with their shoes and socks

on.

I think our experience has been that when you get to be my age,

you have to simplify the language some and spell it out in one-syllable or two-syllable words. So I guess my question is should we

not be looking at the clarity of information we are giving to our

beneficiaries that is provided by these intermediaries at the same

time that we are looking at the information given to the providers?

Mr. SCULLY. Yes, absolutely. I hope we are.

Mr. STARK. I hope so, too, and as I said, I hope that that does

not get lost in the process.

21

On 1–800–MEDICARE, you said that you want to enhance that.

We have 27 pages of phone numbers; is there any reason why we

cannot just use one phone number over the country and, worst case

scenario, have people type in their own phone number to get the

local one so they do not have to look through a bulletin to find the

right phone number?

Mr. SCULLY. Well, one of the goals of this whole fall campaign,

which has been delayed a couple of weeks, is to do exactly that— to have a 1–800–MEDICARE number where all seniors could call

that number. We have almost tripled the number of operators we

have; as I said, it is 24 hours a day, 7 days a week. The goal basically is that, whether you are in Oakland or in Connecticut or

wherever, you can call to get detailed information about your area

that you cannot get now on picking a nursing home, a dialysis center, Medigap versus Medicare+Choice versus fee-for-service—much

more credible localized information—and also, you can be referred

to the contractor. The 27 pages of phone numbers are generally the

carriers and the FI numbers, and if you want to be referred to one

of those, you can certainly be transferred through that line. But the

goal is—I think we get something like 35 million calls a year, so

I am not sure that it is going to replace the carrier and FI phone

systems, but the idea is to give one standardized access point for

seniors.

Mr. STARK. Do you have the money for that?

Mr. SCULLY. Yes, thank goodness. The appropriators were very

nice and gave us the money for that.

Mr. STARK. The National Association for Home Care is going to

talk to us later about the 15-percent reduction in home health payments now in the law. As I recall, we anticipated when we went

to the Prospective Payment System (PPS) that the level of services

would drop by at least 15 percent. And we are now hearing that

indeed that has happened, that they have reduced services under

the PPS perhaps even more than 15 percent.

So I guess my question is can we assume that the quality of care

has not been reduced and that indeed that 15-percent reduction in

services has occurred? Are you aware of that, or is that something

that you do not have information on?

Mr. SCULLY. I am sorry. I am a little under the weather. Did you

say home health, with PPS?

Mr. STARK. This is under home health care. We anticipated when

the PPS payment system was put into effect that their level of

services would drop by about 15 percent. We are informed that that

has happened. GAO has suggested that it has dropped by at least

15 percent and perhaps by even more.

My question is does that comport with your information, and as

far as you know, has the quality been maintained at the same time

this level of services has been reduced?

Mr. SCULLY. Yes, I think it has. In 1992, home health spending

was $3 billion; as you know, by 1997, it went up to $18 billion. Now

I think it is back at around $12 billion. We probably could have

done without that spike.

I think the home health PPS system has worked reasonably well.

There were obviously some significant bumps in the road. I think

the OASIS data we collect—while some people do not like all the

22

data that we require—is a very good quality measurement, and we

are hoping to use it to more effectively put together quality measurements on home health and have it do an even better job.

But I think the evidence that we have seen so far is that home

health quality has actually been pretty stable.

Mr. STARK. Insofar as you know, has the evidence supported

what GAO is telling us, that is, that the level of services or the

number of services has been reduced by about 15 percent?

Mr. SCULLY. I am not sure, but I am sure that is probably about

right.

Mr. STARK. Somebody is going to whisper in your ear.

Mr. SCULLY. We have not heard that number.

Mr. STARK. You have not?

Mr. SCULLY. Only from GAO.

Mr. STARK. OK. Well, I hope you look at it, because this is going

to be an issue in the sense that, arguably, if it has been reduced,

we can continue with present law, which calls for the 15-percent

reduction in the payments.

Mr. SCULLY. I think the 15-percent reduction in the payments,

if I remember correctly, is because of the way the baseline works.

The actual reduction in payments is 15 percent, but the actual

spending would still, even if you did that, go up. That is not to say

we should not get rid of the 15 percent, or implement or not implement the 15-percent reduction, but I believe the 15 percent reduction, even if you did it, you would still have a 2 or 3 percent increase in home health spending. It is a reduction in the rates, but

spending would still go up.

Mr. STARK. But it would still be interesting to know if the

amount of services went down or up, because under PPS, that

would of course be important to whether the amount we were paying was correct.

Mr. SCULLY. Yes.

Mr. STARK. Thank you.

Chairman JOHNSON. Mr. Camp.

Mr. CAMP. Thank you, Madam Chair.

Chairman JOHNSON. Excuse me. Before you start, if some of you

would like to go vote, and we will rotate, so we do not have to have

a break, that would be useful.

I will recognize Mr. Camp and then Ms. Thurman, and back to

this side, hopefully before the last of us go vote. Mr. Camp.

Mr. CAMP. Thank you.

Mr. Scully, when this legislation was introduced, the President

said that it reflected important elements of his framework for

Medicare legislation, which included simplifying Medicare’s regulations and administrative procedures and updating and streamlining them, and also trying to reduce the instances of fraud and

abuse.

My question is this. Obviously, we take the protection of the

Medicare program very seriously in this Committee. I think it is

one of the most important responsibilities you have as well. But as

it relates to the provider payment audit process, wouldn’t it be possible to protect program spending while at the same time creating

a more collaborative audit process, giving a greater opportunity for

23

providers to discuss findings and provide additional information

where conclusions are reached?

Mr. SCULLY. I think we are trying to find that balance where we

aggressively make sure that program payments are appropriate but

that we work more closely with providers so that they are not—I

think there has been a perception in the last couple of years that

they are all scared to death of the Medicare program—we need to

find that balance, and we are certainly trying to do that.

Mr. CAMP. I know that some of our witnesses that will come later

will discuss some issues, and the Chairman in her opening remarks

mentioned that GAO has found that of 60 phone calls recently

made to call centers to test the accuracy of responses to frequently

asked provider questions, 85 percent of the GAO responses were incomplete or inaccurate.

Obviously, you believe that this is unacceptable as well, and I

wonder how we can correct this.

Mr. SCULLY. Well, hopefully, one of the ways that we will correct

it is through contract reform. We have 51 contractors, fiscal intermediaries and carriers, and some are better than others. Right

now, we do not have the ability to narrow those down. We would

like to be able to identify the best, probably around 18 to 22 contractors, and work with them to have much better services.

I was in Kentucky yesterday, and I heard a lot of complaining

about their fiscal intermediary and carrier. I was in Arkansas 2

weeks ago, and they were relatively happy. So I can tell you that

the service with the contractors varies significantly by State and by

region, and we have very little ability to really fix that until we

have contract reform.

If we can find the ability to have contractors compete again every

4 to 5 years, which is what we are talking about in the bill, and

have the ability to incentivize contractors appropriately with financial incentives—right now, they are cost-based contracts—there are

a lot of carriers and FIs that are slowly getting out of the program

anyway. We would like to speed that up and narrow it down to 20

to 22 contractors, and right now, we have very little ability to make

sure that the guys who are screwing up 85 percent of the phone

calls are no longer in the program.

Mr. CAMP. I appreciate your efforts here, because obviously,

there have been problems with what was the Health Care Financing Administration (HCFA) and is now CMS for many years, and

I know that you are trying to step in and make some needed reforms and changes there, and I look forward to working with you

as we go through that process and appreciate the effort that you

are already putting forward on this. Thank you.

Mr. SCULLY. Thanks. Hopefully, I will come back without the flu

someday to testify and have better answers for you.

Mr. CAMP. Thank you. You are doing fine.

Chairman JOHNSON. Congresswoman Thurman.

Mrs. THURMAN. Mr. Scully, still on the same idea with Congressman Camp—because as you can imagine, we are hearing from our

districts about this very issue as far as the contracting part of it—

and particularly what I am hearing from my physicians is that this

is probably costing them 20 to 25 percent more in their offices to

24

keep up with all this stuff, which is obviously going to have a direct

impact on increases in health care costs.

Maybe you can clarify this or somebody can tell me why, but the

physicians have actually told me that they will have their staff call

their provider or contractor and say, ‘‘I do not know, because of all

the changes, and what you told me today is different than what

you tell me tomorrow on codings’’ or whatever. And they are saying, ‘‘So I will ask them, well, if it is 26(a), 26(b), whatever those

numbers are, in fact, they will say, ‘Well, we cannot tell you that.’ ’’ And then they will say, ‘‘Well, could you tell me if it is—’’ and

they will say, ‘‘Well, if you mention it, maybe we could tell you.’’ Why would that be?

Mr. SCULLY. I am sorry—if you mention it, then what?

Mrs. THURMAN. That if you mention the number or the coding, ‘‘maybe we could tell you,’’ but if you do not mention it, they just

do not give you any information.

Is there a reason for that?

Mr. SCULLY. I am not sure what the—I think your question is

if you call a provider—most providers are worried that if they give

the carrier detailed information, they will be flagged for additional

audits—is that what you are saying—so they cannot give them too

much information?

Mrs. THURMAN. They will not give them the information to help

them work through this. And as we know, over the last couple of

years, we have continued to change this whole system over and

over and over again, so what was today might not be tomorrow, so

they are getting frustrated because when they call these folks, they

are not willing to really help them through the system; they are

more like, ‘‘Well, it is not that, and it is not this,’’ but they will not

really say, ‘‘Based on the information that you are giving me, this

possibly will be what the model should be’’ or whatever.

Mr. SCULLY. Well, that is something we clearly need to fix, because there is no question that physicians—I spent 3 hours with

a physicians group in Louisville yesterday, and they were not real

happy with this process. So we need to find a way to get them

clear, straight answers. They might not always like the answers.

Generally, people do not like the answers unless you are allowing

them to bill more than they want. But I do think that providers

are entitled to clear, straight answers, and we need to keep pushing the contracts so they do that.

Mrs. THURMAN. The other thing that the contractors actually

mentioned to me was that over the last couple of years, because of

the changes, we have also had to reduce the amount of education

that has been done, both through bulletins—they used to do it once

a month; now they are doing it quarterly. They used to bring together providers and their office staffs, bring them in, walk

through the system, what the new issues are, what the changes

have been, and that they have been dramatically cut in those areas

because of some of the things that we have done.

Can you respond to that at all?

Mr. SCULLY. I do not think they have been—I am not sure of the

numbers—the carriers actually asked us for $47 million last year,

and I think we gave them $42 million. Could they have used more

for beneficiary education? Sure. I think that overall, when you are

25

looking at a $240 billion program—and I think our administrative

budget is about $2.3 billion, and the contractor budget is about $1.5

billion—it is run on a pretty thin budget, so it is understandable

sometimes, with the volume of claims we have, that not everybody

is happy with the services.

But on the provider education side—and I will have to check— but I think the amount of money they asked for last year was relatively close to what they got.

Mrs. THURMAN. The other issue on competitive bidding—and I

know that GAO and others have talked about that as being something that we needed to do—but on the other side of that, is there

a way to develop a system where we can review and look at what

the provider or a contractor is doing versus just upsetting the

whole system, based on the amount of claims that they have?

My guess is that their infrastructure, what they put in place to

help, has got to be an enormous cost, and if we start switching

around just because, or we go through the bidding process—is

there another way that you might suggest that we could do that?

And then I have just one other question that I need an answer

to, because I am going to be doing some town hall meetings on Friday on the TriCare for Life issue with our veterans. They have

been raising the question to me—and I do not know if you will

have the opportunity to do this or not—for many people who particularly have gone through the Veteran’s Administration (VA) system, they have never signed up for Medicare, there is a penalty for

them not being in Medicare. I was told that there potentially was

a waiver, and are we looking at this, and are we potentially looking

at giving these folks who would have been in VA did not take

Medicare, a waiver of the penalty that they would have been given

if they were to go into the Medicare Program now?

Mr. SCULLY. I was not aware of that. I have talked a lot with

the American Legion lately about VA subvention, which is obviously billing the Medicare program for services in VA hospitals.

But I have not heard anything about the waiver, to be honest with

you. I would be happy to look into it before Friday and call your

staff with an answer.

Mrs. THURMAN. I would appreciate it, because this is becoming

a big issue for those veterans who just never signed up for Medicare because they were always in the VA system; and of course,

with the VA system, part of it was to bring closer to their homes.

So they are very concerned about this.

Mr. SCULLY. I will get you an answer today.

Chairman JOHNSON. If the gentlelady will yield, Ben Cardin has

a bill to this effect. We have just had it analyzed by the Congressional Budget Office (CBO), and we will try to make sure that option is available to our veterans.

Mrs. THURMAN. I would appreciate it. Thank you.

Chairman JOHNSON. I am going to turn the chair over now to Mr.

McCrery, but let me just make one comment in response to the dialog that has gone on with the two preceding questioners.

One of the recommendations in the Medicare Education and Regulatory Fairness Act driven by providers was that they wanted a

written response to questions. This does reflect not only their frustration and anger, but liability exposure to the fact that if they folVerDate 11-MAY-2000 14:37 Dec 03, 2001 Jkt 076025 PO 00000 Frm 00029 Fmt 6633 Sfmt 6602 E:\HR\OC\A025.XXX pfrm01 PsN: A025
26

low directions that they are given, and they are not in writing, and

later, the government comes in and says, ‘‘Oh, no, those were not

the right answers, so you are liable, and you have penalties.’’ We

did not put the written response requirement in our proposal, but

you should know that it is hanging out there very hard, and if we

do not do a lot to improve our ability to offer concrete, specific, and

true answers, we will sometime have to get to that.

I appreciate the load that it would place on the contractors, and

therefore we backed off from it. I think the simplification task

forces that you have got going—and I really commend you in your

testimony for all the things that you are doing to drive the system

toward a new opportunity to serve in a more collaborative way with

the providers—are all important. But that demand for a written response came from a very, very broad body of experience and is a

very intense desire. So it is not in this bill, but we should never

forget that it is hanging out there.

I am going to turn the gavel over to Mr. McCrery and go vote.

Thank you.

Mr. MCCRERY. [Presiding.] Well, Mr. Scully, I understand that

you are under the weather, and you have my sympathies, so I will

try to be easy on you. You also have my sympathies for being in

the position that you are in—although, having said that, I am very

pleased that someone of your character and capability and experience has agreed to take on this job. It is a job that nobody should

have, in my opinion—which leads me to my first question.

While I am cosponsoring this legislation, and I am all for regulatory reform, couldn’t we negate the need for this if we went to

a premium support system for Medicare that was proposed by the

Medicare Commission, voted a majority vote by the Medicare Commission, and is embodied in legislation in the Senate in the form

of Breaux-Frist? Couldn’t we avoid a lot of this rancor about who

pays what, when, where, and all that?

Mr. SCULLY. Yes, I think you probably could. As you know, philosophically, not just me, but I think the administration’s general

view is that Medicare is a wonderful program, and seniors love it,

but having the government fix prices for $240 billion in payments

a year and having us do it the way we do it is probably not as efficient as having us buy insurance and operate more like the Federal

Employees Health Benefits Plan. Philosophically, some day, we

would like to be there, but as it is now, I just try to be the best

price-fixer I can.

Mr. MCCRERY. And I appreciate that. We are not there, and it

does not appear that we are going to get there very soon, so in the

meantime, we have to concern ourselves with these kinds of questions that we are dealing with in the hearing today—and for that,

you do have my sympathy, but I do appreciate your willingness to

take this on.

There has been a lot of discussion about the audit process. I do

think it is a necessary evil. Our providers, particularly physicians,

do not like it. They do not think it is fair. They have to hire extra

people to staff their offices to try to deal with these things. And

frankly, a lot of them yearn for a day when they do not have to

practice, and they do not have to put up with all that, because of

HCFA or CMS and these kinds of concerns.

27

I know that you, like this Committee, are very concerned about

the financial integrity of Medicare, and I think most physicians are

concerned about the financial integrity of Medicare. However, there

has got to be a better way than this combative process that we engage in.

Have you looked at and would you provide us information on any

changes to that process that you think could make life better for

the providers in the system, some kind of collaborative process that

would involve them more at the initial stages so they do not have

to go to the hearing level and all that?

Mr. SCULLY. I think one thing that would help—and it is in your

bill, and it was in our proposal—is to have a Medicare ombudsman.

One of the frustrations that people have is that they are calling,

trying to find out what coding problems they have, what legal problems they have, and what compliance problems they have, and usually, they have to hire some lawyer like me and pay him ‘‘x’’ dollars

an hour to give them legal advice. I think that is frustrating.

So I think that one thing we could do is create a Medicare ombudsman as a provision of this bill to do that so that providers who

have problems can call and get an answer from somebody who is

working closely with the Department but is not employed by the

Department and have kind of a third party information system on

legal and compliance issues. I think one of the great frustrations

that physician practice groups have is the expense for small practice groups of having compliance programs. I actually think that

most physicians are relatively—I will not say happy—but the Resource Based Relative Value Scale (RBRVS) system works significantly better, I think, than a lot of the other reimbursement systems in Medicare. I think the hassle factor is what drives physicians crazy, and I think that getting straighter, quicker, better answers that they can rely on, because they are usually not big practices that have significant ability to pay legal fees, would be a good

step forward.

Mr. MCCRERY. I appreciate the concept of the ombudsman, and

I hope that they get better answers than they do from calling the

contractors. The GAO is going to testify in a few minutes that they

made 60 phone calls to contractor call centers, and 85 percent of

the responses that GAO received were either incomplete or inaccurate. So I hope we can find a system that is a little better at providing accurate information.

Mr. SCULLY. That is a stunning number, and we can certainly

improve and have to improve on that.

Mr. MCCRERY. Yes.

I have just one more question, and then I know Mr. McDermott

wants to inquire. In the bill that is before the Committee, we require CMS to competitively bid for contractors and intermediaries

at least every 4 years; whereas in Secretary Thompson’s draft reform proposal, he would have allowed renewal of contracts of those

entities which met or exceeded certain performance requirements.

Both of those provisions go to the same goal of improved service

for the customers. Have you thought about which way is better? Do

you have some thoughts on that you can share with us?

Mr. SCULLY. The Federal Acquisition Regulation for other Federal contracting I think has competitive bidding every 5 years. I

28

think 4 or 5 years, either one—we are somewhat flexible on that.

I think the real issue is that we would like to have the flexibility

that we can identify good contractors that we do not want to rebid.

There are some carriers, some FIs, that have a long, good track

record; they have a great track record. In some rural States, for example, there are some carriers who probably are not going to

change. For instance, Blue Cross of Montana is probably going to

be the carrier in Montana most likely. There may not be too many

others there. Rather than have us, staff-wise, spend an enormous

amount of time rebidding contracts and going through the process,

which is a long, lengthy process, I think we would like to have the

flexibility or the presumption that we have to rebid every 4 or 5

years, but have the flexibility with some high standard of service

to not have to rebid certain contracts, because it is time-consuming.

We are hoping to get it down, but if you start with 51 or even 30,

rebidding one-quarter of those every year is obviously more than

cumbersome for the staff. So I think that some people intuitively

probably do not need to be recontracted.

Mr. MCCRERY. So you would recommend that we change the legislation to give CMS the flexibility to renew contracts if the intermediary or contractor has reached a high level of performance

standards or——

Mr. SCULLY. Yes—they show sustained excellent performance,

and there is no—under some circumstances, we may not want to

recontract every time.

Mr. MCCRERY. Thank you. I hope you get well soon.

Mr. SCULLY. Thanks.

Mr. MCCRERY. Mr. McDermott.

Mr. MCDERMOTT. Thank you, Mr. Chairman. When you start

your renal task force, give me a call.

Mr. SCULLY. Which one?

Mr. MCDERMOTT. The renal task force to talk about renal dialysis.

Mr. SCULLY. I think actually, it has already started; but we

would be happy to get you involved.

Mr. MCDERMOTT. I would like to know about it.

Mr. SCULLY. I think the first meeting was about 2 weeks ago.

Mr. MCDERMOTT. Listening to Mr. McCrery made me think—I

think it was Yogi Berra who was sent in to replace somebody who

had made a bunch of fielding errors, and he immediately made another error and when asked about it, said, ‘‘Well, the last guy in

here messed this position up so bad there is no way you can play

it right.’’ I suspect that may be the position that you are in.

But I find myself—and others may have already asked this question; one problem with getting it broken up this way is that you

do not know what was asked before—I find it very hard to find the

equity. And I think we always struggle for equity. I do not usually

push the American Medical Association’s side of anything, but the

equity issue around extracting a payment after you have had the

contractor review and having extended periods—I think with the

Administrative Law Judge (ALJ), more than a year is the average

time it takes; and then, more than 2 more years on the Departmental reviews—to make somebody pay up front when more than

29

60 percent are rejected in the end means that they have had their

money out there for 3 years, and then they get it back.

The weight is all on the physician, and I am not sure that is fair.

I think it ought to be the other way, and I would like to hear you

talk about the equity of the provider.

Mr. SCULLY. I generally agree with you. I hope we can fix that

in the bill. I have had a lot of discussions with staff, and I think

there are some changes in the bill on that.

My view is that it should be more like the IRS, that is, if you

lose, you pay interest. But there is no reason for us to have money

up front and then people have to wait for 3 years. I think there

is some version of that in the bill—— Mr. MCDERMOTT. Is that in this particular—— Mr. SCULLY. Yes, I think it is—yes, for the first level of appeal,

anyway. I would be happy to talk to you about it more, but to the

first level of appeal, you do not have to put the money up in the

bill. That is one of the changes in the bill. So at least for your first

level of appeal, you have the ability not to pay, and if you lose, you

pay with interest, which is more like the IRS provision for taxes.

Mr. MCDERMOTT. Why don’t you wait until the end of the appeals process and make it appeals plus interest—well, your penalty

plus interest at the end?

Mr. SCULLY. If you do not prevail, yes.

Mr. MCDERMOTT. All the way to the end, not—when do you have

to pay them?

Mr. SCULLY. At the end of the first appeal, if you lose, you have

to pay with interest—the first-level appeal.

Mr. MCDERMOTT. That is inside the company that just put you

on notice in their audit anyway; right?

Mr. SCULLY. That is right. I am sorry. I was going to read all of

this last night, but I was not feeling up to it.

Mr. MCDERMOTT. OK, I will give you some slack.

Mr. SCULLY. The concern was—and to be honest with you, I kind

of agree with you; I think this is significantly better than current

law—the concern was the incentives for people—this is more, I

think, from the IG and the Justice Department and our own lawyers—that people would have an incentive to string out the appeals

and wait and wait and wait and appeal and appeal and appeal, as

opposed to getting a decision at the first level. But I agree with

you—I think this is the first step. As it is right now, you pay up

front, and you do not get the money back until you win the appeal.

So I think this is half-a-fix, from your point of view.

Mr. MCDERMOTT. So you are not against fixing it more by pushing it one more level?

Mr. SCULLY. Well, as you know, I do not get to set all the administration’s policies. We have discussed this, and this is what we

came up with in the administration. There is a lot of concern about

creating extra incentives for extended appeals, and I share your

view that in certain cases, it is not appropriate for us to have the

provider pay, and then we keep their money while they appeal.

Mr. MCDERMOTT. I do not have any problem going after corrupt

physicians. That is not the problem. The problem is that when we

throw this net, it is clear that we catch far more fish than really—

there is a lot of ‘‘by-catch’’ as we say in the Northwest—it is not

30

the ones you really want. And those people get hurt badly by having to come up with a cash amount. They have got to go out and

borrow it in most cases and then continue fighting the appeal.

So it seems to me that we should move it back further, and I

hope we can have an amendment to that point.

Mr. SCULLY. I think the bulk of those appeals, just looking at the

numbers—5.7 million claims out of 6.7 million claims at that first

level. I am not saying it is a perfect fix, but the bulk of the appeals,

or a significant number of the appeals are resolved at the first

level, and unlike today, they would not have put the money up

front. So I think it will be of significant help.

Mr. MCDERMOTT. But not as much as we—— Mr. SCULLY. Not as much as your idea.

Mr. MCDERMOTT. OK. The other thing is the whole business of

extrapolation. Explain to me why you think extrapolation is a good

way to go.

Mr. SCULLY. When I was on the provider side until 4 months ago,

I thought extrapolation was terrible. Then I came to the agency

and talked to the people on the program integrity side about why

they do it, and now I think there are two sides to it.

I think providers are angry that they get extrapolation and then

get action taken based on that. Our program integrity folks’ attitude is that we only check 1.5 percent of all claims, and then we

have no idea what is going on for the other 98.5 percent of claims,

and that the only way to really identify trends is extrapolation, and

that since we check so few claims, you do not have any choice but

to use extrapolations. I think there are arguments on both sides.

Now that I have been inside the agency, I understand why they do

it; I also understand why it drives providers crazy.

Mr. MCCRERY. Mr. Crane.

Mr. CRANE. Thank you, Mr. Chairman.

First of all, Mr. Scully, I want to congratulate you for your participation in our health care conference at Northwestern Medical

School; I had nothing but compliments about your presentation. We

were grateful that you were able to be there with us.

Back when this bill was introduced in early August, the President issued a statement saying that the legislation was an important step toward strengthening Medicare for seniors and for future

retirees and that it reflects important elements of his framework

of Medicare legislation.

I would like to ask you specifically—President Bush’s principles

for Medicare reform state that Medicare regulations and administrative procedures should be updated and streamlined, while the

instances of fraud and abuse should be reduced.

How would you intend to try to implement the principles of

President Bush’s proposal?

Mr. SCULLY. I think we have done a lot already. I was in the hospital business until 4 months ago, and I was one of the angry providers, or represented angry providers, and I think we have tried

in the agencies as much as we can—I think I told you this before,

that when Secretary Thompson came to Washington, he was one of

the great HCFA-haters of all time; as Governor of Wisconsin, he

had had a lot of frustrating experience with Medicaid waivers, so

he was not a big fan of the agency. Once he spent a week in BaltiVerDate 11-MAY-2000 14:37 Dec 03, 2001 Jkt 076025 PO 00000 Frm 00034 Fmt 6633 Sfmt 6602 E:\HR\OC\A025.XXX pfrm01 PsN: A025
31

more learning more about the agency, he realized as I have that

there are a lot of very smart, hardworking people up there. But for

the most part, largely because they get pounded by providers, Congress, and lots of other people, they were pretty defensive and pretty insular.

So I have really tried to get people at the agency to go out and

talk to the industries that they regulate and that they pay and try

to understand them better. These eight working groups are a piece

of that effort to try to get people to deal with home health agencies

and talk more with the home health agencies; to get the people

who regulate hospitals to actually spend some time in hospitals, because it is easy to get stuck in Baltimore and not do that. As much

as I possibly can, I have been driving people to the agency to understand the parts of the health care system they regulate better,

and so far, they have been pretty responsive. I do not think that

will fix all the problems, but I think better communication will

solve about 90 percent of the problem.

I had a great relationship when I was in the hospital field with

the HCFA hospital staff because I went up there a couple times a

week and got to know them all, and I kind of broke the code. The

average Chicago hospital administrator has a tougher time doing

that. So I am trying to get the regional offices, the Baltimore people and the Washington people to make a bigger effort to go out

and understand the people they regulate, and so far, we have not

fixed everything yet, but I hope the people in the provider community feel like we have made a big effort to turn that relationship

around.

Mr. CRANE. Thank you, and we look forward to working with

you.

Mr. MCCRERY. Mr. Kleczka.

Mr. KLECZKA. Thank you, Mr. Chairman.

Mr. Scully, I have a couple of quick questions. I believe that in

answer to Mr. McCrery, you indicated your support for the provider

ombudsman contained in the bill.

Mr. SCULLY. Yes, sir.

Mr. KLECZKA. And briefly, restate for me what you believe the

functions of this person will be within the agency.

Mr. SCULLY. I think the basic idea is that they be kind of a quasi

member of the agency. There are a number of ways that you could

do it. I think the most likely way is for the agency to contract out

with someone in the National Association of Health Lawyers or

some party that would be closely connected with the agency and

would have a lot of information about the agency’s regulations and

compliance efforts, but independent.

Mr. KLECZKA. So you do not view this person as an employee of

CMA?

Mr. SCULLY. It could be an employee, it could be a contractor. My

personal preference would be to hire somebody like the National

Health Lawyers Association on contract, because what you do not

want people to do is call from Wisconsin, ask opinions, and feel

bound by—it could be an employee of the agency as long as it is

clear to the person calling and asking for the guidance that no one

is going to launch an enforcement action based on that phone call.

32

Mr. KLECZKA. I would think they would have to be an employee

of the agency if they are going to have access to certain information

that would respond directly to an inquiry from, say, a hospital or

a doctor’s office.

Along that same vein, what is your position on providing for a

patient’s ombudsman or ombudsperson?

Mr. SCULLY. I would be all for it. I do not think it is in this

bill——

Mr. KLECZKA. No.

Mr. SCULLY. But I think that better communication with beneficiaries and providers is important. I am not sure—I cannot say

that for the administration.

Mr. KLECZKA. Perhaps between now and markup, Madam Chair,

we could possibly explore that. It was in legislation last year, I

think, the drug legislation, and if we are going to provide sort of

a quarterback, someone to run interference for providers, with 30

million-plus beneficiaries, maybe a person helping them a little bit

might be in order.

Thank you very much, Mr. Scully.

Chairman JOHNSON. [Presiding.] Mr. Ramstad.

Mr. RAMSTAD. Thank you, Madam Chair, and thank you for your

leadership.

Mr. Scully, I join my colleagues in expressing our gratitude that

a person of your caliber is in this important position and appreciate

working with you.

Let me just say that in my meetings with health care providers

back home in Minnesota, every time I meet with them, I hear

about the crushing paperwork burden they face. It was certainly

brought home to me very vividly recently when I went to a skilled

nursing facility, and they told me they had just hired two registered nurses to do nothing but paperwork.

Obviously, we cannot afford to divert those kinds of resources

from care for the sick, so we need these reforms, and I appreciate

my colleagues on both sides of the aisle working in a bipartisan

way to craft this legislation.

One glaring concern that I have concerns local coverage flexibility, something that we have discussed before. According to a recent study with which I am sure you are familiar—and virtually

every health care provider and Medicare beneficiary I speak with—

the local coverage process is absolutely vital to Medicare’s continued quality improvement because the local process is the way that

patients can best gain access to the many innovative technologies

that otherwise would encounter incredible coverage delays at the

national or CMS level. We have all seen too many examples of

those unconscionable delays in the past.

One example cited in this recent study, ‘‘Breakthrough Technology in Women’s Health,’’ which is used to diagnose

osteoporosis—it took Medicare over 7 years—this is obviously before you came aboard—but it took Medicare over 7 years to cover

this technology at the national level. But because many local Medicare contractors approved local coverage during that time, most

women were able to gain access to the technology who otherwise

would not have been able to receive it.

33

These unconscionable delays cannot stand. My question is this,

Mr. Scully. If contractors are regionalized and consolidated, how

can you assure us that you will maintain the necessary flexibility

at the local level to allow new procedures and new technologies to

be available as they are currently in selected localities? I am really

concerned about this if we nationalize it.

Mr. SCULLY. Hopefully, it will be better. If you took the 51 contracts that we have now in Part A and Part B and consolidated

them into a combined A and B contract, you would have about 30.

And we are talking about going from 30 to probably 20 or 22, somewhere in that range.

So our goal is to find the best contractors and the best partners

who are going to provide the best services and make good, sound,

rational, well-thought-out local coverage decisions, among many

other things.

So I would guess that the localized trends and coverage decisions

would not change that much. You would have 20 contractors,

roughly, instead of 30 making those decisions. And I think that

probably 75 percent of coverage decisions are made locally, and

about 25 percent are made nationally, and I think that kind of

flexibility is a good idea and is likely to remain.

Mr. RAMSTAD. It is very reassuring that you plan to preserve the

local coverage decision process. From what I understand from talking to people in your office, it is about 75 percent—— Mr. SCULLY. I hope the national coverage process is getting faster and better as well.

Mr. RAMSTAD. Well, certainly, Minnesotans appreciate the ability

to work with the local medical community, so this local flexibility,

I am glad to hear will continue, because if contractors are regionalized and consolidated, the fear is that it will become more nationalized, with less emphasis on local coverage decisions, which is absolutely imperative to get these breakthrough technologies especially

to Medicare beneficiaries.

I am sure you share the judgment that Medicare beneficiaries

should have the same access to medical technology, life-saving, lifeenhancing medical technology, that every other health care consumer has. Do you share that judgment?

Mr. SCULLY. Sure, absolutely. I think that in some cases, we are

faster than private insurers, and in some cases, we are slower; but

absolutely.

Mr. RAMSTAD. Thank you again, Mr. Scully. I appreciate working

with you and look forward to continuing that working relationship,

and I yield back.

Chairman JOHNSON. Mr. English.

Mr. ENGLISH. Thank you, Madam Chair.

Mr. Scully, since you have landed in the administration, you

have been a breath of fresh air at gale force, and we appreciate it.

As someone who used to be an internal auditor myself, I was

wondering if you could don your green eyeshade for a moment and

talk about some of the mechanics. Implicit in some of the things

you have said about awarding contracts more based on performance is a very strong system of performance measurement. Also

critical in addressing waste, fraud and abuse is a strong system of

auditing.

34

I wonder if you could comment on what improvements you anticipate in the audit process and specifically, do you anticipate that

audits could become more collaborative working with Medicare contractors. Specifically, do you think it is possible in audits to create

more opportunities for discussion, for exploration of findings, and

allowing providers to provide more information?

None of these ideas is new. They are embedded in generally accepted auditing standards. But too often in the past in your agency,

I do not get the sense that these kinds of approaches were tried.

Would you care to comment?

Mr. SCULLY. I certainly think we have to improve the interaction

between the providers and the auditors, and I think we can certainly work on doing that.

Getting back to your core question, though, about cost-based contractors, I think the fundamental change that you are going to see

in the program is that cost-based payment for anything, in my

opinion, does not work. It did not work for inpatient hospital payments in the early eighties, and we switched to Diagnosis Related

Groups. The 51 contractors that we have now are paid on cost. If

they cannot make a margin, they have no incentive to perform better, they are reimbursed for their costs, and I have never seen a

cost-based system that provides the right incentives.

So what we would like to do, basically, is give—theoretically, if

you are a Blue Cross plan, Blue Cross of Pennsylvania, right now,

you do not make any margin on your Medicare contracts. Now, the

reality is that people like it because they can shift the costs of some

of their systems and other things on the private side over, and they

are kind of a good building base for the rest of your insurance business. But you are theoretically not allowed to have any margin.

We believe pretty firmly that if we actually find 20 to 22 good

contractors and incentivize them appropriately and give them the

right incentives, and also give the providers the ability to rate

them, which we have talked about doing, give the hospitals and the

physicians the ability to come and give us feedback on who we compete the contracts with, that we will have good contractors who are

sensitive to the needs of the providers and who are obviously sensitive to the fraud and abuse issues, but also provide more aggressive and better services for us, because right now, their incentives

are minimal.

Mr. ENGLISH. Do you anticipate any changes—going back to the

other part of my question—do you anticipate any changes to make

the audit process more collaborative, more interactive, giving the

service providers an opportunity to respond to findings before they

are made public, and provide additional information to put the

audit findings into context?

Mr. SCULLY. I hope we are doing that more recently, and I spent

some time talking with our program integrity people about that,

and I believe the carriers and the FIs are doing that, and it sounds

from the tone of your question like we need to make a better effort.

But I thought we were heading in that direction and trying to

make it a more cooperative and not quite as adversarial a process.

Mr. ENGLISH. Very good. As my final line of inquiry, with your

emphasis on performance evaluation, how do you develop the performance standards that you use for that? You referenced the

35

standards in your testimony. What kind of process do you have,

and if it is more appropriate, I would welcome you providing a

written answer to the last part of that question rather than tie us

up here this morning.

Mr. SCULLY. I would be happy to provide you with a written answer, but I think there are some guidelines in the bill we set up

and our proposal for how we do evaluations, and a lot of it is

through feedback from the providers and ratings from the providers. That is certainly something that providers want.

Mr. ENGLISH. Very good. Thank you. Thank you, Madam Chair.

[The following was subsequently received:]

Centers for Medicare & Medicaid Services

Washington, DC 20201

Contractors currently are evaluated through a Contractor Performance Evaluation

(CPE) process, which evaluates their performance of specific responsibilities defined

in the Medicare contract, law, regulations, and general instructions. The CPE process is structured into five broad criteria: claims processing, customer service, payment safeguards, fiscal responsibility, and administrative activities. Each of these

criteria contains business functions that may be reviewed, such as medical review,

beneficiary and provider customer service, benefit integrity, and provider enrollment.

The law requires that we formulate criteria and standards to determine whether

contracts with fiscal intermediaries and carriers should be entered into, renewed,

or terminated. Additionally, the law requires us to publish the CPE criteria and

standards in the Federal Register. On September 7, 1994, in the Federal Register

we specified all standards that are mandated by law or court decision and have provided examples of others. Some mandated standards include paying 95 percent of

clean electronic claims within 14 to 30 days and 95 percent of clean paper claims

must be paid within 27 to 30 days; as well as writing review determinations at an

appropriate reading level.

In addition to the mandated standards, CMS expects contractors to meet performance requirements issued to them in program instructions or in connection with

their annual budgets. Examples of these are requirements to:

• respond to telephone inquiries within specified timeframes;

• conduct audits or specified percentages of cost reports from specified types of

providers;

• conduct quality monitoring of the telephone service provided by customer

service representatives;

• increase over the prior year the amount of automated medical review conducted; and

• issue bulletins/newsletters with program and billing information to providers

each quarter.

Medicare contractors perform a wide range of activities as part of each business

function, and CMS evaluates contractor performance on an annual basis. Additionally, other types of reviews are performed at contractors outside of CPE, including

reviews of contractors’ internal controls as required by the Federal Managers Financial Integrity Act, and reviews of financial operations in connection with the annual

Chief Financial Officer audit of CMS.

Chairman J

Mr. JOHNSON

OHNSON

of Texas. Thank you, ma

. Mr. Johnson.

f’am.

I would not call it a ‘‘gale force’’; that is what he called it. I have

not seen that coming out of your agency. All I have seen is a name

change, which I cannot remember to save my soul, so if I call you

‘‘HCFA,’’ please do not worry about it.

What I would like to know is what are you doing to help the people out there, because all I see is in Dallas, Texas, two of our proVerDate 11-MAY-2000 14:37 Dec 03, 2001 Jkt 076025 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 E:\HR\OC\A025.XXX pfrm01 PsN: A025
36

viders have stopped or say they are going to stop providing

Medicare+Choice.

So could you tell me what you are doing to stop that?

Mr. SCULLY. Well, I think I was about as aggressive as I could

be in stopping Medicare+Choice—too aggressive for some, since

I——

Mr. JOHNSON of Texas. We do not want you to stop it. We want

you to—— Mr. SCULLY. No, no—to stop the people dropping out.

Mr. JOHNSON of Texas. OK.

Mr. SCULLY. I have been a pretty strong advocate of

Medicare+Choice for a variety of reasons, including the fact that

demographics show that lower-income people like Medicare+Choice

because they have lower premiums and more drug coverage. So we

certainly want to keep as many people in as we possibly can. We

had about 5.6 million people in last year, and it will probably be

down to a little under 5.1 million for next year.

We moved the adjusted community rate filing date back, which

is the date for the plans for file, from July 1 to September 17,

which I was sued for, and we worked with the Gray Panthers and

the other plaintiffs and the court, and I think we have worked that

out. We are sending out additional mailings next month to educate

seniors. But we tried to give the plans more time to decide what

their finances were for last year. We tried to give them a better opportunity to make the financial decision whether they are going to

stay in or not; and to be honest with you, that led to the ad campaign and understanding that we are going to have to start educating seniors later, because of the later filing date. We thought we

had better bend over backward to give them a lot of information,

and that is largely where the idea for the ad campaign came from,

that if we were going to start September 17 instead of July 1 to

educate seniors, we had better give them a lot more information

about their program.

I think most of the health plans—I regret that there was one

that pulled out of Dallas—but I think I spoke with almost every

chief executive officer of a major plan in the country, and I personally pleaded with a bunch of them to stay in the hope that Congress would fix the program this year. I personally think and the

administration feels that the Medicare+Choice funding formula is

broken and is not working and that it is pure economics as to why

people are dropping out, and that if we do not fix it, a lot more people will drop out before next year. At many, many, many plans that

I talked to, the chief executive officers asked, ‘‘Do you think Congress is going to fix this, because I may stay in for one more year,’’

and in many cases, I pleaded with them to stay in——

Mr. JOHNSON of Texas. If we could do one thing to fix that, what

you think that should be?

Mr. SCULLY. I think that with the best intentions in 1997, the

urban and suburban areas were doing very well in

Medicare+Choice, and there was an effort to push money into the

rural areas, and largely what has happened is that you have had

3 years in a row of 2 percent—the payments in the Medicare+

Choice program have capped at 2 percent the last 3 years in a row,

and cost growth has been 10, 12 percent. So when you look at it,

37

it is pure economics—the plans have gotten squeezed out. They

have had to cut their drug benefits, raise their premiums, and the

numbers just do not work.

So I think we could revisit the formula. Some would argue you

should put more money back into the program. I think you could

put some money back into the program and revisit the formula,

and I can tell you the administration thinks that is a very top priority for this year, because we are down to a little over 13 percent

of people in the Medicare+Choice Program.

I cannot imagine that I could have been any more aggressive

than I was in trying to keep people in, so I regret that you lost

some providers in Texas, but I talked to a lot of providers, including a couple of Mrs. Johnson’s in Connecticut who dropped out as

well despite my effort, and I think we did everything we could to

send the signal to people that we were trying to make the program

flexible. We are very big fans of the program and would like to get

as many people back in as we can.

I think the people who are in for 2002 are probably in for 2002.

I think the most appropriate thing to do would probably be to put

some financing in and fix the formula for 2003.

Mr. JOHNSON of Texas. Thank you. I think part of the problem

also is the paperwork issue that was brought up here previously.

I just do not know how you can stop that.

Mr. SCULLY. In fairness, we made a number of changes that the

health plans complained about to reduce their paperwork burden.

I hope that if you ask them—— Mr. JOHNSON of Texas. What are you doing for the individual

doc? You were in the hospitals; you know what a problem they

have with paperwork.

Mr. SCULLY. Yes. Well, one thing we did—and again, it was not

universally popular—we had a major risk adjustment collection

mechanism—physicians do not always love managed care, but the

one thing they like about it is they generally do not have to provide

a lot of very detailed billing information.

Mr. JOHNSON of Texas. Have you stopped changing the Codes

every month?

Mr. SCULLY. Yes. We suspended the physician requirement for

risk adjustment for one year; if we do not find a better one, we are

going to reinstate it next year. A lot of the things that the managed

care plans and the physicians in managed care plans asked for, we

did, to try to make their lives simpler this fall. I cannot think of

too many stones I left unturned that I could do without getting

sued, and I did get sued, although we worked that out in a reasonable way. But I think we are pretty aggressive in trying to keep

people in the plans.

Mr. JOHNSON of Texas. Thank you, sir.

Chairman JOHNSON. I would rather not let your statement about

203 lie, because many of the plans are telling us that they will stay

in for next year if, before December 31, it is clear to them what

the terms will be, and if there are more realistic levels of reimbursement and some greater regulatory relief.

The whole goal of changing the date—and this Committee is

eventually going to have to deal with this—you cannot make people

make business decisions when they have no idea what they are

38

going to be paid for their product. And the whole system of the

plans saying whether they are going to be in or out and at what

price has to be better aligned with our appropriations process.

So one of the ways we got into this trouble was that they decided

to stay in, thinking that we were going to help them at a higher

level than 2 percent—even last year, this Committee recommended

4 percent, and in the end, it was pulled down to 3 percent, and so

on and so forth. So you cannot have people trying to make economic decisions about products in the market when they do not

know what they are going to get paid. We need to realign that

whole system of provider bidding and consumer education so seniors can have a good chance to know what their choices are, but

we maximize the continuity and stability of the program by putting

the choices out there once people know what the Congress and the

administration have done to address their problems.

In closing off, let me say thank you very much for being here,

Tom. I know you do not feel very well today, and I appreciate your

staying true to your commitment under really adverse circumstances to be with us.

I want to conclude by reading a small passage from the testimony by the American College of Physicians and the American College of Internal Medicine, because I want your staff to look at this

before we get through this process, because I know Jim McDermott

raised some issues here, and we just have to take more seriously

the crisis that we are creating in physician offices.

This testimony says: ‘‘In internist carefully reviewed the 1997

guidelines and calculated the number of decisions that a physician

must make before selecting a level of Evaluation and Management

Services (EM) in billing Medicare. It includes 11 decision points

and categories to consider before selecting the EM code. Each decision point requires several choices. There are 42 choices a decision

must consider before selecting the proper EM service. There are

6,144 possible combinations representing the number of ways an office visit for a new patient can evolve and be classified.’’

It has gotten to be extraordinarily ludicrous, and we have to do

something about how physicians bill and what code they select. If

we do not do that, in the end, we will erode the quality of medical

care in America because we will erode the quality of care that physicians are able to offer and the kind of people who go into medicine.

So this is a big issue. In this testimony, two or three important

points are brought up that we had not really considered, and we

need to talk about, and Pete and I need to talk about and the members of the Committee need to look at what more along that line

we can do even in this bill.

Thank you very much for being here, Tom. We look forward to

working with you. You have been very willing to work with us on

a lot of complicated issues, and I thank you.

I also thank you for starting out your testimony by talking about

HIPAA. We too are being deluged with HIPAA concerns, and we

need to come to some conclusion about how best to handle that.

Thank you very much.

Mr. SCULLY. Thanks.

39

Chairman JOHNSON. I would now like to welcome the next and

final panel. We will hear from all the experts and then open the

floor for questions.

Leslie Aronovitz is from the Health Care Program Integrity division of the GAO. She will testify on behalf of two different people,

so she will be allowed to go a little longer than the 5 minutes and

make a 10-minute presentation.

Bill Hall is president of the American College of Physicians and

the American Society of Internal Medicine; and Susan Wilson is

vice president, Clinical Operations, and chief operating officer of

the VNA of Central Connecticut and is speaking here on behalf of

the National Association of Home Care.

Thank you all for being with us, and Ms. Aronovitz, if you could

start.

STATEMENT OF LESLIE G. ARONOVITZ, DIRECTOR, HEALTH

CARE PROGRAM ADMINISTRATION AND INTEGRITY ISSUES,

U.S. GENERAL ACCOUNTING OFFICE

Ms. ARONOVITZ. Madam Chairman and members of the Subcommittee, I am pleased to be here today as you discuss modifications to the Medicare Program as set out in the proposed MRCRA.

This Act addresses two key problems that we have recently studied. First, physicians have expressed growing concern that Medicare is creating a blizzard of complicated, unclear, and inconsistent

information about program requirements, and because the rules

change frequently, they cannot stay current.

Second, observers of Medicare operations have for a long time

questioned whether Medicare could be run more effectively if its

claims administration contractors were selected through full and

open competition and paid based on their performance.

With regard to the first problem, Medicare’s communications

with providers, our findings, as you noted, were quite disturbing.

For example, carriers issue bulletins to physicians as a primary

source of information about Medicare rules. For the 10 carriers we

looked at, some bulletins were more than 80 pages long, with over

50 pages being the norm. They often contained long articles, written in dense language and printed in small type. Some of these had

no table of contents while others did not identify topics by specialty.

We also found a number of instances in which the announcement

of program changes came out after the changes had taken effect.

Among carriers with multi-State bulletins, some developed separate State inserts; but others required that the physician read the

entire article to determine if the change was apropos in his or her

State.

In addition to periodic bulletins, carriers rely on their websites

to provide another avenue of communication, but these also have

many shortcomings. In our review of 10 carrier websites, we found

that most lacked basic organization and navigation tools, like site

maps and search functions that increase a site’s user-friendliness.

Further, five of the eight sites that had a required schedule of upcoming workshops or seminars were out-of-date. Although one site

contained a potentially useful ‘‘What’s New?’’ page, the page conVerDate 11-MAY-2000 14:37 Dec 03, 2001 Jkt 076025 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 E:\HR\OC\A025.XXX pfrm01 PsN: A025
40

tained a single document of regulations that went into effect in October 2000, 8 months prior to the date of our website review.

A third communication vehicle for physicians billing Medicare is

the carrier call center. I want to clarify something that we have

talked about in our testimony. Call centers answer two general

types of questions. One type is on the status of a specific claim. The

other is questions that pertain to coding and billing the program

in specific instances.

We did not test the adequacy of the call centers in responding

to the status of specific reimbursement questions. But we did perform a limited test of approximately 60 calls to provider inquiry

lines of five carrier call centers on coding and billing issues. The

three test questions, all selected from the ‘‘Frequently Asked Questions’’ on carriers’ websites, concerned the appropriate way to bill

Medicare under different circumstances.

The results of our tests, which were verified by a CMS coding expert, showed that only 15 percent of the answers were complete

and accurate; 53 percent were incomplete, and 32 percent were entirely incorrect.

We found that CMS has established few standards to guide these

three types of activities. While CMS requires contractors to issue

bulletins at least quarterly, it requires little else in terms of content or readability.

Requirements for web-based communication generally focus on

legal issues that do nothing to enhance providers’ understanding of

Medicare policy.

In regard to telecommunications, contractor call centers are instructed to monitor up to 10 calls per quarter for each customer

service rep—but CMS’ definition of what constitutes accuracy and

completeness in call center responses is neither clear nor specific.

Moreover, the assessment of accuracy and completeness counts for

only about 25 percent of the total assessment score, with process

issues like phone etiquette accounting for the rest.

CMS conducts much of its oversight of contractor communications through contractor performance evaluations—we call them

CPEs. While these reviews have not focused on the quality or usefulness of contractor bulletins or websites, CMS has begun to focus

on call center service to providers.

But again, the CPE reviews focus mainly on process rather than

on the more difficult issues involving an assessment of response accuracy.

CMS officials noted a lack of resources for monitoring carrier activity in this area—and this is not just Mr. Scully, but everyone

that we have talked to at the high levels in CMS. Their own data

show that there are fewer than 26 full-time-equivalent staff assigned to oversee all carrier-provider relations efforts nationwide,

and these people are typically stationed at the regional offices

which provide the contractor oversight.

We have noted in the past that under its tight administrative

budget, CMS runs the Medicare program on a shoestring. Provider

relations activities currently have to compete with most other contractor functions in the allocation of these scarce administrative

dollars.

41

We started this study under the premise that physicians were

being inundated with paper from their carriers, CMS, and U.S. Department of Health and Human Services agencies. Actually, we

found that only a small percentage, about 10 percent, of the mail

the seven physician practices that participated in our study sent us

were from those sources. However, given the poor performance of

CMS in its communications activities, we could understand why

physicians seek materials from other sources, which were primarily

their medical and specialty societies and other private organizations.

Despite the scarcity of resources, we did find some bright spots,

and I think Mr. Scully enumerated many of them. CMS is working

to expand and consolidate training for the customer service reps.

Its MedLearn website offers computer-based training, manuals,

and reference materials. CMS is developing satellite broadcasts to

hospitals and educational institutes. And we also applaud CMS’ efforts to establish the Physicians’ Regulatory Issues Team, the

PRIT, which works with the physician community to address its

most pressing Medicare-related problems.

But I would like to emphasize that no matter how impressive

these individual initiatives are, they cannot replace the need for

consistently reliable and timely information provided to physicians

on a regular basis.

We believe that the provisions in section 5 of H.R. 2768, the

MRCRA—which I am going to use as shorthand for your bill— square place responsibility on CMS to upgrade its provider communication activities.

For example, it calls on CMS to centrally coordinate the educational activities provided through Medicare contractors and to

offer technical assistance to small providers through a demonstration program.

The bill would also channel additional financial resources to

Medicare provider communications activities.

Although we have not determined the specific amount of additional funding needed for these purposes, we believe that the current level of funding is insufficient to effectively inform providers

about Medicare rules and payment changes.

I would now like to take a minute and turn to our findings related to Medicare’s contracting for administrative services. Several

key provisions of your bill address elements of Medicare contracting that have limited CMS’ options for selecting claims administration contractors and that frustrate efforts to manage Medicare

effectively.

First, MRCRA would establish a full and open procurement process that would provide CMS with express authority to contract

with any qualified entity for claims administration, including entities that are not health insurers.

Second, the bill would provide for CMS to use incentive payments. For example, a cost-plus incentive contract adjusts the level

of payment based on performance.

Finally, MRCRA would modify longstanding practice to specifically allow for contracts limited to one component of claims administration process, such as processing and paying claims or providing provider education and technical assistance activities.

42

1 H.R. 2768, sponsored by Reps. Nancy Johnson, Pete Stark, and others, was introduced on

August 2, 2001. 2Medicare claims are processed by private organizations that contract to serve as the fiscal

agent between providers and the federal government. 3 In June of this year, the Secretary of Health and Human Services (HHS) announced that

the agency’s name would be changed from the Health Care Financing Administration (HCFA)

to CMS. Our statement will continue to refer to HCFA where our findings apply to the organizational structure and operations associated with that name.

To summarize, the scope and complexity of the Medicare Program makes complete, accurate, and timely information of program

information vital to providers who need to be kept up-to-date on

Medicare’s rules. While CMS acknowledges that improvements are

needed, we believe it needs to do so through establishing a more

skilled, standardized and centralized approach. It is also clear that

more resources need to be devoted to these activities. The backers

of this bill clearly recognize this need, and we believe that the

funding provisions will go a long way toward ensuring that more

attention is paid to provider relations activities.

The bill also contains provisions that would provide a statutory

framework for Medicare contracting reform. We believe that CMS

can benefit from this increased flexibility and that many of the reform provisions will assist the agency in providing for more effective program management.

Madam Chairman, this concludes my prepared statement. I will

be happy to answer any questions that you or the other Subcommittee members have.

[The prepared statement of Ms. Aronovitz follows:]

Statement of Leslie G. Aronovitz, Director, Health Care Program

Administration and Integrity Issues, U.S. General Accounting Office

Madam Chairman and Members of the Subcommittee:

I am pleased to be here today as you discuss modifications to the Medicare program proposed in the Medicare Regulatory and Contracting Reform Act (MRCRA)

of 2001.1 Providers have raised concerns that while the Medicare program has become increasingly complex, the education and outreach services needed to comply

with Medicare coverage and billing policies are inadequate. Others have raised

questions about whether the program could benefit from changes to the way Medicare’s claims processing contractors are selected and paid for the functions they perform.2 To address some of these issues, Members of this Subcommittee and others

in the Congress have introduced legislation, and the Administration has proposed

several new initiatives.

We are currently conducting, or have recently completed, work on several operational and structural elements of the Medicare program that frustrate providers

and hamper effective management. Specifically, we are reviewing how the Centers

for Medicare and Medicaid Services (CMS) works with its contractors to facilitate

communications with Medicare providers.3 We have also evaluated ways in which

CMS contracting for claims payment and provider and beneficiary service activities

could be modified to promote better performance. Accordingly, you asked us to focus

our remarks today on our findings related to (1) Medicare provider education and

communications, and (2) Medicare contracting for claims administration services.

Several of the reforms outlined in the MRCRA proposal address aspects of both

issues.

In summary, our ongoing work for the Subcommittee shows that physicians often

do not receive complete, accurate, clear, and timely guidance on Medicare billing

and payment policies. We found shortcomings in print, electronic, and telephone

communications that Medicare contractors use to provide information to physicians

and respond to their questions. To substantially improve Medicare contractors’ provider communications, we believe that CMS needs to develop a more centralized and

coordinated approach. This is consistent with several provisions in MRCRA, which

require CMS to centrally coordinate contractors’ provider education activities, establish communications performance standards, appoint a Medicare Provider Ombudsman, and create a demonstration program to offer technical assistance to small proVerDate 11-MAY-2000 14:37 Dec 03, 2001 Jkt 076025 PO 00000 Frm 00046 Fmt 6633 Sfmt 6621 E:\HR\OC\A025.XXX pfrm01 PsN: A025
43

4Medicare ranks second only to Social Security in federal expenditures for a single program.

5Medicare Contracting Reform: Opportunities and Challenges in Contracting for Claims Administration Services, (June 28, 2001, GAO–01–918T).

viders. MRCRA would also require contractors to monitor the accuracy, consistency,

and timeliness of the information they provide.

Further, our analysis of Medicare contracting reform issues has found that the

rules governing CMS contracts with its claims processors lack incentives for efficient

operations. Medicare contractors are chosen without full and open competition from

among health insurance companies, rather than from a broad universe of potentially

qualified entities. In addition, CMS almost always uses cost-only contracts, which

pay contractors for costs incurred but generally do not offer any type of performance

incentives. MRCRA would broaden CMS authority so that entities of various types

would be able to compete for claims administration contracts and their payment

would reflect the quality of the services they provide.

Background

The operation of the Medicare program is extremely complex and requires close

coordination between CMS and its contractors. CMS is an agency within HHS but

has responsibilities for expenditures that are larger than those of most other federal

departments.4 Under Medicare’s fee-for-service system—which accounts for over 80

percent of program beneficiaries—physicians, hospitals, and other providers submit

claims to receive reimbursement for services they provide to Medicare beneficiaries.

In fiscal year 2000, fee-for-service Medicare made payments of $176 billion to hundreds of thousands of providers who delivered services to over 32 million beneficiaries.

About 50 Medicare claims administration contractors carry out the day-to-day operations of the program and are responsible not only for paying claims but also for

providing information and education to providers and beneficiaries that participate

in Medicare. Contractors that process and pay part A claims (i.e., for inpatient hospital, skilled nursing facility, hospice care, and certain home health services) are

known as fiscal intermediaries and those that administer part B claims (i.e., for

physician, outpatient hospital services, laboratory, and other services) are known as

carriers.

Contractors periodically issue bulletins that outline changes in national and local

Medicare policy, inform providers of billing system changes, and address frequently

asked questions. To enhance communications with providers, the agency recently required contractors to maintain toll-free telephone lines to respond to provider inquiries. It also directed them to develop Internet sites to provide another reference

source. While providers look to CMS’ contractors for help in interpreting Medicare

rules, they remain responsible for properly billing the program.

In congressional hearings held earlier this year, representatives of physician

groups testified that they felt overwhelmed by the volume of instructional materials

sent to them by CMS and its contractors. Following up on these remarks, we contacted 7 group practices served by 3 carriers in different parts of the country to determine the volume of Medicare-related documents they receive from the CMS central office, carriers, other HHS agencies, and private organizations. Together, these

physician practices reported that, during a 3-month period, they received about 950

documents concerned with health care regulations and billing procedures. However,

a relatively small amount—about 10 percent—was sent by CMS or its contractors.

The majority of the mail reportedly received by these physician practices was obtained from sources such as consulting firms and medical specialty or professional

societies.

Congress has also held hearings on management challenges facing the Medicare

program. We recently testified that HHS contracts for claims administration services in ways that differ from procedures for most federal contracts.5 Specifically:

• there is no full and open competition for these contracts,

• contracts generally must cover the full range of claims processing and related

activities,

• contracts are generally limited to reimbursement of costs without consideration

of performance, and

• CMS has limited ability to terminate these contracts.

Since 1993, HCFA has repeatedly proposed legislation that would increase competition for these contracts and provide more flexibility in how they are structured.

In June 2001, the Secretary of HHS again submitted a legislative proposal that

would modify Medicare’s claims administration contracting authority.

44

6 In our study, we reviewed selected contractors’ bulletins and Web sites and evaluated them

for consistency, timeliness, clarity, and completeness. In addition, we visited three contractors

to observe their call center operations and examined their approaches to monitoring the performance of customer service representatives. To test the quality of contractors’ responses to

physicians’ phone inquiries, we posed ‘‘frequently asked questions’’ that appeared on contractor

Web sites to customer service representatives and assessed the accuracy and completeness of

the responses.

Substantial Improvement Needed in Medicare Provider Communications

CMS relies on its 20 carriers to convey accurate and timely information about

Medicare rules and program changes to providers who bill the program. However,

our ongoing review of the quality of CMS’ communications with physicians participating in the Medicare program shows that the information given to providers is

often incomplete, confusing, out of date, or even incorrect.6 MRCRA provisions establish new requirements and funding for CMS and its contractors that could enhance the quality of provider communication.

CMS Information Was Confusing and Often Inaccurate

We found that carriers’ bulletins and Web sites did not contain clear or timely

enough information to solely rely on those sources. Further, the responses to phone

inquiries by carrier customer service representatives were often inaccurate, inconsistent with other information they received, or not sufficiently instructive to properly bill the program.

Our review of the quarterly bulletins recently issued by 10 carriers found that

they were often unclear and difficult to use. Bulletins over 50 pages in length were

the norm, and some were 80 or more pages long. They often contained long articles,

written in dense language and printed in small type. Many of the bulletins were

also poorly organized, making it difficult for a physician to identify relevant or new

information. For example, they did not always present information delineated by

specialty or clearly identify the states where the policies applied. Moreover, information in these bulletins about program changes was not always communicated in a

timely fashion, so that physicians sometimes had little or no advance notice prior

to a program change taking effect. In a few instances, notice of the program change

had not yet appeared in the carriers’ bulletin by its effective date.

To provide another avenue for communication, carriers are required to develop

Internet Web sites. However, our review of 10 carrier Web sites found that only 2

complied with all 11 content requirements that CMS has established. Also, most did

not contain features that would allow physicians and others to readily obtain the

information they need. For example, we found that the carrier Web sites often

lacked logical organization, navigation tools (such as search functions), and timely

information—all of which increase a site’s usability and value. Five of the nine sites

that had the required schedule of upcoming workshops or seminars were out of date.

Call centers supplement the information provided by bulletins and Web sites by

responding to the specific questions posed by individual physicians. To assess the

accuracy of information provided, we placed approximately 60 calls to the provider

inquiry lines of 5 carriers’ call centers. The three test questions, all selected from

the ‘‘frequently asked questions’’ on the carriers’ Web sites, concerned the appropriate way to bill Medicare under different circumstances. The results of our test,

which were verified by a CMS coding expert, showed that only 15 percent of the

answers were complete and accurate, while 53 percent were incomplete and 32 percent were entirely incorrect.

We found that CMS has established few standards to guide the contractors’ communication activities. While CMS requires contractors to issue bulletins at least

quarterly, they require little else in terms of content or readability. Similarly, CMS

requirements for web-based communication do little to promote the clarity or timeliness of information. Instead, they generally focus on legal issues—such as measures

to protect copyrighted material—that do nothing to enhance providers’ understanding of, or ability to correctly implement, Medicare policy. In regard to telecommunications, contractor call centers are instructed to monitor up to 10 calls per

quarter for each of their customer service representatives, but CMS’ definition of

what constitutes accuracy and completeness in call center responses is neither clear

nor specific. Moreover, the assessment of accuracy and completeness counts for only

35 percent of the total assessment score, with the representative’s attitude and helpfulness accounting for the rest.

CMS conducts much of its oversight of contractor performance through Contractor

Performance Evaluations (CPEs). These reviews focus on contractors that have been

determined to be ‘‘at risk’’ in certain program areas. To date, CMS has not conducted CPE reviews focusing on the quality or usefulness of contractors’ bulletins

45

or Web sites, but has begun to focus on call center service to providers. Again, the

CPE reviews of call centers focus mainly on process—such as phone etiquette—rather than on an assessment of response accuracy.

CMS is Making Efforts to Improve Provider Communications

CMS officials, in acknowledging that provider communications have received less

support and oversight than other contractor operations, noted the lack of resources

for monitoring carrier activity in this area and providing them with technical assistance. Under its tight administrative budget, the agency spends less than 2 percent

of Medicare benefit payments for administrative expenses. Provider communication

and education activities currently have to compete with most other contractor functions in the allocation of these scarce Medicare administrative dollars. CMS data

show that there are less than 26 full-time equivalent CMS staff assigned to oversee

all carrier provider relations efforts nationwide, representing a just over 1 full-time

equivalent staff for each Medicare carrier. This low level of support for provider

communications leads to poorly informed providers who are therefore less likely to

correctly bill the Medicare program for the services they provide.

Despite the scarcity of resources, CMS has begun work to expand and consolidate

some provider education efforts, develop venues to obtain provider feedback, and improve the way some information is delivered. These initiatives—many in the early

stages of planning or implementation—are largely national in scope, and are not

strategically integrated with similar activities by contractors. Nevertheless, we believe that these outreach and education activities will enhance some physicians’

ability to obtain timely and important information, and improve their relationships

with CMS.

For example, CMS is working to expand and consolidate training for providers

and contractor customer service representatives. Its Medlearn Web site offers providers computer-based training, manual, and reference materials, and a schedule of

upcoming CMS meetings and training opportunities. CMS has produced curriculum

packets and conducted in-person instruction to the contractor provider education

staff to ensure contractors present more consistent training to providers. CMS has

also arranged several satellite broadcasts on Medicare topics every year to hospitals

and educational institutions. In addition, CMS established the Physicians’ Regulatory Issues Team to work with the physician community to address its most pressing problems with Medicare. Contractors are also required to form Provider Education and Training Advisory groups to obtain feedback on their education and communication activities.

MRCRA Provides Needed Statutory and Financial Support

We believe that the provisions in Section 5 of MRCRA can help develop a system

of information dissemination and technical assistance. MRCRA’s emphasis on contractor performance measures and the identification of best practices squarely

places responsibility on CMS to upgrade its provider communications activities. For

example, it calls on CMS to centrally coordinate the educational activities provided

through Medicare contractors, to appoint a Medicare Provider Ombudsman, and to

offer technical assistance to small providers through a demonstration program. We

believe it would be prudent for CMS to implement these and related MRCRA provisions by assigning responsibility for them to a single entity within the agency dedicated to issues of provider communication.

Further, MRCRA would channel additional financial resources to Medicare provider communications activities. It authorizes additional expenditures for provider

education and training by Medicare contractors ($20 million over fiscal years 2003

and 2004), the small provider technical assistance demonstration program ($7 million over fiscal years 2003 and 2004), and the Medicare Provider Ombudsman ($25

million over fiscal years 2003 and 2004). This would expand specific functions within CMS’ central office, which would help to address the lack of administrative infrastructure and resources targeted to provider communications at the national level.

Although we have not determined the specific amount of additional funding needed

for these purposes, our work has shown that the current level of funding is insufficient to effectively inform providers about Medicare payment rules and program

changes.

MRCRA also establishes contractor responsibility criteria to enhance the quality

of their responses to provider inquiries. Specifically, contractors must maintain a

toll-free telephone number and put a system in place to identify who on their staff

provides the information. They must also monitor the accuracy, consistency, and

timeliness of the information provided.

46

7 According to CMS, requirements of the Social Security Act that call for the use of cost-based

reimbursement contracts preclude the program from offering financial incentives to contractors

for high-quality performance. 8This has recently started to change in response to new contracting authorities granted by

the Health Insurance Portability and Accountability Act of 1996, which resulted in the selection

of 12 Program Safeguard Contractors that perform specific payment safeguard activities.

Contracting Reform Could Improve Program Management

Current law and long-standing practice in Medicare contracting limit CMS’ options for selecting claims administration contractors and frustrate efforts to manage

Medicare more effectively. We have previously identified several approaches to contracting reform that would give the program additional flexibility necessary to promote better performance and accountability among claims administration contractors.

Current Contracting Law and Practice Limit CMS’ Management Options

CMS faces multiple constraints in its options for selecting claims administration

contractors. Under these constraints, the agency may not be able to select the best

performers to carry out Medicare’s claims administration and customer service functions. Because the Medicare statute exempts CMS from competitive contracting requirements, the agency does not use full and open competition for awarding fiscal

intermediary and carrier contracts. Rather, participation has been limited to entities

with experience processing these types of claims, which have generally been health

insurance companies. Provider associations, such as the American Hospital Association, select fiscal intermediaries in a process called ‘‘nomination’’ and the Secretary

of HHS chooses carriers from a pool of qualified health insurers.

CMS program management options are also limited by the agency’s reliance on

cost-based reimbursement contracts.7 This type of contract reimburses contractors

for necessary and proper costs of carrying out Medicare activities, but does not specifically provide for contractor profit or other incentives. As a result, CMS generally

has not offered contractors the fee incentives for performance that are used in other

federal contract arrangements.

Medicare Could Benefit From Open Competition and Increased Flexibility

Medicare could benefit from various contracting reforms. Perhaps most importantly, directing the program to select contractors on a competitive basis from a

broader array of entities would allow Medicare to benefit from efficiency and performance improvements related to competition. A full and open contracting process

will hopefully result in the selection of stronger contractors at better value. Broadening the pool of entities allowed to hold Medicare contracts beyond health insurance companies will give CMS more contracting options. Also, authorizing Medicare

to pay contractors based on how well they perform rather than simply reimbursing

them for their costs could result in better contractor performance.

We also believe that the program could benefit from efficiencies by having contractors perform specific functions, called functional contracting. The traditional practice

of expecting a single Medicare contractor in each region to perform all claims administration functions has effectively ruled out the establishment of specialized contracts with multiple entities that have substantial expertise in certain areas.8 Moving to specialized contracts for the different elements of claims administration processing would allow the agency to more efficiently use its limited resources by taking

advantage of the economies of scale that are inherent in some tasks. An additional

benefit of centralizing carrier functioning in each area is the opportunity for CMS

to more effectively oversee carrier operations. Functional contracting would also result in more consistency for Medicare-participating providers.

Several key provisions of MRCRA would address these elements of contracting reform. MRCRA would establish a full and open procurement process that would provide CMS with express authority to contract with any qualified entity for claims administration, including entities that are not health insurers. MRCRA would also encourage CMS to use incentive payments to encourage quality service and efficiency.

For example, a cost-plus-incentive-fee contract adjusts the level of payment based

on the contractor’s performance. Finally, MRCRA would modify long-standing practice by specifically allowing for contracts limited to one component of the claims administration process, such as processing and paying claims, or conducting provider

education and technical assistance activities.

Concluding Observations

The scope and complexity of the Medicare program make complete, accurate, and

timely communication of program information necessary to help providers comply

with Medicare requirements and appropriately bill for their services. The backers

47

of MRCRA recognize the need for more resources devoted to provider communications and outreach activities, and we believe the funding provisions in the bill will

help assure that more attention is paid to these areas. MRCRA also contains provisions that would provide a statutory framework for Medicare contracting reform. We

believe that CMS can benefit from this increased flexibility, and that many of these

reform provisions will assist the agency in providing for more effective program

management.

Madam Chairman, this concludes my prepared statement. I would be happy to answer any questions that you or other Subcommittee Members may have.

GAO Contact and Staff Acknowledgments

For further information regarding this testimony, please contact me at (312) 220–

7767. Jenny Grover, Rosamond Katz, and Eric Peterson also made key contributions

to this statement.

Related GAO Products

Medicare Management: CMS Faces Challenges in Safeguarding Payments While

Addressing Provider Needs (GAO–01–1014T, July 26, 2001).

Medicare: Successful Reform Requires Meeting Key Management Challenges

(GAO–01–1006T, July 25, 2001).

Medicare Contracting Reform: Opportunities and Challenges in Contracting for

Claims Administration Services (GAO–01–918T, June 28, 2001).

Medicare Management: Current and Future Challenges (GAO–01–878T, June 19,

2001).

Medicare: Opportunities and Challenges in Contracting for Program Safeguards

(GAO–01–616, May 18, 2001).

Major Management Challenges and Program Risks: Department of Health and

Human Services (GAO–01–247, Jan. 2001).

High Risk: An Update (GAO–01–263, Jan. 2001).

Medicare: 21st Century Challenges Prompt Fresh Thinking About Program’s Administrative Structure (GAO/T–HEHS-00–108, May 4, 2000).

Medicare Contractors: Further Improvement Needed in Headquarters and Regional

Office Oversight (GAO/HEHS–00

f–46, Mar. 23, 2000).

Chairman JOHNSON. Thank you very much for your testimony

and for the work that GAO has done on this issue. Dr. Hall.

STATEMENT OF WILLIAM J. HALL, M.D., PRESIDENT, AMERICAN COLLEGE OF PHYSICIANS—AMERICAN SOCIETY OF INTERNAL MEDICINE

Dr. HALL. Thank you very much, Chairwoman Johnson, and

other members of the Subcommittee for holding this important

hearing to discuss MRCRA.

My name is William Hall. I am a practicing internist and geriatrician in Rochester, New York, and currently, I serve as president

of the American College of Physicians—American Society of Internal Medicine (ACP–ASIM), representing 115,000 physicians, the

largest medical specialty society and the second-largest medical organization in the country, and also a group of members who supply

a major proportion of all EM to Medicare recipients throughout the

country.

In the course of my travels this year, the most frequent complaint by far that I hear from my colleagues is that internists are

subject to excessive paperwork and as a result do not have enough

time to devote to patients.

In our work, time is by far the most valuable resource in diagnosing and caring for older adults, but it is also in the shortest

48

supply, largely due to a growth of unnecessary paperwork. Fortunately, this bipartisan legislation has been introduced to address

paperwork hassles.

ACP–ASIM appreciates the opportunity to comment on H.R.

2768. This is a very good start, but more needs to be done. I would

like to briefly touch on a few specific points in the bill, actually,

all of which have been mentioned in prior testimony, but I would

invite the Subcommittee to review our written testimony which

contains more detailed comments, such as you already mentioned,

Congresswoman.

First, the issue of extrapolation. As you know, auditors use extrapolation to look at a very small sample of Medicare claims and

apply the results to a broader universe of claims that the auditors

did not review. This process is simply unfair. Congress would certainly not allow the Internal Revenue Service to extrapolate a calculation error in a taxpayer’s tax return from 1 year to other years

without actually reviewing the returns in those years. And Congress should not allow the broad use of extrapolation either.

In order to strengthen H.R. 2768, we strongly encourage the Subcommittee to develop report language to define a ‘‘high level of payment error’’ to justify extrapolation. Without such a definition,

problems with extrapolation could potentially continue.

We also recommend that carriers conduct a documented educational effort before a provider receives an overpayment demand

letter.

Now a word about appeals. ACP–ASIM is pleased that H.R. 2768

precludes carriers from requiring physicians and other health care

providers to repay an alleged overpayment until after the first level

of appeal. However, ACP–ASIM believes that repayment should not

occur until the administrative appeals have been exhausted. It simply is unfair that Medicare providers are compelled to repay money

to Medicare contractors when the dispute has not even been settled. We would quickly add, however, that any appropriate interest

and penalties should accrue if the provider is unsuccessful in his

or her appeal.

Next, on evaluation and management documentation guidelines,

ACP–ASIM strongly supports H.R. 2768’s provision that requires

the Department of Health and Human Services to initiate three or

four pilot projects to test EM documentation guidelines. We are

particularly interested in the peer review pilot method. Another

pilot that ACP–ASIM believes should be explored is documentation

of encounter time with patients and a simpler, one-page document

as an alternative to more lengthy documentation requirements

such as the 1997 guidelines. These are more than 40 pages long

and lead to, as you already mentioned, thousands of individual decision points.

ACP–ASIM strongly agrees that pilot project participants should

not be targeted for post-payment audits or overpayment demands.

This stipulation should actually enhance the viability of these pilot

tests.

It is our understanding that the Department of Health and

Human Services Office of the Inspector General in the previous administration had some concerns regarding recommendations to improve the Medicare audit and appeal process. Essentially, the OIG

49

was concerned that changes in the audit process could unintentionally allow unscrupulous health care providers to submit false

claims to Medicare. The suggestions that we have outlined were developed in consideration of this concern.

ACP–ASIM believes that it is time for Congress to introduce

more due process rights and fairness into the Medicare claims payment review system. The overwhelming majority of physicians and

other health care providers are honest and law-abiding and should

no longer have to suffer from onerous and unfair Medicare rules.

In conclusion, ACP–ASIM is pleased that the Subcommittee is

addressing the serious problems that the Medicare regulatory burden poses for physicians. We strongly urge the Subcommittee to report H.R. 2768 to the full House Ways and Means Committee with

some of the enhancements that we have presented. We would also

ask the Subcommittee to consider provisions from other pending

regulatory relief legislation such as H.R. 868, MERFA, which we

have endorsed.

I thank you very much, and I would be happy to answer any

questions that you might have.

[The prepared statement of Dr. Hall follows:]

Statement of William J. Hall, M.D., President, American College of

Physicians—American Society of Internal Medicine

I am Dr. William J. Hall, president of the American College of Physicians—American Society of Internal Medicine (ACP–ASIM). ACP–ASIM, representing 115,000

physicians and medical students, the largest medical specialty society and the second largest medical organization in the United States, congratulates the Subcommittee for holding this hearing. Internists provide care for more Medicare patients than any other medical specialty. The most frequent complaint received by

ACP–ASIM is that internists are subject to excessive paperwork and, as a result,

do not have enough time to devote to patients. ACP–ASIM thanks Congresswoman

Nancy L. Johnson (R–CT), Chair of the Subcommittee on Health of the Committee

on Ways and Means, for holding this important hearing to discuss H.R. 2768, the

‘‘Medicare Regulatory and Contracting Reform Act of 2001.’’

Impact of Medicare Paperwork on Clinical Practice

Time is the most valuable resource in diagnosing and caring for older adults, but

it’s in short supply due to unnecessary paperwork. Research breakthroughs, new

pharmaceuticals and improved diagnostic equipment are of limited value if doctors

lack the time to spend with patients.

Visits from Medicare patients typically begin a surprisingly complex and time-consuming paperwork process. Medicare requires that the physicians and their staffs

complete a claim form with diagnosis and service codes, as well as authorizations

for necessary equipment such as wheelchairs and services such as home health care.

The Medicare program assumes physicians know what it will and will not cover.

There is no single place to find Medicare’s rules, however. The regulations are more

than 100,000 pages long and different carriers, who process paperwork for Medicare

across the country, have their own rules.

Once a claim is filed, Medicare might delay payment because it tripped some random criteria. If Medicare finally pays the claim, carriers have four years to change

their minds and demand that the physician repay it. Appeals require more paperwork and more importantly staff and physician time to present the case.

Medicare can also sample physician’s records to determine if certain services, such

as office visits, were paid incorrectly. If a certain percentage were paid wrong, the

carrier will demand repayment for similar claims—without looking at the records.

To keep their practices running, many internists simply repay these claims. Opening their practices to a post-payment audit can tie the physicians’ practices up for

days—essentially shutting down patient care activities. One physician tells of spending over $50,000 challenging an audit and in the final determination owing the government a mere $400.

Medicare patients are the ones who suffer when physicians and their office staff

are diverted from patient care activities to unnecessary paperwork. The result can

50

be longer waiting time before being seen by the physician, because he or she is busy

answering a demand from Medicare for more information at a time that could have

been spent with patients. It can result in the physician seeing fewer patients each

day—meaning a longer time for a patient to get an appointment. It can mean having less time to assess elderly patients and less time to answer questions and discuss new treatments with them. And in the worst cases, it can literally shut down

a practice for days.

H.R. 2768—A Good Start, but More Should Be Done

Fortunately, bipartisan legislation, H.R. 2768, the ‘‘Medicare Regulatory and Contracting Reform Act of 2001 has been introduced into the House of Representatives

and we are waiting for a similar measure in the Senate. ACP–ASIM appreciates the

opportunity to comment on this bill.

Extrapolation

Although ACP–ASIM requests the elimination of extrapolation of alleged overpayment amounts to other non-audited claims the first time a physician or other health

care provider is assessed an alleged overpayment, unless fraud is suspected, the

H.R. 2768 provision on extrapolation is a step in the right direction. H.R. 2768 indicates that in either consent settlements or larger audits, carriers cannot recoup or

offset payments based on extrapolation unless it is sustained by a high level of payment error, as defined by the Secretary of Health and Human Services, or documented educational intervention has failed to correct the payment error (as determined by the Secretary). ACP–ASIM strongly encourages the Subcommittee to develop report language to define a high level of payment error. Without such a definition, problems with extrapolation could potentially continue. ACP–ASIM also recommends that carriers should conduct a documented education effort before a provider receives an overpayment demand letter.

Physicians have always been concerned about the extrapolation process because

it is a mechanism that auditors use to look at a small sample of Medicare claims

and apply those results to a broader universe of claims that the auditors did not

review. Under the extrapolation process, auditors have the ability to take a small

sample of 15 claims, determine that the Medicare contractor made an overpayment

of several dollars per claim, then extrapolate that finding to hundreds of claims per

year over several years and demand repayment of tens of thousands of dollars without following the due diligence of looking at those other claims. This process is simply unfair. Congress wouldn’t allow the Internal Revenue Service to extrapolate a

calculation error in a taxpayer’s tax return from one year to other years without

actually reviewing the returns from those years. Congress shouldn’t allow the broad

use of extrapolation either.

Appeals

ACP–ASIM is pleased that H. R. 2768 precludes carriers from requiring physicians and other health care providers to repay an ‘‘alleged’’ overpayment until after

the first level of appeal. However, ACP–ASIM believes that repayment should not

occur until the administrative appeals have been exhausted. It simply is unfair that

Medicare providers are compelled to repay money to Medicare contractors when the

dispute has not been settled. We agree that interest should accrue if the provider

is unsuccessful in appealing.

Repayment plan

ACP–ASIM suggests that Medicare carriers and fiscal intermediaries give physicians who have received overpayments the option of either a three year repayment

plan or offsetting overpayment recoupments against a percentage of the physicians’

future Medicare claims reimbursements. ACP–ASIM is pleased that H.R. 2768 stipulates that the Secretary of Health and Human Services must promulgate regulations that would allow physicians and other health care providers to enter into a

repayment plan of no more than 3 years, however we are concerned that as written

this provision gives the Secretary the latitude to keep the 30–60 day repayment

process intact without making any change to the program at all. ACP–ASIM urges

the Subcommittee to change this provision to a period of not less than 3 years if

the aggregate amount of overpayments exceeds 10 percent of Medicare revenues for

the previous calendar year.

The current repayment process is particularly onerous to physicians and other

health care providers with small practices. A large repayment requirement over a

short period of time could potentially bankrupt a physician practice and force it to

close. This in turn would deny Medicare beneficiaries access to medical care from

that practice. For practices in rural and underserved areas where patients have litVerDate 11-MAY-2000 14:37 Dec 03, 2001 Jkt 076025 PO 00000 Frm 00054 Fmt 6633 Sfmt 6621 E:\HR\OC\A025.XXX pfrm01 PsN: A025
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tle or no choice of provider, such a repayment request could literally devastate access to health care in a community.

ACP–ASIM agrees with the provision that would prohibit repayment plans in

cases where the Secretary suspects that the provider would file for bankruptcy to

avoid repayment, cease to do business, or has committed fraud. ACP–ASIM also

agrees that if a provider fails to make a payment installment, there should be an

acceleration in the repayment plan or immediate offsets.

Consent Settlement Process

ACP–ASIM believes that H.R. 2768 should afford physicians the ability to appeal

a probe sample of claims without having to undergo a ‘‘statistically valid random

sample’’ (SVRS). A probe sample is a sample of a small number of claims. H.R. 2768

indicates that when a provider appeals this probe, they must agree to a larger, time

consuming, onerous audit (the SVRS). This process encourages physicians to settle,

even when they believe the probe sample findings are inaccurate, because in many

cases the hassle involved with complying with the SVRS audits are more costly to

the physicians practice than the cost of settling with a probe sample. The current

consent settlement process is ironic in that there is no true incentive for the auditors conducting the probe sample to perform the audit accurately because the penalty of appealing in many cases is more than the penalty of settling.

Limit on Random Prepayment Audits

ACP–ASIM believes H.R. 2768 would be improved if the bill were changed to state

that Medicare carriers could not demand additional records or documentation prior

to paying a claim absent cause except when developing contractor-wide or programwide claims payment error rates. Random prepayment audits are troublesome to

health care providers because they can disrupt cash flow in the practice and hinder

the delivery of medical services to patients if the practice does not have the cash

on hand to order supplies and equipment or pay its staff. Random prepayment audits are particularly irksome to physician practices because it has long been recognized that the overwhelming majority of Medicare providers are honest and therefore these audits will randomly delay payment for legitimate services provided to

Medicare beneficiaries.

In addition, prepayment review should no longer potentially occur indefinitely

after physicians and providers have submitted properly coded claims. ACP–ASIM

agrees with the H.R. 2768 provision that limits contractors to using random prepayment audits for developing contractor-wide or program-wide claims payment error

rates.

Evaluation and Management (E/M) Documentation Guidelines

ACP–ASIM strongly supports the H.R. 2768 provision that requires the Department of Health and Human Services initiate three or four pilot projects to test

E/M documentation guidelines. ACP–ASIM is particularly interested in the peer-review pilot method. Another pilot that ACP–ASIM believes should be explored is documenting encounter time with the patient and the ‘‘CPT basics/General Principles

of Medical Record Documentation’’ (a one page document) as an alternative to other

onerous documentation requirements (such as the 1997 guidelines which are more

than 40 pages long). ACP–ASIM is encouraged by the stipulation that pilot participants cannot be targeted for post-payment audits or overpayment demands. This

stipulation should enhance the viability of the pilot tests.

Although ACP–ASIM is encouraged that the Centers for Medicare and Medicaid

Services (CMS) is attempting to work with medical societies to improve the documentation guidelines for evaluation and management (E/M) services, the guidelines

that were released in 1997 and currently in place dramatically increase the administrative burden for physicians. The guidelines require physicians to spend a significant amount of time selecting which code to bill and documenting extensively to satisfy the comprehensive guidelines. An internist who carefully reviewed the 1997

guidelines calculated the number of decisions that a physician must make before selecting a level of E/M service and billing Medicare include 11 decision points in categories to consider before selecting an E/M code. Each decision point requires several choices. There are 42 choices a physician must consider before selecting the

proper level of E/M service. There are 6,144 possible combinations representing the

number of ways an office visit for a new patient can evolve and be classified. A physician must spend time documenting in the patient’s record in addition to spending

time deciding what is the appropriate level of service to bill. The guidelines put an

undue excessive documentation burden on physicians for the sole purpose of billing,

not for quality medical care. The guidelines force physicians to spend less time with

their patients and more time with the patients’ charts.

52

Carrier Responsiveness

ACP–ASIM is pleased that H.R. 2768 requires Medicare contractors to: (1) respond in a clear concise and accurate manner to specific billing and coding and cost

report questions; (2) maintain a toll-free telephone number which provides information regarding billing, coding and other appropriate information; (3) maintain a system for identifying who provides referred information; and (4) monitor accuracy,

consistency and timeliness of the information provided. ACP–ASIM suggests that

these provisions be further strengthened by requiring a written response within 30

days from the contractor to physicians and other providers who submit billing, documentation, coding and cost reporting questions to carriers or fiscal intermediaries.

Additionally, these written responses from the carrier must be adhered to during

provider audits; health care providers should be held harmless from having claims

denied by carriers in subsequent audits when the provider is simply following the

original advice of the Medicare carrier. It is unfair and unreasonable for physicians

and other health care providers to be held accountable for mistakes made by Medicare contractors.

Ombudsmen Program

ACP–ASIM understands that the H.R. 2768 ombudsman program is designed to

‘‘provide assistance on a confidential basis to physicians (and others) about complaints, grievances, and requests for information about Medicare, resolve unclear or

conflicting guidance given by the Secretary and Medicare contractors to physicians.’’

The program would also recommend to the Secretary how to respond to ‘‘recurring

patterns of confusion including suspending sanctions in these areas, and would recommend how to provide appropriate and consistent responses including not providing for audits where the self identified overpayment is returned.’’ This provision

will be helpful in resolving conflicting statements and may be an outlet for confidential complaints about carriers.

Effective Balance Between Appropriate Claims Payment and Burdensome Paperwork

It is our understanding that the Department of Health and Human Services Office of Inspector General (OIG) in the previous administration had some concerns

regarding recommendations to improve the Medicare audit and appeal process. Essentially, the OIG was concerned that changes in the audit process could unintentionally allow unscrupulous health care providers to submit false claims to Medicare. The suggestions above were developed in consideration of this concern. ACP–

ASIM believes that it is time for Congress to introduce more due process rights and

fairness into the Medicare claims payment review system so that the overwhelming

majority of physicians and other health care providers, who are honest and law

abiding, no longer have to suffer from onerous and unfair Medicare rules.

Conclusion

ACP–ASIM is pleased that the Subcommittee is addressing the serious problems

that the Medicare regulatory burden poses for physicians and others attempting to

care for Medicare beneficiaries. We strongly urge the Subcommittee to report H.R.

2768 to the full Ways and Means Committee with the enhancements we have presented. We also ask the Subcommittee to consider provisions from other pending

regulatory relief legislation, such as H.R. 868, the Medicare Education and Regulatory Fairness Act (MERFA), which ACP

f–ASIM has enthusiastically endorsed.

Chairman JOHNSON. Thank you very much, Dr. Hall.

Ms. Wilson, it is a special pleasure to welcome you here to this

hearing. I have worked with Ms. Wilson extensively in my hometown of New Britain, and her leadership at the State level as well

as the national level in solving some of the difficult problems we

have been facing in the home care reimbursement area have really

been appreciated. Welcome.

53

STATEMENT OF SUSAN WILSON, VICE PRESIDENT, CLINICAL

OPERATIONS, AND CHIEF OPERATING OFFICER, VNA OF

CENTRAL CONNECTICUT, INC., NEW BRITAIN, CONNECTICUT; PRESIDENT, BOARD OF DIRECTORS, CONNECTICUT ASSOCIATION FOR HOME CARE, WALLINGFORD,

CONNECTICUT; AND MEMBER, NATIONAL ASSOCIATION FOR

HOME CARE

Ms. WILSON. Thank you, Madam Chairman and members of the

Subcommittee, for allowing me to testify regarding MRCRA.

I am Susan Wilson, vice president and chief operating officer of

VNA of Central Connecticut, president of the board of directors of

the Connecticut Association for Home Care, and a member of the

National Association for Home Care.

In March of this year, I had the honor of addressing this panel

regarding regulations and policies that impact a provider’s ability

to deliver efficient, high-quality care. I am pleased to be here today

to personally extend my deepest appreciation for the many efforts

by you, your staff, and many others to ease these burdens. You are

to be commended in particular for the development of H.R. 2768

which, if enacted, will ease the impact of some of the most troublesome policies.

It has been proposed that any final regulation that is not a logical outgrowth of proposed regulation cannot take effect until there

has been an opportunity for public comment. Your bill generally

prohibits retroactive application and extends protection against

compliance actions for 30 days. Home care has suffered greatly by

the retroactive impact of issued policies, and this provision should

help to prevent a recurrence of this.

Your bill also protects providers against sanctions when they

have followed the guidance of a Medicare contractor. Further clarification is needed, however, regarding what constitutes a sanction.

Does it relate to possible fines, or does it extend to other obligations that may result from the faulty guidance of the contractor?

Home health agencies have reported that despite adherence to

written guidance from intermediaries specifically regarding cost reports, the intermediary has later rejected its own approval, which

has led to unfounded allegations of overpayment. We hope that

these circumstances are included in the provision.

Also, your proposal provides for education through technical assistance and program information, and certainly this will help to

create a better understanding of the Medicare Program.

A similar provision applicable to Medicare’s contractors for survey and certification would further secure this intent.

Providers are delighted, Madam Chairman, that your bill prohibits recoupment of a perceived overpayment until after a decision

has been made on an appeal that is under reconsideration. Denied

claims are frequently reversed on appeal, and nearly all denials

taken to the ALJ are overturned. Please consider taking this provision one step further so that providers are protected until their appeals are exhausted.

It appears to limit, however, the postponement of overpayment

recovery to circumstances in which the provider has initiated the

appeal. I might say that the provider frequently does not have the

right of direct appeal and must act on the beneficiary’s behalf. LanVerDate 11-MAY-2000 14:37 Dec 03, 2001 Jkt 076025 PO 00000 Frm 00057 Fmt 6633 Sfmt 6602 E:\HR\OC\A025.XXX pfrm01 PsN: A025
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guage of this provision must be modified to provide pre-recovery

protection in all instances.

Also, a majority of denied home health and hospice claims are rejected because they do not meet one or more technical requirements. The agency’s only recourse is to undergo a costly appeal,

and this delays final payment and unnecessarily burdens providers

and intermediaries. Your legislation provides an opportunity to correct any errors or omissions in a most efficient manner.

I would be remiss in my testimony if I did not touch upon the

15 percent cut scheduled for October of 2002. The CBO estimated

that an additional 15 percent cut would be needed to meet the targeted $16 billion savings from home health care. It has become increasingly clear that these calculations are dangerously inaccurate.

According to the latest figures, the 5-year total in reductions will

exceed $70 billion. Home care providers have met the challenge of

Interim Payment Services and PPS; however, we continue to struggle under the financial burden of other related issues. The proposed

technical panel regarding the mandated Outcomes Assessment Information System (OASIS) assessment has not yet been convened,

so I would like to take this opportunity to state that this process

alone, the OASIS assessment, has cost my agency well over

$100,000. Only a minuscule percentage of that will ever be compensated.

A letter recently written by a home care nurse in Connecticut

stated: ‘‘I am disheartened by the paperwork burden which is stealing time away from needed patient care.’’ She goes on to say: ‘‘My

supervisor is also diverted from helping me with patient care by

the third-party liability paperwork, copying, and the review of

records going back 3 years.’’

Several States, Connecticut in particular, are struggling to maintain viability under the burden of the Third Party Liability initiative. Records are requested for retrospective review for payment of

duly eligible clients, and current interpretations are applied to past

care. My agency soon must begin the duplication of over 15,000

pages of records which must be sent to the FI, and this only accounts for a very small portion of the review year. One large Connecticut agency reported that their costs will exceed $1 million just

for the review process.

H.R. 2768 addresses the burden of the escalating request for documentation. It is my hope that the provision will limit their request to what is necessary rather than reaffirm their current practices.

While Home Care is well aware of the Nation’s dwindling surplus, in light of the savings to date, the additional financial burdens home care faces, as well as a growing staffing shortage, we

urge you to eliminate the 15 percent cut.

Madam Chairman, the issues addressed by H.R. 2768 may seem

quite technical in nature, but they will make a tremendous difference in the day-to-day operations. We in home health and hospice will work diligently to work with you for their enactment.

I thank you for your longstanding efforts on behalf of the Nation’s home health providers and the patients and families they

serve. On behalf of the National and Connecticut Associations of

55

Home Care, I thank you and the members of this Committee for

the bipartisan action that you have taken.

Thank you.

[The prepared statement of Ms. Wilson follows:]

Statement of Susan Wilson, Vice President, Clinical Operations, and Chief

Operating Officer, VNA of Central Connecticut, Inc., New Britain, Connecticut; President, Board of Directors, Connecticut Association for

Home Care, Wallingford, Connecticut; and Member, National Association

for Home Care

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 HR 2768, the ‘‘Medicare Regulatory and Contracting Reform

Act of 2001.’’ My name is Susan Wilson. I am Vice President of Clinical Operations

and Chief Operating Officer of the Visiting Nurse Association (VNA) of Central Connecticut. I am also the President of the Board of Directors of the Connecticut Association for Home Care (CAHC), the voice of home care in Connecticut, and a member of the National Association for Home Care (NAHC).

NAHC is the largest national organization representing home health care providers, hospices, and home care aide organizations. Among 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. CAHC represents 61 providers that collectively deliver more

than 75 percent of all home health and hospice services provided in the state.

In March I 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. I am pleased to be back here

today to personally extend my 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 2768, the ‘‘Medicare Regulatory and

Contracting Reform Act of 2001.’’ This legislation will go a long way toward easing

the impact of some of the most troublesome policies of the Medicare program. 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 be enacted as part of HR 2768, 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. NAHC believes that it would

be helpful if, with respect to this particular provision, the Subcommittee could provide clarification regarding what would constitute a ‘‘sanction’’—does this mean that

a provider would not be subject to fines for wrongdoing, or would the protections

extend to other obligations that resulted from the faulty guidance of the contractor?

Home health agencies have followed written guidance from intermediaries on cost

reporting only to find the intermediary later rejecting its own approval. This led to

unfounded allegations of overpayments. We hope that these circumstances are included under this provision.

Contractor Accountability

NAHC applauds your efforts as part of HR 2768 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 establishment of provision of technical assistance and program information to providers as

56

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 6 of HR 2768 establishes a Small Provider Technical Assistance Demonstration Program. We believe that this is an excellent approach for evaluating

billing and other practices of small providers to ensure compliance with Medicare

law. As you know, Madame Chairman and members of the Subcommittee, the vast

majority of home health agencies and hospices are small businesses that could

greatly benefit from participation in such a demonstration. We support this effort

wholeheartedly. We also would ask that the definition of ‘‘small providers of services

or suppliers’’ be clarified to be certain that it would include providers of care such

as hospices and home health agencies as it currently references ‘‘institutional’’ providers.

Medicare Provider Ombudsman

Your establishment, under Section 7, 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.

Recovery of Overpayments and Prepayment Review; Enrollment of Providers

We have several comments and questions regarding the provisions in HR 2768

that relate to overpayments. As you are well aware, Madame Chairman, the Balanced Budget Act of 1997 (BBA) imposed deep and swift cuts on Medicare home

health providers. Many providers operated for as much as one full year without

knowing what the limits on their payments would be. As a result, a great number

of agencies throughout the country found themselves in situations where they owed

such significant amounts of money to the Medicare program that even a 36-month

payment plan was too short a time. In such cases it was not unusual for the provider, contractor, and Medicare to establish a 60-month repayment schedule. We

would urge that your legislation create sufficient flexibility so that repayment schedules of more than 36 months might be allowed under such special circumstances.

Similarly, your establishment of a ‘‘bright-line’’ test for ‘‘hardship’’ for overpayment obligations at 10 percent of the provider’s Medicare income is understandable.

However, and particularly in the case of home health agencies and hospices that are

not heavily capitalized, ‘‘hardship’’ may occur with overpayment obligations at less

than 10 percent. We would, once again, urge that some discretionary authority be

extended so that special circumstances are considered for exceptions to the rule.

We are delighted, Madame Chairman, that your bill would prohibit any

recoupment of an overpayment until after a decision on a reconsideration has been

rendered. Under the home health and hospice programs, significant numbers of denied claims are reversed on appeal, and nearly all denials taken to the administrative law judge level are overturned. We would encourage you to consider taking this

particular provision one step further so that providers would be protected from overpayment recoupment until after their appeals are exhausted.

The bill also appears to limit the postponement of the overpayment recovery to

circumstances where the provider has initiated the appeal. In many of the appeals,

the 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 prerecovery protection in all instances where the issue in dispute is under appeal.

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.

As I have discussed with you and your staff, Madame Chairman, the duplication

of records can be costly and time consuming. It is my 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.

57

Ability to Correct Minor Errors and Omissions on Claims

The vast majority of home health and hospice claims that are denied are rejected

because they do not meet one or more of the technical requirements set out by the

Medicare program. Under current practice, if an agency fails to meet a technical requirement in developing and filing claims—examples of which are failure to record

the verbal order date on the plan of care, secure physicians’ signatures on all verbal

orders prior to billing (including minor treatment changes), or date the receipt of

signed orders if the physician has not dated his or her signature—the claim is denied and the agency’s only recourse is to undergo a costly and lengthy appeals process. This can delay payment to the agency for up to a year and a half, and unnecessarily burden providers and intermediaries. Your legislation would address this

long-standing problem by establishing a process under which health care providers

would be given an opportunity to correct these minor errors or omissions without

having to initiate an appeal. We consider this change in the law as a significant

advance for providers, patients, and the Medicare program that will achieve great

savings while providing Medicare payment for necessary care.

Additional Action to Shore Up the Home Health Program

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.

I would be remiss in my testimony if I did not at least touch upon one additional

issue that weighs heavily on home health providers nationwide-—that of the 15 percent cut currently scheduled for October 2002. As you will recall, the Congress included the additional 15 percent cut in home health payments as part of a series

of cuts under the Balanced Budget Amendment at the recommendation of the Congressional Budget Office (CBO). At the time, CBO estimated that the additional 15

percent cut would be needed in order to meet the targeted $16 billion in savings

from home health for fiscal years 1998 through 2002. With each passing year since

BBA’s enactment, it has become increasingly clear that those calculations were dangerously off the mark. According to the latest numbers from CBO, the five-year total

in reductions for home health will exceed $70 billion—a far cry from the $16 billion

goal.

We in home care are painfully aware of the state of the nation’s dwindling surplus. However, we respectfully urge that you take steps this year to eliminate the

15 percent ‘‘Sword of Damocles’’ that has hung over our heads these past few years.

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. On a more personal note, it is a source of great pride for me to be able

to call you ‘‘my Representative’’ in the Congress. Many thanks, again, for your exemplary advocacy.

This concludes my formal remarks but I would be happy to answer any questions

mony and for your detailed suggestions. We will review all of them

that any members of the panel might have.

Chairman JOHNSON. I thank the panel for their extensive testif carefully.

Let me just say for the education of my colleagues on the Subcommittee that this third party liability problem that we have in

Connecticut and in a few other States is going to spread like a disease. It is a way that States can maximize Medicare reimbursement, move people from Medicaid onto Medicare, reduce the States’

costs and increase our costs. What it results in is the State or some

contracted agency requiring review of documentation on every, single patient.

We had one agency in Connecticut, just a very small agency, who

wrote that it was going to cost them $37,000 just to xerox the first

round of requests. That is unconscionable, and any government

58

that allows that kind of squandering of national resources is irresponsible and derelict in their duty.

So we have made a lot of progress in negotiating an agreement

on this, but we may need to include some language in this bill or

another to ratify the resolution of that problem before it truly destroys particularly the small providers.

But the provider that Ms. Wilson referred to that says it is going to cost them $1 million, it is $1 million for that one agency, just

this first set of reviews, and it is big because they are the last

agency that now serves inner-city folks needing home care. So it

would be catastrophic if we wiped them out through utterly irrational regulatory requirements.

Mr. Crane, would you like to question the panel?

Mr. CRANE. Thank you, Madam Chairman.

Ms. Wilson, in your testimony, you urge us to amend H.R. 2768

to postpone recovery of alleged overpayments until all provider appeals are exhausted. As you know, the OIG strongly opposes that

proposal, arguing that the likelihood of successful recovery diminishes dramatically the longer the process is drawn out.

H.R. 2768 tries to find a compromise by permitting recovery only

after the first level of appeal is exhausted, which would filter out

the majority of denials that will be overturned on appeal.

I understand that you would like us to go further. How can we

do so and still be sensitive to the real concerns outlined by the Inspector General?

Ms. WILSON. I believe that what needs to be done is to take a

look at what has happened historically. The recoupment does take

place after the first round of appeals; however, the continued look

at the particular issue by going through additional appeals is

lengthy, extremely costly, and I believe the history has been that

a great many of those have been overturned in the long run.

Essentially what has happened is that the agency has been paid

a certain amount of money for service. It may be recouped at a certain time. However, the appeal process needs to continue. We are

talking about many agencies, whether not-for-profit or for-profit,

that at this point are working under very tight constraints regarding costs. So that essentially, we are removing moneys from the

agency necessary in order for them to continue the care that they

are providing. Agencies are extremely hard-pressed to be able to do

that.

Mr. CRANE. Thank you.

Ms. Aronovitz, I would like to ask you to expand on some very

important statements that you made in your testimony. Don’t you

think that competition will improve the operations of the Medicare

contractors, and specifically, will it improve services for seniors and

for health care providers?

Ms. ARONOVITZ. Absolutely. The Federal Acquisition Regulation,

which requires full and open competition, we think is essential; it

is a real foundation to the way that most government entities contract for most goods and services. We think this is a very important

principle even with claims administration contractors. I know there

is some discussion of developing a system where CMS could be excused from ever conducting full and open competition where a contractor is performing very, very well.

59

I personally have a lot of skepticism about that, because we have

found that CMS has a lot of work to do before they develop the

kind of performance system for claims administration contractors

that could justify that kind of flexibility.

Clearly, this is an extraordinarily large endeavor, and we do not

expect that CMS would be able to do this in record time. It takes

time to develop statements of work and to develop this type of contracting. But we think that CMS should develop these contracts,

and there should be some time definite where all these contracts

would be competed.

Mr. CRANE. Thank you. Thank you, Madam Chairman.

Chairman JOHNSON. Mr. McDermott.

Mr. MCDERMOTT. Thank you, Madam Chair.

Dr. Hall, since you are the designated hitter for the medical profession, I want to ask you a couple of questions. I was just thinking

about the fact that this country is going through an awful experience, and it is my view that there will be a national epidemic of

post-traumatic stress disorder in this country. So I was just thinking, well, now, all those doctors are out there, and they are going

to have to document this, and they have to find sleep disturbance,

and they have to find irritability, and they have to find that it has

lasted for more than 90 days. All of those are parts of the diagnostic criteria for making that diagnosis.

And I was having some trouble remembering exactly what the diagnostic indicators were, so I was thinking to myself, what is it

about this scheme that is out there of coding and documentation

that, if you could change a couple more things in this bill to make

it work better, what would you do—because I think physicians are

overwhelmed with a lot of stuff coming at them, and I do not start

with the premise that they are doing it on purpose, but on the

other hand, we do need some documentation.

So if you were looking at this, what else would you change?

Dr. HALL. Thank you, Congressman McDermott.

If I were czar of the universe—and I certainly recognize that I

am not—I guess there are a couple of things I would change.

As internists and particularly with evaluation and management

services, which are the bulk of our business, particularly where

older adults covered by Medicare are concerned, often our ability

to tell you what you do not have is more important than our ability

to tell you what you do have. I have very few patients, if I spent

adequate time after a work-up sitting with them and saying, ‘‘I

have to tell you that we did not find that you have life-threatening

cancer,’’ very few of them say, ‘‘Aw, shucks, I am not going to pay

your bill because you did not make that diagnosis.’’

On the other hand, that is what I deal with constantly when I

deal with CMS. If I go through the same, identical, exhaustive

work-up, but it turns out that I have not diagnosed a more classic

disease, I am very likely to have my payment rejected or at least

down-coded. This is one of the problems that we face in a very complex system which, I agree with you, is going to get increasingly

complex as the population ages, bringing with it a baby boomer

level of demand, intellectual inquiry and access to the Internet.

Internists are more and more going to be providing services to

say to patients, ‘‘I understand where you are coming from. This is

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not what you have. Here is how we can get your life back into a

certain amount of order,’’ which is really what the post-traumatic

stress syndrome is. Add to that the fear of bio-terrorism, and we

are facing an amazing and I think formidable challenge in the next

couple of years in our own country.

So, what would I change? Well, I think the things that I hear the

most include, first of all, the appeals process. This is felt to be inherently quite unfair to internists. More importantly, it has some

very serious practical implications.

We know that after the first appeal, very, very few of these

claims turn out to be anything, as has already been mentioned, individual fraud is extremely rare, but some overpayment is unfortunately going to occur, just like underpayment. Then, let us get it

right the first time. Let us put our resources at CMS into first of

all being much more open and forthright in telling physicians and

their staffs what they have to do right. Let us not have a situation

where, if we call for advice, the person giving us the advice refuses

to give us his or her name. Let us not have a process where, if we

send our staff to various intermediary or regional carrier orientation sessions and they ask the wrong question, they are going to

be targeted for review. This is not a healthy environment.

I graduated from medical school the same year that Medicare

was enacted, and I have never known anything else throughout my

30-plus-year career. I happen to like it. I think it is a good system.

But I think we have now reached the point where we are discouraging physicians.

So what happens with this appeal process? Physicians toward

the latter half of their careers are the people who are dropping out.

They just do not want to have to deal with this problem and be

considered guilty until proven innocent. If we then look at rural

communities and what is happening in terms of physicians moving

out, I am very much panicked about how we are going to take care

of this bulge in the demographics without getting on top of it.

Do it right. Set up a system that creates much more of a partnership between CMS and physicians, and let us not have physicians

have to settle claims that they know are absolutely wrong just in

order to stay in business, which is what is happening in a lot of

places.

Second, I guess I would take a very careful look, as you already

have and as other people have testified to, at the whole extrapolation process. This just does not make any sense. It is all re-work.

Let us do it right the first time. Let us get the educational guidelines set up.

I file one income tax return a year—in fact, I file it for two of

us, because my wife and I file together. I understand the need for

some kind of random audit there, because I only do it once a year.

But if I take care of 2,000 frail elderly people, I am submitting

6,000 claims a year. Wouldn’t it be better to look at the claims that

are being submitted already and say, ‘‘Dr. Hall, compared to your

peers in the community, your billing practices are not very right,

and we think that we had better take a look at that.’’ Why would

we just pick a random audit sample out of those 6,000? It just does

not make sense in terms of getting at the real problems. Thank

you.

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Mr. MCDERMOTT. Would you let me have a little extension on

that, Madam Chair?

Chairman JOHNSON. Is that all right with you, Mr. Johnson?

Mr. JOHNSON of Texas. Yes.

Chairman JOHNSON. Yes, that would be fine, Jim.

Mr. MCDERMOTT. We use the term in our bill ‘‘a high level of

payment error.’’ I would like to know how you would define that.

That triggers a bunch of bad things for a doc. So how would you

define ‘‘a high level of payment error’’ for HCFA, or whatever that

agency is called now?

Dr. HALL. CMS. Well, I would be the wrong person to ask that,

because whatever I said could be subject to some bias. But if someone were to ask my opinion on how it should be set up, I would

say that within every region, there are standard, acceptable practices and there are frequencies of coding that are very much keyed

to the specific population that is being taken care of.

If I am practicing in Sun City, Arizona, my distribution of billing

codes and my levels of care are going to be very different than if

I am practicing in some other area where there is not such a high

concentration of retirees.

I think that the definition should be based on some kind of statistical cut point that says you should be within 95 percent of the

spread of diagnostic codes and of billing codes, or whatever is the

right number, but let us decide on that number that makes some

sort of sense in the context of practice—and I agree there has to

be some kind of accountability here. The last thing we are asking

for is decreased accountability.

Mr. MCDERMOTT. Thank you.

Chairman JOHNSON. Thank you.

I would note that Gail Wilensky testified to this point at our very

first hearing, that the whole system needs to move to that kind of

oversight so you can identify patterns early and can use that pattern process to get at providers who are either making errors or exploiting the system. I do not know that we can move that into this

specific bill, but we are going to have to get into that much more

deeply.

I just want to clarify something before I go to Mr. Johnson. Did

you say that if you do not diagnose a serious illness, the visit is

then down-coded? We have heard this many times.

Dr. HALL. The likelihood is that with an EM service, if we do not

have a piece of paper that has a lab test attached to it that says

a certain disease was diagnosed, that claim has a much higher

probability of being down-coded.

Chairman JOHNSON. Are your people having trouble with Level

5, which says ‘‘comprehensive physical,’’ versus Level 3, which says

‘‘detailed physical’’?

Dr. HALL. There are problems there, but I think it runs through

the entire spectrum of the coding levels.

Chairman JOHNSON. Thank you.

Mr. Johnson.

Mr. JOHNSON of Texas. Thank you.

Ms. Aronovitz, would you talk to me about how you have said,

I believe, that there is a lack of accuracy in the information that

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Medicare contractors make available? Are the pressures of the system forcing that on them, or were your questions trick questions?

Ms. ARONOVITZ. They were clearly not trick questions, and we

were very disturbed by our findings. We did not expect to have

such a high error rate.

Our questions were actually taken from contractors’ websites

under their ‘‘Frequently Asked Questions’’ section, so these are

questions that should have been answered correctly.

We think that there is a lot of pressure for customer service representatives to answer questions quickly and well, and there is no

excuse for having such a high error rate. We think that the training and the oversight that is given to customer service representatives and other activities that are conducted at the contractor level

need to be more standardized, and they need to be increased.

Mr. JOHNSON of Texas. Is it the fault of the system that makes

the paperwork level almost extreme? Most of the doctors, I think,

have to hire one or two people just to keep track of what is going

on. Is that part of the problem?

Ms. ARONOVITZ. Well, there is some concern that the program is

so complicated that customer service representatives have trouble

figuring out the correct answers. But in this case, these three questions were ones that had been asked so many times that the answers were very straightforward and very clear and had been discussed with customer service representatives several times.

So we do not think that our questions in any way indicate the

kind of complexity where the expectation is that they should not

have been able to answer correctly. They clearly should have been

able to answer these questions.

Mr. JOHNSON of Texas. Do you think that they are answering

truthfully in their own minds and just did not get the question

right, or what?

Ms. ARONOVITZ. Yes, I really do. I think maybe it could have

something to do with training or oversight or monitoring or feedback. There are lots of things they have to worry about—not just

answering the question correctly, but there are a lot of process

questions. They need to make sure that they ask a follow-up. There

is a lot of phone etiquette that they also have to engage in. And

to their credit, they also answer a lot of questions that pertain to

reimbursements on specific claims. We have not tested those, but

we do not hear complaints from physicians when they call up about

those kinds of things.

So we think they need a lot more training, and they need to have

more feedback in terms of how their performance is measured.

Mr. JOHNSON of Texas. Did I just hear you say that physicians

are not griping about their reimbursements?

Ms. ARONOVITZ. No, no, no. I did not say they are not griping

about their reimbursement at all. What I said was that we have

not heard the same level of concern when a physician calls one of

these call centers and asks, ‘‘What is the status of my reimbursement?’’ In other words, when is it coming? They seem to be satisfied that they get an answer; whether they are happy with

that——

Mr. JOHNSON of Texas. OK. Did you pursue HCFA at all as to

why they do not trust the providers and the docs when they are

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giving them information? That has been my experience in dealing

with them. Did you pursue that at all?

Ms. ARONOVITZ. Why the physicians do not trust the answers?

Mr. JOHNSON of Texas. Why HCFA will not take information

from the hospitals, docs, and associations as real; they have to go

out and do their own studies, which are always about 10 years late.

Did you pursue that at all?

Ms. ARONOVITZ. We did not really pursue that, but it is an interesting point. I think that CMS is starting to reach out more, and

we are very encouraged by their interactions with physicians, trying to get feedback on their concerns. But you are right, they do

a lot of their independent studies, and they feel they really need

to to get the kind of evidence they need to make program changes.

Mr. JOHNSON of Texas. Well, I think it is a waste of time and

money on their part, frankly. Thank you, Madam Chairman.

Chairman JOHNSON. I just want to pursue one brief question

with Dr. Hall and one with Ms. Aronovitz.

Dr. Hall, it was very helpful to hear you follow up on Dr.

McDermott’s questions, but in your testimony, you said something

about instead of all this documentation, a one-pager. Have you

thought through what that one-pager would be, or would you be interested in having your people begin thinking through what is—because this is something that actually I have proposed and we have

in our bill, sort of a demonstration possibility for people outside the

government, without any background or without any attachment to

the bureaucracy and the IG, to come up with what they think in

the real world is sensible documentation, and then we can go

through the process of rectifying it.

But right now, we are trying to rectify a process that is extraordinarily detailed and intrusive with a generalized payment system

and with an IG who has the right to require things that even the

IRS does not have the right to require.

So there are other steps beyond this bill, but I wonder if you

would be interested in sort of giving body to that comment that you

made in the course of your testimony.

Dr. HALL. Congresswoman Johnson, I thought you would never

ask. I think there is a start. Within the Current Procedural Terminology documentation, there is such a document that is much more

contracted than what we have had before. One of the proposals for

a pilot study would be to combine that with the element of time,

the actual commodity that we are really talking about in an office

setting. We could supply some of that information to the Subcommittee. We would be able to get that to you right away, right

from our own Washington office.

Chairman JOHNSON. We would appreciate your getting that to us

right way, and then we can flesh out that particular pilot idea, because in the long run, I personally believe that we will not be able

to continue to attract the quality of mind or heart to medicine if

we do not do something about the fact that they are paid on the

basis of an RBRVS formula which is so extraordinarily complex,

and nobody understands it, not even the people who implement it,

a coding system that now is almost unworkable, and a practice expense formula that is also controversial, complex, and in my estimation, unworkable.

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So when you look at the three systems supporting physician reimbursement, frankly, it is not the future, and we have to find radical ways to break through and find another basis on which to restore an honest and responsive relationship to a medical community that has to increasingly deal with complex illnesses, complex

methods of diagnosis and treatment. This is also true in the home

health area and in many other areas, but if you will get that to us,

we will work on that.

Dr. HALL. We will do that. Could I just make one comment in

relationship to that?

Chairman JOHNSON. Yes.

Dr. HALL. The medical chart for most physicians is more than a

legal document. It is really the record of the clinical transaction

that goes on behind closed doors with the patient. It often contains,

if it is a proper chart, information that maybe some people would

not even share with their spouses. It is very, very important to the

continuity of care.

What we have now done is taken that record and used it as the

sole basis for determining the quality and quantity of the interaction that occurred behind those closed doors. It was never meant

for that, so what we are finding is that I personally and all the people we work with spend an inordinate amount of time recording

what is quite frankly nonsense—it has nothing to do with what is

important for that patient—in order to justify and provide the documentation that is necessary.

To be sure, there has to be some metric for that documentation

that is understandable and allowable, but I think the bureaucracy

has just gotten away from us. We need to reestablish this dialog

between the medical profession and CMS and just come up with a

better way.

Chairman JOHNSON. Thank you. We invite your participation in

that dialog, and we hope to push that dialog ahead very aggressively from this Subcommittee.

Ms. Aronovitz, I was surprised at your response to Mr. Johnson’s

comment—or another of my colleagues; I am not quite sure—about

giving CMS the flexibility to renew contracts without a bid process.

This business of setting standards is not rocket science. Just because the government has not bothered to do it does not mean it

is not quite regularly done throughout the private sector and is not

a process that we know a lot about.

I would like to preserve that right, because the bidding process

is very expensive, and it is going to take a while to get this first

round, and I think there needs to be some flexibility to recognize

high performance. So one possibility might be to require a report

to the Committee on the standards once they have been set so we

can have a dialog about that; we could even have hearings on it

if we think the standards are too low or not well enough developed,

and then a report when the decision is made by the government

not to go to bid, so that we can follow this.

But I think that at the time we are giving flexibility, we need

to give broad flexibility, because we are going to make really radical changes in the system. Do you have any comment on that?

Ms. ARONOVITZ. Sure, I do. First of all, I totally agree with you.

We believe that performance standards is one of the most imporVerDate 11-MAY-2000 14:37 Dec 03, 2001 Jkt 076025 PO 00000 Frm 00068 Fmt 6633 Sfmt 6602 E:\HR\OC\A025.XXX pfrm01 PsN: A025
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tant principles in any type of contract. Setting up expectations and

then providing oversight and monitoring and feedback is essential

to understanding whether you are getting your money’s worth for

any goods or services you would have.

So we definitely believe that that is critical. It is just that CMS

does not have really strong performance measures. I think they are

getting there, and in their program safeguard contractor efforts, it

is coming along.

In terms of the expense involved in doing full and open competition, we agree that this could be very expensive, but we think the

expense really comes in the first round. CMS really does not have

experience on claims administration contracts, in writing statements of work, in developing this process. We believe, though, that

once it does that for several contractors, it could use the same approach or the same statement of work for competing in future years

or even competing with other contractors or doing one big competition.

So we think that the expense that they are going to incur up

front is going to be a fixed cost that could apply across the board.

We do not think there would be that much saved in exempting one

contractor down the road from having full and open competition,

and there are some real benefits to it down the road. That is, no

matter how well you are performing, it forces you to look around

and make sure that you are improving because you know you do

have competition.

The last thing I want to say is that we agree that we would not

want to push CMS into doing this in a time frame that would be

unreasonable. I think that if all competition would have to be completed by 2006 or 2007 or 2008, or whatever amount of time would

be reasonable to give CMS a chance to do this well and to do it

in a phased approach, we are not in any way opposed to that. It

is just that ultimately, these contracts should be completed because

there are a lot of benefits that could be derived.

Chairman JOHNSON. Thank you very much. Mr. McDermott.

Mr. MCDERMOTT. Madam Chair, I wonder if it would be possible—I keep thinking about the IRS, and they do not make you

pay in advance; what they do is they charge interest when you finally settle up—I wonder if we could not consider an amendment

to move it up a layer in the appeals process before people have to

pay, knowing that they would have to pay interest. Is there some

compromise that we could work out in there to make it a little less

onerous to hit somebody right up front and make them pay for

what then takes sometimes as much as 3 years to pay—and you

may not in fact wind up paying at the end of the 3 years. That

seems unfair to me.

Chairman JOHNSON. I certainly would be happy to look at it with

you. First of all, I take the interests of the Subcommittee members

very seriously, and in addition, there are some data that say that

particularly for physicians on that second level of review, 60 percent—on the first level of review, 40 percent have changed, and on

the second level of review, the remaining 60 percent are reviewed.

We have found that there is some disagreement about those figures and whether they really hold up, but I think we would be

66

happy to look at it with you and see if we can—I know that for all

of you, that second level of review is important.

Mr. MCDERMOTT. When do you anticipate having a markup?

Chairman JOHNSON. We anticipate resolving these kinds of

issues this week, so we will be talking about this directly this

week, and hopefully will be able to have a Subcommittee markup

in 2 weeks.

Mr. MCDERMOTT. Two weeks?

Chairman JOHNSON. Yes.

Mr. MCDERMOTT. OK.

Chairman JOHNSON. Unless there are other time frames that are

beyond our control that require us to move it up more rapidly.

Mr. MCDERMOTT. Thank you.

Chairman JOHNSON. Thank you.

Thank you very much, members of the panel. I so appreciate

your joining us and giving such serious consideration to the proposal that we put out a month and a half ago.

Thank you very much.

[Whereupon, at 12:22 p.m., the hearing was adjourned.]

[Submissions for the record follow:]

Statement of the Advanced Medical Technology Association

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 $68

billion of health care technology products purchased annually in the U.S. and nearly

50 percent of the $159 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 40 million Americans, and we greatly appreciate

the way that the Committee has reached out to the health care community to develop legislation to make the program easier to understand, comply with, and participate in.

Contracting Reform

While some reforms to the contracting process are warranted, AdvaMed strongly

believes that any reforms that would result in changes in local carriers or consolidated areas 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, Medicare patients face delays of

15 months to five years or more in gaining access to technologies at the national

level.

Consolidation of the number of local Medicare contractors that make coverage decisions would severely constrict or eliminate the local coverage route 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

67

• an active relationship with the local medical community and understanding

of local medical practice, and

• the ability to make case-by-case determinations.

Local decision-making authority provides Medicare beneficiaries access to new

procedures and technologies without having to wait until these innovations have

been disseminated nationally.

A recent 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’’ for the vast majority (90%) of new technologies and services.

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.

Recommendations

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 the local coverage advisory committee) should be maintained.

• Local authority to make decisions. One approach to maintaining local decisionmaking is to require contractors to grant local physicians (such as state medical

directors) direct authority to make coverage decisions, in consultation with their

peers in the local medical community. This includes the authority to make

claims-level case-by-case decisions in a timely manner.

• Local carrier advisory committees (CACs). Local CACs should be continued in

each state to assure 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.

• Local codes. Occasionally, to implement a local decision, it may be necessary

to issue a new temporary local code, and so we recommend that contractors continue to have the authority to issue and recognize local codes.

• Accessibility and Responsiveness. Contractors should require their medical directors to be readily accessible and responsive to local physicians, providers,

beneficiaries, and manufacturers, and to continue to respond and render decisions in a timely manner.

• Open Participation in Decision-making. Last November, CMS issued a program memo instructing contractors to post their draft coverage decisions on

their websites for comment. We suggest extending this to include additional information earlier in the process, similar to the national level, where the local

medical director would post to the website the intent to make a coverage decision, what information will be reviewed, the names of the members of the coverage advisory committees who will be reviewing the information, and acceptance of input from interested parties during the various stages of this process.

This would apply to any changes in local coverage policy, including those that

may result from a change or consolidation of contractors.

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,

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.

The Alliance to Improve Medicare (AIM) is the only organization focused solely

Statement of the Alliance to Improve Medicare

f on fundamental, non-partisan modernization of the Medicare program to ensure

more health care coverage choices, better benefits (including prescription drug benefits), and access to the latest in innovative medical practices, treatments and technologies through the Medicare system. AIM coalition members include organizations

68

representing seniors, hospitals, small and large employers, insurance plans and providers, doctors, medical researchers and innovators, and others.

AIM recently released the attached report outlining regulatory burdens on both

Medicare beneficiaries and providers and recommending administrative remedies.

The report, ‘‘Improving Medicare Management for Everyone’’, identified areas of

complexity for both senior citizens and providers including health plans, hospitals,

and medical technology innovators. AIM identified beneficiary concerns including

the lack of clear information on benefits and eligibility, access to prescription drug

benefits, and difficulties understanding Medicare paperwork. The report also outlined provider regulatory burdens including inconsistent Medicare program policies,

slow responses to provider concerns and inquiries, and an inflexible Medicare bureaucracy.

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. We hope the Subcommittee will

consider the recommendations in the attached report as they continue their discussions on this issue.

Improving Medicare Management for Everyone

Improving Medicare Management Through Reducing Regulatory Burdens on Both

Providers and Beneficiaries

A Report by the Alliance to Improve Medicare

June 2001

The Alliance to Improve Medicare (AIM) is a coalition of organizations representing seniors, doctors, hospitals, patients, medical researchers and innovators,

insurance plans and providers, small and large businesses and others who believe

that Americans need and deserve a better Medicare program. AIM is the only organization focused solely on fundamental, non-partisan reform of the Medicare program to ensure more coverage choices, better benefits (including prescription drug

benefits), and access to the latest in innovative medical practices and treatments

though the Medicare system.

The structure of the traditional Medicare program has changed little in more than

three decades, and, consequently, has not kept pace with many of the dramatic improvements in the delivery of health care. AIM is dedicated to comprehensive modernization of the traditional Medicare program. By focusing on benefits and services

rather than excessive government regulation, and injecting competition and choice

into the program, AIM believes we can have a better Medicare program and one

that will be financially healthy well into the 21st century.

AIM is working to achieve Medicare modernization through policy research and

educational programs for Members of Congress and staff, the media, and the American public.

Key AIM Principles

• Improve coverage through better coordination of care and health promotion

and disease prevention efforts.

• Improve coverage choices by providing Medicare beneficiaries with the power

to choose from a range of coverage options similar to those available to Member

of Congress, federal employees and million of working Americans under age 65

who are covered by private plans.

• Improve coverage through increasing market competition and availability of

basic, affordable coverage to Medicare beneficiaries.

• Provide access to prescription drug coverage as part of comprehensive, market-based modernization and improvement.

• Improve traditional Medicare’s basic benefit package and provide the flexibility to make new health care innovations more accessible.

• Reduce Medicare’s excessive complexity and rigid bureaucracy.

• Establish a solid foundation upon which to improve Medicare by ensuring appropriate and timely payments to health plans and providers.

ALLIANCE TO IMPROVE MEDICARE

COALITION MEMBERS

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60 PLUS ASSOCIATION

AdvaMed—ADVANCED MEDICAL TECHNOLOGY ASSOCIATION

AETNA U.S. HEALTHCARE

ALZHEIMER AID SOCIETY OF NORTHERN CALIFORNIA

AMERICAN BENEFITS COALITION

AMERICAN HOSPITAL ASSOCIATION (AHA)

AMERICAN MEDICAL GROUP ASSOCIATION (AMGA)

AMERICAN ASSOCIATION OF HEALTH PLANS (AAHP)

AMERICAN SMALL BUSINESSES ASSOCIATION

BELL SOUTH CORPORATION

BLUE CROSS BLUE SHIELD ASSOCIATION

CITIZENS AGAINST GOVERNMENT WASTE

COMMUNICATING FOR AGRICULTURE

COUNCIL FOR AFFORDABLE HEALTH INSURANCE (CAHI)

COUNCIL FOR GOVERNMENT REFORM

COUNCIL ON RADIONUCLIDES AND RADIOPHARMACEUTICALS

THE ERISA INDUSTRY COMMITTEE

FEDERATION OF AMERICAN HOSPITALS

FOOD MARKETING INSTITUTE

HEALTHCARE DISTRIBUTION MANAGEMENT ASSOCIATION

HEALTHCARE LEADERSHIP COUNCIL (HLC)

HEALTH POLICY ANALYSTS

HISPANIC BUSINESS ROUNDTABLE

KIDNEY CANCER ASSOCIATION

MEDICAL IMAGING CONTRAST AGENT ASSOCIATION (MICAA)

NATIONAL ASSOCIATION OF HEALTH UNDERWRITERS (NAHU)

NATIONAL ASSOCIATION OF MANUFACTURERS (NAM)

NATIONAL RESTAURANT ASSOCIATION (NRA)

NATIONAL RETAIL FEDERATION

NATIONAL FEDERATION OF INDEPENDENT BUSINESS (NFIB)

PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION (PCMA)

PHARMACEUTICAL RESEARCH AND MANUFACTURERS

ASSOCIATION (PhRMA)

PREMIER

SENIORS COALITION

THIRD MILLENNIUM

UNITED SENIORS ASSOCIATION

US CHAMBER OF COMMERCE

VHA INC

IMPROVING MEDICARE MANAGEMENT FOR EVERYONE

Improving Medicare Management

Through Reducing Regulatory Burdens on Providers and Beneficiaries

Background

Medicare, the world’s largest health insurance program, serves approximately 40

million beneficiaries today and is projected to serve nearly double that number

when the baby boom generation fully enters the program. Increasing dissatisfaction,

however, from both beneficiaries and providers has forced policy makers to consider

whether Medicare can survive for these future beneficiaries. AIM members applaud

the Administration and Congress for their work to strengthen and improve the

Medicare program for today’s beneficiaries and for future generations but urge a

continued focus on a solid administrative infrastructure geared toward beneficiary

interests.

Most important is the vision that Medicare was created to serve senior citizens

and disabled individuals, to ensure that these individuals are provided with quality,

appropriate health benefits. Since the program’s creation, however, Medicare benefits have not kept pace with private health coverage. In addition, both Medicare

beneficiaries and providers have been subjected to more and greater regulatory and

administrative requirements for participation. These requirements have harmed

providers and caused some health plans to leave the program entirely while others

have been forced to reduce benefits in order to maintain financial solvency. Beneficiaries have also suffered through a scarcity of information and confusing coverage

issues.

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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 the bipartisan efforts of House Ways & Means

Committee members to develop and recommend changes to the current program.

Like the recommendations contained in the May 14, 2001 letter from House Ways

& Means Health Subcommittee Chairman Nancy Johnson (R–CT) and Ranking Minority Member Pete Stark (D–CA) to U.S. Department of Health and Human Services (HHS) Secretary Tommy Thompson, many of the recommendations contained

in this report can be achieved through administrative actions.

AIM urges Congress and the Administration to work together to achieve these

regulatory reform goals this year and to strengthen and improve the Medicare program for both beneficiaries and providers.

Report

This report identifies primary beneficiary concerns as well as some of the major

administrative problems and regulatory burdens facing health care plans and providers in the Medicare program. Further, the report makes recommendations to improve Medicare coverage through reduction of regulatory burdens on both beneficiaries and plans and providers.

The beneficiary recommendations are based on surveys of Medicare caseworkers

in Congressional District offices conducted in May 2001. The surveys, sent to field

offices of all Member of the U.S. House of Representatives and U.S. Senate, requested input on the most common concerns raised by beneficiaries in their attempts to understand and comply with Medicare paperwork. AIM received completed surveys from over 100 Congressional district offices in 40 states.

The health plan and provider regulatory burden relief recommendations are based

upon responses from a variety of AIM member organizations representing a range

of industries.

SECTION ONE:

Medicare Modernization: Beneficiary Regulatory Concerns

AIM surveyed Medicare caseworkers in Congressional district offices to compile

the recommendations included in this section. Generally, the caseworkers reported

that constituents’ Medicare concerns rank second or third in sheer volume of inquiries to their offices. Caseworkers overwhelmingly reported that the biggest concern

raised by constituents is obtaining information about Medicare eligibility and benefits and understanding that information. Caseworkers specifically cited difficulty obtaining basic information on Medicare eligibility and understanding enrollment opportunities. Further, beneficiaries appear to have great difficulties understanding

Medicare claims and appeals procedures. Ranking second among beneficiaries, according to caseworkers, is obtaining coverage for prescription drugs and assistance

in paying for prescription drugs. Understanding and responding to Medicare paperwork, particularly for beneficiaries with supplemental coverage, ranked third among

beneficiary inquiries to Congressional offices.

Beneficiary Benefit and Compliance Concerns

Recommendation: Provide Better Information on Beneficiary Eligibility and Covered Services including Claims and Appeals Procedures (Administrative)

Medicare beneficiaries are often confused about basic eligibility and benefits requirements despite efforts by the Centers for Medicare and Medicaid Services

(CMS—formerly known as the Health Care Financing Administration) to improve

and expand communications. Many Medicare beneficiaries continue to have trouble

obtaining clear explanations of their benefits. Beneficiaries appear to lack clearly

identified customer service representatives who can provide assistance by explaining

coverage and benefit information and options.

Beneficiaries also appear to need additional assistance understanding Medicare

claims and appeals procedures. Beneficiaries contacting Congressional offices frequently raise concerns about denial of payment for services previously covered. For

example, coverage for ambulance services and chiropractic care were specifically

cited on nearly 10% of all responses. Beneficiaries are confused about what is covered and report to Congressional caseworkers they have been told by their physician

that a service is covered but they are later informed that Medicare has denied coverage for that particular service. (Medicare makes coverage determinations only

after services are provided.)

Caseworkers responded that many beneficiaries are unaware of existing opportunities for assistance from such organizations as State Health Insurance Assistance

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Programs and other medical hotlines or simply lack access to opportunities such as

the Internet and the www.Medicare.gov web site. Beneficiaries clearly need such information to be more easily accessible.

AIM applauds the Medicare Patrol Project grants recently announced by HHS

Secretary Thompson. The grants will fund programs to train senior volunteers help

other seniors learn to read Medicare notices and how to obtain answers about billing

and claims questions. HCFA should expand such efforts to provide better and more

easily accessible information to beneficiaries and their family members to outline

basic eligibility and benefits. Separately, more detailed information to clearly explain claims and appeals procedures should be provided to beneficiaries and providers. HCFA should also consider greatly expanding Medicare customer service operations through additional hotlines and marketing efforts.

Recommendation: Provide Prescription Drug Coverage (Statutory)

Beneficiaries contacting Medicare caseworkers report the lack of prescription drug

coverage to be a significant concern.

AIM members believe all Medicare beneficiaries should have basic prescription

drug coverage and encourages Congress and the Administration to work toward a

bipartisan solution. AIM supports efforts to strengthen and improve the existing

Medicare benefit package through inclusion of prescription drug benefits.

AIM believes an integrated benefit is necessary to ensure the long-term viability

of the Medicare program. Congress should not simply layer a new, stand-alone drug

program onto the traditional Medicare program without addressing the program’s

outdated and inadequate financial and structural systems.

Recommendation: Reduce Paperwork Burden on Beneficiaries (Administrative)

Beneficiaries report enormous difficulties understanding Medicare and its paperwork. Further, beneficiaries with supplemental coverage receive, and must respond

to, paperwork and information from multiple coverage sources. Specifically, beneficiaries contacting Congressional caseworkers cite the monthly Medicare Summary

Notice as a source of great confusion.

SECTION TWO

Improving Medicare Management: Provider Regulatory and Compliance

Concerns

This section illustrates outdated or burdensome regulatory business practices

which the Center for Medicare and Medicaid Services (CMS—formerly known as the

Health Care Financing Administration) should eliminate or streamline to improve

the delivery of health care through the Medicare program. All of the recommendations could be achieved through administrative action.

This report shows that CMS does not currently operate as a good business partner

with private sector providers. AIM members believe that CMS must refocus its goals

to emphasize cooperative relationships with providers including health plans, hospitals, doctors, technology innovators and other private sector partners. AIM believes CMS must replace the current rigid and outdated bureaucracy with the flexibility to make new health care innovations more accessible and to reduce excessive

complexity of federal rules, regulations, and guidelines.

Further, CMS should seek health plan and provider input prior to making or

changing policies, and should establish a process for the responsible department

within CMS to certify to the Administrator its readiness before changing over to a

new system or policy. Because plans and providers are on the front line of health

care, they are best positioned to gauge the administrative burden of proposed policy

changes, as well as the likely impact on patient care. In addition, plans and providers often can propose potentially less burdensome and more effective alternatives. Thus, by consulting health plans and providers before changing policies,

CMS can increase efficiency, limit or reduce regulatory burdens, and potentially improve health care quality and patient outcomes. Similarly, requiring CMS to certify

its readiness to implement a change before doing so potentially saves the enormous

time, effort and expense that result when plans and providers are required to follow

a new policy before CMS, itself, is prepared for the policy.

Additionally, advanced medical technology is playing an increasingly important

role in the delivery of quality health care. However, Medicare has not kept pace

with advances in medicine. In fact, many of the policies and procedures CMS uses

to incorporate new technologies into Medicare reflect the science and health care

system of 1965, when the program was created.

Today, advances in areas such as DNA-based testing, microelectronics, tissue engineering and molecular imaging are transforming health care—and patients’ lives.

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Frequently, cutting-edge medical technologies are supplanted by new breakthroughs

in two years or less, yet Medicare can take 15 months to five years or more to make

these advances available to seniors and people with disabilities. The recommendations below will help make timely patient access to 21st century medical technology

a part of CMS’s new mission.

AIM supports CMS Administrator Thomas Scully’s recently stated goals to improve the Medicare+Choice (M+C) program by improving and increasing information

about M+C options to eligible beneficiaries and by examining administrative simplification of the program. Mr. Scully stated his goal to increase the enrollment of

beneficiaries in Medicare+Choice plans and we look forward to working with his

agency to achieve this goal.

AIM also looks forward to working with HHS Assistant Secretary for Planning

and Evaluation Bobby Jindal and the Task Force on Regulatory Reform to review

these and other recommendations for relief.

Provider Regulatory Relief Recommendations

Recommendation: Publish Guidelines for Beneficiary Materials (Administrative)

CMS should halt efforts to standardize written materials for Medicare beneficiaries. The current requirement for CMS approval of all documents and CMS’s long term objective for standardizing many more communications is problematic.

Health plans need to tailor their communications to their own programs. CMS’s cur- rent review of communications creates constant revisions and delays for plans and

there is inconsistency among reviewers. Even implementation of the standardization

of the document called the ‘‘Summary of Benefits’’ has resulted in approvals of inaccurate documents, as the ‘‘standard’’ may not allow for specific plan benefit designs.

CMS should provide a checklist for plans of the information required to send to

beneficiaries. CMS should also develop marketing and communications guidelines

and require compliance with such guidelines on the contents of beneficiary communications. Violations could then be determined from on-site reviews similar to state

market conduct audits when a plan is reviewed for compliance with state regulations.

Recommendation: Improve and Consolidate CMS Oversight of M+C Program

(Administrative)

CMS’s fragmented approach to policy making has been a major barrier to success

of the M+C program. Authority for the M+C program is currently divided among

three CMS Centers: the Center for Health Plans and Providers; the Center for Beneficiary Services; and the Office of Clinical Standards and Quality. The result is a

complex and inefficient policy making process.

For example, issuance of the Quality Improvement System for Managed Care

(QISMC), developed by the Office of Clinical Standards and Quality, created further

confusion about CMS’s standards, because it overlapped with and differed from regulatory requirements developed by the Center for Health Plans and Providers and

the Center for Beneficiary Services.

AIM members are pleased that CMS Administrator Scully has announced the creation of the new Center for Beneficiary Choices to focus on Medicare beneficiaries

in private plans. We urge CMS to designate an official who reports to the CMS Administrator and has responsibility for overall program oversight. This will allow for

greater efficiencies and streamline requirements that now may be developed within

different offices.

Recommendation: Coordinate Release of Federal Regulations (Administrative)

The duties of the Office of Information and Regulatory Management (OIRA) at the

Office of Management and Budget should be enhanced to allow for the orderly release of regulations from federal agencies. Such coordination should recognize the

tremendous burden placed on providers who must simultaneously implement multiple, complex regulations from agencies like CMS, HHS, OSHA and EPA. For example, in the last two years, even though CMS delayed implementation of some

statutory provisions to address potential Y2K system problems, hospitals have still

had to make significant changes to their patient data collection, coding and billing

systems to implement prospective payment systems for Medicare skilled nursing

care, home health care, outpatient care, and transfers of inpatients. This is in addition to other regulations hospitals are currently in the midst of implementing, such

as uniform electronic transactions standards, privacy standards, ergonomics standards, and prospective payment for rehabilitation services. The implementation of

regulations should be better coordinated so that providers’ administrative and information systems are not overwhelmed.

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Recommendation: Create a Medicare Office of Technology and Innovation to Improve CMS Accountability, Openness and Coordination in Making Timely Decisions

(Administrative)

Many important new medical technologies and services must go through three sequential stages of Medicare decision-making—the initial coverage decision, assignment of a procedure code, and determination of a payment amount—before they are

widely available to patients. This process has suffered from a lack of coordination

and long delays in patient access to new treatment options.

Congress should create a new Office of Technology and Innovation at CMS to improve coordination among the agency’s offices involved in this process and facilitate

a shift in CMS’s culture to one that supports the development and dissemination

of beneficial new technologies.

Recommendation: Develop Consistent Policies Throughout the Program (Administrative)

• M+C organizations across the country frequently receive different instructions

and policy interpretations from the 10 CMS Regional Offices and the CMS Central Office. Regional Office Administrators and CMS Center Directors report directly to the CMS Administrator. Regional offices and centers are not required

to maintain program-wide consistency for instructions or policies.

For example, the CMS Central Office has issued model language for beneficiary communications and stated that use of the language by plans is discretionary: if a plan chooses to use the language as issued, it will not be subject

to change by the Regional Offices and will receive expedited review. Contrary

to Central Office instructions, however, some Regional Offices have required

rather than permitted use of the model language and required plans to make

changes in the Central Office model language in order to obtain Regional Office

approval.

• CMS should adopt consistent policies for Part A and Part B. Examples of inconsistency include: advanced beneficiary notices (ABNs) and medical necessity

determinations for Part A and Part B; Medicare secondary coverage determinations for Part A and Part B, including reference labs, etc.

Requiring consistency in administration of Part A and Part B will simplify

and streamline compliance both for providers of Part A services and providers

of Part B services (and especially for providers of both types of services), as well

as promoting fairness by leveling the health care playing field.

Recommendation: Reduce CMS Decision Making Delays (Administrative)

CMS’s decision making process typically involves many different parties at varying levels of seniority and in different Centers. Despite creation of cross-Center task

forces, the complexity of this process and the lack of clear decision making authority

below the level of the Administrator’s office results in delays that are frequently

costly to plans and disadvantageous to beneficiaries.

For example, the Medicare+Choice payment rates for 2001 were issued as required on March 1, 2000. However, the instructions for filing 2001 plan rate and

benefit proposals were issued in early June only a short time before the July 1 submission deadline. Plans were required to submit by July 15, 2000 proposed Summaries of Benefits using previously issued mandated CMS language in order to assure timely approval. However, in some cases the mandated language did not accurately describe plan benefits. To address these and other problems, changes in the

mandated language began shortly after the July deadline and were still being made

in early September.

Recommendation: Establish Decision Deadlines to Improve CMS Accountability

(Administrative)

CMS took steps to improve the timeliness and openness of its national coverage

process in April 1999. However, for technologies subject to national coverage decisions, the agency has no deadlines for total ‘‘time to patient access’’—the amount

of time the agency takes to set coverage, coding and payment policy on a new technology and make it available to beneficiaries.

To ensure timely patient access, CMS should take action on a timeline similar to

those in place for FDA review decisions. Patients should not have to wait more than

six months for CMS to make coverage decisions, assign codes and implement reimbursement for technologies that do not have to be referred to outside experts. In

cases where CMS must seek advice from external advisory bodies, patients should

wait no more than 12 months.

Recommendation: Stop Extensive Data Collection Efforts (Administrative)

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• CMS issues requirements that fail to take into consideration the practical

steps necessary for implementation of regulations, rather than working with

health plans to determine the most efficient way to achieve the desired result.

For example, implementation of CMS’s risk adjustment approach is making

excessive demands on health plan resources that are not necessary to achieve

the initiative’s purpose. The approach is based on collection of 100% encounter

data from inpatient and outpatient settings and requires plans to develop all

of the systems and staffing necessary to process claims in the same way as the

fee-for-service Medicare program. An alternative approach that meets the goals

of risk adjustment by building on the existing data systems capabilities of plans

can achieve the same results.

Plans currently must submit claims and data encounter reports for hospital,

physician and outpatient medical services for Medicare+Choice beneficiaries

even if the services are not covered under Medicare. Extensive data collection

is burdensome and costly and greatly impacts on plan administrative costs as

well as plan relationships with providers. HHS Secretary Thompson recently

suspended through July 2001 the burdensome collection of outpatient physician

and hospital data. AIM members urge Secretary Thompson to permanently end

this burdensome data requirement.

• With fewer and fewer hospital services being reimbursed on the basis of costs,

the Medicare program should adopt a simplified cost-reporting program to reflect the reduced importance of these reports. The cost-reporting system was designed and developed during an era of cost-based reimbursement. Medicare

should adopt a single, streamlined cost reporting system based upon generally

accepted accounting principles, and eliminate the voluminous regulations dealing with cost-based reporting, such as related party transactions, depreciation

expense, interest expense, interest income offsets, change of cost finding, etc.,

where Medicare payment is no longer based upon costs.

The complex and burdensome hospital cost-reporting process developed over

decades, at a time when Medicare payments were, to a significant degree, based

on their costs. Now that Medicare has largely eliminated cost-based payments

for hospital services, the primary purpose of hospital cost reporting has disappeared, and thus the process should be correspondingly reduced and simplified. By comparison, the cost reporting process for skilled nursing facilities

was recently substantially simplified in the wake of their conversion from costbased reimbursement to prospective payments. Hospitals are entitled to similar

regulatory relief.

• CMS should ease the paperwork burden placed on beneficiaries and providers

by revising the Medicare Secondary Payor (MSP) Provisions. The MSP form is

intended to identify other insurance coverage a beneficiary might have. Currently, hospitals must fill out an MSP form every time a patient comes to the

hospital for a procedure. Beneficiaries are annoyed at being asked the same

questions each time they return for services. For example, a patient taking the

anti-coagulant drug Coumadin (warfarin) may require weekly or daily monitoring due to internal bleeding risks. The hospital must fill out the form each

and every time. In addition, hospitals that act as reference laboratories (to

which doctors’ offices forward specimens for analysis) are being told to track

down a beneficiary whose specimen might have been sent in, and collect information about possible other insurance coverage. Independent labs are not subject to these requirements. Hospitals should not have to collect MSP information more than once per month for patients that require recurring services, and

should not be responsible for MSP information for non-patients.

• Since June 1998, CMS has required skilled nursing facilities (SNFs) to collect

and submit patient assessment data in a standard format known as the Minimum Data Set (MDS). The assessment instrument that serves as the basis for

collecting MDS data was originally developed as a comprehensive care planning

tool, but the information it generates is now also used to classify patients into

SNF payment categories, and to measure the quality of long-term nursing home

care. Providers are required to collect the data elements as many as five separate times during a patient’s Medicare-covered stay. The current version of the

MDS includes some 300 elements, but only 108 of them are needed by CMS to

pay providers. These requirements are overly burdensome for providers. The

MDS should be scaled back to require only data that can be justified on the

basis of payment and quality.

Recommendation: Select a Sound Methodology for Risk Adjustment (Administrative)

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CMS implemented on a limited basis in January 2000 a risk adjusted payment

methodology for Medicare+Choice plans containing practical and methodological

problems resulting in payments that are neither equitable nor valid. Further, the

risk adjustment payment methodology substantially reduces aggregate payments to

plans while adding additional administrative requirements and expense.

In order to improve efficiencies in payment, CMS needs to select a methodology

for risk adjustment with a public comment period of no less than 18 months prior

to implementation. The methodology must be financially sound and provide for an

efficient system for data collection. Risk adjustment, in turn, needs to be phased in

over a 10-year period, beginning in 2004, in order to stabilize payments to plans.

Current law calls for risk adjustment to have an 8-year phase-in, with 100% of payments risk adjusted in 2007. This schedule is not adequate to preserve stability in

plan payments.

The Principal In-Patient Diagnostic Cost Group (PIP–DCG) risk adjuster should

remain at this year’s level of 10% until a more appropriate and less burdensome

methodology is agreed upon.

Recommendation: Compare Diagnosis Codes to Verify PIP–DCG Risk Adjuster

Assignment (Administrative)

Medical record review is one Medicare+Choice encounter data validation activity

used to validate the accuracy of the encounter data submitted by plans to CMS. Encounter data can more easily be validated by merely comparing the diagnosis code

submitted by the hospital to the plan with the diagnosis code submitted by the plan

to CMS. Medical record review requiring retrieval of inpatient medical records is

costly and of questionable value. Further, there are no standards for inpatient medical record review in the Medicare fee-for-service program.

In the Medicare fee-for-service environment, hospital medical record review is the

responsibility of the CMS contractors and the Peer Review Organizations (PROs).

The costs of medical record review are covered in the contract that CMS has with

the PRO.

Recommendation: Simplify Accreditation Procedures (Administrative)

CMS should revise its rules to accept a plan’s accreditation by a nationally recognized accreditation organization as meeting quality assurance and quality requirements in Medicare+Choice. This would allow for ‘‘deeming’’ of a Medicare+Choice organization in accord with Congressional intent. CMS’s requirements for deeming

status should match and not exceed accreditation standards.

Recommendation: Allow Plans to Select Quality Improvement Projects and Rewards Plans for Quality Improvements (Administrative)

CMS should permit plans to select and implement their own quality improvement

projects. Plans may already have existing quality improvement activities designed

to best serve their specific populations and meet requirements for accreditation.

Further, CMS should reward plans that demonstrate continual quality improvement and report higher than average performance, when compared with fee-forservice performance, in their HEDIS reports. CMS should reward plans with additional compensation to encourage maintenance of high levels of performance.

Plans that also wish to participate in quality improvement activities generated by

the Professional Review Organizations (PROs) in their area should be compensated

on an individual plan basis for any work that enhances the objectives of a PROinitiated quality improvement project. Implementation of this recommendation

would allow plans to recover expenditures for their efforts and strengthen cooperation between plans and the PROs in achieving national quality improvement objectives.

Recommendation: Formalize the CMS Advisory Opinion Process (Administrative)

CMS should offer a more formal process for providers to obtain answers to Medicare questions. Typically, providers are unable to obtain timely, clear and final answers to their questions, in part because answers require certain level of authority

and may cut across departments within CMS, or draw interest from OIG and DOJ,

FDA or other agencies.

It is often impossible to obtain clear, timely and final answers from CMS on complex billing issues. Thus, providers must take a best guess at the answer, which

leaves them vulnerable to second-guessing and charges of incorrect billing. Creating

a formal process for obtaining answers to these types of questions would provide

greater certainty and consistency, and reduce billing and payment errors. Receiving

a written advisory opinion would also permit the provider to rely on the advice reVerDate 11-MAY-2000 14:37 Dec 03, 2001 Jkt 076025 PO 00000 Frm 00079 Fmt 6633 Sfmt 6621 E:\HR\OC\A025.XXX pfrm01 PsN: A025
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ceived. Many other Federal agencies have similar programs (e.g., the SEC, the IRS,

the DHHS OIG) and they are enormously helpful.

Recommendation: Incorporate Regulatory Cost Estimate into the Medicare Update (Administrative)

The cost of caring for patients continues to increase as a result of complex regulations such as the Health Insurance Portability and Accountability Act (HIPAA) and

greater technological advances in such areas as pharmaceuticals and blood products.

MedPAC should be required to aggregate, on an annual basis, the estimated impact

of a regulation on the provider community’s payments and costs. MedPAC should

incorporate this aggregated impact into the Medicare inflationary market basket update.

Recommendation: Treat All DRG Corrections Equally (Administrative)

There should be equal treatment for correcting DRGs, whether the correction results in higher or lower reimbursement. Appropriate adjustments to DRGs should

be allowed in all cases. This is a matter of simple fairness. CMS’s goal should be

to pay providers, correctly and accurately, the amount they have earned for the

services that they have provided to beneficiaries. CMS should not seek to pay less

than what is due by setting a shorter timeframe for correcting underpayments than

for correcting overpayments.

Recommendation: Fix the PRRB Process and Denial of Cost Report Reopenings

(Administrative)

There are significant problems with the Provider Reimbursement Review Board

(PRRB) process that need to be addressed, including inordinate delays caused by an

enormous backlog of cases. The Supreme Court issued a ruling in Your Home Visiting Nurse Services, Inc. v. Shalala, which involved interpreting statutory and regulatory provisions regarding PRRB review of a fiscal intermediary’s decision to deny

reopening of a cost report at the request of the provider. In the decision, the Court

held that the statutory and regulatory provisions do not require the intermediary’s

decision to be subject to review, even if clearly erroneous. The PRRB should have

full authority to review intermediary decisions to deny reopening of cost reports.

The process must be streamlined and accelerated. Alternative resolution methods

should be considered. This is a matter of simple fairness. Erroneous intermediary

decisions should be subject to review and correction.

Recommendation: Interpret and Enforce EMTALA According to Legislative Intent (Administrative)

The current interpretation and enforcement of the Emergency Medical Treatment

and Labor Act (EMTALA) far exceed legislative intent. This has had two significant

adverse results: (1) it is seriously disrupting the provision of good care in hospitals;

and (2) it is making the burden of uncompensated emergency care unsustainable.

Note: There are a number of changes with regard to EMTALA that could be done

administratively.

The law should be interpreted and enforced in accordance with its legislative intent to prevent the current disruptions and financial burdens arising from the regulatory and administrative expansion of EMTALA.

Statement of the American Academy of Physician Assistants, Alexandria,

fVirginia

On behalf of the more than 41,000 clinically practicing physician assistants (PAs)

in the United States, the American Academy of Physician Assistants (AAPA) is

pleased to submit comments on H.R. 2768, the Medicare Regulatory and Contracting Reform Act of 2001. The AAPA commends Chairman Nancy Johnson, Ranking Member Pete Stark, and the entire Subcommittee for their efforts to create a

more collaborative relationship between the Centers for Medicare and Medicaid

Services (CMS) and the health care professionals who provide services to Medicare

beneficiaries. We are particularly appreciative of the Subcommittee’s interest in reducing Medicare’s regulatory and paperwork burden.

The operation of the Medicare program is extremely complex, and H.R. 2768 goes

a long way to assist health care professionals in complying with Medicare’s rules

and regulations. Although not addressed through H.R. 2768, the AAPA regards

Medicare coverage policy, particularly as it relates to medical services provided by

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PAs, as unnecessarily complex and ultimately limiting to Medicare beneficiaries’ access to care. We ask that the Subcommittee also consider this issue in the context

of H.R. 2768.

The AAPA is the only national organization representing PAs in all medical specialties. The Academy educates the general public about the PA profession, assures

competency of PAs through active involvement in the development of educational

curricula and accreditation of PA programs, provides continuing education, and conducts PA-related research. PAs conduct an estimated 150 million patient visits per

year; many of these encounters are with Medicare beneficiaries.

The AAPA believes that H.R. 2768 provides a unique opportunity to improve the

Medicare program and substantially benefit beneficiaries and the health care professionals who serve them. Problems in the administration of Medicare that lead to

overly burdensome requirements for participating health professionals, as well as

overly restrictive coverage policy, affect access to care for all Medicare beneficiaries;

however, they disproportionately affect access to care in medically underserved communities because there are fewer health care resources. Unless these problems are

addressed, they may create even greater access to care challenges in the coming

months as rural and other medically underserved communities lose PAs and other

health care professionals who are called to serve in the National Guard and Reserves.

Medicare’s Regulatory and Paperwork Burden

PAs, like other health care professionals who provide covered services to Medicare

beneficiaries, would prefer to spend their time delivering medical care, not mired

in paperwork that is often confusing and viewed as unnecessary. The paperwork requirements’ impact on clinical practice is even more keenly felt in medically underserved communities where staffing resources are scarce. Similarly, other problematic administrative requirements disproportionately affect the ability of practitioners

in underserved communities, including PAs, to provide care to Medicare beneficiaries. Some of these problems include excessive costs incurred by practices for

random prepayment audits, onerous documentation requirements for Evaluation

and Management, and required repayment of purported overpayments before the

appeals process is complete.

The AAPA is very pleased that the H.R. 2768 attempts to address the impact of

Medicare regulations and paperwork requirements on the delivery of care to Medicare beneficiaries. We are particularly concerned with the increased impact of burdensome requirements on the delivery of care in medically underserved communities.

Full Coverage of Medicare Services Provided by Physician Assistants

As Members of the Subcommittee are aware, Medicare coverage was originally extended to physician assistants (PAs) through the 1977 Rural Health Clinic Services

Act. Congress acknowledged the educational preparation of PAs to provide a wide

range of primary care services to Medicare beneficiaries living in areas experiencing

a shortage of physicians. Congress’ aim was to extend medical services to Medicare

beneficiaries, and subsequent Congresses steadily expanded Medicare coverage for

services provided by PAs. In 1997, the 105th Congress passed the Balanced Budget

Act (BBA). The BBA expanded the ability of PAs to provide medical and surgical

services that would otherwise be provided by physicians, if allowed by applicable

state law.

Unfortunately, the former Health Care Financing Administration determined that

the BBA’s Medicare provisions regarding coverage of services provided by PAs did

not apply to ordering home health care, hospice care, or skilled nursing facility care

following hospitalization. Other medically necessary services that the Medicare program arbitrarily prohibits PAs from performing are screening colonoscopies and supervising diagnostic testing. PAs are not optimally utilized by the program. The restrictions on PAs’ ability to order care limit beneficiaries’ access to care, particularly

in medically underserved communities where a PA may be the only on site provider.

The American Academy of Physician Assistants recommends that Congress direct

the Centers for Medicare and Medicaid Services to revise national Medicare coverage policy to fully recognize the ability of PAs to provide medical care in accordance with state law. The CMS’ role in administering the Medicare program is most

certainly a sizeable one. However, the AAPA does not believe that CMS’ administrative responsibilities legitimately extend to determining physician assistants’ scope

of practice. That responsibility rests with the states, and the Medicare statute wisely defers to state law in determining which physician medical services may be provided by PAs. We ask that Congress address this problem H.R. 2768.

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The AAPA is very appreciative of the Subcommittee’s efforts to relieve Medicare’s

regulatory and paperwork burdens for the physician-PA team and other health care

professionals who provide services to Medicare beneficiaries. We look forward to an

improved Medicare program, which is more responsive to the beneficiaries and the

health professionals who serve them.

Thank you for the opportunity to present the AAPA

f’s views.

Statement of the American Clinical Laboratory Association

The American Clinical Laboratory Association (‘‘ACLA’’) is pleased to have this opportunity to present its views to the Subcommittee on Health of the House Ways

and Means Committee in connection with the Subcommittee’s hearings on H.R.

2768, the Medicare Regulatory and Contracting Reform Act of 2001.

ACLA is an association of federally regulated, independent clinical laboratories

and represents national, regional, and local laboratories throughout the United

States. All ACLA members furnish services reimbursed by the Medicare program

and interact regularly with CMS and its Medicare contractors. As a result, ACLA

has had the opportunity to observe CMS’s performance and that of its carriers.

ACLA is pleased that in recent years, in particular, the industry’s relationship

with CMS has improved significantly. The agency has developed greater expertise

in laboratory issues and has attempted to respond to issues that the industry has

raised. Nonetheless, like all health care providers, laboratories face a complex web

of confusing—and often inconsistent—rules and regulations, many of which result

from the way the laboratory payment system is currently structured.

In our testimony, ACLA would like to focus particularly on ways that the administration of the Medicare Program could be improved, through greater uniformity and

simplification. Laboratories face payment and coverage policies that differ from carrier to carrier. As a result, ACLA believes that it is imperative to develop more uniform policies that apply consistently, regardless of carrier jurisdiction. Congress

began that task in the Balanced Budget Act of 1997 (‘‘BBA ’97’’), when, as discussed

below, it required CMS to reduce the number of carriers processing lab claims to

no more than five and to convene a negotiated rulemaking to develop uniform national policies. That work is still uncompleted. A recent study by the Institute of

Medicine (‘‘IOM’’), which was mandated by Congress, also recommended greater uniformity in payment for laboratory services. ACLA believes that the implementation

of the IOM study and the completion of the BBA ’97 mandates should be a top priority for CMS and Congress.

In our statement today, ACLA would like to present an overview of the testing

process. We would then like to review particular areas where the lack of uniformity

and increasing complexity create payment and coverage issues for laboratory services. Finally, we discuss some specific ways that the system could be improved. In

addition, we are attaching a summary of legislative issues affecting laboratories

that we hope this Congress will address.

I. Overview of Reference Laboratory Testing

Clinical laboratory testing is an important, cost-effective and life saving health

care tool, which provides physicians objective information about a patient’s medical

condition. It permits the early detection, treatment and monitoring of a variety of

diseases and conditions. Appropriate testing ultimately enhances health, saves lives

and reduces health care costs. Independent clinical laboratories are an important

participant in that process.

For independent laboratories, the testing process usually begins in the physician’s

office or at a hospital, when a physician examines a patient and determines what

laboratory testing is necessary. The specimens for this testing may be obtained by

the physician or by a nurse in the physician’s office, or the patient may sometimes

take the test requisition to a ‘‘Patient Service Center’’ operated by the laboratory,

where a laboratory employee obtains the specimen. In the vast majority of cases,

however, the blood for testing is drawn in the physician’s office. Thus, laboratory

testing is unique among medical procedures, in that the entity furnishing the service often does not see, or have any direct contact with, the actual patient.

Most clinical laboratories have extensive courier networks that are designed to

quickly and efficiently transport the specimen from the physician’s office to the laboratory. The laboratory courier will usually go the physician’s office in the late afternoon or early evening to pick up the specimens that the physician has left for testing. The courier may take the specimens directly back to the laboratory, or he may

transport them to a central processing facility, where they are packaged for further

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shipment, by air or ground, to the laboratory. The laboratory may be hundreds or

thousands of miles away from the physician and the patient, and often is located

in a different state.

Test specimens usually arrive at the laboratory late at night or early in the morning, at which time they are entered into the laboratory’s computer system and the

testing begins. It is not unusual for an independent laboratory to receive 10,000

specimens a night, on which 30,000 to 40,000 tests may be run during the night

and early evening. For most routine specimens, the laboratory completes the testing

overnight and reports the results back to the physician by the next morning. Often,

some tests are performed at the facility that initially received the specimens, but

then the specimen is sent to another facility for additional testing. Thus, laboratory

testing takes place in a national marketplace, but the payment and coverage system

is still linked to the specific location where the testing occurs. As a result, differences in payment and coverage decisions arise, a situation that creates inefficiencies, duplication, and increased costs.

II. Issues Arising Under the Clinical Lab Fee Schedule

Laboratory services are reimbursed based on the lesser of the laboratory’s actual

charge, the fee schedule amount applicable to the location of the testing laboratory,

or the national limitation amount (‘‘NLA’’). CMS has established fee schedules on

a carrier by carrier basis; therefore, in most instances, each state has its own fee

schedule for clinical laboratory testing. Some states have more than one carrier and

in those areas there may also be more than one fee schedule for the state. The NLA,

which is set at 74% of the fee schedule medians for each test, acts as a ceiling on

reimbursement and limits the amount that each carrier can pay under its fee schedule.

Thus, there are actually 56 different laboratory fee schedules—one for each carrier jurisdiction. However, because of consistent reductions in the NLA, today it is

the NLA, rather than the carrier fee schedule, that usually governs payment. This

has created a de facto national fee schedule, although there continue to be some

outliers in particular jurisdictions, where the test is paid at slightly less than the

NLA amount. However, in those cases, the difference is usually very small, and is

often no more than a few cents. Thus, although we almost have a national fee

schedule, Medicare continues to operate as if it has 56 different fee schedules, a circumstance that creates unnecessary complexity and leads to operational difficulties.

For example, laboratories routinely refer testing from one laboratory to another,

usually because the initial laboratory does not perform a particular test. Under the

Medicare statute, the referring laboratory is permitted to bill its carrier for all of

the testing furnished, even what it referred to another laboratory for analysis; however, the carrier processing the claim is to pay for the testing based on the fee

schedule applicable to the testing laboratory. This means that for claims involving

lab-to-lab referrals, two different fee schedules may apply to different tests on the

same claim. Because the carrier processing the claim may not maintain the other

carrier’s information in its computer files, the laboratory may actually be required

to resubmit the claim to the second carrier, the one with jurisdiction over the laboratory that performed the referred tests.

This solution requires laboratories to ‘‘split’’ their claims and to bill tests that

were all part of the same patient encounter to multiple carriers. This is confusing

to the laboratories and to carriers because the same laboratory may be required to

enroll with several different carriers, a situation that the carriers themselves often

object to because it creates additional paperwork for them. Even if the laboratory

is able to enroll with, and forward claims to, the different carriers, the Program incurs the cost of processing multiple claims, and the beneficiary may receive Explanation of Medicare Benefit (‘‘EOMB’’) forms from multiple carriers for the same

specimen, which can be very confusing. The wastefulness of this process is especially

apparent because under current payment rules, there may be little or no difference

between the actual amounts paid by each carrier.

The recently completed study of the laboratory industry by the Institute of Medicine (‘‘IOM’’), Medicare Laboratory Payment Policy: Now and in the Future—a study

mandated by Congress in BBA ’97—concluded that the Medicare laboratory payment system, incorporating 56 different fee schedules, is unnecessarily complex and

inefficient. The IOM found that for a sample of 20 high-volume Medicare services,

payment was set at the NLA in at least 80% of carriers; for three other services,

all payments were at the NLA.

As a result, the IOM urged Congress to adopt a single, national, rational fee

schedule for clinical laboratory services based, at least initially, on the NLAs. H.R.

1798, the ‘‘Medicare Patient Access to Prevention and Diagnostic Tests Act,’’ includes a provision implementing the IOM recommendation. ACLA supports this proVerDate 11-MAY-2000 14:37 Dec 03, 2001 Jkt 076025 PO 00000 Frm 00083 Fmt 6633 Sfmt 6621 E:\HR\OC\A025.XXX pfrm01 PsN: A025
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posal and believes that the development of a single national fee schedule for laboratory services should be a top priority that will greatly streamline the payment of

laboratory claims.

III. Issues Related to Medical Documentation Rules

In 1994, many carriers began to implement new medical necessity requirements

applicable to clinical laboratory testing. These requirements took the form of Local

Medical Review Policies (‘‘LMRP’’), which often specified particular ICD–9 diagnosis

codes that the carrier believed would demonstrate the medical necessity of a particular test. If the laboratory did not submit a diagnosis code that the carrier

deemed acceptable, then the laboratory would not be paid for the testing. In some

instances, the policy would also limit how frequently the carrier would pay for the

testing for an individual beneficiary.

The growth in these carrier policies for laboratory testing had a direct impact on

the cost of laboratory testing. Because the ICD–9 code had to be supplied by the

physician—it is a violation of fraud and abuse laws for the laboratory to supply the

code itself—laboratories had to put more resources into educating physicians about

the need to supply diagnosis coding information and into obtaining the information

from physicians when they failed to supply it. As a result, laboratories were forced

to invest large amounts in billing system refinements and added personnel, just so

they could bill and be paid for the testing that they performed. However, in many

instances, laboratories still do not obtain the necessary information from the physicians ordering the tests, and thus are forced to write off the costs of testing that

they have performed.

The growth of these policies also led to confusion concerning payment policies.

Each carrier developed its own LMRPs for the laboratories within its jurisdiction.

However, carriers did not usually agree on the particular tests that were subject to

LMRPs. Thus, the list of tests for which a laboratory had to submit diagnosis codes

would differ depending on where the laboratory was located. In instances where two

carriers had LMRPs for the same test, they often did not agree on the particular

diagnosis codes that they found acceptable as demonstrating the medical necessity

of the testing. This led to confusion, because physicians could not easily determine

which tests required diagnosis coding information or which diagnosis codes were

considered acceptable.

These differences in policy also led to differences in coverage. For example, if a

physician used a laboratory in one state, he might know that the laboratory’s carrier

had certain LMRPs, which required him to submit ICD–9 codes for specified tests.

If he complied with those requirements, and sent in acceptable diagnosis codes, the

patient’s testing would usually be paid for. If the patient went to a physician across

the hall, who used a laboratory in another state, the physician could order the same

tests and submit all the same information to the laboratory. However, the patient

could find that the testing was not paid for, because the carrier with jurisdiction

over the second laboratory did not accept the same diagnosis codes as the other carrier. These differences have real implications for patients because, if it is clear that

the testing is going to be denied as not medically necessary, the patient might be

asked to sign an Advance Beneficiary Notice, which permits the laboratory to bill

the patient for denied testing. Thus, Medicare might pay for one patient’s testing,

while the other patient would have to pay for it himself. The result is that Medicare

beneficiaries inadvertently have different coverage for laboratory testing services.

As a result of concerns about these issues, Congress directed CMS, in BBA ’97,

to convene a negotiated rulemaking committee whose purpose was to develop uniform payment policies for clinical laboratory testing. The negotiated rulemaking, in

which ACLA participated, began meeting in July 1998 and completed its deliberations in August 1999. The Committee developed over 23 uniform documentation

policies and recommended additional payment policies. A proposed rule was issued

in March 2000, 65 Fed. Reg. 13082 (Mar. 10, 2000); however, a final rule is not expected to be issued until the fall of this year, at the earliest.

To further reduce differences among carriers, as part of BBA ’97, Congress also

directed CMS to designate a maximum of five regional carriers that would be responsible for paying for clinical laboratory testing. In its recent study, the IOM also

concluded that regional carriers should be established to process clinical laboratory

claims in order to reduce inefficiency and waste. However, up to now, CMS has

taken no action to implement the regional carrier system, which was to be in place

by July 1, 1999.

ACLA strongly urges the adoption and implementation of the negotiated rulemaking policies, which were mandated by BBA ’97, and which, by statute, were to

be in place by January 1, 1999. In addition, we urge the implementation of the regional carrier requirements that were also mandated by BBA ’97. Both the regional

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1 ACLA also believes a single, separate carrier for laboratory services furnished to End Stage

Renal Disease (‘‘ESRD’’) beneficiaries would introduce additional cost savings for the Medicare

program and support overall claims processing simplification. Because ESRD testing is usually

a small part of each carrier’s claims, carriers do not usually develop the expertise necessary to

apply the very complex set of rules that pertain to ESRD testing. As a result, laboratories performing this testing often encounter great difficulty with claims processing issues. Therefore, we

also believe it is reasonable to ensure that a single carrier handles all the claims processing

for laboratory services dedicated to performing ESRD testing.

carrier and negotiated rulemaking provisions of the BBA were designed to achieve

greater uniformity in the process of clinical laboratory testing—a goal that would

ultimately be to the benefit of laboratories, physicians and most of all, beneficiaries.

Such a result would reduce the costs of claims processing, increase predictability

concerning what tests would be paid for, and eliminate unnecessary regulatory burdens.1

IV. Issues Created by New Laboratory Testing

Because the laboratory fee schedule was originally developed almost 20 years ago,

based on 1983 pricing data, it does not address the tremendous technological advances that have taken place since that time. The law establishing the payment

methodology did not specify a process for dealing with new technologies so CMS has

had to create one.

For new tests that are not already covered by the fee schedule, CMS uses two

different methodologies to arrive at a price. For some tests, CMS directs carriers to

develop their own prices, based on ‘‘gap filling.’’ Presumably, carriers are to determine the price that is applicable in their individual area, but CMS has provided little guidance to carriers concerning what information they are to review to develop

the new gap-filled prices. As a result, ‘‘gap filling’’ often results in widely divergent

pricing levels for the same test.

In other instances, CMS ‘‘cross-walks’’ a new CPT code to an existing code, and

prices the new code at the same level as the old code. However, there may be little

relationship between the test represented by the new CPT code and the test represented by the old one; therefore the decision to price them at the same level may

result in a payment level that is inappropriate.

Further, when CMS issues a proposal concerning how it will pay for other types

of services, the agency usually issues a notice in the Federal Register for comment,

and subsequently responds to these comments when issuing a final rule. Thus, interested parties have an opportunity to present their views on how particular services will be paid for. For the laboratory fee schedule, this process is not followed.

CMS makes a unilateral determination concerning how new technologies will be

handled; whether they will be gap filled or cross-walked; and what fee will be set—

without any opportunity for public comment. CMS’s determinations are not known

until the agency issues a Program Memorandum late in the year, which specifies

how the new codes will be treated.

Again, the IOM recognized the difficulty in obtaining coverage for new tests and

technology. ACLA agrees with the IOM’s conclusion that new tests and technologies

must be incorporated into the fee schedules in an open, timely and accessible manner that is subject to challenge. The current coverage process, according to the IOM,

is lengthy, costly and not open to meaningful challenge.

ACLA believes that it is vital to address the problem of payment for new technologies. CMS needs to develop a process, in consultation with the industry, that

sets reimbursement levels for new technologies that reflect their fair market value.

CMS should develop clearer standards concerning how carriers develop payment

levels in their jurisdictions, so that carriers have direction in how to set these

prices. Congress solved one, albeit small, part of this problem last year in the Benefits Improvement and Protection Act (‘‘BIPA’’) by ensuring that the NLA, for new

tests that were gap filled, would be set at 100% of the median price, rather than

at 74% as is done for other services. However, the other problems discussed above,

related to disparity in pricing, and the lack of input into the process, remain. The

aforementioned H.R. 1798, the ‘‘Medicare Patient Access to Prevention and Diagnostic Tests Act,’’ addresses this concern by establishing specific procedures for determining payment amounts for new clinical laboratory tests.

ACLA is pleased to have the opportunity to testify on these matters. We believe

greater uniformity and simplicity in lab payment policies will lead to greater benefits for labs, Medicare and patients. We look forward to working with the Committee

in its deliberations.

f

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Statement of the American Medical Association, Chicago, Illinois

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 H.R. 2768, the ‘‘Medicare Regulatory and Contracting Reform Act of 2001.’’ We also appreciate Chairwoman Johnson and Ranking Member Stark’s substantial efforts to work with the Centers for Medicare and Medicaid Services (CMS) in

its efforts to accomplish additional reforms on an administrative level.

The AMA believes that H.R. 2768 is a solid, first step in addressing many of physicians’ concerns regarding CMS contractors’ activities for the following reasons:

We laud the legislation’s commitment to and funding of education programs for

physicians, providers of services, and suppliers. Although we have some technical

suggestions in these sections, we believe that the education provisions in the bill

would vastly improve the resources available to physicians, providers of services,

and suppliers. In particular, the section requiring contractors to work with organizations representing physicians, providers of services, and suppliers when a widespread billing problem exists would be extremely helpful in ensuring that the problem is explained to the larger community sooner rather than later. This broad dissemination of information would lead to a quicker and better resolution of the issues

involved.

The AMA is generally pleased with H.R. 2768’s provisions related to repayment

plans. This provision, if clarified to ensure that repayment plans would be for a minimum of three years, would permit physicians, providers of services, and suppliers

to enter into reasonable repayment plans with their CMS contractors if the alleged

overpayments exceed a certain proportion of their Medicare revenues. Currently,

CMS contractors require repayment of alleged overpayments within 30–60 days.

When alleged overpayments represent a high proportion of practice revenues, this

requirement can present a major economic hardship to the practice. Carrier overpayment demands for almost immediate repayment can also restrict the financial

ability of physicians to provide an adequate level of service to their patients and

can make physicians less eager to care for Medicare patients in the future.

The AMA greatly appreciates that the legislation would establish pilot projects to

test the viability of proposed evaluation and management documentation guidelines.

Although CMS has recently withdrawn proposed documentation requirements, as

this process progresses, it is clear that any new proposed guidelines must be tested

to ensure their accuracy prior to national implementation. H.R. 2768 would also ensure that a sufficient number of physicians participate in the pilot projects by prohibiting audits for documentation that occurred as part of the pilot project.

The legislation’s proposed standardization of random prepayment audits is a very

positive development that would ensure that the Secretary would establish standards for random prepayment audits. Contractors would no longer have unlimited

discretion as to the circumstances that would trigger random prepayment audits.

Another serious problem with prepayment audits is that they often have no defined

endpoints. This places an enormous strain on practices’ cash flow as claims are held

up for payment while audit continue. H.R. 2768 would ensure that procedures are

put in place to remove physicians from prepayment review once their billing practices are sufficiently compliant with Medicare policies.

The AMA also appreciates the additional resources that this bill would direct towards administrative law judges. This funding would increase the number of administrative law judges and improve education and training opportunities for the judges

and their staffs.

The AMA is also gratified that the Committee has recognized that contractors’ use

of ‘‘extrapolation’’ is a serious problem, and that it has acknowledged the inequity

of demanding that overpayments be repaid before appeals are heard. These and several other provisions of the bill must be strengthened, however, if they are to remedy the problems they are intended to address. In particular:

Contractors use ‘‘extrapolation’’ to magnify the alleged overpayments found in a

very small probe sample of claims to all of these type of claims submitted by a physician or provider of services over a one-to-two year period. This technique lacks any

semblance of statistical validity, but it can lead to overpayment demands in the

hundreds of thousands of dollars. Even more egregious, the letter demanding repayment of these huge sums is often the first indication a physician has that there is

a problem with his/her billing practices. For this reason, the provision of H.R. 2768

that would allow CMS contractors to use extrapolation to project an overpayment

in instances where there is a high error rate OR where documented education efforts have failed should be strengthened. For example, this extrapolation provision

would have a very limited impact on physician practices such as the critical care

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practice that testified before the House Budget Committee. This particular practice

had a high error rate, but there was no documented educational effort. Thus, the

provisions in H.R. 2768 would still subject this and other physician practices to

enormous overpayment allegations, even if it were the first time the practice had

heard that it had a billing problem. The AMA strongly believes that contractors

should be prohibited from using extrapolation to calculate overpayment amounts unless documented educational efforts have been employed first and have failed to correct the billing problem.

Although the education provisions in H.R. 2768 are a vast improvement over existing education efforts by CMS contractors, the AMA is concerned that the legislation gives contractors discretion as to whether they wish to supply physicians, providers of services, and suppliers with written advice upon which they could rely.

Under H.R. 2768, the aforementioned groups would not be entitled to any additional

information or guidance regarding complex and confusing carrier policies and regulations to use if they are later audited by their contractor.

The ability to rely on written guidance is especially important in light of the recent report by the General Accounting Office (GAO), which found that when GAO

called contractors (callers identified themselves as calling from the GAO), contractor

employees gave incorrect answers to questions 85% of the time. GAO further reported that these questions had been identified by the contractors as ‘‘frequently

asked questions.’’ The carriers will not give physicians written answers to their billing and coding questions, and as the GAO study shows, answers given via the telephone are often incorrect. Physicians should be able to submit their written questions to contractors, and in turn, receive correct and consistent written responses

from contractors upon which they can rely.

The consent settlement process, as detailed in H.R. 2768, would still not permit

physicians, providers of services, and suppliers 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. The AMA believes that a physician should not be forced to agree to an SVRS in order to maintain his or her appeal rights. Physicians should be permitted a 60-day time period

to decide whether to appeal the probe sample finding. If the physician decides not

to appeal the probe sample, then he or she would either have to pay the alleged

projected overpayment or agree to an SVRS. This ability to appeal the probe sample

is an essential due process right that should be afforded to physicians, providers of

services, and suppliers—especially in light of the probe sample’s use in determining

projected overpayments.

H.R. 2768 would permit physicians, providers of services, and suppliers to repay

an alleged overpayment after the first level of internal appeal has occurred. This

internal appeal usually occurs within 45 days. Under H.R. 2768, repayment would

be required at this point. Physicians, providers of services, and suppliers who opt

for further administrative appeals would still be forced to repay alleged overpayments while their appeals are pending. In contrast to the 45 days for internal appeals, administrative law judge (ALJ) decisions took an average of 389 days in the

first quarter of 2001 and departmental appeals board decisions (DAB) took an average of 661 days to complete. If the physician, provider of services, or supplier is successful at the DAB level, it is likely that three years have elapsed since the physician’s payment of an alleged overpayment to the CMS contractor. This is especially

egregious since the most recent figures from 2000 show that 60% of contractor decisions were reversed by an ALJ. The provisions of H.R. 2768 would not assist physician practices such as the West Coast practice that received its overpayment demand letter in 1996, paid the alleged overpayment amount six weeks later and received a favorable ALJ ruling in 1999. The carrier had held the practice’s funds (approaching $100,000) for nearly three years.

While the AMA greatly appreciates H.R. 2768’s provision that would require contractors to repay the funds held with interest, we agree with Administrator Scully

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.

We strongly urge the Subcommittee to amend the repayment provision to mirror

the ‘‘Access to Judicial Review—Interest on Amounts in Controversy’’ provisions in

Section 8 of H.R. 2768. This would ensure that interest would begin to accrue 60

days after the date of the contractor’s determination. The overpayment amount plus

any interest would be payable when all administrative appeals are exhausted. (Section 8 states that such amounts become payable when they are awarded to the prevailing party).

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The AMA is very concerned about the provisions in H.R. 2768 related to a physician, provider of services, or supplier’s right to 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. Currently, physicians have very limited recourse if their provider enrollment

application has been denied. They 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. The provision in H.R.

2768 would not establish any additional rights for physicians, providers of services,

and suppliers whose applications have been denied. In fact, the legislative language

appears to codify existing and proposed CMS practices. We strongly urge the Subcommittee to consider a denial or revocation as an initial determination and accord

physicians full administrative appeal rights under Section 1869 of the Social Security Act.

The provision of H.R. 2768 addressing voluntary repayments also should be

strengthened. The legislation proposes that an ombudsman would make recommendations to the Secretary about how to respond to physicians and providers

of services who identify overpayments themselves that they have mistakenly received and voluntarily repay Medicare. We note that CMS has previously issued instructions to its contractors on handling these voluntary repayments and that the

contractors are instructed to investigate and consider auditing those who make the

repayments. These kinds of policies are more likely to intimidate than encourage

honest professionals to develop compliance plans. H.R. 2768 should offer real protections, not leave the matter for the Administration to resolve in the future.

Finally, the AMA is uncertain as to why H.R. 2768 seeks to limit the ability to

present additional information during the appeal process. We are not aware of any

indication that physicians, providers of services, and suppliers are inundating the

system with new evidence, and creating a sizeable backlog. Many physicians may

not hire attorneys or experts immediately to contest a contractor’s audit finding.

When these attorneys or experts are hired, they may suggest additional evidence

or information that the physician had not thought to disclose. We believe that this

section is not needed and urge its deletion.

In closing, the AMA has also been very interested in the issue of contractor reform. A coalition letter signed by the AMA and other leading national medical organizations and specialty societies, as well as every state medical society, was sent to

Chairman Johnson and Ranking Member Stark on August 30, 2001, and is attached

to this statement. On the whole, the reforms to the contractor reform language appear to be reasonably geared towards improving the efficiency of the program and

towards sharpening the responsiveness of contractors to beneficiaries and physicians. As an overarching comment, the AMA does believe that contractors should

be required to maintain local carrier advisory committees and local carrier medical

directors. In addition, a transparent contracting and budgeting process should be set

forth in the Federal Register for public notice and comment. We also have some

technical suggestions regarding these sections which we will be happy to share with

the Subcommittee at the earliest possible date.

We appreciate the Subcommittee’s consideration of the AMA’s concerns. We value

all of the Subcommittee’s work on H.R. 2768, and we believe that we can work together to ensure that physicians obtain more complete due process rights and extremely effective education tools 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, and are pleased that it is a high priority for the Subcommittee.

August 30, 2001

Letter Sent to all members of the House Ways and Means Subcommittee on Health

The Honorable Nancy Johnson

Committee on Ways Means

U.S. House of Representatives

1136 Longworth House Office Building

Washington, DC 20515

Dear Chairwoman Johnson:

As your Committee continues its work on the ‘‘Medicare Regulatory and Contracting Reform Act of 2001,’’ H.R. 2768, please know that the medical organizations

listed below endorse the need for regulatory relief in the administration of the Medicare program. For that reason we strongly support the provisions of the ‘‘Medicare

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Education and Regulatory Fairness Act of 2001’’ (MERFA), H.R. 868. One aspect of

that relief that is not addressed in MERFA is the need for contractor reform. The

Medicare program is a continual source of frustration, complexity, and paperwork

for virtually all physicians treating Medicare patients. The contractor community

plays a key role in administering the program. We believe that Congress should incorporate the following principles in any Medicare contractor reform efforts:

• Physicians and other providers must have a single point of contact who will

be responsible and accountable for program administration. Even if contractor

services are themselves fragmented (e.g., claims processing performed by one

contractor, medical review by another contractor, and correspondence/appeals to

another), physicians and providers should not have to deal with a whole new

contractor bureaucracy where each contractor tries to shift responsibility to others. There should be a single point of contact in each state that can, if necessary, serve as a liaison between physicians/providers and the various contractors.

• Local carrier advisory committees (CACs) should be continued in each state

to assure that local medical review policy reflects the consensus of the local physician community. All changes in local coverage decisions (whether through a

change in contractor or through the consolidation of existing contractors) should

be subjected to the normal review and comment process with the local CAC. It

would be unacceptable for a new contractor to simply transport a new policy

from one geographic region to another without subjecting that policy to CAC review in the new geographic area.

• Given the significant transition problems experienced with establishing regional durable medical equipment carriers, the medical community believes it

is imperative that the Center for Medicare and Medicaid Services (CMS) establish contingency plans to assure that there are no delays in claims processing/

payment capabilities. Such contingencies should include provisions for advanced

payments for covered services based on the previous year’s submissions. • CMS should establish and enforce the highest possible standards in determining which organizations are most qualified to serve as contractors in the

program. Formal physician/provider feedback should be solicited regarding the

establishment of performance criteria for contractors and whether the contractors’ actions have actually met those standards. • Physician/provider outreach, education, and service should be considered a

priority for each contractor in the program.

We believe these basic principles should be incorporated into any Medicare contractor reform legislation agreed to by the Congress.

Sincerely,

Alaska State Medical Association

Arizona Medical Association

Arkansas Medical Society

California Medical Association

Colorado Medical Society

Connecticut State Medical Society

Florida Medical Association

Hawaii Medical Association

Idaho Medical Association

Illinois State Medical Society

Indiana State Medical Association

Iowa Medical Society

Kansas Medical Society

Kentucky Medical Association

Louisiana State Medical Society

Maine Medical Association

Massachusetts Medical Society

MedChi, The Maryland State Medical Society

Medical Association of Georgia

Medical Association of the State of Alabama

Medical Society of Delaware

Medical Society of the District of Columbia

Medical Society of New Jersey

Medical Society of the State of New York

Medical Society of Virginia

Michigan State Medical Society

Minnesota Medical Association

Mississippi State Medical Association

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Missouri State Medical Association

Montana Medical Association

Nebraska Medical Association

Nevada State Medical Association

New Hampshire Medical Society

New Mexico Medical Society

North Carolina Medical Society

North Dakota Medical Association

Ohio State Medical Association

Oklahoma State Medical Association

Oregon Medical Association

Pennsylvania Medical Society

Rhode Island Medical Society

South Carolina Medical Association

South Dakota State Medical Association

State Medical Society of Wisconsin

Tennessee Medical Association

Texas Medical Association

Utah Medical Association

Vermont Medical Society

Virgin Islands Medical Society

Washington State Medical Association

West Virginia State Medical Association

Wyoming Medical Society

American Academy of Allergy, Asthma and Immunology

American Academy of Dermatology Association

American Academy of Facial Plastic and Reconstructive Surgery

American Academy of Family Physicians

American Academy of Neurology

American Academy of Ophthalmology

American Academy of Otolaryngic Allergy

American Academy of Otolaryngology—Head and Neck Surgery

American Academy of Physical Medicine and Rehabilitation

American Association of Clinical Endocrinologists

American Association of Neurological Surgeons

American Association of Orthopaedic Surgeons

American College of Allergy, Asthma and Immunology

American College of Cardiology

American College of Chest Physicians

American College of Emergency Physicians

American College of Obstetricians and Gynecologists

American College of Osteopathic Family Physicians

American College of Osteopathic Surgeons

American College of Physicians—American Society of Internal Medicine

American College of Radiology

American College of Surgeons

American Gastroenterological Association

American Geriatrics Society

American Medical Association

American Osteopathic Association

American Psychiatric Association

American Society for Gastrointestinal Endoscopy

American Society for Therapeutic Radiology and Oncology

American Society of Anesthesiologists

American Society of Cataract and Refractive Surgery

American Society of Clinical Pathologists

American Society of General Surgeons

American Society of Hematology

American Society of Plastic Surgeons

American Thoracic Society

American Urological Association

Association of American Medical Colleges

College of American Pathologists

Congress of Neurological Surgeons

Joint Council of Allergy, Asthma and Immunology

Medical Group Management Association

National Medical Association

North American Society of Pacing and Electrophysiology

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Renal Physicians Association

The American Osteopathic Association (AOA) thanks Chairwoman Nancy Johnson

Statement of the American Osteopathic Association, Chicago, Illinois

Society of Critical Care Medicine

f and Ranking Member Fortney ‘‘Pete’’ Stark for introducing the ‘‘Medicare Regulatory and Contracting Reform Act of 2001’’ (H.R. 2768). We appreciate your holding

this timely hearing.

Our members increasingly are frustrated with the complexities of Medicare policies and regulations. It is well documented that there are now over 100,000 pages

of Medicare rules, policies and regulations. Physicians are forced to spend a growing

amount of time completing paperwork and meeting administrative requirements set

forth by Medicare and managed care organizations. Time spent completing these

tasks is time spent not doing what they were trained to do, providing care to patients.

We thank you for making this issue a priority for the Committee and for introducing legislation to reform the regulatory and contracting process at the Centers

for Medicare and Medicaid Services (CMS). Your legislation addresses the major

concerns that the AOA has raised and establishes a system that will focus more on

educating and assisting physicians and not on punishing them. We especially support provisions you included on provider education and technical assistance and the

inclusion of specific educational programs and technical assistance for rural providers. As you know, rural practices often consist of less than ten employees and

simply do not have the manpower to dedicate an individual(s) to Medicare compliance. Your proposal recognizes and creates ways to assist these physicians.

We continue to be concerned about the use of extrapolation in post-payment audits. It is our desire that the committee carefully evaluate the use of this practice.

Your legislation addresses this issue, but we request that you consider requiring

documented educational intervention before extrapolation can be used. This supports our desire to move from a system that assumes guilt to a system that offers

compliance assistance.

Our priorities for regulatory and contracting reform legislation include:

Provider Education and Technical Assistance

The AOA strongly endorses a ‘‘change in attitude’’ at the CMS. The AOA does not

support fraud or those who defraud the government, but we are convinced that an

overwhelming majority of the mistakes made are inadvertent. It is our opinion that

CMS generally operates with an assumption of guilt when dealing with providers.

This attitude is counterproductive and creates an environment of distrust between

providers and CMS. We believe that CMS should focus more effort on educating providers, especially those in rural and frontier areas. One of the most important services CMS can provide is timely and accurate feedback on how to comply with policies and procedures.

The AOA believes that CMS and its Medicare contractors should:

• Create a national standard for provider education.

• Establish incentives for contractors who improve their provider education programs.

• Establish education programs exclusively for rural providers.

• Maintain a 24 hour toll-free phone line staffed by individuals capable of answering questions regarding the Medicare system.

• Maintain a web page dedicated to compliance with Medicare policies and procedures. We recognize that addressing every potential question on the web page

is impossible, but material addressing the most frequently asked questions

could be maintained.

• Medicare contractors should respond to all requests in writing. This would

provide a written record that providers and contractors could rely upon if there

is a future audit.

• Create a system that accurately documents each question or inquiry received,

who handled the request and the information provided. This will allow CMS

and its contractors to create a valid database of frequently asked questions and

points of confusions within the program. Additionally, it will provide both the

Medicare contractor and the provider with documentation of the inquiry.

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Provider Appeals

The AOA believes that every provider should have an equitable and unbiased opportunity to appeal any decision handed down by CMS or a Medicare contractor

when facing a post-payment audit. Appeals should be conducted in a timely manner

and governed by legal experts independent of both the provider and the Medicare

contractor. It must be emphasized that the purpose of the audit is to recover alleged

overpayment, not to proceed against suspected fraudulent behavior, and that physicians and providers in these situations should not be ‘‘presumed guilty.’’ The AOA

supports the permanent inclusion of Administrative Law Judges (ALJs) in the Department of Health and Human Services (HHS). We believe that their existence

within HHS will speed up the appeal process and create consistency within the appeal process.

Recovery of Overpayments

Physicians/providers should not be forced to pay contractors for alleged overpayments before they have exhausted their administrative appeals. The time it takes

to complete the appeals and the high percentage of reversals of contractors’ overpayment allegations illustrate the inequity of these repayment demands. If a physician

or provider chooses to appeal and is unsuccessful in that effort, then the provider

should pay interest on the amount in question. We strongly believe that physicians

and providers should have the opportunity to exercise their due process rights before assuming financial liability.

Physicians should be entitled to repayment plans if their overpayments exceed a

certain threshold that would severely impact the financial well-being of their practice. Contractors currently give physicians and providers 30 days to repay overpayments in full. We understand that there is concern that some providers may file for

bankruptcy without repaying the overpayment amount. Unless there is legitimate

concern that this may occur or the provider has demonstrated in some manner that

he or she is not a reliable source of repayment, all providers should be given flexibility in repaying overpayment amounts.

The AOA is concerned about extrapolation from probe samples. Medicare contractors conduct these samples on 15–20 claims over a one to two year period and then

use the alleged overpayment to extrapolate to all claims submitted during that one

to two year period.

Using 15–20 claims in a probe sample over such a long time period is not a valid

method to determine an alleged overpayment for the rest of the claims. Contractor

errors regarding payment in the probe sample, which are often overturned through

administrative appeal, can result in enormous extrapolated overpayment allegations. Even more egregious, often the first notice that physicians and providers receive regarding alleged overpayments is a letter demanding this extrapolated overpayment amount. We strongly urge the Committee to ensure that extrapolation does

not occur unless the contractor has provided prior, documented education to the

physician or provider. We would even go so far as to suggest that extrapolation not

be used in first time audits against a provider.

Voluntary Repayment

Physicians and providers receiving mistaken overpayments should be allowed to

return the money voluntarily without fear that they will be audited by contractors.

These repayments, if they occur before they are noticed by the contractors, should

be encouraged. Physicians and providers should not have to fear that they will be

audited for acting in good faith.

Pre-payment Reviews

We strongly urge the Committee to direct the Secretary to establish uniform

standards for random prepayment audits. Currently, contractors have complete discretion regarding how to structure and implement random audits. We believe that

physicians and providers should be provided guidelines with the general conditions

under which these audits may occur.

Issuance of New Regulations

The AOA supports the concept of establishing stricter and more regimented time

frames for the release of proposed, interim final and final rules. Additionally, we

believe failure to meet published deadlines should require the Secretary to publish

an explanation as to why deadlines were not met and establish new deadlines. This

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will prevent the Secretary from issuing continuations for interim final rules and

thus avoiding a final decision on a proposed rule.

Compliance With Changes in Regulations and Policies

Providers should be given, at minimum, 30 days to comply with new regulations.

The 30 days should begin upon receipt of direct notification of policy changes from

the Medicare contractors, not upon finalization of the rule. Additionally, we believe

that new policies impacting providers should not be applied retroactively, unless it

benefits the provider or is necessary due to statutory requirements.

Contractor Accountability

CMS must address carrier fraud. The Office of the Inspector General (OIG) released several reports concerning carrier misconduct in Illinois, Connecticut, New

Mexico, Colorado, Florida, Michigan, Pennsylvania, Massachusetts and California.

CMS must be just as vigilant about preventing fraud and abuse among its contractors as it is with its providers.

The General Accounting Office recently reviewed contractor bulletins from 10 carriers. The GAO found that the bulletins contained lengthy discussions with overly

technical and legalistic language that providers may find difficult to understand.

The bulletins also omitted important information about mandatory billing procedures.

The GAO found that in 85% of its phone calls, the answers were incomplete or

inaccurate. In addition, carrier Internet sites rarely met all CMS requirements and

lacked user-friendly features such as site maps and search functions. We frequently

hear of such complaints from our membership. Our members also find that carriers

at times are unwilling to put their communications with physician practices in writing. This behavior is unacceptable.

For contractor reform to succeed, physicians and other providers must have a single point of contact who will be responsible and accountable for program administration. Local carrier advisory committees (CACs) should be continued in each state to

assure that local medical review policy reflects the consensus of the local physician

community.

CMS should establish the highest possible standards to determine which organizations are most qualified to become new contractors in the program. Formal physician/provider feedback should be solicited regarding the establishment of performance criteria for contractors and whether the contractors’ actions have actually met

those standards. Physician/provider outreach, education, and service should be considered a priority for each contractor in the program.

In addition, CMS regional offices must be well versed in Medicare rules and regulations because their errors can have disastrous results. A case in point:

In the mid 1990s, three osteopathic physicians in Oklahoma wanted to establish

rural health clinics in the towns of Morrison (population 900), Yale (population

1200), Pawnee (population 2500) and Fairfax (population 1800). They contacted

HCFA’s regional office in Dallas, which guided them in establishing the federally

designated rural health clinics. The regional office approved the clinics. Three years

later, HCFA headquarters in Baltimore contacted the doctors and told them they

were over paid. HCFA requested a repayment of $980,000 and in its effort to recover

the money, all Part A Medicare payments were stopped. It was ultimately determined that the regional office provided the wrong information. The rural health

clinics were forced into bankruptcy. One clinic was shut down and the others are

open on a part time basis—approximately one half to two half days a week.

The error caused by the Federal government’s regional office has had devastating

effects in these rural low-income towns. Access to medical care has been severely

limited and the doctors and their patients are paying the price.

Limited English Proficiency

The AOA supports H.R. 969 that would rescind Executive Order 13166 ‘‘Improving Access to Services for Persons with Limited English Proficiency.’’ The financial

implications of compliance with this rule potentially could be devastating to providers, especially those in rural areas. Fees for a professional interpreter average

$40 per hour with a two hour minimum. At this rate, providers will be forced to

pay more for a mandated interpreter than they are reimbursed for the health care

they provided. Additionally, confusion still exists to whether this rule applies to

written materials. This rule, and the cost of compliance, would have an adverse effect upon access to care.

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Evaluation and Management (E&M) Documentation Guidelines

E&M documentation guidelines have an extremely broad impact on physicians as

they govern how physicians must document for office visits in order to receive Medicare reimbursement. To date, CMS has been unable to set forth E&M guidelines

that accurately reflect the services provided during a physician office visit. HHS

Secretary Tommy Thompson stopped work on the E&M guidelines in order to address the many concerns within the physician community. We support efforts to address physicians’ concerns about burdens caused by documentation requirements.

The AOA asks that CMS not be allowed to implement any new E&M guidelines

prior to the completion of at least four pilot programs, one of which should be focused on rural providers. Until documentation guidelines are finalized, CMS should

suspend all pre- and post-payment audits of E&M services, since the agency has not

arrived at the requirements that ultimately will be used.

Emergency Medical Treatment and Labor Act (EMTALA)

The extension of EMTALA to cover ambulances, free standing clinics and off campus facilities goes beyond the original intent of the law. EMTALA requirements

strain the ability of the medical profession to provide the quality of care that patients deserve. Hospitals and physicians face overcrowded emergency departments,

a lack of access to critical specialty emergency care, and the significant compliance

costs associated with EMTALA that provide little, if any, added value to patient

care. EMTALA discourages emergency departments from referring non-urgent patients back to their primary care provider. The CMS should not penalize or prevent

hospitals from referring patients to continuity care clinics on the hospital grounds.

There are varying interpretations of the EMTALA requirements among the regional

carriers, making it all the more difficult to comply. Regional carriers should have

some degree of uniformity in the interpretation and enforcement of EMTALA.

****

On behalf of the 47,000 osteopathic physicians (D.O.s) in the United States, we

thank you for the opportunity to submit a statement on the important issue of Medicare reform. The AOA stands ready to assist you in facilitating the enactment of

H.R. 2768.

The American Osteopathic Association promotes public health, encourages scientific research, serves as the certifying body for D.O.s and is the accrediting agency

for all osteopathic medical schools and health care facilities.

Statement of Patricia L. Scheifler, Association for Ambulatory Behavioral

Healthcare, Alexandria, Virginia

f I am Patricia L. Scheifler MSW, PIP, Board Member and Co-Chair of the Public

Policy Committee of the Association for Ambulatory Behavioral Healthcare (AABH),

and I am submitting this testimony for the hearing record. AABH is a national behavioral healthcare trade and professional association active in professional training, advocacy, research, publishing, best practice development, and technical assistance. Originally established in the early 1960s by clinicians involved in the relatively new treatment approach of ‘‘day hospitalization,’’ the association now embraces the full range of behavioral health interventions with a powerful interdisciplinary approach to ambulatory care and integrated medical and psychosocial

methods. We currently represent over 5,000 professionals and more than 70 systems

of care, one of the largest interdisciplinary behavioral healthcare associations.

We strongly commend Congresswoman Nancy L. Johnson (R–CT), Chair of the

Subcommittee on Health of the Committee on Ways and Means, and the other members of the Subcommittee for holding this hearing. The topic of this hearing, H.R.

2768, the ‘‘Medicare Regulatory and Contracting Reform Act of 2001’’ and Medicare

regulatory relief and modernization are long overdue for action by Congress. Our

members provide care for some of the most vulnerable Medicare patients and we

hear grave concerns daily that providers and the patients they serve feel under

siege by a Medicare administrative operation that is too-often unresponsive, insensitive and adversarial.

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Overview of Our Medicare Concerns

To respond to behavioral health providers’ very serious problems with Medicare,

AABH recently testified before MedPAC and presented a strong case for fundamental change in Medicare payment policy. Some problems in particular AABH

would like to draw to the Committee’s attention in the administration of the current

mental health benefit, these include:

• Variable Interpretation

Medicare Reviewers and Hearing Officers have enormous latitude in interpreting and applying Local Medical Review Policies. What they do is highly subjective except in the unusual circumstance of missing documentation. Their determinations are often inconsistent and frequently lack any justification or clarification beyond use of the well-worn phrase ‘‘not medically necessary.’’ • Lack of Accountability

Reviewers and Hearing Officers can make obvious errors in interpretation or

erratically apply written rules without any real accountability or possibility of

effective redress. Even when denials are overturned on appeal, Reviewers are

under no obligation to make future determinations comply with the determination made on appeal. A comment heard from Fiscal Intermediaries is: ‘‘Denials

are over turned because the Hearing Officers and Administrative Law Judges

don’t understand the rules.’’ There is no precedent set by overturned denials.

The Fiscal Intermediary is under no obligation to alter their review practices.

• Protracted Appeal Process

It often takes a year or more to complete the appeal process on even a single

claim. This is an enormous problem because it restricts providers’ cash flow and

because the Fiscal Intermediary and Medicare expect providers to learn and

change their practices as a result of the review process. Often months after

services are delivered and documented, providers discover their Fiscal Intermediary is denying claims based on an idiosyncratic interpretation that challenges the validity of a critical piece of documentation. This is far too late to

solve the problem. The Fiscal Intermediary can then (and some do) reopen all

paid claims a year or longer retroactively and demand repayment because the

provider ‘‘knew or should have known’’ that the documentation did not meet requirements. If the provider decides to appeal the denials, they must appeal each

claim individually over the course of the next year (or longer). Often providers

can’t sustain program operation due to restricted cash flow, the enormous investment of time and resources needed to sustain the appeal process and the

very real risk that the Fiscal Intermediary will reopen paid claims and render

a large payback determination. If they continue to bill Medicare, even when the

provider is right and the decision to deny the claims was wrong, it is very costly

to dig out of intensive review once it has started.

• Switch to Prior Approval

Prior approval is the industry standard practice long employed effectively by

private insurance and managed care, its adoption by Medicare would greatly

simplify the burdens of behavioral health providers. Under this well-established

process, a provider knows up front if treatment will be covered, and if not, why

not. If key documents are determined to be unacceptable, they can be immediately revised to satisfy requirements and future documentation can be written

to comply with the payer’s expectations. If a patient does not, in the payer’s

opinion, require that level of care, alternate treatment arrangements can be

made at that time. Even more importantly, if coverage is denied up front, it

eliminates a substantial portion the Medicare Program’s risk of fraud and

abuse. CMS would not be put in the position of paying millions of dollars for

non-covered services and then trying to recoup the payments. Providers would

not be put in the position of providing treatment in good faith and then being

denied payment after the fact, or worse, having paid claims reopened and being

told to pay back a million dollars for services that were rendered.

H.R. 2768—A Good Start, but More Should Be Done

Madame Chairman and members of the Subcommittee, the issues addressed by

your legislation may seem technical in nature, but they will make a substantial difference in the day-to-day operations of all types of Medicare providers. Members of

our association are gratified that the Committee is considering the impact of current

regulatory procedures and burdens on providers. We particularly appreciate the opportunity to comment on this bill and hope that you will act to address the concerns

we have raised in this testimony so that an even better bill will emerge from your

deliberations. Following are our recommendations on what we view as the key provisions of the bill.

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1. No Retroactive Application of Substantive Changes

AABH supports this provision because it would prohibit the unfair practice of

publishing changes in rules and regulations and then applying those rules/regulations to services that have already been rendered and documented.

2. Reliance on Guidance

This is a very important provision because it would mean that providers could

rely on written clarification from Carriers and Fiscal Intermediaries. This is especially critical when there is a change in Carrier or Fiscal Intermediary and this provision should be broadened to specifically address Fiscal Intermediary transitions.

Medicare coverage policy for psychiatric services is complex and ambiguous and Fiscal Intermediaries often develop highly unique interpretations of payment policies.

In a number of instances, our provider members have experienced a very high level

of erroneous denials when a Fiscal Intermediary transition occurs. That is, where

one Fiscal Intermediary takes over for another and the second holds providers to

its standards rather than the ones in effect during the tenure of the first. Broadening this provision to cover such transitions will help alleviate these problems.

3. Methodology to Measure Contractor Error Rates

AABH finds this a potentially helpful provision. If the intent is to correlate good

provider education & outreach with low claims denial rates, this would be extremely

helpful. It would give Carriers and Fiscal Intermediaries some incentive to bring denial rates down and to ensure that provider education is both available and effective.

4. Response to Inquiries: (1) Contractor Responsibility & (2) Evaluation

These are important provisions that AABH supports. Some Fiscal Intermediaries

and Carriers are less responsive to provider questions than others. These provisions

hold the Medicare administrative contractor accountable for responding to provider

questions. AABH recommends one important change: that CMS be required to respond in a timely manner to specific billing and cost reporting questions of providers

of services and suppliers. CMS responses that are not timely are of little help to

providers.

5. Encouragement of Participation in Education Program

AABH supports this provision because to benefit from education, providers must

be shielded from being targeted with review simply because of attending or asking

questions during an educational program. Without this provision, providers are likely to avoid asking specific questions out of fear that such questions might reveal

problems that could put them at risk for review and repayment.

6. Avoidance of Recovery Action for Problems Identified as Corrected

AABH supports this provision because it is critical if any type of technical assistance is going to be offered. Few if any providers would open their system to technical assistance if there is a potential for recovery action as a result of problems

identified during the technical assistance process.

7. Financial Participation by Providers

Since the technical assistance envisioned in this section is specifically designed for

small providers, it will be important for the section to specify that the cost must

be stated in advance, in writing, and can’t be exceeded without the prior written

agreement of the provider.

8. Medicare Provider Ombusdman

AABH finds this a helpful provision, especially since it includes ‘‘resolution of unclear or conflicting guidance.’’

9. Medicare Administrative Law Judges

AABH members sometimes wait up to a year to get an ALJ Hearing plus a written decision; this provision will be a helpful if it speeds up the process.

10. Requiring Full and Early Presentation of Evidence by Providers

AABH takes strong exception to this provision and urges that it be deleted. Under

this section, a provider of services or supplier would not be permitted to introduce

evidence in any appeal that was not presented at the first external hearing or apVerDate 11-MAY-2000 14:37 Dec 03, 2001 Jkt 076025 PO 00000 Frm 00096 Fmt 6633 Sfmt 6621 E:\HR\OC\A025.XXX pfrm01 PsN: A025
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peal at which it could be introduced. Although there is an exception for a good

cause, this provision is extremely problematic.

Each level of the appeal process allows Reviewers, Hearing Officers, and Administrative Law Judges to conduct a ‘‘new and independent review’’ of the claims. This

means that they can (and often do) give new reasons for denial at each point in the

appeal process. Thus, if a provider successfully defends the claim against one reason

for denial, a new reason for denial is given at the next level of appeal. This can

be (and typically is) repeated over and over up through each level of appeal. Responding to a moving target of changing reasons for denial often necessitates submission of new evidence to address the new reasons for denial. The clause ‘‘unless

there is good cause which precluded the introduction of such evidence at a previous

hearing or appeal’’ is extremely inadequate and too subjective to protect providers.

This whole provision must be stricken in its entirety or providers will be tremendously and unfairly disadvantaged in defending their claims against ever shifting

reasons for denial.

11. Limitation on Recoupment Until Reconsideration Exercised

AABH recommends a change in this provision for the case of a provider of services, physician, practitioner, or supplier that is alleged to have received an overpayment under this title and that seeks a reconsideration of that determination. As proposed, the provision could be interpreted to mean that the provider can be required

to pay a recoupment after the first level of appeal is completed. Providers should

not be required to begin repayment until all levels of appeal have been exhausted,

not just after the first level of appeal. AABH urges that providers should not be required to payback alleged overpayments until such time as it has been clearly established that an overpayment has in fact been made.

12. Limitation on Use of Extrapolation

AABH members have received intensive claims and audit reviews inspired by criticism of Medicare mental health claims from the Office of the Inspector General.

Therefore, our experience with extrapolation is much greater than other provider

groups. We recommend that Medicare contractors be prohibited from using extrapolation to determine overpayment amounts to be recovered by recoupment, offset, or

otherwise unless there is a sustained and high level of payment error. Since many

Fiscal Intermediaries have a propensity for high rates of denials, simply having a

‘‘high payment error rate’’ should not justify extrapolation unless it is sustained in

spite of documented efforts to educate the provider. This section should read ‘‘sustained high level of payment error’’ not ‘‘sustained or high level of payment error.’’

In addition, the payment error rate should (1) exclude denials that are currently

under appeal and (2) be adjusted to reflect denied claims that have already been

overturned on appeal. Unfortunately, Fiscal Intermediaries calculate error rates

based on initial denials regardless of the number of claims (or dollar amount of

claims) that are being appealed or have already been over turned on appeal. Thus,

a provider could have 100% of reviewed claims denied during the first review, appeal the denials, win all the appeals, and still be accused of having a 100% payment

error rate! This can and does happen. Error rates should be calculated based solely

on claims that have been denied, which are not pending in appeal and have not

been overturned on appeal.

Furthermore, CMS must be required to show documented evidence that educational interventions, over and above the Review process itself, have been provided

and failed. This will protect providers from receiving denials for a short period of

time and then having those denials used to extrapolate to the universe of claims

without any attempt to educate the provider. The provider should have a genuine

and valid opportunity to identify problems and make required changes. Since the

Review process itself is considered an educational intervention, additional educational interventions should be required before extrapolation is permitted. This is

important because the reasons given for denial are often vague (e.g., ‘‘not medically

necessary’’) and do not provide sufficient information to allow the provider to identify specific problems and make required changes.

13. Limitations on Non-Random Prepayment Review

AABH recommends a change so that a Medicare contractor cannot initiate nonrandom prepayment review of a provider or supplier based on the initial identification of that provider for improper billing practice unless there is both a sustained

and high level of payment error.

Lastly, we strongly recommend the legislation include a tight timeline for CMS

promulgation of regulations that would implement these provisions. Many do not

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appear to be self-implementing and providers therefore will not be protected under

these reforms until CMS promulgates regulations—particularly with respect to appeals.

Conclusion

AABH is pleased that the Subcommittee is addressing the serious problems of the

Medicare regulatory burden on behavioral health and other providers. We strongly

urge the Subcommittee to report H.R. 2768 to the full Ways and Means Committee

with the enhancements we have presented. Lastly, on behalf of our members, I cannot thank you enough, Madame Chairman, for your long-standing efforts on behalf

of consumers of behavioral health services, their family members, and the providers

that serve them. I would be happy to respond to any questions that members of the

panel may have.

The Blue Cross and Blue Shield Association (BCBSA), which represents 44 indeStatement of the Blue Cross and Blue Shield Association

f pendent, locally operated Blue Cross and Blue Shield Plans throughout the nation,

is pleased to submit written testimony to the subcommittee on H.R. 2678, the Medicare Regulatory and Contracting Reform Act of 2001.

Blue Cross and Blue Shield Plans play a leading role in administering the Medicare program. Many Plans contract with the federal government to handle much of

the day-to-day work of paying Medicare claims accurately and in a timely manner.

Blue Cross and Blue Shield Plans serve as Part A Fiscal Intermediaries (FIs) and/

or Part B carriers and collectively process most Medicare claims.

Blue Cross and Blue Shield Medicare contractors are proud of their role as Medicare administrators. While workloads have soared, operating costs—on a unit cost

basis—have declined about two-thirds from 1975 to 2001. In fact, contractors’ administrative costs represent less than 1 percent of total Medicare benefits. Few government expenditures produce the documented, tangible savings of taxpayers’ dollars generated by Medicare anti-fraud and abuse activities. For every $1 spent fighting fraud and abuse, Medicare contractors save the government $16.

Blue Cross and Blue Shield Medicare contractors are committed to achieving outstanding performance. We support efforts to improve the ability of both contractors

and the Centers for Medicare and Medicaid Services (CMS), formerly known as the

Health Care Financing Administration, to cost-effectively provide the highest service

levels to Medicare beneficiaries and providers.

This testimony focuses on three areas:

I. Background, including a description of Medicare contractor functions;

II. Current challenges facing Medicare contractors; and

III. BCBSA recommendations for improving contractor operations and comments

on contractor reform provisions included in H.R. 2678

I. Background

Medicare contractors have four major areas of responsibility:

1. Paying Claims: Medicare contractors process all the bills for the traditional

Medicare fee-for-service program. In FY 2001, it is estimated that contractors will

process over 900 million claims, more than 3.5 million every working day.

2. Providing Beneficiary and Provider Customer Services: Contractors are

the main points of routine contact with Medicare for both beneficiaries and providers. Contractors educate beneficiaries and providers about Medicare and respond

to approximately 40 million inquiries annually.

3. Handling Hearings and Appeals: Beneficiaries and providers are entitled by

law to appeal the initial payment determination made by carriers and FIs. These

contractors handle over 7.4 million annual hearings and appeals.

4. Special Initiatives to Fight Medicare Fraud, Waste, and Abuse: All contractors have separate fraud and abuse departments dedicated to assuring that

Medicare payments are made properly. According to the Department of Health and

Human Services (HHS), these activities saved the government $9 billion in 1998.

Medicare contractors operate under detailed instructions from CMS. As government contractors, Medicare contractors must comply with numerous federal statutes, regulations, and Executive Orders. In addition, contractors must follow extensive CMS-issued program guidelines and manual instructions. To monitor compliVerDate 11-MAY-2000 14:37 Dec 03, 2001 Jkt 076025 PO 00000 Frm 00098 Fmt 6633 Sfmt 6621 E:\HR\OC\A025.XXX pfrm01 PsN: A025
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ance with these guidelines, contractors are visited several times each year by their

local CMS regional office staff for an assessment of their performance against CMS’ requirements. These reviews, termed Contractor Performance Evaluations, are conducted across all aspects of contractor operations—claims processing timeliness and

accuracy, customer service, fraud and abuse detection efforts—and culminate in a

formal annual report called the Report of Contractor Performance. Also, CMS routinely contracts with private companies to review various critical aspects of contractors operations.

II. Challenges Facing Contractors

There are four key challenges currently facing Medicare contractors:

1. Inadequate funding levels with rising workloads;

2. Increased complexity of Medicare rules;

3. Frequent changes in program direction; and

4. Legislative mandates not accompanied by additional funding.

Inadequate funding levels: Of utmost importance to attaining outstanding performance is an adequate budget.

However, Medicare contractors have been severely underfunded since the early

1990’s and are facing poor prospects of receiving adequate funding next year. During the early to mid-1990’s, reductions in funding concurrent with increases in

workload seriously eroded contractors’ ability to fight fraud and abuse. Between

1989 and 2000, the number of Medicare claims climbed almost 70 percent to over

800 million, while payment review resources grew less than 11 percent. As a result,

the amount allocated to contractors to review claims shrank from 74 cents to 48

cents per claim. Because of the significant cost of reviewing claims, this decline in

funding resulted in CMS directing contractors to reduce the percentage of claims

that were scrutinized and investigated. Similarly, the percentage of cost reports audited declined—between 1991 and 1996, the chances that any institutional provider’s cost report would be reviewed in detail fell from about 1 in 6 to about 1 in

13.

Throughout this period, contractors identified to CMS additional anti-fraud efforts

they could undertake if awarded additional resources. BCBSA and Blue Plans urged

both Congress and the Administration to allocate significantly more funds for critical anti-fraud and abuse efforts. Finally, in 1996, Congress created the Medicare

Integrity Program (MIP) in the Health Insurance Portability and Accountability Act

(HIPAA). MIP provided a permanent, stable funding authority for the portion of the

Medicare contractor budget that is explicitly designated as fraud and abuse detection activities. MIP funding was set at $500 million in 1998 and is authorized to

rise to $720 million in 2002. After 2002, the permanent authorization is capped at

$720 million despite continuing projected increases in claims volume.

Thanks to this new funding mechanism, Medicare contractors have been able to

improve their efforts to reduce the amount of fraud, waste, and abuse in the Medicare program. Contractors’ enhanced anti-fraud and abuse efforts due to MIP funding contributed to the significant decline in improper claims and documentation submission by providers. The OIG audit of FY 2000 claims estimated that improper

Medicare payments had dropped to $11.9 billion, or about 6.8 percent of the $173.6

billion in Medicare payments. The improper payment rate declined by over 50 percent or $11 billion in five years.

But, the creation of MIP did not solve the budget problems for the remainder of

the contractor budget. The largest portion of the contractor budget— program management—is subject to the annual appropriations process and continues to face severe funding pressures. Program management activities include claims processing,

beneficiary and provider communications, and hearings and appeals of claims initially denied. Under the appropriations process, contractors must compete for funding with high priority programs such as the National Institutes of Health and education.

For example, between 1989 and 1998, funding for program management activities

(adjusted for inflation) declined by 18 percent. During this period, the volume of

Medicare claims increased by 84 percent; Medicare outlays (in real dollars), by 65

percent. Whenever possible, contractors responded to reduced funding by achieving

significant efficiencies in claims processing, lowering program management costs per

claim by 56 percent in real dollars over this period. But even these efficiencies have

not been enough to keep pace with rising Medicare claims volume and diminishing

funding levels. For example, this year, contractors have been instructed to cut back

on customer service plans, responding to inquiries, provider training and other provider services in order to live within the 2001 budget. It should be noted that Medicare contractors have had to cut back on these important provider and beneficiary

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services in past years as well due to funding shortfalls, even though these services

were critically important and contractors had wanted to enhance these programs.

Inadequate budgets for program management also impact Medicare’s fight against

fraud and abuse. While many think of program management activities as simply

paying claims, these activities are Medicare’s first line of defense against fraud and

abuse and are critically linked to MIP activities. As an example, many of the frontend computer edits (e.g., preventing duplicate payments and detecting suspicious

claims) are funded through program management. Inadequate funding impacts different functions at different times, but always disrupts the integration of all the

functional components needed to ‘‘get things right the first time.’’ It thus results in

inefficiency and higher costs.

We are pleased that Secretary Thompson and many Members of this subcommittee have recognized the need for additional administrative resources at CMS.

We are concerned the Administration’s FY 2002 budget relies on a proposal for $115

million in new user fees from providers. Congress has consistently rejected user fees

and BCBSA recommends they be rejected again. We also strongly recommend Medicare contractor funding be increased to $1.567 billion in FY 2002 to ensure adequate

resources are available to provide the high quality services beneficiaries and providers deserve. If funding for the Departments of Labor, Health and Human Services (HHS) and Education are subject to a Continuing Resolution (CR) at the start

of FY 2002, BCBSA would recommend the CR include an increase in appropriations

for Medicare contractor program management based upon the expected increase in

claims volume. This will prevent any disruptions in paying claims and providing

beneficiary and provider services while the final budget is being negotiated.

Increased Coomplexity of Medicare Rules: The Medicare program continues

to grow more and more complex. It takes a great deal of time and resources to educate providers and beneficiaries about new laws and rules as well as answer questions and without appropriate time and resources, it is difficult for the contractors

to do an adequate job. Contractors have been challenged over the years with enormous program changes such as:

• New payment mechanisms for outpatient departments, home health agencies,

and skilled nursing facilities.

• Changes to Medicare coverage rules: Balanced Budget Act (BBA), Balanced

Budget Refinement Act (BBRA), and the Beneficiary Improvement and Protection Act (BIPA).

• Implementation of the HIPAA administrative simplification provisions.

Just as Members of Congress are hearing from providers about the program’s complexities, so too are contractors who must answer their questions and concerns.

Frequent Changes in Direction: Medicare contractors are challenged by the

very nature of the business. At last count, Medicare contractors, received on average

a new instruction from CMS every five hours of every day of the year. This constant

state of change requires contractors to be extremely flexible—both in terms of operations and budget. It has not been uncommon in the past for contractors to be forced

to abandon projects or reallocate staff mid-year in order to adapt to CMS’ suddenly

revised priorities or modified funding levels.

Medicare contractors operate under cost contracts, and CMS places budget caps,

or limits, on the unit costs paid to contractors to process claims. By law, Medicare

contractors are not allowed any profit. Under these contracts, Medicare contractors

essentially do whatever work CMS requests, without ‘‘change orders.’’ There is not

a clear statement of work at the beginning of the year, and contractors generally

must comply with constant change orders from CMS without additional reimbursement. These demands make the Medicare contractor business extremely challenging.

Legislative Mandates Without Funding: Legislative changes to Medicare are

rarely accompanied by administrative funding or appropriate transition time for

proper implementation. For example, Medicare contractors had to implement the

new prospective payment systems and the many changes stemming from the BBA,

BBRA and BIPA without new funding. This is extremely cumbersome for contractors that are already strapped for resources.

III. BCBSA Recommendations to Improve Medicare Contractors and Comments on Contractor Reforms included in H.R. 2678

BCBSA agrees that revisions to the Medicare contractor program would strengthen contractors’ ability to effectively and efficiently handle day-to-day administration

of the Medicare program. Blue Cross and Blue Shield Medicare contractors are comVerDate 11-MAY-2000 14:37 Dec 03, 2001 Jkt 076025 PO 00000 Frm 00100 Fmt 6633 Sfmt 6621 E:\HR\OC\A025.XXX pfrm01 PsN: A025
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mitted to achieving outstanding performance levels and providing superior service

to Medicare beneficiaries and providers. We want to work with this subcommittee,

the Congress and CMS to attain this objective.

BCBSA supports many of the reforms proposed in H.R. 2678, including contracting with any entity, not just health insurers; modernizing the way contractors

are paid; adopting a more business-like environment; enhancing competition; and

restoring critical provider education activities. We do, however, have two key concerns. First, while BCBSA supports increased competition in the program, requiring

CMS to competitively bid all contractors every four years would likely be extremely

problematic for beneficiaries, providers and CMS—as well as both potential new and

existing contractors. Second, while we applaud the committee for mandating enhanced provider education, which has been severely cut back in recent years because of funding shortfalls, the ability to conduct these activities must depend on

the appropriation of additional funding. Our specific comments follow.

Competitive Contracting: BCBSA supports introducing more competitive bidding into the program in an orderly manner to minimize the risk of disruptions to

beneficiaries and providers. To ensure stability of the Medicare program, BCBSA

recommends that—rather than requiring bidding every four years for all contracts—

CMS only put to competitive bid poor performing contractors and contracts from entities voluntarily exiting the program. This would allow the government to maintain

those contractors that are providing quality services and meeting CMS’ performance

expectations, while encouraging new entities to compete for a stable program.

BCBSA also supports provisions of H.R. 2678 that would enhance competition by

giving HHS the authority to contract with any entity, not just health insurers, that

are able to provide the full range of Medicare administrative services.

BCBSA believes the provision in H.R. 2678 to require CMS to competitively bid

all Medicare contracts every four years would:

1. Reduce Flexibility for CMS: CMS would have less flexibility in managing

competitive bids than other government agencies. Other agencies generally bid contracts on a five to seven year basis, and are able to provide longer terms. It is important to note that there is a trend to provide longer-term government contracts

because of the cost and complexity of frequent competitions.

2. Divert Already Scarce CMS Resources: Given the consensus that CMS is

already underfunded, mandated competition every four years would divert resources

away from other important CMS responsibilities.

A four-year competitive bid process would place an enormous financial burden on

CMS and require additional resources, including a new cadre of staff to manage

what is likely to be a continuous process. Procurement for each contract could take

up to three years; it can take up to a year to prepare the request for proposals, a

year to run the competition, and another year to resolve any protests regarding the

award of a contract (which are common in contracts of this size). Staff needs would

be considerable as CMS would be taking on significant new duties:

With respect to bidding, assuring all contractors are qualified and have the capacity to perform all assigned functions, assure all bidders address all functions with

realistic and adequate resources, overseeing the competition and protests.

With respect to the transition, managing change orders, assuring implementation

matches what was provided in the bid, assuring problems—for beneficiaries and providers—are averted, responding to and addressing the inevitable problems that will

arise.

In addition, CMS administrative budgets will also have to take into account the

increased contractor funds necessary to cover the very considerable costs of bidding

for these contracts.

3. Likely to Result in Beneficiary and Provider Service Disruptions: Providers would be faced with potential upheaval every four years. Past experience

shows that transitions to new contractors are very challenging. They must be carefully managed to prevent service problems which has plagued previous transitions:

incorrect payments, a backlog in claims processing, and lack of responsiveness to

beneficiary and provider inquiries. Mandating CMS to competitively bid all contracts every four years—a massive undertaking—would be extremely high risk for

providers and beneficiaries.

4. Deter the Most Qualified Medicare Contractors: Current contractors, as

well as potential new entities, would face significant disincentives to bid, knowing

their investment is at risk every four years. Both current and new contractors are

likely to be concerned about the huge business risk of losing the contract after four

years and the subsequent loss of hundreds and even thousands of local jobs. In parVerDate 11-MAY-2000 14:37 Dec 03, 2001 Jkt 076025 PO 00000 Frm 00101 Fmt 6633 Sfmt 6621 E:\HR\OC\A025.XXX pfrm01 PsN: A025
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ticular, potential new Medicare contractors must make significant investments in

buildings, sophisticated computer systems and large numbers of trained staff. Many

of the best contractors may decide that a 4-year contract is too high risk and not

bid.

5. Require an Increase in Overall Medicare Contractor Funds: Medicare

contractor funds would have to be increased to cover the additional costs of competitive bidding. Currently, contractors live with CMS-set caps on costs per claim basis.

When funding is inadequate—because of lower than requested appropriations or increased workloads (such as when new Medicare legislation is passed or unexpected

increase in claims volumes)—contractors must still perform their functions, often

without corresponding decreases in performance expectations.

Under a mandated competitive bidding process, there is a significant potential for

a mismatch between competitive bids and available funding. If the competitive bids

exceed the total funding available, CMS would be required to scale back the proposed scope of work and recompete the contracts. This would be extremely time consuming and even more costly and could result in an inadequate coverage of important functions.

Unlike most other government contracting, Medicare is an entitlement program

and the function of paying claims must continue. An entire contract just cannot be

cancelled or postponed, like most other government contracts in the event of funding

cutbacks.

For these reasons, BCBSA believes that competitive contracting should be expanded in the Medicare contractor program carefully, with considerable planning.

In our view, the best way to accomplish this is by focusing competitive contracting

on poor performers and exiting contractors.

Additional Funding is Necessary to Restore and Enhance Provider Education: Blue Cross and Blue Shield Medicare contractors agree that provider education services should be restored and expanded. One of our primary messages to

appropriators in recent years is that adequate funding is critical to support provider

and beneficiary services. Since paying claims is the program’s highest priority, provider and beneficiary services often fall victim to insufficient funding levels.

BCBSA supports the provider education and technical assistance provisions included in H.R. 2678; however, implementation of these provisions should be dependent upon adequate funding.

In the past, Medicare contractors provided many more services to beneficiaries

and providers than are offered today, as budget pressures forced CMS to curtail

these activities. Blue Cross and Blue Shield Medicare contractors are committed to

providing the highest level of services to beneficiaries and providers. However, the

services cannot be provided unless adequate funding is available. Therefore, we

would ask that the provider education and technical assistance provisions be made

contingent upon funding.

CMS authority to award other than cost reimbursement contracts: BCBSA

agrees with the provisions in H.R. 2678 to modernize the current cost-based contracting system. Currently, most contractors are paid costs up to a cap set by CMS;

there is virtually no opportunity for profit. We believe CMS should be allowed to

use other payment options, such as cost plus contracts.

Funding recommendations: We have two specific recommendations that are

not included in HR 2678:

• First, we urge Congress and the Administration to assure Medicare administrative funds keep pace with workload increases and new legislative/regulatory

requirements.

• Second, we urge the Committee to increase the permanent MIP appropriation, which is currently capped at $720 million in 2002 and beyond. If fraud and

abuse efforts are to be effective, MIP funding must keep pace with workload increases. Therefore, BCBSA recommends indexing the MIP authorization by the

projected increase in workloads and medical inflation.

BCBSA would like to work with this subcommittee to assure adequate funding is

available each year for paying claims promptly and providing high quality provider

and beneficiary services.

CONCLUSION

Blue Cross and Blue Shield Medicare contractors are committed to achieving outstanding performance. We believe more can and should be done to improve Medicare

contractor operations. Success in Medicare claims administration requires that CMS

and the contractors work together toward their mutual goal of providing high qualVerDate 11-MAY-2000 14:37 Dec 03, 2001 Jkt 076025 PO 00000 Frm 00102 Fmt 6633 Sfmt 6621 E:\HR\OC\A025.XXX pfrm01 PsN: A025
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ity services to beneficiaries and providers, including accurate and timely claims payment.

BCBSA look forward to working with this subcommittee and CMS to make these

needed improvements.

Statement of the Medicare Administration Committee, Silver Spring,

fMaryland

CIGNA Health Insurance Corporation. Cooperativa de Seguros de Vida de Puerto

Rico Group Health Incorporated. Mutual of Omaha Insurance Company National

Heritage Insurance Company. Nationwide Mutual Insurance Company Wisconsin

Physicians Service Insurance Corporation

The member companies of the Medicare Administration Committee are substantially involved in the administration of the Medicare program as carriers and intermediaries. During Fiscal Year 2001, we processed 256 million Part B claims and 16

million Part A claims. We appreciate this opportunity to comment on the Medicare

contracting reform provisions of H.R. 2768, the proposed ‘‘Medicare Regulatory and

Contracting Reform Act of 2001’’ For several years, the Administration has been recommending that Congress

enact its ‘‘contractor reform’’ proposal, which would allow the Center for Medicare

and Medicaid Services (CMS) to restructure its contracting process and drastically

reconfigure the administrative structure of the Medicare program. The General Accounting Office and the Office of Inspector General of the Department of Health and

Human Services have endorsed the concepts put forth by the Administration.

H.R. 2768 is aimed in part at modernizing Medicare’s contracting for the processing and payment of Medicare claims as well as education and services provided

to providers of care and beneficiaries. Section 4 of the bill embodies many of the

contracting changes being sought by the Administration. It would:

• Create a new class of contracting entities, ‘‘Medicare Administrative Contractors’’, (MACs) replacing the current Medicare Part A intermediaries and Part

B carriers.

• Eliminate the current law requirement for cost-reimbursement contracts,

allow contracting in any manner allowed by the Federal Acquisition Regulation

(FAR), and require that contractors be provided with financial incentives for

quality and efficiency.

• Eliminate the current Part A right of hospitals to select their fiscal intermediaries and the Part B requirement that carriers be insurance companies.

• Allow CMS to contract for specified Program Management functions individually or in any combination it wishes with any entity it deems qualified.

• Require competition in the procurement of MAC services, with some exceptions.

• Eliminate current law provisions that protect carriers and intermediaries

when their contracts are terminated by either the government or themselves.

• Increase the liabilities that contractors may incur in the performance of their

responsibilities.

CMS believes that revisions in its contracting authority will enable it to reduce

overall Medicare program management costs through price competition and by reducing the number of Medicare fee-for-service contractors, to achieve further economies of scale. It also hopes to achieve greater efficiency through the use of specialized, ‘‘functional’’ contractors. However, the agency has not indicated with any degree of specificity how it would employ the broader contracting authority it seeks.

COMMENTS

We believe that appropriate changes should be made in the way the government

contracts for the services provided by carriers and intermediaries. For example, our

companies would welcome the opportunity to earn a reasonable profit as MACs. Nor

do we oppose competitive contracting—provided the entities involved are clearly

qualified to perform the complex operations involved in processing Medicare fee-forservice claims and related activities. But, we doubt that the mandatory 4-year competitive procurement cycle envisioned by H.R. 2768 would be the best way to implement competition—given the immense scale and complexity of the Medicare program. The cost and disruption of conducting four or five major competitive procurements each year would be a major expense and disruption for CMS and contractors

100

to deal with and would probably not yield the results that could be achieved by a

more targeted approach.

Functional Contracting—We are also concerned about the feasibility of ‘‘functional

contracting.’’ Dividing the activities that go into processing a single Medicare claim

among several specialized contractors may have theoretical benefits, but the potential problems involved in coordinating all of these functions deserve careful analysis.

Thorough planning, extensive pilot testing and cautious implementation will be

needed to make functional contracting effective.

Funding of Medicare Contractor Operations—During the past decade the annual

funding of Medicare contractor operations has eroded to the point where it is inadequate to meet the demands of an efficiently run, high output program. The workload of claims to be processed has increased more than 70 percent, while the funding of contractor operations has risen less than 15 percent. In addition, Congress

has enacted literally hundreds of substantive changes in the program without providing CMS or Medicare contractors the resources for the complex processes involved in implementing them.

While contracting reform may produce some further economies of scale, they may

not be sufficient to keep up with the growth in claims workload or general inflation

in the economy. As the General Accounting Office has frequently pointed out, Medicare administrative costs are extremely low in comparison to similar government

programs or private health insurance.

Further, in reconfiguring contractor operations, CMS will incur substantial additional transition costs. Unless the funding of contractor operations is increased by

10 percent or more it will be impossible to maintain the current levels of quality

and efficiency in the ongoing processing of 900 million annual Medicare claims

while, at the same time, implementing contracting reform.

CMS Capacity to Manage a FAR Contracting Environment—The current form of

Medicare ‘‘cost-reimbursement’’ contracting has been in place for over three decades.

It is an environment in which contractors are assigned tight annual budgets with

no discretion to address shifting requirements by transferring resources among the

various budget categories dictated by CMS. There is no detailed statement of work

in the contracts. Instead, contractors receive hundreds of instructions from CMS,

many of which are vague and subject to definition or change throughout the year.

The majority of these instructions require operational changes to be carried out

‘‘within existing resources.’’ Under the current ‘‘cost-reimbursement’’ business environment, all contractors have experienced situations in which CMS orders additional work to be done and then fails to make funds available to pay for it. Contractors also are frustrated by performance evaluations that judge their work on a fiscal

year basis yet fail to take into account the fact that funding for new or revised work

was not provided until several months after the year had begun, if it was provided

at all.

Contracting in accordance with the FAR is a sound concept. However, its implementation will probably require more change by CMS itself than by its contractors.

In the FAR contracting environment, CMS will be required to negotiate a highly detailed and specific statement of work with each contractor. Any new work or significant changes in the ongoing work to be performed will have to be negotiated with

each contractor and price adjustments agreed upon. Further, CMS will have to develop precise, objective measurements of contractors performance. The GAO has

commented that CMS already has experience with FAR contracting under the MIP

program. But that experience may not prove particularly useful in dealing with the

high-output and immense scale of ongoing carrier and intermediary operations.

The immense workload imposed by hundreds of legislative changes, coupled with

appropriations that have been inadequate for the work required of the agency, have

greatly hampered CMS in the performance of its mission. Under contracting reform,

CMS will need to be funded, staffed and reorganized to deal with the transition to

a very different contracting environment. It will need to improve its planning, funding and policy implementation processes as they affect Medicare administrative contractors. The FAR contracting process will not accommodate constantly shifting

agency strategies and goals, or imprecise, untimely definitions of the work that contractors are to perform.

Contractor Liability—The financial risk of being a Medicare contractor is a factor

that must be carefully considered by any entity interested in this business. The

weighing of potential risk against potential financial reward is an important factor

in making the decision to compete for Medicare administrative business. The revised

standards for liability and indemnification of Medicare Administrative Contractors

proposed in H.R. 2768 are inadequate for the levels of risk to which carriers and

101

intermediaries are exposed. They would greatly increase the business risk of being

a contractor. Insuring for the added risk would also increase contractors’ operating

costs and thus the government’s cost of administering the program.

We urge that the liability and indemnification provisions of H.R. 2768 be reexamined. The liability provisions that CMS has incorporated in the contracts that it has

awarded under the Medicare Integrity Program contracting authority are not appropriate for the program management work performed for Medicare by carriers and

intermediaries. We believe that, when CMS moves beyond the limited projects that

have been awarded thus far under MIP, it will find itself pressured by MIP contractors to adopt contract liability language comparable to that in current intermediary

and carrier contracts.

Contractor Termination Costs—Under their current contracts, carriers and intermediaries do not make a profit. They have many career employees with 20 or more

years of service that must be provided severance pay if a contractor leaves the Medicare program.

At the beginning of the Medicare program, the government agreed that, under the

long-term cost-reimbursement relationships envisioned, carriers and intermediaries

would be entitled to recover their termination costs regardless of whether the government or a contractor decided to end the relationship. In view of this agreement,

carriers and intermediaries have not been allowed to include any charge for funding

termination costs as an ongoing operating cost to be reimbursed by the government.

We believe that CMS intends to end this longstanding commitment when it enters

into new FAR contracts with existing carriers and intermediaries. Termination costs

would be allowed only if the government cancels a contract. This would be extremely

unfair to existing contractors—especially so in view of the fact that, since 1965,

more than 40 contractors have left the program subject to the existing termination

rights.

If the Medicare program continues to contract on a cost-reimbursement or cost

plus incentive fee basis, the traditional termination provisions should be retained

in new contracts. If, instead, it changes from cost-reimbursement to fixed price contracting and forces contractors to give up their traditional right to termination costs,

it is critically important that the change be applied prospectively.

Unless current contractors are assured that the potential severance pay and lease

termination expenses accrued up to this point will continue to be covered should

they decide to leave Medicare, many may quickly drop out of the program under

their existing contracts, in order not to lose their right to recover termination costs.

Importantly, if the accrued termination costs of existing contractors are recognized

under new contracts, the potential cost to the government will eventually disappear

as the contractors’ current employees leave or retire and are replaced by personnel

not covered by the traditional contract language. Moving forward all bidders will

simply include their prospective termination costs in the prices they bid for Medicare contracts.

The following statement is respectfully submitted to the U.S. House of RepresentStatement of the Power Mobility Coalition

f atives Committee on Ways and Means on behalf of the Power Mobility Coalition

(’’PMC’’). The PMC is a coalition of suppliers and manufacturers who provide power

mobility equipment and services, such as motorized wheelchairs and scooters, to

Medicare beneficiaries nationwide. PMC members represent well over half of the nation’s power mobility market and our members are located in all regions of the country.

The members of the PMC would like to thank the Subcommittee on Health of the

Committee on Ways and Means for its work on Medicare reform and for holding

their recent hearing concerning H.R. 2768, the ‘‘Johnson-Stark Medicare Regulatory

and Contracting Reform Act of 2001.’’ We are grateful that the Subcommittee is addressing legitimate concerns raised by suppliers and providing regarding regulatory

and administrative issues in the Medicare program.

Suppliers of power mobility equipment and services spend much of their time and

effort interpreting and complying with Medicare’s complex regulatory and procedural requirements. In addition to dealing with Medicare laws and regulations,

PMC members must also deal directly with the Durable Medical Equipment Regional Carriers (‘‘DMERCs’’), the entities that are charged with administering payment on behalf of CMS. While CMS has overall responsibility for program management, many of the responsibilities related to reimbursement and medical policy

102

have been delegated by the agency to the DMERCs. Unfortunately, the DMERCs

have used this authority to create new policies, often in direct contrast to existing

policy published by CMS. For example, the DMERCs often conduct random audits

of suppliers of so-called ‘‘high utilization’’ items without adhering to published

standards governing such audits, and use ‘‘overpayment’’ calculation methods such

as extrapolation to recoup funds that have already been appropriately paid out by

the Medicare program.

These actions have led to an erosion of the due process afforded to those who

choose to provide items and services to program beneficiaries. In this context, we

offer the following comments.

A. CMS/CARRIERS SHOULD BE PROHIBITED FROM RECOVERING PAST

OVERPAYMENTS IF AN APPEAL IS PENDING

The PMC supports legislation that prohibits recovery of overpayments until the

Administrative Law Judge (’’ALJ’’) level of appeal is completed.

The current system requires suppliers and providers to repay the government and

then undergo a lengthy appeals process to win back monies to which they are entitled. It is not unusual for a supplier/provider to wait one or two years for a claim

to be completely adjudicated.

During the appeals process, a supplier continues to provide the equipment and

service to the beneficiary—to do otherwise would force the supplier to forfeit its

right to appeal. The appeals process typically results in payment to the supplier who

provided equipment and service.

Pursuant to the order certified by the physicians in compliance with Medicare

rules. According to statistics cited in the September 1999 Report issued by the Office of Inspector General of the Department of Health and Human Services, entitled

‘‘Medicare Administrative Appeals—ALJ Hearing Process,’’ 78 percent of DME appeals studied were ‘‘reversed at the ALJ level’’ and 81 percent of home health appeals studied ‘‘were reversed at the ALJ level.’’

With a reversal rate of roughly 80 percent, it does not seem fair that a company

would have to forfeit the right to reimbursement without having the ability to adjudicate these disputed claims prior to repayment. Further, the supplier who wins a

case is, under the current law, not entitled to interest on reversed claims even

though there has been no break in service, or removal of equipment from, the Medicare patient.

B. EXTRAPOLATION CREATES UNDUE HARDSHIP ON POWER MOBILITY SUPPLIERS

The current arbitrary use of the technique of extrapolation to calculate so called

overpayments creates an undue hardship on suppliers and providers participating

in the Medicare program. The PMC supports legislation that limits the use of extrapolation and would recommend that extrapolation not apply to customized items

of equipment such as power mobility equipment.

Extrapolation works in the following manner: a carrier draws a ‘‘sample’’ of claims

(often as few as thirty) from a universe of claims for that supplier a defined period

of time. If, for example, the carrier reviewer determines that 50% of the claims

should not have been paid (even though the treating physician has certified the

need for the equipment), that non-payment amount is then ‘‘extrapolated’’ to the

universe of claims. If there are a hundred claims in the universe, the company will

owe repayment for 50 electric wheelchairs ($250,000) rather than 15 wheelchairs

($75,000). The overpayment amount is due within thirty days of the DMERC reviewer’s determination. Even though, typically, the supplier wins most, if not all,

of the overpayment back on appeal, the business is severely damaged.

The indiscriminate use of extrapolation for costly, customized items of medical

equipment such as electric wheelchairs, is creating hardships for dealers and has

forced many businesses to face bankruptcy. Although CMS has the discretion to

allow the supplier to pay back a large overpayment in installments, such payment

arrangements are usually granted only for a twelve-month period, with interest of

around 14% is assessed on all outstanding ‘‘overpayments’’ even while they are

being appealed.

The use of extrapolation saddles the supplier, who is trying to provide a service

in his/her community, with a large overpayment assessment, as well as additional

costs including, fees for representation and interest on any assessed ‘‘overpayment.’’

In addition, the supplier is required to pay back the government within thirty days.

The company who finds itself in this position will take little comfort in the fact that

the ultimate reversal rate for these cases is, according to CMS’s own figures, roughly 80 percent. That is because the business may very well not survive the next year

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or two of working through this CMS/DMERC controlled process. An appeal for relief

to federal court is not possible until administrative remedies are exhausted.

C. AUDIT PROCESS

Medical Review and Audits Should Be Conducted Based on Good Cause

Medicare audits and medical reviews should be conducted based on good cause

and should adhere to established standards and guidelines. Toward that end, CMS

developed standards for the audit process in an August 7, 2000 Program Memorandum entitled the Medicare Review Progressive Corrective Action plan. These

standards require that intermediaries/carriers should ‘‘subject providers only to the

amount of medical review necessary to address the nature and extent of the identified

problem.’’

Many of the audits conducted upon suppliers are not based on an ‘‘identified problem’’ but rather are triggered on the use of a code for equipment for which utilization has increased. For example, the Region D DMERC, the Medicare Part B carrier

overseeing 17 states spanning the entire Western part of the country, has developed

a series of pie charts highlighting the top suppliers of power wheelchairs for 3

month periods. Each of the suppliers cited on these pie charts are subsequently targeted for an audit based solely on the ‘‘high utilization’’ of this equipment.

What is troubling is the fact that the Region D DMERC’s own pie charts demonstrate that the targeted suppliers are providing only between six and eight wheelchairs a month to Medicare beneficiaries. Providing less than ten wheelchairs a

month does not constitute high utilization in a Region spanning 17 states. Further,

the information provided to industry by the Region D DMERC appears to be inconsistent. One chart used by the Region D DMERC cited the top supplier for the first

quarter of 2000 as providing 32 wheelchairs while another chart used by the same

DMERC for the same quarter of 2000 cited a company as providing 39 wheelchairs.

The Region D DMERC audit process is consistent with CMS/carrier policy of targeting companies that may specialize in a particular area and/or companies that

have developed a reputation for providing quality service and care to Medicare beneficiaries. CMS’s policy of targeting suppliers of a particular product creates a

chilling effect on the ability of Medicare suppliers to provide equipment and services

to patients who qualify for such equipment and services.

The Current Audit Process Should Not Penalize the Utilization of New

Technology in the Marketplace

The current process by which companies are being audited raises a broader issue

concerning CMS’s inability or unwillingness to acknowledge or recognize the importance of technological advancements in the health care field. The development of

new technology in the power mobility industry has made this equipment available

to a larger number of disabled people. It is now possible for beneficiaries to obtain

smaller, more lightweight and maneuverable motorized wheelchairs for use inside

a patient’s home. This new technology allows people to move about in small places

(e.g., hallways, kitchens, and bathrooms) and complete their activities of daily living

without being bed-bound or sent to nursing homes.

CMS’s targeting of companies based strictly on utilization fails to recognize the

evolving health care marketplace or changing consumer needs and fails to appreciate the rationale for a particular product or service being provided to patients

throughout our country.

Carrier Audit Determinations Should Be Consistent With Medical Necessity

Standards Established By Congress and CMS

The CMS Medical Review Progressive Corrective Action plan states that ‘‘after validating that claims are being billed in error, target medical review activities at providers or services that place the Medicare trust funds at the greatest risk while ensuring the level of review remains within the scope of the budget for medical review.’’

Unfortunately, the criteria the carriers use to determine that ‘‘claims are being

billed in error’’ are inconsistent with criteria already established by Congress and

CMS. Current Medicare policy governing the use of power mobility equipment requires that a supplier submit, on behalf of a beneficiary, a certificate of medical necessity (‘‘CMN’’) form signed and completed by the patient’s treating physician, with

each power mobility claim. Congress passed legislation in 1994 defining a CMN in

the following manner:

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A form or other document containing information required by the carrier

to be submitted to show that an item is reasonable and necessary for the

diagnosis or treatment of illness or injury to improve the functioning of a

malformed body member.

CMS worked with the medical community on the development of the CMN for

power mobility equipment (as well as CMNs for other DME items) and received approval from the Office of Management and Budget for these forms pursuant to the

Paperwork Reduction Act. When submitting the CMN forms to OMB for approval,

CMS explicitly declared that the CMN forms are ‘‘needed to correctly process claims

and ensure that claims are properly paid’’ and that ‘‘these forms contain medical information necessary to make an appropriate claims determination.’’ In fact, the

treating physician (or clinician familiar with the patient’s condition) is required to

complete the detailed medical necessity information on the CMN and certifies that

such information is true and accurate.

The CMN process has been quite effective. The PMC sampled roughly 20,000

power mobility CMNs and discovered that over 75% of the patients failed to qualify

based on responses to medical necessity questions established on the CMN form.

Only the 25% of patients who have met the medical necessity requirements established on the CMN form were provided with power mobility equipment that was

billed to the Medicare program.

Despite the legal/medical necessity significance of the CMN form as envisioned by

Congress, CMS and the OMB, the DMERCs have often disregarded the information

contained on the forms, particularly when conducting audits, to determine the validity of claims. On numerous occasions, power mobility suppliers have been assessed

overpayments even though the equipment was provided pursuant to a properly completed CMN form signed and certified by the patients treating physician.

One power mobility supplier, a company with revenues between 1 and 2 million

a year, was assessed an overpayment of nearly $500,000. Upon making this overpayment assessment, the carrier informed the supplier in writing that the ‘‘CMN

represents nothing more than a Medicare pre-payment tool which has been abbreviated as much as possible to reduce physician paperwork.’’ Another small power

mobility supplier was assessed an overpayment of over $600,000 and informed by

the carrier in writing that ‘‘the CMN itself does not provide sufficient documentation

of medical necessity. . . . Suppliers are not required, nor should they, sell equipment to unqualified beneficiaries merely because they have a physician’s written

order and a CMN.’’

In these cases, and in other similar cases throughout the country, the supplier

had fully complied with the rules established by the Medicare program and yet were

penalized based on new and arbitrary criteria developed by the carrier after the

equipment had been delivered to the patient and after the claim had originally been

paid. While these companies will most likely be vindicated during the appeal process, the damage to the company has taken place and the company’s ability to survive has been impacted. As set forth above, the inability of CMS to effectively monitor the performance of the Part B carriers results in an unfair burden and cost to

suppliers and providers who serve beneficiaries.

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