H.R. 4401 would establish a Health Care Infrastructure Commission within the Department of Health and Human Services (HHS) to design, construct, and implement an immediate claim, administration, payment resolution, and data collection system that would initially be used by the Medicare part B program.This system would (1) immediately advise each provider and supplier of coverage determination; (2) immediately notify each provider and supplier of any incomplete or invalid claims, including the identification of missing data and coding errors; (3) immediately process clean claimsso that a provider or supplier may provide a written explanation of medical benefits, including costs and coverage to any beneficiary at the point of care; and (4) allow electronic payment of claims for which payment is not made on a periodic payment basis. The bill also calls for the commission to conduct and publicize a study, with final recommendations, on the design and construction of such a system within 3 years and establishes a timetable with specific performance measures for its initial, intermediate, and full implementation. Another key provision of H.R. 4401 that relates to the Medicare program is the elimination of section 1842(c)(3) of the Social Security Act (42 U.S.C. 1395u(c)(3)), which prohibits the payment of claims until after 13 calendar days from the date received if electronically submitted or until after 26 calendar days if manually submitted. In addition, H.R. 4401 would affect FEHBP—the federal government’s health benefits program for employees and retirees—which is run by the Office of Personnel Management (OPM). It would require OPM to adapt the immediate claim, administration, payment resolution, and data collection system for use by FEHBP and require FEHBP carriers to use that system. H.R. 4401 also sets a timetable with specific performance measures for initial, intermediate, and full implementation of the system. Although H.R. 4401 is explicit in that the proposed system would cover the Medicare part B program and FEHBP, it is unclear whether other federal health programs would also be included in this system. H.R. 4401 calls for the establishment of an advanced informational infrastructure for “ederal health benefits programs which consists of an immediate claim, administration, payment resolution, and data collection system . . . that is initially for use by carriers to process claims submitted by providers and suppliers under part B of the edicare program . . . .” (In a later section, the bill requires that this system be applied to FEHBP.) The bill does not define “federal health benefits programs,” and provides for inclusion of only Medicare part B and FEHBP in the system. However, if in the future the proposed system is intended to include other federal health benefits programs such as Medicare part A, Medicaid, veterans’ health services, the Department of Defense’s health services, and Indian health services, development and implementation of the system envisioned by the bill would be different and much more challenging. These other federal health programs are markedly different. In some cases, the federal government acts like other large employers that contract with insurance companies and health plans to offer health benefits to employees and their dependents. In other cases, it acts like a large insurance company that pays directly for health care services. In still other instances, it acts like a large staff-model health maintenance organizationthat operates a network of hospitals and employs health care professionals. Accordingly, if the proposed real-time claims processing system were to later be intended to address the claims processing requirements of any of these programs, it would have a significant impact on the system’s design and complexity. Administered by HHS’ Health Care Financing Administration (HCFA), Medicare is the nation’s largest health insurer, covering almost 40 million beneficiaries at a cost of over $200 billion annually. Medicare operates through a complicated administrative structure. Its authorizing legislation—title XVIII of the Social Security Act—required HCFA to contract with the private sector for claims processing and payment functions. This requirement has led to a large contractor network comprised of insurance companies responsible for processing Medicare claims in given states. These Medicare contractors are responsible for claims processing and administration, including (1) receiving claims; (2) judging their appropriateness; (3) paying appropriate ones promptly; (4) identifying potentially fraudulent claims or providers, and withholding payment, if necessary; and (5) recovering overpayments or inappropriate payments. Contractors develop a set of criteria to determine which claims to pay, guided by laws, regulations, the Medicare policy manuals, and periodic agency directives. For the Medicare part B program, HCFA uses 22 companies doing business as carriers to process claims. Each carrier relies on one of four standard systems to process its claims, adding its own front-end and back-end processing systems. These systems interface with the common working file (CWF)—a set of nine databases containing beneficiary information for specific geographic regions—to authorize claims payments and determine beneficiary eligibility. The CWF obtains information, such as beneficiary enrollment data, from HCFA’s internal systems. Contractors pay approved claims by check or by electronic funds transfers. Each day, contractors’ banks draw money from the Federal Reserve System sufficient to cover the provider checks and electronic funds transfers expected to clear the bank during the next business day. Figure 1 provides an overview of the Medicare fee-for-service claims process for the part B program. In fiscal year 1999, about 81 percent of part B claims that were completed were submitted electronically by providers or billing services, which use one of two standard electronic formats. As illustrated in figure 2, once claims are submitted, carriers and HCFA use a variety of automated edits to determine the validity of these claims. Carriers generally use three types of edits before authorizing the payment of a claim. First, front-end edits are used to ensure that valid values are used and appropriate fields are completed. Claims that fail the front-end edits are rejected and returned to the provider. Second, carriers use utilization/medical policy edits to check claims against the medical- necessity criteria in medical policies. Utilization/medical policy edits are particularly important because Medicare pays providers a fee for covered medical services, which are identified through a complex, three-level coding system, the HCFA Common Procedure Coding System. Using these codes, utilization/medical policy edits flag indicators such as whether the medical diagnosis was appropriate for the patient’s gender or age or whether the medical procedure exceeded the threshold allowed during a given year. These edits can result in (1) a claim passing to the next set of edits, (2) a claim denial, (3) a claim being suspended until a manual review by claims examiners (who may request additional documentation) is conducted, or (4) a claim adjustment. The third type of carrier edits check for other payers, which are other primary sources of payment, such as employer-sponsored insurance or third-party liability settlements. If another potential payer is identified, the claim is generally denied. Once a claim passes the carrier edits, the claim is checked against one of the nine CWFs that are processed at seven different computer sites around the country. The CWF edits check for items such as beneficiary eligibility, deductibles and limits, and duplicate claims. These edits can result in (1) an authorized claim, (2) a claim returned to the carrier for further review, or (3) a claim adjustment. The CWF also checks for other payers and, if found, the claim is returned to the carrier for further review. One outcome of developing an immediate claim, administration, payment resolution, and data collection system would be faster Medicare part B claims payments. However, most Medicare claims could be paid more quickly using current processes by simply eliminating the mandatory delay in paying claims. Specifically, by enacting the section of the bill that eliminates the mandatory claims payments delay until after 13 calendar days from the date of electronic submission (26 calendar days if submitted manually), the mean time to pay claims would likely be substantially reduced. The mean time for processing and paying a clean part B claimthat required minimal or no manual intervention was 17.3 days in fiscal year 1999 (14.5 days for electronic submissions). However, HCFA estimates that carriers process almost two-thirds of all claims within 5 days.Once processed and authorized for payment, the claims are held until the next payment cycle after the 13- or 26-day requirement has been met (carriers generally make payments every work day). The carrier then issues a check or authorizes an electronic funds transfer to pay the claim. One drawback to eliminating the mandatory payment delay is that the Supplementary Medical Insurance trust fund, from which the Medicare part B program is funded, would lose some of the interest it earns on its balance if payments were made more quickly. Under HCFA’s current claims processing environment, we estimate that the trust fund could lose as much as about $140 million in interest revenue annually if the mandatory payment delay were removed. This amount assumes (1) annual part B outlays of $60 billion, (2) that the average time to pay claims would drop from 17.3 days to 5 days, and (3) an average interest rate of about 7 percent on securities.The amount the trust fund could lose may be even higher if a real-time claims processing system were implemented because the average time to pay a claim could drop below 5 days. The Medicare Supplementary Medical Insurance trust fund is financed by payments from federal government general revenues and by monthly premiums charged beneficiaries. Consequently, a decrease in interest earnings could prompt the need for additional appropriations or increases in beneficiaries’ premiums to compensate for the interest that the trust fund would otherwise have earned.