[Senate Hearing 105-396]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 105-396
 
                    PHYSICIANS AT TEACHING HOSPITALS
                             [PATH] AUDITS

=======================================================================

                                HEARING

                                before a

                          SUBCOMMITTEE OF THE

            COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                       ONE HUNDRED FIFTH CONGRESS

                             FIRST SESSION

                               __________

                            SPECIAL HEARING

                               __________

         Printed for the use of the Committee on Appropriations





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                      COMMITTEE ON APPROPRIATIONS

                     TED STEVENS, Alaska, Chairman
THAD COCHRAN, Mississippi            ROBERT C. BYRD, West Virginia
ARLEN SPECTER, Pennsylvania          DANIEL K. INOUYE, Hawaii
PETE V. DOMENICI, New Mexico         ERNEST F. HOLLINGS, South Carolina
CHRISTOPHER S. BOND, Missouri        PATRICK J. LEAHY, Vermont
SLADE GORTON, Washington             DALE BUMPERS, Arkansas
MITCH McCONNELL, Kentucky            FRANK R. LAUTENBERG, New Jersey
CONRAD BURNS, Montana                TOM HARKIN, Iowa
RICHARD C. SHELBY, Alabama           BARBARA A. MIKULSKI, Maryland
JUDD GREGG, New Hampshire            HARRY REID, Nevada
ROBERT F. BENNETT, Utah              HERB KOHL, Wisconsin
BEN NIGHTHORSE CAMPBELL, Colorado    PATTY MURRAY, Washington
LARRY CRAIG, Idaho                   BYRON DORGAN, North Dakota
LAUCH FAIRCLOTH, North Carolina      BARBARA BOXER, California
KAY BAILEY HUTCHISON, Texas
                   Steven J. Cortese, Staff Director
                 Lisa Sutherland, Deputy Staff Director
               James H. English, Minority Staff Director
                                 ------                                

 Subcommittee on Departments of Labor, Health and Human Services, and 
                    Education, and Related Agencies

                 ARLEN SPECTER, Pennsylvania, Chairman
THAD COCHRAN, Mississippi            TOM HARKIN, Iowa
SLADE GORTON, Washington             ERNEST F. HOLLINGS, South Carolina
CHRISTOPHER S. BOND, Missouri        DANIEL K. INOUYE, Hawaii
JUDD GREGG, New Hampshire            DALE BUMPERS, Arkansas
LAUCH FAIRCLOTH, North Carolina      HARRY REID, Nevada
LARRY CRAIG, Idaho                   HERB KOHL, Wisconsin
KAY BAILEY HUTCHISON, Texas          PATTY MURRAY, Washington
TED STEVENS, Alaska                  ROBERT C. BYRD, West Virginia
  (Ex officio)                         (Ex officio)
                      Majority Professional Staff
                  Craig A. Higgins and Bettilou Taylor

                      Minority Professional Staff
                              Marsha Simon

                         Administrative Support
                              Jim Sourwine




                            C O N T E N T S

                              ----------                              
                                                                   Page
Opening remarks of Senator Arlen Specter.........................     1
Statement of Michael Mangano, Principal Inspector General, 
  Department of Health and Human Services........................     2
    Prepared statement...........................................     4
Statement of Dr. Jordan Cohen, president, Association of American 
  Medical Colleges...............................................    14
    Prepared statement...........................................    16
Different standards..............................................    21
Statement of C. McCollister Evarts, M.D., president and chief 
  academic officer, Pennsylvania State Geisinger Health System...    22
    Prepared statement...........................................    23
Statement of Barbara Wynn, Director, Plan and Provider Purchasing 
  Policy Group, Health Care Financing Administration.............    24
    Prepared statement...........................................
Remarks of Senator Tom Harkin, U.S. Senator from Iowa............    26
Change in policy.................................................    30
Letter from Thomas A. Ault, Director, Bureau of Policy 
  Development, Health Care Financing Administration, Department 
  of Health and Human Services...................................    31
Instructing teaching physicians..................................    31
Letter from Andrew Fois, Assistant Attorney General, Office of 
  Legislative Affairs, U.S. Department of Justice................    46
Prepared statement of Senator Carl Levin, U.S. Senator from 
  Michigan.......................................................    47





             PHYSICIANS AT TEACHING HOSPITALS [PATH] AUDITS

                              ----------                              


                       TUESDAY, OCTOBER 21, 1997

                           U.S. Senate,    
    Subcommittee on Labor, Health and Human
     Services, and Education, and Related Agencies,
                               Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 2:35 p.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Arlen Specter (chairman) 
presiding.
    Present: Senators Specter, Gorton, and Harkin.
    Also present: Senator Bennett.

                       NONDEPARTMENTAL WITNESSES

STATEMENTS OF:
        MICHAEL MANGANO, PRINCIPAL DEPUTY INSPECTOR GENERAL, DEPARTMENT 
            OF HEALTH AND HUMAN SERVICES
        JORDAN J. COHEN, M.D., PRESIDENT, ASSOCIATION OF AMERICAN 
            MEDICAL COLLEGES
        C. McCOLLISTER EVARTS, M.D., PRESIDENT AND CHIEF ACADEMIC 
            OFFICER, PENNSYLVANIA STATE GEISINGER HEALTH SYSTEM
        BARBARA WYNN, DIRECTOR, PLAN AND PROVIDER PURCHASING POLICY 
            GROUP, HEALTH CARE FINANCING ADMINISTRATION

                opening remarks of senator arlen specter

    Senator Specter. Good afternoon, ladies and gentlemen. We 
are going to proceed with the hearing of Labor, Health and 
Human Services, and Education. We will begin with a hearing on 
the issue of audits of teaching hospitals. The purpose for this 
hearing, called on very short notice, is because the House of 
Representatives has report language which suggests that the 
inspector general audits ought to be delayed until a GAO report 
is concluded and until there are more precise standards. It is 
a complicated subject and we have scheduled a hearing in the 
afternoon because there was no other time due to conflicts with 
other hearings.
    I would like for Dr. Evarts, Dr. Cohen, Ms. Wynn, and Mr. 
Mangano to step forward. I'm going to ask that opening 
statements be limited to 4 minutes. The full statements will be 
made a part of the record. The essential question which is of 
concern to the subcommittee is what are the facts?
    There is no question that audits are necessary to make sure 
that the Federal Government is getting its money's worth and 
that there is honesty in what is being done.
    For many years as a prosecuting attorney, I have always 
been very much concerned about plea bargains in the context of 
concessions which were made with a large penalty overhanging 
which might be more of a blackjack than justice. When I have 
seen some of these cases settled long before this issue came to 
me with the House language, I made the comment that I would 
like to see the cases tried, and see what happens. If there is 
fraud, it is not only a matter of fines and penalties, it is a 
matter of jail.
    Fraud is a criminal offense. Yet if there is no wrongdoing, 
then I would like to see people exonerated. There is nothing 
like trying cases to get a line on what really is going on.

                  SUMMARY STATEMENT OF MICHAEL MANGANO

    Let me begin with you, Mr. Mangano, principal deputy for 
the Office of Inspector General, Department of Health and Human 
Services.
    Mr. Mangano. Thank you very much, Mr. Chairman. In very, 
very simple terms, what this review is designed to do is make 
sure Medicare pays only once for a service and pays a fair 
price. As a result of that, what we'll do is take a look at two 
issues: First, did the teaching physician perform the services 
which they billed for; and did they bill at the appropriate 
level? Let me take the first issue.
    Medicare on a part A basis pays for in-patient stays at 
teaching hospitals exactly the way it does at any other 
hospital in the country, namely on the basis of the DRG system. 
Medicare also provides for training money to provide training 
for residents and interns, a future class of physicians in this 
country.
    Last year, Medicare paid $8 billion for the training of the 
residents and interns, and this--this covered costs like the 
salaries and expenses of the interns and residents. It also 
covered the other expenses in their training, including the 
time of the teaching physicians to train them.
    To give you a practical example, the University of 
Pennsylvania, which is the first review that we did, received 
last year an average of $126,000 for every resident that they 
trained. Medicare also allows teaching physicians at these 
hospitals to bill under the part B program. Medicare 
established its policy for this in the 1967 regulation which 
said that teaching physicians would have to provide personal 
and identifiable direction to the interns and residents.
    Some 2 years later, through an intermediary letter, that is 
a letter that goes out to all the professionals in the 
community, the policy explained a little bit further and 
indicated teaching physicians would have to do two things: No. 
1, provide personal and identifiable services; and No. 2 meet 
the criteria of the attending physician for that individual 
patient.
    So really we get down to the question, what does it take to 
provide personal and identifiable services or direction? The 
vast majority of the policy statements that I've seen from HCFA 
indicate what that standard should be is the physical presence 
of the physician if they are not rendering the service 
themselves or performing the service themselves.
    The Medicare Program operates on a contractor system. That 
is, local insurance companies all over the country administer 
that program for them. Contractors have responsibilities to 
communicate policy, establish the standards and requirements 
that would meet that policy, review claims and conduct audits.
    Our review found that 75 percent of the teaching hospitals 
in this country are serviced by a contractor that provided 
clear and consistent guidance which said, in order to meet the 
standard--the personal and identifiable services of direction--
you must perform the service yourself or be present at the 
elbow of the resident when he, the resident, performs the 
service.
    Hundreds of audits have been conducted over the last three 
decades on this issue using that standard. My testimony gives 
you the example of what happened in Pennsylvania where the 
contractor communicated that standard to the providers in his 
community and, in just a 1- to 5-year period, conducted 67 
audits of teaching hospitals on that very same standard.
    The Congress, in 1980, 1982, confirmed that in the 
amendments to the Social Security Act which called for teaching 
physicians to provide personal and identifiable services. The 
committee report from the Senate Finance Committee translated 
that into saying that physical presence would be the indicator 
of this standard.
    Our findings show that hospitals have had varying degrees 
of compliance, from those that met the requirements quite well 
to others that did not. I provide examples in my testimony that 
showed some teaching physicians were billing for services, 
billing for patient visits when they weren't in the hospital 
that day, weren't even in the same State.
    The second issue we look at is an issue of coding. That is, 
did they bill at the proper level? I want to assure you that 
we're not looking for inadvertent mistakes here but, rather, 
what we're looking for is evidence or patterns of abuse.
    Patterns of abuse would be indications we'd find that the 
overwhelming majority of mistakes are in favor of the hospital 
and those mistakes were multilevel mistakes with--which would 
mean they were billing for far more expensive procedures than 
they actually provided.
    Senator Specter. You are looking for physical presence, 
billing at the proper level and what else?
    Mr. Mangano. Those are the only two issues, that's correct.
    Senator Specter. Those are the two issues.
    Mr. Mangano. Yes; I want to just conclude by saying that 
one of the charges against these audits is that they're unfair. 
I want to mention a couple of things that we believe prove that 
they are fair.

                           PREPARED STATEMENT

    No. 1, we provide an opportunity to teaching hospitals, if 
they so desire, to conduct a self audit under our supervision. 
No. 2, we only review those teaching hospitals which had 
carrier guidance that was clear, over a long period of time 
that physical presence was required. No. 3, we offset upcodes 
with undercodes and, finally, it's the Department of Justice 
and not ourselves who evaluate that information and determine 
whether any penalties are warranted.
    Thank you very much.
    Senator Specter. Thank you very much, Mr. Mangano.
    [The statement follows:]

                Prepared Statement of Michael F. Mangano

           the physicians at teaching hospitals (path) audits

    Good afternoon, Mr. Chairman. I am Michael Mangano, Principal 
Deputy Inspector General of the Office of Inspector General (OIG), 
Department of Health and Human Services (HHS). Thank you for the 
opportunity to testify on the Office of Inspector General's ongoing 
review of the billing practices of physicians at teaching hospitals, 
commonly referred to as ``PATH''. Reduced to simple terms, these 
reviews are designed to ensure that Medicare pays only once for the 
same medically necessary service, and that payment fairly reflects the 
level of service actually provided. Our audits of the billing practices 
of physicians at teaching hospitals has revealed that some physicians 
have billed Medicare for services actually performed by an intern or 
resident without the presence of the teaching physician. In addition, 
Medicare has paid for complex levels of treatment when the patient's 
medical record demonstrates that a lower level service was provided.
    The OIG's objective in conducting the PATH audits is to return to 
the Medicare Trust Funds these improperly claimed funds and, through 
the use of compliance programs, work with the physicians and their 
teaching hospitals to prevent a reoccurrence of these abuses. Under the 
PATH program, providers are given the opportunity to conduct self-
audits with Government oversight. Those providers opting for self-
audits are commonly referred to as ``PATH II'' participants. Those 
audits which are conducted solely by the Government are referred to as 
``PATH I'' reviews.

                               BACKGROUND

Medicare Part A and Part B
    To understand the basis of the PATH initiative, it is helpful to 
have some background on the structure of the Medicare program and its 
underlying reimbursement principles. Medicare is a combination of two 
programs, each with its own enrollment, coverage, and financing--
Hospital Insurance (or Medicare Part A) and Supplementary Medical 
Insurance (or Medicare Part B). Claims for Medicare Part A cover 
services provided by participating hospitals, skilled nursing 
facilities, home health agencies, etc. Medicare Part B covers physician 
and outpatient care, laboratory tests, durable medical equipment, and 
other items and services. Medicare payments for services rendered in a 
teaching hospital combine these two programs and result in payments 
from both the Part A and Part B Trust Funds.
    Under Part A, Medicare pays for inpatient stays in teaching 
hospitals exactly the same way it does other hospitals (i.e., 
reimbursement is based on the diagnostic-related group (DRG) code for 
the services rendered to the patient). Medicare also supports the costs 
of training residents and interns through the graduate medical 
education (GME) program. In addition, Medicare pays for other indirect 
medical education (IME) costs associated with training residents and 
interns by increasing the normal reimbursement rate for each DRG. 
Teaching hospitals can easily receive over $100,000 per year per 
resident from the government through the direct and indirect medical 
education programs. Medicare paid over $8 billion to teaching hospitals 
in 1996 for the costs of training residents. This amount includes 
payments to teaching physicians for their role in supervising residents 
and interns and the salaries of those residents and interns, as well as 
payments for IME. At the University of Pennsylvania, the first teaching 
hospital to settle its civil liability with the Department of Justice 
based upon a PATH audit, Medicare paid over $126,000 per resident in 
GME and IME payments for physician training.
    In light of these direct and indirect payments for training, the 
teaching physicians may not submit claims for payment to Medicare Part 
B for the same general supervision of residents and interns already 
paid for under Part A. Teaching physicians seeking reimbursement under 
Part B must do more. Physicians claiming Part B reimbursement for 
services performed by the intern or resident alone are making a 
duplicate claim--the general supervisory services of the teaching 
physician and the salaries of the interns or residents were already 
paid for by the Medicare program under Part A. As is the case for all 
medical services, the patient's medical record is relied upon to 
document the involvement of the teaching physician.
Role of the Medicare Contractor
    When the Medicare program was established, Congress directed that 
it be administered locally through insurance companies, called 
contractors. These contractors are referred to as Part A intermediaries 
and Part B carriers. A significant part of these contractors 
responsibilities is the communication of Medicare policy in their local 
area and the payment of claims for reimbursement consistent with these 
policies. In addition to enforcing Medicare policies through the claims 
payment process, the contractors conduct post-payment audits of 
providers to verify compliance with program's rules. Where an audit 
identifies a item or service for which the Medicare program should not 
have paid, the provider is informed of the error and the overpayment is 
recouped.

                      REVIEW OF PHYSICAL PRESENCE

    Medicare established its policy for reimbursing teaching physicians 
under Part B through regulation and policy issuances. Through 
regulation in 1967, 42 CFR Sec.  405.521 (1992 version), Medicare 
allowed teaching physicians to bill the program when they personally 
provide services and ``when the attending physician furnishes personal 
and identifiable direction to interns or residents who are 
participating in the care of the patient.''
    In 1969, Medicare attempted to further clarify its policy to its 
contractors in Intermediary Letter 372 (I.L. 372). To be eligible for 
Part B reimbursement, this document required teaching physicians to 
``render personal and identifiable medical services'' after first 
establishing themselves as the patient's attending physician. I.L. 372 
went on to describe the criteria necessary to qualify as the attending 
physician including: reviewing the patient's history, personally 
examining the patient, confirming or revising the diagnosis and 
determining the course of treatment, performing the physician's 
services or supervising the treatment, and being present for all 
complex or dangerous procedures.
    Over the years, Medicare issued numerous other policy documents to 
its program managers, contractors and participating health care 
providers discussing Medicare requirements for teaching physicians. 
Medicare often used the terms ``personal and identifiable services'' 
and ``personal and identifiable direction'' interchangeably. The vast 
majority of these documents conditioned Medicare Part B reimbursement 
to teaching physicians to when they furnished medical services 
themselves or when they were present and directly supervising residents 
or interns. There were some other documents that were not as distinctly 
stated. What was clear, however, was that teaching physicians had to 
have a personal role in delivering the medical service, and it had to 
be far more direct than the general supervision already compensated 
under GME. As the HHS General Counsel Harriet Rabb observed in her July 
11, 1997 letter to the Association of American Medical Colleges:
    It would be absurd to assert that physicians could receive the 
significant remuneration that characterized Part B reimbursement for 
supplying the same level of services that qualifies and was paid for as 
Part A services. The physical presence of a physician with the treating 
intern or resident at the time of treatment is one clear indication of 
a more patient-specific level of responsibility for the physician 
entitling her or him to Part B, rather than Part A, reimbursement. That 
view is consistent with both common sense and the history of this 
subject.
    The Medicare contractors, consistent with their authority, provided 
health care professionals ample clarification of the standards they 
would use to determine whether teaching physicians provided ``personal 
and identifiable services or direction.'' Our review of carrier 
policies and directives to teaching hospitals and physicians found that 
over 75 percent of the providers with teaching programs received 
guidance from contractors that conditioned Part B reimbursement on 
either personally furnishing a service or being present when it was 
furnished by an intern or resident. For the remaining contractors, we 
were unable to determine whether they had offered longstanding, clear 
guidance prior to 1993.
    We recognize that some Medicare carriers did not uniformly apply 
and interpret the standard as the vast majority did. As a result and in 
the interest of fairness, the OIG will conduct PATH audits only when 
carriers, before December 30, 1992, issued clear explanations of the 
standards requiring teaching physicians to either personally furnish 
services or be physically present when the services were furnished by 
interns or residents.
    In addition to the guidance issued by contractors, we found they 
conducted numerous audits of teaching hospitals over the last three 
decades that checked for compliance with the physical presence 
standard, and when they found institutions out of compliance, the 
contractor collected overpayments.
Legislative History
    Based upon our review of the provisions of the Social Security Act 
(SSA) and its legislative history, we believe that the Congress clearly 
intended to condition Part B payment on a physician personally 
performing a service for a patient or, having qualified as the 
patient's attending physician, providing ``personal and identifiable 
services''when a service was rendered by an intern or resident. For 
example, in 1980 the Congress enacted Section 1842(b)(7)(A) of the SSA, 
which provides, in part, that ``[i]n the case of physicians' services 
furnished to a patient in a hospital with a teaching program * * *, the 
carrier shall not provide * * * for the payment for such services * * * 
unless * * * (I) the physician renders sufficient personal and 
identifiable physicians' services to the patient * * *.'' The 
legislative history of this provision makes clear that personal 
identifiable services must be provided by a teaching physician to 
qualify for a fee-for-service payment. As the House of Representative's 
Committee on the Budget stated:
    The Committee strongly believes teaching physicians should 
personally perform or personally supervise patient services in order to 
qualify for fee-for-service payment. The Committee notes that failure 
of a physician, teaching hospital, or related entity to comply with 
these requirements would, among other things, constitute a false 
statement or representation of material fact in an application of 
payment under Medicaid or Medicare. The Committee expects the 
Department and State Medicaid Fraud and abuse control units to 
vigorously pursue any noncompliance. 1980 U.S.C.C.A.N. Vol. 5, 5582-
5583.
    Similarly, in 1982, section 1887(a)(1) of the SSA was enacted to 
direct the Secretary to determine criteria for distinguishing those 
hospital services personally rendered for an individual patient by a 
physician and thus reimbursable under Medicare Part B, and those Part A 
reimbursed services that are rendered for the general benefit of 
patients. As the Senate Finance Committee Report stated in its 
explanation of the 1982 amendments ``services furnished by a physician 
to hospital inpatients are reimbursed * * * under Part B only if such 
services are identifiable professional services to patients that 
require performance by the physician in person and which contribute to 
the diagnosis or treatment of individual patients.'' S.Rep. No. 97-494, 
at 21-22 (1982) (emphasis added).
Medicare Contractor for Pennsylvania
    Mr. Chairman, perhaps the simplest way to see how Medicare policy 
was translated into specific standards or documentation requirements 
for teaching physicians is to look at an example. The example I use 
here relates to the Commonwealth of Pennsylvania, the first State where 
a teaching institution underwent an OIG audit. The Medicare carrier for 
the Commonwealth, as well as for Delaware, New Jersey and the District 
of Columbia, has been Pennsylvania Blue Shield (PBS). The Medicare 
component of PBS changed its name to Xact Medicare Services (Xact) in 
1995 and I will use that name when referring to the Medicare carrier. I 
will use the acronym ``PBS'' to refer to the company's private lines of 
business.
    As early as the 1970s, Xact began informing teaching hospitals of 
the rules governing billing Medicare Part B for services in a hospital 
teaching setting through the distribution of I.L. 372. As an aside, the 
PBS Board of Directors subsequently adopted these Medicare 
documentation requirements for its private lines of business. 
Consequently, the guidelines to be followed for documenting Medicare 
and PBS-insured services provided in a Pennsylvania teaching setting 
are essentially the same. In addition to distributing national 
standards, Xact provides its teaching institutions with instructional 
manuals, issues a quarterly newsletter called the ``Medicare Report'', 
and maintains a provider relations department which responds to 
provider-specific questions and problems.
    On October 27, 1977, the Medicare Regional Office responsible for 
Pennsylvania issued Regional Intermediary Letter No. 20-77 to all its 
contractors, stating that ``* * * it will suffice for either the 
intern, resident or nurse to note in the record that the physician was 
personally involved in the particular service billed for. A physician 
countersignature of notes entered by a resident, intern, or nurse is 
not in itself evidence that a covered service was rendered unless the 
notes indicate that the physician was present.''
    Xact used Medicare guidance like this to help it formulate the 
specific requirements it communicated to teaching physicians in its 
service area. Listed next are some examples of directives Xact Medicare 
disseminated to its providers:
    In 1980, the carrier issued a manual entitled ``Attending Physician 
Documentation Teaching Setting.'' This manual was issued to enable 
physicians to understand the Medicare concept of ``teaching setting'' 
and assist them in adhering to the Medicare requirements for proper 
documentation of hospital services. It is also intended as a reference 
for hospital administration and medical records personnel in 
administering government regulations requiring documentation. The 
manual provides an (1) overview of Medicare guidelines regarding 
documentation of services in a teaching setting, (2) the carrier's role 
in the administration of Medicare guidelines, and (3) questions and 
answers to teaching setting situations. In defining the documentation 
requirements for in-hospital medical visits, the manual directs that 
``the attending physician must have daily documentation either by a 
personally written note or by an indication in the daily progress notes 
of the intern, resident or nursing staff of his presence during the 
rendition of the services * * *. Countersignatures next to entries 
which fail to indicate that the attending physician was present are not 
in themselves evidence that a covered service was rendered.'' The 
documentation section of the manual is attached as Attachment A.
    In 1982, a second manual, ``Attending Physician Documentation of 
Services Provided in a Teaching Setting'' expanded on the guidance of 
the earlier manual. In discussing the documentation necessary to 
support a Part B claim, the carrier instructed that ``Medicare B 
reimbursement on a charge basis is also intended where the attending 
physician criteria have been met and the physician is present at the 
time a resident or intern provides the service. Resident or intern 
entries must state the physician's involvement i.e., presence and be 
appropriately countersigned by the attending physician.'' (Emphasis 
added.) The manual provision is attached as Attachment B.
    In September 1988, Xact distributed a newsletter ``Medicare 
Report'' to all Medicare providers in which it directed that ``[t]he 
supervising physician when functioning as the attending physician in a 
teaching setting, should personally provide all services reported for 
Medicare Part B payment or be present when the resident renders the 
service.'' (Emphasis added.) The newsletter is attached as Attachment 
C.
    In addition to manuals and other program directives, teaching 
hospitals were informed of the applicable documentation standards 
through the post-payment audit process. Xact Medicare conducted over 
sixty-seven I.L. 372 reviews of services rendered by physicians in 
Pennsylvania hospitals. In each case where the carrier audit team found 
a lack of documentation in the medical record to support a claim by a 
teaching physician, an overpayment was assessed.
Protocol
    The OIG has found that the regulatory language ``personal and 
identifiable direction''as well as Medicare's term ``personal and 
identifiable service'' have been clearly and consistently interpreted 
by the Medicare carrier in Pennsylvania to be the equivalent of 
``physical presence.'' In recognition of some variation in how other 
Medicare contractors interpreted and applied the attending physician 
criteria, one of the first steps undertaken in all audits performed 
under the PATH initiative is to determine what guidance was provided by 
the Medicare contractor to each particular institution. This guidance 
may take the form of informational bulletins disseminated to all 
providers, correspondence between the contractor and the particular 
institution, or prior audits of the provider's compliance with the 
rules governing reimbursement of teaching physicians. The OIG will not 
approach a hospital to discuss initiating a PATH review until the OIG 
has established what instructions the carrier has issued to the 
providers within its jurisdiction. Furthermore, a hospital selected for 
a PATH audit will have an opportunity to show that it received guidance 
from the contractor which, in the hospital's view, contradicts the 
physical presence standard articulated above.
Findings
    I now would like to report on some of the findings of the OIG's 
audit of compliance with the teaching physician's obligation to be 
physically present with the patient in order to bill for a Part B 
service. Because of our concerns over patient confidentiality and to 
protect the ongoing audits, I will not identify the particular 
institution or teaching physician involved at this time.
    In the PATH audits that have been completed, as well as those which 
are ongoing at this time, the OIG found wide variance in compliance 
with the physical presence requirement. In some institutions, adherence 
to the rule has been quite good. We have discontinued PATH reviews at 
two institutions because of the low number of errors identified during 
the review. Unfortunately, in other cases the audits have uncovered 
significant noncompliance. The following examples are offered by way of 
illustration.
    A physician billed Medicare for subsequent hospital care provided 
during a 3-day period in which his travel schedule placed him out of 
town.
    A physician who was attending a medical conference out of state 
billed Medicare for one hour of critical care provided on each of two 
consecutive days.
    A physician billed for radiological guidance of a procedure 
provided during a 10-day period when he was in travel status.
    A physician who was on leave for a week, billed Medicare for a 
subsequent hospital visit on each of those days.

                 REVIEW OF ``LEVEL OF SERVICE'' CODING

    As I explained at the beginning of my testimony, the PATH audit 
initiative also includes a review of Part B claims information and 
medical records to determine if the teaching physician claimed 
reimbursement commensurate with the level of service provided. 
Physicians claim Medicare reimbursement by using codes, developed by 
the American Medical Association, which indicate the level of service 
provided. As an illustration, codes for patient visits--called 
evaluation and management or ``E&M'' codes--have levels ranging from 
the least complex and time-consuming to the most complex. The coding 
decision is based on the complexity of the medical decision making and 
severity of the problem presented. For example, the AMA suggests that 
the lowest level for a inpatient consultation (CPT code 99251) could 
require an average of 20 minutes of physician time, while the highest 
code level (CPT code 99255) typically could require 110 minutes of 
time. Medicare payment rates increase with each higher level. In this 
example, in 1994 the lower code was reimbursed at $47, while the 
highest code was reimbursed at $146.
    The audits are designed to detect abusive patterns or practices of 
improperly selecting codes which overstate the actual level of service 
provided. This practice of upcoding results in unwarranted losses to 
the Medicare Trust Fund and is a violation of program requirements. The 
OIG is concerned about patterns of abuse, not isolated, inadvertent 
mistakes. The coding or ``level of service'' reviews under the PATH 
initiative are performed by the local Medicare carrier medical review 
staff, as well as the independent medical experts retained by the 
institutions participating in the PATH II reviews. These experts 
utilize the same criteria relied upon by the HCFA contractor when 
conducting a routine review of a hospital's medical charts.
    The OIG's work in this area demonstrates that upcoding the level of 
service provided is often a pattern or practice of multi-level upcoding 
potentially resulting in significant financial gain to the provider. 
During some PATH audits, significant upcoding errors have been 
identified by both the carrier medical review personnel and the 
institutions' independent medical experts. The most troublesome of 
these errors are related to multi-level upcoding. You would normally 
expect to find coding errors which are mixed, that is, some in favor of 
the hospital and some in favor of Medicare. When an audit demonstrates 
that the overwhelming majority of coding errors favor the provider, it 
is an indicator of billing abuse.
    For example, at one teaching hospital, our audit revealed that very 
few of the consultations and subsequent hospital visits were billed at 
the lowest two levels of complexity and were disproportionately billed 
at the higher reimbursed levels of care. Upon further investigation, we 
found that the preprinted forms used by teaching physicians to record 
the level of service provided, omitted the two lower reimbursed codes 
for these services as choices. As a result, physicians rarely billed 
for a less expensive patient visit, even though the medical record 
clearly showed that, as the level of service actually provided.
    Some have argued that this review of the level of service billed to 
Medicare unfairly involves the retroactive application of the 1995 
documentation guidelines. In effect this view urges that there were no 
coding guidelines in effect between 1992 and August 1995 but rather 
this was an ``educational period'' during which the medical community 
could familiarize itself with codes that were implemented in 1992. We 
disagree with this position.
    When HCFA adopted new evaluation and management codes in 1992, the 
agency began a collaborative process with the AMA, institutions, and 
physicians to train persons who would be using the codes and to review 
the experience under the new regime. In so doing, HCFA made a decision 
not to include evaluation and management codes in their focused medical 
review process. HCFA continued this policy until August 1995. At the 
same time, health care providers have never been absolved of the basic 
Medicare requirement to document the services actually provided, nor 
have they been permitted to indiscriminately bill the Medicare program 
for a level of service higher than that actually performed. In fact, 
HCFA instructed its Regional Administrators that, during the period of 
training, action could be taken at any time to deal with egregious 
cases of abuse or fraud. Thus, where OIG finds actionable cases of 
upcoding abuse or fraud as it audits pre-August 1995 records, such 
matters are appropriate for attention and resolution.
    A brief summary of the educational efforts undertaken by Xact 
Medicare to inform providers of the evaluation and management (E&M) 
codes makes clear that the institutions received comprehensive guidance 
on the proper method for coding Medicare services. The following is 
just a partial list of the bulletins, seminars and guides provided.
    November 1991. Memo to Medical Societies about seminars on E&M 
coding, which were held in December 1991.
    December 1991. ``Medicare--Special Bulletin--New Evaluation and 
Management CPT Codes.'' Bulletin was sent out by Xact and is patterned 
after the instruction manual developed by American Medical Association 
in November 1991.
    1992. ``Medicare Evaluation and Management Codes--A pocket 
Reference for Physicians.'' The carrier developed a pocket-size 
reference manual to facilitate the understanding of the new E&M codes.
    February 1992. ``Medicare--Special Bulletin--Monitoring of the new 
Evaluation and management Codes.'' Bulletin issued by Xact explaining 
Early Claims Review Program for use of E&M codes.
    September 1992. ``Medicare--Special Bulletin--Policy Clarifications 
and Changes relating to Evaluation and Management Codes.'' Bulletin 
explaining policy clarifications with the use of the E&M codes. This 
bulletin is considered to be reflective of current carrier policy.
    November 1993. ``Medicare Report-Your Turn-Billing E&M and 
Chemotherapy.'' Bulletin provides Q&As about proper billing of E&M 
services.

                   ADMINISTRATION OF PATH INITIATIVE

    The OIG is committed to limit the scope of the PATH audits to those 
hospitals served by carriers that issued clear, long-standing guidance 
requiring the physical presence of the physician. However, this 
decision does not affect the Department of Justice which, under its own 
authority, is engaged in cases concerning Medicare Part B billing by 
physicians in teaching hospitals. As you are aware, DOJ has sole 
authority to compromise or close cases involving fraud or fraud 
allegations. The determination as to whether the submission of improper 
claims is false or fraudulent, and thereby subject to prosecution under 
the False Claims Act, lies exclusively within the prosecutorial 
discretion of the Justice Department. If, as a result of a PATH audit, 
and/or other available information, the DOJ concludes that a health 
care provider knowingly submitted false claims to Medicare, the Justice 
Department may seek damages and penalties pursuant to the terms of the 
False Claims Act.
    In administering all investigations, audits and program evaluations 
conducted by the OIG, the Inspector General June Gibbs Brown insists we 
take every measure to be fair. The PATH initiative is consistent with 
this fundamental philosophy. For example, the initiative is limited to 
jurisdictions where the Medicare contractor has issued longstanding and 
clear guidance to hospitals and physicians of the physical presence 
requirements. As stated above, the vast majority of institutions did 
receive clear guidance. We provide the hospitals with the option to 
contract for the audit with an outside audit firm, under the general 
supervision of the OIG. When evaluating the sample of claims and 
calculating any losses to the Medicare program, the auditors offset 
instances of upcoded physician services with undercoded services. 
Finally, a third party, the Department of Justice, makes the decision 
whether to seek imposition of any fines or penalties in cases where the 
audit uncovers potential false claims.
    Having listed some of the steps we have taken to be fair to the 
teaching hospitals and their physicians, it is important that we do not 
lose sight of the impact of this review from the beneficiaries' 
perspective. When a physician bills for a hospital visit or a surgical 
procedure, the patient has the right to be treated by that doctor. Most 
Medicare Part B services have a copayment of 20 percent, for which the 
beneficiary is responsible. Consequently, each time a noncovered 
service is billed to Medicare, such as when a physician inappropriately 
bills for services rendered by a resident, the beneficiary receives a 
bill for the 20 percent coinsurance. This is an improper health care 
expense for our elderly population.

                               CONCLUSION

    In concluding my remarks, I would like to provide a brief status 
report of the PATH initiative to date. Two institutions have entered 
into settlement with the Federal Government to resolve their False 
Claims Act liability for overpayment related to improper claims 
submitted in the teaching setting and for upcoding, resulting in the 
Government's recovery of more than $42 million in overpayments and 
penalties. These hospitals have also implemented corporate integrity 
programs to prevent and detect any future false claims. Audits 
completed at two other institutions disclosed no major problems in 
these areas, demonstrating that providers can and do bill the Medicare 
program appropriately. At least two additional reviews have been 
completed and settlement negotiations are underway. There are an 
additional 48 PATH audits underway in various phases of completion.
    This concludes my testimony, Mr. Chairman. I would be pleased to 
answer any questions.
                                 ______
                                 
                              Attachment A

   attending physician documentation in a teaching setting, july 1980

                         required documentation

    To be in compliance with Medicare regulations, the following 
documentation requirements are necessary to substantiate an attending 
physician-patient relationship:
    1. The supervising physician should personally note in the 
patient's medical records that he or she saw the patient on admission; 
or within a reasonable period after admission;
    2. The supervising physician should personally note in the 
patient's medical record that he or she rendered services to the 
patient during the critical period of illness;
    3. The supervising physician should personally note in the 
patient's medical record that he discharged the patient.
    During the remaining period of the patient's stay in the hospital, 
it will suffice for either the intern, resident or nurse to note in the 
patient's medical record that the physician was personally involved for 
the particular service billed. A physician's countersignature of a note 
entered by a resident, intern or nurse is not evidence that a covered 
service was rendered unless the notes indicate that the physician was 
present.
    The Institutional Relations Department of PBS will conduct annual 
reviews of attending physician claims in a teaching setting. These 
post-payment audits must verify that the physician established an 
attending physician relationship with the patient. Listed below are the 
specific requirements for documentation of various claim situations 
found in a teaching setting:
    1. Admission History and Physical.--An admission note written by 
the attending physician. This may be brief and may consist of a note on 
the history and physical sheet indicating his/her findings on 
examination of the patient.
    2. In-Hospital Medical Visits.--The attending physician must have 
daily documentation either by a personally written note or by an 
indication in the daily progress notes of the intern, resident or 
nursing staff of his presence during the rendition of the services. 
Physician countersignatures of notes entered by a nurse are considered 
valid documentation of Part B covered services only when the notes 
themselves indicate that the coverage requirements have been met. 
Countersignatures next to entries which fail to indicate that the 
attending physician was present are not in themselves evidence that a 
covered service was rendered.
    Discharge summaries are not required by some hospital Medical 
Records Departments if admission and discharge occurs within forty-
eight hours. However, there must be documentation of a visit by the 
attending physician on the day of discharge if a fee for a hospital 
visit is to be requested on that day.
    3. Consultation Claim.--Must have the consultation report signed by 
the staff physician performing the service. Follow-up care should be 
documented in the same manner as in-hospital medical visits.
    4. Anesthesia Claim.--The operative report or anesthesia report 
should indicate the name of the staff physician who performed the 
anesthesia service.
    5. Surgery Claim.--Operative notes with the attending physician's 
(surgeon's) name listed first under surgeon performing operation and 
signed by him. The anesthesia record should indicate the attending 
physician (surgeon) was present. It is also required that there be 
either personal notations by the attending physician or indications by 
the house staff or nurses of the attendings' presence both pre-
operatively and post-operatively. Minor surgical procedures should be 
indicated in the progress notes since an operative report is not always 
written.
    6. Radiology. EKG, EEG, etc.--Any type of report, e.g., report of 
findings or progress notes indicating the test was performed, is 
accepted. Reports should be signed by the staff physician rendering the 
service.
    7. Outpatient Claim.--Hospital records should clearly indicate 
either that; the supervising physician personally performed the 
service; or he/she functioned as the patient's attending physician and 
was present at the furnishing of the service for which payment is 
claimed. His/her presence must be documented by the intern, resident or 
staff nurse in the outpatient/clinic chart.
    8. Emergency Room Claim.--The hospital records should clearly 
indicate either that; the supervising physician personally performed 
the service; or he/she functioned as the patient's attending physician 
and was present at the furnishing of the service for which payment is 
claimed. His/her presence must be documented by the intern, resident or 
staff nurse in the emergency room progress record.
                                 ______
                                 
                              Attachment B

                             DOCUMENTATION

    Services by a teaching physician which meet general coverage 
requirements may be reimbursed by Part B if the physician qualifies as 
the ``attending'' physician in the sense of Section A.1. (a)-(1) of IL 
372.
    To qualify as the patient's attending physician for an entire 
period of hospital care, the teaching physician must as a minimum:
    1. Review the patient's history, the record of examinations and 
tests in the institution, and make frequent reviews of the patient's 
progress.
    This requirement may be presumed met if the physician has 
personally entered the initial history and physical report, the reports 
for subsequent examinations and tests which were made and the progress 
notes, or countersigned an entry.
    Example: A physician has billed for a five day confinement, and the 
record establishes that for two of the five days the physician's only 
documented activity is a counter signed resident entry. The resident 
entries do not indicate the physician's presence or involvement with 
the patient.
    Those two days would be acceptable in establishing the activities 
necessary to satisfy Medicare B attending criteria i.e. review of 
patient progress, but are not notes reflecting direct personal services 
provided to the patient and, therefore, are not a billable service. In 
this case no payment could be made for the 2 days.
    Special attention should be given the above example in that there 
is a distinction made between satisfying the attending physician 
criteria set by the regulation and the concept of what is billable to 
the Medicare B program. Countersigning of resident and intern entries 
is evidence that will satisfy the attending physician criteria but will 
not document a billable charge. Personal entries as described below 
will document both attending status and a billable charge.
    Medicare B reimbursement on a charge basis is intended where the 
physician has provided the personal and identifiable service as 
reflected by his personal entry in the medial record or where a 
resident or intern entry specifically identifies the service provided 
by the physician and is countersigned by the attending physician.
    Medicare B reimbursement on a charge basis is also intended where 
the attending physician criteria have been met and the physician is 
present at the time a resident or intern provides the service. Resident 
or intern entries must state the physician's involvement i.e., presence 
and be appropriately countersigned by the attending physician.
    This reimbursement is a special consideration for a teaching 
setting which is based on the satisfying of the Medicare B, attending 
physician criteria and the physician's presence at the time the service 
was provided by the house staff. Further reading of this manual will 
develop some contingent aspects of these regulations that apply this 
case that can affect the reimbursement issue.
    2. ``Personally examine the patient.''
    This examination must be personally performed and documented by the 
physician and signed by him/her or prepared by a resident, intern, or 
other medical staff member for the physician. If the note is not 
written personally by the physician, the note must state the name of 
the physician performing the examination and be signed or countersigned 
by that physician.
                                 ______
                                 
                              Attachment C

       pennsylvania blue shield wins new jersey medicare contract

    Effective January 1,1989, Pennsylvania Blue Shield will administer 
the Medicare Part B contract for the State of New Jersey.
    The Health Care Financing Administration awarded Blue Shield the 
New Jersey contract, which includes the processing of 13.8 million 
claims annually for 1 million beneficiaries. Pennsylvania Blue Shield 
will be responsible for making annual payments of approximately $1 
billion for the services of 23,000 physicians and other suppliers.
    ``We are delighted to have been awarded a contract to serve 
Medicare beneficiaries in New Jersey,'' said Everett F. Bryant, Blue 
Shield's Vice President, Government Business.
    ``Our winning this major Medicare contract is a testament to the 
outstanding work and efficiency of our staff here in Camp Hill. We 
would not have been able to secure this added business without the 
successful track record our employees have earned.''
    The Company will immediately begin recruiting for 570 management, 
technical, clerical, and support staff to handle the new business. At 
present, Blue Shield plans to base the additional employees in 
Harrisburg, Pennsylvania. The Company will also maintain a service 
center in New Jersey.
    ``Our present role as the nation's largest processor of Medicare 
Part B claims is an advantage in accepting the New Jersey contract,'' 
said Bryant.
    ``Our data and claims processing systems are designed so that the 
addition of the New Jersey volume represents no capacity problem 
whatsoever.''
    According to HCFA. Pennsylvania Blue Shield has consistently been 
rated significantly above the national average among Medicare 
contractors in terms of efficiency and cost savings.
    ``In Pennsylvania Blue Shield, we have selected a high quality firm 
with proven Medicare experience to assume the New Jersey business,'' 
said William Roper, MD, Administrator of the Health Care Financing 
Administration.
    Prudential Insurance Company, based in New Jersey, previously held 
the contract but will withdraw from the program by the end of 1988 to 
concentrate on other lines of business. Prudential has been the 
Medicare contractor in New Jersey since 1966.
    Pennsylvania Blue Shield currently administers Medicare Part B for 
Pennsylvania, Delaware, and the Washington D.C. metropolitan area.

                  PHYSICIAN ASSISTANT MODIFIERS CHANGE

    The 1988 HCPCS update includes a change in modifiers to be used 
when reporting services performed by a physician's assistant. The new 
modifiers are AN and AS. AN should be used with services other than 
assistant at surgery (replacing QA) and AS should be used for assistant 
at surgery services (replacing QS). The change to AS and AN modifiers 
is effective for claims submitted on or after September 1, 1988.

                    PROVIDER INFORMATION DEPARTMENT

    The Provider Information Department (which now includes the former 
Provider File Section) maintains records of over 300,000 providers who 
report claims under all programs administered by Pennsylvania Blue 
Shield.
    To serve you better, Blue Shield has assigned a dedicated post 
office box number to Provider Information:
    Pennsylvania Blue Shield, Provider Information, P.O. Box 8842, Camp 
Hill, PA, 17011-8842
    Please use this address to report any changes in your provider 
status, such as: Practice name; Special designation; Practice address; 
Tax identification number; Retirement from practice; Changes in 
assignment account membership.

                 NEW PROCEDURE FOR ASSIGNMENT ACCOUNTS

    As of June 1, 1988, Blue Shield approves and updates assignment 
accounts for Medicare programs separately from accounts for Blue Shield 
Private Business programs.
    Although we will continue to use the same provider identification 
number for these accounts, separate paperwork is required for new 
accounts and for changes to existing assignment account compositions. 
Thus, effective dates of new accounts or changes to existing accounts 
may differ between programs.
    You may begin the process of establishing or changing an assignment 
account by contacting either your local Blue Shield or Medicare field 
representative.

   SPECIFIC DOCUMENTATION REQUIREMENTS FOR THE SUPERVISING PHYSICIAN 
                      FUNCTIONING AS THE ATTENDING

Impatient medical services
    The supervising physician, when functioning as the attending 
physician in a teaching setting, should personally provide all services 
reported for Medicare Part B payment or be present when the resident 
renders the services.
    If you are the supervising physician, you must make the following 
documentation in the hospital records:
    Personally note in the patient's medical records that you examined 
the patient on admission or within a reasonable period after admission.
    If you receive payment for a comprehensive history and physical 
examination, but did not perform the history and physical examination 
or were not present during its rendition, Medicare considers the Part B 
payment to be an overpayment.
    A resident may perform the comprehensive history and physical 
examination, but this is not a Part B covered service for the 
supervising physician, unless the resident's notes indicate that the 
supervising physician was present. Medicare does not accept an 
``admission note'' that does not clearly indicate that the supervising 
physician actually performed the services reported for payment.
    Personally note in the patient's medical record that you provided 
services to the patient during the critical period(s) of illness.
    Personally note that you saw and examined the patient on the day of 
discharge.
    If you fail to meet any one of these three criteria Medicare cannot 
consider you to be the ``supervising physician.'' Medicare then pays 
you only for those services you personally rendered.
    When the attending physician criterion has been met, notations by a 
resident or nurse which indicate your presence on the other days would 
be acceptable.
Surgical services
    When acting as the attending surgeon, you should sign the operative 
report.
    You also are required to provide a personal notation which 
indicates your presence both pre-operatively and post-operatively. A 
notation by the resident or nurse could also indicate your presence.
    There may be a reduction in future Medicare payments when the 
attending surgeon fails to document the pre-operative and post-
operative care.
Consultation services
    If you are the supervising physician, you should sign the 
consultation report.
    If you are a consultant acting as a supervisor, and you submit a 
claim for payment, you should personally provide notations on the 
report that indicate your personal involvement in consultation
    It is acceptable if the resident indicates you were present and 
participated in the consultation service.
Radiology, Pathology and other Diagnostic Services
    If you are the supervising physician, you should sign the reports 
for radiology, pathology and other diagnostic services.
    For additional information, contact Medicare Facility Relations at 
(717) 763-3695.

  SERVICES FURNISHED BY INTERNS AND RESIDENTS WITHIN THE SCOPE OF AN 
                       APPROVED TRAINING PROGRAM

    Effective July 1, 1987, Medicare Part B payments are prohibited for 
medical and surgical services rendered by interns and residents, within 
the scope of their training program when performed a ``non-provider'' 
setting. In these situations, Medicare Part A will pay the parent 
hospital if that hospital incurs all or substantially all of the costs 
of the training program. If the hospital does not incur the costs in 
the non-provider setting, these services can be paid by the carrier on 
a reasonable charge basis.
    Prior to July 1, 1987, the covered services of interns and 
residents were reimbursed by the carrier on a reasonable charge basis 
as physician services, if performed by a licensed physician off the 
provider premises, regardless of who incurred the training costs.
    A written statement indicating that other forms of treatment (e.g., 
medical care and physical therapy directed at secretions, bronchospasm 
and infection) have been tried and have not been sufficiently 
successful and that oxygen therapy is still required.
    If a portable oxygen system is prescribed, the Certificate of 
Medical Necessity must include a description of the activities or 
exercises that the patient will undertake on a regular basis.

                       DRUG CHARGE REIMBURSEMENT

    When you submit claims reporting charges for drugs administered via 
injection, always provide the patient's diagnosis, the complete name of 
the drug (do not use abbreviations), and the exact dosage administered. 
Medicare's reimbursement is based on these criteria.

                          UNSOLICITED REFUNDS

    The Medicare Secondary Payer Department had experienced problems 
processing unsolicited refunds due to insufficient information.
    In order that we may credit your account in a more timely manner, 
please provide us with the following information on refund checks:
    Beneficiary name and HIC number; Provider number; ICN of the claim 
in question; Date of service; Reason for returning money: be specific 
(e.g., Aetna Insurance Primary due to TEFRA). Explanation of Benefits 
from the primary insurance when applicable.

                        CONCURRENT CARE SERVICES

    Medicare covers services involving medically necessary concurrent 
care when:
    (1) Two or more separate conditions require the services of two or 
more physicians or specialists.
    (2) The severity of a single condition requires the services of two 
or more physicians or specialists for proper management of the patient.
    The patient's diagnosis and condition must substantiate the medical 
need for concurrent care. Medicare cannot make payment to more than one 
physician to treat the same patient for the same condition at the same 
time under routine circumstances. When reporting concurrent care, 
please use a procedure code modifier 75.

                     PHYSICIAN'S ASSISTANT SERVICES

    As of January 1, 1987, Medicare covers certain services performed 
by a physician's assistant (P.A.) when employed by and acting under the 
supervision of a doctor.
    If you are a physician's assistant, you must accept assignment by 
checking ``yes'' in Block 26 of the 1,500. (1-84) claim form when 
submitting claims to Medicare. You must accept Medicare assignment, 
regardless of how the performing physician reported the services on his 
claim.
    Report your name, address and provider number in Block 31 of the 
claim form. Do not report your services on the same claim or under the 
name of your employing physician. Medicare will not make payments 
directly to you, even though we use your provider number to process the 
claim.
    We still send reimbursement for all eligible services you provide 
to your employing physician. Consequently, you should advise our office 
immediately of any changes you make in employment.

                 SUMMARY STATEMENT OF DR. JORDAN COHEN

    Senator Specter. I would like to turn now to Dr. Cohen, 
president of the Association of American Medical Colleges.
    Dr. Cohen. Thank you, Mr. Chairman. I am speaking for 
myself and on behalf of the over 100,000 teaching physicians in 
this country who in the course of caring for their own patients 
permit residents in training to take part in that care so that 
they can acquire the skills necessary to practice the 
challenging medicine of the future.
    First, let me emphasize that we welcome the inspector 
general's help in identifying how many there are among us who 
may have abused the public's trust and may have billed for 
services not personally delivered. I find it appalling that any 
physician would even consider getting paid for something he or 
she did not do.
    Physicians individually, and the medical profession as a 
whole, must be accountable to the public if we are to sustain 
the public trust on which all of us depend. If the inspector 
general's PATH audits will assist us in culling out those bad 
apples, no one would be happier than I.
    But, Mr. Chairman, it is imperative that this PATH audit 
process, like any audit process, apply the rules that were in 
place when the activity being audited took place. Indeed, as 
you know, audits have been conducted regularly since the 
inception of the Medicare Program and with very few exceptions, 
the billing practices of teaching physicians have been found 
repeatedly to conform to contemporary standards.
    If an auditor were to come along, however, and attempt to 
apply today's billing standards retroactively, I'm sure you 
would agree that that would be a serious breach of faith with 
any acceptable concept of justice and fairness.
    And that is the fundamental quarrel we have with the PATH 
audit process to date. It is attempting to apply billing 
standards that simply did not exist during the period being 
audited: Standards governing the complex interactions among 
teaching physicians, residents, and patients, standards 
governing the coding of billable services and standards 
governing the documentation in the medical record.
    Let me quickly add that at no time has the inspector 
general or anyone else alleged that the services in question 
were not in fact received by Medicare beneficiaries or that 
those services were not of the highest quality. We're talking 
about the high quality medical care that Medicare patients did 
in fact receive in our Nation's premier teaching hospitals.
    The only issue on the table is whether the teaching 
physician was entitled to get paid for the services they 
rendered. And to make that judgment, in the process of auditing 
medical records, requires that the auditor understand what 
billing directions HCFA provides to the teaching physicians 
that were in effect at that time.
    In my written statement to the committee, I have summarized 
the lengthy history surrounding this complicated issue and have 
indicated the few adjustments in the PATH process that would 
bring them into compliance with the applicable billing 
standards.
    In brief, the billing standards in place during 1990-95, 
the period under audit, recognized two tiers of billable 
services as laid out in intermediary letter [IL] 372, as Mr. 
Mangano said.
    In the cases of major surgery and other complex procedures, 
in order to bill for the services, the teaching physician must 
have been physically present, elbow-to-elbow with the resident 
and prepared to perform the procedure if necessary. That 
standard was clear, everyone understood it and everyone should 
be held accountable to it.
    The majority of cases, however, do not involve major 
surgery or other complex procedures. In these instances, in 
order to bill for services that IL-372 stipulated that the 
teaching physician must establish an attending physician 
relationship with the patient and must provide medical 
direction to the residents whom he involves in the care of his 
patient.
    The teaching physician's presence is obviously required to 
provide medical direction, and HCFA stipulated that 
countersignature, countersigning the note in the medical record 
written by the involved resident provided presumptive evidence 
of that presence for billing purposes.
    The inspector general has interpreted HCFA's medical 
direction standard to require the teaching physician to be 
elbow-to-elbow with the resident in these nonsurgical 
instances, as well and moreover, the inspector general is 
insisting that contrary to the standard practice in this 
country for 30 years or more since Medicare was enacted that 
countersignature does not constitute adequate documentation of 
the teaching physician's presence when IL-372 clearly 
stipulated that that was an adequate documentation.
    We've attempted on a number of occasions to persuade the 
inspector general that the relevant language in the governing 
Medicare laws and regulations do not support the present PATH 
audit parameters, but thus far, the inspector general has 
insisted on an interpretation of those governing standards that 
simply does not conform to the reality of the time.
    As you no doubt know, the general counsel, the Department 
of Health and Human Services did an exhaustive review of the 
legal basis of the PATH audits and concluded, as we had, that 
HCFA had never articulated the standards that the inspector 
general was attempting to apply nationally.
    As a result of the general counsel's findings, which were 
made public in July of this year, 16 of the 49 audits already 
in process at that time were terminated.
    Why were all the audits not terminated? Because the 
inspector general now, having conceded that HCFA itself did not 
provide clear support for its view, contends that local 
contractors to the so-called carriers should be the source of 
guidance for the teaching physicians.
    We now have the bizarre situation, Mr. Chairman, in which 
teaching physicians in one region of the country face 
potentially ruinous penalties under the Federal False Claims 
Act because of their past billing practices while those in 
other possibly adjacent regions whose billing practices were 
identical are held totally harmless.
    We don't believe Congress intended for private contractors 
to set billing standards that go beyond what Medicare law and 
HCFA regulations require. Medicare is a national program with a 
clearly defined rulemaking process designed to assure that all 
beneficiaries and providers are dealt with consistently and 
fairly.

                           PREPARED STATEMENT

    That is why we were pleased when Chairman Thomas requested 
the GAO conduct an independent review of the legal basis of the 
PATH initiatives and when the House Appropriations Committee 
included report language requesting that the inspector general 
suspend the audits until the GAO completes its study.
    Our hope, Mr. Chairman, is that the conference committee 
also will request the inspector general to suspend, not 
terminate, just suspend the audits.
    [The statement follows:]

              Prepared Statement of Jordan J. Cohen, M.D.

    Mr. Chairman and distinguished members of the Subcommittee, I am 
Jordan J. Cohen, President and Chief Executive Officer of the 
Association of American Medical Colleges (AAMC). The AAMC welcomes the 
opportunity to participate in this special hearing to review the basis 
for the Physicians at Teaching Hospitals (PATH) initiative of the HHS 
Office of Inspector General. The Association represents all of the 
nation's 125 medical schools, approximately 350 major teaching 
hospitals which participate in the Medicare Program, the 88,000 full 
time faculty of these institutions represented by 86 academic and 
professional societies, and the more than 160,000 men and women in 
medical education as students and residents.
    On June 21, 1996, the Department of Health and Human Services (HHS) 
Office of Inspector General (OIG) announced what it described as ``a 
series of nationwide reviews of compliance with rules governing 
physicians at teaching hospitals (PATH) and other Medicare payment 
rules.'' The letter announcing the PATH initiative went on to state 
that, ``This initiative grows out of the extensive work performed by 
the OIG at a major east coast university. The focus of the review was 
compliance with Intermediary Letter 372 (IL-372), the Medicare rule 
affecting payment for physician services provided by residents. We 
found that the institution was not complying with this rule. We also 
found that teaching physicians were improperly `upcoding' the level of 
service provided in order to maximize Medicare reimbursement * * *. The 
OIG has initiated the PATH project in order to determine whether, and 
to what extent, similar problems are present at other teaching 
institutions throughout the country.'' Teaching physician services for 
years 1990 through 1995 were selected for review. Thus, on the basis of 
an audit conducted at one institution, the PATH initiative was born.
    From June 1996 until July 1997 the OIG initiated PATH audits at 
forty-nine teaching institutions. During this same time period the 
Department of Health and Human Services, the HHS Office of Inspector 
General and the Health Care Financing Administration (HCFA) were asked 
by medical schools, faculty practice plans, teaching hospitals, members 
of Congress and organizations representing medical schools and teaching 
hospitals to clarify the parameters that would be utilized to conduct 
the PATH audits. These requests for clarification and the ensuing 
discussions and disagreements over the standards being utilized by the 
OIG were an indication of the confusion which had existed for almost 30 
years regarding the standards which teaching physicians must fulfill 
and document to support Medicare billing for their services when 
medical residents were involved in the care of their patients.
    This confusion is reflected in a February 24, 1997 letter to 
Representative John Porter (R-IL) from former HHS Secretaries Otis 
Bowen, M.D. and Louis Sullivan, M.D. In their letter Drs. Bowen and 
Sullivan stated that, ``Really since the inception of the Medicare 
program the Department of Health and Human Services has had a difficult 
time in setting forth a bright line standard that could be used to 
separate the services provided by an attending physician that are 
strictly teaching in nature and those that involve care to a specific 
patient''. Drs. Bowen and Sullivan further stated that, ``Given the 
contorted history of this issue [IL-372] through the years, it would 
appear to be an unlikely candidate for an OIG investigation.''
    It became clear through written and oral responses to various 
requests for information and clarification that the OIG had adopted a 
standard for teaching physician billing which reflected the rules which 
went into effect on July 1, 1996, rather than the rules and 
requirements that were in effect from 1967 through June 30, 1996. With 
respect to the audit activity which focused on possible `upcoding' 
(charging for a higher level of service than was actually provided) it 
also became clear that the OIG was auditing against guidelines which 
became effective in August 1995--subsequent to the date of the records 
generally being audited.
    It is also clear from early briefing materials used by the OIG in 
public forums that their expectation was that institutions would be 
found to have violated the Federal False Claims Act (FCA) and would, 
presumably, owe the government money. One OIG document states that PATH 
has among its objectives to:
    ``Recover Medicare reimbursements for unallowable and inadequately 
documented services in amounts imposed by the Federal False Claims Act, 
or determined by settlement between the OIG/DOJ project teams and the 
physician group practices.'' (emphasis added)
    The FCA prohibits anyone from submitting a claim to the federal 
government if the person: (1) knows the information is false, (2) acts 
in deliberate ignorance of the truth or falsity of the information, or 
(3) acts in reckless disregard of the truth or falsity of the 
information. A violation of the FCA may result in an assessment of 
double or treble damages, plus an additional $5-10,000 per claim. Fraud 
must never be tolerated, but for the OIG to begin an audit initiative 
under the premise that monies will be recovered under the FCA suggests 
that there is an underlying assumption that any errors found will be 
fraudulent.
    On July 11, 1997 Harriet Rabb, the General Counsel for the 
Department of Health and Human Services, completed an exhaustive review 
of the PATH audits, including an examination of the history of Medicare 
rules governing payment to teaching physicians. Her conclusion was that 
``the standards for paying teaching physicians under Part B of Medicare 
have not been consistently and clearly articulated by HCFA over a 
period of decades.'' (emphasis added). She then stated: ``When HCFA 
policy is not unambiguously clear, carrier clarification is warranted 
and appropriate. Thus, where a carrier informed a teaching institution 
that physicians must either personally furnish a service or be present 
when it is furnished by an intern or resident in order to be reimbursed 
under Part B, that guidance would be controlling.'' Ms. Rabb, whose 
analysis was articulated in a letter to the AAMC and AMA, then set 
forth new guidelines under which the PATH audits were to be conducted. 
It is questionable whether carriers have the authority to promulgate 
requirements which have the effect of rules. Yet, on the basis of the 
conclusions and guidelines in Ms. Rabb's letter, the OIG ended sixteen 
of the forty-nine PATH audits then underway because it was determined 
that local carriers had not provided clear guidance.
    In the succeeding months approximately twenty more institutions 
were notified that they had been selected for PATH audits. 
Additionally, in September 1997 the U.S. Attorney for the District of 
Massachusetts sent civil investigative demands (CIDs)--akin to 
subpoenas--to at least a dozen teaching hospitals and faculty practice 
groups in Boston, each of which had been told by the OIG, in the wake 
of the Rabb letter, that it was no longer being audited under the PATH 
initiative. The CIDs requested extensive documents covering the same 
issues that were the subject of the PATH audits--IL-372 and coding of 
physician services.
    Congress is concerned about the direction of the PATH audits. In 
addition to numerous letters from members of Congress to the HHS 
Secretary and Inspector General, on July 14, 1997 Congressman Bill 
Thomas (R-CA), chair of the Health Subcommittee of the House Ways and 
Means Committee, requested that the General Accounting Office (GAO) 
examine this issue and report to Congress. The GAO review is ongoing. 
In 1986 the GAO issued a report on `Documentation of Teaching Physician 
Services' that concluded that the federal rules were unclear and that 
HCFA needed to issue new regulations and provide physicians with 
unambiguous billing standards.
What Is Wrong With the PATH Audits?
    There is no argument that Congress has provided the OIG with ample 
authority to conduct audits of Medicare payments. However, in 
conducting those audits the OIG by law must look to the rules 
promulgated by the federal agency--in this case the Health Care 
Financing Administration (HCFA)--charged with implementing the relevant 
law to determine the audit standards. The OIG is without legal 
authority to create rules that differ from those promulgated by HCFA. 
The OIG also may not apply a new rule to services that were rendered 
prior to the rule's effective date. Those services must be audited 
under the HCFA rules in place at the time of the service.
    As described by the OIG in the June 1996 letter announcing the PATH 
initiative, the audits would focus on two issues: (1) ``compliance with 
Intermediary Letter 372 (IL-372), the Medicare rule affecting payment 
for physician services provided by residents''; and (2) whether the 
level of the physician service was coded properly. Therefore, to 
determine the standards under which the audits must be conducted it is 
necessary to understand the requirements of IL-372 and of coding for 
physician services.
IL-372
    When the Medicare program began in 1965, there were no separate 
rules under which teaching physicians were paid for services to 
patients. By 1967, rules were issued which, until December 1995, 
underwent only minor revisions. For all services, a teaching physician 
could bill Medicare once an ``attending physician relationship'' was 
established between the teaching physician and the patient. The 
attending physician had to also ``assume and fulfill the same 
responsibilities for this patient as for other paying patients'' and be 
recognized by the patient as his or her personal physician.
    The 1967 general rule clearly established two standards of teaching 
physician involvement required to bill for services that involved 
residents, depending upon the type of service performed. Section 
405.521 (b) of the rule establishes a general standard and states:
    ``Payment on the basis of the physician fee schedule applies to the 
professional services furnished to a beneficiary by the attending 
physician when the attending physician furnishes personal and 
identifiable direction to interns or residents who are participating in 
the care of the patient.''
    Paragraph (b) (2) establishes a higher standard for other services 
and reads:
    ``In the case of major surgical procedures and other complex and 
dangerous procedures or situations, the attending physician must 
personally supervise the residents and interns who are participating in 
the care of the patient.''
    The 1967 rule, in its general provisions, encompasses both 
activities of personal service and medical direction of residents by 
teaching physicians providing service for payment purposes under the 
Medicare program. The general provision, however, makes no mention of a 
strict physical presence requirement in order to bill Medicare for 
visit and consultation services or minor procedures. The rule 
establishes a higher standard of physical presence of the teaching 
physician when performing or providing direction to a resident 
participating in a major surgical or complex procedure and teaching 
physicians generally understood that they must be present for the key 
component of these activities.
    The rule also acknowledged that teaching physicians differ from 
their non-teaching counterparts in that they not only provide patient 
care, but they also educate and provide medical direction to recently 
graduated medical students, known as resident physicians. Sometimes the 
education occurs through traditional teaching methods--apart from 
patient care activities--such as lectures; many times it occurs at the 
patient's bedside or in the physician's office as the resident observes 
the teaching physician, works in collaboration with the teaching 
physician, or provides care under the medical direction of the teaching 
physician. Medical direction of a resident by a teaching physician is, 
in general, distinguishable from education since it is patient and 
service-specific and is an integral component of the overall management 
of the patient's care.
    While recognizing the joint nature of a teaching physician's 
activities, Medicare payment policy attempts to distinguish between the 
activities of education and medical direction by paying for educational 
activities under Medicare Part A and the activities of medical 
direction of residents, under Part B. To support and guide the payment 
of teaching physicians under Part B, the Medicare program established 
specific criteria to qualify when medical direction activities are 
occurring and when a teaching physician's personal care to the 
beneficiary constituted a billable unit of service. The attending 
physician criteria in the 1967 rule included:
    Reviewing the patient's history and physical examination and 
personally examining the patient within a reasonable period after 
admission; confirming or revising diagnosis; determining the course of 
treatment to be followed; ensuring that any supervision needed by the 
interns and residents is furnished; and making frequent reviews of the 
patient's progress throughout the period of care.
    Even after the 1967 regulations were issued, there continued to be 
confusion among Medicare carriers concerning the standards for teaching 
physicians. Thus, in 1969, HCFA issued Intermediary Letter 372 (IL-372) 
to ``clarify and supplement the criteria that govern reimbursement'' 
for services rendered to patients by teaching physicians. An 
intermediary letter is not, as the OIG has stated on a number of 
occasions, a rule. It is an elucidation of a rule but it cannot change 
the substance of the rule. Unlike a rule, it is not subject to public 
comment.
    IL-372 clearly states that for a teaching physician to be eligible 
for Medicare payment the physician must be the patient's `attending 
physician.' IL-372 then lists the criteria found in the regulation 
discussed above, as the minimum requirements that must be fulfilled to 
establish the attending physician relationship. It reiterates two very 
distinct standards of involvement for teaching physicians--one for the 
medical direction activities and personal services performed relative 
to visit and consultation services, and another for the medical 
direction activities and personal services performed relative to major 
surgical and complex procedures.
    According to IL-372, ``performance of the activities referred to 
above [the attending physician criteria] must be demonstrated, in part, 
by notes and orders in the patient's records that are either written by 
or countersigned by the supervising physician.'' (emphasis added) When 
the carrier audits physician claims, IL-372 says: ''provision of 
personal and identifiable services must be substantiated by appropriate 
and adequate recordings entered personally by the physician in the 
hospital or, in the case of outpatient services, outpatient clinic 
chart.''
    The confusing standards set out in 1967 and ``clarified'' by IL-372 
continued to be a problem, so in 1970 HCFA issued a second intermediary 
letter (IL-70-2) that ``summarizes the major questions [raised about 
IL-372] and provides the basic policies applicable to making 
reimbursement.'' IL 70-2 continued to look toward the attending 
physician relationship as the keystone to teaching physician billing, 
and made the distinction between major surgical or other complex or 
dangerous procedures and all other physician services. It also states 
that ``if the physician countersigned the entries in the record 
pertaining to the patient's history and the record of examinations and 
tests, it would be presumed the physician reviewed these activities.'' 
(emphasis added). IL 70-2 goes on to say that ``frequent reviews of the 
patient's progress by the physician would be established by the 
appearance in the records of the physician's signed notes and/or 
countersignature to notes with sufficient regularity that it could be 
reasonably concluded that he was personally responsible for the 
patient's care.''
    Various rules and documents were issued by HCFA in subsequent 
years, but none changed the criteria established by the 1967 rule and 
elaborated on by IL-372. It was not until HCFA issued new teaching 
physician regulations in December 1995, effective July 1996, that the 
agency required that a teaching physician must be present to perform or 
observe the resident perform the `key portion' of every unit of service 
billed to Medicare. In issuing the regulations HCFA described as 
``inappropriate'' the fact that carriers (private companies, usually 
insurers, that contract with HCFA to process and pay Medicare bills) 
were inconsistently applying standards that could result in a payment 
of several thousand dollars for a surgical procedure in one area of the 
country, and a zero payment for the same procedure in another locale. 
Moreover, HCFA delayed its implementation of this new rule for six 
months to allow carriers ``adequate time to educate all affected 
parties.''
    Despite what is written in IL-372, and admissions by HCFA that the 
rules have been inconsistently applied, the Inspector General has 
chosen to audit physician billings under the PATH initiative by using 
the following standard:
    ``The medical record must clearly indicate that the teaching 
physician personally performed the service or was present when the 
service was performed.''
    This may be considered a reasonable audit standard for those 
teaching physician services performed after July 1, 1996 when the new 
Medicare teaching physician rules went into effect, but it does not 
reflect the standard in effect from 1990 through 1995, the dates 
covered by the PATH initiative. During that time, IL-372 and its 
related regulation were in effect. The OIG originally acknowledged that 
the PATH audits were being conducted under IL-372. This means that 
prior to July 1996, the standard for auditing teaching physician 
billings should be the 1967 regulation, IL-372, and IL-70-2. Based on 
these regulations, and clarifying documents, the countersignature of 
the record by the teaching physician should be the documentation 
standard applied to determine compliance with IL-372 requirements. The 
presence of a countersignature on the record should be viewed as 
compliance with the minimum audit documentation requirements unless 
other information indicates the teaching physician did not meet the 
required standards.
    As noted above, it is not appropriate to rely on standards 
promulgated by the Medicare carriers. To rely on such standards would 
be a delegation of rule making authority to these agents of the 
Medicare program with no opportunity for application of the 
Administrative Procedures Act or other rule making requirements. 
Furthermore, the utilization of variable standards by the carrier will 
inevitably mean that teaching institutions will have differential 
standards applied relative to their compliance with a national program. 
To have such a system is patently unfair and inequitable
Coding of physician services
    The PATH audits also focus on whether teaching physicians 
documented in accordance with AMA/HCFA guidelines for Evaluation and 
Management (E/M) services. E/M services are physician visit and 
consultation services furnished during an outpatient or inpatient visit 
during which the physician evaluates and prescribes a course of 
treatment to manage a patient's illness or injury.
    In 1992, the manual used by physicians to code their E/M (visit and 
consultation) services, Physicians' Current Procedural terminology 
(CPT), was revised substantially by the American Medical Association 
CPT Editorial Panel, with participation of HCFA personnel. This 
revision was a result of the implementation of the resource-based 
Medicare Fee Schedule payment system. The new coding architecture 
requires that physicians select from multiple levels of care for a 
particular E/M service category. Categories of E/M codes differ 
depending upon: (1) the type of service, i.e., visit or consultation 
performed; (2) if the patient is a new or an established patient with 
the physician; (3) whether the service is performed in the hospital, 
office or other delivery setting. Consultation and office visit codes, 
for example, have up to five levels from which to select.
    The revisions added an elaborate and complex set of criteria that a 
physician must determine in order to select a level of E/M code that 
best describes his/her visit service. For a new patient the key 
components of the visit service that must always be performed are: 
history, review of systems, physical exam, and medical decision-making. 
The more complex the patient, the more work and intensity of care the 
physician is expected to perform in order to bill at the highest level 
of service within an E/M category.
    In 1994, HCFA and the AMA agreed upon a national standard in the 
form of guidelines for documentation of E/M services. The new 
guidelines were circulated to all physicians in November 1994 to be 
effective August 1995 for purposes of Medicare audits of physician 
services.
    In 1995, the OIG reviewed the use of the new visit codes to 
determine whether or not physicians were using them accurately. Given 
the complexity of the coding system it is not surprising that the OIG 
found that both physicians and carriers had difficulty selecting the 
appropriate new codes. The OIG determined it was not going to take 
further action in this area aside from monitoring to see whether the 
newly issued HCFA/AMA guidelines would make a difference.
    When Harriet Rabb conducted her review of the PATH audits, she 
concluded that ``HCFA instructed its Regional Administrators that, 
during the period of training [on E/M codes] prior to August 1995, 
action could be taken at any time to deal with egregious cases of fraud 
and abuse. Thus, where OIG finds egregious cases of upcoding abuse or 
fraud as it audits pre-August 1995 records, such matters are 
appropriate for attention and resolution.'' The question becomes what 
are `egregious cases of upcoding'.
    In the absence of any definition, the OIG has indicated their 
intent to conduct full reviews of coding activity and to determine, at 
the conclusion of an expensive and lengthy audit process, if there were 
egregious cases of fraud and abuse.

                               CONCLUSION

    The academic medical community has recognized for almost three 
decades that the rules governing when a teaching physician can 
appropriately bill Medicare when a resident is involved in the care of 
his or her patient have been ambiguous and has actively encouraged and 
supported efforts to develop revised regulations. The lack of clarity 
relative to these rules has been acknowledged on numerous occasions by 
government officials, through a GAO report, in the development of 
proposed regulations in 1989 and the development and issuance of 
regulations in 1995 which became effective on June 30, 1996. This 
history of confusion has recently been confirmed during a thorough 
review by the General Counsel for the Department of Health and Human 
Services.
    When the PATH audits were initiated they were characterized as a 
review of compliance with the requirements of IL-372. The PATH audits 
should and must be limited to auditing teaching physicians on the 
national, not carrier specific, standards in effect at the time. 
Likewise, it is inappropriate to conduct audits of coding activity 
prior to August 1995 unless there is a clear definition of egregious 
behavior and indications prior to undertaking an audit that there was 
egregious behavior. As currently constituted the PATH audits are 
applying differential standards by carrier region and retrospectively 
determining what--if any--egregious coding behavior was occurring. It 
is also inappropriate to assume that the Federal False Claims Act 
penalties will be applied to these audits absent a finding of 
fraudulent activity. To do otherwise is inequitable, costly, and 
disruptive to teaching physicians and the academic medical community.
    The PATH audits must be conducted under fair and just standards. To 
apply standards retroactively, as the OIG has done under the PATH 
initiative, is to engage in conduct that is outside the broad authority 
that Congress has granted the OIG. Fraud must be eliminated from the 
Medicare program. Yet, there also must be a recognition that if a 
physician's behavior complied with the standards in effect at the time, 
then fraud was not committed. The OIG is not free to change past 
standards nor may it determine current standards. That job has been 
delegated by Congress to HCFA. HCFA has now issued explicit rules about 
what is expected of a teaching physician if he/she is to bill Medicare. 
Not even the OIG can reasonably hold a physician to those rules prior 
to the date on which they became effective.
    As the subcommittee members are aware Congressman Thomas (R-CA); 
Chairman, Health Subcommittee of the House Ways and Means Committee; 
has requested that the GAO conduct an independent review of the PATH 
initiative and that the House Appropriations Committee included report 
language requesting the OIG to suspend the audits until the GAO 
completes its study. Our hope, Mr. Chairman, is that the Conference 
Committee will also ask the OIG to suspend the audits until the GAO 
study is completed. We have never asked that the audits be stopped but 
we believe it is imperative that teaching physicians across the country 
be treated equitably and fairly.

                          DIFFERENT STANDARDS

    Senator Specter. We understand what the House did. Let me 
turn to Mr. Mangano just to come to grips with what Dr. Cohen 
has had to say. Is he correct in his statement that the 
inspector general is requiring standards which were different 
than those in effect at the time the procedures were carried 
out?
    Mr. Mangano. Absolutely not. We applied the standards that 
the local carrier applied to their providers and their 
community. Hundreds of audits have been carried out----
    Senator Specter. Is he correct when he says you are looking 
for local contractors in some areas, as opposed to other areas 
where there are not local contractors?
    Mr. Mangano. No; there are local contractors everywhere in 
the country, Mr. Chairman.
    Dr. Cohen. That wasn't my point, Mr. Chairman.
    Senator Specter. Go ahead.
    Dr. Cohen. It was that some local carriers interpreted HCFA 
regulations in one way and other local carriers in another way.
    Senator Specter. Is that true, Mr. Mangano?
    Mr. Mangano. The overwhelming majority of contractors have 
applied the physical presence standard, over 75 percent of the 
ones that had teaching hospitals in their communities.
    Senator Specter. Mr. Mangano, on the language of the House 
report that the PATH audits were highly ambiguous, and they 
come to the conclusion of retroactive enforcement of possibly 
ambiguous standards, do you disagree with that conclusory 
language in the House report?
    Mr. Mangano. I sure do because we believe the standards 
were very clear in those communities that had that standard 
from the contractors.

            SUMMARY STATEMENT OF DR. C. MC COLLISTER EVARTS

    Senator Specter. Let us turn now to--we will come back to 
some of these points later.
    Dr. Evarts.
    Dr. Evarts. Yes; I'm Mac Evarts. I'm the president, chief 
academic officer of Penn State Geisinger Health System and 
senior vice president for health care and dean of the 
Pennsylvania State University.
    I'm not going to repeat all that Dr. Cohen has said and I 
share with his disagreement with the first person testifying. 
And I also am here on behalf of the board of trustees of both 
the Penn State Geisinger Health System and the Pennsylvania 
State University, who are very familiar with the possible PATH 
audit.
    Now, our system represents a recent merger of Penn State 
and the Milton S. Hershey Medical Center and the Geisinger 
Health System. It creates a physician-led, not-for-profit 
system which spans over 40 counties in central Pennsylvania and 
includes over a thousand physicians.
    We were quite taken back and surprised when we received 
notification of the intent of the OIG to conduct a PATH audit 
in August of this year. Coincidentally, such notification came 
after the House passed report language urging the OIG to 
suspend PATH audits until the General Accounting Office had 
completed an independent review of the issue.
    We strongly support the House Appropriations Committee 
report language requesting that the OIG suspend PATH audits 
until the report is completed. In particular, it may allow us 
and the other academic health centers now involved in this 
process to minimize and perhaps avoid the substantial 
expenditure of funds that such audits entail. Because the PATH 
audit has only recently been initiated, it is difficult to 
judge at this time the costs which we will incur, but they will 
be substantial as based on the evidence from other 
institutions.
    Not only must we secure attorneys and experts to assist us, 
an extraordinary expense in itself, but really what gets at the 
issue is that this is detracting from what we are supposed to 
be doing, and that is taking care of patients and providing 
health care services for our population of people that are 
served by our system.
    This has been very disruptive internally to our 
organization, and it does cost us not only in terms of real 
dollars but also in terms of the diversion from our principal 
message and mission. This, in my view, is directly contrary to 
our mutual objective of controlling the cost of health care in 
central Pennsylvania.
    Now, upon completion of the GAO report, all parties to this 
process, including the Congress, Department of Health and Human 
Services and academic medical centers, will have the 
opportunity to reassess the basis for and the standards to be 
used in the audits of teaching physician billing. It seems a 
particular waste of our resources to pursue the PATH audit 
process before the reassessment is completed.

                           PREPARED STATEMENT

    Now, you're completely aware of the report language 
requested. We strongly urge you, Mr. Chairman, and the other 
subcommittee members to include the language in the conference 
committee report. It appears quite clearly that given the 
continuing questions and uncertainties surrounding this issue 
that it would be reasonable to allow the General Accounting 
Office to independently review the issue. My hope is that the 
GAO report will provide an objective view of the PATH audit 
process prior to institutions like ourselves incurring the 
expense of this process.
    Thank you for the opportunity to be here.
    Senator Specter. Thank you very much.
    [The statement follows:]

           Prepared Statement of C. McCollister Evarts, M.D.

    Good afternoon Mr. Chairman and members of the 
Subcommittee. I am C. McCollister Evarts, M.D., President and 
Chief Academic Officer of the Penn State Geisinger Health 
System and Senior Vice President for Health Affairs and Dean, 
The Pennsylvania State University, College of Medicine. I am 
pleased to have the opportunity to testify at this special 
hearing to review the basis for the PATH audit initiative and 
appreciate your invitation to outline our concerns with the 
ongoing initiative as it specifically relates to our Health 
system.
    The Penn State Geisinger Health System, which represents 
the recent merger of Penn State's Milton S. Hershey Medical 
Center and the Geisinger Health System based in Danville, 
Pennsylvania, is a physician-lead, not-for-profit system which 
spans 40 counties in central Pennsylvania and includes over 
1,000 physicians. Our Health System received notification of 
the intent of the OIG to conduct a PATH audit in August of this 
year. Coincidentally, such notification came after the House 
passed report language urging the OIG to suspend PATH audits 
until the GAO had completed an independent review of the issue.
    We support the House Appropriations Committee report 
language requesting that the OIG suspend PATH audits until the 
GAO report is completed. In particular, it may allow us and the 
other academic health centers now involved in this process to 
minimize and perhaps avoid the substantial expenditure of funds 
that such audits entail. Because the PATH audit of the Penn 
State Geisinger Health System has only recently been initiated, 
it is difficult to judge at this time the costs which we will 
incur. However, if experience of other institutions is any 
indication, that cost will be substantial. Not only must we 
secure attorneys and experts to assist us--an extraordinary 
expense in itself--but large numbers of our internal staff must 
be engaged in order to respond to the audit. This is a very 
real cost in terms of dollars and diversion from our principal 
mission of providing health care to central Pennsylvania and 
beyond. I am told by my colleagues that the level of workforce 
disruption and distraction is substantial, and in my view this 
is directly contrary to our mutual objective of controlling the 
cost of health care in the United States.
    Upon completion of the GAO report, all parties to this 
process--including the Congress, the Department of HHS and 
academic medical centers--will have an opportunity to reassess 
the basis for and standards to be used in audits of teaching 
physician billing. It seems a particularly egregious waste of 
our resources to pursue the PATH audit process before the 
reassessment is completed.
    As you are aware, the House Appropriations Committee 
included report language requesting the OIG suspend PATH audits 
until the GAO completes its study of the issue. I would urge 
you, Mr. Chairman, to include this language in the Conference 
Committee Report. It appears that given the continuing 
questions and uncertainties surrounding this issue that it 
would be reasonable to allow the GAO to independently review 
this issue. My hope is that the GAO report will provide an 
objective view as to the PATH audit process prior to 
institutions like ourselves incurring the expense of this 
process.
    Thank you again for the opportunity to share our views with 
you.

                   SUMMARY STATEMENT OF BARBARA WYNN

    Senator Specter. I turn now to Ms. Barbara Wynn, director 
of the planned provider purchasing policy unit of the Health 
Care Financing Administration.
    Ms. Wynn, the floor is yours.
    Ms. Wynn. Mr. Specter, I do not have a formal statement, 
however, I am pleased to answer any questions that you might 
have.
    Senator Specter. Well, let us come to grips with the 
central issue as to whether or not these standards are 
retroactive. Dr. Cohen, what is the best evidence you can 
provide?
    Dr. Cohen. Let me quote, Mr. Chairman from a letter from 
the general counsel, in response to our request for an analysis 
of the legal basis, in which he says: ``The standards for 
paying teaching physicians under part B of Medicare have not 
been consistently and clearly articulated by HCFA over a period 
of decades.''
    Senator Harkin. Who did you just quote?
    Dr. Cohen. That is Harriett Rabb, the general counsel of 
Health and Human Services.
    Senator Specter. Mr. Mangano, what do you have to say about 
that?
    Mr. Mangano. As I indicated in my statement, we found that 
the overwhelming majority of statements that HCFA has put out 
were consistent with the physical presence requirement, but we 
recognize there were some that were not. That's why we, to be 
fair, only used the standards that the carriers told the 
providers.
    Senator Specter. You are saying some are not consistent but 
you do not enforce the ones that have not been consistently 
interpreted?
    Mr. Mangano. That's correct.
    Senator Specter. Dr. Cohen, have you seen standards which 
are inconsistent?
    Dr. Cohen. We have requested repeatedly, Mr. Chairman, we 
be given a chance to see the evidence on which the inspector 
general is basing its judgment about clear standards and they 
have not made those forthcoming.
    If I could quote one more thing for you, though, and this 
is from the----
    Senator Specter. Let me ask Mr. Mangano about that. That 
seems like a fair request to me. If you have some standards 
which are inconsistent, they ought not to be applied. You can 
have an audit on consistent standards if there are other 
standards as long as you leave out the ones which are 
inconsistent. Is there any problem in supplying the information 
which Dr. Cohen has requested?
    Mr. Mangano. We have, at the beginning of every audit, 
we're supplying this information to every hospital at which we 
are doing these audits. We're keeping the information at the 
local level as opposed to giving this information to national 
associations. And Dr. Cohen mentioned that we had----
    Senator Specter. Is there any problem in complying with Dr. 
Cohen's request so they can make their own analysis?
    Mr. Mangano. We can provide Dr. Cohen with all the carrier 
guidance for each of the carriers in the United States. I 
believe they made that request to the Health Care Financing 
Administration.
    Senator Specter. How about the issue of retroactive 
enforcement? Dr. Cohen, do you have some specific instances 
where audits were applied retroactively?
    Dr. Cohen. Well, the parameters of the PATH audit 
themselves apply the standards that were put in place in 
December 1995 and promulgated in December 1995 and put in place 
in July 1996.
    Senator Specter. For procedures carried out before December 
1995?
    Dr. Cohen. No; for procedures carried out prospectively. 
Those standards that we've been asking for clarification of the 
part B billing standards for literally decades because they 
have been unclear.
    Senator Specter. What has been applied retroactively, then?
    Dr. Cohen. The countersignature requirement that was in 
place at that time is no longer regarded as being----
    Senator Specter. You felt that had been sufficient? Is it 
true that the countersignature had been considered sufficient 
and is no longer considered sufficient?
    Mr. Mangano. No, sir; we consider countersignatures, when 
the countersignatures are affixed to documentation from the 
resident or intern, if they perform the service, that indicated 
that the physician was present.
    Senator Specter. So that is sufficient proof?
    Mr. Mangano. That is the carrier guidance in most of the 
places. They allow countersignatures as long as the medical 
record indicates the physician was present.
    Senator Specter. So that is sufficient proof?
    Mr. Mangano. That's correct.
    Dr. Cohen. Mr. Chairman, there is a fundamental issue here 
that we have not touched on, at least sufficiently in my view, 
and that is that the fact that HCFA, the agency that is 
delegated by law to set the regulations for billing for part B, 
had not made those standards clear. And what the inspector 
general is depending upon is the interpretation by private 
contractors of HCFA's regulations in some cases----
    Senator Specter. Let me yield to Senator Harkin on that.

                       REMARKS OF SENATOR HARKIN

    Senator Harkin. I have a statement I want to make. I know 
you have to leave here for a second, Mr. Chairman. I want to 
make my opening statement, make it clear where I am coming from 
on this.
    First, I want to thank the chairman for having this 
hearing. We have excellent witnesses. This subcommittee has 
taken an aggressive leadership roll in ferreting out, stopping 
waste, fraud, and abuse in the Medicare Program, both under the 
leadership of Senator Specter and my leadership when I had the 
chairmanship before.
    We have had countless hearings and I am pleased to say that 
our work has resulted in billions of dollars of savings to the 
taxpayers.
    The work of the Health and Human Services Inspector General 
has been critical to many of our successes. While we do not 
agree on every issue, I believe the OIG is doing a great 
service and I support their aggressive--I underline aggressive 
pursuit of waste, fraud, and abuse on behalf of the American 
taxpayer, no matter where it leads.
    I reviewed a great deal of material relative to the so-
called PATH audits. While it may be that there were some 
instances in which Medicare could have been clearer about 
policy in this area, as I have gone through this from beginning 
to the end, it is clear to me that what it really boils down to 
is good old common sense.
    Medicare pays the salaries and fringe benefits of residents 
and interns in teaching hospitals to the tune of about $100,000 
per resident per year. The residents and interns get only about 
$30 to $40,000 of this. In addition, hospitals were paid an 
additional $8.1 billion last year for the indirect costs of 
training and supervising these residents and interns. So the 
taxpayer's paying for training and supervision in two ways.
    It just defies common sense that Medicare would pay a 
physician for a service they did not provide and in fact were 
not even present when it was performed, particularly when the 
Government had already paid the services and the salaries of 
the residents and interns who actually provided the service.
    Several years ago, under my chairmanship of this 
subcommittee, with the help of the inspector general and the 
GAO, we found that Medicare was paying hospitals for parties, 
alcoholic beverages, trips to Italy, fine works of art that 
were not related to patient care.
    At the time, before this subcommittee, the hospitals argued 
that Medicare policy was not clear on this. And I had to admit 
it was not, but common sense would dictate that Medicare should 
not pay for a trip to Italy to inspect art. It should not pay 
for parties and alcoholic beverages. That is just good old 
common sense.
    Well, it is my belief that the PATH audits are a legitimate 
and necessary law enforcement effort. There is clearly evidence 
of violation of Medicare law and rules. While any investigation 
must be done fairly, I am concerned that some are trying to 
stop a legitimate review. In my view, that would be a serious 
mistake.
    I have, Dr. Cohen, for many years in Congress here been a 
very, very strong supporter of our medical colleges. My record 
is clear in that regard. I take a back seat to no one. But from 
my looking at these PATH audits, as I understand it, is that 
there are regions in this country, Dr. Cohen, where hospitals 
had clear, unequivocal guidelines.
    Do you disagree with that?
    Dr. Cohen. I believe that every physician, every teaching 
physician in this country, Senator Harkin, understood the 
vagueness of these rules. There was--and physicians in this 
country, teaching physicians move from one region to another 
repeatedly.
    Let me be absolutely clear and I'm sure you didn't hear my 
opening statement. I absolutely agree with you, Senator, that 
HCFA and Medicare should never pay for something that a 
physician didn't do. A physician that bills for something they 
didn't do should clearly be sanctioned severely for that. We 
would like to weed out anybody who tries to defraud the 
Government in that way, and that's clearly not our purpose 
here, is to try to argue that physicians ought to be paid for 
things they didn't do, No. 1.
    No. 2, there's no question about the fact that the 
physician has to be present in order to provide the service. 
The question only is what is the standard of that presence in 
circumstances of medical direction? In the surgical 
circumstances and in the complex procedures for which HCFA made 
it very clear that the presence of the physician, elbow-to-
elbow with the resident, was a requirement and anybody who 
tries to bill for a major surgical procedure who didn't conform 
to that standard ought to be sanctioned.
    The issue is what does presence mean in the course of the 
major, not the largest number of services that teaching 
physicians provide, namely medical direction to the resident? 
I'm a teaching physician. I did it for 30 years on my wards. I 
was always present for every major decision that was made on my 
patients.
    I was never--I wasn't present on every occasion that a 
resident went in the patient's room to do things for, on behalf 
of that patient under my direction, but I was present on every 
occasion of service, every occasion where there was a decision 
made, everything that was done, it was my responsibility and I 
took that seriously.
    I indicated my presence in the care of that patient by 
signing the resident's note. I countersigned the resident's 
note if that resident's note was accurate, if it wasn't, I 
corrected it. That was the standard under which all teaching 
physicians were operating in this country. I didn't have 
knowledge of what the local carrier was saying. I knew what the 
circumstance was nationally. I knew that there was vagueness in 
this issue. I knew that there was debate continually about what 
it was that the teaching physician needed to do in order to 
document for its standard, and we were waiting for better 
clarification from HCFA which hasn't come--which didn't come 
until July 1996.
    From that time forward, we now know exactly what HCFA is 
requiring out of every teaching physician in this country.
    Senator Harkin. And what is that requirement?
    Dr. Cohen. It's requiring that the physician be present for 
the key portion. That's the term of art----
    Senator Harkin. What do you mean by present, you mean 
physically present?
    Dr. Cohen. Physically present for the key portion----
    Senator Harkin. For that which he is seeking to be 
reimbursed.
    Dr. Cohen. For that which he is seeking to be reimbursed, 
precisely. And that's the first time that language was used by 
HCFA. HCFA acknowledged when it promulgated that rule that its 
previous rules were vague and unclear. On repeated occasions, 
HCFA itself has acknowledged that.
    Senator Harkin. Dr. Cohen, I am going to read--I am going 
to ask to put this in the record at this point, a letter that 
was put out by your predecessor, Robert G. Petersdorf, 
president of the Association of American Colleges, May 13, 
1993. Basically it discusses a letter from Charles Booth, 
Director of Office of Payment Policy, Health Care Finance 
Administration, which I will also submit for the record.
    [The information follows:]
                               Memorandum
                  Association of American Medical Colleges,
                                      Washington, DC, May 13, 1993.

To: Council of Deans; Council of Teaching Hospitals; and Council of 
        Academic Societies.
From: Robert G. Petersdorf, M.D., President.
Subject: HCFA Response to AAMC Comment Letter on Teaching Physician 
        Requirements (IL-372 guidelines).
    Enclosed is a letter dated May 7 from Charles Booth, Director, 
Office of Payment Policy at the Health Care Financing Administration 
(HCFA) for your information. This letter is in response to the 
Association's comment letter of April 2 to Mr. Booth on HCFA's change 
in policy with respect to the teaching physician requirements as 
originally stated in IL-372 Guidelines. This change in policy was 
announced as a ``clarification of existing payment policy'' in a 
December 30 memorandum from Mr. Booth to all HCFA regional 
administrators. (These documents are also enclosed for your 
information.) In this memo, Mr. Booth states that: ``physicians' fees, 
are payable in teaching hospitals if (1) the, physician personally 
performs an identifiable service; or (2) the chart indicates that the 
physician has performed those activities necessary to qualify as an 
`attending physician', and the physician is physically present when the 
resident performs the identifiable service for which payment is 
sought.'' Many of our faculty practice plans and teaching physicians 
have already received updated instructions from their local Medicare 
part B carriers based on the December 30 memo. The Association 
recognizes that compliance with this change in the interpretation of 
IL-372 Guidelines may represent a significant problem to many of our 
faculty practice plans and clinical faculty.
    The AAMC Ad-hoc Committee on Physician Payment Reform, chaired by 
Michael E. Johns, MD, dean of the Johns Hopkins University School of 
Medicine, will meet June 22 to deliberate the appropriateness of the 
``physical presence'' requirement and to assist the Association in 
updating its position on HCFA's interpretation of IL-372 Guidelines. 
For this reason, we encourage you to give us your comments on the Booth 
letters, the ``physical presence'' requirement, and what you believe 
constitutes appropriate medical direction by the attending physician 
when services are performed by residents. Please mail your comments to 
Robert D'Antuono, Senior Staff Associate, in the AAMC's Division of 
Clinical Services.
    Thank you for your input.
    Attachments.
                                 ______
                                 
                               Memorandum
           Department of Health and Human Services,
                      Health Care Financing Administration,
                                 Washington, DC, December 30, 1992.

To: All Associate Regional Administrators for Medicare.
From: Director, Office of Payment Policy, Bureau of policy Development.
Subject: Assigning the Level of Evaluation and Management (E&M) Codes 
        in the Teaching Setting.
    We have been asked to clarify how the CPT E&M codes that became 
effective in 1992 are to be applied in teaching hospitals and other 
teaching settings in which physicians involve residents in the care of 
their patients. We have heard allegations that some carriers 
automatically reduce the level of the billed code for pavement purposes 
simply because a resident is involved in furnishing the services. In 
addition, we have been asked to clarify whether the services provided 
by a resident outside of the attending physician's presence are 
included in the content of the visit in establishing the level of the 
visit for payment purposes.
    The policy, as set forth in Intermediary Letter No. 372, Part B 
Intermediary Letter 70-2, and MCM section 15016, is that physicians' 
fees are payable in teaching hospitals if:
    (1) the physician personally performs an identifiable service; or.
    (2) the chart indicates that the physician has performed those 
activities necessary. to qualify as an ``attending physician,'' and the 
physician is physically present when the resident performs the 
identifiable service for which payment is sought.
    Generally speaking, it has been our position that when situation 
(2) exists, Medicare payment is the same whether the physician 
personally performs the service, or the resident performs the service 
in the presence of the attending physician. There should be no 
reduction in payment simply because a resident, instead of the 
attending physician, performs the hands-on service. A service furnished 
by a resident without the presence of the attending physician is not 
covered as a physician's service to an individual patient.
    Medicare liability for paying for such a service is met through 
direct graduate medical education payments (hospital-specific per 
resident amounts) by the intermediary to the hospital. We would point 
out that one of the I.L. 372 conditions for an attending physician 
relationship indicates that the presence of the attending physician 
should not be superfluous as in the case where a resident is fully 
qualified from a medical standpoint to perform the service. As a 
practical matter, however, we do not know how a carrier could be 
expected to assess a resident's professional progress which would 
suggest that this aspect of the requirements is not enforceable by 
carriers.
    It has been alleged that some carriers have imposed the requirement 
that, for a higher level hospital care code to be used, the physician 
must personally take the comprehensive history and perform the physical 
examination, and that when the attending physician countersigns a 
history and physical examination performed by a resident, a minimal 
level E&M code must be used. It is our position that I.L. 372 requires 
only that the teaching physician review the history taken by the 
resident, and that he or she personally examine the patient. We believe 
that the appropriate code should be the one describing the content of 
the service provided (level of history, physical examination, and 
decision making) by the attending physician personally or by the 
resident in the attending physician's presence. If the situation is one 
in which the potential attending physician simply countersigns the 
report of resident's physical examination without personally examining 
the patient, the criteria for establishing an attending physician 
relationship have not been met at that point, and no E&M service is 
payable.
    With respect to subsequent hospital care after the attending 
relationship has been established, the service that is payable is also 
based on the content of the service provided (level of history and 
physical, decision making, etc.), whether performed directly by the 
attending physician or by a resident in the presence of the physician. 
The level of the service should not be automatically reduced because a 
resident was involved in the care. However, if a resident obtained 
relevant information prior to the rounds visit of the attending 
physician and this resulted in a lesser service being provided in the 
attending physician's presence, the level of the code which should be 
paid is the code reflecting the content of the service provided by the 
physician personally or by the resident in the attending physician's 
presence. In addition, we would emphasize that no E&M service is 
payable on a day when the E&M service was performed by the resident 
without the attending physician being present and all the attending 
physician does is to review the resident Is notes and countersign the 
record.
    Please convey this information to carriers in your region.
                                                  Charles R. Booth.

                            CHANGE IN POLICY

    Senator Harkin. For your information, this letter is in 
response to the association's comment letter of April 2, from 
Mr. Booth on HCFA's change in policy with respect to the 
teaching physicians requirements as originally stated in IL-372 
guidelines. To quote Dr. Petersdorf:

    In this memo, Mr. Booth states that, quote, ``physicians' 
fees are payable in teaching hospitals if: (1), the physician 
personally performs an identifiable service; or (2), the chart 
indicates the physician has performed those activities 
necessary to qualify as an,'' quote, ``attending physician,'' 
end quote, and the physician is--

    And this is underlined in Dr. Petersdorf's letter, 
``physically present when the resident performs the 
identifiable service for which payment is sought.''
    You just told me at this witness table that the first time 
HCFA ever promulgated anything like that was in 1995. 
Physically present for the reimbursed item which was sought to 
be reimbursed. Yet, here is a letter from your predecessor as 
an advisory to all medical colleges stating exactly that in 
1993.
    Dr. Cohen. Senator Harkin, the Booth memo to which that 
letter was a response was a, I believe, an aberration in the 
department. And the reason I say that--let me----
    Senator Harkin. People can pick and choose what they want. 
I am just reading you the plain language here.
    Dr. Cohen. Let me read you the language of Mr. Booth's 
supervisor at that time in a letter saying, I'm responding to 
your letter regarding----
    Senator Harkin. What's his name or her name.
    Dr. Cohen. Thomas A. Ault, Director of Bureau of Policy 
Development. This letter is dated----
    Senator Harkin. What's the date?
    Dr. Cohen. April 1995. April 2, 1995, here it is.
    Senator Harkin. April 2, 1995.
    Dr. Cohen. I'm responding to your letter----
    Senator Harkin. I talked to you about a letter from Mr. 
Booth.
    Dr. Cohen. Booth's memo is December 30, 1992. And this is 
Thomas Ault responding to Booth's memo in a query that was 
made.
    In responding to your letter regarding implementation of 
physician presence requirements for attending physician's 
services by the carrier for South Carolina, it is our position 
that carriers which did not apply a physical--a physician 
presence requirement prior to the issuance of the Charles B. 
Booth memorandum on December 30, 1992, should not institute 
such a policy until a revised rule on payments for teaching 
physician services is finalized.
    In that regard, we received a letter, stating: ``the 
carrier would not be changing its policy pending revision of 
national--revision of national guidelines.''
    Thomas Ault, Mr. Booth's supervisor, is saying in this 
letter that physical presence was in fact not the clear 
standards of HCFA, despite what Booth said.
    Senator Harkin. First, I have got some more I want to read 
on this, but we can go all the way back to 1965 if you want on 
this one.
    Mr. Mangano.
    Mr. Mangano. Let me just mention, I do not think that is 
what Mr. Ault said at all. I think what he said was this was a 
response to a lawyer who was representing one teaching 
hospital, I believe it was South Carolina. He said that if the 
carrier had not implemented a policy that required physical 
presence before 1990, December 30, 1992, they should not change 
their policy at that point. Therefore, if the policy already 
existed before that time, it should be carried out.
    Senator Harkin. Is that a correct interpretation, Dr. 
Cohen?
    Dr. Cohen. It's not my view that that's the interpretation.
    Senator Harkin. What does the letter say? Can I get a copy 
of that letter?
    Dr. Cohen. Of course you can.
    [The information follows:]
                       Letter From Thomas A. Ault
           Department of Health and Human Services,
                      Health Care Financing Administration,
                                      Baltimore, MD, April 2, 1995.
Mr. Robert J. Saner,
Washington Counsel, MGMA, Powers, Pyles, Sutter & Verville, P.C., 
        attorneys at law, Washington, DC.
    Dear Mr. Saner. I am responding to your letter regarding 
implementation of a ``physician presence'' requirement for attending 
physicians' services by the Part B carrier for South Carolina.
    It is our position that carriers which did not apply a ``physician 
presence'' requirement prior to the issuance of the Charles R. Booth 
memorandum of December 30, 1992, should not institute such a policy 
until a revised rule on payments for teaching physicians' services is 
finalized. In that regard, you have received a letter from the carrier 
medical director for South Carolina explaining the basis for the 
misunderstanding and clarifying that the carrier would not be changing 
its policy pending revised national guidelines.
    I hope that this matter is now resolved.
            Sincerely,
                                            Thomas A. Ault,
                            Director, Bureau of Policy Development.

                    INSTRUCTING TEACHING PHYSICIANS

    Dr. Cohen. Let me quote you from Mr. Ault again. This is in 
a meeting that he had trying to instruct teaching physicians 
about the need for the requirement: ``Although there are 
existing instructions going back many years that support our 
interpretation, the instructions are admittedly ambiguous and 
have not been vigorously enforced.''
    At this point, we are not aware of instances in which there 
have been claims denied on the basis of the memorandum, 
referring to the Booth memorandum. We are writing to make its 
application prospective if it has not yet been applied.
    We would not argue the policy--the point that some or many 
carriers may have not applied this policy or that carrier 
ability to verify the physician's presence during individual 
service is problematic.
    So what we interpret that, the discussion to be--and this 
went back and forth for almost 30 years since the 1967 IL-372 
letter. It was not that you cannot find language some places 
that calls for physical presence, but you can also find 
language in other places that says it is not necessary.
    So what I am trying to make clear is that the standards 
were never clear. Those of us working in the field were begging 
for clarity. We were never given clear instructions. And the 
problem we have now is for the inspector general to come in and 
insist that those standards were clear, and clear enough----
    Senator Harkin. But they were clear in some regions. Here 
is one from the University of Kentucky, Dr. Cohen.
    Dr. Cohen. I don't doubt that some carrier regions 
promulgated language that was clear. What I'm saying is that 
every----
    Senator Harkin. Well, if the language was clear in a 
region, why should they not continue their audit in those 
areas? Or are you arguing that it was never clear in any 
region?
    Dr. Cohen. I'm arguing that the regions, that the regional 
carriers, the private contractors, were never authorized to 
overinterpret HCFA's regulations. HCFA is the agency that makes 
the rules. We understood what HCFA's rules were.
    Where is it written that a private contractor has the 
authority to establish rules that go beyond what HCFA's 
regulations stipulate? I don't believe that that's what 
Congress intended. I think in order to apply that----
    Senator Harkin. You are setting yourself up, it seems to 
me, as the judge and jury of what a region has interpreted. For 
example, the region in Kentucky where the carrier said here is 
the way we have always interpreted it.
    The Kentucky letter is dated April 15, 1993. It is from the 
University of Kentucky Medical Center to their carrier, Blue 
Cross/Blue Shield of Kentucky, talking about the Booth 
amendment, December 30. It states:

    Quite frankly, when our institution read the memo, we were 
neither surprised nor dismayed; his summation and his literal 
definition were exactly as we understood the regulatory statute 
governing IL-372. Billings should not be allowed when the 
teaching physician has not performed a personal identifiable 
service or performed direct, not indirect, supervision of 
interns and residents.''

    And then the letter goes on to say:

    That if a change is to be submitted, documentation must 
include: personal handwritten or dictated notes by the teaching 
physician, mention made in the intern or resident note that the 
teaching physician was present, and a cosignature by the 
supervising physician; or if the resident or intern failed to 
mention the supervising physician's presence, the supervising 
physician must add a personal note.

    In other words, they are saying what they have had is what 
they have understood the requirements always to be. Here's 
another quote from the letter: ``We instill within our faculty 
that no bill is to be rendered without their direct personal 
involvement.''
    So I am saying here is one region where the guidelines were 
very clear. Now you tell me why the inspector general should 
not audit that?
    Dr. Cohen. Because we have--Medicare is a national program, 
Senator Harkin, as you well know. There should be national 
standards by which physicians are held accountable for their 
billing practices under a national program. It is bizarre to 
have one region of the country allowing certain billing 
practices without any question and other regions of the country 
subjecting teaching physicians to potentially ruinous penalties 
under a Federal False Claims Act.
    Senator Harkin. If that is what physicians in that region 
were told----
    Dr. Cohen. That's not what the physicians were told.
    Senator Harkin. They were in the Kentucky region.
    Dr. Cohen. I'm a teaching physician. I don't go around 
reading the carrier regulations on a daily basis. I know what 
the standard of practice is among the culture that I'm 
operating in, and I'm moving from one region to another. I've 
operated in six different regions in my career and I bet each 
of them had different standards for their Medicare----
    Senator Harkin. Wouldn't you check with your hospital, and 
ask what you can bill for?
    Dr. Cohen. Of course not.
    Senator Harkin. If that hospital said ``no,'' you cannot 
bill unless you are directly there, you would bill for it 
anyway?
    Dr. Cohen. If my hospital had made that clear to me, then I 
would obviously try to conform to what the hospital said. But 
the hospital never tells us that. I mean, Dr. Evarts----
    Dr. Evarts. Let me just try and put this in a slightly 
different context. I've practiced in three different States. 
I'm a practicing physician. I have been all my career. I've 
also been responsible for the education of other physicians all 
these three separate places, major responsibilities, and in my 
entire career, I operated and so did those who were surrounding 
me to the best of my knowledge in doing the things that we 
interpreted the regulations to--to require.
    Now, it was not clear, it was different in Ohio than it was 
in New York State and it certainly was different in 
Pennsylvania. None of these times were anybody trying to, 
deliberately trying to misrepresent or fraud or abuse or any of 
those things. We were trying our best to take care of our 
patients, and as Dr. Cohen has said, I didn't read the 
regulations.
    The hospital directors were not directly involved in the 
day-to-day patient care. These were things that we did as 
physicians trying our very best to give the appropriate care 
for each and every patient.
    And in that, in the teaching setting, it is very clear that 
there is a very close relationship between the student and the 
teacher, if you will. And that was always there, it was never 
violated, and if it was violated then we tried to step in and 
do something about that.
    But if you were to poll the hundreds of thousands of 
teaching physicians in this country, you would get about that 
many different interpretations of what these rules were 
supposed to be. And it wasn't until 1995 and now 1996 that once 
and for all, we all very clearly understand where we were 
coming from. And I tell you that in direct sincerity that is 
exactly what--and if we want to do a national poll, that's 
where it would come down.
    Senator Harkin. Doctor, I do not understand because here is 
this letter--you did not really respond to me on this, Dr. 
Cohen. This is Dr. Petersdorf's letter, dated May 13, 1993. If 
you have a copy----
    Dr. Cohen. I've seen that letter, I know it well, thank 
you.
    Senator Harkin. It says quite clearly: ``And the physician 
is physically present when the resident performs the 
identifiable service for which payment is sought.''.
    This went to every medical college. Now, I don't understand 
how now you can say that they weren't fully advised. This is 
from your own association.
    Dr. Cohen. He's commenting on Charles Booth's memo.
    Senator Harkin. I do not care what he is commenting on. 
Read the plain language.
    Dr. Cohen. He's commenting on the Booth memo, which was 
subsequently disavowed by HCFA, and everybody knew that. 
Everybody knew Thomas Ault, Booth's superior, had disavowed 
himself of that standard that Booth went out on a limb to 
articulate.
    Senator Harkin. I do not believe that. I am sorry, where 
does Mr. Ault disavow this?
    Dr. Cohen. Could--can I read you the piece of the letter 
that--and he also----
    Senator Harkin. I do not think that is on point. Mr. 
Mangano, can you comment? Do you know about this Ault letter, 
dated April 2, 1995?
    Mr. Mangano. Yes; I do.
    Senator Harkin. What do you know about it?
    Mr. Mangano. As I understood what Mr. Ault said was that if 
a contractor had not required physical presence prior to the 
Booth memo on December 30, 1992, a contractor should not now 
apply it because we're getting ready to issue new regulations. 
Therefore, my interpretation is, if you had a policy of 
physical presence in place prior to that time, you leave it in 
place.
    Senator Harkin. Let me read it to you, Dr. Cohen. It says 
here:

    It is our position that carriers which did not apply 
physician presence requirement prior to the issuance of the 
Charles R. Booth memorandum of December 30, 1992, should not 
institute such a policy until a revised rule on payments for 
teaching physicians' services is finalized.

    Dr. Cohen. What that says to me, Senator, is that HCFA did 
not believe that that was its standard, so that it was not 
standing behind Booth's memorandum and allowing that to be the 
standard going forward, recognizing that it had standards that 
needed to be clarified. And they were instructing the carriers 
that did not have that standard not to apply it because it 
wasn't the national standard.
    Senator Harkin. What you are saying Mr. Ault is that if a 
carrier had a physician presence requirement before 1992, it 
did not mean anything.
    Dr. Cohen. No; I am saying that it was not HCFA's national 
standard. The fact that a carrier--I concede that the carriers 
had interpreted HCFA's language, some carriers, in that 
fashion. My position is and our position is that the carrier is 
not authorized to read law, make law. The carrier must carry 
out the national standard.
    HCFA, the people that make the national standard, disavowed 
that standard. The fact that certain carriers were interpreting 
them that way is immaterial and, more importantly, they were 
auditing patient records all through this period of time and 
never sanctioned the teaching physician for billing on the 
basis of a countersignature.
    Senator Harkin. Mr. Mangano.
    Mr. Mangano. Let me just say that there have been hundreds 
of audits over these three decades that looked at this issue of 
physical presence. In my testimony, I recited the examples from 
Pennsylvania where they conducted 67 audits at teaching 
hospitals in a 5-year period.
    When they found violations of physical presence, they 
assessed overpayments. For example, two of those audits were 
done on two of the hospitals that are in the Geisinger system, 
Hershey Medical Center. I've got reports from 1986 and 1988 
that said they were out of compliance.
    Senator Harkin. They are out of compliance.
    Mr. Mangano. Out of compliance. And the chief, the 
principal issue they looked at there was physical presence. 
They were told by the auditors, once again, you must be present 
in order to bill Medicare for part B service.
    I think the concept here is real simple. If you want to 
bill for a patient visit, you ought to visit the patient.
    Senator Harkin. Ms. Wynn, let me ask this. Do you agree 
with the position taken that it has always been Medicare policy 
to require physical presence of a supervising physician in 
order for that physician to be eligible for reimbursement of 
the service performed by a resident? You are from HCFA.
    Ms. Wynn. Yes; I am. HCFA has not articulated within IL-372 
or some of its other policy issuances a clear and unambiguous 
policy that the physician needed to be present. There are some 
explicit statements that the physician should be present in 
supervising the interning resident; in other cases, it's vague.
    Senator Harkin. Where is that?
    Ms. Wynn. IL-372 very clearly states certain criteria that 
need to be met for an attending physician relationship to be 
established.
    Senator Harkin. It says personally perform or personally 
supervise, IL-372 does.
    Ms. Wynn. I believe what it says is that the physician must 
perform personal and identifiable services.
    Senator Harkin. No; it says the teaching physician should 
personally perform or personally supervise patient services in 
order to qualify for fee-for-service payment. I just read it to 
you. So what are you saying?
    Ms. Wynn. For major medical services, surgical services or 
complex medical services, the physician is expected to be 
personally present. There's not an explicit statement, I don't 
believe, within IL-372 to that effect. However, there are some 
other areas where we have----
    Senator Harkin. I just read it. I mean, am I losing my 
common sense? I keep coming back to common sense around this 
place. You can argue about how many angels can dance on the 
head of a pin, but----
    Ms. Wynn. Mr. Harkin, I think that may in the legislative 
history rather than----
    Senator Harkin. That is the legislative history. That is 
exactly what I am reading to you. And the legislative history, 
you certainly pay attention to that, don't you?
    Ms. Wynn. Yes, sir.
    Senator Harkin. I hope so.
    Ms. Wynn. However, there are areas and questions where we 
have explicitly required physician presence, over the course of 
time in various policy issuances. I don't see Mr. Ault's letter 
as contradicting Mr. Booth's memorandum, for instance. It was 
recognizing, however, that there have been some differences in 
carrier enforcement of the policy and that since we were about 
to revise the policy, they were not to change their enforcement 
activities.
    Senator Harkin. Are you saying you agree with Mr. Mangano's 
interpretation of the Ault letter?
    Ms. Wynn. Yes; I do.
    Senator Harkin. And that position is that if carriers had 
not articulated a physician presence requirement, they did not 
have to institute one, but if they did, they were held to that 
standard.
    Ms. Wynn. That's correct.
    Senator Harkin. That is what you are saying?
    [Ms. Wynn nods.]
    Senator Harkin. Dr. Cohen, that seems to me to be exactly 
what I read in Mr. Petersdorf's letter, representing your own 
association: A physician must be physically present when the 
resident performs the identifiable service for which payment is 
sought.
    Now, I know that this has been a controversial issue going 
back to 1970, at least. That----
    Dr. Cohen. At least.
    Senator Harkin. It has been controversial. But I do not 
know that it has been all that ambiguous.
    Dr. Cohen. Well, could I--Senator, if I could quote you 
from two distinguished physicians, Otis Bowen and Lewis 
Sullivan, both former Secretaries of Health and Human Services 
themselves:

    Both as former Secretaries of Health and Human Services and 
as physicians who have trained residents, we are personally 
disturbed by the direction and tone of the current OIG 
investigations on this issue. There appears to be a complete 
lack of understanding and appreciation for how complicated this 
matter has been pretty much since the beginning of the Medicare 
Program. Given the contorted history of this issue through the 
years, it would appear to be an unlikely candidate for an OIG 
investigation.

    And that's certainly what our view is, that this is not a 
fertile soil for allegations of fraud and abuse. We----
    Senator Specter. Dr. Cohen, what do you think the standard 
should be?
    Dr. Cohen. I think the standard going forward is very 
clear. I think audits against the new Medicare standards from 
July 1996 are absolutely clear and we ought to be held 
accountable to those standards. I believe that what we ought to 
do in the PATH audits is to adjust the parameters as follows: 
We ought to accept countersignatures as prima facie evidence 
for presence unless there's evidence to the contrary. I mean, 
if there are reasons to believe that the physician wasn't 
there, wasn't in the hospital, was out of town, was in another 
country----
    Senator Specter. Mr. Mangano, what is wrong with that?
    Mr. Mangano. We accept countersignatures, and according to 
the policy that----
    Dr. Cohen. That's not true.
    Senator Specter. Let him finish. Go ahead.
    Mr. Mangano. The policies that the carriers put out, by and 
large, state that countersignatures will be accepted as long as 
the note written by the resident or nurse, whomever's providing 
the service, indicates that the physician was present when the 
service was delivered.
    Senator Specter. When you say by and large, are you 
excluding matters there----
    Mr. Mangano. Almost all the carriers had that requirement.
    Dr. Evarts. No nurse or other person would write that in 
their note. That wasn't common practice. You wouldn't write 
that so and so was there. That was--you were writing about the 
patient.
    Senator Specter. Wait 1 minute, Dr. Evarts. Are you saying, 
Mr. Mangano, somebody else has to have a notation in the file 
that the physician was present?
    Mr. Mangano. The medical record is the key document that we 
use. Physicians fill that out. And the carriers required the 
physician fill out the medical record and indicate what they 
did. If they were not there, if they--if the resident provided 
the service, if the physician did not fill that out, the 
resident must indicate that the physician was present when the 
service was delivered, and that's in almost all the carrier 
guidelines.
    Senator Specter. The question now is whether a signature by 
the physician would be sufficient to establish his presence. 
Are you saying that in addition to the physician's signature, 
there has to be something else in the record to affirmatively 
state the doctor was present?
    Mr. Mangano. There must be something in the record, as all 
carriers required, that indicate the physician was present in 
order to bill for it.
    Senator Specter. Now that is in addition to the physician 
signature.
    Mr. Mangano. If the physician signature is there as though 
the physician has delivered the service, that's sufficient.
    Senator Specter. Wait just 1 minute. As though a physician 
delivered the service. Suppose you have the physician's 
signature and nothing else. Is that sufficient proof that the 
physician was there?
    Mr. Mangano. We would look at the medical record, and the 
medical record would say I visited patient X. This is what the 
diagnosis was, this is what I did. That's sufficient.
    Dr. Cohen. That's not what happens.
    Senator Specter. Just 1 second, Dr. Cohen, Dr. Evarts. As 
soon as you are the chairman, you can ask the questions. 
Suppose it does not say I visited. We are on a narrow question 
as to whether the signature alone, standing by itself, is 
sufficient proof that the physician was present.
    Mr. Mangano. All the carriers--I won't say all, but the 
overwhelming majority of the carriers say that a 
countersignature by the physician is sufficient as long as the 
medical record indicates that the physician was there to either 
deliver the service themselves or at the elbow of the intern or 
resident.
    Senator Specter. Well, you repeated that answer now three 
times. On the face of what you have said, the signature is not 
sufficient, unless the records show the physician was there.
    Mr. Mangano. That's correct.
    Senator Specter. So the physician signature alone is not 
sufficient.
    Mr. Mangano. That's correct.
    Senator Specter. Dr. Cohen, Dr. Evarts you are contending 
that is a retroactive application of a different rule.
    Dr. Cohen. Absolutely. Let me----
    Senator Specter. At what point in time, Dr. Cohen, was the 
signature of the physician sufficient to establish his 
presence, her presence?
    Dr. Cohen. I think from 1967 through 1996, that was the 
standard. Let me quote you from IL-70-2.

    If the physician's countersigned the entries in the record 
pertaining to the patient's history and the record of 
examination and tests, it would be presumed the physician 
reviewed these activities.

    That is the presumption, and that is what we all acted on.
    Senator Specter. Wait a minute, presumed that he reviewed 
the activities. But does that deal with his presence?
    Dr. Cohen. Of course, reviewed the activities. He was there 
providing medical direction. This is the standard HCFA provided 
to nonmajor surgeries and noncomplex procedures.
    Senator Specter. I do not know what that language does; 
read it again.
    Dr. Cohen [reading]: ``If the physician countersigned the 
entries in the record pertaining to the patient's history and 
the record of examinations and tests, it would be presumed the 
physician reviewed these activities.'' And that is exactly 
what, speaking for myself----
    Senator Specter. Just a minute, would reviewing the 
activities necessarily mean that he or she was present?
    Dr. Cohen. How could you sign the note if you weren't 
present?
    Senator Specter. You are present when you signed the note 
and you can review the procedures. But that might be something 
different from being physically present at the time the 
procedures are done. I am just asking, I do not know.
    Dr. Cohen. Well, we're talking about the medical direction 
of nonsurgical, noncomplex procedures. There's no quarrel about 
the surgeries and the complex procedures, as I hope I made 
clear. The physician does need to be physically present at the 
time that that surgery and complex procedure is performed, no 
question about it. And there ought to be clear indications in 
the record that the surgeon or the other physician or whoever 
provided those services was present with the resident, plain 
and simple.
    Senator Specter. You are agreeing with what Mr. Mangano is 
saying.
    Dr. Cohen. We never disagreed with surgeries and these 
complex procedures, Mr. Chairman. It's all these other 
procedures, with which the vast majority are nonsurgical, 
noncomplex procedures where the physician was required, 
teaching physician was required to provide the medical 
direction to the resident.
    And the way in which that direction is provided very often 
is by the teaching physician.
    Of course being present, the patient knowing the physician, 
knowing the--that physician is the attending physician, but 
that the teaching physician indicates his presence in that 
capacity as directing the medical care by countersigning the 
notes in the record. That was common practice. That's what I 
did throughout all those years. I'm sure that's what Dr. Evarts 
has done. This is what the standard was. And now we're being 
held to a standard that simply didn't exist at that time.
    Senator Specter. Do I understand you to be making a 
distinction between a major procedure where the physician has 
to be present and some lesser procedure where the physician 
would not necessarily be present?
    Dr. Cohen. Well, let me be sure we're using the word 
``presence'' in the same way. I'm not suggesting that a 
physician should ever charge for something where they weren't 
present, if they weren't involved, if they weren't there 
providing the service that HCFA indicated they were prepared to 
pay for.
    Senator Specter. You mean there at the time it is being 
performed?
    Dr. Cohen. Well, when is a patient with cardiac failure 
getting a service from a teaching physician? It certainly isn't 
24 hours a day around the clock. It's when that patient is 
getting----
    Senator Specter. There is a representation, in a sense, 
that the signature states that the physician was at the spot 
some time during that day.
    Dr. Cohen. Absolutely. Absolutely.
    Senator Specter. Are you looking for something more, Mr. 
Mangano?
    Mr. Mangano. The kinds of bills that we're looking at under 
Medicare part B are for patient visits, they're also for 
consultations. So if the consultation took place at 2 p.m., 
we'd be looking for the physical presence of the doctor at that 
time to deliver the service themselves or be at the elbow of 
the resident directly supervising it.
    What we don't believe is correct is for a physician to tell 
a resident to go look at a patient, then at the end of the day, 
after reviewing the medical record that the resident wrote, 
initials off on that and be able to bill Medicare for a patient 
visit.
    When Medicare develops the cost of a patient visit, they 
determine it is going to take so much time, so much skill----
    Senator Specter. Do you disagree with that?
    Dr. Cohen. No; Let me indicate----
    Senator Specter. Wait a second, Dr. Cohen. Do you disagree 
with that?
    Dr. Cohen. With what?
    Senator Specter. With what he just said.
    Dr. Cohen. I don't disagree that the consultation that's 
provided by the teaching physician needs to be done by the 
teaching physician. But the way--let me--that's what I did for 
a living for all these years. I was a consultant in kidney 
disease.
    Senator Specter. In trying to cut through, Mr. Mangano is 
suggesting that the physician comes by at the end of the day 
and simply signs off without having been present.
    Dr. Cohen. That's simply not true.
    Senator Specter. Wait a minute. Do you agree with what Mr. 
Mangano says, that the physician has to be present at the time 
the consultation was performed, as opposed to coming by at the 
end of the day and signing off?
    Dr. Cohen. Yes; but it's more complicated than that, if I 
may, Mr. Chairman, just to give you a typical example.
    We would get a consult request from a physician on a 
patient. The resident, fellow, would go see the patient, 
evaluate the patient, come back, describe not only to me but to 
the other residents who are involved in the team, what the 
situation was, assuming this wasn't an urgent situation, in 
which case we would all go there immediately.
    But in the typical situation, he would come back, report 
the findings of the consultation. We'd all go as a team, see 
the patient, confirm the findings, discuss the issues, decide 
what we're going to do. I would be responsible for making those 
judgments ultimately about what was going to be done. More 
often than not, the resident would have made the right 
decisions and I would simply be confirming what the resident 
had done, but I would be very much involved in that 
consultation.
    I might not sign that record that day. I might have had 12 
consultations to see that day. I might have come back the next 
day and countersigned the resident's note, describing precisely 
what happened in that consultation and all the decisions that 
were made. I was present there. I would not have signed that 
note if I wasn't present. I would not put my signature on a 
record indicating that I provided a service if I wasn't present 
to provide that service. My signature in that record documented 
my presence and my involvement in that case.
    Senator Harkin. Dr. Cohen, I listened very intently to what 
you just said about the consultations. These would be residents 
and interns that would come to you, right?
    Dr. Cohen. Well, the typical situation would be that a 
patient's doctor would request a consultation. The consultation 
request would come through my office. I would assign a resident 
in training----
    Senator Harkin. Right.
    Dr. Cohen. If it was not an emergency situation----
    Senator Harkin. Right.
    Dr. Cohen. To evaluate that patient and they'd come back 
and tell me what they found.
    Senator Harkin. And you would consult with that resident.
    Dr. Cohen. And the patient. I would go and see the patient, 
confirm everything that the resident had said, discuss the 
issues. If there were things the resident wanted to do that I 
didn't think was right, I would correct it. More often than 
not, the resident was on target.
    Senator Harkin. What if you never went to see the patient?
    Dr. Cohen. I would never bill for a patient I didn't see. I 
wouldn't sign that chart.
    Senator Harkin. For the consultations that you're talking 
about, I believe that's what costs $8.1 billion every year out 
of Medicare part A. These funds pay for training and 
supervising residents and interns.
    Dr. Cohen. I beg to differ with you, Senator.
    Senator Harkin. That $8.1 billion is not for that?
    Dr. Cohen. No.
    Senator Harkin. What is it for?
    Dr. Cohen. First of all, the $8.1 billion includes indirect 
medical education, expenses, which cover a whole gamut of 
expenses in teaching hospitals that has nothing directly to do 
with the teaching of residents. But that's neither here nor 
there at the moment.
    What those payments in part A are for, are for supervising 
and administering the teaching program, interviewing the 
residents' applications, reviewing their progress through the 
program, making arrangements with other institutions how they 
rotate to get their experiences, evaluating their performance, 
counseling them, giving lectures, giving seminars, all the 
things that are involved in the general education of residents.
    What we're talking about in part B are the personal 
services each teaching physician provides to their individual 
Medicare patients. They involve residents in delivering those 
services. HCFA has acknowledged that that service is valuable 
and paid for under part B.
    Senator Harkin. So none of that $8.1 billion is for 
supervision in hospital settings or anything like that.
    Dr. Cohen. Not for the individual patients for which I am 
taking care.
    Senator Harkin. It is only for teaching in a classroom.
    Dr. Cohen. Well, not teaching in a classroom. Administering 
the program, the seminars, all of the things that are involved 
in putting together a complex teaching program.
    Senator Harkin. It is not involved in discussing with 
interns and residents your care of patients?
    Dr. Cohen. No.
    Senator Harkin. The $8.1 billion is not for that? There is 
a line someplace that says you can only use it for teaching out 
of a textbook in a classroom?
    Dr. Cohen. All I'm saying, Senator, is that HCFA has 
acknowledged that teaching physicians, by definition physicians 
who involve residents in the care of their patients, that those 
teaching physicians are entitled to bill for their services.
    Senator Harkin. Medicare contributes $100,000 per resident 
per year to teaching hospitals for salaries and fringe benefits 
of residents and interns; $100,000 a year. I am told that the 
residents themselves get about $30 to $40,000 of this amount.
    Now, here is an example of abuses found in PATH audits. In 
the PATH audits that have been completed, according to the 
Office of Inspector General statement presented today, a 
physician billed Medicare for subsequent hospital care provided 
during a 3-day period in which his travel schedule placed him 
out of town.
    What say you to that Dr. Cohen? Should that doctor have 
billed Medicare for hospital care provided when he was out of 
town?
    Dr. Cohen. Of course not.
    Senator Harkin. But that is an example of what these audits 
uncover. Here's another: A physician who was attending a 
medical conference out of State billed Medicare for 1 hour of 
critical care provided on each of 2 consecutive days. Should 
that physician have billed for that?
    Dr. Cohen. That physician should not have billed for that, 
Senator, but I cannot comment on these people----
    Senator Harkin. I can go on. You are saying that these PATH 
audits should be stopped from finding these kinds of abuses.
    Dr. Cohen. No; I'm not, Senator.
    Senator Harkin. Why not? Mr. Mangano, can we find these 
abuses other than through PATH audits?
    Mr. Mangano. No; we can not.
    Senator Specter. Senator Harkin, Dr. Evarts has been 
looking for an opening here for some time.
    Senator Harkin. I am asking whether or not you can find 
these abuses without going through the PATH audits.
    Mr. Mangano. No; we cannot.
    Senator Harkin. Well then, if you stop the PATH audits, you 
will not find them.
    Mr. Mangano. That's correct.
    Senator Harkin. Thank you very much.
    Dr. Evarts. Simply to reiterate that no one would support 
anybody billing for services when someone wasn't there.
    Senator Harkin. How are we going to find them if you don't 
audit it?
    Dr. Cohen. Look at the vacation schedule, at the travel 
schedule.
    Senator Harkin. But that is what the audits are doing.
    Dr. Cohen. The audits are not looking at that. They're 
looking at whether or not there's a countersignature in the 
patient's record.
    Dr. Evarts. They're using the wrong criteria.
    Senator Harkin. Excuse me, Mr. Mangano, what are you 
looking for in the audits?
    Mr. Mangano. We are looking, in some cases, to find out 
what the travel schedule of the physicians were, and that's 
where we were able to find some of those examples. Where there 
was no indication that a physician delivered the service, we 
then went a step further in those reviews to find out where was 
the physician that day and found them out of town.
    Senator Harkin. Mr. Chairman, before you came, I was saying 
in the past this subcommittee's had hearings on hospitals that 
were billing Medicare for trips to Italy and fine silverware 
and alcohol and all kinds of art work and the hospitals argued, 
well, the guidance was not clear. I think we both said at the 
time, whether guidance was clear or not, people should use 
common sense. We shouldn't try to dance all around and say 
well, there was this letter and this person and that 
interpretation.
    It seems to me that since the very beginning, this matter 
has been controversial, just like a lot of issues in Medicare 
are controversial because Medicare has been a cash cow. There 
has been a lot of abuse of Medicare over the years, which is 
what we are trying to cut down on. As far as this matter goes, 
it seems to me the letter from Dr. Petersdorf in 1993 was very 
clear, stipulating the physical presence requirement.
    I see nothing wrong with continuing the PATH audits as long 
as they are done on the basis of the law and the interpretation 
of the law in those regions where it was made unequivocally 
clear that physical presence had to be required.
    Senator Specter. Senator Harkin, we have another panel here 
and we are running very long, so I would like to move to the 
issue about billing at the proper level.
    Dr. Cohen, do you----
    Senator Harkin. I just have one follow-up question.
    Senator Specter. Just one follow-up question, just one? OK.
    Senator Harkin. Dr. Cohen, are you opposed to legitimate 
audits for upcode, which is clearly a violation of Medicare law 
and regulations?
    Dr. Cohen. Of course not.
    Senator Harkin. You are asking that these reviews be put on 
hold, I understand.
    Dr. Cohen. I'm asking that the reviews be suspended, not 
stopped. Again, before you came in, I made an opening statement 
saying we very much appreciate the inspector general's efforts 
to try to eradicate fraud and abuse from our program, no 
question about that. But we believe that the audits ought to be 
suspended until the GAO has a chance to do an objective study 
of this very complicated background that you conceded has been 
very confused and very controversial.
    Senator Harkin. I did not concede. Do not put words in my 
mouth. I did not say it was confused, I said it has been 
controversial.
    Dr. Cohen. Correct.
    Senator Harkin. Only because I think there are a lot of 
people out there who want to rip this system off, I am sorry.
    Dr. Cohen. I am sure you are guided by that.
    Senator Specter. Let us move on for just a moment or two to 
this issue of billing at the proper level. Is there any 
problem, Dr. Evarts, as to that aspect of what the inspector 
general is doing?
    Dr. Evarts. Well, I think again, we're looking at whether 
it is a deliberate act to say I'm going to bill up from where I 
think that we----
    Senator Specter. That is what it requires, a deliberate 
act, a knowing intentional act.
    Dr. Evarts. I would say it has not been a deliberate act in 
a great majority of cases. People simply bill legitimately for 
where they think their services come in.
    Senator Specter. Dr. Cohen, do you see a problem with 
audits on the issue of billing at the proper level?
    Dr. Cohen. Yes; I see a problem again with regard to 
retroactivity, that the documentation standards for the proper 
coding of these level of services.
    Senator Specter. And what do you see that is retroactive 
here?
    Dr. Cohen. It is insisting on a documentation standard that 
wasn't articulated until August 1995.
    Senator Specter. How about that, Mr. Mangano?
    Mr. Mangano. We would disagree with that--in this way. 
Physicians have always been required to document the medical 
records. What our reviews are designed to do is determine did 
the physician deliver the service which the medical record says 
was delivered, or did they--did they deliver a service that was 
far less than what they billed for? What we're looking for is 
not inadvertent mistakes where somebody misses by one level, in 
favor of the hospital one time, in favor of Medicare another 
time.
    Senator Specter. What are you looking for?
    Mr. Mangano. We're looking for patterns of abuse. And what 
signals that to us is when the overwhelming majority of those--
those mistakes are in favor of the hospital and those mistakes 
are multilevel mistakes. In my testimony, I gave you an example 
of where you could bill----
    Senator Specter. Let's not have an example. Let's see if we 
can come to specifics with Dr. Cohen as to what he says is a 
retroactive application, come to grips with that issue. It is a 
question of principal about a lot of examples. What do you say 
they are now doing which is retroactive?
    Dr. Cohen. They're insisting on documentation standards 
that the teaching physician----
    Senator Specter. Such as what?
    Dr. Cohen. Such as indicating the--all of the specificity 
of what the levels of coding of the service implied. It's now 
very clear as of August 1995, there's a very clear standard 
about what you need to document in order to assure the auditors 
and anybody else that you delivered the service at a certain 
level. Prior to that----
    Senator Specter. What was the prior----
    Dr. Cohen. Prior to that time----
    Senator Specter. Excuse me, listen to the question. What 
was the prior unclear standard?
    Dr. Cohen. The prior standard was whatever the physician--
that the assumption was the physician billed for the service 
that they delivered. There were no documentation standards, no 
documentation standards.
    Senator Specter. How about that, Mr. Mangano?
    Mr. Mangano. What Dr. Cohen is talking about is in 1992, 
HCFA put in new codes that would indicate the service that was 
delivered.
    Those codes were developed by the American Medical 
Association. And over the next several years, there was a lot 
of training for people on how to use those codes. But never did 
the HCFA ever intend that people would bill for more services, 
for a higher level of service than what was delivered. In fact, 
what HCFA told their regional administrators was that they 
should be on the lookout for egregious cases of fraud in those 
cases, and that's what we're looking for.
    Senator Specter. Mr. Mangano, let me try to bring this 
hearing to a close and ask you a question as to what Dr. Evarts 
testified to about the tremendous cost involved. What weight do 
you give to that factor considering that there is a GAO report 
pending which will be finished in the spring?
    Mr. Mangano. OK, there are a number of ways to look at it. 
One, this is one of the first reviews in which we offer people 
the opportunity to do a self audit if they want to do one. If 
they choose not to do that, we will do the audit and there 
won't be any cost to the university. For universities that have 
decided to do the self audit, I've gotten all different kinds 
of quotes as to what the cost would be, ranging anywhere from 
$200,000 on up to $375,000.
    One of the things that we do in that area to cut the cost 
down is, at certain points of the review, to take a look at 
what we found. For example, in one of the universities, 
Dartmouth, which came clean, we stopped halfway through and 
didn't continue the audit. Another review that we just 
finished, we didn't even get that far. So we look for ways to 
cut the costs. Audits are always inconvenient, we know that, 
but they need to be done.
    Senator Specter. What attention will the inspector general 
pay to the GAO audit, if you can generalize?
    Mr. Mangano. We would certainly want to review what they 
find and the recommendations they make.
    Senator Specter. But you are not bound by what they say.
    Mr. Mangano. That's correct.
    Senator Specter. Anything further, Dr. Cohen?
    Dr. Cohen. I just again would ask that you ask the 
inspector general to suspend the audits, not stop them but 
suspend them until we can get a GAO report. This issue is very 
complicated, very controversial, as Senator Harkin has said. In 
order for an audit process, I think, to be cooperated with 
enthusiastically, which we very much want to happen, we want 
our constituents to be fully cooperative and fully enthusiastic 
about cooperating with these audits. But unless they can be 
seen as being fair and applying rules that existed at the time, 
there's going to be continued resistance to these audits, as 
there should be, until we clearly understand that they are 
lawful and fair and comply with the rules at the time. All 
we're asking is----
    Senator Specter. We are going to make a part of the record 
the letter from Assistant Attorney General Andrew Fois the 
essence of which is this quote: ``We believe that the 
suspension of these audits could affect law enforcement 
activity pursuant to the False Claims Act.''
    Would it be useful if you men and women sat down and tried 
to resolve these issues? We are dealing here in a legislative 
context with a report from the House, which troubles me a lot 
where it talks about retroactive enforcement of possibly 
ambiguous standards. I do not know what a possibly ambiguous 
standard is. I do not see how you can deal with something which 
is a possible ambiguous standard.
    We are not really equipped to deal with it here, to come to 
grips with the conclusive point. I would like to get into 
details and find out why these multimillion dollar settlements 
have been made, what the facts were, why they were not 
litigated and fought out. We do not want to impede law 
enforcement. Similarly, we do not want to have the possibility 
of a high fine or jail as a blackjack which coerces plea 
bargains. I have had a lot of experience with plea bargains. 
Invariably they are unfair to one side or the other.
    You might take a try at it, Dr. Cohen, Dr. Evarts, or Mr. 
Mangano, instead of leaving it to the conference. Nobody knows 
what happens when the jurors go out in conference.
    Anybody else have anything they want to say?
    Dr. Evarts. Just simply to say, getting back to Senator 
Harkin's comments, over the years, that if this wasn't 
ambiguous, then why are we having new regulations introduced in 
1995-96, which very clearly try to state what we should be 
doing in the future or prospectively? And I will tell you, they 
have been ambiguous and that the majority of the practicing 
teaching physicians have not tried to gain this system and are 
really trying to do their job as teachers in the centers that 
are really providing the education and the research for 
biomedical care in this country. And this is a--this is not to 
say that we support anything to do with fraud and abuse. You 
should know that from coming from the University of Iowa 
setting, because they're just like all the rest of us in their 
intent to do the right thing.
    But we cannot have--we cannot be held to standards that we 
do not clearly understand. You read something from Petersdorf, 
that isn't promulgated around the whole country. The practicing 
physician doesn't look at that.
    Senator Specter. Thank you very much, Dr. Evarts, Dr. 
Cohen.
    [Clerk's note.--The following letter and statement was 
received by the subcommittee subsequent to the conclusion of 
the hearing. They will be inserted into the record at this 
point.]
          Letter From Andrew Fois, Assistant Attorney General
                        U.S. Department of Justice,
                             Office of Legislative Affairs,
                                  Washington, DC, October 21, 1997.
Hon. Arlen Specter,
Chairman, Subcommittee on Labor, Health and Human Services, and 
        Education, and Related Agencies, Committee on Appropriations, 
        U.S. Senate, Washington, DC.
    Dear Mr. Chairman: Thank you for providing the Department of 
Justice with an opportunity to participate in the hearing you have 
scheduled for October 21, 1997, about the Department of Health & Human 
Services (HHS) Inspector General's ongoing audits of payments to 
Physicians at Teaching Hospitals (PATH). We believe that the suspension 
of these audits could affect law enforcement activity pursuant to the 
False Claims Act.
    Medicare part A funds teaching hospitals that pay faculty 
physicians to supervise residents who treat Medicare patients. Medicare 
also reimburses hospitals for a portion of residents' salaries 
allocable to treatment of Medicare patients. Medicare regulations 
provide that the teaching physician also can bill Medicare Part B for 
providing a service to the patient if the teaching physician provides 
personal and identifiable direction to the resident when the resident 
is providing a service to the patient.
    The PATH audit program being conducted by the HHS Inspector General 
reviews hospital patient records to determine whether teaching 
physicians who have billed Medicare Part B for providing personal and 
identifiable direction to residents have, in fact, provided personal 
and identifiable direction beyond the routine supervision paid for 
through Part A payments to hospitals. In practice, the PATH audit 
protocol reviews the patient's file to determine whether the teaching 
physician was with the resident when the resident performed a service 
for the Medicare patient.
    The PATH program was announced by the HHS Office of Inspector 
General in the spring of 1996, following a $30 million settlement with 
the University of Pennsylvania Hospital and its clinical practice group 
over allegations of several improper Medicare billing practices. These 
included billings by faculty physicians who had not provided personal 
and identifiable direction to residents and inflated diagnostic codes 
for evaluation and management services. The HHS Inspector General 
invited teaching hospitals to volunteer to perform PATH audits 
themselves--under the Inspector General's supervision--and stated that 
it also would select hospitals to audit.
    Following the announcement of the PATH initiative, PATH audits/
investigations could arise in any of three ways: First, a number of 
hospitals responded to the HHS Inspector General's proposal and either 
offered to perform a PATH audit or at least began discussions regarding 
the possibility of performing a PATH audit. Second, the HHS Inspector 
General selected a few hospitals and began its own audits. Third, False 
Claims Act qui tam complaints could be brought to remedy alleged PATH 
violations.
    The Department of Justice relies heavily on audit information 
developed by the HHS Inspector General in prosecuting fraud in the 
Medicare program under the False Claims Act, 31 U.S.C. 3729. Moreover, 
when a hospital approaches the HHS Inspector General, or the HHS 
Inspector General selects a hospital to audit, the local United States 
Attorney's Office routinely is notified and has an opportunity to 
participate in discussions on whether and how the PATH audit should be 
performed. If a qui tam complaint is filed, the Justice Department is 
involved in the audit/investigation from its inception. The level of 
involvement in the audit by the Department of Justice depends upon the 
facts regarding the specific hospital. However, in most instances, a 
Department of Justice attorney actively monitors or participates in the 
audit/investigation because of the potential for identifying 
significant Medicare mischarging in violation of the False Claims Act.
    At present, more than a score of PATH audits are in progress. 
Although a few audits have been completed, or are near completion, most 
audits are at beginning or intermediate stages. In most of these 
audits, the Department of Justice is an active participant. Since the 
settlement with the University of Pennsylvania, PATH audits have 
resulted in one False Claims Act settlement--with Thomas Jefferson 
University--for about $12 million. The misbilling allegations at 
Jefferson were similar to those at Penn. Settlement discussions with 
other institutions are occurring or are likely.
    The Department of Justice makes assessments on whether to pursue 
False Claims Act cases based in significant part on the information 
developed in the PATH audits. If audits are suspended indefinitely, it 
could affect the Department's enforcement efforts in several respects. 
First, in the case of qui tam cases, the False Claims Act gives the 
United States only 60 days to decide whether to intervene in the 
lawsuit and take over responsibility for litigating the case. 31 U.S.C. 
3730(b). Courts can, and often do, grant the Government extensions of 
time to make an intervention decision, but only upon the Government 
showing good cause for the extension. If audits are suspended 
indefinitely, showing good cause could be made more difficult. In such 
instances, the qui tam plaintiff would be free to litigate the case 
without the participation of the Department of Justice, and any 
judicial decisions on liability and damages would likely be binding 
upon the Government. The lack of Department of Justice participation in 
these cases increases the likelihood of inconsistent and inequitable 
results for both the United States and the medical facilities.
    Second, if all PATH audits are suspended, it is highly unlikely 
that any hospital would show interest in engaging in a self-audit of 
its past billing practices or voluntarily discuss with the Government 
potential past Medicare mischarges. It would be difficult to proceed 
with the investigative efforts that normally precede a PATH audit if 
the audits themselves are in suspension. Third, a national suspension 
of PATH audits could stall or halt the ongoing, salutary efforts of 
some teaching hospitals to address their potential overpayment 
obligations.
    Thank you for the opportunity to comment on this issue. Please 
contact us if we can provide any further information.
            Sincerely,
                                               Andrew Fois,
                                        Assistant Attorney General.
                                 ______
                                 
                Prepared Statement of Senator Carl Levin

                              PATH AUDITS

    First, I would like to commend Chairman Specter and the Ranking 
member, Senator Harkin, for convening this special hearing on the 
Department of Health and Human Services Inspector General's audits of 
Teaching Hospitals, commonly known as the PATH audits. Mr. Chairman, I 
support the Department in its efforts to combat waste, fraud, and 
abuse. Every Medicare provider has a responsibility to be fully 
accountable for the expenditure of Medicare dollars and it is 
appropriate for the Office of the Inspector General to audit teaching 
hospitals. It is equally important that the audits be conducted in a 
manner that is both fair and objective.
    Harriet Rabb, General Counsel of HHS has acknowledged in her July 
11, 1997 letter that ``the standards for paying teaching physicians 
under Part B of Medicare have not been consistently and clearly 
articulated by HCFA over a period of decades.'' Given that there were 
no clear national standards, the OIG is attempting to audit based on 
local carrier guidance. However, in a 1986 GAO report, the GAO found 
there was substantial variation by local carriers on this issue. The 
GAO did not believe that variation among local carriers was appropriate 
and instead the report concluded that:
    ``HCFA needs to establish and enforce explicit documentation 
requirements so that teaching physicians and hospitals know what is 
expected of them and understand that they are to be held accountable 
for not complying with Medicare requirements. We believe HCFA's current 
requirements for documenting physicians' fee-for-service billings are 
not explicit enough and the requirements being enforced vary 
substantially among carriers.''
    Mr. Chairman, I do not believe it is appropriate, in the absence of 
specific congressional authorization, to rely on the carrier to 
substitute for national standards. Doing so allows carriers, in 
essence, to make rules. It also results in inconsistency and confusion, 
which is demonstrated in this situation.
    HCFA finally did issue rules establishing requirements for teaching 
physician billing that became effective July 1, 1996. I do not know why 
it took HCFA ten years after the GAO report to establish guidelines.
    As you know, Mr. Chairman, Representative Bill Thomas, Chairman of 
the Health Subcommittee of the Ways and Means Committee has requested 
the GAO to conduct an independent review of the PATH initiative and the 
House Appropriations Committee included report language requesting the 
OIG to suspend the audits until the GAO completes its study. Given the 
ongoing controversies in this area over the last 30 years, this would 
seem to be an area that needs further review by an objective third 
party such as the GAO. As previously stated, I'm all for supporting the 
OIG in its efforts to combat fraud and abuse in the health care system. 
However, the system must be fair and just. Suspending the audits 
pending the GAO findings simply ensures this result. Thank you, Mr. 
Chairman.

                         CONCLUSION OF HEARING

    Senator Specter. Thank you all very much for being here, 
that concludes our hearing. The subcommittee will stand in 
recess subject to the call of the Chair.
    [Whereupon, at 4:50 p.m., Tuesday, October 21, the hearing 
was concluded, and the subcommittee was recessed, to reconvene 
subject to the call of the Chair.]

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